International Datacasting Corporation
TSX : IDC

International Datacasting Corporation

July 16, 2012 08:47 ET

International Datacasting Responds to Adamou Proxy Circular

- CEO of IDC Supports Growth Strategy and Management's Proposed Nominees for Election as Directors

- Adamou's Strategy and Director Nominees Represent Unacceptable Risk to the Company's Success

OTTAWA, ONTARIO--(Marketwire - July 16, 2012) - International Datacasting Corporation (TSX:IDC) ("IDC" or the "Company") responded today to the dissident proxy circular filed by Mr. Adam Adamou in connection with the Company's upcoming annual meeting of shareholders scheduled to be held on July 31, 2012. For the reasons outlined below, the Company urges shareholders to vote for the nominees proposed by Management by voting the WHITE proxy enclosed with the Management Information Circular.

  • The Business Acquisition ("BAQ") Strategy endorsed by Mr. Adamou has already failed. BAQ represents the status quo, not change.

  • Mr. Adamou may have ulterior motives for seeking to remain a director of IDC.

  • Management is confident the Business Growth Strategy will deliver strong financial performance in the near term.

  • The Company's CEO does not support Mr. Adamou's strategy.

Shareholders who do not have a WHITE proxy or who have general questions or questions about voting their proxy for the upcoming meeting of shareholders are encouraged to contact Kingsdale Shareholder Services Inc. toll-free at 1-866-581-1514, or (416) 867-2272 (collect calls accepted), or contactus@kingsdaleshareholder.com.

The Business Acquisition Strategy Endorsed by Mr. Adamou Has Already Failed

Mr. Adamou's business acquisition strategy was approved by the Board in December 2010 and was ultimately discontinued in June 2012. This strategy proved to be a failure and was ultimately rejected by the Board for the following reasons:

  • the direct cost of the business acquisition strategy for the twenty-four months ending July 31, 2012 was $873,000 and yielded no successful acquisitions;

  • the acquisition strategy pursued by Mr. Adamou was unfocused and was executed at a time when IDC's platform was relatively weak and had limited human and financial resources at its disposal; and

  • during the period between December 2010 and June 2012 despite a heavy focus on BAQ, only one transaction was put forward to and considered by the full Board. That transaction was rejected by the other side and failed to close, but not before it fractured the Board and cost the Company in excess of $240,000 in transaction expenses in the second quarter ending July 31, 2012.

Mr. Adamou's dissident proxy circular advocates a continuation of his costly and failed acquisition strategy.

Fundamentally, Mr. Adamou's strategy involves high risk. As noted in a recent article published by the Harvard Business Review, it is estimated that the failure rate for mergers and acquisitions is between 70% and 90%. In order to succeed with an acquisition strategy, a company typically must be well-funded and have the backing of a financial sponsor, which is markedly different from IDC's circumstances.

Mr. Adamou emphasizes his previous record in the venture capital industry. Venture capital strategies are not transportable into a company such as IDC. Mr. Adamou's circular also demonstrates a fundamental lack of understanding of IDC's growth potential. IDC already has the ability to exploit many markets that Mr. Adamou says can only be addressed through acquisitions.

Mr. Adamou May Have Ulterior Motives for Seeking to Remain a Director of IDC

As disclosed in the Management Information Circular dated June 21, 2012, the Company, in a transaction approved by shareholders in 2011, loaned Mr. Adamou $552,000 in order to purchase 2,000,000 Company shares. IDC's Board has the power to call this loan 90 days after Mr. Adamou ceases to be a director of IDC. Moreover, Mr. Adamou may wish to have full-time employment with the Company, but has not yet disclosed his intentions regarding assuming a senior management position with IDC or otherwise causing IDC to retain his services, should his slate prove to be successful at the upcoming election.

Management Recommends Focused Business Growth Strategy

In spite of the BAQ distraction, over the past two years Management has been steadfastly executing a turnaround of the legacy product business of IDC plus developing and launching new products into larger markets. Management's strategy is to build a stronger, focused, growth-oriented technology enterprise through continued improvements in legacy operating performance and the expansion of IDC's new product initiatives. Management is confident that this single focus will translate into strong financial performance in the very near term. This focused Business Growth Strategy is supported by Management's director nominees.

As part of this strategy, Management has also diligently been focused on identifying and establishing new markets and products. This market focus is epitomized by the IDCLaser™ and Digital Tattoo™ products launched in April 2012, both of which target very large, scalable markets. The Company is pleased to announce that it is in advanced (yet still confidential) discussions with key reference accounts for both IDCLaser™ and Digital Tattoo™.

There are two key components to the focused Business Growth Strategy endorsed by Management's proposed director nominees:

  1. Finalize the turn-around of IDC's legacy products business in order to align costs with the relatively small market opportunities represented by this legacy business. To this end, over the past two years Management has been focused on:
    • improving the product gross margins;
    • strategically reducing the product offering;
    • streamlining operations;
    • educing overall operating costs;
    • forming technology partnerships with appropriate third parties; and
    • integrating underperforming acquisitions made by previous management.

As a result of this activity, Management is confident that the financial contribution from this business segment will be positive for the upcoming quarters.

2. Rather than focusing on small niche markets that typically lead to customer overconcentration and quick saturation, IDC will continue to develop products that target larger, more scalable markets which provide IDC with the opportunity to earn a greater return on the upfront invested engineering and development costs. IDCLaser™ and Digital Tattoo™ exemplify this focus.
IDCLaser™ targets the professional Integrate Receiver Decoder market, which, according to a 2010 market research study, is estimated to be worth $400 million per year in sales. Achieving even a small percentage of this market is a big win for IDC. IDC Laser™ is a disruptive product that is creating excitement in its target markets. Similarly, Digital Tattoo™ targets and creates a solution for a current challenge facing direct to home broadcasters in addressing the rapidly expanding multiple dwelling unit TV household market. The overall satellite vertical is not shrinking, as has been suggested in Mr. Adamou's circular. Rather it is growing dramatically, particularly in emerging markets, such as Asia and Latin America.
Once the positive results of the focused Business Growth Strategy are advanced, acquisitions could then be pursued from a position of strength on an opportunistic basis.

Vote FOR Management's Proposed Board Slate by Voting the WHITE Proxy

Mr. Francesco Ruffolo has decided that in order to ensure the Company's shareholders are not further distracted by Mr. Adamou's personal agenda and to allow the Company to re-focus its attention on its customers and business, he will not stand for re-election to the Board at the upcoming shareholders meeting. Mr. Ruffolo stated that the issue at hand is and should be about Management's strategic plan and the Board's support for that, and not about him and Mr. Adamou's unfounded attacks. Mr. Ruffolo further stated that it is time Mr. Adamou accept responsibility for his failed leadership as Executive Chairman. The Board and Management thank Mr. Ruffolo for his service as a director of the Company and stated that "Mr. Ruffolo has served the Company and its shareholders well and his decision to not stand for re-election is further evidence of his willingness to always act in the best interests of the Company and its shareholders." Mr. Ruffolo extends his full support to Management's Board slate and supports Management's strategic direction.

As a replacement for Mr. Ruffolo, the Company proposes Mr. Peter Strom as a nominee for election as a director of the Company. Mr. Strom has significant industry experience and is currently the President and Chief Executive Officer of March Networks. Since joining March Networks in 2003, Mr. Strom has led the transformation of the company into a $100M global player and took the company public on the TSX and AIM markets in 2005. Prior to joining March Networks, Mr. Strom was President and Chief Executive Officer at Gyyr, Inc., a U.S. manufacturer of network-based video and data storage systems acquired by the Honeywell Corporation in 2001. Mr. Strom holds a BA from McGill University and an MBA in International Business from Concordia University.

Management's slate of nominees for election as directors consists of the following individuals:

  • Mr. Del Lippert (retired, past President and Chief Executive officer of Med-Eng Systems);

  • Mr. Georges Ata (President and Chief Executive Officer of Intelcan Technosystems Inc.);

  • Mr. Peter Strom (President and Chief Executive Officer of March Networks);

  • Mr. Graham McBride (President and Chief Executive Officer of Larchhill Capital); and

  • Mr. Fred Godard (President Chief Executive Officer of IDC).

Each of Management's proposed director nominees has extensive experience in building successful technology businesses and is committed to pursuing the Company's focus on developing and commercializing innovative new technical solutions such as IDCLaser™ and Digital Tattoo™.

Management recommends that shareholders vote in favour of Management's Proposed Nominees for election as Directors by voting the WHITE proxy enclosed with the Management Information Circular.

Views of the CEO

Mr. Godard, the Company's Chief Executive Officer, has been put forward as a director nominee of both Management and Mr. Adamou. However, Mr. Godard will not accept the invitation to serve on the board slate proposed by Mr. Adamou. Mr. Godard fundamentally believes that the business acquisition strategy endorsed by Mr. Adamou was a costly mistake for the Company and that IDC should pursue the focused Business Growth Strategy. In addition, he is very concerned about the impact that this public debate will have upon the real business of IDC.

Mr. Godard emphasizes that tremendous strides have already been made in both working through the challenges stemming from the historic IDC niche markets and acquisitions, and in identifying and launching into new, larger market opportunities. The BAQ strategy promoted by Mr. Adamou would be counterproductive to the focused Business Growth Strategy in that:

  • it advocates investing in more niche businesses, rather than focusing on building one world class Company; and

  • it would spread IDC's financial resources too thin instead of focusing on prudent investments in technology and expanded geographic market channels.

Mr. Godard is further of the view that BAQ has been a costly failed experiment for IDC and certainly one that has distracted Management from focusing on fundamental operational matters. Mr. Godard dismisses the claims regarding BAQ making IDC more valuable for shareholders and is confident that a well-run, profitable company focused on exciting emerging markets will ultimately make IDC more valuable for shareholders.

Mr. Godard is quoted as saying: "I am advocating a return to the underlying growth strategy for IDC that has been conducted in the shadow of BAQ for the past two years. The IDC business is what shareholders originally had faith in, invested in and it has an exciting future if nurtured and allowed to flourish. The BAQ experiment has failed and I see no reason why a different outcome would occur if attempted again. It is simply not an appropriate course for IDC. It is for these reasons that I will not serve on Mr. Adamou's slate of directors. Management's proposed slate of directors has the crucial skills and experience to execute the growth strategy and to develop IDC into a growth-oriented world class technology enterprise, as well as the proper disposition to provide objective oversight, guidance and advice."

Proxy Solicitation

The Company has retained Kingsdale Shareholder Services Inc. to provide proxy solicitation and advisory services in connection with the upcoming meeting of shareholders. IDC will pay fees estimated at up to $165,000 plus an $8.00 per-call fee to Kingsdale. The costs incurred for the solicitation will be borne by IDC. Retaining a proxy solicitation agent is a common practice when faced with a dissident proxy circular and Management believes that the fees being paid to Kingsdale are customary for engagements of this nature.

IDC Shareholders: The Proxy to Vote is WHITE

You are urged to vote only your WHITE proxy well in advance of the deadline of 5:00 p.m. (Eastern Time) on July 27, 2012.

If you have voted a blue proxy, you can still change your vote, simply by voting your WHITE proxy today. Your subsequent later dated WHITE proxy will replace any prior blue proxy you may have voted.

Shareholders who do not have a WHITE proxy or who have general questions or questions about voting their proxy for the upcoming meeting of shareholders are encouraged to contact Kingsdale Shareholder Services Inc. toll-free at 1-866-581-1514, or (416) 867-2272 (collect calls accepted), or contactus@kingsdaleshareholder.com.

About International Datacasting Corporation

International Datacasting Corporation (TSX:IDC) is a producer of digital content distribution for the world's premiere broadcasters in radio, television, data and digital cinema. IDC offers a broad portfolio of advanced solutions including Pro Audio, Pro Video, Pro Cinema, and Pro Data for implementing broadcast content contribution and distribution applications. IDC's products and solutions are in demand for radio and television networks, digital cinema, 3D live events, ad insertion, satellite news gathering, sport contribution, ad insertion, VOD, and IPTV among others. IDC is headquartered in Ottawa, Canada, with regional offices in Arnhem, the Netherlands and in San Diego, California. IDC has installations in over 100 countries and service offices in Australia, Singapore and China with an international network of value-added partners and distributors.

Forward-Looking Statements

This press release contains forward-looking statements reflecting IDC's objectives, estimates and expectations that may involve risks and uncertainties. IDC's actual results, performance, achievements and developments may differ materially from the results, performance, achievements or developments expressed or implied by such statements. Factors that might cause actual results to differ materially include, but are not limited to, competitive developments; risks associated with IDC's growth; any difficulties with integrating acquired product lines into IDC's business and/or manufacturing procedures; any difficulties or disputes with IDC's subcontractors, contract manufacturers and suppliers; IDC's dependence on the development and growth of the satellite datacasting market; a lengthy and variable sales cycle for IDC's products and services; IDC's reliance on a small number of customers for a large percentage of its revenue; regulatory risks and intellectual property infringement. IDC assumes no obligation to update these forward-looking statements to reflect events or circumstances after the date hereof, except as expressly required by applicable law. Forward-looking statements are provided to assist external stakeholders in understanding IDC's expectations as at the date of this release and may not be appropriate for other purposes. Readers are cautioned not to place undue reliance on such statements. More detailed information about potential factors that could affect IDC's financial and business results is included in the public documents IDC files from time to time with Canadian securities regulatory authorities and which are available on SEDAR at www.sedar.com, including, without limitation, IDC's Annual Information Form dated April 30, 2012.

Contact Information

  • Christine Rozak
    Director, Marketing and Communications
    International Datacasting Corporation
    613-596-4120 x 2215
    crozak@datacast.com