Mitel Networks Corporation
As filed with the U.S. Securities and Exchange Commission on
May 9, 2006
Registration
No. 333-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form F-1
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
MITEL NETWORKS CORPORATION
(Exact name of Registrant as specified in its charter)
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Canada |
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3661 |
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Not applicable |
(State or other jurisdiction of
incorporation or organization) |
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(Primary Standard Industrial
Classification Code Number) |
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(I.R.S. Employer
Identification No.) |
350 Legget Drive
Ottawa, Ontario
Canada K2K 2W7
(613) 592-2122
(Address, including zip code, and telephone number, including
area code, of
Registrants principal executive offices)
CT Corporation System
111 Eighth Avenue, 13th Floor
New York, New York 10011
(212) 894-8940
(Name, address, including zip code, and telephone number,
including area code, of
agent for service in the United States)
With copies to:
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Riccardo A. Leofanti, Esq.
Skadden, Arps, Slate,
Meagher & Flom LLP
Suite 1750, 222 Bay Street
Toronto, Ontario
Canada M5K 1J5
(416) 777-4700 |
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Craig Wright, Esq.
Osler, Hoskin & Harcourt LLP
Suite 1500, 50 OConnor Street
Ottawa, Ontario
Canada K1P 6L2
(613) 235-7234 |
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Christopher J. Cummings, Esq.
Shearman & Sterling LLP
Suite 4405
Commerce Court West
Toronto, Ontario
Canada M5L 1E8
(416) 360-8484 |
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Gary S.A. Solway, Esq.
Torys LLP
Suite 3000
79 Wellington Street West
Toronto, Ontario
Canada M5K 1N2
(416) 865-0040 |
Approximate date of commencement of proposed sale to the
public: As soon as practicable after this registration
statement becomes effective.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to
Rule 415 under the Securities Act of 1933, check the
following
box. o
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act,
check the following box and list the Securities Act registration
statement number of the earlier effective registration statement
for the same
offering. o
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
If this Form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earliest effective registration statement for the same
offering. o
CALCULATION OF REGISTRATION FEE
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Proposed Maximum |
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Amount of |
Title of Each Class of |
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Aggregate Offering |
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Registration |
Securities to be Registered |
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Price(1)(2) |
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Fee |
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Common Shares
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$150,000,000 |
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$16,050 |
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(1) |
Estimated solely for the purpose of computing the registration
fee pursuant to Rule 457(o) under the Securities Act of
1933 and based on a bona fide estimate of the public
offering price. |
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(2) |
Includes shares the underwriters have the option to purchase to
cover over-allotments,
if any. |
The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective
date until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933, as amended, or until this
Registration Statement shall become effective on such date as
the Commission, acting pursuant to said Section 8(a), may
determine.
The information
in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed
with the Securities and Exchange Commission is effective. This
prospectus is not an offer to sell these securities and we are
not soliciting offers to buy these securities in any
jurisdiction where the offer or sale is not
permitted.
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PROSPECTUS (Subject to
Completion)
Issued May 9, 2006
Shares
Mitel Networks Corporation
Common Shares
This is an initial public offering of our common shares in the
United States and Canada. We are
offering common
shares and the selling shareholders named in this prospectus are
offering common
shares. We will not receive any of the proceeds from the sale of
the common shares by the selling shareholders. No public market
currently exists for our shares. We anticipate that the initial
public offering price will be between
$ and
$ per
share.
Investing in our common shares involves risks. See Risk
Factors beginning on page 8.
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Selling | |
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Public | |
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Proceeds to Us | |
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Shareholders | |
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Per Share
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$ |
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$ |
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$ |
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$ |
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Total
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$ |
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$ |
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We and the selling shareholders have granted the underwriters
the right to purchase up to an
additional common
shares to cover over-allotments.
The Securities and Exchange Commission and state securities
regulators have not approved or disapproved these securities, or
determined if this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
Morgan Stanley & Co. Incorporated and RBC Capital Markets
Corporation expect to deliver the shares to purchasers
on ,
2006.
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Morgan Stanley
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RBC Capital Markets |
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Merrill Lynch & Co. |
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Joint Bookrunner
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Joint Bookrunner |
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Lead Manager |
Genuity Capital Markets
Thomas Weisel Partners LLC
National Bank Financial Inc.
The date of this prospectus
is ,
2006.
TABLE OF CONTENTS
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F-1 |
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You should rely only on the information contained in this
prospectus. We have not authorized anyone to provide you with
information different from that contained in this prospectus. We
and the selling shareholders are offering to sell, and seeking
offers to buy, common shares only in jurisdictions where offers
and sales are permitted. The information contained in this
prospectus is accurate only as of the date of this prospectus,
regardless of the time of delivery of this prospectus or any
sale of our common shares.
Until ,
2006, 25 days after the date of this prospectus, all
dealers that buy, sell or trade our common shares, whether or
not participating in this offering, may be required to deliver a
prospectus. This delivery requirement is in addition to the
obligation of dealers to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or
subscriptions.
For investors outside the United States and Canada.
Neither we nor any of the underwriters have done anything that
would permit this offering or possession or distribution of this
prospectus in any jurisdiction where action for that purpose is
required, other than in the United States and Canada. You are
required to inform yourselves about and to observe any
restrictions relating to this offering and the distribution of
this prospectus.
In this prospectus, Mitel, we,
us and our refer to Mitel Networks
Corporation, a Canadian corporation, and its subsidiaries,
unless the context requires otherwise, and these terms do not
include or refer to the selling shareholders. Our consolidated
financial statements are reported in U.S. dollars and have
been prepared in accordance with United States generally
accepted accounting principles, or U.S. GAAP.
References to offering refer to the initial public
offering of our common shares in the United States and Canada.
All references to underwriters refer collectively to
the U.S. and Canadian underwriters.
Throughout this prospectus, IP-based refers to our
IP-based solutions, which include pure IP communications
solutions and hybrid communications solutions in which our
legacy products are networked with our pure IP solutions, as
part of our customer migration strategy.
i
Throughout this prospectus we refer to packaged
software, which means software sold in a format that
is ready for use without customization, regardless of whether
such software is sold in a physical package,
pre-installed or
downloaded electronically.
We express all dollar amounts in this prospectus in
U.S. dollars, except where otherwise indicated. References
to $ are to U.S. dollars and references to
C$ are to Canadian dollars. On May 8, 2006, the
noon buying rate in the City of New York for cable
transfers in Canadian dollars as certified for customs purposes
by the Federal Reserve Bank of New York was
$1.00 = C$1.1116.
ii
PROSPECTUS SUMMARY
You should read the following summary together with the
entire prospectus, including the more detailed information in
our consolidated financial statements and related notes
appearing elsewhere in this prospectus. You should carefully
consider, among other things, the matters discussed in
Risk Factors.
MITEL NETWORKS CORPORATION
Overview
We are a leading provider of integrated communications solutions
and services for business customers. Our
voice-centric Internet
Protocol, or IP, based communications solutions consist of a
combination of telephony hardware and software that integrate
voice, video and data communications with business applications
and processes. Our solutions enable our customers to realize
significant cost benefits and to conduct their business more
efficiently and effectively by enabling enhanced communications,
information sharing and collaboration within a business and with
customers, partners and suppliers.
Historically, businesses have used a data network for their data
communications and a separate telephony network for their voice
communications. Legacy telephony networks are based on
circuit-switched
technology and use proprietary operating systems. Conversely,
data networks are
IP-based and allow
businesses to address their voice, video and data requirements
using a single converged network. Because converged
networks have significant advantages over maintaining separate
networks for data communications and voice communications, the
global market for business IP telephony products and services
has grown rapidly since 2002. Synergy Research Group, a
technology market research firm, estimates that IP telephony
line shipments grew by a compound annual growth rate, or CAGR,
of 68.7% from 2002 to 2005. Synergy estimates that IP telephony
market revenues were approximately $4.0 billion worldwide
in 2005 and are expected to grow to over $10.7 billion by
2009, representing a CAGR of 28.2%. In contrast, Synergy expects
that revenue from legacy
circuit-switched
telephony systems will decline at a CAGR of 38.1% from 2005
until 2009.
We have been a leading vendor of business telephony systems for
over 25 years and have shipped over 230,000 systems
supporting the voice-centric communications needs of over
20 million users in more than 90 countries. We have
experienced significant growth in the sales of our
IP-based communications
solutions as businesses migrate from their legacy telephony
systems. Our IP-based
product revenues grew 30% in our fiscal year ended
April 30, 2005 compared with our previous fiscal year and
over 95% of our system shipments for the quarter ended
January 31, 2006 were
IP-based communications
solutions.
Our IP-based
communications solutions are scalable, flexible, secure and easy
to deploy, manage and use. These solutions interoperate with
various systems supplied by other vendors allowing our customers
to protect their existing telephony investments by migrating
their legacy voice communications systems towards an
IP-based system at
their own pace. Our solutions can be aligned with our
customers business systems, whether those systems are
centralized or distributed across multiple locations. We offer
packaged software applications as an integral part of our
IP-based communications
solutions for optimizing business processes and solving business
communications challenges, including applications for contact
centers, mobility, teleworking, messaging and collaboration. We
develop solutions that focus on particular industries, or
vertical markets, including education, government, healthcare,
hospitality and retail. We also develop custom software
applications to tailor our solutions to the unique needs of
specific customers. We complement our communications solutions
with a range of services including the planning and design of
business communications networks, implementation, maintenance,
training and support services.
We sell our communications solutions to organizations of all
sizes from small businesses to large enterprises. Currently, our
IP-based communications
networks are used by customers with as few as 10 users in a
single location to customers with systems that can support as
many as 40,000 users in a distributed or multi-location network.
Our customers include Auchan, Choice Hotels, CompUSA, Hilton
UK Hotels Ltd. and New York City Department of Education.
We sell our communications solutions through a distribution
network of over 1,200 channel partners that includes wholesale
distributors, solutions
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providers, authorized resellers, communication services
providers, systems integrators, and other distribution channels.
We operate from over 40 locations around the world,
including North America, Europe, the Middle East, Africa,
the Asia-Pacific
region, the Caribbean and Latin America.
Our Competitive Strengths
Our key competitive strengths include the following:
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Focus on IP-based
communications solutions. We have invested heavily in the
development of IP-based
communications solutions over the last five years. As a
result, we now have an
award-winning portfolio
of IP-based
communications solutions that we believe is one of the broadest
in the industry. We also have one of the industrys highest
ratios of IP-based
product shipments to that of legacy products. |
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Interoperable, scalable and flexible voice-centric solutions
that enable IP adoption. Our
IP-based solutions
allow our customers to migrate part or all of their voice
communications towards a converged
IP-based solution at
their own pace. This gradual migration is possible because our
IP-based solutions are
compatible with industry standards and can interoperate with
most voice and data networks. Our
IP-based communications
platforms and gateways can scale from as few as 10 users to
as many as 65,000 users in a single network configuration. In
developing our applications, we use open standards and
communications protocols to allow for the seamless integration
of converged voice, video and data applications. |
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Broad software capabilities that drive high value IP-based
solutions and enable business process improvements. Our
solutions have significant embedded software content, which
increases the intelligence and value-add of the hardware
offering. In addition, our solutions are differentiated by a
broad set of packaged software applications that help our
customers optimize business processes, whether addressing the
needs of the individual, a work group or the business as a
whole. Our range of packaged software offerings includes
applications for contact centers, mobility, teleworking,
presence and collaboration, voice messaging, unified
communications, video conferencing and network management. |
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Award-winning desktop portfolio focused on the user
experience. Our wired and wireless desktop devices are
designed to present advanced desktop applications to the user
and to address their specific needs regardless of whether the
user is in the office, at home or traveling. Our desktop
products have been recognized for their innovation, ease of use,
industrial design and functionality. |
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Communications solutions tailored to the needs of specific
industries. We offer solutions that are designed
specifically to meet the needs of particular vertical markets
such as education, government, healthcare, hospitality and
retail. We have made significant investments in developing our
understanding of the unique business requirements of our target
vertical markets and translating that knowledge into specific
solutions. |
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Leadership in small and medium-sized business market. We
have been recognized for our leadership in the small and
medium-sized business market. With our brand recognition and the
scalability of our platforms, we believe we are well positioned
to expand our focus and addressable market from small and
medium-sized businesses to large enterprises. |
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Large, integrated distribution and strategic partner network.
We have developed a global sales and distribution network
with our channel partners and have formed a network of strategic
partnerships and alliances. We believe that our channel partner
network enables us to reach markets around the world cost
effectively. We have substantial distribution capabilities in
North America and the United Kingdom, and we are increasing our
distribution presence in other regions. Our distribution network
consists of over 1,200 channel partners across more than
90 countries. Where appropriate, we assist our channel
partners with our high-touch sales force and service
organization. Our strategic partner network enables us to
further improve the functionality and features of our solutions
through joint research and development activities. We |
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have entered into strategic alliances for the provision of
certain converged networks with Hewlett-Packard and Foundry
Networks. At the software applications level, we have entered
into an agreement with Microsoft to integrate Microsoft Office
Live Communications Server and Microsoft Office Communicator
applications with our Mitel Live Business Gateway. This
interoperability will allow our customers to access our call
processing features from within the Microsoft Office system and
enhances our messaging and contact center applications by
allowing Microsofts applications to show presence and
availability. |
Our Strategy
Our strategy is to build from our leading position in the small
and medium-sized
business market to also attract large enterprise customers,
increase our market share and generate attractive returns for
our shareholders. To accomplish these objectives, we
intend to:
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Continue to expand our market focus by leveraging our highly
scalable solutions. We have established a leading position
in the small and medium-sized business market. We continue to
expand our market focus by marketing our solutions to the large
enterprise market. We believe we can increase our market share
in the large enterprise market, given the ability of our
solutions to scale up to 65,000 users in a single network
configuration. |
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Increase our focus on
value-added packaged
software applications. Our packaged software applications
have become key components of our overall solutions and
differentiate us from many of our competitors. These software
applications can be sold as a stand-alone product or as part of
an overall solution. We expect to continue to increase our
research and development focus on software applications, such as
fixed-mobile convergence, presence functionality and messaging,
to enhance and differentiate our solutions. |
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Provide a gradual migration path to IP for our customers and
those of our competitors. Our
IP-based solutions are
designed for interoperability with our legacy systems and we
will continue to offer our customers, and our competitors
customers, a seamless and gradual migration path from their
legacy voice systems to our converged voice, video and data
communications solutions. We intend to continue to offer
innovative, high quality products to help our customers
transition to a converged
IP-based communications
environment at their own pace. |
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Expand our geographic presence and distribution
capabilities We are strategically expanding our geographic
presence to position ourselves for the growing global demand for
IP-based communications
solutions. We have offices in 17 countries and more than
1,200 channel partners operating in over 90 countries. Our
near-term focus is to
leverage our current geographic presence, particularly in North
America where we have recently invested in new customer
demonstration facilities, secured a major new distributor and
recruited a number of senior industry sales executives. |
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Broaden and deepen our strategic partnerships and
alliances. We intend to continue to attract and recruit new
strategic partners and establish new strategic alliances to
provide us with access to customer relationships, to cost
effectively provide opportunities in new target markets, to
enhance our brand recognition by leveraging their brands and to
strengthen our solutions by adding new features and
functionality. |
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Continue to leverage our operating model. Our operating
model creates two opportunities for leverage. The first
opportunity is to increase our gross margins as our business
evolves towards a higher proportion of software license and
maintenance revenues. We also intend to increase our gross
margins with a continued focus on product cost reductions
through design changes, strategic supplier management and
innovative distribution strategies. The second opportunity for
leverage is the potential to grow our revenues at a pace that
exceeds the rate of growth of our selling, general and
administrative and research and development expenses. |
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Risk Factors
We are subject to a number of risks and uncertainties that could
materially harm our business or inhibit our strategic plans.
Before investing in our common shares, you should carefully
consider the following:
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we have incurred net losses since our incorporation in 2001; |
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the development of the market opportunity for IP-based
communications solutions and related services may not develop as
we anticipate; |
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our solutions may fail to keep pace with technological
developments and evolving industry standards; |
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our dependence primarily upon one outside contract manufacturer
to manufacture our products; |
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our dependence on sole source and limited source suppliers for
key components; |
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the consequences of delays in the delivery of or lack of access
to software or other intellectual property licensed from our
suppliers; |
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our ability to protect our intellectual property and our
possible infringement of the intellectual property rights of
third parties; |
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our reliance on our channel partners for the majority of our
sales; |
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our solutions may contain design defects, errors, failures or
bugs; |
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we face intense competition from several competitors; |
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our reliance on strategic alliances; |
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uncertainties arising from our foreign operations; |
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the fluctuations in our quarterly and annual revenues and
operating results; and |
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the other factors described in the section entitled
Risk Factors starting on page 8, and other
information provided throughout this prospectus. |
Our principal executive offices are located at 350 Legget
Drive, Ottawa, Ontario Canada K2K 2W7 and our telephone
number is
(613) 592-2122.
4
THE OFFERING
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Common shares offered by Mitel Networks Corporation |
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common
shares |
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Common shares offered by the selling shareholders |
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common
shares |
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Common shares to be outstanding following
the offering |
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common
shares |
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Use of Proceeds |
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We intend to use the net proceeds from this offering to fund
working capital; to expand our selling, marketing and global
support capabilities; to undertake research and development; and
for general corporate purposes, which may include acquisitions.
We will not receive any of the net proceeds from the sale of
common shares by the selling shareholders. See Use of
Proceeds. |
The number of common shares to be outstanding after this
offering is based on 211,088,547 shares outstanding as of
March 31, 2006 as adjusted by the assumptions set out below
but does not include:
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20,756,644 common shares issuable upon the exercise of
stock options outstanding under our stock option plan at a
weighted average exercise price of $1.02 per share, as of
March 31, 2006; |
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4,175,050 additional common shares reserved for issuance
under our stock option plan; |
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35,785,410 common shares issuable upon the exercise of
outstanding warrants held by Technology Partnerships Canada as
of March 31, 2006, which are exercisable for common shares
without the payment of any additional cash consideration; |
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16,500,000 common shares issuable upon the exercise of
outstanding warrants held by holders of our convertible notes at
an exercise price calculated in accordance with a formula based
on the market price of our common shares
(see Description of Convertible Notes
Noteholder Warrants); and |
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a number of common shares issuable upon the conversion of
outstanding convertible notes determined by dividing the
outstanding principal and accrued interest owing on each note by
a conversion price calculated in accordance with a formula based
on the market price of our common shares
(see Description of
Convertible Notes Convertible Notes). |
Unless we specifically state otherwise, all information in this
prospectus:
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assumes an initial public offering price of
$ per common share; |
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assumes conversion of all of our outstanding preferred shares
into an aggregate of 87,789,300 common shares, which
will occur in connection with the completion of this offering; |
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assumes the exercise of the warrants held by a financing agent
and warrants issued in connection with our Class A
Series 1 Convertible and Redeemable Preferred Shares
(Series A Preferred Shares) into an aggregate
of 6,000,000 common shares, which will occur in connection with
the completion of this offering; |
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assumes no exercise by the underwriters of their
over-allotment option;
and |
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reflects, for all prior periods,
a for reverse
split of our common shares, which will occur prior to the
completion of this offering. |
See Description of Share Capital.
5
Summary Consolidated Financial Data
The following sets forth summary consolidated financial data
derived from (a) our audited consolidated financial
statements as of and for the fiscal years ended April 27,
2003, April 25, 2004, and April 24, 2005, which are
included elsewhere in this prospectus, (b) our audited
consolidated financial statements as of and for the fiscal year
ended April 28, 2002, which are not included in this
prospectus, (c) our audited consolidated financial
statements as of and for the
six-day transition
period ended April 30, 2005, which are included elsewhere
in this prospectus, and (d) our unaudited consolidated
financial statements as of and for the nine months ended
January 23, 2005 and January 31, 2006, which are
included elsewhere in this prospectus. The unaudited interim
consolidated financial statements include all normal recurring
adjustments that we consider necessary for a fair presentation
of our financial position and results of operations. The data
set out below does not take into account the conversion of our
outstanding preferred shares into common shares, the exercise of
the warrants held by a financing agent or the exercise of the
warrants issued in connection with our Series A Preferred
Shares. On April 24, 2005, we changed our fiscal year end
from the last Sunday in April to April 30. The change in
our fiscal year end (and resulting alignment of fiscal
quarter ends) permits us to better align our reporting
results with industry norms.
Historical results do not necessarily indicate results expected
for any future period. You should read the following summary
consolidated financial data together with
Managements Discussion and Analysis of Financial
Condition and Results of Operations and our consolidated
financial statements and related notes included elsewhere in
this prospectus. The pro forma balance sheet data below gives
effect to the conversion of all of our outstanding preferred
shares into common shares, and the exercise of the warrants held
by a financing agent and warrants issued in connection with our
Series A Preferred Shares, which will occur in connection
with the completion of this offering. The pro forma as adjusted
balance sheet data below also gives effect to our sale
of common
shares in this offering at an assumed initial public offering
price of
$ per
share, after deducting the underwriting commissions and
estimated offering expenses payable by us.
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|
April 28, | |
|
April 27, | |
|
April 25, | |
|
April 24, | |
|
April 30, | |
|
Jan. 23, | |
|
Jan. 31, | |
|
|
2002 | |
|
2003 | |
|
2004 | |
|
2005 | |
|
2005 | |
|
2005 | |
|
2006 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in millions, except share and per share data) | |
Consolidated Statement of Operations Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$ |
358.0 |
|
|
$ |
352.2 |
|
|
$ |
340.7 |
|
|
$ |
342.2 |
|
|
$ |
3.2 |
|
|
$ |
251.1 |
|
|
$ |
285.2 |
|
Cost of revenues
|
|
|
215.5 |
|
|
|
225.4 |
|
|
|
202.9 |
|
|
|
213.2 |
|
|
|
2.4 |
|
|
|
156.7 |
|
|
|
165.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
142.5 |
|
|
|
126.8 |
|
|
|
137.8 |
|
|
|
129.0 |
|
|
|
0.8 |
|
|
|
94.4 |
|
|
|
119.7 |
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
59.1 |
|
|
|
41.2 |
|
|
|
36.2 |
|
|
|
41.4 |
|
|
|
0.7 |
|
|
|
30.4 |
|
|
|
33.0 |
|
Selling, general and administrative
|
|
|
141.9 |
|
|
|
114.9 |
|
|
|
111.4 |
|
|
|
114.9 |
|
|
|
1.8 |
|
|
|
85.2 |
|
|
|
88.1 |
|
Special
charges(1)
|
|
|
7.4 |
|
|
|
13.7 |
|
|
|
11.7 |
|
|
|
10.6 |
|
|
|
|
|
|
|
7.1 |
|
|
|
4.2 |
|
Loss (gain) on disposal of assets
|
|
|
1.5 |
|
|
|
|
|
|
|
0.6 |
|
|
|
3.4 |
|
|
|
|
|
|
|
|
|
|
|
(2.2 |
) |
Amortization of acquired
intangibles(2)
|
|
|
43.8 |
|
|
|
29.1 |
|
|
|
0.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(111.2 |
) |
|
|
(72.1 |
) |
|
|
(22.3 |
) |
|
|
(41.3 |
) |
|
|
(1.7 |
) |
|
|
(28.3 |
) |
|
|
(3.4 |
) |
Other (income) expense, net
|
|
|
3.4 |
|
|
|
0.9 |
|
|
|
8.0 |
|
|
|
7.5 |
|
|
|
(0.1 |
) |
|
|
5.1 |
|
|
|
16.0 |
|
Income tax (recovery) expense
|
|
|
0.1 |
|
|
|
(2.9 |
) |
|
|
0.3 |
|
|
|
0.8 |
|
|
|
|
|
|
|
(0.6 |
) |
|
|
2.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(114.7 |
) |
|
$ |
(70.1 |
) |
|
$ |
(30.6 |
) |
|
$ |
(49.6 |
) |
|
$ |
(1.6 |
) |
|
$ |
(34.0 |
) |
|
$ |
(21.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$ |
(1.10 |
) |
|
$ |
(0.63 |
) |
|
$ |
(0.26 |
) |
|
$ |
(0.49 |
) |
|
$ |
(0.01 |
) |
|
$ |
(0.34 |
) |
|
$ |
(0.23 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding
|
|
|
106,848,314 |
|
|
|
113,109,751 |
|
|
|
127,831,211 |
|
|
|
113,792,829 |
|
|
|
117,149,933 |
|
|
|
112,895,239 |
|
|
|
117,213,252 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP Financial Measure
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(114.7 |
) |
|
$ |
(70.1 |
) |
|
$ |
(30.6 |
) |
|
$ |
(49.6 |
) |
|
$ |
(1.6 |
) |
|
$ |
(34.0 |
) |
|
$ |
(21.9 |
) |
Add back: fair value adjustment on derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.3 |
|
|
|
0.1 |
|
|
|
3.9 |
|
|
|
11.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted net
loss(3)
|
|
$ |
(114.7 |
) |
|
$ |
(70.1 |
) |
|
$ |
(30.6 |
) |
|
$ |
(44.3 |
) |
|
$ |
(1.5 |
) |
|
$ |
(30.1 |
) |
|
$ |
(10.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at January 31, 2006 |
|
|
|
|
|
|
|
Pro Forma |
|
|
Actual | |
|
Pro Forma | |
|
As Adjusted(4) |
|
|
| |
|
| |
|
|
|
|
(in millions) |
Consolidated Balance Sheet Data
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
32.3 |
|
|
$ |
38.6 |
|
|
$ |
|
|
Working capital
|
|
|
47.4 |
|
|
|
53.7 |
|
|
|
|
|
Total assets
|
|
|
183.1 |
|
|
|
189.4 |
|
|
|
|
|
Total debt including capital leases
|
|
|
52.0 |
|
|
|
52.0 |
|
|
|
|
|
Derivative
instruments(5)
|
|
|
53.2 |
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
246.9 |
|
|
|
193.7 |
|
|
|
|
|
Redeemable
shares(6)
|
|
|
62.4 |
|
|
|
|
|
|
|
|
|
Total shareholders (deficit) equity
|
|
|
(126.2 |
) |
|
|
(4.3 |
) |
|
|
|
|
|
|
(1) |
Special charges relate to restructuring activities, product line
exit and other loss accruals undertaken to improve our
operational efficiency and to realign our business. |
|
(2) |
Acquired intangible assets relating to the acquisition of the
Mitel name, certain assets and subsidiaries from Zarlink
Semiconductor Inc. in 2001 were fully amortized in 2004. |
|
(3) |
We define adjusted net loss as net loss excluding the change in
the fair value of the derivative instruments. This definition
may not be comparable to similarly titled measures reported by
other companies. We are presenting adjusted net loss because we
believe it provides a more complete understanding of our
business than could be obtained without this disclosure, as it
eliminates a non-cash
charge that will be eliminated immediately following this
offering. The change in the fair value in derivative instruments
resulted from our issuance of convertible, redeemable preferred
shares that give holders the right, at any time after five
years, to require us to redeem these shares for cash. The
requirement to redeem these shares on an
as-if-converted-to-common share basis qualifies as an embedded
derivative. The embedded derivative is being marked to market
throughout the period to redemption with a non-cash charge being
reflected in our Consolidated Statement of Operations. Adjusted
net loss shows what our net income would have been without the
effect of this non-cash charge. We believe that this is a useful
measure to our investors as the convertible, redeemable
preferred shares will automatically convert into common shares
in connection with the closing of this offering with the result
being the elimination of this non-cash charge in the future. The
use of adjusted net loss has limitations and you should not
consider adjusted net loss in isolation from or as an
alternative to U.S. GAAP measures, such as net income or cash
flow statement data that are prepared in accordance with U.S.
GAAP, or as a measure of profitability or liquidity. |
|
(4) |
Assumes net proceeds to us from this offering of
$ million.
A $1.00 increase (decrease) in the assumed
initial public offering price of
$ per share
would increase (decrease) pro forma as adjusted cash and
cash equivalents, working capital, total assets and total
shareholders (deficit) equity by
$ million,
(i) assuming the number of shares offered by us, as set
forth on the cover page of this prospectus, remains the same and
(ii) after deducting estimated underwriting commissions and
estimated offering expenses payable by us. |
|
(5) |
The derivative instruments relate to the Series A Preferred
Shares and the Class B Series 1 Convertible and
Redeemable Preferred Shares (Series B Preferred
Shares). The derivative instruments arose because a
portion of the redemption price of the Series A Preferred
Shares and Series B Preferred Shares is indexed to our
common share price and as required by SFAS 133 has been
bifurcated and accounted for separately. |
|
(6) |
Redeemable shares include 10,000,000 common shares (which are
redeemable by virtue of a shareholders agreement dated
April 23, 2004 among certain of our shareholders and us),
20,000,000 Series A Preferred Shares and 67,789,300
Series B Preferred Shares. |
7
RISK FACTORS
An investment in our common shares should be regarded as
highly speculative and is suitable only for those investors who
are able to sustain a total loss of their investment. You should
carefully consider the following risks, as well as the other
information contained in this prospectus, when evaluating us and
our business and prospects. Any of the following risks, as well
as risks not currently known to us, could materially and
adversely affect our business, results of operations or
financial condition, and could result in a complete loss of your
investment.
Risks Relating to our Business
We have incurred net losses since our incorporation in 2001
and we may not be profitable in the future.
We incurred a net loss of $21.9 million for the nine months
ended January 31, 2006, and net losses of $50 million,
$31 million, $70 million and $115 million in
fiscal 2005, 2004, 2003 and 2002, respectively. We may not be
able to achieve profitability or, if achieved, may not be able
to sustain profitability. We have incurred restructuring charges
in each of the previous four years and may incur additional
restructuring charges in the future. Our future success in
attaining profitability and growing our revenues and market
share for our solutions depends, among other things, upon our
ability to develop solutions that have a competitive advantage,
to build our brand image and reputation, to attract orders from
new and existing customers and to reduce our costs as a
proportion of our revenue by, among other things, increasing
efficiency in design, component sourcing, manufacturing and
assembly cost processes.
A key component of our strategy is our focus on the
development and marketing of
IP-based communications
solutions and related services, and this strategy may not be
successful or may adversely affect our business.
We are focused on the development and sales of
IP-based communications
solutions. Our operating results may be adversely affected if
the market opportunity for
IP-based communications
solutions and services does not develop in the way we
anticipate. IP-based
communications systems currently constitute a small percentage
of global installed large enterprise telephony systems. If
IP-based communications
does not gain widespread acceptance in the marketplace as an
alternative replacement option for traditional business
telephony systems, our overall revenues and operating results
will be adversely affected. Because this market opportunity is
in its early stages, we cannot predict whether:
|
|
|
|
|
the demand for IP-based
communications solutions and services will grow as fast as we
anticipate; |
|
|
|
continuing reductions in long-distance and local toll charges
may adversely affect sales of certain of our solutions to
customers focused on those cost savings; |
|
|
|
current or future competitors or new technologies will cause the
market to evolve in a manner different than we expect; |
|
|
|
other technologies will become more accepted or standard in our
industry; or |
|
|
|
we will be able to achieve a leadership or profitable position
as this opportunity develops. |
Our solutions may fail to keep pace with rapidly changing
technology and evolving industry standards.
The markets for our solutions are competitive and characterized
by rapidly changing technology, evolving industry standards,
frequent new product introductions, and short product life
cycles. Therefore, our operating results depend, among other
things, on existing and emerging markets, our ability to develop
and introduce new solutions and our ability to reduce the
production costs of existing solutions. The process of
developing new technology is complex and uncertain, and if we
fail to accurately predict and respond to our customers
changing needs and emerging technological trends, our business
could be harmed. We must commit significant resources to
developing new solutions before knowing whether our
8
investments will result in solutions the market will accept. The
success of new solutions depends on several factors, including
new application and product definition, component costs, timely
completion and introduction of these solutions, differentiation
of new solutions from those of our competitors, and market
acceptance of these solutions. We may not be able to
successfully identify new market opportunities for our
solutions, develop and bring new solutions to market in a timely
manner, or achieve market acceptance of our solutions.
Because we depend primarily upon one outside contract
manufacturer to manufacture our products, our operations could
be delayed or interrupted if we encounter problems with this
contractor.
We do not have any internal manufacturing capabilities, and we
rely upon a small number of contract manufacturers to
manufacture our products. Substantially all of our products are
currently manufactured by BreconRidge Manufacturing Solutions
Corporation (BreconRidge). Our manufacturing
agreement with BreconRidge expires on December 31, 2007,
and may or may not be renewed. Our ability to ship products to
our customers could be delayed or interrupted as a result of a
variety of factors relating to our contract manufacturers, in
particular BreconRidge, including:
|
|
|
|
|
our contract manufacturers not being required to manufacture our
products on a long-term
basis in any specific quantity or at any specific price; |
|
|
|
our failure to effectively manage our contract manufacturer
relationships; |
|
|
|
our contract manufacturers experiencing delays, disruptions or
quality control problems in their manufacturing operations; |
|
|
|
lead-times for required
materials and components varying significantly and being
dependent on factors such as the specific supplier, contract
terms and the demand for each component at a given time; |
|
|
|
overestimating our forecast requirements resulting in excess
inventory and related carrying charges; |
|
|
|
underestimating our requirements, resulting in our contract
manufacturers having inadequate materials and components
required to produce our products, or overestimating our
requirements, resulting in charges assessed by the contract
manufacturers or liabilities for excess inventory, each of which
could negatively affect our gross margins; and |
|
|
|
the possible absence of adequate capacity and reduced control
over component availability, quality assurances, delivery
schedules, manufacturing yields and costs. |
The addition of manufacturing locations or other contract
manufacturers would increase the complexity of our supply chain
management. If any of our contract manufacturers are unable or
unwilling to continue manufacturing our products in required
volumes and quality levels, we will have to identify, qualify,
select and implement acceptable alternative manufacturers, which
would likely be time consuming and costly. In addition, an
alternate source may not be available to us or may not be in a
position to satisfy our production requirements at commercially
reasonable prices and quality. Therefore, any significant
interruption in manufacturing would result in us being unable to
deliver the affected products to meet our customer orders.
We depend on sole source and limited source suppliers for key
components. If these components are not available on a timely
basis, or at all, we may not be able to meet scheduled product
deliveries to our customers.
We depend on sole source and limited source suppliers for key
components of our products. In addition, our contract
manufacturers often acquire these components through purchase
orders and may have no
long-term commitments
regarding supply or pricing from their suppliers.
Lead-times for various
components may lengthen, which may make certain components
scarce. As component demand increases and
lead-times become
longer, our suppliers may increase component costs. We also
depend on anticipated product orders to determine our materials
requirements.
Lead-times for
limited-source
materials and
9
components can be as long as six months, vary significantly and
depend on factors such as the specific supplier, contract terms
and demand for a component at a given time. From time to time,
shortages in allocations of components have resulted in delays
in filling orders. Shortages and delays in obtaining components
in the future could impede our ability to meet customer orders.
Any of these sole source or limited source suppliers could stop
producing the components, cease operations entirely, or be
acquired by, or enter into exclusive arrangements with, our
competitors. As a result, these sole source and limited source
suppliers may stop selling their components to our contract
manufacturers at commercially reasonable prices, or at all. Any
such interruption, delay or inability to obtain these components
from alternate sources at acceptable prices and within a
reasonable amount of time would adversely affect our ability to
meet scheduled product deliveries to our customers and reduce
margins realized.
Delay in the delivery of, or lack of access to, software or
other intellectual property licensed from our suppliers could
adversely affect our ability to develop and deliver our
solutions on a timely and reliable basis.
Our business may be harmed by a delay in delivery of software
applications from one or more of our suppliers. Many of our
solutions are designed to include software or other intellectual
property licensed from third parties. It may be necessary in the
future to seek or renew licenses relating to various components
in our solutions. These licenses may not be available on
acceptable terms, or at all. Moreover, the inclusion in our
solutions of software or other intellectual property licensed
from third parties on a
non-exclusive basis
could limit our ability to protect our proprietary rights to our
solutions.
Non-exclusive licenses
also allow our suppliers to develop relationships with, and
supply similar or the same software applications to, our
competitors. Software licenses could terminate in the event of a
bankruptcy or insolvency of a software supplier or other third
party licensor. We have not entered into source code escrow
agreements with every software supplier or third party licensor.
In the event that software suppliers or other third party
licensors terminate their relationships with us, are unable to
fill our orders on a timely basis or the licenses are otherwise
terminated, we may be unable to deliver the affected products to
meet our customer orders.
Our success is dependent on our intellectual property. Our
inability or failure to protect our intellectual property could
seriously harm our ability to compete and our financial
success.
Our success depends on the intellectual property in the
solutions and services that we develop and sell. We rely upon a
combination of copyright, patent, trade secrets, trademarks,
confidentiality procedures and contractual provisions to protect
our proprietary technology. Our present protective measures may
not be enforceable or adequate to prevent misappropriation of
our technology or independent
third-party development
of the same or similar technology. Even if our patents are held
valid and enforceable, others may be able to design around these
patents or develop products competitive to our products but that
are outside the scope of these patents.
We make use of some open source software code under various open
source licenses available to the general public. A
characteristic of an open source license is that it does not
provide any indemnification to the licensee against third-party
claims of intellectual property infringement. Some open source
licenses require the licensee to disclose the licensees
source code derived from such open source code, and failure to
comply with the terms of such licenses can result in the
licensee being stopped from distributing products that contain
the open source code or being forced to freely disseminate
enhancements that were made to the open source code. Although
our practice is to follow prevailing industry practices in
complying with the terms of any open source license we use,
should we fail to do so, we could lose our rights to use the
open source software. Further, while we believe our products to
be secure, the use of open source in our solutions may expose
those solutions to security risks.
Many foreign jurisdictions offer less protection of intellectual
property rights than Canada and the United States, and the
protection provided to our proprietary technology by the laws of
these and other foreign jurisdictions may not be sufficient to
protect our technology. Preventing the unauthorized use of our
proprietary technology may be difficult, time consuming and
costly, in part because it may be difficult
10
to discover unauthorized use by third parties. Litigation may be
necessary in the future to enforce our intellectual property
rights, to protect our trade secrets, to determine the validity
and scope of our proprietary rights, or to defend against claims
of unenforceability or invalidity. Any litigation, whether
successful or unsuccessful, could result in substantial costs
and diversion of management resources.
Our business may be harmed if we infringe intellectual
property rights of third parties.
There is considerable patent and other intellectual property
development activity in our industry. Our success depends, in
part, upon our not infringing intellectual property rights owned
by others. Our competitors, as well as a number of individuals,
patent holding companies and consortiums, own, or claim to own,
intellectual property relating to our industry. Aggressive
patent litigation is not uncommon in our industry and can be
disruptive. We cannot determine with certainty whether any
existing third-party
patent, or the issuance of new third party patents, would
require us to alter our solutions, obtain licenses or
discontinue the sale of the affected applications and products.
We have received notices, and we may receive additional notices,
containing allegations that our solutions are subject to patents
or other proprietary rights of third parties, including
competitors, patent holding companies and consortiums.
Our success also depends, in part, upon our customers
freedom to use our products. For example, certain claims have
been asserted against
end-users within our
industry and demands for the payment of licensing fees have been
made of end-users who
have implemented our solutions. We generally agree to indemnify
and defend our customers to the extent a claim for infringement
is brought against our customers with respect to our solutions.
Infringement claims (or claims for indemnification resulting
from infringement claims) have been and may in the future be
asserted or prosecuted against us or our customers by third
parties. Some of these third parties, including our competitors,
consortiums and holding companies, have, or have access to,
substantially greater resources than we do and may be better
able to sustain the costs of complex patent litigation. Whether
or not these claims have merit, we may be subject to costly and
time-consuming legal
proceedings, and this could divert our managements
attention from operating our business. If these claims are
successfully asserted against us, we could be required to pay
substantial damages and could be prevented from selling some or
all of our solutions. We may also be obligated to indemnify our
business partners or customers in any such litigation.
Furthermore, in order to resolve such proceedings, we may need
to obtain licenses from third parties or substantially modify or
rename our solutions in order to avoid infringement. Moreover,
license agreements with third parties may not include all
intellectual property rights that may be issued to or owned by
the licensors, and future disputes with these parties are
possible. In addition, we might not be able to obtain the
necessary licenses on acceptable terms, or at all, or be able to
modify or rename our solutions successfully. This could prevent
us from selling some or all of our solutions. Current or future
negotiations with third parties to establish license or cross
license arrangements, or to renew existing licenses, may not be
successful and we may not be able to obtain or renew a license
on satisfactory terms or at all. If required licenses cannot be
obtained, or if existing licenses are not renewed, litigation
could result. Any litigation relating to intellectual property
rights, whether or not determined in our favor or settled by us,
could at a minimum be costly and would divert the attention and
efforts of management and our technical personnel. An adverse
determination in any litigation or proceeding could prevent us
from making, using or selling some or all of our solutions and
subject us to damage assessments.
We rely on our channel partners for the majority of our
sales, and disruptions to, or our failure to effectively develop
and manage, our distribution channel and the processes and
procedures that support it could adversely affect our ability to
generate revenues.
Our future success is highly dependent upon establishing and
maintaining successful relationships with a variety of channel
partners. A substantial portion of our revenues is derived
through our channel partners, most of which also sell our
competitors products. Our revenues depend in part on the
performance of these channel partners. The loss of or reduction
in sales to these channel partners could materially reduce our
revenues. Our competitors may in some cases be effective in
causing resellers or
11
potential resellers to favor their products or prevent or reduce
sales of our solutions. If we fail to maintain relationships
with these channel partners, fail to develop new relationships
with channel partners in new markets or expand the number of
channel partners in existing markets, or if we fail to manage,
train or provide appropriate incentives to existing channel
partners or if these channel partners are not successful in
their sales efforts, sales of our solutions may decrease and our
operating results would suffer.
The most likely potential channel partners for us are those
businesses engaged in voice communications business or the data
communications business. Many potential channel partners in the
voice communications business have established relationships
with our competitors and may not be willing to invest the time
and resources required to train their staff to effectively
market our solutions and services. Potential channel partners
engaged in the data communications business are less likely to
have established relationships with our competitors, but where
they are unfamiliar with the voice communications business, they
may require substantially more training and other resources to
be qualified to sell our solutions. We have been using our
channel partners to sell our solutions to small and medium-sized
businesses. We cannot assure you that we will be able to develop
channel partners to sell to large enterprises or that our
existing channel partners will be effective in selling to large
enterprises.
Design defects, errors, failures or bugs, which
may be difficult to detect, may occur in our solutions.
We produce highly complex solutions that incorporate
leading-edge
technology, including both hardware and software. Software can
contain bugs that can interfere with expected operations. Our
preshipment testing programs may not be adequate to detect all
defects in individual applications and products or systematic
defects that could affect numerous shipments, which might
interfere with customer satisfaction, reduce sales opportunities
or affect gross margins. In the past, we have had to replace
certain components and provide remediation in response to the
discovery of defects or bugs in solutions that we had shipped.
Any future remediation may have a material impact on our
business. Our inability to cure an application or product defect
could result in the failure of an application or product line,
the temporary or permanent withdrawal from an application or
product or market, damage to our reputation, inventory costs, or
application or product reengineering expenses. The sale and
support of applications and products containing defects and
errors may result in product liability claims and warranty
claims. Our insurance may not cover or may be insufficient to
cover claims that are successfully asserted against us or our
contracted suppliers and manufacturers.
We face intense competition from many competitors and we may
not be able to compete effectively against these competitors.
The market for our solutions is highly competitive. We compete
against many companies, including Cisco Systems, Inc., Nortel
Networks Corporation, Avaya Inc., 3Com Corp, Alcatel,
Inter-Tel, Incorporated
and Siemens AG. In addition, because the market for our
solutions is subject to rapidly changing technologies, we may
face competition in the future from companies that do not
currently compete in the business communications market,
including companies that currently compete in other sectors of
the information technology, communications or software
industries, mobile communications companies, or communications
companies that serve residential rather than business customers.
Several of our existing competitors have, and many of our future
competitors may have, greater financial, personnel, research,
and other resources, and more
well-established brands
or reputations and broader customer bases than we have. As a
result, these competitors may be in a stronger position to
respond more quickly to potential acquisitions and other market
opportunities, new or emerging technologies and changes in
customer requirements. Some of these competitors may also have
customer bases that are more geographically balanced than ours
and therefore may be less affected by an economic downturn in a
particular region. Competitors with greater resources may also
be able to offer lower prices, additional products or services
or other incentives that we cannot match or do not offer. In
addition, existing customers of data communications companies
that compete against us may be more inclined to purchase
business communications solutions from their current data
communications vendor than from us. Also, as voice and data
communications converge, we may face competition from systems
integrators that
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were traditionally focused on data network integration. We
cannot predict which competitors may enter our markets in the
future, what form the competition may take or whether we will be
able to respond effectively to the entry of new competitors or
the rapid evolution in technology and product development that
has characterized our markets. Competition from existing and
potential market entrants may take many forms, including large
bundled offerings that incorporate applications and products
similar to those that we offer. If our competitors offer deep
discounts on certain products or services in an effort to
recapture or gain market share, we may be required to lower our
prices or offer other favorable terms to compete effectively,
which would reduce our margins and could adversely affect our
operating results.
Our business may suffer if our strategic alliances are not
successful.
We have a number of strategic alliances and continue to pursue
strategic alliances with other companies in areas where
collaboration can produce industry advancement and acceleration
of new markets. The objectives and goals for a strategic
alliance can include one or more of the following: technology
exchange, product development, joint sales and marketing, or
new-market creation. If
a strategic alliance fails to perform as expected or if the
relationship is terminated, we could experience delays in
product availability or impairment of our relationships with
customers. In addition, we may face increased competition if a
third party acquires one or more of our strategic partners or if
our competitors enter into additional successful strategic
relationships.
Our operations in international markets involve inherent
risks that we may not be able to control.
We do business in over 90 countries and are increasing our
activities in foreign jurisdictions. Accordingly, our future
results could be materially and adversely affected by a variety
of uncontrollable and changing factors relating to international
business operations, including:
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political or social unrest or economic instability in a specific
country or region; |
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macroeconomic conditions adversely affecting geographies where
we do business; |
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higher costs of doing business in foreign countries; |
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infringement claims on foreign patents, copyrights, or trademark
rights; |
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difficulties in managing operations across disparate geographic
areas; |
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difficulties associated with enforcing agreements and
intellectual property rights through foreign legal systems; |
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trade protection measures and other regulatory requirements
which may affect our ability to import or export our products
from or to various countries; |
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adverse tax consequences; |
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unexpected changes in legal and regulatory requirements; |
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military conflict, terrorist activities, natural disasters and
widespread medical epidemics; and |
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our ability to recruit and retain channel partners in foreign
jurisdictions. |
Our competitive position may be affected by fluctuations in
exchange rates, and our current currency hedging strategy may
not be sufficient to counter such fluctuations.
A significant portion of our business is conducted, and a
substantial portion of our operating expenses are payable, in
currencies other than the U.S. dollar. Due to the substantial
volatility of currency exchange rates, we cannot predict the
effect of exchange rate fluctuations upon future sales and
expenses. We use financial instruments, principally forward
exchange contracts, in our management of foreign currency
exposure. These contracts primarily require us to purchase and
sell certain foreign currencies with or for U.S. dollars at
contracted rates. We may be exposed to a credit loss in the
event of non-performance by the counterparties of these
contracts. These financial instruments may not adequately manage
our foreign
13
currency exposure. Our results of operations could be adversely
affected if we are unable to successfully manage currency
fluctuations in the future.
Our quarterly and annual revenues and operating results have
historically fluctuated, and the results of one period may not
provide a reliable indicator of our future performance.
Our quarterly and annual revenues and operating results have
historically fluctuated and are not necessarily indicative of
results to be expected in future periods. A number of factors
may cause our financial results to fluctuate significantly from
period to period, including:
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the fact that an individual order or contract can represent a
substantial amount of revenues for that period; |
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the size, timing and shipment of individual orders; |
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changes in pricing or discount levels by us or our competitors; |
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foreign currency exchange rates; |
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the mix of products sold by us; |
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the timing of the announcement, introduction and delivery of new
products and/or product enhancements by us and our competitors;
and |
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general economic conditions. |
As a result of the above factors, a quarterly or yearly
comparison of our results of operations is not necessarily
meaningful.
We may require additional sources of funds if our sources of
liquidity are unavailable or insufficient to fund our
operations.
We may not be able to generate sufficient cash from our
operations to meet additional working capital requirements,
support additional capital expenditures or take advantage of
acquisition opportunities. If we need to secure additional
sources of equity or debt financing, our ability to obtain
additional financing will be subject to a number of factors,
including market conditions and our operating performance.
Additional financing may not be available on terms satisfactory
to us, or at all. If we were to incur high levels of debt, we
would require a larger portion of our operating cash flow to be
used to pay principal and interest on our indebtedness. The
increased use of cash to pay indebtedness could leave us with
insufficient funds to finance our operating activities, such as
research and development and capital expenditures. In addition,
debt instruments may contain covenants or other restrictions
that affect our business operations. If we raise additional
funds by selling equity securities, the relative ownership of
our existing investors could be diluted or the new investors
could obtain terms more favorable than previous investors.
The exercise of redemption rights by one or more of our
convertible noteholders would have a material adverse effect on
our cash flow and financial position.
Under the terms of our convertible notes, in the event of a
default, the holders of the convertible notes have the right to
require us to redeem all or a portion of the convertible notes
outstanding. In addition, in the event of a fundamental change
that occurs prior to April 28, 2010, each convertible
noteholder will have the option to either convert all or a
portion of the holders convertible notes into common
shares or obligate us to repurchase all or a portion of the
convertible notes and, in the former case, will also be entitled
to receive from us a premium in the form of additional common
shares or cash at our option. Under the terms of the convertible
notes, a fundamental change includes the sale of all or
substantially all of our property or assets, a change of
control, a
shareholder-approved
liquidation or dissolution, a merger or acquisition, or the
number of our common shares held directly or indirectly by
Dr. Matthews falling below 115,000,000 (subject to
adjustments for splits and consolidations to our shares and
other similar events).
14
We are exposed to risks inherent in our defined benefit
pension plan.
We currently maintain a defined benefit pension plan, which was
closed to new employees in June 2001, for a number of our past
and present employees in the United Kingdom. The contributions
to fund benefit obligations under this plan are based on
actuarial valuations, which themselves are based on certain
assumptions about the
long-term operation of
the plan, including employee turnover and retirement rates, the
performance of the financial markets and interest rates. If the
actual operation of the plan differs from these assumptions,
additional contributions by us may be required. As of
April 30, 2005, the accumulated benefit obligation of
$107.0 million exceeded the fair value of the plan assets
of $81.9 million, resulting in an unfunded status of
$25.1 million. Changes to pension legislation in the United
Kingdom may adversely affect our funding requirements.
Transfer pricing rules may adversely affect our income tax
expenses.
We conduct business operations in various jurisdictions and
through legal entities in Canada, the United States, the United
Kingdom, Barbados and elsewhere. We and certain of our
subsidiaries provide solutions and services to, and may from
time to time undertake certain significant transactions with,
other subsidiaries in different jurisdictions. The tax laws of
many of these jurisdictions, including Canada, have detailed
transfer pricing rules which require that all transactions with
non-resident related parties be priced using arms length
pricing principles, and contemporaneous documentation must exist
to support this pricing. The taxation authorities in the
jurisdictions where we carry on business, including the Canada
Revenue Agency, the United States Internal Revenue Service and
HM Revenue & Customs in the United Kingdom, could
challenge our arms length related party transfer pricing
policies. International transfer pricing is an area of taxation
that depends heavily on the underlying facts and circumstances
and generally involves a significant degree of judgment. If any
of these taxation authorities are successful in challenging our
transfer pricing policies, our income tax expense may be
adversely affected and we could also be subjected to interest
and penalty charges. Any increase in our income tax expense and
related interest and penalties could have a significant impact
on our future earnings and future cash flows.
Future changes in financial accounting standards could
adversely affect our reported results of operations.
A change in accounting policies could have a significant effect
on our reported results and may even affect our reporting of
transactions completed before the change is effective. New
pronouncements and varying interpretations of pronouncements
have occurred with frequency and may occur in the future.
Changes to existing rules or the questioning of current
practices may adversely affect our reported financial results or
the way we conduct our business.
In particular, in December 2004 the Financial Accounting
Standards Board issued a statement requiring companies to record
stock option grants as compensation expense in their income
statements. This statement is effective beginning with our first
quarter of fiscal 2007. Our current methodology for expensing
stock options is based on, among other things, the historical
volatility of the underlying stock and the expected life of our
stock options. The adoption of this accounting standard could
negatively impact our profitability and may adversely impact our
stock price.
Governmental regulation could harm our operating results and
future prospects.
Governments in a number of jurisdictions in which we conduct
business have imposed export license requirements and
restrictions on the import or export of some technologies,
including some of the technologies used in our solutions.
Changes in these laws or regulations could adversely affect our
revenues. A number of governments also have laws and regulations
that govern technical specifications for the provision of our
solutions. Changes in these laws or regulations could adversely
affect the sales of, decrease the demand for, and increase the
cost of, our solutions.
15
Our future success depends on our existing key personnel.
Our success is dependent upon the services of a number of the
members of our senior management and software and engineering
staff, as well as the expertise of our directors. Competition
for highly skilled directors, management, research and
development and other employees is intense in our industry and
we may not be able to attract and retain highly qualified
directors, management, and research and development personnel in
the future. In order to improve productivity, a portion of our
compensation to key employees and directors is in the form of
stock option grants, and as a consequence, a depression in our
share price could make it difficult for us to motivate and
retain employees and recruit additional qualified directors and
personnel. The recent decision by the Financial Accounting
Standards Board regarding the accounting treatment of stock
options as compensation expense could lead to a reduction in our
use of stock options as an incentive and retention tool. We
currently do not maintain corporate life insurance policies on
the lives of our directors or any of our key employees.
We may make strategic acquisitions in the future. We may not
be successful in operating or integrating these acquisitions.
As part of our business strategy, we will consider acquisitions
of, or significant investments in, businesses that offer
products, services and technologies complementary to ours. These
acquisitions could materially adversely affect our operating
results and the price of our common shares. Acquisitions involve
significant risks and uncertainties, including:
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unanticipated costs and liabilities; |
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difficulties in integrating new products, software, businesses,
operations, and technology infrastructure in an efficient and
effective manner; |
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difficulties in maintaining customer relations; |
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the potential loss of key employees of the acquired businesses; |
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the diversion of the attention of our senior management from the
operation of our daily business; |
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the potential adverse effect on our cash position as a result of
all or a portion of an acquisition purchase price being paid in
cash; |
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the potential issuance of securities that would dilute our
shareholders percentage ownership; and |
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the inability to maintain uniform standards, controls, policies
and procedures. |
Our inability to successfully operate and integrate newly
acquired businesses appropriately, effectively and in a timely
manner could have a material adverse effect on our ability to
take advantage of future growth opportunities and other advances
in technology, as well as on our revenues, gross margins and
expenses.
The costs and risks associated with
Sarbanes-Oxley
regulatory compliance may have a material adverse effect on
us.
We will be required to document and test our internal controls
over financial reporting pursuant to Section 404 of the
United States
Sarbanes-Oxley Act of
2002, so that our management can certify as to the effectiveness
of our internal controls and our independent registered public
accounting firm can render an opinion on managements
assessment and on the effectiveness of our internal controls
over financial reporting commencing with our annual report for
the fiscal year ended April 30, 2007. As a result, we will
be required to improve our financial and managerial controls,
reporting systems and procedures, and we will incur substantial
expenses to test our systems, as well as ongoing compliance
costs. If our management is unable to certify the effectiveness
of our internal controls or if our independent registered public
accounting firm cannot render an opinion on managements
assessment and on the effectiveness of our internal controls
over financial reporting, or if material weaknesses in our
internal controls are identified, we could be subject to
regulatory scrutiny and a loss of public confidence.
16
Risks Related to an Investment in our Common Shares
Our common share price will fluctuate and you may not be able
to sell your shares at or above the initial public offering
price.
There has been no public market for our common shares. We cannot
predict the extent to which investor interest will lead to the
development of an active and liquid trading market in our common
shares and it is possible that an active and liquid trading
market will not develop or be sustained. The initial public
offering price for our common shares will be negotiated among
us, the selling shareholders and the underwriters and may not be
indicative of the market price of the common shares that will
prevail in the trading market. The market price of our common
shares may decline below the initial public offering price and
you may not be able to sell your shares at or above the initial
offering price. Some companies that have had volatile market
prices for their securities have had securities class action
lawsuits filed against them. If a lawsuit were to be filed
against us, regardless of the outcome, it could result in
substantial costs and a diversion of managements attention
and resources.
The price of our common shares may fluctuate in response to a
number of events, including:
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our quarterly operating results; |
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sales of our common shares by principal shareholders; |
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future announcements concerning our or our competitors
businesses; |
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the failure of securities analysts to cover our company and/or
changes in financial forecasts and recommendations by securities
analysts; |
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actions of our competitors; |
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general market, economic and political conditions; and |
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natural disasters, terrorist attacks and acts of war. |
Future sales of a substantial amount of common shares may
depress the price of the common shares.
If our shareholders sell substantial amounts of our common
shares in the public market following this offering, the market
price of our common shares could decline. These sales also might
make it more difficult for us to sell equity or equity related
securities in the future at a time and price that we deem
appropriate. Upon the closing of this offering, we will have
outstanding common shares
(or common shares if the
over-allotment option
is exercised in full). All of the common shares sold in this
offering will be freely transferable without restriction or
further registration under the U.S. Securities Act of 1933, as
amended (the U.S. Securities Act). We and most of
our existing shareholders, directors and management have agreed
to a
lock-up,
pursuant to which neither we nor they will sell any shares
without the prior consent of the underwriters for 180 days
after the date of this prospectus, subject to limited
exceptions, and a possible extension of up to 34 additional
days. These shareholders, however, may be released from their
lock-up agreements with
the agreement of the underwriters at any time and without
notice, which would allow for earlier sales of shares in the
public market. We expect
that of
the remaining outstanding common shares after this
offering will be available for sale in the public market
following the expiration of the applicable
lock-up period, subject
to certain limitations imposed by applicable U.S. and Canadian
securities laws.
Under the terms of our existing registration rights agreements,
we are required to file a shelf registration statement covering
resales of common shares issuable upon conversion of the
outstanding convertible notes and exercises of warrants held by
our noteholders and to have the registration statement declared
effective under the U.S. Securities Act prior to the expiry of
the lock-up agreements.
Consequently, following the expiration of the lock-up period,
our noteholders may convert their convertible notes or exercise
their warrants and sell the underlying common shares in the
public markets. These sales, or the expectation that these sales
may occur, may decrease the market price for our shares.
In addition, as of March 31, 2006, 20,756,644 common shares
were issuable upon exercise of stock options outstanding under
our stock option plan and an additional 4,175,050 common
shares were reserved
17
for issuance under our stock option plan. Subject to the
lock-ups described above and limitations imposed by U.S. and
Canadian securities laws on resales, common shares issued
pursuant to exercises of these stock options will be freely
tradeable in the public markets. See Shares Eligible for
Future Sale.
Dr. Terence H. Matthews is a significant shareholder and
he has the potential to exercise significant influence over
matters requiring approval by our shareholders.
Dr. Matthews beneficially owned 64% of our common shares as
of March 31, 2006. Based on 211,088,547 common shares
outstanding as of March 31, 2006, Dr. Matthews will
beneficially own approximately %
of our common shares subsequent to this offering.
Dr. Matthews is also the Chairman of our board of
directors. Dr. Matthews, given the extent of his ownership
position, has the potential to control matters requiring
approval by shareholders, including the election of directors,
any amendments to our articles of incorporation or
by-laws, and
significant corporate transactions. Dr. Matthews may have
interests that differ from the interests of our other
shareholders.
Dr. Matthews ownership of our common shares, as
well as provisions contained in our articles of incorporation
and Canadian law, may reduce the likelihood of a change of
control occurring and, as a consequence, may deprive you of the
opportunity to sell your common shares at a control premium.
The voting power of Dr. Matthews, under certain
circumstances, could have the effect of delaying or preventing a
change of control and may deprive our shareholders of the
opportunity to sell their common shares at a control premium. In
addition, provisions of our articles of incorporation and
Canadian law may delay or impede a change of control
transaction. Our authorized preferred shares are available for
issuance from time to time at the discretion of our board of
directors, without shareholder approval. Our board of directors
has the authority, subject to applicable Canadian corporate law,
to determine the special rights and restrictions granted to or
imposed on any wholly unissued series of preferred shares, and
these rights, including voting rights, may be superior to those
of our common shares. Limitations on the ability to acquire and
hold our common shares may be imposed under the Competition
Act (Canada). This legislation permits the Commissioner of
Competition of Canada to review any acquisition of or control
over a significant interest in us and grants the Commissioner
jurisdiction to challenge such an acquisition before the
Canadian Competition Tribunal on the basis that it would, or
would be likely to, result in a substantial prevention or
lessening of competition in any market in Canada. In addition,
the Investment Canada Act subjects an acquisition of
control of a Canadian business (as that term is defined therein)
by a non-Canadian to
government review if the value of assets acquired as calculated
pursuant to the legislation exceeds a threshold amount. A
reviewable acquisition may not proceed unless the relevant
minister is satisfied that the investment is likely to be a net
benefit to Canada. (See Description of Share
Capital Ownership and Exchange Controls). Any
of the foregoing could prevent or delay a change of control and
may deprive our shareholders of the opportunity to sell their
common shares at a control premium.
You may be unable to bring actions or enforce judgments
against us, certain of our directors and officers, certain of
the selling shareholders or our independent public accounting
firm under U.S. federal securities laws.
We are incorporated under the laws of Canada, and our principal
executive offices are located in Canada. A majority of our
directors and officers, certain of the selling shareholders and
our independent public accounting firm reside principally in
Canada and all or a substantial portion of our assets and the
assets of these persons are located outside the United States.
Consequently, it may not be possible for you to effect service
of process within the United States upon us or those persons.
Furthermore, it may not be possible for you to enforce judgments
obtained in U.S. courts based upon the civil liability
provisions of the U.S. federal securities laws or other laws of
the United States against us or those persons. There is doubt as
to the enforceability in original actions in Canadian courts of
liabilities based upon the U.S. federal securities laws, and as
to the enforceability in Canadian courts of judgments of U.S.
courts obtained in actions based upon the civil liability
provisions of the U.S. federal securities laws.
18
U.S. investors will suffer adverse United States federal
income tax consequences if we are characterized as a passive
foreign investment company.
If, for any taxable year, we are treated as a passive foreign
investment company, or PFIC, as defined under Section 1297
of the Internal Revenue Code, then U.S. Holders (as defined in
United States Federal Income Tax Considerations)
would be subject to adverse United States federal income tax
consequences. Rather than being subject to these adverse tax
consequences, U.S. Holders may be able to make a
mark-to-market
election, which could require the inclusion of amounts in income
of a U.S. Holder annually, even in the absence of distributions
with respect to, or the disposition of, our common shares.
Currently, we do not believe that we are a PFIC, nor do we
anticipate that we will become a PFIC in the foreseeable future.
However, we cannot assure you that the Internal Revenue Service
will not successfully challenge our position or that we will not
become a PFIC in a future taxable year, as PFIC status is
re-tested each year and
depends on our assets and income in such year. For a more
detailed discussion of the PFIC rules, see United States
Federal Income Tax Considerations Passive Foreign
Investment Company Considerations.
You will suffer an immediate and substantial dilution in the
net tangible book value of the common shares you purchase.
The initial public offering price of our common shares is
substantially higher than the pro forma net tangible book value
per share of our outstanding common shares. You will experience
immediate dilution of approximately
$ in
the pro forma net tangible book value per common share from the
price you pay for the common shares. We have a large number of
outstanding options and warrants to purchase common shares with
exercise prices significantly below the estimated public
offering price for the common shares. We also have
$55 million aggregate principal amount of convertible notes
outstanding with conversion prices that may be below the
estimated public offering price for the common shares. To the
extent these securities are exercised, there will be further
dilution. See Dilution.
We will have broad discretion over the use of the net
proceeds from this offering. If we do not use the proceeds
effectively to develop and grow our business, an investment in
our common shares could suffer.
We intend to use the net proceeds of this offering to fund
working capital to assist us in implementing our growth
strategy, particularly in targeting medium to large enterprise
customers who require their communications solutions suppliers
to demonstrate adequate financial resources to address their
communications needs on an ongoing basis; to expand our selling,
marketing and global support capabilities; to increase market
share in our target vertical industry sectors and other
high-growth market
sectors; to expand our sales and support operations in North
America and selected markets in Latin America, Europe and the
Asia-Pacific region; to
pursue research and development programs designed to expand our
software applications and product portfolio to further address
the needs of our existing customers and to attract new
customers; and for general corporate purposes, which may include
acquisitions and enhancing our corporate infrastructure to
support our anticipated growth. You will not have the
opportunity to evaluate the economic, financial or other
information on which we base our decisions on how to use the net
proceeds we receive from this offering. We cannot assure you
that management will apply these funds effectively, nor can we
assure you that the net proceeds from this offering will be
invested to yield a favorable return.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements under the captions Prospectus
Summary, Risk Factors, Dividend
Policy, Managements Discussion and Analysis of
Financial Condition and Results of Operations,
Business and elsewhere in this prospectus are
forward-looking statements that reflect our current views with
respect to future events and financial performance. Statements
that include the words may, will,
should, could, estimate,
continue, expect, intend,
plan, predict, potential,
believe, project, anticipate
and similar statements of a forward-looking nature, or the
negatives of those statements, identify forward-looking
statements. Forward-looking statements are subject to a variety
of known and unknown risks, uncertainties and other factors that
could cause actual events or results to differ from those
expressed or implied by the forward-looking statements,
including, without limitation:
|
|
|
|
|
our ability to achieve profitability in the future; |
|
|
|
the development of the market opportunity for IP-based
communications solutions and related services; |
|
|
|
technological developments and evolving industry standards; |
|
|
|
our dependence primarily upon one outside contract manufacturer
to manufacture our products; |
|
|
|
our dependence on sole source and limited source suppliers for
key components; |
|
|
|
delay in the delivery of, or lack of access to, software or
other intellectual property licensed from our suppliers; |
|
|
|
our ability to protect our intellectual property and our
possible infringement of the intellectual property rights of
third parties; |
|
|
|
our reliance on our channel partners for the majority of our
sales; |
|
|
|
our solutions may contain design defects, errors, failures or
bugs; |
|
|
|
intense competition from our competitors; |
|
|
|
our reliance on strategic alliances; |
|
|
|
uncertainties arising from our foreign operations; and |
|
|
|
the fluctuations in our quarterly and annual revenues and
operating results. |
This list is not exhaustive of the factors that may affect any
of our forward-looking statements. In evaluating these
statements, you should carefully consider the risks outlined
under Risk Factors. The forward-looking statements
contained in this prospectus are based on the beliefs,
expectations and opinions of management as of the date of this
prospectus. We do not assume any obligation to update
forward-looking statements if circumstances or managements
beliefs, expectations or opinions should change. Although we
believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results,
levels of activity, performance or achievements.
20
USE OF PROCEEDS
We estimate that we will receive net proceeds of
$ million
from the sale of
the common
shares offered by us in this offering, based upon an assumed
initial public offering price of
$ per
share, after deducting estimated underwriting commissions and
estimated offering expenses payable by us. We will not receive
any proceeds from the sale of common shares being offered by the
selling shareholders. We intend to use the net proceeds of this
offering as follows:
|
|
|
|
|
to fund working capital to assist us in implementing our growth
strategy, particularly in targeting large enterprise customers
who require their communications solutions suppliers to
demonstrate adequate financial resources to address their
communications needs on an ongoing basis; |
|
|
|
to expand our selling, marketing and global support capabilities; |
|
|
|
to pursue research and development programs designed to expand
our software applications and product portfolio to further
address the needs of our existing customers and to attract new
customers; and |
|
|
|
for general corporate purposes, which may include acquisitions. |
If the underwriters exercise their option to purchase additional
common shares in full, we estimate that the net proceeds to us
from the sale of the additional common shares to be sold by us
will be
$ million,
all of which will be used for general corporate purposes.
While we currently anticipate that we will use the net proceeds
of this offering as described above, we may re-allocate the net
proceeds from time to time depending upon market and other
conditions in effect at the time. Although we regularly evaluate
potential acquisition and investment opportunities, we have no
current arrangements or commitments with respect to any
particular transaction. In addition, to the extent the net
proceeds of this offering are greater or less than the estimated
amount, because either the offering does not price at the
midpoint of the estimated price range or the size of the
offering changes, the difference will increase or decrease the
amount of net proceeds available for general corporate purposes.
Pending their application, we intend to invest the net proceeds
in short-term, interest-bearing, investment grade securities.
21
DIVIDEND POLICY
We currently intend to retain any future earnings to fund the
development and growth of our business and we do not currently
anticipate paying dividends on our common shares. Any
determination to pay dividends to holders of our common shares
in the future will be at the discretion of our board of
directors and will depend on many factors, including our
financial condition, earnings, legal requirements and other
factors as the board of directors deems relevant. In addition,
our outstanding convertible notes limit our ability to pay
dividends and we may in the future become subject to debt
instruments or other agreements that further limit our ability
to pay dividends.
22
CAPITALIZATION
The following table sets forth our cash and cash equivalents and
capitalization as of January 31, 2006:
|
|
|
|
|
on an actual basis; |
|
|
|
on a pro forma basis to give effect to the conversion of all of
our outstanding preferred shares into common shares, the
exercise of the warrants held by a financing agent and the
warrants issued in connection with our Series A Preferred
Shares and the creation of a new class of preferred shares,
issuable in series, all of which will occur prior to or in
connection with the completion of this offering; and |
|
|
|
on a pro forma basis as adjusted to give effect to the receipt
of approximately
$ million
in estimated net proceeds from this offering, after deducting
estimated underwriting commissions and estimated offering
expenses payable by us, and the application of these proceeds as
described under Use of Proceeds. |
The table should be read in conjunction with
Managements Discussion and Analysis of Financial
Condition and Results of Operations and our consolidated
financial statements and the related notes included elsewhere in
this prospectus.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at January 31, 2006 | |
|
|
| |
|
|
|
|
Pro Forma | |
|
|
Actual | |
|
Pro Forma | |
|
as Adjusted | |
|
|
| |
|
| |
|
| |
|
|
(in millions) | |
Cash and cash equivalents
|
|
$ |
32.3 |
|
|
$ |
38.6 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
Total debt, including capital leases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible notes
|
|
$ |
48.3 |
|
|
$ |
48.3 |
|
|
$ |
|
|
|
Capital leases
|
|
|
3.7 |
|
|
|
3.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52.0 |
|
|
|
52.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable shares and derivative instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable common
shares(1)
|
|
|
18.5 |
|
|
|
|
|
|
|
|
|
|
Series A Preferred
Shares(2)
|
|
|
8.3 |
|
|
|
|
|
|
|
|
|
|
Series B Preferred
Shares(3)
|
|
|
35.6 |
|
|
|
|
|
|
|
|
|
|
Derivative
instruments(4)
|
|
|
53.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
115.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders deficiency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
shares(5)
|
|
$ |
188.3 |
|
|
$ |
273.2 |
|
|
$ |
|
|
|
New preferred
shares(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants(7)
|
|
|
47.9 |
|
|
|
46.8 |
|
|
|
|
|
|
Deferred stock-based compensation
|
|
|
(0.1 |
) |
|
|
(0.1 |
) |
|
|
|
|
|
Accumulated deficit
|
|
|
(331.0 |
) |
|
|
(299.8 |
) |
|
|
|
|
|
Accumulated comprehensive loss
|
|
|
(31.3 |
) |
|
|
(24.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(126.2 |
) |
|
|
(4.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Capitalization
|
|
$ |
41.4 |
|
|
$ |
47.7 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
The holder of 10,000,000 common shares has the right to require
us to redeem these common shares by virtue of a shareholders
agreement dated April 23, 2004 among certain of our
shareholders and us. This right terminates upon the completion
of this offering. |
|
(2) |
Unlimited shares authorized, 20,000,000 issued and outstanding,
actual; no shares authorized, issued or outstanding,
pro forma and pro forma as adjusted. The Series A
Preferred Shares will be converted in accordance with their
terms into common shares in connection with the completion of
this offering. |
|
(3) |
Unlimited shares authorized, 67,789,300 issued and outstanding,
actual; no shares authorized, issued or outstanding,
pro forma and pro forma as adjusted. The Series B
Preferred Shares will be converted in accordance with their
terms into common shares in connection with the completion of
this offering. |
23
|
|
(4) |
The derivative instruments arose because a portion of the
redemption price of the Series A Preferred Shares and
Series B Preferred Shares is indexed to our common share
price and as required by SFAS 133 has been bifurcated and
accounted for separately. The Series A Preferred Shares and
the Series B Preferred Shares will be converted in
accordance with their terms into common shares in connection
with the completion of this offering. As a result of this
conversion the derivative instruments balance will
be reclassified into equity. |
|
(5) |
Unlimited shares authorized, 107,249,873 issued and outstanding,
actual; unlimited shares
authorized, shares
issued and outstanding, pro forma; unlimited shares
authorized, shares
issued and outstanding, pro forma as adjusted. |
|
(6) |
No shares authorized, issued and outstanding, actual; unlimited
shares authorized, no shares issued and outstanding, pro forma
and pro forma as adjusted. |
|
(7) |
The average weighted exercise price of the warrants is $0.57. |
The table above does not include:
|
|
|
|
|
22,643,957 common shares issuable upon the exercise of stock
options outstanding under our stock option plan at a weighted
average exercise price of $1.20 per share, as of
January 31, 2006; |
|
|
|
2,337,111 additional common shares reserved for issuance under
our stock option plan, as of January 31, 2006; |
|
|
|
35,785,410 common shares issuable upon the exercise of
outstanding warrants by Technology Partnerships Canada as of
January 31, 2006, which are exercisable for common shares
without the payment of any additional cash consideration; |
|
|
|
16,500,000 common shares issuable upon the exercise of
outstanding warrants held by holders of the convertible notes at
an exercise price calculated in accordance with a formula based
on the market price of our common shares (see Description
of Convertible Notes Noteholder Warrants); and |
|
|
|
a number of common shares issuable upon the conversion of
outstanding convertible notes determined by dividing the
outstanding principal and accrued interest owing on each note by
a conversion price calculated in accordance with a formula based
on the market price of our common shares (see Description
of Convertible Notes Convertible Notes). |
24
DILUTION
If you invest in our common shares, your interest will be
immediately diluted to the extent of the difference between the
price per common share paid by you in this offering and the pro
forma net tangible book value per common share after the
offering. Pro forma net tangible book value per common share is
determined at any date by subtracting our total liabilities from
our total tangible assets and dividing the difference by the
number of common shares outstanding at that date, after giving
effect to the conversion of all of our outstanding preferred
shares into common shares and the exercise of the warrants held
by a financing agent and warrants issued in connection with our
Series A Preferred Shares, all of which will occur prior to
or in connection with the completion of this offering.
Our pro forma net tangible book value as
of was
approximately
$ million,
or
$ per
common share. After giving effect to this offering, based on an
assumed initial public offering price of
$ per
common share and after deducting estimated underwriting
commissions and estimated offering expenses payable by us, our
pro forma as adjusted net tangible book value as of
January 31, 2006 would have been approximately
$ million,
or
$ per
common share. This represents an immediate increase in pro forma
net tangible book value of
$ per
common share to our existing shareholders and an immediate
dilution of
$ per
common share to new investors purchasing common shares in this
offering.
The following table illustrates this substantial and immediate
dilution to new investors on a per share basis:
|
|
|
|
|
|
Assumed initial public offering price per common share
|
|
$ |
|
|
|
Pro forma net tangible book value per share as of
January 31, 2006
|
|
$ |
|
|
|
Increase in pro forma net tangible book value per share
attributable to new investors in this offering
|
|
|
|
|
|
|
|
|
|
Pro forma as adjusted net tangible book value as of
January 31, 2006 after giving effect to this offering
|
|
|
|
|
|
|
|
|
Dilution in pro forma net tangible book value per share to new
investors in this offering
|
|
$ |
|
|
|
|
|
|
If the underwriters exercise their option to purchase additional
common shares in this offering in full, our as adjusted pro
forma net tangible book value at January 31, 2006 would be
$ ,
or
$ per
common share, representing an immediate increase in pro forma
net tangible book value to our existing shareholders of
$ per
common share and an immediate dilution to new investors of
$ per
common share.
The following table sets forth as of January 31, 2006 on
the same pro forma basis described above:
|
|
|
|
|
the total number of common shares owned by existing shareholders
and to be owned by new investors purchasing common shares in
this offering; |
|
|
|
the total consideration paid by our existing shareholders and to
be paid by new investors purchasing common shares in this
offering; and |
|
|
|
the average price per common share paid by existing shareholders
and to be paid by new investors purchasing common shares in this
offering. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Shares | |
|
|
|
|
|
|
Purchased | |
|
Total Consideration | |
|
Average Price | |
|
|
| |
|
| |
|
Per Common | |
|
|
Number | |
|
Percent | |
|
Amount | |
|
Percent | |
|
Share | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
Existing shareholders
|
|
|
|
|
|
|
|
% |
|
$ |
|
|
|
|
|
% |
|
$ |
|
|
New investors
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
100 |
% |
|
$ |
|
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25
If the underwriters over-allotment option is exercised in
full, the number of common shares held by the new investors will
increase
to ,
or %
of the total common shares outstanding after this offering.
The discussion and tables above exclude:
|
|
|
|
|
22,643,957 common shares issuable upon the exercise of
stock options outstanding under our stock option plan at a
weighted average exercise price of $1.20 per share, as of
January 31, 2006; |
|
|
|
2,337,111 additional common shares reserved for issuance
under our stock option plan, as of January 31, 2006; |
|
|
|
35,785,410 common shares issuable upon the exercise of
outstanding warrants by Technology Partnerships Canada as of
January 31, 2006, which are exercisable for common shares
without the payment of any additional cash consideration; |
|
|
|
16,500,000 common shares issuable upon the exercise of
outstanding warrants held by holders of the convertible notes at
an exercise price calculated in accordance with a formula based
on the market price of our common shares (see Description
of Convertible Notes Noteholder Warrants); and |
|
|
|
a number of common shares issuable upon the conversion of
outstanding convertible notes determined by dividing the
outstanding principal and accrued interest owing on each note by
a conversion price calculated in accordance with a formula based
on the market price of our common shares (see Description
of Convertible Notes Convertible Notes). |
If any of these options, warrants or convertible notes are
exercised or converted and the underlying common shares are
issued, there will be further dilution to new investors.
26
SELECTED CONSOLIDATED FINANCIAL DATA
The following sets forth selected consolidated financial
information derived from (a) our audited consolidated
financial statements as of and for the fiscal years ended
April 27, 2003, April 25, 2004, and April 24,
2005, which are included elsewhere in this prospectus,
(b) our audited consolidated financial statements as of and
for the fiscal year ended April 28, 2002, which are not
included in this prospectus, (c) our audited consolidated
financial statements as of and for the
six-day transition
period ended April 30, 2005, which are included elsewhere
in this prospectus, and (d) our unaudited consolidated
financial statements as of and for the nine months ended
January 23, 2005 and January 31, 2006, which are
included elsewhere in this prospectus. The unaudited interim
consolidated financial statements include all normal recurring
adjustments that we consider necessary for a fair presentation
of our financial position and results of operations. The data
set out below does not take into account the conversion of our
outstanding preferred shares into common shares, the exercise of
the warrants held by a financing agent or the exercise of the
warrants issued in connection with our Series A Preferred
Shares. On April 24, 2005, we changed our fiscal year end
from the last Sunday in April to April 30. The change in
our fiscal year end (and resulting alignment of fiscal
quarter ends) permits us to better align our reporting
results with industry norms.
Historical results do not necessarily indicate results expected
for any future period. You should read the following selected
consolidated financial data together with
Managements Discussion and Analysis of Financial
Condition and Results of Operations, and our consolidated
financial statements and the accompanying notes included
elsewhere in this prospectus.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Days | |
|
|
|
|
Fiscal Year Ended | |
|
Ended | |
|
Nine Months Ended | |
|
|
| |
|
| |
|
| |
|
|
April 28, | |
|
April 27, | |
|
April 25, | |
|
April 24, | |
|
April 30, | |
|
Jan. 23, | |
|
Jan. 31, | |
|
|
2002 | |
|
2003 | |
|
2004 | |
|
2005 | |
|
2005 | |
|
2005 | |
|
2006 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in millions, except share and per share data) | |
Consolidated Statement of Operations Data |
Revenues
|
|
$ |
358.0 |
|
|
$ |
352.2 |
|
|
$ |
340.7 |
|
|
$ |
342.2 |
|
|
$ |
3.2 |
|
|
$ |
251.1 |
|
|
$ |
285.2 |
|
Cost of revenues
|
|
|
215.5 |
|
|
|
225.4 |
|
|
|
202.9 |
|
|
|
213.2 |
|
|
|
2.4 |
|
|
|
156.7 |
|
|
|
165.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
142.5 |
|
|
|
126.8 |
|
|
|
137.8 |
|
|
|
129.0 |
|
|
|
0.8 |
|
|
|
94.4 |
|
|
|
119.7 |
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
59.1 |
|
|
|
41.2 |
|
|
|
36.2 |
|
|
|
41.4 |
|
|
|
0.7 |
|
|
|
30.4 |
|
|
|
33.0 |
|
Selling, general and administrative
|
|
|
141.9 |
|
|
|
114.9 |
|
|
|
111.4 |
|
|
|
114.9 |
|
|
|
1.8 |
|
|
|
85.2 |
|
|
|
88.1 |
|
Special
charges(1)
|
|
|
7.4 |
|
|
|
13.7 |
|
|
|
11.7 |
|
|
|
10.6 |
|
|
|
|
|
|
|
7.1 |
|
|
|
4.2 |
|
Loss (gain) on disposal of assets
|
|
|
1.5 |
|
|
|
|
|
|
|
0.6 |
|
|
|
3.4 |
|
|
|
|
|
|
|
|
|
|
|
(2.2 |
) |
Amortization of acquired intangibles
(2)
|
|
|
43.8 |
|
|
|
29.1 |
|
|
|
0.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(111.2 |
) |
|
|
(72.1 |
) |
|
|
(22.3 |
) |
|
|
(41.3 |
) |
|
|
(1.7 |
) |
|
|
(28.3 |
) |
|
|
(3.4 |
) |
Other (income) expense, net
|
|
|
3.4 |
|
|
|
0.9 |
|
|
|
8.0 |
|
|
|
7.5 |
|
|
|
(0.1 |
) |
|
|
5.1 |
|
|
|
16.0 |
|
Income tax (recovery) expense
|
|
|
0.1 |
|
|
|
(2.9 |
) |
|
|
0.3 |
|
|
|
0.8 |
|
|
|
|
|
|
|
(0.6 |
) |
|
|
2.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(114.7 |
) |
|
$ |
(70.1 |
) |
|
$ |
(30.6 |
) |
|
$ |
(49.6 |
) |
|
$ |
(1.6 |
) |
|
$ |
(34.0 |
) |
|
$ |
(21.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted |
|
$ |
(1.10 |
) |
|
$ |
(0.63 |
) |
|
$ |
(0.26 |
) |
|
$ |
(0.49 |
) |
|
$ |
(0.01 |
) |
|
$ |
(0.34 |
) |
|
$ |
(0.23 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding
|
|
|
106,848,314 |
|
|
|
113,109,751 |
|
|
|
127,831,211 |
|
|
|
113,792,829 |
|
|
|
117,149,933 |
|
|
|
112,895,239 |
|
|
|
117,213,252 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Special charges relate to restructuring activities, product line
exit and other loss accruals undertaken to improve our
operational efficiency and to realign our business. |
|
(2) |
Acquired intangible assets relating to the acquisition of the
Mitel name, certain assets and subsidiaries from Zarlink
Semiconductor Inc. in 2001 were fully amortized in 2004. |
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at | |
|
As at | |
|
As at | |
|
As at | |
|
As at | |
|
As at | |
|
|
April 28, | |
|
April 27, | |
|
April 25, | |
|
April 24, | |
|
April 30, | |
|
January 31, | |
|
|
2002 | |
|
2003 | |
|
2004 | |
|
2005 | |
|
2005 | |
|
2006 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in millions) | |
Consolidated Balance Sheet Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
3.6 |
|
|
$ |
22.3 |
|
|
$ |
26.7 |
|
|
$ |
9.7 |
|
|
$ |
46.6 |
|
|
$ |
32.3 |
|
Other current assets
|
|
|
132.4 |
|
|
|
120.6 |
|
|
|
115.0 |
|
|
|
117.5 |
|
|
|
115.8 |
|
|
|
122.0 |
|
Property and equipment
|
|
|
29.7 |
|
|
|
25.3 |
|
|
|
20.3 |
|
|
|
20.9 |
|
|
|
20.6 |
|
|
|
15.2 |
|
Other assets
|
|
|
42.4 |
|
|
|
7.3 |
|
|
|
7.4 |
|
|
|
8.5 |
|
|
|
12.3 |
|
|
|
13.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
208.1 |
|
|
$ |
175.5 |
|
|
$ |
169.4 |
|
|
$ |
156.6 |
|
|
$ |
195.3 |
|
|
$ |
183.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
$ |
138.9 |
|
|
$ |
135.8 |
|
|
$ |
103.2 |
|
|
$ |
115.8 |
|
|
$ |
101.9 |
|
|
$ |
106.9 |
|
Long-term debt
|
|
|
15.1 |
|
|
|
23.1 |
|
|
|
15.5 |
|
|
|
20.2 |
|
|
|
66.7 |
|
|
|
57.1 |
|
Derivative
instruments(3)
|
|
|
|
|
|
|
|
|
|
|
29.2 |
|
|
|
38.0 |
|
|
|
37.4 |
|
|
|
53.2 |
|
Other long-term liabilities
|
|
|
6.6 |
|
|
|
24.6 |
|
|
|
24.8 |
|
|
|
25.4 |
|
|
|
25.1 |
|
|
|
29.7 |
|
Redeemable
shares(4)
|
|
|
27.9 |
|
|
|
29.0 |
|
|
|
51.3 |
|
|
|
57.2 |
|
|
|
57.3 |
|
|
|
62.4 |
|
Capital stock
|
|
|
167.5 |
|
|
|
183.4 |
|
|
|
184.8 |
|
|
|
187.6 |
|
|
|
187.6 |
|
|
|
188.3 |
|
Other capital accounts
|
|
|
(0.9 |
) |
|
|
(2.2 |
) |
|
|
7.7 |
|
|
|
14.7 |
|
|
|
23.3 |
|
|
|
16.5 |
|
Accumulated deficit
|
|
|
(147.0 |
) |
|
|
(218.2 |
) |
|
|
(247.1 |
) |
|
|
(302.3 |
) |
|
|
(304.0 |
) |
|
|
(331.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$ |
208.1 |
|
|
$ |
175.5 |
|
|
$ |
169.4 |
|
|
$ |
156.6 |
|
|
$ |
195.3 |
|
|
$ |
183.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3) |
The derivative instruments arose as a portion of the redemption
price of the Series A Preferred Shares and Series B
Preferred Shares is indexed to our common share price and as
required by SFAS 133 has been bifurcated and accounted for
separately. |
|
(4) |
Redeemable shares include 10,000,000 common shares (which are
redeemable by virtue of a shareholders agreement dated
April 23, 2004 among certain of our shareholders and us),
20,000,000 Series A Preferred Shares and 67,789,300
Series B Preferred Shares. |
28
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with
our consolidated financial statements and the notes to those
statements, as well as the other financial information appearing
elsewhere in this prospectus. This prospectus contains
forward-looking statements that involve risks and uncertainties
and that reflect estimates and assumptions. Our actual results
may differ materially from those indicated in forward-looking
statements. Factors that could cause our actual results to
differ materially from our forward-looking statements are
described in Risk Factors and elsewhere in this
prospectus.
Overview
We are a leading provider of integrated communications solutions
and services for business customers. Our solutions include
products such as platforms, desktop appliances and software
applications. We complement our communications solutions with a
range of services including maintenance and support, managed
services, installation and other professional services. Our
IP-based communications
solutions integrate voice, video and data communications with
business applications and processes, enabling our customers to
realize significant cost benefits and to conduct their business
more efficiently and effectively.
We were incorporated in Canada on January 12, 2001 by
Zarlink Semiconductor Inc. (Zarlink) (formerly Mitel
Corporation) in order to reorganize its communications systems
division in contemplation of the sale of that business to
companies controlled by Dr. Matthews. In a series of
related transactions on February 16, 2001 and
March 27, 2001, we acquired from Zarlink the
Mitel name and substantially all of the assets
(other than Canadian real estate and most intellectual property
assets) and subsidiaries of the Zarlink communications systems
business.
Over the past five years, we have invested heavily in the
research and development of
IP-based communications
solutions to take advantage of the telephone communications
industry shift from legacy digital telephony technology to new
IP-based platforms,
desktop devices and software applications. We have realigned our
business to discontinue certain activities relating to our
legacy solutions and to focus our sales and marketing efforts on
our IP-based
communications solutions. We have also undertaken certain cost
reduction measures, including staff reductions, to align our
operating expense model with current revenue levels while we
focused on developing a broad portfolio of
IP-based communications
solutions. We believe our early and sustained investment in
IP-based research and
development, and our decision to concentrate our efforts on this
new technology, has positioned us well to take advantage of the
industry shift to
IP-based communications
solutions.
Comparability of
Periods
On April 24, 2005, we changed our fiscal year end from the
last Sunday in April to April 30 in each year. The selection of
the last Sunday in April as our fiscal year end typically
resulted in a fifty-two week year with four thirteen week
quarters. The change in the fiscal year end allows us to better
align our reporting results with those of our industry peers.
Results for the six-day transition period (the Transition
Period) from April 25, 2005 to April 30, 2005
have been included in this discussion and analysis; however, it
would not be meaningful to extrapolate this six-day period to
forecast quarterly or annual operating results. In light of our
realignment of our business over the past five years to focus on
IP-based communications
solutions, we believe that
period-over-period
comparisons of our operating results are not necessarily
meaningful and should not be relied upon as being a good
indicator of our future performance.
Sources of Revenues and Expenses
Key performance indicators that we use to manage our business
and evaluate our financial results and operating performance
include: revenues, gross margins, operating costs and cash
flows. The following describes our sources of revenues and
expenses with our results of operations presenting our
comparative operating results.
29
Revenues
We generate our revenues principally from the sale of integrated
communications solutions and services to business customers with
these revenues being classified as product or service revenues.
Product revenues are comprised of revenues generated from the
sales of platforms and desktop devices, software applications
and other product-related revenues, while service revenues are
primarily comprised of revenues from maintenance and support,
managed services, installation and other professional services.
We sell our communications solutions and services through a
distribution network of channel partners that includes wholesale
distributors, solutions providers, authorized resellers,
communications service providers, systems integrators, and other
technology providers. We complement and support our channel
partners in selected markets using a high-touch
sales model whereby our sales staff works either directly with a
prospective customer, or in coordination with a channel partner
in defining the scope, design and implementation of the solution.
Software revenues are recognized when persuasive evidence of an
arrangement exists, delivery has occurred in accordance with the
terms and conditions of the contract, the fee is fixed or
determinable, and collection is reasonably assured. For software
arrangements involving multiple elements, revenues are allocated
to each element based on the relative fair value or the residual
method, as applicable, and using vendor specific objective
evidence of fair values, which is based on prices charged when
the element is sold separately. Revenues related to
post-contract support, including technical support and
unspecified when-and-if available software upgrades, is
recognized ratably over the
post-contract support
term for contracts that are greater than one year. For contracts
where the post-contract
support period is one year or less, the costs are deemed
insignificant, and the unspecified software upgrades are
expected to be and historically have been infrequent, revenues
are recognized together with the initial licensing fee and the
estimated costs are accrued.
We make sales to distributors and resellers based on contracts
with terms typically ranging from one to three years. For
products sold through these distribution channels, revenues are
recognized at the time the risk of loss is transferred to
distributors and resellers according to contractual terms and if
all contractual obligations have been satisfied. These
arrangements usually involve multiple elements, including
post-contract technical support and training. Costs related to
insignificant technical support obligations, including
second-line telephone support for certain products, are accrued.
For other technical support and training obligations, revenues
from product sales are allocated to each element based on vendor
specific objective evidence of relative fair values, generally
representing the prices charged when the element is sold
separately, with any discount allocated proportionately.
Revenues attributable to undelivered elements are deferred and
recognized upon performance or ratably over the contract period.
Our standard warranty period extends fifteen months from the
date of sale and extended warranty periods are offered on
certain products. At the time product revenues are recognized,
an accrual for estimated warranty costs is recorded as a
component of cost of revenues based on prior claims experience.
Sales to our resellers do not provide for return or price
protection rights while sales to distributors provide for these
rights. Product return rights are typically limited to a
percentage of sales over a maximum three-month period. A reserve
for estimated product returns and price protection rights based
on past experience is recorded as a reduction of sales at the
time product revenues are recognized. For new distributors, we
estimate the product return provision using past return
experience with similar distribution partners operating in the
same regions. We offer various cooperative marketing programs to
assist our distribution channels to market our products.
Allowances for these programs are recorded as marketing expenses
at the time of shipment based on contract terms and prior claims
experience.
We also sell products, including installation and related
maintenance and support services, directly to
end-user customers. For
products sold directly to
end-user customers,
revenues are recognized at the time of delivery and at the time
risk of loss is transferred, based on prior experience of
successful compliance with customer specifications. Revenues
from installation are recognized when services are rendered and
when contractual obligations, including customer acceptance,
have been satisfied. Revenues are also derived from professional
service contracts with terms that typically range from two to
six weeks for
30
standard solutions and for longer periods for customized
solutions. Revenues from customer support, professional services
and maintenance contracts are recognized ratably over the
contractual period, generally one year. Billings in advance of
services are included in deferred revenues. Revenues from
installation services provided in advance of billing are
included in unbilled accounts receivable.
Certain arrangements with
end-user customers
provide for free customer support and maintenance services
extending twelve months from the date of installation. Customer
support and maintenance contracts are also sold separately. When
customer support or maintenance services are provided free of
charge, these amounts are unbundled from the product and
installation revenues at their fair market value based on the
prices charged when the element is sold separately and
recognized ratably over the contract period. Consulting and
training revenues are recognized upon performance.
We provide long-term system management services of communication
systems (Managed Services). Under these
arrangements, Managed Services and communication equipment are
provided to end-user
customers for terms that typically range from one to ten years.
Revenues from Managed Services are recognized ratably over the
contract period. We retain title and risk of loss associated
with the equipment utilized in the provision of the Managed
Services. Accordingly, the equipment is capitalized as part of
property and equipment and is amortized to cost of sales over
the contract period.
Cost of Revenues
Cost of revenues is comprised of product costs and service
costs. Product cost of revenues consists of cost of goods
purchased from
third-party electronics
manufacturing services, or EMS suppliers, inventory provisions,
engineering costs, warranty costs and other supply chain
management costs.
We outsource most of our worldwide manufacturing and repair
operations to BreconRidge. In addition to BreconRidge, we
outsource the manufacturing of a number of our
IP-based platforms to
Plexus Corp. of the United States and certain desktop sets to
WKK Technology Ltd. in China. We retain Lytica Inc., an
independent contract manufacturing consultancy, to assist us in
attempting to confirm, on a quarterly basis, that pricing from
BreconRidge, Plexus Corp. and WKK Technology Ltd. is at
market rates and the level of service obtained from them is
comparable to their competitors.
Service cost of sales is primarily comprised of labor costs
associated with maintenance and support, Managed Services,
installation and other professional services.
Research and Development
Expenses
Our product development programs are focused on developing
IP-based communications
solutions. Our research and development organization is based in
Ottawa, Canada and comprises over 325 personnel, almost all of
whom are engaged in IP product design and verification. We also
leverage outsourced development relationships with a number of
third party software development firms, for non-mission-critical
development and support.
Research and development expenses consist primarily of salaries
and related expenses for engineering personnel, materials and
consumables and subcontract service costs.
Sales, General and
Administrative Expenses
Sales, general and administrative, or SG&A, expenses consist
primarily of costs relating to our sales and marketing
activities, including salaries and related expenses,
advertising, trade shows and other promotional activities and
materials, administrative and financing functions, legal and
professional fees, insurance and other corporate and overhead
expenses.
Special Charges
Special charges relate to restructuring activities, product line
exit and other loss accruals undertaken to improve our
operational efficiency and to realign our business to focus on
IP-based communications
31
solutions. Special charges consist primarily of workforce
reduction costs, lease termination obligations, assets
write-offs and legal costs. We reassess the accruals on a
regular basis to reflect changes in the timing or amount of
estimated restructuring and termination costs on which the
original estimates were based. New restructuring accruals or
reversals of previous accruals are recorded in the period of
change.
Other Operating
Expenses
Other expenses included as deductions against operating income
include gains or losses on sale of assets or operations and
amortization of acquired intangibles. Acquired intangible assets
were fully amortized in early fiscal 2004.
Results of Operations
Nine months ended
January 31, 2006 as compared to nine months ended
January 23, 2005
The following table sets forth our comparative results of
operations, both in dollars and as a percentage of total
revenues, for the first nine months of each of fiscal 2006 and
2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended | |
|
|
|
|
|
|
| |
|
|
|
|
|
|
January 23, 2005 | |
|
January 31, 2006 | |
|
Change | |
|
|
| |
|
| |
|
| |
|
|
|
|
% of | |
|
|
|
% of | |
|
|
|
|
Amounts | |
|
Revenues | |
|
Amounts | |
|
Revenues | |
|
Amount | |
|
% | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in millions, except percentages) | |
Revenues
|
|
$ |
251.1 |
|
|
|
100.0 |
% |
|
$ |
285.2 |
|
|
|
100.0 |
% |
|
$ |
34.1 |
|
|
|
13.6 |
% |
Cost of revenues
|
|
|
156.7 |
|
|
|
62.4 |
|
|
|
165.5 |
|
|
|
58.0 |
|
|
|
8.8 |
|
|
|
5.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
94.4 |
|
|
|
37.6 |
|
|
|
119.7 |
|
|
|
42.0 |
|
|
|
25.3 |
|
|
|
26.8 |
|
Research and development
|
|
|
30.4 |
|
|
|
12.1 |
|
|
|
33.0 |
|
|
|
11.6 |
|
|
|
2.6 |
|
|
|
8.6 |
|
Selling, general and administrative
|
|
|
85.2 |
|
|
|
33.9 |
|
|
|
88.1 |
|
|
|
30.9 |
|
|
|
2.9 |
|
|
|
3.4 |
|
Special charges
|
|
|
7.1 |
|
|
|
2.8 |
|
|
|
4.2 |
|
|
|
1.5 |
|
|
|
(2.9 |
) |
|
|
(40.8 |
) |
Gain on sale of manufacturing operations
|
|
|
|
|
|
|
|
|
|
|
(0.7 |
) |
|
|
(0.3 |
) |
|
|
(0.7 |
) |
|
|
* |
|
Gain on sale of assets
|
|
|
|
|
|
|
|
|
|
|
(1.5 |
) |
|
|
(0.5 |
) |
|
|
(1.5 |
) |
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(28.3 |
) |
|
|
(11.2 |
) |
|
|
(3.4 |
) |
|
|
(1.2 |
) |
|
|
24.9 |
|
|
|
* |
|
Interest expense
|
|
|
1.7 |
|
|
|
0.7 |
|
|
|
5.6 |
|
|
|
2.0 |
|
|
|
3.9 |
|
|
|
229.4 |
|
Mark-to-market adjustment on derivatives
|
|
|
3.9 |
|
|
|
1.6 |
|
|
|
11.7 |
|
|
|
4.1 |
|
|
|
7.8 |
|
|
|
200.0 |
|
Other (income) expense, net
|
|
|
(0.5 |
) |
|
|
(0.2 |
) |
|
|
(1.3 |
) |
|
|
(0.5 |
) |
|
|
(0.8 |
) |
|
|
* |
|
Income tax expense
|
|
|
0.6 |
|
|
|
0.2 |
|
|
|
2.5 |
|
|
|
0.9 |
|
|
|
1.9 |
|
|
|
316.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(34.0 |
) |
|
|
(13.5 |
)% |
|
$ |
(21.9 |
) |
|
|
(7.7 |
)% |
|
$ |
12.1 |
|
|
|
(35.6 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* the comparison is not meaningful
32
Revenues:
Geographic Segment Revenues:
Our reportable segments are represented by the following four
geographic sales regions:
|
|
|
|
|
the United States; |
|
|
|
Europe, Middle East & Africa (EMEA); |
|
|
|
Canada and Caribbean & Latin America (CALA); and |
|
|
|
Asia-Pacific. |
These reportable segments were determined in accordance with how
our management views and evaluates our business. The following
table sets forth total revenues by geographic regions, both in
dollars and as a percentage of total revenues, for the fiscal
periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended | |
|
|
|
|
|
|
| |
|
|
|
|
|
|
January 23, 2005 | |
|
January 31, 2006 | |
|
Change | |
|
|
| |
|
| |
|
| |
|
|
|
|
% of | |
|
|
|
% of | |
|
|
|
|
Revenues | |
|
Revenues | |
|
Revenues | |
|
Revenues | |
|
Amount | |
|
% | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in millions, except percentages) | |
United States
|
|
$ |
114.0 |
|
|
|
45.4 |
% |
|
$ |
136.8 |
|
|
|
48.0 |
% |
|
$ |
22.8 |
|
|
|
20.0 |
% |
EMEA
|
|
|
106.2 |
|
|
|
42.3 |
|
|
|
112.7 |
|
|
|
39.5 |
|
|
|
6.5 |
|
|
|
6.1 |
|
Canada and CALA
|
|
|
26.5 |
|
|
|
10.5 |
|
|
|
29.6 |
|
|
|
10.4 |
|
|
|
3.1 |
|
|
|
11.7 |
|
Asia-Pacific
|
|
|
4.4 |
|
|
|
1.8 |
|
|
|
6.1 |
|
|
|
2.1 |
|
|
|
1.7 |
|
|
|
38.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
251.1 |
|
|
|
100.0 |
% |
|
$ |
285.2 |
|
|
|
100.0 |
% |
|
$ |
34.1 |
|
|
|
13.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the nine months ended January 31, 2006 revenues grew
by $34.1 million, or 13.6%, compared to the nine months
ended January 23, 2005.
We have experienced revenue growth for the nine months ended
January 31, 2006 across all geographical segments, with the
most significant growth, in absolute dollars, coming from the
United States and EMEA.
Revenue growth in the United States is primarily attributable to
increased product sales through both the regions channel
partners and direct sales offices. In addition, the region has
enjoyed significant growth in its service revenues primarily due
to increased installation services that are directly associated
with the growth in product sales through our direct sales.
Revenue growth in EMEA is primarily attributable to increased
product sales through the regions channel partners,
specifically in the United Kingdom and Continental Europe.
However, revenue growth in the region has been partially
mitigated by a significant year-over-year decline in the
regions services business resulting from a decline in both
maintenance and support and Managed Service revenues. We
anticipate that our service revenues in the region will continue
to decline in the future due to increased price competition on
both maintenance and support and Managed Service contract
renewals.
We expect that we will continue to see greater than 80% of our
global revenues generated through the United States and EMEA
operating segments for the foreseeable future.
33
The following table sets forth total revenues for groups of
similar products and services, both in dollars and as a
percentage of total revenues, for the fiscal periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended | |
|
|
|
|
|
|
| |
|
|
|
|
|
|
January 23, 2005 | |
|
January 31, 2006 | |
|
Change | |
|
|
| |
|
| |
|
| |
|
|
|
|
% of | |
|
|
|
% of | |
|
|
|
|
Revenues | |
|
Revenues | |
|
Revenues | |
|
Revenues | |
|
Amount | |
|
% | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in millions, except percentages) | |
Products:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Platforms and desktop devices
|
|
$ |
122.7 |
|
|
|
48.9 |
% |
|
$ |
150.1 |
|
|
|
52.6 |
% |
|
$ |
27.4 |
|
|
|
22.3 |
% |
|
Software applications
|
|
|
16.7 |
|
|
|
6.6 |
|
|
|
25.3 |
|
|
|
8.9 |
|
|
|
8.6 |
|
|
|
51.5 |
|
|
Other(1)
|
|
|
13.8 |
|
|
|
5.5 |
|
|
|
14.2 |
|
|
|
5.0 |
|
|
|
0.4 |
|
|
|
2.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
153.2 |
|
|
|
61.0 |
|
|
|
189.6 |
|
|
|
66.5 |
|
|
|
36.4 |
|
|
|
23.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maintenance and support
|
|
|
63.5 |
|
|
|
25.3 |
|
|
|
60.8 |
|
|
|
21.3 |
|
|
|
(2.7 |
) |
|
|
(4.3 |
) |
|
Installation
|
|
|
15.7 |
|
|
|
6.3 |
|
|
|
18.9 |
|
|
|
6.6 |
|
|
|
3.2 |
|
|
|
20.4 |
|
|
Managed services
|
|
|
8.4 |
|
|
|
3.3 |
|
|
|
7.3 |
|
|
|
2.6 |
|
|
|
(1.1 |
) |
|
|
(13.1 |
) |
|
Professional and other services
|
|
|
10.3 |
|
|
|
4.1 |
|
|
|
8.6 |
|
|
|
3.0 |
|
|
|
(1.7 |
) |
|
|
(16.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
97.9 |
|
|
|
39.0 |
|
|
|
95.6 |
|
|
|
33.5 |
|
|
|
(2.3 |
) |
|
|
(2.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
251.1 |
|
|
|
100.0 |
% |
|
$ |
285.2 |
|
|
|
100.0 |
% |
|
$ |
34.1 |
|
|
|
13.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Other products include mainly OEM products representing
approximately five percent of total revenues in both the nine
months ended January 23, 2005 and the nine months ended
January 31, 2005. |
Product Revenues:
Revenues from product sales were $189.6 million in the nine
month period ended January 31, 2006 compared to
$153.2 million in the comparable period in fiscal 2005,
representing an increase of 23.8%.
Revenues generated by sales of our communications platforms and
desktop devices increased by $27.4 million or 22.3% on a
period-over-period basis. During the nine months ended
January 31, 2006 sales of IP-based communication platforms
and desktop devices increased by 51%, or approximately
$44.0 million, over the comparable period in the prior
year. Consistent with recent periods, we continued to experience
a decrease in sales of our legacy communication platforms and
desktop devices. In addition to the growth in IP communication
platforms and desktop devices, we also experienced significant
period-over-period growth in software applications revenues,
with software applications revenues growing by $8.6 million
or 51.5% over the comparable period in the prior year. IP-based
software applications represented over 80% of total software
applications revenues for the nine months ended January 31,
2006, an increase from approximately 65% in the nine months
ended January 23, 2005, and revenues from IP-based software
applications increased in excess of 90% in comparison to the
comparable period in fiscal 2005. The growth in IP-based
software applications revenues reflects a period-over-period
increase in the rate of attachment of software applications to
the underlying platforms and desktop devices. Other product
revenues, which include mainly original equipment manufacturer
products that we re-sell, remained relatively consistent as a
percentage of sales in the nine months ended January 31,
2006 compared to the comparable period in fiscal 2005.
Overall IP-based
product revenues represented 86% of total product revenue for
the nine months ended January 31, 2006, an increase from
70% in the nine months ended January 23, 2005.
We anticipate that any future product revenue growth will be
primarily attributable to increased revenues from our IP-based
communication platforms, desktop devices and software
applications, offset by continued declines in legacy
communications platforms and desktop devices.
34
Service Revenues:
Revenue from services sales was 33.5% of total revenues during
the nine months ended January 31, 2006, representing a
decrease from 39.0% of total revenues for the comparable period
in fiscal 2005. This decrease is primarily attributable to a
decline in maintenance and support revenues of
$2.7 million, a decline in revenues from Managed Services
contracts of $1.1 million and a decline in professional and
other service revenues of $1.7 million. The overall decline
in service revenues was partially mitigated by an increase in
installation service revenues of $3.2 million which is
primarily attributable to increased product sales via our direct
sales offices in the United States.
We continue to generate more than 60% of our total service
revenues from the provision of fixed maintenance contracts.
Although we expect this level to continue, increased market
competition on the renewal of these maintenance contracts may
result in lower maintenance revenues and hence lower service
revenues in future periods.
Gross Margin:
The following table sets forth gross margin, both in dollars and
as a percentage of revenues, for the fiscal periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended | |
|
|
| |
|
|
January 23, 2005 | |
|
January 31, 2006 | |
|
|
| |
|
| |
|
|
|
|
% of | |
|
|
|
% of | |
|
|
Amount | |
|
Revenues | |
|
Amount | |
|
Revenues | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(in millions, except percentages) | |
Products
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$ |
153.2 |
|
|
|
100.0 |
% |
|
$ |
189.6 |
|
|
|
100.0 |
% |
|
Gross Margin
|
|
|
54.1 |
|
|
|
35.3 |
|
|
|
81.6 |
|
|
|
43.0 |
|
Services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$ |
97.9 |
|
|
|
100.0 |
% |
|
$ |
95.6 |
|
|
|
100.0 |
% |
|
Gross Margin
|
|
|
40.3 |
|
|
|
41.2 |
|
|
|
38.1 |
|
|
|
39.9 |
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$ |
251.1 |
|
|
|
100.0 |
% |
|
$ |
285.2 |
|
|
|
100.0 |
% |
|
Gross Margin
|
|
|
94.4 |
|
|
|
37.6 |
|
|
|
119.7 |
|
|
|
42.0 |
|
Gross margin improved to 42.0% of revenues for the nine months
ended January 31, 2006 compared to 37.6% for the
corresponding period in fiscal 2005.
Products gross margin as a percentage of revenues increased from
35.3% in the nine months ended January 23, 2005 to 43.0% in
same period in fiscal 2006. The increase in margin is primarily
due to:
|
|
|
|
|
a 4.0% improvement as a result of (i) a shift in
communication platform sales mix whereby total communication
platform sales contained a higher proportion of higher margin
large enterprise business platforms in the nine months ended
January 31, 2006 versus the nine months ended
January 23, 2005; (ii) an improved mix of software
applications revenues as a total of product revenues as software
applications typically generate higher margins than either
communication platforms and desktop appliances or other product
revenues; and (iii) cost reductions on communications
platforms and desktop appliances resulting from product
re-design efforts and
improved costs from electronic contract manufacturers; and |
|
|
|
a 1.2% improvement as a result of lower inventory obsolescence
provisions recorded in the nine months ended January 31,
2006 compared to the corresponding period in fiscal 2005 due to
the end of life of our Mitel 3100 ICP product in the third
quarter of fiscal 2005. |
Our margins may vary from period to period depending upon
region, distribution channel and product mix. We anticipate that
cost reductions resulting from re-design efforts and improved
manufacturing costs
35
of our IP-based communications platforms and desktop appliances
will have a positive effect on product gross margin in the
balance of fiscal 2006 and into fiscal 2007.
Service margins declined slightly to 39.9% in the nine months
ended January 31, 2006 from 41.2% in the same period in
fiscal 2005. The decrease in service margins was due primarily
to the change in mix of service revenues, as total service
revenues contained a higher proportion of lower margin
installation services and a lower proportion of relatively
higher margin maintenance and support services in the nine
months ended January 31, 2006 compared to the same period
of fiscal 2005. While we cannot predict the extent to which
changes in service mix and competitive pressures will continue
to impact our service margin, we expect that service margins
will remain in the range of 38% to 42% of service revenues for
the balance of fiscal 2006 and into fiscal 2007.
Operating Expenses
Research and Development:
Research and development expenses decreased from 12.1% of total
revenues in the nine months ended January 23, 2005 to 11.6%
in the nine months ended January 31, 2006, with spending in
absolute dollars growing by $2.6 million
period-over-period. The reduction as a percentage of revenues
are primarily attributable to the 13.6% period-over-period
revenue increase, with the absolute dollar increase being a
continuation of our investment in the development and
enhancement of our
IP-based communications
solutions. We anticipate that we will maintain our investment
levels for research and development at existing levels, in
absolute dollars, for the foreseeable future. These expenses may
vary, however, as a percentage of revenues.
Selling, General and
Administrative:
SG&A expenses decreased from 33.9% of total revenues in the
nine months ended January 23, 2005 to 30.9% in the
comparable period in fiscal 2006, with spending in absolute
dollars growing by $2.9 million period-over-period. The
decrease as a percentage of sales is primarily attributable to
the period-over-period revenue increase combined with our
continued efforts to contain costs while making the appropriate
investments in sales and marketing efforts. We anticipate that
investment levels for SG&A will be, at a minimum, maintained
at existing levels, in absolute dollars, for the foreseeable
future provided our revenues increase.
Special Charges:
During the nine months ended January 31, 2006, we recorded
net special restructuring charges of $4.2 million related
to further cost reduction measures taken to align our operating
expense model with current revenue levels net of reversals of
prior years charges of $0.4 million resulting from
adjustments to original lease termination obligations for excess
space in Canada and the United Kingdom. The net restructuring
charges included workforce reduction costs of $4.0 million
for employee severance and benefits and associated legal costs
incurred in the termination of 64 employees throughout the
world. In addition, special charges included $0.6 million
of accreted interest costs associated with excess facilities
obligations.
During the nine months ended January 23, 2005, we recorded
special restructuring charges of $7.1 million. These
changes consisted of (i) $1.0 million related to the
discontinuation of our internal ASIC design program in June
2004, which represented the
write-off of tools
associated with the discontinued program and the related
termination of seven employees in Canada, and
(ii) $6.1 million related to the termination of 112
employees primarily in Canada and the United Kingdom, offset by
the reversal of $0.3 million of over-accrued legal fees
associated with workforce reductions. In addition, special
charges included $0.3 million of accreted interest costs
associated with excess facilities obligations.
36
Gain on Sale of Manufacturing
Operations:
On August 31, 2001, we outsourced our manufacturing
operations, including the sale of related net assets and the
transfer of employees and certain liabilities to BreconRidge,
for total net consideration of $5.0 million in the form of
long-term promissory notes receivable of $5.4 million and
promissory notes payable of $0.4 million. The transaction
resulted in a loss on disposal of $1.5 million recorded in
fiscal 2002 operating expenses. The loss represented the excess
of the carrying value of the plant, equipment and manufacturing
workforce over the total net consideration. The long-term
promissory notes receivable, net of the long-term promissory
notes payable, were paid in full in February 2003, prior to the
original maturity date of August 31, 2003.
The original loss on disposal recorded during fiscal 2002
contained estimates and assumptions regarding expected
subleasing income arising from premises that had been subleased
to BreconRidge pursuant to the disposal of the manufacturing
operations. It became evident during both fiscal 2004 and fiscal
2005 that sublease income over the lease renewal period, which
was originally included in the estimated loss on disposal, would
no longer be realized. As a result, an amount of
$0.6 million and $3.4 million was recorded in fiscal
2004 and fiscal 2005, respectively, as an additional loss
arising on the disposal activity.
In the nine months ended January 31, 2006, the future
estimated operating cost estimates for the premises were
re-evaluated with the result being a reversal of
$0.7 million of the loss on disposal previously recognized.
This reversal is shown as a gain on sale of manufacturing
operations in the nine month period ended January 31, 2006.
Gain on Sale of Assets:
On August 31, 2005, we sold land, building and fixed assets
in Caldicot, United Kingdom relating to our United Kingdom
subsidiary for net proceeds of $12.4 million, resulting in
a pre-tax gain of $7.3 million. The transaction included a
commitment for us to
lease-back a portion of
the property, which requires us to defer a portion of the gain
on sale equivalent to the present value of the lease payments.
As a result we entered into
a 6-month interim
lease and
a 10-year
long-term lease for
a portion of the property sold. Accordingly,
$5.8 million of the gain was deferred and is being
amortized over the combined
101/2-year
term of the leases. The remaining gain of
$1.5 million was recognized in the results of operations
for the nine month period ended January 31, 2006.
Interest Expense:
Interest expense was $5.6 million in the nine months ended
January 31, 2006 compared to $1.7 million in the
comparable period of fiscal 2005. The primary reason for the
increased interest expense was the interest associated with the
convertible note financing in the aggregate principal amount of
$55.0 million that was completed on April 27, 2005. In
comparison, the interest expense in the prior year consisted
primarily of mortgage interest associated with our facility in
the United Kingdom and the interest cost associated with
our accounts receivable securitization facility, which is
currently dormant. On August 31, 2005, we sold land,
building and fixed assets in the United Kingdom and used
the proceeds to discharge the balance of the associated mortgage
of $9.8 million. This reduction resulted in the elimination
of the associated interest expense on a
go-forward basis.
Other (Income) Expense, Net:
Other (income) expense, on a net basis, consists primarily
of foreign exchange rate gains and losses and interest income.
Other income, on a net basis, amounted to $1.3 million in
the nine months ended January 31, 2006 compared to
$0.5 million during the comparable period in fiscal 2005.
The income recorded in the nine months ended January 31,
2006 is primarily attributable to transactional foreign currency
gains of $0.9 million, interest income of $0.2 million
and $0.2 million amortization of the deferred gain on sale
of assets compared with interest income of $0.5 million and
an insignificant amount of transactional foreign currency losses
in the comparable period in fiscal 2005. We use foreign currency
37
forward contracts and foreign currency swaps to minimize the
short-term impact of currency fluctuations on foreign currency
receivables, payables and intercompany balances.
Mark-to-Market
Adjustment on Derivatives:
In April 2004, we issued preferred shares. At any date after
five years from the original issuance date, or any date
prior to a partial sale event (as defined in the terms of the
preferred shares) other than a public offering, the holders of
preferred shares have a right to require us to redeem the
preferred shares for cash. The redemption amount is equal to the
original issue price of C$1.00 per preferred share multiplied by
the number of preferred shares outstanding, plus any declared
but unpaid dividends, plus the then current fair market value of
the common shares into which the preferred shares are
convertible. As a portion of the redemption price of the
preferred shares is indexed to our common share price, an
embedded derivative exists which must be accounted for
separately under generally accepted accounting principles.
In the nine months ended January 31, 2006, we recorded an
$11.7 million
non-cash expense,
representing the
mark-to-market
adjustment on the derivative instrument associated with our
preferred shares. During the same period in fiscal 2005, the
non-cash expense amount
was $3.9 million.
The difference between the initial carrying amount of the
derivative and the redemption amount is being accreted over the
five-year period to redemption, with the accretion of the
derivative being recorded as a non-cash expense in our
consolidated statement of operations.
Upon completion of this offering the preferred shares will be
converted into common shares and the derivative instrument
balance and the cumulative mark-to-market adjustments will be
reclassified into equity. As a result, further mark-to-market
adjustments relating to the preferred shares will not be
required upon completion of this offering.
Provision for Income Taxes:
We recorded income tax expense of $2.5 million for the nine
month period ended January 31, 2006 compared to
$0.6 million for the comparable period in fiscal 2005. The
higher income tax expense period-over-period is as a result of
increased taxable income in our United States and United Kingdom
subsidiaries combined with a $1.0 million provision for
income taxes relating to the sale of the land, building and
fixed assets in Caldicot, United Kingdom.
38
Fiscal 2003 to Fiscal 2005
and the Transition Period
The following table sets forth our comparative results of
operations, both in dollars and as a percentage of total
revenues, for fiscal 2003 to fiscal 2005 and the Transition
Period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal | |
|
|
|
|
|
Six days Ended | |
|
|
| |
|
|
|
|
|
| |
|
|
2004 | |
|
2005 | |
|
Change | |
|
April 30, 2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
|
|
% of | |
|
|
|
% of | |
|
|
|
|
|
% of | |
|
|
Amounts | |
|
Revenues | |
|
Amounts | |
|
Revenues | |
|
Amount | |
|
% | |
|
Amounts | |
|
Revenues | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in millions, except percentages) | |
Revenues
|
|
$ |
340.7 |
|
|
|
100.0 |
% |
|
$ |
342.2 |
|
|
|
100.0 |
% |
|
$ |
1.5 |
|
|
|
0.4 |
% |
|
$ |
3.2 |
|
|
|
100.0 |
% |
Cost of revenues
|
|
|
202.9 |
|
|
|
59.6 |
|
|
|
213.2 |
|
|
|
62.3 |
|
|
|
10.3 |
|
|
|
5.1 |
|
|
|
2.4 |
|
|
|
75.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
137.8 |
|
|
|
40.4 |
|
|
|
129.0 |
|
|
|
37.7 |
|
|
|
(8.8 |
) |
|
|
(6.4 |
) |
|
|
0.8 |
|
|
|
25.0 |
|
Research and development
|
|
|
36.2 |
|
|
|
10.6 |
|
|
|
41.4 |
|
|
|
12.1 |
|
|
|
5.2 |
|
|
|
14.4 |
|
|
|
0.7 |
|
|
|
21.9 |
|
Selling, general and administrative
|
|
|
111.4 |
|
|
|
32.7 |
|
|
|
114.9 |
|
|
|
33.6 |
|
|
|
3.5 |
|
|
|
3.1 |
|
|
|
1.8 |
|
|
|
56.3 |
|
Special
charges(1)
|
|
|
11.7 |
|
|
|
3.4 |
|
|
|
10.6 |
|
|
|
3.1 |
|
|
|
(1.1 |
) |
|
|
(9.4 |
) |
|
|
|
|
|
|
|
|
Loss on sale of manufacturing operations
|
|
|
0.6 |
|
|
|
0.2 |
|
|
|
3.4 |
|
|
|
1.0 |
|
|
|
2.8 |
|
|
|
466.7 |
|
|
|
|
|
|
|
|
|
Amortization of acquired intangibles
(2)
|
|
|
0.2 |
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
(0.2 |
) |
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(22.3 |
) |
|
|
(6.6 |
) |
|
|
(41.3 |
) |
|
|
(12.1 |
) |
|
|
(19.0 |
) |
|
|
85.2 |
|
|
|
(1.7 |
) |
|
|
(53.2 |
) |
Interest expense
|
|
|
4.3 |
|
|
|
1.3 |
|
|
|
2.6 |
|
|
|
0.8 |
|
|
|
(1.7 |
) |
|
|
(39.5 |
) |
|
|
|
|
|
|
0.0 |
|
Mark to market adjustment on derivatives
|
|
|
|
|
|
|
|
|
|
|
5.3 |
|
|
|
1.5 |
|
|
|
5.3 |
|
|
|
* |
|
|
|
0.1 |
|
|
|
3.1 |
|
Beneficial conversion feature on convertible debentures
|
|
|
3.1 |
|
|
|
0.9 |
|
|
|
|
|
|
|
|
|
|
|
(3.1 |
) |
|
|
* |
|
|
|
|
|
|
|
|
|
Other (income) expense, net
|
|
|
0.6 |
|
|
|
0.2 |
|
|
|
(0.4 |
) |
|
|
(0.1 |
) |
|
|
(1.0 |
) |
|
|
* |
|
|
|
(0.2 |
) |
|
|
(6.3 |
) |
Income tax (recovery) expense
|
|
|
0.3 |
|
|
|
0.1 |
|
|
|
0.8 |
|
|
|
0.2 |
|
|
|
0.5 |
|
|
|
166.7 |
|
|
|
|
|
|
|
0.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(30.6 |
) |
|
|
(9.1 |
)% |
|
$ |
(49.6 |
) |
|
|
(14.5 |
)% |
|
$ |
(19.0 |
) |
|
|
62.1 |
% |
|
$ |
(1.6 |
) |
|
|
(50.0 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* the comparison is not meaningful
|
|
(1) |
Special charges relate to restructuring activities, product line
exit and other loss accruals undertaken to improve our
operational efficiency and realign our business. |
|
(2) |
Acquired intangible assets relating to the acquisition of the
Mitel name, certain assets and subsidiaries from Zarlink in 2001
were fully amortized in 2004. |
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal | |
|
|
|
|
|
|
| |
|
|
|
|
|
|
2003 | |
|
2004 | |
|
Change | |
|
|
| |
|
| |
|
| |
|
|
|
|
% of | |
|
|
|
% of | |
|
|
|
|
Amounts | |
|
Revenues | |
|
Amounts | |
|
Revenues | |
|
Amount | |
|
% | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in millions, except percentages) | |
Revenues
|
|
$ |
352.2 |
|
|
|
100.0 |
% |
|
$ |
340.7 |
|
|
|
100.0 |
% |
|
$ |
(11.5 |
) |
|
|
(3.3 |
)% |
Cost of revenues
|
|
|
225.4 |
|
|
|
64.0 |
|
|
|
202.9 |
|
|
|
59.6 |
|
|
|
(22.5 |
) |
|
|
(10.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
126.8 |
|
|
|
36.0 |
|
|
|
137.8 |
|
|
|
40.4 |
|
|
|
11.0 |
|
|
|
8.7 |
|
Research and development
|
|
|
41.2 |
|
|
|
11.7 |
|
|
|
36.2 |
|
|
|
10.6 |
|
|
|
(5.0 |
) |
|
|
(12.1 |
) |
Selling, general and administrative
|
|
|
114.9 |
|
|
|
32.6 |
|
|
|
111.4 |
|
|
|
32.7 |
|
|
|
(3.5 |
) |
|
|
(3.0 |
) |
Special
charges(1)
|
|
|
13.7 |
|
|
|
3.9 |
|
|
|
11.7 |
|
|
|
3.4 |
|
|
|
(2.0 |
) |
|
|
(14.6 |
) |
Loss on sale of manufacturing operations
|
|
|
|
|
|
|
|
|
|
|
0.6 |
|
|
|
0.2 |
|
|
|
0.6 |
|
|
|
* |
|
Amortization of acquired
intangibles(2)
|
|
|
29.1 |
|
|
|
8.3 |
|
|
|
0.2 |
|
|
|
0.1 |
|
|
|
(28.9 |
) |
|
|
(99.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(72.1 |
) |
|
|
(20.5 |
) |
|
|
(22.3 |
) |
|
|
(6.6 |
) |
|
|
49.8 |
|
|
|
(69.1 |
) |
Interest expense
|
|
|
4.2 |
|
|
|
1.2 |
|
|
|
4.3 |
|
|
|
1.3 |
|
|
|
0.1 |
|
|
|
2.4 |
|
Beneficial conversion feature on convertible debentures
|
|
|
|
|
|
|
|
|
|
|
3.1 |
|
|
|
0.9 |
|
|
|
3.1 |
|
|
|
* |
|
Other (income) expense, net
|
|
|
(3.3 |
) |
|
|
(0.9 |
) |
|
|
0.6 |
|
|
|
0.2 |
|
|
|
3.9 |
|
|
|
(118.2 |
) |
Income tax (recovery) expense
|
|
|
(2.9 |
) |
|
|
(0.8 |
) |
|
|
0.3 |
|
|
|
0.1 |
|
|
|
3.2 |
|
|
|
(110.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(70.1 |
) |
|
|
(20.0 |
)% |
|
$ |
(30.6 |
) |
|
|
(9.1 |
)% |
|
$ |
39.5 |
|
|
|
(56.3 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
the comparison is not meaningful |
|
|
(1) |
Special charges relate to restructuring activities, product line
exit and other loss accruals undertaken to improve our
operational efficiency and realign our business. |
|
(2) |
Acquired intangible assets relating to the acquisition of the
Mitel name, certain assets and subsidiaries from Zarlink in 2001
were fully amortized in 2004. |
Revenues:
Revenues increased by $1.5 million, or 0.4%, in fiscal 2005
over fiscal 2004, and declined by $11.5 million or 3.3% in
fiscal 2004 over fiscal 2003. During the Transition Period we
recorded $3.2 million of revenues. Revenues for this
Transition Period are not considered reflective of revenues for
an average six-day period, as we tend to generate a larger
proportion of our revenues towards the latter portion of our
fiscal periods.
40
Geographic
Segment Revenues:
The following table sets forth total sales by geographic
regions, both in dollars and as a percentage of total revenues,
for the fiscal periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal | |
|
Six days Ended | |
|
|
| |
|
| |
|
|
2003 | |
|
2004 | |
|
2005 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
|
|
% of | |
|
|
|
% of | |
|
|
|
% of | |
|
|
|
% of | |
|
|
Revenues | |
|
Revenues | |
|
Revenues | |
|
Revenues | |
|
Revenues | |
|
Revenues | |
|
Revenues | |
|
Revenues | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in millions, except percentages) | |
United States
|
|
$ |
172.1 |
|
|
|
48.9 |
% |
|
$ |
161.4 |
|
|
|
47.4 |
% |
|
$ |
153.5 |
|
|
|
44.9 |
% |
|
$ |
1.8 |
|
|
|
56.3 |
% |
EMEA
|
|
|
142.7 |
|
|
|
40.5 |
|
|
|
140.5 |
|
|
|
41.2 |
|
|
|
145.5 |
|
|
|
42.5 |
|
|
|
1.0 |
|
|
|
31.2 |
|
Canada and CALA
|
|
|
33.7 |
|
|
|
9.5 |
|
|
|
33.4 |
|
|
|
9.8 |
|
|
|
37.2 |
|
|
|
10.8 |
|
|
|
0.4 |
|
|
|
12.5 |
|
Asia-Pacific
|
|
|
3.7 |
|
|
|
1.1 |
|
|
|
5.4 |
|
|
|
1.6 |
|
|
|
6.0 |
|
|
|
1.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
352.2 |
|
|
|
100.0 |
% |
|
$ |
340.7 |
|
|
|
100.0 |
% |
|
$ |
342.2 |
|
|
|
100.0 |
% |
|
$ |
3.2 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From an operating segment perspective, fiscal 2005 revenues
increased marginally over fiscal 2004 levels due primarily to
increased revenues from Canada and CALA and EMEA as revenues
through our channel partners in these regions increased on a
year-over-year basis.
The improved revenue performances in these regions were
partially offset by lower revenues in the United States, which
were primarily attributable to lower product and service
revenues resulting from the transition from legacy products and
services to emerging
IP-based communications
solutions and services.
The overall decline in revenues from fiscal 2003 to fiscal 2004
was primarily attributable to a decline in revenues in the
United States operating segment. The revenue decline in the
United States was primarily attributable to lower product and
services sales due to the transition of the business from legacy
to IP-based
communications solutions and services. The overall revenue
decline was partially mitigated due to increased revenues, on a
year-over-year basis,
in the Asia-Pacific region as a result of our efforts throughout
fiscal 2003 and fiscal 2004 to penetrate new markets and
distribution channels.
41
The following table sets forth total revenues for groups of
similar products and services, both in dollars and as a
percentage of total revenues, for the fiscal periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal | |
|
Six days Ended | |
|
|
| |
|
| |
|
|
2003 | |
|
2004 | |
|
2005 | |
|
April 30, 2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
|
|
% of | |
|
|
|
% of | |
|
|
|
% of | |
|
|
|
% of | |
|
|
Revenues | |
|
Revenues | |
|
Revenues | |
|
Revenues | |
|
Revenues | |
|
Revenues | |
|
Revenues | |
|
Revenues | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in millions, except percentages) | |
Products:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Platforms and desktop appliances
|
|
$ |
157.9 |
|
|
|
44.8 |
% |
|
$ |
168.1 |
|
|
|
49.3 |
% |
|
$ |
165.1 |
|
|
|
48.2 |
% |
|
$ |
1.3 |
|
|
|
40.6 |
% |
|
Software applications
|
|
|
29.6 |
|
|
|
8.4 |
|
|
|
23.9 |
|
|
|
7.0 |
|
|
|
23.5 |
|
|
|
6.9 |
|
|
|
0.3 |
|
|
|
9.4 |
|
|
Other(1)
|
|
|
29.8 |
|
|
|
8.5 |
|
|
|
15.1 |
|
|
|
4.5 |
|
|
|
19.1 |
|
|
|
5.6 |
|
|
|
0.1 |
|
|
|
3.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
217.3 |
|
|
|
61.7 |
|
|
|
207.1 |
|
|
|
60.8 |
|
|
|
207.7 |
|
|
|
60.7 |
|
|
|
1.7 |
|
|
|
53.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maintenance and support
|
|
|
95.9 |
|
|
|
27.2 |
|
|
|
95.4 |
|
|
|
28.0 |
|
|
|
85.3 |
|
|
|
24.9 |
|
|
|
1.2 |
|
|
|
37.5 |
|
|
Installation
|
|
|
18.1 |
|
|
|
5.1 |
|
|
|
15.8 |
|
|
|
4.6 |
|
|
|
22.1 |
|
|
|
6.5 |
|
|
|
0.1 |
|
|
|
3.1 |
|
|
Managed Services
|
|
|
9.7 |
|
|
|
2.8 |
|
|
|
10.6 |
|
|
|
3.1 |
|
|
|
10.9 |
|
|
|
3.2 |
|
|
|
0.2 |
|
|
|
6.3 |
|
|
Professional and other services
|
|
|
11.2 |
|
|
|
3.2 |
|
|
|
11.8 |
|
|
|
3.5 |
|
|
|
16.2 |
|
|
|
4.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
134.9 |
|
|
|
38.3 |
|
|
|
133.6 |
|
|
|
39.2 |
|
|
|
134.5 |
|
|
|
39.3 |
|
|
|
1.5 |
|
|
|
46.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
352.2 |
|
|
|
100.0 |
% |
|
$ |
340.7 |
|
|
|
100.0 |
% |
|
$ |
342.2 |
|
|
|
100.0 |
% |
|
$ |
3.2 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Other products include mainly OEM products representing
approximately eight percent, four percent, six percent and three
percent of total revenue in fiscal 2003, fiscal 2004, fiscal
2005, and the Transition Period, respectively. |
Product Revenues:
Fiscal 2005 revenues from product sales was $207.7 million
or 60.7% of total revenues compared to $207.1 million or
61% of total revenues in fiscal 2004. The marginal increase in
product sales was primarily attributable to increased sales of
third party hardware platforms.
In fiscal 2005, revenues generated by communications platforms
and desktop devices, were down 2% over prior year levels.
Despite this nominal decline in overall sales, we continued to
see as expected, a significant shift in sales away from our
legacy communication platform products towards increased sales
of IP-based
communications solutions. In fiscal 2005 sales of
IP-based communication
platforms and desktop devices increased by 27% in comparison to
fiscal 2004 levels. This increase was in line with our strategy
to realign our efforts towards
IP-based communications
solutions.
Fiscal 2004 revenues from product sales were $207.1 million
or 60.8% of total revenues compared to $217.3 million or
61.7% of total revenues in fiscal 2003. The decline in product
sales was due primarily to reduced sales of software
applications arising from our messaging and contact center
applications, and lower sales of third party hardware platforms.
Despite the decline in product sales, revenues generated by
communications platforms and desktop devices increased by 6% in
fiscal 2004 compared to fiscal 2003 levels.
Services Revenues:
Fiscal 2005 revenues from services sales was 39.3% of total
revenues consistent with fiscal 2004 as a percentage of total
revenues and marginally up by $0.9 million year-over-year.
Despite overall service revenues staying relatively unchanged,
we experienced a significant decline in maintenance and support
42
revenues due primarily to increased competition and pricing
pressures on maintenance and support contract renewals in the
EMEA region. Offsetting the decline in maintenance and support
revenues, was a year- over-year increase in both installation
services (attributable to higher product sales through our
global direct sales offices) and professional and other services.
Fiscal 2004 revenues from services sales compared to fiscal 2003
remained relatively flat year-over-year at 39.2% and 38.3% of
total revenues, respectively. In absolute dollars service
revenues decreased by $1.2 million which was primarily
attributable to a year-over-year decline in installation
revenues given the underlying decrease in our product sales
through our direct sales offices in the United States and United
Kingdom.
Gross margin:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal | |
|
Six days Ended | |
|
|
| |
|
| |
|
|
2003 | |
|
2004 | |
|
2005 | |
|
April 30, 2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
|
|
% of | |
|
|
|
% of | |
|
|
|
% of | |
|
|
|
% of | |
|
|
Revenues | |
|
Revenues | |
|
Revenues | |
|
Revenues | |
|
Revenues | |
|
Revenues | |
|
Revenues | |
|
Revenues | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in millions, except percentages) | |
Products
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$ |
217.3 |
|
|
|
100.0 |
% |
|
$ |
207.1 |
|
|
|
100.0 |
% |
|
$ |
207.7 |
|
|
|
100.0 |
% |
|
$ |
1.7 |
|
|
|
100.0 |
% |
|
Gross Margin
|
|
|
73.6 |
|
|
|
33.9 |
|
|
|
81.4 |
|
|
|
39.3 |
|
|
|
75.8 |
|
|
|
36.5 |
|
|
|
0.1 |
|
|
|
5.9 |
|
Services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$ |
134.9 |
|
|
|
100.0 |
% |
|
$ |
133.6 |
|
|
|
100.0 |
% |
|
$ |
134.5 |
|
|
|
100.0 |
% |
|
$ |
1.5 |
|
|
|
100.0 |
% |
|
Gross Margin
|
|
|
53.2 |
|
|
|
39.5 |
|
|
|
56.4 |
|
|
|
42.2 |
|
|
|
53.2 |
|
|
|
39.6 |
|
|
|
0.7 |
|
|
|
46.7 |
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$ |
352.2 |
|
|
|
100.0 |
% |
|
$ |
340.7 |
|
|
|
100.0 |
% |
|
$ |
342.2 |
|
|
|
100.0 |
% |
|
$ |
3.2 |
|
|
|
100.0 |
% |
|
Gross Margin
|
|
|
126.8 |
|
|
|
36.0 |
|
|
|
137.8 |
|
|
|
40.4 |
|
|
|
129.0 |
|
|
|
37.7 |
|
|
|
0.8 |
|
|
|
25.0 |
|
Transition Period
The Transition Period gross margin, as a percentage of revenues,
was 25.0%. The gross margin, as a percentage of total revenues,
is not indicative of our anticipated gross margin percentage for
fiscal 2006. Gross margin for the Transition Period was
negatively impacted by both the relatively low level of revenues
for the period and the non-variable portion of cost of revenues
during the period.
Fiscal 2005 Compared to Fiscal
2004
Fiscal 2005 gross margin as a percentage of revenues decreased
to 37.7% of revenues compared to 40.4% of revenues in fiscal
2004.
Product gross margin as a percentage of revenues decreased from
39.3% in fiscal 2004 to 36.5% in fiscal 2005. The decline in
margin was primarily attributable to:
|
|
|
|
|
a 1.5% decline as a result of increased freight and distribution
costs in fiscal 2005 compared to fiscal 2004; |
|
|
|
a 1.0% decline as a result of (i) a shift in our communication
platform sales mix whereby total communication platform sales
contained a higher proportion of lower margin small and medium
business platforms in fiscal 2005 compared to fiscal 2004; and
(ii) increased price competition on desktop devices
resulted in price reductions which contributed in reducing
overall desktop device margins; and |
|
|
|
a 0.3% decline as a result of higher inventory obsolescence
provisions recorded in fiscal 2005 compared to fiscal 2004 due
primarily to the end of life of our Mitel 3100 ICP
product. |
43
Service gross margin also declined year-over-year from 42.2% in
fiscal 2004 to 39.6% in fiscal 2005. The decrease in service
margins was due primarily to the change in mix of service
revenues as total service revenues contained a higher proportion
of lower margin installation services and a lower proportion of
relatively higher margin maintenance and support services in
fiscal 2005 compared to fiscal 2004.
Fiscal 2004 Compared to Fiscal
2003
The fiscal 2004 gross margin as a percentage of revenues
increased to 40.4% of revenues compared to 36.0% of revenues in
fiscal 2003. This increase resulted from improvements in gross
margin as a percentage of revenues in both products and
services, as further described below.
Product margin increased from 33.9% in fiscal 2003 to 39.3% in
fiscal 2004. The increase was primarily attributable to the
following:
|
|
|
|
|
a 2.4% increase due to lower inventory obsolescence provisions
recorded in fiscal 2004 compared to fiscal 2003, as significant
amounts of inventory were written off in fiscal 2003 as a result
of our realignment towards IP-based communications solutions,
the magnitude of which was not repeated in fiscal 2004; and |
|
|
|
a 1.7% increase due to the combination of improved margins on
IP-based communication
products plus a shift in product sales mix whereby IP-based
communications products made up a larger proportion of fiscal
2004 revenues compared to fiscal 2003 revenues. |
Service margin also increased year-over-year from 39.5% in
fiscal 2003 to 42.2% in fiscal 2004. The increase in margin was
primarily attributable to a reduction in the overall proportion
of installation revenues as a percentage of total service
revenues as installation revenues typically generates lower
margins than other sources of service revenues.
Operating Expenses
Research and Development:
Research and development expenses increased from 10.6% of total
revenues in fiscal 2004 to 12.1% of total revenues in fiscal
2005 with spending in absolute dollars increasing by
$5.2 million
year-over-year to
$41.4 million.
During the Transition Period, we recorded research and
development expenses of $0.7 million, or 21.9% of total
revenues, for the period.
Research and development expenses decreased from 11.7% of total
revenues in fiscal 2003 to 10.6% of total revenues in fiscal
2004. As anticipated, the research and development expenses
decreased as a result of workforce reduction programs
implemented in fiscal 2004, and the closure of our United
Kingdom research and development facility during late fiscal
2003.
Selling, General and
Administrative:
SG&A expenses increased from 32.7% of total revenues in
fiscal 2004 to 33.6% of total revenues in fiscal 2005, with
spending in absolute dollars growing by $3.5 million to
$114.9 million
year-over-year. The
increase in SG&A spending was due primarily to strategic
investment in marketing initiatives to improve our brand
identity and awareness in our key geographical markets.
Additionally, we continued to invest in the development of
channel relationships and expand our presence in Continental
Europe and the South Pacific. The overall spending growth was
partially offset by reduced SG&A spending resulting from
workforce reduction initiatives implemented in both fiscal 2005
and prior years relating to the centralization of various
general and administrative back-office functions.
During the Transition Period, we recorded SG&A expenses of
$1.8 million, or 56.3% of total revenues, for the period.
44
SG&A expenses decreased slightly in absolute dollars during
fiscal 2004 from $111.4 million compared to
$114.9 million in fiscal 2003, but remained relatively flat
as a percentage of total revenues. This decrease in absolute
dollars was primarily the result of workforce reductions
implemented in fiscal 2004 and prior fiscal years, coupled with
other cost cutting measures that were implemented, including the
deferral of certain marketing programs and other expenditures
during fiscal 2004.
Special Charges:
Special charges as a percentage of revenues in fiscal 2005
decreased 0.3% compared to fiscal 2004 mainly as a result of
lower amounts being provided for non-cancelable lease costs
relating to excess facilities in fiscal 2005.
During fiscal 2005, we recorded special restructuring charges of
$10.6 million related to further cost reduction measures
taken to align our operating expense model with current revenue
levels, net of reversals of prior years charges of
$0.3 million resulting primarily from adjustments to
original estimated severance costs. The net restructuring
charges included workforce reduction costs of $8.7 million
relating to employee severance and benefits and associated legal
costs incurred in the termination of 182 employees throughout
the world. Non-cancelable lease costs of $1.3 million
relating to excess facilities in certain Canadian and United
Kingdom offices and a loss on disposal of capital assets of
$0.9 million related to assets written off as a result of
the discontinuation of our ASIC design program.
No special charges were recorded during the Transition Period.
Special charges as a percentage of revenues decreased 0.5% in
fiscal 2004 compared to fiscal 2003 mainly as a result of fewer
employee terminations arising from workforce reduction programs
year-over-year. During
fiscal 2004, we recorded special restructuring charges of
$11.7 million related to further cost reduction measures
taken to minimize the impact of declining revenues, net of
reversals of prior years charges of $0.3 million
resulting primarily from adjustments to original estimated
severance costs. The net restructuring charges included
workforce reduction costs of $8.5 million relating to
employee severance and benefits and associated legal costs
incurred in the termination of 176 employees throughout the
world. Non-cancelable lease costs of $3.2 million relating
to excess facilities in certain Canadian and United Kingdom
offices and a loss on disposal of capital assets of
$0.3 million were also included in the fiscal 2004
restructuring charges.
Comparatively, during fiscal 2003, we recorded special
restructuring charges of $13.7 million related to
additional cost reduction measures taken to minimize the impact
of the economic slowdown, net of reversals of current
years charges of $1.6 million and prior years
charges of $0.6 million resulting primarily from
adjustments to original estimated severance costs and fewer than
originally anticipated employee terminations. The net
restructuring charges included workforce reduction costs of
$12.6 million relating to 352 terminated employees across
most geographic regions and costs related to the closure of the
United Kingdom research and development facility including
non-cancelable lease costs of $3.0 million and a loss on
disposal of capital assets of $0.3 million. These
restructuring programs were completed by April 27, 2003.
Loss on Sale of Manufacturing
Operations:
The original loss on disposal recorded during fiscal 2002
contained estimates and assumptions regarding expected
subleasing income arising from premises that had been subleased
to BreconRidge pursuant to the disposal of the manufacturing
operations. It became evident during both fiscal 2004 and fiscal
2005 that sublease income over the lease renewal period, which
was originally included in the estimated loss on disposal, would
no longer be realized.
Amortization of Acquired
Intangibles:
As part of the acquisition of the communications system business
from Zarlink in 2001, we recorded acquired intangible assets of
$92.2 million consisting of developed technology,
workforce, customer base
45
and patents. Resulting amortization expense amounted to
$29.1 million and $0.2 million for fiscal 2003 and
fiscal 2004, respectively. Acquired intangible assets were fully
amortized in early fiscal 2004. Therefore, no amortization
expense was recorded in either the Transition Period or fiscal
2005.
Interest Expense:
Interest expense was $2.6 million in fiscal 2005 compared
to $4.3 million in fiscal 2004, representing a decrease of
$1.7 million, as total borrowings declined year-over-year.
Interest expense was $4.3 million in fiscal 2004 compared
to $4.2 million in fiscal 2003, representing an increase of
$0.1 million, as total borrowing remained relatively flat
year-over-year.
Other (Income) Expense, Net:
Other (income) expense, on a net basis, consists primarily
of foreign exchange rate gains and losses and interest income.
Other income, on a net basis, amounted to $0.4 million in
fiscal 2005 compared to other expense, on a net basis, of
$0.6 million in fiscal 2004. The income recorded in fiscal
2005 primarily resulted from interest income of
$0.6 million being partially offset by transactional
foreign currency losses of $0.2 million (compared with
transactional foreign currency losses of $1.0 million in
fiscal 2004), arising mainly from adverse movements between the
U.S. dollar and the Canadian dollar during the year. We use
foreign currency forward contracts and foreign currency swaps to
minimize the short-term impact of currency fluctuations on
foreign currency receivables, payables and intercompany balances.
During the Transition Period we recorded other income, on a net
basis, of $0.2 million due primarily to transactional
foreign currency gains.
Other expense, on a net basis, amounted to $0.6 million in
fiscal 2004 compared to other income, on a net basis, of
$3.3 million in fiscal 2003. The expense recorded in fiscal
2004 primarily resulted from transactional foreign currency
losses of $1.0 million (compared with transactional foreign
currency gains of $3.0 million in fiscal 2003), arising
mainly from movements between the U.S. dollar and the Canadian
dollar during the year.
Mark-to-Market Adjustment on
Derivatives:
During fiscal 2005, we recorded a $5.3 million non-cash
expense representing the
mark-to-market
adjustment on the derivative instrument associated with our
preferred shares.
During the Transition Period, we recorded a $0.1 million
non-cash expense representing the
mark-to-market
adjustment on the derivative instrument associated with our
preferred shares.
Beneficial Conversion Feature
on Convertible Debentures:
During fiscal 2004, we recorded a $3.1 million expense
representing the beneficial conversion feature on the conversion
of debentures. The debentures, which did not have a fixed
conversion price at the commitment date, were converted into
common shares at a price that was lower than the fair market
value of the common shares at the commitment date. As a result,
a non-cash expense representing the difference between the
effective conversion price and the fair market value of the
common shares was calculated and recorded as required by
generally accepted accounting principles.
Provision for Income Taxes:
We recorded income tax expense of nil for the Transition Period
and $0.8 million for fiscal 2005. The income tax expense
was mainly as a result of our United States subsidiary being in
a taxable position in fiscal 2005.
In fiscal 2004 we recorded income tax expense, net of deferred
tax recoveries, of $0.3 million. The current income tax
expense amounted to $2.0 million, arising as a result of
our United Kingdom subsidiary
46
being in a taxable position in fiscal 2004. This tax expense was
largely offset by deferred tax recoveries arising from
deductible taxable amounts available to us of $1.7 million.
We recorded an income tax recovery of $2.9 million in
fiscal 2003. The fiscal 2003 recovery resulted primarily from
tax assessments and tax refunds received in respect of prior
periods.
Quarterly Results of
Operations
The following sets forth unaudited consolidated statements of
operations data for our seven most recent quarters ended
January 31, 2006. This unaudited information has been
prepared on the same basis as our annual consolidated financial
statements appearing elsewhere in this prospectus and includes
all adjustments necessary to fairly present the unaudited
quarterly results. These adjustments consist only of normal
recurring adjustments. This information should be read in
conjunction with our consolidated financial statements and
related notes appearing elsewhere in this prospectus. The
operating results for any quarter are not necessarily indicative
of results for any future period.
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended(1) | |
|
|
| |
|
|
Jul. 25, | |
|
Oct. 24, | |
|
Jan. 23, | |
|
Apr. 24, | |
|
Jul. 31, | |
|
Oct. 31, | |
|
Jan. 31, | |
|
|
2004 | |
|
2004 | |
|
2005 | |
|
2005 | |
|
2005 | |
|
2005 | |
|
2006 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in millions, except share and per share data, unaudited) | |
Revenues
|
|
$ |
82.4 |
|
|
$ |
84.1 |
|
|
$ |
84.6 |
|
|
$ |
91.1 |
|
|
$ |
91.7 |
|
|
$ |
95.9 |
|
|
$ |
98.6 |
|
Cost of revenues
|
|
|
49.0 |
|
|
|
52.5 |
|
|
|
55.2 |
|
|
|
56.5 |
|
|
|
53.8 |
|
|
|
56.0 |
|
|
|
56.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
33.4 |
|
|
|
31.6 |
|
|
|
29.4 |
|
|
|
34.6 |
|
|
|
37.9 |
|
|
|
39.9 |
|
|
|
42.4 |
|
Research and development
|
|
|
9.9 |
|
|
|
9.9 |
|
|
|
10.6 |
|
|
|
11.0 |
|
|
|
10.8 |
|
|
|
10.5 |
|
|
|
11.7 |
|
Selling, general and administrative
|
|
|
29.3 |
|
|
|
26.9 |
|
|
|
29.0 |
|
|
|
29.7 |
|
|
|
29.3 |
|
|
|
28.7 |
|
|
|
30.1 |
|
Special
charges(2)
|
|
|
1.9 |
|
|
|
0.5 |
|
|
|
4.7 |
|
|
|
3.5 |
|
|
|
1.8 |
|
|
|
1.5 |
|
|
|
0.9 |
|
Loss (gain) on sale of manufacturing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.4 |
|
|
|
|
|
|
|
|
|
|
|
(0.7 |
) |
Gain on sale of assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(7.7 |
) |
|
|
(5.7 |
) |
|
|
(14.9 |
) |
|
|
(13.0 |
) |
|
|
(4.0 |
) |
|
|
0.7 |
|
|
|
0.4 |
|
Other (income) expense, net
|
|
|
1.9 |
|
|
|
1.4 |
|
|
|
1.8 |
|
|
|
2.4 |
|
|
|
3.8 |
|
|
|
2.8 |
|
|
|
9.4 |
|
Income tax (recovery) expense
|
|
|
0.2 |
|
|
|
0.2 |
|
|
|
0.2 |
|
|
|
0.2 |
|
|
|
0.5 |
|
|
|
1.5 |
|
|
|
0.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(9.8 |
) |
|
$ |
(7.3 |
) |
|
$ |
(16.9 |
) |
|
$ |
(15.6 |
) |
|
$ |
(8.3 |
) |
|
$ |
(3.6 |
) |
|
$ |
(9.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$ |
(0.10 |
) |
|
$ |
(0.08 |
) |
|
$ |
(0.16 |
) |
|
$ |
(0.15 |
) |
|
$ |
(0.08 |
) |
|
$ |
(0.04 |
) |
|
$ |
(0.10 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding (in
millions)
|
|
|
111.7 |
|
|
|
111.7 |
|
|
|
114.6 |
|
|
|
117.2 |
|
|
|
117.1 |
|
|
|
117.3 |
|
|
|
117.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP Financial Measure
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(9.8 |
) |
|
$ |
(7.3 |
) |
|
$ |
(16.9 |
) |
|
$ |
(15.6 |
) |
|
$ |
(8.3 |
) |
|
$ |
(3.6 |
) |
|
$ |
(9.5 |
) |
Add back: fair value adjustment on derivatives
|
|
|
1.3 |
|
|
|
1.2 |
|
|
|
1.4 |
|
|
|
1.4 |
|
|
|
1.5 |
|
|
|
1.6 |
|
|
|
8.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted net
loss(3)
|
|
$ |
(8.5 |
) |
|
$ |
(6.1 |
) |
|
$ |
(15.5 |
) |
|
$ |
(14.2 |
) |
|
$ |
(6.8 |
) |
|
$ |
(2.0 |
) |
|
$ |
(0.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Quarterly Results of Operations excludes the Transition Period
as the results for this period are not comparable. Results of
Operations for the Transition Period are included in the
April 30, 2005 audited financial statements. |
|
(2) |
Special charges relate to restructuring activities, product line
exit and other loss accruals undertaken to improve our
operational efficiency and realign our business. |
47
|
|
(3) |
We define adjusted net loss as net loss excluding the change in
the fair value of the derivative instruments. This definition
may not be comparable to similarly titled measures reported by
other companies. We are presenting adjusted net loss because we
believe it provides a more complete understanding of our
business than could be obtained without this disclosure, as it
eliminates a non-cash
charge that will be eliminated immediately following this
offering. The change in the fair value in derivative instruments
resulted from our issuance of convertible, redeemable preferred
shares that give holders the right, at any time after five
years, to require us to redeem these shares for cash. The
requirement to redeem these shares on an
as-if-converted-to-common share basis qualifies as an embedded
derivative. The embedded derivative is being marked to market
throughout the period to redemption with a non-cash charge being
reflected in our Consolidated Statement of Operations. Adjusted
net loss shows what our net income would have been without the
effect of this non-cash charge. We believe that this is a useful
measure to our investors as the convertible redeemable preferred
shares will automatically convert into common shares in
connection with the closing of this offering with the result
being the elimination of this non-cash charge in the future. The
use of adjusted net loss has limitations and you should not
consider adjusted net loss in isolation from or as an
alternative to U.S. GAAP measures, such as net income or cash
flow statement data that are prepared in accordance with U.S.
GAAP, or as a measure of profitability or liquidity. |
Internal Controls Over Financial Reporting
We will be required to document and test our internal controls
over financial reporting pursuant to Section 404 of the
United States
Sarbanes-Oxley Act of
2002, so that our management can certify as to the effectiveness
of our internal controls and our independent registered public
accounting firm can render an opinion on managements
assessment and on the effectiveness of our internal controls
over financial reporting commencing with our annual report for
the fiscal year ended April 30, 2007.
Liquidity and Capital Resources
As of January 31, 2006, we had cash and cash equivalents of
$32.3 million. Following the issuance of our convertible
notes in April 2005, we repaid and cancelled our credit facility
with Bank of Montreal. Following the sale of the land, building
and fixed assets in Caldicot, United Kingdom in August 2005, the
Barclays credit facilities, which were secured by the Caldicot
property, were repaid and cancelled.
We have incurred significant operating losses since our
incorporation in 2001. As a result, we have generated negative
cash flows from operations, and had an accumulated deficit of
$330.4 million at January 31, 2006. Our primary source
of funds has been proceeds from the issuance of equity and debt
securities. From inception through January 31, 2006, we
have received net proceeds of $361.5 million from issuances
of our common shares, preferred shares, warrants, convertible
debentures and convertible notes.
Our primary source for cash in the future is expected to come
from operations. Our most significant source of cash from
operations is expected to be the collection of accounts
receivable from our customers. The primary use of cash is
expected to include funding operating expenses, working capital,
capital expenditures, debt service and other contractual
obligations. A secondary source of future cash proceeds is
expected to come from the exercise of stock options.
The outstanding convertible notes mature on April 28, 2010.
If the convertible notes have not been converted into common
shares by their maturity date, we will have to repay the note
holders the principal amount of $55.0 million. In addition,
repayment may be required prior to the maturity date in the
event of a default or fundamental change under the
convertible notes. Depending upon our liquidity at the time of
repayment, we may be required to seek additional funding in
order to meet our obligations with respect to such a repayment
of the convertible notes.
Based on the proceeds raised in this offering, our existing cash
and cash equivalents, and our expected cash flows from
operations, we believe that we will have sufficient liquidity to
support our business operations throughout the next
12 months. However, we may be required, or could elect, to
seek additional funding prior to that time. Our future capital
requirements will depend on many factors, including our rate of
revenue growth, the timing and extent of spending to support
product development efforts and expansion of sales and
marketing, the timing of introductions of new products and
enhancements to existing products, and market acceptance of our
products. In addition, although we do not currently have
arrangements or commitments with respect to any particular
acquisition, we may elect to seek additional funding if we
pursue an acquisition. Additional equity or debt financing may
not be available on acceptable terms or at
48
all. We believe that our sources of liquidity beyond
12 months will be our then current cash balances, funds
from operations and any long-term credit facilities we may be
able to arrange.
Cash Flows
|
|
|
Comparison of the nine months ended January 31, 2006
to the nine months ended January 23, 2005 |
Below is a summary of comparative results of cash flows and a
more detailed discussion of results for the first nine months of
each of fiscal 2006 and fiscal 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended | |
|
|
|
|
| |
|
|
|
|
Jan. 23, | |
|
Jan. 31, | |
|
2006 | |
|
|
2005 | |
|
2006 | |
|
Change | |
|
|
| |
|
| |
|
| |
|
|
(in millions) | |
Net cash provided by (used in)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$ |
(27.2 |
) |
|
$ |
(6.7 |
) |
|
$ |
20.5 |
|
|
Investing activities
|
|
|
(5.5 |
) |
|
|
5.5 |
|
|
|
11.0 |
|
|
Financing activities
|
|
|
13.6 |
|
|
|
(11.4 |
) |
|
|
(25.0 |
) |
Effect of exchange rate changes on cash and cash equivalents
|
|
|
1.0 |
|
|
|
(1.7 |
) |
|
|
(2.7 |
) |
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
$ |
(18.1 |
) |
|
$ |
(14.3 |
) |
|
$ |
3.8 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$ |
8.6 |
|
|
$ |
32.3 |
|
|
$ |
23.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Used in Operating Activities: |
Cash used in operating activities improved by $20.5 million
for the nine months ended January 31, 2006 compared to the
nine months ended January 23, 2005. The most significant
factors contributing to this improvement were:
|
|
|
|
|
a $12.1 million decrease in the net loss: |
|
|
|
a $7.8 million increase in the fair value adjustment on the
derivative instrument, which is a
non-cash
expense; and |
|
|
|
a $4.2 million decrease in
non-cash assets and
liabilities. |
The above factors were partially offset by a decline of
$5.8 million in
non-cash movement of
reserves, primarily related to restructuring activities.
|
|
|
Cash Provided by (Used in) Investing Activities: |
Investing activities provided $5.5 million in cash for the
nine months ended January 31, 2006 compared to
$5.5 million used in investing activities for the nine
months ended January 23, 2005. The most significant factor
contributing to the $11.0 million improvement was the sale
of our Caldicot property in August 2005, which generated
proceeds of $12.4 million.
|
|
|
Cash Provided by (Used in) Financing Activities: |
Financing activities used $11.4 million in cash for the
nine months ended January 31, 2006 compared to providing
$13.6 million in cash for the nine months ended
January 23, 2005. The most significant factors contributing
to the $25.0 million change between the periods were:
|
|
|
|
|
the repayment of $9.8 million owed on our mortgage of the
Caldicot property following its sale in August 2005; |
|
|
|
the $8.4 million proceeds received upon the issuance of
warrants to Technology Partnerships Canada in the nine months
ended January 23, 2005 pursuant to research and development
funding received from Technology Partnerships Canada; and |
49
|
|
|
|
|
the proceeds of $5.6 million resulting from the increase in
bank indebtedness in the nine months ended January 23, 2005
compared to the use of $0.8 million to repay bank
indebtedness in the nine months ended January 31, 2006. |
Comparison of Fiscal 2004, Fiscal 2005 and the Transition
Period ended April 30, 2005
Below is a summary of comparative cash flows and a more detailed
discussion of results for fiscal 2004, fiscal 2005 and the
Transition Period ended April 30, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Days | |
|
|
Fiscal | |
|
|
|
Ended | |
|
|
| |
|
2005 | |
|
April 30, | |
|
|
2004 | |
|
2005 | |
|
Change | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(in millions) | |
Net cash provided by (used in)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$ |
10.8 |
|
|
$ |
(31.8 |
) |
|
$ |
(42.6 |
) |
|
$ |
(1.2 |
) |
|
Investing activities
|
|
|
(6.3 |
) |
|
|
(5.8 |
) |
|
|
0.5 |
|
|
|
(1.1 |
) |
|
Financing activities
|
|
|
(2.0 |
) |
|
|
20.1 |
|
|
|
22.1 |
|
|
|
39.3 |
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
1.9 |
|
|
|
0.5 |
|
|
|
(1.4 |
) |
|
|
(0.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
$ |
4.4 |
|
|
$ |
(17.0 |
) |
|
$ |
(21.4 |
) |
|
$ |
36.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$ |
26.7 |
|
|
$ |
9.7 |
|
|
$ |
(17.0 |
) |
|
$ |
46.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Provided by (Used in) Operating Activities: |
Net cash used in operating activities was $1.2 million
during the Transition Period and $31.8 million for fiscal
2005. During fiscal 2004, $10.8 million in net cash was
generated by operating activities. The decline in cash generated
from operating activities in fiscal 2005 was due to higher
operating losses in fiscal 2005 driven primarily by lower gross
margins, our decision to increase investment in research and
development, and higher selling, general and administrative
expenses.
|
|
|
Cash Used in Investing Activities: |
Net cash used in investing activities was $1.1 million
during the Transition Period, primarily related to an increase
in restricted cash, and $5.8 million for fiscal 2005,
primarily related to capital expenditures on computer equipment
and realized foreign exchange gains and losses as a result of
hedging activities. During fiscal 2004, investing activities
consumed $6.3 million in cash, primarily related to capital
expenditures on computer equipment and realized foreign exchange
gains and losses as a result of hedging activities.
|
|
|
Cash Provided by (Used in) Financing Activities: |
Net cash provided by financing activities was $39.3 million
for the Transition Period and $20.1 million in fiscal 2005.
In fiscal 2004, $2.0 million was used in financing
activities. Cash flows from financing activities in the
Transition Period were mainly attributable to $55 million
gross proceeds from the issuance of the convertible notes and
$14.6 million used to repay bank indebtedness. Cash from
financing activities in fiscal 2005 was mainly attributable to
proceeds of $12.4 million from the issuance of warrants,
proceeds of $8.9 million as a result of an increase in bank
indebtedness, and proceeds of $3.5 million from the
issuance of common shares and payment of employee share purchase
loans offset by $4.7 million used to repay long term debt,
related party loans and share issuance costs. Cash from
financing activities in fiscal 2004 was mainly attributable to
net proceeds of $12.9 million from the issuance of
preferred shares, and proceeds of $9.8 million from the
issuance of warrants, offset by repayments of bank indebtedness,
related party loans, long-term debt and capital lease
obligations totaling $25.2 million.
50
The following table sets forth our contractual obligations as of
January 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period | |
|
|
| |
|
|
|
|
Less than | |
|
|
|
After | |
Contractual Obligations |
|
Total | |
|
1 Year | |
|
1-3 Years | |
|
4-5 Years | |
|
5 Years | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in millions) | |
Long-term debt
obligations(1)
|
|
$ |
0.2 |
|
|
$ |
0.2 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Capital lease
obligations(1)
|
|
|
3.8 |
|
|
|
1.4 |
|
|
|
2.4 |
|
|
|
|
|
|
|
|
|
Operating lease
obligations(2)
|
|
|
62.1 |
|
|
|
13.0 |
|
|
|
22.7 |
|
|
|
19.2 |
|
|
|
7.2 |
|
Purchase
obligations(3)
|
|
|
0.1 |
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined benefit pension plan
contributions(4)
|
|
|
3.2 |
|
|
|
3.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible
notes(5)
|
|
|
73.5 |
|
|
|
5.0 |
|
|
|
12.8 |
|
|
|
55.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual cash obligations
|
|
$ |
142.9 |
|
|
$ |
22.9 |
|
|
$ |
37.9 |
|
|
$ |
74.9 |
|
|
$ |
7.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Represents the principal and interest payments for the loans.
Interest on these loans ranges from 4.6% to 11.8%, as described
in our consolidated financial statements. |
|
(2) |
Operating lease obligations exclude payments to be received by
us under sublease arrangements. Also excluded from operating
lease obligations are amounts relating to our U.K. and EMEA
Regional Headquarters as disclosed under Properties
as this lease was not signed until March 17, 2006. |
|
(3) |
Represents primarily our obligation to acquire capital equipment
from BreconRidge pursuant to the supply agreement between us and
BreconRidge dated August 31, 2001. |
|
(4) |
Represents the estimated contribution to our defined benefit
pension plan over the next twelve months. |
|
(5) |
Represents the principal balance on maturity of the convertible
notes and an estimate of the variable interest payable on the
convertible notes. The interest is based on a spread over
LIBOR of 500 basis points prior to an initial public
offering and 250 basis points subsequent to an initial
public offering. For the purposes estimating the variable
interest, LIBOR has been assumed to be 5%. |
Liabilities arising from the deficit in our defined benefit
pension plan are not included in the above table. We maintain a
defined benefit pension plan in the United Kingdom. As at
April 30, 2005, the accumulated benefit obligation of
$107.0 million exceeded the fair value of the plan assets
of $81.9 million, resulting in an unfunded status of
$25.1 million as recorded in our consolidated balance sheet
as of April 30, 2005.
Off-Balance Sheet Arrangements
We have the following material off balance sheet arrangements as
of January 31, 2006:
Letters of Credit:
We had $1.3 million in letters of credit outstanding as of
January 31, 2006.
Bid and Performance Related
Bonds:
We enter into bid and performance related bonds related to
various customer contracts. Potential payments due under these
may be related to our performance and/or our resellers
performance under the applicable contract. The total maximum
potential amount of future payments we could be required to make
under bid and performance related bonds, excluding letters of
credit, was $4.4 million as of January 31, 2006. Of
this amount, the amount relating to guarantees of our
resellers performance was $3.2 million as of
January 31, 2006. Historically, we have not made any
payments and we do not anticipate that we will be required to
make any material payments under these types of bonds.
Intellectual Property
Indemnification Obligations:
We enter into agreements on a regular basis with customers and
suppliers that include limited intellectual property
indemnification obligations that are customary in the industry.
These obligations generally require us to compensate the other
party for certain damages and costs incurred as a result of
third party intellectual property claims arising from these
transactions. The nature of these intellectual
51
property indemnification obligations prevents us from making a
reasonable estimate of the maximum potential amount we could be
required to pay to our customers and suppliers. Historically, we
have not made any significant indemnification payments under
such agreements and no amount has been accrued in the
consolidated financial statements with respect to these
obligations.
Critical Accounting Policies
The preparation of our consolidated financial statements and
related disclosures in conformity with U.S. GAAP requires
us to make estimates and assumptions about future events that
can have a material impact on the amounts reported in our
consolidated financial statements and accompanying notes. The
determination of estimates requires the use of assumptions and
the exercise of judgment and as such actual results could differ
from those estimated. Our significant accounting policies are
described in Note 3 of our audited consolidated financial
statements included elsewhere in this prospectus. The following
critical accounting policies are those that we believe require a
high level of subjectivity and judgment and have a material
impact on our financial condition and operating performance:
revenue recognition, allowance for doubtful accounts, provisions
for inventory, provisions for product warranties, long-lived
asset depreciation, goodwill valuation, special charges,
contingencies, deferred taxes, pension and post-retirement
benefits, and derivative instruments.
For products sold through our network of channel partners,
wholesale distributors, solution providers, system integrators,
authorized resellers, and other technology providers,
arrangements usually involve multiple elements, including
post-contract technical support and training. We also sell
products and installation and related maintenance and support
services directly to customers. Due to the complexity of our
sales agreements, judgment is routinely applied principally in
the areas of customer acceptance, product returns, unbundling of
multiple element arrangements, and collectibility. We rely on
historical trends and past experience to estimate product
returns and assess customer acceptance. The provision for
estimated sales returns and other allowances and deferrals are
recorded as a reduction of revenues at the time of revenue
recognition, as required. If our estimate of returns is too low,
additional charges will be incurred in future periods and these
additional charges could have a material adverse effect on
our results of operations. No significant adjustments were made
to our returns provisions for the nine month period ended
January 31, 2006. Collectibility is assessed based
primarily on the credit worthiness of the customer as determined
by credit checks and analysis, as well as customer payment
history. Different judgments or different contract terms could
adversely affect the amount and timing of revenues recorded.
|
|
|
Allowance for Doubtful Accounts: |
Our allowance for doubtful accounts is based on our assessment
of the collectibility of customer accounts. A considerable
amount of judgment is required in order to make this assessment
including a detailed analysis of the aging of our accounts
receivable and the current credit worthiness of our customers
and an analysis of historical bad debts and other adjustments.
If there is a deterioration of a major customers credit
worthiness or actual defaults are higher than our historical
experience, our estimate of the recoverability of amounts due
could be adversely affected. We revisit our allowance for
doubtful accounts on a quarterly basis and adjust the estimate
to reflect actuals and change in expectations. As of
January 31, 2006 and April 30, 2005, the
provision represented 4% and 3% of gross receivables,
respectively.
|
|
|
Provisions for Inventory: |
In order to record inventory at the lower of cost or market, we
must assess our inventory valuation, which requires judgment as
to future demand. We adjust our inventory balance based on
economic considerations, historical usage, inventory turnover
and product life cycles through the recording of a provision
which is included in the cost of revenue. Assumptions relating
to economic conditions and
52
product life cycle changes are inherently subjective and have a
significant impact on the amount of the provision.
If there is a sudden and significant decrease in demand for our
products, or a higher risk of inventory obsolescence because of
rapidly changing technology and customer requirements, we may be
required to increase our inventory write-downs and our gross
margin could be adversely affected. As of January 31, 2006
and April 30, 2005, the provision represented 10% and 8% of
gross inventory. The increase in the provision reflects an
expected decrease in demand and forecasted sales for certain
product lines. The increase was partially offset by scrap
write-offs.
We accrue warranty costs, as part of cost of revenues, based on
expected material and labour support costs. The cost to service
the warranty is estimated on the date of sale based upon
historical trends in the volume of product returns within a
warranty period and the cost to repair or replace the equipment.
If we experience an increase in warranty claims that is higher
than our past experience, or an increase in actual costs to
service the claims is experienced, gross margin could be
adversely affected. The warranty provision declined from
$2.6 million at the end of fiscal 2005 to $2.0 million
at the end January 31, 2006. The decline is mostly due to a
reversal in United Kingdom customer warranties relating to
a specific program that has ended.
We assess goodwill for impairment on an annual basis or more
frequently if circumstances warrant, as required by FASB
Statement No. 142 Goodwill and Other Intangible Assets
(SFAS 142). An impairment charge is recorded if
the implied fair value of goodwill of a reporting unit is less
than the book value of goodwill for that unit. We have four
geographic units that have assigned goodwill of
$6.6 million as of January 31, 2006. Quoted stock
market prices are not available for these individual reporting
units. Accordingly, consistent with SFAS 142, our
methodology for estimating the fair value of each reporting unit
primarily considers estimated future revenues and cash flows for
those reporting units along with many other assumptions. Future
revenue estimates inherently involve a significant amount of
judgment, and significant movements in revenues or changes in
the assumptions used may result in fluctuations in the value of
goodwill that is supported. The result of the most recent annual
impairment test suggests that the assumptions would need to
change significantly in order for an impairment to occur. There
have been no goodwill write-downs since the adoption of
SFAS 142.
We record restructuring, exit and other loss accruals when the
liability has been incurred. We reassess the accruals on a
regular basis to reflect changes in the timing or amount of
estimated restructuring and termination costs on which the
original estimates were based. New restructuring accruals or
reversals of previous accruals are recorded in the period of
change. Additional accruals for the nine months ended
January 31, 2006 and the year ended April 24, 2005
resulted from new restructuring activities and severance costs.
Reversals in the provision relate mostly to changes in lease
termination obligation estimates described below.
|
|
|
Lease Termination Obligations: |
Estimates used to establish reserves related to real estate
lease obligations have been reduced for sublease income that we
believe is probable. Because certain real estate lease
obligations extend through fiscal 2011, assumptions were made as
to the timing, availability and amount of sublease income that
we expect to receive. In making these assumptions, many
variables were considered such as the vacancy rates of
commercial real estate in local markets and the market rate for
sublease rentals. Because we are required to project sublease
income for many years into the future, estimates and assumptions
regarding the commercial real estate market that were used to
calculate future sublease income may be different
53
from actual sublease income. During the nine months ended
January 31, 2006 a reversal of $1.1 million was made
against our lease termination obligation estimates as a result
of changes in these and other operating cost assumptions. Of
this amount $0.4 million related to special charge
reversals and $0.7 million related to the loss reversal on
the disposal of manufacturing operations. As of January 31,
2006, the combined balance relating to lease termination
obligations was $8.3 million. This estimate will change as
a result of actual results, the passage of time and changes in
assumptions regarding vacancy, market rate, and operating costs.
We recognize deferred tax assets and liabilities based on the
differences between the financial statement carrying amounts and
the tax bases of assets and liabilities. Significant management
judgment is required in determining any valuation allowance
recorded against our net deferred tax assets. We make an
assessment of the likelihood that our deferred tax assets will
be recovered from future taxable income, and to the extent that
recovery is not believed to be more likely than not, a valuation
allowance is recorded. We have incurred significant operating
losses since our incorporation in 2001. There is no assurance
that we will be able to achieve profitability, or that, if
achieved, such profitability can be sustained. As a result there
is uncertainty regarding the future utilization of net deferred
tax assets and consequently a valuation allowance equal to 100%
of the net deferred tax assets has been recorded in the
financial statements as of January 31, 2006.
Embedded derivatives exist in a number of our securities. We
issued convertible, redeemable preferred shares which have a
redemption value that is indexed to our common share price. This
redemption feature qualifies as a derivative instrument. Our
convertible notes contain a Make-Whole Premium (as
that term is defined in the Convertible Notes) and certain
redemption rights upon a Fundamental Change (as that
term is defined in the Convertible Notes). The Make Whole
Premium and redemption rights upon a Fundamental Change qualify
as derivative instruments. The embedded derivatives noted above
have to be accounted for separately under FASB Statement
No. 133, Accounting for Derivative Instruments and Hedging
Activities. The embedded derivatives are then marked-to-market
with changes in the value recorded in our consolidated statement
of operations. Changes in key assumptions used in determining
the market value of the embedded derivatives, specifically,
assumptions used in: (a) present value calculations,
(b) movements in our future common share price,
(c) factors determining the likelihood of a Fundamental
Change and (d) factors determining the likelihood of both a
Fundamental Change and Make-Whole Premium, could have a material
impact on our financial statements.
Based on the above listed assumptions, the values of the
Make-Whole Premium and redemption feature derivatives at
January 31, 2006 were nominal and $53.2 million
respectively. The derivative relating to the redeemable
preferred shares reflects a discount rate of 17%, common share
fair value of $0.87, and a remaining term of 3.25 years.
The common share fair value is based on a number of highly
subjective qualitative and quantitative assumptions made by
management. In the nine months ended January 31, 2006, a
fair value adjustment of $11.7 million was recorded in our
consolidated statement of operations. Of this amount,
$7.0 million was directly attributable to an increase in
fair value estimate from C$1.00 to C$1.16 (U.S.$0.87 to
U.S.$1.01).
54
The following table highlights the sensitivity of the
derivatives fair value adjustment to changes in discount
rate and fair value assumptions:
|
|
|
|
|
|
|
Effect on Loss | |
|
|
before income taxes | |
Change in Assumption |
|
(Increase)/Decrease | |
|
|
| |
|
|
(in millions) | |
1 percentage point increase in discount rate
|
|
$ |
1.5 |
|
1 percentage point decrease in discount rate
|
|
|
(1.5 |
) |
1 cent increase in fair value of common share price
|
|
|
(0.5 |
) |
1 cent decrease in fair value of common share price
|
|
|
0.5 |
|
The preferred shares will be converted in accordance with their
terms upon completion of this offering. As a result of this
conversion the derivative instruments balance will be
reclassified into equity.
Recent Accounting Pronouncements
SFAS 123(R)
In December 2004, the FASB issued Statement No. 123
(revised 2004), Share-Based Payment
(SFAS 123R), which revises SFAS 123 and
supercedes APB 25. SFAS 123R requires all share-based
payments to employees, including grants of stock options, to be
recognized in the financial statements based on their fair
values. The statement is effective for us as of the beginning of
our fiscal 2007. We will be applying the provisions of this
statement prospectively to new awards and to awards modified,
repurchased, or cancelled after May 1, 2006 with the
associated compensation expense being recognized on a
straight-line basis over the requisite service period. As the
requirements of SFAS 123R depend on future awards,
modifications, repurchases or cancellations, the impact on our
consolidated financial statements when this statement becomes
effective is not yet fully determinable.
SFAS 151
In November 2004, the FASB issued Statement No. 151,
Inventory Costs (SFAS 151). SFAS 151
amends the guidance in ARB No. 43, Chapter 4,
Inventory Pricing, to clarify the types of costs
that should be expensed rather than capitalized as inventory.
Among other provisions, the new rule requires that items such as
idle facility expense, excessive spoilage, double freight, and
rehandling costs be recognized as current-period charges
regardless of whether they meet the criterion of so
abnormal as stated in ARB No. 43. Additionally,
SFAS 151 requires that the allocation of fixed production
overhead to the costs of conversion be based on the normal
capacity of the production facilities. SFAS 151 is
effective for fiscal years beginning after June 15, 2005,
or for our fiscal 2007. We are currently evaluating the
requirements of SFAS 151 and have not yet fully determined
the impact, if any, on the consolidated financial statements
when this statement becomes effective.
SFAS 153
In December 2004, the FASB issued SFAS No. 153,
Exchanges of Non-monetary Assets. This standard
amended APB Opinion No. 29, Accounting for
Non-monetary Transactions, to eliminate the fair value
measurement exception for non-monetary exchanges of similar
productive assets and replaces it with a general exception for
exchanges of non-monetary assets that do not have commercial
substance. A non-monetary exchange has commercial substance if
the future cash flows of the entity are expected to change
significantly as a result of the exchange. This statement is
effective for all non-monetary asset exchanges completed by the
company starting fiscal 2007. We have not engaged in
non-monetary asset exchanges in the current period and the
provisions of SFAS No. 153 are not expected to have a
significant impact when this statement becomes effective.
55
SFAS 154
In May 2005, the FASB issued Statement No. 154, Accounting
Changes and Error Corrections a replacement of APB
Opinion No. 20 and FASB Statement No. 3. SFAS 154
replaces APB Opinion No. 20, Accounting Changes, and FASB
Statement No. 3, Reporting Accounting Changes in Interim
Financial Statements. SFAS 154 changes the requirements for
the accounting for, and reporting of, a change in accounting
principle. SFAS 154 requires that a voluntary change in
accounting principle be applied retrospectively with all prior
period financial statements presented using the new accounting
principle. SFAS 154 is effective for accounting changes and
corrections of errors in fiscal years beginning after
December 15, 2005. We will apply these requirements to
changes and correction of errors made after May 1, 2005.
FSP
SFAS 143-1
In June 2005, FASB issued FASB Staff Position (FSP)
SFAS No. 143-1,
Accounting for Electronic Equipment Waste
Obligations, to address the accounting for obligations
associated with the European Union Directive on Waste Electrical
and Electronic Equipment (the Directive). The
Directive concludes that commercial users are obligated to
retire, in an environmentally sound manner, specific assets that
qualify as historical waste. The FSP requires capital treatment
for this obligation and is to be adopted on the later of the
first reporting period ending after June 8, 2005 or the
date of adoption of the law by the applicable
EU-member country. The
Directive is currently under review in the United Kingdom and is
expected to be transposed into U.K. law in fiscal 2007. We will
continue to evaluate the impact as the United Kingdom and other
EU-member countries enact the legislation.
SFAS 155
In February 2006, the FASB issued SFAS 155 Accounting
for Certain Hybrid Financial Instruments, which eliminates
the exemption from applying SFAS 133 to interests in
securitized financial assets so that similar instruments are
accounted for similarly regardless of the form of the
instruments. SFAS 155 also gives entities the option of
applying fair value accounting to certain hybrid financial
instruments in their entirety if they contain embedded
derivatives that would otherwise require bifurcation under
SFAS 133. Under the new approach, fair value accounting
would replace the current practice of recording fair value
changes in earnings. The election of fair value measurement
would be allowed at acquisition, at issuance, or when a
previously recognized financial instrument is subject to a
remeasurement event. Adoption is effective for all financial
instruments acquired or issued after the beginning of an
entitys first fiscal year that begins after
September 15, 2006. We are currently evaluating the
requirements of SFAS 155 and have not yet fully determined
the impact, if any, on the consolidated financial statements
when this statement becomes effective.
EITF 05-2
In June 2005,
EITF 05-2 The
Meaning of Conventional Convertible Debt Instrument
in Issue
No. 00-19
was issued and is to be applied to new instruments entered into
and instruments modified in periods beginning after
June 29, 2005. The new EITF clarifies that instruments that
are convertible into a fixed number of shares at the option of
the holder, based on the passage of time or a contingent event,
should be considered conventional for purposes of
applying
Issue 00-19. The
EITF also clarifies that convertible preferred stock with a
mandatory redemption date may qualify for the exception included
in paragraph 4 of
Issue 00-19 if the
economic characteristics indicate that the instrument is more
akin to debt than equity. The requirements of
EITF 05-2 have not
had an impact on the consolidated financial statements for the
applicable periods beginning after June 29, 2005.
56
Qualitative and Quantitative Disclosure about Market Risk
Market risk is the risk of loss in our future earnings due to
adverse changes in financial markets. We are exposed to market
risk from changes in our common share price, foreign exchange
rates and interest rates. Inflation has not had a significant
impact on our results of operations.
Equity Price Risk:
On December 9, 2004 we adopted a deferred share unit
(DSU) plan for executives. Under the DSU plan, when
a participant ceases to be an executive of Mitel, the DSU plan
participant will receive a cash amount equal to the number of
DSUs in his or her account multiplied by the weighted average
trading price of our common shares on the Toronto Stock Exchange
on the five trading days immediately preceding the date the
DSU plan participant ceases to be an executive of Mitel, or on a
later date selected by the DSU plan participant, which shall in
any event be a date prior to the end of the following calendar
year. The obligation to pay the cash amount that is indexed to
the weighted average trading price of our common shares and
recorded as a liability in our financial statements, is
marked-to-market in
each reporting period, with changes in the obligation recorded
in our consolidated statement of operations. As of
January 31, 2006, a $1.00 increase in our common share
price would increase our net loss by $0.6 million.
(January 23, 2005 $0.5 million).
Foreign Currency
Risk:
To manage our foreign currency risk, we use derivative financial
instruments including foreign exchange forward contracts and
foreign exchange swap contracts from time to time, that have
been authorized pursuant to policies and procedures approved by
our board of directors. We do not hold or issue financial
instruments for trading or speculative purposes. We currently
use foreign currency forward and swap contracts to reduce our
exposure to foreign currency risk.
The fair value of our foreign currency forward contract and swap
contracts is sensitive to changes in foreign currency exchange
rates. As of January 31, 2006, a 5% appreciation in the
Canadian dollar against all currencies would have resulted in an
additional unrealizable loss of $3.6 million
(January 23, 2005 $0.5 million). We
believe that the established hedges are effective against our
foreign currency denominated assets and liabilities. As a
result, any potential future losses from these hedges being
marked-
to-market would be
largely offset by gains or losses on the underlying hedged
positions.
Interest Rate Risk:
In accordance with our corporate policy, cash equivalent and
short-term investment balances are primarily comprised of
high-grade commercial paper and money market instruments with
original maturity dates of less than three months. Due to the
short-term maturity of these investments, we are not subject to
significant interest rate risk.
We are exposed to interest rate risk on our convertible notes
which bear interest based on the London Inter-Bank Offer Rate or
LIBOR. Each adverse change in the LIBOR rate of 100
basis points would result in an additional $0.6 million in
interest expense per year. In September 2005, we entered into a
derivative contract with JP Morgan Chase Bank, N.A., in order to
limit the impact of changes in LIBOR on our interest expense
related to the convertible notes for the period commencing
November 1, 2005 and ending November 1, 2007. This
derivative contract effectively provides a cap on LIBOR of 5.27%
and a floor on LIBOR of 4.00%.
The interest rates on our obligations under capital leases are
fixed and therefore not subject to interest rate risk.
57
BUSINESS
Overview
We are a leading provider of integrated communications solutions
and services for business customers. Our
voice-centric
IP-based communications
solutions consist of a combination of telephony hardware and
software that integrates voice, video and data communications
with business applications and processes. Our solutions enable
our customers to realize significant cost benefits and to
conduct their business more efficiently and effectively by
enabling enhanced communications, information sharing and
collaboration within a business and with customers, partners and
suppliers.
We have been a leading vendor of business telephony systems for
over 25 years and have shipped over 230,000 systems
supporting the communications needs of over 20 million
users to customers in more than 90 countries. We have
experienced significant growth in the sales of our
IP-based communications
solutions as businesses migrate from their legacy telephony
systems. Our IP-based
product revenues grew 30% in our fiscal year ended
April 30, 2005 compared with our previous fiscal year and
over 95% of our system shipments for the quarter ended
January 31, 2006 were
IP-based communications
solutions.
Our IP-based
communications solutions are scalable, flexible, secure and easy
to deploy, manage and use. These solutions interoperate with
various systems supplied by other vendors allowing our customers
to protect their existing telephony investments by migrating
their legacy voice communications systems towards an
IP-based system at
their own pace. Our solutions can be aligned with our
customers business systems, whether those systems are
centralized or distributed across multiple locations. We offer
packaged software applications as an integral part of our
IP-based communications
solutions for optimizing business processes and solving business
communications challenges, including applications for contact
centers, mobility, teleworking, messaging and collaboration. We
develop solutions that focus on particular industry vertical
markets, including education, government, healthcare,
hospitality and retail. We also develop custom software
applications to tailor our solutions to the unique needs of
specific customers. We complement our communications solutions
with a range of services including the planning and design of
business communications networks, implementation, maintenance,
training and support services.
We sell our communications solutions to organizations of all
sizes from small businesses to large enterprises. We have been
particularly successful in growing our market share in the
mid-sized business
market and in expanding our market focus with solutions that
address customers in both the small business and the large
enterprise markets. Currently our
IP-based communications
networks are used by customers with as few as 10 users in a
single location to customers with systems that can support as
many as 40,000 users in a distributed or
multi-location network.
Our customers include Auchan, Choice Hotels, CompUSA,
Hilton UK Hotels Ltd. and New York City Department of
Education.
We sell our communications solutions through a distribution
network of over 1,200 channel partners that includes wholesale
distributors, solutions providers, authorized resellers,
communication services providers, systems integrators, and other
distribution channels. We complement and support our channel
partners using a
high-touch
sales model, whereby our own sales staff work either directly
with a prospective customer or in coordination with a channel
partner. We operate from over 40 locations around the
world, including North America, Europe, the Middle East, Africa,
the Asia-Pacific
region, the Caribbean and Latin America.
Our Industry
Historically, businesses have used a data network for their data
communications and a separate telephony network for their voice
communications. Legacy telephony networks are based on
circuit-switched
technology and use proprietary operating systems. These factors
limit the manner in which legacy telephony networks can
interoperate with other business applications or integrate with
business processes. Legacy telephony networks are relatively
expensive to operate and maintain since they require a separate
physical network within the business and a separate management
system. Conversely, data networks are
IP-based. By using
IP-based networks for
voice communications and associated applications,
58
businesses can now address their voice, video and data
requirements using a single converged network. A
converged network has significant advantages over maintaining
one network for data communications and a separate network for
voice communications.
Communication services providers (carriers) are also
embracing
voice-over-Internet
Protocol or VoIP equipment such as softswitches and
media gateways as key elements of next-generation converged
carrier networks. We do not focus on carrier VoIP infrastructure
equipment or consumer VoIP equipment such as residential VoIP
phones. Rather, we focus on communications solutions and
services for business customers. However, our systems are
designed to interoperate with carriers
next-generation
networks.
The global market for business IP telephony products and
services has grown rapidly since 2002. Synergy Research Group
estimates that IP telephony line shipments grew by a CAGR of
68.7% from 2002 to 2005. Synergy estimates that IP telephony
market revenues were approximately $4.0 billion worldwide
in 2005 and are expected to grow to over $10.7 billion by
2009, representing a CAGR of 28.2%. Much of this anticipated
growth can be attributed to the expected replacement of
installed legacy telephony systems with new
IP-based systems.
Synergy forecasts that purchases of IP communications platforms
in 2006 will exceed those of legacy telephony systems for the
first time in history and that IP platforms will comprise over
90% of all enterprise telephony purchases by 2009. As this
replacement cycle progresses, purchases of legacy
circuit-switched
telephony systems are expected to decline at a CAGR of 38.1%
from 2005 until 2009.
The largest geographic markets for business IP telephony are
North America and EMEA (Europe, Middle East and Africa), which
accounted for 46.5% and 35.5%, respectively, of the overall
global market for the twelve months ended September 2005. The
Asia-Pacific region and
Latin America currently represent small but rapidly growing
markets, with business IP telephony sales in each region more
than doubling in size since 2003. According to InfoTech, a
technology market research firm, in the United States the large
enterprise market (businesses with more than 500 employees)
represented 64% of total IP telephony shipments, while the small
and medium-sized
business market (businesses with up to 500 employees) accounted
for 36% of total IP telephony shipments in 2005. The small and
medium-sized business
market, however, is expected to grow at a faster rate than
the large enterprise market and is projected to represent 43% of
total IP telephony shipments by 2010.
To date, the business IP telephony market has largely been
limited to early adopters. Most businesses have not yet migrated
to an IP-based
environment to solve their voice communications needs. According
to InfoTech, only 36% of small and
medium-sized businesses
in the United States have adopted IP telephony but this is
expected to rise to 62% by 2009. Similarly, 73% of large
enterprise businesses in the United States are implementing IP
telephony, a figure which is expected to grow to 89% by 2009.
When adopting IP telephony, industry analysts have indicated
that businesses prefer to purchase their
IP-based communications
solutions using a gradual migration approach rather than a
forklift approach that requires them to discard
their existing network and telephony infrastructure investments.
IP-based solutions are
often adopted by businesses on a gradual basis, either for new
facilities, or initially for a limited user group such as a
functional department. Accordingly, many businesses are
installing voice communications systems that allow them to
migrate to IP over time. For these businesses, it is critical
that their IP-based
solutions are able to interoperate with their existing telephony
and data infrastructure. It is also critical that their
IP-based solutions be
scalable so that they can grow along with their business without
the need to change existing telephony systems or retrain staff.
These solutions also need to be flexible enough to allow either
centrally-managed or
distributed network deployments.
Initially, cost reductions were the primary reason for the
adoption of converged
IP-based communications
solutions. These cost reductions can include:
|
|
|
|
|
the reduction or elimination of long distance and local toll
charges; |
|
|
|
lower network maintenance expenses since physical moves,
additions and changes can be handled centrally in an
IP-based network; |
59
|
|
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|
decreased network management staff requirements since both voice
and data communications are carried on a single
IP-based network; and |
|
|
|
lower cabling costs in new building construction since the same
cable carries both voice and data communications. |
Businesses are now looking beyond cost savings to the
productivity benefits, improved customer interaction and other
business process improvements that
IP-based communications
solutions can offer. Adopting a converged
IP-based communications
network allows businesses to distribute voice, video and data to
any part of their network, permitting employees who are working
from a branch office or from home or those who are mobile, to
access business software applications as though they were in the
office. This accessibility is enhanced by new software
applications that provide employees with the ability to detect
the presence and availability of a colleague, team, supplier or
customer on the network and allow access to software
applications that facilitate audio and video conferencing and
unified communications. Businesses also see opportunities to
more efficiently manage human resources by allowing contact
center staff, technical support and other personnel to work from
home, branch offices or from remote locations around the world.
Additionally, businesses can use
IP-based communications
solutions to enhance their business continuity plans by
providing employees with access to information and services from
remote locations.
IP-based communications
solutions allow businesses to implement
hot-desking,
whereby an employee who is not regularly in an office or who
travels between office locations, can access their personalized
features, such as
pre-programmed speed
dial keys and voicemail, from any telephone that is associated
with a hot-desk.
Additional business process opportunities arise with the
convergence of fixed and mobile communications that is possible
with IP telephony. Worker mobility gives rise to a number of
challenges and opportunities for businesses. For example,
employees who are frequently out of their offices rely
extensively on their cellular phones, but these phones can be
costly and do not give the employees access to centralized
services such as office voicemail. Businesses are concerned
about the cost of airtime and long distance charges of cellular
devices, particularly when they are used within company
premises. Mobile and knowledge workers are also frustrated with
the need to use multiple devices (as opposed to one phone that
could be used in the car, the office and at home) and the burden
of managing multiple voicemail accounts. Businesses are seeking
communications solutions that integrate fixed, wireless and
mobile networks in order to provide workers with advanced
IP-based features from
their mobile devices and remote locations.
As businesses make their IP migration decisions based on the
potential for business process improvements, they are also
looking for advanced software applications and functionality
specific to their particular industry. Vendors of
IP-based communications
solutions that are able to offer software applications that are
tailored to the specific needs of the customers industry
will benefit from new, typically
higher-margin, software
revenue streams.
Our Competitive Strengths
Our key competitive strengths include the following:
Focus on IP-based
communications solutions. We made the strategic decision to
invest heavily in the development of
IP-based communications
solutions over the last five years. We invested the necessary
capital, and absorbed the resulting operating losses, to finance
the development of
IP-based solutions at a
time when the majority of our revenues were still based on the
sale of legacy communications systems. As a result of our focus
on the IP-based
communications market, we believe we now have one of the
broadest portfolios of
IP-based communications
solutions in the industry. We also have one of the
industrys highest ratios of
IP-based product
shipments to that of legacy products, with over 95% of our
system shipments being IP platforms and 86% of our product
revenues coming from
IP-based solutions for
the quarter ended January 31, 2006. Synergy has predicted
that sales of legacy
circuit-switched
telephony systems will decline at a CAGR of 38.1% from 2005
until 2009. Since only 5% of our product shipments and 14% of
our product revenues in the quarter ended January, 31, 2006 were
derived from sales of legacy systems, we
60
are better positioned than many of our competitors to withstand
the expected further decline in the legacy
circuit-switched
telephony market.
Interoperable, scalable and flexible voice-centric solutions
that enable IP adoption. Our
IP-based solutions
allow our customers to migrate part or all of their voice
communications towards a converged
IP-based solution at
their own pace and not be forced to discard their legacy
telephony investment or change to a particular vendors
data infrastructure. This gradual migration is possible because
our IP-based solutions
are compatible with industry standards and can interoperate with
most voice and data networks. Our
IP-based communications
platforms and gateways can scale from as few as 10 users to as
many as 65,000 users in a single network configuration. In
developing our applications we use open standards such as the
eXtendable Markup Language (XML), the
HyperTextMarkup Language (HTML) and communications
protocols such as Session Initiation Protocol (SIP).
These standards and protocols allow for the seamless integration
of converged voice, video and data applications.
Broad software capabilities that drive high value IP-based
solutions and enable business process improvements. Our
solutions have significant embedded software content which
increases the intelligence and value-add of the hardware
offering. In addition, our solutions are differentiated by a
broad set of packaged software applications that help our
customers optimize business processes, whether addressing the
needs of the individual, a work group or the business as a
whole. Our range of packaged software offerings includes
applications for contact centers, mobility, teleworking,
presence and collaboration, voice messaging, unified
communications, video conferencing and network management.
Award-winning desktop portfolio focused on the user
experience. Our wired and wireless desktop devices are
designed to present advanced desktop applications to the user
and to address their specific needs regardless of whether they
are in the office, at home or traveling. Our desktop products
have been recognized for their innovation, ease of use,
industrial design and functionality.
Communications solutions tailored to the needs of specific
industries. We offer solutions that are designed
specifically to meet the needs of particular vertical markets
such as education, government, healthcare, hospitality and
retail. We have made significant investments in developing our
understanding of the unique business requirements of our target
vertical markets and translating that knowledge into specific
solutions. Examples of this vertical industry expertise include
a low cost hospitality IP telephone designed specifically for
hotel guestrooms; a virtual concierge software application that
serves as an in-room
butler at five star properties; a retail
point-of-sale IP phone;
and a student outreach solution that provides direct
communication between teachers and parents. As a result, we have
established significant market share in these target industries.
We are extending our vertical solutions to address other markets
such as the financial services industry.
Leadership in small and medium-sized business market. We
have been recognized for our leadership in the small and
medium-sized business
market, most recently by InfoTech as the largest provider of
IP-based communications
solutions to this market in the United States in 2005. In the
United Kingdom, MZA, a market research firm, recognized us
as the leading provider of IP desktop communications solutions
in the small business market (fewer than 100 users) and the
second largest provider in the
medium-sized business
market (fewer than 250 users) for 2005. With our brand
recognition and the scalability of our platforms, we believe we
are well positioned to expand our focus and addressable market
from small and
medium-sized businesses
to large enterprises. We now have many large enterprise
customers, the largest of which requires us to support as many
as 40,000 users.
Large, integrated distribution and strategic partner
network. We have developed a global sales and distribution
network with our channel partners and have formed a network of
strategic partnerships and alliances. We believe that our
channel partner network enables us to reach markets around the
world cost effectively. We have substantial distribution
capabilities in North America and the United Kingdom, and we are
increasing our distribution presence in other regions. Our
distribution network consists of over 1,200 channel
partners across more than 90 countries. Where appropriate,
we assist our channel partners with our high-touch
sales force and service organization. We also support our
channel partners in their sales activities through our channel
managers, systems engineers, technical account managers and sales
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administrators and offer them a variety of services and software
tools to assist them both before and after a sale. We supplement
our distribution network through a variety of joint-selling and
cross-selling initiatives with our strategic partners, driving
increased sales and enhanced brand recognition. Our strategic
partner network also enables us to further improve the
functionality and features of our solutions for both horizontal
and vertical markets through joint research and development
activities. We have entered into strategic alliances for the
provision of certain converged networks with Hewlett-Packard and
Foundry Networks. At the software applications level, we have
entered into an agreement with Microsoft to integrate Microsoft
Office Live Communications Server and Microsoft Office
Communicator applications with our Mitel Live Business
Gateway. This interoperability will allow our customers to
access our call processing features from within the Microsoft
Office system and enhances our messaging and contact center
applications by allowing Microsofts applications to show
presence and availability.
Our Strategy
Our strategy is to build from our leading position in the small
and medium-sized
business market to also attract large enterprise customers,
increase our market share and generate attractive returns for
our shareholders. To accomplish these objectives, we intend to:
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Continue to expand our market focus by leveraging our highly
scalable solutions. We have established a leading position
in the small and
medium-sized business
market. We continue to expand our market focus beyond small and
medium-sized businesses
by building on and replicating this success in the large
enterprise market given the ability of our solutions to scale up
to 65,000 users in a single network configuration. In order to
target large enterprise customers, we intend to continue to
invest in our brand awareness and to use a
high-touch
sales approach, which complements our channel partners
capabilities and enables us to fully address the complex
requirements of these larger organizations. |
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Increase our focus on value-added software applications.
Our packaged software applications have become key components of
our overall solutions and differentiate us from many of our
competitors. These software applications can be sold as
stand-alone products or
as part of an overall solution. As such, they enable multiple
account penetration strategies for our sales and marketing
activities and provide growing revenues from license and
maintenance fees. We expect to continue to increase our research
and development focus on software applications, such as
fixed-mobile convergence, presence functionality and messaging,
to enhance and differentiate our solutions. In addition, we plan
to continue to work closely with our customers to develop
customized software applications that deliver a competitive
advantage to them. |
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Provide a gradual migration path to IP for our customers and
those of our competitors. Our
IP-based solutions are
designed for interoperability with our legacy systems and we
will continue to offer our customers, and our competitors
customers, a seamless and gradual migration path from their
legacy voice systems to our converged voice, video and data
communications solutions. We intend to continue to offer
innovative, high quality products to help our customers
transition to a converged
IP-based communications
environment at their own pace. |
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Expand our geographic presence and distribution capabilities.
We are strategically expanding our geographic presence to
position ourselves for the growing global demand for IP-based
communications solutions. We currently have offices in
17 countries and more than 1,200 channel partners
operating in over 90 countries. Our near-term focus is to
leverage our current geographic presence, particularly in North
America where we have recently invested in new customer
demonstration facilities, secured a major new distributor and
recruited a number of senior industry sales executives. We will
also consider expansion into emerging growth markets on a
case-by-case basis, particularly where our customer
opportunities justify the establishment of a local presence. |
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Broaden and deepen our strategic partnerships and
alliances. Our customers require solutions that are cost
effective, specific to their industry and that can provide them
with a competitive advantage. We intend to continue to attract
and recruit new strategic partners and to establish new |
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strategic alliances to provide us with access to customer
relationships, to cost effectively provide opportunities in new
target markets, to enhance our brand recognition by leveraging
their brands and to strengthen our solutions by adding new
features and functionality. |
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Continue to leverage our operating model. Our operating
model creates two opportunities for leverage. The first
opportunity is to increase our gross margins. We believe that
with the strength of our software applications portfolio, our
business will continue to evolve towards a higher proportion of
software license and maintenance revenues with correspondingly
higher margins. We believe that our software licensing process
will facilitate this transition because it is sophisticated, yet
simple for our channel partners to use. We also intend to
increase our gross margins with a continued focus on product
cost reduction through design changes, strategic supplier
management and innovative distribution strategies. The second
opportunity for leverage is the potential to grow our revenues
at a pace that exceeds the rate of growth of our selling,
general and administrative and research and development
expenses. We believe this is possible due largely to the
benefits of scale that we expect to leverage in our operating
model. |
Our Solutions
We have designed our IP solutions to perform as pure IP-based
communications solutions and also as gateways to facilitate
interoperability with our customers existing voice
infrastructure and legacy devices.
Our product portfolio consists of communications platforms and
gateways (both of which manage call processing), desktop devices
(such as phones, conference units and operator consoles) and
applications (software which typically enables specialized
functionality such as messaging, teleworking and collaboration).
We complement these products with a broad range of services.
We have won numerous awards for our product innovation,
industrial design and performance. Some of these awards include:
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Mitel 3300 IP Communications Platform (ICP): Rated
Best IP-PBX Value, Mid-Size systems by Miercom (2005) |
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Mitel SX-200 IP
Communications Platform (ICP): Rated Best in
Test by Miercom (2005) |
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Mitel Your Assistant: Communications Convergence, Visions
of Convergence, Product of the Year (2004) |
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Mitel Navigator: Internet Telephony Product of the Year
(2005); and Frost & Sullivan Award for Technology Innovation
(2006) |
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Mitel Customer Interaction Solutions/ Mitel Contact Center
Solutions: Customer Value Enhancement Award Contact Center
Industry (2004); Customer Interaction Solutions IP Contact
Center Technology Pioneer Award (2005); and TMC Labs Innovation
Award (2005) |
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Mitel Messaging Server: Internet Telephony Product of the
Year (2005) |
We have made significant investments in the development of new
IP-based communications solutions to meet the changing needs of
our customers and their migration to IP-based communication
systems. Our commitment to the development of our IP solutions
has resulted in an IP communications portfolio that we believe
is among the broadest and most sophisticated in the industry
today.
Platforms and
Gateways:
Our IP communications products include the following platforms
and gateways:
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The Mitel 3300 IP Communications Platform
(ICP). The Mitel 3300 ICP, the
cornerstone of our
IP-based communications
product portfolio, is a converged communications platform that
supports our suite of advanced call processing and related
applications and IP-enabled desktop devices. Our call processing
software supports over 500 networking and end user features and
is |
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available in up to 10 languages. The Mitel
3300 ICP has the flexibility to operate as either a
single site, distributed or hosted solution and interoperates
with the customers underlying data or legacy voice
communications infrastructure. The Mitel 3300 ICP is
scalable to serve the needs of users in small and medium
businesses, with as few as 10 users, and large enterprises,
with as many as 65,000 users. |
The diagram below depicts how the Mitel 3300 ICP can
be used either for providing call processing features and
functions or, as an applications and services gateway
(ASG), for the delivery of advanced applications.
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The Mitel 3300 ICP also acts as an ASG, allowing
customers access to our advanced applications such as messaging,
mobility and teleworking. With the Mitel Live Business
Gateway attributes enabled, the ASG provides connectivity to
Microsofts Live Communications Server for our solutions
and the legacy infrastructure of competitors. The ASG uses open
industry standards such as XML and SIP to interoperate with our
and third party business applications and devices. |
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For customers with branch offices, we offer the ability to
either implement a Mitel 3300 ICP at each location
or allow users at a remote site to receive a hosted service from
a Mitel 3300 ICP situated elsewhere in the network
(or a combination of both options). Those customers using a
hosted model have access to the same software applications and
services as those situated at the office where the Mitel
3300 ICP physically resides. The Mitel
3300 ICP can also be implemented as a survivable
gateway at a branch office such that if the network to the
office from which they are being hosted becomes unavailable,
then the local Mitel 3300 ICP will provide the same
telephony services seamlessly until the network connection is
restored. We are able to distribute the features, software
applications and services normally only available at larger
corporate offices |
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to any part of the network, addressing the communications
challenges facing organizations with decentralized operations
and personnel. This approach also provides alternative network
configurations for customers concerned with disaster recovery
and business continuity. |
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Mitel Enterprise Management Solutions. Our enterprise management
solutions give our customers maximum control over their network
of Mitel 3300 ICPs and associated applications and
devices. Our solutions allow our customers to monitor and
control telecommunication spending as well as network
monitoring, alarm handling and troubleshooting. Our enterprise
management solutions include the following: |
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Enterprise Manager. The Enterprise Manager suite provides
a single management interface to monitor and manage all of the
activities of the Mitel 3300 ICP and perform
day-to-day management tasks helping control costs by delivering
simplified PC-based administration. |
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Remote Management. The Remote Management suite allows the
maintainer to access network and system information and resolve
issues remotely. |
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Integrated Management Applications. The Integrated
Management Applications suite provides the ability to analyze
the IP networks capability to support IP communications.
Voice quality metrics and diagnostics can be used to test the
network capabilities and to help troubleshoot potential
issues. |
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Technology Interfaces. Recognizing that some customers
may have specialized requirements beyond our packaged software
products, we offer a wide range of technology interfaces for
specific enhancements. Open interfaces allow integration to
third party management solutions, such as those from Microsoft
and Hewlett Packard. |
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Mitel SX-200
ICP. The Mitel
SX-200 ICP
specifically addresses the North American market and provides
the features required by the smaller business market and the
hospitality industry. The Mitel
SX-200 ICP targets
organizations with up to 600 users either at a single location
or in multiple locations and it supports networking and
interoperability with legacy Mitel
SX-200 systems. |
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Mitel 3600 Hosted IP Key System. The
Mitel 3600 Hosted IP Key System is designed for
businesses with fewer than 20 employees. This product is sold
through service providers or channel partners who wish to offer
a hosted solution and eliminate the need for the platform to be
located and managed at the end-users office. The
Mitel 3600 enables the features of a key telephone
system to be delivered as a service and works with our standard
IP telephones. |
Desktop Portfolio:
Our award-winning desktop portfolio includes a broad range of
telephones, consoles, conference units, soft phones and
ancillary devices that support our IP communications systems. We
have been recognized by a number of third parties as a leader in
the design of desktop devices, which have been acknowledged for
their ease of use, aesthetics, high quality and functionality.
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Our IP-based desktop products interoperate with all of our
IP-based communications platforms and software applications.
These desktop products allow users access to advanced telephony
features and services such as integrated web browsing, enhanced
directory management, and visual voicemail, regardless of
whether they are in the office, at home or travelling. The
majority of our IP telephones support SIP as well as our own
proprietary protocols. Our latest desktop devices provide, via
the XML and HTML open standards, the capability to customize the
displays for particular industries or for customer specific
requirements. This customization can be undertaken by a
customer, a channel partner or can be performed by our
professional services organization.
We also provide
in-building wireless
devices, which support common
industry-standard
protocols and which provide access to the majority of the
features of the Mitel 3300 ICP.
Applications:
We offer a broad range of
IP-based packaged
software applications that are used by businesses across a
variety of industries. We also offer customized solutions to
businesses requiring highly tailored solutions.
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Contact Center Applications. A contact center is
generally a dedicated function within a business that typically
serves as an inside sales help desk, providing customer support,
lead generation, emergency response, telephone answering
service, inbound response and outbound telemarketing. We provide
a modular suite of
web-based applications
for streamlining contact center management and reporting. Our
contact center applications provide multimedia functionality
incorporating routing of an inquiry to the first available agent
or the agent that has been idle for the longest period.
Visibility of the presence and availability of colleagues or
resources can be provided by integration with Microsoft Live
Communications Server to facilitate first call resolution. An
inquiry can be associated with an incoming call,
e-mail, fax or webchat.
Contact center agents are fully supported across a centralized
or multi-site
environment including home working. |
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Wireless Telephony Applications. We offer wireless
telephony applications for
in-building mobility as
well as to enable the seamless convergence of
in-building wired or
wireless networks with mobile
cellular-based
networks. Our
in-building wireless
applications provide roaming users with the majority of the
features available on a desktop device including
extension-to-extension
dialing, attendant functions, voice mail and messaging as well
as external calling. We use wireless devices that work with
major manufacturers wireless access points allowing
customers the use of their existing access point investment for
in-building mobile telephony. The Mitel 3300 ICP can
also pair a cellular phone with an office extension or any other
telephone such that each device will ring simultaneously if the
office extension is called. This significantly reduces the
number of calls that are missed. When a call is answered on a
cellular phone it is still presented at the office extension,
which means that by pressing a single key on the telephone, the
call can be moved |
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from the cellular phone to the office extension. This process
can also be achieved in reverse, so that an employee who may
need to leave for a meeting, can transfer the call from the
office extension to the cellular device. This feature reduces
cellular long distance and air time charges and enables the user
to operate with one phone number whether in the office, at home
or traveling. |
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Video Applications. Our video applications and related
devices provide businesses access to video conferencing at the
desktop or for dedicated conference rooms. Our video
conferencing solutions are easy to use and a conference call can
be established by simply dialing the number or extension of the
remote party from an IP telephone and then, once the telephone
call is established, pressing a single key on the handset to
transform the audio call into a video conference. Our video
applications and related devices also incorporate collaboration
tools, including those from Microsoft Office, that allow users
to share computer applications during conferences. Our solutions
can simultaneously support eight separate locations involved in
the video conference. |
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Collaboration Tools. We offer a
computer-based
collaboration, presence and contact management application
called Your Assistant that can optionally include a
softphone. The softphone provides the features of a Mitel
desktop telephone on a personal computer, at the users
desk or from any location around the world where there is access
to the Internet. Your Assistant interacts with the
users contact database and offers secure instant messaging
capabilities, video conferencing, knowledge management
(automatic retrieval of pertinent files associated with the name
and number of the caller) and enables simplified drag and
drop call and conference call initiation by moving, with a
computer mouse, the name of a contact from a list or directory
into the communications window. Your Assistant also
enables simple showing of presentations, documents, spreadsheets
and virtual white boarding. In addition, a video conference can
be established with a non-user of Your Assistant by
publishing the name of an Internet web page associated with the
conference call. |
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Unified Messaging, Integrated Messaging and Voice Mail.
We offer a
speech-enabled
application called Unified Messaging that gives
users the ability to control their telephony functions through
voice-activated
commands. Unified Messaging supports conversational speech
recognition, recognizing entire sentences and not simply single
words, allowing users to answer or forward voice and
e-mail messages with
voice or text responses. NuPoint Messenger, our branded
integrated messaging application, provides a
scalable and reliable way to relay, store, and retrieve voice
messages using either a phone, fax machine, pager or personal
computer. NuPoint Messenger also allows users to have
their calls routed to them while they are travelling, or access
to their voice or fax messages from their personal computer.
NuPoint Messenger provides a high availability and highly
scalable solution, which can be suitable as a carrier or large
enterprise solution. Our 6510 Integrated Messaging
product allows businesses to mix and match the requirements of
individual employees by supporting both unified messaging and
traditional voicemail on the same platform. Our messaging
solutions interoperate with both Microsoft Live Communications
Server and Microsoft Outlook. |
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Teleworking. Our
IP-based teleworker
solution enables users to make secure and encrypted IP phone
calls from their home office or any remote office by extending
the features and functionality of an office telephone over the
Internet. As a result, toll charges can be significantly reduced
or in some cases eliminated. As an option, our Teleworker
telephone can support an integral module that allows the
telephone to access the public switched telephone network for
making local calls and calls to emergency services and to
receive incoming calls. Customers can download reports that
provide detailed usage statistics on teleworker activity. This
information provides return on investment feedback
as a means of itemizing savings. |
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Our Legacy Telephony Communication Solutions:
Our legacy
circuit-switched
telephony portfolio includes the Mitel
SX-2000, a fully
featured traditional communications platform that addresses
businesses with up to 20,000 users. This system provides
extensive features and functionality, a distributed
architecture,
cost-effective
redundancy and support for internetworking based on industry
standard protocols for seamless voice communications between
sites. The Mitel
SX-200 is a
traditional
circuit-switched
telephony platform, with a number of key telephony features,
that addresses single site and small
multi-site businesses
with fewer than 400 users. Both the Mitel
SX-2000 and the
Mitel SX-200 are
complemented by a portfolio of digital telephones and a suite of
applications. We offer a simple migration path to
IP communications for customers with Mitel
SX-2000 and
Mitel SX-200
implementations using the Mitel 3300 ICP and
Mitel
SX-200 ICP,
respectively.
Our Services
We complement our product offerings with a broad range of
services. Our services are delivered by both our channel
partners and us and extend from initial planning and design
through to implementation and support. Planning services include
needs assessments, site surveys, system configuration, network
design and project management. Implementation services include
IP-based system and
application implementations, advanced messaging implementations
and multi-site
installations. Additional services include resource
coordination, project management, contract administration,
performance management, customized applications development,
technical support services,
long-term systems
management service, and training. Our support options are
flexible to meet the varied needs of our customers, including
warranty coverage and maintenance agreements. Our service
offerings enable us to maintain and grow our relationship with
our customers and provide us with recurring revenues.
Historically, legacy equipment maintenance was focused on
hardware. Dealing with a service concern typically entailed the
dispatch of a technician to the customer site for diagnosis and
repair or replacement of defective hardware. In recent years, as
our product mix has transitioned towards
IP-based solutions, the
nature and delivery of our service offerings has changed. Today,
our product offerings are increasingly
software-based. This
fact, combined with efficiencies enabled from significant
systems and process investments, means that diagnosis (and in
some cases, the resolution) of customer outages or concerns can
often be done remotely, more quickly and at a lower cost.
Customers
We have shipped over 230,000 systems supporting the needs of
more than 20 million users to customers in over 90
countries during the past 25 years. Our largest end-user
customer represented no more than 4% of our revenues in fiscal
2004, fiscal 2005 and in the nine months ended January 31,
2006. Our end-user
customer base reflects our historical strength in the small and
medium-sized business
sector as well as the addition of recent large enterprise
customers. Our largest deployment can support as many as
40,000 users.
The following chart provides examples of our end-user customer
base categorized by our key vertical markets:
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Education
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Chicago Public Schools |
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Glasgow Schools |
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Michigan Technological University |
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New York City Department of Education |
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University of Ottawa |
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Financial Services
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Butterfield Bank |
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Coast Capital |
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Eastwest Bank |
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New York Life Insurance |
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Rabo Bank (U.K.) |
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Government
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Arlington County |
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Australian Customs and Immigration |
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Canada Revenue Agency |
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Foreign and Commonwealth Office (U.K.) |
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HM Revenue and Customs |
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Orange County Vector Control District |
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Healthcare
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Hotel-Dieu Hospital |
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MedQuist |
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Mohave Mental Health Clinic |
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Queens Long Island Medical Group |
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Sutter Health |
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University College London Hospitals |
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Hospitality
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Choice Hotels |
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Ginn Clubs and Resorts |
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Hilton UK Hotels Ltd. |
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Intercontinental Hotels |
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Marriott |
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Retail
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Arbys |
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Auchan |
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Charlotte Russe |
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Claremont and May |
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CompUSA |
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Other
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Canary Wharf |
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Courier Express |
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Foundry Networks |
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JCB |
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LaFarge (France) |
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Tele 2 Versatel (Netherlands) |
Our IP-based solutions
have been used by a wide variety of customers. The following
case studies provide examples of our customers and why they use
our solutions.
Customer Needs: CompUSA is one of the leading retailers
and resellers of personal
computer-related
hardware and software products and services. CompUSA operates
approximately 226 stores in 90 cities in the United States.
CompUSA was looking to achieve
lower-cost
communications and the ability to move voice, data and video on
a single easily-managed
network capable of implementing more advanced features.
The Solution: Because of our focus on the retail market,
CompUSA elected to implement one of our solutions that included
the Mitel 3300 ICP and Mitel IP Phones. This
resulted in low-cost
and reliable communications integrating the stores and
headquarters, connecting between the stores and linking the
company with customers and its many suppliers. Our solution
allows CompUSA to better serve its own customers, enhance the
productivity of its staff and improve dealings with suppliers.
JCB
Customer Needs: JCB is a manufacturer of construction
equipment. JCBs North American headquarters houses sales
and marketing office staff, a call center, warehouse employees
and a manufacturing shop floor. JCB needed a flexible, modular
system that could handle its diverse communications needs and
anticipated growth.
The Solution: To address their needs, JCB selected a
wide-range of our
solutions, including the Mitel 3300 ICP, Mitel
Contact Centre Solution, Mitel Teleworker Solution,
and Mitel IP Phones and wireless phones. This solution
provided them with automated 24/7 contact center capabilities
with integration to customer relationship management, universal
messaging to integrate voice and electronic message management
and to seamlessly tie in remote and mobile employees to a
central phone system.
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JCB was able to reduce its telecommunications costs by half and
realize cost savings from improved workflow, employee
productivity gains and a reduction in system maintenance.
Canary Wharf
Customer Needs: Canary Wharf in Londons Docklands
comprises a Grade A commercial business and leisure
complex. Canary Wharf is the location of a number of prestigious
tenants. Because of the
ever-changing nature of
the 86-acre complex, it
is essential that any data or telephony infrastructure be
resilient, scalable and flexible.
The Solution: Historically, telephony at Canary Wharf had
been based around the Mitel
SX-2000, which
offers feature-rich
voice communications, centralized management, high levels of
scalability and seamless networking capabilities. Canary
Wharfs migration to an
IP-based communications
system started with a new greenfield site housing
the complexs Estate Control Center which is responsible
for monitoring the entire complex. A Mitel
3300 ICP was chosen by the management of Canary Wharf
for its enhanced scalability and flexibility and the Mitel
Contact Center Solution was implemented to provide the
help-desk team with a
way of managing call flows more efficiently using the advanced
functionality of IP telephony.
Courier Express
Customer Needs: Courier Express, a U.S. based company, is
one of the leading providers of freight and warehousing
services, consisting of a
six-office,
multi-warehouse
business that operates continuously. The company needed to
operate as a unified entity rather than as multiple regional
offices. Their old phone system was one of the key obstacles to
achieving that goal, as each location had a separate standalone
phone system connected to an individual telephone exchange not
allowing Courier Express to function effectively as a
multi-site operation.
The Solution: Courier Express implemented a solution
comprising the Mitel 3300 ICP, Mitel Teleworker
Solution, Mitel IP Phones and Mitel Contact Center
Solution which enabled it to centralize its operations.
Courier Express now enjoys significant cost savings on calls
between locations and functions as a single, seamless operation
that can easily support new employees and
home-based sales staff.
MedQuist
Customer Needs: MedQuist, a New Jersey-based company, is
one of the leading national providers of medical transcription
and healthcare documentation management services. MedQuist
wanted to reduce cost and increase employee productivity by
making it possible for more than 1,000 employees to work from
home. MedQuist also required a solution that would help them to
streamline business costs, improve customer service and provide
management reporting.
The Solution: MedQuist selected a number of solutions
from us including the Mitel Teleworker Solution, Mitel
Your Assistant, the Mitel 3300 ICP and Mitel
IP Phones. The MedQuist investment has provided over
1,000 employees with the tools necessary to successfully
work from home. MedQuist estimates that our solutions will allow
it to dramatically reduce costs, resulting in substantial
savings in many key areas. The Teleworker Solution and Your
Assistant applications will enable MedQuist to interact with
employees, monitor their progress and maintain cohesive
communications. Additionally, the integration with Your
Assistant gives MedQuist and its employees a virtual and
visual presence and availability at all times.
Sales and Marketing
Our sales and marketing strategy leverages our own offices in
17 countries with the local presence and customer
relationships of over 1,200 channel partners servicing
customers in more than 90 countries. Product fulfillment
and order logistics for most of our channel partners are
generally performed in the United States and Europe by our
wholesale distributors, such as GrayBar Electric Co., Inc., Tech
Data
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Corporation, and Westcon Group, Inc. Our channel partners are
supported by our internal teams of channel managers, systems
engineers, technical account managers and sales administrators.
To complement our channel partner network, we also provide
support to independent consultants who focus on assisting
companies with network design, implementation and vendor
selection. We believe our extensive channel partner network
allows us to effectively sell our solutions globally, without
the need to build dedicated
in-house sales and
service capabilities in every geographic market. We continue to
recruit channel partners with a focus on growing market
coverage, supporting converged solutions, and implementing
applications interoperation.
We do not employ a traditional direct versus indirect strategy,
under which a direct sales team may compete with indirect
channel partners for the same end user sales opportunity.
Instead, we employ a
high-touch
sales approach for specific new large accounts. Our customers
can determine how they wish to do business with us, either
directly or via a channel partner. Our sales staff are directed
to operate a
channel-neutral selling
approach and their compensation is identical whether the sale is
transacted directly or through a channel partner. On a
case-by-case basis we
may close a sale on a direct basis, while utilizing one of our
channel partners for the purpose of fulfilment and ongoing
support. Conversely, channel partners may bring us sales
opportunities for which they see a greater likelihood of winning
the account if we take a lead role in the selling process.
Our marketing organization employs a comprehensive strategy to
enhance our brand, attract and retain channel partners,
differentiate our product offerings and develop solutions for
our target vertical industry markets. Brand development is
conducted through advertising, media articles, trade
conferences, product placements, analyst relations and web
content delivery. Our channel marketing organization designs and
administers incentive programs targeted at gaining mind share
with our channel partners. Our solutions marketing organization
translates technical complexity into competitive differentiation
and clear business value to our target customers. Our vertical
marketing team understands the unique business needs and
challenges of our key vertical markets and tailors our solutions
to address those needs. We also operate 16 demonstration
centers equipped with our latest solutions. These centers are
used by both our channel partners and our own staff to
demonstrate our solutions to existing and prospective customers.
Our sales and marketing force consists of approximately
400 employees.
Manufacturing and Supply Chain Management
We outsource all of our manufacturing and certain of our supply
chain management and distribution functions. The outsourcing of
these functions allows us to:
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focus on the design, development, sales and support of our
products; |
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leverage the scale and expertise of specialized contract
manufacturers; |
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reduce manufacturing and supply chain risk; |
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reduce distribution costs; and |
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ensure competitive pricing and levels of service. |
We outsource most of our worldwide manufacturing and repair
operations to BreconRidge, one of the worlds top 50
electronics manufacturing services (or EMS)
companies. BreconRidge specializes in the communications,
industrial and consumer market sectors and provides many
services including design, process and test engineering
services, component sourcing, manufacturing,
repair/refurbishment and distribution services. BreconRidge is
ISO 9001 certified and has more than 725,000 square feet of
manufacturing capacity in
state-of-the-art
facilities in Canada, the United States, the United Kingdom and
China. In addition to BreconRidge, we outsource the
manufacturing of a number of our IP platforms to Plexus Corp. of
the United States and certain desktop sets to WKK Technology
Ltd. in China.
The manufacturing of our products has been allocated among these
key suppliers to reduce the risks associated with using a single
supply source and to ensure competitive pricing and levels of
service. This
71
approach also enables us to respond more rapidly to increases in
demand for our products. Our suppliers are responsible for
performing periodic market reviews to validate proposed pricing
actions.
We have an internal operations group which has the
responsibility of managing these contract manufacturing
relationships. Functions performed by our operations group
include:
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evaluating, selecting, pricing and negotiating contracts with
EMS suppliers; |
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monitoring EMS supplier contract manufacturer performance
against established service level agreements; |
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maintaining the authorized vendor list of component suppliers; |
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managing finished goods inventory; and |
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selecting outbound freight partners, shipping methods, remote
stocking strategies and shipping routes. |
In addition, we retain Lytica Inc., an independent contract
manufacturing consultancy, to assist us in attempting to
confirm, on a quarterly basis, that pricing from BreconRidge,
Plexus Corp. and WKK Technology Ltd. is at market rates and
the level of service obtained from them is comparable to their
competitors.
Research and Development
Since 2001, we have invested heavily in
IP-based product
research and development. This strategy has been based on two
key planning assumptions. First, we believed that the shift in
customer demand towards
IP-based solutions
would be one of the most significant technology development in
the voice communications industry since digital telephony
displaced analog phone systems in the 1980s. Second, we believed
that the transition to
IP-based solutions,
when it did happen, would be rapid. Companies who did not
anticipate and proactively plan for this rapid technological
change would miss out on a significant market opportunity,
suffer significant customer and market share losses and damage
their potential for future revenue growth. Our new product
development programs are exclusively focused on developing
IP-based solutions.
Accordingly, we have been executing an aggressive research and
development investment strategy, designed to position us with
one of the broadest portfolios of
IP-based communications
solutions in the industry. This strategy has been reflected in
our research and development expense levels, which have ranged
between 11% and 17% of revenues in the period from 2001 through
2005 and will continue to be substantial for the foreseeable
future. As a percentage of revenues, this expenditure has been
significantly higher than many of our competitors. Our
investment strategy has positioned us with a broad range of
feature-rich, scalable,
standards-based and
interoperable IP-based
solutions, that allow us to capitalize on our historical
strength in the small and
medium-sized business
market, and expand our addressable market to larger enterprise
customers. This strategy has also allowed us to migrate our
product revenues over the past four years, from being
predominantly based on legacy
circuit-switched
technology to 86% IP products in the quarter ended
January 31, 2006. As a result, we believe we have minimal
exposure to continued erosion of legacy product revenues.
Our research and development organization is based in Ottawa,
Canada and comprises approximately 340 personnel, almost
all of whom are engaged in IP product design and
verification. Research and development personnel have an average
tenure with us of approximately 9 years, and bring
competencies in real time software, call control, telephony
applications and digital signal processing. Our ratio of
software to hardware engineers is approximately 5:1, reflecting
our focus on software in our core products and our growing suite
of applications. We also leverage outsourced development
relationships with a number of third party software development
firms, both for specific software applications that we may brand
as Mitel products and for
non-mission-critical
development and support. We target a major release cycle for our
key products every six to nine months.
72
The TPC Agreement (as described in Description of
Share Capital Warrants Technology
Partnerships Canada Warrants) requires us to conduct an
aggregate of C$400 million, with a minimum of
C$50 million per year, worth of research and development
over the five year period commencing on March 31,
2005. A default under the TPC Agreement would also be a
default under the terms of our convertible notes. We have
initiated discussions with the Canadian Government seeking an
amendment to this agreement to extend the term over which the
aggregate amount of C$400 million must be expended on
research and development. However, no assurance can be given
that a satisfactory amendment can be obtained.
Intellectual Property
We have over 650 patents and pending applications in the United
States, Canada and Europe, and in other countries around the
world, covering over 250 inventions. Approximately one
third of our patents and pending applications relate to IP
telephony and collaboration technology, while the balance cover
industrial designs (primarily in connection with our desktop
devices) and our legacy telephony communications solutions.
Within the last five years we have focused our intellectual
property efforts on seeking patent protection for our
IP-based communications
inventions. In 2005, for instance, we filed 18 new patent
applications for
IP-based communications
inventions. We have a number of patents in the areas of
presence, collaboration and mobility communications.
Historically, our strategy has been to rely on our patent
portfolio primarily to counter against any allegations of
infringement on the patents held by our competitors. Given the
strength of our
IP-based patent
portfolio, we are developing a strategy to leverage these assets
by asserting our rights in certain patented technologies.
Our other intellectual property assets include industrial
designs, trademarks, proprietary software, copyrights, operating
and instruction manuals, trade secrets and confidential business
information.
Our solutions may contain software applications and hardware
components that are either developed and owned by us or licensed
to us by third parties. The majority of the software code
embodied in each of our core call-processing software, IP-based
teleworker software, wireless telephony software applications,
integrated messaging and voicemail software and Microsoft
collaboration interfaces has been developed internally and is
owned by us.
In some cases, we have obtained a non-exclusive license from
third parties to use, integrate and distribute with our products
certain packaged software, as well as customized software. This
third-party software is either integrated into our own software
application or is sold as a separate self-contained application,
such as voicemail or unified messaging applications. The
majority of the software that we license is packaged software
that is made generally available and has not been customized for
our specific purpose. If any of these third-party licenses were
to terminate, our options would be to either license a
functionally equivalent software application or develop the
functionally equivalent software application ourselves.
We have also entered into a number of
non-exclusive license
agreements with third parties to use, integrate and distribute
certain operating systems, digital signal processors and
semiconductor components as part of our
IP-based communications
platforms and IP-based
desktop portfolio. If any of these third-party licenses were to
terminate, we would need to license functionally equivalent
technology from another supplier.
It is our general practice to include confidentiality and
non-disclosure
provisions in the agreements entered into with our employees,
consultants, manufacturers,
end-users, channel
partners and others to attempt to limit access to and
distribution of our proprietary information. In addition, it is
our practice to enter into agreements with employees that
include an assignment to us of all intellectual property
developed in the course of their employment.
73
Employees
As of January 31, 2006, we had 1,663 employees of whom
863 were in Canada, 286 were in the United States and 514 were
in the United Kingdom and other countries. We had 2,015, 1,849
and 1,689 employees at the end of fiscal year 2003, fiscal
year 2004 and on April 30, 2005, respectively. In
connection with our transition to an IP-based communications
company, we have streamlined and centralized our
back-end processes to
improve operational efficiencies. We have taken significant
steps in hiring new or cross training existing technical staff
to meet the needs of the IP-based communications market. Annual
revenues per employee during fiscal 2003, fiscal 2004 and fiscal
2005 were $175,000, $184,000 and $203,000, respectively,
reflecting our continuing focus on improving operational
efficiency.
We have a long-standing
positive working relationship with the International Brotherhood
of Electrical Workers with respect to approximately
100 U.S. field technicians who perform installation,
maintenance and systems changes. Our current contract with this
union expires after September 30, 2007, with options to
renew for additional
one-year periods.
We believe that our future success depends in large part on our
ability to attract and retain highly skilled managerial,
research and development, and sales and marketing personnel. Our
compensation programs include opportunities for regular annual
salary reviews, bonuses and stock options. Over 60% of our
employees are also common shareholders and over 95% of our
employees hold options to acquire our common shares. We believe
we have been successful in our efforts to recruit qualified
employees and believe relations with our employees are generally
positive.
Competition
Historically, our competition has come primarily from two groups
of vendors. The first group consists of traditional telephony
products companies such as Avaya, Nortel, Alcatel, Siemens and
InterTel. When competing against these companies we generally
focus on the following factors:
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the quality of our IP product portfolio and richness of our
software applications; |
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the useability of our software and their application to vertical
markets; |
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the interoperability with equipment supplied by other vendors
and with legacy circuit-switched network equipment; |
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the scalability and flexibility of our architecture, and the
ease of deployment in either a
centrally-managed,
remotely-distributed or
hosted architecture; |
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the strength of our strategic alliances; and |
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the ease of doing business for our channel partners. |
The second group of competitors consists of data product
companies such as Cisco and 3Com, who, in recent years, have
expanded their offerings to include
IP-based voice
communications products. When competing against these companies,
we focus on our ability to migrate to
IP-based solutions at a
pace that makes sense for the customer and the richness of our
software applications, in addition to the other factors listed
above.
We also compete with a number of new startup companies who are
focused on the IP-based
communications market. We compete against these new entrants by
leveraging our size, our extensive channel network, our large
installed based, our global presence and our deep knowledge of
telephony built on over 25 years of developing telephony
solutions.
74
Properties
We do not own any real property. The following table outlines
significant properties that we currently lease:
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Area | |
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Expiration | |
Location |
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Purpose | |
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(in square feet) | |
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date of Lease | |
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Ottawa, Canada
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Corporate Head Office |
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512,000 |
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February 15, 2011 |
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Caldicot, United Kingdom
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U.K. and EMEA Regional Headquarters |
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45,000 |
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March 9, 2021 |
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Ottawa, Canada
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Office and Manufacturing Facilities(1) |
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160,000 |
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February 15, 2011 |
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(1) |
Sublet to BreconRidge until August 31, 2006 See
Certain Relationships and Related Party
Transactions BreconRidge Manufacturing Solutions
Corporation. |
The Ottawa facilities are leased from Brookstreet Research Park
Corporation, a company controlled by Dr. Matthews, under
terms and conditions reflecting what management believed were
prevailing market conditions at the time the lease was entered
into. See Certain Relationships and Related Party
Transactions Brookstreet Research Park
Corporation.
In addition to these significant properties, we also support a
number of regional sales offices throughout the world from
leased facilities totaling, in the aggregate, approximately
750,000 square feet, including offices:
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throughout the United States (including New York City, Atlanta,
Chicago, Boston, Orlando (Florida), Costa Mesa (California),
Herndon (Virginia) and Waukesha (Wisconsin)); |
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throughout Canada (including Toronto, Montreal, Calgary,
Winnipeg, Burnaby (British Columbia) and Halifax); |
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throughout the U.K. (including London and Strathclyde
(Scotland)); |
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throughout Continental Europe, the Middle East and Africa
(including France, Germany, the Netherlands, Italy, Saudi
Arabia, Dubai and South Africa); |
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in Asia-Pacific
(including Hong Kong and Beijing (China), Singapore and Sydney
(Australia)); and |
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in Mexico City. |
We believe that these facilities are adequate for our immediate
needs and that additional space would be available if needed to
accommodate any expansion.
Legal Proceedings
We are involved in legal proceedings, as well as demands, claims
and threatened litigation, that arise in the normal course of
our business. In particular, as is common in our industry, we
have received notices alleging that we infringe patents
belonging to various third parties. These notices are dealt with
in accordance with our internal procedures, which include
assessing the merits of each notice and seeking, where
appropriate, a business resolution. Where a business resolution
cannot be reached, litigation may be necessary. The ultimate
outcome of any litigation is uncertain, and regardless of
outcome, litigation can have an adverse impact on our business
because of defense costs, negative publicity, diversion of
management resources and other factors. Our failure to obtain
any necessary license or other rights on commercially reasonable
terms, or otherwise, or litigation arising out of intellectual
property claims could materially adversely affect our business.
As of the date of this prospectus, we are not party to any
litigation that we believe is material to our business. See
Risk Factors Our business may be harmed if we
infringe intellectual property rights of third parties.
75
Corporate Structure
We were incorporated under the Canada Business Corporations
Act on January 12, 2001 by Zarlink (formerly Mitel
Corporation) in order to reorganize its communications systems
division in contemplation of the sale of that business to
companies controlled by Dr. Matthews. In a series of
related transactions dated February 16, 2001 and
March 27, 2001, we acquired the Mitel name and
substantially all of the assets and subsidiaries of the Zarlink
communications systems business (other than Canadian real estate
and certain intellectual property assets) from Zarlink. Part of
the intellectual property assets relating to the Zarlink
communications systems business were transferred to Mitel
Knowledge Corporation, a company controlled by
Dr. Matthews, and subsequently transferred to us. The
intellectual property assets relating to the Zarlink
communications systems business that we have not acquired are
licensed to us from Zarlink pursuant to the Intellectual
Property License Agreement described below under Certain
Relationships and Related Party Transactions Zarlink
Semiconductor Inc. Intellectual Property License
Agreement.
We carry on our worldwide business directly and through our
subsidiaries. Our material subsidiaries are shown on the chart
below, with the jurisdiction of incorporation in parentheses:
Head and Registered Office
Our head and registered office is located at 350 Legget
Drive, Ottawa, Ontario Canada K2K 2W7 and our telephone
number is
(613) 592-2122.
76
MANAGEMENT
Executive Officers and Directors
The following table sets forth information with respect to our
directors and executive officers.
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Name and Municipality of Residence |
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Age | |
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Position |
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Principal Occupation |
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Dr. Terence H. Matthews
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62 |
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Chairman of the Board |
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Chairman of the Board of Mitel; |
Ottawa, Ontario, Canada
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Chairman of the Board of March Networks |
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Donald W. Smith
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58 |
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Chief Executive Officer and |
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Chief Executive Officer of Mitel |
Ottawa, Ontario, Canada
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Director |
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Paul A.N. Butcher
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44 |
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President and Chief Operating |
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President and Chief Operating |
Ottawa, Ontario, Canada
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Officer and Director |
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Officer of Mitel |
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Peter D. Charbonneau
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52 |
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Director and Vice |
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General Partner of Skypoint |
Ottawa, Ontario, Canada
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Chairman of Mitel |
|
Capital Corporation |
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Kirk K. Mandy
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50 |
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Director |
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Chief Executive Officer of |
Ottawa, Ontario, Canada
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Zarlink |
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Gilbert S. Palter
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40 |
|
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Director |
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Chief Investment Officer and |
Toronto, Ontario, Canada
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Managing Partner of EdgeStone |
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Capital Partners, L.P. |
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Guthrie J. Stewart
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50 |
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Director |
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Partner of EdgeStone Capital |
Montréal, Quebec, Canada
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Partners, L.P. |
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Steven E. Spooner
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47 |
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Chief Financial Officer |
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Chief Financial Officer of Mitel |
Ottawa, Ontario, Canada
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Graham Bevington
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46 |
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Vice President and Managing |
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Vice President and Managing |
Chepstow, Wales
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Director, Europe, Middle East |
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Director, Europe, Middle East |
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and Africa Region |
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and Africa Region of Mitel |
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Roger K. Fung
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53 |
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Vice President and Managing |
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Vice President and Managing |
Hong Kong, China
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Director, Asia-Pacific Region |
|
Director, Asia-Pacific Region of Mitel |
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Simon J.S. Gwatkin
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|
|
50 |
|
|
Vice President, Strategic |
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Vice President, Strategic |
Ottawa, Ontario, Canada
|
|
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Marketing |
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Marketing of Mitel |
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Douglas K. McCarthy
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49 |
|
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Treasurer and Director of |
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Treasurer and Director of |
Ottawa, Ontario, Canada
|
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Taxation |
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Taxation of Mitel |
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Douglas W. Michaelides
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45 |
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Vice President, Marketing |
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Vice President, Marketing of |
Ottawa, Ontario, Canada
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Mitel |
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Ronald G. Wellard
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|
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48 |
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Vice President, Product |
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Vice President, Product |
Ottawa, Ontario, Canada
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Development |
|
Development of Mitel |
We intend to appoint additional directors following completion
of the offering to meet the independence requirements of the
Nasdaq National Market, rules and regulations of the Securities
and Exchange Commission (the SEC) and guidelines of
the Canadian provincial securities regulatory authorities.
Executive officers are appointed by the board of directors to
serve, subject to the discretion of the board of directors,
until their successors are appointed.
Dr. Terence H. Matthews is our founder, Chairman,
and currently our majority shareholder. Dr. Matthews has
been involved with us and previously with Mitel Corporation (now
Zarlink), for over 18 years. In 1972, he co-founded Mitel
Corporation and served as its President until 1985 when British
Telecommunications plc bought a controlling interest in the
company. In 2001, companies controlled by
77
Dr. Matthews purchased Mitel Corporations
communications systems division and the Mitel
trademarks to form Mitel. Between 1986 and 2000,
Dr. Matthews founded Newbridge Networks Corporation and
served as its Chief Executive Officer and Chairman.
Dr. Matthews is also the founder of Celtic House Venture
Partners, an early stage technology venture capital firm with
offices in Canada and the United Kingdom, which invests in high
technology companies. Dr. Matthews is also the founder and
Chairman of Wesley Clover Corporation, a world class investment
group with offices in the United Kingdom, Canada and Australia
with investments in telecommunications, real estate and leisure.
In addition, Dr. Matthews currently serves on the board of
directors of a number of high technology companies, including
BreconRidge and is Chairman of March Networks Corporation,
Newport Networks Corporation, Convedia Corporation and
Bridgewater Systems Corporation. Dr. Matthews holds an
honors degree in electronics from the University of Wales,
Swansea and is a Fellow of the Institute of Electrical Engineers
and of the Royal Academy of Engineering. He has been awarded
honorary doctorates by several universities, including the
University of Wales, Glamorgan and Swansea, and Carleton
University in Ottawa. In 1994, he was appointed an Officer of
the Order of the British Empire, and in the Queens
Birthday Honours 2001, he was awarded a Knighthood.
Donald W. Smith joined us in April 2001 as Chief
Executive Officer and a member of our board of directors.
Mr. Smith has more than 30 years of experience in the
communications technology industry, including over
six years at Mitel Corporation which he joined in 1979 as a
Product Manager and left in 1986, after over four years at the
Executive Vice President level. In 1996, Mr. Smith founded
and was President and Chief Executive Officer of Cambrian
Systems Corporation, a company focusing on metro optical
systems. In December 1998, Cambrian Systems was acquired by
Nortel Networks Corporation and from then until January 2000,
Mr. Smith was Vice President and General Manager of OPTera
Solutions, a division of Nortel Networks. In January 2000,
Mr. Smith was promoted to President of Optical Internet,
Nortel Networks. Mr. Smith holds a Bachelor of Science
degree in Engineering from Imperial College, London University
(U.K.).
Paul A.N. Butcher has worked with us and previously with
Mitel Corporation for over 15 years. Since
February 16, 2001, Mr. Butcher has been our President
and Chief Operating Officer and a member of our board of
directors. From 1998 until February 2001, he was Senior Vice
President and General Manager of Mitel Communication Systems, a
division of Mitel Corporation, and from 1997 until 1998,
Mr. Butcher was Managing Director for the Europe, Middle
East and Africa region of Mitel Corporation where he focused on
developing and delivering converged voice and data
communications systems and applications for enterprises.
Mr. Butcher has considerable international experience,
including several European-based assignments as Marketing
Director and General Manager of Mitel Communication Systems. He
currently serves on the board of directors of Natural
Convergence Inc. and Versatel Networks Inc. Mr. Butcher
holds a Hi Tech Diploma from Reading College of Art and
Technology (U.K.).
Peter D. Charbonneau is a General Partner at Skypoint
Capital Corporation, an early-stage technology venture capital
firm, a position he has held since January 2001. From June 2000
to December 2000, Mr. Charbonneau was an Executive Vice
President of March Networks Corporation. Previously, he spent
13 years at Newbridge Networks Corporation acting in
numerous capacities including as Chief Financial Officer,
Executive Vice President, President and Chief Operating Officer
and Vice Chairman. He also served as a member of
Newbridges board of directors between 1996 and 2000.
Mr. Charbonneau was appointed to our board of directors on
February 16, 2001 and currently serves on the board of
directors of a number of other technology companies, including
BreconRidge, March Networks Corporation, True Context
Corporation, METConnex Inc. and Galazar Networks Inc.
Mr. Charbonneau holds a Bachelor of Science degree from the
University of Ottawa and an MBA from University of Western
Ontario (London, Ontario, Canada). He has been a member of the
Institute of Chartered Accountants of Ontario since 1979 and in
June 2003 was elected by the Council as a Fellow of the
Institute in recognition of outstanding career achievements and
leadership contributions to the community and to the profession.
Kirk K. Mandy is President and Chief Executive Officer of
Zarlink Semiconductor Inc., a position he has held since
February 17, 2005. Mr. Mandy has been associated with
Zarlink Semiconductor, formerly known as Mitel Corporation, for
21 years. During this time, he oversaw Mitel
Corporations strategic
78
decision to focus on semiconductors, and the subsequent
divestiture of the communications systems division to Mitel in
2001. Between May 2001 and February 2005, he was an independent
management consultant and Vice Chairman of Zarlinks board
of directors. From July 1998 to February 2001 he was the
President and Chief Executive Officer of Mitel Corporation. From
1992 to 1998, Mr. Mandy was Vice President and General
Manager of Mitel Corporations semiconductor division. He
was appointed to our board of directors in July 2002 and
currently serves on the board of directors of Zarlink, Epocal
Corporation and is the Chairman of The Armstrong Monitoring
Corporation. Mr. Mandy has also served on the board of
directors of Strategic Microelectronics Corporation, the
Canadian Advanced Technology Association, Canadian
Microelectronics Corp., the Ottawa Center for Research and
Innovation and Micronet Technology. Mr. Mandys more
than 25 years of experience in the telecommunications
industry includes past Chairman of the Telecommunications
Research Center of Ontario, Past Co-Chairman of the National
Research Councils Innovation Forum and past Co-Chairman of
the Ottawa Partnership. Mr. Mandy is a graduate of
Algonquin College (Ottawa, Ontario, Canada).
Gilbert S. Palter is the Chief Investment Officer and
Managing Partner of EdgeStone Capital Partners, L.P., a Canadian
private equity firm. Mr. Palter has held this position
since 1999, prior to which he was the founder, Chief Executive
Officer and Managing Director of Eladdan Capital Partners, Inc.,
a private equity fund targeting middle-market Canadian and U.S.
companies. Mr. Palter held the position of Vice-President
at Smith Barney Canada Inc. in 1995 and was Associate Managing
Director of Clairvest Group Inc., a TSX-listed private equity
fund, from 1993 to 1994. He was appointed to our board of
directors on April 23, 2004 and is also a member of the
board of directors of a number of companies, including
BreconRidge, Eurospec Manufacturing Inc. and KyberPass
Corporation and is Chairman of Specialty Catalog Corp. He is a
former Chairman of Hair Club Group Inc., Trimaster Manufacturing
Inc., BFI Canada Inc. and Farley Windows Inc. and was previously
a director of Xantrex Technology Inc. Mr. Palter holds
Bachelor of Computer Science and Economics degrees from the
University of Toronto (Ontario, Canada) and an MBA from Harvard
Business School.
Guthrie J. Stewart has been a partner of EdgeStone
Capital Partners, L.P., a Canadian private equity firm, since
October 2001. He has more than 15 years of experience in
executive management and corporate development. From 1992 to
2001, Mr. Stewart held various executive positions within
the Teleglobe Inc. group, including President and Chief
Executive Officer of Teleglobe Canada Inc., Canadas
international telecommunication carrier. Prior to that, he was a
founding officer of B.C.E. Mobile Communications Inc.
Mr. Stewart was appointed to our board of directors on
April 23, 2004 and is also a member of the board of
directors of MRRM Inc., the GBC North American Growth
Fund Inc. and Chairman of BreconRidge. Mr. Stewart
studied honours science at Queens University (Kingston,
Ontario, Canada), and holds an LL.B. from Osgoode Hall Law
School (Toronto, Ontario, Canada) and an MBA from INSEAD
(Fontain Bleu, France).
Steven E. Spooner joined us in June 2003 as Chief
Financial Officer. Mr. Spooner has more than 23 years
of financial, administrative and operational experience with
companies in the high technology and telecommunications sectors.
Between April 2002 and June 2003, he was an independent
management consultant for various technology companies. From
February 2000 to March 2002, Mr. Spooner was President and
Chief Executive Officer of Stream Intelligent Networks Corp., a
competitive access provider and supplier of point-to-point high
speed managed bandwidth. From February 1995 to February 2000,
Mr. Spooner served as Vice President and Chief Financial
Officer of CrossKeys Systems Corporation, a publicly traded
company between 1997 and 2001. Prior to that, Mr. Spooner
was Vice President Finance and Corporate Controller of SHL
Systemhouse Inc., also a publicly traded company.
Mr. Spooner held progressively senior financial management
responsibilities at Digital Equipment for Canada Ltd. from 1984
to 1990 and at Wang Canada Ltd. from 1990 to 1992. He is a
Chartered Accountant (Ontario 1982) and an honours Commerce
graduate of Carleton University (Ottawa, Ontario, Canada).
Graham Bevington has been our Vice-President and Managing
Director of the Europe, Middle East and Africa Region since
February 2001. Between January 2000 and February 2001,
Mr. Bevington held the same position for Mitel Corporation.
From 1997 until December 1999, he was Managing Director at
DeTeWe Limited. From 1986 until 1997, Mr. Bevington was
Sales Director at Shipton DeTeWe Limited.
79
Roger K. Fung joined us in 2002 as Vice-President and
Managing Director, Asia-Pacific Region. From 2000 until 2002,
Mr. Fung was employed by March Networks Corporation in a
similar capacity. Prior to this he was a founding member of
Newbridge Networks Asia Ltd., where he served as President
Asia-Pacific, helping to build the business in Asia-Pacific from
1987 to 2000. He currently serves on the board of directors of
several companies, including Mart Asia Ltd. and Vodatel Networks
Holding Ltd. Mr. Fung has a Bachelor of Applied Science in
Industrial Engineering Degree from the University of Toronto.
Simon J.S. Gwatkin has been our Vice-President, Strategic
Marketing since February 2001. From July 2000 until February
2001, Mr. Gwatkin was head of the IP Business Unit of Mitel
Corporation. From 1993 until July 2000, Mr. Gwatkin held
various senior management positions with Mitel Corporation,
including overseeing Asia-Pacific operations. From 1990 until
1993, Mr. Gwatkin was Managing Director and co-founder of
Chough Software Limited.
Douglas K. McCarthy joined us in November 2004 as
Treasurer and Director of Taxation and was appointed Chief Risk
Officer in September 2005. From 1997 to 2004, Mr. McCarthy
was Vice President Finance and Treasurer of Alcatel Canada Inc.,
formerly Newbridge Networks Corporation. He is a Chartered
Accountant (Ontario 1982) and has an honours Bachelor of
Commerce degree from Queens University (Kingston, Ontario,
Canada).
Douglas W. Michaelides joined us in January 2006 as
Vice-President, Marketing. From October 2003 to December 2005,
Mr. Michaelides was Senior Vice President, Marketing at MTS
Allstream Inc., one of Canadas largest business
telecommunications service providers. Before that he held
various positions over a period of 20 years in sales and
marketing at Nortel Networks Corporation, culminating in the
role of Vice President and General Manager of the global
professional services business in 2001. Mr. Michaelides has
a Bachelor of Science degree in electrical engineering from the
University of Toronto and an MBA from York University (Toronto,
Ontario, Canada).
Ronald G. Wellard joined us in December 2003 as
Vice-President, Research and Development and currently holds the
position of Vice-President of Product Development. Prior to July
2003, Mr. Wellard was a Vice-President at Nortel Networks
Corporation and notably held the position of Product Development
Director for Meridian Norstar from 1994 to 1999.
Mr. Wellard has a Bachelor of Applied Science, Systems
Design Engineering degree from the University of Waterloo
(Ontario, Canada).
Board of Directors
Our board of directors currently consists of seven members. Our
articles of incorporation provide that the board of directors is
to consist of a minimum of one and a maximum of
10 directors as determined from time to time by the
shareholders, and permit the directors to appoint additional
directors in accordance with the Canada Business Corporations
Act (CBCA) within any fixed number from time to
time authorized by the shareholders. Shareholders have
authorized a fixed number of eight directors. We currently
have one vacancy on our board. The term of office for each of
the directors will expire at the time of our next annual
shareholders meeting. Under the CBCA, one quarter of our
directors must be resident Canadians as defined in the CBCA.
There are no family relationships among any of our directors or
executive officers.
Committees of the Board
The standing committees of our board of directors consist of an
audit committee and a compensation committee. We intend to
create a nominating and corporate governance committee effective
upon the completion of this offering. We intend to appoint
additional directors following completion of this offering in
order to satisfy the independence requirements of the Nasdaq
National Market, rules and regulations of the SEC and guidelines
of the Canadian provincial securities regulatory authorities.
Audit Committee. Upon completion of the offering, our
audit committee will be comprised of
Messrs. , and .
Our board of directors has determined that each of these
80
directors currently meets the independence requirements of the
Nasdaq National Market, the Canadian provincial securities
regulatory authorities and the rules and regulations of the SEC.
The principal duties and responsibilities of our audit committee
are to assist our board of directors in discharging its
oversight of:
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the integrity of our financial statements and accounting and
financial process and the audits of our financial statements; |
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our compliance with legal and regulatory requirements; |
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our external auditors qualifications and independence; |
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the work and performance of our financial management, internal
auditor and external auditor; and |
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our system of disclosure controls and procedures and system of
internal controls regarding finance, accounting, legal
compliance, risk management and ethics established by management
and our board. |
Our audit committee has access to all books, records, facilities
and personnel and may request any information about our company
as it may deem appropriate. It also has the authority to retain
and compensate special legal, accounting, financial and other
consultants or advisors to advise the committee.
Our audit committee also reviews and approves related party
transactions and prepares reports for the board of directors on
such related party transactions.
Compensation Committee. Our compensation committee is
comprised of
Messrs. , and .
The principal duties and responsibilities of the compensation
committee are to assist our board of directors in discharging
its oversight of:
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compensation, development, succession and retention of the chief
executive officer and key employees; |
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the establishment of fair and competitive compensation and
performance incentive plans; and |
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the production of an annual report on executive compensation for
inclusion in our public disclosure documents. |
Nominating and Corporate Governance Committee. We expect
that our nominating and corporate governance committee will be
comprised of
Messrs. , and .
The principal duties and responsibilities of the nominating and
corporate governance committee will be to assist our board of
directors as follows:
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to identify candidates for membership on our board of directors
and to recommend for election to our board of directors
qualified director candidates; |
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to develop and recommend to our board of directors, and
implement and assess, effective corporate governance principles;
and |
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to oversee and assess the functioning of our board and
committees of the board of directors. |
Director Compensation
Our directors who are not also employees are reimbursed for
out-of-pocket expenses
incurred in connection with attending board and committee
meetings. Directors are also eligible to participate in our
stock option plan.
Non-employee directors
are compensated with either cash or stock options in lieu of
cash. The number of options granted is calculated using the cash
value divided by the
Black-Scholes value at
the time of grant.
81
The remuneration for
non-employee directors
is based on the following (converted from Canadian dollars at a
rate of C$1.00 = U.S.$0.86):
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Annual service on the board of directors (other than the Chair)
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$ |
12,900 |
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Annual service as the Chair of the board of directors
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$ |
51,600 |
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Annual service as a member of the audit committee (other than
the Chair)
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$ |
4,300 |
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Annual service as the Chair of the audit committee
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$ |
12,900 |
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Annual service as a member of other standing committees (other
than the Chair)
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$ |
2,150 |
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Annual service as the Chair of other standing committees
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$ |
6,450 |
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Meeting fees
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$ |
Nil |
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In addition, each of our
non-employee directors
is granted options to purchase common shares annually at an
exercise price equal to the fair market value of those shares on
the date of grant.
Compensation Committee
Interlocks and Insider Participation
None of our executive officers serves as a member of the board
of directors or compensation committee of any entity that has
one or more executive officers serving as a member of our board
of directors or compensation committee.
Executive Compensation
The following table sets forth a summary of compensation paid
during the fiscal year ended April 24, 2005 to our Chief
Executive Officer, Chief Financial Officer and our three next
most highly compensated executive officers (the Named
Executive Officers).
Summary Compensation Table
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Long Term Compensation | |
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Annual Compensation | |
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Securities Underlying | |
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All Other | |
Name And Principal Position |
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Salary | |
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Bonus | |
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Options Granted | |
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Compensation | |
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Donald W. Smith Chief Executive
Officer(1)
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$ |
592,897 |
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2,000,000 Common Shares |
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$ |
9,480 |
(4) |
Paul A.N. Butcher President and Chief Operating
Officer(1)
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$ |
395,409 |
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1,500,000 Common Shares |
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$ |
38,473 |
(5) |
Steven E. Spooner Chief Financial
Officer(1)
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$ |
217,252 |
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$ |
82,243 |
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425,000 Common Shares |
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$ |
9,480 |
(6) |
Graham Bevington Vice President and Managing
Director, Europe, Middle East and Africa
Region(2)
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$ |
280,247 |
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400,000 Common Shares |
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$ |
52,520 |
(7) |
Roger K. Fung Vice President and Managing Director,
Asia
Region(3)
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$ |
275,600 |
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(1) |
Compensation paid in Canadian dollars, but converted to
U.S. dollars at the noon buying rate per Federal Reserve
Bank of New York for fiscal 2005 of Cdn. $1.00 =
U.S. $0.79. |
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(2) |
Compensation paid in British Pounds Sterling, but converted to
U.S. dollars at the noon buying rate per Federal Reserve
Bank of New York for fiscal 2005 of
GPB £1.00 = U.S. $1.85. |
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(3) |
Compensation paid in Hong Kong Dollars, but converted to
U.S. dollars at the noon buying rate per Federal Reserve
Bank of New York for fiscal 2005 of HKD $1.00 =
U.S. $0.13. |
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(4) |
Mr. Smiths other compensation is a car allowance of
$9,480. |
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(5) |
Mr. Butchers other compensation is comprised of a car
allowance of $14,220 and a company contribution to our deferred
share unit plan of $24,253. |
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(6) |
Mr. Spooners other compensation is a car allowance of
$9,480. |
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(7) |
Mr. Bevingtons other compensation is a car allowance
of $25,166 and a company contribution to a defined benefit plan
of $27,354. |
82
Option Grants In the Last Fiscal Year
The following table sets forth information regarding options for
the purchase of common shares granted during the fiscal year
ended April 24, 2005 to our directors and Named Executive
Officers.
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Market Value | |
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Number of | |
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of Common | |
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Common | |
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Percent of | |
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Exercise Price | |
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Shares | |
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Shares | |
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Total Options | |
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Per Common | |
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Underlying | |
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Underlying | |
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Granted to | |
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Share | |
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Options on | |
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Options | |
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Employees in | |
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($/Common | |
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Date of | |
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Name |
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Granted(1) | |
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Fiscal Year | |
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Share)(2) | |
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Grant(3) | |
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Expiration Date | |
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Donald W. Smith
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2,000,000 |
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13.30 |
% |
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$ |
0.86 |
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July 26, 2009 |
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Paul A.N. Butcher
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1,500,000 |
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9.97 |
% |
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$ |
0.86 |
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July 26, 2009 |
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Steven E. Spooner
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225,000 |
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1.50 |
% |
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$ |
0.86 |
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July 26, 2009 |
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75,000 |
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0.50 |
% |
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$ |
0.86 |
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September 9, 2009 |
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25,000 |
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0.17 |
% |
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$ |
0.86 |
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December 9, 2009 |
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100,000 |
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0.66 |
% |
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$ |
0.86 |
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March 17, 2010 |
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Graham Bevington
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300,000 |
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2.00 |
% |
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$ |
0.86 |
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July 26, 2009 |
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100,000 |
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0.66 |
% |
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$ |
0.86 |
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March 17, 2010 |
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Roger K. Fung
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Dr. Terence H. Matthews
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65,934 |
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0.44 |
% |
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$ |
0.86 |
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July 15, 2009 |
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Peter D. Charbonneau
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52,198 |
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0.35 |
% |
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$ |
0.86 |
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July 15, 2009 |
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Kirk K. Mandy
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35,714 |
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0.24 |
% |
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$ |
0.86 |
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July 15, 2009 |
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Gilbert S. Palter
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(4) |
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Guthrie J. Stewart
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(4) |
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(1) |
The options vest as to 25% on the first anniversary of the date
of grant and as to an additional 25% each year thereafter. |
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(2) |
Option exercise prices have been set in Canadian dollars but
converted to U.S. dollars at the noon buying rate per Federal
Reserve Bank of New York on March 31, 2006 of
C$1.00 = U.S.$0.86. |
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(3) |
Values based on the midpoint of the public offering price range
set forth on the cover page of this prospectus. |
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(4) |
Options to purchase 60,440 common shares have been granted to
EdgeStone Capital Equity Fund II Nominee, Inc. in
connection with Mr. Palter and Mr. Stewart acting as
directors of Mitel. Mr. Palter is the Chief Investment
Officer and Managing Partner and Mr. Stewart is a Partner
of EdgeStone Capital Partners, L.P. |
Options Held and Fiscal Year-End Option Values
The following table shows the number of options to purchase
common shares held by our Named Executive Officers. The value of
unexercised in-the-money options of those persons has been based
on an estimated initial public offering price of
$ per
share.
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Number of Common Shares | |
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Value of Unexercised In-the- | |
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underlying Unexercised Options at | |
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Money Options at | |
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April 24, 2005 | |
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April 24, 2005 | |
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Name |
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Vested | |
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Unvested | |
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Vested | |
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Unvested | |
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Donald W. Smith
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3,000,000 |
(1) |
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2,000,000 |
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$ |
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$ |
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Paul A.N. Butcher
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1,000,000 |
(2) |
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1,500,000 |
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Steven E.
Spooner(3)
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425,000 |
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Graham
Bevington(4)
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400,000 |
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Roger K.
Fung(5)
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25,000 |
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25,000 |
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(1) |
Options to acquire common shares granted to Mr. Smith from
the holdings of Dr. Matthews at an exercise price of C$3.50
($3.01 based on the noon buying rate per Federal Reserve Bank of
New York on March 31, 2006 of
C$1.00 = U.S.$0.86). |
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(2) |
Options to acquire common shares granted to Mr. Butcher
from the holdings of Dr. Matthews at an exercise price of
C$3.50 ($3.01 based on the noon buying rate per Federal Reserve
Bank of New York on March 31, 2006 of
C$1.00 = U.S.$0.86). |
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(3) |
On July 27, 2005 Mr. Spooner was granted an additional
575,000 options with an exercise price of C$1.00 ($0.86
based on the noon buying rate per Federal Reserve Bank of
New York on March 31, 2006 of C$1.00 = U.S.$0.86) |
83
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(4) |
On July 27, 2005 Mr. Bevington was granted an
additional 150,000 options with an exercise price of C$1.00
($0.86 based on the noon buying rate per Federal Reserve Bank of
New York on March 31, 2006 of C$1.00 = U.S.$0.86) |
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(5) |
On July 27, 2005 Mr. Fung was granted an additional
50,000 options with an exercise price of C$1.00 (U.S.$0.86
based on the noon buying rate per Federal Reserve Bank of
New York on March 31, 2006 of C$1.00 = U.S.$0.86) |
Stock Option and Other Compensation Plans
2001 Employee Stock Option
Plan
Our 2001 stock option plan was initially approved by our
shareholders on March 6, 2001. All of (a) our
non-employee directors, (b) our full-time employees and
officers, (c) employees, officers and directors of any of
our subsidiaries and affiliates, and (d) any of our
consultants and consultant companies are eligible to participate
in the stock option plan. There are no other service
requirements or prerequisites to participation in the stock
option plan.
A total of 25,000,000 common shares are authorized for issuance
under the stock option plan. As of March 31, 2006, there
were outstanding options to purchase 20,756,644 common shares
and the availability to issue further options to purchase
4,175,050 shares under our stock option plan. Appropriate
adjustments will be made to the number of authorized shares
under our stock option plan and to the shares subject to
outstanding awards in the event of any reorganization,
recapitalization, share split, dividend or other change in our
capital structure in order to account for the changed
circumstances.
Shares subject to outstanding awards under the stock option plan
which lapse, expire or are forfeited or terminated will again
become available for grants under the stock option plan. The
stock option plan contains change of control provisions which
accelerate vesting of options under certain circumstances. Other
than the options held by Mr. Smith and Mr. Butcher, no
acceleration to the vesting of any of our outstanding options
will occur as a result of the completion of this offering.
Deferred Share Unit
Plan
On December 9, 2004, we adopted a deferred share unit plan
in order to promote a greater alignment of interests among two
members of our senior management staff and our shareholders. Our
previous supplemental executive retirement plan was wound up and
terminated by us in favor of the deferred share unit plan.
Each deferred share unit entitles the holder to receive a cash
lump sum payment equal to the market value of our common shares
within one year of cessation of employment. Deferred share units
are not considered shares, nor is the holder of any deferred
share unit entitled to voting rights or any other rights
attaching to the ownership of shares. The number of deferred
share units that may be awarded to a participant in any calendar
year under our deferred share unit plan is equal to 15% of the
participants annual salary, less the maximum amount of the
participants eligible retirement savings plan
contributions in that particular taxable year. Within a year of
a participants cessation of employment with us, such
participant will receive a lump sum payment in cash having a
value equal to the number of deferred share units recorded on
his account multiplied by the market value of our common shares,
less any applicable withholding taxes. Our deferred share unit
plan is administered by our Compensation Committee.
Currently, Paul Butcher, our President and Chief Operating
Officer, is the only executive officer to participate in our
deferred share unit plan. One other member of our senior
management staff also participates in our deferred share unit
plan. As at December 31, 2005, 340,612 deferred share units
have been awarded to Mr. Butcher under our deferred share
unit plan, of which 242,062 of those units represent the value
of his interest in our supplementary executive retirement plan
(being C$242,062), which was transferred by us to the deferred
share unit plan on May 31, 2005.
Options
The following chart sets out, as of March 31, 2006,
information regarding outstanding options granted under our
stock option plan during the fiscal years 2004, 2005 and 2006.
84
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Common Shares | |
|
Exercise | |
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|
Fiscal Year | |
|
underlying | |
|
Price ($) per | |
|
Expiration | |
Category |
|
of grant(1) | |
|
Options Granted | |
|
Common Share(2) | |
|
Date | |
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All of our executive officers and
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past executive officers (17)
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2004 |
|
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|
76,000 |
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|
$ |
0.86 |
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2009 |
|
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|
2005 |
|
|
|
5,854,132 |
|
|
$ |
0.86 |
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|
2010 |
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2006 |
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1,633,894 |
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|
$ |
0.86 |
|
|
|
2011 |
|
All of our directors and past directors
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
who are not also executive officers (4)
|
|
|
2004 |
|
|
|
52,000 |
|
|
$ |
0.86 |
|
|
|
2009 |
|
|
|
|
2005 |
|
|
|
131,868 |
|
|
$ |
0.86 |
|
|
|
2010 |
|
|
|
|
2006 |
|
|
|
224,974 |
|
|
$ |
0.86 |
|
|
|
2011 |
|
All of our other employees or past
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
employees (1,629)
|
|
|
2004 |
|
|
|
242,000 |
|
|
$ |
0.86 |
|
|
|
2009 |
|
|
|
|
2005 |
|
|
|
7,979,946 |
|
|
$ |
0.86 |
|
|
|
2010 |
|
|
|
|
2006 |
|
|
|
2,832,732 |
|
|
$ |
0.86 |
|
|
|
2011 |
|
|
|
|
2006 |
|
|
|
210,400 |
|
|
$ |
1.00 |
|
|
|
2011 |
|
All of our consultants (11)
|
|
|
2004 |
|
|
|
|
|
|
$ |
0.86 |
|
|
|
2009 |
|
|
|
|
2005 |
|
|
|
125,604 |
|
|
$ |
0.86 |
|
|
|
2010 |
|
|
|
|
2006 |
|
|
|
30,000 |
|
|
$ |
0.86 |
|
|
|
2011 |
|
|
|
|
2006 |
|
|
|
36,483 |
|
|
$ |
1.00 |
|
|
|
2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grand Total
|
|
|
|
|
|
|
19,430,033 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
No options were granted during the Transition Period. |
|
(2) |
Options are granted with an exercise price in Canadian dollars
but converted to U.S. dollars at the noon buying rate per
Federal Reserve Bank of New York on March 31, 2006 of
C$1.00 = $0.86. |
Employment Agreements
Donald W. Smith. Donald Smith is employed as our Chief
Executive Officer, reporting to the Chairman of our board of
directors. Effective as of April 17, 2001, we executed an
Amended and Restated Employment Agreement with Mr. Smith.
Mr. Smith is employed for an indefinite term, subject to
termination in accordance with the terms of his employment
agreement, as amended. If Mr. Smith is terminated without
cause, he will receive a severance payment totalling
24 months salary and bonus compensation (paid over a
24-month period), plus benefit continuation and continued
vesting of options for the same period. Upon death or
disability, Mr. Smith is entitled to a lump sum payment of
one years total salary plus bonus, and, in addition,
continued vesting of options for one year. Mr. Smith
receives a base salary of C$750,000, monthly car allowance of
C$1,000, stock options and senior management benefits and
perquisites. Mr. Smith is also entitled to receive an
annual bonus payment in an amount determined by the Compensation
Committee. Mr. Smiths employment agreement contains
provisions addressing confidentiality, non-disclosure,
non-competition and ownership of intellectual property. In the
event of a change in control there is accelerated vesting of
100% of any remaining unvested options.
By way of a letter agreement between Mr. Smith and
Dr. Matthews dated March 1, 2002, as amended,
Dr. Matthews granted to Mr. Smith options to purchase
3,000,000 of our common shares with an exercise price of C$3.50
from the holdings of Dr. Matthews. All of these options
have vested and none have been exercised. These options to
Mr. Smith expire on March 1, 2012.
Paul A.N. Butcher. Paul Butcher is employed as our
President and Chief Operating Officer, reporting to our Chief
Executive Officer. Effective as of February 16, 2001, we
executed an Amended and Restated Employment Agreement with
Mr. Butcher. Mr. Butcher is employed for an indefinite
term, subject to termination in accordance with the terms of his
employment agreement, as amended. If Mr. Butcher is
terminated without cause, he will receive a severance payment
totalling 18 months salary and bonus compensation
(paid over an 18-month period), plus benefit continuation and
continued vesting of options for the same period. Upon death or
disability, Mr. Butcher is entitled to a lump sum payment
of one years total salary plus bonus, and, in addition,
accelerated vesting of 25% of any remaining
85
unvested options. Mr. Butcher receives a base salary of
C$500,000, monthly car allowance of C$1,500, stock options and
senior management benefits and perquisites. Mr. Butcher is
also entitled to receive an annual bonus payment in an amount
determined by the Compensation Committee, in its sole
discretion. Mr. Butchers employment agreement
contains provisions addressing confidentiality, non-disclosure,
non-competition and ownership of intellectual property. In the
event of a change in control there is accelerated vesting of
100% of any remaining unvested options.
By way of a letter agreement between Mr. Butcher and
Dr. Matthews dated March 1, 2002, as amended,
Dr. Matthews granted to Mr. Butcher options to
purchase 1,000,000 of our common shares with an exercise price
of C$3.50 from the holdings of Dr. Matthews. All of these
options have vested and none have been exercised. These options
to Mr. Butcher expire on March 1, 2012.
Graham Bevington. Graham Bevington is employed as our
Vice President and Managing Director, Europe, Middle East and
Africa Region, reporting to the President and Chief Operating
Officer. Mr. Bevington is employed for an indefinite term,
subject to termination in accordance with the terms of his
employment letter agreement, as amended. If Mr. Bevington
is terminated without cause, he will receive a minimum of six
months notice of termination. Mr. Bevington receives
a base salary of £113,400, monthly car allowance of $2,100,
stock options and senior management benefits and perquisites.
Mr. Bevington is also entitled to receive an annual bonus
payment related to his achievement of defined targets.
Mr. Bevingtons employment agreement contains
provisions addressing confidentiality, non-disclosure,
non-competition and ownership of intellectual property.
Steven E. Spooner. Steven Spooner is employed as our
Chief Financial Officer, reporting to our Chief Executive
Officer. Effective as of January 1, 2006, we executed an
Employment Agreement with Mr. Spooner under which he is
employed for an indefinite term, subject to termination in
accordance with its terms. If Mr. Spooner is terminated
without cause, he will receive a severance payment totalling
18 months salary and bonus compensation (paid over an
18-month period), plus benefit continuation and continued
vesting of options for the same period. Upon death or
disability, Mr. Spooner is entitled to a lump sum payment
of one years total salary plus bonus, and, in addition,
accelerated vesting of 25% of any remaining unvested options.
Mr. Spooner receives a base salary of C$300,000, monthly
car allowance of C$1,000, stock options and senior management
benefits and perquisites. Mr. Spooner is also entitled to
receive an annual bonus payment of up to 50% of his annual base
salary, in an amount determined by the Compensation Committee,
in its sole discretion. Mr. Spooners employment
agreement contains provisions addressing confidentiality,
non-disclosure, non-competition and ownership of intellectual
property. In the event of a change in control there is
accelerated vesting of 100% of any remaining unvested options.
86
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Set forth below is a description of transactions between us and
persons or entities that are deemed to be related parties
to us.
BreconRidge Manufacturing Solutions Corporation
We have or had the following agreements and related transactions
involving BreconRidge, a company in which, as of March 31,
2006 (a) Dr. Matthews holds approximately a 28.81%
ownership interest, and (b) EdgeStone holds approximately a
48.15% ownership interest. EdgeStone is one of our shareholders
and two of our directors are partners of EdgeStone and directors
of BreconRidge. One of these directors is the Chairman of the
BreconRidge board of directors.
Outsourcing of Manufacturing and Repair Operations
In connection with the sale of our manufacturing operations to
BreconRidge in 2001, we entered into a supply agreement with
BreconRidge dated August 30, 2001, as amended. Under this
agreement, BreconRidge has agreed to manufacture certain
products for us and to provide repair and related services under
terms and conditions reflecting what management believes were
prevailing market conditions at the time we entered into the
agreement. This agreement expires on December 31, 2007,
subject to automatic one year renewal periods.
The supply agreement with BreconRidge does not contain any
minimum purchase requirements. We periodically renegotiate
manufacturing pricing with BreconRidge and, where appropriate,
retain a consultant and obtain quotes for manufacturing from
independent manufacturers and for raw materials from suppliers.
Under the terms of the supply agreement, we are not obligated to
purchase products from BreconRidge in any specific quantity
unless and until a binding purchase order has been issued. We
may be obligated to purchase certain excess inventory levels
from BreconRidge that could result from our actual sales varying
from forecasts we provide. BreconRidge is required to purchase
our raw material inventory before turning to third party
suppliers for raw materials. During the nine months ended
January 31, 2006, we purchased $72.3 million of
products and services from BreconRidge and sold
$0.2 million of raw material inventory to BreconRidge under
this agreement. As at the end of the nine months ended
January 31, 2006, balances payable by us pursuant to this
agreement amounted to $24.9 million and balances receivable
by us pursuant to this agreement amounted to $1.1 million.
Pursuant to the terms of the supply agreement, we may supply to
or purchase from BreconRidge certain tools used in the
manufacturing process on a monthly basis. These manufacturing
tools are capitalized by us as part of fixed assets and are
depreciated over their estimated useful lives. During the nine
months ended January 31, 2006, manufacturing tools
purchased from BreconRidge pursuant to the terms of the supply
agreement amounted to $0.3 million.
BreconRidge is prohibited from discontinuing or refusing to
manufacture our products for any reason other than an event of
force majeure or in the event of an uncured default by us. The
supply agreement may be terminated by either party at any time
after December 31, 2007 on not less than 180 days
prior notice or in the event of an uncured material breach by,
or change in control of, the other party. This offering will not
result in a change of control under the agreement.
Management Services
On August 30, 2001, we also entered into service agreements
with BreconRidge to provide facilities management services for
the period covering the term of the premise lease agreements
(described below), as well as human resources and information
systems support services. Amounts charged to BreconRidge were
equal to, and recorded as a reduction of, the costs incurred to
provide the related services in the consolidated statement of
operations. During the nine-month period ended January 31,
2006 we provided services valued at $0.4 million under
these agreements. As at January 31, 2006 there was
$0.1 million outstanding pursuant to these agreements.
87
Leased Property:
On August 31, 2001, we entered into a sublease agreement,
as sublessor, with BreconRidge for certain office and
manufacturing facilities in Ottawa totaling approximately
160,000 square feet, under terms and conditions reflecting what
management believed were prevailing market conditions at the
time the sublease was entered into. The sublease agreement
expires on August 31, 2006. BreconRidge vacated the
premises in 2004 and we do not expect the sublease agreement
will be renewed. During the nine months ended January 31,
2006, we earned $1.7 million of rental income for these
leased premises.
On August 31, 2001, we entered into a sublease agreement,
as sublessor, with BreconRidge for certain office and
manufacturing space located in Caldicot, United Kingdom totaling
94,161 square feet under terms and conditions reflecting what
management believed were prevailing market conditions at the
time the sublease was entered into. On August 31, 2005, we
sold the Caldicot property and the sublease was assigned to the
new owner and we no longer receive rental income. During the
nine months ended January 31, 2006, we earned
$0.6 million of rental income for the leased premises.
Brookstreet Research Park Corporation
Our Corporate Head Offices (located in Ottawa, Canada) totaling
approximately 512,000 square feet are leased from Brookstreet
Research Park Corporation (formerly known as Mitel Research Park
Corporation), a company controlled by Dr. Matthews, under
terms and conditions reflecting what management believes were
prevailing market conditions at the time the lease was entered
into, for a period of 10 years, expiring on
February 15, 2011. During the nine months ended
January 31, 2006, we incurred $5.4 million of rent
expense for the leased premises.
March Networks Corporation
We have, or during the past three years have had, the following
agreements involving March Networks, a company in which
Dr. Matthews owned directly or indirectly approximately
28.47% of the issued and outstanding shares, as of
March 31, 2006, and of which he is the chairman of the
board of directors.
On September 21, 2001, we entered into an alliance
agreement, as amended, with March Networks Corporation. The
alliance agreement contemplated that we and March Networks would
enter into subsequent joint development agreements for the
development of future products. To date, we and March Networks
have not entered into any joint development agreements and we do
not anticipate that we will do so in the future. The alliance
agreement automatically terminated on March 31, 2005.
On October 10, 2002, we entered into the Technology
Partnerships Canada Agreement with Her Majesty the Queen in
Right of Canada, Mitel Knowledge Corporation and March Networks
pursuant to which we and March Networks agreed to carry out a
research and development project in consideration of a grant by
Industry Canada in the amount of the lesser of (i) 25% of
project cost elements incurred by us, March Networks and Mitel
Knowledge Corporation and (ii) C$60 million. See
Description of Share Capital
Warrants Technology Partnerships Canada
Warrants.
We also entered into a referral and teaming agreement effective
as of October 31, 2003, as amended, with March Networks
pursuant to which we have agreed to sell March Networks
products in return for the payment by March Networks of a
commission to us equal to 15% of each sale of March
Networks products made through our channel partners.
During the nine month period ended January 31, 2006, we
purchased $0.2 million in products and services and earned
insignificant amounts in commission from March Networks under
this agreement. This agreement expired on October 31, 2005
and was not renewed.
Zarlink Semiconductor Inc.
We have or had during the past three years the following
agreements involving Zarlink, a company which holds 4.88% of our
shares, as of March 31, 2006. The CEO and President of
Zarlink, Kirk Mandy, sits on our board of directors.
88
Supply Agreement:
We entered into a non-exclusive supply agreement dated
February 16, 2001, as amended, with Zarlink pursuant to
which Zarlink has agreed to supply semiconductor components to
us under terms and conditions reflecting what management
believes were prevailing market conditions at that time. The
initial term of the agreement is 10 years with subsequent
automatic annual renewals. During the nine months ended
January 31, 2006, we paid Zarlink insignificant amounts for
supplies under this agreement.
Under the terms of the supply agreement, Zarlink is obligated to
place into escrow all of its
know-how, improvements
and new technology with respect to the manufacture of hybrid
devices and IP-based
communications products that are purchased by us. The escrowed
materials are to be released to us in the event of bankruptcy,
receivership, issuance of a last-time buy notification,
discontinuance of manufacture, transfer of the hybrid or IP
communications business in whole or in part to another party (if
the party fails to assume the obligations of Zarlink with
respect to the hybrid or IP-based communications products), or a
material breach of the agreement by Zarlink which remains
uncured for 30 days.
Under the terms of the supply agreement, Zarlink granted us a
non-exclusive license in the Zarlink intellectual property,
Zarlink improvements, and Zarlink-developed new technology
relating to the supplied components. We have the limited right
to grant sublicenses only to semiconductor second source
suppliers for the manufacture of hybrid and semiconductor
components which incorporate our intellectual property.
|
|
|
Intellectual Property License Agreement: |
On February 16, 2001, we entered into an intellectual
property license agreement with Zarlink pursuant to which
Zarlink licensed to us certain intellectual property retained by
Zarlink at the time the communications systems business of
Zarlink was sold to us. Under this agreement, Zarlink granted us
a non-personal, limited, assignable, royalty free, perpetual,
irrevocable, non-exclusive, worldwide license, including the
right to sublicense, the licensed intellectual property to make,
use, have made, develop, offer for sale, or otherwise exploit
the licensed products which utilize or embody the licensed
intellectual property. We are restricted from sublicensing the
licensed intellectual property to allow the manufacture of
semiconductors, other than for use in our business, and from
granting a license assigning or granting a security interest in
any of the licensed intellectual property to a third party
involved in the research and development or sale of products or
services that are competing with our own.
If Zarlink is wound up or takes any material steps with regard
to bankruptcy proceedings or otherwise ceases to carry on
business, the agreement provides that all right, title and
interest in and to the licensed intellectual property will be
transferred over to us.
We were also a party to the following agreements with Zarlink,
which have terminated:
|
|
|
|
|
a non-competition and non-solicitation agreement among us,
Zarlink and its subsidiaries, Wesley Clover, and
Dr. Matthews, dated February 16, 2001; and |
|
|
|
a lease between us and Zarlink Semiconductor Limited, a
subsidiary of Zarlink, for premises in Caldicot, United Kingdom,
which we assigned in connection with the sale of the Caldicot
property on August 31, 2005. |
Other Transactions
We have entered into technology transfer, technology licensing
and distribution agreements with each of the following companies
related to Dr. Matthews under terms reflecting what
management believes were prevailing market conditions at the
time the agreements were entered into: NewHeights Software
Corporation, Encore Networks, Inc., Natural Convergence Inc. and
MKC Corporation. These companies develop technology that we
integrate with, distribute or sell alone or as part of our own
products.
|
|
|
|
|
NewHeights Software (a corporation controlled by Owen
Matthews, who is related to Dr. Matthews) may be deemed a
related party because Dr. Matthews indirectly owns approximately
8.3% of that company. During the nine months ended
January 31, 2006, we paid |
89
|
|
|
|
|
NewHeights $1.9 million in software royalties relating to a
customized desktop communication management software application
which we integrate and distribute as Your Assistant. We
also received $0.1 million of rental and other income from
New Heights during the nine months ended January 31, 2006. |
|
|
|
Encore Networks may be deemed to be a related party because Dr.
Matthews directly or indirectly owns approximately 90% of that
company. During the nine months ended January 31, 2006, we
paid Encore $0.2 million for the purchase of certain
signaling conversion hardware and software which we distribute
as part of our product line and for other services. |
|
|
|
MKC Corporation may be deemed to be a related party because
Dr. Matthews directly or indirectly owns approximately 80%
of that company. During the nine months ended January 31,
2006, we paid MKC $nil for the purchase of SIP-based equipment
and software components. However, on April 1, 2006, we
entered into a purchase and sale agreement whereby we purchased
certain SIP-based IP assets from MKC. The purchase price for the
assets is payable in the form of a royalty equal to $0.50 for
each Mitel SIP-enabled IP desktop device we sell over the next
five years, up to a maximum royalty value, in the aggregate, of
C$1.3 million. |
|
|
|
Natural Convergence may be deemed to be a related party because
Dr. Matthews directly or indirectly owns approximately 12%
of that company. During the nine months ended January 31,
2006, we paid Natural Convergence $0.5 million for a
non-exclusive, worldwide software license and other hardware and
software products associated with our Mitel 3600 Hosted IP
Key System product. |
In addition, we purchased services from the following companies
related to Dr. Matthews:
|
|
|
|
|
Celtic Tech Jet Limited may be deemed to be a related party
because Dr. Matthews directly or indirectly wholly owns
that company. During the nine months ended January 31,
2006, we paid less than $0.1 million to Celtic Tech Jet
Limited for chartered plane rentals. |
|
|
|
Brookstreet Hotel Corporation may be deemed to be a related
party because Dr. Matthews directly or indirectly wholly
owns that company. During the nine months ended January 31,
2006, we paid $0.2 million to Brookstreet Hotel Corporation
for accommodations and meeting space. |
|
|
|
The Celtic Manor Resort Limited may be deemed to be a related
party because Dr. Matthews directly or indirectly wholly
owns that company. During the nine months ended January 31,
2006, we paid $0.1 million to The Celtic Manor Resort
Limited for accommodations and meeting space. |
|
|
|
Wesley Clover Corporation may be deemed to be a related party
because Dr. Matthews directly or indirectly wholly owns
that company. During the nine months ended January 31,
2006, we paid less than $0.1 million to Wesley Clover
Corporation for various services. |
In the normal course of business, we may enter into purchase and
sale transactions with other companies related to
Dr. Matthews under terms reflecting what management
believes are then-prevailing market conditions.
The audit committee reviews and approves related party
transactions to ensure that the terms are fair and reasonable to
us and to ensure that corporate opportunities are not usurped.
The audit committee provides a report to the board of directors
which includes:
|
|
|
|
|
a summary of the nature of the relationship with the related
party and the significant commercial terms of the transaction
such as price and total value; |
|
|
|
the parties to the transaction; |
|
|
|
an outline of the benefits to us of the transaction; |
|
|
|
whether terms are at market and whether they were negotiated at
arms length; and |
90
|
|
|
|
|
for related party transactions involving our officers or
directors, whether there has been the loss of a corporate
opportunity. |
By way of letter agreements between Dr. Matthews and each of
Mr. Donald Smith, our Chief Executive Officer and
Mr. Paul Butcher, our President and Chief Operating
Officer, dated, in each case, March 1, 2002, as amended,
Dr. Matthews granted to Mr. Smith options to purchase
3,000,000 of our common shares and to Mr. Butcher options
to purchase 1,000,000 of our common shares owned by
Dr. Matthews. Any proceeds on the exercise of these options
will be payable by Mr. Smith and Mr. Butcher to
Dr. Matthews and not to us. The options granted to
Mr. Smith and Mr. Butcher expire on March 1,
2012. A similar agreement was entered into between
Mr. Peter Charbonneau, one of our directors, and
Dr. Matthews on February 16, 2001, as amended, for
900,000 of our common shares owned by Dr. Matthews. These
options granted to Mr. Charbonneau expire on
February 16, 2011. As of March 31, 2006, all of these
options had vested and none had been exercised.
Registration Rights
In connection with a financing on April 23, 2004, we
entered into a registration rights agreement with EdgeStone,
Dr. Matthews and other shareholders in which we agreed to
make certain arrangements with respect to the registration
and/or the qualification for distribution of the shares held by
such shareholders under the applicable securities laws of the
United States and/or Canada. Mr. Palter and Mr. Stewart who are
directors of Mitel are the Managing Partner and a Partner of
EdgeStone, respectively. See Description of Share
Capital Registration Rights.
91
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth information regarding the
beneficial ownership of our common shares on March 31, 2006
and after giving effect to the completion of this offering and
shows the number of shares and percentage of outstanding common
shares owned by:
|
|
|
|
|
each person or entity who is known by us to own beneficially 5%
or more of our common shares; |
|
|
|
each of the other selling shareholders; |
|
|
|
each member of our board of directors; |
|
|
|
each of the Named Executive Officers; and |
|
|
|
all members of our board of directors and our executive officers
as a group. |
Beneficial ownership is determined in accordance with SEC rules,
which generally attribute beneficial ownership of securities to
each person or entity who possesses, either solely or shared
with others, the power to vote or dispose of those securities.
These rules also treat as outstanding all shares that a person
would receive upon exercise of stock options or warrants, or
upon conversion of convertible securities held by that person
that are exercisable or convertible within 60 days of the
determination date, which in the case of the following table is
March 31, 2006. Shares issuable pursuant to exercisable or
convertible securities are deemed to be outstanding for
computing the percentage ownership of the person holding such
securities, but are not deemed outstanding for computing the
percentage ownership of any other person. The percentage of
beneficial ownership for the following table is based on
211,088,547 common shares outstanding as of March 31, 2006,
and common
shares outstanding immediately after the completion of this
offering, assuming no exercise of the underwriters
over-allotment option. Immediately prior to the closing of this
offering,
approximately %
of the common shares will be held by residents of the United
States and there will
be shareholders
of record in the United States. To our knowledge, except as
indicated in the footnotes to this table and pursuant to
applicable community property laws, the persons named in the
table have sole voting and investment power with respect to all
common shares shown as beneficially owned by them.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Shares to be Sold | |
|
|
|
|
Before this Offering | |
|
in this Offering | |
|
After this Offering | |
|
|
| |
|
| |
|
| |
Name and Address of Beneficial Owner(1) |
|
Number | |
|
% | |
|
Number | |
|
Number | |
|
% | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
Five Percent Shareholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dr. Terence H.
Matthews(2)
|
|
|
135,506,902 |
|
|
|
64 |
|
|
|
|
|
|
|
|
|
|
|
|
|
EdgeStone Capital Equity Fund II Nominee,
Inc.(3)
|
|
|
25,015,100 |
|
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Technology Partnerships
Canada(4)
|
|
|
20,682,335 |
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Power Technology Investment
Corporation(5)
|
|
|
16,000,000 |
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Selling Shareholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive Officers and Directors:
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|
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|
|
|
|
|
|
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|
|
|
|
|
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Dr. Terence H.
Matthews(2)
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|
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135,506,902 |
|
|
|
64 |
|
|
|
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|
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|
|
|
|
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Donald W.
Smith(6)
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|
3,526,250 |
|
|
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2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Paul A.N.
Butcher(7)
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|
|
1,480,996 |
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|
* |
|
|
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|
|
|
|
|
|
|
|
|
|
Peter D.
Charbonneau(8)
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|
1,100,241 |
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|
* |
|
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|
|
|
|
|
|
|
|
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|
Kirk K.
Mandy(9)
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151,798 |
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|
* |
|
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|
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|
|
|
|
|
|
|
|
|
Gilbert S.
Palter(3)
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0 |
|
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* |
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|
|
|
|
|
|
|
|
|
|
|
|
Guthrie J.
Stewart(3)
|
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|
0 |
|
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|
* |
|
|
|
|
|
|
|
|
|
|
|
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|
Steven E.
Spooner(10)
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182,750 |
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* |
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|
|
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|
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|
|
Graham
Bevington(11)
|
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|
111,648 |
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|
* |
|
|
|
|
|
|
|
|
|
|
|
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|
Roger K.
Fung(12)
|
|
|
391,762 |
|
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|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
All directors and executive officers as a group
(14 persons)(13)
|
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|
142,641,343 |
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|
66 |
|
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|
|
|
|
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|
92
|
|
* |
Less than 1%. |
|
(1) |
Except as otherwise indicated, the address for each beneficial
owner is c/o Mitel Networks Corporation, 350 Legget Drive,
Ottawa, Ontario, Canada K2K 2W7. |
|
(2) |
Of this total, 90,000,000 common shares are registered in the
name of Wesley Clover Corporation, 4,555,169 common shares are
registered in the name of Celtic Tech Jet Limited and 40,897,750
Series B Preferred Shares are registered in the name of Dr.
Matthews, and 53,983 common shares are issuable upon the
exercise of options at exercise prices ranging from C$1.00 to
C$2.75. |
|
(3) |
EdgeStone is the beneficial owner of 25,015,100 common shares.
Gilbert Palter and Guthrie Stewart are partners of EdgeStone.
This total includes 15,100 vested options at an exercise price
of C$1.00 that have been granted to EdgeStone for director
services provided by Mr. Palter and Mr. Stewart. The
address for EdgeStone, Mr. Palter and Mr. Stewart is
c/o EdgeStone Capital Partners, L.P., The Exchange Tower, Suite
600, 130 King Street West, Toronto, Ontario, Canada
M5X 1A6. |
|
(4) |
The common shares are issuable upon the exercise of warrants
pursuant to the agreement entered into with Her Majesty the
Queen in Right of Canada. The address for Technology
Partnerships Canada is 10th Floor, 300 Slater Street,
Ottawa, Ontario, Canada K1A 0C8. There are a total of
35,785,410 warrants outstanding, of which 20,682,335 are
exercisable within 60 days of the determination date. |
|
(5) |
The address for Power Technology Investment Corporation is 751
Square Victoria, Montreal, Quebec, Canada, H2Y 3J3. |
|
(6) |
Includes options to acquire 3,000,000 common shares granted to
Mr. Smith from the holdings of Dr. Matthews at an
exercise price of C$3.50, and 500,000 common shares issuable
upon the exercise of options at an exercise price of C$1.00. |
|
(7) |
Includes options to acquire 1,000,000 common shares granted to
Mr. Butcher from the holdings of Dr. Matthews at an
exercise price of C$3.50, and 375,000 common shares issuable
upon the exercise of options at an exercise price of C$1.00. |
|
(8) |
Of this total, 17,998 common shares are registered to Peter
Charbonneau Trust #2, a trust of which Mr. Charbonneau is
the sole trustee, and 124,194 common shares are registered to
Mr. Charbonneaus wife, Joan Charbonneau. Includes
options to acquire 900,000 common shares granted to
Mr. Charbonneau from the holdings of Dr. Matthews at
an exercise price of C$3.50 and options to acquire 58,049 common
shares from us at exercise prices ranging from C$1.00
to C$2.75. |
|
(9) |
Includes 43,928 common shares which are issuable upon the
exercise of options at exercise prices ranging from C$1.00 to
C$2.75. |
|
(10) |
Of this total, 76,500 common shares are registered to the
Spooner Children Trust, a trust of which Mr. Spooner is one
of three trustees, and 106,250 common shares issuable upon the
exercise of options at an exercise price of C$1.00. |
|
(11) |
Includes 100,000 common shares which are issuable upon the
exercise of options at an exercise price of C$1.00. |
|
(12) |
Includes 37,500 common shares which are issuable upon the
exercise of options at an exercise price of C$2.75. |
|
(13) |
Includes options to acquire 3,000,000 common shares,
1,000,000 common shares and 900,000 common shares
granted from the holdings of Dr. Matthews to
Mr. Smith, Mr. Butcher and Mr. Charbonneau,
respectively. Also includes 1,408,460 common shares
issuable upon the exercise of options that are exercisable
within 60 days of the determination date. |
93
DESCRIPTION OF SHARE CAPITAL
General
The following is a summary of the rights of our common shares
and preferred shares as set forth in our articles of
incorporation and corporate by-laws and certain related sections
of the Canada Business Corporations Act, or CBCA. For
more detailed information, please see our articles of
incorporation and corporate by-laws.
Our share capital consists of outstanding common shares,
Series A Preferred Shares and Series B Preferred
Shares. All information in this prospectus assumes that all of
the Series A Preferred Shares and Series B Preferred
Shares have been converted into common shares, which will occur
in connection with the completion of this offering. Effective on
completion of the offering we will reorganize our share capital
to consist of an unlimited number of common shares, each without
par value and an unlimited number of preferred shares, issuable
in series, each without par value.
Immediately following the closing of this offering, assuming the
offering size set forth on the cover of this prospectus, we
expect to
have issued
and outstanding common shares and no preferred shares.
Immediately following the closing of this offering, we also
expect to have
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|
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|
outstanding vested and unvested options granted pursuant to our
stock option plan to acquire 20,756,644 common shares and
options available for issue under our stock option plan to
acquire 4,175,050 common shares; |
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|
outstanding warrants held by Technology Partnerships Canada to
acquire a total of 35,785,410 common shares without the payment
of any additional cash consideration; |
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|
|
outstanding warrants held by holders of our convertible notes
which convert to 16,500,000 common shares at an exercise price
calculated in accordance with a formula based on the market
price of our common shares (see Description of
Convertible Notes Noteholder Warrants); and |
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|
outstanding convertible notes which convert to a number of
common shares determined by dividing the outstanding principal
and accrued interest owing on each note by a conversion price
calculated in accordance with a formula based on the market
price of our common shares (see Description of
Convertible Notes Convertible Notes). |
Common Shares
The holders of our common shares are entitled to one vote for
each share held at any meeting of shareholders. Subject to the
prior rights of the holders of our preferred shares, the holders
of our common shares are entitled to receive dividends as and
when declared by our board of directors. Subject to the prior
payment to the holders of our preferred shares, in the event of
our liquidation, dissolution or
winding-up or other
distribution of our assets among our shareholders, the holders
of our common shares are entitled to share pro rata in the
distribution of the balance of our assets. Upon completion of
the offering, there will be no preemptive, redemption, purchase
or conversion rights attaching to the common shares. Our common
shares are issued in fully registered form. As of March 31,
2006 approximately 1.2% of our common shares were held by
residents of the United States and there were 473 shareholders
of record in the United States.
Preferred Shares
Our preferred shares may be issued in one or more series. Our
board of directors may amend our articles of incorporation to
fix the authorized number of preferred shares in, and to
determine the designation of the shares of, each series and to
designate rights, privileges, restrictions and conditions
attaching to the shares of each series, including voting rights.
Any series of preferred shares is also subject to the rights
attached to our preferred shares as a class.
94
Our preferred shares are entitled to preference over our common
shares with respect to the payment of dividends and the
distribution of our assets, whether voluntary or involuntary, or
in the event of any other distribution of our assets among our
shareholders for the purpose of
winding-up our affairs.
Where we do not pay cumulative dividends in full with respect to
a series of our preferred shares, the shares of all series of
our preferred shares will participate ratably with respect to
the accumulated dividends in accordance with the amounts that
would be payable on those shares if all the accumulated
dividends were paid in full. Where amounts payable are not paid
in full on our
winding-up, or on the
occurrence of any other event as a result of which the holders
of the shares of all series of our preferred shares are entitled
to a return of capital, the shares of all series of our
preferred shares will participate ratably in a return of capital
in respect of our preferred shares as a class in accordance with
the amounts that would be payable on the return of capital if
all amounts so payable were paid in full.
We may not create or issue any shares ranking senior to any
outstanding series of our preferred shares with respect to the
payment of dividends or the distribution of assets in the event
of our liquidation, dissolution or
winding-up, whether
voluntary or involuntary, or in the event of any other
distribution of our assets among our shareholders for the
purpose of winding-up
our affairs, without first receiving the approval of the holders
of that outstanding series of our preferred shares given by a
resolution passed at a meeting by the affirmative vote of not
less than two-thirds of
the votes cast at that meeting.
The rights of holders of our preferred shares to receive notice
of, to attend or to vote at any meetings of our shareholders
will be set out in the rights and restrictions attaching to each
series of our preferred shares. The rights attached to our
preferred shares as a class may be amended with, in addition to
any approval that may then be prescribed by applicable law, the
approval of the registered holders of the preferred shares given
by a resolution passed at a meeting by the affirmative vote of
not less than
two-thirds of the votes
cast at such meeting.
The issuance of preferred shares and the terms selected by our
board of directors could decrease the amount of earnings and
assets available for distribution to holders of our common
shares or adversely affect the rights and powers, including the
voting rights, of the holders of our common shares without any
further vote or action by the common shareholders. Any series of
preferred shares issued by the board of directors could have
priority over the common shares in terms of dividend or
liquidation rights or both. The issuance of preferred shares, or
the issuance of rights to purchase preferred shares, could make
it more difficult for a third party to acquire a majority of our
outstanding voting shares and thereby have the effect of
delaying, deferring or preventing a change of control of us or
an unsolicited acquisition proposal or of making the removal of
management more difficult. Additionally, the issuance of
preferred shares may have the effect of decreasing the market
price of our common shares.
We have no current intention to issue any preferred shares.
Warrants
Technology Partnerships Canada Warrants
On October 10, 2002 we entered into an agreement with Mitel
Knowledge Corporation, March Networks Corporation and Her
Majesty the Queen in Right of Canada, (as amended, the
TPC Agreement), which provided for financing of
up to the lesser of 25% of project cost elements incurred by us,
March Networks and Mitel Knowledge Corporation and
C$60 million for certain research and development
activities over a three-year period. The financing was provided
through the Technology Partnerships Canada program, which is an
initiative of the Government of Canada that is designed to
promote economic growth in Canada through strategic investment
in technological research, development and innovation. We
submitted claims for an aggregate of C$55 million of
research and development activities under the TPC Agreement.
In exchange for the funds received by us under the TPC
Agreement, we were required, as of September 30th in each
of 2002, 2003, 2004, and 2005 to issue warrants to the
Government of Canada. The warrants are exercisable on a
one-for-one basis for
common shares for no additional consideration.
95
The number of warrants issued in each year was equal to the
amount of contributions paid to us under the TPC Agreement in
the immediately preceding
12-month period,
divided by the fair market value of our common shares as of the
applicable date. We have, to date, issued 35,785,410 warrants
which are exercisable into a total of 35,785,410 common shares.
As at March 31, 2006, there remained (pending submission of
our final project report to TPC) C$1.6 million in funding
receivable by us. Upon submission of our final report to TPC in
September 2006 and upon receipt by us of the remaining
contribution amount, we will issue additional warrants to TPC
equal to the C$1.6 million of funding received divided by
the fair market value of our common shares. The warrants have no
expiry date.
The following table provides details of the warrants issued (or
issuable) to TPC pursuant to the TPC Agreement:
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|
Funding Period | |
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|
Common shares subject to Warrants | |
| |
|
Funding Received | |
|
Funding Receivable | |
|
| |
From |
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To | |
|
C$ | |
|
C$ | |
|
Date | |
|
Number | |
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| |
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| |
|
| |
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| |
|
| |
Oct 2001
|
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Aug 2002 |
|
|
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17,002,119 |
|
|
|
|
|
|
|
Sept 30, 2002 |
|
|
|
6,182,588 |
|
Sept 2002
|
|
|
Jul 2002 |
|
|
|
13,608,760 |
|
|
|
|
|
|
|
Sept 30, 2003 |
|
|
|
6,804,380 |
|
Aug 2003
|
|
|
Jun 2004 |
|
|
|
13,862,943 |
|
|
|
|
|
|
|
Sept 30, 2004 |
|
|
|
13,862,943 |
|
Jul 2004
|
|
|
Jan 2005 |
|
|
|
8,935,499 |
|
|
|
|
|
|
|
Sept 30, 2005 |
|
|
|
8,935,499 |
|
Feb 2005
|
|
|
Apr 2005 |
|
|
|
|
|
|
|
1,570,108 |
|
|
To be issued when funding received |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53,409,321 |
|
|
|
1,570,108 |
|
|
|
|
|
|
|
35,785,410 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible Noteholder Warrants |
On April 27, 2005, we completed a convertible debt
financing transaction pursuant to which we issued $55 million
aggregate principal amount of convertible notes and warrants to
purchase up to, in the aggregate, 16.5 million of our
common shares. These warrants have an exercise price (subject to
applicable adjustments) (a) prior to the last day of the
first 10 trading days following the date of expiry of the
lock-up restrictions
entered into by a convertible noteholder in connection with this
offering, of $1.50 per common share, and (b) thereafter,
the lower of (i) $1.50 per common share and (ii) the
average closing price for the 10 day trading period
immediately following the date of expiry of such
lock-up restrictions,
which shall be no less than the greater of (A) $1.29 per common
share, and (B) 80% of the price per common share in this
offering. The warrants expire on April 27, 2009. See
Description of Convertible Notes Noteholder
Warrants.
Limitations on Liability and Indemnification of Directors and
Officers
Under the CBCA, we may indemnify our current or former directors
or officers or another individual who acts or acted at our
request as a director or officer, or an individual acting in a
similar capacity, of another entity, against all costs, charges
and expenses, including an amount paid to settle an action or
satisfy a judgment, reasonably incurred by the individual in
respect of any civil, criminal, administrative, investigative or
other proceeding in which the individual is involved because of
his or her association with us or another entity. The CBCA also
provides that we may also advance moneys to a director, officer
or other individual for costs, charges and expenses reasonably
incurred in connection with such a proceeding.
However, indemnification is prohibited under the CBCA unless the
individual:
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|
acted honestly and in good faith with a view to our best
interests, or the best interests of the other entity for which
the individual acted as director or officer or in a similar
capacity at our request; |
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|
|
in the case of a criminal or administrative action or proceeding
that is enforced by a monetary penalty, the individual had
reasonable grounds for believing that his or her conduct was
lawful; and |
|
|
|
was not judged by the court or other competent authority to have
committed any fault or omitted to do anything that the
individual ought to have done. |
96
Our by-laws require us to indemnify each of our current or
former directors or officers and each individual who acts or
acted at our request as a director or officer, or an individual
acting in a similar capacity, of another entity, against all
costs, charges and expenses, including an amount paid to settle
an action or satisfy a judgment, reasonably incurred by the
individual in respect of any civil, criminal, administrative,
investigative or other proceeding in which the individual is
involved because of his or her association with us or another
entity.
Our by-laws authorize us to purchase and maintain insurance for
the benefit of each of our current or former directors or
officers and each person who acts or acted at our request as
a director or officer, or an individual acting in
a similar capacity, of another entity.
We have entered into indemnity agreements with our directors and
certain officers which provide, among other things, that we will
indemnify, including but not limited to the indemnity under the
CBCA, him or her for losses reasonably incurred by reason of
being or having been a director or officer; provided that, we
shall not indemnify such individual if, among other things, he
or she did not act honestly and in good faith with a view to our
best interests and, in the case of a criminal or administrative
action or proceeding that is enforced by a monetary penalty, the
individual did not have reasonable grounds for believing that
his or her conduct was lawful and in so acting was in breach of
the obligations under the indemnity agreement.
At present, we are not aware of any pending or threatened
litigation or proceeding involving any of our directors,
officers, employees or agents in which indemnification would be
required or permitted.
Other Important Provisions of Our Articles of
Incorporation
The following is a summary of certain other important provisions
of our articles of incorporation, by-laws and certain related
sections of the CBCA. Please note that this is only a summary
and is not intended to be exhaustive. For further information
please refer to the full version of our articles of
incorporation and by-laws.
Stated Objects or Purposes
Our articles of incorporation do not contain stated objects or
purposes and do not place any limitations on the business that
we may carry on.
Directors
Power to vote on matters in which a director is materially
interested. The CBCA states that a director must disclose to
us, in accordance with the provisions of the CBCA, the nature
and extent of an interest that the director has in a material
contract or material transaction, whether made or proposed, with
us, if the director is a party to the contract or transaction,
is a director or an officer or an individual acting in a similar
capacity, of a party to the contract or transaction, or has a
material interest in a party to the contract or transaction.
A director who holds an interest in respect of any material
contract or transaction into which we have entered or propose to
enter is not entitled to vote on any directors resolution
to approve that contract or transaction, unless the contract or
transaction:
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|
relates primarily to the directors remuneration as a
director, officer, employee or agent of us or an affiliate; |
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|
is for indemnity or insurance otherwise permitted under the
CBCA; or |
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|
is with an affiliate. |
Directors power to determine the remuneration of
directors. The CBCA provides that the remuneration of our
directors, if any, may be determined by our directors subject to
our articles of
97
incorporation and by-laws. That remuneration may be in addition
to any salary or other remuneration paid to any of our employees
who are also directors.
Retirement or non-retirement of directors under an age limit
requirement. Neither our articles of incorporation nor the
CBCA impose any mandatory age-related retirement or
non-retirement requirement for our directors. However, our board
of directors has adopted Corporate Governance Guidelines which
stipulate that no person shall be appointed or elected as a
director once the person has reached 75 years of age.
Number of shares required to be owned by a director.
Neither our articles of incorporation nor the CBCA provide that
a director is required to hold any of our shares as a
qualification for holding his or her office. Our board of
directors has discretion to prescribe minimum share ownership
requirements for directors.
Action Necessary to Change the Rights of Holders of Our
Shares
Our shareholders can authorize the alteration of our articles of
incorporation to create or vary the special rights or
restrictions attached to any of our shares by passing a special
resolution. However, a right or special right attached to any
class or series of shares may not be prejudiced or interfered
with unless the shareholders holding shares of that class or
series to which the right or special right is attached consent
by a separate special resolution. A special resolution means a
resolution passed by: (a) a majority of not less than
two-thirds of the votes cast by the applicable class or series
of shareholders who vote in person or by proxy at a meeting, or
(b) a resolution consented to in writing by all of the
shareholders entitled to vote holding the applicable class or
series of shares.
Shareholder Meetings
We must hold an annual general meeting of our shareholders at
least once every year at a time and place determined by our
board of directors, provided that the meeting must not be held
later than 15 months after the preceding annual general
meeting. A meeting of our shareholders may be held anywhere in
Canada, or provided that shareholders agree, anywhere outside
Canada.
Our directors may, at any time, call a meeting of our
shareholders. Shareholders holding not less than 5% of our
issued voting shares may also cause our directors to call a
shareholders meeting.
A notice to convene a meeting, specifying the date, time, and
location of the meeting, and, where a meeting is to consider
special business, the general nature of the special business,
must be sent to shareholders, to each director and the auditor
not less than 21 days prior to the meeting, although, as a
result of applicable securities laws, the time for notice is
effectively longer. Under the CBCA, shareholders entitled to
notice of a meeting may waive or reduce the period of notice for
that meeting, provided applicable securities laws are met. The
accidental omission to send notice of any meeting of
shareholders to, or the non-receipt of any notice by, any person
entitled to notice does not invalidate any proceedings at that
meeting.
A quorum for meetings is two persons present and holding, or
represented by proxy, 20% of the issued shares entitled to be
voted at the meeting. If a quorum is not present at the opening
of the meeting, the shareholders may adjourn the meeting to a
fixed time and place but may not transact any further business.
Holders of our common shares are entitled to attend meetings of
our shareholders. Except as otherwise provided with respect to
any particular series of preferred shares, and except as
otherwise required by law, the holders of our preferred shares
are not entitled as a class to receive notice of, or to attend
or vote at any meetings of our shareholders. Our directors, our
secretary (if any), our auditor and any other persons invited by
our chairman or directors or with the consent of those at the
meeting are entitled to attend at any meeting of our
shareholders but will not be counted in the quorum or be
entitled to vote at the meeting unless he or she is a
shareholder or proxyholder entitled to vote at the meeting.
98
Change of Control
Our articles of incorporation do not contain any change of
control limitations with respect to a merger, acquisition or
corporate restructuring that involves us.
Shareholder Ownership Disclosure
Although applicable securities laws regarding shareholder
ownership by certain persons require disclosure, our articles of
incorporation do not provide for any ownership threshold above
which shareholder ownership must be disclosed.
Ownership and Exchange Controls
Limitations on the ability to acquire and hold our common shares
may be imposed by the Competition Act (Canada). This
legislation permits the Commissioner of Competition of Canada
(the Commissioner) to review any acquisition of
control over or of a significant interest in us. This
legislation grants the Commissioner jurisdiction, for up to
three years, to challenge this type of acquisition before the
Canadian Competition Tribunal on the basis that it would, or
would be likely to, substantially prevent or lessen competition
in any market in Canada.
This legislation also requires any person who intends to acquire
our common shares to file a notification with the Canadian
Competition Bureau if certain financial thresholds are exceeded
and if that person would hold more than 20% of our common
shares. If a person already owns 20% or more of our common
shares, a notification must be filed when the acquisition of
additional shares would bring that persons holdings to
over 50%. Where a notification is required, the legislation
prohibits completion of the acquisition until the expiration of
a statutory waiting period, unless the Commissioner provides
written notice that she does not intend to challenge the
acquisition.
There is no limitation imposed by Canadian law or our articles
of incorporation on the right of non-residents to hold or vote
our common shares, other than those imposed by the Investment
Canada Act.
The Investment Canada Act requires any person that is not
a Canadian as defined in the Investment Canada
Act who acquires control of an existing Canadian business,
where the acquisition of control is not a reviewable
transaction, to file a notification with Industry Canada. The
Investment Canada Act generally prohibits the
implementation of a reviewable transaction by a non-Canadian
unless, after review, the Minister responsible for the
Investment Canada Act is satisfied that the investment is
likely to be of net benefit to Canada. Under the Investment
Canada Act the acquisition of control of us (either through
the acquisition of our common shares or all or substantially all
our assets) by a non-Canadian who is a World Trade Organization
member country investor, including U.S. investors, would be
reviewable only if the value of our assets was equal to or
greater than a specified amount. The specified amount for 2006
is C$265 million. The threshold amount is subject to an
annual adjustment on the basis of a prescribed formula in the
Investment Canada Act to reflect changes in Canadian
gross domestic product. For non-World Trade Organization member
investors, the corresponding threshold is C$5 million.
The acquisition of a majority of the voting interests of an
entity is deemed to be acquisition of control of that entity.
The acquisition of less than a majority but one-third or more of
the voting shares of a corporation or of an equivalent undivided
ownership interest in the voting shares of the corporation is
presumed to be an acquisition of control of that corporation
unless it can be established that, on the acquisition, the
corporation is not controlled in fact by the acquiror through
the ownership of voting shares. The acquisition of less than
one-third of the voting shares of a corporation is deemed not to
be acquisition of control of that corporation. Certain
transactions in relation to our common shares would be exempt
from review from the Investment Canada Act including:
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the acquisition of our common shares by a person in the ordinary
course of that persons business as a trader or dealer in
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the acquisition or control of us in connection with the
realization of security granted for a loan or other financial
assistance and not for any purpose related to the provisions of
the Investment Canada Act; and |
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the acquisition or control of us by reason of an amalgamation,
merger, consolidation or corporate reorganization following
which the ultimate direct or indirect control in fact of us,
through the ownership of voting interests, remains unchanged. |
There is no law, governmental decree or regulation in Canada
that restricts the export or import of capital, or which would
affect the remittance of dividends or other payments by us to
non-resident holders of our common shares, other than
withholding tax requirements.
Registration Rights
2005 Registration Rights
Agreement
Pursuant to the registration rights agreement dated
April 27, 2005, (the 2005 Registration Rights
Agreement) among us, Highbridge International LLC,
Marathon Special Opportunity Master Fund, Ltd. and Fore Master
Convertible Fund, Ltd., the holders of registration rights under
this agreement are entitled to the rights described below.
General Registration Rights. Promptly following the
closing of this offering, we will prepare and file a resale
shelf registration statement with respect to the registrable
common shares (the common shares issuable upon conversion of our
convertible notes and the 16,500,000 common shares issuable upon
exercise of our warrants) under this agreement and use our
reasonable best efforts to cause the resale shelf registration
statement to become effective within 180 days to permit
resales by the holders upon the expiry of the 180 day
lock-up period. If the
resale shelf registration statement has not been declared
effective by the SEC within 180 days following completion
of this offering, we will be required to make additional
interest payments on any outstanding convertible notes held by
the holders who asked to have their registrable shares included
in the resale shelf registration statement.
Piggyback Registration Rights. If the resale shelf
registration statement has not been declared effective, and we
register any other securities for public sale on another
registration statement, the holders will have the right to
include their common shares in the other registration statement.
After we complete this offering, we will not register any shares
for the benefit of any person other than ourselves before we
register the registrable shares held by the holders under the
resale shelf registration statement.
Termination. The rights under this agreement terminate on
April 27, 2007.
2004 Registration Rights
Agreement
Pursuant to the registration rights agreement dated
April 23, 2004 (the 2004 Registration Rights
Agreement), among us and EdgeStone Capital Equity
Fund II-B GP, Inc., Mitel Systems Corporation, Mitel
Knowledge Corporation, Zarlink Semiconductor Inc., Power
Technology Investment Corporation, and Wesley Clover
Corporation, the holders of registration rights under this
agreement are entitled to the rights described below.
Demand Registration Rights. At any time after
180 days following the closing date of this offering, the
holders of at least 10,000,000 of the common shares having
registration rights (as adjusted for share splits,
consolidation and other similar events) can request that we
register all or a portion of their shares, so long as the
minimum offering amount for any demand registration is
C$8,000,000 (or C$5,000,000 in the case of a short-form
registration statement on
Form F-3 or
S-3). We will not be
required to file more than one registration statement pursuant
to these demand registration rights within any 12 month
period and will be required to file no more than two
registration statements in response to these demand registration
rights.
Piggyback Registration Rights. Holders have the right to
include their shares in this offering. Additionally, if we
register any securities for public sale after this offering
pursuant to any registration
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statement, including pursuant to the 2005 Registration Rights
Agreement, the holders will have the right to include their
common shares in the registration statement.
Canadian Offerings. The holders also have rights with
respect to demand and piggyback registrations in Canada, which
rights are substantially similar to those described in the
paragraphs above, with appropriate changes to recognize the
differences between U.S. and Canadian offerings.
Termination. The rights under this agreement terminate
five years following the date of this offering.
Expenses
We will pay all expenses incurred in connection with
registration statements filed pursuant to the registration
rights agreements described above up to a maximum of $25,000 per
registration statement or Canadian prospectus, except for
underwriting discounts and commissions and applicable transfer
taxes, which will be paid by the selling shareholders.
Lock-up Agreements
Holders of the registration rights under the registration rights
agreements described above have agreed not to sell any of their
common shares for 180 days following the date of the
underwriting agreement in connection with this offering. See
Shares Eligible for Future Sales.
Transfer Agent, Registrar and Auditor
Computershare Investor Services Inc., located in Toronto,
Ontario is the transfer agent and registrar for our common
shares in Canada. Computershare Trust Company, Inc.,
located in Golden, Colorado, is the transfer agent and registrar
for our common shares in the United States.
Deloitte & Touche LLP, located in Ottawa, Ontario is our
independent auditor.
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DESCRIPTION OF CONVERTIBLE NOTES
On April 27, 2005, we completed a convertible debt
financing transaction, in which we issued and sold
$55.0 million in aggregate principal amount of convertible
notes and warrants to purchase 16.5 million of our common
shares.
Convertible Notes
Each of the convertible notes issued and sold to the noteholders
contains identical terms and conditions, although the principal
amount may vary between noteholders. The convertible notes
mature on April 28, 2010 and accrue interest, payable
semi-annually in arrears, (a) prior to the consummation of
this offering, at the London Inter-Bank Offer Rate plus 5%, and
(b) following consummation of this offering, at London
Inter-Bank Offer Rate plus 2.5%.
Each noteholder is entitled to convert any portion of the
balance of the principal and accrued interest outstanding on its
convertible note into our common shares, with the number of
common shares to be received being determined by dividing the
outstanding principal and accrued interest owing on each
convertible note by a conversion price (the Conversion
Price) calculated (subject to applicable adjustments)
following completion of this offering on the basis of a formula
that is 110% of the lower of (a) the price per common share
in this offering, and (b) the higher of (i) the
average 10-day trading
price of our common shares on the Nasdaq National Market
immediately following the date of expiry of the lock-up
restrictions entered into by a noteholder in connection with
this offering and (ii) 80% of the price per common share in
this offering.
In the event of an uncured default under the convertible notes,
the noteholders have the right to accelerate and require us to
redeem all or any portion of the convertible notes at a price
equal to the principal plus accrued interest of the convertible
notes then outstanding.
In the event of a fundamental change that occurs prior to the
maturity date, each noteholder will have the option to either
convert all or a portion of its convertible note into our common
shares or obligate us to repurchase all or a portion of the
convertible note principal and accrued interest. In the event of
conversion, each convertible noteholder will receive a number of
common shares determined by dividing the outstanding principal
and accrued interest owing on the convertible note(s) by the
Conversion Price. Under the terms of the convertible notes, a
fundamental change includes the sale of all or substantially all
of our property or assets, a change of control, shareholder
approved liquidation or dissolution, a merger or acquisition, or
the number of shares in our capital held directly or indirectly
by Dr. Matthews falling below 115,000,000 (subject to
adjustments for splits and consolidations to our shares and
other similar events).
In addition, each noteholder that converts in connection with a
fundamental change which occurs on or after November 1,
2007 will be entitled to receive a make-whole premium in the
form of additional common shares or cash. The make-whole premium
is determined based on the amount by which the share price at
the time of the fundamental change exceeds the price per share
under the offering. The amount of the make-whole premium
decreases (i) the larger the increase in the share price
from the price per share under the offering, and (ii) the
longer the period of time that has passed from the date of the
closing of the offering. The amount will be zero on or after
May 1, 2010. The maximum amount payable in respect of the
make whole payment would represent an additional 23% of the
common shares otherwise issuable to such holder on conversion or
the equivalent value in cash.
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Noteholder Warrants
The noteholder warrants have an exercise price (subject to
applicable adjustments) (a) prior to the last day of the
first 10 trading days following the date of expiry of the
lock-up restrictions entered into by a noteholder in connection
with this offering, of $1.50 per common share, and
(b) thereafter, the lower of (i) $1.50 per common
share and (ii) the average closing price for the
10-day trading period
immediately following the date of expiry of such lock-up
restrictions which shall be no less than the greater of
(A) $1.29 per common share, and (B) 80% of the price
per common share in this offering. The noteholder warrants
expire on April 27, 2009. Each of the warrants has been
issued and sold to the noteholders on identical terms and
conditions, although the number of warrants granted may vary
between noteholders.
Registration Rights Agreement:
In connection with the convertible debt financing, we entered
into the 2005 Registration Rights Agreement. Pursuant to the
2005 Registration Rights Agreement, we agreed to make certain
arrangements with respect to the registration of the shares
issuable (after conversion of the convertible notes and exercise
of the warrants) to the noteholders under the applicable
securities laws of the United States. See Description of
Share Capital Registration Rights.
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there was no public market for our
common shares. Future sales or the availability for sale of
substantial amounts of our common shares in the public market
could adversely affect prevailing market prices and could impair
our ability to raise capital through future sales of our
securities.
Upon completion of this offering, a total
of of
our common shares will be outstanding, assuming no exercise of
the underwriters over-allotment option. All of
the common
shares sold in this offering will be freely tradable without
restriction or further registration under the
U.S. Securities Act, unless held by our
affiliates, as that term is defined in Rule 144
under the U.S. Securities Act.
For the reasons set forth below, we expect that the following
shares will be eligible for sale in the public market at the
following times:
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On the date of this prospectus
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Shares sold in this offering |
90 days after the date of this prospectus
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Aggregate number of shares released from the lock-up agreements
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180 Days after the date of this prospectus
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Lock-up agreements expire |
As of March 31, 2006, 68,306 common shares had been issued
under our employee stock purchase plan, 20,756,644 common
shares were issuable upon exercise of vested and unvested stock
options outstanding under our stock option plan and an
additional 4,175,050 common shares were reserved for
issuance under our stock option plan. Subject to the lock-up
agreements described below and limitations imposed by
U.S. and Canadian securities laws on resales by our
affiliates, common shares already issued pursuant to these plans
or issuable upon exercises of these stock options will be freely
tradeable in the public markets.
The holders of our convertible notes and warrants outstanding as
of the closing of this offering, all of our officers and
directors and certain shareholders and option holders, have
entered into lock-up agreements under which they have generally
agreed, subject to certain exceptions, not to offer or sell any
common shares or securities convertible into or exchangeable or
exercisable for common shares for a period of at least
180 days from the date of the underwriting agreement
without the prior written consent of the underwriters. However,
the underwriters have agreed that certain of our employees will
each have 2,000 shares released from their lock-up agreements
after 90 days following the date of the underwriting
agreement. We may also grant new options under our stock option
plan and issue and sell our common shares upon the exercise of
options outstanding at the time of the pricing of this offering.
See Underwriters.
Under the terms of the 2005 Registration Rights Agreement, we
are required to file a shelf registration statement covering
resales of common shares issuable upon exercises of noteholder
warrants to purchase up to 16,500,000 of our common shares and
resales of common shares issuable upon conversion of the
outstanding convertible notes. We must use our best efforts to
have the shelf registration statement declared effective under
the U.S. Securities Act within 180 days following the
completion of this offering. The number of common shares
issuable upon the conversion of the convertible notes will be
calculated in accordance with the formula set out above (see
Description of Convertible Notes Convertible
Notes Conversion). In addition, the parties to
the 2004 Registration Rights Agreement will have the right to
include their shares in the shelf registration statement to the
extent they do not register their common shares in this
offering. Consequently, following the expiration of the lock-up
period, our noteholders may convert their convertible notes, and
parties to both registration rights agreements may exercise
their warrants and sell the underlying common shares and/or sell
certain common shares they
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currently own in the public markets, which may further decrease
the market price for our shares. See Description of Share
Capital Registration Rights.
Rule 144
In general, under Rule 144, as currently in effect, any
person, including an affiliate, who has beneficially owned our
common shares for a period of at least one year is entitled to
sell, within any three-month period, a number of such shares
that does not exceed the greater of:
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1% of the then outstanding common shares, which will equal
approximately common
shares after this offering; and |
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the average weekly trading volume in the common shares on the
Nasdaq National Market during the four calendar weeks preceding
the date on which the notice of the sale is filed with the SEC. |
Sales under Rule 144 are also subject to provisions
relating to notice, manner of sale, volume limitations and the
availability of current public information about us. Under
Rule 144(k), a person who is not deemed to have been one of
our affiliates at any time during the 90 days preceding a
sale or at the time of such sale, and who has beneficially owned
the shares for at least two years, including the holding period
of any prior owner other than an affiliate, is
entitled to sell the shares without complying with the manner of
sale, public information, volume limitation or notice provisions
of Rule 144.
Canadian Resale Restrictions
Under the securities laws of the provinces and territories of
Canada, a person who owns our common shares, or securities
convertible into our common shares (other than options granted
to our directors, officers, employees and consultants),
distributed by us more than four months prior to the date of
this prospectus will generally be able to freely sell those
common shares, or the common shares issued upon the conversion
of such convertible securities, in Canada following the date of
this prospectus. To the extent that such common shares or
convertible securities were distributed by us during the four
months preceding the date of this prospectus, those common
shares, or the common shares issued upon the conversion of those
convertible securities, may not be resold, except under a
prospectus or an exemption from the prospectus requirement,
until four months have passed since the date of distribution of
those securities by us, at which time such a person will
generally be able to freely sell those common shares in Canada.
Any of our directors, officers, employees and consultants who
purchased common shares from us either directly or pursuant to
the exercise of options granted at any time prior to the date of
this prospectus will generally be able to freely resell those
common shares in Canada following the date of this prospectus.
Any sales of our common shares in Canada will be subject to the
terms of applicable
lock-up agreements.
There are additional restrictions on the ability of
control block holders of our common shares to
dispose of the common shares they hold. A control block holder
is any person, company or combination of persons or companies
holding a sufficient number of our common shares to affect
materially the control of Mitel, and any person, company or
combination holding more than 20 percent of our outstanding
common shares will, in the absence of evidence to the contrary,
be deemed to affect materially the control of Mitel. It is
expected that on the closing of the offering Dr. Matthews
will be a control block holder of our common shares.
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UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
This section summarizes the material United States federal
income tax consequences to U.S. Holders (as defined
below) of the acquisition, ownership and disposition of our
common shares. This section assumes that you hold your common
shares as capital assets within the meaning of Section 1221
of the U.S. Internal Revenue Code of 1986, as amended (the
Code). This section does not purport to be a
complete analysis of all of the potential United States federal
income tax considerations that may be relevant to particular
holders of our common shares in light of their particular
circumstances nor does it deal with United States federal income
tax consequences applicable to holders subject to special tax
rules, including banks, brokers, dealers in securities or
currencies, traders in securities that elect to use a
mark-to-market method of accounting for their securities
holdings, tax-exempt entities, insurance companies, persons
liable for alternative minimum tax, persons that actually or
constructively own 10% or more of our common shares, persons
that hold common shares as part of a straddle or a hedge,
constructive sale, synthetic security, conversion or other
integrated transaction, partnerships and other pass-through
entities, and persons whose functional currency is not the
United States dollar. In addition, this discussion does not
address the tax consequences arising under the tax laws of any
state, locality or foreign jurisdiction.
If any entity that is classified as a partnership for United
States federal income tax purposes holds common shares, the tax
treatment of its partners will generally depend upon the status
of the partner and the activities of the partnership.
Partnerships and other entities that are classified as
partnerships for United States federal income tax purposes and
persons holding common shares through a partnership or other
entity classified as a partnership for United States
federal income tax purposes are urged to consult their tax
advisors.
This section is based on the Code, existing and proposed
Treasury regulations thereunder, published rulings, court
decisions and administrative interpretations, all as currently
in effect. These laws are subject to change, repeal or
revocation possibly on a retroactive basis so as to result in
United States federal income tax consequences different
from those discussed below.
For purposes of this discussion, you are a U.S.
Holder if you are a beneficial owner of common shares and
you are for United States federal income tax purposes
(i) a citizen or individual resident of the United States,
(ii) a corporation or other entity taxable as a corporation
created or organized under the laws of the United States or
any political subdivision thereof, (iii) an estate whose
income is subject to United States federal income tax regardless
of its source, or (iv) a trust (a) if a United States
court can exercise primary supervision over the trusts
administration and one or more United States persons are
authorized to control all substantial decisions of the trust or
(b) that has a valid election in effect under applicable
Treasury Regulations to be treated as a United States
person.
This summary does not discuss United States federal income tax
consequences to any beneficial owner of common shares that is
not a U.S. Holder. Each U.S. Holder is urged to
consult with its own tax advisor regarding the tax consequences
of the acquisition, ownership and disposition of common shares,
including the effects of federal, state, local, foreign, and
other tax laws.
Taxation of Dividends
We currently do not anticipate paying dividends on our common
shares. However, in the event we do pay dividends, and provided
we are not a passive foreign investment company, discussed
below, you must include in your gross income as ordinary income
the gross amount of any dividend paid by us out of our current
or accumulated earnings and profits (as determined for
United States federal income tax purposes), including the
amount of any Canadian taxes withheld from this dividend. You
must include the dividend in income when you receive the
dividend, actually or constructively. The dividend will not be
eligible for the dividends-received deduction generally allowed
to United States corporations in respect of dividends
received from other United States corporations. Distributions in
excess of our current and accumulated earnings and profits (as
determined for United States federal income tax purposes),
including the amount of any Canadian taxes withheld from the
distributions, will be treated as a non-taxable return of
capital to the extent of your adjusted basis in the common
shares and as a capital gain to the extent it
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exceeds your basis. If you are a non-corporate U.S. Holder,
including an individual, dividends you receive in taxable years
beginning before January 1, 2009, may be subject to
United States federal income tax at lower rates than other
types of ordinary income, generally 15%, provided certain
holding period and other requirements are satisfied. These
requirements include (a) that we are a qualified
foreign corporation, and (b) that you not treat the
dividend as investment income for purposes of the
investment interest deduction rules. Provided that we are not
treated as a passive foreign investment company, described
below, we believe that we are a qualified foreign
corporation. U.S. Holders should consult their own
tax advisors regarding the application of these rules.
If you are entitled to benefits under the Canada-United States
Income Tax Convention, dividends you receive with respect to
common shares generally will be subject to Canadian withholding
tax at the rate of 15%. Additionally, such dividends generally
will be treated as foreign source income for foreign tax credit
limitation purposes. Accordingly, any Canadian tax withheld may,
subject to certain limitations, be claimed as a foreign tax
credit against your United States federal income tax liability
or may be claimed as a deduction for United States federal
income tax purposes. For taxable years beginning before
January 1, 2007, dividends will generally be passive
income or financial services income and, for
taxable years beginning after December 31, 2006, will
generally be passive category income or
general category income for foreign tax credit
purposes. The rules relating to foreign tax credits are complex
and the availability of a foreign tax credit depends on numerous
factors. You should consult your own tax advisors concerning the
application of the United States foreign tax credit rules to
your particular situation.
Taxation of Dispositions
Provided that we are not a passive foreign investment company,
discussed below, upon a sale or other disposition of common
shares, you will generally recognize capital gain or loss for
United States federal income tax purposes equal to the
difference between the amount that you realize and your adjusted
tax basis in your common shares. Your adjusted tax basis in our
common shares will generally be the cost to you of such shares.
Capital gain of a non-corporate U.S. Holder, including an
individual, is generally taxed at a maximum rate of 15% if the
property has been held for more than one year. The deductibility
of capital losses is subject to limitations. The gain or loss
will generally be gain or loss from sources within the United
States for foreign tax credit limitation purposes.
Passive Foreign Investment Company Considerations
Special United States federal income tax rules apply to United
States persons owning shares of a passive foreign investment
company (PFIC). We currently do not believe that we
are a PFIC, nor do we anticipate that we will become a PFIC in
the foreseeable future. Our expectation is based in part on
projections of the value of our outstanding equity during the
year and the proceeds of the initial public offering of our
common shares and our anticipated use of such proceeds, and the
other cash that we will hold and generate in the ordinary course
of our business. However, there can be no assurance that the IRS
will not successfully challenge our position or that we will not
become a PFIC in a future taxable year, as PFIC status is
re-tested each year and depends on our assets and income in
such year.
A non-U.S. corporation will generally be classified as a PFIC
for United States federal income tax purposes in any taxable
year in which, after applying relevant look-through rules with
respect to the income and assets of subsidiaries, either at
least 75% of its gross income is passive income, or
on average at least 50% of the gross value of its assets is
attributable to assets that produce passive income or are held
for the production of passive income. For this purpose, passive
income generally includes, among other things, dividends,
interest, certain rents and royalties and gains from the
disposition of passive assets.
Certain excess distributions, as defined in
Section 1291 of the Code, received in respect of stock of a
PFIC and dispositions of stock of a PFIC are subject to the
highest rate of tax on ordinary income in
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effect and to an interest charge based on the value of the tax
deferred during the period during which the shares were owned.
Rather than being subject to this tax regime, you may make:
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a qualified electing fund election (a QEF
election), as defined in the Code, to be taxed currently
on your pro rata portion of our ordinary earnings and net
capital gain, whether or not such earnings or gain is
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a mark-to-market election and thereby agree for the
year of the election and each subsequent tax year to recognize
ordinary gain or loss (but only to the extent of prior ordinary
gain) based on the increase or decrease in market value for such
taxable year. Your tax basis in our common shares would be
adjusted to reflect any such income or loss amounts. |
In order for you to be able to make a QEF election, we would
have to provide certain information regarding your pro rata
shares of our ordinary earnings and net capital gain. We
currently do not intend to provide such information. In order
for you to be able to make a mark-to-market election, our common
shares must be marketable. Our common shares will be
marketable as long as they remain regularly traded
on a national securities exchange, such as the Nasdaq National
Market.
U.S. Holders should consult their own tax advisors with respect
to the PFIC issue and its potential application to their
particular situation.
Conversion of Canadian Dollars
The tax basis of Canadian dollars received by a U.S. Holder
will generally equal the U.S. dollar equivalent of such
Canadian dollars at the exchange rate on the date the Canadian
dollars are received (or, in the case of a U.S. Holder
using the accrual method of accounting that has not made the
election described above, on the date the U.S. Holder had a
right to receive the Canadian dollars). Upon any subsequent
exchange of such Canadian dollars for U.S. dollars, a
U.S. Holder will generally recognize foreign currency gain
or loss, which is treated as ordinary income or loss, equal to
the difference between the U.S. Holders tax basis for
the Canadian dollars and the amount of U.S. dollars received.
Such gain or loss will generally be gain or loss from sources
within the United States for foreign tax credit limitation
purposes.
Information Reporting and Backup Withholding
If you are a non-corporate U.S. Holder, information reporting
requirements on Internal Revenue Service (IRS)
Form 1099 generally will apply to:
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dividend payments or other taxable distributions made to you
within the United States, and |
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the payment of proceeds to you from the sale of common shares
effected at a United States office of a broker unless you come
within certain categories of exempt recipients. |
Additionally, backup withholding may apply to such payments if
you are a non-corporate U.S. Holder that does not come within
certain categories of exempt recipients and you:
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fail to provide an accurate taxpayer identification number, |
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are notified by the IRS that you have failed to report all
interest and dividends required to be shown on your United
States federal income tax returns, or |
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in certain circumstances, fail to comply with other applicable
requirements of the backup withholding rules. |
A U.S. Holder who does not provide a correct taxpayer
identification number may be subject to penalties imposed by the
IRS.
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If backup withholding applies to you, 28% of the gross amount of
any payments to you with respect to our common shares will be
withheld and paid over to the IRS. Any amounts withheld from
payments to you under the backup withholding rules will be
allowed as a credit against your United States federal income
tax liability and may entitle you to a refund, provided the
required information is timely furnished to the IRS. You should
consult your tax advisor regarding the application of backup
withholding in your particular situation, the availability of an
exemption from backup withholding and the procedure for
obtaining such an exemption, if available.
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CANADIAN FEDERAL INCOME TAX CONSIDERATIONS FOR U.S.
HOLDERS
This section summarizes the principal Canadian federal income
tax considerations generally applicable to a purchaser who
acquires as beneficial owner, common shares pursuant to this
offering and (a) who, at all relevant times and for the
purposes of the Income Tax Act (Canada) (the Tax
Act), is not resident and is not deemed to be resident in
Canada, deals at arms length and is not affiliated with
us, holds the common shares as capital property and does not use
or hold and is not deemed to use or hold, the common shares in
the course of carrying on, or otherwise in connection with, a
business in Canada, and (b) who, at all relevant times and
for the purposes of the
Canada-United States
Income Tax Convention (the Treaty), is a resident of
the United States, and who otherwise qualifies for the full
benefits of the Treaty (a U.S. Holder). Special
rules not discussed in this summary may apply to a U.S. Holder
that is an insurer that carries on business in Canada and
elsewhere.
This summary is based on the current provisions of the Tax Act
and the regulations thereunder in force at the date hereof,
specific proposals to amend the Tax Act or regulations
thereunder that have been publicly announced by the Minister of
Finance (Canada) prior to the date hereof (the Proposed
Amendments), the current provisions of the Treaty and
counsels understanding of the current administrative
practices of the Canada Revenue Agency published in writing
prior to the date hereof. It has been assumed that the Proposed
Amendments will be enacted in the form proposed, however, no
assurances can be given that the Proposed Amendments will be
enacted as proposed or at all. The summary does not take into
account or anticipate any changes in law or administrative or
assessing practice whether by legislative, regulatory,
administrative or judicial action nor does it take into account
tax legislation or considerations of any provincial,
territorial, U.S. or other foreign income tax jurisdictions,
which may differ significantly from those discussed herein.
This summary is of a general nature and is not exhaustive of all
possible Canadian federal income tax consequences. It is not
intended as legal or tax advice to any particular holder of
common shares and should not be so construed. The tax
consequences to any particular holder of common shares will vary
according to the status of that holder as an individual, trust,
corporation or member of a partnership, the jurisdictions in
which that holder is subject to taxation and, generally, that
holders particular circumstances. Each holder should
consult the holders own tax advisor with respect to the
income tax consequences applicable to the holders own
particular circumstances.
Taxation of Dividends
Dividends paid or credited on the common shares or deemed to be
paid or credited on the common shares by us to a U.S. Holder are
subject to Canadian withholding tax. Under the Treaty, the rate
of withholding tax on dividends paid or credited to a U.S.
Holder that is the beneficial owner of the dividends is
generally reduced to 15% of the gross dividend.
Disposition of Common Shares
A U.S. Holder is not subject to tax under the Tax Act in respect
of a capital gain realized on the disposition of a common share
unless such share is taxable Canadian property to
the U.S. Holder for purposes of the Tax Act and the U.S. Holder
is not entitled to relief under the Treaty.
Generally, our common shares will not constitute taxable
Canadian property to a U.S. Holder at a particular time provided
that (i) our common shares are listed on a prescribed stock
exchange (which includes both the NASDAQ National Market and the
Toronto Stock Exchange) and (ii) at any time during the
60-month period ending
at the time of disposition, the U.S. Holder or persons with whom
the U.S. Holder did not deal at arms length (or the U.S.
Holder together with such persons) have not owned 25% or more of
our issued shares of any class or series. In the case of a U.S.
Holder to whom common shares represent taxable Canadian
property, by reason of the Treaty, no tax under the Tax Act will
be payable on a capital gain realized on a disposition of such
shares unless, at the time of disposition, the value of such
shares is derived principally from real property situated in
Canada. We believe that the value of our common shares is not
derived principally from real property situated in Canada, and
that no tax would therefore be payable under the Tax Act on a
capital gain realized today by a U.S. Holder on a disposition of
common shares.
110
UNDERWRITERS
Under the terms and subject to the conditions contained in an
underwriting agreement
dated ,
2006, the underwriters named below, for whom Morgan Stanley
& Co. Incorporated and RBC Capital Markets Corporation are
acting as representatives, have severally agreed to purchase,
and we and the selling shareholders have agreed to sell to them,
the number of common shares indicated below:
|
|
|
|
|
|
|
|
Number of | |
Name |
|
Shares | |
|
|
| |
Morgan Stanley & Co. Incorporated
|
|
|
|
|
RBC Capital Markets Corporation
|
|
|
|
|
Merrill Lynch, Pierce, Fenner & Smith Incorporated
|
|
|
|
|
Genuity Capital Markets G.P.
|
|
|
|
|
Thomas Weisel Partners LLC
|
|
|
|
|
National Bank Financial Inc.
|
|
|
|
|
|
|
|
|
|
Total
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|
|
|
|
|
|
|
|
The underwriters are offering the common shares subject to their
acceptance of the shares from us and the selling shareholders
and subject to prior sale. The underwriting agreement provides
that the obligations of the several underwriters to pay for and
accept delivery of the common shares offered by this prospectus
are subject to the approval of certain legal matters by their
counsel and to certain other conditions. The obligations of the
underwriters under the underwriting agreement may be terminated
at their discretion on the basis of their assessment of any
material and adverse change in the state of the financial
markets and may also be terminated upon the occurrence of
certain stated events. Subject to the terms and provisions of
the underwriting agreement, the underwriters are obligated to
take and pay for all of the common shares offered by this
prospectus if any such shares are taken. However, the
underwriters are not required to take or pay for the shares
covered by the underwriters over-allotment option
described below.
This offering is being made concurrently in the United States
and in all of the provinces and territories of Canada. The
common shares will be offered in the United States through the
underwriters, either directly or indirectly, through their
respective U.S. broker-dealer affiliates or agents. The common
shares will be offered in each of the provinces and territories
of Canada through those underwriters or their Canadian
affiliates who are registered to offer the common shares for
sale in such provinces and territories and such other registered
dealers as may be designated by the underwriters. Subject to
applicable law, the underwriters may offer the common shares
outside of the United States and Canada.
The underwriters initially propose to offer part of the common
shares directly to the public at the public offering price
listed on the cover page of this prospectus and part to certain
dealers at a price that represents a concession not in excess of
$ a
share under the public offering price. Any underwriter may
allow, and such dealers may re-allow, a concession not in excess
of
$ a
share to other underwriters or to certain dealers. The public
offering price for the common shares offered in the United
States is payable in U.S. dollars and the public offering price
for the common shares offered in Canada is payable in Canadian
dollars. The Canadian dollar amount is the equivalent of the
U.S. price of the common shares based on the prevailing
U.S.-Canadian dollar exchange rate on the date of the
underwriting agreement. After the initial offering of the common
shares, the offering price and other selling terms may from time
to time be varied by the representatives of the underwriters.
We and the selling shareholders have granted to the underwriters
an option, exercisable for 30 days from the date of this
prospectus, to purchase up to an aggregate
of additional
common shares
( common
shares from us and common shares from the selling
shareholders) at the public offering price listed on the cover
page of this prospectus, less underwriting discounts and
commissions. The underwriters may exercise this option solely
for the purpose of covering over-allotments, if any, made in
connection with the offering of the common shares offered by
this prospectus. To the
111
extent the option is exercised, each underwriter will become
obligated, subject to certain conditions, to purchase
approximately the same percentage of the additional common
shares as the number listed next to the underwriters name
in the preceding table bears to the total number of common
shares listed next to the names of all underwriters in the
preceding table.
The following table shows the per share and total underwriting
discounts and commissions to be paid by us and the selling
shareholders assuming no exercise and full exercise of the
underwriters
over-allotment option
to
purchase additional
shares from us and the selling shareholders.
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|
|
|
|
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|
|
Total | |
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|
|
|
| |
|
|
Per | |
|
No | |
|
Full | |
|
|
Share | |
|
Exercise | |
|
Exercise | |
|
|
| |
|
| |
|
| |
Public offering price
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Underwriting discounts and commissions to be paid by:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Us
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Selling shareholders
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Proceeds before expenses to us
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Proceeds before expenses to the selling shareholders
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
The estimated offering expenses payable by us, in addition to
the underwriting discounts and commissions, are approximately
$ million.
We and all of our directors and officers and certain holders of
our outstanding common shares, warrants and convertible notes
have agreed that, without the prior written consent of Morgan
Stanley & Co. Incorporated and RBC Capital Markets
Corporation on behalf of the underwriters, neither we nor they
will during the period ending 180 days after the date of
the underwriting agreement:
|
|
|
|
|
offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell,
grant any option, right or warrant to purchase, lend, or
otherwise transfer or dispose of, directly or indirectly, or
demand or exercise any rights to (except with respect to holders
of registration rights pursuant to the 2004 Registration Rights
Agreement and the 2005 Registration Rights Agreement) file any
registration statement with the SEC relating to the offering of,
any common shares or any securities convertible into or
exercisable or exchangeable for our common shares; |
|
|
|
enter into any swap or other arrangement that transfers to
another, in whole or in part, any of the economic consequences
of ownership of the common shares; or |
|
|
|
announce any intention to do any of the foregoing |
whether any such transaction described above is to be settled by
delivery of common shares or such other securities, in cash or
otherwise. The underwriters have agreed that our employees
(other than directors and officers) will each have
2,000 shares released from the
lock-up
90 days after the date of the underwriting agreement.
The 180-day
restrictions described in the immediately preceding paragraph do
not apply to (a) transactions relating to common shares or
other securities acquired in open market transactions after the
completion of this offering; (b) transfers of common shares
or any security convertible into common shares as a bona fide
gift or gifts; (c) distributions of common shares or any
security convertible into common shares to limited partners or
shareholders of the transferor; (d) transactions effected
in accordance with our recapitalization described in this
prospectus; (e) tenders of common shares made in response
to a bona fide third party
take-over bid made to
all holders of common shares or similar acquisition transaction;
or (f) any transfer to an immediate family member or an
entity of which the transferor or an immediate family member of
the transferor is the sole beneficiary; provided, that in
the case of any transfer or distribution pursuant to clause (b),
(c) or (f), each donee, distributee or transferee agrees in
writing to be bound by the transfer restrictions described
above; and further provided that no filing by any party under
the Securities Exchange Act of 1934, as amended or the
Securities Act (Ontario)
112
shall be required or shall be voluntarily made in connection
with subsequent sales of common shares or other securities
acquired in open market transactions described in
clause (a) or in connection with transfers of the employee
shares released after 90 days as set out in the preceding
paragraph.
The 180-day restricted period (or 90-day restricted period for
up to 2,000 shares of certain employees) described above
will be extended if:
|
|
|
|
|
during the last 17 days of the 180-day restricted period
(or 90-day restricted period for up to 2,000 shares of
certain employees) we issue an earnings release or material news
or a material event relating to us occurs, or |
|
|
|
prior to the expiration of the 180-day restricted period (or
90-day restricted
period for up to 2,000 shares of certain employees), we
announce that we will release earnings results during the 16-day
period beginning on the last day of the 180-day period, |
in which case the restrictions described in the preceding
paragraph will continue to apply until the expiration of the
18-day period beginning
on the issuance of the earnings release or the occurrence of the
material news or material event.
In order to facilitate the offering of our common shares, the
underwriters may engage in transactions that stabilize, maintain
or otherwise affect the price of the common shares.
Specifically, the underwriters may sell more shares than they
are obligated to purchase under the underwriting agreement,
creating a short position. A short sale is covered
if the short position is no greater than the number of shares
available for purchase by the underwriters under the
over-allotment option.
The underwriters can close out a covered short sale by
exercising the
over-allotment option
or purchasing shares in the open market. In determining the
source of shares to close out a covered short sale, the
underwriters will consider, among other things, the open market
price of shares compared to the price available under the
over-allotment option.
The underwriters may also sell shares in excess of the
overallotment option, creating a naked short
position. The underwriters must close out any naked short
position by purchasing shares in the open market. A naked short
position is more likely to be created if the underwriters are
concerned that there may be downward pressure on the price of
our common shares in the open market after pricing that could
adversely affect investors who purchase in this offering. As an
additional means of facilitating this offering, the underwriters
may bid for, and purchase, our common shares in the open market
to stabilize the price of the common shares. The underwriting
syndicate may also reclaim selling concessions allowed to an
underwriter or dealer for distributing our common shares in the
offering, if the syndicate repurchases previously distributed
common shares to cover syndicate short positions, or to
stabilize the price of our common shares.
The underwriters may also impose a penalty bid. This occurs when
a particular underwriter repays to the underwriters a portion of
the underwriting commission received by it because Morgan
Stanley & Co. Incorporated and RBC Capital Markets
Corporation have repurchased our common shares sold by or for
the account of such underwriter in stabilizing or short covering
transactions.
In accordance with policy statements of the provincial
securities commissions, the underwriters may not, throughout the
period of distribution, bid for or purchase the shares.
Exceptions, however, exist where the bid or purchase is not made
to create the appearance of active trading in, or rising prices
of, the common shares. These exceptions include a bid or
purchase permitted under the
by-laws and rules of
applicable regulatory authorities and the Toronto Stock Exchange
relating to market stabilization and passive market making
activities and a bid or purchase made for and on behalf of a
customer where the order was not solicited during the period of
distribution. Subject to the foregoing and applicable laws, in
connection with the offering and pursuant to the first exception
mentioned above, the underwriters may overallot or effect
transactions that stabilize or maintain the market price of the
shares at levels other than those which might otherwise prevail
on the open market. Any of the foregoing activities may have the
effect of preventing or slowing a decline in the market price of
the common shares. They may also cause the price of the common
shares to be higher than the price that would otherwise exist in
the open market in the absence of these transactions. The
underwriters may conduct these transactions on the Nasdaq
113
National Market, the Toronto Stock Exchange, in the over the
counter market or otherwise. If the underwriters commence any of
these transactions, they may discontinue them at any time.
We and the selling shareholders have agreed to indemnify the
underwriters against certain liabilities, including liabilities
under the U.S. Securities Act and applicable securities laws in
the provinces and territories of Canada.
A prospectus in electronic format may be made available by one
or more of the underwriters. The representatives may agree to
allocate a number of shares to underwriters for sale to their
online brokerage account holders. The representatives will
allocate shares to underwriters that may make Internet
distributions on the same basis as other allocations. In
addition, shares may be sold by the underwriters to securities
dealers who resell to online brokerage account holders.
Pricing of the Offering
Prior to this offering, there has been no public market for the
common shares. The initial public offering price will be
determined by negotiations among us, the selling shareholders
and the representatives. Among the factors considered in
determining the initial public offering price will be our future
prospects and future prospects of our industry in general, our
sales, earnings and other financial and operating information in
recent periods, and the price-earnings ratios, market prices of
securities and financial and operating information of companies
engaged in activities similar to ours.
The estimated initial public offering price range set forth on
the cover page of this preliminary prospectus is subject to
change as a result of market conditions and other factors.
Directed Share Program
At our request, the underwriters have reserved up
to common
shares,
or %
of the shares offered by this prospectus, for sale under a
directed share program to our employees and related parties,
immediate family members and entities of which employees or
family members are the sole beneficiaries. Our officers and
directors are not eligible to participate in this program. All
of the persons purchasing the reserved shares must commit to
purchase upon the date of this prospectus but no later than the
close of business on the day following that date. The number of
shares available for sale to the general public will be reduced
to the extent these persons purchase the reserved shares. Shares
committed to be purchased by directed share program participants
which are not so purchased will be reallocated for sale to the
general public in this offering. All sales of shares pursuant to
the directed share program will be made at the initial public
offering price set forth on the cover page of this prospectus,
and all such shares will be subject to the 180-day restrictions
described above in this section.
Relationships
Certain affiliates of the underwriters have performed commercial
banking services for us and our affiliates from time to time for
which they received their customary fees and expenses. The
underwriters may, from time to time, engage in transactions and
perform services for us, our subsidiaries or our affiliates in
the ordinary course of their business.
114
Expenses of Issuance and Distribution
The following table sets forth the estimated expenses payable by
us in connection with this offering and the distribution of the
common shares sold in this offering (excluding underwriting
commissions):
|
|
|
|
|
Nature of Expense |
|
Amount | |
|
|
| |
Securities and Exchange Commission Registration Fee
|
|
$ |
|
|
Canadian Securities Regulatory Authorities Filing Fees
|
|
|
|
|
National Association of Securities Dealers Filing Fee
|
|
|
|
|
Nasdaq National Market Listing Fee
|
|
|
|
|
Toronto Stock Exchange Listing Fee
|
|
|
|
|
Accounting Fees and Expenses
|
|
|
|
|
Legal Fees and Expenses
|
|
|
|
|
Printing Expenses
|
|
|
|
|
Blue Sky Qualification Fees and Expenses
|
|
|
|
|
Transfer Agent and Registrar Fee
|
|
|
|
|
Additional D&O Insurance Premiums
|
|
|
|
|
|
|
|
|
Miscellaneous
|
|
|
|
|
|
|
|
|
TOTAL
|
|
$ |
|
|
|
|
|
|
European Economic Area
In relation to each Member State of the European Economic Area
which has implemented the Prospectus Directive, each underwriter
has represented and agreed that with effect from and including
the date on which the Prospectus Directive is implemented in
that Member State it has not made and will not make an offer of
common shares to the public in that Member State, except that it
may, with effect from and including such date, make an offer of
common shares to the public in that Member State:
|
|
|
|
(a) |
at any time to legal entities which are authorized or regulated
to operate in the financial markets or, if not so authorized or
regulated, whose corporate purpose is solely to invest in
securities; |
|
|
(b) |
at any time to any legal entity which has two or more of
(1) an average of at least 250 employees during the
last financial year; (2) a total balance sheet of more than
43,000,000 and
(3) an annual net turnover of more than
50,000,000, as shown in its last annual or consolidated
accounts; or |
|
|
(c) |
at any time in any other circumstances which do not require the
publication by us of a prospectus pursuant to Article 3 of
the Prospectus Directive. |
For the purposes of the above, the expression an offer of
common shares to the public in relation to any common
shares in any Member State means the communication in any form
and by any means of sufficient information on the terms of the
offer and the common shares to be offered so as to enable an
investor to decide to purchase or subscribe the common shares,
as the same may be varied in that Member State by any measure
implementing the Prospectus Directive in that Member State and
the expression Prospectus Directive means Directive 2003/71/EC
and includes any relevant implementing measure in that Member
State.
115
United Kingdom
Each underwriter has represented and agreed that it has only
communicated or caused to be communicated and will only
communicate or cause to be communicated an invitation or
inducement to engage in investment activity (within the meaning
of Section 21 of the Financial Services and Markets Act
2000) in connection with the issue or sale of the common shares
in circumstances in which Section 21(1) of such Act does
not apply to us and it has complied and will comply with all
applicable provisions of such Act with respect to anything done
by it in relation to any common shares in, from or otherwise
involving the United Kingdom.
116
LEGAL MATTERS
The validity of the issuance of the common shares will be passed
upon for us by Osler, Hoskin & Harcourt LLP. Certain U.S.
legal matters relating to this offering will be passed upon for
us by Skadden, Arps, Slate, Meagher & Flom LLP. Certain
legal matters relating to this offering will be passed upon for
the underwriters by Shearman & Sterling LLP and Torys LLP.
Kent H.E. Plumley, a partner of Osler, Hoskin & Harcourt
LLP, has also served as our General Counsel and Corporate
Secretary since December 2003. The partners and associates of
Osler, Hoskin & Harcourt LLP, collectively, beneficially
own, directly and indirectly, less than 1% of our outstanding
common shares. The partners and associates of Torys LLP,
collectively, beneficially own, directly and indirectly, less
than 1% of our outstanding common shares.
EXPERTS
Our consolidated financial statements included in this
prospectus have been audited by Deloitte & Touche LLP, an
independent registered chartered accounting firm, as stated in
their reports appearing herein and have been included in
reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form F-1 with the
SEC regarding this offering. This prospectus, which is part of
the registration statement, does not contain all of the
information included in the registration statement, and you
should refer to the registration statement and its exhibits to
read that information.
Any statement in this prospectus about any of our contracts or
other documents is not necessarily complete. If the contract or
document is filed as an exhibit to the registration statement,
the contract or document is deemed to modify the description
contained in this prospectus. You must review the exhibits
themselves for a complete description of the contract or
document. You may review a copy of the registration statement,
including the exhibits and schedules filed with it, at the
public reference facilities maintained by the SEC at 100 F
Street, N.E., Washington, D.C. 20549. Copies of all or a part of
the registration statement may be obtained from this office
after payment at prescribed rates. You may call the SEC at
1-800-SEC-0330 for further information on the public reference
rooms. You may also obtain a free copy of the registration
statement, including the schedules and exhibits, from the SEC
website at www.sec.gov.
We are required to file reports and other information with the
SEC pursuant to the Exchange Act. As a foreign private issuer,
we are exempt from the U.S. rules under the Exchange Act
prescribing the furnishing and content of proxy statements and
our officers, directors and principal shareholders are exempt
from the reporting and short-swing profit recovery provisions
contained in Section 16 of the Exchange Act. Under the
Exchange Act, as a foreign private issuer, we are not required
to publish financial statements as frequently or as promptly as
United States companies.
We will also be subject to the full informational requirements
of the securities commissions in all provinces and territories
of Canada. You are invited to read and copy any reports,
statements or other information, other than confidential
filings, that we intend to file with the Canadian provincial
securities commissions. These filings are electronically
available from the Canadian System for Electronic Document
Analysis and Retrieval (SEDAR) at www.sedar.com, the
Canadian equivalent of the SEC electronic document gathering and
retrieval system.
117
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
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MITEL NETWORKS CORPORATION
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Consolidated Financial Statements
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F-2 |
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F-3 |
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F-4 |
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|
F-5 |
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F-7 |
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|
F-8 |
|
Interim Consolidated Financial Statements (Unaudited)
|
|
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F-49 |
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F-50 |
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F-51 |
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F-52 |
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F-1
REPORT OF INDEPENDENT REGISTERED CHARTERED ACCOUNTANTS
To the Board of Directors and Shareholders of
Mitel Networks Corporation:
We have audited the consolidated balance sheets of Mitel
Networks Corporation and subsidiaries as of April 30, 2005,
April 24, 2005 and April 25, 2004 and the related
consolidated statements of operations, shareholders
deficiency and cash flows for each of the years in the three
year period ended April 24, 2005 and six day period ended
April 30, 2005. These financial statements are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with Canadian generally
accepted auditing standards and the standards of the Public
Company Accounting Oversight Board (United States). These
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, these consolidated financial statements present
fairly, in all material respects, the financial position of
Mitel Networks Corporation and subsidiaries as of April 30,
2005, April 24, 2005 and April 25, 2004, and the
results of their operations and cash flows for each of the years
in the three year period ended April 24, 2005 and six day
period ended April 30, 2005 in conformity with accounting
principles generally accepted in the United States of America.
The Company is not required to have, nor were we engaged to
perform, an audit of its internal control over financial
reporting. Our audit included consideration of internal control
over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of
the Companys internal control over financial reporting.
Accordingly we express no such opinion.
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/s/ Deloitte & Touche
LLP
|
Ottawa, Canada |
|
Deloitte & Touche LLP |
June 14, 2005 except for Note 31, which is at
October 14, 2005 and Notes 4 and 7 which are
at April 4, 2006 |
|
Independent Registered Chartered Accountants |
F-2
Mitel Networks Corporation
(incorporated under the laws of Canada)
Consolidated Balance Sheets
(in millions, except share amounts)
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April 25, | |
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April 24, | |
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April 30, | |
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|
2004 | |
|
2005 | |
|
2005 | |
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| |
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| |
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| |
ASSETS |
Current assets:
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Cash and cash equivalents
|
|
$ |
26.7 |
|
|
$ |
9.7 |
|
|
$ |
46.6 |
|
|
Restricted cash
|
|
|
0.9 |
|
|
|
|
|
|
|
1.0 |
|
|
Accounts receivable (net of allowance of $2.7, $3.0, and $3.0,
respectively)
|
|
|
76.5 |
|
|
|
71.1 |
|
|
|
66.9 |
|
|
Due from related parties
|
|
|
0.3 |
|
|
|
0.7 |
|
|
|
0.7 |
|
|
Inventories
|
|
|
14.5 |
|
|
|
17.1 |
|
|
|
17.4 |
|
|
Deferred tax asset
|
|
|
1.5 |
|
|
|
|
|
|
|
|
|
|
Income tax receivable
|
|
|
|
|
|
|
1.4 |
|
|
|
1.4 |
|
|
Other receivables
|
|
|
8.3 |
|
|
|
12.3 |
|
|
|
12.7 |
|
|
Prepaid expenses and other assets
|
|
|
13.0 |
|
|
|
14.9 |
|
|
|
15.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
141.7 |
|
|
|
127.2 |
|
|
|
162.4 |
|
Long-term receivables
|
|
|
0.3 |
|
|
|
0.4 |
|
|
|
0.4 |
|
Property and equipment
|
|
|
20.3 |
|
|
|
20.9 |
|
|
|
20.6 |
|
Goodwill
|
|
|
5.6 |
|
|
|
6.2 |
|
|
|
6.0 |
|
Intangible and other assets
|
|
|
1.5 |
|
|
|
1.9 |
|
|
|
5.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
169.4 |
|
|
$ |
156.6 |
|
|
$ |
195.3 |
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES, REDEEMABLE SHARES AND SHAREHOLDERS
DEFICIENCY |
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank indebtedness
|
|
$ |
7.1 |
|
|
$ |
15.8 |
|
|
$ |
1.2 |
|
|
Accounts payable and accrued liabilities
|
|
|
46.0 |
|
|
|
53.6 |
|
|
|
55.8 |
|
|
Income and other taxes payable
|
|
|
5.3 |
|
|
|
2.2 |
|
|
|
2.2 |
|
|
Deferred revenue
|
|
|
27.0 |
|
|
|
25.5 |
|
|
|
25.9 |
|
|
Due to related parties
|
|
|
13.7 |
|
|
|
15.9 |
|
|
|
14.0 |
|
|
Current portion of long-term debt
|
|
|
4.1 |
|
|
|
2.8 |
|
|
|
2.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
103.2 |
|
|
|
115.8 |
|
|
|
101.9 |
|
Long-term debt
|
|
|
10.8 |
|
|
|
11.8 |
|
|
|
11.8 |
|
Long-term portion of lease termination obligations
|
|
|
4.7 |
|
|
|
8.4 |
|
|
|
8.3 |
|
Convertible notes
|
|
|
|
|
|
|
|
|
|
|
46.6 |
|
Derivative instruments
|
|
|
29.2 |
|
|
|
38.0 |
|
|
|
37.4 |
|
Pension liability
|
|
|
24.8 |
|
|
|
25.4 |
|
|
|
25.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
172.7 |
|
|
|
199.4 |
|
|
|
231.1 |
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable common shares, without par value : 10,000,000 shares
authorized; issued and outstanding at April 25, 2004,
April 24, 2005 and April 30, 2005
|
|
|
17.8 |
|
|
|
18.2 |
|
|
|
18.2 |
|
Convertible, redeemable preferred shares, without par
value unlimited shares authorized; issued and
outstanding: Series A: 20,000,000 shares at April 25,
2004, April 24, 2005 and April 30, 2005;
Series B: 67,060,988, 67,789,300 and 67,789,300 shares at
April 25, 2004, April 24, 2005 and April 30,
2005, respectively
|
|
|
33.5 |
|
|
|
39.0 |
|
|
|
39.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51.3 |
|
|
|
57.2 |
|
|
|
57.3 |
|
|
|
|
|
|
|
|
|
|
|
Shareholders deficiency:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares, without par value unlimited shares
authorized:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101,782,757, 107,149,933 and 107,149,933 Issued and outstanding
as of April 25, 2004, April 24, 2005 and
April 30, 2005, respectively
|
|
|
184.8 |
|
|
|
187.6 |
|
|
|
187.6 |
|
|
Warrants
|
|
|
29.8 |
|
|
|
40.2 |
|
|
|
47.9 |
|
|
Deferred stock-based compensation
|
|
|
(0.2 |
) |
|
|
(0.4 |
) |
|
|
(0.4 |
) |
|
Accumulated deficit
|
|
|
(247.1 |
) |
|
|
(302.3 |
) |
|
|
(304.0 |
) |
|
Accumulated other comprehensive loss
|
|
|
(21.9 |
) |
|
|
(25.1 |
) |
|
|
(24.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(54.6 |
) |
|
|
(100.0 |
) |
|
|
(93.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
169.4 |
|
|
$ |
156.6 |
|
|
$ |
195.3 |
|
|
|
|
|
|
|
|
|
|
|
APPROVED BY THE BOARD
Donald W. Smith, Director
Peter D. Charbonneau, Director
(The accompanying notes are an integral part of these
consolidated financial statements)
F-3
Mitel Networks Corporation
(incorporated under the laws of Canada)
Consolidated Statements of Operations
(in millions, except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended | |
|
|
|
|
| |
|
Six Days Ended | |
|
|
April 27, | |
|
April 25, | |
|
April 24, | |
|
April 30, | |
|
|
2003 | |
|
2004 | |
|
2005 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
As Restated * | |
|
As Restated * | |
|
As Restated * | |
|
As Restated * | |
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products
|
|
$ |
217.3 |
|
|
$ |
207.1 |
|
|
$ |
207.7 |
|
|
$ |
1.7 |
|
|
Services
|
|
|
134.9 |
|
|
|
133.6 |
|
|
|
134.5 |
|
|
|
1.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
352.2 |
|
|
|
340.7 |
|
|
|
342.2 |
|
|
|
3.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products
|
|
|
143.8 |
|
|
|
125.7 |
|
|
|
132.0 |
|
|
|
1.6 |
|
|
Services
|
|
|
81.6 |
|
|
|
77.2 |
|
|
|
81.2 |
|
|
|
0.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
225.4 |
|
|
|
202.9 |
|
|
|
213.2 |
|
|
|
2.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
126.8 |
|
|
|
137.8 |
|
|
|
129.0 |
|
|
|
0.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
114.9 |
|
|
|
111.4 |
|
|
|
114.9 |
|
|
|
1.8 |
|
|
Research and development
|
|
|
41.2 |
|
|
|
36.2 |
|
|
|
41.4 |
|
|
|
0.7 |
|
|
Special charges
|
|
|
13.7 |
|
|
|
11.7 |
|
|
|
10.6 |
|
|
|
|
|
|
Loss on sale of manufacturing operations
|
|
|
|
|
|
|
0.6 |
|
|
|
3.4 |
|
|
|
|
|
|
Amortization of acquired intangibles
|
|
|
29.1 |
|
|
|
0.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
198.9 |
|
|
|
160.1 |
|
|
|
170.3 |
|
|
|
2.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(72.1 |
) |
|
|
(22.3 |
) |
|
|
(41.3 |
) |
|
|
(1.7 |
) |
Interest expense
|
|
|
(4.2 |
) |
|
|
(4.3 |
) |
|
|
(2.6 |
) |
|
|
|
|
Mark to market adjustment on derivatives
|
|
|
|
|
|
|
|
|
|
|
(5.3 |
) |
|
|
(0.1 |
) |
Beneficial conversion feature on convertible debentures
|
|
|
|
|
|
|
(3.1 |
) |
|
|
|
|
|
|
|
|
Other income (expense), net
|
|
|
3.3 |
|
|
|
(0.6 |
) |
|
|
0.4 |
|
|
|
0.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(73.0 |
) |
|
|
(30.3 |
) |
|
|
(48.8 |
) |
|
|
(1.6 |
) |
Current income tax expense (recovery)
|
|
|
(2.9 |
) |
|
|
2.0 |
|
|
|
0.8 |
|
|
|
|
|
Deferred income tax recovery
|
|
|
|
|
|
|
(1.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(70.1 |
) |
|
$ |
(30.6 |
) |
|
$ |
(49.6 |
) |
|
$ |
(1.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$ |
(0.63 |
) |
|
$ |
(0.26 |
) |
|
$ |
(0.49 |
) |
|
$ |
(0.01 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of common shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
113,109,751 |
|
|
|
127,831,211 |
|
|
|
113,792,829 |
|
|
|
117,149,933 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaudited pro forma net loss per common share (note 3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaudited pro forma weighted average common share outstanding
(note 3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* See Note 4
(The accompanying notes are an integral part of these
consolidated financial statements)
F-4
Mitel Networks Corporation
(incorporated under the laws of Canada)
Consolidated Statements of Shareholders Deficiency
(in millions, except share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated | |
|
Total | |
|
|
Common Shares | |
|
|
|
Deferred | |
|
|
|
Other | |
|
Shareholders | |
|
|
| |
|
|
|
Stock-based | |
|
Accumulated | |
|
Comprehensive | |
|
Equity | |
|
|
Shares | |
|
Amount | |
|
Warrants | |
|
Compensation | |
|
Deficit | |
|
Income (Loss) | |
|
(Deficiency) | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Balances at April 28, 2002
|
|
|
96,924,924 |
|
|
$ |
167.5 |
|
|
$ |
|
|
|
$ |
(0.5 |
) |
|
$ |
(147.0 |
) |
|
$ |
(0.3 |
) |
|
$ |
19.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares issued:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of intellectual property from related party
|
|
|
4,555,169 |
|
|
|
14.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14.8 |
|
|
Professional services received
|
|
|
10,487 |
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.1 |
|
|
Exercise of stock options
|
|
|
3,966 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common share issue costs
|
|
|
|
|
|
|
(0.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.4 |
) |
|
Share purchase loan repayments
|
|
|
|
|
|
|
1.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.7 |
|
Shares repurchased
|
|
|
(94,333 |
) |
|
|
(0.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.3 |
) |
Accretion of interest on redeemable shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.1 |
) |
|
|
|
|
|
|
(1.1 |
) |
Stock-based dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of deferred stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
0.1 |
|
Issuance of warrants
|
|
|
|
|
|
|
|
|
|
|
17.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101,400,213 |
|
|
|
183.4 |
|
|
|
17.6 |
|
|
|
(0.4 |
) |
|
|
(148.1 |
) |
|
|
(0.3 |
) |
|
|
52.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(70.1 |
) |
|
|
|
|
|
|
(70.1 |
) |
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2.6 |
) |
|
|
(2.6 |
) |
|
Minimum pension liability adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16.5 |
) |
|
|
(16.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(70.1 |
) |
|
|
(19.1 |
) |
|
|
(89.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at April 27, 2003
|
|
|
101,400,213 |
|
|
$ |
183.4 |
|
|
$ |
17.6 |
|
|
$ |
(0.4 |
) |
|
$ |
(218.2 |
) |
|
$ |
(19.4 |
) |
|
$ |
(37.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares issued:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of convertible debentures
|
|
|
5,445,775 |
|
|
|
8.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8.3 |
|
|
Conversion of related party loans
|
|
|
20,448,875 |
|
|
|
31.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31.0 |
|
|
Professional services received
|
|
|
33,591 |
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.1 |
|
|
Exercise of stock options
|
|
|
5,950 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reallocation of share issue costs to convertible, redeemable
preferred shares
|
|
|
|
|
|
|
0.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.3 |
|
Exchange of common shares for convertible, redeemable preferred
shares
|
|
|
(25,530,494 |
) |
|
|
(38.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(38.7 |
) |
Share purchase loan repayments
|
|
|
|
|
|
|
0.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.4 |
|
Shares repurchased
|
|
|
(21,153 |
) |
|
|
(0.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.1 |
) |
Beneficial conversion feature on Series A preferred shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.4 |
|
|
|
|
|
|
|
1.4 |
|
Deemed dividend relating to beneficial conversion feature on
Series A preferred shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.4 |
) |
|
|
|
|
|
|
(1.4 |
) |
Stock-based dividends
|
|
|
|
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
(0.1 |
) |
|
|
|
|
|
|
|
|
Issuance of warrants
|
|
|
|
|
|
|
|
|
|
|
12.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12.2 |
|
Amortization of deferred stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.2 |
|
|
|
|
|
|
|
|
|
|
|
0.2 |
|
Accretion of interest on redeemable common and preferred shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.3 |
) |
|
|
|
|
|
|
(1.3 |
) |
Beneficial conversion feature on convertible debentures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.1 |
|
|
|
|
|
|
|
3.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101,782,757 |
|
|
|
184.8 |
|
|
|
29.8 |
|
|
|
(0.2 |
) |
|
|
(216.5 |
) |
|
|
(19.4 |
) |
|
|
(21.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(30.6 |
) |
|
|
|
|
|
|
(30.6 |
) |
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6.0 |
) |
|
|
(6.0 |
) |
|
Minimum pension liability adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.5 |
|
|
|
3.5 |
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(30.6 |
) |
|
|
(2.5 |
) |
|
|
(33.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at April 25, 2004
|
|
|
101,782,757 |
|
|
$ |
184.8 |
|
|
$ |
29.8 |
|
|
$ |
(0.2 |
) |
|
$ |
(247.1 |
) |
|
$ |
(21.9 |
) |
|
$ |
(54.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(The accompanying notes are an integral part of these
consolidated financial statements)
F-5
Mitel Networks Corporation
(incorporated under the laws of Canada)
Consolidated Statements of Shareholders
Deficiency (Continued)
(in millions, except share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated | |
|
Total | |
|
|
Common Shares | |
|
|
|
Deferred | |
|
|
|
Other | |
|
Shareholders | |
|
|
| |
|
|
|
Stock-based | |
|
Accumulated | |
|
Comprehensive | |
|
Equity | |
|
|
Shares | |
|
Amount | |
|
Warrants | |
|
Compensation | |
|
Deficit | |
|
Income (Loss) | |
|
(Deficiency) | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Balances at April 25, 2004
|
|
|
101,782,757 |
|
|
$ |
184.8 |
|
|
$ |
29.8 |
|
|
$ |
(0.2 |
) |
|
$ |
(247.1 |
) |
|
$ |
(21.9 |
) |
|
$ |
(54.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares issued:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and employee loans
|
|
|
5,601,870 |
|
|
|
4.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.6 |
|
|
Professional services received
|
|
|
153,616 |
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.1 |
|
Exchange of common shares for Series B convertible,
redeemable preferred shares
|
|
|
(364,156 |
) |
|
|
(0.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.5 |
) |
Common share issue costs
|
|
|
|
|
|
|
(0.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.3 |
) |
Share purchase loans
|
|
|
|
|
|
|
(1.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.3 |
) |
Share purchase loan repayments
|
|
|
|
|
|
|
0.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.2 |
|
Shares repurchased
|
|
|
(24,154 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of warrants
|
|
|
|
|
|
|
|
|
|
|
10.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.4 |
|
Amortization of deferred stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.2 |
) |
|
|
|
|
|
|
|
|
|
|
(0.2 |
) |
Accretion of interest on redeemable common and preferred shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5.6 |
) |
|
|
|
|
|
|
(5.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
107,149,933 |
|
|
|
187.6 |
|
|
|
40.2 |
|
|
|
(0.4 |
) |
|
|
(252.7 |
) |
|
|
(21.9 |
) |
|
|
(47.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(49.6 |
) |
|
|
|
|
|
|
(49.6 |
) |
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5.6 |
) |
|
|
(5.6 |
) |
|
Minimum pension liability adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.4 |
|
|
|
2.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(49.6 |
) |
|
|
(3.2 |
) |
|
|
(52.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at April 24, 2005
|
|
|
107,149,933 |
|
|
$ |
187.6 |
|
|
$ |
40.2 |
|
|
$ |
(0.4 |
) |
|
$ |
(302.3 |
) |
|
$ |
(25.1 |
) |
|
$ |
(100.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of warrants
|
|
|
|
|
|
|
|
|
|
|
7.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.7 |
|
Accretion of interest on redeemable common and preferred shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.1 |
) |
|
|
|
|
|
|
(0.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
107,149,933 |
|
|
|
187.6 |
|
|
|
47.9 |
|
|
|
(0.4 |
) |
|
|
(302.4 |
) |
|
|
(25.1 |
) |
|
|
(92.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.6 |
) |
|
|
|
|
|
|
(1.6 |
) |
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.9 |
|
|
|
0.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.6 |
) |
|
|
0.9 |
|
|
|
(0.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at April 30, 2005
|
|
|
107,149,933 |
|
|
$ |
187.6 |
|
|
$ |
47.9 |
|
|
$ |
(0.4 |
) |
|
$ |
(304.0 |
) |
|
$ |
(24.2 |
) |
|
$ |
(93.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(The accompanying notes are an integral part of these
consolidated financial statements)
F-6
Mitel Networks Corporation
(incorporated under the laws of Canada)
Consolidated Statements of Cash Flows
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended | |
|
|
|
|
| |
|
Six Days Ended | |
|
|
April 27, | |
|
April 25, | |
|
April 24, | |
|
April 30, | |
|
|
2003 | |
|
2004 | |
|
2005 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
CASH PROVIDED BY (USED IN)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(70.1 |
) |
|
$ |
(30.6 |
) |
|
$ |
(49.6 |
) |
|
$ |
(1.6 |
) |
|
Adjustments to reconcile net loss to net cash from operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization and depreciation
|
|
|
42.6 |
|
|
|
11.8 |
|
|
|
8.9 |
|
|
|
0.2 |
|
|
|
Fair value adjustment on derivative instruments
|
|
|
|
|
|
|
|
|
|
|
5.3 |
|
|
|
0.1 |
|
|
|
Beneficial conversion feature on convertible debentures
|
|
|
|
|
|
|
3.1 |
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
0.2 |
|
|
|
0.2 |
|
|
|
|
|
|
|
|
|
|
|
Increase in deferred income taxes
|
|
|
|
|
|
|
(1.5 |
) |
|
|
|
|
|
|
|
|
|
|
Change in pension liability
|
|
|
|
|
|
|
1.6 |
|
|
|
0.9 |
|
|
|
|
|
|
|
Special charges
|
|
|
2.7 |
|
|
|
0.3 |
|
|
|
|
|
|
|
|
|
|
|
Loss on sale of manufacturing operations
|
|
|
|
|
|
|
0.6 |
|
|
|
3.4 |
|
|
|
|
|
|
|
Loss on sale of property and equipment
|
|
|
0.2 |
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
Unrealized foreign exchange gain
|
|
|
(1.4 |
) |
|
|
(2.9 |
) |
|
|
(2.0 |
) |
|
|
(0.9 |
) |
|
|
Non-cash movements in provisions
|
|
|
8.9 |
|
|
|
5.1 |
|
|
|
5.5 |
|
|
|
|
|
|
|
Change in non-cash operating assets and liabilities, net
|
|
|
5.0 |
|
|
|
23.0 |
|
|
|
(4.2 |
) |
|
|
1.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
(11.9 |
) |
|
|
10.8 |
|
|
|
(31.8 |
) |
|
|
(1.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to capital and intangible assets
|
|
|
(4.2 |
) |
|
|
(3.7 |
) |
|
|
(4.5 |
) |
|
|
(0.1 |
) |
|
(Increase) decrease in restricted cash
|
|
|
|
|
|
|
|
|
|
|
0.9 |
|
|
|
(1.0 |
) |
|
Proceeds from repayment of related party notes receivable
|
|
|
5.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized foreign exchange loss on hedging activities
|
|
|
(4.2 |
) |
|
|
(6.7 |
) |
|
|
(8.4 |
) |
|
|
|
|
|
Realized foreign exchange gain on hedging activities
|
|
|
2.9 |
|
|
|
4.1 |
|
|
|
6.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(0.2 |
) |
|
|
(6.3 |
) |
|
|
(5.8 |
) |
|
|
(1.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Repayment of) proceeds from bank indebtedness
|
|
|
(10.6 |
) |
|
|
(19.0 |
) |
|
|
8.9 |
|
|
|
(14.6 |
) |
|
Debt issue costs
|
|
|
(0.3 |
) |
|
|
|
|
|
|
|
|
|
|
(0.4 |
) |
|
Proceeds from issuance of convertible notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54.3 |
|
|
Proceeds from issuance of convertible, redeemable preferred
shares
|
|
|
|
|
|
|
15.0 |
|
|
|
|
|
|
|
|
|
|
Proceeds from related party loans payable
|
|
|
23.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayment of related party loans payable
|
|
|
(3.2 |
) |
|
|
(1.0 |
) |
|
|
|
|
|
|
|
|
|
Repayment of capital lease liabilities
|
|
|
(0.6 |
) |
|
|
(0.8 |
) |
|
|
(1.2 |
) |
|
|
|
|
|
Proceeds from long-term debt
|
|
|
1.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayment of long-term debt
|
|
|
(3.3 |
) |
|
|
(4.4 |
) |
|
|
(3.2 |
) |
|
|
|
|
|
Proceeds from issuance of warrants
|
|
|
15.9 |
|
|
|
9.8 |
|
|
|
12.4 |
|
|
|
|
|
|
Proceeds from issuance of convertible debentures
|
|
|
6.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common shares
|
|
|
|
|
|
|
0.1 |
|
|
|
2.4 |
|
|
|
|
|
|
Proceeds from repayments of employee share purchase loans
|
|
|
1.7 |
|
|
|
0.4 |
|
|
|
1.1 |
|
|
|
|
|
|
Share issue costs
|
|
|
(0.4 |
) |
|
|
(2.1 |
) |
|
|
(0.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
30.5 |
|
|
|
(2.0 |
) |
|
|
20.1 |
|
|
|
39.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
0.3 |
|
|
|
1.9 |
|
|
|
0.5 |
|
|
|
(0.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
18.7 |
|
|
|
4.4 |
|
|
|
(17.0 |
) |
|
|
36.9 |
|
Cash and cash equivalents, beginning of period
|
|
|
3.6 |
|
|
|
22.3 |
|
|
|
26.7 |
|
|
|
9.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$ |
22.3 |
|
|
$ |
26.7 |
|
|
$ |
9.7 |
|
|
$ |
46.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(The accompanying notes are an integral part of these
consolidated financial statements)
F-7
Mitel Networks Corporation
(incorporated under the laws of Canada)
Notes to the Consolidated Financial Statements
(in millions, except share and per share amounts)
Mitel Networks Corporation (the Company) is a
leading provider of integrated communications solutions and
services for business customers. Through direct and indirect
channels as well as strategic partnerships, the Company
currently serves a wide range of industry vertical markets,
including education, government, healthcare, hospitality and
retail, in the United States (U.S.), Europe, Middle
East and Africa, Canada, Caribbean and Latin America and
Asia-Pacific regions.
|
|
2. |
Background and Basis of Presentation |
The Company was incorporated under the Canada Business
Corporations Act on January 12, 2001. On February 16,
2001, the Company acquired the Mitel name and
substantially all of the assets and subsidiaries of the
Communications Systems Division (the Division) of
Zarlink Semiconductor Inc. (Zarlink), formerly Mitel
Corporation.
These consolidated financial statements have been prepared by
the Company in accordance with U.S. generally accepted
accounting principles (GAAP) and the rules and
regulations of the U.S. Securities and Exchange Commission (the
SEC) for the preparation of financial statements.
Amounts less than fifty thousand dollars are deemed to be
insignificant in these financial statements.
a) Fiscal
Year End
On April 24, 2005, the Company changed its fiscal year end
from the last Sunday in April, to April 30. The selection
of the last Sunday in April as the Companys fiscal year
end typically resulted in a fifty-two week year with four
thirteen week quarters. The change in the fiscal year end will
allow the Company to better align its reporting results with
those of its industry peers. Results for the six-day transition
period (Transition Period) from April 25, 2005
to April 30, 2005 have been included pursuant to
Rule 13a-10 of the
Securities Exchange Act of 1934, as amended.
b) Basis
of Consolidation
The consolidated financial statements include the accounts of
the Company and of its majority-owned subsidiary companies.
Intercompany transactions and balances have been eliminated on
consolidation.
c) Use
of Estimates
The preparation of the Companys consolidated financial
statements in conformity with GAAP requires management to make
estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated financial statements
and the reported amounts of revenues and expenses during the
reporting periods.
Estimates and assumptions are used for, but not limited to, the
determination of the allowance for doubtful accounts, inventory
allowances, special charges, depreciation and amortization,
warranty costs, sales returns, pension costs, taxes, loss
contingencies, goodwill impairment, and the valuation of stock
options, shares, warrants and derivatives. Estimates and
assumptions are reviewed periodically and the effects of
revisions are reflected in the consolidated financial statements
in the period that they are determined to be necessary. In the
opinion of management, these consolidated financial statements
reflect
F-8
all adjustments necessary to present fairly the results for the
periods presented. Actual results and outcomes could differ from
these estimates.
d) Reporting
Currency and Foreign Currency Translation
Reporting Currency
During Fiscal 2004, the Company adopted the U.S. dollar as its
reporting currency. As a result of the change in reporting
currency, the financial statements for all periods presented
were translated from Canadian dollars to U.S. dollars in
accordance with the Financial Accounting Standards Board
(FASB) Statement No. 52, Foreign Currency
Translation. Income statement balances were translated using
weighted-average
exchange rates over the relevant periods, assets and liabilities
were translated at the exchange rate as of the balance sheet
dates, and shareholders deficiency balances were
translated at the exchange rates in effect on the date of each
transaction. The Company made this change to enhance the
communication of its financial results with its shareholders and
potential investors using the currency that is familiar to both
groups. This presentation is also more consistent with the
presentation of the financial results of its industry
counterparts and competitors. There has been no change in the
functional currencies used in preparing these consolidated
financial statements.
Foreign Currency
Translation
The financial statements of the parent company and its
subsidiaries are measured using their local currency as the
functional currency. Assets and liabilities of the
Companys foreign operations are translated from foreign
currencies into U.S. dollars at the exchange rates in effect at
the balance sheet date while revenue, expenses and cash flow
amounts are translated at weighted-average exchange rates for
the period. The resulting unrealized gains or losses are
recorded as a component of accumulated other comprehensive
income (loss) in shareholders deficiency until there
is a reduction in the net investment in a foreign operation.
Other monetary assets and liabilities, which are denominated in
currencies foreign to the local currency of any subsidiary, are
translated to the local currency at the exchange rates in effect
at the balance sheet date, and transactions included in earnings
are translated at weighted-average exchange rates during the
period. Exchange gains and losses resulting from the translation
of these accounts are included in other income (expense), net,
in the Consolidated Statements of Operations.
e) Revenue
Recognition
The Company recognizes revenue when persuasive evidence of an
arrangement exists, delivery has occurred, title and risk of
loss have been transferred to the customer, the fee is fixed or
determinable, and collection is reasonably assured.
Software revenue is recognized when persuasive evidence of an
arrangement exists, delivery has occurred in accordance with the
terms and conditions of the contract, the fee is fixed or
determinable, and collection is reasonably assured. For software
arrangements involving multiple elements, revenue is allocated
to each element based on the relative fair value or the residual
method, as applicable, and using vendor specific objective
evidence of fair values, which is based on prices charged when
the element is sold separately. Revenue related to post-contract
support (PCS), including technical support and
unspecified when-and-if available software upgrades, is
recognized ratably over the PCS term for contracts that are
greater than one year. For contracts where the post contract
period is one year or less, the costs are deemed insignificant,
and the unspecified software upgrades are expected to be and
historically have been infrequent, revenue is recognized
together with the initial licensing fee and the estimated costs
are accrued.
F-9
Indirect channels
The Company makes sales to distributors and resellers based on
contracts with terms typically ranging from one to three years.
For products sold through these distribution channels, revenue
is recognized at the time the risk of loss is transferred to
distributors and resellers according to contractual terms and if
all contractual obligations have been satisfied. These
arrangements usually involve multiple elements, including
post-contract technical support and training. Costs related to
insignificant technical support obligations, including
second-line telephone support for certain products, are accrued.
For other technical support and training obligations, revenue
from product sales is allocated to each element based on vendor
specific objective evidence of relative fair values, generally
representing the prices charged when the element is sold
separately, with any discount allocated proportionately. Revenue
attributable to undelivered elements is deferred and recognized
upon performance or ratably over the contract period.
The Companys standard warranty period extends fifteen
months from the date of sale and extended warranty periods are
offered on certain products. At the time product revenue is
recognized an accrual for estimated warranty costs is recorded
as a component of cost of sales based on prior claims
experience. Sales to the Companys resellers do not provide
for return or price protection rights while sales to
distributors provide for such rights. Product return rights are
limited to a percentage of sales over a maximum three-month
period. A reserve for estimated product returns and price
protection rights based on past experience is recorded as a
reduction of sales at the time product revenue is recognized.
The Company offers various cooperative marketing programs to
assist its distribution channels to market the Companys
products. Allowances for such programs are recorded as marketing
expenses at the time of shipment based on contract terms and
prior claims experience.
Direct channels
The Company sells products, including installation and related
maintenance and support services, directly to customers. For
products sold through direct channels, revenue is recognized at
the time of delivery and at the time risk of loss is
transferred, based on prior experience of successful compliance
with customer specifications. Revenue from installation is
recognized as services are rendered and when contractual
obligations, including customer acceptance, have been satisfied.
Revenue is also derived from professional service contracts with
terms that typically range from two to six weeks for standard
solutions and for longer periods for customized solutions.
Revenue from customer support, professional services and
maintenance contracts is recognized ratably over the contractual
period, generally one year. Billings in advance of services are
included in deferred revenues. Revenue from installation
services provided in advance of billing is included in unbilled
accounts receivable.
Certain arrangements with direct customers provide for free
customer support and maintenance services extending twelve
months from the date of installation. Customer support and
maintenance contracts are also sold separately. When customer
support or maintenance services are provided free of charge,
such amounts are unbundled from the product and installation
revenue at their fair market value based on the prices charged
when the element is sold separately and recognized ratably over
the contract period. Consulting and training revenues are
recognized upon performance.
The Company provides long-term outsourcing services of
communication systems. Under these arrangements, systems
management services (Managed Services) and
communication equipment are provided to customers for terms that
typically range from one to ten years. Revenue from Managed
Services is recognized ratably over the contract period. The
Company retains title and risk of loss associated with the
equipment utilized in the provision of the Managed Services.
Accordingly, the equipment is capitalized as part of property
and equipment and is amortized to cost of sales over the
contract period.
F-10
f) Cash
and Cash Equivalents
Cash and cash equivalents are highly liquid investments that
have terms to maturity of three months or less at the time of
acquisition, and generally consist of cash on hand and
marketable securities. Cash equivalents are carried at cost,
which approximates their fair value.
g) Restricted
Cash
Restricted cash generally represents cash provided to support
letters of credit outstanding and to support certain of the
Companys credit facilities.
h) Allowance
for Doubtful Accounts
The allowance for doubtful accounts represents the
Companys best estimate of probable losses that may result
from the inability of its customers to make required payments.
The Company regularly reviews accounts receivable and uses
judgment to assess the collectibility of specific accounts and
based on this assessment, an allowance is maintained for those
accounts that are deemed to be uncollectible. For the remaining
amounts that are not specifically identified as being
uncollectible, an allowance is estimated based on the aging of
the accounts, the Companys historical collection
experience, and other currently available evidence.
i) Securitizations
and Transfers of Financial Instruments
The Company entered into a Receivables Purchase and Sale
Agreement on April 16, 2004, whereby non-interest bearing
trade receivables are transferred to a securitization trust.
These transfers are accounted for as sales when the Company is
considered to have surrendered control over the transferred
receivables and receives proceeds from the trust, other than a
beneficial interest in the assets sold. Losses on these
transactions are recognized as other expenses at the date of the
receivables sale, and are dependent in part on the previous
carrying amount of the receivables transferred which is
allocated between the receivables sold and the retained
interest, based on their relative fair value at the date of
transfer. Fair value is generally estimated based on the present
value of expected future cash flows using managements best
estimates of key assumptions such as discount rates, weighted
average life of accounts receivable, and credit loss ratios. A
servicing liability is recognized on the date of the transfer
and amortized to income over the expected life of the
transferred receivables. As of April 25, 2004,
April 24, 2005 and April 30, 2005, there were no
securitized receivables outstanding.
j) Inventories
Inventories are valued at the lower of cost (calculated on a
first-in,
first-out basis) or net
realizable value for finished goods, and current replacement
cost for raw materials. The Company provides inventory
allowances based on estimated excess and obsolete inventories.
k) Property
and Equipment
Property and equipment are initially recorded at cost.
Depreciation is provided on a straight-line basis over the
anticipated useful lives of the assets. Estimated lives range
from three to ten years for equipment and twenty-five years for
buildings. Amortization of leasehold improvements is computed
using the shorter of the remaining lease terms or five years.
The Company performs reviews for the impairment of property and
equipment in accordance with FASB Statement No. 144,
Accounting for the Impairment or Disposal of Long-Lived
Assets (SFAS 144) whenever events or
changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. Recoverability is assessed based
on the carrying value of the asset and its fair value, which is
generally determined based on the discounted cash flows expected
to result from the use and the eventual disposal of the asset.
An impairment loss is recognized when the carrying amount is not
recoverable and exceeds fair value.
F-11
Assets leased on terms that transfer substantially all of the
benefits and risks of ownership to the Company are accounted for
as capital leases, as though the asset had been purchased
outright and a liability incurred. All other leases are
accounted for as operating leases.
l) Goodwill
and Intangible Assets
Intangible assets include patents, trademarks, and acquired
technology. Amortization is provided on a
straight-line basis
over five years for patents and over two years for other
intangible assets with finite useful lives. The Company
periodically evaluates intangible assets for impairment in
accordance with SFAS 144 whenever events or changes in
circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability is assessed based on the
carrying value of the asset and its fair value, which is
generally determined based on the discounted cash flows expected
to result from the use and the eventual disposal of the asset.
An impairment loss is recognized when the carrying amount is not
recoverable and exceeds fair value.
Goodwill represents the excess of the purchase price over the
estimated fair value of net tangible and intangible assets
acquired in business combinations. The Company reviews the
carrying value of goodwill on an annual basis in accordance with
FASB Statement No. 142, Goodwill and Other Intangible
Assets (SFAS 142). Under SFAS 142
goodwill is not amortized, but is subject to annual impairment
tests, or more frequently if circumstances indicate that it is
more likely than not that the fair value of the reporting unit
is below its carrying amount. The Company, upon completion of
its annual goodwill impairment tests, determined that no
impairments existed as of the balance sheet dates.
m) Derivative
Financial Instruments
The Company uses derivatives, including foreign currency forward
and swap contracts, to minimize the short-term impact of
currency fluctuations on foreign currency receivables and
payables. These financial instruments are recorded at fair
market value with the related foreign currency gains and losses
recorded in other income (expense), net, in the Consolidated
Statements of Operations. The Company does not hold or issue
derivative financial instruments for speculative or trading
purposes. The Company also utilizes non-derivative financial
instruments including letters of credit and commitments to
extend credit.
As explained in Note 22, the Company has issued
convertible, redeemable preferred shares to investors. The
preferred shares give the investors the right, at any time after
five years to redeem the shares for cash. The redemption amount
is equal to the original issue price of $1.00 per preferred
share times the number of Series A and Series B
Preferred Shares outstanding, plus any declared but unpaid
dividends, plus the then current fair market value of the common
shares into which the Series A and Series B Preferred
Shares are convertible. The requirement to redeem the shares on
an
as-if-converted-to-common
share basis qualifies as an embedded derivative under FASB
Statement No. 133, Accounting for Derivative Instruments
and Hedging Activities (SFAS 133).
Accordingly, the proceeds received from the issuance of the
preferred shares were allocated between the embedded derivative
and the preferred shares. The embedded derivative is then marked
to market throughout the period to redemption with changes in
value recorded in the Consolidated Statements of Operations.
In addition, the make whole premium on the convertible notes and
the redemption rights upon a fundamental change as described
further in Note 18, qualify as a derivative, which will be
marked to market throughout the period to redemption with
changes in value recorded in the Consolidated Statements of
Operations.
n) Income
Taxes
Income taxes are accounted for using the asset and liability
method. Under this approach, deferred tax assets and liabilities
are determined based on differences between the carrying amounts
and the tax basis of assets and liabilities, and are measured
using enacted tax rates and laws. Deferred tax assets are
F-12
recognized only to the extent that it is more likely than not,
in the opinion of management, that the future tax assets will be
realized in the future.
o) Research
and Development
Research costs are charged to expense in the periods in which
they are incurred. Software development costs are deferred and
amortized when technological feasibility has been established,
or otherwise, are expensed as incurred. The Company has not
deferred any software development costs to date.
p) Defined
Benefit Pension Plan
Pension expense under the defined benefit pension plan is
actuarially determined using the projected benefit method
prorated on service and managements best estimate
assumptions. Pension plan assets are valued at fair value. The
excess of any cumulative net actuarial gain (loss) over ten
percent of the greater of the benefit obligation and the fair
value of plan assets is amortized over the average remaining
service period of active employees. The Company periodically
assesses, and adjusts as necessary, the minimum pension
liability recorded on the Consolidated Balance Sheet to equal
the amount by which the accumulated benefit obligation exceeds
the fair value of the plan assets.
The discount rate assumptions used reflect prevailing rates
available on
high-quality,
fixed-income debt instruments. The rate of compensation increase
is another significant assumption used for pension accounting
and is determined by the company, based upon its long-term plans
for such increases.
The company uses a March 31 measurement date for its defined
benefit pension plan.
q) Stock-Based
Compensation Plan
The Company has a stock-based compensation plan described in
Note 24. The Company generally grants stock options for a
fixed number of shares to employees and
non-employees with an
exercise price equal to the fair market value of the shares at
the date of grant. The Company accounts for stock option grants
in accordance with Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees
(APB 25), and related interpretations.
Under APB 25, options granted to employees and directors will
result in the recognition of compensation expense only if the
exercise price is lower than the market price of common shares
on the date of grant. Under FASB Statement No. 123,
Accounting for
Stock-Based
Compensation (SFAS 123), the Company
recognizes compensation expense in connection with grants to
non-employees and former employees by applying the fair value
based method of accounting and also applies variable plan
accounting to such unvested grants. Had compensation cost for
the Companys stock option plan been determined as
prescribed by SFAS 123, pro forma net loss and pro forma
net loss per share would have been as follows, using the
following weighted-average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended | |
|
|
|
|
| |
|
6 Days Ended | |
|
|
April 27, | |
|
April 25, | |
|
April 24, | |
|
April 30, | |
|
|
2003 | |
|
2004 | |
|
2005 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
Net loss available to common shareholders, as reported
(Note 24)
|
|
$ |
(71.2 |
) |
|
$ |
(33.4 |
) |
|
$ |
(55.2 |
) |
|
$ |
(1.7 |
) |
Estimated additional stock-based compensation
|
|
|
(2.1 |
) |
|
|
(1.6 |
) |
|
|
(1.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net loss available to common shareholders
|
|
$ |
73.3 |
|
|
$ |
(35.0 |
) |
|
$ |
(56.7 |
) |
|
$ |
(1.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share, as reported basic and diluted
|
|
$ |
(0.63 |
) |
|
$ |
(0.26 |
) |
|
$ |
(0.49 |
) |
|
$ |
(0.01 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net loss per share basic and diluted
|
|
$ |
(0.65 |
) |
|
$ |
(0.27 |
) |
|
$ |
(0.50 |
) |
|
$ |
(0.01 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk-free interest rate
|
|
|
4.1 |
% |
|
|
3.7 |
% |
|
|
3.8 |
% |
|
|
3.8 |
% |
Dividends
|
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
Expected life of the options
|
|
|
5 years |
|
|
|
5 years |
|
|
|
5 years |
|
|
|
5 years |
|
F-13
Pro forma results disclosed are based on the provisions of
SFAS 123 using a minimum value option pricing model, which
assumes no volatility, to calculate the fair value of stock
options. Changes in the subjective input assumptions can
materially affect the fair value estimate, and therefore the
model used above does not necessarily provide reliable pro forma
results.
r) Earnings
(Loss) per Common Share
Basic earnings (loss) per common share is computed using
the weighted-average number of common shares outstanding during
the period, with net loss adjusted for the impact of accreted
interest on redeemable shares. Diluted earnings (loss) per
common share is computed using the treasury stock method and
assumes that, if a dilutive effect is produced, all dilutive
securities had been exercised at the later of the beginning of
the fiscal period and the security issue date.
s) Other
Comprehensive Loss
Other comprehensive loss is recorded directly to a separate
section of shareholders deficiency in accumulated other
comprehensive loss and includes unrealized gains and losses
excluded from the Consolidated Statements of Operations. These
unrealized gains and losses consist of foreign currency
translation adjustments, which are not adjusted for income taxes
since they primarily relate to indefinite investments in
non-Canadian subsidiaries, and minimum pension liability
adjustments.
t) Advertising
Costs
The cost of advertising is expensed as incurred, except for
cooperative advertising obligations which are expensed at the
time the related sales are recognized. Advertising costs are
recorded in selling, general and administrative expenses. The
Company incurred $7.5, $8.1, $9.4, and $0.2 in advertising costs
during Fiscal 2003, 2004, 2005 and the Transition Period
respectively.
u) Product
Warranties
The Companys product warranties are generally for one year
but can be extended up to five years. At the time revenue is
recognized, a provision for estimated warranty costs is recorded
as a component of cost of sales. The warranty accrual represents
the Companys best estimate of the costs necessary to
settle future and existing claims on products sold as of the
balance sheet date based on the terms of the warranty, which
vary by customer and product, historical product return rates
and estimated average repair costs. The Company periodically
assesses the adequacy of its recorded warranty provisions and
adjusts the amounts as necessary.
v) Recent
Accounting Pronouncements
In January 2003 the FASB issued FASB Interpretation No. 46,
Consolidation of Variable Interest Entities
(FIN 46). In December 2003, FIN 46 was replaced by
FASB Interpretation No. 46(R), Consolidation of
Variable Interest Entities. FIN 46(R) clarifies the
application of Accounting Research Bulletin No. 51,
Consolidated Financial Statements, to certain
entities in which equity investors do not have the
characteristics of a controlling financial interest or do not
have sufficient equity at risk for the entity to finance its
activities without additional subordinated financial support
from other parties. FIN 46(R) requires an enterprise to
consolidate a variable interest entity if that enterprise will
absorb a majority of the entitys expected losses, is
entitled to receive a majority of the entitys expected
residual returns, or both. The consolidation provisions of
FIN 46(R) were effective immediately for interests created
after January 31, 2003 and were effective on March 31,
2004 for interests created before February 1, 2003. The
adoption of this standard did not have a material effect on the
financial position, results of operations or cash flows of the
Company.
In May 2003, the FASB issued SFAS 150, Accounting for
Certain Financial Instruments with Characteristics of both
Liabilities and Equity. SFAS 150 establishes standards for
the Companys classification in the financial statements of
instruments that have characteristics of both liabilities and
F-14
equity. Specifically, mandatorily redeemable financial
instruments, which embody an unconditional obligation requiring
the issuer to redeem the instrument, are required to be recorded
as liabilities in the financial statements. Financial
instruments that embody a conditional obligation to redeem the
instrument upon an event that is not certain to occur will
become mandatorily redeemable, and therefore classified as a
liability, if the event occurs, the condition is resolved, or
the event becomes certain to occur. The adoption of this
standard may affect the classification of the Companys
redeemable common and preferred shares, which are currently
classified between the liabilities section and the equity
section of the Consolidated Balance Sheet. On adoption of the
standards, these instruments will have to be assessed at each
reporting date to determine whether redemption of the
instruments is no longer conditional. An assessment that
redemption of the shares is unconditional will require that the
shares be reclassified within liabilities as Shares
Subject to Mandatory Redemption and related accreted
interest recorded as interest expense in the Consolidated
Statement of Operations on a prospective basis with no
restatement of prior periods presented. Under
FSP 150-3, the
implementation of SFAS 150 for
non-public entities
with respect to certain mandatorily redeemable preferred shares
has been deferred indefinitely.
In September 2004, the EITF reached a consensus on Issue
No. 04-8,
The Effect of Contingently Convertible Debt on Diluted
Earnings Per Share
(EITF 04-8),
which addresses when the dilutive effect of contingently
convertible debt instruments should be included in diluted
earnings (loss) per share.
EITF 04-8 requires
that contingently convertible debt instruments be included in
the computation of diluted earnings (loss) per share
regardless of whether the market price trigger has been met.
EITF 04-8 also
requires that prior period diluted earnings (loss) per
share amounts presented for comparative purposes be restated.
EITF 04-8 is
effective for reporting periods ending after December 15,
2004. The adoption of
EITF 04-8 did not
have an impact, if any, on the Companys diluted earnings
(loss) per share.
In November 2004, the FASB issued Statement No. 151,
Inventory Costs (SFAS 151).
SFAS 151 amends the guidance in ARB No. 43,
Chapter 4, Inventory Pricing, to clarify the
types of costs that should be expensed rather than capitalized
as inventory. Among other provisions, the new rule requires that
items such as idle facility expense, excessive spoilage, double
freight, and rehandling costs be recognized as current-period
charges regardless of whether they meet the criterion of
so abnormal as stated in ARB No. 43.
Additionally, SFAS 151 requires that the allocation of
fixed production overhead to the costs of conversion be based on
the normal capacity of the production facilities. SFAS 151
is effective for fiscal years beginning after June 15,
2005, or for the Companys Fiscal 2007 year end. The
Company is currently evaluating the requirements of
SFAS 151 and has not yet fully determined the impact, if
any, on the consolidated financial statements.
In December 2004, the FASB issued Statement No. 123
(revised 2004), Share-Based Payment
(SFAS 123(R)), which revises
SFAS 123 and supercedes APB 25. SFAS 123(R)
requires all share-based payments to employees, including grants
of stock options, to be recognized in the financial statements
based on their fair values. The statement is effective for the
Company as of the beginning of the first annual reporting period
starting after June 15, 2005, or for the Companys
Fiscal 2007 year end. The Company is currently evaluating
the requirements of SFAS 123(R) and has not yet fully
determined the impact, if any, on the consolidated financial
statements. The
stock-based employee
compensation expense required to be disclosed under the existing
SFAS 123 is disclosed in Note 3 (q).
In May 2005, the FASB issued Statement No. 154,
Accounting Changes and Error Corrections
a replacement of APB Opinion No. 20 and FASB Statement
No. 3. SFAS 154 replaces APB Opinion No. 20,
Accounting Changes, and FASB Statement No. 3,
Reporting Accounting Changes in Interim Financial Statements,
and changes the requirements for the accounting for and
reporting of a change in accounting principle. SFAS 154
requires retrospective application to prior periods
financial statements of changes in accounting principle, unless
it is impracticable to do so, in which case other alternatives
are required. SFAS 154 is effective for accounting changes
and corrections of errors made in fiscal years beginning after
December 15, 2005, or for the Companys Fiscal
2007 year end. The Company is currently evaluating the
requirements of SFAS 154 and has not yet fully determined
the impact, if any, on the consolidated financial statements.
F-15
(w) Unaudited
Pro Forma Information
The pro forma balance sheet information assumes the following
upon completion of the initial public offering of the following:
|
|
|
|
|
10,000,000 issued and outstanding, redeemable common shares
converted into common shares with the rights of the holder to
require us to redeem the common shares terminating upon the
completion of this offering; |
|
|
|
20,000,000 issued and outstanding, Series A, convertible,
redeemable preferred shares will be converted in accordance with
their terms into common shares in connection with the completion
of this offering; |
|
|
|
67,789,300 issued and outstanding, Series B convertible,
redeemable preferred shares will be converted in accordance with
their terms into common shares in connection with the completion
of this offering; |
|
|
|
5,000,000 warrants to be exercised in accordance with their
terms in connection with the completion of this offering; and |
|
|
|
1,000,000 warrants to be exercised in accordance with their
terms just prior to the completion of this offering. |
(x) Unaudited
Pro Forma Net Income Per Share
Pro forma basic and diluted income per ordinary share is
computed by dividing net income by the weighted average number
of common shares outstanding plus the number of common shares
resulting from the following:
|
|
|
|
|
conversion of the redeemable common shares, the Series A
convertible, redeemable preferred shares and the Series B
convertible, redeemable preferred shares upon completion of this
offering; |
|
|
|
exercise of 5,000,000 warrants upon completion of this
offering; and |
|
|
|
exercise of 1,000,000 warrants just prior to the completion of
this offering. |
|
|
4. |
Restatement and Comparative Figures |
Effective Fiscal 2006, the Company revised its allocation of
revenues and cost of revenues between product and service
groups, and as a result restated certain figures in these 2005
Consolidated Financial Statements from those previously filed
with the SEC. The corresponding 2003 and 2004 figures have been
reclassified to conform to this restated presentation. The
revision resulted in a reclassification of $39.4, $23.8, $24.7,
and $0.1 from product revenues to service revenues, and also
resulted in a reclassification of $23.3, $21.9, $20.4, and $0.1
from product cost of revenues to service cost of revenues for
2003, 2004, 2005 and the Transition Period respectively. These
statements have also been restated to reflect a change in
reportable segments as described in Note 7 and to exclude
the U.S. to Canadian GAAP reconciliation included in the
previous set of statements as Note 28.
|
|
5. |
Related Party Transactions |
Significant related party transactions with companies controlled
by or related to the Principal Shareholder, not otherwise
disclosed in the financial statements, include the following:
Disposal of manufacturing
operations
On August 31, 2001, the Company sold its manufacturing
operations, comprising plant, equipment, workforce and certain
liabilities to BreconRidge Manufacturing Solutions Corporation
(BreconRidge), a company in which the Principal
Shareholder holds a significant interest, for total net
consideration of $5.0 in the form of long-term promissory notes
receivable of $5.4 and promissory notes payable of $0.4. The
F-16
total net consideration approximated the fair value of the
disposed manufacturing tangible net assets. The long-term
promissory notes receivable were secured by a first charge on
the manufacturing assets transferred, bore interest at LIBOR
rate plus 1.5 percent and were repaid in
February 2003. Interest income related to the promissory
notes receivable amounted to $0.1 in Fiscal 2003. The
promissory notes payable bore interest at LIBOR rate plus
1.5 percent and were set off against the promissory notes
receivable on August 31, 2002 pursuant to an agreement with
BreconRidge. As a result of the repayment in February 2003,
there was no interest expense recorded in Fiscal 2004,
Fiscal 2005 and the Transition Period (Fiscal
2003 insignificant). During Fiscal 2004,
BreconRidge vacated premises that had been subleased from the
Company pursuant to the disposal of the manufacturing
operations. It became evident therefore that sublease income
over the lease renewal period, which was originally included in
the estimated loss on disposal, will no longer be realized. As a
result an additional expense of $3.4 (Fiscal 2004
$0.6), was recorded in the Fiscal 2005 Consolidated Statements
of Operations as an additional loss arising on the disposal
activity.
In connection with the disposal of the manufacturing operations,
the Company entered into a supply agreement dated
August 31, 2001 whereby BreconRidge will provide certain
products and services under terms and conditions reflecting
prevailing market conditions at the time the agreement was
entered into. The term of the agreement is six years and will
be, unless otherwise terminated, automatically renewed on the
same terms and conditions for additional consecutive one-year
periods. Under the terms of the supply agreement, BreconRidge is
required to purchase the Companys raw material inventory,
before turning to third party suppliers for raw material
procurement. During Fiscal 2005 and the Transition Period, the
Company purchased $94.2 and $1.8, respectively, of products and
services (2003 $115.7; 2004 $84.9) and
sold $0.9 and $0.1, respectively, of raw material inventory
(2003 $6.4; 2004 $2.7) under this
agreement. As of April 24, 2005 and April 30, 2005,
balances payable pursuant to this agreement amounted to $17.1
and $15.4, respectively, (2004 $15.4) and balances
receivable pursuant to this agreement amounted to $1.6 and $1.7,
respectively (2004 $1.7).
Under the terms of the supply agreement, the Company is required
to purchase from BreconRidge certain tools used in the
manufacturing process. These manufacturing tools are capitalized
as part of fixed assets and are depreciated over their estimated
useful lives. During Fiscal 2005 and the Transition Period,
manufacturing tools purchased from BreconRidge amounted to $0.2
and $nil, respectively (2003 $1.2; 2004
$0.1).
On August 31, 2001, the Company also entered into service
agreements with BreconRidge to provide facilities management
services for the period covering the term of the premise lease
agreements, as well as human resource and information systems
support services. Amounts charged to BreconRidge were equal to,
and recorded as a reduction of, the costs incurred to provide
the related services in the Consolidated Statements of
Operations. During Fiscal 2005 and the Transition Period, the
Company provided services valued at $1.0 and $nil, respectively,
under these agreements (2003 $4.7; 2004
$3.3).
Leased properties
In March 2001 the Company and Mitel Research Park, a company
controlled by the Principal Shareholder entered into a lease
agreement for its Ottawa-based headquarter facilities, under
terms and conditions reflecting prevailing market conditions at
the time the lease was entered into. The lease agreement is for
10 years expiring in March 2011.
On August 31, 2001, the Company entered into sublease
agreements with BreconRidge for certain office and manufacturing
facilities in Ottawa and in the United Kingdom
(U.K.) under terms and conditions reflecting
prevailing market conditions at the time the leases were entered
into. The sublease agreement was amended on May 31, 2002 to
increase leased space. The Ottawa sublease agreement is for a
term of five years expiring on August 31, 2006 and the U.K.
lease agreement is for a term of fifteen years expiring in
August 2016 with cancellation options on the fifth and tenth
years available to the Company and BreconRidge.
F-17
See Note 19 for disclosure of related party rental expense,
sublease income, committed future minimum lease payments and
future sublease income. As of April 25, 2004,
April 24, 2005 and April 30, 2005, balances due to the
company controlled by the Principal Shareholder and related to
the lease agreement were insignificant.
Financing
During Fiscal 2003, the Company borrowed funds to finance its
operations from Wesley Clover Corporation, a company controlled
by the Principal Shareholder. The loans bore interest at prime
and the interest expense incurred on these related party loans
amounted to $0.6 and $0.7 in Fiscal 2003 and 2004,
respectively.
In October 2003, the entire carrying value of the demand loans
of $31.0 was converted into 20,448,875 common shares of the
Company at the then fair value of the common shares of C$2.00
per common share. The fair value of the common shares issued
upon extinguishment of the loans was equal to the carrying value
of the demand loans on the date of extinguishment, therefore no
gain or loss resulted from the transaction. On April 23,
2004, all of the 20,448,875 common shares were then
exchanged for 40,897,750 Series B Convertible, Redeemable
Preferred Shares at the then fair value of C$1.00 per preferred
share (see Note 22).
Research and
development
From February 16, 2001 to November 1, 2002, the
Company was party to a research and development arrangement with
Mitel Knowledge Corporation, a company controlled by the
Principal Shareholder, under which the Company received funding
to perform research and development activities. During Fiscal
2003, the Company received $4.4 of research and development
funding related to these agreements, which was recorded as a
reduction of related expenses, and incurred royalty expenses.
The agreement was terminated as of November 1, 2002, and
for Fiscal 2004, Fiscal 2005 and the Transition Period there
were no amounts received or receivable under the agreement.
Other
In September 2001, the Company entered into a strategic alliance
agreement and a global distribution agreement with March
Networks Corporation (March Networks), a company
controlled by the Principal Shareholder, to broaden its product
portfolio and its distribution channel. Under the terms of the
agreement, the parties agree to cooperate in the performance of
joint development activities and each party will bear its own
costs arising in connection with the performance of its
obligations. Both parties will share common costs incurred in
the performance of joint activities. During Fiscal 2005 and the
Transition Period, the Company purchased $0.4 and $ nil of
products and services, respectively, (2003 $2.4;
2004 $1.0) from March Networks and had an
insignificant balance payable recorded in the due to related
parties pursuant to this agreement at April 25, 2004,
April 24, 2005 and April 30, 2005.
Other sales to and purchases from companies related to the
Principal Shareholder and arising in the normal course of the
Companys business were $0.4 and $1.2 respectively for the
year ended April 24, 2005 and insignificant in the
Transition Period (2003 $0.9 and $0.5, respectively;
2004 $0.3 and $0.7 respectively). The net balances
payable as a result of these transactions were $0.3 and
$ nil as of April 24, 2005 and April 30, 2005
respectively (2004 $0.2 receivable). In addition, in
Fiscal 2003 certain of the Companys directors and members
of senior management purchased convertible debentures in an
aggregate amount of $0.3. In Fiscal 2004 these convertible
debentures were converted to common shares of the Company and
later exchanged for Series B Convertible, Redeemable
Preferred Shares, as described in Note 22.
6. Special Charges
During Fiscal 2003, the Company executed restructuring programs
to reduce its workforce across all functions. Accordingly,
pre-tax special charges of $13.7, net of reversals of prior
years charges of $2.2,
F-18
were recorded in Fiscal 2003. The components of the Fiscal 2003
charges included $12.6 of employee severance and benefits
associated with 265 terminated employees throughout the world,
$3.0 of non-cancelable lease costs related to excess facilities
and $0.3 of loss on disposal of capital assets.
During Fiscal 2004, the Company implemented workforce reduction
programs in an effort to realign spending levels with the lower
sales volumes. Accordingly, pre-tax special charges of $11.7,
net of reversals of prior years charges of $0.3, were
recorded in Fiscal 2004. The components of the Fiscal 2004
charges include $8.5 of employee severance and benefits and
associated legal costs incurred in the termination of 196
employees throughout the world, $3.2 of non-cancelable lease
costs related to excess facilities and $0.3 of loss on disposal
of capital assets. The lease termination obligation will be
reduced over the remaining term of the leases, which range from
one year to ten years. Accordingly, the long-term portion of
lease termination obligation has been recorded under long term
liabilities.
During Fiscal 2005 the Company recorded pre-tax special charges
of $10.6. The components of the charge include $8.7 of employee
severance and benefits incurred in the termination of
154 employees around the world, $1.3 of non-cancelable
lease costs related to excess facilities, $0.9 of assets written
off as a result of the Companys discontinuation its the
ASIC design program, and a reversal of prior years charges
of $0.3. Payment of workforce reduction liabilities are expected
to be completed within the next twelve months. The lease
termination obligations incurred in prior fiscal years will be
reduced over the remaining term of the leases, which range from
one year to nine years. Accordingly, the long-term portion of
lease termination obligation has been recorded under long term
liabilities.
The following table summarizes details of the Companys
special charges and related reserve during Fiscal 2004, Fiscal
2005 and the Transition Period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease | |
|
|
|
|
|
|
|
|
Workforce | |
|
Termination | |
|
Assets | |
|
|
|
|
Description |
|
Reduction | |
|
Obligation | |
|
Written Off | |
|
Legal Costs | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
Balance of reserve as of April 27, 2003
|
|
$ |
0.6 |
|
|
$ |
2.6 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
3.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charges
|
|
|
8.1 |
|
|
|
3.2 |
|
|
|
0.3 |
|
|
|
0.4 |
|
|
|
12.0 |
|
|
Adjustments
|
|
|
(0.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.3 |
) |
|
Cash payments
|
|
|
(6.5 |
) |
|
|
(0.7 |
) |
|
|
|
|
|
|
|
|
|
|
(7.2 |
) |
|
Assets written off
|
|
|
|
|
|
|
|
|
|
|
(0.3 |
) |
|
|
|
|
|
|
(0.3 |
) |
|
Foreign currency impact
|
|
|
0.2 |
|
|
|
0.2 |
|
|
|
|
|
|
|
|
|
|
|
0.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance of reserve as of April 25, 2004
|
|
$ |
2.1 |
|
|
$ |
5.3 |
|
|
$ |
|
|
|
$ |
0.4 |
|
|
$ |
7.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charges
|
|
|
8.7 |
|
|
|
1.3 |
|
|
|
0.9 |
|
|
|
|
|
|
|
10.9 |
|
|
Adjustments
|
|
|
(0.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.3 |
) |
|
Cash payments
|
|
|
(8.9 |
) |
|
|
(1.2 |
) |
|
|
|
|
|
|
(0.4 |
) |
|
|
(10.5 |
) |
|
Assets written off
|
|
|
|
|
|
|
|
|
|
|
(0.9 |
) |
|
|
|
|
|
|
(0.9 |
) |
|
Foreign currency impact
|
|
|
0.4 |
|
|
|
0.3 |
|
|
|
|
|
|
|
|
|
|
|
0.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance of reserve as of April 24, 2005
|
|
$ |
2.0 |
|
|
$ |
5.7 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
7.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transition Period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash payments
|
|
|
(0.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.2 |
) |
|
Foreign currency impact
|
|
|
|
|
|
|
(0.1 |
) |
|
|
|
|
|
|
|
|
|
|
(0.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance of reserve as of April 30, 2005
|
|
$ |
1.8 |
|
|
$ |
5.6 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
7.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-19
7. Segment Information
General description
Mitels portfolio of solutions provide advanced voice,
video and data communications platforms, desktop phones and
Internet appliances, applications for customer relationship
management and mobility, messaging and multimedia collaboration.
In previous years, the Company reported its operations in two
segments: the Communications Solutions segment
(Solutions) and the Customer Services segment
(Services). Effective fiscal 2006, Mitel changed its
structure of reporting so that the reportable segments are now
represented by the following four geographic areas: United
States, Canada and Caribbean & Latin America (CALA), Europe,
Middle East & Africa (EMEA), and Asia Pacific. These
reportable segments were determined in accordance with how
management views and evaluates the Companys business. The
results of operations for 2005 and 2004 have been restated to
conform with the new presentation. Results of operations for
2003 have not been restated since the necessary information is
not available and the cost to develop it would be impracticable.
The Companys Chief Executive Officer (CEO) has
been identified as the chief operating decision maker as defined
by SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information. The CEO evaluates the
performance of the segments and allocates resources based on
information provided by the Companys internal management
system. The primary financial measure used by the CEO is the
contribution margin, which includes segment revenues less the
related cost of sales and direct selling costs. The
Company does not allocate research and development, selling,
general and administrative expenses, amortization, stock-based
compensation expense and one-time charges to its segments as
management does not use this information to measure the
performance of the operating segments. These unallocated
expenses are included in shared and unallocated costs in the
reconciliation of operating results. In addition, total asset
information by segment is not presented because the CEO does not
use such segmented measures to allocate resources and assess
performance. Inter-segment sales are based on fair market values
and are eliminated on consolidation. With the exception of
contribution margin defined above, the accounting policies of
reported segments are the same as those described in the summary
of significant accounting policies.
F-20
Business segments
Financial information by geographic area for fiscal years 2004,
2005 and the Transition Period under the new basis of reporting
is summarized below. External revenues are attributed to
geographic area based on sales office location.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada | |
|
|
|
|
|
|
|
|
|
|
|
|
and | |
|
|
|
Asia | |
|
Corporate | |
|
|
|
|
United States | |
|
CALA | |
|
EMEA | |
|
Pacific | |
|
and Other | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Fiscal 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
161.4 |
|
|
$ |
33.4 |
|
|
$ |
140.5 |
|
|
$ |
5.4 |
|
|
$ |
|
|
|
$ |
340.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contribution margin
|
|
|
60.8 |
|
|
|
7.9 |
|
|
|
34.9 |
|
|
|
0.1 |
|
|
|
|
|
|
|
103.7 |
|
|
Shared and unallocated costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
126.0 |
|
|
|
126.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings (loss)
|
|
$ |
60.8 |
|
|
$ |
7.9 |
|
|
$ |
34.9 |
|
|
$ |
0.1 |
|
|
$ |
(126.0 |
) |
|
$ |
(22.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
153.5 |
|
|
$ |
37.2 |
|
|
$ |
145.5 |
|
|
$ |
6.0 |
|
|
$ |
|
|
|
$ |
342.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contribution margin
|
|
|
59.5 |
|
|
|
13.7 |
|
|
|
39.7 |
|
|
|
|
|
|
|
|
|
|
|
112.9 |
|
|
Shared and unallocated costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
154.2 |
|
|
|
154.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings (loss)
|
|
$ |
59.5 |
|
|
$ |
13.7 |
|
|
$ |
39.7 |
|
|
$ |
|
|
|
$ |
(154.2 |
) |
|
$ |
(41.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transition Period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
1.8 |
|
|
$ |
0.4 |
|
|
$ |
1.0 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
3.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contribution margin
|
|
|
0.5 |
|
|
|
|
|
|
|
(0.3 |
) |
|
|
(0.1 |
) |
|
|
|
|
|
|
0.1 |
|
|
Shared and unallocated costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.8 |
|
|
|
(1.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings (loss)
|
|
$ |
0.5 |
|
|
$ |
|
|
|
$ |
(0.3 |
) |
|
$ |
(0.1 |
) |
|
$ |
(1.8 |
) |
|
$ |
(1.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth information by business segment
for 2003 under the previous basis of reporting.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate | |
|
|
|
|
Solutions | |
|
Services | |
|
and Other | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
Fiscal 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External revenue
|
|
$ |
164.8 |
|
|
$ |
187.4 |
|
|
$ |
|
|
|
$ |
352.2 |
|
|
Inter-segment revenue
|
|
|
30.0 |
|
|
|
|
|
|
|
(30.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$ |
194.8 |
|
|
$ |
187.4 |
|
|
$ |
(30.0 |
) |
|
$ |
352.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$ |
3.1 |
|
|
$ |
2.1 |
|
|
$ |
|
|
|
$ |
5.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation of property and equipment
|
|
$ |
4.6 |
|
|
$ |
3.0 |
|
|
$ |
5.1 |
|
|
$ |
12.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating income (loss)
|
|
$ |
10.1 |
|
|
$ |
41.1 |
|
|
$ |
|
|
|
$ |
51.2 |
|
|
Corporate and unallocated shared expenses
|
|
|
|
|
|
|
|
|
|
|
(80.3 |
) |
|
|
(80.3 |
) |
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
(0.2 |
) |
|
|
(0.2 |
) |
|
Special charges
|
|
|
|
|
|
|
|
|
|
|
(13.7 |
) |
|
|
(13.7 |
) |
|
Amortization of intangible assets
|
|
|
|
|
|
|
|
|
|
|
(29.1 |
) |
|
|
(29.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$ |
10.1 |
|
|
$ |
41.1 |
|
|
$ |
(123.3 |
) |
|
$ |
(72.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
F-21
Product information
As described in Note 3, effective fiscal 2006, the Company
revised the allocation of revenues between its product and
service groups. The following table sets forth the net revenues
for groups of similar products and services by period under the
revised basis of reporting:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transition | |
|
|
2003 | |
|
2004 | |
|
2005 | |
|
Period | |
|
|
| |
|
| |
|
| |
|
| |
Products:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Platforms and desktop appliances
|
|
$ |
157.9 |
|
|
$ |
168.1 |
|
|
$ |
165.1 |
|
|
$ |
1.3 |
|
|
Applications
|
|
|
29.6 |
|
|
|
23.9 |
|
|
|
23.5 |
|
|
|
0.3 |
|
|
Other(1)
|
|
|
29.8 |
|
|
|
15.1 |
|
|
|
19.1 |
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
217.3 |
|
|
|
207.1 |
|
|
|
207.7 |
|
|
|
1.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maintenance and support
|
|
|
95.9 |
|
|
|
95.4 |
|
|
|
85.3 |
|
|
|
1.2 |
|
|
Installation
|
|
|
18.1 |
|
|
|
15.8 |
|
|
|
22.1 |
|
|
|
0.1 |
|
|
Managed services
|
|
|
9.7 |
|
|
|
10.6 |
|
|
|
10.9 |
|
|
|
0.2 |
|
|
Professional services
|
|
|
11.2 |
|
|
|
11.8 |
|
|
|
16.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
134.9 |
|
|
|
133.6 |
|
|
|
134.5 |
|
|
|
1.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
352.2 |
|
|
$ |
340.7 |
|
|
$ |
342.2 |
|
|
$ |
3.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Other products include mainly OEM products representing
approximately eight percent, four percent, six percent and three
percent of total revenue in Fiscal 2003, Fiscal 2004, Fiscal
2005, and Transition Period respectively. |
Geographic
information
Revenue from external customers are attributed to the following
countries based on location of the customers.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transition | |
|
|
2003 | |
|
2004 | |
|
2005 | |
|
Period | |
|
|
| |
|
| |
|
| |
|
| |
Canada
|
|
$ |
25.1 |
|
|
$ |
25.2 |
|
|
$ |
26.5 |
|
|
$ |
0.3 |
|
United States
|
|
|
173.3 |
|
|
|
162.8 |
|
|
|
155.3 |
|
|
|
1.8 |
|
United Kingdom
|
|
|
126.0 |
|
|
|
124.2 |
|
|
|
127.3 |
|
|
|
1.0 |
|
Other foreign countries
|
|
|
27.8 |
|
|
|
28.5 |
|
|
|
33.1 |
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
352.2 |
|
|
$ |
340.7 |
|
|
$ |
342.2 |
|
|
$ |
3.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Geographic long-lived asset information is based on the physical
location of the assets as of the end of each fiscal period. The
following table sets forth long-lived assets by geographic areas:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 25, 2004 | |
|
April 24, 2005 | |
|
|
| |
|
| |
|
|
Property and | |
|
|
|
Intangible and | |
|
Property and | |
|
|
|
Intangible and | |
|
|
Equipment | |
|
Goodwill | |
|
Other Assets | |
|
Equipment | |
|
Goodwill | |
|
Other Assets | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Canada
|
|
$ |
6.2 |
|
|
$ |
3.5 |
|
|
$ |
1.5 |
|
|
$ |
9.5 |
|
|
$ |
3.8 |
|
|
$ |
1.9 |
|
United States
|
|
|
0.9 |
|
|
|
0.7 |
|
|
|
|
|
|
|
0.9 |
|
|
|
0.8 |
|
|
|
|
|
United Kingdom
|
|
|
12.9 |
|
|
|
1.4 |
|
|
|
|
|
|
|
10.2 |
|
|
|
1.6 |
|
|
|
|
|
Other foreign countries
|
|
|
0.3 |
|
|
|
|
|
|
|
|
|
|
|
0.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
20.3 |
|
|
$ |
5.6 |
|
|
$ |
1.5 |
|
|
$ |
20.9 |
|
|
$ |
6.2 |
|
|
$ |
1.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30, 2005 | |
|
|
| |
|
|
Property and | |
|
|
|
Intangible and | |
|
|
Equipment | |
|
Goodwill | |
|
Other Assets | |
|
|
| |
|
| |
|
| |
Canada
|
|
$ |
9.3 |
|
|
$ |
3.6 |
|
|
$ |
1.8 |
|
United States
|
|
|
0.9 |
|
|
|
0.9 |
|
|
|
|
|
United Kingdom
|
|
|
10.1 |
|
|
|
1.5 |
|
|
|
|
|
Other foreign countries
|
|
|
0.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
20.6 |
|
|
$ |
6.0 |
|
|
$ |
1.8 |
|
|
|
|
|
|
|
|
|
|
|
Concentrations
The Company sells its products and services to a broad set of
enterprises ranging from large, multinational enterprises, to
small and mid-sized enterprises, government agencies, health
care organizations and schools. Management believes that the
Company is exposed to minimal concentration risk since the
majority of its business is conducted with companies within
numerous industries. The Company performs periodic credit
evaluations of its customers financial condition and
generally does not require collateral for its accounts
receivable. In some cases, the Company will require payment in
advance or security in the form of letters of credit or
third-party guarantees. No single customer accounted for more
than 10 percent of the Companys revenue for the years
ended April 27, 2003, April 25, 2004 and
April 24, 2005 or for the Transition Period.
As a result of the disposal of the manufacturing operations
described in Note 5, BreconRidge exclusively manufactures
substantially all of the Companys Communications Solutions
products at facilities located in Canada, the U.S. and the U.K.
The Company is not obligated to purchase products from
BreconRidge in any specific quantity, except as the Company
outlines in forecasts or orders for products required to be
manufactured by BreconRidge. In addition, the Company may be
obligated to purchase certain excess inventory levels from
BreconRidge that could result from the Companys actual
sales of product varying from forecast. As of April 24,
2005 and April 30, 2005, there was excess inventory of
$0.6, respectively (2004 $1.0) for which the Company
was liable, and has been recorded in the due to related parties
amount. The Companys supply agreement with BreconRidge
results in a concentration that, if suddenly eliminated, could
have an adverse effect on the Companys operations. While
the Company believes that alternative sources of supply would be
available, disruption of its primary source of supply could
create a temporary, adverse effect on product shipments.
8. Securitization of Accounts Receivable
On April 16, 2004, the Company entered into a Receivables
Purchase Agreement (the Agreement). Under the
Agreement, the Company may sell up to $38.9 of non-interest
bearing trade accounts receivable to an unaffiliated financial
institution on a revolving basis. The Company retains an
interest in the transferred accounts receivable equal to the
amount of the required reserve amount and continues to service,
administer and collect the pool of accounts receivable on behalf
of the purchaser and receives a fee for performance of these
services. The Companys interest in collections is
subordinated to the purchasers interest.
Effective December 1, 2004 the Company was not in
compliance with certain covenants required under the terms of
the facility and ceased to sell receivables into the facility.
As of April 24, 2005 and April 30, 2005, the
outstanding balance of the securitized receivables, the interest
retained by the Company in the transferred receivables, and the
servicing liability outstanding were all $nil.
For the years ended April 25, 2004 and April 24, 2005
and the Transition Period ended April 30, 2005, the Company
recognized a pre-tax loss of $nil and $0.3, and $nil
respectively relating to the sale of receivables. There were no
securitized receivables outstanding at the end of each of the
three fiscal years.
F-23
The table below outlines the cash flows received from and paid
to the securitization trust for the years ended April 25,
2004, April 24, 2005 and for the transition period ended
April 30, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended | |
|
Year Ended | |
|
Six Days Ended | |
|
|
April 25, 2004 | |
|
April 24, 2005 | |
|
April 30, 2005 | |
|
|
| |
|
| |
|
| |
Receipts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables sold
|
|
$ |
|
|
|
$ |
64.8 |
|
|
$ |
|
|
|
Less dilutions
|
|
|
|
|
|
|
(1.9 |
) |
|
|
|
|
|
Less loss on sale of receivables
|
|
|
|
|
|
|
(0.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net proceeds on sale of receivables
|
|
|
|
|
|
|
62.6 |
|
|
|
|
|
Service revenue
|
|
|
|
|
|
|
0.3 |
|
|
|
|
|
Disbursements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funding of reserves
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees
|
|
|
|
|
|
|
(0.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
62.5 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
9. Other Receivables
Included in other receivables is an amount of $9.4 and $9.1 as
of April 24, 2005 and April 30, 2005, respectively, for
unbilled accounts (2004 $3.2).
10. Prepaid Expenses and Other Assets
Included in prepaid expenses and other assets is an amount of
$7.9 as of April 24, 2005 and April 30, 2005 for
assets used by the Company in the provision of maintenance and
support services in its Customer Services segment
(2004 $8.2).
11. Inventories
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 25, | |
|
April 24, | |
|
April 30, | |
|
|
2004 | |
|
2005 | |
|
2005 | |
|
|
| |
|
| |
|
| |
Raw materials
|
|
$ |
0.2 |
|
|
$ |
0.7 |
|
|
$ |
0.7 |
|
Finished goods
|
|
|
14.3 |
|
|
|
16.4 |
|
|
|
16.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
14.5 |
|
|
$ |
17.1 |
|
|
$ |
17.4 |
|
|
|
|
|
|
|
|
|
|
|
12. Property and Equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 25, | |
|
April 24, | |
|
April 30, | |
|
|
2004 | |
|
2005 | |
|
2005 | |
|
|
| |
|
| |
|
| |
Cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land
|
|
$ |
0.6 |
|
|
$ |
0.6 |
|
|
$ |
0.6 |
|
|
Buildings
|
|
|
4.6 |
|
|
|
5.0 |
|
|
|
5.0 |
|
|
Equipment
|
|
|
55.0 |
|
|
|
61.6 |
|
|
|
61.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60.2 |
|
|
|
67.2 |
|
|
|
66.6 |
|
|
|
|
|
|
|
|
|
|
|
Less accumulated depreciation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buildings
|
|
|
0.2 |
|
|
|
0.4 |
|
|
|
0.4 |
|
|
Equipment
|
|
|
39.7 |
|
|
|
45.9 |
|
|
|
45.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39.9 |
|
|
|
46.3 |
|
|
|
46.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
20.3 |
|
|
$ |
20.9 |
|
|
$ |
20.6 |
|
|
|
|
|
|
|
|
|
|
|
F-24
As of April 24, 2005 and April 30, 2005, equipment
included leased assets with cost of $2.9 and $2.9, respectively
(2004 $2.9) and accumulated depreciation of $0.4 and
$0.4, respectively (2004 $2.2) and equipment
utilized in the provision of Managed Services (see
Note 3(e)) with cost of $10.9 and $10.8, respectively
(2004 $11.6) and accumulated depreciation of $7.9
and $7.8, respectively (2004 $7.2). Depreciation
expense recorded in Fiscal 2005 and the Transition Period
amounted to $7.6 and $0.2, respectively (2004 $10.8;
2003 $12.7).
13. Goodwill
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 25, | |
|
April 24, | |
|
April 30, | |
|
|
2004 | |
|
2005 | |
|
2005 | |
|
|
| |
|
| |
|
| |
Balance, beginning of the period
|
|
$ |
5.2 |
|
|
$ |
5.6 |
|
|
$ |
6.2 |
|
Foreign currency impact
|
|
|
0.4 |
|
|
|
0.6 |
|
|
|
(0.2 |
) |
|
|
|
|
|
|
|
|
|
|
Balance, end of the period
|
|
$ |
5.6 |
|
|
$ |
6.2 |
|
|
$ |
6.0 |
|
|
|
|
|
|
|
|
|
|
|
The Company has designated its third quarter as the date for the
annual impairment test. The Company performed the required
impairment tests of goodwill in Fiscal 2004 and Fiscal 2005 and
based on these tests, goodwill is not considered to be impaired.
14. Intangible and Other Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 25, | |
|
April 24, | |
|
April 30, | |
|
|
2004 | |
|
2005 | |
|
2005 | |
|
|
| |
|
| |
|
| |
Cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patents, trademarks and other
|
|
$ |
3.2 |
|
|
$ |
3.5 |
|
|
$ |
3.6 |
|
|
Deferred debt issue costs
|
|
|
|
|
|
|
|
|
|
|
3.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.2 |
|
|
|
3.5 |
|
|
|
7.5 |
|
|
|
|
|
|
|
|
|
|
|
Less accumulated amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patents, trademarks and other
|
|
|
1.7 |
|
|
|
1.6 |
|
|
|
1.6 |
|
|
Deferred debt issue costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.7 |
|
|
|
1.6 |
|
|
|
1.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1.5 |
|
|
$ |
1.9 |
|
|
$ |
5.9 |
|
|
|
|
|
|
|
|
|
|
|
Amortization of intangible and other assets was $29.1, $0.2,
$0.7 and $nil in each of Fiscal 2003, Fiscal 2004, Fiscal 2005
and the Transition Period, respectively. Deferred debt issue
costs incurred during the Transition period will be amortized
over 5 years of which $nil has been amortized to date. The
estimated amortization expense related to intangible assets in
existence as of April 30, 2005, over the next five years is
as follows: FY06 $1.5; FY07-$1.5; FY08
$1.3; FY09 $0.8 and FY10 $0.8. The
Company does not allocate intangible assets to its segments, as
management does not use this information to measure the
performance of the operating segments.
As of April 24, 2005, the Company had a 364 day
revolving credit facility of $20.3 (C$25.0) that was repaid in
full on April 27, 2005 and cancelled as of that date. The
facility bore interest at the prime rate or U.S. base rate plus
1.5 percent or LIBOR or Bankers Acceptances plus
2.5 percent, with interest payable monthly, and was secured
by a general assignment of substantially all the Companys
accounts receivable and a general security interest in the
remaining assets of the Company. The credit facility was also
personally guaranteed by the Principal Shareholder. The credit
facility was to mature on June 30, 2005 and contained
certain restrictions and financial covenants. During the fiscal
year ended April 24, 2005, the Company was not in
compliance with certain of these financial covenants, however
the bank provided a consent and waiver of the non-compliance of
those financial covenants. As at year end
F-25
April 25, 2004 and April 24, 2005, the Company was in
compliance with these financial covenants. As of April 24,
2005, the Company had outstanding cash borrowings of $15.7 under
this facility (2004 $6.6) and $0.8 was committed
under letter of credit arrangements (2004 $1.0).
During Fiscal 2003 and 2004, the Companys U.K. subsidiary
had a $6.5 (£4.1) loan facility that was subject to a
borrowing base. The facility bore interest at LIBOR plus
3.5 percent, which would decrease to LIBOR plus
2.5 percent upon receipt of net proceeds of at least C$20.0
from an equity offering. The principal amount of the loan was
payable on March 4, 2004 and interest payable quarterly
starting in June 2003. The facility was secured by a
general assignment of the Companys accounts receivable and
a general security interest in the remaining assets of the
Canadian parent company and its two U.S.
wholly-owned
subsidiaries. The loan facility contained certain restrictions
and financial covenants. During Fiscal 2004, the Company
repaid loans outstanding under the facility and the credit
facility was cancelled.
The Companys U.K. subsidiary has a $1.9 (£1.0)
overdraft facility bearing interest at the banks base rate
plus 1.5%, with interest payable quarterly, and indemnity
facilities totaling $5.7 (£3.0) available for letters of
credit and other guarantees. At April 24, 2005 and
April 30, 2005, $0.9 of the U.K. facilities was committed
under letters of credit and other indemnities (2004
$2.3). The U.K subsidiary also has additional available credit
facilities of $2.0 (£3.8) of which $nil was borrowed at
April 24, 2005 and April 30, 2005 (2004
$nil). The overdraft facility is secured by a first legal charge
over the subsidiarys premises in the U.K., a guarantee by
the parent company, and a counter indemnity to cover the bond,
guarantee and indemnity facility.
|
|
16. |
Accounts Payable and Accrued Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 25, | |
|
April 24, | |
|
April 30, | |
|
|
2004 | |
|
2005 | |
|
2005 | |
|
|
| |
|
| |
|
| |
Trade payable
|
|
$ |
11.8 |
|
|
$ |
18.0 |
|
|
$ |
14.9 |
|
Employee-related payables
|
|
|
9.6 |
|
|
|
9.3 |
|
|
|
11.1 |
|
Restructuring, warranty and other provisions
|
|
|
5.8 |
|
|
|
6.3 |
|
|
|
6.2 |
|
Other accrued liabilities
|
|
|
18.8 |
|
|
|
20.0 |
|
|
|
23.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
46.0 |
|
|
$ |
53.6 |
|
|
$ |
55.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 25, | |
|
April 24, | |
|
April 30, | |
|
|
2004 | |
|
2005 | |
|
2005 | |
|
|
| |
|
| |
|
| |
Capital leases, at interest rates varying from 5.6% to 11.8%,
payable in monthly installments, with maturity dates ranging
from 21 to 46 months, secured by the leased assets
|
|
$ |
1.1 |
|
|
$ |
3.2 |
|
|
$ |
3.2 |
|
Chattel mortgage loan, bearing interest at 7.7%, payable in
monthly installments, repaid in October 2004
|
|
|
1.6 |
|
|
|
|
|
|
|
|
|
Chattel mortgage loan, bearing interest at 6.3%, payable in
monthly installments and due in April 2006, secured by
certain U.K. equipment
|
|
|
1.0 |
|
|
|
0.6 |
|
|
|
0.6 |
|
Mortgage loan, bearing interest at 7.4% until
December 2006, with an option to select a fixed or variable
interest rate thereafter, payable in quarterly installments of
$0.6 (£0.3) fixed until December 2006 with the balance
due in December 2011, secured by the U.K. real estate
properties
|
|
|
11.2 |
|
|
|
10.8 |
|
|
|
10.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14.9 |
|
|
|
14.6 |
|
|
|
14.6 |
|
Less: current portion
|
|
|
4.1 |
|
|
|
2.8 |
|
|
|
2.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
10.8 |
|
|
$ |
11.8 |
|
|
$ |
11.8 |
|
|
|
|
|
|
|
|
|
|
|
F-26
Pursuant to the terms of the building mortgage agreement, the
Companys U.K. subsidiary must comply with certain
financial covenants. At April 25, 2004, April 24, 2005
and April 30, 2005, the subsidiary was in compliance with
these financial covenants.
Interest expense related to
long-term debt,
including obligations under capital leases, was $1.0 in Fiscal
2005 and insignificant in the Transition Period
(2003 $1.4; 2004 $1.3). Future minimum
lease payments as of April 30, 2005 under capital leases
total $3.7 of which $1.1, $1.1, $1.0 and $0.5 relate to Fiscal
years 2006 to 2009, respectively. Interest costs of $0.5
are included in the total future lease payments. Scheduled
principal mortgage repayments during the next five fiscal years
are: 2006 $1.9; 2007 $1.4;
2008 $1.5; 2009 $1.6; 2010 and
beyond $5.0.
|
|
|
Senior Secured Convertible Notes |
On April 27, 2005, the Company issued Senior Secured
Convertible Notes, with attached warrants, for gross proceeds of
$55.0 to a group of private investors (Holders). The
notes mature on April 28, 2010 and accrue interest, payable
semi-annually in
arrears, at LIBOR plus 5.0% for any period prior to the
consummation of a Qualified IPO, LIBOR plus 2.5% for any period
following the consummation of a Qualified IPO and LIBOR plus
10.0% on or after the 30 month anniversary of the issuance
date of the convertible notes if a qualified IPO has not been
consummated. At any time on or after the consummation of a
Qualified IPO or upon the occurrence of a Fundamental Change,
the Holders of the notes are entitled to convert any portion of
the outstanding principal and accrued and unpaid interest into
common shares of the Company with the number of common shares to
be received being calculated based on a formula that considers
the fair value of the common shares in the case of an IPO and,
in the case of a fundamental change, is based on $1.50 per
common share subject to adjustment for a
Make-Whole Premium. The
Make-Whole Premium,
which is based on the effective date of the Fundamental Change,
the current fair value of the Companys common shares and
whether the Fundamental Change occurs
Pre-IPO or
Post-IPO may be settled
in cash, by delivery of common shares or a combination thereof
at the option of the Company. The determination of the
Make-Whole Premium is
not based on interest rates or credit risk and therefore is not
considered clearly and closely related to the host instrument
and qualifies as an embedded derivative under SFAS 133.
Accordingly, the fair value of the embedded derivative is
required to be recorded at fair value separate from the debt
host. As at April 30, 2005 management has determined the
fair value of the derivative instrument to be nominal.
At any time commencing on or after the later of
(i) May 1, 2008 and (ii) the 18 month
anniversary of the
Lock-Up Expiration Date
provided that on each of the 10 consecutive trading days,
the closing sale price per share is at least 200% of the
conversion price of the notes, the Company has the right to
redeem all or any portion of the principal remaining under the
notes at a redemption price equal to the principal plus interest
accrued to the date of redemption plus the net present value of
the remaining interest payments to April 28, 2010. In the
Event of Default, Holders of the notes may accelerate and
require the Company to redeem all or any portion of the notes
held including accrued and unpaid interest. Upon the occurrence
of a Fundamental Change, the Company shall irrevocably offer to
repurchase all or a portion of the note at a price equal to
(i) 125% of the principal of the notes (plus accrued and
unpaid interest) if the Fundamental Change occurs during
18 months after issuance but prior to the consummation of a
Qualified IPO, (ii) 120% of the principal of the notes
(plus accrued and unpaid interest) if the Fundamental Change
occurs following the 18 months after issuance but prior to
the consummation of a Qualified IPO or (iii) 100% of the
principal of the notes (plus accrued and unpaid interest) if the
Fundamental Change occurs following the consummation of a
Qualified IPO. A Fundamental Change includes a consolidation or
merger, sale, transfer or assignment of all or substantially all
of the Companys assets, a purchase of more than 50% of the
Companys outstanding common shares, consummation of a
stock purchase agreement or other business combination, or
reorganization, recapitalization or reclassification of the
common shares of the Company, or any event that results in the
Principal Shareholder beneficially owning in aggregate less than
115 million of the issued and outstanding shares in the
capital of the Company.
F-27
As a redemption upon the occurrence of a fundamental change,
prior to the consummation of a Qualified IPO could result in
(1) the Holder doubling its initial rate of return on the
debt host and (2) the rate of return is at least
twice what would be otherwise be the market return for a
contract that has the same terms and credit risk as the debt
host contract, the redemption feature is not considered to be
clearly and closely related to the debt host and requires
separate accounting from the debt host under the provisions of
FAS 133. At April 30, 2005 management has assigned
nominal value to the derivative instrument.
The Holders of the notes have no voting rights and all payments
due under this note shall rank pari passu with all
additional notes and, prior to the consummation of a Qualified
IPO, shall not be subordinate to any indebtedness of the
Company. The notes are secured by a first priority, perfected
security interest over the assets of the Company and over the
assets and stock of specific subsidiaries.
In conjunction with the issuance of the Senior Secured
Convertible notes, the Company issued 16.5 million
warrants, which are described further in Note 23. The gross
proceeds from the financing were allocated between the notes and
the warrants based on their relative fair values. Debt issue
costs of $3.9 were incurred in connection with the financing
transaction, and have been recorded as a deferred charge within
the Intangible and Other Assets balance in the Consolidated
Balance Sheet.
The following table summarizes the allocation of the convertible
notes among its different elements:
|
|
|
|
|
|
|
April 30, | |
|
|
2005 | |
|
|
| |
Proceeds on issuance of convertible notes
|
|
$ |
55.0 |
|
Less: amount allocated to warrants
|
|
|
(7.7 |
) |
Foreign currency impact
|
|
|
(0.7 |
) |
|
|
|
|
Carrying value of convertible debt
|
|
$ |
46.6 |
|
|
|
|
|
Convertible
Debentures
On August 16, 2002, the Company closed a private offering
of debentures convertible into shares of the Company that
resulted in total cash proceeds of $6.5. The maturity date of
the convertible debentures was July 27, 2003 and was
extended to October 31, 2003 during Fiscal 2004. The
debentures provided for interest to accrue at the rate of 6.5%
per annum payable on the maturity date or upon conversion of the
debentures and accrued interest into common shares of the
Company. The principal amount of the debentures, together with
accrued interest outstanding under the debentures was subject to
mandatory conversion, and would automatically convert into
shares in the Company (i) if an equity financing pursuant
to which equity securities which are, or which are convertible
into, common shares in the Company were issued during the term,
at an equivalent price per share, or (ii) if no such
financing occurred during the term, at the end of the term, into
fully-paid and non-assessable common shares of the Company, at a
price per common share equal to the lesser of C$3.00 per share
and the price per share determined by an independent valuation.
On October 31, 2003 the Company reached an agreement with
the debenture holders whereby the entire carrying value of the
debentures of $8.3 was converted to 5,445,775 common shares of
the Company at C$2.00 per common share. As the conversion price
was lower than the fair market value of the Companys
common shares of C$2.75 per share on the commitment date
(August 16, 2002), a beneficial conversion feature was
triggered resulting in a non-cash expense of $3.1 recorded in
the Fiscal 2004 Consolidated Statements of Operations.
In April 2004, 5,081,619 of the common shares issued upon
conversion of the debentures were exchanged for 10,163,238
Series B Preferred Shares of the Company. During Fiscal
2005, the remaining 364,156 common shares issued to the
convertible debenture holders upon conversion were exchanged for
728,312 Series B preferred shares. As the Company
determined that the fair value of the Series B
F-28
preferred shares to be equivalent to the fair value of the
common shares, there was no gain or loss recorded on the
exchange.
19. Commitments and Guarantees
Operating leases
The Company leases certain equipment and facilities under
arms-length operating leases. The Company is also committed
under related party leases and subleases for certain facilities
(see Note 5). Rental expense and income on operating leases
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transition | |
|
|
2003 | |
|
2004 | |
|
2005 | |
|
Period | |
|
|
| |
|
| |
|
| |
|
| |
Rental expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Arms-length
|
|
$ |
9.9 |
|
|
$ |
8.6 |
|
|
$ |
8.3 |
|
|
$ |
|
|
|
Related party
|
|
|
6.0 |
|
|
|
6.7 |
|
|
|
5.9 |
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
15.9 |
|
|
$ |
15.3 |
|
|
$ |
14.2 |
|
|
$ |
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Arms-length
|
|
$ |
1.2 |
|
|
$ |
0.1 |
|
|
$ |
0.6 |
|
|
$ |
|
|
|
Related party
|
|
|
3.7 |
|
|
|
4.3 |
|
|
|
3.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
4.9 |
|
|
$ |
4.4 |
|
|
$ |
4.2 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Future operating minimum lease payments and future sublease
income are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Future Lease Payments | |
|
Future Lease Income | |
|
|
| |
|
| |
Fiscal year |
|
Arms-length | |
|
Related Party | |
|
Arms-length | |
|
Related Party | |
|
|
| |
|
| |
|
| |
|
| |
2006
|
|
$ |
6.5 |
|
|
$ |
7.0 |
|
|
$ |
0.3 |
|
|
$ |
3.0 |
|
2007
|
|
|
4.6 |
|
|
|
7.0 |
|
|
|
|
|
|
|
1.0 |
|
2008
|
|
|
3.8 |
|
|
|
7.0 |
|
|
|
|
|
|
|
|
|
2009
|
|
|
2.4 |
|
|
|
7.0 |
|
|
|
|
|
|
|
|
|
2010
|
|
|
1.6 |
|
|
|
7.0 |
|
|
|
|
|
|
|
|
|
Thereafter
|
|
|
5.4 |
|
|
|
7.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
24.3 |
|
|
$ |
42.0 |
|
|
$ |
0.3 |
|
|
$ |
4.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-29
Capital expenditures
As of April 30, 2005, capital expenditure commitments to
BreconRidge are $0.1 (2004 $0.1).
Guarantees
The Company has the following major types of guarantees that are
subject to the accounting and disclosure requirements of FASB
Interpretation No. 45, Guarantors Accounting and
Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others
(FIN 45):
Product warranties:
The Company provides all customers with standard warranties on
hardware and software for periods up to fifteen months.
Customers can upgrade the standard warranty and extend the
warranty up to five years on certain products. The following
table details the changes in the warranty liability:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 25, | |
|
April 24, | |
|
April 30, | |
|
|
2004 | |
|
2005 | |
|
2005 | |
|
|
| |
|
| |
|
| |
Balance, beginning of period
|
|
$ |
1.9 |
|
|
$ |
2.1 |
|
|
$ |
2.6 |
|
Warranty costs incurred
|
|
|
(0.7 |
) |
|
|
(1.0 |
) |
|
|
|
|
Warranties issued
|
|
|
0.4 |
|
|
|
1.0 |
|
|
|
|
|
Changes to accruals related to pre-existing warranties
|
|
|
0.5 |
|
|
|
0.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$ |
2.1 |
|
|
$ |
2.6 |
|
|
$ |
2.6 |
|
|
|
|
|
|
|
|
|
|
|
Intellectual
property indemnification obligations:
The Company enters on a regular basis into agreements with
customers and suppliers that include limited intellectual
property indemnification obligations that are customary in the
industry. These guarantees generally require the Company to
compensate the other party for certain damages and costs
incurred as a result of third party intellectual property claims
arising from these transactions. The nature of these
intellectual property indemnification obligations prevents the
Company from making a reasonable estimate of the maximum
potential amount it could be required to pay to its customers
and suppliers. Historically, the Company has not made any
significant indemnification payments under such agreements and
no amount has been accrued in the consolidated financial
statements with respect to these guarantees.
Bid
and performance related bonds:
The Company enters into bid and performance related bonds
related to various customer contracts. Performance related bonds
usually have a term of twelve months and bid bonds generally
have a much shorter term. Potential payments due under these may
be related to the Companys performance and/or the
Companys resellers performance under the applicable
contract. Under FIN 45, the Company must measure and
recognize a liability equal to the fair value of bid and
performance related bonds involving the performance of the
Companys resellers. At April 25, 2004, April 24,
2005 and April 30, 2005 the liability recognized in
accounts payable and accrued liabilities related to these bid
and performance related bonds, based on past experience and
managements best estimate, was insignificant. At
April 24, 2005 and April 30, 2005, the total maximum
potential amount of future payments the Company could be
required to make under bid and performance related bonds was
$5.3 and $5.4, respectively (2004 $8.1).
20. Contingencies
In October 2003 the Company was served with a summons and
complaint in a class action lawsuit brought forward by former
employees of the Company. The complaint alleged liabilities for
pay in lieu of termination notice and temporary reduction in
hours and pension contributions. In October 2004, the Company
reached an agreement with the complainants whereby the complaint
was settled.
F-30
The Company is also party to a small number of legal
proceedings, claims or potential claims arising in the normal
course of its business. In the opinion of the Companys
management and legal counsel, any monetary liability or
financial impact of such claims or potential claims to which the
Company might be subject after final adjudication would not be
material to the consolidated financial position of the Company,
its results of operations, or its cash flows.
21. Redeemable Common Shares
Pursuant to the amended shareholders agreement dated
April 23, 2004, upon failure to complete an initial public
offering (IPO) of its common shares by
September 1, 2006, Zarlink, a shareholder of the Company,
has a right to require the Company to redeem for cash all or
part of its 10,000,000 common shares held in the Company at a
price of C$2.85 per common share. Accordingly, the common shares
held by Zarlink with an original carrying value of $16.9 are
classified in the mezzanine section of the Consolidated Balance
Sheets as redeemable common shares. In addition, an aggregate
amount of $1.3 and $1.3 (2004 $0.9) accreted for the
excess of the redemption amount over the original carrying value
was recorded as of April 24, 2005 and April 30, 2005.
The accreted amount is recorded as an increase in accumulated
deficit.
On April 23, 2004 another shareholder holding 4,000,000
redeemable common shares of the Company reached an agreement
with the Company whereby all 4,000,000 redeemable common shares
were exchanged for 16,000,000 Series B Convertible
Redeemable Preferred Shares of the Company at their then fair
value of C$1.00 per preferred share. As a result of the exchange
the carrying value of the redeemable common shares of $12.5,
including accreted interest, was reclassified from redeemable
common shares to convertible, redeemable preferred shares, all
within the mezzanine section of the Consolidated Balance Sheets.
The following table summarizes the changes in redeemable common
shares during the years presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 25, | |
|
April 24, | |
|
April 30, | |
|
|
2004 | |
|
2005 | |
|
2005 | |
|
|
| |
|
| |
|
| |
Balance, beginning of the period
|
|
$ |
29.0 |
|
|
$ |
17.8 |
|
|
$ |
18.2 |
|
Interest accreted during the period
|
|
|
1.3 |
|
|
|
0.4 |
|
|
|
|
|
Exchange of redeemable common shares, including accreted
interest, for Series B preferred shares
|
|
|
(12.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$ |
17.8 |
|
|
$ |
18.2 |
|
|
$ |
18.2 |
|
|
|
|
|
|
|
|
|
|
|
22. Convertible, Redeemable Preferred Shares
Series A Preferred
Shares
On April 23, 2004 the Company issued 20,000,000
Class A Series 1 Convertible and Redeemable Preferred
Shares (Series A Preferred Shares) for cash
consideration of C$1.00 per share (USD equivalent of $0.73 per
share), together with attached common stock purchase warrants.
As described further in Note 23, the warrants entitle the
Series A holders to purchase 5,000,000 common shares of the
Company at an exercise price of C$1.25 per share. The warrants
are immediately exercisable and expire 7 years from the original
issuance date. The fair value of the warrants on the date of
issuance of $1.0 was allocated from the net proceeds on sale of
the shares and is recorded as a component of shareholders
deficiency.
The Series A Preferred Shares are subject to non-cumulative
dividends as and when declared by the Board of Directors of the
Company. The amount, if any, of any such dividends is at the
absolute discretion of the Board. No dividends have been
declared as of April 25, 2004, April 24, 2005 and
April 30, 2005. The holders of the Series A Preferred
Shares are entitled to elect two members of the Board of
Directors
F-31
of the Company, and at least one of the members of certain
committees of the Board of Directors, and are entitled to vote
as a single class with each share of Series B Preferred
Shares and Common Shares.
The Series A Preferred Shares are convertible at any time
at the option of the holders without payment of any additional
consideration into common shares at a conversion value of C$1.00
per share, plus any declared but unpaid dividends. The terms of
the agreement provide that, if the Company subsequently issues
common shares or common share equivalents at a price less than
the conversion value in effect prior to such issuance (subject
to certain excluded transactions), the conversion value of the
Series A Preferred Shares will be reduced accordingly. The
Series A Preferred Shares also have the following
additional conversion features: i) the shares will automatically
convert into common shares upon the closing of a qualified IPO
or upon a vote or written consent of the majority of the
Series A shareholders; ii) if the Series A
shareholders convert after 2 years from the original issue date,
in addition to the common shares otherwise issuable upon
conversion, the Series A shareholders will also receive, in
respect of each share so converted, an additional number of
common shares equal to the issue price of C$1.00 per preferred
share divided by the fair market value of a common share on the
date of conversion iii) if the shares are converted pursuant to
a non-qualified IPO within the first two years after the
original issuance, the Series A shareholders will receive
an additional number of common shares based on a formula set out
in the articles of the Company which takes into consideration
the relative value of the issue price to the IPO price. As the
fair market value of the common shares into which the
Series A Preferred Shares were convertible was greater than
the effective conversion price for accounting purposes,
determined based on the gross proceeds less the fair value of
the warrants on the date of issuance, a deemed dividend for
this excess of $1.4 was recorded as an increase in the net loss
attributable to common shareholders.
At any date after 5 years from the original issuance date,
or at any date prior to a partial sale event other than a public
offering, the majority holders of the Series A Preferred
Shares have a right to require the Company to redeem the shares
for cash. The redemption amount is equal to the original issue
price of C$1.00 per preferred share times the number of
Series A Preferred Shares outstanding, plus any declared
but unpaid dividends, plus the then current fair market value of
the common shares into which the Series A Preferred Shares
are convertible (other than common shares issuable under
additional conversion features). The Series A shareholders
will also have a right to request the redemption of the
Series A shares upon the exercise of put rights by certain
shareholders. In the event of an exercise of put rights, the
redemption amount will be equal to the original issue price of
C$1.00 per preferred share times the number of Series A
Preferred Shares outstanding, plus any declared but unpaid
dividends, plus the issuance of the number of common shares into
which the Series A Preferred Shares are convertible. At
April 25, 2004, April 24, 2005 and April 30, 2005
management has estimated that the fair market value of the
Companys common shares was equivalent to the fair value of
preferred shares at C$1.00 per share.
As a portion of the redemption price of the preferred shares is
indexed to the common share price of the Company, an embedded
derivative exists which has been bifurcated and accounted for
separately, under SFAS 133. The derivative component
relating to the Series A Preferred Shares was valued at
$8.7 and $8.6 as of April 24, 2005 and April 30, 2005
(April 25, 2004 $6.7), and is recorded as a
liability with the change in the value of the derivative being
recorded as a non-cash expense in the Consolidated Statements of
Operations. The initial value of the Series A Preferred
Shares of $5.8, after allocation of proceeds between warrants
and the derivative instrument, is classified in the mezzanine
section of the Consolidated Balance Sheet. The difference
between the initial carrying amount and the redemption amount is
being accreted over the five-year period to redemption. For
Fiscal 2004, Fiscal 2005 and the Transition Period, the amount
of accreted interest was insignificant, $1.2 and insignificant,
respectively.
Series B Preferred
Shares
On April 23, 2004, pursuant to the issuance of the
Series A Preferred Shares, certain common shareholders of
the Company exchanged 29,530,494 common shares for 67,060,988
Class B Series 1 Convertible and Redeemable Preferred
Shares (Series B Preferred Shares) of the
Company at C$1.00 per preferred share. During Fiscal 2005, the
remaining 364,156 common shares issued to the convertible
F-32
debenture holders (refer to Note 21) upon conversion were
exchanged for 728,312 Series B preferred shares.
The Series B Preferred Shares carry the same rights and
privileges with respect to dividends and votes as the
Series A Preferred Shares, except that the Series B
Preferred Shares rank junior to the Series A Preferred
Shares, but senior to the holders of common shares or any other
class of shares, in the event of payment of preferential amounts
required upon a liquidation or change of control.
The Series B Preferred Shares carry the same conversion
rights, and in the same conversion amounts, as the Series A
Preferred Shares.
At any date after 5 years from the original issuance date,
or at any date prior to a partial sale event other than a public
offering, the majority holders of the Series B Preferred
Shares have a right to require the Company to redeem the shares
for cash. The redemption amount is equal to the original issue
price of C$1.00 per preferred share times the number of
Series B Preferred Shares outstanding, plus any declared
but unpaid dividends, plus the then current fair market value of
the common shares into which the Series B Preferred Shares
are convertible (other than common shares issuable under
additional conversion features). At April 25, 2004,
April 24, 2005 and April 30, 2005 management has
estimated that the fair market value of the Companys
common shares was equivalent to the fair value of preferred
shares at C$1.00 per share.
As a portion of the redemption price of the preferred shares is
indexed to the common share price of the Company, an embedded
derivative exists which has been bifurcated and accounted for
separately, under SFAS 133. The derivative component
relating to the Series B Preferred Shares was valued at
$29.3 and $28.8 as of April 24, 2005 and April 30,
2005 (April 25, 2004 $22.5) and is recorded as
a liability. The initial value of the Series B Preferred Shares
of $27.7, after allocation of proceeds to the derivative
instrument, was classified in the mezzanine section of the
Consolidated Balance Sheet. The difference between the initial
carrying amount and the redemption amount is being accreted over
the five-year period to redemption. For Fiscal 2004, Fiscal 2005
and the Transition Period, the amount of accreted interest was
insignificant, $4.0 and $0.1, respectively. Similar to the
Series A Preferred Shares, the derivative component
relating to the Series B Preferred is recorded as a
liability with the change in the value of the derivative being
recorded as a non-cash expense in the Consolidated Statements of
Operations.
F-33
The following table summarizes the allocation of the
convertible, redeemable preferred shares, net of share issue
costs, among its different elements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A | |
|
Series B | |
|
Total | |
|
|
| |
|
| |
|
| |
Fiscal 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible, redeemable preferred shares (all net of share issue
costs):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued for cash
|
|
$ |
13.5 |
|
|
$ |
|
|
|
$ |
13.5 |
|
|
Issued in exchange for common shares
|
|
|
|
|
|
|
37.8 |
|
|
|
37.8 |
|
|
Issued in exchange for redeemable common shares
|
|
|
|
|
|
|
10.3 |
|
|
|
10.3 |
|
Less: amount allocated to warrants
|
|
|
(1.0 |
) |
|
|
|
|
|
|
(1.0 |
) |
Less: amount allocated to derivative instrument
|
|
|
(6.7 |
) |
|
|
(22.5 |
) |
|
|
(29.2 |
) |
Beneficial conversion feature on Series A preferred shares
|
|
|
(1.4 |
) |
|
|
|
|
|
|
(1.4 |
) |
Deemed dividend relating to beneficial conversion feature on
Series A preferred shares
|
|
|
1.4 |
|
|
|
|
|
|
|
1.4 |
|
Accreted interest on redeemable common shares exchanged for
Series B preferred shares
|
|
|
|
|
|
|
2.1 |
|
|
|
2.1 |
|
|
|
|
|
|
|
|
|
|
|
Carrying value as of April 25, 2004
|
|
$ |
5.8 |
|
|
$ |
27.7 |
|
|
$ |
33.5 |
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued in exchange for common shares
|
|
|
|
|
|
|
0.5 |
|
|
|
0.5 |
|
|
Less: amount allocated to derivative instrument
|
|
|
|
|
|
|
(0.2 |
) |
|
|
(0.2 |
) |
Accreted interest
|
|
|
1.2 |
|
|
|
4.0 |
|
|
|
5.2 |
|
|
|
|
|
|
|
|
|
|
|
Carrying value as of April 24, 2005
|
|
$ |
7.0 |
|
|
$ |
32.0 |
|
|
$ |
39.0 |
|
|
|
|
|
|
|
|
|
|
|
Transition Period
|
|
|
|
|
|
|
|
|
|
|
|
|
Accreted interest
|
|
|
|
|
|
|
0.1 |
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
Carrying value as of April 30, 2005
|
|
$ |
7.0 |
|
|
$ |
32.1 |
|
|
$ |
39.1 |
|
|
|
|
|
|
|
|
|
|
|
23. Warrants
The following table outlines the carrying value of warrants
outstanding as of April 25, 2004, April 24, 2005 and
April 30, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 25, | |
|
April 24, | |
|
April 30, | |
|
|
2004 | |
|
2005 | |
|
2005 | |
|
|
| |
|
| |
|
| |
i) Warrants issued/issuable in connection with
government funding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of the period
|
|
$ |
17.6 |
|
|
$ |
28.7 |
|
|
$ |
39.1 |
|
|
Government funding received in period warrants issued
|
|
|
2.4 |
|
|
|
1.9 |
|
|
|
|
|
|
Government funding received in period no warrants
issued
|
|
|
5.5 |
|
|
|
7.2 |
|
|
|
|
|
|
Accrued government funding receivable no warrants
issued
|
|
|
3.2 |
|
|
|
1.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of the period
|
|
|
28.7 |
|
|
|
39.1 |
|
|
|
39.1 |
|
ii) Warrants issued in connection with Series A
Preferred Shares
|
|
|
1.0 |
|
|
|
1.0 |
|
|
|
1.0 |
|
iii) Warrants issued to financing agent
|
|
|
0.1 |
|
|
|
0.1 |
|
|
|
0.1 |
|
iv) Warrants issued in connection with Senior Secured
Convertible Notes
|
|
|
|
|
|
|
|
|
|
|
7.7 |
|
|
|
|
|
|
|
|
|
|
|
Total warrants outstanding
|
|
$ |
29.8 |
|
|
$ |
40.2 |
|
|
$ |
47.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
i) |
During Fiscal 2003, the Company, in conjunction with the Partner
Company and the Funding Company, signed an agreement for funding
from the Canadian Government for up to C$60.0 of the Funding
Companys, the Partner Companys and the
Companys research and development |
F-34
|
|
|
|
|
activities over a three-year period. Pursuant to the terms of
the agreement, in exchange for funding received from the
Government of Canada, the Company has committed to issue
warrants to Her Majesty the Queen in Right of Canada exercisable
into common shares for no additional consideration. The number
of warrants to be issued on September 30 in each of 2003, 2004
and 2005 is determined based on the funding received and the
fair market value of the common shares at the date of issuance.
The warrants have no expiry date. |
|
|
|
As at April 25, 2004 the Company had issued warrants to
acquire 12,986,968 common shares pursuant to the above
agreement. During Fiscal 2005, an additional 13,862,943 warrants
were issued at the then fair value of C$1.00 per share, of which
11,481,109 warrants related to $8.7 of government funding that
was receivable and received during Fiscal 2004, and the
remaining 2,381,834 relate to funding received during Fiscal
2005. As at April 24, 2005 a total of 26,849,911 warrants
had been issued pursuant to the above agreement. Warrants
relating to the remaining $8.5 of government funding received
and receivable during Fiscal 2005 will be issued in September
2005 according to the terms of the agreement. |
|
|
|
|
ii) |
In connection with the issuance of Series A Preferred
Shares in Fiscal 2004, the Company issued to the holders of the
Series A Preferred Shares warrants to acquire 5,000,000
common shares of the Company. The warrants are exercisable at
C$1.25 per common share and have a seven year life. The warrants
were valued using the Black-Scholes option pricing model with
the following assumptions: seven year life, interest rate of
4.37 percent, volatility of forty percent and no dividends.
The warrants are automatically exercisable based on a formula in
connection with a Qualified IPO. |
|
|
iii) |
In connection with the issuance of Series A Preferred
Shares in Fiscal 2004, the Company issued warrants to the
placement agent to acquire 1,000,000 common shares of the
Company, as consideration for services rendered in connection
with the financing transaction and accounted for them as an
issue cost. The fair value of the warrants was estimated based
on the fair value of services received. The warrants are
exercisable at C$1.00 per share and have a five year life. The
warrants expire in connection with a Qualified IPO. |
|
|
iv) |
As described in Note 18, in connection with the issuance of
the Senior Secured Convertible Notes on April 27, 2005, the
Company issued to the holders warrants to acquire 16,500,000
common shares of the Company. The warrants are exercisable at
any time on or after the earliest of the date of effectiveness
of a Qualified IPO, the date of effectiveness of any other
public offering of the common shares or upon and following a
fundamental change. The warrants are exercisable at a price per
share equal to the lower of (i) USD $1.50 and (ii) the
arithmetic average of the closing sales prices of the
Companys shares during the first 10 trading days following
the date of expiry of any lock-up restrictions entered into by
the Company in connection with a Qualified IPO. The warrants
expire the later of (i) the 4th anniversary of the issuance
date and (ii) if a Qualified IPO occurs prior to the 4th
anniversary, the 1st anniversary of the effective date of the
Qualified IPO. The Holder may elect, in lieu of making the cash
payment upon exercise of the warrants, to receive the net
number of common shares which equates to the excess of the
fair value of the common shares over its exercise price. The
relative fair value of the warrants on the date of issuance of
$7.7 was allocated from the proceeds on the issuance of the
convertible notes and has been recorded as a component of
shareholders deficiency. The warrants were valued using
the Black-Scholes option pricing model with the following
assumptions: five year life, interest rate of 3.83 percent,
volatility of one hundred percent and no dividends. |
24. Share Capital
The Companys authorized capital stock consists of an
unlimited number of common shares, and an unlimited number of
Series A Preferred Shares and Series B Preferred
Shares. The holders of common shares are entitled to one vote
per share and are entitled to dividends when and if declared by
the Board
F-35
of Directors. The terms of the preferred shares are described
further in Note 22 of these financial statements.
During Fiscal 2005, the Company issued 153,616 shares
(2003 10,487; 2004 33,591) for total
consideration of $0.1 (2004 $0.1; 2003
$0.1) in the form of professional services received. The
carrying value of the shares represents the fair market value of
the services received.
Equity offerings
On June 8, 2001, February 15, 2002 and on
February 28, 2002, the Company completed three equity
offerings to certain employees and eligible investors. The
Company issued 5,606,180 common shares for total consideration
of $14.6, of which $8.8 was received in cash and $5.9 was
covered by employee interest-free loans repayable to the Company
over a two-year period from the date of each offering. The
repayment of certain of the loans was suspended during Fiscal
2003 and reinstated during Fiscal 2004.
During Fiscal 2005 the Company completed an equity offering to
certain employees and eligible investors. The Company issued
5,601,870 common shares at C$1.00 per share, for total
consideration of $4.6, of which $3.0 was received in cash and
$1.6 was covered by employee interest-free loans repayable to
the Company over a maximum two-year period from the date of the
offering.
As of April 24, 2005 and April 30, 2005, outstanding
employee share purchase loans receivable, in the amount of $1.2
and $1.2 respectively (2004 $0.3), were recorded
against shareholders deficiency.
Share Purchase Loans
As part of the Fiscal 2005 equity offering described above, the
Company implemented an Employee Stock Purchase Plan allowing
U.S. employees to purchase up to 2,000,000 common shares of the
Company through a single lump sum payment and/or a company loan.
Shares purchased using company loans are secured by the
underlying share, repayable by means of payroll deduction over a
maximum two year period and non-interest bearing unless there is
a default in payment, in which case the loan bears simple
interest calculated at 10% per annum. Non-U.S. employees were
provided with the ability to acquire shares under similar terms
and conditions. As of April 24, 2005 and April 30,
2005, outstanding employee share purchase loans receivable, in
the amount of $1.2 and $1.2 respectively (2004 $0.3)
were recorded against shareholders deficiency.
Stock Option Plan
In March 2001, the Companys shareholders approved the
Mitel Networks Corporation Employee Stock Option Plan (the
Plan) applicable to the Companys employees,
directors, consultants and suppliers and authorized 25,000,000
shares for issuance thereunder. The options are granted at no
less than the fair market value of the common shares of the
Company on the date of grant and may generally be exercised in
equal portions during the years following the first, second,
third and fourth anniversaries of the date of grant, and expire
on the earlier of the fifth anniversary and termination of
employment. Available for grant at April 24, 2005 and
April 30, 2005 were 6,519,998 and 6,543,751 options,
respectively (2004 20,517,736).
On December 23, 2003 the Company put forth an offer to all
eligible employees to exchange all of their outstanding,
unexercised options to purchase common shares of the Company, in
exchange for grants of new options. All of the 10,373,302
options tendered in the exchange were cancelled on
January 23, 2004. An equal number of new options were
granted to the participating employees on July 26, 2004.
The new options vest in four equal installments commencing one
year from the date of grant, and have an exercise price of
C$1.00 per share, the fair value of the Companys common
stock on the date of grant.
F-36
Following is a summary of the Companys stock option
activity and related information. The exercise price of stock
options was based on prices in Canadian dollars translated at
the year-end exchange rate.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003 | |
|
2004 | |
|
|
| |
|
| |
|
|
|
|
Weighted | |
|
|
|
Weighted | |
|
|
|
|
Average | |
|
|
|
Average | |
|
|
Number of | |
|
Exercise | |
|
Number of | |
|
Exercise | |
|
|
Options | |
|
Price | |
|
Options | |
|
Price | |
|
|
| |
|
| |
|
| |
|
| |
Outstanding options:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period:
|
|
|
16,873,299 |
|
|
$ |
2.48 |
|
|
|
16,037,154 |
|
|
$ |
2.59 |
|
|
Granted
|
|
|
1,406,900 |
|
|
$ |
1.94 |
|
|
|
1,337,087 |
|
|
$ |
1.76 |
|
|
Exercised
|
|
|
(3,695 |
) |
|
$ |
2.59 |
|
|
|
(5,950 |
) |
|
$ |
2.57 |
|
|
Forfeited
|
|
|
(1,774,572 |
) |
|
$ |
2.52 |
|
|
|
(1,527,436 |
) |
|
$ |
2.58 |
|
|
Expired
|
|
|
(464,778 |
) |
|
$ |
2.48 |
|
|
|
(985,289 |
) |
|
$ |
2.69 |
|
|
Cancelled
|
|
|
|
|
|
$ |
|
|
|
|
(10,373,302 |
) |
|
$ |
2.51 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period:
|
|
|
16,037,154 |
|
|
$ |
2.42 |
|
|
|
4,482,264 |
|
|
$ |
2.50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of options exercisable
|
|
|
6,787,640 |
|
|
$ |
2.44 |
|
|
|
2,462,636 |
|
|
$ |
2.59 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average fair value of options granted during the period
using the minimum value option pricing model
|
|
|
|
|
|
$ |
0.41 |
|
|
|
|
|
|
$ |
0.29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
Transition Period | |
|
|
| |
|
| |
|
|
|
|
Weighted | |
|
|
|
Weighted | |
|
|
|
|
Average | |
|
|
|
Average | |
|
|
Number of | |
|
Exercise | |
|
Number of | |
|
Exercise | |
|
|
Options | |
|
Price | |
|
Options | |
|
Price | |
|
|
| |
|
| |
|
| |
|
| |
Outstanding options:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period:
|
|
|
4,482,264 |
|
|
$ |
2.77 |
|
|
|
18,480,002 |
|
|
$ |
1.20 |
|
|
Granted
|
|
|
15,220,873 |
|
|
$ |
0.81 |
|
|
|
|
|
|
$ |
|
|
|
Exercised
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
Forfeited
|
|
|
(725,856 |
) |
|
$ |
1.54 |
|
|
|
(15,153 |
) |
|
$ |
1.69 |
|
|
Expired
|
|
|
(497,279 |
) |
|
$ |
2.84 |
|
|
|
(8,600 |
) |
|
$ |
2.96 |
|
|
Cancelled
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period:
|
|
|
18,480,002 |
|
|
$ |
1.22 |
|
|
|
18,456,249 |
|
|
$ |
1.19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of options exercisable
|
|
|
3,017,863 |
|
|
$ |
2.82 |
|
|
|
3,102,973 |
|
|
$ |
2.78 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average fair value of options granted during the year
using the minimum value option pricing model
|
|
|
|
|
|
$ |
0.15 |
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-37
A summary of options outstanding as of April 24, 2005 and
April 30, 2005 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 24, 2005 | |
|
|
| |
|
|
Total outstanding | |
|
Total exercisable | |
|
|
| |
|
| |
|
|
|
|
Weighted- | |
|
|
|
Weighted- | |
|
|
|
|
Average | |
|
|
|
Average | |
|
|
|
|
Remaining | |
|
|
|
Remaining | |
|
|
Number of | |
|
Contractual | |
|
Number of | |
|
Contractual | |
Exercise Price |
|
Options | |
|
Life | |
|
Options | |
|
Life | |
|
|
| |
|
| |
|
| |
|
| |
$0.81
|
|
|
14,611,295 |
|
|
|
4.4 years |
|
|
|
3,000 |
|
|
|
4.3 years |
|
$1.62
|
|
|
182,874 |
|
|
|
3.6 years |
|
|
|
46,367 |
|
|
|
3.6 years |
|
$2.23
|
|
|
749,750 |
|
|
|
2.7 years |
|
|
|
327,875 |
|
|
|
2.6 years |
|
$2.84
|
|
|
2,088,997 |
|
|
|
0.9 years |
|
|
|
2,087,497 |
|
|
|
0.9 years |
|
$3.24
|
|
|
847,086 |
|
|
|
1.7 years |
|
|
|
553,124 |
|
|
|
1.7 years |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,480,002 |
|
|
|
|
|
|
|
3,017,863 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30, 2005 | |
|
|
| |
|
|
Total outstanding | |
|
Total exercisable | |
|
|
| |
|
| |
|
|
|
|
Weighted- | |
|
|
|
Weighted- | |
|
|
|
|
Average | |
|
|
|
Average | |
|
|
|
|
Remaining | |
|
|
|
Remaining | |
|
|
Number of | |
|
Contractual | |
|
Number of | |
|
Contractual | |
Exercise Price |
|
Options | |
|
Life | |
|
Options | |
|
Life | |
|
|
| |
|
| |
|
| |
|
| |
$0.80
|
|
|
14,599,055 |
|
|
|
4.4 years |
|
|
|
3,000 |
|
|
|
4.2 years |
|
$1.59
|
|
|
182,311 |
|
|
|
3.6 years |
|
|
|
46,367 |
|
|
|
3.6 years |
|
$2.19
|
|
|
749,750 |
|
|
|
2.7 years |
|
|
|
327,875 |
|
|
|
2.6 years |
|
$2.78
|
|
|
2,082,647 |
|
|
|
0.9 years |
|
|
|
2,081,147 |
|
|
|
0.9 years |
|
$3.18
|
|
|
842,486 |
|
|
|
1.7 years |
|
|
|
644,584 |
|
|
|
1.7 years |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,456,249 |
|
|
|
|
|
|
|
3,102,973 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per
share
The following table sets forth the computation of basic and
diluted loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transition | |
|
|
2003 | |
|
2004 | |
|
2005 | |
|
Period | |
|
|
| |
|
| |
|
| |
|
| |
Net loss, as reported
|
|
$ |
(70.1 |
) |
|
$ |
(30.6 |
) |
|
$ |
(49.6 |
) |
|
$ |
(1.6 |
) |
Stock-based dividend
|
|
|
|
|
|
|
(0.1 |
) |
|
|
|
|
|
|
|
|
Accreted interest on redeemable shares
|
|
|
(1.1 |
) |
|
|
(1.3 |
) |
|
|
(5.6 |
) |
|
|
(0.1 |
) |
Deemed dividend relating to beneficial conversion feature on
Series A preferred shares
|
|
|
|
|
|
|
(1.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss available to common shareholders
|
|
$ |
(71.2 |
) |
|
$ |
(33.4 |
) |
|
$ |
(55.2 |
) |
|
$ |
(1.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding during the
period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per common share basic and diluted
|
|
|
113,109,751 |
|
|
|
127,831,211 |
|
|
|
113,792,829 |
|
|
|
117,149,933 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(0.63 |
) |
|
$ |
(0.26 |
) |
|
$ |
(0.49 |
) |
|
$ |
(0.01 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
F-38
As a result of the net losses for each of the following periods,
the following potentially dilutive securities have not been
included in the calculation of diluted loss per common share,
because to do so would have been
anti-dilutive:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transition | |
(Number of shares) |
|
2003 | |
|
2004 | |
|
2005 | |
|
Period | |
|
|
| |
|
| |
|
| |
|
| |
Stock options
|
|
|
|
|
|
|
19,888 |
|
|
|
|
|
|
|
|
|
Warrants
|
|
|
5,254,920 |
|
|
|
11,278,329 |
|
|
|
28,475,127 |
|
|
|
28,686,974 |
|
Convertible debentures
|
|
|
4,885,389 |
|
|
|
2,029,111 |
|
|
|
|
|
|
|
|
|
Convertible, redeemable preferred shares
|
|
|
|
|
|
|
477,047 |
|
|
|
87,789,300 |
|
|
|
87,789,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,140,309 |
|
|
|
13,804,375 |
|
|
|
116,264,427 |
|
|
|
116,476,274 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options that are anti-dilutive because the exercise price is
greater than the average market price of the common shares, are
not included in the computation of diluted earnings per share.
For Fiscal 2005 and the Transition Period, 18,480,002 and
18,456,249 stock options were excluded from the above
computation of diluted EPS because they were anti-dilutive
(2003 15,538,533; 2004 4,277,764).
Stock-based
compensation
During Fiscal 2005 and the Transition Period, the Company
granted 145,604 and Nil (2003 30,000;
2004 Nil) stock options at an exercise price of
C$1.00 (2003 C$2.75) per share to consultants and
advisory directors, as well as employees who, subsequent to the
options grants, became former employees of the Company as a
result of the disposal of the manufacturing operations and other
outsourcing actions. The fair market value of these stock
options was determined using a
Black-Scholes model
based on the fair value of the common shares at the vesting date
and, for the unvested shares, as of April 24, 2005 and
April 30, 2005. The following assumptions were used:
five-year life,
interest rate of 3.55 percent, volatility of
100 percent and no dividends. Unvested stock options
granted to
non-employees must be
accounted for based on variable plan accounting. Under variable
plan accounting, compensation expense is measured as of each
reporting date as the amount equal to the change in fair value
of the stock options. Deferred stock compensation of $0.1 was
recorded and is being amortized over the vesting period of four
years from the date of grant, with $insignificant and $Nil
(2003 $0.1; 2004 $0.2) amortized into
selling, general and administrative expense for Fiscal 2005 and
the Transition Period, respectively. The amount of deferred
stock compensation expense to be recorded in future periods
could decrease if options for which accrued but unvested
compensation has been recorded are forfeited.
In addition, during Fiscal 2005 and the Transition Period, there
were no (2003 20,000; 2004 88,000)
stock options granted to employees of the Supplier and other
companies controlled by the Principal Shareholder. The fair
market value of the unvested stock options at the grant date was
determined to be $Nil (2003 insignificant;
2004 $0.1) based on a Black-Scholes model and
recognized as a dividend to the Principal Shareholder.
25. Other Income (Expense), Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transition | |
|
|
2003 | |
|
2004 | |
|
2005 | |
|
Period | |
|
|
| |
|
| |
|
| |
|
| |
Foreign exchange gains (losses), net
|
|
$ |
2.9 |
|
|
$ |
(1.0 |
) |
|
$ |
(0.1 |
) |
|
$ |
0.2 |
|
Interest income
|
|
|
0.4 |
|
|
|
0.4 |
|
|
|
0.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
3.3 |
|
|
$ |
(0.6 |
) |
|
$ |
0.4 |
|
|
$ |
0.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-39
26. Income Taxes
Details of income taxes are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transition | |
|
|
2003 | |
|
2004 | |
|
2005 | |
|
Period | |
|
|
| |
|
| |
|
| |
|
| |
Loss before income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canadian
|
|
$ |
(8.7 |
) |
|
$ |
(10.0 |
) |
|
$ |
(24.8 |
) |
|
$ |
(0.2 |
) |
|
Foreign
|
|
|
(64.3 |
) |
|
|
(20.3 |
) |
|
|
(24.0 |
) |
|
|
(1.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(73.0 |
) |
|
$ |
(30.3 |
) |
|
$ |
(48.8 |
) |
|
$ |
(1.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax (expense) recovery:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canadian
|
|
$ |
|
|
|
$ |
|
|
|
$ |
0.8 |
|
|
$ |
|
|
|
|
Foreign
|
|
|
2.9 |
|
|
|
(2.0 |
) |
|
|
(1.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.9 |
|
|
|
(2.0 |
) |
|
|
(0.8 |
) |
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canadian
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
Foreign
|
|
|
|
|
|
|
1.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2.9 |
|
|
$ |
(0.3 |
) |
|
$ |
(0.8 |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The income tax (expense) recovery reported differs from the
amount computed by applying the Canadian rates to the loss
before income taxes. The reasons for these differences and their
tax effects are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transition | |
|
|
2003 | |
|
2004 | |
|
2005 | |
|
Period | |
|
|
| |
|
| |
|
| |
|
| |
Expected tax rate
|
|
|
38.0 |
% |
|
|
36.3 |
% |
|
|
36.0 |
% |
|
|
38.0% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected tax benefit
|
|
$ |
29.1 |
|
|
$ |
12.8 |
|
|
$ |
17.5 |
|
|
$ |
0.6 |
|
Foreign tax rate differences
|
|
|
(17.9 |
) |
|
|
(9.1 |
) |
|
|
(7.9 |
) |
|
|
(0.5 |
) |
Tax effect of losses and temporary differences not recognized
|
|
|
(14.9 |
) |
|
|
(5.9 |
) |
|
|
(2.9 |
) |
|
|
(0.1 |
) |
Tax effect from the recognition of previously unrecognized losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Permanent differences
|
|
|
3.7 |
|
|
|
0.1 |
|
|
|
(7.0 |
) |
|
|
|
|
Tax refunds and other adjustments related to prior years
|
|
|
2.9 |
|
|
|
1.8 |
|
|
|
(0.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax (expense) recovery
|
|
$ |
2.9 |
|
|
$ |
(0.3 |
) |
|
$ |
(0.8 |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-40
The tax effect of components of the deferred tax assets and
liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 25, | |
|
April 24, | |
|
April 30, | |
|
|
2004 | |
|
2005 | |
|
2005 | |
|
|
| |
|
| |
|
| |
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$ |
59.5 |
|
|
$ |
75.1 |
|
|
$ |
74.3 |
|
|
Allowance for doubtful accounts
|
|
|
2.7 |
|
|
|
2.3 |
|
|
|
2.3 |
|
|
Inventory
|
|
|
1.2 |
|
|
|
0.9 |
|
|
|
0.9 |
|
|
Restructuring and other accrued liabilities
|
|
|
8.1 |
|
|
|
3.3 |
|
|
|
3.3 |
|
|
Pension
|
|
|
7.6 |
|
|
|
7.9 |
|
|
|
7.8 |
|
|
Lease obligations and long-term debt
|
|
|
0.4 |
|
|
|
1.1 |
|
|
|
1.1 |
|
|
Property and equipment
|
|
|
2.9 |
|
|
|
3.8 |
|
|
|
3.6 |
|
|
Intangible and other assets
|
|
|
10.1 |
|
|
|
7.1 |
|
|
|
7.1 |
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
92.5 |
|
|
|
101.5 |
|
|
|
100.4 |
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross deferred tax assets net of total deferred tax
liabilities
|
|
|
92.5 |
|
|
|
101.5 |
|
|
|
100.4 |
|
Valuation allowance
|
|
|
(92.5 |
) |
|
|
(101.5 |
) |
|
|
(100.4 |
) |
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
A valuation allowance has been established due to uncertainty
regarding the realization of the future benefit relating to that
amount.
The Company and its subsidiaries had the following tax loss
carry forwards and tax credits which are scheduled to expire as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 25, 2004 | |
|
April 24, 2005 | |
|
April 30, 2005 | |
|
|
| |
|
| |
|
| |
|
|
Tax | |
|
Tax | |
|
Tax | |
|
Tax | |
|
Tax | |
|
Tax | |
Year of Expiry |
|
Losses | |
|
Credits | |
|
Losses | |
|
Credits | |
|
Losses | |
|
Credits | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
2005
|
|
$ |
8.3 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
25.9 |
|
|
|
|
|
|
|
5.3 |
|
|
|
|
|
|
|
4.8 |
|
|
|
|
|
2009
|
|
|
5.0 |
|
|
|
|
|
|
|
3.8 |
|
|
|
|
|
|
|
3.0 |
|
|
|
|
|
2010
|
|
|
47.1 |
|
|
|
|
|
|
|
52.0 |
|
|
|
|
|
|
|
51.0 |
|
|
|
|
|
2011-2022
|
|
|
141.4 |
|
|
|
11.6 |
|
|
|
185.2 |
|
|
|
20.4 |
|
|
|
184.1 |
|
|
|
20.3 |
|
Indefinite
|
|
|
28.5 |
|
|
|
|
|
|
|
74.3 |
|
|
|
|
|
|
|
74.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
256.2 |
|
|
$ |
11.6 |
|
|
$ |
320.6 |
|
|
$ |
20.4 |
|
|
$ |
317.2 |
|
|
$ |
20.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
These tax loss carry forwards relate to operations in Canada,
the U.S., the U.K., Italy, Hong Kong and Barbados. As a result
of the acquisition of the Company on February 16, 2001,
there are restrictions on the use of certain of these losses to
offset taxable income in future periods.
The tax credits relate to the Canadian operations and may be
used to offset future Canadian federal income taxes payable.
The Company does not expect the unremitted earnings of its
subsidiaries will be subject to income tax or withholding taxes
as it plans to reinvest the earnings of its subsidiaries
indefinitely. Accordingly, no provision has been made for
potential income tax or withholding taxes on repatriation of
subsidiary earnings.
The Company is subject to ongoing examinations by certain
taxation authorities of the jurisdictions in which it operates.
The Company regularly assesses the status of these examinations
and the potential for
F-41
adverse outcomes to determine the adequacy of the provisions for
income taxes. The Company believes that it has adequately
provided for tax adjustments that are probable as a result of
any ongoing or future examination.
27. Pension Plans
The Company and its subsidiaries maintain defined contribution
pension plans that cover substantially all employees. In
addition, the Companys U.K. subsidiary maintains a defined
benefit pension plan. The Company matches the contributions of
participating employees to the defined contribution pension
plans on the basis of the percentages specified in each plan.
The costs of the defined contribution pension plans are expensed
as incurred. The defined benefit plan provides pension benefits
based on length of service and final average earnings. The
pension costs of the defined benefit pension plan are
actuarially determined using the projected benefits method
pro-rated on services and managements best estimate of the
effect of future events. Pension plan assets are valued at fair
value. The most recent actuarial valuation of the plan was
performed as of March 31, 2005.
In June 2001, the defined benefit pension plan was closed to new
employees and a defined contribution option was introduced to
members of the defined benefit pension plan. Members were given
the choice to continue in the defined benefit plan or transfer
their assets to the defined contribution plan.
In Fiscal 2004, the strengthening in global capital markets and
better returns on plan assets had a positive impact on the
Companys defined benefit pension plan assets and
obligations. As a result, the Company reduced its minimum
pension liability, the amount by which the accumulated benefit
obligation exceeds the fair value of the plan assets, by
£2.8. After the effects of foreign currency translation,
the overall pension liability decreased by $6.2 to $24.8. The
adjustment has been recorded as a reduction to pension liability
and as a reduction to accumulated other comprehensive loss on
the Consolidated Balance Sheet. In Fiscal 2005, the markets
continued to strengthen resulting in a decrease in the minimum
pension liability in British Pounds of £1.3. However, the
effect of converting from British Pounds to U.S. dollars has
lead to an increase in minimum pension liability of $0.6 to
$25.4.
The changes in the actuarial present value of the change in
accrued pension benefits, the net assets available to provide
for these benefits, at market value, and the pension expense
were insignificant at April 30, 2005. The reduction in the
minimum pension liability of $0.3 related to the foreign
exchange impact of converting from British Pounds to U.S.
dollars.
F-42
United Kingdom Defined
Benefit Pension Plan
The actuarial present value of the accrued pension benefits and
the net assets available to provide for these benefits, at
market value, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
April 25, | |
|
April 24, | |
|
|
2004 | |
|
2005 | |
|
|
| |
|
| |
Change in accrued pension benefits:
|
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of period
|
|
$ |
86.6 |
|
|
$ |
103.4 |
|
|
Service cost
|
|
|
1.8 |
|
|
|
1.8 |
|
|
Interest cost
|
|
|
5.1 |
|
|
|
5.9 |
|
|
Plan participants contributions
|
|
|
1.6 |
|
|
|
1.5 |
|
|
Actuarial (gain) loss
|
|
|
(0.5 |
) |
|
|
1.3 |
|
|
Benefits paid
|
|
|
(0.8 |
) |
|
|
(0.9 |
) |
|
Foreign exchange
|
|
|
9.6 |
|
|
|
8.8 |
|
|
|
|
|
|
|
|
|
Benefit obligation at end of period
|
|
|
103.4 |
|
|
|
121.8 |
|
|
|
|
|
|
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of period
|
|
|
46.8 |
|
|
|
66.1 |
|
|
Actual return on plan assets
|
|
|
11.0 |
|
|
|
7.8 |
|
|
Employer contributions
|
|
|
1.8 |
|
|
|
2.6 |
|
|
Employee contributions
|
|
|
1.6 |
|
|
|
1.5 |
|
|
Benefits paid
|
|
|
(0.8 |
) |
|
|
(0.9 |
) |
|
Foreign exchange
|
|
|
5.7 |
|
|
|
5.8 |
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of period
|
|
|
66.1 |
|
|
|
82.9 |
|
|
|
|
|
|
|
|
Funded status
|
|
|
(37.3 |
) |
|
|
(38.9 |
) |
Unrecognized net actuarial (gain)/loss
|
|
|
12.5 |
|
|
|
13.5 |
|
|
|
|
|
|
|
|
Net pension benefit liability
|
|
$ |
(24.8 |
) |
|
$ |
(25.4 |
) |
|
|
|
|
|
|
|
The companys Benefit Obligation (BO) for its
significant plans is disclosed above. SFAS No. 132(R)
requires that companies disclose the aggregate BO and plan
assets of plans in which the BO exceeds the plan assets. Similar
disclosure is required for all plans in which the accumulated
benefit obligation (ABO) exceeds plan assets. The
following table provides information with respect to our BO and
ABO which are in excess of plan assets:
|
|
|
|
|
|
|
|
|
|
|
April 25, | |
|
April 24, | |
|
|
2004 | |
|
2005 | |
|
|
| |
|
| |
Projected benefit obligation
|
|
$ |
103.4 |
|
|
$ |
121.8 |
|
Accumulated benefit obligation
|
|
|
90.9 |
|
|
|
108.3 |
|
Fair value of plan assets
|
|
|
66.1 |
|
|
|
82.9 |
|
The Companys net periodic benefit cost was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003 | |
|
2004 | |
|
2005 | |
|
|
| |
|
| |
|
| |
Current service cost defined contribution
|
|
$ |
1.5 |
|
|
$ |
1.5 |
|
|
$ |
1.7 |
|
Current service cost defined benefit
|
|
|
2.2 |
|
|
|
3.6 |
|
|
|
1.8 |
|
Interest cost
|
|
|
4.1 |
|
|
|
5.1 |
|
|
|
5.9 |
|
Expected return on plan assets
|
|
|
(4.1 |
) |
|
|
(3.9 |
) |
|
|
(5.5 |
) |
Recognized actuarial loss
|
|
|
0.1 |
|
|
|
1.3 |
|
|
|
1.3 |
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$ |
3.8 |
|
|
$ |
7.6 |
|
|
$ |
5.2 |
|
|
|
|
|
|
|
|
|
|
|
F-43
The following assumptions were used to determine the periodic
pension expense and the net present value of the accrued pension
benefits:
|
|
|
|
|
|
|
|
|
|
|
April 25, | |
|
April 24, | |
|
|
2004 | |
|
2005 | |
|
|
| |
|
| |
Discount rate
|
|
|
5.5 |
% |
|
|
5.5 |
% |
Compensation increase rate
|
|
|
2.5 |
% |
|
|
2.5 |
% |
Investment returns assumption
|
|
|
7.75 |
% |
|
|
7.75 |
% |
Average remaining service life of employees
|
|
|
20 years |
|
|
|
20 years |
|
Estimated Future Benefit
Payments
The table below reflects the total pension benefits expected to
be paid in future years.
|
|
|
|
|
|
|
Benefit Payments | |
|
|
| |
2006
|
|
$ |
1.1 |
|
2007
|
|
|
1.3 |
|
2008
|
|
|
1.4 |
|
2009
|
|
|
1.5 |
|
2010
|
|
|
1.7 |
|
2011-2015
|
|
|
9.6 |
|
Contributions
The Company expects contributions of $3.4 to its pension plan in
2006.
Plan Assets
The companys pension plan weighted-average asset
allocations at April 25, 2004 and April 24, 2005 and
target allocations for 2006, by asset category are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 | |
|
|
April 25, | |
|
April 24, | |
|
Target | |
|
|
2004 | |
|
2005 | |
|
Allocation | |
|
|
| |
|
| |
|
| |
Equities
|
|
|
84 |
% |
|
|
79 |
% |
|
|
80 |
% |
Bonds
|
|
|
12 |
% |
|
|
20 |
% |
|
|
20 |
% |
Cash
|
|
|
4 |
% |
|
|
1 |
% |
|
|
|
|
The investment objectives of the pension portfolio of assets
(the Fund) are designed to generate returns that
will enable the Fund to meet its future obligations. The
performance benchmark for the investment managers is to earn in
excess of the index return in those asset categories, which are
actively managed. In setting the overall expected rate of
return, the various percentages of assets held in each asset
class together with the investment return expected from that
class are taken into account. For cash and bonds, the rate used
is that derived from an appropriate index at the valuation date.
For equities, a model is used which combines price inflation,
dividend yield and an allowance for gross domestic product
growth.
28. Financial Instruments
Fair value
The Companys financial instruments include cash and cash
equivalents, restricted cash, bank indebtedness, accounts
receivable, other receivables, long-term receivables, accounts
payable, amounts due to (from) related parties, long-term
debt, derivative instruments, foreign exchange forward contracts
and foreign exchange swaps. Due to the short-term maturity of
cash and cash equivalents, restricted cash, accounts receivable,
and accounts payable, the carrying value of these instruments is
a reasonable estimate of their fair value. Foreign exchange
contracts are carried at fair value and amounted to $0.1 and
$0.1 at April 24, 2005, and $0.1 and $0.3 at April 30,
2005, classified as other current assets and accounts payable
F-44
and accrued liabilities, respectively (April 25,
2004 $0.3 and $0.1, respectively). The fair value of
the foreign exchange contracts reflects the estimated amount
that the Company would have been required to pay if forced to
settle all outstanding contracts at year-end. This fair value
represents a point-in-time estimate that may not be relevant in
predicting the Companys future earnings or cash flows. The
fair value of long-term receivables and long-term debt was
determined by discounting future cash receipts and future
payments of interest and principal, at estimated interest rates
that would be available to the Company at year-end. The fair
value of financial instruments approximate their carrying value,
with the exception of convertible notes. The carrying value of
the convertible notes was determined based on the allocation of
gross proceeds received between the notes and the warrants based
on their relative estimated fair values. The estimated fair
value of the convertible notes is $55.4. The fair value of
derivative instruments is determined by management and reflects
the present value of the obligation and the likelihood of
contingent events occurring.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 25, 2004 | |
|
April 24, 2005 | |
|
April 30, 2005 | |
|
|
| |
|
| |
|
| |
|
|
Carrying | |
|
Fair | |
|
Carrying | |
|
Fair | |
|
Carrying | |
|
Fair | |
|
|
Amount | |
|
Value | |
|
Amount | |
|
Value | |
|
Amount | |
|
Value | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Long-term receivables
|
|
$ |
0.3 |
|
|
$ |
0.3 |
|
|
$ |
0.4 |
|
|
$ |
0.4 |
|
|
$ |
0.4 |
|
|
$ |
0.4 |
|
Long-term debt
|
|
$ |
14.9 |
|
|
$ |
15.9 |
|
|
$ |
14.6 |
|
|
$ |
14.6 |
|
|
$ |
14.6 |
|
|
$ |
14.6 |
|
Convertible notes
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
46.6 |
|
|
$ |
55.4 |
|
Credit risk
The Companys financial assets that are exposed to credit
risk consist primarily of cash and cash equivalents and accounts
receivable and other receivables. Cash and cash equivalents are
invested in government and commercial paper with investment
grade credit rating. The Company is exposed to normal credit
risk from customers. However, the Companys orientation is
global with a large number of diverse customers to minimize
concentrations of credit risk.
Interest rate risk
The Company has credit facilities with interest rates subject to
fluctuations in the prime rate or the LIBOR / Bankers
Acceptance rate. The Company is not exposed to other significant
interest rate risk due to the short-term maturity of its
monetary assets and current liabilities.
Foreign currency risk
The Company is exposed to currency rate fluctuations related
primarily to its future net cash flows from operations in U.S.
dollars, British pounds and Euros. The Company uses foreign
currency forward contracts and foreign currency swaps to
minimize the short-term impact of currency fluctuations on
foreign currency receivables, payables and intercompany
balances. These contracts are not entered into for speculative
purposes, and are not treated as hedges for accounting purposes.
Foreign currency contracts are recorded at fair market value.
Related foreign currency gains and losses are recorded in other
expense, net, in the consolidated statements of operations and
offset foreign exchange gains or losses from the revaluation of
intercompany balances and other current assets and liabilities
denominated in currencies other than the functional currency of
the reporting entity.
The Companys foreign exchange contracts mature in May
2005. As of April 24, 2005 and April 30, 2005, other income
(expense), net included a net unrealized gain of insignificant
and $0.2, respectively, (2003 gain of $0.3;
2004 gain of $0.2) for changes in the fair value of
foreign exchange contracts. As at April 24, 2005 and
April 30, 2005, the Company had outstanding foreign
exchange contracts requiring it (i) to exchange British
Pounds for Canadian dollars with aggregate notional amounts of
C$nil (2004 C$30.7), (ii) to exchange U.S.
dollars for Canadian dollars with a notional amount of C$17.2
(2004 C$35.8), and (iii) to exchange Euro
dollars for Canadian dollars with aggregate notional amounts of
C$10.3 (2004 $6.1).
F-45
Non-derivative and
off-balance sheet instruments
Requests for providing commitments to extend credit and
financial guarantees are reviewed and approved by senior
management. Management regularly reviews all outstanding
commitments, letters of credit and financial guarantees, and the
results of these reviews are considered in assessing the
adequacy of the Companys reserve for possible credit and
guarantee losses. As of April 25, 2004, April 24, 2005
and April 30, 2005, there were no outstanding commitments
to extend credit to third parties or financial guarantees
outstanding other than letters of credit. Letters of credit
amounted to $1.6 as of April 24, 2005 and April 30,
2005 (April 25, 2004 $3.2). The estimated fair
value of letters of credit, which is equal to the fees paid to
obtain the obligations, was insignificant as of April 25,
2004, April 24, 2005 and April 30, 2005.
29. Potential Sale of Subsidiary
During Fiscal 2005 the Company implemented a plan to dispose of
Edict Training Limited (Edict), an eighty percent
owned subsidiary of the Company. Management has committed to the
plan of disposal, which, has been approved by the Board of
Directors of the Company. The current plan for disposal involves
the sale of the Companys eighty- percent ownership
interest in Edict to its twenty- percent minority interest
shareholder (the potential buyer). Preliminary
negotiations have indicated a potential selling price of
£0.3, or $0.5. The carrying value of the Companys
proportionate ownership in the net assets of Edict as of
April 30, 2005 was $0.5, resulting in an insignificant gain
or loss on disposal. Management believes the sale will likely be
completed within one year. At the date of these financial
statements management was still in negotiations with the
potential buyer and certain actions were still required to
complete the plan. It is possible that there could be
significant changes to the plan, including the selling price, as
the required actions become completed and the negotiations get
finalized. As significant changes to the plan could occur, the
assets do not qualify for classification as assets held
for sale under SFAS 144 Accounting for the
impairment or disposal of long lived assets.
The following details the Companys proportionate interest
in the carrying value of the net assets of Edict as of
April 25, 2004, April 24, 2005 and April 30, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 25, | |
|
April 24, | |
|
April 30, | |
|
|
2004 | |
|
2005 | |
|
2005 | |
|
|
| |
|
| |
|
| |
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$ |
1.6 |
|
|
$ |
0.4 |
|
|
$ |
0.6 |
|
|
Accounts receivable
|
|
|
1.2 |
|
|
|
0.7 |
|
|
|
0.5 |
|
|
Fixed assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due to affiliates (net)
|
|
|
|
|
|
|
0.6 |
|
|
|
0.6 |
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
|
0.6 |
|
|
|
0.6 |
|
|
|
0.6 |
|
|
Deferred revenue
|
|
|
1.2 |
|
|
|
0.5 |
|
|
|
0.5 |
|
|
Taxes payable
|
|
|
0.2 |
|
|
|
0.1 |
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
Net Assets
|
|
$ |
0.8 |
|
|
$ |
0.5 |
|
|
$ |
0.5 |
|
|
|
|
|
|
|
|
|
|
|
The revenues of Edict for Fiscal 2003, Fiscal 2004, Fiscal 2005
and the Transition Period were, $1.5, $3.1, $3.4 and
insignificant respectively. Net loss was $1.1, $1.1, $1.6 and
insignificant respectively for Fiscal 2003, Fiscal 2004, Fiscal
2005 and the Transition Period.
F-46
|
|
30. |
Supplementary Cash Flow Information |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transition | |
|
|
2003 | |
|
2004 | |
|
2005 | |
|
Period | |
|
|
| |
|
| |
|
| |
|
| |
Change in non-cash operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
$ |
5.0 |
|
|
$ |
(5.2 |
) |
|
$ |
7.5 |
|
|
$ |
4.0 |
|
|
Other receivables
|
|
|
(1.3 |
) |
|
|
5.4 |
|
|
|
(5.9 |
) |
|
|
(0.1 |
) |
|
Inventories
|
|
|
(1.1 |
) |
|
|
8.4 |
|
|
|
(4.2 |
) |
|
|
(0.6 |
) |
|
Prepaid expenses
|
|
|
2.2 |
|
|
|
1.9 |
|
|
|
(1.4 |
) |
|
|
(0.8 |
) |
|
Long-term receivables
|
|
|
1.1 |
|
|
|
0.4 |
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
|
(2.5 |
) |
|
|
0.9 |
|
|
|
6.6 |
|
|
|
(0.6 |
) |
|
Long term portion of lease termination obligations
|
|
|
2.0 |
|
|
|
2.6 |
|
|
|
(1.2 |
) |
|
|
|
|
|
Deferred revenue
|
|
|
(6.6 |
) |
|
|
0.7 |
|
|
|
(2.8 |
) |
|
|
0.5 |
|
|
Due from related parties
|
|
|
(0.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Due to related parties
|
|
|
5.3 |
|
|
|
5.1 |
|
|
|
0.5 |
|
|
|
(1.5 |
) |
|
Income and other taxes payable
|
|
|
1.2 |
|
|
|
2.8 |
|
|
|
(3.3 |
) |
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
5.0 |
|
|
$ |
23.0 |
|
|
$ |
(4.2 |
) |
|
$ |
1.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest payments
|
|
$ |
2.8 |
|
|
$ |
3.8 |
|
|
$ |
1.8 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax payments
|
|
$ |
|
|
|
$ |
|
|
|
$ |
3.5 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Disclosure of non-cash activities during the period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible debentures converted to common shares
|
|
$ |
|
|
|
$ |
8.3 |
|
|
$ |
|
|
|
$ |
|
|
|
Related party loans converted to common shares
|
|
$ |
|
|
|
$ |
31.0 |
|
|
$ |
|
|
|
$ |
|
|
|
Exchange of common shares for convertible, redeemable preferred
shares
|
|
$ |
|
|
|
$ |
38.7 |
|
|
$ |
|
|
|
$ |
|
|
|
Adjustment to minimum pension liability
|
|
$ |
16.5 |
|
|
$ |
(3.5 |
) |
|
$ |
2.4 |
|
|
$ |
|
|
|
Warrants issued in connection with financing
|
|
$ |
|
|
|
$ |
1.0 |
|
|
$ |
|
|
|
$ |
7.7 |
|
|
Warrants issued to placement agent
|
|
$ |
|
|
|
$ |
0.1 |
|
|
$ |
|
|
|
$ |
|
|
|
Issuance of shares in exchange for services
|
|
$ |
0.1 |
|
|
$ |
0.1 |
|
|
$ |
0.1 |
|
|
$ |
|
|
|
Stock-based dividends
|
|
$ |
|
|
|
$ |
0.1 |
|
|
$ |
|
|
|
$ |
|
|
|
Deemed dividend relating to beneficial conversion feature on
Series A preferred shares
|
|
$ |
|
|
|
$ |
1.4 |
|
|
$ |
|
|
|
$ |
|
|
|
Accretion of interest on redeemable common and preferred shares
|
|
$ |
|
|
|
$ |
1.3 |
|
|
$ |
5.6 |
|
|
$ |
0.1 |
|
|
Common shares issued in exchange for employee loans
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1.3 |
|
|
$ |
|
|
On August 31, 2005, the Company sold land, building and
fixed assets relating to its U.K. subsidiary for net proceeds of
$12.8 (£7.1), resulting in a
pre-tax gain of $7.5
(£4.2). The transaction included a commitment for the
Company to lease back a portion of the property, which provided
the Company with more than a minor part but less than
substantially all of the use of the property, and thereby
qualified the transaction as a
sale-leaseback
arrangement under SFAS 13 Accounting for Leases.
Accordingly, $5.6 of the gain will be deferred and amortized
over the term of the lease (10 years). The remaining gain
of $1.9 will be recognized immediately at the time of the sale.
Future minimum lease payments under the leaseback total $7.3, of
which $0.7, $0.7, $0.7, $0.7, $0.7, relate to fiscal years 2006
to 2010.
F-47
On October 7, 2005, the Company completed the sale of its
8000 shares, or
eighty-percent
ownership interest, in Edict for consideration of £0.2, or
$0.3 in the form of a credit note (see Note 29). The
transaction resulted in an insignificant loss, which will be
recorded in other income/expense. As a result of this
transaction, the Company no longer holds any equity interest in
Edict. The costs incurred and expected to be incurred in
connection with this disposal are not considered significant.
The following details the Companys proportionate interest
in the carrying value of the net assets of Edict as of the date
of disposal:
|
|
|
|
|
|
|
|
October 7, | |
|
|
2005 | |
|
|
| |
Assets
|
|
|
|
|
|
Cash
|
|
$ |
0.1 |
|
|
Accounts receivable
|
|
|
0.3 |
|
|
Fixed assets
|
|
|
|
|
|
Due to affiliates (net)
|
|
|
1.0 |
|
Liabilities
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
|
(0.6 |
) |
|
Deferred revenue
|
|
|
(0.5 |
) |
|
|
|
|
|
|
$ |
0.3 |
|
|
|
|
|
Revenues and net loss of Edict for the period from May 1,
2005 until the date of disposal amounted to $0.9 and $0.2
respectively.
F-48
Mitel Networks Corporation
Consolidated Balance Sheets
(in millions, U.S. GAAP)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma | |
|
|
January 31, | |
|
January 31, | |
|
|
2006 | |
|
2006 | |
|
|
| |
|
| |
ASSETS |
Current assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
32.3 |
|
|
$ |
|
|
|
Restricted cash
|
|
|
1.9 |
|
|
|
|
|
|
Accounts receivable (net of allowance of $3.0 and $2.5
respectively)
|
|
|
73.8 |
|
|
|
|
|
|
Due from related parties
|
|
|
0.1 |
|
|
|
|
|
|
Inventories
|
|
|
21.2 |
|
|
|
|
|
|
Income tax receivable
|
|
|
1.4 |
|
|
|
|
|
|
Other current assets
|
|
|
23.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
154.3 |
|
|
|
|
|
Long-term receivables
|
|
|
0.4 |
|
|
|
|
|
Property and equipment
|
|
|
15.2 |
|
|
|
|
|
Goodwill
|
|
|
6.6 |
|
|
|
|
|
Intangible and other assets
|
|
|
6.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
183.1 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
LIABILITIES, REDEEMABLE SHARES AND SHAREHOLDERS
DEFICIENCY |
Current liabilities:
|
|
|
|
|
|
|
|
|
|
Bank indebtedness
|
|
$ |
0.5 |
|
|
$ |
|
|
|
Accounts payable and accrued liabilities
|
|
|
55.8 |
|
|
|
|
|
|
Income and other taxes payable
|
|
|
3.9 |
|
|
|
|
|
|
Deferred revenue
|
|
|
20.3 |
|
|
|
|
|
|
Due to related parties
|
|
|
25.0 |
|
|
|
|
|
|
Current portion of long-term debt
|
|
|
1.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
106.9 |
|
|
|
|
|
Long-term debt
|
|
|
2.3 |
|
|
|
|
|
Long-term portion of lease termination obligations
|
|
|
6.5 |
|
|
|
|
|
Convertible notes
|
|
|
48.3 |
|
|
|
|
|
Derivative instruments
|
|
|
53.2 |
|
|
|
|
|
Deferred gain
|
|
|
5.6 |
|
|
|
|
|
Pension liability
|
|
|
24.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
246.9 |
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Redeemable common shares, without par value
10,000,000 shares authorized, issued and outstanding at
April 30, 2005 and January 31, 2006
|
|
|
18.5 |
|
|
|
|
|
Convertible, redeemable preferred shares, without par
value unlimited shares authorized;
|
|
|
|
|
|
|
|
|
Issued and outstanding: Series A: 20,000,000 shares at
April 30, 2005 and January 31, 2006; Series B:
67,789,300 shares at April 30, 2005 and January 31,
2006
|
|
|
43.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62.4 |
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders deficiency:
|
|
|
|
|
|
|
|
|
|
|
Common shares, without par value unlimited shares
authorized; 107,149,933 and 107,249,873 issued and outstanding
as of April 30, 2005 and January 31, 2006 respectively
|
|
|
188.3 |
|
|
|
|
|
|
Warrants
|
|
|
47.9 |
|
|
|
|
|
|
Deferred stock-based compensation
|
|
|
(0.1 |
) |
|
|
|
|
|
Accumulated deficit
|
|
|
(331.0 |
) |
|
|
|
|
|
Accumulated other comprehensive loss
|
|
|
(31.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(126.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
183.1 |
|
|
$ |
|
|
|
|
|
|
|
|
|
(The accompanying notes are an integral part of these
consolidated financial statements)
F-49
Mitel Networks Corporation
Consolidated Statements of Operations
(in millions, except share and per share amounts, U.S.
GAAP)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended | |
|
|
| |
|
|
January 23, | |
|
January 31, | |
|
|
2005 | |
|
2006 | |
|
|
| |
|
| |
Revenues:
|
|
|
|
|
|
|
|
|
|
Products
|
|
$ |
153.2 |
|
|
$ |
189.6 |
|
|
Services
|
|
|
97.9 |
|
|
|
95.6 |
|
|
|
|
|
|
|
|
|
|
|
251.1 |
|
|
|
285.2 |
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
Products
|
|
|
99.1 |
|
|
|
108.0 |
|
|
Services
|
|
|
57.6 |
|
|
|
57.5 |
|
|
|
|
|
|
|
|
|
|
|
156.7 |
|
|
|
165.5 |
|
|
|
|
|
|
|
|
Gross margin
|
|
|
94.4 |
|
|
|
119.7 |
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
85.2 |
|
|
|
88.1 |
|
|
Research and development
|
|
|
30.4 |
|
|
|
33.0 |
|
|
Loss (gain) on sale of manufacturing operations
|
|
|
|
|
|
|
(0.7 |
) |
|
Special charges
|
|
|
7.1 |
|
|
|
4.2 |
|
|
Gain on sale of assets
|
|
|
|
|
|
|
(1.5 |
) |
|
|
|
|
|
|
|
|
|
|
122.7 |
|
|
|
123.1 |
|
|
|
|
|
|
|
|
Operating earnings (loss)
|
|
|
(28.3 |
) |
|
|
(3.4 |
) |
Interest expense
|
|
|
(1.7 |
) |
|
|
(5.6 |
) |
Fair value adjustment on derivative instrument
|
|
|
(3.9 |
) |
|
|
(11.7 |
) |
Other income, net
|
|
|
0.5 |
|
|
|
1.3 |
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(33.4 |
) |
|
|
(19.4 |
) |
Current income tax expense (recovery)
|
|
|
0.6 |
|
|
|
2.5 |
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(34.0 |
) |
|
$ |
(21.9 |
) |
|
|
|
|
|
|
|
Net loss per common share:
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$ |
(0.34 |
) |
|
$ |
(0.23 |
) |
|
|
|
|
|
|
|
Weighted average number of common shares outstanding:
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
112,895,239 |
|
|
|
117,213,252 |
|
|
|
|
|
|
|
|
Unaudited pro forma net loss per common share (note 2)
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
Unaudited pro forma weighted average common shares
outstanding (note 2)
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
(The accompanying notes are an integral part of these
consolidated financial statements)
F-50
Mitel Networks Corporation
Consolidated Statements of Cash Flows
(in millions, U.S. GAAP)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended | |
|
|
| |
|
|
January 23, | |
|
January 31, | |
|
|
2005 | |
|
2006 | |
|
|
| |
|
| |
CASH PROVIDED BY (USED IN)
|
|
|
|
|
|
|
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
(34.0 |
) |
|
$ |
(21.9 |
) |
|
Adjustments to reconcile net loss to net cash from operating
activities:
|
|
|
|
|
|
|
|
|
|
|
Amortization and depreciation
|
|
|
6.5 |
|
|
|
7.9 |
|
|
|
Amortization of deferred gain
|
|
|
|
|
|
|
(0.2 |
) |
|
|
Fair value adjustment on derivative instrument
|
|
|
3.9 |
|
|
|
11.7 |
|
|
|
Increase in deferred income taxes
|
|
|
(0.2 |
) |
|
|
|
|
|
|
Issuance of common shares in exchange for services
|
|
|
|
|
|
|
0.1 |
|
|
|
Accretion of convertible notes to redemption value
|
|
|
|
|
|
|
1.2 |
|
|
|
(Gain) loss on sale of business and assets
|
|
|
|
|
|
|
(1.5 |
) |
|
|
Unrealized foreign exchange gain (loss)
|
|
|
(1.0 |
) |
|
|
|
|
|
|
Non-cash movements in provisions
|
|
|
7.6 |
|
|
|
1.8 |
|
|
|
Change in operating non-cash assets and liabilities
|
|
|
(10.0 |
) |
|
|
(5.8 |
) |
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(27.2 |
) |
|
|
(6.7 |
) |
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
Additions to capital and intangible assets
|
|
|
(4.0 |
) |
|
|
(5.8 |
) |
|
|
Proceeds on disposals of assets and business
|
|
|
|
|
|
|
12.4 |
|
|
|
Change in restricted cash
|
|
|
0.6 |
|
|
|
(0.8 |
) |
|
|
Realized foreign exchange loss on hedging activities
|
|
|
(8.1 |
) |
|
|
(7.0 |
) |
|
|
Realized foreign exchange gain on hedging activities
|
|
|
6.0 |
|
|
|
6.7 |
|
|
|
|
|
|
|
|
|
Net cash from (used in) investing activities
|
|
|
(5.5 |
) |
|
|
5.5 |
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in bank indebtedness
|
|
|
5.6 |
|
|
|
(0.8 |
) |
|
|
Repayment of capital lease liabilities
|
|
|
(0.5 |
) |
|
|
(0.9 |
) |
|
|
Repayment of long-term debt
|
|
|
(2.8 |
) |
|
|
(10.6 |
) |
|
|
Proceeds from issuance of warrants
|
|
|
8.4 |
|
|
|
|
|
|
|
Share issuance costs
|
|
|
(0.2 |
) |
|
|
|
|
|
|
Proceeds from issuance of common shares
|
|
|
2.9 |
|
|
|
|
|
|
|
Proceeds from repayments of employee share purchase loans
|
|
|
0.2 |
|
|
|
0.9 |
|
|
|
|
|
|
|
|
|
Net cash from (used in) financing activities
|
|
|
13.6 |
|
|
|
(11.4 |
) |
|
|
|
|
|
|
|
|
Effect of exchange rates changes on cash and cash equivalents
|
|
|
1.0 |
|
|
|
(1.7 |
) |
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
(18.1 |
) |
|
|
(14.3 |
) |
Cash and cash equivalents, beginning of period
|
|
|
26.7 |
|
|
|
46.6 |
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$ |
8.6 |
|
|
$ |
32.3 |
|
|
|
|
|
|
|
|
(The accompanying notes are an integral part of these
consolidated financial statements)
F-51
Mitel Networks Corporation
Notes to the Consolidated Financial Statements
(in millions, except share and per share amounts, U.S. GAAP,
unaudited)
1. Nature of Operations
Mitel Networks Corporation (the Company) was
incorporated under the Canada Business Corporations Act on
January 12, 2001. Mitel Networks Corporation is a global
provider of next-generation IP telephony, video and data
solutions that creates advanced communication solutions and
applications in the areas of speech recognition, wireless
mobility, unified messaging, and customer interaction solutions.
Through direct and indirect channels as well as strategic
technology partnerships, the Company currently serves a wide
range of vertical markets, including the education, hospitality,
healthcare, and government segments, principally in the
United States, Europe, Canada, the Asia/ Pacific region and
Latin America regions.
2. Basis of Presentation
These unaudited consolidated financial statements have been
prepared in accordance with United States generally accepted
accounting principles (U.S. GAAP) for interim financial
statements and with the instructions to Form 10-Q and
Rule 10-01 of Regulation S-X, and should be read in
conjunction with the Companys consolidated financial
statements for the fiscal periods ended April 24 and
April 30, 2005. In particular, the companys
significant accounting policies and practices were presented as
Note 3 to the consolidated financial statements included in
that report and have consistently been applied in the
preparation of these interim financial statements except for the
changes in accounting policies described in Note 3. In the
opinion of management, all adjustments considered necessary for
a fair presentation of the results for the interim periods
presented have been included. Operating results for the nine
month periods ended January 31, 2006 are not necessarily
indicative of the results that may be expected for the year
ended April 30, 2006.
(a) Unaudited Pro Forma Information
The pro forma balance sheet information as of January 31,
2006 assumes the following upon completion of the initial public
offering of the following:
|
|
|
|
|
10,000,000 issued and outstanding, redeemable common shares
converted into common shares with the rights of the holder to
require us to redeem the common shares terminating upon the
completion of this offering; |
|
|
|
20,000,000 issued and outstanding, Series A, convertible,
redeemable preferred shares will be converted in accordance with
their terms into common shares in connection with the completion
of this offering; |
|
|
|
67,789,300 issued and outstanding, Series B convertible,
redeemable preferred shares will be converted in accordance with
their terms into common shares in connection with the completion
of this offering; |
|
|
|
5,000,000 warrants to be exercised in accordance with their
terms in connection with the completion of this
offering; and |
|
|
|
1,000,000 warrants to be exercised in accordance with their
terms just prior to the completion of this offering. |
F-52
(b) Unaudited Pro Forma Net Income Per Share
Pro forma basic and diluted income per ordinary share is
computed by dividing net income by the weighted average number
of common shares outstanding plus the number of common shares
resulting from the following:
|
|
|
|
|
conversion of the redeemable common shares, the Series A
convertible, redeemable preferred shares and the Series B
convertible, redeemable preferred shares upon completion of this
offering; |
|
|
|
exercise of 5,000,000 warrants upon completion of this
offering; and |
|
|
|
exercise of 1,000,000 warrants just prior to the completion of
this offering. |
3. New Accounting Standards
In November 2004, the FASB issued Statement No. 151,
Inventory Costs (SFAS 151).
SFAS 151 amends the guidance in ARB No. 43,
Chapter 4, Inventory Pricing, to clarify the
types of costs that should be expensed rather than capitalized
as inventory. Among other provisions, the new rule requires that
items such as idle facility expense, excessive spoilage, double
freight, and rehandling costs be recognized as current-period
charges regardless of whether they meet the criterion of
so abnormal as stated in ARB No. 43.
Additionally, SFAS 151 requires that the allocation of
fixed production overhead to the costs of conversion be based on
the normal capacity of the production facilities. SFAS 151
is effective for fiscal years beginning after June 15,
2005, or for the Companys Fiscal 2007 year-end. The
Company is currently evaluating the requirements of
SFAS 151 and has not yet fully determined the impact, if
any, on the consolidated financial statements
In December 2004, the FASB issued SFAS No. 153,
Exchanges of Non-monetary Assets. This standard
amended APB Opinion No. 29, Accounting for
Non-monetary Transactions, to eliminate the fair value
measurement exception for nonmonetary exchanges of similar
productive assets and replaces it with a general exception for
exchanges of nonmonetary assets that do not have commercial
substance.
A non-monetary
exchange has commercial substance if the future cash flows of
the entity are expected to change significantly as a result of
the exchange. This statement is effective for all non-monetary
asset exchanges completed by the Company starting Fiscal 2007.
The Company has not engaged in non-monetary asset exchanges in
the current period and the provisions of SFAS No. 153
are not expected to have a significant impact on the Company.
In December 2004, the FASB published a revision to
SFAS No. 123 (SFAS 123R), Share-Based Payments
which requires the measurement and recognition of
compensation expense for all share-based payment awards made to
employees and directors, including stock options, based on the
estimated fair value. This new standard supercedes the
Companys current accounting under Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to
Employees. In April 2005, the Securities Exchange Commission
(SEC) approved a rule delaying the effective date of the
revisions to SFAS 123R until Fiscal 2007. The impact on the
Companys financial statements under the existing
SFAS 123 requirements is disclosed in Note 4.
4. Stock Based Compensation Plan
The Company generally grants stock options for a fixed number of
shares to employees and non-employees with an exercise price
equal to the fair market value of the shares at the date of
grant. The Company accounts for stock option grants in
accordance with Accounting Principles Board Opinion No. 25
(APB 25), Accounting for Stock Issued to
Employees, and related interpretations. Under APB 25,
options granted to employees and directors will result in the
recognition of compensation expense only if the exercise price
is lower than the market price of common shares on the date of
grant. Under SFAS No. 123 (SFAS 123),
Accounting for Stock-Based Compensation, the Company
recognizes compensation expense in connection with grants to
non-employees and former employees by applying the fair value
based method of accounting and also applies variable plan
accounting to such unvested grants. Had compensation cost for
the Companys stock option plan been determined as
prescribed by SFAS 123,
F-53
pro forma net loss and pro forma net loss per share would have
been as follows, using the following weighted average
assumptions:
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended | |
|
|
| |
|
|
January 23, | |
|
January 31, | |
|
|
2005 | |
|
2006 | |
|
|
| |
|
| |
Net loss available to common shareholders, as reported
(note 19)
|
|
$ |
(38.3 |
) |
|
$ |
(27.0 |
) |
Estimated additional stock-based compensation
|
|
|
(1.6 |
) |
|
|
(1.4 |
) |
|
|
|
|
|
|
|
Pro forma net loss available to common shareholders
|
|
$ |
(39.9 |
) |
|
$ |
(28.4 |
) |
|
|
|
|
|
|
|
Net loss per share, as reported basic and diluted
|
|
$ |
(0.34 |
) |
|
$ |
(0.23 |
) |
|
|
|
|
|
|
|
Pro forma net loss per share basic and diluted
|
|
$ |
(0.35 |
) |
|
$ |
(0.24 |
) |
|
|
|
|
|
|
|
Risk-free interest rate
|
|
|
3.8 |
% |
|
|
3.5 |
% |
Dividends
|
|
|
0 |
% |
|
|
0 |
% |
Expected life of the options
|
|
|
5 years |
|
|
|
5 years |
|
Fair value
|
|
$ |
0.16 |
|
|
$ |
0.14 |
|
Pro forma results disclosed are based on the provisions of
SFAS 123 using a minimum value option pricing model, which
assumes no volatility, to calculate the fair value of stock
options. Changes in the subjective input assumptions can
materially affect the fair value estimate, and therefore the
model used above does not necessarily provide reliable pro forma
results.
Following is a summary of the Companys stock option
activity and related information. The exercise price of stock
options was based on prices in Canadian dollars translated at
the year-end exchange rate.
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended January 31, 2006 | |
|
|
| |
|
|
|
|
Weighted Average | |
|
|
Number of Options | |
|
Exercise Price | |
|
|
| |
|
| |
Outstanding options:
|
|
|
|
|
|
|
|
|
Balance, beginning of period:
|
|
|
18,456,249 |
|
|
$ |
1.31 |
|
|
Granted
|
|
|
4,979,242 |
|
|
|
0.87 |
|
|
Exercised
|
|
|
(5,725 |
) |
|
|
1.73 |
|
|
Forfeited
|
|
|
(609,057 |
) |
|
|
1.35 |
|
|
Expired
|
|
|
(177,860 |
) |
|
|
2.77 |
|
|
|
|
|
|
|
|
Balance, end of period:
|
|
|
22,642,849 |
|
|
$ |
1.21 |
|
|
|
|
|
|
|
|
Number of options exercisable
|
|
|
5,903,678 |
|
|
$ |
2.02 |
|
|
|
|
|
|
|
|
Performance Based Stock
Options
On July 27, 2005, the shareholders of Mitel approved
2,810,000 performance-based stock option awards to selected key
employees. These options contingently vest upon the achievement
of certain targets in accordance with the normal four-year
vesting term. As the number of options that the holders will be
entitled to is unknown, the options are considered variable plan
awards as defined by APB 25. Consistent with these requirements,
the valuation of the performance based options must be
remeasured for changes in the market price of the underlying
stock at the end of each reporting period and charged to expense
over the four-year vesting period. The expense amount recorded
in the nine-month period ended January 31, 2006 was
considered nominal.
F-54
5. Segment Information
General description
Mitels portfolio of solutions provide advanced voice,
video and data communications platforms, desktop phones and
Internet appliances, applications for customer relationship
management and mobility, messaging and multimedia collaboration.
In previous years, the Company reported its operations in two
segments: the Communications Solutions segment
(Solutions) and the Customer Services segment
(Services). Effective fiscal 2006, Mitel changed its
structure of reporting so that the reportable segments are now
represented by the following four geographic areas: United
States, Canada and Caribbean & Latin America (CALA), Europe,
Middle East & Africa (EMEA), and Asia Pacific. These
reportable segments were determined in accordance with how
management views and evaluates the Companys business.
The Companys Chief Executive Officer (CEO) has
been identified as the chief operating decision maker as defined
by SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information. The CEO evaluates the
performance of the segments and allocates resources based on
information provided by the Companys internal management
system. The primary financial measure used by the CEO is the
contribution margin, which includes segment revenues less the
related cost of sales and direct selling costs. The Company does
not allocate research and development, general and
administrative expenses (including marketing), amortization,
stock-based
compensation expense and
one-time charges to its
segments as management does not use this information to measure
the performance of the operating segments. These unallocated
expenses are included in shared and unallocated costs in the
reconciliation of operating results. In addition, total asset
information by segment is not presented because the CEO does not
use such segmented measure to allocate resources and assess
performance.
Inter-segment sales are
based on fair market values and are eliminated on consolidation.
With the exception of contribution margin defined above, the
accounting policies of reported segments are the same as those
described in the summary of significant accounting policies.
Business segments
The following table sets forth information by business segment
by period. External revenues are attributed to geographic area
based on sales office location.
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Canada | |
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|
United | |
|
and | |
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|
|
Asia | |
|
Corporate | |
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|
|
States | |
|
CALA | |
|
EMEA | |
|
Pacific | |
|
and Other | |
|
Total | |
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| |
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| |
|
| |
|
| |
|
| |
|
| |
Nine months ended January 23, 2005
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|
|
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|
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|
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Revenue
|
|
$ |
114.0 |
|
|
$ |
26.5 |
|
|
$ |
106.2 |
|
|
$ |
4.4 |
|
|
$ |
|
|
|
$ |
251.1 |
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|
|
|
|
|
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Contribution Margin
|
|
|
44.9 |
|
|
|
9.8 |
|
|
|
30.3 |
|
|
|
0.2 |
|
|
|
|
|
|
|
85.2 |
|
Shared and unallocated costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
113.5 |
|
|
|
113.5 |
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$ |
44.9 |
|
|
$ |
9.8 |
|
|
$ |
30.3 |
|
|
$ |
0.2 |
|
|
$ |
(113.5 |
) |
|
$ |
(28.3 |
) |
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|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended January 31, 2006
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|
|
|
|
Revenue
|
|
$ |
136.8 |
|
|
$ |
29.6 |
|
|
$ |
112.7 |
|
|
$ |
6.1 |
|
|
$ |
|
|
|
$ |
285.2 |
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|
|
|
|
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|
|
|
|
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|
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Contribution Margin
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|
|
59.0 |
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|
|
11.8 |
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|
|
38.7 |
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|
|
0.1 |
|
|
|
|
|
|
|
109.6 |
|
Shared and unallocated costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
113.0 |
|
|
|
113.0 |
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|
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|
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|
|
|
|
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|
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Operating income (loss)
|
|
$ |
59.0 |
|
|
$ |
11.8 |
|
|
$ |
38.7 |
|
|
$ |
0.1 |
|
|
$ |
(113.0 |
) |
|
$ |
(3.4 |
) |
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|
F-55
Geographic long-lived asset information is based on the physical
location of the assets as of the end of each fiscal period. The
following table sets forth long-lived assets by geographic areas:
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|
January 31, 2006 | |
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| |
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Property | |
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and | |
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Intangible | |
|
|
Equipment | |
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Goodwill | |
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Assets | |
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| |
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| |
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| |
Canada
|
|
$ |
9.7 |
|
|
$ |
4.0 |
|
|
$ |
1.8 |
|
United States
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|
|
0.3 |
|
|
|
0.9 |
|
|
|
|
|
United Kingdom
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|
|
4.2 |
|
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Other foreign countries
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|
1.0 |
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|
1.7 |
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|
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$ |
15.2 |
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|
$ |
6.6 |
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|
$ |
1.8 |
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6. |
Related Party Transactions |
Significant related party transactions with companies controlled
by or related to the Principal Shareholder, not otherwise
disclosed in the financial statements, include the following:
Product Supply
Agreement
The Company purchases products and services from BreconRidge
Manufacturing Solutions Corporation (BreconRidge), a
company in which the Principal Shareholder holds a significant
interest. During the nine month periods ended January 31,
2006, the Company purchased $72.6 (January 23,
2005 $61.0) of products and services and sold $0.2
(January 23, 2005 $0.8) of raw material
inventory under this agreement. During the nine month periods
ended January 31, 2006, the Company also provided
facilities management services to BreconRidge valued at $0.4
(January 23, 2005 $1.9). As at January 31,
2006, balances payable pursuant to this agreement amounted to
$24.9 and balances receivable pursuant to this agreement
amounted to $1.2.
Leased properties
The Company and Mitel Research Park, a company controlled by the
Principal Shareholder are parties to a lease agreement for
its Ottawa-based
headquarter facilities. During the nine month periods ended
January 31, 2006 the Company incurred $5.4 of rental
expense in connection with this lease agreement
(January 23, 2005 $4.6).
The Company and BreconRidge are also parties to sublease
agreements for certain office and manufacturing facilities in
Ottawa and in the United Kingdom (U.K.). In August
2005, the building in the U.K. was sold to an unrelated third
party. Accordingly, the Company no longer receives rental income
from BreconRidge for facilities under the U.K. sublease
agreement. During the nine month periods ended January 31,
2006 the Company recorded $2.3 respectively of rental income in
connection with these sublease agreements (January 23,
2005 $2.2).
Other
The Company and March Networks Corporation, a company controlled
by the Principal Shareholder, are parties to a strategic
alliance agreement and a global distribution agreement to
broaden its product portfolio and its distribution channel.
During the nine month periods ended January 31, 2006, the
Company purchased $0.2 (January 23, 2005 $0.3)
of products and services from March Networks Corporation and had
a balance payable of $0.1 recorded in the due to related parties
pursuant to this agreement at January 31, 2006.
Other sales to, purchases from and net balances payable to
companies related to the Principal Shareholder and arising in
the normal course of the Companys business amounted to
$0.2, $2.8 and $1.1
F-56
respectively for the nine months ended January 31, 2006
(January 23, 2005 $0.1, $0.3 and $nil
respectively).
Disposal of manufacturing
operations
On August 31, 2001, the Company recorded a loss on the sale
of its manufacturing operations, comprising plant, equipment,
workforce and certain liabilities to BreconRidge Manufacturing
Solutions Corporation (BreconRidge), a company in
which the Principal Shareholder holds a significant interest.
During Fiscal 2004, BreconRidge vacated premises that had
been subleased from the Company pursuant to the disposal of the
manufacturing operations. It became evident therefore that
sublease income over the lease renewal period, which was
originally included in the estimated loss on disposal, will no
longer be realized. As a result, additional expenses of $0.6 and
3.4 were recorded in the Fiscal 2004 and 2005 Consolidated
Statements of Operations as an additional loss arising on the
disposal activity. During the
nine-month period ended
January 31, 2006, Mitel received new information indicating
that the operating cost assumptions, on which these expense
estimates were based, were overstated. As a result, a reversal
of $0.7 was recorded in the current period.
During the nine months ended January 31, 2006 the Company
recorded pre-tax
special charges of $4.2. The components of the charge include
$4.0 of employee severance and benefits incurred in the
termination of employees around the world, $0.6 of accreted
interest related to lease termination obligation and a reversal
of $0.4 related to a new sublease of a facility previously
provided for in special charges. Payment of the workforce
reduction liabilities is expected to be complete within the next
twelve months. The lease termination obligation incurred in
prior fiscal years will be reduced over the remaining term
of the leases, which range from one year to ten years.
Accordingly, $6.5 of the balance of the lease termination
obligation has been recorded under long term liabilities.
The following table summarizes details of the Companys
special charges and related provision for the
nine-month period ended
January 31, 2006 and January 23, 2005:
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|
Lease | |
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|
Workforce | |
|
Termination | |
|
Assets | |
|
|
|
|
Description |
|
Reduction | |
|
Obligation | |
|
written off | |
|
Legal costs | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
Balance of provision as of April 25, 2004
|
|
$ |
2.1 |
|
|
$ |
5.3 |
|
|
$ |
|
|
|
$ |
0.4 |
|
|
$ |
7.8 |
|
Nine months ended January 23, 2005:
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|
|
|
|
|
Charges
|
|
|
6.3 |
|
|
|
|
|
|
|
0.8 |
|
|
|
(0.3 |
) |
|
|
6.8 |
|
|
Adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash payments
|
|
|
(5.6 |
) |
|
|
(0.9 |
) |
|
|
(0.5 |
) |
|
|
|
|
|
|
(7.0 |
) |
|
Assets written off
|
|
|
|
|
|
|
|
|
|
|
(0.3 |
) |
|
|
|
|
|
|
(0.3 |
) |
|
Foreign currency impact
|
|
|
|
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance of provision as of January 23, 2005
|
|
$ |
2.8 |
|
|
$ |
4.5 |
|
|
$ |
|
|
|
$ |
0.1 |
|
|
$ |
7.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance of provision as of April 30, 2005
|
|
$ |
1.8 |
|
|
$ |
5.6 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
7.4 |
|
Nine months ended January 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charges
|
|
|
4.0 |
|
|
|
0.6 |
|
|
|
|
|
|
|
|
|
|
|
4.6 |
|
|
Adjustments
|
|
|
|
|
|
|
(0.4 |
) |
|
|
|
|
|
|
|
|
|
|
(0.4 |
) |
|
Cash payments
|
|
|
(5.3 |
) |
|
|
(1.0 |
) |
|
|
|
|
|
|
|
|
|
|
(6.3 |
) |
|
Foreign currency impact
|
|
|
|
|
|
|
(0.1 |
) |
|
|
|
|
|
|
|
|
|
|
(0.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance of provision as of January 31, 2006
|
|
$ |
0.5 |
|
|
$ |
4.7 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
5.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-57
|
|
|
|
|
|
|
January 31, | |
|
|
2006 | |
|
|
| |
Raw materials
|
|
$ |
0.9 |
|
Finished goods
|
|
|
22.6 |
|
|
|
|
|
|
|
|
23.5 |
|
Less: provision for inventory
|
|
|
(2.3 |
) |
|
|
|
|
|
|
$ |
21.2 |
|
|
|
|
|
|
|
9. |
Property and Equipment |
|
|
|
|
|
|
|
|
January 31, | |
|
|
2006 | |
|
|
| |
Cost:
|
|
|
|
|
|
Land
|
|
$ |
|
|
|
Buildings
|
|
|
|
|
|
Equipment
|
|
|
62.5 |
|
|
|
|
|
|
|
|
62.5 |
|
|
|
|
|
Less accumulated depreciation:
|
|
|
|
|
|
Buildings
|
|
|
|
|
|
Equipment
|
|
|
47.3 |
|
|
|
|
|
|
|
|
47.3 |
|
|
|
|
|
|
|
$ |
15.2 |
|
|
|
|
|
The Companys U.K. subsidiary has indemnity facilities
totaling $0.9 (£0.5) available for letters of credit and
other guarantees, the full amount of which has been drawn at
January 31, 2006 (April 30, 2005 0.9), and
also has available additional credit facilities of $6.8
(£3.8) of which $nil was borrowed at January 31, 2006
(April 30, 2005 $nil). The indemnity and credit
facilities are unsecured. On January 31, 2006, the company
cancelled its overdraft facility (April 30,
2005 $1.9)
The following table summarizes the movement in the carrying
value of the convertible notes for the nine-month period:
|
|
|
|
|
|
|
January 31, | |
|
|
2006 | |
|
|
| |
Balance, beginning of period
|
|
$ |
46.6 |
|
Accretion of convertible notes to redemption value
|
|
|
1.2 |
|
Foreign currency impact
|
|
|
0.5 |
|
|
|
|
|
Balance, end of period
|
|
$ |
48.3 |
|
|
|
|
|
Sale of Edict Training
Ltd.
On October 7, 2005, the Company completed the sale of its
8,000 shares, or eighty-percent ownership interest, in Edict for
consideration of £0.2, or $0.3 to be applied against
amounts due from Edict Training
F-58
Ltd. The transaction resulted in an insignificant loss, which
was recorded in other income/expense. As a result of this
transaction, the Company no longer holds any equity interest in
Edict. The costs incurred in connection with this disposal were
considered nominal. Revenues and net loss relating to Edict for
the period from May 1, 2005 until the date of disposal
amounted to $0.4 and $0.6 respectively ($0.9 and $1.3 for the
nine-month period ending January 23, 2005). The following
details the carrying value of Edicts major classes of
assets and liabilities as of the date of disposal:
|
|
|
|
|
|
|
|
October 7, | |
|
|
2005 | |
|
|
| |
Assets
|
|
|
|
|
|
Cash
|
|
$ |
0.1 |
|
|
Accounts receivable
|
|
|
0.3 |
|
|
Fixed assets
|
|
|
|
|
|
Due to affiliates (net)
|
|
|
1.0 |
|
Liabilities
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
|
(0.6 |
) |
|
Deferred revenue
|
|
|
(0.5 |
) |
|
|
|
|
|
|
$ |
0.3 |
|
|
|
|
|
Sale of U.K. land and
building
On August 31, 2005, Mitel sold land and building relating
to its U.K. subsidiary for net proceeds of $12.4 (£7.1),
resulting in a pre-tax gain of $7.3 (£4.2). The transaction
included a commitment for Mitel to lease back a portion of the
property, which provided the Company with more than a minor part
but less than substantially all of the use of the property, and
thereby qualified the transaction as a sale-leaseback
arrangement under SFAS 13. As a result, Mitel entered
into a 6-month
interim lease and
a 10-year
long-term lease for
a portion of the property sold. Accordingly, $5.8 of the
gain has been deferred and is being amortized over the combined
term of the leases
(101/2
years). The remaining gain of $1.5 was recognized
immediately at the time of the sale and included in gain on sale
of assets.
Provision for income taxes relating to the sale of the land and
buildings was 1.0M (£0.6).
The Companys overall provision for income taxes for the
nine months ended January 23, 2005 and January 31,
2006 was $0.6 and $2.5, respectively. The provision is comprised
of U.S. and U.K. taxes. The increase in the provision for the
nine-month period ended January 31, 2006 is partially
attributable to the sale of U.K. land and building described in
Note 12.
The components of the Companys net periodic benefit cost
for the nine months ended January 31, 2006 were as follows:
|
|
|
|
|
|
|
|
|
|
|
Nine Months | |
|
|
| |
|
|
January 23, | |
|
January 31, | |
|
|
2005 | |
|
2006 | |
|
|
| |
|
| |
Current service cost defined contribution
|
|
$ |
1.3 |
|
|
$ |
1.1 |
|
Current service cost defined benefit
|
|
|
1.4 |
|
|
|
0.8 |
|
Interest cost
|
|
|
4.4 |
|
|
|
4.7 |
|
Expected return on plan assets
|
|
|
(4.1 |
) |
|
|
(4.6 |
) |
Recognized actuarial loss
|
|
|
1.0 |
|
|
|
0.8 |
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$ |
4.0 |
|
|
$ |
2.8 |
|
|
|
|
|
|
|
|
F-59
15. Commitments and Guarantees
Guarantees
The Companys major types of guarantees that are subject to
the accounting and disclosure requirements of FIN 45
include product warranties, intellectual property
indemnification obligations and bid and performance related
bonds. At January 31, 2006, the liability recorded in
relation to the indemnification obligations and bonds was
insignificant (April 30, 2005 insignificant).
Product warranties:
The Company provides all customers with standard warranties on
hardware and software for periods up to fifteen months.
Customers can upgrade the standard warranty and extend the
warranty up to five years on certain products. The following
table details the changes in the warranty liability:
|
|
|
|
|
|
|
|
Nine Months | |
|
|
January 31, | |
|
|
2006 | |
|
|
| |
Balance, beginning of period
|
|
$ |
2.6 |
|
|
Warranty costs incurred
|
|
|
(1.8 |
) |
|
Warranties issued
|
|
|
1.0 |
|
|
Foreign currency impact
|
|
|
0.2 |
|
|
|
|
|
Balance, end of period
|
|
$ |
2.0 |
|
|
|
|
|
16. Contingencies
The Company is party to a small number of legal proceedings,
claims or potential claims arising in the normal course of its
business. In the opinion of the Companys management and
legal counsel, any monetary liability or financial impact of
such claims or potential claims to which the Company might be
subject after final adjudication would not be material to the
consolidated financial position of the Company, its results of
operations, or its cash flows.
17. Redeemable Common Shares
The following table summarizes the movement in the carrying
value of redeemable common shares for the nine month period:
|
|
|
|
|
|
|
January 31, | |
|
|
2006 | |
|
|
| |
Balance, beginning of period
|
|
$ |
18.2 |
|
Interest accreted during the period
|
|
|
0.3 |
|
|
|
|
|
Balance, end of period
|
|
$ |
18.5 |
|
|
|
|
|
18. Convertible, Redeemable Preferred Shares
The following table summarizes the movement in the carrying
value of convertible, redeemable preferred shares for the nine
month period
|
|
|
|
|
|
|
January 31, | |
|
|
2006 | |
|
|
| |
Balance, beginning of period
|
|
$ |
39.1 |
|
Interest accreted during the period
|
|
|
4.8 |
|
|
|
|
|
Balance, end of period
|
|
$ |
43.9 |
|
|
|
|
|
As a portion of the redemption price of the preferred shares is
indexed to the common share price of the Company, an embedded
derivative exists which has been bifurcated and accounted for
separately,
F-60
under SFAS 133, Accounting for Derivative Instruments
and Hedging Activities. The embedded derivative is marked to
market throughout the period to redemption with changes in value
recorded in the Consolidated Statements of Operations. For the
nine-month period ended January 31, 2006, and
January 30, 2005, the fair value adjustment recorded was
$3.9 and 11.7 respectively.
19. Earnings (Loss) per Share
The following table sets forth the computation of basic and
diluted loss per share:
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended | |
|
|
| |
|
|
January 23, | |
|
January 31, | |
|
|
2005 | |
|
2006 | |
|
|
| |
|
| |
Net loss, as reported
|
|
$ |
(34.0 |
) |
|
$ |
(21.9 |
) |
Accreted interest on redeemable shares
|
|
|
(4.3 |
) |
|
|
(5.1 |
) |
|
|
|
|
|
|
|
Net loss available to common shareholders
|
|
$ |
(38.3 |
) |
|
$ |
(27.0 |
) |
|
|
|
|
|
|
|
Weighted average number of common shares outstanding during the
period
|
|
|
112,895,239 |
|
|
|
117,213,252 |
|
|
|
|
|
|
|
|
Loss per common share basic and diluted
|
|
$ |
(0.34 |
) |
|
$ |
(0.23 |
) |
|
|
|
|
|
|
|
Securities that are anti-dilutive because the exercise price is
greater than the average market price of the common shares, are
not included in the computation of diluted earnings per share.
For the period ending January 31, 2006, 20,899,540 stock
options, 36,404,434 warrants and 87,789,300 convertible
preferred shares were excluded from the above computation of
diluted EPS because they were anti-dilutive.
F-61
20. Shareholders Deficiency
The following summarizes the changes in shareholders
deficiency accounts for the nine-month period ending
January 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated | |
|
|
|
|
|
|
|
|
|
|
|
|
Other | |
|
Total | |
|
|
Common Shares | |
|
|
|
Deferred | |
|
|
|
Comprehensive | |
|
Shareholders | |
|
|
| |
|
|
|
Stock-based | |
|
Accumulated | |
|
Income | |
|
Equity | |
|
|
Shares | |
|
Amount | |
|
Warrants | |
|
Compensation | |
|
Deficit | |
|
(Loss) | |
|
(Deficiency) | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Balance at April 30, 2005
|
|
|
107,149,933 |
|
|
$ |
187.6 |
|
|
$ |
47.9 |
|
|
$ |
(0.4 |
) |
|
$ |
(304.0 |
) |
|
$ |
(24.2 |
) |
|
$ |
(93.1 |
) |
Common shares issued:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued in exchange for services
|
|
|
132,261 |
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.1 |
|
|
Exercise of stock options
|
|
|
5,725 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value adjustment relating to stock option plan
|
|
|
|
|
|
|
(0.3 |
) |
|
|
|
|
|
|
0.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares repurchased
|
|
|
(38,046 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayment of employee share purchase loans
|
|
|
|
|
|
|
0.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.9 |
|
Accretion of interest on redeemable common and preferred shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5.1 |
) |
|
|
|
|
|
|
(5.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
107,249,873 |
|
|
|
188.3 |
|
|
|
47.9 |
|
|
|
(0.1 |
) |
|
|
(309.1 |
) |
|
|
(24.2 |
) |
|
|
(97.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(21.9 |
) |
|
|
|
|
|
|
(21.9 |
) |
Other Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7.1 |
) |
|
|
(7.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(21.9 |
) |
|
|
(7.1 |
) |
|
|
(29.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 31, 2006
|
|
|
107,249,873 |
|
|
$ |
188.3 |
|
|
$ |
47.9 |
|
|
$ |
(0.1 |
) |
|
$ |
(331.0 |
) |
|
$ |
(31.3 |
) |
|
$ |
(126.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-62
21. Supplementary Cash Flow Information
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended | |
|
|
| |
|
|
January 23, | |
|
January 31, | |
|
|
2005 | |
|
2006 | |
|
|
| |
|
| |
Change in non-cash operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
$ |
7.2 |
|
|
$ |
(9.0 |
) |
|
Inventories
|
|
|
(5.7 |
) |
|
|
(5.3 |
) |
|
Other current assets
|
|
|
(3.4 |
) |
|
|
6.1 |
|
|
Long-term receivables
|
|
|
(0.1 |
) |
|
|
(0.4 |
) |
|
Accounts payable and accrued liabilities
|
|
|
4.4 |
|
|
|
(2.5 |
) |
|
Long-term portion of lease termination obligations
|
|
|
(1.3 |
) |
|
|
(0.5 |
) |
|
Deferred revenue
|
|
|
(5.6 |
) |
|
|
(4.9 |
) |
|
Pension liability
|
|
|
0.6 |
|
|
|
(1.7 |
) |
|
Due to related parties
|
|
|
(3.5 |
) |
|
|
10.9 |
|
|
Income and other taxes payable
|
|
|
(2.6 |
) |
|
|
1.5 |
|
|
|
|
|
|
|
|
|
|
$ |
(10.0 |
) |
|
$ |
(5.8 |
) |
|
|
|
|
|
|
|
Disclosure of non-cash activities during the period:
|
|
|
|
|
|
|
|
|
|
Exchange of common shares for convertible, redeemable preferred
shares
|
|
$ |
0.6 |
|
|
$ |
|
|
|
Issuance of common shares in exchange for services
|
|
$ |
0.1 |
|
|
$ |
|
|
|
Capital assets acquired under capital leases
|
|
$ |
0.6 |
|
|
$ |
0.9 |
|
F-63
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 6. Indemnification of Directors and
Officers
Our by-laws require us
to indemnify each current or former director or officer who acts
or acted at our request as a director or officer or in a similar
capacity of our company or another entity at our request. We
will indemnify him or her against all cost, charges and expenses
reasonably incurred in respect of any civil, criminal or
administrative proceeding in which such individual is involved
because of that association with us or another entity. However,
we shall not indemnify such individual if, among other things,
he or she did not act honestly and in good faith with a view to
our best interests and, in the case of a criminal or
administrative action or proceeding that is enforced by a
monetary penalty, the individual had reasonable grounds for
believing that his or her conduct was lawful.
Our by-laws authorize
us to purchase and maintain insurance for the benefit of each of
our current or former directors or officers and each person who
acts or acted at our request as a director or officer of a body
corporate of which we are or were a shareholder or creditor, and
their heirs and legal representatives. We have purchased
director and officer liability insurance.
We have entered into indemnity agreements with our directors and
certain officers which provide, among other things, that we will
indemnify him or her to the fullest extent permitted by law from
and against all losses that a director or officer may reasonably
suffer, sustain or incur by reason of such individual being or
having been a director or officer, provided that we shall not
indemnify such individual if, among other things, he or she did
not act honestly and in good faith with a view to our best
interests and, in the case of a criminal or administrative
action or proceeding that is enforced by a monetary penalty, the
individual had reasonable grounds for believing that his or her
conduct was lawful.
Item 7. Recent Sales of Unregistered
Securities
Set forth below is information regarding securities sold by us
since April 1, 2003 which were not registered under the
U.S. Securities Act.
(a) Issuances and Sales of Convertible Notes and
Warrants
As part of a financing through the Technology Partnerships
Canada program, we issued to the Government of Canada a warrant
to purchase 6,804,380 common shares on September 30, 2003
for the aggregate sum of C$13,608,760, a warrant to purchase
13,862,943 common shares on September 30, 2004 for the
aggregate sum of C$13,862,943 and a warrant to purchase
8,935,499 common shares on September 30, 2005 for the
aggregate sum of C$8,935,499. The warrants are exercisable on a
one-for-one basis for common shares for no additional
consideration. These transactions were exempt under
Regulation S under the U.S. Securities Act.
On April 23, 2004, we issued and sold to Edgestone, for the
aggregate sum of C$1.00, a Series 1 warrant to purchase
5,000,000 common shares at an exercise price of C$1.25 per
share. We also issued and sold to Edgestone, for the aggregate
sum of C$1.00, a Series 2 warrant to purchase common
shares, in order to provide Edgestone with certain anti-dilution
protection upon the occurrence of certain events relating to the
exercise of certain put rights under our shareholders agreement.
These transactions were exempt under Regulation S under the
U.S. Securities Act.
On April 29, 2004, we issued to CIBC World Markets Inc. a
warrant to purchase 1,000,000 common shares for the aggregate
sum of C$1,000,000. This transaction was exempt under
Regulation S under the U.S. Securities Act.
On April 27, 2005, we completed a convertible debt
financing transaction with four U.S. investors pursuant to
which we issued and sold to them senior secured convertible
notes for the aggregate sum of $55,000,000, and warrants to
purchase up to, in the aggregate, 16,500,000 common shares. This
transaction
II-1
was exempt under section 4(2) of the U.S. Securities
Act and Rule 506 of Regulation D promulgated
thereunder.
(b) Issuances and Sales of Preferred Shares
On April 23, 2004, we issued and sold to Edgestone
20,000,000 Series A Preferred Shares at an aggregate
purchase price of C$20,000,000. This transaction was exempt
under Regulation S under the U.S. Securities Act.
On April 23, 2004, 20,448,875 common shares held by
Wesley Clover, which had been issued by Mitel Networks in
October 2003 upon the conversion of certain promissory notes
previously issued by Mitel in favor of Wesley Clover, were
exchanged on a
one-to-two basis for an
aggregate of 40,897,750 Series B Preferred Shares.
This transaction was exempt under Regulation S under the
U.S. Securities Act.
On April 23, 2004, 4,000,000 common shares held by
PTIC were exchanged on a one-to-four basis for
16,000,000 Series B Preferred Shares. This transaction
may not be deemed a sale, and was otherwise exempt
from registration under Section 3(a)(9) of the
U.S. Securities Act.
On April 23, 2004, 5,081,619 common shares (originally
issued in October 2003 as part of the conversion of debentures
for 5,445,775 common shares) were exchanged on a
one-to-two basis for
10,163,238 Series B Preferred Shares. During fiscal
2005, the remaining 364,156 common shares held by the debenture
holders were exchanged for 728,312 Series B Preferred
Shares. These transactions may not be deemed to be
sales, and were otherwise exempt from registration
under Section 3(a)(9) of the U.S. Securities Act.
(c) Issuances of Common Shares
On October 31, 2003, we issued 20,448,875 common shares
upon the conversion of C$31.0 million of promissory notes
previously issued by us in favor of Wesley Clover during 2002
and 2003. This transaction was exempt under Regulation S
under the U.S. Securities Act.
During Fiscal 2004, we issued 5,445,775 common shares to our
debenture holders upon the conversion of the entire balance of
debentures outstanding of $8.3 million. This transaction
may not be deemed to be a sale, and was otherwise
exempt from registration under Section 3(a)(9) of the
U.S. Securities Act.
In November 2004, we closed a family and friends investment
round under which 4,881,773 common shares were purchased,
netting gross proceeds to us of $4,881,773 with loans to
eligible employees totaling, in the aggregate, $1,628,515. Of
the 4,881,773 common shares issued, 4,721,774 common shares were
issued to persons in Canada and in the United Kingdom and were
exempt under Regulation S under the U.S. Securities
Act, and 160,000 common shares were issued to accredited
investors in the United States pursuant to Section 4(2) of
the U.S. Securities Act and Rule 506 of
Regulation D promulgated thereunder.
(d) Employee benefit plans
Since April 1, 2003, we have granted an aggregate of
21,190,915 stock options under our stock option plan with
exercise prices ranging from C$1.00 to C$2.75. 64,424 common
shares have been issued pursuant to the exercise of 64,424
options since April 1, 2003. These transactions were either
registered on a
Form S-8 or exempt
under Regulation S, Rule 701 or Section 4(2) of
the U.S. Securities Act and Rule 506 of
Regulation D promulgated thereunder.
In November 2004, we conducted an issuer exchange offer in which
we offered re-priced options in exchange for the
then-outstanding options under our 2001 stock option plan. The
offer expired on January 23, 2004. Pursuant to the offer,
we accepted for exchange eligible options to purchase 10,373,302
common shares and granted 10,373,302 new options in exchange for
the eligible options accepted for
II-2
exchange. These transactions may not be deemed to be
sales, and were otherwise exempt from registration
under Section 3(a)(9) of the U.S. Securities Act.
Item 8. Exhibits
The exhibits listed in the exhibits index, appearing elsewhere
in this registration statement, have been filed as part of this
registration statement.
Item 9. Undertakings
The undersigned registrant hereby undertakes to provide to the
underwriters at the closing specified in the underwriting
agreement, certificates in such denominations and registered in
such names as required by the underwriters to permit prompt
delivery to each purchaser.
Insofar as indemnification for liabilities arising under the
U.S. Securities Act may be permitted to directors, officers, and
controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that
in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment
by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant
will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issue.
The undersigned registrant hereby further undertakes that:
|
|
|
For purposes of determining any liability under the U.S.
Securities Act, the information omitted from the form of
prospectus filed as part of this registration statement in
reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the U.S.
Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective. |
|
|
For the purpose of determining any liability under the U.S.
Securities Act, each post-effective amendment that contains a
form of prospectus shall be deemed to be a new registration
statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof. |
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe
that it meets all of the requirements for filing on
Form F-1 and has duly caused this registration statement to
be signed on its behalf by the undersigned, thereunto duly
authorized, in City of Ottawa, Canada on May 9, 2006.
|
|
|
MITEL NETWORKS CORPORATION |
|
|
|
|
|
Donald W. Smith |
|
Chief Executive Officer |
II-4
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints Donald W.
Smith, Steven E. Spooner, Paul A.N. Butcher, Dr. Terence H.
Matthews and Greg Hiscock and each of them, true and lawful
attorneys-in-fact and agents, each acting alone, with full power
of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to sign any and all
amendments to this registration statement, including
post-effective amendments, as well as any related registration
statement (or amendment thereto) filed pursuant to Rule 462
under the Securities and Exchange Act of 1934, and to file the
same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents,
each acting alone, full power and authority to do and perform
each and every act and thing requisite or necessary to be done
in and about the premises, as fully to all intents and purposes
as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, each
acting alone, or his substitute or substitutes, may lawfully do
or cause to be done by virtue hereof.
This power of attorney may be executed in multiple counterparts,
each of which shall be deemed an original, but which taken
together shall constitute one instrument.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons
in the capacities indicated on May 9, 2006.
|
|
|
Name |
|
Title |
|
|
|
|
|
/s/ Donald W. Smith
Donald W. Smith |
|
Chief Executive Officer (Principal Executive Officer) and
Director |
|
/s/ Steven E. Spooner
Steven E. Spooner |
|
Chief Financial Officer (Principal Financial and Accounting
Officer) |
|
/s/ Paul A.N. Butcher
Paul A.N. Butcher |
|
President and Chief Operating Officer and Director |
|
/s/ Dr. Terence H.
Matthews
Dr. Terence H. Matthews |
|
Director |
|
/s/ Peter D.
Charbonneau
Peter D. Charbonneau |
|
Director |
|
/s/ Kirk K. Mandy
Kirk K. Mandy |
|
Director |
|
/s/ Gilbert S. Palter
Gilbert S. Palter |
|
Director |
|
/s/ Guthrie J. Stewart
Guthrie J. Stewart |
|
Director |
II-5
AUTHORIZED REPRESENTATIVE
Pursuant to the requirements of the Securities Act of 1933, the
undersigned certifies that it is the duly authorized United
States representative of Mitel Networks Corporation and has duly
caused this Registration Statement to be signed on behalf of
each of them by the undersigned, thereunto duly authorized, in
the City of Ottawa, Province of Ontario, on May 9, 2006.
|
|
|
MITEL NETWORKS, INC. |
|
(Authorized United States Representative) |
|
|
|
|
By: |
/s/ Steven E. Spooner
|
|
|
|
|
|
Steven E. Spooner |
|
Director |
II-6
EXHIBIT INDEX
|
|
|
|
|
Exhibit |
|
|
Number |
|
Description of Exhibit |
|
|
|
|
1 |
.1* |
|
Form of Underwriting Agreement |
|
3 |
.1* |
|
Restated Articles of Incorporation |
|
3 |
.2* |
|
By-laws |
|
4 |
.1* |
|
Form of Common Share Certificate |
|
5 |
.1* |
|
Opinion of Osler, Hoskin & Harcourt LLP regarding
legality |
|
10 |
.1 |
|
Form of Senior Secured Notes, dated April 27, 2005
(included in Exhibit 10.3) |
|
10 |
.2 |
|
Form of Noteholder Warrant, dated April 27, 2005 (included
in Exhibit 10.3) |
|
10 |
.3 |
|
Securities Purchase Agreement between the Registrant and
Highbridge International LLC (Highbridge),
Lakeshore International, Ltd. (Lakeshore), Marathon
Special Opportunity Master Fund, Ltd. (Marathon),
Fore Master Convertible Fund, Ltd. (together with Highbridge,
Lakeshore and Marathon, the Noteholders), dated
April 27, 2005
(6) |
|
10 |
.4 |
|
Registration Rights Agreement between the Registrant and the
Noteholders, dated April 27,
2005(6) |
|
10 |
.5 |
|
General Security Agreement between the Registrant and
Highbridge, dated April 27,
2005(6) |
|
10 |
.6 |
|
Pledge Agreement between Mitel Networks Limited and Highbridge,
dated April 27,
2005(6) |
|
10 |
.7 |
|
Charge Over Book Debts and Cash at Bank between Mitel Networks
Limited and Highbridge, dated April 27,
2005(6) |
|
10 |
.8 |
|
Guarantee and Indemnity between Mitel Networks Limited and
Highbridge, dated April 27,
2005(6) |
|
10 |
.9 |
|
Mortgage Debenture between Mitel Networks Limited and
Highbridge, dated April 27,
2005(6) |
|
10 |
.10 |
|
Guarantee and Security Agreement between Mitel Networks, Inc.
and Highbridge, dated April 27,
2005(6) |
|
10 |
.11 |
|
Guarantee and Security Agreement between Mitel Networks Overseas
Limited and Highbridge, dated June 30,
2005(6) |
|
10 |
.12 |
|
Deed of Guarantee and Subordination among Mitel Networks
International Limited, Mitel Networks Overseas Limited and
Highbridge, dated June 30,
2005(6) |
|
10 |
.13 |
|
Deed of Guarantee and Subordination among Mitel Networks
International Limited, Mitel Networks Overseas Limited and BNY
Trust Company of Canada, dated July 15,
2005(6) |
|
10 |
.14 |
|
Intellectual Property Security Agreement between the Registrant
and BNY Trust Company of Canada, effective April 27,
2005(6) |
|
10 |
.15 |
|
Series 1 Warrant, dated April 23, 2004 |
|
10 |
.16 |
|
Series 2 Warrant, dated April 23, 2004 |
|
10 |
.17 |
|
Registration Rights Agreement among the Registrant, EdgeStone
Capital Equity Fund II-B GP, Inc., EdgeStone Capital Equity Fund
II Nominee, Inc., Mitel Systems Corporation (now Wesley Clover
Corporation), Mitel Knowledge Corporation, Zarlink Semiconductor
Inc., Power Technology Investment Corporation, Wesley Clover
Corporation and Terence H. Matthews, dated April 23,
2004(7) |
|
10 |
.18 |
|
Class A Convertible Preferred Share Subscription Agreement among
the Registrant, EdgeStone Capital Equity Fund II-B GP, Inc. and
EdgeStone Capital Equity Fund II Nominee, Inc., dated
April 23,
2004(5) |
|
10 |
.19 |
|
Shareholders Agreement among the Registrant, EdgeStone Capital
Equity Fund II-B GP, Inc., EdgeStone Capital Equity Fund II
Nominee, Inc., Mitel Systems Corporation (now Wesley Clover
Corporation), Mitel Knowledge Corporation, Zarlink Semiconductor
Inc., Power Technology Investment Corporation, Wesley Clover
Corporation and Terence H. Matthews, dated April 23,
2004(7) |
|
10 |
.20 |
|
Integrated Communications Solutions R&D Project Agreement
among the Registrant, Mitel Knowledge Corporation, March
Networks Corporation, March Healthcare and Her Majesty the Queen
in Right of Canada (Contribution Agreement), dated
October 10,
2002(2) |
|
10 |
.21 |
|
Amendment No. 1 to the Contribution Agreement, dated March 27,
2003(4) |
II-7
|
|
|
|
|
Exhibit |
|
|
Number |
|
Description of Exhibit |
|
|
|
|
10 |
.22 |
|
Amendment No. 2 to the Contribution Agreement, dated May 2,
2004(4) |
|
10 |
.23 |
|
Amendment No. 3 to the Contribution Agreement, dated September
16,
2004(4) |
|
10 |
.24 |
|
Amendment No. 4 to the Contribution Agreement, dated June 27,
2005(4) |
|
10 |
.25 |
|
Amendment No. 5 to the Contribution Agreement, dated October 3,
2005(4) |
|
10 |
.26 |
|
CIBC Warrant, dated April 29, 2004 |
|
10 |
.27 |
|
Employee Stock Option Plan, dated March 6, 2001, as
amended(8) |
|
10 |
.28 |
|
2004 U.S. Employee Stock Purchase
Plan(9) |
|
10 |
.29 |
|
Deferred Share Unit Plan for Executives, effective July 1,
2004(6) |
|
10 |
.30 |
|
Form of Officer and Director Indemnification Agreement |
|
10 |
.31 |
|
Amended and Restated Employment Contract between the Registrant
and Donald Smith, dated April 17, 2001 (the Smith
Employment
Contract)(1) |
|
10 |
.32* |
|
Agreement Amending the Smith Employment Contract, dated
May 5, 2006 |
|
10 |
.33 |
|
Amended and Restated Employment Contract between the Registrant
and Paul Butcher, dated February 16, 2001 (the
Butcher Employment
Contract)(1) |
|
10 |
.34* |
|
Agreement Amending the Butcher Employment Contract, dated
May 5, 2006 |
|
10 |
.35* |
|
Employment Contract, dated January 1, 2006, between the
Registrant and Steven Spooner |
|
10 |
.36* |
|
Employment Contract, dated August 31, 1999, between the
Registrant and Graham Bevington |
|
10 |
.37* |
|
Form of Global Mitel Employment Agreement |
|
10 |
.38* |
|
Form of Employment Agreement for Executive Officers |
|
10 |
.39 |
|
Letter agreement, dated March 1, 2002, between
Terence H. Matthews and Paul Butcher
(the Butcher Letter
Agreement)(10) |
|
10 |
.40 |
|
Amendment No. 1 to the Butcher Letter Agreement, dated
May 1,
2006(10) |
|
10 |
.41 |
|
Letter agreement, dated March 1, 2002, between
Terence H. Matthews and Donald Smith (the Smith
Letter Agreement)
(10) |
|
10 |
.42 |
|
Amendment No. 1 to the Smith Letter Agreement, dated
May 1,
2006(10) |
|
10 |
.43 |
|
Letter agreement, dated May 1, 2006, between
Terence H. Matthews and Peter D.
Charbonneau(10) |
|
10 |
.44 |
|
Union Agreement between Mitel Networks Solutions, Inc. and the
International Brotherhood of Electrical Workers, AFLCIO, dated
October 1,
2004(6) |
|
10 |
.45 |
|
Cap/Floor Collar Transaction Agreement between the Registrant
and JPMorgan Chase Bank, N.A., dated October 3,
2005(6) |
|
10 |
.46 |
|
ISDA Master Agreement between the Registrant and JPMorgan Chase
Bank, N.A., dated September 25,
2005(6) |
|
10 |
.47 |
|
Supply Agreement among the Registrant, Mitel Networks, Inc.,
Mitel Networks Limited, Ridgeway Research Corporation (now
Breconridge Manufacturing Solutions Corporation), Breconridge
Manufacturing Solutions, Inc., Breconridge Manufacturing
Solutions Limited (Supply Agreement), dated
August 30,
2001(1) |
|
10 |
.48 |
|
Amendment No. 1 to the Supply Agreement, dated February 27,
2003(5) |
|
10 |
.49 |
|
Supply Agreement between the Registrant and Mitel Corporation
(now Zarlink Semiconductor Inc.) (Supply Agreement),
dated February 16,
2001(1) |
|
10 |
.50 |
|
Amendment No. 1 to the Supply Agreement, dated October 24,
2001(1) |
|
10 |
.51 |
|
Amendment No. 2 to the Supply Agreement, dated April 23,
2004(4) |
|
10 |
.52 |
|
Receivables Purchase Agreement among the Registrant, Mitel
Networks, Inc. and Mitel Networks Solutions, Inc., The Canada
Trust Company and Efficient Capital Corporation, dated
April 16,
2004(4) |
|
10 |
.53 |
|
Intellectual Property License Agreement between the Registrant
and Mitel Corporation (now Zarlink Semiconductor Inc.)
(License Agreement), dated February 16,
2001(1) |
|
10 |
.54 |
|
Amendment No. 1 to the License Agreement, dated October 24,
2001(1) |
II-8
|
|
|
|
|
Exhibit |
|
|
Number |
|
Description of Exhibit |
|
|
|
|
10 |
.55 |
|
Non Competition and Non Solicitation Agreement between Mitel
Corporation, Mitel Semiconductor V.N. Inc., Mitel Semiconductor
Limited, Mitel Semiconductor Inc., 3755461 Canada Inc., the
Registrant and Mitel Research Park Corporation, dated
February 16,
2001(1) |
|
10 |
.56 |
|
Strategic Alliance Agreement among the Registrant, Mitel
Networks Limited, Mitel Networks International Limited and March
Networks (Strategic Alliance Agreement), dated
September 21,
2001(1) |
|
10 |
.57 |
|
Amendment No. 1 to the Strategic Alliance Agreement, dated
September 20,
2003(4) |
|
10 |
.58 |
|
Amendment No. 2 to the Strategic Alliance Agreement, dated
September 20,
2004(6) |
|
10 |
.59 |
|
Contract for the Sale of Freehold Land and Building Subject to
Leases and the Leaseback of Part of the Building, dated
August 24,
2005(6) |
|
10 |
.60 |
|
Lease Agreement between Mitel Networks Limited and Breconridge
Manufacturing Solutions Limited, dated September 14,
2001(1) |
|
10 |
.61 |
|
Lease Agreement between the Registrant and Mitel Research Park
Corporation (now Brookstreet Research Park Corporation), dated
March 27,
2001(1) |
|
10 |
.62 |
|
Sublease Agreement between the Registrant and Ridgeway Research
Corporation (now Breconridge Manufacturing Services Corporation)
(Sublease), dated August 31,
2001(1) |
|
10 |
.63 |
|
Amendment No. 1 to the Sublease, dated May 31,
2002(1) |
|
23 |
.1 |
|
Consent of Deloitte & Touche LLP |
|
24 |
.1 |
|
Powers of Attorney (included on page II-5 of this
registration statement) |
|
|
* |
To be filed by amendment. |
|
|
(1) |
Incorporated by reference to the Registrants Registration
Statement on Form 20-F, filed with the Commission on
August 26, 2002. |
|
(2) |
Incorporated by reference to Amendment No. 1 to the
Registrants Registration Statement on Form 20-F,
filed with the Commission on December 13, 2002. |
|
(3) |
Incorporated by reference to the Registrants Annual Report
on Form 20-F, filed with the Commission on August 1,
2003. |
|
(4) |
Incorporated by reference to the Registrants Annual Report
on Form 20-F, filed with the Commission on August 31,
2004. |
|
(5) |
Incorporated by reference to Amendment No. 1 to the
Registrants Annual Report on Form 20-F, filed with
the Commission on December 23, 2004. |
|
(6) |
Incorporated by reference to the Registrants Annual Report
on Form 20-F, filed with the Commission on October 24,
2005. |
|
(7) |
Incorporated by reference to the Schedule 13D (the
Registrant as issuer) filed with the Commission on May 3,
2004 by EdgeStone Capital Equity
Fund II-A, L.P.;
EdgeStone Capital Equity
Fund II-US, L.P.;
EdgeStone Capital Equity
Fund II-US-Inst.,
L.P.; National Bank Financial & Co. Inc.;
EdgeStone Capital Equity
Fund II-A GP,
L.P.; EdgeStone Capital Equity Fund II US GP, L.P.;
EdgeStone Capital Equity
Fund II-US-Inst.
GP, L.P.; EdgeStone Capital Equity
Fund II-A GP,
Inc.; EdgeStone Capital Equity
Fund II-US Main
GP, Inc.; EdgeStone Capital Equity
Fund II-US-Inst.
GP, Inc.; Samuel L. Duboc; Gilbert S. Palter;
Bryan W. Kerdman; Sandra Cowan; and EdgeStone Capital
Equity Fund II-B
GP, Inc. |
|
(8) |
Incorporated by reference to the
Form S-8 of the
Registrant, dated March 6, 2006, filed with the Commission
on March 6, 2006. |
|
(9) |
Incorporated by reference to the
Form S-8 of the
Registrant, dated November 29, 2004, filed with the
Commission on November 29, 2004. |
|
(10) |
Incorporated by reference to Amendment No. 1 to the
Schedule 13D (the Registrant as issuer) filed with the
Commission on May 5, 2006 by Terence H. Matthews,
Wesley Clover Corporation and Celtic Tech Jet Limited. |
II-9