SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only (as permitted by Rule 14a-
6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Magna Entertainment Corp.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
MAGNA ENTERTAINMENT CORP.
2001
NOTICE OF ANNUAL MEETING
AND
PROXY STATEMENT
Friday, May 11, 2001
at 2:00 p.m.
-------------
The Design Exchange
Toronto-Dominion Centre
Ernst & Young Tower
234 Bay Street, 2/nd/ Floor
Toronto, Ontario
================================================================================
MAGNA ENTERTAINMENT CORP.
- --------------------------------------------------------------------------------
Jim McAlpine
President and Chief Executive Officer
337 Magna Drive
Aurora, Ontario L4G 7K1
April 5, 2001
Dear Fellow Stockholder:
It is my pleasure to invite you to attend Magna Entertainment
Corp.'s 2001 Annual Meeting of Stockholders--our first annual stockholders'
meeting as a public company. This inaugural meeting of the owners of Magna
Entertainment Corp. will be held on Friday, May 11, 2001, beginning at 2:00 p.m.
local time, at the Design Exchange, Toronto-Dominion Centre, Ernst & Young
Tower, 234 Bay Street, 2/nd/ Floor, Toronto, Ontario. The Notice of Annual
Meeting and Proxy Statement accompanying this letter describe the business to be
transacted at the meeting.
At the meeting, I will report to you on MEC's performance during
2000 and our vision for the future. I welcome this opportunity to have a
discussion with MEC's stockholders and look forward to your comments and
questions.
Regardless of the number of shares you hold, it is important that
your shares be represented at the meeting. Whether or not you plan to attend,
please complete, sign, date and return your proxy form as soon as possible.
Signing your proxy form before the meeting will not prevent you from voting your
shares in person if you are present at the meeting.
I look forward to seeing you on May 11, 2001.
Sincerely,
/s/ Jim McAlpine
Jim McAlpine
President and Chief Executive Officer
NOTICE OF ANNUAL MEETING
The Annual Meeting of Stockholders of Magna Entertainment
Corp. will be held on Friday, May 11, 2001, beginning at 2:00 p.m. local time,
at the Design Exchange, Toronto-Dominion Centre, Ernst & Young Tower, 234 Bay
Street, 2/nd/ Floor, Toronto, Ontario, to consider and take action upon the
following matters described in the accompanying Proxy Statement:
(1) the election of thirteen directors for the ensuing year;
(2) the ratification of the Board of Directors' appointment
of Ernst & Young LLP, certified public accountants, as
MEC's auditors for the year ending December 31, 2001;
and
(3) such other matters as may properly come before the
meeting.
The Board of Directors has determined that owners of record of
MEC's Class A Subordinate Voting Stock and Class B Stock and MEC Holdings
(Canada) Inc.'s Exchangeable Shares at the close of business on March 26, 2001
are entitled to notice of and to vote at the meeting, and at any adjournment
thereof.
By Order of the Board of Directors
/s/ Gary M. Cohn
Gary M. Cohn
Vice-President, Special Projects and Secretary
Magna Entertainment Corp.
337 Magna Drive
Aurora, Ontario
L4G 7K1
April 5, 2001
YOUR VOTE IS IMPORTANT
To vote your shares, please complete, sign and date the
enclosed proxy form, and return it in the enclosed postage-paid envelope. You
may vote in person at the meeting even if you send in your proxy.
TABLE OF CONTENTS
Page
----
GENERAL INFORMATION 1
ITEM A - ELECTION OF DIRECTORS (Item A on the Proxy Form) 2
Nominees 2
Vote Required 3
MANAGEMENT 4
Executive Officers and Directors 4
SECURITY OWNERSHIP 7
THE BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD 9
Executive Committee 9
Corporate Governance, Human Resources and Compensation Committee 9
Audit Committee 9
Directors' Compensation 10
Compensation Committee Interlocks and Insider Participation 10
Certain Relationships and Related Transactions 10
EXECUTIVE COMPENSATION 12
Summary Compensation Table 13
Option Grants in Last Fiscal Year 14
Fiscal Year End Option Values 15
Employment Agreements and Termination of Employment Agreements 15
Long-Term Incentive Plan 16
Section 16(a) Beneficial Ownership Reporting Compliance 18
Comparative Stock Performance Graph 18
CORPORATE GOVERNANCE, HUMAN RESOURCES AND
COMPENSATION COMMITTEE REPORT 18
Page
----
AUDIT COMMITTEE REPORT 20
ITEM B - RATIFICATION OF APPOINTMENT OF AUDITORS (Item B on the Proxy Form) 21
Fees billed to MEC by Ernst & Young LLP during Fiscal 2000 21
Ratification of Appointment of Ernst & Young LLP as Auditors 21
Vote Required 22
ADDITIONAL INFORMATION 22
Other Action at the Meeting 22
Cost of Solicitation 22
Stockholder Proposals for 2002 Annual Meeting 22
2000 Annual Report on Form 10-K 22
EXHIBIT A - AUDIT COMMITTEE CHARTER A-1
PROXY STATEMENT
GENERAL INFORMATION
This Proxy Statement is furnished in connection with a solicitation of
proxies by the Board of Directors of Magna Entertainment Corp. ("MEC" or the
"Company") for use at the Annual Meeting of Stockholders to be held on May 11,
2001, and at any adjournment thereof. The solicitation of proxies provides all
stockholders who are entitled to vote on matters that come before the meeting
with an opportunity to do so whether or not they attend the meeting in person.
This Proxy Statement and the related proxy form are first being mailed to MEC's
stockholders on or about April 6, 2001.
Holders of Class A Subordinate Voting Stock and Class B Stock
Owners of record of MEC's Class A Subordinate Voting Stock and Class B
Stock at the close of business on March 26, 2001 are entitled to notice of and
to vote at the Annual Meeting. Such owners of the Class A Subordinate Voting
Stock are entitled to one vote for each share held, and such owners of the Class
B Stock are entitled to 20 votes for each share held.
If you wish to give your proxy to someone other than the three persons
named as proxies on the enclosed form you must strike out all three names
appearing on the enclosed proxy form and insert the name of another person or
persons (not more than three). The signed proxy form must be presented at the
meeting by the person or persons representing you. You may revoke your proxy at
any time before it is voted at the meeting.
As of March 26, 2001, MEC had authorized 310,000,000 shares of Class A
Subordinate Voting Stock, par value $0.01 per share, of which 14,243,045 were
issued and outstanding, and 90,000,000 shares of Class B Stock, par value $0.01
per share, of which 58,466,056 were issued and outstanding. The owners of a
majority of such shares, present in person or represented by proxy, will
constitute a quorum for the transaction of business at the meeting.
The shares represented by a properly signed and returned proxy form
will be voted as specified by the stockholder on such form. If a proxy form is
signed and returned but no specification is made, the shares will be voted "FOR"
the election of all nominees for director (Item A) and "FOR" the ratification of
the appointment of Ernst & Young LLP as MEC's independent auditors (Item B). A
proxy may be revoked by a stockholder at any time before it is voted by
providing notice of such revocation in writing to the Corporate Secretary's
Office (at MEC's address set forth in the Notice of Meeting accompanying this
Proxy Statement), by submission of another proxy properly signed by such
stockholder and bearing a later date, or by voting in person at the Annual
Meeting.
Abstentions are not counted as votes "FOR" or "AGAINST" a proposal,
but are counted in determining a quorum.
It is the policy of MEC that any proxy, ballot or other voting
material that identifies the particular vote of a stockholder will be kept
confidential, except in the event of a contested proxy solicitation or as may be
required by law. Such documents are available for examination only by the
inspectors of election and certain persons associated with processing proxy
forms and tabulating the vote, although MEC may be informed whether or not a
particular stockholder has voted and will have access to each proxy, ballot or
other voting material.
1
Holders of Exchangeable Shares
Owners of record of MEC Holdings (Canada) Inc.'s Exchangeable Shares
at the close of business on March 26, 2001 are entitled to notice of and to vote
at the Annual Meeting. Such owners of the Exchangeable Shares are entitled to
one vote for each share held.
The Exchangeable Shares are exchangeable at any time at the option of
the holder, on a one-for-one basis, for shares of MEC's Class A Subordinate
Voting Stock. Holders of the Exchangeable Shares are able to exercise
essentially the same voting rights with respect to MEC as they would have if
they exchanged their Exchangeable Shares for shares of MEC's Class A Subordinate
Voting Stock. Pursuant to the Voting and Exchange Agreement between MEC and
Magna International Inc. ("Magna International"), each holder of an Exchangeable
Share, other than MEC and its subsidiaries, on the record date will be entitled
to instruct Magna International, and Magna International has agreed, to exercise
one of the votes attached to a share of MEC's Class A Subordinate Voting Stock
or Class B Stock for each Exchangeable Share held by that holder. If Magna
International does not receive voting instructions covering all the outstanding
Exchangeable Shares, it will refrain from exercising a number of voting rights
attaching to MEC's shares that it holds that is equal to the number of
Exchangeable Shares for which no voting instructions were received.
As of March 26, 2001, 7,736,420 Exchangeable Shares were issued and
outstanding and not exercised. If a holder of Exchangeable Shares wishes to vote
directly at the Annual Meeting and give voting instructions to Magna
International, such holder must properly sign and return the enclosed proxy
form. The proxy forms will be treated as described above under "Holders of Class
A Subordinate Voting Stock and Class B Stock."
ITEM A--ELECTION OF DIRECTORS
(Item A on the Proxy Form)
MEC's Restated Certificate of Incorporation provides that, unless
otherwise approved by ordinary resolution by the holders of the Class A
Subordinate Voting Stock and the holders of the Class B Stock, each voting
separately as a class, (i) a majority of the directors of MEC shall be
individuals who are not officers or employees of MEC or persons related to such
officers or employees and (ii) at least two of the directors of MEC shall be
individuals who are not officers or employees of MEC or its affiliates,
including Magna International, or directors of any of MEC's affiliates,
including Magna International, or persons related to such officers, employees or
directors. MEC's bylaws provide that the number of directors of MEC shall be not
less than one and not more than fifteen, and that the number of directors and
the number of directors to be elected at the Annual Meeting each shall be
determined from time to time by resolution of the Board of Directors. The Board
of Directors has fixed thirteen as the number of directors of the Company. Each
director elected at the Annual Meeting will serve for a term expiring at the
2002 Annual Meeting of Stockholders, expected to be held in May 2002, or until
his or her successor has been duly elected and qualified or his or her earlier
resignation or removal.
Nominees
Each of the incumbent directors has been nominated as a director to be
elected at the Annual Meeting. Certain information regarding each nominee is set
forth below under "Management--Executive Officers and Directors," including age
(as of January 1, 2001) and principal occupation, a brief account of business
experience during at least the last five years, certain other directorships
currently held and the year in which the individual was first elected a director
of MEC.
Each nominee for director has consented to being named in this Proxy
Statement and to serve if elected. It is the intention of the persons named in
the enclosed proxy to vote for the election of
2
the nominees listed on the following pages unless otherwise instructed on the
proxy form. If you do not wish your shares to be voted for particular nominees,
please strike out the names of the exceptions in Item A on the proxy form.
If at the time of the meeting one or more of the nominees is no longer
available or able to serve, shares represented by the proxies will be voted for
the remaining nominees and for any substitute nominee or nominees designated by
the Board of Directors or, if none, the size of the Board will be reduced. The
Board of Directors knows of no reason why any of the nominees would be
unavailable or unable to serve.
Vote Required
The affirmative vote of a majority of the votes cast with respect to
the shares of Class A Subordinate Voting Stock and Class B Stock, voting
together as a single class, present or represented and entitled to vote at the
Annual Meeting is required for the election of each nominee for director.
Magna International, as the holder of all the outstanding shares of
Class B Stock, has indicated that it intends to vote all such shares (other than
those with respect to which it is otherwise obligated under the Voting and
Exchange Agreement as described under "General Information - Holders of
Exchangeable Shares") "FOR" the election of each nominee for director.
The Board of Directors recommends that the stockholders vote "FOR" the
election of each nominee for director.
3
MANAGEMENT
Executive Officers and Directors
The executive officers and directors of Magna Entertainment Corp. are
as follows:
Name Age Position
- -------------------------------------- ----- --------------------------------------------------------------------
Frank Stronach (1)(3)(5) 68 Chairman of the Company and Director (since 1999)
Jerry D. Campbell 60 Vice-Chairman of the Company and Director (since 2000)
James Nicol (1)(2)(3) 46 Vice-Chairman of the Company and Director (since 1999)
Jim McAlpine (3) 54 President and Chief Executive Officer of the Company and
Director (since 2001)
Donald Amos 56 Executive Vice-President and Chief Operating Officer of the
Company
Graham J. Orr 54 Executive Vice-President and Chief Financial Officer of the
Company
Gary M. Cohn 40 Vice-President, Special Projects and Secretary of the Company
Frank DeMarco, Jr. 75 Vice-President, Regulatory Affairs of the Company
Andrew Stronach (5) 32 Vice-President, Corporate Development of the Company and
Director (since 2000)
Douglas R. Tatters 40 Vice-President and Controller of the Company
William G. Davis (1)(2)(3) 71 Director (since 2000)
Peter M. George (4) 57 Director (since 2000)
Joseph W. Harper 58 Director (since 2000)
J. Terrence Lanni (3)(4) 58 Director (since 2000)
Edward C. Lumley (1)(4) 61 Director (since 2000)
Gino Roncelli (2) 66 Director (since 2000)
Ronald J. Volkman 63 Director (since 2000)
John C. York II 52 Director (since 2000)
(1) Are currently directors of Magna International
(2) Member of Corporate Governance, Human Resources and Compensation Committee
4
(3) Member of Executive Committee
(4) Member of Audit Committee
(5) Mr. Andrew Stronach is the son of Mr. Frank Stronach.
Frank Stronach serves as Chairman of MEC. Mr. Stronach has been a
director since November 1999. Since 1971, Mr. Stronach has been the Chairman of
Magna International, which he founded over 40 years ago. Mr. Stronach is
actively involved in racing and breeding thoroughbred horses in New York,
Kentucky, California, Florida and elsewhere.
Jerry D. Campbell serves as Vice-Chairman of MEC. Mr. Campbell has
been a director since March 2000 and was President and Chief Executive Officer
of MEC from March 2000 to August 2000. Prior to joining MEC, Mr. Campbell served
as Chairman of the Board and Chief Executive Officer of Republic Bancorp Inc.
from its establishment in April 1986 to December 1999, and he still serves as
its Chairman of the Board.
James Nicol serves as Vice-Chairman of MEC. Mr. Nicol has been a
director since March 1999. Since February 2001, Mr. Nicol has served as
President and Chief Operating Officer of Magna International. From May 1998 to
February 2001, he was Vice-Chairman of Magna International. Prior to joining
Magna International, Mr. Nicol served for four years as Chairman and Chief
Executive Officer of TRIAM Automotive Inc., a publicly traded automotive parts
manufacturer. Mr. Nicol is also a director of Decoma International Inc.
Jim McAlpine serves as President and Chief Executive Officer of MEC.
Mr. McAlpine has been a director since February 2001. Prior to joining MEC, Mr.
McAlpine was the President of McAlpine Ford Lincoln Sales Ltd., an automobile
dealership in Aurora, Ontario that he established in 1990. From 1984 to 1989,
Mr. McAlpine was Chief Financial Officer of Magna International and he also
served as Vice-Chairman of Magna International from April 1988 to October 1989.
Donald Amos serves as Executive Vice-President and Chief Operating
Officer of MEC. Mr. Amos has extensive experience breeding and racing
thoroughbred horses and is responsible for all racing operations of MEC. Prior
to joining MEC, Mr. Amos served in various capacities with Magna International
and one of its subsidiaries since 1984, and most recently, held the position of
Executive Vice-President, Administration and Human Resources of Magna
International from October 1994 to May 2000.
Graham J. Orr serves as Executive Vice-President and Chief Financial
Officer of MEC. Prior to joining MEC, Mr. Orr has held various executive
positions with Magna International and one of its subsidiaries since 1987. Most
recently, he served as Executive Vice-President, Corporate Development of Magna
International, where he directed the corporate development, treasury/insurance,
capital markets and investor relations functions from October 1994 to October
2000.
Gary M. Cohn serves as Vice-President, Special Projects and Secretary
of MEC. From September 1996 to November 2000, Mr. Cohn was Vice-President and
General Counsel of various subsidiaries of Magna International. Prior to that
time he was a partner in the Canadian law firm of Heenan Blaikie.
Frank DeMarco, Jr. serves as Vice-President, Regulatory Affairs of MEC
and Executive Director, Secretary and General Counsel of the Los Angeles Turf
Club, Inc., which is an indirect wholly-owned subsidiary of MEC. Mr. DeMarco has
been a practicing attorney in Los Angeles
5
County since 1951 and has been the Executive Director, General Counsel and
Secretary of Los Angeles Turf Club, Inc. since April 1998.
Andrew Stronach serves as Vice-President, Corporate Development of
MEC. Mr. Stronach has been a director since March 2000. Prior to joining MEC,
Mr. Stronach served as President of Adena Springs Farm and Stronach Stables
since 1998 and has held various senior administrative positions with both of
these companies since 1995.
Douglas R. Tatters serves as Vice-President and Controller of MEC.
Prior to joining MEC in March 2001, Mr. Tatters worked as a consultant with
Decoma International Inc., a subsidiary of Magna International, for
approximately six months. From September 1998 to June 2000, he served as Vice-
President, Operations and Finance of Mumby & Associates Ltd., a large
manufacturer and distributor of paint sundry products. Immediately prior to
that, he was the controller of Magna International from February 1996 to
September 1998.
William G. Davis has been a director since March 2000. Mr. Davis has
served as counsel to Torys, a Canadian and U.S.-based law firm, since 1985. Mr.
Davis is the former Premier of the Province of Ontario (1971 to 1985). Mr. Davis
is also a director of Magna International and First American Financial
Corporation.
Peter M. George has been a director since March 2000. Mr. George is
currently an independent director and consultant. Prior to his retirement in
August 2000, Mr. George served as the Vice Chairman and Chief Executive Officer
of Hilton Group plc (formerly Ladbroke Group plc), a British publicly-traded
company. Mr. George is also a director of Hilton Hotels Corporation, US Airways
and Book4Golf.com.
Joseph W. Harper has been a director since March 2000. Mr. Harper has
served as President and General Manager of Del Mar Thoroughbred Club, which
operates the Del Mar racetrack in California, since 1977.
J. Terrence Lanni has been a director since March 2000. Mr. Lanni is
currently the Chairman of the Board and Chief Executive Officer of MGM MIRAGE,
an entertainment, hotel and gaming company. He served as Chief Executive Officer
of MGM Grand Inc. from June 1995 to December 1999 and was President and Chief
Operating Officer of Caesars World, Inc. from April 1991 to February 1995.
Edward C. Lumley has been a director since March 2000. Mr. Lumley has
served as the Vice-Chairman of BMO Nesbitt Burns (and its predecessor company,
Burns Fry Limited), a full-service investment bank, since 1991. Mr. Lumley is
also a director of Air Canada, Canadian National, C-MAC Industries Inc., Dollar
Thrifty Automotive Group Inc. and Magna International.
Gino Roncelli has been a director since March 2000. Mr. Roncelli has
served as the Chief Executive Officer of Roncelli Plastics Inc., a non-metallic
machining company, since 1969.
Ronald J. Volkman has been a director since March 2000. Mr. Volkman
has served as the Chairman of the Board and President of ATX, Inc., a real
estate development corporation, since 1970.
John C. York II has been a director since March 2000. Mr. York
currently serves as President and Director of the DeBartolo Corporation and has
served as President and Director of Louisiana Downs, Inc. since 1996.
6
SECURITY OWNERSHIP
The following tables set forth certain information as of February 16,
2001 with respect to beneficial ownership of MEC by (a) any entity or person
known by MEC to be the beneficial owner of more than five percent of the
outstanding shares of MEC's Class A Subordinate Voting Stock and Class B Stock
and (b) each director (which includes all nominees for director) and Named
Executive Officer listed below in the Summary Compensation Table and all
executive officers and directors of MEC as a group.
To MEC's knowledge, except as indicated in the footnotes to these
tables or pursuant to applicable community property laws, the persons named in
the following tables have sole voting and investment power with respect to the
shares of MEC's Class A Subordinate Voting Stock and Class B Stock indicated.
(a) Security Ownership of Beneficial Owners of More than 5% of the Company's
Voting Securities
Amount and
Nature of
Name and Address of Beneficial Percentage of
Class of Securities Beneficial Owner Ownership Class
------------------- --------------- --------- -----
Class B Stock Magna International Inc. (1)(2) 58,466,056 100%
337 Magna Drive
Aurora, Ontario L4G 7K1
Class A Subordinate Voting Stock Ladbroke Racing Corporation 1,012,195(3) 7.1%
1311 East 19th Street
Cheyenne, Wyoming 82001
Class A Subordinate Voting Stock Zweig-DiMenna Select L.P. 725,000(4) 5.1%
900 Third Avenue
New York, New York 10022
(1) Magna International directly owns 53,253,064 or 91.1% of these shares of
MEC's Class B Stock and also owns 4,362,328 Exchangeable Shares, which are
exchangeable into an equal number of shares of MEC's Class A Subordinate Voting
Stock. The remaining shares of Class B Stock are owned through direct or
indirect wholly owned subsidiaries of Magna International. Magna International
is entitled to vote approximately 99% of the votes attaching to MEC's voting
securities.
(2) The Stronach Trust beneficially owns approximately 66% of the Class B Shares
of Magna International, which shares represent over 50% of the votes attaching
to the voting securities of Magna International. Mr. Frank Stronach, the
Chairman of MEC, Mr. Andrew Stronach, an officer and director of MEC, and two
other members of their family are the trustees of the Stronach Trust and two of
the members of the class of potential beneficiaries of the Stronach Trust.
(3) Represents approximately 0.1% of the votes attaching to MEC's voting
securities.
(4) Represents approximately 0.1% of the votes attaching to MEC's voting
securities.
7
(b) Security Ownership of Directors and Executive Officers
Class A
Subordinate Percentage of Exchangeable Percentage of
Name of Beneficial Owner Voting Stock Class Shares Class
------------------------ ------------ ----- ------ -----
Frank Stronach (1)(2)(3) 679,800 4.8% 4,677,593 60.1%
Jerry D. Campbell (4) 238,413 1.7% Nil Nil
James Nicol Nil Nil 2,214 (5)
Jim McAlpine Nil Nil Nil Nil
Donald Amos 100,000 (5) 482 (5)
Graham J. Orr 50,000 (5) 1,020 (5)
Gary M. Cohn 4,000 (5) 80 (5)
Frank DeMarco, Jr. Nil Nil Nil Nil
Andrew Stronach (1)(3) 1,000 (5) 70 (5)
William G. Davis Nil Nil 47 (5)
Peter M. George Nil Nil Nil Nil
Joseph W. Harper Nil Nil Nil Nil
J. Terrence Lanni Nil Nil Nil Nil
Edward C. Lumley 10,000 (5) 247 (5)
Gino Roncelli (6) 97,000 (5) Nil Nil
Ronald J. Volkman 8,450 (5) Nil Nil
John C. York II (7) Nil Nil Nil Nil
All executive officers and 1,188,663 8.4% 4,681,673 60.2%
directors as a group (18
persons)
(1) An associate of Mr. Frank Stronach and Mr. Andrew Stronach, the Stronach
Trust, beneficially owns approximately 66% of the Class B Shares of Magna
International, which shares represent over 50% of the votes attaching to the
voting securities of Magna International as of February 16, 2001. Magna
International directly and indirectly owns shares entitling it to vote
approximately 99% of the votes attaching to MEC's voting securities.
(2) These 679,800 shares of Class A Subordinate Voting Stock are indirectly
owned by The Edelweiss Trust, an associate of Mr. Frank Stronach. The Magna
Deferred Profit Sharing Plan (Canada) and the Employees Deferred Profit Sharing
Plan (U.S.) of Magna International, both of which are associates of Mr. Frank
Stronach, also own 440,910 and 206,428 shares of Class A Subordinate Voting
Stock, respectively. These figures exclude the shares of Class A Subordinate
Voting Stock issuable on conversion by Magna International of its directly and
indirectly owned Class B Stock of MEC. Taking into account the shares of MEC
held by the deferred profit sharing plans of Magna International named above,
Mr. Frank Stronach and these associates control approximately 9.3% of the Class
A Subordinate Voting Stock of MEC.
(3) 144,965 Exchangeable Shares are owned by the Stronach Trust, an associate of
Mr. Frank Stronach and Mr. Andrew Stronach. In addition, 170,300 Exchangeable
Shares are owned by The Edelweiss Trust, an associate of Mr. Frank Stronach. A
further 4,362,328 Exchangeable Shares are owned by Magna International, which is
in turn controlled by the Stronach Trust.
(4) Of these holdings, 218,170 shares of Class A Subordinate Voting Stock are
owned directly, 11,225 are owned jointly by Mr. Campbell and his wife, 4,009 are
owned by Mr. Campbell's wife, and 5,009 are owned indirectly through two
wholly-owned corporations, Post It Stables, Inc. and Volan Corp.
(5) These shares represent less than 1% of the class.
(6) Of these holdings, 67,000 shares of Class A Subordinate Voting Stock are
owned indirectly through Roncelli Plastics Inc. and 30,000 shares of Class A
Subordinate Voting Stock are owned by the Roncelli Family Trust, both of which
are associates of Mr. Roncelli.
(7) Mr. York's wife indirectly owns 650,695 shares of Class A Subordinate Voting
Stock through her control of and ownership interest in the DeBartolo
Corporation. Mr. York disclaims beneficial ownership of these shares.
8
THE BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD
The business of MEC is managed under the direction of the Board of
Directors. The Board of Directors held eight meetings during fiscal year 2000.
All directors attended at least 75% of the meetings of the Board and Committees
of which they were members during fiscal year 2000, except for Mr. York, who
attended three of eight meetings of the Board, and Mr. Lanni, who attended five
of eight meetings of the Board and three of five meetings of the Audit
Committee.
Because of the number of matters requiring Board consideration, to
make the most effective use of individual Board members' capabilities, and to
comply with the National Association of Securities Dealers ("NASD") listing
standards, the Board of Directors has established three committees to devote
attention to specific subjects and to assist it in the discharge of its
responsibilities. The functions of these committees, their current members and
the number of meetings held during 2000 are described below.
Executive Committee
The Executive Committee, which was established by the Board of
Directors on September 19, 2000, is composed of Frank Stronach, James Nicol, Jim
McAlpine, William G. Davis and J. Terrence Lanni. Mr. McAlpine was appointed to
this Committee effective March 26, 2001 to fill the vacancy created by Mark
Feldman's resignation from the Board. The Executive Committee meets on an "as
needed" basis between meetings of the full Board of Directors. It is empowered
to exercise the power of the Board of Directors in managing the business affairs
and property of MEC, subject to limitations imposed by law and the Board. The
Executive Committee is not empowered to approve an acquisition, a capital
expenditure or a financial commitment that exceeds an amount greater than 10 per
cent of the book value of MEC's shareholders' equity. The Executive Committee
did not meet during fiscal year 2000.
Corporate Governance, Human Resources and Compensation Committee
The Corporate Governance, Human Resources and Compensation Committee
is composed of William G. Davis, James Nicol and Gino Roncelli. Mr. Roncelli
replaced Ronald J. Volkman on this Committee effective February 19, 2001. Mr.
Davis and Mr. Roncelli are independent directors of MEC (i.e., directors who do
not receive compensation as an officer or employee of MEC or any of its
affiliates). The Corporate Governance, Human Resources and Compensation
Committee administers MEC's Long-Term Incentive Plan. It also reviews and makes
recommendations to the Board with respect to all direct and indirect
compensation, benefits and perquisites of MEC's Chief Executive Officer,
President, Chief Financial Officer, Chief Operating Officer and certain other
senior management employees, and MEC's policies regarding management benefits
and perquisites. This Committee is also generally responsible for developing
MEC's approach to corporate governance issues, including MEC's relationship with
Magna International, and assessing the effectiveness of the system of corporate
governance employed by the Company as a whole. The Corporate Governance, Human
Resources and Compensation Committee held four meetings during fiscal year 2000.
Audit Committee
The Audit Committee, composed of Peter M. George, J. Terrence Lanni
and Edward C. Lumley, is entirely independent of MEC and Magna International.
The Audit Committee operates in accordance with a charter (attached as Exhibit
A) under which it makes recommendations to the Board regarding the selection and
employment of MEC's independent accountants and, working with MEC's internal and
external auditors, reviews the results and scope of audit and other services
provided by MEC's independent accountants and evaluates audit control functions.
MEC's independent auditors meet
9
alone with the Audit Committee and have unrestricted access to the Audit
Committee. The Audit Committee held five meetings during fiscal year 2000.
Directors' Compensation
Directors who are not officers or employees of MEC or any of its
affiliates are currently paid an annual retainer of $30,000 (one-half in cash
and one-half in stock) and a meeting fee of $1,000 for attendance at each
meeting of the Board. Such directors are also currently paid an annual committee
retainer of $4,000 (Committee Chairmen also receive an $8,000 annual retainer)
and a meeting fee of $1,000 for attendance at meetings of each Committee of the
Board on which they serve. Compensation for Board and Committee work and travel
days ($1,500 per day) and for the execution of written resolutions ($250) is
also provided to directors who are not officers or employees. In addition, each
director receives certain stock options as set forth below under "EXECUTIVE
COMPENSATION - Long-Term Incentive Plan - Nonqualified Stock Options."
Compensation Committee Interlocks and Insider Participation
The members of the Corporate Governance, Human Resources and
Compensation Committee for the prior fiscal year were William G. Davis, James
Nicol and Ronald J. Volkman. Mr. Davis is also a director of Magna
International. Mr. Nicol serves as Vice-Chairman of MEC and is currently the
President, Chief Operating Officer and a director of Magna International. During
fiscal year 2000, Mr. Nicol served as Vice-Chairman of Magna International.
Neither Mr. Davis nor Mr. Volkman is or has been an officer or employee of MEC
or any of its subsidiaries. In addition, there are no compensation committee
interlocks between MEC and other entities involving MEC's executive officers and
board members who serve as executive officers of such entities.
Certain Relationships and Related Transactions
Relationship with Magna International
Magna International was incorporated under the laws of Ontario,
Canada. The Class A Subordinate Voting Shares of Magna International are listed
for trading on the New York Stock Exchange and The Toronto Stock Exchange
("TSE"). Magna International's Class B Shares are listed on the TSE. Magna
International is currently the sole stockholder of MEC's Class B Stock, which
means that Magna International will be entitled to exercise approximately 99% of
the total votes attached to all MEC's outstanding stock. Magna International is
therefore able to elect all the directors of MEC and to continue to control MEC.
MEC's Corporate Constitution requires that a minimum of two directors
be individuals who are not MEC officers or employees, officers or employees of
any of MEC's affiliates including Magna International, directors of any of MEC's
affiliates including Magna International, or persons related to any such
officers, employees or directors. The Corporate Constitution also requires that
a majority of MEC's directors be individuals who are not MEC officers or
employees or individuals related to these persons.
Magna International has made a commitment to its shareholders that it
will not, during the period ending May 31, 2006, without the prior consent of
the holders of a majority of Magna International's Class A Subordinate Voting
Shares: (i) make any further debt or equity investment in, or otherwise give
financial assistance to, MEC or any of MEC's subsidiaries; or (ii) invest in any
non-automotive-related businesses or assets other than through its investment in
MEC. Magna International's commitment is contained in a Forbearance Agreement
dated as of February 8, 2000 between MEC and
10
Magna International and in which Magna International's shareholders are express
third party beneficiaries.
Magna International has also stated to its shareholders that it
intends to convert some shares of MEC's Class B Stock to shares of MEC's Class A
Subordinate Voting Stock and dispose of additional shares of MEC's Class A
Subordinate Voting Stock when market conditions for doing so are favorable, with
the ultimate intention of retaining only a minority equity position. This may
occur through a combination of: (i) secondary sales by Magna International of
MEC stock held by it; and/or (ii) the dilution of its interest through the
issuance of Class A Subordinate Voting Stock by MEC in connection with capital
market transactions, acquisitions and/or other investments by business partners.
MEC has been advised by Magna International that it currently intends to retain
control over MEC even though it may only hold a minority equity interest in MEC.
Control of MEC
Magna International is able to elect all MEC's directors and controls
MEC. Therefore, Magna International is able to cause MEC to effect certain
corporate transactions without the consent of MEC's minority stockholders,
subject to applicable law and the fiduciary duties of MEC's directors and
officers. In addition, Magna International is able to cause or prevent a change
in control of MEC. The Stronach Trust controls Magna International through the
right to direct the votes attaching to Class B Shares of Magna International,
which carry a majority of the votes attaching to the outstanding voting shares
of Magna International. Mr. Frank Stronach, the Chairman and founder of MEC, a
director and Chairman of the Board of Directors of Magna International, together
with Mr. Andrew Stronach, a director and officer of MEC, and two other members
of their family, are the trustees of the Stronach Trust. Mr. Frank Stronach and
Mr. Andrew Stronach are also two of the members of the class of potential
beneficiaries of the Stronach Trust.
Purchase of Land in Aurora, Ontario
In October 2000, MEC purchased from The Alpen House Limited, a company
associated with members of the family of Mr. Frank Stronach, the Chairman of MEC
and the Chairman of the Board of Magna International, and Mr. Andrew Stronach,
the Vice-President, Corporate Development and a director of MEC, approximately
200 acres of land and improvements in Aurora, Ontario (the "Purchased Land") for
a purchase price of approximately $11.0 million. The Purchased Land is adjacent
to land currently owned by Magna International and other land which is subject
to a conditional sale agreement providing for its sale by Magna International to
MEC. The purchase agreement for the Purchased Land was originally entered into
by a wholly-owned subsidiary of Magna International during the five-month period
ended December 31, 1998. The purchase was completed in October 2000 after the
satisfaction of certain conditions, including the registration of a subdivision
plan following the approval of the relevant governmental authorities. The rights
to acquire this land and improvements, as well as golf course construction in
progress funded by Magna International, were transferred to MEC as part of the
reorganization of MEC's corporate structure which was completed by Magna
International on November 5, 1999 (the "Reorganization").
Transactions with Magna International
Pursuant to a conditional sale agreement, Magna International
transferred land in Aurora, Ontario to MEC with a value of $18.2 million, which
represents the book value of the land. The conditional sale agreement is subject
to the successful severance of the affected properties. If severance is not
obtained within a specified period such that Magna International retains
ownership of this Aurora
11
property, Magna International must return $18.2 million to MEC with interest.
Prior to completion of the conditional sale, the property is being leased by MEC
from Magna International for a nominal amount.
Pursuant to two conditional sale agreements, Magna International
transferred to MEC vacant land with a value of $4.2 million, which represents
the book value of the land. The conditional sale agreements are subject to the
successful severance of the affected properties. If severance is not obtained
within a specified period such that Magna International retains ownership of the
properties, Magna International must return $4.2 million to MEC with interest.
Prior to completion of the conditional sale, the properties are being leased by
MEC from Magna International for a nominal amount.
MEC granted a limited term option to Magna International to reacquire a
real estate property in Austria for a fixed price equal to its book value of 50
million Austrian Schillings (approximately $3.7 million). This option was
exercised by Magna International in May 2000.
MEC sold approximately three acres of land in Aurora, Ontario to The
Alpen House Limited in October 2000 for a sale price of approximately $0.2
million.
During the year ended December 31, 2000, MEC sold approximately 24.5
acres of land in Vaughan, Ontario to Magna International for a sale price of
approximately $5.8 million, resulting in a gain on sale for MEC of approximately
$1.4 million.
As a result of the Reorganization, MEC acquired shares in a subsidiary
which has been named as a defendant in four class actions brought in United
States District Courts by various plaintiffs. An Austrian subsidiary of Magna
International has agreed to indemnify this subsidiary for any damages or
expenses associated with these cases. Three of these cases have now been
dismissed with prejudice.
A subsidiary of Magna International has agreed to indemnify MEC in
respect of environmental remediation costs and expenses relating to existing
conditions in some of MEC's Austrian real estate properties.
Access Fee and Rights of First Refusal
Pursuant to an access agreement which is effective as of March 1, 1999,
Magna International is currently paying MEC an annual fee of $2.7 million to
access the Fontana Sports golf course and related recreational facilities for
Magna International-sponsored corporate and charitable events as well as for
business development purposes. During the year ended December 31, 2000, Magna
International paid MEC $2.7 million in access fees. The access fee relating to
Fontana Sports is payable until March 1, 2004. Both the Fontana Sports golf
course and the Magna Golf Club in Aurora, Ontario are subject to rights of first
refusal in favor of Magna International.
For more detail about MEC's relationship with Magna International and
related transactions, please see "Certain Relationships and Related
Transactions" in MEC's Registration Statement on Form S-1 (No. 333-94791), as
amended, which section is incorporated herein by reference.
EXECUTIVE COMPENSATION
The following tables and narratives discuss the compensation paid in
fiscal year 2000 to those who served as MEC's Chief Executive Officer during the
year, to the four other most highly compensated executive officers and to two
former employees who qualify for inclusion in these tables on the basis of their
annual compensation (collectively, the "Named Executive Officers").
12
The Summary Compensation Table below summarizes the compensation
received by the Named Executive Officers since the special stock dividend which
transformed MEC into a public company was distributed by Magna International on
March 10, 2000.
SUMMARY COMPENSATION TABLE
ANNUAL LONG TERM
COMPENSATION COMPENSATION
----------------------------------- -------------------------------------------
OTHER
ANNUAL RESTRICTED SECURITIES ALL OTHER
NAME & SALARY BONUS COMPEN- STOCK UNDERLYING LTIP COMPENSA-
PRINCIPAL SATION (1) AWARDS OPTIONS PAYOUT TION
POSITION YEAR ($) ($) ($) ($) (#) ($) ($)
- ------------------------ ------ --------- --------- ------------ ------------- ------------- --------- -----------
Frank Stronach 2000 - - - - 1,000,000 - -
Chairman
Mark Feldman/(2)/ 2000 181,730 50,000 - - 500,000 - 1,050,000
(Former) President and
Chief Executive Officer
Jerry D. Campbell/(3)/ 2000 190,385 - 121,590 - 1,000,000 - 5,440
(Former) President and
Chief Executive Officer
Donald Amos/(4)/ 2000 131,250 131,250 - - 300,000 - -
Executive Vice-President
and Chief Operating
Officer
Graham J. Orr/(5)/ 2000 20,000 272,927 - - 300,000 - -
Executive Vice-President
and Chief Financial
Officer
David Mitchell/(6)/ 2000 248,075 112,500 - - 100,000 - 400,000
(Former) Executive
Vice-President and Chief
Financial Officer
Lonny Powell/(7)/ 2000 192,300 - 62,500 - 25,000 - 100,000
(Former) Executive
Vice-President,
Operations
Gary M. Cohn/(8)/ 2000 25,000 12,500 - - 75,000 - -
Vice-President, Special
Projects and Secretary
Frank DeMarco, Jr. 2000 175,000 10,000 - - - - -
Vice-President,
Regulatory Affairs
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(1) The aggregate amount of perquisites and other personal
benefits, securities or property does not exceed the lesser of $50,000 or 10% of
the total of annual salary and bonus for any of the Named Executive Officers.
(2) Mr. Feldman became an Executive Officer on August 7, 2000 and
resigned as President and Chief Executive Officer on December 10, 2000. The
amount shown as "All Other Compensation" consists of a $150,000 signing bonus
and $900,000 in severance payments, $300,000 of which is payable in shares of
Class A Subordinate Voting Stock. Mr. Feldman has also entered into a short-term
consulting agreement with MEC, effective January 1, 2001.
(3) Mr. Campbell became an Executive Officer on January 1, 2000 and
resigned as President and Chief Executive Officer effective August 7, 2000. The
amount shown as "Other Annual Compensation" consists of consulting fees paid for
the period from August 8 to December 31, 2000. The amount shown as "All Other
Compensation" consists of directors' fees paid to Mr. Campbell for his service
on the Board after the date of his resignation as an officer and employee.
(4) Mr. Amos became an Executive Officer on August 3, 2000.
(5) Mr. Orr became an Executive Officer on October 1, 2000. His
compensation for the last three months of fiscal 2000 was paid by an affiliate
of MEC.
(6) Mr. Mitchell became an Executive Officer on January 1, 2000 and
resigned as Executive Vice-President and Chief Financial Officer on November 6,
2000. The amount shown as "All Other Compensation" consists of a $100,000
signing bonus and $300,000 in severance payments.
(7) Mr. Powell resigned effective October 6, 2000. The amount
shown as "Other Annual Compensation" consists of consulting fees paid for the
period from October 7 to December 31, 2000. The amount shown as "All Other
Compensation" consists of a severance payment.
(8) Mr. Cohn became an Executive Officer on November 13, 2000.
OPTION GRANTS IN LAST FISCAL YEAR
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE GRANT
OPTIONS EMPLOYEES OR BASE DATE
GRANTED (1) IN FISCAL PRICE (2) EXPIRATION VALUE (3)
NAME (#) YEAR ($/SHARE) DATE ($/SHARE)
Frank Stronach 1,000,000(4) 21.4 6.375 December 31, 2009 1.24
Mark Feldman 500,000(4) 10.7 6.375 December 31, 2009 1.11
Jerry D. Campbell 1,000,000(5) 21.4 4.875 December 31, 2009 0.16
Donald Amos 300,000(6) 6.4 6.07 December 31, 2009 1.29
Graham J. Orr 300,000(4) 6.4 6.125 December 31, 2009 0.94
David Mitchell 25,000(4) 0.5 4.875 December 31, 2009 1.04
75,000(4) 1.6 6.125 December 31, 2009 0.94
Lonny Powell 25,000(7) 0.5 4.875 December 31, 2009 0.58
Gary M. Cohn 75,000(4) 1.6 5.63 December 31, 2009 1.39
(1) Options granted were options to acquire shares of Class A
Subordinate Voting Stock.
(2) Market price on date of grant.
(3) Calculated using the Black Scholes pricing model.
Underlying assumptions used in the calculation include risk-free interest rates
from 5.0 percent to 5.5 percent per annum, dividend yields of zero percent,
volatility factors of the expected market price of 0.001 and expected lives from
2.58 to 4.50 years. MEC has elected to illustrate the potential realizable value
using the Black Scholes pricing model as permitted by the rules of the
Securities and Exchange Commission. This does not represent MEC's estimate or
projection of future stock price or of the assumptions utilized; actual gains,
if any, upon future exercise of any of these options will depend on the actual
performance of the Class A Subordinate Voting Stock.
(4) Vested as to one-third of the securities underlying the
options granted on the date of grant and an additional one-third on each of the
first and second anniversaries of the date of grant.
14
(5) The original grant of options to Mr. Campbell covered
1,000,000 shares, with an exercise price of $4.875 per share, vested as to
one-fifth of the securities underlying the options granted on the date of grant
and an additional one-fifth on each of the first four anniversaries of the date
of grant. Pursuant to an Amended and Restated Non-Statutory Stock Option
Agreement which was executed in connection with Mr. Campbell's resignation as
President and Chief Executive Officer, the original options were cancelled and
replaced by 333,333 options which were fully vested on August 7, 2000, at the
then market price of $6.90 per share.
(6) Vested as to one-quarter of the securities underlying the
options granted on the date of grant, an additional one-quarter on the first
anniversary of the date of grant, and the remaining one-half on the second
anniversary of the date of grant.
(7) Vested as to one-fifth of the securities underlying the
options granted on the date of grant and an additional one-fifth on each of the
first four anniversaries of the date of grant.
FISCAL YEAR END OPTION VALUES
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL YEAR-END OPTIONS AT FISCAL YEAR-
(#) END
($)(1)
Name Exercisable Unexercisable Exercisable Unexercisable
Frank Stronach 333,333 666,667 Nil Nil
Mark Feldman 166,666 333,334 Nil Nil
Jerry D. Campbell 333,334 Nil Nil Nil
Donald Amos 75,000 225,000 Nil Nil
Graham J. Orr 100,000 200,000 Nil Nil
David Mitchell 33,333 Nil Nil Nil
Lonny Powell 8,333 16,667 Nil Nil
Gary M. Cohn 25,000 50,000 Nil Nil
(1) The closing sale price of Class A Subordinate Voting Stock as reported on
the Nasdaq National Market on December 31, 2000 was $4.75 per share. Value
is calculated by multiplying (a) the difference between $4.75 and the
option exercise price by (b) the number of shares of Class A Subordinate
Voting Stock underlying the options.
Employment Agreements and Termination of Employment Agreements
MEC has entered into employment agreements with certain executive
officers as described below:
MEC has entered into an employment agreement with Mr. McAlpine
which provides for a base salary of $410,000 per annum, a guaranteed annual
bonus of $400,000 (to be superseded by a mutually agreeable profit-sharing
arrangement to be established as of January 1, 2002), confidentiality
obligations, non-competition covenants and a termination provision permitting
his employment to be terminated by MEC by giving minimum advance written notice
of termination or by paying a retiring allowance instead. Mr. McAlpine's
contract also provides for the issuance of stock options to purchase 500,000
shares of MEC's Class A Subordinate Voting Stock. The grant of these stock
options, with an exercise price of $4.9375 per share, was approved by the
Corporate Governance, Human Resources and Compensation Committee of MEC's Board
of Directors on February 19, 2001.
MEC has entered into an employment agreement with Mr. Amos which
provides for a base salary of $350,000 per annum, an annual bonus based on a
percentage of pre-tax profits (with a guaranteed minimum of $350,000), a
discretionary bonus based on personal performance, confidentiality obligations,
non-competition covenants and a termination provision permitting his employment
to be terminated by MEC by giving minimum advance written notice of termination
or by paying a retiring allowance instead. Mr. Amos' contract also provides for
the issuance of stock options to purchase 300,000 shares of MEC's Class A
Subordinate Voting Stock. The grant of these stock options, with an
15
exercise price of $6.07 per share, was approved by the Corporate Governance,
Human Resources and Compensation Committee of MEC's Board of Directors on August
14, 2000.
MEC has entered into an employment agreement with Mr. Orr which
provides for a base salary of $350,000 per annum, an annual bonus based on a
percentage of pre-tax profits (with a guaranteed minimum of $350,000), a
discretionary bonus based on personal performance, confidentiality obligations,
non-competition covenants and a termination provision permitting his employment
to be terminated by MEC by giving minimum advance written notice of termination
or by paying a retiring allowance instead. Mr. Orr's contract also provides for
the issuance of stock options to purchase 300,000 shares of MEC's Class A
Subordinate Voting Stock. The grant of these stock options, with an exercise
price of $6.125 per share, was approved by the Corporate Governance, Human
Resources and Compensation Committee of MEC's Board of Directors on October 10,
2000.
MEC has entered into employment contracts with the other members
of its senior management. These employment contracts generally provide for base
salaries and annual bonuses (in some cases based on a specified percentage of
MEC's pre-tax profits before profit sharing), confidentiality obligations and
non-competition covenants. Each of these employment contracts provide that MEC
may terminate the senior officer's employment by giving minimum advance written
notice of termination or by paying a retiring allowance instead. With the
approval of the Corporate Governance, Human Resources and Compensation Committee
of MEC's Board of Directors, some of MEC's senior officers have received options
to acquire shares of MEC's Class A Subordinate Voting Stock at the fair market
value of the shares of such stock on the date of grant of the option.
MEC's Corporate Constitution provides that, beginning with the
fiscal year commencing January 1, 2004, the aggregate incentive bonuses (which
may be paid in cash or deferred for payment in future years or which may be paid
in Class A Subordinate Voting Stock) paid or payable to senior management in
respect of any fiscal year shall not exceed 6% of MEC's pre-tax profits before
profit sharing for that fiscal year.
MEC is not required to make payments under any employment
contract with its senior officers in the event of a change in control of MEC.
Long-Term Incentive Plan
MEC has adopted a long-term incentive plan, referred to as the
"Long-Term Incentive Plan", the purposes of which are: (i) to align the
interests of the Company's stockholders and the recipients of awards under the
Long-Term Incentive Plan by giving recipients of awards an interest in MEC's
growth and success; (ii) to enable the Company to attract and retain directors,
officers, employees, consultants, independent contractors and agents; and (iii)
to motivate these persons to act in the Company's long-term best interests and
those of its stockholders. Under the Long-Term Incentive Plan, MEC may grant
nonqualified stock options, incentive stock options, free standing stock
appreciation rights, tandem stock appreciation rights, restricted stock, bonus
stock and performance shares.
The Long-Term Incentive Plan is administered by the Corporate
Governance, Human Resources and Compensation Committee (the "Committee") of the
Board of Directors, which consists of at least two outside directors. The
members of the Committee serve at the pleasure of the Board of Directors.
16
Nonqualified Stock Options
Each of the Company's outside directors was granted a
nonqualified stock option to purchase 10,000 shares of Class A Subordinate
Voting Stock immediately following such director's election to MEC's Board of
Directors, and will be entitled to another such grant immediately following the
completion of each five-year period of continuous service as a director. Such
stock options will vest as to 20% of the shares of Class A Subordinate Voting
Stock included in each such grant on the date of such grant, with an additional
20% of the shares vesting on the second, third, fourth and fifth anniversaries
of such grant. On March 5, 2000, the Board approved stock options for each
outside director to purchase 10,000 shares of Class A Subordinate Voting Stock
at an exercise price of $4.875 per share pursuant to the provisions of the Long-
Term Incentive Plan.
Incentive Stock Options
Incentive stock options may be granted only to the Company's
employees and employees of its subsidiaries. If the recipient of an incentive
stock option owns more than ten percent of the voting power of all shares of
MEC's common stock, the option will not be exercisable later than five years
after its grant date and the exercise price of the option will not be less than
the greater of (i) the price required by the Internal Revenue Code (currently
110% of the fair market value of MEC's Class A Subordinate Voting Stock on the
option's grant date) and (ii) the price of the last traded board lot of shares
of MEC's Class A Subordinate Voting Stock sold on The Toronto Stock Exchange
prior to the date of grant of the option.
Bonus Stock and Restricted Stock Awards
The Long-Term Incentive Plan permits the Committee to grant bonus
stock awards, which are vested upon grant, and restricted stock awards which are
subject to a restriction period. An award of restricted stock may be subject to
performance measures during the restriction period. Unless the Committee decides
otherwise, the holder of a restricted stock award will have rights as an MEC
stockholder, including the right to vote and receive dividends with respect to
the shares of restricted stock. Dividends, however, will be subject to the same
restrictions that apply to the shares for which the dividend was paid.
Performance Share Awards
The Long-Term Incentive Plan also permits the Committee to grant
performance shares. Each performance share is a right, subject to the attainment
of performance measures during a performance period, to receive one share of
Class A Subordinate Voting Stock, which may be restricted stock, or the fair
market value of the performance share in cash. Before a performance share award
is settled in shares of Class A Subordinate Voting Stock, the holder of the
award will have no rights as an MEC stockholder with respect to the shares of
stock subject to the award. All the terms relating to the satisfaction of
performance measures and the termination of the performance period relating to a
performance share award, or any cancellation or forfeiture of the performance
share award upon the holder's termination of employment with MEC, whether by
reason of disability, retirement, death or other termination, shall be contained
in the award agreement.
Performance Goals. Under the Long-Term Incentive Plan, the vesting or payment
of performance share awards and certain awards of restricted stock will be
subject to the satisfaction of certain performance objectives and criteria.
These objectives and criteria may include one or more of the following: the
attainment by a share of Class A Subordinate Voting Stock of a specified fair
market value for a specified period of time, earnings per share, return to
stockholders (including dividends), return on
17
equity, earnings, revenues, market share, cash flow or cost reduction goals, or
any combination of these criteria.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 and
Securities and Exchange Commission regulations require MEC's directors, certain
officers and greater than ten percent stockholders to file reports of ownership
on Form 3 and changes in ownership on Form 4 and 5 with the Securities and
Exchange Commission.
Based solely on its review of copies of such reports received or
written representations from such executive officers, directors and ten percent
stockholders, MEC believes that all Section 16(a) filing requirements applicable
to its directors, executive officers and ten percent stockholders were complied
with during 2000.
Comparative Stock Performance Graph
MEC Monthly Share Price vs Nasdaq 100
Year 2000
[GRAPHIC APPEARS HERE]
CORPORATE GOVERNANCE, HUMAN RESOURCES
AND COMPENSATION COMMITTEE REPORT
The Corporate Governance, Human Resources and Compensation
Committee of the Board was formed on March 4, 2000. For a discussion of the
composition and mandate of this Committee, see "THE BOARD OF DIRECTORS AND
COMMITTEES OF THE BOARD" above.
MEC has adopted many of the organizational and operating policies
and principles utilized by Magna International for many years, certain of which
have been embodied in MEC's Corporate Constitution. MEC's Corporate Constitution
balances the interests of shareholders, employees and management by specifically
defining the rights of employees (including management) and investors to
18
participate in MEC's profits and growth, and reflects certain operational and
compensation philosophies which align employee (including management) and
shareholder interests. These philosophies and MEC's Corporate Constitution
assist in maintaining an entrepreneurial environment or culture at MEC. MEC
wishes this entrepreneurial culture to flourish, and therefore intends to apply
compensation philosophies which will enhance its ability to attract, retain and
motivate skilled, entrepreneurial employees at all levels of the MEC
organization, while assisting in the alignment of the interests of MEC's
shareholders and employees.
Many of MEC's executive officers (including most of the Named
Executive Officers) receive a remuneration package consisting of a base salary
and an annual incentive bonus based on direct profit participation.
This Committee, in accordance with its mandate, is required to
consider and apply, among other things, the historical operating philosophies
and policies of the Company, including MEC's Corporate Constitution, direct
profit participation and use of stock options and other stock rights granted
under the Long-Term Incentive Plan, to align the interests of management and
shareholders and to create shareholder value. This Committee, therefore, applies
the following criteria in determining or reviewing recommendations for
compensation for management, including where applicable, the executive officers
of MEC:
Base Salaries. Base salaries should not be customarily increased on an
annual basis. As a result, fixed compensation costs are contained, with
increased financial rewards coming principally from variable incentive
compensation.
Incentive Compensation. The amount of direct profit participation and,
therefore, the amount of compensation "at risk," increases with the level
of performance and/or responsibility. Due to the variable nature of
profit participation, incentive cash compensation should generally be
reduced in cyclical or other down periods due to reduced profits. As a
result, executive officers are encouraged to emphasize consistent
profitability over the medium- to long-term to sustain stable levels of
annual compensation.
Under MEC's Corporate Constitution, beginning with the fiscal year
commencing January 1, 2004, the aggregate incentive bonuses paid or
payable to Corporate Management (which includes the Named Executive
Officers) in respect of any fiscal year shall not exceed 6% of "Pre-Tax
Profits Before Profit Sharing" (as defined in the Corporate Constitution)
for such year.
Long-Term Incentives. Upon the grant of options under the Long-Term
Incentive Plan, extended vesting and exercise periods are sometimes used
to encourage option recipients to remain as employees or senior officers
over the long-term.
Chief Executive Officer Compensation. From November 4, 1999 to March 1,
2000 and from December 11, 2000 through to the end of the year, Mr. Frank
Stronach served as Chief Executive Officer of MEC on an interim basis
without compensation (apart from his stock options previously granted).
Mr. Jerry Campbell was President and Chief Executive Officer for
approximately five months from March to August. His employment contract,
which was entered into prior to the establishment of this Committee,
provided for a relatively low base salary, an annual bonus equal to 2% of
the pre-tax profits of MEC with no minimum guaranteed bonus, and a
termination provision. It also provided for a discretionary bonus based
on his progress with respect to certain enumerated guidelines related to
the furtherance of MEC's corporate strategy and the realization of
synergies related to MEC's corporate strategy. Mr. Campbell did not
receive any discretionary bonus in respect of his services during fiscal
year 2000. Mr. Mark Feldman was President and Chief
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Executive Officer for approximately four months from August 7, 2000 to
December 11, 2000. His employment contract, which was reviewed and
approved by this Committee, provided for a base salary, an annual bonus
equal to 2% of the pre-tax profits of MEC, subject to a minimum
guaranteed bonus, a termination provision and a one-time signing bonus.
Mr. Feldman's pro-rated bonus was calculated and paid based on his
guaranteed bonus amount, rather than the variable profit participation
bonus.
Written Employment Contracts. MEC uses written employment contracts
extensively with its executive officers and members of management to
reflect the terms of their employment, including compensation, severance,
stock ownership (if applicable), confidentiality and non-competition
arrangements.
The annual, long-term and other compensation referred to in the Summary
Compensation Table above for the Named Executive Officers reflect the
compensation and benefits provided to them under their respective
employment contracts.
MEC believes that its objectives for growth, financial returns and growth in
shareholder value dictate that it offer meaningful financial rewards for its
executive and senior officers which are contingent on the continued
profitability of the Company.
Corporate Governance, Human Resources and Compensation Committee Members
William G. Davis (Chairman)
James Nicol
Gino Roncelli
AUDIT COMMITTEE REPORT
The Audit Committee consists of three independent directors. The Audit
Committee's duties and responsibilities are set forth in a written charter (the
"Audit Committee Charter") adopted by the Board. The Audit Committee Charter is
attached to this Proxy Statement as Exhibit A.
The Audit Committee has reviewed and discussed with management MEC's
audited financial statements as of and for the fiscal year ended December 31,
2000.
The Audit Committee has discussed with MEC's independent public
accountants, Ernst & Young LLP (the "Independent Auditors"), the matters
required to be discussed by Statement on Auditing Standards No. 61, Codification
of Statements on Accounting Standards, as amended.
The Audit Committee has received and reviewed the written disclosures
and the letter from the Independent Auditors required by Independence Standards
Board Standard No. 1, Independence Discussions with Audit Committees, as
amended, and has discussed with the Independent Auditors their independence.
Based on the reviews and discussions referred to above, the Audit
Committee recommended to the Board of Directors that the financial statements
referred to above be included in MEC's Annual Report on Form 10-K for the fiscal
year ended December 31, 2000.
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Audit Committee Members
J. Terrence Lanni (Chairman)
Peter M. George
Edward C. Lumley
ITEM B--RATIFICATION OF APPOINTMENT OF AUDITORS
(Item B on the Proxy Form)
The Audit Committee of the Board of Directors has recommended,
and the Board of Directors has appointed, Ernst & Young LLP, certified public
accountants, as auditors of MEC for the fiscal year ending December 31, 2001.
During the fiscal year 2000, Ernst & Young LLP examined MEC's consolidated
financial statements, made limited reviews of the interim financial reports,
reviewed filings with the Securities and Exchange Commission and provided
general advice regarding related accounting matters.
Fees billed to MEC by Ernst & Young LLP during Fiscal 2000
Audit Fees. Audit fees billed to MEC by Ernst & Young LLP during
the fiscal year ended December 31, 2000 for review of MEC's annual consolidated
financial statements and those financial statements included in MEC's quarterly
reports on Form 10-Q totaled $504,750. Other audit related fees billed to MEC by
Ernst & Young LLP during the fiscal year ended December 31, 2000 totaled
$241,619.
Financial Information Systems Design and Implementation Fees. MEC
did not engage Ernst & Young LLP to provide advice regarding financial
information systems design and implementation during the fiscal year ended
December 31, 2000.
All Other Fees. Fees billed to MEC by Ernst & Young LLP during
the fiscal year ended December 31, 2000 for all other non-audit services
rendered to MEC, including tax-related services, totaled $214,700.
Ratification of Appointment of Ernst & Young LLP as Auditors
The appointment of Ernst & Young LLP as auditors of MEC will be
ratified at the Annual Meeting if the number of votes cast in favor of
ratification exceeds the number of votes cast opposing it.
The shares represented by the proxies solicited by the Board of
Directors will be voted as directed on the form of proxy or, if no direction is
indicated, will be voted "FOR" ratification of Ernst & Young LLP as the auditors
of MEC.
In the event the appointment is not ratified, the Board of
Directors will consider the appointment of other independent auditors. A
representative of Ernst & Young LLP is expected to be present at the Annual
Meeting on May 11, 2001, and will be available to respond to appropriate
questions and to make a statement should he or she desire to do so.
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Vote Required
The affirmative vote of a majority of the votes cast with respect
to the shares of Class A Subordinate Voting Stock and Class B Stock, voting
together as a single class, present or represented and entitled to vote at the
Annual Meeting is required for the ratification of the appointment of auditors.
Magna International, as the holder of all the outstanding shares
of Class B Stock, has indicated that it intends to vote all such shares (other
than those with respect to which it is otherwise obligated under the Voting and
Exchange Agreement as described under "General Information - Holders of
Exchangeable Shares") "FOR" the ratification of the appointment of auditors.
The Board of Directors recommends that the stockholders vote
"FOR" the ratification of the appointment of auditors.
ADDITIONAL INFORMATION
Other Action at the Meeting
The Board of Directors is not aware of any other matter to be presented
for action at this meeting. If any additional matters are properly presented,
the shares represented by a properly signed proxy form will be voted in
accordance with the judgment of the persons named on the proxy form.
Cost of Solicitation
MEC will bear the cost of soliciting proxies for the Annual Meeting. In
addition to solicitation by mail, directors, officers and other members of MEC
may solicit proxies personally or by telephone or other means of communication.
MEC will also reimburse its transfer agent for expenses in connection with the
distribution of proxy material and brokers and other persons holding stock in
their names or those of their nominees for their reasonable expenses in sending
proxy material to their principals.
Stockholder Proposals for 2002 Annual Meeting
Stockholders may submit proposals on matters appropriate for
stockholder action at MEC's annual meetings consistent with regulations adopted
by the Securities and Exchange Commission and MEC's bylaws. Proposals intended
for inclusion in the proxy statement for the 2002 Annual Meeting must be
received by MEC not later than December 6, 2001. Proposals should be directed to
the attention of the Corporate Secretary's Office, Magna Entertainment Corp.,
337 Magna Drive, Aurora, Ontario L4G 7K1.
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2000 Annual Report on Form 10-K
A copy of MEC's Annual Report on Form 10-K may be obtained,
without charge, by addressing a request to the Corporate Secretary's Office,
Magna Entertainment Corp., 337 Magna Drive, Aurora, Ontario L4G 7K1.
Stockholders are urged to send in their proxies without delay.
By Order of the Board of Directors
/s/ Gary M. Cohn
Gary M. Cohn
Vice President, Special Projects and Secretary
April 5, 2001
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EXHIBIT A--AUDIT COMMITTEE CHARTER
Audit Committee Charter
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WHEREAS:
A. The Corporation is required by applicable law to have an Audit Committee;
and
B. the Board of Directors of the Corporation (the "Board") wishes to create an
Audit Committee (the "Committee"), establish the responsibilities of the
Committee relating to audit related matters and delegate certain powers to
the Committee with respect to such matters.
RESOLVED THAT:
1. The Committee shall be composed of not less than three (3) nor more than
five (5) members who shall be financially literate and at least one of whom
shall have accounting or related financial management experience. Each of
such members shall meet the independence standards required by the rules of
the Securities and Exchange Commission ("SEC") and The Nasdaq Stock Market,
Inc. ("NASDAQ") which are in effect from time to time. The Board shall
annually appoint the members of the Committee and appoint a Chairman from
amongst those appointed, to hold office until the next annual meeting of
shareholders of the Corporation. The members of the Committee shall serve
at the pleasure of the Board and vacancies occurring from time to time
shall be filled by the Board.
2. A majority of the members of the Committee shall constitute a quorum and
all actions of the Committee shall be taken by a majority of the members
present at the meeting.
3. Meetings of the Committee shall be called by the Chairman of the Committee,
and may be called by any member of the Committee, by the Chairman, the
Chief Executive Officer, the President, the Chief Financial Officer or the
principal accounting officer of the Corporation or by the Auditor of the
Corporation.
4. The Secretary of the Corporation shall act as Secretary of the Committee
and shall provide the Auditor, the Chairman, the Chief Executive Officer,
the President, the Chief Financial Officer, the principal accounting
officer of the Corporation and each member of the Committee with notice of
each meeting of the Committee and each shall be entitled to attend each
meeting.
5. The Committee shall meet with Executive Management and the Auditor of the
Corporation within:
(a) forty-five (45) days following the end of each of the first three
fiscal quarters of the Corporation, but in any event prior to the
release of the financial results for each such quarter, to review and
discuss the financial results of the Corporation for the preceding
fiscal quarter and report upon such results to the Board; and
(b) within ninety (90) days following the fiscal year-end of the
Corporation, but in any event prior to the release of the financial
results for the fiscal year, to review and
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discuss the financial statements of the Corporation for the preceding
fiscal year and report thereon to the Board and the shareholders as
required by applicable law.
6. With respect to audit related matters and in addition to the duties and
obligations of the Committee under applicable law, the Committee may
examine and consider such other matters in relation to the internal and
external audit of the Corporation's accounts and in relation to the
financial affairs of the Corporation as the Committee may deem necessary or
desirable including, without limitation, the following:
(a) examine and approve the objectives and general scope of the audit,
including the overall audit plan, the proposed timing and completion
dates together with the estimated audit fees, and review the audit
plan with the Auditor;
(b) satisfy itself that management has established and is maintaining an
adequate system of internal controls, meet with and review significant
reports of the internal auditors and external Auditor relating to such
internal controls and the administrative efficiencies in the financial
reporting process, and review the appointment of the senior internal
auditing executives, the scope of the internal audit department's work
plan and the staffing of the internal audit department;
(c) review the selection, application and significant amendment by the
Corporation of accounting principles and practices and related
judgments to ensure that they are appropriate and consistent with the
Corporation's needs and applicable requirements, and review and
discuss the same with the Auditor;
(d) monitor, examine and assess, on behalf of the Board, any potential
illegal, improper or fraudulent behaviour which may have a negative
effect on the integrity or reputation of the Corporation, review the
findings of any regulatory agencies in relation to the financial
affairs of the Corporation, and monitor compliance with the
Corporation's Code of Conduct which may be in effect from time to
time;
(e) if satisfied following its review and discussion of the annual audited
financial statements with management and the Auditor, to recommend to
the Board the inclusion of such audited financial statements in the
Corporation's Form 10-K.
(f) satisfy itself that where there are significant unsettled issues that
do not affect the audited financial statements (e.g. disagreements
regarding correction of internal control weaknesses or the application
of accounting principles to proposed transactions), that there is an
agreed course of action leading to the resolution of these matters;
(g) ensure that there are adequate procedures for the review of interim
financial statements, including timely review by the Auditor, and
other financial information prior to their distribution to the
shareholders of the Corporation;
(h) satisfy itself generally that there is a good working relationship
between management and the Auditor and monitor, examine and assess any
material differences of opinion between them;
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(i) evaluate and make recommendations to the Board as to the appointment
or re-appointment of the Auditor and review the Auditor's
independence, including the receipt at least annually of a disclosure
report from the Auditor regarding the Auditor's independence as
required by Independence Standards Board Standard No. 1;
(j) approve the Auditor's actual fees for each fiscal year and review the
performance of the Auditor in carrying out its mandate;
(k) assess with management the Corporation's major risk exposures and the
Corporation's actions to monitor and control such exposures;
(l) review and assess the Audit Committee Charter annually and make
recommendations to the Board for such changes to the Charter as the
Audit Committee shall consider necessary or desirable;
(m) discuss with the Auditor the matters required to be discussed by the
Statement of Auditing Standards No. 61, 89 and 90 relating to the
conduct of the audit;
(n) prepare the Audit Committee report as and when required by the rules
of the SEC to be included in the Company's annual proxy statement; and
(o) perform such other functions as requested or delegated by the Board
from time to time.
7. For the purpose of performing their audit related duties, the members of
the Committee shall have full access to and the right to inspect all books,
records and facilities of the Corporation and shall be permitted to discuss
such books, records and facilities and any other matters relating to the
financial position of the Corporation with the employees, officers and the
Auditor of the Corporation.
8. The Committee may retain outside financial, legal and other experts at the
expense of the Corporation where reasonably required to carry out the
Committee's responsibilities.
9. Notwithstanding the foregoing and subject to applicable law, the Committee
shall not be responsible to plan or conduct audits or to determine that the
Corporation's financial statements are complete and accurate and are in
accordance with generally accepted accounting principles as these are the
responsibility of management and the Auditor. The primary responsibility of
the Committee is to oversee the Corporation's financial reporting process
on behalf of the Board and report thereon to the Board.
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