EXHIBIT 99.2
[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 6,
2004 at 4:00 p.m., Toronto time, for the following purposes:
(1) receiving and considering the financial statements of the Company
for the year ended December 31, 2003 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 3, 2004.
DATED at Markham, Ontario this 12th day of March 2004.
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 4:00 P.M. (TORONTO TIME) ON THURSDAY, MAY 6,
2004 OR ANY ADJOURNMENT THEREOF FOR THE PURPOSES SET FORTH IN THE ACCOMPANYING
NOTICE OF MEETING. The information contained herein is given as of March 12,
2004, 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 3, 2004.
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 5, 2004
or, as to any matter upon which a vote has not already been cast, with the
Chairman on the day of the Meeting, May 6, 2004, 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.
EXTENDICARE PROXY CIRCULAR
2
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 form 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 56,754,086 Subordinate Voting Shares and 11,911,692 Multiple
Voting Shares issued and outstanding at the close of business on March 12, 2004.
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 19, 2004 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 19, 2004, 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 2005 is December 13, 2004.
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) 30,000 362,158 0.05 3.04 2.08
Kingfield Investments Limited (1)(3) - 500,000 - 4.20 2.84
Scotia Investments Limited (2) (3) 8,667 7,600,000 0.02 63.80 43.22
Clearwater Capital Management Inc. - 1,410,730 - 11.84 8.02
Phillips, Hager & North Investment
Management Ltd., on behalf of its clients 7,917,759 - 13.95 - 4.50
Notes:
(1) Of these shares, 100,000 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 either directly or indirectly 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.
EXTENDICARE PROXY CIRCULAR
3
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.
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 12,
2004, hold in the aggregate 8,462,158 Multiple Voting Shares
constituting 71.04% of those shares outstanding and representing 48.12%
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 2003, 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 Cdn$1,064,000
(2002 - Cdn$1,264,000). In addition, non-audit fees of Cdn$2,000 (2002 -
Cdn$31,000) were incurred for tax planning and Cdn$59,000 (2002 - Cdn$12,000)
for other client assistance services rendered by KPMG LLP.
As discussed in the "Report of the Audit Committee" on page 12, 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 2007; each director with a term that
expires at the Annual Meeting of Shareholders in 2005; and each director with a
term that expires at the Annual Meeting of Shareholders in 2006. 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.
EXTENDICARE PROXY CIRCULAR
4
NUMBER OF SHARES
BENEFICIALLY OWNED
OR CONTROLLED
----------------------
DIRECTOR'S NAME, OTHER POSITION WITH THE COMPANY, AND DATE FIRST ELECTED OR SUBORDINATE MULTIPLE
PRINCIPAL OCCUPATION APPOINTED A DIRECTOR VOTING(1) VOTING
- ----------------------------------------------------- -------------------- ----------- --------
(I)DIRECTORS WHO WILL BE NOMINATED TO SERVE UNTIL THE ANNUAL MEETING IN 2007:
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)
(II)DIRECTORS WITH TERMS THAT EXPIRE AT THE ANNUAL MEETING IN 2005:
DEREK H.L. BUNTAIN (A) (HR) (IS) April 26, 1995 40,841 200
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 10,500 -
Senator, Parliament of Canada
ALVIN G. LIBIN (A) January 20, 1984 802,000 -
President, Balmon Holdings Ltd. (investment company)
(III)DIRECTORS WITH TERMS THAT EXPIRE AT THE ANNUAL MEETING IN 2006:
DAVID M. DUNLAP (A) (HR) (QS) October 8, 1980 39,124 -
Chairman, G.F. Thompson Co. Ltd. (manufacturing)
GEORGE A. FIERHELLER (A) (IS) April 21, 1981 37,584 2,000
President, Four Halls Inc. (private investment and consulting)
DR. SETH B. GOLDSMITH (CG) (QS) February 23, 1995 5,000 -
Attorney and Professor Emeritus, University of Massachusetts
MEL RHINELANDER May 2, 2000 78,700 2,000
President and Chief Executive Officer, Extendicare Inc.
(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.
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".)
EXTENDICARE PROXY CIRCULAR
5
EXECUTIVE COMPENSATION
COMPENSATION OF NAMED EXECUTIVE OFFICERS
The Summary Compensation Table details compensation information for the
three fiscal years ended December 31, 2003 for each of the Chief Executive
Officer and the four other most highly compensated executive officers
(collectively, the "named executive officers").
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPEN-
ANNUAL COMPENSATION SATION
------------------------------------ ----------
OTHER SECURITIES
ANNUAL UNDER ALL OTHER
COMPEN- OPTIONS COMPEN-
NAME AND PRINCIPAL POSITION WITH SALARY BONUS SATION (1) GRANTED SATION (2)
THE COMPANY YEAR (US$) (US$) (US$) (#) (US$)
- --------------------------------- ---- ------- ------- ---------- ---------- ----------
M.A. Rhinelander 2003 650,000 950,000 44,512 100,000 11,632
President and Chief Executive 2002 500,000 500,000 34,585 100,000 8,447
Officer, Extendicare Inc. 2001 400,000 200,000 38,420 100,000 9,073
M.W. Durishan 2003 265,000 150,000 - 30,000 41,750
Vice-President, Finance and Chief 2002 258,000 116,100 - 30,000 47,212
Financial Officer, Extendicare 2001 250,000 80,000 - 20,000 38,845
Inc.
P. W. Small (3) 2003 310,000 174,500 - 30,000 40,381
Executive Vice-President and 2002 275,500 115,000 - 30,000 33,228
Chief Operating Officer, 2001 145,833 55,000 - 50,000 12,500
Extendicare Health Services, Inc.
R. L. Bertrand 2003 240,000 120,000 - 30,000 36,768
Senior Vice-President, 2002 230,000 92,000 - 30,000 37,663
Development, 2001 215,000 80,000 - 15,000 40,282
Extendicare Health Services, Inc.
D. K. Howe 2003 227,000 100,000 - 15,000 38,824
Senior Area Vice-President, 2002 200,000 70,000 - 10,000 35,977
Extendicare Health Services, Inc. 2001 180,000 10,000 - 10,000 24,276
Notes:
(1) The aggregate amount of perquisites and other benefits for each named
executive officer is less than the lesser of US$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 D. K. Howe, includes payments for life insurance and
long-term disability premiums and contributions to a deferred
compensation and a defined contribution retirement plan.
(3) P. W. Small commenced employment with the Company in June 2001 as
Senior Vice-President, Strategic Planning. On February 19, 2004, Mr.
Small was appointed to the position of Executive Vice-President and
Chief Operating Officer of Extendicare Health Services, Inc.
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.
EXTENDICARE PROXY CIRCULAR
6
The following table outlines stock options granted during 2003 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 (CDN$/SECURITY) (CDN$/SECURITY) EXPIRATION DATE
---- ---------- -------------- --------------- -------------------- ---------------
M. A. Rhinelander 100,000 21.83 3.45 3.45 May 7, 2008
M. W. Durishan 30,000 6.55 3.45 3.45 May 7, 2008
P. W. Small 30,000 6.55 3.45 3.45 May 7, 2008
R. L. Bertrand 30,000 6.55 3.45 3.45 May 7, 2008
D. K. Howe 15,000 3.28 3.45 3.45 May 7, 2008
The following table outlines stock options exercised during 2003 and
option values at December 31, 2003 for the named executive officers:
AGGREGATED OPTION EXERCISES DURING THE MOST RECENTLY COMPLETED FINANCIAL YEAR
AND FINANCIAL YEAR-END OPTION VALUES
VALUE OF UNEXERCISED IN-THE-
SECURITIES AGGREGATE UNEXERCISED OPTIONS MONEY OPTIONS AT FINANCIAL
ACQUIRED ON VALUE AT FINANCIAL YEAR-END YEAR-END
EXERCISE REALIZED (#) (CDN$)
----------- --------- --------------------------- ---------------------------
NAME (#) (CDN$) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- --------- ----------- ------------- ----------- -------------
M. A. Rhinelander - - 181,250 243,750 1,743,813 2,323,938
M. W. Durishan 82,500 724,425 - 67,500 - 642,775
P. W. Small - - 32,500 77,500 255,425 682,775
R. L. Bertrand - - 31,250 63,750 296,363 605,588
D. K. Howe 15,000 58,275 - 30,000 - 288,625
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, 2003 of
Cdn$13.25.
RETIREMENT ARRANGEMENTS
M. A. Rhinelander and R. L. Bertrand are covered by a retirement
arrangement established by the Company. It provides for a benefit of 4% of the
best three consecutive years of basic salary for each year of service to a
maximum of 15 years and 1% per year thereafter. These arrangements provide a
maximum benefit guarantee of 60% of base salary after 15 years of service and
70% after 25 years of service. Normal retirement age is 60 years or age 55 with
company consent. M.A. Rhinelander has the Company's consent to retire at age 55.
Retirement benefits are payable as an annuity over the lifetime of the executive
with a portion continuing to be paid to the executive's spouse after the death
of the executive. Projected years of credited service at retirement for each of
Messrs. Rhinelander and Bertrand is 35 years.
EXTENDICARE PROXY CIRCULAR
7
Estimated annual benefits payable upon retirement of the specified
compensation and years of credited service classifications are as shown in the
following table:
PENSION PLAN TABLE
YEARS OF SERVICE AS AN EXECUTIVE
BASE -----------------------------------------------
SALARY ($) 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
450,000 270,000 292,500 315,000 315,000 315,000
500,000 300,000 325,000 350,000 350,000 350,000
550,000 330,000 357,500 385,000 385,000 385,000
600,000 360,000 390,000 420,000 420,000 420,000
650,000 390,000 422,500 455,000 455,000 455,000
700,000 420,000 455,000 490,000 490,000 490,000
750,000 450,000 487,500 525,000 525,000 525,000
800,000 480,000 520,000 560,000 560,000 560,000
M. W. Durishan, P. W. Small and D. K. Howe were not participants in
these arrangements, but rather, are participants in a 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 performs the
functions of a compensation committee. The following six outside and unrelated
directors served as members of the Committee: 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 other 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 currently 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.
EXTENDICARE PROXY CIRCULAR
8
Long-term Incentives: Long-term compensation is currently 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 Plan".) In light of the recent scrutiny
regarding stock options as an effective form of compensation, the Human
Resources Committee is in the process of reviewing other forms of compensation
to promote long-term incentive goals.
On an annual basis, the Committee reviews the CEO's performance, salary
and incentives. 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. Over 70% of the Company's operations are based in
the U.S., and all of the Company's named executive officers operate out of the
U.S. As a means of recognizing Mr. Rhinelander's exceptional performance as CEO
since accepting the position in 2000, and in an attempt to better align his
salary with those of the Company's U.S. peer group, the Human Resources
Committee, with the Board of Directors' approval, offered Mr. Rhinelander a
salary of US$800,000 for 2003, which still left him below his peer group. Given
the temporary reductions in U.S. Medicare funding and expense savings programs
put in place in the Company's U.S. operations for the first half of 2003, Mr.
Rhinelander elected to delay the implementation of his salary increase for a
period of six months, to July 1, 2003, and to receive no increase for 2004.
SALARY COMPARISON FOR CEO
CASH TOTAL SALARY RESTRICTED
CEO BASE SALARY BONUS AND CASH SHARE UNITS OPTIONS
COMPENSATION (US$) (US$) BONUS (US$) (US$) (#)
------------ ----------- ------- ------------ ----------- -------
2002
Peer group (note) 821,000 777,000 1,598,000 285,000 281,000
Extendicare 500,000 500,000 1,000,000 - 100,000
2001
Peer group (note) 729,000 926,000 1,655,000 1,403,000 343,000
Extendicare 400,000 200,000 600,000 - 100,000
Note: The peer group is based on the average of the CEO compensation reported by
Beverly Enterprises Inc, Manor Care, Inc., Genesis Health Ventures, Inc.,
Kindred Healthcare, Inc., and Mariner Health Care, Inc., with the base salaries
for partial years annualized.
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.
EXTENDICARE PROXY CIRCULAR
9
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 December 31, 1998 and ending on December 31, 2003.
CUMULATIVE VALUE OF $100 INVESTMENT OVER A FIVE-YEAR PERIOD
[PERFORMANCE GRAPH]
FOR THE YEAR 1998 1999 2000 2001 2002 2003
------------ ---- ---- ---- ---- ---- ----
S&P/TSX Composite Index $100.00 $131.59 $141.47 $123.69 $108.30 $137.25
Extendicare (EXE.A) $100.00 $ 50.00 $ 39.08 $ 60.35 $ 48.28 $152.30
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. Directors are required to attain and hold
a minimum of 5,000 common shares of the Company. Directors appointed without the
minimum share holdings must receive their annual retainer in the form of
Subordinate Voting Shares. Once the minimum share holding is attained, directors
may elect to receive their annual retainer in the form of cash and/or
Subordinate Voting Shares. In addition, Directors are entitled to an annual
grant of stock options under the Company's Stock Option Plan.
During 2003, Directors who were not employees of the Company were
entitled to receive the following in Canadian dollars:
- annual retainer: $20,000, or $25,000 for Audit
Committee members;
- Board Chairman's retainer: $75,000;
- Committee Chair retainer: $5,000, or $15,000 for the
Chair of the Audit Committee;
- Board and Committee meeting fee: $1,500 or $2,250 per
meeting depending on length of the meeting;
- telephone conference meeting fee: $750 per meeting;
- out-of-town travel fee: 50% of a meeting fee, plus a
further 50% for each required overnight stay; and
- related travel and out-of-pocket expenses.
Directors' fees paid by the Company in 2003 were Cdn$740,000. On May 8,
2003, the Company granted to each of 12 Directors an option to purchase 10,000
Subordinate Voting Shares at a price of Cdn$3.45 per share, which options will
expire on May 7, 2008.
The Board and its committees held 20 meetings during 2003, for which
attendance averaged 95%.
EXTENDICARE PROXY CIRCULAR
10
SUMMARY OF BOARD AND COMMITTEE MEETINGS HELD IN 2003
MEETINGS MEETINGS
BOARD / COMMITTEE HELD BOARD / COMMITTEE HELD
----------------- ---- ----------------- ----
Board 6 Human Resources Committee 6
Audit Committee 5 Quality Standards Committee 2
Corporate Governance and
Nominating Committee 1
SUMMARY OF DIRECTORS ATTENDANCE IN 2003
BOARD COMMITTEE BOARD COMMITTEE
MEETINGS MEETINGS MEETINGS MEETINGS
DIRECTOR ATTENDED ATTENDED DIRECTOR ATTENDED ATTENDED
-------- -------- -------- -------- -------- --------
D. H. L. Buntain 5/6 11/11 D.J. Hennigar 6/6 14/14
H. M. Burns 5/6 0/1 M.J.L. Kirby 6/6 9/9
J. G. Day 6/6 6/7 F.B. Ladly 6/6 9/9
G. S. Dembroski 5/6 4/5 A.G. Libin 6/6 5/5
D. M. Dunlap 6/6 11/13 J.T. MacQuarrie 6/6 11/11
G. A. Fierheller 6/6 5/5 M.A. Rhinelander 6/6 14/14
S. B. Goldsmith 4/6 3/3
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 13 month policy term January 1, 2003 to January 31, 2004, the
Company in respect of Extendicare and its subsidiary companies paid a total
premium of US$910,825.
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 12, 2004 was US$94,205.
INDEBTEDNESS OF DIRECTORS, EXECUTIVE OFFICERS AND SENIOR OFFICERS
UNDER SECURITIES PURCHASE PROGRAMS
LARGEST AMOUNT AMOUNT FINANCIALLY ASSISTED
INVOLVEMENT OF OUTSTANDING OUTSTANDING AS AT SECURITIES PURCHASES
NAME AND PRINCIPAL ISSUER OR DURING 2003 MARCH 12, 2004 DURING 2003 SECURITY FOR
POSITION SUBSIDIARY (US$) (US$) (#) INDEBTEDNESS
-------- -------------- -------------- ----------------- -------------------- ------------
M. A. Rhinelander, Lender 94,205 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.
EXTENDICARE PROXY CIRCULAR
11
REPORT OF THE AUDIT COMMITTEE
The Audit Committee consists of six outside and unrelated directors,
all of whom are financially literate, appointed by the Board of 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 those of the New York Stock
Exchange) 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 2003 the Committee met on five occasions to review key financial
disclosure reports, receive assurance of the adequacy of financial disclosure
controls, and review 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 2003 audit. The external independent auditors were in attendance at four
of the Audit Committee meetings.
Throughout the year the Committee reviewed with management and the
external independent 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.
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 independent 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 the internal auditor, and with the external independent
auditors. The Committee was assured that management had fulfilled its
responsibilities for financial reporting and internal controls and that the
external independent auditors had carried out their audit in accordance with
their audit plan as approved.
The Committee met with management and the external independent 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 independent auditors, without management,
and was advised that there were no unresolved issues with respect to 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 2003 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. The Committee has adopted a policy requiring Committee pre-approval of
the engagement of KPMG LLP regarding permissible non-audit related matters.
The Committee is satisfied that it has appropriately fulfilled its
mandate to the best of its ability for the year ended December 31, 2003.
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
EXTENDICARE PROXY CIRCULAR
12
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 16, 2003. COPIES OF THIS DOCUMENT
AND OTHER PUBLIC DOCUMENTS OF THE COMPANY ARE POSTED ON ITS WEBSITE AT
WWW.EXTENDICARE.COM, OR ARE AVAILABLE UPON REQUEST TO:
Extendicare Inc.
Corporate Secretary
3000 Steeles Avenue East, Suite 700
Markham, Ontario L3R 9W2
Phone: 905-470-5534
Fax: 905-470-4003
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 12th day of March 2004.
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
EXTENDICARE PROXY CIRCULAR
13
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 addition to those of the Canadian securities regulators, SOX,
and the U.S. Securities and Exchange Commission (SEC).
As a foreign private issuer, Extendicare is not required to comply with
most of the NYSE corporate governance listing standards (the "NYSE Rules"), and
instead may comply with Canadian governance practices. The Company's governance
practices are in compliance with the currently applicable NYSE Rules in all
significant respects. In particular, the Company is in compliance with the
requirements that the majority of directors be "independent", that all the
members of the compensation and nominating committees be "independent", that all
members of the audit committee be "financially literate", and that at least one
member of the audit committee be an "audit committee financial expert".
Extendicare is not required to comply with the NYSE Rules governing the
independence of Audit Committee members until July 31, 2005. The Company is
currently assessing the effect of those rules, and taking all necessary steps to
ensure that it will be in compliance with such rules by July 31, 2005.
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, and
compliance with laws, rules and regulations, and it encourages reporting of any
illegal or unethical business practices. The Business Conduct Policy is signed
by each director, officer and employee of Extendicare. These documents have been
posted on the Company's website at www.extendicare.com. 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.
In this Appendix, the Company's corporate governance practices are
compared with the TSX's guidelines for improved corporate governance (the "TSX
Guidelines"). Comments are also included in respect of certain NYSE Rules and
SEC rules adopted pursuant to SOX. The Board's Corporate Governance and
Nominating Committee has reviewed this response to the TSX Guidelines. The
following definitions, as they appear in the TSX Guidelines, are provided to
assist the reader with the attached disclosure:
- "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.
EXTENDICARE PROXY CIRCULAR
14
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
explicitly assume management of the Company. Management, in
responsibility for the turn, is responsible for the day-to-day
stewardship of the company. management of the business and affairs of the
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 of directors should - The Board believes that management is
specifically assume responsible for the development of long-term
responsibility for the corporate strategy, while the role of the
following matters: Board is to review, question and validate,
and ultimately to approve the strategies
(a) adoption of a strategic proposed by management. The Board reviews,
planning process; among other things, emerging trends,
opportunities, risks and issues with
management on a periodic basis.
- 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 - The Board, together with its committees,
principal risks of the identifies the principal risks of the
business and Company's business and also reviews the
implementation of procedures established by management for
appropriate systems to control of such risks.
manage these risks;
- Specific risks and risk management are
addressed by committees of the 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
including appointing, CEO and approving the selection of other
training and monitoring senior executives.
senior management;
- The Corporate Governance and Nominating
Committee oversees the 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.
EXTENDICARE PROXY CIRCULAR
15
APPENDIX A
TSX GUIDELINES EXTENDICARE'S GOVERNANCE PRACTICES
- ------------------------------ ------------------------------------------------
(d) a communications policy; - The Board has adopted a Disclosure Policy,
and and assigned a committee consisting of the
CEO, Chief Financial Officer, Investor
Relations Manager, 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 - With the assistance of the Audit Committee,
control and management the Board ensures the integrity of the
information systems. Company's internal control and management
information systems.
The board of directors should - The Board has considered the relevant
be constituted with a majority definitions in the TSX Guidelines, and those
of individuals who qualify as of the NYSE Rules regarding unrelated
unrelated directors. If the directors and director independence, and has
company has a significant determined that of the Company's 13 directors
shareholder, in addition to a (current and proposed slate of candidates),
majority of unrelated 12 are unrelated and "independent" directors.
directors, the board should Mr. Rhinelander is a related director due to
include a number of directors his position as an officer of the Company and
who do not have interests in its subsidiaries.
or relationships with either
the company or the significant - Messrs. Ladly and Burns are former executive
shareholder and which fairly officers of the Company, with terms of
reflects the investment in the employment that ended in 1997 and 1992,
company by shareholders other respectively. The Board has determined that
than the significant sufficient time has lapsed to consider these
shareholder. individuals to be free from any interest that
might affect their ability to act in the best
The board of directors should interests of the Company.
be responsible for applying
the definition of "unrelated - Mr. Burns represents the interests of
director" to the circumstances Kingfield Investments Limited, while Mr.
of each individual and should Hennigar represents the interests of Scotia
disclose annually the analysis Investments Limited. These two companies,
of the application of the together with 875760 Ontario Inc., have an
principles supporting this agreement to act in concert (see "Principal
conclusion. Holders of Subordinate Voting Shares and
Multiple Voting Shares). Such agreement
represents a significant minority holding of
the Company (i.e. 48% of the votes). The TSX
Guidelines and the NYSE Rules indicate that
share ownership would not preclude the
application of the definition of an unrelated
director. Furthermore, the remaining ten
unrelated directors do not have interests in
or relationships with either the Company or
the significant minority shareholders, with
the result that the investment in the Company
by its other shareholders is fairly reflected
in the composition of the Board.
EXTENDICARE PROXY CIRCULAR
16
APPENDIX A
TSX GUIDELINES EXTENDICARE'S GOVERNANCE PRACTICES
- ------------------------------ ------------------------------------------------
The board of directors should - The Board has appointed the Corporate
appoint a committee composed Governance and Nominating Committee to, among
exclusively of outside other things: make recommendations as to the
directors, a majority of whom size and composition of the Board; review
are unrelated directors, with qualifications of potential candidates for
the responsibility for election to the Board; recommend the slate of
proposing new nominees to the nominees for presentation at the annual
board and for assessing shareholders' meeting; make recommendations
directors on an ongoing basis. with respect to the membership of committees;
and periodically assess the performance of
The board of directors should the Board and its various committees.
implement a process to be
carried out by an appropriate - Nominees for the position of Chairman of the
committee for assessing the Board are the responsibility of the full
effectiveness of the board, Board.
its committees and the
contribution of individual - The Corporate Governance and Nominating
directors. Committee is composed of six directors, all
of whom are outside and unrelated directors,
and for the purposes of the NYSE Rules, are
considered "independent".
The company should provide an - The orientation of new directors consists of
orientation and education a presentation regarding their general
program for new recruits to responsibilities as directors. In addition,
the board. an executive of each of the main operating
divisions provides new directors with an
overview of 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
examine its size and determine an appropriate number at the current time,
the impact of the number of given the Company's structure and needs, as
directors on the effectiveness this permits the Board to be large enough for
of decision-making. diversity of experience and opinion, yet
small enough to allow for efficient operation
and decision-making.
The board of directors should - The Human Resources Committee is responsible
review the adequacy and form for reviewing and recommending directors'
of the compensation of compensation. It reviews external surveys to
directors and ensure the compare the compensation paid by the Company
compensation realistically with compensation paid to directors in other
reflects the responsibilities organizations. In addition, the Committee
and risk involved in being an considers time commitment, risks and
effective director. responsibilities.
- In recommending the form of directors'
compensation, the Committee seeks to align
the interests of directors and shareholders.
As such directors are required to attain and
hold a minimum of 5,000 common shares of the
Company.
- The Human Resources Committee is composed of
six directors, all of whom are outside and
unrelated directors, and for purposes of the
NYSE Rules are considered "independent".
EXTENDICARE PROXY CIRCULAR
17
APPENDIX A
TSX GUIDELINES EXTENDICARE'S GOVERNANCE PRACTICES
- -------------------------------- ------------------------------------------------
Committees of the board of - Each Committee is composed exclusively of
directors should generally be outside directors, all of whom are unrelated
composed of outside directors, to the Company, and for purposes of the NYSE
a majority of whom are Rules, are "independent".
unrelated directors, although
some board committees may - The Chairman of the Board and the CEO
include one or more inside currently participate in committee meetings
directors. as ex-officio members.
The board of directors should - The Corporate Governance and Nominating
expressly assume responsibility Committee oversees issues of corporate
for, or assign to a committee governance as they apply to the Company and
of the board the general recommends amendments to the Company's
responsibility for, developing corporate governance procedures where
the company's approach to appropriate.
governance issues. This
committee would, among other
things, be responsible for the
company's response to these
guidelines.
The board of directors, - Guidelines for the Board have been
together with the CEO, should established defining the role and
develop position descriptions responsibility of the Board and setting out
for the board and for the CEO, those matters requiring Board approval. The
involving the definition of Board has delegated to senior management the
the limits to management's responsibility for day-to-day management of
responsibilities. In addition, the business of the Company. In addition to
the board should approve or those matters, which must by law be approved
develop the corporate by the Board, the Board retains
objectives, which the CEO is responsibility for significant changes in the
responsible for meeting. operations of the Company.
- The Human Resources Committee together with
the CEO have developed a position description
for the CEO, together with the corporate
objectives that the CEO is 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
have in place appropriate unrelated, acting independently of
structures and procedures to management.
ensure that the board can
function independently of - The role of the Chairman and CEO are
management. separate.
- Each committee of the Board is comprised
solely of unrelated directors.
- The Board and its committees meet
periodically without management.
The board of directors should - Any director may engage outside advisors, at
implement a system that the expense of the Company, with respect to
enables an individual director the affairs of the Company, upon review of
to engage an outside advisor, such matter with the Corporate Governance and
at the expense of the company Nominating Committee.
in appropriate circumstances,
subject to the approval of an
appropriate board committee.
EXTENDICARE PROXY CIRCULAR
18
APPENDIX A
TSX GUIDELINES EXTENDICARE'S GOVERNANCE PRACTICES
- ------------------------------ ------------------------------------------------
The audit committee of the - The Audit Committee is comprised of six
board of directors should: be directors, all of whom are outside and
composed only of outside unrelated directors.
directors; have a specifically
defined mandate; have direct - All members of the Committee are considered
communication channels with by the Board to be financially literate, in
the internal and external that they maintain the ability to read and
auditors; and include understand a balance sheet, an income
oversight responsibility for statement and a cash flow statement.
management reporting on
internal control, i.e. to - Three members of the Committee, Messrs.
ensure that management has Dembroski, Buntain and MacQuarrie, are
designed and implemented an considered by the Board to each qualify as an
effective system of internal "audit committee financial expert" as defined
control. by the SEC rules. They each have the ability
to analyze and interpret a full set of
financial statements, including the notes
attached thereto, in accordance with
generally accepted accounting principles.
Specifically, Mr. Dembroski is a Chartered
Accountant, and in addition to his audit
experience of public company financial
statements, his work experience with RBC
Dominion Securities in the Investment Banking
and Merger and Acquisition departments
included extensive involvement with financial
statement analysis. Mr. Buntain is President
of The Dundee Bank, holds an MBA, is a Fellow
of the Canadian Securities Institute, and was
a licensed broker and director of investment
firms. His extensive work experience included
positions as a Director of Research for an
investment dealer and Director of Corporate
Finance and Mergers & Acquisitions where
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. In addition, as an International
Legal Studies Fellow, he did postgraduate
work in law and labour relations at the
University of Pennsylvania Law School and at
the Wharton School of Business. 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.
EXTENDICARE PROXY CIRCULAR
19
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;
EXTENDICARE PROXY CIRCULAR
20
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.
EXTENDICARE PROXY CIRCULAR
21
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 shareholders' 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.
EXTENDICARE PROXY CIRCULAR
22
[EXTENDICARE LOGO]