Exhibit 2
[LOGO]
ROYAL GROUP TECHNOLOGIES LIMITED
NOTICE and MANAGEMENT
PROXY CIRCULAR
for the
Annual Meeting of Shareholders
February 20, 2003
-------------------------------
January 1, 2003
TABLE OF CONTENTS
Description Page
- ----------- ----
INVITATION TO SHAREHOLDERS .................................................... 1
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS ...................................... 2
SOLICITATION OF PROXIES ....................................................... 3
AVAILABILITY OF DOCUMENTS ..................................................... 3
APPOINTMENT AND REVOCATION OF PROXIES ......................................... 3
NON-REGISTERED HOLDERS ........................................................ 4
VOTING OF SHARES REPRESENTED BY MANAGEMENT PROXIES ............................ 4
EXERCISE OF DISCRETION BY PROXIES ............................................. 5
RECORD DATE ................................................................... 5
AUTHORIZED CAPITAL AND VOTING ................................................. 5
OWNERSHIP AND TRANSFER RESTRICTIONS ........................................... 5
TAKE-OVER PROTECTION .......................................................... 5
PRINCIPAL HOLDERS OF VOTING SECURITIES ........................................ 6
BUSINESS OF THE MEETING ....................................................... 7
Presentation of Management Report, Financial Statement and Auditors' Report 7
Election of Directors .................................................... 7
Appointment and Compensation of Auditors ................................. 9
EXECUTIVE COMPENSATION ...................................................... 9
Summary Compensation ...................................................... 9
Stock Option Plan ......................................................... 10
Options Granted ........................................................... 11
Options Exercised ......................................................... 11
Composition of the Compensation Committee ................................. 12
Report on Executive Compensation ........................................... 12
Compensation of Directors .................................................. 13
Performance Graph .......................................................... 14
INDEBTEDNESS OF DIRECTORS, EXECUTIVE OFFICERS AND SENIOR OFFICERS ............. 15
STATEMENT OF CORPORATE GOVERNANCE PRACTICES ................................... 15
Mandate of the Board ....................................................... 15
Board Composition .......................................................... 16
Unrelated Directors ........................................................ 17
Nomination/Corporate Governance Committee and Assessment of Directors ...... 17
Board Effectiveness ........................................................ 17
Education .................................................................. 17
Board Size ................................................................. 17
Directors' Compensation .................................................... 18
Board Committees ........................................................... 18
Governance Issues .......................................................... 18
Position Descriptions ...................................................... 18
Independence from Management ............................................... 18
Audit Committee ............................................................ 19
Engagement of Outside Advisors ............................................. 19
ROYAL'S ADDITIONAL CORPORATE GOVERNANCE PRACTICES ............................. 19
Board Authority and Delegation ............................................. 19
Investor Relations ......................................................... 19
DIRECTORS' AND OFFICERS' LIABILITY INSURANCE .................................. 20
INTEREST OF INSIDERS IN MATERIAL TRANSACTIONS ................................. 20
RECEIPT OF SHAREHOLDER PROPOSAL FOR NEXT ANNUAL MEETING ....................... 20
DIRECTORS' APPROVAL ........................................................... 20
ROYAL GROUP TECHNOLOGIES LIMITED
INVITATION TO SHAREHOLDERS
Dear Shareholder:
On behalf of the Board of Directors,management and employees,we invite
you to attend Royal Group Technologies Limited's Annual Meeting of shareholders
on Thursday, February 20, 2003.
The items of business to be considered at this Meeting are described in
the Notice of Annual Meeting and Management Proxy Circular. No matter how many
shares you hold, your participation at shareholders' meetings is very important.
If you are unable to attend the Meeting in person, we encourage you to vote by
following the voting instructions included on the proxy form.
During the Meeting, we will review Royal's business during fiscal 2002
and our plans for the future. You will also have an opportunity to ask questions
and to meet your Directors and executives.
We look forward to seeing you at the Meeting.
Signed, Signed,
[SIGNATURE] [SIGNATURE]
Vic De Zen Douglas Dunsmuir
Chairman of the President
Board of Directors and January 1, 2003
Chief Executive Officer
January 1, 2003
ROYAL GROUP TECHNOLOGIES LIMITED
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders (the "Meeting")
of ROYAL GROUP TECHNOLOGIES LIMITED ("Royal Group") will be held at the Hilton
Hotel, 145 Richmond Street West, Toronto, Ontario, Canada, on Thursday, February
20, 2003 at 10:00 a.m., local time, for the purposes of:
(1) receiving Management's report for the fiscal year ended September
30,2002,and the comparative Consolidated Financial Statements for the
fiscal year ended September 30,2002,together with the Auditors' Report
thereon;
(2) electing Directors;
(3) appointing auditors and authorizing the Directors to fix their
remuneration; and
(4) transacting such other business as may properly be brought before the
Meeting, or any adjournment thereof.
A COPY OF THE MANAGEMENT PROXY CIRCULAR, ROYAL GROUP'S ANNUAL REPORT TO
SHAREHOLDERS FOR THE YEAR ENDED SEPTEMBER 30, 2002 AND A FORM OF PROXY ACCOMPANY
THIS NOTICE. IF YOU DO NOT PLAN TO ATTEND THE MEETING, KINDLY SIGN, DATE, AND
RETURN THE FORM OF PROXY ACCOMPANYING THIS NOTICE. PROXIES MUST BE DEPOSITED
WITH COMPUTERSHARE TRUST COMPANY OF CANADA AS TRANSFER AGENT FOR ROYAL GROUP AT
100 UNIVERSITY AVENUE, 11TH FLOOR,TORONTO, ONTARIO M5J 2Y1 IN THE ENCLOSED
ENVELOPE OR BY FACSIMILE TO (416) 981-9800 BY 10:00 A.M. ON FEBRUARY 19, 2003,
OR, IF THE MEETING IS ADJOURNED, NOT LATER THAN 24 HOURS (EXCLUDING SATURDAYS,
SUNDAYS AND STATUTORY HOLIDAYS) PRECEDING THE TIME OF SUCH ADJOURNED MEETING.
By Order of the Board of Directors,
Signed,
[SIGNATURE]
Douglas Dunsmuir Vaughan, Ontario
President January 1, 2003
2
ROYAL GROUP TECHNOLOGIES LIMITED
MANAGEMENT PROXY CIRCULAR
SOLICITATION OF PROXIES
THIS MANAGEMENT PROXY CIRCULAR IS FURNISHED IN CONNECTION WITH THE
SOLICITATION OF PROXIES BY THE MANAGEMENT OF ROYAL GROUP TECHNOLOGIES LIMITED
("Royal Group") to be used at the annual meeting of shareholders (the "Meeting")
of Royal Group to be held at the Hilton Hotel, 145 Richmond Street
West,Toronto,Ontario,Canada,on Thursday,February 20,2003 at 10:00 a.m.,local
time,and at any postponement or adjournment thereof, for the purposes set forth
in the accompanying notice of meeting.
This solicitation is being made primarily by mail, but may also be made
by telephone, e-mail, facsimile or in person by the Directors, officers or
employees of Royal Group at nominal cost. The cost of solicitation will be borne
by Royal Group.
AVAILABILITY OF DOCUMENTS
COPIES OF THE FOLLOWING DOCUMENTS ARE AVAILABLE ON WRITTEN REQUEST TO
ROYAL GROUP'S VICE-PRESIDENT OF CORPORATE COMMUNICATIONS BY MAIL AT 1 ROYAL GATE
BOULEVARD, VAUGHAN, ONTARIO, L4L 8Z7 OR BY FACSIMILE TO (905) 264-0702 OR BY
E-MAIL TO `INFO@ROYALGROUPTECH.COM': THE 2002 ANNUAL INFORMATION FORM (WHICH
FORM IS FILED WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION AS A
FORM 40-F), THE 2002 ANNUAL REPORT TO SHAREHOLDERS CONTAINING THE COMPARATIVE
CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED SEPTEMBER 30, 2002 TOGETHER
WITH THE AUDITORS'REPORT THEREON AND MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS,THE INTERIM FINANCIAL STATEMENTS
FOR PERIODS SUBSEQUENT TO SEPTEMBER 30,2002, AND THIS MANAGEMENT PROXY CIRCULAR.
CORPORATE INFORMATION IS ALSO AVAILABLE ON ROYAL GROUP'S WEB-SITE IN THE
INVESTOR RELATIONS SECTION AT WWW.ROYALGROUPTECH.COM.
ADDITIONAL INFORMATION RELATING TO ROYAL GROUP MAY BE FOUND ON SEDAR AT
WWW.SEDAR.COM.
APPOINTMENT AND REVOCATION OF PROXIES
A form of proxy is enclosed and, whether or not you now plan to attend
the Meeting, you are asked to sign,date and return the proxy in the provided
envelope. Proxies to be exercised at the Meeting must be deposited with
Computershare Trust Company of Canada (the "Transfer Agent") at 100 University
Avenue,11th Floor,Toronto,Ontario M5J 2Y1 in the enclosed envelope or by
facsimile to (416) 981-9800 by 10:00 a.m. on February 19, 2003, or, if the
Meeting is adjourned not later than 24 hours (excluding Saturdays, Sundays and
statutory holidays) preceding the time of the adjourned meeting.
The persons named in the enclosed form of proxy are Directors of Royal
Group. IF YOU WISH TO APPOINT SOME OTHER PERSON OR COMPANY TO REPRESENT YOU AT
THE MEETING, YOU MAY DO SO BY INSERTING THE NAME OF YOUR APPOINTEE, WHO NEED NOT
BE A SHAREHOLDER, IN THE BLANK SPACE PROVIDED.
A shareholder may revoke such shareholder's proxy at any time by
instrument in writing executed by the shareholder or by such shareholder's
attorney authorized in writing,or,if the shareholder is a body corporate, by an
officer or attorney thereof duly authorized and deposited with the Corporate
Secretary of Royal Group care of the Transfer Agent or at the registered office
of Royal Group,1 Royal Gate Boulevard, Vaughan, Ontario L4L 8Z7, on February 19,
2003 or with the Chairman of the Meeting on the day of the Meeting or any
adjournment thereof (but prior to the use of the proxy at the Meeting) or in any
other manner permitted by law.
3
NON-REGISTERED HOLDERS
In many cases,Subordinate Voting Shares of the Corporation beneficially
owned by a holder (a "NonRegistered Holder") are registered either:
(a) in the name of an intermediary (an "Intermediary") that the
Non-Registered Holder deals with in respect of the shares, such as,
among others, banks, trust companies, securities dealers or brokers
and trustees or administrators of self-administered RRSPs, RRIFs,
RESPs and similar plans; or
(b) in the name of a clearing agency (such as The Canadian Depository for
Securities Limited) of which the Intermediary is a participant.
In accordance with the requirements of National Instrument 54-101, the
Corporation has distributed copies of the notice of meeting, this Circular, the
form of proxy for Subordinate Voting Share holders and the Corporation's annual
report containing the 2002 Financial Statements (collectively,the "meeting
materials") to the clearing agencies and Intermediaries for onward distribution
to Non-Registered Holders.
Intermediaries are required to forward meeting materials to Non-Registered
Holders unless a NonRegistered Holder has waived the right to receive them.
Typically, Intermediaries will use a service company (such as ADP Independent
Investor Communications Corporation) to forward the meeting materials to
Non-Registered Holders. Generally, Non-Registered Holders of Subordinate Voting
Shares who have not waived the right to receive meeting materials will either:
(a) be given a proxy which has already been signed by the Intermediary
(typically by a facsimile, stamped signature) which is restricted as
to the number of shares beneficially owned by the NonRegistered Holder
but which is otherwise uncompleted. This form of proxy need not be
signed by the Non-Registered Holder. In this case,the Non-Registered
Holder who wishes to submit a proxy should otherwise properly complete
the form of proxy and deposit it with Computershare Trust Company of
Canada at 100 University Avenue, 11th Floor, Toronto, Ontario, M5J
2Y1, Canada, as described above; or
(b) more typically, be given a voting instruction form which must be
completed and signed by the Non-Registered Holder of Subordinate
Voting Shares in accordance with the directions on the voting
instruction form (which may in some cases permit the completion of the
voting instruction form by telephone).
The purpose of these procedures is to permit Non-Registered Holders to
direct the voting of the shares they beneficially own. Should a Non-Registered
Holder of Subordinate Voting Shares who receives either a proxy or a voting
instruction form wish to attend and vote at the Meeting in person (or have
another person attend and vote on behalf of the Non-Registered Holder),the
Non-Registered Holder should strike out the names of the persons named in the
proxy and insert the Non-Registered Holder's (or such other person's) name in
the blank space provided or, in the case of a voting instruction form, follow
the corresponding instructions on the form. IN EITHER CASE, NON-REGISTERED
HOLDERS OF SUBORDINATE VOTING SHARES SHOULD CAREFULLY FOLLOW THE INSTRUCTIONS OF
THEIR INTERMEDIARIES AND THEIR SERVICE COMPANIES.
VOTING OF SHARES REPRESENTED BY MANAGEMENT PROXIES
The enclosed form of proxy, when signed by the shareholder, will constitute
a direction to the nominee. The nominee will,on a show of hands or any ballot
that may be called for,vote or withhold from voting the shares in respect of
which they are appointed in accordance with the direction of the shareholder
appointing them. IF NO CHOICE IS SPECIFIED BY THE SHAREHOLDER, THE SHARES WILL
BE VOTED: (1) FOR THE ELECTION OF THE MANAGEMENT NOMINEES FOR THE POSITION OF
DIRECTOR; AND (2) FOR THE APPOINTMENT OF AUDITORS.
4
EXERCISE OF DISCRETION BY PROXIES
THE ENCLOSED FORM OF PROXY CONFERS DISCRETIONARY AUTHORITY UPON THE PERSONS
NAMED IN THE PROXY WITH RESPECT TO AMENDMENTS OR VARIATIONS TO MATTERS
IDENTIFIED IN THE NOTICE OF THE MEETING AND TO OTHER MATTERS WHICH MAY PROPERLY
COME BEFORE THE MEETING OR ANY ADJOURNMENT THEREOF. As at the date of this
Management Proxy Circular, management knows of no such amendment, variation or
other matter to come before the Meeting. If any such matters should properly
come before the Meeting, the persons named in the form of proxy will vote on
those matters in accordance with their best judgement.
RECORD DATE
The date for determining shareholders entitled to receive notice of the
Meeting is January 1,2003 (the "Record Date").
AUTHORIZED CAPITAL AND VOTING
The authorized capital of Royal Group consists of an unlimited number of
Multiple Voting Shares, an unlimited number of Subordinate Voting Shares and an
unlimited number of First Preferred Shares and Second Preferred Shares, issuable
in series. As of January 1, 2003, there were issued and outstanding 15,935,444
Multiple Voting Shares and 77,285,173 Subordinate Voting Shares entitled to vote
at the Meeting. No First Preferred Shares or Second Preferred Shares have been
issued. Each holder of Multiple Voting Shares of record on the Record Date will
be entitled to 20 votes for each Multiple Voting Share held and each holder of
Subordinate Voting Shares of record on the Record Date will be entitled to 1
vote for each Subordinate Voting Share held on all matters proposed to come
before the Meeting. There is no other class of outstanding voting securities
entitled to be voted at the Meeting. The holders of Multiple Voting Shares may
be able to approve matters voted at the Meeting without the affirmative vote of
holders of Subordinate Voting Shares.
OWNERSHIP AND TRANSFER RESTRICTIONS
Only holders of record of Multiple Voting Shares or Subordinate Voting
Shares at the close of business on the Record Date are entitled to notice of and
to attend the Meeting, or any adjournment thereof, and to vote thereat. A list
of shareholders who are holders of record on the Record Date will be available
for inspection on and after January 1, 2003, during usual business hours at the
Transfer Agent's principal Toronto office and at the Meeting.
TAKE-OVER PROTECTION
A Stock Control Agreement among the holders of the Multiple Voting Shares,
Royal Group and Computershare Trust Company of Canada,as Trustee for the holders
from time to time of the Subordinate Voting Shares, provides certain take-over
bid protections to the holders of the Subordinate Voting Shares and imposes
other restrictions on the transfer of Multiple Voting Shares.
The Stock Control Agreement provides that if the Trustee becomes aware of
the transfer of any Multiple Voting Shares to a purchaser who has not made an
identical offer in all material respects to purchase all of the Subordinate
Voting Shares and all of the Multiple Voting Shares,then the Trustee will cause
the Multiple Voting Shares so transferred to be converted into Subordinate
Voting Shares in accordance with the Articles of Royal Group unless such
transfer is a "Permitted Transfer" as described below.
5
Permitted Transfers include a transfer of Multiple Voting Shares to a
"Permitted Holder". Permitted Holders are Vic De Zen,Chairman of the Board and
Chief Executive Officer of Royal Group,members of Mr. De Zen's immediate family,
entities which are directly or indirectly wholly-owned by Mr. De Zen or his
immediate family, and trusts all the beneficiaries of which are any of the
foregoing. The granting of a security interest over Multiple Voting Shares to an
arm's length Canadian financial institution in connection with bona fide
obligations of the holder of such shares or of Royal Group is also a Permitted
Transfer, provided however that if the security granted is to be realized upon,
such Multiple Voting Shares will be first converted into an equal number of
Subordinate Voting Shares.
No transfer of Multiple Voting Shares may be effected without the
transferee of such shares (including Canadian financial institutions that are
Permitted Holders) agreeing to be bound by the terms of the Stock Control
Agreement.
A Permitted Holder of Multiple Voting Shares may at any time convert their
shares to Subordinate Voting Shares provided the prior approval of Mr. De Zen or
his family representative is obtained. Such shares so converted to Subordinate
Voting Shares will thereafter no longer be subject to the terms of the Stock
Control Agreement.
If at any time the Trustee determines that a holder of Multiple Voting
Shares has ceased to be a Permitted Holder (a "Non-Permitted Holder"), such
Multiple Voting Shares will either be converted to Subordinate Voting Shares or
the Non-Permitted Holder will be required to sell the Multiple Voting Shares
held by it to a Permitted Holder designated by Mr. De Zen or his family
representative at a price equal to the fair value of such shares on the date the
sale is completed. Under the Stock Control Agreement,the fair value per share is
determined to be the simple average of the closing prices of the Subordinate
Voting Shares on the published market in Canada on which the greatest volume of
trading in such shares occurred over the 20 trading days preceding the date of
the sale or, in circumstances where the Subordinate Voting Shares have not
traded at least 10 days during such period,the simple average of the closing
prices,where applicable, and the closing bid and asked prices for the days on
which no trading occurred.
The Stock Control Agreement may be amended without the approval of the
holders of Subordinate Voting Shares only to make corrections or rectifications,
to facilitate the provisions thereof or to comply with law or stock exchange
rules provided that in each case the Trustee is of the opinion that the rights
of the holders of Subordinate Voting Shares are not prejudiced, in any material
respect, by such amendment. Otherwise, the Stock Control Agreement may not be
amended without the approval of at least two-thirds of the votes cast by holders
of the Subordinate Voting Shares at a meeting called to consider the amendment
or the written consent of holders of at least two-thirds of the Subordinate
Voting Shares.
PRINCIPAL HOLDERS OF VOTING SECURITIES
As of the date hereof, to the knowledge of the Directors and officers of
Royal Group, the only parties who beneficially own,directly or indirectly,or
exercise control or direction over shares carrying more than 10% of the voting
rights attached to any class of shares of Royal Group are:
% OF ALL
NAME TYPE OF SHARES NUMBER OF SHARES % OF CLASS VOTING RIGHTS(1)
- ---- -------------- ---------------- ---------- ----------------
Vic De Zen Multiple Voting Shares 15,935,444 100% 80.5%
Subordinate Voting Shares 6,294 0.01% 0.01%
Domenic D'Amico Subordinate Voting Shares 9,383,346 12.14% 2.4%
</Table>
(1) Excludes shares issuable on exercise granted under Royal Group's stock
option plan.
6
Mr. Vic De Zen, a Director, the Chairman of the Board and Chief Executive
Officer of Royal Group exercises control or direction over 100% of the Multiple
Voting Shares of Royal Group and thereby exercises control over Royal Group.
BUSINESS OF THE MEETING
1. PRESENTATION OF MANAGEMENT REPORT, FINANCIAL STATEMENT AND AUDITORS' REPORT
Management's report for the fiscal year ended September 30, 2002 and Royal
Group's comparative Consolidated Financial Statements for the fiscal year ended
September 30,2002,together with the Auditors' Report thereon, all of which will
be placed before the shareholders at the Meeting, are contained in Royal Group's
2002 Annual Report to Shareholders which accompanies this Management Proxy
Circular.
2. ELECTION OF DIRECTORS
Royal Group's Articles provide that the Board of Directors must consist of
a minimum of three and a maximum of twenty-five Directors. Royal Group's By-Law
No. 1 provides that the number of Directors to be elected at the Meeting shall
be the number then in office unless the directors or the shareholders otherwise
determine. Currently Royal Group has nine Directors. During the 2002 fiscal
year, nine individuals served as Directors of Royal Group.
Management proposes the eight persons named below as nominees for election
as Directors, each of whom will hold office until the next succeeding annual
meeting of shareholders of Royal Group or until his successor is elected or
appointed, or he resigns, or a vacancy results from his death, dismissal or
otherwise. The number of Directors is being reduced from nine to eight so as to
balance the number of "inside" and "outside" Directors. Royal Group intends to
increase the number of Directors during its current fiscal year with the
addition of "outside" Directors so as to have a majority of "outside" Directors
by the end of fiscal 2003. UNLESS OTHERWISE INSTRUCTED BY A SHAREHOLDER,THE
PERSONS NAMED IN THE ACCOMPANYING PROXY FORM WILL VOTE FOR THE ELECTION OF THESE
NOMINEES. Management has no reason to believe that any of these nominees will be
unable to exercise his function as a Director. As required by law, the Board of
Directors has an Audit Committee, the members of which are indicated below. The
Board of Directors does not have an Executive Committee.
The following table indicates the names of the proposed nominees, the
nominees' principal occupation, business or employment and their positions and
offices with Royal Group or its significant affiliates now held by them, if any,
the period during which they have served as Directors, the approximate number of
shares beneficially owned, directly or indirectly, or over which control or
direction is exercised, by them, as of the date hereof. All of the nominees
currently serve as directors of Royal Group.
7
SHARES OWNED OR OVER WHICH
NOMINEES FOR ELECTION AS DIRECTOR PRINCIPAL OCCUPATION(2) CONTROL OR DIRECTION IS EXERCISED
- --------------------------------- ----------------------- ----------------------------------
Vic De Zen Chief Executive Officer 15,935,444 Multiple Voting(3) Shares
Director since November 25, 1994 6,294 Subordinate Voting Shares
Resides in Vaughan, Ontario
Douglas Dunsmuir President 1,158,757 Subordinate Voting Shares
Director since November 25, 1994
Resides in Toronto, Ontario
Gwain Cornish Senior Vice-President 38,582 Subordinate Voting Shares
Director since November 25, 1994
Resides in Campbellville, Ontario
Ron Goegan Chief Financial Officer 10,000 Subordinate Voting Shares
Director since December 14, 2001
Resides in Sharon, Ontario
Gregory Sorbara(1) M.P.P. Vaughan - King - Aurora 9,121 Subordinate Voting Shares
Director since November 25, 1994 (Liberal)
Resides in Richmond Hill, Ontario
Ronald Slaght(1) Partner, Lenczner Slaght Royce 26,843 Subordinate Voting Shares
Director since November 25, 1994 Smith Griffin (Barristers)
Resides in Toronto, Ontario
Ralph Brehn(1) Director and retired former 5,938 Subordinate Voting Shares
Director since May 2, 1995 President of Hunter Douglas
Resides in Ste. Agathe Nord, Quebec Canada Ltd.(Building Products
Company)
Irvine Hollis Retired former President of Durace 1,246 Subordinate Voting Shares
Director since May 2, 1995 Inc. (Consumer Products Company)
Resides in Chatsworth, Ontario Presently Management Consultant,
I Hollis Management Consultants In
(Consulting to Start-up Businesses
(1) Member of the Audit Committee
(2) None of the nominees serves as a director or a member of a Board Committee
of another issuer
(3) Mr. De Zen exercises control or direction over 100% of the Multiple Voting
Shares of Royal Group and thereby exercises control over Royal Group
IF ANY OF THE ABOVE NOMINEES IS FOR ANY REASON UNAVAILABLE TO SERVE AS A
DIRECTOR, PROXIES IN FAVOUR OF MANAGEMENT WILL BE VOTED FOR ANOTHER NOMINEE IN
THEIR DISCRETION UNLESS THE SHAREHOLDER HAS SPECIFIED ON THE PROXY THAT SUCH
SHAREHOLDER'S SHARES ARE TO BE WITHHELD FROM VOTING ON THE ELECTION OF
DIRECTORS.
The Board believes that ownership of Royal Group shares by all directors is
desirable in order to align their interests with those of Royal Group
Shareholders. Directors are required to acquire Subordinate Voting Shares having
a value equal to the annual $10,000 retainer paid to each "outside" Director
within one year from the date of their appointment as a Director.
8
3. APPOINTMENT AND COMPENSATION OF AUDITORS
The Directors and executive management propose that the firm of KPMG LLP be
appointed as auditors for the 2003 fiscal year and that their remuneration be
fixed by the Directors for such fiscal year.
KPMG LLP have acted as auditors of Royal Group and its predecessors since
1987 and will continue to hold office until the next annual meeting of
shareholders. Representatives of KPMG LLP will be present at the Meeting with an
opportunity to make a statement if they so desire and to respond to appropriate
questions.
In order to be effective, the resolution appointing KPMG LLP as auditors
and authorizing the Directors to fix their remuneration,must receive the
affirmative vote of a majority of votes cast by those shareholders in person and
represented by proxy.
UNLESS OTHERWISE INSTRUCTED BY A SHAREHOLDER, THE PERSONS NAMED IN THE
ACCOMPANYING PROXY FORM WILL VOTE FOR THE APPOINTMENT OF KPMG LLP, SUITE 3300,
COMMERCE COURT WEST, TORONTO, ONTARIO, CANADA, M5L 1B2, AS AUDITORS OF ROYAL
GROUP.
For fiscal 2002, fees charged by KPMG LLP for audit and related services to
the Royal Group of Companies were $558,000. Additional fees for tax and public
offering opinion services amounted to $1,045,000. Total fees for fiscal 2002
were $1,603,000. No other services were provided to the Royal Group of Companies
by KPMG LLP.
Additional services include tax-related compliance and related matters as
well as assignments pertaining to regulatory filings, accounting matters and the
issuance of securities. The Audit Committee has considered whether the magnitude
and nature of these services is compatible with maintaining the independence of
the external auditors and is satisfied that they are. All services provided by
KPMG LLP require the approval of the Audit Committee.
EXECUTIVE COMPENSATION
The 2002 compensation of senior executives was determined by the Chief
Executive Officer and approved by the Board of Directors. Royal Group's policy
is to provide a compensation package that will attract and retain qualified and
experienced executives.
SUMMARY COMPENSATION
The following table, presented in accordance with the form requirements
under the Securities Act (Ontario), sets forth all compensation paid, for the
years ended September 30, 2002, 2001 and 2000, in respect of the individuals who
were at September 30, 2002 the Chief Executive Officer, the four most highly
compensated executive officers of Royal Group and Gary Brown, the former
Executive Vice-President, Chief Financial Officer and Director of Royal Group,
who resigned during fiscal 2002 (the "Named Executive Officers").
9
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG-TERM
------------------------------------------ COMPENSATION
NAME AND FISCAL SALARY BONUS OTHER ANNUAL SECURITIES(4) UNDER ALL OTHER
PRINCIPAL POSITION YEAR COMPENSATION(3) OPTIONS GRANTED COMPENSATION
(NUMBER)
- ------------------ ------ -------- ---------- --------------- -------------------- -------------
Vic De Zen 2002 $500,000 $5,629,548 $12,000 320,000 $0
Chief Executive Officer 2001 $500,000 $2,225,000 $12,000 320,000 $0
2000 $500,000 $2,501,000 $12,000 320,000 $0
Douglas Dunsmuir 2002 $358,000 $3,221,820 $12,000 200,000 $0
President 2001 $300,000 $1,340,000 $12,000 0 $0
2000 $300,000 $1,663,500 $12,000 0 $0
Gwain Cornish 2002 $280,000 $922,728 $12,000 0 $0
Senior Vice-President 2001 $280,000 $720,000 $12,000 50,000 $0
2000 $280,000 $710,000 $12,000 0 $0
Ron Goegan 2002 $204,000 $487,728 $12,000 60,000 $0
Chief Financial Officer 2001 $126,000 $117,000 $0 0 $0
2000 $120,000 $58,000 $0 0 $0
Lu Galasso 2002 $204,000 $487,728 $12,000 60,000 $0
Vice-President, 2001 $126,000 $117,000 $0 0 $0
Director of Taxation 2000 $120,000 $58,000 $0 0 $0
Gary Brown(1)(2) 2002 $40,000 $150,000 $2,000 0 $1,200,000(2)
Former Executive 2001 $300,000 $1,330,000 $12,000 0 $0
Vice-President,Chief 2000 $300,000 $1,633,500 $12,000 0 $0
Financial Officer
(1) Resigned as an officer and employee November 23, 2001. Resigned as a
Director effective December 1, 2001.
(2) Mr. Brown was paid $1,200,000 in consulting fees upon his resignation for
the continued availability of his consulting services until November, 2003.
Had Mr. Brown worked the entire fiscal year, his annual salary and car
allowance would have been $300,000 and $12,000 respectively. His bonus
would have been discretionary.
(3) Other Annual Compensation consists of a car allowance.
(4) The securities underlying the options granted are Subordinate Voting Shares
of Royal Group.
STOCK OPTION PLAN
Prior to Royal Group's initial public offering in November, 1994, the Board
of Directors adopted Royal Group's 1994 Stock Option Plan (the "Plan") to
motivate Royal Group's management,officers and employees and to further align
their interests with those of its public shareholders. The most recent
amendments to the Plan were approved by Royal Group's shareholders at the
Shareholders Meeting held on February 12, 1998. Currently under the Plan:(i) the
maximum number of Subordinate Voting Shares which are currently available for
issuance is limited to 8,061,039 as at September 30, 2002 (with the total number
of Subordinate Voting Shares having been authorized for issuance being
15,850,000) (ii) the aggregate number of Subordinate Voting Shares authorized
for issuance to any one person within a one-year period is limited to 5% of the
outstanding Subordinate Voting Shares,(iii) the number of Subordinate Voting
Shares reserved for issuance or issued within one year to an insider shall not
exceed 10% of the outstanding Subordinate Voting Shares, and (iv) each option
must have a term not exceeding nine years. The exercise price of options granted
under the Plan is the closing market price the day prior to the date the option
is granted on (i) The Toronto Stock Exchange generally, or (ii) The New York
Stock Exchange in the case of U.S. resident optionholders. Generally, 50% of the
options awarded pursuant to a specific grant become exercisable at any time
after the third anniversary of the
10
date of grant and the remaining 50% of such options become exercisable at any
time after the sixth anniversary of the date of grant. The Board of Directors
may provide financial assistance to an optionholder to enable such holder to
exercise some or all of such holder's options. In 2002, no such assistance was
provided. If the optionholder has resigned or has been terminated for just
cause,all unexercised options previously granted to such optionholder are
cancelled. In any other circumstance, the optionholder retains the right to
exercise all options granted to such holder in accordance with their terms.
(A) OPTIONS GRANTED
The following table shows the options granted under the Plan to the Named
Executive Officers of Royal Group for the financial year ended September 30,
2002.
OPTION GRANTS DURING THE FINANCIAL YEAR ENDED SEPTEMBER 30, 2002
NAME SECURITIES(1) % OF ALL EXERCISE MARKET VALUE DATE OF GRANT/
UNDER OPTIONS PRICE OF SECURITIES EXPIRATION DATE
OPTIONS GRANTED TO ($/SECURITY) UNDERLYING
GRANTED EMPLOYEES OPTIONS
(NUMBER) IN FINANCIAL ON THE
YEAR 2,216,029 DATE OF GRANT
OPTIONS GRANTED) ($/SECURITY)
- ----------------- ------------- ---------------- ----------- -------------- -----------------
Vic De Zen(2) 320,000(2) 14.4 $25.00 $25.00 December 1,2001/
November 30,2010
Douglas(3) 200,000 9.02 $26.00 $26.00 Dec. 12,2001
Dunsmuir Dec. 11,2010
Gwain(3) NIL N/A N/A N/A N/A
Cornish
Ron Goegan(3) 60,000 2.7 $26.00 $26.00 Dec. 12,2001
Dec. 11,2010
Lu Galasso(3) 60,000 2.7 $26.00 $26.00 Dec. 12,2001
Dec. 11,2010
Gary Brown(3) NIL N/A N/A N/A N/A
(1) The securities underlying these options granted are Subordinate Voting
Shares of Royal Group.
(2) Options granted to Vic De Zen are exercisable immediately.
(3) Option granted to these individuals are exercisable as to one-half after
the third anniversary of the date of grant and the remainder after the
sixth anniversary of the date of grant.
(B) OPTIONS EXERCISED
The following table sets forth each exercise of options during the
financial year ended September 30, 2002 and the value of the unexercised options
to purchase Subordinate Voting Shares of Royal Group held by the Named Executive
Officers.
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AGGREGATED OPTION EXERCISES DURING THE FINANCIAL YEAR ENDED
SEPTEMBER 30, 2002 AND FINANCIAL YEAR END OPTION VALUES
NAME SECURITIES(1) AGGREGATE UNEXERCISED OPTIONS AT VALUE OF UNEXERCISED
ACQUIRED VALUE SEPTEMBER 30,2002 IN-THE-MONEY OPTIONS
ON EXERCISE REALIZED (NUMBER) AT SEPTEMBER 30,2002(2)
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------- ------------ ---------- ----------- ------------- ----------- -------------
Vic De Zen NIL NIL 1,360,000 NIL 0 NIL
Douglas Dunsmuir 104,200 $2,248,077 64,354 300,000 $157,889 $0
Gwain Cornish NIL NIL 76,777 95,000 $265,139 $0
Ron Goegan NIL NIL 35,833 80,000 $122,381 $0
Lu Galasso NIL NIL 35,833 80,000 $122,381 $0
Gary Brown NIL NIL 165,000 0 $568,250 NIL
(1) The securities underlying these options granted are Subordinate Voting
Shares of Royal Group
(2) The closing price of Royal Group's Subordinate Voting Shares on The Toronto
Stock Exchange on September 30, 2002 was $13.70.
COMPOSITION OF THE COMPENSATION COMMITTEE
In 2002 compensation for senior executives and Directors was reviewed and
approved directly by the Board as a whole. As set out on page 8 of this
circular, four members of the Board are also officers and employees of Royal
Group. In addition, another Director, Mario Cadorette, was a senior officer and
employee of one of Royal Group's subsidiaries. The Board believes that its small
size and its open and effective dialogue obviates the need to create a
Compensation Committee.
None of the Directors (including the four current Named Executive Officers
who are also Directors) is a director or a member of any Board or Board
Committee of another issuer. While a senior officer and director of Royal Group,
Mr. Brown was not a director or a member of any Board Committee of another
issuer.
REPORT ON EXECUTIVE COMPENSATION
The compensation of Royal Group's senior executives, including that of its
Chief Executive Officer, continues to follow the pattern which was set at the
time Royal Group went public in November,1994. The compensation consists of a
base salary, a semi-annual bonus (which includes an EBITDA based bonus) and
stock options, all of which are approved annually by the Board. The base
salaries are approved by the Board and are set to reflect the responsibilities
of the senior executive office held. The primary growth in compensation is
linked to Royal Group's corporate performance through the use of bonuses and
stock option grants. Current option allotments are taken into account when
determining whether and how many new options grants are made. Stock option
grants are the only form of long-term compensation granted to Royal Group's
senior executives. With the emphasis of the compensation policy being on the
bonus and the stock options, executive compensation is in part tied to the
performance of Royal Group. With a fixed base salary, fixed car allowance,
annual option allotment of 320,000 options, normally Mr. De Zen's only variable
compensation component is the amount which he determines in his sole discretion
(without any reference or weighting to specific factors or criteria) subject to
Board ratification to award himself as a bonus from the discretionary bonus pool
(which includes the EBITDA bonus pool) that he makes available to Royal Group's
executive management.
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The Board of Directors has adopted an employee bonus plan for certain of
Royal Group's employees whereby 4% of the EBITDA (earnings before interest,
taxes, depreciation and amortization) of each of Royal Group's operating
units are distributed annually as to 2% to senior managers and key operating
personnel of such operating unit and as to 2% to executive management of Royal
Group. The bonus plan does not include financing and capital expenditure
decisions. Should EBITDA for an operating unit be $0 or less, then there is no
EBITDA bonus allocated to such operating unit for its senior management and key
operating personnel. In addition, the bonus pool available to Royal Group's
executive management is reduced by 2% of the negative EBITDA of any operating
unit. The 4% is calculated on an annual basis and is independent of prior years'
performances. The bonus allocation to executive management in fiscal 2002 from
the EBITDA bonus pool was determined by Vic De Zen based on his evaluation of
each executive's contribution to Royal Group during fiscal 2002. As Royal
Group's EBITDA increased by 27% during fiscal 2002, the EBITDA bonus pool
available to executive management also increased.
As part of his departure arrangements with the Royal Group,Mr. Brown
was paid $1,200,000 in consulting fees upon his resignation for the
continued availability of his consulting services until November, 2003. This
payment was negotiated with Mr. Brown by Mr. De Zen.
The allocation of all options is subject to the approval of the Board of
Directors. The particulars of Royal Group's 1994 Stock Option Plan are
discussed in more detail above, however the Board would like to reiterate that
it adopted the Plan to motivate Royal Group's management, officers and
employees and to further align their interests with those of its public
shareholders. The amount and the term of outstanding options is taken into
account when determining new option grants to Named Executives. The Board feels
that the Plan has been successful in accomplishing these objectives and that the
Plan is a key component of Royal Group's executive compensation package. Option
allocations are determined by Vic De Zen with input from Douglas Dunsmuir and
made to employees who they determine to merit option grants. There is no
specific relationship between option grants and corporate performance.
Royal Group does not have any employment contracts or compensatory plans or
arrangements for its senior executives in connection with resignations,
retirements, terminations of employment or a change in control of Royal Group.
COMPENSATION OF DIRECTORS
Each "outside" Director receives an annual fee of $10,000 and a fee of
$1,000 for each meeting of the Board and the Audit Committee that they attend.
For the financial year ended September 30, 2002, Royal Group paid the "outside"
Directors an aggregate amount of $60,000 in annual and attendance fees. Each
"outside" Director holds the following number of options for subordinate voting
shares of Royal Group - Ralph Brehn 10,000, Irvine Hollis 6,000, Ronald Slaght
10,000, Gregory Sorbara 5,000. These options were granted as compensation for
these Directors' services. "Inside" Directors are not granted options or paid
any fees for their services as Directors.
The foregoing Report on Executive Compensation has been made by all of the
members of the current Board of Directors:
Vic De Zen (Chairman) Douglas Dunsmuir
Gwain Cornish Ron Goegan
Mario Cadorette Irvine Hollis
Ralph Brehn Ronald Slaght
Gregory Sorbara
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PERFORMANCE GRAPH
The following graph compares the total cumulative shareholder return
for Cdn. $100 invested in Royal Group's Subordinate Voting Shares (Royal
Group has never paid any dividends) with the cumulative total return of each of
the S&P/TSX Composite Index (see www.tse.com) and the TSX Building Materials
Index since September 30, 1997.
ROYAL GROUP TECHNOLOGIES LIMITED (RYG)
SHARE PERFORMANCE GRAPH
CUMULATIVE TOTAL RETURN ON INVESTMENT OF $C100
SEPTEMBER 30, 1997 THROUGH SEPTEMBER 30, 2002
[SHARE PERFORMANCE GRAPH]
14
INDEBTEDNESS OF DIRECTORS, EXECUTIVE OFFICERS AND SENIOR OFFICERS
As at the date hereof, no officer or Director or any of their associates is
indebted to Royal Group or its subsidiaries. Royal Group has a policy of not
providing loans to any of its Directors or senior executives.
STATEMENT OF CORPORATE GOVERNANCE PRACTICES
Royal Group's corporate governance practices are based on the principles
of fairness, accountability, transparency and responsible corporate
behaviour and are intended to reflect fairly the interests of public
shareholders, the substantial management and employee investment in Royal
Group and Royal Group's historic and current entrepreneurial and
growth-oriented nature. Royal Group's corporate governance practices are
described below with reference to the 14 corporate governance guidelines of The
Toronto Stock Exchange (the "Guidelines").
Royal Group is listed on the New York Stock Exchange ("NYSE"). The NYSE
has submitted its final corporate governance rules (the "NYSE Rules") to the
U.S. Securities and Exchange Commission ("SEC") for its approval following a
public comment period. As a foreign private issuer, Royal Group will not be
required to comply with the NYSE Rules but will be required to disclose any
significant ways in which its corporate governance practices differ from the
NYSE Rules within six months of SEC approval. The Board will consider and
develop a response to the NYSE Rules in due course.
1. Mandate of the Board
The Board of Directors' mandate, which mandate meets the requirements of
the Guidelines, is to supervise the management of the business and affairs of
Royal Group and to act with a view to the best interests of Royal Group. The
Board fulfills its mandate directly and through its Audit Committee. For the
purpose of discharging its responsibilities, the Board:
i) regularly receives reports on and considers Royal Groups' financial
position and operating performance;
ii) reviews and considers together with the Chief Executive Officer and senior
management strategic planning and business objectives;
iii) considers on a periodic basis the principal risks faced by Royal Group and
the steps implemented by management to manage these risks; the Audit
Committee monitors Royal Group's internal controls and management
information systems and reports directly to the Board on a regular basis;
iv) is responsible for assessing the performance of Royal Group's executive
officers based on the recommendations of the Chief Executive Officer and
for succession planning in respect of senior management; the Board also
assesses its own effectiveness and that of its Audit Committee and the
contribution of individual Directors on an ongoing basis;
v) approves the annual financial statements, the annual report, quarterly
results, all other significant financial communications to shareholders,
management proxy circulars and press releases on major developments;
vi) reviews and is responsible for Royal Group's approach to corporate
governance including the Guidelines; and
vii) reviews major investment proposals and monitors progress of these
investments.
15
The Board meets four times a year and more frequently if required. This
mandate is in accordance with the Guidelines.
The information presented below reflects Board of Directors and Audit
Committee meetings held and attendance of Directors for the year ended September
30, 2002.
SUMMARY OF BOARD AND COMMITTEE MEETINGS HELD SUMMARY OF ATTENDANCE OF DIRECTORS
<Table>
Board of Directors 5 DIRECTOR BOARD MEETINGS COMMITTEE
Audit Committee 5 ATTENDED MEETINGS ATTENDED
(1) Members of Management are not members of the Audit Vic De Zen 5 of 5 N/A
Committee, but regularly attend Audit Committee meetings. Douglas Dunsmuir 5 of 5 N/A
(2) Mr. Goegan was appointed as a Director on December 14, 2001 Gwain Cornish 5 of 5 N/A
(3) Mr. Brown resigned as a Director on December 1, 2001 Ron Goegan 3 of 3 N/A
Mario Cadorette 5 of 5 N/A
Gregory Sorbara 5 of 5 5 of 5
Ronald Slaght 5 of 5 5 of 5
Ralph Brehn 5 of 5 5 of 5
Irvine Hollis 5 of 5 N/A
Gary Brown 2 of 2 N/A
</Table>
2. BOARD COMPOSITION
The Board is currently composed of nine Directors, five of whom are
"inside" and "related" management Directors,including Vic De Zen, Royal Group's
controlling shareholder,and four of whom are "outside" Directors who are
"unrelated" to Royal Group and to its significant shareholder within the meaning
of the Guidelines. The four "unrelated" Directors are Ralph Brehn, Irvine
Hollis, Ronald Slaght and Gregory Sorbara. The five "related" Directors are Vic
De Zen, Douglas Dunsmuir, Gwain Cornish, Ron Goegan and Mario Cadorette. Mario
Cadorette will not be nominated as a Director at the Annual Meeting of
Shareholders on February 20, 2003. The "unrelated" Directors may meet without
management or "related" Directors present. Although having a majority of related
Directors is not in accordance with the Guidelines, the Board considers that the
"related" Directors are able to, and do act, with a view to the best interests
of Royal Group, with their compensation as officers of Royal Group being in part
tied to corporate performance, and each such Director is sensitive to the
avoidance and disclosure of conflicts of interest. The Board believes that the
presence of its senior executives on the Board is a key factor in Royal Group's
success. These management Directors bring to the Board the knowledge and
experience that they have acquired during their long length of service with
Royal Group. The insight that each offers in his particular area of
responsibility has been instrumental in creating an effective Board and in
achieving Royal Group's long term success. Having a majority of "related"
Directors is not in accordance with the Guidelines.
Following the Annual Meeting of Shareholders on February 20,2003,Royal
Group intends to have an equal number of "related" and "unrelated" Directors.
Thereafter it shall recruit at least one "unrelated" Director such that it shall
have a majority of "unrelated" directors by the end of its current fiscal year.
The NYSE Rules define directors as "dependent" and "independent" rather
than "related" and "unrelated" and "inside" and "outside". By the end of fiscal
2003, Royal Group intends to have a majority of Directors who qualify as
"independent" under the NYSE Rules.
16
3. UNRELATED DIRECTORS
The Board evaluates whether Directors are "related" or "unrelated" in
accordance with the principals set out in the Guidelines. An "unrelated"
director under the Guidelines is a Director who is free from any interest and
any business or other relationship which could,or could reasonably be perceived
to materially interfere with the Director's ability to act in the best interests
of the Corporation,other than interests and relationships arising from the
Director's shareholdings. Royal Group is controlled by Vic De Zen who, directly
or indirectly, owns or controls 100% of the outstanding Multiple Voting Shares
of Royal Group and a nominal number of the outstanding Subordinate Voting Shares
of Royal Group and is a "significant shareholder" and an "inside" Director
within the meaning of the Guidelines. The "inside" Directors and other
management shareholders of Royal Group own a significant number of the total
outstanding Subordinate Voting Shares of Royal Group. With the membership on the
Board of Directors consisting of a majority of "outside" Directors by the end of
fiscal 2003, the Directors believe that the composition of the Board will then
fairly reflect the investment in Royal Group by outside shareholders.
4. NOMINATION/CORPORATE GOVERNANCE COMMITTEE AND ASSESSMENT OF DIRECTORS
The Board has not created a committee of "outside" Directors to nominate
new Directors and to assess the current Directors as recommended in the
Guidelines. These functions are carried out by the Board as a whole. When
considering to add new directors, the Board determines the competencies, skills
and qualities it requires. Prospective candidates are identified and approached
by one or more of the Directors to explore their interest in joining the Board.
All the Directors presently in office and proposed to be elected at the Meeting
have served as Directors in good standing of Royal Group. As a controlled
company, the NYSE Rules do not require Royal Group to establish a
Nomination/Corporate Governance Committee.
5. BOARD EFFECTIVENESS
The Board currently assesses its own effectiveness, the effectiveness of
the Audit Committee and the contribution of individual directors. This process
is carried out by the Board as a whole as it deems advisable. These tasks have
not been delegated to a Board Committee as recommended in the Guidelines.
6. EDUCATION
Management and the "inside" Directors are responsible for the orientation
of "outside" Directors. All Directors receive reports relating to Royal Group's
business, are privy to presentations on legal matters relating to Royal Group
and its Directors and may participate in a Directors' information programme.
Royal Group intends to provide an orientation and education programme for new
Directors so that they fully understand the role of the Board and the Audit
Committee and the contribution individual Directors are required to make. The
"outside" Directors also participate in the Board's ongoing information
pro-gramme in order to enhance their understanding of Royal Group's operations.
This is in accordance with the Guidelines.
7. BOARD SIZE
The Board has determined that the entrepreneurial and growth-oriented
nature of Royal Group and its need to respond quickly and effectively in an
ever-changing business environment makes it appropriate for the Board to be
composed of between eight and twelve directors to allow for open, efficient and
effective deliberation and does not believe that it would add to the quality or
efficiency of its decision-making to increase the Board's size beyond twelve.
This is in accordance with the Guidelines.
17
8. DIRECTORS'COMPENSATION
The Board reviews the compensation of the Directors as it deems advisable
to ensure that it realistically reflects the responsibilities and risks involved
in being effective directors. This is in accordance with the Guidelines.
9. BOARD COMMITTEES
The Audit Committee is the Board's only committee and is currently composed
of three "outside" Directors. Members of management are not members of the Audit
Committee, but regularly attend portions of meetings. The Audit Committee does
also meet without members of management present. The composition of the Audit
Committee is in accordance with the Guidelines.
10. GOVERNANCE ISSUES
The Board expressly assumes the general responsibility for developing Royal
Group's approach to governance issues. In particular, the Board reviews and
approves Royal Group's response to the Guidelines. This is in accordance with
the Guidelines.
In accordance with the NYSE Rules, the Board intends to adopt a Code of
Business Conduct and Ethics for directors, officers and employees.
11. POSITION DESCRIPTIONS
The positions of Chairman and Chief Executive Officer are combined at Royal
Group. This is similar to many other leading corporations and has the advantage
of the Chairman of the Board of Directors having a more detailed knowledge of
the business and activities of Royal Group than would be possible in the case of
a non-executive Chairman. The Board believes that the combination of the two
offices does not impair Royal Group's corporate governance system. The Board
also believes that specific position descriptions for the Board and the Chief
Executive Officer,while recommended by the Guidelines,are not required as such
individuals understand the responsibilities and limits of their offices.
The Board does not set out corporate objectives for which the Chief
Executive Officer is responsible and assessed against as the Chief Executive
Officer is the founder and controlling shareholder of Royal Group and as such
understands the responsibilities of his office. This is not in accordance with
the Guidelines.
12. INDEPENDENCE FROM MANAGEMENT
The Board does not function with a non-management Chairman or with a "Lead
Director" as recommended in the Guidelines. All Directors are expected to
exercise critical judgement at all times and the unrelated Directors have
unrestricted, direct access to Royal Group's senior management and to its
external auditors and may meet without management or related Directors present.
The Board does not believe that it is necessary to implement the Guidelines'
recommendations regarding additional structures and procedures to ensure the
Board's independence from management. The Board believes that its independence
is protected by the Directors'undertaking to contribute to the evaluation of
their individual and collective performances and effectiveness. Further, the
Board believes that the granting to the Directors of stock options and the
significant shareholdings of the majority of the "inside" Directors ensures that
the Directors'interests are congruent with the interests of Royal Group and its
shareholders.
18
13. AUDIT COMMITTEE
The Audit Committee (which is composed of three "outside" Directors) met 5
times in fiscal 2002 and intends to meet at least 5 times in fiscal 2003. The
Audit Committee meets with and without management present as it determines
appropriate. Responsibilities of the Audit Committee include meeting with Royal
Group's outside auditors who are independent of management and reviewing and
approving: the external audit plan; the internal auditing process, accounting
standards, practices and systems; the management information systems, financial
risk management and internal controls including foreign currency risk
strategies; the annual and interim financial statements, earnings press and
financial forecasts releases and all other legally required public disclosure
materials and other significant public communications that contain financial
information before they are presented to the Board for approval. The Audit
Committee has the sole authority to hire and fire independent auditors and to
approve any significant non-audit relationships with the independent auditors.
Royal Group is not currently in compliance with the Guidelines. In fiscal 2003:
(1) the Audit Committee will be evaluated by the Board for its financial
literacy, (2) the Audit Committee intends to add one member with accounting or
related financial expertise and (3) the Board will adopt a charter for the Audit
Committee which will set out the roles and responsibilities of the Audit
Committee and the duties of its members.
14. ENGAGEMENT OF OUTSIDE ADVISORS
An individual Director may engage outside advisors (including financial
advisors, accountants and lawyers) at the expense of Royal Group subject to the
approval of the Audit Committee. This is in accordance with the Guidelines.
ROYAL'S ADDITIONAL CORPORATE GOVERNANCE PRACTICES
BOARD AUTHORITY AND DELEGATION
In addition to those matters which must by law be approved by the Board,
management is also required to seek Board approval for any disposition or
expenditure in excess of $60,000,000 and must also consult with the Board before
engaging in any significant venture that is outside of Royal Group's existing
businesses. Changes in executive management must also be approved by the Board.
The Board expects Royal Group's executive management to take the initiative in
identifying opportunities and risks affecting Royal Group's business and in
finding means to respond to these opportunities and risks for the benefit of
Royal Group. Executive management is required to keep the Board informed in a
timely and candid manner of the progress of Royal Group towards the achievement
of its established goals, and of any material deviations from such goals or from
the strategies and policies approved by the Board. The Board is satisfied that
Royal Group's executive management is responding to these expectations.
INVESTOR RELATIONS
Royal Group maintains an investor relations team which communicates with
potential and current investors and responds to inquiries from the investment
community. Most inquiries from shareholders and the investment community are
referred to Royal Group's Vice-President of Corporate Communications who is
responsible for ensuring that the inquiry is considered by the appropriate
members of management and, if necessary, by the Board and that a reply is
provided in a timely manner. The Vice-President of Corporate Communications
provides the Audit Committee with regular updates of shareholders' concerns,
expectations and comments.
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DIRECTORS' AND OFFICERS' LIABILITY INSURANCE
Royal Group on its own behalf,and on behalf of its subsidiaries,maintains
directors' and officers' liability insurance which, subject to the provisions
contained in the policy, protects the Directors and officers, as such, against
all claims during the term of their office provided they acted honestly and in
good faith with a view to the best interests of the applicable corporation. Such
insurance provides for an aggregate $25,000,000 annual protection against
liability for and reimbursement of amounts paid. The policy carries a $75,000
deductible for each claim made against Royal Group under this indemnification
liability coverage. There is no deductible for claims made against directors and
officers. The premium paid by Royal Group in connection with this insurance for
the financial year ended September 30, 2002 was $104,543.
INTEREST OF INSIDERS IN MATERIAL TRANSACTIONS
During the year ended September 30, 2002, Royal Group disposed of a
corporate airplane and certain non-strategic land parcels for aggregate net cash
proceeds of $22,800,000,which was fair market value,to corporations affiliated
with Vic De Zen (business address:1 Royal Gate Boulevard,Vaughan,Ontario) and
Domenic D'Amico (business address: 1 Royal Gate Boulevard, Vaughan, Ontario),
each of whom is an insider, principal shareholder and employee of Royal Group.
Except for such transactions, no Director, senior officer, principal
shareholder or other insider of Royal Group, nor any associate or affiliate
thereof, has or has had any material interest, direct or indirect, in any
transaction or in any proposed transaction which has materially affected or
would materially affect Royal Group, its affiliates or any of their collective
subsidiaries.
RECEIPT OF SHAREHOLDER PROPOSAL FOR NEXT ANNUAL MEETING
Shareholders entitled to vote at the next annual meeting of shareholders in
2004 and who wish to submit a proposal in respect of any matters to be raised at
such meeting must ensure that Royal Group receives the proposal no later than
November 22, 2003.
DIRECTORS' APPROVAL
The contents and the sending of this Management Proxy Circular to each
shareholder entitled to receive notice of the Meeting, to each Director and to
the Auditors of the Corporation have been approved by the Board of Directors of
Royal Group and the contents of this Management Proxy Circular are accurate as
of January 1, 2003.
On Behalf of the Board of Directors
[Signature]
Vic De Zen Vaughan, Ontario
Chairman of the Board January 1, 2003
and Chief Executive Officer
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[LOGO]
ROYAL GROUP TECHNOLOGIES LIMITED
HEAD OFFICE
1 Royal Gate Blvd.,Vaughan, Ontario, Canada L4L 8Z7
Telephone: (905) 264-0701 Facsimile: (905) 264-0702
E-mail: info@royalgrouptech.com Web Site: www.royalgrouptech.com
Royal and the crown design are trademarks of Royal Group Technologies Limited
and are used by it and its affiliates.