EX-6 3 ipg2003proxycircular.txt PROXY CIRCULAR AND NOTICE FOR MEETING TO BE HELD ON 6/2/04 INTERTAPE POLYMER GROUP INC. MANAGEMENT PROXY CIRCULAR IN CONNECTION WITH THE ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON JUNE 2, 2004 INTERTAPE POLYMER GROUP INC. (TM) MANAGEMENT PROXY CIRCULAR Solicitation of Proxies This Management Proxy Circular (the "Circular"), which is being mailed to shareholders on or about May 3, 2004, is furnished in connection with the solicitation by the management of Intertape Polymer Group Inc. (the "Corporation") of proxies to be used at the Annual and Special Meeting of Shareholders of the Corporation (the "Meeting") to be held on June 2, 2004 at the time and place and for the purposes set forth in the accompanying notice of Annual and Special Meeting of Shareholders, or any adjournment thereof. The solicitation will be primarily by mail but may also be made by telephone or other means of telecommunication by regular employees of the Corporation at nominal cost. The cost of the solicitation will be borne by the Corporation. All dollar amounts set forth in this Circular are in Canadian dollars, except as otherwise indicated. Appointment of Proxyholders and Revocation of Proxies A shareholder may appoint as proxyholder a person other than the directors of the Corporation named in the accompanying form of proxy to attend and vote at the Meeting in his stead, and may do so by inserting the name of such other person, who need not be a shareholder, in the blank space provided in the form of proxy or by completing another proper form of proxy. In order for proxies to be recognized at the Meeting, the completed forms of proxy must be received at the office of the Corporation's Canadian transfer agent, CIBC Mellon Trust Company, 2001 University Street, 16th Floor, Montreal, Quebec, not less than 48 hours prior to the Meeting. A shareholder, or his attorney authorized in writing, who executed a form of proxy may revoke it in any manner permitted by law, including the depositing of an instrument of revocation in writing at the principal place of business of the Corporation, 110E Montee de Liesse, Montreal, Quebec H4T 1N4, at any time up to and including the last business day preceding the day of the Meeting or an adjournment thereof or with the Chairman of the Meeting or an adjournment thereof on the day of the Meeting but prior to the use of the proxy at the Meeting. Non-Registered Holders The information set forth in this section is important to the many shareholders who do not hold their common shares of the Corporation in their own names (the "Non-Registered Holders"). Non-Registered Holders should note that only proxies deposited by shareholders whose names appear on the records of the Corporation as the registered holders of shares can be recognized and acted upon at the Meeting. However, in many cases, common shares of the Corporation beneficially owned by a Non-Registered Holder are registered either: a) in the name of an intermediary (an "Intermediary") that the Non- Registered Holder deals with in respect of the common shares, such as, among others, banks, trust companies, securities dealers or brokers and trustees or administrators of self-administered RRSPs, RRIFs, RESPs and similar plans; or b) in the name of a clearing agency (such as The Canadian Depository for Securities Limited or "CSD") of which the Intermediary is a participant. In accordance with the requirements of National Instrument Policy 54-101 of the Canadian Securities Administrators, the Corporation has distributed copies of the Notice of Meeting, this Management Proxy Circular, the form of proxy and the 2003 Annual Report including management's discussion and analysis (collectively, the "Meeting Materials") to the clearing agencies and Intermediaries for onward distribution to Non-Registered Holders. Intermediaries are required to forward the Meeting Materials to Non- Registered Holders unless a Non-Registered Holder has waived the right to receive them. Very often, Intermediaries will use service companies to forward the Meeting Materials to Non-Registered Holders. Generally, Non-Registered Holders who have not waived the right to receive the Meeting Materials will either: 1. be given a proxy which is signed by the Intermediary (typically by a facsimile, stamped signature) and already sets forth the number of common shares beneficially owned by the Non-Registered Holder but which is otherwise uncompleted. This form of proxy need not be signed by the Non-Registered Holder. The Non-Registered Holder who wishes to submit a proxy should properly complete the form of proxy and deposit it with CIBC Mellon Trust Company as described above; 2. more typically, be given a voting instruction form which must be completed and signed by the Non-Registered Holder in accordance with the directions on the CIBC Mellon Trust Company voting instruction form. The majority of brokers now delegate responsibility for obtaining instructions from clients to ADP Investor Communications Corporation ("ADP" formerly IICC). ADP typically mails a proxy form to the Non-Registered Holders and asks Non-Registered Holders to return the proxy form to ADP (the ADP form also allows completion of the voting instructions form by telephone.) ADP then tabulates the results of all instructions received and provides appropriate instructions respecting the voting of shares to be represented at a shareholders' meeting. A Non-Registered Holder receiving a proxy form from ADP cannot use that proxy to vote shares directly at the Meeting. The proxy must be returned to ADP well in advance of the Meeting in order to have the shares voted. Shares held by brokers or their agents or nominees can be voted for or against resolutions only upon the instructions of the Non-Registered Holder. Without specific instructions, brokers and their agents and nominees are prohibited from voting shares for the broker's clients. The purpose of these procedures is to permit Non-Registered Holders to direct the voting of the common shares they beneficially own. Should a Non-Registered Holder who receives either a proxy or a voting instruction form wish to attend and vote at the Meeting in person (or have another person attend and vote on behalf of the Non-Registered Holder), the Non-Registered Holder should strike out the names of the persons named in the proxy and insert the Non-Registered Holder's (or such other person's) name in the blank space provided, or, in the case of a voting instruction form, follow the corresponding directions on the form. In either case, Non-Registered Holders should carefully follow the instructions of their Intermediaries and their service companies and ensure that instructions respecting the voting of their shares are communicated to the appropriate person. Exercise of Discretion by Proxyholders The persons whose names are printed on the accompanying form of proxy will, on a show of hands or any ballot that may be called for, vote or withhold from voting the shares in respect of which they are appointed in accordance with the direction of the shareholder appointing them. If no choice is specified by the shareholder, the shares will be voted for the election of the nominees for directors set forth in this Circular under the heading "Election of Directors", for the appointment of the auditors set forth in this Circular under the heading "Appointment and Remuneration of Auditors" and in favour of the resolution approving, ratifying and confirming the amendments to the Corporation's Executive Stock Option Plan described in this Circular under the heading "Amendments to the Executive Stock Option Plan". The enclosed form of proxy confers discretionary authority upon the persons named therein with respect to amendments or variations to matters identified in the notice of the Meeting and to other matters which may properly come before the Meeting. As at the date hereof, management knows of no such amendment, variation or other matters to come before the Meeting. If any matters which are not now known should properly come before the Meeting, the persons named in the form of proxy will vote on such matters in accordance with their best judgment. Shareholder Proposals for the 2005 Annual Meeting Shareholder proposals intended to be presented at the Corporation's 2005 Annual Meeting of Shareholders must be submitted for inclusion in the Corporation's proxy materials prior to March 1, 2005. Voting Shares and Principal Holders Thereof As at April 26, 2004, the Corporation had 41,060,001 common shares outstanding, being the only class of shares entitled to be voted at the Meeting. Each holder of such shares is entitled to one vote for each share registered in his name as at the close of business on April 26, 2004, being the date fixed by the Board of Directors of the Corporation for the determination of the registered holders of such shares who are entitled to receive the Notice of Annual and Special Meeting of Shareholders enclosed herewith (the "Record Date"). In the event that such a shareholder transfers the ownership of any of his shares after the Record Date, the transferee of such shares shall be entitled to vote at the Meeting if he produces properly endorsed share certificates or otherwise establishes proof of his ownership of the shares and demands, not later than ten days before the Meeting, that his name be included in the list of shareholders entitled to vote. This list of shareholders will be available for inspection on and after the Record Date during usual business hours at the registered office of the Corporation and at the Meeting. To the knowledge of the directors and officers of the Corporation, no person beneficially owns or exercises control or direction over shares carrying more than ten percent of the voting rights attached to all shares of the Corporation. Election of Directors The Articles of the Corporation stipulate that the Board of Directors shall consist of a minimum of one and a maximum of eleven directors. The entire Board of Directors currently consists of seven members all of whom were members of the Board prior to the last annual shareholders meeting held on June 11, 2003. The following sets out information regarding each of the seven persons proposed by management as nominees for election as directors to hold office until the next succeeding annual meeting of shareholders of the Corporation or until their successors are elected or appointed.
As at April 26, 2004 Control or Direction of the Corporation is Exercised by Means of (1) ____________________________ Name Age Position or office Common Options to with Corporation Director Since Shares Purchase Shares Melbourne F. Yull(4) 63 Director, Chairman of the December 22, 1989(5) 544,519 879,000 Board and Chief Executive Officer Michael L. Richards(2)(4) 65 Director December 22, 1989(5) 77,600 36,000 Ben J. Davenport, Jr.(2)(4) 61 Director June 8, 1994 18,000 36,000 L. Robbie Shaw(2)(3)(4) 62 Director June 8, 1994 5,750 33,500 Gordon R. Cunningham(2)(3)(4) 59 Director May 21, 1998 15,000 29,000 J. Spencer Lanthier(3)(4) 63 Director June 20, 2001 2,000 20,000 Thomas E. Costello(3)(4) 64 Director November 22, 2002 0 12,500 _______ _________ 662,869 1,046,000
__________ (1) This information, not being within the knowledge of the Corporation, was furnished by the respective nominees individually. (2) Member of Compensation Committee. (3) Member of Audit Committee. (4) Member of Nominating & Governance Committee (5) Director of the predecessor company since 1981. Melbourne F. Yull, a resident of Sarasota, Florida was appointed Chairman of the Board and Chief Executive Officer on January 11, 1995, having been the President and a director of the Corporation or a predecessor thereof since 1981. Michael L. Richards, a resident of Westmount, Quebec, is a senior partner in the law firm Stikeman Elliott LLP, Montreal, Quebec. Ben J. Davenport, Jr., a resident of Chatham, Virginia, is the Chief Executive Officer of Chatham Oil Company, a distributor of oil, gasoline and propane. He also serves as Chairman and Chief Executive Officer of First Piedmont Corporation, a waste hauling business. L. Robbie Shaw, a resident of Halifax, Nova Scotia, is the former Vice- President of Nova Scotia Community College and currently acts as a consultant for the College. Gordon R. Cunningham, a resident of Toronto, Ontario, is President of Cumberland Asset Management Corp., a discretionary investment management firm. J. Spencer Lanthier, a resident of Toronto, Ontario currently serves as a member of the board of directors of several publicly traded corporations. From 1993 to 1999, Mr. Lanthier held the position of Chairman and Chief Executive Officer of KPMG Canada and was a member of the KPMG international executive committee and board of directors. Thomas E. Costello, a resident of Longboat Key, Florida, was the Chief Executive Officer, from 1991 to 2002, of xpedx, a wholly-owned subsidiary of the International Paper Company. If any of the above nominees is for any reason unavailable to serve as a director, proxies in favour of management will be voted for another nominee in the discretion of the persons named in the form of proxy unless the shareholder has specified in the proxy that his shares are to be withheld from voting on the election of directors. The Board of Directors recommends a vote in favour of each of the nominees. Executive Compensation 1. Summary Compensation Table The following table sets forth all compensation paid in respect of the individuals who were, at December 31, 2003, the Chief Executive Officer and the other four most highly compensated executive officers of the Corporation (the "named executive officers").
SUMMARY COMPENSATION TABLE Long-Term Compensation Awards Securities Under Other Annual Options Granted Salary Bonus Compensation As At FY-End Name and Principal Position Year $ $ ($)(1) (#) ___________________________ ____ ____________ ____________ ____________ ________________ M.F. Yull 2003 U.S.$490,346 U.S.$ 30,000 U.S.$35,645 879,000 Chairman of the Board and 2002 U.S.$475,000 U.S.$100,000 U.S.$50,190 819,000 Chief Executive Officer 2001 U.S.$475,000 0 Cdn $42,828 668,000 H.D. McSween 2003 U.S.$309,197 U.S.$ 15,000 U.S.$12,683 280,165 President-Distribution 2002 U.S.$299,520 U.S.$ 25,000 U.S.$13,649 285,165 Products 2001 U.S.$300,498 0 U.S.$12,730 205,165 A.M. Archibald 2003 U.S.$268,400 U.S.$ 12,500 U.S.$ 2,240 239,543 Chief Financial Officer, 2002 U.S.$238,796 0 Cdn $ 585 244,543 Secretary, Vice President 2001 Cdn $350,144 0 Cdn $11,283 197,543 Administration J.B. Carpenter 2003 U.S.$225,456 U.S.$ 10,000 U.S.$13,713 120,000 President - 2002 U.S.$218,400 U.S.$ 15,000 U.S.$14,950 90,000 Woven Products 2001 U.S.$220,040 0 U.S.$14,304 35,000 D.R. Yull 2003 U.S.$224,000 U.S.$ 10,000 U.S.$18,220 189,800 Vice-President Sales & 2002 U.S.$193,558 U.S.$ 15,000 U.S.$21,063 159,800 Marketing 2001 U.S.$178,156 0 U.S.$19,959 104,800 Distribution Products
__________ (1) The amounts in this column relate primarily to taxable benefits on employee loans, to the Corporation's contributions to the pension plan and to expenses incurred by the Corporation in connection with automobiles that it puts at the disposal of certain of the named executive officers. The aggregate compensation for all executive officers and directors of the Corporation who are not "named executive officers" for the fiscal year ended December 31, 2003 amounts to U.S.$982,979. 2. Executive Stock Option Plan In 1992, the Corporation established its ongoing Executive Stock Option Plan (the "Plan") in respect of the common shares of the Corporation, such Plan which has been amended from time to time. The Plan is administered by the Board of Directors. The shares offered under the Plan are common shares of the Corporation. The purpose of the Plan is to promote a proprietary interest in the Corporation among the executives, the key employees and the non-management directors of the Corporation and its subsidiaries, in order to both encourage such persons to further the development of the Corporation and to assist the Corporation in attracting and retaining key personnel necessary for the Corporation's long term success. The Board of Directors designates from time to time from the eligible executives those executives to whom options are to be granted and determines the number of shares covered by such options. Generally, participation in the Plan is limited to persons holding positions that can have an impact on the Corporation's long-term results. The number of common shares to which the options relate are determined by taking into account, inter alia, the market price of the common shares and each optionee's base salary. The exercise price payable for each common share covered by an option is determined by the Board of Directors but will not be less than the market value of the underlying common shares on the day preceding the effective date of the grant. The Plan provides that options issued thereunder shall vest 25% per year over four years. Currently the maximum number of common shares that may be issued under the Plan is 3,361,661. In 2003, the named executive officers who were granted stock options were M.F. Yull who was granted 80,000 options, H.D. McSween who was granted 60,000 stock options, A.M. Archibald who was granted 56,000 stock options, J.B. Carpenter who was granted 30,000 stock options and D.R. Yull who was granted 30,000 stock options. The following table sets forth each grant of options to the named executive officers under the Plan during the financial year ended December 31, 2003. OPTION GRANTS DURING THE FINANCIAL YEAR ENDED DECEMBER 31, 2002
% of the Total Number of Options That Were Granted Securities To Employees Under During the Market Value of the Options Financial Year Exercise Price Common Shares on Granted ended Dec. 31, (S/Common The Date of Grant Name (#) 2003 Share) ($/Common Share) Expiration Date ______________ __________ ________________ ______________ ____________________ _______________ M.F. Yull 50,000 10.0% U.S.$ 3.90 U.S.$ 3.90 March 31, 2009 30,000 6.0% U.S.$ 7.05 U.S.$ 7.05 July 29, 2009 H.D. McSween 20,000 4.0% U.S.$ 3.90 U.S.$ 3.90 March 31, 2009 25,000 5.0% U.S.$ 4.28 U.S.$ 4.28 April 28, 2009 15,000 3.0% U.S.$ 7.05 U.S.$ 7.05 July 29, 2009 A.M. Archibald 20,000 4.0% U.S.$ 3.90 U.S.$ 3.90 March 31, 2009 21,000 4.2% U.S.$ 4.28 U.S.$ 4.28 April 28, 2009 15,000 3.0% U.S.$ 7.05 U.S.$ 7.05 July 29, 2009 J.B. Carpenter 18,000 3.6% U.S.$ 3.90 U.S.$ 3.90 March 31, 2009 12,000 2.4% U.S.$ 7.05 U.S.$ 7.05 July 29, 2009 D.R. Yull 18,000 3.6% U.S.$ 3.90 U.S.$ 3.90 March 31, 2009 12,000 2.4% U.S.$ 7.05 U.S.$ 7.05 July 29, 2009
As further highlighted in the table below, in 2003, the named executive officers who exercised options were M.F. Yull who exercised 20,000 options, H.D. McSween who exercised 40,000 options and A.M. Archibald who exercised 40,000 options. AGGREGATED OPTION EXERCISES DURING THE FINANCIAL YEAR ENDED DECEMBER 31, 2003 AND FINANCIAL YEAR-END OPTION VALUES
Value of Unexercised Unexercised Securities Aggregate Options Options Acquired Value at FY-End at FY-End on Exercise Realized (#) (U.S.$) Name (#) ($) Exercisable/Unexercisable Exercisable/Unexercisable _______________ ___________ ____________ _________________________ _________________________ M.F. Yull 20,000 U.S.$129,600 567,750/311,250 6,704,388/2,713,188 H.D. McSween 40,000 U.S.$259,200 130,747/149,418 1,198,675/1,132,981 A.M. Archibald 40,000 U.S.$259,200 124,429/115,114 1,034,582/847,818 J.B. Carpenter 0 0 37,500/82,500 335,181/664,094 D.R. Yull 0 0 79,800/110,000 973,891/982,406
3. Pension Arrangements The Corporation maintains a defined contribution plan through its Canadian subsidiary, Intertape Polymer Inc. ("IPI"), for its salaried employees in Canada. Effective January 1, 2001, the Corporation amended and restated its USA Employees' Retirement Plan to be a combined employee stock ownership plan and 401(k) plan, to change the name of the plan to the "Intertape Polymer Group Inc. USA Employees' Stock Ownership and Retirement Savings Plan" and to bring the plan into compliance with recent legislative changes. The Corporation may make annual discretionary matching contributions equal to a percentage of the contributions made by employees, but in no event shall such contributions exceed six percent of the employee's compensation deposited as elective contributions. A subsidiary of the Corporation contributes to a multi-employer plan for employees covered by collective bargaining agreements. The Corporation's expense for such retirement savings plans for the year ended December 31, 2003, was U.S.$2,446,000 (U.S.$2,585,000 in 2002 and U.S.$2,295,000 in 2001). 4. Executive Employment Contracts and Termination of Employment of Executives The Corporation entered into a new employment agreement with M.F. Yull on January 1, 2004. Pursuant to the terms of the employment agreement (the "Agreement"), M.F. Yull continues to serve as Chairman of the Board and Chief Executive Officer of the Corporation and its subsidiaries. His annual gross salary for the year 2003 was U.S.$491,625. His compensation level is reviewed annually by the Corporation in accordance with its internal policies. M.F. Yull's fixed annual gross salary for the year 2004 was set at U.S.$508,832. The Agreement provides, inter alia, for annual bonuses based on the budgeted objectives of the Corporation. The Agreement also provides for the payment of 36 months of M.F. Yull's remuneration in the event of termination without cause or resignation within six months of a change of control of the Corporation. Further, it provides for all options for the acquisition of common shares of the Corporation previously granted to M.F. Yull to become immediately vested and exercisable in the event of his termination without cause, or his resignation within twelve months of a change of control of the Corporation, or his retirement at any time after his 60th birthday or in the event of his death. In addition to his participation in the pension plan of IPI, the Agreement provides that M.F. Yull will receive, upon his ceasing to be an employee for any reason, a defined benefit supplementary pension annually for life equal to two percent of his average annual gross salary for the final five years of his employment multiplied by his years of service with the Corporation. Furthermore, the Agreement provides that if during the term of M.F. Yull's employment a bona fide offer is made to all shareholders of the Corporation which, if accepted, would result in a change of control of the Corporation, then, subject to any applicable law, all of M.F. Yull's options which have not yet become vested and exercisable shall become vested and exercisable immediately. Upon expiry of such bona fide offer, if it does not result in a change of control of the Corporation, all of M.F. Yull's unexercised options which were not vested prior to such offer, shall immediately revert to their unvested status and to their former provisions with respect to the time of their vesting. The Corporation has also entered into agreements as of January 2001 with each of Messrs. A.M. Archibald, W.A. Barnes, J.B. Carpenter, B.H. Hildreth, J.A. Jackson, G.C. Jones, H.D. McSween, S. Nelson, E. Nugent, K.R. Rogers, D.R. Yull and G.A. Yull, and, as of January 2004 with V. DiTommaso and, as of February 2004, with each of R. Owens, D. Tang, P. Greco and M.J. Dougherty. These agreements provide that if, within a period of six months after a change in control of the Corporation, (a) the executive voluntarily terminates his employment with the Corporation, or (b) the Corporation terminates the executive's employment without cause, such executive will be entitled to a lump sum in the case of his resignation or an indemnity in lieu of notice in a lump sum in the case of his termination, equal to 12 to 24 months of such executive's remuneration at the effective date of such resignation or termination, depending on his seniority. In addition, all options for the acquisition of common shares of the Corporation previously granted to such executive shall become immediately vested and exercisable. Furthermore, these agreements also provide that if during the term of the executive's employment a bona fide offer is made to all shareholders of the Corporation which, if accepted, would result in a change of control of the Corporation, then, subject to any applicable law, all of the executive's options which have not yet become vested and exercisable shall become vested and exercisable immediately. Upon expiry of such bona fide offer, if it does not result in a change of control of the Corporation, all of the executive's unexercised options which were not vested prior to such offer, shall immediately revert to their unvested status and to their former provisions with respect to the time of their vesting. 5. Composition of Compensation Committee and Report on Executive Compensation The overall philosophy of the Corporation as regards compensation is to be competitive with similar manufacturing companies in order to attract and retain high-quality executives with the expertise and skills required in the business of the Corporation. The Compensation Committee is composed of four directors, being Ben J. Davenport, Jr., Michael L. Richards, L. Robbie Shaw and Gordon R. Cunningham. The Compensation Committee is appointed by the Board to discharge the Board's responsibilities relating to compensation of the Corporation's directors and officers. The Compensation Committee has overall responsibility for approving and evaluating the director and officer compensation plans, policies and programs of the Corporation. The Compensation Committee has the sole authority to retain any compensation consultant to be used to assist in the evaluation of director, CEO or senior executive compensation. The Compensation Committee annually reviews and approves the corporate goals and objectives relevant to the CEO's compensation, evaluates the CEO's performance in light of those goals and objectives and recommends to the Board the CEO's compensation level based on this evaluation. In determining the long-term incentive component of CEO compensation, the Compensation Committee will consider the Corporation's performance and relative shareholder return, the value of similar incentive awards to CEOs at comparable companies and the awards given to the CEO in past years. Based on these recommendations, the Board fixes the CEO's compensation. The current CEO, M.F. Yull, does not participate in the Compensation Committee's or the Board of Directors' deliberations as regards to his compensation. The Compensation Committee is also responsible to undertake an annual review and to make recommendations to the Board with respect to the compensation of all other directors, all other officers and key executives of the Corporation, including awards to be granted under the Corporation's Executive Stock Option Plan described above. The recommendation for the granting of stock incentive awards to executive officers are submitted to the Board for approval. In arriving at its decisions, the Compensation Committee reviews industry comparisons for similar sized companies and for other companies in the packaging materials sector. The Compensation Committee also may use surveys from independent consultants from time to time to provide data to review in order to adjust its compensation policies. Three primary components comprise the Corporation's compensation program: basic salary, annual bonuses based on performance and long-term stock options. Each element of compensation fulfills a different role in the attraction, retention and motivation of qualified officers and employees. In accordance with the foregoing, base salaries are established at levels which will enable the Corporation and its subsidiaries to attract, retain and reward executive officers who can effectively contribute to the long-term success and objectives of the Corporation. The annual bonus program is both formula-based measured against pre-determined performance targets, and discretionary. Stock options are granted periodically at the discretion of the Board of Directors and based on the aforementioned recommendations of the Compensation Committee. Options are granted to provide key employees who have responsibility for the management, growth and future success of the Corporation with an opportunity for rewards as a result of stock price increases. The amount and terms of outstanding options are taken into account when determining whether and how many new options will be granted. To encourage continued service, the options granted, if any, become exercisable over a four year period in four equal annual instalments, commencing on the 1st anniversary of the date of the grant. The options have no value if the stock price of the Corporation does not appreciate. It is felt that this approach closely aligns the interests of the executives and the shareholders. The above report has been submitted and approved by the following persons who are the current members of the Corporation's Compensation Committee: Ben J. Davenport, Jr., Michael L. Richards, L. Robbie Shaw and Gordon R. Cunningham Compensation of Directors In 2003, directors of the Corporation, who were not officers of the Corporation, received an annual fee of U.S.$8,500 for their services as directors and a fee of U.S.$750 for each board meeting attended (U.S.$375 for telephone meetings). Furthermore, a total of 55,000 options to purchase common shares of the Corporation were granted to directors of the Corporation who were not officers of the Corporation. 45,000 of those options were granted at an exercise price of U.S.$3.90 and 10,000 of those options were granted at an exercise price of U.S.$7.05. Minimum Stock Ownership Requirements for Directors and Officers Upon recommendations made by the Corporation's Compensation Committee, in the first quarter of 2004 the Board of Directors passed resolutions implementing a policy whereby the officers and directors of the Corporation will be required to maintain ownership of a designated amount of common shares of the Corporation. Set out in the paragraphs below is a summary of such policy. The Chief Executive Officer of the Corporation is required to own that number of common shares that has a value that is equal to five times his or her base salary(1). Senior executive officers of the Corporation are required to own that number of common shares that has a value that is equal to three times their respective base salaries. All other executive officers of the Corporation are required to own that number of common shares that has a value that is equal to their respective base salaries. Directors of the Corporation are required to own that number of common shares that has a value that is equal to the aggregate of five times the total of the annual base retainer fees paid to such directors plus the meeting fees paid to such directors for the four regular quarterly meetings of the Board of Directors. _________________________ (1) The targets mentioned in these paragraphs are based on the salary levels and the market price of the Corporation's common shares as of January 2004. Adjustments will be made, as applicable in accordance with the policy, upon the appointment of a new director or officer or upon the promotion of an officer. Directors and officers of the Corporation have four years from January 2004 to attain the foregoing common share ownership levels. Until such stock ownership levels have been achieved, a specific officer or director must maintain 75% of all common shares that they have received through the exercise of any options that had been granted to them by the Corporation and they must thereafter maintain 25% of all common shares that they have received through the exercise of any options. Failure to attain the required ownership levels within the prescribed time period will call for the holding of one-half of future incentive payments (or directors fees) to be made to such individual until the required ownership level is obtained. Directors and officers may apply to the Corporation's Compensation Committee in order to obtain a waiver from the application of all or a portion of the foregoing policy. The Compensation Committee may recommend that the Board of Directors grant a waiver to a particular director or officer on a case by case basis (the Compensation Committee will consider a specific individual's estate planning needs, necessity to purchase a primary residence, education expenses, charitable contributions and/or other demonstrations of hardship (e.g. illness or divorce)). Indebtedness of Directors and Officers As listed in the table below, certain officers of the Corporation are currently indebted to the Corporation in respect of interest-free loans that are payable on demand by the Corporation. As at April 26, 2004, the aggregate indebtedness of all directors, executive officers and senior officers to the Corporation entered into in connection with such loans was Cdn$606,634 and U.S.$411,128. The following table summarizes the largest amount of such loans outstanding during the year ended December 31, 2003 and the amount outstanding as at April 26, 2004. TABLE OF INDEBTEDNESS OF DIRECTORS, EXECUTIVE OFFICERS AND SENIOR OFFICERS Largest Amount Oustanding Amount Involvement of the During FY-Ended Outstanding as Corporation or its Dec. 31, 2003 at April 26, 2004 Name and Principal Position subsidiaries ($) ($) ___________________________ _____________________________ _______________ _________________ M.F. Yull The Corporation is the Lender U.S.$216,398 U.S.$216,398 Chairman of the Board, Cdn $415,277 Cdn $415,277 Chief Executive Officer and a Director G.A. Yull The Corporation is the Lender U.S.$125,000 U.S.$125,000 President - Film Products A.M. Archibald The Corporation is the Lender Cdn $160,255 Cdn $160,255 Chief Financial Officer, Secretary, Vice President Administration D.R. Yull - The Corporation is the Lender U.S.$ 59,730 U.S.$ 59,730 Vice-President Sales & Marketing - Distribution Products H.D. McSween The Corporation is the Lender Cdn $ 31,102 Cdn $ 31,102 President - Distribution Products J. Jackson The Corporation is the Lender U.S.$ 10,000 U.S.$ 10,000 Chief Information Officer
Directors' and Officers' Insurance The Corporation maintains directors' and officers' liability insurance covering liability, including defense costs, of directors and officers of the Corporation incurred as a result of acting as such directors or officers, provided they acted honestly and in good faith with a view to the best interests of the Corporation. The current limit of insurance is U.S.$25,000,000 and an annual premium of U.S.$290,000 was paid by the Corporation in the last completed financial year with respect to the period from December 2003 to December 2004. Claims payable to the Corporation are subject to a retention of up to U.S.$500,000 per occurrence. Performance Graph The following graphs illustrate changes over the past five year period in cumulative total shareholder return over the five-year period on the Corporation's common shares with the cumulative shareholder returns on the S&P/TSX Total Return Index (1st graph below) and on the S&P 500 (2nd graph below), assuming reinvestment of all dividends. [GRAPH] Appointment and Remuneration of Auditors Raymond Chabot Grant Thornton, Chartered Accountants, who have been the auditors of the Corporation since December 22, 1989 and the auditors of the predecessor company since 1981, have been recommended by the Audit Committee and will be nominated for appointment as the Corporation's auditors to hold office until the next annual meeting of shareholders at such remuneration as may be fixed by the Board of Directors. A majority of the votes of the shareholders present or represented by proxy at the Meeting is required for the approval of such matter. Representatives of Raymond Chabot Grant Thornton will be present at the Meeting and will have an opportunity to make a statement if they desire to do so. They will also be available to respond to appropriate questions. Amendments to the Executive Stock Option Plan In 1992, the Corporation established its ongoing Plan in respect of the common shares of the Corporation. The purpose of the Plan is to promote a proprietary interest in the Corporation among the executives, the key employees and the non-management directors of the Corporation and its subsidiaries, in order to both encourage such persons to further the development of the Corporation and to assist the Corporation in attracting and retaining key personnel necessary for the Corporation's long term success. On April 12, 2004, the Board of Directors passed a resolution amending the Plan in order to limit the aggregate maximum number of common shares that may be issued under the Plan to non-executive directors of the Corporation and its subsidiaries to 1% of the outstanding common shares of the Corporation. On the same date, the Board of Directors also passed a resolution amending the Plan in order to establish that options granted under the Plan may not be subsequently re-priced. The foregoing amendments to the Plan were implemented by the Board of Directors in order to ensure that the terms and provisions of the Plan stays consistent with the terms and provisions of option plans that have been adopted by other publicly-traded companies. Currently, the maximum number of common shares that may be issued under the Plan is 3,361,661, being approximately 10% of the common shares of the Corporation that were outstanding as of March 8, 2002. On February 19, 2004, the Board of Directors adopted a resolution to amend the Plan in order to increase the number of options that may be granted under the Plan from 3,361,661 to 4,094,538, being approximately 10% of the outstanding common shares of the Corporation as of February 19, 2004, the adoption of such resolution being conditional upon the Corporation receiving the required regulatory and shareholder approvals. Effective February 24, 2004, upon the recommendation of the Corporation's Compensation Committee, the Board of Directors approved grants of (i) an aggregate of 154,500 options to various employees of the Corporation and its subsidiaries, (ii) an aggregate of 330,000 options to various executives of the Corporation and its subsidiaries (which number includes a grant of 100,000 options to M.F. Yull), and (iii) an aggregate of 45,000 options to various non-executive directors of the Corporation. Such options have an exercise price of Cdn$14.45 (U.S.$10.87) and will expire on February 24, 2010. The foregoing grants are subject to the approval of the proposed amendment to the Plan whereby the number of options that may be granted under the Plan would be increased from 3,361,661 to 4,094,538. Consequently, the following resolution will be submitted for approval by a majority of shareholders present or represented by proxy at the Meeting. IT IS RESOLVED: "THAT the Executive Stock Option Plan (the "Plan") of the Corporation be amended by deleting the figure "3,361,661 Shares" in Section 4 of the Plan and replacing same with "4,094,538 Shares". Interest of Management and Others in Material Transactions The management of the Corporation is unaware of any material interest of any director or officer of the Corporation, of any management nominee for election as a director of the Corporation or of any person who beneficially owns or exercises control or direction over shares carrying more than ten percent of the voting rights attached to all shares of the Corporation, or any associate or affiliate of any such person, in any transaction since the beginning of the last completed financial year of the Corporation or in any proposed transactions that has materially affected or will materially affect the Corporation or any of its affiliates. STATEMENT OF CORPORATE GOVERNANCE PRACTICES OF THE CORPORATION In 1995, the Toronto Stock Exchange (the "TSX") adopted a requirement that disclosure be made by each listed company of its corporate governance system by making reference to the TSX Guidelines for Corporate Governance (the "Guidelines"). and each listed company is also required to explain where its system of governance differs from the Guidelines. More recently, regulators in both Canada and the United States have brought forth new requirements in terms of corporate governance and accountability in connection with public companies. Heightened expectations on the part of investors and the public in general encouraged governments and regulators in both countries to propose and adopt new rules in these sectors and to revise and amend those rules that were already in effect. The Corporation's Nominating & Governance Committee will continue to follow the progress of these developments with a view to recommending to the Board any changes to the Corporation's governance practices that may become necessary in order that the Corporation complies with the aforementioned requirements as they become effective. The following is a statement of the Corporation's existing corporate governance practices with specific reference to the Guidelines (as indicated in bold below) currently in effect: The board of directors of every corporation should explicitly assume responsibility for the stewardship of the Corporation and adopt a formal mandate setting out the board's stewardship responsibilities, and as part of the overall stewardship responsibility, the board should assume responsibility for the following matters: (a) adoption of a strategic planning process and the approval and review, on at least an annual basis of a strategic plan; (b) the identification of the principal risks of the corporation's business and overseeing the implementation of appropriate systems to manage these risks; (c) succession planning, including appointing, training and monitoring senior management; (d) communications policies for the corporation; and (e) the integrity of the corporation's internal control and management information systems. All the directors presently in office and proposed to be elected at the Meeting have served as directors in good standing of the Corporation since 1994, other than Mr. Cunningham who was elected in 1998, Mr. Lanthier who was elected in 2001 and Thomas E. Costello who was elected on November 22, 2002. Participation of directors is expected at all Board of Directors and Committee meetings. Directors are asked to notify the Corporation if they will be unable to attend and attendance at meetings is duly recorded. All the directors have agreed to contribute to the evaluation of their collective as well as their individual performances. The mandate of the Board of Directors of the Corporation is to supervise the management of the business and affairs of the Corporation, including the development of major policy and strategy and the identification of the risks of the Corporation's business and implementation of the appropriate systems to manage these risks. The Board of Directors of the Corporation has explicitly assumed responsibility for the stewardship of the Corporation and has adopted a formal mandate setting out its stewardship responsibilities. Additionally, the Corporation has adopted a Code of Conduct and Business Ethics that all directors, management personnel and employees of the Corporation are expected to adhere to. All major decisions concerning, among other things, the Corporation's corporate status, capital, debt financing, securities distributions, investments, acquisitions, divestitures and strategic alliances, are subject to approval by the Board of Directors. In particular, capital investments and other outlays of an aggregate monetary amount of one million U.S. dollars or more are subject to the prior approval of the Board of Directors. The Board of Directors meets at least quarterly, and more frequently as required to consider particular issues or conduct specific reviews between quarterly meetings whenever appropriate. The Board of Directors periodically invites senior operating management to attend meetings of the Board of Directors to report on their business responsibilities. Governance responsibilities are undertaken by the Board of Directors as a whole, with certain specific responsibilities delegated to the Audit, the Compensation and the Nominating & Governance Committees as described below. For example, the Board of Directors has mandated the Compensation Committee and the Nominating & Governance Committee to develop a succession planning strategy for the Corporation which will include formalizing the Corporation's procedures related to the appointing, training and monitoring of senior management. The board of directors of every corporation should be constituted with a majority of individuals who qualify as unrelated directors. If the corporation has a significant shareholder, in addition to a majority of unrelated directors, the board should include a number of directors who do not have interests in or relationships with either the corporation or the significant shareholder and which fairly reflects the investment in the corporation by shareholders other than the significant shareholder. The application of the definition of "unrelated director" to the circumstances of each individual director should be the responsibility of the board which will be required to disclose whether the board has a majority of unrelated directors or, in the case of a corporation with a significant shareholder, whether the board is constituted with the appropriate number of directors which are not related to either the corporation or the significant shareholder. The Corporation's Board of Directors currently consists of seven directors, five of whom are unrelated directors in accordance with the definition of an unrelated director in the Guidelines. The Board of Directors has examined its size and determined that seven directors, five of whom are unrelated, is an appropriate number for continued effective decision-making for the Corporation. The Board of Directors is currently chaired by M.F. Yull who is also the Chief Executive Officer of the Corporation. The Board is of the view that this does not impair its ability to act independently of management due, inter alia, to the independence of the remaining members of the Board of Directors and due to the role of the Board of Directors in determining its own policies, procedures and practices, and ensuring that the appropriate information is made available to the Board of Directors. The Corporation does not have a significant shareholder as described in the Guidelines given that no shareholder of the Corporation has the ability to exercise a majority of the votes for the election of the Corporation's Board of Directors. Committees of the board of directors should generally be composed solely of non-management directors, a majority of whom are unrelated directors. The Board of Directors has established three committees, the Audit Committee, the Compensation Committee, and the Nominating & Governance Committee to facilitate the carrying out of its duties and responsibilities and to meet applicable statutory requirements. The Guidelines recommend that the Audit Committee be made up of non-management and unrelated directors only and that other board committees should be comprised generally of non-management directors, a majority of whom should be unrelated directors. The following is a description of the Committees of the Board of Directors and their mandate: - Audit Committee The Audit Committee is presently composed of four directors, being L. Robbie Shaw, Gordon R. Cunningham J. Spencer Lanthier and Thomas E. Costello, all of whom are non-management directors and all of whom are unrelated directors, as such term is understood in reference to the Guidelines. The Audit Committee met eight times during the period from January 1, 2003 to December 31, 2003. The basic mandate of the Audit Committee is to review the annual financial statements of the Corporation and to make recommendations to the Board of Directors in respect thereto. Further, the Committee reviews the nature and scope of the annual audit as proposed by the external auditors and management and, with the external auditors and management, the adequacy of the internal accounting control procedures and systems within the Corporation. During 2002, the Audit Committee formalized its mandate into a written charter document. The charter sets out that, in addition to its basic mandate, the Audit Committee will, on a going-forward basis, have the sole authority to recommend to the Corporation's shareholders the appointment or replacement of the Corporation's external auditors and shall approve all audit engagement fees and terms and all significant non-audit engagements with the external auditors. Further, the Audit Committee will require that the Corporation's external auditors provide a report at least annually regarding, inter alia, the auditors' internal quality-control procedures and all relationships between the external auditors and the Corporation. While the Audit Committee may consult with management on these issues, it shall not delegate its overall responsibility. The charter also sets out that the Audit Committee shall have the authority, to the extent it deems necessary or appropriate, to retain special legal, accounting or other consultants for additional advice as may be required. - Compensation Committee The Compensation Committee is presently composed of four directors, being Ben J. Davenport, Jr., Michael L. Richards, L. Robbie Shaw and Gordon R. Cunningham. The Compensation Committee met six times during the period from January 1, 2003 to December 31, 2003. Michael L. Richards is considered to be a related director given that the law firm Stikeman Elliott LLP, of which Mr. Richards is a senior partner, provides legal services to the Corporation on a regular basis. Nonetheless, given Mr. Richards' broad business experience, the Corporation feels he should continue to serve on the Compensation Committee. Further, the Corporation is of the view that its relationship with Stikeman Elliott LLP does not inhibit Mr. Richards' ability to act impartially, nor his ability to act independently of the views of management of the Corporation. The mandate of the Compensation Committee was described above under the heading "Report on Executive Compensation". - Nominating & Governance Committee The Nominating & Governance Committee is composed of all of the members of the Board, a majority of whom are unrelated directors. The charter of the Nominating & Governance Committee sets out that the committee will, inter alia: (i) assess on an annual basis the effectiveness of the Board as a whole as well as periodically evaluate the contribution of individual members of the Board; (ii) review, on a periodic basis, the size and composition of the Board and ensure that an appropriate number of unrelated directors sit on the Board; (iii) identify individuals qualified to become members of the Board as may be required and recommend to the Board new nominees for appointment; (iv) provide appropriate orientation to any new members of the Board; (v) recommend to the Board corporate governance guidelines and ensure the sufficiency of such guidelines on a periodic basis; and (vi) review and advise the Board at least annually as to corporate governance issues. The board of directors of every corporation should appoint a committee of directors composed exclusively of non-management directors, a majority of whom are unrelated directors, with the responsibility for proposing to the full board new nominees to the board and for assessing directors on an ongoing basis. As aforementioned, this responsibility has been undertaken by the Nominating & Governance Committee of the Board, a majority of whom are unrelated directors, but one of whom is a member of management. Every board of directors should implement a process to be carried out by the nominating committee or other appropriate committee for assessing the effectiveness of the board as a whole, the committees of the board and the contribution of individual directors. As aforementioned, this responsibility has been undertaken by the Nominating & Governance Committee of the Board. Every corporation, as an integral element of the process for appointing new directors, should provide an orientation and education program for new recruits to the board, In addition, every corporation should provide continuing education for all directors. As aforementioned, this responsibility has been undertaken by the Nominating & Governance Committee of the Board. Every board of directors should examine its size and composition and undertake, where appropriate, a program to establish a board comprised of members who facilitate effective decision-making. As aforementioned, this responsibility has been undertaken by the Nominating & Governance Committee of the Board. A committee of the board of directors comprised solely of unrelated directors should review the adequacy and form of the compensation of senior management and directors, with such compensation realistically reflecting the responsibilities and risks of such positions. This responsibility forms part of the mandate of the Compensation Committee, as described above under the heading "Report on Executive Compensation". Every board of directors should expressly assume responsibility for, or assign to a committee of directors the general responsibility for, developing the corporation's approach to governance issues. This committee would, among other things, be responsible for the Corporation's response to these governance guidelines. As aforementioned, this responsibility has been undertaken by the Nominating & Governance Committee of the Board. The board of directors, together with the CEO, should develop position descriptions for the board and for the CEO, involving the definition of the limits to management's responsibilities. In addition, the board should approve or develop the corporate objectives which the CEO is responsible for meeting and assess the CEO against these objectives. The Corporation established written corporate governance guidelines to address the above issues. Such guidelines do not contain formalized position descriptions for the Board and for the CEO, nor do they set out specific objectives which the CEO is responsible for meeting. The Board is of the view that due to its relatively small size, the need for these formalities is diminished because effective communication between the Board and management of the Corporation is otherwise achieved. That being said, the Compensation Committee conducts an annual review of the CEO's performance in order to ensure that the CEO is providing the best leadership for the Corporation in the long and short term. The audit committee should be composed only of unrelated directors. All of the members of the audit committee should be financially literate and at least one member should have accounting or related financial experience. The audit committee should have direct communication channels with the internal and external auditors to discuss and review specific issues as appropriate. The audit committee duties should include oversight responsibility for management reporting on internal control. The Audit Committee of the Corporation, as described previously, meets all of the above criteria. Every board of directors should implement structures and procedures that ensure that the board can function independently of management. The board of directors should implement a system which enables an individual director to engage an external adviser at the expense of the Corporation in appropriate circumstances. The engagement of the external adviser should be subject to the approval of an appropriate committee of the board. Non-management directors meet at least quarterly. Further, the Board and the Audit Committee have the power to hire independent legal, financial or other advisors as they may deem necessary, without consulting or obtaining the approval of any officer of the Corporation in advance. Corporations should have a formalized process in order to communicate as required with shareholders and in order to address their feedback and queries. The fundamental objective of the Corporation's shareholder communication policy is to ensure an open, accessible and timely exchange of information with all shareholders respecting the business, affairs and performance of the Corporation, subject to the requirements of securities legislation in effect and other statutory and contractual obligations limiting the disclosure of such information. In order to facilitate the effective and timely dissemination of information to all of its shareholders, the Corporation releases its disclosed information through news wire services, the general media, telephone conferences with investment analysts and mailings to shareholders. APPROVAL OF DIRECTORS The contents and the sending of this Circular have been approved by the directors of the Corporation. (SIGNED) ANDREW M. ARCHIBALD, C.A. Chief Financial Officer, Secretary, Vice President, Administration Montreal, Quebec - April 26, 2004