[EXTENDICARE LOGO]
3000 STEELES AVENUE EAST, MARKHAM, ONTARIO L3R 9W2
NOTICE OF THE ANNUAL MEETING
OF HOLDERS OF SUBORDINATE VOTING SHARES AND
MULTIPLE VOTING SHARES
NOTICE IS HEREBY GIVEN that the Annual Meeting (the "Meeting") of the
holders of Subordinate Voting Shares and Multiple Voting Shares of Extendicare
Inc. (the "Company") will be held at The Glenn Gould Studio, Canadian
Broadcasting Centre, 250 Front Street West, Toronto, Ontario on Thursday, May 8,
2003 at 11:00 a.m., Toronto time, for the following purposes:
(1) receiving and considering the financial statements for the year
ended December 31, 2002 and the report of the auditors thereon;
(2) electing directors;
(3) appointing auditors; and
(4) transacting such further business as may properly come before the
Meeting or any adjournment thereof.
A description of the matters to be submitted to the Meeting is
contained in the Management Information and Proxy Circular accompanying this
Notice of Meeting.
Holders of Subordinate Voting Shares and Multiple Voting Shares who are
unable to attend the Meeting in person are requested to date, sign and return
the enclosed appropriate form of proxy in the envelope provided for that
purpose. To be valid, shareholders' proxies must be deposited with the Company's
registrar and transfer agent, Computershare Trust Company of Canada, Stock
Transfer Services, 100 University Avenue, 9th Floor, Toronto, Ontario M5J 2Y1 no
later than 5:00 p.m. (Toronto time) on Monday, May 5, 2003.
DATED at Markham, Ontario this 14th day of March 2003.
On behalf of the Board of Directors,
By:/s/ Jillian E. Fountain
Jillian E. Fountain
Corporate Secretary
MANAGEMENT INFORMATION AND PROXY CIRCULAR
SOLICITATION OF PROXIES
THIS MANAGEMENT INFORMATION AND PROXY CIRCULAR IS FURNISHED IN
CONNECTION WITH THE SOLICITATION OF PROXIES BY THE MANAGEMENT OF EXTENDICARE
INC. ("EXTENDICARE" OR THE "COMPANY") FOR USE AT THE ANNUAL MEETING (THE
"MEETING") OF THE HOLDERS OF THE SUBORDINATE VOTING SHARES AND MULTIPLE VOTING
SHARES OF THE COMPANY TO BE HELD AT 11:00 A.M. (TORONTO TIME) ON THURSDAY, MAY
8, 2003 OR ANY ADJOURNMENT THEREOF FOR THE PURPOSES SET FORTH IN THE
ACCOMPANYING NOTICE OF MEETING. The information contained herein is given as of
March 14, 2003, except as otherwise noted. It is expected that the solicitation
of proxies will be primarily by mail, but proxies may also be solicited
personally or by telephone by employees of the Company. The total costs of
solicitation will be borne by the Company.
APPOINTMENT OF PROXIES
The persons named in the accompanying forms of proxy are officers
and/or directors of the Company who have been designated by management of the
Company to represent shareholders. A SHAREHOLDER HAS THE RIGHT TO APPOINT SOME
OTHER PERSON (WHO NEED NOT BE A SHAREHOLDER) TO REPRESENT THE SHAREHOLDER AT THE
MEETING OR ANY ADJOURNMENT THEREOF. TO EXERCISE THIS RIGHT, THE SHAREHOLDER MAY
STRIKE OUT THE PRINTED NAMES AND INSERT THE NAME OF THE SHAREHOLDER'S CHOSEN
PROXY IN THE BLANK SPACE PROVIDED IN THE PROXY FOR THAT PURPOSE OR COMPLETE
ANOTHER FORM OF PROXY.
To be valid, shareholders' proxies must be deposited with the Company's
registrar and transfer agent, Computershare Trust Company of Canada, Stock
Transfer Services, 100 University Avenue, 9th Floor, Toronto, Ontario M5J 2Y1 no
later than 5:00 p.m. (Toronto time) on Monday, May 5, 2003.
Non-registered shareholders or shareholders that hold their shares in
the name of a "nominee" such as a bank, trust company, securities broker or
other financial institution, must seek instructions as to how to complete their
form of proxy and vote their shares from their nominee. Non-registered
shareholders will have received this Management Information and Proxy Circular
in a mailing from their nominee, together with a form of proxy or voting
instruction form. It is important that non-registered shareholders adhere to the
voting instructions provided to them by their nominee. Since Extendicare's
registrar and transfer agent, Computershare Trust Company of Canada, does not
have a record of the names of the Company's non-registered shareholders,
Computershare Trust Company of Canada will have no knowledge of a non-registered
shareholder's right to vote, unless the nominee has appointed the non-registered
shareholder as proxyholder. Non-registered shareholders that wish to vote in
person at the Meeting must insert their name in the space provided on the form
of proxy or voting instruction form, and adhere to the signing and return
instructions provided by their nominee. By doing so, non-registered shareholders
are instructing their nominee to appoint them as proxyholder.
REVOCATION OF PROXIES
Any shareholder who has given a proxy may revoke it by preparing a
written statement to this effect. The statement must be executed by the
shareholder or by his or her attorney authorized in writing to do so. This
statement must be delivered either to the Corporate Secretary at the head office
of the Company no later than 5:00 p.m. (Toronto time) on Wednesday, May 7, 2003
or, as to any matter upon which a vote has not already been cast, with the
Chairman on the day of the Meeting, May 8, 2003, or any adjournment thereof.
EXERCISE OF DISCRETION BY PROXYHOLDERS
The shares represented by properly executed proxies appointing
management nominees will be voted for, voted against or withheld from voting in
accordance with the specification made by the shareholder on the particular form
of proxy. IN THE ABSENCE OF ANY SUCH SPECIFICATION, IT IS INTENDED THAT PROXIES
APPOINTING MANAGEMENT NOMINEES WILL BE VOTED FOR THE ADOPTION OF ALL RESOLUTIONS
REFERRED TO IN THE NOTICE OF MEETING.
2
EXTENDICARE PROXY CIRCULAR
The enclosed form of proxy confers discretionary authority upon the
person named therein with respect to amendments or variations to matters
identified in the Notice of Meeting and with respect to other matters which may
properly come before the Meeting. At the date of this proxy circular, management
of the Company knows of no such amendments, variation or other matters to come
before the Meeting other than the matters referred to in the Notice of Meeting.
If any such amendment, variation or other matter which is not now known should
properly come before the Meeting, then the person named in the enclosed from of
proxy will vote on such matters in accordance with their judgement, pursuant to
the discretionary authority conferred by the proxy form with respect to such
matters.
VOTING RIGHTS
There were 57,033,461 Subordinate Voting Shares and 12,307,592 Multiple
Voting Shares issued and outstanding at the close of business on March 14, 2003.
Holders of Subordinate Voting Shares are entitled to cast one vote per share and
holders of Multiple Voting Shares are entitled to cast ten votes per share on
all matters coming before the Meeting. The Subordinate Voting Shares do not
contain take-over protection provisions or "coattails". (For additional
information, see "Principal Holders of Subordinate Voting Shares and Multiple
Voting Shares".)
In accordance with the provisions of the Canada Business Corporations
Act, a record date of March 21, 2003 has been set as the date for determining
the shareholders entitled to receive notice of and to vote at the Meeting. Only
shareholders of record at the close of business on March 21, 2003 shall be
entitled to vote at the Meeting or any adjournment thereof. The final date by
which the Company must receive a proposal for any matter that a person entitled
to vote at an annual meeting proposes to raise at the next annual meeting of
shareholders to be held in 2004 is December 14, 2003.
PRINCIPAL HOLDERS OF SUBORDINATE VOTING SHARES AND MULTIPLE VOTING SHARES
To the knowledge of the directors and officers of the Company, the
following table indicates the holdings of shareholders that beneficially own,
directly or indirectly, or exercise control or direction over, more than 10% of
the voting rights attached to the outstanding Subordinate Voting Shares and/or
Multiple Voting Shares of the Company:
- --------------------------------------------------------------------------------------------------------------
APPROXIMATE PERCENTAGE OF ISSUED
NUMBER OF SHARES SHARES(%)
--------------------------------------------------
SUBORDINATE MULTIPLE SUBORDINATE MULTIPLE PERCENTAGE
VOTING VOTING VOTING VOTING OF TOTAL
SHAREHOLDER SHARES SHARES SHARES SHARES VOTES(%)
- --------------------------------------------------------------------------------------------------------------
875760 Ontario Inc.(3) 40,000 437,158 0.07 3.55 2.45
- -----------------------------------------------------------------------------------------------------------
Kingfield Investments Limited(1)(3) - 640,700 - 5.20 3.56
- -----------------------------------------------------------------------------------------------------------
Scotia Investments Limited(2)(3) 8,667 7,575,000 0.02 61.55 42.06
- -----------------------------------------------------------------------------------------------------------
Clearwater Capital Management Inc. - 1,363,720 - 11.08 7.57
- -----------------------------------------------------------------------------------------------------------
Phillips, Hager & North Investment
Management Ltd., on behalf of its clients 8,219,469 - 14.41 - 4.56
- -----------------------------------------------------------------------------------------------------------
Notes:
(1) Of these shares, 142,900 are held directly and the remainder are held
through subsidiaries or by corporations that have granted to Kingfield
Investments Limited control or direction over the shares. All of the
outstanding voting shares of Kingfield Investments Limited are held
directly by H. Michael Burns.
(2) These shares are held through related companies. All of the outstanding
voting shares of Scotia Investments Limited are held directly or
indirectly by members of the family of the late R.A. Jodrey.
(3) There is an agreement between 875760 Ontario Inc., Kingfield
Investments Limited and Scotia Investments Limited to act in concert
with one another in all matters and transactions affecting Extendicare
and its management, ownership and financial affairs.
In a letter dated November 12, 1991, David J. Hennigar and H. Michael
Burns wrote:
"We are writing on behalf of our Families (ourselves and
members of our families) regarding the disposition of
[Multiple Voting] Shares of [Extendicare] owned or controlled
by our Family Group (our Families and companies owned or
controlled by them or bound by the agreement between them to
act in concert with respect to [Extendicare]). Attached hereto
see Schedule A.
3
EXTENDICARE PROXY CIRCULAR
We confirm that our Family Group will not sell [Multiple
Voting] Shares presently owned by our Family Group to a
non-member of our Family Group so as to effect a change of
control of [Extendicare] unless an offer is concurrently made
to purchase all the [Multiple Voting] Shares of [Extendicare]
at the same price and to purchase all the [Subordinate Voting]
Shares of [Extendicare] at an equivalent price.
Members of the Family Group reserve the right to sell
[Multiple Voting] Shares to other members of the Family
Group."
Schedule A to the letter sets out a list of companies bound by the
agreement which, at November 12, 1991, held in the aggregate the
equivalent of 11,866,260 Multiple Voting Shares and, as of March 14,
2003, hold in the aggregate 8,652,858 Multiple Voting Shares
constituting 70.31% of those shares outstanding and representing 48.04%
of the voting rights. The undertaking contained in the letter does not
constitute take-over protection or "coattails" for the holders of the
Subordinate Voting Shares. Compliance by the members of the Family
Group with their undertaking would in many circumstances, were a change
of control of Extendicare to occur, result in the holders of
Subordinate Voting Shares being offered equivalent consideration to
that offered to holders of Multiple Voting Shares; however, there are
certain circumstances in which the holders of the Subordinate Voting
Shares could be offered less than an equivalent price or not receive an
offer at all were a change of control of Extendicare to occur. The
letter does not purport to give to the holders of Subordinate Voting
Shares a specific right to enforce compliance by members of the Family
Group although the appropriate regulatory authorities might either on
their own or at the request of holders of Subordinate Voting Shares
take action in an attempt to enforce compliance.
APPOINTMENT OF AUDITORS
With the recommendation of the Audit Committee, the representatives of
management, if named as proxy by holders of Subordinate Voting Shares and
Multiple Voting Shares, intend to vote for the reappointment of KPMG LLP, the
present auditors, as auditors of the Company to hold office until the next
Annual Meeting of Shareholders, unless authority is withheld in the form of
proxy.
AUDIT AND NON-AUDIT FEES
For the year 2002, the Company incurred fees payable to KPMG LLP for
audit and audit-related (including separate audits of subsidiary entities,
financings and regulatory reporting requirements) services of $1,264,000
(2001 - $1,088,000). In addition, non-audit fees of $31,000 (2001 - $448,000)
were incurred for tax planning and $12,000 (2001 - $49,000) for other client
assistance services rendered by KPMG LLP.
As discussed in the "Report of the Audit Committee" on page 11, the
Committee has reviewed the nature of these fees and agreed that these fees are
compatible with maintaining the independence of the Company's auditors.
ELECTION OF DIRECTORS
The articles of the Company provide that the Board of Directors shall
consist of a minimum of seven and a maximum of 20 directors, with the actual
number of directors to be determined from time to time by the Board within the
minimum and maximum number provided for in the articles. At the present time,
the Board of Directors consists of 13 directors.
The by-laws of the Company provide that each director shall be elected
to hold office for a three-year term. All of the current directors whose terms
are expiring at the Meeting are proposed by management to be elected to serve
another term.
The following information relates to: each director who is expected to
be nominated to serve as a director at the Meeting with a term that will expire
at the Annual Meeting of Shareholders in 2006; each director with a term that
expires at the Annual Meeting of Shareholders in 2004; and each director with a
term that expires at the Annual Meeting of Shareholders in 2005. The
representatives of management, if named as proxy by holders of Subordinate
Voting Shares and Multiple Voting Shares, intend to vote for the election of the
persons indicated below to the Board of Directors, unless authority is withheld
on the form of proxy. Management does not contemplate that any of the proposed
nominees will be unable to serve as a director. If, for any reason, any of the
proposed nominees are unable to serve as such, the representatives of
management, if so named as proxy, reserve the right to vote for any other
nominees in their sole discretion. The following information relating to the
nominees as directors and to the directors continuing in office is based partly
on the Company's records and partly on information received by the Company from
such persons.
4
EXTENDICARE PROXY CIRCULAR
- -----------------------------------------------------------------------------------------------------------------
NUMBER OF SHARES
BENEFICIALLY OWNED
OR CONTROLLED
--------------------------
DIRECTOR'S NAME, OTHER POSITION WITH THE COMPANY, DATE FIRST ELECTED OR SUBORDINATE MULTIPLE
AND PRINCIPAL OCCUPATION APPOINTED A DIRECTOR VOTING (1) VOTING
- -----------------------------------------------------------------------------------------------------------------
(I) DIRECTORS WHO WILL BE NOMINATED TO SERVE UNTIL
THE ANNUAL MEETING IN 2006:
- ----------------------------------------------------------------------------------------------------------------
DAVID M. DUNLAP (A)(HR)(QS) October 8, 1980 32,324 -
Chairman, G.F. Thompson Co. Ltd. (manufacturing)
- ----------------------------------------------------------------------------------------------------------------
GEORGE A. FIERHELLER (A)(IS) April 21, 1981 31,884 2,000
President, Four Halls Inc.
(private investment and consulting)
- ----------------------------------------------------------------------------------------------------------------
DR. SETH B. GOLDSMITH (CG)(QS) February 23, 1995 19,069 -
Attorney and Professor Emeritus, University of
Massachusetts
- ----------------------------------------------------------------------------------------------------------------
MEL RHINELANDER May 2, 2000 75,700 -
President and Chief Executive Officer, Extendicare Inc.
- ----------------------------------------------------------------------------------------------------------------
(II) DIRECTORS WITH TERMS THAT EXPIRE AT THE ANNUAL
MEETING IN 2004:
- ----------------------------------------------------------------------------------------------------------------
SIR GRAHAM DAY (CG)(HR) April 26, 1989 10,120 2,000
Chairman, Sobeys Inc.
(national food distributor)
- ----------------------------------------------------------------------------------------------------------------
DAVID J. HENNIGAR (CG) October 8, 1980 - 15,400
Chairman, Extendicare Inc.
- ----------------------------------------------------------------------------------------------------------------
FREDERICK B. LADLY (CG)(HR)(QS) June 6, 1986 52,713 -
Deputy Chairman, Extendicare Inc.; Vice-Chairman,
Crown Life Insurance Company (insurance)
- ----------------------------------------------------------------------------------------------------------------
J. THOMAS MACQUARRIE, Q.C. (A)(HR) October 8, 1980 52,819 9,400
Senior Partner, Stewart McKelvey Stirling Scales
(barristers and solicitors)
- ----------------------------------------------------------------------------------------------------------------
(III)DIRECTORS WITH TERMS THAT EXPIRE AT THE ANNUAL
MEETING IN 2005:
- ----------------------------------------------------------------------------------------------------------------
DEREK H.L. BUNTAIN (A)(HR)(IS) April 26, 1995 25,241 200
President, The Dundee Bank (private bank)
- ----------------------------------------------------------------------------------------------------------------
H. MICHAEL BURNS (CG)(IS)(2) March 24, 1978 - 14,300
Deputy Chairman, Extendicare Inc.
- ----------------------------------------------------------------------------------------------------------------
GEORGE S. DEMBROSKI (A)(IS) April 26, 1995 5,000 -
Corporate Director
- ----------------------------------------------------------------------------------------------------------------
MICHAEL J.L. KIRBY (CG)(HR)(QS) March 11, 1987 8,500 -
Senator, Parliament of Canada
- ----------------------------------------------------------------------------------------------------------------
ALVIN G. LIBIN (A) January 20, 1984 800,000 -
President, Balmon Holdings Ltd. (investment company)
- ----------------------------------------------------------------------------------------------------------------
Notes:
(1) The directors have also been granted options to purchase Subordinate
Voting Shares under the Company's stock option plan.
(2) In addition, H. Michael Burns holds directly all of the outstanding
voting shares of Kingfield Investments Limited. (For additional
information, see "Principal Holders of Subordinate Voting Shares and
Multiple Voting Shares".)
(A) Member of the Audit Committee.
(CG) Member of the Corporate Governance and Nominating Committee.
(HR) Member of the Human Resources Committee.
(IS) Member of the Information Systems Committee.
(QS) Member of the Quality Standards Committee.
5
EXTENDICARE PROXY CIRCULAR
EXECUTIVE COMPENSATION
COMPENSATION OF NAMED EXECUTIVE OFFICERS
The Summary Compensation Table details compensation information for the
three fiscal years ended December 31, 2002 for each of the Chief Executive
Officer and the four other most highly compensated executive officers
(collectively, the "named executive officers").
SUMMARY COMPENSATION TABLE
(amounts in Canadian dollars, except where noted)
- ------------------------------------------------------------------------------------------------------------------------------
LONG-TERM
COMPEN-
ANNUAL COMPENSATION SATION
----------------------------------------------------------------------
OTHER SECURITIES
ANNUAL UNDER ALL OTHER
COMPEN- OPTIONS COMPEN-
NAME AND PRINCIPAL POSITION WITH THE SALARY BONUS SATION (1) GRANTED SATION (2)
CORPORATION YEAR ($) ($) ($) (#) ($)
- ------------------------------------------------------------------------------------------------------------------------------
M.A. Rhinelander (3) 2002 US 500,000 US 500,000 US 34,585 100,000 US 8,447
President and Chief Executive 2001 US 400,000 US 200,000 US 38,420 100,000 US 9,073
Officer, Extendicare Inc. 2000 US 370,832 US 200,000 US 46,303 75,000 US 7,917
- -----------------------------------------------------------------------------------------------------------------------------
M.W. Durishan 2002 US 258,000 US 116,100 - 30,000 US 47,212
Vice-President, Finance and Chief 2001 US 250,000 US 80,000 - 20,000 US 38,845
Financial Officer, Extendicare Inc. 2000 US 250,000 US 40,000 - 20,000 US 39,083
- -----------------------------------------------------------------------------------------------------------------------------
R.L. Bertrand 2002 US 230,000 US 92,000 - 30,000 US 37,663
Senior Vice-President, Development, 2001 US 215,000 US 80,000 - 15,000 US 40,282
Extendicare Health Services, Inc. 2000 US 215,000 US 100,000 - 15,000 US 38,957
- -----------------------------------------------------------------------------------------------------------------------------
P.W. Small (4) 2002 US 275,500 US 115,000 - 30,000 US 33,228
Senior Vice-President, Strategic 2001 US 145,833 US 55,000 - 50,000 US 12,500
Planning and Investor Relations, 2000 - - - - -
Extendicare Inc.
- -----------------------------------------------------------------------------------------------------------------------------
J.A. Karoleski 2002 US 210,417 US 73,646 - 15,000 US 36,261
Senior Vice-President, 2001 US 179,000 US 20,000 - 10,000 US 20,728
Management Contracts, 2000 US 171,600 US 15,000 - 5,000 US 10,697
Extendicare Health Services, Inc.
- -----------------------------------------------------------------------------------------------------------------------------
Notes:
(1) The aggregate amount of perquisites and other benefits for each named
executive officer is less than the lesser of $50,000 and 10% of total
annual salary and bonus. In the case of M.A. Rhinelander, the amount is
comprised of car allowance and flexible account.
(2) For M.A. Rhinelander these amounts reflect premiums paid by the Company
for term life insurance and long-term disability. All other
compensation, in the case of M.W. Durishan, R.L. Bertrand, P.W. Small
and J.A. Karoleski, includes payments for life insurance and long-term
disability premiums and contributions to a deferred compensation and a
defined contribution retirement plan.
(3) M.A. Rhinelander was appointed President and Chief Executive Officer of
Extendicare Inc. in August 2000. He was formerly the President and
Chief Operating Officer as appointed in August 1999.
(4) P.W. Small commenced employment with the Company in June 2001.
6
EXTENDICARE PROXY CIRCULAR
STOCK OPTION PLAN
The Company's Stock Option Plan (the "Plan") provides for the granting,
from time to time, at the discretion of the Board of Directors, to certain
directors, officers and employees of the Extendicare group of companies, of
options to purchase Subordinate Voting Shares of the Company for cash. The Plan
provides that the exercise price of any option granted shall not be less than
the closing price (or, if there is no closing price, the simple average of the
bid and ask price) for the Subordinate Voting Shares as quoted on the Toronto
Stock Exchange on the trading day prior to the date of grant. It also permits
options to be exercised for a period not to exceed either five or ten years from
the date of grant, as determined by the Board of Directors at the time the
option is granted. The options vest equally over the first four years and the
Plan contains provisions for appropriate adjustments in the event of corporate
reorganizations of the Company.
The following table outlines stock options granted during 2002 to the
named executive officers under the plan:
OPTION GRANTS DURING THE MOST RECENTLY COMPLETED FINANCIAL YEAR
- --------------------------------------------------------------------------------------------------------------------
SECURITIES % OF TOTAL MARKET VALUE OF
UNDER OPTIONS SECURITIES
OPTIONS GRANTED TO EXERCISE OR UNDERLYING OPTIONS
GRANTED EMPLOYEES IN BASE PRICE ON THE DATE OF GRANT
NAME (#) FINANCIAL YEAR ($/SECURITY) ($/SECURITY) EXPIRATION DATE
- --------------------------------------------------------------------------------------------------------------------
M.A. Rhinelander 100,000 11.82 4.36 4.36 Feb. 20, 2007
- -------------------------------------------------------------------------------------------------------------------
M.W. Durishan 30,000 3.55 4.36 4.36 Feb. 20, 2007
- -------------------------------------------------------------------------------------------------------------------
R.L. Bertrand 30,000 3.55 4.36 4.36 Feb. 20, 2007
- -------------------------------------------------------------------------------------------------------------------
P.W. Small 30,000 3.55 4.36 4.36 Feb. 20, 2007
- -------------------------------------------------------------------------------------------------------------------
J.A. Karoleski 15,000 1.77 4.36 4.36 Feb. 20, 2007
- -------------------------------------------------------------------------------------------------------------------
The following table outlines stock options exercised during 2002 and
option values at December 31, 2002 for the named executive officers:
AGGREGATED OPTION EXERCISES DURING THE MOST RECENTLY COMPLETED FINANCIAL YEAR
AND FINANCIAL YEAR-END OPTION VALUES
- ------------------------------------------------------------------------------------------------------------------------
VALUE OF UNEXERCISED IN-THE-
SECURITIES UNEXERCISED OPTIONS MONEY OPTIONS AT FINANCIAL
ACQUIRED AGGREGATE AT FINANCIAL YEAR-END YEAR-END
ON VALUE (#) ($)
EXERCISE REALIZED ---------------------------- ------------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------------------------------------------------------------------------------------------
M.A. Rhinelander - - 100,000 225,000 72,500 97,500
- --------------------------------------------------------------------------------------------------------------------
M.W. Durishan - - 52,500 67,500 18,500 23,500
- --------------------------------------------------------------------------------------------------------------------
R.L. Bertrand - - 15,000 50,000 13,875 17,625
- --------------------------------------------------------------------------------------------------------------------
P.W. Small - - 12,500 67,500 - -
- --------------------------------------------------------------------------------------------------------------------
J.A. Karoleski - - 12,500 27,500 5,250 7,750
- --------------------------------------------------------------------------------------------------------------------
Note: The value of the unexercised options is based on the closing price of the
Subordinate Voting Shares on the Toronto Stock Exchange on December 31, 2002 of
$4.20.
RETIREMENT ARRANGEMENTS
M.A. Rhinelander and R.L. Bertrand are covered by a retirement
arrangement established by the Company. It provides for a benefit of 4% of the
best three consecutive years of basic salary for each year of service to a
maximum of 15 years and 1% per year thereafter. These arrangements provide a
maximum benefit guarantee of 60% of base salary after 15 years of service and
70% after 25 years of service. Normal retirement age is 60 years or age 55 with
company consent. M.A. Rhinelander has company consent to retire at age 55.
Retirement benefits are payable as an annuity over the lifetime of the executive
with a portion continuing to be paid to the executive's spouse after the death
of the executive. Projected years of credited service at retirement for each of
Messrs. Rhinelander and Bertrand is 34 years.
7
EXTENDICARE PROXY CIRCULAR
Estimated annual benefits payable upon retirement of the specified
compensation and years of credited service classifications are as shown in the
following table:
PENSION PLAN TABLE
- ----------------------------------------------------------------------------------------
YEARS OF SERVICE AS AN EXECUTIVE
----------------------------------------------------------
BASE SALARY ($) 15 20 25 30 35
----------------------------------------------------------
- ----------------------------------------------------------------------------------------
200,000 120,000 130,000 140,000 140,000 140,000
- ----------------------------------------------------------------------------------------
250,000 150,000 162,500 175,000 175,000 175,000
- ----------------------------------------------------------------------------------------
300,000 180,000 195,000 210,000 210,000 210,000
- ----------------------------------------------------------------------------------------
350,000 210,000 227,500 245,000 245,000 245,000
- ----------------------------------------------------------------------------------------
400,000 240,000 260,000 280,000 280,000 280,000
- ----------------------------------------------------------------------------------------
450,000 270,000 292,000 315,000 315,000 315,000
- ----------------------------------------------------------------------------------------
M.W. Durishan, P.W. Small and J.A. Karoleski were not participants in
these arrangements, but rather, are participants in money purchase, 401(K) and
deferred compensation plans established for U.S. executives.
TERMINATION OF EMPLOYMENT AGREEMENTS
M.A. Rhinelander has a termination of employment agreement that
provides for one month of salary for each year of service to a maximum of 24
months' severance.
COMPOSITION OF THE HUMAN RESOURCES COMMITTEE
The Human Resources Committee of the Board of Directors is comprised of
six directors. The Committee determines compensation matters and consists of:
Derek H.L. Buntain, Sir Graham Day, David M. Dunlap, Michael J.L. Kirby,
Frederick B. Ladly and J. Thomas MacQuarrie, Q.C.
REPORT ON EXECUTIVE COMPENSATION BY THE HUMAN RESOURCES COMMITTEE
The compensation philosophy of the Company is to be competitive with
service sector and health care companies in North America in order to attract,
retain and motivate a highly qualified workforce and provide career
opportunities within the Company. U.S. data has been used as a market indicator
for salary comparison for the Chief Executive Officer (CEO) and other Senior
Officers of the Company. The compensation practices for executives are built
around reward systems that recognize financial results and individual
performance. Currently, three primary components comprise the executive
compensation program: base salary, short-term incentives achieved through annual
incentive or bonus payments, and long-term incentives provided through periodic
stock option grants.
Base Salary: Base salaries are established by salary ranges developed
with the assistance of external consultants. The ranges are intended to be
competitive in the markets applicable to the Company's business units and are
intended to allow the organization to recruit and retain qualified employees.
The Company uses various compensation surveys purchased from independent
consultants to provide data to support the development of competitive
compensation plans. Proxy circulars from public U.S. health care companies are
also reviewed. Movement through these ranges is a function of individual
performance, financial results and external market changes.
Short-term Incentives: The Company also provides an incentive program
that is formula-based and is measured against pre-determined performance
targets. Awards are granted on the basis of profit centre results, corporate
results and individual performance as measured against pre-established
objectives. The design of the incentive plan was developed with the assistance
of independent consultants. Incentive potential or levels for each executive are
established based on the individual's ability to contribute to the overall goals
and performance of the Company.
8
EXTENDICARE PROXY CIRCULAR
Long-term Incentives: Long-term compensation is comprised of stock
options, which are granted periodically at the discretion of the Board under the
Company's Stock Option Plan. These options are intended to focus executives on
the long-term goals of the Company and the interests of the shareholders.
Options are granted to provide employees who have responsibility for the
management, growth and future success of the Company with an opportunity for
rewards as a result of stock price increases. By this approach, executive and
shareholder interests will be closely aligned. (For more information, see
"Executive Compensation - Stock Option Plans".)
On an annual basis, the Committee reviews the CEO's performance, salary
and incentive. In addition to financial results, the Committee considers factors
important to the business sector, such as strategic positioning, quality of
service, human resources planning and the overall public image of the Company.
The evaluation against these criteria is directly related to the incentive
payments awarded.
Salary Comparison for CEO:
- -------------------------------------------------------------------------------------------------------
2001
2001 2001 TOTAL SALARY
CEO BASE SALARY ($) BONUS ($) AND BONUS ($)
- -------------------------------------------------------------------------------------------------------
US Long-term Care CEO's (average) US 785,909 US 926,258 US 1,712,167
- -------------------------------------------------------------------------------------------------------
Extendicare CEO US 400,000 US 200,000 US 600,000
- -------------------------------------------------------------------------------------------------------
Report submitted by the Human Resources Committee:
Michael J.L. Kirby (Chairman) David M. Dunlap
Derek H.L. Buntain Frederick B. Ladly
Sir Graham Day J. Thomas MacQuarrie, Q.C.
SHARE PERFORMANCE GRAPH
The following graph compares the total cumulative shareholder return
(assuming the reinvestment of dividends) for $100 invested in Extendicare's
Subordinate Voting Shares (EXE.A) with the Standard & Poor's/TSX Composite Index
for the period commencing on January 1, 1997 and ending on December 31, 2002.
CUMULATIVE VALUE OF $100 INVESTMENT OVER A FIVE-YEAR PERIOD
[LINE GRAPH]
- -------------------------------------------------------------------------------------------------------------------
FOR THE YEAR 1997 1998 1999 2000 2001 2002
- -------------------------------------------------------------------------------------------------------------------
S&P/TSX Composite Index [DIAMOND SYMBOL] $100.00 $98.42 $129.51 $139.23 $121.73 $106.59
- -------------------------------------------------------------------------------------------------------------------
Extendicare (EXE.A) [SQUARE BOX SYMBOL] $100.00 $44.62 $ 22.31 $ 17.44 $ 26.92 $ 21.54
- -------------------------------------------------------------------------------------------------------------------
9
EXTENDICARE PROXY CIRCULAR
COMPENSATION OF DIRECTORS
Directors who are employees of the Company or any of its subsidiaries
are not compensated for their services as directors or members of committees of
the Board of Directors of the Company.
During 2002, directors who were not employees of the Company were
entitled to receive an annual retainer fee of $20,000 (in either cash and/or
Subordinate Voting Shares, as determined by corporate policy), the Chairman of
the Board was entitled to receive an additional annual fee of $75,000, and the
chairman of each committee of the Board was entitled to receive an additional
annual fee of $5,000. Meeting fees were $1,500 or $2,250 for every meeting of
the Board or of a committee attended in person, the actual meeting fee being
dependent on the length of the particular meeting, and $750 for participating in
a meeting held by telephone. Out-of-town directors were also paid the equivalent
of 50% of a meeting fee plus an additional 50% of a meeting fee for each night
they were required to stay over to attend meetings. In addition, directors were
entitled to an annual grant of stock options under the Company's Stock Option
Plan.
Directors' fees paid by the Company in 2002 were $661,250. On February
21, 2002, the Company granted to each of 12 directors an option to purchase
20,000 Subordinate Voting Shares at a price of $4.36 per share, which options
will expire on February 20, 2007.
DIRECTORS' AND OFFICERS' LIABILITY INSURANCE
The Company carries claims-made insurance coverage with an aggregate
policy limit of US$20,000,000 subject to a corporate deductible of US$500,000.
Under this insurance coverage, the Company is reimbursed for amounts it pays
when indemnifying directors and officers, as permitted or required by law, when
the directors and officers have become legally obligated to pay on account of
any claim made against them during the period of indemnity covered by the
policy. This policy also provides coverage, which is not subject to a
deductible, to individual directors and officers to the extent that they are not
indemnified by the Company. The insurance coverage for both the Company and its
directors and officers contains certain standard exclusions, which could limit
the amount recoverable thereunder.
For the policy term January 1, 2002 to December 31, 2002, the Company
in respect of Extendicare and its subsidiary companies paid a total premium of
US$565,550.
INDEBTEDNESS TO THE CORPORATION
The total indebtedness relating to the purchase of securities of
Extendicare Inc. incurred by current or former directors, officers and employees
of the Company or its subsidiaries as at March 14, 2003 was US$94,205.
INDEBTEDNESS OF DIRECTORS, EXECUTIVE OFFICERS AND
SENIOR OFFICERS UNDER SECURITIES PURCHASE PROGRAMS
- ---------------------------------------------------------------------------------------------------------------------
FINANCIALLY
LARGEST ASSISTED
AMOUNT AMOUNT SECURITIES
INVOLVEMENT OF OUTSTANDING OUTSTANDING AS AT PURCHASES
NAME AND ISSUER OR DURING 2002 MARCH 14, 2003 DURING 2002 SECURITY FOR
PRINCIPAL POSITION SUBSIDIARY ($) ($) (#) INDEBTEDNESS
- ---------------------------------------------------------------------------------------------------------------------
M.A. Rhinelander, Lender US 94,205 US 94,205 5,000 Note
President and Chief
Executive Officer
- ----------------------------------------------------------------------------------------------------------------------
Note: The Company has entered into an agreement with Mel Rhinelander, President
and Chief Executive Officer of Extendicare Inc. whereby the Company has agreed
to loan Mr. Rhinelander up to US$100,000 (the "Loan") to enable him to acquire
Subordinate Voting Shares, on the open market from time to time, of the Company
(the "Purchased Shares"). The Loan is secured by the Purchased Shares, of which
there are 53,500 acquired, is non-interest bearing and is payable upon disposal
of the Purchased Shares.
10
EXTENDICARE PROXY CIRCULAR
REPORT OF THE AUDIT COMMITTEE
The Audit Committee consists of six directors appointed by the Board of
Directors, all of whom are outside and unrelated directors. The Committee
operates within a written mandate, as approved by the Board of Directors, which
describes the Committee's objectives and responsibilities. The full text of the
Audit Committee Charter is disclosed as Appendix B to this Management
Information and Proxy Circular.
The Committee continues to monitor, and adopt as appropriate, new
regulatory requirements (including the provisions of the United States
Securities and Exchange Commission (SEC)) and emerging best practices. The Chief
Executive Officer and the Chief Financial Officer of Extendicare certify the
information set forth in the consolidated financial statements and related
disclosure materials of the Company as required by the SEC.
In discharging its responsibilities for financial reporting in 2002,
the Committee met on five occasions to review key financial disclosure reports,
and receive assurance of the adequacy of financial disclosure controls, and
oversee the work of the Company's internal auditor and that of the external
independent auditors, KPMG LLP, including the overall scope and plan for the
2002 audit. The external auditors were in attendance at four of the Audit
Committee meetings.
Throughout the year the Committee reviewed with management and the
external auditors the appropriateness of the Company's accounting and financial
reporting, the impact of the adoption of new accounting pronouncements, the
accounting treatment of significant risks and uncertainties, the key estimates
and judgements of management that were material to the Company's financial
reporting, and the disclosure of critical accounting policies.
During the year the Committee reviewed and recommended to the Board for
its approval, where appropriate, all public disclosure documents (including news
releases) containing audited or unaudited financial information before release
to the public. These included the Company's Audited Consolidated Financial
Statements, Annual Report, Annual Information Form, annual Management's
Discussion and Analysis (MD&A), and the quarterly financial results (including,
the quarterly MD&A and unaudited quarterly consolidated financial statements).
Prior to the release of such documents to the public, the Committee met with
management, and where applicable, the external auditors, to review the documents
and receive assurance that they were complete, fairly presented, and in
accordance with established principles consistently applied.
Prior to the issuance of the annual financial statements the Committee
met with management and with the external auditors. The Committee was assured
that management had fulfilled its responsibilities for financial reporting and
internal controls and that the external auditors had carried out their audit in
accordance with their audit plan as approved.
The Committee met with management and the external auditors to discuss
the qualitative aspects of the financial statement reporting, which included the
appropriateness of the significant accounting policies, management judgements
and accounting estimates and other matters arising from the audit. The Committee
met with the external auditors, without management, and was advised that there
were no serious difficulties encountered in the audit.
In addition, the Committee discussed with KPMG LLP its independence
from the Company and management. The Committee reviewed in detail the audit and
non-audit related fees paid to KPMG LLP during 2002 and considered the
compatibility of the non-audit services with the auditors' independence and
concluded that such services did not compromise the independence of the
auditors. To reflect emerging practices, the Committee has adopted a policy
requiring Committee approval of the engagement of KPMG LLP on any future
permissible non-audit related matters, and which otherwise prohibits the
engagement of KPMG LLP on matters that do not directly relate to KPMG LLP's
audit.
The Committee is satisfied that it has appropriately fulfilled its
mandate to the best of its ability for the year ended December 31, 2002.
Report submitted by the Audit Committee:
J. Thomas MacQuarrie, Q.C. (Chairman) George S. Dembroski
Derek H.L. Buntain George A. Fierheller
David M. Dunlap Alvin G. Libin
11
EXTENDICARE PROXY CIRCULAR
CORPORATE GOVERNANCE
Under the rules of the Toronto Stock Exchange, the Company is required
to disclose information relating to its system of corporate governance. The
Company's disclosure is set out in Appendix A to this Management Information and
Proxy Circular.
ADDITIONAL INFORMATION
ADDITIONAL INFORMATION ABOUT EXTENDICARE IS CONTAINED IN THE COMPANY'S
ANNUAL INFORMATION FORM DATED MAY 15, 2002. COPIES OF THIS DOCUMENT ARE
AVAILABLE UPON REQUEST FROM THE CORPORATE SECRETARY OF THE COMPANY, 3000 STEELES
AVENUE EAST, MARKHAM, ONTARIO L3R 9W2.
APPROVAL OF DIRECTORS
The contents and the sending of this Management Information and Proxy
Circular have been approved by the Board of Directors.
DATED at Markham, Ontario this 14th day of March 2003.
By:/s/ Mel Rhinelander By:/s/ Mark W. Durishan
Mel Rhinelander Mark W. Durishan
President and Vice-President, Finance,
Chief Executive Officer and Chief Financial Officer
12
EXTENDICARE PROXY CIRCULAR
APPENDIX A
CORPORATE GOVERNANCE STATEMENT
Numerous regulatory changes in both Canada and the United States are in
progress, many in response to the recent passage of the United States
Sarbanes-Oxley Act of 2002 (SOX). Extendicare (the "Company"), as a public
company listed on both the Toronto Stock Exchange (TSX) and the New York Stock
Exchange (NYSE), must consider the requirements of both exchanges that apply to
the Company. In this Appendix, the Company's corporate governance practices are
compared with the corporate governance guidelines of the TSX. In the spring of
2002 the TSX published proposed amendments to its corporate governance
guidelines, followed by a further set of proposals in November 2002. While these
proposed amendments have not been finalized or implemented, the Board of
Directors continues to monitor them.
In addition, the Board of Directors is monitoring the corporate
governance rule proposals of the NYSE, as well as reviewing its governance
practices in response to SOX. The United States Securities and Exchange
Commission (SEC) is in the process of issuing rules and regulations to give
effect to provisions of SOX. As these SEC rules and the NYSE proposed rules come
into effect, the Board of Directors will review and amend its governance
practices where appropriate in response to these standards.
Extendicare has presently in force charters for its Board of Directors
and the various committees thereof, as well as a Disclosure Policy outlining the
rules for timely disclosure of material information and transactions in
securities of Extendicare by insiders. In addition, the Company maintains a
Board approved Business Conduct Policy for which currently no waivers have been
sought or granted. The Company's Business Conduct Policy addresses conflicts of
interest, confidentiality, protection of company assets, fair dealing,
compliance with laws, rules and regulations and encourages reporting of any
illegal or unethical business practices, and is signed by each director, officer
and employee of Extendicare. In light of the ongoing regulatory changes referred
to above, the Company is presently reviewing such charters and policies to
ensure compliance as new regulations are implemented.
With respect to the Company's governance procedures as compared with
the existing NYSE listing standards, as well as the NYSE proposed amendments
thereto as at February 20, 2003, the Company is generally in compliance with
these standards and, in particular, is in compliance with the requirement that
the majority of directors be "independent", that all the members of the audit
committee be "independent" and "financially literate", and that at least one
member of the audit committee be a "financial expert".
The TSX requires each listed company to disclose on an annual basis its
approach to corporate governance with reference to guidelines published by the
TSX as adopted in 1995. The TSX Guidelines include the following definitions:
- "inside director" means a director who is a member of
management;
- "outside director" means a director who is not a member of
management;
- "related director" means a director who is not an unrelated
director or is a member of management;
- "unrelated director" means a director who is independent of
management and 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 with a view to the best interests of the company, other
than interests and relationships arising from shareholding;
and
- "significant shareholder" means a shareholder with the ability
to exercise a majority of the votes for the election of the
board of directors.
13
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APPENDIX A
The Company's corporate governance policy is outlined below.
- -----------------------------------------------------------------------------------------------------------------------
TSX GUIDELINES EXTENDICARE'S GOVERNANCE PRACTICES
- -----------------------------------------------------------------------------------------------------------------------
The board of directors should - The Board is responsible for overseeing management of the Company.
explicitly assume responsibility Management, in turn, is responsible for the day-to-day management of
for the stewardship of the the business and affairs of the Company.
company. - The Board's expectation is that management will seek to maximize
shareholder value in a manner that is consistent with good corporate
citizenship, including fair treatment of the Company's employees and the
provision of quality service to the public.
- The Board met five times during the year ended December 31, 2002.
- -----------------------------------------------------------------------------------------------------------------------
The board of directors should - The Board believes that management is responsible for the development
specifically assume of long-term corporate strategy, while the role of the Board is to review,
responsibility for the following question and validate, and ultimately to approve the strategies proposed
matters: by management. The Board reviews, among other things, emerging
trends, opportunities, risks and issues with management on a periodic
(a) adoption of a strategic basis.
planning process; - In addition to those matters that must by law be approved by the Board,
management is required to seek Board approval for significant
acquisitions, divestitures and capital expenditures.
- Other matters that impact significantly on the operations of the Company
are brought to the Board's attention for its input, consideration and
approval.
(b) identification of principal - The Board, together with its committees, identifies the principal risks of
risks of the business and the Company's business and also reviews the procedures established by
implementation of management for control of such risks.
appropriate systems to - Specific risks and risk management are addressed by committees of the
manage these risks; Board. For example:
- the Audit Committee is charged with identifying and reviewing with
management the financial risks of the Company;
- the Human Resources Committee is responsible, among other things,
for addressing risks in the areas of succession planning; and
- the Quality Standards Committee is responsible for monitoring
management's responsibilities for adequate quality assurance
programs and reviewing its operations against best practices.
(c) succession planning, - The Board is responsible for selecting the CEO and approving the
including appointing, selection of other senior executives.
training and monitoring - The Corporate Governance and Nominating Committee oversees the
senior management; appointment and succession planning of the position of the CEO, and
makes recommendation to the Board.
- The Human Resources Committee oversees the appointment and
succession planning of senior management, and makes recommendations
to the Board.
14
EXTENDICARE PROXY CIRCULAR
APPENDIX A
- -----------------------------------------------------------------------------------------------------------------------
TSX GUIDELINES EXTENDICARE'S GOVERNANCE PRACTICES
- -----------------------------------------------------------------------------------------------------------------------
(d) a communications policy; - The Board has adopted a Disclosure Policy, and assigned a committee
and consisting of the CEO, Chief Financial Officer, Investor Relations
Officer, and Corporate Secretary to be responsible for overseeing the
Company's disclosure practices.
- The objective of the Disclosure Policy Committee is to ensure that
communications to the investing public about the Company are; timely,
factual and accurate; and broadly disseminated in accordance with all
applicable legal and regulatory requirements.
- The Board reviews and, where required, approves news releases of a
material nature and statutory disclosure documents prior to their public
distribution.
- The Company conducts quarterly financial results conference calls that
are open to all interested parties. Archived recordings of the calls are
posted on the Company's website.
- Investor inquiries and concerns are handled promptly by the offices of
the CEO and the Chief Financial Officer.
- Corporate information (such as quarterly and annual financial statements,
press releases and investor presentations) is posted on the Company's
website at www.extendicare.com.
(e) integrity of internal control - With the assistance of the Audit Committee, the Board ensures the
and management integrity of the Company's internal control and management information
information systems. systems.
- -----------------------------------------------------------------------------------------------------------------------
The board of directors should - The Board has considered the relevant definitions in the TSX Guidelines
be constituted with a majority and other factors and has determined that of the Company's 13 directors
of individuals who qualify as (current and proposed slate of candidates), 12 are unrelated directors. Mr.
unrelated directors. If the Rhinelander is a related director due to his position as an officer of the
company has a significant Company and its subsidiaries.
shareholder, in addition to a - The Board has determined that its 12 unrelated directors do not have any
majority of unrelated directors, interests (other than shareholding), or other relationships that could, or
the board should include a could reasonably be perceived to, materially interfere with the directors'
number of directors who do not ability to act in the best interests of the Company.
have interests in or - Messrs. Ladly and Burns are former executive officers of the Company,
relationships with either the with terms of employment that ended in 1997 and 1992, respectively.
company or the significant The board has determined that sufficient time has lapsed to consider
shareholder and which fairly these individuals to be free from any interest that might affect their
reflects the investment in the ability to act in the best interests of the Company.
company by shareholders other - Mr. Burns represents the interests of Kingfield Investments Limited,
than the significant shareholder. while Mr. Hennigar represents the interests of Scotia Investments
Limited. These two companies, together with 875760 Ontario Inc., have
The board of directors should an agreement to act in concert (see "Principal Holders of Subordinate
be responsible for applying the Voting Shares and Multiple Voting Shares). Such agreement represents a
definition of "unrelated significant minority holding of the Company (i.e. 48% of the votes). The
director" to the circumstances TSX Guidelines indicate that share ownership would not preclude the
of each individual and should application of the definition of an unrelated director. Furthermore, the
disclose annually the analysis remaining ten unrelated directors do not have interests in or relationships
of the application of the with either the Company or the significant minority shareholders, with
principles supporting this the result that the investment in the Company by its other shareholders is
conclusion. fairly reflected in the composition of the Board.
- -----------------------------------------------------------------------------------------------------------------------
15
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APPENDIX A
- -----------------------------------------------------------------------------------------------------------------------
TSX GUIDELINES EXTENDICARE'S GOVERNANCE PRACTICES
- -----------------------------------------------------------------------------------------------------------------------
The board of directors should - The Board has appointed the Corporate Governance and Nominating
appoint a committee composed Committee to, among other things: make recommendations as to the size
exclusively of outside directors, and composition of the Board; review qualifications of potential
a majority of whom are candidates for election to the Board; recommend the slate of nominees
unrelated directors, with the for presentation at the annual shareholders' meeting; make
responsibility for proposing recommendations with respect to the membership of committees; and
new nominees to the board and periodically assess the performance of the Board and its various
for assessing directors on an committees.
ongoing basis. - Nominees for the position of Chairman of the Board are the
responsibility of the full Board.
The board of directors should - The Corporate Governance and Nominating Committee is composed of
implement a process to be six directors, all of whom are outside and unrelated directors.
carried out by an appropriate - The Committee met twice during the year ended December 31, 2002.
committee for assessing the
effectiveness of the board, its
committees and the
contribution of individual
directors.
- -----------------------------------------------------------------------------------------------------------------------
The company should provide - The orientation of new directors consists of a presentation regarding their
an orientation and education general responsibilities as directors. In addition, an executive of each of
program for new recruits to the the main operating divisions provides new directors with an overview of
board. current issues and business strategies.
- Management on a regular basis gives presentations to the Board on
various aspects relevant to the business, in addition to providing the
directors with updates on business and governance initiatives.
- In addition, Board meetings are combined with tours of the Company's
facilities so that the directors can gain greater insight into the Company's
business operations.
- -----------------------------------------------------------------------------------------------------------------------
The board of directors should - The Board has determined that 13 directors is an appropriate number at
examine its size and determine the current time, given the Company's structure and needs, as this
the impact of the number of permits the Board to be large enough for diversity of experience and
directors on the effectiveness of opinion, yet small enough to allow for efficient operation and decision
decision-making. making.
- -----------------------------------------------------------------------------------------------------------------------
The board of directors should - The Human Resources Committee is responsible for reviewing and
review the adequacy and form recommending directors' compensation. It reviews external surveys to
of the compensation of compare the compensation paid by the Company with compensation paid
directors and ensure the to directors in other organizations. In addition, the Committee considers
compensation realistically time commitment, risks and responsibilities.
reflects the responsibilities and - The Human Resources Committee is composed of six directors, all of
risk involved in being an whom are outside and unrelated directors.
effective director. - The Committee met four times during the year ended December 31,
2002.
- -----------------------------------------------------------------------------------------------------------------------
16
EXTENDICARE PROXY CIRCULAR
APPENDIX A
- -----------------------------------------------------------------------------------------------------------------------
TSX GUIDELINES EXTENDICARE'S GOVERNANCE PRACTICES
- -----------------------------------------------------------------------------------------------------------------------
Committees of the board of - Each Committee is composed exclusively of outside directors, all of
directors should generally be whom are unrelated to the Company.
composed of outside directors, - The Chairman of the Board and the CEO currently participate in
a majority of whom are committee meetings as ex-officio members.
unrelated directors, although
some board committees may
include one or more inside
directors.
- -----------------------------------------------------------------------------------------------------------------------
The board of directors should - The Corporate Governance and Nominating Committee oversees issues
expressly assume responsibility of corporate governance as they apply to the Company and recommends
for, or assign to a committee of amendments to the Company's corporate governance procedures where
the board the general appropriate.
responsibility for, developing
the company's approach to
governance issues. This
committee would, among other
things, be responsible for the
company's response to these
guidelines.
- -----------------------------------------------------------------------------------------------------------------------
The board of directors, together - Guidelines for the Board have been established defining the role and
with the CEO, should develop responsibility of the Board and setting out those matters requiring Board
position descriptions for the approval. The Board has delegated to senior management the
board and for the CEO, responsibility for day-to-day management of the business of the
involving the definition of the Company. In addition to those matters, which must by law be approved
limits to management's by the Board, the Board retains responsibility for significant changes in
responsibilities. In addition, the the operations of the Company.
board should approve or - The Human Resources Committee together with the CEO have
develop the corporate developed a position description for the CEO, together with the corporate
objectives, which the CEO is objectives that the CEO is responsible for meeting.
responsible for meeting. - On an annual basis, the Human Resources Committee reviews the CEO's
performance, salary and incentive for recommendation to the Board for
its approval.
- -----------------------------------------------------------------------------------------------------------------------
The board of directors should - The majority of the Board, 12 out of 13, are unrelated, acting
have in place appropriate independently of management.
structures and procedures to - The role of the Chairman and CEO are separate.
ensure that the board can - Each committee of the Board is comprised solely of unrelated directors.
function independently of - The Board and its committees meet periodically without management
management. present.
- -----------------------------------------------------------------------------------------------------------------------
17
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APPENDIX A
- -----------------------------------------------------------------------------------------------------------------------
TSX GUIDELINES EXTENDICARE'S GOVERNANCE PRACTICES
- -----------------------------------------------------------------------------------------------------------------------
The audit committee of the - The Audit Committee is comprised of six directors, all of whom are
board of directors should: be outside and unrelated directors.
composed only of outside - All members of the Committee are considered by the Board to be
directors; have a specifically financially literate, in that they maintain the ability to read and
defined mandate; have direct understand a balance sheet, an income statement and a cash flow
communication channels with statement.
the internal and external - Three members of the Committee, Messrs. Dembroski, Buntain and
auditors; and include oversight MacQuarrie, are considered by the Board to be financial experts in that
responsibility for management they have the ability to analyze and interpret a full set of financial
reporting on internal control, statements, including the notes attached thereto, in accordance with
i.e. to ensure that management generally accepted accounting principles. Specifically, Mr. Dembroski is
has designed and implemented a Chartered Accountant, and in addition to his audit experience of public
an effective system of internal company financial statements, his work experience with RBC Dominion
control. Securities in the Investment Banking and Merger and Acquisition
departments included extensive involvement with financial statement
The TSX proposes, in addition analysis. Mr. Buntain is President of The Dundee Bank, holds an MBA,
to the above, that all members is a Fellow of the Canadian Securities Institute, and was a licensed
of the audit committee be broker and director of investment firms. His extensive work experience
unrelated, financially literate included positions as a Director of Research for an investment dealer and
and that one member should be Director of Corporate Finance and Mergers & Acquisitions where
a financial expert. financial analysis was a crucial component. Mr. MacQuarrie is a Senior
Partner of Stewart McKelvey Stirling Scales, with Bachelor degrees in
Law and Commerce from Dalhousie University. Mr. MacQuarrie has
gained extensive experience with financial statement preparation and
analysis through his diversified practice in corporate and commercial
transactions including formations, financings, securities and
reorganizations. In addition, he has been a member and Chair of this
Committee for over twenty years.
- The Audit Committee is mandated by the Board to: review the interim
and audited financial statements, including the Management's Discussion
and Analysis; review all public disclosure documents containing audited
or unaudited financial information; make recommendations regarding the
appointment of independent auditors and their remuneration; review any
proposed changes in accounting practice or policies; review the nature,
scope and results of the external audit; and review with the external and
internal auditors, and management, the adequacy of the Company's
internal accounting control procedures.
- The external auditors attend each meeting of the Committee regarding
the review of interim and audited financial statements, and the
Committee meets with the external auditors independently of management
at least once a year.
- The Committee met five times during the year ended December 31, 2002.
- -----------------------------------------------------------------------------------------------------------------------
The board of directors should - Any director may engage outside advisors, at the expense of the
implement a system that Company, with respect to the affairs of the Company, upon review of
enables an individual director such matter with the Corporate Governance and Nominating Committee.
to engage an outside advisor, at
the expense of the company in
appropriate circumstances,
subject to the approval of an
appropriate board committee.
- -----------------------------------------------------------------------------------------------------------------------
18
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APPENDIX B
EXTENDICARE INC.
AUDIT COMMITTEE CHARTER
1. The Audit Committee of the Corporation shall be appointed annually by
the Board of Directors and consist of not fewer than three nor more
than six directors.
2. The Audit Committee of the Corporation shall consist of at least one
member who qualifies as a financial expert, as interpreted by the Board
of Directors in its business judgement from time to time.
3. The Chairperson of the Audit Committee and the other members of the
Audit Committee shall:
a) be independent and no member shall have a material business
relationship with the Corporation unless the Board of
Directors determines in its business judgement, from time to
time, that the relationship does not interfere with the
exercise of that member's independent judgement and
independence from management and the Corporation;
b) be financially literate as this qualification is interpreted
by the Board of Directors in its business judgement from time
to time or must become financially literate within a
reasonable period of time after appointment to the Audit
Committee;
c) not be an officer or employee of the Corporation, nor a
compensated officer or employee of a subsidiary of the
Corporation, nor have been such within the three year period
next preceding the appointment of the director to the Audit
Committee; and
d) not receive, either directly or indirectly, any other
compensation from the Corporation or any affiliate of the
Corporation, other than in the member's capacity as a member
of the Board of Directors and any Board Committee.
4. The Board of Directors will exercise its business judgement to
determine a director's eligibility to be a member of the Audit
Committee including a determination regarding the independence of a
director.
5. The scope of the responsibilities of the Audit Committee include:
a) reviewing and evaluating the performance of the external
auditors annually or more frequently as required and
recommending their appointment or reappointment by the
Shareholders of the Corporation;
b) reviewing the audit plan with the external auditor and with
management;
c) reviewing with management and with the external auditor any
proposed changes in major accounting policies, the
presentation and impact of significant risks and
uncertainties, and key estimates and judgements of management
that may be material to financial reporting and any
significant financial reporting issues occurring or discussed
during the fiscal period and the method of resolution;
d) reviewing any problems experienced by the external auditor in
performing the audit, including any restrictions imposed by
management or significant accounting issues with which there
was a disagreement with management;
e) reviewing audited annual financial statements, in conjunction
with the report of the external auditor, and obtaining an
explanation from management of all significant variances
between comparative reporting periods;
f) reviewing all post-audit or management letters, containing the
recommendations of the external auditor, and management's
response and subsequent follow-up to any identified weaknesses
or significant comments;
g) reviewing interim unaudited financial statements before
release to the public and where authorized by the Board of
Directors, approving the interim unaudited financial
statements;
19
EXTENDICARE PROXY CIRCULAR
APPENDIX B
h) reviewing and recommending approval to the Board of Directors,
where appropriate, all public disclosure documents (including
news releases) containing audited or unaudited financial
information before release to the public, including any
prospectus, quarterly and annual financial statements,
management's discussion and analysis, the annual report and
the annual information form;
i) reviewing the evaluation of internal controls by the external
auditor, together with management's response;
j) reviewing with management all issues of operational risk
management, including insurance coverages maintained by the
Company, legal exposure, including legal claims or other
contingencies as well as tax assessments that could have a
material effect upon the financial position or operating
results of the Company, management compliance with regulatory
requirements, conflicts of interest, and other related
matters, in the exercise of its business judgement that it
considers as having or tending to have a material impact on
the financial position of the Corporation;
k) reviewing with management any allegations of fraud, or other
impropriety, whether or not material, that involves management
or other employees who have a significant role in the
Corporation's internal controls;
l) reviewing the appointment of the chief financial officer and
of any key financial executive involved in the financial
reporting process or any changes in any of these positions;
m) reviewing and reporting to the Board of Directors on the
appointment, replacement, reassignment or dismissal of the
internal auditor;
n) reviewing the terms of reference of the internal auditor;
o) reviewing the annual plan of the internal auditor;
p) reviewing the reports of the internal auditor with respect to
control and financial risk and any other matters appropriate
to the duties of the Audit Committee. The Audit Committee
shall review the adequacy and appropriateness of management's
response, including implementation thereof; and
q) reviewing and approving the reporting relationship of the
internal auditor to ensure that an appropriate segregation of
duties is maintained and that the internal auditor has an
obligation to report directly to the Audit Committee on
matters affecting the duties of the Audit Committee without
regard to the internal auditor's other reporting
relationships.
6. The Audit Committee shall take all necessary steps, which in its
business judgement are necessary, to assure the objectivity and
independence of the external auditor, including:
a) reviewing and approving the terms of the external auditor's
engagement, the appropriateness and reasonableness of the
proposed audit fees and any unpaid fees;
b) when there is to be a change of auditor, reviewing all issues
related to the change, including the information to be
included in the notice of change of auditor and the planned
steps for an orderly transition;
c) reviewing all reportable events, including disagreements,
unresolved issues and consultations on a routine basis;
d) establishing and maintaining procedures for preapproval by the
Audit Committee of all proposed non-audit services to be
provided by the external auditor's firm or its affiliates,
together with estimated fees, and considering the impact of
these on the independence of the external auditor; and
e) obtaining from the external auditor on a periodic basis, a
formal written statement delineating all relationships between
the external auditor and the Corporation, actively engaging in
a dialogue with the external auditor with respect to any
disclosed relationships or services that may impact the
objectivity and independence of the external auditor, and for
recommending that the Board of Directors take appropriate
action in response to the external auditor's report to satisfy
itself of the outside auditor's independence.
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APPENDIX B
7. The Audit Committee should review and ensure that procedures are in
place for the:
a) receipt, retention and treatment of complaints received by the
Company regarding accounting, internal accounting controls or
auditing matters; and
b) the confidential, anonymous submission by employees of the
Company of concerns regarding questionable accounting or
auditing matters.
8. The Audit Committee shall meet as often as it deems appropriate to
discharge its responsibilities and in any event at least four times per
year. The meetings will be scheduled so as to permit timely review and
consideration of the interim and annual financial statements as well as
allowing sufficient time to consider and review the audit plan with
management and the external auditors. Additional meetings may be held
as deemed necessary by the Chairperson of the Audit Committee or as
requested by any member of the Audit Committee or the external
auditors.
9. The Audit Committee, annually, shall review and reassess the adequacy
of the Audit Committee Charter and report thereon to the Board of
Directors of the Corporation.
10. The minutes of all meetings of the Audit Committee shall be provided to
the Board of Directors of the Corporation. Oral reports by the
Chairperson of the Audit Committee on recent matters not yet minuted
shall be provided to the Board of Directors of the Corporation at the
next meeting of the Board following the meeting of the Audit Committee.
11. The Audit Committee, as it deems necessary in the exercise of its
business judgement, may conduct or authorize investigations into any
matters within the Audit Committee's scope of responsibilities. The
Audit Committee is authorized to retain independent professionals to
assist in the conduct of any investigation.
12. The Audit Committee, annually, will prepare a report for inclusion in
the Corporation's Management Information and Proxy Circular relating to
its annual shareholder's meeting. That report will include a statement
whether the Audit Committee has:
(a) reviewed and discussed the audited financial statements with
management;
(b) reviewed and discussed the audited financial statements with
the external auditors;
(c) received from the external auditors a report of all of its
relationships with the Corporation and has discussed with the
external auditors the external auditors' independence; and
(d) recommended that the audited financial statements of the
Corporation be included in the Corporation's Annual Report,
distributed to the Shareholders and regulatory authorities as
required by law or regulation.
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