================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------------------
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1999
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ---------------- to ---------------------.
Commission file number 0-28968
MDSI MOBILE DATA SOLUTIONS INC.
(Exact name of registrant as specified in its charter)
CANADA NOT APPLICABLE
(State or Other Jurisdiction (I.R.S. Employer Identification No.)
of Incorporation or Organization)
10271 Shellbridge Way
Richmond, British Columbia,
Canada V6X 2W8
(Address of Principal Executive Offices)
(604) 207-6000
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
The number of outstanding common shares, no par value, of the Registrant at
September 30, 1999 was 7,343,416.
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<PAGE>
MDSI MOBILE DATA SOLUTIONS INC.
INDEX TO THE FORM 10-Q
For the quarterly period ended September 30, 1999
<TABLE>
Page
----
<S> <C> <C>
Part I - Financial Information
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets................................................................3
Consolidated Statements of Operations and Deficit..........................................4
Consolidated Statements of Cash Flows......................................................5
Notes to the Consolidated Financial Statements.............................................6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS........................................................9
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.................................19
Part II - Other Information
ITEM 1. LEGAL PROCEEDINGS ........................................................................19
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.................................................19
ITEM 3. DEFAULTS UPON SENIOR SECURITIES ..........................................................19
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.......................................20
ITEM 5. OTHER INFORMATION.........................................................................20
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K..........................................................20
Signatures
</TABLE>
<PAGE>
Part I - Financial Information
ITEM 1. FINANCIAL STATEMENTS
MDSI MOBILE DATA SOLUTIONS INC.
Consolidated Balance Sheets
(Expressed in Canadian dollars)
(Unaudited)
<TABLE>
As at
-------------------------------------------
September 30 December 31
1999 1998
--------------------- -------------------
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents........................................ $ 21,359,378 $ 6,136,711
Accounts receivable, net
Trade......................................................... 16,272,126 16,603,944
Unbilled...................................................... 10,102,089 7,789,586
Prepaid expenses ................................................ 2,331,287 3,458,348
Deferred income taxes............................................ 776,638 1,016,766
Current portion of lease receivable.............................. 560,951 560,478
-------------------- -------------------
51,402,469 35,565,833
Lease receivable...................................................... 341,685 845,889
Investments, at cost ................................................. 5,532,730 -
Capital assets, net................................................... 8,388,805 5,137,296
Intangible assets, net................................................ 2,850,418 3,130,334
-------------------- -------------------
68,516,107 44,679,352
Assets of discontinued operations (note 4)............................ 971,393 11,889,004
-------------------- -------------------
Total assets.......................................................... $ 69,487,500 $ 56,568,356
==================== ===================
Liabilities and stockholders' equity
Current liabilities
Accounts payable ................................................ $ 3,234,520 $ 7,140,470
Accrued liabilities ............................................. 3,471,530 3,320,436
Income taxes payable ............................................ 1,704,761 2,442,571
Deferred revenue................................................. 6,393,931 7,317,895
Current portion of long-term debt ............................... - 377,332
Current obligations under capital leases ........................ 1,341,033 872,917
-------------------- -------------------
16,145,775 21,471,621
Obligations under capital leases...................................... 3,709,624 1,907,037
Liabilities of discontinued operations (note 4) ...................... 1,383,421 2,370,579
-------------------- -------------------
Total liabilities..................................................... 21,238,820 25,749,237
-------------------- -------------------
Stockholders' equity
Common stock..................................................... 62,419,667 44,637,778
Treasury stock................................................... (122,743) (122,743)
Deficit.......................................................... (14,048,244) (13,695,916)
-------------------- -------------------
48,248,680 30,819,119
-------------------- -------------------
Total liabilities and stockholders' equity............................ $ 69,487,500 $ 56,568,356
===================== ==================
</TABLE>
See notes to consolidated financial statements
-3-
<PAGE>
MDSI MOBILE DATA SOLUTIONS INC.
Consolidated Statements of Operations and Deficit
(Expressed in Canadian dollars)
(Unaudited)
<TABLE>
Three months ended Nine months ended
September 30 September 30
----------------------------------- -----------------------------------
1999 1998 1999 1998
---------------- ----------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Revenue
Software and services................................ $ 15,657,991 $ 11,026,508 $ 44,270,276 $ 28,755,291
Third-party products and services.................... 1,991,545 6,719,436 8,536,091 10,523,520
Maintenance and support.............................. 2,504,017 1,616,139 5,940,996 4,021,855
---------------- ----------------- ---------------- ----------------
20,153,553 19,362,083 58,747,363 43,300,666
Direct costs.............................................. 8,859,268 9,646,439 25,904,780 20,187,507
---------------- ----------------- ---------------- ----------------
Gross profit.............................................. 11,294,285 9,715,644 32,842,583 23,113,159
---------------- ----------------- ---------------- ----------------
Operating expenses
Research and development............................. 2,513,997 2,508,851 7,468,425 5,949,975
Sales and marketing ................................. 2,914,046 2,776,268 10,490,859 8,370,943
General and administrative........................... 1,886,580 1,427,778 5,950,529 3,732,034
Amortization of intangible assets.................... 94,383 94,383 283,149 283,149
---------------- ----------------- ---------------- ----------------
7,409,006 6,807,280 24,192,962 18,336,101
---------------- ----------------- ---------------- ----------------
Operating income.......................................... 3,885,279 2,908,364 8,649,621 4,777,058
Other income (expense).................................... 65,879 (181,788) (670,365) 118,502
---------------- ----------------- ---------------- ----------------
Income before tax provision............................... 3,951,158 2,726,576 7,979,256 4,895,560
Provision for income taxes................................ (1,205,258) (845,332) (2,478,798) (1,557,517)
---------------- ----------------- ---------------- ----------------
Net income from continuing operations..................... 2,745,900 1,881,244 5,500,458 3,338,043
Loss from discontinued operations (note 4)................ - (116,875) (5,852,786) (361,037)
---------------- ----------------- ---------------- ----------------
Net income (loss)......................................... 2,745,900 1,764,369 (352,328) 2,977,006
Deficit, beginning of period.............................. (16,794,144) (17,982,223) (13,695,916) (19,194,860)
---------------- ----------------- ---------------- ----------------
Deficit, end of period.................................... $ (14,048,244) $ (16,217,854) $ (14,048,244) $ (16,217,854)
================ ================= ================ ================
Earnings (loss) per common share
Earnings from continuing operations
Basic ............................................... $ 0.37 $ 0.29 $ 0.76 $ 0.51
================ ================= ================ ================
Diluted ............................................. $ 0.36 $ 0.28 $ 0.71 $ 0.50
================ ================= ================ ================
Net earnings (loss)
Basic ............................................... $ 0.37 $ 0.27 $ (0.05) $ 0.46
================ ================= ================ ================
Diluted ............................................. $ 0.36 $ 0.26 $ (0.05) $ 0.45
================ ================= ================ ================
Weighted average shares outstanding
Basic................................................ 7,326,940 6,526,990 7,208,129 6,490,805
================ ================= ================ ================
Diluted.............................................. 7,673,625 6,664,467 7,708,942 6,640,610
================ ================= ================ ================
</TABLE>
See notes to consolidated financial statements
-4-
<PAGE>
MDSI MOBILE DATA SOLUTIONS INC.
Consolidated Statements of Cash Flows
(Expressed in Canadian dollars)
(Unaudited)
<TABLE>
Nine months ended September 30
-----------------------------------------------------------
1999 1998
------------------------------ --------------------------
<S> <C> <C>
Cash flow from operating activities
Net income (loss) for the period................................. $ 5,500,458 $ 3,338,043
Items not affecting cash:
Depreciation and amortization............................... 1,775,947 1,447,810
Deferred income taxes....................................... 240,128 903,303
Changes in non-cash operating working capital items......... (6,270,254) 2,382,494
-------------------- ------------------
Net cash provided by (used in) operating activities.............. 1,246,279 8,071,650
-------------------- ------------------
Cash flows from financing activities
Issuance of common stock......................................... 17,781,889 1,069,549
Repayment of long-term debt...................................... (377,332) (142,654)
Proceeds from capital leases..................................... 2,270,703 1,541,253
-------------------- ------------------
Net cash provided by financing activities........................ 19,675,260 2,468,148
-------------------- ------------------
Cash flows from investing activities
Long term lease receivable....................................... 503,731 -
Acquisition of capital assets.................................... (4,747,540) (2,194,175)
-------------------- ------------------
Net cash used in investing activities............................ (4,243,809) (2,194,175)
-------------------- ------------------
Cash provided by continuing operations................................ 16,677,730 8,345,623
Cash provided by (used for) discontinued operations (note 4).......... (1,455,063) (3,770,829)
-------------------- ------------------
Net cash inflow....................................................... 15,222,667 4,574,794
Cash and cash equivalents, beginning of period........................ 6,136,711 110,117
-------------------- ------------------
Cash and cash equivalents, end of period.............................. $ 21,359,378 $ 4,684,911
==================== ==================
</TABLE>
See notes to consolidated financial statements
-5-
<PAGE>
MDSI MOBILE DATA SOLUTIONS INC.
Notes to the Consolidated Financial Statements
For the nine months ended September 30, 1999
(Expressed in Canadian dollars)
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of presentation
These financial statements have been prepared in accordance with
accounting principles generally accepted in the United States for
interim financial reporting and pursuant to the instructions of the
United States Securities and Exchange Commission Form 10-Q and Article
10 of Regulation S-X. While these financial statements reflect all
normal recurring adjustments which are, in the opinion of management,
necessary for fair presentation of the results of the interim period,
they do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial
statements. For further information, refer to the financial statements
and footnotes thereto included in the Company's Annual Report filed on
Form 10-K for the year ended December 31, 1998.
(b) Use of estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management
to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
periods. Actual results could differ from those estimates.
2. SEGMENTED INFORMATION
Segmented information
The Company develops, markets and supports mobile work force management
systems serving the needs of industry and government. Examples include the
utility, telecommunications/cable and public safety industries. At December
31, 1998, the Company reported two business segments - Field Service and
Delivery. In February 1999, the Company's Board of Directors approved a
plan to dispose of its Delivery segment (Transportation Business Unit -
note 4). As a result, the Company now has only one business segment.
Geographic information
The Company earned revenue from sales to customers in the following
geographic locations:
<TABLE>
Three months ended Nine months ended
September 30 September 30
---------------------------------------------------------------------------
1999 1998 1999 1998
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Canada............................ $ 446,491 $ 1,342,718 $ 2,607,291 $ 2,167,151
United States..................... 12,308,267 17,481,999 41,353,468 39,588,799
Europe............................ 6,906,955 471,114 12,909,137 978,819
Asia.............................. 491,840 66,252 1,877,467 310,972
South America..................... 0 0 0 254,925
-----------------------------------------------------------------------------
$ 20,153,553 $ 19,362,083 $ 58,747,363 $ 43,300,666
===========================================================================
</TABLE>
-6-
<PAGE>
MDSI MOBILE DATA SOLUTIONS INC.
Notes to the Consolidated Financial Statements
For the nine months ended September 30, 1999
(Expressed in Canadian dollars)
(Unaudited)
3. EARNINGS (LOSS) PER COMMON SHARE
Basic earnings (loss) per common share is calculated by dividing net income
(loss) by the weighted average number of common shares outstanding during the
period. Diluted earnings (loss) per share was calculated by dividing net income
(loss) by the sum of the weighted average number of common shares outstanding
plus all additional common shares that would have been outstanding if
potentially dilutive common shares had been issued. In periods for which there
is a reported net loss, potentially dilutive securities have been excluded from
the calculation as their effect would be anti-dilutive.
The following table reconciles the number of shares utilized in the earnings
(loss) per common share calculations for the periods indicated:
<TABLE>
Three months ended Nine months ended
September 30 September 30
-------------------------------- ---------------------------------
1999 1998 1999 1998
--------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C>
Weighted average shares outstanding......... 7,326,940 6,526,990 7,208,129 6,490,805
Common stock equivalents
Stock options............................... 346,685 137,271 500,813 142,864
Share purchase warrants .................... - 206 - 6,941
--------------- --------------- --------------- ----------------
Total shares for diluted earnings (loss) per
common share................................ 7,673,625 6,664,467 7,708,942 6,640,610
================ =============== =============== ================
</TABLE>
4. DISCONTINUED OPERATIONS
In February 1999, the Company's Board of Directors approved a plan for the sale
of the Transportation Business Unit which develops mobile workforce software for
the taxi, courier and roadside recovery market. The disposition was completed
June 24, effective June 1, 1999, for proceeds of $5,532,730. The proceeds
comprise common shares representing an 11% interest in Digital Dispatch Systems
Inc., a supplier of dispatch systems to the taxi market, and an 8%, $500,000
promissory note due January 1, 2001.
This business is accounted for as a discontinued operation and for reporting
purposes the results of operations, financial position and cash flow are
segregated from those of continuing operations for the current and prior
periods. The Company has included in the results of the discontinued operation,
the sale proceeds, the costs of disposition, the results of operations from the
measurement date to the disposal date and an estimate of the costs to complete
the remaining contract.
-7-
<PAGE>
MDSI MOBILE DATA SOLUTIONS INC.
Notes to the Consolidated Financial Statements
For the nine months ended September 30, 1999
(Expressed in Canadian dollars)
(Unaudited)
4. DISCONTINUED OPERATIONS (continued)
Summarized financial information of the discontinued operations is as follows:
<TABLE>
Results of discontinued operations
- ------------------------------------------------------------------------------------------------------------------
September 30, 1999 September 30, 1998
--------------------- ---------------------
<S> <C> <C>
Revenues $ 4,008,198 $ 12,238,531
===================== =====================
Loss before income taxes (2,375,492) (359,256)
Income tax - 1,781
--------------------- ---------------------
Operating loss to measurement date (2,375,492) (361,037)
Estimated loss on disposal
(net of nil income taxes) (3,477,294) -
===================== =====================
Income (loss) from discontinued operations $ (5,852,786) $ (361,037)
===================== =====================
Financial position of discontinued operations
- ------------------------------------------------------------------------------------------------------------------
September 30, 1999 December 31, 1998
--------------------- ---------------------
Current assets $ 971,393 $ 9,147,621
Long term assets - 2,741,383
===================== =====================
Total assets of discontinued operations $ 971,393 $ 11,889,004
===================== =====================
Current liabilities $ 1,383,421 $ 2,370,579
Long term liabilities - -
===================== =====================
Total liabilities of discontinued operations $ 1,383,421 $ 2,370,579
===================== =====================
Cash flow of discontinued operations
- ------------------------------------------------------------------------------------------------------------------
September 30, 1999 September 30, 1998
--------------------- ---------------------
Operating activities $ (1,323,583) $ (3,770,253)
Investing activities (131,480) (576)
Financing activities - -
===================== =====================
Cash provided by (used for) discontinued operations $ (1,455,063) $ (3,770,829)
===================== =====================
</TABLE>
-8-
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Certain statements and information contained in this Report constitute
forward-looking statements within the meaning of Section 21E of the Securities
Exchange Act of 1934. Such forward-looking statements involve known and unknown
risks, uncertainties and other factors that may cause the actual results,
performance or achievements of the Company, or developments in the Company's
industry, to differ materially from the anticipated results, performance or
achievements expressed or implied by such forward-looking statements. Such
factors include, but are not limited to: the Company's limited operating
history, history of losses, lengthy sales cycles, the Company's dependence upon
large contracts and relative concentration of customers, risks involving the
management of growth and integration of acquisitions, risks associated with
performance of pre-existing contracts assumed through acquisitions, competition,
product development risks and risks of technological change, dependence on
selected vertical markets and third-party marketing relationships and suppliers,
the Company's ability to protect its intellectual property rights and the other
risks and uncertainties detailed in the Company's Securities and Exchange
Commission filings, including the Company's Annual Report on Form 10-K for the
year ended December 31, 1998.
All financial information in this Report is expressed in Canadian dollars
unless otherwise noted.
Overview
The Company develops, markets, implements and supports mobile workforce
management and wireless connectivity software and related network and mobile
computing equipment for use by a wide variety of companies that have substantial
mobile workforces, such as utility, telecommunications and cable companies and
public safety organizations. The Company's products are used by such companies
in conjunction with public and private wireless data communications networks to
provide comprehensive solutions for the automation of business processes
associated with the scheduling, dispatching and management of a mobile
workforce. The Company's products provide a cost-effective method for companies
with mobile workers to use data communications to communicate with such workers,
and for such workers to interface on a real-time basis with their corporate
information systems.
The Company's revenue is derived from (i) software and services, consisting
of the licensing of software and provision of related services, including
project management, installation, integration, customization and training; (ii)
third-party products and services, consisting of the provision of non-MDSI
products and services as part of a total contract; and (iii) maintenance and
support, consisting of the provision of after-sale support services as well as
hourly, annual or extended maintenance contracts.
The implementation of a complete mobile data solution requires a wireless
data communications network, a land-based data communications network, mobile
computing devices integrated with wireless data communication modems, host
computer equipment, industry specific application software, wireless
connectivity software and a variety of services to manage and install these
components, integrate them with an organization's existing computer systems and
configure or customize the software to meet customer requirements. Frequently,
in the Company's larger contracts, only a limited number of the mobile computing
devices and in-vehicle equipment are initially installed, with the balance
implemented over a rollout period that may extend up to one year or more. Where
increases in mobile work forces require, or where additional departments of
mobile workers are added, additional mobile computing devices may be installed.
-9-
<PAGE>
Overview (Continued)
Revenue for software and services has historically accounted for a
substantial portion of the Company's revenue. Typically, the Company enters into
a fixed price contract with a customer for the licensing of selected software
products and the provision of specific services that are generally performed
within six to twelve months. Pricing for these contracts includes license fees
as well as a fee for professional services. The Company generally recognizes
total revenue for software and services associated with a contract using a
percentage of completion method based on the total costs incurred over the total
estimated costs to complete the contract.
The Company may also be called on to provide, in addition to MDSI products
and services, certain third-party products, such as host computer hardware and
operating system software, mobile computing devices and radio data network
infrastructure equipment, and sub-contract services, such as radio data system
design and implementation. The Company recognizes revenue for the supply of
third-party hardware upon transfer of title to the customer. The Company
recognizes revenue for the supply of third-party services using a percentage of
completion method based on the costs incurred over the total estimated cost to
complete the third-party services contract.
The Company believes that it will often supply some portion of third-party
products and services to customers where it is successful in selling its own
products and services. There can be no assurance, however, that any contracts
entered into by the Company to supply third-party software and products in the
future will represent a substantial portion of revenue in any future period.
Since the revenue generated from the supply of third-party products and services
may represent a significant portion of certain contracts and the installation
and rollout of third-party products is generally at the discretion of the
customer, the Company may, depending on the level of third-party products and
services provided during a period, experience large quarterly fluctuations in
revenue.
The Company's customers typically enter into ongoing maintenance agreements
that provide for maintenance, product enhancement and technical support services
for a period commencing after expiration of the initial warranty period.
Maintenance agreements typically have a term of twelve months and are invoiced
either annually, quarterly or monthly. The Company recognizes revenue for these
services ratably over the term of the contract.
The Company's revenue is dependent, in large part, on significant contracts
from a limited number of customers. As a result, any substantial delay in the
Company's completion of a contract or the introduction of new products, the
inability of the Company to obtain new contracts or the cancellation of an
existing contract by a customer could have a material adverse effect on the
Company's results of operations, cash flows and financial condition. The
Company's contracts are generally cancelable upon notice by the customer. The
loss of certain contracts could have a material adverse effect on the Company's
business, operating results, cash flows and financial condition. As a result of
these and other factors, the Company's results of operations have fluctuated in
the past and may continue to fluctuate from period-to-period.
The Company's backlog of pending orders at September 30, 1999 was lower
than the amount of backlog at the end of the first and second quarters of 1999,
as well as the amount of backlog at the end of the third and fourth quarters of
1998. The Company believes that the reduction in backlog in 1999 may be
attributable, in part, to decisions by customers to defer purchasing decisions
until after December 31, 1999, and the allocation by customers of resources to
their own Year 2000 remediation efforts. There can be no assurance that
decisions by customers to delay purchasing decisions or to allocate resources to
Year 2000 remediation efforts will not not have an adverse effect upon the
Company's results of operations in future periods.
-10-
<PAGE>
Disposition of Transportation Business Unit
In February 1999, the Company's Board of Directors approved a plan to
dispose of its Delivery segment (Transportation Business Unit). Effective June
1, 1999, the Company completed the sale of the Transportation Business Unit to
Digital Dispatch Systems, Inc. ("DDS"), a supplier of dispatch systems to the
taxi market for proceeds of $5,532,730. The proceeds were comprised of common
shares of DDS, representing an 11% interest in DDS, and a promissory note in the
initial principal amount of $500,000, due January 1, 2001, bearing interest at
8% per annum.
Under the terms of the agreement between the Company and DDS, the Company
has retained certain assets and liabilities of the discontinued operations. The
Company expects that it will liquidate these assets and liabilities by June 30,
2000. In addition, the Company has agreed to complete the implementation of a
large contract with a taxi customer. The Company has experienced, and is
continuing to experience delays in the implementation of this contract. If the
Company is unable to complete the implementation of the contract on a timely
basis, the taxi customer has the right to cancel the contract. Any such
cancellation may require the Company to reimburse the customer for payments
received to date. The Company believes that it has adequately provided for the
costs to complete this contract.
As a result of the Company's decision to dispose of its Delivery segment,
the Delivery segment has been classified as a discontinued operation and the
results of operation, financial position and cash flow for this segment have
been segregated from those of continuing operations. The following discussion
and analysis of the Company's results of operations excludes the Delivery
segment for the current and corresponding prior period.
The Company's year-to-date loss of $352,000 was comprised of a $5.5 million
after-tax profit from continuing operations and an after-tax loss of $5.9
million on discontinued operations. The loss on discontinued operations is
comprised of loss on operations of $2.4 million and loss on disposal of $3.5
million. There is no tax effect on these losses. The discontinued operating loss
includes not only the results of operations but also foreign exchange losses and
provisions against contracts to the measurement date of February 25, 1999. The
estimated loss on disposal includes the operating results from the measurement
date to the effective date, the costs of disposal, severance costs, and the
estimated costs to complete the remaining taxi contract.
-11-
<PAGE>
Results of Operations
The following table sets forth, for the periods indicated, certain
components of the selected financial data of the Company as a percentage of
total revenue:
<TABLE>
Three months ended Nine months ended
September 30 September 30
-------------------------------- ------------------------------
1999 1998 1999 1998
--------------- --------------- -------------- -------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenue
Software and services....................... 77.7% 57.0% 75.4% 66.4%
Third-party products and services........... 9.9 34.7 14.5 24.3
Maintenance and support..................... 12.4 8.3 10.1 9.3
--------------- --------------- -------------- -------------
100.0 100.0 100.0 100.0
Direct costs................................... 44.0 49.8 44.1 46.6
--------------- --------------- -------------- -------------
Gross profit................................... 56.0 50.2 55.9 53.4
--------------- --------------- -------------- -------------
Operating expenses
Research and development.................... 12.5 13.0 12.7 13.8
Sales and marketing ........................ 14.4 14.3 17.9 19.3
General and administrative.................. 9.3 7.4 10.1 8.6
Amortization of intangible assets........... 0.5 0.5 0.5 0.7
--------------- --------------- -------------- -------------
36.7 35.2 41.2 42.4
--------------- --------------- -------------- -------------
Operating income (loss)........................ 19.3 15.0 14.7 11.0
Other income .................................. 0.3 (0.9) (1.1) 0.3
--------------- --------------- -------------- -------------
Income (loss) before tax provision............. 19.6 14.1 13.6 11.3
Provision for income taxes..................... (6.0) (4.4) (4.2) (3.6)
--------------- --------------- -------------- -------------
Net income (loss) from continuing operations. 13.6 9.7 9.4 7.7
--------------- --------------- -------------- -------------
Income (loss) from discontinued operations..... (0.0) (0.6) (10.0) (0.8)
--------------- --------------- -------------- -------------
Net income (loss).............................. 13.6% 9.1% (0.6)% 6.9%
=============== =============== ============== =============
</TABLE>
-12-
<PAGE>
Three Months Ended September 30, 1999 Compared to the Three Months Ended
September 30, 1998
Revenue. Revenue increased by $791,000 (4.1%) for the three months ended
September 30, 1999 as compared to the three months ended September 30, 1998.
This increase was due primarily to the increase in revenue for software and
services delivered in the third quarter of 1999 relative to the same period in
1998.
Software and services revenue increased by $4.6 million (42.0%) for the
three months ended September 30, 1999 as compared to the three months ended
September 30, 1998. This increase is due to increased revenue from customers in
the telecommunications markets.
Third-party products and services revenue decreased by $4.7 million (70.3%)
for the three months ended September 30, 1999 as compared to the three months
ended September 30, 1998. Third-party products typically include host computer
equipment and mobile computing devices, and are delivered as part of the
installation of software and provision of services. Revenue from deliveries of
third-party products and services will generally fluctuate from period to period
due to the timing and nature of certain contracts and the rollout schedules
which are established primarily by the customers. In addition, not all customers
under contract require the provision of third-party products and services.
Accordingly, there may be large fluctuations in revenue, direct costs, gross
profits and income from operations from one period to another.
Maintenance and support revenue was $2.5 million for the three months ended
September 30, 1999 as compared to $1.6 million for the three months ended
September 30, 1998. Maintenance and support revenue increased primarily due to
the increased growth in the Company's installed customer base. Such revenue is
expected to fluctuate as it generally corresponds to the level of software and
services revenue the Company is engaged to provide in support of its
installations.
Direct Costs. Direct costs were 44.0% of revenue for the three months ended
September 30, 1999 as compared to 49.8% for the three months ended September 30,
1998. Direct costs include labor and other costs directly related to a project,
including the provision of services and support, production and costs related to
host equipment and mobile devices on behalf of third-party product sales. Labor
costs included direct payroll, benefits and overhead charges.
Gross Margins. Gross margins were 56.0% of revenue for the three months
ended September 30, 1999 as compared to 50.2% for the three months ended
September 30, 1998. The increase in gross margin as a percentage of revenue
relates primarily to the change in the mix of revenues. During the three months
ended September 30, 1999, there was an increase in software and services revenue
and a reduction in third-party products and services revenue, as compared to the
same period in 1998. Software and services revenue typically has a higher gross
margin than revenues attributable to third-party products and services.
Research and Development. Research and development expenses were 12.5% of
revenue for the three month period ended September 30, 1999 versus 13.0% for the
same period in 1998. Total research and development expenditures for the three
months ended September 30, 1999 of $2.5 million represents a marginal increase
of $5,000 (0.2%) as compared to the same period in 1998. The research and
development expenses in 1999 represent continued development and enhancement of
the Company's Advantex products. The Company intends to continue committing a
significant portion of its product revenues to enhance existing products and
develop new products, resulting in an anticipated increase in the dollar amounts
of research and development expenses in future periods.
Sales and Marketing. Sales and marketing expenses were 14.4% of revenue for
the three months ended September 30, 1999 and 14.3% of revenue for the three
months ended September 30, 1998. This represents an increase of $138,000 (4.9%)
as compared to the same period in 1998. The increase was primarily due to an
increase in marketing, sales and technical support personnel supporting the
Company's increased marketing activities worldwide. The Company anticipates that
the dollar amounts of its sales and marketing expenses will continue to increase
as a result of the Company's commitment to its international marketing efforts.
-13-
<PAGE>
Three Months Ended September 30, 1999 Compared to the Three Months Ended
September 30, 1998 (Continued)
General and Administrative. General and administrative expenses were 9.3%
of revenue for the three months ended September 30, 1999 and 7.4% of revenue for
the three months ended September 30, 1998. Total general and administrative
expenses of $1.9 million represents an increase of $459,000 (32.1%) for the
three months ended September 30, 1999 as compared to the same period in 1998.
The increase represents expanded administrative activity to support the
Company's growth. The Company expects that the dollar amounts will continue to
increase as the Company expands its staffing, information systems and other
administrative requirements necessary to support this growth.
Other Income (Expense). Other income (expense) was $65,000 for the three
months ended September 30, 1999 as compared to $(182,000) for the three months
ended September 30, 1998. Substantially all of other income (expense) relates to
fluctuations in the currencies of the Company's foreign operations, interest on
cash and short term deposits, and capital lease obligations.
Income Taxes. The Company provided for income taxes on earnings for the
three months ended September 30, 1999 at the rate of 30.0%, after adjusting for
the amortization of intangible assets. The Company's effective tax rate reflects
the application of certain operating loss carry forwards against taxable income
and the blended effect of Canadian, U.S., and other foreign jurisdictions' tax
rates.
Nine months ended September 30, 1999 Compared to the Nine months ended September
30, 1998
Revenue. Revenue increased by $15.4 million (35.7%) for the nine months
ended September 30, 1999 as compared to the nine months ended September 30,
1998. This represents increases in software and services as well as maintenance
and support with an offsetting decrease in third-party products and services for
the nine months ended September 30, 1999 relative to the same period in 1998.
Software and services revenue increased by $15.5 million (54.0%) for the
nine months ended September 30, 1999 as compared to the nine months ended
September 30, 1998. This increase relates to an increase in revenues in both the
Telecommunications and Utilities markets.
Third-party products and services revenue decreased by $2.0 million (18.9%)
for the nine months ended September 30, 1999 compared to the nine months ended
September 30, 1998. Revenue from deliveries of third-party products and services
will fluctuate from period to period given the timing of certain contracts and
the rollout schedules which are established primarily by the customers.
Accordingly, this will result in large fluctuations in revenue, direct costs,
gross profits and income from operations from one period to another.
Maintenance and support revenue was $5.9 million for the nine months ended
September 30, 1999 as compared to $4.0 million for the nine months ended
September 30, 1998. Maintenance and support revenue increased as a result of an
increase in the level of the Company's installed customer base.
Direct Costs. Direct costs were 44.1% of revenue for the nine months ended
September 30, 1999 as compared to 46.6% for the nine months ended September 30,
1998. The change in direct costs as a percentage of revenue is reflective of the
proportional changes in the individual revenue components.
Gross Margins. Gross margins were 55.9% of revenue for the nine months
ended September 30, 1999 as compared to 53.4% for the nine months ended
September 30, 1998. The increase in gross margin as a percentage of revenue
relates primarily to the change in the mix of revenues during the nine months
ended September 30, 1999 relative to the same period in 1998.
-14-
<PAGE>
Nine Months Ended September 30, 1999 Compared to the Nine Months Ended September
30, 1998 (Continued)
Research and Development. Research and development expenses were 12.7% of
revenue for the nine months ended September 30, 1999 and 13.8% of revenue for
the nine months ended September 30, 1998. Total research and development
expenditures for the nine months ended September 30, 1999 of $7.5 million
represents an increase of $1.5 million (25.5%) as compared to the same period in
1998. The increase in the dollar amount of research and development expenses in
1999 is a result of the continued development and enhancement of the Company's
Advantex products. The Company intends to continue committing a significant
portion of its product revenues to enhance existing products and develop new
products, resulting in an anticipated increase in the dollar amounts of research
and development expenses.
Sales and Marketing. Sales and marketing expenses were 17.9% of revenue for
the nine months ended September 30, 1999 and 19.3% of revenue for the nine
months ended September 30, 1998. This represents an increase of $2.1 million
(25.3%) as compared to the same period in 1998. The increase was primarily due
to an increase in marketing, sales and technical support personnel supporting
the Company's increased marketing activities worldwide. The Company anticipates
that the dollar amounts of its sales and marketing expenses will continue to
increase as a result of the Company's commitment to its international marketing
efforts.
General and Administrative. General and administrative expenses were 10.1%
of revenue for the nine months ended September 30, 1999 and 8.6% of revenue for
the nine months ended September 30, 1998. Total general and administrative
expenses of $6.0 million represents an increase of $2.2 million (59.4%) for the
nine months ended September 30, 1999, as compared to the same period in 1998.
The Company expects that its general and administrative expenses will increase
in the future as the Company expands its staffing, information systems and other
administrative costs to support its expanding operations.
Other Income. Other income (expense) was ($670,365) for the nine months
ended September 30, 1999 as compared to $119,000 for the nine months ended
September 30, 1998. Substantially all of other income relates to fluctuations in
the currencies of the Company's foreign operations and interest income on cash
and short-term deposits.
Income Taxes. The Company provided for income taxes on earnings for the
nine months ended September 30, 1999 at the rate of 30.0%, after adjusting for
the amortization of intangible assets. The Company's effective tax rate reflects
the blended effect of Canadian, U.S. and other foreign jurisdictions' tax rates.
-15-
<PAGE>
Liquidity and Capital Resources
The Company finances its operations, acquisitions and capital expenditures
with cash generated from operations, loans, capital leases, private placements
and public offerings of its securities. At September 30, 1999, the Company had
cash and cash equivalents of $21.4 million and working capital of $35.3 million.
Cash provided by (used in) operating activities was $1.2 million for the
nine months ended September 30, 1999 compared to $8.1 million for the nine
months ended September 30, 1998. The inflow of cash from operating activities,
during the period was generated from $7.5 million of net income, after adjusting
for depreciation and amortization and deferred taxes, offset by $6.3 million
increase in non-cash working capital used. The increase in non-cash working
capital used was caused primarily by a $2.3 million increase in unbilled
accounts receivable and a $3.9 million decrease in trade accounts payable.
Cash provided by financing activities of $19.7 million during the nine
months ended September 30, 1999 was attributable primarily to proceeds of $17.8
million from the issuance of common shares pursuant to the exercise of stock
options, purchases under the Company's Employee Share Purchase Plan and net
proceeds from a public share issue of 575,000 shares completed January 29, 1999,
which provided net proceeds of $14.7 million. The Company also had proceeds of
$2.3 million from its capital lease program. The capital leases are to be repaid
evenly over a 36 month period ending October 31, 2002, bear interest at 7.83%
and are secured by certain computer hardware and software assets of the Company.
Cash used in investing activities was $4.2 million for the nine months
ended September 30, 1999 as compared to $2.2 million for the nine months ended
September 30, 1998. Investing activity during the nine months ended September
30, 1999 and 1998 consisted primarly of purchases of capital assets, including
computer hardware and software for use in research and development activities
and to support the growth of the Company's corporate information systems.
Existing sources of liquidity at September 30, 1999 include $21.4 million
in cash and cash equivalents and up to $8.0 million available under the
Company's operating line of credit. Under the terms of the agreement, borrowings
and letters of credit under the line are limited to 60% to 90% of eligible
accounts receivable. Borrowings accrue interest at the bank's prime rate plus
0.5%. At September 30, 1999, the Company had no borrowings under the line of
credit. The Company also had provided as performance bonds an irrevocable
revolving letter of credit expiring May 28, 2001 for Belgian Franc 101,068,000
($3.6 million) and a bank guarantee expiring February 2, 2000 in the amount of
Danish Kroner 9,740,000 ($2.0 million).
The Company believes that future cash flows, in addition to funds on hand
and its borrowing capacity under the line of credit, will provide sufficient
funds to meet cash requirements for at least the next twelve months.
Commensurate with its past and expected future growth, the Company may increase,
from time to time, its borrowing facility under its operating line of credit to
support its operations. The Company may use cash to fund other acquisitions of
businesses or products complementary to the Company's business although the
Company has no plans to do so. The Company has no material additional
commitments other than operating and capital leases. The Company may seek to
obtain additional equity or debt financing to fund future growth or other
investing activities, which may or may not be available on attractive terms, or
at all, and may be dilutive to current or future shareholders.
-16-
<PAGE>
Year 2000
General
The Year 2000 issue is the result of computer programs being written using
two digits rather than four digits to define the applicable year. Computer
equipment, software and other devices with embedded technology that are
time-sensitive may recognize a date using "00" as the year 1900 rather than the
year 2000. This could result in system failures or miscalculations causing
disruption of operations, including, among other things, a temporary inability
to manufacture products, acquire or ship products, process transactions, send
invoices, or engage in other normal business activities. The inability of
business processes to function correctly in 2000 could have serious adverse
effects on companies and entities throughout the world.
In 1997, the Company established a team of professionals within the Company
to plan and implement its year 2000 compliance initiative.
The Company has implemented a Company-wide Year 2000 Plan to ensure that
its computer equipment and software with date sensitive embedded technology are
able to distinguish between the year 1900 and the year 2000 and will function
properly with respect to all dates (referred to as "Year 2000 Compliant"). The
Company presently believes that the required modifications or replacements of
certain existing computer equipment and software have been completed so as to
minimize any of the potential Year 2000-related disruptions or malfunctions of
its computer equipment and software.
The Company's Plan consists of two major focus areas: 1) internal systems
including personal computing, facilities and business systems and 2) third-party
considerations including products and suppliers. The tasks common to each of
these areas are: 1) the identification and assessment of Year 2000 issues; 2)
assessment of remediation required to meet compliance requirements; 3)
prioritization of risk; 4) remediation and testing; and 5) contingency planning.
Projects
Internal systems
The Company's compliance team has evaluated all significant internal
personal computing and business systems that are critical to the ongoing
operation of the Company and has identified computer software and hardware
upgrades and replacements necessary to make such systems Year 2000 Compliant.
Remediation requirements related to the replacement and upgrades to specific
computer hardware and software have been determined and are completed as of
November 1, 1999.
The assessment of the Company's facilities identified certain upgrade
requirements which were completed prior to the end of the second quarter 1999.
The Company has reviewed its present financial systems and its long-term
requirements and a decision has been made to purchase and implement a new Year
2000 Compliant system.
Third-party considerations
Customers
The Company is a software developer and has been testing its software
internally and in conjunction with customers for Year 2000 readiness. The
Company believes that all its current products are Year 2000 compliant and
believes that it has identified and informed all its customers of the steps that
are required to make existing software in the hands of customers Year 2000
compliant. The Company's software runs on a variety of computers and operating
systems which are not the responsibility of the Company but for which the
company has suggested to customers to apply available Year 2000 remedies. The
Company is assisting its customers with Year 2000 validation efforts, including
synchronization of Year 2000 upgrades and testing to eliminate implementation of
non-compatible solutions by customers.
-17-
<PAGE>
Year 2000 (Continued)
Suppliers
The Company has identified its third-party software and, in conjunction
with its vendors, has considered aspects of possible remediation requirements.
After review and consultation, the Company has determined that no updates are
required to make existing software Year 2000 compliant. Business operations will
also be dependent on the Year 2000 readiness of infrastructure suppliers such as
banking, communications, transportation and other services. In this environment,
there will likely be instances of failure that could cause disruptions in
business processes. The likelihood and effects of such failures in
infrastructure systems and the supply chain cannot be estimated.
Costs
The total cost of the Company's Year 2000 Plan is not considered material
to the Company's financial condition. The estimated total cost of the Plan is
expected to be approximately $400,000, and is being funded through operating
cash flow. To September 30, 1999, the Company has incurred approximately
$350,000 in costs related to its Year 2000 identification, assessment,
remediation and testing efforts. At September 30, 1999 the major portion of the
of the Company's Year 2000 compliance efforts have been completed with the
balance to be expended thereafter monitoring the compliance process. None of the
Company's other projects have been delayed or deferred as a result of the
implementation of the Year 2000 Compliance Plan.
Risks
To date, the Company has not incurred, and does not expect to incur,
material costs to review and remedy Year 2000 compliance problems. Although the
Company believes that its products are Year 2000 compliant, failure to provide
Year 2000 compliant solutions to its customers or to receive such business
solutions from its suppliers could have a material adverse effect on the
Company's business, financial condition, operating results and cash flows.
Furthermore, the Company may incur additional expense if its products are used
by customers on third-party hardware and operating systems that are not Year
2000 compliant, which could result in a material adverse effect on the Company's
business, operating results, financial condition, and cash flows. There can be
no assurance that the systems or products of other entities, including the
Company's suppliers on which the Company relies, disruptions in the economy
generally resulting from Year 2000, issues, and disruptions caused by customers
deferring their purchase decisions or implementation plans due to their own
internal Year 2000 remediation activities, will not have a material adverse
effect on the Company.
Contingency Plans
As part of the Company's continuing assessment of its Year 2000 compliance
requirements, the Company has developed contingency plans to deal with what it
feels is its worst case scenario. This contingency plan revolves around a staff
team of information technology professionals that will be available on site
during the Year 2000 date change period and the facilities to support that
staff. This contingency plan will increase the availability of qualified Company
system support staff at our Customer Service Center facilities in North America
on December 31, 1999, and January 1,2,and 3, 2000. Additional qualified support
staff will be available on a stand-by basis to be called on, if required.
The preceding "Year 2000" discussion contains various forward-looking
statements which represent the Company's beliefs or expectations regarding
future events. These forward-looking statements include the Company's
expectations and beliefs as to the most likely scenarios or occurrences. All
forward-looking statements, however, involve a number of risks which and
uncertainties that could cause actual results to differ from projected results.
-18-
<PAGE>
ITEM 3: QUANTITIATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company's primary market risk is foreign currency exchange rates. The
Company's foreign currency exposure is primarily with the United States and
Western Europe. Foreign exchange risk arises when the Company enters into
transactions denominated in local currencies and not the functional currency.
The Company has established procedures to manage sensitivity to foreign
currency exchange rate market risk. These procedures include the monitoring of
the Company's net exposure to each foreign currency and the use of foreign
currency forward contracts to hedge firm exposures to currencies other than the
Canadian and United States dollars. The Company has operations in the United
States in addition to its Canadian operations and did not hedge these exposures
in 1999. However, the Company may from time-to-time hedge any net exposure to
the United States dollar.
As of September 30, 1999, the potential reduction in future earnings from a
hypothetical instantaneous 10% change in quoted foreign currency exchange rates
applied to the foreign currency sensitive contracts would be approximately $3.9
million. The majority of the Company's foreign exchange exposure is to the
United States dollar. The foreign currency sensitivity model is limited by the
assumption that all foreign currencies to which the Company is exposed would
simultaneously change by 10%. The sensitivity model does not include the
inherent risks associated with anticipated future transactions denominated in
foreign currencies or future forward contracts entered into for hedging
purposes.
The Company has entered into foreign currency forward contracts in respect
of net exposures under customer contracts in the amount of Belgian Franc
238,000,000 ($9 million) and Great Britain Pounds 680,000 ($1.65 million)
Effective January 1, 1999, the Belgian Franc is tied to the Euro, the new
European Union common currency. The effect of the these transactions is to
reduce the potential reduction in future earnings from a hypothetical
instantaneous 10% change in quoted foreign currency exchange rates to $2.9
million.
The Company believes that it does not have any material exposure to
interest or commodity risks. The Company is exposed to economic and political
changes in international markets where the Company competes, such as inflation
rates, recession, foreign ownership restrictions, domestic and foreign
government spending, budgetary and trade policies and other external factors
over which the Company has no control.
Part II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As of the date hereof, there is no material litigation pending against the
Company. From time to time, the Company is a party to litigation and claims
incident to the ordinary course of business. While the results of litigation and
claims cannot be predicted with certainty, the Company believes that the final
outcome of such matters will not have a material adverse effect on the Company's
business, financial condition, results of operations and cash flows.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
-19-
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
Exhibit
Number Description
------ -----------
10.14 Employment Agreement dated December 1, 1998 between the
Company and Kenneth R. Miller
10.15 Employment Agreement dated February 1, 1999 between the
Company and Robert G. Cruickshank
b) Reports on Form 8-K
None.
-20-
<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 thereunto duly authorized.
MDSI MOBILE DATA SOLUTIONS INC.
Date: November 15, 1999 By: /s/ KENNETH R. MILLER
---------------------------------------
Name: Kenneth R. Miller
Title: Chief Executive Officer
Date: November 15, 1999 By: /s/ VERNE D. PECHO
---------------------------------------
Name: Verne D. Pecho
Title: Vice President Finance &
Administration and Chief
Financial Officer (Principal
Financial and Accounting
Officer)
<PAGE>
EXHIBIT INDEX
-------------
Exhibit
Number Description
------ -----------
10.14 Employment Agreement dated December 1, 1998 between the
Company and Kenneth R. Miller
10.15 Employment Agreement dated February 1, 1999 between the
Company and Robert G. Cruickshank
EXHIBIT 10.14
EMPLOYMENT AGREEMENT
THIS AGREEMENT made to have effect the 1st day of December, 1998.
BETWEEN:
MDSI MOBILE DATA SOLUTIONS INC., a body corporate duly
incorporated under the laws of Canada and having its offices
at 10271 Shellbridge Way, Richmond, B.C.
V6X 2W8
(the "Company")
AND:
KENNETH R. MILLER, a resident of British Columbia,
having an address at 9140 Jaskow Gate, Richmond, B.C. V7E 5H7
(the "Executive")
WHEREAS the Company wishes to employ the Executive and the Executive is
willing to accept such employment upon the terms and conditions set forth in
this Agreement;
NOW THEREFORE in consideration of the premises and the mutual covenants and
agreements herein set forth the parties hereto mutually covenant and agree as
follows:
1. EMPLOYMENT
1.1 The Company hereby employs the Executive to be the Chief Executive Officer
of the Company and the Executive hereby accepts such employment. The Executive
shall report to the Board of Directors of the Company and shall perform all
duties and have all authority incident to the position of Chief Executive
Officer of the Company and such additional duties as he may from time to time be
reasonably required to perform, and such additional authority as he may from
time to time be given, by the Board of Directors.
<PAGE>
-2-
1.2 Without limiting or restricting in any manner the generality of the
foregoing, the work and services to be performed by the Executive will include
the following responsibilities and authority:
(i) Develop the vision, strategies and tactics to achieve the goals
and objectives as determined by the Board of Directors,
(ii) Manage, build and develop the management into a world class
management team capable of achieving the potential of MDSI,
(iii) Assuming responsibility for developing and achieving the
Company's vision, strategies, goals and programs; and
(iv) Assuming responsibility for the operations of the Company
including its operating performance on a quarter by quarter
basis.
(v) Identify opportunities for strategic partnering, mergers,
acquisitions and dispositions and negotiate conditions of such
initiatives on behalf of the Company so as to maximize
profitability and future potential.
1.3 The Executive shall perform his duties out of the Richmond office of the
Company or out of such other office in the lower mainland area of British
Columbia which the Company shall establish and designate as its Vancouver head
office. The Executive's duties will involve extensive domestic and international
travel.
2. EXCLUSIVE SERVICE
Except as expressly provided the Executive shall, during his employment
with the Company, devote his entire attention on a full time basis to the
business of the Company. Provided he obtains the prior written approval of the
Board of Directors the Executive may, during his employment with the Company
undertake work as a director or consultant to any other company, firm or
individual that is
<PAGE>
-3-
not in competition with the Company. At this time the Company acknowledges the
Executive has obligations as a Director of Avcan Global Systems Inc.
3. SALARY AND BONUSES
3.1 The Company shall pay the Executive an annual base salary ("Base Salary")
of Canadian $275,000 gross payable bi-monthly which shall be increased as
follows:
(i) On January 1, 2000 by an amount of 10%; and
(ii) On January 1 of each year of employment commencing 2001 by a cost
of living increase corresponding with the rate of inflation for
the immediately preceding year identified in the Consumer Price
Index for Vancouver published by Statistics Canada which shall in
no case be less than 2.5% per year;
(iii) Notwithstanding (i) or (ii) above the Company will undertake a
review of the Executive's compensation every three years or
sooner if deemed necessary by the committee of the Board of
Directors.
3.2 The Company shall pay the Executive the following incentive bonuses:
(i) a primary bonus (the "Target Incentive") of up to 40% of Base
Salary to be paid upon the Company achieving quarterly revenue,
earnings per share and corporate targets established by the Board
of Directors and communicated to the external market. This bonus
shall be earned and paid in accordance with the details of the
Target Incentive Plan attached as Schedule "B" to this Agreement;
and
(ii) a secondary bonus (the "Performance Incentive") of up to 40% of
Base Salary to be paid upon the Company achieving internal
performance targets established by the Board of Directors. This
bonus shall be earned and paid in accordance with the details
<PAGE>
-4-
of the Performance Incentive Plan attached as Schedule "C" to
this Agreement.
3.3 All payment of salary or bonus shall be subject to deduction of all
applicable Federal and Provincial income tax, unemployment insurance, Canada
Pension deductions and other deductions required at law or made pursuant to this
Agreement.
4. PERQUISITES AND EXPENSES
4.1 The Company shall provide the Executive with an annual flexible pre-tax
perquisite of Canadian $5,000. Any tax which may be applicable to this payment
shall be paid by the Executive.
4.2 The Company shall provide to the Executive the following expenses,
equipment and allowances:
(i) reimbursement for all reasonable and necessary expenses incurred
by the Executive in the conduct of the business of the Company in
accordance with travel and expense policies established by the
Company from time to time;
(ii) appropriate hardware/software, including cell phone, pager, and a
portable computer selected by the Company to permit the Executive
to operate effectively while away from the office or at home and
associated costs; and
(iii) an allowance of Canadian $15,000 per year to cover the leasing
and operating costs of an automobile. This allowance will be
indexed to the rate of inflation indicated in the Consumer Price
Index for Canada as published by Statistics Canada and adjusted
accordingly on the first day of January in each year of
employment commencing on January 1, 2000.
<PAGE>
-5-
5. STOCK OPTIONS
5.1 The Executive shall be entitled to participate in the Employee Stock
Purchase Plan as established by the Company and amended from time to time. A
copy of that Plan has been supplied to the Executive who acknowledges its
receipt.
5.2 In addition, the Executive shall be entitled to the following Stock
Options:
(i) effective October 28, 1998 an option to purchase 75,000 Company
shares at a price of Canadian $20 per share. These shares shall
vest cumulatively in equal monthly amounts on the first day of
each of the subsequent 36 months; and
(ii) in addition commencing January 1, 2000 the Executive shall
receive an annual grant of options based on the MDSI executive
stock policy. The Executive acknowledges receipt of a copy of
this policy.
5.3 Stock options which have vested may be exercised at any time up to five
years from the date of grant. Subject to the provisions of Sections 12, 13 and
14 below, those stock options which have not vested by the date of termination
of the Executive's employment with the Company shall expire automatically as of
that date. Upon termination of his employment by resignation (except a
resignation under section 13 or 14), the Executive shall have a period of thirty
(30) days in which to exercise vested share purchase options, failing which
those options shall expire automatically.
5.4 The stock options granted to the Executive in Section 5.2 are made in
accordance with the Company's Stock Option Plan as amended from time to time by
the Company. A copy of this plan has been supplied to the Executive who
acknowledges its receipt.
6. VACATION
6.1 The Executive shall be entitled to vacation as follows:
<PAGE>
-6-
1999 - five weeks vacation
each year thereafter - six weeks vacation.
7. BENEFITS
7.1 The Executive shall receive those benefits (including medical, dental,
extended health insurance, short and long term disability, life insurance and
family assistance) which are provided to Canadian based employees in the Company
Employee Benefit Program in effect upon the Executive's employment date as that
Program may be modified from time to time. A copy of the Program has been
supplied to the Executive who acknowledges its receipt. In addition to this plan
the Company will provide the Executive with supplemental life insurance to bring
the Executive's total life insurance coverage to $1,000,000. Life insurance
beyond CDN$350,000 (basic and supplemental) shall be subject to evidence of
insurability. The Executive shall be entitled to participate in any separate
benefit package which the Company may subsequently develop for senior
management.
8. SICK LEAVE
8.1 If the Executive shall, at any time, by reason of illness or mental or
physical disability, be incapacitated from carrying out the terms of this
Agreement, he shall furnish the Directors of the Company with medical evidence
to prove such incapacity and the cause thereof, and shall receive his full
salary for a period of 180 days or until long term disability begins whichever
period is shorter.
9. CONFIDENTIAL INFORMATION
9.1 The Executive acknowledges that as Chief Executive Officer of the Company,
he holds a fiduciary position and owes to the Company a duty of utmost loyalty
and good faith. The Executive agrees to serve the Company well and faithfully
and to the best of his ability, and to use his best efforts to promote its
interests.
<PAGE>
-7-
9.2 The Executive acknowledges that in the exercise of his duties with the
Company he will develop and receive information which is proprietary or
confidential to the Company, which information may include but shall not be
limited to: intellectual property; know-how; trade secrets and processes;
product specifications; methods of doing business; information with respect to
the Company's organization; information with respect to the Company's financial
affairs and business plans; information with respect to the Company's pricing
policies; sales and marketing plans; information with respect to the identity
and special needs of the Company's customers (the "Confidential Information").
9.3 The Executive agrees that he shall not disclose the Confidential
Information (either during the continuance of his employment hereunder or any
time thereafter) to any persons other than the Directors of the Company, or as
required in the normal course of business and shall not use the Confidential
Information (either during the continuance of his employment hereunder or any
time thereafter) for his own purposes, or any purposes other than those of the
Company. The Executive further agrees in consideration for his continued
employment by the Company to execute such further and other agreements
concerning the secrecy of the affairs of the Company or any companies with which
the Company is affiliated or associated as the Directors of the Company shall
reasonably request.
9.4 Information shall not be considered as confidential if at the time of
disclosure by the Executive it is generally known to the public or after
disclosure by the Executive it becomes known to the public through no violation
of this Agreement or is disclosed to the Executive by a third party that it is
not under an obligation to maintain the confidentiality of the information.
10. NON COMPETITION
10.1 The Executive agrees that the Company has a legitimate interest in ensuring
that Confidential Information will neither be used by the Company's competition
nor by the Executive for a purpose other than the execution of his functions as
an employee of the Company. Therefore, the Company and the Executive
specifically agree:
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(i) that during the term of his employment, under no circumstances
will the Executive compete with the Company either on his own
behalf or on behalf of or as an employee of a third party;
(ii) for a period of twelve (12) months following the termination of
his employment with the Company the Executive shall not compete
with the Company either on his own account or on behalf of or as
an employee of any third party; and
(iii) for a period of twelve (12) months following the date of
termination of his employment with the Company the Executive
shall not approach any other employee of the Company for the
purpose of recruiting that employee to his own service or
offering or causing to be offered to such other employee a new
position or employment with any other person or company
10.2 The Executive acknowledges and agrees that there can be no geographic limit
to his covenant not to compete due to the nature and extent of the business of
the Company, the market for the Company products and the technologies with which
the Company is involved.
10.3 The parties to this agreement recognize that a breach by the Executive of
any of the covenants contained in Sections 9 and 10 of this Agreement would
cause irreparable harm to the Company which could not be adequately compensated
for by monetary damages. Accordingly the Executive agrees that in the event of a
breach by him of any of the covenants contained in Sections 9 and 10 of this
Agreement, he shall and hereby does consent to an injunction being issued
against him restraining him from any further breach of the said covenants. The
provisions of this section shall not be construed so as to affect or impair any
other remedies which the Company may have in the event of such breach, including
but not limited to an action for damages.
<PAGE>
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11. OWNERSHIP AND USE OF WORK PRODUCTS
11.1 The Executive agrees that any work products produced by the Executive in
the course of his employment with the Company whether developed solely by the
Executive or jointly with any other party (the "Work Product") shall be the sole
and exclusive property of the Company.
11.2 The Company acknowledges that general knowledge and experience including
general techniques, algorithms, methods and formulae not developed for the
Company's specific application or work gained by the Executive prior to or in
the course of his association with the Company, may be used by the Executive at
any time prior to, during or subsequent to his association with the Company,
unless a specific agreement to the contrary is entered into by the Executive and
the Company, as long as the Executive is not in breach of his covenants of
non-competition contained herein.
11.3 This Agreement does not apply to any general techniques, formulae,
algorithm or method for which no equipment, supplies, facility or other
resources or trade secret information of the Company was used and which was
developed entirely on the Executive's own time unless such techniques, formulae,
algorithms, or method related directly to the business of the Company or the
Company's actual demonstrated anticipated research or development.
11.4 At any and all times, either during or after termination of the Executive's
employment with the Company, the Executive will promptly, on the request of the
Company, perform all such acts and execute and deliver all such documents that
may be necessary to vest in the Company the entire right, title and interest in
and to any such Work Product. Should any services be rendered after termination
of his association with the Company a reasonable compensation will be paid to
the Executive upon a per diem basis in addition to reasonable travelling and
accommodation expenses incurred as a result of rendering such services.
11.5 The Employee hereby assigns to the Company any rights the Employee may have
or acquire in the Work Product and waives all claims whatsoever with respect to
the Work Product including any
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moral rights which he/she may have or acquire in the Work Product or to its use,
including the right to restrain or claim damages for any distortion, mutilation
or other modification of the Work Product or any part thereof whatsoever, or to
restrain use or reproduction of the Work Product in any context, or in
connection with any product or service.
12. TERMINATION OF EMPLOYMENT
12.1 The Executive's employment may be terminated at any time by the Company
without previous notice and without payment in lieu of notice for cause which,
for the purposes of this agreement shall include but not be limited to:
(i) dishonesty in the course of the discharge of his duties as an
employee;
(ii) gross negligence or repetitive negligence committed without
regard to corrective direction in the course of the discharge of
his duties as an employee;
(iii) conviction of any criminal offence other than an offence which,
in the reasonable opinion of the Company does not affect the
reputation of the Company or the Executive's position as a
representative of the Company;
(iv) becoming bankrupt or insolvent;
(v) any incapacity, other than an illness or disability, which
renders the Executive incapable of continuing his employment for
a period of 3 months or longer.
12.2 The Executive shall be entitled to terminate his employment with the
Company, at will, at any time by giving notice in writing to the Company of not
less than eight weeks unless otherwise agreed to in writing by the parties.
12.3 The Company may terminate the employment of the Executive at will and
without cause at any
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time upon payment to the Executive of all salary and bonuses owing up to the
date of termination and a severance package consisting of an amount equal to the
sum of two (2) times the current base salary plus two (2) times the current year
target incentive amount.
12.4 In the event that the Company terminates the employment of the Executive
under Section 12.3 above, all stock options to which the Executive is entitled
and which would have vested during the period of twenty-four (24) months
following the date of termination shall vest immediately as of the date of
termination and the Executive shall have a period equal to the earlier of
twenty-four (24) months from that date of termination or the original expiry
date of the five (5) year vesting period from the date of the grant, to exercise
those options.
12.5 The Executive will not be required to mitigate the amount of any payment or
benefit provided for under this Section 12 or any damages resulting from a
failure of the Company to make any such payment or to provide such benefit, by
seeking other employment, or otherwise, nor shall the amount of any payment or
benefit provided for under this Section 12 be reduced by any compensation earned
by the Executive from employment or self employment.
13. CHANGE OF CONTROL OF THE COMPANY
13.1 In this section the term "Change of Control" shall mean:
(a) the sale of greater than 50% of the issued and outstanding common
shares in the capital of the Company pursuant to a "takeover bid" (as
defined in the British Columbia Securities Act);
(b) the disclosure that any person (a "Control Person") directly or
indirectly, beneficially or legally owns, or exercises control or
direction over, greater than 50% of the issued and outstanding shares
in the capital of the Company, in any insider trading report,
information circular, prospectus, offering memorandum, material change
report or
<PAGE>
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other disclosure document of the Company or any such Control Person,
filed or required to be filed with the British Columbia Securities
Commission, the TSE or any other securities regulatory authority or
stock exchange;
(c) the sale or disposition of all or substantially all of the assets of
the Company to a non-affiliated party;
(d) the merger, amalgamation or consolidation of the Company with or into
any other non-affiliated corporation; or
(e) the appointment of a liquidator, receiver, receiver-manager, or
trustee in bankruptcy of the Company, or the making of any assignment
or proposal to or for the benefit of the creditors of the Company.
13.2 In the event that the Company undergoes a Change of Control the Executive
shall have the right at any time within 30 days from the date on which the
Change of Control occurred to resign from his employment with the Company in
accordance with Section 12.2 above, in which case he shall be entitled to
receive the severance package described in Section 12.3 above.
13.3 In the event the Executive resigns his employment pursuant to 13.2 above,
all stock options to which the Executive is entitled and which would have vested
during the period of twelve (12) months following the date of resignation shall
vest immediately as of the date of the resignation and the Executive shall have
a period equal to the earlier of twelve (12) months from that date of
resignation or the original expiry date of the five (5) year vesting period from
the date of the grant, to exercise those options.
13.4 The Executive will not be required to mitigate the amount of any payment or
benefit provided for under this Section 14 or any damages resulting from a
failure of the Company to make any such payment or to provide such benefit, by
seeking other employment, or otherwise, nor shall the amount
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of any payment or benefit provided for under this Section 14 be reduced by any
compensation earned by the Executive from employment or self employment.
14. RESIGNATION AND INDEMNITY
14.1 Upon termination of this Agreement, the Executive will tender to the
Company, and their associated companies, his resignation as an officer and if
applicable, his resignation as a director.
14.2 Subject to the Canada Business Corporations Act, as amended from time to
time (the "Act"), the Company hereby indemnifies the Executive, his heirs,
executors administrators and personal representatives (collectively, the
"Indemnitees") and save the Indemnitees harmless against all costs, charges and
expenses actually and reasonably incurred by the Indemnities in law, in equity
or under any statute or regulation, in connection with any civil, criminal, or
administrative claim, action, proceeding or investigation to which the
Indemnitees are made a party or in which they are otherwise involved as a
witness or other participant by reason of the Executive being or having been a
Director or officer of the Company or its affiliated or associated companies,
including any action brought by the Company or companies, if:
(i) the Executive acted honestly and in good faith with a view to the
best interests of the Company or companies; and
(ii) in the case of a criminal or administrative claim, action,
proceeding or investigation, the Executive had reasonable grounds
for believing that his conduct was lawful.
14.3 Without limiting the generality of the foregoing of Section 14.2 the costs,
charges and expenses against which the Company will indemnify the Indemnitees
include:
(i) any and all fees, costs and expenses actually and reasonably
incurred by the Indemnitees in investigating, preparing for,
defending against, providing evidence in, producing documents or
taking any other action in connection with any commenced or
<PAGE>
-14-
threatened action, proceeding or investigation, including
reasonable legal fees and disbursements, travel, and lodging
costs;
(ii) any amounts reasonably paid in settlement of any action,
proceeding or investigation;
(iii) any amounts paid to satisfy a judgement or penalty, including
interest and costs; and
(iv) all costs charges and expenses reasonably incurred by the
Indemnitees in establishing their right to be indemnified
pursuant to this Agreement.
14.4 If the Indemnitees or any one of them are required to include in their
income, or in the income of the estate of the Executive, any payment made under
this Section 14 for the purpose of determining income tax payable by the
Indemnitees or any of them or the estate, the Company shall pay an amount by way
of indemnity that will fully indemnify the Indemnitees or estate for the amount
of all liabilities described in Section 14.2 and Section 14.3 and all income
taxes payable as a result of the receipt of the indemnity payment.
14.5 Upon receipt of a written request by the Indemnitees for indemnification
under this Agreement (an "Indemnification Notice"), the Company will forthwith
apply to the Supreme Court of British Columbia for approval of the requested
indemnification, will diligently proceed to obtain such approval and will take
all other steps necessary to provide the requested indemnification as soon as
practicable following receipt of the Indemnification Notice.
14.6 Any failure by the Executive in his capacity as a director or officer of
the Company to comply with the provisions of the Act or the Memorandum, Articles
or Bylaws of the Company will not invalidate any indemnity to which he is
entitled under this Agreement.
15. RETURN OF PROPERTY
15.1 In the event of termination of this Agreement, the Company agrees to pay
the Executive all
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arrears of compensation, and all out of pocket expenses owing, up to and
including the effective date of termination, upon receipt from the Executive of
(and the Executive agrees to deliver to the Company);
(i) any property of the Company which may be in the possession or
control of the Executive; and
(ii) the repayment of any sums owed by the Executive to the Company.
16. SURVIVAL
16.1 Notwithstanding the termination of this Agreement for any reason whatsoever
the provisions of Sections 9, 10, 11 and 14 hereof and any other provisions of
this Agreement necessary to give efficacy thereto shall continue in full force
and effect following such termination.
17. NOTICE
17.1 Any notice or other communication (each a "Communication") to be given in
connection with this Agreement shall be given in writing and may be given by
personal delivery, by registered mail or by telecopier, addressed as follows:
TO: MDSI Mobile Data Solutions Inc.
10271 Shellbridge Way
Richmond, B.C. V6X 2W8
Attn: Board of Directors
Phone: 604-207-6000
Fax: 604-207-6062
<PAGE>
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AND TO: Kenneth R. Miller
9140 Jaskow Gate
Richmond, B.C.
V7E 5H7
Phone: 604-275-3145
or at such other address or telecopier number as shall have been designated by
Communication by either party to the other. Any Communication shall be
conclusively deemed to be received, if given by personal delivery, on the date
and at the time of actual delivery thereof and, if given by registered mail, on
the fifth day following the date of mailing, if given by telecopier, on the
business day following the transmittal thereof. If the party giving any
Communication knows or ought reasonably to know of any actual or threatened
interruptions of the mails, such Communication shall not be sent by mail but
shall be given by personal delivery or telecopier.
18. ENTIRE AGREEMENT
18.1 Any other previous agreements, written or oral, between the parties hereto
relating to the employment of the Executive by the Company are hereby terminated
and cancelled and each of the parties hereto hereby releases and forever
discharges the other party hereto of and from all manner of actions, causes and
demands whatsoever under or in respect of any such agreement. This Agreement,
together with the Plans and Programmes which are by reference expressly
incorporated into it, constitutes and expresses the whole agreement of the
parties hereto with reference to the employment of the Executive by the Company,
and with reference to any of the matters or things herein provided for, or
herein before discussed or mentioned with reference to such employment; all
promises, representations, and understandings relative thereto being merged
herein.
19. AMENDMENTS AND WAIVERS
19.1 No amendment to this Agreement shall be valid or binding unless set forth
in writing and duly executed by both of the parties hereto. No waiver or any
breach of any by the party purporting to
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give the same and, unless otherwise provided in the written and signed waiver,
shall be limited to the specific breach waived.
20. BENEFITS OF AGREEMENT
20.1 The provisions of this Agreement shall enure to the benefit of and be
binding upon the legal representatives of the Executive and the successors and
assigns of the Company respectively.
21. SEVERABILITY
21.1 If any provision of this Agreement is deemed to be void or unenforceable,
in whole or in part, it shall not be deemed to affect or impair the validity or
any other provision hereby declared and agreed to be severable from each and
every other section, subsection or provision hereof and to constitute separate
and distinct covenants. The Executive hereby agrees that all restrictions herein
are reasonable and valid and all defences to the strict enforcement thereof by
the Company are hereby waived by the Executive.
22. GOVERNING LAW
22.1 This Agreement shall be governed by and construed in accordance with the
laws of the Province of British Columbia. The Company and the Executive hereby
irrevocably attorn to the jurisdiction of the courts of the Province of British
Columbia, exclusively.
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23. COPY OF AGREEMENT
23.1 The Executive hereby acknowledges receipt of a copy of this Agreement duly
signed by the Company.
IN WITNESS WHEREOF the parties have executed this Agreement as of the day and
year first above written:
SIGNED, SEALED AND DELIVERED by )
KENNETH R. MILLER )
in the presence of: )
)
- ---------------------------- )
Witness ) ---------------------------------
) KENNETH R. MILLER
- ---------------------------- )
Address )
)
- ---------------------------- )
Occupation )
MDSI MOBILE DATA SOLUTIONS INC.
Per: ---------------------------------
Authorized Signatory
<PAGE>
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Schedule "A" - Job Description
Position : Chief Executive Officer
Purpose of Position
To establish short-term and long-range objectives , plans and policies subject
to approval of the Board of Director, direct financial, organizational, and
operations planning activities, approve budgetary and operations functions and
monitor performance to ensure objectives are met; represent the organization
with its major customers, the financial community,. Responsible for establishing
strategies and tactics associated with mergers, acquisitions, partnering, and
dispositions.
Significant Duties and Responsibilities
Develops broad corporate goals, objectives and strategies in accordance with
established mandate and mission of the organization as agreed to with the Board
of Directors. Directs and coordinates major organizational units so that their
activities are carried out in as an integrated "team".
Establishes accountability and authority limits for subordinate executives and
monitors their performance in execution of business plans, strategic renewal
plans, financial results and organizational objectives, taking corrective action
as required.
Implements on a continuous basis an organizational structure and staffing plan
that meets the on going operational needs of the company and presents key
executive candidates to the Board of Directors for approval.
Present budgets to Board of Directors for approval, reviews financial results,
cash flow requirements, and capital expenditures on a regular basis, assess need
for corrections, reports results to Board; arranges/negotiates external
financing as appropriate.
Represents the organization in important external business relationships with
major clients, strategic partners, financiers, government and the public where
such contacts are critical to achievement of corporate goals.
Identifies opportunities for strategic partnering, mergers, acquisitions and
dispositions and negotiates conditions of such initiatives on behalf of the
company in order to maximize profitability and future potential for
shareholders.
Education and Experience
Broad business experience including 12+ years of progressively more responsible
management experience.
Specialized Skills
Broad general knowledge of the high tech industry and on going awareness of
technology developments. Skills in general and strategic business management,
innovative and visionary planning, analysis and decision making. Effective
leadership communication and customer relations.
<PAGE>
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SCHEDULE "B"
40 % of base salary based 80% on achievement of the company's EPS targets in
each quarter and 20% on personal performance determined annually.
The company's EPS targets in each quarter are either achieved or not with
achievement resulting in the payment of the entire (80% of 40%) incentive within
30 days of the company's quarterly results being announced. 50% of any missed
quarters incentive (i.e. 40% of 40%) can be recovered if the year's EPS target
is achieved. This would be paid along with any other incentive achieved for the
year.
Personal performance is actually 20% of the target 40% and 20% of the stretch
40% incentive or 16% of base salary. The performance rating will be based on a
1-10 rating scale where 1 = intolerable, 2 = less than tolerable, 3 = barely
tolerable, 4 = satisfactory -, 5 = satisfactory, 6 = satisfactory +, 7 =
exceeding, 8 = exceeding +, 9 = excelling, 10 = exceptional. A 5 rating would
therefore result in 8% of base salary as an incentive, 7.5 would 12%, and so on.
Personal results are based on a performance plan, which articulates a set of
personal objectives for the year.
SCHEDULE "C"
40% of base salary based 80% on exceeding the target EPS for the year and 20% on
personal performance as described above.
The determination of % achievement of stretch incentive (0-32% of base) will be
in direct relationship to the % achievement of the EPS stretch target for the
year as set by the Board of Directors (e.g. 50% of difference between target and
stretch achieved = 50% of 32% or 16% of base salary).
Payment of annual incentives will be within 30 days of announcing the company's
annual results.
EXHIBIT 10.15
EMPLOYMENT AGREEMENT
THIS AGREEMENT made to have effect the 1st day of February, 1999.
BETWEEN:
MDSI MOBILE DATA SOLUTIONS INC., a body corporate duly
incorporated under the laws of Canada and having its offices
at 10271 Shellbridge Way, Richmond, B.C. V6X 2W8
(the "Company")
AND:
ROBERT G. CRUICKSHANK, a resident of British Columbia,
having an address at 4139 Crown Crescent, Vancouver, B.C.
V6R 2A8
(the "Executive")
WHEREAS the Company wishes to employ the Executive and the Executive is
willing to accept such employment upon the terms and conditions set forth in
this Agreement;
NOW THEREFORE in consideration of the premises and the mutual covenants and
agreements herein set forth the parties hereto mutually covenant and agree as
follows:
1. EMPLOYMENT
1.1 The Company hereby employs the Executive to be the President and Chief
Operating Officer of the Company and the Executive hereby accepts such
employment. The Executive shall report to the Chief Executive Officer of the
Company and shall perform all duties and have all authority incident to the
position of President and Chief Operating Officer of the Company and such
additional duties as he may from time to time be reasonably required to perform,
and such additional authority as he may from time to time be given, by the Chief
Executive Officer.
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1.2 Without limiting or restricting in any manner the generality of the
foregoing, the work and services to be performed by the Executive will include
the following responsibilities and authority:
(i) Assisting in developing and achieving the vision of the Company,
its corporate strategies and tactics;
(ii) Assisting the Chief Executive Officer in managing and shaping the
Company's management team;
(iii) Assuming responsibility for implementing and achieving the
Company's vision, strategies, goals and programs; and
(iv) Assuming responsibility for the operations of the Company
including its operating performance on a quarter by quarter
basis.
1.3 The Executive shall perform his duties out of the Richmond office of the
Company or out of such other office in the lower mainland area of British
Columbia which the Company shall establish and designate as its Vancouver head
office. The Executive's duties will involve extensive domestic and international
travel.
2. EXCLUSIVE SERVICE
Except as expressly provided the Executive shall, during his employment
with the Company, devote his entire attention on a full time basis to the
business of the Company. Provided he obtains the prior written approval of the
Chief Executive Officer the Executive may, during his employment with the
Company undertake work as a director or consultant to any other
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company, firm or individual that is not in competition with the Company. At this
time the Company acknowledges the Executive has obligations as a Director of
Realm Group Inc. and St George's School.
3. SALARY AND BONUSES
3.1 The Company shall pay the Executive an annual base salary ("Base Salary")
of Canadian $240,000 gross payable bi-monthly which shall be increased as
follows:
(i) On January 1, 2000 by an amount of 10%; and
(ii) On January 1 of each year of employment commencing 2001 by a cost
of living increase corresponding with the rate of inflation for
the immediately preceding year identified in the Consumer Price
Index for Vancouver published by Statistics Canada which shall in
no case be less than 2.5% per year;
(iii) Notwithstanding (i) or (ii) above the Company will undertake a
review of the Executive's compensation every three years or
sooner if deemed necessary by the CEO or the compensation
committee of the Board of Directors.
3.2 The Company shall pay the Executive the following incentive bonuses:
(i) a primary bonus (the "Target Incentive") of up to 40% of Base
Salary to be paid upon the Company achieving quarterly revenue,
earnings per share and corporate targets established by the Board
of Directors and communicated to the external market. This bonus
shall be earned and paid in accordance with the details of the
Target Incentive Plan attached as Schedule 1 to this Agreement;
and
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(ii) a secondary bonus (the "Performance Incentive") of up to 40% of
Base Salary to be paid upon the Company achieving internal
performance targets established by the Board of Directors. This
bonus shall be earned and paid in accordance with the details of
the Performance Incentive Plan attached as Schedule 2 to this
Agreement.
3.3 All payment of salary or bonus shall be subject to deduction of all
applicable Federal and Provincial income tax, unemployment insurance, Canada
Pension deductions and other deductions required at law or made pursuant to this
Agreement.
4. PERQUISITES AND EXPENSES
4.1 The Company shall provide the Executive with an annual flexible pre-tax
perquisite of Canadian $5,000. Any tax which may be applicable to this payment
shall be paid by the Executive.
4.2 The Company shall provide to the Executive the following expenses,
equipment and allowances:
(i) reimbursement for all reasonable and necessary expenses incurred
by the Executive in the conduct of the business of the Company in
accordance with travel and expense policies established by the
Company from time to time;
(ii) appropriate hardware/software, including cell phone, pager, and a
portable computer selected by the Company to permit the Executive
to operate effectively while away from the office or at home and
associated costs; and
(iii) an allowance of Canadian $15,000 per year to cover the leasing
and operating
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costs of an automobile. This allowance will be indexed to the
rate of inflation indicated in the Consumer Price Index for
Canada as published by Statistics Canada and adjusted accordingly
on the first day of January in each year of employment commencing
on January 1, 2000.
5. STOCK OPTIONS
5.1 The Executive shall be entitled to participate in the Employee Stock
Purchase Plan as established by the Company and amended from time to time. A
copy of that Plan has been supplied to the Executive who acknowledges its
receipt.
5.2 In addition, the Executive shall be entitled to the following Stock
Options:
(i) an option to purchase 100,000 Company shares at a price of
Canadian $20 per share. The option to purchase the first 20,000
of these shares shall vest upon the first day of the Executive's
employment and the option to purchase the remaining 80,000 of
these shares shall vest cumulatively in equal monthly amounts on
the first day of each of the subsequent 48 months; and
(ii) a further option to purchase 12,500 Company shares per year in
each of the five years from and including 2001 to 2005. The
option to purchase shall vest on the first day of January in each
of the five years and may be exercised at fair market value which
shall be the closing price of Company shares on the Toronto Stock
Exchange ("TSE") on the last trading day prior to the date of
grant.
5.3 Stock options which have vested may be exercised at any time up to five
years from the date of grant. Subject to the provisions of Sections 12, 13 and
15 below, those stock options which have not vested by the date of termination
of the Executive's employment with the
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Company shall expire automatically as of that date. Upon termination of his
employment by resignation (except a resignation under section 13 or 15), the
Executive shall have a period of thirty (30) days in which to exercise vested
share purchase options, failing which those options shall expire automatically.
5.4 The stock options granted to the Executive in Section 5.2 are made in
accordance with the Company's Stock Option Plan as amended from time to time by
the Company. A copy of this plan have been supplied to the Executive who
acknowledges its receipt.
6. VACATION
6.1 The Executive shall be entitled to vacation as follows:
1999 - four weeks vacation
2000 - five weeks vacation
each year thereafter - six weeks vacation.
7. BENEFITS
7.1 The Executive shall receive those benefits (including medical, dental,
extended health insurance, short and long term disability, life insurance and
family assistance) which are provided to Canadian based employees in the Company
Employee Benefit Program in effect upon the Executive's employment date as that
Program may be modified from time to time. A copy of the Program has been
supplied to the Executive who acknowledges its receipt. In addition to this plan
the Company will provide the Executive with supplemental life insurance to bring
the Executive's total life insurance coverage to $1,000,000. The Executive shall
be entitled to participate in any separate benefit package which the Company may
subsequently develop for senior management.
<PAGE>
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8. SICK LEAVE
8.1 If the Executive shall, at any time, by reason of illness or mental or
physical disability, be incapacitated from carrying out the terms of this
Agreement, he shall furnish the Directors of the Company with medical evidence
to prove such incapacity and the cause thereof, and shall receive his full
salary for a period of 180 days or until long term disability begins whichever
period is shorter.
9. CONFIDENTIAL INFORMATION
9.1 The Executive acknowledges that as President and Chief Operating Officer of
the Company, he holds a fiduciary position and owes to the Company a duty of
utmost loyalty and good faith. The Executive agrees to serve the Company well
and faithfully and to the best of his ability, and to use his best efforts to
promote its interests.
9.2 The Executive acknowledges that in the exercise of his duties with the
Company he will develop and receive information which is proprietary or
confidential to the Company, which information may include but shall not be
limited to: intellectual property; know-how; trade secrets and processes;
product specifications; methods of doing business; information with respect to
the Company's organization; information with respect to the Company's financial
affairs and business plans; information with respect to the Company's pricing
policies; sales and marketing plans; information with respect to the identity
and special needs of the Company's customers (the "Confidential Information").
9.3 The Executive agrees that he shall not disclose the Confidential
Information (either during the continuance of his employment hereunder or any
time thereafter) to any persons other than the Directors of the Company, or as
required in the normal course of business and shall not
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use the Confidential Information (either during the continuance of his
employment hereunder or any time thereafter) for his own purposes, or any
purposes other than those of the Company. The Executive further agrees in
consideration for his continued employment by the Company to execute such
further and other agreements concerning the secrecy of the affairs of the
Company or any companies with which the Company is affiliated or associated as
the Directors of the Company shall reasonably request.
9.4 Information shall not be considered as confidential if at the time of
disclosure by the Executive it is generally known to the public or after
disclosure by the Executive it becomes known to the public through no violation
of this Agreement or is disclosed to the Executive by a third party that it is
not under an obligation to maintain the confidentiality of the information.
10. NON COMPETITION
10.1 The Executive agrees that the Company has a legitimate interest in ensuring
that Confidential Information will neither be used by the Company's competition
nor by the Executive for a purpose other than the execution of his functions as
an employee of the Company. Therefore, the Company and the Executive
specifically agree:
(i) that during the term of his employment, under no circumstances
will the Executive compete with the Company either on his own
behalf or on behalf of or as an employee of a third party;
(ii) for a period of twelve (12) months following the termination of
his employment with the Company the Executive shall not compete
with the Company either on his own account or on behalf of or as
an employee of any third party; and
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(iii) for a period of twelve (12) months following the date of
termination of his employment with the Company the Executive
shall not approach any other employee of the Company for the
purpose of recruiting that employee to his own service or
offering or causing to be offered to such other employee a new
position or employment with any other person or company
10.2 The Executive acknowledges and agrees that there can be no geographic limit
to his covenant not to compete due to the nature and extent of the business of
the Company, the market for the Company products and the technologies with which
the Company is involved.
10.3 The parties to this agreement recognize that a breach by the Executive of
any of the covenants contained in Sections 9 and 10 of this Agreement would
cause irreparable harm to the Company which could not be adequately compensated
for by monetary damages. Accordingly the Executive agrees that in the event of a
breach by him of any of the covenants contained in Sections 9 and 10 of this
Agreement, he shall and hereby does consent to an injunction being issued
against him restraining him from any further breach of the said covenants. The
provisions of this section shall not be construed so as to affect or impair any
other remedies which the Company may have in the event of such breach, including
but not limited to an action for damages.
11. OWNERSHIP AND USE OF WORK PRODUCTS
11.1 The Executive agrees that any work products produced by the Executive in
the course of his employment with the Company whether developed solely by the
Executive or jointly with any other party (the "Work Product") shall be the sole
and exclusive property of the Company.
11.2 The Company acknowledges that general knowledge and experience including
general
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techniques, algorithms, methods and formulae not developed for the Company's
specific application or work gained by the Executive prior to or in the course
of his association with the Company, may be used by the Executive at any time
prior to, during or subsequent to his association with the Company, unless a
specific agreement to the contrary is entered into by the Executive and the
Company, as long as the Executive is not in breach of his covenants of
non-competition contained herein.
11.3 This Agreement does not apply to any general techniques, formulae,
algorithm or method for which no equipment, supplies, facility or other
resources or trade secret information of the Company was used and which was
developed entirely on the Executive's own time unless such techniques, formulae,
algorithms, or method related directly to the business of the Company or the
Company's actual demonstrated anticipated research or development.
11.4 At any and all times, either during or after termination of the Executive's
employment with the Company, the Executive will promptly, on the request of the
Company, perform all such acts and execute and deliver all such documents that
may be necessary to vest in the Company the entire right, title and interest in
and to any such Work Product. Should any services be rendered after termination
of his association with the Company a reasonable compensation will be paid to
the Executive upon a per diem basis in addition to reasonable travelling and
accommodation expenses incurred as a result of rendering such services.
11.5 The Employee hereby assigns to the Company any rights the Employee may have
or acquire in the Work Product and waives all claims whatsoever with respect to
the Work Product including any moral rights which he/she may have or acquire in
the Work Product or to its use, including the right to restrain or claim damages
for any distortion, mutilation or other modification of the Work Product or any
part thereof whatsoever, or to restrain use or reproduction of the Work Product
in any context, or in connection with any product or service.
<PAGE>
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12. TERMINATION OF EMPLOYMENT
12.1 The Executive's employment may be terminated at any time by the Company
without previous notice and without payment in lieu of notice for cause which,
for the purposes of this agreement shall include but not be limited to:
(i) dishonesty in the course of the discharge of his duties as an
employee;
(ii) gross negligence or repetitive negligence committed without
regard to corrective direction in the course of the discharge of
his duties as an employee;
(iii) conviction of any criminal offence other than an offence which,
in the reasonable opinion of the Company does not affect the
reputation of the Company or the Executive's position as a
representative of the Company;
(iv) becoming bankrupt or insolvent;
(v) any incapacity, other than an illness or disability, which
renders the Executive incapable of continuing his employment for
a period of 3 months or longer.
12.2 The Executive shall be entitled to terminate his employment with the
Company, at will, at any time by giving notice in writing to the Company of not
less than eight weeks unless otherwise agreed to in writing by the parties.
12.3 The Company may terminate the employment of the Executive at will and
without cause at any time upon payment to the Executive of all salary and
bonuses owing up to the date of termination and a severance package consisting
of an amount equal to the sum of two times the current base salary plus two
times the current year target incentive amount.
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12.4 In the event that the Company terminates the employment of the Executive
under Section 12.3 above, all stock options to which the Executive is entitled
and which would have vested during the period of twenty-four (24) months
following the date of termination shall vest immediately as of the date of
termination and the Executive shall have a period equal to the earlier of
twenty-four (24) months from that date of termination or the original expiry
date of the five (5) year vesting period from the date of the grant, to exercise
those options.
12.5 The Executive will not be required to mitigate the amount of any payment or
benefit provided for under this Section 12 or any damages resulting from a
failure of the Company to make any such payment or to provide such benefit, by
seeking other employment, or otherwise, nor shall the amount of any payment or
benefit provided for under this Section 12 be reduced by any compensation earned
by the Executive from employment or self employment.
13. Board of Director's Seat
On February 1, 2000 the Executive, given no issues have arisen during the
Executive's first year of employment, will, subject to shareholder approval at
the subsequent Annual General Meeting, be appointed to the Board of Director's
of MDSI Mobile Data Solutions Inc.
14. CHANGE OF CONTROL OF THE COMPANY
14.1 In this section the term "Change of Control" shall mean:
(a) the sale of greater than 50% of the issued and outstanding common
shares in the capital of the Company pursuant to a "takeover bid" (as
defined in the British Columbia Securities Act);
<PAGE>
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(b) the disclosure that any person (a "Control Person") directly or
indirectly, beneficially or legally owns, or exercises control or
direction over, greater than 50% of the issued and outstanding shares
in the capital of the Company, in any insider trading report,
information circular, prospectus, offering memorandum, material change
report or other disclosure document of the Company or any such Control
Person, filed or required to be filed with the British Columbia
Securities Commission, the TSE or any other securities regulatory
authority or stock exchange;
(c) the sale or disposition of all or substantially all of the assets of
the Company to a non-affiliated party;
(d) the merger, amalgamation or consolidation of the Company with or into
any other non-affiliated corporation; or
(e) the appointment of a liquidator, receiver, receiver-manager, or
trustee in bankruptcy of the Company, or the making of any assignment
or proposal to or for the benefit of the creditors of the Company.
14.2 In the event that the Company undergoes a Change of Control the Executive
shall have the right at any time within 30 days from the date on which the
Change of Control occurred to resign from his employment with the Company in
accordance with Section 12.2 above, in which case he shall be entitled to
receive the severance package described in Section 12.3 above.
14.3 In the event that the Executive resigns from his employment under Section
14.2 above, all stock options to which the Executive is entitled and which would
have vested during the period of twenty-four (24) months following the date of
resignation shall vest immediately as of the date of
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resignation and the Executive shall have a period equal to the earlier of
twenty-four (24) months from that date of resignation or the original expiry
date of the five (5) year vesting period from the date of the grant, to exercise
those options.
14.4 The Executive will not be required to mitigate the amount of any payment or
benefit provided for under this Section 14 or any damages resulting from a
failure of the Company to make any such payment or to provide such benefit, by
seeking other employment, or otherwise, nor shall the amount of any payment or
benefit provided for under this Section 14 be reduced by any compensation earned
by the Executive from employment or self employment.
15. RESIGNATION AND INDEMNITY
15.1 Upon termination of this Agreement, the Executive will tender to the
Company, and their associated companies, his resignation as an officer and if
applicable, his resignation as a director.
15.2 Subject to the Canada Business Corporations Act, as amended from time to
time (the "Act"), the Company hereby indemnifies the Executive, his heirs,
executors administrators and personal representatives (collectively, the
"Indemnitees") and save the Indemnitees harmless against all costs, charges and
expenses actually and reasonably incurred by the Indemnities in law, in equity
or under any statute or regulation, in connection with any civil, criminal, or
administrative claim, action, proceeding or investigation to which the
Indemnitees are made a party or in which they are otherwise involved as a
witness or other participant by reason of the Executive being or having been a
director or officer of the Company or its affiliated or associated companies,
including any action brought by the Company or companies, if:
(i) the Executive acted honestly and in good faith with a view to the
best interests of the Company or companies; and
<PAGE>
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(ii) in the case of a criminal or administrative claim, action,
proceeding or investigation, the Executive had reasonable grounds
for believing that his conduct was lawful.
15.3 Without limiting the generality of the foregoing of Section 15.2 the costs,
charges and expenses against which the Company will indemnify the Indemnitees
include:
(i) any and all fees, costs and expenses actually and reasonably
incurred by the Indemnitees in investigating, preparing for,
defending against, providing evidence in, producing documents or
taking any other action in connection with any commenced or
threatened action, proceeding or investigation, including
reasonable legal fees and disbursements, travel, and lodging
costs;
(ii) any amounts reasonably paid in settlement of any action,
proceeding or investigation;
(iii) any amounts paid to satisfy a judgement or penalty, including
interest and costs; and
(iv) all costs charges and expenses reasonably incurred by the
Indemnitees in establishing their right to be indemnified
pursuant to this Agreement.
15.4 If the Indemnitees or any one of them are required to include in their
income, or in the income of the estate of the Executive, any payment made under
this Section 15 for the purpose of determining income tax payable by the
Indemnitees or any of them or the estate, the Company shall pay an amount by way
of indemnity that will fully indemnify the Indemnitees or estate for the amount
of all liabilities described in Section 15.2 and Section 15.3 and all income
taxes payable as a result of the receipt of the indemnity payment.
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15.5 Upon receipt of a written request by the Indemnitees for indemnification
under this Agreement (an "Indemnification Notice"), the Company will forthwith
apply to the Supreme Court of British Columbia for approval of the requested
indemnification, will diligently proceed to obtain such approval and will take
all other steps necessary to provide the requested indemnification as soon as
practicable following receipt of the Indemnification Notice.
15.6 Any failure by the Executive in his capacity as a director or officer of
the Company to comply with the provisions of the Act or the Memorandum, Articles
or Bylaws of the Company will not invalidate any indemnity to which he is
entitled under this Agreement.
16. RETURN OF PROPERTY
16.1 In the event of termination of this Agreement, the Company agrees to pay
the Executive all arrears of compensation, and all out of pocket expenses owing,
up to and including the effective date of termination, upon receipt from the
Executive of (and the Executive agrees to deliver to the Company);
(i) any property of the Company which may be in the possession or
control of the Executive; and
(ii) the repayment of any sums owed by the Executive to the Company.
17. SURVIVAL
17.1 Notwithstanding the termination of this Agreement for any reason whatsoever
the provisions of Sections 9, 10, 11 and 14 hereof and any other provisions of
this Agreement necessary to give efficacy thereto shall continue in full force
and effect following such termination.
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18. NOTICE
18.1 Any notice or other communication (each a "Communication") to be given in
connection with this Agreement shall be given in writing and may be given by
personal delivery, by registered mail or by telecopier, addressed as follows:
TO: MDSI Mobile Data Solutions Inc.
10271 Shellbridge Way
Richmond, B.C. V6X 2W8
Attn: Chief Executive Officer
Phone: 604-207-6000
Fax: 604-207-6062
AND TO: Robert G. Cruickshank
4139 Crown Crescent
Vancouver, B.C. V6R 2A8
Phone: 604-228-1608
or at such other address or telecopier number as shall have been designated by
Communication by either party to the other. Any Communication shall be
conclusively deemed to be received, if given by personal delivery, on the date
and at the time of actual delivery thereof and, if given by registered mail, on
the fifth day following the date of mailing, if given by telecopier, on the
business day following the transmittal thereof. If the party giving any
Communication knows or ought reasonably to know of any actual or threatened
interruptions of the mails, such Communication shall not be sent by mail but
shall be given by personal delivery or telecopier.
<PAGE>
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19. ENTIRE AGREEMENT
19.1 Any other previous agreements, written or oral, between the parties hereto
relating to the employment of the Executive by the Company are hereby terminated
and cancelled and each of the parties hereto hereby releases and forever
discharges the other party hereto of and from all manner of actions, causes and
demands whatsoever under or in respect of any such agreement. This Agreement,
together with the Plans and Programmes which are by reference expressly
incorporated into it, constitutes and expresses the whole agreement of the
parties hereto with reference to the employment of the Executive by the Company,
and with reference to any of the matters or things herein provided for, or
herein before discussed or mentioned with reference to such employment; all
promises, representations, and understandings relative thereto being merged
herein.
20. AMENDMENTS AND WAIVERS
20.1 No amendment to this Agreement shall be valid or binding unless set forth
in writing and duly executed by both of the parties hereto. No waiver or any
breach of any by the party purporting to give the same and, unless otherwise
provided in the written and signed waiver, shall be limited to the specific
breach waived.
21. BENEFITS OF AGREEMENT
21.1 The provisions of this Agreement shall enure to the benefit of and be
binding upon the legal representatives of the Executive and the successors and
assigns of the Company respectively.
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22. SEVERABILITY
22.1 If any provision of this Agreement is deemed to be void or unenforceable,
in whole or in part, it shall not be deemed to affect or impair the validity or
any other provision hereby declared and agreed to be severable from each and
every other section, subsection or provision hereof and to constitute separate
and distinct covenants. The Executive hereby agrees that all restrictions herein
are reasonable and valid and all defences to the strict enforcement thereof by
the Company are hereby waived by the Executive.
23. GOVERNING LAW
23.1 This Agreement shall be governed by and construed in accordance with the
laws of the Province of British Columbia. The Company and the Executive hereby
irrevocably attorn to the jurisdiction of the courts of the Province of British
Columbia, exclusively.
24. COPY OF AGREEMENT
24.1 The Executive hereby acknowledges receipt of a copy of this Agreement duly
signed by the Company.
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IN WITNESS WHEREOF the parties have executed this Agreement as of the day and
year first above written:
SIGNED, SEALED AND DELIVERED )
by ROBERT G. CRUICKSHANK )
in the presence of: )
)
- ---------------------------- )
Witness ) ---------------------------------
) ROBERT G. CRUICKSHANK
- ---------------------------- )
Address )
)
- ---------------------------- )
Occupation )
MDSI MOBILE DATA SOLUTIONS INC.
Per: ---------------------------------
Authorized Signatory
<PAGE>
Schedule "A"
Job Description: President and Chief Operating Officer
Purpose:
To establish short-term and long-range objectives, plans and policies subject to
the approval of the CEO and/or the Board of Directors. To direct financial,
organizational, operational and business planning activities; monitor
performance to ensure objectives are met. Ensure that the strategic direction of
the Company is defined and executed. Represent the organization with its major
customers, the financial community, government and the public.
Duties and Responsibilities
Develop broad corporate goals and objectives and strategies in accordance with
corporate vision and mission as agreed to with the Board of Directors. Directs
and coordinates major organizational units so that their activities are carried
out in an integrated manner consistent with the overall corporate objective.
Determines broad policies in conjunction with executive team.
Establishes accountability and authority for subordinate executives and monitors
their performance in execution of business plans, financial results and
organizational objectives. Take corrective action as required.
Implements on a continuous basis an organizational structure and staffing plan
that meets the on-going operational needs of the company
Establishes in conjunction with executive team an organizational climate
conducive to maximizing employee potential and productivity and retention of key
personnel; ensures an infrastructure is in place that motivates, recognizes and
rewards employees in a manner consistent with individual and corporate results.
In conjunction with the CEO presents budgets to the Board of Directors for
approval, reviews financial results, and capital expenditures on a regular
basis, takes corrective action as necessary to ensure financial objectives
achieved.
Represents the organization in important external business relationships with
major clients, strategic partners, financial community, government and public to
ensure a positive organization profile.
In conjunction with the CEO identify opportunities for strategic partnering,
acquisition, mergers etc. Participate in negotiations on behalf of the
corporation in order to maximize profitability and future potential.
Constantly reassess corporate strategies and initiatives to ensure that
corporate profitability is achieved.
The above outlines essential responsibilities and activities and is not intended
to be an exhaustive list. Depending on organization requirements other duties
may be assigned.
Specialized Skills
Broad general knowledge of the high tech industry and an ongoing awareness of
technology development and advancements. Skills in general and strategic
business management, innovative and strategic planning, effective decision
making, leadership communications and employee/customer relations.
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SCHEDULE "1"
40 % of base salary based 80% on achievement of the company's EPS targets in
each quarter and 20% on personal performance determined annually.
The company's EPS targets in each quarter are either achieved or not with
achievement resulting in the payment of the entire (80% of 40%) incentive within
30 days of the company's quarterly results being announced. 50% of any missed
quarters incentive (i.e. 40% of 40%) can be recovered if the year's EPS target
is achieved. This would be paid along with any other incentive achieved for the
year.
Personal performance is actually 20% of the target 40% and 20% of the stretch
40% incentive or 16% of base salary. The performance rating will be based on a
1-10 rating scale where 1 = intolerable, 2 = less than tolerable, 3 = barely
tolerable, 4 = satisfactory -, 5 = satisfactory, 6 = satisfactory +, 7 =
exceeding, 8 = exceeding +, 9 = excelling, 10 = exceptional. A 5 rating would
therefore result in 8% of base salary as an incentive, 7.5 would 12%, and so on.
Personal results are based on a performance plan, which articulates a set of
personal objectives for the year.
SCHEDULE "2"
Schedule 2 - 40% of base salary based 80% on exceeding the target EPS for the
year and 20% on personal performance as described above.
The determination of % achievement of stretch incentive (0-32% of base) will be
in direct relationship to the % achievement of the EPS stretch target for the
year as set by the Board of Directors (e.g. 50% of difference between target and
stretch achieved = 50% of 32% or 16% of base salary).
Payment of annual incentives will be within 30 days of announcing the company's
annual results.
