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| Preliminary Proxy Statement | ||
o | Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) | ||
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þ | Definitive Proxy Statement | ||
o | Definitive Additional Materials | ||
o | Soliciting Material Pursuant to |
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| No fee required. | ||
o | 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: | ||
(2) | Aggregate number of securities to which transaction applies: | ||
(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): | ||
(4) | Proposed maximum aggregate value of transaction: | ||
(5) | Total fee paid: |
o | |||
| Fee paid previously with preliminary materials. | ||
o | 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: | ||
(2) | Form, Schedule or Registration Statement No.: | ||
(3) | Filing Party: | ||
(4) | Date Filed: | ||
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1. To elect two trustees of the Company;
2. To ratify the selection of Deloitte & Touche LLP as the independent auditors of the Company;
3. To approve the adoption of a 2004 Stock Incentive Plan; and
4. To transact such other business as may properly come before the meeting or any adjournment, postponement or rescheduling thereof.
1. | To elect the directors of the Company for the ensuing year; | |
2. | To ratify the selection of Deloitte & Touche LLP as the independent auditors of the Company; and | |
3. | To transact such other business as may properly come before the Meeting or any adjournment, postponement or rescheduling thereof. |
BY ORDER OF THE BOARD OF | ||
/s/ Jimmy S.H. Lee | ||
Jimmy S.H. Lee | |
Chairman of the Board |
27, 2006
Q:Why am I receiving this proxy statement and Proxy?
A: This proxy statement describes the proposals upon which you, as a Shareholder, will vote. It also gives you information on the proposals, as well as other information so that you can make an informed decision.
Q:What is the Proxy?
A: The Proxy enables you to appoint Jimmy S.H. Lee and William D. McCartney as your representatives at the Annual Meeting. By completing and returning the Proxy, you are authorizing Mr. Lee and Mr. McCartney to vote your Shares at the meeting as you have instructed them on the Proxy. This way your Shares will be voted whether or not you attend the meeting. Even if you plan to attend the meeting, it is a good idea to complete and return your Proxy before the meeting date just in case your plans change.
Q:Who can vote at the Annual Meeting?
A: Registered Shareholders who own our Shares on the Record Date may attend and vote at the Annual Meeting. Each Share is entitled to one vote. There were 17,288,229 Shares outstanding on the Record Date.
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If you own your Shares through a brokerage account or in another nominee form, you must provide instructions to the broker or nominee as to how your Shares should be voted. Your broker or nominee will generally provide you with the appropriate forms at the time you receive this proxy statement. If you own your Shares through a brokerage account or nominee, you cannot vote in person at the Annual Meeting unless you receive a proxy from the broker or the nominee.
Q:What am I voting on?
A: We are asking you to: (i) vote for the election of Eric Lauritzen and Graeme A. Witts as trustees; (ii) ratify the selection of Deloitte & Touche LLP as our independent auditors; and (iii) approve the adoption by our board of trustees (the “Board”) of a 2004 stock incentive plan. THE BOARD RECOMMENDS A VOTE IN FAVOR OF EACH OF THESE PROPOSALS.
Q:How do I vote?
A: You may vote by mail.
Complete, date, sign and mail the Proxy to our Registrar and Transfer Agent, Mellon Investor Services LLC, at P.O. Box 3315, South Hackensack, NJ 07606 in the enclosed postage pre-paid envelope. If you mark your voting instructions on the Proxy, your Shares will be voted as you instruct. Please see the Proxy for voting instructions.
You may vote in person at the meeting.
If you attend the Annual Meeting, you may vote as instructed at the meeting. However, if you hold your Shares in street name (that is, through a broker/dealer or other nominee), you will need to bring to the meeting a proxy delivered to you by such nominee reflecting your Share ownership as of the Record Date.
Q:What does it mean if I receive more than one Proxy?
A: It means that you hold Shares in multiple accounts. Please complete and return all proxies to ensure that all your Shares are voted.
Q:What if I change my mind after returning my Proxy?
A: You may revoke your Proxy and change your vote at any time before completion of voting at the meeting. You may do this by:
• sending a signed Notice of Revocation of Proxy to our Registrar and Transfer Agent at the address set out above, stating that the Proxy is revoked; or
• signing another Proxy with a later date and sending it to our Registrar and Transfer Agent at the address set out above, before the date of the meeting; or
• voting at the meeting.
Your Proxy will not be revoked if you attend the meeting but do not vote.
If you own your Shares through a broker or other nominee and wish to change your vote, you must send those instructions to your broker or nominee.
Q: | Why am I receiving this Proxy Statement and Proxy? | |
A: | This Proxy Statement describes the proposals upon which you, as a Shareholder, will vote. It also gives you information on the proposals, as well as other information so that you can make an informed decision. | |
Q: | What is the Proxy? | |
A: | The Proxy enables you to appoint Jimmy S.H. Lee and David M. Gandossi as your representatives at the Meeting. By completing and returning the Proxy, you are authorizing Mr. Lee and Mr. Gandossi to vote your Shares at the Meeting as you have instructed them on the Proxy. This way your Shares will be voted whether or not you attend the Meeting. Even if you plan to attend the Meeting, it is a good idea to complete and return your Proxy before the date of the Meeting just in case your plans change. | |
Q: | Who can vote at the Meeting? | |
A: | Registered Shareholders who own our Shares on the Record Date may attend and vote at the Meeting. Each Share is entitled to one vote. There were 33,169,140 Shares outstanding on the Record Date. If you own your Shares through a brokerage account or in another nominee form, you must provide instructions to the broker or nominee as to how your Shares should be voted. Your broker or nominee will generally provide you with the appropriate forms at the time you receive this Proxy Statement. If you own your Shares through a brokerage account or nominee, you cannot vote in person at the Meeting unless you receive a Proxy from the broker or the nominee. | |
Q: | What am I voting on? | |
A: | We are asking you to: (i) vote for the election of the Company’s directors for the ensuing year; and (ii) ratify the selection of Deloitte & Touche LLP as our independent auditors. OUR BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF EACH OF THESE PROPOSALS. | |
Q: | How do I vote? | |
A: | You may vote by mail. | |
Complete, date, sign and mail the Proxy to our registrar and transfer agent Mellon Investor Services LLC, at P.O. Box 3315, South Hackensack, NJ 07606, in the enclosed postage pre-paid envelope. If you mark your voting instructions on the Proxy, your Shares will be voted as you instruct. Please see the Proxy for voting instructions. | ||
You may vote in person at the Meeting. | ||
If you attend the Meeting, you may vote as instructed at the Meeting. However, if you hold your Shares in street name (that is, through a broker/ dealer or other nominee), you will need to bring to the Meeting a Proxy delivered to you by such nominee reflecting your Share ownership as of the Record Date. | ||
Q: | What does it mean if I receive more than one Proxy? | |
A: | It means that you hold Shares in multiple accounts. Please complete and return all Proxies to ensure that all your Shares are voted in accordance with your instructions. | |
Q: | What if I change my mind after returning my Proxy? | |
A: | You may revoke your Proxy and change your vote at any time before completion of voting at the Meeting. You may do this by: | |
• sending a signed notice of revocation of proxy to our registrar and transfer agent at the address set out above stating that the Proxy is revoked; or | ||
• signing another Proxy with a later date and sending it to our registrar and transfer agent at the address set out above before the date of the Meeting; or | ||
• voting at the Meeting. | ||
Your Proxy will not be revoked if you attend the Meeting but do not vote. | ||
If you own your Shares through a broker or other nominee and wish to change your vote, you must send those instructions to your broker or nominee. |
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Q:Will my Shares be voted if I do not sign and return my Proxy?
A: If your Shares are registered in your name, they will not be voted unless you submit your Proxy, or vote in person at the meeting. If your Shares are held in street name, your broker/dealer or other nominee will not have the authority to vote your Shares unless you provide instructions.
Q:Who will count the votes?
A: Agents of the Company will tabulate the proxies. Additionally, votes cast by Shareholders voting in person at the meeting are tabulated by a person who is appointed by our management before the meeting.
Q:How many Shares must be present to hold the meeting?
A: To hold the meeting and conduct business, at least one-third of the outstanding Shares must be present at the meeting. This is called a quorum.
Votes are counted as present at the meeting if a Shareholder either:
• is present and votes in person at the meeting; or
• has properly submitted a Proxy.
Abstentions and “broker non-votes” (Shares held by a broker/dealer or other nominee that are not voted because the broker/dealer or other nominee does not have the authority to vote on a particular matter) will be counted for the purposes of a quorum.
Q:How many votes are required to approve the proposals to be considered at the meeting?
A: The affirmative vote of a majority of the Shares represented and voting, whether in person or by Proxy, at the meeting will be required for the election of our nominee trustees, ratification of the selection of our independent auditors and approval of the 2004 Stock Incentive Plan at the Annual Meeting.
Q:How are votes counted?
A: You may vote “For” or “Abstain” on the proposal to elect trustees. You may vote “For”, or “Against” or “Abstain” on the other proposals to be considered at the meeting. If you abstain from voting on any proposal, it will have the practical effect of voting against the proposal.
If you sign and return your Proxy without voting instructions, your Shares will be counted as a “For” vote in favor of each proposal.
Q: | Will my Shares be voted if I do not sign and return my Proxy? | |
A: | If your Shares are registered in your name, they will not be voted unless you submit your Proxy or vote in person at the Meeting. If your Shares are held in street name, your broker/ dealer or other nominee will not have the authority to vote your Shares unless you provide instructions. | |
Q: | Who will count the votes? | |
A: | Agents of the Company will tabulate the Proxies. Additionally, votes cast by Shareholders voting in person at the Meeting are tabulated by a person who is appointed by our management before the Meeting. | |
Q: | How many Shares must be present to hold the Meeting? | |
A: | To hold the Meeting and conduct business, at least one-third of the outstanding Shares must be present at the Meeting. This is called a quorum. | |
Votes are counted as present at the Meeting if a Shareholder either: | ||
• is present and votes in person at the Meeting; or | ||
• has properly submitted a Proxy. | ||
Abstentions and broker non-votes (Shares held by a broker/ dealer or other nominee that are not voted because the broker/ dealer or other nominee does not have the authority to vote on a particular matter) will be counted for the purposes of a quorum. | ||
Q: | How many votes are required to elect directors? | |
A: | In February 2006, the board of directors (the “Board”) adopted new corporate governance guidelines regarding director elections. The guidelines provide that in an uncontested election any nominee for director who receives a greater number of votes “Withheld” for his or her election than votes “For” such election (a “Majority Withheld Vote”) will promptly tender his or her resignation as a director to the governance and nominating committee (the “Governance Committee”) which will, without participation of any director so tendering his or her resignation, consider the resignation offer and recommend to the Board whether to accept it. The Board, without participation by any director so tendering his or her resignation, will act on the Governance Committee’s recommendation within 90 days following certification of the Shareholder vote. We will promptly issue a press release disclosing the Board’s decision and, if the Board rejects the resignation offer, its reasons for such decision. We will also promptly disclose this information in a Securities and Exchange Commission (“SEC”) filing. | |
Q: | How many votes are required to adopt the other proposal? | |
A: | The ratification of Deloitte & Touche’s appointment requires the affirmative vote of a majority of the Shares represented at the Meeting and entitled to vote thereon. | |
Q: | What is the effect of withholding votes or “abstaining”? | |
A: | You can withhold your vote for any nominee in the election of directors. Withheld votes will be excluded entirely from the vote and will have no effect on the outcome (other than potentially triggering the director resignation requirements set forth in our corporate governance guidelines). On other proposals, you can “Abstain”. If you abstain, your Shares will be counted as present at the Meeting for purposes of that proposal and your abstention will have the effect of a vote against the proposal. | |
Q: | How are votes counted? | |
A: | You may vote “For” or “Withhold” your vote on the proposal to elect directors. You may vote “For” or “Against” or “Abstain” on the proposal to ratify the selection of our independent auditors. If you withhold or abstain from voting on a proposal, it will have the practical effect of voting against the proposal. | |
If you sign and return your Proxy without voting instructions, your Shares will be counted as a “For” vote in favor of each proposal. |
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Q: | Could other matters be discussed at the Meeting? | |
A: | We do not know of any other matters to be brought before the Meeting other than those referred to in this Proxy Statement. If other matters are properly presented at the Meeting for consideration, the persons named in the Proxy will have the discretion to vote on those matters for you. |
Name and Address of Owner |
| Number of Shares Owned |
| Percentage of Outstanding Shares |
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Greenlight Capital, L.L.C.(1) |
| 2,565,830 |
| 14.8% |
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Peter R. Kellogg |
| 2,305,260 |
| 13.3% |
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Cramer Rosenthal McGlynn |
| 1,018,500 |
| 5.9% |
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Franklin Resources, Inc.(2) |
| 1,448,610 |
| 8.4% |
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Coghill Capital Management, LLC(3) |
| 1,582,679 |
| 9.2% |
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Number of | Percentage of | ||||||||
Name and Address of Owner | Shares Owned | Outstanding Shares | |||||||
Peter R. Kellogg(1) | 6,038,232 | 13.8% | |||||||
120 Broadway, 6th Floor | |||||||||
New York, NY 10271 | |||||||||
Greenlight Capital, L.L.C.(2) | 3,961,497 | 9.0% | |||||||
420 Lexington Avenue | |||||||||
Suite 875 | |||||||||
New York, NY 10170 | |||||||||
Royal Bank of Canada(3) | 2,245,456 | 6.8% | |||||||
20 King Street West | |||||||||
9th Floor | |||||||||
Toronto, Ontario | |||||||||
Canada M5H 1C4 | |||||||||
KPMG Inc. (as Receiver of | 2,124,589 | 6.4% | |||||||
Stone Venepal (Celgar) Pulp Inc.) | |||||||||
777 Dunsmuir Street, PO Box 10426 | |||||||||
Suite 900 | |||||||||
Vancouver, British Columbia | |||||||||
Canada V7Y 1K3 | |||||||||
Franklin Resources, Inc.(4) | 3,037,326 | 6.9% | |||||||
One Franklin Parkway | |||||||||
San Mateo, CA 94403-1906 | |||||||||
Coghill Capital Management, LLC(5) | 1,950,439 | 5.9% | |||||||
One North Wacker Drive, Suite 4350 | |||||||||
Chicago, IL 60606 | |||||||||
Atticus Management LLC(6) | 2,092,287 | 6.3% | |||||||
152 West 57th Street, 45th Floor | |||||||||
New York, NY 10019 | |||||||||
Platinum Asset Management LLC | 1,691,045 | 5.1% | |||||||
Level 4, 55 Harrington Street | |||||||||
Sydney, NSW 2000, Australia |
(1) Filed jointly with Greenlight Capital, Inc. and David Einhorn.
(2) Filed jointly with Charles B. Johnson, Rupert H. Johnson, Jr. and Franklin Advisory Services, LLC. Includes 903,210 shares issuable upon conversion of convertible senior subordinated notes.
(3) Filed jointly with CCM Master Qualified Fund, Ltd., Coghill Capital Management, LLC and Clint D. Coghill.
(1) | Filed jointly with IAT Reinsurance Company Ltd. The number of Shares owned includes 1,645,161 Shares issuable upon conversion of convertible senior subordinated notes. The percentage of outstanding Shares owned gives pro forma effect to the 10,645,155 Shares issuable upon conversion of the convertible senior subordinated notes. |
(2) | Filed jointly by Greenlight Capital, L.L.C., Greenlight Capital, Inc. and David Einhorn. The number of Shares owned includes 2,066,667 Shares issuable upon conversion of convertible senior subordinated |
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notes. The percentage of outstanding Shares owned gives pro forma effect to the 10,645,155 Shares issuable upon conversion of the convertible senior subordinated notes. | |
(3) | Includes an aggregate 159,519 Shares owned by three wholly owned subsidiaries of the Royal Bank of Canada. |
(4) | Filed jointly with Charles B. Johnson, Rupert H. Johnson, Jr. and Franklin Advisory Services, LLC. The number of Shares owned includes 903,226 Shares issuable upon conversion of convertible senior subordinated notes. The percentage of outstanding Shares owned gives pro forma effect to the 10,645,155 Shares issuable upon conversion of the convertible senior subordinated notes. |
(5) | Filed jointly with CCM Master Qualified Fund, Ltd. and Clint D. Coghill. |
(6) | Filed jointly with Timothy R. Barakett. |
Pursuant to resolutions passed by our Board in
The Board is divided into three classes. Each class of trustees is elected for a three-year term. Eric Lauritzen is nominated as a Class I trustee to replace C.S. Moon, who has declined to stand for re-election to the Board, to serve until theeach annual meeting of Shareholders to be held in 2007, orhold office until his successor is elected and qualified. Mr. Moon declined to stand for re-election to the Board for personal reasons and there was no disagreement between us and Mr. Moon on any matter relating to our operations, policies or practices that resulted in Mr. Moon’s decision to decline to stand for re-election to the Board. Graeme A. Witts has been a trustee since January 2003 and is a member of Class Inext annual meeting. The persons identified below are nominated to be elected toat the BoardMeeting for the ensuing year. All of the nominees are currently directors of the Company. Despite the expiration of a director’s term, the director shall continue to serve until the annual meeting of Shareholders to be held in 2007,director’s successor shall have been elected and qualified or until his successorthere is elected and qualified. Messrs. Lauritzen and Witts have each indicated that they are willing and able to serve as trustees.a decrease in the number of directors. If for any unforeseen reason any of the nominees declines or is unable to serve, proxiesProxies will be voted for the election of such other person or persons as shall be designated by the trustees.directors. Proxies received which do not specify a choice for the election of the nominees will be voted FOR“FOR” each of the nominees. THEOUR BOARD RECOMMENDS A VOTE IN FAVOR OF EACH NOMINEE.
The following table sets forth the name, position with us, age and expiration of the termNASDAQ.
Name |
| Current Position with Company |
| Age |
| Expiration of Term as Trustee |
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Jimmy S.H. Lee |
| President, Chief Executive Officer and Trustee |
| 47 |
| 2005 |
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William D. McCartney |
| Trustee |
| 48 |
| 2005 |
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Kenneth A. Shields |
| Trustee |
| 55 |
| 2006 |
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Guy W. Adams |
| Trustee |
| 53 |
| 2006 |
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Eric Lauritzen(1) |
| Trustee |
| 66 |
| 2007 | (2) |
Graeme A. Witts(1) |
| Trustee |
| 65 |
| 2007 | (2) |
(1) Nominee for election as a trustee.
(2) If elected at the Annual Meeting.
The following provides certain background information about each of our trustees whose term of office will continue after the Annual Meeting, each nominee trustee and our executive officers:
Jimmy S.H. Lee, age 47,49, has been a trusteedirector since May 1985 and Presidentchairman, president and Chief Executive Officerchief executive officer since 1992. Previously,During Mr. Lee servedLee’s tenure with MFC Bancorp Ltd. as a director from 1986, Chairman from 1987the Company, the Company acquired the Rosenthal mill, converted the Rosenthal mill to the production of kraft pulp, constructed and President from 1988 to December 1996, respectively.
started up the Stendal mill and acquired the Celgar mill.
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Kenneth A. Shields, age 55, has been a trustee since August 2003. Mr. Shields2003 and in February 2006 he was a founder of the institutional firm of Goepel Shields & Partners Inc., where he held the position of President and Chief Executive Officer. In April of 1998, the firm merged with McDermid St. Lawrence Securities Ltd. to become the investment firm of Goepel McDermid Inc. which was subsequently acquired, in January of 2001, by Florida-based Raymond James Financial, Inc.appointed deputy chairman. Mr. Shields currently serves as a member of the board of directorsBoard of Raymond James Financial, Inc. and serves as the Chairman, Chief Executive Officer andis a membernon-executive director of the board of directors of theits Canadian subsidiary, Raymond James Ltd. Mr. Shields is also a director of TimberWest Forest Corp., a member of the Accounting Standards Oversight Council, and a Director of the Council for Business and the Arts in Canada. Additionally, Mr. Shields has served as past Chairman of the Investment Dealers Association of Canada and Pacifica Papers Inc., and is a former director of each of Slocan Forest Products Ltd. and the Investment Dealers Association of Canada.
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In 2003, Mr. Adams was initially nominated for election pursuant to a settlement agreement entered into between us and Greenlight Capital, Inc. and Greenlight Capital, LLC. Mr. Adams is also a director of Exar Corporation.
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The terms
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The Board met five times during 2003 and each memberresident manager of the Board attended 75% or morecompany’s Monsteras mill. He was responsible for all large expansion projects of the total number of such meetings and meetings of the committees of the Board on which they serve, other than Mr. Moon. In addition, our independent trustees regularly meet in separate executive sessions without any member of our management present. The Lead Trustee presides over these meetings. Although we do not have a formal policySodra Cell, including with respect to attendance of trusteesthe increase in the annual production capacity at our annual meetings, all trustees are encouraged and expectedthe Monsteras mill from approximately 300,000 ADMTs to attend such meetings if possible. Six trustees attended our 2003 annual meeting.
approximately 750,000 ADMTs.
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Board | Committee | |||||||
Director | Meetings | Meetings | ||||||
Jimmy S.H. Lee | 13 of 13 | N/A | ||||||
Kenneth A. Shields | 13 of 13 | 3 of 3 | ||||||
William D. McCartney | 13 of 13 | 7 of 7 | ||||||
Guy W. Adams | 12 of 13 | 3 of 3 | ||||||
Eric Lauritzen | 13 of 13 | 9 of 9 | ||||||
Graeme A. Witts | 13 of 13 | 7 of 7 |
Audit Committee
The Audit Committee functions pursuantconversion from a Massachusetts business trust to a charterWashington State corporation, we adopted by the trustees. The charter was filed as an appendix to our proxy statement relating to our 2003 annual meeting and was subsequently amended.new corporate governance guidelines. A copy of the current chartercorporate governance guidelines is attached as Appendix ‘‘A’’ hereto. The function ofavailable at the Audit Committee generally is to meet with and review the results“Governance Guidelines” link on our web site atwww.mercerint.com.
• | eliminating our staggered Board so that all directors are now elected annually beginning at this Meeting. | |
• | establishing a new guideline which provides that in an uncontested election any nominee for director who receives a greater number of votes “Withheld” for his or her election than votes “For” will promptly tender his or her resignation. The Board’s Governance Committee will consider the resignation and recommend to the Board whether to accept it. The Board will act on the Governance Committee’s recommendation within 90 days after certification of the shareholder vote and we will publicize the Board’s decision. See “Majority Withheld Policy in Uncontested Director Elections”. | |
• | establishing a position of deputy chairman and lead director and broadening the scope and duties of such position. | |
• | adopting guidelines that non-employee directors should within three years of becoming a director own a minimum number of shares equal in value to three times the amount of their annual cash retainer. |
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Committee | Current Members | Primary Responsibilities | ||
Audit Committee (met 7 times in 2005) | William D. McCartney(1)(2) Graeme A. Witts(2) Eric Lauritzen | • Meet with, and review the results of the audit of our financial statements performed by the independent public accountants; and | ||
• Recommend the selection of independent public accountants. | ||||
Compensation Committee (met 3 times in 2005) | Eric Lauritzen(1) Kenneth A. Shields Guy W. Adams | • Review and approve the strategy and design of the Company’s compensation, equity-based and benefits programs; and | ||
• Approve all compensation actions relating to executive officers. | ||||
Governance Committee (the Governance Committee met in conjunction with each duly convened meeting of the independent directors of the Board which met 13 times in 2005) | Kenneth A. Shields(1) Graeme A. Witts William D. McCartney | • Manage the corporate governance system of the Board; • Assist the Board in fulfilling its duties to meet applicable legal and regulatory and self-regulatory business principles and codes of best practice; | ||
• Assist in the creation of a corporate culture and environment of integrity and accountability; | ||||
• In conjunction with the lead director, monitor the quality of the relationship between the Board and management; | ||||
• Review management succession plans; | ||||
• Recommend to the Board nominees for appointment to the Board; | ||||
• Lead the Board’s annual review of the chief executive officer’s performance; and | ||||
• Set the Board’s forward meeting agenda. | ||||
Health, Safety and Environmental Committee (formed in 2006) | Jimmy S.H. Lee Eric Lauritzen | • Review and approve, and if necessary revise, the health, safety and environmental policies and environmental compliance programs of the Company; |
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Committee | Current Members | Primary Responsibilities | ||
• Monitor the Company’s health, safety and environmental management systems including internal and external audit results and reporting; and | ||||
• Provide direction to management on the frequency and focus of external independent health, safety and environmental audits. |
(1) | Chairman of the committee. |
(2) | A “financial expert” within the meaning of such term under the Sarbanes Oxley Act of 2002. |
The Audit Committee has established procedures for: (i) the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls or auditing matters; and (ii) the confidential and anonymous submission by the Company’s employees and others of concerns regarding questionable accounting or auditing matters. A person wishing to notify the Company of such a complaint or concern should send a written notice thereof, marked “Private & Confidential”, to the Chairmanchairman of the Audit Committee,audit committee, Mercer International Inc., c/o Suite 1790, 400 Burrard2840, 650 West Georgia Street, Vancouver, B.C., V6C 3A6V6B 4N8, Canada.
The Board has established a Compensation Committee. The Compensation Committee is responsible for reviewing and approving the strategy and design of the Company’s compensation, equity-based and benefits programs. The Compensation Committee is also responsible for approving all compensation actions relating to executive officers. The members of the Compensation Committee are Mr. Shields, Mr. McCartney and Mr. Adams, each of whom is independent under applicable laws and regulations and the listing requirements of the Nasdaq National Market. The Compensation Committee met once during 2003.
Compensation Committee Interlocks and Insider Participation
Effective August 2003, the Compensation Committee was reorganized to be comprised of Mr. Shields, Mr. McCartney and Mr. Adams, none of whom is one of our officers or employees, or has formerly been one of our officers. Mr. Moon and Michel Arnulphy, a former trustee, served as members of the Compensation Committee until
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August 2003. Neither Mr. Moon nor Mr. Arnulphy was one of our officers or employees during this period, or has formerly been one of our officers.
Governance and Nominating Committee
Our Board has established a Governance and Nominating Committee comprised of Mr. Shields, Mr. McCartney and Mr. Witts, each of whom is independent under applicable laws and regulations and the listing requirements of the Nasdaq National Market. The Governance and Nominating Committee functions pursuant to a charter adopted by the trustees, a copy of which is attached as Appendix “B” hereto.The purpose of the committee is to: (i) manage the corporate governance system of the Board; (ii) assist the Board in fulfilling its duties to meet applicable legal and regulatory and self-regulatory business principles and codes of best practice; (iii) assist in the creation of a corporate culture and environment of integrity and accountability; (iv) in conjunction with the Lead Trustee, monitor the quality of the relationship between the Board and management; (v) review management succession plans; (vi) recommend to the Board nominees for appointment to the Board; (vii) lead the Board’s annual review of the Chief Executive Officer’s performance; and (viii) set the Board’s forward meeting agenda. The Governance and Nominating Committee was established in September 2003 and met once in 2003.
Consideration of Nominees
The Board is responsible for approving candidates for Board membership. The Board has delegated the screening and recruitment process to the Governance and Nominating Committee in consultation with our Chairmanchairman and Chief Executive Officer.chief executive officer. The Governance and Nominating Committee will recommend to the Board a nominee to fill a vacancy on the Board and will also annually evaluate and recommend to the Board nominees for election as trusteesdirectors at annual meetings of Shareholders.
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Nominees Recommended by Shareholders
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Governance Committee may require that the proposed nominee furnish additional information to determine that person’s eligibility to serve as a trustee.
director.
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Cash | Equity | All Other | ||||||||||||||
Total | Compensation | Compensation | Compensation | |||||||||||||
Name | ($) | ($)(1) | ($)(2) | ($) | ||||||||||||
William D. McCartney(3) | 97,950 | 55,000 | 17,950 | 25,000 | ||||||||||||
Kenneth A. Shields | 55,000 | 55,000 | — | — | ||||||||||||
Guy W. Adams | 50,950 | 33,000 | 17,950 | — | ||||||||||||
Eric Lauritzen(4) | 62,950 | 40,000 | 17,950 | 5,000 | ||||||||||||
Graeme A. Witts | 67,868 | 45,000 | 22,868 | — |
(1) | Cash Compensation includes $20,000 which is paid to each of our directors, other than our lead director, plus $1,000 for each meeting of directors that they attend in person or $500 for each such meeting that they attend by teleconference. Our lead director, Mr. Shields, receives $55,000 annually for his services but is not compensated for attending meetings of directors. The Chairman of the audit committee receives $15,000 annually and the chairman of each of the other committees (other than if the lead director is the Chairman) receives $5,000 annually for their services in that regard. |
(2) | Equity Compensation includes 2,500 restricted shares which are granted to each of our non-employee directors after each annual meeting of Shareholders, subsequent to the annual meeting held in June 2004, provided that such non-employee director is not elected to the Board for the first time at such annual meeting, and who will continue to serve as a member of the Board after the meeting, and has been a director for at least six months. In July, Mr. Witts was granted a further 685 restricted shares in connection with a special assignment by the Board. |
(3) | In 2005, Mr. McCartney was paid $25,000 for a special assignment by the Board. |
(4) | In 2005, Mr. Lauritzen was paid $5,000 for a special assignment by the Board. |
12
REPORT OF THE AUDIT COMMITTEE
The Audit Committee has reviewed and discussed our audited consolidated financial statements for the year ended December 31, 2003 with management. The Audit Committee has also discussed with our independent auditors the matters required to be discussed by the Statement on Auditing Standards No. 61, Communication with Audit Committees, as amended. The Audit Committee has received and reviewed the written disclosures and the letter from the independent auditors required by Independence Standards Board Standard No. 1, Independence Discussions with Audit Committees, as amended, and has discussed with our independent auditors their independence. The Audit Committee has considered whether the provision of services by the independent auditors other than audit related services conflicts with the independence of the auditors.
Based on the reviews and discussions referred to above, the Audit Committee recommended to the Board that the audited consolidated financial statements of the Company for the year ended December 31, 2003 be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003.
Submitted by the members of the Audit Committee of the Board.
|
|
|
9
Number of | Percentage of | |||||||
Name of Owner | Shares Owned | Outstanding Shares | ||||||
Jimmy S.H. Lee(1) | 2,009,800 | 5.9 | % | |||||
Kenneth A. Shields(2) | 100,000 | * | ||||||
Guy W. Adams(3)(4) | 135,100 | * | ||||||
William D. McCartney(4) | 7,500 | * | ||||||
Graeme A. Witts(4) | 8,185 | * | ||||||
Eric Lauritzen(4) | 11,500 | * | ||||||
David M. Gandossi(5) | 130,000 | * | ||||||
Wolfram Ridder(6) | 66,667 | * | ||||||
Leonhard Nossol(7) | 38,334 | * | ||||||
David Brien(8) | 10,000 | * | ||||||
Werner Stüber(9) | 38,334 | * | ||||||
David M. Cooper(10) | 10,000 | * | ||||||
Eric X. Heine | 10,000 | * | ||||||
Ulf Johannson | — | — | ||||||
Directors and Executive Officers as a Group (14 persons)(11) | 2,575,420 | 7.5 | % |
* | Less than 1%. |
(1) | Includes 1,134,800 Shares, presently exercisable options to acquire up to 835,000 Shares and 40,000 restricted shares of beneficial interest granted by the Company in connection with Mr. Lee’s role as an executive officer of the Company. The restricted shares vest and become non-forfeitable in three equal annual installments on September 9, 2005, September 9, 2006 and September 9, 2007 unless a change in control of the Company occurs prior to such date, in which case such shares vest immediately upon the occurrence of such change in control. Mr. Lee purchased 350,000 of our Shares in February 2005 pursuant to our public offering of Shares. | |
(2) | Mr. Shields purchased 10,000 of our Shares in February 2005 pursuant to our public offering of Shares. | |
(3) | In August 2003, we issued options to purchase up to 225,000 Shares to GWA Investments, LLC, of which Mr. Adams is the managing member, and up to 100,000 Shares to Mr. Adams, each at an exercise price of $4.53 per Share. GWA Investments, LLC exercised its options in September 2003 and Mr. Adams exercised his options in March 2004. | |
(4) | In June 2005, 2,500 restricted Shares were granted to each independent director (other than the Lead Director) in connection with his role as an independent director of Mercer. These Shares vest and become non-forfeitable on June 15, 2006 unless a change in control of the Company occurs prior thereto. | |
(5) | Includes presently exercisable options to acquire up to 100,000 of our Shares. | |
(6) | Represents presently exercisable stock options. Mr. Ridder also has options to acquire a further 13,333 of our Shares which options vest as to 6,667 in September, 2006 and 6,666 in September, 2007. | |
(7) | Represents presently exercisable stock options. Mr. Nossol also has options to acquire a further 16,666 of our Shares which options vest as to 8,333 in September, 2006 and 8,333 in September, 2007. |
13
Name of Owner |
| Number of Shares Owned |
| Percentage of Outstanding Shares |
|
Jimmy S.H. Lee(1) |
| 1,619,800 |
| 8.6% |
|
C.S. Moon(2) |
| 29,000 |
| * |
|
Kenneth A. Shields(3) |
| 25,000 |
| * |
|
Guy W. Adams(4) |
| 250,000 |
| 1.4% |
|
William D. McCartney |
| — |
| — |
|
Graeme A. Witts |
| — |
| — |
|
Eric Lauritzen |
| — |
| — |
|
David M. Gandossi(5) |
| 100,000 |
| * |
|
Wolfram Ridder(2) |
| 60,000 |
| * |
|
Trustees and Officers as a Group (9 persons)(6) |
| 2,083,800 |
| 10.9% |
|
* Less than 1%.
(1) Includes presently exercisable stock options to acquire up to 1,585,000 Shares.
(2) Represents presently exercisable stock options.
(3) In January 2004, Mr. Shields was granted 25,000 restricted shares of beneficial interest in connection with his role as the Lead Trustee of our Board. These shares vest in three equal installments on January 20, 2004, November 11, 2004 and November 11, 2005.
(4) Pursuant to the terms of the settlement agreement with Greenlight Capital, in August 2003 we issued options to purchase up to 225,000 Shares to GWA, of which Mr. Adams is the managing member, and up to 100,000 Shares to Mr. Adams, each at an exercise price of $4.53 per share. GWA exercised its options in September 2003 and Mr. Adams exercised his options in March 2004.
(5) In September 2003, Mr. Gandossi was granted options to acquire up to 100,000 of our Shares at a price of $5.65 per Share exercisable as of September 10, 2003 as to one-third of the options granted and one-third on each of September 10, 2004 and September 10, 2005. These options have a ten-year term.
(6) Includes presently exercisable stock options to acquire up to 1,774,000 Shares.
10
(8) | In September, 2005, Mr. Brien was granted 10,000 restricted Shares in connection with his role as a senior executive of Mercer. These Shares vest in three equal installments on September, 2005, September, 2006 and September, 2007. | |
(9) | Represents presently exercisable stock options. Mr. Stüber also has options to acquire a further 16,666 of our Shares which options vest as to 8,333 in September, 2006 and 8,333 in September, 2007. |
(10) | Represents presently exercisable stock options. Mr. Cooper also has options to acquire a further 20,000 of our Shares which options vest as to 10,000 in July, 2006 and 10,000 in July, 2007. |
(11) | Includes presently exercisable stock options to acquire up to 1,088,335 of our Shares. |
|
| Number of Shares to |
| Weighted-average |
| Number of Shares |
|
|
|
|
|
|
|
|
|
1992 Amended Option Plan |
| 2,045,500 |
| $7.12 |
| 230,500 |
|
Non-Qualified Stock Option Plan(1) |
| 150,000 |
| $4.53 |
| Nil |
|
Number of Shares to | Number of Shares | |||||||||||
be Issued Upon | Weighted-Average | Available for | ||||||||||
Exercise of | Exercise Price of | Future Issuance | ||||||||||
Outstanding Options | Outstanding Options | Under Plan | ||||||||||
1992 Amended Option Plan | 1,155,000 | $ | 6.69 | 130,500 | ||||||||
2004 Stock Incentive Plan(1) | 30,000 | $ | 7.30 | 814,315 | (1) |
(1)
(1) | An aggregate of 155,685 restricted Shares have been issued under the plan. |
11
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
MFC Bancorp Ltd. (“MFC”) was our approximately 92% owned subsidiary until June 1996, when we spun-off approximately 83%the overall quality of the issued shares of MFCCompany’s financial reporting.
14
As partyear ended December 31, 2005, for filing with the SEC. The audit committee has selected, and the Board has ratified, subject to Shareholder ratification, the selection of the financing forCompany’s independent registered chartered accountants.
William D. McCartney, Chairman | |
Graeme A. Witts | |
Eric Lauritzen |
In addition1934, as amended, (the “Exchange Act”) except to the bridge loan, we had other indebtedness to MFC inextent that the amount of approximately €8.6 million at December 31, 2002, of which approximately €6.4 million was repaid in December 2003 fromCompany specifically incorporates the proceeds of the sale of MFC shares and the balance was fully repaid in early 2004. We previously held, directly and indirectly, approximately 575,683 common shares of MFC, being approximately 4% of its outstanding shares. We sold 538,683 MFC shares to an affiliate of MFC in December 2003 at a price of $15.84 per share (being the 20-day weighted average trading price of the shares on the Nasdaq National Market at the time of the agreement to sell the shares) for total proceeds of $8.5 million. The proceeds were used to repay indebtedness to MFC. We continue to own approximately 37,000 MFC shares. Jimmy S.H. Lee, our Chairman, Chief Executive Officer and a trustee was formerly a non-executive director of the Swiss banking affiliate of MFC until he resigned from such position in April 2004. Mr. Lee and members of his family, directly and indirectly, own approximately 2% of MFC’s outstanding shares, which shares were in part acquired pursuant to the 1996 spin-off. Ian Rigg, a former trustee and our former Chief Financial Officer, became a Vice President of MFC in August 2003. Mr. Rigg resigned as our chief financial officer in August 2003 and as a trustee in December 2003.
We have in the course of our business entered into transactions and other arrangements with MFC and its affiliates. From time to time, our Rosenthal pulp mill sells pulp to a commodities trading subsidiary of MFC, both for its own account and as an agent for sales to certain parts of eastern Europe. All such transactions are conducted on market terms on an arm’s length basis as provided for in the Rosenthal project loan agreements. As at December 31, 2003, we had trade receivables for pulp sales of approximately €1.4 million from MFC affiliates, which we expect to collect in the ordinary course.
In December 2002, we contributed our 80% interest in Landqart AG (“Landqart”) to a limited partnership in exchange for a 49% interestreport by reference therein. The other limited partner of the limited partnership is MFC and the general partner is wholly-owned by Cade Struktur Corporation (“CSC”). CSC is a Canadian public company in which we own an approximate 26% interest and MFC owns 25% of its issued and outstanding shares. Mr. Lee, our Chief Executive Officer, previously served as an officer and director of CSC from July 2001 to December 2002. During such time, Mr. Lee received no remuneration of any sort from CSC and did not have any ownership interest therein. At the time of the Landqart reorganization, Mr. Lee was neither an officer nor a director of CSC. MFC currently arranges receivables financing for Landqart. In addition, from time to time, MFC assists Landqart in obtaining supplier credit for its capital requirements by arranging for credit enhancement of Landqart’s obligations. Such arrangements are negotiated between Landqart and MFC. Mr. Lee is a director of Landqart.
In 2003, MFC acquired and increased its stake to acquire an indirect majority interest in AIG Altmark-Industrie AG, which is a 7% shareholder of Stendal. As at December 31, 2003, we had an approximately €1.5 million investment in shares and loans of a venture company, which is an affiliate of both us and MFC. This is a legacy investment which we intend to divest in 2004.
Our Board has developed corporate governance guidelines which, among other things, provides that our Audit Committee or other special committee of trustees review and approve transactions with related and affiliated parties, including those with MFC.
12
Long-Term | |||||||||||||||||||||||||||||
Annual Compensation | Compensation | ||||||||||||||||||||||||||||
Other Annual | Securities | All Other | |||||||||||||||||||||||||||
Name and | Salary | Bonus | Compensation | Underlying | Compensation | Total | |||||||||||||||||||||||
Principal Position | Year | ($) | ($) | ($)(6) | Options (#) | ($) | ($) | ||||||||||||||||||||||
Jimmy S.H. Lee(1) | 2005 | 404,581 | 186,730 | 93,365 | 40,000 | — | 1,001,476 | ||||||||||||||||||||||
Chief Executive Officer | 2004 | 403,845 | 186,390 | 93,195 | — | — | 683,430 | ||||||||||||||||||||||
2003 | 264,806 | — | 107,864 | — | — | 372,670 | |||||||||||||||||||||||
David M. Gandossi(2) | 2005 | 264,114 | 123,803 | 12,380 | 30,000 | 29,713 | 667,610 | ||||||||||||||||||||||
Secretary, Executive | 2004 | 245,908 | 61,477 | — | — | — | 307,385 | ||||||||||||||||||||||
Vice-President and | 2003 | 228,352 | 53,520 | — | 100,000 | — | 452,085 | ||||||||||||||||||||||
Chief Financial Officer | |||||||||||||||||||||||||||||
Wolfram Ridder(3) | 2005 | 298,768 | 49,795 | 26,267 | 20,000 | — | 434,830 | ||||||||||||||||||||||
Vice-President Business | 2004 | 298,224 | 44,734 | — | — | — | 342,958 | ||||||||||||||||||||||
Development | 2003 | 260,240 | 200,000 | — | — | — | 460,240 | ||||||||||||||||||||||
Leonhard Nossol(4) | 2005 | 248,973 | 42,325 | 10,845 | 25,000 | 925 | 378,068 | ||||||||||||||||||||||
Group Controller, | 2004 | 226,441 | 34,172 | — | — | — | 260,613 | ||||||||||||||||||||||
Europe and Managing | 2003 | 190,617 | 15,885 | — | — | — | 206,502 | ||||||||||||||||||||||
Director of Rosenthal | |||||||||||||||||||||||||||||
Ulf Johannson(5) | 2005 | 348,562 | 12,449 | 26,300 | — | 150,000 | 537,311 | ||||||||||||||||||||||
Managing Director | 2004 | 347,928 | — | — | — | 186,390 | 534,318 | ||||||||||||||||||||||
of Stendal | 2003 | 316,316 | — | — | — | 112,970 | 429,286 |
(1) | Pursuant to his employment agreement with us dated April 28, 2004, Mr. Lee was entitled to an annual base salary of€325,000, housing and other perquisites not to exceed in aggregate€75,000 annually and other compensation as determined by the Compensation Committee. See “Executive Compensation — Employment Agreements”. The aggregate compensation under the column “Total” includes the sum of $316,800 which represents the monetary value of the 40,000 restricted shares granted to Mr. Lee in 2005. |
(2) | Mr. Gandossi was appointed secretary, executive vice-president and chief financial officer in August 2003. The amounts presented for Mr. Gandossi for 2003 have been annualized. Pursuant to his |
15
|
|
|
| Long-Term |
|
|
| ||||||
Name and |
|
|
| Annual Compensation |
|
|
| Securities |
| All Other |
| ||
Year |
| Salary |
| Bonus |
| Other Annual | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jimmy S.H. Lee |
| 2003 |
| 264,806 |
| — |
| 107,864 |
| — |
| — |
|
Chief Executive Officer |
| 2002 |
| 238,504 |
| — |
| 90,941 |
| — |
| — |
|
|
| 2001 |
| 213,012 |
| 309,137 |
| 10,679 |
| — |
| — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David M. Gandossi (1) |
| 2003 |
| 228,352 |
| 53,520 |
| — |
| 100,000 |
| — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wolfram Ridder(2) |
| 2003 |
| 260,240 |
| 200,000 |
| — |
| — |
| — |
|
Managing Director of Stendal |
| 2002 |
| 188,466 |
| — |
| — |
| — |
| — |
|
(1) Mr. Gandossi was appointed Chief Financial Officer in August 2003. The amounts presented for Mr. Gandossi have been annualized. Pursuant to his employment agreement with us, Mr. Gandossi received a one-time signing bonus of CND$75,000, is entitled to an annual base salary of CND$320,000 and is entitled to participate in our bonus program. In September 2003, we granted to Mr. Gandossi options to acquire up to 100,000 of our shares of beneficial interest at an exercise price of $5.65 per share exercisable as to one-third of the options granted on September 10, 2003 and one-third on each of September 10, 2004 and September 10, 2005. These options have a ten year term.
(2) Mr. Ridder was appointed a managing director of Stendal effective September 2002 for an indefinite term. The amounts presented for Mr. Ridder for 2002 have been annualized. Mr. Ridder is entitled to an annual base salary of €200,000, which increased to €240,000 in April 2003. Mr. Ridder was awarded a bonus of $200,000 in 2003 for his work and oversight in connection with the Stendal project.
employment agreement with us, Mr. Gandossi received a one-time signing bonus of CDN$75,000, is entitled to an annual base salary of CDN$330,000 and is entitled to participate in our bonus program. In September 2003, we granted to Mr. Gandossi options to acquire up to 100,000 of our Shares at an exercise price of $5.65 per Share exercisable as to one-third of the options granted on September 10, 2003 and one-third on each of September 10, 2004 and September 10, 2005. These options have a ten year term. In 2005, we contributed $13,618 to Mr. Gandossi’s RRSP and $16,095 to his pension which amounts are reflected in the column “All Other Compensation”. The aggregate compensation under the column “Total” includes the sum of $237,600 which represents the monetary value of the 30,000 restricted shares granted to Mr. Gandossi in 2005. |
(3) | Mr. Ridder was appointed a managing director of Stendal in July 2002 for an indefinite term. In August of 2005, Mr. Ridder was appointed Vice President of Business Development for Mercer at which time Mr. Johannson became sole managing director of Stendal. The amounts presented for Mr. Ridder for 2002 have been annualized. Mr. Ridder is entitled to an annual base salary of€240,000 and to participate in our bonus program. Mr. Ridder’s bonus in 2003 reflected his work and oversight in connection with the Stendal mill. The aggregate compensation under the column “Total” includes the sum of $60,000 which represents the monetary value of the 20,000 options granted to Mr. Ridder in 2005. |
(4) | Mr. Nossol was appointed Group Controller for Europe in 2004 for an indefinite term and became sole managing director of Rosenthal in September, 2005. Mr. Nossol is entitled to an annual base salary of€200,000 and to participate in our bonus program. In 2005, we contributed $925 to a defined contribution plan for Mr. Nossol. The aggregate compensation under the column “Total” includes the sum of $75,000 which represents the monetary value of the 25,000 options granted to Mr. Nossol in 2005. |
(5) | Mr. Johannson was appointed a managing director of Stendal in July 2003 for an indefinite term. The amount presented for Mr. Johannson’s salary for 2003 has been annualized. Mr. Johannson is entitled to an annual base salary of€280,000 and an annual bonus of up to 25% of his base salary, based upon certain performance targets. In addition, we agreed to make certain payments to Mr. Johannson relating to his retirement which are contributed to the pension arrangement in place for Mr. Johannson prior to his appointment at Stendal until he retires at age 62. In 2005, such payments amounted to $150,000. |
(6) | Included in “Other Annual Compensation” for the fiscal year ended December 31, 2005 are perquisites which consist of the following: |
Housing & | ||||||||||||
Overseas | ||||||||||||
Name | Auto | Allowance | Other | |||||||||
Jimmy S. H. Lee | — | 93,365 | — | |||||||||
David M. Gandossi | 12,380 | — | — | |||||||||
Wolfram Ridder | 3,112 | 17,926 | 5,229 (health insurance) | |||||||||
Leonhard Nossol | 10,845 | — | — | |||||||||
Ulf Johannson | 10,000 | 6,300 | 10,000 (travel) |
In September 2003, we granted to Mr. Gandossi options to acquire up to 100,000 of our shares of beneficial interest. These options have a ten year term. Other than Mr. Gandossi, none of our Named Executive Officers were granted options to purchase our shares during 2003.
Individual Grants | ||||||||||||||||||||
% of Total Options | ||||||||||||||||||||
Number of Securities | Granted to | |||||||||||||||||||
Underlying Options | Employees in | Exercise Price | Expiration | Grant Date | ||||||||||||||||
Name | Granted ($) | Fiscal Year | ($/Share) | Date | Value ($) | |||||||||||||||
Wolfram Ridder | 20,000 | (1) | 15.4% | 7.92 | 09/09/2015 | 60,000 | (2) | |||||||||||||
Leonhard Nossol | 25,000 | (1) | 19.2% | 7.92 | 09/09/2015 | 75,000 | (2) |
16
|
| Individual Grants |
| Grant Date |
| ||||||
Name |
| Number of |
| % of Total |
| Exercise |
| Expiration Date |
| Grant Date |
|
|
|
|
|
|
|
|
|
|
|
|
|
David M. Gandossi |
| 100,000(1) |
| 100% |
| 5.65 |
| September 10, 2013 |
| 170,213(2) |
|
(1) The options are exercisable as to one-third of the options granted on September 10, 2003 and one third on each of September 10, 2004 and September 10, 2005.
(2) Estimated as of the date of grant using the Black-Scholes model, based on the risk free interest rate of 1.92%, expected life of 3 years, expected volatility of 38.4% and expected dividend yield of 0%.
13
(1) | The options are exercisable as to one-third of the options granted in September, 2005 and one third in each of September, 2006 and September, 2007. |
(2) | Estimated as of the date of grant using the Black-Scholes model, based on the risk free interest rate of 4.125%, expected life of three years, expected volatility of 50.4% and expected dividend yield of 0.0%. |
2005:
Fiscal Year-End Option Values
|
|
| |||||||||||||||
Number of Securities | |||||||||||||||||
Shares | Underlying Unexercised | Value of Unexercised | |||||||||||||||
Acquired on | Value | Options at | In-the-Money Options at | ||||||||||||||
Exercise | Realized | Fiscal Year-End (#) |
| Fiscal Year-End ($) | |||||||||||||
Name | (#) | ($) | Exercisable/Unexercisable | Exercisable/Unexercisable | |||||||||||||
Jimmy S.H. Lee | — | — | 835,000/Nil | 1,039,500/— | |||||||||||||
Chief Executive Officer |
|
|
|
| |||||||||||||
David M. Gandossi | — | — | 100,000/Nil | 221,000/— | |||||||||||||
Secretary, Executive | |||||||||||||||||
Vice-President and | |||||||||||||||||
Chief Financial Officer |
|
|
|
| |||||||||||||
Wolfram Ridder | — | — | 66,667/13,333 | 89,100/— | |||||||||||||
| Managing Director of Stendal |
|
|
|
| ||||||||||||
Leonhard Nossol | — | — | 38,334/16,666 | 44,550/— | |||||||||||||
Group Controller, Europe | |||||||||||||||||
Ulf Johannson | — | — | — | — | |||||||||||||
Managing Director of Stendal |
Our trustees, other than our Lead Trustee, receive $20,000 annually for their services plus $1,000 for each meeting of trustees that they attend in person or $500 for each such meeting that they attend by teleconference. Our Lead Trustee, Mr. Shields, receives $55,000 annually for his services but is not compensated for attending meetings of trustees. We also reimburse our trustees and officers for expenses incurred in connection with their duties as our trustees and officers. The Chairman of each of the Compensation Committee and Governance and Nominating Committee (other than if the Lead Trustee is the Chairman) receives $5,000 annually and the Chairman of the Audit Committee receives $15,000 annually for their services in that regard.
In the event our 2004 Stock Incentive Plan is approved by Shareholders at the Annual Meeting, each of our non-employee trustees who has been in office for at least six months immediately after such meeting, other than our Lead Trustee, will receive 5,000 restricted shares and each such non-employee trustee who is not elected to the Board for the first time at a subsequent annual meeting of Shareholders and will continue to serve as a member of the Board after the meeting will receive 2,500 restricted shares under such plan for their services. See Proposal 3 relating to the approval of the 2004 Stock Incentive Plan for more information.
Indemnity Agreements
14
Employment Agreements
, 2004 with us. The following summary of the agreement is qualified in its entirety by reference to the full text of the agreement, a copy of which is attached as an exhibit to our Form 8-K dated and filed with the Commission on April 28, 2004. The agreement providesprovided for a base salary of €325,000€325,000 annually, housing and other perquisites not to exceed in aggregate €75,000€75,000 annually and other compensation as determined by the Board or the Compensation Committee as applicable. The agreement continues in effect until Mr. Lee’s employment with us is terminated. Mr. Lee may terminate his employment with us at any time for good reason within 180 days after the occurrence of any good reason event. In addition, we may terminate Mr. Lee’s employment with cause. If Mr. Lee is terminated without cause or resigns for good reason, he shall be entitled to a severance payment
17
Report
18
15
• | Competitiveness. Executives’ total compensation levels should be competitive and at market median with other comparable companies operating within the forest products industry and other companies with which the Company competes for executive talent. A greater percentage of compensation for senior management should be tied to our performance to allow us to attract and retain employees with the skills essential for our long-term success; | |
• | Alignment to Shareholder Interests. Rewards should be linked to the creation of long-term shareholder value through the use of restricted shares and stock options. | |
• | Flexible Short-Term and Long-Term Incentives. Incentive plans should balance both fixed and variable and short and long-term compensation programs to support a performance-based culture; | |
• | Pay for Performance. Above-median compensation should be provided for superior performance; and |
19
• | Employee Understanding. Overall compensation simplicity should be maintained to ensure broad employee understanding and acceptance. |
In 2003,our 2004 Stock Incentive Plan (together with our 1992 Amended Option Plan, the “Incentive Plans”), are considered where and as appropriate.
Executive Compensation
The median peer group that the Compensation Committee uses for comparison purposes is comprised principally of public “mid-cap” North American forest products companies.
20
16
In April 2004, after receiving advice from its outside compensation consultant as to, among other things, remuneration paid in comparable peer group companies and the effect of changes in currency exchange rates, the Committee recommended andwith no fixed or specific weighting applied to each element of performance.
approved by shareholders. However, in the future, the Committee may elect to exceed the tax deductible limits if it determines it is necessary to meet competitive market pressures and to ensure that it is able to attract and retain top talent to successfully lead the Company.
Submitted by the members of the Compensation Committee of the Board. | |
Eric Lauritzen, Chairman | |
Kenneth A. Shields | |
Guy W. Adams |
21
William D. McCartney, Chairman
Kenneth A. Shields
Guy W. Adams
17
Comparison of Cumulative Total Return
Company | 2000 | 2001 | 2002 | 2003 | 2004 | 2005 | |||||||||||||||||||||||||
Mercer International Inc. | 100.00 | 93.98 | 69.16 | 80.00 | 134.16 | 99.02 | |||||||||||||||||||||||||
SIC Code Index | 100.00 | 97.53 | 87.48 | 111.51 | 126.33 | 115.81 | |||||||||||||||||||||||||
Nasdaq Market Index | 100.00 | 79.71 | 55.60 | 83.60 | 90.63 | 92.62 | |||||||||||||||||||||||||
Company |
| 1998 |
| 1999 |
| 2000 |
| 2001 |
| 2002 |
| 2003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mercer International Inc. |
| 100.00 |
| 68.42 |
| 117.43 |
| 110.36 |
| 81.21 |
| 93.94 |
|
SEC Code Index |
| 100.00 |
| 121.38 |
| 120.13 |
| 117.17 |
| 105.09 |
| 133.96 |
|
Nasdaq Market Index |
| 100.00 |
| 176.37 |
| 110.86 |
| 88.37 |
| 61.64 |
| 92.68 |
|
22
18
Deloitte & Touche LLP examined our consolidated financial statements subsequent to their appointment as our independent auditors, while Peterson Sullivan PLLC examined our consolidated financial statements for 2002 and the first three months of 2003.
Year Ended December 31, | ||||||||
2005 | 2004 | |||||||
Deloitte & | Deloitte & | |||||||
Touche LLP | Touche LLP | |||||||
Audit Fees(1) | $ | 1,562,930 | $ | 1,258,785 | ||||
Audit-Related Fees(2) | 80,727 | 340,452 | ||||||
Tax Fees(3) | 5,517 | 15,367 | ||||||
$ | 1,649,174 | $ | 1,614,604 | |||||
(1) | Represents fees for services rendered for the audit of our annual financial statements and review of our quarterly financial statements. |
(2) | Represents fees for services rendered for assurance and related services reasonably related to the performance of the audit or review of our financial statements but not reported under “Audit Fees”, including fees relating to an internal control study conducted pursuant to the Sarbanes-Oxley Act of 2002. |
|
| Year Ended December 31, |
| ||||||||||
|
| 2003 |
| 2002 |
| ||||||||
|
| Deloitte & Touche LLP |
| Peterson Sullivan PLLC |
| Total |
| Peterson Sullivan PLLC |
| ||||
Audit Fees(1) |
| $ | 609,076 |
| $ | 151,755 |
| $ | 760,831 |
| $ | 486,208(4) |
|
Audit-Related Fees(2) |
| 80,146 |
| — |
| 80,146 |
| — |
| ||||
Tax Fees(3) |
| — |
| 243,663 |
| 243,663 |
| 362,630 |
| ||||
All Other Fees |
| — |
| — |
| — |
| — |
| ||||
|
| $ | 689,222 |
| $ | 395,418 |
| $ | 1,084,640 |
| $ | 848,838 |
|
(1) Represents fees for services rendered for the audit of our annual financial statements and review of our quarterly financial statements.23
(2) Represents fees for services rendered for assurance and related services reasonably related to the performance of the audit or review of our financial statements but not reported under “Audit Fees”, including fees relating to an internal control study conducted pursuant to the Sarbanes-Oxley Act of 2002.
(3) Represents fees for services rendered for tax compliance, tax advice and tax planning.
(4) Does not include statutory audit fees for the Company’s German subsidiaries.
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(3) | Represents fees for services rendered for tax compliance, tax advice and tax planning. |
20
APPROVAL OF 2004 STOCK INCENTIVE PLAN
The Company grants long-term incentives in the form of stock options to employees, officers and trustees who are not employees or officers of the Company under the Company’s 1992 Amended Option Plan to motivate them to achieve and maintain superior performance levels. However, as of April 28, 2004, an aggregate of only 230,500 Shares were available for issuance under such plan, which represents approximately 1.3% of our currently outstanding Shares or approximately 0.8% of Shares outstanding after giving effect to the conversion of $82.5 million of convertible notes we issued in October 2003 (the “Convertible Notes”). The Board believes that this number of Shares is likely to be insufficient in light of the potential continued growth in the Company’s operations. For this and other related reasons, the Board determined that it is in the best interests of the Company and its Shareholders to adopt a new stock incentive plan.
On April 27, 2004, the Board adopted the 2004 Stock Incentive Plan (the “Plan”) and directed that the Plan be submitted to Shareholders for their approval at the Annual Meeting. The Plan will be effective upon approval by Shareholders at the Annual Meeting. The purpose of the Plan is to promote the long-term success of the Company and the creation of Shareholder value by encouraging the attraction and retention of employees and non-employee trustees (“Outside Trustees”) with exceptional qualifications, encouraging them to focus on the critical long-range objectives of the Company and linking their interests directly to Shareholder interests through increased Share ownership. The Plan seeks to achieve this purpose by providing for awards to participants in the form of restricted shares, options and/or stock appreciation rights (“SARs”). The following summary of the Plan is qualified in its entirety by reference to the full text of the Plan, a copy of which is attached as Appendix “C” hereto.
The Plan will be administered by the Compensation Committee of the Board, each of the members of which are non-employee trustees that are independent under applicable laws and regulations and the listing requirements of the Nasdaq National Market. The Compensation Committee may, subject to the provisions of the Plan, determine the persons to whom awards will be granted, the types of awards to be granted, the number of Shares to be made subject to awards, the exercise or purchase price of awards granted and the other terms, conditions and restrictions that will apply to awards, and will interpret the Plan. The terms and conditions of each award granted under the Plan will be set forth in a written agreement.
Shares offered under the Plan may be authorized but unissued Shares or treasury Shares. The maximum aggregate number of Shares that may be issued pursuant to options, SARs and restricted shares awarded under the Plan shall not exceed 1,000,000 Shares, being approximately 5.8% of our currently outstanding Shares or approximately 3.6% of our outstanding Shares after giving effect to the conversion of the Convertible Notes. If the Plan is approved, we could issue or grant awards and options (including under the 1992 Amended Option Plan) on an aggregate of 1,230,500 Shares, which is approximately 7.1% of our currently outstanding Shares or approximately 4.4% of our outstanding Shares after giving effect to the conversion of the Convertible Notes. The aggregate number of options currently outstanding and issuable under our existing 1992 Amended Option Plan and awards under the Plan, if approved, would represent approximately 18.9% of our currently outstanding Shares or approximately 11.7% of our outstanding Shares after giving effect to the conversion of the Convertible Notes. Approximately 1,100 persons are currently eligible to participate in the Plan. No person may receive in any calendar year awards under the Plan that relate to more than 150,000 Shares (except that grants to a participant in the calendar year in which his or her service first commences shall not relate to more than 250,000 Shares), subject to certain adjustments as provided under the Plan.
The aggregate number of Shares available under the Plan and Shares (including restricted shares) issued under the Plan or underlying options or SARs issued under the Plan are subject to certain adjustments including for stock dividends, stock splits or other such capitalization adjustments as provided under the Plan. In addition, in the event of a merger or other reorganization involving the Company, the Plan provides for the continuation, assumption, substitution, vesting or settlement of awards granted under the Plan.
If any restricted shares or Shares issued upon the exercise of options awarded under the Plan are forfeited, or if options or SARs awarded under the Plan are forfeited or terminate for any reason before being exercised, then such restricted shares or Shares issued upon exercise of options or Shares underlying options or SARs awarded under the Plan shall again become available for awards under the Plan. If SARs are exercised, then only the number of Shares actually issued in settlement of such SARs will reduce the number of Shares available under the Plan. If Shares are withheld in payment of the exercise or purchase price of an award under the Plan or to satisfy tax withholding obligations, such Shares will be available for issuance under the Plan.
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Employees and Outside Trustees are eligible to participate in the Plan. Participants under the Plan may be awarded restricted shares, SARs and/or options. The Compensation Committee is entitled to award incentive stock options or nonstatutory stock options under the Plan. However, only employees of the Company are eligible to be awarded incentive stock options under the Plan, while employees and Outside Trustees are eligible to be awarded restricted shares, nonstatutory options or SARs under the Plan.
Restricted shares awarded under the Plan are restricted as to sale for such time and/or under such terms and conditions as the Compensation Committee may determine, including with respect to the consideration to be paid for such an award, vesting of the restricted shares awarded and restrictions applicable to such award. Restricted shares may be awarded under the Plan for such consideration as the Compensation Committee may determine, including, without limitation, cash, cash equivalents, or services rendered to the Company. The holders of restricted shares awarded under the Plan shall have the same voting, dividend and other rights as the Company’s other Shareholders, however, the Compensation Committee may require that holders of restricted shares invest cash dividends received on such shares in additional restricted shares with the same conditions and restrictions as the restricted shares upon which the dividend was paid.
Under the Plan, on the first business day following the conclusion of the annual meeting at which the Plan is approved by Shareholders, each Outside Trustee who has been in office for at least six months immediately after such meeting (other than the Lead Trustee) shall receive 5,000 restricted shares, which shall fully vest on the first anniversary of the date of grant, or immediately upon a change in control of the Company. On the first business day following the conclusion of each annual meeting of Shareholders, commencing with the annual meeting occurring after the annual meeting approving the Plan, each Outside Trustee who is not elected to the Board for the first time at such meeting and who will continue to serve as a member of the Board after the meeting (provided that he has served on the Board for at least six months) shall receive 2,500 restricted shares, which shall fully vest on the first anniversary of the date of grant, or immediately upon a change in control of the Company.
Stock Appreciation Rights
SARs entitle holders thereof to receive a bonus equal to the appreciation in value of a pre-determined number of Shares over a specified period. Awards of SARs under the Plan may be granted by the Compensation Committee upon such terms and conditions as the committee may deem appropriate, including with respect to the number of Shares underlying such an award, exercise price (which may vary in accordance with a pre-determined formula), vesting and term of such award. The exercise of a SAR awarded under the Plan may be settled in Shares, cash or a combination of Shares and cash, as the Compensation Committee may determine. SARs may be awarded under the Plan in combination with options and such an award may provide that the SARs will not be exercisable unless the related options are forfeited.
Options
Options awarded under the Plan entitle the holder to acquire a specified number of Shares on such terms and conditions as the Compensation Committee may determine, including with respect to the exercise price, vesting and term of such award. The exercise price of an incentive stock option shall not be less than 100% of the fair market value of the Company’s Shares on the date of grant, except as provided under the Plan. The exercise price of a nonstatutory option shall not be less than 85% of the fair market value of the Shares on the date of grant, however, the Compensation Committee may specify that the exercise price of a nonstatutory option may vary in accordance with a pre-determined formula. In addition, the term of an incentive stock option shall not exceed 10 years from the date of grant (five years for certain eligible employees). Payment of the exercise price for options awarded under the Plan may be made in cash, the surrender of Shares held by the participant, the withholding of Shares that would otherwise be issued upon the exercise of options, services rendered to the Company or any other form consistent with applicable law, as determined by the Compensation Committee. Upon the termination of service with the Company, a participant
22
shall have the right to exercise options awarded under the Plan as determined by the Compensation Committee. Options may be awarded under the Plan in combination with SARs and such an award may provide that the options will not be exercisable unless the related SARs are forfeited.
Other Terms of the Plan
Under the Plan, at the discretion of the Board, an Outside Trustee may elect to receive his or her annual retainer payments and/or meeting fees from the Company in the form of cash, nonstatutory options or restricted shares, or a combination thereof. The number of such nonstatutory options or restricted shares shall be calculated in a manner and issued on terms and conditions determined by the Board.
The Compensation Committee may determine, at the time of granting of awards under the Plan, that all or a part of any award granted shall become vested upon a change in control of the Company.
The Plan shall terminate automatically on June 14, 2014 and may be terminated on an earlier date upon the amendment of the Plan. The Plan may be amended by the Board at any time and from time to time, however, an amendment of the Plan shall be subject to the approval of the Company’s Shareholders (to the extent required by applicable laws, rules or regulations).
Income Tax Status
The U.S. federal income tax consequences to the Company and participants under the Plan are complex and subject to change. The following discussion is a summary of the general rules applicable to awards granted under the Plan to a participant who performs services within the United States or is a United States citizen or resident. The tax consequences may be affected by various income tax treaties. Participants under the Plan should consult their own tax advisors since a taxpayer’s particular situation may be such that some variation of the rules described below will apply.
Incentive Stock Options. An optionee will not recognize any ordinary income (and the Company will not be permitted to claim any deduction) upon the grant or timely exercise of an incentive stock option. However, the amount by which the fair market value of the underlying Shares on the exercise date of an incentive stock option exceeds the exercise price generally will constitute an item which increases the optionee’s “alternative minimum taxable income”.
Exercise of an incentive stock option will be timely if made during its term and if the optionee remains an employee of the Company or a subsidiary at all times during the period beginning on the date of grant of the incentive stock option and ending on the date three months before the date of exercise (or one year before the date of exercise in the case of a disabled optionee, and without limit in the case of death). The tax consequences of an untimely exercise of an incentive stock option will be determined in accordance with the rules applicable to nonstatutory options, discussed below.
If Shares acquired pursuant to the timely exercise of an incentive stock option are later disposed of, and if the Shares are a capital asset of the optionee, the optionee generally will recognize a long-term capital gain or loss equal to the difference between the amount realized upon the sale and the exercise price. The Company, under these circumstances, will not be entitled to any income tax deduction in connection with either the exercise of the incentive stock option or the sale of the Shares by the optionee.
If, however, Shares acquired pursuant to the exercise of an incentive stock option are disposed of by the optionee prior to the expiration of two years from the date of grant of the incentive stock option or within one year from the date the Shares are transferred to him or her upon exercise (a “disqualifying disposition”), any gain realized by the optionee generally will be taxable at the time of such disqualifying disposition as follows: (i) at ordinary income rates to the extent of the difference between the exercise price and the lesser of the fair market value of the Shares on the date the incentive stock option is exercised or the amount realized on the
23
disqualifying disposition; and (ii) if the Shares are a capital asset of the optionee, as a short-term or long-term capital gain (depending upon the length of time the Shares were held by the optionee) to the extent of any excess of the amount realized on the disqualifying disposition over the sum of the exercise price and any ordinary income recognized by the optionee. In that event, the Company may claim an income tax deduction at the time of such disqualifying disposition for the amount taxable to the optionee as ordinary income.
Nonstatutory Options. An optionee generally will not recognize taxable income upon the grant of a nonstatutory option. Rather, at the time of exercise of the nonstatutory option, the optionee will recognize ordinary income for income tax purposes in an amount equal to the excess of the fair market value of the Shares purchased over the exercise price. The Company will generally be entitled to claim a tax deduction at such time and in the same amount that the optionee recognizes ordinary income.
However, if the Shares received upon exercise are both nontransferable and subject to a substantial risk of forfeiture, the optionee will not recognize income at the time of exercise. Rather, the optionee will recognize income when those restrictions lapse. If there are such restrictions, however, an optionee may elect to recognize income at the time of exercise rather than on the later date on which the restrictions are removed. If the optionee makes such election but subsequently forfeits the right to receive the Shares, then the optionee will not be entitled to a refund of any tax paid as a result of making such election. However, the optionee will be entitled to treat the forfeiture as a sale of Shares at a loss. The deductibility of such loss may be subject to limitations that apply to capital losses.
If Shares acquired upon exercise of a nonstatutory option are later sold or exchanged, then the difference between the amount received upon the sale, exchange or disposition and the fair market value of such Shares on the date of the exercise or, if applicable, the date on which restrictions on the option stock lapsed will generally be taxable as a long-term or short-term capital gain or loss (if the Shares are a capital asset of the optionee) depending upon the length of time the Shares were held by the optionee.
Restricted Stock. A person who is awarded Shares of restricted stock is taxable on the Shares received when the restricted stock is substantially vested, that is, when the stock is either not subject to a substantial risk of forfeiture, or is transferable to a third party free of such risk. The amount of income recognized is equal to the excess of the fair market value of the Shares at the time of vesting over the amount, if any, paid for such Shares. The Company would be entitled to claim a deduction equal to the amount of income recognized.
If the restricted stock received is both nontransferable and subject to substantial risk of forfeiture, then the restricted stock will not be taxable when issued, and the Company will not be entitled to a deduction at the time of issuance. Any dividends paid to such person prior to the lifting of restrictions are taxable compensation income to such person. When the restrictions are lifted, such person will be treated as receiving taxable compensation as discussed in the preceding paragraph.
A person who is awarded restricted stock may elect to recognize income at the time that the restricted stock is awarded rather than at the later date when the stock is substantially vested.
Stock Appreciation Rights. Generally, the recipient of a SAR will not recognize any taxable income at the time the SAR is granted. If the participant receives the appreciation inherent in the SARs in cash, the cash will be taxable as ordinary compensation income to the participant at the time that it is received. If the participant receives the appreciation inherent in the SARs in Shares, the participant will recognize ordinary compensation income equal to the excess of the fair market value of the Shares on the day it is received over any amounts paid by the participant for the Shares. In general, there will be no federal income tax deduction allowed to the Company upon the grant or termination of SARs. However, upon the exercise of a SAR, the Company will be entitled to a deduction for federal income tax purposes equal to the amount of ordinary income that the participant is required to recognize as a result of the exercise, provided that the deduction is not otherwise disallowed under the Code.
If an optionee fails to exercise a SAR before it expires, and thereby loses the right to receive any benefit, the IRS may, nevertheless, take the position that the optionee was in constructive receipt of income in an amount equal to the payment which the optionee could have received if the SAR had been exercised immediately before it expired.
24
Specific grants under the Plan are discretionary, may vary from year to year and from participant to participant and, accordingly, are not yet determinable. If the Plan had been in effect in fiscal 2003, the following restricted shares would have been granted in 2003 to Outside Trustees, other than the Lead Trustee, in accordance with the terms of the Plan:
2004 Stock Incentive Plan Benefits
Name and Position |
| Dollar Value(1) |
| Number of Units(2) |
|
Non-Executive Trustee Group |
| $95,250 |
| 15,000 |
|
(1) Based on the closing price of the Shares on the Nasdaq National Market on December 31, 2003 of $6.35, assuming all such restricted shares were issued for no cash consideration and were fully vested at year end.
(2) Represents restricted shares awarded under the Plan, which vest on the first anniversary of the date of grant or immediately upon a change in control of the Company.
Board Recommendation
Based upon a review of a wide variety of factors considered in connection with its evaluation of the provisions and terms of the 2004 Stock Incentive Plan, the Board believes that it is in the Company’s best interests and the best interests of our Shareholders to approve the adoption by the Board of the 2004 Stock Incentive Plan. Such approval requires the affirmative vote of a majority of the votes cast in person or by Proxy at the Annual Meeting. THE BOARD RECOMMENDS A VOTE “FOR” THE APPROVAL OF THE ADOPTION OF THE 2004 STOCK INCENTIVE PLAN.
FUTURE SHAREHOLDER PROPOSALS
25
BY ORDER OF THE BOARD OF TRUSTEES
BY ORDER OF THE BOARD OF DIRECTORS |
24
26
APPENDIX “A”
1. PURPOSE
The Audit Committee is appointed by the Board to assist the Board in monitoring: (1) the integrity of the financial statements of the Company; (2) the compliance by the Company with legal and regulatory requirements; and (3) the qualifications, independence and performance of the Company’s internal and external auditors.
The Audit Committee shall consist of at least 3 trustees as determined by the Board. The members of the Audit Committee shall meet the independence and experience requirements of any exchange or quotation system upon which the Company’s securities are listed or quoted. In particular, the Chairman of the Audit Committee shall have accounting or related financial management expertise, and all members are to be independent as determined in accordance with applicable law, including the Sarbanes-Oxley Act of 2002 and the rules and regulations of the Securities and Exchange Commission promulgated thereunder. At least one of the members (which may be the Chairman) shall be a financial expert as defined by applicable rules, regulations and statutes. The members of the Audit Committee shall be appointed by the Board.
The Audit Committee may request any officer or employee of the Company or the Company’s outside counsel or independent auditor to attend meetings of the Committee or to meet with any members of, or consultants to, the Committee.
The Company shall provide funding to compensate: (i) any registered public accounting firm engaged for the purpose of preparing or issuing an audit report or performing other audit, review or attest services for the Company; and (ii) any independent legal, accounting or other consultants employed by the Audit Committee. The Company shall also provide funding for the Audit Committee’s ordinary administrative expenses that are necessary or appropriate in carrying out its duties.
The Audit Committee shall make regular reports to the Board.
The Audit Committee shall have the following authority and responsibilities:
1. To review and reassess the adequacy of this Charter annually and recommend any proposed changes to the Board for approval.
2. To review the annual audited financial statements with management and the independent auditor, including: (i) matters required to be reviewed under applicable legal and regulatory requirements; (ii) major issues regarding accounting and auditing principles and practices; and (iii) the adequacy of internal controls that could significantly affect the Company’s financial statements.
3. To review an analysis prepared by management and the independent auditor of significant financial reporting issues and judgments made in connection with the preparation of the Company’s financial statements, including an analysis of the effect of alternative GAAP methods on the Company’s financial statements and a description of any transactions as to which management obtained Statement on Auditing Standards No. 50 letters.
A-1
4. To review with management and the independent auditor the effect of regulatory and accounting initiatives as well as off-balance sheet structures on the Company’s financial statements.
5. To review with management and the independent auditor the Company’s quarterly financial statements prior to the filing of its Form 10-Q, including the results of the independent auditors’ reviews of the quarterly financial statements.
6. To prepare the report required for the Company’s annual proxy statement pursuant to the rules of the Securities and Exchange Commission.
7. To meet periodically with management to review the Company’s major financial risk exposures and the steps management has taken to monitor and control such exposures.
8. To discuss with management and the independent auditor, as appropriate, earnings press releases and approve, as required, all quarterly earnings press releases and financial information and earnings guidance provided to analysts and to rating agencies.
9. To review major changes to the Company’s auditing and accounting principles and practices as suggested by the independent auditor, internal accounting or financial personnel or management.
10. The sole authority to select, evaluate, oversee and, if necessary, replace the Company’s independent auditor or any registered public accounting firm engaged for the purpose of preparing or issuing an audit report or performing other audit, review or attest services for the Company. Each independent auditor or registered public accounting firm engaged for the Company or the Audit Committee shall report directly to the Audit Committee.
11. The sole authority to approve all audit engagement terms and fees to be paid to the independent auditor for audit services.
12. The authority to engage independent counsel and other advisors as it deems necessary to carry out the duties and responsibilities of the Audit Committee.
13. To review the experience and qualifications of the senior members of the independent auditor team, the quality control procedures of the independent auditor and the rotation of the lead partner and reviewing partner of the independent auditor.
14. To pre-approve the retention of the independent auditor for all audit and any non-audit services to be provided by any independent public accountants, including tax services, and the fees for such non-audit services.
15. To receive periodic reports from the independent auditor regarding the auditor’s independence, discuss such reports with the auditor, consider whether the provision of non-audit services is compatible with maintaining the auditor’s independence and, if so determined by the Audit Committee, recommend that the Board take appropriate action to satisfy itself of the independence of the auditor.
16. To evaluate the performance of the independent auditor and whether it is appropriate to adopt a policy of rotating independent auditors on a regular basis. If so determined by the Audit Committee, recommend that the Board replace the independent auditor.
17. To set policies for the Company’s hiring of employees of the independent auditor who were engaged on the Company’s account.
18. To review the appointment and replacement of the senior accounting and financial executives.
A-2
19. To review the significant reports to management prepared by the internal accounting and financial personnel and management’s responses.
20. To obtain from the independent auditor assurance that Section 10A of the Securities Exchange Act of 1934 has not been implicated.
21. To obtain reports/confirmation from management, the Company’s senior accounting and financial personnel and the independent auditor that the Company’s subsidiary/foreign affiliated entities are in conformity with applicable legal requirements and the Company’s Code of Conduct, including disclosures of insider and affiliated party transactions.
22. To review and approve quarterly earnings press releases and announcements.
23. To discuss with the independent auditor the matters required to be discussed by Statement on Auditing Standards No. 61 relating to the conduct of the audit.
24. To review with management and the independent auditor any correspondence with regulators or governmental agencies and any employee or anonymous complaints or published reports which raise material issues regarding the Company’s financial statements or accounting policies.
25. To review with the independent auditor any problems or difficulties the auditor may have encountered and any disagreements between the independent auditor and management of the Company and any management letter provided by the auditor and the Company’s response to that letter. Such review should include:
(a) Any difficulties encountered in the course of the audit work, including any restrictions on the scope of activities or access to required information, and any disagreements with management.
(b) The internal accounting and financial responsibilities.
(c) The investigation and implementation of the resolution of any disagreement between the independent auditor and the management of the Company.
26. To advise the Board with respect to the Company’s policies and procedures regarding compliance with applicable laws and regulations and with the Company’s Code of Conduct.
27. To meet at least quarterly with the chief financial officer and the independent auditor in separate executive sessions.
28. To review with management all matters relating to tax and insurance.
29. To review and consider all transactions with related parties and/or affiliated transactions.
30. To review and approve or ratify, on at least a quarterly basis, all expense reports and reimbursements of the Chairman and/or Chief Executive Officer.
31. To establish procedures for: (i) the receipt, retention, processing, treatment and resolution of complaints regarding accounting, internal controls or auditing matters; and (ii) the confidential, anonymous submission by the Company’s employees of concerns regarding auditing or accounting matters.
32. To review and investigate any matters pertaining to the integrity of management, including conflicts of interest or adherence to standards of business conduct as required in the policies of the Company.
A-3
While the Audit Committee has the responsibilities and powers set forth in this Charter, it is not the duty of the Audit Committee to plan or conduct audits or to determine that the Company’s financial statements are complete and accurate and are in accordance with generally accepted accounting principles. This is the responsibility of management and the independent auditor. Nor is it the duty of the Audit Committee to conduct investigations, to resolve disagreements, if any, between management and the independent auditor or to assure compliance with laws and regulations and the Company’s Code of Conduct.
2. ACCOUNTABILITY
2.1 The minutes of all meetings of the Committee will be made available for review by any member of the Board on request to the Chairman of the Committee.
A-4
APPENDIX “B”
MERCER INTERNATIONAL INC.
GOVERNANCE AND NOMINATING COMMITTEE CHARTER
1. PURPOSE
The Governance and Nominating Committee shall act in an advisory capacity only to the Board (i.e. “review/recommend” matters to the Board) with respect to governance and nominating matters. In this regard, the purpose of the Committee is to:
(i) manage the corporate governance system for the Board;
(ii) assist the Board to fulfill its duty to meet the applicable legal, regulatory and (self-regulatory) business principles and ‘codes of best practice’ of corporate behavior and conduct;
(iii) assist in the creation of a corporate culture and environment of integrity and accountability;
(iv) in conjunction with the Lead Trustee, monitor the quality of the relationship between the Board and management of the Company;
(v) review management’s succession plans for senior management;
(vi) recommend to the Board nominees for appointment to the Board;
(vii) lead the Board’s annual review of the Chief Executive Officer’s performance; and
(viii) annually review and set the Board Forward Agenda.
2. COMPOSITION AND ORGANIZATION
2.1 Annually, following the Annual General Meeting of the Company, the Board shall elect from its members not less than three trustees to serve on the Committee. The members of the Committee shall meet the independence requirements of the applicable Nasdaq rules.
2.2 The Board shall appoint one of the trustees on the Committee as the Committee Chair.
2.3 Each member shall hold office until the close of the next Annual General Meeting of the Company or until the member resigns or is replaced, whichever first occurs.
2.4 The Committee shall meet as required but at least two times per year. Additional meetings may be held as deemed necessary by the Committee Chair or as requested by any two members.
2.5 The Vice-President, Finance and Chief Financial Officer shall act as management advisor to the Committee.
2.6 The Committee may invite such trustees, officers and employees of the Company or other advisors as it may see fit from time to time to attend meetings and assist in the discussion and consideration of the business of the Committee.
B-1
3. DUTIES AND RESPONSIBILITIES
3.1Governance
(i) Develop and monitor the Company’s overall approach to corporate governance issues and, subject to approval by the Board, implement and administer this process.
(ii) Advise the Board or any of the committees of the Board of any corporate governance issues which the Committee determines ought to be considered by the Board or any such committees.
(iii) Review with the Board, on a regular basis, but not less than annually, the terms of reference for the Board, each committee of the Board, the Chairman and the Chief Executive Officer.
(iv) Review with the Board, on a regular basis, the methods and processes by which the Board fulfils its duties and responsibilities, including without limitation:
(a) the size of the Board;
(b) the number and content of meetings;
(c) the annual schedule of issues to be presented to the Board at its meetings or those of its committees;
(d) material which is to be provided to the trustees generally and with respect to meetings of the Board or its committees;
(e) resources available to the trustees; and
(f) the communication process between the Board and management.
(v) Retain, review and, as necessary, authorize a committee or an individual trustee to engage separate independent counsel and/or advisors at the expense of the Company in appropriate circumstances.
(vi) �� Make recommendations to the Board regarding changes or revisions to the Board’s Corporate Governance Guidelines;
(vii) Evaluate and make recommendations to the Board concerning the appointment of trustees to the Committees and the selection of Board Committee chairs;
(viii) Annually evaluate and report to the Board on the performance and effectiveness of the Board;
(ix) Annually, in conjunction with the Chief Executive Officer, evaluate the performance of the Company’s management (other than the Chief Executive Officer). Conduct an annual review of succession planning and report its findings and recommendations to the Board;
(x) Evaluate and lead the Board’s annual review of the Chief Executive Officer’s performance; and
(xi) Annually review and evaluate its performance.
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3.2Nominations
(i) Determine the skills and qualifications required of trustees and to develop criteria to be considered in selecting potential candidates for Board membership.
(ii) Identify candidates for Board membership and annually, in consultation with the Chairman of the Board and the Chief Executive Officer, present to the Board a list of individuals recommended for election to the Board at the annual meeting of shareholders or to fill vacancies or new positions on the Board.
(iii) Before recommending an incumbent, replacement or additional trustee, review his or her qualifications, availability to serve, conflicts of interest and other relevant factors.
(iv) Consider any nominations for trustee candidates validly made by shareholders in accordance with applicable law, rules or regulations.
(v) Review, monitor and make recommendations regarding new trustee orientation and the ongoing development of existing Board members.
4. ACCOUNTABILITY
4.1 The Committee shall report to the Board of Trustees at its next regular meeting all deliberations and actions it has taken since the previous report.
4.2 The minutes of all meetings of the Committee will be made available for review by any member of the Board on request to the Chairman of the Committee.
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APPENDIX “C”
MERCER INTERNATIONAL INC.
The Plan was adopted by the Board of Trustees on April 27, 2004 and shall become effective upon approval by the Company’s shareholders as provided for in Section 16(a) hereof. The purpose of the Plan is to promote the long-term success of the Company and the creation of stockholder value by (a) encouraging Employees and Outside Trustees to focus on critical long-range objectives, (b) encouraging the attraction and retention of Employees and Outside Trustees with exceptional qualifications and (c) linking Employees and Outside Trustees directly to stockholder interests through increased stock ownership. The Plan seeks to achieve this purpose by providing for Awards in the form of restricted shares, options (which may constitute incentive stock options or nonstatutory stock options) and/or stock appreciation rights.
For purposes of subsection (d)(ii) above, the term “person” shall have the same meaning as when used in Sections 13(d) and 14(d) of the Exchange Act but shall exclude: (1) a trustee or other fiduciary holding securities
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under an employee benefit plan maintained by the Company or a Parent or Subsidiary; and (2) a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of the Stock.
Any other provision of this Section 2(d) notwithstanding, a transaction shall not constitute a Change in Control if its sole purpose is to change the state or jurisdiction of the Company’s incorporation, to convert the Company from a Massachusetts trust organized under the laws of the State of Washington to a company or corporate form or to create a holding company that will be owned in substantially the same proportions by the persons who held the Company’s securities immediately before such transaction.
In all cases, the determination of Fair Market Value by the Committee shall be conclusive and binding on all persons.
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corporation that attains the status of a Subsidiary on a date after the adoption of the Plan shall be considered a Subsidiary commencing as of such date.
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Subject to the requirements of applicable law, the Committee may designate persons other than members of the Committee to carry out its responsibilities and may prescribe such conditions and limitations as it may deem appropriate, except that the Committee may not delegate its authority with regard to the selection for participation of or the granting of Options or other rights under the Plan to persons subject to Section 16 of the Exchange Act. All decisions, interpretations and other actions of the Committee shall be final and binding on all Offerees, all Optionees, and all persons deriving their rights from an Offeree or Optionee. No member of the Committee shall be liable for any action that he has taken or has failed to take in good faith with respect to the Plan, any Option, or any right to acquire Shares under the Plan.
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ancestors and lineal descendants. Stock owned, directly or indirectly, by or for a corporation, partnership, estate or trust shall be deemed to be owned proportionately by or for its stockholders, partners or beneficiaries.
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Purchase Price, as applicable, for all Shares purchased; and (ii) the Fair Market Value of a Share on the date the Company receives written notice of exercise or purchase (the “Exercise Date”). For example, if an Optionee exercises an Option to purchase 10,000 Shares for an aggregate exercise price of $60,000, and the Fair Market Value of a Share on the Exercise Date is $10.00 the Optionee would receive 4,000 Shares in a Net Exercise.
exercise of SARs shall, in the aggregate, be equal to the amount by which the Fair Market Value (on the date of surrender) of the Shares subject to the SARs exceeds the Exercise Price.
Except as provided in this Section 10, a Participant shall have no rights by reason of any issue by the Company of stock of any class or securities convertible into stock of any class, any subdivision or consolidation of shares of stock of any class, the payment of any stock dividend or any other increase or decrease in the number of shares of stock of any class.
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other increase or decrease in the number of shares of stock of any class. Any issue by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number or Exercise Price of Shares subject to an Option. The grant of an Option pursuant to the Plan shall not affect in any way the right or power of the Company to make adjustments, reclassifications, reorganizations or changes of its capital or business structure, to merge or consolidate or to dissolve, liquidate, sell or transfer all or any part of its business or assets.
The Company may grant awards under other plans, programs or agreements. Such awards may be settled in the form of Stock issued under this Plan. Such Stock, if issued under this Plan, shall, when issued, reduce the number of Shares available under Section 5.
Shares shall not be issued under the Plan unless the issuance and delivery of such Shares complies with (or is exempt from) all applicable requirements of law, including (without limitation) the Securities Act of 1933, as amended, the rules and regulations promulgated thereunder, state securities laws and regulations and the regulations of any quotation system or stock exchange on which the Company’s securities may then be quoted or listed, and the Company has obtained the approval or favorable ruling from any governmental agency which the Company determines is necessary or advisable.
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No provision of the Plan, nor any right or Option granted under the Plan, shall be construed to give any person any right to become, to be treated as, or to remain an Employee. The Company and its Subsidiaries reserve the right to terminate any person’s Service at any time and for any reason, with or without notice.
To record the adoption of the Plan by the Board of Trustees on April 27, 2004, the Company has caused its authorized officer and/or trustee to execute the same.
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PROXY
MERCER INTERNATIONAL INC.
14900 Interurban Avenue South, Suite 2822840, 650 West Georgia Street
THIS PROXY IS SOLICITED ON BEHALF OF THE TRUSTEES
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1. | Election of |
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| o | WITHHOLD AUTHORITY to vote for below | o |
(INSTRUCTION: To withhold authority to vote for a nominee, strike a line through the nominee’s name in the list below.)
(Instruction: To withhold authority to vote for a nominee, strike a line through the nominee’s name in the list below.) |
Jimmy S.H. Lee | Guy W. Adams | |
Kenneth A. Shields | Eric Lauritzen | |
William D. McCartney | Graeme A. Witts |
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2. | Ratification of the Selection of Deloitte & |
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| In his discretion, the proxyholder is authorized to vote upon such other business as may properly come before the |
DATED: , 2006 | ||
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