SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) March 25, 1999
MDSI MOBILE DATA SOLUTIONS INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Canada
---------------------------------------------
(State or other jurisdiction of incorporation)
0-28968 Not applicable
---------------------- --------------------------------
(Commission File Number) (IRS Employer Identification No.)
12071 Shellbridge Way
Richmond, British Columbia, Canada V6X 2W8
- ----------------------------------------- --------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (604) 207-6000
-------------------------------------------------------------
(Former Name or Former Address, if Changed Since Last Report)
Page 1 of 49 Pages
Exhibit Index is on Page 4
<PAGE>
Item 5. Other Events.
On March 25, 1999, the Company mailed its Notice of Annual and Special
Meeting of Shareholders with accompanying proxy materials to its shareholders.
The Notice and proxy materials were accompanied by the Company's Annual Report
on Form 10-K and Annual Report to Shareholders for the year ended December 31,
1999.
(c) Exhibits.
20.1 Notice of Annual and Special Meeting of Shareholders dated March 25, 1999
20.2 Management Proxy Circular as at March 25, 1999
20.3 Proxy Solicited by Management of the Company for the Annual and Special
Meeting of Shareholders to be held on May 6, 1999
20.4 National Policy 41 Election to receive supplemental mailings.
20.5 Annual Report to Shareholders
-2-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
MDSI MOBILE DATA SOLUTIONS INC.
May 6, 1999 By /s/ Erik Dysthe
- ----------------- -----------------------------------
Date Erik Dysthe,
Chief Executive Officer
-3-
<PAGE>
Exhibit Index
Exhibit Sequentially
Number Exhibit Numbered Page
- ------- ------- -------------
20.1 Notice of Annual and Special Meeting of 5
Shareholders dated March 25, 1999
20.2 Management Proxy Circular as at 6
March 25, 1999
20.3 Proxy Solicited by Management of the Company 19
for the Annual and Special Meeting of
Shareholders to be held on May 6, 1999
20.4 National Policy 41 election to receive 28
20.5 Annual Report to Shareholders 29
-4-
Exhibit 20.1
MDSI LOGO
MDSI MOBILE DATA SOLUTIONS INC.
NOTICE OF ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS
NOTICE IS HEREBY GIVEN that the Annual and Special Meeting of Shareholders of
MDSI Mobile Data Solutions Inc. (the "Company") will be held in the Aspen Room,
at the Four Seasons Hotel, 791 West Georgia Street, Vancouver, British Columbia,
on Thursday, May 6th, 1999, at 10:00 a.m. (local time), for the following
purposes:
(a) to receive the Report of the Directors;
(b) to receive the Financial Statements of the Company for the fiscal year
ended December 31, 1998, together with the report of the auditors thereon;
(c) to appoint auditors and to authorize the Directors to fix their
remuneration;
(d) to elect Directors;
(e) to approve the 1999 Stock Option Plan;
(f) to approve the 1999 Stock Purchase Plan;
(g) to approve the Shareholder Rights Plan; and
(h) to transact such further or other business as may properly come before the
meeting or any adjournment or adjournments thereof.
The Annual Report containing the Directors' Report to the Shareholders and the
Financial Statements of the Company for the fiscal year ended December 31, 1998,
including the auditors' report thereon, to be laid before the meeting, accompany
this Notice.
Shareholders who are unable to attend the meeting are requested to complete,
date, sign and mail the enclosed form of Proxy in accordance with the
instructions set out in the Proxy and in the Management Proxy Circular
accompanying this Notice.
DATED at Richmond, British Columbia, this 25th day of March, 1999.
BY ORDER OF THE BOARD
/s/ Erik Dysthe
Erik Dysthe
Chairman of the Board
================================================================================
If you are a non-registered shareholder of the Company and receive these
materials through your broker or through another intermediary, please complete
and return the materials in accordance with the instructions provided to you by
your broker or by the other intermediary. Failure to do so may result in your
shares not being eligible to be voted by proxy at the meeting.
================================================================================
Exhibit 20.2
MDSI MOBILE DATA SOLUTIONS INC.
MANAGEMENT PROXY CIRCULAR
as at March 25, 1999
SOLICITATION OF PROXIES
This Management Proxy Circular is furnished in connection with the solicitation
of proxies by the management of MDSI Mobile Data Solutions Inc. ("MDSI" or the
"Company") for the use at the Annual and Special Meeting of Shareholders of the
Company to be held on Thursday, May 6, 1999 (the "Meeting") and any adjournment
thereof at the time and place and for the purposes set forth in the accompanying
Notice of Meeting. While it is expected that the solicitation will be primarily
by mail, proxies may be solicited personally or by telephone by the directors
and regular employees of the Company. All costs of solicitation will be borne by
the Company.
APPOINTMENT AND REVOCATION OF PROXIES
The individuals named in the accompanying form of proxy are the Chairman and the
Chief Executive Officer of the Company. A shareholder wishing to appoint some
other person (who need not be a shareholder) to represent him at the Meeting has
the right to do so, either by inserting such person's name in the blank space
provided in the form of proxy and striking out the two printed names or by
completing another form of proxy. A proxy will not be valid unless the completed
and signed form of proxy is received by Montreal Trust Company of Canada, 4th
Floor - 510 Burrard Street, Vancouver, British Columbia, V6C 3B9, by 5:00 p.m.
of the last business day (excluding Saturdays, Sundays and holidays) preceding
the day of the Meeting or any adjournment thereof, or is delivered to the
Chairman of the Meeting prior to the commencement of the Meeting or any
adjournment thereof.
Pursuant to Section 148(4) of the Canada Business Corporations Act (the "Act"),
a shareholder who has given a proxy may revoke it by an instrument in writing
executed by the shareholder or by his attorney authorized in writing or, where
the shareholder is a corporation, by a duly authorized officer or attorney of
the corporation, and delivered either to the registered office of the Company,
1040 - 1055 West Hastings Street, Vancouver, British Columbia, V6E 2E9, at any
time up to and including the last business day preceding the day of the Meeting,
or if adjourned, any reconvening thereof, or to the Chairman of the Meeting on
the day of the Meeting or, if adjourned, any reconvening thereof or in any other
manner provided by law. A revocation of a proxy does not affect any matter on
which a vote has been taken prior to the revocation.
VOTING OF SHARES REPRESENTED BY PROXY AND DISCRETIONARY POWERS
Shares represented by proxies may be voted by the proxyholder on a show of
hands, except where the proxyholder has conflicting instructions from more than
one shareholder, in which case such proxyholder will not be entitled to vote on
a show of hands. In addition, shares represented by proxies will be voted on any
poll. In either case, where a choice with respect to any matter to be acted upon
has been specified in the proxy, the shares will be voted or withheld from
voting in accordance with the specification so made.
SUCH SHARES WILL BE VOTED FOR EACH MATTER IN FAVOUR OF NO CHOICE HAS BEEN
SPECIFIED BY THE SHAREHOLDER.
The enclosed form of proxy when properly completed and delivered and not revoked
confers discretionary authority upon the person appointed proxy thereunder to
vote with respect to amendments or variations of matters identified in the
Notice of Meeting, and with respect to other matters which may properly come
before the Meeting. In the event that amendments or variations to matters
identified in the Notice of Meeting are properly brought before the Meeting or
any further or other business is properly brought before the Meeting, it is the
intention of the persons designated in the enclosed form of proxy to vote in
accordance with their best judgement on such matters or business. At the time of
the printing of this Management Proxy Circular, the management of the Company
knows of no such amendment, variation or other matter which may be presented to
the Meeting.
<PAGE>
-2-
RECORD DATE AND RIGHT TO VOTE
The record date for the determination of shareholders entitled to receive notice
of the Meeting has been fixed at Wednesday, March 31, 1999.
Every shareholder of record at the close of business on March 31, 1999 who
personally attends the Meeting will be entitled to vote at the Meeting or any
adjournment(s) thereof, except to the extent that:
(a) such shareholder has transferred the ownership of any of his shares after
March 31, 1999; and
(b) the transferee of those shares produces properly endorsed share
certificates, or otherwise establishes that he owns the shares, and
demands, not later than 10 days before the Meeting, that his name be
included in the list of shareholders entitled to vote at the Meeting, in
which case the transferee is entitled to vote those shares at the Meeting.
A person duly appointed under an instrument of proxy will be entitled to vote
the shares represented thereby only if the proxy is properly completed and
delivered in accordance with the requirements set out under the heading
"APPOINTMENT AND REVOCATION OF PROXIES" and has not been revoked.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
As of March 25, 1999, the Company has issued and outstanding 7,241,664 fully
paid and non-assessable Common shares, each share carrying the right to one
vote. THE COMPANY HAS NO OTHER CLASSES OF VOTING SECURITIES.
To the knowledge of the directors and senior officers of the Company, the only
persons or companies who beneficially own, directly or indirectly, or exercise
control or direction over shares carrying more than 10% of the voting rights
attached to all outstanding shares of the Company are:
Name Number of Shares Percentage
---- ---------------- ----------
CDS & Co. (1) 2,224,743 30.7%
Cede & Co. (1) 4,022,930 55.6%
Note
(1) The Company has no knowledge of the beneficial ownership of these shares
registered in the name of a clearing agency.
ELECTION OF DIRECTORS
The Board of Directors presently consists of eight directors. It is intended to
elect eight directors for the ensuing year.
The term of office of each of the present directors expires at the Meeting. The
persons named below will be presented for election at the Meeting as
management's nominees and the persons named in the accompanying form of proxy
intend to vote for the election of these nominees. Management does not
contemplate that any of these nominees will be unable to serve as a director.
Each director elected will hold office until the next annual meeting of
shareholders of the Company or until his successor is elected or appointed,
unless his office is earlier vacated in accordance with the By-laws of the
Company, or the provisions of the Act.
Pursuant to Section 171 of the Act, the Company is required to have an Audit
Committee. As at the date hereof, the members of the Audit Committee are
Terrence P. McGarty, Gerald F. Chew and Bruno Ducharme.
<PAGE>
-3-
The following table sets out the names of the nominees for election as
directors, the country in which each is ordinarily resident, all offices of the
Company now held by each of them, their principal occupations, the period of
time for which each has been a director of the Company, and the number of Common
shares of the Company or any of its subsidiaries beneficially owned by each,
directly or indirectly, or over which control or direction is exercised, as at
the date hereof.
<TABLE>
Date of
Appointment as a
Name, Position and Director of the Shares
Country of Residence (1) Principal Occupation or Employment(1) Company Owned (1)
------------------------ ------------------------------------- ------- ---------
<S> <C> <C> <C>
Erik Dysthe Chairman of the Company, November 1998 to date, previously September 1995 478,662
Director and Chairman Chairman and Chief Executive Officer of the Company, September
of the Company 1995 to date; Chairman and Chief Executive Officer of MDSI
Resident of Canada Mobile Data Solutions Canada Inc. ("MDSI Canada"), 1993 to
October 1998.
Kenneth R. Miller Chief Executive Officer of the Company; previously President & September 1995 275,054
Director and Chief Executive Chief Operating Officer of the Company, February 1996 to
Officer of the Company February 1999; previously Vice-President, Finance and Secretary
Resident of Canada of the Company September 1995 to February 1996; and MDSI Canada
July 1995 to February 1996; President, Southview Equities
Ltd., June 1987 to present.
Terrence P. McGarty President, Zepher Telecommunications 1998 to present; Chairman & December 1995 1,170
Director Chief Executive Officer, The Telmarc Group Inc., 1992 to 1998.
Resident of the United States
Robert C. Harris, Jr. Senior Managing Director, Bear, Stearns & Co. Inc., November December 1995 18,413
Director 1997 to date; Managing Director, Unterberg Harris, 1989 to
Resident of the United States November 1997.
Gerald F. Chew Executive Vice President, Ancora Capital & Management Group, December 1995 Nil
Director LLC, 1998 to present; Chief Operating Officer, SpotMagic, Inc.,
Resident of the United States 1996 to 1997; Executive Director of Strategy Development, U S
WEST, Inc., 1992 to 1996.
Bruno Ducharme President and Chief Executive Officer, Telesystem International May 1996 Nil
Director Wireless Services Inc.; held senior officer positions since
Resident of Canada company's inception in 1991.
Marc Rochefort Senior Partner, Desjardins Ducharme Stein Monast, General May 1996 1,780
Director Partnership, Barristers & Solicitors, 1993 to date.
Resident of Canada
John T. McLennan President, Jenmark Consulting Inc., 1998 to date; previously February 1998 Nil
Director President and Chief Executive Officer, Bell Canada Inc., 1994 to
Resident of Canada 1997.
</TABLE>
- --------------------------------
Note
(1) The information as to country of residence, principal occupation, and
shares beneficially owned is not within the knowledge of the
management of the Company and has been furnished by the respective
nominees. The principal occupation or employment of the directors are
for the past five years. Share information does not include Common
shares issuable upon exercise of options.
<PAGE>
-4-
EXECUTIVE COMPENSATION
Report of the Compensation Committee
The Company's compensation program for all executive officers is administered by
the Compensation Committee of the Board of Directors which is composed of two
non-employee directors and one-employee director. The compensation of the
Chairman, Chief Executive Officer (CEO) and the President and Chief Operating
Officer (COO) is determined by Compensation Committee. The Chairman and the CEO
had variable components to their compensation in the past financial year based
on certain performance criteria. With respect to compensation for executive
officers other than the Chairman, the CEO or the President and COO, the Board of
Directors reviews a compensation proposal prepared by the CEO and the President
and COO, and approved by the Compensation Committee.
Objectives
The primary objectives of the Company's executive compensation program are to
enable the Company to attract, motivate and retain outstanding individuals and
to align their success with that of the Company's shareholders through the
achievement of strategic corporate objectives and creation of shareholder value.
The level of compensation paid to an individual is based on the individual's
overall experience, responsibility and performance. The Company's executive
compensation program consists of a base salary, performance bonuses and stock
options. The Company furnishes other benefits to certain of its officers and
other employees.
Chief Executive Officers and Executive Officers
There are currently 15 executive officers of the Company. For purposes of this
section, "executive officer" of the Company means an individual who at any time
during the year was the Chairman or a Vice-Chairman of the board of directors,
where such person performed the functions of such office on a full-time basis;
the President; any Vice-President in charge of a principal business unit such as
sales, finance or production; any officer of the Company or of a subsidiary of
the Company, and any other person who performed a policy-making function in
respect of the Company.
Employment Agreements
The Company has entered into employment agreements with each of its Named
Executive Officers (as hereinafter defined), providing for base salaries and
incentive plan bonuses as approved by the Board of Directors of the Company,
medical and dental benefits and reimbursement for certain expenses approved by
the Company.
Termination Arrangements
The Company may terminate any of its officers for cause without any payment of
any kind of compensation, except for such compensation earned to the date of
such termination. The Company may terminate any of its officers without cause by
giving notice and upon payment of all salary and bonuses owing up to the date of
termination and a lump sum termination payment equal to their base annual
salary. Any officer may terminate their employment with the Company at any time
by giving four weeks written notice to the Board of Directors of the Company. In
the event of a takeover or change of control of the Company, any officer of the
Company may elect to terminate their employment and receive, in addition to
compensation earned to the date of his termination, a lump sum payment equal to
their annual base salary. If an officer is terminated by the Company within two
years after such takeover or change in control, such officer is also entitled to
compensation earned to the date of termination and a lump-sum payment equal to
his annual base salary.
Pension Arrangements
The Company and its subsidiaries do not have any pension arrangements in place
for the Named Executive Officers or any other officers.
<PAGE>
-5-
Summary Compensation Table
The following table sets forth all compensation paid in respect of the
individuals who were, at any time during the 1998, 1997 and 1996 financial years
of the Company, Chief Executive Officer of the Company or its subsidiaries and
the four most highly compensated executive officers among the Company and its
subsidiaries (collectively "Named Executive Officers"):
<TABLE>
Annual Compensation (in $Cdn)
------------------------------------------- Long Term
Compensation Awards
--------------------
Other Annual Securities Under
Years Ending Salary Bonus Compensation Options (#)
Name and Principal Position December 31 ($) ($) ($)
- --------------------------------------------------- --------------- -------------- ------------- -------------- --------------------
<S> <C> <C> <C> <C> <C>
Kenneth R. Miller 1998 180,632 Nil N/A 150,000
Chief Executive Officer 1997 115,436 Nil N/A 7,500
1996 106,242 Nil N/A 65,000
- --------------------------------------------------- --------------- -------------- ------------- -------------- --------------------
Erik Dysthe 1998 178,959 Nil N/A 50,000
Chairman of the Board 1997 115,008 4,370 N/A 7,500
1996 114,036 Nil N/A 10,000
- --------------------------------------------------- --------------- -------------- ------------- -------------- --------------------
Robert Campbell(1) 1998 135,000 106,532 N/A 35,000
Vice President, Telecommunications/Cable 1997 135,000 94,162 N/A 5,000
1996 67,286 130,000 N/A 25,000
- --------------------------------------------------- --------------- -------------- ------------- -------------- --------------------
Glenn Y. Kumoi(2) 1998 258,359 Nil N/A 5,000
General Counsel 1997 192,686 Nil N/A 4,000
1996 28,752 Nil N/A 7,500
- --------------------------------------------------- --------------- -------------- ------------- -------------- --------------------
Douglas Engerman(3) 1998 201,029 186,882(4) N/A 30,000
Vice President, Utilities 1997 94,065 208,395(5) N/A Nil
- --------------------------------------------------- --------------- -------------- ------------- -------------- --------------------
</TABLE>
(1) Mr. Campbell joined the Company in February 1996.
(2) Mr. Kumoi joined the Company in October 1996.
(3) Mr. Engerman joined the Company in July 1997.
(4)(5) Non-recurring bonus paid to Mr. Engerman in connection with the
Company's acquisition of Alliance Systems, Incorporated.
Stock Options
The following table sets forth stock options granted by the Company
during the financial year ended December 31, 1998 to any of the Named
Executive Officers:
<TABLE>
Option Grants During the Financial Year Ended December 31, 1998
- ------------------------------------------- ----------------- ---------------- ---------------- ------------------- ----------------
Name Securities % of Total Exercise or Market Value of Expiration Date
Under Options Options Granted Base Price Securities
Granted (#) to employees ($/Security) Underlying
in Financial Options on the
Year Date of Grant
($/Security)
- ------------------------------------------- ----------------- ---------------- ---------------- ------------------- ----------------
<S> <C> <C> <C> <C> <C>
Kenneth R. Miller 75,000 9.6% $15.50 $15.50 September 16,
Chief Executive Officer 75,000 9.6% $20.00 $20.00 2003
October 27, 2003
- ------------------------------------------- ----------------- ---------------- ---------------- ------------------- ----------------
Erik Dysthe 50,000 6.4% $15.50 $15.50 September 16,
Chairman of the Board 2003
- ------------------------------------------- ----------------- ---------------- ---------------- ------------------- ----------------
Robert Campbell 35,000 4.5% $20.00 $20.00 February 28,
Vice President, Telecommunications/Cable 2003
- ------------------------------------------- ----------------- ---------------- ---------------- ------------------- ----------------
Glenn Y. Kumoi 5,000 0.6% $15.50 $15.50 September 16,
General Counsel 2003
- ------------------------------------------- ----------------- ---------------- ---------------- ------------------- ----------------
Douglas Engerman 30,000 3.9% $15.50 $15.50 September 16,
Vice President, Utilities 2003
- ------------------------------------------- ----------------- ---------------- ---------------- ------------------- ----------------
</TABLE>
<PAGE>
-6-
The following table sets forth details of each exercise of stock options during
the financial year ended December 31, 1998 by any of the Named Executive
Officers, and the financial year end value of unexercised options on an
aggregate basis:
<TABLE>
Aggregated Options Exercised During the Financial Year Ended December 31, 1998
And Financial Year-End Option Values
- ---------------------------------------------- --------------- ---------------- --------------------- ------------------------------
Name Securities Aggregate Unexercised Options Value of Unexercised in the
Acquired on Value Realized At FY-End (#) Money-Options at FY-End
Exercise (#) ($) Exercisable/ ($) Exercisable/
Unexercisable Unexercisable (1)
- ---------------------------------------------- --------------- ---------------- --------------------- ------------------------------
<S> <C> <C> <C> <C>
Kenneth R. Miller Nil Nil 98,333 (exercisable) $1,220,266 (exercisable)
Chief Executive Officer 124,167(unexercisable) $1,161,284 (unexercisable)
- ---------------------------------------------- --------------- ---------------- --------------------- ------------------------------
Erik Dysthe Nil Nil 49,530 (exercisable) $604,460 (exercisable)
Chairman of the Board 30,002 (unexercisable) $361,371 (unexercisable)
- ---------------------------------------------- --------------- ---------------- --------------------- ------------------------------
Robert Campbell Nil Nil 28,194 (exercisable) $447,163 (exercisable)
Vice President, Telecommunications/Cable 36,806 (unexercisable) $273,337 (unexercisable)
- ---------------------------------------------- --------------- ---------------- --------------------- ------------------------------
Glenn Y. Kumoi Nil Nil 7,624 (exercisable) $75,597 (exercisable)
General Counsel 8,876 (unexercisable) $91,653 (unexercisable)
- ---------------------------------------------- --------------- ---------------- --------------------- ------------------------------
Douglas Engerman Nil Nil 0 (exercisable) $0 (exercisable)
Vice President, Utilities 30,000 (unexercisable) $360,000 (unexercisable)
- ---------------------------------------------- --------------- ---------------- --------------------- ------------------------------
</TABLE>
(1) Based on TSE closing price of $27.50 on December 31, 1998.
Compensation of Directors
In November 1998 the Company commenced paying its outside directors a meeting
stipend of US$2,500 for each board meeting they attended in person and US$1,000
for certain committee meetings. During the financial year ended December 31,
1998, the directors of the Company received aggregate cash compensation of
$24,134 for their services. The Directors were also reimbursed for actual
expenses reasonably incurred in connection with the performance of their duties
as Directors.
Directors were also eligible to receive stock options issued pursuant to the
Company's Stock Option Plan and in accordance with rules and policies of The
Toronto Stock Exchange. On February 26, 1998, one Director was granted 30,000
stock options vesting over three years at an exercise price of $20.00 and five
Directors were each granted 3,000 stock options with immediate vesting at an
exercise price of $20.00. On September 17, 1998 three Directors were each
granted 3,000 stock options vesting over two years at an exercise price of
$15.50. These stock options are subject to the grantee being a Director on the
date of vesting.
INDEBTEDNESS OF DIRECTORS, EXECUTIVE OFFICERS AND SENIOR OFFICERS
No director, executive officer, senior officer, proposed nominee for election as
a director or associate or affiliate of any such director, senior officer or
proposed nominee, is currently indebted to the Company or its subsidiaries.
INTEREST OF INSIDERS IN MATERIAL TRANSACTIONS
Other than as disclosed in this Management Proxy Circular, no insider, proposed
nominee for election as a director, or any associate or affiliate of the
foregoing, had any material interest, direct or indirect, in any transaction or
proposed transaction since the commencement of the Company's 1996 fiscal year
which has materially affected or would materially affect the Company or any of
its subsidiaries.
<PAGE>
-7-
PERFORMANCE GRAPH
The Company's Common shares commenced trading on The Toronto Stock Exchange
(TSE) and Montreal Exchange (ME) on December 20, 1995 and, as a result, the
performance graph illustrates the performance of the Company's shares for the
1998, 1997 and 1996 fiscal years only. Trading on The Nasdaq National Market
commenced on November 26, 1996.
The following graph shows a $100 investment in MDSI shares over a three-year
period compared with a similar investment in the TSE 300 companies over the same
period. The graph assumes reinvestment of all dividends.
COMPARISON OF THREE-YEAR TOTAL
RETURN BETWEEN THE COMPANY AND TSE 300
<TABLE>
----------------------------- ------------------- ------------------- ------------------- -------------------
December 31, December 31, December 31, December 31,
1995 1996 1997 1998
----------------------------- ------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
TSE 300 100 125.74 142.32 137.78
MDSI 100 220.51 276.92 282.05
</TABLE>
CORPORATE GOVERNANCE
The Company's approach to corporate governance is set forth below.
Mandate of the Board
The mandate of the board of directors is to supervise the management of the
business and affairs of the Company. In fulfilling its mandate, the board is
responsible for, among other things:
(a) adoption of a strategic planning process;
(b) identification of the principal risks of the Company's business and
ensuring the implementation of the appropriate systems to manage these
risks;
(c) succession planning for the Company including appointing, training and
monitoring senior management;
(d) a communications policy for the Company; and
(e) the integrity of the Company's internal control and management information
systems.
<PAGE>
-8-
The frequency of meetings of the board, as well as the nature of the items
discussed, depend upon the state of the Company's affairs and the opportunities
or risks which the Company faces.
Composition of the Board
The TSE Committee on Corporate Governance's report (the "TSE Report") issued in
February 1995 recommends that a board of directors be constituted with a
majority of individuals who qualify as "unrelated directors". The TSE Report
defines an unrelated director as a director who is independent of management and
is free from any interest and any business or other relationship which could, or
could reasonably be perceived to, materially interfere with the director's
ability to act with a view to the best interests of the corporation, other than
interests and relationships arising from shareholdings. The TSE Report also
recommends that in circumstances where a corporation has a "significant
shareholder" (that is, a shareholder with the ability to exercise the majority
of the votes for the election of the directors attached to the outstanding
shares of the corporation) the board of directors should include a number of
directors who do not have interests in or relationships with either the
corporation or the significant shareholder and which fairly reflects the
investment in the corporation by shareholders other than the significant
shareholder.
The directors have examined the relevant definitions in the TSE Report and have
individually considered their respective interests and relationships in and with
the Company. As a consequence, the board has determined that of its eight
directors, six are unrelated directors and two are related directors. Messrs.
Dysthe and Miller are each "inside directors" (i.e. directors who are officers
and/or employees of the Company or any of its affiliates) and are, by
definition, "related directors". The Company does not have a significant
shareholder (as defined). The board considers its size of eight directors to be
appropriate at the current time.
In response to the TSE Report, the board created a Corporate Governance and
Nominating Committee which is responsible for, among other things, the Company's
response to the TSE Report. The Company currently also has an Audit Committee
and a Compensation Committee. Set out below is a description of the committees
of the board, their mandates and their activities
Corporate Governance and Nominating Committee
The Corporate Governance and Nominating Committee is responsible for the
Company's response to the TSE Report and for monitoring and assessing the
corporate governance system in place in the Company. The committee also monitors
the Company's corporate disclosure policy and business conduct policy for its
directors and officers as well as the effectiveness of the board, its size and
composition, its committees and the individual performance of its directors. The
committee is also responsible for identifying and recommending potential
appointees to the board. The committee further ensures that an annual strategic
planning process and review is carried out and periodically reviews the
directors and officers third party liability insurance to ensure adequacy of
coverage. The committee also approves an appropriate orientation and education
program for new recruits to the board of directors.
The Corporate Governance and Nominating Committee is composed of six directors,
all of whom are unrelated directors. They are Marc Rochefort, Robert C. Harris,
Jr., Gerald F. Chew, Bruno Ducharme, Terrence P. McGarty and John T. McLennan.
Audit Committee
The Audit Committee reviews the annual and interim financial statements of the
Company and certain other public disclosure documents required by regulatory
authorities and makes recommendations to the board with respect to such
statements and documents. The committee also makes recommendations to the board
regarding the appointment of independent auditors, reviews the nature and scope
of the annual audit as proposed by the auditors and management, reviews with
management the risks inherent in the Company's business and risk management
programs relating thereto and assesses the auditors' performance. The committee
also reviews with the auditors and management the adequacy of the internal
accounting control procedures and systems within the Company. The Audit
Committee is composed of three directors, Terrence P. McGarty, Gerald F. Chew
and Bruno Ducharme, all of whom are unrelated directors.
<PAGE>
-9-
Compensation Committee
The mandate of the Compensation Committee is to ensure the ongoing and long-term
development and deployment of high caliber senior management resources. The
committee also ensures that compensation policy and practice is supportive of
the Company's business strategies and that the relationship between senior
management performance and compensation is appropriate. The committee is also
charged with administering the Stock Option Plan and the Stock Purchase Plan of
the Company. The committee reviews human resource matters with emphasis on
overall strategy and programs relating to recruitment, development and
continuity of personnel as well as the succession of senior management other
than the Chairman and the Chief Executive Officer. The Compensation Committee is
composed of three directors, Robert C. Harris, Jr., Gerald F. Chew and Kenneth
R. Miller, the majority of whom are unrelated directors.
Independence from Management
Mr. Erik Dysthe, the Chairman of the Board, is also a member of management. The
TSE Report states that the independence of a board is most simply assured by
appointing a chair who is not a member of management. The Corporate Governance
and Nominating Committee and the board of directors have considered the issue of
having an independent Chairman of the Board. Given the number of unrelated
directors on the board and the fact that, commencing in February 1996, Mr.
Kenneth R. Miller was appointed as President of the Company (and he was
subsequently appointed as the Chief Executive Officer in November 1998) and that
the Corporate Governance and Nominating Committee is comprised of all of the
Company's outside directors who meet independently at least two times a year,
the board supports Mr. Dysthe's continued chairmanship.
Decisions requiring Prior Approval
In addition to those matters which must by law or by the by-laws of the Company
be approved by the board, management is required to seek board approval for
major transactions, whether in the ordinary course of business or not.
Other
The Company considers its orientation and education program for new directors to
be an important element in ensuring responsible corporate governance. In
addition to extensive discussions with respect to the business and operations of
the Company, a new director receives records of historical public information on
the Company together with the mandates and prior minutes of applicable
committees of the board. In addition, board meetings are regularly held at the
Company's office in order to assist the directors in better understanding the
Company's operations.
Through its investor relations department, the Company receives and responds to
shareholder inquiries. Shareholder inquiries and concerns are dealt with
promptly by senior management of the Company. To date, the board has not been
required to take an active role in responding to shareholder inquiries and
concerns.
In certain circumstances it may be appropriate for an individual director to
engage an outside advisor at the expense of the Company. The engagement of the
outside advisor would be subject to the approval of the Corporate Governance and
Nominating Committee.
APPOINTMENT OF AUDITORS
The management of the Company will recommend to the Meeting to appoint Deloitte
& Touche as auditors of the Company and to authorize the directors to fix their
remuneration. Deloitte & Touche were first appointed auditors of the Company on
September 11, 1995.
<PAGE>
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SPECIAL BUSINESS
A. Approval of 1999 Stock Option Plan
On February 25, 1999, the Company established, subject to shareholder and
regulatory approval, a share compensation arrangement known as the 1999 Stock
Option Plan to replace its existing 1998 Stock Option Plan. Its purpose was to
provide an incentive to the directors, officers, employees, consultants and the
members from time to time of any advisory board created by the Company, to
continue their involvement with the Company and increase their efforts on its
behalf. A full copy of the 1999 Stock Option Plan will be available at the
Meeting for review by shareholders. Shareholders may also obtain a copy of the
1999 Stock Option Plan from the Company prior to the Meeting, on request.
The 1999 Stock Option Plan is administered by the Compensation Committee which
has been appointed by the board from among its own members and consists of three
(3) members. The maximum number of shares reserved for issuance under the 1999
Stock Option Plan is 2,100,000 common shares (compared with 1,850,000 common
shares under the 1998 Stock Option Plan), of which 1,570,257 options have been
granted and are outstanding as of the date hereof under the existing 1998 Stock
Option Plan and will be grand-fathered under the 1999 Stock Option Plan. The
proposed maximum number represents approximately 29% of the Company's
outstanding shares. It is the intention of the Company on an annual basis to
maintain the number of shares reserved for issuance under all of its share
compensation arrangements, including the 1999 Stock Option Plan described above,
at approximately 30% of its outstanding shares. The 1999 Stock Option Plan
provides the Compensation Committee with the discretion to permit payment for
options exercised by delivery of the optionee's personal recourse note bearing
interest at a rate deemed by the Committee.
Between the period January 1, 1997, to February 25, 1999, 241,487 stock options
granted by the Company under its predecessor stock option plans were exercised.
Once exercised, these options are not available to be granted by the Company
until re-authorized. Accordingly, on February 25, 1999 the Company, subject to
shareholder and regulatory approval, reserved for issuance 241,487 common shares
(the "Replacement Options") under the 1999 Stock Option Plan to replace those
stock options exercised during the foregoing period under the predecessor plans,
as well as reserving for issuance the additional 250,000 common shares required
to increase the maximum number of shares issuable under the plan from 1,850,000
to 2,100,000.
Shareholder Approval
Management will be asking shareholders to approve the 1999 Stock Option Plan and
the number of shares reserved for issuance under it, including the Replacement
Options. The rules of the TSE provide that where a proposed share compensation
arrangement, together with all of a company's other previously established or
proposed share compensation arrangements, could result, at any time, in:
(a) the number of shares reserved for issuance pursuant to stock options
granted to insiders exceeding 10% of the company's issued and outstanding
share capital;
(b) the issuance to insiders, within a one-year period, of a number of shares
exceeding 10% of the company's issued and outstanding share capital; or
(c) the issuance to any one insider and such insider's associates, within a
one-year period, of a number of shares exceeding 5% of the company's issued
and outstanding share capital;
then the share compensation arrangement must be approved by a majority of the
votes cast at the shareholders' meeting other than votes attaching to securities
beneficially owned by:
(d) insiders to whom shares may be issued pursuant to the share compensation
arrangement; and
(e) associates of persons referred to in sub-paragraph (d).
<PAGE>
-11-
This is referred to as a "disinterested shareholder" vote. Since the aggregate
number of shares reserved for issuance under the 1999 Stock Option Plan may
exceed the limits as set out above, the policy of the TSE requires the Company
to obtain approval of the 1999 Stock Option Plan by the disinterested
shareholders, as a group. The following resolutions will be put to the
shareholders for a vote. To the best knowledge of management, as of March 25,
1999, insiders eligible to participate in the 1999 Stock Option Plan and their
associates beneficially own a total of 1,355,583 common shares of the Company.
"IT IS HEREBY RESOLVED BY ORDINARY RESOLUTION OF THE SHAREHOLDERS OF THE COMPANY
THAT:
1. the Company be authorized to grant stock options, including the Replacement
Options, pursuant and subject to the terms and conditions of the 1999 Stock
Option Plan entitling the option holders to purchase common shares of the
Company;
2. the Compensation Committee be authorized to make such amendments to the
1999 Stock Option Plan from time to time, as may, in its discretion, be
considered appropriate, provided always that such amendments be subject to
the approval of all applicable regulatory authorities; and
3. any one director or senior officer of the Company be and he is hereby
authorized and directed to perform all such acts, deeds and things and
execute, under the seal of the Company, if applicable, all such documents
and other writings as may be required to give effect to the true intent of
the foregoing resolutions."
B. Approval of 1999 Stock Purchase Plan
Effective April 1, 1998 the Company established a share compensation arrangement
for its employees known as the 1998 Stock Purchase Plan (the "Purchase Plan"),
which was approved by the shareholders on May 7, 1998. The purpose of the
Purchase Plan is to provide an incentive to the employees of the Company to
continue their involvement with the Company and increase their efforts on its
behalf. The Plan provides for all full and part-time employees of the Company to
purchase the Company's common shares (the "Shares") by payroll deductions up to
a maximum of $10,000 per year. Enrollment in the Plan is voluntary. At the
commencement of every MDSI fiscal quarter, a subscription price for the Shares
is established by the Company, and thereafter employees wishing to participate
in the Plan enter into a subscription agreement with the Company for Shares. The
subscription price is determined by reference to the greater of: (i) the TSE
weighted average of Company's common shares for the first five (5) business days
in the third month of the most recently completed fiscal quarter of the Company
prior to the commencement date of the payroll deduction period, less fifteen
percent (15%), or (ii) the TSE average of the Company's common shares on the
fifth business day in the third month of the most recently completed fiscal
quarter of the Company prior to the commencement date of the payroll deduction
period, less fifteen percent (15%).
At the end of each of the Company's fiscal quarters in which an employee has
subscribed for Shares, the employee has the following options with respect to
his contributions:
(a) Authorize the Company to convert the total contribution to Shares at the
previously established subscription price for that quarter, and require the
Company to issue such Shares to the employee; or
(b) Authorize the Company to continue to hold the total contribution in trust
for that employee to be applied against future purchases of Shares at the
subscription price to be established for the future fiscal quarter in which
the employee elects to purchase the Shares, as instructed by the employee
from time to time.
The Purchase Plan has two components: employees can purchase Shares either
through the "MDSI Purchase Plan" or the BC Government's Employee Share Purchase
Program (the "ESOP"). The MDSI Purchase Plan provides for all employees to
purchase Shares in the Company through payroll deduction. All shares purchased
by employees under this part of the Plan are subject to a six-month hold period
from the date the Shares are issued. The ESOP provides for employees who are
residents of British Columbia to purchase Shares through payroll deduction and
receive provincial tax credits. All Shares purchased by employees under the ESOP
will be governed by the rules of the Employee Investment Act of British Columbia
and are subject to a three-year hold period from the date the Shares are issued.
The Purchase Plan terminates on the earlier of March 31, 2008 and such other
date as the board may determine. The Purchase Plan is administered by the
Compensation Committee. All decisions of the Compensation Committee are approved
by its members on a majority vote basis and are binding and conclusive for all
purposes and upon all persons.
<PAGE>
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The maximum number of shares reserved for issuance under the Purchase Plan is
100,000 Shares. Since commencement of the original Stock Purchase Plan on July
1, 1996, 58,869 common shares have been issued by the Company to its employees.
Once issued, these common shares are not available to be re-issued until
re-authorized by the Company and its shareholders. Accordingly, on February 25,
1999 the Company, subject to shareholder and regulatory approval, reserved for
issuance 58,869 Shares (the "Replacement Shares") under the Purchase Plan to
replace those Shares issued during the foregoing period under the Purchase Plan
and its predecessos and to provide for an aggregate of 100,000 Shares being
available for issuance. As a result of this change, the Purchase Plan has been
re-named the 1999 Stock Purchase Plan.
A full copy of the 1999 Stock Purchase Purchase Plan will be available at the
Meeting for review by Shareholders. Shareholders may also obtain a copy of the
1999 Stock Purchase Purchase Plan from the Company prior to the Meeting, on
request.
Shareholder Approval
Management will be asking shareholders to approve the 1999 Stock Purchase Plan
and the reservation for issuance of the Replacement Shares under the 1999 Stock
Purchase Plan. TSE policy requires the Company to obtain approval of the
Replacement Shares by the disinterested shareholders, as described above. The
following resolutions will be put to the shareholders for a vote. To the best
knowledge of management, as of March 25, 1999, insiders eligible to participate
in the 1999 Stock Purchase Purchase Plan and their associates beneficially own a
total of 1,334,220 shares of the Company.
"IT IS HEREBY RESOLVED BY ORDINARY RESOLUTION OF THE SHAREHOLDERS OF THE COMPANY
THAT:
1. the Company be authorized to allot and issue the Replacement Shares
pursuant to the 1999 Stock Purchase Plan, subject to the terms and
conditions of the 1999 Stock Purchase Plan;
2. the Compensation Committee be authorized to make such amendments to the
1999 Stock Purchase Plan from time to time, as may, in its discretion, be
considered appropriate, provided always that such amendments be subject to
the approval of all applicable regulatory authorities; and
3. any one director or officer of the Company be and he is hereby authorized
and directed to perform all such acts, deeds and things, and execute under
the seal of the Company, if applicable, all such documents and other
writings as may be required to give effect to the true intent of all of the
foregoing resolutions."
C. Approval of Shareholder Rights Plan
At the Meeting, shareholders will be asked to approve, ratify and confirm, with
or without variation, the adoption of a shareholder rights plan (the "Rights
Plan"). The present terms and conditions of the Rights Plan are set out in the
shareholder rights plan agreement (the "Rights Agreement") dated as of December
17, 1998 between the Company and Montreal Trust Company of Canada (the "Rights
Agent"), a copy of which is attached as Appendix "A" to this Management Proxy
Circular.
Confirmation by Shareholders
While the Rights Plan became effective upon the entering into of the Rights
Agreement on December 17, 1998, the Rights will terminate if the Rights
Agreement is not approved, with or without variation, at the Meeting by a
majority of the votes cast by independent shareholders. In effect, all
shareholders will be considered "independent" provided that they are not, at the
relevant time, making a takeover bid for the Company.
<PAGE>
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Recommendation of the Board of Directors
In adopting the Rights Plan, the Board of Directors considered the
appropriateness of establishing a shareholders' rights plan and concluded that
it was in the best interests of the Company and its shareholders to adopt the
such a plan. Accordingly, the Board of Directors unanimously recommends that
shareholders approve the Rights Agreement by voting in favour of the resolution
attached as Appendix "B".
Purpose of the Rights Plan
The Board of Directors has adopted the Rights Plan in recognition that takeover
bids often do not result in shareholders receiving equal treatment or fair and
full value for their shares. The Rights Plan was adopted to provide the Board of
Directors with sufficient time to consider any takeover bid made for the Common
shares of the Company and, if appropriate, to explore and develop alternatives
to maximize shareholder value and to ensure that any such offer would be made to
all shareholders and treat all shareholders equally. Neither at the time of the
adoption of the Rights Plan nor at the time of this Management Proxy Circular
was the Board aware of any pending or threatened takeover bid or offer for the
Common shares of the Company. It was not the intention of the Board in adopting
the Rights Plan to secure the continuance in office of the existing members of
the Board or to avoid an acquisition of control of the Company in a transaction
that is considered to be fair and in the best interests of the shareholders. The
rights of shareholders under existing law to seek a change in the management of
the Company or to influence or promote action of management in a particular
manner will not be affected by the Rights Plan.
The Board believes that under the rules relating to takeover bids and tender
offers in Canada and the United States there may be insufficient time allowed to
directors to fully assess offers and develop alternatives for shareholders such
as possible higher offers or corporate restructurings. The result may be that
shareholders fail, in the absence of the Rights Plan, to realize the maximum
value for their Common shares. Additionally, a potential acquiror could obtain
effective control of the Company through a series of transactions with specific
shareholders and not make an offer available to all shareholders. The Board is
of the view that the Rights Plan will encourage persons seeking to acquire
control of the Company to do so by means of a public takeover bid or offer
available to all shareholders. The Board believes that the Rights Plan will
likely deter unfair, coercive bid tactics and strategies that do not treat all
shareholders equally. Recent decisions of certain Canadian securities regulatory
authorities and courts indicate that a shareholder rights plan can be
appropriately used for these purposes.
The objective of enhancing shareholder value in the context of an unsolicited
takeover bid requires that the directors of the Company have a reasonable time
to make the assessments necessary both of the bid as well as the other
alternatives available. In responding to a bona fide takeover bid, the
directors, as the representatives of the Company, have the responsibility to
assess the takeover bid and to consider the bid in light of the best interests
of the Company and its shareholders. The Board's' access to all material
information regarding the Company and its familiarity with the Company's
corporate strategies and alternatives ensures that it is well positioned to
assess any takeover bid and the availability of higher value alternative
transactions. This may result in the Rights Plan remaining in place for a period
of time while the Board develops or assesses higher value alternatives, even if
a majority of the outstanding Common shares have been tendered to a bid.
Background of the Rights Plan
On November 5, 1998, the board of directors (the "Board) authorized the
Company's Corporate Governance and Nominating Committee to consider and make
recommendations to the Board regarding the development of a shareholder rights
plan. With the consent of the Board, Warburg Dillon Read, Bogle & Gates
P.L.L.C., and Reid & Company were retained to provide advice regarding the
establishment and structure of a shareholder rights plan. On December 17, 1998,
after receiving advice from such committee and the Company's outside advisors,
the Board approved the Rights Agreement.
In its consideration of shareholder rights plans, such committee, the Board and
its advisors considered the shareholder rights plans recently adopted by other
public companies in Canada and the United States, as well as recent experience
in rights plans in the context of unsolicited takeover bids. This review led the
Board to the conclusion that:
(a) shareholder rights plans have been a valuable tool in enabling boards of
directors to enhance shareholder value in the face of unsolicited takeover
bids;
(b) shareholder rights plans do not materially discourage the making of
takeover bids; and
<PAGE>
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(c) any shareholder rights plan must be structured to address the concerns of
shareholders and investment industry commentators on a basis consistent
with the valid objectives of a shareholder rights plan.
The Board of Directors believes that the Rights Plan addresses these issues.
Summary Description of the Rights Plan
The following is a summary description of the operation of the Rights Plan. This
summary is qualified in its entirety by reference to the text of the Rights
Agreement which is attached as Appendix "A" to this Management Proxy Circular.
Capitalized terms used but not defined below have the meanings ascribed to them
in the Rights Agreement.
The Rights
The Rights were issued pursuant to the Rights Agreement between the Company and
the Rights Agent. Each Right entitles the registered holder thereof to purchase
from the Company on the occurrence of certain events, one common share at the
price of CDN$140 per share, subject to adjustment (the "Exercise Price").
However, if a Flip-in Event occurs, each Right would then entitle the registered
holder to receive, upon payment of the Exercise Price, that number of common
shares that have a market value at the date of that occurrence equal to twice
the Exercise Price. The Rights are not exercisable until the Separation Time (as
defined below).
Overview of the Rights Plan
The Rights Plan utilizes the mechanism of the Permitted Bid to ensure that a
person seeking control of the Company provides both the Company's shareholders
and the board with sufficient time to evaluate the bid. The purpose of the
Permitted Bid is to allow a potential bidder to avoid the dilutive features of a
Rights Plan by making a bid in conformity with the conditions specified in the
Permitted Bid provisions. If a person makes a takeover bid that is a Permitted
Bid, the Rights Plan will not affect the transaction in any respect.
The Rights Plan should not deter a person seeking to acquire control of the
Company if that person is prepared to make a takeover bid pursuant to the
Permitted Bid requirements or is prepared to negotiate with the board of
directors. Otherwise, a person will likely find it impractical to acquire 20% or
more of the outstanding common shares because the Rights Plan will substantially
dilute the holdings of a person or group that seeks to acquire such an interest
other than by means of a Permitted Bid or on terms approved by the board of
directors. When a person or group or their transferees become an Acquiring
Person, the Rights Beneficially Owned by those persons become void, thereby
permitting their holdings to be diluted. The possibility of such dilution is
intended to encourage such a person to make a Permitted Bid or to seek to
negotiate with the board the terms of an offer which is fair to all
shareholders.
The Rights Plan will not prevent shareholders from disposing of their common
shares through any takeover bid or tender offer for the Company. The directors
will continue to be bound to consider fully and fairly any bona fide takeover
bid or offer for the common shares of the Company and to discharge that
responsibility with a view to the best interests of the shareholders.
The issuance of the Rights will not alter the financial condition of the
Company, impose tax liabilities upon it or interfere with its business plans.
The existence of the Rights themselves is not dilutive, will not affect reported
earnings per share and will not change the way in which shareholders currently
trade common shares.
Shareholder rights plans have been adopted by a large number of publicly held
corporations in Canada and the United States. The terms of the Rights Plan are
similar to those recently adopted by other Canadian companies.
<PAGE>
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Trading of Rights
Until the Separation Time (as defined below), the Rights will be evidenced only
by the register maintained by the Rights Agent and outstanding common share
certificates. The Rights Plan provides that, until the Separation Time, the
Rights will be transferred with and only with the associated common shares.
Until the Separation Time, or earlier termination or expiration of the Rights,
each new share certificate issued after the Record Time, upon transfer of
existing common shares or the issuance of additional common shares, will display
a legend incorporating the terms of the Rights Agreement by reference. As soon
as practicable following the Separation Time, separate certificates evidencing
the Rights ("Rights Certificate") will be mailed to the holders of record of
common shares as of the close of business at the Separation Time, and thereafter
the Rights Certificates alone will evidence the Rights.
Acquiring Person and Flip-in Event
An Acquiring Person is, generally, a person who beneficially owns 20% or more of
the outstanding common shares of the Company. The Rights Agreement provides
certain exceptions to that rule, including a person who acquires 20% or more of
the outstanding common shares through a Permitted Bid Acquisition, an Exempt
Acquisition or in its capacity as Investment Manager, Trust Company, Plan
Trustee or Statutory Body, provided in these latter instances that the person is
not making or proposing to make a takeover bid. The term Acquiring Person does
not include the Company or any subsidiary of the Company. If a person becomes an
Acquiring Person (a "Flip-in Event"), each Right will generally convert into the
right to purchase from the Company, upon exercise, a number of common shares
having an aggregate Market Price on the date of the Flip-in Event equal to twice
the Exercise Price for an amount in cash equal to the Exercise Price.
Separation Time
The Separation Time is the close of business on the tenth day after the earlier
of (i) the "Stock Acquisition Date", which is generally the first date of public
announcement of facts indicating that a person has become an Acquiring Person;
(ii) the date of commencement of, or first public announcement of the intent of
any person (other than the Company or any subsidiary of the Company) to commence
a Takeover Bid (other than a Permitted Bid or a Competing Permitted Bid); and
(iii) the date on which a Permitted Bid ceases to be a Permitted Bid. In any of
the above cases, the Separation Time can be such later business day as may from
time to time be determined by the Board of Directors. If a Takeover Bid expires,
is cancelled, terminated or otherwise withdrawn prior to the Separation time, it
shall be deemed never to have been made.
Permitted Bid
A Flip-in Event does not occur if a takeover bid is a Permitted Bid. A Permitted
Bid is a Takeover Bid, made by means of a takeover bid circular, which, among
other things:
(a) is made for all common shares to all holders of record of common shares as
registered on the books of the Company (other than the Offeror);
(b) contains, and the take-up and payment for common shares tendered or
deposited is subject to, an irrevocable and unqualified condition that no
common shares will be taken up or paid for pursuant to the Takeover Bid
prior to the close of business on the 60th day following the date of the
Takeover Bid;
(c) contains irrevocable and unqualified provisions that, unless the Takeover
Bid is withdrawn, all common shares may be deposited pursuant to the
Takeover Bid at any time prior to the close of business on the date of
first take-up or payment for common shares under the bid and that all
common shares deposited pursuant to the Takeover Bid may be withdrawn at
any time prior to the close of business on such date;
(d) contains an irrevocable and unqualified provision that no common shares
will be taken up or paid for under the bid if less than 50% of the then
outstanding common shares held by independent shareholders have been
deposited under the bid; and
(e) contains an irrevocable and unqualified provision that, should the
condition referred to in clause (d) be met, the Offeror will make a public
announcement of that fact and the Takeover Bid will be extended on the same
terms for a period of not less than 10 business days from the date of such
public announcement.
<PAGE>
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The Rights Plan also provides for a "Competing Permitted Bid", which is a
Takeover Bid, made while another Permitted Bid is outstanding, that satisfies
all of the requirements of a Permitted Bid other than the requirements of clause
(b). The Competing Permitted Bid must expire no earlier than the later of (i)
the date on which common shares may be taken up under the Permitted Bid which
preceeded the Competing Permitted Bid; and (ii) 21 days following the date of
commencement of the Competing Permitted Bid.
Takeover Bid
A Takeover Bid is defined in the Rights Plan as an offer to acquire common
shares or other securities convertible into common shares, where the common
shares subject to the offer to acquire, together with the common shares into
which the securities subject to the offer to acquire are convertible, and the
Offeror's Securities, constitute in the aggregate 20% or more of the outstanding
common shares at the date of the offer.
Redemption and Waiver
At any time prior to the occurrence of a Flip-in Event, the board may redeem
all, but not part, of the outstanding Rights at a redemption price of $0.0001
per Right, subject to appropriate adjustment in certain events.
The board may, prior to the occurrence of a Flip-in Event, waive the application
of the Flip-in Event provisions to a transaction that would otherwise be subject
to those provisions, provided that such Flip-in Event occurs by way of a
Takeover Bid made by means of a takeover bid circular to all shareholders of
record. If a waiver is granted, the board of directors will have been deemed to
have waived the application of the Flip-in Event provisions to all other
Takeover Bids made by takeover bid circular to all holders of record of common
shares which are made prior to the expiration of any Takeover Bid in respect of
which a waiver is, or is deemed to have been, granted. The board may also, in
respect of any Flip-in Event, waive the application of the Flip-in Event
provisions to such Flip-in Event, where the Acquiring Person became such by
inadvertence.
Amendments
The Company may, from time to time make amendments to the Rights Agreement in
order to correct any clerical or typographical error or which are required to
maintain the validity of the Rights Agreement as a result of any change in any
applicable legislation, regulations or rules thereunder. The Company may also,
prior to shareholder approval of the Rights Plan at the Meeting, supplement or
amend the Rights Agreement without the approval of any holders of Rights or
common shares to make any changes which the board may deem necessary or
desirable, provided that no such supplement or amendment shall be made to the
provisions relating to the Rights Agent except with the concurrence of the
Rights Agent. Any supplement, amendment or variance made after the date of the
approval of the Rights Plan but prior to the Separation Time may only be made
with the prior consent of the "independent shareholders" (essentially all
shareholders other than an acquiring Person and related parties) provided that
no such supplement, amendment or variance shall be made to the provisions
relating to the Rights Agreement except with the concurrence of the Rights
Agent. Any supplement or amendment made on or after the Separation time may only
be made with the prior consent of the holders of Rights provided that no such
supplement, amendment or variance shall be made to the provisions relating to
the Rights Agreement except with the concurrence of the Rights Agent. In
addition, any amendment to the Rights Agreement is subject to the prior written
consent of The Toronto Stock Exchange and the Montreal Exchange.
Term
The Rights Plan became effective on December 17, 1998 and will terminate if not
ratified by a resolution passed by a majority of greater than 50 per cent of the
votes cast by independent shareholders at the Meeting. The Rights expire on
December 17, 2003, unless earlier redeemed by the board.
See Appendix "B" for the text of the resolution to approve the Rights Agreement.
<PAGE>
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PARTICULARS OF OTHER MATTERS TO BE ACTED UPON
Management of the Company knows of no matters to come before the Meeting other
than those referred to in the Notice of Meeting accompanying this Management
Proxy Circular. However, if any other matters properly come before the Meeting,
it is the intention of the persons named in the form of proxy accompanying this
Management Proxy Circular to vote the same in accordance with their best
judgement of such matters.
GENERAL
All matters referred to herein for approval by the shareholders require a simple
majority of the shareholders voting (disinterested, where applicable), in person
or by proxy, at the Meeting.
AVAILABILITY OF DOCUMENTS
The Company will provide to any person or company one copy of any of the
following documents:
(a) the latest annual information form of the Company, together with any
document, or the pertinent pages of any document, incorporated therein
by reference, filed with the applicable regulatory authorities;
(b) the comparative financial statements of the Company for its most
recently completed financial year in respect of which financial
statements have been issued together with the accompanying report of
the auditor and any interim financial statements of the Company, filed
with the applicable regulatory authorities subsequent to the filing of
the annual financial statements; and
(c) the information circular of the Company in respect of its most recent
annual meeting of shareholders that involved the election of
directors, filed with the applicable regulatory authorities.
Copies of the above documents will be provided free of charge to security
holders of the Company upon request to the Corporate Secretary at the Company's
head office: 10271 Shellbridge Way, Richmond, British Columbia, V6X 2W8.
Telephone number: (604) 207-6000; fax number (604) 207-6060.
DIRECTORS' APPROVAL
The contents and sending of this Management Proxy Circular have been approved by
the Directors of the Company.
DATED at Richmond, British Columbia, this 25th day of March, 1999.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Erik Dysthe
--------------------------------------------
Erik Dysthe
Chairman of the Board
<PAGE>
APPENDIX "B"
RESOLUTION APPROVING SHAREHOLDER RIGHTS PLAN AGREEMENT
BE IT RESOLVED THAT:
1. A Shareholder Rights Plan upon the terms and conditions set forth in the
Shareholder Rights Plan Agreement (the "Agreement") dated as of December
17, 1998 between MDSI Mobile Data Solutions Inc. (the "Company") and
Montreal Trust Company of Canada, as Rights Agent, as the same may be
amended prior to the date of the Annual General Meeting, is hereby
approved, ratified and confirmed; and
2. Any director or officer of the Company be and is hereby authorized to
execute and deliver in the name of and on behalf of the Company all such
certificates, instruments, agreements, notices and other documents and to
do all such other acts and things as in the opinion of such person may be
necessary or desirable in connection with the Agreement and the performance
by the Company of its obligations thereunder.
Exhibit 20.3
PROXY SOLICITED BY MANAGEMENT OF THE COMPANY FOR THE
ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON MAY 6, 1999
Name of Company: MDSI Mobile Data Solutions Inc. (the "Company")
Meeting Date: Thursday, May 6, 1999
Meeting Time: 10:00 a.m.
Meeting Location: Four Seasons Hotel, 791 W. Georgia Street, Vancouver, British
Columbia (the "Meeting")
The undersigned shareholder of the Company hereby appoints Erik Dysthe, Chairman
of the Board, or, failing him, Kenneth R. Miller, Chief Executive Officer, or,
in place of both of the foregoing, ----------------------------- (print name),
as nominee of the undersigned, to attend, vote and act for and in the name of
the undersigned at the Meeting and at every adjournment thereof. Unless
otherwise expressly stated herein by the undersigned, receipt of this proxy,
duly executed and dated, revokes any former proxy given to attend and vote at
the Meeting and any adjournment thereof.
UNLESS THE UNDERSIGNED DIRECTS OTHERWISE, THE NOMINEE IS HEREBY INSTRUCTED TO
VOTE THE COMMON SHARES OF THE COMPANY HELD BY THE UNDERSIGNED FOR THE FOLLOWING
MATTERS:
<TABLE>
FOR AGAINST FOR WITHHOLD
<S> <C> <C> <C> <C> <C>
1. To authorize the Directors to fix 4. To elect Erik Dysthe as a Director ----- ---------
the Auditors' remuneration ----- -------
2. To appoint Deloitte & Touche, as ----- ------- 5. To elect Kenneth R. Miller as a Director ----- ---------
the Auditors
3. To adopt a resolution fixing the ----- ------- 6. To elect Terrence P. McGarty as a Director ----- ---------
number of directors of the
Company at eight
7. To elect Robert C. Harris, Jr. as a
Director ----- ---------
8. To elect Gerald F. Chew as a Director ----- ---------
9. To elect Bruno Ducharme as a Director ----- ---------
10. To elect Marc Rochefort as a Director ----- ---------
11. To elect John T. McLennan as a Director ----- ---------
</TABLE>
SPECIAL BUSINESS FOR AGAINST
12. To approve the 1998 Stock Option Plan ----- ---------
13. To approve the 1999 Stock Purchase Plan ----- ---------
14. To approve the Shareholder Rights Plan ----- ---------
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED FOR OR AGAINST OR WITHHELD IN
RESPECT OF THE MATTERS LISTED IN ACCORDANCE WITH THE CHOICE, IF ANY, INDICATED
IN THE SPACE PROVIDED. IF NO CHOICE IS INDICATED, THE PROXY WILL BE VOTED FOR
SUCH MATTER.
[ ] IF ANY AMENDMENTS OR VARIATIONS ARE TO BE VOTED ON, OR ANY
FURTHER MATTERS COME BEFORE THE MEETING OR ANY ADJOURNMENT
THEREOF, THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED
ACCORDING TO THE BEST JUDGMENT OF THE PERSON VOTING THE
PROXY. THIS PROXY FORM SHOULD BE READ IN CONJUNCTION WITH
THE ACCOMPANYING NOTICE OF MEETING AND MANAGEMENT PROXY
CIRCULAR.
<PAGE>
The undersigned member hereby revokes any proxy previously
given to attend and vote at the Meeting.
Please sign here: ------------------------------
Date: ---------------------, 1999
This proxy form is not valid unless it is signed. To be
valid, this proxy form DULY EXECUTED AND DATED must arrive
at the offices of the Company's transfer agent, Montreal
Trust Company of Canada, not later than 5:00 p.m. on the
business day immediately prior to the Meeting or any
adjournment thereof, or delivered to the Chairman of the
Meeting prior to the commencement of the Meeting or an
adjourned meeting. The mailing address of Montreal Trust
Company of Canada is 4th Floor, 510 Burrard Street,
Vancouver, British Columbia, V6C 3B9 and its fax number is
(604) 683-3694.
NOTES:
1. YOU HAVE THE RIGHT TO APPOINT A PERSON TO REPRESENT YOU AT THE MEETING
OTHER THAN THE PERSONS DESIGNATED IN THE FORM OF PROXY. IF YOU WISH TO
EXERCISE THIS RIGHT, INSERT THE NAME OF YOUR NOMINEE IN THE BLANK SPACE
PROVIDED FOR THAT PURPOSE IN THE FORM OF PROXY AND STRIKE OUT THE TWO
PRINTED NAMES.
2. Please date and sign exactly as the shares are registered and return
promptly. If this proxy form is not dated in the space provided, this proxy
is deemed to bear the date on which it was mailed by the management of the
Company to the shareholders.
3. To be valid, this proxy form DULY EXECUTED must arrive at the offices of
the Company's transfer agent, Montreal Trust Company of Canada, Stock
Transfer Department, 4th Floor, 510 Burrard Street, Vancouver, British
Columbia, V6C 3B9, by not later than 5:00 p.m. on the business day
immediately prior to the Meeting (excluding Saturdays, Sundays and
holidays) or any adjournment thereof, or delivered to the Chairman of the
Meeting prior to the commencement of the Meeting or an adjourned meeting.
4. If the shareholder is a corporation, its name must be completed in the
signature section of the proxy and the proxy must be signed by a duly
authorized officer or attorney of the corporation and either the corporate
seal of the corporation affixed or the title of the duly authorized officer
completed.
5. The directors of the Company have determined by regulation that proxies may
be sent to Montreal Trust Company of Canada by mail, delivery or facsimile
or any method of transmitting legibly recorded messages so as to arrive
before the times specified in paragraph 3.
6. If you are a non-registered shareholder of the Company and receive these
materials through your broker or through another intermediary, please
complete and return the materials in accordance with the instructions
provided to you by your broker or by the other intermediary. Failure to do
so may result in your shares not being eligible to be voted by proxy at the
meeting. Please contact your broker or the Company if you have questions.
Exhibit 20.4
ANNUAL MEETING OF SHAREHOLDERS
National Policy No. 41 provides shareholders of MDSI Mobile Data Solutions Inc.
(the "Company") with the opportunity to elect to have their name added to the
supplemental mailing list in order to receive quarterly financial statements of
the Company.
If you wish to receive such statements or news releases for the ensuing year,
please complete and return this card to the Company.
Date: ----------------------- Check to indicate
Name: ----------------------- |_| Press Releases (via fax or email)
Address: -------------------- |_| Form 10-Q, Quarterly Reports
-------------------
Fax/Email: -----------------
Signature: -----------------
I certify that I am a registered shareholder
of a non-registered (beneficial) shareholder MDSI LOGO
of the Company. 10271 Shellbridge Way
Richmond, British Columbia
Canada V6X 2W8
Telephone (604) 207-6000
Note: As the supplemental mailing list will Facsimile (604) 207-6060
be updated each year, a return card will be Email [email protected]
required annually in order to remain on the
list.
Exhibit 20.5
MDSI MOBILE DATA SOLUTIONS INC.
1998 Annual Report
In today's rapidly changing business environments, many factors are catalyzing
new corporate strategies in multiple industries worldwide. Deregulation,
increased competition, mergers and acquisitions, globalization, and increasing
customer expectations are variously affecting enterprise business decisions.
MDSI(TM) is committed to leveraging its core competencies to help companies with
mobile resources develop proactive strategies to facilitate customer
acquisition, retention, and service innovation. MDSI draws upon the combined
strength of its Advantex(TM) product suite, expert professional services, and
strategic business alliances to deliver these business alliances to deliver
these business solutions successfully.
-1-
<PAGE>
Financial Highlights
Unless otherwise stated, all dollar amounts are in Canadian dollars. (in
thousands, except per share amounts and number of employees) Years ended
December 31
<TABLE>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Revenues $ 83,383 $ 70,280 $ 45,143
Gross Profit 38,794 26,921 16,822
Operating income (loss) before non-recurring charges 7,926 6,611 3,320
Net income (loss) for the year (US GAAP) 5,499 (11,547) (6,014)
Net income (loss) for the year (CDN GAAP) 3,281 (3,470) 1,900
Earnings (loss) per common share (US GAAP) (Diluted) 0.82 (1.84) (1.24)
Earnings (loss) per common share (CDN GAAP) (Basic) 0.50 (0.55) 0.46
Working Capital 20,871 13,655 21,380
Total Assets 56,568 40,644 45,572
Total Employees 466 378 215
</TABLE>
More Business
- -------------
Software & Services Revenue
($ millions)
- -----------
98...........................$47.5
97.......................$39.4
96...............$18.4
95.........$8.6
Total Revenue
($ millions)
- ------------
98..............................$83.4
97......................$70.03
96................$45.1
95........$9.3
Software & Services Backlog
(1998) ($ millions)
- ------------------
Q4...........................$50.4
Q3........................$42.3
Q2............$28.0
Q1......$20.4
Total Backlog (1998)
($ millions)
- ------------
Q4.....................$65.9
Q3...........................$69.6
Q2...............$51.4
Q1.........$36.2
At Higher Margins
Gross Margins
(percentage)
98...............46.5%
97...........38.3%
96......37.3
Operating Margins
(percentage)*
98...............9.5%
97............9.4%
96.........8.1%
*Before one-time charges
(where applicable
Earnings per Share
(dollars)*
98...............$0.82
97............$0.70
96......$0.52
*Before one-time charges
(where applicable)
In Growing Markets
Annual Software Revenue -
Field Service/Dispatch* ($ millions)
02....................................$824
01...........................$588
00.....................$420
99...............$263
98.........$162
97.....$89
96..$71
*Source: GartnerGroup, "Field
Service/Dispatch: Get Ready for Big
Changes" September 1997 report. Reprinted
with permission
Wireless Mobile Workers*
(millions)
02.....................12.0
96.....1.6
*Source: Yankee Group and Company Analysis
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<PAGE>
Letter to Shareholders
Having participated in MDSI's success since 1995, most recently as President and
now as CEO, I have enjoyed being part of an incredible team that has ushered the
company through its start-up phase to the established position it is in today.
MDSI is the leading provider of business applications and mobility solutions for
companies in multiple vertical markets worldwide that fully integrate mobile
resources into the enterprise. MDSI designs, develops implements and supports
business solutions for the utility, telecommunications/cable, taxi and courier
markets. We are also developing a number of emerging markets, including
commercial field service, insurannce and state and local government.
Across these markets, MDSI has over 100 customers throughout 25 countries
worldwide. Our success has largely been based on our unparalleled reputation for
delivering quality solutions on time and budget.
I would like to take this opportunity to reflect on some of the corporate
highlights of this past year, share some insights into MDSI's ongoing evolution,
and demonstrate how the company, its solutions, and its customers are all
growing - are all upwardly mobile.
Business Solutions Approach
At MDSI, we are constantly raising the bar for our competition. Understanding
the kind of challenges that deregulation and other industry forces create for
our customers, we are evolving our mobile workforce management offering into a
full business solutions approach.
MDSI's business solutions approach erodes the boundaries between mobile
resources and the enterprise in order to extend the enterprise to mobile
resources, and draw mobile resources completely into the enterprise. This
paradigm redefines mobile resources as a strategic asset to the enterprise, and
broadens the scope of resources our customers need to manage.
In order to survive in today's business environment, customers need more than
automated processes, more than remote database access, and more than operational
benefits - they need to be able to transform the enterprise by quickly changing
processes and accommodation innovation at the highest business level possible.
By incorporating mobile resources as a key strategic asset, senior executives
will be able to proactively define strategies that set the standards for
customer acquisition, customer retention, and service enhancement and
innovation.
Customers
Deregulation, mergers, acquisitions, globalization, and increasing customer
expectations: these are powerful forces affecting customers in all of MDSI's
targeted markets. Customers need to manage mobile resources across regional,
national, and multinational boundaries; they may changes size quickly with a
merger or acquisition; or they may
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<PAGE>
need to rapidly roll out a new service offering to mobile workers who themselves
have increasingly cross-functional responsibilities and complex information
needs.
In 1998, these factors continued to galvanize international interest in our
business solutions, particularly in the utility and telecommunications/cable
sectors. Our leading North American position combined with successes such as
Belgacom (the largest software contract in company history at C$18 million),
TeleDanmark, and Meralco leave us well-positioned to strengthen our
international presence. Together, these worldwide markets account for
approximately two-thirds of MDSI's business. As they continue to experience
unprecedented change, MDSI expects continued business within these markets will
be the major driver of growth in 1999 and into 2000.
The land transportation group successfully completed the implementation of
systems acquired as part of the acquisition of Spectronics Microsystems (SMS) in
1996, and also signed contracts with new customers in both taxi and courier
markets. We are now in position to further capitalize on our investment in this
area of the business.
MDSI continues to seek new avenues for future growth and to identify new markets
that would benefit from our business solutions. In 1998, we determined a need in
commercial field service organizations which focus on maintenance and repair,
and in insurance companies, primarily property and caualty. In combination with
efforts in state and local government, we expect these markets to contribute
significant business to the company over the medium and long-term.
Products, Services, and Partners
MDSI remains committed to significant investment in research and development and
dedicated to software engineering excellence. During 1998, we significantly
enhanced the functionality of the Advantex product suite to ensure it continues
to meet and exceed customers' business goals. Aggressive development will
continue throughout 1999 as we strive for greater flexibility, scalability, and
openness in terms of product functionality and solution architecture. MDSI's
product evolution continues to be extremely well-received by customers, and has
been instrumental in our success on many occasions.
With a renewed energy this past year to cultivate "customers for life," MDSI has
expanded the scope of its professional services. MDSI services more fully
encompass all aspects of a project lifecycle from initial analysis of strategic
and operational objectives, solution design, project implementation, to ongoing
evaluation of emerging technologies and enterprise expansion goals.
As well, we are continually aiming to enhance our customer service program.
Introduced this past year, MDSI's Action Request System (MARS) is a
sophisticated call management system that automatically tracks service issues
from origination through to resolution. In 1999, we plan to make MARS accessible
to customers via the Internet, which will allow them to easily submit service
requests and immediately review request status online.
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<PAGE>
MDSI also remains focused on a hand-in-hand approach with strategic business
alliances that complete and add value to our product and services programs in
order that customers continually obtain the maximum from their business
solution.
Financial Performance
MDSI's momentum translated into record financial performance during 1998. Our
total revenues, software and services revenue, net income and earnings per share
all grew in comparison to 1997. This represents the sixth consecutive year of
growth in these results, excluding one-time charges to income.
For the year ended December 31, 1998, MDSI reported revenues of $83.4 million,
up 18.6% from $70.3 million in 1997. Software and services revenue rose to
$47.50 million, a 20.6% increase over $39.4 million recorded in 1997. Net income
for 1998 was $5.5 million, or $0.82 (US$0.55) per share, an increase of 19.6%
compared to $4.6 million, or $0.70 (US$0.50) per share, before one-time charges
in 1997.
MDSI enters 1999 with the strongest backlog in company history at the end of a
fiscal year. The software and services backlog rose to $50.4 million at December
31, 1998, a 163% increase compared to $19.2 million at December 31, 1997. Total
backlog at December 31, 1998 was $65.9 million, representing a 110% increase
over $31.4 million at December 31, 1997.
As a corporation, a business solutions provider to customers who themselves are
changing and growing, and in terms of financial performance, 1998 has
unquestionably been an upwardly mobile year for MDSI.
Thank you
I would like to thank our customers for their continued belief in and support of
MDSI. We have a sizable number of customers who we have partnered with over the
years - the best testimony, I believe, to our corporate commitments and the
ability to deliver successful business solutions.
MDSI is also committed to its people and realizes that the prosperity of any
company, especially in the high technology business, is attributable in no small
part to its employees. With their outstanding talent and the personal sacrifices
they often make, our employees have and will continue to provide us with a
necessary competitive advantage in our field.
MDSI owes it present success and exciting future to the talent and commitment at
all levels throughout the organization, but the company could not have grown as
it has without the immeasurable contribution of key members of the senior
management team.
MDSI would like to thank Erik Dysthe who was the company's CEO from inception
until November of 1998. As one of the organization's founders, Erik's vision and
drive established the foundation that has let MDSI become the industry leader it
is today. Erik continues in his role as Chairman of MDSI and remains active in
pursuing and maintaining relationships with our international customers.
-5-
<PAGE>
MDSI would like to acknowledge Peter Kam, the company's Vice President and Chief
Scientist, who passed away last year. As the principal architect of the Advantex
solution, Peter played an enormous role in MDSI's early success. We are forever
grateful for Peter's years of invaluable contribution and friendship. Our
thoughts remain with Peter's family.
Finally, I would like to thank you, our shareholders, for the support during the
past year. We intend to continue to reward your confidence in us. MDSI is truly
an upwardly mobile company, and I sincerely hope that you will share in our
future achievements as we continue to grow through 1999 and in the years to
follow.
Sincerely,
Ken Miller, CEO
Upwardly Mobile Corporation
With a rich history in wireless database access, computer-aided dispatching
systems, and mobile workforce management solutions, MDSI personnel have been in
command of "mobile data" as it has matured over the past 15 years as both
concept and technology. Today, MDSI is setting the standards for business
applications and mobility solutions. With its business solutions approach, MDSI
is broadening the scope of mobile workforce management to reach beyond the
operations level and deeper into the enterprise. By strategically including
mobile resources into business processes throughout the enterprise, companies
can proactively control their dynamically changing environment.
In just six years, MDSI has leveraged its core competencies and industry leading
position in the North American utility industry to position the company as a
leader in multiple vertical markets domestically and internationally. With major
operations in the U.S., Canada, Europe, and Asia, MDSI provides business
solutions worldwide to utility, telecommunications/cable, commercial field
service, taxi, courier, and state and local government organizations, and is
constantly assessing new market opportunities. MDSI has developed a strong
revenue curve by deepening its commitment to customers in target markets,
pioneering new vertical markets, expanding into new geographies, and
implementing a unique cross-industry software product development strategy.
MDSI's momentum shows no signs of slowing down and the company expects to
continue to grow rapidly in the foreseeable years to capitalize on the
incredible opportunities the future holds. A new President and COO and a brand
new, custom-designed corporate headquarters facility call attention to MDSI's
belief in these opportunities and aggressive drive to continued success.
In February of 1999, Rob Cruickshank joined MDSI as President and Chief
Operating Officer. With over 28 years at BC Tel (now BCT.TELUS Communications
Inc.), a GTE subsidiary, Rob held several senior positions, most recently as
Senior Vice President, Sales and Customer Service. Rob's extensive experience in
the telephony market and in managing companies through rapid growth phases in
dynamic environments will undoubtedly help MDSI direct its growth. The addition
of Rob to MDSI's executive-
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<PAGE>
level engine helps ensure the highest caliber senior management team is in place
to further advance the company's industry leading position.
Rapid growth spurs other issues such as physical space requirements. Expansion
at MDSI's corporate office alone saw the company spread between two buildings
and 10 separate offices. At the end of 1998, however, MDSI welcomed the opening
of an impressive three-story, 90,000 square floor building - both for its
amenities as well as for the opportunity to unite more than 275 coworkers in one
corporate office. The new facility provides ample room for future employees as
the company continues to grow.
Upwardly Mobile Solutions
With so many major customers in various markets, MDSI brings to all its business
solutions a great depth of experience and, while it has competitors in each of
its primary markets, no single firm opposes MDSI in all sectors. By uniquely
leveraging its core competencies in this way, MDSI is exposed to a wide
knowledge base and a greater understanding of the trends and best practices in
multiple industries worldwide.
MDSI's business solutions approach is continuously fuelled by customer
requirements, global industry trends in multiple vertical markets, and
information technology advances. These factors drive the evolution of the
Advantex product suite, MDSI's services offering, and the company's strategic
alliances with "best of breed" business partners.
Products
Advantex is progressively engineered to be a leading edge product suite that
addresses the specific needs of our target markets, and solves the unique
strategic and operational challenges of individual companies within each market.
The product suite comprises our business applications tailored for each vertical
market, as well as wireless connectivity solutions.
Advantex products are designed with the flexibility for easy integration into
customers' information technology infrastructures - now and as their businesses
continue to evolve. Advantex is scalable (for companies of almost any size and
to facilitate enterprisewide expansion), modular (so companies can choose the
functionality that best complements enterprisewide requirements), configurable
(so solutions are easily adapted to any company's business rules), upgradeable
(to facilitate our "customer for life" philosophy), and accessible because it
uses open, industry standards (easily incorporating and interfacing to available
and emerging "best of breed" technologies).
By effectively managing mobile resources, MDSI's business solutions allow
companies to realize both tangible and intangible benefits at an operational
level, including lower operating costs, increased productivity, and improved
customer service. Key features include appointment scheduling, automatic order
distribution, and real-time, wireless access to corporate information from the
field.
In addition, MDSI's business solutions identify mobile resources as an asset
strategic to the enterprise, and allow companies to enhance and innovate
business processes proactively for a competitive advantage. Key features include
enterprise scheduling and
-7-
<PAGE>
tracking of people and equipment across various functional areas, an operations
datamart against which comprehensive reports on significant customer information
and operational statistics can be generated, real-time wireless connectivity
that extends the enterprise to mobile resources and brings mobile resources into
the enterprise, and a transaction broker that extends information from disparate
enterprise systems to the field as the roles of mobile resources are becoming
increasingly complex and information needs are changing accordingly.
Services
Implementing enterprisewide business solutions that achieve strategic and
operational goals is a considerable challenge. Once implemented, however, these
business solutions not only provide the power of productivity but also the
flexibility to reengineer business processes well into the future.
MDSI maintains a "customer for life" philosophy - a long-term partnership
committed to customers and their goals, now and for the future. This approach
means a commitment to the highest level of customer care, which encompasses all
aspects of a customer's business solution on an ongoing basis.
With unrivaled in-house expertise in the mobile environment, MDSI offers
professional services at every stage of a project lifecycle. From pre-planning
and evaluation, to design, development, and implementation, through
post-implementation review, and ongoing maintenance and support, MDSI focuses on
our customer's long-term success.
With the mission-critical nature of enterprisewide business solutions, MDSI's
customer service and support is essential to maintain efficient customer
operations and ongoing customer satisfaction. Our comprehensive package of
services is one of the key differentiating factors in our total solution
delivery. Regardless of geographic location, our customer service engineers and
account managers around the world are available to provide assistance 24 hours a
day, seven days a week.
Partners
MDSI's "hand-in-hand" approach to business partners motivates key alliances with
"best of breed" companies who complete and add value to our business solutions.
MDSI maintains relationships with complementary software partners, integration
partners, and solution component partners (networks, hardware (mobile and
server) ), to meet customers' unique business requirements, for the most
appropriate system functionality, integration requirements, implementation
strategies, and future growth.
With these product, service and partner programs, MDSI business solutions offer
customers a "living" technology platform that solves immediate needs and
accommodates future innovation and expansion at the most strategic level in the
organization.
Upwardly Mobile Customers
Doing business in today's complex world means facing incredible challenges and
opportunities. Across all of MDSI's markets, numerous forces are accelerating
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<PAGE>
investment in business applications and mobility solutions. Deregulation,
increased competition, mergers and acquisitions, globalization and increasing
customer expectations for superior service are all contributing to a growing
demand for, and increased expectations of, our solutions.
MDSI is well-positioned to help customers successfully navigate their rapidly
changing business environments and achieve their strategic objectives of
customer acquisition, customer retention and product and service innovation. The
proven quality of our industry leading products, the professional services to
guide a project through all of its phases, and the ability to provide complete
solutions that integrate seamlessly with enabling and complementary technologies
are all factors that distinguish MDSI from the competition.
Another important element, however, clearly sets us apart from others: a track
record of success that is unparalleled in the industry. That MDSI boasts over
100 customers in 25 countries worldwide inspires those who do business with us -
and those who may be thinking of doing the same - with a great deal of
confidence.
Utility
Sample Customer List:
Pacific Gas & Electric
British Gas
Manila Electric Company (Meralco)
American Electric Power
San Diego Gas & Electric
Michigan Consolidated Gas
The utility market is surrendering to the forces of deregulation on a global
scale. Previously, utility companies had little or no competition in their
service areas, so they were not driven to focus on customer service issues. In
addition, new operational expenses were passed on to the consumer in the form of
rate increases. These practices are no longer acceptable as companies look to
enhance their competitive position by proactively developing strategies for
customer retention, customer acquisition, and product and service innovation...
In the past, organizations were chartered to deliver specific products and
services; in a deregulated environment, they are now free to choose what to
provide for customers. From power generation, to end-user delivery, or even
forays into telecommunications services, companies in the worldwide utility
industry continue to reinvent themselves against a rapidly changing landscape.
When MDSI began operations, its original focus was to be the pre-eminent
provider of business applications and mobility solutions to the North American
utility district (electric, gas, and water). The company has been indisputably
dominant in its core business and has the largest installation base among
competitors to prove it. Over the years, as competitive pressures in the utility
industry have intensified, MDSI has expanded its leadership position both
domestically and internationally. Today, MDSI's enviable customer base includes
over 60 organizations such as Pacific Gas & Electric (1,300 mobile workers),
British Gas (+6,000 mobile workers), Michigan Consolidated Gas (1,000 mobile
workers), and Manila Electric Company, or Meralco (the Philippines
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<PAGE>
second biggest company, by gross revenue). MDSI has enjoyed tremendous success
in meeting the growing demand in the uti8lity industry worldwide and anticipates
industry forces will continue to fuel momentum for business solutions that
strategically integrate mobile resources for a competitive advantage.
Telecommunications/Cable
Sample Customer List:
AT&T Wireless Services
Belgacom
Cox Communications
Cablevision Systems
TeleDanmark
Citizens Communications
Government legislation around the world continues to dramatically change he
telecommunications market, exposing former monopolies to new competitive
pressures. With the forces of competition set in motion, companies are seeking
new ways to retain and attract new customers and to introduce new products and
services into the marketplace. The need for these companies to differentiate
clearly their products and services from the competition becomes even more
urgent as traditional market lines continue to blur. Telecommunications and
cable companies are vying for an array of product offerings that include cable
television, Internet service, high speed data, and telephone services; in more
instances, companies are offering converged services (e.g., local, long distance
and wireless telephony, cable, and Internet over the line).
The realignment of the regulatory environment has created opportunities for
enabling business applications and mobility solutions as companies look to
information technology to meet strategic business objectives. MDSI has enjoyed
tremendous success in the telecommunications and cable industries since
exploding onto the scene only a few years ago. Annual bookings soared in 1998 by
over 100% compared to 1997 as Advantex-Telecommunications entrenched itself as
the solution of choice both at home and internationally. Major customers in the
telecommunications arena include AT&T Wireless Services (1500 mobile workers),
Belgacom (4,000 mobile workers), and TeleDanmark (2,000 mobile workers). IN the
cable segment, five of the seven largest multi-system operators (MSOs) in North
America have selected MDSI for its solution offering. Across both markets, MDSI
expects its impressive, hard-earned track record will continue to propel even
greater demand from increasingly larger organizations worldwide.
-10-
<PAGE>
Land Transport
Sample Customer List:
Radio Taxis of London
DHL Worldwide Express
Copenhagen Taxis
TNT Worldwide Express
City Cab Singapore
To date in the land transport market, MDSI has primarily focused on satisfying
the needs of key existing customers; now that we have successfully achieved our
goal, the company is focusing on how best to take advantage of the substantial
opportunities that the worldwide taxi and courier markets offer. Current
customers include Radio Taxis of London (2,000 vehicles), DHL Worldwide Express
(multiple countries throughout Europe, the Middle East, and Asia), CityCab
Singapore (4,400 vehicles), and TNT Worldwide Express (900 vehicles).
Emerging Markets
Sample Customer List:
NCR Corporation
North Carolina State Highway Patrol
State of Ohio
While MDSI expects near-term growth to continue to be fueled chiefly by core
markets, we expect significant contributions from targeted emerging markets over
the long-term. These worldwide markets include commercial field service, which
comprises any maintenance and repair organization (e.g., for ATMs, point-of-sale
machines, elevators, and office equipment); insurance and financial services,
primarily property and casualty carriers; and state and local government such as
police, fire, and ambulance. The commercial field service market represents the
greatest opportunity, and is also the most competitive. The insurance market is
an excellent fit; like the utility and telecommunications segments, it is a
deregulating industry comprised of large companies. And the market for state and
local governments is becoming increasingly attractive duel in large part to
increased funding of public safety services.
Convergence at Cox Communications
Technological evolution, deregulation, and increased competition across
industries are leading many companies to diversify their product and service
offerings. This diversification increases the number of work order types and
adds complexity to the effective management of field resources.
The trend toward converged services is leading to some significant changes,
particularly in mobile workforces. Today, in general, mobile workers tend to be
highly specialized but, with this trend, many companies are cross-training field
resources to perform more than one type of work.
-11-
<PAGE>
Cox communications (Cox), one of the largest cable television operators in the
United States, with more than 3.8 million customers, is an industry leader that
has quickly become one of the most successful providers of convergent services.
Cox has expanded its traditional cable service offerings to include local and
long-distance telephone services, high-speed Internet access, commercial voice
and data services, and advanced digital video programming services.
Mike Riddle, Director, Applied Technology, Cox Communications, comments: "Cox
is proud to offer expanded services to its customer base, but simply offering a
wide range of services quickly, efficiently, and conveniently is!"
To achieve this goal, Cox has designed an enterprisewide information systems
strategy aimed at maximizing customer value and convenience while minimizing
internal operating costs. As an integral component of this strategy, Cox
contracted MDSI to implement its Advantex-Telecommunications mobile workforce
management solution.
Cox chose Advantex-Telecommunications because the capabilities inherent in the
solution today as well as its future product direction complement both tactical
and strategic needs. The corporate strategy outlined the need for a scalable,
object-oriented solution with the ability to support enterprisewide information
technology initiatives and the increasing complexity of delivering additional
products and services. Additionally, the new solution had to be open in order to
communicate and share information with other enterprise databases, thereby
developing a sophisticated network that can be extended to the field via digital
radio technology.
Additional services have resulted in a growing number of work order types that
must be differentiated accordingly. "Complex orders", single work orders
generated for one customer location that contain multiple tasks,. Have added new
dimensions to the effective management of service delivery. Complex orders may
call for a myriad of services such as Internet installation, cable maintenance,
or long-distance service activation.
With Advantex-Telecommunications, complex work orders are viewed as single work
orders that require a multi-skilled field technician, or Super-tech, with the
necessary skills to complete each task. If no field technician is available with
the required skills, Advantex-Telecommunications will break down the order into
multiple tasks and optimally manage each requirement individually.,
When fully implemented, Advantex-Telecommunications will automate the activities
of 2500 field technicians across nine major operating regions throughout Cox
Communications, Advantex-Telecommunications provides Cox with a solution that
not only meets current business requirements, but also has the flexibility tyo
address future opportunities as the marketplace evolves.
PG&E Battles Mother Nature
One of North America's largest utilities, Pacific Gas & Electric Company (PG&E)
provides gas and electricity service to more than 13 million people in over 20
communities throughout northern and central California. In total, the company
has
-12-
<PAGE>
approximately 21,000 employees to service an area that spans approximately
two-thirds of the state.
PG&E and MDSI have been partners since late 1996, when MDCI was selected to
implement a large scale, enterprisewide business solution. Over the course of a
year, the Advantex-Utility system was rolled out to four call centers
(consolidated from 31 prior to the project), which currently feed 13 dispatch
centers and PG&E's 1300-member workforce.
On Wednesday, April 22, 1998, a massive 700-foot wide landslide severed two high
pressure gas transmission lines near Salinas, California, and disrupted gas
service to more than 65,000 residents in Santa Cruz County.
According to engineers and consulting soil and geological experts, the landslide
was a result of heavy El Nino rains that swept the area this past winter.
Headquartered in San Francisco, PG&E quickly mobilized a general construction
crew to work throughout the evening. The crew reconnected a "shoo-fly" bypass
line to one of the severed lines, but not before the residual gas had run out in
both lines and more than 65.000 PG&E customers had lost service
In order to best coordinate the enormous undertaking of restoring service to its
customers, PG&E set up a temporary dispatch center in the "storm room" of its
dispatch center in Santa Cruz. Ron Bispo, Operations Team Lead at PG&E,
explains, "The morning of the landslide, we centered our emergency operations in
the storm room and focused on the restoration strategy. System administrators
worked swiftly to set up workstations and load MDSI's Advantex-Utility."
With a fully operational dedicated system, PG&E effectively coordinated the
efforts of an emergency workforce of approximately 780 skilled field service
representatives. Throughout the project, Advantex-Utility brokered a constant
flow of real-time wireless communication between the storm room and the mobile
workforce. Over the next four days, emergency crews were intensively managed as
they swept the affected area. Service in critical facilities such as hospitals
and schools was restored first. From the dispatch center, the PG&E team closely
monitored the progress in real-time as technicians worked with one customer
after another.
This was the largest gas restoration project that PG&E had mounted since the
infamous 1989 Loma Prieta earthquake rocked the area while millions were tuned
in to watch Major League Baseball's All Star Game at Candlestick Park. The
earthquake damaged 40% of the utility's gas distribution in Santa Cruz on this
occasion, the Salinas landslide affected close to 95% of the same system
With a dedicated team and a well-executed emergency strategy that included
Advantex-Utility, PG&E incredibly restored gas service in less than a week to
all but a handful of its customers. Throughout the process, the real-time
exchange of information kept everyone involved in managing the crisis abreast of
all activities in the field and facilitated a highly organized operation. Well
done PG&E!
-13-
<PAGE>
Consolidated Financial Statements
Readers are encouraged to review the complete audited financial statements, the
Report of Independent Auditors thereon and Management's Discussion and Analysis
of Financial Condition and Results of Operations in the Company's Form 10-K as
filed with the United States Securities and Exchange Commission. Readers wishing
to review the equivalent documents presented in accordance with Canadian
generally accepted accounting principles are encouraged to review the Company's
Annual Strategy Report. Copies of these documents may be obtained by contacting
Investor Relations at the Company's head office.
The differences between Canadian and United States generally accepted accounting
principles as they apply to MDSI are to be found in Note 16 of the consolidated
financial statements prepared in accordance with Canadian generally accepted
accounting principles. The consolidated statements of operations herein
summarizes the impact of these differences on earnings and earnings per share.
Generally, acquired research and development must be written off under United
States generally accepted accounting principles whereas Canadian generally
accepted accounting principles typically require capitalization and amortization
of these costs over the estimated useful life of the intangible asset. In
addition, the basis for the calculation of earnings per share under the two
regimes are precisely defined and can produce different results.
Auditor's Report
We have audited, in accordance with generally accepted auditing standards, the
consolidated balance sheets of MDSI Mobile Data Solutions, Inc. as of December
31,1 998 and 1997 and the consolidated statements of operations, stockholders'
equity and cash flows for each of the years in the three year period ended
December 31, 1998 and in our reports dated February 25, 1999, we expressed an
audit opinion on those consolidated financial statements. In our opinion. The
information set forth in the accompanying financial schedules is fairly stated
in all material respects in relation to the consolidated financial statements
form which they have been derived.
Deloitte & Touche LLP
Chartered Accountants
Vancouver,
British Columbia
February 25, 1999
-14-
<PAGE>
Consolidated Balance Sheets
Prepared in accordance with United States generally accepted accounting
principles (EXPRESSED IN CANADIAN DOLLARS) At December 31,
<TABLE>
1998 1997
--------------------- ----------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 6,136,711 $ 110,711
Accounts receivable, net
Trade 18,776,551 15,256,202
Unbilled 12,778,398 9,604,060
Work in progress 1,377,228 1,451,662
Prepaid expenses 3,863,738 1,647,748
Deferred income taxes 1,220,350 2,096,544
Current portion of lease receivable 560,478 -
--------------------- ----------------------
44,713,454 30,166,333
LEASE RECEIVABLE 845,889 -
CAPITAL ASSETS, NET 5,687,543 4,291,755
INTANGIBLE ASSETS, NET 5,321,470 6,185,926
--------------------- ----------------------
TOTAL ASSETS $56,568,356 $ 40,644,014
--------------------- ----------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 7,698,324 $ 3,936,501
Accrued liabilities 4,080,392 6,488,755
Income taxes payable 2,442,571 1,864,662
Deferred revenue 8,370,664 3,985,261
Current portion of long-term debt 377,332 215,454
Current obligations under capital lease 872,917 20,621
--------------------- ----------------------
23,842,200 16,511,254
OBLIGATIONS UNDER CAPITAL LEASES 1,907,037 -
LONG-TERM DEBT - 296,324
--------------------- ----------------------
TOTAL LIABILITIES 25,749,237 16,807,578
--------------------- ----------------------
STOCKHOLDERS' EQUITY
Common stock
Authorized:
Unlimited common shares with no par value Issued:
1998: 6,562,088 shares;
1997: 6,459,725 shares 44,637,778 43,154,039
Treasury stock (13,475 shares) (122,743) (122,743)
Deficit (13,695,916) (19,194,860)
--------------------- ----------------------
30,819,119 23,836,436
--------------------- ----------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $56,568,356 $ 40,644,014
--------------------- ----------------------
</TABLE>
-15-
<PAGE>
Consolidated Statements of Operations
Prepared in accordance with United States generally accepted accounting
principles (EXPRESSED IN CANADIAN DOLLARS) Years Ended December 31,
<TABLE>
1998 1997 1996
-------------------- ----------------- -----------------
<S> <C> <C> <C>
REVENUE
Software and services $47,497,292 $39,358,386 $18,387,600
Terminals and infrastructure 8,385,099 10,645,596 8,708,078
Third party products and services 19,513,884 16,676,557 15,227,463
Maintenance and support 7,986,579 3,599,640 2,819,429
-------------------- ----------------- -----------------
83,382,854 70,280,179 45,142,570
DIRECT COSTS 44,589,107 43,358,975 28,320,887
-------------------- ----------------- -----------------
GROSS PROFIT 38,793,747 26,921,204 16,821,683
-------------------- ----------------- -----------------
OPERATING EXPENSES
Research and development 9,894,101 6,539,841 4,356,884
Sales and marketing 13,422,494 12,070,517 5,688,455
General and administrative 6,686,231 6,088,499 3,124,748
Amortization of intangible assets 864,456 837,163 331,411
Restructuring costs - 1,145,152 -
Acquired research and development - 10,002,982 8,523,363
-------------------- ----------------- -----------------
30,867,282 36,684,154 22,024,861
-------------------- ----------------- -----------------
OPERATING INCOME (LOSS) 7,926,465 (9,762,950) (5,203,178)
OTHER INCOME 162,371 535,089 113,664
-------------------- ----------------- -----------------
INCOME (LOSS) BEFORE TAX PROVISION 8,088,836 (9,227,861) (5,089,514)
PROVISION FOR INCOME TAXES (2,589,892) (2,319,175) (924,615)
-------------------- ----------------- -----------------
NET INCOME (LOSS) FOR THE YEAR $5,498,944 $ (11,547,036) $(6,014,129)
-------------------- ----------------- -----------------
NET INCOME (LOSS) FOR THE PERIOD:
US GAAP $5,498,944 $ (11,547,036) $(6,014,129)
Acquired research and development - 10,002,982 8,523,363
Amortization of intangible assets (2,218,434) (1,926,169) (608,814)
-------------------- ----------------- -----------------
CANADIAN GAAP $3,280,510 $ (3,470,223) $1,900,420
-------------------- ----------------- -----------------
EARNINGS (LOSS) PER COMMON SHARE:
Canadian Basic $0.50 $(0.55) $0.46
-------------------- ----------------- -----------------
US Diluted $0.82 $(1.84) $(1.24)
-------------------- ----------------- -----------------
WEIGHTED AVERAGE SHARES OUTSTANDING
Canadian Basic 6,504,188 6,261,001 4,158,991
US Diluted 6,722,823 6,261,001 4,855,479
-------------------- ----------------- -----------------
</TABLE>
-16-
<PAGE>
Consolidated Statements of Stockholders' Equity
Prepared in accordance with United States generally accepted accounting
principles (EXPRESSED IN CANADIAN DOLLARS)
<TABLE>
Common Stock
Special Treasury
Shares Amount Warrants Stock Deficit Total
---------- ------------- ------------ -------------- --------------- -------------
Balance,
<S> <C> <C> <C> <C> <C> <C> <C>
January 1, 1996 3,988,387 $2,315,000 $ - $ (122,743) $(1,633,695) $ 558,562
Issued on exercise of
stock options 19,890 210,117 - - - 210,117
Issue of special
warrants - - 3,925,100 - - 3,925,100
Issued on conversion
of debentures 144,754 797,000 - - - 797,100
Issued on conversion
of notes payable 55,263 882,753 - - - 882,753
Issued on public offering 1,495,000 26,476,306 - - - 26,476,306
Net loss for the year - - - - (6,014,129) (6,014,129)
---------- ------------- ------------ -------------- --------------- -------------
Balance
December 31, 1996 5,703,294 30,681,176 3,925,100 (122,743) (7,647,824) 26,835,709
Issued on exercise
of stock options 107,010 1,275,842 - - - 1,275,842
Issued under Stock
Purchase Plan 21,671 343,843 - - - 343,843
Issued on acquisition
of Alliance 347,750 6,928,078 - - - 6,928,078
Issued on conversion
of special warrants 280,000 3,925,100 (3,925,100) - - -
Net loss for the year - - - - (11,547,036) (11,547,036)
---------- ------------- ------------ -------------- --------------- -------------
Balance,
December 31, 1997 6,459,725 43,154,039 - (122,743) (19,194,860) 23,836,436
Issued on exercise
of stock options 32,844 448,944 - - - 448,944
Issued under Stock
Purchase Plan 17,919 303,395 - - - 303,395
Issued on conversion
of special warrants 51,600 731,400 - - - 731,400
Net income for the year - - - - 5,498,944 5,498,944
---------- ------------- ------------ -------------- --------------- -------------
Balance,
December 31, 1998 6,562,088 $44,637,778 $ - $(122,743) $(13,695,916) $30,819,119
</TABLE>
-17-
<PAGE>
Consolidated Statements of Cash Flows
Prepared in accordance with United States generally accepted accounting
principles (EXPRESSED IN CANADIAN DOLLARS) Years Ended December 31,
<TABLE>
1998 1997 1996
------------------ ------------------ ------------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income (loss) for the year $ 5,498,944 $(11,547,036) $ (6,014,129)
Items not affecting cash:
Depreciation and amortization 2,237,201 2,478,332 1,031,952
Deferred income taxes 147,321 454,513 924,615
Acquired research and development - 10,002,982 8,523,363
Changes in non-cash operating working capital items (1,997,751) (14,847,491) (6,141,234)
------------------ ------------------ ------------------
Net cash provided by (used in) operating activities 5,885,715 (13,458,700) (1,675,433)
------------------ ------------------ ------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common shares 1,483,739 1,619,685 26,686,423
Repayment of long-term debt (134,446) (3,295,348) (346,200)
Repayment of notes payable - (428,424) (8,214,874)
Proceeds from special warrants - - 3,925,100
Proceeds from (repayment of ) capital leases 1,560,119 (53,856) (46,519)
Net cash provided by (used in) financing activities 2,909,412 (2,157,943) 22,003,930
------------------ ------------------ ------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of MDSI UK - - (1,089,973)
Acquisition of Alliance - (1,892,426) -
Acquisition of capital assets (2,768,533) (2,587,833) (953,304)
------------------ ------------------ ------------------
Net cash used in investing activities (2,768,533) (4,480,259) (2,043,277)
------------------ ------------------ ------------------
NET CASH INFLOW (OUTFLOW) 6,026,594 (20,096,902) 18,285,220
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 110,117 20,207,019 1,921,799
------------------ ------------------ ------------------
CASH AND CASH EQUIVALENTS, END YEAR $6,136,711 $ 110,117 $ 20,207,019
------------------ ------------------ ------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash payments for interest $ 140,475 $ 182,513 $ 93,648
------------------ ------------------ ------------------
Cash receipts for interest $ 147,420 $ 344,697 $ -
------------------ ------------------ ------------------
Cash payments for taxes $ 224,667 $ 417,701 $ 10,227
------------------ ------------------ ------------------
</TABLE>
-18-
<PAGE>
Corporate Information
<TABLE>
DIRECTORS OFFICERS OFFICES
- --------- -------- -------
<S> <C> <C>
Erik Dysthe Erik Dysthe CORPORATE OFFICE
Chairman Chairman
MDSI 10271 Shellbridge Way
Richmond, BC
Kenneth R. Miller 2 Kenneth R. Miller Canada V6X 2W8
Chief Executive Officer Chief Executive Officer
MDSI
Robert Cruickshank Telephone
Gerald F. Chew 1,2,3 President & Chief Operating Officer (604) 207-6000
Executive Vice President
Ancora Capital & Management Group, LLC Verne Pecho Facsimile
Vice President (604) 207-6060
Bruno Ducharme 1,3 Finance and Administration
President & Chief Executive Officer & Chief Financial Officer Web Site
Telesystem International www.mdsi-advantex.com
Wireless Services Inc. James R. Dalbey
Senior Vice President
Robert C. Harris, Jr. 2,3 International USA OFFICE
Senior Managing Director
Bear Streams & Co. Inc. Robert Campbell One Pierce Place
Vice President, Suite 100W
Terrence P. McGarty 1,3 Telecommunications/Cable Itasca, Illinois
President USA 60143
Zepher Telecommunications Brent James
Vice President,
John T. McLennan 3 Marketing & Business Development UK OFFICE
President
Jenmark Consulting Inc. Douglas Engerman, Bar Hill Business Park
Vice President Saxon Way, Bar Hill
Marc Rochefort 3 Utility Cambridge
Partner United Kingdom
Desjardins Ducharme Glenn Kumoi CB3 8SL
Stein Monast, General Counsel
Barristers & Solicitors
M. Greg Beniston,
Vice President, Legal &
Corporate Secretary
Geoffrey Engerman
Vice President
US Operations
Tommy Lee
Vice President,
1 Audit Committee Product Development
2 Compensation Committee
3 Corporate Governance Committee Simon Backer
Vice President
Transportation &
Custom Engineering
Ronald Toffolo
Vice President,
Human Resources
</TABLE>
-19-
<PAGE>
Investor Information
Auditors Investor Relations
Deloitte & Touche LLP For additional copies of this report,
Chartered Accountants for the Canadian Annual Statutory Report,
Vancouver, Canada for the Annual Report on Form 10-K as
filed with the United States Securities
and Exchange Commission, for Quarterly
Reports, or for further information,
please contact MDSI Investor Relations:
Legal Counsel Shareholder's Line:
Dorsey & Whitney LLP 1-800-665-4789
Seattle, USA
Telephone:
604-207-6000, ext. 6300
Reid & Company
Barristers & Solicitors Facsimile:
Vancouver, Canada 604-207-6060
E-mail:
[email protected]
Transfer Agents and Registrars Annual Meeting
Montreal Tryst Company of Canada MDSI's Annual General Meeting will take
Vancouver, Toronto, Canada place at 10:00am, Thursday, May 6, 1999
at the Four Seasons Hotel, 791 West
Georgia Street, Vancouver, BC.
The Bank of Nova Scotia Trust
Company of New York
New York, USA
Common Shares
MDSI common shares are traded on the following markets:
Nasdaq: MDSI
The Toronto Stock Exchange: MMD
Montreal Exchange: MMD
-20-
