<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
[X ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
OR
[ ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM __________ TO __________
COMMISSION FILE NUMBER ___________
IDS Intelligent Detection Systems Inc./Systemes de Detection Intelligents Inc.
------------------------------------------------------------------------------
(Exact Name of Registrant as specified in its charter)
Not Applicable
--------------
(Translation of Registrant's name into English)
Province of Ontario, Canada
---------------------------
(Jurisdiction of incorporation or organization)
1 First Canadian Place, 100 King Street West, Suite 7070
--------------------------------------------------------
Toronto, Ontario, Canada M5X 1B1
--------------------------------
(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of each Class: Name of each exchange on which registered:
NONE NONE
- - - -------------------------------- ----------------------------------
Securities registered or to be registered pursuant to Section 12(g) of the Act:
Common Shares, no par value per share
-------------------------------------
Title of Class
<PAGE>
Exhibit Index Appears on Page 55
Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act: NONE
Title of Class
Indicate the number of outstanding shares of each of the issuer's classes of
capital or common stock as of the close of September 30, 1999: 22,095,618 Common
Shares, 572,850 Class B Shares.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [ ] NO [X]
Indicate by check mark which financial statement item the registrant has elected
to follow.
Item 17 [X] Item 18 [ ]
Except as otherwise noted, all dollar amounts are presented in Canadian dollars.
Exchange Rate: As at November 19, 1999, the exchange rate of Canadian dollars
into United States dollars was $1.4650 Canadian to $1.00 United States.
<PAGE>
TABLE OF CONTENTS
Part I
Item 1. Description of Business...........................................1
Introduction......................................................1
Corporate Background..............................................4
Divisions.........................................................6
Item 2. Description of Property..........................................30
Item 3. Legal Proceedings................................................31
Item 4. Control of Registrant............................................32
Item 5. Nature of Trading Market.........................................33
Item 6. Exchange Controls and Other Limitations
Affecting Securities Holders.............................34
Item 7. Taxation.........................................................36
Item 8. Selected Financial Data..........................................37
Selected Financial Information...................................37
Exchange Rates...................................................39
Item 9. Management's Discussion and Analysis of Financial
Condition and Results of Operations..............................39
Results of Operations............................................40
Liquidity and Capital Resources..................................44
Item 10. Directors and Officers of the Company............................47
Item 11. Compensation of Directors and Officers...........................52
Item 12. Options to Purchase Securities from Registrants
or Subsidiaries..........................................53
Item 13. Interest of Management in Certain Transactions...................55
Part II
Item 14. Description of Securities to be Registered.......................55
i
<PAGE>
Part III
Item 15. Defaults Upon Senior Securities..................................56
Item 16. Changes in Securities and Changes in Security
for Registered Securities................................56
Part IV
Item 17. Financial Statements.............................................57
Item 18. Financial Statements.............................................57
Item 19. Financial Statements and Exhibits................................57
(a) Financial Statements....................................57
(b) Exhibits................................................57
ii
<PAGE>
When used in this Form 20-F, the words "may", "will", "expect", "anticipate",
"continue", "estimates", "project", "intend" and similar expressions are
intended to identify Forward-Looking Statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Act of 1934
regarding events, conditions and financial trends that may affect the Company's
future plans of operations, business strategy, operating results and financial
position. Prospective investors are cautioned that any Forward-Looking
Statements are not guarantees of future performance and are subject to risks and
uncertainties and that actual results may differ materially from those included
within the Forward-Looking Statements as a result of various factors.
PART I
Item 1. Description of Business
Introduction
IDS Intelligent Detection Systems Inc./Systemes de Detection
Intelligents Inc. (the "Company" or "IDS") develops, manufactures and markets
advanced technology used in a variety of detection applications, including
security and crime prevention, geophysical surveys, geophysical instrumentation
power generation control and information technology ("IT") professional
consulting services.
IDS's core technology combines two distinct chemical analysis
techniques - gas chromatography and ion mobility spectrometry, or GC/IMS(TM) -
to identify and verify the presence of target chemical molecules. The principal
competitive advantage of the Company's products is the incorporation of a
unique, patented application of gas chromatography/ion mobility spectrometry
("GC/IMS") technology in the design and manufacture of its products. This
technology will allow the Company to produce what it believes to be the most
advanced commercial chemical detection products in the world in terms of the
equipment's ability to selectively target chemicals from a wide range of organic
substances, its high degree of sensitivity with the ability to detect chemicals
in quantities at the parts per trillion level or particles measured in
picograms, and the equipment's high throughput capability of providing new-real
time analysis in approximately six seconds. The Company continues to adapt its
patented core technology for new applications-such as industrial process control
and medical diagnostics, and is pursuing opportunities in a variety of new
markets.
The Company's acquisition of Scintrex Limited ("Scintrex") in 1998
enhanced the Company's capabilities in the high-technology detection field. The
combined Company is now also engaged in the research, design and manufacture of
geophysical instrumentation, nuclear reactor monitoring devices, environmental
and defense-related equipment and other scientific products. The acquisition
also expanded the Company's line of analytical instruments, including portable
detectors of explosives and narcotics. Scintrex also has a global marketing and
distribution
1
<PAGE>
network.
Following the acquisition of Scintrex, IDS subsequently moved to
strengthen performance and clarify accountability by restructuring operations
into seven stand-alone business units or Divisions: Analytical & Security,
Scintrex Earth Science Instrumentation, Survey & Exploration Technology, IDS
Power Control Systems, and IEC (Integration, Engineering and Consulting). The
Company sought to expand applications of core sensory technology to industry
quality control systems and point-of-care health analysis by acquiring ChemiCorp
and establishing Caduceon, Inc. in 1999. Each business unit operates
independently and is guided by its own management and performance goals.
Prior to June 1998, the Company, through its IEC division, acted as a
value-added reseller of computer hardware products and also provided systems
integration, engineering and consulting services, primarily to the Canadian
Federal Government. In June 1998, the Company discontinued the value-added
reselling component of the IEC division due to its small margins and in order to
focus the Company's attention on its core chemical detection business and the
implementation of the Scintrex acquisition.
The Company, through its Analytical and Security Division, develops,
manufactures and markets a wide range of high-speed chemical detection,
measurement and analysis products which are based on proprietary patented
technology. Such products, which include airport scanners, hand-held drug
detectors and vehicle scanners, are targeted currently at two principal markets,
explosives detection and the drug detection equipment market. The Analytical and
Security Division focuses on developing and marketing explosive and drug
detection equipment to government organizations, transportation authorities, law
enforcement agencies and commercial entities primarily for public safety and
security purposes, including transportation security, security of government
facilities, schools and security for commercial properties such as hotels,
shopping centers and office buildings. The Company's customers for explosives
detection equipment have included the United States military, law enforcement
agencies in Italy, military clients in India and international clients of the
Canadian Commercial Corporation. As of September 30, 1999, more than 1,000 of
the Company's hand held portable trace chemical units have been deployed
worldwide.
Drug detection equipment is used by governments, law enforcement
agencies (such as customs organizations, police forces and prisons) and
commercial enterprises to curtail the burgeoning world-wide problem of drug
trafficking and consumption. The Company's customers for drug detection
equipment include Correctional Services Canada and the United States Drug
Enforcement Administration.
The Power Control Systems Division supplies advanced custom-designed
control and safety instrumentation for control subsystems in nuclear reactors
and other power generation plants. Formerly known as Scintrex Nucleonics, the
new name reflects the Division's transition to a wider power generation and
control system market. Scintrex has 26 years experience developing and
manufacturing instrumentation and systems for Canada's CANDU type heavy water
nuclear power reactor systems. The monitoring and control devices are used in
nuclear power plants in
2
<PAGE>
Canada, China, Korea, Argentina and Romania. The division also
manufactures health physics monitors for the nuclear industry, including hand
held tritium, gamma and beta, gamma contamination monitors and radiation
detection badges.
The Survey & Exploration Technology Division has serviced the worldwide
exploration and remote sensing industry for 40 years. The products and services
have historically been sold primarily for use in mineral exploration and
environmental monitoring, with increasing sales to the oil and gas industry. The
Division's products include a range of airborne instrumentation and systems for
use in helicopters and fixed-wing aircraft, as well as hardware and software for
processing, mapping and interpreting this geophysical data. The Division has
performed contract services in more than 40 countries, including airborne
geophysical and remote sensing surveys, ground geophysical and geochemical
surveys, borehole geophysical logging surveys and the installation and support
of integrated airborne systems.
The Division has more recently also diversified into the oil and gas
exploration industry by the development through the development of a number of
products, including 3-D magnetic gradiometry and new Gravity acquisition tools.
This Division recently began offering the PDS- 3M(TM) pipeline detection system
(for which a patent is pending in the United States), an airborne remote sensing
tool used by companies such as Mexico's PEMEX for detecting buried oil and gas
pipelines and for enhancing the safety of seismic crews operating in the field.
Scintrex Earth Science Instrumentation designs and manufactures
geophysical instrument technology which are sold or leased worldwide for mining,
hydrocarbon exploration, groundwater archaeology and other scientific
applications. The market for this equipment is strongly influenced by the state
of the mining and petroleum industries, which have historically been cyclical in
nature. The Division's highly sensitive mineral exploration equipment has
numerous applications, including locating deposits of base metals, precious
metals, iron, uranium, diamonds and groundwater and geothermal resources. The
Division also offers a range of advanced geophysical borehole logging equipment
- - - - which is important investigative equipment for the mineral industry. Scintrex
equipment is used by coal miners, mineral explorers, groundwater consultants,
geotechnical engineers and environmental management authorities worldwide.
The IEC (Integration, Engineering and Consulting) division provides
specialized engineering, systems integration and consulting services to
high-priority security elements within the Canadian government. These services
include Project Management, System Administration (UNIX and Windows NT),
Technical support, Engineering (plan, design, implement, test and install),
Database Administration (Sybase and Oracle), Web development and Operations,
Training, requirement analysis as well as providing and delivering turn-key
solutions. Prior to June 1998, the division also acted as a value-added reseller
of computer hardware products. In June 1998, the Company discontinued the
value-added reselling component of its IEC division due to its small margins and
in order to focus the Company's attention on its core chemical detection
business and the integration of Scintrex. In the fiscal year ended December 31,
1997, revenues from the IEC division were $17.6 million, representing
approximately 73% of the Company's overall revenues. The Company intends to
continue providing systems integration, engineering and consulting services.
3
<PAGE>
The Company believes that its core GC/IMS technology is adaptable to
many chemical detection applications beyond explosives detection and drug
interdiction. These applications include point-of-care health analysis and
industrial process control. Management believes that these new applications will
play a significant role in the long term growth of the Company, particularly in
new private sector markets, for industrial process control and point-of-care
health analysis technology.
In 1999, the Company increased its ownership from 20% to 70% of the
outstanding stock of ChemiCorp. International Inc. ("ChemiCorp"), a
developmental stage company which is pursuing development of high-speed, in-line
measurement instruments to quickly assess the purity of substances and detect
contaminants during the manufacturing process. ChemiCorp is exploring various
applications, including food and beverage production - where consistent chemical
composition is critical for flavor and aroma - as well as searching for
flavor-affecting volatile organic compounds. The Company believes that there is
also significant potential for GC/IMS equipment to monitor toxic or unwanted
compounds in the workplace, thus enabling companies to meet occupational safety
and industrial hygiene requirements.
The Company established IDS Medical Services Inc. in 1998 (the name was
then changed to Caduceon Inc. in April of 1999) to develop an affordable,
easy-to-use, automated mass spectrometer for point-of-care breath analysis
("Caduceon"). The products are in the development stage. Caduceon's anticipated
products for the early detection of disease will involve a patient breathing
into the apparatus and will be less invasive than traditional blood and urine
test. The products will be designed to produce immediate results. The IDS
technology does not need water removal or preparatory preconcentrations to
obtain levels of sensitivity up to parts per trillion. The equipment may allow
quick and accurate analysis in one automated step. The Company believes that
these features are advantageous in intensive care and emergency room settings,
and in physicians' offices.
In November 1999, the Company established GeoCommerce, Inc. to market
products and services of companies worldwide. GeoCommerce, Inc. comprises two
Internet portals to serve the mining and oil and gas exploration industries.
The Company markets its products primarily through a worldwide network
of approximately 70 distributors and representatives with established
relationships with key purchasers in its target markets. The Company's Internet
site is also used as an order-generating tool, particularly for hand held
devices.
Corporate Background
The Company was founded in 1986 under the name "CPAD Holdings Ltd."
From 1986 to 1995, the Company existed primarily as an applied research
organization focused on the development of technology for the detection,
identification and analysis of organic chemicals for use in explosives and land
mine detection applications.
In April 1995, Dr. Mariusz Rybak, Andy Rybak and Alan Greene formed MAA
International
4
<PAGE>
Corporation ("MAA") (later changed to IDS Intelligent Detection Systems Inc.) in
order to acquire a controlling interest in CPAD Holdings Ltd. On May 12, 1995,
the name of CPAD Holdings Ltd. was changed to CPAD Technologies Inc.
On December 16, 1996, MAA purchased all the remaining shares in CPAD.
On February 3, 1997, MAA purchased shares in CPAD from Research Corporation
Technologies, Inc. ("RTC") on the exercise of a call right negotiated in
connection with the April 1995 transaction. See "Certain Transactions." MAA, for
the purposes of accomplishing these share transactions in the most tax effective
manner, incorporated 1202733 Ontario Inc. During the period December 1996
through January 1997, MAA sold some of its CPAD shares to several investors at
prices ranging from $3.63 to $6.26 per share.
On August 27, 1997, articles of amendment were filed for MAA changing
its name to IDS Intelligent Detection Systems Inc. ("old IDS") and subdividing
its existing Class A Common Shares on a 900 for 1 basis.
In preparation for an initial public offering of Common Shares which
was completed in December 1997, old IDS, CPAD Technologies Inc. ("old CPAD") and
1202733 Ontario Inc. amalgamated on September 30, 1997 under the name of IDS
Intelligent Detection Systems Inc.
IDS, through a tender offer consisting of $18,316,000 and 3,914,858
shares of the Company's Common Stock, acquired all of the issued and outstanding
shares of Scintrex in 1998. The acquisition was financed through a public
offering by IDS of 3,355,000 shares of its Common Stock issuable or transferable
upon exercise of special warrants, which yielded net proceeds to the Company of
approximately $18.8 million.
Scintrex was incorporated under the laws of Ontario under the name E.J.
Sharpe Instruments of Canada Ltd. on June 22, 1960. On July 6, 1970, the name
was changed to Scintrex Limited.
Scintrex has three wholly-owned active subsidiaries: Scintrex Pty.
Ltd., incorporated in the State of Western Australia; Scintrex Inc.,
incorporated in the State of New York; and Scintrex Europe S.A.R.L.,
incorporated in France. Scintrex Pty. Ltd. has one wholly-owned active
subsidiary: Scintrex/Auslog Pty. Ltd., incorporated in the State of Queensland,
Australia. Scintrex Pty. Ltd is primarily involved in providing ground
geophysical services to the mining industry in Australia and surrounding
countries. Scintrex/Auslog Pty. Ltd., an Australian manufacturer of borehole
instrumentation for groundwater, environmental and mining applications, was
acquired by Scintrex Pty. Ltd. in the first quarter of fiscal 1998. Scintrex
Inc. and Scintrex Europe S.A.R.L. were incorporated by Scintrex to conduct
business in the United States and Europe, respectively. During 1998, Scintrex
acquired 51% control of the issued and outstanding shares of Megafisica Survey
Aerolevantamentos S.A., incorporated under the laws of Brazil, which provides
airborne geophysical survey services in Brazil.
The Company's principal executive offices are located at One First
Canadian Place, 100 King Street West, Suite 7070, Toronto, Canada M5X 1B1.
Telephone: (416) 214-6726.
5
<PAGE>
<TABLE>
<S> <C>
--------------------------------------
IDS Intelligent Detection Systems Inc.
(Ontario)
--------------------------------------
|
------------------------------------------------------------------------------------------------------------------
| | | | | | | |
- - - --------------- --------------- ---------------- ------------- ---------- ---------------- ------------- -------------
1374422 Ontario Agiss Power IDS Services LLC Geo Commerce IDS Europe Scintrex Limited LTG Lasertech Caduceon Inc.
Inc. International (Delaware) Inc. S.A.R.L. (Ontario) Group Inc. (Canada)
(Ontario) 100% Corporation 100% (Delaware)81% (France) 100% (Ontario) 87%
(British Virgin 100% 15%
Islands) 10%
- - - --------------- --------------- ---------------- ------------- ---------- ---------------- ------------- -------------
| | |
| | ----------------------------------------------------------
- - - --------------- | | | | |
1374423 Ontario --------------- --------------- ----------------------- ------------- ------------------
Inc. Chemicorp Scintrex Europe Megafisica Survey Scintrex Inc. Scintrex Pty. Ltd.
(Ontario) 100% International, S.A.R.L. Aerolevantamentos S.A. (New York) (Australia)
- - - --------------- Inc. (France) (Brazil) 100% 100%
(Delaware) 100% 51%
70%
--------------- --------------- ----------------------- ------------- ------------------
| |
| |
--------------- ----------------- |
Koss Headphones | | ----------------
--------------- ----------- ----------- Auslog Pty. Ltd.
*IDS owns 10 shares 2904144 Areco (Australia)
Canada Inc. Canada Inc. 100%
(Canada) (Canada) ----------------
100% 100%
----------- -----------
|
---------------
Tracc
Technology Inc.
(Canada)
66.6%
---------------
</TABLE>
Divisions
Analytical & Security Division
The Company's Analytical & Security Division combines the research,
development and manufacturing capabilities of IDS and Scintrex to develop
products and solutions to help security and law enforcement agencies detect
explosives, drugs and other controlled substances. The Division pursues two
specific markets: the explosives detection market and the drug interdiction and
possession market.
Trace Detection Market - Explosives
Explosives detection equipment is used primarily for public safety and
security purposes and is generally purchased by government organizations,
transportation authorities, military law enforcement organizations and
commercial entities. The market opportunity is worldwide and believed by the
Company to be in its early growth stage due to increasing concern over public
safety and the limited effectiveness of traditional responses to terrorism. The
demand for explosives detection equipment is driven largely by the number and
sophistication of bomb-related terrorist attacks and the need and political will
of governments to take action to combat such activities.
Primary applications for explosives detection equipment include
security of government facilities such as government offices, embassies and
military bases; security for commercial properties such as hotels, shopping
centers, and office buildings; transportation security, particularly relating to
aviation, and public services security including postal services and public
events (e.g. the Olympics), all of which have been the targets of
explosives-based terrorist attacks.
6
<PAGE>
In 1998, technology requirements were reduced or diluted in the
aviation security sector, diminishing a key competitive advantage of the
Company. Accordingly, the Company shifted the Analytical & Security Division's
focus from the politically unpredictable regulated markets, such as the US
Federal Aviation Administration ("FAA"). In the first and second quarters of
1998, divisional operations were refocused to pursue opportunities in
unregulated markets such as correctional institutions and other public and
government facilities, and private sector entities such as hotels and
corporations. The Company believes that it is choosing markets where it has a
competitive advantage - where security needs are not being met or where rising
security standards are leaving existing systems wanting. Under such conditions,
the Company believes that it can capture increased market share. By the fourth
quarter of 1998, the Company began benefitting from this shift in strategy, with
consolidated sales for the Company more than doubling to $11 million from $5
million in the third quarter of 1998, largely based on sales to these markets.
Government Facilities. The market for explosives detection devices in government
facilities, such as government offices, prisons, military bases, nuclear power
plants and embassies, has evolved largely as a result of recent incidents such
as the 1996 Oklahoma City bombing and the 1998 bombing of, American embassies in
Kenya and Tanzania. In 1999, the Company sold detection equipment to the United
States Department of Defense. Management believes counter-terrorism policies are
also being contemplated by other countries.
Commercial Properties. The Company believes that a market will evolve for
explosives detection equipment in commercial properties such as hotels, shopping
centers and office buildings as a result of targeting of public areas by
terrorist groups as evidenced by the 1996 bombings of the World Trade Center in
New York, the IBM offices in Athens, Greece and the Samsung Electronics Company
and Korea Telecom International offices in Sri Lanka.
Public Services. Public services such as postal and telecommunications services
have become not only a means of delivering explosives in the case of postal
service but also potential targets.
Transportation Security. Transportation security, and specifically aviation
security, is perhaps the most developed and advanced market for explosives
detection devices. The United States and the United Kingdom are generally
regarded as the leaders in developing strategies and implementing solutions for
aviation safety. In 1997, the US Government, through the Gore Commission,
released a report on aviation safety which defined an infrastructure for
explosives detection for all US airports. This resulted in the US Government's
appropriation in October 1996 of US$400 million for the acquisition of new
explosives detection technology and other security enhancements of which
US$144.2 million was specifically designated for the immediate procurement of
explosives detection devices. The FAA's Aviation Security Advisory Committee
(the "ASAC") has further recommended an expenditure of US$1.8 billion between
1997 and 2000 for carry-on and checked luggage and personal screening at larger
US airports and recommended the expenditure of an additional US$3.9 billion
between 2001 and 2005 to complete the US airports security upgrade. There can be
no assurance that the FAA's recommendations will be implemented or that monies
that are appropriated will be spent.
Management believes that the FAA and the European Civil Aviation
Council ("ECAC) will
7
<PAGE>
influence other aviation authorities worldwide in the implementation of security
strategies and technologies. Management also believes that the strategies and
technologies applied in aviation security are very advanced and will influence
the adoption and implementation of trace technology for security in other
transportation facilities, including subways, train stations and trains, and
other non-transportation markets.
Other Markets. In addition to the markets listed above, the threat of explosives
is also present at border crossings, schools, government buildings, military
compounds, embassies, corporate buildings and nuclear facilities.
Trace Detection Market - Drugs
The production, trafficking and use of illegal drugs is worldwide.
Governments, law enforcement agencies and commercial enterprises are attempting
to curtail both trafficking and consumption.
Purchasers of drug detection equipment include law enforcement agencies
throughout the world such as customs organizations, police forces and prisons.
In addition, private companies, particularly airlines, shipping and courier
companies, have also begun purchasing detection equipment to curtail their
unwitting transport of illegal substances. Private employers and school
organizations have also begun using detection devices to investigate possible
drug use by their employees and students, respectively.
Demand for drug detection equipment by government and law enforcement
agencies is driven to a large degree by the budget allocations made available to
such agencies. Worldwide anti-drug efforts are difficult to quantify although
the United States, is expected to spend over US$1.8 billion in 1999 through the
United States Drug Enforcement Administration on drug detection and
interdiction. This does not include spending by local or state police or customs
agencies.
The IDS Solution
The Company has developed a comprehensive suite of products available
for the explosives detection and drug detection markets, including portable,
handheld, walkthrough and vehicle scanning products. The Company's products are
based on patented technology which combines a GC/IMS analytical detection
system, an automated preconcentrator to automatically capture samples for
testing and proprietary analytical computer software to provide fully automated,
unmanned operation and detailed results analysis.
The Company believes that it is the only company in the world to use
fully integrated dual detection analytical capability in the form of gas
chromatography (GC) and ion mobility spectrometry (IMS) analytical processes for
explosives detection and drug detection. This enables the Company's equipment to
achieve what management believes to be the highest sensitivity and selectivity
capabilities of any chemical detection device currently available.
With respect to sensitivity, the Company's equipment is able to detect
targeted chemicals in
8
<PAGE>
quantities as small as parts per trillion, which is critical in explosives
detection applications. The quantity threshold level for the equipment is
adjustable by the operator to varying levels of sensitivity, as it may be
desirable in some applications such as drug detection, to raise the threshold to
avoid the detection of ambient quantities of illegal substances. In terms of
selectivity, the Company's products have the capability to separate, detect,
analyze and positively identify all organic chemicals in both qualitative and
quantitative terms. For example, the equipment can distinguish nitrogen found in
common items, such as cheese, from nitrogen compounds found in explosive
materials.
The fully automated preconcentrator, contained in the Company's
products, simultaneously performs three distinctive functions -- collection,
desorption (transferring the sample to the analytical unit) and cleaning.
Management believes that the Company's automated and continuous sample
collection process results in superior throughput and the fastest operational
system commercially available. A full analysis on any sample can be completed
within six seconds and, in contrast to non-continuous sampling instruments,
successive samples may be introduced without waiting for analysis of prior
samples to be completed.
The Company's proprietary computer software allows the Company's
equipment to be fully integrated with computerized networks and allows for
encryption of data. The software also facilitates the ease of use of the
equipment, as no interpretation of results is required by the operator. The
device is able to automatically exhibit a "pass/fail" message, identify the
substance and its concentration. The proprietary software can be readily
programmed for the detection and analysis of new substances, thereby enabling
the core technology to be adapted to new applications such as clinical diagnosis
and industrial process control.
Analytical & Security Division Strategy
The Division's mission is to become a leader in the trace detection
market. The strategy of the Division is based on the following:
o global presence
o market segmentation
o product optimization
o technology innovation.
The Company seeks to utilize its core technology and knowledge of the
equipment markets for explosives detection and drug detection to focus on
markets where the Company believes that needs are unmet or where rising security
standards leave existing systems wanting.
The Company believes that its greatest opportunities are in markets,
such as corrections, military, customs, government, public security and
commercial entities. The Company seeks markets with lower barriers to entry and
markets which can benefit most from its products. In 1998, the division's
engineering, manufacturing and sales and marketing resources were shifted to
these markets. The acquisition of Scintrex expanded the Company's line of
portable explosives detectors, such as the EVD-3000, which are particularly
suited to a broad range of security
9
<PAGE>
applications.
The Company seeks to coordinate sales and marketing initiatives with
regional partners who have familiarity with local markets and may also
contribute financially to local promotion and service. The Company's worldwide
network of distributors has an established presence in many non-aviation markets
and is working with the Company to address industry-specific requirements. An
example of this joint development is the Company's hand held trace detection
system for the drug detection market which was developed without a nuclear
ionization source in response to market requirements as defined by IC AeroTech
Corporation, one of the Company's distributors.
The Company is pursuing the development of new trace detection
technologies which it believes will further enhance its competitive position
within its selected markets. For example, the Company is developing an
explosives detection system based on laser technology for baggage screening
based on a contract from the FAA and Transport Canada.
Analytical & Security Division Products
The Analytical & Security Division manufactures a product line
consisting of portable and stationary explosives and narcotics detectors.
Selling prices for the Company's equipment vary by product, configuration, and
market. Prices are generally quoted in US dollars and range from a low of
US$20,000 for small and portable hand-held units to a high price, in excess of
$1,000,000, for the largest stand-alone chemical detection system that the
company currently offers on the market at the present time.
Portable Hand-held Devices
IDS is a world leader in the portable, hand held explosives and
narcotics detection systems market. The NDS-2000 is a user-friendly hand-held
narcotics detection system. The instrument is targeted to organizations
requiring a cost-effective system providing clear and reliable results.
Potential users include police and security forces, the military, customs,
correctional institutions, aviation and marine carriers, postal and courier
operators and schools.
The EVD-3000 hand-held explosives detector is a portable explosives
trace detector capable of detecting explosive vapors and particles. The Company
believes that it is the only commercially available product that does not use of
a radioactive source or external carrier gas. The detector is ready for use in
60 seconds and delivers results in 10 seconds. Police, airport, military and
security authorities around the world use the device. The EVD-3000 is one of the
most widely deployed explosives detection products in the world.
Large-scale Systems
The Large Vehicle Bomb Detection System ("LVBDS") is an integrated
system that can be easily modified and customized for new and existing
facilities. The core of the system is the proven and patented GC/IMS chemical
detection system that detects trace quantities of explosives
10
<PAGE>
accurately, quickly and continuously.
The Company has designed a prototype of a walk-through portal bomb
detection system (NOVA Explosives Detection Walk-Through System) based on the
Company's Orion Plus vapor detection system which incorporates several new
technologies. The explosives detection system is complemented with a camera
system that can produce images of a person revealing any objects hidden under
the clothing. A metal detection system can also be integrated into the portal.
All data from the NOVA system could be sent to a Central Command and Control
Center where it may be analyzed and displayed. A provisional patent has been
filed with respect to this technology in the United States.
Stand-alone Devices
The Orion and Orion Plus are fully automated stand-alone systems,
incorporating the Company's core technology to detect explosives including EGDN,
NG, TNT, AN, PETN and RDX. These explosives are sampled in the form of trace
particles deposited on surfaces (for example, persons, baggage and packages) in
as little as parts per trillion quantities. The system was originally developed
to meet FAA requirements and has subsequently been approved by the FAA for
installation at US airports.
Vapor and Super-particulate Screening
In many jurisdictions, detecting a target chemical particulate is not
sufficient grounds to detain an individual or deny access under local
regulations. Particulates indicate recent contact. Vapors, however, indicate
possession, and IDS gas chromatography/ion mobility spectrometry (GC/IMS)
technology is suitable to detect both. The Company manufacturers and markets
equipment for detecting vapors on people and in bags, containers and vehicles.
The Core Technology
A number of products in the Analytical & Securities division, including
the Northstar and Orion product lines, as well as proposed products for
manufacturing process control and health care diagnostics in ChemiCorp and the
Caduceon division utilize the proprietary patented GC/IMS technology to analyze
samples for the presence of targeted chemical compounds in quantities smaller
than a billionth of a gram.
The operation and internal workings of the Orion Plus product, which is
representative of the Company's products incorporating the GC/IMS technology,
can be demonstrated as follows: A sample, in a vapor and/or particle form, is
first introduced to the detection device either automatically or by an operator.
The sample is then suctioned into the proprietary preconcentrator, where it is
heated to the point that the molecules vaporize.
The preconcentrator consists of two separate sub-modules called the
PCAD (Particle Collection and Detection) and VCAD (Vapor Collection and
Detection) optimized for particle collection and vapor collection, respectively.
Each preconcentrator consists of a rotating carousel
11
<PAGE>
holding three tabs equally spaced. The tabs rotate between three positions
continuously -- sampling, desorbing (transferring the sample to the analytical
unit) and cleaning.
Once the sample has been collected on the tab in the sampling position,
that tab is moved into the desorbing position where the trapped particles and
vapors are selectively desorbed into the GC/IMS analytical units. This tab is
then moved to the cleaning position where it is prepared to accept the next
sample. These processes, are conducted in parallel and thereby considerably
speed up the overall sampling rate of the system when working in a continuous
operation mode.
The PCAD and VCAD sub-modules of the preconcentrator each have an
analytical unit, optimized for low and high volatiles respectively. The desorbed
analyte is transferred to the analytical units via transfer tubes kept at
elevated temperatures. The vapor samples are retrapped in a smaller volume in
the analytical units and are then injected in less than a few hundred
milliseconds into a Gas Chromatographic (GC) column connected to an Ion Mobility
Spectrometer (IMS). A two dimensional analysis of the sample then takes place in
the analytical system by separating the components of the injected sample by
retention time in the GC column and by mobility in the IMS. The output of the
analytical system consists of a series of voltage waveforms taken at regular
intervals over a five second period which is the elution time for all the
relevant compounds from the column. This output is digitized by the computer,
analyzed by comparison to a stored database of target chemicals, and the results
are displayed on the output screen of the unit. In the event that one of the
compounds of interest detected is present above a preset threshold value, the
unit produces an alarm signal and provides relevant detailed information on the
display screen.
One important feature of IDS' equipment is its use of PC-based computer
software developed by the Company, which controls the mechanical, pneumatic and
electrical components of the system yielding a completely automated process. The
software also provides the operator with enhanced graphic read-outs of the test
results enabling the user to view the data in more detail. All of the results of
the detection are shown on the touch screen display in a variety of user
selectable formats. Software configurable input menu buttons are also displayed
on the screen for user input by touch.
Analytical & Security Division Market Requirements
Although specific requirements vary between the explosives detection
equipment market and the drug detection equipment market, the Company believes
the following factors are generally considered by customers when evaluating
detection equipment:
Sensitivity. Detection equipment must be capable of detecting very small traces
of organic chemicals. A high degree of sensitivity is particularly critical in
explosives detection applications. With respect to drug detection applications,
device sensitivity should be configurable such that ambient quantities of
illegal substances will not trigger positive detection.
Selectivity. Detection equipment must be capable of detecting and identifying
specific organic materials, notwithstanding the presence of varying background
levels of chemical substances or
12
<PAGE>
the presence of substances with similar chemical characteristics to the targeted
substance but which are innocuous.
Ease of Use. As detection equipment is often operated by employees with little
technical training or in areas subject to high turnover, such as airport and
building security personnel, the equipment must be easy to use with minimal
training and the results of testing must be easy to interpret.
Portability. The ability to easily move the equipment is particularly important
in the drug detection market where law enforcement personnel must actively
search for illegal substances in remote locations, such as cars, schools and
prisons. IDS has a line of portable explosive and drug detectors.
High Throughput. Detection equipment must be capable of processing a significant
volume of people, luggage or packages, while effectively identifying targeted
chemicals (such as explosives or drugs) and maintaining a low false alarm rate.
Throughput is particularly critical for passenger and baggage screening in
airports as well as in postal processing applications.
Automation. Detection equipment is increasingly being integrated into large,
computerized, comprehensive security systems and must, as a result, provide for
automated operation and appropriate systems interfacing.
Cost. As purchasers of detection equipment are most often government or
quasi-government bodies, the cost of acquisition as well as ongoing maintenance,
training and staffing costs play a significant role in the procurement decision.
While achieving a high degree of functionality and performance, the
Company's products retain a mid-market pricing level in terms of acquisition
cost. The Company's products also have low ongoing maintenance costs.
Regulatory Acceptance. The approval or certification of the equipment by a
recognized authority, such as FAA or the Department of Transportation ("DOT"),
is essential for many government security projects, particularly in the area of
explosives detection, and may increasingly become a requirement in commercial
markets. Many of the Company's products were developed with the financial
participation and technical direction of the FAA and Transport Canada.
ICAO Taggants. The ability of the equipment to detect taggants, or signature
markers, which the International Civil Aviation Organization ("ICAO") has
mandated be included in plastic explosives for the purposes of identification
and is expected to be required by the FAA for all detection equipment. To the
Company's knowledge, its Orion Plus product is one of only two products in the
world capable of operationally detecting the taggants mandated by ICAO.
Ionization Source. Most chemical detection equipment relies on nuclear materials
as an ionization source and as a result requires additional regulatory approvals
and licenses thereby increasing the cost of acquisition and restricting
transportability. There is concern, particularly in
13
<PAGE>
the case of a handhold unit, with respect to perceived health impacts of
radioactive material on operators. As a result, the Company believes that a
non-nuclear source will increasingly be a requirement. The Company's drug
detection products are, to management's knowledge, the only products which do
not rely on nuclear materials as an ionization source and as a result, no
additional regulatory approvals or licenses are required and no health hazards
are posed.
Scintrex Earth Science Instrumentation Division
The Earth Science Instrumentation Division designs, develops and
manufactures geophysical instruments, which are sold or leased for ground water
studies, archeology and environmental site characterization, and mining and
hydrocarbon exploration. The market for mineral exploration equipment is
strongly influenced by the state of the mining industry, which has historically
been cyclical in nature. Due largely to its history of mining exploration,
Canada has become a significant manufacturing center for geophysical equipment.
The Earth Science Instrumentation division's primary clients in the mining and
petroleum fields include exploration contractors, resource companies, government
agencies, international agencies and educational institutions throughout the
world.
Scintrex's highly sensitive mineral exploration equipment is used for
numerous applications. These include: locating deposits of base metals, precious
metals, iron, uranium, diamonds and groundwater and geothermal resources and
studies for archaeology and environmental site characterization, including
groundwater contamination and buried hazardous waste. IDS's equipment measures
variations of natural radiation, magnetic fields, electric fields, gravity and
other force fields and rock properties in order to identify areas favorable to
mineral and hydrocarbon resources.
Scintrex Earth Science Instrumentation specializes in providing
complete geophysical solutions to clients around the world. Utilizing in-house
products and expertise, as well as by key relationships with several Original
Equipment Manufacturer suppliers ("OEM") suppliers, Scintrex is able to provide
complete packages to our clients. This is an important consideration for
international funding agencies as the preference is to have one company which is
capable of providing all required geophysical instrumentation, support
equipment, software and training to the client.
Products
Scintrex Earth Science Instrumentation has its head office located in
Concord, Ontario, Canada where it has a complete manufacturing facility. As well
all Sales & Marketing, R&D/Engineering and Customer Service is also based out of
and controlled by the head office. As well Scintrex Earth Science
Instrumentation has Sales, Rental and Customer Service capabilities in its
regional offices based in Denton, Texas, U.S.A., Orleans, Frances and Brisbane,
Australia. The Brisbane office also has a small manufacturing facility where our
borehole logging products are currently manufactured.
Scintrex' is a premier supplier and distributor of geophysical
instrumentation worldwide. The
14
<PAGE>
Division's products are designed to operate and perform in a wide variety of
conditions, including mountains, swamps, jungles, deserts and ice fields. IDS
equipment provides information from deep below the earth's surface and from the
bottom of the sea. Equipment can also be fastened to aircraft exteriors and
suspended from helicopters for gathering highly accurate geophysical data.
In 1998, the Division acquired Scintrex/Auslog Pty Ltd., adding a range
of borehole logging instruments to its product portfolio. Its systems are
custom-designed to meet the demands of users conducting borehole geophysical
surveys. Borehole logging equipment is widely used in the mineral equipment
industry.
Scintrex entered into a letter of intent dated October 1, 1999 to
acquire 100% of the capital stock of Micro-g Solutions Inc., a Colorado based
geophysical instrument company. The agreement is based on a share for share
exchange of Scintrex common shares for Micro-g Solutions Inc. shares.
In 1999, the Division launched its advanced SARIS - Scintrex Automated
Resistivity Imaging System. SARIS combines a transmitter and receiver in one
device, and uses intelligent electrodes to provide users with an electrical
image of the subsurface. Applications for SARIS include groundwater exploration,
environmental site investigation, archaeology and mineral exploration.
The CG-3 "AutoGrav" Automated Gravity Meter is the flagship product for
the Earth Science Division. This quartz based gravity sensor has become the
standard sensor used in the measurement of gravity around the world. This
technology has also been modified to meet unique applications such as the
SeaGrav, a version of this sensor which is used to take gravity measurements on
the sea-floor or mounted inside submersible vessels. There is also a version
used in the HeliGrav system, a proprietary helicopter-borne survey technique
used by the Survey and Exploration Technology Division.
The ENVI Geophysical System is a lightweight, portable proton precision
magnetometer/gradiometer with very low frequency electromagnetic capabilities,
enabling the user to survey large areas quickly and accurately. The ENVI
Geological System is considered the standard tool in the first stage of any
mineral exploration project. Its ease of use and simple operator interface
allows it to be a very useful tool for environmental and groundwater
applications.
The CS-2 is a high resolution cesium magnetometer sensor used primarily
by airborne geophysical operators, as well as in ground and marine systems.
The SMARTMAG is a high-resolution ground cesium magnetometer system
incorporating a CS-2 sensor and user interface console. Aside from providing a
high-resolution exploration tool, it is also widely used in the archaeology,
environmental and unexploded ordnance (UXO) markets.
The Earth Science Division also offers a wide range of induced
polarization and resistivity products such as the IPR-12, the TSQ line of
transmitters, and a suite of ancillary products principally used in exploration
for precious and base metal mineral deposits. A new high power IP
15
<PAGE>
transmitter, the VERSA is schedule for release in 2000.
Radiometric instruments used for exploring mineral resources and for
measuring environmental and health concerns include the GRS-500 and the
vehicle-borne CARS-2000, a portable radiometric mapping system.
Survey & Exploration Technology Division
IDS's Survey & Exploration Technology division provides a wide range of
airborne, ground and borehole contract geophysical services to the exploration
and remote sensing communities. The union of airborne services with ground
survey operations and borehole logging services expanded the division's scope to
provide broader technological and geographical market coverage. The focus is on
contract geophysical surveying and mapping services, and on providing integrated
airborne survey system solutions for sale or lease. The Survey & Exploration
Technology Division has established its operating bases in Australia, Southeast
Asia and North and South America.
Integrated Systems and Surveys
Services include the sale and support of integrated airborne systems,
surveys incorporating the Division's proprietary technology - such as the
PDS-3M(TM) pipe-line detection system and the HeliGrav(TM)
helicopter-transported long-line gravity system - and standard ground and
airborne geochemical, geophysical and borehole logging surveys. Market
opportunities for Survey & Exploration Technology's expertise exist in oil and
gas exploration, base mineral and precious metals exploration, environmental
monitoring and contamination quantification, groundwater exploration and
pipeline mapping. The airborne element of Scintrex has performed over 3,500
geo-physical surveys and 300 airborne system installations worldwide over the
past 40 years.
In 1998, IDS's acquisition of Scintrex led to a reorganization of the
Survey & Exploration Technology division. The union of airborne services with
ground survey operations and borehole logging services created a new business
with broader technological and geographical market coverage. The focus is now on
contract geophysical surveying and mapping services, and on providing integrated
airborne survey system solutions for sale or lease. The division has since
established and strengthened its operating bases in Southeast Asia and North and
South America.
In addition to its proprietary technologies, the Survey & Exploration
Technology division offers a range of contract airborne geophysical services
including "Helimag" surveys, multi-sensor helicopter borne surveys (EM,
magnetic, radiometrics and very low frequency electromagnetic ("VLF")) and
fixed-wing magnetometer and/or fixed-wing multi-sensor surveys (magnetics,
radiometrics and VLF). All airborne systems include Differential Global
Positioning System Navigation (including real-time corrections where practical),
color video of flight path recording and PC-based data acquisition systems.
Survey data is processed either in the field at the survey site or at data
processing centers maintained at the division's head office in Concord, Ontario
and at its Perth, Australia base.
16
<PAGE>
The Division provides contract geophysical exploration and consulting
services from its headquarters in Concord, Ontario, as well as through
subsidiary companies. These include Scintrex Pty. Ltd., which operates from a
base in Perth, Australia, and Megafisica Survey Aerolevantamentos S.A., Scintrex
also operates a second fixed-wing aircraft system based in Rio de Janeiro,
Brazil.
On October 1, 1999, Scintrex entered into a letter of intent to acquire
100% of the capital stock of Val d'or Sagax Inc., a Quebec based geophysical
instrument and survey company. The agreement is based on a share for share
exchange of Scintrex common shares for Val d'or Sagax Inc. shares.
The Survey & Exploration Technology division operates a PC-based, data
processing/mapping system which utilizes proprietary technology. The integrated
geophysical processing software carries out flight path recovery, EM and
resistivity data processing, magnetic and gravity data processing and leveling,
gamma-ray spectrometer correction and processing filtering, gridding and
contouring of data, imaging of gridded data and high quality plotting of line
and imaged data to any desired map scale and map layout.
The products and services of the division have historically been sold
primarily for use in mineral exploration and environmental monitoring. The
Division has more recently diversified into the oil and gas exploration industry
by the development of a number of products including 3- D Magnetic gradiometry.
The Surveys Exploration Technology Division developed HeliGrav(TM) helicopter
borne technology for gravity surveys and for surveying inaccessible or
environmentally sensitive areas. This Division has also developed the PDS-3M
System, a three-dimensional magnetic gradient measurement system used in the
detection of oil field pipelines and well heads. The system is being used to
determine the precise locations of unknown pipelines in existing, operational
oil fields and to enhance the safety of seismic crews operating in the field.
In addition to performing surveys, the division also sells Integrated
Airborne Geophysical Survey Systems to government clients around the world. The
Division's products include a range of airborne instrumentation and systems for
use in helicopters and fixed-wing aircraft, as well as hardware and software for
processing, mapping and interpreting airborne geophysical data. Scintrex has
installed airborne systems ranging from magnetometer/spectrometers to fully
configured EM systems with associated data processing facilities. These systems
are based on sensor technologies either owned by the Company or licensed or
acquired from third parties, which are integrated together with data
acquisitions, navigation ancillary instrumentation.
Recent Projects
Some of the Division's recent projects include: an airborne magnetic
survey covering 12,000 square miles for a Bolivian oil company; delivery of a
$2.19 million order for an upgrade of a fully integrated airborne system to the
Indian government that will be used over the next 10 years; a large gravity
survey using HeliGrav(TM) and conventional methods in Australia; geophysical
borehole logging and survey projects throughout Australia and Southeast Asia;
and helping PEMEX, Mexico's state-owned oil company, with large-scale pipeline
identification and mapping projects.
17
<PAGE>
Strategy
The level of oil and mineral prices, which are cyclical in nature,
strongly affect the division's business. Nonetheless, since 1998, the Division
performed services for Amoco, Chevron, Shell Canada and Petro-bras, among other
oil and gas companies.
The Survey & Exploration Technology division is also pursuing and
succeeding in markets beyond mineral and petroleum exploration, including
environmental, pipe-line and groundwater surveys. The Scintrex PDS-3M pipeline
detection system detects buried oil and gas pipelines, well-heads and other
environmental targets. Recent clients include Mexico's state-run oil company
PEMEX and major seismic companies such as Western Geophysical and Schlumberger.
The Division also owns six Scintrex CG-3 AutoGrav gravity meters and
HeliGravs(TM) for use in gravity surveys. Working with partner companies in
locations around the world, the Division is expanding its contact base and
demonstrating systems such as the PDS-3M pipeline detection system, the
3D-GM(TM) three-dimensional magnetic gradient system and HeliGrav(TM) to new
clients in new applications.
IDS Power Control Systems Division
IDS Power Control Systems Division supplies custom-designed control and
safety instrumentation for control sub-systems in nuclear reactors and other
power generation plants. Since 1973, the Company's subsidiary Scintrex has
developed and manufactured control room instrumentation, high-gain DC amplifiers
and safety shutdown systems for Canada's CANDU type heavy water nuclear power
reactor system. Many of the IDS Power Control Systems' products were developed
as adaptations of existing Scintrex technology and include a number of
monitoring and control devices for use in CANDU nuclear power plants located in
Ontario, Quebec, New Brunswick, China, Korea, Argentina and Romania. Such
products comprise reactivity control logic cabinets, shut-off rod logic modules
and logic panels for safety shut-down systems.
Formerly known as Scintrex Nucleonics, the new name reflects the
Division's transition to a wider power generation market. The division has
increased its emphasis on light water reactor subsystems and other
energy-generating applications. The worldwide light water reactor market is
estimated to be about 10 times the size of the heavy water reactor market, and
in order to diversify its customer base, IDS Power Control Systems is currently
bidding on more than five contracts to provide safety systems to a variety of
light water nuclear reactor installations. The Division is also pursuing
additional business from Canatom/NPM for instrumentation for the Qinshan 1 and 2
nuclear power projects in China. At present 10 different proposals have been
submitted, although to date, the Company has not been awarded any light water
nuclear reactor installation contracts.
IDS Power Control Systems also manufactures a line of health physics
monitors for the nuclear industry including portable handheld tritium, gamma and
beta-gamma contamination monitors, as well as radiation dosimeter "badges" which
are used to determine cumulative long-term exposure to small amounts of
radiation. The monitors include large sophisticated systems
18
<PAGE>
for monitoring entire buildings. The units are supplied to reactor sites, lab
facilities and other places where tritium gas poses a hazard.
The division's new Emergency Fuel Control System is a highly
sophisticated combination of mechanical, electronic, process control and
computer components. The division is currently manufacturing this key control
component for the Qinshan power station project in China; however, this system
can eventually be applied to other industrial control applications. IDS Power
Control Systems also received a $2.5 million order in November 1998 for
enhancements to the main control room panels, temperature transmitters and other
elements at Qinshan. For the Qinshan project, IDS Power Control Systems is
responsible for all aspects of system development and integration, including
design, manufacture and quality control. The Company also received an order from
Korea Electric Power Corporation for a $350,000 fuel monitoring system in
February 1999.
The Division's strategy is to increase market share for its traditional
line of equipment for CANDU power stations while bidding on contracts for light
water plants. Another element of new business is the supply of computer networks
for instrumentation and control applications. Emphasis will also be placed on
the integration of process control systems utilizing programmable logic
controllers.
IEC (Integration, Engineering and Consulting)
IEC (Integration, Engineering and Consulting) is the systems
integration business unit of IDS. IEC's primary business is providing systems
and services to the Canadian federal government, especially the Canadian
Department of National Defense (DND). IEC comprises a Division of systems
specialists who are qualified Microsoft Certified Systems Engineers and/or Sun
Microsystems Certified System and Network Administrators. The division
specializes in the analysis, design, installation, integration, administration
and support of complex computer security systems. The division has almost 10
years of continuous corporate experience, offering a full spectrum of services,
including provision of hardware and software products.
Utilizing accepted international security standards and policies, IEC
is able to bring together the security products, technologies and professional
services, such as CMW, C2 and B1 desktop applications and networks, to address
TEMPEST, INFOSEC, COMSEC and Secure Access Control system requirements. In
attaining this level of expertise, IEC has developed strong relationships with
other high-tech companies.
Systems Integrator
IEC has developed innovative security technologies and solutions for
Canadian government departments and security agencies which have significant
domestic and international security requirements. The Division specializes in
Command and Control, Intelligence and Data Fusion. Effective command and control
are critical in times of crisis and require the attention of the trusted and
experienced specialists. IEC has extensive experience with many Command and
Control systems, both with the DND and the United States Department of Defense
(DoD).
19
<PAGE>
Supplier
IEC provides high quality products and solutions such as secure Message
Handling Systems, Geographic Information Systems, Mathematical Modeling and
Analytical Tools, Computer Aided Design, Imagery Exploitation and Document
Scanning and Optical Character Recognition. IEC's products and services are
purchased primarily by Canadian government security organizations, such as DND,
the Royal Canadian Mounted Police (RCMP), the Canadian Security Intelligence
Service (CSIS), the Communications Security Establishment (CSE), Health and
Welfare Canada and the Department of Foreign Affairs and International Trade.
Security
Secure supplier status is a rigorous requirement for any organization
providing information technology products and services to government departments
such as DND, CSIS, CSE and the RCMP. IDS has TOP SECRET and NATO SECRET facility
security clearances, and IEC employees hold TOP SECRET security clearances,
involving considerable site security and in-depth personal background checks.
IEC believes that the security clearances provide a significant competitive
advantage.
Synergies
IEC's experience in developing security systems solutions enables it to
form synergies with IDS's six other business units. The Division's engineering
and integration strengths played a role in the early stage of the development of
the Large Vehicle Bomb Detection System for the Analytical & Security division.
ChemiCorp and Caduceon Division
The Company acquired ChemiCorp and established the Caduceon Division to
adapt its core technology to the industrial process controls and point-of-use
health care, respectively. The Company intends to develop products independently
or to partner with an existing established organization in the application area
to jointly pursue market research and development. Once product feasibility and
marketability have been proven, the Company intends to either manufacture and
sell products based on such new technology or to license its technology and
design to the strategic partner for manufacturing and marketing purposes.
ChemiCorp
IDS acquired ChemiCorp to enter the industrial process control and
environmental monitoring markets. The subsidiary is performing research and
development on various applications for the GC/IMS technology in industrial
manufacturing settings and for environmental use. Manufacturers regularly
require quantitative and qualitative monitoring of the chemical composition of
their processes to ensure product integrity, purity and quality. In the first
half of 1999 IDS increased its ownership of ChemiCorp, a development stage
company, to 70% of ChemiCorp's outstanding capital stock for $314,000 in
equipment and a license for
20
<PAGE>
patented trace chemical detection technology.
ChemiCorp is pursuing development of high-speed in-line process
control, product inspection and management systems. The Company's robotic
analysis capabilities automate the process, limiting the need for chemists and
their equipment. Industries that could employ such chemical detectors span the
range of manufacturing sectors from auto makers to food and beverage companies,
pulp and paper makers, pharmaceutical companies, petrochemical companies and
chemical companies.
The Company has commenced the development of a high-speed gas
chromatograph system that can analyze chemical samples at speeds 100-300 times
faster than conventional gas chromatographs. Such instruments are to be used in
analytical testing in commercial and industrial quality laboratories,
particularly the chemical, pharmaceutical, and food sectors.
One potential area of application is in food and beverage production,
where consistent chemical composition relating to the flavor and aroma of a
product is critical. The GC/IMS technology can be used to detect
flavor-affecting volatile organic compounds such as esters.
The Company believes that its core GC/IMC technology can be used to
develop equipment to monitor toxic and other unwanted compounds in the
workplace. Such equipment may minimize employee risk of exposure to dangerous
compounds, particularly where existing devices are not adequately sensitive.
Caduceon Division
IDS formed Caduceon to adapt its core GC/IMS sensory technology as a
non-invasive diagnostic screening platform for use in point-of-care clinical
diagnostic settings. The Company owns 87% of the outstanding stock of Caduceon.
Dr. Mariusz Rybak, Chief Executive Officer, and his wife own 5% and 3% of the
Caduceon stock, respectively. Mr. Sanje Ratnavale is also a 5% shareholder of
Caduceon. Accessing blood-stream properties through breath analysis can provide
significant information about metabolic processes in the body. More than 400
volatile organic compounds related to disease states have been identified in
human breath. However, the development of breath analysis technology for
detecting low levels of these compounds has been complicated by technological
barriers at the start of the process. Water must often be removed from the
sample because it can create physical and chemical interference. IDS technology
has no need for water removal. IDS believes that the sensitivity of the
equipment permits analysis from a normal breath sample.
IDS is performing research and development on an easy-to-use mass
spectrometer to perform point-of-care breath analysis in one automated step. A
breath analyzer could have many possible uses. In point-of-care settings, such
as emergency rooms and intensive care units, breath analyzers could help
physicians gather in seconds, without the need for invasive arterial blood
analysis, near-real-time information about patients' metabolic states.
Physicians could monitor, for example, patients' levels of ammonia, lactic acid,
nitric oxide and ketone bodies such as acetone and other blood gases.
21
<PAGE>
Breath analysis for evidence of possible cell-damaging oxidative stress
represents a broader medical application, and there is already an emerging
demand for this kind of analysis in the fitness and alternative health markets.
Also, by monitoring chemical concentrations in the breath of employees,
companies could ensure that they meet necessary occupational safety and
industrial hygiene requirements.
GeoCommerce, Inc.
On November 16, 1999, a new e-commerce business initiative named
GeoCommerce, Inc. commenced operations. GeoCommerce, Inc. is an 81% owned
subsidiary of the Company. The balance of the shares are owned by management of
GeoCommerce, Inc. GeoCommerce is an on-line, e-commerce initiative designed to
serve the international exploration and mining industry. GeoCommerce was
developed using Sun-Netscape Alliance iPlant e-commerce software.
Initially, GeoCommerce will consist of two Internet portals called
GeophysicsOnline.com for the mining and oil and gas exploration industries, and
a second portal called MineOnline.com for the mining production equipment
sector. Both GeophysicsOnline.com and MineOnline.com will give mining,
geophysics, and exploration professionals access to the services and products of
companies worldwide. The portals will also feature full service, e-commerce
capabilities, specifically designed to meet the business-to-business needs of
the industry.
GeoCommerce will act as a broker on these portals, bringing buyers and
sellers together, providing key information about products, services, data sets
and land options available, and finalizing transactions with full billing credit
and bank capabilities. GeoCommerce is working with Scotiabank and its
subsidiary, e-Scotia.com to provide a complete range of electronic options and
security services.
Sales and Marketing
The Company pursues a global marketing strategy based on the regional
forecast of its sales and service centers (with offices in the United States and
Europe), as well as an exclusive network of local distributors and
representatives.
An international sales management responsible for achieving specific
performance targets manages each of the five major regions (United States,
Europe, Middle East/Africa, Latin America and Asia/Pacific). The Company sells
its products through both a direct sales organization consisting of four
individuals and through approximately 70 distributors and strategic partners
throughout the world. In Canada, the United States and Europe, the Company uses
its direct sales force and a network of manufacturer's representatives.
Referral selling is important to the Company. Local distributors are
selected carefully and the Company believes that they are well trained and
motivated. Many of the distributors are also certified service providers working
closely with the Company's customer service department. While the material costs
are shared with local partners, the Company advertises it's products in
international industry magazines, on the Internet and through participation in
major trade shows,
22
<PAGE>
conferences, sales promotions, product demonstrations and world events. Frequent
customer visits enable the Company to address customers' needs and follow market
trends. Sales promotion is carried out through visiting clients to show new
instruments, participating in technical conferences and exhibitions and
advertising in trade publications.
The Analytical and Security Division's direct sales and marketing
efforts are focused on security markets such as government facilities,
commercial properties and public service as they are believed to represent the
most immediate sales opportunities. The Division's marketing and distribution
network is comprised of over 25 distributors and strategic partners.
The Company's sales and marketing efforts typically involve extensive
customer visits, demonstrations and field testing. Sales prospects are generally
targeted by the Company or its sales partners, although the Company also
responds to requests for proposals. Once a sale has been completed, the Company
provides on-site training, including proper sampling and maintenance techniques.
The Company generally provides a one-year parts and labor warranty with the
purchase of its equipment, and offers extended warranties for an additional fee.
The Company has entered into a service relationship with EG&G Astrophysics to
provide service and maintenance in the United States.
In 1999 the Company opened a United States sales office in the
Washington, DC area and established a sales, service and marketing presence in
Europe. The Company also intends to identify strategic partners in South America
and Central Asia.
The Scintrex Earth Science Instrumentation Division's sales and
marketing operation are based in the Concord office, where sales and marketing
activities are coordinated. Regional offices have been established in Denton,
Texas for the United States, Orleans, France for Europe and French Africa and
Brisbane, Australia for Australia and Southeast Asia. Sales and marketing are
handled by six primary regional sales managers, three based in Concord and one
in each of the three regional offices. Scintrex Earth Science Instrumentation
Division has also developed a comprehensive network of approximately 50
distributors/representatives throughout the world.
The IDS Power Control Systems Division's exports of health physics
products are marketed by distributors and commissioned sales agents in the
United States and Europe. The majority of the sales and marketing effort of this
Division are targeted at the international electrical generation market. The
Division has traditionally focused (when it was Scintrex Nucleonics) on the
nuclear generation segment. Following the acquisition of Scintrex by the
Company, the Division expanded its area of sales and marketing efforts into the
fossil and other power generation markets. The Division has also focussed on its
strength as a systems integrator, especially with systems containing networked
industrial PC's and Programmable Logic Controllers (PLCs). The Division's health
physics instrumentation sales include its most recent significant new product,
the tritium-in-breath monitor.
The Survey and Exploration Technology Division sells its products and
services directly from three office locations in Concord, Ontario; Rio de
Janeiro, Brazil and Perth, Australia. This base is broadened further through the
use of representation agreements and joint ventures in many
23
<PAGE>
other countries, with specific focus in Mexico, Chile, Bolivia, the United
States, Hong Kong, India and both Eastern and Western Europe. Negotiations are
ongoing to provide sales exposure in Africa and other areas of strong potential
business opportunities.
Manufacturing and Assembly
The Analytical and Security Division manufactures and assembles its
chemical detection equipment at its facility in Nepean, Ontario. The Company
assembles the units from components provided by various suppliers and from parts
manufactured internally. All parts are carefully chemically cleaned prior to
being introduced to the assembly process. Quality assurance is performed as an
ongoing process after each step in the manufacturing cycle, starting with the
initial receipt of raw materials and sub-components and ending with a final
inspection of the completed unit. On completion of the final inspection, a
Quality Assurance Checklist is completed, signifying that the unit has passed
final inspection and is ready for shipment to the customer.
The Company manufactures and assembles its geophysical instrumentation
at its facilities in Concord, Ontario for the Scintrex Earth Science
Instrumentation Division, the Survey and Exploration Division and the IDS Power
Control Systems Division. Included in the main plant is a machine shop and a
model shop which are used principally for the fabrication and machining of
parts. The machine shop and model shop improve the Division's ability to
undertake system developments. The bulk of all manufacturing for these
divisions' products is carried out at the Concord plant, although some of the
manufacturing is contracted to third parties. The Earth Science Instrumentation
Division also acts as a subcontractor to the other divisions of the Company,
building sub-assemblies for these other divisions. The Earth Science
Instrumentation Division also has a manufacturing facility at Scintrex/Auslog in
Brisbane, Australia for the borehole logging products.
The Survey and Exploration Technology Division is predominantly a
service provider and as such has no manufacturing
In terms of quality assurance, Scintrex is a certified ISO-9001 and
CSAZ299.3 company for manufacturing and producing instruments governed by
various quality standards. Scintrex has also obtained certain other
certifications for some key products in order to meet European market
requirements.
The Company purchases the majority of the components used in its
manufacturing process from approximately 75-100 suppliers. The Company believes
that there is an adequate supply and source for the raw materials used in the
products. The Company believes that it has the manufacturing capacity to meet
anticipated demand for its products in the foreseeable future.
Research and Development
The Company has 43 people involved in research and development with
seven people focused on fundamental research and development of the Company's
existing and new core technologies,
24
<PAGE>
and the remaining 36 people pursuing product development. The research and
development budget for the Company has been doubled to $1.5 million in 1999 from
$0.8 million for the year ended December 31, 1998. Developmental research, in
contrast to "pure research", consists of development efforts to either upgrade
existing technology or to bring into commercial production successful prototype
products developed through pure research. Developmental research is performed in
response to marketplace opportunities. The staff includes professional engineers
and scientists trained in various fields such as electronics, mechanical and
chemical engineering, nuclear physics and nuclear chemistry.
Analytical and Security Division is the Company's center for trace
detection technology research, product engineering and manufacturing. Chemicorp.
and Caduceon are involved in specific applications development relevant to their
target markets.
Scintrex Earth Science Instrumentation Division has its engineering and
research and development efforts based in the Concord office for all products,
with the exception of the borehole logging systems, for which research and
development is performed at the Scintrex/Auslog office in Brisbane, Australia.
The research and development efforts are focused around a combination of new
product development and upgrading of key core products. The Division's research
and development is partially funded by an outside source to develop proprietary
technology for this customer. The research and development staff is working on
software, electronic and mechanical projects for many different customers.
Since 1996, the Survey and Exploration Division has made significant
research and development investments into its proprietary 3D-Magnetic Gradient
systems, including the PDS- 3M(TM) system, the 3D-GM(TM) systems and the
HeliGrav(TM) helicopter transported gravity technology. The Survey and
Exploration Division is investing in research and development to enhance the
usage of the data collected by these systems.
The IDS Power Control Systems Division is working on software,
electronic and mechanical projects for many different customers, including an
integrated Resistive Temperature Detector (RTD), a networked computerized plant
display system and a networked radiation monitoring system. The Nucleonic's
branch of Scintrex's research and development staff is developing a
Tritium-In-Breath Monitor which is intended to provide a rapid reading of body
tritium.
Internally and externally-funded research and development expenditures
are set forth in the following table for the Company's fiscal year ended
December 31, 1998. The Company's accounting policy is to expense the majority of
its research and development expenses as incurred.
25
<PAGE>
<TABLE>
<CAPTION>
Analytical & Scintrex Earth Survey & IDS Power IEC - Integration, ChemiCorp Aggregate
Security Science Exploration Control Engineering and International, Company R&D
Instrumentation Technology Systems Consulting Inc. Caduceon Inc. Expense
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gross R&D
Expense $638,000 $154,000 $159,000 $1,000 0 N/A 0 $952,000
Government
and Other
Grants $67,000 $67,000 0 0 0 N/A 0 $134,000
Investment
Tax Credits 0 0 0 0 0 N/A 0 0
Net R&D
Expenses $571,000 $87,000 $159,000 $1,000 0 N/A 0 $818,000
</TABLE>
Customers
The Company's Analytical & Security division customers have been
primarily in the government sector. However, the Company's Analytical & Security
products have also been purchased by non-government organizations. With respect
to its trace detection products, customers have included the Federal Aviation
Administration (FAA), Securair International Limited (Hong Kong), the Royal
Canadian Mounted Police, the Ministry of Defense (U.K.), the Canadian Commercial
Corporation, Lockheed Martin Canada Inc., the Federal Court of Canada, Transport
Canada, the Department of National Defense (Canada), Correctional Services
Canada and California Correctional Services. The FAA has, to date, been the most
significant single purchaser of the Company's trace detection equipment. During
the year ended December 31, 1998, sales to the FAA amounted to $1.85 million, or
8.4% of the Company's total sales. No other customer accounted for more than 5%
of the Company's revenues in 1998.
The Company's primary clients for its Scintrex Earth Science
Instrumentation Division in the mining and petroleum fields include exploration
contractors, resource companies, government agencies, international agencies and
educational institutions throughout the world.
The personnel and corporate entities that constitute the Survey &
Exploration Technology Division have worked for many of the world's major mining
companies, oil and gas companies and governmental agencies. Since January 1,
1998, the Division's clients have included such groups as the Australian
Geological Survey Organization, the Hong Kong Royal Observatory, the United
States Department of Defense, the Indian Geological Survey-Airborne Wing, PEMEX,
Schlumberger, Western Geophysical, Input-Output, Amoco, Chevron, Kennecott,
Ashton Mining and SOQUEM.
IDS Power Control Systems customers include Westinghouse Savannah
River, Battelle Pacific, Korea Electric Power Corporation, Canatom NPM, Inc. and
Atomic Energy of Canada Limited, among others.
IEC's products and services are purchased primarily by Canadian
government security organizations, such as the Department of National Defense,
the Royal Canadian Mounted Police,
26
<PAGE>
the Canadian Security Intelligence Service, the Communications Security
Establishment, Health and Welfare Canada and the Department of Foreign Affairs
and International Trade.
Competition
Analytical & Security Division
The Company believes that its most direct competitors in the Analytical
& Security division of its business are Barringer Technologies Inc.
("Barringer") and Ion Track Instruments ("ITI").
The Company believes its products are unique in that they are based on
a patented dual analytical system, GC/IMS. The Company believes that Barringer's
and its products are based solely on IMS technology. Management believes that
the Company's dual analytical system is a more advanced detection system than
either of Barringer or ITI, providing a higher operational throughput based on a
low false alarm rate and the automation of sample collection and analysis, while
providing simple instrumentation that can be operated by relatively low skilled
personnel. From a technical perspective, management believes that the Company's
technology provides higher discrimination (selectivity), and unlike Barringer or
ITI, the Analytical & Security division's products have the ability to
simultaneously monitor both vapors and particles and detect all of the mandated
ICAO taggants.
The Analytical & Security division also completes indirectly for
government expenditures with equipment manufacturers utilizing other
technologies, such as Invision Technologies, Inc. and Vivid Technologies, Inc.,
which manufacture enhanced x-ray, CATSCAN and other bulk imaging technologies.
Because trace particle detection equipment is used in certain instances to
verify detection results obtained in bulk imaging systems, the division's
products are complementary to these technologies and can be used effectively in
combination.
The Analytical & Security division also competes with the use of
canines to locate the presence of explosives and drugs. Although canines have a
highly developed sense of smell and are able to follow a substance trail, the
Company believes that its products are most effective and cost efficient than
canines, because they can operate 24 hours a day, have greater selectivity and
can identify the composition of the substance detected.
Scintrex Earth Science Instrumentation Division
There are many smaller single technology companies that can be
considered competitors to the various technologies within the Scintrex Earth
Science Instrumentation division. The one major competitor to this division is
OYO Corporation of Japan ("OYO"). OYO has its own instrumentation division and
has been aggressively acquiring other geophysical instrumentation companies over
the past several years, now controlling a large number of companies which are
direct competitors to the Company. These include Geometrics, Inc. (USA), IRIS
Instruments (France) and Robertson Geologging Ltd. (UK). Other significant
competition to the Scintrex Earth Science Instrumentation division include
LaCoste & Romberg LLC (USA), GEM Systems Inc. (Canada), Century Geophysical
Corporation (USA), Mount Sports Instrument Company
27
<PAGE>
(USA) and ABEM Instrument AB (Sweden).
The geophysical instrumentation market is primarily driven by commodity
prices, which are cyclical in nature. As prices go down and exploration for
commodities declines, a corresponding drop may also be seen in the division's
sales. However, during periods of increased commodity prices and the
corresponding increase in exploration, sales may also increase for the
division's products.
The Company believes that the main strength of the Scintrex Earth
Science Instrumentation division is its gravity sensor technology, an area in
which its main competitor, LaCoste & Romberg LLC, held a strong monopoly for
many years before Scintrex entered the market. The Company believes that the
division's quartz sensor technology has significant advantages over the metal
based LaCoste & Romberg LLC sensors, although LaCoste & Romberg LLC has recently
taken more aggressive steps in updating its technology.
Survey & Exploration Technology Division
The Survey & Exploration Technology division markets its services to
two key sectors, namely, mineral exploration and oil and gas exploration. The
Survey & Exploration Technology division offers airborne and ground contract
geophysical surveys to both the mineral exploration and oil and gas exploration
sectors. Demand for the Division's services is dependent, in part, on world
prices for metals, oil, and gas. The division's significant competitors for
fixed-wing surveys are World Geoscience Corporation, High-Sense Geophysics
Limited, Sander Geophysics Limited, Geoterrex-Dighem, CGG-Canada Ltd. and Kevron
Geophysics TTY, Ltd. Prices for fixed-wing geophysical surveys have been
depressed as the market is currently highly competitive. Competition for
ground-based geophysical surveys is less intense. The division's significant
competitors for ground-based geophysical surveys are Edcon Aerosurveys
Explorations Inc., Quantec Consulting Inc., Val d'Or Sagax Inc.,
Poseidon/Geodass PTY Limited and Geoterrex-Dighem, CGG-Canada Ltd.
IDS Power Control Systems Division
The IDS Power Control Systems division competes with a large number of
companies including Nuclear Research Corporation, Gamma Metricks Ltd. and
Blenkhorn & Sawle Ltd., particularly for contracts awarded by Atomic Energy of
Canada Limited and Ontario Hydro.
Management believes that the quality of products and services that it
provides to its customers has made this division well known throughout the
industry. The Company believes that the Power Control Systems division's
competitive advantage lies in the niche market that it occupies with such
products as the main control panel and safety shut down systems for CANDU
nuclear reactors. In addition, the division supplies another niche product
market, in the form of Tritium detection technology. Many of the Power Control
Systems division's competitors offer no such products in this market.
28
<PAGE>
Patents and Proprietary Rights
The Company uses patents as the principal form of intellectual property
protection for its proprietary technology. This is achieved by a combination of
licensing on an exclusive basis the right to exploit certain patents and by
applying for and obtaining patents in its own right. The Company believes that
these patents provide the Company with a significant competitive advantage in
the markets for certain products. The Company also considers technical know-how
and trade secrets to be important to its business.
o Detection of Organic Vapors - With the acquisition of Scintrex, the Company
now holds a patent issued in each of the United States and the United
Kingdom relating to the detection of organic vapors, and has filed a patent
application which is pending for the same technology in Canada. This
technology is employed by the Analytical & Security division of the
Company.
o Surface Ionization Detection - With the acquisition of Scintrex, the
Company now holds a patent issued in the United States for a surface
ionization detector used for detecting trace amounts of organic molecules,
and has filed a patent application which is pending for the same technology
in Canada. This technology is employed by the Analytical & Security
division of the Company.
o Regional Gravity Surveys - With the acquisition of Scintrex, the Company
now holds a patent issued in the United States and has filed two patent
applications which are pending in Canada and Australia relating to regional
gravity surveys. This technology is employed by the Scintrex Earth Science
Instrumentation and Survey & Exploration Technology divisions of the
Company.
o Collection of Explosives and Narcotic Samples - The Company has assumed a
provisional patent application filed by Scintrex which is now pending in
Canada and Australia relating to the collection of explosives and narcotic
samples. This technology is employed by the Analytical & Security division
of the Company.
o Detection & Location of Buried Pipelines - The Company has assumed a
provisional patent application filed by Scintrex which is now pending in
Canada and Australia relating to the detection and location of buried
pipelines. This technology is employed by the Survey & Exploration
Technology division of the Company.
o Ion Mobility Spectroscopy - The Company has obtained one patent relating to
Ion Mobility Spectroscopy in the United States and certain other countries.
The Company's Ion Mobility Spectroscopy technology is employed by the
Analytical & Security and Caduceon divisions of the Company.
o Laser Detection Systems - The Company has filed one patent application
which is pending for a laser detection system. The Company's laser
detection technology is employed by the Analytical & Security divisions of
the Company.
29
<PAGE>
o Other Patents - With the acquisition of Scintrex, the Company now holds two
additional patents issued in Canada, one for an apparatus that
automatically determines the position at which a beam of light impinges on
a target, and one relating to the detection of certain minerals of zinc,
tungsten, fluorine, molybdenum, mercury and other metals, using
photoluminescence. Neither of these patents is used in any current products
distributed by the Company.
The IDS Power Control Systems division has an extensive amount of
intellectual property with respect to its product line in the form of
proprietary designs and know how. In addition, the Company, through Scintrex,
has also entered into a number of license agreements to commercialize technology
developed by government institutions such as Atomic Energy of Canada Limited.
The Company, through Scintrex, holds the following trade-marks in the
United States with respect to its products: "SCINTREX", "AUTOGRAV", "ENVI" and
"HeliGrav". "HeliGrav" is also a trade-mark of Scintrex in Canada and Australia.
Human Resources
As of September 30, 1999, the Company had 248 full-time employees and 7
temporary employees, of whom 70 were engaged exclusively in manufacturing, a
further 36 were involved in product development and manufacturing, 7 were
engaged in applied research, 9 were engaged in integration, engineering and
consulting and 89 were engaged in sales, service and general administration.
None of the Company's employees is represented by any union, and the Company
considers its relationships with its employees to be satisfactory. The Company
currently has a Human Resources Manager to support employee relations.
Approximately 73 people are employed in the Earth Science
Instrumentation Division, 31 are employed in the Survey and Exploration
Technology Division, 60 are employed in the Analytical and Security Division and
36 are employed in the Power Control Division. IDS has a policy of entering into
confidentiality and non-disclosure agreements with its employees and limiting
access to and dissemination of its proprietary technology.
The Company is actively recruiting skilled employees, in particular to
meet expected manpower demands in the manufacturing area.
Item 2. Description of Properties
The Company currently conducts its operations from the following
premises:
30
<PAGE>
<TABLE>
<CAPTION>
Annual Rent,
Location Use of Facility if applicable
- - - -------- --------------- -------------
<S> <C> <C>
One First Canadian Place, Head office and corporate headquarters, sales & marketing. $245,692
100 King Street West,
Suite 7070,
Toronto, Ontario
Canada (2)
222 Snidercroft Road Head office, R&D, manufacturing, sales, marketing & support, data N/A
Concord, Ontario processing, operations and systems engineering for the Company's
Canada (1) Scintrex Earth Science Instrumentation, Survey & Exploration
Technology and IDS Power Control Systems divisions
152 Cleopatra Drive R&D, manufacturing, sales, marketing & support for the $146,880
Nepean, Ontario Company's Analytical & Security division
Canada (2)
40 Camelot Drive Headquarters for the Company's ChemiCorp division $106,800
Nepean, Ontario
Canada (2)
7799 Leesburg Pike Sales, marketing and support services for the Company's Analytical N/A
Suite 900 & Security division
North Falls Church, Virginia
USA (2)
900 Woodrow Lane Sales, marketing and support services for the Company's US$9,600
Suite 100 Scintrex Earth Science Instrumentation division
Denton, Texas
USA (2)
83 Jijaws Street Manufacturing, development, sales and service office for the US$28,603
Summer Part, Brisbane Company's Scintrex Earth Science Instrumentation division
Australia (2)
90 avenue Denis Papin Sales and marketing and support services for the Company's N/A
St. Jean de Braye Analytical & Security and Scintrex Earth Science
France (2) Instrumentation divisions
20 Century Road Regional operations and support, data processing, marketing and $12,000
Malaga sales for the Company's Survey & Exploration Technology division
Australia(2)
</TABLE>
(1) Premises owned by the Company.
(2) Premises leased by the Company.
Item 3. Legal Proceedings
On February 23, 1996, Scintrex commenced an action in the Ontario Court
of Justice (General Division) against Timothy Bodger ("Bodger"), Aero Surveys
Inc. ("Aero"), Geotech Limited ("Geotech") and two other individuals for damages
for breach of fiduciary duty, breach of contract and for inducing breach of
contract in the aggregate amount of $6,000,000 plus interest
31
<PAGE>
and costs. In response to the Company's claim, Geotech has raised a
counter-claim against Scintrex in the amount of $10,000,000 based upon an
alleged misuse of trade secrets, and on alleged breach of contract by two
employees of the Company who were formerly employed by Geotech. Based on the
information Scintrex has provided to its counsel in the action, counsel has
advised Scintrex that the counter-claim is without merit. Scintrex intends to
vigorously prosecute its claim and defend the counter-claim. The action is in
the discovery phase. A trial is scheduled for April 2000.
Item 4. Control of Registrant
The following table sets forth certain information concerning the
beneficial ownership of the Common Shares as at December 1, 1999 of each officer
and director and each person known by the Company who owns beneficially 5% or
more of the Common Shares.
Name and Municipality of Number of Percentage of
Residence of Beneficial Owner Common Shares Common Shares
- - - ----------------------------- ------------- -------------
Mariusz Rybak, Ph.D 2,097,076 (1)(13) 9.49%
Toronto, Ontario
Andy Rybak, M.A. 2,085,826 (2)(13) 9.45%
Ottawa, Ontario
Adrian Beale 10,000 (3) 0.05%
Oakville, Ontario
Michel Brown 10,813 (4) 0.05%
Gatineau, Ontario
Lawrence Haley, Ph.D 191,139 (5) 0.87%
Ottawa, Ontario
Brian Rich Nil 0.00%
Kanata, Ontario
*Terence McConnell 16,410 (6) 0.05%
Aurora, Ontario
*Jay Sarkar 5,000 (7) 0.02%
Thornhill, Ontario
*Phil Hembruff 15,000 (8) 0.06%
Burlington, Ontario
Francois Hubert 8,000 (9) 0.04%
Gatineau, Ontario
Thomas F. de Faye 30,682 (10) 13.09%
London, Ontario
Adrian Van Vroenhoven Nil 0.00%
Toronto, Ontario
Raymond V. Hession 13,000 (11) 0.06%
Ottawa, Ontario
Paul R. Curley 5,000 0.02%
Toronto, Ontario
Alan Green 1,384,054 (12) 6.27%
Darien, Connecticut
32
<PAGE>
Name and Municipality of Number of Percentage of
Residence of Beneficial Owner Common Shares Common Shares
- - - ----------------------------- ------------- -------------
Research Corporation 1,611,077 (12) 7.15%
Technologies Inc. --------- -----
Tucson, Arizona
All executive officers and directors 7,489,077 33.09%
as a group ========= ======
- - - ----------------------
* Scintrex Ltd. Vice-Presidents
(1) Includes 57,500 Common Shares subject to outstanding options currently
exercisable by Dr. Rybak.
(2) Includes 46,250 Common Shares subject to outstanding options currently
exercisable by Mr. Rybak.
(3) Includes 10,000 Common Shares subject to outstanding options currently
exercisable by Mr. Beale.
(4) Includes 10,916 Common Shares subject to outstanding options currently
exercisable by Mr. Brown.
(5) Includes 5,000 Common Shares subject to outstanding options currently
exercisable by Dr. Haley.
(6) Includes 15,000 Common Shares subject to outstanding options currently
exercisable by Mr. McConnell.
(7) Includes 7,500 Common Shares subject to outstanding options currently
exercisable by Mr. Sarkar.
(8) Includes 15,000 Common Shares subject to outstanding options currently
exercisable by Mr. Hembruff.
(9) Includes 8,000 Common Shares subject to outstanding options currently
exercisable by Mr. Hubert.
(10) Includes 8,000 Common Shares subject to outstanding options currently
exercisable by Mr. De Faye.
(11) Includes 8,000 Common Shares subject to outstanding options currently
exercisable by Mr. Hession.
(12) The Toronto Stock Exchange (TSE) Escrow Agreement provides that Escrow
Shares will be automatically released to the Escrowed Shareholders, as to 25% of
the number of Escrowed Shares, on each of the first, second, third and fourth
anniversaries of the date of the Escrowed Shares are listed on the TSE. Shares
were listed on the TSE in December of 1997, and 7,841,684 shares were initially
deposited in escrow.
Item 5. Nature of Trading Market.
The common shares of the Company are listed on The Toronto Stock
Exchange in Ontario, Canada. The Company's shares are not currently trading on
any United States stock exchange or in the over-the-counter market, and,
accordingly, there is currently no public market for the
33
<PAGE>
common stock of the Company in the United States. There can be no assurance that
any such market will develop after the effective date of this Registration
Statement.
The following table sets forth the reported high and low bid prices for
the common shares as quoted over The Toronto Stock Exchange on a quarterly basis
for the most recent two fiscal years and the third quarter of 1999, ending
September 30, 1999.
High Low
---- ---
First Quarter 1998......................... $8.90 $7.25
Second Quarter 1998........................ $8.00 $5.95
Third Quarter 1998......................... $4.70 $1.50
Fourth Quarter 1998........................ $2.40 $1.25
First Quarter 1999......................... $2.20 $1.25
Second Quarter 1999........................ $3.70 $1.30
Third Quarter 1999......................... $4.15 $2.90
As of September 30, 1999 the Company has 22,095,618 shares of Common
Stock issued and outstanding and 4,532 beneficial owners and 561 record owners.
As of September 30, 1999, the Company's share register indicates that 3,369,685
of the issued and outstanding Common Shares were held by 103 record holders with
addresses in the United States. As of September 30, 1999, there were 2 record
holders of the 572,850 outstanding shares of Class B Stock with addresses in the
United States.
The Company paid dividends to its shareholders in the fiscal year ended
December 31, 1997 of $0.1564 per share. The Company's policy at the present time
is to retain earnings for corporate purposes. The payment of dividends in the
future will depend on the earnings and financial conditions of the Company and
such other factors as the Board of Directors of the Company may consider
approximate. Since the Company is currently in an expansion stage, it is
unlikely that earnings will be available for the payment of dividends in the
near future.
Item 6. Exchange Controls and Other Limitations Affecting Security Holders.
There is no law or government decree of regulation in Canada that
restricts the export or import of capital, or that affects the remittance of
dividends, interest or other payments to a non-resident holder of Common Shares,
other than withholding tax requirements. See "Item 7 Taxation."
There is no limitation imposed by Canadian law or by the articles or
other charter documents of the Company on the right of a non-resident to hold or
vote Common Shares of the Company, other than as provided in the Investment
Canada Act, as amended (the "Investment Act").
The Investment Act generally prohibits implementation of a reviewable
investment by an individual, government or agency thereof, corporation,
partnership, trust or joint venture that is a
34
<PAGE>
"Canadian" as defined in the Investment Act (a "non-Canadian"), unless, after
review the minster responsible for the Investment Act is satisfied that the
investment is likely to be of net benefit to Canada. If an investment by a
non-Canadian is not a reviewable investment, it nevertheless requires the filing
of a short notice which may be given at any time up to 30 days after the
implementation of the investment.
An investment in Common Shares of the Company by a non-Canadian that is
a "WTO investor" (an individual or other entity that is a national of, or has
the right of permanent residence in, a member of the World Trade Organization,
current members of which include the European Community, Germany, Japan, Mexico,
the United Kingdom and the United States, or a WTO investor-controlled entity,
as defined in the Investment Act) would be reviewable under the Investment Act
if it were an investment to acquire direct control, through a purchase of assets
or voting interests, of the Company and the value of the assets of the Company
equaled or exceeded $184 million, the threshold established for 1999, as
indicated on the financial statements of the Company for its fiscal year
immediately preceding the implementation of the investment. In subsequent years,
such threshold amount may be increased or decreased in accordance with the
provisions of the Investment Act.
An investment in Common Shares of the Company by a non-Canadian, other
than a WTO investor, would be reviewable under the Investment Act if it were an
investment to acquire direct control of the Company and the value of the assets
were $5.0 million or more, as indicated on the financial statements of the
Company for its fiscal year immediately preceding the implementation of the
investment.
A non-Canadian, whether a WTO investor or otherwise, would acquire
control of the Company for the purposes of the Investment Act if he, she or it
acquired a majority of the Common Shares of the Company or acquired all or
substantially all of the assets used in conjunction with the Company's business.
The acquisition of less than a majority, but one-third or more of the Common
Shares of the Company, would be presumed to be an acquisition of control of the
Company unless it could be established that the Company was not controlled in
fact by the acquirer through the ownership of the Common Shares.
The Investment Act would not apply to certain transactions in relation
to Common Shares of the Company, including:
(a) an acquisition of Common Shares of the Company by any person
if the acquisition were made in the ordinary course of that
person's business as a trader or dealer in securities;
(b) an acquisition of control of the Company in connection with
the realization of security granted for a loan or other
financial assistance and not for any purpose related to the
provisions of the Investment Act; and
(c) an acquisition of control of the Company by reason of an
amalgamation, merger, consolidation or corporate
reorganization following which the ultimate direct or
35
<PAGE>
indirect control in fact of the Company, through the ownership
of voting interests, remains unchanged.
Item 7. Taxation
The following is a summary of the principal Canadian federal income tax
considerations, as of the date hereof, generally applicable to Security holders
who deal at arm's length with the Company, who, for purposes of the Income Tax
Act (Canada) (the "Canadian Tax Act") and any applicable tax treaty or
convention, have not been and will not be resident or deemed to be resident in
Canada at any time while they have held shares of the Company, to whom such
share are capital property, and to whom such shares are not "taxable Canadian
property" (as defined in the Canadian Tax Act). This summary does not apply to a
non-resident insurer.
Generally, shares of the Company will be considered to be capital
property to a holder thereof provided that the holder does not use such shares
in the course of carrying on a business and has not acquired them in one or more
transactions considered to be an adventure in the nature of trade. All security
holders should consult their own tax advisors as to whether, as a matter of
fact, they hold shares of the Company as capital property for the purposes of
the Canadian Tax Act.
This discussion is based on the current provisions of the Canadian Tax
Act and the regulations thereunder, the current provisions of the Canada-United
States Income Tax Convention (the "Tax Treaty") and current published
administrative practices of the Canada Customs and Revenue Agency. This
discussion takes into account specific proposals to amend the Canadian Tax Act
and the regulations thereunder publicly announced by or on behalf of the
Minister of Finance (Canada) prior to the date hereof (the "Proposed
Amendments") and assumes that all such Proposed Amendments will be enacted in
their present form. No assurances can be given that the Proposed Amendments will
be enacted in the form proposed, if at all; however the Canadian federal income
tax considerations generally applicable to security holders described herein
will not be different in a material adverse way if the Proposed Amendments are
not enacted.
Except for the foregoing, this discussion does not take into account or
anticipate any changes in law, whether by legislative, administrative or
judicial decision or action, nor does it take into account provincial,
territorial or foreign income tax legislation or considerations, which may
differ from the Canadian federal income tax considerations described herein.
WHILE INTENDED TO ADDRESS ALL PRINCIPAL CANADIAN FEDERAL INCOME TAX
CONSIDERATIONS, THIS SUMMARY IS OF A GENERAL NATURE ONLY. THEREFORE, SECURITY
HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THEIR PARTICULAR
CIRCUMSTANCES.
Generally, shares of the Company will not be taxable Canadian property
at a particular time provided that such shares are listed on a prescribed stock
exchange (which exchanges currently include the Toronto Stock Exchange), the
holder does not use or hold, and is not deemed to use
36
<PAGE>
or hold, the shares of the Company in connection with carrying on a business in
Canada and the holder, persons with whom such holder does not deal at arm's
length, or the holder and such persons, has not owned (or had under option) 25%
or more of the issued shares of any class or series of the capital stock of the
Company at any time within five years preceding the particular time.
A holder of shares of the Company that are not taxable Canadian
property will not be subject to tax under the Canadian Tax Act on the sale or
other disposition of shares.
Dividends paid or deemed to be paid on the shares of the Company are
subject to non-resident withholding tax under the Canadian Tax Act at the rate
of 25%, although such rate may be reduced under the provisions of an applicable
income tax treaty or convention. For example, under the Tax Treaty, the rate is
reduced to 5% in respect of dividends paid to a company that is the beneficial
owner thereof, that is resident in the United States for purposes of the Tax
Treaty and that owns at least 10% of the voting stock of the Company. In all
other cases, the rate is reduced to 15% in respect of dividends paid to the
beneficial owner thereof, that is resident in the United States for purposes of
the Tax Treaty.
Item 8. Selected Financial Data
Selected Financial Information
Set forth below is the selected consolidated financial information for
the period from April 13 to December 31, 1995, years ended December 31, 1996,
1997, 1998 and the periods ended September 30, 1998 and 1999 which are derived
from the Consolidated Financial Statements of the Company and are prepared in
accordance with accounting principals generally accepted in Canada ("Canadian
GAAP"). These principals as applied to the Company do not differ materially from
those accounting principals and requirements of the Securities and Exchange
Commission in the United States ("US GAAP") except as disclosed in Note 18 to
the Company's Consolidated Financial Statements. All figures are in Canadian
funds. This information should be read in conjunction with the Company's
Consolidated Financial Statements and accompanying notes included in this
Registration Statement.
Selected Consolidated Financial Statements
(in Thousands of Dollars)
<TABLE>
<CAPTION>
Updated
-------
April 13 to Nine months ending
December 31, Year ending December 31, September 30
-------------------------------------- ----------------------------
1995 (1) 1996 1997 1998 1998 (2) 1999
---------- --------- ---------- ------------ ----------- -------------
(As restated) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C>
Income Data
Sales $ 1,050 $ 4,443 $ 6,673 $ 21,984 $ 10,691 $ 36,016
Cost of goods sold 0 2624 4053 13,134 6,003 16,901
---------- --------- ---------- ------------ ----------- -------------
Gross Profit 1,050 1,819 2,620 8,850 4,688 19,115
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
Updated
-------
April 13 to Nine months ending
December 31, Year ending December 31, September 30
-------------------------------------- ----------------------------
1995 (1) 1996 1997 1998 1998 (2) 1999
---------- --------- ---------- ------------ ----------- -------------
(As restated) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C>
Selling, general and
administrative expenses 352 1,813 1,338 8,133 5,087 7,871
Amortization 282 585 596 1,959 1,122 2,319
Interest and finance 136 280 0 0 0 133
Research and development 224 490 490 818 1,106 829
---------- --------- ---------- ------------ ----------- -------------
Income (loss) before other
items and income taxes 56 (1,349) 196 (2,060) (2,627) 7,963
Interest and other
income (expense) 116 170 (1,033) 859 782 275
Restructuring costs 0 0 0 (244) (225) (78)
Dilution of gains 0 2,619 680 0 0 0
Goodwill write-off 0 0 (68) 0 0 0
Minority Interest (48) 280 137 0 (8) (19)
---------- --------- ---------- ------------ ----------- -------------
Net income (loss) before
income taxes 124 1,720 (88) (1,445) (2,078) 8,141
Income tax (recovery) provision 0 300 (120) (65) 25 (177)
---------- --------- ---------- ------------ ----------- -------------
Net income (loss) from
continuing operations 124 1,420 32 (1,380) (2,103) 8,318
Net income (loss) from
discontinued operations 0 0 (116) 100 105 0
---------- --------- ---------- ------------ ----------- -------------
Net earnings (loss) for the
period $ 124 $ 1,420 $ (84) $ (1,280) $ (1,998) $ 8,318
========== ========= ========== ============ =========== =============
Basic earnings (loss) per share $ 0.02 $ 0.17 $ (0.01) $ (0.07) $(0.12) $ 0.37
========== ========= ========== ============ =========== =============
Fully diluted earnings (loss)
per share $ 0.02 $ 0.17 $ (0.01) $ (0.07) $(0.12) $ 0.36
========== ========= ========== ============ =========== =============
Weighted average number of shares
outstanding 8,100 8,910 15,159 22,654 18,155 22,668
Adjusted Weighted average
number of shares outstanding 8,100 8,910 15,159 22,941 18,552 22,995
Balance Sheet Data
(unaudited)
Cash $ 19 $ 961 $13,088 $ 1,154 $ 5,437 $ 723
Net Working Capital (deficit) 418 1,241 16,658 21,311 21,987 28,823
Capital Assets 115 426 459 12,943 12,756 15,062
Total Assets 2,844 6,574 36,081 60,385 58,377 71,464
Short-term bank loan and current
portion of long term debt 132 1,559 1,640 367 0 1,478
Long-term debt, net 510 1,251 0 0 0 0
Retained Earnings (deficit) 0 1,259 497 (783) (1,501) 7,535
Shareholders' equity $ 125 $ 1,261 $17,819 $ 54,130 $ 53,887 $ 62,697
</TABLE>
- - - -----------------
(1) IDS Intelligent Detection Systems Inc. was formed in April 1995 and
acquired control of CPAD Technologies Inc. in May 1995. The financial
information reflects consolidated results of operations from such date
forward.
(2) The Company acquired Scintrex Limited in June 1998.
38
<PAGE>
Exchange Rate
The following table sets forth for the periods and dates indicated,
certain information concerning exchange rates of United States and Canadian
dollars. All the figures shown represent noon buying rates for cable transfers
in New York City, certified for customs purposes by the Federal Reserve Bank of
New York. The source of this data is the Federal Reserve Bulletin and Digest.
Period Period End
- - - ------ ----------
(CDN$/US$)
December 1995 $1.3725
December 1996 $1.3760
December 1997 $1.4305
December 1998 $1.5330
Item 9. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Overview
The Company in its present form is the result of the merging of three
lines of business, the chemical detection business, the geophysical
instrumentation and survey and the IEC business. The Company's chemical
detection division was formed as a result of the April 13, 1995 acquisition of
CPAD Holdings Ltd., a company focused on the development of technology for the
detection, identification and analysis of organic chemicals for use in
explosives and landmine detection applications. The Company's IEC division was
formed as a result of the March 1, 1996 acquisition of AGISS Power Technologies
Corporation, a business involved in secure systems integration, consulting and
value-added reselling of computer equipment. As the Company began operation in
its current form as a result of the acquisition of the chemical detection
business on April 13, 1995, only financial information subsequent to this date
is presented.
The following discussion and analysis provides a review of the
activities, results of operations and financial condition of IDS Intelligent
Detection Systems Inc. (the "Company" or "IDS") for the fiscal year ended
December 31, 1998 ("1998") in comparison with those for the fiscal year ended
December 31, 1997 ("1997"), as well as fiscal year ended December 31, 1997 in
comparison with those for the year ended December 31, 1996 ("1996"). This
discussion should be read in conjunction with the Company's 1996, 1997 and 1998
Consolidated Financial Statements. All amounts are in Canadian dollars unless
otherwise stated.
In the second quarter of 1998, IDS discontinued the low-margin
value-added reselling activities of its IEC division. The IEC division continues
to provide secure systems integration and consulting services, principally to
the Canadian federal government.
39
<PAGE>
Results of Operations
Nine Month Period Ended September 30, 1999 Compared to the Nine Month Period
Ended September 30, 1998
In the third quarter ended September 30, 1999, the company announced
quarterly revenues of $10.2 million compared to $5.2 million for the third
quarter ended September 30, 1998, an increase of 96 percent. Revenues for the
nine months ended September 30, 1999 increased to $36.0 million compared to
$10.7 million for the nine months ended September 30, 1998. Revenue increased as
a result of growing sales in the worldwide markets for the Company's analytical
and security products, an increasing production ramp-up on the nuclear contracts
in Qinshan, China as well as several large new contracts awarded to the Surveys
Exploration Technology and Earth Science Instrumentation Divisions. Revenue in
the first and second quarters was higher, due primarily to $7.4 million of
revenue related to the Large Vehicle Bomb Detection System (LVBDS) installation.
In the third quarter approximately $400 thousand of the LVBDS order was recorded
and the remaining balance of the order's revenue approximately $350 thousand is
expected to be recognized in the fourth quarter of 1999.
Gross profit for the nine months ended September 30, 1999 was $19.1
million, compared with $4.7 million for the nine months ended September 30,
1998, representing an increase of 308%. Gross margins as a percentage of revenue
rose to 53% for the nine months of 1999, compared to 44% for the same period in
1998. The gross margin increased as compared to the previous nine months ended
September 30, 1998, primarily with the recognition of the LVBDS contract and
further sales of the portable hand-held analytical and security products, which
carry above average margins for the Company as a whole. Higher commissions
associated with the larger volume contracts and margin pressure on the
geophysical survey business affected the gross margin directly.
Selling, general and administrative (SG&A) expenses for the nine months
ended September 30, 1999 were $7.9 million compared to $5.1 million for the nine
months ended September 30, 1998 on a pre-acquisition basis. This increase is
related to additional expenses assumed with the acquisition of Scintrex Limited
and the development of IDS's security products distribution network. SG&A as a
percentage of sales decreased to 22% for the first nine months of 1999 compared
to 48% of sales for the first nine months of 1998. The first half of the year is
generally characterized by greater up-front sales and marketing expenses
associated with tradeshows and conferences leading to greater demand usually in
the second half of the year. SG&A expenses for the three months ended September
30, 1999 decreased 15 percent compared to the three months ended September 30,
1998. The Company will see further realized savings in SG&A costs as results of
cost reductions that were put into effect during the second quarter of 1999.
Research and development expenses for the nine months ended September
30, 1999 were $0.8 million, compared to $1.1 million for the nine months ended
September 30, 1998. The lower year to date research and development expenses for
1999 are attributed to the increased expenses incurred on new security and
geophysical products, during the post acquisition of Scintrex time period in the
third quarter of 1998. However, in both cases with the increased research and
40
<PAGE>
development expenses, these expenses were offset by significant R&D contract
revenue from external sources like the FAA, Transport Canada and western
Canadian based oil service companies.
Amortization increased from $1.1 million for the nine months ended
September 30, 1998 to $2.3 million for the same period ended September 30, 1999.
The Company continues to incur high depreciation and amortization expenses
associated with the goodwill and asset revaluation on the acquisition of
Scintrex, representing more than $1.0 million alone in the first three quarters
of 1999. IDS carries $18.0 million of goodwill on its balance sheet, principally
from the acquisition of Scintrex.
Net Income Before Other Items and Income Taxes
The net income before other items and income taxes for the nine months
ended September 30, 1999 increased to $8.1 million compared to a net loss of
$2.1 million for the nine months ended September 30, 1998. The dramatic increase
in earnings of the Company is the result of higher gross margins, and a wide and
growing acceptance of IDS' advanced sensory technology products from a diverse
array of markets from around the world.
During the first nine months of 1999, the Company received interest
income of $275 thousand compared to $782 thousand for the nine months ended
September 30, 1998. This was principally due to the cash proceeds of the
Company's initial public offering and the Special Warrant issue in June of 1998.
The Company incurred a provision of $78 thousand in restructuring costs
during the nine months ended September 30, 1999. These costs were associated
with the reduction of the labor force within the Company. Cost reductions
throughout the organization amounting to $2 million in annual savings in 1999
alone and representing approximately 18 percent of the Company's worldwide
payroll costs.
Income tax recovery for the nine months ended September 30, 1999 was
$177 thousand. The tax recovery during the period ended September 30, 1999,
results from the carry back of a non-capital loss to a prior period.
Net income for the nine months ended September 30, 1999 was $8.3
million compared to a net loss of $2.0 million for the nine months ended
September 30, 1998.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
In 1998, revenues increased to $22 million from $6.7 million in 1997.
The results for the year were significantly impacted by the consolidation of
Scintrex effective June 7, 1998, and by the discontinuation of the IEC
value-added reselling business. This discontinued activity, which has been
removed from the presentation of IDS's results for both 1997 and 1998,
contributed $11.4 million in revenues until June 1998, as compared to $17.6
million for the full year in 1997.
41
<PAGE>
Sales for the year ended December 31, 1998 were $22 million compared
with $6.7 million for the year ended December 31, 1997 - representing an
increase of 229%. This increase was due primarily to the contribution in revenue
from Scintrex that began in June. The Analytical & Security business increased
revenue from $6.6 million in 1997 to $7.8 million in 1998. This was made
possible by the deployment of the initial drawdown on the FAA order, the release
of a new portable narcotics detector and the contribution of sales from
Scintrex's EVD-3000 hand-held explosives detector starting in June. The Scintrex
Earth Science Instrumentation business, acquired with Scintrex, contributed $7.1
million in revenue from June, despite difficult conditions in commodity markets.
The Survey & Exploration Technology division, acquired with Scintrex,
contributed $4.1 million, with instrumentation integration representing a
sizeable part of the total. IDS Power Control Systems contributed $2.5 million
in revenue, beginning in June, as it started ramping up work for the Qinshan
reactors in China. The IEC Division achieved sales of $0.6 million in 1998,
principally from consulting activities.
The following table sets out, for the fiscal years ended December
31,1997 and 1998, the percentage of total consolidated revenues received from
third parties by each of the Company's operating divisions accounting for 15% or
more of total consolidated revenues for all divisions.
Sales to Third Party Customers Fiscal Year Ended December 31,
1997 1998
Analytical & Security division 98% 36%
Scintrex Earth Science Instrumentation
division n/a 32%
Survey & Exploration Technology
division n/a 19%
Gross profit for the year ended December 31, 1998 was $8.9 million,
compared with $2.6 million for the year ended December 31, 1997, representing an
increase of 240%. Gross margins as a percentage of revenue rose slightly to 40%
in 1998 compared with 39% in 1997. IDS managed to maintain gross margins at 40%
for the whole year despite the changing business mix brought on by the
acquisition of Scintrex.
Research and development expenses for the year ended December 31, 1998
were $0.8 million compared to $0.5 million for the year ended December 31, 1997,
representing an increase of 67%. The increase resulted primarily from increased
expenses in the Analytical & Security business associated with the development
of portable narcotics detectors, next-generation laser-based detection systems
and breath analyzers.
Selling, general and administrative expenses for the year ended
December 31, 1998 were $8.1 million, compared to $1.3 million for the year ended
December 31, 1997. This increase related to additional expenses assumed with the
acquisition of Scintrex and the development of IDS's security products
distribution network. SG&A as a percentage of sales increased from 20% in
42
<PAGE>
1997 to 37% for full-year 1998, although it fell in the last quarter to 27% of
sales.
Amortization increased from $0.6 million in 1997 to $2.0 million.
Depreciation at IDS actually increased by only $0.1 million to $0.7 million
during the year, with the remainder coming from depreciation at Scintrex of $0.6
million and goodwill amortization of $0.7 million. IDS carries $19 million of
goodwill on its balance sheet, principally from the acquisition of Scintrex.
Loss Before Other Items and Income Taxes
The loss before other items and income taxes for the year ended
December 31, 1998 was $2.1 million, compared to a profit of $0.2 million for the
year ended December 31, 1997. This loss was due principally to the build-up of
infrastructure associated with the expectation of additional orders from the
FAA, and the increased amortization associated with goodwill incurred on the
acquisition of Scintrex.
During the year, the Company received interest income of $0.8 million,
as compared with interest expenses of $1.0 million in 1997. This was principally
due to the cash proceeds of the initial public offering of the Company in
December 1997 and the Special Warrant issue in March 1998.
The Company incurred $0.25 million in restructuring costs related to
the acquisition of Scintrex during 1998. These costs were associated with
management changes and the consolidation of the security activities of the two
companies in Ottawa.
Net loss from continuing operations for the year ended December 31,
1998 was $1.3 million, compared to a net loss of $0.1 million for the year ended
December 31, 1997.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Sales for the year ended December 31, 1997 were $6.7 million compared
to $4.4 million for the year ended December 31, 1996, representing an increase
of 52%. This increase is due primarily to an increase in revenue from the
chemical detection division. Revenues for the chemical detection division
increased from $0.1 million in 1996 to $6.6 million in 1997. The increase in
chemical detection revenues is due to sales of explosive detection equipment to
the FAA and other international clients and narcotics detection equipment to
correctional service agencies in Canada and the United States.
For the fiscal year ended December 31, 1997, the company had a gross
margin of $2.6 million compared to $1.8 million of the year ended December 31,
1996 representing an increase of 44%. The increase was directly a result of
increased revenues in the chemical detection division. The gross margins for the
company were lower at 39% for the year ended December 31, 1997, compared to
gross margins of 41% for the year ended December 31, 1996. Research and
development expenses, net of investment tax credits, for the year ended December
31, 1997 amounted to $0.5 million, virtually no change from the year ended
December 31, 1996. In the year ended December 31, 1996, considerable materials
were consumed in the development of
43
<PAGE>
downsized explosive detection and mine detector prototypes.
Selling, general and administrative expenses for the year ended
December 31, 1997 were $l.3 million compared to $1.8 million for the year ended
December 31, 1996, representing a decrease of 26%. This decrease resulted
primarily from the discontinuation of the IEC resale business division.
Interest expense for the year ended December 31, 1997 was $1 million
compared to $0.17 million for the year ended December 31, 1996 representing an
increase of 488%. Finance charges were incurred during the year ended December
31, 1997 as a result of the restructuring of debts owing to Research Corporation
Technologies, Inc., all of which were satisfied by the share conversion in
conjunction with the amalgamation transaction.
The earnings before other items income taxes for the year ended
December 31, 1997 were $0.2 million compared to a loss of $1.3 million for the
year ended December 31, 1996. The improvement in earnings is due to a decrease
in selling, general and administrative expenses from the discontinued IEC resale
business and the decrease interest expenses resulting from the share conversion
of the promissory note payable to Research Corporation Technologies, Inc.
During the year ended December 31, 1996, the dilution pains arose from
a combination of disposal of shares held in CPAD by "old IDS" to external
parties for cash and issuance of share capital by CPAD Technologies Inc. In
conjunction with the acquisition of AGISS Power Technologies Corporation. During
the year ended December 31, 1997, the dilution gains arose from the disposal of
shares held in CPAD by "old IDS" to external parties for cash.
Income tax recovery for the year ended December 31, 1997 was $0.12
million. The tax recovery during the year ended December 31, 1997 results from
the carry back of the non-capital loss incurred during this period to the fiscal
year 1996.
Net loss for the year ended December 31, 1997 was $0.1 million compared
to net earnings of $1.4 million for the year ended December 31, 1996. The 1996
net earnings are attributable to dilution gains. The 1997 results are
attributable to operations as the dilution gains were offset by finance charges
incurred on conversion of long-term debt to equity.
Liquidity and Capital Resources
On March 12, 1998, the Company completed a Special Warrant issue of
common shares, which raised $18.8 million. In June 1998, IDS completed the
acquisition of Scintrex for a total consideration of $36.2 million, including
$18.3 million in cash. The proceeds of the initial public offering were used to
complete this acquisition.
During fiscal 1997 and 1998, the Company funded its activities through
cash provided by financing activities from a Special Warrant issue. At the nine
months ended September 30, 1998 and 1999, cash provided by operating activities
was a use of $5.7 million and $1.8 million, respectively. At September 30, 1998
and 1999, the Company had working capital of $22.0
44
<PAGE>
million and $28.8 million, respectively.
Cash used in investment activities at September 30, 1998 was $20.1
million, and was primarily related to the acquisition of Scintrex Limited,
common shares, and the purchases of capital assets. At September 30, 1999 the
Company's investing activities consisted primarily of the purchase of equipment
and the renovations of the Scintrex facility in Concord, Ontario and the
purchase of computer hardware and software, thus representing capital
expenditures of $3.6 million.
Cash generated through financing activities for fiscal 1998 resulted
primarily from the sale of Special Warrants of the Company's common shares for
net proceeds of $18.1 million. Cash generated through financing activities at
September 30, 1999 resulted primarily from the utilization of the company's
existing operating banking facility, for a total of $1.1 million. The increase
in the utilization of the banking facility was used for the purchase of direct
materials inventory and the manufacturing of products in the Analytical and
Security and the IDS Power Control Systems Divisions.
As at September 30, 1999, the Company's principal sources of liquidity
consisted of cash in the amount of $723 thousand and a short-term operating
credit facility (the "Facility") of approximately $15 million from the Toronto
Dominion Bank. It has been the Company's experience that its customers pay their
accounts on a timely basis and the Company's bad debt expense has historically
been negligible. As at September 30, 1999, the Company had $1.5 million
outstanding under the Facility. Principal amounts outstanding under the Facility
bear interest at national prime (6.25% at September 30, 1999). Availability
under the Facility is calculated based on 90 percent of qualified Economic
Development Corporation ("EDC") insured accounts receivable and no more than 67
percent for non-EDC insured accounts receivables. The Company has pledged its
inventory, accounts receivable and certain intangible rights to secure
indebtedness under the operating facility. Under the Facility, the Company is
subject to certain covenants regarding its operations and corporate actions,
such as restrictions relating to the borrowing of funds, changes in control,
liquidation and dividends.
The Company measures its backlog of product sales as orders for which
contracts or purchase orders have been signed, but that have not yet been
shipped and for which revenues have not yet been recognized. The Company
typically ships its product within three months of receiving an order. As of
September 30, 1999, Scintrex had in its backlog product orders totaling an
aggregate of $16,100,000: $3,000,000, $3,300,000 and $9,800,000 in each of its
Earth Science Instrumentation Division, Surveys Exploration Technology Division
and Power Control Systems Division, respectively. Products recorded in
Scintrex's backlog for each of its Earth Science Instrumentation Division and
Surveys Exploration Technology Division are scheduled for delivery in 1999, and
in the case of the Power Control Systems Division are scheduled for delivery
from 1999 to 2001.
The Company believes that the existing cash resources and cash flows
from operations will be sufficient to fund the Company's operations for at least
the next twelve months.
45
<PAGE>
Year 2000 Issues
The Company is aware of the issues associated with the programming code
in some existing computer systems as the millennium (Year 2000) approaches. The
Year 2000 problem is pervasive and complex, as virtually every computer
operation will be affected in some way by the rollover of the two-digit year
value to 00. The issue is whether computer systems will properly recognize
date-sensitive information when the year changes to 2000. Systems that do not
properly recognize such information could generate erroneous data or cause a
system to fail. The Company is in the process of taking all necessary steps to
ensure that it is protected against Year 2000 problems in all aspects of its
operations. To date, the Company has taken the following steps with respect to
Year 2000 preparedness:
o The Company has assigned the task of ensuring Year 2000 compliance to a
project manager and has established a budget and strategic approach for
Year 2000 compliance with oversight by senior management and the board of
directors.
o The Company has completed an inventory and assessment with respect to their
operations, IT systems and equipment including the identification of all
external providers of software and/or hardware products.
o The Company has commenced the remediation stage, including renovating
systems, applications and equipment. This includes the purchase of
replacement computing and network hardware that has been certified by the
manufacturer as being Year 2000 compliant. The Company is also currently
installing core business systems (Accounting and MRP) which are Year 2000
compliant. The Company plans to validate the renovation through testing for
the remainder of 1999.
o The Company's products do not perform date arithmetic and are fully
designed for Year 2000 compliancy. A Year 2000 product statement of
compliance will be supplied with each product upon customer's request.
o The Company is in the process of developing contingency plans which
describe the possible actions they could take should a major
hardware/software component fail or not be ready.
o All principal sub-contractors are being reviewed regarding the state of
readiness of their Year 2000 compliancy. Sub-contractor progress will be
closely monitored for Year 2000 compliance.
o All software used by the Company has been procured based on the supplier's
claims to Year 2000 compliancy. The Company also currently includes clauses
in purchasing and capital acquisition documentation that specify supplier
liability with regard to Year 2000 problems.
In 1998, the Company commenced a testing regime that will continue
through 1999. Year 2000 hardware testing procedures will be run against all
existing computing and network hardware to ensure Year 2000 conformity. In
addition, the Company will analyze all existing
46
<PAGE>
binary document and database files to ensure Year 2000 conformance according to
accepted Year 2000 test and conversion procedures.
The Company is utilizing both internal and external resources to
identify, correct or reprogram and test the systems for Year 2000 compliance.
The Company, however, believes that through modifications to existing software
and converting to new software, the Year 2000 problem will not pose significant
operational problems for the Company's computer systems as so modified and
converted. The Company, as part of its hardware upgrades, is in the process of
upgrading software packages that are Year 2000 compliant.
The Company expects that costs associated with addressing any Year 2000
problems will be minimal.
Item 10. Directors and Officers of Company.
Directors and Officers
The following table lists the directors and executive officers of IDS
as of December 5, 1999:
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
Mariusz S. Rybak 46 Director, Chief Executive Officer, President,
Chairman of the Board
Andy A. Rybak 53 Director, Executive Vice President, Vice Chairman
of the Board
Francois Hubert 52 Director, Member of Audit Committee
Thomas F. de Faye 56 Director
Raymond V. Hession 58 Director, Member of Audit Committee
Paul R. Curley 56 Director
Lawrence Haley 52 Director, Vice President, Research and
Development
Adrian van Vroenhoven 42 Chief Financial Officer
Adrian Beale 56 Senior Vice President, Operations
Brian Rich 43 Vice President, Design and Product Engineering
Michel Brown 38 Vice President, IEC Division
</TABLE>
Dr. Mariusz S. Rybak, President and Chief Executive Officer
Prior to acquiring control of CPAD in April 1995, Dr. Rybak was
President of Areco Canada Inc., an environmental consulting company, which he
founded in 1986. Dr. Rybak has previously been a visiting Professor at Brock
University, University of Toronto and a Professor at the
47
<PAGE>
Institute of Hydrobiology and Water Conservation in Olsztyn, Poland. Dr. Rybak
holds a Ph.D. in environmental engineering from the Institute of Hydrobiology
and has published more than 30 articles in international scientific journals.
Andy A. Rybak, Executive Vice-President
Mr. Rybak has served as Executive Vice-President since April 1995.
Prior to joining the Company, Mr. Rybak was the President of Adamas
Environmental Inc., an environmental engineering company which he co-founded
with Dr. Mariusz Rybak in 1986. Mr. Rybak previously held senior marketing
positions in the ship building industry in Eastern Europe and the shipping
industry in Canada. Mr. Rybak holds a Master of Arts in Economics from the
Gdansk University in Poland.
Dr. Lawrence V. Haley, Vice-President, Research and Development
Dr. Haley joined the Company in 1988 and is responsible for the
management and direction of the Company's research and development effort. Prior
to 1988, Dr. Haley was a Senior Research Associate at Carleton University and an
Adjunct Professor. Dr. Haley holds a Ph.D. in Theoretical Chemistry from the
University of Pennsylvania and has published over 40 articles in international
scientific journals.
Francois Hubert, Director
Mr. Hubert has been a Director of the Company since December 1997.
Since February 1999, Mr. Hubert was appointed District Vice President of Hitachi
Data Systems, a computer hardware manufacturer of information technology and
integration systems. Mr. Hubert was a Partner and Director of CGI, another
computer firm, from June 1997 through January 1999. Mr. Hubert is also a
director of ChemiCorp International Inc., a company engaged in industrial
process control, since January 1999. Prior to June 1997, Mr. Hubert was employed
as a Director of Information Technology with the Government of Canada for a
period of 10 years.
Adrian van Vroenhoven, Chief Financial Officer
Mr. van Vroenhoven was appointed Chief Financial Officer of the Company
effective August 20, 1999. From February 1996 to August 1999 Mr. van Vroenhoven
was an independent contractor, where he acted as a CFO/Financial Consultant for
his clients. Mr. van Vroenhoven's clients included Corby Distilleries, Inc.,
YTV, Inc., Liquor License Control Board of Ontario and ManuLife Financial. Mr.
van Vroenhoven has more than 17 years experience in both private and public
sector financial management. From 1993 to February, 1996 Mr. van Vroenhoven was
controller at MacLean Hunter, a paging communications firm. Mr van Vroenhoven
currently holds a CA and a CMA designation.
Adrian Beale, Senior Vice President, Operations
Mr. Beale has been Senior Vice President of Operations for the Company
since August 1999,
48
<PAGE>
when his title was changed from Vice President of Operations. Prior to June
1998, Mr. Beale was Vice President of Operations for Scintrex Limited from 1990
and became Vice President of Operations for the entire company when the Company
acquired Scintrex in 1998.
Brian Rich, Vice President of Design and Product Engineering
Mr. Rich has been with the Company since February 1998. Prior to
joining the Company, Mr. Rich was a co-founder and Vice President of Engineering
and Systems at Senstar-Stellar Corporation, where he was employed for over 17
years. Mr. Rich holds a Bachelor's degree in Electrical Engineering from the
University of Toronto.
Michel Brown, Vice-President, IEC Division
Michel Brown has served as the Vice President of the IEC division of
IDS, since July 1998. Prior to becoming Vice President of the IEC division, Mr.
Brown was the Senior Vice President of Operations for the Company from May 1997
to July 1998. Mr. Brown has also served as Vice President of systems engineering
and a Director of Secure Systems Integration for AGISS Power Technologies corp.,
a value added reseller of computer hardware, software and systems engineering
services, from May 1994 to May 1997. Prior to joining AGISS, Mr. Brown served a
number of years in the Canadian Armed Forces.
Board Committees
The Board currently has two committees: the Audit Committee and the
Compensation Committee. From time to time, ad hoc committees of the Board are
appointed to consider particular issues or conduct specific reviews.
Audit Committee
During the financial year ended December 31, 1998, the Audit Committee
was comprised of two "unrelated directors" and one "related director". The
committee is responsible for reviewing the Company's financial reporting
procedures, internal controls and the performance of the Company's external
auditors. The committee is also responsible for reviewing quarterly financial
statements and the annual financial statements prior to their approval by the
full Board of Directors. The Audit Committee met six times during the financial
year ended December 31, 1998. Currently, the members of the Audit Committee are
Francois Hubert, Raymond V. Hession and Mariusz S. Rybak.
Compensation Committee
During the financial year ended December 31, 1998, the Compensation
Committee was comprised of two "unrelated directors". The committee makes
recommendations to the Board on, among other things, the compensation of senior
executives. The committee held three meetings during the financial year ended
December 31, 1998. Currently, the members of the Compensation Committee are
Francois Hubert and Raymond V. Hession.
49
<PAGE>
Employment Contracts
The Company has entered into employment agreements dated as of
September 1, 1998 (the "Rybak Employment Agreements") with each of Mariusz S.
Rybak, President and Chief Executive Officer, and Andy A. Rybak, Executive
Vice-President. The Rybak Employment Agreements amend and replace the Rybaks'
employment agreements dated October 15, 1997, the details of which were
described in the Company's management proxy circular distributed to shareholders
in connection with the Company's annual and special meeting of shareholders held
on June 22, 1998. The terms of the Rybak Employment Agreements are identical,
except with respect to salaries and severance entitlement as noted below. The
base annual salaries of Mariusz S. Rybak and Andy A. Rybak are $275,000 and
$170,000, respectively, and are subject to annual review by the Company's
Compensation Committee. In addition, Mariusz S. Rybak and Andy A. Rybak are
entitled to be paid bonuses of up to 75% and 40% of their annual base salaries,
respectively, if certain targets are met based on the Company reaching specified
revenue and earnings per share targets. The term of Mariusz S. Rybak's
employment runs to August 31, 2002 and, thereafter, will be automatically
extended for a three year period until August 31, 2005 and, thereafter, will be
automatically extended for successive one-year periods, subject to the rights of
termination described below. The term of Andy A. Rybak's employment agreement
runs to August 31, 2001 and, thereafter, will be automatically extended for
successive one-year periods, subject to the rights of termination described
below.
Each Rybak Employment Agreement may be terminated by the Company for
cause at any time without notice or further compensation and without cause on
specified notice or a lump sum payment in lieu of notice, such notice being
twenty-four months in the case of Mariusz S. Rybak and twelve months in the case
of Andy A. Rybak. In addition, in the event that Mariusz S. Rybak is terminated
without cause or his employment agreement is not renewed after the initial
four-year term, he is entitled to receive a lump sum payment equal to fifty
percent of the value of 200,000 Shares determined as at the date of his
termination. Each of the Rybak Employment Agreements may be terminated by the
applicable employee on not less than three months' notice.
The Company entered into an employment agreement with Adrian van
Vroenhoven, Chief Financial Officer (the "Vroenhoven Agreement"). The base
annual salary for Mr. van Vroenhoven is $120,000. Pursuant to the terms of the
Vroenhoven Agreement, Mr. van Vroenhoven is a probationary employee until
February, 2000. Mr. van Vroenhoven is entitled to be paid a bonus of up to 20%
of his annual salary if certain specified performance targets are met. The
Company and Mr. van Vroenhoven are currently negotiating a three (3) year
employment agreement. The Vroenhoven Agreement may be terminated by the Company
for cause at any time without notice or further compensation and without cause
on specified notice or a payment in lieu of notice plus applicable statutory
severance.
The Company has also entered into employment agreements (the
"Employment Agreements") with each of Phil Hembruff, Vice-President and General
Manager, Scintrex Earth Sciences Instrumentation Division; Terence J. McConnell,
Vice-President, Survey and Exploration Technology Division; Jay Sarkar,
Vice-President, IDS Power Control Systems Division. The
50
<PAGE>
terms of the Employment Agreements are identical, except with respect to
salaries and severance entitlements as noted below. The base annual salaries of
Mr. Hembruff, Mr. McConnell, Mr. Sarkar and Mr. Brown are $110,000, $110,000,
$90,000 and $100,000, respectively, and are subject to annual review by the
Company's Compensation Committee. In addition, each of Mr. Hembruff, Mr.
McConnell, Mr. Sarkar and Mr. Brown are entitled to be paid bonuses of up to 20%
of their base salaries if certain specified performance targets are met. The
terms of the Employment Agreements for Mr. Hembruff, Mr. McConnell and Mr. Brown
run for a three-year period from September 1998. Mr. Sarkar's Employment
Agreement is subject to annual renewals commencing September 28, 1999.
Each of the Employment Agreements may be terminated by the Company for
cause at any time without notice or further compensation and without cause on
specified notice or a lump sum payment in lieu of notice equal to twelve months
compensation, provided that the employment of each of Mr. Hembruff and Mr.
McConnell may be terminated without cause at the end of the term of their
respective Employment Agreements on six months notice or upon payment of a lump
sum equal to six months compensation. Each of the Employment Agreements may be
terminated by the applicable employee on not less than three months' notice.
Each of the named executive officers has also agreed to assign to the
Company all rights in any inventions, discoveries and designs made or conceived
by the employee relating to the business of the Company. Finally, each named
executive officer's employment agreement contains non-competition and
non-solicitation covenants.
Directors' and Officers' Insurance
The Company currently maintains liability insurance for the directors
and officers of the Company in the amount of $15,000,000 for an annual premium
of $58,930 plus applicable taxes.
51
<PAGE>
Item 11. Compensation of Directors and Officers.
The following table sets forth the compensation paid to the Company's
Chief Executive Officer and the other four most highly compensated executive
officers for the fiscal years ended December 31, 1998, 1997 and 1996.
<TABLE>
<CAPTION>
Long Term
Compensation
Annual Compensation Awards
------------------- ------------
Other
Annual All other
Period Compen- Securities compen-
Name and Principal Ended sation Under Options sation
Position Dec. 31 Salary ($) Bonus ($) ($) Granted (#) ($)
- - - -------- ------- ---------- --------- ------ -------------- ----
<S> <C> <C> <C> <C> <C> <C>
MARIUSZ S. RYBAK 1998 209,050 50,000 -- 220,000 --
Chief Executive Officer 1997 136,125 -- -- 150,000 --
1996 87,750(1) -- -- -- --
ANDY A. RYBAK 1998 156,270 -- -- 90,000 --
Executive Vice-President 1997 105,958 -- -- 125,000 --
1996 72,750(1) -- -- -- --
PHIL HEMBRUFF(2) 1998 93,461(3) 40,663(4) -- 60,000 4,846(5)
Vice-President and
General Manager,
Scintrex Earth Sciences
Instrumentation
TERENCE J. 1998 101,538(6) 6,966 -- 60,000 5,083(7)
McCONNELL(2)
Vice-President, Survey
and Exploration
Technology
JAY SARKAR(2) 1998 66,923(8) 40,663(9) -- 30,000 3,346(10)
Vice-President, IDS
Power Control Systems
</TABLE>
- - - --------------
(1) Covering the period April 1 to December 31 during 1996.
(2) Each of Mr. Hembruff, Mr. McConnell and Mr. Sarkar became an executive
officer of the Company on June 8, 1998 upon the acquisition of approximately 95%
of the issued and outstanding shares of Scintrex Limited ("Scintrex") pursuant
to an offer mailed by the Company to shareholders of Scintrex on April 15, 1998.
52
<PAGE>
(3) Of Mr. Hembruff's total salary for the financial year ended December 31,
1998, $40,961 was paid by Scintrex prior to June 8, 1998.
(4) Of Mr. Hembruff's total bonus for the financial year ended December 31,
1998, $11,559 was paid by Scintrex prior to June 8, 1998.
(5) Consists of $4,846 paid as a defined contribution to an Ontario registered
pension plan, of which $2,048 was paid by Scintrex prior to June 8, 1998.
(6) Of Mr. McConnell's total salary for the financial year ended December 31,
1998, $45,692 was paid by Scintrex prior to June 8, 1998.
(7) Consists of $5,083 paid as a defined contribution to an Ontario registered
pension plan, of which $2,284 was paid by Scintrex prior to June 8, 1998.
(8) Of Mr. Sarkar's total salary for the financial year ended December 31, 1998,
$27,692 was paid by Scintrex prior to June 8, 1998.
(9) Of Mr. Sarkar's total bonus for the financial year ended December 31, 1998,
$30,311 was paid by Scintrex prior to June 8, 1998.
(10) Consists of $3,346 paid as a defined contribution to an Ontario registered
pension plan, of which $1,384 was paid by Scintrex prior to June 8, 1998.
Compensation of Directors
The Company pays a $500 meeting fee to each director and a $7,000
annual retainer to each non-executive director. In addition, the Company grants
5,000 stock options under the terms of the 1997 Option Plan to each
non-executive director each year, which options vest on the first anniversary of
the date of grant.
Item 12. Options to Purchase Securities from Company or Subsidiaries.
On October 22, 1997, the Company adopted the 1997 Stock Option Plan
(the "1997 Option Plan") pursuant to which the Board of Directors or the
Compensation Committee may from time to time grant to the directors,
consultants, officers or eligible employees of the Company and its subsidiaries
options to acquire Shares in such numbers, for such terms and at such exercise
prices as are determined by the Board of Directors or the Compensation
Committee. It is the Company's intention to grant options under the 1997 Option
plan principally to key employees. The purpose of the 1997 Option Plan is to
advance the interests of the Company by providing key employees with a financial
incentive for the continued improvement in the performance of the Company and
encouragement to stay with the Company. Under the 1997 Option Plan, the option
price must be not less than the fair value or the market price of the Shares at
the time the option is granted, and the option term may not exceed ten years.
Options granted under the 1997 Option Plan are non-transferable and terminate on
cessation of employment or directorship with the Company for all causes other
than death, unless otherwise determined by the Board of Directors. It is not
intended that any financial assistance will be provided to optionees to
facilitate the purchase of Shares under the 1997 Option Plan.
The maximum number of Shares which are reserved for issuance under the
1997 Option Plan is 1,500,000 Shares and no individual may hold options to
purchase Shares exceeding 5% of the
53
<PAGE>
then outstanding number of Shares. In addition, the 1997 Option Plan contains
certain other restrictions which limit the number of Shares which may be issued
under the 1997 Option Plan to insiders of the Company.
Generally, options granted under the 1997 Option Plan will expire seven
to ten years from the date of grant or such lesser period of time as the Board
of Directors or the Compensation Committee may approve. Options may be exercised
in whole or in part any time after a date specified by the Board of Directors,
upon prior notice to the Company. The options will generally vest over a three
year period following the date of grant, and be exercisable on a quarterly basis
following the date of the grant of the options.
Stock Options
The following table sets forth each grant of stock options under the
1997 Option Plan during the fiscal year ended December 31, 1998 to the named
executive officers.
Option Grants during the Fiscal Year Ended December 31, 1998
<TABLE>
<CAPTION>
Market Value
% of Total of Securities
Common Options Underlying
Share Granted to Options on
Under Employees Exercise or the Date of
Options in Financial Base Price Grant
Name (#) Year ($/ Security) ($/Security) Expiration Date
- - - ---- --- ---- ------------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Mariusz S. Rybak 120,000 16.7 2.00 2.00 August 31, 2008
100,000 13.9 4.75 4.75 January 21, 2005
Andy A. Rybak 90,000 12.5 2.00 2.00 August 31, 2008
Phil Hembruff 60,000 8.3 2.00 2.00 August 31, 2008
Terence J. McConnell 60,000 8.3 2.00 2.00 August 31, 2008
Jay Sarkar 30,000 4.2 2.00 2.00 August 31, 2008
</TABLE>
The following table sets forth certain information regarding the number and
value of options granted to the Executive Officers of the Company under the 1997
Option Plan. No Executive Officer listed below exercised any of such options
during the fiscal year ended December 31, 1998.
Aggregated Option Exercises during
the Year Ended December 31, 1998 and Fiscal Year-End Values
54
<PAGE>
<TABLE>
<CAPTION>
Value of Unexercised
Securities Unexercised Options in-the-Money Options
Acquired Aggregate at FY-End (#) at FY-End ($)
on Exercise Value Exercisable/ Exercisable/
Name (#) Realized ($) Unexercisable Unexercisable
- - - ---- --- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Mariusz S. Rybak -- -- 47,500/322,500 NA/NA
Andy A. Rybak -- -- 38,750/176,250 NA/NA
Phil Hembruff -- -- 5,000/55,000 NA/NA
Terence J. McConnell -- -- 5,000/55,000 NA/NA
Jay Sarkar -- -- 2,500/27,500 NA/NA
</TABLE>
Item 13. Interest of Management in Certain Transactions.
Except as disclosed below, none of the directors, senior officers,
principal shareholders, or associates or affiliates of such persons or
companies, has or has had, directly or indirectly, any material interest in any
material transaction with the Company within the past three years or in any
proposed transaction which will materially affect the Company.
In July 1998 the Company registered 503,249 shares of Common Stock by
certain officers and principal shareholders of the Company, which shares were
subsequently sold by such selling shareholders. The selling shareholders
included Mariusz Rybak, who sold 113,397 shares; Andy Rybak, who sold 113,397
shares; Alan Greene, who sold 97,199 shares and Research Corporation
Technologies, Inc., which sold 179,256 shares.
PART II
Item 14. Description of Securities to be Registered.
The Company's capital consists of an unlimited number of common shares
without par value and an unlimited number of Class B Shares. As of September 30,
1999, 22,095,618 common shares were issued and outstanding and 572,850 Class B
Shares were issued and outstanding.
Each of the classes of shares of the Company is identical in all
respects except that the Common Shares are entitled to one vote per share at
meetings of shareholders and the Class B Shares are non-voting except where a
vote is provided by applicable law.
Pursuant to an escrow agreement (the "TSE Escrow Agreement") entered
into among CIBC Mellon Trust Company (the "Trustee"), the Company and Dr.
Mariusz Rybak, Andy Rybak, Alan Greene and Research Corporation Technologies,
Inc. (the "Escrowed Shareholders") concurrently with the filing of a final
prospectus in connection with the Company's December 1997 initial public
offering, the Escrowed Shareholders agreed to deposit with the Trustee an
aggregate of 7,841,684 Common Shares (the "Escrowed Shares"). The Escrowed
Shares, after giving effect to the public offering (assuming neither the
Over-Allotment Options issued in connection with the
55
<PAGE>
Company's initial public offering nor Compensation Options issued in connection
with the Company's initial public offering were exercised), represented 53.76%
of the total outstanding Common Shares. The TSE Escrow Agreement provides that
the Escrowed Shares may not be sold, pledged, hypothecated, alienated,
transferred within escrow or in any manner dealt with, without the prior written
consent, order or direction of The Toronto Stock Exchange (the "TSE"). The
Escrowed Shares will be automatically released to the Escrowed Shareholders, as
to 25% of the number of Escrowed Shares, on each of the first (less the number
of Common Shares transferable by the Escrowed Shareholders on the exercise of
the Special Warrants), second, third and fourth anniversaries of the date the
Escrowed Shares are listed on the TSE. In connection with the Special Warrant
offering, the TSE consented to the Escrowed Shareholders selling an aggregate of
503,250 Common Shares in order to satisfy the Company's delivery obligations in
respect of the Common Shares issuable on the exercise of certain Special
Warrants under such offering. Such substituted delivery represented 457,500 of
the 3,507,500 Special Warrants issued by the Company, with the remaining
3,050,000 Special Warrants satisfied by the issuance by the Company of 3,355,000
Common Shares.
In addition to the TSE Escrow Agreement, the Escrowed Shareholders and
certain other executive officers and shareholders of the Company have entered
into contractual escrow agreements with the underwriters of the public offering
in December 1997. Under the contractual escrow agreements with the Escrowed
Shareholders, the Escrowed Shareholders have agreed not to sell or otherwise
dispose of their Common Shares for a period of three years after closing without
the consent of the underwriters of the public offering except that, subject to
the TSE Escrow Agreement and applicable law, up to 20% of such Common Shares
after one year and up to an additional 40% of such Common Shares after two
years.
As of September 30, 1999, 6,181,076 of the Company's shares were held
in escrow, 15,053,415 shares were free-trading and 3,444,756 shares were subject
to varying hold terms pursuant to the policies of The Toronto Stock Exchange.
The transfer agent and registrar for the common shares of the Company
is CIBC Mellon Trust Company, 320 Bay Street, PO Box 1, Toronto, Ontario,
Canada, M5H 4A6.
PART III
Item 15. Defaults Upon Senior Securities.
Not applicable.
Item 16. Changes in Securities and Changes in Security for Registered
Securities.
Not applicable.
56
<PAGE>
PART IV
Item 17. Financial Statements
See Item 19(a). Pages F-1 through F-28 are incorporated by reference.
Item 18. Financial Statements
The Company has elected, pursuant to instruction G(c) to Form 20-F, to
provide financial statements pursuant to Item 17.
Item 19(a) Financial Statements and Exhibits
(a) Index to Consolidated Financial Statements of
IDS Intelligent Detection Systems Inc.
Page
----
No.
- - - ---
IDS Intelligent Detection Systems Inc.
--------------------------------------
Auditors Report....................................................F-1
Balance Sheet......................................................F-2
Statement of Earnings..............................................F-3
Statement of Retained Earnings.....................................F-4
Statement of Cash Flow.............................................F-5
Notes to Consolidated Financial Statements.........................F-6
Scintrex Limited
----------------
Auditor's Report..................................................F-26
Balance Sheet.....................................................F-27
Statement of Retained Earnings....................................F-28
Statement of Earnings.............................................F-29
Statement of Changes in Financial Position........................F-30
Notes to Consolidated Financial Statements........................F-31
IDS Intelligent Detection Systems Inc.
Unaudited Pro Forms Consolidated Income Statement.................F-43
(b) Exhibits
3 (a) Articles of Incorporation for MAA International Corporation dated
May 6, 1995
3 (b) Articles of Amendment dated August 27, 1997 for name change from MAA
International Corporation to IDS Intelligent Detection Systems Inc.
3 (c) Articles of Amalgamation dated September 30, 1997
3 (d) Articles of Amendment dated November 21, 1997
3 (e) By-laws
10 (a) Sublease between IDS Intelligent Detection Systems Inc. and Egon
Zehnder International dated October 28, 1998 for King Street property
10 (b) Lease between IDS Intelligent Detection Systems Inc. and Curb II 1993
Limited
57
<PAGE>
Partnership dated October 1, 1997 for Cleopatra Drive property
10 (c) Employment Agreement between IDS Intelligent Detection Systems Inc. and
Mariusz S. Rybak dated September 1, 1998
10 (d) Employment Agreement between IDS Intelligent Detection Systems Inc. and
Andy A. Rybak dated September 1, 1998
10 (e) Employment Agreement between IDS Intelligent Detection Systems Inc. and
Phil Hembruff dated September 28, 1998
10 (f) Employment Agreement between IDS Intelligent Detection Systems Inc. and
Terence J. McConnell dated September 28, 1998
10 (g) Employment Agreement between IDS Intelligent Detection Systems Inc. and
Jay Sarkar dated September 28, 1998
10 (h) Employment Agreement between IDS Intelligent Detection Systems Inc. and
Adrian van Vroenhoven dated August 19, 1999
10 (i) License Agreement between CPAD Holdings Ltd. and Research Corporation
Technologies, Inc. dated as of September 1, 1988 and amended April 13,
1995
10 (j) Offer to purchase all of the issued and outstanding shares of
Scintrex, dated April 15, 1998, as varied and extended on May 1, 1998,
May 12, 1998 and May 26, 1998
10 (k) Escrow Agreement between IDS Intelligent Detection Systems Inc., CIBC
Mellon Trust Company, Dr. Mariusz Rybak, Andy Rybak, Alan Greene and
Research Corporation Technologies, Inc.
21 List of Subsidiaries
58
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the Registrant certifies that it meets all of the requirements for
filing on Form 20-F and has duly caused this registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized.
IDS INTELLIGENT DETECTION SYSTEMS INC./
SYSTEMES DE DETECTION INTELLIGENTS INC.
By: /s/ Mariusz S. Rybak
-----------------------------------
Mariusz S. Rybak
Chief Executive Officer
Date: December 14, 1999
59
<PAGE>
AUDITORS' REPORT TO THE SHAREHOLDERS
We have audited the consolidated balance sheets of IDS Intelligent Detection
Systems Inc. as at December 31, 1998 and 1997 and the consolidated statements of
earnings, retained earnings (deficit) and cash flows for each of the three years
ended December 31, 1998, 1997 and 1996. 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, 1998
and 1997 and the results of its operations and its cash flows for each of the
three years ended December 31, 1998, 1997 and 1996 in accordance with Canadian
generally accepted accounting principles.
Chartered Accountants
Ottawa, Canada
December 14, 1999
F-1
<PAGE>
IDS INTELLIGENT DETECTION SYSTEMS INC.
Consolidated Balance Sheets
(In thousands of Canadian dollars)
<TABLE>
<CAPTION>
December 31,
September 30, ---------------
1999 1998 1997
---- ---- ----
(unaudited)
<S> <C> <C> <C>
Assets
Current assets:
Cash $ 723 $ 1,154 $ 13,088
Accounts receivable 17,401 10,990 3,354
Unbilled revenue 4,519 1,707 -
Investment tax credit receivable 119 119 435
Income taxes recoverable 128 29 272
Inventory (note 4) 13,294 12,605 511
Prepaid expenses 1,049 725 56
Assets of discontinued operations - 76 17,154
--------- -------- --------
37,233 27,405 34,870
Long-term investments 327 243 -
Capital assets (note 5) 15,062 12,943 459
Deferred development costs 824 979 -
Goodwill 18,018 18,815 752
--------- -------- -------
$ 71,464 $ 60,385 36,081
========= ======== =======
Liabilities and Shareholders' Equity
Current liabilities:
Bank loan (note 6) $ 1,478 $ 367 $ 1,552
Accounts payable and accrued liabilities 6,634 5,472 2,713
Deferred revenue 84 125 276
Income taxes payable 214 130 -
Current portion of long-term debt - - 88
Liabilities of discontinued operations - - 13,583
--------- -------- --------
8,410 6,094 18,212
Deferred lease inducement 31 39 50
Deferred income taxes 81 122 -
Non-controlling interest 245 - -
Shareholders' equity:
Share capital (note 7) 55,027 54,997 17,322
Cumulative translation adjustment 135 (84) -
Retained earnings (deficit) 7,535 (783) 497
--------- -------- --------
62,697 54,130 17,819
Commitments (note 12)
Subsequent events (note 16)
$ 71,464 $ 60,385 $ 36,081
========= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
On behalf of the Board:
_____________________ Director
_____________________ Director
F-2
<PAGE>
IDS INTELLIGENT DETECTION SYSTEMS INC.
Consolidated Statements of Earnings
(In thousands of Canadian dollars, except per share amounts)
<TABLE>
<CAPTION>
Nine months ended Years ended
September 30, December 31,
----------------------- ---------------------------------
1999 1998 1998 1997 1996
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Sales $ 36,016 $ 10,691 $ 21,984 $ 6,673 $ 4,443
Cost of goods sold 16,901 6,003 13,134 4,053 2,624
--------- -------- --------- -------- --------
19,115 4,688 8,850 2,620 1,819
Expenses:
Selling, general and
administrative 7,871 5,087 8,133 1,338 1,813
Amortization 2,319 1,122 1,959 596 585
Interest and finance 133 - - - 280
Research and development 829 1,106 818 490 490
--------- -------- --------- -------- --------
11,152 7,315 10,910 2,424 3,168
7,963 (2,627) (2,060) 196 (1,349)
Interest and other income
(expense) 275 782 859 (1,033) 170
Restructuring costs (78) (225) (244) - -
Dilution gains - - - 680 2,619
Non-controlling interest in income (19) (8) - 137 280
Goodwill write-off - - - (68) -
Earnings (loss) before
income taxes 8,141 (2,078) (1,445) (88) 1,720
Income tax expense (recovery) (177) 25 (65) (120) 300
Earnings (loss) from continuing
operations 8,318 (2,103) (1,380) 32 1,420
Earnings (loss) from discontinued
operations (note 15) - 105 100 (116) -
--------- -------- --------- -------- --------
Net earnings (loss) $ 8,318 $ (1,998) $ (1,280) $ (84) $ 1,420
========= ======== ========= ======== ========
Net earnings (loss)
per share (note 8):
Basic
Continuing operations $ 0.37 $ (0.12) $ (0.07) $ - $ 0.17
Net loss 0.37 (0.11) (0.07) (0.01) 0.17
Fully diluted
Continuing operations 0.36 (0.12) (0.07) - 0.17
Net loss 0.36 (0.11) (0.07) (0.01) 0.17
========= ======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
IDS INTELLIGENT DETECTION SYSTEMS INC.
Consolidated Statements of Retained Earnings (Deficit)
(In thousands of Canadian dollars)
<TABLE>
<CAPTION>
Nine months ended Years ended
September 30, December 31,
----------------------- -------------------------------
1999 1998 1998 1997 1996
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Retained earnings (deficit),
beginning of period $ (783) $ 497 $ 497 $ 1,259 $ 123
Net earnings (loss) 8,318 (1,998) (1,280) (84) 1,420
Dividend on common
shares - - - (962) -
Refundable dividend taxes - - - 284 (284)
------- -------- -------- -------- -------
Retained earnings (deficit),
end of period $ 7,535 $ (1,501) $ (783) $ 497 $ 1,259
======= ======== ======== ======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
IDS INTELLIGENT DETECTION SYSTEMS INC.
Consolidated Statements of Cash Flows
(In thousands of Canadian dollars, except per share amounts)
<TABLE>
<CAPTION>
Nine months ended Years ended
September 30, December 31,
----------------------- -------------------------------
1999 1998 1998 1997 1996
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Operations:
Earnings (loss) from
continuing operations $ 8,318 $ (2,103) $ (1,380) $ 32 $ 1,420
Items not involving cash:
Amortization 2,319 1,122 1,959 596 585
Non-controlling interes - - - (137) (280)
Increase in non-controlling
interest 245 128 - - 361
Deferred income taxes (41) 94 122 - -
Changes in non-cash operating
working capital (9,130) (8,586) (11,784) (1,146) (65)
-------- -------- -------- -------- --------
1,711 (9,345) (11,083) (655) 2,021
Discontinued operations 76 3,676 3,595 (2,832) -
-------- -------- -------- -------- --------
1,787 (5,669) (7,488) (3,487) 2,021
Investments:
Additions to capital assets (3,641) (1,554) (3,318) (165) (101)
Increase in long-term
investments (84) - (243) - -
Decrease in goodwill - - - 44 216
Increase (decrease) in deferred
lease inducement (8) 78 (11) 50 -
Net assets of subsidiaries acquired
- net of cash - (18,426) (18,316) - (1,145)
Increase in deferred development
costs 155 (213) (979) - -
-------- -------- -------- -------- --------
(3,578) (20,115) (22,867) (71) (1,030)
Financing:
Increase (decrease) in bank loan 1,111 (1,552) (1,185) 280 1,222
Increase (decrease) in due from
affiliated companies - - - 53 (77)
Increase (decrease) in due from
shareholders - (46) - 446 (528)
Decrease in long-term debt - (88) (88) (1,736) (383)
Issuance of share capital, net
of issuance costs 30 19,786 19,778 17,320 1
Dividend - - - (962) -
Refundable dividend taxes (recovery) - - - 284 (284)
Cumulative foreign exchange 219 33 (84) - -
-------- -------- -------- -------- -------
1,360 18,133 18,421 15,685 (49)
Increase (decrease) in cash and
cash equivalents (431) (7,651) (11,934) 12,127 942
Cash and cash equivalents,
beginning of period 1,154 13,088 13,088 961 19
-------- -------- -------- -------- -------
Cash and cash equivalents,
end of period $ 723 $ 5,437 $ 1,154 $ 13,088 $ 961
======== ======== ======== ======== =======
Cash paid for:
Interest $ 133 $ 44 $ - $ (155) $ (280)
======== ======== ======== ======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
IDS INTELLIGENT DETECTION SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 1998, 1997 and 1996
Information as at September 30, 1999 and for the nine months ended September
30, 1999 and 1998 is unaudited
(In thousands of Canadian dollars, except per share amounts)
1. General:
IDS Intelligent Detection Systems Inc. ("IDS" or the "Company") is
incorporated under the Ontario Business Corporations Act. The Company
offers more than 70 intelligent detection products to the security, nuclear
and geophysical survey markets. Products range from narcotics and explosive
detectors, to nuclear safety control instruments, to airborne geophysical
survey services and equipment for use in mineral, oil and gas exploration.
IDS is a global company with offices in Canada, the United States, France,
the United Kingdom, Australia and Brazil.
2. Significant accounting policies:
(a) Basis of consolidation:
The consolidated balance sheets are comprised of the balance sheets of
the Company and its wholly-owned subsidiary companies: Caduceon Inc.,
Scintrex Limited, Scintrex Inc., Scintrex Pty Ltd., Auslog Pty Ltd. and
Scintrex Europe SARL. The consolidated statements of earnings are
comprised of the statements of earnings of the Company and the
operations of the above-mentioned subsidiary companies from the
acquisition date of June 8, 1998, except for Caduceon Inc., which was
created on December 31, 1998.
(b) Revenue recognition:
Revenue from product sales is recognized upon shipment. Revenue from
maintenance services contracts is recognized on a straight-line basis
over the term of the contract. Revenue on contracts is recognized in
the accounts on the percentage of completion basis.
(c) Inventories:
Finished goods are stated at the lower of average cost and net
realizable value. Other inventories are stated at the lower of cost and
replacement cost which is not in excess of net realizable value. Cost
is generally determined on the first-in, first-out basis.
(d) Long-term investments:
Long-term investments are recorded at cost and represent investments in
companies over which the Company exercises no control or significant
influence.
F-6
<PAGE>
IDS INTELLIGENT DETECTION SYSTEMS INC.
Notes to Consolidated Financial Statements, page 2
Years ended December 31, 1998, 1997 and 1996
Information as at September 30, 1999 and for the nine months ended September
30, 1999 and 1998 is unaudited
(In thousands of Canadian dollars, except per share amounts)
2. Significant accounting policies (continued):
(e) Capital assets:
Capital assets are stated at cost. Amortization is provided using the
straight-line method over the estimated useful lives as follows:
Asset Useful life
----- -----------
Buildings twenty years
Scientific research and development equipment fifteen years
Office equipment five years
Computer equipment three years
Leasehold improvements four years
Computer equipment under capital lease three years
Computer software one year
Production equipment ten years
Patents are amortized using the straight-line method over their
estimated useful lives of 17 years. Assets under construction are
amortized over their useful life commencing in the year they are
available for use by the Company.
(f) Research and development:
Research costs are expensed as incurred. Development costs are expensed
as incurred unless they meet generally accepted accounting criteria for
deferral and subsequent amortization. These costs are amortized based
on the revenue arising from the sale of the products. The Company
reassesses whether it has met the relevant criteria for continued
deferral and amortization at each reporting date.
(g) Goodwill:
Goodwill represents the excess of the purchase price over the fair
value of net assets acquired, and is being amortized on a straight-line
basis over 20 years. On an ongoing basis, management reviews the
valuation and amortization of goodwill, taking into consideration any
events and circumstances which might have impaired the fair value.
During 1997, the Company fully provided for $68 of goodwill that was
created from an acquisition in 1996.
(h) Foreign currency translation:
The operations of the Company's foreign subsidiaries are considered to
be self-sustaining and as a result are translated to Canadian dollars
using the current rate method. Under this method, assets and
liabilities are translated at year-end exchange rates and revenues and
expenses are translated using approximate rates of exchange in effect
at the transaction date. Gains or losses on translation of foreign
subsidiaries is included in the cumulative translation adjustment
account, which is included as a separate component of shareholders'
equity.
F-7
<PAGE>
IDS INTELLIGENT DETECTION SYSTEMS INC.
Notes to Consolidated Financial Statements, page 3
Years ended December 31, 1998, 1997 and 1996
Information as at September 30, 1999 and for the nine months ended September
30, 1999 and 1998 is unaudited
(In thousands of Canadian dollars, except per share amounts)
2. Significant accounting policies (continued):
(i) 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 disclosures of contingent assets and liabilities at the
date of the financial statements, and the reported amounts of revenues
and expenses during the year. Actual results could differ from these
estimates.
3. Business acquisition:
(a) On June 7, 1998, IDS acquired for cash and 3,914,858 common shares 100%
of the issued and outstanding common shares of Scintrex Limited and its
wholly-owned subsidiaries ("Scintrex"). The acquisition was accounted
for by the purchase method. The results of Scintrex's operations are
included in the accounts from the effective date of acquisition.
Details of the acquisition are as follows:
Fair value of net assets acquired:
Working capital $ 7,025
Capital assets 10,301
Goodwill 18,887
---------
$ 36,213
Consideration given:
Cash $ 18,316
Common shares 17,897
---------
$ 36,213
=========
(b) On September 30, 1997, MAA International Corporation ("MAA"), CPAD
Technologies ("CPAD") and its wholly-owned subsidiary, 1202733 Ontario
Inc., amalgamated to form IDS. On September 30, 1997, MAA owned 64.5%
of CPAD which represented a dilution through 1996 and 1997 from its
original 77.5% ownership interest in 1995. The transaction was
accounted for using the predecessor companies' book values.
The total assets and liabilities brought into the combination were as
follows:
1202733
MAA CPAD Ontario
Inc.
(unaudited) (unaudited) (unaudited)
----------- ----------- -----------
Total assets at book value $3,123 $2,538 $ 2
Total liabilities at book value 454 3,500 1
====== ====== =======
Prior to September 30, 1997 the results of operations reflect the
consolidated results of MAA and its subsidiary CPAD.
F-8
<PAGE>
IDS INTELLIGENT DETECTION SYSTEMS INC.
Notes to Consolidated Financial Statements, page 4
Years ended December 31, 1998, 1997 and 1996
Information as at September 30, 1999 and for the nine months ended September
30, 1999 and 1998 is unaudited
(In thousands of Canadian dollars, except per share amounts)
3. Business acquisition (continued):
(c) AGISS Power Technologies Corporation:
Effective March 1, 1996, CPAD acquired 100% of the issued and
outstanding shares of all classes of AGISS Power Technologies
Corporation ("AGISS") in exchange for cash and the issuance of Class A
common shares of CPAD. The transaction has been accounted for by the
purchase method with the results of operations included in these
financial statements from the date of acquisition.
Net assets acquired at fair values are:
Current assets $ 2,183
Capital assets 311
---------
2,494
Less:
Bank indebtedness 339
Current liabilities 1,570
Long-term debt 102
---------
2,011
483
Goodwill 323
--------
$ 806
========
Consideration:
Issuance of Class A common shares $ 783
Long-term debt 23
--------
$ 806
========
(d) Amalgamation:
On November 1, 1996, CPAD amalgamated its operations with its
wholly-owned subsidiary, AGISS and continued to operate as CPAD.
The total assets and liabilities brought into the combination are as
follows:
CPAD AGISS
---- -----
Total assets at book value $ 1,708 $ 1,599
Total liabilities at book value 1,286 976
========= =========
F-9
<PAGE>
IDS INTELLIGENT DETECTION SYSTEMS INC.
Notes to Consolidated Financial Statements, page 5
Years ended December 31, 1998, 1997 and 1996
Information as at September 30, 1999 and for the nine months ended September
30, 1999 and 1998 is unaudited
(In thousands of Canadian dollars, except per share amounts)
4. Inventory:
<TABLE>
<CAPTION>
September 30, December 31,
------------- -----------------------
1999 1998 1997
---- ---- ----
(unaudited)
-----------
<S> <C> <C> <C>
Finished goods $ 4,617 $ 4,440 $ 322
Work-in-process 2,933 4,483 13
Raw materials 5,744 3,043 176
Contracts in progress - 639 -
-------- ------- --------
$ 13,294 $12,605 $ 511
======== ======= ========
</TABLE>
5. Capital assets:
<TABLE>
<CAPTION>
Accumulated Net book
September 30, 1999 Cost amortization value
------------------ (unaudited) (unaudited) (unaudited)
----------- ----------- -----------
<S> <C> <C> <C>
Land and buildings $ 3,272 $ 340 $ 2,932
Scientific research and
development equipment 1,654 150 1,504
Office equipment 972 207 765
Computer equipment 701 315 386
Leasehold improvements 477 250 227
Computer equipment under capital lease 37 37 -
Computer software 290 172 118
Production equipment 10,149 1,827 8,322
Patents 114 28 86
Assets under construction 781 59 722
-------- ------- --------
$ 18,447 $ 3,385 $ 15,062
======== ======= ========
Accumulated Net book
December 31, 1998 Cost amortization value
----------------- ---- ------------ -----
Land and buildings $ 3,143 $ 131 $ 3,012
Scientific research and
development equipment 1,049 92 957
Office equipment 860 134 726
Computer equipment 592 219 373
Leasehold improvements 477 168 309
Computer equipment under capital lease 37 36 1
Computer software 274 99 175
Production equipment 7,288 535 6,753
Patents 95 25 70
Assets under construction 567 - 567
-------- ------- --------
$ 14,382 $ 1,439 $ 12,943
======== ======= ========
</TABLE>
F-10
<PAGE>
IDS INTELLIGENT DETECTION SYSTEMS INC.
Notes to Consolidated Financial Statements, page 6
Years ended December 31, 1998, 1997 and 1996
Information as at September 30, 1999 and for the nine months ended September
30, 1999 and 1998 is unaudited
(In thousands of Canadian dollars, except per share amounts)
5. Capital assets (continued):
<TABLE>
<CAPTION>
Accumulated Net book
December 31, 1997 Cost amortization value
----------------- ---- ------------ -----
<S> <C> <C> <C>
Scientific research and
development equipment $ 159 $ 25 $ 134
Office equipment 118 45 73
Computer equipment 196 100 96
Leasehold improvements 186 86 100
Computer equipment under capital lease 37 28 9
Patents 66 19 47
------- ----- ------
$ 762 $ 303 $ 459
======= ===== ======
</TABLE>
6. Bank loan:
<TABLE>
<CAPTION>
September 30, December 31,
------------- -----------------------
1999 1998 1997
---- ---- ----
(unaudited)
<S> <C> <C> <C>
Demand operating line of credit at
bank prime rate plus 0.5% $1,478 $ 367 $ 950
Demand promissory note,
payable on receipt of
investment tax credits
at bank prime plus 2% - - 161
Progress Payment Program line of credit
payable out of proceeds on sale of
inventory, at bank prime - - 441
------ ----- -----
$1,478 $ 367 $1,552
====== ===== ======
</TABLE>
The demand operating line of credit is secured by cash on deposit of $150
and a mortgage over land and building of Scintrex Pty Ltd.
F-11
<PAGE>
IDS INTELLIGENT DETECTION SYSTEMS INC.
Notes to Consolidated Financial Statements, page 7
Years ended December 31, 1998, 1997 and 1996
Information as at September 30, 1999 and for the nine months ended September
30, 1999 and 1998 is unaudited
(In thousands of Canadian dollars, except per share amounts)
7. Share capital:
<TABLE>
<CAPTION>
September 30, December 31,
------------- -------------------------
1999 1998 1997
---- ---- ----
(unaudited)
(a) Authorized and issued share capital:
<S> <C> <C> <C>
Authorized voting
common shares - unlimited
Issued voting common shares:
Number of shares 22,095,618 22,080,560 14,586,120
Stated capital $ 55,027 $ 54,997 $ 17,322
Authorized Class B non-voting
shares - unlimited
Issued Class B non-voting shares:
Number of shares 572,850 572,850 572,850
Stated capital $ - $ - $ -
</TABLE>
(b) Stock option incentive program:
On October 22, 1997, the Company established the 1997 Stock Option
Plan, under which options to purchase common shares of the Company may
be granted by the Compensation Committee of the Board of Directors
subject to the approval of regulatory authorities.
At December 31, 1998, there were 1,216,200 options outstanding with
exercise prices ranging from $2.00 to $7.60 per share. These options
expire during periods between January 1, 2002 and September 1, 2008 and
generally vest over a four-year period from the date of grant.
Subsequent to year-end, an additional 228,000 options were granted at
$2.00 per share. These options expire on December 31, 2008 and
generally vest over a four-year period from date of grant.
F-12
<PAGE>
IDS INTELLIGENT DETECTION SYSTEMS INC.
Notes to Consolidated Financial Statements, page 8
Years ended December 31, 1998, 1997 and 1996
Information as at September 30, 1999 and for the nine months ended September
30, 1999 and 1998 is unaudited
(In thousands of Canadian dollars, except per share amounts)
7. Share capital (continued):
(c) Share issuance:
<TABLE>
<CAPTION>
Number
Common shares Value of shares
------------- ----- ---------
<S> <C> <C>
Balance, December 31, 1996:
MAA $ 2 8,910,000
CPAD 1 810,000
Shares issued for cash 1,380 395,556
Conversion of debt 1,730 734,948
Shares cancelled on amalgamation:
MAA - (8,910,000)
CPAD - (1,940,504)
Shares reissued on amalgamation - 10,493,360
Options issued for cash 117 172,188
Conversion of debt 645 101,691
Shares issued for cash 13,447 3,818,881
-------- -----------
Issued and outstanding as of December 31, 1997 $ 17,322 14,586,120
Options issued for cash 958 224,582
Shares issued for cash 18,820 3,355,000
Shares issued on acquisition of Scintrex Limited 17,897 3,914,858
-------- -----------
Balance, December 31, 1998 $ 54,997 22,080,560
Options issued for cash 30 15,058
-------- -----------
Balance, June 30, 1999 (unaudited) $ 55,027 22,095,618
======== ===========
Class B shares $ - 572,850
======== ===========
</TABLE>
8. Earnings per share:
The per share amounts used for the calculation of basic earnings per share
include common and Class B shares in equal proportion, as both share
equally in the earnings of the Company.
The basic earnings per share figures are calculated using the weighted
monthly average number of shares outstanding during the respective fiscal
years.
F-13
<PAGE>
IDS INTELLIGENT DETECTION SYSTEMS INC.
Notes to Consolidated Financial Statements, page 9
Years ended December 31, 1998, 1997 and 1996
Information as at September 30, 1999 and for the nine months ended September
30, 1999 and 1998 is unaudited
(In thousands of Canadian dollars, except per share amounts)
9. Income taxes:
Income tax expense varies from the amount that would be computed by
applying the basic federal and provincial tax rates to earnings before
income taxes, as follows:
<TABLE>
<CAPTION>
September 30, December 31,
-------------- --------------------------------
1999 1998 1998 1997 1996
---- ---- ---- ---- ----
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Expected tax rate 44.60% 44.60% 44.60% 44.60% 44.60%
Expected tax rates applied to earnings
before income taxes $ 3,611 $ (927) $ (644) $ (91) $ 767
Increase (decrease) resulting from:
Losses not recorded for
accounting purposes - 831 450 - 305
Benefit of losses not previously
recognized for accounting
purposes (3,299) - - (118) -
Refundable taxes - - - 102 (217)
Non-taxable portion of dilution gains - - - (167) (653)
Share issuance costs (307) (228) (304) - -
Write-off and amortization of goodwill 249 249 368 223 156
Manufacturing and processing tax credit (379) 78 41 - -
Other (52) 22 24 (69) (58)
-------- -------- -------- -------- ---------
$ (177) $ 25 $ (65) $ (120) $ 300
======== ======== ======== ======== =========
</TABLE>
As at December 31, 1998, the Company had losses for tax purposes of
approximately $5,422 (1997 - $Nil) available to be carried forward until
2005, the benefits of which have not been reflected in the financial
statements. The Company also had amounts deductible for tax purposes in
excess of book purposes of approximately $12,824 (1997 - $2,800) for
Canadian federal tax purposes and $3,900 (1997 - $2,800) for provincial tax
purposes, primarily related to scientific research and experimental
development expenditures and share issuance costs, the benefits of which
have not been reflected in these financial statements.
As at December 31, 1998, investment tax credits totalling approximately
$1,220 (1997 - $Nil) were available to reduce income tax in future years
and have not been recorded in these financial statements.
10. Segmented data:
The Company has adopted CICA Handbook Section 1701, Segment Disclosures,
which establishes standards for reporting information about operating
segments, products and services, geographic operations and major customers.
F-14
<PAGE>
IDS INTELLIGENT DETECTION SYSTEMS INC.
Notes to Consolidated Financial Statements, page 10
Years ended December 31, 1998, 1997 and 1996
Information as at September 30, 1999 and for the nine months ended September 30,
1999 and 1998 is unaudited
(In thousands of Canadian dollars, except per share amounts)
10. Segmented data (continued):
The Company has identified operating segments in relation to the products
and services it delivers. IDS's operating segments include Scintrex Earth
Science Instrumentation (ESID), IDS Power Control Systems (Power Control),
Analytical & Security (Security) and Survey & Exploration Technology
(Survey). Scintrex Earth Science Instrumentation is engaged in the
research, design and manufacture of geophysical and geochemical
instrumentation. Power Control is engaged in the research, design and
manufacture of nuclear reactor and analytical instrumentation. Security is
engaged in the research, design and manufacture of chemical detection
systems. Survey and Exploration is engaged in systems installation and
integration, standard airborne and ground geophysical surveys and
proprietary surveys based on proprietary technology.
The accounting policies of the operating segments are the same as those
described in the summary of significant accounting policies. IDS generally
evaluates the performance of each operating segment based on actual sales
and expenditures.
<TABLE>
<CAPTION>
ESID Power Control Security Survey Other Total
---- ------------- -------- ------ ----- -----
<S> <C> <C> <C> <C> <C> <C>
Nine months ended September
30, 1999 (unaudited):
Net sales $ 5,181 $ 10,961 $ 13,964 $ 4,616 $ 1,294 $ 36,016
Segment operating
income (loss) 1,225 4,451 3,755 (1,104) (364) 7,963
Interest and other
income (loss) - - 275 - - 275
Restructuring costs - - (78) - - (78)
Non-controlling interest - - - (19) - (19)
Income (loss) before
income taxes 1,225 4,451 3,952 (1,123) (364) 8,141
Amortization - - - - - 2,319
Identifiable assets - - - - - 52,491
Corporate assets - - - - - 18,973
Total assets - - - - - 71,464
Capital expenditures - - - - - 3,641
</TABLE>
F-15
<PAGE>
IDS INTELLIGENT DETECTION SYSTEMS INC.
Notes to Consolidated Financial Statements, page 11
Years ended December 31, 1998, 1997 and 1996
Information as at September 30, 1999 and for the nine months ended September 30,
1999 and 1998 is unaudited
(In thousands of Canadian dollars, except per share amounts)
10. Segmented data (continued):
<TABLE>
<CAPTION>
ESID Power Control Security Survey Other Total
---- ------------- -------- ------ ----- -----
Nine months ended September 30,
1998 (unaudited):
<S> <C> <C> <C> <C> <C> <C>
Net sales $ 2,511 $ 1,812 $ 4,094 $ 1,869 $ 405 $ 10,691
Segment operating
income (loss) 257 (47) (3,581) 403 341 (2,627)
Interest and other
income (loss) - - 782 - - 782
Restructuring costs - - (225) - - (225)
Non-controlling interest - - (8) - - (8)
Income (loss) before
income taxes 257 (47) (3,032) 403 341 (2,078)
Amortization - - - - - 1,122
Identifiable assets - - - - - -
Corporate assets - - - - - -
Total assets - - - - - 58,377
Capital expenditures - - - - - 1,554
<CAPTION>
ESID Power Control Security Survey Other Total
---- ------------- -------- ------ ----- -----
Year ended December 31, 1998:
<S> <C> <C> <C> <C> <C> <C>
Net sales $ 7,097 $ 2,439 $ 7,811 $ 4,066 $ 571 $ 21,984
Segment operating
income (loss) 1,052 231 (4,524) 1,081 100 (2,060)
Interest and other
income (loss) - - 859 - - 859
Restructuring costs - - - - - (244)
Loss before income taxes - - - - - (1,445)
Amortization 346 66 1,382 165 - 1,959
Identifiable assets 10,880 6,453 17,307 3,323 509 38,472
Corporate assets - - - - - 21,913
Total assets - - - - - 60,385
Capital expenditures 1,177 - 1,998 143 - 3,318
======== ======== ======== ======== ======== ========
</TABLE>
F-16
<PAGE>
IDS INTELLIGENT DETECTION SYSTEMS INC.
Notes to Consolidated Financial Statements, page 12
Years ended December 31, 1998, 1997 and 1996
Information as at September 30, 1999 and for the nine months ended September
30, 1999 and 1998 is unaudited
(In thousands of Canadian dollars, except per share amounts)
10. Segmented data (continued):
<TABLE>
<CAPTION>
ESID Power Control Security Survey Other Total
---- ------------- -------- ------ ----- -----
<S> <C> <C> <C> <C> <C> <C>
Year ended December 31, 1997:
Net sales $ - $ - $ 6,565 $ - $ 108 $ 6,673
Segment operating
income (loss) - - 196 - - 196
Interest and finance
expense - - (1,033) - - (1,033)
Dilution gain - - - - - 680
Goodwill write-off - - - - - (68)
Non-controlling interest - - - - - 137
Loss before income taxes - - - - - (88)
Amortization - - 596 - - 596
Identifiable assets - - 4,457 - 14,470 18,927
Capital expenditures - - 95 - 70 165
<CAPTION>
ESID Power Control Security Survey Other Total
---- ------------- -------- ------ ----- -----
<S> <C> <C> <C> <C> <C> <C>
Year ended December 31, 1996:
Net sales $ - $ - $ 110 $ - $ 4,333 $ 4,443
Segment operating
income (loss) - - (554) - 1,130 576
Other income and
dilution gain - - - - - 2,789
General corporate
expenses - - - - - 1,646
Income before
income taxes - - - - - 1,720
Amortization - - - - - 585
Identifiable assets - - - - - 3,565
Corporate assets - - - - - 3,009
Total assets - - - - - 6,574
Capital expenditures - - - - - 101
</TABLE>
F-17
<PAGE>
IDS INTELLIGENT DETECTION SYSTEMS INC.
Notes to Consolidated Financial Statements, page 13
Years ended December 31, 1998, 1997 and 1996
Information as at September 30, 1999 and for the nine months ended September 30,
1999 and 1998 is unaudited
(In thousands of Canadian dollars, except per share amounts)
10. Segmented data (continued):
The following table presents revenues from customers based on the location
of the customer.
<TABLE>
<CAPTION>
September 30, December 31,
---------------------- --------------------------------
1999 1998 1998 1997 1996
---- ---- ---- ---- ----
(unaudited)(unaudited)
<S> <C> <C> <C> <C> <C>
Canada $ 3,025 $ 1,643 $ 1,904 $ 1,080 $ 4,333
United States 3,693 2,547 4,714 5,593 110
Asia 12,609 1,955 5,268 - -
Europe 3,666 2,031 2,845 - -
Australia 2,367 639 2,150 - -
Middle East 8,156 594 816 - -
South America 2,050 951 772 - -
Africa 343 259 704 - -
Other 107 72 2,811 - -
-------- -------- -------- -------- -------
$ 36,016 $ 10,691 $ 21,984 $ 6,673 $ 4,443
======== ======== ======== ======== =======
</TABLE>
Assets based on physical location of assets are as follows:
<TABLE>
<CAPTION>
September 30, December 31
---------------------- --------------------
1999 1998 1998 1997
---- ---- ---- ----
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Canada $ 67,891 $ 54,550 $ 56,670 $ 36,081
Others 3,573 3,827 3,715 -
--------- -------- -------- --------
$ 71,464 $ 58,377 $ 60,385 $ 36,081
========= ======== ======== ========
</TABLE>
Sales to major customers as a percentage of total sales are as follows:
<TABLE>
<CAPTION>
September 30, December 31,
----------------- --------------------------
1999 1998 1998 1997 1996
---- ---- ---- ---- ----
(unaudited)(unaudited)
<S> <C> <C> <C> <C> <C>
Federal Aviation Administration - 27.3% 8.4% 16.5% 4.1%
Canadian Commercial Corporation 21.9% - - 10.0% -
Canatom/NPM 24.9% - - - -
U.S. Private Customer - - - 55.5% -
==== ==== === ==== ===
</TABLE>
11. Related party transactions:
During 1998, the Company established operations in South America through an
affiliated company known as Megafisica Survey Aerolevantamentos S/A
("Megafisica"), based in Rio de Janiero, Brazil. During the year, the
Company subcontracted with Megafisica on a fee basis to perform airborne
system operations in several countries. Fees paid to Megafisica for the
year ended December 31, 1998 and the nine months ended September 30, 1999
were $254 and $58 respectively.
F-18
<PAGE>
IDS INTELLIGENT DETECTION SYSTEMS INC.
Notes to Consolidated Financial Statements, page 14
Years ended December 31, 1998, 1997 and 1996
Information as at September 30, 1999 and for the nine months ended September 30,
1999 and 1998 is unaudited
(In thousands of Canadian dollars, except per share amounts)
12. Commitments:
(a) During the normal course of business, Scintrex Limited is required to
post performance bonds for its contracts in progress. As at December
31, 1998, these performance bonds amounted to approximately $2,301
(1997 - $1,200).
(b) On February 23, 1996, Scintrex Limited commenced an action in the
Ontario Court of Justice (General Division) against Timothy Bodger
("Bodger"), Aero Surveys Inc. ("Aero"), Geotech Limited ("Geotech") and
two other individuals for damages for breach of fiduciary duty, breach
of contract and inducing breach of contract in the aggregate amount of
$6,000 plus interest and costs.
In response to Scintrex Limited's claim, Geotech has raised a
counter-claim against Scintrex Limited in the amount of $10,000 based
upon an alleged misuse of trade secrets, and on alleged breach of
contract by two employees of Scintrex Limited who were formerly
employed by Geotech. Based on the information Scintrex Limited has
provided to its counsel in the action, counsel has advised Scintrex
Limited that the counter-claim is without merit. Scintrex Limited
intends to vigorously prosecute its claim and defined the
counter-claim. Any ultimate liability will be accounted for as a charge
to operations in the year incurred.
(c) Scintrex Limited has made a claim against a customer for unpaid bills
in the amount of $376 in respect of services rendered. This amount has
been fully provided for in the accounts. On April 25, 1996, a
counter-claim was filed against Scintrex Limited for an unspecified
amount. It is the opinion of management that the counter-claim is
without merit. Counsel has further advised that based on the
information supplied to date, no damages appear to have been incurred.
Scintrex Limited intends to vigorously prosecute its claim and defend
the counterclaim. Any ultimate liability will be accounted for as a
charge to operations in the year incurred.
(d) The Company leases office premises and equipment under long-term
operating leases. The Company is committed to make future minimum
payments under these leases for the years ended December 31 as follows:
1999 $ 430
2000 179
2001 188
2002 138
-----
$ 935
=====
F-19
<PAGE>
IDS INTELLIGENT DETECTION SYSTEMS INC.
Notes to Consolidated Financial Statements, page 15
Years ended December 31, 1998, 1997 and 1996
Information as at September 30, 1999 and for the nine months ended September 30,
1999 and 1998 is unaudited
(In thousands of Canadian dollars, except per share amounts)
13. Cumulative foreign exchange translation adjustment:
September 30, December 31,
------------- ------------
1999 1998 1997
---- ---- ----
(unaudited)
Balance, beginning of year $ (84) $ - $ -
Increase (decrease) due to fluctuation
in exchange rates 219 (84) -
----- ----- ----
Balance, end of year $ 135 $ (84) $ -
===== ===== ====
14. Financial instruments:
(a) Credit risk:
The Company provides credit to its customers in the normal course of
business. The Company maintains reserves for potential credit losses
which, when realized, have been within the range of management's
expectations.
(b) Fair value:
The carrying value of all financial instruments approximate their fair
value given the relatively short periods to maturity of the
instruments.
15. Discontinued operations:
On June 11, 1998, IDS announced the immediate discontinuation of the
computer resale activities of its IEC Division. IEC was principally engaged
in value-added reselling of computers and consulting services. The
consulting services were continued by IDS. The discontinued computer
reselling activity was not core to the mission of IDS. Revenue from the
discontinued operations in 1998 and 1997 was $11,383, and $17,554,
respectively.
16. Subsequent events:
(a) Acquisition of ChemiCorp International, Inc.:
Subsequent to year end, IDS acquired a further interest in ChemiCorp
International, Inc. (formerly Advanced Environmental Solutions Inc.),
which brought its interest to 70%. In consideration for its licenses
and options to license, IDS received 52,909,663 of ChemiCorp's common
shares and in consideration for equipment valued at $314, IDS received
12,588,000 common shares.
F-20
<PAGE>
IDS INTELLIGENT DETECTION SYSTEMS INC.
Notes to Consolidated Financial Statements, page 16
Years ended December 31, 1998, 1997 and 1996
Information as at September 30, 1999 and for the nine months ended September 30,
1999 and 1998 is unaudited
(In thousands of Canadian dollars, except per share amounts)
16. Subsequent events (continued):
(b) Acquisition of Micro-g Solutions Inc.:
On October 1, 1999, the Company's wholly-owned subsidiary, Scintrex
Limited entered into a letter of intent dated October 1, 1999 to
acquire 100% of Micro-g Solutions Inc., a Colorado based geophysical
instrument company. The agreement is based on a share for share
exchange of Scintrex Limited shares for Micro-g Solutions Inc. shares.
(c) Acquisition of Val d'or Sagax Inc.:
On October 1, 1999, the Company's wholly-owned subsidiary, Scintrex
Limited, entered into an agreement to acquire 100% of Val d'or Sagax
Inc., a Quebec based geophysical instrument and survey company. The
agreement is based on a share for share exchange of Scintrex Limited
shares for Val d'or Sagax Inc. shares.
17. 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. The effects of the Year 2000 Issue
may be experienced before, on, or after January 1, 2000 and, if not
addressed, the impact on operations and financial reporting may range from
minor errors to significant systems failure which could affect the
Company's ability to conduct normal business operations. It is not possible
to be certain that all aspects of the Year 2000 Issue affecting the
Company, including those related to the efforts of customers, suppliers, or
other third parties, will be fully resolved.
F-21
<PAGE>
IDS INTELLIGENT DETECTION SYSTEMS INC.
Notes to Consolidated Financial Statements, page 17
Years ended December 31, 1998, 1997 and 1996
Information as at September 30, 1999 and for the nine months ended September 30,
1999 and 1998 is unaudited
(In thousands of Canadian dollars, except per share amounts)
18. United States accounting principles:
The consolidated financial statements presented herein have been prepared
in accordance with Canadian generally accepted accounting principles
("GAAP") which in the case of the Company differ in the following material
respects from those generally accepted in the United States:
(a) Consolidated statement of earnings:
<TABLE>
<CAPTION>
Nine months ended Years ended
September 30, December 31,
--------------------- ----------------------------
1999 1998 1998 1997 1996
---- ---- ---- ---- ----
(unaudited)(unaudited)
<S> <C> <C> <C> <C> <C>
Earnings (loss) from
continuing
operations $ 8,318 $(2,103) $(1,380) $ 32 $ 1,420
Deferred development
costs 824 213 979 - -
Amortization (90) (6) - - -
Income tax expense 2,618 333 988 - -
------- ------- ------- ------- -------
Earnings (loss) from
continuing
operations under
US GAAP 4,966 (2,643) (3,326) 32 1,420
Earnings (loss) from
discontinued
operations - 105 100 (116) -
------- ------- ------- ------- -------
Net earnings (loss)
under US GAAP $ 4,966 $(2,538) $(3,226) $ (84) $ 1,420
======= ======= ======= ======= =======
<CAPTION>
Nine months ended Years ended
September 30, December 31,
----------------------------- -----------------------------------------------
1999 1998 1998 1997 1996
---- ---- ---- ---- ----
(unaudited)(unaudited)
<S> <C> <C> <C> <C> <C>
Earnings (loss)
per share:
From continuing
operations $ 0.22 $ (0.14) $ (0.17) $ - $ 0.17
From discontinued
operations - 0.01 - (0.01) -
After discontinued
operations 0.22 (0.13) (0.17) (0.01) 0.17
Weighted average
number of shares
used in the
calculation of basic
earnings per share 22,655,000 18,485,300 19,140,851 10,128,370 8,235,000
=========== ============ ============ ============ ============
</TABLE>
F-22
<PAGE>
IDS INTELLIGENT DETECTION SYSTEMS INC.
Notes to Consolidated Financial Statements, page 18
Years ended December 31, 1998, 1997 and 1996
Information as at September 30, 1999 and for the nine months ended September 30,
1999 and 1998 is unaudited
(In thousands of Canadian dollars, except per share amounts)
18. United States accounting principles (continued):
(a) Consolidated statement of earnings (continued):
Under Canadian and US GAAP, basic earnings per share is computed by
dividing the net earnings (loss) for the period available to common
shareholders as measured by the respective accounting principles
(numerator), by the weighted average number of common and Class B
shares. Basic earnings per share excludes the dilutive effect of
potential common shares resulting from stock options. The potential
dilutive effect is either antidilutive or does not result in a
material change in the per share amount.
(b) Deferred development costs:
Under Canadian GAAP, development costs can be deferred and amortized
if certain criteria are met. Under US GAAP, development costs are
expensed as incurred resulting in an increase in the year ended
December 31, 1998 and the nine months ended September 30, 1998 loss
from continuing operations of $979 and $213, respectively, and a
decrease in the nine months ended September 30, 1999 earnings from
continuing operations of $824.
(c) Income taxes:
The Company follows the deferral method of accounting for income
taxes. Under US GAAP, the asset and liability method is applied
resulting in the following difference.
Certain previously unrecognized deferred tax assets were utilized by
Scintrex with the tax effect of these utilized deferred tax assets
amounting to $988 for the year ended December 31, 1998 and $333 and
$2,618 for the nine months ended September 30, 1998 and 1999,
respectively. In accordance with US GAAP the utilized deferred tax
assets should be applied as a reduction of goodwill and reflected as
an income tax expense. The goodwill reduction results in the reduction
of goodwill amortization of $29 for the year ended December 31, 1998
and $6 and $90 for the nine months ended September 30, 1998 and 1999,
respectively.
F-23
<PAGE>
IDS INTELLIGENT DETECTION SYSTEMS INC.
Notes to Consolidated Financial Statements, page 19
Years ended December 31, 1998, 1997 and 1996
Information as at September 30, 1999 and for the nine months ended September
30, 1999 and 1998 is unaudited
(In thousands of Canadian dollars, except per share amounts)
18. United States accounting principles (continued):
(d) Acquisition of Scintrex:
Under US GAAP, the following additional disclosure would be provided
pursuant to the requirements of APB No. 16 "Business Combinations".
The following unaudited pro forma financial information presents the
combined results of operations of IDS and Scintrex as if the
acquisition had occurred as of the beginning of 1998 for the year
ended December 31, 1998 and the nine month period ended September 30,
1998 and as of the beginning of 1997 for the year ended December 31,
1997. The pro forma results include certain adjustments for
amortization of goodwill and capital assets. The pro forma financial
information does not necessarily reflect the results of operations
that would have occurred had IDS and Scintrex constituted a single
entity during such periods.
Nine months ended Year ended
September 30, December 31,
---------------- -----------------------
1998 1998 1997
---- ---- ----
(unaudited) (unaudited) (unaudited)
Net sales $ 17,478 $ 28,771 $ 26,687
-------- --------- ----------
Net loss $ (6,530) $ (5,453) $ (967)
-------- --------- ----------
Loss per share $ (0.32) $ (0.26) $ (0.07)
-------- --------- ----------
F-24
<PAGE>
IDS INTELLIGENT DETECTION SYSTEMS INC.
Notes to Consolidated Financial Statements, page 20
Years ended December 31, 1998, 1997 and 1996
Information as at September 30, 1999 and for the nine months ended September
30, 1999 and 1998 is unaudited
(In thousands of Canadian dollars, except per share amounts)
18. United States accounting principles (continued):
(e) Comprehensive income:
Under US GAAP, the following additional disclosure would be provided
pursuant to the requirements of SFAS No. 130 "Reporting Comprehensive
Income" which established standards for the reporting of comprehensive
income and its components:
Consolidated statement of comprehensive income (loss):
<TABLE>
<CAPTION>
Nine months ended Years ended
September 30, December 31,
------------------------ -----------------------------
1999 1998 1998 1997 1996
---- ---- ---- ---- ----
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Net earnings (loss)
under US GAAP $ 4,966 $ (2,538) $ (3,226) $ (84) $ 1,420
Other comprehensive
income (loss), net
of tax:
Foreign currency
translation
adjustment 219 (33) (84) - -
-------- --------- --------- ------ -------
Other comprehensive
earnings (loss) 219 (33) (84) - -
-------- --------- --------- ------ -------
Comprehensive
income (loss)
under US GAAP $ 5,185 $ (2,571) $ (3,310) $ (84) $ 1,420
======== ========= ========= ====== =======
</TABLE>
Accumulated other comprehensive earnings (loss) balances:
September 30, December 31,
Foreign currency translation adjustment 1999 1998
---- ----
(unaudited)
Balance, beginning of year $ (84) $ -
Current year change 219 (84)
------ -------
Balance, end of year (period) $ 135 $ (84)
====== =======
(f) Stock-based compensation:
United States accounting principles allow, as specified in SFAS 123,
but do not require companies to record compensation cost for employee
stock option plans at fair value. The Company has chosen to continue
to account for stock options using the intrinsic value method
prescribed under US GAAP in APB 25 which does not result in a
difference when compared to the accounting under Canadian GAAP.
F-25
<PAGE>
Auditors' Report
To the Directors of
Scintrex Limited
We have audited the consolidated balance sheets of Scintrex Limited as at
December 31, 1997 and 1996 and the consolidated statements of earnings, retained
earnings and changes in financial position for the years then ended. These
financial statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audits in accordance with 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, 1997
and 1996 and the results of its operations and the changes in its financial
position for the years then ended in accordance with accounting principles
generally accepted in Canada.
Chartered Accountants
Toronto, Ontario
February 27, 1998
except as to note 14, which is as of October 12, 1999
F-26
<PAGE>
Scintrex Limited
Consolidated Balance Sheets
As At December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
(thousands of dollars)
- - - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current
Cash and short-term deposits $ 8,309 $ 6,976
Accounts receivable (note 2) 4,573 6,444
Inventories (note 3) 8,097 8,611
Prepaid expenses 169 121
- - - -------------------------------------------------------------------------------------------------------------------
21,148 22,152
- - - -------------------------------------------------------------------------------------------------------------------
Capital Assets (note 4) 4,672 4,591
- - - -------------------------------------------------------------------------------------------------------------------
$ 25,820 $ 26,743
- - - -------------------------------------------------------------------------------------------------------------------
Liabilities
Current
Accounts payable 1,783 2,433
Income taxes payable 35 138
Unearned revenue 12 999
- - - -------------------------------------------------------------------------------------------------------------------
1,830 3,570
- - - -------------------------------------------------------------------------------------------------------------------
Deferred Income Taxes 137 55
- - - -------------------------------------------------------------------------------------------------------------------
Commitment and Contingencies (note 5)
Shareholders' Equity
Capital Stock (note 6) 20,610 20,026
Cumulative Foreign Exchange Translation Adjustment (note 7) (175) 87
Retained Earnings 3,418 3,005
- - - -------------------------------------------------------------------------------------------------------------------
23,853 23,118
- - - -------------------------------------------------------------------------------------------------------------------
$ 25,820 $ 26,743
- - - -------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes
F-27
<PAGE>
Scintrex Limited
Consolidated Statements of Retained Earnings
For the Years Ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
(thousands of dollars)
- - - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Balance - Beginning of Year $ 3,005 $ 649
Net earnings 433 2,376
- - - -------------------------------------------------------------------------------------------------------------------
3,438 3,025
Dividends on preference shares 20 20
- - - -------------------------------------------------------------------------------------------------------------------
Balance - End of Year $ 3,418 $ 3,005
- - - -------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes
F-28
<PAGE>
Scintrex Limited
Consolidated Statements of Earnings
For the Years Ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
(thousands of dollars)
(Except for net earnings per share)
- - - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Revenue $ 20,014 $ 21,298
- - - -------------------------------------------------------------------------------------------------------------------
Expenses
Amortization 628 520
Cost of sales 11,012 11,545
Research and development (note 8) 1,174 606
Selling and administrative 6,691 5,805
- - - -------------------------------------------------------------------------------------------------------------------
19,505 18,476
- - - -------------------------------------------------------------------------------------------------------------------
Operating Income 509 2,822
Interest income 359 316
Gain on sale of investment - 138
- - - -------------------------------------------------------------------------------------------------------------------
Earnings Before Income Taxes 868 3,276
Income taxes (note 9) 435 900
- - - -------------------------------------------------------------------------------------------------------------------
Net Earnings $ 433 $ 2,376
- - - -------------------------------------------------------------------------------------------------------------------
Net Earnings Per Common Share (note 10)
Basic $ 0.16 $ 1.05
- - - -------------------------------------------------------------------------------------------------------------------
Fully diluted $ 0.15 $ 0.98
- - - -------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes
F-29
<PAGE>
Scintrex Limited
Consolidated Statements of Changes in Financial Position
For the Years Ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
(thousands of dollars)
- - - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Funds Provided (Used) -
Operating Activities
Net earnings $ 433 $ 2,376
Amortization 628 520
Gain on sale of capital assets (143) (306)
Gain on sale of investment - (138)
Deferred income taxes 82 (40)
- - - -------------------------------------------------------------------------------------------------------------------
1,000 2,412
Changes in non-cash operating elements of working capital 597 (3,575)
- - - -------------------------------------------------------------------------------------------------------------------
1,597 (1,163)
- - - -------------------------------------------------------------------------------------------------------------------
Financing Activities
Issuance of common shares 584 7,229
Dividends (20) (20)
Foreign exchange translation adjustment (262) 103
- - - -------------------------------------------------------------------------------------------------------------------
302 7,312
- - - -------------------------------------------------------------------------------------------------------------------
Investing Activities
Purchase of capital assets (789) (1,345)
Proceeds on sale of capital assets 223 368
Proceeds on sale of investment in private company - 138
- - - -------------------------------------------------------------------------------------------------------------------
(566) (839)
- - - -------------------------------------------------------------------------------------------------------------------
Increase in Cash and Short-term Deposits 1,333 5,310
Cash and Short-term Deposits
Beginning of Year 6,976 1,666
- - - -------------------------------------------------------------------------------------------------------------------
End of Year $ 8,309 $ 6,976
- - - -------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes
F-30
<PAGE>
Scintrex Limited
Notes to Consolidated Financial Statements
December 31, 1997
1. Summary of Significant Accounting Policies
Principles of Consolidation
These consolidated financial statements comprise the financial statements
of Scintrex Limited and its wholly-owned subsidiary companies, Scintrex
Inc. and Scintrex Pty. Ltd.
Foreign Currency Translation
With the exception of the accounts of the company's self-sustaining
foreign subsidiary, foreign currency amounts have been translated into
Canadian dollars as follows:
Monetary items - at exchange rates in effect at the balance sheet
date;
Non-monetary items - at exchange rates in effect on the date of
transaction; and
Revenue and expenses - at average exchange rates prevailing during
the year, except for inventories and amortization which are
translated at rates prevailing when the related assets were acquired.
Gains and losses arising from foreign currency translation are included in
income except for unrealized exchange gains and losses arising from the
translation of long-term monetary items which are deferred and amortized
over the remaining life of the monetary items.
The assets and liabilities of the company's self-sustaining subsidiary in
Australia are translated into Canadian dollars at the year end exchange
rate and income and expense items are translated at the average exchange
rate during the year.
Gains and losses from the translation of the self-sustaining foreign
subsidiary are excluded from the consolidated statement of income and
accumulated in the cumulative foreign exchange translation adjustment.
Fair Value of Financial Instruments
The carrying amounts of cash and short-term deposits, accounts receivable
and accounts payable approximate fair value because of the short-term
maturity of these instruments.
F-31
<PAGE>
Scintrex Limited
Notes to Consolidated Financial Statements
December 31, 1997
1. Summary of Significant Accounting Policies (cont'd)
Use of Estimates
The preparation of the consolidated 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 liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reported period. By their nature, these estimates are subject
to measurement uncertainty and actual results may differ from these
estimates.
Revenue Recognition
Revenue from the sale of inventories is recognized in the accounts at the
time of delivery.
Revenue on contracts is recognized in the accounts on the percentage of
completion basis.
Inventories
Finished goods are stated at the lower of average cost and net realizable
value. Other inventories are stated at the lower of cost and replacement
cost which is not in excess of net realizable value. Cost is generally
determined on the first-in, first-out basis.
Amortization
Annual amortization rates adopted by the company are applied on the
straight-line method as follows:
Buildings 20 years
Equipment 5 to 20 years
Research and Development Costs
Research and development costs (net of government grants and other amounts
recoverable) are charged against income as incurred.
F-32
<PAGE>
Scintrex Limited
Notes to Consolidated Financial Statements
December 31, 1997
2. Accounts Receivable
<TABLE>
<CAPTION>
1997 1996
(thousands of dollars)
- - - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Trade receivables $ 4,534 $ 5,449
Accrued contracts in progress revenue 39 995
- - - -------------------------------------------------------------------------------------------------------------------
$ 4,573 $ 6,444
- - - -------------------------------------------------------------------------------------------------------------------
</TABLE>
3. Inventories
<TABLE>
<CAPTION>
1997 1996
(thousands of dollars)
- - - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Raw materials $ 2,753 $ 1,829
Work in process 2,491 5,348
Finished goods 2,853 1,434
- - - -------------------------------------------------------------------------------------------------------------------
$ 8,097 $ 8,611
- - - -------------------------------------------------------------------------------------------------------------------
</TABLE>
4. Capital Assets
<TABLE>
<CAPTION>
1997 1996
(thousands of dollars)
- - - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Land and buildings $ 3,293 $ 3,337
Equipment 8,778 8,550
- - - -------------------------------------------------------------------------------------------------------------------
12,071 11,887
Accumulated amortization 7,399 7,296
- - - -------------------------------------------------------------------------------------------------------------------
$ 4,672 $ 4,591
- - - -------------------------------------------------------------------------------------------------------------------
</TABLE>
F-33
<PAGE>
Scintrex Limited
Notes to Consolidated Financial Statements
December 31, 1997
5. Commitment and Contingencies
i) During the normal course of business, the company is required to post
performance bonds for its contracts in progress. As at December 31,
1997, these performance bonds amounted to approximately $1,200,000
(1996 - $1,800,000).
ii) On February 23, 1996, the company commenced an action in the Ontario
Court of Justice (General Division) against Timothy Bodger
("Bodger"), Aero Surveys Inc. ("Aero"), Geotech Limited ("Geotech")
and two other individuals for damages for breach of fiduciary duty,
breach of contract and for inducing breach of contract in the
aggregate amount of $6,000,000 plus interest and costs.
In response to the company's claim, Geotech has raised a
counter-claim against the company in the amount of $10,000,000 based
upon an alleged misuse of trade secrets, and on alleged breach of
contract by two employees of the company who were formerly employed
by Geotech.
Based on the information the company has provided to its counsel in
the action, counsel has advised the company that the counter-claim is
without merit. The company intends to vigourously prosecute its claim
and defend the counter-claim.
iii) The company has made a claim against a customer for unpaid bills in
the amount of $376,000 in respect of services rendered. On April 25,
1996 a counter-claim was filed against the company for an unspecified
amount. It is the opinion of management that the counter-claim is
without merit. Counsel has further advised that based on the
information supplied to date, no damages appear to have been
incurred. The company intends to vigourously prosecute its claim and
defend the counter-claim. Any ultimate liability will be accounted
for as a charge to operations in the year incurred.
F-34
<PAGE>
Scintrex Limited
Notes to Consolidated Financial Statements
December 31, 1997
6. Capital Stock
Authorized without limit as to number
non-voting, convertible preference shares, having a cumulative
dividend rate of $0.06 per share
Common shares
Issued -
<TABLE>
<CAPTION>
Preference Shares Common Shares Total Share
Number Amount Number Amount Capital
- - - ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance - December 31, 1995 327,500 $ 327,500 1,994,265 $ 12,469,986 $ 12,797,486
Issued under employee stock
option plan - - 13,125 34,761 34,761
Issued to directors - - 30,000 87,600 87,600
Issued to underwriters,
net of costs - - 485,000 7,106,484 7,106,484
- - - ---------------------------------------------------------------------------------------------------------------------
Balance - December 31, 1996 327,500 327,500 2,522,390 19,698,831 20,026,331
Issued under employee stock
option plan - - 8,775 24,469 24,469
Issued to directors - - 139,868 311,500 311,500
Issued to underwriters,
net of costs - - 13,750 248,188 248,188
- - - ---------------------------------------------------------------------------------------------------------------------
Balance - December 31, 1997 327,500 $ 327,500 2,684,783 $ 20,282,988 $ 20,610,488
- - - ---------------------------------------------------------------------------------------------------------------------
</TABLE>
i) Preference Shares
The preference shares may be converted at any time by the holders
thereof into fully paid common shares (as presently constituted) of
the company on the basis of one common for two preference shares.
Dividends on these cumulative preference shares are payable
semi-annually on the last days of June and December of each year.
These shares are non-voting unless the company has failed to pay
dividends for a period of two years. As of December 31, 1997 there are
no dividends in arrears.
ii) Stock Option Plan
The Stock Option Plan provides for the granting of stock options to
officers and other full-time employees of the company, although the
directors reserve the right to grant options to consultants or other
persons with whom the corporation does business.
In May 1991, pursuant to an employment agreement, an officer of the
company was granted options to purchase 100,000 common shares at
$2.50 per share. These options were exercised in 1997.
F-35
<PAGE>
Scintrex Limited
Notes to Consolidated Financial Statements
December 31, 1997
6. Capital Stock (cont'd)
ii) Stock Option Plan (cont'd)
In August 1993, 98,400 common shares were authorized for issuance
under the Employee Stock Option Plan of which 68,250 options were
granted at the price of $2.50 per share exercisable over a five year
period to full time employees of the company. Options to purchase
7,650 (1996 - 13,125) common shares were exercised in 1997. In 1995,
a further 5,000 options were granted at a price of $4.75. Options to
purchase 1,125 (1996 - nil) common shares were exercised in 1997. The
remaining 25,150 authorized stock options have not been granted and
the option price has not been determined.
In April 1994, the directors of the company approved the granting of
options for 9,000 common shares for each of the seven directors at
$2.90 per share, exercisable over a three year period commencing
January 1, 1995 and ending December 31, 1997 at 3,000 shares per year
cumulative. These options were issued to each of the seven directors
who are not full time employees and in aggregate amount to options on
63,000 shares. These options were approved by the shareholders on
June 22, 1995. Options to purchase 15,000 (1996 - 24,000) common
shares were exercised in 1997.
In July 1994, the directors of the company approved the granting of
options for 9,000 common shares to each of two newly appointed
directors of the company who are not full time employees of the
company at the price of $3.00 per share exercisable over a two and
one half year period commencing July 1, 1995 and ending December 31,
1997 at 3,000 shares in each of the years 1995, 1996 and 1997
cumulative. These options were approved by the shareholders on June
22, 1995. Options to purchase 6,000 common shares were exercised in
1997 (1996- 6,000).
Pursuant to an agreement approved by shareholders at the annual
meeting on June 26, 1996, the company shall allot for issuance to an
officer of the company 56,604 common shares for no consideration or
additional payment, on July 1 of each of 1996, 1997 and 1998 provided
that the officer is an employee of the company. The 18,868 shares for
1996 have been issued to the officer. The 18,868 shares for 1997 were
issued to the officer subsequent to year end.
The board approved an amendment to the stock option plan which was
approved by shareholders at the annual meeting on June 26, 1996. The
maximum number of common shares issuable pursuant to the ammended
plan is 400,000 common shares.
iii) Shares Available for Issue
At December 31, 1997, there were 48,232 (1996 - 43,800) common shares
available for issue to employees and directors of the company under
the company stock option plans.
F-36
<PAGE>
Scintrex Limited
Notes to Consolidated Financial Statements
December 31, 1997
6. Capital Stock (cont'd)
iv) Shares Issued
During the year, the company issued 13,750 common shares at $18.05
per share for cash consideration of $248,188.
7. Cumulative Foreign Exchange Translation Adjustment
<TABLE>
<CAPTION>
1997 1996
(thousands of dollars)
- - - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Balance - Beginning of Year $ 87 $ (16)
Increase (decrease) due to fluctuation in exchange rates
during the year (262) 103
- - - -------------------------------------------------------------------------------------------------------------------
Balance - End of Year $ (175) $ 87
- - - -------------------------------------------------------------------------------------------------------------------
</TABLE>
8. Research and Development
<TABLE>
<CAPTION>
1997 1996
(thousands of dollars)
- - - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Research and development $ 1,626 $ 1,487
Government and other grants (158) (95)
Investment tax credits (294) (786)
- - - -------------------------------------------------------------------------------------------------------------------
$ 1,174 $ 606
- - - -------------------------------------------------------------------------------------------------------------------
</TABLE>
F-37
<PAGE>
Scintrex Limited
Notes to Consolidated Financial Statements
December 31, 1997
9. Income Taxes
Income tax expense varies from the amounts that would be computed by
applying the basic combined federal and provincial rate of 44.62%
(1996 - 44.62%) as follows:
<TABLE>
<CAPTION>
1997 1996
(thousands of dollars)
- - - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Basic rate applied to pre-tax income $ 387 $ 1,462
Increase (decrease) in taxes resulting from
Manufacturing and processing rate reduction (78) (295)
Large corporation tax 28 28
Unrecorded timing difference benefits 151 25
Non-deductible expenses 7 11
Non-taxable portion of capital gain (10) (34)
Other 29 (52)
- - - -------------------------------------------------------------------------------------------------------------------
514 1,145
Utilization of prior years' unrecorded tax loss benefits 79 245
- - - -------------------------------------------------------------------------------------------------------------------
$ 435 $ 900
- - - -------------------------------------------------------------------------------------------------------------------
</TABLE>
The company has deducted expenses in the accounts that have not been
claimed for income tax purposes in amounts aggregating approximately
$10,605,000 and $3,163,000 for federal and provincial income tax purposes
respectively as at December 31, 1997. These expenses are available in
future years to reduce taxable income as otherwise calculated.
The company has unclaimed investment tax credits of approximately
$1,028,000 available for application against federal income taxes
otherwise payable, expiring as follows:
<TABLE>
<CAPTION>
(thousands of dollars)
- - - -------------------------------------------------------------------------------------------------------------------
<S> <C>
2003 $ 30
2004 224
2005 215
2006 271
2007 288
- - - -------------------------------------------------------------------------------------------------------------------
$ 1,028
- - - -------------------------------------------------------------------------------------------------------------------
</TABLE>
The potential income tax benefits arising from the above items have not
been recorded in the accounts.
F-38
<PAGE>
Scintrex Limited
Notes to Consolidated Financial Statements
December 31, 1997
10. Net Earnings Per Common Share
Net income per common share has been calculated using the weighted average
number of shares outstanding during the year amounting to 2,671,643 shares
(1996 - 2,261,669 shares).
11. Segmented Information
The company is engaged in the research, design and manufacture of
geophysical and geochemical instrumentation, nuclear reactor and
analytical instruments, and provides ground and airborne exploration and
consulting services for selected markets worldwide.
Information by industry and geographic segments is presented below:
<TABLE>
<CAPTION>
1997 1996
(thousands of dollars)
- - - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Industry Segments
Identifiable assets
Instrumentation $ 21,753 $ 23,379
Exploration services 4,067 3,364
- - - -------------------------------------------------------------------------------------------------------------------
25,820 26,743
- - - -------------------------------------------------------------------------------------------------------------------
Capital expenditures
Instrumentation 588 936
Exploration services 201 409
- - - -------------------------------------------------------------------------------------------------------------------
$ 789 $ 1,345
- - - -------------------------------------------------------------------------------------------------------------------
Amortization
Instrumentation 475 425
Exploration services 153 95
- - - -------------------------------------------------------------------------------------------------------------------
$ 628 $ 520
- - - -------------------------------------------------------------------------------------------------------------------
Sales
Instrumentation 16,094 18,504
Exploration services 3,920 2,794
- - - -------------------------------------------------------------------------------------------------------------------
$ 20,014 $ 21,298
- - - -------------------------------------------------------------------------------------------------------------------
</TABLE>
F-39
<PAGE>
Scintrex Limited
Notes to Consolidated Financial Statements
December 31, 1997
11. Segmented Information (cont'd)
<TABLE>
<CAPTION>
1997 1996
(thousands of dollars)
- - - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Export Sales
United States of America $ 1,733 $ 2,512
Asia/Africa 7,885 8,500
Europe 1,749 3,367
Latin America 2,471 895
Geographic Segments
Identifiable assets
Canada 23,505 24,783
Australia 2,315 1,960
- - - -------------------------------------------------------------------------------------------------------------------
25,820 26,743
- - - -------------------------------------------------------------------------------------------------------------------
Capital expenditures
Canada 585 1,065
Australia 204 280
- - - -------------------------------------------------------------------------------------------------------------------
$ 789 $ 1,345
- - - -------------------------------------------------------------------------------------------------------------------
Amortization
Canada 497 430
Australia 131 90
- - - -------------------------------------------------------------------------------------------------------------------
$ 628 $ 520
- - - -------------------------------------------------------------------------------------------------------------------
Sales
Canada 17,968 19,938
Australia 2,494 1,571
United States of America 838 288
- - - -------------------------------------------------------------------------------------------------------------------
21,300 21,797
Transfers between geographic segments (1,286) (499)
- - - -------------------------------------------------------------------------------------------------------------------
$ 20,014 $ 21,298
- - - -------------------------------------------------------------------------------------------------------------------
Income from operations
Canada 206 2,921
Australia 303 (99)
- - - -------------------------------------------------------------------------------------------------------------------
$ 509 $ 2,822
- - - -------------------------------------------------------------------------------------------------------------------
</TABLE>
F-40
<PAGE>
Scintrex Limited
Notes to Consolidated Financial Statements
December 31, 1997
12. Subsequent Events
Subsequent to year end, the company acquired Auslog PTY Ltd. in
Australia for approximately $500,000 including all costs.
The company announced that, by means of normal course issuer bid, it
intends to purchase up to a maximum $100,000 of its issued common shares,
being 7% of the public float. The bid, which will be open for a period of
one year starting January 29, 1998 is being made in accordance with the
Toronto Stock Exchange Policy on normal course issuer bids. During March
1998, the company proceeded with its share buyback program.
13. Comparative Figures
Certain reclassifications of 1996 amounts have been made to facilitate
comparison with the current year.
14. United States Accounting Principles
The consolidated financial statements presented herein have been prepared
in accordance with Canadian generally accepted accounting principles
("GAAP") which differ in the following material respects from those
generally accepted in the United States:
(a) Consolidated statements of earnings:
<TABLE>
<CAPTION>
Years ended
December 31
1997 1996
(thousands of dollars)
- - - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net earnings $ 433 $ 2,376
- - - -------------------------------------------------------------------------------------------------------------------
Net earnings under United States GAAP 433 2,376
- - - -------------------------------------------------------------------------------------------------------------------
Net earnings per common share 0.16 1.05
Weighted average number of shares used in the
calculation of basic earnings per share $ 2,671,643 $ 2,261,669
- - - -------------------------------------------------------------------------------------------------------------------
</TABLE>
Under Canadian and United States GAAP, basic earnings per share is
computed by dividing the net earnings for the period available to
common shareholders as measured by the respective accounting
principles (numerator), by the weighted average number of common
shares. Basic earnings per share excludes the dilutive effect of
potential common shares resulting from the exercise of stock options
and conversion of preference shares.
F-41
<PAGE>
Scintrex Limited
Notes to Consolidated Financial Statements
December 31, 1997
14. United States accounting principles (cont'd):
(b) Income taxes:
The company follows the deferral method of accounting for income
taxes. Under United States GAAP, the asset and liability method is
used. In the case of the company, application of the asset and
liability method does not result in a significant difference in the
tax amounts reported in the consolidated statements of earnings.
(c) Comprehensive income:
Under United States GAAP, the following additional disclosure would
be provided pursuant to the requirements of SFAS No. 130 "Reporting
Comprehensive Income" which established standards for the reporting
of comprehensive income and its components:
Consolidated statement of comprehensive income:
<TABLE>
<CAPTION>
Years ended
December 31
1997 1996
(thousands of dollars)
- - - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net earnings under United States GAAP $ 433 $ 2,376
Other comprehensive income:
Foreign currency translation adjustment (262) 103
- - - -------------------------------------------------------------------------------------------------------------------
Comprehensive earnings under United States GAAP $ 171 $ 2,479
- - - -------------------------------------------------------------------------------------------------------------------
</TABLE>
(d) Stock-based compensation:
United States accounting principles allow, as specified in SFAS 123,
but do not require companies to record compensation cost for employee
stock option plans at fair value. The company has chosen to continue
to account for stock options using the intrinsic value method
prescribed under United States GAAP in APB 25 which does not result
in a difference when compared to the accounting under Canadian GAAP.
F-42
<PAGE>
IDS INTELLIGENT DETECTION SYSTEMS INC.
Unaudited Pro forma Consolidated Statement of Earnings
Year ended December 31, 1998
(In thousands of dollars, except per share amounts)
<TABLE>
<CAPTION>
- - - ------------------------------------------------------------------------------------------------------------------------
Scintrex
Limited
January 1
to June 7, Pro forma Pro forma
Historical 1998 Subtotal adjustments combined
- - - ------------------------------------------------------------------------------------------------------------------------
(note 2)
<S> <C> <C> <C> <C> <C>
Sales $ 21,984 $ 6,787 $ 28,771 $ 28,771
Cost of sales 13,134 4,361 17,495 17,495
- - - ------------------------------------------------------------------------------------------------------------------------
8,850 2,426 11,276 11,276
Expenses:
Selling, general and
administrative 8,133 3,245 11,378 11,378
Depreciation and
Amortization 1,959 273 2,232 715 2.947
Research and
Development 818 743 1,561 1,561
- - - ------------------------------------------------------------------------------------------------------------------------
10,910 4,261 15,171 715 15,886
- - - ------------------------------------------------------------------------------------------------------------------------
(2,060) (1,835) (3,895) (715) (4,610)
Interest and other
income 859 146 1,005 1,005
Restructuring costs (244) (1,751) (1,995) (1,995)
- - - ------------------------------------------------------------------------------------------------------------------------
Loss before income taxes (1,445) (3,440) (4,885) (715) (5,600)
Income tax expense
(recovery) (65) 18 (47) (47)
- - - ------------------------------------------------------------------------------------------------------------------------
Loss from continuing
operations $ (1,380) $ (3,458) $ (4,838) (715) $ (5,553)
- - - ------------------------------------------------------------------------------------------------------------------------
Net loss per share:
Continuing operations $ (0.27)
- - - ------------------------------------------------------------------------------------------------------------------------
Weighted average
number of shares
outstanding 20,858,436
- - - ------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to unaudited pro forma consolidated statement of
earnings.
F-43
<PAGE>
IDS INTELLIGENT DETECTION SYSTEMS INC.
Notes to Unaudited Pro forma Consolidated Statement of Earnings
Year ended December 31, 1998
(In thousands of dollars, except per share amounts)
- - - --------------------------------------------------------------------------------
1. Basis of presentation:
On June 7, 1998, IDS Intelligent Detection Systems Inc. ("IDS" or the
"Registrant") acquired for cash and common shares 100% of the issued and
outstanding common shares of Scintrex Limited ("Scintrex") and its
wholly-owned subsidiaries. The acquisition was accounted for by the
purchase method with the results of Scintrex's operations included in the
accounts of the Registrant from the effective date of the acquisition. The
Registrant acquired Scintrex Limited by paying cash of $18,316 and issuing
3,914,858 common shares of the Registrant valued at $17,897.
The accompanying pro forma consolidated statement of earnings is based upon
the audited and unaudited consolidated statement of earnings of IDS and
Scintrex for the year ended December 31, 1998, respectively, and has been
prepared by management of IDS for inclusion in this registration statement.
The pro forma consolidated statement of earnings has been prepared in
accordance with generally accepted accounting principles in Canada to
illustrate the Registrant's acquisition of Scintrex as if the acquisition
occurred on January 1, 1998.
The pro forma consolidated income statement may not necessarily be
indicative of the results that would have been obtained had the two
companies operated as a single entity from January 1, 1998.
This statement should be read in conjunction with the historical
consolidated statement of earnings of the Registrant, which is included
elsewhere in this registration statement.
2. Notes to pro forma consolidated statement of earnings:
(a) Amortization:
To reflect the increase in amortization expense due to (a) the
amortization of goodwill on a straight-line basis over 20 years, and
(b) increase in amortization resulting from the step-up in capital
assets amortized on a straight-line basis over periods of five to
twenty years.
(b) Non-recurring charges:
Included in the results for Scintrex to June 8, 1998 under
restructuring charges are amounts related to Scintrex's defense of
IDS's takeover and severance paid to certain members of Scintrex after
completion of the takeover by IDS. These amounts totalling $1,751 are
not expected to occur in future periods and would reduce the loss from
continuing operations to $3,802.
(c) Scintrex Limited from January 1, 1998 to June 7, 1998:
The consolidated operating results for Scintrex for the period January
1, 1998 to June 7, 1998 were obtained from management and are
unaudited.
F-44
<PAGE>
IDS INTELLIGENT DETECTION SYSTEMS INC.
Notes to Unaudited Pro forma Consolidated Statement of Earnings, page 2
Year ended December 31, 1998
(In thousands of dollars, except per share amounts)
- - - --------------------------------------------------------------------------------
3. United States accounting principles:
The pro forma consolidated income statement has been prepared in accordance
with Canadian generally accepted accounting principles ("GAAP") which in
the case of the Registrant differ in the following material respects from
those generally accepted in the United States:
Pro forma loss from continuing operations $ (5,553)
Deferred development costs 979
- - - --------------------------------------------------------------------------------
Pro forma loss from continuing operations under U.S. GAAP $ (6,532)
- - - --------------------------------------------------------------------------------
Net loss per common share:
Continuing operations $ (0.31)
- - - --------------------------------------------------------------------------------
Weighted average number of shares outstanding 20,858,436
- - - --------------------------------------------------------------------------------
Under Canadian GAAP, development costs can be deferred and amortized if
certain criteria are met. Under U.S. GAAP, development costs are expensed
as incurred resulting in an increase in the 1998 pro forma loss from
continuing operations of $979.
F-45
<PAGE>
APRIL 06 AVRIL, 1995
ARTICLES OF INCORPORATION
STATUTS CONSTITUTIFS
1. The name of the corporation is:
MAA INTERNATIONAL CORPORATION
2 The address of the registered office is:
Suite 1200, Elgin Street
(Street & Number)
Ottawa, Ontario K2P2K7
(Name of Municipality or Post Office Postal Code
Regional Municipality
City of Ottawa in the of Ottawa-Carleton
(Name of Municipality) (County, District Regional Municipality)
3. Number (or minimum and maximum number) of
directors is:
Minimum 1, Maximum 10
4. The first director(s) is/are
First name, initials Residence address, giving Resident Canadian State
and surname street & No. Or R.R. No. or Yes or No
Municipality and postal code
Thomas A. Houston 19 Orrin Avenue Yes
Ottawa, Ontario
K1Y 3X5
5. Restrictions, if any, on business the corporation may carry on or on
powers the corporation may exercise.
None
<PAGE>
6. The classes and any maximum number of shares that the corporation
is authorized to issue.
The Corporation is authorized to issue an unlimited number of common
shares.
7. Rights, privileges, restrictions and conditions (if any) attaching to
each class of shares and directors authority with respect to any class
of shares which may be issued in series:
Not Applicable.
8. The issue, transfer or ownership of shares is restricted and the
restrictions (if any) are as follows:
The transfer of shares of the corporation shall be restricted in that
no shareholder shall be entitled to transfer any share or shares
without either:
(a) the approval of the directors of the Corporation
expressed by a resolution passed at a meeting of the
board of directors or by an instrument or instruments
in writing signed by a majority of the directors; or
(b) the approval of the holders of at least a majority of
the shares of the Corporation entitling the
9. Other provisions, if any, are:
1. (a) The number of shareholders of the Corporation, exclusive of
persons who are in the employment of the Corporation and exclusive of persons
who, having been formerly in the employment of the Corporation, were, while in
that employment and have continued after the termination of that employment to
be, shareholders of the Corporation, is limited to not more than fifty, two or
more persons who are joint registered owners of one or more shares being counted
as one shareholders; and
(b) any invitation to the public to subscribe for securities of
the Corporation is prohibited.
<PAGE>
2. In addition to, and without limiting such other powers which the
Corporation may by law possess, the directors of the Corporation may, without
authorization of the shareholders, by authentic deed, in particular but without
limitation, for the purpose of securing any bonds, debentures or debenture stock
which it is by l aw entitled to issue, hypothecate, mortgage, pledge, cede or
transfer any property, moveable or immoveable, present or future, which it may
own.
10. The names and addresses of the incorporators are:
Thomas A. Houston.
Full residence address or address of registered office or of principal place of
business giving street and No. or RR No. municipality and postal code.
19 Orrin Avenue
Ottawa, Ontario
K1Y 3X5
These articles are signed in duplicate.
/s/Thomas A. Houston
-------------------------
Thomas A. Houston
<PAGE>
Summary of Capital Transactions
CPAD Technologies Inc.
<TABLE>
<S> <C> <C> <C> <C>
Timing Description # shares Consideration Form of consideration
13-Apr-95 MAA International Corporation
acquired shares of CPAD
Technologies Inc. as follows:
From Treasury 186900 $150,000 Cash
From Research Corporation 701000 $932,330 Promissory Note
Technologies
From Colin Corrigan a Control of 687,667
put/call arrangement shares acquired, no
consideration paid at
this time. Terms of
put/call agreement
provided for Colin to
put shares to MAA on a
quarterly basis
starting April 1996.
Legal title to shares
not transferred to MAA
until the put/call
occurred.
Control by MAA excluding
put/call of Colin Corrigan
shares 43.59%
Control by MAA including
put/call of Colin Corrigan
shares 77.54%
Apr-96 Under the terms of the 20225 $21,438.50
put/call arrangement, Colin
Corrigan put his first set of
shares to MAA.
Jul-96 Under the terms of the 20225 21438.5
put/call arrangement, Colin
Corrigan put his second set
of shares to MAA
Oct-96 Under the terms of the 20225 $21,438.50
put/call arrangement, Colin
Corrigan put his third set of
shares to MAA
Dec-96 MAA sold shares in CPAD to -66150 Sold 16,150 at $16
strategic/accredited investors per share. Sold
50,000 at $20
in order to raise money for the US per share
purposes that will be explained
below.
NOTE: Colin Corrigan exercised
his co-sale right of notification
of sale of shares by MAA and
disposed of his remaining
interest in CPAD.
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Restructuring of the put/call 615392
agreement to make it most tax
advantageous for MAA and Colin
Corrigan. Allowed for Colin to
receive same funds as if put/call
were in place but with less tax
liability for MAA; no tax impact
to Colin Corrigan. (essentially a
disposal by MAA of 11,600 shares
in this restructuring as MAA
acquired 615,392 shares instead
of 626,992 remaining under
put/call).
Jan-97 MAA sold shares in CPAD to -27250 ($436,000)
accredited investors as a part of
sale commenced in 1996
Feb-97 Exercise of put over RCT shares 40000 $75,200
Shares owned by MAA and 1510567
wholly-owned subsidiary
as of September 17, 1997
Analysis of Treasury
Transactions Post April 13,
1995:
Total shares outstanding at 2032059
CPAD Technologies Inc as of
December 31, 1995 (after
effecting acquisition from
Treasury by MAA
Apr-96 Issuance of shares to 233241
shareholder AGISS Power
Technologies Inc as a part of
the share exchange agreement
to acquire control of 100% of
AGISS
Feb-97 Exercise of options by 54908
employees accordance to Sept
97 with stock option incentive
plan ($3 per share)
Total shares outstanding as 2320208
of September 17, 1997
</TABLE>
<PAGE>
ARTICLES OF AMENDMENT
STATUTS DE MODIFICATION
1. The name of the corporation is:
MAA INTERNATIONAL CORPORATION
2. The name of the corporation is changed to (if applicable):
IDS INTELLIGENT DETECTION SYSTEMS INC.
3. Date of incorporation/amalgamation: 1995/APRIL/06
4. The articles of the corporation are amended as follows:
1. to change the name of the Corporation to IDS Intelligent Detection Systems
Inc.;
2. to remove the rights, privileges, restrictions and conditions attaching to
the common shares.
3. to change the designation of the common shares to Class A Common Shares;
4. to divide each issued and outstanding common share into 900
Class A Common Shares;
5. to create a new class of shares, unlimited in number, to be
designated as Class B Common Shares;
6. to provide that, after giving effect to the foregoing, the
Corporation is authorized to issue an unlimited number of
Class A Common Shares and an unlimited number of Class B
Common Shares; and
7. to provide that the rights, privileges, restrictions and
conditions attaching to the Class A Common Shares and the
Class B Common Shares are as set forth in Schedule 1 annexed
hereto.
<PAGE>
SCHEDULE 1
The Corporation is authorized to issue an unlimited number of Class A
Common Shares and an unlimited number of Class B Common Shares.
Subject to the requirements of the Business Corporations Act (Ontario)
as now enacted or the same may from time to time be amended, re-enacted or
replaced (the "Act"), the rights, privileges, restrictions, and conditions
attaching to the Class A Common Shares and the Class B Common Shares of the
Corporation are as follows:
Class A Common Shares and Class B Common Shares
1. Dividends
The Class A Common Shares and the Class B Common Shares in the capital
of the Corporation shall participate equally as to dividends and, all dividends
that the directors may determine to declare and pay in any fiscal year of the
Corporation shall be declared and paid in equal or equivalent amounts per share
on all the Class A Common Shares and all the Class B Common Shares at the time
outstanding, without preference or distinction.
2. Subdivision, Consolidation, Reclassification, etc.
Neither the Class A Common Shares nor the Class B Common Shares may be
subdivided, consolidated, reclassified or otherwise changed unless
contemporaneously therewith the other class of shares is subdivided,
consolidated, reclassified or otherwise changed in the same proportion and in
the same manner.
3. Liquidation, Dissolution or Winding-Up.
In the event of the liquidation, dissolution or winding-up of the
Corporation or other distribution of assets of the Corporation among
shareholders for the purpose of winding-up its affairs, the holders of the Class
A Common Shares and the Class B Common Shares shall be entitled to receive pro
rata on a share for share basis the remaining assets of the Corporation.
4. Voting Rights.
(a) The holders of the Class A Common Shares shall be entitled to
receive notice of and to attend any meeting of the shareholders of the
Corporation and shall be entitled to one vote in respect or each Class A Common
Share held at such meetings, except a meeting of holders of a particular class
of shares other than the Class A Common Shares who are entitled to vote
separately as a class at such meeting;
(b) Except as otherwise provided by law, the holders of the Class B
Common Shares as such shall not be entitled to receive notice of or to attend
any meeting of the shareholders of the Corporation,
<PAGE>
unless the meeting is called to consider any matter in respect of which the
holders of the Class B Common Shares would be entitled to vote separately as a
class or for the purpose of authorizing the dissolution of the Corporation or
the sale, lease or exchange of all or substantially all the property of the
Corporation other than in the ordinary course of business of the Corporation
under subsection 184(3) of the Act, in which case the holders of the Class B
Common Shares shall entitled to receive notice of and to attend such meeting.
The holders of the Class B Common Shares as such shall not be entitled either to
vote at any meeting of the shareholders of the Corporation or to sign a
resolution in writing, except, subject as hereinafter provided, at a meeting
called to consider, or a resolution in writing in respect of any matter in
respect of which the holders of the Class B Common Shares would be entitled to
vote separately as a class pursuant to the Act; and
(c) Notwithstanding the provisions of the Act and any other provision
contained herein, the holders of the Class B Common Shares shall not be entitled
to vote separately as a class upon a proposal to amend these Articles to:
(i) increase or decrease any maximum number of authorized
Class B Common Shares, or increase any maximum number
of authorized shares of a class or series of shares
having rights or privileges equal or superior to the
Class B Common Shares;
(ii) effect an exchange, reclassification or cancellation
of the Class B Common Shares; or
(iii) create a new class of shares equal or superior to the
Class B Common Shares.
5. The amendment has been duly authorized as required by Sections 168 & 170 (as
applicable) of the Business Corporations Act
6. The resolution authorizing the amendment was approved by the
shareholders/directors (as applicable) of the corporation on 1997/August/01.
These articles are signed in duplicate.
MAA INTERNATIONAL CORPORATION
By: /s/Mariusz Rybak, President
<PAGE>
Ontario Corporation Number
1248974
Ministry of
Consumer and
Commercial Relations
CERTIFICATE
This is to certify that these
articles are effective on
SEPTEMBER 30, 1997
- - - -------------------------
Director
Business Corporations Act
Form 4
Business
Corporations
Act
ARTICLES OF AMALGAMATION
1. The name of the corporation is:
IDS INTELLIGENT DETECTION SYSTEMS INC.
2. The address of the registered office is:
66 SLATER STREET, 6TH FLOOR
OTTAWA, ONTARIO K1P5H1
3. Number (or minimum and maximum number) of directors is:
MINIMUM ONE (1), MAXIMUM TEN (10)
4. The director(s) is/are:
<TABLE>
<CAPTION>
Resident
Canadian
Residence address, giving Street & No. State
First name, initials and surname Or R.R. No., municipality and postal code Yes or No
<S> <C> <C>
ANDY A. RYBAK 2010 ALTA VISTA DRIVE, YES
OTTAWA, ONTARIO, K1H 7L1
MARIUSZ RYBAK 589 ISLAND PARK CRESCENT, YES
OTTAWA, ONTARIO, K1Y 3P3
<PAGE>
2
SANJE RATNAVALE 7460 EAST KNOLLWOOD DRIVE NO
TUCSON, ARIZONA, 85750
ANICET BLAIS 33 CARRIBOU AVENUE, YES
STITTSVILLE, ONTARIO, K2S 1M7
FRANCOIS HUBERT 17 VILLE FRANCHE, YES
GATINEAU, QUEBEC, J8T 6E1
</TABLE>
5. (A) The amalgamation agreement has been duly adopted by the
shareholders of each of the amalgamating corporations as
required by subsection 176 (4) 6f of Business Corporations Act
on the date set out below |X|
(B) The amalgamation has been approved by the directors of each
amalgamating corporation by a resolution as required by
section 177 of the Business Corporations Act on the date set
out below. The articles of amalgamation in substance contain
the provisions of the articles of incorporation of
--------------------------------------------------------------
and are more particularly set out in these articles
<TABLE>
<CAPTION>
Names of amalgamating Ontario corporation number Date of Adoption/Approval
corporations
<S> <C> <C>
IDS INTELLIGENT DETECTION 1117380 SEPTEMBER 30, 1997
SYSTEMS INC.
CPAD TECHNOLOGIES INC. 1197744 SEPTEMBER 30, 1997
1202733 ONTARIO INC. 1202733 SEPTEMBER 30, 1997
</TABLE>
<PAGE>
3
6. Restrictions, if any, on business the corporation may carry on or on
powers the corporation may exercise.
NONE
7. The classes and any maximum number of shares that the corporation is
authorized to issue:
An unlimited number of Class A Common shares and an unlimited number of
Class B Common Shares.
<PAGE>
4
8. Rights, privileges, restrictions and conditions (if any) attaching to
each class of shares and directors authority with respect to any class
of shares which is to be issued in series:
The Class A Common Shares and the Class B Common Shares shall carry and be
subject to the following rights, privileges, restrictions and conditions:
(a) The Class A Common Shares and the Class B Common Shares in the capital of
the Corporation shall participate equally as to dividends rid, subject to
payment of dividends ranking in priority to the Class A and Class B Common
Shares, all dividends that the directors may determine to declare and pay
in any fiscal year of the Corporation shall be declared and paid in equal
or equivalent amounts per share on all the Class A Common Shares and all
the Class B Common Shares at the time outstanding, without preference or
distinction.
(b) Neither the Class A Common Shares nor the Class B Common Shares may be
subdivided, consolidated, reclassified or otherwise changed unless
contemporaneously therewith the other class of shares is subdivided,
consolidated, reclassified or otherwise changed in the same proportion and
in the same manner.
(c) In the event of the liquidation, dissolution or winding up of the
Corporation or other distribution of property and assets of the Corporation
among its shareholders for the purpose of winding up its affairs, all the
property and assets of the Corporation available for distribution to the
holders of the Class A Common Shares and the Class B Common Shares shall be
paid or distributed equally share for share to the holders of the Class A
Common Shares and the Class B Common Shares, rateably, without preference
or distinction.
(d) The holders of the Class A Common Shares shall be entitled to vote at all
meetings of shareholders of the Corporation, except meetings at which only
the holders of a specified class of shares are entitled to vote, and shall
have one (1) vote in respect of each Class A Common Share held. Subject to
the provisions of the Business Corporations Act as the same may from time
to time be in force, or any substitute or successor legislation thereto,
the holders of the Class B Common Shares shall not be entitled to vote at
any meeting of shareholders of the Corporation. The holders of the Class B
shares shall, however, be entitled to receive notice of and to attend all
meetings of shareholders of the Corporation.
(e) Subject to the foregoing, each Class A Common Share and each Class B Common
Share shall have the same rights and attributes and be the same in all
respects.
<PAGE>
5
9. The issue, transfer or ownership of shares is/is not restricted and the
restrictions (if any) are as follows:
NOT APPLICABLE
10. Other provisions, if any are:
NOT APPLICABLE
11. The statements required by subsection 178(2) of the Business
Corporations Act are attached as Schedule "A".
12. A copy of the amalgamation agreement or directors resolutions (as the
case may be) is/are attached as Schedule "B".
<PAGE>
6
These articles are signed in duplicate.
Names of the amalgamating corporations and signatures and descriptions of office
of their proper officers.
IDS INTELLIGENT DETECTION CPAD TECHNOLOGIES INC.
SYSTEMS INC.
BY: /S/MARIUSZ RYBAK BY: /S/MARIUSZ RYBAK
Mariusz Rybak, President Mariusz Rybak,
Chief Executive Officer
1202733 ONTARIO INC.
BY: /S/MARIUSZ RYBAK
Mariusz Rybak, President
<PAGE>
SCHEDULE 'A'
IN THE MATTER OF THE BUSINESS CORPORATIONS ACT
AND IN THE MATTER OF THE PROPOSED AMALGAMATION OF
IDS INTELLIGENT DETECTION SYSTEMS INC.,
CPAD TECHNOLOGIES NC.
AND 1202733 ONTARIO INC.
I, Mariusz Rybak, hereby make the following statement in support of the
above-mentioned amalgamation pursuant to subsection 178(2) of the Business
Corporations Act (the "Act"):
1. I am President of IDS Intelligent Detection Systems Inc. ("IDS"), Chief
Executive Officer of CPAD Technologies Inc. ("CPAD") and President of 1202733
Ontario Inc. ("1202733"), and as such have personal knowledge of the following
matters;
2. There are reasonable grounds for believing that each of IDS, CPAD and 1202733
is and the amalgamated corporation resulting from the amalgamation of IDS, CPAD
and 1202733 will be able to pay their respective liabilities as they become due
and that the realizable value of the said amalgamated corporation's assets will
not be less than the aggregate of its liabilities and stated capital of all
classes;
3. There are reasonable grounds for believing that no creditor will be
prejudiced by the amalgamation;
4. No creditors have notified either of IDS or CPAD or 1202733 that they object
to the amalgamation and accordingly clause (c) of subsection 178(2) of the Act
has no application; and
<PAGE>
2
5. Since neither IDS nor CPAD nor 1202733 has received any notices pursuant to
clause (c) of subsection 178(2) of the Act, clause (d) of subsection 178(2) of
the Act has no application in the present circumstances.
DATED the 30th day of September, 1997.
/S/MARIUSZ RYBAK
Mariusz Rybak
<PAGE>
SCHEDULE "B"
AMALGAMATION AGREEMENT
THIS AGREEMENT made the 30th day of September, 1997.
B E T W E E N:
CPAD TECHNOLOGIES INC., a corporation incorporated under the
laws of the Province of Ontario
(HEREINAFTER CALLED "CPAD")
OF THE FIRST PART
- and -
IDS INTELLIGENT DETECTION SYSTEMS INC., a corporation
incorporated under the laws of the Province of Ontario
(hereinafter called "IDS")
OF THE SECOND PART
- and -
1202733 ONTARIO INC., a corporation incorporated under the
laws of the Province of Ontario
(hereinafter called "1202733")
OF THE THIRD PART
WHEREAS the authorized capital of CPAD consists of an unlimited number
of 1st Preference Shares, an unlimited number of Class A Common Shares and an
unlimited number of Class B Common Shares, of which 2,330,728 Class A Common
Shares and 130,000 Class B Common Shares are issued and outstanding as fully
paid and non-assessable;
AND WHEREAS the authorized capital of 1195 consists of an unlimited
number of Class A Common Shares and Class B Common Shares, of which 10,040,504
Class A Common Shares are issued and outstanding as fully paid and
non-assessable;
<PAGE>
2
AND WHEREAS the authorized capital of 1202733 consists of an unlimited
number of Preferred Shares and an unlimited number of Common Shares, of which
1,000 Common Shares are issued and outstanding as frilly paid and
non-assessable;
AND WHEREAS the parties hereto desire to amalgamate and continue as
one corporation PURSUANT TO THE PROVISIONS OF THE BUSINESS CORPORATIONS ACT
('the "Act") upon the terms and conditions hereinafter set out;
NOW THEREFORE THIS AGREEMENT WITNESSETH as follows:
1. DEFINITION
In this Agreement the term "Corporation" shall mean the corporation
continuing from the amalgamation of CPAD, IDS and 1202733.
2. AMALGAMATION
CPAD, IDS and 1202733 hereby agree to amalgamate under the provisions
of the Act, and to continue as one corporation under the terms and conditions
hereinafter set out and to file articles of amalgamation to become effective
September 30, 1997.
3. NAME
The name of the Corporation shall be IDS Intelligent Detection Systems
Inc.
4. REGISTERED OFFICE
The place in Canada where the registered office of the Corporation is
to be situated is in the Regional Municipality of Ottawa-Carleton, in the
Province of Ontario, until changed in accordance with the Act.
5. ARTICLES
The articles of amalgamation of the Corporation shall be those set out
in the attached Exhibit "A" which set out the provisions that are required to be
included in articles of incorporation under section 5 of the Act.
<PAGE>
3
6. DIRECTORS
The name and residence address of the first directors of the
Corporation are as follows:
NAME ADDRESS
Andy A. Rybak 2010 Alta Vista Drive, Ottawa, Ontario KlH 7L1
Mariusz Rybak 589 Island Park Crescent, Ottawa, Ontario K1Y 3P3
Sanje Ratnavale 7460 East Knollwood Drive, Tucson, Arizona 85750
Larry Haley 1 Manju Street, Ottawa, Ontario K1G 4T7
Anicet Blais 33 Carribou Avenue, Stittsville, Ontario, K25 1M7
Francois Hubert 17 Ville Franche, Gatineau, Quebec, J8T 6E1
The said first directors shall hold office until the first meeting of the
shareholders of the Corporation or until their successors are elected or
appointed in accordance with the Act. No such first director shall be permitted
to resign unless at the time the resignation is to become effective a successor
is elected or appointed.
7. NUMBER OF DIRECTORS
The number of directors of the Corporation within the minimum and
maximum numbers of directors provided for in the Articles of the Corporation
shall be six (6) and the directors of the Corporation shall be empowered to
determine from time to time the number of directors of the Corporation within
the minimum and maximum numbers provided for in the Articles of the Corporation,
as the same may be amended from time to time.
8. ISSUED CAPITAL
The issued and outstanding shares of CPAD, IDS and 1202733 shall be
converted into issued shares of the Corporation as follows:
(a) the Class A Common Shares of CPAD held by shareholders other than IDS and
1202733 shall be converted into Class A Common Shares of the Corporation on
the basis of 4.4065761 Class A Common Shares of the Corporation for each
Class A Common Share of CPAD;
(b) the Class B Common Shares of CPAD held by shareholders other than 1195 and
1202733 shall be converted into Class B Common Shares of the Corporation on
the basis of 4.4065761 Class B Common Shares of the Corporation for each
Class B Common Share of CPAD;
<PAGE>
4
(c) the Class A Common Shares of CPAD held by IDS shall be canceled;
(d) the Class B Common Shares of CPAD held by IDS shall be canceled;
(e) the Class A Common Shares of CPAD held by 1202733 shall be canceled;
(f) the Common Shares of 1202733 shall be canceled; and
(g) the Class A Common Shares of IDS shall be converted into Class A Common
Shares of the Corporation on the basis of 0.6817305 Class A Common Shares
of the Corporation for each Class A Common Share of IDS and 0.0114109 Class
B Common Shares of the Corporation for each Class A Common Share of IDS.
No fractional shares shall be issued by the Corporation. nor shall it be
liable to pay any compensation in lieu of such fractional shares.
9. STATED CAPITAL
The stated capital accounts of the Corporation immediately after the
amalgamation becomes effective shall be equal to the following amounts
determined immediately before the amalgamation becomes effective:
(a) in the case of the account maintained for the Class A Common Shares of the
Corporation, the aggregate of the stated capital accounts for the issued
and outstanding Class A Common Shares of CPAD and the issued and
outstanding Class A Common Shares of IDS; and
(b) in the case of the account maintained for the Class B Common Shares of the
Corporation. the stated capital account for the issued and outstanding
Class B Common Shares of CPAD.
10. SHARE CERTIFICATES
Upon the amalgamation of CPAD, 1195 and 1202733, the shareholders of
CPAD, IDS and 1202733, when requested by the Corporation to do so, shall
surrender certificates representing the shares of CPAD, 1195 and 1202733 held by
them for cancellation and shall be entitled to receive, without charge,
certificates for shares of the Corporation on the basis aforesaid.
11. ISSUANCE OF SECURITIES
<PAGE>
5
No securities shall be issued by the Corporation in connection with
the amalgamation.
12. BY-LAWS
The by-laws of the Corporation are to be those of IDS, until repealed,
amended, altered or added to in accordance with the Act.
13. OFFICERS
The officers of the Corporation shall, until changed by the directors,
be the officers of CPAD in office immediately before the amalgamation of CPAD,
IDS and 1202733.
14. CONTRIBUTIONS TO CORPORATION
Each of the parties shall contribute to the Corporation all of its
assets, subject to its liabilities.
15. DELIVERY OF ARTICLES OF AMALGAMATION
Upon the shareholders of each of CPAD, IDS and 1202733 approving the
amalgamation herein provided for pursuant to subsection 176(4) of the Act,
articles of amalgamation in prescribed form shall be sent to the Director under
the Act together with the other documents required by section 178 of the Act so
as to effect the amalgamation.
16. EFFECT
Upon the amalgamation of CPAD, IDS and 1202733 and their continuance
as one corporation becoming effective:
(a) their property shall continue to be the property of the Corporation;
(b) the Corporation shall continue to be liable for their obligations;
(c) an existing cause of action, claim or liability to prosecution relating to
one or both of them shall be unaffected;
(d) a civil, criminal or administrative action or proceeding pending by or
against one or both of them may be continued to be prosecuted by or against
the Corporation;
(e) a conviction against, or ruling, order or judgement in favor of or against,
one or both of them may be enforced by or against the Corporation; and
<PAGE>
6
(f) the Corporation's articles of amalgamation shall be deemed to be its
articles of incorporation and the Corporation's certificate of amalgamation
shall be deemed to be its certificate of incorporation.
17. TERMINATION OF AGREEMENT
At any time before the issuance of a certificate of amalgamation
effecting the amalgamation of CPAD, IDS and 1202733, this Agreement may be
terminated by the directors of any of CPAD, IDS or 1202733 notwithstanding the
approval of this Agreement by the shareholders of CPAD, IDS or 1202733.
IN WITNESS WHEREOF this Agreement has been duly executed by the parties
hereto.
CPAD TECHNOLOGIES INC.
PER: /S/MARIUSZ RYBAK
IDS INTELLIGENT DETECTION
SYSTEMS INC.
PER: /S/MARIUSZ RYBAK
1202733 ONTARIO INC.
PER: /S/MARIUSZ RYBAK
<PAGE>
Ontario Corporation Number
1248974
Ministry of
Consumer and
Commercial Relations
CERTIFICATE
This is to certify that these
articles are effective on
NOVEMBER 21, 1997
- - - -------------------------
Director
Business Corporations Act
Form 3
Business
Corporations
Act
ARTICLES OF AMENDMENT
1. The name of the corporation is:
IDS INTELLIGENT DETECTION SYSTEMS INC.
2. The name of the corporation is changed to applicable):
IDS INTELLIGENT DETECTION SYSTEMS INC./SYSTEMES DE DETECTION
INTELLIGENTS IDS INC.
3. Date of incorporation/amalgamation:
1997/SEPTEMBER/30
4. The articles of the corporation are amended as follows:
1. To approve the addition of the French version to the Corporation's
name as follows:
Systemes de detection intelligents IDS inc.
2. To change the designation of the existing Class A Common Shares to
Common Shares and to change the designation of the existing Class B
Common Shares to Class B Shares; and
<PAGE>
2
3. To provide that, after giving effect to the foregoing, the
Corporation is authorized to issue an unlimited number of Common Shares
and an unlimited number of Class B Shares.
5. The amendment has been duly authorized as required by Sections 168 & 170
(as applicable) of the Business Corporations Act.
6. The resolution authorizing the amendment was approved by the
shareholders/directors (as applicable) of the corporation on
1997/NOVEMBER/12
These articles are signed in duplicate.
IDS INTELLIGENT DETECTION
SYSTEMS INC.
BY:/S/MARIUSZ RYBAK CHAIRMAN
<PAGE>
IDS INTELLIGENT DETECTION SYSTEMS INC.
BY-LAW NO. 1
TABLE OF CONTENTS
SECTION PAGE NO.
INTERPRETATION
1. Interpretation........................................................1
SEAL
2. Seal..................................................................2
DIRECTORS
3. Duties and Number.....................................................2
4. Term of Office........................................................2
5. Vacation of Office....................................................2
6. Election and Removal..................................................2
7. Committee of Directors................................................3
MEETINGS OF DIRECTORS
8. Place of Meeting......................................................3
9. Notice................................................................3
10. Omission of Notice....................................................4
11. Adjournment...........................................................4
12. Quorum................................................................4
13. Telephone Participation...............................................4
14. Voting................................................................5
15. Resolution in Lieu of Meeting.........................................5
<PAGE>
ii.
REMUNERATION OF DIRECTORS
16. Remuneration of Directors.............................................5
SUBMISSION OF CONTRACTS OR TRANSACTIONS TO
SHAREHOLDERS FOR APPROVAL
17. Approval .............................................................5
FOR THE PROTECTION OF DIRECTORS AND OFFICERS
18. Conflict of Interest..................................................5
19. For the Protection of Directors and Officers..........................6
INDEMNITIES TO DIRECTORS AND OFFICERS
20. Indemnities to Directors and Officers.................................7
OFFICERS
21. (a) Appointment.......................................................7
(b) Divisions.........................................................8
22. Remuneration and Removal..............................................8
23. Powers and Duties.....................................................8
24. Duties May be Delegated...............................................8
25. Chairman of the Board.................................................9
26. Vice-Chairman of the Board............................................9
27. President.............................................................9
28. Vice-President........................................................9
29. Secretary.............................................................9
30. Treasurer.............................................................9
31. Assistant Secretary and Assistant Treasurer..........................10
32. Managing Director....................................................10
33. General Manager or Manager...........................................10
34. Vacancies............................................................10
<PAGE>
iii.
SHAREHOLDERS' MEETINGS
35. Annual Meeting.......................................................10
36. Special Meetings.....................................................10
37. Notice...............................................................11
38. Waiver of Notice.....................................................11
39. Omission of Notice...................................................11
40. Votes................................................................11
41. Chairman of the Meeting..............................................12
42. Proxies..............................................................12
43. Adjournment..........................................................13
44. Quorum...............................................................14
45. Resolution in Lieu of Meeting........................................14
SECURITIES
46. Issuance of Shares...................................................14
47. Certificates.........................................................14
TRANSFER OF SECURITIES
48. Transfer Agent and Registrar.........................................15
49. Securities Registers.................................................15
50. Surrender of Certificates............................................15
51. Shareholder Indebted to the Corporation..............................15
52. Lost, Apparently Destroyed or Wrongfully Taken Security Certificates.16
DIVIDENDS
53. Dividends............................................................16
VOTING SHARES AND SECURITIES
IN OTHER BODIES CORPORATE
54. Voting Shares and Securities in other Bodies Corporate...............17
<PAGE>
iv.
INFORMATION AVAILABLE TO SHAREHOLDERS
55. Confidential Information Not Available to Shareholders...............17
56. Availability of Corporate Records to Shareholders....................17
NOTICES
57. Service..............................................................18
58. Securities Registered in More Than One Name..........................18
59. Persons Becoming Entitled by Operation of Law........................18
60. Deceased Security Holders............................................18
61. Signature to Notices.................................................19
62. Computation of Time..................................................19
63. Proof of Service.....................................................19
CHEQUES, DRAFTS AND NOTES
64. Cheques, Drafts and Notes............................................19
CUSTODY OF SECURITIES
65. Custody of Securities................................................19
EXECUTION OF INSTRUMENTS
66. Execution of Instruments.............................................20
FINANCIAL YEAR
67. Financial Year.......................................................22
<PAGE>
1.
IDS INTELLIGENT DETECTION SYSTEMS INC.
BY-LAW NO. 1
A by-law relating generally to the conduct of the affairs of
the Corporation.
INTERPRETATION
1. INTERPRETATION. In this by-law and all other by-laws of the Corporation,
unless the context otherwise specifies or requires:
(a) "Act" means the Business Corporations Act, R.S.O. 1990, c. B.16, as
from time to time amended and every statute that may be substituted therefor
and, in the case of such substitution, any references in the by-laws of the
Corporation to provisions of the Act shall be read as references to the
substituted provisions therefor in the new statute or statutes;
(b) "Regulations" means the Regulations made under the Act as from time
to time amended and every regulation that may be substituted therefor and, in
the case of such substi tution, any references in the by-laws of the Corporation
to provisions of the Regulations shall be read as references to the substituted
provisions therefor in the new regulations;
(c) "by-law" means any by-law of the Corporation from time to time in
force and effect;
(d) all terms which are contained in the by-laws and which are defined
in the Act or the Regulations shall have the meanings respectively given to such
terms in the Act or the Regulations;
(e) words importing the singular number only shall include the plural
and vice versa and words importing a specific gender shall include the other
genders; and
(f) the headings used in the by-laws are inserted for reference
purposes only and are not to be considered or taken into account in construing
the terms or provisions thereof or to be deemed in any way to clarify, modify or
explain the effect of any such terms or provisions.
<PAGE>
2.
SEAL
2. SEAL. The Corporation may but need not have a corporate seal. Any corporate
seal adopted for the Corporation shall be such as the board of directors may by
resolution from time to time approve.
DIRECTORS
3. DUTIES AND NUMBER. Subject to any unanimous shareholder agreement, the
directors shall manage or supervise the management of the business and affairs
of the Corporation. The board of directors shall consist of the number of
directors set out in the articles of the Corporation or, where a minimum and
maximum number is provided for in the articles, such number of directors as
shall be determined from time to time by special resolution or, if the special
resolution empowers the directors to determine the number, by resolution of the
directors. A majority of the directors shall be resident Canadians except that
where the Corporation has only one or two directors, that director or one of the
two directors, as the case may be, shall be a resident Canadian. If the
Corporation is an offering corporation, at least one-third of the directors
shall not be officers or employees of the Corporation or of any affiliate of the
Corporation.
4. TERM OF OFFICE. A director's term of office (subject to (a) the provisions of
the articles of the Corporation; (b) the provisions of the Act; (c) any
unanimous shareholder agreement; and (d) any expressly stated term of office)
shall be from the date on which he is elected or appointed until the close of
the annual meeting next following.
5. VACATION OF OFFICE. The office of a director shall ipso facto be vacated: (a)
if he becomes bankrupt or suspends payment of his debts generally or compounds
with his creditors or makes an authorized assignment or is declared insolvent;
(b) if he is found to be a mentally incompetent person or of unsound mind; (c)
subject to the provisions of the Act, if by notice in writing to the Corporation
he resigns his office, which resignation shall be effective at the time it is
received by the Corporation or at the time specified in the notice, whichever is
later; (d) if he dies; or (e) if he is removed from office by the shareholders
in accordance with paragraphE6.
6. ELECTION AND REMOVAL. Subject to Section 120 of the Act, the shareholders of
the Corporation shall elect, at the first meeting of shareholders and at each
succeeding annual meeting at which an election of directors is required,
directors to hold office for a term expiring not later than the close of the
third annual meeting of shareholders following the election. A director not
elected for an expressly stated term ceases to hold office at the close of the
first annual meeting of shareholders following his election, but, if qualified,
is eligible for re-election. If directors are not elected at a meeting of
shareholders, the incumbent directors continue in office until their successors
are elected. Provided always that, subject to Section 122 of the Act, the
shareholders of the Corporation may, by ordinary resolution passed at an annual
or special meeting of shareholders, remove any director or directors from office
and a vacancy created by
<PAGE>
3.
the removal of a director may be filled at the meeting of the shareholders at
which the director is removed.
7. COMMITTEE OF DIRECTORS. The directors may appoint from among their number a
committee of directors and subject to Subsection 127(3) of the Act may delegate
to such committee any of the powers of the directors. A majority of the
directors of any such committee must be resident Canadians. Subject to the
by-laws and any resolution of the board of directors, the committee of
directors, if any, may meet for the transaction of business, adjourn and
otherwise regulate its meetings as it sees fit and may from time to time adopt,
amend or repeal rules or procedures in this regard. Subject to the Act, except
to the extent otherwise determined by the board of directors or, failing such
determination, as determined by the committee of DIRECTORS, THE PROVISIONS OF
PARAGRAPHS 8 TO 15, INCLUSIVE, SHALL APPLY, MUTATIS MUTANDIS, to such committee.
MEETINGS OF DIRECTORS
8. PLACE OF MEETING. Meetings of the directors may be held within or outside
Ontario and it shall not be necessary in any financial year of the Corporation
to hold a majority of the meetings of the directors at a place within Canada.
9. NOTICE. A meeting of directors may be convened by the Chairman of the Board,
the Vice-Chairman of the Board, the Managing Director, the President if he is a
director, a Vice-President who is a director or any two directors at any time
and the Secretary, when directed or authorized by any of such officers or any
two directors, shall convene a meeting of directors. The notice of any meeting
convened as aforesaid need not specify the purpose of or the business to be
transacted at the meeting. Notice of any such meeting shall be served in the
manner specified in paragraph 57 of this by-law not less than two days
(exclusive of the day on which the notice is delivered or sent but inclusive of
the day for which notice is given) before the meeting is to take place; provided
always that a director may in any manner and at any time waive notice of a
meeting of directors and attendance of a director at a meeting of directors
shall constitute a waiver of notice of the meeting except where a director
attends a meeting for the express purpose of objecting to the transaction of any
business on the grounds that the meeting is not lawfully called; provided
further that meetings of directors may be held at any time without notice if all
the directors are present (except where a director attends a meeting for the
express purpose of objecting to the transaction of any business on the grounds
that the meeting is not lawfully called) or if all of the absent directors waive
notice before or after the date of such meeting.
If the first meeting of the directors following the election
of directors by the shareholders is held immediately thereafter, then for such
meeting or for a meeting of the directors at which a director is appointed to
fill a vacancy in the board, no notice shall be necessary to the newly elected
or appointed directors or director in order to legally constitute the meeting,
provided that a quorum of the directors is present.
<PAGE>
4.
10. OMISSION OF NOTICE. The accidental omission to give notice of any meeting of
directors to, or the non-receipt of any notice by, any person shall not
invalidate any resolution passed or any proceeding taken at such meeting.
11. ADJOURNMENT. Any meeting of directors may be adjourned from time to time by
the chairman of the meeting, with the consent of the meeting, to a fixed time
and place. Notice of any adjourned meeting of directors is not required to be
given if the time and place of the adjourned meeting is announced at the
original meeting. Any adjourned meeting shall be duly constituted if held in
accordance with the terms of the adjournment and a quorum is present thereat.
The directors who formed a quorum at the original meeting are not required to
form the quorum at the adjourned meeting. If there is no quorum present at the
adjourned meeting, the original meeting shall be deemed to have terminated
forthwith after its adjournment. Any business may be brought before or dealt
with at any adjourned meeting which might have been brought before or dealt with
at the original meeting in accordance with the notice calling the same.
12. QUORUM. A majority of the authorized number of directors shall form a quorum
for the transaction of business and, notwithstanding any vacancy among the
directors, a quorum of directors may exercise all the powers of directors. No
business shall be transacted at a meeting of directors unless a quorum of the
board of directors is present and, except as otherwise permitted by the Act, a
majority of directors present are resident Canadians.
13. TELEPHONE PARTICIPATION. If all of the directors of the Corporation present
at or participating in the meeting consent, a meeting of directors may be held
by means of such telephone, electronic or other communication facilities as
permit all persons participating in the meeting to communicate with each other
simultaneously and instantaneously, and a director participating in such meeting
by such means is deemed for the purpose of the Act to be present at that
meeting.
14. VOTING. Questions arising at any meeting of the board of directors shall be
decided by a majority of votes. In case of an equality of votes the chairman of
the meeting in addition to his original vote shall have a second or casting
vote.
15. RESOLUTION IN LIEU OF MEETING. Notwithstanding any of the provisions of this
by-law, but subject to the Act or any unanimous shareholder agreement, a
resolution in writing, signed by all of the directors entitled to vote on that
resolution at a meeting of the directors is as valid as if it had been passed at
a meeting of the directors.
REMUNERATION OF DIRECTORS
16. REMUNERATION OF DIRECTORS. The remuneration to be paid to the directors
shall be such as the board of directors shall from time to time determine and
such remuneration shall be in addition to the salary paid to any officer or
employee of the Corporation who is also a member of the board of directors. The
board of directors may also award special remuneration to any
<PAGE>
5.
director undertaking any special services on the Corporation's behalf other than
the routine work ordinarily required of a director by the Corporation and the
confirmation of any such resolution or resolutions by the shareholders shall not
be required. The directors shall also be entitled to be paid their travelling
and other expenses properly incurred by them in connection with the affairs of
the Corporation.
SUBMISSION OF CONTRACTS OR TRANSACTIONS TO
SHAREHOLDERS FOR APPROVAL
17. APPROVAL. The board of directors in its discretion may submit any contract,
act or transaction for approval or ratification at any annual meeting of the
shareholders or at any special meeting of the shareholders called for the
purpose of considering the same and, subject to the provisions of Section 132 of
the Act, any such contract, act or transaction that shall be approved or
ratified or confirmed by a resolution passed by a majority of the votes cast at
any such meeting (unless any different or additional requirement is imposed by
the Act or by the Corporation's articles or any other by-law) shall be as valid
and as binding upon the Corporation and upon all the shareholders as though it
had been approved, ratified or confirmed by every shareholder of the
Corporation.
FOR THE PROTECTION OF DIRECTORS AND OFFICERS
18. CONFLICT OF INTEREST. In supplement of and not by way of limitation upon any
rights conferred upon directors and officers by Section 132 of the Act, it is
declared that no director or officer shall be disqualified from his office by,
or vacate his office by reason of, holding any office or place of profit under
the Corporation or under any body corporate in which the Corporation shall be a
shareholder, or by reason of being otherwise in any way directly or indirectly
interested in or contracting with the Corporation either as vendor, purchaser or
otherwise or being concerned in any contract or arrangement made or proposed to
be entered into with the Corporation in which he is in any way directly or
indirectly interested either as vendor, purchaser or otherwise nor shall any
director or officer be liable to account to the Corporation or any of its
shareholders or creditors for any profit arising from any such office or place
of profit; and, subject to the provisions of Section 132 of the Act, no contract
or arrangement entered into by or on behalf of the Corporation in which any
director or officer shall be in any way directly or indirectly interested shall
be avoided or voidable and no director or officer shall be liable to account to
the Corporation or any of its shareholders or creditors for any profit realized
by or from any such contract or arrangement by reason of any fiduciary
relationship. A director or officer of the Corporation who is a party to a
material contract or transaction or proposed material contract or transaction
with the Corporation, or is a director or an officer of, or has a material
interest in, any person who is a party to a material contract or transaction or
proposed material contract or transaction with the Corporation shall disclose
the nature and extent of his interest at the time and in the manner provided in
the Act. Except as provided in the Act, no such director of the Corporation
shall vote on any resolution to approve such contracts or transactions
<PAGE>
6.
but each such director may be counted to determine the presence of a quorum at
the meeting of directors where such vote is being taken.
19. FOR THE PROTECTION OF DIRECTORS AND OFFICERS. Except as otherwise provided
in the Act, no director or officer for the time being of the Corporation shall
be liable for the acts, receipts, neglects or defaults of any other director or
officer or employee or for joining in any receipt or act for conformity or for
any loss, damage or expense happening to the Corporation through the
insufficiency or deficiency of title to any property acquired by the Corporation
or for or on behalf of the Corporation or for the insufficiency or deficiency of
any security in or upon which any of the moneys of or belonging to the
Corporation shall be placed out or invested or for any loss or damage arising
from the bankruptcy, insolvency or tortious act of any person, including any
person with whom or which any moneys, securities or effects shall be lodged or
deposited or for any loss, conversion, misapplication or misappropriation of or
any damage resulting from any dealings with any moneys, securities or other
assets belonging to the Corporation or for any other loss, damage or misfortune
whatever which may happen in the execution of the duties of his respective
office or trust or in relation thereto unless the same shall happen by or
through his failure to exercise the powers and to discharge the duties of his
office honestly and in good faith with a view to the best interests of the
Corporation and in connection therewith to exercise the care, diligence and
skill that a reasonably prudent person would exercise in comparable
circumstances. The directors for the time being of the Corporation shall not be
under any duty or responsibility in respect of any contract, act or transaction
whether or not made, done or entered into in the name or on behalf of the
Corporation, except such as shall have been submitted to and authorized or
approved by the board of directors. If any director or officer of the
Corporation shall be employed by or shall perform services for the Corporation
otherwise than as a director or officer or shall have an interest in a person
which is employed by or performs services for the Corporation, the fact of his
being a shareholder, director or officer of the Corporation shall not disentitle
such director or officer or such person, as the case may be, from receiving
proper remuneration for such services.
INDEMNITIES TO DIRECTORS AND OFFICERS
20. INDEMNITIES TO DIRECTORS AND OFFICERS. Subject to the provisions of Section
136 of the Act, the Corporation shall indemnify a director or officer, a former
director or officer, or a person who acts or acted at the Corporation's request
as a director or officer of a body corporate of which the Corporation is or was
a shareholder or creditor, and his heirs and legal representatives against all
costs, charges and expenses, including an amount paid to settle an action or
satisfy a judgment, 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 Corporation or such body
corporate, if (a) he acted honestly and in good faith with a view to the best
interests of the Corporation; 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
Corporation shall also indemnify any such person in such other circumstances as
the Act or law permits or requires. Nothing in this
<PAGE>
7.
by-law shall limit the right of any person entitled to indemnity to claim
indemnity apart from the provisions of this by-law to the extent permitted by
the Act or law.
OFFICERS
21. (A) APPOINTMENT. The board of directors may annually or oftener as may be
required appoint a Chairman of the Board, a Vice-Chairman of the Board, a
President, a Managing Director, one or more Vice-Presidents, a Secretary, a
Treasurer, one or more Assistant Secretaries, one or more Assistant Treasurers
and/or a General Manager or Manager. Notwithstanding the foregoing, each
incumbent officer shall continue in office until the earliest of (a) his
resignation, which resignation shall be effective at the time a written
resignation is received by the Corporation or at the time specified in the
resignation, whichever is later, (b) the appointment of his successor, (c) his
ceasing to be a director if such is a necessary qualification of his
appointment, (d) the meeting at which the board of directors annually appoint
the officers of the Corporation, (e) his removal, and (f) his death. A director
may be appointed to any office of the Corporation but none of the officers
except the Chairman of the Board, the Vice-Chairman of the Board and the
Managing Director need be a member of the board of directors. Two or more of the
aforesaid offices may be held by the same person. In case and whenever the same
person holds the offices of Secretary and Treasurer he may but need not be known
as the Secretary-Treasurer. The board of directors may from time to time appoint
such other officers and agents as it shall deem necessary who shall have such
authority and shall perform such duties as may from time to time be prescribed
by the board of directors. The board of directors may from time to time and
subject to the provisions of the Act, vary, add to or limit the duties and
powers of any officer.
(B) DIVISIONS; The directors may cause the business and
operations of the Corporation or any part thereof to be divided into one or more
divisions upon such basis, including without limitation, types of business or
operations, geographical territories, product lines or goods or services, it may
consider appropriate in each case. In particular, the board may authorize:
(i) the further division of the business and operations of any such
division into sub- units and the consolidation of the business and
operations of any such divisions or sub-units;
(ii) the designation of any such division or sub-unit by, and the
carrying on of the business and operations of any such division or sub-unit
under a name other than the name of the Corporation; and
(iii) the appointment of officers for any such division or sub-unit,
the determination of their powers and duties, and the removal of any such
officer so appointed without prejudice to such officer's rights under any
employment contract or in law, provided that any such officer shall not, as
such, be an officer of the Corporation.
<PAGE>
8.
22. REMUNERATION AND REMOVAL. The remuneration of all officers appointed by the
board of directors shall be determined from time to time by resolution of the
board of directors. The fact that any officer or employee is a director or
shareholder of the Corporation shall not disqualify him from receiving such
remuneration as may be determined. All officers, in the absence of agreement to
the contrary, shall be subject to removal by resolution of the board of
directors at any time, with or without cause.
23. POWERS AND DUTIES. All officers shall sign such contracts, documents or
instruments in writing as require their respective signatures and shall
respectively have and perform all powers and duties incident to their respective
offices and such other powers and duties respectively as may from time to time
be assigned to them by the board of directors.
24. DUTIES MAY BE DELEGATED. In case of the absence or inability to act of any
officer of the Corporation except the Managing Director or for any other reason
that the board of directors may deem sufficient, the board of directors may
delegate all or any of the powers of such officer to any other officer or to any
director for the time being.
25. CHAIRMAN OF THE BOARD. The Chairman of the Board, if any, shall, when
present, preside as chairman at all meetings of the directors, the committee of
directors, if any, and the shareholders.
26. VICE-CHAIRMAN OF THE BOARD. If the Chairman of the Board is absent or is
unable or refuses to act, the Vice-Chairman of the Board, if any, shall, when
present, preside as chairman at all meetings of the directors, the committee of
directors, if any, and the shareholders.
27. PRESIDENT. The President shall be the chief executive officer of the
Corporation unless otherwise determined by the board of directors. The President
shall be vested with and may exercise all the powers and shall perform all the
duties of the Chairman of the Board and/or Vice-Chairman of the Board if none be
appointed or if the Chairman of the Board and the Vice-Chairman of the Board are
absent or are unable or refuse to act; provided, however, that unless he is a
director he shall not preside as chairman at any meeting of directors or of the
committee of directors, if any, or, subject to paragraph 41 of this by-law, at
any meeting of shareholders.
28. VICE-PRESIDENT. The Vice-President or, if more than one, the
Vice-Presidents, in order of seniority, shall be vested with all the powers and
shall perform all the duties of the President in the absence or inability or
refusal to act of the President; provided, however, that a Vice-President who is
not a director shall not preside as chairman at any meeting of directors or of
the committee of directors, if any, or, subject to paragraph 41 of this by-law,
at any meeting of shareholders.
29. SECRETARY. The Secretary shall give or cause to be given notices for all
meetings of the directors, the committee of directors, if any, and the
shareholders when directed to do so and shall have charge of the minute and
record books of the Corporation and, subject to the provisions of paragraph 48
of this by-law, of the records (other than accounting records) referred to in
Section 140 of the Act. The Secretary, shall, when present, act as secretary of
meetings of the board of directors and of the shareholders.
<PAGE>
9.
30. TREASURER. Subject to the provisions of any resolution of the board of
directors, the Treasurer shall have the care and custody of all the funds and
securities of the Corporation and shall deposit the same in the name of the
Corporation in such bank or banks or with such other depositary or depositaries
as the board of directors may direct. He shall keep or cause to be kept the
accounting records referred to in Section 140 of the Act. He may be required to
give such bond for the faithful performance of his duties as the board of
directors in its uncontrolled discretion may require but no director shall be
liable for failure to require any such bond or for the insufficiency of any such
bond or for any loss by reason of the failure of the Corporation to receive any
indemnity thereby provided.
31. ASSISTANT SECRETARY AND ASSISTANT TREASURER. The Assistant Secretary or, if
more than one, the Assistant Secretaries in order of seniority, and the
Assistant Treasurer or, if more than one, the Assistant Treasurers in order of
seniority, shall respectively perform all the duties of the Secretary and the
Treasurer, respectively, in the absence or inability or refusal to act of the
Secretary or the Treasurer, as the case may be.
32. MANAGING DIRECTOR. The Managing Director shall be a member of the board of
directors, and a resident Canadian and shall exercise such powers and have such
authority as may be delegated to him by the board of directors in accordance
with the provisions of Section 127 of the Act.
33. GENERAL MANAGER OR MANAGER. The board of directors may from time to time
appoint one or more General Managers or Managers and may delegate to him or them
full power to manage and direct the business and affairs of the Corporation
(except such matters and duties as by law must be transacted or performed by the
board of directors and/or by the shareholders) and to employ and discharge
agents and employees of the Corporation or may delegate to him or them any
lesser authority. A General Manager or Manager shall conform to all lawful
orders given to him by the board of directors of the Corporation and shall at
all reasonable times give to the directors or any of them all information they
may require regarding the affairs of the Corporation. Any agent or employee
appointed by a General Manager or Manager shall be subject to discharge by the
board of directors.
34. VACANCIES. If the office of any officer of the Corporation shall be or
become vacant by reason of death, resignation, disqualification or otherwise,
the board of directors may appoint a person to fill such vacancy.
SHAREHOLDERS' MEETINGS
35. ANNUAL MEETING. Subject to the provisions of Section 94 of the Act, the
annual meeting of the shareholders shall be held on such day in each year and at
such time as the board of directors may determine and subject to the articles
and any unanimous shareholder agreement shall be held at any place in or outside
Ontario as the board of directors determine or, in the absence of such
determination, at the place where the registered office of the Corporation is
located.
<PAGE>
10.
36. SPECIAL MEETINGS. Special meetings of the shareholders may be convened by
order of the Chairman of the Board, the Vice-Chairman of the Board, the Managing
Director, the President if he is a director, a Vice-President if he is a
director or by the board of directors at any date and time and subject to the
articles and any unanimous shareholder agreement shall be held at any place in
or outside Ontario as the board of directors determines or, in the absence of
such determination, at the place where the registered office of the Corporation
is located.
37. NOTICE. A printed, written or typewritten notice stating the day, hour and
place of meeting shall be given by serving such notice on each shareholder
entitled to vote at such meeting, on each director and on the auditor of the
Corporation in the manner specified in paragraph 57 of this by-law, not less
than ten days or if the Corporation is an offering corporation not less than
twenty-one days but in either case not more than fifty days (in each case,
subject to subsection 1(1) of the Act, exclusive of the day on which the notice
is delivered or sent and of the day for which notice is given) before the date
of the meeting. Notice of a meeting at which special business, as defined in
Section 96(5) of the Act, is to be transacted shall state or be accompanied by a
statement of (a) the nature of that business in sufficient detail to permit the
shareholder to form a reasoned judgment thereon, and (b) the text of any special
resolution or by-law to be submitted to the meeting. Provided that a meeting of
shareholders may be held for any purpose on any day and at any time without
notice if all of the shareholders and all other persons entitled to attend such
meeting are present in person or, where appropriate, represented by proxy at the
meeting (except where a shareholder or other person attends the meeting for the
express purpose of objecting to the transaction of any business on the grounds
that the meeting is not lawfully called) or if all of the shareholders and all
other persons entitled to attend such meeting who are not present in person or,
where appropriate, represented by proxy thereat waive notice before or after the
date of such meeting.
38. WAIVER OF NOTICE. A shareholder and any other person entitled to attend a
meeting of shareholders may in any manner waive notice of a meeting of
shareholders and attendance of any such person at a meeting of shareholders
shall constitute a waiver of notice of the meeting except where such person
attends a meeting for the express purpose of objecting to the transaction of any
business on the grounds that the meeting is not lawfully called.
39. OMISSION OF NOTICE. The accidental omission to give notice of any meeting or
any irregularity in the notice of any meeting or the non-receipt of any notice
by any shareholder or shareholders, director or directors or the auditor of the
Corporation shall not invalidate any resolution passed or any proceedings taken
at any meeting of shareholders.
40. VOTES. Every question submitted to any meeting of shareholders shall be
decided in the first instance by a show of hands unless a person entitled to
vote at the meeting has demanded a ballot and in the case of an equality of
votes the chairman of the meeting shall both on a show of hands and on a ballot
have a second or casting vote in addition to the vote or votes to which he may
be otherwise entitled.
A ballot may be demanded either before or after any vote by
show of hands by any person entitled to vote at the meeting. If at any meeting a
ballot is demanded on the election of a chairman or on the question of
adjournment it shall be taken forthwith without adjournment.
<PAGE>
11.
If at any meeting a ballot is demanded on any other question or as to the
election of directors, the vote shall be taken by ballot in such manner and
either at once, later in the meeting or after adjournment as the chairman of the
meeting directs. The result of a ballot shall be deemed to be the resolution of
the meeting at which the ballot was demanded. A demand for a ballot may be
withdrawn.
Where two or more persons hold the same share or shares
jointly, one of those holders present at a meeting of shareholders may, in the
absence of the other or others, vote the share or shares but if two or more of
those persons who are present, in person or by proxy, vote, they shall vote as
one on the share or shares jointly held by them.
At any meeting unless a ballot is demanded a declaration by
the chairman of the meeting that a resolution has been carried or carried
unanimously or by a particular majority or lost or not carried by a particular
majority shall be conclusive evidence of the fact.
41. CHAIRMAN OF THE MEETING. In the event that the Chairman of the Board and the
Vice-Chairman of the Board are absent and the President is absent or is not a
director and there is no Vice-President present who is a director, the persons
who are present and entitled to vote shall choose another director as chairman
of the meeting and if no director is present or if all the directors present
decline to take the chair then the persons who are present and entitled to vote
shall choose one of their number to be chairman.
42. PROXIES. Votes at meetings of shareholders may be given either personally or
by proxy or, in the case of a shareholder who is a body corporate or
association, by an individual authorized by the board of directors or governing
body of the body corporate or association to represent it at meetings of
shareholders of the Corporation. At every meeting at which he is entitled to
vote, every shareholder and/or person appointed by proxy and/or individual so
authorized to represent a shareholder who is present in person shall have one
vote on a show of hands. Upon a ballot at which he is entitled to vote, every
shareholder present in person or represented by proxy or by an individual so
authorized shall (subject to the provisions, if any, of the articles of the
Corporation) have one vote for every share held by him.
A proxy shall be executed by the shareholder or his attorney
authorized in writing or, if the shareholder is a body corporate or association,
by an officer or attorney thereof duly authorized. If the Corporation is an
offering corporation a proxy appointing a proxyholder ceases to be valid one
year from its date.
A person appointed by proxy need not be a shareholder.
Subject to the provisions of the Act and the Regulations, a
proxy may be in the following form:
The undersigned shareholder of IDS INTELLIGENT DETECTION SYSTEMS
INC. hereby appoints _________________________ of
_________________________, [or failing him,_________________________
of _________________________] as the nominee of the undersigned to
attend and act for the undersigned and on behalf of the
<PAGE>
12.
undersigned at the _____________ meeting of the shareholders of the
said Corporation to be held on the ____ day of __________________,
19___ and at any adjournment thereof in the same manner, to the same
extent and with the same power as if the undersigned were present at
the said meeting or such adjournment thereof. This proxy is [not]
solicited by or on behalf of management of the Corporation.
DATED this ____ day of __________________, 19___.
Signature of Shareholder
The board of directors may from time to time make regulations
regarding the lodging of proxies at some place or places other than the place at
which a meeting or adjourned meeting of shareholders is to be held and for
particulars of such proxies to be cabled or telegraphed or sent by telex or in
writing before the meeting or adjourned meeting to the Corporation or any agent
of the Corporation for the purpose of receiving such particulars and providing
that proxies so lodged may be voted upon as though the proxies themselves were
produced at the meeting or adjourned meeting and votes given in accordance with
such regulations shall be valid and shall be counted. The chairman of any
meeting of shareholders may, subject to any regulations made as aforesaid, in
his discretion accept telegraphic or cable or telex or written communication as
to the authority of any person claiming to vote on behalf of and to represent a
shareholder notwithstanding that no proxy conferring such authority has been
lodged with the Corporation, and any votes given in accordance with such
telegraphic or cable or telex or written communication accepted by the chairman
of the meeting shall be valid and shall be counted.
43. ADJOURNMENT. The chairman of any meeting may with the consent of the meeting
adjourn the same from time to time to a fixed time and place and no notice of
such adjournment need be given to the shareholders unless the meeting is
adjourned by one or more adjournments for an aggregate of thirty days or more in
which case subject to subsection 96(4) of the Act notice of the adjourned
meeting shall be given as for an original meeting. Any business may be brought
before or dealt with at any adjourned meeting for which no notice is required
which might have been brought before or dealt with at the original meeting in
accordance with the notice calling the same.
Any adjourned meeting shall be duly constituted if held in
accordance with the terms of the adjournment and a quorum is present thereat.
The persons who formed a quorum at the original meeting are not required to form
the quorum at the adjourned meeting. If there is no quorum present at the
adjourned meeting, the original meeting shall be deemed to have terminated
forthwith after its adjournment.
44. QUORUM. A quorum at any meeting of shareholders (unless a greater number of
persons are required to be present or a greater number of shares are required to
be represented by the Act or by the articles or any other by-law) shall be
persons present not being less than two in number and holding or representing
more than twenty per cent of the total number of the issued
<PAGE>
13.
shares of the Corporation for the time being entitling the holders thereof to
vote at such meeting. Notwithstanding the foregoing, if the Corporation has only
one shareholder, or only one holder of any class or series of shares, the
shareholder present in person or by proxy constitutes a meeting. No business
shall be transacted at any meeting unless the requisite quorum be present at the
time of the transaction of such business. If a quorum is not present at the time
appointed for a meeting of shareholders or within such reasonable time
thereafter as the shareholders present may determine, the persons present and
entitled to vote may adjourn the meeting to a fixed time and place but may not
transact any other business and the provisions of paragraph 43 with regard to
notice shall apply to such adjournment.
45. RESOLUTION IN LIEU OF MEETING. Notwithstanding any of the provisions of this
by-law a resolution in writing signed by all of the shareholders entitled to
vote on that resolution at a meeting of the shareholders is, subject to Section
104 of the Act, as valid as if it had been passed at a meeting of the
shareholders.
SECURITIES
46. ISSUANCE OF SHARES. Subject to the provisions of Section 23 of the Act, the
articles, by-laws and any unanimous shareholder agreement, shares in the capital
of the Corporation may be issued by the board of directors at such times and on
such terms and conditions and to such persons or class or classes of persons as
the board of directors determines.
47. CERTIFICATES. Security certificates and the instrument of transfer, if any,
on the reverse side thereof shall (subject to Section 56 of the Act) be in such
form as the board of directors may approve and such certificates shall be signed
manually by at least one officer or director of the Corporation holding office
at the time of signing or by or on behalf of a registrar, transfer agent, branch
transfer agent or issuing or other authenticating agent of the Corporation, or
by a trustee who certifies it in accordance with a trust indenture and any
additional signatures required on a security certificate may be printed or
otherwise mechanically reproduced thereon.
A security certificate containing the signature of a person
which is printed, engraved, lithographed or otherwise mechanically reproduced
thereon may be issued notwithstanding that the person has ceased to be a
director or an officer, as the case may be, of the Corporation and shall be as
valid as if he were a director or an officer, as the case may be, at the date of
its issue.
TRANSFER OF SECURITIES
48. TRANSFER AGENT AND REGISTRAR. For each class of securities and warrants
issued by the Corporation, the board of directors may appoint (a) a trustee,
transfer agent, or other agent to keep the securities register and the register
of transfers and one or more persons or agent to keep branch registers; and (b)
a registrar, trustee or agent to maintain a record of issued securities,
<PAGE>
14.
certificates and warrants, and, subject to Section 48 of the Act, one person may
be appointed for the purposes of clauses (a) and (b) in respect of all
securities and warrants of the Corporation or any class or classes thereof. In
the event of any such appointment in respect of the shares (or the shares of any
class or classes) of the Corporation, all share certificates issued by the
Corporation in respect of the shares (or the shares of the class or classes in
respect of which any such appointment has been made) of the Corporation shall be
countersigned by or on behalf of one of the said transfer agents and/or branch
transfer agents and by or on behalf of one of the said registrars and/or branch
registrars, if any.
49. SECURITIES REGISTERS. The securities register and the register of transfers
of the Corporation shall be kept at the registered office of the Corporation or
at such other office or place in Ontario as may from time to time be designated
by the board of directors and a branch register or registers of transfers may be
kept at such office or offices of the Corporation or other place or places,
either within or outside Ontario, as may from time to time be designated by the
board of directors.
50. SURRENDER OF CERTIFICATES. Subject to the Act and the provisions of
paragraph 52, no transfer of a security issued by the Corporation shall be
registered unless the security certificate representing the security to be
transferred has been surrendered or, if no security certificate has been issued
by the Corporation in respect of such security, unless a duly executed
instrument of transfer in respect thereof has been delivered to the Corporation
or its transfer agent, as the case may be.
51. SHAREHOLDER INDEBTED TO THE CORPORATION. Subject to subsection 40(2) of the
Act, the Corporation has a lien on a share registered in the name of a
shareholder or his legal representative for a debt of that shareholder to the
Corporation. Such lien on a share of the Corporation may, subject to the Act, be
enforced as follows:
(a) where such share is redeemable pursuant to the articles of the Corporation,
by redeeming such share and applying the redemption price to such debt;
(b) by purchasing such share for cancellation for a price equal to the book
value of such share and applying the proceeds to such debt;
(c) by selling such share to any third party whether or not such party is at
arm's length to the Corporation including, without limitation, any officer
or director of the Corporation, for the best price which the board of
directors in its sole discretion considers to be obtainable for such share
and applying the proceeds to such debt;
(d) by refusing to permit the registration of a transfer of such share until
such debt is paid; or
(e) by any other means permitted by law.
52. LOST, APPARENTLY DESTROYED OR WRONGFULLY TAKEN SECURITY CERTIFICATES.
Subject to the Act, in case of the loss, apparent destruction or wrongful taking
of a security certificate, a
<PAGE>
15.
new certificate may be issued in replacement of the one lost, apparently
destroyed or wrongfully taken or a transfer of the securities represented by
such certificate may be registered, upon such terms as the board of directors
may from time to time prescribe, either generally or in respect of any
particular loss, apparent destruction or wrongful taking of a security
certificate.
DIVIDENDS
53. DIVIDENDS. The board of directors may from time to time declare and the
Corporation may pay dividends on the issued and outstanding shares in the
capital of the Corporation subject to the provisions (if any) of the articles of
the Corporation.
The board of directors shall not declare and the Corporation
shall not pay a dividend if there are reasonable grounds for believing that:
(a) the Corporation is, or after the payment would be, unable to pay its
liabilities as they become due; or
(b) the realizable value of the Corporation's asset would thereby be less than
the aggregate of its liabilities and its stated capital of all classes.
The Corporation may pay a dividend by issuing fully paid
shares of the Corporation or options or rights to acquire fully paid shares of
the Corporation and, subject to the foregoing, the Corporation may pay a
dividend in money or property.
In case several persons are registered as the joint holders of
any shares, any one of such persons may give effectual receipts for all
dividends and payments on account of dividends and/or redemption of shares (if
any) subject to redemption.
VOTING SHARES AND SECURITIES
IN OTHER BODIES CORPORATE
54. VOTING SHARES AND SECURITIES IN OTHER BODIES CORPORATE. All of the shares or
other securities carrying voting rights of any other body corporate held from
time to time by the Corporation may be voted at any and all meetings of
shareholders or holders of other securities (as the case may be) of such other
body corporate and in such manner and by such person or persons as the board of
directors of the Corporation shall from time to time determine. The duly
authorized signing officers of the Corporation may also from time to time
execute and deliver for and on behalf of the Corporation proxies and/or arrange
for the issuance of voting certificates and/or other evidence of the right to
vote in such names as they may determine without the necessity of a resolution
or other action by the board of directors.
<PAGE>
16.
INFORMATION AVAILABLE TO SHAREHOLDERS
55. CONFIDENTIAL INFORMATION NOT AVAILABLE TO SHAREHOLDERS. Except as provided
by the Act, no shareholder shall be entitled to discovery of any information
respecting any details or conduct of the Corporation's business which in the
opinion of the board of directors it would be inexpedient in the interests of
the Corporation to communicate to the public.
56. AVAILABILITY OF CORPORATE RECORDS TO SHAREHOLDERS. The board of directors
may from time to time, subject to rights conferred by the Act, determine whether
and to what extent and at what time and place and under what conditions or
regulations the documents, books and registers and accounting records of the
Corporation or any of them shall be open to the inspection of shareholders and
no shareholder shall have any right to inspect any document or book or register
or accounting record of the Corporation except as conferred by statute or
authorized by the board of directors or by a resolution of the shareholders.
NOTICES
57. SERVICE. Any notice or other document required by the Act, the Regulations,
the articles or the by-laws to be sent to any shareholder or director or to the
auditor shall be delivered personally or sent by prepaid mail or by telegram or
cable or telex or by facsimile machine tested immediately prior to transmission
to any such shareholder at his latest address as shown in the records of the
Corporation or its transfer agent and to any such director at his latest address
as shown in the records of the Corporation or the most recent notice filed under
the Corporations Information Act, whichever is the most current and to the
auditor at his business address; provided always that notice may be waived or
the time for the notice may be waived or abridged at any time with the consent
in writing of the person entitled thereto. If a notice or document is sent to a
shareholder by prepaid mail in accordance with this paragraph and the notice or
document is returned on three consecutive occasions because the shareholder
cannot be found, it shall not be necessary to send any further notices or
documents to the shareholder until he informs the Corporation in writing of his
new address.
58. SECURITIES REGISTERED IN MORE THAN ONE NAME. All notices or other documents
with respect to any securities in the capital of the Corporation registered in
more than one name shall be given to whichever of such persons is named first in
the records of the Corporation and any notice or other document so given shall
be sufficiently given to all of the holders of such securities.
59. PERSONS BECOMING ENTITLED BY OPERATION OF LAW. Subject to Section 67 of the
Act, every person who by operation of law, transfer or any other means
whatsoever shall become entitled to any securities of the Corporation shall be
bound by every notice or other document in respect of such securities which,
previous to his name and address being entered in the records of the
Corporation, shall have been duly given to the person or persons from whom he
derives his title to such securities.
<PAGE>
17.
60. DECEASED SECURITY HOLDERS. Subject to Section 67 of the Act, any notice or
other document delivered or sent in a manner contemplated in paragraph 57 of
this by-law to the address of any security holder as the same appears in the
records of the Corporation shall, notwithstanding that such security holder be
then deceased, and whether or not the Corporation has notice of his decease, be
deemed to have been duly served in respect of the securities held by such
security holder (whether held solely or with any other person or persons) until
some other person be entered in his stead in the records of the Corporation as
the holder or one of the holders thereof and such service shall for all purposes
be deemed a sufficient service of such notice or document on his heirs,
executors or administrators and on all persons, if any, interested through him
or with him in such securities.
61. SIGNATURE TO NOTICES. The signature of any director or officer of the
Corporation to any notice or document to be given by the Corporation may be
written, stamped, typewritten or printed or partly written, stamped, typewritten
or printed.
62. COMPUTATION OF TIME. Where a given number of days' notice or notice
extending over a period is required to be given under any provisions of the
articles or by-laws of the Corporation, the day of service or posting of the
notice or document shall not, unless it is otherwise provided, be counted in
such number of days or other period.
63. PROOF OF SERVICE. With respect to every notice or other document sent by
post it shall be sufficient to prove that the envelope or wrapper containing the
notice or other document was properly addressed as provided in paragraph 57 of
this by-law and put into a Post Office or into a letter box. A certificate of an
officer of the Corporation in office at the time of the making of the
certificate or of a transfer officer of any transfer agent or branch transfer
agent of shares of any class of the Corporation as to facts in relation to the
sending or delivery of any notice or other document to any security holder,
director, officer or auditor or publication of any notice or other document
shall be conclusive evidence thereof and shall be binding on every security
holder, director, officer or auditor of the Corporation, as the case may be.
CHEQUES, DRAFTS AND NOTES
64. CHEQUES, DRAFTS AND NOTES. All cheques, drafts or orders for the payment of
money and all notes and acceptances and bills of exchange shall be signed by
such officer or officers or person or persons, whether or not officers of the
Corporation, and in such manner as the board of directors may from time to time
designate.
CUSTODY OF SECURITIES
65. CUSTODY OF SECURITIES. All shares and other securities owned by the
Corporation shall be lodged (in the name of the Corporation) with a chartered
bank or a trust company or in a safety deposit box or, if so authorized by
resolution of the board of directors, with such other
<PAGE>
18.
depositaries or in such other manner as may be determined from time to time by
the board of directors.
All shares and other securities belonging to the Corporation
may be issued or held in the name of a nominee or nominees of the Corporation
(and if issued or held in the names of more than one nominee shall be held in
the names of the nominees jointly with right of survivorship) and shall be
endorsed in blank with endorsement guaranteed in order to enable transfer to be
completed and registration to be effected.
EXECUTION OF INSTRUMENTS
66. EXECUTION OF INSTRUMENTS. Contracts, documents or instruments in writing
requiring the signature of the Corporation may be signed by
(a) any one of the Chairman of the Board, the Vice- Chairman of the Board, the
Managing Director, the President or a Vice-President together with any one
of the Secretary, the Treasurer, an Assistant-Secretary or an Assistant
Treasurer ;
(b) any two directors; or
(c) any one of the aforementioned officers together with any one director;
and all contracts, documents and instruments in writing so signed shall be
binding upon the Corporation without any further authorization or formality.
Provided that where one person is the only director and officer of the
Corporation, that person may sign such contracts, documents or instruments in
writing. The board of directors shall have power from time to time to appoint
any officer or officers, or any person or persons, on behalf of the Corporation
either to sign contracts, documents and instruments in writing generally or to
sign specific contracts, documents or instruments in writing.
The corporate seal of the Corporation, if any, may be affixed
to contracts, documents and instruments in writing signed as aforesaid or by any
officer or officers, person or persons, appointed as aforesaid by the board of
directors but any such contract, document or instrument is not invalid merely
because the corporate seal, if any, is not affixed thereto.
The term "contracts, documents or instruments in writing" as
used in this by-law shall include security certificates, deeds, mortgages,
hypothecs, charges, conveyances, transfers and assignments of property real or
personal, immovable or movable, agreements, releases, receipts and discharges
for the payment of money or other obligations and conveyances, transfers and
assignments of shares, share warrants, stocks, bonds, debentures or other
securities and all paper writings.
<PAGE>
19.
In particular without limiting the generality of the foregoing
(a) any one of the Chairman of the Board, the Vice- Chairman of the Board, the
Managing Director, the President or a Vice-President together with any one
of the Secretary, the Treasurer, an Assistant-Secretary or an
Assistant-Treasurer;
(b) any two directors; or
(c) any one of the aforementioned officers together with any one director;
shall have authority to sell, assign, transfer, exchange, convert or convey any
and all shares, stocks, bonds, debentures, rights, warrants or other securities
owned by or registered in the name of the Corporation and to sign and execute
(under the seal of the Corporation or otherwise) all assignments, transfers,
conveyances, powers of attorney and other instruments that may be necessary for
the purpose of selling, assigning, transferring, exchanging, converting or
conveying any such shares, stocks, bonds, debentures, rights, warrants or other
securities. Provided that where one person is the only director and officer of
the Corporation, that person shall have such authority.
The signature or signatures of the Chairman of the Board, the
Vice-Chairman of the Board, the Managing Director, the President, a
Vice-President, the Secretary, the Treasurer, an Assistant-Secretary, an
Assistant-Treasurer or any director or directors of the Corporation and/or of
any other officer or officers, person or persons, appointed as aforesaid by the
board of directors may, if specifically authorized by the board of directors, be
printed, engraved, lithographed or otherwise mechanically reproduced upon any
contracts, documents or instruments in writing or bonds, debentures or other
securities of the Corporation executed or issued by or on behalf of the
Corporation and all contracts, documents or instruments in writing or bonds,
debentures or other securities of the Corporation on which the signature or
signatures of any one or more of the foregoing officers or directors or the
officers or persons authorized as aforesaid shall be so reproduced pursuant to
such authorization by the board of directors shall be deemed to have been
manually signed by each such officer, director or person whose signature is so
reproduced and shall be as valid to all intents and purposes as if they had been
signed manually and notwithstanding that any such officer, director or person
whose signature is so reproduced may have ceased to hold office at the date of
the delivery or issue of such contracts, documents or instruments in writing or
bonds, debentures or other securities of the Corporation.
<PAGE>
20.
FINANCIAL YEAR
67. FINANCIAL YEAR. The financial year of the Corporation shall terminate on
such date in each year as the board of directors may from time to time
determine.
ENACTED this 30th day of September, 1997.
/s/ Mariusz Rybak /s/ D. Nielsen Downey
President Secretary
<PAGE>
THIS SUBLEASE made the 28th day of October, 1998
IN PURSUANCE OF THE SHORT FORMS OF LEASES ACT
B E T W E E N:
EGON ZEHNDER INTERNATIONAL INC.
(hereinafter called the "Sublandlord")
OF THE FIRST PART
- and -
IDS INTELLIGENT DETECTION SYSTEMS INC.
(hereinafter called the "Subtenant")
OF THE-SECOND PART
WHEREAS:
A. By Lease dated July 31, 1989 (the "Initial Head Lease") Olympia & York
Developments limited did demise and lease unto J. Robert Swidler Inc. certain
premises consisting of 1,383 square feet on the 70th floor as Premises A and
3,361 square feet on the 70th floor as Premises B (collectively, the "Initial
Premises") in the building known as 1 First Canadian Place, in the City of
Toronto, Municipality of Metropolitan Toronto as therein described;
B. By Articles of Amendment dated October 17, 1989 J. Robert Swidler Inc.
changed it name to Carter-Fraser Enterprises Inc.;
C. Carter-Fraser Enterprises Inc. assigned the Initial Head Lease to Egon
Zehnder International Inc. effective October 17, 1989;
D. By Agreement dated as of May 1, 1990 (the "First Amendment") the Initial
Lease was amended;
E. By Final Order of Foreclosure registered against the title to the Building on
December 15, 1995 as Instrument No. C982432, First Place Tower Inc. (the "Head
Landlord") succeeded to the interest of Olympia & York Developments Limited in
and to the Building and the Initial Head Lease;
F. By Agreement made August 19, 1996 (the "Second Amendment") the Initial Head
Lease was amended to include additional premises consisting of 1,287 square feet
on the 70th floor (the "Additional Premises");
<PAGE>
-2-
G. Pursuant to the Initial Head Lease, the First Amendment and the Second
Amendment (collectively, the "Head Lease") the Sublandlord leases the Initial
Premises and the Addition Premises (collectively, the "Premises") being
approximately 6,031 square feet;
H. Pursuant to a sublease (the "Connor Sublease") dated September 29, 1997 the
Sublandlord subleased the Premises to Connor Capital Management Corp.
("Connor");
I. Subject to certain conditions, the Sublandlord and Connor have agreed to
surrender the Connor Sublease;
J. The Sublandlord and the Subtenant have agreed to enter into this Sublease of
the Premises for a term at a rental and on such terms as are hereinafter set
forth;
K. The Head Landlord is being requested to give its consent in writing to this
Sublease subject to the terms and provisions of the Head Lease; and
L. Capitalized terms contained herein and not otherwise defined herein have the
respective meanings ascribed thereto in the Head Lease.
WITNESSETH that in consideration of the rents, covenants and agreements
herein contained, the Sublandlord and Subtenant agree as follows:
1. DEMISE AND TERM
1.01 The Sublandlord hereby subleases the Premises to the Subtenant TO HAVE AND
TO HOLD the Premises for a term (the "Sublease Term") of approximately sixteen
months less one (1) day, commencing on October 26, 1998 (the "Commencement
Date") and expiring on the January 30, 2000 (the "Termination Date").
1.02 The Subtenant is subleasing the Premises in an "as is" condition.
2. RENT
2.01 The Subtenant shall pay during the Sublease Term an annual basic rental for
the Premises of $90,465.00, payable in equal monthly instalments in advance of
$7,538.75 on the first day of each and every month. Such basis rent is based on
an annual rate of $15.00 per square foot of Rentable Area of the Premises per
annum (the "Basic Rent").
2.02 The foregoing Basic Rent is based on the Rentable Area of the Premises
being 6,031 square feet. If the Premises are determined to be other than 6,031
square feet of Rentable Area (measured in accordance with the terms of the Head
Lease), the Basic Rent and the Additional Rent payable pursuant to this Sublease
shall be adjusted accordingly.
2.03 The Sublandlord acknowledges receipt by CB Commercial Real Estate Group
Canada Inc. of the sum of Forty-Four Thousand Dollars ($44,000.00) as a deposit
which shall, if the Subtenant
<PAGE>
-3-
is not in default, be applied to the Basic Rent first due and payable pursuant
to this Sublease. If the Subtenant is in default the deposit may be applied on
account of any losses damages as sustained by the Sublandlord as a result of
such default.
3. ADDITIONAL RENT
3.01 The Subtenant agrees with the Sublandlord to pay to the Sublandlord all
sums which Sublandlord is required to pay to the Head Landlord pursuant to the
provisions of the Head as additional rent ("Additional Rent"). Without limiting
the foregoing, the Subtenant shall the Sublandlord all Costs of Operation, Tax
Amounts, Utility Costs and common area costs the Sublease Term. If the Subtenant
defaults in payment of any sum due to the Sublandlord this subclause 3.01 the
Sublandlord shall have the same rights and remedies upon default as if sum were
rent in arrears.
3.02 In addition to the services charged to the Subtenant as Additional Rent,
the Subtenant agrees to pay the cost of all services used or consumed in or
provided to the Premises, without limitation utilities, telephone and other
services not available through the Head directly to the party supplying such
services.
3.03 The Head Landlord's estimate for Costs of Operation, Tax Amounts, Utility
Costs common area costs in respect of the Premises (based on normal consumption
and excluding Special Services) for calendar year 1998 is $25.73 per square foot
of Rentable Area. Additional Rent hereunder shall be payable, shall be subject
to estimates and shall be subject to adjustments in the same manner as provided
for the respective components thereof in the Lease. The Subtenant agrees to be
bound by the estimates, determinations and adjustments pursuant to the terms of
the Head Lease.
4. LETTER OF CREDIT
4.01 The Subtenant shall provide Brookfield Management Services Ltd. (the
"Manager"), on before the Commencement Date, with an unconditional irrevocable
letter or letters of credit major Canadian Chartered Bank in an aggregate amount
equal to Two Hundred Thousand ($200,000.00) in the form attached hereto as
Schedule "A", as security for its obligations hereunder. The face amount of the
letters of credit may, after the first nine (9) months of Sublease Term, be
reduced to Fifty Thousand Dollars ($50,000.00). The term of such letter of
credit shall be for a period expiring not earlier than the Termination Date.
Alternatively, the Subtenant may provide for one letter of credit in the amount
of $150,000.00 to have a term of at least nine (9) months from the commencement
of the Sublease Term and the other letter of credit in the amount of $50,000.00
expiring not earlier than the Termination Date. The letters of credit may be
called upon by the Sublandlord in the event of default by the Subtenant under
the Sublease.
5. DIRECTION TO PAY
5.01 All Basic Rent, Additional Rent and other amounts payable hereunder, shall
be paid by the Subtenant to the Manager, acting as manager on behalf of the
Sublandlord. This direction may be waived by or re-directed by the Manager and
may be revoked by the Sublandlord.
<PAGE>
-4-
6. SUBTENANT'S GENERAL COVENANTS
6.01 The Subtenant covenants:
(i) to pay Basic Rent, Additional Rent and all other amounts
required to be paid by it in accordance with the terms of this
Sublease;
(ii) to observe and perform all covenants and obligations of the
Subtenant under this Sublease;
(iii) not to do or omit to do any act or thing upon the Premises
which would cause a breach of any of the Sublandlord's
obligations under the Head Lease;
(iv) to use the Premises for general office purposes; and
(v) to perform or cause to be performed all of the covenants of
the Sublandlord as tenant under the Head Lease, including the
performance of the tenant's repair obligations therein but
except as to rent and other monetary obligations of the
Sublandlord as tenant under the Head Lease (the obligations of
the Subtenant in that respect being limited to the payment of
Basic Rent, Additional Rent and the cost of services for the
Premises as provided in Articles 2 and 3 hereof and the
payment of taxes as provided in Article 7 hereof).
7. BUSINESS TAXES
7.01 The Subtenant shall pay all business taxes and other taxes including the
Tax Amount, parliamentary or otherwise assessed, rated or imposed upon the
Subtenant or the Sublandlord, other than the Sublandlord's income taxes, in
respect of the Subtenant's occupancy of the Premises, or any taxes assessed
against the Project which result from any alterations, fixtures, renovation,
improvements or installation made or installed by the Subtenant, or on its
behalf and will and well truly pay or cause to be paid all taxes, rates, levies,
duties, charges, assessments and impositions whatsoever, whether parliamentary,
local or otherwise, which during the Sublease Term shall at any time be rated,
taxed or imposed upon the property, business or income of the Subtenant. In the
event that the Subtenant is assessed as a Separate School supporter and by
reason thereof the amount of the taxes payable on the Premises being increased
over the amount payable as a Public School supporter, then and in such event the
Subtenant covenants and agrees with the Sublandlord to pay to the Sublandlord an
amount of such increase upon demand being made therefor in writing by the
Sublandlord. It is understood and agreed that such increase shall be payable by
the Subtenant notwithstanding the fact that at the time such demand is made, the
Subtenant may have ceased to be a tenant of the Sublandlord, but such shall be
payable only as it relates to the Sublease Term. In the event of the Subtenant
failing to pay to the Sublandlord the amount of such increase upon demand as
herein provided, then the Sublandlord shall have the same rights and remedies
for collection thereof as for rent in arrears.
8. INSURANCE
8.01 The Subtenant shall take out and keep in force during the Sublease Term
such insurance in respect of the Premises as would be obtained by a prudent
tenant of office premises in the Project
<PAGE>
-5-
and as shall comply with the obligations of the Sublandlord as tenant under the
Head Lease and shall be subject to the same obligations and same limitations of
liability with respect to damage, loss or injury as are set out in the Head
Lease.
9. COVENANTS OF THE SUBLANDLORD
9.01 The Sublandlord covenants with the Subtenant
(i) for quiet enjoyment;
(ii) to observe and perform all covenants and obligations of the
Sublandlord under this Sublease;
(iii) to pay the Basic Rent and Additional Rent under the Head Lease
(other than Additional Rent for which the Subtenant is
responsible to pay directly to third parties (other than the
Sublandlord)); and
(iv) to enforce for the benefit of the Subtenant the obligations of
the Head Landlord under the Head Lease (the obligations of the
Sublandlord with respect to the covenants and obligations of
the Head Landlord under the Head Lease being limited to the
foregoing).
provided the Subtenant is not in default of payment of Basic Rent, Additional
Rent or other amounts payable hereunder or reserved under the Head Lease.
10. ABATEMENT AND TERMINATION
10.01 In the event of damage to or destruction of the Premises or the Project:
(i) Basic Rent and Additional Rent in respect of the Premises
shall abate if and to the extent rent and additional rent
under the Head Lease abates pursuant to the terms of the Head
Lease; and
(ii) this Sublease shall terminate if either the Head Landlord or
the Sublandlord as tenant under the Head Lease shall become
entitled to terminate and shall terminate the Head Lease
pursuant to the provisions of Section 8.4 thereof.
11. LEASEHOLD IMPROVEMENTS
11.01 The provisions of the Head Lease with respect to the removal of Leasehold
Improvements are hereby incorporated in this Sublease, the appropriate changes
of reference being deemed to have been made with the intent that such provisions
shall govern the relationship between the Sublandlord and the Subtenant in
respect of such matters.
12. DEFAULT, LANDLORD'S REMEDIES ON DEFAULT
<PAGE>
-6-
12.01 The provisions of Sections 8.2 and 8.3 of the Head Lease are hereby
incorporated in this Sublease, the appropriate changes of reference being deemed
to have been made with the intent that such provisions shall govern the
relationship between the Sublandlord and the Subtenant in respect of such
matters.
13. NOTICE
13.01 The provisions of Section 8.21 of the Head Lease shall govern the giving
of notice hereunder. The addresses of the parties for the purpose of giving such
notice shall be:
Sublandlord: c/o Brookfield Management Services Ltd.
Suite 260
181 Bay Street, P.O. Box 839
Toronto, Ontario
M5J2T3
ATTENTION: PRESIDENT, ONTARIO REGION
Subtenant: at the Premises
Attention: President
14. APPLICATION OF HEAD LEASE
14.01 Except as hereinbefore expressly provided, all terms, conditions,
covenants and agreements contained in the Head Lease shall apply to and be
binding upon the parties hereto and their respective successors and permitted
assigns, the appropriate changes of reference being deemed to have been made
with the intent that such provisions shall govern the relationship between the
Sublandlord and the Subtenant in respect of such matters and all capitalized
terms contained herein shall have the same meaning as contained in the Head
Lease unless otherwise stated herein. The Subtenant acknowledges receipt of a
copy of the Head Lease.
14.02 The Subtenant hereby acknowledges and agrees that it is not entitled to
exercise any rights or options granted to the Sublandlord in the Head Lease,
including without limitation any right to renew or extend the Head Lease, any
rights of first refusal and tenant improvement allowances, if any and shall not
be entitled to the benefit of any rights that are stated to be personal under
the terms of the Head Lease.
15. ASSIGNMENT AND SUBLETTING
15.01 The Subtenant shall not assign this Sublease or sublet or part with
possession of all or part of the Premises or mortgage or encumber the Sublease
without the prior written consent of the Sublandlord, which consent of the
Sublandlord shall not be unreasonably withheld or delayed without the prior
written consent of the Head Landlord pursuant to the provisions of the Head
Lease.
16. GOODS AND SERVICES TAX
<PAGE>
-7-
16.01 In addition to all amounts payable by the Subtenant under this Sublease,
the Subtenant sha11 pay, at the earlier of the time provided for in the
applicable legislation or at the time Rent is required to be paid under this
Sublease, all Goods and Services Taxes calculated on or in respect of amounts
payable by the Subtenant as Rent under this Sublease and, notwithstanding that
Goods and Services Taxes are not Additional Rent under this Sublease, the
Sublandlord shall have same rights and remedies for the recovery of such amounts
payable as Goods and Services Taxes as it has for amounts payable as Additional
Rent under this Sublease.
17. REPRESENTATIONS
17.01 There are no covenants, representations, agreements, warranties or
conditions in any was relating to the subject matter of this Sublease, express
or implied, collateral or otherwise, except a expressly set forth herein. This
Sublease may be amended only by an agreement in writing signed by the
Sublandlord and the Subtenant.
18. PRIOR COMMITMENTS
18.01 The Subtenant represents and warrants that there are no covenants,
restrictions o commitments given by the Subtenant to any other landlords,
tenants in other developments, it mortgagees or any other third party which
would prevent or inhibit the Subtenant from entering into this Sublease.
19. CONFIDENTIALITY
19.01 The Subtenant agrees that the contents of this Sublease are to be kept
confidential and agrees that it shall not disclose to any person, the financial
or any other terms of this Sublease, except to its professional advisors,
consultants and auditors, if any, and except as required by law.
20. SUCCESSORS AND ASSIGNS
20.01 This Sublease shall be binding upon, extend to and enure to the benefit of
each of the Sublandlord and the Subtenant and to each of their respective
permitted successors and permitted assigns.
21. CONDITIONS
21.01 The Sublease shall be conditional upon the Sublandlord and the Subtenant
being advised by the Head Landlord, on or before the Commencement Date, that it
consents to this Sublease or that its consent will be forthcoming. If such
condition is not satisfied on or before the aforementioned date, then this
Sublease shall be null and void and the deposit shall be returned to the
Subtenant forthwith together with all interest accrued thereon and without
deduction, and thereafter none of the parties hereto shall have any further
obligations hereunder.
21.02 The Sublandlord's obligations under this Sublease are conditional upon the
Sublandlord and Connor entering into a release and surrender of the Connor
Sublease and all conditions there being
<PAGE>
-8-
satisfied, all on or before the Commencement Date. If such condition is not
satisfied on or before the aforementioned date, then this Sublease shall be null
and void and the deposit shall be returned to the Subtenant forthwith together
with all interest accrued thereon and without deduction, and thereafter none of
the parties hereto shall have any further obligations hereunder.
IN WITNESS WHEREOF the parties hereto have executed this Sublease as of
the date first above set out.
EGON ZEHNDER INTERNATIONAL INC.
PER: /S/ GREG CARROTT
Name: Greg Carrott
I/We have authority Title: Managing Partner
to bind the Corporation
PER: c/s
Name:
Title:
IDS INTELLIGENT DETECTION SYSTEMS INC.
PER: /S/ SANJE RATNAVALE
Name: Sanje Ratnavale
I/We have authority Title: COO
to bind the Corporation
PER: c/s
Name:
Title:
<PAGE>
SCHEDULE A
FORM OF LETTER OF CREDIT
Date: , 1998
IRREVOCABLE STANDBY LETTER OF CREDIT NO. P FOR (AMOUNT)
BENEFICIARY APPLICANT
Name: Brookfield Management Services Ltd. Name:
Address: Suite 260 Address:
181 Bay Street
P.O. Box 839
Toronto, Ontario
M5J 2T3
Attention: President
AMOUNT: $200,000.00
EXPIRY DATE - January 30, 2000
at our counters in Toronto, Ontario
WE HEREBY ISSUE IN YOUR FAVOUR THIS IRREVOCABLE STANDBY LETTER OF CREDIT WHICH
IS AVAILABLE BY PAYMENT AGAINST YOUR WRITTEN DEMAND, ADDRESSED TO __________
BANK ., TORONTO, ONTARIO, BEARING THE CLAUSE: "DRAWN UNDER STANDBY LETTER OF
CREDIT NO. P T ISSUED BY ________ BANK." WHEN ACCOMPANIED BY THE FOLLOWING
DOCUMENTS:
1) Beneficiary's certification signed by an Officer or Director specifying
amount claimed and stating that the amount drawn is due and payable by Applicant
and that Applicant is in default of its payment obligations under a sublease
dated __________, 1997 of premises located at First Canadian Place, Toronto or
that such amount is owing or represents damages or losses arising as a result of
a default of the Applicant's obligations under such sublease or the disclaimer
or repudiation of such sublease.
2) The original of this Letter of Credit for our endorsement of any payment.
THIS LETTER OF CREDIT (AND PAYMENT HEREUNDER) WILL NOT BE RELEASED, DISCHARGED
OR AFFECTED BY THE BANKRUPTCY OR INSOLVENCY OF THE APPLICANT OR BY ANY
DISCLAIMER, BY ANY TRUSTEE IN BANKRUPTCY OR BY
<PAGE>
THE APPLICANT CEASING TO EXIST (WHETHER BY WINDING-UP, FORFEITURE, CANCELLATION
OR SURRENDER OF CHARTER, MERGER OR ANY OTHER CIRCUMSTANCES).
PARTIAL DRAWINGS ARE PERMITTED
PROVIDED NO WRITTEN DEMAND IS MADE BY THE BENEFICIARY IN ACCORDANCE WITH THE
TERMS HEREOF PRIOR TO _______________, 1999, THE AMOUNT OF THIS IRREVOCABLE
STANDBY LETTER OF CREDIT WILL AUTOMATICALLY BE REDUCED TO $50,000.00 WITHOUT
NOTICE BEING GIVEN TO THE BANK
EXCEPT AS OTHERWISE EXPRESSLY STATED THIS CREDIT IS ISSUED SUBJECT TO UNIFORM
CUSTOMS AND PRACTICE FOR DOCUMENTARY CREDITS, 1993 REVISION, ICC PUBLICATION NO.
500.
We engage to honor presentations submitted within the terms and conditions
indicated above.
<PAGE>
CURB II 1993 LIMITED PARTNERSHIP
by its duly appointed agent,
Colonnade Development Incorporated
AND
CPAD TECHNOLOGIES INC.
October 1, 1997
<PAGE>
TABLE OF CONTENTS
1. CERTAIN BASIC LEASE PROVISIONS
2. DEFINITIONS
3. PREMISES
4. TERM
5. POSSESSION
6. BASIC RENT
7. NET RENT
8. DEPOSIT
9. LESSEE'S COVENANTS
9.1 Place of Payment
9.2 Post-Date Cheques
9.3 Taxes
9.4 Sales Tax
9.5 Operating Costs
9.6 Capital Replacements
9.7 Insurance
9.8 Business Taxes
9.9 Utilities for Premises
9.10 Administration Fee
9.11 Repairs
9.12 Condition upon Termination
9.13 Use of Premises
9.14 Comply with Laws
9.15 Assigning and Subletting
9.16 Insure Equipment
9.17 Liability Insurance
9.18 Alterations
9.19 Heating of Premises
9.20 No Nuisance
<PAGE>
10. ADJUSTMENT OF ADDITIONAL RENT
10.1 Estimate
10.2 Lessor's Statement
10.3 Dispute of Statement
10.4 No Adjustment
11. PROVISOS
11.1 Acceleration of Rent
11.2 Distress
11.3 Right to Follow
11.4 No Liability of Lessor
11.5 Overholding
11.6 Indemnity by Lessee
11.7 Negligence of Lessee
11.8 Payment of Lessee's Expenses
11.9 Liens
11.10 Hazardous Waste
11.11 Evidence of Payment
11.12 Separate Metering
12. LESSOR'S COVENANTS
12.1 Quiet Enjoyment
12.2 Building Insurance
12.3 Pay Taxes
12.4 Lessor's Repair
12.5 Property Management
13. DEFAULT
13.1 Re-Entry
13.2 Rights upon Default
13.3 Lessor May Perform Covenants
<PAGE>
THIS LEASE dated as of the 1st day of October 1997 is made
BETWEEN
CURB II 1993 LIMITED PARTNERSHIP
by its duly appointed agent,
COLONNADE DEVELOPMENT INCORPORATED,
(hereinafter called the "Lessor")
OF THE FIRST PART
AND
CPAD TECHNOLOGIES, INC.
(hereinafter called the "Lessee")
OF THE SECOND PART.
WHEREAS, the Lessor has agreed to lease to the Lessee the whole of the
Building known as 152 Cleopatra Drive Nepean, Ontario being comprised of
approximately 18,360 square feet of Gross Rentable Area together with the means
of ingress and egress to the said Building and the Parking Area (which premises
are hereinafter called the "Premises") and the Lessee has agreed to lease the
Premises on the terms and conditions hereinafter set forth.
1. CERTAIN BASIC LEASE PROVISIONS
The following are certain basic provisions of this Lease:
(a) Location of Premises. 152 Cleopatra Drive, Nepean, Ontario outlined in
red on the floor plan attached hereto as Schedule "B";
(b) Gross Rentable Area of Premises. Eighteen Thousand, Three Hundred Sixty
(18,360.00) square feet calculated in accordance with paragraph 2.4;
(c) Term. Five (5) Years;
(d) Commencement Date. October 1, 1997;
(e) Termination Date. September 30, 2002;
(f) Basic Rent. An amount equal to an annual rate from October 1, 1997 to
September 30, 2000 of Eight Dollars ($8.00) per square foot of Gross Rentable
Area of the Premises being One Hundred
<PAGE>
Forty Six Thousand, Eight Hundred Eighty Dollars ($146,880.00) per annum, from
October 1, 2000 to September 30, 2002, of Ten Dollars ($10.00) per square foot
of Gross Rentable Area of the Premises being One Hundred Eighty-Three Thousand,
Six Hundred Dollars ($183,600.00) per annum as provided in Article 6;
(g) Operating Costs and Taxes. Lessee to pay all operating costs and Taxes which
are estimated and payable monthly in advance as provided in Articles 10.1;
(h) Sales Tax. Lessee is to pay all Sales Tax charged with respect to Rent
payable pursuant to this Lease as provided in paragraph 9.4;
(i) Parking. The Lessee has the exclusive right to the use of the parking area
adjacent to Building for the use of the Lessee, its employees and invitees;
(j) Schedules:
"A" - Legal Description of the Lands
"B" - Floor Plan
"C" - Site Plan showing location of parking area outlined in blue "D" -
Rules and Regulations
(k) Permitted Use. General office, light manufacturing and assembly,
research and development and storage use;
<PAGE>
The parties acknowledge and Agree that the terms set out in this
paragraph 1 are intended to be a summary of certain basic terms of this Lease.
In the event of any inconsistency between the terms of Section 1 and the terms
set out in the Lease, the latter shall govern.
2. DEFINITIONS
2.1 "Building" means the single-storey , single-tenant building situate on the
Lands and municipally known as 152 Cleopatra Drive, in the City of Nepean,
Ontario;
2.2 "Gross Rentable Area " shall mean all the area within the outside walls of
the Premises and shall be computed by measuring from the outside surface of the
outer Building walls and windows set in such walls and to the center line of
partitions which separate the Premises from adjoining rentable areas without
deduction for columns, projections, flues, stacks, pipe shafts or vertical ducts
and their enclosing walls;
2.3 "Hazardous Substances" includes without limitation, flammables, explosives,
radioactive materials, asbestos, polychlorinated biphenyls (PCBs), chemicals
known to cause cancer or reproductive toxicity, pollutants, contaminants,
hazardous wastes, toxic substances or related materials, petroleum and petroleum
products, and substances declared to be hazardous or toxic under any law or
regulation now or hereafter enacted or promulgated by any governmental
authority.
2.4 "Lands" means the lands more particularly described in Schedule "A" attached
hereto or as such lands may be altered, expanded or reduced from time to time,
and the improvements, buildings, equipment and facilities erected thereon or
situate from time to time therein.
2.5 "Lease Year" shall mean a period of twelve (12) consecutive calendar months
during the Term ending on the 31st day of December, except that:
(a) the first Lease Year during the Term shall begin on the
Commencement Date and shall end on the 31st day of December in
the calendar year in which the Commencement Date occurs, and
may be a period of less than twelve (12) consecutive calendar
months, and
(b) the last Lease Year during the Term shall begin on the first
day of January of the calendar year during which the last day
of the Term occurs and shall end on the last day of the Term,
and may be a period of less than twelve (12) consecutive
calendar months.
2.6 "Rent" means both basic rent, and additional rent, payable under this Lease.
3. PREMISES
In consideration of the Rent, covenants and agreements hereinafter
reserved and contained on the part of the Lessee to be paid, observed, and
performed, the Lessor leases to the Lessee the
<PAGE>
Premises, constituting a Gross Rentable Area of approximately Eighteen Thousand,
Three Hundred Sixty (18,360) square feet of office space, all of which portion
of the Building is hereinafter called the "Premises".
4. TERM
To have and to hold the Premises for and during a term of Five (5)
years, to be computed from the 1st day of October, 1997, (hereinafter called the
"Commencement Date") and to be fully completed and ended on the 31st day
September 2002;
5. POSSESSION
It is agreed that if the Lessor is unable to deliver vacant possession of
the Premises on the Commencement Date by reason of the Premises or the Building
being incomplete and not wholly fit for occupation, the Lessor shall diligently
exercise all of its rights to complete the Premises or the Building, as the case
may be, and the Rent payable hereunder shall abate pro rata until the day on
which the Lessee is given vacant possession of the Premises but the Lessor shall
not be liable to the Lessee for damages of any nature whatsoever and the lease
shall continue tin full force and effect subject only to the abatement of Rent
as aforesaid. .
6. BASIC RENT
6.1 Basic Rent. Yielding and paying to the Lessor in each and every year of
the Term as basic rent:
(a) during the period commencing on October 1, 1997, and ending on
September 30, 2000, an annual rate of Eight Dollars ($8.00) per square foot of
Gross Rentable Area being One Hundred Forty-six Thousand, Eight Hundred Eighty
Dollars ($146,880.00) per annum payable in equal consecutive monthly instalments
of Twelve Thousand, Two Hundred Forty Dollars ($12,240.00) each in advance on
the first day of each and every month of such period;
(b) during the period commencing on October 1, 2000 and ending on
September 30, 2002, an annual rate of Ten Dollars ($10.00) per square foot of
Gross Rentable Area being One Hundred Eighty-three Thousand, Six Hundred Dollars
($183,600.00) per annum payable in equal consecutive monthly instalments of
Fifteen Thousand, Three Hundred Dollars ($15,300.00) each in advance on the
first day of each and every month of such period;
7. NET RENT
The basic rent reserved by this Lease shall be absolutely net to the
Lessor, so that this Lease shall yield net to the Lessor, the basic rent
specified in Article 6 hereof, in each year during the Term without notice or
demand, and free of any charges, assessments, impositions or deductions of any
kind and without abatement, deduction or set-off and under no circumstances or
conditions whether now existing or hereafter arising whether beyond the present
contemplation of the parties, is the
<PAGE>
Lessor to be expected or required to make any payment of any kind whatsoever
except as herein otherwise expressly set forth and all expenses and obligations
of every kind and nature whatsoever relating to the Premises which may arise or
become due during or out of the Term shall be paid by the Lessee and the Lessor
shall be indemnified and saved harmless by the Lessee from all costs of same.
8. DEPOSIT
Intentionally Deleted.
9. LESSEE'S COVENANTS
The Lessee covenants with the Lessor as follows:
9.1 Place of Payment. To pay to the Lessor, at the office of the Lessor at One
Antares Drive, Suite 510, Nepean, Ontario or at such other place in Canada as
the Lessor designates from time to time in writing. in lawful money of Canada
the Rent and all other amounts owing by the Lessee to the Lessor, without any
deduction, set-off or abatement whatsoever.
9.2 Post-Dated Cheques. If requested by the Lessor, the Lessee shall on or
before the Commencement Date and before the first day of each year of the Term
thereafter deliver to the Lessor a series of post-dated cheques, one for each
month of such year, drawn for an amount equal to the amount of basic rent and
estimated additional rent and Sales Tax payable in each month of such year, or
in lieu thereof, if requested by the Lessor, shall arrange with its bank for
pre-authorized cheques in such amount;
9.3 Taxes. To pay to the Lessor, as additional rent, all municipal and other
real property taxes (including without limitation local improvement rates and
school taxes), rates, charges, duties and assessments that may be levied, rated,
charged, or assessed against the Building, the Premises or the Lands or any part
thereof or upon the Lessor on account thereof (hereinafter collectively called
the "Taxes") save and except all personal or corporate income taxes of the
Lessor. Taxes shall include all expenses incurred by the Lessor in obtaining or
attempting to obtain a reduction in Taxes. Without limiting the generality of
the foregoing, Taxes shall be deemed to include the following:
(i) the amount of tax or excise payable by the Lessor
under the Corporations Tax Act of Ontario as amended
or replaced from time to time or any other
legislation Imposing taxes on account of capital and
including the amount of any capital or place of
business tax levied by the provincial government or
other applicable taxing authority against the Lessor
with respect to the Lands and the Building,
calculated as if the Lands and the Building were the
only property of the Lessor; and
<PAGE>
(ii) an amount equal to such percentage of the Large
Corporations Tax payable by the Lessor under the
Income Tax Act of Canada as amended or replaced from
time to time or any other federal legislation
imposing taxes on account of taxable capital employed
in Canada, as the Lessor reasonably attributes to the
Lands and the Building.
Without limiting the generality of the foregoing, the Lessee shall also pay and
discharge as additional rent every other tax, charge, rate, assessment or
payment which may become a charge or encumbrance upon or levied or collected
upon or in respect of the Premises or any part thereof as the same become due
respectively, whether charged by any municipal, parliamentary or other
governmental body during the Term.
The Lessee shall have the right to contest by appropriate legal
proceedings the validity of any Tax, and if the payment of any such Taxes may be
legally held in abeyance without subjecting the Lessor or the Lessee to any
Liability of any nature whatsoever for failure so to pay , the Lessee may
postpone such payment until the final determination of any such proceedings,
provided that all such proceedings shall be prosecuted with all due diligence
and dispatch;
9.4 Sales Tax. Notwithstanding any other provision of this Lease, the Lessee
shall pay to the Lessor an amount equal to the Sales Tax (as defined below). The
amount of the Sales Tax payable by the Lessee shall be calculated by the Lessor
in accordance with the applicable legislation and shall be paid to the Lessor at
the same time as the amounts to which such Sales Tax applies are payable to the
Lessor, or upon demand at such other time or times as the Lessor may from time
to time determine acting reasonably. Notwithstanding any other provision of this
Lease, the amount payable by the Lessee under this paragraph 9.4 shall be deemed
not to be rent but the Lessor shall have all of the same remedies for and rights
of recovery of such amount as it has for the recovery of rent whether under this
Lease or otherwise. For the purposes of this paragraph 9.4, "Sales Tax" shall
mean any and all goods and services taxes, sales taxes, value-added taxes,
multi-stage taxes, business transfer taxes or other similar taxes imposed on the
Lessor with respect to Rent payable by the Lessee to the Lessor under this Lease
or in respect of the rental of the Premises whether or not characterized as
goods and services taxes, sales taxes, value-added taxes, business transfer
taxes or otherwise. Notwithstanding any other provision contained in the Lease,
operating costs shall have deducted therefrom any input or other credit or
refund which the Lessor receives on account of the
payment of Sales Tax with respect to the purchase of goods and services by the
Lessor which have been included in the costs of operating or administering the
Premises, the Building or the Lands;
9.5 Operating Costs. To pay to the Lessor, as additional rent, the Lessee's
Proportionate Share of all those costs and expenses incurred from time to time
by the Lessor to operate, maintain, clean, promote, supervise and repair the
Building (including without limitation capital repairs but excluding those costs
and expenses Incurred to repair or replace the roof and structural components of
the Building), and those costs and expenses incurred by the Lessor to operate,
maintain, clean, police and supervise the Lands, less a sum equal to any
insurance proceeds, net of costs, actually received
<PAGE>
by the Lessor with respect to any of the foregoing costs and expenses
(hereinafter referred to as "Operating Costs"). Operating Costs shall include,
without limiting the generality of the foregoing, all costs and expenses
relating to the following items: professional fees (including legal and
accounting); gardening and landscaping; heating, ventilating and
air-conditioning; utility and water charges; painting, including without
limitation, line painting; lighting; signs; sanitary control; cleaning;
security; maintenance of Common Areas and outside walls; supplies; mechanical,
plumbing and electrical facilities; traffic control; removal of snow and refuse;
cleaning; elevator maintenance; depreciation on and/or rentals of machinery and
equipment; the wages, salaries, fringe benefits and severance pay for personnel
required to implement such services and any amounts paid to independent
contractors, including management companies, for any services hereinbefore
described; excluding from such expenses only original acquisition and
construction costs and depreciation (except on machinery and equipment as
aforesaid);
9.6 Capital Replacements. If capital replacements or repairs are made to the
Building or Lands (excluding the structure and roof of the Building) during the
Term, to pay to the Lessor, as additional rent, the Lessee's Proportionate Share
of the depreciation or amortization of the cost of such capital replacement or
repair amortized over the life expectancy of such capital replacement or repair
or ten (10) years, whichever period is shorter, together with interest
calculated at one percentage (1%) point above the average daily prime bank
commercial lending rate charged by the Lessor's Canadian chartered bank upon the
underpreciated or unamortized portion of the cost of such capital replacement or
repair;
9.7 Insurance. To pay to the Lessor, as additional rent, the cost of all
premiums payable by the Lessor for all insurance placed by the Lessor pursuant
to paragraph 12.2. If any of the premiums payable for such insurance shall
increase because of the Lessee or the use or occupancy of the Premises, anything
kept thereon, or anything done or omitted to be done therein, the amount of such
increase shall be paid by the Lessee to the Lessor on demand. In determining
whether increased premiums are the result of the use or occupation of the
Premises a schedule issued by the organization setting the insurance rate on the
Premises showing the various components of the rate shall be conclusive evidence
of the several items and charges which make up the insurance rate on the
Premises. If any policy of insurance placed by the Lessor is canceled or
threatened .to be canceled or threatened not to be renewed or if the coverage
thereunder Is reduced or threatened to be reduced because of the Lessee or the
use or occupation of the Premises or anything kept on the Premises or anything
done or omitted to be done therein, the Lessor may give the Lessee notice
thereof and if the Lessee fails to remedy the matter within forty-eight (48)
hours after receipt of such notice, the Lessor shall have the right to either:
(i) enter upon the Premises and remedy the condition giving rise to the
cancellation or reduction or threatened cancellation or reduction, and the
Lessee shall pay to the Lessor the cost thereof on demand, or (ii) to re-enter
the Premises whereupon Article 13 shall apply mutatis mutandis;
9.8 Business Taxes. To pay, as the same become due, all business taxes and
all other assessments Imposed or levied upon the business or income of the
Lessee in respect of the Lessee's occupancy of the Premises;
<PAGE>
9.9 Utilities For Premises. To pay, as the same become due to the Lessor as
additional rent, the Lessee's Proportionate Share of all charges for public
utilities, including without limitation, water, sewage, gas, garbage collection,
electrical power or energy, steam and hot water used upon or in respect of the
Premises and for fittings, machines, apparatus, meters and other things leased
in respect thereof, and for all work or services performed by any corporation or
commission In connection with such public utilities;
9.10 Administration Fee. To pay to the Lessor, as additional rent, an
administration fee equal to ten percent (10%) of the total costs and expenses
payable as additional rent and described in 9.3 to 9.10 inclusive;
9.11 Repairs. At its own expense, to maintain and keep the Premises and every
part thereof in a clean and sanitary condition, In good order and condition and
promptly make all needed repairs and replacements except for those of a
structural nature including the roof of the Building find except for those
defects in construction performed by the Lessor or installations made by the
Lessor. The Lessee's obligation to repair shall be co-extensive with repairs
which would be made by a prudent owner with respect to Its own property. Without
limiting the generality of the foregoing, the Lessee shall keep the Premises
well painted and clean, and in a first-class condition as would a careful owner,
and shall promptly replace all broken or cracked glass with glass of equal
quality. Where an Inspection reveals repairs are necessary , the Lessor shall
give the Lessee written notice of the same, and thereupon the Lessee shall,
within fifteen (15) days from the date of the delivery of the notice, make the
necessary repairs in a good and workmanlike manner;
9.12 Condition Upon Termination. At the expiration or sooner determination of
the Term, to peaceably surrender and yield up unto the Lessor the Premises
together with all appurtenances, improvements or erections which at any time
during the Term shall be made therein or thereon, In a good and substantial
state of repair and condition, reasonable wear and tear only excepted. The
Lessee's obligation to leave the Premises in a good and substantial state of
repair and condition shall be co-extensive with those repairs which would be
made by a prudent owner with respect to its own property. Upon the expiration or
sooner determination of the Term, the Lessee shall have the right, If not then
in default, to remove and shall remove if required to do so by the Lessor, all
Its trade fixtures, furniture and equipment, making good at the Lessee's expense
all damage caused by such removal. The Lessee further agrees; that all fixtures
(excluding trade fixtures) and all leasehold improvements made at any time prior
to or after the Commencement Date, whether by the Lessee or the Lessor, shall
immediately upon affixation or installation become the property of the Lessor
and shall remain upon the Premises provided that upon the expiration or sooner
determination of the Term if so directed by the Lessor, the Lessee shall remove
all such fixtures and leasehold improvements as the Lessor may require, making
good at the Lessee's expense all damage caused by such removal. All property of
the Lessee remaining upon the Premises after the termination of its tenancy
shall be deemed to have been abandoned by the Lessee in favour of the Lessor and
may be disposed of by the Lessor, at the Lessee's cost without any Liability to
the Lessor whatsoever.
9.13 Use Of Premises. To use the Premises for the purpose of a general
office and light manufacturing and assembly, research and development and
storage use befitting a first-class
<PAGE>
building and for no other purpose;
9.14 Comply With Laws. To abide by and comply with all statutes, by-laws, rules
and regulations of every parliamentary , municipal, township or other authority
which in any manner relate to or affect the Premises or the tenancy of the
Lessee; and to put the Premises in such state of repair as to comply with the
said statutes, by-laws, rules and regulations; and to indemnify and save
harmless the Lessor from any penalty, costs, charges or damages to which the
Lessor may be put or suffer by reason of having to alter the Premises to conform
with any such statutes, by-laws, rules or regulations by reason of the tenancy
of the Lessee;
9.15 Assigning And Subletting. Not to assign this Lease or sublet or part with
or share possession of the Premises, in whole or In part, by operation of law or
otherwise, without first obtaining the prior written consent of the Lessor,
which consent shall not be unreasonably withheld. If the Lessee Is a
corporation, the Lessee shall be prohibited from effecting any transfer or issue
by sale, assignment, bequest, inheritance, operation of law or other
disposition, or by subscription, allotment, cancellation or redemption, from
time to time, of any shares of the Lessee or of any parent or subsidiary
corporation of the Lessee or any corporation which is an associate or affiliate
of the Lessee (as those terms are defined pursuant to the Business corporations
Act, 1982 (Ontario) and amendments thereto), which results in any change. In the
effective voting control or other control of the Lessee as at the date of this
Lease without first obtaining the prior written consent of the Lessor in each
instance, which consent may not be unreasonably withheld. The prohibition
against the change of voting control or other control contained in this
paragraph 9.13 shall not apply to the Lessee if and so long as (i) the Lessee is
a public corporation whose shares are traded and listed on any recognized stock
exchange in Canada or the United States; or (ii) the Lessee is a private
corporation but is controlled by a public corporation defined as aforesaid. The
giving of consent by the Lessor shall, at the option of the Lessor, be
conditional upon the following: (a) the proposed assignee or sub-lessee shall
agree in writing to assume and perform all of the terms, covenants, conditions
and agreements imposed by this Lease upon the Lessee, in a form satisfactory to
the solicitor for the Lessor, (b) notwithstanding any such assignment, whether
consented to or not, the Lessee shall nonetheless remain responsible to the
Lessor for the performance of all terms, covenants, conditions and agreements
imposed by this Lease upon the Lessee, and (c) the Lessee shall pay the Lessor's
reasonable solicitor's fees incurred in assessing, processing and documenting
any request under this paragraph regardless of whether or not consent is
granted. Consent by the Lessor in any instance shall not constitute a waiver of
the necessity for such consent in any other instance;
9.16 Insure Equipment. To purchase and maintain ai its own expense all risk
direct damage insurance upon all of the Lessee's improvements, goods, chattels,
furniture, fixtures. trade fixtures and equipment and all parts of the Premises
which the Lessee is obligated to keep in repair, to their full replacement
value;
9.17 Liability Insurance. To purchase and maintain at its own expense
comprehensive general public Liability insurance, including broad form tenants
legal Liability insurance, against claims for death, personal injury and
property damage in or about the Premises, in amounts which are from
<PAGE>
time to time acceptable to a prudent tenant in the community in which the
Building is located, but in any event not less than Two Million Dollars
($2,000,000.00) for death, illness or injury to one or more persons and for
damage to property regardless of the number of claims arising as a result of any
one occurrence, and shall take out and maintain at its own expense such further
or other insurance in amounts and upon terms reasonable for a prudent lessee to
provide as determined by the Lessor and its insurance adjusters or its
mortgagee, acting reasonably. If the nature of the Lessee's business is such as
to place all or any of its employees under the coverage of local worker's
compensation or similar statutes, the Lessee shall also keep in force at its
expense, worker's compensation or similar insurance affording statutory coverage
in containing statutory limits.
Each policy of insurance issued in conformity with paragraphs 9.16 and
9.17 shall be in a form satisfactory to the Lessor, be placed with insurers
approved by the Lessor, such approval not to be unreasonably withheld, and shall
exclude the exercise of any claim of the insurer whether by subrogation or
otherwise against the Lessor or against those for whom the Lessor is in law
responsible. Each such policy shall name the Lessor and the Lessor's mortgagees
as named insureds as their interests may appear and shall contain severability
of interest and cross-Liability endorsements. Each such policy shall be endorsed
to provide that in the event of any change in them which could affect the Lessor
or its mortgagees, or in the event of their cancellation, the Insurer shall give
notice by registered mail to the Lessor and its mortgagees not less than thirty
(30) days prior to the effective date of such change or cancellation. Upon the
request of the Lessor or any of its mortgagees, the Lessee shall deliver
certificates of insurance in a form acceptable to them, and, if required,
certified copies of each such policy of insurance;
9.18 Alterations. Prior to and throughout the Term, not to make any erection,
alteration, addition or improvement to the Premises without first submitting
detailed plans and specifications (including materials to be used) thereof to
the Lessor, and without first obtaining the approval in writing thereto from the
Lessor; such approval not to be unreasonably withheld. The Lessee acknowledges
and agrees, however, that it shall be deemed to be reasonable for the Lessor to
withhold its approval if. (i) the Lessee is then in default of any of its
obligations under this Lease; (ii) the Lessee has not submitted to the Lessor
drawings, elevations (where applicable), specifications (including the materials
to be used), locations (where applicable) or exterior decoration and design of
the proposed alteration, erection, addition or improvement, all of which must be
satisfactory to the Lessor, acting reasonably; (iii) in the opinion of the
Lessor, acting reasonably, the proposed erection, alteration, addition or
improvement may diminish the value of the Building or the Lands or the amount of
rental or other income to be derived from the operation of the Building or the
Lands; or (iv) the proposed erection, alteration, addition or improvement does
not conform in all respects to the National Building Code and amendments thereto
and replacements thereof then in force or any other lawful requirement of any
statutory authority having jurisdiction with respect to the proposed erection,
alteration, addition or improvement. Any erection, alteration, addition or
improvement placed upon the Premises shall be subject to fill the provisions of
this Lease and if removed as hereinbefore provided, the Lessee shall repair all
damage caused by the installation and removal thereof;
9.19 Heating of Premises. To heat the Premises at a temperature to prevent
damage to ally kind whatsoever to the Premises; and
<PAGE>
9.20 No Nuisance. Not to do or suffer any waste, damage or injury to the
Premises and not to permit the Premises to be used for any dangerous, noxious or
offensive trade or business and not to cause or allow nuisance in the Premises.
10. ADJUSTMENT OF ADDITIONAL RENT
ALL additional rent payable hereunder shall be paid in the following
manner:
10.1 Estimate. Prior to the first day of each Lease Year, the Lessor shall
compute and deliver to the Lessee a bona fide estimate of additional rents for
such Lease Year and without further notice the Lessee shall pay to the Lessor in
monthly instalments in advance, one twelfth (1/12) of such estimate together
with the Lessee's payment of basic rent for such Lease Year;
10.2 Lessor's Statement. Unless delayed by causes beyond the Lessor's reasonable
control, the Lessor shall deliver to the Lessee within one hundred and twenty
(120) days after the end of each Lease Year, a written statement ("the
Statement") setting out in reasonable detail the Lessor's costs and expenses by
way of additional rent for such Lease Year and such Statement shall be certified
to be correct by an officer of the Lessor. If the aggregate of the monthly
instalments of additional rent actually paid by the Lessee to the Lessor during
such Lease Year differs from the amount actually payable for such Lease Year
under terms of this Lease, the Lessee shall pay or the Lessor shall refund the
difference (as the case may be) without interest within thirty (30) days after
the date of delivery of the Statement;
10.3 Dispute Of Statement. If Lessor and Lessee disagree on the accuracy of the
costs and expenses as set forth In the Statement, the Lessee shall nevertheless
make payment in accordance with any notice given by the Lessor, but the
disagreement shall be immediately referred by the Lessor for prompt decision by
the Lessor's auditors who shall be deemed to be acting as an expert and not an
arbitrator, and a determination signed by the Lessor's auditors shall be final
and binding on both the Lessor and the Lessee. Any adjustment required to any
previous payment by the Lessee or the Lessor by reason of any such decision
shall be made within fourteen (14) days thereof, and the party required to make
payment under such adjustment shall bear all costs of the expert making such
decision, except where the payment represents three percent (3%) or less of the
total costs and expenses that were the subject of the disagreement in which case
the Lessee shall bear all such cost;
10.4 No Adjustment. Neither party may claim readjustment in respect of such
costs and expenses for a Lease Year if based upon any error of computation or
allocation except by notice delivered to the other party within twelve (12)
months after the date of delivery of the Statement.
11. PROVISOS
Provided, and it is hereby expressly agreed that:
11.1 Acceleration Of Rent. If, without the consent of the Lessor, the Premises
shall become and remain vacant or not used for a period of five (5) or more
consecutive days, during the Term hereby
<PAGE>
granted or any renewal or extension thereof or any of the goods and chattels of
the Lessee shall be at any time seized or taken in execution or in attachment by
any creditor of the Lessee or the Lessee shall make any assignment for the
benefit of creditors, or any bulk sale, or become bankrupt or insolvent or take
the benefit of any act now or hereafter in force for bankrupt or Insolvent
debtors or any order shall be made for the winding-up of the Lessee, or if a
receiver, trustee or manager takes or obtains possession or effective control of
the Lessee's property or if the Lessee without the written consent of the
Lessor, abandons or attempts to abandon the Premises or to sell or dispose of
goods or chattels of the Lessee or to remove them or any of them from the
Premises so that there would not in the event of abandonment, sale or
disposition be sufficient goods on the Premises subject to distress to satisfy
all rentals due or accruing due hereunder, then in every such case the then
current month's Rent and the next ensuing three (3) months' Rent payable by the
Lessee hereunder shall immediately be paid by the Lessee to the Lessor and the
Lessor may terminate this Lease and the Term and/or renewal shall immediately be
forfeited and void, in which event the Lessor may re-enter and take possession
of the Premises as though the Lessee or any occupant or occupants of the
Premises was or were holding over after the expiration of the Term without any
right whatsoever, and In every of the cases above, such accelerated rent shall
be recoverable by the Lessor in the same manner as the rent hereby reserved;
11.2 Distress. Notwithstanding the benefit of any present or future statute
taking away or limiting the Lessor's right of distress, none of the goods or
chattels of the Lessee on the Premises at any time during the Term shall be
exempt from levy by distress for rent in arrears. The Lessor shall have the
right to enter the Premises, and to take possession of any goods or chattels
whatsoever on the Premises, and to sell same at public or private sale without
notice or apply the proceeds of such sale on account of rent or on satisfaction
of the breach of any covenant, obligation or agreement herein contained and the
Lessee shall remain liable for the deficiency, If any;
11.3 Right to Follow. Provided that in case of removal by the Lessee of the
goods and chattels of the Lessee from the Premises, the Lessor may follow the
same for thirty (30) days 111 the manner provided for in the Landlord and Tenant
Act, as amended from time to time;
11.4 No Liability of Lessor. Except in the event of its willful act or omission,
the Lessor shall not in any event whatsoever be liable for or responsible in any
way for any personal injury or death that may be suffered or sustained by any
officer, servant, agent or employee, licensee or invitee of the Lessee or any
person who may be upon the Premises or for any loss of or damage or injury to
any property belonging to the Lessee or belonging to any of its officers,
servants, agents or employees, licensees and invitees or belonging to any other
person which property is on the Premises and, in particular (but without
limiting the generality of the foregoing) except in the case of any of the
aforesaid events, the Lessor shall not be liable for any damage to any such
property caused by steam, water, rain or snow which may leak into, issue or flow
from any part of the Building or adjoining premises or from the water, steam,
sprinkler or drainage pipes or plumbing works of the same or from any other
place or quarter or for damage caused by or attributable to the condition or
arrangement of any electrical or other wiring or for any damage caused by
anything done or omitted to be done by any other tenant of the Lessor.
<PAGE>
11.5 Overholding. Each of the parties hereto acknowledge and agree that it is
their intention that subject to the terms and conditions of this paragraph 11.5,
this Lease shall automatically renew at the end of the Term. [which for the
purposes of this section shall be deemed to include any renewal term where the
Lessee has exercised its option to renew in accordance with paragraph 4.2
herein]. The Lessee shall deliver to the Lessor written notice of its intention
to terminate this Lease no later than twelve (12) months prior to the expiration
of the Term. If the Lessee fails to give notice in the manner and in the period
of time provided for in this paragraph 11.5 and provided the Lessor in its sole
discretion gives its consent to the Extended Term (as defined herein), then the
Term shall be extended for a further term of twelve (12) consecutive calendar
months (the "Extended Term") on the same terms and conditions as are contained
in this Lease save and except that there shall be no further Extended Term, rent
free period, tenant Improvement allowance or any other tenant inducements and
there shall be no further option to renew. The basic rent payable during the
Extended Term shall be an amount equal to the basic rent payable by the Lessee
during the last year of the Term.
If the Lessee should:
(a) overhold after the expiration of the Term and the Lessor has
not consented to the Extended Term; or
(b) overhold after the expiration of the Term after having
properly given notice of its intention to terminate the Lease
in accordance with this paragraph 11.5; or
(c) overhold after the expiration of the Extended Term;
then such holding over shall be construed to be a tenancy from month-to-month
only and shall be of no greater effect, any custom, statute, law or ordinance to
the contrary notwithstanding. Such month-to-month tenancy shall be construed by
the same terms and conditions hereof (including the payment of basic rent and
additional rent) notwithstanding any statutory provisions or rules of law with
respect to the Instance of the month-to-month lease, save and except that the
terms and conditions during such overholding shall not include the Extended Term
provisions contained in this paragraph 11.5 and further save and except that the
Lessee shall pay to the Lessor a monthly basic rental equal to two (2) times the
last monthly basic rent payable pursuant to Article 6 hereof. The Lessee shall
promptly indemnify and hold harmless the Lessor from and against any and all
actions, or causes of action, damages, loss, expenses, liabilities, fines,
suits, claims, or demands whatsoever, incurred by the Lessor as a result of the
Lessee remaining in possession of all or any part of the Premises after the
expiry of the Term. The Lessee shall not interpose any counterclaim in any
proceeding based on overholding by the Lessee;
11.6 Indemnity by Lessee. The Lessee shall indemnify and save harmless the
Lessor from and against all actions or causes of action, damages, loss,
expenses, liabilities, fines, suits, claims, demands and actions of any kind or
nature which the Lessor may sustain or to which the Lessor shall or may become
liable for or suffer by reason of this Lease or the use or occupation by the
Lessee of the Premises, Including without limitation, any breach, violation or
non-performance by the Lessee
<PAGE>
of any covenant, term or provision hereof or by reason of any Injury or death
resulting from, occasioned to or suffered by any person or persons or any
property by reason of any act, neglect or omission on the part of the Lessee or
anyone for whom it is responsible at law but not including any actions or causes
of action, damages, loss, expenses, liabilities, fines, suits, claims, demands
and actions of any kind or nature due to the wrongful act or omission of the
Lessor or any person for whom the Lessor is responsible at law; such
indemnification in respect of any such breach, violation or non-performance,
damage to property, Injury or death, use or occupation of the Premises occurring
during the Term and all renewals thereof shall survive any termination of this
Lease, anything in this Lease to the contrary notwithstanding;
11.7 Negligence Of Lessee. Should the Building, including the Premises, glass,
pipes and other apparatus get out of repair or become damaged, destroyed or
non-functional through the negligence, wrongful act or omission or misuse by the
Lessee, its officers, servants, agents, employees, licensees, or invitees, the
expenses or necessary repairs, replacements or alterations shall be borne by the
Lessee and paid to the Lessor as additional rent on demand;
11.8 Payment Of Lessee's Expenses. if the Lessee fails to pay any Taxes, Sales
Taxes, rates, insurance premiums or other charges which it has herein covenanted
to pay under any requirements or provisions of this Lease, the Lessor may pay
the same and shall be entitled to charge One hundred and Fifteen percent (115%)
of the sums so paid to the Lessee who shall pay them forthwith upon demand, and
the Lessor, in addition to any other rights, shall have the same remedies and
may take the same steps for recovery of rent in arrears under the terms of this
Lease; all arrears of Rent and moneys paid by the Lessor on the Lessee's behalf
shall bear Interest at a rate calculated as being five percent (5%) greater than
the prime rate of interest charged from time to time by The Royal Bank of Canada
from the time such arrears become due until paid to the Lessor, such interest to
be calculated and compounded monthly;
11.9 Liens. The Lessee shall indemnify and hold harmless the Lessor from and
against any Liability, claim, damages or expenses (including legal expenses) due
to or arising from any claim made against the Premises, the Building or the
Lands for all liens related to all work done by or on behalf of the Lessee and
all work which the Lessee is obliged to do pursuant to this Lease and any such
Liability, claims, damages or expenses incurred by the Lessor shall be paid by
the Lessee to the Lessor forthwith upon demand; and the Lessee shall cause all
registration of claims for liens and/or certificates of action under the
Construction Lien Act and relating to any such work done by or on behalf of the
Lessee and all work which the Lessee is obliged to do to be discharged or
vacated as the case may be within fifteen (15) days of such registration or
within five (5) days after notice from the Lessor failing which the Lessor in
addition to any other rights or remedies it may have hereunder may but shall not
be obligated to discharge such liens and/or certificates by payment into court;
any such payments and the Lessor's legal costs (on a solicitor and his client
basis) and other costs of obtaining and registering such discharges shall be
repaid by the Lessee to the Lessor forthwith after notice thereof and shall be
recoverable as if the same were rent reserved and in arrears hereunder; and
11.10 Hazardous Waste. The Lessee shall not cause or permit to occur:
<PAGE>
(a) any violation of any federal, provincial or local law,
ordinance, or regulation now or hereafter enacted, related to
environmental conditions on, under, or about the Lands and
Premises, or arising from the lessee's use or occupancy of the
Lands or Premises, including, but not limited to, soil and
ground water conditions; or
(b) the use, generation, release, manufacture, refining,
production, processing, storage, or disposal of any Hazardous
Substance on, under or about the Lands and Premises, or the
transportation to or from the Lands and Premises of any
Hazardous Substance.
The Lessee shall indemnify, defend, and hold harmless the Lessor and
the mortgagee of the Lands, and their respective officers, directors,
beneficiaries, shareholders, partners, agents and employees from all fines,
suits, procedures, claims, and actions of every kind, and all costs associated
therewith (Including legal fees on a solicitor and his own client basis) and
consultants' fees arising out of or in any way connected with any deposit,
spill, discharge, or other release of Hazardous Substances that occurs during
the Term, at or from the Premises, or which arises at any time from the Lessee's
use or occupancy of the Premises, or from the lessee's failure to provide all
information, make all submissions, and take all steps required by all
authorities under any such environmental laws and this indemnity shall survive
the expiration of the Lease. Provided that the Lessee shall not be responsible
for any cost related to the removal of any Hazardous Waste from the Premises
where such Hazardous Waste was not caused by the Lessee.
11.11 Evidence Of Payment. The Lessee shall from time to time at the request of
the Lessor produce to the Lessor satisfactory evidence of the due payment by the
Lessee of all payments required to be made by the Lessee under this Lease.
11.12 Separate Metering. The Lessor shall have the right, where the Lessor deems
necessary, at any time or times to install separate metering for any or all of
the public utilities servicing the Building or the Premises. The Lessee shall
pay all costs associated with the work or services performed for the
installation, fittings, machines, meters and other things necessary in
connection with the separate metering.
12. LESSOR'S COVENANTS
The Lessor covenants with the Lessee as follows (subject, where
applicable, to participation by the Lessee by the.,payment of additional rent):
12.1 Quiet Enjoyment. Provided the Lessee pays all rent reserved hereunder
and performs all the Covenants herein contained on its part to be performed, the
Lessee shall have quiet enjoyment of the Premises;
12.2 Building Insurance. To maintain Liability insurance, all risk property
insurance with extended coverage, Insurance against loss of rental income,
boiler and pressure vessel Insurance and such
<PAGE>
other or additional insurance coverage as the Lessor, acting reasonably, carries
from time to time on the Building and all property and interest of the Lessor in
the Building or other improvements on the Lands, with coverage and in amounts
not less than those which would from time to time be carried by a prudent owner
in the area in which the Building is located, acting reasonably;
12.3 Pay Taxes. To pay Taxes assessed against the Building and provided that if
the Lessee be assessed a separate school supporter, the Lessee will pay to the
Lessor a sum sufficient to cover the excess tax, if any, for a full calendar
year, said sum to be estimated on the tax rate for the current year and to be
payable in equal consecutive monthly instalments in addition to the above
mentioned rental;
12.4 Lessor's Repair. To repair and maintain the Building, including the
structure of the Building and the roof, but save and except those repairs to the
Premises which are the Lessee's responsibility.
13. DEFAULT
13.1 Re-Entry. The Lessor may re-enter the Premises upon non-payment of Rent or
non-performance of covenants by the Lessee. Notwithstanding anything herein
contained or any statutory provisions to the contrary, the Lessor's right of
re-entry herein for non-payment of Rent shall become exercisable immediately
upon written notice to the Lessee of such default being made (but no such notice
shall be required if the Lessee defaults more than three times in the payment of
Rent, even though such defaults may each have been timely cured, but whether
such notice is required to be given or not, the Lessee agrees that Rent is due
and payable by the Lessee under this Lease on its due date) and the Lessor's
right to re-entry for non- performance of any covenant other than the covenant
to pay additional rent and other than the covenants contained in paragraph 9.4
shall become exercisable within ten (10) days after written notice is given to
the Lessee of such default and Lessee within such period of ten (10) days fails
to commence diligently and thereafter to proceed diligently and continuously to
cure any such non-performance, and Lessee hereby waives the benefit of s. 19(2)
of the Landlord and Tenant Act,. R.S.O ., 1990 as amended ( the "Act"). In
addition the Lessee waives the benefit of s. 20.(1) of the Act. The Lessee
hereby irrevocably waives (i) the benefit of any present or future laws,
statutory or otherwise, which in any way may take away, limit or diminish the
Lessor's right to terminate this Lease or re-entry Into possession of the
Premises in pursuance of its rights or remedies as set forth In this Lease, and
(ii) any and all rights of redemption granted by or under any present or future
laws, statutory or otherwise, in the event of Lessee being evicted or
dispossessed for any cause, or in the event of Lessor obtaining possession of
the Premises by reason of the violation by Lessee of any of the terms of
conditions of this Lease or otherwise. Lessee acknowledges that the provisions
contained In this Section 13 are fair and equitable in view of fact that Lessee
was continuously in default, both in terms of payment of rent and performance of
covenants under a prior Offer to Lease between the parties dated December 9th,
1996 and under terms of a prior occupancy of the Premises.
13.2 Rights upon Default. Notwithstanding re-entry or termination pursuant to
the provisions hereof, Lessee shall remain liable for all rent and damages which
may be due or sustained prior thereto, all costs, all professional fees
(including, without limitation, solicitors' fees on a solicitor and
<PAGE>
his client basis) and expenses incurred by the Lessor in leasing the Premises to
another tenant. If Lessor elects to re-enter the Premises as herein provided, or
if it takes possession pursuant to legal proceedings or pursuant to any notice
provided for herein, it may either terminate this Lease or it may, from time to
time, without terminating this Lease, make such alterations and repairs as are
necessary in order to relet the Premises and relet the Premises, in whole or in
part, on the Lessee's account and as agent for the Lessee, for such term or
terms (which may be for a term extending beyond the Term) and at such rent and
upon such other terms, covenants, and conditions as Lessor in its sole
discretion considers advisable. Upon each such reletting without termination of
the Lease, all Rent received by Lessor from such reletting shall be applied
first to the payment of any indebtedness other than Rent due hereunder from
Lessee to Lessor. second, to the payment of any costs and expenses of such
reletting, including brokerage fees and solicitor's fee and of costs of such
alterations and repairs; third, to the payment of rent due and unpaid hereunder,
and the residue, if any, shall be held by Lessor and applied in payment of
future Rent as the same becomes due and payable hereunder. If such Rent received
from such reletting during any month is less than that to be paid during that
month by Lessee hereunder, Lessee shall pay any such deficiency which shall be
calculated and paid monthly in advance on or before the first day of each and
every month. No such re-entry or taking possession of the Premises by Lessor
shall be construed as an election on its part to terminate this Lease unless a
written notice of such intention is given to the Lessee. Notwithstanding any
such reletting without termination, Lessor may at any time thereafter, elect to
terminate this Lease for such previous breach. If Lessor, at any time,
terminates this Lease for any breach, in addition to any other remedies it may
have, it may recover from Lessee all damages It Incurs by reason of such breach,
including the cost of recovering the Premises and solicitor's fees (on a
solicitor and his client basis);
13.3 Lessor May Perform Covenants. If the Lessee shall fail to perform any of
its covenants or obligations under or in respect of this Lease, the Lessor may
from time to time at its discretion, perform or cause to be performed any of
such covenants or obligations, or any part thereof provided the Lessor has given
to the Lessee written notice specifying the breach and allowing the Lessee a ten
(10) day period after the written notice is given to cure same, and for such
purpose may do such things upon or in respect of the Premises or any part
thereof as the Lessor may consider requisite or necessary. All expenses incurred
and expenditures made by or on behalf of the Lessor under this paragraph shall
be forthwith paid by the Lessee and if the Lessee fails to pay the same, the
Lessor may add the same to the Rent and recover the same by all remedies
available to the Lessor for the recovery of Rent in arrears.
14. DAMAGE TO PREMISES
14.1 Obligation to Repair. If, during the Term or any renewal or extension
thereof, the Premises or the Building shall be destroyed or damaged by fire or
any of the risks insured against under the provisions of paragraph 12.2 hereof,
the following provisions shall have effect:
(a) If the Premises shall be so badly damaged as to be unfit for
occupancy and if in the opinion of a qualified architect
licensed to practice as such in the Province of Ontario
selected by the Lessor, to be given within fifteen (15) days
of the happening of such
<PAGE>
damage, the Premises shall be incapable, with reasonable
diligence, of being repaired and rendered fit for occupation
within one hundred and eighty (180) days of the happening of
such damage, then the Term shall, at the option of the Lessor,
on written notice to be given within fifteen (15) days of
receipt of such certificate, cease and be at an end to all
intents and purposes from the date of such damage or
destruction and if the said option is so exercised, the Lessee
shall immediately surrender the sale and yield up possession
of the Premises to the Lessor and the Rent hereunder shall be
apportioned and paid to the date of such termination; PROVIDED
that if the Lessor does not exercise the option to terminate
the Lease, the basic rent hereby reserved shall not run or
accrue after such damage or while the process of repair is
going on, the Lessor will repair to the condition the Premises
were in immediately prior to the Lessee making or having made
on its behalf any improvements or alterations, with all
reasonable diligence and basic rent shall commence immediately
after such repairs are substantially completed and the
Premises are fit for occupation;
(b) If the Premises shall in the opinion of the said architect be capable
of being repaired and rendered fit for occupation within one hundred and eighty
(180) days of such happening of such damage as aforesaid, but if the damage is
such to render the Premises wholly unfit for occupation, then the basic rent
hereby reserved shall not run or accrue after such damage or while the process
of repair is going on, and the Lessor will repair to the condition the Premises
were in immediately prior to the Lessee making or having made on its behalf any
improvements or alterations, with all reasonable speed and the rent shall
recommence immediately after such repairs are substantially completed and the
Premises are fit for occupation;
(c) If the Premises shall, In the opinion of the said architect, be capable
of being repaired within one hundred and eighty (180) days as aforesaid, and if
the damage is such that the Premises are, in the opinion of the Lessor, capable
of being partially used, then, until such repairs shall have been made to the
extent of enabling the use of the damaged portion of the Premises, the basic
rent hereby reserved shall abate in the proportion that the part of the Premises
rendered unfit for occupancy bears to the whole of the Premises; and the amount
of the abatement shall, in the event of the parties not being able to agree
thereon, be determined by the architect; and
(d) If all or a substantial part (whether or not including the
Premises) of the Building is so badly damaged as to be unfit
for occupancy and if in the opinion of the Lessor, acting
reasonably, the Building must be totally or partially
demolished, whether or not to be reconstructed in whole or in
part, Lessor may elect to terminate this Lease as of the date
of such casualty (or on the date of notice if the Premises are
unaffected by such casualty) by written notice delivered to
the Lessee riot more than 60 days after the date of such
casualty.
14.2 Similar Premises. In repairing, reconstructing or rebuilding the
Premises or any part thereof,
<PAGE>
the Lessor may use designs, plans and specifications other than those used in
the original construction and may alter or relocate, or both, any or all of the
facilities or improvements provided the Premises as altered or relocated shall
be of substantially the same size and otherwise be reasonably comparable to the
Premises defined herein. Upon the Lessee being notified in writing by the Lessor
that the Lessor's work has been substantially completed, (excluding any
leasehold Improvements that were in existence at the Commencement Date or were
installed by the Lessee), the Lessee shall forthwith complete all work required
to fully restore, rebuild and repair the Premises and the leasehold improvements
fit for occupation by the Lessee (in any case, without the benefit of any
capital allowance or payments made at the time of original construction by the
Lessor to the Lessee in connection with the Premises or leasehold improvements
pertaining thereto). The Lessor may, in its sole discretion, proceed to complete
the Lessee's portion of the restoration, rebuilding or repair all for the
account of the Lessee in accordance with the provisions of paragraph 11.8
hereof;
14.3 Limitation on Abatement. Notwithstanding the foregoing, in no event shall
the abatement of rent In this paragraph exceed the proceeds of the rental Income
insurance actually recovered by the Lessor. Further, If loss of rental income
insurance is payable to a date beyond that on which the Lease would be
terminated pursuant to this paragraph, the Lease shall not terminate until the
end of the period for which loss of rental income insurance is payable, but all
rent due under the Lease shall abate, and the Lessee shall be relieved of all
covenants and benefits hereof. If the insurance proceeds actually received by
the Lessor are insufficient to reconstruct, rebuild or repair the Premises to
the condition they were in immediately prior to the Lessee making or having made
on its behalf any improvements or alterations to the Premises and such
insufficiency is due to the failure by the Lessor to comply with its obligations
under paragraph 12.2 of this Lease or by reason of the Lessor's insurer or
insurers denying Liability under any insurance policy due to any wrongful act or
omission of the Lessor or any person for which it is responsible at law, then
notwithstanding on any other term or provision of this Lease, the Lessor shall
be deemed to have actually received insurance proceeds in an amount equal to
that amount which it would have received had the Lessor not failed to comply
with its obligations under paragraph 12.2 or had the Lessor's insurer or
insurers not denied Liability as aforesaid.
15. INSPECTION
Provided that during the Term any person or persons may inspect the
Premises and all parts thereof at all reasonable times, on producing a written
order to that effect signed by the Lessor or the Lessor's agent.
16. SIGNS
The Lessee shall not paint, display, inscribe or place any sign,
symbol, notice or lettering of any kind anywhere outside the Premises or within
the Premises so as to be visible from the outside of the Building with the
exception only that the Lessee shall have the right to install corporate signage
on the existing pylon sign and on the exterior of the Building (which sign(s)
shall be subject to the Lessor's written approval as to size, design, location
and installation. and to the approval of the City of Nepean ). All such signage
or listing(s) shall be at Lessee's entire expense.
<PAGE>
17. RULES AND REGULATIONS
The Lessee and its officers, directors, servants, agents and all
persons visiting or doing business with it shall be bound by and shall observe
the rules and regulations attached to this Lease as Schedule "C" hereto and any
further and other reasonable rules and regulations hereafter made by the Lessor
of which notice shall be given to the Lessee, and all such rules and regulations
shall be deemed to be incorporated into and form part of this Lease.
18. LESSOR'S RIGHT TO SHOW PREMISES
The Lessor shall have the right during the last twelve (12) months of
the Term hereby granted, at all reasonable times during normal business hours
and upon reasonable notice to the Lessee to enter and show the Premises to
prospective tenants.
19. PARKING
The Lessee shall have the exclusive right, at no additional cost, to
the use of the parking area as outlined In blue on Schedule "C" attached hereto.
20. SUBORDINATION OF LEASE
This Lease is subject and subordinate to all mortgages or deeds of
trust and all renewals, modifications, consolidations, replacements and
extensions thereof which may now or at any time hereafter affect the Premises,
the Building or Lands, in whole or in part, and whether or not such mortgages or
deeds of trust shall affect only the Premises, the Building or the Lands, or
shall be blanket mortgages or deeds of trust affecting other premises or lands
as well. The Lessee shall at any time on notice from the Lessor attorn to and
become a tenant of a mortgagee or trustee under any such mortgage or deed of
trust upon the same terms and conditions as set forth in this Lease and shall
execute promptly on request by the Lessor any certificates, instruments of
postponement or attornment or other instruments from time to time requested to
give full effect to this requirement or to set out the status of this Lease and
the state of accounts between the Lessor and the Lessee, and the Lessee hereby
constitutes the Lessor the agent or attorney of the Lessee for the purpose of
executing any such certificates, instruments or postponement or attornment or
other instruments necessary to give full effect to this clause;
21. REGISTRATION OF LEASE
The Lessee shall not register this Lease but may register a notice of
or a short form of lease solely for the purpose of giving notice of this Lease
and the Lessee's interest therein. The notice shall (i) be prepared by the
Lessee or its solicitors at the Lessee's sole expense and be approved by the
Lessor within fifteen (15) days following delivery of the form of notice, and if
the Lessor has not indicated Its dissatisfaction with the form of notice within
such period, the Lessor shall be deemed to have approved the notice, and (ii)
not disclose any financial terms or provisions. All costs, expenses and taxes
necessary to register or file the notice shall be the sole responsibility of the
<PAGE>
Lessee.
22. FINANCIAL INFORMATION
The Lessee agrees that it will, upon request, provide the Lessor with
such information as to the Lessee's financial standing and corporate
organization as the Lessor or its mortgagees may require from time to time. If
the Lessee fails to provide such information within seven (7) days after the
Lessor's request for the same such failure shall constitute a default under the
terms of this Lease.
23. INDEMNITY
Intentionally Deleted.
24. GENERAL PROVISIONS
24.1 Legal Fees. If the Lessor shall commence an action for collection of rent
or other sums payable under this Lease or if the same shall be collected upon
the demand of a solicitor or if the Lessor shall commence an action to compel
performance of any of the terms, conditions, covenants or provisos under this
Lease or for damages for failure of the Lessee to perform the same or if the
same shall be performed upon the demand of a solicitor then, unless the Lessor
shall lose such action, the Lessor shall collect from the Lessee and the Lessee
shall pay to the Lessor all reasonable solicitor's fees in respect thereof on a
solicitor and his own client basis;
24.2 No Waiver. No condoning, excusing, overlooking or delay in acting upon by
the Lessor of any default, breach or non-observance by the Lessee at any time or
times in respect of any covenant, proviso or condition in this Lease shall
operate as a waiver of the Lessor's rights under this Lease in respect of any
such or continuing subsequent default, breach or non-observance and no waiver
shall be inferred from or implied by anything done or omitted by the Lessor
except an express waiver in writing;
24.3 Remedies Cumulative. All rights and remedies of the Lessor set forth
in this Lease shall be cumulative and not alternative;
24.4. Assignment By Lessor. If the Lessor shall assign this Lease to a mortgagee
or mortgagees of the Premises or of the Building or to any other person or
persons whatsoever the Lessor shall nonetheless be entitled to exercise all
rights and remedies reserved under this Lease without providing evidence of the
approval or consent of such mortgagee, mortgagees or any other persons
whatsoever.
24.5 Impossibility Of Performance. It is understood and agreed that whenever and
to the extent that the Lessor shall be unable to fulfill, or shall be delayed or
restricted in the fulfillment of any obligation hereunder in respect of the
supply or provision of any service or utility or the doing of any work or the
making of any repairs by reason of being unable to obtain the material, goods,
equipment, service, utility or labour required to enable it to fulfill such
obligation or by reason of any
<PAGE>
statute, law, order-in-council or by-law or any regulation or order passed or
made pursuant thereto or by reason of the order or direction of any
administrator, controller or board, or any governmental department or officer or
other authority, or by reason of not being able to obtain any permission or
authority required thereby, whether federal, provincial or municipal, or by
reason of any other cause beyond its control whether of the foregoing character
or not, the Lessor shall be entitled to extend the time for fulfillment of such
obligation by a time equal to the duration of such delay or restriction, and the
Lessee shall not be entitled to compensation for any loss, inconvenience,
nuisance or discomfort thereby occasioned;
24.6 Not Interference. The Lessor shall have the right to run utility lines,
pipes, roof drainage pipes, conduit wire, or duct work where necessary, through
above-ceiling space, column space, the interiors of walls and beneath the floors
of the Premises and to maintain the same in a manner which does not unduly
interfere with the Lessee's use thereof;
24.7 References. Whenever in this Lease reference is made to the Premises it
shall include all structures, Improvements and erections in or upon the Premises
or any part thereof from time to time. Whenever in this Lease reference is made
to the Building, it shall include all structures, improvements and erections in
or about the Lands or any part thereof from time to time;
24.8 No Set-Off. All amounts payable by the Lessee to the Lessor under this
lease shall be deemed to be rent, except if otherwise specifically provided, and
the Lessor shall have all rights against the Lessee for default in any such
payment as in the case of arrears of rent. Rent shall be paid to Lessor without
deduction or set-off in legal tender of the jurisdiction in which the Building
is located. The Lessee's obligation to pay rent shall survive the expiration or
earlier termination of this Lease;
24.9 Partial Invalidity. If any clause or clauses or part or parts of clauses in
this Lease be illegal or unenforceable it or they shall be considered separate
and several from the Lease and the remaining provisions of the Lease shall
remain in full force and effect and shall be binding upon the parties hereto as
though the said clause or clauses or part or parts of clauses had never been
included;
24.10 Gender. Whenever a word Importing the singular number only is used in the
Lease such word shall Include the plural and words importing either gender or
firms or corporations shall include the persons or other gender and firms or
corporations where applicable. Any reference to the Term shall, unless the
context otherwise requires, be deemed to include any renewals hereof.
24.11 Joint And Several Liability. If more than one individual, corporation,
partnership or other business association sign this Lease as Lessee or
Guarantor, the Liability of each such individual, corporation, partnership or
other business association to pay rent and to perform all other obligations
hereunder shall be deemed to be joint and several. In like manner, if the Lessee
or Guarantor is a partnership or other business association, the members of
which are, by virtue of statute or general law, subject to personal Liability,
the Liability of each such member shall be joint and several;
24.12 No right to Encumber. The Lessee shall not mortgage or otherwise encumber
its interest in this Lease or any sublease thereof:
<PAGE>
24.13 Entire Agreement. The Lessee acknowledges that there are no covenants,
representations, warranties, agreements or conditions, expressed or implied,
collateral or otherwise, forming part of or in any way affecting or relating to
this Lease, save as expressly set out or incorporated by reference in this Lease
and that this Lease constitutes the entire agreement duly executed by the Lessor
and the Lessee;
24.14 Notices. Any notice, request or demand herein provided for or given
hereunder If given by the Lessee to the Lessor shall be sufficiently given if
delivered personally or mailed by registered mail, postage prepaid, addressed to
the Lessor at One Antares Drive, Suite 510, Nepean, Ontario, K2E 8C4. Any notice
herein provided for or given hereunder if given by the Lessor to the Lessee
shall be sufficiently given if delivered personally or mailed as aforesaid
addressed to the Lessee at the Premises. Any notice mailed as aforesaid shall be
conclusively deemed to have been given If delivered, upon delivery, or if mailed
on the third day following the day on which such notice is mailed as aforesaid.
Either the Lessor or the Lessee may at any time give notice in writing to the
other of any change of address of the party giving such notice and form and
after the giving of such notice the address therein specified shall be deemed to
be the address of such party for the giving of such notices thereafter;
24.15 Schedules. Schedules "A", "B", and "C" shall form part of this Lease;
24.16 Successors And Assigns. Subject to paragraph 9.16 and except as otherwise
specifically provided, the covenants, terms and conditions in this Lease shall
apply to and bind the heirs, successors, executors, administrators and assigns
of the parties hereto;
24.17 Governing Law. This Lease shall be construed in accordance with and
governed by the laws of the Province of Ontario.
IN WITNESS WHEREOF, the parties hereto have hereunto executed this
Lease under seal.
SIGNED, SEALED AND DELIVERED ) CURB II 1993 LIMITED PARTNERSHIP
) by its duly appointed agent,
)COLONNADE DEVELOPMENT
) INCORPORATED
)
in the presence of )
) PER: ______________________
)
) NAME
) TITLE
)
)CPAD TECHNOLOGIES INC.
)
) PER: ______________________
) NAME:
<PAGE>
) TITLE:
<PAGE>
Schedule "D"
Rules and Regulations
The Lessee covenants and agrees to comply with the following rules and
regulations:
1. The Lessee shall not perform any acts or carry on any practice which may
damage the Common Areas or be a nuisance to any other tenant in the Building.
2. In regard to the use and occupancy of the Premises, the Lessee shall:
(a) keep the inside of all glass in the doors and windows of the Premises
clean;
(b) maintain the Premises, at its expense, in a clean, orderly and
sanitary condition and free of insects, rodents, vermin and
other pests;
(c) keep any garbage, trash, rubbish or refuse in containers
within the interior of the Premises until removed as herein
provided;
(d) have such garbage, trash, rubbish or refuse removed at its
expense on a regular basis as prescribed by the Lessor.
(e) comply with all laws, by-laws, rules and authorities, now or
hereafter in effect; and regulations of governmental
authorities, now or hereafter in effect; and
(f) conduct its business in all respects in a dignified manner in
accordance with the highest standards of operation.
3. In regard to the use and occupancy of the Premises and Common Areas, the
Lessee shall not:
(a) cause or permit objectionable odors to emanate or be dispelled from the
Premises;
(b) solicit business in the Common Areas;
(c) distribute handbills or other advertising matter to, in or
upon any automobiles parked in the parking areas;
(d) permit the parking of delivery vehicles so as to interfere
with the use of any driveway, walkway or Common Area;
(e) mount or place an antenna of any nature on the exterior of the
Premises;
(f) use the plumbing facilities for any other purpose than that
for which they are constructed, or throw any foreign substance
of any kind therein;
<PAGE>
(g) use any part of the Premises for lodging, sleeping or any illegal
purposes;
(h) cause, permit or suffer any machines selling merchandise,
rendering services or providing, however operated,
entertainment, including vending machines, to be present on
the Premises unless consented to in advance in writing by the
Lessor. ,
(i) park any vehicle over-night in the Common Areas; or
(h) park trailers in the Common Areas at any time.
4. The sidewalks, entries, passages and staircases shall not be obstructed or
used by the Lessee, his agents, servants, contractors, invitees or employees for
any purpose other than access to and access from the Premises. The Lessor
reserves entire control of all of the Common Areas and shall have the right to
place such signs and appliances therein, as it may deem advisable, provided that
ingress to and egress from the Premises is not unduly impaired thereby.
5. Lessor may from time to time adopt appropriate systems and procedures for
security or safety of the Building, and persons occupying, using or entering
same, or any equipment, furnishings or contents thereof, and the Lessee shall
comply with the Lessor's reasonable requirements relative thereto.
6. The Lessee shall not place in or move about the Premises without the Lessor's
prior written consent any safe or other heavy article which on the Lessor's
reasonable opinion may damage the Building and the Lessor may designate the
location of any heavy article in the Premises.
<PAGE>
<PAGE>
ids
INTELLIGENT DETECTION SYSTEMS
EMPLOYMENT AGREEMENT
THIS AGREEMENT Dated as of the 1st day of September 1998
BETWEEN:
Mariusz Rybak, of the Town of Ottawa and the Province of Ontario in Canada (Here
in called the "Executive")
OF THE FIRST PART
- and -
IDS INTELLIGENT DETECTION SYSTEMS INC., a corporation incorporated
under the laws of the Province of Ontario (hereinafter called the
"Corporation")
OF THE SECOND PART
AND WHEREAS the Executive entered into a written Employment Agreement
with the Corporation on October 15th, 1997.
AND WHEREAS the Corporation wishes to continue to employ the Executive
and the Executive wishes to be employed by the Corporation on the terms
and conditions hereinafter provided:
AND WHEREAS the Executive will receive, inter alia, increased salary
and incentive compensation in consideration for executing the within
Agreement.
NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the
mutual covenants and agreements in this Agreement, it is agreed by and
between the Executive and the Corporation as follows:
1. EMPLOYMENT
The Executive shall serve the Corporation as Chairman,
President & CEO of IDS and all of its subsidiaries and shall
perform such duties and exercise such powers as may from time
to time be assigned to or vested in him by The Board of
Directors of the Corporation. In the capacity of Chairman,
President & CEO, the Executive shall report directly to the
Board of Directors. In a senior role there are no set
<PAGE>
working hours nor overtime or travel time as senior Executives
are expected to dedicate as much time as is required to fulfil
their responsibilities.
2. TERM & SUCCESSION
The employment of the Executive shall continue for an initial four (4)
years (the "Initial Term") unless terminated earlier by the Corporation
in accordance with the provisions hereof. Notwithstanding the
termination of the Executive's employment hereunder, Sections
7.1,7.2,7.3,7.4, and 7.5 hereof shall continue to be in force.
Following the completion of the Initial Term, this Agreement shall
renew for a further three (3) year term in accordance with the
provisions hereof. Notwithstanding the termination of the Executive's
employment hereunder, Sections 7.1,7.2,7.3,7.4, and 7.5 hereof shall
continue to be in force.
Following the completion of the second (three year) term, this
Agreement shall renew for successive one (1) year terms in accordance
with the provisions hereof. Notwithstanding the termination of the
Executive's employment hereunder, Sections 7.1,7.2,7.3,7.4, and 7.5
hereof shall continue to be in force.
If within the first forty eight (48) months the Executive has not
received a contract renewal for an additional three (3) year term, then
the Executive will be entitled to receive 200,000 options of the
Corporations stock at fair market value and discounted by 50%. These
options shall be made available to the Executive forty-eight (48)
months from the date of acceptance of this Employment Agreement.
3. REMUNERATION
3.1 Salary and Bonus
Except as the Corporation and the Executive may otherwise agree, in
writing, the Executive shall be entitled to the following salary and
bonus arrangement:
(a) The Executive shall receive a base salary of $275,000.00
Canadian per annum paid in biweekly installments (the "base
salary"). The Base Salary shall be reviewed at least annually
by the Compensation committee of the Corporation's Board of
Directors to determine if an increase is appropriate, which
increases shall be in the sole discretion of the Corporation's
Compensation Committee: and
(b) The Executive shall receive a cash bonus of 75% of his
annual base salary if certain targets are met. The Executive
will receive 33% of his bonus which will be payable upon
achieving the Board approved budget revenue target, and he
will receive 66% of his bonus upon achieving the budgeted
earnings per share targets. For revenue attained above the
Board budget, the Executive will receive I % of revenue. The
bonus for 1998 will be based on performance in the last two
quarters of 1998 and
<PAGE>
therefore represent 50% of the total annual bonus entitlement as a percentage of
salary; and
(c) The Executive shall be entitled to participate in any
other bonus plan that may be administered by the Corporations'
Board of Directors from time to time, in accordance with the
terms of such plan.
Subject to Board approval, the Executive may be entitled to participate
in a Super Bonus Plan based on incremental revenue over and above the
Corporate target. The Super Bonus Plan will be determined by the senior
management acting on the Board's authority. The basis for the Super
Bonus Plan for the last half of 1998 is set out in Appendix B.
3.2 Benefits
The Executive and his dependents shall be entitled to participation in
the benefits offered by the Corporation including, in particular, the
following benefits (the "Benefits"):
a) participation in the Corporation's medical and group health
insurance plan (the "Plan"); participation in such improvement
to the Plan as the Corporation may introduce from time to
time; it is expressly understood and agreed that coverage
under the Plan should continue while the Executive is employed
and, subject to section 5 .3, for the twelve (12) month period
following termination under Section 5.2; and
b) Car allowance of $800.00 Canadian per month; and
c) Health club membership allowance not to exceed $50.00
Canadian per month upon presentation of valid receipt; and
d) The Corporation shall reimburse the Executive for his
social club membership.
3.3 Vacation
The Executive shall be entitled to six (6) week's paid vacation per
year. Such vacation will be taken at such time as is most convenient,
considering the demands of the business of the corporation and the
personal plan of the Executive. No vacation time will be carried over
from one calendar year to another.
3.4 Stock Option Plan
In addition to the stock options already granted to the Executive, the
Executive will receive options to buy a further 120,000 of the
Corporations shares under the IDS 1997 Stock Option Plan. The exercise
price of these options will be $2.00 per share .The shares will vest
over three years with 1/12 of the total options vesting at the end of
every calendar
<PAGE>
quarter starting from the completion of the first full calendar quarter
ending after the date of this contract. Thus every calendar quarter
10,000 options will vest and be exercisable.
4. EXPENSES
4.1 General
The Corporation shall reimburse the Executive for all traveling and
entertainment expenses and other disbursements actually and properly
incurred by him in connection with his duties hereunder or otherwise
properly incurred by him for and on behalf of the Corporation, upon
presentation of reasonably acceptable evidence of the Executive having
incurred such expenses and disbursements.
4.2 Relocation Expenses
(a) The Corporation will arrange and pay for relocation of the
Executive and his family from Ottawa to Toronto. This will
include the packing and transporting of the Executive's
personal effects to Toronto, including appliance disconnection
and reconnection, transportation of personal vehicles and
house cleaning.
(b) Real estate commissions and legal fees relating to the
sale of the Executive's house not to exceed 6% of the sale
value of the house. Alternatively, in the event that the
Executive decides to rent out the house, the Corporation will
pay the Executive $10,000.00 to cover the costs of finding
tenants and employing a managing agent for the property.
(C) If necessary, the cost of temporary accommodation in
Toronto for the Executive and his family while they secure
permanent accommodation.
(d) The cost of airfare for the Executive and his family from
Ottawa to Toronto. This will include two trips for the
Executive and his family.
(e) The Executive will provide detailed receipts for all
expenses outlined in 4.2 (a), (b), (c), and (d).
5. TERMINATION OF EMPLOYMENT
5.1 Termination by Corporation for Cause
The employment of the Executive may be terminated at any time by notice
in writing from the Corporation to the Executive, for cause, in which
event the Executive shall not be entitled to a notice period or
compensation in lieu of notice.
5.2 Termination by Corporation Without Cause
<PAGE>
The employment of the Executive may be terminated without cause at any
time by the Corporation upon twenty-four (24) months written notice or
upon payment to the Executive of a lump sum amount equivalent to
twenty-four (24) months cash compensation together with all benefits
continuation for twenty-four months.
In the event that the Executives employment with the Corporation is
terminated without cause, the Executive will be entitled to receive
200,000 share options of the Corporations stock at fair market value
and discounted by 50%.
5.3 Exception of Benefits Continuance
Notwithstanding Sections 3.2 and 5.2, to the extent that the
Corporation, acting reasonably, is unable to continue a particular
Benefit following the Executive's termination (which for instance, it
expects to be case with respect to long-term disability insurance and
accidental death & dismemberment insurance, if any), the Corporation
may, at its option, make one or more cash payments equal to the value
of the relevant benefit to the Executive or pay to the Executive the
amount that would have been required, as and when the same would have
been required, to maintain the relevant benefit in place had the
Executive continued to be employed by the Corporation.
5.4 Fair and Reasonable
The parties confirm that the provision contained in this Article 5 are
fair and reasonable and the parties agree that upon termination of this
Agreement pursuant to any of the provisions hereof, the Executive shall
have no action, cause of action, claim or demand against the
Corporation or any other person as a consequence of such termination,
so long as the Corporation fulfills its obligations hereunder. The
parties acknowledge that the terms of this Agreement constitute a
better benefit on account of termination pay and severance pay that the
minimum requirements of the Employment Standards Act.
5.5 Resignation by Executive
In the event that the Executive decides on his own accord to resign
from IDS, it is agreed that he must give the Corporation 3 month's
notice. The Corporation at its discretion may decide to shorten this
period to a shorter period.
6. RETURN OF PROPERTY
Upon any termination of this Agreement, the Executive shall at once
deliver, or cause to be delivered, to the Corporation all books,
documents, effects, money, securities or other property belonging to
the Corporation (or any affiliate of the Corporation), or for which the
Corporation (or any affiliate of the Corporation), is liable to others,
which are in the possession, charge, care, control or custody of the
Executive.
<PAGE>
7. COVENANTS OF EXECUTIVE
7.1 Non-Disclosure
The Executive shall not (either during the continuance of this
employment hereunder or at any time thereafter) disclose the private
affairs of the Corporation or any secrets of the Corporation to any
person other than the directors of the Corporation or for the
Corporation's purposes and shall not (either during the continuance of
this employment hereunder or at any time thereafter) use for his own
purpose or for any purposes other that those of the Corporation any
information he may acquire relating to the private affairs of the
Corporation or its trade information secrets. The Executive shall also
execute, in favor of the Corporation, the Corporations standard form of
Intellectual Property and Confidential Information Agreement.
7.2 Non Competition
The Employee covenants and agrees with the Corporation that he will not
(without the prior written consent of the Corporation) at any time
during his employment, or for a period of:
a) Twelve (12) months following the date of the termination of his employment by
the Corporation without cause; or
b) Twenty Four (24) months following the date of: (i) the
termination of his employment by the Corporation with cause or
(ii) his resignation from employment with the Corporation,
individually or in partnership or in conjunction with any person or
persons, firm, association, syndicate, company or corporation as
principal, agent shareholder or in any other manner whatsoever carry on
or be engaged in or be concerned with or interested in or advised, lend
money to, guarantee to the debts or obligations of or permit his name
or any part thereof to be used or employed by any person or persons,
firm, association, syndicate, company or corporation engaged in or
concerned with or interested in any business directly competitive with
the business being carried on by the Corporation presently and/or at
the time of such termination of employment, except as an officer,
director and/or Employee of the Corporation.
7.3 Non-Solicitation of Clients.
The Executive agrees that during the term of this Agreement, and for a
period of:
a) Twelve (12) months following the date of the termination of his employment by
the Corporation without cause; or
<PAGE>
b) Twenty-four (24) months following the date of: (i) the
termination of his employment by the Corporation with cause or
(ii) his resignation from employment with the Corporation,
he shall not, directly or indirectly, contact or solicit any Clients of
the Corporation (as hereinafter defined) for the purpose of selling or
supplying to Clients of the Corporation any products or services which
are competitive with the products or services sold or supplied by the
Corporation at the time of the termination of this Agreement. The term
"Client of the Corporation" in this Section 6.3 means any business or
organization that:
(i) Was a client or customer of the Corporation at the time of the termination
of this Agreement; or
(ii) Became a client or a customer of the Corporation within
six (6) months after the termination of this Agreement if the
Executive was involved with the marketing efforts in respect
of such client prior to the termination of this Agreement.
7.4 Non-Solicitation of Executives
The Executive covenants and agrees that during the term of this
Agreement and for a period of:
(a) twelve (12) months following the date of termination of his employment by
the Corporation without cause; or
(b) Twenty four (24) months following the date of (i) the
termination of his employment by the Corporation with cause or
(ii) his resignation from employment with the Corporation,
he shall not directly or indirectly hire any Executives of or
consultants to the Corporation nor shall he solicit or induce or
attempt to induce any persons who were Executives of or consultants to
the Corporation at the time of such termination or during the ninety
(90) days immediately preceding such termination, to terminate their
employment or consulting agreement with the Corporation.
7.5 Reasonableness of Non-Disclosure, Non-Competition and Non Solicitation
Obligations
The Executive acknowledges and agrees that the obligations in Sections
7.1, 7.2, 7.3 and 7.4 are fair and reasonable given that, among other
reasons the sustained contact
he will have with the clients and customers of the Corporation will
expose him to confidential information regarding the particular
requirements of these clients and the Corporation's unique methods of
satisfying the particular requirements of these clients, all of which
the Executive agrees not to act upon to the detriment of the
Corporation. The Executive agrees that the obligations in Sections 7.1,
7.2, 7.3 and 7.4, together with his other obligations under this
Agreement, are reasonably necessary for the protection of the
<PAGE>
Corporation's proprietary interests. The Executive further confirms
that the unlimited geographic scope of the obligation in Section 7.2 is
reasonable given the international nature of the market for the
products and services of the Corporation. The Executive hereby agrees
that all restrictions in Article 7 are reasonable and valid and all
defenses to strict enforcement thereof by the Corporation are hereby
waived by the Executive.
7.6 Cumulative Rights
The various rights and remedies of the Corporation hereunder are
cumulative and non-exclusive of one another. The use of or resort to
any one such right or remedy shall not preclude or limit the exercise
of any other right or remedy by the Corporation. The provisions of the
Agreement shall not in any way limit or abridge the rights of the
Corporation in the obligations of the Executive at common law or under
statue, including but not limited to the laws of unfair competition,
copyright, trade secrets, and trade-mark, all of which shall be in
addition to the Corporation's rights and the Executive's obligations
under this Agreement. The Executive shall be deemed to be a fiduciary
of the Corporation.
8. GENERAL
8.1 Sections and Headings
The division of the Agreement into Articles and Sections and the
insertion of heading are for the convenience of reference only and
shall not affect the construction or interpretation of this Agreement
The terms "this Agreement", "hereof", "hereunder", and similar
expressions refer to this Agreement and not to any particular Article,
Section, or other portion hereof and include any agreement or
instrument supplemental or ancillary hereto. Unless something in the
subject matter or context is inconsistent therewith, references herein
to Articles and Sections are to Articles and Sections of this
Agreement.
8.2 Number and Gender
In this Agreement words importing the singular number only shall
include the plural and vice versa and words importing the masculine
gender shall include the feminine and neuter genders and vice versa and
words importing persons shall include individuals, partnerships,
associations, trusts, unincorporated organizations and corporations and
vice versa.
8.3 Benefit of Agreement
This agreement shall ensure to the benefit of and be binding upon the
heirs, executors, administrators and legal personal representatives of
the Executive and the successors and permitted assigns of the
Corporation respectively.
8.4 Governing Law
<PAGE>
This Agreement shall be governed by and construed in accordance with
the laws of the Province of Ontario and the Laws of Canada applicable
therein.
8.5 Entire Agreement
This Agreement, together with the separate Intellectual Property and
Confidential Information Agreement executed by the Executive in favor
of the Corporation, constitutes the entire agreement between the
parties with respect to the subject matter hereof and cancels and
supersedes any prior understandings and agreements between the parties
hereto with respect thereto. There are no representations, warranties,
forms, conditions, undertakings or collateral agreements, implied or
statutory between the parties other than as expressly set forth in this
Agreement.
8.6 Severability.
If any provision of this agreement is determined to be
invalid or unenforceable in whole or in part, such invalidity or
unenforceability shall attach only to such provision or part there of
and the remaining part of such provisions and all other provisions
hereof shall continue in full force and effect.
8.7 Notice.
Any demand, notice or other communication (hereinafter in this
Section 8.7 referred to as a "communication") to be given in connection
with this Agreement shall be given by personal delivery or transmitted
by telecopier or other form of recorded communication, tested prior to
transmission to such party, addressed to the recipient as follows:
Mariusz Rybak
589 Island Park Crescent
Ottawa, Ontario
KIY 3P3
To the Corporation at:
1 First Canadian Place
100 King Street West
Suite 7070
Toronto, Ontario
M5X IBI
Telecopier
Attention: The Board of Directors
<PAGE>
or such other address or individual as may be designated by notice by either
party to the other. Any Communication given by personal delivery shall be
conclusively deemed to have been given on the day of actual delivery thereof
and, if made or given by or transmitted by telecopier or other form of recorded
communication shall be deemed to have been given and received on the date of its
transmission provided that if such date is not a business day or if it is
received after the end of the normal business hours on the date of its
transmission then shall be deemed to have been given and received at the opening
of business in the office of the addressee on the first business day next
following the transmission hereof. For the purpose of this Agreement, a business
day shall mean any day other than Saturday, Sunday or statutory holiday in the
Province of Ontario.
Any party may change its address for service from time to time by giving seven
(7) days' notice to the other party in accordance with the foregoing.
8.8 Independent Legal Advise
The Executive acknowledges that he has had the opportunity to obtain independent
legal advise and: a) that he has been fully informed as to his rights and
obligations under the terms of this Agreement; and b) with such knowledge, he
has executed this agreement freely and voluntarily and without any duress.
IN WITNESS WHEREOF the parties have executed this Agreement
SIGNED, SEALED AND DELIVERED)
in the presence of
/s/Mariusz Rybak
Witness Dr. Mariusz Rybak
- - - ---------------
Board of Directors
IDS Intelligent Detection Systems Inc.
- - - ----------------------
Board of Directors
IDS Intelligent Detection Systems Inc.
<PAGE>
IDS
INTELLIGENT DETECTION SYSTEMS
Appendix A
IDS Intelligent Detection Systems
Intellectual Property and Confidential Information Agreement
This is an Agreement between IDS Intelligent Detection Systems and its
subsidiaries and affiliates (hereinafter called "Company") and myself. It
supersedes all previous agreements, if any, between the Company and myself with
respect to the subject matter of this Agreement.
I recognize that the Company is engaged in a continuous program of research and
development and the marketing of products incorporating such research and
development, and that the Company also provides technical support, consultation
and training services relating to those products. I also recognize the
importance of protecting the Company's trade secrets, confidential information
and other proprietary information and related rights acquired through the
Company's expenditure of time, effort and money.
Therefore, in consideration of the Company retaining me as an employee,
independent contractor or otherwise to perform work on its behalf (hereinafter
called "Engagement"), I make the following representations and agree to the
following terms and conditions of my Engagement:
1. Definitions
For purposes of this Agreement:
(a) "Confidential Information" includes any of the following:
i) any and all versions of the software and related
documentation owned or marketed by the Company, as well as the
software and documentation owned by the Company's suppliers
and used internally by the Company, including all related
algorithms, concepts, data, designs, flowcharts, ideas,
programming techniques, specifications and source code
listings;
2. Non-Disclosure of Confidential Information
ii) all Developments (as defined below);
<PAGE>
iii) information regarding the Company's business operations,
methods and practices, including marketing strategies, product
pricing, margins, hourly rates, per diems and
iv) information regarding the financial affairs of the Company;
iv) the names of the Company's clients and the names of the suppliers of
computer services and software to the Company, and the nature of the Company's
relationships with these clients and suppliers;
v) Company obtained in order for the Company to provide such clients with
software products and services, including information regarding the data
processing requirements and the business operations, methods and practices and
product plans of such clients; and
vi) any other trade secret or confidential or proprietary
information in the possession or control of the Company, but
Confidential Information shall not include information which:
1) is or becomes generally available to the public without my fault;
2) is lawfully obtained by me from a third party or parties unconnected with the
Company, without breach of any confidentiality obligations; or
3) is disclosed under operation of the law.
b) "Developments" include, without limitation:
i) all software, documentation, source code listings, flowcharts,
drawings, specifications, user manuals, procedures, databases,
compilations, designs, reports, trademarks and any related works,
including any enhancements, modifications, or additions to the
foregoing or to any products owned, marketed or used by the Company,
and
ii) all inventions, devices, discoveries, concepts, ideas, algorithms,
formulae, know-how, processes, techniques, systems and improvements,
whether patentable or not, which relate, directly or indirectly, to the
business of the Company or any of my Engagement activities and which
are developed, created, generated or reduced to practice by me, alone
or jointly with others, during my Engagement with the Company, whether
during or after working hours and whether or not resulting from the use
of the premises or property of the Company.
2. Non-Disclosure of Confidential Information
At all times during and subsequent to the termination of my Engagement with the
Company, I shall keep in strictest confidence and trust the Confidential
Information, I shall take all necessary precautions against unauthorized
disclosure of the Confidential Information, and I shall not directly
<PAGE>
or indirectly disclose, allow access to, transmit or transfer the Confidential
Information to a third party, nor shall I copy or reproduce the Confidential
Information except as may be reasonably required for me to perform my duties for
the Company.
Restricted Use of Confidential Information
a) At all times during and subsequent to the termination of my
Engagement with the Company, I shall not use the Confidential
Information in any manner except as reasonably required for me to
perform my duties for the Company.
b) Without limiting my obligations under subsection 3 (a), I agree that
at all times during and subsequent to the termination of my Engagement
with the Company I shall not use or take advantage of the Confidential
Information for creating, maintaining or marketing, or aiding in the
creation, maintenance or marketing, of any software which is
competitive with any software owned or marketed by the Company.
c) Upon the request of the Company, and in any event upon the
termination of my Engagement with the Company, I shall immediately
return to the Company all materials, including all copies in whatever
form, containing the Confidential Information which are in my
possession or under my control.
4. Ownership of Confidential Information
a) I acknowledge and agree that I shall not acquire any right, title or
interest in or to the Confidential Information.
b) I agree to make full disclosure to the Company of each Development
promptly after its creation. I hereby assign and transfer to the
Company, and agree that the Company shall be the exclusive owner of,
all of my rights, title and interest, to each Development throughout
the world, including all trade secrets, patent rights, copyrights and
all other intellectual property rights therein. I further agree to
cooperate fully at all times during and subsequent to my Engagement
with respect to signing further documents and doing such acts and other
things reasonably requested by the Company to confirm such transfer of
ownership of rights, including intellectual property rights, effective
at or after the time the Development is created and to obtain patents
or copyrights or the like covering the Developments. I agree that the
obligations in this clause b) shall continue beyond the termination of
my Engagement with the Company with respect to Developments created
during my Engagement with the Company.
c) I agree that the Company, its assignees and their licensees are not
required to designate me as the author of any Developments. I hereby
waive in whole all moral rights which I may have in the Developments,
including the right to the integrity of the Developments, the right to
be associated with the Developments, the right to restrain or claim
damages for any distortion, mutilation or other modification of the
Developments, and the right to
<PAGE>
restrain use or reproduction of the Developments in any context and in
connection with any product, service, cause or institution.
5. No Conflicting Obligations
a) I acknowledge and represent to the Company that my performance
during the period of my Engagement with the Company shall not breach
any agreement or other obligation to keep confidential the proprietary
information of any prior employer of mine or any other third party. I
further acknowledge and represent that I am not bound by any agreement
or obligation with any third party which conflicts with any of my
obligations under this Agreement.
b) I represent and agree that I will not bring to the Company, and
shall not use in the performance of my work with the Company, any trade
secrets, confidential information and other information of any prior
employee of mine or any other third party. I represent and agree that
in my work creating Developments I will not knowingly infringe the
intellectual property rights, including copyright, of any third party.
6. Enforcement
I acknowledge and agree that damages may not be an adequate remedy to compensate
the Company for any breach of my obligations contained in this Agreement, and
accordingly, I agree that in addition to any and all other remedies available,
the Company shall be entitled to obtain relief by way of a temporary or
permanent injunction to enforce the obligations contained in this Agreement.
7. General
a) This Agreement shall be governed by and construed in accordance with
the laws in force in the Province of Ontario and any laws of Canada applicable
thereto. If any provision of this Agreement is wholly or partially unenforceable
for any reason, such unenforceable provision or part thereof shall be deemed to
be omitted from this Agreement without in any way invalidating or impairing the
other provisions of this Agreement. In this Agreement any reference to a
termination of Engagement shall include termination for any reason whatsoever
and with or without cause.
b) The obligations herein may not be changed or modified, released or
terminated, in whole or in part, except in writing signed by an officer
of the Company and me.
c) The rights and obligations under this Agreement shall survive the
termination of my Engagement and shall endure to the benefit of and
shall be binding upon i) my heirs and personal representative and ii)
the successors and assigns of the Company.
d) I HAVE READ THIS AGREEMENT, UNDERSTAND IT, RAVE HAD THE
OPPORTUNITY TO OBTAIN INDEPENDENT LEGAL ADVICE IN
<PAGE>
RESPECT OF IT, AND I AGREE TO ITS TERMS. I acknowledge having received
a fully executed copy of this Agreement.
IN WITNESS WHEREOF, this Agreement has been executed by me and the Company as
of the 15th day of December, 1998.
SIGNED, SEALED AND DELIVERED in the presence of:
Employee IDS Intelligent Detection Systems
/s/Mariusz Rybak /s/Ed Quinton
Dr. Mariusz Rybak Ed Quinton, Human Resources Manager
<PAGE>
IDS
INTELLIGENT DETECTION SYSTEMS
EMPLOYMENT AGREEMENT
THIS AGREEMENT Dated as of the 1st day of September 1998
BETWEEN:
Andy Rybak, of the Town of Ottawa and the Province of Ontario in Canada
(Here in called the "Executive")
OF THE FIRST PART
- - - - and -
IDS INTELLIGENT DETECTION SYSTEMS INC., a corporation incorporated under the
laws of the Province of Ontario (hereinafter called the "Corporation")
OF THE SECOND PART
AND WHEREAS the Executive entered into a written employment agreement with the
Corporation on October 15th, 1997.
AND WHEREAS the Corporation wishes to continue to employ the Executive and the
Executive wishes to be employed by the Corporation on the terms and conditions
hereinafter provided:
AND WHEREAS the Executive will receive, inter alia, increased salary and
incentive compensation in consideration for executing the within Agreement.
NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the mutual
covenants and agreements in this Agreement, it is agreed by and between the
Executive and the Corporation as follows:
1. EMPLOYMENT
The Executive shall serve the Corporation as Vice President and General Manager
of the Security & Analytical Division of IDS and shall perform such duties and
exercise such powers as may from time to time be assigned to or vested in him by
the senior management acting on the authority of the Board of Directors. In the
capacity of Vice President, the Executive shall initially report directly to
1
<PAGE>
the Chief Operating Officer: it is understood that the reporting structure
for the Employee may change to meet the Company's requirements and changing
structure.
A current draft job description is attached in Appendix A which is subject to
change as the requirements of the Company change: the Executive will work to
finalize any changes the COO may have to this job description when the COO joins
in September 1998 In a senior role there are no set working hours nor overtime
or travel time as senior Executives are expected to dedicate as much time is
required to fulfil their responsibilities
This position is subject to reconfirmation by the Board every year following or
at the time of the Annual General Meeting and your employment may be subject to
transfers within the Company to meet the Corporation's needs.
2. The employment of the Executive shall continue for an initial three (3) years
(the "Initial Term") unless terminated earlier by the Corporation in accordance
with the provisions hereof. Following the completion of the Initial Term, this
Agreement shall renew for successive one (1) year terms on an annual basis until
terminated in accordance with the provisions hereof. Notwithstanding the
termination of the Executive's employment hereunder, Sections 7.1 ,7.2,7.3,7.4,
and 7.5 hereof shall continue to be in force.
3. REMUNERATION
3.1 Salary and Bonus
Except as the Corporation and the Executive may otherwise agree, in writing, the
Executive shall be entitled to the following salary and bonus arrangement:
(a) The Executive shall receive a base salary of $170,000 Canadian per
annum paid in biweekly installments (the "base salary"). The Base Salary shall
be reviewed at least annually by the Compensation committee of the Corporation's
Board of Directors to determine if an increase is appropriate, which increases
shall be in the sole discretion of the Corporation's Compensation Committee: and
(b) The Executive shall be entitled to participate in an annual Bonus
Plan approved and subject to the final authority of the Board of the
Corporation. The Bonus Plan is based on the achievement of Board approved
performance targets set by senior management following the completion of the
budget process for the year. On achievement of these annual targets the
Executive shall receive a sum equal to 40%% of the Executive's annual base
salary. This sum is payable to Executives annually following the completion of
the audited results for the Corporation. The basis for the Bonus Plan for the
last half of 1998 is set out in Appendix B.
(c) Subject to Board approval, the Employee may be entitled to participate
in a Super Bonus Plan based on incremental revenue over and above the Divisional
target. The Super Bonus
2
<PAGE>
Plan will be determined by the senior management acting on the Board's
authority. The basis for the Super Bonus Plan for the last half of 1998 is set
out in Appendix B.
3.2 Benefits
The Executive and his dependents shall be entitled to participation in the
benefits offered by the Corporation including, in particular, the following
benefits (the 'Benefits"):
a) participation in the Corporation's medical and group health
insurance plan (the "Plan"); participation in such improvement to the Plan as
the Corporation may introduce from time to time; it is expressly understood and
agreed that coverage under the Plan should continue while the Executive is
employed and, subject to section 5 .3, for the twelve (12) month period
following termination under Section 5.2; and
b) Car allowance of $500.00 Canadian per month; and
c) Health club membership allowance not to exceed $50.00 Canadian per
month upon presentation of valid receipt; and
3.3 Vacation
The Executive shall be entitled to four (4) week's paid vacation per
year. Such vacation will be taken at such time as is most convenient (with
approval of the Chief Operating Officer for any vacation time more than a week
in length or with less than a month of advance notice), considering the demands
of the business of the corporation and the personal plan of the Executive. No
vacation time will be carried over from one calendar year to another.
3.4 Stock Option Plan
In addition to the stock options already granted to the Executive, the
Executive will receive options to buy a further 90,000 of the Corporations
shares under the IDS 1997 Stock Option Plan. The exercise price of these options
will be $2.00 per share .The shares will vest over three years with 1/12 of the
total options vesting at the end of every calendar quarter starting from the
completion of the first full calendar quarter ending after the date of this
contract. Thus every calendar quarter 7.500 options will vest and be
exercisable.
4. EXPENSES
4.1 General
The Corporation shall reimburse the Executive for all traveling and
entertainment expenses and other disbursements actually and properly incurred by
him in connection with his duties hereunder or otherwise properly incurred by
him for and on behalf of the Corporation, upon
3
<PAGE>
presentation of reasonably acceptable evidence of the Executive having incurred
such expenses and disbursements.
5. TERMINATION OF EMPLOYMENT
5.1 Termination by Corporation for Cause
The employment of the Executive may be terminated at any time by
notice in writing from the Corporation to the Executive, for cause, in which
event the Executive shall not be entitled to a notice period or compensation in
lieu of notice. The Employee agrees that in determining whether or not his
termination has been for cause, the terms and provision in the Scintrex Policies
& Procedures Manual, as amended from time to time, shall be binding and the
employee acknowledges having read and understood the aforementioned Manual.
5.2 Termination by Corporation Without Cause
The employment of the Executive may be terminated without cause at
any time by the Corporation upon twelve (12) months written notice or upon
payment to the Executive of a lump sum amount equivalent to twelve (12) months
cash compensation together with benefits continuation for twelve months.
5.3 Exception of Benefits Continuance
Notwithstanding Sections 3.2 and 5.2, to the extent that the
Corporation, acting reasonably, is unable to continue a particular Benefit
following the Executive's termination (which for instance, it expects to be case
with respect to long-term disability insurance and accidental death &
dismemberment insurance, if any), the Corporation may, at its option , make one
or more cash payments equal to the value of the relevant benefit to the
Executive or pay to the Executive the amount that would have been required, as
and when the same would have been required, to maintain the relevant benefit in
place had the Executive continued to be employed by the Corporation.
5.4 Fair and Reasonable
The parties confirm that the provision contained in this Article 5
are fair and reasonable and the parties agree that upon termination of this
Agreement pursuant to any of the provisions hereof, the Executive shall have no
action, cause of action, claim or demand against the Corporation or any other
person as a consequence of such termination, so long as the Corporation fulfills
its obligations hereunder. The parties acknowledge that the terms of this
Agreement constitute a better benefit on account of termination pay and
severance pay that the minimum requirements of the Employment Standards Act.
4
<PAGE>
5.5 Resignation by Executive
In the event that the Executive decides on his own accord to resign
from IDS, it is agreed that he must give the Corporation 3 month's notice. The
Corporation at its discretion may decide to shorten this period to a shorter
period.
6. RETURN OF PROPERTY
Upon any termination of this Agreement, the Executive shall at once
deliver, or cause to be delivered, to the Corporation all books, documents,
effects, money, securities or other property belonging to the Corporation (or
any affiliate of the Corporation), or for which the Corporation (or any
affiliate of the Corporation), is liable to others, which are in the possession,
charge, care, control or custody of the Executive.
7. COVENANTS OF EXECUTIVE
7.1 Non-Disclosure
The Executive shall not (either during the continuance of this
employment hereunder or at any time thereafter) disclose the private affairs of
the Corporation or any secrets of the Corporation to any person other than the
directors of the Corporation or for the Corporation's purposes and shall not
(either during the continuance of this employment hereunder or at any time
thereafter) use for his own purpose or for any purposes other that those of the
Corporation any information he may acquire relating to the private affairs of
the Corporation or its trade information secrets. The Executive shall also
execute, in favor of the Corporation, the Corporations standard form of
Intellectual Property and Confidential Information Agreement.
7.2 Non Competition
a) twelve (12) months following the date of the termination of his
employment by the Corporation without cause; or
b) Twenty four (24) months following the date of: (i) the termination
of his employment by the Corporation with cause or (ii) his resignation from
employment with the Corporation, individually or in partnership or in
conjunction with any person or persons, firm, association, syndicate, company or
corporation as principal, agent shareholder or in any other manner whatsoever
carry on or be engaged in or be concerned with or interested in or advised, lend
money to, guarantee to the debts or obligations of or permit his name or any
part thereof to be used or employed by any person or persons, firm, association,
syndicate, company or corporation engaged in or concerned with or interested in
any business directly competitive with the business being carried on by the
Corporation presently and/or at the time of such termination of employment,
except as an officer, director and/or Executive of the Corporation.
5
<PAGE>
7.3 Non-Solicitation of Clients.
The Employee agrees that during the term of this Agreement, and for a
period of:
a) twelve (12) months following the date of the termination of his
employment by the Corporation without cause; or
b) Twenty-four (24) months following the date of: (i) the termination
of his employment by the Corporation with cause or (ii) his resignation from
employment with the Corporation, he shall not, directly or indirectly, contact
or solicit any Clients of the Corporation (as hereinafter defined) for the
purpose of selling or supplying to Clients of the Corporation any products or
services which are competitive with the products or services sold or supplied by
the Corporation at the time of the termination of this Agreement. The term
"Client of the Corporation" in this Section 6.3 means any business or
organization that:
(i) Was a client or customer of the Corporation at the time of the
termination of this Agreement; or
(ii) Became a client or a customer of the Corporation within six (6)
months after the termination of this Agreement if the Employee was involved with
the marketing efforts in respect of such client prior to the termination of this
Agreement.
7.4 Non-Solicitation of Executives
The Executive covenants and agrees that during the term of this
Agreement and for a period of:
(a) twelve (12) months following the date of termination of his employment
by the Corporation without cause; or
(b) Twenty four (24) months following the date of (I) the termination
of his employment by the Corporation with cause or (ii) his resignation from
employment with the Corporation, he shall not directly or indirectly hire any
Executives of or consultants to the Corporation nor shall he solicit or induce
or attempt to induce any persons who were Executives of or consultants to the
Corporation at the time of such termination or during the ninety (90) days
immediately preceding such termination, to terminate their employment or
consulting agreement with the Corporation.
7.5 Reasonableness of Non-Disclosure, Non-Competition and Non Solicitation
Obligations
The Executive acknowledges and agrees that the obligations in Sections
6.1, 6.2, 6.3 and 6.4 are fair and reasonable given that, among other reasons
the sustained contact he will have with the clients and customers of the
Corporation will expose him to confidential information
6
<PAGE>
regarding the particular requirements of these clients and the Corporation's
unique methods of satisfying the particular requirements of these clients, all
of which the Executive agrees not to act upon to the detriment of the
Corporation. The Executive agrees that the obligations in Sections 6.1, 6.2, 6.3
and 6.4 , together with his other obligations under this Agreement, are
reasonably necessary for the protection of the Corporation's proprietary
interests. The Executive further confirms that the unlimited geographic scope of
the obligation in Section 6.2 is reasonable given the international nature of
the market for the products and services of the Corporation. The Executive
hereby agrees that all restrictions in Article 6 are reasonable and valid and
all defenses to strict enforcement thereof by the Corporation are hereby waived
by the Executive.
7.6 Cumulative Rights
The various rights and remedies of the Corporation hereunder are
cumulative and non-exclusive of one another. The use of or resort to any one
such right or remedy shall not preclude or limit the exercise of any other right
or remedy by the addition to the Corporation's rights and the Executive's
obligations under this Agreement. The Executive shall be deemed to be a
fiduciary of the Corporation.
8. GENERAL
8.1 Sections and Headings
The division of the Agreement into Articles and Sections and the
insertion of heading are for the convenience of reference only and shall not
affect the construction or interpretation of this Agreement. The terms "this
Agreement", "hereof', "hereunder", and similar expressions refer to this
Agreement and not to any particular Article, Section, or other portion hereof
and include any agreement or instrument supplemental or ancillary hereto. Unless
something in the subject matter or context is inconsistent therewith, references
herein to Articles and Sections are to Articles and Sections of this Agreement.
8.2 Number and Gender
In this Agreement words importing the singular number only shall
include the plural and vice versa and words importing the masculine gender shall
include the feminine and neuter genders and vice versa and words importing
persons shall include individuals, partnerships, associations, trusts,
unincorporated organizations and corporations and vice versa.
8.3 Benefit of Agreement
This agreement shall ensure to the benefit of and be binding upon the
heirs, executors, administrators and legal personal representatives of the
Executive and the successors and permitted assigns of the Corporation
respectively.
7
<PAGE>
8.4 Governing Law
This Agreement shall be governed by and construed in accordance with
the laws of the Province of Ontario and the Laws of Canada applicable therein.
8.5 Entire Agreement
This Agreement, together with the separate Intellectual Property and
Confidential Information Agreement executed by the Executive in favor of the
Corporation, constitutes the entire agreement between the parties with respect
to the subject matter hereof and cancels and supersedes any prior understandings
and agreements between the parties hereto with respect thereto. There are no
representations, warranties, forms, conditions, undertakings or collateral
agreements, express, implied or statutory between the parties other than as
expressly set forth in this Agreement.
8.6 Severability
If any provision of this agreement is determined to be invalid or
unenforceable in whole or in part, such invalidity or unenforceability shall
attach only to such provision or part there of and the remaining part of such
provisions and all other provisions hereof shall continue in full force and
effect.
8.7 Notice
Any demand, notice or other communication (hereinafter in this Section
8.7 referred to as a "communication") to be given in connection with this
Agreement shall be given by personal delivery or transmitted by telecopier or
other form of recorded communication, tested prior to transmission to such
party, addressed to the recipient as follows:
Andy Rybak
2010 Alta Vista Drive
Ottawa, Ontario
KIH 7L1
To the Corporation at:
66 Slater Street, 6th Floor
Ottawa, Ontario
KIP 5H1
Telecopier
Attention: The Board of Directors
8
<PAGE>
or such other address or individual as may be designated by notice by
either party to the other. Any Communication given by personal delivery shall be
conclusively deemed to have been given on the day of actual delivery thereof
and, if made or given by or transmitted by telecopier or other form of recorded
communication shalt be deemed to have been given and received on the date of its
transmission provided that if such date is not a business day or if it is
received after the end of the normal business hours on the date of its
transmission then shall be deemed to have been given and received at the opening
of business in the office of the addressee on the first business day next
following the transmission hereof. For the purpose of this Agreement, a business
day shall mean any day other than Saturday, Sunday or statutory holiday in the
Province of Ontario.
Any party may change its address for service from time to time by
giving seven (7) days' notice to the other party in accordance with the
foregoing.
8.8 Independent Legal Advise
The Employee acknowledges that he has had the opportunity to obtain
independent legal advise and: a) that he has been fully informed as to his
rights and obligations under the terms of this Agreement; and b) with such
knowledge, he has executed this agreement freely and voluntarily and without any
duress.
9.0 SUCCESSION
In the event that the Analytical & Security Division has been spun off
into a public company or separately listed and the Executive ahs not been
appointed the CEO of that company, he will be entitled to 100% of the options
granted to the new CEO on the same exercise terms and vesting periods.
IN WITNESS WHEREOF the parties have executed this Agreement.
SIGNED, SEALED AND DELIVERED) in the presence of )
Witness )
/s/Andy Rybak
Andy Rybak
21/09/98
Dated
/s/Mariusz Rybak
IDS Intelligent Detection Systems Inc.
Mariusz Rybak
Chairman, IDS
9
<PAGE>
APPENDIX A
DRAFT JOB DESCRIPTION FOR VICE PRESIDENT & GENERAL
MANAGER ANALYTICAL & SECURITY DIVISION OF
IDS
TITLE: Executive Vice President & General Manager of the
Analytical & Security Division (A&S), IDS.
REPORTS TO: Chief Operating Officer of IDS.
JOB DESCRIPTION: The General Manager of the A&S
Division shall be a member of the senior
management team of the company. He or she
shall be responsible for the overall
excellence of the Sales and Marketing,
Customer Service and R&D Engineering efforts
of his Division.
RESPONSIBILITIES: Amongst the various duties, responsibilities and activities,
the General Manager shall be responsible for:
o preparation of an annual budget which includes strategic sales, marketing and
engineering planning that goes with it for acceptance and approval of the
COO.
o responsible for ongoing business development initiatives
o prepare quota & commission plans for sales personnel (as part of above)
o the timely execution of sales marketing programs
o collaborating with the manufacturing operations of the Company to
minimize working capital employed in serving the division's needs, particularly
through timely scheduling of production to meet sales requirements.
o staffing and evaluations of division personnel
o evaluation and proposing of potential engineering projects
o maintaining competitive information database
o developing sales & marketing literature
o launching new products and services
o responsible for ensuring that a high level of quality, service and
profitability are maintained in the Customer Service Department.
o review and approve offers made by sales people.
o proposing new products and R&D ideas to expand the company's product
offering.
o collaborative supervision of related engineering projects working with
the Director of Engineering for Geo Products.
o timely reports of sales results on a weekly basis
o maintain competitive information database
o conducting performance reviews for staff
10
<PAGE>
o supervising lead generation and follow-ups
o maintaining database for sales
o assisting in the overall computer upgrade of the systems at IDS
o review and approve commission statements of sales people with accounting
o international travel for sales and marketing purposes
o ongoing evaluation of advances and changes in technology as it relates to
IDS, its customers and competitors.
o attendance at various conferences and presenting technical papers
o other duties assigned to you by the COO.
o engineering proposals requiring more than $25,000.00 of resources shall have
a formal project plan including engineering costs and sales projections etc.
for review and approval by the COO.
OTHER:
o training of sales/marketing personnel for the Division
AUTHORITY:
o to sign and approve unbudgeted purchases up to $2,000
o to sign and approve travel requisitions in emergency situations for the
Division o to approve trade show booths and related expenditures, providing they
have been budgeted for up to $5,000.
o to hire personnel for the Division, subject to budgets and approvals, or in
special cases in consultation with the COO.
o to sign and approve budgeted expenditure for advertising & marketing
materials subject to budgetary approval to $5,000
11
<PAGE>
Appendix B
BONUS PLAN FOR SECOND HALF 1998
Objective: To motivate senior management and employees to meet the budget
for the second half of the year
Plan: The Corporation will pay a bonus to the Executive of 40 % of the
salary earned by the Executives in the period July 1st to December 31~ 1998. The
amount of the Bonus Sum payable will be dependent on the achievement of the
following condition(s)
Conditions: 1. One third of the Bonus Sum will be payable on achieving the
A&S Divisional Revenue target for the Second Half of 1998
2. Two thirds of the Bonus Sum will be payable on achieving
the A&S Divisional Earnings before tax target for the Second
Half of 1998
SUPER BONUS PLAN FOR SECOND HALF 1998
Subject to meeting the division's budgeted earnings before tax for the period,
for every $ dollar above the second half revenue target, the Executive will be
entitled to the difference between the target and the actual audited revenue
figure according to the following percentages:
Up to $1 m above Budgeted divisional revenue 1% Between $1 m and $2m
above Budgeted divisional revenue 2(degree)% Between $2m and $3m above
Budgeted divisional revenue 3% Between $3m and $4m above Budgeted
divisional revenue 4% Above $4m above Budgeted divisional revenue 5%
12
<PAGE>
IDS
INTELLIGENT DETECTION SYSTEMS
EMPLOYMENT AGREEMENT
THIS AGREEMENT Dated as of the 28th day of September 1998.
BETWEEN:
Phil Hembruff, of the Town of Burlington and the Province of Ontario in Canada
(Herein called the "Employee")
OF THE FIRST PART
- and -
IDS INTELLIGENT DETECTION SYSTEMS INC., a corporation incorporated
under the laws of the Province of Ontario (hereinafter called the
"Corporation")
OF THE SECOND PART
WHEREAS the Employee has been an employee of Scintrex
Limited since April 7th 1989; and was employed by EDA
Instruments Inc. prior to its acquisition by Scintrex in
1989.
AND WHEREAS the Corporation has acquired substantially all the outstanding
shares of Scintrex Ltd.;
AND WHEREAS the Employee entered into a written
employment agreement with Scintrex Ltd. on April 7th
1989.
AND WHEREAS the Corporation wishes to confirm the basis
upon which the Employee will, as of and from the date
hereof, be employed to work for the corporation and its
affiliates, including Scintrex Ltd.;
AND WHEREAS the Employee will receive, inter alia,
increased salary and incentive compensation in
consideration for executing the within Agreement.
<PAGE>
NOW THEREFORE THIS AGREEMENT WITNESSES that in
consideration of the mutual covenants and agreements in
this Agreement, it is agreed by and between the Employee
and the Corporation as follows:
1. EMPLOYMENT
The Employee shall serve the Corporation as Vice President and General
Manager of the Earth Sciences Instrumentation Division (ESID) and shall
perform such duties and exercise such powers as may from time to time
be assigned to or vested in him by the senior management acting on the
authority of the Board of Directors. In the capacity of Vice President,
the Employee shall initially report directly to the Chief Operating
Officer: it is understood that the reporting structure for the Employee
may change to meet the Company's requirements and changing structure.
A current draft job description is attached in Appendix A which is
subject to change as the requirements of the Company change: the
Employee will work to finalize any changes the COO may have to this job
description when the COO joins in September 1998. In a senior role
there are no set working hours nor overtime or travel time as senior
employees are expected to dedicate as much time is required to fulfil
their responsibilities
2. CONTRACT TERM
The employment of the Employee shall continue for a three (3) year term
unless terminated earlier by the Corporation in accordance with the
provisions hereof. Notwithstanding the termination of the Employee's
employment hereunder, Sections 7.1,7.3,7.4, and 7.5 hereof shall
continue to be in force. Notwithstanding the termination of the
Employee's employment hereunder, section 7.2 shall only continue in
force for the duration of either 12 months or the remainder of the
initial term which ever is less.
3. REMUNERATION
3.1 Salary and Bonus
Except as the Corporation and the Employee may otherwise agree, in
writing, the Employee shall be entitled to the following salary and
bonus arrangement
(a) The Employee shall receive a base salary of $110,000
Canadian per annum paid in biweekly installments (the "base
salary"). The Base Salary shall be reviewed at least annually
by the Compensation committee of the Corporation's Board of
Directors to determine if an increase is appropriate, which
increases shall be in the sole discretion of the Corporation's
Compensation Committee: and
<PAGE>
(b) The Employee shall be entitled to participate in an annual
Bonus Plan approved and subject to the final authority of the
Board of the Corporation. The Bonus Plan is based on the
achievement of Board approved performance targets set by
senior management following the completion of the budget
process for the year. On achievement of these annual targets
the Employee shall receive a sum equal to 20% of the
Employee's annual base salary. This sum is payable to
Employees annually following the completion of the audited
results for the Corporation. The basis for the Bonus Plan for
the last half of 1998 is set out in Appendix B.
(c) Subject to Board approval, the Employee may be entitled to
participate in a Super Bonus Plan based on incremental revenue
over and above the Divisional target. The Super Bonus Plan
will be determined by the senior management acting on the
Board's authority. The basis for the Super Bonus Plan for the
last half of 1998 is set out in Appendix B.
3.2 Benefits
The Employee and his dependents shall be entitled to participation in
the benefits offered by the Corporation including, in particular, the
following benefits (the "Benefits"):
a) participation in the Corporation's medical and
group health insurance plan (the "Plan");
participation in such improvement to the Plan as the
Corporation may introduce from time to time; it is
expressly understood and agreed that coverage under
the Plan should continue while the Employee is
employed and, subject to section 5.3, for the twelve
(12) month period following termination under Section
5.2; and
b) Car allowance of $500.00 Canadian per month;
c) Health club membership allowance not to exceed
$50.00 Canadian per month payable upon presentation
of valid receipts; and
d) Continued participation in the Pension Plan.
3.3 Vacation
The Employee shall be entitled to four (4) weeks paid vacation per
year. Such vacation will be taken at such time as is most convenient
(with approval of the Chief Operating Officer for any vacation time
more than a week in length or with less than a month of advance
notice), considering the demands of the business of the corporation and
the personal plan of the Employee
<PAGE>
3.4 Stock Option Plan
The Employee will receive options to buy 60,000 of the Corporations
shares under the IDS 1997 Stock Option Plan. The exercise price of
these options will be $2.00 per share. The options will vest over three
years with 1/12 of the total options vesting at the end of every
calendar quarter starting from the completion of the first full
calendar quarter ending after the date of this contract. Thus every
calendar quarter 5000 options will vest and be exercisable.
4. EXPENSES
4.1 General
The Corporation shall reimburse the Employee for all traveling and
entertainment expenses and other disbursements actually and properly
incurred by him in connection with his duties hereunder or otherwise
properly incurred by him for and on behalf of the Corporation, upon
presentation of reasonably acceptable evidence of the Employee having
incurred such expenses and disbursements.
5. TERMINATION OF EMPLOYMENT
5.1 Termination by Corporation for Cause
The employment of the Employee may be terminated at any time by notice
in writing from the Corporation to the Employee, for cause, in which
event the Employee shall not be entitled to a notice period or
compensation in lieu of notice. The Employee agrees that in determining
whether or not his termination has been for cause, the terms and
provision in the Scintrex Policies & Procedures Manual, as amended from
time to time, shall be binding and the employee acknowledges having
read and understood the aforementioned Manual.
5.2 Termination by Corporation Without Cause
The employment of the Employee may be terminated without cause at any
time during the term of this Agreement by the Corporation upon twelve
(12) months written notice or upon payment to the Employee of a lump
sum amount equivalent to twelve (12) months cash compensation together
with Group Health benefits continuation for twelve months. In the event
of Termination without cause, a reference letter will be provided to
the Employee at the time of termination.
The employment of the Employee may be terminated without cause at the
conclusion of the term of this Agreement by the Corporation upon six
(6) months written notice or upon payment to the Employee of a lump sum
amount equivalent to six (6) months cash compensation together with
Group Health benefits continuation for six months. In the
<PAGE>
event of Termination without cause, a reference letter will be provided
to the Employee at the time of termination.
5.3 Exception of Benefits Continuance
Notwithstanding Sections 3.2 and 5.2, to the extent that the
Corporation, acting reasonably, is unable to continue a particular
Benefit following the Employee's termination (which for instance, it
expects to be case with respect to long-term disability insurance and
accidental death & dismemberment insurance, if any), the Corporation
may, at its option, make one or more cash payments equal to the value
of the relevant benefit to the Employee or pay to the Employee the
amount that would have been required, as and when the same would have
been required, to maintain the relevant benefit in place had the
Employee continued to be employed by the Corporation.
5.4 Fair and Reasonable
The parties confirm that the provision contained in this Article 5 are
fair and reasonable and the parties agree that upon termination of this
Agreement pursuant to any of the provisions hereof, the Employee shall
have no action, cause of action, claim or demand against the
Corporation or any other person as a consequence of such termination,
so long as the Corporation fulfills its obligations hereunder. The
parties acknowledge that the terms of this Agreement constitute a
better benefit on account of termination pay and severance pay that the
minimum requirements of the Employment Standards Act.
5.5 Resignation by Employee
In the event that the Employee decides on his own accord to resign from
IDS, it is agreed that he must give the Corporation 3 month's notice.
The Corporation at its discretion may decide to shorten this period to
a shorter period.
5.6 Termination in the Event of Disability
The Employee's employment with the Corporation may be terminated, upon
15 days written notice, and without notice or termination pay by reason
of the Employee's Disability. "Disability" means an illness or other
physical or mental disability or incapacity which, in the Corporation's
reasonable good faith judgement, has prevented the Employee from
substantially performing his duties during any period of ninety (90)
days during any period of one hundred and twenty (120) consecutive
days. Such Disability must be substantiated by a doctor's certificate
from a doctor referred to by the Corporation which suggests that the
Employee's Disability is likely to continue to prevent the Employee
from fulfilling his obligations under this agreement.
<PAGE>
6. RETURN OF PROPERTY
Upon any termination of this Agreement, the Employee shall at once
deliver, or cause to be delivered, to the Corporation all books,
documents, effects, money, securities or other property belonging to
the Corporation (or any affiliate of the Corporation), or for which the
Corporation (or any affiliate of the Corporation), is liable to others,
which are in the possession, charge, care, control or custody of the
Employee.
7. COVENANTS OF EMPLOYEE
7.1 Non-Disclosure
The Employee shall not (either during the continuance of this
employment hereunder or at any time thereafter) disclose the private
affairs of the Corporation or any secrets of the Corporation to any
person other than the directors of the Corporation or for the
Corporation's purposes and shall not (either during the continuance of
this employment hereunder or at any time thereafter) use for his own
purpose or for any purposes other that those of the Corporation any
information he may acquire relating to the private affairs of the
Corporation or its trade information secrets. The Employee shall also
execute, in favor of the Corporation, the Corporations standard form of
Intellectual Property and Confidential Information Agreement.
7.2 Non Competition
Subject to the provisions in Section 2, the Employee covenants and
agrees with the Corporation that he will not (without the prior written
consent of the Corporation) at any time during his employment, or for a
period of:
a) Twelve (12) months following the date of the termination of his employment by
the Corporation without cause during the term of this contract; or
b) Twelve (12) months following the date of: (i) the
termination of his employment by the Corporation during the
term of this contract with cause or (ii) his resignation from
employment with the Corporation during the term of this
contract.
individually or in partnership or in conjunction with any person or
persons, firm, association, syndicate, company or corporation as
principal, agent shareholder or in any other manner whatsoever carry on
or be engaged in or be concerned with or interested in or advised, lend
money to, guarantee to the debts or obligations of or permit his name
or any part thereof to be used or employed by any person or persons,
firm, association, syndicate, company or corporation engaged in or
concerned with or interested in any business directly competitive with
the business being carried on by the Corporation presently and/or at
the time of such termination of employment, except as an officer,
director and/or Employee of the Corporation.
<PAGE>
7.3 Non-Solicitation of Clients.
The Employee agrees that during the term of this Agreement, and for a
period of:
a) twelve (12) months following the date of the termination of his employment by
the Corporation without cause; or
b) Twenty-four (24) months following the date of: (i) the
termination of his employment by the Corporation with cause or
(ii) his resignation from employment with the Corporation,
he shall not, directly or indirectly, contact or solicit any Clients of
the Corporation (as hereinafter defined) for the purpose of selling or
supplying to Clients of the Corporation any products or services which
are competitive with the products or services sold or supplied by the
Corporation at the time of the termination of this Agreement. The term
"Client of the Corporation" in this Section 6.3 means any business or
organization that:
(i) Was a client or customer of the Corporation at the time of the termination
of this Agreement; or
(ii) Became a client or a customer of the Corporation
within six (6) months after the termination of this
Agreement if the Employee was involved with the
marketing efforts in respect of such client prior to
the termination of this Agreement.
7.4 Solicitation of Employees
The Employee covenants and agrees that during the term of this
Agreement and for a period of:
(a) twelve (12) months following the date of termination of his employment by
the Corporation without cause; or
(b) Twenty four (24) months following the date of (I) the
termination of his employment by the Corporation with cause or
(ii) his resignation from employment with the Corporation,
he shall not directly or indirectly hire any Employees of or
consultants to the Corporation nor shall he solicit or induce or
attempt to induce any persons who were Employees of or consultants to
the Corporation at the time of such termination or during the ninety
(90) days immediately preceding such termination, to terminate their
employment or consulting agreement with the Corporation.
<PAGE>
7.5 Reasonableness of Non-Disclosure, Non-Competition and Non Solicitation
Obligations
The Employee acknowledges and agrees that the obligations in Sections
7.1, 7.2, 7.3 and 7.4 are fair and reasonable given that, among other
reasons the sustained contact he will have with the clients and
customers of the Corporation will expose him to confidential
information regarding the particular requirements of these clients and
the Corporation's unique methods of satisfying the particular
requirements of these clients, all of which the Employee agrees not to
act upon to the detriment of the Corporation. The Employee agrees that
the obligations in Sections 7.1, 7.2, 7.3 and 7.4, together with his
other obligations under this Agreement, are reasonably necessary for
the protection of the Corporation's proprietary interests. The Employee
further confirms that the unlimited geographic scope of the obligation
in Section 6.2 is reasonable given the international nature of the
market for the products and services of the Corporation. The Employee
hereby agrees that all restrictions in Article 6 are reasonable and
valid and all defenses to strict enforcement thereof by the Corporation
are hereby waived by the Employee.
7.6 Cumulative Rights
The various rights and remedies of the Corporation hereunder are
cumulative and non-exclusive of one another. The use of or resort to
any one such right or remedy shall not preclude or limit the exercise
of any other right or remedy by the Corporation. The provisions of the
Agreement shall not in any way limit or abridge the rights of the
Corporation in the obligations of the Employee at common law or under
statue, including but not limited to the laws of unfair competition,
copyright, trade secrets, and trade-mark, all of which shall be in
addition to the Corporation's rights and the Employee's obligations
under this Agreement. The Employee shall be deemed to be a fiduciary of
the Corporation.
8. GENERAL
8.1 Sections and Headings
The division of the Agreement into Articles and Sections and the
insertion of heading are for the convenience of reference only and
shall not affect the construction or interpretation of this Agreement.
The terms "this Agreement", "hereof", "hereunder", and similar
expressions refer to this Agreement and not to any particular Article,
Section, or other portion hereof and include any agreement or
instrument supplemental or ancillary hereto. Unless something in the
subject matter or context is inconsistent therewith, references herein
to Articles and Sections are to Articles and Sections of this
Agreement.
<PAGE>
8.2 Number and Gender
In this Agreement words importing the singular number only shall
include the plural and vice versa and words importing the masculine
gender shall include the feminine and neuter genders and vice versa and
words importing persons shall include individuals, partnerships,
associations, trusts, unincorporated organizations and corporations and
vice versa.
8.3 Benefit of Agreement
This agreement shall ensure to the benefit of and be binding upon the
heirs, executors, administrators and legal personal representatives of
the Employee and the successors and permitted assigns of the
Corporation respectively.
8.4 Governing Law
This Agreement shall be governed by and construed in accordance with
the laws of the Province of Ontario and the Laws of Canada applicable
therein.
8.5 Entire Agreement
This Agreement, together with the separate Intellectual Property and
Confidential Information Agreement executed by the Employee in favor of
the Corporation, constitutes the entire agreement between the parties
with respect to the subject matter hereof and cancels and supersedes
any prior understandings and agreements between the parties hereto with
respect thereto, including but not limited to an employment agreement
dated April 7th, 1989 between Scintrex Ltd. and the Employee and
subsequent amendments thereto. There are no representations,
warranties, forms, conditions, undertakings or collateral agreements,
express, implied or statutory between the parties other than as
expressly set forth in this Agreement.
8.6 Severability
If any provision of this agreement is determined to be invalid or
unenforceable in whole or in part, such invalidity or unenforceability
shall attach only to such provision or part there of and the remaining
part of such provisions and all other provisions hereof shall continue
in full force and effect.
8.7 Notice
Any demand, notice or other communication (hereinafter in this Section
7.7 referred to as a "communication") to be given in connection with
this Agreement shall be given by personal delivery or transmitted by
telecopier or other form of recorded communication, tested prior to
transmission to such party, addressed to the recipient as follows:
<PAGE>
Phil Hembruff
233 Elmhurst Crescent
Burlington
Ontario
L7L 2A5
Telecopier 905 639-9767
To the Corporation at:
#1 First Canadian Place
100 King Street West
Suite 7070
Toronto, Ontario
M5X 1B5
Attention: The Board of Directors
or such other address or individual as may be designated by notice by
either party to the other. Any Communication given by personal delivery
shall be conclusively deemed to have been given on the day of actual
delivery thereof and, if made or given by or transmitted by telecopier
or other form of recorded communication shall be deemed to have been
given and received on the date of its transmission provided that if
such date is not a business day or if it is received after the end of
the normal business hours on the date of its transmission then shall be
deemed to have been given and received at the opening of business in
the office of the addressee on the first business day next following
the transmission hereof. For the purpose of this Agreement, a business
day shall mean any day other than Saturday, Sunday or statutory holiday
in the Province of Ontario.
Any party may change its address for service from time to time by
giving seven (7) days' notice to the other party in accordance with the
foregoing.
8.8 Independent Legal Advise
The Employee acknowledges that he has had the opportunity to obtain independent
legal advise and: a) that he has been fully informed as to his rights and
obligations under the terms of this Agreement; and b) with such knowledge, he
has executed this agreement freely and voluntarily and without any duress.
<PAGE>
IN WITNESS WHEREOF the parties have executed this Agreement.
SIGNED, SEALED AND DELIVERED) in the presence of )
Witness )
/s/Phil Hembruff
Phil Hembruff
September 27/98
Dated:
/s/Sanje Ratnavale, COO
IDS Intelligent Detection Systems Inc.
Mariusz Rybak
Chairman, IDS
<PAGE>
APPENDIX A
DRAFT JOB DESCRIPTION FOR VICE PRESIDENT & GENERAL MANAGER
EARTH SCIENCE INSTRUMENTATION DIVISION OF
IDS
TITLE: Vice President & General Manager of the Earth Science
Instrumentation Division, IDS.
REPORTS TO: Chief Operating Officer of IDS.
JOB DESCRIPTION: The General Manager of the
Earth Science Instrumentation Division shall
be a member of the senior management team of
the company. He or she shall be responsible
for the overall excellence of the Sales and
Marketing, Customer Service and Engineering
efforts of this division.
RESPONSIBILITIES: Amongst the various duties, responsibilities and activities,
the Employee shall be responsible for:
o preparation of an annual budget which includes strategic sales, marketing and
engineering planning that goes with it for acceptance and approval of the
C.O.O..
o responsible for ongoing business development initiatives o prepare quota &
commission plans for sales personnel (as part of above) o the timely execution
of sales marketing programs o collaborating with the manufacturing operations of
the Company to minimize working capital employed in serving the division's
needs, particularly through timely scheduling of production to meet sales
requirements
o staffing and evaluations of division personnel o evaluation and proposing of
potential engineering projects o maintaining competitive information database o
developing sales & marketing literature o launching new products and services
o responsible for ensuring that a high level of quality, service and
profitability are maintained in the Customer Service Department.
o review and approve offers made by sales people
DUTIES:
o proposing new products and ideas to expand the company's product offering o
collaborative supervision of related engineering projects working with the
Director of
Engineering for Geo Products
<PAGE>
o timely reports of sales results o maintain competitive information database o
conducting performance reviews for staff o supervising lead generation and
follow-ups o maintaining database for sales
o assisting in the overall computer upgrade of the systems at IDS o review and
approve commission statements of sales people with accounting o international
travel for sales & marketing purposes o ongoing evaluation of advances and
changes in technology as it relates to lDS, its customers
and competitors
o attendance at various conferences and presenting technical papers
o other duties assigned to you by the COO
o engineering proposals requiring more that $25,000.00 of resources shall have
a formal project plan including engineering costs and sales projections etc.
for review and approval by the COO.
OTHER:
o training of sales/marketing personnel for the Division
AUTHORITY:
o to sign and approve unbudgeted purchases up to $2,000
o to sign and approve travel requisitions for the Division
o to approve trade show booths and related expenditures, providing they have
been budgeted for up to $5,000
o to hire personnel for the Division, subject to budgets and approvals, or in
special cases in consultation with the COO except for senior division
managers reporting to General Manager
o to sign and approve budgeted expenditure for advertising & marketing materials
subject to budgetary approval to $5,000
o to sign and approve engineering projects up to $25,000.00
It is understood that the nature of the responsibilities of the Employee will
change as the requirements of IDS change.
<PAGE>
Appendix B
BONUS PLAN FOR SECOND HALF 1998
Objective: To motivate senior management and employees to meet the budget for
the second half of the year
Plan: The Corporation will pay a bonus to the Employee of 20% of the salary
earned by the Employees in the period July 1st to December 31st 1998.
Conditions: 1. One third of the Bonus Sum will be payable on achieving the ESID
Divisional Revenue target for the Second Half of 1998
2. Two thirds of the Bonus Sum will be payable on
achieving the ESID Divisional Earnings before tax
target for the Second Half of 1998
SUPER BONUS PLAN FOR SECOND HALF 1998
Subject to meeting the ESID division's budgeted
earnings before tax for the period, for every $
dollar above the second half divisional revenue
target, the Employee will be entitled to the
difference between the target and the actual audited
revenue figure according to the following
percentages:
Up to $500,000 above Budgeted divisional revenue 1% Between $500,000 and $lm
above Budgeted divisional revenue 2%Between $lm and $2m above Budgeted
divisional revenue 3% Above $2m above Budgeted divisional revenue 5%
<PAGE>
EMPLOYMENT AGREEMENT
THIS AGREEMENT Dated as of the 22nd day of September 1998
BETWEEN:
Terence J. McConnell, of the Town of Aurora and the Province of Ontario in
Canada (Herein called the "Employee")
OF THE FIRST PART
- - - - and -
IDS INTELLIGENT DETECTION SYSTEMS INC., a corporation incorporated under the
laws of the Province of Ontario
(hereinafter called the "Corporation")
OF THE SECOND PART
WHEREAS the Employee has been an employee of Scintrex Limited since September
4th, 1995;
AND WHEREAS the Corporation has acquired substantially all the outstanding
shares of Scintrex Ltd.;
AND WHEREAS the Employee entered into a written employment agreement
with Scintrex Ltd. on July 27th 1995.
AND WHEREAS the Corporation wishes to confirm the basis upon which the
Employee will, as of and from the date hereof, be employed to work for
the corporation and its affiliates, including Scintrex Ltd.;
AND WHEREAS the Employee will receive, inter alia, increased salary and
incentive compensation in consideration for executing the within
Agreement.
NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the
mutual covenants and agreements in this Agreement, it is agreed by and
between the Employee and the Corporation as follows:
1. EMPLOYMENT
The Employee shall serve the Corporation as Vice President and General Manager
of the Airborne Systems and Services Division (ASSD} and shall perform such
duties and exercise such powers as may from time to time be assigned to or
vested in him by the senior management acting on the authority of the Board of
Directors. In the capacity of Vice President, the Employee shall initially
<PAGE>
report directly to the Chief Operating Officer: it is understood that the
reporting structure for the Employee may change to meet the Company's
requirements and changing structure. A current draft job description is attached
in Appendix A which is subject to change as the requirements of the Company
change: the Employee will work to finalize any changes the COO may have to this
job description when the COO joins in September 1998. In a senior role there are
no set working hours nor overtime or travel time as senior employees are
expected to dedicate
as much time is required to fulfil their responsibilities
2. CONTRACT TERM
The employment of the Employee shall continue for a three (3} year term unless
terminated earlier by the Corporation in accordance with the provisions hereof.
Notwithstanding the termination of the Employee's employment hereunder, Sections
7.1, 7.3, 7.4, and 7.5 hereof shall continue to be in force. Notwithstanding the
termination of the Employee's employment hereunder, section 7.2 shall only
continue in force for the duration of either 12 months or the remainder of the
initial term which ever is less.
3. REMUNERATION
3.1 Salary and Bonus
Except as the Corporation and the Employee may otherwise agree, in writing, the
Employee shall be entitled to the following salary and bonus arrangement:
(a) The Employee shall receive a base salary of $110.000 Canadian per annum
paid in biweekly installments (the "base salary"}. The Base Salary
shall be reviewed at least annually by the Compensation committee of
the Corporation's Board of Directors to determine if an increase is
appropriate, which increases shall be in the sole discretion of the
Corporation's Compensation Committee: and
(b) The Employee shall be entitled to participate in an annual Bonus Plan
approved and subject to the final authority of the Board of the
Corporation. The Bonus Plan is based on the achievement of Board
approved performance targets set by senior management following the
completion of the budget process for the year. On achievement of these
annual targets the Employee shall receive a sum equal to 20% of the
Employee's annual base salary. This sum is payable to Employees
annually following the completion of the audited results for the
Corporation. The basis for the Bonus Plan for the last half of 1998 is
set out in Appendix B.
(c) Subject to Board approval, the Employee may be entitled to participate
in a Super Bonus Plan based on incremental revenue over and above the
Divisional target. The Super Bonus Plan will be determined by the
senior management acting on the Board's authority. The basis for the
Super Bonus Plan for the last half of 1998 is set out in Appendix B.
3.2 Benefits
The Employee and his dependents shall be entitled to participation in the
benefits offered by the
<PAGE>
Corporation including, in particular, the following benefits (the "Benefits"}:
(a) participation in the Corporation's medical and group health insurance
plan (the "Plan"}; participation in such improvement to the Plan as the
Corporation may introduce from time to time; it is expressly understood
and agreed that coverage under the Plan should continue while the
Employee is employed and, subject to section 5.3, for the twelve (12)
month period following termination under Section 5.2; and
(b) Car allowance of $500.00 Canadian per month;
(c) Health club membership allowance not to exceed $50.00 Canadian month
payable upon presentation of valid receipts; and
(d) Continued participation in the Pension Plan.
3.3 Vacation
The Employee shall be entitled to three (3) week's paid vacation per year. Such
vacation will be taken at such time as is most convenient (with approval of the
Chief Operating Officer for any vacation time more than a week in length or with
less than a month of advance notice}, considering the demands of the business of
the corporation and the personal plan of the Employee. In the first year of this
Agreement, the Corporation will allow the Employee to carry five days vacation
time over to the following calendar year. In subsequent years, no vacation time
will be carried over from one calendar year to another.
3.4 Stock Option Plan
The Employee will receive options to buy 60.000 of the Corporations shares under
the IDS 1997 Stock Option Plan. The exercise price of these options will be
$2.00 per share. The options will vest over three years with 1/12 of the total
options vesting at the end of every calendar quarter starting from the
completion of the first full calendar quarter ending after the date of this
contract. Thus every calendar quarter 5000 options will vest and be exercisable.
4. EXPENSES
4.1 General
The Corporation shall reimburse the Employee for all traveling and
entertainment expenses and other disbursements actually and properly incurred by
him in connection with his duties hereunder or otherwise properly incurred by
him for and on behalf of the Corporation, upon presentation of reasonably
acceptable evidence of the Employee having incurred such expenses and
disbursements.
5. TERMINATION OF EMPLOYMENT
5.1 Termination by Corporation for Cause
<PAGE>
The employment of the Employee may be terminated at any time by notice in
writing from the Corporation to the Employee, for cause, in which event the
Employee shall not be entitled to a notice period or compensation in lieu of
notice. The Employee agrees that in determining whether or not his termination
has been for cause, the terms and provision in the Scintrex Policies &
Procedures Manual, as amended from time to time, shall be binding and the
employee acknowledges having read and understood the aforementioned Manual.
5.2 Termination by Corporation Without Cause
The employment of the Employee may be terminated without cause at any time
during the term of this Agreement by the Corporation upon twelve (12) months
written notice or upon payment to the Employee of a lump sum amount equivalent
to twelve (12) months cash compensation together with benefits continuation for
twelve months.
The employment of the Employee may be terminated without cause at the conclusion
of the term of this Agreement by the Corporation upon six (6} months written
notice or upon payment to the Employee of a lump sum amount equivalent to six
(6} months cash compensation together with benefits continuation for six months.
5.3 Exception of Benefits Continuance
Notwithstanding Sections 3.2 and 5.2, to the extent that the Corporation, acting
reasonably, is unable to continue a particular Benefit following the Employee's
termination (which for instance, it expects to be case with respect to long-term
disability insurance and accidental death & dismemberment insurance, if any},
the Corporation may, at its option , make one or more cash payments equal to the
value of the relevant benefit to the Employee or pay to the Employee the amount
that would have been required, as and when the same would have been required, to
maintain the relevant benefit in place had the Employee continued to be employed
by the Corporation.
5.4 Fair and Reasonable
The parties confirm that the provision contained in this Article 5 are fair and
reasonable and the parties agree that upon termination of this Agreement
pursuant to any of the provisions hereof, the Employee shall have no action,
cause of action, claim or demand against the Corporation or any other person as
a consequence of such termination, so long as the Corporation fulfills its
obligations hereunder. The parties acknowledge that the terms of this Agreement
constitute a better benefit on account of termination pay and severance pay that
the minimum requirements of the Employment Standards Act.
5.5 Resignation by Employee
In the event that the Employee decides on his own accord to resign from IDS, it
is agreed that he must give the Corporation 3 month's notice. The Corporation at
its discretion may decide to shorten this period to a shorter period.
5.6 Termination in the Event of Disability
<PAGE>
The Employee's employment with the Corporation may be terminated, upon 15 days
written notice, and without notice or termination pay by reason of the
Employee's Disability. "Disability" means an illness or other physical or mental
disability or incapacity which, in the Corporation's reasonable good faith
judgement, has prevented the Employee from substantially performing his duties
during any period of ninety (90} days during any period of one hundred and
twenty (120} consecutive days. Such Disability must be substantiated by a
doctor's certificate from a doctor referred to by the Corporation which suggests
that the Employee's Disability is likely to continue to prevent the Employee
from fulfilling his obligations under this agreement.
6. RETURN OF PROPERTY
Upon any termination of this Agreement, the Employee shall at once deliver, or
cause to be delivered, to the Corporation all books, documents, effects, money,
securities or other property belonging to the Corporation (or any affiliate of
the Corporation}, or for which the Corporation (or any affiliate of the
Corporation}, is liable to others, which are in the possession, charge, care,
control or custody of the Employee.
7. COVENANTS OF EMPLOYEE
7.1 Non-Disclosure
The Employee shall not (either during the continuance of this employment
hereunder or at any time thereafter} disclose the private affairs of the
Corporation or any secrets of the Corporation to any person other than the
directors of the Corporation or for the Corporation's purposes and shall not
(either during the continuance of this employment hereunder or at any time
thereafter} use for his own purpose or for any purposes other that those of the
Corporation any information he may acquire relating to the private affairs of
the Corporation or its trade information secrets. The Employee shall also
execute, in favor of the Corporation, the Corporations standard form of
Intellectual Property and Confidential Information Agreement.
7.2 Non Competition
Subject to the provisions in Section 2, the Employee covenants and agrees with
the Corporation that he will not (without the prior written consent of the
Corporation) at any time during his employment, or for a period of:
a) Twelve (12) months following the date of the termination of his employment by
the Corporation without cause during the term of this contract; or
b) Twelve (12) months following the date of: (i) the termination of his
employment by the Corporation during the term of this contract with
cause or (ii} his resignation from employment with the Corporation
during the term of this contract.
individually or in partnership or in conjunction with any person or persons,
firm, association, syndicate, company or corporation as principal, agent
shareholder or in any other manner whatsoever carry on or be engaged in or be
concerned with or interested in or advised, lend money to, guarantee
<PAGE>
to the debts or obligations of or permit his name or any part thereof to be used
or employed by any person or persons, firm, association, syndicate, company or
corporation engaged in or concerned with or interested in any business directly
competitive with the business being carried on by the Corporation presently
and/or at the time of such termination of employment, except as an officer,
director and/or Employee of the Corporation.
7.3 Non-Solicitation of Clients.
The Employee agrees that during the term of this Agreement, and for a period of:
a) twelve (12} months following the date of the termination of his employment by
the Corporation without cause; or
b) Twenty-four (24) months following the date of: (i) the employment by
the Corporation with employment with the Corporation with cause or (ii)
his resignation from employment with the Corporation,
he shall not, directly or indirectly, contact or solicit any Clients of the
Corporation (as hereinafter defined) for the purpose of selling or supplying to
Clients of the Corporation any products or services which are competitive with
the products or services sold or supplied by the Corporation at the time of the
termination of this Agreement. The term "Client of the Corporation" in this
Section 6.3 means any business or organization that:
(i) Was a client or customer of the Corporation at the time of the termination
of this Agreement; or
(ii) Became a client or a customer of the Corporation within six (6) months
after the termination of this Agreement if the Employee was involved with the
marketing efforts in respect of such client prior to the termination of this
Agreement.
7.4 Solicitation of Employees
The Employee covenants and agrees that during the term of this Agreement and for
a period of:
(a) twelve (12) months following the date of termination of his employment by
the Corporation without cause; or
(b) Twenty four (24) months following the date of (i) the termination of
his employment by the Corporation with cause or (ii) his resignation
from employment with the Corporation,
he shall not directly or indirectly hire any Employees of or consultants to the
Corporation nor shall he solicit or induce or attempt to induce any persons who
were Employees of or consultants to the Corporation at the time of such
termination or during the ninety (90) days immediately preceding such
termination, to terminate their employment or consulting agreement with the
Corporation.
7.5 Reasonableness of Non-Disclosure, Non-Competition and Non Solicitation
Obligations
<PAGE>
The Employee acknowledges and agrees that the obligations in Sections 7.1, 7.2,
7.3 and 7 4 are fair and reasonable given that, among other reasons the
sustained contact he will have with the clients and customers of the Corporation
will expose him to confidential information regarding the particular
requirements of these clients and the Corporation's unique methods of satisfying
the particular requirements of these clients, all of which the Employee agrees
not to act upon to the detriment of the Corporation. The Employee agrees that
the obligations in Sections 7.1, 7.2, 7.3 and 7.4, together with his other
obligations under this Agreement, are reasonably necessary for the protection of
the Corporation's proprietary interests. The Employee further confirms that the
unlimited geographic scope of the obligation in Section 6.2 is reasonable given
the international nature of the market for the products and services of the
Corporation. The Employee hereby agrees that all restrictions in Article 6 are
reasonable and valid and all defenses to strict enforcement thereof by the
Corporation are hereby waived by the Employee.
7.6 Cumulative Rights
The various rights and remedies of the Corporation hereunder are cumulative and
non-exclusive of one another. The use of or resort to any one such right or
remedy shall not preclude or limit the exercise of any other right or remedy by
the Corporation. The provisions of the Agreement shall not in any way limit or
abridge the rights of the Corporation in the obligations of the Employee at
common law or under statue, including but not limited to the laws of unfair
competition, copyright, trade secrets, and trade-mark, all of which shall be in
addition to the Corporation's rights and the Employee's obligations under this
Agreement. The Employee shall be deemed to be a fiduciary of the Corporation.
8. GENERAL
8.1 Sections and Headings
The division of the Agreement into Articles and Sections and the insertion of
heading are for the convenience of reference only and shall not affect the
construction or interpretation of this Agreement. The terms .'this Agreement",
"hereof' , "hereunder" , and similar expressions refer to this Agreement and not
to any particular Article, Section, or other portion hereof and include any
agreement or instrument supplemental or ancillary hereto. Unless something in
the subject matter or context is inconsistent therewith, references herein to
Articles and Sections are to Articles and Sections of this Agreement.
8.2 Number and Gender
In this Agreement words importing the singular number only shall include the
plural and vice versa and words importing the masculine gender shall include the
feminine and neuter genders and vice versa and words importing persons shall
include individuals, partnerships, associations, trusts, unincorporated
organizations and corporations and vice versa.
8.3 Benefit of Agreement
This agreement shall ensure to the benefit of and be binding upon the heirs,
executors, administrators
<PAGE>
and legal personal representatives of the Employee and the successors and
permitted assigns of the Corporation respectively.
8.4 Governing Law
This Agreement shall be governed by and construed in accordance with the laws of
the Province of Ontario and the Laws of Canada applicable therein.
8.5 Entire Agreement
This Agreement, together with the separate Intellectual Property and
Confidential Information Agreement executed by the Employee in favor of the
Corporation, constitutes the entire agreement between the parties with respect
to the subject matter hereof and cancels and supersedes any prior understandings
and agreements between the parties hereto with respect thereto, including but
not limited to an employment agreement dated July 27th 1995 between Scintrex
Ltd. and the Employee. There are no representations, warranties, forms,
conditions, undertakings or collateral agreements,
express, implied or statutory between the parties other than as expressly set
forth in this Agreement.
8.6 Severability
If any provision of this agreement is determined to be invalid or unenforceable
in whole or in part, such invalidity or unenforceability shall attach only to
such provision or part thereof and the remaining part of such provisions and all
other provisions hereof shall continue in full force and effect.
8.7 Notice
Any demand, notice or other communication (hereinafter in this Section 8.7
referred to as a "communication"} to be given in connection with this Agreement
shall be given by personal delivery or transmitted by telecopier or other form
of recorded communication, tested prior to transmission to such party, addressed
to the recipient as follows:
85 Delayne drive
Aurora
Ontario
L4G 5B5
T o the Corporation at:
#1 First Canadian Place
100 King Street West
Suite 7070
Toronto , Ontario
M5X 1B5
Attention: The Board of Directors
<PAGE>
or such other address or individual as may be designated by notice by either
party to the other. Any Communication given by personal delivery shall be
conclusively deemed to have been given on the day of actual delivery thereof
and, if made or given by or transmitted by telecopier or other form of recorded
communication shall be deemed to have been given and received on the date of its
transmission provided that if such date is not a business day or if it is
received after the end of the normal business hours on the date of its
transmission then shall be deemed to have been given and received at the opening
of business in the office of the addressee on the first business day next
following the transmission hereof. For the purpose of this Agreement, a business
day shall mean any day other than Saturday , Sunday or statutory holiday in the
Province of Ontario.
Any party may change its address for service from time to time by giving seven
(7) days' notice to the other party in accordance with the foregoing.
8.8 Independent Legal Advise
The Employee acknowledges that he has had the opportunity to obtain independent
legal advise and: a) that he is fully informed as to his rights and obligations
under the terms of this Agreement; and b) with such knowledge, he has executed
this agreement freely and voluntarily and without any duress.
<PAGE>
IN WITNESS WHEREOF the parties have executed this Agreement.
SIGNED, SEALED AND DELIVERED }
in the presence of }
Witness
/s/Terence J. McConnell
Terence J. McConnel1
Sept. 23, 98
Dated:
/s/Mariusz Rybak
IDS Intelligent Systems Inc.
Mariusz Rybak
Chairman, IDS
<PAGE>
APPENDIX A
DRAFT JOB DESCRIPTION FOR VICE PRESIDENT & GENERAL
MANAGER AIRBORNE INSTRUMENTATION & SURVEY SERVICES DIVISION OF
IDS
TITLE: Vice President & General Manager of the Airborne
Instrumentation & Survey Services Division, IDS.
REPORTS TO: Chief Operating Officer of IDS.
JOB DESCRIPTION: The General Manager of the ASSD shall be a member of the senior
management team of the company. He or she shall be responsible for the overall
excellence of the Sales and Marketing of his division as well as the performance
of field operations and data processing departments in the execution of
contracts for clients
RESPONSIBILITIES: Amongst the various duties, responsibilities and activities,
the General Manager shall be responsible for:
* preparation of an annual budget which includes strategic sales, marketing and
engineering planning that goes with it for acceptance and approval of the COO.
* responsible for ongoing business development initiatives to accelerate the
division's growth
* prepare quota & commission plans for sales personnel (as part of above}
* the timely execution of sales marketing programs
* collaborating with the manufacturing operations of the Company to minimize
working capital employed in serving the division's needs, particularly through
timely scheduling of production to meet sales requirements
* staffing and evaluations of division personnel
* evaluation and proposing of potential engineering projects
* from time to time the contracting of third party organizations for product
support, supply of aircraft and helicopters etc
* maintaining competitive information database
* developing sales & marketing literature
* launching new products and services
* supervising the efforts of the field operations group within the division
* supervising the data processing department with regard to map generation and
interpretation etc
* reporting sales results and progress in the completion of contracts,
including all survey deliverables to the COO on a monthly and weekly basis
* review and approve offers made by sales people
<PAGE>
DUTIES: * proposing new products and ideas to expand the company's product
offering
* timely reports of sales results
* maintain competitive information database
* conducting performance reviews for staff
* supervising lead generation and follow-ups
* maintaining database for sales
* assisting in the overall computer upgrade of the systems at IDS
* review and approve commission statements of sales people with Accounting
* international travel for sales & marketing purposes
* ongoing evaluation of advances and changes in technology as it relates to IDS,
its customers and competitors
* attendance at various conferences and presenting technical papers
* other duties assigned to you by the COO
OTHER: * training of sales/marketing personnel for the Division
AUTHORITY: * to sign and approve unbudgeted purchases up to $2,000
* to sign and approve contracts and proposals up to a value of US $250,000
* to sign and approve travel requisitions in emergency situations for the
Division
* to approve trade show booths and related expenditures, providing they have
been budgeted for up to $5,000
* to hire personnel for the Division, subject to budgets and approvals, or in
special cases in consultation with the COO except for senior division managers
reporting to General Manager
* to hire personnel for the Division subject to Budget approvals or in special
cases in consultation with the COO except for senior division Managers reporting
to the General Manager
* to sign and approve budgeted expenditure for advertising & marketing materials
subject to budgetary approval
<PAGE>
Appendix B
BONUS PLAN FOR SECOND HALF 1998
Objective: To motivate senior management and employees to meet the budget for
the second half of the year
Plan: The Corporation will pay a bonus to the Employee of 20% of the salary
earned by the Employees in the period July 1st to December 31, 1998. The amount
of the Bonus Sum payable will be dependent on the achievement of the following
condition(s)
Conditions: 1. One third of the Bonus Sum will be payable on achieving the ASSD
Divisional Revenue target for the Second Half of 1998
2. Two thirds of the Bonus Sum will be payable on
achieving the ASSD Divisional Earnings before tax
target for the Second Half of 1998
SUPER BONUS PLAN FOR SECOND HALF 1998
Subject to meeting the ASSD division's budgeted earnings before tax for the
period], for every $dollar above the second half divisional revenue target , the
Employee will be entitled to the difference between the target and the actual
audited revenue figure according to the following percentages:
Up to $500,000 above Budgeted divisional revenue 1%
Between $500,000 and $1m above Budgeted divisional revenue 2%
Between $1m and $2m above Budgeted divisional revenue 3%
Above $2m above Budgeted divisional revenue 5%
<PAGE>
APPENDIX B
IDS Intelligent Detection Systems
Intellectual Property and Confidential Information Agreement
This is an Agreement between IDS Intelligent Detection Systems and its
subsidiaries and affiliates (hereinafter called "Company") and myself. It
supersedes all previous agreements, if any, between the Company and myself with
respect to the subject matter of this Agreement.
I recognize that the Company is engaged in a continuous program of research and
development and the marketing of products incorporating such research and
development, and that the Company also provides technical support, consultation
and training services relating to those products. I also recognize the
importance of protecting the Company's trade secrets, confidential information
and other proprietary information and related rights acquired through the
Company's expenditure of time, effort and money.
Therefore, in consideration of the Company retaining me as an employee,
independent contractor or otherwise to perform work on its behalf (hereinafter
called "Engagement"), I make the following representations and agree to the
following terms and conditions of my Engagement:
1. Definitions
For purposes of this Agreement:
(a) "Confidential Information" includes any of the following:
i) any and all versions of the software and related documentation
owned or marketed by the Company, as well as the software and
documentation owned by the Company's suppliers and used
internally by the Company, including all related algorithms,
concepts, data, designs, flowcharts, ideas, programming
techniques, specifications and source code listings;
ii) all Developments (as defined below);
iii) information regarding the Company's business operations,
methods and practices, including marketing strategies, product
pricing, margins, hourly rates, per diem and
iv) information regarding the financial affairs of the Company.
iv) the names of the Company's clients and the names of the
suppliers of computer services and software to the Company,
and the nature of the Company's relationships with these
clients and suppliers;
v) Company obtained in order for the Company to provide such
clients with software products and services, including
information regarding the data processing requirements and the
business operations, methods and practices and product plans
of such clients; and
<PAGE>
vi) any other trade secret or confidential or proprietary
information in the possession or control of the Company, but
Confidential Information shall not include information which:
1) is or becomes generally available to the public without my fault;
2) is lawfully obtained by me from a third party or
parties unconnected with the Company, without breach
of any confidentiality obligations; or
3) is disclosed under operation of the law.
b) "Developments" include, without limitation:
i) all software, documentation, source code listings, flowcharts, drawings,
specifications, user manuals, procedures, databases, compilations, designs,
reports, trade-marks and any related works, including any enhancements,
modifications, or additions to the foregoing or to any products owned, marketed
or used by the Company, and
ii) all inventions, devices, discoveries, concepts, ideas, algorithms, formulae,
know-how, processes, techniques, systems and improvements, whether patentable or
not, which relate, directly or indirectly, to the business of the Company or any
of my Engagement activities and which are developed, created, generated or
reduced to practice by me, alone or jointly with others, during my Engagement
with the Company, whether during or after working hours and whether or not
resulting from the use of the premises or property of the Company.
2. Non-Disclosure of Confidential Information
At all times during and subsequent to the termination of my Engagement with the
Company, I shall keep in strictest confidence and trust the Confidential
Information, I shall take all necessary precautions against unauthorized
disclosure of the Confidential Information, and I shall not directly or
indirectly disclose, allow access to, transmit or transfer the Confidential
Information to a third party, nor shall I copy or reproduce the Confidential
Information except as may be reasonably required for me to perform my duties for
the Company.
Restricted Use of Confidential Information
a) At all times during and subsequent to the termination of my Engagement
with the Company, I shall not use the Confidential Information in any
manner except as reasonably required for me to perform my duties for
the Company.
b) Without limiting my obligations under subsection 3 (a), I agree that at
all times during and subsequent to the termination of my Engagement
with the Company I shall not use or take advantage of the Confidential
Information for creating, maintaining or marketing, or aiding in the
creation, maintenance or marketing, of any software which is
competitive with any software owned or marketed by the Company.
<PAGE>
c) Upon the request of the Company, and in any event upon the termination
of my Engagement with the Company, I shall immediately return to the
Company all materials, including all copies in whatever form,
containing the Confidential Information which are in my possession or
under my control.
4. Ownership of Confidential Information
a) I acknowledge and agree that I shall not acquire any right, title or
interest in or to the Confidential Information.
b) I hereby assign and transfer to the Company, and agree that the Company shall
be the exclusive owner of, all of my rights, title and interest, to each
Development throughout the world created during my employment with the Company,
including all trade secrets, patent rights, copyrights and all other
intellectual property rights therein. I agree to make full disclosure to the
Company of each Development promptly after its creation I further agree to
cooperate fully at all times during and subsequent to my Engagement with respect
to signing further documents and doing such acts and other things reasonably
requested by the Company to confirm such transfer of ownership of rights,
including intellectual property rights, effective at or after the time the
Development is created and to obtain patents or copyrights or the like covering
the Developments. I agree that the obligations in this clause b) shall continue
beyond the termination of my Engagement with the Company with respect to
Developments created during my Engagement with the Company.
c) I agree that the Company, its assignees and their licensees are not
required to designate me as the author of any Developments. I hereby
waive in whole all moral rights which I may have in the Developments,
including the right to the integrity of the Developments, the right to
be associated with the Developments, the right to restrain or claim
damages for any distortion, mutilation or other modification of the
Developments, and the right to restrain use or reproduction of the
Developments in any context and in connection with any product,
service, cause or institution.
5. No Conflicting Obligations
a) I acknowledge and represent to the Company that my performance during
the period of my Engagement with the Company shall not breach any
agreement or other obligation to keep confidential the proprietary
information of any prior employer of mine or any other third party. I
further acknowledge and represent that I am not bound by any agreement
or obligation with any third party which conflicts with any of my
obligations under this Agreement.
b) I represent and agree that I will not bring to the Company, and shall
not use in the performance of my work with the Company, any trade
secrets, confidential information and other information of any prior
employee of mine or any other third party. I represent and agree that
in my work creating Developments I will not knowingly infringe the
intellectual property rights, including copyright, of any third party.
6. Enforcement
I acknowledge and agree that damages may not be an adequate remedy to compensate
the Company for any
<PAGE>
breach of my obligations contained in this Agreement, and accordingly, I agree
that in addition to any and all other remedies available, the Company shall be
entitled to obtain relief by way of a temporary or permanent injunction to
enforce the obligations contained in this Agreement.
7. General
a) This Agreement shall be governed by and construed in accordance with the
laws in force in the Province of Ontario and any laws of Canada applicable
thereto. If any provision of this Agreement is wholly or partially unenforceable
for any reason, such unenforceable provision or part thereof shall be deemed to
be omitted from this Agreement without in any way invalidating or impairing the
other provisions of this Agreement. In this Agreement any reference to a
termination of Engagement shall include termination for any reason whatsoever
and with or without cause.
b) The obligations herein may not be changed or modified, released or
terminated, in whole or in part, except in writing signed by an officer of the
Company and me.
c) The rights and obligations under this Agreement shall survive the termination
of my Engagement and shall enure to the benefit of and shall be binding upon i)
my heirs and personal representative and ii) the successors and assigns of the
Company .
d) I HAVE READ THIS AGREEMENT, UNDERSTAND IT, HAVE HAD THE OPPORTUNITY TO OBTAIN
INDEPENDENT LEGAL ADVICE IN RESPECT OF IT, AND I AGREE TO ITS TERMS. I
acknowledge having received a fully executed copy of this Agreement.
<PAGE>
IN WITNESS WHEREOF this Agreement has been executed by me and the Company as of
the 23rd day of eptember, 1998.
SIGNED, SEALED AND DELIVERED in the presence of:
Employee IDS Intelligent Detection Systems
/s/Terence J. McConnell /s/Ed Quinton
Terence J. McConnell Ed Quinton, Human Resources Manager
<PAGE>
IDS
INTELLIGENT DETECTION SYSTEMS
EMPLOYMENT AGREEMENT
THIS AGREEMENT Dated as of the 28th day of September 1998.
BETWEEN:
Jay Sarkar, of the Town of Thornhill and the Province of Ontario in Canada (Here
in called the "Employee")
OF THE FIRST PART
- and -
IDS INTELLIGENT DETECTION SYSTEMS INC., a corporation incorporated
under the laws of the Province of Ontario (hereinafter called the
"Corporation")
OF THE SECOND PART
WHEREAS the Employee has been an employee of Scintrex Limited since April 11th,
1977;
AND WHEREAS the Corporation has acquired substantially all the outstanding
shares of Scintrex Ltd.;
AND WHEREAS the Corporation wishes to confirm the basis
upon which the Employee will, as of and from the date
hereof, be employed to work for the corporation and its
affiliates, including Scintrex Ltd.;
AND WHEREAS the Employee will receive, inter alia,
increased salary and incentive compensation in
consideration for executing the within Agreement.
NOW THEREFORE THIS AGREEMENT WITNESSES that in
consideration of the mutual covenants and agreements in
this Agreement, it is agreed by and between the Employee
and the Corporation as follows:
1. EMPLOYMENT
<PAGE>
The Employee shall serve the Corporation as Vice President & General
Manager of the Nucleonics Division and shall perform such duties and
exercise such powers as may from time to time be assigned to or vested
in him by the senior management acting on the authority of the Board of
Directors. In the capacity of Vice President, the Employee shall
initially report directly to the Chief Operating Officer: it is
understood that the reporting structure for the Employee may change to
meet the Company's requirements and changing structure.
A current draft job description is attached in Appendix A which is
subject to change as the requirements of the Company change: the
Employee will work to finalize any changes the COO may have to this job
description when the COO joins in September 1998. In a senior role
there are no set working hours nor overtime or travel time as senior
employees are expected to dedicate as much time is required to fulfil
their responsibilities
This position is subject to reconfirmation by the Board every year
following or at the time of the Annual General Meeting and your
employment may be subject to transfers within the Company to meet the
Corporation's needs.
2. REMUNERATION
2.1 Salary and Bonus
Except as the Corporation and the Employee may otherwise agree, in
writing, the Employee shall be entitled to the following salary and
bonus arrangement:
(a) The Employee shall receive a base salary of $90,000
Canadian per annum paid in biweekly installments (the "base
salary"). The Base Salary shall be reviewed at least annually
by the Compensation committee of the Corporation's Board of
Directors to determine if an increase is appropriate, which
increases shall be in the sole discretion of the Corporation's
Compensation Committee: and
(b) The Employee shall be entitled to participate in an annual
Bonus Plan approved and subject to the final authority of the
Board of the Corporation. The Bonus Plan is based on the
achievement of Board approved performance targets set by
senior management following the completion of the budget
process for the year. On achievement of these annual targets
the Employee shall receive a sum equal to 20% of the
Employee's annual base salary. This sum is payable to
Employees annually following the completion of the audited
results for the Corporation. The basis for the Bonus Plan for
the last half of 1998 is set out in Appendix B.
(c) Subject to Board approval, the Employee may be entitled to
participate in a Super Bonus Plan based on incremental revenue
over and above the Divisional target. The Super Bonus Plan
will be determined by the senior management acting on the
Board's authority. The basis for the Super Bonus Plan for the
last half of 1998 is set out in Appendix B.
<PAGE>
2.2 Benefits
The Employee and his dependents shall be entitled to participation in
the benefits offered by the Corporation including, in particular, the
following benefits (the "Benefits"):
a) participation in the Corporation's medical and group
health insurance plan (the "Plan"); participation in
such improvement to the Plan as the Corporation may
introduce from time to time; it is expressly
understood and agreed that coverage under the Plan
should continue while the Employee is employed and,
subject to section 4 .3, for the twelve (12) month
period following termination under Section 4.2; and
b) Car allowance of $500.00 Canadian per month;
c) Health club membership allowance not to exceed
$50.00 Canadian per month upon presentation of valid
receipt; and
d) Continued participation in the Pension Plan.
2.3 Vacation
The Employee shall be entitled to four (4) week's paid vacation per
year. Such vacation will be taken at such time as is most convenient
(with approval of the Chief Operating Officer for any vacation time
more than a week in length or with less than a month of advance
notice), considering the demands of the business of the corporation and
the personal plan of the Employee. No vacation time will be carried
over from one calendar year to another.
2.4 Stock Option Plan
The Employee will receive options to buy 30,000 of the Corporations
shares under the IDS 1997 Stock Option Plan. The exercise price of
these options will be $2.00. The shares will vest over three years with
1/12 of the total options vesting at the end of every calendar quarter
starting from the completion of the first full calendar quarter ending
after the date of this contract. Thus every calendar quarter 2,500
options will vest and be exercisable.
3. EXPENSES
3.1 General
The Corporation shall reimburse the Employee for all traveling and
entertainment expenses and other disbursements actually and properly
incurred by him in connection with his duties hereunder or otherwise
properly incurred by him for and on behalf of the Corporation, upon
<PAGE>
presentation of reasonably acceptable evidence of the Employee having
incurred such expenses and disbursements.
4. TERMINATION OF EMPLOYMENT
4.1 Termination by Corporation for Cause
The employment of the Employee may be terminated at any time by notice
in writing from the Corporation to the Employee, for cause, in which
event the Employee shall not be entitled to a notice period or
compensation in lieu of notice. The Employee agrees that in determining
whether or not his termination has been for cause, the terms and
provision in the Scintrex Policies & Procedures Manual, as amended from
time to time, shall be binding and the employee acknowledges having
read and understood the aforementioned Manual.
4.2 Termination by Corporation Without Cause
The employment of the Employee may be terminated without cause at any
time by the Corporation upon twelve (15) months written notice or upon
payment to the Employee of a lump sum amount equivalent to twelve (15)
months cash compensation together with Group Health benefits
continuation for fifteen months.
4.3 Exception of Benefits Continuance
Notwithstanding Sections 2.2 and 4.2, to the extent that the
Corporation, acting reasonably, is unable to continue a particular
Benefit following the Employee's termination (which for instance, it
expects to be case with respect to long-term disability insurance and
accidental death & dismemberment insurance, if any), the Corporation
may, at its option, make one or more cash payments equal to the value
of the relevant benefit to the Employee or pay to the Employee the
amount that would have been required, as and when the same would have
been required, to maintain the relevant benefit in place had the
Employee continued to be employed by the Corporation.
4.4 Fair and Reasonable
The parties confirm that the provision contained in this Article 4 are
fair and reasonable and the parties agree that upon termination of this
Agreement pursuant to any of the provisions hereof, the Employee shall
have no action, cause of action, claim or demand against the
Corporation or any other person as a consequence of such termination,
so long as the Corporation fulfills its obligations hereunder. The
parties acknowledge that the terms of this Agreement constitute a
better benefit on account of termination pay and severance pay that the
minimum requirements of the Employment Standards Act.
4.5 Resignation by Employee
<PAGE>
In the event that the Employee decides on his own accord to resign from
IDS, it is agreed that he must give the Corporation 3 month's notice.
The Corporation at its discretion may decide to shorten this period to
a shorter period.
4.6 Termination in the Event of Disability
The Employee's employment with the Corporation may be terminated, upon
15 days written notice, and without notice or termination pay by reason
of the Employee's Disability. "Disability" means an illness or other
physical or mental disability or incapacity which, in the Corporation's
reasonable good faith judgement, has prevented the Employee from
substantially performing his duties during any period of ninety (90)
days during any period of one hundred and eighty (180) consecutive
days. Such Disability must be substantiated by a doctor's certificate
from a doctor referred to by the Corporation which suggests that the
Employee's Disability is likely to continue to prevent the Employee
from fulfilling his obligations under this agreement.
5 RETURN OF PROPERTY
Upon any termination of this Agreement, the Employee shall at once
deliver, or cause to be delivered, to the Corporation all books,
documents, effects, money, securities or other property belonging to
the Corporation (or any affiliate of the Corporation), or for which the
Corporation (or any affiliate of the Corporation), is liable to others,
which are in the possession, charge, care, control or custody of the
Employee.
6. COVENANTS OF EMPLOYEE
6.1 Non-Disclosure
The Employee shall not (either during the continuance of this
employment hereunder or at any time thereafter) disclose the private
affairs of the Corporation or any secrets of the Corporation to any
person other than the directors of the Corporation or for the
Corporation's purposes and shall not (either during the continuance of
this employment hereunder or at any time thereafter) use for his own
purpose or for any purposes other that those of the Corporation any
information he may acquire relating to the private affairs of the
Corporation or its trade information secrets. The Employee shall also
execute, in favor of the Corporation, the Corporations standard form of
Intellectual Property and Confidential Information Agreement.
6.2 Non Competition
The Employee covenants and agrees with the Corporation that he will not
(without the prior written consent of the Corporation) at any time
during his employment, or for a period of:
a) Fifteen (15) months following the date of the termination of his employment
by the
<PAGE>
Corporation without cause; or
b) Fifteen (15) months following the date of: (i) the termination of his
employment by the Corporation with cause or (ii) his resignation from employment
with the Corporation,
individually or in partnership or in conjunction with any person or
persons, firm, association, syndicate, company or corporation as
principal, agent shareholder or in any other manner whatsoever carry on
or be engaged in or be concerned with or interested in or advised, lend
money to, guarantee to the debts or obligations of or permit his name
or any part thereof to be used or employed by any person or persons,
firm, association, syndicate, company or corporation engaged in or
concerned with or interested in any business directly competitive with
the business being carried on by the Corporation presently and/or at
the time of such termination of employment, except as an officer,
director and/or Employee of the Corporation.
6.3 Non-Solicitation of Clients.
The Employee agrees that during the term of this Agreement, and for a
period of:
a) Twelve (12) months following the date of the termination of his employment by
the Corporation without cause; or
b) Twenty (24) months following the date of: (i) the termination of his
employment by the Corporation with cause or (ii) his resignation from employment
with the Corporation,
he shall not, directly or indirectly, contact or solicit any Clients of
the Corporation (as hereinafter defined) for the purpose of selling or
supplying to Clients of the Corporation any products or services which
are competitive with the products or services sold or supplied by the
Corporation at the time of the termination of this Agreement The term
"Client of the Corporation" in this Section 6.3 means any business or
organization that:
(i) Was a client or customer of the Corporation at the time of the termination
of this Agreement; or
(ii) Became a client or a customer of the Corporation
within six (6) months after the termination of this
Agreement if the Employee was involved with the
marketing efforts in respect of such client prior to
the termination of this Agreement.
6.4 Non-Solicitation of Employees
The Employee covenants and agrees that during the term of this
Agreement and for a period of:
<PAGE>
(a) Twelve (12) months following the date of termination of his employment by
the Corporation without cause; or
(b) Twenty Four (24) months following the date of (i) the
termination of his employment by the Corporation with cause or
(ii) his resignation from employment with the Corporation.
7.2 Number and Gender
In this Agreement words importing the singular number only shall
include the plural and vice versa and words importing the masculine
gender shall include the feminine and neuter genders and vice versa and
words importing persons shall include individuals, partnerships,
associations, trusts, unincorporated organizations and corporations and
vice versa.
7.3 Benefit of Agreement
This agreement shall ensure to the benefit of and be binding upon the
heirs, executors, administrators and legal personal representatives of
the Employee and the successors and permitted assigns of the
Corporation respectively.
7.4 Governing Law
This Agreement shall be governed by and construed in accordance with
the laws of the Province of Ontario and the Laws of Canada applicable
therein.
7.5 Entire Agreement
This Agreement, together with the separate Intellectual Property and
Confidential Information Agreement executed by the Employee in favor of
the Corporation, constitutes the entire agreement between the parties
with respect to the subject matter hereof and cancels and supersedes
any prior understandings and agreements between the parties hereto with
respect thereto. There are no representations, warranties, forms,
conditions, undertakings or collateral agreements, express, implied or
statutory between the parties other than as expressly set forth in this
Agreement.
7.6 Severability
If any provision of this agreement is determined to be invalid or
unenforceable in whole or in part, such invalidity or unenforceability
shall attach only to such provision or part there of and the remaining
part of such provisions and all other provisions hereof shall continue
in full force and effect.
7.7 Notice
<PAGE>
Any demand, notice or other communication (hereinafter in this Section
7.7 referred to as a "communication") to be given in connection with
this Agreement shall be given by personal delivery or transmitted by
telecopier or other form of recorded communication, tested prior to
transmission to such party, addressed to the recipient as follows:
Jay Sarkar
237 Badessa Circle
Thornhill
Ontario
L4J6C9
To the Corporation at:
#1 First Canadian Place
100 King Street West
Suite 7070
Toronto, Ontario
M5X 1B5
Attention: The Board of Directors
or such other address or individual as may be designated by notice by
either party to the other. Any Communication given by personal delivery
shall be conclusively deemed to have been given on the day of actual
delivery thereof and, if made or given by or transmitted by telecopier
or other form of recorded communication shall be deemed to have been
given and received on the date of its transmission provided that if
such date is not a business day or if it is received after the end of
the normal business hours on the date of its transmission then shall be
deemed to have been given and received at the opening of business in
the office of the addressee on the first business day next following
the transmission hereof. For the purpose of this Agreement, a business
day shall mean any day other than Saturday, Sunday or statutory holiday
in the Province of Ontario.
Any party may change its address for service from time to time by
giving seven (7) days' notice to the other party in accordance with the
foregoing.
7.8 Independent Legal Advise
The Employee acknowledges that he has had the opportunity to obtain independent
legal advise arid: a) that he has been fully informed as to his rights and
obligations under the terms of this Agreement; and b) with such knowledge, he
has executed this agreement freely and voluntarily and without any duress.
<PAGE>
IN WITNESS WHEREOF the parties have executed this Agreement.
SIGNED, SEALED AND DELIVERED
in the presence of
Witness
/s/Jay Sarkar /s/Sanje Ratnavale, COO
Jay Sarkar IDS Intelligent Detection Systems Inc.
Mariusz Rybak
Chairman, IDS
Sept. 29, 98
Dated:
<PAGE>
Appendix A
DRAFT JOB DESCRIPTION FOR VP NUCLEONICS
DIVISION OF IDS
TITLE: Vice President & General Manager of the Nucleonics Division, IDS
REPORTS TO: Chief Operating Officer of IDS.
JOB DESCRIPTION: The General Manager of
Nucleonics Division shall be a
member of the senior management team
of the company. He or she shall be
responsible for the overall
excellence of the Sales and
Marketing, Customer Service and
Engineering efforts of his
department.
RESPONSIBILITIES: Amongst the various duties, responsibilities and activities,
the General Manager shall be responsible for:
o preparation of an annual budget
which includes strategic sales,
marketing and engineering
planning that goes with it for
acceptance and approval of the
COO.
o responsible for ongoing business
development initiatives o prepare
quota & commission plans for sales
personnel (as
part of above)
o timely execution of sales marketing programs
o collaborating with the manufacturing operations of the Company to minimize
working capital employed in serving the division's needs, particularly through
timely scheduling of production to meet sales requirements
o staffing and evaluations of
division personnel o evaluation and
proposing of potential engineering
projects o maintaining competitive
information database o developing
sales & marketing literature o
launching new products and services
o responsible for ensuring that a high level of quality, service and
profitability are maintained in the Customer Service Department.
o review and approve offers made by sales people
DUTIES: o proposing new products and ideas to expand the company's product
offering
o collaborative supervision of related engineering projects
<PAGE>
o timely reports of sales results o
maintain competitive information
database o conducting performance
reviews for staff o supervising lead
generation and follow-ups o
maintaining database for sales o
assisting in the overall computer
upgrade of the systems and
IDS
o review and approve commission statements of sales people with accounting
o international travel for sales & marketing purposes
o ongoing evaluation of advances and changes in technology as it relates to IDS,
its customers and competitors
o attendance at various conferences and presenting technical papers o other
duties assigned to you by the COO
o engineering proposals requiring more than
$25,000.00 of resources shall have a formal project plan including engineering
costs and sales projections etc. for review and approval by the President
OTHER: o training of sales/marketing personnel for the Division
AUTHORITY: o to sign and approve unbudgeted purchases up to $2,000
o to sign and approve travel requisitions in emergency situations for the
Division
o to approve trade show booths and related expenditures, providing they have
been budgeted for up to $5,000
o to hire personnel for the Division, subject to budgets and approvals, or in
special cases in consultation with the COO except for senior division managers
reporting to General Manager
o to sign and approve budgeted expenditure for advertising & marketing materials
subject to budgetary approval to $5,000
It is understood that the nature of the responsibilities of the Employee will
change as the requirements of IDS change.
<PAGE>
Appendix B
BONUS PLAN FOR SECOND HALF 1998
Objective: To motivate senior management and employees to meet the budget for
the second half of the year
Plan: The Corporation will pay a bonus to
the Employee of 20% of the salary
earned by the Employee in the period
July 1st to December 31st 1998. The
amount of the Bonus Sum payable will
be dependent on the achievement of
the following condition(s).
Conditions: 1. One third of the Bonus Sum will be payable on achieving the
Nucleonics Divisional Revenue target for the Second Half of 1998
2. Two thirds of the Bonus Sum will
be payable on achieving the
Nucleonics Divisional Earnings
before tax target for the Second
Half of 1998
SUPER BONUS PLAN FOR SECOND HALF 1998
Subject to meeting the division's budgeted earnings before tax for the period,
for every dollar above the divisional revenue target for the second half, the
Employee will be entitled to the difference between the target and the actual
audited revenue figure according to the following percentages:
Up to $500,000 above Budgeted divisional revenue 1%
Between $500,000 and $1M above Budgeted divisional revenue 2%
Between $1M and $2M above Budgeted divisional revenue 3%
Above $2M above Budgeted divisional revenue 5%
<PAGE>
August 19th, 1999
Mr. Adrian Van Vroenhoven
53 Doonaree Drive
Toronto, Ontario
M3A 1M5
Telephone 416 444-8523
Re: Offer of Employment - Chief Financial Officer- IDS Intelligent Detection
Systems Inc.
Dear Adrian,
We are pleased to make an offer of employment to you for your consideration, for
the position of Chief Financial Officer, reporting to the Chief Executive
Officer, ("the Company").
Your starting salary shall be $120,000.00 per annum ($4,615.38 bi-weekly) gross.
You will be entitled to the health and insurance benefits offered to employees
upon completion of a three-month waiting period. You will be entitled to three
(3) weeks vacation with pay annually which must be taken at times mutually
convenient to you and the Company. You may not carry forward vacation time from
one year to the next.
You shall be entitled to participate in an annual Bonus Plan approved and
subject to the final authority of the Board of the Corporation. The Bonus Plan
is based on the achievement of reasonable and ascertainable, Board approved,
annual performance targets set by senior management following the completion of
the budget process for the year. On achievement of these annual targets you
shall receive a sum equal to 20% of your annual base salary. This sum is payable
to you annually following the completion of the audited results for the
Corporation. The Bonus will be payable only on the achievement of the Budgeted
Corporate Earnings Before Tax Target. All bonus payments are contingent upon
successful completion of a six month probationary period outlined below.
You will receive options to buy 5,000 of the Corporations shares under the IDS
1997 Stock Option Plan. The exercise price of these options will be the market
price at the close of trading on August 20th, 1999. The options will vest over
one year and will therefor be exercisable on August 20, 2000. You will be
eligible to participate in future employee stock option grants at a level
commensurate with your position.
You shall serve the Corporation as Chief Financial Officer of IDS and shall
perform such duties and exercise such powers as may from time to time be
assigned to or vested in you by the senior management acting on the authority of
the Board of Directors. It is understood that you shall report directly to the
C.E.O. and the Board of Director's and that this reporting structure may change
to meet the Company's requirements and changing structure. A current draft job
description is attached in Appendix A which is subject to change as the
requirements of the Company change. In a senior role there are no set working
hours nor overtime or travel time as senior employees are expected to dedicate
as much time as is required to fulfil their responsibilities.
<PAGE>
In making this offer, we are relying on your representation that you will not,
by joining the Company, breach any non-disclosure, proprietary rights or
non-competition covenants in favor of any other person. You agree to devote your
entire employable time, ability and attention to the Company's business and
shall use your best efforts to promote the interest of the Company. It is
understood and agreed that you shall not, during your period of employment,
engage in any other business or employment which may detract from the full
performance of your duties without the prior written consent of the Company.
You will be required to sign an Intellectual Property and Confidential
Information Agreement in the form attached.
During the first six (6) months of employment with the Company, your status will
be that of a probationary employee. During this period of time, your suitability
as an employee of the Company will be evaluated as well as your skills and
abilities in meeting the requirements of the job. It is understood and agreed
that the Company will be the sole judge of your suitability, skills and ability,
etc., and it is acknowledged, by your acceptance of this offer that, at any time
during the first three (3) months of the probationary period, the Company may
terminate your employment without notice and such termination shall be deemed to
be for just cause.
The Company may terminate your employment at any time without cause upon
providing you with written notice or, at the Company's option, pay in lieu of
notice plus applicable statutory severance in accordance with and limited to the
provisions of the Employment Standards Act (Ontario), as such statute may be
amended from time to time. The Company may terminate your employment without
notice or compensation at any time for cause. You may terminate your employment
with the Company upon providing four (4) weeks written notice to the Company.
The Company has established a set of policies by which it operates. These
policies are identified in the IDS Policy Manual. As an employee of IDS, you are
required to operate according to the policies. The Policy Manual will be made
available to you by your Supervisor or the Manager of Human Resources. Although
the standard office hours are from 8:30 a.m. to 5:00 p.m., senior employees are
expected to dedicate as much time as is required to fulfil their
responsibilities.
This letter agreement, including the attached Intellectual Property and
Confidential Information Agreement, constitutes the entire agreement between us
with respect to your employment with the Company and no other representations,
negotiations or conditions, either verbal or written, shall be of any force or
effect except as expressly agreed to in writing between us.
This offer remains valid until Friday August 20th, 1999 at 2:00 p.m. Please
indicate your agreement to these terms by signing below, returning one (1) copy
to the Company and retaining one (1) for your records. We would like to start on
Monday, August 30th 1999 at 8:30 a.m.
We look forward to having you commence employment with IDS Intelligent Detection
Systems. We feel your experience will provide needed expertise in our
operations, and in turn, believe the company can provide you with opportunities
for personal and professional growth.
<PAGE>
Very truly yours,
/s/Mariusz Rybak
Dr. Mariusz Rybak
President, Chairman
IDS Detection Systems Inc.
Offer of Employment - August 19th, 1999.
Adrian van Vroenhoven
<PAGE>
I have read and understood the terms of employment set out above. I have
considered the adviser of my choice or I have considered the terms of my
employment set out above and have decided not to seek advice. I accept and agree
to abide by the terms of employment in this letter agreement.
Dated at Toronto, this 20 day of August, 1999.
/s/Adrian Van Vroenhaven Tues. Aug. 31/99
AdrianVan Vroenhoven Start Date
<PAGE>
APPENDIX A
DRAFT JOB DESCRIPTION Chief Financial Officer of IDS.
Reporting To: Chief Executive Officer
Responsibilities:
1. All Management and Corporate Accounting for IDS and related subsidiaries for
both internal and public disclosure purposes.
* Cost Accounting
* Financial performance analysis
* Treasury Functions
* Accounts Payable
* Accounts Receivable
* Payroll
* Investor Relations
* Management of General Ledger and all sub-ledgers
* Computer Systems and M.I.S.
* Managing all accounting personnel
2. You shall be responsible for the setting up and maintaining of Cost
Accounting, Management Reporting and control systems across the company as
related to:
(a) Control of and authorization of expenditures
(b) Tracking, reporting, and analyzing of costs (i.e. setting up a
standard cost system). (c) Tracking, reporting and analyzing the
working capital employed in and the cash flow
of each division of the Company
1. Financial database management and reporting with analysis and
comparisons against budget and related objectives on a monthly
and quarterly basis.
2. Work closely with the CEO and other IDS executives and
employees as related to the development and implementation of
business plans, objectives and the reporting against these
plans.
3. Work closely with IDS management and employees to develop
applications for funding by third parties as related to
Research and Development and special grants, third parties,
etc.
4. Other related Finance and Administration functions as may be
required by the CEO from time to time.
<PAGE>
It is understood by the Employee that the nature of the responsibilities of the
Employee will change as the requirements of IDS change.
<PAGE>
INTELLIGENT DETECTION SYSTEMS
Appendix B
IDS Intelligent Detection Systems
Intellectual Property and Confidential Information Agreement
This is an Agreement between IDS Intelligent Detection Systems and its
subsidiaries and affiliates (hereinafter called "Company") and myself. It
supersedes all previous agreements, if any, between the Company and myself with
respect to the subject matter of this Agreement.
I recognize that the Company is engaged in a continuous program of research and
development and the marketing of products incorporating such research and
development, and that the Company also provides technical support, consultation
and training services relating to those products. I also recognize the
importance of protecting the Company's trade secrets, confidential information
and other proprietary information and related rights acquired through the
Company's expenditure of time, effort and money .
Therefore, in consideration of the Company retaining me as an employee,
independent contractor or otherwise to perform work on its behalf (hereinafter
called "Engagement"), I make the following representations and agree to the
following terms and conditions of my Engagement:
1. Definitions
For purposes of this Agreement:
(a) "Confidential Information" includes any of the following:
i) any and all versions of the software and related documentation
owned or marketed by the Company, as well as the software and
documentation owned by the Company's suppliers and used
internally by the Company, including all related algorithms,
concepts, data, designs, flowcharts, ideas, programming
techniques, specifications and source code listings;
ii) all Developments (as defined below);
iii) information regarding the Company's business operations,
methods and practices, including marketing strategies, product
pricing, margins, hourly rates, per diems and
iv) information regarding the financial affairs of the Company;
v) the names of the Company's clients and the names of the
suppliers of computer services and software to the Company,
and the nature of the Company's relationships with these
clients and suppliers;
<PAGE>
vi) Company obtained in order for the Company to provide such
clients with software products and services, including
information regarding the data processing requirements and the
business operations, methods and practices and product plans
of such clients; and
vii) any other trade secret or confidential or proprietary
information in the possession or control of the Company, but
Confidential Information shall not include information which:
1) is or becomes generally available to the public without my fault;
2) is lawfully obtained by me from a third party or parties unconnected
with the Company, without breach of any confidentiality obligations;
or
3) is disclosed under operation of the law.
(b) "Developments" include, without limitation:
i) all software, documentation, source code listings, flowcharts,
drawings, specifications, user manuals, procedures, databases,
compilations, designs, reports, trade-marks and any related
works, including any enhancements, modifications, or additions
to the foregoing or to any products owned, marketed or used by
the Company, and
ii) all inventions, devices, discoveries, concepts, ideas,
algorithms, formulae, know-how, processes, techniques, systems
and improvements, whether patentable or not, which relate,
directly or indirectly, to the business of the Company or any
of my Engagement activities and which are developed, created,
generated or reduced to practice by me, alone or jointly with
others, during my Engagement with the Company, whether during
or after working hours and whether or not resulting from the
use of the premises or property of the Company.
2. Non-Disclosure of Confidential Information
At all times during and subsequent to the termination of my Engagement
with the Company, I shall keep in strictest confidence and trust the
Confidential Information, I shall take all necessary precautions against
unauthorized disclosure of the Confidential Information, and I shall not
directly or indirectly disclose, allow access to, transmit or transfer the
Confidential Information to a third party, nor shall I copy or reproduce the
Confidential Information except as may be reasonably required for me to perform
my duties for the Company.
3. Restricted Use of Confidential Information
a) At all times during and subsequent to the termination of my Engagement with
the Company I shall not use the Confidential Information in any manner except as
reasonably required for me to perform my duties for the Company.
<PAGE>
b) Without limiting my obligations under subsection 3 (a), I agree that at all
times during and subsequent to the termination of my Engagement with the Company
I shall not use or take advantage of the Confidential Information for creating,
maintaining or marketing, or aiding in the creation, maintenance or marketing,
of any software which is competitive with any software owned or marketed by the
Company.
c) Upon the request of the Company, and in any event upon the termination of my
Engagement with the Company, I shall immediately return to the Company all
materials, including all copies in whatever form, containing the Confidential
Information which are in my possession or under my control.
4. Ownership of Confidential Information
a) I acknowledge and agree that I shall not acquire any right, title or interest
in or to the Confidential Information.
b) I agree to make full disclosure to the Company of each Development promptly
after its creation. I hereby assign and transfer to the Company, and agree that
the Company shall be the exclusive owner of, all of my rights, title and
interest, to each Development throughout the world, including all trade secrets,
patent rights, copyrights and all other intellectual property rights therein. I
further agree to cooperate fully at all times during and subsequent to my
Engagement with respect to signing further documents and doing such acts and
other things reasonably requested by the Company to confirm such transfer of
ownership of rights, including intellectual property rights, effective at or
after the time the Development is created and to obtain patents or copyrights or
the like covering the Developments. I agree that the obligations in this clause
b) shall continue beyond the termination of my Engagement with the Company with
respect to Developments created during my Engagement with the Company.
c) I agree that the Company, its assignees and their licensees are not required
to designate me as the author of any Developments. I hereby waive in whole all
moral rights which I may have in the Developments, including the right to the
integrity of the Developments, the right to be associated with the Developments,
the right to restrain or claim damages for any distortion, mutilation or other
modification of the Developments, and the right to restrain use or reproduction
of the Developments in any context and in connection with any product, service,
cause or institution.
5. No Conflicting Obligations
a) I acknowledge and represent to the Company that my performance during the
period of my Engagement with the Company shall not breach any agreement or other
obligation to keep confidential the proprietary information of any prior
employer of mine or any other third party. I further acknowledge and represent
that I am not bound by any agreement or obligation with any third party which
conflicts with any of my obligations under this Agreement.
b) I represent and agree that I will not bring to the Company, and shall not use
in the performance of my work with the Company, any trade secrets, confidential
information and other information of
<PAGE>
any prior employee of mine or any other third party. I represent and agree that
in my work creating Developments I will not knowingly infringe the intellectual
property rights, including copyright, of any third party.
6. Enforcement
I acknowledge and agree that damages may not be an adequate remedy to compensate
the Company for any breach of my obligations contained in this Agreement, and
accordingly, I agree that in addition to any and all other remedies available,
the Company shall be entitled to obtain relief by way of a temporary or
permanent injunction to enforce the obligations contained in this Agreement.
7. General
a) This Agreement shall be governed by and construed in accordance with the laws
in force in the Province of Ontario and any laws of Canada applicable thereto.
If any provision of this Agreement is wholly or partially unenforceable for any
reason, such unenforceable provision or part thereof shall be deemed to be
omitted from this Agreement without in any way invalidating or impairing the
other provisions of this Agreement In this Agreement any reference to a
termination of Engagement shall include termination for any reason whatsoever
and with or without cause.
b) The obligations herein may not be changed or modified, released or
terminated, in whole or in part, except in writing signed by an officer of the
Company and me.
c) The rights and obligations under this Agreement shall survive the
termination of my Engagement and shall ensure to the benefit of and shall be
binding upon i) my heirs and personal representative and ii) the successors and
assigns of the Company.
d) I HAVE READ THIS AGREEMENT, UNDERSTAND IT, HAVE HAD THE OPPORTUNITY TO OBTAIN
INDEPENDENT LEGAL ADVICE IN RESPECT OF IT, AND I AGREE TO ITS TERMS. I
acknowledge having received a fully executed copy of this Agreement.
IN WITNESS WHEREOF. this Agreement has been executed by me and the Company as
of the 20 day of August, 1999.
SIGNED, SEALED AND DELIVERED in the presence of:
Employee IDS Intelligent Detection Systems
/s/Adrian Van Vroenhaven /s/Ed Quinton
Adrian Van Vroenhoven Ed Quinton, Human Resources Manager
<PAGE>
AMENDMENT TO LICENSE AGREEMENT
Effective April 13, 1995 (the "Effective Date"), Research Corporation
Technologies, Inc. ("RCT") and CPAD Holdings Ltd. ("CPAD") agree as follows:
ARTICLE I
BACKGROUND
SECTION 1.1. LICENSOR and LICENSEE are parties to that certain License
Agreement made effective September 1, 1988, which has been restated and amended
by that Revised License Agreement made effective September 1, 1988 and last
signed January 31, 1989 (collectively, the "License Agreement").
SECTION 1.2. In connection with a transaction whereby control of
LICENSEE has been assumed by another party, LICENSEE and LICENSOR agree to amend
the License Agreement as set forth in this Amendment Agreement.
ARTICLE II
AMENDMENTS
SECTION 2.1. Amendment to Article 1. Article 1(0 of the License
Agreement is hereby amended by changing it to read in its entirety as follows:
(f) "LICENSED HELD" means the making, using, and selling of LICENSED PRODUCTS in
all fields of use without restriction.
SECTION 2.2. Amendment to Article 1. Article 1 of the License
Agreement is hereby amended by adding at the end thereof the following new
Article 1(dd):
(dd) "LICENSED TERRITORY" means the world.
SECTION 2.3. Amendment to Article 3. Article 3 of the License
Agreement is hereby amended by changing it to read in its entirety as follows:
"Subject to the provisions of ARTICLES 9 and 13 hereof, the license
herein granted under the PATENT RIGHTS and Technical Information shall
be exclusive to LICENSEE in the LICENSED FIELD in that LICENSOR agrees
not to grant to a third party a license under the PATENT RIGHTS or the
Technical Information in the LICENSED HELD for the period of time
extending from the Effective Date until the expiration of the PATENT
RIGHTS."
1
<PAGE>
SECTION 2.4. Amendment to Article 5. Article 5 of the License
Agreement is hereby amended by changing Article 5(a) to read as follows:
"LICENSEE shall pay to LICENSOR Annual Minimum Royalty Payments for
the Licensed Territory in the amount of $5000, the first such payment
due April 30, 1996, and subsequent payments due on February 14 of each
year thereafter during the time that this License Agreement is in
effect."
SECTION 2.5. Deletion of SCHEDULE C. The License Agreement is hereby
amende by deleting SCHEDULE C, entitled "Schedule of Annual Minimum Royalty
Payments," in its entirety.
SECTION 2.6. Forgiveness of Past Amounts Due. LICENSOR hereby forgives
any and all payments of any type whatsoever due under the License Agreement
before the Effective Date of this Amendment that LICENSEE has failed to make
except that LICENSEE shall pay to LICENSOR,? in respect of deferred Annual
Minimum Royalty Payments $23,130 as follows: (a) $10,000 on or before April 30,
1996; and (b) $13430 on or before April 30, 1997.
SECTION 2.7. Amendment to Article 7. Article 7(b) of the License
Agreement is hereby amended to read in its entirety as follows:
(b) LICENSOR shall use reasonable efforts to prosecute any patent
applications within the PATENT RIGHTS, to obtain patents thereon, and
to maintain any such patents. LICENSOR shall have the right in its
sole discretion to discontinue the prosecution of any such patent
application or to abandon any such patent. If LICENSOR intends to
abandon or discontinue the prosecution or maintenance of any patent or
patent application, LICENSOR shall notify LICENSEE in writing sixty
days before effecting such abandonment or discontinuance and give
LICENSEE the opportunity to continue such prosecution and maintenance
at its own expense.
SECTION 2.8. Amendment to Article 8. Article 8(e) of this Agreement is
hereby amended by adding the following sentence to the end of Article 8(e):
"LICENSEE'S obligations to so report shall be suspended for so long as LICENSOR
has a representative on LICENSEE'S Board of Directors."
SECTION 2.9. Amendment to Article 11. Article 11 of the License
Agreement is hereby amended by changing it to read in its entirety as follows:
2
<PAGE>
ARTICLE 11. INFRINGEMENT
SECTION 11.1. Statement of Interests.
Subsection 11.1.1. LICENSOR's Right. LICENSEE recognizes that the
right to sue for infringement of the PATENT RIGHTS is LICENSOR's sole right, as
assignee of the PATENT RIGHTS, and that LICENSOR does not intend to grant such a
right to LICENSEE, except to the extent expressly granted in this ARTICLE W.
LICENSEE further recognizes that LICENSOR has no duty to pursue infringers
except as expressly provided herein.
Subsection 11.1.2. Both Parties' Interests. LICENSOR recognizes that LICENSEE
will make significant investment in commercializing PATENT RIGHTS, that LICENSEE
has an interest in protecting its market share of the USE and SALE of LICENSED
PRODUCTS in each country covered by the PATENT RIGHTS, and that LICENSEE is
licensing the PATENT RIGHTS, in party to protect such market share. LICENSEE
recognizes that LICENSOR, as assignee of the PATENT RIGHTS, has an interest in
preventing infringement of the PATENT RIGHTS, and has the additional concern of
not exposing the PATENT RIGHTS to a third party's charge of invalidity, where
the nature or extent of infringement does not justify such risk as defined by
Subsection 11.3.2. The parties agree to take into account each party's interest
in formulating the response to infringement or threatened infringement of the
PATENT RIGHTS.
Subsection 11.1.3. Cooperation and Communication. During the
preparation and pendency of any proceeding taken or instituted by a party under
this ARTICLE, the instituting party shall cooperate with the other party by: (a)
keeping the other party reasonably informed as to the status of such proceeding
including providing copies of all documents filed in, and written communications
relating to, such proceeding to the extent the interest of LICENSOR and LICENSEE
are not adverse; (b) consulting with the other party regarding the strategy for,
and status of, such proceeding, including providing the other party with an
opportunity to make suggestions and comments regarding such proceeding. Any of
the foregoing obligations shall be subject to each party's desire or need to
preserve any attorney-client privilege, or work-product privilege, which shall
take precedence.
SECTION 11.2. Notification and Meeting. If either party learns that a
third party (the "Infringer") is:
(a) SELLING or threatening to SELL in a country within the PATENT
RIGHTS infringing products in competition with LICENSEE'S, its
AFFILIATE'S or a SUBLICENSEE'S SALE of LICENSED PRODUCTS in the same
country;
3
<PAGE>
(b) inducing or contributing to any of the foregoing infringing
activities; then, that party shall notify the other party, in
writing, of such infringing activity. As soon as possible thereafter,
the parties shall convene a meeting at which they shall discuss all
available evidence of such infringement and the manner of addressing
such infringement, including possibly preventing and/or stopping
infringing activities (for example, by way of seeking a preliminary
injunction) and preserving the parties' rights to past and future
damages (for example, by way of sending a cease and desist letter).
The parties may agree to pursue the Infringer jointly, sharing
attorneys and costs, or may decide to designate either party as
controlling party of any lawsuit. If the parties are unable to
expressly agree otherwise as to the manner of addressing such
infringement, the provisions of SECTIONS 11.3 through 11.6,
inclusive, shall govern the parties' respective rights and any legal
proceedings taken in connection with such infringement.
SECTION 11.3. Infringement Compelling Action by LICENSOR.
Subsection 11.3.1. Evidence of Infringement. If, at the meeting
described in SECTION 11.2, either party presents prima facie evidence of the
Infringer conducting any of the infringing activities described above, and, in
the case of activities described in SECTION 11.2 (b), evidence indicating that
such infringement involves significant quantities of infringing products, then,
LICENSOR at LICENSOR's sole expense, may either:
(a) cause such infringement to terminate; or
(b) initiate legal proceedings (which for purposes of this ARTICLE VI
include lawsuits, settlement discussions or negotiations, mediation,
and arbitration) against the Infringer. Such procedure shall not
compromise LICENSEE'S exclusivity rights under this Agreement without
LICENSEE'S prior written consent.
Evidence of such infringement may be in the form of a written opinion from a
party's outside legal counsel that such activities of the Infringer constitute a
prima facie case of infringement of the PATENT RIGHTS, which opinion is
reasonably acceptable to LICENSOR. If the infringement involves significant
quantities of infringing products, the evidence shall be reasonably probative in
demonstrating to LICENSOR'S reasonable satisfaction that the Infringer's level
of SALES of infringing products in such country compete with LICENSEE'S SALES of
LICENSED PRODUCTS in such country and constitute significant quantities of
infringing products. Reasonably probative evidence might include, but is not
limited to, a showing of a comparable detrimental effect on LICENSEE's SALES of
LICENSED PRODUCTS, which detriment is reasonably attributable to the third
party's sales or trustworthy evidence of the amount of sales to customers of
prospective customers of LICENSEE concerning the amount of their purchases from
such third party.
Subsection 11.3.2. Significant Quantities. "Significant quantities"
means sales of products by the Infringer in the country in which such
infringement is occurring within the immediately preceding twelve months before
the date of the written notice for a meeting
4
<PAGE>
under SECTION 11.2 above, which sales have a NET SALES VALUE greater than
$250,000.00 (or its equivalent in the currency of the pertinent country).
SECTION 11.4. LICENSEE's Rights If the conditions in Subsection 11.3.1
have been met but LICENSOR has failed to undertake to perform the actions
contemplated by Subsection 11.3.1 on or before the date three (3) months after
the date of the SECTION 11.2 meeting, then LICENSEE shall have the right, at
LICENSEE's sole expense, to take any of the actions contemplated in Subsection
11.3.1 in its own name, and the right to notify the Infringer that such
activities are or may constitute infringement of a claim of a patent in the
PATENT RIGHTS and that any such infringement should be discontinued. Nothing in
this ARTICLE 11 shall preclude LICENSOR from exercising, at any time, any right
it may have as assignee of the PATENT RIGHTS. Any action taken by LICENSEE under
this SECTION shall be further governed by SECTION 11.6 below. For purposes of
seeking immediate injunctive relief, such as a temporary restraining order, to
stop such infringement, the ninety day period shall be reduced to five business
days.
SECTION 11.5. Control of Suit Initiated by LICENSOR
Subsection 11.5.1. Generally. If LICENSOR institutes suit or other
legal proceedings to protect or enforce the PATENT RIGHTS, LICENSOR shall have
sole control of such suit or other proceedings and shall pay all expenses of
such suit or proceeding, including without limitation, attorney's fees and court
costs.
Subsection 11.5.2. LICENSEE's Right to Participate. LICENSEE shall
have the right to participate in such suit or proceeding at its own expense to
the extent it wishes to seek damages based on the infringement. Nonetheless,
LICENSOR shall have sole control over any issues of validity or scope of any
PATENT CLAIM. If LICENSEE participates in such suit, both parties shall
cooperate with each other as provided in Subsection 11.1.3 above but each to
bear its own expense.
Subsection 11.5.3. Sharing of Awards. LICENSOR shall be entitled to
keep all damages that it asserted and was awarded in such suit or proceeding. If
LICENSEE participates in such suit or proceeding, LICENSEE shall have the right
to keep any damages that it asserted and was awarded. If LICENSEE participates
in such suit or -legal proceeding, punitive damages awarded shall be retained by
the party to whom such damages are awarded or, if the parties are jointly
awarded punitive damages, such damages shall be shared in the proportion that
each party's normal damages bear to the total damages awarded to LICENSOR and
LICENSEE, collectively.
SECTION 11.6. Control of Suit Initiated by LICENSEE.
Subsection 11.6.1. Responsibility and Legal Counsel. If LICENSEE takes
any action under this ARTICLE 11 that results in legal proceedings relating to
the PATENT RIGHTS, LICENSEE shall assume the responsibility for such legal
proceedings at LICENSEE's sole expense. LICENSEE acknowledges that LICENSOR, as
assignee of the PATENT RIGHTS,
5
<PAGE>
may be a necessary party to any suit or legal proceeding brought by LICENSEE
concerning the infringement of the PATENT RIGHTS. In that event, and if LICENSOR
so requests, LICENSEE's legal counsel shall represent LICENSOR, at LICENSEE's
expense, in any such legal proceedings. If LICENSEE's legal counsel is unable to
represent LICENSOR because of a conflict: of interest or other bona fide reason,
LICENSOR may engage other competent legal counsel, at LICENSEE's expense, to
represent LICENSOR in any such suit or legal proceeding. If LICENSOR does not
wish to be represented by LICENSEE's legal counsel for reasons other than a
conflict of interest or other bona fide reason, LICENSOR may engage competent
legal counsel of its own choosing to represent LICENSOR at LICENSOR's own
expense. "Represent LICENSOR" means that LICENSEE's legal counsel will, in
addition to serving the interests of LICENSEE, serve the interests of LICENSOR
in, inter alia, defending the PATENT RIGHTS, defending LICENSOR from
counterclaims brought against LICENSOR by the Infringer, furthering LICENSOR's
economic and legal interests in the litigation, advising and communicating with
LICENSOR regarding strategy, direction and status of the litigation.
Subsection 11.6.2. Discontinuance or Settlement. LICENSEE shall not
discontinue or settle any such proceedings brought by it without obtaining the
concurrence of LICENSOR and giving LICENSOR a timely opportunity to continue
such proceedings in its own name, under its sole control, and at its sole
expense if such discontinuation or settlement is not acceptable to LICENSOR.
Such concurrence shall not be withheld unless the discontinuation or settlement
will result in the invalidity, unenforceability or reduction in scope of any
claim in a patent of the PATENT RIGHTS or compromise LICENSOR's right to receive
reasonable compensation for such infringement or any future infringement.
Subsection 11.6.3. Sharing of Awards. After deducting from any award
or recovery in such suit or legal proceeding all out-of-pocket expenses incurred
by LICENSEE in such suit or legal proceedings, LICENSEE shall then pay to
LICENSOR out of any recovery and damages awarded, including without limitation
punitive damages, the amount of royalties that would have been paid by LICENSEE
to LICENSOR had such infringing products been SOLD by LICENSEE at LICENSEE's
customary price for such product in the countries in which such infringing
products were SOLD by the Infringer. LICENSEE shall then be entitled to retain
for its own account the balance of such recovery awarded as damages. Punitive
damages awarded and remaining, if any, shall be retained by the party to whom
such damages are awarded or, if the parties are jointly awarded punitive
damages, such damages shall be shared in the proportion that each party's normal
damages bear to each other.
Subsection 11.6.4. Indemnity. LICENSEE shall indemnify, defend
LICENSOR and hold LICENSOR harmless from any and all claims, damages or other
obligations arising out of or resulting from any such claim or legal proceedings
instituted by LICENSEE. The foregoing indemnity shall not apply to the extent
LICENSOR incurs claims, damages, or obligations because LICENSOR elected to
continue the proceedings in its own name as contemplated under Subsection
11.6.2. above. The foregoing indemnity shall not apply to the extent such
claims, damages, or obligations are based on the actions of LICENSOR.
6
<PAGE>
SECTION 2.10. Amendment to Article 14. Article 14 of the License
Agreement is hereby amended in its entirety to read as follows:
"If, during the term of this Agreement, LICENSOR acquires a right to
grant licenses under any IMPROVEMENT PATENT, LICENSOR shall promptly
notify LICENSEE of such fact and such IMPROVEMENT PATENT shall
automatically be added to the provisions of this Agreement. Any
royalty due under this Agreement shall continue to be paid but with
the understanding that only one and the same royalty shall be paid
hereunder even if a LICENSED PRODUCT is covered by more than one
patent in the PATENT RIGHTS."
ARTICLE III
CONTINUED EFFECT
Except as specifically amended herein, the License Agreement shall
continue in full force and effect unchanged.
IN WITNESS WHEREOF, the parties have each caused a duly authorized
representative to sign this Amendment Agreement on their behalf to be effective
the Effective Date.
RESEARCH CORPORATION TECHNOLOGIES, INC.
By: /s/Timothy J. Reckart
Timothy . J. Reckart, Secretary and General Counsel
CPAD HOLDINGS LTD.
By: /s/Mariusz Rybak
Mariusz Rybak, President and CEO
7
<PAGE>
AMENDMENT TO LICENSE AGREEMENT
AGREEMENT made effective the 1st day of September, 1988, by and between
RESEARCH CORPORATION TECHNOLOGIES, INC., a not--for--profit corporation
organized under the laws of the State of Delaware, (hereinafter called
"LICENSOR"), having a principal office at 6840 East Broadway Boulevard, Tucson,
Arizona 85710, U.S.A., of the one part,.and CPAD HOLDINGS LTD., a corporation
organized under the laws of the Province of Ontario, Canada, (hereinafter called
"LICENSEE") , having a principal place of business at Unit 8, Antares Drive,
Nepean, Ontario K2E 7Y4, Canada, of the other part.
WITNESSETH THAT:
WHEREAS, LICENSEE and LICENSOR have entered into a certain license
agreement dated the 1st day of September, 1988, hereinafter called the "License
Agreement," relating to certain Technical Information and PATENT RIGHTS, as
therein defined, including United States Patent No. 4,777,363, issued October
11, 1988; and
WHEREAS, LICENSOR and LICENSEE desire that the License Agreement be
amended as hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the faithful
performance of the covenants herein contained, IT IS AGREED:
I. Delete the original License Agreement in its entirety and substitute
therefor the Revised License Agreement in the form of Exhibit A hereof.
II. The parties hereto agree forthwith to execute and deliver the
Revised License Agreement in the form of Exhibit A.
III. The License Agreement shall continue in force and effect unchanged;
except as amended hereinabove to conform with the Revised License Agreement.
1
<PAGE>
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and
seals and duly executed this Amendment to License Agreement on the date(s)
indicated below, to be effective the day and year first above written.
RESEARCH CORPORATION
Attest: TECHNOLOGIES, INC.
By: /s/Robert J. Sanders, Jr. By:/s/Gary M. Munsinger
Date: January 31, 1998
(CORPORATE SEAL)
Attest: CPAD HOLDINGS LTD.
By: By:
Title: Secretary Title: President
Date: 26-1-89
(CORPORATE SEAL)
Page 2 of a 2-page Amendment to a License Agreement by and between
RESEARCH CORPORATION TECHNOLOGIES, INC. and CPAD HOLDINGS LTD., with Exhibit A
attached, re Project NO. 145-1455, Leasure, et al.
2
<PAGE>
EXHIBIT A
R E V I S E D L I C E N S E A G R E E M E N T
AGREEMENT made effective the 1st day of September, 1988, hereinafter
called the "Effective Date," by and between RESEARCH CORPORATION TECHNOLOGIES,
INC., a not-for-profit corporation organized under the laws of the State of
Delaware, (hereinafter called "LICENSOR"), having a principal office at 6840
East Broadway Boulevard, Tucson, Arizona 85710, U.S.A., of the one part, and
CPAD HOLDINGS LTD., a corporation organized under the laws of the Province of
Ontario, Canada (hereinafter called "LICENSEE") , having a principal place of
business at Unit 8, Antares Drive, Nepean, Ontario K2E 7Y4, Canada, of the other
part.
WITNESSETH THAT:
WHEREAS, GARY EICENAN and CRAIG LEASURE (hereinafter called
"INVENTORS") , while employed by New Mexico State University, hereafter called
"the UNIVERSITY", have made a certain invention or discovery entitled 'Ion
Mobility Spectrometers" (hereinafter collectively called "the Invention") that
is covered by the PATENT RIGHTS, as hereinafter defined; and
WHEREAS, LICENSOR represents that the Invention and PATENT RIGHTS have
been assigned to it by Research Corporation, a New York not-for-profit
corporation which, in turn, is the assignee thereof pursuant to a certain deed
of assignment recorded in the United States patent and Trademark Office, on
November 21, 1986, at Reel 4630, Frames 735 to 737, pursuant to a certain
Invention Administration Agreement, made the 28th day of February, 1986, between
LICENSOR (as successor-in-interest of said Research Corporation) and the
UNIVERSITY under
1
<PAGE>
which LICENSOR accepts assignment of and administers certain inventions made by
employees of the UNIVERSITY and others covered by the UNIVERSITY's patent
policy;
WHEREAS, LICENSOR represents that it has the right pursuant to said
deeds of assignment to grant the licenses and rights, hereinafter granted under
the PATENT RIGHTS, and wishes to have the Invention utilized in the public
interest; and
WHEREAS, one or more of the INVENTORS have developed Technical
Information, as hereinafter defined; and
WHEREAS, LICENSOR represents that it has the right to grant the
licenses hereinafter granted to use Technical Information; and
WHEREAS, LICENSEE represents that it is qualified to develop and market
products and processes embodying the Invention and Technical Information; and
WHEREAS, LICENSEE represents that it desires to obtain a license in the
LICENSED FIELD, as hereinafter defined, under both the PATENT RIGHTS and
Technical Information to make, use and sell LICENSED PRODUCTS, as hereinafter
defined; and
WHEREAS, LICENSEE represents that it is prepared to undertake a program
for the development: manufacture and sale of LICENSED PRODUCTS, provided that
LICENSEE is able to obtain such a license in the LICENSED FIELD with provision
of a period of exclusivity, as hereinafter set forth, to protect its investment
in such development; and
WHEREAS, LICENSOR recognizes that LICENSEE requires such a license in
order to justify the investment in funding and personnel needed to develop and
market LICENSED PRODUCTS; and
WHEREAS, LICENSOR is willing to grant such a license to LICENSEE in
return for a reasonable royalty based upon LICENSEE's practice of the Invention
and use of the Technical
2
<PAGE>
Information, provided LICENSEE is willing to agree diligently to develop and
market LICENSED PRODUCTS; and
WHEREAS, LICENSEE wishes to obtain such a license and is willing
diligently to develop and market LICENSED PRODUCTS under the license;
NOW, THEREFORE, in consideration of the premises and the faithful
performance of the covenants herein contained, IT IS AGREED:
1. DEFINITIONS
For the purpose of interpreting this License Agreement, and solely for
that purpose, the terms set forth hereinafter shall have the following meaning
unless the context otherwise indicates.
(a) "PATENT RIGHTS" means the patent applications and/or patents
identified in SCHEDULE A hereof, together with any divisional or continuation
applications based thereon, any patents resulting from any of said applications
and any reissues or extensions that may be based on any of said patents.
(b) The phrase "covered by the PATENT RIGHTS" and equivalent
language used herein means covered by a valid claim of an issued, unexpired
patent within the PATENT RIGHTS or by a claim being presented in a pending
patent application within the PATENT RIGHTS. A claim shall be presumed to be
valid unless and until it has beer. held to be invalid by a final judgment of a
court of competent jurisdiction from which no appeal can be or is taken. For the
purposes of royalty determination and payment under ARTICLE 6 hereof, any claim
being presented in a pending patent application shall be deemed to be the
equivalent of a valid claim of an issued, unexpired patent and in consideration
of LICENSOR's agreement to grant a license under any patent issuing thereon
earned royalties shall be payable in respect thereto as though it were a valid
patent claim.
3
<PAGE>
(c) "AFFILIATE" means any corporation or organization which
directly or indirectly controls, is controlled by or is under common control
with LICENSEE; control being the ownership of at least fifty (50%) percent of
the stock entitled to vote upon election of directors thereof.
(d) "IMS Security Device" means an ion mobility spectrometer
specifically designed for and suitable for use as a security detection device
for use at security check points, for example, at border stations by customs
agents and others, at embassies, and at military installation and at airports
and the like and which is suitable for detecting: (i) explosive vapors (EGDN,
DNT, NG, PETN, TNT, and RDX) , controlled substances (codeine, cocaine, heroin,
opiates, antidepressants, and other related compounds); and/or (ii) those
chemicals listed in Schedules 1, 2 and 3 of the draft Chemical warfare Agreement
as published on page 13 of the March 28, 1988 issue of "Chemical and Engineer
News (copy attached to this License Agreement as Exhibit I); and/or (iii)
methylphosphonyldi-fluoride (df) and dimethylpolysulfide (nm)
(e) "IMS Security System" means a system that utilizes one or
more IMS Security Devices as components.
(f) "LICENSED FIELD" means the making, using and selling of an
IMS Security Device or an IMS Security System, but in no event shall it include
the Excluded Field.
(g) "Excluded Field" means, collectively, the IMS Grain
Monitoring Field, the IMS Process Control Field, the IMS Fuel Monitoring Field
and any other field that does not comprise the making, using or selling of an
IMS Security Device or an IMS Security System.
(h) "IMS Grain Monitoring Device" means an ion mobility
spectrometer specifically designed for and suitable for use as a monitoring
device for grain processing , milling and storage areas and which is suitable
for detecting vapors or particulates of cereal grains and
4
<PAGE>
their component products such as flour, bran, other by-products and thermally
induced by-products during the milling process.
(i) "IMS Grain Monitoring System" means a system that utilizes
one or more IMS Grain Monitoring Devices as components.
(j) "IMS Grain Monitoring Field" means the making, using and
selling of an IMS Grain Monitoring Grain Device or an IMS Grain Monitoring
System.
(k) "IMS Process Control Device" means an ion mobility
spectrometer specifically designed for and suitable for use in monitoring
commercial chemical or biological manufacturing processes and which is designed
to be used as a component of a system for monitoring and controlling such
process.
(l) "IMS Process Control System" means a system that utilizes
one or more IMS Process Control Devices as components.
(m) "IMS Process Control Field" means the making, using and
selling of an IMS Process Control Device or an IMS Process Control System.
(n) "IMS Fuel Monitoring Device" means an ion mobility
spectrometer specifically designed for and suitable for use in the detection of
fuels such as gasoline, diesel fuel, aircraft fuel and heating oil that result
from leaks in containers such tanks, conduits and the like.
(o) "IMS Fuel Monitoring System" means a system that utilizes
one or more IMS Fuel Monitoring Devices as components.
(p) "Fuel Monitoring Field" means the making, using and selling
of an IMS Fuel Monitoring Device or an IMS Fuel Monitoring System.
(Q) "Sold" (or "Sale") means sold or otherwise disposed of for
value. (r) "Used" (or "Use") means used for commercial purposes.
5
<PAGE>
(s) "Seller" means one who Sells.
(t) "User" means one who Uses.
(u) "LICENSED PROCESS Class I" means a method or process in the
LICENSED FIELD covered by the PATENT RIGHTS.
(v) "LICENSED PRODUCT Class I" means an IMS Device or an IMS
System in the LICENSED FIELD that is covered by the PATENT RIGHTS or made at
some stage of its manufacture by the practice of a LICENSED PROCESS Class I, or
an IMS Device or an IMS System made at some stage of its manufacture by the
practice of a LICENSED PROCESS Class I or an IMS Device or an IMS System the
normal operation of which inherently involves the practice of a LICENSED PROCESS
Class I, or an IMS Device or an IMS System that is used or sold by LICENSEE or
an AFFILIATE under conditions or circumstances which, if unlicensed, would
amount to infringement or contributory infringement or inducement of
infringement of the PATENT RIGHTS in the LICENSED FIELD.
(w) "Technical Information" means certain information and data,
including but not limited to information and/or data contained in written or
other forms of reports, technical manuals, drawings, photographs, computer
tapes, computer discs or computer print-outs, whether comprising know-how or
not, developed by INVENTORS or others at UNIVERSITY that is necessary and/or
useful in making, Using or Selling IMS Devices and/or IMS Systems, whether oh
not Sold in a country within the PATENT RIGHTS, or which is useful in developing
further information useful for the making, Using or Selling of IMS Devices or
IMS Systems or for obtaining governmental approval to make, Use or Sell IMS
Devices or IMS Systems and it shall include specifically information and data
developed by or for UNIVERSITY or INVENTORS or any of them as outlined in
Schedule B hereof.
6
<PAGE>
(x) "LICENSED PRODUCT Class II" means an IMS Device or an IMS
System which until the end of the fifteen (15) year period immediately following
the first commercial Sale thereof in any given country ("Royalty Period") , is
made at some stage of its manufacture through the use of Technical Information
or that is a product made, Used or Sold pursuant to governmental approval
obtained at any stage through the use of Technical Information or that is a
product Sold for use by customers or consumers who will be reasonably expected
to use Technical Information in conjunction with the use of such product. For
the purpose of convenience in the administration of this License Agreement,
until the end of the Royalty Period in any given country, any product that would
be a LICENSED PRODUCT Class I if made, Used or Sold in a country within the
PATENT RIGHTS during the lifetime of a pertinent patent and/or patent
application of such country within the PATENT RIGHTS shall be deemed a LICENSED
PRODUCT Class II wherever made, Used or Sold.
(y) "LICENSED PRODUCT" means a LICENSED PRODUCT Class I and a
LICENSED PRODUCT Class II, collectively.
(z) "Net Sales Value" means actual billings by LICENSEE or an
AFFILIATE, as the Seller, for LICENSED PRODUCT, less the following deductions
where they are factually applicable:
(i) discounts, allowed and taken, in amounts customary in
the trade; (ii) sales and/or use taxes and/or duties
imposed upon and with specific
reference to particular Sales;
(iii) amounts allowed or credited on returns (not
exceeding the original billing) or retroactive
price reductions; and
(iv) outbound transportation costs prepaid or allowed.
7
<PAGE>
No allowance or deduction shall be made for commissions or collections, by
whatever name known.
(aa) The Net Sales Value of any LICENSED PRODUCT that is Used by
LICENSEE or an AFFILIATE, or of a LICENSED PRODUCT that is Sold or otherwise
disposed of by LICENSEE or an AFFILIATE to any person, firm or corporation
controlling, controlled by, or under common control with LICENSEE or such
AFFILIATE, or enjoying a special course of dealing with LICENSEE or such
AFFILIATE, shall be determined for the LICENSED PRODUCT so Sold, Used or
otherwise disposed of by reference to the Net Sales Value which would be
applicable under ARTICLE 1(z) above in an arm's length Sale by such Seller or
User to a third party other than such person, firm or corporation. In the event
of Sale or other transfer of any LICENSED PRODUCT between LICENSEE and an
AFFILIATE or between AFFILIATES for subsequent Sale or Use by the transferee,
the Net Sales Value of such LICENSED PRODUCT shall be based upon such subsequent
Sale or Use by such transferee. If IMS Devices are Sold or offered for Sale as
replacement parts separately by LICENSEE or an AFFILIATE, as the case may be,
the Net Sales Value thereof shall determine the Net Sales Value of the IMS
Devices.
(bb) "Original Patent Rights" means the PATENT RIGHTS as
originally constituted on the Effective Date.
(cc) "Improvement Patent" means patent application or patent the
claim(s) of which cover an invention which is directed to an improvement of the
Invention(s)) covered by the Original Patent Rights and the practice of which
necessarily infringes any of the claims of the Original Patent Rights and which
invention is made by an inventor obligated to assign such invention to the
UNIVERSITY.
8
<PAGE>
1.1 RECITALS
The WHEREAS clauses constituting the Recitals to this License
Agreement shall form part of this License Agreement as if set forth herein.
2. LICENSE
(a) LICENSOR hereby grants and agrees to grant to' LICENSEE and
LICENSEE hereby accepts and agrees to accept from LICENSOR, upon the terms and
conditions herein specified, an exclusive, to the extent specified in ARTICLE 3
hereof, and nonassignable, except as hereinafter specified, license under the
PATENT RIGHTS in the LICENSED FIELD to make, to have made, to Use and to Sell
LICENSED PRODUCTS Class I in the country or countries in which the PATENT RIGHTS
are or shall be in effect and in each such country's territories and
possessions, to the full end of the term or terms for which the PATENT RIGHTS
are or shall be issued, unless sooner terminated as hereinafter provided.
(b) LICENSOR hereby grants and agrees to grant to LICENSEE and
LICENSEE hereby accepts and agrees to accept from LICENSOR upon the terms and
conditions herein specified, an exclusive, to the extent specified in ARTICLE 3
hereof, LICENSE to use Technical Information in the LICENSED FIELD to make, to
have made, to Use and to Sell LICENSED PRODUCTS Class II, as long as this
License Agreement shall continue in full force and effect and thereafter forever
unless this License Agreement shall have been terminated by LICENSEE or by
LICENSOR because of a breach or default by LICENSEE.
(c) LICENSOR hereby grants and agrees to grant to LICENSEE and
LICENSEE hereby accepts and agrees to accept from LICENSOR, upon the terms and
conditions herein specified, the right to extend to its AFFILIATES the licenses
granted pursuant to ARTICLE (a)) and (b)) hereof, provided LICENSEE promptly
notifies LICENSOR in writing of each such
9
<PAGE>
extension to an AFFILIATE.
(d) LICENSEE shall be responsible for the performance hereunder
by its AFFILIATES to which a license shall have been extended pursuant to
ARTICLE 2(c) hereof.
(e) For the purposes of reporting and making payments of earned
royalties under this License Agreement, the manufacture, Sale or Use of any
LICENSED PRODUCT by any AFFILIATE to which a license shall have been extended
pursuant to ARTICLE 2(c) hereof shall be considered the manufacture, Sale or Use
of such LICENSED PRODUCT by LICENSEE; however, provided LICENSEE shall so notify
LICENSOR in advance thereof in writing, any such AFFILIATE may make the
pertinent reports and royalty payments specified in ARTICLE 6 hereof directly to
LICENSOR on behalf of LICENSEE; otherwise, such reports and payments on account
of Sales or Uses of LICENSED PRODUCTS by each AFFILIATE shall be made by
LICENSEE; and, in any event, the Sales and Uses of LICENSED PRODUCTS by each
such AFFILIATE shall be separately shown in the reports to LICENSOR.
(f) No other, further or different license or right and, except
as expressly provided in ARTICLE 2(c) hereof, no further power to sublicense is
hereby granted or implied.
(g) No license or right is granted or implied under any patent
application or patent outside the PATENT RIGHTS.
3. EXCLUSIVITY
Subject to the provisions of ARTICLES 9 and 13 hereof, the
licenses herein granted under the PATENT RIGHTS and Technical Information shall
be exclusive to LICENSEE in the LICENSED FIELD in that LICENSOR shall not grant
to a third party a license under the PATENT RIGHTS or the Technical Information
in the LICENSED FIELD for the period of time
10
<PAGE>
extending from the Effective Date until the first to occur of either: (i)
termination of this License Agreement; or (ii) the expiration of seven (7) "ears
immediately following the Effective Date.
4. LICENSE FEE
LICENSEE shall pay to LICENSOR a License Issue Fee in the amount
of Twenty Thousand United States Dollars (U.S. $20,000.00), which shall be
payable upon execution and delivery of this License Agreement, no part of which
shall be refundable or creditable against any other amount payable under this
License Agreement.
5. MINIMUM ROYALTIES
(a) LICENSEE shall pay to LICENSOR Annual Minimum Royalty
Payments for the Licensed Territory, as set forth in SCHEDULE C hereof, such
payments to begin with the first to occur of the calendar year 1991 or the
calendar year immediately following the calendar year in which there occurs the
first Sale of a LICENSED PRODUCT under this License Agreement, and to be paid
for each calendar year thereafter that the license granted under this License
Agreement shall be in effect.
(b) The Annual Minimum Royalty Payments for any given calendar
year shall be paid at the beginning of the relevant calendar year by LICENSEE
with its report to LICENSOR for the last three (3) month period of the
immediately preceding calendar year, which is due within thirty (30) days after
the first day of January of the relevant calendar year for which the Annual
Minimum Royalty Payment is paid.
(c) LICENSEE may credit the amount of the Annual Minimum Royalty
Payment paid for any given year in respect of LICENSED PRODUCTS Class I and
Class II against earned royalties paid on LICENSED PRODUCTS of the same Class
that are Sold under this License Agreement for that calendar year. No earned
royalties, or any portion thereof, shall be carried
11
<PAGE>
over as a credit against Annual Minimum Royalty Payments in any succeeding year.
(d) In addition to any other remedies provided herein, if
LICENSEE shall not make the payment of any License Maintenance Fee or any Annual
Minimum Royalty Payment provided for herein, when due, LICENSOR shall have the
option, in its discretion, to terminate the license and rights granted under
this License Agreement by notice to LICENSEE, pursuant to the provisions of
ARTICLE 9(b) hereof.
6. ROYAL, RECORDS AND REPORTS
(a) For the rights and privileges granted under this License
Agreement, LICENSEE shall pay to LICENSOR, in the manner hereinafter provided,
to the end of the term or terms of the PATENT RIGHTS in the case of LICENSED
PRODUCTS Class I and to the end of the fifteen (15) year period defining the
respective Royalty Period in each country in the case of LICENSED PRODUCTS Class
II, earned royalties based on a percentage of the Net Sales Value of all
LICENSED PRODUCTS made, Used or Sold by or for LICENSEE or AFFILIATES, as
follows:
(i) in the case a LICENSED PRODUCT Class I the
percentage shall be three percent (3%) of all IMS Devices comprising the
LICENSED PRODUCT; and
(ii) in the case of a LICENSED PRODUCT Class II the
percentage shall be
three percent (3%) of all IMS Devices comprising the LICENSED
PRODUCT; and (iii) in the case of a LICENSED PRODUCT
coming within both Class I and
Class II the percentage shall be a maximum of five percent (5%) of all ISIS
Devices comprising the LICENSED PRODUCT.
In the event that LICENSEE shall lease apparatus or equipment
comprising a LICENSED PRODUCT, such LICENSED PRODUCT shall be decried Used when
leased and
12
<PAGE>
when the apparatus is leased, LICENSEE shall pay to LICENSOR the appropriate
percentage or percentages of the Net Sales Value thereof specified in clauses
(i), (ii) and (iii) above, based upon the Net Sales Value of all IMS Devices
comprising the leased apparatus.
(b) Earned royalty shall be paid pursuant to ARTICLE 6(a) hereof
on all LICENSED PRODUCTS made or Sold or Used or leased under this License
Agreement; however, earned royalty shall be payable hereunder as to a given
LICENSED PRODUCT only when a license granted under ARTICLE 2 hereof is utilized
in the manufacture or Sale or Use thereof, provided that one, and only one,
earned royalty shall be payable on a given LICENSED PRODUCT made, Sold or Used
under this License Agreement even though such LICENSED PRODUCT is made in one
country within the PATENT RIGHTS and Sold or Used in another country within the
PATENT RIGHTS and the earned royalty payable on a given LICENSED PRODUCT made
hereunder shall not become due until such LICENSED PRODUCT is Sold or Used.
(c) Notwithstanding the provisions in Article hereof, in the
case of transfers or Sales of any LICENSED PRODUCT between LICENSEE and an
AFFILIATE or between AFFILIATES but one and only one royalty shall be payable
thereon and such royalty shall become payable upon the final Sale thereof to a
third party or final Use thereof by LICENSEE or such AFFILIATE.
(d) LICENSEE shall keep full, true and accurate books of account
containing all particulars which may be necessary for the purpose of showing the
amount payable to LICENSOR by way of royalty as aforesaid or by way of any other
provision hereunder. Said books of account shall be kept at LICENSEE's principal
place of business. Said books and the supporting data shall be open at all
reasonable times, for five (5) years following the end of the
13
<PAGE>
calendar year to which they pertain (and access shall not be denied thereafter,
if reasonably available), to the inspection of an independent certified public
accountant retained by LICENSOR. and reasonably acceptable to LICENSEE for the
purpose of verifying LICENSEE'S royalty statements or LICENSEE'S compliance in
other respects with this License Agreement.
(e) LICENSEE within thirty (30) days after the first day of
January, April, July and October of each year shall deliver to LICENSOR a true
and accurate report, giving such particulars of the business conducted by
LICENSEE and AFFILIATES during the immediately preceding three (3) months
("Accounting Period") under this License Agreement as are pertinent to an
accounting for royalty under this License Agreement. These shall include at
least the following:
(i) the quantities LICENSED PRODUCTS billed by
LICENSEE and AFFILIATES during said Accounting Period;
(ii) the billings thereon, separately showing the billings
of said LICENSED
PRODUCTS;
(iii) the allowable deductions therefrom; (iv) the
calculation of royalties thereon; (v) in the case of any
LICENSED PRODUCT subject to
ARTICLE l(aa) hereof, the quantities or LICENSED PRODUCTS Used, Sold or
otherwise disposed of by LICENSEE and AFFILIATES during said Accounting Period,
and the calculation of royalties thereunder; and
(vi) the total royalties so computed pursuant to Clauses
(i) through (v) above.
Simultaneously with the delivery of each such report, LICENSEE shall pay to
LICENSOR the royalty and any other payments due under this License Agreement for
the period covered by such
14
<PAGE>
report. If no royalties are due, it shall be so reported. Royalties shall be
paid to LICENSOR in United States currency at LICENSOR's address for notice
specified in ARTICLE 13(b) hereof.
The correctness and completeness of each such report shall be
attested to in writing annually by the responsible officer of LICENSEE's
organization or by LICENSEE'S auditor or by the chairman or other head of
LICENSEE's internal audit committee.
(f) All amounts payable hereunder by LICENSEE to LICENSOR shall
be payable in United States currency collectible at par in New York, New York.
In the event any LICENSED PRODUCT shall be Sold by LICENSEE or an AFFILIATE for
currency other than United States currency, the earned royalty payable as to
such LICENSED PRODUCT shall first be determined in such currency for which the
LICENSED PRODUCT was Sold and then converted into its equivalent in United
States currency at:
(i) the rate applicable to the transfer of funds
arising from royalty payments, as established by the exchange control
authorities of the country of which the currency of such funds is the national
currency, for the last business day of the Accounting Period for which payment
is thus made; or
(ii) if there is no applicable rate so established, then
the selling rate for
United States currency, as published by leading commercial banks in the major
city of the country of which such foreign currency is the national currency, for
the last business day of such Accounting Period; or
(iii) if there is no rate so published, then the buying
rate for such foreign
currency, as published by leading New York, New York, banks, for the last
business day of such Accounting Period.
If the law or regulations of any country shall at any time
operate to' prohibit the
15
<PAGE>
transfer of funds therefrom to the United States, LICENSOR shall have the option
of requiring LICENSEE to pay or cause to be paid royalties hereunder on account
of its Sales and the Sales of its AFFILIATES in such country by depositing local
currency to the account of LICENSOR in an interest bearing account at the
prevailing commercial interest rate in a bank in such country and notifying
LICENSOR to such effect. LICENSEE shall thereafter cooperate with LICENSOR by
all lawful means to obtain the lawful release of said funds to LICENSOR but
shall have no further responsibility therefor.
(g) Should LICENSOR, under otherwise substantially identical
conditions, grant a license to a third party under the PATENT RIGHTS in the
LICENSED FIELD in a given country having a more favorable royalty rate than
charged herein, LICENSOR shall give to LICENSEE the benefit of such more
favorable rate for such country from and after the date it is established in the
license to the third party and only so long as it shall continue in effect and
only if such third party is marketing LICENSED PRODUCTS under its, license in
competition with LICENSEE's Sales of LICENSED PRODUCTS under this License
Agreement.
(h) In the event that any payment required under this License
Agreement shall be overdue for ten (10) days, LICENSEE shall pay interest
thereon at an annual rate of twelve percent (12%) computed from the date when
the payment became due; provided, however, that if such twelve percent (12%)
rate shall be in excess of that allowed by applicable law, then the highest rate
permitted by law shall apply.
7. PATENT RIGHTS
(a) LICENSOR shall upon request of LICENSEE advise LICENSEE as
to the status of any patent applications and patents comprised within the PATENT
RIGHTS.
(b) LICENSOR shall use reasonable efforts to prosecute any
patent applications
16
<PAGE>
within the PATENT RIGHTS, to obtain patents thereon and to maintain any such
patents; provided, however, that LICENSOR shall have the right in its sole
discretion to discontinue the prosecution of any such patent application or to
abandon any such patent.
(c) Nothing contained in this License Agreement shall be
construed as a representation or warranty that any patent within the PATENT
RIGHTS is valid or that performance thereunder is not an infringement of any
patent of others.
(d) LICENSOR shall upon request of LICENSEE inform LICENSEE of
the issuance of all licenses granted by it to other licensees under any of the
PATENT RIGHTS in the event that any such licenses shall be legally required to
be granted.
8. DILIGENCE
LICENSEE shall exercise diligence in developing, testing,
manufacturing, promoting, advertising and selling LICENSED PRODUCTS under this
License Agreement. In the course of such diligence LICENSEE shall take
appropriate steps including the following:
(a) Diligently upon entering into this License Agreement,
establish and maintain a program ("Development Program"), or continue to conduct
an existing program, reasonably designed and funded to obtain information
adequate to enable LICENSEE to manufacture LICENSED PRODUCTS and to Sell
LICENSED PRODUCTS in the United States, Canada, and in at least one other
country;
(b) Diligently proceed to produce LICENSED PRODUCTS and to Sell
LICENSED PRODUCTS in the United States and other countries;
(c) Advertise, promote the Sale of and otherwise employ
marketing and sales techniques reasonably designed to develop a public demand
for LICENSED PRODUCTS in the United States and satisfy such public demand;
17
<PAGE>
(d) Upon written request of LICENSOR, furnish LICENSOR with
representative copies of advertising, sales and promotional material relating to
LICENSED PRODUCTS.
(e) In order to keep LICENSOR apprised of the progress of the
Development Program and any corresponding programs, submit progress reports as
to its activities, the first such report to be submitted six (6) months from the
effective date of this License Agreement and further such reports to continue to
be submitted at six (6) month intervals thereafter until LICENSED PRODUCTS are
being marketed on a regular commercial basis in the United States and Canada.
(f) Non-performance of this ARTICLE 8, or any subparagraph
thereof, shall be a breach of or default under this License Agreement, subject
to LICENSOR's right to. terminate this License Agreement pursuant to ARTICLE: 9
hereof.
9. TERMINATION
(a) Subject to ARTICLE 12(e) hereof, if LICENSEE shall become
bankrupt or Insolvent and/or if the business of LICENSEE shall be placed in the
hands of a Receiver, Assignee, or Trustee, whether by the voluntary act of
LICENSEE or otherwise, this License Agreement shall immediately terminate.
(b) Upon any breach of or default under this License Agreement
by LICENSEE, LICENSOR may terminate this License Agreement by thirty (30) days'
written notice to LICENSEE. Said notice shall become effective at the end of
said period, unless during said period LICENSEE shall cure such breach or
default.
(c) LICENSEE may terminate this License Agreement at any time
on three (3) months' written notice to LICENSOR.
(d) Upon termination of this License Agreement as provided herein, for any
<PAGE>
reason, all licenses, and rights granted hereunder shall revert to LICENSOR for
the benefit of LICENSOR.
(e) LICENSEE's obligations to report to LICENSOR and to pay
any amount due LICENSOR under this License Agreement and to pay royalties to
LICENSOR as to any LICENSED PRODUCT made, sold or used or leased under any
license granted pursuant to this License Agreement prior to termination or
expiration of this License Agreement shall survive such termination or
expiration and any amount of deferred royalties payable to LICENSEE under this
License Agreement shall become immediately due and payable upon any termination
of this License Agreement.
(f) LICENSEE shall take appropriate steps to protect the
confidentiality and licensing value of Technical Information and LICENSEE shall
not use or license another to use Technical Information except under the terms
and conditions of this License Agreement and this ARTICLE 9 (f) shall survive
any termination of this License Agreement.
10. ASSIGNMENT
This License Agreement shall not be assigned by LICENSEE except as part
of a sale of all of LICENSEE's business and, in such event, only in its entirety
and upon prior written notice to and approval of LICENSOR, and the term
"LICENSEE" where used in this License Agreement shall thereafter mean such
assignee of LICENSEE.
18
<PAGE>
11. INFRINGEMENT
LICENSOR agrees to protect its patents within the PATENT RIGHTS
from infringement and prosecute infringers when in its sole judgment such action
may be reasonably necessary, proper and justified.
12 NON-USE OF NAMES
LICENSEE shall not use the name of any inventor of the PATENT
RIGHTS, or of any institution with which he has been or is connected, or of
LICENSOR, or any adaptation of any of them, in any advertising, promotional or
sales literature or otherwise for commercial purposes, without prior written
consent obtained from the pertinent inventor, INSTITUTION or LICENSOR in each
case. LICENSEE shall require its AFFILIATES to comply with this ARTICLE 12 to
the same extent that it applies to LICENSEE.
13. GENERAL
(a) This License Agreement constitutes the entire agreement
between the parties as to the PATENT RIGHTS and the Technical Information, and
all prior negotiations, representations, agreements and understandings are
merged into, extinguished by and completely expressed by it.
(b) Any notice required or permitted to be given by this License
Agreement shall be given by postpaid, first class, registered or certified mail
addressed as follows: If to LICENSEE: CPAD HOLDINGS LTD.
Unit 6, 42 Antares Drive
Nepean, Ontario
R2E 7Y4, CANADA
- or -
19
<PAGE>
If to LICENSOR: RESEARCH CORPORATION TECHNOLOGIES, INC.
6840 East Broadway Boulevard
Tucson, Arizona 65710, U.S.A.
Such addresses may be altered by notice so given.
(c) This License Agreement and its effect are subject to and
shall be construed and enforced in accordance with the law of the State of New
York, U. S. A., except as to any issue which by the law of New York depends upon
the validity, scope or enforceability of any patent within the PATENT RIGHTS,
which issue shall be determined in accordance with the applicable patent laws of
the country of such patent.
(d) Any dispute or controversy arising out of or relating to
this License Agreement, its construction or its actual or alleged breach, shall
be finally decided by arbitration conducted in New York, New York, by and in
accordance with the Rules then obtaining of the American Arbitration
Association, and judgment upon the award rendered may be entered in the highest
court of the forum, state or Federal, having jurisdiction; provided, however,
that the provisions of this ARTICLE 13(d) shall not apply to any issue involving
the validity, infringement, scope or enforceability of any patent within the
PATENT RIGHTS or to any dispute or controversy as to which any applicable law or
treaty prohibits such arbitration.
(e) Nothing in this License Agreement shall be construed so as
to require the commission of any act contrary to law, and wherever there is any
conflict between any provision of this License Agreement or concerning the legal
right of the parties to contract and any statute, law, ordinance or treaty, the
latter shall prevail, but in such event the affected provisions of this License
Agreement shall be curtailed and limited only to the extent necessary to bring
it within the applicable legal requirements.
20
<PAGE>
(f) Notwithstanding anything to the contrary in this License
Agreement, nothing herein contained shall be construed as a representation by
LICENSOR that the PATENT RIGHTS can be or will be used to prevent the
importation by a third party hereto of a product into or the sale or use by a
third party hereto of a product in any country within the PATENT RIGHTS where
such product shall have been placed in commerce under circumstances which
preclude the use of the PATENT RIGHTS to prevent such importation or sale or use
by reason of any applicable law or treaty.
(g) LICENSEE agrees to take all reasonable and necessary steps
to register this License Agreement in any country, other than the United States
of America, where such is required to permit the transfer of funds and/or
payment of royalties to LICENSOR hereunder or is otherwise required by the
government or law of such country to effectuate or carry out this License
Agreement. Notwithstanding anything contained herein, but subject to ARTICLE
13(e) hereof, LICENSEE shall not be relieved of any of its obligations under
this License Agreement by any failure to register this License Agreement in any
country, and, specifically, LICENSEE shall not be relieved of its obligation to
make any payment to LICENSOR hereunder in the United States of America, where
such payment is blocked due to any failure to register this License Agreement.
(h) It shall be the full and sole responsibility on LICENSEE and
its AFFILIATES to use appropriate care in the practice of any process and the
manufacture and use of any product pursuant to any license or immunity granted
hereunder and LICENSOR shall have no right to control the manner in which or the
material with which or upon which any process licensed hereunder is practiced
and, except as provided in ARTICLE 16 hereof, LICENSOR shall not be required to
provide any know-how or operating instructions or other information with
21
<PAGE>
respect to any such process or product and, in any event, LICENSOR makes no
representation or warranty whatsoever with respect to any such process or
product.
(i) LICENSEE agrees to indemnify and hold harmless INVENTORS,
LICENSOR, the UNIVERSITY and all directors, officers, employees and agents of
LICENSOR and the UNIVERSITY from and against any and all claims, damages and
liabilities asserted by third parties (whether governmental or private) arising
from LICENSEE's and AFFILIATE's practice of any LICENSED PROCESS or manufacture,
use or sale of any LICENSED PRODUCT or the use thereof by any third party.
(j) As used in this License Agreement, singular includes the
plural and plural includes the singular, wherever so required by the context.
The headings appearing at the beginning of the numbered ARTICLES hereof have
been inserted for convenience only and do not constitute a part of this License
Agreement.
14. IMPROVEMENT PATENTS
In the event that during the time that this License Agreement
shall be in effect LICENSOR acquires a right to grant licenses under any
IMPROVEMENT PATENT, LICENSOR shall give LICENSEE notification thereof and offer
to negotiate in good faith with LICENSEE for the grant of a royalty-bearing,
nonexclusive license to LICENSEE under such IMPROVEMENT PATENT or, in the
alternative, at LICENSEE's option, provided LICENSOR shall have the right to do
so without obligation to a third party other than the UNIVERSITY or one of
INVENTORS, LICENSOR shall add such IMPROVEMENT PATENT to the PATENT RIGHTS of
this License Agreement in which event earned royalty shall be payable in respect
thereto under ARTICLE 6(a) hereof with the understanding that only one earned
royalty shall be due and payable on a given LICENSED PRODUCT even though it may
be covered by more than
22
<PAGE>
one patent and/or patent application within the PATENT RIGHTS, such offer and
alternative option to remain open for three (3) months following such
notification.
15. EFFECTIVE DATE AND TERM
This License Agreement shall become effective on the day and
year first above written and shall, unless terminated earlier by one of the
parties in accord with its terms, expire concurrently with the expiration,
invalidation or lapsing of all issued patents within the PATENT RIGHTS and/or
the abandonment of all pending patent applications within the PATENT RIGHTS.
16. TECHNICAL INFORMATION
(a) Upon execution and delivery of this License Agreement,
LICENSOR will arrange for UNIVERSITY and/or one or more of INVENTORS to provide
to LICENSEE a disclosure of Technical Information as outlined in Schedule B
hereof.
(b) LICENSEE shall maintain Technical Information in confidence
and shall use it only to make, use and sell LICENSED PRODUCTS in the LICENSED
FIELD pursuant to the terms and conditions of this License Agreement.
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands
and seals and duly executed this License Agreement on the date(s) indicated
below, to be effective the day and year first above written.
RESEARCH CORPORATION
Attest: TECHNOLOGIES, INC.
By:/s/Robert J. Sanders, Jr. By:/s/Gary M. Munsinger
Secretary President
(CORPORATE SEAL) Date: January 31, 1989
23
<PAGE>
Attest: CPAD HOLDINGS LTD.
By: By:
Title: Secretary Title:
(CORPORATE SEAL) Date: 26-1-89
Page 25 of a 25-page License Agreement by and between RESEARCH
CORPORATION and CPAD HOLDINGS LTD., with Schedules A, B, C, and Exhibit I
attached, re Project No. 145-1455, "ion Mobility Spectrometers," Leasure, et al.
24
<PAGE>
Exhibit 10(j)
No securities commission or similar authority in Canada has in any way passed
upon the merits of the securities offered hereunder and any representation to
the contrary is an offence.
IDS INTELLIGENT DETECTION SYSTEMS INC.
offer to purchase all of the outstanding Common Shares of
SCINTREX LIMITED
on the basis of, at the option of the holder,
(i) 2.323 Common Shares of IDS Intelligent Detection Systems Inc. or
(ii) $9.00 cash and 1.1615 Common Shares of IDS Intelligent Detection
Systems Inc., for each Common Share of Scintrex Limited
This offer (the "Offer") by IDS Intelligent Detection Systems Inc. ("IDS" or
the "Offeror") to purchase all of the outstanding common shares (the "Shares")
together with the associated rights (the "SRP Rights") issued under the
Shareholders Rights Plan described under "Shareholders Rights Plan" in Section
14 of the accompanying Circular of Scintrex Limited ("Scintrex") will be open
for acceptance until 12:01 a.m. (Vancouver time) on May 7, 1998, unless
withdrawn or extended. The maximum aggregate cash consideration payable under
the Offer is $18 million.
The Offer is conditional upon certain conditions which are described under
"Conditions of the Offer" in Section 4 of the Offer, including, without
limitation, (i) there being validly deposited under the Offer and not withdrawn
prior to the expiration of the Offer that number of Shares which represents at
least 662/3% of the Shares outstanding (on a fully-diluted basis), as of the
expiration of the Offer; and (ii) the termination of all SRP Rights or the
waiver of the application of the Shareholders Rights Plan to this Offer.
The closing price of the Shares of Scintrex on April 2, 1998, the trading day
immediately prior to the announcement of the Offer, was $12.30 on The Toronto
Stock Exchange (the "TSE"). The closing price of the Shares on April 14, 1998,
the last trading day prior to the date of this Offer, was $15.95 on the TSE.
The closing price of the common shares of IDS (the "IDS Shares") on April 2,
1998, the last trading day prior to the announcement of the Offer, was $8.00 on
the TSE. The closing price of the IDS Shares on April 14, 1998, the last trading
day prior to the date of this Offer, was $7.50 on the TSE.
Shareholders who wish to accept the Offer must properly complete and execute
the accompanying Letter of Transmittal (printed on blue paper) or a manually
executed facsimile and deposit it, together with certificates representing their
Shares, in accordance with the instructions in the Letter of Transmittal.
Alternatively, shareholders may follow the procedure for guaranteed delivery
described under "Manner of Acceptance-Procedure for Guaranteed Delivery" in
Section 3 of the Offer. Certain Shareholders may be able to obtain a full or
partial rollover under the Income Tax Act (Canada) in respect of a sale under
the Offer. See "Canadian Federal Income Tax Considerations" in Section 17 of the
Circular. Shareholders whose Shares are registered in the name of an investment
dealer, stockbroker, bank, trust company or other nominee should contact that
nominee for assistance if they wish to accept the Offer. See "The Offer" in
Section 1 of the Offer.
On the date hereof, the Offeror has entered into a lock-up agreement with
certain Shareholders with respect to approximately 19.9% of the outstanding
Shares, pursuant to which they have agreed, subject to the terms thereof, to
accept the Offer and tender or cause to be tendered such Shares under the Offer.
See "Arrangements with Certain Shareholders" in section 4 of the Circular.
Questions and requests for assistance may be directed to Yorkton Securities
Inc. (the "Dealer Manager") or CIBC Mellon Trust Company (the "Depositary").
Additional copies of this Offer and Circular, the Letter of Transmittal and the
Notice of Guaranteed Delivery may be obtained without charge on request from the
Depositary at its offices shown on the last page of this Offer and Circular.
The IDS Common Shares offered hereby have not been registered under the
United States Securities Act of 1933, as amended, and may not be offered or sold
in the United States or to U.S. persons (as defined in Regulation S under such
Act) unless registered under such Act or unless an exemption from the
registration requirements of such Act is available.
This document does not constitute an offer or a solicitation to any person in
any jurisdiction in which such offer or solicitation is unlawful. The Offer is
not being made to, nor will deposits be accepted from or on behalf of holders of
Shares in the United States and the United Kingdom or in any jurisdiction in
which the making or acceptance thereof would not be in compliance with the laws
of such jurisdiction. However, the Offeror may, in its sole discretion, take
such action as it may deem necessary to extend the Offer to holders of Shares in
any such jurisdiction.
----------------------
The Dealer Manager for the Offer is Yorkton Securities Inc.
This document is important and requires your immediate attention. If you are
in any doubt as to how to deal with it, you should consult your investment
dealer, stockbroker, bank manager, lawyer or other professional advisor.
April 15, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
SUMMARY............................................................................................ 3
DEFINITIONS........................................................................................ 9
OFFER.............................................................................................. 11
1. The Offer..................................................................................... 11
2. Time for Acceptance........................................................................... 11
3. Manner of Acceptance.......................................................................... 12
4. Conditions of the Offer....................................................................... 14
5. Extension, Variation or Change in the Offer................................................... 16
6. Payment for Deposited Shares.................................................................. 16
7. Right to Withdraw Deposited Shares............................................................ 17
8. Mail Service Interruption..................................................................... 18
9. Reorganization, Dividends and Distributions................................................... 19
10. Notice and Delivery........................................................................... 19
11. Market Purchases.............................................................................. 20
12. Other Terms of the Offer...................................................................... 20
CIRCULAR........................................................................................... 21
1. The Offeror.................................................................................. 21
2. Scintrex Limited............................................................................. 21
3. Background to the Offer...................................................................... 21
4. Arrangements with Certain Shareholders....................................................... 22
5. Purpose of the Offer......................................................................... 22
6. Plans for Scintrex Limited................................................................... 22
7. Source of Funds.............................................................................. 23
8. Ownership of and Trading in Securities of Scintrex Limited................................... 24
9. Commitments to Acquire Securities of Scintrex Limited........................................ 24
10. Arrangements, Agreements or Understandings................................................... 24
11. Material Changes and Other Information Concerning Scintrex Limited........................... 24
12. Price Range and Trading Summary of the Shares................................................ 24
13. Effect of the Offer on Securities of Scintrex Limited........................................ 25
14. Shareholders Rights Plan..................................................................... 25
15. Acquisition of Shares Not Deposited Under the Offer.......................................... 26
16. Treatment of Options......................................................................... 28
17. Canadian Federal Income Tax Considerations................................................... 28
18. Other Matters Relating to the Offer.......................................................... 35
19. Offerees' Statutory Rights................................................................... 36
Consent of Counsel................................................................................. 37
Consent of KPMG.................................................................................... 38
Approval and Certificate of the Offeror............................................................ 39
Schedule A - December 31, 1997 Audited Financial Statements of the Offeror 40
Schedule B - Pro Forma Unaudited Consolidated Financial Statements of the Offeror 53
Schedule C - Additional Information Concerning the Offeror 57
</TABLE>
<PAGE>
SUMMARY
The following is a summary only and is qualified by the detailed provisions
contained elsewhere in the Offer and Circular. Capitalized terms used herein,
where not otherwise defined, are defined in the Offer. The information
concerning Scintrex contained herein and in the Offer and Circular has been
taken from or is based upon publicly available documents or records on file with
Canadian securities regulatory authorities and other public sources at the time
of the Offer, unless otherwise indicated. All currency amounts expressed herein,
unless otherwise indicated, are expressed in Canadian dollars. Shareholders are
urged to read the Offer and the Circular in their entirety.
The Offer The Offeror is offering, upon the terms and
subject to the conditions of the Offer, to
purchase all of the issued and outstanding Shares,
including Shares which may become outstanding on
the exercise of stock options, warrants, or other
rights to purchase Scintrex's Shares (other than
SRP Rights), on the basis of, at the option of
each holder of Scintrex Shares, 2.323 common
shares of the Offeror (the "IDS Shares") for each
Share (the "All Share Option") or 1.1615 IDS
Shares and $9.00 cash for each Share (the
"Cash-Share Option"), subject to a maximum
aggregate cash payment of $18 million.
The obligation of the Offeror to take up and pay
for Shares pursuant to the Offer is subject to
certain conditions. See "Conditions of the Offer"
in Section 4 of the Offer.
The Offeror The Offeror conducts its business through two
operating divisions, the chemical detection
division and the IEC division.
Through its chemical detection division, the
Offeror develops, manufactures and markets a wide
range of high-speed chemical detection,
measurement and analysis products which are based
on patented technology. Such products, which
include airport scanners, hand-held drug detectors
and mail scanners are currently targeted at two
principal markets, explosives detection and the
drug interdiction equipment markets. The Offeror's
core technology is also adaptable to many chemical
detection applications beyond explosives detection
and drug interdiction including clinical
diagnostic systems and industrial process quality
control systems.
Through its IEC division, the Offeror provides
information technology services including systems
integration, engineering and consulting, primarily
to the Canadian Federal Government. The division
also acts as a value-added reseller of hardware
products manufactured by several manufacturers.
The Offeror's head office and principal place of
business is located at 66 Slater Street, 6th
Floor, Ottawa, Ontario K1P 5H1. The Offeror's
common shares are traded on the TSE under the
symbol "ISD".
As of the date hereof, the Offeror owns 2,400
Shares.
Scintrex Scintrex is engaged in the research, design and
manufacture of earth science geophysical and
geochemical exploration instrumentation,
analytical instruments, including portable
detectors of explosives and narcotics, nuclear
reactor monitoring devices, environment and
defence-related equipment and other scientific
products. From bases in Canada and Australia,
Scintrex also provides ground and airborne
exploration and consulting services for the mining
industry. Scintrex conducts its business through
four divisions - the Earth Science Instrumentation
division, the Airborne Systems and Surveys
division, the Analytical and Security division and
the Nucleonics division.
<PAGE>
Scintrex's head office and principal place of
business is located at 222 Snidercroft Road,
Concord, Ontario L4K 1B5. The Shares are traded on
the TSE under the symbol "SCT".
Arrangements with
Certain Shareholders On April 14, 1998, the Offeror entered into a
lock-up agreement (the "Lock-Up Agreement") with
three institutional Shareholders pursuant to which
such Shareholders agreed to accept the Offer and
tender (or cause to be tendered) an aggregate of
537,200 Shares owned by them, representing
approximately 19.9% of the issued and outstanding
Shares of Scintrex, to the Offer on the terms and
conditions set out therein. See "Arrangements with
Certain Shareholders" in Section 4 of the
Circular.
Purpose Of The Offer The purpose of the Offer is to enable the Offeror
to acquire all of the outstanding Shares. The
Offeror believes that the acquisition will lead to
significant strategic and financial benefits to
shareholders of both the Offeror and Scintrex. See
"Purpose of the Offer" in Section 5 of the
Circular.
Time For Acceptance The Offer is open for acceptance until 12:01 a.m.
(Vancouver time) on May 7, 1998 or such later time
and date or times and dates to which the Offer may
be extended, unless withdrawn by the Offeror. See
"Time for Acceptance" in Section 2 of the Offer.
Manner Of Acceptance Shareholders wishing to accept the Offer must
deposit before the Expiry Time certificate(s)
representing their Shares together with a Letter
of Transmittal (or a facsimile), properly
completed and signed, at any one of the offices of
the Depositary specified in the Letter of
Transmittal. Instructions are contained in the
Letter of Transmittal. If a Shareholder wishes to
deposit Shares pursuant to the Offer and the
certificate(s) representing the Shares are not
immediately available, or if that Shareholder
cannot deliver the certificate(s) and all other
required documents to the Depositary at or prior
to the Expiry Time, those Shares may nevertheless
be deposited in compliance with the procedure for
guaranteed delivery. See "Manner of Acceptance -
Procedure for Guaranteed Delivery" in Section 3 of
the Offer. Shareholders whose Shares are
registered in the name of an investment dealer,
stockbroker, bank, trust company or other nominee
should contact that nominee for assistance if they
wish to accept the Offer. No fee or commission
will be payable by holders of Shares who deliver
Shares directly to the Depositary or utilize the
facilities of the Soliciting Dealer Group to
accept the Offer.
Withdrawal of the
Deposited Shares Any Shares deposited in acceptance of the Offer
may be withdrawn by or on behalf of the depositing
Shareholder at any time before 12:01 a.m.
(Vancouver time) on May 7, 1998, and, unless
already taken up and paid for by the Offeror, at
any time after May 31, 1998. Additional withdrawal
rights may be available under other circumstances
as required by applicable law. See "Right to
Withdraw Deposited Shares" in Section 7 of the
Offer. Except as so indicated or as otherwise
required by applicable law, tenders of Shares are
irrevocable.
Payment Upon the terms and subject to the conditions of
the Offer, the Offeror will take up Shares duly
and validly deposited under the Offer in
accordance with its terms on or as soon after May
7, 1998 as the Offeror is permitted by law to take
up such securities and the conditions of the Offer
(as the same may be amended or waived) have been
satisfied or waived. The Offeror will pay for
Shares taken up under the Offer in accordance with
its terms on or prior to the date on which the
Offeror is required by law to make such payment.
See "Payment for Deposited Shares" in Section 6 of
the Offer.
<PAGE>
Stock Exchange Listing
and Market Prices of
Shares and IDS Shares The Shares are listed for trading on the TSE. The
closing price of the Shares on April 2, 1998, the
trading day immediately prior to the announcement
of the Offer, was $12.30 on the TSE.
The IDS Shares are listed for trading on the TSE.
The closing price of the IDS Shares on April 2,
1998, the last trading day prior to the
announcement of the Offer, was $8.00 on the TSE.
The closing price of the IDS Shares on April 14,
1998, the last trading day prior to the date of
this Offer, was $7.50 on the TSE.
Conditions of the Offer The Offeror will have the right to
withdraw the Offer, and will not be required to
take up or pay for any Shares deposited under the
Offer, if any of the conditions described under
"Conditions of the Offer" in Section 4 of the
Offer have not been satisfied or waived at or
before the Expiry Time. The Offer is conditional
upon the following conditions, among others:
(a) there shall have been validly deposited
under the Offer and not withdrawn as at the Expiry
Time such number of Shares which represents not
less than 662/3% of the Shares outstanding (on a
fully-diluted basis);
(b) the Offeror shall have determined in its
sole judgment, that on terms satisfactory to the
Offeror, (i) the board of directors of the Company
shall have redeemed all outstanding rights ("SRP
Rights") or waived the application of the
Shareholders Rights Plan to the purchase of Shares
by the Offeror under the Offer, a Compulsory
Acquisition and any Subsequent Acquisition
Transaction; (ii) a cease trading order or an
injunction shall have been issued that has the
effect of prohibiting or preventing the exercise
of the SRP Rights, or the issue of Shares or other
security or property upon the exercise of the SRP
Rights, in relation to the Offer, a Compulsory
Acquisition and any Subsequent Acquisition
Transaction, which cease trading order or
injunction shall be in full force and effect;
(iii) a court of competent jurisdiction shall have
made a final and binding order to the effect that
the SRP Rights are illegal, of no force or effect
or may not be exercised in relation to the Offer,
a Compulsory Acquisition and any Subsequent
Acquisition Transaction; or (iv) the SRP Rights
and the Shareholders Rights Plan shall otherwise
have become or been held unexercisable or
unenforceable in relation to the Shares with
respect to the Offer, a Compulsory Acquisition and
any Subsequent Acquisition Transaction;
(c) if Scintrex allows access to confidential
information to any third party in connection with
a potential acquisition of Scintrex or a
reorganization or sale of assets involving
Scintrex, Scintrex shall also have allowed access
on similar terms to the Offeror; and
(d) all necessary regulatory approvals shall
have been obtained.
Subsequent
Transactions If the Offer is accepted by the holders of not
less than 90% of the Shares of any class, the
Offeror currently intends, to the extent possible,
to acquire the remaining Shares of any class
pursuant to the compulsory acquisition provisions
of the OBCA. If the Offeror takes up and pays for
Shares validly deposited under the Offer and
acquires less than such percentage thereof or the
compulsory acquisition provisions of the OBCA are
otherwise unavailable, the Offeror currently
intends to consider other means of acquiring,
directly or indirectly, all of the Shares
available in accordance with applicable law,
including a Subsequent Acquisition Transaction.
See "Acquisition of Shares not Deposited under the
Offer" in Section 15 of the Circular.
<PAGE>
Canadian Federal Income
Tax Considerations A Shareholder who is resident in Canada, who holds
Shares as capital property and who sells such
shares to the Offeror under the Offer and elects
the All Share Option (subject to the Shareholder
choosing to treat the exchange of his Shares as a
taxable transaction or entering into a joint tax
election with the Offeror to obtain a full or
partial rollover when available as discussed
below, which may give rise to a capital gain or a
capital loss) will be deemed to have disposed of
his Shares for proceeds of disposition equal to
his adjusted cost base in respect of such shares
and to have acquired the IDS Shares received
therefor at a like amount.
A Shareholder who is resident in Canada, who holds
Shares as capital property and who sells such
shares to the Offeror under the Offer and elects
the Cash-Share Option (subject to the Shareholder
entering into a joint tax election with the
Offeror to obtain a full or partial rollover when
available as discussed below, which may give rise
to a capital gain or a capital loss) will realize
a capital gain (or a capital loss) equal to the
amount by which the proceeds of disposition, net
of any reasonable costs of disposition, exceed (or
are less than) the adjusted cost base of the
Shares to the Shareholder.
Generally speaking, Shareholders who are
non-residents of Canada will not be subject to tax
in respect of any capital gain realized on the
sale of such shares to the Offeror under the Offer
unless those shares constitute "taxable Canadian
property" to them within the meaning of the Tax
Act (as defined in the Circular) and that gain is
not otherwise exempt from tax under the Tax Act
pursuant to an exemption contained in an
applicable income tax convention.
An Eligible Holder may, depending upon the
circumstances, obtain a full or partial rollover
in respect of a sale under the Offer, by entering
into a joint tax election with the Offeror and
filing with Revenue Canada such joint election
under subsection 85(1) of the Tax Act (or in the
case of a holder who is a partnership, under
subsection 85(2) of the Tax Act) (and the
corresponding provision of any applicable
provincial tax legislation with the appropriate
provincial tax authority) in respect of the Shares
and specifying a transfer price in accordance with
certain limitations provided for in the Tax Act.
Those Shareholders who qualify to make the joint
tax election with the Offeror and who wish to take
advantage of such rollover treatment must submit
to the Depositary duly completed tax election
packages within the prescribed time periods.
See "Canadian Federal Income Tax Considerations"
in Section 17 of the Circular for a more detailed
summary of the tax considerations with respect to
acceptance of the Offer.
The foregoing is a brief summary of Canadian
federal income tax consequences only. Shareholders
are urged to consult their own tax advisors to
determine the particular tax consequences to them
of a sale of Shares pursuant to the Offer or a
Compulsory Acquisition or a disposition of Shares
pursuant to any Subsequent Acquisition
Transactions.
Depositary CIBC Mellon Trust Company (the "Depositary") is
acting as depositary under the Offer. The
Depositary will receive deposits of certificates
representing the Shares and accompanying Letters
of Transmittal at their offices specified in the
Letter of Transmittal. The Depositary will also
receive Notices of Guaranteed Delivery at the
office specified in the Notice of Guaranteed
Delivery. The Depositary will also be responsible
for giving notices, if required, and for making
payment for all Shares purchased by the Offeror
under the Offer.
<PAGE>
Financial Advisor,
Dealer Manager and
Soliciting Dealer Group Yorkton Securities Inc. has been
retained to act as financial advisor to IDS. In
addition, Yorkton Securities Inc. has been
retained as the dealer manager for the Offer and
to form the Soliciting Dealer Group comprising
members of the Investment Dealers Association of
Canada and members of the TSE. IDS will pay
soliciting dealers certain fees, as described
under "Other Matters Relating to the Offer -
Financial Advisor, Dealer Manager and Soliciting
Dealer Group" in Section 18 of the Circular.
<PAGE>
Selected Pro Forma Information
The following is a summary of pro forma financial statements that have been
prepared for purposes of the Offer. See "Pro Forma Unaudited Consolidated
Financial Statements" in Schedule B to the Circular. The pro forma consolidated
balance sheet has been prepared using the unaudited financial statements of
Scintrex as at September 30, 1997 as the balance sheet for Scintrex as at
December 31, 1997 has not yet been publicly released. The pro forma consolidated
statement of earnings has been prepared using the unaudited consolidated
statement of earnings of Scintrex for the year ended December 31, 1997. The
transaction is being accounted for using the purchase method of accounting.
SELECTED PRO FORMA CONSOLIDATED BALANCE SHEET ITEMS
As at December 31, 1997
(in thousands, except share amounts)
Unaudited
<TABLE>
<CAPTION>
Historical Historical Pro Forma Pro Forma
IDS Scintrex Adjustments Consolidated
--- -------- ----------- ------------
<S> <C> <C> <C> <C>
Long-term debt................................................. $ 88 $ -- $ -- $ 88
Shareholders' equity........................................... $17,819 $24,345 $11,655 $ 53,819
Class B Non-Voting Shares Outstanding ......................... 572,850 shares -- -- 572,850
</TABLE>
SELECTED PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS ITEMS
For the year ended December 31, 1997 (in thousands,
except per share information)
<TABLE>
<CAPTION>
Historical Historical Pro Forma Pro Forma
IDS Scintrex Adjustments Consolidated
--- -------- ----------- ------------
<S> <C> <C> <C> <C>
Earnings (loss) from operations................................ $ (189) $ 509 $(2,077) $ (1,757)
Interest and other income...................................... 31 359 -- 390
Net earnings (loss)............................................ (84) 433 (2,077) (1,728)
Loss per share................................................. $ (0.12)
</TABLE>
<PAGE>
DEFINITIONS
In the accompanying Summary, Offer and Circular, unless the context otherwise
requires, the following terms have the meanings indicated:
"Associate" has the meaning ascribed thereto in the Securities Act (Ontario);
"Business Day" means any day other than a Saturday, a Sunday or a day on
which banking institutions in Toronto, Ontario are authorized or obligated to
close;
"Circular" means the take-over bid circular accompanying the Offer and
forming part thereof;
"Compulsory Acquisition" has the meaning ascribed thereto under "Acquisition
of Shares not Deposited under the Offer" in Section 15 of the Circular;
"CVMQ" means the Commission des valeurs mobilieres du Quebec;
"Dealer Manager" means Yorkton Securities Inc.;
"Depositary" means CIBC Mellon Trust Company at its offices specified in the
Letter of Transmittal;
"Elected Transfer Price" has the meaning ascribed thereto in Section 17 of
the Circular, "Canadian Federal Income Tax Considerations";
"Eligible Holders" has the meaning ascribed thereto in Section 17 of the
Circular, "Canadian Federal Income Tax Considerations";
"Eligible Institution" means a Canadian chartered bank, a trust company in
Canada, a member firm of a Medallion Program (STAMP, SEMP or MSP) such as a
commercial bank or trust company having an office, branch or agency in the
United States or a member firm of the TSE, Montreal Exchange or Vancouver Stock
Exchange, a national securities exchange in the United States or the National
Association of Securities Dealers, Inc.;
"Expiry Time" means 12:01 a.m. (Vancouver time) on May 7, 1998, or such later
time and date or times and dates as may be fixed by the Offeror from time to
time as provided under "Extension, Variation or Change in the Offer" in Section
5 of the Offer;
"fully-diluted basis" means, with respect to the number of outstanding Shares
at any time, the number of Shares that would be outstanding assuming the
conversion of all preference shares of Scintrex into Shares and all options and
other rights, including without limitation the Options, to acquire Shares (other
than the SRP Rights) outstanding at that time had been exercised;
"IDS" means IDS Intelligent Detection Systems Inc., a corporation amalgamated
under the laws of Ontario;
"IDS Shares" means the Common Shares of IDS being offered as consideration
under this Offer;
"Letter of Transmittal" means the Letter of Transmittal for Shares (printed
on blue paper) in the form accompanying the Offer and Circular, or a facsimile
thereof;
"Notice of Guaranteed Delivery" means the Notice of Guaranteed Delivery for
Deposit of Shares (printed on green paper) in the form accompanying the Offer
and Circular, or a facsimile thereof;
"OBCA" means the Business Corporations Act (Ontario), R.S.O. 1990, c. B.16,
as amended;
"Offer" means the offer to purchase made hereby to Shareholders;
"Offer Period" means the period commencing on the date hereof and ending at
the Expiry Time;
"Offeror" means IDS;
"Options" means the share purchase options of Scintrex which are exercisable
for Shares;
"OSC" means the Ontario Securities Commission;
"Policy 9.1" means Policy Statement 9.1 of the OSC;
<PAGE>
"Policy Q-27" means Policy Statement No. Q-27 of the CVMQ;
"Shareholders Rights Plan" means the Shareholders Rights Plan Agreement dated
as of May 15, 1997 between Scintrex and CIBC Mellon Trust Company (formerly the
R-M Trust Company), as Rights Agent;
"Shareholders" means the holders of the Shares;
"Shares" means all of the outstanding common shares of Scintrex;
"Soliciting Dealer Group" has the meaning ascribed thereto under "Other
Matters Relating to the Offer - Financial Advisor, Dealer Manager and Soliciting
Dealer Group" in Section 18 of the Circular;
"SRP Rights" means the rights issued pursuant to the Shareholders Rights
Plan;
"Subsequent Acquisition Transaction" has the meaning ascribed thereto under
"Acquisition of Shares not Deposited under the Offer" in Section 15 of the
Circular;
"Tax Act" means the Income Tax Act (Canada), including all regulations made
thereunder, and all amendments to such statute and regulations from time to
time; and
"TSE" means The Toronto Stock Exchange.
<PAGE>
The accompanying Circular, which is incorporated into and forms part of the
Offer, contains important information which should be read carefully before
making a decision with respect to the Offer.
OFFER
April 15, 1998
TO THE HOLDERS OF SHARES OF SCINTREX LIMITED
1. The Offer
The Offeror hereby offers to purchase, on and subject to the following terms
and conditions, all of the issued and outstanding Shares, including Shares which
may become outstanding on the exercise of currently outstanding stock options,
warrants or other rights to purchase Shares (other than SRP Rights), on the
basis of, at the option of each Shareholder, 2.323 IDS Shares (the "All Share
Option") or 1.1615 IDS Shares and $9.00 cash (the "Cash-Share Option"), for each
Share, provided, however the aggregate amount of cash to be paid under the Offer
is limited to $18 million. If holders of Shares elect to receive, in the
aggregate, more than $18 million in cash, then the amount of cash payable to
Shareholders will be reduced on a pro rata basis and the number of IDS Shares
correspondingly increased.
The Offer is made only for Shares and is not made for any preference shares
of Scintrex, options, warrants or other rights to acquire Shares. Any holder of
such options, warrants or other rights to purchase Shares (other than SRP
Rights), who wishes to accept the Offer must exercise the options, warrants or
other rights to obtain certificates representing Shares and deposit those Shares
under the Offer. Any such exercise must be sufficiently in advance of the Expiry
Time to assure the holders of options, warrants and other rights to purchase
Shares (other than SRP Rights) that they will have Share certificates available
for deposit before the Expiry Time, or in sufficient time to comply with the
procedures referred to under "Manner of Acceptance - Procedure for Guaranteed
Delivery" in Section 3 of the Offer.
Shareholders wishing to accept the Offer may elect the All Share Option or
the Cash-Share Option. The Letter of Transmittal and Notice of Guaranteed
Delivery accompanying this Offer and Circular set forth the manner in which such
election may be made. Shareholders who otherwise validly accept the Offer but
fail to make such election or to properly make such election in the Letter of
Transmittal, shall be deemed to have elected the All Share Option.
No fractional IDS Shares shall be issued pursuant to the Offer. In lieu of a
fractional IDS Share, a Shareholder accepting the Offer will receive a cash
payment determined on the basis of $7.75 for each whole IDS Share.
Shareholders who have deposited their Shares pursuant to the Offer will be
deemed to have deposited the SRP Rights associated with such Shares. No
additional payment will be made for the SRP Rights and no amount of the
consideration to be paid by the Offeror for the Shares will be allocated to the
SRP Rights.
The Offer is not being made to, nor will deposits of Shares be accepted from
or on behalf of holders of Shares in the United States and the United Kingdom or
in any jurisdiction in which the making or acceptance thereof would not be in
compliance with the laws of such jurisdiction (collectively, the
"Non-Residents"). However, the Offeror may, in its sole discretion, take such
action as it may deem necessary to extend the Offer to holders of Shares in any
such jurisdiction in compliance with the laws of such jurisdiction.
Based upon publicly available information, the Offeror believes that as of
April 14, 1998 there were approximately 3 million Shares outstanding on a
fully-diluted basis, disregarding Shares issuable upon the exercise of SRP
Rights.
2. Time For Acceptance
The Offer is open for acceptance until 12:01 a.m. (Vancouver time) on May 7,
1998, or until such later time and date or times and dates to which it may be
extended, unless withdrawn by the Offeror. See "Extension, Variation or Change
in the Offer" in Section 5 of the Offer.
3. Manner of Acceptance
This Offer may be accepted by delivering to the Depositary at any of its
offices listed in the accompanying Letter of Transmittal (printed on blue
paper), so as to be received before the Expiry Time:
<PAGE>
(a) the certificate or certificates representing the Shares in respect of
which the Offer is being accepted;
(b) a Letter of Transmittal in the accompanying form (or a facsimile)
properly completed and signed as required by the rules and instructions
set out in the Letter of Transmittal; and
(c) any other documents specified in the instructions set out in the Letter
of Transmittal.
Except as otherwise provided in the instructions to the Letter of
Transmittal, the signature on the Letter of Transmittal must be guaranteed by an
Eligible Institution. If a Letter of Transmittal is executed by a person other
than the registered holder of the certificate(s) to which the Letter of
Transmittal relates, the certificate(s) must be endorsed or be accompanied by an
appropriate share transfer power of attorney duly and properly executed by the
registered holder, with the signature on the endorsement panel or share transfer
power of attorney guaranteed by an Eligible Institution.
Procedure for Guaranteed Delivery
If a Shareholder wishes to deposit Shares under the Offer and either the
certificate(s) representing the Shares are not immediately available or the
Shareholder is not able to deliver the certificate(s) and all other required
documents to the Depositary before the Expiry Time, those Shares may
nevertheless be deposited under the Offer, provided that all of the following
conditions are met:
(a) the deposit is made by or through an Eligible Institution;
(b) a properly completed and duly executed Notice of Guaranteed Delivery
(printed on green paper) in the form accompanying this Offer (or a
facsimile), properly completed and signed, together with a guarantee by
an Eligible Institution in the form set out in the Notice of Guaranteed
Delivery, is received by the Depositary before the Expiry Time at its
office in Toronto as set forth in the accompanying Notice of Guaranteed
Delivery; and
(c) the certificate(s) representing deposited Shares, in proper form for
transfer, together with a Letter of Transmittal (or a facsimile),
properly completed and signed, and all other documents required by the
Letter of Transmittal, are received by the Depositary at its office in
Toronto before 4:30 p.m. (Toronto time) on the third trading day on the
TSE after the Expiry Time.
The Notice of Guaranteed Delivery may be delivered by hand or transmitted by
facsimile transmission or mailed to the Depositary at its office in Toronto as
set forth on the Notice of Guaranteed Delivery and must include a guarantee by
an Eligible Institution in the form set forth in the Notice of Guaranteed
Delivery.
General
In all cases, title to the Shares deposited under the Offer will pass to the
Offeror at the time of take-up of Shares under the Offer and Shares deposited
under the Offer will only be taken up by the Offeror after timely receipt by the
Depositary of certificates representing the Shares together with a properly
completed and duly executed Letter of Transmittal, or a manually signed
facsimile thereof, relating to such Shares, or in lieu thereof, a properly
completed and duly executed Notice of Guaranteed Delivery, in all cases with the
signatures guaranteed in accordance with the instructions and rules set out
therein, and any other required documents. Payment for Shares will only be made
after take-up under the Offer, and in the case of where a Notice of Guaranteed
Delivery is utilized, following receipt of certificates representing Shares and
all other documents as specified in the instructions and rules set out in the
Letter of Transmittal.
The method of delivery of the certificates representing Shares, the Letter of
Transmittal, the Notice of Guaranteed Delivery and all other required documents
is at the option and risk of the person depositing those documents. The Offeror
recommends that those documents be delivered by hand to the Depositary and that
a receipt be obtained or, if mailed, that registered mail, properly insured, be
used with an acknowledgement of receipt requested.
Shareholders whose Shares are registered in the name of a stockbroker,
investment dealer, bank, trust company or other nominee should contact that
nominee for assistance in depositing those Shares.
No fee or commission will be payable by holders of Shares who deliver Shares
directly to the Depositary or utilize the facilities of the Soliciting Dealer
Group to accept the Offer.
The execution of a Letter of Transmittal irrevocably appoints the Offeror,
and any other person designated by the Offeror in writing, as the true and
lawful agents, attorneys and attorneys-in-fact of the holder of the Shares
covered by the Letter of Transmittal with respect to Shares registered in the
name of the holder on the securities registers maintained for Scintrex and
<PAGE>
deposited pursuant to the Offer and purchased by the Offeror (the "Purchased
Shares"), and with respect to any and all (A) securities, rights, warrants or
other interests accrued, declared, issued, transferred, made or distributed on
or in respect of the Purchased Shares on or after the date of the announcement
of the Offer; and (B) SRP Rights, whether or not separated from the Shares
(collectively, the "Other Securities"), effective from and after the date that
the Offeror takes up and pays for the Purchased Shares (the "Effective Date"),
with full power of substitution (such powers of attorney being irrevocable), to:
(a) register or record the transfer of Purchased Shares and Other Securities
on the appropriate registers;
(b) vote, execute and deliver any instruments of proxy, authorizations or
consents in form and on terms satisfactory to the Offeror in respect of
any Purchased Shares and any or all Other Securities, revoke any such
instrument, authorization or consent given prior to or after the
Effective Date, designate in any such instruments of proxy any person(s)
as the proxy or the proxy nominee(s) of the Shareholder in respect of
such Purchased Shares and such Other Securities for all purposes;
(c) execute, endorse and negotiate any cheques or other instruments
representing any distribution payable to the holder; and
(d) exercise any other rights of a holder of Purchased Shares and any Other
Securities.
A holder of Shares who executes a Letter of Transmittal also agrees, from and
after the Effective Date:
(a) not to vote any of the Purchased Shares or Other Securities at any
meeting of holders of those securities;
(b) not to exercise any other rights or privileges attached to any of those
securities; and
(c) to deliver to the Offeror any and all instruments of proxy,
authorizations or consents received in respect of those securities.
At the date on which the Offeror purchases the Purchased Shares, all prior
proxies given by the holder of those Purchased Shares with respect to those
shares and to any Other Securities shall be revoked and no subsequent proxies
may be given by such holder with respect thereto.
All questions as to the validity, form, eligibility (including timely
receipt) and acceptance of any Shares deposited pursuant to the Offer will be
determined by the Offeror in its sole discretion, and depositing Shareholders
agree that such determination shall be final and binding. The Offeror reserves
the absolute right to reject any and all deposits that it determines not to be
in proper form or that may be unlawful for them to accept under the laws of any
jurisdiction. The Offeror reserves the absolute right to waive any defect or
irregularity in the deposit of any Shares. There will be no obligation on the
Offeror, the Dealer Manager, the Depositary or any other person to give notice
of any defects or irregularities in any deposit and no liability will be
incurred by any of them for failure to give any such notice. The Offeror's
interpretation of the terms and conditions of the Offer, the Circular, the
Letter of Transmittal and the Notice of Guaranteed Delivery will be final and
binding.
The deposit of Shares pursuant to the procedures herein will constitute a
binding agreement between the depositing Shareholder and the Offeror upon the
terms and subject to the conditions of the Offer, including the depositing
Shareholder's representation and warranty that: (i) such Shareholder has full
power and authority to deposit, sell, assign and transfer the Shares (and any
Other Securities) being deposited; (ii) such Shareholder owns the Shares (and
any Other Securities) which are being deposited within the meaning of applicable
securities law; (iii) the deposit of such Shares (and any Other Securities)
complies with applicable securities laws; and (iv) when such Shares (and any
Other Securities) are taken up and paid for by the Offeror, the Offeror will
acquire good title thereto free and clear of all liens, restrictions, charges,
encumbrances, claims and equities. The acceptance of the Offer pursuant to the
procedures set forth above shall constitute an agreement between the depositing
Shareholder and the Offeror in accordance with the terms and conditions of the
Offer.
The Offeror reserves the right to permit the Offer to be accepted in a manner
other than that set forth in this Section 3.
<PAGE>
4. Conditions of the Offer
The Offeror will have the right to withdraw, amend or terminate the Offer,
and will not be required to take up or pay for any Shares deposited under the
Offer, if any of the following conditions has not been satisfied or waived at or
prior to the Expiry Time:
(1) there shall have been validly deposited under the Offer and not
withdrawn that number of Shares that, together with Shares held by
the Offeror and its affiliates and associates, constitute at least
662/3% of such Shares on a fully-diluted basis;
(2) the Offeror shall have determined in its judgment that Scintrex and
its subsidiaries, associates and entities in which it has a direct or
indirect material interest ("entities") have not taken any material
action, or disclosed any previously undisclosed material action taken
by them, that might make it inadvisable for the Offeror to proceed
with the Offer or to take up and pay for Shares deposited under the
Offer;
(3) all regulatory approvals which, in the Offeror's judgment, are
necessary in connection with the Offer shall have been obtained on
terms satisfactory to the Offeror;
(4) the Offeror shall have determined in its judgment that (i) no act,
action, suit or proceeding shall have been threatened or taken before
or by any domestic or foreign court or tribunal or governmental
agency or other regulatory authority or administrative agency or
commission or by any elected or appointed public official or private
person (including, without limitation, any individual, corporation,
firm, group or other entity) in Canada, the United States or
elsewhere, whether or not having the force of law, and (ii) no law,
regulation or policy shall have been proposed, enacted, promulgated
or applied:
(A) to cease trade, enjoin, prohibit or impose material limitations,
damages or conditions on the purchase by or the sale to the
Offeror of the Shares or the right of the Offeror to own or
exercise full rights of ownership of the Shares; or
(B) which, if the Offer were consummated, could, in the Offeror's
judgment, materially adversely affect Scintrex and its
subsidiaries and its entities considered on a consolidated basis
or the Offeror's ability to effect a Compulsory Acquisition or a
Subsequent Acquisition Transaction;
(5) there shall not exist any prohibition at law against the Offeror
making the Offer or taking up and paying for any Shares deposited
under the Offer or completing any subsequent Compulsory Acquisition
or a Subsequent Acquisition Transaction;
(6) there shall not have occurred any actual or threatened change
(including any announcement, governmental or regulatory initiative,
condition, event or development involving a change or a prospective
change) that, in the Offeror's judgment, directly or indirectly
increases the effective tax cost of, or reduces the proceeds from,
the sale or other disposition of any assets or securities owned by
Scintrex or any of its subsidiaries, associates or entities or that
has or may have material adverse significance with respect to the
business and operations of the Offeror or Scintrex or any of their
respective affiliates, associates or entities or with respect to the
regulatory regime applicable to their respective businesses and
operations;
(7) there shall not exist or have occurred (or, if there does exist or
shall have previously occurred, there shall not have been disclosed,
generally or to the Offeror in writing) any change (or any condition,
event or development involving a prospective change) in the business,
operations, assets, capitalization, financial condition, prospects,
licences, permits, rights, privileges or liabilities, whether
contractual or otherwise, of Scintrex or any of its subsidiaries,
associates or entities which, in the Offeror's judgment, is
materially adverse or may be considered to be significant to a
purchaser of Shares;
(8) the Offeror shall have determined in its judgment that no material
right, franchise or licence of Scintrex or of any of its
subsidiaries, associates or entities has been impaired (or threatened
to be impaired) or otherwise materially adversely affected (or
threatened to be adversely affected), whether as a result of the
making of the Offer, the taking up and paying for Shares deposited
under the Offer or otherwise, which might make it inadvisable for the
Offeror to proceed with the Offer or with taking up and paying for
Shares deposited under the Offer;
(9) there shall not have been any announcement of a material transaction
by Scintrex or any other person involving the Shares or other
securities of Scintrex and/or some or all of the assets of Scintrex
to which the Offeror is not a party and the announcement or effect of
which precludes the Offeror from taking up or paying for Shares under
the Offer or the announcement or effect of which results in the
Offeror determining in its sole judgment not to proceed with the
Offer;
<PAGE>
(10) the Offeror shall have determined in its judgment that there does not
exist any covenant, term or condition in any of the
instruments or agreements to which any of Scintrex or its
subsidiaries, associates or entities is a party or to which
they or any of their assets are subject that might make it
inadvisable for the Offeror to proceed with the Offer and/or
with taking up and paying for Shares deposited under the
Offer (including, but not limited to, any covenant, term or
condition that may be breached or cause a default or permit
third parties to exercise rights against any of Scintrex or
its subsidiaries, associates or entities which would have a
material adverse effect on Scintrex or any of its
subsidiaries, associates or entities as a result of the
Offeror making the Offer or acquiring Shares deposited under
the Offer);
(11) the Offeror shall have determined in its sole judgment, that on terms
satisfactory to the Offeror, (i) the board of directors of Scintrex
shall have redeemed all outstanding rights, ("SRP Rights") or waived
the application of the Shareholders Rights Plan to the purchase of
Shares by the Offeror under the Offer, a Compulsory Acquisition and
any Subsequent Acquisition Transaction; (ii) a cease trading order or
an injunction shall have been issued that has the effect of
prohibiting or preventing the exercise of the SRP Rights, or the
issue of Shares or other security or property upon the exercise of
the SRP Rights, in relation to the Offer, a Compulsory Acquisition
and any Subsequent Acquisition Transaction, which cease trading order
or injunction shall be in full force and effect; (iii) a court of
competent jurisdiction shall have made a final and binding order to
the effect that the SRP Rights are illegal, of no force or effect or
may not be exercised in relation to the Offer, a Compulsory
Acquisition and any Subsequent Acquisition Transaction; or (iv) the
SRP Rights and the Shareholders Rights Plan shall otherwise have
become or been held unexercisable or unenforceable in relation to the
Shares with respect to the Offer, a Compulsory Acquisition and any
Subsequent Acquisition Transaction;
(12) all requisite third party consents that the Offeror may reasonably
consider to be necessary as a result of the change of control of
Scintrex pursuant to the Offer shall have been obtained on terms
satisfactory to the Offeror in its sole judgment; and
(13) if Scintrex allows access to confidential information to any third
party in connection with a potential acquisition of Scintrex or a
reorganization or sale of assets involving Scintrex, Scintrex shall
also have allowed access on similar terms to the Offeror.
The foregoing conditions are for the exclusive benefit of the Offeror and may
be asserted by the Offeror regardless of the circumstances (including any action
or inaction by the Offeror or any of its affiliates) giving rise to any such
assertion. The Offeror may, in its sole discretion, waive any of these
conditions in whole or in part, at any time and from time to time, both before
and after the Expiry Time, without prejudice to any other rights that the
Offeror may have. The failure by the Offeror at any time to exercise any of
these rights shall not be deemed a waiver of any such right and each such right
shall be deemed to be an ongoing right that may be asserted at any time and from
time to time. Any determination by the Offeror concerning the events described
in this Section 4 shall be final and binding upon all parties.
Any waiver of a condition or the withdrawal of the Offer shall be effective
upon written notice (or other communication confirmed in writing) being given by
the Offeror to that effect to the Depositary at its principal office in Toronto.
The Offeror, forthwith after giving any such notice, will make a public
announcement of such waiver or withdrawal, cause the Depositary as soon as is
practicable thereafter to notify the Shareholders in the manner set forth under
"Notice and Delivery" in Section 10 of the Offer, and provide a copy of the
notice to the TSE. If the Offer is withdrawn, the Offeror shall not be obligated
to take up, accept for payment or pay for any Shares deposited under the Offer
and the Depositary will promptly return all certificates for deposited Shares
and Letters of Transmittal, Notices of Guaranteed Delivery and related documents
to the parties by whom they were deposited.
5. Extension, Variation or Change in the Offer
The Offer is open for acceptance until the Expiry Time. The Offeror may, in
its sole discretion, at any time and from time to time during the Offer Period,
extend the Expiry Time or vary the Offer by giving written notice (or other
communication confirmed in writing) of such extension or variation to the
Depositary at its principal office in Toronto. Upon the giving of that notice or
other communication the Expiry Time shall be, and be deemed to be, extended and
the Offer varied as so provided. The Offeror will, as soon as practicable
thereafter, cause the Depositary to provide a copy of the notice in the manner
set forth under "Notice and Delivery" in Section 10 of the Offer, to all
registered holders of Shares whose Shares have not been taken up prior to the
extension or variation. The Offeror shall, as soon as practicable after giving
notice of an extension or variation to the Depositary, make a public
announcement of the extension or variation in the manner required by applicable
law and provide a copy of the notice thereof to the TSE. Any notice of extension
or variation will be deemed to have been given and to be effective on the day on
which it is delivered or otherwise communicated to the Depositary at its
principal office in Toronto.
<PAGE>
Notwithstanding the foregoing, the Offer may not be extended by the Offeror
if all of the terms and conditions of the Offer (other than those waived by the
Offeror) have been fulfilled or complied with, unless the Offeror first takes up
and pays for all Shares then deposited under the Offer and not withdrawn.
Where the terms of the Offer are varied, the Offer will not expire before ten
days after the notice of the variation has been given, unless otherwise
permitted by applicable law and subject to abridgement or elimination of that
period pursuant to such orders as may be granted by Canadian courts and
securities regulatory authorities.
If before the Expiry Time, or after the Expiry Time but before the expiry of
all rights of withdrawal with respect to the Offer, a change occurs in the
information contained in the Offer or the Circular, as amended from time to
time, that would reasonably be expected to affect the decision of a Shareholder
to accept or reject the Offer (other than a change that is not within the
control of the Offeror or its affiliates), the Offeror will give written notice
of such change to the Depositary at its principal office in Toronto and will
cause the Depositary to provide as soon as practicable thereafter a copy of such
notice in the manner set forth under "Notice and Delivery" in Section 10 of the
Offer, to all registered holders of Shares that have not been taken up under the
Offer at the date of the occurrence of the change. As soon as possible after
giving notice of a change in information to the Depositary, the Offeror will
make a public announcement of the change in information and provide a copy of
the notice thereof to the TSE. Any notice of change in information will be
deemed to have been given and to be effective on the day on which it is
delivered or otherwise communicated to the Depositary at its principal office in
Toronto.
During any such extension, or in the event of any variation or change in
information, all Shares previously deposited and not taken up or withdrawn will
remain subject to the Offer and may be accepted for purchase by the Offeror in
accordance with the terms hereof, subject to the provisions set out under "Right
to Withdraw Deposited Shares" in Section 7 of the Offer. An extension of the
Expiry Time, a variation of the Offer or a change in information contained in
the Offer or the Circular does not constitute a waiver by the Offeror of its
rights set out under "Conditions of the Offer" in Section 4 of the Offer. If the
consideration being offered for the Shares under the Offer is increased, the
increased consideration will be paid to all depositing Shareholders whose Shares
are taken up under the Offer.
6. Payment for Deposited Shares
Upon the terms and subject to the conditions of the Offer, the Offeror will
take up Shares duly and validly tendered to the Offer in accordance with the
terms thereof on or as soon after May 7, 1998 as the Offeror is permitted by law
to take up such securities and the conditions of the Offer (as the same may be
amended or waived) have been satisfied or waived. The Offeror will pay for
Shares taken up under the Offer in accordance with the terms of the Offer on or
before the date on which the Offeror is required by law to make such payment.
For the purposes of the Offer, the Offeror will be deemed to have taken up
and accepted for payment Shares validly deposited under the Offer and not
withdrawn if, as and when the Offeror gives written notice (or other
communication confirmed in writing) to the Depositary to that effect.
The Offeror reserves the right, in its sole discretion, to delay taking up or
paying for any Shares or to terminate the Offer and not take up or pay for any
Shares if any condition specified under "Conditions of the Offer" in Section 4
of the Offer, is not satisfied or waived by giving written notice thereof (or
other communication confirmed in writing) to the Depositary. The Offeror also
reserves the right, in its sole discretion and notwithstanding any other
condition of the Offer, to delay taking up and paying for Shares in order to
comply, in whole or in part, with any applicable law. The Offeror will not,
however, take up and pay for any Shares deposited under the Offer unless it
simultaneously takes up and pays for all Shares then validly deposited under the
Offer. Any Shares deposited under the Offer after the first date on which Shares
have been taken up and paid for by the Offeror will be taken up and paid for not
later than ten days after such deposit. The Offeror confirms that its
reservation of the right to delay payment for Shares which they have accepted
for payment is limited by the OBCA and the securities laws of certain Canadian
provinces which require that an offeror pay the consideration offered or return
the tendered securities promptly after termination or withdrawal of an offer.
Subject to applicable law, the Offeror may, in its discretion, at any time
before the Expiry Time if the applicable rights to withdraw any deposited Shares
have expired, take up and pay for all such Shares then deposited under the
Offer, provided that the Offeror agrees to take up and pay for all additional
Shares validly deposited thereafter.
The Offeror will pay for Shares validly deposited under the Offer and not
withdrawn by providing the Depositary with certificates for IDS Shares for
transmittal to depositing Shareholders. The Depositary will act as the agent of
persons who have deposited Shares in acceptance of the Offer for the purposes of
receiving payment and share certificates from the Offeror and transmitting such
payment and share certificates to such persons. Receipt of payment by the
Depositary will be deemed to constitute receipt of payment by persons depositing
Shares. Subject to proration, the number of Shares deposited by a Shareholder
will be multiplied by 2.323 if the Shareholder elects the All Share Option (or
1.1615 if the Shareholder elects the Cash-Share Option) and the Offeror will
issue the resulting whole number of IDS Shares to the Shareholder. The
determination of the number of IDS Shares issuable in exchange for each Share is
based on a value of $7.75 per IDS Share.
<PAGE>
Fractions of IDS Shares will not be issued; fractional interests will be paid
for in cash on the basis of $7.75 for each whole IDS Share. Under no
circumstances will interest accrue or be paid by the Offeror or the Depositary
on the purchase price of the Shares purchased by the Offeror, regardless of any
delay in making such payment.
Settlement with each Shareholder who has validly deposited and not withdrawn
Shares under the Offer will be effected by the Depositary by forwarding a
certificate representing the IDS Shares to which such Shareholder is entitled
and, if applicable, a cheque payable in Canadian funds, representing the cash
payment to which such Shareholder is entitled. Unless otherwise directed in the
Letter of Transmittal, any such share certificate and, if applicable, any such
cheque will be issued in the name of the registered holder of Shares so
deposited. Unless the person who deposits Shares instructs the Depositary to
hold such share certificate and, if applicable, such cheque for pick-up by
checking the appropriate box in the Letter of Transmittal, such share
certificate and, if applicable, such cheque will be forwarded by first class
mail to such person at the address specified in the Letter of Transmittal. If no
address is specified therein, such share certificate and, if applicable, such
cheque will be forwarded to the address of the holder as shown on the share
register maintained by Scintrex. Share certificates and cheques mailed in
accordance with this paragraph will be deemed to have been delivered at the time
of mailing.
Depositing Shareholders will not be obligated to pay brokerage commissions;
transfer taxes, if any, on the purchase of Shares will be paid by the Offeror.
If any deposited Shares are not accepted for payment pursuant to the terms
and conditions of the Offer for any reason or if certificates are submitted for
more Shares than are deposited, certificates for unpurchased Shares will be
returned, at the Offeror's expense, to the depositing Shareholder as soon as is
practicable following the Expiry Time or withdrawal and early termination of the
Offer, as the case may be, by either sending new certificates representing
Shares not purchased or returning the deposited certificates (and other relevant
documents). Certificates (and other relevant documents) will be forwarded by
first-class mail in the name of and to the address specified by the Shareholder
in the Letter of Transmittal or, if such name or address is not so specified, in
such name and to such address as shown on the share register maintained by
Scintrex, as soon as practicable after the Expiry Time or withdrawal and early
termination of the Offer, as the case may be.
7. Right to Withdraw Deposited Shares
Except as otherwise provided in this Section 7, all deposits of Shares
pursuant to the Offer are irrevocable. Any Shares deposited in acceptance of
this Offer may be withdrawn by or on behalf of the depositing Shareholder at any
time before 12:01 a.m. (Vancouver time) on May 7, 1998 and, unless already taken
up and paid for by the Offeror, at any time after May 31, 1998.
Additionally, unless otherwise required or permitted by applicable law, if:
(a) before the Expiry Time there is a variation in the terms of the Offer
(including any extension of the period during which Shares may be
deposited under the Offer or the modification or waiver of a term or
condition of the Offer, but excluding, unless otherwise required by
applicable law, a variation which consists solely of an increase in the
consideration offered under the Offer where the Expiry Time is not
extended for a period of greater than ten days); or
(b) before the Expiry Time or after the Expiry Time but before the expiry
of all rights of withdrawal in respect of the Offer, a change occurs in
the information contained in the Offer or in the Circular, as amended
from time to time, that would reasonably be expected to affect the
decision of a Shareholder to accept or reject the Offer (other than a
change that is not within the control of the Offeror or its
affiliates),
any Shares deposited under the Offer but not yet taken up by the Offeror may be
withdrawn by or on behalf of the depositing Shareholder at any time before the
expiration of ten days from the date of mailing or other communication of the
notice of that variation or change, subject to abridgement of that period
pursuant to such orders as may be granted by Canadian courts and securities
regulatory authorities.
Withdrawal of deposited Shares must be effected by notice of withdrawal,
which:
(a) must be made by or on behalf of the Shareholder by whom or on whose
behalf such Shares were deposited or a Notice of Guaranteed Delivery
was delivered;
(b) must be made by a method, including facsimile transmission, that
provides the Depositary with a written or printed copy;
(c) must be signed by or on behalf of the person who signed the Letter of
Transmittal accompanying the Shares to be
<PAGE>
withdrawn or by or on behalf of the person who signed the
Notice of Guaranteed Delivery;
(d) must specify that person's name, the number of Shares to be
withdrawn, the name of the registered Shareholder of the Shares to be
withdrawn and the certificate number shown on each certificate
representing the Shares to be withdrawn; and
(e) must be actually received by the Depositary within the time limits
indicated above at the office at which such Shares were deposited or
Notice of Guaranteed Delivery was delivered.
Any signature in the withdrawal notice must be guaranteed by an Eligible
Institution as described in the instructions and rules set forth in the Letter
of Transmittal, except in the case of Shares deposited for the account of an
Eligible Institution. A withdrawal will take effect only upon receipt by the
Depositary of the written notice of withdrawal.
If as a result of the non-satisfaction of a condition that has not been
waived, the Offeror is delayed in taking up or paying for Shares or is unable to
take up and pay for Shares, then, without prejudice to the Offeror's other
rights, Shares deposited under the Offer may be retained by the Depositary on
behalf of the Offeror and such Shares may not be withdrawn except to the extent
that depositing Shareholders are entitled to withdrawal rights as set forth in
this Section 7 or pursuant to applicable law.
All questions as to the validity (including timely receipt) and form of
notices of withdrawal will be determined by the Offeror in its sole discretion,
and such determination shall be final and binding. There will be no obligation
on the Offeror, the Dealer Manager or the Depositary to give any notice of any
defects or irregularities in any withdrawal and no liability will be incurred by
any of them for failure to give any such notice.
Any Shares withdrawn will be deemed not validly deposited for the purposes of
the Offer, but may be redeposited subsequently at or prior to the Expiry Time by
following the procedures described under "Manner of Acceptance" in Section 3 of
the Offer.
In addition to the foregoing rights of withdrawal, Shareholders in certain
provinces of Canada are entitled to statutory rights of rescission in certain
circumstances. See "Offerees' Statutory Rights" in Section 19 of the Circular.
8. Mail Service Interruption
Notwithstanding the provisions of the Offer, the Circular, the Letter of
Transmittal or the Notice of Guaranteed Delivery, share certificates, cheques
and any other relevant documents will not be mailed if the Offeror determines
that delivery thereof by mail may be delayed. Persons entitled to share
certificates, cheques and any other relevant documents that are not mailed for
the foregoing reason may take delivery thereof at the office of the Depositary
(upon application) to which the Shares were deposited until such time as the
Offeror has determined that delivery by mail will no longer be delayed.
Notwithstanding the provisions set out under "Payment for Deposited Shares" in
Section 6 of the Offer, share certificates, cheques and any other relevant
documents not mailed for the foregoing reason will be conclusively deemed to
have been delivered on the first day upon which they are available for delivery
to the depositing Shareholder at the appropriate office of the Depositary.
Notice of any determination regarding mail service delay or interruption made by
the Offeror will be given in accordance with the provisions set out under
"Notice and Delivery" in Section 10 of the Offer.
9. Reorganization, Dividends and Distributions
If, on or after the date of the Offer, Scintrex should divide, combine or
otherwise change any of the Shares or its capitalization, or disclose that it
has taken or intends to take any such action, the Offeror may (in its sole
discretion) make such adjustments as they consider appropriate to the purchase
price and the other terms of the Offer (including, without limitation, the type
of securities offered to be purchased and the amounts and types of consideration
payable therefor) to reflect that division, combination or other change.
Shares acquired pursuant to the Offer shall be transferred by the Shareholder
and acquired by the Offeror free and clear of all liens, charges, encumbrances,
claims and equities and together with all rights and benefits arising therefrom,
including the right to all dividends, distributions, payments, securities,
rights, warrants, assets or other interests which may be declared, paid, issued,
accrued, distributed, made or transferred on the date of the Offer on or in
respect of the Shares.
If Scintrex should declare or pay any cash dividend or stock dividend or
declare, make or pay any other distribution or payment on or declare, allot,
reserve, or issue any securities, rights, assets or other interests with respect
to any of the Shares which is or are payable or distributable to the
Shareholders of record on a date which is prior to the transfer of Shares taken
up pursuant to the Offer to the name of the Offeror or its nominees or
transferees on Scintrex's register, then, without prejudice
<PAGE>
to the Offeror's rights under Section 4 of the Offer, (i) in the case of any
such cash dividend, distribution or payment that does not exceed any cash
portion of the purchase price per Share, the cash payable per Share pursuant to
the Offer, if any, will be reduced by the amount of any such dividend,
distribution or payment paid or payable in respect of that Share, and (ii) in
the case of any such cash dividend, distribution or payment in an amount that
exceeds any cash portion of the purchase price per Share in respect of which the
dividend, distribution or payment is made, or in the case of any other dividend,
distribution, payment, right or other interest, the whole of any such dividend,
distribution, payment, right or other interest will be received and held by the
depositing Shareholder for the account of the Offeror and shall be promptly
remitted and transferred by the depositing Shareholder to the Depositary for the
account of the Offeror, accompanied by appropriate documentation of transfer.
Pending such remittance, the Offeror will be entitled to all rights and
privileges as the owner of any such dividend, distribution, payment, right or
other interest, and may withhold the entire purchase price payable by the
Offeror pursuant to the Offer or deduct from the purchase price payable by the
Offeror pursuant to the Offer the amount or value thereof, as determined by the
Offeror in its sole discretion.
10. Notice and Delivery
Any notice that the Offeror or the Depositary may give or cause to be given
under the Offer shall be deemed to have been properly given if it is mailed by
ordinary mail to the registered holders of Shares at their respective addresses
appearing in the securities registers maintained by Scintrex and, unless
otherwise specified by applicable law, will be deemed to have been received on
the first business day following mailing. These provisions apply notwithstanding
any accidental omission to give notice to any one or more Shareholders and
notwithstanding any interruption of mail services in Canada following mailing.
If mail service is interrupted following mailing, the Offeror intends to make
reasonable efforts to disseminate the notice by other means, such as
publication. Subject to applicable law, if post offices in Canada are not open
for the deposit of mail, any notice which the Offeror or the Depositary may give
or cause to be given under the Offer will be deemed to have been properly given
and to have been received by Shareholders if (i) it is given to the TSE for
dissemination through its facilities; (ii) it is published once in the National
Edition of The Globe and Mail, provided that if the National Edition of The
Globe and Mail is not being generally circulated, publication shall be made in
The Financial Post or any other daily newspaper or newspapers of general
circulation published in the city of Toronto; and (iii) it is given to Canada
Newswire or an equivalent news distribution organization.
The Offer will be mailed to registered Shareholders or made in such a manner
as is permitted by applicable regulatory authorities and the Offeror will use
its reasonable efforts to furnish the Offer to stockbrokers, investments
dealers, banks and similar persons whose names, or the names of whose nominees,
appear on the security position listings available in respect of Scintrex, who
are listed as participants in a clearing agency's security position listing, for
subsequent transmittal to beneficial owners of Shares if such listings are
received.
Wherever the Offer calls for documents to be delivered to the Depositary,
those documents will not be considered delivered unless and until they have been
physically received at the address listed for the Depositary in the Letter of
Transmittal or Notice of Guaranteed Delivery, as applicable. Wherever the Offer
calls for documents to be delivered to the Depositary, those documents will not
be considered delivered unless and until they have been physically received at
the office at the address listed in the Letter of Transmittal or Notice of
Guaranteed Delivery, as applicable.
11. Market Purchases
The Offeror has no current intention of acquiring beneficial ownership of
Shares while the Offer is outstanding, other than pursuant to the Offer.
However, the Offeror reserves the right to, and may, acquire Shares by making
purchases through the facilities of the TSE, subject to applicable law, at any
time and from time to time before the Expiry Time. In no event will the Offeror
make any such purchases of Shares through the facilities of the TSE until the
third clear trading day following the date of the Offer. The aggregate number of
Shares acquired by the Offeror through the facilities of the TSE during the
Offer Period will not exceed 5% of the number of Shares outstanding on the date
of the Offer. Any Shares so purchased shall be counted in determining whether
the condition as to the number of Shares deposited to the Offer has been
fulfilled.
12. Other Terms of the Offer
No stockbroker, investment dealer or other person has been authorized to give
any information or make any representation on behalf of the Offeror or its
affiliates other than as contained herein or in the accompanying Circular, and
if any such information is given or made it must not be relied upon as having
been authorized.
<PAGE>
This Offer and the accompanying Circular constitute the take-over bid
circular required under Canadian provincial securities legislation with respect
to the Offer.
This Offer and all contracts resulting from the acceptance hereof shall be
governed by, and construed in accordance with, the laws of the Province of
Ontario and the laws of Canada applicable therein.
In any jurisdiction in which this Offer is required to be made by a licensed
broker or dealer, this Offer shall be made on behalf of the Offeror by brokers
or dealers licensed under the laws of such jurisdiction.
The provisions of the Circular, the Letter of Transmittal and the Notice of
Guaranteed Delivery accompanying this Offer, including the instructions
contained therein, as applicable, form part of the terms and conditions of this
Offer. The Offeror will, in its sole discretion, be entitled to make a final and
binding determination of all questions relating to the interpretation of this
Offer, the Circular, the Letter of Transmittal and the Notice of Guaranteed
Delivery, the validity of any acceptance of this Offer, the validity of any
elections and the validity of any withdrawals of Shares.
This document does not constitute an offer or a solicitation to any person in
any jurisdiction in which such offer or solicitation is unlawful. The Offer is
not being made to, nor will deposits be accepted from or on behalf of holders of
Shares in the United States and the United Kingdom or in any jurisdiction in
which the making or acceptance thereof would not be in compliance with the laws
of such jurisdiction. However, the Offeror may, in its sole discretion, take
such action as it may deem necessary to extend the Offer to holders of Shares in
any such jurisdiction.
Dated: April 15, 1998
IDS INTELLIGENT DETECTION SYSTEMS INC.
By: (signed) MARIUSZ RYBAK
Chairman, President and Chief Executive Officer
<PAGE>
CIRCULAR
This Circular is furnished in connection with the accompanying Offer dated
April 15, 1998 by the Offeror to purchase all of the issued and outstanding
Shares, including Shares that may become outstanding on the exercise of options,
warrants, or other rights to acquire Shares (other than SRP Rights).
Shareholders should refer to the Offer for details of its terms and conditions,
including details as to payment and withdrawal rights.
The information concerning Scintrex contained in this Circular has been taken
from or is based upon publicly available documents and records of Scintrex on
file with Canadian securities regulatory authorities and other public sources.
Although the Offeror has no knowledge which would indicate that any of the
statements contained herein and taken from or based on such information are
untrue or incomplete, they do not assume any responsibility for the accuracy or
completeness of such information, or for any failure by Scintrex to disclose
publicly events or facts which may have occurred or which may affect the
significance or accuracy of any such information and which are unknown to the
Offeror.
1. The Offeror
The Offeror conducts its business through two operating divisions, the
chemical detection division and the IEC division.
Through its chemical detection division, the Offeror develops, manufactures
and markets a wide range of high-speed chemical detection, measurement and
analysis products which are based on patented technology. Such products, which
include airport scanners, hand-held drug detectors and mail scanners are
currently targetted at two principal markets, explosives detection and the drug
interdiction equipment markets. The Offeror's core technology is also adaptable
to many chemical detection applications beyond explosives detection and drug
interdiction including clinical diagnostic systems and industrial process
quality control systems.
Through its IEC division, the Offeror provides information technology
services including systems integration, engineering and consulting, primarily to
the Canadian Federal Government. The division also acts as a value-added
reseller of hardware products manufactured by several manufacturers.
The Offeror's head office and principal place of business is located at 66
Slater Street, 6th Floor, Ottawa, Ontario K1P 5H1. The Offeror's common shares
are traded on the TSE under the symbol "ISD".
As of the date hereof, the Offeror owns 2,400 Shares.
Reference is made to Schedule C for a fuller description of the Offeror's
business.
2. Scintrex Limited
Scintrex is engaged in the research, design and manufacture of earth science
geophysical and geochemical exploration instrumentation, analytical instruments,
including portable detectors of explosives and narcotics, nuclear reactor
monitoring devices, environment and defence-related equipment, and other
scientific products. From bases in Canada and Australia, Scintrex also provides
ground and airborne exploration and consulting services for the mining industry.
Scintrex conducts its business through four divisions - the Earth Science
Instrumentation division, the Airborne Systems and Surveys division, the
Analytical and Security division and the Nucleonics division.
Scintrex's head office and principal place of business is located at 222
Snidercroft Road, Concord, Ontario L4K 1B5. The Shares are traded on the TSE
under the symbol "SCT".
3. Background to the Offer
In connection with the Offeror's initial public offering completed in
December 1997, the Offeror expressed its intention to pursue possible
acquisitions of complementary products and technologies. In January 1998, the
Offeror began to identify and research potential targets. While the Offeror had
previously been aware of Scintrex, its closer examination of Scintrex in March
1998 led management of the Offeror to conclude that Scintrex would be a suitable
acquisition candidate. In this regard, it retained Yorkton Securities Inc. to
act as its financial advisor in order to assist in gathering additional
information concerning Scintrex and presenting its recommendations to the board
of directors of the Offeror. Yorkton Securities Inc. determined that certain of
the institutional shareholders of Scintrex would be receptive to an appropriate
offer by the Offeror. Yorkton Securities Inc. then contacted the Chief Executive
Officer of Scintrex on March 26 and 30, 1998 and was advised by him that
Scintrex would not be interested in undertaking discussions with the Offeror. On
April 2, 1998, the Offeror announced its intention to initiate a take-over bid
for Scintrex on the terms set forth in the Offer. On April 14, 1998, after
<PAGE>
ongoing discussions, the holders of approximately 19.9% of the then issued and
outstanding Shares entered into a Lock-Up Agreement pursuant to which they
agreed, subject to the terms thereof, to tender their Shares into the Offer.
4. Arrangements with Certain Shareholders
On April 14, 1998, the Offeror entered into a lock-up agreement (the "Lock-Up
Agreement") with BPI Capital Management Corporation, Jeffrey D. Stacey &
Associates Ltd. and Research Capital Corporation pursuant to which such
Shareholders agreed to accept the Offer and tender (or cause to be tendered) an
aggregate of 537,200 Shares owned by them, representing approximately 19.9% of
the issued and outstanding Shares of Scintrex, to the Offer on the terms and
conditions set out therein.
Under the Lock-Up Agreement, in the event that a bona bide offer for which
adequate financial arrangements have been made by a party other than the Offeror
to purchase Shares (a "Competing Offer") which has a value per share that
exceeds $19.50, and the Offeror does not match or exceed such Competing Offer
within 72 hours of the commencement of such Competing Offer, each seller under
the Lock-Up Agreement is entitled to withdraw its shares from the Offer.
If the Shares covered by the Lock-Up Agreement have not been taken up and
paid for by the Offeror prior to the close of business on the 75th day following
the date of the Offer, then each party to the Lock-Up Agreement may withdraw
from the Offer the Shares deposited by them.
5. Purpose of the Offer
The purpose of the Offer is to enable the Offeror to acquire control of
Scintrex and ultimately to own all of the issued and outstanding Shares,
including Shares which may become outstanding on the exercise of stock options,
warrants, or other rights to purchase Shares (other than SRP Rights). See also
"Acquisition of Shares not Deposited under the Offer" in Section 15 of the
Circular. The exact timing and details of a Compulsory Acquisition and
Subsequent Acquisition Transaction involving Scintrex will necessarily depend
upon a variety of factors, including the number of Shares acquired pursuant to
the Offer.
Although the Offeror currently intends to propose a Compulsory Acquisition or
a Subsequent Acquisition Transaction generally on the same terms as the Offer,
it is possible that, as a result of delays in the Offeror's ability to effect
such a transaction, information hereafter obtained by the Offeror, changes in
general economic, industry, regulatory or market conditions or in the business
of Scintrex, or other currently unforeseen circumstances, such a transaction may
not be so proposed, may be delayed or abandoned or may be proposed on different
terms. The Offeror expressly reserves the right not to propose a Compulsory
Acquisition or Subsequent Acquisition Transaction involving Scintrex, or to
propose a Subsequent Acquisition Transaction on terms other than those described
herein.
If the Offeror decides not to propose a Compulsory Acquisition or a
Subsequent Acquisition Transaction, or propose a Subsequent Acquisition
Transaction but cannot promptly obtain any required approvals, the Offeror will
evaluate its other alternatives. Such alternatives could include, to the extent
permitted by applicable law, purchasing additional Shares in the open market, in
privately negotiated transactions, another take-over bid or exchange offer or
taking no further action to acquire additional Shares. Any additional purchases
of Shares could be at a price greater than, equal to or less than the price to
be paid for Shares under the Offer and could be for cash, securities and/or
other consideration. Alternatively, the Offeror may sell or otherwise dispose of
any or all Shares acquired pursuant to the Offer, on terms and at prices then
determined by the Offeror, which may vary from the price paid for Shares under
the Offer.
6. Plans for Scintrex Limited
If the Offer is successful and the Offeror acquires control of Scintrex as a
result thereof, it is expected that certain changes will be effected with
respect to the composition of the board of directors of Scintrex to allow
nominees of the Offeror to become members of the board of directors of Scintrex.
The Offeror believes that there are a number of synergies that can be
realized through the combination of the operations of the Offeror and Scintrex,
particularly in the areas of selling, distribution, administration, and
manufacturing. The Offeror believes that the acquisition of Scintrex accelerates
the Offeror's strategy of both penetrating its explosive detection and drug
interdiction markets and leveraging its technology into other markets including
industrial process control and environmental applications.
The Offeror's products are based on patented technology which combines a
GC/IMS analytical detection system, an automated preconcentrator to
automatically capture samples for testing and proprietary analytical computer
software to provide fully automated, unmanned operation and detailed results
analysis. This technology has been accepted by the United States Federal
Aviation Administration and by the United Kingdom Department of Transport for
explosives detection
<PAGE>
purposes. On the other hand, Scintrex's technology has not been accepted
by the United States Federal Aviation Administration. The acquisition by
IDS of Scintrex will allow IDS to take advantage of Scintrex's existing
sales and distribution channels in these markets while providing
Scintrex with the enhanced IDS technology.
IDS intends to launch its handheld drug detection unit in June 1998 which
relies on the proprietary patented GC/IMS technology. This technology will
enhance that currently used by Scintrex in the manufacture of its hand held drug
detection units. The acquisition by IDS of Scintrex will allow IDS to take
advantage of Scintrex's existing ability to manufacture, in large quantities,
the hand held narcotic detection units and will provide the Scintrex
distribution channels with a superior product for drug interdiction. It is
anticipated that the rapid expansion planned for IDS will be able to be
accommodated in Scintrex's 70,000 square foot facility in Concord, Ontario.
IDS believes its core GC/IMS technology can be readily adapted to other
applications through the modification of software algorithms and the physical
characteristics of the analytical system. The acquisition of Scintrex will allow
IDS to enter these new markets, from a marketing and distribution perspective,
much more effectively due to Scintrex's existing presence in the environmental
and mining industries through its Earth Science Division.
IDS is currently in a high growth phase in terms of human resource
requirements which will be alleviated by the addition of Scintrex employees
primarily in the areas of research and development, sales and marketing, and
manufacturing. Operational efficiencies will be experienced in these areas along
with administration by the contemplated transaction as a result of increased
revenue per person.
From an investor perspective, IDS is much more widely followed in the
investment community due to its recent listing on the TSE and its aggressive
growth strategy which includes growth both internally and through acquisition
and in its existing and new markets through the leveraging of the IDS
technology. On the other hand, Scintrex does not appear to be widely followed in
the investment community.
Except as described in the Offer or in the Circular, the Offeror has no
current plans or proposals which would relate to or result in any material
changes in the affairs of Scintrex, including any proposal to liquidate
Scintrex, to sell, lease or exchange all or a substantial part of its assets, to
amalgamate it with any other business organization or to make any material
change in its business, other than to liquidate Scintrex into, or amalgamate
Scintrex with IDS or one or more subsidiaries of IDS.
If permitted by applicable law, subject to the completion of the Offer, if
all of the issued and outstanding Shares are acquired as a result of the Offer,
a Compulsory Acquisition or a Subsequent Acquisition Transaction, if any, it is
intended to delist the Shares from the TSE and, subject to applicable securities
laws in provinces where Scintrex is a reporting issuer, to cause Scintrex to
cease to be a reporting issuer in such provinces. See "Price Range and Trading
Summary of Shares" in Section 12 of the Circular.
7. Source of Funds
The Offeror estimates that it will require up to $19.5 million in cash to
purchase all of the Shares (other than the Shares held by it) and to pay related
fees and expenses incurred in connection with the Offer. The Offeror presently
has approximately $30 million in cash and other short-term liquid investments
which it intends to utilize for such purposes.
8. Ownership of and Trading in Securities of Scintrex Limited
Other than as disclosed below, none of the Offeror, any affiliates or
associates thereof, or any of the directors or officers of the Offeror or any of
their respective associates beneficially owns, directly or indirectly, or
controls or exercises direction over any securities of Scintrex, other than
2,400 Shares (less than 0.1% of the Shares then outstanding) beneficially owned
by the Offeror, and, to the knowledge of the Offeror and its directors and
officers after reasonable inquiry, no securities of Scintrex are beneficially
owned, directly or indirectly, by, nor is control or direction over any such
securities exercised by, any person or company who beneficially owns, directly
or indirectly, or controls or exercises direction over more than 10% of any
class of equity securities of the Offeror or shares of the Offeror carrying more
than 10% of the votes attached to the shares of the Offeror. No person or
company is acting jointly or in concert with the Offeror.
No securities of Scintrex have been traded in the six-month period preceding
the date of the Offer by the Offeror, or by any affiliates or associates of the
Offeror, other than 2,400 Shares acquired by the Offeror prior to the date of
the announcement of the Offer, and to the knowledge of the Offeror and its
directors and senior officers after reasonable inquiry, other than as disclosed
below, no securities of Scintrex have been traded in the six-month period
preceding the date of the Offer by any of the directors or officers of the
Offeror or any of its associates, or by any person or company who beneficially
owns, directly or indirectly, more than 10% of any class of equity securities of
the Offeror or shares of the Offeror carrying more than 10% of the votes
attached to the shares of the Offeror.
<PAGE>
Michel Brown, Senior Vice-President, Operations, of the Offeror acquired 410
Shares in February 1998 for a purchase price of $11.60 per Share. Mr. Brown
subsequently sold all of such Shares in April 1998 for $14.90 per Share.
9. Commitments to Acquire Securities of Scintrex Limited
None of the Offeror, any of its affiliates or any directors or senior
officers of the Offeror or, to the best of the knowledge of the Offeror and its
directors and senior officers, after reasonable inquiry, any associates of the
directors and senior officers of the Offeror, or any person or company who
beneficially owns (directly or indirectly) more than 10% of any class of the
Offeror's equity securities has any commitments to acquire equity securities of
Scintrex.
10. Arrangements, Agreements or Understandings
There are no contracts, arrangements or agreements made or proposed to be
made between the Offeror and any of the directors or officers of Scintrex and no
payments or other benefits are proposed to be made or given by the Offeror to
the directors or officers of Scintrex by way of compensation for loss of office
or for remaining in or retiring from office (except as may be required pursuant
to those persons' existing employment agreements with Scintrex). There are no
contracts, arrangements or understandings, formal or informal, between the
Offeror and any security holder of Scintrex with respect to the Offer, a
Compulsory Acquisition or any Subsequent Acquisition Transaction or between the
Offeror and any person or company (other than their professional advisors and
agents) with respect to any securities of Scintrex in relation to the Offer, a
Compulsory Acquisition or any Subsequent Acquisition Transaction. See "Other
Matters Relating to the Offer - Financial Advisor, Dealer Manager and Soliciting
Dealer Group" in Section 18.
11. Material Changes and Other Information Concerning Scintrex Limited
The Offeror has no information which indicates any material change in the
affairs of Scintrex since the date of the last published financial statements of
Scintrex other than as has been publicly disclosed by Scintrex. The Offeror has
no knowledge of any material fact concerning securities of Scintrex that has not
been generally disclosed by Scintrex or any other matter that has not previously
been generally disclosed but which would reasonably be expected to affect the
decision of Shareholders to accept or reject the Offer.
12. Price Range and Trading Summary of the Shares
The Shares are listed and posted for trading on the TSE. The following table
sets forth the high and low sales price and volume of sales of the Shares traded
on the TSE for the periods indicated:
<PAGE>
Common Shares
The Toronto Stock Exchange
--------------------------
High Low Volume
---- --- ------
($) ($)
1997
April........................................ 15.95 13.00 125,397
May.......................................... 20.50 14.25 196,335
June......................................... 22.00 18.50 53,169
July......................................... 18.00 16.50 31,260
August....................................... 18.00 15.50 27,307
September.................................... 16.80 14.50 27,414
October...................................... 17.40 14.50 61,770
November..................................... 16.00 12.65 49,183
December..................................... 13.00 11.50 133,831
1998
January...................................... 14.90 11.50 39,073
February..................................... 14.50 12.45 50,945
March........................................ 13.10 11.00 83,239
April (to April 14).......................... 16.00 11.75 116,090
13. Effect of the Offer on Securities of Scintrex Limited
The purchase of Shares by the Offeror pursuant to the Offer will reduce the
number of Shares which might otherwise trade publicly, as well as the number of
Shareholders, and, depending on the number of Shareholders depositing and the
number of Shares purchased under the Offer, could adversely affect the liquidity
and market value of the remaining Shares held by the public. After the purchase
of Shares under the Offer, it is the Offeror's intention to take steps toward
the elimination of any public reporting requirements of Scintrex under
applicable securities legislation in any province if it has an insignificant
number of security holders in such jurisdiction.
The rules and regulations of the TSE establish certain criteria which, if not
met, could lead to the delisting of the Shares from the TSE. Among such criteria
are the number of Shareholders, the number of shares publicly held and the
aggregate market value of the shares publicly held. Depending on the number of
Shares purchased pursuant to the Offer, it is possible that the Shares would
fail to meet the criteria for continued listing on the TSE. If this were to
happen the Shares could be delisted and this could, in turn, adversely affect
the market or result in a lack of an established market for the Shares. It is
the intention of the Offeror to apply to delist the Shares from the TSE as soon
as is practicable after completion of the Offer, if all of the issued and
outstanding Shares are deposited, or after a Compulsory Acquisition or a
Subsequent Acquisition Transaction, if any.
14. Shareholders Rights Plan
The following description of the Scintrex Shareholders Rights Plan is based
solely upon a review of the summary of such Plan contained in Scintrex's
Management Information Circular relating to its 1997 Annual and Special Meeting
of Shareholders held on June 25, 1997.
Pursuant to the Shareholders Rights Plan, one SRP Right has been issued in
respect of each Share and has been authorized for issuance in respect of each
Share subsequently issued. The SRP Rights are attached to the Shares and are not
exercisable until the "Separation Time", which is defined under the Shareholders
Rights Plan to mean the close of business on the eighth trading day after the
earlier of (i) the first date of public announcement that a person has become an
"Acquiring Person" (as defined below); (ii) the date of commencement of, or
first public announcement in respect of a take-over bid to acquire 20% or more
of the Shares, other than an acquisition pursuant to a Permitted Bid (as defined
in the Shareholders Rights Plan), or (iii) the date upon which a Permitted Bid
ceases to be a Permitted Bid.
The Shareholders Rights Plan defines an Acquiring Person as one who,
including others acting jointly or in concert, acquires 20% or more of the
outstanding Shares, other than by way of a Permitted Bid or a competing bid.
Upon such acquisition (defined in the Shareholders Rights Plan as a "Flip-in
Event"), the Rights held by the Acquiring Person become null and void. After the
Separation Time, each Right (other than those held by the Acquiring Person) will
permit the holder thereof to purchase that number of Shares having an aggregate
market price on the day of the Flip-in Event equal to twice the exercise price
for an amount equal to the exercise price. Upon a Flip-in Event occurring and
the Rights separating from the attached Shares, reported earnings per Share on a
fully diluted or non-diluted basis may be effected. Holders of Rights who do not
exercise their Rights upon the occurrence of a Flip-in Event may suffer
substantial dilution.
The Offer does not Constitute a Permitted Bid
Scintrex's Board of Directors may, in good faith, prior to a Flip-in Event,
waive the dilutive effects of the Shareholders Rights Plan. In respect of a
particular Flip-in Event, the Board of Directors may also waive the Shareholders
Rights Plan in respect of a particular Flip-in Event that has occurred through
inadvertence, provided that the Acquiring Person that
<PAGE>
inadvertently triggered such Flip-in Event reduces its beneficial holders to
less than 20% of the outstanding Shares within 14 days or such other period as
may be specified by the Board. Prior to the occurrence of a Flip-in Event, the
Board of Directors may, at its option, elect to redeem all, but not less than
all, of the outstanding Rights at a price of $0.001 per Right.
The Offer is being made on the condition, among others, that the board of
directors of Scintrex shall have redeemed the SRP Rights or waived the
application to the Offer of the Shareholders Rights Plan or that conditions
exist such that the Offeror is otherwise satisfied that the Shareholders Rights
Plan does not affect the Offer, a Compulsory Acquisition or any Subsequent
Acquisition Transaction. See paragraph (11) under "Conditions of the Offer" in
Section 4 of the Offer.
The Offeror believes that the Offer is in the best interests of the
Shareholders and that they should be free to make their own investment decision
as to whether or not to accept the Offer without hindrance. If the board of
directors of Scintrex does not waive the application of the Shareholders Rights
Plan to the Offer and any related transaction, the Offeror may take legal
action, possibly including application to relevant securities regulatory
authorities, to obtain orders to cease trade the SRP Rights.
15. Acquisition of Shares Not Deposited Under the Offer
If, within 120 days after the date of the Offer, the Offer has been accepted
by holders of not less than 90% of the Shares, other than Shares held on the
date of the Offer by or on behalf of the Offeror or its affiliates and
associates (as each of such terms is defined in the OBCA), the Offeror currently
intends to acquire, pursuant to the provisions of Section 188 of the OBCA (a
"Compulsory Acquisition"), the remainder of the Shares on the same terms as the
Offeror acquired Shares pursuant to the Offer.
To exercise such statutory right, the Offeror must give notice (the
"Offeror's Notice") to each registered holder of the Shares who did not accept
the Offer (and each person who subsequently acquires any such Shares (a
"Dissenting Offeree") of such proposed acquisition on or before the earlier of
60 days from the Expiry Time and 180 days from the date of the Offer. Within 20
days after giving the Offeror's Notice, the Offeror must pay or transfer to
Scintrex the consideration the Offeror would have had to pay or transfer to the
Dissenting Offerees if they had elected to accept the Offer, to be held in trust
for the Dissenting Offerees. In accordance with Section 188 of the OBCA, within
20 days after receipt of the Offeror's Notice, each Dissenting Offeree must send
the certificates representing the Shares held by such Dissenting Offeree to
Scintrex, and must elect either to transfer such Shares to the Offeror on the
terms of the Offer or to demand payment of fair value of the Shares held by such
Dissenting Offeree by so notifying the Offeror. If a Dissenting Offeree has
elected to demand payment of the fair value of such Shares, the Offeror may
apply to a court having jurisdiction to hear an application to fix the fair
value of the Shares of that Dissenting Offeree. If the Offeror fails to apply to
such court within 20 days after it paid the consideration to Scintrex as
referred to above, the Dissenting Offeree may then apply to the court within a
period of a further 20 days to have the court fix the fair value of the Shares
of that Dissenting Offeree. If the Dissenting Offeree does not apply to a court
having jurisdiction within such period, the Dissenting Offeree will be deemed to
have elected to transfer such Shares to the Offeror on the terms of the Offer.
Any judicial determination of the fair value of the Shares could be more or less
than the amount paid pursuant to the Offer.
The foregoing is a summary only. Reference is made to Section 188 of the OBCA
for a complete description of the provisions regarding Compulsory Acquisitions.
The provisions of Section 188 are complex and may require strict adherency to
notice and timing provisions, failing which such rights may be lost or altered.
Shareholder who wish to be better informed about these provisions should consult
their legal advisors.
See "Canadian Federal Income Tax Considerations" in Section 17 of the
Circular, for a discussion of the tax consequences to Shareholders in the event
of a Compulsory Acquisition.
Subsequent Acquisition Transactions
If the statutory right of Compulsory Acquisition described above is not
available, or if the Offeror elects not to proceed under such provisions, then
the Offeror currently intends to cause a special meeting of Shareholders to be
called to consider an amalgamation, statutory arrangement, capital
reorganization, merger or other transaction (each, a "Subsequent Acquisition
Transaction") involving the Offeror and/or an affiliate of the Offeror, Scintrex
and the Shareholders for the purposes of enabling the Offeror to acquire all of
the Shares not deposited under the Offer. The Offeror intends that the Shares
acquired by it pursuant to the Offer (including Shares covered by the Lock-Up
Agreement) will be counted as part of any minority approval in connection with
any such transaction. In any amalgamation, statutory arrangement, capital
reorganization, merger or other transaction, the holders of Shares may have the
right to dissent under the OBCA and to be paid fair value for their Shares, with
such fair value to be determined by a court.
Each type of Subsequent Acquisition Transaction described above would be a
"going private transaction" under the OBCA,
<PAGE>
Policy 9.1 and Policy Q-27 and the regulations to securities legislation
in certain of the provinces of Canada (collectively the "Regulations"),
if such Subsequent Acquisition Transaction would result in the interest
of a holder of Shares (the "affected securities") being terminated
without the consent of the holder and without the substitution therefor
of an interest of equivalent value in a participating security of
Scintrex, a successor to the business of Scintrex or a person who
controls Scintrex or, in the case of Policy 9.1 and Policy Q-27, a
person who controls a successor to the business of Scintrex. In certain
circumstances, the provisions of Policy 9.1 and Policy Q-27 may also
deem certain types of Subsequent Acquisition Transactions to be "related
party transactions".
The OBCA, Policy 9.1, Policy Q-27 and the Regulations provide that, unless
exempted, a person proposing to carry out a going private transaction is
required to prepare a valuation of the affected securities (and any non-cash
consideration being offered therefor) and provide to the holders of the affected
securities a summary of such valuation. Policy 9.1 and Policy Q-27 have similar
requirements for related party transactions. In connection therewith, the
Offeror intends to rely on any exemption then available or to seek waivers
exempting the Offeror and Scintrex, as appropriate, from the requirement to
prepare a valuation in connection with a Subsequent Acquisition Transaction.
The OBCA, Policy 9.1 and Policy Q-27 would also require that, in addition to
any other required securityholder approval, in order to complete a going private
transaction, the approval of a simple or two-thirds majority (depending on the
nature of the transaction) of the votes cast by "minority" holders of the
affected securities be obtained. Minority approval must be obtained from each
class of the affected securities in which the interests of the holders would be
terminated by the going private transaction. The necessary level of
securityholder approval required to complete a going private transaction is a
simple majority if the consideration offered pursuant to such transaction is
payable entirely in cash or the right to receive cash within 35 days after
approval of such transaction and, if a formal valuation is required, such
consideration is not less than the value, or the simple average of the high and
low ends of the range of values, arrived at pursuant to such valuation;
otherwise, the necessary level of securityholder approval is 662/3% of the votes
cast by "minority" holders of the affected securities. In relation to the Offer
and any Subsequent Acquisition Transaction which constitutes a going private
transaction (or a related party transaction within the meaning of Policy 9.1 and
Policy Q-27), the "minority" holders will be, unless an exemption is available
or discretionary relief is granted by the OSC and QSC, as required, all holders
of affected securities other than the Offeror, its directors and senior officers
and any associate or affiliate of the Offeror and its director and senior
officers and any person or company acting jointly or in concert with the Offeror
or any of its directors or senior officers in connection with the Offer or the
subsequent going private transaction. However, Policy 9.1 and Policy Q-27 also
provide that the Offeror may treat Shares acquired pursuant to the Offer as
"minority" shares, as the case may be, and to vote them, or to consider them
voted, in favour of such going private (or related party) transaction if the
consideration per security in the going private (or related party) transaction
is at least equal in value to the consideration paid under the Offer. The
Offeror currently intends that the consideration under any Subsequent
Acquisition Transaction proposed by it would be identical to the consideration
under the Offer. The OBCA does not contain such a provision, but provides that
application may be made to the OSC for an exemption from the applicable OBCA
requirements.
In addition, under Policy 9.1 and Policy Q-27, if, following the Offer, the
Offeror and its affiliates are the registered holders of 90% or more of the
affected securities at the time the Subsequent Acquisition Transaction is
initiated, the requirement for minority approval would not apply to the
transaction if a statutory dissent and appraisal remedy is available to the
minority securityholders or a substantially equivalent enforceable right is made
available to minority securityholders.
In the event a going private transaction or another Subsequent Acquisition
Transaction were to be consummated, holders of Shares, under Section 185 of the
OBCA, may have the right to dissent and demand payment of the fair value of such
Shares. This right, if the statutory procedures are complied with, could lead to
a judicial determination of the fair value required to be paid to such
dissenting holders for their Shares. The fair value of Shares so determined
could be more or less than the amount paid per Share pursuant to the Subsequent
Acquisition Transaction or the Offer. Any such judicial determination of the
fair value of the Shares could be based upon considerations other than, or in
addition to, the market price of the Shares.
See "Canadian Federal Income Tax Considerations" in Section 17 of the
Circular, for a discussion of the tax consequences to Shareholders in the event
of a Subsequent Acquisition Transaction.
Judicial Developments
Prior to the pronouncement of Policy 9.1 and Policy Q-27, Canadian courts
had, in a few instances, granted preliminary injunctions to prohibit
transactions which constituted "going private transactions" within the meaning
of Policy 9.1 and Policy Q-27. The Offeror has been advised that more recent
legislative enactments, notices and judicial decisions indicate a willingness to
permit "going private transactions" to proceed subject to compliance with
requirements intended to ensure procedural and substantive fairness to the
minority shareholders.
Shareholders should consult their legal advisors for a determination of their
legal rights with respect to any transaction which may constitute a Subsequent
Acquisition Transaction.
<PAGE>
16. Treatment of Options
The Offer is not being made for the outstanding Options. Holders of Options
wishing to accept the Offer in respect of the Shares into which the Options are
convertible should, if permitted under the terms of the applicable option
agreement, exercise the conversion rights attached thereto in a timely manner
and comply with the procedure for acceptance described under "The Offer" in
Section 1 of the Offer.
17. Canadian Federal Income Tax Considerations
KPMG, Chartered Accountants, have prepared the following summary of the
principal Canadian federal income tax consequences generally applicable to a
Shareholder in respect of (i) the sale of Shares pursuant to the Offer or
otherwise pursuant to a Compulsory Acquisition or a Subsequent Acquisition
Transaction, and (ii) the acquisition of IDS Shares under the Offer.
This summary is based upon KPMG's understanding of the provisions of the Tax
Act and the regulations thereunder as they currently exist and current published
administrative practices of Revenue Canada. The summary takes into account all
specific proposals to amend the Tax Act which have been publicly announced by
the Minister of Finance (Canada) prior to the date hereof (the "Proposed
Amendments"), although there is no certainty that the Proposed Amendments will
be enacted in the form proposed, if at all; however, the Canadian federal income
tax considerations generally applicable to a Shareholder described below will
not be materially different if the Proposed Amendments are not enacted. The
summary does not otherwise take into account or anticipate any changes in law,
whether by judicial, governmental or legislative decision or action or changes
in administrative practices of Revenue Canada, nor does it take into account
provincial, territorial or foreign income tax legislation or considerations. The
provisions of provincial income tax legislation vary from province to province
in Canada and in some cases differ from federal income tax legislation.
The summary is of a general nature only and is not exhaustive of all possible
Canadian federal income tax considerations. This summary does not constitute,
and should not be construed to be, tax advice or representations to any
particular Shareholder to whom the Offer is made. Shareholders are, therefore,
advised to consult their own tax advisors with respect to their individual
circumstances, including the application and effect of the income and other tax
laws of any country, province, state or local tax authority.
Shareholders who otherwise recognize a capital gain on the disposition of
their Shares and are not exempt from tax under the Tax Act, may wish to consider
making the joint tax election (described below) for the purpose of achieving a
full or partial tax-deferral transfer or "rollover".
(i) Shareholders Resident in Canada
The following portion of the summary is generally applicable to Shareholders
who, for the purposes of the Tax Act, are resident or deemed to be, resident in
Canada, deal at arm's length with Scintrex and the Offeror, are not affiliated
for the purposes of the Tax Act with Scintrex or the Offeror, are not financial
institutions (to which the mark-to-market rules contained in the Tax Act may be
applicable) and hold Shares as capital property. Shares generally will be
considered capital property to a Shareholder unless the Shareholder holds such
Shares in the course of carrying on a business, or the Shareholder has acquired
them in a transaction or transactions considered to be an adventure in the
nature of trade. Certain Shareholders whose Shares might not otherwise qualify
as capital property may, in certain circumstances, treat the Shares as capital
property by making the election permitted by subsection 39(4) of the Tax Act.
Disposition of Shares Subject to Section 85.1 of the Tax Act
A Shareholder who disposes of Shares pursuant to the Offer and elects the All
Share Option will generally be subject to the provisions of section 85.1 of the
Tax Act. Unless the Shareholder chooses to treat the exchange of his Shares for
IDS Shares as a taxable transaction, or makes a joint election under subsection
85(1) or (2) of the Tax Act as discussed below, the Shareholder will be deemed
to have disposed of the Shares for proceeds of disposition equal to his adjusted
cost base in respect of such shares and to have acquired the IDS Shares received
in exchange therefor at a like amount. No capital gain or capital loss will
result to such a Shareholder. A Shareholder desiring this result does not have
to file any election form or other document with Revenue Canada, although the
Shareholder must report the disposition in his return of income for the taxation
year within which the exchange occurs.
This automatic tax deferred exchange will not be available to any Shareholder
electing the Cash-Share Option. The
<PAGE>
tax deferred exchange is also not available to any Shareholder electing
the All Share Option where:
(i) such Shareholder has, in his return of income for the taxation year
of the exchange, included in his income for that year any portion of
the gain or loss, otherwise determined from the disposition of the
Shares exchanged;
(ii) such Shareholder and IDS were, immediately prior to the exchange,
not dealing at arm's length with each other;
(iii) such Shareholder, immediately after the exchange, either alone, or
together with persons with whom he was not dealing at arm's length,
controlled IDS, directly or indirectly, or beneficially owned shares
of IDS having a fair market value of more that 50% of the fair
market value of the outstanding shares of the capital stock of the
Offeror; or
(iv) such Shareholder did not hold the Shares as capital property for the
purposes of the Tax Act.
Election under Section 85 of the Tax Act
A Shareholder who is an Eligible Holder (as defined below) and who disposes
of Shares pursuant to the Offer may obtain a full or partial tax deferred
"rollover" by entering into a joint tax election with the Offeror and filing
with Revenue Canada (and, where applicable, a provincial tax authority) such
election pursuant to subsection 85(1) of the Tax Act, or, in the case of an
Eligible Holder that is a partnership, under subsection 85(2) of the Tax Act
(and the corresponding provisions of any applicable provincial tax legislation)
in respect of the Shares and specifying therein a transfer price (the "Elected
Transfer Price"), within the limits described below.
An Eligible Holder is a Shareholder who is (i) a resident of Canada for the
purposes of the Tax Act and who is not exempt from Canadian tax under the Tax
Act, or (ii) a non-resident of Canada for the purposes of the Tax Act whose
Shares constitute "taxable Canadian property" (as defined in the Tax Act) and
who is not exempt from Canadian tax in respect of any gain realized on the
disposition of the Shares by reason of an exemption contained in an applicable
income tax convention. A partnership that holds Shares is also an Eligible
Holder if one or more members of the partnership would be an Eligible Holder if
such member held the Shares directly.
The joint tax election must specify the Elected Transfer Price in respect of
the Shares which may not:
(a) be less than any cash consideration received by an Eligible Holder;
(b) be less than the lesser of the Eligible Holder's adjusted cost base
of the Shares at the time of the disposition and the fair market
value of the Shares at that time; or
(c) exceed the fair market value of the Shares at the time of its
disposition.
Elected Transfer Prices which do not otherwise comply with the foregoing
limitations will automatically be adjusted under the Tax Act so that they are in
compliance.
Where an Eligible Holder makes the joint tax election in respect of the
disposition of such holder's Shares in the form prescribed under the Tax Act and
specifies therein an Elected Transfer Price within the limits set out in the Tax
Act, and such election is filed with Revenue Canada within the time prescribed
in the Tax Act, the Canadian federal income tax consequences are as follows:
(a) Such Shares will be deemed to have been disposed of for proceeds of
disposition equal to the Elected Transfer Price. If the proceeds of
disposition in respect of the Shares are equal to the aggregate of
the Eligible Holder's adjusted cost base of those Shares (determined
immediately before the disposition) and any reasonable costs of
disposition, no capital gain or capital loss will be realized by the
Eligible Holder.
(b) Subject to the limitations set out in subsections 85(1) and (2) of
the Tax Act, to the extent that the proceeds of disposition in
respect of the Shares exceed (or are less than) the aggregate of the
adjusted cost base thereof and any reasonable costs of disposition,
the holder will realize a capital gain (or a capital loss) that will
be taxed as described below under "Capital Gains and Capital Losses".
(c) The cost to an Eligible Holder of the IDS Shares received upon the
disposition of the Shares will be equal to the Elected Transfer Price
in respect of the Shares, less any cash consideration received.
Consequently, notwithstanding any joint tax election, if the cash received by
an Eligible Holder exceeds the adjusted cost base of his Shares and any
reasonable costs of disposition, the holder will realize a capital gain at least
equal to such excess.
<PAGE>
The tax treatment of any such capital gain will generally be the same as
described below under "Capital Gains and Capital Losses".
The Tax Election Filing Package (defined below) may be obtained from the
Depositary at its offices shown on the last page of this Offer and Circular. The
election forms may also be obtained directly from Revenue Canada and (if
applicable) the appropriate provincial election forms may be obtained from the
relevant provincial income tax authorities. An Eligible Holder interested in
obtaining a Tax Election Filing Package should indicate it on the Letter of
Transmittal accompanying this Offer in the space provided therein.
In order to make a joint tax election, a duly completed Tax Election Filing
Package together with any required supporting schedules must be signed by the
Eligible Holder and must be received by the Depositary on or before February 28,
1999. The Offeror will not execute any tax election received by the Depositary
after February 28, 1999. The Tax Election Filing Package consists of:
(a) two (2) copies of Revenue Canada form T2057 or, if the Eligible
Holder is a partnership as indicated on the Letter of Transmittal,
then two (2) copies of Revenue Canada form T2058;
(b) if the Eligible Holder is required to file in Quebec as indicated on
the Letter of Transmittal, then two (2) copies of the Quebec Tax
Election Form TP-518V or, if the Eligible Holder is required to file
in Quebec and is a partnership as indicated on the Letter of
Transmittal, then three (3) copies of Quebec Tax Election Form
TP-529V; and
(c) a tax election filing authorization letter (in duplicate if the
Eligible Holder is required to file in Quebec as indicated on the
Letter of Transmittal).
Where Shares are held in joint ownership and two or more of the co-owners
wish to elect, one of the co-owners designated for such purpose should file the
designation and a copy of the Federal Election Form T2057 (and where applicable,
the corresponding provincial form) for each co-owner along with a list of all
co-owners electing, which list should contain the address and social insurance
number or tax account number of each co-owner. Where the Shares are held as
partnership property, a partner designated by the partnership must file one copy
of Revenue Canada form T2058 on behalf of each member of the partnership (and
where applicable, the corresponding form in duplicate with the provincial
taxation authorities). Such Federal Election Form T2058 (and provincial form, if
applicable) must be accompanied by a list containing the name, address, social
insurance number or account number of each partner as well as the letter signed
by each partner authorizing the designated partner to complete, execute and file
the form.
The Offeror will make a joint tax election under subsection 85(1) or 85(2) of
the Tax Act and the corresponding provisions of any applicable provincial tax
legislation only with an Eligible Holder, and at the amount(s) determined by the
Eligible Holder subject to the limitations set out in subsections 85(1) and
85(2) of the Tax Act or any applicable provincial tax statute. The Offeror
agrees only to execute any accepted joint tax election and to forward such
accepted tax election by mail (within 30 days after the receipt thereof by the
Depositary) to the appropriate tax authorities with a copy to the Eligible
Holder. Compliance with the requirements to ensure the validity of a joint tax
election will be the sole responsibility of the Eligible Holder making the
election. The Offeror will not be responsible for the proper completion of any
accepted joint tax election, and the Eligible Holder will be solely responsible
for the payment of any late filing penalty. Accordingly, the Offeror will not be
responsible or liable for taxes, interest, penalties, damages or expenses
resulting from the failure by anyone to properly complete any joint tax election
form or to properly file such form within the time prescribed and in the form
prescribed under the Tax Act or the corresponding provisions of any applicable
provincial legislation.
In order for Revenue Canada (and where applicable the Ministere du Revenu du
Quebec) to accept the joint tax election without a late filing penalty being
paid by an Eligible Holder, the joint tax election, duly completed and executed
by both the Eligible Holder and the Offeror, must be received by such taxation
authorities on or before the day that is the earliest of the days on or before
which either the Offeror or the Eligible Holder is required to file an income
tax return for the taxation year in which the disposition occurs. The Offeror's
current taxation year is scheduled to end on December 31, 1998. The Offeror is
required to file an income tax return for the current taxation year on or before
June 30, 1999. In general, the joint tax elections of Eligible Holders who are
individuals must be filed by April 30, 1999. The completed Tax Election Filing
Packages of Eligible Holders must be received by the Depositary no later than
February 28, 1999. Generally, Eligible Holders who are not individuals may be
required to forward their Tax Election Filing Packages to the Depositary before
February 28, 1999 in order to avoid late filing penalties. If, for whatever
reason, the current taxation year of the Offeror were to terminate before
December 31, 1998, the joint tax elections may have to be filed earlier to avoid
late filing penalties. In such event, the Offeror has agreed to notify through
the Depositary forthwith every Eligible Holder of such change. Eligible Holders
other than individuals are urged to consult their own tax advisors as soon as
possible regarding the deadlines appropriate to their circumstances. Any
Eligible Holder who does not ensure that the Depositary has received a duly
completed Tax Election Filing Package on or before February 28, 1999 will not be
able to benefit from the provisions of Section 85 of the Tax Act. Accordingly,
all Eligible Holders who wish to enter into a joint election with the Offeror
should give their immediate attention to this matter.
<PAGE>
Eligible Holders who wish to make a joint tax election are referred for
further information to Information Circular 76-19R3 and Interpretation Bulletin
IT-291R2 issued by Revenue Canada.
Eligible Holders wishing to complete a federal or, if applicable, a
provincial tax election should consult their own tax advisors. The comments
herein with respect to such joint tax elections are provided for general
assistance only. The law in this area is complex and contains numerous technical
requirements. Compliance with such requirements to ensure the validity of the
joint tax election will be the sole responsibility of the Eligible Holder.
To the extent that any capital gain or capital loss is realized, the comments
made below regarding the proportion of inclusion of capital gains or capital
losses and the ability to carry back or carry forward as discussed below under
the heading "Capital Gains and Capital Losses" are applicable as well as those
comments concerning the potential for a capital loss otherwise determined to be
reduced by the amount of taxable dividends received in certain limited
situations.
Disposition Where Sections 85 and 85.1 of the Tax Act Do Not Apply
Unless a Shareholder is an Eligible Holder and makes a joint election under
subsections 85(1) or (2) of the Tax Act (as discussed above under "Election
Under Section 85 of the Tax Act"), or has elected the All Share Option in the
circumstances where the automatic tax deferred exchange occurs (as discussed
above under "Disposition of Shares Subject to Section 85.1 of the Tax Act"), a
Shareholder will realize a capital gain (or capital loss) equal to the amount by
which the proceeds of disposition, net of any reasonable costs of disposition,
exceed (or are less than) the adjusted cost base of the Shares to the
Shareholder. For purposes of computing such capital gain or capital loss, a
Shareholder will be considered to have disposed of such Shares for proceeds of
disposition equal to the aggregate of the cash, if any, and the fair market
value of the IDS Shares so received. The cost of the IDS Shares received for the
Shares will be equal to the fair market value of the IDS Shares as at the date
the Shares are acquired by the Offeror pursuant to the Offer. A Shareholder is
advised to consult his own tax advisor with respect to his individual
circumstances in choosing to treat the exchange as a taxable transaction.
To the extent that any capital gain or capital loss is realized, the comments
made below regarding the proportion of inclusion of capital gains or capital
losses and the ability to carry back or carry forward as discussed below under
the heading "Capital Gains and Capital Losses" are applicable as well as those
comments concerning the potential for a capital loss otherwise determined to be
reduced by the amount of taxable dividends received in certain limited
situations.
Capital Gains and Capital Losses
A Shareholder will be required to include three-quarters of the amount of any
resulting capital gain (a "taxable capital gain") in income, and will be
required to deduct three-quarters of the amount of any resulting capital loss
(an "allowable capital loss") against taxable capital gains realized in the year
of disposition. Allowable capital losses not deducted in the taxation year in
which they are realized may be carried back and deducted in any of the three
preceding years or carried forward and deducted in any following year against
taxable capital gains realized in such years, to the extent and under the
circumstances specified in the Tax Act.
In general, a capital loss otherwise arising upon the disposition of a Share
by a corporation may be reduced by dividends previously received or deemed to
have been received thereon to the extent and under the circumstances prescribed
in the Tax Act. Similar rules may apply where the corporation is a member of a
partnership or a beneficiary of a trust that owns Shares. Under the Proposed
Amendments, similar rules may apply where a partnership or a trust is a member
of a partnership or a beneficiary of a trust that owns Shares. Shareholders to
whom these rules may be relevant should consult their own tax advisors.
The Tax Act imposes an additional refundable tax of 62/3% on investment
income earned by a Canadian-controlled private corporation (other than dividends
deductible in computing the corporation's taxable income) that will be refunded
at the rate of one dollar for every three dollars of taxable dividends paid by
the corporation. For this purpose, investment income includes taxable capital
gains.
Capital gains realized by an individual, may give rise to an alternative
minimum tax. The non-taxable portion of a capital gain (one-quarter) is included
in adjusted taxable income for this purpose. The Tax Act provides that tax
payable by individuals (other than certain trusts) is the greater of the tax
otherwise determined and an alternative minimum tax calculated at 17% of the
individual's adjusted taxable income in excess of $40,000.
<PAGE>
Adjusted Cost Base of the IDS Shares
For the purposes of determining the adjusted cost base of the IDS Shares, the
cost of the IDS Shares received pursuant to the Offer will be averaged with the
adjusted cost base of all IDS Shares already held by such holder as capital
property. The tax consequences arising from a future disposition of IDS Shares
will be measured by reference to such adjusted cost base.
Compulsory Acquisition
As described under the heading "Acquisition of Shares Not Deposited Under the
Offer", the Offeror may, in certain circumstances, acquire Shares pursuant to
Section 188 of the OBCA. Subject to the possible application of the replacement
property rules contained in the Tax Act, the tax consequences to a Shareholder
whose Shares are acquired pursuant to such statutory rights of purchase and who
receives payment, other than in IDS Shares, will be as described above under
"Disposition Where Sections 85 or 85.1 of the Tax Act Do Not Apply". A
Shareholder receiving IDS Shares as payment for his Shares could have the
exchange treated as a tax deferred transaction under Section 85 or Section 85.1
of the Tax Act as described above. Shareholders whose Shares may be so acquired
should consult their own tax advisors in this regard.
Subsequent Acquisition Transaction
If the Compulsory Acquisition provisions are not utilized, the Offeror may
propose other means of acquiring the remaining issued and outstanding Shares.
The tax treatment of a Subsequent Acquisition Transaction to a Shareholder will
depend upon the exact manner in which the Subsequent Acquisition Transaction is
carried out. Shareholders should consult their own tax advisors for advice with
respect to the income tax consequences to them of having their Shares acquired
pursuant to a Subsequent Acquisition Transaction.
A Subsequent Acquisition Transaction could be implemented by means of an
amalgamation of Scintrex with the Offeror or one of its affiliates pursuant to
which Shareholders who have not tendered their Shares under the Offer will have
their Shares exchanged on the amalgamation for redeemable preference shares of
the amalgamated corporation ("Redeemable Shares") which would then be
immediately redeemed for cash. If an amalgamation is implemented, a Shareholder
will realize neither a capital gain nor a capital loss as a result of the
disposition by him of his Shares in exchange for Redeemable Shares, and the cost
of the Redeemable Shares received would be equal to the aggregate of the
adjusted cost base of the Shares to the Shareholder immediately before the
amalgamation.
Upon the redemption of Redeemable Shares, the holder thereof would be deemed
to have received a dividend (subject to the potential application of subsection
55(2) of the Tax Act to holders of such shares that are corporations as
discussed below) equal to the amount by which the redemption price of the
Redeemable Shares exceeds their paid-up capital for the purposes of the Tax Act.
A capital gain (or capital loss) may also result to the extent that the payment
received, less the portion deemed to be a dividend, exceeds (or is less than)
the adjusted cost base to him of his Shares immediately before the exchange and
reasonable costs of disposition. A capital loss arising upon the redemption of a
Redeemable Share may be reduced by dividends previously received or deemed to
have been received thereon as described above under "Capital Gains and Capital
Losses".
Subsection 55(2) of the Tax Act provides that where a corporate Shareholder
is deemed to receive a dividend under the circumstances described above, all or
part of the deemed dividend may be treated as proceeds of disposition of the
Redeemable Shares for the purpose of computing the Shareholder's capital gain on
the disposition of such shares. Accordingly, corporate Shareholders should
consult their tax advisors for specific advice with respect to the potential
application of this provision. Subject to the potential application of this
provision, dividends deemed to be received by a corporation as a result of the
redemption of the Redeemable Shares will be included in computing its income,
but normally will also be deductible in computing its taxable income unless the
corporation is a "specified financial institution" (as defined in the Tax Act).
Dividends deemed to be received on the Redeemable Shares by a specified
financial institution may not be deductible in computing its taxable income if
the term preferred share rules in the Tax Act are applicable. Corporations which
may be affected by such rules should consult their own tax advisors.
A Shareholder that is a "private corporation" or a "subject corporation" (as
such terms are defined in the Tax Act) may be liable to pay the 331/3%
refundable tax under Part IV of the Tax Act on dividends deemed to be received
on the Redeemable Shares to the extent that such dividends are deductible in
computing the corporation's taxable income.
In the case of a Shareholder who is an individual, dividends deemed to be
received as a result of the redemption of the Redeemable Shares will be included
in computing the Shareholder's income, and will be subject to the gross-up and
dividend tax credit rules normally applicable to taxable dividends paid by a
taxable Canadian corporation.
Under the current administrative practice of Revenue Canada, Shareholders who
exercise their statutory right of dissent in respect of an amalgamation should
be considered to have disposed of their Shares for proceeds of disposition equal
to the amount paid by the amalgamated corporation to the dissenting Shareholder
therefor, other than interest awarded by the court.
<PAGE>
The calculation and tax treatment of any resulting capital gain or capital loss
would be the same as described above. However, no assurance can be given that
Revenue Canada will apply this practice to a Shareholder and because of
uncertainties under the relevant legislation as to whether such amounts paid to
a dissenting Shareholder will be treated entirely as proceeds of disposition, or
in part as the payment of a deemed dividend, no comment is expressed herein as
to which of these two tax treatments is properly applicable to such
Shareholders. A dissenting Shareholder should consult with his own tax advisors
in this regard.
Ownership of IDS Shares by Residents
Dividends on IDS Shares
Dividends and deemed dividends on IDS Shares will be included in the
recipient's income for the purposes of the Tax Act. Such dividends received by
an individual holder will be subject to the gross-up and dividend tax credit
rules in the Tax Act. A holder that is a corporation will include such dividends
in computing its income and generally will be entitled to deduct the amount of
such dividends in computing its taxable income. A holder that is a "private
corporation" or a "subject corporation" (as such terms are defined in the Tax
Act) may be liable under Part IV of the Tax Act to pay a refundable tax of
331/3% on dividends received or deemed to be received on the IDS Shares to the
extent such dividends are deductible in computing the holder's taxable income.
Disposition of IDS Shares by Residents
A holder will realize a capital gain (or a capital loss) on a disposition or
deemed disposition of IDS Shares equal to the amount by which the proceeds of
disposition exceed (or are exceeded by) the adjusted cost base to the holder of
such IDS Shares and any reasonable costs of disposition. The tax treatment of
any such capital gain (or capital loss) will generally be the same as described
above under "Capital Gains and Capital Losses".
(ii) Shareholders Not Resident in Canada
This portion of the summary is generally applicable only to Shareholders who
are neither residents nor deemed to be residents of Canada, who deal at arm's
length with IDS and Scintrex, who are not affiliated for the purposes of the Tax
Act with IDS or Scintrex, who are not financial institutions (to which the
mark-to-market rules contained in the Tax Act may be applicable), who hold their
Shares as capital property, who do not use or hold and are not deemed to use or
hold their Shares in carrying on a business in Canada.
A non-resident Shareholder will not be subject to tax under the Tax Act on
any capital gain realized on a disposition of Shares to the Offeror under the
Offer or by virtue of the Compulsory Acquisition of Shares pursuant to Section
188 of the OBCA, unless those shares constitute "taxable Canadian property" to
the Shareholder.
A Share will constitute "taxable Canadian property" if (a) at any time during
the five year period immediately preceding the disposition, the non-resident,
either alone or together with persons with whom the non-resident did not deal at
arm's length, owned 25% or more of the shares of any class or series of the
capital of Scintrex or a predecessor (b) the Shareholder, upon ceasing to be a
Canadian resident, elected under the Tax Act to have the Shares deemed a taxable
Canadian property, or (c) the Shareholder obtained his Shares through certain
exchanges of other taxable Canadian property. For purposes of (a) above, a
holder of an option to acquire Shares will be considered to own any shares to
which such option relates. Even if the Shares are taxable Canadian property to a
non-resident, any capital gain realized upon the disposition may be exempt from
tax under the Tax Act pursuant to the provisions of an applicable income tax
convention to which Canada is a party.
A Shareholder who disposes of Shares pursuant to the Offer and elects the All
Share Option will be considered to have made a disposition of his Shares for
purposes of the Tax Act. Unless the Shareholder chooses to treat the exchange of
his Shares for IDS Shares as a taxable transaction or makes a joint election
under subsection 85(1) or (2) of the Tax Act, the Shareholder will be deemed to
have disposed of the Shares for proceeds of disposition equal to his adjusted
cost base in respect of such shares and to have acquired the IDS Shares received
in exchange therefor at a like amount as provided for in Section 85.1 of the Tax
Act. No capital gain or capital loss will result to such a Shareholder.
A Shareholder who disposes of Shares pursuant to the Offer and elects the
Cash-Share Option will be considered to have made a disposition of his Shares
for purposes of the Tax Act. In the event that the Shares constitute taxable
Canadian property and the capital gain otherwise to be realized upon a
disposition of such shares to the Offeror is not exempt from Canadian tax by
virtue of an applicable income tax convention, then in such circumstances, the
non-resident Shareholder will be an "Eligible Holder" and may seek to take
advantage of the "rollover" provisions of subsections 85(1) or 85(2) of the Tax
Act as described above under the heading "Election under Section 85 of the Tax
Act". However, if such election is made, the IDS Shares
<PAGE>
received on the exchange for Shares will be deemed to be taxable Canadian
property to such holder.
If the Offeror does not acquire all the Shares pursuant to the Offer or by
means of Compulsory Acquisition pursuant to Section 188 of the OBCA, it may
propose other means to acquire the remaining Shares. The tax treatment of such a
transaction to a non-resident Shareholder will depend on the exact manner in
which the transaction is carried out and may be substantially the same as or
materially different than described above. A non-resident Shareholder may
realize a capital gain or a capital loss and/or a deemed dividend. Dividends
paid or deemed to be paid to a non-resident will be subject to Canadian
withholding tax at a rate of 25%. Such rate may be reduced under the provisions
of an applicable income tax convention to which Canada is a party. Nonresident
Shareholders should consult their own tax advisors for advice with respect to
the potential income tax consequences to them of having their Shares acquired
pursuant to such a transaction.
No comment is made regarding the tax treatment of the transactions alluded to
above for countries in which the Shareholder may be subject to taxation.
<PAGE>
Ownership of IDS Shares by Non-Residents
Dividends on IDS Shares
Dividends paid or deemed to be paid on the IDS Shares to non-residents of
Canada will be subject to non-resident withholding tax under the Tax Act at the
rate of 25%, subject to reduction under the provisions of an applicable income
tax convention.
Disposition of IDS Shares
The tax treatment to a non-resident holder for the purposes of the Tax Act on
a disposition or deemed disposition of IDS Shares will generally be the same as
described above in respect of Shares under "Shareholders Not Resident in
Canada".
Taxable Canadian Property
If the Shares which are disposed of to the Offeror pursuant to the Offer
constituted taxable Canadian property to their holder, then the IDS Shares
received by such holder will be deemed to be taxable Canadian property where the
provisions of sections 85 or 85.1 of the Tax Act apply.
18. Other Matters Relating to the Offer
Depositary
The Offeror has engaged the Depositary for the receipt of certificates in
respect of Shares and related Letters of Transmittal and Notices of Guaranteed
Delivery deposited under the Offer and for the payment for Shares purchased by
the Offeror pursuant to the Offer. The Depositary will receive reasonable and
customary compensation from the Offeror for its services in connection with the
Offer, will be reimbursed for certain out-of-pocket expenses and will be
indemnified against certain liabilities and expenses in connection therewith.
Financial Advisor, Dealer Manager and Soliciting Dealer Group
The Offeror has retained Yorkton Securities Inc. to act as its financial
advisor in connection with the Offer. The Offeror has agreed to pay this advisor
a financial advisory fee and an additional fee in the event that Shares are
taken up by the Offeror under the Offer. The agreement between the Offeror and
Yorkton Securities Inc. also provides for the reimbursement by the Offeror of
all reasonable out-of-pocket expenses of Yorkton Securities Inc. and its
indemnification against certain liabilities, including liabilities under
applicable securities laws.
Pursuant to a Soliciting Dealer Agreement between the Offeror and Yorkton
Securities Inc. as dealer manager (the "Dealer Manager"), the Dealer Manager has
agreed to form and act as manager of a soliciting dealer group comprising
members of the Investment Dealers Association of Canada and members of the TSE
(the "Soliciting Dealer Group") to be established to solicit acceptances of the
Offer. Yorkton Securities Inc. will be paid a fee of $50,000 for managing the
Soliciting Dealer Group and an additional fee of $25,000 in the event 90% or
more of the Shares are deposited under the Offer and are not withdrawn. Each
member of the Soliciting Dealer Group, including the Dealer Manager, is referred
to herein as a "Soliciting Dealer". The Soliciting Dealer Agreement provides
that each Soliciting Dealer whose name appears in the appropriate space in the
Letter of Transmittal accompanying a deposit of Shares shall be entitled to
receive a fee for each Share deposited and taken up by the Offeror under the
Offer. The aggregate amount payable to a Soliciting Dealer with respect to any
single depositing holder of Shares will be subject to a minimum and maximum
amount which is customary for transactions of this nature.
Except as set forth above, the Offeror will not pay any fees or commissions
to any broker, dealer or other person for soliciting tenders of Shares pursuant
to the Offer. Brokers, dealers, commercial banks and trust companies and other
nominees will, upon request, be reimbursed by the Offeror for customary clerical
and mailing expenses incurred by them in forwarding materials to their
customers.
No fee or commission will be payable by any holder of Shares who transmits
his, her or its Shares directly to the Depositary or who makes use of the
facilities of a Soliciting Dealer to accept the Offer.
The Offeror estimates that the total amount of fees and expenses related to
the Offer will be approximately $1.5 million.
<PAGE>
19. Offerees' Statutory Rights
Securities legislation in certain of the provinces and territories of Canada
provides holders of Shares with, in addition to any other rights they may have
at law, rights of rescission or to damages, or both, if there is a
misrepresentation in a circular or a notice that is required to be delivered to
the holders of Shares. However, such rights must be exercised within prescribed
time limits. Holders of Shares should refer to the applicable provisions of the
securities legislation of their province or territory for particulars of those
rights or consult with a lawyer.
<PAGE>
CONSENT OF COUNSEL
To: The Directors of IDS Intelligent Detection Systems Inc.
We hereby consent to the reference to our opinion contained under
"Eligibility for Investment" in Schedule C of the Circular accompanying the
Offer dated April 15, 1998 made by IDS Intelligent Detecton Systems Inc. to the
holders of Common Shares of Scintrex Limited.
Ottawa, Canada
April 15, 1998 (Signed) FRASER & BEATTY
<PAGE>
CONSENT OF KPMG
TO: British Columbia Securities Commission
Alberta Securities Commission
Saskatchewan Securities Commission
Manitoba Securities Commission
Ontario Securities Commission
Commission des valeurs mobilieres du Quebec
Administrator, Department of Provincial Secretary, New Brunswick
Nova Scotia Securities Commission
Registrar of Securities, Prince Edward Island
Registrar of Securities, Newfoundland and Labrador
Dear Sirs:
We refer to the Take-over Bid Circular included in the Offer of IDS
Intelligent Detection Systems Inc. dated April 15, 1998 relating to the purchase
of all of the outstanding Common Shares of Scintrex Limited.
We hereby consent to the use of our report dated February 17, 1998, except as
to notes 8(e) and 18 which are at March 12, 1998, to the shareholders of IDS
Intelligent Detection Systems Inc. on the consolidated balance sheets of IDS
Intelligent Detection Systems Inc. as at December 31, 1997 and 1996 and the
consolidated statements of earnings, retained earnings and changes in financial
position for each of the years then ended and the period April 13, 1995 to
December 31, 1995.
We also consent to the use in the Take-over Bid Circular of our compilation
report dated April 14, 1998 to the directors of IDS Intelligent Detection
Systems Inc. on the accompanying unaudited pro forma consolidated balance sheet
of IDS Intelligent Detection Systems Inc. as at December 31, 1997 and the
unaudited pro forma consolidated statement of earnings for the year ended
December 31, 1997.
We also consent to the use of our name in the section of the Take-over Bid
Circular entitled "Canadian Federal Income Tax Considerations".
Ottawa, Canada (Signed) KPMG
April 15, 1998 Chartered Accountants
<PAGE>
APPROVAL AND CERTIFICATE OF THE OFFEROR
The contents of the Offer and Circular have been approved, and the sending,
communication or delivery thereof to the holders of Common Shares of Scintrex
Limited has been authorized, by the board of directors of the Offeror. The
foregoing contains no untrue statement of a material fact and does not omit to
state a material fact that is required to be stated or that is necessary to make
a statement not misleading in the light of the circumstances in which it is
made. In addition, the foregoing does not contain any misrepresentation likely
to affect the value or market price of the Common Shares of Scintrex Limited
subject to the Offer or the Common Shares of the Offeror offered in exchange
therefor.
DATED: April 15, 1998
IDS INTELLIGENT DETECTION SYSTEMS INC.
(Signed) MARIUSZ RYBAK (Signed) DARLENE NIELSEN-DOWNEY
Chairman, President and Chief Financial Officer
Chief Executive Officer and Secretary
On behalf of the Board of Directors of IDS Intelligent Detection Systems Inc.
(Signed) RAYMOND V. HESSION (Signed) ANICET BLAIS
Director Director
<PAGE>
SCHEDULE A
AUDITORS' REPORT TO THE SHAREHOLDERS
We have audited the consolidated balance sheets of IDS Intelligent Detection
Systems Inc. as at December 31, 1997 and December 31, 1996 and the consolidated
statements of earnings, retained earnings and changes in financial position for
the years then ended and the period April 13, 1995 to December 31, 1995. 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 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,
1997 and December 31, 1996 and the results of its operations and the changes in
its financial position for the years then ended and the period April 13, 1995 to
December 31, 1995 in accordance with generally accepted accounting principles.
Ottawa, Canada
February 17, 1998, except as to notes 8(e) and 18, (Signed) KPMG
which are at March 12, 1998 Chartered Accountants
<PAGE>
IDS INTELLIGENT DETECTION SYSTEMS INC.
CONSOLIDATED BALANCE SHEETS
December 31, 1997, with comparative figures for 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Assets
Current assets:
Cash................................................................................... $13,087,968 $ 960,650
Accounts receivable.................................................................... 20,483,987 1,288,583
Investment tax credit receivable....................................................... 435,346 861,828
Income taxes recoverable............................................................... 272,354 --
Inventory (note 4)..................................................................... 510,740 1,242,871
Prepaid expenses....................................................................... 56,192 81,634
Due from affiliated company............................................................ 23,857 76,686
Due from shareholders.................................................................. -- 376,375
----------- ----------
34,870,444 4,888,627
Capital assets (note 5)................................................................... 459,008 425,797
Goodwill.................................................................................. 752,160 1,259,354
----------- ----------
$36,081,612 $6,573,778
=========== ==========
Liabilities and Shareholders' Equity
Current liabilities:
Bank loan (note 6)..................................................................... $ 1,552,475 $1,272,620
Accounts payable and accrued liabilities............................................... 16,228,021 1,196,495
Income taxes payable................................................................... -- 557,600
Deferred revenue....................................................................... 275,617 334,581
Due to shareholders.................................................................... 69,855 --
Current portion of long-term debt (note 7)............................................. 30,000 286,363
----------- ----------
18,155,968 3,647,659
Long-term debt (note 7)................................................................... 57,500 1,537,330
Deferred lease inducement................................................................. 49,834 --
Non-controlling interest.................................................................. -- 127,946
Shareholders' equity:
Share capital (note 8)................................................................. 17,321,564 1,800
Retained earnings...................................................................... 496,746 1,259,043
----------- ----------
17,818,310 1,260,843
Commitments (note 14)
Subsequent events (notes 8(e) and 18)
$36,081,612 $6,573,778
=========== ==========
</TABLE>
On behalf of the Board:
(Signed) MARIUSZ RYBAK (Signed) FRANCOIS HUBERT
Director Director
See accompanying notes to consolidated financial statements.
<PAGE>
IDS INTELLIGENT DETECTION SYSTEMS INC.
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
Year ended Year ended April 13 to
December 31, December 31, December 31,
1997 1996 1995
---- ---- ----
(as restated)
<S> <C> <C> <C>
Sales.................................................................. $24,119,798 $4,038,131 $ 668,907
Cost of goods sold..................................................... 19,983,105 2,624,454 --
----------- ---------- ----------
4,136,105 1,413,677 668,907
Contract revenue....................................................... 106,518 404,981 380,645
----------- ---------- ----------
4,243,211 1,818,658 1,049,552
Expenses:
Selling, general and administrative................................. 3,077,747 1,812,944 352,159
Depreciation and amortization....................................... 595,626 584,800 282,395
Interest............................................................ 268,594 280,296 136,214
Research and development (note 10).................................. 490,181 490,247 223,899
----------- ---------- ----------
4,432,148 3,168,287 994,667
----------- ---------- ----------
(188,937) (1,349,629) 54,885
Other income........................................................... 30,666 169,900 116,000
Dilution gains......................................................... 680,521 2,618,901 --
Finance charges........................................................ (795,800) -- --
Goodwill write-off..................................................... (68,000) -- --
Non-controlling interest............................................... 136,720 280,442 (46,956)
----------- ---------- ----------
Earnings (loss) before income taxes.................................... (204,830) 1,719,614 123,929
Income taxes - (current) recovery...................................... 120,020 (300,000) --
----------- ---------- ----------
Net earnings (loss).................................................... $ (84,810) $1,419,614 $ 123,929
=========== ========== ==========
Earnings (loss) per share (note 9):
Basic............................................................... $ (.01) $ 0.17 $ 0.02
=========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
IDS INTELLIGENT DETECTION SYSTEMS INC.
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
<TABLE>
<CAPTION>
Year ended Year ended April 13 to
December 31, December 31, December 31,
1997 1996 1995
---- ---- ----
(as restated)
<S> <C> <C> <C>
Retained earnings (deficit), beginning of period....................... $1,259,043 $ -- $ --
As previously reported.............................................. -- (75,758) --
Adjustment (note 16)................................................ -- 199,687 --
---------- ---------- ----------
Retained earnings, restated......................................... 1,259,043 123,929 --
Net earnings (loss).................................................... (84,810) 1,419,614 123,929
Dividend on Class A common shares...................................... (961,987) -- --
Refundable dividend taxes.............................................. 284,500 (284,500) --
---------- ---------- ----------
Retained earnings, end of period....................................... $ 496,746 $1,259,043 $ 123,929
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
IDS INTELLIGENT DETECTION SYSTEMS INC.
CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION
<TABLE>
<CAPTION>
Year ended Year ended April 13 to
December 31, December 31, December 31,
1997 1996 1995
---- ---- ----
(as restated)
<S> <C> <C> <C>
Operations:
Net earnings (loss)........................................................ $ (84,810) $ 1,419,614 $ 123,929
Items not involving cash:
Depreciation and amortization............................................ 595,626 584,800 282,395
Non-controlling interest - (income) expense.............................. (136,720) (280,442) 46,956
Increase in non-controlling interest..................................... 8,774 361,432 --
Reduction in goodwill due to increase in non-controlling
interest.............................................................. 47,571 216,018 --
Goodwill write-off....................................................... 68,000 -- --
Changes in non-cash operating working capital.............................. (3,868,741) (64,862) (751,722)
----------- ----------- -----------
(3,370,300) 2,236,560 (298,442)
Investments:
Increase in deferred lease inducement...................................... (165,484) -- --
Additions to capital assets................................................ 49,834 (101,087) (24,027)
Increase in goodwill....................................................... (71,730) -- --
Net assets of subsidiaries acquired - net of cash:
Working capital excluding bank indebtedness.............................. -- (613,508) 43,855
Capital asset............................................................ -- (310,992) (102,993)
Goodwill................................................................. -- (323,024) (1,906,244)
Long-term debt........................................................... -- 102,500 510,000
----------- ----------- -----------
(187,380) (1,246,111) (1,479,409)
Financing:
Increase (decrease) in bank loan........................................... 279,855 1,222,620 50,000
Increase (decrease) in due to/from shareholders............................ 446,230 (527,470) 151,095
Increase (decrease) in due from affiliated company......................... 52,829 (76,686) --
Increase (decrease) in long-term debt...................................... (1,736,193) (383,491) 1,594,684
Issuance of share capital.................................................. 17,319,764 900 900
Dividend................................................................... (961,987) -- --
Refundable dividend taxes (recovery)....................................... 284,500 (284,500) --
----------- ----------- -----------
15,684,998 (48,627) 1,796,679
----------- ----------- -----------
Increase (decrease) in cash position.......................................... 12,127,318 941,822 18,828
Cash position, beginning of period............................................ 960,650 18,828 --
----------- ----------- -----------
Cash position, end of period.................................................. $13,087,968 $ 960,650 $ 18,828
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
IDS INTELLIGENT DETECTION SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 1997 and 1996 and period
April 13, 1995 to December 31, 1995
1. General:
IDS Intelligent Detection Systems Inc. ("IDS" or the "Company") was formed
on September 30, 1997 as a result of the statutory amalgamation of IDS
Intelligent Detection Systems Inc. ("Old IDS") (formerly MAA International
Corporation), its 64.5% owned subsidiary CPAD Technologies Inc. ("CPAD")
and its 100% owned subsidiary 1202733 Ontario Inc.
Old IDS was incorporated on April 6, 1995 under the Ontario Business
Corporations Act. The Company's principal business activity was undertaken
through its investment in CPAD. CPAD was incorporated under the Ontario
Business Corporations Act and its principal business activity was the
research, development, manufacture and sale of chemical detection systems
and provision of integration, engineering and consulting services and value
added resale of information technology equipment.
Old IDS acquired a 77.5% interest in CPAD on April 13, 1995 (see note
3(a)). During 1996 this interest was diluted to 66.1% through shares issued
by CPAD out of treasury (see note 3(b)) and the sale of CPAD shares by IDS
to third parties.
During 1997, Old IDS's interest was diluted by a further 1.6% through a
combination of shares issued by CPAD out of treasury, sale of CPAD shares
by Old IDS and a purchase of CPAD shares by Old IDS for cash of $75,200
resulting in additional goodwill of $71,730.
2. Significant accounting policies:
(a) Basis of consolidation:
The amalgamation of Old IDS and its subsidiaries constituted the
combination of companies under common control; accordingly, this
transaction has been accounted for using the predecessor companies'
book values at September 30, 1997.
The financial statements as at December 31, 1996 have been prepared on
a consolidated basis of Old IDS, CPAD and 1202733 Ontario Inc.
(b) Revenue recognition:
Revenue from product sales is recognized upon shipment or on customer
acceptance. Revenue from maintenance services contracts is recognized
on a straight-line basis over the term of the contract.
(c) Inventory:
Inventory consists of finished goods, work-in-process and raw
materials. Raw materials are stated at the lower of cost and
replacement cost. Finished goods and work-in-process are stated at the
lower of cost and net realizable value.
(d) Capital assets:
Capital assets are stated at cost. Depreciation is provided using the
straight-line method over the estimated useful lives as follows:
<TABLE>
<CAPTION>
Asset Useful life
----- -----------
<S> <C>
Scientific research and development equipment........................... 15 years
Office equipment........................................................ 5 years
Computer equipment...................................................... 3 years
Leasehold improvements.................................................. 4 years
Computer equipment under capital lease.................................. 3 years
Vehicles................................................................ 3 years
Patents are amortized using the straight-line method over their
estimated useful lives of 17 years.
</TABLE>
(e) Research and development:
Research costs are expensed as incurred. Development costs are
expensed as incurred unless they meet generally accepted accounting
criteria for deferral and subsequent amortization. These costs are
amortized based on the revenue arising from the sale of the products.
The Company reassesses whether it has met the relevant criteria for
continued deferral and amortization at each reporting date.
(f) Goodwill:
Goodwill represents the excess of the purchase price over the fair
values of net assets acquired, and is being amortized on a
straight-line basis over five years. On an ongoing basis, management
reviews the valuation and amortization of goodwill, taking into
consideration any events and circumstances which might have impaired
the fair value. Goodwill is written down to fair value when declines
in value are considered to be other than temporary based upon expected
undiscounted cash flows of the assets acquired. At September 30, 1997,
the Company provided fully against the remaining unamortized goodwill
of $68,000 that was created upon the acquisition of AGISS (note 3(b)).
<PAGE>
(g) Translation of foreign currencies:
All foreign currency balances are translated into Canadian dollars.
Monetary assets and liabilities are translated at the year-end
exchange rate. Non-monetary assets and liabilities are translated at
the exchange rate prevailing at the date the asset was acquired or the
liability was incurred. Revenues and expenses are translated at rates
in effect during the year, except for amortization which is translated
at the same rate as the assets to which it relates. Gains and losses
from translations are included in earnings in the year in which they
occur.
(h) Use of estimates:
The preparation of financial statements in conformity with generally
accepted principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and
expenses during the period. Actual results could differ from these
estimates.
3. Business acquisition:
(a) On September 30, 1997, Old IDS, CPAD and its wholly-owned subsidiary,
1202733 Ontario Inc., amalgamated to form IDS.
The transaction was accounted for using the predecessor companies book
values.
The total assets and liabilities brought into the combination are as
follows:
<TABLE>
<CAPTION>
1202733
Old IDS CPAD Ontario Inc.
----------- ----------- -----------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C>
Total assets at book value............................................ $ 3,122,688 $ 2,537,925 $ 1,615
Total liabilities at book value....................................... 454,182 3,500,146 615
</TABLE>
(b) Amalgamation:
On November 1, 1996, CPAD amalgamated its operations with its
wholly-owned subsidiary, AGISS and continued to operate as CPAD.
The total assets and liabilities brought into the combination are as
follows:
<TABLE>
<CAPTION>
CPAD AGISS
---- -----
<S> <C> <C>
Total assets at book value............................................ $ 1,708,458 $ 1,598,882
Total liabilities at book value....................................... 1,285,650 975,503
</TABLE>
(c) AGISS Power Technologies Corporation:
Effective March 1, 1996, CPAD acquired 100% of the issued and
outstanding shares of all classes of AGISS Power Technologies
Corporation ("AGISS") in exchange for cash and the issuance of Class A
common shares of CPAD. The transaction has been accounted for by the
purchase method with the results of operations included in these
financial statements from the date of acquisition.
Net assets acquired at fair values:
<TABLE>
<CAPTION>
<S> <C>
Current assets........................................................ $ 2,183,554
Capital assets........................................................ 310,992
-----------
2,494,546
Less:
Bank indebtedness.................................................. 338,767
Current liabilities................................................ 1,570,046
Long-term debt..................................................... 102,500
-----------
2,011,313
-----------
483,233
Goodwill.............................................................. 323,024
-----------
$ 806,257
-----------
Consideration:
Issuance of Class A common shares.................................. $ 783,233
Long-term debt..................................................... 23,024
-----------
$ 806,257
===========
</TABLE>
<PAGE>
4. Inventory:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Finished goods........................................................................... $ 321,452 $ 221,643
Work-in-process.......................................................................... 13,288 909,780
Raw materials............................................................................ 176,000 111,448
--------- -----------
$ 510,740 $ 1,242,871
========= ===========
</TABLE>
Capital assets:
<TABLE>
<CAPTION>
Accumulated Net book Net book
depreciation and value value
Cost amortization 1997 1996
---- ------------ ---- ----
<S> <C> <C> <C> <C>
Scientific research and development equipment..................... $ 159,432 $ 25,434 $ 133,998 $ 48,156
Office equipment.................................................. 117,868 44,741 73,127 58,849
Computer equipment................................................ 196,167 100,109 96,058 107,097
Computer equipment under capital lease............................ 36,702 27,687 9,015 17,329
Leasehold improvements............................................ 186,441 86,418 100,023 142,561
Patents........................................................... 66,102 19,315 46,787 48,068
Vehicles.......................................................... -- -- -- 3,737
---------- ---------- --------- ---------
$ 762,712 $ 303,704 $ 459,008 $ 425,797
========= ========== ========= =========
</TABLE>
Cost and accumulated depreciation were $599,096 and $173,299 respectively
for the year ended December 31, 1996.
6. Bank loan:
<TABLE>
<CAPTION>
1997 1996
---- ---
<S> <C> <C>
Demand operating line of credit at bank prime rate plus 0.5%............................. $ -- $ 950,000
Demand promissory note, payable on receipt of investment tax credits, at
bank prime plus 2%..................................................................... 160,741 160,741
Progress Payment Program line of credit payable out of proceeds on sale of
inventory, at bank prime............................................................... 1,391,734 161,879
---------- -----------
$ 1,552,47 $ 1,272,620
========== ===========
</TABLE>
The demand operating line of credit and the progress payment program line
of credit are secured by a registered general security agreement and
assignment of fire insurance.
The demand promissory note represents financing at a rate of fifty percent
of the claimed federal investment tax credits.
7. Long-term debt:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
(a) Small business loan, due November 21, 2000, payable in monthly
instalments of $2,500, plus interest at prime plus 3%. Secured by a
general security agreement........................................................ $ 87,500 $ 117,500
(b) Promissory notes payable:
Promissory note dated April 13, 1995, payable to Research Corporation
Technologies Inc., ("RCT") bearing interest at 12% per annum,
compounded quarterly. Principal was payable in three equal annual
instalments on April 12, 1998 through 2000 ....................................... -- 510,000
Promissory note dated April 13, 1995, payable to RCT, bearing interest
at 10% per annum, compounded monthly. Principal was due on or before
April 12, 2000. Interest payable yearly with payment of the first year
deferred to April 12, 1997........................................................ -- 932,330
(c) Accrued interest on promissory notes.............................................. -- 225,888
(d) Royalties payable................................................................. -- 37,975
-------- ----------
87,500 1,823,693
Current portion of long-term debt................................................. 30,000 286,363
-------- ----------
$ 57,500 $1,537,330
======== ==========
</TABLE>
<PAGE>
8. Share capital:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
(a) Authorized and issued share capital:
Authorized voting common shares
Unlimited Issued voting common shares:
Number of shares............................................................... 14,586,120 8,910,000
Stated capital................................................................. $ 17,321,551 $ 1,800
Authorized Class B non-voting shares
Unlimited Issued Class B non-voting shares:
Number of shares............................................................... 572,850 --
Stated capital................................................................. $ 13 --
(b) Pre-amalgamation - Old IDS:
(i) Class A common shares issued during the period:
Number of shares............................................................... 395,556 810,000
Cash consideration............................................................. $ 1,380,100 $ 900
Number of shares............................................................... 734,948 --
Conversion of debt............................................................. $ 1,730,771 $ --
The number of Old IDS Class A common shares and amounts per share in
the financial statements have been retroactively adjusted to give
effect to the 1 to 900 share split.
(c) Post-amalgamation:
(i) Common shares issued on and subsequent to the amalgamation during
the period:
Number of shares:
Old IDS conversion on amalgamation........................................ 6,844,914 --
CPAD conversion on amalgamation........................................... 3,648,446 --
Number of shares............................................................... 172,188 --
Options exercised for cash..................................................... $ 117,228 $ --
Number of shares............................................................... 93,635 --
Conversion of debt............................................................. $ 589,900 $ --
Number of shares............................................................... 660,986 --
Warrants exercised for cash.................................................... $ 75,000 $ --
Number of shares............................................................... 8,056 --
Conversion of debt............................................................. $ 54,845 $ --
Number of shares............................................................... 3,157,895 --
Public offering of shares from treasury (net of costs of issuance)............. $ 13,371,907 $ --
(ii) Class B common shares issued on amalgamation:
Number of shares:
Old IDS conversion on amalgamation........................................ 114,567 --
CPAD conversion on amalgamation........................................... 458,283 --
Assigned value................................................................. $ 13 $ --
</TABLE>
During the period subsequent to the amalgamation, articles of
amendment were filed redesignating the Class A common shares as common
shares and the Class B common shares as Class B shares.
Effective September 30, 1997 pursuant to the article of amalgamation
and the amalgamation agreement between Old IDS, CPAD and 1202733
Ontario Inc. previous share capital was cancelled and exchanged for
shares of the Company as follows (share numbers have been rounded down
to the nearest share):
(i) Class A common shares of CPAD held by shareholders other than
Old IDS and 1202733 Ontario Inc., totalling 827,961, were
converted to common shares of the Company on the basis of
4.4065761 for a total of 3,648,446 common shares.
(ii) Class B common shares of CPAD held by shareholders other than
Old IDS and 1202733 Ontario Inc., totalling 104,000, were
converted to Class B shares of the Company on the basis of
4.4065761 for a total of 458,283 Class B shares.
(iii) Class A and B common shares of CPAD held by Old IDS and 1202733
Ontario Inc., were cancelled.
(iv) Common shares of 1202733 Ontario Inc., were cancelled.
(v) Class A common shares of Old IDS, totalling 10,040,504, were
converted into common shares by the Company on the basis of
0.6817305 for a total of 6,844,914 common shares.
(vi) Class A common shares of Old IDS, totalling 10,040,504, were
converted into Class B shares of the Company on the basis of
0.0114109 for a total of 114,567 Class B shares.
Prior to amalgamation during the nine month period ended September 30,
1997 the following share transactions occurred:
(i) 90,000 Class A common shares were issued for cash proceeds of
$100.
(ii) 305,556 Class A common shares were issued for cash proceeds of
$1,380,000.
(iii) 734,948 Class A common shares were issued on conversion of the
promissory note payable to RCT totalling $932,330 plus accrued
interest of $53,651 and a premium and interest penalty of
$744,800.
Subsequent to the amalgamation on September 30, 1997, the following
share transactions occurred:
(i) 172,188 common shares were issued for cash proceeds of $117,228
upon the exercise of stock options.
<PAGE>
(ii) 93,635 common shares were issued on conversion of the promissory
note payable to RCT totalling $510,000 plus accrued interest of
$28,900 and an interest penalty of $51,000.
(iii) 660,986 common shares were issued for cash proceeds of $75,000
upon the exercise of warrants.
(iv) 8,056 common shares were issued on conversion of amounts payable
to a consultant of $54,845.
(v) 3,157,895 common shares were issued for cash proceeds of
$15,000,001 on the initial public offering of common shares.
Costs of issuance of $1,628,094 were incurred as a part of this
offering and have been netted against proceeds.
(d) Stock option incentive program:
On October 22, 1997, the Company established the 1997 Stock Option Plan
under which options to purchase common shares of the Company may be
granted by the Compensation Committee of the Board of Directors subject
to the approval of regulatory authorities.
At December 31, 1997, there were 547,000 options outstanding with an
exercise price of $4.75 per share. These options expire on December 31,
2004 and generally vest over a four year period from the date of grant.
As of December 31, 1997, no options are currently exercisable.
(e) Initial public offering:
(i) Over-allotment option:
As a part of the initial public offering which closed on December
31, 1997, the Company granted to the underwriters an option to
purchase up to an additional 473,684 common shares at a price per
share equal to the offering price for a period of 60 days
following the closing date. The underwriters are entitled to the
same percentage fee as received under the initial offering upon
exercise of the option. On February 25, 1998, the underwriters
exercised their right to purchase 169,205 common shares resulting
in proceeds of $753,470 to the Company, net of underwriters fees.
(ii) Compensation option:
As additional compensation to the underwriters, the Company
granted an option to purchase up to an aggregate of 157,895
common shares at a price of $4.75 per share with an expiry date
of December 31, 1999.
On March 6, 1998, the underwriters exercised their options with
respect to 6,000 shares for cash proceeds of $28,500.
9. Earnings per share:
The per share amounts used for the calculation of basic earnings per share
include common and Class B shares in equal proportion as both share equally
in the earnings of the Company.
The basic earnings per share figures are calculated using the weighted
monthly average number of shares outstanding during the respective fiscal
years after giving retroactive effect to the 1 to 900 share split.
Fully diluted earnings per share has not been provided given the result is
anti-dilutive.
10. Research and development:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Research and development expenditures....................................... $ 490,181 $ 1,064,212 $ 338,583
Less: related investment tax credits........................................ -- (573,965) (114,684)
--------- ----------- ---------
$ 490,181 $ 490,247 $ 223,899
========= =========== =========
</TABLE>
<PAGE>
11. Income taxes:
Income tax expense varies from the amount that would be computed by applying
the basic federal and provincial tax rates to earnings before income taxes,
as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Expected tax rate.......................................................... 44.60% 44.60% 44.60%
Expected tax rates applied to earnings before income taxes................. $ (91,354) $ 766,948 $ 55,272
Increase (decrease) resulting from:
Losses not recorded for accounting purposes................................ -- 305,000 --
Benefit of losses not previously recognized for accounting purposes........ (118,000) -- (205,000)
Refundable taxes........................................................... 102,000 (217,000) --
Non-taxable portion of dilution gains...................................... (167,000) (653,000) --
Amortization of goodwill................................................... 223,000 156,000 120,000
Small business deduction and other miscellaneous items..................... (68,666) (57,948) 29,728
--------- --------- ---------
$(120,020) $ 300,000 $ --
========= ========= =========
</TABLE>
As a public corporation, the Company will no longer be eligible for the
small business tax rate reduction or the refundable taxes provided to
Canadian controlled private corporations referred to above.
The Company has amounts deductible for tax purposes in excess of the book
purposes of approximately $2,800,000 primarily related to scientific
research and experimental development expenditures and share issuance costs,
the benefit of which have not been reflected in the accounts.
12. Segmented data:
Management has determined that the Company operates in two principal
industry segments in Canada based on differences in products and services
offered: (i) research, development, manufacture and sale of chemical
detection systems ("Chemical Detection Division"); (ii) integration,
engineering and consulting services and value-added resale of information
technology equipment ("IEC Division"):
<TABLE>
<CAPTION>
Chemical
IEC Detection
Division Division Total
-------- -------- -----
<S> <C> <C> <C>
Year ended December 31, 1997:
Net sales............................................................ $ 17,554,400 $ 6,565,398 $ 24,119,798
Segment operating income............................................. 517,097 693,896 1,210,993
Other income and dilution gain....................................... -- -- 711,187
General corporate expense............................................ -- -- 1,131,336
Interest and finance expense......................................... -- -- 1,064,394
Goodwill write-off................................................... -- -- 68,000
Non-controlling interest............................................. -- -- 136,720
Earnings (loss) before income taxes.................................. -- -- (204,830)
Depreciation and amortization........................................ -- 10,631 10,631
Corporate depreciation............................................... -- -- 584,995
Identifiable assets.................................................. 17,154,137 4,456,723 21,610,860
Corporate assets..................................................... -- -- 14,470,752
Total assets......................................................... -- -- 36,081,612
Capital expenditures................................................. -- 95,193 165,484
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Chemical
IEC Detection
Division Division Total
-------- -------- -----
<S> <C> <C> <C>
Year ended December 31, 1996:
Net sales............................................................ $ 3,928,132 $ 109,999 $ 4,038,131
Segment operating income (loss)...................................... 1,130,398 (553,691) 576,707
Other income and dilution gain....................................... -- -- 2,788,801
General corporate expense............................................ -- -- 1,646,040
Interest expense..................................................... -- -- 280,296
Non-controlling interest............................................. -- -- 280,442
Earnings (loss) before income taxes.................................. -- -- 1,719,614
Depreciation and amortization........................................ -- 6,658 6,658
Corporate depreciation............................................... -- -- 578,142
Identifiable assets.................................................. 1,210,760 2,354,368 3,565,128
Corporate assets..................................................... -- -- 3,008,650
Total assets......................................................... -- -- 6,573,778
Capital expenditures................................................. -- 10,439 412,079
Chemical
IEC Detection
Division Division Total
-------- -------- -----
April 13 to December 31, 1995:
Net sales............................................................... $ -- $ 668,907 $ 668,907
Segment operating income (loss)......................................... -- 252,654 633,299
Other income and dilution gain.......................................... -- -- 116,000
General corporate expense............................................... -- -- 442,200
Interest expense........................................................ -- -- 136,214
Non-controlling interest................................................ -- -- (46,956
Earnings (loss) before income taxes..................................... -- -- 123,929
Depreciation and amortization........................................... -- 6,830 6,830
Corporate depreciation.................................................. -- -- 275,565
Identifiable assets..................................................... -- 1,103,153 1,103,153
Corporate assets........................................................ -- -- 1,740,882
Total assets............................................................ -- -- 2,880,035
Capital expenditures.................................................... -- 127,020 127,020
Canadian operations include export sales for the year ended December 31,
1997, 1996 and 1995 of $20,000,000, $Nil and $668,907, respectively.
</TABLE>
13. Related party transactions:
Interest, finance charges and royalties paid to a shareholder, Research
Corporation Technologies Inc., during the year ended December 31, 1997
totalled $151,876, $795,800 and $200,947 respectively.
14. Commitments:
The Company leases office premises and equipment under long-term operating
leases. The Company is committed to make future minimum payments under these
leases as follows:
<TABLE>
<S> <C>
1998............................................................................................... $ 340,086
1999............................................................................................... 272,866
2000............................................................................................... 168,628
2001............................................................................................... 187,699
2002............................................................................................... 153,000
------------
$ 1,122,279
============
</TABLE>
15. Financial instruments:
(a) Credit risk:
The Company provides credit to its customers in the normal course of
business. The Company maintains reserves for potential credit losses,
which when realized, have been within the range of management's
expectations.
(b) Fair value:
The carrying value of long-term debt approximates fair value given the
effective interest rate approximates the rate currently available to
the Company.
The carrying values of other financial instruments approximate their
fair value given the relatively short periods to maturity of the
instruments.
16. Correction of an accounting error:
Inventory on consignment was incorrectly expensed in 1995 and the investment
tax credit receivable was understated. Inventory, investment tax credit
receivable and expense have been retroactively restated with inventory
increasing by $221,642, investment tax credit receivable increasing by
$25,000 and expenses decreasing by $246,642.
As a result of the above adjustments, minority interest increased by
$46,956.
<PAGE>
The above amounts have resulted in the restatement of the prior period with
a total increase in retained earnings of $199,687.
17. Major customers:
Sales to major customers as a percentage of total sales are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C>
Federal Aviation Administration......................................................... 16.5% -- 31.0%
Department of National Defence.......................................................... 9.0% 64.0% --
Canadian Commercial Corporation......................................................... 10.0% -- --
US Private Customer..................................................................... 55.5% -- --
</TABLE>
Subsequent event:
On March 12, 1998, the Company completed an offering of 3,050,000 special
warrants at $6.75 per special warrant, for aggregate proceeds of $20,587,500.
Each Special Warrant is exercisable, for no additional consideration, into one
common share of the Company unless a final receipt for a prospectus qualifying
the issuance of common shares upon the exercise of the Special Warrants is not
obtained within 90 days of closing, in which case each Special Warrant is
exercisable into 1.1 common shares of the Company.
As additional compensation, the Company has granted an option to purchase up
to an aggregate of 175,375 common shares at a price of $7.00 per share
exercisable within 24 months after the closing of the Special Warrant
offering.
<PAGE>
SCHEDULE B
COMPILATION REPORT ON PRO FORMA CONSOLIDATED BALANCE SHEET AND
PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
To the Directors of
IDS INTELLIGENT DETECTION SYSTEMS INC.
We have reviewed, as to compilation only, the accompanying pro forma
consolidated balance sheet of IDS Intelligent Detection Systems Inc. as at
December 31, 1997 and the pro forma consolidated statement of earnings for the
year then ended prepared for inclusion in the Take-Over Bid Circular included in
the offer dated April 15, 1998 by IDS Intelligent Detection Systems Inc. to the
holders of common shares of Scintrex Limited. In our opinion, the pro forma
consolidated balance sheet and pro forma consolidated statement of earnings have
been properly compiled to give effect to the proposed acquisition and the
assumptions described in the accompanying notes thereto.
Ottawa, Canada (signed) KPMG
April 14, 1998 Chartered Accountants
<PAGE>
IDS INTELLIGENT DETECTION SYSTEMS INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
December 31, 1997
(Unaudited - see Compilation Report)
(Thousands of dollars, except share and per share amounts)
<TABLE>
<CAPTION>
IDS Scintrex
as at as at Pro forma
December 31, September 30, Adjustments Pro forma
1997 1997 (note 2) Consolidated
---- ---- -------- ------------
<S> <C> <C> <C> <C>
Assets
Current Assets:
Cash and short-term deposits............................... 13,088 7,114 (19,500) 702
Accounts receivable........................................ 20,484 6,406 26,890
Investment tax credit receivable........................... 435 -- 435
Income taxes recoverable................................... 272 -- 272
Inventories................................................ 511 7,492 8,003
Prepaid expenses........................................... 56 182 238
Due from affiliated company................................ 24 -- 24
------ ------ ------- --------
34,870 21,194 (19,500) 36,564
Capital assets................................................ 459 4,900 5,359
Goodwill...................................................... 752 -- 31,155 31,907
36,081 26,094 11,655 73,830
====== ====== ======= ========
Liabilities and Shareholders' Equity
Current Liabilities:
Bank loan.................................................. 1,552 -- 1,552
Accounts payable and accrued liabilities................... 16,226 1,477 17,703
Income taxes payable....................................... -- 37 37
Deferred revenue........................................... 276 162 438
Due to shareholders........................................ 70 -- 70
Current portion of long-term debt.......................... 30 -- 30
------ ------ ------- --------
18,154 1,676 19,830
Long-term debt............................................. 58 -- 58
Deferred income taxes...................................... -- 73 73
Deferred lease inducement.................................. 50 -- 50
Shareholders' equity:
Share capital............................................ 17,322 20,568 (20,568) 53,322
36,000
Cumulative foreign exchange translation
adjustment............................................ -- (65) 65 --
Retained earnings........................................ 497 3,842 (3,842) 497
------
17,819 24,345 11,655 53,819
36,081 26,094 11,655 73,830
====== ====== ======= ========
</TABLE>
See accompanying notes to unaudited pro forma consolidated financial statements.
<PAGE>
IDS INTELLIGENT DETECTION SYSTEMS INC.
PROFORMA CONSOLIDATED STATEMENT OF EARNINGS
Year Ended December 31, 1997
(Unaudited - see Compilation Report)
(Thousands of dollars, except share and per share amounts)
<TABLE>
<CAPTION>
IDS Scintrex
year ended year ended Pro forma
December 31, December 31, Adjustments Pro forma
1997 1997 (note 2) Consolidated
----- ----- --------- ------------
<S> <C> <C> <C>
Sales 24,120 20,014 44,134
Cost of goods sold............................................ 19,983 11,012 30,995
--------- ------- ----------
4,137 9,002 13,139
Contract revenue.............................................. 107 -- 107
--------- ------- ----------
4,244 9,002 13,246
Expenses:
Selling, general and administrative........................ 3,078 6,691 9,769
Depreciation and amortization.............................. 596 628 2,077 3,301
Interest and finance....................................... 269 -- 269
Research and development................................... 490 1,174 1,664
--------- ------- --------- ----------
4,433 8,493 2,077 15,003
Interest and other income..................................... 31 359 390
Dilution gains................................................ 681 -- 681
Finance charges............................................... (796) -- (796)
Goodwill write-off............................................ (68) -- (68)
Non-controlling interest in income............................ 137 -- 137
--------- ------- --------- ----------
Earnings (loss) before income taxes........................... (204) 868 (2,077) (1,413)
Income tax recovery (expense)................................. 120 (435) (315)
--------- ------- --------- ----------
Net earnings (loss)........................................... (84) 433 (2,077) (1,728)
========= ======= ========= ==========
Loss per share:
Basic...................................................... $(0.12)
Weighted average number of shares............................. 14,773,370
</TABLE>
See accompanying notes to unaudited pro forma consolidated financial statements.
<PAGE>
IDS INTELLIGENT DETECTION SYSTEMS INC.
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited - see Compilation Report)
(Thousands of dollars, except share and per share amounts)
1. Basis of Presentation:
The pro forma consolidated balance sheet, as at December 31, 1997, is based
upon the audited and unaudited consolidated balance sheets of IDS
Intelligent Detection Systems Inc. ("IDS") and Scintrex Limited
("Scintrex") as at December 31, 1997 and September 30, 1997, respectively,
and the pro forma consolidated statement of earnings for the year ended
December 31, 1997 is based upon the audited and unaudited consolidated
statement of earnings of IDS and Scintrex for the year ended December 31,
1997, respectively, adjusted to reflect the acquisition of all the
outstanding common shares of Scintrex by IDS, whereby each shareholder of
Scintrex will have the option to receive either (a) 2.323 common shares of
IDS or (b) $9.00 cash and 1.1615 common shares of IDS, subject to a maximum
cash consideration of $18 million. The pro forma consolidated financial
statements have been prepared by management in accordance with generally
accepted accounting principles. The purchase accounting method has been
used to account for this acquisition.
The pro forma consolidated financial statements may not be indicative
either of results that actually would have occurred if the acquisition had
taken place on the date indicated, or the results which may be obtained in
the future. In preparing these pro forma consolidated financial statements,
no adjustments have been made to reflect the operating synergies or general
and administrative cost savings that may result from combining the
operations of IDS and Scintrex.
These pro forma consolidated financial statements should be read in
conjunction with the audited consolidated financial statements of IDS for
the year ended December 31, 1997 and the unaudited consolidated balance
sheet and unaudited consolidated statement of earnings of Scintrex as at
September 30, 1997 and for the year ended December 31, 1997, respectively.
The consolidated financial statements of IDS have been audited by KPMG.
2. Pro Forma Assumptions:
The pro forma consolidated balance sheet gives effect to the acquisition by
IDS of all of the common shares of Scintrex as if it had occurred at
December 31, 1997. The pro forma consolidated statement of earnings gives
effect to the acquisition by IDS of all of the outstanding common shares of
Scintrex as if it had occurred at January 1, 1997.
The pro forma consolidated financial statements give effect to the
following:
Consolidated Balance Sheet:
(a) Purchase of Scintrex Shares
Under this offer, IDS will issue either (a) 2.323 common shares of IDS
for each Scintrex common share or (b) 9.00 cash and 1.1615 common
shares for each Scintrex common share. Under the assumption that all
of the shareholders of Scintrex accept this offer, that the full cash
consideration is utilized and that there are approximately 3,000,000
Scintrex common shares on a fully diluted basis, approximately
4,645,000 common shares of IDS and $18 million cash consideration will
be issued.
The purchase price of $54.0 million has been calculated using a common
share price of IDS of $7.75 and is exclusive of transaction costs
estimated at $1.5 million. The share price ultimately used to
determine the purchase price may differ from this amount. The total
purchase price will be allocated to the assets and liabilities of
Scintrex based on their fair values. As neither the final purchase
price nor the fair market value of the assets and liabilities of
Scintrex have yet been determined, the excess of the purchase price
over the book value of the assets and liabilities of Scintrex of
$31.16 million based on the unaudited consolidated balance sheet of
Scintrex as at September 30, 1997 has been temporarily allocated to
goodwill. Accordingly, such purchase allocation may change as more
information is obtained.
<PAGE>
(b) Common Shareholders' Equity
The common shareholders' equity of Scintrex will be eliminated as a
result of the acquisition. In addition, IDS will issue $36.0 million
in common shares.
Consolidated Statement of Earnings:
(a) Amortization
The amount temporarily allocated to goodwill as described in Note 2(a)
is being amortized over 15 years.
(b) Loss per share:
The weighted average number of shares outstanding has been determined
using IDS's weighted average number of shares at December 31, 1997
adjusted to include the number of shares issued under this Take-over
Bid Circular as though they were issued at the beginning of the
period.
<PAGE>
SCHEDULE C
ADDITIONAL INFORMATION CONCERNING THE OFFEROR
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. The Offeror............................................................................ 58
2. Business of the Offeror................................................................ 58
Overview.......................................................................... 58
Industry Background............................................................... 59
Market Requirements............................................................... 61
The IDS Solution.................................................................. 61
Strategy.......................................................................... 62
Product Lines..................................................................... 63
Customers......................................................................... 64
Sales and Marketing............................................................... 64
Backlog........................................................................... 65
Manufacturing and Assembly........................................................ 65
Research and Development.......................................................... 65
Future Applications............................................................... 66
The Core Technology............................................................... 67
Competition....................................................................... 68
IEC Business...................................................................... 68
Patents and Proprietary Rights.................................................... 69
Government Regulation............................................................. 69
Human Resources................................................................... 70
Management........................................................................ 70
3. Management Discussion and Analysis of Financial Condition and Operating Results........ 71
4. Directors and Officers................................................................. 74
5. Stock Option Plan...................................................................... 77
6. Consolidated Capitalization............................................................ 78
7. Principal Shareholders................................................................. 78
8. Corporate History and Reorganization................................................... 79
9. Description of Share Capital........................................................... 80
10. Dividend Policy........................................................................ 80
11. Escrow Arrangements.................................................................... 80
12. Prior Sales............................................................................ 81
13. Price Range and Trading Volume of the IDS Shares....................................... 81
14. Interest of Management and Others in Material Transactions............................. 82
15. Material Contracts..................................................................... 82
16. Legal Proceedings...................................................................... 83
17. Recent Events.......................................................................... 83
18. Eligibility for Investment............................................................. 83
19. Risk Factors........................................................................... 83
20. Auditors, Transfer Agent and Registrar................................................. 88
</TABLE>
<PAGE>
1. The Offeror The Offeror was formed on September 30, 1997 by Articles of
Amalgamation issued pursuant to the Business Corporations Act (Ontario) as a
successor to the business of CPAD Technologies Inc. which was originally
incorporated on November 27, 1986 under the name CPAD Holdings Ltd. The head
office of the Offeror is located at 66 Slater Street, 6th Floor, Ottawa,
Ontario, Canada, K1P 5H1.
The operations of the Offeror are carried on under divisions known as the
chemical detection division which designs, manufactures and sells chemical
detection equipment and Integration, Engineering and Consulting ("IEC") which
provides information technology engineering and consulting services and
functions as an equipment reseller.
Unless the context otherwise requires, the term "Offeror" refers to IDS
Intelligent Detection Systems Inc. and its operating divisions. See "Corporate
History and Reorganization".
2. Business of the Offeror
Overview
The Offeror, through its chemical detection division, develops, manufactures
and has recently commenced the marketing of a wide range of high-speed chemical
detection, measurement and analysis products which are based on patented
technology. Such products, which include airport scanners, hand-held drug
detectors and mail scanners are targeted currently at two principal markets,
explosives detection and the drug interdiction equipment markets.
Explosives detection equipment is used by government organizations,
transportation authorities, law enforcement agencies and commercial entities
primarily for public safety and security purposes, including transportation
security, particularly relating to aviation, security of government facilities
and security for commercial properties such as hotels, shopping centres and
office buildings. The Offeror's customers for explosives detection equipment
have included the Federal Aviation Administration (the "FAA"), Securair
International Limited (Hong Kong), Lockheed Martin Canada Inc. and the
Department of Transport (Canada).
The market for the Offeror's explosives detection products is large and
expected to grow rapidly. In 1996, the U.S. Government allocated over US$400
million for the acquisition of new explosives detection technology and other
security enhancements. The FAA has estimated that in the U.S. alone, the use of
best available procedures and technology for enhancing aviation security could
cost as much as US$6 billion over the next ten years. Explosives detection
equipment is expected to be an integral part of these security enhancements.
The Offeror has an established working relationship with the FAA, one of the
most influential aviation regulatory bodies in the world, having been provided
with funding and guidance in the development of several of the Offeror's
products by Transport Canada on its own and on behalf of FAA as a part of the
Bi-lateral U.S./Canada Agreement on Cooperative Research and Development
Concerning Counter-Terrorism. The FAA has recently placed orders for explosives
detection equipment with several suppliers, including the Offeror. The Offeror's
order calls for the delivery of up to 400 explosives detection units from the
Offeror, of which the FAA has committed to purchase 50 units.
Drug detection equipment is used by governments, law enforcement agencies
(such as customs organizations, police forces and prisons) and commercial
enterprises to curtail the burgeoning world-wide problem of drug trafficking and
consumption. The Offeror's customers for drug detection equipment include
Correctional Services Canada and the California Department of Corrections.
The Offeror's core technology is adaptable to many chemical detection
applications beyond explosives detection and drug interdiction including
clinical diagnostic systems for applications such as the early detection of
kidney disease, lung cancer and liver cancer, and industrial process quality
control systems for applications such as assessing the purity of substances and
detecting contaminants during manufacturing processes. Management believes that
these new applications will play a significant role in the long term growth of
the Offeror, particularly in new private sector markets.
The principal competitive advantage of the Offeror's products is the
incorporation of a unique, patented application of gas chromotography/ion
mobility spectometry ("GC/IMS") technology in the design and manufacture of its
products. This has allowed the Offeror to produce what it believes to be the
most advanced chemical detection products in the world in terms of the
equipment's ability to selectively target chemicals from a wide range of organic
substances, their high degree of sensitivity with the ability to detect
chemicals in quantities at the parts per trillion level, and the equipment's
versatility with both high throughput stationary detectors and hand held
portable versions.
The Offeror markets its products primarily through a world-wide network of
distributors with established relationships with key purchasers, in its target
markets. The Offeror has recently established strategic distribution and
maintenance agreements with EG&G Astrophysics, the world's largest supplier of
x-ray security screening systems and the Offeror's primary U.S.
<PAGE>
distributor of its products; Itochu Aviation, a member of the Itochu group of
companies which consistently ranks among the six largest companies in the world
in sales, a shareholder of the Offeror and its Asian distributor; and Heimann
Systems, a company with more than 10,000 x-ray inspection units in operation in
over 150 countries and the Offeror's European distributor.
The Offeror, through its IEC division, provides information technology
services including systems integration, engineering and consulting, primarily to
the Canadian Federal Government. The division also provides value-added-
reselling services of hardware products from manufacturers such as Digital
Equipment of Canada Ltd., Sun Microsystems of Canada Inc., Newbridge Networks
Corporation, Compaq Canada Inc. and Hewlett-Packard (Canada) Ltd.
The Offeror's revenues have grown rapidly since the acquisition by current
management of a controlling interest in IDS in the spring of 1995. Revenues have
grown from $669,907 for the period April 13 to December 31, 1995 to $4.0 million
for the fiscal year ended December 31, 1996, and to a level of $24.1 million for
the fiscal year ended December 31, 1997.
Industry Background
The Offeror, through its chemical detection division, is currently pursuing
two specific markets with its chemical detection products: the explosives
detection equipment market and the drug interdiction equipment market.
Explosives Detection Equipment Market
Explosives detection equipment is used primarily for public safety and
security purposes and is generally purchased by government organizations,
transportation authorities, law enforcement organizations and commercial
entities. The market opportunity is worldwide and believed by the Offeror to be
in its infancy due to the rapidly increasing concern over public safety and the
limited effectiveness of traditional responses to terrorism. The demand for
explosives detection equipment is driven largely by the number and
sophistication of bomb-related terrorist attacks and the need and willingness of
governments to take action to combat such activities.
Primary applications for explosives detection equipment include
transportation security, particularly relating to aviation; security of
government facilities such as government offices and military bases; security
for commercial properties such as hotels, shopping centres, and office
buildings; and public services security including postal services and public
events (eg. the Olympics), all of which have recently been the targets of
explosives-based terrorist attacks.
Transportation Security. Transportation security, and specifically aviation
security, is perhaps the most developed and advanced market for explosives
detection devices. This likely results from international aviation authorities'
reactions to incidents such as the bombing of an Air India flight over the
Atlantic Ocean in 1986 and a Pan Am flight over Lockerbie, Scotland in 1988, and
most recently the crash of TWA Flight 800 over Long Island, New York.
The United States and the United Kingdom are generally regarded as the
leaders in developing strategies and implementing solutions for aviation safety.
In September 1996, the U.S. Government through the Gore Commission released a
report on aviation safety which defined an infrastructure for explosives
detection for all U.S. airports. This resulted in the U.S. Government's
appropriation in October 1996 of U.S.$400 million for the acquisition of new
explosives detection technology and other security enhancements of which
U.S.$144.2 million was specifically designated for the immediate procurement of
explosives detection devices. The FAA's Aviation Security Advisory Committee
(the "ASAC") has further recommended an expenditure of U.S.$1.8 billion between
1997 and 2000 for carry-on and checked luggage and personal screening at larger
U.S. airports and recommended the expenditure of an additional U.S.$3.9 billion
between 2001 and 2005 to complete the U.S. system. The FAA estimates that the
use of the best available procedures and technology for enhancing aviation
security could cost as much as U.S.$6 billion over the next ten years or
alternatively about $1.30 per one-way ticket, if the costs were paid through a
surcharge.
In the U.K., the British Airport Authority (the "BAA") has undertaken a
(pound)175 million project involving the screening of all passenger checked
baggage on all international flights.
Management believes that both the FAA and the BAA will influence other
aviation authorities worldwide in the adoption and implementation of security
strategies and technologies in an effort to protect their own citizens
travelling to and from foreign countries. Management also believes that the
strategies and technologies applied in aviation security are very advanced and
will be a significant influence in the adoption and implementation of this
technology for security in other transportation facilitie including subways,
train stations and the Eurotunnel as well as in other non-transportation
markets.
<PAGE>
Government Facilities. The market for explosives detection devices in government
facilities, such as government offices, prisons, military bases, nuclear power
plants and embassies, has evolved largely as a result of recent incidents such
as the 1996 Oklahoma City bombing and the 1995 bombing of an American military
housing facility in Dhahrain, Saudi Arabia. In 1996, the U.S. Government
appropriated U.S.$436.9 million for the protection of government facilities
against potential terrorist attack. Management believes counter terrorism
policies are also being contemplated by other countries.
Commercial Properties. The Offeror believes that a market will evolve for
explosives detection equipment in commercial properties such as hotels, shopping
centres, and office buildings as a result of recent targeting of public areas by
terrorist groups as evidenced by the 1996 bombings of the World Trade Centre in
New York, the IBM offices in Athens, Greece and the Samsung Electronics Company
and Korea Telecom International offices in Sri Lanka.
Public Services. Increasingly, public services such as postal and
telecommunications services have become not only a means of delivering
explosives in the case of postal service but also a target unto themselves. In
response, the Gore Commission has recommended that the Postal Service should
mandate that all mail weighing over 16 ounces contain a written release that
allows it to be examined by explosives detection systems in order to be shipped
by air. If implemented, the Offeror believes this recommendation would result in
increased demand for explosives detection devices.
Other Markets. In addition to the major markets listed above, the threat of
explosives is also present at border crossings, schools and in private
residences.
Drug Interdiction Equipment Market
The production, trafficking and use of illegal drugs is worldwide and
growing. Public reaction to the increased use of drugs and associated crime have
compelled governments, law enforcement agencies and commercial enterprises to
take action to curtail both trafficking and consumption.
Purchasers of drug interdiction equipment include law enforcement agencies
throughout the world such as customs organizations, police forces and prisons.
In addition, as a result of penalties imposed by law enforcement agencies,
private companies, particularly airlines, shipping and courier companies have
also begun purchasing detection equipment in an effort to curtail their
unwitting transport of illegal substances. Private employers and school
organizations have also begun to use detection devices a tools to investigate
possible drug use by their employees and students respectively.
Demand for drug interdiction equipment by government and law enforcement
agencies is driven to a large degree by the budget allocations made available to
such agencies. Worldwide anti-drug efforts are difficult to quantify although
the United States, considered the world leader in this area, is expected to
spend over U.S.$1 billion in 1997 through the United States Drug Enforcement
Administration (DEA) on drug interdiction. This does not include spending by
local or state police or customs agencies. Th Offeror believes that drug
detection equipment will represent a portion of this spending as can be inferred
from recent statements made by the Administrator, DEA of the U.S. Department of
Justice to the U.S. Congress in March 1997: "Without state-of-the-art
investigative equipment, intelligence, automated data processing systems and
operational support facilities, law enforcement's ability to make significant
inroads in its efforts to dismantle the operations of major drug trafficking
organizations is greatly diminished."
Market Requirements
Although specific requirements vary between the explosives detection
equipment market and the drug interdiction equipment market, the Offeror
believes the following factors are generally considered by customers when
evaluating detection equipment:
High Throughput. Detection equipment must be capable of processing a significant
volume of people, luggage or packages, while effectively identifying targeted
chemicals (such as explosives or drugs) and maintaining a low false alarm rate.
Throughput is particularly critical for passenger and baggage screening in
airports as well as in postal processing applications.
Sensitivity. Detection equipment must be capable of detecting very small traces
of organic chemicals. A high degree of sensitivity is particularly critical in
explosives detection applications. With respect to drug interdiction
applications, device sensitivity should be configurable such that ambient
quantities of illegal substances will not trigger positive detection.
Selectivity. Detection equipment must be capable of detecting and identifying
specific organic materials, notwithstanding the presence of varying background
levels of chemical substances or the presence of substances with similar
chemical characteristics to the targeted substance but which are innocuous.
Ease of Use. As detection equipment is often operated by employees with little
technical training or in areas subject to high turnover, such as airport and
building security personnel, the equipment must be easy to use with minimal
training and the results of testing must be easy to interpret.
<PAGE>
Cost. As purchasers of detection equipment are most often government or
quasi-government bodies with large volume purchase requirements, the cost of
acquisition as well as ongoing maintenance, training and staffing costs play a
significant role in the procurement decision.
Portability. The ability to easily move the equipment is particularly important
in the drug interdiction market where law enforcement personnel must actively
search for illegal substances in remote locations, such as cars, schools and
prisons.
Regulatory Acceptance. The approval or certification of the equipment by a
recognized authority, such as FAA or BAA, is essential for many government
security projects, particularly in the area of explosives detection, and may
increasingly become a requirement in commercial markets.
Automation. Detection equipment is increasingly being integrated into large,
computerized, comprehensive security systems and must, as a result, provide for
automated operation and appropriate systems interfacing.
ICAO Taggants. The ability of the equipment to detect taggants, or signature
markers, which the International Civil Aviation Organization (ICAO) has mandated
be included in plastic explosives for the purposes of identification and is
expected to be required by the FAA for all detection equipment.
Ionization Source. Most chemical detection equipment relies on nuclear materials
as an ionization source and as a result requires additional regulatory approvals
and licenses thereby increasing the cost of acquisition and restricting
transportability. There is concern, particularly in the case of a hand held
unit, with respect to perceived health impacts of radioactive material on
operators. As a result, the Offeror believes that a non-nuclear source will
increasingly be a requirement.
The IDS Solution
The Offeror believes that it has developed a comprehensive suite of products
available for the explosives detection and drug interdiction markets including
portable, handheld, walkthrough and mail scanning products. The Offeror's
products are based on patented technology which combines a GC/IMS analytical
detection system, an automated preconcentrator to automatically capture samples
for testing and proprietary analytical computer software to provide fully
automated, unmanned operation and detailed results analysis.
The Offeror believes that it is the only company in the world to use dual
detection analytical capability in the form of gas chromatography (GC) and ion
mobility spectrometry (IMS) analytical processes for explosives detection and
drug interdiction. This enables the Offeror's equipment to achieve what
management believes to be the highest sensitivity and selectivity capabilities
of any chemical detection device currently available.
With respect to sensitivity, the Offeror's equipment is able to detect
targeted chemicals in quantities as small as parts per trillion which is
critical in explosives detection applications. The quantity threshold level for
the equipment is adjustable by the operator to varying levels of sensitivity as
it may be desirable in some applications, such as drug interdiction, to raise
the threshold to avoid the detection of ambient quantities of illegal
substances. In terms of selectivity, the Offeror's products have the capability
to separate, detect, analyze and positively identify all organic chemicals in
both qualitative and quantitative terms. For example, the equipment can
distinguish nitrogen found in common items, such as cheese, from nitrogen
compounds found in explosive materials. Most detection equipment currently
available would be incapable of distinguishing between these two groups and
would trigger an alarm on the detection of nitrates in such innocuous
substances. From an operational perspective, the Offeror's GC/IMS detection
system has been shown to provide the highest detection rate while maintaining
the lowest false alarm rate when measured against competitive products. As
reported in the February 24 and March 17, 1997 issues of Air Safety Week, an
industry publication published by Phillips Business Information, Inc. of
Potomac, Maryland, of all the trace explosives detection products tested by the
FAA in 1996, IDS' Orion Plus was found to be the most effective in combined
terms of detection and false alarm rate.
The fully automated preconcentrator, contained in the Offeror's products,
simultaneously performs three distinctive functions - collection, desorption
(transferring the sample to the analytical unit) and cleaning. Management
believes that the Offeror's automated and continuous sample collection process
results in superior throughput and the fastest operational system on the market.
A full analysis on any sample can be completed within six seconds and, in
contrast to non-continuous sampling instruments, successive samples may be
introduced without waiting for analysis of prior samples to be completed.
The Offeror's proprietary computer software allows the Offeror's equipment to
be fully integrated with computerized networks and allows for encryption of
data. The software also facilitates the ease of use of the equipment as no
interpretation of results is required by the operator. The device is able to
automatically exhibit a "pass/fail" message, identify the substance and its
concentration. The proprietary software can be readily programmed for the
detection and analysis of new substances, thereby enabling the core technology
to be adapted to new applications such as clinical diagnosis and industrial
process control.
<PAGE>
Other factors that make the IDS solution attractive to customers include:
Cost. While achieving a high degree of functionality and performance, the
Offeror's products retain a mid-market pricing level in terms of acquisition
cost. The Offeror's products also have low ongoing maintenance costs.
Regulatory Acceptance. The Offeror's products were developed with the financial
participation and technical direction of the FAA and Transport Canada. The FAA
and U.K. Department of Transport have approved the Offeror's explosives
detection equipment.
ICAO Taggants. To the Offeror's knowledge, its Orion Plus product is one of only
two products in the world capable of operationally detecting the taggants
mandated by the International Civil Aviation Organization (ICAO).
Ionization Source. The Offeror's drug detection products are, to management's
knowledge, the only products which do not rely on nuclear materials as an
ionization source and as a result, no additional regulatory approvals or
licenses are required and no health hazards are posed.
Strategy
The Offeror's objectives are to become the leading worldwide provider of
chemical detection systems to the explosives detection and drug interdiction
equipment markets and to develop and release additional product offerings based
on the Offeror's core technology for new applications. The Offeror's strategy
for achieving these objectives includes the following:
Capitalize on Strong Position in Aviation Sector. The Offeror has established
relationships with the world's two leading aviation regulatory authorities, the
FAA and the U.K. Department of Transport (the "DOT"), both of which have
approved the Offeror's explosives detection equipment. The Offeror intends to
establish direct sales offices in the United States and England in order to
further strengthen such relationships and in order to provide stronger local
support to its key distributors in those territories. The Offeror believes that
acceptance of its products by the FAA and DOT will assist the Offeror and its
international distribution network, including EG&G Astrophysics in North
America, Itochu Aviation in the Far East and Heimann Systems in Europe and the
Middle East, in selling products to other national aviation authorities and
other purchasers, including airlines and airports, in the aviation sector.
Leverage Distribution Channel to Penetrate New Market Sectors for the Offeror.
The Offeror believes that with the acceptance of certain of its explosives
detection products by such influential organizations as the FAA and the DOT, its
products will be more readily accepted in non-aviation security markets such as
government facilities, commercial properties and public services. The Offeror's
worldwide network of distributors has an established presence in these markets
and is working with the Offeror to address industry-specific requirements. An
example of this joint development is the Offeror's hand held drug detection
system for the drug interdiction market which was developed without a nuclear
ionization source in response to market requirements as defined by Itochu
Aviation, one of the Offeror's distributors.
Leverage GC/IMS Technology for New Applications. The Offeror believes its core
GC/IMS technology can be readily adapted to other applications through the
modification of software algorithms and the physical characteristics of the
analytical system. The Offeror believes that a requirement for high-speed,
highly selective detection equipment exists in a number of markets including,
clinical diagnostic systems for applications such as the early detection of
kidney disease, lung cancer and liver cancer, and industrial process quality
control systems for applications such as assessing the purity of substances and
detecting contaminants during manufacturing processes.
Lead through Technology Innovation. The Offeror is pursuing the development of
new chemical detection technologies which it believes will further enhance its
competitive position within its selected markets. For example, the Offeror is
developing an explosives detection system based on laser technology for baggage
screening based on a contract from the FAA and Transport Canada.
Product Lines
The following is a brief description of the Offeror's current product line,
all of which are in operational use at customer locations with the exception of
NorthStar which has been recently introduced:
Orion - a fully automated stand-alone system, incorporating the Offeror's core
technology to detect explosives including EGDN, NG, TNT, AN, PETN and RDX. These
explosives are sampled in the form of trace particles deposited on surfaces (for
example, persons, baggage and packages) in as little as parts per trillion
quantities. The system was originally developed to meet FAA requirements and has
subsequently been approved by the FAA for installation at U.S. airports.
<PAGE>
Orion Plus - a system based on the Orion architecture which can simultaneously
detect particles and vapours and all of the chemical taggants (EGDN, DMNB, OMNT
and PMNT) mandated by the International Civil Aviation Organization (ICAO) in
the manufacturing of explosives. The system was originally developed to meet
Transport Canada and FAA specifications. The Orion Plus product has been
approved by the FAA and BAA.
Orion Walk-Through - a fully automated portal system based on Orion Plus
technology which can process without interruption up to 1000 individuals per
hour, together with their baggage. As an individual passes through the system,
an infra-red beam triggers the scanning process. While a built-in video system
records an image of the individual, an explosive vapour detection system draws
an air sample and completes the analysis. The entire system is controlled by a
remote console and can be integrated with complementary technologies such as
metal detectors. The Orion Walk-Through can be discretely incorporated in
existing architecture or openly displayed as a deterrent.
Ariel - a stand-alone, stationary system which detects a wide range of drugs,
including cocaine, heroin, amphetamines, barbituates, and halucinogens, even
after the bulk of the evidence has been removed. The system can be calibrated to
avoid detection of insignificant quantities of such substances to avoid
fruitless searches of people or items that have had exposure to such substances
but no longer carry prosecutable quantities. The ability to automate the system
also enables it to be located at multiple sites and integrated with a command
and control centre that can monitor significant entry points for narcotics.
Ariel is unique in its use of a non-nuclear ionization source.
Sirius - a stand-alone system which detects the compounds identified by the
Orion and Ariel systems simultaneously. To the Offeror's knowledge, Sirius is
the only commercially available system in the world capable of simultaneously
detecting both explosives and drugs.
NorthStar - a hand held drug detection unit, using the Offeror's core GC/IMS
technology, that can detect drugs in a one-step analysis process. The results
are displayed on an LCD display within five seconds of sampling. To the
Offeror's knowledge, NorthStar is the only hand held chemical trace drug
detection system that does not use nuclear material as an ionization source.
Selling prices for the Offeror's equipment vary by product, configuration,
and market. Prices are generally quoted in U.S. dollars and range from
U.S.$20,000 to U.S.$250,000 per unit.
<PAGE>
Customers
To date, the Offeror's customers have been primarily in the government
sector. However, the Offeror's products have also been purchased by
non-government organizations and it is anticipated that non-government entities
will be a key area of growth in the longer term. With respect to its chemical
detection products, customers have included the Federal Aviation Administration
(FAA), Securair International Limited (Hong Kong), the Royal Canadian Mounted
Police, the Ministry of Defence (U.K.), the Canadian Commercial Corporation,
Lockheed Martin Canada Inc., the Federal Court of Canada, the Department of
Transport (Canada), the Department of National Defence (Canada), Canadian
Correctional Services and California Correctional Services. The FAA has, to
date, been the most significant single purchaser of the Offeror's chemical
detection equipment. During the year ended December 31, 1997, sales to the FAA
represented 58% of the Offeror's revenues from chemical detection equipment
sales and related services for such period.
Sales and Marketing
The Offeror currently sells its products through both a direct sales
organization consisting of four individuals and through a number of distributors
and strategic partners throughout the world. The Offeror's direct sales and
marketing efforts related to its explosives detection products are focused on
the FAA and Transport Canada as they are believed to represent the most
immediate sales opportunities. Currently, the Offeror's marketing and
distribution agreements network is comprised of over 10 distributors and
strategic partners, which include the following:
<TABLE>
<CAPTION>
Nature of
Distributor Relationship Territory
<S> <C> <C>
EG&G Astrophysics(1) Non-exclusive USA
Itochu Aviation(2) Exclusive Japan, South Korea, China, Taiwan,
Hong Kong, Vietnam, Thailand, Malaysia,
Singapore, Indonesia, Philippines,
Australia, New Zealand
Marlborough Communications Exclusive U.K., Ireland
Rajab & Tayeb Exclusive Saudi Arabia
Heimann Systems(3) Non-exclusive Europe
Trader Africa Exclusive South Africa
</TABLE>
(1) EG&G Astrophysics is the world's leading supplier of x-ray security
screening systems and metal detectors, with sixty offices worldwide and over
U.S.$1.2 billion in revenues annually. Its security systems are installed in
more than 80% of airports in the U.S.
(2) Itochu Aviation, a member of the Itochu group of companies of Japan,
consistently ranks among the six largest companies in the world in sales.
(3) Heimann Systems is a market leader in Europe, Middle East and Africa with
more than 10,000 x-ray inspection units in operation in more than 150
countries.
The Offeror's sales and marketing efforts typically involve extensive
customer visits, demonstrations and field testing. Sales prospects are generally
targeted by the Offeror or its sales partners, although the Offeror also
responds to requests for proposals. Once a sale has been completed, the Offeror
provides on-site training, including proper sampling and maintenance techniques.
The Offeror generally provides a one-year parts and labour warranty with the
purchase of its equipment, and offers extende warranties for an additional fee.
The Offeror has entered into service relationships with EG&G Astrophysics and
Itochu Aviation to provide service and maintenance in their respective
territories.
The Offeror intends to open a U.S. sales office and establish a sales,
service and marketing presence in Europe within one year. The Offeror also
intends to identify strategic partners in South America and Central Asia.
<PAGE>
Backlog
The Offeror measures its backlog of product sales as orders for which
contracts or purchase orders have been signed, but that have not yet been
shipped and for which revenues have not yet been recognized. The Offeror
includes in its backlog at any particular time only those customer orders that
are scheduled for delivery within the next three months. The Offeror typically
ships its product within three months of receiving an order. As of March 31,
1998, the Offeror had in its backlog, product orders totalling $2.0 million for
delivery by July 31, 1998.
Pursuant to the recommendations of the Gore Commission and the appropriation
of U.S.$144.2 million for procurement of explosives detection devices, including
trace chemical detection devices, on or before September 30, 1998, the Offeror
received a standing order from the FAA on August 18, 1997 for up to 200 units of
Orion and up to 200 units of Orion Plus and related training services
deliverable on or before September 30, 1998 with an aggregate value of up to
U.S.$27.2 million for products and U.S.$5. million for training. Against this
order, 35 Orion and 15 Orion Plus units have been delivered or are deliverable
prior to June 30, 1998.
With respect to the IEC division, the Offeror had a backlog of $0.30 million
as of March 31, 1998 for the delivery of equipment and provision of services on
or before May 2002.
Manufacturing and Assembly
The Offeror manufactures and assembles its chemical detection equipment at
its facility near Ottawa, Ontario. The Offeror assembles the units from
components provided by various suppliers and from parts manufactured internally.
All parts are carefully chemically cleaned prior to being introduced to the
assembly process. Quality assurance is performed as an ongoing process after
each step in the manufacturing cycle, starting with the initial receipt of raw
materials and sub-components and ending with a final inspection of the completed
unit. On completion of the final inspection, a Quality Assurance Checklist is
completed, signifying that the unit has passed final inspection and is ready for
shipment to the customer.
The Offeror believes that it has the manufacturing capacity to meet
anticipated demand for its products in the fourth quarter of the current fiscal
year and in the foreseeable future.
Research and Development
The Offeror's research and development is conducted at its research and
development facility, located within its manufacturing premises. In total, there
are 10 people involved in research and development with four people focused on
fundamental research and development of the Offeror's existing and new core
technologies, and the remaining six people pursuing product development. The
Offeror's immediate research and development activities are directed at the
development of new products for the explosives detection marketplace. These
products include:
Hand Held Explosives Detection. The Offeror's NorthStar drug detection system is
being adapted for explosives detection by developing a non-nuclear ionization
source capable of providing the enhanced sensitivity and selectivity required
for explosives detection applications. It is anticipated that this product will
be available in June 1998. The FAA is currently being consulted for its
specifications in the development of this product.
Laser Detection System for Baggage Screening. The Offeror intends to introduce a
high volume laser-based explosives detector for baggage and parcel scanning
which will be capable of processing up to 1,200 units per hour and will be used
for aviation and mail applications. Funding for development is being provided by
Transport Canada directly and on behalf of the FAA, under the Bi-lateral
U.S./Canada Agreement on Cooperative Research and Development Concerning
Counterterrorism. The Offeror is completing the first phase of a study to define
the operational parameters of the system and plans to build a prototype unit for
delivery to the FAA in October 1998. A patent is pending for this technology.
Integrated Walk-through System. The Offeror has designed a walk-through portal
bomb detection system (NOVA Explosives Detection Walk-Through System) based on
the Offeror's Orion Plus vapour detection system which incorporates several new
technologies. The explosives detection system will be complemented with a camera
system that can produce images of a person revealing any objects hidden under
the clothing. A metal detection system will also be integrated into the portal
and will provide metallic weapon surveillance. All data from the NOVA system
will be sent to a Central Command and Control Center where it may be analyzed
and displayed. A provisional patent has been filed with respect to this
technology. This product is planned to be introduced in December 1998.
Landmine Detection System. The Offeror has developed a detection system capable
of searching for land mines by analyzing air and/or soil samples from above the
mines. A prototype landmine detection system was developed under a Canadian
Department of National Defence (DND) funded project, and has been successfully
demonstrated to DND. Several companies have expressed interest in this
technology, including Schiebel of Austria, with whom the Offeror has entered
into a Memorandum of Understanding on future research and development efforts.
<PAGE>
Research and development efforts are also being directed towards the
applications described below under "Future Applications".
Future Applications
The Offeror's core technology is readily adaptable to many chemical detection
applications beyond explosives detection and drug interdiction including
clinical diagnostic systems, industrial process control and laboratory
analytical instruments. In each of these application areas, the Offeror intends
to develop products independently or to partner with an existing established
organization in the application area to jointly pursue market research and
development. Once product feasibility and marketability have been proven, the
Offeror intends to either manufacture and sell products based on such new
technology or to license its technology and design to the strategic partner for
manufacturing and marketing purposes.
Clinical Diagnostic Systems. The Offeror believes its patented technology may be
used for the early detection of lung cancer, kidney disease and liver cancer
based on a simple breath sample. In addition, the technology could also be used
in monitoring the exposure of industrial workers to potentially hazardous
solvents and petrochemicals. A provisional patent for this technology has been
filed by the Offeror.
Industrial Process Control. The Offeror has identified an opportunity to apply
its GC/IMS technology for development of high-speed in-line measurement
instruments for use in process control, product inspection and management
systems. Industries that could employ such chemical detectors to assess the
purity of chemicals used in their processes and to identify contaminants span
the range of manufacturing sectors from auto makers to food and beverage
companies, pulp and paper makers, pharmaceutical companies, petrochemical
companies and chemical companies.
Laboratory Analytical Instruments. The Offeror has commenced the development of
a high-speed gas chromatograph system that can analyze chemical samples at
speeds 100-300 times faster than conventional gas chromatographs. Such
instruments are to be used in analytical testing in commercial and industrial
quality laboratories particularly in the chemical, pharmaceutical, and food
sectors.
The Core Technology
The existing IDS products utilize a proprietary patented GC/IMS technology to
analyze samples for the presence of targeted chemical compounds in quantities
smaller than a billionth of a gram.
LOGO
The diagram above depicts the operation and internal workings of the Orion
Plus product, which is representative of the Offeror's products incorporating
its core technology. A sample, in a vapour and/or particle form, is first
introduced to the detection device either automatically or by an operator. The
sample is then suctioned into the proprietary preconcentrator, where it is
heated to the point that the molecules vaporize.
The preconcentrator consists of two separate sub-modules called the PCAD
(Particle Collection and Detection) and VCAD (Vapour Collection and Detection)
optimized for particle collection and vapour collection, respectively. Each
preconcentrator consists of a rotating carousel holding three tabs equally
spaced. The tabs rotate between three positions continuously - sampling,
desorbing (transferring the sample to the analytical unit) and cleaning.
Once the sample has been collected on the tab in the sampling position, that
tab is moved into the desorbing position where the trapped particles and vapours
are selectively desorbed into the GC/IMS analytical units. This tab is then
moved to the cleaning position where it is prepared to accept the next sample.
These processes, are conducted in parallel and thereby considerably speed up the
overall sampling rate of the system when working in a continuous operation mode.
The PCAD and VCAD sub-modules of the preconcentrator each have an analytical
unit, optimized for low and high volatiles
<PAGE>
respectively. The desorbed analyte is transferred to the analytical units via
transfer tubes kept at elevated temperatures. The vapour samples are retrapped
in a smaller volume in the analytical units and are then injected in less than a
few hundred milliseconds into a Gas Chromatographic (GC) column connected to an
Ion Mobility Spectrometer (IMS). A two dimensional analysis of the sample then
takes place in the analytical system by separating the components of the
injected sample by retention time in the GC column and by mobility in the IMS.
The output of the analytical system, as seen in the schematic process flow
below, consists of a series of voltage waveforms taken at intervals of about
forty milliseconds over a five second period which is the elution time for all
the relevant compounds from the column. This output is digitized by the
computer, analyzed by comparison to a store database of target chemicals, and
the results are displayed on the output screen of the unit. In the event that
one of the compounds of interest detected is present above a preset threshold
value, the unit produces an alarm signal and provides relevant detailed
information on the display screen.
LOGO
One unique feature of IDS' equipment is its use of PC-based computer software
developed by the Offeror, which controls the mechanical, pneumatic and
electrical components of the system yielding a completely automated process. The
software also provides the operator with enhanced graphic read-outs of the test
results enabling the user to view the data in more detail. All of the results of
the detection are shown on the touch screen display in a variety of user
selectable formats. Software configurable input menu buttons are also displayed
on the screen for user input by touch.
Competition
The Offeror believes its most direct competitors in the chemical detection
segment of its business are Barringer Technologies Inc. ("Barringer") and
Thermedics Detection Inc. ("Thermedics").
The Offeror believes its products are unique in that they are based on a
patented dual analytical system, GC/IMS. Barringer's products are based solely
on IMS technology while Thermedics' products are based on a GC chemoluminescence
detection technology. Management believes that the Offeror's dual analytical
system is a more advanced detection system than that of Barringer or Thermedics,
providing a higher operational throughput based on a low false alarm rate and
the automation of sample collection an analysis, while providing simple
instrumentation that can be operated by relatively low skilled personnel. From a
technical perspective, management believes that the Offeror's technology
provides higher discrimination (selectivity), and unlike Barringer and
Thermedics, the Offeror's products have the ability to simultaneously monitor
both vapours and particles and detect all of the mandated ICAO taggants.
The Offeror also competes indirectly for government expenditures with
equipment manufacturers utilizing other types of detection technologies, such as
Invision Technologies, Inc. and Vivid Technologies, Inc., which manufacture
enhanced x-ray, CATSCAN and other bulk imaging technologies. Because trace
particle detection equipment is used in certain instances to verify detection
results obtained in bulk imaging systems, the Offeror's products are
complementary to these technologies and can be used effectively in combination.
The Offeror also competes with the use of canines to locate the presence of
explosives and drugs. Although canines have a highly developed sense of smell
and are able to follow a substance trail, the Offeror believes that its products
are more effective and cost efficient than canines, because they can operate 24
hours a day, have greater selectivity than canines and can identify the
composition of the substance detected.
IEC Business
The Offeror's IEC division provides information technology services including
systems integration, engineering and consulting. The IEC division also resells
PC, workstation and mini-computer hardware, associated software and
telecommunications equipment along with installation and support services. IEC
has established reseller relationships with Digital Equipment of Canada Ltd.
("Digital"), Hewlett-Packard (Canada) Ltd., Compaq Canada, Inc., Sun
Microsystems of Canada Inc., and Newbridge Networks Corporation.
IEC's products and services are purchased primarily by Canadian Government
organizations including the military and law enforcement agencies. Existing
customers include the Department of National Defence (DND), the Royal Canadian
Mounted Police (RCMP), the Canadian Security Intelligence Service (CSIS), the
Communications Security Establishment, Health and Welfare Canada and the
Department of Foreign Affairs and International Trade. During the nine month
period ended
<PAGE>
September 30, 1997, sales to the Department of National Defence accounted for
51.3% of the Offeror's IEC division revenues for such period.
IEC's key competitive strengths include its highly skilled and experienced
engineering and sales personnel and its position as a "secured supplier" to DND.
Many of the Offeror's employees have long established relationships with the
Canadian Government, in most cases through previous employment with the Canadian
Government, and as such have an in depth understanding of the needs and
requirements of government ministries. The Offeror believes that this has been a
critical factor in its ability to successfully secure and perform government
contracts.
The Offeror has been awarded secured supplier status by both NATO and DND
with a majority of its employees holding NATO top security clearance which
involves considerable site security and personal background checks. Secured
supplier status is a requirement for any organization intending to sell
information technology products and services to certain government departments
including DND, CSIS and the RCMP. As a result of its security status, IEC has
been awarded several DND contracts. IEC believes that the need to attain
security clearances is a significant barrier to entry for future competitors.
The Offeror believes that its secured supplier status and long term
relationship with the Canadian Government was critical in recently obtaining the
designation by Digital as the primary supplier of Digital products to 10 federal
departments including DND, the Prime Minister's Office, Environment Canada and
the Department of Justice. Digital is a leading supplier of computer hardware to
the Canadian Government.
IEC service revenues are generally charged on a per diem basis depending on
duration and quantity of resources required. Resale products are sold against
purchase orders, contracts or standing offers with gross margins varying
depending on the equipment and the value-added services provided by the Offeror.
Patents and Proprietary Rights
The Offeror uses patents as the principal form of intellectual property
protection for its proprietary technology. This is achieved by a combination of
licensing on an exclusive basis the right to exploit certain patents and by
applying for and obtaining patents in its own right.
Prior to 1995, the Offeror did not have the resources to properly seek patent
protection for inventions developed by it relating to its core technology. It
assigned the intellectual property rights to what is now the core technology of
its products to Research Corporation Technologies, Inc. ("RCT"), a U.S. based
technology management organization, and received back an exclusive license to
exploit such base patent, together with derivative patents, pursuant to a
License Agreement (the "RCT License Agreement") dated April 10, 1991, as
amended. See "Material Contracts". The base patent, together with four
subsequent patents covering specific features of the chemical detection
technology (the "RCT Patents") cover the core system of each of the Offeror's
products and specifically, the unique application of gas chromatography/ion
mobility spectrometer ("GC/IMS") technology. The RCT Patents have been issued to
date in the U.S. and certain other countries. The term of the RCT License
Agreement is for the balance of the term of each licensed patent, until June 9,
2009 in the case of the base U.S. patent. The RCT License Agreement provides for
royalties to be paid to RCT on the basis of 4% of the net sales value of
products based on the patented technology, subject to an annual minimum royalty
of $10,000. In conjunction with such arrangements, RCT also agreed to provide
equity and loan financing to the Offeror. See "Corporate History and
Reorganization" and "Material Contracts".
The Offeror has obtained one patent relating to Ion Mobility Spectroscopy in
the United States and certain other countries. It has also filed one patent
application which is pending for a laser detection system and has filed three
additional provisional patent applications.
The Offeror believes that these patents provide the Offeror with a
significant competitive advantage in the markets for certain products. The
Offeror also considers technical know-how and trade secrets to be important to
its business.
Government Regulation
The Offeror's products are not subject to any specific government regulation,
however, government regulation plays and will continue to play a large part in
determining the success of the Offeror and the acceptability of its products
throughout the world both among government and non-government purchasers. In the
case of the United States, the FAA has tested and approved the Offeror's
products for use in U.S. aviation applications. In addition, the U.K. Department
of Transport has approved Orion Plus for deployment in U.K. airports.
Human Resources
<PAGE>
As of March 31, 1998, the Offeror had 63 full-time employees and 1 temporary
employee, of whom 18 were engaged exclusively in manufacturing, a further 8 were
involved in product development and manufacturing, 3 were engaged in applied
research, 6 were engaged in integration, engineering and consulting and 29 were
engaged in sales, service and general administration. The Offeror's staff
includes 3 Doctorates, 2 Masters and ten Bachelor of Science holders, as well as
6 Bachelor of Engineering holders. None of the Offeror's employees is
represented by any union, and the Offeror considers its relationships with its
employees to be satisfactory. The Offeror currently has a Human Resources
Administrator to support employee relations. The Offeror is actively recruiting
skilled employees, in particular to meet expected manpower demands in the
manufacturing area. The Offeror has a policy of entering into confidentiality
and non-disclosure agreements with its employees and limiting access to and
dissemination of its proprietary technology.
Management
The following is a brief biographical description of each of the members of
the Offeror's management team.
Dr. Mariusz S. Rybak, President and Chief Executive Officer
Prior to acquiring control of CPAD in April 1995, Dr. Rybak was President of
Areco Canada Inc., an environmental consulting company, which he founded in
1986. Dr. Rybak has previously been a visiting Professor at Brock University,
University of Toronto and a Professor at the Institute of Hydrobiology and Water
Conservation in Olsztyn, Poland. Dr. Rybak holds a Ph.D. in environmental
engineering from the Institute of Hydrobiology and has published more than 30
articles in international scientific journals. Dr. Rybak is also the Chairman
and Chief Executive Officer for AGISS Corporation and Advanced Environmental
Solutions Inc.
Andy A. Rybak, Executive Vice-President, CPAD Technologies Division
Mr. Rybak has served as Executive Vice-President since April 1995 and is
currently responsible for the Offeror's CPAD Technologies division. Prior to
joining the Offeror, Mr. Rybak was the President of Adamas Environmental Inc.,
an environmental engineering company which he co-founded with Dr. Mariusz Rybak
in 1986. Mr. Rybak previously held senior marketing positions in the ship
building industry in Eastern Europe and the shipping industry in Canada. Mr.
Rybak holds a Master of Arts in Economics from the Gdansk University in Poland.
Anicet Blais, Executive Vice-President, IEC Division
Mr. Blais joined the Offeror in May 1997 and is currently responsible for the
IEC division. Prior thereto, Mr. Blais was involved in the information
technology industry for nineteen years, most recently holding the title Director
of Finance and Operations for Ameridata Canada Ltd.
Darlene Nielsen-Downey, CA, Chief Financial Officer
Ms. Nielsen-Downey joined the Offeror in June 1995 and is responsible for its
financial operations. Prior to joining the Offeror, Ms. Nielsen-Downey was the
Manager of Corporate Accounting for a national real estate management company
for a two year period. Prior thereto, Ms. Nielsen-Downey was an auditor for
KPMG, an international accounting firm, for six years. Ms. Nielsen-Downey also
holds an Honours Bachelor of Commerce degree from Carleton University.
<PAGE>
3. Management Discussion and Analysis of Financial Condition and Operating
Results
The selected financial information set forth below has been derived from the
consolidated financial statements of the Offeror and accompanying notes included
in this prospectus and should be read in conjunction with such financial
statements and accompanying notes.
Income Data
(in thousands)
<TABLE>
<CAPTION>
Year ended Year ended April 13 to
December 31, December 31, December 31,
1997 1996 1995
----- ----- ----
<S> <C> <C> <C>
Sales .................................................. $ 24,120 $ 4,038 $ 669
Cost of Sales .......................................... 19,983 2,624 0
-------- -------- --------
Gross profit ........................................... 4,137 1,414 669
Contract revenue ....................................... 107 405 381
Research and development ............................... 490 1,064 339
Investment tax credits ................................. -- (574) (115)
Selling, general and administrative expenses ........... 3,078 1,813 352
Depreciation and amortization .......................... 596 585 282
Interest ............................................... 269 280 136
-------- -------- --------
Income (loss) before other items and income taxes ...... (189) (1,349) 56
Other income ........................................... 31 170 116
Dilution gains ......................................... 681 2,618 --
Finance charges ........................................ (796) -- --
Goodwill write-off ..................................... (68) -- --
Non-controlling interest ............................... 137 281 (48)
-------- -------- --------
Earnings (loss) before income taxes .................... (204) 1,720 124
Income taxes recovery (expense) ........................ 120 (300) --
-------- -------- --------
Net earnings (loss) for the period ..................... $ (84) $ 1,420 $ 124
======== ======== ========
</TABLE>
<PAGE>
Overview The Offeror in its present form is the result of the merging of two
lines of business, the chemical detection business and the IEC business. The
Offeror's chemical detection division was formed as a result of the April 13,
1995 acquisition of CPAD Holdings Ltd., a company focused on the development of
technology for the detection, identification and analysis of organic chemicals
for use in explosives and landmine detection applications. The Offeror's IEC
division was formed as a result of the March 1, 1996 acquisition of AGISS Power
Technologies Corporation, a business involved in secure systems integration,
consulting and value-added reselling of computer equipment. As the Offeror began
operation in its current form as a result of the acquisition of the chemical
detection business on April 13, 1995, only financial information subsequent to
this date is presented.
Over the past two years, the Offeror has experienced rapid growth in sales,
with a growth rate of 497% for 1997 versus 1996. Sales increased from $4.0
million for the year ended December 31, 1996 to $24.1 million for the year
ending December 31, 1997. This growth resulted primarily from a significant
increase in the Offeror's IEC division for 1997 (revenue of $17.6 million)
versus 1996 (revenue of $3.9 million). It is expected that this line of business
will, over the next 12 to 18 months, continue to comprise a significant portion
of the revenue but will represent a decreasing percentage of total revenue as
CPAD product sales increase.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Sales for the year ended December 31, 1997 were $24.1 million compared to
$4.0 million for the year ended December 31, 1996, representing an increase of
497%. This increase is due primarily to a significant increase in revenue from
the IEC division of $13.7 million or 351% as a result of significant resale
contracts. The CPAD division also experienced an increase in revenue from $0.1
million in 1996 to $6.6 million in 1997. The increase in CPAD sales is due to
sales of explosives detection equipment to the FAA and other international
clients and narcotics detection equipment to correctional services agencies in
Canada and the United States.
Gross profit for the year ended December 31, 1997 was $4.1 million compared
with $1.4 million for the year ended December 31, 1996, representing an increase
of 193%. The increase in gross profit is attributable to the increase in total
revenue for the period and the impact of higher gross margins earned from the
CPAD division. The gross margins for the IEC division were lower during the year
ended December 31, 1997 than during the year ended December 31, 1996 due to a
relative increase in low margin equipment resale revenues in the division.
Contract revenue in respect of research and development funding for the year
ended December 31, 1997 was $0.1 million compared to $0.4 million for the year
ended December 31, 1996. The decrease is due to an emphasis of research &
development efforts on the hand held drug interdiction equipment for which no
funding was received. Revenue for the year ended December 31, 1996 resulted from
funding received for the development of a downsized explosives detection unit
and mine detection unit.
Research and development expenses, before investment tax credits, for the
year ended December 31, 1997 were $0.5 million compared to $1.1 million for the
year ended December 31, 1996, representing a decrease of 55%. This decrease
resulted primarily from the reduced investment in materials necessary for
research and development activities conducted during the year ended December 31,
1997. In the year ended December 31, 1996, considerable materials were consumed
in the development of downsized explosives detection and mine detector
prototypes.
Selling, general and administrative expenses for the year ended December 31,
1997 were $3.1 million compared to $1.8 million for the year ended December 31,
1996, representing an increase of 72%. This increase relates to additional
payroll, rent, and selling expenses resulting from the December 1996 relocation
of the Offeror's manufacturing operation to a larger, more modern facility and
to a general increase in selling, general and administrative costs in
anticipation of the increased business volume which the Offeror is currently
experiencing.
Interest expense for the year ended December 31, 1997 was $0.27 million
compared to $0.28 million for the year ended December 31, 1996, representing a
decrease of 4%. This decrease is due to the satisfaction of the promissory note
payable to Research Corporation Technologies, Inc. by share conversion in
conjunction with the amalgamation on September 30, 1997.
The loss before other items and income taxes for the year ended December 31,
1997 was $0.19 million compared to $1.3 million for the year ended December 31,
1996, representing a decrease of 85%. This decrease in loss is due to additional
gross margins generated by the increased sales volume, and, in particular, the
gross margins generated from sales of chemical detection products.
<PAGE>
During the year ended December 31, 1996, the dilution gains arose from a
combination of disposals of shares held in CPAD by "old IDS" to external parties
for cash and issuance of share capital by CPAD Technologies Inc. in conjunction
with the acquisition of AGISS Power Technologies Corporation. During the year
ended December 31, 1997, the dilution gains arose from the disposal of shares
held in CPAD by "old IDS" to external parties for cash.
The finance charges were incurred during the year ended December 31, 1997 as
a result of the restructuring of debts owing to Research Corporation
Technologies, Inc., all of which were satisfied by the share conversion in
conjunction with the amalgamation transaction. See "Corporate History and
Reorganization".
Income tax recovery for the year ended December 31, 1997 was $0.12 million.
The tax recovery during the year ended December 31, 1997 results from the carry
back of the non-capital loss incurred during this period to the 1996 fiscal
year.
Net loss for the year ended December 31, 1997 was $0.84 million compared to
net earnings of $1.4 million for the year ended December 31, 1996. The 1996 net
earnings are attributable to dilution gains. The 1997 results are attributable
to operations as the dilution gains were offset by finance charges incurred on
conversion of long-term debt to equity.
Year Ended December 31, 1996 Compared to the Period April 13, 1995 to
December 31, 1995
Sales for fiscal 1996 were $4.04 million compared to $0.67 million for the
period April 13 to December 31, 1995, representing an increase of 503% (or an
annualized increase of 328%). This increase is due primarily to the acquisition
by the Offeror in March 1996 of AGISS Power Technologies Corporation. For the
period April 13 to December 31, 1995, sales related to previously expensed
prototype units.
Gross profit for fiscal 1996 was $1.41 million compared to $0.67 million for
the period April 13 to December 31, 1995, representing an increase of 110%
(annualized increase of 48%). This increase is due primarily to the acquisition
of AGISS Power Technologies Corporation.
Contract revenue in respect of research and development funding for fiscal
1996 was $0.41 million compared to $0.38 million for the period April 13 to
December 31, 1995, representing an increase of 8% (or an annualized decrease of
25%). Contract revenue during these two periods resulted from funding received
for the development of the downsized explosives detection unit and the mine
detection unit. This funding commenced in October 1995 and ended on March 31,
1996.
Research and development expenses, before investment tax credits, for fiscal
1996 were $1.1 million compared to $0.33 million for the period April 13 to
December 31, 1995, representing an increase of 233% (annualized increase of
134%). This increase is due primarily to greater investment in materials
required to develop the downsized explosives detection and mine detection
prototypes during fiscal 1996.
Selling, general and administrative expenses for fiscal 1996 were $1.81
million compared to $0.35 million for the period April 13 to December 31, 1995,
representing an increase of 417% (annualized increase of 269%). This increase is
due to a general increase in expenses related to payroll, rent, and selling
expenses as a result of the acquisition of AGISS Power Technologies Corporation
and increased emphasis on the marketing and sales of CPAD products and greater
labour requirements for manufacturing operations.
Interest expenses for fiscal 1996 were $0.28 million compared to $0.14
million for the period April 13 to December 31, 1995, representing an increase
of 100% (annualized increase of 40%). This increase is due primarily to the
compounding interest charges on the promissory notes payable to Research
Corporation Technologies, Inc. as well as the Offeror's increased use of bank
financing.
The loss before other items in fiscal 1996 was $1.35 million compared to an
income of $0.05 million for the period April 13 to December 31, 1995. The
increase in loss results from the increased expenses incurred, primarily in the
areas of selling, general and administrative and research and development.
The dilution gains arose from a combination of disposals of shares held in
CPAD by "old IDS" to external parties for cash and issuance of share capital by
CPAD Technologies Inc. in conjunction with the acquisition of AGISS Power
Technologies Corporation.
Income tax expense for fiscal 1996 was $0.3 million compared to $0 for the
period April 13 to December 31, 1995. This increase is attributable to dilution
gains generated during 1996.
<PAGE>
Net income for 1996 was $1.42 million compared to $0.12 million for the
period April 13, 1995 to December 31, 1995, representing an increase of 1083%.
This increase in net income was due primarily to dilution gains.
Liquidity and Capital Resources
The Offeror has historically financed its growth using bank borrowings and
the issuance of shares. During the year ended December 31, 1997 and the period
April 13 to December 31, 1995, the Offeror used $3.4 million and $0.29 million,
respectively, in operations and during fiscal 1996 generated $2.24 million from
operations. In order to finance operations during the year ended December 31,
1997, the Offeror generated $15.7 million from the issuance of shares net of
related long-term debt reduction on th conversion of debt to RCT to equity. See
"Corporate History and Reorganization". During fiscal 1996, operations were
financed primarily by an increase in bank financing of $1.2 million. During the
period April 13 to December 31, 1995, the Offeror financed its operations by
cash injected by old IDS shareholders on the acquisition of CPAD.
As at December 31, 1997, the Offeror's principal sources of liquidity
consisted of cash of $13.1 million, a credit facility from a major Canadian
Chartered Bank of $350,000, of which $0 was utilized, an investment tax credit
loan in the amount of $160,741 and a small business loan with a balance
outstanding of $87,500. In addition, as at December 31, 1997, the Offeror had
drawn down on its Progress Payment Program line of credit to finance
construction of inventory for CPAD division contracts to the extent of $1.39
million.
It has been the Offeror's experience that its customers pay their accounts on
a timely basis and the Offeror's bad debt expense historically has been
negligible.
<PAGE>
4. Directors and Officers
The following table sets forth the names and municipalities of residence, the
position held with the Offeror and the principal occupation of each of the
directors and officers of the Offeror.
<TABLE>
<CAPTION>
Name and
Municipality of Residence Position Principal Occupation
- - - ------------------------- -------- --------------------
<S> <C> <C>
MARIUSZ S. RYBAK(2)........ Chairman, President, Chief Executive Officer of the Offeror;
Ottawa, Ontario Chief Executive Chief Executive Officer of AGISS
Officer and Director Corporation (a Year 2000 solution
provider); and Chief Executive Officer of
Advanced Environmental Solutions Inc.
(an environmental services company)
ANDY A. RYBAK.............. Vice-Chairman, Executive Vice-President of the Chemical
Ottawa, Ontario Executive Vice-President, Detection Division of the Offeror and Vice-
Chemical Detection Chairman of each of AGISS Corporation
Division and Director and Advanced Environmental Solutions,
Inc.
ANICET BLAIS............... Executive Vice-President, Executive Vice-President, IEC Division of
Stittsville, Ontario IEC Division and Director the Offeror
DARLENE NIELSEN-DOWNEY.... Chief Financial Officer Chief Financial Officer of the Offeror
Stittsville, Ontario and Secretary
MICHEL BROWN............... Senior Vice-President, Senior Vice-President, Operations of the
Gatineau, Quebec Operations Offeror
LAWRENCE HALEY............. Vice-President, Research & Vice-President, Research & Development
Ottawa, Ontario Development and Director of the Offeror
JULIAN ROMESKIE............ Vice-President, Marketing Vice-President, Marketing and Business
Carp, Ontario and Business Development Development of the Offeror
HELLE OTTOSEN ............. Vice-President, Vice-President, Finance & Administration
Orleans, Ontario Finance & Administration of the Offeror
BRIAN RICH ................ Vice-President, Design Vice-President, Design and
Kanata, Ontario and Product Engineering Product Engineering of the Offeror
SANJE RATNAVALE(1)(2)...... Director Director of Corporate Finance of Research
Tucson, Arizona Corporation Technologies, Inc.
(a technology management organization20)
FRANCOIS HUBERT(1)(2)...... Director Vice-President, Consulting Services,
Gatineau, Quebec Le Groupe CGI (a technology consulting
firm)
TOM DE FAYE................ Director Director, International Sales and Marketing,
Ottawa, Ontario Diesel Division, General Motors of Canada
Limited (an automotive company)
RAYMOND V. HESSION......... Director President and Chief Executive Officer,
Ottawa, Ontario Hession, Neville & Associates
(a government relations consulting firm)
and Chairman of the Board of Hickling
Lewis Brad Inc. (a consulting firm)
</TABLE>
- - - ----------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
Each of the directors and executive officers of the Offeror has been engaged
in their principal occupation indicated above for the previous five years,
except as follows:
(1) Mariusz Rybak and Andy Rybak, who prior to April 1995 co-founded two
environmental companies, Adamas Environmental Inc. and Areco Canada
Inc.;
<PAGE>
(2) Anicet Blais, who prior to May 1997, was Director, Finance and
Operations for Ameridata Canada Ltd.;
(3) Darlene Nielsen-Downey, who prior to June 1995 was Manager of
Corporate Accounting at The Regional Group of Companies Inc. and
prior to 1993 was a senior accountant at KPMG;
(4) Julian Romeskie, who prior to January 1998 was founder and
Vice-President, Marketing and Business Development at
Senstar-Stellar Corporation.
(5) Helle Ottosen, who prior to January 1998 was a Senior Manager at
KPMG, prior to 1996 was Director of Finance at Vistar
Telecommunications Inc. and prior to 1995 was Director of Finance
and Administration at Canadian Labour Market and Productivity
Centre.
(6) Brian Rich, who prior to February 1998 was Vice-President,
Engineering and Systems at Senstar-Stellar Corporation.
(7) Sanje Ratnavale, who prior to October 1993 was a Manager of Mergers
and Acquisitions for Barclays de Zoede Wedd (investment bankers) in
Paris and London;
(8) Francois Hubert, who prior to April 1998 was Vice-President,
Business Development AGISS Software Corporation and prior to June
1997 was Director, Informatics Systems procurement with the Canadian
Government;
(9) Tom de Faye, who prior to January 1998 was a Major General in the
Canadian Armed Forces and a military attache of the Canadian
government in the United States and prior to 1996 was a Chief of
Force Development and Commander Land Force Western Area for the
Canadian Armed Forces.
(10) Raymond Hession, who prior to October 1993 was founder of ARVESS
Management Services Corp. and Chairman and Chief Executive Officer
of PAXPORT International Inc.
As noted above, Dr. Mariusz Rybak also holds a similar position with AGISS
Corporation and Advanced Environmental Solutions Inc. and, as such, will not be
spending all his time on Offeror matters but will devote such portions of his
time to the Offeror's affairs as the Offeror's needs reasonably require from
time to time. While the amount of time devoted to the affairs of the Offeror by
him may vary from time to time, Dr. Rybak has agreed that he will devote not
less than 75% of his time to the busines of the Offeror.
Compensation of Executive Officers
The following table sets forth compensation information for the financial
year of the Offeror ended December 31, 1997, December 31, 1996 and for the
financial period April 13, 1995 to December 31, 1995 for the Chief Executive
Officer, Executive Vice-President, Chemical Detection Division and Senior
Vice-President Operations. No other executive officers earned total annual
salary and bonus during the financial year ended December 31, 1997 which
exceeded $100,000.
<PAGE>
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
Awards
Other Annual Securities All Other
Year Salary Bonus Compensation Under Options Compensation
Name and Principal Position Ended ($) ($) ($) (#) ($)
- - - -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Dr. Mariusz Rybak.............. 1997 $136,125 -- -- 150,000 --
Chief Executive Officer 1996 $ 87,750(1) -- -- -- --
1995 --(2) -- -- -- --
- - - -----------------------------------------------------------------------------------------------------------------
Andy Rybak..................... 1997 $105,958 -- -- 125,000 --
Executive Vice-President, 1996 -- -- -- -- --
Chemical Detection 1995 -- -- -- -- --
Division
- - - -----------------------------------------------------------------------------------------------------------------
Michel Brown................... 1997 $ 89,520 $ 11,185 -- 27,000 --
Senior Vice-President, 1996 -- -- -- -- --
Operations 1995 -- -- -- -- --
</TABLE>
- - - ----------
(1) Covering the period April 1 to December 31 during 1996.
(2) Dr. Rybak did not draw any material compensation during 1995.
<PAGE>
The following table sets forth each grant of stock options under the 1997
Plan during the fiscal year ended December 31, 1997 to the named executive
officers.
Option/SAR Grants during the Year Ended December 31, 1997
<TABLE>
<CAPTION>
Market Value
% of Total of Securities
Options/SARs Underlying
IDS Shares Granted to Options/SARs
Under Employees in Exercise or on the Date
Options Financial Base Price of Grant
Name (#) Year ($/Security) ($/Security) Expiration Date
---- --- ---- ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C>
DR. MARIUSZ RYBAK................... 150,000 27.4 4.75 4.75 December 31, 2004
Chief Executive Officer
ANDY RYBAK.......................... 125,000 22.9 4.75 4.75 December 31, 2004
Executive Vice-President,
Chemical Detection Division
MICHEL BROWN........................ 27,000 4.9 4.75 4.75 December 31, 2004
Senior Vice-President, Operations
</TABLE>
Stock Option Grants
No options to purchase or acquire Common Shares were granted during the
fiscal year ended December 31, 1997 to any named executive officers of the
Offeror other than set forth above.
Employment Agreements
The Offeror has entered into employment agreements (the "Employment
Agreements") with Dr. Mariusz Rybak, President and Chief Executive Officer, Andy
Rybak, Executive Vice-President of the Offeror's chemical detection division,
Darlene Nielsen-Downey, Chief Financial Officer and Secretary and Dr. Lawrence
Haley, Vice-President, Research and Development (CPAD division) (the
"Employees"), each dated as of October 15, 1997. The terms of the Employment
Agreements are identical, except with respect to salaries and severance
entitlements as noted below and with respect to Dr. Rybak in terms of his
permission to devote a portion of his time to other businesses. Each Employment
Agreement provides for a base annual salary and a bonus as approved by the board
of the directors of the Offeror based on a recommendation of the Compensation
Committee. The base annual salaries of Dr. Rybak, Andy Rybak and Ms.
Nielsen-Downey are $170,000, $140,000 and $120,000, respectively. The base
annual salary for Dr. Haley is less than $100,000. Under the terms of each
Employment Agreement, each of the Employees (other than Dr. Rybak) has agreed to
devote his full attention and energies to the business of the Offeror on a
full-time basis. In the case of Dr. Rybak, he has agreed to devote not less than
75% of his time and attention to the business of the Offeror, or such other
percentage as may be agreed from time to time with the board of directors of the
Offeror. Each Employee has also agreed to assign to the Offeror all inventions,
discoveries and designs made or conceived by the Employee relating to the
business of the Offeror. The term of each of the Employment Agreements runs to
October 15, 2000 and will be automatically renewed thereafter subject to a right
of termination as hereinafter discussed.
Each Agreement may be terminated by the Offeror for cause at any time without
notice or further compensation and without cause on specified notice or a lump
sum payment in lieu of notice, such notice being 15 months in the case of Dr.
Rybak and 12 months in the case of the other Employees. Each Agreement may be
terminated by each Employee at any time after October 15, 2000 on not less than
60 days notice. Each Agreement contains non-competition and non-solicitation
covenants which extend for one year after termination without cause and two
years after termination for cause or resignation.
<PAGE>
Compensation of Directors
The Offeror pays a $500 meeting fee to non-executive directors and grants
5,000 stock options which vest on the first anniversary date of that directors
directorship.
Indebtedness of Directors, Executive Officers and Senior Officers
None of the directors, executive officers, or senior officers of the Offeror
are presently indebted to the Offeror, nor has any such indebtedness existed
since the beginning of the most recently completed financial year of the
Offeror.
Directors and Officers Insurance
The Offeror currently maintains liability insurance for the directors and
officers of the Offeror in the amount of $1,000,000 for an annual premium of
$13,500 plus applicable taxes.
5. Stock Option Plan
Discontinued Plan
On June 14, 1990, a predecessor of the Offeror established a stock option
incentive program (the "Discontinued Plan") under which the Board of Directors
was entitled to grant options to purchase Common Shares at the prevailing fair
market value to directors, officers and key employees of the Offeror, provided
that the total number of options did not exceed 731,492 shares (adjusted to
reflect the amalgamation referred to under "Corporate History and
Reorganization") of the Offeror. During the life o the Discontinued Plan,
options to purchase 691,832 Common Shares were granted.
1997 Stock Option Plan
On October 22, 1997, the Offeror adopted the 1997 Stock Option Plan (the
"1997 Option Plan") pursuant to which the Board of Directors or the Compensation
Committee may from time to time grant to the directors, consultants, officers or
eligible employees of the Offeror and its subsidiaries options to acquire IDS
Shares in such numbers, for such terms and at such exercise prices as are
determined by the Board or the Compensation Committee. It is the Offeror's
intention to grant options under the 1997 Option Plan principally to key
employees. The purpose of the 1997 Option Plan is to advance the interests of
the Offeror by providing key employees with a financial incentive for the
continued improvement in the performance of the Offeror and encouragement to
stay with the Offeror. Under the 1997 Option Plan, the option price must be not
less than the fair value or the market price of the Common Shares at the time
the option is granted, and the option term may not exceed ten years. Options
granted under the 1997 Option Plan are non-transferable and terminate on
cessation of employment or directorship with the Offeror for all causes other
than death, unless otherwise determined by the Board. It is not intended that
any financial assistance will be provided to optionees to facilitate the
purchase of Common Shares under the 1997 Option Plan.
The maximum number of Common Shares which are reserved for issuance under the
1997 Option Plan is 1,000,000 Common Shares and no individual may hold options
to purchase Common Shares exceeding 5% of the then outstanding number of Common
Shares. In addition, the 1997 Option Plan contains certain other restrictions
which limit the number of Common Shares which may be issued under the 1997
Option Plan to insiders of the Offeror.
Generally, options granted under the 1997 Option Plan will expire seven years
from the date of grant or such lesser period of time as the board of directors
or the Compensation Committee may approve. Options may be exercised in whole or
in part any time after a date specified by the board of directors, upon prior
notice to the Offeror. The options will generally vest over a four year period
following the date of grant, and be exercisable on an annual basis following the
first anniversary of the date of the grant of the options.
<PAGE>
Stock Options
As at April 6, 1998 the Offeror had granted options to purchase an aggregate
of 552,000 IDS Shares under the terms of the 1997 Plan to executive officers,
directors and employees. The following table sets out information relating to
options to purchase IDS Shares granted under the 1997 Plan as at April 6, 1998.
<TABLE>
<CAPTION>
Number of Exercise Expiry
IDS Shares Price Date
---------- ----- ----
<S> <C> <C> <C>
Executive Officers(6) and Directors(3)............................... 452,000 $ 4.75 December 31, 2004
15,000 4.75 January 1, 2005
Other Employees...................................................... 85,000 4.75 December 31, 2004
</TABLE>
6. Consolidated Capitalization
The following table sets forth the consolidated capitalization of the Offeror
as at the dates indicated.
<TABLE>
<CAPTION>
As at
March 31,
1998
As at after giving
December 31, As at effect to this
1997 March 31, Take-Over
Authorized $ 1998 Bid Circular
------------ ---- -------- ------------
(unaudited) (unaudited)
(in thousands of dollars, except share amounts)
SECURED DEBT(1)
<S> <C> <C> <C> <C>
Demand promissory note(2)..................... 161 161 161
Progress payment program line of credit(3).... 1,392 -- --
Current portion of long-term debt(4).......... 30 -- --
LONG-TERM DEBT(4)................................ 58 -- --
TOTAL DEBT....................................... 1,641 161 161
SHAREHOLDERS' EQUITY
Common Shares.................................... 17,322 37,300 73,300
unlimited (14,586,120 shares) (17,842,904 shares) (22,487,904 shares)
Class B Shares................................... unlimited (572,850 shares) (572,850 shares) (572,850 shares)
Retained Earnings................................ 497 497(6) 497(6)
TOTAL SHAREHOLDERS' EQUITY....................... 17,819 37,797 73,797
</TABLE>
- - - ----------
(1) The Offeror's indebtedness is collaterized as described in Notes 6 and 7 to
the "Notes to the Consolidated Financial Statements of the Offeror".
(2) For particulars with respect to demand promissory note, see note 6 to the
"Notes to the Consolidated Financial Statements of the Offeror".
(3) Progress payment program line of credit, is payable out of proceeds on sale
of inventory, at bank prime.
(4) For particulars with respect to long-term debt, see note 7 to the "Notes to
the Consolidated Financial Statements of the Offeror".
(5) A total of 1,000,000 Common Shares are reserved for issuance pursuant to
stock options granted under the Offeror's 1997 Stock Option Plan.
(6) As at December 31, 1997.
(7) For lease obligations, see Note 14 to the "Notes to the Consolidated
Financial Statements of the Offeror".
<PAGE>
7. Principal Shareholders
The following table and notes set forth certain information concerning the
beneficial ownership of the IDS Shares as at the date hereof of each person
known by the Offeror who own beneficially 10% or more of the IDS Shares.
<TABLE>
<CAPTION>
Before giving effect to the After giving effect to the
issuance and sale of issuance and sale of
IDS Shares upon the IDS Shares upon the
Name and Municipality of exercise of Special Warrants. exercise of Special Warrants.
Residence of Beneficial Owner See "Recent Events". See "Recent Events" .
- - - ----------------------------- -------------------- ---------------------
Number of Percentage of Number of Percentage of
IDS IDS IDS IDS
Shares Shares Shares Shares
------ ------ ------ ------
<S> <C> <C> <C> <C>
Mariusz Rybak 2,152,973 14.55% 2,049,904 11.49%
Ottawa, Ontario
Andy Rybak 2,152,973 14.55% 2,049,904 11.49%
Ottawa, Ontario
Alan Greene 1,845,405 12.47% 1,757,060 9.85%
Darien, Connecticut
Research Corporation Technologies, Inc. 1,690,333 11.43% 1,527,316 8.56%
Tucson, Arizona
</TABLE>
The directors and senior officers of the Offeror as a group (8) presently
beneficially own, directly or indirectly, approximately 30% of the IDS Shares.
8. Corporate History and Reorganization
The Offeror was founded in 1986 by Colin Corrigan under the name "CPAD
Holdings Ltd.". From 1986 to 1995, the Offeror existed primarily as an applied
research organization focused on the development of technology for the
detection, identification and analysis of organic chemicals for use in
explosives and land mine detection applications. Between 1989 and 1994, Research
Corporation Technologies, Inc. ("RCT"), a large technology management
organization based in the U.S., provided loans and equity financing to the
Offeror such that it eventually had a controlling interest in CPAD Holdings Ltd.
In connection with such arrangements with RCT, CPAD Holdings Ltd. assigned its
intellectual property rights in its core technology to RCT in exchange for RCT's
agreement to prosecute patents on the technology and enforce such patents,
together with an exclusive license granted to CPAD Holdings Ltd. to exploit such
patents. See "Business of the Offeror - Patents and Proprietary Rights".
In April 1995, Dr. Mariusz Rybak, Andy Rybak and Alan Greene formed MAA
International Corporation (later changed to IDS Intelligent Detection Systems
Inc.) in order to acquire a controlling interest in CPAD Holdings Ltd. through a
combination of a treasury share purchase, an acquisition of a number of shares
in CPAD Holdings Ltd. from RCT and an agreement to purchase substantially all
the shares in CPAD Holdings Ltd. from Colin Corrigan through a series of puts
and calls. At the same time, Colin Corrigan retired from the Offeror. On May 12,
1995, the name of CPAD Holdings Ltd. was changed to CPAD Technologies Inc.
On March 1, 1996, CPAD Technologies Inc. acquired all the outstanding shares
of AGISS Power Technologies Corporation in exchange for the issuance of
approximately 10% of the then outstanding shares of CPAD Technologies Inc. AGISS
Power Technologies Corporation was in the business of secure systems integration
and consulting and value-added reselling of computer equipment. These two
companies were subsequently amalgamated under the name CPAD Technologies Inc. on
November 1, 1996 ("CPAD").
On December 16, 1996, MAA purchased all the remaining shares in CPAD held by
Colin Corrigan. On February 3, 1997, MAA purchased shares in CPAD from RCT on
the exercise of a call right negotiated in connection with the April 1995
transaction. MAA, for the purposes of tax effectively accomplishing these share
transactions, incorporated 1202733 Ontario Inc. During the period December 1996
through January 1997, MAA sold some of its CPAD shares to several investors at
prices ranging from $3.63 to $6.26 per share.
On August 27, 1997, articles of amendment were filed for MAA changing its
name to IDS Intelligent Detection Systems Inc. ("old IDS") and subdividing its
existing Class A Common Shares on a 900 for 1 basis.
On September 19, 1997, old IDS exchanged 7,800 of its Class A Common Shares
in CPAD for 26,000 Class B Common Shares.
<PAGE>
In preparation for an initial public offering of IDS Shares which was
completed in December 1997, old IDS, CPAD Technologies Inc. ("old CPAD") and
1202733 Ontario Inc. amalgamated on September 30, 1997 under the name of IDS
Intelligent Detection Systems Inc. (the "Amalgamation"). Prior to the
Amalgamation, old IDS owned 1,502,767 Class A Common Shares and 26,000 Class B
Common Shares of old CPAD directly and indirectly through its wholly owned
subsidiary, 1202733 Ontario Inc., and other shareholder of old CPAD owned
827,961 of its Class A Common Shares and 104,000 of its Class B Common Shares.
Pursuant to the Amalgamation, each of the 10,040,504 outstanding Class A Common
Shares of old IDS was exchanged into 0.6817305 Common Shares and 0.0114109 Class
B Common Shares of the amalgamated corporation, each of the outstanding Class A
Common Shares of old CPAD held by other shareholders was exchanged into
4.4065761 Common Shares of the amalgamated corporation, each of the outstanding
Class B Common Share of old CPAD held by other shareholders was exchanged into
4.4065761 Class B Shares of the amalgamated corporation, and each of the shares
of old CPAD held by old IDS and 1202733 Ontario Inc. were cancelled.
In addition, immediately prior to the Amalgamation, pursuant to an agreement
made with RCT on October 1, 1996 and amended on September 30, 1997, RCT agreed
to convert the $932,330 promissory note payable to RCT under the following
terms:
1. 156,504 IDS Shares were issued to RCT in satisfaction of the principal
and accrued unpaid interest totalling $985,971 at an effective
conversion ratio of $6.30 per share;
2. 118,222 IDS Shares were issued to RCT upon the closing of the Offeror's
initial public offering as compensation for RCT's premium and
supplemental interest payable pursuant to the October 1, 1996 Agreement
totalling $744,800 at an effective conversion ratio of $6.30 per share.
Immediately after the Amalgamation, RCT agreed to convert an obligation of
the Offeror aggregating $589,900 (principal, interest and an agreed conversion
premium) into 93,635 Common Shares of the Offeror at an effective conversion
rate of $6.30 per share.
9. Description of Share Capital
The authorized capital of IDS presently consists of an unlimited number of
Common Shares (the "IDS Shares") and an unlimited number of Class B Shares. As
at April 6, 1998, 14,792,904 IDS Shares and 572,850 Class B Shares were issued
and outstanding. A further 552,000 IDS Shares are issuable upon the exercise of
options granted pursuant to IDS's stock option plan and up to a further 120,316
IDS Shares are issuable pursuant to compensation options granted to the
underwriters of the Offeror's initial public offering which was completed on
December 31, 1997. Finally, up to a further 3,225,375 IDS Shares are issuable
upon the exercise or deemed exercise of 3,507,500 Special Warrants (assuming a
receipt for a prospectus qualifying the issuance of the IDS Shares issuable upon
the exercise of the Special Warrants is obtained within 90 days of the closing
of the Special Warrant offering) and 175,375 Compensation Options issued by the
Offeror in connection with the Special Warrant offering. See "Recent Events".
Each of the classes of shares of the Offeror is identical in all respects
except that the Common Shares are entitled to one vote per share at meetings of
shareholders and the Class B Shares are non-voting.
10. Dividend Policy
Prior to the Amalgamation described under "Corporate History and
Reorganization", the Offeror paid dividends to its shareholders in the fiscal
year ended December 31, 1997 of $0.1564 per share, adjusted for the effect of
the Amalgamation. The Offeror does not presently anticipate the payment of any
dividends on the IDS Shares or Class B Shares in the foreseeable future.
11. Escrow Arrangements
Pursuant to an escrow agreement (the "TSE Escrow Agreement") entered into
among CIBC Mellon Trust Company (the "Trustee"), the Offeror and Dr. Mariusz
Rybak, Andy Rybak, Alan Greene and Research Corporation Technologies, Inc. (the
"Escrowed Shareholders") concurrently with the filing of a final prospectus in
connection with the Offeror's December 1997 initial public offering, the
Escrowed Shareholders agreed to deposit with the Trustee an aggregate of
7,841,684 IDS Shares (the "Escrowed Shares"). The Escrowed Shares, after giving
effect to the public offering (assuming neither the Over-Allotment Option nor
Compensation Option are exercised), represented 53.76% of the total outstanding
IDS Shares. The TSE Escrow Agreement provides that the Escrowed Shares may not
be sold, pledged, hypothecated, alienated, transferred within escrow or in any
manner dealt with, without the prior written consent, order or direction of The
Toronto Stock Exchange (the "TSE").
<PAGE>
The Escrowed Shares will be automatically released to the Escrowed Shareholders,
as to 25% of the number of Escrowed Shares, on each of the first, second, third
and fourth anniversaries of the date the Escrowed Shares are listed on the TSE.
In connection with the Offeror's Special Warrant offering completed on March 12,
1998 (see "Recent Events"), the Escrowed Shareholders were permitted to sell an
aggregate of 457,500 IDS Shares in order to satisfy the Offeror's delivery
obligations in respect of an equivalent number of IDS Share issuable on the
exercise of Special Warrants under such offering. Such substituted delivery
represented 457,500 of the 3,507,500 Special Warrants issued by the Offeror,
with the remaining 3,050,000 Special Warrants to be satisfied by the issuance by
the Offeror of an equivalent number of IDS Shares.
In addition to the TSE Escrow Agreement, the Escrowed Shareholders and
certain other executive officers and shareholders of the Offeror have entered
into contractual escrow agreements with the Underwriters. Under the contractual
escrow agreements with the Escrowed Shareholders, the Escrowed Shareholders have
agreed not to sell or otherwise dispose of their Common Shares for a period of
three years after closing without the consent of the Underwriters except,
subject to the TSE Escrow Agreement and applicable law, up to 20% of such Common
Shares after one year and up to an additional 40% of such Common Shares after
two years. Under the contractual escrow agreements with certain other executive
officers and shareholders of the Offeror, such persons have agreed not to sell
or otherwise dispose of their Common Shares for a period of one year after
closing without the consent of Marleau, Lemire Securities Inc.
12. Prior Sales
Except as described below, none of the IDS Shares offered hereunder (or
shares of predecessor companies which have been converted into IDS Shares of the
Offeror pursuant to the Amalgamation described under "Corporate History and
Reorganization") have been issued or sold during the last twelve months:
1. an aggregate of 471,431 IDS Shares were issued to employees and key
persons upon the exercise of stock options granted to such employees
and key persons from June 1990 to April 1995 at an exercise price of
$0.68 per share;
2. in connection with the retirement of an employee in June 1997, an
option to purchase 23,443 IDS Shares was granted to such employee at an
exercise price of $4.27 per share. Such option was exercised in
September 1997;
3. in August 1997, 189,856 IDS Shares were issued to an investor for
U.S.$1,000,000, or U.S.$5.28 per share (Cdn.$7.29 at an exchange rate
of 1:1.38);
4. in October 1997, 660,986 IDS Shares were issued to an investor upon the
exercise of a warrant issued in April 1995 at an exercise price of
$0.11 per share. Such warrant was issued in April 1995 in exchange for
the cancellation of preference shares previously held by such investor;
5. in October 1997, 8,056 IDS Shares were issued to a consultant in
consideration of services provided to the Offeror from August 1996 to
date. For purposes of such issuance, the IDS Shares were valued at
$6.81 per share;
6. in December 1997, 3,157,895 IDS Shares were issued for cash proceeds of
$15,000,001 on the initial public offering of IDS Shares;
7. in February 1998, 169,205 IDS Shares were issued to the underwriters
with respect to their over-allotment option granted with respect to the
initial public offering at $4.75 per share.
8. in March 1998, 3,507,500 Special Warrants were issued to certain
purchasers for gross proceeds to the Offeror of $20,587,500 with
respect to the Special Warrant offering of the Offeror; and
9. in March and April 1998, 37,579 IDS Shares were issued to the
underwriters with respect to their exercise of compensation options
granted with respect to the initial public offering at $4.75 per share.
The foregoing issuances have been adjusted to reflect the effect of the
Amalgamation. Reference is also made to "Corporate History and Reorganization"
for a description of other share transactions completed in conjunction with a
recent amalgamation of the Offeror.
<PAGE>
13. Price Range and Trading Volume of the IDS Shares
The IDS Shares are listed and posted for trading on the TSE. The following
table sets forth the high and low sales prices and volumes of sales of the IDS
Shares traded on each of the Exchanges for the periods indicated.
The Toronto Stock Exchange
--------------------------
High Low Volume
---- --- ------
1997
December 31.................... $4.85 $4.65 43,100
1998
January........................ 7.25 4.40 564,453
February....................... 8.90 5.50 728,805
March.......................... 8.35 6.75 787,194
April (to April 14)............ 8.00 7.35 76,379
The closing price of the IDS Shares on April 2, 1998, the last trading day
prior to announcement of the Offer, was $8.00 on the TSE. The closing price of
the IDS Shares on April 14, 1998, the last trading day prior to the date of this
Offer, was $7.50 on the TSE.
14. Interest of Management and Others in Material Transactions
Except as disclosed below, none of the directors, senior officers, principal
shareholders, or associates or affiliates of such persons or companies, has or
has had, directly or indirectly, any material interest in any material
transaction with the Offeror within the past three years or in any proposed
transaction which will materially affect the Offeror.
Research Corporation Technologies, Inc., a Principal Shareholder hereunder is
the owner of intellectual property which has been licensed to the Offeror. See
"Business of the Offeror - Patents and Proprietary Rights", "Principal
Shareholders" and "Material Contracts".
In conjunction with the amalgamation of the Offeror on September 30, 1997,
Research Corporation Technologies, Inc. agreed to convert certain indebtedness
owing to it by predecessor companies of the Offeror into IDS Shares. See
"Corporate History and Reorganization".
Mr. Sanje Ratnavale, a director of the Offeror, is the Director of Corporate
Finance of Research Corporation Technologies, Inc.
Dr. Mariusz Rybak is a director, officer and principal shareholder of AGISS
Corporation and Advanced Environmental Solutions Inc. and will be spending a
portion of his time on matters for such companies. The Offeror has entered into
an agreement with AGISS Corporation in connection with the sharing of expenses
relating to the Offeror's premises located at 66 Slater Street, Ottawa, Ontario.
Under the agreement, AGISS Corporation has agreed to pay a proportion of the
rental expenses associated with these premises depending on head count and floor
space used from time to time by the respective companies. The proportion is
adjusted quarterly based on these factors. During the quarter ending December
31, 1997, AGISS Corporation was responsible for 31.75% of the rental expenses.
15. Material Contracts
Except for contracts entered into in the ordinary course of business, the
only contracts which the Offeror has entered into the last two years which may
be regarded as presently material are:
(1) the Underwriting Agreement dated December 19, 1997 among the Offeror,
Marleau, Lemire Securities Inc., CIBC Wood Gundy Securities Inc.,
Midland Walwyn Capital Inc. and Yorkton Securities Inc., with respect
to the Offeror's initial public offering completed in December 1997;
(2) the TSE Escrow Agreement and the Contractual Escrow Agreements
referred to under "Escrow Arrangements";
(3) the Underwriting Agreement dated March 12, 1998 among the Offeror,
Yorkton Securities Inc., CIBC Wood Gundy Securities Inc. and Nesbitt
Burns Inc. with respect to the Offeror's special warrant offering
(the "Special Warrant Offering") completed in March 1998;
(4) the Special Warrant Indenture dated March 12, 1998 among the Offeror,
Mariusz Rybak, Andy Rybak, Alan Greene,
<PAGE>
Research Corporation Technologies, Inc. and CIBC Mellon Trust Company
with respect to the Special Warrant Offering;
(5) the RCT License Agreement referred to under "Business of the Offeror
- Patents and Proprietary Rights"; and
(6) a purchase order from the Federal Aviation Administration dated
August 18, 1997 referred to under "Business of the Offeror -
Backlog".
Copies of the foregoing agreements may be inspected at the head office of the
Offeror at 66 Slater Street, 6th Floor, Ottawa, Ontario during normal business
hours at any time during the period that Shares may be deposited under the terms
of this Offer.
16. Legal Proceedings
The Offeror is not a party to any legal proceedings material to its
operations nor are any such proceedings known by the Offeror to be contemplated.
17. Recent Events
On March 12, 1998, the Offeror completed an offering of 3,050,000 Special
Warrants at $6.75 per Special Warrant, for aggregate gross proceeds of
$20,587,500. Each Special Warrant is exercisable, for no additional
consideration, into one common share of the Offeror unless a prospectus
qualifying the issuance of common shares upon the exercise of the Special
Warrants is not filed within 90 days of closing, in which case each Special
Warrant is exercisable into 1.1 Common Shares of the Offeror. The offering also
included an additional offering of 457,500 Special Warrants, which Special
Warrants are exercisable for Common Shares of the Offeror held by certain
selling shareholders.
18. Eligibility for Investment
In the opinion of Fraser & Beatty, counsel to the Offeror, based on
legislation in effect at the date hereof and subject to compliance with the
prudent investment standards and general investment provisions and restrictions
of the statutes referred to below (and, where applicable, the regulations
thereunder) and, in certain cases, subject to the satisfaction of additional
requirements relating to investment policies, procedures and goals, IDS Shares
would not be precluded as investments under or by the following statutes:
Insurance Companies Act (Canada)
Trust and Loan Companies Act (Canada)
Pension Benefits Standards Act, 1985 (Canada)
Pension Benefits Act (Ontario)
Loan and Trust Corporations Act (Ontario)
Pension Benefits Standards Act (British Columbia)
Financial Institutions Act (British Columbia)
Loan and Trust Corporations Act (Alberta)
The Pension Benefits Act, 1992 (Saskatchewan)
The Pension Benefits Act (Manitoba)
The Trustee Act (Manitoba)
The Insurance Act (Manitoba)
The Pension Benefits Act (Nova Scotia)
An Act respecting trust companies and savings companies0 (Quebec) (for a
trust company or savings company, as defined therein, incorporated under the
laws of the Province of Quebec, which invests its own funds).
An Act respecting insurance (Quebec) (for an insurer, as defined therein,
incorporated under the laws of the Province of Quebec, other than a guarantee
fund) and the Supplemental Pension Plans Act (Quebec).
In the opinion of Fraser & Beatty, the IDS Shares are, at the date hereof,
qualified investments under the Tax Act for a trust governed by a registered
retirement savings plan, a registered retirement income fund or a deferred
profit sharing plan (other than a trust governed by a deferred profit sharing
plan for which any of the employers is IDS or is an employer which does not deal
at arm's length with IDS within the meaning of the Tax Act). It is the opinion
of Fraser & Beatty that, the IDS Shares do not, at the date hereof, constitute
foreign property under the Tax Act and proposed amendments for a person subject
to Part XI of the Tax Act.
<PAGE>
19. Risk Factors
In considering the Offer, Shareholders should carefully consider the
following factors, in addition to the other information contained in this
Circular.
Trading Price of IDS Shares
As of April 14, 1998, 14,792,904 Shares were outstanding and at least
3,225,375 additional IDS Shares are issuable upon the exercise of Special
Warrants and related compensation options recently issued by the Offeror. A
further 552,000 IDS Shares are issuable upon the exercise of options granted
pursuant to IDS's stock option plan and up to a further 120,316 IDS Shares are
issuable pursuant to compensation options granted to the underwriters of the
Offeror's initial public offering which was completed on December 31, 1997.
Assuming all of the Scintrex Shares are tendered in the Offer, depending on the
election by Scintrex Shareholders to elect the All Share Option or the
Cash-Share Option, the number of IDS Shares issuable will vary from 4,645,000 to
6,969,000 IDS Shares. See Section 1 of the Offer, "The Offer". Prices for IDS
Shares will be determined in the marketplace and may be influenced by many
factors including investor perceptions of the Offeror following the completion
of the Offer and general industry and economic conditions.
Integration of IDS and Scintrex
The anticipated benefits of the Offer may not be fully achieved unless the
operations of the Offeror and Scintrex are successfully combined in a timely
manner. The combination of the two companies will require, among other things,
the integration of certain of the information systems and administrative, sales,
distribution and marketing functions. Any material difficulties encountered in
the transition process could have an adverse impact on the results of the
Offeror and could delay or reduce the anticipated benefits and synergies
resulting from the combination of the Offeror and Scintrex. There can be no
assurance that the Offeror will fully realize the anticipated benefits from the
acquisition of Scintrex.
Year 2000 Compliance Issues
Many older computer systems and software products that are still in use today
were programmed to accept only two digit entries in the date code field (i.e.,
"98" for "1998"). Systems and software containing two digit date code fields
need to be modified or upgraded to distinguish 21st century dates (e.g., "2002")
from 20th century dates (e.g., "1902"), in order to avoid the possibility of
erroneous results or system failures.
Many companies might need to modify or upgrade their information systems to
address this "Year 2000" issue. The effects of this issue and of the efforts by
companies to address it are unclear. The Offeror believes that the purchasing
patterns of customers and prospective customers might be affected by Year 2000
issues. Many companies are expending significant resources to correct or patch
their current software systems for Year 2000 compliance. These expenditures
might result in reduced funds available to purchase software products such as
those offered by the Offeror and Scintrex. Additionally, Year 2000 problems
inherent in a customer's other software programs might significantly limit that
customer's ability to realize the intended benefits to be derived from the
Offeror's and Scintrex's software. These events could result in a material
advise effect on the Offeror's and Scintrex's businesses, operating results or
financial condition.
The Offeror and Scintrex utilize other third party vendor equipment,
telecommunication products, and software products which may or may not be Year
2000 compliant. Although the Offeror is currently taking steps to address the
impact, if any, of the Year 2000 issue surrounding such third party products,
failure of any critical technology components to operate properly may have an
adverse impact on business operations or require the Offeror to incur
unanticipated expenses to remedy any problems.
Equipment as complex as that offered by the Offeror and Scintrex might
contain undetected errors or failures when first introduced or when new versions
are released, including products intended to be Year 2000 compliant. There can
be no assurance that the Offeror's and Scintrex's products contain or will
contain all necessary date code changes or that errors will not be found in new
products or product enhancements after commercial release, resulting in loss of
or delay in market acceptance. In addition, the Offeror and Scintrex might
experience difficulties that could delay or prevent the successful development
and release of products that are Year 2000 compliant or that meet the Year 2000
requirements of customers. If the Offeror is unable to or is delayed in its
efforts to make the necessary date code changes, there could be a material
adverse effect upon the Offeror's and Scintrex's business, operating results and
financial condition. Dependence on and Effects of Government Regulation and
Procurement Policies. For the foreseeable future, the Offeror's business will be
primarily dependent upon purchases of the Offeror's products and IEC services by
government agencies.
<PAGE>
Budgetary allocations for detection equipment are dependent, in part, upon
government policies that fluctuate from time to time in response to political
and other factors, including the public's perception of the threat of airline
bombings and other terrorist acts. Growth in the Offeror's business is
substantially dependent upon the adoption and implementation of regulations or
requirements in the aviation security market, particularly in the United States,
resulting in the use of advanced explosives detection systems, including trace
particle detection equipment. The Offeror expects that a substantial portion of
current and anticipated purchases of advanced detection equipment in the
aviation security market will be made by the FAA with appropriated funds. In
addition, growth in the Offeror's business will also be dependent on government
purchases of its drug detection equipment for drug interdiction applications. A
reduction of funding for security efforts or drug interdiction could materially
and adversely affect the Offeror's business, financial condition and results of
operations. There can be no assurance that funding for the purchase of such
equipment will be continued or as to the level of such funding. A substantial
amount of the funds appropriated to date have been and amounts appropriated in
the future will continue to be used to purchase equipment utilizing other
technologies, such as enhanced x-ray, CATSCAN and other bulk imaging
technologies. Accordingly, there can be no assurance as to the amount that will
ultimately be spent on the purchase of trace particle detection equipment or as
to the number of The Offeror's products that will actually be purchased.
Dependence on FAA Order. To date, the Offeror has generated limited sales of its
products. While the Offeror has now received a purchase order from the Federal
Aviation Administration to purchase up to 200 of each of its ORION and ORION
PLUS products, the FAA has only issued to date a firm order to purchase 35 of
its ORION products and 15 of its ORION PLUS products and there is no obligation
on the FAA to issue further firm orders. In the event that the FAA does not
issue further substantial firm orders the Offeror's anticipated revenues will be
materially adversely affected.
Dependence on Company's IEC Revenue, Product Line and Market Acceptance. Since
April 13, 1995, the Offeror has derived its revenues primarily from its IEC
division and the Offeror expects that such IEC revenues will continue to
constitute a significant portion of its revenues over the short term. The
failure by the Offeror to maintain revenues from IEC over the next year may have
a material adverse effect on quarterly and annual results of operations. The
Offeror expects that over time, it will derive substantially all of its revenues
from the sale of its chemical detection product line, which is based on GC/IMS
technology, and its future profitability is substantially dependent on the
Offeror's ability to market its product line successfully. There can be no
assurance that markets for GC/IMS technology will develop as the Offeror expects
or that the Offeror will be able to capitalize on such market development.
Similarly, there can be no assurance that any markets that do develop will be
sustained. Se "Business of the Offeror - Sales and Marketing".
Dependence on New Product Development; Technological Advancement. The Offeror's
and Scintrex's success is dependent upon their ability to continue to enhance
its products and to develop and introduce in a timely manner new products that
incorporate technological advances, keep pace with evolving industry standards
and respond to changing customer requirements. If the Offeror and Scintrex are
unable to develop and introduce new products or enhancements in a timely manner
in response to changing market conditions or customer requirements, the
Offeror's business, financial condition and results of operations would be
materially and adversely affected. In addition, from time to time the Offeror or
Scintrex or their present or potential competitors may announce new products,
capabilities or technologies that have the potential to replace, shorten the
life spans of, or render obsolete the Offeror's existing products. There can be
no assurance that the Offeror will be successful in convincing potential
customers that its products are superior to such other systems or products, that
new systems with comparable or greater performance, lower prices and faster or
equivalent throughput will not be introduced, or that, if such products are
introduced, customers will not delay or cancel existing or future orders for the
Offeror's products.
Ownership and Protection of Proprietary Technology. The Offeror relies on
patent, trademark, copyright and trade secret laws, employee and third party
non-disclosure agreements and other methods to protects its proprietary rights.
The Offeror owns one patent, has one patent pending and has filed three
provisional patents covering its technology. Also, certain of the technology
used in the Offeror's product, which was developed by the Offeror, is owned by
Research Corporation Technologies, Inc. and has been licensed back to the
Offeror on an exclusive royalty-bearing basis. The patents related to this
agreement expire between 2009 and 2013. See "Business of the Offeror - Patents
and Proprietary Rights". There can be no assurance that any patents owned or
licensed or pending or future patent applications will not be challenged,
invalidated or circumvented or that rights granted under such patents will
provide competitive advantages to the Offeror. Further, any inability of the
Offeror to access license technologies could have a material adverse effect on
the Offeror's business, financial condition and results of operations. In
addition, there can be no assurances that the Offeror's trade secrets or
non-disclosure agreements will provide meaningful protection of the Offeror's
proprietary technology or that others will not independently develop similar
technologies or duplicate any technology developed by the Offeror or that the
Offeror's technology will not infringe patents or other proprietary rights of
others.
Fluctuations in Operating Results. The Offeror's past operating results have
been, and its future operating results will be, subject to fluctuations
resulting from a number of factors, including: the timing and size of orders
from, and shipments to, major customers; budgeting and purchasing cycles of its
customers; delays in product shipments caused by customer requirements or the
inability of customers to accept shipments; the timing of enhancements to the
products by the Offeror or new products introduced by the Offeror or its
competitors; changes in pricing policies by the Offeror, its competitors or
suppliers, including possible decreases in average selling prices of the
products in response to competitive pressures; the
<PAGE>
proportion of revenues derived from competitive bid processes; the mix between
sales to domestic and international customers; market acceptance of enhanced
versions of the products; the availability and cost of key components; the
availability of manufacturing capacity; and fluctuations in general economic
conditions. The Offeror also may choose to reduce prices or to increase spending
in response to competition or to pursue new market opportunities, all of which
may have a material adverse effect on the Offeror's business, financial
condition and results of operations. The Offeror's revenues in any period are
derived from sales of its product lines to a limited number of customers and are
generally recognized upon shipment. As a result, variations in the number of
orders or the timing of shipments may cause the Offeror's quarterly and annual
operating results to vary substantially.
Moreover, although the Offeror's sales are not seasonal in nature, government
agencies and certain other customers expend unused budgeted funds at the end of
their respective fiscal years, causing the Offeror's sales to be higher during
such periods. Because the Offeror generally recognizes substantially all of the
revenue from a sale upon shipment, and because the recognition of revenue from
the sale of relatively few products may substantially impact the Offeror's
profitability during any period, the impact of these budgetary considerations on
the delivery date of a relatively few units could significantly affect the
Offeror's quarterly results and the predictability of such quarterly results.
Competition. The Offeror competes with other entities, including Barringer
Technologies Inc. and Thermedics Detection Inc., both of which presently have
significantly greater financial, marketing and other resources than the Offeror.
Principal competitive factors include selectivity (the ability of an instrument
to identify the presence of a particular substance), sensitivity (the ability of
an instrument to detect small amounts of a particular substance), false alarm
rate, speed of analysis, price, marketing and ease of use. There can be no
assurance that the Offeror will be able to continue to compete successfully with
its competitors or be able to compete with new market entrants or in new markets
that may develop. The Offeror also competes for government expenditures with
equipment manufacturers utilizing other types of detection technologies, such as
InVision Technologies, Inc. and Vivid Technologies, Inc., including enhanced
x-ray, CATSCAN and other bulk imaging technologies, as well as with
manufacturers of other IMS equipment and manufacturers using other trace
particle detection technologies. The Offeror also competes with the use of
canines to locate the presence of explosives and drugs.
Lengthy Sales Cycle. The Offeror's sales process is often protracted due to the
lengthy approval processes that typically accompany government expenditures.
Typically, six to 12 months may elapse between a new customer's initial
evaluation of the Offeror's products and the execution of a contract. As a
result, significant resources may be directed by the Offeror to certain sales
opportunities without ultimately obtaining an order from such customer. In
addition, a delay or failure in obtaining large orders may have a material
adverse effect on quarterly and annual results of operations. With respect to
the forecast contained in this prospectus, the Offeror has made certain
assumptions as to when orders will be produced and shipped, but from time to
time customers of the Offeror have requested delaying delivery of orders because
of changes to customer deployment schedules or for other reasons beyond the
Offeror's control.
International Business; Risk of Change in Foreign Regulations; Fluctuations in
Exchange Rates. The Offeror markets its products to customers outside of Canada
and, accordingly, is exposed to the risks of international business operations,
including unexpected changes in foreign and domestic regulatory requirements,
possible foreign currency controls, uncertain ability to protect and utilize its
intellectual property in foreign jurisdictions, currency exchange rate
fluctuations or devaluations, tariffs o other barriers, difficulties in staffing
and managing foreign operations, difficulties in obtaining and managing vendors
and distributors and potentially negative tax consequences. International sales
are subject to certain inherent risks including embargoes and other trade
barriers, staffing and operating foreign sales and service operations and
collecting accounts receivable. The Offeror is also subject to risks associated
with regulations relating to the import and export of high technology products.
The Offeror cannot predict whether quotas, duties, taxes or other charges or
restrictions upon the importation or exportation of the Offeror's products in
the future will be implemented by the U.S. or any other country. There can be no
assurance that any of these factors will not have a material adverse effect on
the Offeror's business, financial condition and results of operations.
A portion of the Offeror's revenues and expenses are denominated in foreign
currencies. Fluctuations in currency exchange rates could adversely affect the
Offeror's profitability and could cause the Offeror's products to become
relatively more expensive to customers in a particular country, leading to fewer
sales or reduced selling prices in that country. As a result, the Offeror is
exposed to a certain degree of exchange rate risk. The Offeror generally does
not hedge its foreign exchange exposure. There can be no assurance that the
Offeror will not experience material losses in the future as a result of
currency fluctuations or that any such losses will not have a material adverse
effect on the Offeror's business, financial condition and results of operations.
Finally, certain of the Offeror's products contain nuclear source materials
and may require export permits and/or specific permits for entering into certain
countries. Dependence on Limited Number of Suppliers. Certain key components
used in the Offeror's products have been designed by the Offeror to its
specifications and are currently purchased only from one or a limited number of
suppliers. The Offeror currently does not have long-term agreements with these
suppliers. Moreover, in view of the high cost of many of these
<PAGE>
components, the Offeror does not maintain significant inventories of some
necessary components. If the Offeror's suppliers were to experience financial,
operational, production or quality assurance difficulties, the supply of
components to the Offeror would be reduced or interrupted. In the event that a
supplier were to cease operations, discontinue a product or withhold supply for
any reason, the Offeror might be unable to acquire certain components from
alternative sources, to find alternative third-party manufacturers or
sub-assemblers, or to obtain sufficient quantities of these components, which
could result in delays or interruptions in product shipments, and could have a
material adverse effect on the Offeror's business, financial condition and
results of operations.
Ability to Manage Rapid Growth. The Offeror has rapidly expanded its business
operations as a result of increased demand for its products, which has placed
significant demands on the Offeror's manufacturing, management and working
capital resources and operating, management and financial control systems.
Failure to maintain needed resources or to enhance the Offeror's operating,
management and financial control systems as and when necessary, or difficulties
encountered during such enhancements, could have a material adverse effect on
the Offeror's business, financial condition and results of operations. The
Offeror's future growth also will depend on its ability to continue to improve
and expand its engineering and technical resources and to attract, retain and
motivate key personnel. The failure of the Offeror to increase its revenues
sufficiently to compensate for increased expenses resulting from current or
future expansion, or the Offeror's failure to otherwise adequately manage the
growth of its business, would have a material adverse effect on the Offeror's
business, financial condition and results of operations.
Limited Manufacturing Experience. To date, the Offeror has limited manufacturing
experience as it has manufactured only on a prototype basis in limited
quantities. The failure by the Offeror to cost-effectively manufacture or
subcontract the manufacture of its product on a larger scale would have a
material adverse effect on the Offeror's business, financial condition and
results of operations.
History of Operating Losses; Cash Constraints. The Offeror sustained losses
before other items and income taxes of $1.4 million and $0.2 million for the
year ended December 31, 1996 and the year ended December 31, 1997, respectively.
The Offeror used $3.4 million of cash in operations during the year ended
December 31, 1997, as a result of the need for working capital to support
operations. The Offeror's failure to generate positive operating cash flow or to
maintain other sources of working capital could result in significant cash
shortages that could have a material adverse effect on the Offeror's business,
financial condition and results of operations.
Retention of and Dependence on Key Personnel. The Offeror's success will depend,
in part, on its ability to retain the services of its key personnel, including
management and scientific employees, who are and will continue to be
instrumental in the development and management of the Offeror's business. The
loss of the services of one or more of the Offeror's key employees could have a
material adverse effect on the Offeror.
Warranty Claims. The Offeror generally provides a one-year parts and labor
warranty on each of its products, although from time to time the Offeror has
provided extended warranties. Although the Offeror has not experienced
significant warranty claims, there can be no assurance that such claims will not
increase as the Offeror's sales increase. Increased warranty claims could have a
material adverse effect on the Offeror's business, financial condition and
results of operations.
Product Liability. The Offeror currently does not maintain product liability
insurance. The Offeror believes that, as it distributes more products into the
marketplace and expands its product lines, its exposure to potential product
liability claims and litigation may increase. In particular, the failure of a
Offeror product to detect an explosive could result in a significant claim
against the Offeror. The cost of defending and the negative publicity
surrounding such a claim and any adverse determination could have a material
adverse effect on the Offeror's business, financial condition and results of
operations.
Dependence on Resellers and Distributors. The Offeror expects that sales of its
chemical detection products will depend significantly on its relationships with
certain resellers and distributors, some of whom have exclusive distribution
rights in respect of the Offeror's products within certain territories. The
success of the Offeror will therefore be dependent in large part on its ability
to maintain its relationships with its existing resellers and distributors as
well as its ability to develop additional relationships. In addition, success is
also dependent on the performance of such resellers and distributors which is
not within the Offeror's control. The granting by the Offeror of exclusive
distribution rights in respect of its products within certain territories may
preclude the Offeror from selling, either directly or through any other reseller
or distributor, to customers in such territory, which could result in lost sales
opportunities where the customer is unable or unwilling to purchase from the
exclusive reseller or distributor in such territory. The loss of any existing
distributor or the inability to develop additional relationships with other
resellers and distributors could have a material adverse effect on the Offeror's
business, financial condition and results of operation. The majority of the
agreements with resellers and distributors are terminable on short notice.
20. Auditors, Transfer Agent and Registrar
<PAGE>
The auditors of the Offeror are KPMG, Chartered Accountants, 45 O'Connor
Street, Ottawa, Ontario. CIBC Mellon Trust Offeror at its principal stock
transfer office in the City of Toronto is the transfer agent and registrar of
the Offeror.
<PAGE>
The Depositary for the Offer is:
CIBC MELLON TRUST COMPANY
FOR DELIVERY BY COURIER, HAND, MAIL OR FACSIMILE TRANSMISSION:
By Courier or by Hand
(prior to May 4, 1998)
Special Projects
393 University Avenue
Lower Level
Toronto, Ontario
M5G 2M7
By Courier or by Hand
(on or after May 4, 1998)
Special Projects
199 Bay Street
Commerce Court West
Securities Level
Toronto, Ontario
M5L 1G9
Attention: Courier Window
By Mail
(at any time Shares may be deposited
under the terms of this Offer)
P.O. Box 1036
Adelaide Street Postal Station
Toronto, Ontario
M5C 2K4
Tel: (416) 643-5500
1-800-387-0825
Fax: (416) 813-4646
The Dealer Manager for the Offer is:
YORKTON SECURITIES INC.
Tel: (416) 864-3500
Fax: (416) 864-9509
Any questions and requests for assistance may be directed by holders of
Shares to the Depositary or the Dealer Manager at their respective telephone
numbers and locations set out above.
<PAGE>
ESCROW AGREEMENT
THIS AGREEMENT made this 19th day of December, 1997.
AMONG:
MARIUSZ RYBAK, ANDY RYBAK, ALAN GREENE
and RESEARCH CORPORATION TECHNOLOGIES,
INC.
(hereinafter jointly and severally called the "Security
Holders")
OF THE FIRST PART
- and -
CIBC MELLON TRUST COMPANY
(hereinafter called the "Trustee")
OF THE SECOND PART
- and -
IDS INTELLIGENT DETECTION SYSTEMS INC.
(hereinafter called the "Issuer")
OF THE THIRD PART
WHEREAS the Security Holders presently own or are about to receive additional
securities of the Issuer;
AND WHEREAS in furtherance of complying with the requirements of The
Toronto Stock Exchange (the "Exchange"), the Security Holders are desirous of
depositing in escrow certain securities of the Issuer owned and/or to be
received by them;
AND WHEREAS the Trustee has agreed to undertake and perform its duties
according to the terms and conditions hereof;
<PAGE>
AND WHEREAS the foregoing statements of fact and recitals are made by the
parties hereto except the Trustee;
NOW THEREFORE this agreement witnesseth that in consideration of the
aforesaid agreements, and of the sum of one dollar ($1.00) now paid by the
parties hereto, each to the other (receipt of which sum the parties do hereby
respectively acknowledge each to the other) the Security Holders covenant and
agree with the Issuer and with the Trustee and the Issuer and the Trustee
covenant and agree each with the other and with the Security Holders as follows:
1. Each of the Security Holders hereby places and deposits in escrow those of
its securities of the Issuer which are represented by the certificates described
or referred to in Schedule "A" hereto (the "Deposited Securities") with the
Trustee and hereby undertakes and agrees forthwith to deliver those certificates
(including any replacement securities or certificates if and when such are
issued or allotted) to the Trustee for deposit in escrow.
2. The parties hereby agree that the securities and the beneficial ownership of
or any interest in Deposited Securities and the certificates representing them
(including any replacement certificates) shall not be sold, assigned,
hypothecated, alienated, released from escrow, transferred within escrow, or
otherwise in any manner dealt with, without the express consent, order or
direction in writing of the Exchange and the Quebec Securities Commission being
first had and obtained or except:
(i) as may be required by reason of the death or bankruptcy of
any Security Holder, in which cases the Trustee shall hold the
said certificates subject to this agreement, for whatsoever
person, firm or corporation shall be legally entitled to be or
become the registered owner thereof; or
(ii) in circumstances where one or more persons or companies,
each being at arm's length (as such term is defined in the
Income Tax Act (Canada)) to the Security Holders, (the
"Offeror") makes either (A) a bona fide take-over bid by way
of circular (as contemplated by the Ontario Securities Act) or
(B) a bona fide take-over bid (as contemplated under the rules
of the Exchange) through the facilities of the Exchange, to
acquire all the common shares of the Issuer and to all holders
of common shares on the same terms, the Trustee may upon
receiving written direction from the each Security Holder
tender to any such take-over bid the share certificates
representing the number of Deposited Securities the Security
Holder desires to have deposited under such take-over bid (the
"Bid Securities") provided that the Trustee receives from the
Offeror either before or concurrently with the tendering of
the Bid Securities a certificate of an authorized signing
officer of the Offeror to the effect that the terms and
conditions of the take-over bid have been met or satisfied and
that the
<PAGE>
Offeror is irrevocably obligated to, and will, take up and pay
for all securities deposited under the take-over bid; however,
for greater certainty, the Trustee shall take appropriate
steps to ensure that if all the terms and conditions of the
take-over bid are not met or satisfied or all the securities
duly deposited thereunder are not taken up and paid for, the
Bid Securities shall not be taken up or paid for and shall
remain in escrow subject to the terms and provisions of this
agreement.
It is understood that the Exchange and the Quebec Securities Commission
consent to release from escrow and the Trustee shall, without the need to obtain
prior consent of the parties hereto, automatically release from escrow the
Securities held by the Trustee to each Security Holder on a pro rata basis as
follows:
a. forthwith after the date which is twelve (12) months following the
date that the Exchange lists the Issuer's Common Shares (hereinafter
referred to as the "First Release Date"), 25% of the Deposited
Securities;
b. forthwith after the date which is the first, second and third
anniversaries of the First Release Date, on each such date 25% of the
Deposited Securities; and
c. any release of Deposited Securities, other than in accordance with
the provisions of this section, shall be effected only with the written
consent of the Exchange and the Quebec Securities Commission, and
otherwise upon request of the Security Holders.
3. The Security Holders hereby direct the Trustee to retain their respective
securities and the certificates (including any replacement securities or
certificates) representing the same and not to do or cause anything to be done
to release the same from escrow or to allow any transfer, hypothecation or
alienation thereof except with and as directed by the written consent, order or
direction of the Exchange and the Quebec Securities Commission or except in
accordance with Section 2 of this agreement. The Trustee hereby accepts the
responsibilities placed on it hereby and agrees to perform the same in
accordance with the terms hereof and the written consents, orders or directions
of the Exchange.
<PAGE>
4. So long as any of the Deposited Securities remain on deposit with the Trustee
pursuant to this agreement:
a. the Security Holders shall have the right to exercise all voting
rights attached to the Deposited Securities deposited by the Security
Holders hereunder and the Trustee or its nominee shall from time to
time execute and deliver to the Security Holders or their nominees
suitable authorities or proxies to permit the Security Holders to
exercise such voting rights;
b. the Security Holders shall have the right to receive all amounts
paid or distributed in cash or in specie by way of dividend or
redemption by the Issuer or other distribution on or in respect of the
Deposited Securities deposited by the Security Holders, and upon
receipt of such amounts or property, the Trustee shall cause them (less
any tax required to be withheld) to be paid to the Security Holders;
and
c. upon receipt by the Trustee of any warrant or other document
evidencing rights to subscribe for Shares or any other security of the
Issuer convertible or exchangeable into Shares granted in respect of
the Deposited Securities, the Trustee shall give timely notice of such
receipt to the Security Holders and shall carry out their instructions
in connection with such warrant or rights.
5. The Trustee:
a. shall have no responsibility in respect of any of the Deposited
Securities deposited with it pursuant hereto, except to deal with them
in accordance with the provisions of this agreement and shall have no
liability or responsibility arising under any other agreement including
any agreement referred to in this agreement, to which the Trustee is
not a party;
b. may retain and act on the advice of legal counsel (who may be
counsel for any of the parties hereto) and advisors and shall be fully
protected in acting and relying in accordance with such advice. The
Issuer shall pay or reimburse the Trustee for reasonable expenses and
disbursements of such counsel or advisors;
c. shall not be required to defend any legal proceedings which may be
instituted against it in respect of or arising out of anything herein
contained unless requested so to do by a party hereto and indemnified
to its reasonable satisfaction against the cost and expense of such
defence;
d. shall have no responsibility for the genuineness or validity of any
securities, documents or other things deposited with it and shall be
fully protected in acting and relying in accordance with any written
instructions given to it hereunder and
<PAGE>
reasonably believed by it to have been signed by the proper person, party or
parties; and
e. except for its acts of negligence or misconduct, shall not be liable
for any act done or step taken or omitted by it in good faith, or for
any mistake of fact or law and the Issuer and the Security Holders,
jointly and severally, agree to indemnify and save harmless the Trustee
from and against all claims, demands, actions, suits or other
proceedings by whomsoever made, prosecuted or brought and from all
loss, costs, damages and expenses in any manner based upon, occasioned
by or attributable to any act of the Trustee in the execution of its
duties hereunder. This provision shall survive the resignation or
removal of the Trustee or the termination of this agreement.
6. The Issuer hereby acknowledges the terms and conditions of this agreement and
agrees to take all reasonable steps to facilitate its performance.
The Issuer agrees to pay in advance the Trustee's fees as may be agreed
from time to time with the Issuer, together with the Trustee's expenses and
disbursements. Notwithstanding any provision contained in this agreement the
Issuer and the Security Holders agree that if any of the Trustee's fees,
expenses and disbursements remain unpaid, the Trustee may withhold the release
of any Deposited Securities until such fees, expenses and disbursements are paid
in full.
7. If the Trustee should wish to resign, it shall give at least sixty (60) days
notice to the Issuer, which may, with the written consent of the Exchange, by
writing appoint another Trustee in its place and such appointment shall be
binding on the Security Holders and the new Trustee shall assume and be bound by
the obligations of the Trustee hereunder.
Upon the effective date (the "Effective Date") of resignation, if the
Exchange has not appointed a successor Trustee, the Security Holders may appoint
a successor Trustee. Failing such appointment by the Security Holders within
thirty (30) days from the Effective Date, the Trustee shall return the
Securities to the Issuer to be held in trust for the Security Holders and the
duties and obligations of the Trustee shall cease immediately.
8. The written consent, order or direction of the Exchange as to a release from
escrow of all or part of the said securities shall terminate this agreement only
in respect to those securities so released. For greater certainty, this clause
does not apply to securities transferred within escrow.
9. If the Issuer is delisted by the Exchange, thereafter any consent, order or
direction of the Exchange herein required will, instead, require the consent,
order or direction of the Ontario Securities Commission and the Quebec
Securities Commission.
<PAGE>
10. This agreement may be executed by facsimile and/or in several parts in the
same form and such parts as so executed shall together form one original
agreement, and such parts if more than one shall be read together and construed
as if all the signing parties hereto had executed one copy of this agreement.
11. Wherever the singular or masculine are used throughout this agreement, the
same shall be construed as being the plural or feminine or neuter where the
context so requires.
12. Any notice, direction or other communication hereunder shall be in writing
and shall be made by delivery or telecopy,
if to the Issuer addressed to:
66 Slater Street
6th Floor
Ottawa, Ontario
K1P 5H1
Attention: Chief Financial Officer
Telecopier: (613) 230-3805
if to Mariusz Rybak or Andy Rybak addressed to:
c/o 66 Slater Street
6th Floor
Ottawa, Ontario
K1P 5H1
Telecopier: (613) 230-3805
if to Alan Greene addressed to:
6 Beach Drive
Darien, Connecticut 06820
U.S.A.
Telecopier: (203) 655-9493
<PAGE>
if to Research Corporation Technologies, Inc. addressed to:
101 N. Wilmot Road, Suite 600
Tucson, AZ 85711-3335
U.S.A.
Telecopier: (520) 748-0025
if to the Trustee addressed to:
CIBC Mellon Trust Company
393 University Avenue
5th Floor
Toronto, Ontario
M5G 2M7
Attention: VP - Client Services
Telecopier: (416) 813-5555
13. This agreement shall enure to the benefit of and be binding upon the parties
hereto, their and each of their heirs, executors, administrators, successors and
assigns. Any corporation with which the Trustee may be merged or consolidated or
amalgamated, or any corporation succeeding to the business of the Trustee shall
be successor to the Trustee hereunder without any further act on its part or of
any of the parties hereto.
H:\USERS\STEVEN\IDS\EXHIBITS\ESCROWAG.WPD
<PAGE>
14. This agreement shall be governed by and construed in accordance with the
laws of the Province of Ontario and the federal laws of Canada applicable
therein.
IN WITNESS whereof the parties hereto have executed these presents the
day and year first above written.
Signed, Sealed and Delivered )
in the presence of )
) "signed"
) MARIUSZ RYBAK
)
)
) "signed"
) ANDY RYBAK
)
)
) "signed"
) ALAN GREENE
RESEARCH CORPORATION
TECHNOLOGIES, INC.
"signed"
Per:
"signed"
Per:
CIBC MELLON TRUST COMPANY
"signed"
Per:
"signed"
Per:
IDS INTELLIGENT DETECTION
SYSTEMS INC.
"signed"
Per:
<PAGE>
SCHEDULE "A"
Name of Beneficial Number of Certificate
Security Holder Owner Securities Number
Mariusz Rybak Mariusz Rybak 2,152,973 74
Andy Rybak Andy Rybak 2,152,973 75
Alan Greene Alan Greene 1,845,405 76
Research Corporation Research Corporation 1,690,333 77
Technologies, Inc. Technologies, Inc.
<PAGE>
Exhibit 21
List of Subsidiaries
- - - --------------------
Auslog Pty. Ltd. (Australia)
Caduceon Inc.
ChemiCorp International, Inc. (Delaware)
IDS Services LLC (Delaware)
Megafisica Survey Aerolevantamentos S.A. (Brazil)
Scintrex Europe S.A.R.L. (France)
Scintrex Inc. (New York)
Scintrex Limited (Ontario)
Scintrex Pty. Ltd. (Australia)
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 1077058
<NAME> INTELLIGENT DETECTION SYSTEMS, INC.
<MULTIPLIER> 1,000
<CURRENCY> CANADIAN
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1.5330
<CASH> 1,154
<SECURITIES> 0
<RECEIVABLES> 10,990
<ALLOWANCES> 0
<INVENTORY> 12,605
<CURRENT-ASSETS> 27,405
<PP&E> 12,943
<DEPRECIATION> 1,959
<TOTAL-ASSETS> 60,385
<CURRENT-LIABILITIES> 6,094
<BONDS> 0
0
0
<COMMON> 54,997
<OTHER-SE> (867)
<TOTAL-LIABILITY-AND-EQUITY> 60,385
<SALES> 21,984
<TOTAL-REVENUES> 21,984
<CGS> 13,134
<TOTAL-COSTS> 24,044
<OTHER-EXPENSES> (615)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,445)
<INCOME-TAX> (65)
<INCOME-CONTINUING> (1,380)
<DISCONTINUED> 100
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,280)
<EPS-BASIC> (0.07)
<EPS-DILUTED> (0.06)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 1077058
<NAME> INTELLIGENT DETECTION SYSTEMS, INC.
<MULTIPLIER> 1,000
<CURRENCY> CANADIAN
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 11.4713
<CASH> 723
<SECURITIES> 0
<RECEIVABLES> 21,920
<ALLOWANCES> 0
<INVENTORY> 13,294
<CURRENT-ASSETS> 37,233
<PP&E> 15,062
<DEPRECIATION> 2,319
<TOTAL-ASSETS> 71,464
<CURRENT-LIABILITIES> 8,410
<BONDS> 0
0
0
<COMMON> 55,027
<OTHER-SE> 8,027
<TOTAL-LIABILITY-AND-EQUITY> 71,464
<SALES> 36,016
<TOTAL-REVENUES> 36,016
<CGS> 16,901
<TOTAL-COSTS> 16,901
<OTHER-EXPENSES> 11,019
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 133
<INCOME-PRETAX> 8,141
<INCOME-TAX> (177)
<INCOME-CONTINUING> 7,963
<DISCONTINUED> 0
<EXTRAORDINARY> 178
<CHANGES> 0
<NET-INCOME> 8,318
<EPS-BASIC> 0.37
<EPS-DILUTED> 0.36
</TABLE>
