<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement
[_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
GSI LUMONICS INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
GSI LUMONICS INC.
Management Proxy Circular
Solicitation of Proxies
This Management Proxy Circular is furnished in connection with the solicitation
of proxies by the management of GSI Lumonics Inc. (the "Company") for use at the
Annual and Special Meeting of Shareholders to be held at 10 a.m. (local time) on
Tuesday, May 11, 1999 at the Chateau Laurier Hotel, 1 Rideau Street, Ottawa,
Ontario, Canada. The solicitation will be made by mail but proxies may also be
solicited personally by employees of the Company. The cost of solicitation has
been or will be borne by the Company. The Company may also pay brokers or
nominees holding common shares of the Company in their names or in the names of
their principals for their reasonable expenses in sending solicitation material
to their principals.
All monetary amounts referred to herein are stated in United States dollars
unless otherwise stated. Unless the context indicates otherwise, the Company
refers to GSI Lumonics Inc. and its subsidiaries.
The Notice of the Meeting, this Management Proxy Circular and the form of Proxy
will be forwarded on or about April 9, 1999 to the registered shareholders of
the Company's common shares on April 6, 1999.
Appointment and Revocation of Proxies
The persons named in the enclosed form of proxy are officers of the Company. A
shareholder may appoint a person to represent him or her at the meeting, other
than the persons already named in the accompanying form of proxy, by inserting
the name of such other person in the blank space provided in the form of proxy
or by completing another proper form of proxy. Such person need not be a
shareholder. The completed form of proxy must be deposited with the Company at
its principal executive offices at 105 Schneider Road, Kanata, Ontario, K2K 1Y3
or Montreal Trust Company of Canada, 151 Front Street West, 8th Floor Toronto,
Ontario, M5J 2N1, in either case no later than 5:00 p.m. (Ottawa time) on May
10, 1999, or, if the meeting is adjourned, before commencement of the reconvened
meeting.
The shareholder executing the form of proxy may revoke it as to any manner on
which a vote has not already been cast pursuant to the authority confirmed by
such proxy a) by delivering another properly executed form of proxy bearing a
later date and depositing it in the manner described above; b) by delivering an
instrument in writing revoking the proxy, executed by the shareholder or by the
shareholder's attorney authorized in writing, i) at the registered office of the
Company, at any time up to and including the last business day preceding the
date of the meeting, or at any reconvened meeting following its adjournment, or
ii) with the chairman of the meeting on the day of the meeting, or at any
reconvened meeting following its adjournment; or c) in any other manner
permitted by law.
<PAGE>
Voting of Proxies
The officers named in the form of proxy accompanying this Circular will vote the
common shares of the Company in respect of which they are appointed proxy in
accordance with the directions of the shareholder appointing them. In the
absence of such direction, such shares will be voted for the election of
Directors, for the appointment of Ernst & Young as auditors and for Resolution
No. 1 proposal to approve the shareholder rights plan.
The enclosed form of proxy confers discretionary authority on the person named
therein with respect to amendments to or variations of matters identified in the
Notice of Meeting and other matters which may properly come before the meeting.
At the date of this Circular, the management of the Company knows of no such
amendments, variations or other matters.
Proxies to be used at the meeting must be deposited with the Company or its
transfer agent and registrar, Montreal Trust Company of Canada, prior to the
commencement of the meeting. If you are unable to attend the meeting, please
date, sign and return the accompanying form of proxy to Montreal Trust Company
of Canada. Broker non-votes are not treated as votes cast or common shares
entitled to vote with respect to any matter described in this Management Proxy
Circular.
Voting and Ownership of Shares
At the date of this Circular the Company had * common shares outstanding. Each
shareholder of record is entitled to one vote for each common share held at the
close of business on April 6, 1999, except to the extent that such shareholder
has transferred the ownership of any shares after such date and the transferee
of such shares establishes proper ownership thereof and demands not later than
ten days before the meeting to be added to the list of shareholders entitled to
vote at the meeting in which case such transferee will be entitle to vote such
shares. The failure of any shareholder to receive a Notice of Meeting of
Shareholders does not deprive the shareholder of a vote at the meeting.
The New Brunswick Business Corporations Act (the "Act") provides by section
65(1) for cumulative voting for the election of Directors so that each
shareholder entitled to vote at an election of Directors has the right to cast a
number of votes equal to the number of votes attached to the shares held by such
shareholders multiplied by the number of Directors to be elected and may cast
all such votes in favour of one candidate or distribute them among the
candidates in any manner. The Act further provides, in section 65(2), that a
separate vote of shareholders shall be taken with respect to each candidate
nominated for Director unless a resolution is passed unanimously permitting two
or more persons to be elected by a single resolution.
2
<PAGE>
Merger
The merger involving General Scanning Inc. and Lumonics Inc. (the "Merger") was
completed on March 22, 1999. Unless otherwise stated herein, the disclosures
set forth in this Management Proxy Circular relate to the Company on a post
Merger basis current to the date hereof.
Ownership
The following sets forth certain information concerning the direct and indirect
beneficial ownership of common shares as at the date hereof by each person known
by the directors or senior officers of the Company to be the beneficial owner
of, or exercise control or direction over 5% or more of the common shares.
Shareholder Shares Percentage
- ----------- ------ ----------
Sumitomo Heavy Industries Ltd. 6,078,238 * %
Election of Directors
During the fiscal year ended 1998, the board of directors of the Company held (
meetings. Committees of the board held ( meetings. During 1998, each director
attended 75% or more of the aggregate total of meetings of both the board and
committees thereof on which such director served.
Below are the names of the persons for whom it is intended that votes be case
for their election as directors pursuant to the proxy which is hereby solicited
unless the shareholder directs therein that his or her shares be withheld from
voting. Within the minimum and maximum number of directors prescribed by the
Company's articles, the board will consist of eight directors. Each director
will hold office until the next annual meeting or until his successor is elected
or appointed.
Of the eight nominees, four were previously directors General Scanning Inc. and
four were previously directors of Lumonics Inc. Management does not contemplate
that any of the nominees named below will be unable to serve as a director, but
if that should occur for any reason prior to the meeting, where the proxy is
granted to the management nominees, the management nominees reserve the right to
vote for other nominees in their discretion unless directed to withhold from
voting. The following table states the name, position held with the Company by
each person proposed to be nominated for election as a director, the year first
elected or appointed as a director, committee memberships, and the person's
principal occupation and employment during the past five years.
3
<PAGE>
- -----------------------------------------------------------
Name, Age Year
Principal Occupation and Became
Municipality of Residence Director
- -----------------------------------------------------------
Robert J. Atkinson, 57 1973
Chairman
GSI Lumonics Inc.
Kanata, Ontario, Canada
Richard B. Black (2), 65 1999
Vice Chairman
Oak Technology, Inc.
Moose, Wyoming, U.S.A.
Paul F. Ferrari (1)(2), 68 1999
Independent Consultant /
Former V.P. & Treasurer
Themo Electron Corporation
Hobe Sound, Florida, U.S.A.
Woody C. Flowers (1), 55 1999
Pappalardo Professor of
Mechanical Engineering at MIT
Weston, Massachussets, U.S.A.
Warren Scott Nix, 51 1998
President & Chief Operating Officer
GSI Lumonics Inc.
Westlake Village, California, U.S.A.
Yukihito Takahashi, 59 1997
Managing Director
Sumitomo Heavy Industries, Inc.
Funabashi, Chiba, Japan
Ben J. Virgillio (1)(2), 59 1998
President & CEO
Rea International Inc.
Kleinberg, Ontario, Canada
Charles D. Winston, 57 1999
Chief Executive Officer
GSI Lumonics Inc.
Kiawah, South Carolina, U.S.A.
4
<PAGE>
1 Member, Audit Committee
2 Member, Compensation Committee
Robert J. Atkinson has served as Chairman of the board of directors of the
Company since January 1997. Prior to January 1997, Mr. Atkinson also served as
Chief Executive Officer of the Company.
Richard Black has served as Vice Chairman of Oak Technology, Inc. since March
1999, as President of Oak from January 1998 to March 1999, and has been a
director of Oak since 1988. He has served as Chairman of the board of directors
of ERCM Incorporated since 1983. He also serves as a director of Oak
Technology, Inc., Morgan Group, Inc., Gabelli Funds, Inc., Benedetto Gartland,
Inc. and Grand Eagle Companies.
Paul F. Ferrari has been an independent consultant since 1991. Previously, he
was Vice president of Thermo Electron Corporation from 1988 to 1991 and was
Treasurer of Thermo Electron Corporation from 1967 to 1988. He also serves as a
director of Thermedics Inc. and ThermoTrex Inc.
Woodie Flowers, Ph.D., is the Pappalardo Professor of Mechanical Engineering at
Massachusetts Institute of Technology. Professor Flowers also served as a
Professor of Teaching Innovation at the MIT School of Engineering from 1991 to
1993 and was Head of the Systems Design Division at MIT from 1989 to 1991. He
also serves as a director of Nypro, Inc. and is a member of the National Academy
of Engineering.
Warren Scott Nix has been President and Chief Executive Officer of the Company
since January 1997. Prior to that time, Mr. Nix was President and Chief
Operating Officer of the Company. Prior to January 1996, Mr. Nix was Vice
President, Operations of the Company and prior to July 1994, was Executive Vice
President and General Manager of the Nuclear Division of Allied Signal Inc.
Yukihito Takahashi has been the Managing Director of Sumitomo Heavy Industries,
Ltd. since June 1997 and prior to that time was a Director of Sumitomo Heavy
Industries, Ltd.
Benjamin J. Virgilio is the President and Chief Executive Officer of Rea
International Inc., an automotive fuel systems manufacturer. Prior to May 1995,
Mr. Virgilio was a business consultant. Prior to November 1993, he was
President and Chief Executive Officer of A.G. Simpson Limited.
Charles D. Winston served as President and Chief Executive Officer of General
Scanning Inc. since September 1988. Prior to joining General Scanning Inc.,
from 1986 to 1988, Mr. Winston served as a management consultant. In 1986, Mr.
Winston was an officer of Savin Corporation. From 1981 to 1985, he served as a
Senior Vice President of Federal Express Corporation.
5
<PAGE>
Security Ownership of Directors and Management
The following table shows the number of common shares, the Company's only class
of equity securities, of the Company beneficially owned by each of the
directors, the nominees for election as a director, the named executive officers
(see "Executive Compensation" below), as well as by the directors, the nominees
for election as a director, and the executive officers of the Company as a
group, as of April 6, 1999:
Name of Amount and Nature of Percentage of
Beneficial Owner Beneficial Ownership (1) Common Shares
- ---------------- ------------------------ -------------
Robert J. Atkinson, 141,249(2) *
Chairman and Director
Kanata, ON
Patrick D. Austin, 32,499(3) *
Vice President, Sales
Ojai, CA
Richard B. Black, 14,817(4) *
Director
Moose, WY
Desmond J. Bradley, 79,582(5) *
Vice President, Finance
and Administration and
Chief Financial Officer
Stittsville, ON
Paul F. Ferrari, 149,518(6) *
Director
Hobe Sound, FL
Woodie C. Flowers, 42,296(7) *
Director
Weston, MA
John W. George 25,500(8) *
Vice President,
Customer Support
Rochester Hills, MI
Warren Scott Nix, 249,083(9) *
President, Chief Executive
Officer and Director
West Lake Village, CA
6
<PAGE>
Yukihito Takahashi, 6,666(10) *
Director
Funabashi, Chiba, JAPAN
Ben J. Virgillio, 3,333(11) *
Director
Kleinberg, ON
Charles D. Winston, 156,453(12) *
Director
Kiawa, SC
All directors, nominees for * *
directors and executive officers
as a group (* persons)
(1) A person is deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days from April 6, 1999, whether
pursuant to the exercise of options, conversion of securities or
otherwise. Each beneficial owner's percentage of ownership is determined
by assuming that options that are held by such person (but not those held
by any other person) and which are exercisable (or convertible) within 60
days of April 6, 1999 have been exercised. Unless otherwise noted in the
footnotes below, the Company believes all persons named in the table have
sole voting power and investment power with respect to all common shares
beneficially owned by them. Statements as to ownership of common shares
are based upon information obtained from the directors, nominees and
executive officers and from records available to the Company.
(2) Includes 126,249 common shares subject to options.
(3) All common shares subject to options.
(4) Includes 8,082 common shares subject to options.
(5) Includes 74,582 common shares subject to options.
(6) Includes 24,920 common shares subject to options.
(7) Includes 2,694 common shares subject to options.
(8) Includes 25,000 common shares subject to options.
(9) Includes 237,083 common shares subject to options.
(10) All common shares subject to options.
(11) All common shares subject to options.
(12) Includes 34,834 common shares subject to options. Does not include 75,000
shares which may be acquired upon achieving certain performance goals
which the Company does not expect to be reached within 60 days.
Executive Compensation
The following table, presented in accordance with the rules of the United States
Securities and Exchange Commission, sets forth information with respect to the
compensation earned during the fiscal years ended December 31, 1998, 1997 and
1996 by the Company's Chief Executive Officer and the four other most highly
compensated executive officers of the Company (the "Named Executive Officers").
7
<PAGE>
SUMMARY COMPENSATION TABLE
(All figures rounded to the nearest dollar)
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
------------------- Awards
------
Securities
Under
Name and Fiscal Other Annual Options All Other
Principal Position Year Salary Bonus Compensation Granted Compensation
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Robert J. Atkinson (7) 1998 $178,508 $ ---- $43,650(1) 100,000
Chairman 1997 183,956 25,278 41,944(1) 100,000
1996 209,598 110,011 40,837(1) 0
Warren Scott Nix 1998 275,000 ---- (4) 120,000
President and Chief 1997 275,000 37,500 (4) 240,000 60,000(2)
Executive Officer 1996 215,000 113,000 (4) 0
Patrick D. Austin 1998 153,000 ---- 23,456(5) 70,000
V.P. Sales 1997 153,000 25,400 (4) 40,000
1996 142,000 55,739 (4) 0
Desmond J. Bradley (7) 1998 107,105 ---- 21,881(3) 70,000
V.P. Finance and 1997 109,526 11,195 19,692(3) 45,000
Chief Financial Officer 1996 105,921 38,137 18,454(3) 0
John W. George 1998 119,615 ---- 18,829(6) 60,000
V.P. Customer Support 1997 110,000 8,300 15,854(6) 32,500
1996 95,000 16,720 13,858(6) 0
</TABLE>
(1) For 1998, 1997 and 1996, includes total amounts accrued of $35,738, $34,689
and $33,982 with respect to a deferred retirement benefit.
(2) Includes $60,000 with respect to the forgiveness of a demand loan.
(3) For 1998, 1997 and 1996, includes total amounts accrued of $15,255, $14,808
and $13,071 with respect to a deferred retirement benefit and $5,823,
$4,064 and $4,764 of automobile expenses.
(4) Perquisites and Personal Benefits do not exceed the lesser of $50,000 and
10% of the total of the annual salary and bonus of the executive.
(5) For 1998, includes $9,412 with respect to the 401K Company match, and
$8,700 of automobile allowance.
(6) For 1998, 1997 and 1996 includes $8,700, $6,600 and $5,400 of automobile
allowance and $6,292, $6,004 and $5,778 with respect to the 401K Company
match.
(7) For 1998, 1997 and 1996 compensation paid in Canadian dollars has been
translated to U.S. dollars at the following rates: 0.6741, 0.7222 and
0.7334.
8
<PAGE>
Stock Option Plans
The Company has entered into option agreements ("Option Agreements") dated May
11, 1994 (the "Date of Grant") with five executive officers under which options
to purchase 700,000 common shares were granted, at an exercise price of Cdn$4.00
per share. As at the date hereof there are options to acquire 131,250 common
shares outstanding under the Option Agreements. The options granted pursuant to
the Option Agreements will expire on September 14, 2001.
On September 1, 1994, the Company adopted a stock option plan for key employees
and directors (the "Plan").
As of the date hereof, there are outstanding options held by 66 employees and
directors to acquire 208,825 common shares under the Plan, all of which options
were granted on September 1, 1994. The exercise price of all outstanding
options under the Plan is Cdn$7.00 per share. All outstanding options under the
Plan will expire September 14, 2001. No additional options will be granted
under the Plan.
On September 14, 1995, the Company established the 1995 Stock Option Plan for
Employees and Directors (the "1995 Plan") for the benefit of employees
(including contract employees) and directors of the Company. Subject to the
requirements of the 1995 Plan, the Compensation Committee or in lieu thereof,
the Board of Directors, has the authority to select those directors and
employees to whom options will be granted, the number of options to be granted
and the price at which the common shares may be purchased. The exercise price
of options granted under the 1995 Plan must be equal to the closing price of the
Company's common shares on The Toronto Stock Exchange or in lieu thereof, or
NASDAQ, on the trading day immediately preceding the date of grant. A maximum
of 1,906,000 options to purchase common shares are permitted to be issued under
the 1995 Plan. As at the date hereof, options to purchase an aggregate of ( are
outstanding under the 1995 Plan to employees and directors at prices ranging
from Cdn$14.50 per share to Cdn$28.00 per share.
No past financial assistance has been given to participants to assist them in
purchasing common shares under the 1995 Plan, nor is such financial assistance
contemplated. The 1995 Plan contains no provision for the Company to provide
any such assistance.
In accordance with the terms of the Merger, all outstanding options or warrants
to purchase General Scanning Inc, common stock were assumed by the Company and
currently represent options to purchase an aggregate of ( common shares of the
Company.
The following table provides information regarding options granted by the
Company during the fiscal year ended December 31, 1998 to the Named Executive
Officers:
9
<PAGE>
<TABLE>
<CAPTION>
Potential
Realizable Value
At Assumed
Annual Rate of
Number Percent of Share Price
of Shares Total Options Appreciation for
Underlying Granted to Exercise Option Term(3)
Options Employees or Base Expiration -------------------
Name Granted in Fiscal Year Price ($/SH(1)) Date(2) 5%($) 10%($)
- ---- ------- -------------- --------------- ------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Robert J. Atkinson 100,000 11.4% $ 4.92 2 Nov 03 $136,000 $300,000
Chairman
Warren Scott Nix 120,000 13.6% $ 4.92 2 Nov 03 $163,200 $360,000
President and Chief
Executive Officer
Patrick D. Austin 70,000 8.0% $ 4.92 2 Nov 03 $ 95,200 $210,000
V.P. Sales
Desmond J. Bradley 70,000 8.0% $ 4.92 2 Nov 03 $ 95,200 $210,000
V.P. Finance and
Chief Financial Officer
John W. George 60,000 6.8% $ 4.92 2 Nov 03 $ 81,600 $180,000
V.P. Customer
Support
</TABLE>
(1) The exercise price and potential realizable value is expressed in US$ using
an exchange rate of 0.6741.
(2) The options were granted on November 2, 1998. Fifty percent will vest when
the price per option share on the Toronto Stock Exchange over any period of
20 consecutive trading days subsequent to the date of grant (the "Strike
Price") reaches CDN$15. The other fifty percent will vest when the Strike
Price reaches CDN$20. The vesting conditions may be changed on 60 days
notice to the optionee. Options may be exercised once vested any time after
the first anniversary of the date of grant but not after the fifth
anniversary of the date of grant.
(3) This column shows the hypothetical gain of the options granted based on
assumed annual share appreciation rates of 5% and 10% above the exercise
price over the full term of the option. The 5% and 10% rates of
appreciation are mandated by the rules of the Commission and do not
represent the Company's estimate of future the Company's common share
prices.
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<PAGE>
AGGREGATED OPTION EXERCISES DURING THE FISCAL YEAR ENDED
DECEMBER 31, 1998 AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
Value (2) of Unexercised
Securities Aggregate Unexercised Options at in-the-Money Options at
Acquired Value December 31, 1998 December 31, 1998
Name and on Exercise Realized (1) Exercisable/Unexercisable Exercisable/Unexercisable
Principal Position (#) ($) (#) (#) ($) ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Robert J. Atkinson - - 97,917 183,333 $148,298 -
Chairman
Warren Scott Nix - - 158,750 280,000 $104,651 -
President and
Chief Executive
Officer
Patrick D. Austin - - 19,167 103,333 $ 3,370 -
V.P. Sales
Desmond J. Bradley - - 62,917 108,333 $ 78,362 -
V.P. Finance and
Chief Finance
Officer
John W. George - - 15,000 82,500 $ 1,348 -
V.P. Customer
Support
</TABLE>
(1) Market value of the underlying shares on the date of exercise less the
option exercise price.
(2) Market value of shares covered by in-the-money options on December 31,
1998, less the option exercise price. Options are in-the-money if the
market value of the share covered thereby is greater than the option
exercise price.
Management Contracts and Indebtedness
On April 13, 1998 GSI Lumonics Inc. concluded change in control agreements (the
"Agreements") with its Chairman and members of its executive management team.
The Agreements were effective January 1, 1998, will continue for a minimum term
of three years and will automatically extend for periods of one year after the
initial term unless notice is given by the Company or the individual at least 90
days prior to the expiration of the current period that the Agreement shall not
be extended. The Company entered into these Agreements with each of the
following individuals: Robert Atkinson, W. Scott Nix, Pat Austin, Desmond
Bradley, Dave Egleston and John George.
11
<PAGE>
Each such employee's Agreement provides for a severance payment if a change of
control of the Company occurs or employment with the Company is terminated under
certain circumstances.
Under the Agreements entered into with each of Mr. Atkinson and Mr. Nix, the
severance payment is equal to twice the sum of (1) annual salary plus (2)
average target and actual bonus payments for the last two years plus (3) the
cost of certain employment benefits. If the payment is as a result of a change
of control of the Company, the benefit is calculated as three times the
previously noted sum.
Under the Agreements entered into with each of Messrs. Austin, Bradley, Egleston
and George, the severance payment is equal to a factor (one month times the
number of months employed with the Company, minimum one year, maximum two years)
times the sum of (1) annual salary plus (2) average target and actual bonus
payments for the last two years plus (3) the cost of certain employment
benefits. If the payment is as a result of a change of control of the Company,
the factor is increased by one year.
During August 1998, Mr. Egleston terminated his employment with the Company. He
received the full amount payable under the terms of the above-noted employment
agreement.
Composition of Compensation Committee
The Compensation Committee (the "Committee") determines all aspects of
compensation payable to the Chief Executive Officer and the senior executives
named in the Summary Compensation Table. As at December 31, 1998 the Committee
was composed of three members of the then existing Board of Directors: Benjamin
J. Virgilio; Charles J. Gardner; and Atsushi Naitoh. Mr. Gardner is Secretary of
the Company and provides legal services to it, but is not an employee.
Compensation Committee Report on Executive Compensation
The executive compensation policy of the Company has as its goals the following:
(1) to provide executives with compensation that is fair and competitive in
the market place;
(2) to incent executives to meet and exceed financial and other strategic
objectives;
(3) to raise the perspectives of executives from simply increasing the size
of the Company to taking a strategic path toward increasing shareholder
value.
12
<PAGE>
Salary
Base salaries are determined on an individual basis taking into consideration
the individual's position in the Company, the individual's ability to contribute
to the Company's performance and amounts paid by technology companies of similar
size for comparable positions.
Annual Bonus
Each executive officer has the opportunity to earn an annual bonus. The amount
of the bonus is tied to specific financial goals that are approved by the
Compensation Committee. The amount of the potential bonuses vary based upon the
executive officer's position in the Company, ability to impact on Company
performance and degree of responsibility.
Long Term Incentives
Executives may participate in the Company's stock option plans (the "Plans").
The Plans are administered by the Compensation Committee which designates the
individuals who are to be granted options, the number of options to be granted
and other terms and conditions of the options. The number of stock options
granted to executive officers are based upon the same factors as are relevant in
setting their salaries and annual bonuses.
Chief Executive Officer's Compensation
Warren Scott Nix has served the Company from 1982 to 1985 and from 1993 to the
present. During these periods he has held a number of senior executive
positions including Vice-President and Chief Operating Officer, President and
Chief Executive Officer and Chairman. In setting Mr. Nix's salary and target
bonus for the year ended December 31, 1998 the Committee reviewed salaries and
bonuses paid to other chief executive officers of technology companies of
similar size and considered his ability to impact on the achievement of the
Company's objectives. For the year ended December 31, 1998, Mr. Atkinson's
target bonus was (% of his base salary. Options to purchase 120,000 common
shares were granted to Mr. Nix in 1998 an exercise price of Cdn$7.30.
Report Submitted by: Benjamin J. Virgilio
Charles J. Gardner, and
Atsushi Naitoh.
Compensation of Directors
During the most recently completed financial year, Company directors who were
not employees of the Company or representatives of Sumitomo Heavy Industries
Limited received an annual retainer of $7,500 and an attendance fee of $1,000
for attending
13
<PAGE>
meetings of shareholders, the Board of Directors and committees of the Board of
Directors. In addition, upon initial election and every third year thereafter,
they receive an option to purchase 10,000 common shares of the Company with an
exercise price of fair market value on the date of grant. Directors who are
employees of the Company receive no remuneration for serving as members of the
Board of Directors. Directors who represent Sumitomo Heavy Industries Limited
received an option to purchase 10,000 common shares of the Company with an
exercise price of fair market value on the date of grant upon their initial
election and every third year thereafter. All directors, other than those
representing Sumitomo Heavy Industries Limited, were entitled to reimbursement
by the Company for all reasonable expenses incurred in attending meetings of
shareholders, the Board of Directors and committees of the Board of Directors.
No additional compensation is paid to the chairs of the various committees.
Charles J. Gardner, a director of the Company, is Counsel to a law firm that
provides legal services to the Company. During the fiscal year ended December
31, 1998, Mr. Gardner's firm was paid $ ( for legal services which included Mr.
Gardner acting as a director of the Company and as a member of the audit and
compensation committees.
Corporate Governance
The Toronto Stock Exchange ("TSE") has adopted guidelines for effective
corporate governance (the "TSE Guidelines") addressing matters such as the
constitution of and functions to be performed by the board of Directors and its
committees. The TSE requires that each listed corporation disclose its approach
to corporate governance with reference to these guidelines on an annual basis
and that where a Company's governance system differs from the TSE Guidelines, to
give an explanation of the difference.
Board Responsibility
The Company's Board of Directors takes responsibility for stewardship of the
company. It discharges its responsibility directly and through the Audit
Committee and Compensation Committee. The Board of Directors meets quarterly to
review the business operations and financial results of the Company. Meetings
of the Board of Directors include regular meetings with management to discuss
specific aspects of the operations of the Company. Meetings of the Board of
Directors are held at various facilities of the Company so as to allow directors
to gain a better understanding of business operations.
Specific responsibilities of the Board of Directors include:
. reviewing and approving the Company's strategic and operating plans;
. ensuring the implementation of systems to manage the principal risks of
the business;
. reviewing and approving significant operational and financial matters
and providing direction to management on these matters;
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. succession planning including the appointment, training and monitoring
of senior management;
. formulation of policies to ensure effective communications with
shareholders;
. ensuring that management has implemented the control and information
systems necessary to ensure reliable financial reporting, compliance
with applicable laws and regulations and effective management.
Board Composition
The Board of Directors of the Company has eight members of which five are
"unrelated". An "unrelated" director, under the TSE Guidelines, is a director
who is independent of management and is free from any interest in any business
or other relationship which could, or could reasonably be perceived to
materially interfere with the director's ability to act with a view to the best
interests of the Company, other than interests and relationships arising from
shareholding.
The Company does have a significant shareholder, SHI Canada Inc. ("SHI"), a
wholly owned subsidiary of Sumitomo Heavy Industries Ltd. SHI owns
approximately ( percent of the issued and outstanding shares of the Company.
The Company believes that the investment of minority shareholders in the Company
is fairly reflected in the composition of the Board of Directors since four of
the eight directors do not have interests in or relationships with either the
Company or SHI.
The Board has a Chairman that is separate from management.
The Audit Committee is composed of three outside directors all of whom are
unrelated. The Committee has direct communication channels with external and
internal auditors. The Committee ensures that management has fulfilled its
obligation to design and implement effective systems of internal control.
The Compensation Committee is composed of three directors all of whom are
unrelated. The Committee is responsible for fixing the remuneration for the
Chief Executive Officer and for those senior executive officers who report to
him. The Committee also administers the Company's Stock Option Plans.
Investor Relations
The Company has designated specific executives to be responsible for receiving
shareholder feedback and comments. The Company believes that in this manner
shareholder concerns are dealt with appropriately when they arise.
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Other Matters
The Company does not have a corporate governance committee or a nominating
committee. Currently, the Board of Directors has responsibility for nominating
new directors, ensuring that new directors are provided with appropriate
orientation and education programs, assessing the effectiveness of the Board as
a whole and the contribution of individual directors, reviewing the adequacy and
form of compensation of directors, and approving requests of directors to engage
outside advisors at the expense of the Company.
Directors' and Officers' Liability Insurance
The Company maintains directors' and officers' liability insurance in the
aggregate principal amount of $35,000,000 subject to a $1,000,000 deductible per
loss payable by the Company. The premium payable for such insurance is
currently $104,000 per year which is paid by the Company.
Investment Performance Graph
The following graph assumes an investment of Cdn$100 on September 28, 1995 (the
date of the closing of the Company's initial public offering) and compares the
yearly percentage change in the cumulative total shareholder return on such
investment to the cumulative total return of The Toronto Stock Exchange
Composite for the five year period which commenced September 28, 1995 and ended
on December 31, 1998.
[Graph appears here]
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Appointment of Auditors
The persons named in the accompanying form of proxy intend to vote for the
reappointment of Ernst & Young as auditors of the Company to hold office until
the annual meeting of shareholders in 2000. Ernst & Young have served as
auditors of the Company since 1993.
Arrangements have been made for one or more representatives of Ernst & Young to
attend the Meeting, which representatives will be given an opportunity to make a
statement if they so desire, and to answer questions that are appropriate.
Resolution No. 1 - Proposal to Approve the Shareholder Rights Plan
Shareholders of the Company will be asked at the meeting to vote on a
resolution ("Resolution No. 1") to ratify, confirm and approve a Shareholder
Rights Plan (the "Rights Plan" or the "Plan"). The full text of Resolution No.
1 is set out in Schedule "A" to this Management Proxy Circular.
Adoption of Rights Plan
The Rights Plan was unanimously adopted at a meeting of the Board of
Directors held on (. The provisions of the Rights Plan are set out in a
shareholder rights plan agreement (the "Agreement") dated and effective as of (,
between the Company and Montreal Trust Company of Canada, as Rights Agent. Under
the Rights Plan, shareholders of the Company have received, for each common
share issued and outstanding at 5:00 p.m. (Ottawa Time) on (, 1999, one right to
purchase one additional common share (a "Right"), under the circumstances and on
the terms described in the Agreement.
In order to continue beyond the date of the meeting, the Plan must be
confirmed by resolution passed by a majority of the votes cast by Independent
Shareholders (generally, shareholders other than the Offeror or Acquiring
Person, their Associates and Affiliates, and Persons acting jointly or in
concert with the Offeror or Acquiring Person) who vote in respect of the Plan at
the meeting. The full text of the proposed resolution is attached as Schedule
"A" to this Management Proxy Circular. The Toronto Stock Exchange, on which the
common shares are traded, has accepted notice from the Company of the issuance
of Rights and common shares issuable on the exercise of Rights, subject to
shareholder ratification of the Plan at the meeting.
All capitalized terms used without definition under the heading "Proposal
to Approve the Shareholder Rights Plan" have the meanings ascribed to them in
the Agreement.
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Objectives of the Rights Plan
The Board of Directors has implemented a shareholder rights plan to ensure
that, to the extent possible, in the context of a bid for control of the Company
through an acquisition of the Company's common shares, shareholders will be
treated equally and fairly and will be positioned to receive full value for
their shares. In deciding to implement the Rights Plan, of concern to the Board
of Directors was the widely held view that existing securities legislation
provides too short a response time to a Company that is the subject of an
unsolicited bid for control.
Also of concern to the Board of Directors is the possibility that, under
existing securities laws, the Company's shareholders could be treated unequally
in the context of a bid for control. These concerns are described in more detail
below.
The Rights Plan was not adopted in response to, or in anticipation of, any
pending or threatened take-over bid, nor to deter take-over bids generally.
Rather, the objectives of the Rights Plan are to give adequate time for
shareholders to properly assess a bid without undue pressure, for the Board of
Directors to consider value-enhancing alternatives and to allow competing bids
to emerge. In addition, the Rights Plan has been designed to provide
shareholders of the Company with equal treatment in a bid for control of the
Company.
In adopting the Rights Plan, the Board of Directors considered the
following concerns inherent in the existing legislative framework governing
take-over bids.
(a) Time. Current legislation permits a take-over bid to expire in 21 days in
Canada and 20 business days in the United States. The Board of Directors is
of the view that this is not sufficient time to permit shareholders to
consider a take-over bid and to make a reasoned and unhurried decision. The
Rights Plan provides a mechanism whereby the minimum expiry period for a
Take-over Bid must be 45 days after the date of the bid and the bid must
remain open for a further period of 10 Business Days after the Offeror
publicly announces that the shares deposited or tendered and not withdrawn
constitute more than 50% of the Voting Shares outstanding held by
Independent Shareholders. The Plan is intended to provide shareholders with
adequate time to properly evaluate the offer and to provide the Board of
Directors with sufficient time to explore and develop alternatives for
maximizing shareholder value. Those alternatives could include, if deemed
appropriate by the Board of Directors, the identification of other
potential bidders, the conducting of an orderly auction or the development
of a corporate restructuring alternative which could enhance shareholder
value.
(b) Pressure to Tender. A shareholder may feel compelled to tender to a bid
which the shareholder considers to be inadequate out of a concern that
failing to tender may result in the shareholder being left with illiquid or
minority discounted shares in the Company. This is particularly so in the
case of a partial bid for less than all shares of a class where the bidder
wishes to obtain a control position but does not wish to acquire all of the
Voting Shares. The Plan provides a shareholder
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approval mechanism in the Permitted Bid provision which is intended to
ensure that a shareholder can separate the tender decision from the
approval or disapproval of a particular take-over bid. By requiring that a
bid remain open for acceptance for a further 10 Business Days following
public announcement that more than 50% of the Voting Shares held by
Independent Shareholders have been deposited, a shareholder's decision to
accept a bid is separated from the decision to tender, lessening the undue
pressure to tender typically encountered by a shareholder of a Company that
is the subject of a take-over bid.
(c) Unequal Treatment. While existing securities legislation has addressed many
concerns of unequal treatment, there remains the possibility that control
of a Company may be acquired pursuant to a private agreement in which a
small group of shareholders disposes of shares at a premium to market price
which premium is not shared with the other shareholders. In addition, a
person may slowly accumulate shares through stock exchange acquisitions
which may result, over time, in an acquisition of control without payment
of fair value for control or a fair sharing of a control premium among all
shareholders. The Plan addresses these concerns by applying to all
acquisitions resulting in the acquiror beneficially holding greater than
20% of the Voting Shares, to better ensure that shareholders receive equal
treatment.
General Impact of the Rights Plan
In the past, shareholder rights plans have been criticized by some
commentators on the basis that they may serve to deter take-over bids, to
entrench management, and to place in the hands of boards of directors, rather
than shareholders, the decision as to whether a particular bid for acquisition
of control is acceptable. Critics of some shareholder rights plans have also
alleged that they cast a needlessly wide net, thereby increasing the likelihood
of an inadvertent triggering of the plan, while at the same time deterring
shareholders from participating in legitimate corporate governance activities.
The Board of Directors has considered these concerns, and believes that
they have been largely addressed in the Plan.
It is not the intention of the Board of Directors in adopting the Plan to
secure the continuance of existing directors or management in office, nor to
avoid a bid for control of the Company. For example, through the Permitted Bid
mechanism, described in more detail below, shareholders may tender to a bid
which meets the Permitted Bid criteria without triggering the Plan, regardless
of the acceptability of the bid to the Board of Directors. Furthermore, even in
the context of a bid that does not meet the Permitted Bid criteria, the Board of
Directors will continue to be bound to consider fully and fairly any bid for the
Company's common shares in any exercise of its discretion to waive application
of the Plan or redeem the Rights. In discharging that responsibility, the Board
of Directors must act honestly and in good faith with a view to the best
interests of the Company and its shareholders.
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The Rights Plan does not preclude any shareholder from utilizing the proxy
mechanism of the New Brunswick Business Corporations Act to promote a change in
the management or direction of the Company, and has no effect on the rights of
holders of outstanding voting shares of the Company to requisition a meeting of
shareholders, in accordance with the provisions of applicable corporate and
securities legislation, or to enter into agreements with respect to voting their
common shares. The definitions of "Acquiring Person" and "Beneficial Ownership"
have been developed to minimize concerns that the Plan may be inadvertently
triggered or triggered as a result of an overly-broad aggregating of holdings of
institutional shareholders and their clients.
The Board of Directors believes that the dominant effect of the Plan will
be to enhance shareholder value, and ensure equal treatment of all shareholders
in the context of an acquisition of control.
The Rights Plan will not interfere with the day-to-day operations of the
Company. The initial issuance of the Rights does not in any way alter the
financial condition of the Company, impede its business plans or alter its
financial statements. In addition, the Rights Plan is initially not dilutive and
is not expected to have any effect on the trading of common shares. However, if
a Flip-In Event occurs and the Rights separate from the common shares, as
described in the summary below, reported earnings per share and reported cash
flow per share on a fully-diluted or non-diluted basis may be affected. In
addition, holders of Rights not exercising their Rights after a Flip-In Event
may suffer substantial dilution.
The Rights Plan may, however, increase the price to be paid by a potential
Offeror to obtain control of the corporation and may discourage certain
transactions, including Take-over Bids for less than all the Voting Shares of
the Company. Accordingly, the Rights Plan may deter some Take-over Bids.
Recent Developments
The Board of Directors believes that the results of several recent
unsolicited take-over bids in Canada demonstrate that shareholder rights plans
can enhance shareholder value without removing the ultimate decision from the
shareholders. In a number of instances, a change of control was achieved
following an unsolicited bid in circumstances where the ultimately successful
bid was substantially better than the original offer made by the bidder. There
can be no assurance however that the Rights Plan, if approved, would serve to
cause a similar result.
In recent decisions, the Ontario Securities Commission has indicated that
the board of directors of a Company confronted with an unsolicited take-over bid
will not be allowed to maintain a shareholder rights plan indefinitely to keep a
bid from the shareholders; however, these decisions also indicate that so long
as the board of directors is actively and realistically seeking value-maximizing
alternatives, shareholder rights plans may serve a legitimate purpose.
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Terms of the Rights Plan
The following is a summary of the terms of the Rights Plan. The summary is
qualified in its entirety by the full text of the Agreement, copies of which
will be made available to Shareholder's of record upon request made to GSI
Lumonics Inc., 105 Schneider Road, Kanata, Ontario, K2K 1Y3, Attention:
Secretary.
Issuance of Rights
One Right has been issued by the Company in respect of each common share
outstanding at 5:00 p.m. (Ottawa Time) on (, 1999, and one Right will be issued
in respect of each common share of the Company issued thereafter, prior to the
earlier of the Separation Time and the Expiration Time. Each Right entitles the
registered holder thereof to purchase from the Company one common share at the
exercise price of Cdn$200, subject to adjustment and certain anti-dilution
provisions (the "Exercise Price"). The Rights are not exercisable until the
Separation Time. If a Flip-In Event occurs, each Right will entitle the
registered holder to receive, upon payment of the Exercise Price, common shares
of the Company having an aggregate market price equal to twice the Exercise
Price.
Trading of Rights
Until the Separation Time (or the earlier termination or expiration of the
Rights), the Rights will be evidenced by the certificates representing the
common shares of the Company and will be transferable only together with the
associated common shares. From and after the Separation Time, separate
certificates evidencing the Rights ("Rights Certificates"), together with a
disclosure statement prepared by the Corporation describing the Rights, will be
mailed to holders of record of common shares (other than an Acquiring Person) as
of the Separation Time. Rights Certificates will also be issued in respect of
common shares issued prior to the Expiration Time to each holder (other than an
Acquiring Person) converting, after the Separation Time, securities
("Convertible Securities") convertible into or exchangeable for common shares.
The Rights will trade separately from the common shares after the Separation
Time.
Separation Time
The Separation Time is the Close of Business on the eighth Business Day
after the earlier of (i) the "Stock Acquisition Date", which is generally the
first date of public announcement of facts indicating that a Person has become
an Acquiring Person; and (ii) the date of the commencement of, or first public
announcement of the intent of any Person (other than the Company or any
subsidiary of the Company) to commence a Take-over Bid (other than a Permitted
Bid or a Competing Permitted Bid, so long as such bid continues to satisfy the
requirements of a Permitted Bid or Competing Permitted Bid). In either case, the
Separation Time can be such later Business Day as may from time to time be
determined by the Board of Directors. If a Take-over Bid expires or is
cancelled, terminated or otherwise withdrawn prior to the Separation Time, it
shall be deemed never to have been made.
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Acquiring Person
In general, an Acquiring Person is a Person who is the Beneficial Owner of
20% or more of the Company's outstanding common shares and any other shares in
the share capital or any voting interest of the Company entitled to vote
generally on the election of directors ("Voting Shares"). Currently, no Voting
Shares other than the common shares are outstanding. Excluded from the
definition of "Acquiring Person" are the Company and its subsidiaries, and any
Person who becomes the Beneficial Owner of 20% or more of the outstanding Voting
Shares as a result of one more or any combination of a Voting Share Reduction, a
Permitted Bid Acquisition, an Exempt Acquisition and a Pro Rata Acquisition. The
definitions of "Voting Share Reduction", "Permitted Bid Acquisition", "Exempt
Acquisition" and "Pro Rata Acquisition" are set out in the Agreement. However,
in general:
(a) a "Pro Rata Acquisition" means an acquisition of Voting Shares pursuant to
a dividend reinvestment plan, share purchase plan, stock dividend, a stock
split or other similar event. It also means the acquisition or exercise of
share purchase rights distributed pursuant to a bona fide rights offering
or a public or private distribution of Voting Shares or Convertible
Securities (including a conversion or exchange of such Convertible
Securities) but only if the acquisition allows the acquirer to maintain its
percentage holding of Voting Shares;
(b) a "Voting Share Reduction" means an acquisition or redemption by the
Company of Voting Shares;
(c) an "Exempt Acquisition" means a share acquisition in respect of which the
Board of Directors has waived the application of the Plan or which was made
prior to the date of the Agreement; and
(d) a "Permitted Bid Acquisition" means an acquisition of Voting Shares made
pursuant to a Permitted Bid or a Competing Permitted Bid.
Also excluded from the definition of "Acquiring Person" are underwriters
acting in connection with a bona fide distribution of securities to the public.
Beneficial Ownership
In general, a Person is deemed to Beneficially Own common shares actually
held by others in circumstances where those holdings are or should be grouped
together for purposes of the Plan. Included are holdings by the Person's
Affiliates (generally, a person that controls, is controlled by, or under common
control with another person) and Associates (generally, relatives sharing the
same residence). Also included are securities which the Person or any of the
Person's Affiliates or Associates has the right to acquire within 60 days (other
than customary agreements with and between underwriters and/or banking group
and/or selling group members with respect to a distribution of securities, and
other than pledges of securities in the ordinary course of business).
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A Person is also deemed to "Beneficially Own" any securities that are
Beneficially Owned (as described above) by any other Person with which the
Person is acting jointly or in concert.
The definition of "Beneficial Ownership" contains several exclusions
whereby a Person is not considered to "Beneficially Own" a security. A Person
shall not be deemed to be the Beneficial Owner of a security because the holder
of such security has either agreed pursuant to a Permitted Lock-up Agreement to
deposit or tender such security to a Take-over Bid made by such Person or such
Person's Affiliate or Associate or because such security has been deposited or
tendered to a Take-over Bid made by such Person or such Person's Associates or
Affiliates until the earlier of such security being accepted unconditionally for
payment or exchange pursuant to the Take-over Bid and such security being taken
up and paid for. "Permitted Lock-Up Agreement" is defined in the Agreement;
however, generally a "Permitted Lock-Up Agreement" is an agreement between a
Person and one or more holders of Voting Shares to tender shares to a Take-over
Bid (the "Lock-Up Bid") which agreement provides that the obligation to tender
or deposit is terminable at the option of the holder of Voting Shares if another
Take-over Bid is made at a price or value per Voting Share that is at least 5%
in excess of the Lock-up Bid or another Take-over Bid is made for a number of
Voting Shares at least 5% greater than a number of Voting Shares bid for under
the Lock-Up Bid at a price or value that is not less than the price or value
offered under the Lock-up Bid and in the event that the Lock-up Bid is not
successful no break-up fees, top-up fees, penalties or expenses or other amounts
that exceed in the aggregate the cash equivalent of 2 1/2% of the price or value
payable under the Lock-up Bid to the holders of Voting Shares who are party to
the Permitted Lock-up Agreement.
There are other exemptions from the deemed "Beneficial Ownership"
provisions for institutional shareholders acting in the ordinary course of
business. These exemptions apply to (i) a fund manager ("Fund Manager") which
holds securities in the ordinary course of business in the performance of its
duties for the account of any other Person (a "Client"); (ii) a licensed trust
Company ("Trust Company") acting as trustee or administrator or in a similar
capacity in relation to the estates of deceased or incompetent persons (each an
"Estate Account") or in relation to other accounts (each an "Other Account") and
which holds such security in the ordinary course of its duties for such
accounts; (iii) the administrator or the trustee (a "Plan Administrator") of one
or more pension funds or plans (a "Plan") registered under Canadian or U.S. law
or (iv) an agency (the "Crown Agent") established by statute, and its ordinary
business or activity includes the management of investment funds for employee
benefit plans, pension plans, insurance plans, or various public bodies. The
foregoing exemptions only apply so long as the Fund Manager, Trust Company, Plan
Administrator or Crown Agent is not then making or has not then announced an
intention to make a Take-over Bid, other than an Offer to Acquire Voting Shares
or other securities (X) by means of ordinary market transactions (including
prearranged trades entered into in the ordinary course of business of such
Person) executed through the facilities of a stock exchange or organized over-
the-counter market, alone or acting jointly or in concert with any other Person,
(Y) pursuant to a distribution by the Company or (Z) by means of a Permitted Bid
(as defined below).
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Finally, a Person will not be deemed to "Beneficially Own" a security
because (i) the Person is a Client of the same Fund Manager, an Estate Account
or an Other Account of the same Trust Company, or Plan with the same Plan
Administrator as another Person or Plan on whose account the Fund Manager, Trust
Company or Plan Administrator, as the case may be, holds such security; or (ii)
the Person is a Client of a Fund Manager, Estate Account, Other Account or Plan,
and the security is owned by the Fund Manager, Trust Company or Plan
Administrator, as the case may be.
Flip-In Event
A Flip-In Event occurs when any Person becomes an Acquiring Person. In the
event that, prior to the Expiration Time, a Flip-In Event which has not been
waived occurs (see "Redemption, Waiver and Termination" below), each Right
(except for Rights Beneficially Owned or which may thereafter be Beneficially
Owned by an Acquiring Person or a transferee of such a Person, which Rights will
become null and void) shall constitute the right to purchase from the Company,
upon exercise thereof in accordance with the terms of the Plan, that number of
common shares having an aggregate Market Price on the date of the Flip-In Event
equal to twice the Exercise Price, for the Exercise Price (such Right being
subject to anti-dilution adjustments). For example, if at the time of the Stock
Acquisition Date the Exercise Price is $200.00 and the Market Price of the
common shares is $40.00, the holder of each Right would be entitled to purchase
common shares having an aggregate Market Price of $400.00 (that is, 10 common
shares) for $200.00 (that is, a 50% discount from the Market Price).
Permitted Bid and Competing Permitted Bid
A Permitted Bid is a Take-over Bid made by way of a Take-over Bid circular
and which complies with the following additional provisions:
(a) the Take-over Bid is made to all holders of record of Voting Shares
wherever resident as registered on the books of the Company, other than the
Offeror;
(b) the Take-over Bid contains, and the take-up and payment for the securities
tendered or deposited thereunder is subject to, irrevocable and unqualified
conditions that:
(i) no Voting Shares shall be taken-up or paid for pursuant to the Take-
over Bid (a) prior to the Close of Business on the date which is not
to be less than 45 days following the date of the Take-over Bid and
(b) unless at the Close of Business on that date, the Voting Shares
deposited or tendered pursuant to the Take-over Bid and not withdrawn
constitute more than 50% of the Voting Shares outstanding which are
held by Independent Shareholders;
(ii) unless the Take-over Bid is withdrawn, Voting Shares may be deposited
pursuant to such Take-over Bid at any time prior to the Close of
Business on the date of the first take up of or payment for Voting
Shares;
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(iii) any Voting Shares deposited pursuant to the Take-over Bid may be
withdrawn until taken up and paid for; and
(iv) if more than 50% of the Voting Shares held by Independent
Shareholders are deposited or tendered pursuant to the Take-over Bid
and not withdrawn, the Offeror will make a public announcement of
that fact and the Take-over Bid shall remain open for deposits and
tenders of Voting Shares for not less than 10 Business Days from the
date of such public announcement.
If a Permitted Bid ceases to be a Permitted Bid because it ceases to meet
any or all of the criteria at any time, any acquisition of Voting Shares made
pursuant to such Permitted Bid, including any acquisition of Voting Shares made
prior to such time, ceases to be an acquisition of Voting Shares made pursuant
to a Permitted Bid (or a Competing Permitted Bid, as described below).
A Competing Permitted Bid is a Take-over Bid that is made after a Permitted
Bid has been made but prior to its expiry, satisfies all the requirements of a
Permitted Bid as described above, except that a Competing Permitted Bid is not
required to remain open for 45 days so long as it is open until the later of 21
days after the date of the Competing Permitted Bid and 45 days after the
earliest date on which any other Permitted Bid or Competing Permitted Bid then
in existence was made.
Redemption, Waiver and Termination
(a) Redemption of Rights. The Board of Directors acting in good faith may, with
prior shareholders approval, at any time prior to the later of the Stock
Acquisition Date and the Separation Time, elect to redeem all but not less
than all of the then outstanding Rights at a redemption price of $.0001 per
Right, appropriately adjusted for anti-dilution as provided in the
Agreement (the "Redemption Price").
(b) Waiver of Inadvertent Acquisition. The Board of Directors is required to
waive the application of the Plan in respect of the occurrence of any Flip-
In Event if (i) the Board of Directors has determined, following the Stock
Acquisition Date and prior to the Separation Time, that a Person became an
Acquiring Person under the Plan; and (ii) the Acquiring Person, within 10
days after the determination by the Board of Directors or such later date
as the Board of Directors may determine (the "Disposition Date"), has
reduced its Beneficial Ownership of Voting Shares such that the Person is
no longer an Acquiring Person. If the person remains an Acquiring Person at
the Close of Business on the Disposition Date, the Disposition Date shall
be deemed to be the date of occurrence of a further Stock Acquisition Date.
(c) Permitted Bid Acquisition. In the event that a Person acquires, pursuant to
a Permitted Bid or a Competing Permitted Bid, more than 50% of the
outstanding common shares (including shares held at the date of the bid),
the Board of Directors shall, immediately upon the consummation of the
acquisition, be deemed to have elected to redeem the Rights at the
Redemption Price.
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(d) Discretionary Waiver with Mandatory Waiver of Concurrent Bids. The Board of
Directors may, prior to the occurrence of the relevant Flip-In Event, upon
prior written notice to the Rights Agent, waive the application of the Plan
to a Flip-In Event that may occur by reason of a Take-over Bid made by
means of a Take-over Bid circular to all holders of record of Voting
Shares. However, if the Board of Directors waives the application of the
Plan, the Board of Directors shall be deemed to have waived the application
of the Plan, in respect of any other Flip-In Event occurring by reason of
such a Take-over Bid made prior to the expiry of a bid for which a waiver
is, or is deemed to have been, granted.
(e) Waiver on Agreement to Reduce Beneficial Ownership by Acquiring Person. The
Board of Directors may, prior to the Close of Business on the eighth
Business Day following a Stock Acquisition Date or such later Business Day
as it may from time to time determine, upon prior written notice to the
Rights Agent, waive the application of the Plan to a Flip-In Event,
provided that the Acquiring Person has reduced its Beneficial Ownership of
Voting Shares (or has entered into a contractual arrangement with the
Company, acceptable to the Board of Directors, to do so within 10 days of
the date on which such contractual arrangement is entered into or such
later date as the Board of Directors may determine) such that at the time
the waiver becomes effective, the Person having acquired the Voting Shares
is no longer an Acquiring Person. If such a waiver becomes effective prior
to the Separation Time, the applicable Flip-In Event shall be deemed not to
have occurred.
(f) Redemption of Rights on Withdrawal or Termination of Bid. Where a Take-over
Bid that is not a Permitted Bid is withdrawn or otherwise terminated after
the Separation Time and prior to the occurrence of a Flip-In Event, or if
the Board of Directors grant a waiver under the circumstances described in
(e) above after the Separation Time, the Board of Directors may elect to
redeem all the outstanding Rights at the Redemption Price. Upon the Rights
being so redeemed, all the provisions of the Plan shall continue to apply
as if the Separation Time had not occurred and Rights Certificates had not
been mailed, and the Separation Time shall be deemed not to have occurred.
If the Board of Directors is deemed to have elected or elects to redeem the
Rights as described in paragraphs (a) or (c) above, the right to exercise the
Rights will thereupon, without further action and without notice, terminate and
the only right thereafter of the holders of Rights is to receive the Redemption
Price. Within 10 days of any such election or deemed election to redeem the
Rights, the Company will notify the holders of the common shares or, after the
Separation Time, the holders of the Rights.
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Anti Dilution Adjustments
The Exercise Price of a Right, the number and kind of securities subject to
purchase upon exercise of a Right, and the number of Rights outstanding, will be
adjusted in certain events, including;
(a) if there is a stock dividend (other than pursuant to any dividend
reinvestment plan) on the common shares, or a subdivision or consolidation
of the common shares, or an issuance of common shares (or Convertible
Securities) in respect of, in lieu of or in exchange for common shares; or
(b) if the Company fixes a record date for the distribution to all holders of
common shares of certain rights or warrants to acquire common shares or
Convertible Securities, or for the making of a distribution to all holders
of common shares of evidences of indebtedness or assets (other than regular
periodic cash dividends or stock dividends payable in common shares) or
other securities.
No adjustment in Exercise Price will be made unless it represents, on a
cumulative basis with other unreflected adjustments, at least a 1% change in the
Exercise Price.
Supplements and Amendments
The following changes may be made subject to subsequent ratification by the
holders of the common shares or, after the Separation Time, Rights;
(a) changes that the Board of Directors, acting in good faith, determines are
necessary to maintain the validity of the Agreement and the Rights as a
result of any change in any applicable legislation, regulation or rules;
and
(b) changes to the Plan in order to cure any clerical or typographical error.
Subject to the above exceptions, after the Meeting, any amendment,
variation or deletion of or from the Agreement and the Rights, is subject to the
prior approval of the holders of common shares, or, after the Separation Time,
the holders of the Rights.
Shareholder Review
At or prior to the first annual meeting of shareholders of the Company
following the third anniversary of the date of the Agreement, the Board of
Directors must submit to the shareholders a resolution ratifying the continued
existence of the Plan. If holders of a majority of common shares held by
Independent Shareholders who vote in respect of such resolution are voted
against the continued existence of the Plan, the Board of Directors shall,
without further formality, be deemed to have elected to redeem the Rights at the
then current Redemption Price. Otherwise, the Plan, if ratified, confirmed and
approved at the Meeting, and ratified after its third anniversary, will remain
in force for a period of six years.
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Vote Required
Shareholder ratification of the Plan is not required by law but is required
by The Toronto Stock Exchange on which the common shares are listed. In
addition, the Board of Directors has determined that it would not, in any event,
allow the Plan to remain in force without shareholder approval. If the Plan is
not approved at the Meeting by the affirmative vote of holders of a majority of
the common shares voted by Independent Shareholders present in person or
represented by proxy, the Plan will thereupon effectively become void and of no
further force and effect.
The Board of Directors reserves the right to alter any terms of or not to
proceed with the Plan at any time prior to the Meeting in the event that the
Board of Directors determines that it would be in the best interests of the
Company and its shareholders to do so, in light of subsequent developments.
Recommendation of the Board of Directors
The Board of Directors has determined that the Rights Plan is in the best
interests of the Company and the holders of its common shares. The Board of
Directors unanimously recommends that the shareholders approve the Rights Plan
and vote for the adoption of Resolution No. 1.
Other Business
Management does not know of any matters to be brought before the Meeting other
than those set forth in the Notice accompanying this Circular.
Proposals
Proposals for shareholders intended for inclusion in next year's Management
Proxy Circular must be received by the Company on or before April (, 1999.
Directors' Approval
The contents and the sending of this Management Proxy Circular have been
approved by the directors.
Ottawa, Ontario
April 6 , 1999
By order of the Board of Directors
Charles Gardner, Q.C.
Secretary
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Schedule "A"
Resolution No. 1
Approval of the Shareholder Rights Plan
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BE IT RESOLVED AS AN ORDINARY RESOLUTION OF THE SHAREHOLDERS THAT:
1. the Shareholder Rights Plan evidenced by the Shareholder Rights Plan
Agreement made as of ( between the Company and Montreal Trust Company of
Canada, be and it is hereby ratified, confirmed and approved;
2. any officer or director of the Company be and is hereby authorized and
directed, for and on behalf of the Company, to execute and deliver all such
documents and to do all such acts and things as he or she may determine to
be necessary or desirable in order to carry out the foregoing provisions of
this resolution, the execution of any such document or the doing of any such
acts and things being conclusive evidence of such determination; and
3. the directors of the Company may in their discretion revoke this resolution
before it is implemented, without further notice to, or approval of the
shareholders.
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