0000950134-01-506733.txt : 20011009
0000950134-01-506733.hdr.sgml : 20011009
ACCESSION NUMBER: 0000950134-01-506733
CONFORMED SUBMISSION TYPE: 8-K
PUBLIC DOCUMENT COUNT: 2
CONFORMED PERIOD OF REPORT: 20010925
ITEM INFORMATION: Other events
ITEM INFORMATION: Financial statements and exhibits
FILED AS OF DATE: 20010926
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: GLOBAL ELECTION SYSTEMS INC
CENTRAL INDEX KEY: 0001060444
STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER INTEGRATED SYSTEMS DESIGN [7373]
IRS NUMBER: 850394190
FISCAL YEAR END: 0630
FILING VALUES:
FORM TYPE: 8-K
SEC ACT: 1934 Act
SEC FILE NUMBER: 001-16327
FILM NUMBER: 1745281
BUSINESS ADDRESS:
STREET 1: 1611 WILMETH ROAD
CITY: MCKINNEY
STATE: TX
ZIP: 75069-8250
BUSINESS PHONE: 9725426000
MAIL ADDRESS:
STREET 1: 1611 WILMETH ROAD
CITY: MCKINNEY
STATE: TX
ZIP: 75069-8250
8-K
1
d90888e8-k.txt
FORM 8-K
1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported):
SEPTEMBER 25, 2001
----------------------------
GLOBAL ELECTION SYSTEMS INC.
(Exact name of registrant as specified in charter)
BRITISH COLUMBIA, CANADA
------------------------
(State or other Jurisdiction of Incorporation or Organization)
0-24725 85-0394190
------- ----------
(Commission File Number) (IRS Employer Identification No.)
1611 WILMETH ROAD
MCKINNEY, TEXAS 75069
----------------- -----
(Address of Principal Executive Offices) (Zip Code)
(972) 542-6000
--------------
(Registrant's telephone
number, including area code)
NO CHANGE
(Former Name or Former Address, if Changed Since Last Report)
================================================================================
2
ITEM 5. OTHER EVENTS.
On September 25, 2001, the Registrant filed with the Supreme Court of
British Columbia the Notice of Extraordinary General Meeting of Shareholders of
Global Election Systems Inc. and Management Information Circular of Global
Election Systems Inc. (which contains, among other appendices, Global's
Consolidated Financial Statements for the year ended June 30, 2001) which is
attached hereto as Exhibit 99.1 in accordance with Canadian law in connection
with a special meeting of shareholders of the Registrant being held to approve
the acquisition by Diebold, Incorporated of all of the Registrant's outstanding
shares of capital stock. The Registrant filed a Current Report on Form 8-K with
respect to the execution of the definitive agreement pursuant to which Diebold,
Incorporated shall acquire the Registrant on September 14, 2001.
ITEM 7. EXHIBITS.
Exhibit 99.1 Notice of Extraordinary General Meeting of Shareholders of
Global Election Systems Inc. and Management Information
Circular of Global Election Systems Inc.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
GLOBAL ELECTION SYSTEMS INC.
By: /s/ BRIAN W. COURTNEY
----------------------------------------
Brian W. Courtney
Chief Executive Officer
3
INDEX TO EXHIBITS
Exhibit No. Description
----------- -----------
99.1 Notice of Extraordinary General Meeting of Shareholders of
Global Election Systems Inc. and Management Information
Circular of Global Election Systems Inc.
EX-99.1
3
d90888ex99-1.txt
NOTICE OF EXTRAORDINARY GENERAL MEETING
1
[GLOBAL LOGO]
GLOBAL ELECTION SYSTEMS INC.
ARRANGEMENT INVOLVING
GLOBAL ELECTION SYSTEMS INC.
and
DIEBOLD, INCORPORATED
NOTICE OF EXTRAORDINARY GENERAL MEETING OF
SHAREHOLDERS OF GLOBAL ELECTION SYSTEMS INC.
AND
MANAGEMENT INFORMATION CIRCULAR OF GLOBAL ELECTION SYSTEMS INC.
Unless otherwise stated, the information herein is given as of September 21,
2001.
2
GLOBAL ELECTION SYSTEMS INC.
(Global Election Logo) 1611 WILMETH ROAD
MCKINNEY, TX 75069
September 26, 2001
Dear Shareholder:
The Board of Directors cordially invites you to attend an extraordinary
meeting (the "Meeting") of holders ("Global Shareholders") of common shares
("Global Common Shares") of Global Election Systems Inc. ("Global") to be held
at 10:00 a.m. (Vancouver Time) on October 26, 2001 in the Oak Room of the Four
Seasons Hotel, 791 West Georgia Street, Vancouver, British Columbia.
At the Meeting, you will be asked to approve a proposed plan of arrangement
(the "Arrangement") involving Global pursuant to the terms of an arrangement
agreement (the "Arrangement Agreement") dated as of September 10, 2001 between
Global, Diebold, Incorporated ("Diebold") and Diebold Acquisition Ltd., a
wholly-owned subsidiary of Diebold ("SubCo"). The Arrangement will result in
Global becoming a wholly-owned subsidiary of Diebold. Pursuant to the terms of
the Arrangement, each Global Common Share will be exchanged for U.S.$0.227 (the
"Cash Consideration") along with shares of Diebold common stock ("Diebold Common
Shares"), equal to an exchange ratio (the "Exchange Ratio") determined by
dividing (x) 0.908 by (y) the average of daily volume weighted average prices
(based on a trading day from 9:30 a.m. to 4:00 p.m. New York City time) of the
Diebold Common Shares on the New York Stock Exchange for the ten consecutive
trading days ending with the trading day immediately preceding the effective
time of the Arrangement, provided that the Exchange Ratio shall not be less than
0.02421 or greater than 0.03027. Cash (without interest) will be issued in
respect of any fractional Diebold Common Shares in an amount, less the amount of
any withholding taxes that may be required thereon, equal to such fractional
part of a Diebold Common Share multiplied by the closing trading price of a
Diebold Common Share on the New York Stock Exchange on the trading day
immediately preceding the Effective Time. Based on the U.S.$/Cdn.$ exchange rate
on September 21, 2001 and the average closing price of Diebold Common Shares on
the New York Stock Exchange for the ten consecutive trading days ending on
September 21, 2001, the Cash Consideration and the Exchange Ratio provides the
equivalent of approximately Cdn.$1.78 to Global Shareholders for each Global
Common Share held by them.
At the Meeting, you will also be asked to approve the issuance to Diebold
of up to an additional 16,306,922 Global Common Shares in connection with (i)
Diebold's exercise of its right to convert all or a portion of its
U.S.$5,000,000 convertible loan to Global into Global Common Shares, (ii)
Diebold's exercise of a warrant to purchase up to 250,000 Global Common Shares,
and (iii) Diebold's exercise of an option to purchase up to 4.5 million Global
Common Shares pursuant to a contract manufacturing agreement between Diebold and
Global.
The U.S. national election of November 2000 had a significant and
disruptive impact on the election industry and on Global's results of operations
and financial condition. As we reported to you earlier, Global encountered
strong customer resistance to making purchasing decisions as local officials
waited for the possibility of matching funds from national or state governments.
Due to this unprecedented event, Global's cash reserves were effectively
exhausted. Revenues during the third and fourth quarters of fiscal 2000 were
approximately U.S.$8,935,000; for the same period in fiscal 2001, revenues were
approximately U.S.$4,055,000 (excluding revenues in the amount of $911,000 from
a subsidiary acquired during fiscal 2001). As a result, Global was required to
include going concern disclosure in its financial statements relating to, among
other matters, Global's inability to carry on normal operations without a
significant infusion of capital. Global is currently in default of its payment
obligations under certain terms of its outstanding loans.
During the third and fourth fiscal quarters of fiscal 2001, Global sought
to raise money through debt or equity financing sufficient to sustain the
Company until internally generated funds could again finance the Company's
operations on an on-going basis. Global was unsuccessful in those efforts.
Several companies explored joint venture alternatives with Global, but all
failed to provide the necessary significant capital infusion. Two companies
performed significant due diligence during this period investigating the
possibility of
3
purchasing Global. Diebold presented the offer to purchase Global which you are
asked to approve at the Extraordinary Meeting. The other entity chose not to
bid.
Presently, Global finds itself unable to bid on requests for proposals on a
stand-alone basis or to perform contracts, if awarded, due to its financial and
operational status. Without an acquisition by a significantly stronger entity or
an infusion of substantial capital, Global will be unable to continue
operations.
On August 30, 2001, J.J.B. Hilliard, W.L. Lyons, Inc., financial advisor to
Global, delivered to Global's board of directors (the "Board of Directors") its
opinion to the effect that, as of the date of such opinion and based upon and
subject to certain matters stated therein, the Transaction Consideration being
offered in the Arrangement is fair, from a financial point of view, to Global
Shareholders. Evans and Evans Inc., an independent valuator, has delivered to
the Board of Directors its opinion that as of June 30, 2001, the fair market
value of 100% of the issued and outstanding Global Common Shares is between
U.S.$18.6 million and U.S.$20.1 million.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY DETERMINED THAT THE ARRANGEMENT IS
FAIR TO GLOBAL SHAREHOLDERS AND THAT THE TRANSACTIONS CONTEMPLATED THEREBY ARE
IN THE BEST INTERESTS OF GLOBAL AND GLOBAL SHAREHOLDERS. ACCORDINGLY, THE BOARD
OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE TO APPROVE THE ARRANGEMENT.
EACH MEMBER OF THE BOARD OF DIRECTORS HAS INDICATED TO GLOBAL THAT HE INTENDS TO
VOTE ALL OF THE GLOBAL COMMON SHARES OWNED BY HIM IN FAVOR OF THE ARRANGEMENT.
For the Arrangement to proceed, it must be approved by not less than 75% of
the votes cast by Global Shareholders who attend, or who are represented at, the
Meeting in person or by proxy. The approval described in the preceding sentence
will also serve as the approval by a majority of votes of Global Shareholders
required by subsection 252(8) of the Company Act (British Columbia) (the
"Majority of the Minority Vote"), as there are no affiliates of Global who hold
Global Common Shares, no Global Shareholders who will, as a result of the
Arrangement, be entitled to consideration for each Global Share greater than
that available to other Global Shareholders, and no Global Shareholder who
alone, or in combination with others, effectively controls Global who has
entered into or has agreed to enter into an understanding to support the
Arrangement. The attached Management Information Circular (the "Circular")
contains a detailed description of the Arrangement, the Arrangement Agreement,
information concerning each of Global and Diebold and other information that
will help you make an informed decision. We urge you to read the sections
entitled "Information Concerning Global -- Global's Risk Factors", "Diebold's
Risk Factors", "Arrangement Risk Factors" and "The Arrangement
Agreement -- Termination Fee and Expenses" for a description of potential risks,
uncertainties and costs you should consider in evaluating the Arrangement.
A Letter of Transmittal for use by Global Shareholders will be sent to all
Global Shareholders following the final approval of the Arrangement. Global
Shareholders will not receive certificates for the Diebold Common Shares to
which they are entitled under the Arrangement until they return a properly
completed Letter of Transmittal, together with the certificates representing
their Global Common Shares and all other required documentation, to Pacific
Corporate Trust Company ("Pacific Corporate Trust") at the address specified on
the last page of the Letter of Transmittal.
In order to vote on the Arrangement, you should complete and submit the
enclosed form of proxy, as described below.
We hope that you will be able to attend the Meeting. Whether or not you are
able to attend, it is still important that you be represented at the Meeting. We
encourage you to complete the enclosed form of proxy and deposit it with Pacific
Corporate Trust not later than 5:00 p.m. (Vancouver Time) on October 24, 2001
(see page 1 of the Circular). Voting by proxy will not prevent you from voting
in person if you attend the Meeting, but will ensure that your vote will be
counted if you are unable to attend.
If you are a non-registered holder of Global Common Shares and have
received this letter and the Circular from your broker or another intermediary,
please complete and return the proxy or other authorization form provided to you
by your broker or other intermediary in accordance with the instructions
provided with it. Failure to do so may result in your Global Common Shares not
being eligible to be voted at the Meeting.
4
The attached Circular is also being delivered to holders of options and
warrants to acquire Global Common Shares for information purposes.
Subject to obtaining court and certain other regulatory approvals, if
Global Shareholders approve the Arrangement, it is anticipated that the
Arrangement will be completed in the fourth quarter of calendar 2001.
Sincerely,
/s/ Brian W. Courtney /s/ Robert J. Urosevich
BRIAN W. COURTNEY, ROBERT J. UROSEVICH,
Chief Executive Officer President and Chief Operating Officer
5
[Global Logo]
GLOBAL ELECTION SYSTEMS INC.
1611 Wilmeth Road
McKinney, Texas
U.S.A. 75069
NOTICE OF EXTRAORDINARY MEETING OF MEMBERS
NOTICE IS HEREBY GIVEN that an extraordinary meeting (the "Meeting") of
holders ("Global Shareholders") of Global Election Systems Inc. ("Global")
common shares ("Global Common Shares") will be held in the Oak Room of the Four
Seasons Hotel, 791 West Georgia Street, Vancouver, British Columbia, on Friday,
the 26th day of October, 2001, at the hour of 10 o'clock in the morning
(Vancouver time), for the following purposes:
1. To consider pursuant to an interim order of the Supreme Court of
British Columbia and, if thought fit, to pass, with or without variation, a
special resolution (the "Arrangement Resolution"), the full text of which
is set forth in Appendix A to the accompanying Management Information
Circular, to authorize, approve and adopt a statutory plan of arrangement
(the "Arrangement") pursuant to Section 252 of the Company Act (British
Columbia), as more particularly described in the accompanying Management
Information Circular;
2. To consider and, if thought fit, to pass an ordinary resolution to
approve the issuance to Diebold, Incorporated ("Diebold") of up to an
additional 16,306,922 Global Common Shares (in excess of 4,388,418 Global
Common Shares already issuable to Diebold) pursuant to (a) Diebold's
exercise of its right to convert all or a portion of its U.S.$5,000,000
convertible loan to Global into Global Common Shares; (b) Diebold's
exercise of a warrant to purchase up to 250,000 Global Common Shares; and
(c) Diebold's exercise of an option to purchase up to 4,500,000 Global
Common Shares pursuant to a contract manufacturing agreement between
Diebold and Global, as amended, all as more particularly described in the
accompanying Management Information Circular; and
3. To transact such other business as may properly come before the
Meeting, or any adjournment or postponement thereof.
Accompanying this Notice is a Management Information Circular, including
Global's audited consolidated financial statements for the fiscal year ended
June 30, 2001, and a form of proxy for Global Shareholders. The accompanying
Management Information Circular provides information relating to the matters to
be addressed at the Meeting and is incorporated into this Notice.
Whether or not Global Shareholders are able to attend the Meeting, they
should date, sign and return the enclosed form of proxy to Global, care of
Pacific Corporate Trust Company, Attention: Proxy Department, 10th Floor, 625
Howe Street, Vancouver, British Columbia, V6C 3B8, in the envelope provided for
that purpose. To be effective, a form of proxy must be duly executed and
deposited with Pacific Corporate Trust Company at the address above, not later
than 5:00 p.m. (Vancouver Time), on the day that is two Business Days prior to
the Meeting, or any adjournment or postponement thereof. Proxies may also be
deposited with the Chairman of the Meeting, immediately prior to the
commencement of the Meeting, or any adjournment or postponement thereof.
Pursuant to the Arrangement Agreement and the order of the Supreme Court of
British Columbia dated September 25, 2001 (the "Interim Order"), registered
holders of Global Common Shares have been granted the right to dissent in
respect of the Arrangement Resolution. The right to dissent provided for in the
Interim Order is similar, but not identical to, the dissent rights in the
Company Act (British Columbia). A Dissenting Shareholder is required to comply
with the dissent procedures (which are described in the Management
6
Information Circular under the heading "Dissenting Shareholders' Rights").
Failure to comply strictly with the dissent procedures may result in the loss or
unavailability of any right of dissent.
Take notice that pursuant to the Arrangement and the Interim Order, you may
until 5:00 p.m. on October 18, 2001 give Global a Notice of Dissent by
registered mail addressed to the Company's registered office at Gowling Lafleur
Henderson LLP, Suite 2300, 1055 Dunsmuir Street, P.O. Box 49122, Vancouver,
British Columbia V7X 1J1, Attention: Brett Kagetsu, with respect to the
Arrangement Resolution. As a result of giving a Notice of Dissent you may, on
receiving a notice of intention to act as contemplated by section 207 of the
BCCA, require Global to purchase all your shares in respect of which the Notice
of Dissent was given.
However, in the event that greater than 10% of the Global Common Shares are
the subject of valid dissents, Diebold will not be required to proceed with the
Arrangement.
DATED at McKinney, Texas on September 26, 2001.
By Order of the Board of Directors
/s/ Brian W. Courtney
BRIAN W. COURTNEY
Chief Executive Officer
7
GLOBAL ELECTION SYSTEMS INC.
MANAGEMENT INFORMATION CIRCULAR
TABLE OF CONTENTS
PAGE
----
SUMMARY..................................................... 1
Date, Place and Purpose of the Meeting.................... 1
The Arrangement........................................... 1
The Share Issuance........................................ 2
Recommendations of the Board of Directors................. 2
Opinion of Global's Financial Advisor..................... 2
Valuation................................................. 2
Income Tax Considerations for Global Shareholders......... 2
Global Election Systems Inc. ............................. 3
Diebold, Incorporated..................................... 3
SubCo..................................................... 3
Diebold After the Arrangement............................. 3
Selected Global Historical Consolidated Financial
Information............................................ 4
Selected Diebold Historical Consolidated Financial
Information............................................ 6
The Arrangement Agreement................................. 7
Dissent Rights............................................ 8
Approvals Required........................................ 8
Accounting Treatment...................................... 9
Risk Factors.............................................. 9
FORWARD-LOOKING STATEMENTS.................................. 10
GLOSSARY OF TERMS........................................... 11
REPORTING CURRENCIES AND ACCOUNTING PRINCIPLES.............. 17
EXCHANGE RATES.............................................. 18
INFORMATION CONCERNING THE MEETING.......................... 18
General................................................... 18
Solicitation of Proxies................................... 18
Entitlement to Vote....................................... 19
Signing and Deposit of Proxies............................ 19
Revocation of Proxies..................................... 19
Voting of Proxies......................................... 19
Voting Shares and Principal Holders Thereof............... 20
Security Ownership of Directors and Management............ 20
Vote Required............................................. 20
Interest of Management.................................... 21
Escrowed Shares........................................... 21
Dissenting Shareholders' Rights........................... 21
Procedures................................................ 22
THE ARRANGEMENT............................................. 23
Recommendations of the Board of Directors................. 25
Opinion of Global's Financial Advisor..................... 26
8
PAGE
----
Discounted Cash Flow Analysis............................. 26
Comparable Companies Analysis............................. 27
Price and Volume Analysis................................. 27
Other Analyses............................................ 28
Summary Valuation......................................... 28
Valuation Opinion......................................... 28
Shareholder Approval...................................... 30
Court Approval and Completion of the Arrangement.......... 30
Accounting Treatment...................................... 31
Stock Exchange Listing.................................... 31
Resale of Diebold Common Shares Received in the
Arrangement............................................ 31
SubCo..................................................... 32
Expenses.................................................. 32
THE ARRANGEMENT AGREEMENT................................... 32
Effective Date of the Arrangement......................... 32
Representations and Warranties............................ 32
Covenants of Global....................................... 32
Covenants of Diebold...................................... 33
Conditions to Closing..................................... 34
Termination............................................... 35
Termination Fee and Expenses.............................. 36
Option Agreement.......................................... 37
ARRANGEMENT MECHANICS....................................... 38
General................................................... 38
Treatment of Global Options............................... 39
SELECTED GLOBAL HISTORICAL FINANCIAL INFORMATION............ 40
Annual Information........................................ 40
Management's Discussion and Analysis...................... 42
INFORMATION CONCERNING GLOBAL............................... 46
Incorporation............................................. 46
Corporate Structure....................................... 46
Business of Global........................................ 47
Research And Development.................................. 49
Competition............................................... 49
Manufacturing............................................. 50
Intellectual Property..................................... 50
Government Regulation..................................... 51
Warranties................................................ 51
Environmental Compliance.................................. 51
Employees................................................. 52
Global's Risk Factors..................................... 52
Description of Property................................... 53
Legal Proceedings......................................... 53
Description of Share Capital.............................. 55
ii
9
PAGE
----
Principal Indebtedness.................................... 55
Principal Shareholders.................................... 56
Rights To Purchase Securities............................. 56
Prior Sales............................................... 57
Dividend Record........................................... 57
Directors and Officers.................................... 58
Executive Compensation.................................... 61
Indebtedness of Directors and Officers.................... 65
Auditors, Transfer Agent and Registrar.................... 65
Material Contracts........................................ 66
INFORMATION CONCERNING DIEBOLD.............................. 66
Incorporation............................................. 67
Corporate Structure....................................... 67
Business of Diebold....................................... 67
Legal Proceedings......................................... 68
Description of Share Capital.............................. 68
Principal Indebtedness.................................... 69
Principal Shareholders.................................... 69
Options to Purchase Securities............................ 70
Dividend Record........................................... 71
Directors and Officers.................................... 71
Auditors, Transfer Agent and Registrar.................... 75
Material Contracts........................................ 75
DIEBOLD SELECTED HISTORICAL FINANCIAL STATEMENTS............ 75
Annual Information........................................ 75
Quarterly Information..................................... 75
Management's Discussion and Analysis...................... 75
DIEBOLD AFTER THE ARRANGEMENT............................... 75
General................................................... 75
Directors and Officers.................................... 75
Share Capital Matters..................................... 76
COMPARATIVE MARKET PRICE DATA............................... 76
Global Common Shares...................................... 76
Diebold Common Shares..................................... 77
REGULATORY MATTERS.......................................... 77
Investment Canada Act..................................... 77
Securities Laws........................................... 77
INCOME TAX CONSIDERATIONS FOR GLOBAL SHAREHOLDERS........... 78
Certain Canadian Federal Income Tax Considerations........ 78
Certain United States Federal Income Tax Considerations to
U.S. Holders........................................... 82
Certain United States Federal Income Tax Considerations
for Non-U.S. Holders................................... 83
DIEBOLD'S RISK FACTORS...................................... 85
ARRANGEMENT RISK FACTORS.................................... 87
COMPARISON OF SHAREHOLDERS' RIGHTS.......................... 88
iii
10
PAGE
----
DISSENTING SHAREHOLDERS' RIGHTS............................. 88
WHERE YOU CAN FIND INFORMATION.............................. 89
PARTICULARS OF OTHER MATTERS TO BE ACTED UPON AT THE
MEETING................................................... 90
Approval of Issuance of Additional Global Common Shares
Pursuant to Bridge Loan, Bridge
Loan Warrants and Contract Manufacturing Agreement..... 90
INTERESTS OF INSIDERS IN MATERIAL TRANSACTIONS.............. 90
INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON..... 91
LEGAL MATTERS............................................... 91
CONSENT OF VALUATOR......................................... 91
PARTICULARS OF OTHER MATTERS................................ 91
APPROVAL OF PROXY CIRCULAR BY THE BOARD OF DIRECTORS........ 92
APPENDICES
APPENDIX A -- FORM OF ARRANGEMENT RESOLUTION.............. A-1
APPENDIX B -- INTERIM ORDER AND NOTICE OF APPLICATION..... B-1
APPENDIX C -- ARRANGEMENT AGREEMENT....................... C-1
APPENDIX D -- OPINION OF HILLIARD LYONS................... D-1
APPENDIX E -- OPINION OF EVANS & EVANS.................... E-1
APPENDIX F -- COMPARISON OF SHAREHOLDERS' RIGHTS.......... F-1
APPENDIX G -- GLOBAL CONSOLIDATED FINANCIAL STATEMENTS.... G-1
APPENDIX H -- DIEBOLD'S ANNUAL REPORT ON FORM 10K OR THE
FISCAL YEAR ENDED DECEMBER 31, 2000......... H-1
APPENDIX I -- DIEBOLD'S QUARTERLY REPORT ON FORM 10Q FOR
THE QUARTER ENDED MARCH 31, 2001............ I-1
APPENDIX J -- DIEBOLD'S QUARTERLY REPORT ON FORM 10Q FOR
THE QUARTER ENDED JUNE 30, 2001............. J-1
APPENDIX K -- DIEBOLD'S ANNUAL MEETING PROXY STATEMENT ON
FORM 14A FILED ON MARCH 15, 2001............ K-1
APPENDIX L -- SECTION 207 OF THE BRITISH COLUMBIA COMPANY
ACT -- DISSENT RIGHTS....................... L-1
iv
11
The information concerning Diebold contained in this Circular, including
the appendices, has been taken from, or is based upon, publicly available
documents and records on file with the United States Securities and Exchange
Commission (the "SEC"), other public sources and information provided directly
by Diebold where indicated herein. Although Global has no knowledge that would
indicate that any statements contained herein, which have been taken from or are
based on such documents and records, are untrue or incomplete, Global assumes no
responsibility for the accuracy of the information contained in such documents,
or for any failure by Diebold to disclose events which may have occurred or may
affect the significance or accuracy of any such information but which are
unknown to Global.
No person is authorized to give any information or to make any
representation not contained in this Circular, and if given or made, such
information or representation should not be relied upon. This Circular does not
constitute an offer to sell, or a solicitation of any offer to purchase, the
securities offered by this Circular, or the solicitation of a proxy, in any
jurisdiction, to or from any person to whom it is unlawful to make such offer.
Neither the delivery of this Circular nor any distribution of the securities
offered pursuant to this Circular shall, under any circumstance, create any
implication that there has been no change in the information set forth herein
since the date of this Circular. Global is not providing Global Shareholders
with any legal, business, tax or other advice. Global Shareholders should
consult their own advisers as needed to answer any legal, business or tax issues
raised in this Circular.
Global Shareholders should be aware that the public disclosure documents of
Diebold have been filed in accordance with the securities laws of the United
States, and these requirements may differ from those of the provinces and
territories of Canada. In addition, financial statements included or
incorporated by reference in the public disclosure documents of Diebold have
been prepared in accordance with the United States generally accepted accounting
principles and not prepared in accordance with Canadian generally accepted
accounting principles and may not be comparable to the financial statements of
Global.
The solicitation of proxies and the transactions contemplated herein
involve the securities of a Canadian company and are being effected in
accordance with Canadian corporate and securities laws. U.S. holders of Global
Common Shares should be aware that requirements under such Canadian laws may
differ from requirements under U.S. corporate and securities laws relating to
U.S. corporations, and that this Circular has not been filed with the SEC or the
securities regulatory authority of any state within the United States.
THE DIEBOLD COMMON SHARES TO BE ISSUED IN THE ARRANGEMENT HAVE NOT BEEN
APPROVED OR DISAPPROVED BY ANY CANADIAN SECURITIES REGULATORY AUTHORITY, THE SEC
OR THE SECURITIES REGULATORY AUTHORITY OF ANY STATE WITHIN THE UNITED STATES,
NOR HAS ANY CANADIAN SECURITIES REGULATORY AUTHORITY, THE SEC OR THE SECURITIES
REGULATORY AUTHORITY OF ANY STATE WITHIN THE UNITED STATES PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS CIRCULAR. ANY REPRESENTATION TO THE CONTRARY IS
UNLAWFUL.
12
SUMMARY
The following is a summary of certain information contained in this
Circular. This summary is not intended to be complete and is qualified in its
entirety by the more detailed information and the consolidated financial
statements, including the notes thereto, contained elsewhere in this Circular,
including the Appendices. Global Shareholders should read the entire Circular,
including the Appendices. Capitalized terms used in this summary are defined in
the Glossary or elsewhere in this Circular.
DATE, PLACE AND PURPOSE OF THE MEETING
The Meeting will be held in the Oak Room of the Four Seasons Hotel, 791
West Georgia Street, Vancouver, British Columbia on October 26, 2001 at 10:00
a.m. (Vancouver Time). The purpose of the Meeting is to consider and, if thought
fit, to pass a special resolution approving the Arrangement and an ordinary
resolution approving the issuance of up to an additional 16,306,922 Global
Common Shares to Diebold (in excess of 4,388,418 Global Common Shares currently
issuable to Diebold) pursuant to (a) the conversion of the Bridge Loan, (b) the
exercise of the Bridge Loan Warrants, and (c) up to 4,500,000 Global Common
Shares upon the conversion of certain payables at the option of Diebold under
the Contract Manufacturing Agreement (collectively, the "Share Issuance"). See
"Information Concerning the Meeting -- General."
THE ARRANGEMENT
The Arrangement provides for the acquisition of Global by either Diebold or
a direct wholly-owned subsidiary of Diebold in a transaction in which each
Global Shareholder (other than Global Shareholders who properly exercise their
Dissent Rights) will receive, for each Global Common Share held, (x) a number of
Diebold Common Shares equal to the Exchange Ratio and (y) U.S.$0.227. Following
approval of the Arrangement by the Global Shareholders and the Court, a Letter
of Transmittal must be properly completed and signed by Global Shareholders and
returned, with all required documentation, to the Depositary in order for Global
Shareholders to receive the Diebold Common Shares and Cash Consideration to
which they are entitled under the Arrangement. See "Information Concerning the
Meeting -- Procedures".
The Arrangement provides that the Diebold Common Shares to be issued as
part consideration in exchange for Global Common Shares will be delivered by
Diebold through the Depositary in exchange for the Global Common Shares held by
such Global Shareholder.
Pursuant to agreements with certain holders of Global Options, certain
holders have irrevocably agreed to exercise all or part of their options
immediately after the Effective Time in exchange for payment to the holders of
such Global Options of an amount in respect thereof (x) in cash equal to the
product of (1) the Cash Consideration and (2) the number of Global Common Shares
subject to such Global Options and (y) in shares of Diebold Common Stock equal
to the product of (1) the Exchange Ratio and (2) the number of Global Common
Shares subject to such Global Options (such payment to be made net of applicable
withholding taxes and the aggregate exercise price payable upon exercise of such
Global Options or, if the aggregate exercise price of such Global Options
exceeds the aggregate Cash Consideration payable in respect thereof, subject to
the payment by the holder of such Global Options to Global of such positive
difference). Pursuant to such agreements, Global Options not exercised will be
cancelled.
Each Global Warrant that is not exercised prior to the Effective Time will
be cancelled in exchange for payment to the holders of such Global Warrants of
an amount in respect thereof (x) in cash equal to the product of (1) the Cash
Consideration and (2) the number of Global Common Shares subject to such Global
Warrant and (y) in shares of Diebold Common Stock equal to the product of (1)
the Exchange Ratio and (2) the number of Global Common Shares subject to such
Global Warrant (such payment to be made net of applicable withholding taxes and
the aggregate exercise price payable upon exercise of such Global Warrant or, if
the aggregate exercise price of such Global Warrant exceeds the aggregate Cash
Consideration payable in respect thereof, subject to the payment by the holder
of such Global Warrant to Global of such positive difference). For a detailed
description of the steps involved in completing the Arrangement, see
"Arrangement Mechanics".
1
13
THE SHARE ISSUANCE
The Share Issuance provides for the issuance to Diebold of up to an
additional 16,306,922 Global Common Shares (in excess of 4,388,418 Global Common
Shares currently issuable to Diebold) pursuant to (a) the conversion of the
Bridge Loan, (b) the exercise of the Bridge Loan Warrants, and (c) up to
4,500,000 Global Common Shares pursuant to the Contract Manufacturing Agreement.
The number of Global Common Shares issuable upon the conversion of the Bridge
Loan and pursuant to the exercise of an option to convert certain payables under
the Contract Manufacturing Agreement will vary depending on the amount of money
owed by Global to Diebold pursuant to such agreements and the trading price of
the Global Common Shares at the time of such conversion. The failure to approve
the Share Issuance will cause Global to breach its obligations under its
agreements with Diebold which will result in an acceleration of Global's payment
obligations. Global is currently unable to satisfy such payment obligations.
RECOMMENDATIONS OF THE BOARD OF DIRECTORS
Due to the extraordinary market conditions existing in the election
equipment and services industry since the U.S. 2000 election, Global has
experienced a worsening liquidity situation. Without consummation of the
Arrangement, or an immediate infusion of substantial capital, Global's ability
to continue operations is highly unlikely.
THE BOARD OF DIRECTORS HAS DETERMINED UNANIMOUSLY THAT THE ARRANGEMENT IS
FAIR TO THE GLOBAL SHAREHOLDERS AND THAT THE TRANSACTIONS ARE IN THE BEST
INTERESTS OF GLOBAL AND THE GLOBAL SHAREHOLDERS, HAS APPROVED UNANIMOUSLY THE
ARRANGEMENT AND THE SHARE ISSUANCE AND UNANIMOUSLY RECOMMENDS THAT THE GLOBAL
SHAREHOLDERS VOTE IN FAVOR OF THE ARRANGEMENT RESOLUTION AND THE SHARE ISSUANCE
RESOLUTION AT THE MEETING. EACH MEMBER OF THE BOARD OF DIRECTORS HAS INDICATED
TO THE COMPANY THAT HE INTENDS TO VOTE ALL OF THE GLOBAL COMMON SHARES OWNED BY
HIM IN FAVOR OF THE ARRANGEMENT AND THE SHARE ISSUANCE. SEE "THE
ARRANGEMENT -- RECOMMENDATION OF THE BOARD OF DIRECTORS".
The Company urges all Global Shareholders to carefully review the
information contained in this Circular, particularly Global's Consolidated
Financial Statements (Appendix G), the fairness opinion of Hilliard Lyons
(Appendix D) and the Valuation (Appendix E). The Board of Directors urges each
Global Shareholder to vote in favor of the Arrangement and the Share Issuance.
OPINION OF GLOBAL'S FINANCIAL ADVISOR
In connection with the Arrangement, the Board of Directors received a
written opinion from its financial advisor, Hilliard Lyons. The Fairness Opinion
states that, as of the date of such opinion and based upon and subject to
certain matters stated therein, the Transaction Consideration is fair, from a
financial point of view, to the Global Shareholders. The Fairness Opinion does
not constitute a recommendation to any Global Shareholder as to how such Global
Shareholder should vote at the Meeting. The full text of the Fairness Opinion is
attached as Appendix D to this Circular and should be read carefully in its
entirety for a description of the assumptions made, matters considered and
limitation on the review undertaken by Hilliard Lyons in providing its opinion.
See "The Arrangement -- Opinion of Global's Financial Advisor".
VALUATION
On September 21, 2001, Evans & Evans, Inc. delivered the Valuation to
Global opining that the fair market value of 100% of the issued and outstanding
Global Common Shares was between U.S.$18.6 million and U.S.$20.1 million as of
June 30, 2001. A complete copy of the Valuation is attached as Appendix E to
this Circular.
INCOME TAX CONSIDERATIONS FOR GLOBAL SHAREHOLDERS
The exchange of Global Common Shares in connection with the Arrangement
will generally be taxable to Global Shareholders who are Canadian Residents,
other Non-U.S. Holders or U.S. Holders. All Global Shareholders, including
Canadian Residents, U.S. Holders and others, should carefully read the
information
2
14
under the heading "Income Tax Considerations for Global Shareholders" and should
consult their personal tax advisors.
GLOBAL ELECTION SYSTEMS INC.
The registered office of Global is located at Gowling Lafleur Henderson
LLP, Suite 2300, 1055 Dunsmuir Street, P.O. Box 49122, Vancouver, British
Columbia, V7X 1J1. Global's principal executive office is located at 1611
Wilmeth Road, McKinney, Texas, 75069, U.S.A.
Global is a manufacturer and distributor of computerized electronic
election management systems. Global's signature products are the AccuVote
optical scan voting system and the paperless AccuVote touch screen voting
system. For further information, see "Information Concerning Global".
The Global Common Shares are traded on the TSE under the symbol "GSM" and
the AMEX under the symbol "GLE".
DIEBOLD, INCORPORATED
Diebold was incorporated under the laws of the State of Ohio in August,
1876, succeeding a proprietorship established in 1859. Diebold's corporate
headquarters are located at P.O. Box 3077, 5995 Mayfair Road, North Canton,
Ohio, 44720-8077, U.S.A.
Diebold develops, manufactures, sells and services self-service transaction
systems, electronic and physical security systems, various products used to
equip bank facilities, software and integrated systems for global financial and
commercial markets. Sales of systems and equipment are made directly to
customers by Diebold's sales personnel and by manufacturer's representatives and
distributors. Diebold has over 12,500 employees worldwide and has operations in
North and South America, as well as in Europe, Asia, Australia and South Africa.
For further information, see "Information Concerning Diebold".
Diebold's Common Shares are traded on the NYSE under the symbol "DBD".
SUBCO
SubCo was incorporated under the BCCA on August 29, 2001 and is a direct
wholly-owned subsidiary of Diebold. SubCo will not carry on any business prior
to the Effective Time, other than in connection with the Transactions, and has
no material assets or liabilities. The authorized capital of SubCo is 1,000,000
common shares without par value, of which one hundred common shares are
outstanding and are owned by Diebold.
DIEBOLD AFTER THE ARRANGEMENT
Upon completion of the Arrangement, Diebold will continue to be a public
company incorporated under the Laws of the State of Ohio and Global will be a
subsidiary of Diebold. Diebold does not currently intend to apply to list the
Diebold Common Shares on the TSE or the AMEX. See "Diebold After the
Arrangement".
3
15
SELECTED GLOBAL HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
The following table presents selected audited financial information for
Global for the periods indicated. This table should be read in conjunction with
Global's Consolidated Financial Statements included as Appendix G to this
Circular. Global's ability to continue as a going concern is in doubt. See
"Selected Global Historical Financial Information -- Management's Discussion and
Analysis" and Note l(a) of the Notes to Global Consolidated Financial
Statements. The Consolidated Financial Statements are reported in U.S. dollars
and have been prepared in accordance with Canadian GAAP reconciled with U.S.
GAAP.
GLOBAL ELECTION SYSTEMS INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA
AS OF AND FOR THE YEAR ENDED JUNE 30,
----------------------------------------
2001 2000 1999
------------ ----------- -----------
(AUDITED)
OPERATING RESULTS
REVENUE
Sales and operating income........................... $ 12,116,114 $20,195,209 $18,198,041
Other income......................................... 47,772 41,618 112,106
------------ ----------- -----------
12,163,886 20,236,828 18,310,147
------------ ----------- -----------
COSTS AND EXPENSES
Cost of sales and operating expenses................... 7,887,181 10,336,767 8,997,955
Selling, administrative and general expenses......... 10,721,398 6,510,887 6,129,777
Research and development expenses.................... 2,140,366 696,042 857,057
Amortization......................................... 1,292,230 372,480 388,400
Interest............................................. 883,604 543,535 325,748
------------ ----------- -----------
22,924,779 18,459,711 16,698,937
------------ ----------- -----------
INCOME (LOSS) BEFORE THE UNDERNOTED.................... (10,760,893) 1,777,117 1,611,210
Revaluation of used equipment........................ -- (524,698) (873,101)
------------ ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES...................... (10,760,893) 1,252,419 738,109
Provision for income taxes........................... -- -- (22,064)
Provision for future income taxes.................... 145,000 (145,000) --
------------ ----------- -----------
NET INCOME (LOSS) FOR THE YEAR......................... $(10,615,893) $ 1,107,419 $ 716,045
------------ ----------- -----------
EARNINGS (LOSS) PER SHARE -- U.S. FUNDS
Basic................................................ $ (0.53) $ 0.06 $ 0.04
Fully diluted........................................ $ N/A $ 0.06 $ 0.04
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING............................................ 19,944,255 18,550,521 18,483,264
4
16
AS OF AND FOR THE YEAR ENDED JUNE 30,
----------------------------------------
2001 2000 1999
------------ ----------- -----------
(AUDITED)
CURRENT ASSETS
Cash and short-term deposits......................... $ 1,154,658 $ 1,446,613 $ 621,220
Accounts receivable.................................. 3,288,005 6,204,048 4,341,403
Contracts receivable................................. 1,028,486 6,512,549 10,281,722
Work-in progress..................................... 418,113 822,211 -0-
Deposits and prepaid expenses........................ 424,242 286,248 291,298
Inventory............................................ 5,608,828 5,352,216 4,606,923
Current portion of agreements receivable............. 97,276 178,808 285,965
------------ ----------- -----------
TOTAL CURRENT ASSETS................................... 12,019,608 20,802,693 20,428,531
Agreements Receivable.................................. 344,364 15,876 205,539
Deferred Costs......................................... -- 587,852 --
Capital Assets......................................... 2,591,952 540,293 376,081
Other Assets........................................... 2,088,555 549,750 776,250
------------ ----------- -----------
TOTAL ASSETS........................................... $ 17,044,479 $22,496,464 $21,786,401
------------ ----------- -----------
CURRENT LIABILITIES
Accounts payable and accrued liabilities............. $ 5,172,159 $ 3,953,980 $ 2,287,467
Customer deposits.................................... 1,140,000 -- --
Deferred revenue..................................... 550,102 348,692 1,027,718
Current portion of loans payable..................... 4,381,299 1,768,373 6,738,500
Current portion of capital lease obligations......... 540,502 -- --
------------ ----------- -----------
TOTAL CURRENT LIABILITIES.............................. 11,784,062 6,071,045 10,053,685
Future Income Taxes.................................... -- 145,000 --
Loans Payable.......................................... 666,666 3,600,000 250,113
Capital Lease Obligations.............................. 948,425 -- --
------------ ----------- -----------
TOTAL LIABILITIES...................................... $ 13,399,153 $ 9,816,045 $10,303,798
------------ ----------- -----------
SHAREHOLDERS' EQUITY
SHARE CAPITAL
Authorized:
100,000,000 common voting shares, without par
value
20,000,000 convertible voting preferred shares,
without par value
Issued and fully paid:
20,695,340 (18,583,672) common shares............. 11,798,062 10,217,262 10,126,865
RETAINED EARNINGS (DEFICIT)............................ (8,152,736) 2,463,157 1,355,738
------------ ----------- -----------
TOTAL SHAREHOLDERS' EQUITY............................. 3,645,326 12,680,419 11,482,603
------------ ----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............. $ 17,044,479 $22,496,464 $21,786,401
------------ ----------- -----------
5
17
SELECTED DIEBOLD HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
The following table presents selected audited financial information for
Diebold for the periods indicated. This table should be read in conjunction with
the Diebold Consolidated Financial Statements included in its Annual Report on
Form 10-K for the fiscal year ended December 31, 2000, attached to this Circular
as Appendix H. The Diebold Consolidated Financial Statements have been prepared
in accordance with U.S. GAAP.
DIEBOLD, INCORPORATED AND SUBSIDIARIES
SELECTED FINANCIAL DATA
AS OF AND FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------
2000 1999 1998
------------ ------------ ------------
(AUDITED)
(U.S. DOLLARS IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS AND RATIOS)
OPERATING RESULTS
Net sales................................................ $1,743,608 $1,259,177 $1,185,707
Gross profit............................................. 559,155 456,812 406,250
Net income............................................... 136,919 128,856 76,148
Basic earnings per share (Note A)........................ 1.92 1.86 1.10
Diluted earnings per share (Note A)...................... 1.92 1.85 1.10
---------- ---------- ----------
DIVIDEND AND COMMON SHARE DATA
Basic weighted-average number of shares (Note A)......... 71,296 69,359 68,960
Diluted weighted-average number of shares (Note A)....... 71,479 69,562 69,310
Common dividends paid.................................... $ 44,271 $ 41,668 $ 38,631
Common dividends paid per share (Note A)................. 0.62 0.60 0.56
---------- ---------- ----------
YEAR-END FINANCIAL POSITION
Current assets........................................... $ 804,363 $ 647,936 $ 543,548
Current liabilities...................................... 566,792 382,407 235,533
Net working capital...................................... 237,571 265,529 308,015
Property, plant and equipment, net....................... 174,946 160,724 147,131
Total assets............................................. 1,585,427 1,298,831 1,004,188
Long-term debt, less current maturities.................. 20,800 20,800 20,800
---------------
Note A -- After adjustment for stock splits.
DIEBOLD QUARTERLY RESULTS
(NUMBERS FOR THE THREE MONTHS ENDED)
QUARTER ENDED QUARTER ENDED QUARTER ENDED QUARTER ENDED
JUNE 30, MARCH 31, SEPTEMBER 30, DECEMBER 31,
------------------- ------------------- ------------------- -------------------
2001 2000 2001 2000 2000 1999 2000 1999
-------- -------- -------- -------- -------- -------- -------- --------
(UNAUDITED)
(U.S. DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net sales.................. $215,942 $242,834 $188,458 $180,384 $479,950 $312,778 $476,964 $365,920
Gross profit............... 133,038 142,219 117,157 116,823 149,040 113,817 153,357 130,900
Net income*................ 27,790 35,833 7,557 31,260 34,901 32,654 34,925 35,516
Basic earnings per
share*................... 0.39 0.50 0.11 0.44 0.49 0.47 0.49 0.50
Diluted earnings per
share*................... 0.39 0.50 0.11 0.44 0.49 0.47 0.49 0.50
---------------
* The sums of the quarterly figures do not equal annual figures due to rounding
or differences in the weighted-average number of shares outstanding during the
respective periods.
6
18
THE ARRANGEMENT AGREEMENT
COVENANTS REGARDING NO SOLICITATION
Global agreed in the Arrangement Agreement to immediately cease and cause
to be terminated and to cause its subsidiaries to cease and cause to be
terminated any discussions or negotiations with any Person with respect to any
Alternative Proposal and has requested the return or destruction of all
confidential information provided by Global to all Persons who have had such
discussions or negotiations or who have entered into confidentiality agreements
with Global pertaining to an Alternative Proposal.
Global also agreed to immediately notify Diebold of any request for
information or proposal relating to an Alternative Proposal, the material terms
and conditions of such request or Alternative Proposal and the identity of the
Person making the request or Alternative Proposal. Global has also agreed to
deliver to Diebold a copy of such written inquiry or proposal and copies of
information provided to or by any third party relating thereto and to keep
Diebold informed of the status and material details of any such request or
Alternative Proposal.
In addition, Global has agreed that neither Global nor any of its
subsidiaries will directly or indirectly solicit, initiate or encourage
submissions of proposals or offers from any Person relating to or that could
reasonably be expected to lead to, or facilitate or encourage any effort or
attempt with respect to, any Alternative Proposal or participate in any
negotiations regarding, or furnish to any other person any information with
respect to, or otherwise cooperate in any way with, or assist or participate in
or enter into any agreement relating to, any Alternative Proposal.
SUPERIOR PROPOSAL
Global may, however, prior to the date of the Meeting, in response to an
unsolicited written proposal with respect to an Alternative Proposal from a
Person that did not result from a breach of Global's covenants and that the
Board of Directors of Global determines, in its good faith and reasonable
judgment, and after consultation with and the receipt of a written opinion of
Hilliard Lyons that such proposal is a Superior Proposal, enter into a customary
confidentiality agreement, furnish information to, and negotiate, explore or
otherwise engage in substantive discussions with, such Person, but only if the
Board of Directors determines, in its good faith and reasonable judgment after
consultation with and the receipt of a written opinion from its outside legal
counsel, that taking such action is required to comply with the fiduciary duties
of the Board of Directors under applicable Laws.
If prior to the Meeting, in response to an unsolicited written proposal
with respect to an Alternative Proposal from a Person that did not result from a
breach of Global's covenants under the Arrangement Agreement and that the Board
of Directors determines, in its good faith and reasonable judgment, (1) after
consultation with and the receipt of a written opinion of Hilliard Lyons, that
such proposal is a Superior Proposal, and (2) after consultation with and the
receipt of a written legal opinion from its outside legal counsel that the
withdrawal or modification of its approval or recommendation of the Arrangement
or the Arrangement Agreement or to approve or recommend such Superior Proposal
is required to comply with the fiduciary duties of the Board of Directors under
applicable Law, the Board of Directors may withdraw or modify its approval or
recommendation of the Arrangement or the Arrangement Agreement or approve or
recommend such Superior Proposal; provided, however, that Global gives Diebold
at least ten business days' prior written notice of its Board of Directors'
intention to take such action so that Diebold can make a counterproposal.
Certain actions taken by Global in respect of an Alternative Proposal or in
breach of this covenant would result in the payment by Global to Diebold of the
Termination Fee.
CONDITIONS TO THE ARRANGEMENT
The obligations of Diebold and Global to complete the Arrangement are
subject to the satisfaction or waiver of certain customary conditions set forth
in the Arrangement Agreement, including obtaining approval of the Arrangement
Resolution by Global Shareholders, approval of the Arrangement by the Court and
there being no order by a governmental authority which enjoins or prohibits the
ownership by Diebold of the Global
7
19
Common Shares or the Arrangement. In addition to the mutual obligations of
Global and Diebold, Global's obligation to complete the Arrangement is subject
to the satisfaction or waiver of certain additional conditions, including the
approval for listing, subject to official notice of issuance, of the Diebold
Common Shares to be issued pursuant to the Arrangement on the NYSE. In addition
to the mutual obligations of Global and Diebold, Diebold's obligation to
complete the Arrangement is subject to certain additional conditions, including
without limitation, there being no amendment, supplement or modification of the
Arrangement by the Court or any Governmental Authority in a manner unacceptable
to Diebold, no more than 10% of the Global Common Shares being the subject of
the exercise of Dissent Rights, the execution of intellectual property
agreements by certain persons, the absence of any appeal to the Interim Order
and Final Order and there being no material adverse change to Global. See "The
Arrangement Agreement -- Conditions to Closing".
TERMINATION AND TERMINATION FEE
The Arrangement Agreement may be terminated at any time prior to the
Effective Time, upon the mutual written consent of Global and Diebold or the
occurrence of certain other events which are outlined under the heading "The
Arrangement Agreement -- Termination".
The Termination Fee will be payable to Diebold by Global on the occurrence
of certain events described below under the heading "The Arrangement
Agreement -- Termination Fee and Expenses". In a number of circumstances
including, without limitation the failure of the Global Shareholders to approve
the Arrangement Resolution at the Meeting, a termination of the Arrangement
Agreement by Diebold as a result of a breach by Global of its representations,
warranties or obligations set forth in the Arrangement Agreement, a material
adverse change in respect of Global or a determination by Diebold that Global
does not own or have licenses to use all intellectual property necessary to
conduct its business as presently conducted, Global is obligated to pay Diebold
a cash fee of U.S.$1,000,000 plus an amount equal to all out-of-pocket costs and
expenses of Diebold.
DISSENT RIGHTS
Global Registered Shareholders have been granted a contractual right to
dissent from the Arrangement Resolution and any Global Registered Shareholder
who dissents in compliance with the Plan of Arrangement will be entitled, if the
Arrangement becomes effective, to be paid by Global the fair value of the Global
Common Shares held by such Global Registered Shareholder. Any Global Registered
Shareholder who wishes to dissent must deliver a Notice of Dissent to Global in
care of Gowling Lafleur Henderson LLP, Suite 2300, 1055 Dunsmuir Street, P.O.
Box 49122, Vancouver, British Columbia, V7X 1J1. Attention: Brett Kagetsu, so as
to be received no later than 5:00 p.m. (Vancouver Time) on October 18, 2001. In
the event that greater than 10% of the Global Common Shares are the subject of
valid dissents pursuant to the Dissent Procedures, Diebold will not be required
to proceed with the Arrangement. See "Dissenting Shareholders' Rights".
APPROVALS REQUIRED
SHAREHOLDER APPROVAL
At the Meeting, the Global Shareholders will be asked to approve, among
other things, the Arrangement Resolution. Pursuant to the Interim Order, the
Arrangement Resolution must be approved by at least 75% of the votes cast by
Global Shareholders present in person or voting by proxy at the Meeting. The
approval described in the preceding sentence will also serve as the approval by
a majority of votes of Global Shareholders required by subsection 252(8) of the
BCCA (the "Majority of the Minority Vote"), as there are no affiliates of Global
who hold Global Common Shares, no Global Shareholders who will, as a result of
the Arrangement, be entitled to consideration for each Global Common Share
greater than that available to other Global Shareholders, and no Global
Shareholder who alone, or in combination with others, effectively controls
Global who has entered into or has agreed to enter into an understanding to
support the Arrangement. See "The Arrangement -- Shareholder Approval".
8
20
COURT APPROVAL
The Arrangement, as it will be effected under the BCCA, requires approval
by the Court pursuant to the Final Order. Prior to the mailing of this Circular,
Global obtained the Interim Order providing for the calling and holding of the
Meeting, the conferring of Dissent Rights and certain procedural matters.
Subject to the approval of the Arrangement Resolution by the Global Shareholders
at the Meeting, the hearing in respect of the Final Order is expected to take
place on November 1, 2001 at 10:00 a.m. (Vancouver Time). See "The
Arrangement -- Court Approval and Completion of the Arrangement".
REGULATORY APPROVALS
The completion of the Arrangement is subject to, among other things,
obtaining certain governmental consents and approvals. Diebold and Global have
commenced the necessary measures to satisfy all regulatory requirements. See
"Regulatory Matters". While there can be no assurances that the necessary
Regulatory Approvals will be obtained prior to the Meeting, or at all, Diebold
and Global are seeking to obtain such Regulatory Approvals and to satisfactorily
resolve all regulatory requirements prior to the time of the Meeting.
U.S. SECURITIES LAWS
The issuance of Diebold Common Shares pursuant to the Arrangement will not
be registered under the 1933 Act or the Securities Laws of any state of the
United States and will be effected in reliance upon the exemption from
registration provided by Section 3(a)(10) of the 1933 Act and exemptions
provided under the Securities Laws of each state of the United States in which
U.S. Holders reside.
The Diebold Common Shares received as partial consideration in exchange for
Global Common Shares in the Arrangement will be freely transferable under the
United States Securities Laws, except for Diebold Common Shares held by Persons
who are deemed to be "affiliates" (as that term is defined under the 1933 Act)
of Global. The shares of such persons may be resold by them only in transactions
permitted by the resale provisions of Rule 145(d)(1), (2) or (3) promulgated
under the 1933 Act or as otherwise permitted under the 1933 Act. See "The
Arrangement -- Resale of Diebold Common Shares Received in the
Arrangement -- United States".
CANADIAN SECURITIES LAWS
Application has been or will be made for rulings and orders of Securities
Authorities in Canada to exempt, where required, the issuance of the Diebold
Common Shares that are issuable under the Arrangement, from the prospectus and
registration requirements of applicable Canadian Securities Laws and, where
required, to permit resale of such Diebold Common Shares received provided that
the first trade of such Diebold Common Shares is executed through the facilities
of a stock exchange or market outside of Canada and is made in accordance with
the rules of the stock exchange on which it is made. See "The
Arrangement -- Resale of Diebold Common Shares Received in the
Arrangement -- Canada". Application will be made to have Global cease to be a
reporting issuer in both Canada and the United States upon completion of the
Arrangement.
ACCOUNTING TREATMENT
The Transactions will be accounted for by Global using the purchase method
of accounting in accordance with U.S. GAAP.
See "The Arrangement -- Accounting Treatment".
RISK FACTORS
There are certain risk factors that should be carefully considered by
Global Shareholders in evaluating whether to approve the Arrangement. See
"Information Concerning Global Election Systems Inc. -- Global Risk Factors",
"Diebold Risk Factors" and "Arrangement Risk Factors".
9
21
FORWARD-LOOKING STATEMENTS
This Circular, together with the attached appendices, contain
forward-looking statements within the meaning of Section 27A of the 1933 Act and
Section 21E of the Exchange Act. Words such as "will", "expects", "anticipates",
"intends", "plans", "believes", "seeks", "estimates", and variations of such
words and similar expressions are intended to identify these forward-looking
statements. Specifically, and without limiting the generality of the foregoing,
all statements included in this Circular that address activities, events or
developments that Diebold or Global expects or anticipates will or may occur in
the future, including such things as future capital (including the amount and
nature thereof), business strategies and measures to implement such strategies,
competitive strengths, goals, expansion and growth, or the references to the
future success of Diebold, its subsidiaries and the companies, joint ventures or
partnerships in which it has equity investments are forward-looking statements.
Actual results could differ materially from those reflected in the
forward-looking statements as a result of certain factors, including those
described in "Information Concerning Global -- Global's Risk Factors",
"Diebold's Risk Factors" and "Arrangement Risk Factors"; general economic,
market or business conditions; the opportunities (or lack thereof) that may be
presented to and pursued by Diebold; competitive actions by other companies;
changes in Laws; and other factors, many of which are beyond the control of
Diebold.
All written and oral forward-looking statements attributable to Diebold or
Global, or Persons acting on their behalf, are expressly qualified in their
entirety by the cautionary statements set forth above. Readers of this Circular
are cautioned not to place undue reliance on forward -- looking statements
contained herein, which reflect the analysis of the management of Diebold and
Global, as appropriate, only as of the date of this Circular. Neither Diebold
nor Global undertakes any obligation to release publicly the results of any
revisions to these forward-looking statements which may be made to reflect
events or circumstances after the date of this Circular or to reflect the
occurrence of unanticipated events.
10
22
GLOSSARY OF TERMS
Unless the context otherwise requires, when used in this Circular the
following terms shall have the meanings set forth below. Words importing the
singular number shall include the plural and vice versa, and words importing any
gender shall include all genders. These defined terms are not always used in the
consolidated financial statements and other financial information included
herein.
"1933 ACT" Means the United States Securities Act of 1933,
as amended.
"ACQUISITION AGREEMENT" Means any letter of intent, agreement in
principle, plan, arrangement or agreement
relating to an Alternative Proposal.
"AFFILIATE" Has the meaning ascribed thereto in the BCCA
except as otherwise indicated in this Circular.
"ALTERNATIVE PROPOSAL" Means any inquiry, proposal or offer from any
Person relating to any (i) direct or indirect
acquisition or purchase of a business that
constitutes 15% or more of the net revenues,
net income, properties or assets of Global and
its subsidiaries, taken as a whole, or 15% or
more of any class of equity securities of
Global or any of its subsidiaries, (ii) tender
offer or exchange offer that if consummated
would result in any Person beneficially owning
15% or more of any class of equity securities
of Global or any of its subsidiaries, or (iii)
merger, consolidation, business combination,
share exchange, recapitalization, liquidation,
dissolution or similar transaction involving
Global or any of its subsidiaries, other than
the transactions contemplated by the
Arrangement Agreement.
"AMEX" Means the American Stock Exchange.
"ARRANGEMENT" Means the arrangement to be undertaken in
accordance with the Plan of Arrangement,
subject to any amendment or variation made in
accordance with the Arrangement Agreement.
"ARRANGEMENT AGREEMENT" Means the Arrangement Agreement dated as of
September 10, 2001 between Diebold, SubCo and
Global, as amended, supplemented and/or
restated in accordance therewith prior to the
Effective Date, providing for, among other
things, the Arrangement.
"ARRANGEMENT RESOLUTION" Means the special resolution of the Global
Shareholders to approve the Arrangement
substantially in the form contained in Appendix
A hereto.
"BCCA" Means the Company Act (British Columbia), as
the same may be amended or re-enacted or any
successor legislation thereto.
"BOARD OF DIRECTORS" Means the board of directors of Global.
"BRIDGE LOAN" Means the U.S.$5,000,000 in convertible debt
provided by Diebold to Global pursuant to the
bridge loan agreement, dated as of June 29,
2001, as amended by Amendment No. 1 dated
August 3, 2001.
"BRIDGE LOAN DOCUMENTS" Means, collectively, the Bridge Loan Agreement,
dated as of June 29, 2001, as amended by
Amendment No. 1 dated August 3, 2001, the
Collateral and Guarantee Agreement, dated as of
June 29, 2001, and the Warrant to Purchase
Common Shares, dated as of August 3, 2001, each
executed by Global and Diebold.
11
23
"BRIDGE LOAN WARRANTS" Means the warrant entitling Diebold to purchase
250,000 Global Common Shares on or before June
29, 2006 at an exercise price per share of
U.S.$1.135.
"BUSINESS DAY" Means any day other than a Saturday, Sunday or
Canadian or U.S. federal or British Columbia
provincial holiday or a day on which banks are
not open for business in Vancouver, British
Columbia or New York, New York.
"CANADIAN GAAP" Means Canadian generally accepted accounting
principles.
"CANADIAN RESIDENT" Means a Person who is not a non-resident of
Canada for the purposes of the Canadian Tax
Act.
"CANADIAN TAX ACT" Means Income Tax Act (Canada), as now in effect
and as it may be amended from time to time
prior to the Effective Date.
"CASH CONSIDERATION" Means for each Global Common Share, U.S.$0.227.
"CCRA" Means the Canada Customs and Revenue Agency.
"CDN.$" OR "CANADIAN $" Means Canadian dollars.
"CDS" Means The Canadian Depository for Securities
Limited.
"CIRCULAR" Means the Notice and this management
information circular, including all appendices
hereto.
"CODE" Means the United States Internal Revenue Code
of 1986, as now in effect and as it may be
amended from time to time prior to the
Effective Date, including the treasury rules
and regulations promulgated thereunder.
"CONTRACT MANUFACTURING
AGREEMENT" Means the contract manufacturing agreement
dated June 19, 2001, as amended August 9, 2001,
between Global and Diebold regarding the
manufacturing, designing and development of
certain Global products by Diebold.
"COURT" Means the Supreme Court of British Columbia.
"CURRENT MARKET PRICE" Means, in respect of a Diebold Common Share,
the closing price of the Diebold Common Shares
on the NYSE on the trading day immediately
preceding the Effective Date, converted into
Canadian dollars based on the noon United
States dollar/Canadian dollar exchange rate as
quoted by the Bank of Canada on such day.
"DEPOSITARY" Means Pacific Corporate Trust Company, as
depositary in respect of the exchange of
certificates evidencing Global Common Shares
for certificates evidencing Diebold Common
Shares.
"DIEBOLD COMMON SHARES" Means the common stock, par value U.S.$1.25 per
share, of Diebold.
"DIEBOLD CONSOLIDATED
FINANCIAL STATEMENTS Means the audited consolidated financial
statements of Diebold as set forth in the
Diebold 10-K attached to this Circular as
Appendix H.
"DIEBOLD EXPENSES" Means an amount equal to all out-of-pocket
costs and expenses of Diebold incurred in
connection with the Arrangement Agreement, the
Option Agreement and the transactions
contemplated hereby
12
24
and thereby and any litigation associated
therewith (including, without limitation, all
SEC filing fees and all fees and expenses
payable to accountants, counsel, consultants
and due diligence expenses).
"DIEBOLD GOVERNING DOCUMENTS" Means Diebold's Certificate of Amended Articles
of Incorporation.
"DIEBOLD, INCORPORATED" OR
"DIEBOLD" Means Diebold, Incorporated, a corporation duly
incorporated under the Laws of the State of
Ohio.
"DIEBOLD PARTIES" Means Diebold, SubCo and any other subsidiary
of Diebold that may be organized by Diebold to
effectuate the Arrangement.
"DIEBOLD PROXY STATEMENT" Means the Proxy Statement for the annual
meeting of stockholders of Diebold held on
April 26, 2001, a copy of which is attached as
Appendix K hereto.
"DIEBOLD 10-K" Means Diebold's annual report on Form 10-K for
the year ended December 31, 2000, a copy of
which is attached as Appendix H hereto.
"DISSENT PROCEDURES" Has the meaning set out in Section 3 of the
Plan of Arrangement.
"DISSENT RIGHTS" Means the rights of dissent in respect of the
Arrangement described in Section 3 of the Plan
of Arrangement.
"DISSENTING SHAREHOLDER" Means a Global Registered Shareholder who
dissents in respect of the Arrangement in
strict compliance with the Dissent Procedures.
"EFFECTIVE DATE" Means the date on which a certified copy of the
Final Order with the Plan of Arrangement and
such other documents as are required to be
filed under the BCCA to give effect to the
Arrangement have been accepted for filing under
Section 252 of the BCCA by the Registrar
appointed under the BCCA, which shall, at
Diebold's option, be following the expiration
of any appeal period with respect to the
Interim Order or the Final Order under the
BCCA.
"EFFECTIVE TIME" Means the time on the Effective Date when the
Arrangement will become effective according to
its terms.
"EXCHANGE ACT" Means the United States Securities Exchange Act
of 1934, as amended, and the rules and
regulations of the SEC promulgated thereunder.
"EXCHANGE RATIO" Means the ratio of Diebold Common Shares to be
exchanged for each whole Global Common Share
equal to the quotient (rounded to the nearest
1/100,000) determined by dividing (x) 0.908 by
(y) the average of daily volume weighted
average prices (based on a trading day from
9:30 a.m. to 4:00 p.m. (New York City time) of
the Diebold Common Shares on the NYSE as
reported by Bloomburg Financial LP using the
AQR function for the ten consecutive trading
days ending with the trading day immediately
preceding the Effective Time provided, that the
Exchange Ratio shall not be less than 0.02421
or greater than 0.03027.
"FAIRNESS OPINION" Means the opinion of Hilliard Lyons as of
August 30, 2001 attached as Appendix D to this
Circular.
"FINAL ORDER" Means the final order of the Court approving
the Arrangement.
13
25
"GLOBAL" OR THE "COMPANY" Means Global Election Systems Inc., a
corporation amalgamated under, and governed by,
the BCCA.
"GLOBAL BOARD RECOMMENDATION" Means the recommendation of the Board of
Directors that the Global Shareholders vote in
favor of the Arrangement Resolution and the
Share Issuance Resolution.
"GLOBAL COMMON SHARES" Means the issued and outstanding common shares
in the capital of Global.
"GLOBAL CONSOLIDATED FINANCIAL
STATEMENTS" Means the audited consolidated financial
statements of Global for the year ended June
30, 2001.
"GLOBAL DISCLOSURE LETTER" Means the letter of Global to Diebold dated as
of September 10, 2001 attached to this Circular
as Appendix G.
"GLOBAL GOVERNING DOCUMENTS" Means the memorandum and articles of Global.
"GLOBAL OPTIONHOLDER" Means a holder of Global Options.
"GLOBAL OPTIONS" Means any options or other rights to acquire
Global Common Shares (excluding warrants)
except those held by Diebold.
"GLOBAL REGISTERED
SHAREHOLDER" Means a holder of Global Common Shares as shown
in the register maintained by or on behalf of
Global for the Global Common Shares.
"GLOBAL SHAREHOLDER APPROVAL" Means an affirmative vote for the Arrangement
of not less than 75% of the votes cast by the
holders of Global Common Shares, being entitled
to vote, which vote also constitutes the
approval of the Global Common Shares in
accordance with Section 252(8) of the BCCA, in
person or by proxy, at the Meeting.
"GLOBAL SHAREHOLDERS" Means the holders of Global Common Shares.
"GLOBAL USA" Means Global Election Systems, Inc., a Delaware
corporation and wholly-owned subsidiary of the
Company.
"GLOBAL WARRANTS" Means any warrants to acquire Global Common
Shares other than those held by Diebold.
"GOVERNMENTAL AUTHORITY" Means any nation or government, any state,
provincial or other political subdivision
thereof and any entity exercising executive,
legislative, judicial, regulatory, or
administrative functions of or pertaining to
government, including, without limitation, any
quasi-governmental, supranational, statutory,
environmental or securities regulatory entity
and any stock exchange, court or arbitral body.
"HILLIARD LYONS" Means J.J.B. Hilliard, W.L. Lyons Inc.
"INTERIM ORDER" Means an order of the Court providing for,
among other things, the calling and holding of
the Meeting, the form of which is substantially
contained in Appendix B.
"INVESTMENT CANADA ACT" Means the Investment Canada Act, as now in
effect and as it may be amended from time to
time prior to the Effective Date.
"IRS" Means the United States Internal Revenue
Service.
"ITA" Means the Income Tax Act (Canada), as now in
effect and as it may be amended from time to
time prior to the Effective Date.
14
26
"LAWS" Means any federal, foreign, state, provincial
or local statute, law, rule, regulation,
ordinance, code, permit, bylaw, license, policy
or rule of common law or any rules, regulations
and policies promulgated by a Governmental
Authority having jurisdiction.
"LETTER OF TRANSMITTAL" Means the letter of acceptance and transmittal
for use by Global Shareholders to be sent to
all Global Shareholders following the final
approval of the Arrangement.
"MATERIAL ADVERSE EFFECT" Means any change, effect, violation,
inaccuracy, event or condition (other than a
change in general economic conditions) that,
individually or together with all such changes,
effects, violations, inaccuracies, events or
conditions, has had or could reasonably be
expected to (a) have a material adverse effect
on the business, prospects, operations,
properties, assets or condition (financial or
otherwise) of Global or Diebold and its
subsidiaries, taken as a whole, (b) have a
material adverse effect on the validity or
enforceability of the Arrangement Agreement,
the Option Agreement or any of the other
Transaction Documents or the rights or
remedies, taken as a whole, of Global or
Diebold hereunder or thereunder, or (c) prevent
or materially delay Global's or Diebold's
ability to consummate the transactions
contemplated by the Arrangement Agreement, the
Option Agreement or in any other Transaction
Document.
"MEETING" Means the meeting of Global Shareholders,
including any adjournment thereof, to approve,
among other things, the Arrangement.
"NON-REGISTERED GLOBAL
SHAREHOLDER" Means a Person who is a beneficial owner of
Global Common Shares, but not a Global
Registered Shareholder.
"NON-U.S. HOLDERS" Means holders, including beneficial owners, of
Global Common Shares who are not U.S. Holders.
"NOTICE OF EXTRAORDINARY
MEETING" AND "NOTICE" Means the notice dated September 26, 2001 of
the Meeting.
"NOTICE OF DISSENT" Means a written objection to the Arrangement
Resolution completed and delivered by a Global
Registered Shareholder in accordance with the
Dissent Procedures.
"NYSE" Means the New York Stock Exchange, Inc.
"OPTION AGREEMENT" Means the Common Share Option Agreement between
Global and Diebold, dated as of September 11,
2001.
"ORDER" Means any judgment, injunction, judicial or
administrative order or decree.
"PACIFIC CORPORATE TRUST" Means Pacific Corporate Trust Company.
"PERSON" Includes any individual, corporation,
incorporated or unincorporated association,
syndicate or organization, partnership, limited
liability company, joint venture, association,
joint stock company, trust, trustee, executor,
administrator or other legal representative or
other entity.
"PLAN OF ARRANGEMENT" Means the plan of arrangement set forth in
Appendix C attached to this Circular subject to
any amendment or variation made in
15
27
accordance with the Plan of Arrangement or made
at the direction of the Court in the Interim
Order or the Final Order.
"PROPOSED AMENDMENTS" Means all specific proposals to amend the ITA
and the regulations thereto publicly announced
by or on behalf of the Minister of Finance
(Canada) prior to the date of this Circular.
"RECORD DATE" Means September 7, 2001.
"REGISTRAR" Means the Registrar of Companies performing
duties as registrar under the BCCA.
"REGULATORY APPROVALS" Means those sanctions, rulings, consents,
orders, exemptions, permits and other approvals
(including the lapse, without objection, of a
prescribed time under a statute or regulation
that states that a transaction may be
implemented if a prescribed time lapses
following the giving of notice without an
objection being made) of any Governmental
Authority.
"SEC" Means the United States Securities and Exchange
Commission.
"SECURITIES AUTHORITIES" Means the appropriate securities commissions or
similar regulatory authorities in Canada and
each of the provinces and territories thereof
and, if applicable, in the United States
(including the SEC) and each of the states
thereof, including the TSE, the AMEX and the
NYSE.
"SECURITIES LAWS" Means collectively, the BCCA, the Securities
Act (Ontario) and the equivalent legislation in
the other provinces and territories of Canada,
the 1933 Act, the Exchange Act, applicable
"blue sky" or securities Laws of the United
States of any state thereof and any other
applicable securities Laws, all as the same
have been or may be from time to time be
amended, as well as the rules, regulations,
by-laws and policies of the TSE, the AMEX and
the NYSE.
"SHARE ISSUANCE RESOLUTION" Means the ordinary resolution to approve the
issuance to Diebold of up to an additional
16,306,922 Global Common Shares (in excess of
4,388,418 Global Common Shares already issuable
to Diebold).
"SPECTRUM" Means Spectrum Print & Mail Services, Ltd., a
Delaware corporation and wholly-owned
subsidiary of the Company.
"SUBCO" Means Diebold Acquisition Ltd., a company
incorporated under, and governed by, the BCCA
and a direct wholly-owned subsidiary of
Diebold.
"SUBSIDIARY" Has the meaning set forth in the BCCA.
"SUPERIOR PROPOSAL" Means any Alternative Proposal in respect of
all or substantially all of the Global Common
Shares not solicited by Global and which did
not otherwise result from a breach of Section
5.2 of the Arrangement Agreement that meets
each of the following conditions: (i) any
required financing in connection with such
Alternative Proposal shall have been
demonstrated to the satisfaction of the Board
of Directors of Global, acting in good faith,
to be reasonably likely to be obtained, (ii)
such Alternative Proposal is not subject to a
due diligence condition following execution of
the Acquisition Agreement, (iii) such
Alternative Proposal includes
16
28
take-out financing that would permit the
Company to satisfy all of its obligations under
the Bridge Loan Documents immediately following
the execution of the Acquisition Agreement
related thereto, and (iv) such Alternative
Proposal, if consummated in accordance with its
terms, would result in a transaction (a) more
favorable to the Global Common Shareholders
than the Plan of Arrangement and the
transactions contemplated by the Bridge Loan
Documents and the Contract Manufacturing
Agreement, taken as a whole, and (b) having a
value per Global Common Share greater than the
value per Global Common Share provided by the
Plan of Arrangement as determined in good faith
by the Board of Directors of Global.
"TERMINATION DATE" Means March 31, 2002.
"TERMINATION FEE" Means an amount in cash equal to the sum of
U.S.$1,000,000 and the Diebold Expenses,
payable by Global to Diebold in the
circumstances described under "The Arrangement
Agreement -- Termination Fee and Expenses".
"TRANSACTIONS" Means the transactions contemplated by the
Arrangement Agreement, and includes the
Arrangement.
"TRANSACTION CONSIDERATION" Means, for each Global Common Share, (i) a
number of fully paid and non-assessable Diebold
Common Shares equal to the Exchange Ratio and
(ii) the Cash Consideration.
"TRANSACTION DOCUMENTS" Means, collectively, the Arrangement Agreement,
the Option Agreement and each other agreement
or certificate delivered in connection with the
transactions contemplated by the Arrangement
Agreement or the Option Agreement.
"TSE" Means The Toronto Stock Exchange.
"U.S. DOLLARS", "U.S.$" OR "$" Means United States dollars.
"U.S. GAAP" Means United States generally accepted
accounting principles.
"U.S. HOLDERS" Means holders, including beneficial owners, of
Global Common Shares who are (i) citizens or
residents of the United States (ii)
corporations, partnerships and other entities
created or organized under the Laws of the
United States or a political subdivision
thereof, (iii) an estate whose income is
subject to United States federal income tax
regardless of its source and (iv) a trust if a
United States court can exercise primary
supervision over the trust's administration and
one or more United States Persons are
authorized to control all substantial decisions
of the trust. If a partnership owns Global
Common Shares, the tax treatment of a partner
will generally depend on the status of the
partner and the activities of the partnership.
"VALUATION" Means the valuation opinion of Evans & Evans
Inc. dated as of September 21, 2001.
REPORTING CURRENCIES AND ACCOUNTING PRINCIPLES
The Global Consolidated Financial Statements contained in this Circular are
reported in U.S. dollars and have been prepared in accordance with Canadian GAAP
and reconciled to U.S. GAAP. The Diebold
17
29
Consolidated Financial Statements and data of Diebold contained in this Circular
are reported in U.S. dollars and have been prepared in accordance with U.S.
GAAP.
EXCHANGE RATES
In this Circular, dollar amounts are expressed either in Canadian dollars
(Cdn.$) or U.S. dollars (U.S.$ or $). Unless otherwise indicated, all dollar
amounts herein are expressed in U.S. dollars.
The following table sets forth, for each period indicated, the high, low,
average and end of period exchange rates for one Canadian dollar expressed in
U.S. dollars, based upon the noon buying rate of the Bank of Canada.
HIGH LOW AVERAGE RATE(1) END OF PERIOD
------ ------ --------------- -------------
(U.S. DOLLARS PER CANADIAN DOLLAR)
YEAR ENDED DECEMBER 31
2000.................................... 0.6969 0.6410 0.6724 0.6669
1999.................................... 0.6925 0.6535 0.6744 0.6925
1998.................................... 0.7105 0.6341 0.6714 0.6504
1997.................................... 0.7487 0.6945 0.7197 0.6999
1996.................................... 0.7513 0.7285 0.7329 0.7301
MONTH ENDED 2001
August 31............................... 0.6554 0.6448 0.6494 0.6448
July 31................................. 0.6636 0.6462 0.6536 0.6525
June 30................................. 0.6617 0.6498 0.6560 0.6605
May 31.................................. 0.6548 0.6436 0.6487 0.6500
April 30................................ 0.6517 0.6319 0.6421 0.6508
March 31................................ 0.6502 0.6340 0.6416 0.6340
February 28............................. 0.6697 0.6494 0.6572 0.6527
January 31.............................. 0.6692 0.6595 0.6652 0.6669
---------------
(1) The average rates reflect either the average of the noon buying rates on the
last Business Day of each month during the relevant year end periods or the
average of the noon buying rates for each Business Day during the relevant
month end periods, as applicable.
On September 21, 2001, the exchange rate for one Canadian dollar expressed
in U.S. dollars was $0.6367, based upon the noon buying rate of the Bank of
Canada.
INFORMATION CONCERNING THE MEETING
GENERAL
This Circular is furnished in connection with the solicitation of proxies
by and on behalf of the management of Global and the Board of Directors. The
Meeting will be held in the Oak Room of the Four Seasons Hotel, 791 West Georgia
Street, Vancouver, British Columbia, at 10:00 a.m. (Vancouver Time) on October
26, 2001, as set forth in the Notice of Extraordinary Meeting.
SOLICITATION OF PROXIES
THE MANAGEMENT OF GLOBAL IS SOLICITING PROXIES FOR USE AT THE MEETING AND
HAS DESIGNATED THE INDIVIDUALS LISTED ON THE ENCLOSED FORM OF PROXY AS PERSONS
WHOM GLOBAL SHAREHOLDERS MAY APPOINT AS THEIR PROXYHOLDERS. IF A GLOBAL
REGISTERED SHAREHOLDER WISHES TO APPOINT AN INDIVIDUAL NOT LISTED ON THE
ENCLOSED FORM OF PROXY TO REPRESENT HIM OR HER AT THE MEETING, THE GLOBAL
SHAREHOLDER MAY DO SO EITHER BY CROSSING OUT THE NAMES ON THE ENCLOSED FORM OF
PROXY AND INSERTING THE NAME OF THAT OTHER INDIVIDUAL IN THE BLANK
18
30
SPACE PROVIDED ON THE ENCLOSED FORM OF PROXY OR BY COMPLETING ANOTHER ACCEPTABLE
FORM OF PROXY. The proxyholder must attend the Meeting in order to vote on
behalf of the Global Shareholder. A proxy nominee need not be a Global
Shareholder. If the Global Shareholder is not an individual, its proxy must be
executed by a duly authorized officer or properly appointed attorney.
Global is paying for this solicitation, which is being made by mail.
Proxies may also be solicited personally or by telephone by directors, officers
or regular employees of Global, at normal cost.
The Company has requested brokers and nominees who hold Global Common
Shares in their names to furnish the Circular and accompanying materials to
their customers and to request authority to execute the proxy. Global will
reimburse these brokers and nominees for their related reasonable out-of-pocket
expenses.
ENTITLEMENT TO VOTE
Each Global Registered Shareholder at the close of business (Vancouver
Time) on the Record Date is entitled to attend the Meeting in person or by proxy
and to cast one vote for each Global Common Share held by him or her on the
Record Date.
Neither Global Optionholders nor holders of Global Warrants are entitled to
vote at the Meeting.
SIGNING AND DEPOSIT OF PROXIES
Whether or not Global Shareholders are able to attend the Meeting, they
should date, sign and return the enclosed form of proxy to Global, care of
Pacific Corporate Trust Company, Attention: Proxy Department, 10th Floor, 625
Howe Street, Vancouver, British Columbia, V6C 3B8, in the envelope provided for
that purpose. To be effective, a form of proxy must be duly executed by such
Global Shareholder or by an attorney authorized in writing or, if the Global
Shareholder is not an individual, by a duly authorized officer or attorney
thereof and deposited with Pacific Corporate Trust Company at the address above,
not later than 5:00 p.m. (Vancouver Time) on the date which is not less than two
Business Days preceding the Meeting. Proxies may also be deposited with the
Chairman of the Meeting, immediately prior to the commencement of the Meeting.
REVOCATION OF PROXIES
Any Global Shareholder giving a proxy has the right to revoke it at anytime
before it is acted upon (a) by depositing an instrument in writing executed by
such Global Shareholder or by an attorney authorized in writing, or, if the
Global Shareholder is not an individual, by a duly authorized officer or
attorney thereof, (i) at Global's registered office, Gowling Lafleur Henderson,
LLP, Suite 2300, 1055 Dunsmuir Street, P.O. Box 49122, Vancouver, British
Columbia, V7X 1J1, Attention: Brett Kagetsu, at anytime up to and including 5:00
p.m. (Vancouver Time) on the last Business Day preceding the Meeting, or (ii)
with the Chairman of the Meeting on the day of and prior to the Meeting; or (b)
in any other manner permitted by law.
VOTING OF PROXIES
On any vote or poll, the management representatives named in the enclosed
form of proxy will vote the Global Common Shares represented by proxy in
accordance with the instructions of the Global Registered Shareholder who
appointed them. IF THERE ARE NO INSTRUCTIONS OR IF THE INSTRUCTIONS ARE NOT
CLEAR ON ANY VOTE OR POLL, THEY WILL VOTE THE GLOBAL COMMON SHARES IN FAVOR OF
ALL MATTERS IDENTIFIED IN THE NOTICE TO BE DEALT WITH AT THE MEETING, INCLUDING
THE ARRANGEMENT RESOLUTION AND THE RESOLUTION TO APPROVE THE SHARE ISSUANCE. THE
ENCLOSED FORM OF PROXY, WHEN PROPERLY COMPLETED AND SIGNED, CONFERS
DISCRETIONARY AUTHORITY ON THE APPOINTED INDIVIDUALS TO VOTE AS THEY SEE FIT ON
ANY AMENDMENT OR VARIATION TO ANY OF THE MATTERS IDENTIFIED IN THE NOTICE AND ON
ANY OTHER MATTER THAT MAY PROPERLY BE BROUGHT BEFORE THE MEETING. AS OF THE DATE
HEREOF, NEITHER THE BOARD OF DIRECTORS NOR MANAGEMENT OF GLOBAL IS AWARE OF ANY
VARIATION, AMENDMENT OR OTHER MATTER TO BE PRESENTED FOR A VOTE AT THE MEETING.
HOWEVER, IF ANY OTHER MATTERS WHICH ARE NOT NOW KNOWN TO THE BOARD OF DIRECTORS
OR MANAGEMENT OF GLOBAL SHOULD PROPERLY COME BEFORE THE MEETING, THEN THE
MANAGEMENT REPRESENTATIVES INTEND TO VOTE IN ACCORDANCE WITH THE JUDGMENT OF THE
MANAGEMENT OF GLOBAL.
19
31
VOTING SHARES AND PRINCIPAL HOLDERS THEREOF
As of the Record Date, Global had outstanding 20,695,340 Global Common
Shares, each such share being entitled to one vote.
Other than Diebold, the directors and officers of Global are not aware of
any Person who beneficially owns, directly or indirectly, or exercises control
or direction over, 10% or more of the Global Common Shares.
See "Interests of Insiders in Material Transactions".
SECURITY OWNERSHIP OF DIRECTORS AND MANAGEMENT
The following table presents the number of Global Common Shares
beneficially owned, directly or indirectly, or controlled or directed by,
Global's directors, nominees and executive officers (with sole voting and
investment power, except as otherwise indicated) as of September 21, 2001.
Beneficial ownership has been determined in accordance with Section 95 of the
Securities Act (British Columbia) and Rule 13d-3 under the Exchange Act.
OPTIONS TOTAL SHARES PERCENT
NUMBER OF EXERCISABLE BENEFICIALLY OF CLASS
NAME OF BENEFICIAL OWNER SHARES(1) WITHIN 60 DAYS OWNED (%)
------------------------ --------- -------------- ------------ --------
Robert J. Urosevich............................. 46,023 120,000 166,023 .8
Brian W. Courtney............................... 50,000 200,000 250,000 1.2
Clinton H. Rickards............................. 998,619 100,000 1,098,619 5.3
David Brown..................................... 1,237,067 Nil 1,237,067 6.0
John W. Larmer II............................... 100 50,000 50,100 .2
S. Michael Rasmussen............................ Nil 200,000 200,000 1.0
Jeffrey Dean(2)................................. 1,600,000 Nil 1,600,000 7.7
Talbot Iredale.................................. Nil Nil Nil --
Larry Dix....................................... 4,750 50,000 54,750 .3
Barry Herron.................................... 120,000 50,000 170,000 .8
Moe Sokulski.................................... 127,700 100,000 227,700 1.1
Brian O'Connor.................................. Nil Nil Nil --
---------------
(1) Shares listed are Global Common Shares currently owned beneficially, and do
not include options or warrants exercisable within 60 days.
(2) Shares listed are owned by Mr. Dean's wife, Deborah M. Dean, with whom Mr.
Dean shares voting and investment power.
VOTE REQUIRED
Subject to any further order of the Court, the Arrangement Resolution must
be approved by the affirmative vote of at least 75% of the votes cast thereon by
Global Shareholders present in person or voting by proxy at the Meeting. The
approval described in the preceding sentence will also serve as the approval by
a majority of votes of Global Shareholders required by subsection 252(8) of the
BCCA (the "Majority of the Minority Vote"), as there are no affiliates of Global
who hold Global Common Shares, no Global Shareholders who will, as a result of
the Arrangement, be entitled to consideration for each Global Share greater than
that available to other Global Shareholders, and no Global Shareholder who
alone, or in combination with others, effectively controls Global who has
entered into or has agreed to enter into an understanding to support the
Arrangement.
The other matters to be approved at the Meeting must be approved by the
affirmative vote of a majority of the votes cast thereon by Global Shareholders
present in person or voting by proxy at the Meeting.
20
32
Clinton H. Rickards, a member of the Board of Directors, and Deborah M.
Dean have entered into voting agreements with Diebold with respect to an
aggregate of 2,698,619 Global Common Shares (including 100,000 option shares)
pursuant to which they have agreed to vote such shares in favor of the
Arrangement. Neither Mr. Rickards nor Ms. Dean received any consideration in
connection with such voting agreements.
INTEREST OF MANAGEMENT
Management of Global is unaware of any material interest of any director or
officer of Global, or any associate or affiliate of any such individual or of
Global in any transaction since the beginning of the last completed fiscal year
of Global or in any proposed transaction or in connection with the Arrangement
that has materially affected or will materially affect Global or any of its
affiliates. Except as otherwise described in this Circular, there are no
agreements or arrangements between Diebold or Global and any director, officer
or employee of Global and its subsidiaries in respect of the Arrangement.
ESCROWED SHARES
As of the date of this Circular, a total of 500,000 Global Common Shares
are held in escrow as follows:
NO. OF COMMON SHARES
NAME OF BENEFICIAL HOLDER HELD IN ESCROW PERCENTAGE OF CLASS
------------------------- -------------------- -------------------
Deborah M. Dean.................................. 500,000 2.42%
Global, its wholly-owned subsidiary and Ms. Dean have entered into an
escrow agreement dated September 29, 2000 (the "Escrow Agreement") with Borden
Ladner Gervais LLP pursuant to which 500,000 Global Shares (the "Escrowed
Shares") of the 1,600,000 Global Shares issued by Global to Ms. Dean, pursuant
to a share purchase agreement dated September 29, 2000, whereby Global purchased
100% of the issued and outstanding shares of Spectrum Print and Mail Services,
Ltd, are subject to escrow. The Escrowed Shares are held in escrow as part of an
indemnification right provision contained in the share purchase agreement. The
Escrowed Shares will be released from escrow on September 30, 2002 provided that
Global has not issued any successful claims against Ms. Dean which would result
in the transfer of the Escrowed Shares from escrow back to the treasury of
Global. The Escrow Agreement is being amended to permit the Escrowed Shares to
be tendered in accordance with the Arrangement mechanics and for the Transaction
Consideration applicable to such Escrowed Shares to be returned to escrow.
DISSENTING SHAREHOLDERS' RIGHTS
Pursuant to the provisions of the Arrangement Agreement, Global Registered
Shareholders have been granted the right to dissent with respect to the
Arrangement Resolution. If the Arrangement becomes effective, a Dissenting
Shareholder will be entitled to be paid the fair value of the Global Common
Shares held by such Dissenting Shareholder determined as of the close of
business on the day before the Arrangement Resolution is adopted. This right to
dissent is described in this Circular under "Dissenting Shareholders' Rights",
and in the Plan of Arrangement included in Appendix C to this Circular. The
Dissent Procedures require that a Global Registered Shareholder who wishes to
dissent must deliver a Notice of Dissent to Global, in care of Gowling Lafleur
Henderson LLP, Suite 2300, 1055 Dunsmuir Street, P.O. Box 49722, Vancouver,
British Columbia, V7X 1J1, Attention: Brett Kagetsu, so as to be received by
Gowling Lafleur Henderson LLP no later than 5:00 p.m. (Vancouver Time) on
October 18, 2001. It is important that Global Registered Shareholders strictly
comply with this requirement, which is different from the statutory dissent
provisions of the BCCA, which are inapplicable to the Transactions. Failure to
comply strictly with the Dissent Procedures may result in the loss or
unavailability of any Dissent Right. In the event that greater than 10% of the
Global Common Shares are the subject of valid dissents pursuant to the Dissent
Procedures, Diebold will not be required to proceed with the Arrangement. See
"Dissenting Shareholders' Rights".
21
33
PROCEDURES
GENERAL
A Letter of Transmittal will be mailed to Global Shareholders following the
Effective Time. The Letter of Transmittal, when properly completed and duly
executed and returned to the Depositary, together with a certificate or
certificates representing Global Common Shares and all other required documents,
will enable each Global Shareholder to obtain the Cash Consideration, a
certificate or certificates representing that whole number of Diebold Common
Shares to which the Global Shareholder is entitled under the Arrangement and a
cash amount payable in lieu of a fraction of Diebold Common Shares, if any.
Global Shareholders who do not forward to the Depositary properly completed
Letters of Transmittal, together with a certificate or certificates representing
their Global Common Shares and all other required documents, will not receive
the Cash Consideration and the certificates representing the Diebold Common
Shares to which they are otherwise entitled until proper delivery is made.
After the Effective Time and upon the return of the Letter of Transmittal
together with the certificate or certificates representing the Global Common
Shares, such certificate(s) shall only represent the right to receive the
Transaction Consideration.
Furthermore, Global Shareholders who do not surrender their certificate(s)
representing Global Common Shares will not be recorded on the register of
holders of Diebold Common Shares until they do so.
Any use of the mail to transmit a share certificate and a related Letter of
Transmittal is at the risk of the Global Shareholder. If these documents are
mailed, it is recommended that registered mail, with (if applicable) return
receipt requested, be used.
Certificates representing the appropriate number of Diebold Common Shares
issuable to a former Global Shareholder who has complied with the procedures set
out above, together with the Cash Consideration and a cash amount payable in
lieu of a fraction of a Diebold Common Share, if any, will, as soon as
practicable after the Effective Date: (i) be forwarded to the holder at the
address specified in the Letter of Transmittal by first class mail; or (ii) be
made available at the offices of Pacific Corporate Trust Company at 10th Floor,
625 Howe Street, Vancouver, British Columbia, V6C 3B8 for pickup by the holder,
as requested by the holder in the Letter of Transmittal.
Where a certificate representing Global Common Shares has been destroyed,
lost or mislaid, the registered holder of that certificate should immediately
complete the Letter of Transmittal as fully as possible and deliver it together
with a statutory declaration or an affidavit of lost certificate to the
Depositary in accordance with instructions in the Letter of Transmittal. The
Depositary has been instructed to comply with replacement requirements which are
set out in Section 2 of the Plan of Arrangement.
Global Shareholders whose Global Common Shares are registered in the name
of a broker, investment dealer, bank, trust company or other intermediary should
contact that intermediary for instructions and assistance in delivering share
certificates representing those Global Common Shares and should do so promptly
if they wish to exercise Dissent Rights.
Upon return of the Letter of Transmittal and share certificates, the Global
Shareholder waives his rights of dissent under Section 3.1 of the Arrangement
Agreement.
FRACTIONAL SHARES
No certificates or scrip representing fractional Diebold Common Shares will
be issued or delivered upon the surrender for exchange of certificates
representing Global Common Shares and no dividend, stock split or other change
in the capital structure of Diebold will relate to any such fractional security
and such fractional interests will not entitle the owner thereof to exercise any
rights as a security holder of Diebold. In lieu of any such fractional
securities, each Person otherwise entitled to a fractional interest in a Diebold
Common Share will receive a cash payment from the Depositary equal to the
product of (i) such fractional interest multiplied
22
34
by (ii) the Current Market Price, rounded up to the nearest whole cent. Diebold
will from time to time as necessary provide the Depositary with funds sufficient
to satisfy these obligations.
The aggregate number of Diebold Common Shares for which no certificates are
issued as a result of the foregoing provisions will be deemed to have been
surrendered by the Depositary for no consideration to Diebold as and when the
cash payment in lieu of the fractional interest referred to above has been made,
or on the first anniversary of the Effective Date to the extent no such payment
has been made.
THE ARRANGEMENT
In January 2001, Global began a process of assessing its future capital
needs in light of the increased attention to its markets and products as a
result of the 2000 U.S. presidential election. Global's senior management and
the Board of Directors examined a number of strategic alternatives with respect
to the future of Global. Members of management, in consultation with the Board
of Directors, had already had limited informal preliminary discussions with a
number of possible strategic partners, including Diebold.
In February 2001, the management team of Global, in consultation with the
Board of Directors, approached Hilliard Lyons regarding the possibility of
raising capital in order to meet the influx of new business anticipated over the
next twelve to eighteen months. During the course of these discussions with
Hilliard Lyons, a variety of strategic alternatives were discussed including but
not limited to short term financing for current orders, long term financing to
accommodate market expansion and sale of the Company to a strategic or financial
acquiror.
After meeting on February 19, 2001, the Board of Directors decided to
engage Hilliard Lyons to seek short and long term financing, and requested that
Hilliard Lyons make a proposal to act as Global's financial advisor in the event
Global received an acquisition offer. In addition, the Board of Directors asked
Hilliard Lyons to investigate a possible acquisition opportunity that was
currently being contemplated by Global. The engagement letter was executed on
February 28, 2001.
During March 2001, Hilliard Lyons approached a number of short term debt
investors on behalf of Global to provide funds for working capital. When
Hilliard Lyons and Global's management determined that Global was not in a
position to repay additional debt financing, Hilliard Lyons and members of the
Board of Directors began to actively seek equity investors. On March 20, 2001,
in consultation with the Board of Directors, Hilliard Lyons contacted an
institutional strategic equity investor in regard to a possible merger of Global
and one of the institutional investor's portfolio companies. The proposal was
made contingent upon a long term equity and debt investment in Global. This
proposal was later abandoned by the Board of Directors due to the deteriorating
financial condition of both the elections systems market and of the potential
acquisition candidate. On March 28, 2001, Hilliard Lyons also made a
presentation to the Board of Directors in regard to possible valuation ranges in
regard to a strategic partnership or sale of Global. Following this meeting, the
Board of Directors decided to explore the strategic sale of Global on a more
formal basis, and instructed Hilliard Lyons to solicit a number of potential
acquirors, including Diebold.
On April 5, 2001, Global announced that it secured a $4.0 million (CDN)
(approximately $2.6 million USD) one year loan bearing a 10% annual interest
rate with 600,000 warrants granted at a strike price of $3.00 (CDN) or
approximately $1.95 (USD) from Jones, Gable and Company, Ltd., a Toronto
securities firm. See "Information Concerning Global -- Principal Indebtedness".
In addition, Global issued a press release announcing its determination to seek
additional capital in order to maintain current operations in light of its
depleted cash flow.
Global had initially contacted Diebold in the spring of 2000 regarding the
possibility of a joint venture arrangement, including contract manufacturing of
Global's products by Diebold. At that time, Diebold declined the opportunity to
partner with Global. In December 2000, Diebold sought general information from
Global with respect to the election systems industry. In late January 2001,
Diebold again contacted Global and indicated that Diebold was interested in
entering the election systems market. On January 25, 2001, Diebold and Global
entered into a confidentiality agreement and began discussions regarding a
relationship between the companies. In February, four Diebold executives visited
Global's McKinney headquarters and generally
23
35
discussed with Global's management a potential strategic partnership or other
business combination. On April 4 and 5, 2001, Diebold made its first formal due
diligence visits to Global.
During April and May, 2001, Global entered into a number of additional
confidentiality agreements with prospective strategic partners and financial
investors, and together with its legal and financial advisors conducted
discussions, due diligence proceedings and negotiations with a number of
prospective strategic partners, purchasers and financial investors, including
Diebold. During that period, Global was able to secure a preliminary indication
of interest from Diebold, another potential strategic partner and one financial
investor seeking to make an equity investment in Global. Following a due
diligence meeting at Global's McKinney offices, the Board of Directors, in
conjunction with management and its legal and financial advisors, decided to
issue a press release announcing its preliminary discussions with potential
strategic partners. The Board of Directors took this action as a precautionary
measure due to higher than average volumes in its AMEX and TSE traded shares,
and issued the release on May 22, 2001.
Also on May 22, 2001, Global received a term sheet from a financial
investor for up to $5.0 million (USD) in convertible preferred stock. The Board
of Directors decided to proceed with this financing and to seek a firm letter of
intent from the remaining strategic investors. In the first two weeks of June,
these strategic acquirors, including Diebold, conducted additional due
diligence. On June 12, 2001, Diebold submitted an initial indication of interest
pursuant to a letter of intent. This indication was for $1.50 (USD) per share
with no defined form of consideration. No other party submitted a letter of
intent or otherwise expressed a desire to continue the process of evaluating a
transaction with Global.
Upon further consultation with the Company management, and its legal and
financial advisors, and after a June 14, 2001 meeting of the board of directors
of Diebold, Diebold submitted a non-binding letter of intent ("LOI") on June 19,
2001 to acquire all of Global's shares valuing Global's shares in a
stock-for-stock acquisition at $1.50 (USD) per share, to make a $5.0 million
(USD), 12%, six month convertible bridge loan with warrants to purchase up to
250,000 Global Common Shares at $1.50 (USD) per share ("Bridge Loan") and to
enter into a contract manufacturing agreement ("Contract Manufacturing
Agreement") to manufacture certain Global products. Diebold's willingness to
proceed was subject to Global agreeing to a 30-day exclusivity period and
agreeing to pay a termination fee if the transaction was not consummated.
Diebold's LOI was not contingent upon any financing. On June 20, 2001, the Board
of Directors unanimously decided to abandon the financial investor's term sheet
and to accept Diebold's LOI. The Board of Directors formally announced the
Diebold proposal in a press release dated June 21, 2001.
During the exclusivity period, Diebold continued with due diligence and
provided Global with $1.5 million of the $5.0 million bridge loan. As a result
of Diebold's due diligence investigation, Diebold advised Global of its intent
to lower its purchase price for all the Global Common Shares to $1.00 per share.
The Board of Directors considered and rejected this proposal as insufficient.
Global's management and Diebold engaged in a number of discussions and Diebold
proposed a combination of cash (20%) and stock (80%) valuing each Global Common
Share at $1.135 (USD), subject to a maximum of 0.03027 and a minimum of 0.02421
Diebold Common Shares (see "Exchange Ratio"). At this time, the Board of
Directors authorized Hilliard Lyons to contact certain financial and strategic
parties they had previously contacted. The Board of Directors received no
competitive bids, considered the financing package provided by Diebold and the
current financial condition of Global and accepted Diebold's offer. On August 7,
2001, Diebold and Global announced the reduced offer price and the revised
structure of the transaction, including a second 30-day exclusivity period. The
Board of Directors authorized management and its advisors to continue to
negotiate and finalize a definitive agreement with Diebold as soon as possible.
Concurrently with the announcement of the amended LOI, Global announced the
election of Brian Courtney, a member of the Board of Directors, to the
previously unfilled Chief Executive Officer position. During the second
exclusivity period, Hilliard Lyons received an unsolicited purchase offer that
was deemed materially inadequate by Global's Chief Executive Officer, and the
offer was rejected.
On August 30, 2001, the Board of Directors held a special meeting at which
Hilliard Lyons made a presentation to the Board of Directors about the fairness
of the Transaction Consideration and delivered an oral opinion, subsequently
confirmed in writing, that the Transaction Consideration to be paid by Diebold
24
36
pursuant to the Arrangement Agreement, was fair, from a financial point of view,
to the Global Shareholders (other than Diebold). In addition, Global's legal
counsel reviewed with the Board of Directors their fiduciary duties in
connection with the consideration of the proposed Arrangement Agreement.
Following a discussion among the directors, the Board of Directors unanimously
approved the Arrangement Agreement and recommended that all Global Shareholders
vote their shares in favor of the Arrangement.
Between August 31 and September 10, 2001, the parties continued to settle
and finalize terms of the Arrangement Agreement, and they formally executed the
Arrangement Agreement on September 10, 2001. Also on September 10, 2001, Global
and Diebold issued a joint press release announcing the execution of the
Arrangement Agreement. On September 11, 2001, Diebold and Global entered into
the Option Agreement and as of September 11, 2001, Diebold and each of Deborah
M. Dean and Clinton H. Rickards entered into voting agreements pursuant to which
such Global Shareholders agreed to vote their Global Common Shares in favor of
the Arrangement and the Share Issuance.
RECOMMENDATIONS OF THE BOARD OF DIRECTORS
The Board of Directors unanimously determined that the Arrangement is fair
to the Global Shareholders and that the Transactions are in the best interests
of Global and the Global Shareholders. Accordingly, the Board of Directors has
unanimously approved the Arrangement and the Share Issuance and unanimously
recommends that Global Shareholders vote their Global Common Shares in favor of
the Arrangement Resolution and the Share Issuance Resolution at the Meeting.
Each member of the Board of Directors has indicated to the Company that he
intends to vote all of the Global Common Shares owned by him in favor of the
Arrangement and the Share Issuance at the Meeting.
In reaching the determination and making the recommendation, the Board of
Directors considered a number of factors, including the following:
(a) the historical market price and trading information with respect
to Diebold Common Shares and Global Common Shares;
(b) the Fairness Opinion stating that, as of the date of such opinion,
the Transaction Consideration is fair from a financial point of view to the
Global Shareholders;
(c) the opportunity afforded by the Arrangement for Global to combine
operations with those of Diebold to create an entity with greater financial
and business strength than Global;
(d) the risk and potential rewards associated with, as an alternative
to the Arrangement, continuing to execute Global's strategic plan as an
independent entity;
(e) the terms and conditions of the Arrangement Agreement, including
the amount of the Termination Fee and the circumstances in which the
Arrangement Agreement may be terminated;
(f) that the terms of the Arrangement Agreement do not prohibit Global
from accepting a Superior Proposal;
(g) the support of Global management for the Transactions;
(h) that the Arrangement must be approved by a special resolution
passed by not less than 75% of the votes cast at a meeting of Global
Shareholders which will also serve as the Majority of the Minority Vote,
and the Court which will consider, among other things, the fairness of the
Arrangement to the Global Shareholders;
(i) that the receipt of Diebold Common Shares in the Arrangement would
be, in general, a taxable transaction for Global Shareholders for Canadian
and United States federal income tax purposes;
(j) the severe depletion of Global's cash reserves;
(k) that in Global's financial statements for the year ended June 30,
2001, disclosure is included relating to Global's ability to carry on
normal operations without a significant infusion of capital;
25
37
(l) that as a stand-alone company, Global finds itself unable to bid
on or perform proposals due to its financial and operational status;
(m) that under the Arrangement, Global Shareholders have Dissent
Rights;
(n) the provision of the contract manufacturing services and
performance guarantees by Diebold; and
(o) the valuation report delivered by Evans & Evans.
The discussion above of the information and factors considered by the Board
of Directors is not exhaustive, but is believed to include all material factors
that the Board of Directors considered. The Board of Directors did not find it
practicable to and did not quantify or otherwise assign relative weights to the
specific factors considered in reaching its final determination. Rather, the
Board of Directors made its determination based on the totality of the
information it considered.
OPINION OF GLOBAL'S FINANCIAL ADVISOR
Pursuant to a letter agreement dated February 28, 2001, as amended on June
29, 2001 (the "Hilliard Lyons Engagement Agreement"), between Global and
Hilliard Lyons, Hilliard Lyons was retained to act as Global's exclusive
financial advisor to pursue and recommend alternatives to enhance shareholder
value. In connection with the Arrangement, Hilliard Lyons was asked to provide
an opinion to the Board of Directors as to the fairness of the Transaction
Consideration, from a financial point of view, to the Global Shareholders. At
the meeting of the Board of Directors on August 30, 2001, Hilliard Lyons
rendered its oral opinion, subsequently confirmed in writing, that as of such
date, based upon and subject to the various considerations set forth in the
Fairness Opinion, the Transaction Consideration was fair, from a financial point
of view, to the Global Shareholders.
THE FULL TEXT OF THE FAIRNESS OPINION IS ATTACHED AS APPENDIX D TO THIS
CIRCULAR. THE SUMMARY OF THE FAIRNESS OPINION SET FORTH IN THIS CIRCULAR IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE FAIRNESS OPINION.
HILLIARD LYONS HAS PROVIDED ITS WRITTEN CONSENT TO THE INCLUSION OF THE FAIRNESS
OPINION IN THE CIRCULAR. THE FAIRNESS OPINION STATES THAT IT MAY NOT BE USED, OR
RELIED UPON, BY ANY PERSON OTHER THAN THE BOARD OF DIRECTORS WITHOUT THE EXPRESS
WRITTEN CONSENT OF HILLIARD LYONS.
GLOBAL SHAREHOLDERS SHOULD READ THE ENTIRE TEXT OF THE FAIRNESS OPINION
WHICH ADDRESSES ONLY THE FAIRNESS OF THE TRANSACTION CONSIDERATION, FROM A
FINANCIAL POINT OF VIEW, TO THE GLOBAL SHAREHOLDERS AS OF AUGUST 30, 2001. THE
FAIRNESS OPINION WAS DELIVERED FOR THE USE OF THE BOARD OF DIRECTORS AND DOES
NOT CONSTITUTE A RECOMMENDATION TO ANY GLOBAL SHAREHOLDER AS TO HOW SUCH GLOBAL
SHAREHOLDER SHOULD VOTE AT THE MEETING.
The following is a summary of the primary analyses performed by Hilliard
Lyons and presented to the Board of Directors in connection with the preparation
of the Fairness Opinion.
DISCOUNTED CASH FLOW ANALYSIS
Hilliard Lyons performed discounted cash flow ("DCF") analyses of the
projected cash flows of the Company for the fiscal years 2001 through 2003,
based upon projections developed by the Company's management. The projections
were produced in conjunction with its business planning in early 2001; however,
the 2001 projections were updated based on conversations with the Company's
management to reflect recent operating results. In addition, the Company's
management helped Hilliard Lyons construct projected cash flows from 2003
through 2011.
Based upon the Company's projections, Hilliard Lyons derived per share
equity value ranges for the Company on a consolidated basis. For this analysis,
Hilliard Lyons calculated a weighted average cost of capital range from 13.5% to
14.5%. Hilliard Lyons used a growth multiple of year-2000 free cash flow, using
a rate of 3% for post-2010 growth in perpetuity to determine terminal value.
26
38
Based upon its DCF analysis, Hilliard Lyons derived a per share equity
value reference range of $1.01 to $1.28 per share for the Company.
COMPARABLE COMPANIES ANALYSIS
Hilliard Lyons performed a comparable companies analysis in which it
compared historical financial and operating data, projections of future
financial performance and market statistics of selected publicly traded
companies considered by Hilliard Lyons to be reasonably comparable to the
Company with similar historical financial and operating data, projections of
future financial performance (reflecting Company projections), market statistics
and business of the Company. Hilliard Lyons compared the market capitalization
(defined as the product of shares outstanding and price per share) as a multiple
of selected historical and projected operating data for each of the comparable
companies with those of the Company. Further, Hilliard Lyons compared the
enterprise value (defined as the sum of market capitalization plus debt less
cash and equivalents) as a multiple of selected historical and projected
operating data for each of the comparable companies with those of the Company.
Based upon its comparable companies analyses, Hilliard Lyons was unable to
find meaningful valuation comparisons due to the Company's negative earnings
(both historical and projected) as well as negative earnings before interest,
taxes, depreciation, and amortization. Hilliard Lyons was, however able to
determine a valuation comparison in regard to multiples of the Company's book
value. While Hilliard Lyons makes no determination on the validity of the
Company's book assets, it notes that the Transaction Consideration represents a
6.44 times multiple of current Global book value as of June 30, 2001 (based on
the number of Global Common Shares outstanding as of such date).
PRICE AND VOLUME ANALYSIS
Hilliard Lyons also examined average pricing and volumes on the AMEX and
the TSE for the Global Common Shares both before and after the Company's
announcement on May 22, 2001 of its negotiations with various potential buyers.
For purposes of the analysis, Hilliard Lyons looked at the prices and volumes
for the Global Common Shares beginning from its initial "GLE" AMEX listing on
February 5, 2001 and up to May 21, 2001, where the high price was $2.78 (USD),
the low price was $1.75 (USD) and the average price was $2.10 (USD) per share.
The average daily volume of "GLE" shares traded on the AMEX during that period
was 25,465 shares per day, or an average of 0.124% of the Company's outstanding
stock traded per day. For the Company's "GSM" TSE listing for the same period,
the high was $4.05 (CDN), the low was $2.70 (CDN) and the average price was
$3.21 (CDN). The average daily volume for the period was 21,693 shares per day,
for an average of 0.105% of the Company's outstanding stock per day. Using the
August 30, 2001 Canadian dollar/US dollar exchange rate of $0.647 Canadian to
the US dollar, the Transaction Consideration represents a 45.9% and 45.6%
discount, respectively, from the average prices on the AMEX and TSE during that
period.
For purposes of analyzing the pricing dynamic reflecting the distressed
financial condition of the Company, Hilliard Lyons also examined the average
price and volumes from the date of the Company's May 22, 2001 negotiations
announcement until August 30, 2001, the date of delivery of the Fairness Opinion
to the Board of Directors. For the Global Common Shares traded under the symbol
"GLE" on the AMEX, the high price was $2.37 (USD), the low price was $0.81 (USD)
and the average price was $1.33 (USD) per share. The average daily volume of GLE
shares traded on the AMEX during that period was 25,008 shares per day, and
continued to be illiquid compared to total shares outstanding (0.122% traded per
day). For the Global Common Shares traded under the symbol "GSM" on the TSE for
the same period, the high was $3.50 (CDN), the low was $1.25 (CDN), the average
price was $2.06 (CDN); and the average daily volume dropped to 17,921 for the
period, for an average of 0.087% of total shares outstanding. The Transaction
Consideration represents a 14.7% and a 14.6% discount, respectively, to the
average prices on the AMEX and TSE during that period.
27
39
OTHER ANALYSES
Hilliard Lyons also reviewed comparable acquisitions in the election
management segment, but found the available data insufficient for valuation
purposes. Hilliard Lyons also examined a number of company and industry specific
factors including, but not limited to, the difficult overall capital market
environment, the Company's distressed cash position and its ongoing capital
infusion requirement continuing into the foreseeable future, as well as its
current order backlog, its manufacturing requirements needed to service large
upcoming projects, and the lack of other suitors. Based on these analyses,
Hilliard Lyons determined the Company was at risk as a going concern and
required additional capital to meet the projections referred to in the DCF
analysis. Further, Hilliard Lyons believed that additional capital will be
difficult to obtain in the time frame required.
SUMMARY VALUATION
In arriving at its opinion, Hilliard Lyons based its analysis upon the
foregoing DCF, comparable companies, and other objective and subjective analyses
as Hilliard Lyons deemed necessary. Based on all analyses and factors, Hilliard
Lyons derived a per share equity value reference range of $0.80 to $1.10 for the
Global Common Shares. Based upon this summary analysis, Hilliard Lyons
determined that the Transaction Consideration was fair, from a financial point
of view, to Global Shareholders.
The Fairness Opinion was rendered on the basis of securities markets and
economic and general business and financial conditions prevailing as of the date
of the Fairness Opinion and the condition and prospects, financial and
otherwise, of Global and Diebold as they were reflected in the information and
documents reviewed by Hilliard Lyons and as they were represented to Hilliard
Lyons in discussions with management of Global and Diebold. Subsequent
developments may affect the Fairness Opinion, and Hilliard Lyons does not have
any obligation to update, revise or reaffirm the Fairness Opinion.
Hilliard Lyons acts as a trader and dealer, both as principal and agent, in
major U.S. financial markets and as such has had, and may have, positions in the
securities of Global and Diebold and, from time to time, has executed or may
execute transactions on behalf of such corporations or affiliated entities for
which it has received or may receive compensation. In addition, as an investment
dealer, Hilliard Lyons conducts research on securities and may have or be
expected, in the ordinary course of its business, to provide research reports
and investment advice to its clients on issues and investment matters, including
with respect to Global, Diebold and their securities or the Arrangement. There
are no understandings, agreements or commitments between Hilliard Lyons, Global,
Diebold, or any of their respective affiliates or associates with respect to any
future business dealings. However, Hilliard Lyons and its affiliates may, in the
future, in the ordinary course of business, perform or provide financial
advisory, investment banking or other financial services for those parties.
The form and content of the Fairness Opinion has been approved for release
by a committee of directors and professionals of Hilliard Lyons experienced in
merger, acquisition, divestiture and valuation matters. Pursuant to the Hilliard
Lyons Engagement Agreement, Global has agreed to pay Hilliard Lyons a fee for
rendering its financial advisory services, a portion of which is contingent upon
consummation of the Transactions. Global has also agreed to indemnify Hilliard
Lyons and certain related Persons against certain liabilities in connection with
the engagement of Hilliard Lyons, including certain liabilities under the
Securities Laws.
VALUATION OPINION
As the Arrangement is a "going private transaction" under Ontario
Securities Commission Rule 61-501 ("OSC Rule 61-501"), Global is required,
unless otherwise exempted, to have a formal valuation of the Global Common
Shares and any non-cash consideration being offered prepared by a qualified and
independent valuer based on techniques that are appropriate in the
circumstances, after considering all relevant assumptions, that determines a
range of values for the Global Common Shares and any non-cash consideration
being offered.
28
40
The requirement to provide a valuation for the non-cash consideration is
rendered inapplicable if the non-cash consideration consists of securities of a
class of an issuer for which a liquid market exists; the securities offered as
non-cash consideration constitute 10% or less of the aggregate number of
securities of the class that are issued and outstanding immediately before the
distribution of the securities offered as non-cash consideration and are freely
tradeable; the valuator is of the opinion that a valuation of the non-cash
consideration is not required; and the issuer states in the disclosure that it
has no knowledge of any material non-public information concerning the issuer of
the securities or its securities that has not been generally disclosed.
Evans & Evans, Inc. ("Evans & Evans") is of the opinion that a valuation of
the Diebold Common Shares is not required. Global has no knowledge of any
material non-public information concerning Diebold or the Diebold Common Shares
that has not been generally disclosed.
Accordingly, pursuant to an engagement letter dated September 11, 2001 (the
"Evans Engagement Agreement") between Global and Evans & Evans, Evans & Evans
was engaged to prepare and deliver to the Board of Directors a formal valuation
opinion of the value, in accordance with the principles set out in OSC Rule
61-501, of all of the Global Common Shares. The terms of the Evans Engagement
Agreement provide that Evans & Evans is to be paid Cdn.$14,000 plus Evans &
Evans' out of pocket disbursements to render the Valuation Opinion, no portion
of which is contingent upon the approval or completion of the Arrangement or the
conclusions reached in the Valuation. In addition, Global is to reimburse Evans
& Evans for reasonable out of pocket expenses.
Evans & Evans is a corporation specializing in independent valuation and
advisory services to corporations. Evans & Evans and its principals have
prepared numerous valuations and have provided advisory services in a
significant number of transactions involving Canadian public and private
companies. Evans & Evans has no prior relationship with Diebold. Accordingly,
Evans & Evans has been determined to be qualified and independent of Diebold.
The full text of the Valuation which sets forth, among other things,
assumptions made, matters considered and the limitations on the scope of the
review undertaken by Evans & Evans in rendering the Valuation, is attached as
Appendix E to this Circular. Evans & Evans has provided its written consent to
the inclusion of the Valuation in the Circular. The Valuation states that it may
not be used, or relied upon, by any Person other than the Board of Directors
without the express written consent of Evans & Evans.
As provided in the Evans Engagement Agreement, Evans & Evans has relied
upon the completeness, accuracy and fair presentation of all of the financial
and other information, data, advice, opinions or representations obtained by it
from public sources, senior management of Global and Global's consultants and
advisors (collectively, the "Information"). The Valuation is conditioned upon
such completeness, accuracy and fair presentation of such Information. Subject
to the exercise of professional judgment and except as expressly described
herein, Evans & Evans has not attempted to verify independently the
completeness, accuracy or fair presentation of any of the Information.
Evans & Evans was not denied access by Global to any information requested
by Evans & Evans.
The Valuation was rendered on the basis of securities markets and economic,
financial and general business conditions prevailing as at the date of the
Valuation and the conditions and prospects, financial or otherwise, of Global
and its subsidiaries and affiliates, as they were reflected in the Information
and as they were represented to Evans & Evans in discussion with management of
Global and its advisors. In its analysis and in preparing the Valuation, Evans &
Evans made numerous assumptions with respect to industry performance, general
business, market and economic conditions and other matters, many of which are
beyond the control of Evans & Evans or any party involved in the Arrangement.
Senior management of Global represented to Evans & Evans, amongst other
things, that the Information provided to Evans & Evans on behalf of Global was
complete and correct at the date the Information was provided to Evans & Evans
and that, since the date of the Information, there has been no material change,
financial or otherwise, in the position of Global, or in its assets, liabilities
(contingent or otherwise), business
29
41
or operations and that there has been no change in any material fact which is of
a nature as to render the Information untrue or misleading in any material
respect.
In preparing the Valuation, Evans & Evans made several assumptions,
including that all of the conditions required to implement the Arrangement will
be met.
Evans & Evans believes that its analyses must be considered as a whole and
that selecting portions of the analyses or the factors considered by it, without
considering all factors and analyses together, could create a misleading view of
the process underlying the Valuation. The preparation of a valuation is a
complex process and is not necessarily susceptible to partial analysis or
summary description. Any attempt to do so could lead to undue emphasis on any
particular factor or analysis.
Based on and subject to the analyses and assumptions set forth above and
any other matters discussed or disclosed in the Valuation, Evans & Evans is of
the opinion that, as at June 30, 2001, the fair market value of the issued and
outstanding Global Common Shares is in the range of U.S.$.90 to U.S.$.97 per
Global Common Share, or an aggregate of U.S.$18.6 million or U.S.$20.1 million.
To the knowledge of Global and its directors and senior officers (after due
inquiry), there are no prior valuations of Global (as such term is defined in
OSC Rule 61-501), its securities or material assets.
SHAREHOLDER APPROVAL
At the Meeting, the Global Shareholders will be asked to consider and to
approve the Arrangement Resolution and the Share Issuance Resolution.
The Arrangement Resolution must be approved by not less than 75% of the
votes cast thereon by Global Shareholders present in person or voting by proxy
at the Meeting which vote will also serve as the Majority of the Minority Vote.
The Share Issuance Resolution must be approved by not less than a majority of
the votes cast thereon by Global Shareholders present in person or represented
by proxy at the Meeting. As of the Record Date, there were 20,695,340 Global
Common Shares outstanding which are entitled to be voted at the Meeting on the
Arrangement Resolution and the Share Issuance Resolution.
Each Global Registered Shareholder is entitled to one vote for each of his
or her Global Common Shares in respect of the Arrangement Resolution and the
Share Issuance Resolution.
COURT APPROVAL AND COMPLETION OF THE ARRANGEMENT
An arrangement under the BCCA requires approval by the Court. Prior to the
mailing of this Circular, Global obtained the Interim Order providing for the
calling and holding of the Meeting and other procedural matters. The form of the
Interim Order is substantially contained in Appendix B to this Circular. The
form of Notice of Motion applying for the Final Order is also substantially
contained in Appendix B and forms part of this Circular.
Subject to the approval of the Arrangement by the Global Shareholders at
the Meeting, the hearing in respect of the Final Order is scheduled to take
place on November 1, 2001 at 10:00 a.m. (Vancouver Time) at 800 Smithe Street,
Vancouver, British Columbia, Canada. Any Global Registered Shareholder or Global
Optionholder who wishes to appear or be represented and to present evidence or
arguments at that hearing must serve and file an Appearance as set out in the
Notice of Motion for the Final Order and satisfy any other requirements of the
Court. The Court will consider, among other things, the fairness of the terms
and conditions of the Arrangement to Global and Global Shareholders, and the
rights and interests of every person affected. The Court may approve the
Arrangement in any manner the Court may direct, subject to compliance with such
terms and conditions, if any, as the Court deems fit. Diebold has the right to
terminate the Arrangement Agreement if the court modifies the terms of the
Arrangement in a manner unacceptable to Diebold.
Assuming the Final Order is granted, no appeal is made in respect of the
Final Order during the appeal period, and the other conditions to closing
contained in the Arrangement Agreement are satisfied or waived, it is
anticipated that the following will occur substantially simultaneously: (a) the
various other documents
30
42
necessary to consummate the Transactions will be executed and delivered; and (b)
the transactions provided for in the Arrangement will occur in the order
indicated in the Plan of Arrangement.
Subject to the foregoing, it is expected that the Effective Date will occur
in the fourth quarter of 2001.
ACCOUNTING TREATMENT
The Transactions will be accounted for by Diebold using the purchase method
of accounting in accordance with U.S. GAAP.
STOCK EXCHANGE LISTING
The Diebold Common Shares are listed on the NYSE. Diebold does not
currently intend to apply to list the Diebold Common Shares on the TSE or the
AMEX.
RESALE OF DIEBOLD COMMON SHARES RECEIVED IN THE ARRANGEMENT
UNITED STATES
The issuance of Diebold Common Shares to Global Shareholders under the
Arrangement will not be registered under the 1933 Act or the Securities Laws of
any state of the United States. Such shares will instead be issued in reliance
upon the exemption provided by Section 3(a)(10) of the 1933 Act and applicable
exemptions under state Securities Laws. Section 3(a)(10) exempts certain
securities issued in exchange for one or more outstanding securities from the
general requirement of registration where the terms and conditions of the
issuance and exchange of such securities have been approved by any court, after
a hearing upon the fairness of the terms and conditions of the issuance and
exchange at which all Persons to whom such securities will be issued have the
right to appear. The Court is authorized to conduct a hearing to determine the
fairness of the terms and conditions of the Arrangement, including the proposed
issuance of Diebold Common Shares in exchange for Global Common Shares. The
Court entered the Interim Order on September 25, 2001 and, subject to the
approval of the Arrangement by the Global Shareholders, a hearing on the
fairness of the Arrangement will be held on November 1, 2001 by the Court.
The Diebold Common Shares received in exchange for Global Common Shares in
the Arrangement will be freely transferable under United States Securities Laws,
except for Diebold Common Shares held by Persons who are deemed to be
"affiliates" (as such term is defined under the 1933 Act) of Global which may be
resold by them only in transactions permitted by the resale provisions of Rule
145(d)(1), (2), or (3) promulgated under the 1933 Act or as otherwise permitted
under the 1933 Act. Rule 145(d) provides a safe harbor for resales of securities
received by certain Persons in transactions such as the Arrangement. Rule
145(d)(1) generally provides that "affiliates" of Global may sell securities of
Diebold received in the Arrangement if such sale is effected pursuant to the
volume, current public information and manner of sale limitations of Rule 144
promulgated under the 1933 Act. These limitations generally require that any
sales made by such an affiliate in any three month period shall not exceed the
greater of 1% of the outstanding shares of the securities being sold or the
average weekly trading volume over the four calendar weeks preceding the
placement of the sell order and that such sales be made in unsolicited, open
market "brokers transactions". Rules 145(d)(2) and (3) generally provide that
the foregoing limitations lapse for non-affiliates of Diebold after a period of
one or two years, respectively, and in the case of Rule 145(d)(2), depending
upon whether certain currently available information continues to be available
with respect to Diebold. Persons who may be deemed to be affiliates of an issuer
generally include individuals or entities that control, are controlled by, or
are under common control with, such issuer and may include certain officers and
directors of such issuer as well as principal shareholders of such issuer. The
SEC has indicated that a holder of 10% or more of the voting shares of a
corporation is presumed to control the corporation, although the presumption may
be rebutted by facts demonstrating a lack of actual control.
31
43
CANADA
Application has been or will be made for rulings and orders of Securities
Authorities in Canada to exempt, where required, the issuance of the Diebold
Common Shares that are issuable under the Arrangement from the prospectus and
registration requirements of applicable Canadian Securities Laws and, where
required, to permit the resale of such Diebold Common Shares by Canadian
residents provided that the first trade of such Diebold Common Shares is
executed through the facilities of a stock exchange or market outside of Canada
and is made in accordance with the rules of the stock exchange on which it is
made.
Application will be made to have Global cease to be a reporting issuer in
Canada upon completion of the Arrangement.
SUBCO
SubCo was incorporated on August 29, 2001 under the BCCA and is a direct
wholly-owned subsidiary of Diebold. SubCo will not carry on any business prior
to the Effective Time, other than in connection with the Transactions, and has
no material assets or liabilities. The authorized capital of SubCo is 1,000,000
common shares without par value, of which one hundred common shares are issued
and outstanding and are owned by Diebold.
EXPENSES
Each of Global and Diebold will pay all of its own reasonable costs, fees
and expenses incurred in connection with the Arrangement, except under
circumstances in which a Termination Fee is payable.
THE ARRANGEMENT AGREEMENT
The following paragraphs summarize, among other things, the material terms
of the Arrangement Agreement, a copy of which is attached as Appendix C to this
Circular. This summary is qualified in its entirety by the full text of the
Arrangement Agreement, forming part of this Circular, for a more complete
description of the Arrangement.
EFFECTIVE DATE OF THE ARRANGEMENT
After obtaining the Final Order and subject to the satisfaction or waiver
of the conditions set forth in the Arrangement Agreement, including receipt of
all necessary Regulatory Approvals, the Board of Directors intends to cause a
certified copy of the Final Order to be filed with the Registrar together with
certified copies of the Arrangement Agreement and Plan of Arrangement and such
other documents as may be required under the BCCA to give effect to the
Arrangement. The Arrangement will become effective at the Effective Time.
REPRESENTATIONS AND WARRANTIES
The Arrangement Agreement contains customary representations and warranties
of each of Global and Diebold relating to, among other things, due incorporation
and organization, compliance with laws, no material adverse change and other
matters, including its authority to enter into the Arrangement Agreement and to
consummate the Arrangement.
COVENANTS OF GLOBAL
COVENANTS
Global has, in the Arrangement Agreement, covenanted to carry on its
business in the ordinary course, to obtain all required approvals and also
covenanted, in addition to other customary covenants, to use its reasonable best
efforts to satisfy each of the conditions precedent to be satisfied by it and to
take, or cause to be taken, all other actions and to do, or cause to be done,
all other things necessary, proper or advisable to permit the completion of the
Arrangement in accordance with the terms and conditions of the Arrangement
Agreement.
32
44
NO SOLICITATION
Global agreed in the Arrangement Agreement to immediately cease and cause
to be terminated any discussions or negotiations with any Person with respect to
any Alternative Proposal and has requested the return or destruction of all
confidential information provided by Global to all Persons who have had such
discussions or negotiations or who have entered into confidentiality agreements
with Global pertaining to an Alternative Proposal.
Global agreed to immediately notify Diebold of any Alternative Proposal
received after the date of the Arrangement Agreement by it or any of its
subsidiaries or of any request for information relating to Global in connection
with an Alternative Proposal.
Additionally, Global has agreed that neither Global nor any of its
subsidiaries will, directly or indirectly, solicit, initiate or encourage
submissions of proposals or offers from any Person relating to, or that could
reasonably be expected to lead to, or facilitating or encouraging any effort or
attempt with respect to, any Alternative Proposal or participate in any
negotiations regarding, or furnish to any other Person any information with
respect to, or otherwise cooperate in any way with, or assist or participate in
or enter into any agreement relating to, any Alternative Proposal.
SUPERIOR PROPOSAL
Global may, however, prior to the date of the Meeting, in response to an
unsolicited written proposal with respect to an Alternative Proposal from a
Person that did not result from a breach of Global's covenants and that the
Board of Directors determines, in its good faith and reasonable judgment, and
after consultation with and the receipt of a written opinion of Hilliard Lyons,
that such proposal is a Superior Proposal, enter into a customary
confidentiality agreement, furnish information to, and negotiate, explore or
otherwise engage in substantive discussions with, such Person, but only if the
Board of Directors determines, in its good faith and reasonable judgment after
consultation with and the receipt of a written opinion from its outside legal
counsel, that taking such action is required to comply with the fiduciary duties
of the Board of Directors under applicable Laws.
If prior to the Meeting, in response to an unsolicited written proposal
with respect to an Alternative Proposal from a Person that did not result from a
breach of Global's covenants and that the Board of Directors determines, in its
good faith and reasonable judgment, (1) after consultation with and the receipt
of a written opinion of Hilliard Lyons, that such proposal is a Superior
Proposal, and (2) after consultation with and the receipt of a written opinion
from its outside legal counsel, that the withdrawal or modification of its
approval or recommendation of the Arrangement or the Arrangement Agreement or to
approve or recommend such Superior Proposal is required to comply with the
fiduciary duties of the Board of Directors under applicable Law, the Board of
Directors may withdraw or modify its approval or recommendation of the
Arrangement or the Arrangement Agreement or approve or recommend such Superior
Proposal; provided, however, that Global gives Diebold at least ten business
days' prior written notice of its Board of Directors' intention to take such
action so that Diebold can make a counterproposal. If the Board of Directors
provides written notice to Diebold of its intent to terminate the Arrangement
Agreement and enter into an Acquisition Agreement with respect to a Superior
Proposal, Global will be obligated to pay to Diebold the Termination Fee.
COVENANTS OF DIEBOLD
Diebold has, in the Arrangement Agreement, covenanted to maintain Global's
current directors' and officers' liability insurance for a period of three years
from the Effective Time and to use commercially reasonable efforts to cause the
Diebold Common Shares to be issued in the Arrangement to be approved for listing
on the NYSE prior to the Effective Time.
33
45
CONDITIONS TO CLOSING
MUTUAL CONDITIONS PRECEDENT
The Arrangement Agreement provides that the respective obligations of each
party to complete the Transactions are subject to the satisfaction, on or before
the Effective Time, of the following conditions precedent, each of which may
only be waived by the mutual consent of Diebold and Global:
(a) the Interim Order shall have been obtained in form and substance
reasonably satisfactory to Diebold and shall not have been set aside or
modified in a manner unacceptable to Diebold, on appeal or otherwise;
(b) the Arrangement, with or without amendment, shall have been
approved at the Meeting in accordance with the Interim Order and all
requirements of applicable law;
(c) the Final Order shall have been obtained in form and substance
reasonably satisfactory to Diebold and shall not have been set aside or
modified in a manner unacceptable to Diebold, on appeal or otherwise;
(d) no Order shall have been issued by any Governmental Authority, no
action, suit or proceeding shall have been threatened or taken by any
Governmental Authority, and no Law, regulation or policy shall have been
proposed, enacted, or promulgated or applied which makes illegal or
otherwise directly or indirectly enjoins or prohibits the ownership by
Diebold of the Global Common Shares or the completion of the Arrangement;
and
(e) the Diebold Common Shares shall have been issued pursuant to an
exemption from the registration requirements of the 1933 Act and such
shares shall be freely tradable in the United States on the NYSE, subject
to the requirements of Rule 145 of the 1933 Act.
CONDITIONS PRECEDENT FOR THE BENEFIT OF GLOBAL
The Arrangement Agreement provides that the obligation of Global to
complete the Transactions is subject to the satisfaction or waiver of a number
of additional conditions, including the following:
(a) Diebold shall have performed in all material respects the
obligations to be performed by it under the Arrangement Agreement on or
before the Effective Time;
(b) the representations and warranties of Diebold shall be true and
correct in all material respects at and as of the Effective Time (as if
made at and as of such time), except to the extent that any such
representation or warranty is made as of a specified date, in which case
such representation or warranty shall have been true and correct in all
material respects as of such date;
(c) the Diebold Common Shares to be issued pursuant to the Arrangement
shall have been approved for listing, subject to official notice of
issuance, on the NYSE; and
(d) Jones, Day, Reavis & Pogue shall have delivered a legal opinion to
Global in substantially the form attached to the Arrangement Agreement.
CONDITIONS PRECEDENT FOR THE BENEFIT OF DIEBOLD
The Arrangement Agreement provides that the obligation of Diebold to
complete the Transactions is subject to the satisfaction or waiver of a number
of additional conditions, including the following:
(a) the Arrangement shall not have been amended, modified and/or
supplemented by direction of the Court or any other Governmental Authority
in a manner unacceptable to Diebold;
(b) Global shall have performed in all material respects the
obligations to be performed by it under the Arrangement Agreement on or
before the Effective Time;
(c) the representations and warranties of Global shall be true and
correct in all material respects at and as of the Effective Time (as if
made at and as of that time), except to the extent that any such
34
46
representation or warranty is made as of the specified date, in which case
such representation or warranty shall have been true and correct in all
material respects as of such date;
(d) no action, suit or proceeding shall have been commenced or
threatened in writing by or before any court or other Governmental
Authority against Diebold, Global or any of their respective Affiliates
with respect to the transactions contemplated by the Arrangement Agreement
or any of the other transaction documents that could reasonably be expected
to have a Material Adverse Effect on either Diebold or Global;
(e) no Order shall have been issued by any Governmental Authority, no
action, suit or proceeding shall have been threatened or taken by any
Governmental Authority, and no Law, regulation or policy shall have been
proposed, enacted, or promulgated or applied which directly or indirectly
imposes material limitations or conditions on the acquisition by, or the
disposition to, Diebold of the Global Common Shares or the completion of
the Arrangement or the right of Diebold to own or exercise full rights of
ownership of the Global Common Shares including the right to vote or
dispose of any such Global Common Shares, or compels Diebold to dispose of
or hold separately such Global Common Shares or any material assets of
Global or its Subsidiaries;
(f) no more than 10% of the issued and outstanding Global Common
Shares shall be the subject of the exercise of any rights of dissent by
Global Registered Shareholders in relation to the Plan of Arrangement;
(g) Gowling Lafleur Henderson LLP shall have delivered a legal opinion
to Diebold in substantially the form attached to the Arrangement Agreement;
(h) the period during which the Interim Order or the Final Order shall
be subject to appeal shall have expired; and
(i) each of BSquare Corporation and Soza & Company, Ltd. shall have
entered into the intellectual property agreements in substantially the form
attached to the Arrangement Agreement.
TERMINATION
The Arrangement Agreement may be terminated, in each case, prior to the
Effective Time:
(a) by mutual written consent of Global and Diebold; or
(b) by either Diebold or Global if the Effective Time has not occurred
on or prior to the Termination Date; provided, however, that the right to
terminate under this paragraph (b) shall not be available to any party
whose failure to fulfill any obligation under the Arrangement Agreement has
been the primary cause of, or resulted in, the failure of the Effective
Time to occur on or before the Termination Date; or
(c) by either Diebold or Global, if any Governmental Authority shall
have issued an Order, or taken any other action (which Diebold, SubCo and
Global shall have used their reasonable best efforts to resist, resolve or
lift, as applicable) permanently restraining, enjoining or otherwise
prohibiting the transactions contemplated by the Arrangement Agreement, and
such Order or other action shall have become final and nonappealable; or
(d) by either Global or Diebold if, at the Meeting, the requisite vote
of the Global Shareholders to approve the Arrangement Resolution is not
obtained; or
(e) by Global, if Diebold shall have breached or failed to perform any
of its representations, warranties, covenants or other agreements contained
in the Arrangement Agreement, such that the conditions set forth in the
Arrangement Agreement have not been satisfied on the Termination Date or
are not capable of being satisfied on or before the Termination Date; or
(f) by Diebold, if Global shall have breached or failed to perform any
of its representations, warranties, covenants or other agreements contained
in the Arrangement Agreement, such that the
35
47
conditions set forth in the Arrangement Agreement have not been satisfied
on the Termination Date or are not capable of being satisfied on or before
the Termination Date; or
(g) by Diebold, if (i) the Board of Directors shall have withdrawn,
modified or changed its recommendation or approval in respect of the
Arrangement or the Share Issuance in a manner adverse to Diebold; (ii) the
Board of Directors shall have recommended any proposal other than by
Diebold in respect of an Alternative Proposal; or (iii) in the case of
clauses (i) or (ii), the Board of Directors of Global shall have resolved
to take any such action; or
(h) by Global, if the Board of Directors has provided written notice
to Diebold that Global intends to terminate the Arrangement Agreement and
enter into an Acquisition Agreement with respect to a Superior Proposal
pursuant to section 5.2(b) of the Arrangement Agreement (with such
termination becoming effective, if Diebold does not make the offer
contemplated by clause (iii) below, on the Business Day immediately
following the ten Business Day period contemplated thereby, or, if later,
upon Global thereafter entering into such Acquisition Agreement); provided,
however, that (i) Global shall have complied with section 5.2 of the
Arrangement Agreement in all material respects; (ii) Global shall have
attached the most current written version of such Superior Proposal (or a
summary containing all material terms and conditions of such Superior
Proposal) to such notice; (iii) Diebold does not make, within ten Business
Days after receipt of Global's written notice pursuant to section 6.1(h) of
the Arrangement Agreement, an offer that the Board of Directors shall have
reasonably concluded in good faith (following consultation with Hilliard
Lyons and its outside legal counsel) is as favorable to the Global
Shareholders as such Superior Proposal; or
(i) by Diebold, if Global shall have materially breached certain other
obligations pursuant to the Arrangement; or
(j) by Diebold, if the Effective Time shall not have occurred on or
before the Termination Date because any of the conditions for the benefit
of Diebold set forth in Schedule C of the Arrangement Agreement shall not
have been satisfied on or before the Termination Date; or
(k) by Diebold, if Diebold determines in its reasonable judgment that
(i) Global does not own or have licenses to use all of the intellectual
property necessary to conduct Global's business as it has been conducted,
(ii) Global cannot remedy any environmental problem within 30 days at a
cost not to exceed U.S.$250,000 in the aggregate, or (iii) there has
occurred any material adverse change in the business or assets of Global
since December 31, 2000 that has not been disclosed by Global to Diebold in
writing on or prior to June 19, 2001 or any other material adverse change
in the business or assets of Global prior to the Effective Time.
TERMINATION FEE AND EXPENSES
Upon the termination of the Arrangement Agreement, in the following
circumstances, Global will be required to pay the Termination Fee to Diebold:
(a) a termination of the Arrangement Agreement by Global or Diebold if
the Global Shareholder Approval has not been obtained by reason of the
failure to obtain such approval at the Meeting; or
(b) a termination of the Arrangement Agreement by Diebold, if Global
shall have breached or failed to perform any of its representations,
warranties, covenants or other agreements contained in the Arrangement
Agreement, such that the conditions set forth on Schedule C to the
Arrangement Agreement have not been satisfied on the Termination Date or
are not capable of being satisfied on or before the Termination Date; or
(c) a termination of the Arrangement Agreement by Diebold, if (i) the
Board of Directors shall have withdrawn, modified or changed its
recommendation or approval in respect of the Arrangement or the Share
Issuance in a manner adverse to Diebold; (ii) the Board of Directors shall
have recommended any proposal other than by Diebold in respect of an
Alternative Proposal; or (iii) in the cases of clauses (i) and (ii), the
Board of Directors of Global shall have resolved to take such action; or
36
48
(d) a termination of the Arrangement Agreement by Global if the Board
of Directors has provided written notice to Diebold that Global intends to
terminate the Arrangement Agreement and enter into an Acquisition Agreement
with respect to a Superior Proposal pursuant to section 5.2(b) of the
Arrangement Agreement (with such termination becoming effective, if Diebold
does not make the offer contemplated by clause (iii) below, on the Business
Day immediately following the ten Business Day period contemplated thereby,
or, if later, upon Global thereafter entering into such Acquisition
Agreement); provided, however, that (i) Global shall have complied with
section 5.2 of the Arrangement Agreement in all material respects; (ii)
Global shall have attached the most current written version of such
Superior Proposal (or a summary containing all material terms and
conditions of such Superior Proposal) to such notice; (iii) Diebold does
not make, within ten Business Days after receipt of Global's written notice
pursuant to section 6.1(h) of the Arrangement Agreement, an offer that the
Board of Directors shall have reasonably concluded in good faith (following
consultation with Hilliard Lyons and outside legal counsel) is as favorable
to the Global Shareholders as such Superior Proposal; or
(e) a termination of the Arrangement Agreement by Diebold, if Global
shall have materially breached its obligations under section 1.1 or section
5.2 of the Arrangement Agreement; or
(f) a termination of the Arrangement Agreement by Diebold, if the
Effective Time shall not have occurred on or before the Termination Date
because any of the conditions for the benefit of Diebold set forth in
Schedule C of the Arrangement Agreement shall not have been satisfied on or
before the Termination Date; or
(g) a termination of the Arrangement Agreement by Diebold, if Diebold
determines in its reasonable judgment that (i) Global does not own or have
licenses to use all of the intellectual property necessary to conduct
Global's business as it has been conducted, (ii) Global cannot remedy any
environmental problem within 30 days at a cost not to exceed U.S.$250,000
in the aggregate, or (iii) there has occurred any material adverse change
in the business or assets of Global since December 31, 2000 that has not
been disclosed by Global to Diebold in writing on or prior to June 19, 2001
or any other material adverse change in the business or assets of Global
prior to the Effective Time.
OPTION AGREEMENT
Global and Diebold have entered into a common share option agreement dated
September 11, 2001, pursuant to which Global has granted Diebold an irrevocable
option (the "Option") to purchase up to such number of Global Common Shares as
represents 10% of the total number of issued and outstanding Global Common
Shares on the date of mailing an exercise notice to Global by Diebold at a price
of U.S.$1.135 per Global Common Share, subject to adjustment. The Option may
only be exercised by Diebold, in whole or in part, simultaneously with the
closing of an Alternative Proposal, and Global has agreed to provide Diebold
with notice in writing at least ten Business Days prior to the closing date of
the transactions contemplated by an Alternative Proposal.
The Option terminates upon the earlier of: (i) the Effective Time; and (ii)
5:00 p.m., New York City time, on the date that is the 18-month anniversary of
the termination of the Arrangement Agreement or if, prior to the expiration of
such 18-month period, the Closing (as defined in the Option Agreement) shall
have occurred and the Option cannot be exercised by reason of any applicable
Order or Law, ten Business Days after such impediment to exercise shall have
been removed or shall have become final and not subject to appeal.
At any time during which the Option is exercisable, upon demand by either
Diebold or Global and simultaneously with the consummation of the Alternative
Transaction, Diebold is obligated to sell to Global (or any successor entity
thereof) and Global (or such successor entity) is obligated to repurchase from
Diebold (the "Put/Call"), all or any portion of the Option, at the price equal
to the product of multiplying (a) the difference between (1) the highest price
per share to be paid for the Global Common Shares in the Alternative Transaction
(the "Offer Price") and (2) the exercise price of the Option, by (b) the number
of Global Common Shares purchasable pursuant to the Option (or portion thereof
that is subject to the Put/ Call). In determining the Offer Price, the value of
consideration other than cash or stock as provided above is
37
49
to be determined by a nationally recognized investment banking firm selected by
Diebold and reasonably acceptable to Global.
ARRANGEMENT MECHANICS
GENERAL
Pursuant to the terms of the Arrangement, commencing on the Effective Date,
the following events will occur and will be deemed to occur in the following
order and without any further act or formality; except as otherwise provided:
(a) Each issued and outstanding Global Common Share other than:
(i) Global Common Shares which, as of September 10, 2001, are held,
directly or indirectly, by Global or Diebold, and which, immediately
prior to the implementation of the Arrangement, will be held, directly
or indirectly, by Global or Diebold; and
(ii) Global Common Shares in respect of which a Notice of Dissent
has been given in accordance with the Dissent Procedures;
shall be and shall be deemed to be transferred to, Diebold or SubCo in
exchange for the Transaction Consideration.
(b) Each issued and outstanding Global Common Share in respect of
which a Notice of Dissent has been given shall be and shall be deemed to be
transferred to Global with Global being obligated to pay therefor the
amount determined in accordance with Section 3 of the Plan of Arrangement.
(c) With respect to each Global Common Share transferred in accordance
with paragraph (a) or (b) above:
(i) the holder thereof shall cease to be the holder of such Global
Common Shares, the name of the Global Registered Holder thereof shall be
removed from the register of members of Global, and such holder shall
cease to have any rights with respect to such Global Common Shares other
than the payments contemplated under Sections 2.2(b) and 3 of the Plan
of Arrangement, as applicable;
(ii) the certificate representing such Global Common Shares shall
be deemed to have been cancelled as of the Effective Date;
(iii) the Global Registered Holder thereof shall be deemed to have
executed and delivered all consents, releases, assignments and waivers,
statutory or otherwise, required to transfer such share in accordance
with paragraph (a) or (b) above;
(iv) Diebold and SubCo shall be and shall be deemed to be the
transferee of such Global Common Shares if transferred in accordance
with paragraph (a) and shall be entered in the register of members of
Global as the holder of such shares; and
(v) Diebold shall be entitled to make such deductions, withholdings
and remittances of taxes in respect of the Transaction Consideration as
and when required under the Canadian Tax Act or under the Code.
Based on the Exchange Ratio, and assuming that there are no Dissenting
Shareholders and that no Global Options are exercised, the former holders of
Global Common Shares will hold an aggregate of approximately 527,787 Diebold
Common Shares, representing approximately 0.74% of the Diebold Common Shares
outstanding immediately following the Effective Date.
38
50
TREATMENT OF GLOBAL OPTIONS
On the Record Date, there were Global Options outstanding to acquire a
total of approximately 1,355,000 Global Common Shares at exercise prices between
Cdn.$1.25 to Cdn.$3.25 with various expiry dates to August 7, 2006.
Pursuant to agreements with certain holders of Global Options, certain
holders have irrevocably agreed to exercise all or part of their options
immediately after the Effective Time in exchange for payment to the holders of
such Global Options of an amount in respect thereof (x) in cash equal to the
product of (1) the Cash Consideration and (2) the number of Global Common Shares
subject to such Global Options and (y) in shares of Diebold Common Stock equal
to the product of (1) the Exchange Ratio and (2) the number of Global Common
Shares subject to such Global Option (such payment to be made net of applicable
withholding taxes and the aggregate exercise price payable upon exercise of such
Global Option or, if the aggregate exercise price of such Global Option exceeds
the aggregate Cash Consideration payable in respect thereof, subject to the
payment by the holder of such Global Option to Global of such positive
difference).
Pursuant to such agreements, Global Options not exercised will be
cancelled.
At the Effective Time, by virtue of the Arrangement, each then-outstanding
Global Warrant will be cancelled by Global in exchange for payment to the
holders of such Global Warrants of an amount in respect thereof (x) in cash
equal to the product of (1) the Cash Consideration and (2) the number of Global
Common Shares subject to such Global Warrants and (y) in Diebold Common Shares
equal to the product of (1) the Exchange Ratio and (2) the number of Global
Common Shares subject to such Global Warrants (such payment to be made net of
applicable withholding taxes and the aggregate exercise price payable upon
exercise of such Global Warrants or, if the aggregate exercise price of such
Global Warrants exceeds the aggregate Cash Consideration payable in respect
thereof, subject to the payment by the holder of such Global Warrants to Global
of such positive difference). Any Global Warrants not canceled, exercised or
converted prior to the Effective Time will thereafter represent the right to
receive during the term of such Global Warrants only the consideration described
in the immediately preceding sentence.
39
51
SELECTED GLOBAL HISTORICAL FINANCIAL INFORMATION
ANNUAL INFORMATION
The following table presents selected audited financial information for
Global for the periods indicated. This table should be read in conjunction with
Global's Consolidated Financial Statements included as Appendix G to this
Circular. Global's ability to continue as a going concern is in doubt. See Note
1(a) of the Notes to Global Consolidated Financial Statements. The Consolidated
Financial Statements included are reported in U.S. dollars and have been
prepared in accordance with Canadian GAAP reconciled with U.S. GAAP.
GLOBAL ELECTION SYSTEMS INC. AND SUBSIDIARIES
SELECTED HISTORICAL FINANCIAL STATEMENTS
AS OF AND FOR THE YEAR ENDED JUNE 30,
----------------------------------------
2001 2000 1999
------------ ----------- -----------
(AUDITED)
OPERATING RESULTS
REVENUE
Sales and operating income........................... $ 12,116,114 $20,195,209 $18,198,041
Other income......................................... 47,772 41,618 112,106
------------ ----------- -----------
12,163,886 20,236,828 18,310,147
------------ ----------- -----------
COSTS AND EXPENSES
Cost of sales and operating expenses................. 7,887,181 10,336,767 8,997,955
Selling, administrative and general expenses......... 10,721,398 6,510,887 6,129,777
Research and development expenses.................... 2,140,366 696,042 857,057
Amortization......................................... 1,292,230 372,480 388,400
Interest............................................. 883,604 543,535 325,748
------------ ----------- -----------
22,924,779 18,459,711 16,698,937
------------ ----------- -----------
INCOME (LOSS) BEFORE THE UNDERNOTED.................... (10,760,893) 1,777,117 1,611,210
Revaluation of used equipment........................ -- (524,698) (873,101)
------------ ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES...................... (10,760,893) 1,252,419 738,109
Provision for income taxes........................... -- -- (22,064)
Provision for future income taxes.................... 145,000 (145,000) --
------------ ----------- -----------
NET INCOME (LOSS) FOR THE YEAR......................... $(10,615,893) $ 1,107,419 $ 716,045
------------ ----------- -----------
EARNINGS (LOSS) PER SHARE -- U.S. FUNDS
Basic................................................ $ (0.53) $ 0.06 $ 0.04
Fully diluted........................................ $ N/A $ 0.06 $ 0.04
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING... 19,944,255 18,550,521 18,483,264
40
52
AS OF AND FOR THE YEAR ENDED JUNE 30,
----------------------------------------
2001 2000 1999
------------ ----------- -----------
(AUDITED)
CURRENT ASSETS
Cash and short-term Deposits......................... $ 1,154,658 $ 1,446,613 621,220
Accounts receivable.................................. 3,288,005 6,204,048 4,341,403
Contracts receivable................................. 1,028,486 6,512,549 10,281,722
Work-in-progress..................................... 418,113 822,211 -0-
Deposits and prepaid expenses........................ 424,242 286,248 291,298
Inventory............................................ 5,608,828 5,352,216 4,606,923
Current portion of agreements receivable............. 97,276 178,808 285,965
------------ ----------- -----------
TOTAL CURRENT ASSETS................................... 12,019,608 20,802,693 20,428,531
Agreements Receivable.................................. 344,364 15,876 205,539
Deferred Costs......................................... -- 587,852 --
Capital Assets......................................... 2,591,952 540,293 376,081
Other Assets........................................... 2,088,555 549,750 776,250
------------ ----------- -----------
TOTAL ASSETS........................................... $ 17,044,479 $22,496,464 $21,786,401
------------ ----------- -----------
CURRENT LIABILITIES
Accounts payable and accrued liabilities............. $ 5,172,159 $ 3,953,980 $ 2,287,467
Customer deposits.................................... 1,140,000 -- --
Deferred revenue..................................... 550,102 348,692 1,027,718
Current portion of loans payable..................... 4,381,299 1,768,373 6,738,500
Current portion of capital lease obligations......... 540,502 -- --
------------ ----------- -----------
TOTAL CURRENT LIABILITIES.............................. 11,784,062 6,071,045 10,053,685
Future Income Taxes.................................... -- 145,000 --
Loans Payable.......................................... 666,666 3,600,000 250,113
Capital Lease Obligations.............................. 948,425 -- --
------------ ----------- -----------
TOTAL LIABILITIES...................................... 13,399,153 9,816,045 10,303,798
------------ ----------- -----------
SHAREHOLDERS' EQUITY
SHARE CAPITAL
Authorized:
100,000,000 common voting shares, without par
value
20,000,000 convertible voting preferred shares,
without par value
Issued and fully paid:
20,695,340
(18,583,672) common shares........................ 11,798,062 10,217,262 10,126,865
RETAINED EARNINGS (DEFICIT)............................ (8,152,736) 2,463,157 1,355,738
------------ ----------- -----------
TOTAL SHAREHOLDERS' EQUITY............................. 3,645,326 12,680,419 11,482,603
------------ ----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............. $ 17,044,479 $22,496,464 $21,786,401
------------ ----------- -----------
41
53
MANAGEMENT'S DISCUSSION AND ANALYSIS
The discussion and analysis of the operating results and the financial
position of Global should be read in conjunction with Global's Consolidated
Financial Statements and the Notes thereto. See the Global Consolidated
Financial Statements attached as Appendix G. The financial statements have been
prepared in United States dollars in accordance with Canadian GAAP. See Note 16
of the Notes to Global's Consolidated Financial Statements for an explanation of
differences between Canadian GAAP and United States GAAP.
The U.S. election of November 2000 had a significant and disruptive impact
on the election industry and the Company's results of operation and financial
position. Difficulties experienced with accuracy and verifiability, particularly
with punch-card systems, have generated unprecedented opportunities for
producers of electronic election systems, including Global. However, counties
delayed buying decisions until federal or state funding issues were resolved.
The decrease in expected sales and the resulting delays in cash flow have
effectively exhausted the Company's cash resources. Normal lag time between
winning the contract, contract funding, manufacture and delivery of finished
products (the time the Company records revenue) will delay any meaningful
revenue from current activities until sometime in the first or second quarter of
calendar 2002. Due to the gridlock in buying decisions by the counties and the
Company's cash position, the future operations of the Company are in question.
Since the third quarter of fiscal 2001, the Company's financial statements have
included a qualification concerning the Company's ability to continue as a going
concern. Without an acquisition by a stronger entity or an infusion of
substantial capital, Global will be unable to continue operations.
Certain of the information discussed in this Circular contains
forward-looking statements regarding future events or the future financial
performance of the Company and is subject to a number of risks and other factors
which could cause the actual results to differ materially from those contained
in any forward-looking statements. Among those factors are: uncertainties as to
the Company's ability to continue as a going concern; expectations that the
Arrangement will be consummated and, once consummated, will result in strategic
benefits and/or market value increases; customer acceptance and demand for the
Company's products; the Company's overall ability to design, test and introduce
new products on a timely basis; the nature of the markets addressed by the
Company's products; and the interaction with governmental entities in the United
States which purchase the Company's products. These and other risks are
described in this Circular under "Information Concerning Global -- Global's Risk
Factors" and in Global's periodic reports available from the SEC.
FISCAL 2001 COMPARED WITH 2000
Sales and Operating Income
Sales and other income for the year ended June 30, 2001 decreased 39.9% or
$8,073,000, to $12,164,000 from $20,237,000 for the year ended June 30, 2000.
Sales from our newly-acquired Spectrum operations offset the total decrease in
sales by $4,010,000. In the first six months of the Company's fiscal year, the
decrease in sales was due to state and local government's preparation for the
general presidential election in November 2000. Election authorities typically
have all voting equipment and processes in operation by the months of May/June
of the national election year. As a result, election authorities do not purchase
new equipment in the second half of the calendar year leading to a national
election.
Following the U.S. national election in November 2000, the resulting debate
concerning election systems and the possibility of national or state funds to
assist local counties in purchasing new equipment, has significantly delayed
sales. Since November 2000, the Company knows of only three jurisdictions which
have committed funding for new voting systems in excess of $1,000,000.
Cost of Sales and Operating Expenses
Cost of sales and operating expenses for fiscal year 2001 decreased 23.7%,
or $2,450,000, to $7,887,000 from $10,337,000 for fiscal year 2000. In fiscal
2001, Spectrum accounted for $2,275,000 of the total cost of sales and operating
expenses. For fiscal 2001, cost of sales and operating expenses as a percentage
of gross
42
54
revenue increased to 64.8% from 51.1% in fiscal year 2000. The decrease in gross
margin is due to the increase in sales through resellers in the 2001 period. The
gross margin on sales through resellers is much lower, due to the application of
dealer discounts. Additionally, reduced sales volumes without a comparable
reduction in fixed costs negatively impacted gross margins.
Selling, Administrative and General Expenses
Selling, administrative and general expenses for fiscal year 2001 increased
64.7%, or $4,210,000, to $10,721,000 from $6,511,000 for fiscal year 2000. Of
the increase in selling, administrative and general expenses, $957,000 is
attributable to Spectrum. A portion of the remainder of the increase is
attributable to a provision for possible bad debts in the amount of $1,507,000.
The legal and accounting expenses increased $817,000 due to new provisions for
reviewing interim financial statements, legal work related to raising funds and
costs associated with the Diebold transactions. The remainder of the increase
was due largely to an increase in manpower and associated costs in the sales,
field support and administrative areas required to support current and
anticipated growth.
Research and Development Expenses
Research and development expenses for fiscal year 2001 increased by 207.5%,
or $1,444,000, to $2,140,000 from $696,000 for fiscal year 2000. The fiscal year
2001 expenses include $588,000 of development costs that had previously been
deferred under Canadian GAAP. The expenditures no longer meet the prescribed
criteria for deferral so they were expensed in 2001. Global continues to fund
research and development in order to offer leading edge products to the market
place.
Amortization
Amortization for fiscal year 2001 increased 247.3%, to $1,292,000 from
$372,000 in fiscal year 2000. Of this increase, $828,000 was attributable to the
amortization of goodwill from the Spectrum acquisition and post acquisition
operations. The remainder of the increase was within Global's operating plan.
Interest
Interest expense for fiscal year 2001 increased 62.5%, or $340,000, to
$884,000 from $544,000 in fiscal year 2000. Spectrum accounted for $290,000 of
the total interest expense incurred. The remainder of the increase was within
Global's operating plan and resulted from interest on increased loans used to
finance operations.
Taxes
Reflecting concerns about Global's ability to continue normal operations,
Global reversed a $145,000 provision for the recovery of income taxes and did
not record approximately $3,200,000 of additional income tax recovery.
Revaluation of Used Equipment
Trade-in inventory write off for fiscal year 2001 decreased to $0 from
$525,000 in fiscal year 2000 as a result of management writing down trade-in
inventory in fiscal 2000. The trade-in inventory write down has now been
completed and its value is considered to be nil.
Loss Per Share
Global's loss for fiscal year 2001 was $10,616,000, or $0.53 per share,
compared to earnings of $1,107,000, or $0.06 per share, for fiscal 2000. The
decrease in earnings per share for the 2001 fiscal period as compared to the
2000 fiscal period was due to a decrease in sales, increases in administrative
and general expense, research and development, amortization, interest and the
reversal of an income tax recovery provision, offset by decreases in cost of
sales and operating expenses and revaluation of used equipment.
43
55
FISCAL 2000 COMPARED WITH 1999
Sales and Operating Income
Sales and other income for the year ended June 30, 2000 increased 10.5%, or
$1,927,000, to $20,237,000 from $18,310,000 for the year ended June 30, 1999.
The sales increase was largely attributable to increased voter registration and
service revenue.
Cost of Sales and Operating Expenses
Cost of sales and operating expenses for fiscal year 2000 increased 14.9%,
or $1,339,000, to $10,337,000 from $8,998,000 for fiscal year 1999. In fiscal
year 2000, cost of sales and operating expense as a percentage of gross revenues
increased to 51.1% from 49.1% in fiscal year 1999. This increase resulted
primarily from higher product cost for the AccuVote-OS system whose contribution
to sales was greater in fiscal year 2000 than in fiscal year 1999.
Selling, Administrative and General Expenses
Selling, administrative and general expenses for fiscal year 2000 increased
6.2%, or $381,000, to $6,511,000 from $6,130,000 for fiscal year 1999. The
increase was due largely to an increase in manpower and associated costs in the
sales, field support and administrative areas required to support current and
anticipated growth.
Research and Development Expenses
Research and development expenses for fiscal year 2000 increased by 49.8%,
or $427,000, to $1,284,000 from $857,000 for fiscal year 1999. The fiscal year
2000 expenses include $588,000 of development costs deferred under Canadian
generally accepted accounting principles (see Note 16 to the consolidated
financial statements for a reconciliation of this item for United States
generally accepted accounting principles). Global continues to fund research and
development in order to offer leading edge products to the market place.
Amortization
Amortization for fiscal year 2000 decreased 4.1%, or $16,000, to $372,000
from $388,000 in fiscal year 1999. This decrease was due primarily to capital
assets fully amortized during fiscal year 1999.
Interest
Interest expense for fiscal year 2000 increased 66.8 %, or $218,000, to
$544,000 from $326,000 in fiscal year 1999. The increase was within Global's
operating plan of funding current accounts receivable and resulted from interest
on increased U.S. bank loans used to finance operations.
Revaluation of Used Equipment
Trade-in inventory write off for fiscal year 2000 decreased to $525,000
from $873,000 in fiscal year 1999 as a result of management writing down
trade-in inventory. The trade-in inventory write down has now been completed and
its value is considered to be nil.
Earnings Per Share
Global's earnings for fiscal year 2000 were $1,777,000, or $0.10 per share,
before a write down of $525,000 for trade-in inventory. The after tax earnings
for fiscal year 2000 after the trade-in inventory write down was $1,107,000, or
$0.06 per share, compared to a profit of $716,000 or $0.04 per share for the
same period for fiscal year 1999. The increase in earnings per share for the
2000 fiscal period as compared to the 1999 fiscal period was due to an increase
in sales, and increases in cost of sales and operating expenses, selling,
administrative and general expense and interest expense and enhanced by a
decrease in research and development expense, amortization and the write down of
the trade-in inventory.
44
56
Liquidity and Capital Resources
Global uses a combination of internally generated funds and borrowings to
finance its working capital requirements, capital expenses and operations.
During the period ended June 30, 2001, Global generated most of its funding
through collection of receivables and debt financing.
At June 30, 2001, Global's cash totaled $1,154,658, a decrease of $291,955
from June 30, 2000. Accounts and contracts receivable decreased to $4,316,000 at
June 30, 2001 from $12,717,000 at June 30, 2000. Due to the nature of Global's
business, the timing of payments on large contracts may vary significantly, and
cause significant variances from period to period in the mix of cash, other
liquid funds, accounts receivable and contracts receivable. Inventory figures
may vary significantly, depending upon delivery dates for voting systems. At
June 30, 2001, inventory amounted to $5,609,000, an increase of $257,000 from
June 30, 2000.
Global has contractual arrangements with customers whereby credit terms may
be extended for the amounts due for voting systems. At June 30, 2001, agreements
receivable less current portion amounted to $344,000, an increase of $328,000
from June 30, 2000. These agreements are repaid at varying terms and with
varying interest rates determined on a case-by-case basis. Historically, Global
has not experienced any default in connection with agreements due from
customers.
As of June 30, 2001, Global had five loans outstanding as follows:
Compass Bank, Albuquerque, New Mexico -- a note in the amount of $546,200
is secured by a $1,326,000 receivable. This loan bears interest at Compass Bank
of Albuquerque Prime Rate plus 1% and is due September 8, 2001. Since the end of
the fiscal year, Global paid $250,000 and received a three month extension of
the maturity of this loan.
Hibernia National Bank, McKinney, Texas -- a line of credit in the amount
of $1,220,229 is secured by a blanket assignment of accounts receivable.
Subsequent to the fiscal year end, the line of credit with Hibernia National
Bank was modified with the following changes: the loan bears interest at The
Wall Street Journal Prime Rate plus 4.00 percent and the maximum credit facility
is $3,000,000 and is due October 31, 2001. The Company is not in compliance with
certain covenants contained in the Hibernia Loan Agreement.
Mrs. Deborah M. Dean -- a promissory note payable to Mrs. Deborah M. Dean
in the amount of $899,884 is unsecured and is non-interest bearing. Payments are
due $333,334 on September 29, 2001; $333,333 on September 29, 2002 and $333,333
on September 29, 2003.
Jones, Gable and Company -- a promissory note in the amount of $2,381,652,
bearing interest at 10% per annum (18% for past due amounts) is secured by a
security interest in the inventory of Global and guarantees from the Company's
U.S. subsidiary and a director. Prepayments are required as to 10% of collected
sales by the Company and 10% of any proceeds from the issuance of any debt or
equity securities in excess of $7,000,000. The lender was granted 600,000 share
purchase warrants and the director who guaranteed the loan was granted 100,000
share purchase warrants. As of September 20, 2001, a principal payment in the
amount of $422,932 was past due and remaining payments are due, $880,667 by
December 15, 2001 and the balance by March 15, 2002.
Diebold -- the Company signed a bridge loan agreement dated June 29, 2001,
as amended August 3, 2001, for $5,000,000 with interest at 12% per annum and
repayable 180 days from the dates of advance. The first advance of $1,550,000,
less origination fee and lender expenses of $350,000, was received July 5, 2001.
The second and final advance in the amount of $3,450,000, less lender expenses,
was received by the Company on August 3, 2001.
Diebold may elect, at any time upon 2 days notice, to convert any portion
of the unpaid loan amount into common stock of Global. Diebold is not entitled
to convert unpaid loan amounts into common stock of Global such that more than
19.9% of the total issued and outstanding shares of Global may be so issued,
without prior shareholder approval. The conversion price is the lesser of $1.135
and 85% of the fair market value of Global's common shares based upon the
average closing price for the 10 days prior to the conversion.
45
57
Global may prepay the loan at any time prior to maturity at the higher of
145% of the unpaid principal plus accrued interest and 145% of the conversion
rights with respect to the unpaid principal plus accrued interest.
Global shall prepay the loan at the higher of 145% of the unpaid principal
plus accrued interest and 145% of the conversion rights with respect to the
unpaid principal plus accrued interest upon Global entering into a sale
agreement with a third party.
Diebold was granted a warrant for 250,000 shares of the common stock of
Global at the price of $1.135 and expiring August 3, 2006 or earlier under
specific conditions.
The loan agreement further provides that Global may not issue or sell
shares, nor grant options at a price less than $1.135 prior to the later of full
repayment of the loan and the date the warrants attached to the loan are
exercised or expire.
The loan is secured by a security interest in all assets of Global and the
joint and several guarantees of Global's wholly-owned subsidiaries, Global USA
and Spectrum, for complete payments and performance of the obligations of
Global.
OUTLOOK
Global's operating results continue to show the impact of the stagnant
market over the last fifteen months (July 2000-September 2001). Current
financial resources, including internally generated funds and available bank
lines of credit and borrowings, will not be sufficient to finance Global's
operations. To continue, Global must complete the transaction with Diebold or
raise significant external financing immediately.
After examining Global's alternatives, the Board of Directors has agreed to
the sale of Global to Diebold, and recommended that the Global Shareholders
approve the Arrangement and the Share Issuance.
INFORMATION CONCERNING GLOBAL
INCORPORATION
Global was amalgamated under the BCCA on November 22, 1991 by way of a
statutory amalgamation of North American Professional Technologies B.C. Ltd. and
Macrotrends International Ventures Inc. under the name "Global Election Systems
Inc." by registration of its Memorandum and Articles with the Registrar. On July
12, 1993, Global replaced its Articles and amended its Memorandum by increasing
its authorized share capital from 100,000,000 common shares without par value to
120,000,000 shares divided into 100,000,000 common shares without par value and
20,000,000 convertible voting preferred shares without par value and by adding
section 27 -- Special Rights and Restrictions attached to Convertible Voting
Preferred Shares to its Articles.
Global's registered office is located at Gowling Lafleur Henderson LLP,
Suite 2300, Four Bentall Centre, 1055 Dunsmuir Street, P.O. Box 49122,
Vancouver, British Columbia V7X 1J1 and its principal executive office is
located at 1611 Wilmeth Road, McKinney, Texas, 75069, USA.
Global is a reporting issuer in the provinces of British Columbia and
Ontario and in the United States, and its shares are listed and traded through
the facilities of the TSE and the AMEX.
CORPORATE STRUCTURE
Currently, Global has three wholly-owned subsidiaries: Global USA, a
company incorporated in Delaware and operating in Texas, U.S.A; Spectrum, a
company incorporated in Delaware and operating in Washington and California,
U.S.A.; and Global Systems Caribbean, Inc., a company incorporated in Puerto
Rico. Global Systems Caribbean, Inc. has no assets or liabilities and conducts
no business.
46
58
BUSINESS OF GLOBAL
COMPANY OVERVIEW
Global is a leading manufacturer and distributor, through its wholly-owned
United States subsidiary, Global USA, of state of the art, computerized,
electronic election management systems. Global's signature products are the
AccuVote optical scan voting system ("AccuVote-OS"), and the paperless AccuVote
touch screen voting system ("AccuVote-TS"). The AccuVote-OS voting system and
the AccuVote-TS voting system are stand-alone voting systems. They are both
classified as precinct count and central accumulation systems and have
functionality that permits management control of the voting process from ballot
preparation to verification of results. The AccuVote-TS, which is a "paperless
DRE" (Direct Record Equipment), was added to Global's product line when Global
acquired all of the assets of I-Mark Systems, Inc. in 1997. Global acquired
Spectrum in September 2000 and added the ability to print ballots as a service
it provides to its customers.
Global has or is in the process of responding to requests for proposals, or
is in negotiations with various counties for potential contracts representing
approximately $100 million in revenue. However, stagnant sales over the last
fifteen months has left Global in a severe cash shortage. Global's cash reserves
are such that Global in its current state could not fulfill any of the $100
million in potential contracts to which they are in the process of responding.
INDUSTRY OVERVIEW
Elections are held under the auspices of various governmental systems,
especially those in democratic countries. Until the 1960's, almost all elections
were conducted with manually counted paper ballots and lever-activated
mechanical voting machines. Lever machines, which were bulky, heavy and
consisted of over 800 moving parts, required significant maintenance and were
expensive to warehouse. This method of voting and tallying votes, in addition to
being cumbersome and inefficient, was susceptible to inaccuracies, significant
time delays, and other difficulties. In 1964, the Votomatic punch card voting
system was patented. While this system has not been actively manufactured since
the mid-1980's, it remains the most widely used system in North America. In the
early 1980's, optical scan voting systems were introduced and began to penetrate
the election equipment marketplace on a relatively small scale.
In recent years, the election industry has begun to computerize in response
to increased public acceptance and familiarity with using computers. Computers
offer the opportunity to count ballots accurately and quickly. Additionally,
computer technology has created the potential for more convenient methods of
voting and has provided avenues to encourage more voter participation. Service
and support have also become increasingly important components of the newer,
technologically advanced voting systems. Even though technology is being
accepted more readily, many voting systems being marketed continue to lag in the
application of state-of-the-art computer technology, and have lacked durability
and flexible functionality.
The U.S. national election of November 2000 had a significant and
disruptive impact on the election industry. Difficulties experienced with
accuracy and verifiability, particularly with punch-card systems, have generated
unprecedented opportunities for manufacturers of electronic voting systems.
Estimates range from $500 million to $3 billion to upgrade the election systems
nationwide during the next three years.
Additionally, the national debate over election systems also produced a
near gridlock in purchasing decisions as local officials wait for the
possibility of matching funds from national or state governments. Since the
November 2000 U.S. election, few jurisdictions have committed to funding a new
voting system in excess of $1,000,000. Normal lag time between winning the
contract, contract funding, manufacture and shipping finished products will
delay any meaningful revenue from sales until sometime in the first or second
quarter of 2002. This delay in normal market activity has severely depleted the
Company's resources, exhausted operating capital and made continued operations,
absent a sale of the Company or a significant infusion of capital, highly
unlikely. See "Selected Global Historical Financial Information -- Management's
Discussion and Analysis."
47
59
GLOBAL'S PRODUCTS
The products currently offered by Global include optical scan and touch
screen voting systems, plus related voter registration systems supplied through
cooperative marketing agreements with third party companies.
State-of-the-Art Computerized Electronic Voting Systems. Global's
signature product is its patented AccuVote Election System. The AccuVote system,
patented in Canada and the United States, automates all facets of election
administration from initial ballot layout through certification of results. The
AccuVote United States and Canadian patents are co-owned with Data Information
Management Systems, Inc. The ballot-processing unit optically scans marked voted
paper ballots and produces printed precinct level results immediately after the
polls close. Totals are captured on a memory card and transferred to the
counting center or sent from the precinct tabulator directly to the host
computer over a modem using common carrier lines. Designed for security and
integrity, the ballot-processing unit is compact and lightweight and is easily
transported to and from the polling place.
GEMS application software automates the entire election administration
cycle from ballot layout through certification of results. GEMS software is used
to define all election-specific parameters.
Direct Record Voting System. Global offers additional, technologically
advanced election products with its innovative AccuVote-TS (touch screen)
system. The system is anchored by Smart Card technology that stores voter
identification information, allowing the automatic selection of any ballot style
for any voter at any polling place. The Smart Card can permit the placement of
voting stations in places where people assemble, like shopping malls, rather
than in specific precinct locations.
AccuVote-OS and AccuVote-TS can be used as a blended system, permitting
flexibility in solving the particular problems and requirements of a voting
jurisdiction. For instance, AccuVote-TS can be used for early voting, where its
capacity to store all ballot styles allows early voters from all precincts to
insert Smart Cards into the same unit to select their particular precinct
ballot. AccuVote systems can be used at the precinct level during the election.
The vote tallies from both the AccuVote-OS and AccuVote-TS units are then sent
to a host computer to be combined to determine the election result.
AccuVote-OS and AccuVote-TS units have a list price of approximately
U.S.$5,500 and U.S.$3,175, respectively, per unit, to which quantity discounts
and additional products may be applied, depending upon the needs and size of the
election district.
Through Spectrum, the Company offers various election-related printing
services, including turn-key preparation of ballots, particularly for absentee
voting.
Other Product Arrangements. Global occasionally makes arrangements with
companies producing other products that are complementary to and enhance
Global's product offering to a particular voting jurisdiction. For instance, in
King County, Washington, Global is providing, through a license, additional
voter registration software. These arrangements are generally made on a
case-by-case basis, depending on the need and size of a voting jurisdiction.
CUSTOMER SUPPORT SERVICES
Global emphasizes continuing service support to its customers. These
services begin with initial equipment acceptance and testing and continue
through on-site election day and election night support. Some election-specific
services provided by Global are pre-election consultation, ballot design/layout
programming assistance, precinct worker training, voter education assistance,
system testing and verification, and on-site election day and election night
support.
CUSTOMERS
Global's customers include over 850 voting jurisdictions in the United
States and Canada. Recent contract awards include Johnson County, Kansas; Ramsey
County, Minnesota; City of Anchorage, Alaska; Levy County, Florida (first
Florida county to change voting system since Florida election problems); City of
48
60
Montreal, Quebec; Wakulla County, Florida; Adams County, Colorado; and the City
of Sacramento, California. During the fiscal year ended June 30, 2001, two
dealers accounted for approximately 43% of Global's revenues.
SALES AND MARKETING
Global markets its products both domestically and internationally to
governments. Because of the close involvement of Global in the use of its
election systems by customer governments and Global's desire to maintain a high
level of contact and service, sales are made by salaried, commissioned
salespersons employed by Global and assigned to various territories.
Salespersons work directly with the election officials in each territory to
close and implement sales. At June 30, 2001, Global employed 11 salespersons who
were assigned to specific territories in the United States and Canada. Global
also has six resellers, which are established in the election business and have
contracts for specific territories. Sales outside the United States and Canada
are supervised by Global's sales staff. Global plans to use in-country
representatives in these countries, but currently has none.
Payment for sales is typically made in United States and Canadian dollars.
As a result, Global's actual receipts are subject to fluctuation based upon
currency exchange rates between the United States and Canada and, should Global
accept payment in another currency, to the fluctuations in that currency's
exchange rate.
Global, because it sells election products and services, could tend to
operate on a two-year business cycle because in the United States, a
substantially larger number of elections for public office are held in even-
numbered years than in odd-numbered years. As a result, revenues and underlying
production and support activities for a majority of Global's products and
services could significantly increase or decrease in accordance with the
election cycle. However, because Global's fiscal year ends June 30th, and
because many voting jurisdictions now attempt to purchase election products and
services following an election, Global believes that it has to some extent
ameliorated the possible effect of the United States biennial election cycle.
Also, in Canada, elections are conducted on an irregular schedule, which differs
in and among national, provincial and municipal elections. Thus, Global's
Canadian business may also be expected to ameliorate cyclicity.
RESEARCH AND DEVELOPMENT
Global expended approximately U.S.$1,552,000, U.S.$1,284,000 (including
deferred development costs) and U.S.$857,000 for research and development during
the fiscal years ended June 30, 2001, June 30, 2000, and June 30, 1999,
respectively. All of Global's in-house research efforts are conducted at its
facilities in Vancouver, Canada, and McKinney, Texas.
COMPETITION
The election systems market is defined by the voting needs and
specifications of voting jurisdictions. In that regard, sales, and therefore
competition, are directed to Secretaries of State and election officials in each
voting jurisdiction who issue requests for proposals in which desired
specifications are set forth. Responsive bids are submitted to these officials
and other specified reviewers for their evaluation and the selection of the
entity awarded the project. Competitive factors include accuracy, security and
speed of voting and tallying of votes, ease of use of the system, flexibility in
ballot preparation, cost and customer support. Because of its ability to offer a
complete, state of the art, integrated election system which can be tailored to
the customer's needs, Global believes it is able to compete in all major areas
of the election systems market. See "-- Global's Risk Factors".
In North America, Global competes primarily with moderately sized companies
(some of which are affiliates of much larger companies) in the overall election
system market and with some small companies who offer some aspect otherwise
included in the overall system, such as voting equipment. Global's largest
competitors in the North American election system market are Sequoia Pacific
Systems, Inc. ("Sequoia"), a subsidiary of Jefferson Smurfit, Election Systems
and Software, Inc. ("ESS") and Hart InterCivic, Inc. ("Hart InterCivic")
pursuant to a strategic teaming arrangement with Dell Computers. ESS, Hart
InterCivic and Sequoia offer local and state election management systems,
optical scan ballot tallying and reporting and
49
61
election information management software. MicroVote, Inc., of Indianapolis,
offers a direct record voting system. Global also competes with a number of
companies, including those mentioned previously, which produce and sell products
designed to provide specific election-related functions.
MANUFACTURING
Global assembles its AccuVote-OS and AccuVote TS product at its plant in
McKinney, Texas and its printing facilities in Mill Creek, Washington, Mount
Lake Terrace, Washington, and South San Francisco, California. With the
exception of its visible light optical reader (which it obtains from another
source but could replace with an in-house product) and its ballot box (for which
Global owns the molds and could obtain an alternate manufacturer), Global
obtains components for its products largely from various off-the-shelf vendors
of electronic components, any of which could be replaced by another vendor
should the need present itself. From time to time, Global enters into third
party contract manufacturing agreements pursuant to which a third party
manufacturers Global's products. Due to its current lack of liquidity, the
Company has been unable to undertake significant manufacturing commitments.
Consequently, Global entered into a contract manufacturing agreement dated June
19, 2001, as amended, with Diebold. See "Information Concerning Global -- Rights
to Purchase Securities -- Contract Manufacturing Agreement."
INTELLECTUAL PROPERTY
PATENTS
Global co-owns the United States and Canadian patents with Data Information
Management Systems, Inc., the rights to which it purchased in 1991, on its
AccuVote-OS product ("Patents"). The United States patent expires on April 24,
2006, and the Canadian patent expires on February 26, 2008. Except for the
Patents, Global has not sought patent protection for its technology. Global has
relied upon industrial know-how and trade secret laws to protect what it
believes to be proprietary equipment and processes. Global cannot assure that
its proprietary processes and equipment will provide it with sufficient
competitive advantage to overcome its lack of patent protection, nor can it
assure that others will not independently develop equivalent or superior
products or technology. Also, Global cannot assure that it will be able to
establish trade secret protection or that those trade secret obligations will be
honored. To the extent that consultants, employees and other parties apply
technological information developed independently by them or others to Global
projects, disputes may arise as to the proprietary rights to that information,
which may not be resolved in favor of Global. It is also possible that
litigation may be necessary to enforce Global's proprietary rights, to protect
its trade secrets, to determine the validity and scope of the intellectual
property rights of others or to defend against claims of infringement.
Litigation of that nature could result in substantial costs and diversion of
resources and could have a material adverse effect on Global's business,
financial condition and results of operation.
Patent applications in the United States are generally not disclosed until
the patents issue; therefore, patent applications could have been filed which
relate to Global's processes and equipment. Global does not believe that it
infringes any patents of which it is aware; however, it cannot assure that
patent infringement claims will not be asserted against Global. If infringement
or invalidity claims were to be asserted against Global, litigation could become
necessary to defend Global against those claims. In certain circumstances,
Global might choose to seek to obtain a license under the third party's
intellectual property rights, which Global cannot assure would be available, if
at all, on terms acceptable to Global. Thus, these claims, if asserted, may have
a material adverse effect on Global's business, financial condition or results
of operation.
TRADEMARKS AND TRADENAMES
Global has no registered trademarks or trade names, but claims proprietary
rights to "AccuVote", "Global Election Systems" and "GEMS". Trademark
registration applications have been filed for "AccuVote" and "GEMS" in the
United States, but no assurance can be given that these trademarks will issue.
Global had applied for a trademark registration for "Global Election Systems" in
the United States, but such application was subsequently abandoned.
50
62
GOVERNMENT REGULATION
Global's products are sold almost exclusively to governmental units.
Global's AccuVote-OS and AccuVote-TS election products meet or exceed United
States Federal Election Commission ("FEC") standards and are required to be, and
are, tested to FEC standards by Wyle Labs and Metamor, the industry's designated
independent testing authorities. In the United States, election systems must
also be certified in each state where they are used. Currently, one or both of
Global's systems are certified in 38 states. Canada does not require testing and
certification.
Each governmental unit to which Global markets its products specifies its
own particular requirements for system operation. Without exception, Global's
customers seek, and require, tamper-proof, efficient, confidential and
expeditious election equipment and systems. These requirements and others
typically are embodied in the customer's Request for Proposal ("RFP"), issued to
solicit bids from Global and others. Because Global must be able to respond with
complying bids to RFP's, Global must continually monitor, adapt to, anticipate
and design for changes in specifications and in the expectations that
governmental units have for efficient systems. For example, in the United
States, promoting and increasing voter participation is a concern of many
jurisdictions. As a result, enhancing convenience and opportunity to vote are
increasingly important. Global's products are a direct response to these
changing needs. To the extent that Global is or becomes unable to anticipate or
respond to the concerns of jurisdictions, its ability to submit responsive bids
to requests for proposals will be impeded.
Because Global is incorporated and does business in British Columbia and
its subsidiary, Global USA, is incorporated in the State of Delaware and does
business in the United States and internationally, Global as a whole is subject
to both Canadian and United States tax laws. Additionally, Global must comply
with the taxation, export and import, currency, and other laws of each country
in which it sells products or otherwise does business. These laws can be
burdensome. To the extent that Global is unable or unwilling to comply, its
business in a particular country may be expected to be materially adversely
affected.
WARRANTIES
Key to all elections is the reliability of the system, including the voting
equipment, accuracy of voting results, and accuracy of tallying of results.
Global's equipment is designed to optimize this reliability. Global warrants its
election systems for a period of one year from purchase, unless another period
is specified by the request for proposal from a voting jurisdiction. Global
self-insures against warranty claims. Global has never been the subject of any
material warranty claims and has generally repaired or replaced malfunctioning
equipment in the pre-election stage; however, if a claim were to be made and to
prevail, a lack or insufficiency of insurance coverage could have a material
adverse effect on Global. However, all contracts with customers require
insurance to be put in place before execution of the contract.
ENVIRONMENTAL COMPLIANCE
Global operates a manufacturing plant in McKinney, Texas, and printing
facilities in South San Francisco, California, Mill Creek, Washington and Mount
Lake Terrace, Washington. Although its manufacturing consists largely of parts
assembly, Global is required to comply with United States, California,
Washington and Texas environmental and the Occupational Safety and Health Act
requirements applicable to electronics manufacturing operations in general,
including, for example, storage, marking, and disposal of various products used
for cleaning parts to be assembled. Although Global takes appropriate measures
to comply with these requirements, violations can occur. The New York Department
of Environmental Conservation cited Global once for alleged violation of certain
storage and marking, and disposal requirements applicable to two of these
substances used at its former New York manufacturing facility. Global responded
immediately to correct the situation. Global believes that its compliance
programs are adequate, but cannot assure that no problems will arise in the
future, some of which could have a material adverse impact on Global and its
business.
51
63
EMPLOYEES
As of June 30, 2001, Global had approximately 81 employees, of whom 80 were
full-time and 1 was part-time, at its seven locations in Canada and the United
States. Of the full-time employees, 18 were in executive and administrative
positions, 11 were in sales, marketing and customer relations, 6 were in
research and development, 27 were in manufacturing and 19 were in field customer
support.
GLOBAL'S RISK FACTORS
In addition to the matters set forth in the foregoing discussion of
Global's business, the operations and financial performance of Global are
subject to the risks, among others, described below:
FUTURE OPERATIONS OF COMPANY ARE IN DOUBT. The turmoil in the United
States election systems market as a result of events surrounding the November
2000 presidential election depleted Global's capital resources and resulted in a
liquidity crisis. Therefore, Global's ability to continue as a going concern is
in doubt. See "Selected Global Historical Financial Information -- Management's
Discussion and Analysis" and Global's Consolidated Financial Statements and the
Notes thereto attached hereto as Appendix G.
GLOBAL'S PRODUCTS ARE DEPENDENT UPON SATISFACTORY TESTING AND CERTIFICATION
BEFORE SALES MAY BE MADE IN A VOTING JURISDICTION. In the United States,
Global's ability to respond to Request for Proposals from voting jurisdictions
and to make sales to those jurisdictions is dependent upon satisfactory
completion of testing of the AccuVote-OS and AccuVote-TS (and similar future
products or variations) by Wyle and Metamor Labs, the industry's designated
independent testing authorities and upon certification by each state. If for
some reason not now known or anticipated, a product did not test satisfactorily,
Global's business could be materially adversely affected to the extent it was
unable to offer and sell that product. Similarly, the failure of a product to be
certified in a state would prevent the sale of the product in that state and the
voting jurisdictions in that state.
Global is currently seeking certification of its products in the State of
Florida. Failure to receive certification in a timely manner will result in the
loss of significant market opportunities in Florida.
Because Global deals with governmental authorities in making offers and
sales of its products, it can also be adversely affected by changes in those
authorities, revisions to or promulgation of new requirements and standards in a
State, and unanticipated or unforeseen impediments in the bidding, award and
implementation process.
GLOBAL AND GLOBAL USA MAY BE SUBJECT TO VARIOUS TAX PENALTIES BECAUSE OF
TRANSFER PRICE ARRANGEMENTS. Global and Global USA have entered into various
agreements between themselves with respect to the transfer of technology,
services and manufactured product. Because Global is generally subject only to
Canadian taxation and Global USA is generally subject only to U.S. taxation,
issues of transfer pricing arise. Both the Canadian and U.S. tax authorities
generally require that pricing arrangements between Global and Global USA be
entered into on a fair market basis. Further, Canada now requires that
contemporaneous documentation be completed evidencing the arrangements. While
Global is attempting to meet its obligations in this regard, Global could be
subject to various penalties, and increased tax, if the taxing authorities take
issue with the transfer pricing arrangements reached between Global and Global
USA. Because appropriate transfer prices cannot be arrived at with certainty,
there is no assurance that the taxing authorities would agree with Global's
transfer pricing arrangements.
GLOBAL COMPETES WITH LARGER, WELL-ESTABLISHED COMPANIES. These companies
have financial, and could develop technological and marketing, resources that
are significantly greater than Global's and may have established relationships
with customers or potential customers that afford them a competitive advantage.
Global cannot assure that it will be able to compete effectively in its future
markets or that competitive pressures will not adversely affect its business,
financial condition or results of operations. Please see "Competition" above for
more information.
52
64
GLOBAL DOES NOT HAVE PATENT PROTECTION FOR ITS PROPRIETARY INTELLECTUAL
PROPERTY OTHER THAN THE ACCUVOTE-OS, AND, THEREFORE, DISPUTES COULD ARISE AS TO
ITS OWNERSHIP OF AND THE SCOPE OF ITS RIGHTS TO THAT INTELLECTUAL PROPERTY.
These disputes, as well as any that might arise as to the patented technology
which is co-owned with Data Information Management Systems, Inc., may not be
resolved in Global's favor and could be very expensive to resolve. Please see
"Information Concerning Global -- Intellectual Property" above for more
information.
GLOBAL DEPENDENCE ON SENIOR MANAGEMENT TEAM. The success of Global is
dependent on the services of its Chief Executive Officer, Mr. Courtney; its
President and Chief Operating Officer, Mr. Urosevich; its Vice President of
Operations, Mr. Dix; and its Vice President of Sales and Marketing, Mr. Herron.
Global does not have any employment agreements with any of these persons. Global
has no key man insurance with respect to any of these persons. The loss of the
services of any one of them for any reason could materially impede Global's
marketing effort and strategic planning.
GLOBAL HAS NEVER PAID CASH DIVIDENDS ON ITS COMMON STOCK AND DOES NOT
EXPECT TO DO SO FOR THE FORESEEABLE FUTURE. Global intends to retain future
earnings, if any, to provide funds for business operations and, accordingly,
does not anticipate paying any cash dividends on its Common Stock in the
foreseeable future.
DESCRIPTION OF PROPERTY
Global leases office and manufacturing facilities in McKinney, Texas,
Omaha, Nebraska, Vancouver, British Columbia, Mount Lake Terrace, Washington,
Mill Creek, Washington, and South San Francisco, California. Global's standard
practice is to lease its facilities, and to insure the facilities and their
contents under an insurance plan.
The McKinney, Texas leased facility consists of about 26,100 square feet in
a stand-alone, one-story building. This facility includes Global's manufacturing
operations and its United States corporate headquarters. The lease term
commenced on August 1, 1997 and continues for a period of five years, with two
five-year options to renew. A new facility consisting of approximately 26,100
square feet in a stand-alone, one-story building was completed.
The Vancouver, British Columbia leased facility consists of about 2,785
square feet in an office building. This facility houses Global's Canadian
corporate headquarters and most of its research and development activities. The
lease term commenced on January 1, 1998 and continues for a period of five
years, with a five-year option to renew at an annual rent to be negotiated.
The Omaha, Nebraska leased facility consists of approximately 610 square
feet. The facility is used for field support. The lease term commences on
October 1, 2001 and continues for a period of five years.
The South San Francisco, California leased facility consists of
approximately 5,120 square feet. The facility is used for digital imaging,
printing and storage of related products. The lease term commenced on January 1,
2000 and continues for a period of five years.
The Mill Creek, Washington leased facility consists of approximately 3,891
square feet. The facility is used for printing and mailing services. The lease
term commenced on July 1, 1998 and continues for a period of four years.
The Mount Lake Terrace, Washington leased facility consists of
approximately 3,478 square feet. The facility is used for printing and mailing
services. The lease term commenced on June 1, 2001 and continues for a period of
four years.
LEGAL PROCEEDINGS
At June 30, 2001, the end of the last fiscal year, no material legal
proceeding was pending, or to the knowledge of Global, threatened by any
government agency against Global.
The Company is a party to the following pending or threatened material
litigation.
53
65
King County, Washington. The Company and King County, Washington (Seattle)
entered into a $4.3 million contract in May 1998 that required the Company to,
among other things, install a Global Election Management System (GEMS) and a
Voter Registration software system (VoterView) for the County. The contract
contained a provision that arguably entitled King County to withhold 40% of the
contract price until King County had accepted the fully-integrated system. The
Company installed the GEMS component successfully; King County alleges that
VoterView is not yet operating to its satisfaction.
King County has withheld approximately $1.3 million otherwise payable to
the Company under the contract. Additionally, King County contends that its last
payment, exceeding $400,000, was made in error. King County has demanded that
the Company return the payment, and the Company has refused.
The parties mediated this dispute in May 2001, but no conclusion was
reached.
Recently, King County offered to pay the Company $300,000 in return for the
Company working with King County to further test the VoterView software, and to
continue the mediation initiated in May 2001. Upon payment of the $300,000 sum,
the parties would address at mediation matters related to the implementation of
additional steps needed to obtain satisfaction with VoterView, and the payment
of all or a portion of the remaining $1.0 million due and owing to the Company
under the contract. To date, the Company has reserved approximately $725,000
against this receivable.
GBS/Fidlar-Doubleday. The Company and Governmental Business Systems (GBS)
entered into an October 1, 1991 Exclusive Reseller Agreement which, among other
things, provides GBS with the exclusive right to distribute the Accu-Vote
Election System in certain territories, including Illinois. Fidlar Acquisition,
Inc. f/k/a Fidlar-Doubleday, a competitor of GBS, claims that the Company agreed
on March 15, 2001 to allow it to distribute Accu-Vote within Illinois. Fidlar
Doubleday claims the Company did so when Fidlar-Doubleday allegedly informed the
Company of its intention to distribute the optical scan equipment developed by
one of the Company's competitors. GBS has threatened to sue if the Company
breaches the exclusivity provision of the Agreement, without GBS's consent. On
or about July 19, 2001, Fidlar-Doubleday sued the Company, in the Circuit Court
for the County of Oakland, Michigan, claiming that the Company breached an
agreement allowing Fidlar-Doubleday to distribute Accu-Vote, and that the
Company's promises led it to forego opportunities with the Company's
competitors. Fidlar-Doubleday seeks damages exceeding $1 million, and the
Company plans to aggressively contest the lawsuit. The Company is unable to
predict the likelihood of an unfavorable outcome or to estimate the amount or
range of potential loss if the outcome should be unfavorable.
Allen E. Stanley. The Company received a letter dated July 24, 2001 from
counsel representing one of the Company's employees, Mr. Allen E. (Skip)
Stanley. Mr. Stanley's counsel claimed that the Company made numerous false
representations in its public filings that Mr. Stanley relied upon in purchasing
the Company's stock on the open market. Mr. Stanley's counsel demanded that the
Company refund the full purchase price (of approximately $127,410) for stock Mr.
Stanley and his family purchased. On August 9, 2001, the Company's counsel spoke
with Mr. Stanley's counsel concerning the lack of factual bases supporting the
claims set forth in the July 24, 2001 correspondence. Absent such
substantiation, the Company stands behind the content of its public filings, and
intends to aggressively challenge any claims put forth by Mr. Stanley. The
Company is unable to predict the likelihood of an unfavorable outcome or to
estimate the amount or range of potential loss if the outcome should be
unfavorable.
MicroVote. MicroVote, Inc. filed a trademark application for the mark
"GEMS." The Company has been using the mark GEMS for many years and was prepared
to oppose MicroVote's application. MicroVote, however, in amenable to settling
the matter of prior rights in the mark. Therefore, the Company, with MicroVote's
consent, has filed numerous Requests for Extension of Time to Oppose
registration of the mark. MircroVote and the Company are currently negotiating a
Settlement Agreement whereby the Company will purchase all rights in the mark
GEMS from MicroVote for $9,000.
Global is also subject to various claims that arise in the ordinary course
of its business. In the opinion of management, the amount of ultimate liability
with respect to these actions will not be materially affect the financial
position of Global.
54
66
DESCRIPTION OF SHARE CAPITAL
The authorized capital of Global consists of 100,000,000 Global Common
Shares without par value and 20,000,000 Global Convertible Voting Preferred
Shares without par value.
GLOBAL COMMON SHARES
All of the issued and outstanding Global Common Shares are fully paid and
non-assessable. All of the Global Common Shares rank equally as to voting
rights, participation in a distribution of the assets of Global on liquidation,
dissolution or winding-up of Global and the entitlement to dividends. The Global
Common Shareholders are entitled to receive notice of all shareholder meetings
and to attend and vote at such meetings. Each Global Common Share carries with
it the right to one vote.
GLOBAL PREFERRED SHARES
The Global Preferred Shares entitle the holder to receive, on the
distribution of assets of the Company on the liquidation or winding-up of the
Company or on any other distribution of assets of the Company among its members
for the purpose of winding up its affairs, before any distribution is made to
the holders of Global Common Shares, the amount paid up with respect to each
Global Preferred Share held by the holder. The holders of Global Preferred
Shares are entitled to receive notice of all shareholder meetings and to attend
and vote at such meetings. Each Global Preferred Share carries with it the right
to one vote. The holders of Global Preferred Shares will receive any dividends
payable by Global to its shareholders prior to the issuance of dividends to
holders of Global Common Shares.
The following sets out Global's existing share capital:
AMOUNT OUTSTANDING AS AMOUNT OUTSTANDING AS
DESIGNATION OF SECURITY AMOUNT AUTHORIZED OF JUNE 30, 2001 OF AUGUST 31, 2001
----------------------- ----------------- --------------------- ---------------------
Common Shares................ 100,000,000 20,695,340 20,695,340(1)
Preferred Shares............. 20,000,000 Nil Nil
---------------
(1) A total of 2,305,000 Global Common Shares are also reserved for issuance
pursuant to the exercise of Global Options and other rights to acquire
Global Common Shares. See "Information Concerning Global Election Systems
Inc. -- Rights to Purchase Securities".
PRINCIPAL INDEBTEDNESS
For a description of Global's indebtedness, please refer to Global's
Consolidated Financial Statements attached hereto as Appendix G and "Selected
Global Historical Financial Information -- Management's Discussion and
Analysis".
55
67
PRINCIPAL SHAREHOLDERS
See "Information Concerning the Meeting- Voting Shares and Principal
Holders Thereof".
RIGHTS TO PURCHASE SECURITIES
A summary of all outstanding Global Options and other rights to purchase
securities of Global is set forth below:
OPTIONS
All Global Options to purchase Global Common Shares granted by Global to
its directors, officers, employees and consultants outstanding as of the date of
this Circular are as follows:
NUMBER OF EXERCISE
DESIGNATION OF OPTIONEES OPTIONS PRICE(1) EXPIRY DATE
------------------------ --------- --------- ----------------
Executive Officers........................... 270,000 Cdn.$1.25 August 22, 2002
(6 persons) 50,000 $2.05 October 15, 2001
200,000 $2.39 January 19, 2006
200,000 $1.74 August 7, 2006
Directors who are not Executive Officers..... 50,000 Cdn.$1.69 February 7, 2005
(1 person)
Employees and Consultants.................... 370,000 Cdn.$1.25 August 22, 2002
(18 persons) 90,000 $2.05 October 15, 2001
75,000 $3.25 May 14, 2006
---------------
(1) All exercise prices are in Canadian dollars.
All of the Global Options are non-transferable and except for incentive
stock options granted to S. Michael Rasmussen, currently terminate on the
earlier of the expiry date and the 30th day following the day on which the
director, officer, employee or consultant, as the case may be, ceases to be
either a director, officer, employee or consultant of Global. Mr. Rasmussen's
incentive stock options are to terminate on the expiry date thereof.
WARRANTS
Global has three share purchase warrants outstanding to purchase an
aggregate of 950,000 Global Common Shares, including the Bridge Loan Warrants.
Of the remaining share purchase warrants, one is exercisable for 600,000 Global
Common Shares at an exercise price of Cdn.$3.00 per share until March 6, 2006,
and the other is exercisable for 100,000 Global Common Shares at an exercise
price of Cdn.$3.00 per share until May 3, 2006.
BRIDGE LOAN AGREEMENT
Global and Diebold entered into a bridge loan agreement dated June 29,
2001, as amended by an agreement dated August 3, 2001 (collectively, the "Bridge
Loan"), pursuant to which Diebold has provided bridge loan financing in the
amount of U.S.$5,000,000 to Global. The principal amount of the Bridge Loan may
be converted into Global Common Shares at a conversion price equal to the lesser
of U.S.$1.135 per share and 85% of the five day weighted average trading price
at the time of conversion. The TSE has conditionally approved the issuance of up
to 4,388,418 Global Common Shares for issuance to Diebold pursuant to (a)
Diebold's exercise of its right to convert all or a portion of the Bridge Loan
into Global Common Shares; and (b) Diebold's exercise of the Bridge Loan
Warrants. The TSE has also conditionally approved the issuance of up to an
additional 16,306,922 Global Common Shares to Diebold in connection with (i) (a)
and (b) above, and (ii) up to 4,500,000 Global Common Shares upon Diebold's
exercise of an option to convert certain payables under the Contract
Manufacturing Agreement, upon the satisfaction of a number
56
68
of conditions, including Global's obtaining of Global Shareholder approval to
approve the issuance of the aforementioned additional Global Common Shares.
Global seeks such Global Shareholder approval at the Meeting. See "Particulars
of Other Matters to be Acted Upon at the Meeting."
CONTRACT MANUFACTURING AGREEMENT
Global entered into a Contract Manufacturing Agreement dated June 19, 2001,
as amended August 3, 2001, with Diebold regarding the manufacturing, designing
and development of certain products by Diebold. Pursuant to the terms of the
Contract Manufacturing Agreement, Global has granted Diebold an option (the
"Manufacturing Option") to purchase Global Common Shares in the event of a
failure of Global to pay sums due to Diebold that remain unpaid for 30 days
after the same first became due under the Contract Manufacturing Agreement. The
TSE has conditionally approved the issuance of up to 4,388,418 Global Common
Shares for issuance to Diebold pursuant to (a) Diebold's exercise of its right
to convert all or a portion of the Bridge Loan into Global Common Shares; and
(b) Diebold's exercise of the Bridge Loan Warrants. The TSE has also
conditionally approved the issuance of up to an additional 16,306,922 Global
Common Shares to Diebold in connection with (i) (a) and (b) above, and (ii) up
to 4,500,000 Global Common Shares upon Diebold's exercise of an option to
convert certain payables under the Contract Manufacturing Agreement upon the
satisfaction of a number of conditions, including Global's obtaining of Global
Shareholder approval to approve the issuance of the aforementioned additional
Global Common Shares. Global seeks such Global Shareholder approval at the
Meeting. See "Particulars of Other Matters to be Acted Upon at the Meeting."
PRIOR SALES
During the 12 months preceding the date of this Circular, Global has issued
the following Global Common Shares:
NO. OF GLOBAL ISSUE PRICE PER
DESCRIPTION COMMON SHARES GLOBAL COMMON GROSS
DATE OF ISSUE ISSUED SHARE(1) PROCEEDS(1)
---- ---------------- ------------- --------------- -----------
August 23, 2000............ Option Exercise 50,000 $1.25 $ 62,500
September 29, 2000......... Acquisition 1,600,000 $2.09 N/A
November 17, 2000.......... Option Exercise 21,500 $1.25 $ 26,875
November 20, 2000.......... Option Exercise 18,500 $1.25 $ 23,125
January 26, 2001........... Option Exercise 15,000 $2.05 $ 30,750
January 31, 2001........... Option Exercise 25,000 $1.49 $ 37,250
February 6, 2001........... Option Exercise 20,000 $1.25 $ 25,000
February 7, 2001........... Option Exercise 20,000 $1.25 $ 25,000
March 31, 2001............. Warrant Exercise 166,667 $1.88 $313,334
April 27, 2001............. Option Exercise 50,000 $1.25 $ 62,500
May 24, 2001............... Option Exercise 25,000 $1.49 $ 37,250
May 30, 2001............... Option Exercise 100,000 $1.25 $125,000
---------------
(1) All exercise prices and gross proceeds are in Canadian dollars.
DIVIDEND RECORD
Global has not paid any dividends on the Global Common Shares since its
incorporation, nor does it have any present intention of paying dividends, as it
anticipates that all available funds will be used to fund working capital and
research and development.
57
69
DIRECTORS AND OFFICERS
The names, municipalities of residence, offices held with Global and
principal occupation of the directors and officers of Global are as follows:
PRINCIPAL OCCUPATION OR
NAME, MUNICIPALITY OF RESIDENCE(1) POSITION WITH GLOBAL EMPLOYMENT FOR PAST FIVE YEARS
---------------------------------- -------------------- ------------------------------
BRIAN COURTNEY(2)(3)................. Chief Executive Officer Mr. Courtney has been Chief
Oakville, Ontario and Director Executive Officer of Global since
August, 2001 and Director since
July, 2000; Chief Executive Officer
and Chairman of Patent En-
forcement and Royalties Ltd., a
company which makes investments in
intellectual property with an
emphasis on patents relating to
computer applications, software,
and the Internet since May, 1999.
Mr. Courtney was Chairman and Chief
Executive Officer of Visible Deci-
sions Inc. from June 1995 to July,
1998. President of Oracle Canada
from 1985 to 1991; and founder and
Vice-President of Oracle
Corporation (USA).
ROBERT J. UROSEVICH(3)............... President, COO and Mr. Urosevich has been President
McKinney, Texas Director and COO of Global since 2000 and
was Vice-President, Sales,
Marketing and Business Development
of Global from 1997 to 2000;
Founder of I-Mark Systems in 1995,
Mr. Urosevich has over 24 years of
experience in the election systems
industry. His background with
leading edge election products
began in 1976 with the development
of the first OMR-based centralized
vote counting system utilizing
standard test scoring equipment in
the United States. In 1979, he
founded American Information
Systems (AIS), which developed and
marketed proprietary election
counting systems to small and
medium sized jurisdictions nation-
wide. Mr. Urosevich served as the
President of AIS from 1979 through
1992 during which time AIS grew to
be the largest processor of OMR
ballots handling approximately 400
jurisdictions and 40 million
documents per year. In 1995, he
launched I-Mark Systems after de-
signing a robust touch screen
voting system anchored by smart
card and biometric encryption
authorization technology. Global
acquired I-Mark in 1997, at which
time Mr. Urosevich joined Global.
58
70
PRINCIPAL OCCUPATION OR
NAME, MUNICIPALITY OF RESIDENCE(1) POSITION WITH GLOBAL EMPLOYMENT FOR PAST FIVE YEARS
---------------------------------- -------------------- ------------------------------
CLINTON H. RICKARDS.................. Director Mr. Rickards oversaw Global's
Surrey, British Columbia Canadian sales and shareholder
communication since 1991. Mr.
Rickards was appointed a Director
of the Company in 1991, and until
1995 served as the Company's Pres-
ident. From 1993 to present, Mr.
Rickards has managed Global's
Marketing and Investor Relations
Division. Involved in the computer
industry since 1968, Mr. Rickards
formed a private computer company
in 1980 with several partners. In
1983, he bought out his partners
and founded North American
Professional Technologies ("NAPT").
NAPT began the development of
ES-2000 in 1986 which subse-
quently became Global's signature
product.
DAVID H. BROWN(2)(3)................. Director Mr. Brown has been director of
Toronto, Ontario Global from November 1991 to June
2000 and from May 2001 to present.
He has been retired since 1989.
JOHN W. LARMER II(2)................. Director Mr. Larmer has served as president
McLean, Virginia of Soza & Company Ltd., an
international finance and
management information technology
consulting company since 1989. He
has served as a Director of Global
since 1999. His senior level con-
sulting practice encompasses a wide
range of technology areas and he
has lectured on numerous topics,
including the use of computers in
management related to tax
liabilities and national and local
election systems. Mr. Larmer has
served as President of the
Washington Chapter of the Data
Processing Management Association
and as the Accounting Chairman for
the International Business
Exposition and Conference.
LARRY DIX............................ Vice-President, Mr. Dix has served as
McKinney, Texas Operations Vice-President, Operations of
Global since September 2000 and was
Manager of Global's Voter
Registration Division from 1998 to
2000; Prior to that, he served as
Director of Data Processing,
Nebraska Association of County
Officials from 1991 to 1998.
TALBOT R. IREDALE.................... Vice-President, Research Mr. Iredale has served as
Vancouver, British Columbia & Development Vice-President, Research &
Development of Global since 1991.
BARRY HERRON......................... Vice-President, Marketing Mr. Herron has served as
McKinney, Texas Vice-President, Marketing of Global
since September, 2000 and Regional
Manager for Global since 1994.
59
71
PRINCIPAL OCCUPATION OR
NAME, MUNICIPALITY OF RESIDENCE(1) POSITION WITH GLOBAL EMPLOYMENT FOR PAST FIVE YEARS
---------------------------------- -------------------- ------------------------------
MAURICE E. SOKULSKI.................. Treasurer Mr. Sokulski has been Treasurer of
Richardson, Texas Global since 1994, Director of
Global from 1996 to 1997 and
Controller of Global from 1994 to
1996.
S. MICHAEL RASMUSSEN................. Chief Financial Officer Mr. Rasmussen has served as Chief
McKinney, Texas Financial Officer of Global since
January, 2001; He also is
co-founder of Client Resources,
Inc., an IT staffing company, from
1999-2000. Prior to that, Mr. Ras-
mussen was Regional Controller for
Data Processing Resources Corp., an
IT staffing company, from 1998-1999
and Group CFO at Omaha
World-Herald, 1993-1998.
JEFFREY DEAN......................... Senior Vice-President Mr. Dean has served as Senior Vice-
Mount Lake Terrace, Washington President of Global since
September, 2000 and was General
Manager of Spectrum Print & Mail
Services, Ltd. From 1995-2000.
BRIAN O'CONNOR....................... Senior Vice-President Mr. O'Connor has served as Senior
Leesburg, Virginia Vice- President of Global since
February, 2001 and was Chief
Operations Officer and Vice
President of Corporate Develop-
ment for Soza and Company, Ltd.
from 1998-2001. Prior to that Mr.
O'Connor served as Director of
Sales and Marketing for the Special
Markets Division, among other
duties, for Danaher Control, a
division of Danaher Corporation
from 1986-1998.
---------------
(1) The information as to place of residence and principal occupation during the
part five years is not within the knowledge of Global and has been furnished
by the respective directors and officers.
(2) Denotes member of the Audit Committee.
(3) Denotes member of the Compensation Committee.
At this time Global does not have an Executive Committee.
As of the Effective Date, the directors and officers of Global will be as
noted above, with the expectation that additional changes will be made to the
board and to management following the Effective Time of the Arrangement.
Global's directors and executive officers, as a group, beneficially own,
directly or indirectly, or exercise control or direction over approximately
4,184,259 Global Common Shares (not including options or warrants), representing
20.22% of the issued Global Common Shares.
60
72
EXECUTIVE COMPENSATION
Set out below are particulars of compensation paid to the following persons
(the "Named Executive Officers"):
(a) each chief executive officer of Global;
(b) each of Global's four most highly compensated executive officers,
other than the chief executive officer, who were serving as executive
officers at the end of the most recently completed financial year and whose
total salary and bonus exceeds Cdn.$100,000 per year; and
(c) any additional individuals for whom disclosure would have been
provided under (b) but for the fact that the individual was not serving as
an executive officer of Global at the end of the most recently completed
financial year.
Based on the foregoing, during the fiscal year ended June 30, 2001, there
were five Named Executive Officers of Global (1), namely:
NAME TITLE
---- -----
Robert J. Urosevich........... President, Chief Operating Officer and Director of Global(2)
Clinton H. Rickards........... Director of Investor Relations; Director of Global
Jeff Dean..................... Senior Vice-President
Larry Dix..................... Vice-President, Operations
Howard T. Van Pelt............ Former President and Chief Executive Officer(2)
---------------
(1) Brian Courtney was appointed Chief Executive Officer of Global on August 2,
2001.
(2) Mr. Urosevich was appointed President and Chief Operating Officer of Global
on July 31, 2000. Mr. Urosevich replaced Howard Van Pelt, who ceased acting
as President and Chief Executive Officer on that date.
The following table sets forth the compensation awarded, paid to or earned
by Global's Named Executive Officers during the fiscal years ended June 30,
2001, 2000 and 1999:
SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION
----------------------------------
AWARDS PAYOUTS
---------- ---------------------
ANNUAL COMPENSATION SECURITIES RESTRICTED
---------------------------------------------- UNDER SHARES OR
OTHER ANNUAL OPTIONS RESTRICTED LTIP ALL OTHER
NAME AND PRINCIPAL YEAR SALARY BONUS COMPENSATION GRANTED SHARE UNITS PAYOUTS COMPENSATION
POSITION ENDED ($) ($) ($) (#) (#) ($) ($)
------------------ ----- ---------- --------- ------------ ---------- ----------- ------- ------------
ROBERT J. UROSEVICH... 2001(1) US$147,083 US$10,000 Nil Nil Nil Nil US$1,938
President, COO and 2000(2) US$115,000 US$10,000 Nil Nil Nil Nil US$ 858
Director 1999(3) US$115,000 Nil Nil Nil Nil Nil US$ 812
CLINTON H. RICKARDS... 2001(1) C$150,000 C$15,098 Nil Nil Nil Nil C$2,233
Director 2000(2) C$154,332 Nil Nil Nil Nil Nil C$1,407
1999(3) C$145,577 C$35,006 Nil Nil Nil Nil C$1,308
JEFFREY DEAN.......... 2001(1) US$132,000 Nil Nil Nil Nil Nil US$ 302
Senior VP
LARRY DIX............. 2001(1) US$112,917 US$ 8,976 Nil Nil Nil Nil US$1,226
VP, Operations
TALBOT R. IREDALE..... 2000(2) C$105,000 C$ 1,500 Nil Nil Nil Nil C$2,313
VP, Research and 1999(3) C$ 96,667 N/A N/A N/A N/A N/A C$1,875
Development
61
73
LONG TERM COMPENSATION
----------------------------------
AWARDS PAYOUTS
---------- ---------------------
ANNUAL COMPENSATION SECURITIES RESTRICTED
---------------------------------------------- UNDER SHARES OR
OTHER ANNUAL OPTIONS RESTRICTED LTIP ALL OTHER
NAME AND PRINCIPAL YEAR SALARY BONUS COMPENSATION GRANTED SHARE UNITS PAYOUTS COMPENSATION
POSITION ENDED ($) ($) ($) (#) (#) ($) ($)
------------------ ----- ---------- --------- ------------ ---------- ----------- ------- ------------
LARRY ENSMINGER....... 2000(2) US$107,083 US$10,000 Nil Nil Nil Nil US$ 733
VP, Business 1999(3) US$ 95,500 Nil Nil Nil Nil Nil US$ 789
Development;
Secretary of
Global(4)
MAURICE E. SOKULSKI... 2000(2) US$ 80,833 US$10,000 Nil Nil Nil Nil US$ 589
Treasurer 1999(3) US$ 75,000 Nil Nil Nil Nil Nil US$ 638
HOWARD T. VAN PELT.... 2001(1) US$ 15,000 Nil Nil Nil Nil Nil Nil
Former President 2000(2) US$180,000 Nil Nil Nil Nil Nil US$1,388
and CEO of 1999(3) US$180,000 US$22,143 Nil Nil Nil Nil US$1,044
Global(5)
---------------
(1) For the fiscal year ended June 30, 2001.
(2) For the fiscal year ended June 30, 2000.
(3) For the fiscal year ended June 30, 1999.
(4) Mr. Ensminger resigned as Vice-President, Business Development and Secretary
of Global in August 2001.
(5) Mr. Van Pelt resigned as a Director of Global and ceased being its President
and CEO in August 2000.
LONG TERM INCENTIVE PLAN AWARDS
Long term incentive plan awards ("LTIP") means "any plan providing
compensation intended to serve as an incentive for performance to occur over a
period longer than one financial year whether performance is measured by
reference to financial performance of Global or an affiliate, or the price of
Global's shares but does not include option or stock appreciation rights plans
or plans for compensation through restricted shares or units". No LTIPs were
granted to the Named Executive Officers or Directors during the fiscal year
ended June 30, 2001.
STOCK APPRECIATION RIGHTS
Stock appreciation rights ("SARs") means a right, granted by an issuer or
any of its subsidiaries as compensation for services rendered or in connection
with office or employment, to receive a payment of cash or an issue or transfer
of securities based wholly or in part on changes in the trading price of
Global's shares. No SARs were granted to or exercised by the Named Executive
Officers or Directors during the fiscal year ended June 30, 2001.
OPTION GRANTS DURING THE FISCAL YEAR ENDED JUNE 30, 2001
During the most recently completed fiscal year, there were no incentive
stock options granted to the Named Executive Officers.
62
74
AGGREGATED OPTION EXERCISES DURING THE FISCAL YEAR ENDED JUNE 30, 2001 AND
FISCAL YEAR END OPTION VALUES
The following table sets out incentive stock options exercised by the Named
Executive Officer, during the most recently completed fiscal year as well as the
fiscal year end value of stock options held by the Named Executive Officers.
VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS
SECURITIES AGGREGATE FISCAL YEAR-END AT FISCAL YEAR-END($)
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE(#) REALIZED($)(1) UNEXERCISABLE(#) UNEXERCISABLE(2)
---- ----------- -------------- ---------------------------- ----------------------------
Howard T. Van Pelt... 50,000 27,500 Nil/Nil N/A
Clint Rickards....... 50,000 77,500 Nil/Nil N/A
Robert J.
Urosevich.......... N/A N/A 120,000/Nil $78,000/Nil
---------------
(1) Based on the difference between the option exercise price and the closing
market price of the Company's shares, on the date of exercise.
(2) In-the-Money Options are those where the market value of the underlying
securities as at the most recent fiscal year end exceeds the option exercise
price. The closing market price of the Company's shares as at June 30, 2001
was Cdn.$1.90.
OUTSTANDING OPTIONS
The total number of outstanding stock options to purchase common shares
held by the Named Executive Officers, Directors who were not Named Executive
Officers, and employees who were neither Directors nor Named Executive Officers
of Global as at June 30, 2001 (including all such officers, directors and
employees of Global Election Systems, Inc.) is as follows:
NO. OF
SHARES UNDER NO. OF OPTIONS EXERCISE PRICE
OPTIONEES OPTION EXERCISABLE (CDN) EXPIRY DATES
--------- ------------ -------------- -------------- -----------------
Named Executive Officers...... 120,000 120,000 $1.25 August 22, 2002
Directors (other than
Directors
who are Named Executive
Officers)................... 50,000 50,000 $1.69 February 7, 2005
Executive Officers (other than
Named Executive Officers)... 50,000 50,000 $2.05 October 15, 2001
200,000 200,000 $1.25 August 22, 2002
200,000 Nil(1) $2.39 January 19, 2006
Employees and Consultants..... 370,000 370,000 $1.25 August 22, 2002
90,000 90,000 $2.05 October 15, 2001
75,000 75,000 $3.25 May 14, 2006
Total......................... 1,155,000 955,000
---------------
(1) These options are subject to a vesting schedule.
Subsequent to the fiscal year ended June 30, 2001, Brian Courtney, Chief
Executive Officer of Global, was granted an option to purchase up to a total of
200,000 common shares at a price of US$1.135 (CDN$1.74) per share exercisable on
or before August 7, 2006.
OPTION REPRICINGS
There were no options held by the Named Executive Officers that were
repriced downward during the most recently completed financial year end of
Global.
63
75
DEFINED BENEFIT OR ACTUARIAL PLAN DISCLOSURE
Global has no defined benefit or actuarial plan benefits payable upon
retirement of the Named Executive Officers.
TERMINATION OF EMPLOYMENT, CHANGE IN RESPONSIBILITIES AND EMPLOYMENT CONTRACTS
Global USA has entered into an employment agreement dated September 29,
2000 with Jeffrey Dean pursuant to which Global USA agreed to pay U.S.$144,000
per annum until December 31, 2002. If Global USA terminates Mr. Dean without
cause and not by reason of disability, then Global USA is obligated to pay Mr.
Dean a lump sum equal to the amount which would have been paid to him if had he
remained employed until December 31, 2002 at his then current annual rate.
No other employment contracts exist between either Global or its
subsidiaries and the Named Executive Officers.
COMPOSITION OF THE COMPENSATION COMMITTEE
Global's Compensation Committee consists of David H. Brown, Robert J.
Urosevich and Brian W. Courtney. Mr. Urosevich has served as the Company's
President and Chief Operating Officer since August, 2001. Mr. Courtney was
appointed as the Company's Chief Executive Officer subsequent to the fiscal year
end. Compensation matters may also be reviewed and approved by the entire Board
of Directors.
REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee has no formal compensation policy. However,
executive officers are compensated in a manner consistent with the respective
contributions to their overall benefit to Global. Compensation is based on a
combination of factors, including a comparative review of information provided
to the Compensation Committee by compensation consultants, recruitment agencies
and auditors as well as historical precedent.
64
76
PERFORMANCE GRAPH
The following chart compares the total cumulative shareholder return for
Cdn.$100 invested in common shares of Global beginning December 31, 1996 with
the cumulative total return of the TSE 300 Total Return Index for Global's six
most recently completed fiscal years.
CUMULATIVE TOTAL RETURNS
DECEMBER 31, 1996 TO JUNE 30, 2001
ASSUMING AN INVESTMENT OF $100
[PERFORMANCE GRAPH]
--------------------------------------------------------------------------------------------
31-Dec-96 31-Dec-97 30-Jun-98 30-Jun-99 30-Jun-00 30-Jun-01
--------------------------------------------------------------------------------------------
Global Cdn.$0.65 Cdn.$0.67 Cdn.$3.00 Cdn.$2.65 Cdn.$1.03 Cdn.$1.90
TSE 300 12,061.95 13,222.76 15,367.27 14,864.79 10,195.50 16,849.28
COMPENSATION OF DIRECTORS
No cash compensation was paid to any Director of Global for the Director's
services as a Director during the fiscal year ended June 30, 2001 other than
directors' fees to Bob Urosevich (US$15,000), Clint Rickards (US$11,250), Brian
Courtney (US$11,250), John Larmer (US$11,250) and Nicholas Glass (US$18,750).
Global has no other standard arrangement pursuant to which the Directors are
compensated by Global for the services in their capacity as Directors except for
the granting from time to time of incentive stock options in accordance with the
policies of the TSE. Global reimburses Directors for expenses they incur to
attend board meetings.
INDEBTEDNESS OF DIRECTORS AND OFFICERS
No director or officer of Global, nor any associate of any such person, is
or has been indebted to Global at any time since the beginning of Global's most
recently completed financial year.
AUDITORS, TRANSFER AGENT AND REGISTRAR
The auditors of Global are Staley, Okada, Chandler & Scott, #225 -- 4299
Canada Way, Burnaby, B.C., V5G 1H3.
65
77
The Registrar and Transfer Agent of Global is Pacific Corporate Trust
Company, 10th Floor, 625 Howe Street, Vancouver, B.C. V6C 3B8.
MATERIAL CONTRACTS
Except for contracts entered into in the ordinary course of business, the
following are the only contracts entered into by Global, or its subsidiaries,
within the two year period preceding the date of this Circular which may
reasonably be regarded as presently material. Copies of all contracts have been
included as exhibits to Global's periodic reports with the SEC.
1. Arrangement Agreement, dated September 10, 2001, between Global,
Diebold and SubCo;
2. Bridge Loan Agreement dated June 29, 2001, as amended by Amendment
#1 dated August 3, 2001, between Global and Diebold;
3. Collateral and Guarantee Agreement, dated June 29, 2001, between
Global, Global Election Systems, Inc., Spectrum Print & Mail Services, Ltd.
and Diebold;
4. Registration Rights Agreement, dated June 29, 2001, between Global
and Diebold;
5. Contract Manufacturing Agreement, dated June 19, 2001, as amended
August 3, 2001 between Global and Diebold;
6. Share Purchase Agreement, dated September 29, 2000, between Global,
Spectrum Print & Mail Services Ltd., Deborah Dean, and Jeffrey Dean;
7. Change in Terms Agreement for Loan, dated May 22, 2000, between
Compass Bank and Global;
8. Change in Terms Agreement for Loan, dated May 27, 2000, between
Compass Bank and Global;
9. Loan Agreement, dated July 19, 2000 between Hibernia National Bank
and Global;
10. Improved Property Commercial Lease, dated September 26, 2000,
between Global and Jersey Investments, Inc.
11. Employment Agreement, dated January 19, 2001 with S. Michael
Rasmussen;
12. Letter Agreement, dated March 15, 2001, between Global and
Hibernia National Bank;
13. Agreement Concerning Loan, dated March 15, 2001, between Global,
Global Election Systems, Inc. and Jones, Gable & Company Limited;
14. Promissory Note as of March 15, 2001 between Global and Jones,
Gable & Company Limited;
15. Security Agreement, dated March 15, 2001, between Global Election
Systems, Inc. and Jones, Gable & Company Limited;
16. Property Lease, dated December 8, 1999, between Jersey
Investments, Inc. and Global;
17. Property Lease, dated August 6, 1999, between David Wood and
Global; and
18. Common Share Option Agreement dated September 11, 2001, between
Diebold and Global.
INFORMATION CONCERNING DIEBOLD
The following paragraphs summarize certain information relating to Diebold.
Global assumes no responsibility for the disclosure relating to Diebold. Global
Shareholders should be aware that public disclosure documents of Diebold filed
with the SEC have been filed in accordance with the Securities Laws of the
United States, and these requirements may differ from those of the provinces and
territories of Canada. As well, financial statements included or incorporated by
reference in the public disclosure documents of Diebold have not been prepared
in accordance with United States GAAP, not Canadian GAAP and may not be
comparable to the financial statements of Global. Information regarding Diebold
is available in its publicly
66
78
filed SEC Documents. The summary of information set forth below is qualified in
its entirety by reference to the full text of Diebold's Annual Report on Form
10-K for the fiscal year ended December 31, 2000, Diebold's Quarterly reports on
Form 10-Q for the quarters ended March 31, 2001 and June 30, 2001 and Diebold's
Proxy Statement on Form 14A filed with the SEC on March 15, 2001 and attached
hereto as Appendices H, I, J and K and incorporated herein by reference.
INCORPORATION
Diebold was incorporated under the laws of the State of Ohio in August,
1876, succeeding a proprietorship established in 1859. Diebold's corporate
headquarters are located at P.O. Box 3077, 5995 Mayfair Road, North Canton,
Ohio, 44720-8077, U.S.A.
Diebold develops, manufactures, sells and services self-service transaction
systems, electronic and physical security systems, various products used to
equip bank facilities, software and integrated systems for global financial and
commercial markets. Sales of systems and equipment are made directly to
customers by Diebold's sales personnel and by manufacturer's representatives and
distributors. Diebold has over 12,500 employees worldwide and has operations in
North and South America, as well as in Europe, Asia, Australia and South Africa.
For further information, see "Information Concerning Diebold".
Diebold's Common Shares are traded on the NYSE under the symbol "DBD".
CORPORATE STRUCTURE
Currently Diebold has 27 wholly-owned direct or indirect subsidiaries.
SubCo was incorporated on August 29, 2001 under the BCCA and is a direct
wholly-owned subsidiary of Diebold. SubCo will not carry on any business prior
to the Effective Time, other than in connection with the Transactions, and has
no material assets or liabilities. The authorized capital of SubCo is 1,000,000
common shares without par value, of which one hundred common share are
outstanding and are owned by Diebold.
BUSINESS OF DIEBOLD
Diebold develops, manufactures, sells and services self-service transaction
systems, electronic and physical security systems, various products used to
equip bank facilities, software and integrated systems for global financial and
commercial markets. Sales of systems and equipment are made directly to
customers by Diebold's sales personnel and by manufacturer's representatives and
distributors. The sales/support organization works closely with customers and
their consultants to analyze and fulfill the customers' needs. Products are sold
under contract for future delivery at agreed upon prices. In 2000, 1999, and
1998 Diebold's sales and services of financial systems and equipment accounted
for more than 90 percent of consolidated net sales.
The principal raw materials used by Diebold are steel, copper, brass,
lumber and plastics which are purchased from various major suppliers. Electronic
parts and components are also procured from various suppliers. These materials
and components are generally available in quantity at this time.
Diebold's operating results and the amount and timing of revenue are
affected by numerous factors including production schedules, customer
priorities, sales volume, and sales mix. During the past several years, Diebold
has dramatically changed the focus of its self-service business to that of a
total solutions approach. The value of unfilled orders is not as meaningful an
indicator of future revenues due to the significant portion of revenues derived
from Diebold's growing service-based business, for which order information is
not available. Therefore, Diebold believes that backlog information is not
material to an understanding of its business and does not disclose backlog
information.
All phases of Diebold's business are highly competitive, some products
being in competition directly with similar products and others competing with
alternative products having similar uses or producing similar results. Diebold
believes, based upon outside independent industry surveys, that it is a leading
manufacturer of self service systems in the United States and is also a market
leader internationally. In the area of automated transaction systems, Diebold
competes primarily with NCR Corporation, Triton, Wincor-Nixdorf, Dassault,
67
79
Fujitsu, Itautec and Tidel. In serving the security products market for the
financial services industry, Diebold competes primarily with Mosler. Of these,
some compete in only one or two product lines, while others sell a broader
spectrum of products competing with Diebold. However, the unavailability of
comparative sales information and the large variety of individual products make
it impossible to give reasonable estimates of Diebold competitive ranking in or
share of the market in its security product fields of activity. Many smaller
manufacturers of sales, surveillance cameras, alarm systems and remote drive-up
equipment are found in the market.
The total number of employees employed by Diebold at December 31, 2000 was
12,544 compared with 9,935 at the end of the preceding year. The increase in
2000 is primarily due to the acquisition of the financial self-service assets
and related development activities of European-based Groupe Bull and Getronics
NV.
Sales to customers outside the United States as a percent of total
consolidated net sales approximated 42.8 percent in 2000, 25.4 percent in 1999,
and 25.1 percent in 1998.
Diebold's corporate offices are located in North Canton, Ohio. It owns
manufacturing facilities in Canton and Newark, Ohio; Lynchburg, Stauton and
Danville, Virginia; and Sumter, South Carolina, and leases a manufacturing
facility in Rancho Dominguez, California. On January 5, 2001, Diebold announced
the closing of the Stauton, Virginia manufacturing facility. Diebold also has
manufacturing facilities in Argentina, Belgium, Brazil, China, France, India and
Mexico. Diebold has selling, service and administrative offices in the following
locations: throughout the United States, and in Argentina, Australia, Belgium,
Brazil, China, Columbia, Denmark, Estonia, France, Germany, Hong Kong, Hungary,
Indonesia, Paraguay, Portugal, Poland, Romania, Russia, Singapore, South Africa,
Spain, Taiwan, Thailand, Turkey, the United Arab Emirates, the United Kingdom,
and Uruguay. Diebold considers that its properties are generally in good
condition, are well maintained, and are generally suitable and adequate to carry
on Diebold's business.
LEGAL PROCEEDINGS
At December 31, 2000, Diebold was a party to several lawsuits that were
incurred in the normal course of business, none of which individually or in the
aggregate is considered material by management in relation to Diebold's
financial position or results of operations. While in management's opinion the
financial statements would not be materially affected by the outcome of any
present legal proceedings, commitments, or asserted claims, management is aware
of a potential claim by the Internal Revenue Service concerning the
deductibility of interest related to loans from Diebold's corporate-owned life
insurance (COLI) programs.
This claim represents an exposure for additional taxes of approximately
$17.6 million, excluding interest. Management is aware that the United States
Court of Appeals for the Eleventh Circuit, the U.S. Tax Court, the United States
District Court for the Southern District of Ohio, and the United States District
Court for the District of Delaware have recently reached decisions disallowing
the deduction of interest on COLI loans of similarly situated companies.
Notwithstanding these adverse court decisions, management believes that
Diebold's facts and circumstances are different from the above cited court
cases. Diebold has made no provision for any possible earnings impact from this
matter because it believes it has a meritorious position and will vigorously
content the IRS' claim. In the event the resolution of this matter is
unfavorable, it may have a material adverse effect on Diebold's result of
operations for the period in which such unfavorable resolution occurs.
DESCRIPTION OF SHARE CAPITAL
The authorized capital of Diebold consists of 125,000,000 Diebold Common
Shares, par value U.S.$1.25 per share and 1,000,000 Serial Preferred Shares, no
par value. All of the Diebold Common Shares are fully paid and non-assessable.
All of the Diebold Common Shares rank equally as to voting rights, participation
in a distribution of the assets of Diebold on liquidation, dissolution or
winding-up of Diebold and the entitlement to dividends. Currently, there are no
Serial Preferred Shares of Diebold issued or outstanding. The shareholders of
Diebold are entitled to receive notice of all shareholder meetings and to attend
and vote at such meeting. Each Diebold Common Share carries with it the right to
one vote.
68
80
The following sets out Diebold's existing share capital:
AMOUNT OUTSTANDING AMOUNT OUTSTANDING
AS OF AS OF
DESIGNATION OF SECURITY AMOUNT AUTHORIZED MARCH 5, 2001 JULY 31, 2001
----------------------- ----------------- ------------------ ------------------
Common Shares............................ 125,000,000 71,557,128 71,601,806(1)
Serial Preferred Shares.................. 1,000,000 0 0
---------------
(1) A total of 2,703,056 Diebold Common shares are also reserved for issuance
pursuant to the exercise of Diebold options and other rights to acquire
Diebold Common Shares. See "Information Concerning Diebold -- Options to
Purchase Securities".
PRINCIPAL INDEBTEDNESS
For a description of the terms of Diebold's indebtedness, please refer to
the financial information and management's discussion and analysis of results of
operations and financial conditions set forth in Diebold's 10-K for the fiscal
year ended December 31, 2000 and 10Qs for the Quarters ended March 31, 2001 and
June 30, 2001.
PRINCIPAL SHAREHOLDERS
To the knowledge of Diebold, no person beneficially owned more than 5
percent of the outstanding Diebold Common Shares as of December 31, 2000.
69
81
OPTIONS TO PURCHASE SECURITIES
A summary of all outstanding Diebold options to purchase securities of
Diebold is set forth below:
OPTIONS
All Diebold options to purchase Diebold Common Shares granted by Diebold to
its directors, officers, employees and consultants outstanding as of the date of
this Circular are as follows:
NUMBER OF
DESIGNATION OF OPTIONEES OPTIONS EXERCISE PRICE EXPIRY DATE
------------------------ --------- -------------- -----------
Executive Officers and Directors
(including subsidiaries)
(30 persons)....................... 1,200 41.94 03/02/02
18,000 38.00 04/15/02
6,075 13.063 01/26/03
20,000 40.344 04/14/03
7,425 17.093 01/31/04
24,500 24.625 04/20/04
2,694 32.00 04/20/04
3,500 27.313 10/11/04
4,950 15.085 01/30/05
31,500 28.59 04/18/05
11,700 24.193 01/25/06
6,750 25.344 01/31/06
36,000 29.91 04/25/06
1,500 34.127 09/02/06
14,400 38.08 01/29/07
34,600 47.532 01/28/08
3,000 29.344 05/31/08
146,300 34.813 01/27/09
176,500 22.88 01/26/10
35,000 26.41 04/02/10
40,000 26.78 09/30/10
291,000 28.69 02/06/11
Employees (including
subsidiaries) (4,058 persons)...... 25,921 9.425 01/29/02
375,600 41.94 03/02/02
2,250 38.00 04/15/02
112,500 37.96 07/01/02
55,226 13.063 01/27/03
2,500 40.344 04/14/03
53,545 17.093 01/31/04
48,745 15.085 01/30/05
25,200 15.778 04/04/05
1,800 19.054 06/04/05
1,125 19.418 06/18/05
173,330 24.193 01/25/06
750 25.253 04/14/06
70
82
NUMBER OF
DESIGNATION OF OPTIONEES OPTIONS EXERCISE PRICE EXPIRY DATE
------------------------ --------- -------------- -----------
191,580 38.08 01/30/07
162,050 47.532 01/28/08
500 29.188 01/27/09
201,800 34.813 01/27/09
1,000 30.25 02/14/09
165,880 22.88 01/26/10
4,000 24.81 03/03/10
1,500 27.032 04/16/10
5,000 31.63 06/14/10
2,160 28.47 06/30/10
1,000 26.156 10/01/10
171,500 28.69 02/06/11
In general, Diebold options are non-transferable and currently terminate on
the earliest of the following dates: (a) 90 days after the optionee ceases to be
an employee or director, (b) one year after the death or permanent total
disability of the optionee, (c) 10 years from the date of grant, or (d)
immediately if the optionee engages in detrimental activity. Grants of options
made to all employees in 1997 and grants of options made to directors are for a
term of five years, and such grants do not provide for termination as a result
of detrimental activity.
PRIOR SALES
No Diebold Common Shares were issued in the preceding twelve months
pursuant to a prospectus or private placement. Diebold Common Shares were issued
upon the exercise of stock options at exercise prices ranging from $6.475 to
$28.47.
DIVIDEND RECORD
Diebold has paid cash dividends on its common shares on a consistent basis.
Cash dividends per share of $0.62, $0.60, $0.56, $0.50 and $0.45 were paid in
2000, 1999, 1998, 1997 and 1996, respectively.
DIRECTORS AND OFFICERS
The names, offices held with Diebold and principal occupation of the
directors and officers of Diebold are as follows:
PRINCIPAL OCCUPATION OR EMPLOYMENT FOR
NAME POSITION WITH DIEBOLD PAST FIVE YEARS
---- --------------------- --------------------------------------
Walden W. O'Dell Chairman of the Board, 1999-2000
President and Chief Executive President and Chief Executive Officer
Officer and Director
1999
Group Vice President, Tool Group and
President of Ridge Tool
Division -- Emerson
1991-1999
President -- Liebert Corporation, a
subsidiary of Emerson
Louis V. Bockius, III Director since 1978 Chairman, Bocko Incorporated
71
83
PRINCIPAL OCCUPATION OR EMPLOYMENT FOR
NAME POSITION WITH DIEBOLD PAST FIVE YEARS
---- --------------------- --------------------------------------
Richard L. Crandall Director since 1996 Managing Director, Arbor Partners, LLC
Chairman of the Board, President and
Chief Executive Officer, Comshare,
Inc.
Gale S. Fitzgerald Director since 1999 Former Chairman and Chief Executive
Officer, Computer Task Group, Inc.
Donald R. Gant Director since 1977 Senior Director, The Goldman Sachs
Group, Inc. Limited Partner, The
Goldman Sachs Group, L.P.
L. Lindsey Halstead Director since 1993 Chairman of the Board, Ford of Europe
Phillip B. Lassiter Director since 1995 Chairman of the Board and Chief
Executive Officer, Ambac Financial
Group, Inc.
Chairman of the Board, President and
Chief Executive Officer, Ambac
Financial Group, Inc. q
John N. Lauer Director since 1992 Chairman of the Board, President and
Chief Executive Officer, Oglebay
Norton Co.
President and Chief Executive Officer,
Oglebay Norton Co.
William F. Massy Director since 1984 President, The Jackson Hole Higher
Education Group, Inc.
Professor of Education and Business
Administration, Emeritus, Stanford
University
Eric J. Roorda Director since 2001 Chairman, Procomp Amazonia Industria
Eletrononica, S.A.
President, Procomp Amazonia Industria
Eletrononica, S.A.
W. R. Timken, Jr. Director since 1986 Chairman-Board of Directors, President
and Chief Executive Officer, The
Timken Company
Wesley B. Vance President, North America 1999-2000
Senior Vice President, ArvinMeritor
and President-Worldwide Exhaust Group,
ArvinMeritor
1997-1999
Managing Director -- Arvin Exhaust,
Europe and Asia, Arvin Industries,
Inc.
1995-1997
Vice President, Business Development
and General Manager -- Arvin Ride
Control Emerging Markets, Arvin
72
84
PRINCIPAL OCCUPATION OR EMPLOYMENT FOR
NAME POSITION WITH DIEBOLD PAST FIVE YEARS
---- --------------------- --------------------------------------
Gregory T. Geswein Senior Vice President and 1999-2000
Chief Financial Officer Senior Vice President and Chief
Financial Officer-Pioneer-Standard
Electronics, Incorporated
1985-1999
Vice President and Corporate
Controller -- Mead Corporation
Michael J. Hillock President, ISS (International 1991-2001
Sales and Service) Senior Vice President, ISS
(International Sales and Service)
1997-99
Group Vice President, ISS
1993-97
Vice President and General Manager,
Sales and Service, Europe, Middle East
and Africa
David Bucci Senior Vice President, 1999-2001
Customer Solutions Group Senior Vice President, North America
1997-99
Group Vice President, NASS
1993-96
Vice President, NASS Group Vice
President, Global Services
1998-99
Vice President, Global Support
Services
1997-98
Vice President, Information Systems
Charles J. Bechtel Group Vice President and 1990-97
Chief Information Officer Vice President, Marketing and Sales
Operations
James L.M. Chen Vice President and Managing 1996-98
Director, Asia-Pacific Philips Electronics China B.V. General
Manager, Business Electronics
1994-96
AT&T China Company Limited, Managing
Director, Global Information
Solutions, China
Warren W. Dettinger Vice President, General Vice President, General Counsel and
Counsel and Assistant Assistant Secretary
Secretary
73
85
PRINCIPAL OCCUPATION OR EMPLOYMENT FOR
NAME POSITION WITH DIEBOLD PAST FIVE YEARS
---- --------------------- --------------------------------------
Reinoud G.J. Drenth Vice President and Managing 1996-97
Director, Europe Middle East, Vice President Worldwide
and Africa Marketing -- Diebold
1987-96
NCR Corporation
1995 -- Marketing Vice
President, Financial Services
Industry
Donald E. Eagon, Jr. Vice President, Global 1990-1999
Communications and Investor Vice President Corporate
Relations Communications
Jack E. Finefrock Vice President, Retail 1999-2001
Vice President, North America
1995-99
Division Vice President, NASS, Central
Division
1989-95
Regional Sales Manager-
Charee Francis-Vogelsang Vice President and Secretary Vice President and Secretary
Bartholomew J. Frazzitta Vice President, Retail and 1990-2000
Physical Security Group Vice President and General
Manager, Physical Security
Division
Dennis M. Moriarty Vice President, Customer 1999-2001
Satisfaction Vice President, North America
1996-99
Division Vice President, NASS, Eastern
Division
1993-96
Area General Manager -- Pitney Bowes
Mailing Systems
Anthony J. Rusciano Vice President, Customer 1999-2001
Satisfaction Vice President, North America
1993-99
Division Vice President, NASS, Major
Accounts Division
Charles B. Scheurer Vice President, Human Vice President, Human Resources
Resources
Ernesto R. Unanue Vice President and Managing 1984-97 Vice President of Sales,
Director, Latin America Caribbean and South American Division
Robert J. Warren Vice President and Treasurer Vice President and Treasurer
The members of Diebold's Audit Committee are L. Lindsey Halstead (Chair),
Louis V. Bockius, III, Richard L. Crandall, Gale S. Fitzgerald and W.R. Timken,
Jr.
The members of Diebold's Compensation and Organization Committee are
Phillip B. Lassiter (Chair), Donald R. Gant, John N. Lauer and William F. Massy.
The members of Diebold's Executive Committee are John N. Lauer (Chair),
Louis V. Bockius, III and W.R. Timken, Jr.
74
86
Diebold's Board of Directors has a number of additional committees
described in its Proxy Statement attached hereto as Appendix I and incorporated
herein by reference.
A description of the Compensation of Diebold's executive officers and
directors and the number and percentage of Diebold Common Shares owned by its
executive officers and directors can be found in the Proxy Statement attached
hereto as Appendix I and incorporated herein by reference.
AUDITORS, TRANSFER AGENT AND REGISTRAR
The auditors of Diebold are KPMG, LLP located in Cleveland, Ohio.
The Registrar and Transfer Agent of Diebold is The Bank of New York located
in New York, New York.
MATERIAL CONTRACTS
See the Exhibit Index to Diebold's Form 10-K for the fiscal year ended
December 31, 2000 for a list of Diebold's material contracts.
DIEBOLD SELECTED HISTORICAL FINANCIAL STATEMENTS
See the Diebold Consolidated Financial Statements set forth in Diebold's
Form 10-K for the fiscal year ended December 31, 2000 and the unaudited
consolidated financial information set forth in Diebold's Forms 10Q for the
quarters ending March 31, 2001 and June 30, 2001 attached to this circular as
Appendices H, I and J, respectively.
ANNUAL INFORMATION
See Diebold's Consolidated Financial Information in the Diebold Form 10-K
for the fiscal year ended December 31, 2000 attached as Appendix H to this
circular. See also "Selected Diebold Historical Consolidated Financial
Information" in the Summary.
QUARTERLY INFORMATION
See Diebold's unaudited consolidated financial information in Diebold's
Forms 10Q for the quarters ended March 31, 2001 and June 30, 2001 attached to
this circular as Appendices I and J, respectively. See also "Selected Diebold
Historical Consolidated Financial Information" in the Summary.
MANAGEMENT'S DISCUSSION AND ANALYSIS
See Management's Discussion and Analysis of Financial Condition and Results
of Operations in the Diebold Form 10-K for the fiscal year ended December 31,
2000 and Forms 10Q for quarters ended March 31, 2001 and June 30, 2001, attached
to this Circular as Appendices H, I and J, respectively.
DIEBOLD AFTER THE ARRANGEMENT
GENERAL
The Arrangement is not a material transaction for Diebold and following the
Arrangement, Diebold will continue to be a corporation with its headquarters
located in North Canton, Ohio and Global will be a wholly-owned subsidiary of
Diebold.
DIRECTORS AND OFFICERS
At the Effective Time, Global will become a subsidiary of Diebold. The
directors and officers of Diebold and SubCo will remain unchanged as a result of
the Arrangement. Following the Arrangement, Diebold will have the right to
appoint the directors and officers of Global and its current subsidiaries.
75
87
SHARE CAPITAL MATTERS
Apart from the issuance of Diebold Common Shares under the Arrangement, the
share capital of Diebold will not be changed as a result of the Arrangement.
COMPARATIVE MARKET PRICE DATA
Global Common Shares are listed on the TSE under the stock symbol "GSM" and
the AMEX under the stock symbol "GLE". Diebold Common Shares are listed on the
NYSE under the stock symbol "DBD".
On June 20, 2001, the last full trading day before the public announcement
by Global of its acquisition by Diebold pursuant to the Letter of Intent, the
closing price of the Global Common Shares on the TSE was Cdn.$2.40 and the AMEX
was U.S.$1.55 per Global Common Share. On June 21, 2001, the last trading day
before the public announcement by Diebold of the acquisition of Global, the
closing price of the Diebold Common Shares was U.S.$31.670 per Diebold Common
Share. On September 21, 2001, the closing price of the Global Common Shares on
the TSE was Cdn.$1.45 and on the AMEX was U.S.$0.95 per Global Common Share, and
the closing price of the Diebold Common Shares on the NYSE was U.S.$33.01 per
Diebold Common Share.
Since the market price of Global Common Shares and the U.S.$ to Cdn.$
exchange rate are subject to fluctuation due to numerous market forces, the
market value of the Diebold Common Shares that holders of Global Common Shares
may receive pursuant to the Arrangement may increase or decrease prior to the
Effective Time. Global Shareholders are urged to obtain current market
quotations for Global Common Shares and Diebold Common Shares, as well as
current exchange rates for Canadian dollars a U.S. dollars. Historical market
prices and dividends are not indicative of future market prices and dividends.
The Exchange Ratio shall be no less than 0.02421 Diebold Common Shares or
greater than 0.03027 Diebold Common Shares.
GLOBAL COMMON SHARES
The following table shows the high and low sales price and trading volume
of the Global Common Shares as reported on the TSE and the AMEX for the periods
indicated.
TSE (CDN.$) AMEX (U.S.$)
----------------------- -----------------------
PERIOD HIGH LOW VOLUME HIGH LOW VOLUME
------ ---- ---- --------- ---- ---- ---------
2001
Third Quarter (to Sept. 21,
2001).......................... 1.95 1.00 630,387 1.32 .65 909,200
Second Quarter................... 1.90 1.90 1,445,757 1.30 1.20 1,255,600
First Quarter.................... 3.15 2.95 2,792,221 2.04 1.95 795,200
2000(1)
Fourth Quarter................... 2.22 2.20 4,047,391 N/A N/A N/A
Third Quarter.................... 1.87 1.75 1,459,230 N/A N/A N/A
Second Quarter................... 1.05 1.03 1,221,558 N/A N/A N/A
First Quarter.................... 1.94 1.80 1,982,599 N/A N/A N/A
1999(1)
Fourth Quarter................... 2.10 1.90 2,257,397 N/A N/A N/A
Third Quarter.................... 1.89 1.80 986,473 N/A N/A N/A
Second Quarter................... 2.69 2.52 1,899,542 N/A N/A N/A
First Quarter.................... 2.26 2.10 2,987,853 N/A N/A N/A
76
88
---------------
(1) The Global Common Shares did not trade on the AMEX until the first quarter
of 2001.
DIEBOLD COMMON SHARES
The following table shows the high and low sales price of the Diebold
Common Shares as reported on the NYSE for the periods indicated.
NYSE
(U.S.$)
-------------------
PERIOD HIGH LOW
------ -------- --------
2001
Third Quarter (to Sept. 20, 2001)........................... 40.500 29.000
Second Quarter.............................................. 33.200 25.960
First Quarter............................................... 36.375 25.750
2000
Fourth Quarter.............................................. 34.750 22.938
Third Quarter............................................... 31.188 24.000
Second Quarter.............................................. 32.875 25.375
First Quarter............................................... 28.500 21.563
1999
Fourth Quarter.............................................. 27.563 19.688
Third Quarter............................................... 30.375 22.688
Second Quarter.............................................. 30.688 20.750
First Quarter............................................... 39.875 22.063
REGULATORY MATTERS
Neither Diebold nor Global is aware of any material licenses or regulatory
permits that it holds which might be adversely affected by the Transactions or
of any material approval or other action by any federal, provincial, state or
foreign government or any administrative or regulatory agency that would be
required to be obtained prior to the Effective Date, except as described below.
Similar regulatory requirements may apply in certain other countries in which
both Diebold and Global currently carry on business. Work is in progress to
satisfy all such regulatory requirements and to complete all filings in respect
of such requirements.
INVESTMENT CANADA ACT
The Investment Canada Act is Canada's statute of general application
governing the acquisition of control of Canadian businesses by non-Canadians.
The Transactions constitute the direct acquisition of control of a Canadian
business by a non-Canadian for purposes of the Investment Canada Act. A proposed
acquisition by a non-Canadian prospective acquirer is subject to prior review
and approval by the Minister responsible for Industry Canada (the "Minister") if
the value of the assets of the acquired business is equal to or greater than
Cdn.$209 million. The value of the assets of Global does not exceed Cdn.$209
million, and consequently, the Arrangement is not reviewable under the
Investment Canada Act. However, because the transactions do not fall within any
of the statutory exemptions available, Diebold will be required under the
Investment Canada Act to file a notification within thirty days of the closing
of the Transactions.
SECURITIES LAWS
The issuance of Diebold Common Shares under the Arrangement, and the resale
thereof, are generally subject to prospectus and registration requirements under
Canadian Securities Laws. Application has been made for rulings and orders of
Securities Authorities in Canada where applicable, granting exemptions from
77
89
these requirements. See "The Arrangement -- Resale of Diebold Common Shares
Received in the Arrangement -- Canada."
INCOME TAX CONSIDERATIONS FOR GLOBAL SHAREHOLDERS
THE FOLLOWING SUMMARIES ARE OF A GENERAL NATURE ONLY AND ARE NOT INTENDED
TO BE, NOR SHOULD THEY BE CONSTRUED TO BE, LEGAL OR TAX ADVICE TO ANY PARTICULAR
GLOBAL SHAREHOLDER. CONSEQUENTLY, GLOBAL SHAREHOLDERS ARE URGED TO CONSULT THEIR
OWN TAX ADVISORS FOR ADVICE AS TO THE TAX CONSIDERATIONS IN RESPECT OF THE
ARRANGEMENT HAVING REGARD TO THEIR PARTICULAR CIRCUMSTANCES.
CERTAIN CANADIAN FEDERAL INCOME TAX CONSIDERATIONS
In the opinion of Gowling Lafleur Henderson LLP, Canadian counsel for
Global, the following is a summary of the principal Canadian federal income tax
considerations in respect of the Arrangement generally applicable to a Global
Shareholder who, for purposes of the Canadian Tax Act, and at all relevant
times, holds Global Common Shares and will hold any Diebold Common Shares as
capital property and who deals at arm's length with and is not affiliated with
Global and Diebold. Global Common Shares and Diebold Common Shares will
generally constitute capital property to a holder thereof unless the holder
holds such shares in the course of carrying on a business of trading or dealing
in securities or otherwise as part of a business of buying and selling
securities or has acquired such shares in a transaction or transactions
considered to be an adventure in the nature of trade. A Global Shareholder that
is a Canadian Resident and whose Global Common Shares might not otherwise
qualify as capital property may be eligible to make an irrevocable election in
accordance with Subsection 39(4) of the Canadian Tax Act to have the Global
Common Shares and every "CANADIAN SECURITY" (as defined in the Canadian Tax Act)
owned by such holder in the taxation year of the election and in all subsequent
taxation years deemed to be capital property. This summary does not apply to
certain financial institutions (as defined in the Canadian Tax Act) that are
subject to the "mark-to-market" rules contained in the Canadian Tax Act. This
summary also does not apply to a holder of Global Common Shares with respect to
whom Diebold is or will be a foreign affiliate within the meaning of the
Canadian Tax Act. Such holders should consult their own tax advisors.
This summary is based upon the current provisions of the Canadian Tax Act
and the regulations issued thereunder, and counsel's understanding of the
current administrative and assessing practices and policies published by the
CCRA. This summary is not exhaustive of all possible Canadian federal income tax
considerations and, except as mentioned above, does not take into account any
changes in law or administrative and assessing practices, whether by
legislative, governmental or judicial decision or action, nor does it take into
account or consider any provincial, territorial or foreign tax considerations,
which may differ from the Canadian federal income tax considerations described
herein.
For the purposes of the Canadian Tax Act, all amounts relating to the
acquisition, holding or disposition of Diebold Common Shares (including
dividends, adjusted cost base and proceeds of disposition) must be expressed in
Canadian dollars. Amounts denominated in U.S. dollars must be converted into
Canadian dollars based on the prevailing U.S. dollar exchange rate generally at
the time such amounts arise.
GLOBAL SHAREHOLDERS THAT ARE CANADIAN RESIDENTS
The following portion of the summary is generally applicable to Global
Shareholders who at all relevant times are Canadian Residents.
Arrangement
The Arrangement will not result in a tax-free "rollover" to Global
Shareholders. Accordingly, a Global Shareholder will be regarded as having
disposed of his or her Global Common Shares for proceeds of disposition equal to
the aggregate fair market value of the Diebold Common Shares and cash received
for such Global Shareholder's Global Common Shares pursuant to the Arrangement.
A Global Shareholder will generally realize a capital gain (or capital loss)
equal to the amount by which the amount of such proceeds of
78
90
disposition exceeds (or is less than) the total of the holder's adjusted cost
base of the Global Common Shares and any reasonable costs of disposition. The
general tax treatment of capital gains and capital losses is discussed below
under "Taxation of Capital Gains and Capital Losses".
Diebold Common Shares
DISPOSITION OF DIEBOLD COMMON SHARES
The cost of Diebold Common Shares received on the Arrangement will be equal
to the fair market value of such Diebold Common Shares at the time of the
Arrangement. For the purpose of determining the adjusted cost base of each
Diebold Common Share to a holder, the cost of each such share will generally be
determined by averaging the cost to the holder of such Diebold Common Shares
with the adjusted cost base to the holder of all other Diebold Common Shares
owned by the holder immediately prior to the Arrangement.
Upon the disposition or deemed disposition of Diebold Common Shares, the
holder will in general realize a capital gain (or a capital loss) to the extent
the proceeds of disposition of the Diebold Common Shares are greater (or less)
than the total of the holder's adjusted cost base of the Diebold Common Shares
and any reasonable costs of disposition. The general tax treatment of capital
gains and capital losses is discussed below under "Taxation of Capital Gains and
Capital Losses".
DIVIDENDS ON DIEBOLD COMMON SHARES
Dividends, if any, received on Diebold Common Shares will be required to be
included in the recipient's income for the purposes of the Canadian Tax Act.
Such dividends received by a holder of Diebold Common Shares who is an
individual will not be subject to the gross-up and dividend tax credit rules in
the Canadian Tax Act. A holder of Diebold Common Shares that is a corporation
will include such dividends in computing its income and generally will not be
entitled to deduct the amount of such dividends in computing its taxable income.
A holder of Diebold Common Shares that is a Canadian-controlled private
corporation may be liable to pay an additional refundable tax of 6 2/3% on such
dividends. United States non-resident withholding tax on dividends generally
will be eligible for foreign tax credit or deduction treatment where applicable
under the Canadian Tax Act.
Taxation of Capital Gains and Capital Losses
Generally, one-half of any capital gain realized by a holder (a "taxable
capital gain") will be required to be included in income in the taxation year in
which it is realized, and one-half of any capital loss realized by a holder (an
"allowable capital loss") will be deductible, subject to certain limitations,
from taxable capital gains in the year of disposition. Allowable capital losses
in excess of taxable capital gains in a particular year may be deducted against
taxable capital gains in any of the three preceding years or any subsequent
year, to the extent and under the circumstances described in the Canadian Tax
Act.
Taxable capital gains of a Canadian-controlled private corporation may be
subject to an additional refundable tax of 6 2/3% on such taxable gains. Capital
gains realized by an individual may give rise to alternative minimum tax under
the Canadian Tax Act.
If the holder is a corporation, any capital loss realized by the holder on
a disposition of shares may in certain circumstances be reduced by the amount of
any dividends, including deemed dividends, which have been received on such
shares. Analogous rules may apply where a corporation is a member of a
partnership or a beneficiary of a trust that owns a Global Common Share or where
a trust or partnership of which a corporation is a beneficiary or a member is a
member of a partnership or beneficiary of a trust that owns any such share. The
recognition of all or a portion of a capital loss realized on the Arrangement by
a Global Shareholder that is a corporation, trust or partnership may be deferred
until such holder disposes of the Diebold Common Shares received on the
Arrangement.
79
91
Foreign Property Information Reporting
In general, a "specified Canadian entity", as defined in the Canadian Tax
Act, for a taxation year or fiscal period whose total cost amount of "specified
foreign property", as defined in the Canadian Tax Act, at any time in the year
or fiscal period exceeds Cdn.$100,000, is required to file an information return
for the year or period disclosing prescribed information, including the cost
amount, any dividends received in the year, and any gains or losses realized in
the year, in respect of such property. With some exceptions, a Canadian Resident
will be a specified Canadian entity. Diebold Common Shares will be specified
foreign property to a holder. Accordingly, holders should consult their own
advisors regarding compliance with these rules.
Proposed Amendments Relating to Foreign Investment Entities
On June 22, 2000, the Minister of Finance released draft income tax
legislation relating to the taxation of certain interests held by Canadian
Residents in certain non-resident entities. On September 7, 2000 the Department
of Finance issued a press release advising of amendments to the June 22
proposals, extending the consultation period and delaying implementation to
taxation years commencing after 2001. On August 2, 2001, the Minister of Finance
released revised draft legislation relating to this issue. The discussion that
follows is based upon the draft legislation in its current form.
The proposed rules will not apply to most taxpayers exempt from tax under
Part I of the Canadian Tax Act (including registered retirement savings plans,
registered retirement investment funds and deferred profit-sharing plans).
In general, the proposed rules would apply to Persons owning shares (or
property convertible into or exchangeable for shares, or rights to acquire
shares) of a "foreign investment entity" ("FIE") subject to certain exemptions.
An FIE includes a non-resident corporation if the total carrying value of
its "investment property" is greater than fifty (50%) percent of the total
carrying value of all of its property in a particular taxation year.
"Investment property" includes shares and debt of certain other (unrelated)
corporations, but does not include property that is used or held principally in
the course of carrying on a business, other than an "investment business",
carried on by the FIE or a related entity.
"Investment business" of an FIE includes a business carried on by the FIE
the principal purpose of which is to derive income from property (including
interest, dividends, rents, royalties or any other similar return on
investment), but excluding (amongst other activities) the leasing or licensing
of property manufactured, produced, developed or purchased by the FIE or a
related entity.
The exemptions include:
- Shares of an FIE listed on a prescribed stock exchange (which currently
includes the TSE, the NYSE and the AMEX) which are widely held and
actively traded;
- A right or rights to acquire shares of an FIE under an employee stock
option or similar agreement;
- Shares of an FIE resident in a country with which Canada has entered into
a tax treaty if:
- The shares are widely held and actively traded; or
- If the Person who owns the shares is resident in Canada and is liable
for income tax in the treaty country because the taxpayer is a citizen
of the treaty country.
The proposed rules would require an annual determination of whether Diebold
is an FIE (based primarily on the nature of its assets and activities) and, if
so, whether the requirements for the exemption are applicable.
Generally speaking, where a Person holds a share of a non-resident
corporation the shares of which are widely held and actively traded on a
prescribed stock exchange, the principal business of which is not an "investment
business" and which is resident in a country with which Canada has entered into
a tax treaty, that Person will not be subject to the proposed FIE rules.
80
92
Dissenting Shareholders
Under the current administrative practice of the CCRA, a Dissenting
Shareholder who receives a cash payment in respect of the holder's Global Common
Shares in respect of which the holder dissents as described under "Dissenting
Shareholders' Rights" will be considered to have disposed of the Global Common
Shares for proceeds of disposition equal to the amount of the cash payment,
exclusive of the portion thereof that is interest awarded by a court. A Global
Shareholder will realize a capital gain (or capital loss) on such disposition
computed in the same manner as described above under "Arrangement". The general
tax treatment of capital gains and capital losses is discussed above under
"Taxation of Capital Gains and Capital Losses". A Dissenting Shareholder who
receives interest on the fair value of the holder's Global Common Shares will be
required to include the interest in computing the holder's income in accordance
with the applicable rules of the Canadian Tax Act.
GLOBAL SHAREHOLDERS THAT ARE NOT CANADIAN RESIDENTS
The following portion of the summary is generally applicable to a holder of
Global Common Shares who, at all relevant times, is not and has not been a
Canadian Resident and to whom the Global Common Shares are not "taxable Canadian
property" (as defined in the Canadian Tax Act) (a "Non-Resident Global
Shareholder"). Special rules, which are not discussed in this summary, may apply
to a non-resident that is an insurer carrying on business in Canada and
elsewhere.
Generally, Global Common Shares will not be taxable Canadian property of a
Global Shareholder at a particular time provided that such shares are listed on
a prescribed stock exchange (which currently includes the TSE, the NYSE and the
AMEX), the Global Shareholder does not use or hold, and is not deemed to use or
hold, such shares in connection with carrying on a business in Canada and the
Global Shareholder, alone or together with persons with whom such holder does
not deal at arm's length, has not owned (or had an interest in or option in
respect of) 25% or more of the issued shares of any class or series in the
capital of Global at any time during the 60 month period immediately preceding
the particular time.
Arrangement
Under the Canadian Tax Act, a Non-Resident Global Shareholder will not be
subject to tax on any capital gain, or entitled to deduct any capital loss,
realized on the disposition of Global Common Shares pursuant to the Arrangement
or the disposition or deemed disposition of Diebold Common Shares received in
the Arrangement .
Dissenting Shareholders
As stated above under "Global Shareholders that are Canadian
Residents -- Dissenting Shareholders", under the current administrative practice
of the CCRA, a Dissenting Shareholder who receives a cash payment in respect of
the holder's Global Common Shares in respect of which the holder dissents as
described under "Dissenting Shareholders' Rights" will be considered to have
disposed of the Global Common Shares for proceeds of disposition equal to the
amount of the cash payment, exclusive of the portion thereof that is interest
awarded by a court. Under the Canadian Tax Act, a Non-Resident Global
Shareholder will not be subject to tax on any capital gain, or entitled to
deduct any capital loss, realized on such disposition of Global Common Shares. A
Dissenting Shareholder who receives interest on the fair value of the holder's
Global Common Shares will be subject to withholding tax thereon at the rate of
25%, subject to reduction by an applicable income tax convention.
Eligibility for Investment
Provided the Diebold Common Shares are listed on a prescribed stock
exchange (which currently includes the NYSE), the Diebold Common Shares will be
qualified investments under the Canadian Tax Act for trusts governed by
"registered retirement savings plans", "registered retirement income funds",
"deferred profit sharing plans", ("deferred income plans"), and "registered
education savings plans".
81
93
The Diebold Common Shares will be foreign property under the Canadian Tax
Act. Deferred income plans and certain other persons who are exempt from tax
will be subject to a monthly penalty tax under Part XI of the Canadian Tax Act
if, at the end of any month, the cost amount (as defined in the Canadian Tax
Act) of foreign property then held by such holder exceeds, generally, 30% of the
cost amount to it of all property then held. For these purposes, the cost of
Diebold Common Shares received on the Arrangement will be equal to the fair
market value of such shares at the time of the Arrangement. For the purpose of
determining the cost amount of each Diebold Common Share to a holder, the cost
of each such Diebold Common Share will generally be determined by averaging the
cost to the holder of such shares with the cost amount to the holder of all
other Diebold Common Shares owned by the holder immediately prior to the
Arrangement.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS TO U.S. HOLDERS
The following discussion summarizes certain United States federal income
tax considerations relevant to the Arrangement that are generally applicable to
U.S. Holders. This discussion is based on currently existing provisions of the
Code, existing and published proposed IRS regulations and current administrative
rulings and court decisions, all of which are subject to change. Any such
change, which may or may not be retroactive, could alter the United States
federal income tax consequences described in this Circular. Special tax
considerations not described below may be applicable to particular classes of
United States taxpayers, including individuals who have expatriated from the
U.S., dealers in securities or currencies, traders in securities that mark to
market, financial institutions, tax-exempt organizations, insurance companies,
Global Shareholders whose functional currency is not the U.S. dollar, persons
holding Global Common Shares as part of a hedging, "straddle," conversion or
other integrated transaction and holders who acquired their Global Common Shares
through the exercise of an employee stock option or otherwise as compensation or
through a tax-qualified retirement plan. The discussion assumes that the Global
Common Shares are held by U.S. Holders as capital assets within the meaning of
Section 1221 of the Code. In addition, no information is provided herein with
respect to the tax considerations of the Arrangement under applicable foreign,
state or local laws.
The receipt by U.S. Holders of Diebold Common Shares and cash (including
cash received in lieu of a fractional share) in connection with the Arrangement,
or the receipt of cash or other property pursuant to the exercise of Dissent
Rights, will be a taxable transaction for United States federal income tax
purposes. Each U.S. Holder's gain or loss will be equal to the difference
between the value of the Transaction Consideration received pursuant to the
Arrangement and the U.S. Holder's tax basis in his Global Common Shares. This
gain or loss will be a capital gain or loss (other than, with respect to the
exercise of a Dissent Right, amounts, if any, which are or are deemed to be
interest for federal income tax purposes, which amounts will be taxed as
ordinary income). For this purpose, a U.S. Holder of Global Common Shares must
calculate gain or loss separately for each identifiable block of Global Common
Shares exchanged by such holder pursuant to the Arrangement. The value of the
Transaction Consideration received in connection with the Arrangement will be
the value as of the Effective Date of the Diebold Common Shares and cash
received (including cash received in lieu of a fractional share) by U.S.
Holders. In the case of individuals, trusts and estates, this capital gain will
be subject to a maximum United States federal income tax rate of 20% for Global
Common Shares held for more than one year prior to the Effective Date. For
shares held less than one year prior to the Effective Date, the gain or loss
will be a short-term capital gain or loss. As a general rule, short-term capital
gains are taxed at ordinary income rates. There are limits on the deductibility
of capital losses. A U.S. Holder's tax basis in any Diebold Common Shares
received in the Arrangement will equal the value of such shares at the Effective
Date, and a U.S. Holder's holding period for such shares will begin on the day
following the Effective Date.
A U.S. Holder may be subject to backup withholding with respect to the cash
consideration received unless the holder (a) is a corporation or comes within
other exempt categories and, when required, demonstrates this fact or (b)
provides a correct taxpayer identification number ("TIN"), certifies as to no
loss of exemption from backup withholding and otherwise complies with applicable
requirements of the backup withholding rule. The Economic Growth and Tax Relief
Reconciliation Act of 2001 (Public Law 107-16)
82
94
reduced the rate for backup withholding. The backup withholding rate is 30.5%
effective for amounts paid after August 6, 2001 and 30% effective for amounts
paid after December 31, 2001. To prevent the possibility of backup federal
income tax withholding on cash payments made to certain holders, each holder
must provide the disbursing agent with his correct TIN by completing a
Substitute Form W-9 which will be included in the Letter of Transmittal to be
mailed to all Global Shareholders following the final approval of the
Arrangement. Instructions for completing the Substitute Form W-9 will accompany
the Letter of Transmittal. A holder of Global Common Shares who does not provide
the Depositary with his or her correct TIN may be subject to penalties imposed
by the IRS, as well as backup withholding. Any amount withheld under these rules
may be allowed as a refund or credited against the U.S. Holder's United States
federal income tax liability. The Depositary will report to the U.S. Holders and
the IRS the amount of any "reportable payments," as defined in Section 3406 of
the Code, and the amount of tax, if any, that is withheld.
The foregoing tax discussion is included for general information only and
is based upon currently existing tax Law. Each U.S. Holder should consult his or
her own tax advisor as to the specific tax consequences of the Arrangement to
that U.S. Holder, including the application and effect of United States federal,
state, local and other tax Laws and the possible effect of changes in such tax
Laws.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS FOR NON-U.S. HOLDERS
The following is a summary of certain United States federal income tax
considerations generally applicable to Global Shareholders who are Non-U.S.
Holders and who receive Diebold Common Shares and cash in connection with the
Arrangement. This summary does not apply to Global Shareholders who are U.S.
Holders.
This summary does not address all aspects of United States federal income
taxation that may be applicable to Non-U.S. Holders in light of their particular
circumstances. This discussion is limited to Non-U.S. Holders who hold their
Global Common Shares and who will hold their Diebold Common Shares as capital
assets within the meaning of Section 1221 of the Code and does not consider the
tax treatment of Non-U.S. Holders who hold Global Common Shares through a
partnership or other pass-through entity. This discussion is based on current
law, which is subject to change, possibly with retroactive effect.
EXCHANGE OF GLOBAL COMMON SHARES
Non-U.S. Holders will not be subject to United States federal income tax as
a result of an exchange of Global Common Shares for Diebold Common Shares, cash
or a combination thereof pursuant to the Arrangement or pursuant to the exercise
of Dissent Rights, unless such gain is "effectively connected" with a United
States trade or business of the Non-U.S. Holder (or, if an income tax treaty
applies, is attributable to a permanent establishment of the Non-U.S. Holder in
the United States) or, in the case of gain recognized by a Non-U.S. Holder who
is an individual, such individual is present in the United States for a period
or periods aggregating 183 days or more during the taxable year of disposition
and certain other conditions are satisfied. In certain circumstances, such
holders could be subject to backup withholding, which is discussed below under
"Backup Withholding and Information Reporting".
DIVIDENDS ON DIEBOLD COMMON SHARES
Dividends, if any, paid to a Non-U.S. Holder with respect to Diebold Common
Shares will generally be subject to withholding of United States federal income
tax at a rate of 30% (or such lower rate as may be specified by an applicable
income tax treaty) unless the dividend is (a) "effectively connected" with the
conduct of a trade or business by the Non-U.S. Holder within the United States,
or (b) if an income tax treaty applies, attributable to a United States
permanent establishment of the Non-U.S. Holder, in which case the dividend will
be taxed at ordinary United States federal income tax rates. For instance, under
the currently applicable Canada -- U.S. Income Tax Treaty, as amended by
Protocols, a maximum rate of 15% generally applies to dividends from United
States sources distributed to residents of Canada who are entitled to treaty
benefits. A Non-U.S. Holder may be required to satisfy certain certification
requirements to claim treaty benefits or otherwise claim a reduction of, or
exemption from, the United States withholding tax described
83
95
above. If the Non-U.S. Holder is a corporation, any "effectively connected"
income may also be subject to an additional "branch profits tax".
SALE OR EXCHANGE OF DIEBOLD COMMON SHARES
A Non-U.S. Holder will generally not be subject to United States federal
income or withholding tax in respect of any gain recognized on the sale or other
disposition of Diebold Common Shares unless (a) the gain is "effectively
connected" with the conduct of a trade or business by the Non-U.S. Holder within
the United States, or if an applicable tax treaty provides, is attributable to a
permanent establishment of the Non-U.S. Holder in the United States; (b) in the
case of a Non-U.S. Holder who is an individual, the Non-U.S. Holder is present
in the United States for a period or periods aggregating 183 or more days during
the taxable year of the sale or other disposition and certain other conditions
are satisfied; or (c) Diebold is within the meaning of Section 897(c)(2) of the
Code or has been a "United States real property holding corporation" ("USRPHC")
for United States federal income tax purposes during the five-year period
preceding such sale or other disposition (or if shorter, the period that the
Non-U.S. Holder held such shares) (the "USRPHC Period"), as discussed below.
Diebold has advised Global that it is not a USRPHC for United States federal
income tax purposes as of the date of the Circular. If Diebold were determined
to be a USRPHC at any time during the USRPHC Period, then gain on the sale or
other disposition of the Diebold Common Shares by a Non-U.S. Holder generally
would not be subject to United States federal income tax provided: (a) the
Diebold Common Shares are "regularly traded on an established securities market"
within the meaning of Section 897(c)(3) of the Code, and (b) the Non-U.S. Holder
did not actually or constructively own more than 5% of the Diebold Common Shares
during the USRPHC Period. Otherwise, a Non-U.S. Holder who (actually or
constructively) owned more than 5% of the Diebold Common Shares at any time
during such period would generally be subject to United States federal income
tax on any gain recognized on the sale or other disposition of the Diebold
Common Shares as if such gain were "effectively connected" with the conduct of a
United States trade or business. A Non-U.S. Holder who owns more than 5% of the
Diebold Common Shares during the USRPHC Period should consult his or her tax
advisor concerning the United States federal income tax consequences to it if
Diebold were determined to be a USRPHC.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Under current United States federal income tax Laws, backup withholding and
information reporting requirements apply to certain payments of dividends made
to, and to proceeds of sale received by, certain Non-U.S. Holders holding
Diebold Common Shares. The Economic Growth and Tax Relief Reconciliation Act of
2001 (Public Law 107-16) reduced the rate for backup withholding. The backup
withholding rate is 30.5% effective for amounts paid after August 6, 2001 and
30% effective for amounts paid after December 31, 2001.
In the case of a Non-U.S. Holder, backup withholding and information
reporting will generally not apply to dividends paid by Diebold or its paying
agent (absent actual knowledge that the holder is actually a U.S. Holder), or
with respect to payments on the sale, exchange or other disposition of Diebold
Common Shares (absent actual knowledge by the broker that the holder is actually
a U.S. Holder), if the holder has provided the properly required certification
under penalties of perjury that it is not a U.S. Holder or has otherwise
established an exemption. Recently promulgated regulations under the Code
provide certain presumptions under which a foreign holder will be subject to
backup withholding and information reporting unless such holder certifies as to
its non-U.S. status or otherwise establishes an exemption. In addition, such
regulations change the procedural requirements related to establishing a
holder's non-U.S. status.
Non-U.S. Holders should consult their own tax advisors regarding the
application of information reporting and backup withholding in their particular
situations, the availability of an exemption therefrom, and the procedure for
obtaining an exemption, if available, and the impact, if any, of the recently
promulgated regulations. Any amounts withheld from a payment to a Non-U.S.
Holder under the backup withholding rules may be allowed as a credit against
that holder's United States federal income tax liability and may entitle that
holder to a refund, provided that required information is furnished to the IRS.
84
96
DIEBOLD'S RISK FACTORS
Global Shareholders should carefully consider the risks described below and
the other information in this report. If any of the following risks actually
materialize, Diebold's business, financial condition or results of operations
could suffer and you could lose all or part of your investment in Diebold Common
Shares. The risks described below are not the only ones Diebold faces.
A SUBSTANTIAL AMOUNT OF DIEBOLD'S REVENUES COMES FROM SALES AND SERVICING OF
SELF-SERVICE SYSTEMS.
Diebold receives a substantial amount of its revenues from sales and
servicing of self-service systems. Diebold expects its future success to depend
in large part on the sale and servicing of self-service systems. Because of this
concentration, Diebold's business could be materially adversely affected by a
decline in demand for these products or an increase in competition. Diebold's
future performance will depend in part on the successful development,
introduction and customer acceptance of new self-servicing systems products and
other products. There can be no assurance that Diebold will be successful in
designing, manufacturing, marketing and selling any new products in the future.
DIEBOLD'S OPERATING RESULTS MAY FLUCTUATE FOR A VARIETY OF REASONS, MANY OF
WHICH ARE BEYOND ITS CONTROL.
Diebold may be unable to sustain its recent growth in revenues and profits
in the future. Its business strategies may fail and its quarterly and annual
operating results may vary significantly from period to period depending on:
- the volume and timing of orders received during the period,
- the timing of Diebold's and its competitors' response to new and emerging
technologies as well as changes in customers' requirements,
- the impact of price competition on its selling prices,
- the availability and pricing of components for its products,
- seasonal fluctuations in operations and sales,
- changes in product or distribution channel mix,
- changes in operating expenses,
- changes in its strategy, and
- general economic factors.
In addition, stock markets generally, including the New York Stock Exchange,
experience significant price and volume volatility from time to time which may
adversely affect the market price of the Diebold Common Shares for reasons
unrelated to Diebold's performance.
DIEBOLD'S FAILURE TO ADAPT TO CHANGES IN TECHNOLOGY OR TO DEVELOP AND
INTRODUCE NEW PRODUCTS OR ENHANCEMENTS TO EXISTING PRODUCTS COULD SERIOUSLY
REDUCE THE DEMAND FOR DIEBOLD'S PRODUCTS AND HAVE AN IMMEDIATE AND MATERIAL
ADVERSE EFFECT ON DIEBOLD'S FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Self service systems are characterized by changing technology and frequent
new product introductions and product enhancements. As a result, Diebold's
success is highly dependent upon Diebold's ability to design and introduce new
products and services with enhanced features in a cost-effective and timely
manner to meet evolving customer requirements. Diebold has committed substantial
resources to the development of new products and services. Since new product and
services development commitments must be made well in advance of sales, however,
new product decisions must anticipate both future demand and the technology that
will be responsive to such demand. Delays in developing new products with
anticipated technological advances or in commencing releases of new products may
have an adverse effect on Diebold's financial condition and results of
operations. There can be no assurance that new products will gain market
acceptance or will not be adversely affected by technological changes or new
product announcements by Diebold's competitors. In
85
97
addition, if Diebold is not able to keep up with changing technologies,
Diebold's existing products could become obsolete.
CURRENCY FLUCTUATIONS MAY SIGNIFICANTLY AFFECT DIEBOLD'S RESULTS OF OPERATIONS
AS IT GENERATES REVENUE AND INCURS EXPENSES IN CURRENCIES OTHER THAN THE
DOLLAR.
Diebold's results of operations can be significantly affected by changes in
exchange rates. Exchange rate fluctuations can impact the amount of revenue
recorded in Diebold's statement of income upon translation of other currencies
into dollars and the amount of expenses recorded in its statement of income. The
majority of the exchange losses in fiscal year 2000 were related to Diebold's
operations in Latin America. There can be no assurance that Diebold will not
incur significant exchange losses in the future as it continues to expand its
sales and operations internationally.
DIEBOLD'S FAILURE TO ADEQUATELY PROTECT ITS INTELLECTUAL PROPERTY COULD HARM
ITS COMPETITIVE MARKET POSITION AND HAVE A MATERIAL ADVERSE EFFECT ON ITS
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Diebold's success is dependent upon proprietary technology. Diebold relies
on a combination of copyright, patent, trademark, trade secret law and
contractual restrictions to protect the proprietary aspects of its technology.
These legal protections afford only limited protection. In addition, effective
copyright, patent, trademark and trade secret protection may be unavailable or
limited in certain countries where intellectual property rights are protected
less than in the United States or Western Europe. Diebold's failure to
adequately protect its technology may lead to the development of similar
technology by third parties. Furthermore, Diebold enters into confidentiality
and license agreements with its employees, distributors, customers and potential
customers and limit access to and distribution of its software, documentation
and other proprietary information. There can be no assurance that the steps
taken by Diebold in this regard will be adequate to deter misappropriation or
independent third party development of its technology.
Litigation may be necessary to enforce its intellectual property rights and
to determine the validity and scope of the proprietary rights of others. Any
litigation could result in substantial costs to Diebold and diversion of its
resources and could seriously harm its operating results. Diebold may not
prevail in any such litigation and its intellectual property rights may be found
invalid or unenforceable.
CLAIMS THAT DIEBOLD'S PRODUCTS INFRINGE THE PROPRIETARY RIGHTS OF OTHERS COULD
HARM ITS SALES, INCREASE ITS COSTS AND, AS A RESULT, HAVE A MATERIAL ADVERSE
EFFECT ON ITS FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Other companies or individuals, including Diebold's competitors, may have
or obtain copyrights, patents, trademarks or other proprietary rights that could
prevent, limit or interfere with its ability to make, use or sell its products.
Furthermore, companies utilizing technology are increasingly bringing suits
against others alleging infringement of their proprietary rights by others,
particularly patent rights. As a result, Diebold may be held by a court to have
infringed on the proprietary rights of others. It has received, and may in the
future receive, communications alleging possible infringement by Diebold of
patents and other intellectual property rights of others. Diebold could incur
substantial costs to defend any litigation brought against it, regardless of its
merits, and Diebold's failure to prevail in intellectual property litigation
could force it to do one or more of the following:
- cease making, licensing or using products or services that incorporate
the challenged intellectual property;
- obtain and pay for licenses from the holder of the infringed intellectual
property right, which licenses might not be available on acceptable
terms, if at all; or
- redesign its products, which could be very costly and force it to
interrupt product licensing and product releases, and might not be
feasible at a reasonable cost or at all.
If any of the above situations were to occur, it could have a material adverse
effect on Diebold's financial conditions and results of operations.
86
98
SINCE DIEBOLD HAS MULTINATIONAL OPERATIONS, IT IS SUBJECT TO CERTAIN RISKS,
INHERENT IN INTERNATIONAL OPERATIONS, THAT COULD ADVERSELY AFFECT ITS
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
As a global participant in the self service systems industry, Diebold's
business is subject to certain risks inherent in international operations that
are beyond its control. These risks include:
- recessionary trends, including deflationary pressure;
- tariffs, duties, export controls and other trade barriers;
- unexpected changes in regulatory requirements and applicable laws;
- the burdens of complying with a wide variety of foreign laws and
regulations; and
- political and economic instability.
Any of these factors could harm its operating results. There can be no assurance
that Diebold will not experience material adverse effects with respect to its
international operations and sales.
CERTAIN PROVISIONS OF DIEBOLD'S AMENDED AND RESTATED ARTICLES OF
INCORPORATION, AS AMENDED, CODE OF REGULATIONS AND OHIO LAW COULD MAKE A
TAKE-OVER MORE DIFFICULT OR COULD ADVERSELY AFFECT THE MARKET PRICE OF DIEBOLD
COMMON SHARES
Diebold's Amended and Restated Articles of Incorporation, as amended, Code
of Regulations and Laws of Ohio contain provisions that might make it more
difficult for someone to acquire control of Diebold in a transaction not
approved by its board of directors. These provisions could also discourage proxy
contests and make it more difficult for Diebold's shareholders to elect
directors other than the candidates nominated by Diebold's board. Diebold's
Amended and Restated Articles of Incorporation, as amended, authorizes its board
of directors to determine the rights, preferences, privileges and restrictions
of unissued series of preferred stock, without any vote or action by its
shareholders. Thus, the board can authorize and issue shares of preferred stock
with voting or conversion rights that could adversely affect the voting or other
rights of holders of Diebold Common Shares. In addition, the issuance of
preferred stock may have the effect of delaying, deferring or preventing a
change of control of Diebold, because the terms of the preferred stock that
might be issued could potentially prohibit its consummation of any merger,
reorganization, sale of substantially all of our assets, liquidation or other
extraordinary corporate transaction without the approval of its shareholders.
ARRANGEMENT RISK FACTORS
CERTAIN PROVISIONS IN THE ARRANGEMENT AGREEMENT AS WELL AS CERTAIN
ARRANGEMENTS ENTERED INTO BETWEEN THE TWO COMPANIES MAY DISCOURAGE OTHER
COMPANIES FROM TRYING TO ACQUIRE GLOBAL.
In the Arrangement Agreement, Global has agreed to pay the Termination Fee
in the amount of $1,000,000 plus all out-of-pocket expenses incurred by Diebold,
to Diebold under specified circumstances. For example, while the Arrangement
Agreement is in effect, Global is prohibited from continuing or entering into,
or soliciting, initiating or encouraging any inquiries or negotiations that may
lead to an arrangement or other business combination, or an Alternative
Proposal, with any person other than Diebold. In addition, Global has entered
into a series of agreements with Diebold, such as the Bridge Loan Agreement, the
Contract Manufacturing Agreement and the Option Agreement (as discussed
elsewhere in this Circular), whereby Global has granted Diebold the right to
acquire Global Common Shares on favorable terms under specified circumstances,
regardless of whether the Arrangement is consummated. These provisions could
discourage other companies from trying to acquire Global even though those other
companies might be willing to offer greater value to Global Shareholders than
Diebold has offered in the Arrangement Agreement. The payment of the Termination
Fee could also have a material adverse effect on Global's financial condition.
87
99
THE BUSINESS OF THE COMBINED COMPANY AND THE TRADING PRICE OF DIEBOLD COMMON
SHARES MAY BE AFFECTED BY FACTORS DIFFERENT FROM THOSE WHICH AFFECT THE
BUSINESS OF GLOBAL AND THE TRADING PRICE OF GLOBAL COMMON SHARES.
As a result of the Arrangement, Global's business will be integrated into
Diebold's business. The combined company's business will be more diversified
than that of Global, and the combined company's results of operations, as well
as the trading price of Diebold Common Shares, may be affected by factors
different from those affecting Global's results of operations and the price of
Global Common Shares. There can be no assurance that the value of Diebold Common
Shares will not decline for reasons not anticipated by Global Shareholders.
THE NUMBER OF DIEBOLD COMMON SHARES THAT GLOBAL SHAREHOLDERS WILL RECEIVE IN
EXCHANGE FOR EACH GLOBAL COMMON SHARE AND THE VALUE OF THOSE SHARES WILL NOT
BE FIXED UNTIL AFTER THE MEETING.
In the Arrangement, Global Shareholders will receive cash and Diebold
Common Shares with a value per Global Common Share of U.S.$1.135, subject to
there being no more than 0.03027 and no fewer than 0.02421 Diebold Common Shares
issued per Global Common Share. The number of shares of Diebold Common Stock to
be issued in the Arrangement will depend on the average of the daily volume
weighted average prices of Diebold's Common Stock on the New York Stock Exchange
for the ten consecutive trading days ending with the trading day immediately
preceding the Effective Time (the "Measurement Period"). Because we can not
calculate the Measurement Period value until the end of the Measurement Period,
we can not know at this time the exact number of Diebold Common Shares or the
value of these shares that will be issued in respect of Global Common Shares,
which may be greater or less than the market price of the Diebold Common Stock
on the date of this document or the date of the Meeting and will affect the
value of the consideration you receive in the Arrangement. If the value of
Diebold Common Shares falls significantly due to volatile market conditions or
otherwise, the maximum number of Diebold Common Shares issued per Global Common
Share will not exceed 0.03027 shares, which could result in Global Shareholders
receiving less than U.S.$1.135 per Global Common Share.
COMPARISON OF SHAREHOLDERS' RIGHTS
Reference is made to Appendix F, Comparison of Shareholders' Rights,
attached to this Circular, for a comparison of the rights of Global Shareholders
under the BCCA and the Global Governing Documents by which Global is governed
and under the Ohio General Corporation Law and the Diebold Governing Documents
by which Diebold is governed.
DISSENTING SHAREHOLDERS' RIGHTS
There is no statutory right of dissent under the BCCA. However, as
indicated in the Notice of Meeting, under the Plan of Arrangement and pursuant
to the Interim Order, a Global Shareholder is entitled to dissent and be paid
the fair market value of his/her Global Common Shares in accordance with the
procedure set out in Section 207 of the BCCA, as modified by the Interim Order,
if the shareholder objects to the Arrangement Resolution and the Arrangement
becomes effective. A shareholder may dissent only with respect to all of the
Global Common Shares held by the shareholder on behalf of any one beneficial
owner and registered in the shareholder's name. Accordingly, a shareholder is
not entitled to dissent with respect to any Global Common Shares on the
Arrangement if the shareholder causes to be voted any of such shares
beneficially owned by him/her in favor of the Arrangement Resolution. Only
registered shareholders may exercise dissent rights.
Under the Interim Order and in accordance with section 207 of the BCCA, in
order to dissent, a registered holder of Global Common Shares must send a
written notice of dissent (a "Notice of Dissent") to the Arrangement Resolution
to Gowling Lafleur Henderson, LLP, Suite 2300, 1055 Dunsmuir Street, P.O. Box
49122, Vancouver, British Columbia, V7X 1J1, Attn: Brett Kagetsu to be received
before 5:00 p.m. (Vancouver time) on October 18, 2001. The execution or exercise
of a proxy does not constitute such a notice of dissent. A vote against the
Arrangement Resolution or an abstention does not constitute such a Notice of
88
100
Dissent, but a shareholder need not vote his/her Global Common Shares against
the Arrangement Resolution in order to object. Within 10 days after the approval
of the Arrangement Resolution by the Global Shareholders at the Meeting, Global
will send to each shareholder who has filed a Notice of Dissent a notice of
intention to act (the "Company Notice"). A Company Notice is not required to be
sent to any shareholder who voted for the Arrangement Resolution or who has
withdrawn the Notice of Dissent.
On sending the Notice of Dissent, a Global member ceases to have any rights
as a shareholder except the right to be paid the fair value of his/her shares in
respect of which he/she has dissented. Shares with respect to which a
shareholder has delivered a Notice of Dissent with respect to the Arrangement
Resolution will be deemed to have been purchased by Global for cancellation
pursuant to the Arrangement unless the dissenting shareholder withdraws the
Notice of Dissent not later than 5:00 p.m. (Vancouver time) on the Business Day
that is five calendar days preceding the Effective Date or the Arrangement does
not proceed, in which case such shareholder's rights are reinstated as of the
date the shareholder sent the Notice of Dissent.
Within 14 days of the giving by Global of the Company Notice, each
dissenting shareholder must deliver to the registered address of Global a notice
requiring Global to purchase all of his/her Global Common Stock and a Stock
Certificate representing the same.
A dissenting shareholder who has complied with the preceding paragraphs, or
Global, may apply to a court to require the dissenting shareholder to sell, and
Global to purchase, the shares in respect of which the notice of dissent has
been given, set the price and terms of the purchase and sale, or order that the
price and terms be established by arbitration, in either case having due regard
for the rights of creditors, join in the application any other dissenting
shareholder who has complied with the requirements in the preceding paragraphs,
and make consequential orders and give directions it considers appropriate. The
price that must be paid to a dissenting shareholder for his/her shares is their
fair value as of the day before the date on which the Arrangement Resolution was
passed, including any appreciation or depreciation in anticipation of the vote
on the resolution and every dissenting shareholder who has complied with the
requirements in the preceding paragraphs must be paid the same price.
If the Arrangement is implemented, a dissenting shareholder who is
ultimately not entitled to be paid fair value for his/her Global Common Shares
for any reason, including the failure of the dissenting shareholder to comply
with each of the steps required to dissent, shall be deemed to have participated
in the Arrangement on the same basis as any non-dissenting holder of Global
Common Shares.
THE FOREGOING SUMMARY DOES NOT PURPORT TO PROVIDE A COMPREHENSIVE STATEMENT
OF THE PROCEDURES TO BE FOLLOWED BY A SHAREHOLDER OF GLOBAL WHO WISHES TO
DISSENT AND SEEK PAYMENT OF FAIR VALUE FOR HIS/HER GLOBAL COMMON SHARES.
AVAILABILITY OF DISSENT RIGHTS REQUIRES STRICT ADHERENCE TO THE PROCEDURES SET
FORTH HEREIN AND FAILURE TO DO SO MAY RESULT IN THE LOSS OF ALL DISSENTER'S
RIGHTS. ACCORDINGLY, EACH MEMBER WHO MIGHT DESIRE TO EXERCISE DISSENTER'S RIGHTS
SHOULD CAREFULLY CONSIDER AND COMPLY WITH THE PROVISIONS OF THE PLAN OF
ARRANGEMENT AND CONSULT HIS/HER LEGAL ADVISER.
WHERE YOU CAN FIND INFORMATION
Diebold files annual, quarterly and special reports, proxy statements and
other information with the SEC. You may read and copy any reports, statements or
other information by Diebold at the public reference rooms of the SEC at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, at Citicorp Center, 500
West Madison Street, Chicago, Illinois 60661-2511 and at Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549. Statements contained in such
documents filed after the date hereof may modify or supersede statements
contained in this Circular. SEC filings in the United States are also available
to the public from commercial document retrieval services and at the Internet
site maintained by the SEC at http://www.sec.gov. Please call the SEC at
1-800-SEC-0330 for further information on the public reference rooms.
Global is subject to continuous disclosure requirements of Canadian
Securities Laws and the TSE. The former type of information can be requested
from Micromedia, 20 Victoria Street, Toronto, Ontario, M5C 2N3 while the latter
type of material can be inspected at the offices of the TSE, 3rd Floor, 2 First
Canadian
89
101
Place, 130 King Street West, 18th Floor, Toronto, Ontario, M5H 3S8. Generally,
such information is also available at the Internet site maintained by CDS Inc.
at www.sedar.com. Global also files annual, quarterly and special reports, proxy
statements and other information with the SEC. You may read and copy any
reports, statements or other information filed by Global at the public reference
rooms of the SEC at Room 1024, 450 Fifth Street, N.W., Washington, DC 20549 at
Citicorp Center, 500 West Madison Street, Chicago, Illinois 60661-2511 and at
Judiciary Plaza, 450 Fifth Street, N.W. Washington, D.C. 20549. SEC filings in
the United States are also available to the public from commercial document
retrieval services and at the Internet site maintained by the SEC at
http://www.sec.gov. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference rooms.
PARTICULARS OF OTHER MATTERS TO BE ACTED UPON AT THE MEETING
APPROVAL OF ISSUANCE OF ADDITIONAL GLOBAL COMMON SHARES PURSUANT TO BRIDGE LOAN,
BRIDGE LOAN WARRANTS AND CONTRACT MANUFACTURING AGREEMENT
Under the rules of the TSE, the aggregate number of shares of a listed
company which are issued or made subject to issuance (i.e. issuable under a
share purchase warrant or option or other convertible security) by way of one or
more private placement transactions during any particular six-month period must
not exceed 25% of the number of shares outstanding (on a non-diluted basis)
prior to giving effect to such transactions (the "TSE 25% Rule"), unless there
has been shareholder approval of such transactions.
Within the six-month period prior to the execution date of the Bridge Loan
Documents and the Contract Manufacturing Agreement, Global had issued share
purchase warrants (the "Jones Gable/Rickards Warrants") to purchase up to
700,000 Global Common Shares. The maximum number of Global Common Shares
issuable pursuant to the Bridge Loan Documents, the Contract Manufacturing
Agreement and the Jones Gable/Rickards Warrants is in excess of 25% of the
number of Global Common Shares outstanding prior to execution of the Bridge Loan
Document and the Contract Manufacturing Agreement. The TSE has conditionally
approved the issuance of up to 4,388,418 Global Common Shares for issuance to
Diebold pursuant to (a) Diebold's exercise of its right to convert all or a
portion of the Bridge Loan into Global Common Shares; and (b) Diebold's exercise
of the Bridge Loan Warrants. The TSE has also conditionally approved the
issuance of an additional 16,306,922 Global Common Shares to Diebold in
connection with (i) (a) and (b) above and (ii) up to 4,500,000 Global Common
Shares upon Diebold's exercise of an option to convert certain payables under
Global Common Shares pursuant to the Contract Manufacturing Agreement upon the
satisfaction of a number of conditions, including Global's obtaining of Global
Shareholder approval to approve the issuance of the aforementioned additional
Global Common Shares. As such, Global requests that Global Shareholders pass an
ordinary resolution in the following terms:
"RESOLVED, as an ordinary resolution, that the issuance to Diebold,
Incorporated ("Diebold") of up to an additional 16,306,922 common shares of
the Company ("Global Common Shares") (in excess of 4,388,418 Global Common
Shares issuable to Diebold) pursuant to (a) Diebold's exercise of its right
to convert all or a portion of its U.S.$5,000,000 convertible loan to
Global into Global Common Shares; (b) Diebold's exercise of a share
purchase warrant to purchase up to 250,000 Global Common Shares; and (c)
Diebold's exercise of a contingent option to purchase up to a maximum of
4,500,000 Global Common Shares pursuant to a contract manufacturing
agreement between Diebold and Global, as amended, all as more particularly
described in the accompanying Management Information Circular, is hereby
approved."
INTERESTS OF INSIDERS IN MATERIAL TRANSACTIONS
No insider of Global, and no associate or affiliate of an insider has, or
has had, any material interest, direct or indirect, in any transaction or in any
proposed transaction, which in either case has materially affected or would
materially affect Global since the commencement of the most recently completed
fiscal year except as disclosed elsewhere in this Circular.
90
102
On September 20, 2001, Diebold entered into Voting Agreements, dated as of
September 11, 2001 with each of Deborah Dean and Clinton H. Rickards pursuant to
which the shareholders agreed to vote their shares (i) in favor of the Plan of
Arrangement, Arrangement Resolution (ii) in favor of the Share Issuance and
(iii) against any proposed action by Global, the shareholders of Global or any
other person which could impede, prevent, interfere with or delay completion of
the Arrangement, the Share Issuance or any of the transactions contemplated by
the Arrangement Agreement.
The Voting Agreements were entered into by these shareholders of Global as
an inducement to Diebold's entering into the Arrangement Agreement. The Voting
Agreements will terminate on the earliest to occur of (i) the Effective Time of
the Arrangement, (ii) the termination of the Arrangement Agreement pursuant to
the terms thereof, provided that no termination requiring the payment by Global
of the Termination Fee will be effective until such fee has been paid to Diebold
and (iii) upon the election of the shareholder party to such agreement following
the execution of any amendment to the Arrangement Agreement that would result in
a material reduction in the value of the Transaction Consideration.
INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
Other than as disclosed in this Circular, no director or officer of Global,
no person who has served as a director or officer of Global since the
commencement of Global's most recently completed fiscal year and no associate or
affiliate of any of the foregoing has, any material interest, direct or
indirect, by way of beneficial ownership of Global Common Shares or otherwise,
in any matter to be acted on at the Meeting.
LEGAL MATTERS
Certain legal matters in connection with the Transactions will be passed
upon by Gowling Lafleur Henderson LLP, Vancouver, British Columbia, and Winstead
Sechrest & Minick P.C., Dallas, Texas on behalf of Global.
CONSENT OF VALUATOR
To: The Directors of Global Election Systems Inc.
We refer to the formal valuation dated September 21, 2001, which we
prepared for Global Election Systems Inc. in connection with the plan of
arrangement involving Global Election Systems Inc. and Diebold, Incorporated. We
consent to the filing of the formal valuation with applicable securities
regulatory authorities, to the inclusion of the formal valuation in this
Information Circular and to the references to such formal valuation in this
Information Circular.
/s/ EVANS & EVANS INC.
Vancouver, British Columbia
September 26, 2001
PARTICULARS OF OTHER MATTERS
Management of Global knows of no matters to come before the Meeting other
than the matters referred to in the Notice of Meeting accompanying this
Circular. However, if any other matters, which are not known to Management,
should properly come before the Meeting, it is the intention of the persons
named in the form of Proxy accompanying this Circular to vote upon such matters
in accordance with their best judgement.
91
103
APPROVAL OF PROXY CIRCULAR BY THE BOARD OF DIRECTORS
The contents of the Circular and its sending to Global Shareholders have
been approved by the Board of Directors of Global.
By Order of the Board of Directors
/s/ Brian W. Courtney
--------------------------------------
BRIAN W. COURTNEY
Chief Executive Officer
September 26, 2001
McKinney, Texas
92
104
GLOBAL ELECTION SYSTEMS INC.
CONSOLIDATED FINANCIAL STATEMENTS
30 JUNE 2001 AND 2000
U.S. FUNDS
STALEY, OKADA, CHANDLER & SCOTT
Chartered Accountants
105
MANAGEMENT'S RESPONSIBILITY FOR THE CONSOLIDATED FINANCIAL STATEMENTS
The accompanying consolidated financial statements and all information in the
annual report are the responsibility of management. The consolidated financial
statements have been prepared by management in accordance with the accounting
policies outlined in the notes to the consolidated financial statements. Where
necessary, management has made informed judgements and estimates in accounting
for transactions which were not complete at the balance sheet date. In the
opinion of management, the consolidated financial statements have been prepared
within acceptable limits of materiality and are in accordance with Canadian
generally accepted accounting principles. The financial information contained
elsewhere in the annual report has been reviewed to ensure consistency with that
in the consolidated financial statements.
Management maintains appropriate systems of internal control. Policies and
procedures are designed to give reasonable assurances that transactions are
appropriately authorized, assets are safeguarded and financial records are
properly maintained to provide reliable information for the preparation of
financial statements.
Staley, Okada, Chandler & Scott, an independent firm of chartered accountants,
has been engaged, as approved by a vote of the shareholders at the company's
most recent annual general meeting, to examine the consolidated financial
statements in accordance with Canadian generally accepted auditing standards and
provide an independent professional opinion.
The audit committee has met with the auditors and management in order to
determine that management has fulfilled its responsibilities in the preparation
of the consolidated financial statements. The audit committee has reported its
findings to the Board of Directors who have approved the consolidated financial
statements.
SIGNED: "ROBERT J. UROSEVICH" SIGNED: "S. MICHAEL RASMUSSEN"
President Chief Financial Officer
106
AUDITORS' REPORT
TO THE SHAREHOLDERS OF GLOBAL ELECTION SYSTEMS INC.:
We have audited the consolidated balance sheet of Global Election Systems Inc.
as at 30 June 2001 and 2000 and the consolidated statements of changes in
shareholders' equity, income (loss) and cash flows for the years ended 30 June
2001, 2000 and 1999. These financial statements are the responsibility of the
company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with Canadian generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the company as at 30 June 2001 and
2000 and the results of its operations and its cash flows for the years ended 30
June 2001, 2000 and 1999 in accordance with Canadian generally accepted
accounting principles. As required by the Company Act of British Columbia, we
report that, in our opinion, these principles have been applied on a basis
consistent with that of the preceding year.
Burnaby, B.C. "STALEY, OKADA, CHANDLER & SCOTT"
4 September 2001, except Note 18a STALEY, OKADA, CHANDLER & SCOTT
which is effective 10 September 2001 CHARTERED ACCOUNTANTS
COMMENTS BY AUDITORS FOR U.S. READER
ON CANADA - U.S. REPORTING CONFLICT
In the United States, reporting standards for auditors require the addition of
an explanatory paragraph (following the opinion paragraph) when financial
statements are affected by future events, the outcome of which is
indeterminable. As discussed in Note 1a, the Company's continued existence as a
going concern is dependent upon the Company's ability to re-establish profitable
operations, re-establish positive cash flows, remedy the non-compliance with the
covenants contained in its debt instruments and obtain the necessary consent for
the security granted on additional borrowings, gain continued financial support
from its bankers and obtain additional financing. Our report to the shareholders
dated 4 September 2001, is expressed in accordance with Canadian reporting
standards which do not require a reference to such going concern considerations
in the auditors' report when the situation is adequately disclosed in the
financial statements.
Burnaby, B.C. "STALEY, OKADA, CHANDLER & SCOTT"
4 September 2001, except Note 18a STALEY, OKADA, CHANDLER & SCOTT
which is effective 10 September 2001 CHARTERED ACCOUNTANTS
107
GLOBAL ELECTION SYSTEMS INC. Statement 1
CONSOLIDATED BALANCE SHEET
AS AT 30 JUNE
U.S. Funds
ASSETS 2001 2000
------------- -------------
CURRENT
Cash and short-term deposits $ 1,154,658 $ 1,446,613
Accounts receivable 3,288,005 6,204,048
Contracts receivable 1,028,486 6,512,549
Work-in-progress 418,113 822,211
Deposits and prepaid expenses 424,242 286,248
Inventory (Note 4) 5,608,828 5,352,216
Current portion of agreements receivable 97,276 178,808
------------- -------------
12,019,608 20,802,693
AGREEMENTS RECEIVABLE (Note 5) 344,364 15,876
DEFERRED COSTS -- 587,852
CAPITAL ASSETS (Note 6) 2,591,952 540,293
OTHER ASSETS (Note 7) 2,088,555 549,750
------------- -------------
$ 17,044,479 $ 22,496,464
------------- -------------
LIABILITIES
CURRENT
Accounts payable and accrued liabilities $ 5,172,159 $ 3,953,980
Customer deposits 1,140,000 --
Deferred revenue 550,102 348,692
Current portion of loans payable 4,381,299 1,768,373
Current portion of capital lease obligations 540,502 --
------------- -------------
11,784,062 6,071,045
FUTURE INCOME TAXES -- 145,000
LOANS PAYABLE (Note 8) 666,666 3,600,000
CAPITAL LEASE OBLIGATIONS (Note 9) 948,425 --
------------- -------------
13,399,153 9,816,045
------------- -------------
CONTINUED OPERATIONS (Note 1a)
COMMITMENTS AND CONTINGENCIES (Note 12 and 17)
SHAREHOLDERS' EQUITY
SHARE CAPITAL (Note 10)
Authorized:
100,000,000 common voting shares, without par value
20,000,000 convertible voting preferred shares, without par value
Issued and fully paid:
20,695,340 (18,583,672) common shares 11,798,062 10,217,262
RETAINED EARNINGS (DEFICIT) - Statement 2 (8,152,736) 2,463,157
------------- -------------
3,645,326 12,680,419
------------- -------------
$ 17,044,479 $ 22,496,464
------------- -------------
ON BEHALF OF THE BOARD:
Signed: "Robert J. Urosevich", Director
Signed: "Clinton H. Rickards", Director
- See Accompanying Notes -
108
GLOBAL ELECTION SYSTEMS INC. Statement 2
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
U.S. Funds
Retained
Common Shares Earnings
Shares Amount (Deficit) Total
-------------- -------------- -------------- --------------
Balance - 30 June 1998 18,482,441 $ 10,125,867 $ 639,693 $ 10,765,560
Issuance of shares on exercise of options ($0.81
per share) 1,232 998 -- 998
Net income for the year - Statement 3 -- -- 716,045 716,045
-------------- -------------- -------------- --------------
Balance - 30 June 1999 18,483,673 10,126,865 1,355,738 11,482,603
Issuance of shares on exercise of options ($0.90
per share) 100,000 90,397 -- 90,397
Net income for the year - Statement 3 -- -- 1,107,419 1,107,419
-------------- -------------- -------------- --------------
Balance - 30 June 2000 18,583,673 10,217,262 2,463,157 12,680,419
Issuance of shares on exercise of options ($0.87
per share) 345,000 298,818 -- 298,818
Issuance of shares on exercise of warrants ($1.21
per share) 166,667 201,048 -- 201,048
Issuance of shares on acquisition of subsidiary
($0.68 per share) 1,600,000 1,080,934 -- 1,080,934
Net loss for the year - Statement 3 -- -- (10,615,893) (10,615,893)
-------------- -------------- -------------- --------------
Balance - 30 June 2001 20,695,340 $ 11,798,062 $ (8,152,736) $ 3,645,326
-------------- -------------- -------------- --------------
- See Accompanying Notes -
109
GLOBAL ELECTION SYSTEMS INC. Statement 3
CONSOLIDATED STATEMENT OF INCOME (LOSS)
FOR THE YEARS ENDED 30 JUNE
U.S. Funds
2001 2000 1999
------------- ------------- -------------
REVENUE
Sales and operating income (Note 13) $ 12,116,114 $ 20,195,209 $ 18,198,041
Other income 47,772 41,618 112,106
------------- ------------- -------------
12,163,886 20,236,828 18,310,147
------------- ------------- -------------
COSTS AND EXPENSES
Cost of sales and operating expenses 7,887,181 10,336,767 8,997,955
Selling, administrative and general expenses 10,721,398 6,510,887 6,129,777
Research and development expenses 2,140,366 696,042 857,057
Amortization 1,292,230 372,480 388,400
Interest 883,604 543,535 325,748
------------- ------------- -------------
22,924,779 18,459,711 16,698,937
------------- ------------- -------------
INCOME (LOSS) BEFORE THE UNDERNOTED (10,760,893) 1,777,117 1,611,210
Revaluation of used equipment -- (524,698) (873,101)
------------- ------------- -------------
INCOME (LOSS) BEFORE INCOME TAXES (10,760,893) 1,252,419 738,109
Provision for income taxes (Note 11a) -- -- (22,064)
Provision for future income taxes (Note 11b) 145,000 (145,000) --
------------- ------------- -------------
NET INCOME (LOSS) FOR THE YEAR $ (10,615,893) $ 1,107,419 $ 716,045
------------- ------------- -------------
EARNINGS (LOSS) PER SHARE - U.S. FUNDS
Basic $ (0.53) $ 0.06 $ 0.04
Fully diluted $ N/A $ 0.06 $ 0.04
------------- ------------- -------------
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 19,944,255 18,550,521 18,483,264
------------- ------------- -------------
- See Accompanying Notes -
110
GLOBAL ELECTION SYSTEMS INC. Statement 4
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED 30 JUNE
U.S. Funds
2001 2000 1999
------------- ------------- -------------
OPERATING ACTIVITIES
Net income (loss) for the year $ (10,615,893) $ 1,107,419 $ 716,045
Items not affecting cash
Amortization 1,292,230 372,480 388,400
Amortization of deferred costs 587,852 71,983 --
Allowance for doubtful accounts 1,507,410 -- --
Revaluation of used equipment -- 524,698 873,101
Provision for (recovery of) future income taxes (145,000) 145,000 --
------------- ------------- -------------
(7,373,401) 2,221,580 1,977,546
Changes in non-cash working capital
Accounts receivable 1,816,207 (1,862,645) (2,028,540)
Contracts receivable 4,759,063 3,052,129 (1,586,071)
Work-in-progress 300,934 (105,167) (717,044)
Deposits and prepaid expenses (137,994) 5,050 (44,209)
Inventory (256,612) (1,269,991) (1,812,150)
Accounts payable and accrued liabilities 1,218,179 1,666,513 (2,419,735)
Customer deposits 1,140,000 -- --
Deferred revenue 201,410 (679,026) 822,918
------------- ------------- -------------
1,667,786 3,028,443 (5,807,285)
------------- ------------- -------------
INVESTING ACTIVITIES
Deferred costs -- (659,835) --
Capital assets acquired (2,736,694) (310,192) (82,018)
Other assets (65,066) -- --
Agreements receivable 173,634 296,820 462,261
------------- ------------- -------------
(2,628,126) (673,207) 380,243
------------- ------------- -------------
FINANCING ACTIVITIES
Loans payable (1,320,408) (1,620,240) 5,707,639
Capital lease obligations 1,488,927 -- --
Common shares issued 499,866 90,397 998
------------- ------------- -------------
668,385 (1,529,843) 5,708,637
------------- ------------- -------------
NET INCREASE (DECREASE) IN CASH (291,955) 825,393 281,595
Cash position - Beginning of year 1,446,613 621,220 339,625
------------- ------------- -------------
CASH POSITION - END OF YEAR $ 1,154,658 $ 1,446,613 $ 621,220
------------- ------------- -------------
SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Issuance of shares for subsidiary $ 1,080,934 $ -- $ --
Issuance of note payable for subsidiary $ 1,000,000 $ -- $ --
Goodwill acquired for shares and note $ (2,080,934) $ -- $ --
Exchange of trade receivable for agreement receivable $ 650,000 $ -- $ --
------------- ------------- -------------
- See Accompanying Notes -
111
GLOBAL ELECTION SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
30 JUNE 2001 AND 2000
U.S. Funds
1. SIGNIFICANT ACCOUNTING POLICIES
These consolidated financial statements have been prepared using generally
accepted accounting principles of Canada as follows:
a) CONTINUED OPERATIONS
These consolidated financial statements are prepared on the basis of
accounting principles applicable to a "going concern", which assumes
that the company will continue in operations for the foreseeable
future and will be able to realize assets and discharge liabilities in
the normal course of operations.
Several adverse conditions and events cast substantial doubt upon the
validity of this assumption. The company is in non-compliance with
certain covenants of its loan agreements (Note 8), has failed to
obtain the required consent of a debt holder for security granted on
additional borrowings (Note 8), has several contingent liabilities
which may require substantive attention, has received several threats
of litigation regarding unpaid trade payables which are accrued in the
accounts, has identified a significant cash flow deficiency in the
coming year, has significant ongoing commitments (Note 12) and a
deficit of $8,152,736 as a result of the current period loss.
The ability to continue as a going concern is dependent on its ability
to:
i) Re-establish profitable operations, as the industry recovers from
the effects of the November 2000 general election.
ii) Remedy the non-compliance with its debt covenants and obtain the
necessary consent for the security granted on additional
borrowings.
iii) Receive continued financial support from its bankers including
continued working capital loan arrangements with the existing
banker or an alternate source beyond the current 31 October 2001
expiry date.
iv) Successfully defend against the pending or threatened legal
disputes (Note 17).
v) Locate a strategic partner (Note 18a) and obtain additional
financing (Note 18b).
These consolidated financial statements do not reflect adjustments
that would be necessary if the "going concern" assumption were not
appropriate because management believes that the actions already taken
or planned, as described herein, will mitigate the adverse conditions
and events which raise doubts about the validity of the "going
concern" assumption used in preparing these financial statements.
If the "going concern" assumption were not appropriate for these
consolidated financial statements, then adjustments would be necessary
in the carrying values of assets and liabilities, the reported
revenues and expenses, and the balance sheet classifications used.
b) NATURE OF OPERATIONS
The company markets a complete electronic voting system, which
includes vote tally and voter registration software. The company also
participates in the ballot printing, absentee voter and remote voting
sectors of the election industry.
112
GLOBAL ELECTION SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
30 JUNE 2001 AND 2000
U.S. Funds
1. SIGNIFICANT ACCOUNTING POLICIES - Continued
c) CONSOLIDATION
These consolidated financial statements include the accounts of the
company, its wholly-owned subsidiary, Global Election Systems, Inc., a
company incorporated in Delaware and operating in Texas, U.S.A. and
its wholly-owned subsidiaries. The purchase method of accounting has
been applied to the formation of this subsidiary.
On 23 March 2000, the company's wholly-owned U.S. subsidiary
incorporated a wholly-owned subsidiary, Global Systems Caribbean,
Inc., a company incorporated in Puerto Rico. The new subsidiary
remains inactive to date and is accounted for under the purchase
method of accounting.
On 26 April 2000, the company's wholly-owned U.S. subsidiary
incorporated a wholly-owned subsidiary, Integrivote.com, Ltd., a
company incorporated in Nevada, U.S.A. The subsidiary remained
inactive and was recently dissolved.
Effective as of 10 August 2000, the company's wholly-owned U.S.
subsidiary acquired a wholly-owned subsidiary, Spectrum Print & Mail
Services, Ltd. ("Spectrum"), a company incorporated in Delaware and
operating in Washington, U.S.A., California, U.S.A. and British
Columbia, Canada. The acquisition is accounted for under the purchase
method of accounting (Note 2).
d) FOREIGN CURRENCY TRANSLATION
The accounts of the company are prepared in U.S. funds and the
company's Canadian operations are translated into U.S. dollars as
follows:
o Monetary assets and liabilities at year-end rates,
o All other assets and liabilities at historical rates, and
o Revenue and expense items at the average rate of exchange
prevailing during the year.
Exchange gains and losses arising from these transactions are
reflected in income or expense in the year.
e) INVENTORY
Inventory of finished goods is valued at the lower of cost, including
direct costs, capitalized labour and overhead, and net realizable
value as estimated by management. Raw materials, which consist of
parts and components, are valued at the lower of average cost and net
realizable value, less any allowances for obsolescence. Goods taken in
trade are treated as additional discounts granted to complete sales
agreements and no value is recognized in inventory.
f) AMORTIZATION
Capital assets are recorded at cost and the company provides for
amortization on the following basis:
Demonstration and computer equipment - 20% to 30% declining balance
method
Manufacturing equipment - 20% declining balance method
Manufacturing equipment under capital leases - 20% declining balance
method
Furniture and equipment - 20% declining balance method
Leasehold improvements - straight-line over 5 years
One-half of the rate is applied in the year of acquisition and
disposition.
113
GLOBAL ELECTION SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
30 JUNE 2001 AND 2000
U.S. Funds
1. SIGNIFICANT ACCOUNTING POLICIES - Continued
g) PATENTS
Patents are recorded at cost and the company provides for amortization
on a straight-line basis over 10 years.
h) GOODWILL
Goodwill is recorded at cost and the company provides for amortization
on a straight-line basis over 5 years.
i) REVENUE RECOGNITION
Revenue from sales of products is recognized at the time of shipment
of products to customers. Revenue from sales of services is recognized
on the basis of the percentage completion of the related services. The
company defers a portion of revenue received related to contracted
future services to match against management's estimate of the future
costs of providing these services to customers. Receivables with
extended payment terms less than one year are recorded as contracts
receivable and those over one year are recorded as agreements
receivable.
j) WORK-IN-PROGRESS
Amounts related to revenues recognized in the fiscal period which
remain unbilled to the customer at the end of the fiscal period are
presented as work-in-progress in these consolidated financial
statements.
k) WARRANTY RESERVE
Provisions for future estimated warranty costs are recorded in the
accounts based upon historical maintenance records. Management
periodically reviews the warranty reserve to determine the adequacy of
the provision.
l) RESEARCH AND DEVELOPMENT
New product development costs and existing product enhancement costs
are deferred to future periods when the product or process is clearly
defined, the costs can be identified, the technical feasibility has
been established, management intends to market the product or process,
a market exists for the product or process and adequate resources
exist to complete the project. The company provides for amortization
on a straight-line basis over 10 years. Research costs and development
costs which do not meet the preceding criteria are expensed in the
period incurred. Research and development tax credits are applied
against either the deferred costs or expense, as applicable, in the
period in which the tax credit is received.
m) SHARE CAPITAL
i) The proceeds from the exercise of stock options, warrants and
escrow shares are recorded as share capital in the amount for
which the option, warrant or escrow share enabled the holder to
purchase a share in the company.
ii) Share capital issued for non-monetary consideration is recorded
at an amount based on fair market value reduced by an estimate of
transaction costs normally incurred when issuing shares for cash,
as determined by the board of directors of the company.
114
GLOBAL ELECTION SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
30 JUNE 2001 AND 2000
U.S. Funds
1. SIGNIFICANT ACCOUNTING POLICIES - Continued
n) EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share computations are based on the
weighted-average number of shares outstanding during the period. Fully
diluted earnings per share are based on the actual number of shares
outstanding at the end of the period plus performance shares, and
share purchase options and warrants as if they had been issued as at
the beginning of the period. A fully diluted loss per share
computation is not presented because the effect of share purchase
options and warrants is anti-dilutive.
o) MANAGEMENT'S ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
dates of the financial statements and the reported amounts of revenues
and expenses during the reported periods. Actual results could differ
from those estimates.
p) FUTURE INCOME TAXES
The company has adopted the asset and liability method of accounting
for income taxes as prescribed by the CICA Handbook, which applies
current income tax rates in the determination of future income taxes.
Under the asset and liability method, the change in the net future tax
asset or liability is included in income. The income tax effects of
temporary differences in the time when income and expenses are
recognized in accordance with company accounting practices, and the
time they are recognized for income tax purposes, are reflected as
future income tax assets or liabilities. Future income tax assets and
liabilities are measured using statutory rates that are expected to
apply to taxable income in the years in which temporary differences
are expected to be recovered or settled.
2. ACQUISITION OF SUBSIDIARY
By a share purchase agreement effective as of 10 August 2000, the company's
wholly-owned U.S. subsidiary agreed to purchase 100% of the issued and
outstanding shares of Spectrum. Spectrum is involved in the ballot
printing, absentee voting processing and remote voting sectors of the
election industry as well as certain other commercial printing
applications. The company received regulatory approval for the acquisition
on 28 August 2000 and the company's statement of income (loss) includes the
results of operations of Spectrum from 11 August 2000.
The consideration for the acquisition was as follows:
i) Issuance of 1,600,000 common shares of the company (i);
ii) Cash payment of $600,000 on 29 September 2000 (paid);
iii) Cash payment of $333,334 on 29 September 2001;
iv) Cash payment of $333,333 on 29 September 2002;
v) Cash payment of $333,333 on 29 September 2003.
115
GLOBAL ELECTION SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
30 JUNE 2001 AND 2000
U.S. Funds
2. ACQUISITION OF SUBSIDIARY - Continued
A summary, as at 10 August 2000, of the consideration paid or accrued and
the net identifiable assets of Spectrum is as follows:
Consideration Paid or Accrued
Fair market value of 1,600,000 common shares issued (ii) $ 1,080,934
Cash consideration paid 600,000
Cash consideration payable (Note 8c) 1,000,000
Deferred interest portion related to discounted cash consideration payable (Note 8c) (219,583)
--------------
Total consideration paid or accrued $ 2,461,351
--------------
Net Identifiable Assets and Goodwill Acquired
Cash $ 18,837
Other current assets 36,984
Capital assets 2,030,676
Goodwill 2,146,000
Bank loan (46,952)
Other current liabilities (59,686)
Capital lease obligation (1,664,508)
--------------
$ 2,461,351
--------------
(i) The shares were issued upon closing of the agreement except for
500,000 shares, which are subject to an escrow agreement (Note 10c).
(ii) The share consideration has a deemed value of CDN $2.09 per the
agreement and per acceptance by the regulatory authorities. Management
has discounted this value to CDN $1.00 per share to recognize the
estimated fair value of the common shares at 10 August 2000.
The company has agreed to use its best efforts to obtain a release of the
vendor's personal liability under certain guarantees of the obligations of
Spectrum (Note 9). The company has agreed to indemnify and save harmless
the vendor from any claims pursuant to these guarantees.
3. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of accounts receivable, contracts receivable,
work-in-progress, deposits, agreements receivable, accounts payable and
accrued liabilities, customer deposits, loans payable and capital lease
obligations approximates their fair value due to their short term maturity
or capacity of prompt liquidation.
Concentration of credit risk may arise from exposure to a single debtor or
to a group of debtors having similar characteristics such that their
ability to meet their obligations to the company is expected to be affected
similarly by changes in economic or other conditions.
The company's counterparty concentration is with its authorized resellers
and state, county, city and municipal election customers in the United
States and Canada and arises in the normal course of the company's
business. The company does not normally require collateral other than a
security interest on the related equipment.
116
GLOBAL ELECTION SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
30 JUNE 2001 AND 2000
U.S. Funds
3. FAIR VALUE OF FINANCIAL INSTRUMENTS - Continued
Included in the 30 June 2001 gross accounts receivable of $3,737,841, are
two authorized resellers which together account for $1,727,599 or 46.2% of
this balance. To 4 September 2001, the company has collected $654,807 from
these customers and the balance is due on specific terms. The company has
made a provision of $449,836 for disputed and potentially uncollectible
amounts from its trade receivables yielding a net current accounts
receivable balance of $3,288,005.
Included in the 30 June 2001 gross contracts receivable of $1,753,486 is
one election customer, which accounts for $1,325,230 or 75.6% of this
balance. To 4 September 2001, the company has collected $Nil from this
customer on the balance owing at 30 June 2001. The balance is past due and
management is currently in negotiations with the customer in an attempt to
resolve certain disputes relating to the contract. A provision for loss in
the amount of $725,000 has been recorded in the accounts of the company as
of 30 June 2001. Should the company be unable to satisfy the customer's
expectations then a mediation process is anticipated and the possible range
of loss would be $Nil to the full balance owing. The net contracts
receivable amounts to $1,028,486 as at 30 June 2001.
The 30 June 2001 gross work-in-progress amounts to $521,277 representing
the revenue unbilled on contracts in progress. A provision for loss in the
amount of $103,164 has been established to provide for potentially
uncollectible amounts on these contracts. The net work-in-progress amounts
to $418,113 as at 30 June 2001.
4. INVENTORY
Details are as follows:
2001 2000
------------- -------------
Supplies and parts $ 3,462,122 $ 3,115,792
Finished goods 2,146,706 2,236,424
------------- -------------
$ 5,608,828 $ 5,352,216
------------- -------------
117
GLOBAL ELECTION SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
30 JUNE 2001 AND 2000
U.S. Funds
5. AGREEMENTS RECEIVABLE
a) Details of agreements receivable from customers are as follows:
2001 2000
------------- -------------
Assignment receivable (Note 5b) $ 420,590 --
Sales agreement receivable with interest at 5.4% per annum commencing 15
July 1998, repayable by 15 July 2001, secured by the underlying goods 21,050 36,926
Sales agreement receivable with interest at 5% per annum, repayable in
60 equal monthly payments commencing 15 December 1995, secured by
the underlying goods -- 80,608
Sales agreement receivable with interest at 4.4% per annum commencing 27
January 1998, repayable by 1 July 2000, secured by the underlying
goods -- 20,751
Sales agreement receivable, non-interest bearing, repayable in July
2000, secured by the underlying goods -- 56,399
------------- -------------
441,640 194,684
Less: Current portion (97,276) (178,808)
------------- -------------
$ 344,364 $ 15,876
------------- -------------
Scheduled principal repayments on the sales agreements receivable are as
follows:
Period to 30 June 2002 $ 97,276
Period to 30 June 2003 70,092
Period to 30 June 2004 109,345
Period to 30 June 2005 59,445
Period to 30 June 2006 54,836
Period to 30 June 2007 and subsequent 50,646
------------
$ 441,640
------------
b) By a letter agreement dated 28 August 2000, the company agreed to
accept the future gross proceeds of certain Election Services
Agreements as payment for $650,000 of trade receivable owing from the
customer. An allowance of $229,410 has been provided to yield a net
assignment receivable of $420,590 as a result of no payments yet
received from the underlying customer. These agreements have an
estimated future gross proceeds of approximately $552,000 during their
eight year terms to August 2007, which would represent an implicit
interest rate of approximately 10% per annum.
118
GLOBAL ELECTION SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
30 JUNE 2001 AND 2000
U.S. Funds
6. CAPITAL ASSETS
Details are as follows:
2001 2000
Accumulated NET BOOK Net Book
Cost Amortization VALUE Value
--------------- --------------- --------------- ---------------
Demonstration and computer $ 1,075,750 $ 601,367 $ 474,383 $ 418,894
equipment
Manufacturing equipment 459,952 137,278 322,674 27,084
Manufacturing equipment under
capital leases 1,980,182 396,036 1,584,146 --
Furniture and equipment 310,490 200,750 109,740 84,019
Leasehold improvements 160,179 59,170 101,009 10,296
--------------- --------------- --------------- ---------------
$ 3,986,553 $ 1,394,601 $ 2,591,952 $ 540,293
--------------- --------------- --------------- ---------------
7. OTHER ASSETS
Details are as follows:
2001 2000
Accumulated NET BOOK Net Book
Cost Amortization VALUE Value
-------------- -------------- -------------- --------------
Patents $ 165,000 $ 156,750 $ 8,250 $ 24,750
Goodwill 3,446,960 1,366,655 2,080,305 525,000
-------------- -------------- -------------- --------------
$ 3,611,960 $ 1,523,405 $ 2,088,555 $ 549,750
-------------- -------------- -------------- --------------
119
GLOBAL ELECTION SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
30 JUNE 2001 AND 2000
U.S. Funds
8. LOANS PAYABLE
a) Details are as follows:
2001 2000
------------- -------------
Revolving line of credit, bearing interest at The Wall Street
Journal prime rate plus 4%, interest payments due monthly, due in full
by 31 October 2001, $3,000,000 limit, secured by a commercial security
agreement covering certain receivables of the company (i) $ 1,220,229 $ 3,600,000
Line of credit, bearing interest at bank prime plus 1% per annum (interest
rate floor of 10%), interest payments due quarterly, due in full by 8
September 2001, secured by a contract receivable with a balance
receivable of $1,325,230 as at 30 June 2001 (ii) 546,200 904,950
Promissory note payable, bearing interest at 10% per annum, interest
payments due with scheduled principal payments or prepayments,
payments due $620,319 by 15 September 2001, $880,667 by 15 December
2001 and the balance by 15 March 2002, secured (Note 8d) (iii)
2,381,652 --
Loan payable, non-interest bearing, payments due $333,334 by 29 September
2001, $333,333 by 29 September 2002 and $333,333 by 29 September
2003, unsecured (Note 8c) 899,884 --
Line of credit, bearing interest at bank prime plus 1% per annum -- 480,000
Line of credit, bearing interest at bank prime plus 1% per annum -- 133,310
Line of credit, bearing interest at bank prime plus 1% per annum -- 250,113
------------- -------------
5,047,965 5,368,373
Less: Current portion (4,381,299) (1,768,373)
------------- -------------
$ 666,666 $ 3,600,000
------------- -------------
(i) The loan matured on 18 July 2001 and was not repaid on maturity.
Subsequently, the company obtained an extension of the maturity date
to 31 October 2001. The company is in non-compliance with certain
covenants of the loan agreement.
(ii) The company is currently negotiating an extension of the due date of
this line of credit and expects to receive an extension to 8 December
2001 in consideration for a payment on renewal of $250,000.
(iii) The loan agreement contains a cross default clause providing for
default of the loan in the event of the default of other debt or
default of the covenants of other debt. The company failed to obtain
the required consent of the debt holder for the security granted upon
entering into the bridge loan agreement (Note 18b).
120
GLOBAL ELECTION SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
30 JUNE 2001 AND 2000
U.S. Funds
8. LOANS PAYABLE - Continued
b) Scheduled principal repayments on the loans payable are as follows:
Prior to 30 June 2002 $ 4,381,299
Prior to 30 June 2003 333,333
Prior to 30 June 2004 333,333
-------------
$ 5,047,965
-------------
c) The promissory note payable was issued as part consideration for the
acquisition of Spectrum (Note 2) during the year ended 30 June 2001.
Management has discounted the note payable using a discount rate of
13.5% per annum resulting in a deferred interest charge of $219,583.
Details are as follows:
Face value of note payable $ 1,000,000
Discount factor (219,583)
-------------
780,417
Interest accretion in the period 119,467
-------------
Balance - 30 June 2001 $ 899,884
-------------
d) The promissory note payable is denominated in Canadian funds for a
total of $4,000,000. The principal payments are $1,333,333 CDN funds
by 15 September 2001, $1,333,333 CDN funds by 15 December 2001 and the
balance by 15 March 2002. The loan is secured by a security interest
covering the inventory of the company and $4,000,000 guarantees from
the company's U.S. subsidiary and a director. Prepayments are required
as to 10% of collected sales by the company and 10% of any proceeds
from the issuance of any debt or equity securities in excess of U.S.
$7,000,000. The lender was granted 600,000 share purchase warrants
(Note 10b) and the director who guaranteed the loan was granted
100,000 share purchase warrants (Note 10b).
121
GLOBAL ELECTION SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
30 JUNE 2001 AND 2000
U.S. Funds
9. CAPITAL LEASE OBLIGATIONS
a) Details are as follows:
2001 2000
------------ ------------
IFC Credit Corporation (Note 9b)
Lease #01, bearing an implicit interest rate of 13.95% per annum,
payable at $3,719 per month for 60 months to 20 September 2003,
secured by the related equipment $ 98,144 $ --
Lease #02, bearing an implicit interest rate of 14.28% per annum,
payable at $3,948 per month for 60 months to 1 December 2004,
secured by the related equipment 140,749 --
Lease #03, bearing an implicit interest rate of 21.71% per annum,
payable at $3,240 per month for 60 months to 1 January 2005,
secured by the related equipment 104,913 --
Lease #04, bearing an implicit interest rate of 14.94% per annum,
payable at $3,901 per month for 60 months to 1 September 2005,
secured by the related equipment 155,801 --
Lease #05, bearing an implicit interest rate of 14.94% per annum,
payable at $3,901 per month for 60 months to 1 September 2005,
secured by the related equipment 155,801 --
Newcourt Leasing Corp. (Note 9c)
Lease, bearing an implicit interest rate of 11.39% per annum,
payable at $15,718 per month for 42 months to 23 December 2001,
secured by the related equipment 91,243 --
Bankvest Capital Corp. (Note 9d)
Lease, bearing an implicit interest rate of 10.30% per annum,
payable at $11,223 per month for 42 months to 1 June 2002,
secured by the related equipment 127,436 --
Copelco Capital, Inc. (Note 9e)
Lease, bearing an implicit interest rate of 13.14% per annum,
payable at $21,751 per month for 48 months to 1 April 2004,
secured by the related equipment 614,840 --
------------ ------------
1,488,927 --
Less: Current portion (540,502) --
------------ ------------
$ 948,425 $ --
------------ ------------
122
GLOBAL ELECTION SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
30 JUNE 2001 AND 2000
U.S. Funds
9. CAPITAL LEASE OBLIGATIONS - Continued
b) IFC Credit Corporation Leases
The company must elect at least 90 days prior to the initial expiry
date:
i) To purchase the equipment at the greater of the fair market value
and 10% of the lessor's capitalized cost; or
ii) To extend the lease for five months at the same monthly payment
amount and purchase the equipment at 2% of the lessor's
capitalized cost; or
iii) The lease will be automatically extended for an additional twelve
months at the same monthly payment.
Management has indicated its intention to buy-out the leases at 10% of
the lessor's capitalized cost at the termination of each lease. The
estimated buy-out amount has been included in the capital lease
obligation.
Title to the equipment remains with the lessor during the term of the
lease. The leases are guaranteed by the former shareholder of Spectrum
and the former shareholder's spouse.
c) Newcourt Leasing Corp. Lease
The company must elect at least 60 days prior to the expiration of the
lease term to purchase the equipment at the end of the lease term for
$1. Title to the equipment remains with the lessor during the term of
the lease.
d) Bankvest Capital Corp. Lease
The company must elect at least 60 days prior to the expiration of the
lease term to purchase the equipment at the end of the lease term for
$1. Title to the equipment remains with the lessor during the term of
the lease. The lease is guaranteed by the former shareholder of
Spectrum.
e) Copelco Capital, Inc. Lease
The company must elect at least 90 days prior to the expiration of the
lease term to return the equipment or purchase the equipment at the end
of the lease term at its fair market value. Title to the equipment
remains with the lessor during the term of the lease.
f) Scheduled annual lease payments on the capital leases are as follows:
Period to 30 June 2002 $ 714,506
Period to 30 June 2003 485,525
Period to 30 June 2004 408,552
Period to 30 June 2005 139,992
Period to 30 June 2006 23,406
----------
$1,771,981
----------
123
GLOBAL ELECTION SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
30 JUNE 2001 AND 2000
U.S. Funds
10. SHARE CAPITAL
a) STOCK OPTION PLAN
The company has a stock option plan, which covers its officers and
directors. The options are granted for varying terms ranging from three
to five years. Options granted prior to 30 June 1998, were immediately
vested upon grant. Options granted subsequent to 30 June 1998, vest
over the term of the option. The following is a schedule of the
activity pursuant to this stock option plan:
Number of Price per Share
Shares (CDN $) Expiration Date
--------- --------------- ---------------
Balance - 30 June 1998 1,270,000 $ 1.25 to $1.80
New options granted 205,000 $ 2.05 15 October 2001
Options exercised (1,232) $ 1.25 22 August 2002
Balance - 30 June 1999 1,473,768 $ 1.25 to $2.05
Options expired (100,000) $ 1.60 13 February 2003
Options expired (23,768) $ 1.25 22 August 2002
Options exercised (100,000) $ 1.33 1 November 1999
Options granted 50,000 $ 1.69 7 February 2005
Balance - 30 June 2000 1,300,000 $ 1.25 to $2.05 15 October 2001 to
7 February 2005
Options granted 50,000 $ 1.25 2 August 2005
Options granted 200,000 $ 2.39 19 January 2003
Options granted 75,000 $ 3.25 14 May 2006
Options exercised (280,000) $ 1.25 22 August 2002
Options exercised (15,000) $ 2.05 15 October 2001
Options exercised (50,000) $ 1.49 17 December 2002
Options expired (75,000) $ 1.25 2 August 2005
Options expired (50,000) $ 2.05 15 October 2001
Balance - 30 June 2001 1,155,000 $ 1.25 to $3.25 15 October 2001 to
14 May 2006
b) STOCK PURCHASE WARRANTS
The following is a schedule of the activity pursuant to stock purchase
warrants:
Number of Price per Share
Shares (CDN $) Expiration Date
--------- --------------- ---------------
Balance - 30 June 1998,
1999 and 2000 166,667 $ 1.88 31 March 2001
Warrants exercised (166,667) $ 1.88 31 March 2001
Warrants granted 600,000 $ 3.00 15 March 2006
Warrants granted 100,000 $ 3.00 3 May 2006
15 March 2006 to
Balance - 30 June 2001 700,000 $ 3 .00 3 May 2006
124
GLOBAL ELECTION SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
30 JUNE 2001 AND 2000
U.S. Funds
10. SHARE CAPITAL - Continued
c) ESCROW SHARES
Related to the acquisition of Spectrum (Note 2), there are 500,000
shares held in escrow until 27 September 2002. The shares are in escrow
to provide security to the company against claims against the vendor of
Spectrum, if any, for any breach of representations and warranties
under the share purchase agreement.
11. INCOME TAXES
a) A reconciliation of the current income tax provision of the company for
the year ended 30 June 2001 is as follows:
Canadian Parent U.S. Subsidiaries Total
--------------- ----------------- ------------
Net loss before taxes per financial
statements $ (1,613,406) $ (9,147,487) $(10,760,893)
Future benefit of current tax loss
(Note 11b) -- 962,998 962,998
------------ ------------ ------------
Current Taxable Loss $ (1,613,406) $ (8,184,489) $ (9,797,895)
------------ ------------ ------------
Statutory tax rate (i) 16.0% 35.0% --
------------ ------------ ------------
Current Income Tax Provision $ -- $ -- $ --
------------ ------------ ------------
(i) No federal rate applied on application of investment tax credits
(Note 11c).
b) A reconciliation of the future income tax recovery (payable) of the
company for the year ended 30 June 2001 is as follows:
Canadian Parent U.S. Subsidiaries Total
--------------- ----------------- ------------
Future benefit of Current tax loss
(Note 11a) $ -- $ (962,998) $ (972,998)
Non-deductible amortization, interest
and other -- 548,713 548,713
------------ ------------ ------------
Future Taxable Loss -- (414,285) (414,285)
Statutory tax rate -- 35.0% 35.0%
------------ ------------ ------------
Future Income Tax Recovery -- 145,000 145,000
Future Income Taxes Payable -
30 June 2000 -- (145,000) (145,000)
------------ ------------ ------------
Future Income Taxes Payable -
30 June 2001 $ -- $ -- $ --
------------ ------------ ------------
c) The company has unclaimed investment tax credits, for Canadian tax
purposes, arising from its research and development activities in the
amount of $317,000 which may be carried forward to be applied against
future federal taxes payable. The future tax benefit, if any, of the
tax credits has not been recognized in the accounts and expire as
follows:
2002 $ 103,000
2004 34,000
2005 63,000
2006 117,000
---------
$ 317,000
---------
125
GLOBAL ELECTION SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
30 JUNE 2001 AND 2000
U.S. Funds
11. INCOME TAXES - Continued
d) As at 30 June 2001, the company has tax losses, for Canadian tax
purposes, of approximately $1,509,000, which may be carried forward, to
be applied against future taxable income. The future benefit, if any,
of these tax losses have not been recognized in the accounts of the
company and expire in 2008.
e) As at 30 June 2001, the company's subsidiary has tax losses, for U.S.
tax purposes, of approximately $8,355,000, which may be carried
forward, to be applied against future taxable income. The future
benefit, if any, of these tax losses have not been recognized in the
accounts of the company and expire as to $170,000 in 2010 and
$8,185,000 in 2021.
12. COMMITMENTS
a) By way of an employment agreement, the company has secured the services
of a key employee of Spectrum for an initial term, which expires 31
December 2002. The contract contains fixed annual compensation of
$144,000 per annum for the initial twelve months of the agreement. The
contract renews automatically for successive one-year terms unless
either party gives the required 30 days notice prior to the expiration
of the contract term.
b) By way of employment agreements, the company has secured the services
of two key employees of Spectrum to 31 December 2001. The contracts
contain fixed annual compensation totaling $140,000 per annum and are
automatically renewed for successive one year terms unless either party
gives the required 30 days notice prior to the expiration of the
contract term.
c) By an agreement dated 19 January 2001, the company has secured the
services of a key employee for an initial term of two years. The
contract contains fixed annual compensation of $120,000 per year and is
automatically renewed for successive two-year terms unless either party
gives the required 30 days notice prior to the expiration of the
contract term.
The key employee was also granted 200,000 stock options at CDN $2.39
per share, which vest at 100,000, one year from the effective date and
100,000 two years from the effective date.
d) Under the terms of a lease agreement dated 8 December 1998, the company
is committed to minimum annual lease payments which increase from CDN
$25,529 in the first year to CDN $35,741 by the final year, plus its
share of common area costs. The lease is for a five-year term to 30
April 2004 representing a minimum lease commitment of:
CDN $
----------
Period to 30 June 2002 $ 33,884
Period to 30 June 2003 36,668
Period to 30 June 2004 35,741
---------
$ 106,293
---------
126
GLOBAL ELECTION SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
30 JUNE 2001 AND 2000
U.S. Funds
12. COMMITMENTS - Continued
e) By an agreement dated 26 September 2000, the company's United States
subsidiary has agreed to lease 26,100 square feet of general office and
warehouse space in McKinney, Texas, for five years from 1 October 2000.
The annual lease amount of $220,548 represents a minimum lease
commitment of:
Period to 30 June 2002 $ 220,548
Period to 30 June 2003 220,548
Period to 30 June 2004 220,548
Period to 30 June 2005 220,548
Period to 30 June 2006 55,137
---------
$ 937,329
---------
f) Under the terms of a production space lease agreement dated 6 June
1998, Spectrum is committed to minimum annual lease payments which
increase from $23,280 in the first year to $25,440 by the final year,
plus its share of common area costs. The lease is for a four-year term
to 1 June 2002 representing a minimum lease commitment of $23,320 for
the period to 30 June 2002.
g) Under the terms of a production space lease agreement dated 23 December
1999, Spectrum is committed to minimum annual lease payments which
commenced at $55,296 per annum. The lease provides for annual increases
based on the consumer price increase for San Francisco, with a minimum
increase of 3% and a maximum increase of 5% per annum, plus its share
of common area costs. The lease is for a five-year term to 31 December
2004 representing a minimum lease commitment of:
Period to 30 June 2002 $ 57,810
Period to 30 June 2003 59,544
Period to 30 June 2004 61,326
Period to 30 June 2005 31,116
---------
$ 209,796
---------
127
GLOBAL ELECTION SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
30 JUNE 2001 AND 2000
U.S. Funds
12. COMMITMENTS - Continued
h) By an agreement dated 19 June 2001 and subsequently amended, the
company contracted Diebold, Incorporated ("Diebold") to manufacture
certain election equipment related to a specific sales agreement to be
completed in the 2002 fiscal year. The contract requires the following
payments:
By 31 July 2001 (i) $ 598,500
By 31 August 2001 (i) 420,150
By 30 September 2001 or the delivery date of goods 1,161,250
-----------
Total $ 2,179,900
-----------
(i) The agreement allows the company to defer these payments to the
earlier of 30 September 2001 or the delivery date of the goods.
The payments have yet to be made and the company has not yet
requested deferral of these payments.
The company granted Diebold a license to the company's operating system
including any other software, computer programs, manuals, documentation
and various information and intellectual property rights associated
with the products. The license is for 75 years and is intended to allow
Diebold to perform its responsibilities related to the agreement.
Should the company breach the contract, through failure to pay or
failure to warrant and indemnify Diebold against third party claims of
intellectual property rights infringement, then all limitations on
Diebold's ability to use the license are terminated.
The company has granted Diebold a security interest in all inventory,
equipment and goods including embedded and non-embedded software
manufactured by or distributed by Diebold.
Diebold has been granted an option to purchase common shares of the
company, contingent upon the company failing to pay amounts owing from
the agreement within 30 days of their due dates. The option would allow
Diebold to acquire 115% of the value of the missed payment at 85% of
the average of the 3 lowest closing prices during the 10 days prior to
Diebold giving notice of its intention to exercise its option.
i) By an agreement dated 28 February 2001, the company retained the
services of J.J.B. Hilliard, W.L. Lyons, Inc. ("Hilliard") as exclusive
financial advisor to pursue and recommend alternatives to enhance
shareholder value on behalf of the company for the purpose of effecting
a financing, recapitalization or change of control transaction. The
agreement is for two years to 28 February 2003 and may be terminated on
30 days notice by either party. Hilliard will be entitled to a
transaction fee equal to the greater of $300,000 and 5% of any equity
financing plus 4% of any subordinated debt plus 1.5% of any senior debt
for any financing or recapitalization transaction. Hilliard will be
entitled to a transaction fee equal to 1.5% of the aggregate value of
any change of control transaction. If a transaction is completed within
1 year after the expiration or election of expiration of the agreement
then Hilliard will receive the full transaction fee.
By an agreement dated 29 June 2001, the parties agreed to cap the
maximum transaction fee payable to Hilliard at $625,000.
128
GLOBAL ELECTION SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
30 JUNE 2001 AND 2000
U.S. Funds
13. SALES AND OPERATING INCOME
Details of sales and operating income generated from customers which
individually account for approximately 10% or more of that year's
consolidated sales and operating income are as follows:
2001 2000 1999
------------- ------------- -------------
Number of Large Customers 3 -- 2
------------- ------------- -------------
Amount of Sales to Large Customers $ 6,891,783 $ -- $ 3,620,295
------------- ------------- -------------
Total Consolidated Sales and Operating Income $ 12,116,114 $ 20,195,209 $ 18,198,041
------------- ------------- -------------
Total Percentage of Consolidated Sales and
Operating Income Generated from Large
Customers 56.9% 0.0% 19.9%
------------- ------------- -------------
Due to the nature of the company's business, large sales to individual
customers are generated on a non-recurring basis. As a result, the company
is not dependent on any single customer or small group of customers such
that the loss of any of these would have a material adverse effect on the
future results of the company.
In the current period, with the acquisition of Spectrum (Note 2), the
company has acquired certain election related printing contracts which are
expected to produce recurring business for the company. In the current
period, one such customer accounted for $1,703,694 of the company's
consolidated sales and operating income. Management believes that as it
expands this area of its business, that its dependency on this customer
will be reduced and the loss of such a customer would not have a material
adverse effect on the future results of the company.
14. RELATED PARTY TRANSACTIONS
In addition to items disclosed elsewhere in these consolidated financial
statements, the company conducted the following transactions with related
parties:
a) EXPENDITURES
Details are as follows:
2001 2000 1999
------------- ------------- -------------
Paid/accrued salaries and fees to officers and
directors $ 1,134,427 $ 625,392 $ 629,036
Paid/accrued election support, promotion,
marketing and project management fees to a
company with a director in common 410,564 -- --
------------- ------------- -------------
$ 1,544,991 $ 625,392 $ 629,036
------------- ------------- -------------
b) At 30 June 2001, $139,712 remained payable for election support,
promotion, marketing and project management fees to a company with a
director in common.
129
GLOBAL ELECTION SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
30 JUNE 2001 AND 2000
U.S. Funds
15. SEGMENT INFORMATION
The company operated in only one industry segment in Canada and the United
States as follows:
CANADA UNITED STATES ELIMINATION CONSOLIDATION
------------ ------------- ------------ -------------
2001 2001 2001 2001
------------ ------------ ------------ ------------
Sales to customers $ 1,087,648 $ 11,028,466 $ -- $ 12,116,114
Sales between the segments 34,014 375,451 (409,465) --
------------ ------------ ------------ ------------
Total sales revenue $ 1,121,662 $ 11,403,917 $ (409,465) $ 12,116,114
------------ ------------ ------------ ------------
Operating profits $ 498,172 $ 3,545,934 $ -- $ 4,044,106
------------ ------------ ------------ ------------
General corporate expenses (13,921,395)
Interest (883,604)
Future income taxes 145,000
------------
Net income (loss) $(10,615,893)
------------
Identifiable assets $ 537,688 $ 16,529,398 $ (22,607) $ 17,044,479
------------ ------------ ------------ ------------
Capital expenditures $ 17,713 $ 2,718,981 $ -- $ 2,736,694
------------ ------------ ------------ ------------
Amortization of capital
assets $ 19,233 $ 665,802 $ -- $ 685,035
------------ ------------ ------------ ------------
Canada United States Elimination Consolidation
------------ ------------- ------------ -------------
2000 2000 2000 2000
------------ ------------ ------------ ------------
Sales to customers $ 1,584,899 $ 18,610,310 $ -- $ 20,195,209
------------ ------------ ------------ ------------
Sales between the segments 282,168 839,373 (1,121,541) --
------------ ------------ ------------ ------------
Total sales revenue $ 1,867,067 $ 19,449,683 $ (1,121,541) $ 20,195,209
------------ ------------ ------------ ------------
Operating profits $ 1,001,256 $ 8,898,805 $ -- $ 9,900,061
------------ ------------ ------------ ------------
General corporate expenses (7,579,409)
Interest (543,535)
Revaluation of used equipment (524,698)
Income taxes --
Future income taxes (145,000)
------------
Net income (loss) $ 1,107,419
------------
Identifiable assets $ 1,838,040 $ 20,681,031 $ (22,607) $ 22,496,464
------------ ------------ ------------ ------------
Capital expenditures $ 12,964 $ 297,228 $ -- $ 310,192
------------ ------------ ------------ ------------
Amortization of capital
assets $ 18,279 $ 354,201 $ -- $ 372,480
------------ ------------ ------------ ------------
130
GLOBAL ELECTION SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
30 JUNE 2001 AND 2000
U.S. Funds
15. SEGMENT INFORMATION - Continued
Canada United States Elimination Consolidation
------------ ------------- ------------ -------------
1999 1999 1999 1999
------------ ------------ ------------ ------------
Sales to customers $ 824,232 $ 17,373,809 $ -- $ 18,198,041
Sales between the segments 957,198 550,677 (1,507,875) --
------------ ------------ ------------ ------------
Total sales revenue $ 1,781,430 $ 17,924,486 $ (1,507,875) $ 18,198,041
------------ ------------ ------------ ------------
Operating profits $ 1,266,249 $ 8,045,943 $ -- $ 9,312,192
General corporate expenses (7,374,234)
Interest (325,748)
Revaluation of used equipment (873,101)
Income taxes (22,064)
Future income taxes --
------------
Net income (loss) $ 716,045
------------
Identifiable assets $ 518,440 $ 21,290,568 $ (22,607) $ 21,786,401
------------ ------------ ------------ ------------
Capital expenditures $ 12,672 $ 69,346 $ -- $ 82,018
------------ ------------ ------------ ------------
Amortization of capital
assets $ 19,912 $ 368,488 $ -- $ 388,400
------------ ------------ ------------ ------------
16. DIFFERENCES BETWEEN UNITED STATES AND CANADIAN GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES
These consolidated financial statements are prepared in accordance with
accounting principles generally accepted in Canada. Any differences in
United States accounting principles as they pertain to the accompanying
consolidated financial statements are not material except as follows:
a) COMPENSATION EXPENSE
Under accounting principles generally accepted in the United States,
there is a compensation expense associated with the release of escrowed
shares of the company, as those shares become eligible for release. No
compensation expense is applied under accounting principles generally
accepted in Canada.
b) DEFERRED COSTS
Under accounting principles generally accepted in the United States,
expenditures related to research and development projects are expensed
in the period incurred. Under accounting principles generally accepted
in Canada, research expenditures are expensed as incurred and
development expenses, which meet certain prescribed criteria (Note 1l),
may be deferred and amortized against future income. During the current
fiscal year, the deferred costs for Canadian purposes were written-off
as the prescribed criteria were not met.
c) AMORTIZATION OF ASSETS UNDER CAPITAL LEASE
Under accounting principles generally accepted in the United States,
amortization of assets under capital leases, where there is no bargain
purchase option or confirmed transfer of the asset to the lessor at the
end of the lease term, is determined on a straight-line basis over the
term of the lease. Under accounting principles generally accepted in
Canada, such assets may be amortized over their estimated useful life.
131
GLOBAL ELECTION SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
30 JUNE 2001 AND 2000
U.S. Funds
16. DIFFERENCES BETWEEN UNITED STATES AND CANADIAN GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES - Continued
d) FINANCIAL STATEMENT RECONCILIATION
2001 2000 1999
------------- ------------ ------------
i) Deferred costs - Canadian basis $ -- $ 587,852 $ --
Less: Deferred costs expensed - current year -- (587,852) --
------------- ------------ ------------
Deferred costs - U.S. basis $ -- $ -- $ --
------------- ------------ ------------
ii) Capital assets - Canadian basis $ 2,591,952 $ 540,293 $ 376,081
Less: Additional amortization of assets under
capital leases (227,660) -- --
------------- ------------ ------------
Capital assets - U.S. basis $ 2,364,292 $ 540,293 $ 376,081
------------- ------------ ------------
iii) Share capital - Canadian basis $ 11,798,062 $ 10,217,262 $ 10,126,865
Add: Escrow share compensation expense - prior
years 3,194,621 3,194,621 3,194,621
------------- ------------ ------------
Share capital - U.S. basis $ 14,992,683 $ 13,411,883 $ 13,321,486
------------- ------------ ------------
iv) Retained earnings (Deficit) - Canadian
basis $ (8,152,736) $ 2,463,157 $ 1,355,738
Less: Deferred costs expensed - current year -- (587,852) --
Less: Additional amortization of assets under
capital lease (227,660) -- --
Less: Escrow share compensation expense -
prior years (3,194,621) (3,194,621) (3,194,621)
------------- ------------ ------------
Deficit - U.S. basis $ (11,575,017) $ (1,319,316) $ (1,838,883)
------------- ------------ ------------
v) Net income (loss) for the year - Canadian
basis $ (10,615,893) $ 1,107,419 $ 716,045
Add: Deferred costs - Canadian basis -
written-off in current year 587,852 -- --
Less: Deferred costs expensed - current year -- (587,852) --
Less: Additional amortization of assets under
capital lease (227,660) -- --
------------- ------------ ------------
Net income (loss) for the year - U.S basis $ (10,255,701) $ 519,567 $ 716,045
------------- ------------ ------------
132
GLOBAL ELECTION SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
30 JUNE 2001 AND 2000
U.S. Funds
16. DIFFERENCES BETWEEN UNITED STATES AND CANADIAN GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES - Continued
d) FINANCIAL STATEMENT RECONCILIATION - Continued
vi) U.S. GAAP consolidated statement of shareholders' equity
Common Shares
Shares Amount Deficit Total
------------ ------------ ------------ ------------
Balance - 30 June 1998 - U.S. basis 18,482,441 $ 13,320,488 $ (2,554,928) $ 10,765,560
Issuance of shares on exercise of
options ($0.81 per share) 1,232 998 -- 998
Net income for the year -- -- 716,045 716,045
------------ ------------ ------------ ------------
Balance - 30 June 1999 - U.S. basis 18,483,673 13,321,486 (1,838,883) 11,482,603
Issuance of shares on exercise of
options ($0.90 per share) 100,000 90,397 -- 90,397
Net income for the year -- -- 519,567 519,567
------------ ------------ ------------ ------------
Balance - 30 June 2000 - U.S. basis 18,583,673 13,411,883 (1,319,316) 12,092,567
Issuance of shares on exercise of
options ($0.87 per share) 345,000 298,818 -- 298,818
Issuance of shares on exercise of
warrants ($1.21 per share) 166,667 201,048 -- 201,048
Issuance of shares on acquisition of
subsidy ($0.68 per share) 1,600,000 1,080,934 -- 1,080,934
Net loss for the year -- -- (10,255,701) (10,255,701)
------------ ------------ ------------ ------------
Balance - 30 June 2001 - U.S. basis 20,695,340 $ 14,992,683 $(11,575,017) $ 3,417,666
------------ ------------ ------------ ------------
e) EARNINGS (LOSS) PER SHARE
2001 2000 1999
------------- ------------- -------------
Weighted average number of common shares
outstanding - Basic 19,944,255 18,550,521 18,483,264
Add: Dilutive stock options and warrants N/A 1,466,667 1,640,435
------------- ------------- -------------
Weighted average number of common shares
outstanding - Fully diluted 19,944,255 20,017,188 20,123,699
------------- ------------- -------------
Net income (loss) for the year - U.S. basis $ (10,255,701) $ 519,567 $ 716,045
------------- ------------- -------------
Basic and fully diluted earnings (loss)
per share - U.S. basis
- Basic $ (0.51) $ 0.03 $ 0.04
------------- ------------- -------------
- Fully diluted $ N/A $ 0.03 $ 0.04
------------- ------------- -------------
133
GLOBAL ELECTION SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
30 June 2001 and 2000
U.S. Funds
17. CONTINGENCIES
a) The company is aware of a potential claim for the alleged breach of an
agreement, which has been filed in the State of Michigan but which has
yet to be served upon the company. The claimant has estimated damages,
including training costs and lost profits in excess of $1,000,000.
The company is confident that it will prevail in the dispute and
intends to vigorously defend itself.
The outcome of this dispute and the amount of damages, if any, cannot
be reasonably determined at this time. No provision for loss has been
provided in these financial statements.
b) The company is aware of a potential claim for misrepresentations and
the alleged breach of certain commitments. The claimant seeks the
company to purchase 63,275 shares of the company from the claimant in
the amount of approximately $127,000.
The company is confident that it will prevail in the dispute and
intends to vigorously defend itself.
The outcome of this dispute and the amount of damages, if any, cannot
be reasonably determined at this time. No provision for loss has been
provided in these financial statements.
c) The company is aware of a potential claim for penalties pursuant to a
clause in a specific sales contract. Management has estimated the
maximum claim at approximately $350,000.
At this time no specific claim has been made or threatened. The company
is confident that it would prevail should such a dispute be initiated
and would vigorously defend itself.
The outcome of this dispute and the amount of damages, if any, cannot
be reasonably determined at this time. No provision for loss has been
provided in these financial statements.
18. SUBSEQUENT EVENTS
a) By an agreement dated 10 September 2001, which is subject to regulatory
and shareholder approval, the company has reached an agreement with
Diebold, whereby Diebold would acquire 100% of the issued and
outstanding shares of the company at approximately $1.135 per share in
a combination of Diebold common stock and cash. The Diebold common
stock would be exchanged for the company's common stock by dividing
0.908 by the 10 day weighted average trading price of Diebold's common
shares. The exchange ratio shall not be less than 0.02421 or greater
than 0.03027 per company share. The cash consideration would be $0.227
per company share.
Should the company fail to receive shareholder approval or fail to meet
certain other conditions precedent to the deal, then Diebold would be
entitled to a break-up fee of $1,000,000 plus all transaction costs and
expenses incurred by Diebold in connection with the agreements and
their due diligence procedures.
Should the deal not be consummated, other than upon failure to receive
shareholder approval, and another deal occurs within an 18 month
period, then Diebold would be granted an option to purchase up to 10%
of the company's then issued and outstanding shares at $1.135 per
share.
134
GLOBAL ELECTION SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
30 June 2001 and 2000
U.S. Funds
18. SUBSEQUENT EVENTS - Continued
b) By a bridge loan agreement dated 29 June 2001 and amended 3 August
2001, the company arranged a $5,000,000 loan from Diebold with interest
at 12% per annum and repayable 180 days from the dates of advance of
the loan. The first advance of the loan of $1,550,000, less origination
fees and lender expenses of $350,000, was received on 5 July 2001. The
second and final advance of the loan in the amount of $3,450,000, less
lender costs of $43,300, was received on 3 August 2001.
The lender may elect, at any time, upon 2 days notice, to convert any
portion of the unpaid loan amounts into common stock of the company.
The lender is not entitled to convert unpaid loan amounts into common
stock of the company such that more than 19.9% of the total issued and
outstanding shares of the company may be so issued, without prior
shareholder approval. The conversion price is the lesser of $1.135 and
85% of the fair market value of the company's common shares based upon
the average closing price of the 10 days prior to the conversion.
The company may prepay the loan at any time prior to maturity at the
greater of 145% of the unpaid principal plus accrued interest and 145%
of the conversion rights with respect to the unpaid principal plus
accrued interest.
The company shall prepay the loan at the greater of 145% of the unpaid
principal plus accrued interest and 145% of the conversion rights with
respect to the unpaid principal plus accrued interest upon the company
entering into a sale agreement with a third party.
The lender was granted a warrant for 250,000 shares of the company at
the price of $1.135 and expiring 3 August 2006 or earlier under
specific conditions.
The loan agreement further provides that the company may not issue or
sell shares, nor grant options at a price less than $1.135 prior to the
later of full repayment of the loan and the date the warrants attached
to the loan are exercised or expire.
The loan is secured by a security in all assets of the company and the
joint and several guarantees of the company's wholly-owned
subsidiaries, Global Election Systems, Inc. and Spectrum Print & Mail
Services, Ltd. for complete payments and performance of the obligations
of the borrower. The security interest is prior to all other lines on
the collateral other than the security provided on the loans payable
(Note 8) which existed prior to the bridge loan agreement.
c) On 11 July 2001, the company placed a refundable cash deposit of
approximately $298,000, in lieu of a bid bond, related to a tender for
voting equipment to be supplied in fiscal 2002.
d) On 7 August 2001, the company appointed a new chief executive officer
on a per diem basis and granted the employee 200,000 stock options at
$1.135 for a period of up to 5 years, subject to regulatory approval.