UNITED STATES SECURITIES AND EXCHANGE COMMISSION
SCHEDULE 14A
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
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
[_] Confidential, For Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
COGNOS INCORPORATED
(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:
COGNOS INCORPORATED
This Compliance Document provides information to the shareholders of Cognos
Incorporated in advance of its fiscal 2002 Annual and Special Meeting of
Shareholders. The documentation consists of:
A. The Notice of Meeting and Proxy Statement (with Proxy Page (i) and 1
Form enclosed) for the Corporation's Annual and Special
Meeting of Shareholders to be held July 2, 2002
B. Consolidated Financial Information in accordance with Page 62
Canadian generally accepted accounting principles for the
Corporation's fiscal year ended February 28, 2002
(supplemental to the Corporation's 2002 Annual Report)
A. NOTICE OF MEETING & PROXY STATEMENT
NOTICE OF ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS
NOTICE IS HEREBY GIVEN THAT the Annual and Special Meeting ("Meeting") of
Shareholders of Cognos Incorporated ("Corporation") will be held at the Tudor
Reception Hall, 3750 Bowesville Road, Ottawa, Ontario, Canada, on Tuesday,
July 2, 2002 at 11:00 a.m., for the following purposes:
l. to receive the consolidated financial statements of the Corporation in
accordance with both United States and Canadian generally accepted
accounting principles for the fiscal year ended February 28, 2002 and the
reports of the auditors thereon,
2. to elect directors for the ensuing year,
3. to appoint independent auditors and authorize the directors to fix their
remuneration,
4. to consider, and if deemed advisable, approve Resolution A regarding the
2002-2003 Employee Stock Option Plan,
5. to consider, and if deemed advisable, approve Resolution B regarding the
extension of the Cognos Employee Stock Purchase Plan,
6. to consider, and if deemed advisable, confirm Special Resolution C
regarding an amendment to the Corporation's Articles and By-law No. 1,
7. to transact such other business as may properly come before the meeting and
any adjournment thereof.
This Notice is accompanied by a form of proxy; a Proxy Statement; the Annual
Report of the Corporation, including financial information in accordance with
United States (U.S.) generally accepted accounting principles; and financial
information in accordance with Canadian generally accepted accounting
principles for the fiscal year ended February 28, 2002. Shareholders of record
at the close of business on May 3, 2002 are entitled to receive notice of the
Meeting and to vote in respect of the Meeting.
DATED at Ottawa this 31st day of May, 2002.
By Order of the Board of Directors
James M. Tory
Chairman of the Board
Your vote is important. Please complete, sign, date and return your form
of Proxy in the envelope provided, or submit your vote and Proxy by phone
or by Internet in order to ensure that your shares are represented at the
Meeting.
PROXY STATEMENT
Table of Contents
PAGE
----
INFORMATION ON VOTING AND PROXIES...................................... 1
Security Ownership of Certain Beneficial Owners and Management........ 4
BUSINESS OF THE ANNUAL AND SPECIAL MEETING............................. 6
Financial Statements.................................................. 6
Election of Directors................................................. 6
Appointment of Auditors............................................... 8
Adoption of the 2002 - 2003 Stock Option Plan......................... 9
Approval of Extension of Employee Stock Purchase Plan................. 12
Approval of Amendment to Articles and By-Law No. 1.................... 13
COMPENSATION........................................................... 16
Executive Compensation................................................ 16
Compensation of Directors............................................. 23
CORPORATE GOVERNANCE................................................... 25
AUDITOR INDEPENDENCE................................................... 28
ADDITIONAL INFORMATION................................................. 29
Resolution A - Adoption of 2002-2003 Employee Stock Option Plan........ 31
Resolution B - Approval of Extension of the Employee Stock Purchase
Plan.................................................................. 41
Resolution C -Confirmation of Amendment to the Articles and By-Law
No. 1................................................................ 45
Annex 1 - Alignment with TSE Governance Practices...................... 58
Annex 2 - Alignment with SEC Audit Committee Rules..................... 61
[LOGO]
3755 Riverside Drive, Ottawa, Ontario, Canada, K1G 4K9
PROXY STATEMENT
(First mailed to Shareholders on June 7, 2002)
INFORMATION ON VOTING AND PROXIES
Solicitation of Proxies
The information contained in this Proxy Statement is furnished in
connection with the solicitation by the management of Cognos Incorporated
("Corporation") of proxies to be used at the Annual and Special Meeting of
Shareholders ("Meeting") of the Corporation to be held on July 2, 2002, at
11:00 a.m. at the Tudor Reception Hall, 3750 Bowesville Road, Ottawa, Ontario,
Canada, or at any adjournment of the Meeting. The solicitation of proxies will
be made primarily by mail but proxies may also be solicited directly by
officers of the Corporation. The costs of solicitation will be borne by the
Corporation.
The specific purposes of the meeting are set out in the Notice of Meeting
accompanying this Proxy Statement.
The information contained in this Proxy Statement is given as at May 31,
2002, except where otherwise noted.
All share and per-share amounts in this Proxy Statement have been adjusted
for the two-for-one stock split approved by the Board of Directors on April 6,
2000, which was paid by way of dividend on April 27, 2000 to shareholders of
record on April 20, 2000.
All dollar amounts in this Proxy Statement are in United States dollars
unless otherwise stated. Foreign currency amounts have been translated into
United States dollars using the appropriate exchange rates for United States
currency, as reported by the Bank of Canada.
Appointment and Revocation of Proxies
The persons named in the form of proxy ("Proxy Form") are either directors
or officers of the Corporation. Every shareholder has the right to appoint
another person (who need not be a shareholder) to represent the shareholder at
the Meeting and may do so either by inserting that person's name in the blank
space provided in the Proxy Form or by completing another proper form of
proxy. In either case, to be valid, the completed proxy must be delivered to:
(a) the Corporation's transfer agent, Computershare Trust Company of Canada,
100 University Avenue, 11th Floor, Toronto, Ontario, Canada M5J 2Y1
("Computershare"), or (b) to the Secretary of the Corporation, no later than
forty-eight hours preceding the Meeting or any adjournment of the Meeting.
Only registered holders of common shares of the Corporation, or the person
they appoint as their proxies, are permitted to attend and vote at the
Meeting. A registered holder is one who has been issued a share certificate
with their name appearing on it ("Registered Holder"). However, in many cases,
certain shareholders ("Non-Registered Holders") may beneficially own shares of
the Corporation but have those
1
shares registered either (a) in the name of an intermediary that the Non-
Registered Holder deals with in respect of the shares ("Intermediary"), or (b)
in the name of a clearing agency.
The Corporation has distributed copies of the Notice of Meeting, this Proxy
Statement, the Proxy Form and the Corporation's 2002 Annual Report to
Shareholders (which includes management's discussion and analysis)
(collectively, the "Meeting Materials") to the clearing agencies and
Intermediaries for distribution to Non-Registered Holders who have not waived
the right to receive them or indicated their consent to receive the Meeting
Materials electronically. The Corporation is a "Participating Issuer" under
the Electronic Delivery Procedures with Computershare and with Independent
Investor Communications Corporation ("IICC"). Registered Holders who have
enrolled with Computershare (at www.computershare.com/ca/consent) and Non-
Registered Holders who have enrolled with IICC (at
www.investordeliverycanada.com) for electronic delivery of documents will
receive from Computershare or IICC an e-mail notification that these Meeting
Materials are available electronically at the Corporation's Web site, which
notification contains a hyperlink to the page within the Corporation's Web
site where these Meeting Materials can be viewed.
Generally, Non-Registered Holders who have not waived the right to receive
Meeting materials will received either (i) a voting instruction form which
must be completed and signed by the Non-Registered Holder in accordance with
the instruction on the form (which may, in some cases, permit the completion
of the voting instruction form by telephone or electronically), or (ii) a
proxy which has already been signed by the Intermediary (typically by a
facsimile, stamped signature), and which is otherwise uncompleted except that
it is restricted as to the number of shares beneficially owned by the Non-
Registered Holder. This latter form of proxy need not be signed by the Non-
Registered Holder. A Non-Registered Holder who wishes to submit a proxy should
properly complete the form of proxy and deposit it with Computershare Trust
Company of Canada, in the manner described in the first paragraph of this
Section. Non-Registered Holders who have enrolled in IICC's Electronic
Delivery Procedures will only be able to complete IICC's voting instruction
form through the Internet, at www.proxyvotecanada.com.
These procedures permit Non-Registered Holders to direct the voting of the
shares they beneficially own. If a Non-Registered Holder who receives either a
proxy or a voting instruction form wishes to attend and vote at the Meeting in
person (or have another person attend and vote on behalf of the Non-Registered
Holder), the Non-Registered Holder should strike out the names of the persons
named in the form of proxy and insert the Non-Registered Holder's (or such
other person's) name in the blank space provided or, in the case of a voting
instruction form, follow the corresponding directions on the form. In either
case, Non-Registered Holders should carefully follow the instructions of their
Intermediaries.
A registered shareholder who has given a proxy may revoke the proxy by:
(a) completing and signing a proxy bearing a later date and depositing it
with Computershare Trust Company of Canada in the manner described
above; or
(b) depositing an instrument in writing executed by the shareholder or by
the shareholder's attorney authorized in writing: (i) at the registered
offices of the Corporation at any time up to and including the last
business day preceding the day of the Meeting, or any adjournment of
the Meeting, at which the proxy is to be used, or (ii) with the
chairman of the Meeting prior to the commencement of the Meeting on the
day of the Meeting or any adjournment of the Meeting; or
(c) in any other manner permitted by law.
A Non-Registered Holder may revoke a voting instruction form or a waiver of
the right to receive Meeting Materials and to vote given to an Intermediary at
any time by written notice to the Intermediary, except that an Intermediary is
not required to act on a revocation of a voting instruction form or of a
waiver of the right
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to receive Meeting Materials and to vote that is not received by the
Intermediary at least seven days prior to the Meeting.
Voting of Proxies
The persons named in the Proxy Form will vote the shares in respect of
which they are appointed proxy in accordance with the direction of the
shareholder appointing them. In the absence of any direction, the shares will
be voted FOR the election of directors, FOR the appointment of independent
auditors and the authorization of the directors to fix their remuneration, FOR
the resolution approving the 2002-2003 Stock Option Plan, FOR the resolution
extending the Employee Stock Purchase Plan, and FOR the Special Resolution
confirming an amendment to the Corporation's Articles and By-law No. 1, as
described in this Proxy Statement.
The management of the Corporation knows of no amendment to the matters
referred to in the Notice of Meeting or of any other business that will be
presented to the Meeting. If any amendment or other business is properly
brought before the Meeting, the persons named in the Proxy Form are given
discretionary authority to vote on any amendment or on any other business in
accordance with their judgment.
Voting Shares and Principal Holders Thereof
The authorized capital of the Corporation consists of an unlimited number
of common shares ("shares") of which 87,925,788 shares were issued and
outstanding as of May 3, 2002 ("Record Date"), the record date established for
notice of the Meeting and for voting in respect of the Meeting.
Only shareholders of record at the close of business on the Record Date are
entitled to receive notice of, attend and vote at the Meeting. Shareholders
are entitled to one vote for each share registered in their respective names.
Directors will be elected, independent auditors will be appointed, and both
Resolutions A and B will be approved by a majority of votes cast either in
person or represented by proxy on each of those particular matters at the
Meeting. Resolution C will be approved by a Special Resolution, requiring an
affirmative vote of not less than two-thirds of the votes cast either in
person or represented by proxy at the Meeting.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets out information, as at May 3, 2002, with respect
to (a) all shareholders known by the Corporation to be beneficial owners of
more than 5% of its outstanding shares, and (b) share ownership, including the
right to acquire shares by exercise of stock options on or before July 3,
2002, by each nominee for director, each executive officer named in the
Summary Compensation Table, and all directors and executive officers as a
group.
Name and Address of Beneficial Owner
(1) Shares Beneficially Owned Percentage (2)
- ------------------------------------ ------------------------- --------------
Michael U. Potter (3)................. 9,582,594 10.75%
Sixty-Two John Street,
Ottawa, Ontario, Canada, K1M 1M3
The Windsor Trust (4)................. 9,546,290 10.71%
Royal Bank House, The Garrison, St.
Michael, Barbados
McLean Budden Ltd..................... 6,447,326 7.23%
145 King Street, Suite 225
Toronto, Ontario, Canada, M5H 1J8
Private Capital Management............ 5,636,124 6.32%
8889 Pelican Bay Boulevard
Naples, Florida, U.S.A. 34108
John E. Caldwell (5).................. 800 *
Douglas C. Cameron (6)................ 12,000 *
Pierre Y. Ducros (7).................. 20,000 *
Robert W. Korthals (8)................ 2,000 *
William Russell (9)................... Nil --
James M. Tory (10).................... 86,000 *
Renato Zambonini (11)................. 184,097 *
Terry Hall (12)....................... 90,246 *
Tony Sirianni (13).................... 20,000 *
Ad Voogt (14) Nil --
Robert G. Ashe (15)................... 76,000 *
Directors and Executive Officers as a 1,735,579 1.95%
group
(19 persons) (2) (16)................
- -------
* Indicates less than 1%
(1) Unless otherwise indicated, the address for each beneficial owner is care
of Cognos Incorporated, 3755 Riverside Drive, Ottawa, Ontario, Canada, K1G
4K9
(2) Percentage ownership is calculated using as the denominator total shares
outstanding as of the Record Date plus the number of shares which the
person, entity, or group indicated has a right to purchase pursuant to
options currently exercisable or exercisable within 60 days, or on or
before July 3, 2002. Reference to shares that the
4
persons named below have the right to acquire through options includes
options currently exercisable or exercisable on or before July 3, 2002.
(3) Mr. Potter has sole voting power and sole investment power over 36,304
shares and, through his wholly-owned entities, has shared voting power and
shared investment power with The Windsor Trust over 9,546,290 shares. Mr.
Potter is neither the settlor, the trustee, nor a beneficiary of The
Windsor Trust. Mr. Potter and The Windsor Trust each hold 50% of the
voting power of 3497704 Canada Inc. (Canada 2), 3539202 Canada Inc.
(Canada 3), 3539211 Canada, Inc. (Canada 4), 3539229 Canada Inc. (Canada
5), 3539334 Canada Inc. (Canada 6), 3539393 Canada Inc. (Canada 7),
3539423 Canada Inc. (Canada 8), 3539130 Canada Inc. (Canada 10), 3497801
Canada Inc. (Canada 13), 3539504 Canada Inc. (Canada 14), 3539555 Canada
Inc. (Canada 15), and 3539571 Canada Inc. (Canada 16). Canada 2 through
Canada 16 directly own, in the aggregate, 9,546,290 shares. Accordingly,
Mr. Potter may be deemed to beneficially own the common shares held by
these corporations. Mr. Potter has the right to acquire nil shares through
options.
(4) The Windsor Trust holds 50% of the voting power of Canada 2 through Canada
16. Canada 2 through Canada 16 directly own, in the aggregate, 9,546,290
shares. Therefore, The Windsor Trust may be deemed to beneficially own the
common shares held by these corporations. Since, Mr. Potter may also be
deemed to beneficially own these same shares (see note (3)), the 9,546,290
shares appear in the above table as beneficially owned by both The Windsor
Trust and Mr. Potter. Mr. Potter is neither the settlor, the trustee, nor
a beneficiary of The Windsor Trust.
(5) Mr. Caldwell has the right to acquire 25,000 shares through options.
(6) Mr. Cameron has the right to acquire 9,000 shares through options.
(7) Mr. Ducros has the right to acquire 15,000 shares through options.
(8) Mr. Korthals has the right to acquire 35,000 shares through options.
(9) Mr. Russell has the right to acquire 10,000 shares through options.
(10) Mr. Tory has the right to acquire 24,000 shares through options.
(11) Mr. Zambonini has the right to acquire 452,500 shares through options.
(12) Mr. Hall has the right to acquire 65,000 shares through options.
(13) Mr. Sirianni has the right to acquire 55,000 shares through options.
(14) Mr. Voogt has the right to acquire 134,752 shares through options.
(15) Mr. Ashe has the right to acquire 126,667 shares through options.
(16) The group is comprised of the individuals named in the Summary
Compensation Table on page 16, the remaining executive officers of the
Corporation, and those persons who were directors of the Corporation on
the Record Date. The amount shown includes 1,206,419 shares which the
directors and executive officers as a group have the right to acquire by
exercise of stock options granted under the Corporation's stock option
plans through July 3, 2002.
Statements contained in the table as to securities beneficially owned or
controlled by directors, officers, and 5% beneficial owners are, in each
instance, based upon information obtained from such directors, officers, and
beneficial owners.
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BUSINESS OF THE ANNUAL AND SPECIAL MEETING
FINANCIAL STATEMENTS
The audited consolidated financial statements of the Corporation for the
year ended February 28, 2002 and the auditors' report thereon will be placed
for acceptance by the shareholders at the Meeting. They are included in the
2002 Annual Report in United States dollars and in accordance with U.S.
generally accepted accounting principles (GAAP) which accompanies this Proxy
Statement, and in accordance with Canadian GAAP (in United States dollars)
beginning at Part B of the Compliance Document.
ELECTION OF DIRECTORS
The Articles of the Corporation provide for a Board of Directors ("Board")
of not less than three and not more than twelve directors to be elected
annually. Seven directors will be elected at the Meeting. Each director
elected will hold office until the next annual meeting or until a successor is
duly elected, or appointed, unless the position is earlier vacated. Mr. Doug
Erwin and Ms. Candy Obourn, each of whose term as director expires at the
forthcoming Meeting, have advised the Corporation that due to other personal
and professional commitments, neither will seek re-election to the Board. Mr.
William Russell was appointed a director on December 19, 2001 pursuant to the
powers granted to the Board in the Articles of the Corporation, to appoint
additional directors (not more than one-third of the number elected at the
previous annual meeting) on an interim basis until the next annual meeting of
shareholders.
The persons named in the Proxy Form will (unless authority to vote is
withheld) vote in favor of the election of the seven nominees listed below, or
if one of those nominees is unable to serve, or for good cause will not serve
(an event that management has no reason to believe will occur), the persons
named in the Proxy Form reserve the right to fix the number of directors at
less than seven or to vote for a substitute at their discretion.
The following table sets out the name and age of each person nominated for
election as a director; the period of service as a director; the principal
occupation, business or employment of the nominee during the last five years;
all other positions with the Corporation (or its significant subsidiaries) now
held by the nominee, if any; the name of any publicly-traded corporation of
which the nominee is a director, and the number of common shares beneficially
owned or over which control or direction is exercised and the number of
deferred share units of the Corporation's shares held by each of them.
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Name and Age Director Shares Beneficially Deferred Share
Principal Occupation Since Owned or Controlled Units Held
- -------------------- -------- ------------------- --------------
John E. Caldwell (52) +........... 2000 800 1,147.82
Consultant since December 2001.
Chief Executive Officer of Geac
Computer Corporation Limited, from
November 2000 to December 2001.
Private Investor from October 1999
to October 2000, and President and
Chief Executive Officer, CAE Inc.,
from June 1993 to October 1999.
Director of Mosaic Group and
Stelco Inc.
Douglas C. Cameron (63) *+........ 1983 12,000 2,152.82
Private Investor since November
2001. Investment Advisor, RBC
Dominion Securities Inc., from
October 1993 to November 2001
Pierre Y. Ducros (63) ++.......... 1986 20,000 1,845.28
Private Investor since June 1996.
Chairman and Chief Executive
Officer, DMR Group Inc., from
February 1973 to June 1996.
Director of BCE Emergis, National
Bank Financial, Manulife
Financial, and nStein Technologies
7
Robert W. Korthals (68) ++.............................. 1997 2,000 2,152.82
Chairman, Ontario Teachers Pension Plan Board since
January 2000 and Chairman, Co-Steel Inc., since June
1997. Director of Global Telecom Split Shares Corp.,
Jannock Properties Limited, MCM Split Shares Corp.,
Premium Income Corporation, Rogers Communications Inc.,
RTO Enterprises Inc., and Suncor Energy Inc.
William Russell (50) +.................................. 2002 Nil 327.47
Vice President, Hewlett-Packard Company since 1998 and
General Manager, Global Alliances Organization, Hewlett-
Packard Company since September 1999. Vice President and
General Manager, Enterprise Systems Group, from May 1997
to September 1999. Since 1980, Mr. Russell has held a
number of sales and management positions in different
Hewlett-Packard sales and business units, with worldwide
responsibilities
James M. Tory, Q.C. (72) *.............................. 1982 86,000 7,996.20
Chairman of the Board of Directors of Cognos
Incorporated since September 1995. Chair Emeritus and
Counsel, Torys LLP, Barristers & Solicitors, since March
1995 and prior thereto as a partner in that firm.
Director of Inmet Mining Corporation
Renato (Ron) Zambonini (55)............................. 1994 184,097 N/A
Chief Executive Officer of Cognos Incorporated since
September 1995 and President from January 1993 to April
2002
- -------
* Member of the Corporate Governance Committee.
+ Member of the Audit Committee.
++ Member of the Human Resources & Compensation Committee.
APPOINTMENT OF AUDITORS
A resolution will be presented at the Meeting to appoint Ernst & Young LLP
as independent auditors of the Corporation for the fiscal year ending February
28, 2003 and authorize directors to fix their remuneration. Ernst & Young LLP
have been auditors of the Corporation since January 1984. The appointment of
independent accountants is approved annually by the Board on the
recommendation of the Audit Committee and subsequently submitted to the
shareholders for ratification. For a discussion of the matters considered by
the Audit Committee in reaching its recommendation, see "AUDITOR
INDEPENDENCE -- Audit Committee Report". The Board recommends a vote in favor
of this resolution.
8
Arrangements have been made for one or more representatives of Ernst &
Young LLP to attend the Meeting. These representatives will be accorded the
opportunity to address the Meeting and can be expected to respond to
appropriate questions.
ADOPTION OF THE 2002-2003 STOCK OPTION PLAN
The shareholders of the Corporation will be asked to approve Resolution A
with respect to the Cognos 2002-2003 Stock Option Plan authorizing and
regulating the grant of stock options by the Corporation (the "Plan"). On
April 10, 2002, the Board approved the terms of the Plan, subject to both
regulatory and shareholder approval on or before July 31, 2002. The Plan
expires on May 1, 2003, except as to options outstanding on that date. Options
awarded under the Plan will be granted to employees of the Corporation on such
terms and at such times as may be established by the Human Resources &
Compensation Committee ("Committee").
The Plan reserves 3,800,000 common shares of the Corporation (subject to
adjustment in the event of capital changes) to be awarded by options under the
Plan. This represents approximately 4.3% of the issued and outstanding shares
of the Corporation at Record Date. There are 13,590,576 unexercised options
granted under prior stock option plans at Record Date, which, when combined
with the number of shares reserved for grant under the Plan, represent 19.78%
of the issued and outstanding shares of the Corporation.
The provisions of the Plan are summarized below. The full text of the Plan
is set out immediately following Resolution A. Copies will also be available
at the Meeting.
Summary Description of Plan Provisions
The Plan is administered by the Human Resources & Compensation Committee of
the Board of Directors (the "Committee"). The Committee determines the
participants, and prescribes the terms and conditions of the options granted
under the Plan. All employees of the Corporation and its subsidiaries, as well
as its directors and consultants are eligible to participate in the Plan.
The exercise price for options will be not less than 100% of the market
price of the common shares on The Toronto Stock Exchange (or if that price is
not available, the price on the Nasdaq Stock Market) on the trading day
preceding the date of grant. Payment of the exercise price must be made in
Canadian dollars, payable by cash, cheque or by such other method as may be
authorized by the Committee.
In addition to the award of options, the Committee may grant stock
appreciation rights in connection with a grant of any option. A Stock
Appreciation Right ("SAR") means the right to surrender to the Corporation all
or a portion of an option in exchange for a cash payment equal to the excess
of the fair market value of the option when it is surrendered, and its
exercise price. SARs will be granted along with an option, if granted at all,
and will be exercisable at the discretion of the Committee, and in any event,
only at the same time, by the same persons and to the same extent that the
underlying option is exercisable.
Option awards under the Plan will expire not later than 10 years from the
date of grant or any shorter period as may be determined by the Committee when
options are granted. Options may either be fully exercisable on the date of
grant or may be exercisable in such installments as the Committee may specify.
The Plan does not contain a change of control provision.
9
If a participant ceases to be employed by the Corporation other than by
reason of retirement, death, disability or for cause (as defined in the Plan),
the participant must exercise any exercisable installments of an option within
30 days of ceasing to be an employee (in the case of directors this period is
two years). If the employment of a participant is terminated for cause (as
defined in the Plan), the right to exercise any option terminates immediately
upon discharge.
Options are not assignable or transferable except by will or the laws of
descent and distribution. In the event of retirement, death or disability of
the participant, the Plan provides a period of two years from the triggering
event within which the options may be exercised. In the case of death and
disability, the vesting of all options outstanding is accelerated and occurs
immediately prior to the triggering event. The Plan defines "retirement" using
a three-part test: (i) the participant's age and aggregate number of years of
service with the Corporation totals 75 or greater, (ii) the participant ceases
to be employed with the Corporation, and (iii) intends to cease full-time
employment with any party.
The Board of Directors may terminate or amend the Plan at any time, but
shareholder approval is required for termination and other fundamental
amendments or actions specified in the Plan.
United States Federal Income Tax Consequences
A. Incentive Stock Options: For recipients subject to taxation under the
United States Internal Revenue Code of 1986, as amended (the "Code"), options
granted under the Plan may be either "incentive stock options" within the
meaning of Section 422 of the Code ("ISOs") or non-qualified options ("NQOs").
The following general rules are applicable for United States federal income
tax purposes under existing law to employees who are citizens or residents of,
or employed in, the United States and who receive and exercise ISOs granted
under the Plan.
1. In general, no taxable income results to the participant upon the grant of
an ISO or upon the issuance of shares to the participant upon exercise of
the ISO. In general, the amount by which the value of the common shares
received upon exercise of an ISO exceeds the exercise price is included in
the participant's alternative minimum taxable income, which may result in
additional tax in the year of exercise.
2. No tax deduction is allowed to the Corporation (or any subsidiary) upon
either grant or exercise of an ISO under the Plan.
3. If shares acquired upon exercise of an ISO are not disposed of within two
years from the date the option was granted or within one year after the
date the shares are transferred to the participant pursuant to the exercise
of the option, the difference between the amount realized on any subsequent
disposition of the shares and the exercise price will be treated as long-
term capital gain or loss to the participant.
4. If shares acquired upon exercise of an ISO are disposed of before the
expiration of one or both of the requisite holding periods (a
"disqualifying disposition"), then in most cases the lesser of (i) any
excess of the fair market value of the shares at the time of exercise of
the option over the exercise price or (ii) the actual gain on disposition,
will be treated as compensation to the participant and will be taxed as
ordinary income in the year of such disposition.
5. In any year that a participant recognizes compensation income on a
disqualifying disposition of shares acquired by exercising an ISO, the
Corporation (or its subsidiary) will generally be entitled to a
corresponding federal income tax deduction if the participant performs
services for a U.S. subsidiary of the Corporation, or if services performed
by the employee are connected to a trade or business of the Corporation (or
its subsidiary) within the United States.
10
6. Any excess of the amount realized by the participant as the result of a
disqualifying disposition over the sum of (a) the exercise price and (b)
the amount of ordinary income recognized under the above rules will be
treated as either long-term or short-term capital gain, depending upon the
time elapsed between receipt and disposition of the shares disposed.
B. Non-qualified Options: The following general rules are applicable to
holders of NQOs who are citizens or residents of, or employed in, the United
States and to the Corporation (and its subsidiaries) for federal income tax
purposes under existing law.
1. The participant does not realize any taxable income upon the grant of an
NQO, and the Corporation (or subsidiary) is not allowed a business expense
deduction by reason of such grant.
2. The participant will recognize ordinary compensation income at the time of
exercise of an NQO in an amount equal to the excess, if any, of the fair
market value of the shares on the date of exercise over the exercise price.
In some cases the Corporation (or subsidiary) may be required to withhold
tax on this amount.
3. A participant will recognize a capital gain or loss on the sale of shares
in an amount equal to the difference between the amount realized upon the
sale of the shares and the participant's basis in the shares (i.e.,
generally the exercise price plus the amount taxed to the participant as
compensation income). If the participant's holding period for the shares
exceeds one year, this gain or loss will be a long-term capital gain or
loss.
4. In general, the Corporation or its subsidiary will be entitled to a tax
deduction when compensation income is recognized by the participant if the
participant performs services (a) for a U.S. subsidiary of the Corporation
or (b) in connection with a trade or business of the Corporation (or
subsidiary) within the United States.
C. Special Rules for Restricted Stock: Common shares that are subject to
restrictions on transfer and also to a substantial risk of forfeiture (as
defined in Regulations under Section 83 of the Code), referred to herein as
"Restricted Stock", are subject to special tax rules. Officers, directors, and
10% shareholders of the Corporation may in some instances acquire common
shares treated as Restricted Stock because of certain securities laws
restrictions on resale. If a participant acquires Restricted stock upon
exercise of an NQO, the amount included in compensation income generally will
be determined as of some later date and will equal the difference between the
amount paid for the Restricted Stock and its fair market value at that later
date, unless the participant files a timely election under Section 83(b) of
the Code electing to determine the amount of income at the time of exercise.
(There may be other tax consequences associated with this election.) If a
participant acquires Restricted Stock upon exercise of an ISO, the amount
included in compensation income if a disqualifying disposition of such shares
is made, generally will be determined as of some later date and will equal the
difference between the amount paid for the Restricted Stock and its fair
market value at that later date. These results may also be affected by the
filing of a Section 83(b) election.
D. ERISA: The Plan is not an employee benefit plan and is not subject to the
provisions of the Employee Retirement Income Security Act of 1974 or to the
provisions of Section 401(a) of the Code.
The above summary does not take into account the exclusion for foreign
earned income, the foreign tax credit, or the effect of any tax treaty.
11
Canadian Federal Income Tax Consequences
The Canadian tax consequences on the Corporation or its Canadian employees
arising from a grant of options under the 2002-2003 Plan will vary depending
on the terms of a particular grant. Generally, an employee will not be taxed
on the grant of an option but will be taxed on the exercise or surrender of an
option. On the receipt of shares following the exercise of an option, the
employee will be required to include in computing income the excess of the
fair market value of the shares at the date of exercise over the option price.
However, an employee will normally be entitled to a deduction in computing
taxable income in an amount equal to one-half of the amount required to be
included in computing the employee's income. An employee may, subject to
certain limitations, elect to defer the inclusion of the benefit in income
until a later sale or exchange of the shares. Upon a later sale or exchange of
the shares, the employee will realize a capital gain or loss. For purposes of
determining the amount of the gain or loss, the full amount of the benefit
which is included in the employee's income is added to the adjusted cost base
of the common shares owned. The Corporation is not entitled to claim a
deduction in computing its income for the amount of the benefit realized by
the employee. The above summary does not reflect any provisions of the income
tax laws of any province in which a participant may reside nor does it take
into account foreign tax credits, or the effect of any tax treaty.
Voting
The Plan requires the approval of majority of shares represented and
entitled to vote at the Meeting to become effective. The Board recommends the
approval of Resolution A regarding the adoption of the Plan.
APPROVAL OF EXTENSION OF EMPLOYEE STOCK PURCHASE PLAN
Summary Description of Extension to the Plan
The Cognos Employee Stock Purchase Plan ("ESPP") was adopted by the Board
on December 22, 1992 and approved by the shareholders on July 6, 1993. The
ESPP has been amended twice, in 1997 and in 1999, with shareholder approval,
to extend the plan's expiry date. The ESPP terminates on November 30, 2002. On
April 10, 2002, the Board of Directors approved, subject to shareholder and
regulatory approval, the extension of the ESPP for a further three (3) years
to terminate on November 30, 2005.
Originally, 3,000,000 common shares were reserved for issuance under the Plan
(1,500,000 common pre-split shares), of which 909,767 common shares remained
available for purchase as at Record Date.
The ESPP is open to all permanent employees of the Corporation. A
participant in the ESPP authorizes the Corporation to deduct an amount per pay
period that cannot exceed five (5) percent of annual target salary divided by
the number of pay periods per year. Deductions are accumulated during each of
the Corporation's fiscal quarters ("Purchase Periods") and on the first
trading day following the end of any Purchase Period these deductions are
applied toward the purchase of common shares. The purchase price is ninety
(90) percent of the lesser of The Toronto Stock Exchange average closing price
on (a) the first five trading days of the Purchase Period or (b) the last five
trading days of the Purchase Period. Participants may withdraw from the ESPP
at any time.
Other than the extension of the term of the ESPP, no other amendment is
being requested. The full text of the ESPP, including the proposed extension,
is set out immediately following Resolution B. Copies will be also be made
available at the Meeting.
12
United States Federal Income Tax Consequences
The following is a general summary of the principal United States federal
income tax consequences to the Corporation and employees of participation in
the ESPP. The ESPP is not intended to qualify under Section 423 of the United
States Internal Revenue Code; different tax treatment will apply if the ESPP
does qualify under Section 423. This summary does not take into account the
exclusion for foreign earned income, the foreign tax credit, or the effect of
any tax treaty.
For participants in the ESPP who are subject to tax in the United States,
the amounts deducted from a participant's salary under the ESPP will be
included in the participant's compensation subject to federal income tax.
Generally, no additional income will be recognized upon an election to
participate in the ESPP. When a participant acquires shares under the ESPP,
the participant generally will recognize ordinary income in an amount equal to
the excess, if any, of the fair market value of the shares at the time of
purchase over the amount the participant paid for the shares.
When a participant recognizes ordinary income in connection with the ESPP,
the Corporation or the subsidiary for which the participant performs services,
as the case may be, generally will be entitled to a corresponding deduction
for U.S. federal income tax purposes.
When shares acquired pursuant to the ESPP are sold, the participant
generally will recognize capital gain or loss equal to the difference between
the amount realized upon the sale of the shares and the participant's tax
basis in the shares (generally, the amount the employee paid for the shares
plus the amount, if any, taxed as ordinary income). Capital gain or loss
recognized on a disposition of shares will be long-term gain or loss if the
participant's holding period for the shares exceeds one year.
Canadian Federal Income Tax Consequences
An ESPP participant who is a resident of Canada, will not realize any
income upon an election to participate in the ESPP. When common shares are
purchased under the ESPP, the participant will be required to include in
income as a benefit from employment, in the year the shares are acquired, the
difference between the value of the common shares on the date on which the
shares are acquired and the purchase price of the common shares. The
Corporation will not receive any deduction from Canadian federal income tax in
connection with the purchase of common shares under the ESPP.
Upon a later sale or exchange of the shares, the participant will realize a
capital gain or loss. For purposes of determining the amount of the gain or
loss, the full amount of the benefit which is included in the employee's
income is added to the adjusted cost base of the common shares owned.
The above summary does not reflect any provisions of the income tax laws of
any province in which a participant may reside nor does it take into account
foreign tax credits, or the effect of any tax treaty.
Voting
The amendment to extend the ESPP requires the approval of a majority of
shares represented and entitled to vote at the Meeting to become effective.
The Board recommends the approval of Resolution B regarding the extension of
the ESPP.
APPROVAL OF AMENDMENT TO ARTICLES AND BY-LAW NO. 1
13
The shareholders of the Corporation will be asked to approve Resolution C
confirming the amendment of the Corporation's Articles of Incorporation and of
By-law No. 1, the Corporation's general operating by-law ("By-law").
The Canada Business Corporations Act, the Corporation's governing statute,
and the regulations thereunder (the "Act"), were amended on November 24, 2001
(the "CBCA Amendments"). The objectives of these amendments are to (i) bring
the CBCA into line with other corporate statutes in Canada and the U.S. and
(ii) allow CBCA corporations greater flexibility in utilizing current and
emerging technologies in the decision-making by directors and shareholders.
The Board of Directors reviewed its existing By-law in light of the CBCA
Amendments, and determined that amendment of the Articles and the By-law was
in order to align the Articles and By-law with the amended CBCA. On April 10,
2002, the amended Articles and By-law were approved by the Board, subject to
confirmation by the shareholders.
The amended By-law permits, but does not require, the use of electronic
communication facilities in matters such as delivery of documents to
shareholders, shareholder meetings, proxy appointment and shareholder voting.
The amended By-law now facilitates the use of electronic processes by the
Corporation, subject to the requirements of the CBCA. These requirements
include processes designed to ensure the integrity of the electronic
facilities, and to ensure that shareholders are not prejudiced by their use.
Protections include, among other things, requirements for recipient consent to
electronic delivery of documents, as well as requirements for the integrity of
systems used for electronic signatures and voting.
Amendments to the By-law were also required to conform the By-law to the
CBCA Amendments on the indemnification of directors and officers. Among the
changes made by the CBCA Amendments, the scope of indemnification permitted by
a corporation has been expanded to include individuals acting, at the
Corporation's request, as directors and officers, or in a similar capacity, of
entities other than the Corporation and its direct subsidiaries. This could
include, for example, non-profit organizations and industry associations.
A change is proposed to the quorum requirement. Currently, the By-law
stipulates a quorum to be two (2) shareholders present or represented by
proxy, holding not less than fifty percent (50%) of the issued and outstanding
common shares of the Corporation. The proposed amendment reduces the foregoing
percentage to thirty-three and one-third percent (33 1/3%). The Board believes
that the proposal is consistent with current governance practice. The complete
text of the amended By-law, with amendments marked, is set out immediately
following Resolution C.
The CBCA Amendments also effected a technical amendment to the CBCA
provision that authorizes the Board to appoint additional directors on an
interim basis between annual meetings. The Articles of the Corporation were
amended in 1996 to implement this provision. The proposed amendment conforms
the Articles to the amended wording of the Act but does not alter the
authority granted to the Board to appoint additional directors.
VOTING
In order to continue to be effective, the amended By-law must be confirmed
at the Meeting by a majority of votes cast by the shareholders voting in
respect of the resolution. The amendment to the Articles of the Corporation
requires a Special Resolution of the shareholders, requiring the affirmative
vote of not less than two-thirds of the votes cast either in person or
represented by proxy. The Board recommends the approval of Resolution C
regarding the approval of the amendment to the Articles and By-Law of the
Corporation.
14
OTHER MATTERS
The management of the Corporation knows of no amendment or variation of the
matters referred to in the Notice of Annual and Special Meeting and of no
other business to be brought before the Meeting. However, if any amendment,
variation or other business is properly brought before the Meeting, the Proxy
Form confers discretionary authority on the persons appointed proxy to vote on
any amendment or variation of the matters referred to in the Notice of Annual
and Special Meeting or any other business in accordance with their best
judgment.
15
COMPENSATION
EXECUTIVE COMPENSATION
The following Summary Compensation Table sets out the compensation received
for each of the last three fiscal years for Mr. Zambonini, the Chief Executive
Officer of the Corporation, and those persons who were, at February 28, 2002,
the other four most highly compensated executive officers of the Corporation.
Summary Compensation Table
(All dollar amounts are in U.S. dollars)
Long-term
Compensation
Annual Compensation Awards (3)
--------------------------------- ----------------
Other Securities
Name and Principal Fiscal Annual Underlying All Other
Position Year Salary (1) Bonus (2) Compensation Options/SARs (#) Compensation (4)
- ------------------ ------ ---------- --------- ------------ ---------------- ----------------
Renato Zambonini (5).... 2002 $297,038 $150,000 -- 150,000 $ 3,756
Chief Executive Officer 2001 $267,148 $420,757 -- 100,000 $ 3,718
2000 $254,585 $375,938 -- 150,000 $ 4,583
Terry Hall (6).......... 2002 $365,000 $267,880 -- 100,000 $597,768
Senior Vice President 2001 $315,000 $336,000 -- 80,000 $ 1,500
2000 $281,250 $518,036 -- 200,000 $ 1,708
Tony Sirianni........... 2002 $180,000 $276,814 -- 110,000 $ 3,466
Senior Vice President, 2001 $180,000 $222,265 -- 60,000 $ 2,130
North American Field 2000 -- -- -- -- --
Operations
Ad Voogt (7)............ 2002 $185,744 $216,501 $126,126 125,000 $ 25,565
Senior Vice President, 2001 -- -- -- -- --
European Field 2000 -- -- -- -- --
Operations
Robert G. Ashe (5) (8).. 2002 $239,671 $ 55,923 -- 150,000 $ 4,793
President and Chief 2001 $156,949 $118,994 -- 50,000 $ 3,651
Operating Officer 2000 -- -- -- -- --
- -------
(1) Salary is base salary earned for the current year.
(2) Bonuses for each year include amounts earned for that year, even if paid
in the subsequent year, and exclude bonuses paid during that year but
earned for a prior year. Bonuses for Messrs. Sirianni and Voogt were based
on the attainment of specific sales and operational objectives. Those of
Messrs. Zambonini, Ashe, and Hall were based on a bonus payout authorized
by the Human Resources & Compensation Committee (see "Human Resources &
Compensation Committee Report on Executive Compensation -- Cash
Compensation").
(3) As of the Record Date, the Corporation has not granted any restricted
shares, or stock appreciation rights ("SARs"), as compensation.
16
(4) The amounts in this column pertain to the Corporation's annual
contribution to each individual's savings plan. The Corporation
contributes to a Retirement Savings Plan on behalf of Messrs. Zambonini
and Ashe. Cognos Corporation (U.S.A.) contributes to a 401(k) savings plan
for Messrs. Hall and Sirianni. Cognos GmbH (Germany) contributes to
Retirement Savings Plan on behalf of Mr. Voogt. The amount of contribution
for Mr. Hall was $3,618; the balance of $594,150 is explained in note (6).
(5) These individuals are employed in Canada and paid in Canadian dollars. The
amounts shown in the above table are expressed in U.S. dollars using the
following weighted annual exchange rate for the Corporation's fiscal years
ending on the last day of February:
2002 - C$1.00 = US$0.6391
2001 - C$1.00 = US$0.6679
2000 - C$1.00 = US$0.6789
(6) On April 10, 2002, Mr. Hall, who held the offices of Chief Operating
Officer and Senior Vice President, Worldwide Field Operations,
relinquished his executive positions. The amount indicated in the column
for "All Other Compensation" includes $594,150 paid to him by the
Corporation in respect of the amendment of his employment agreement (see
"Employment Agreements" below). On the same date, Mr. Rob Ashe was
appointed his successor as Chief Operating Officer.
(7) Mr. Voogt was employed in Europe and paid in Netherland Guilders. The
amounts shown in the above table are expressed in U.S. dollars using the
following weighted annual exchange rate for the Corporation's fiscal year
ending on the last day of February:
2002 - NLG = US$0.3994
The amount indicated in the column for "Other Annual Compensation" consists
primarily of expatriate allowances.
(8) Mr. Ashe was appointed President and Chief Operating Officer on April 10,
2002, succeeding Mr. Zambonini who had been President of the Corporation
since 1993. Mr. Zambonini continues as Chief Executive Officer of the
Corporation. Mr. Ashe previously held the position of Senior Vice
President, Chief Corporate Officer.
17
Option/SAR Grants in Last Fiscal Year
(All dollar amounts are in U.S. dollars)
The following table provides information with respect to stock option
grants by the Corporation to the named executive officers for the fiscal year
ended February 28, 2002.
Potential Realizable Value at
Assumed Annual Rates of Stock
Individual Grants Price Appreciation for Option Term (3)
--------------------------------------------- --------------------------------------
Number of % of Total
Securities Options
Underlying Granted to Exercise Expiration
Options Employees in Price per Date
Name Granted (1) Fiscal Year Share (2) (mm/dd/yy) 5% 10%
- ---- ----------- ------------ --------- ---------- ------------------- -------------------
Renato Zambonini........ 150,000 3.1% $15.44 06/28/09 $1,105,857 $2,648,698
Terry Hall.............. 100,000 2.1% $14.18 09/25/09 $ 677,050 $1,621,639
Tony Sirianni (4)....... 60,000 1.2% $16.32 04/10/09 $ 467,581 $1,119,927
50,000 1.0% $14.18 09/25/09 $ 338,525 $ 810,819
Ad Voogt (4)............ 50,000 1.0% $16.32 04/10/09 $ 389,651 $ 933,273
75,000 1.6% $14.18 09/25/09 $ 507,787 $1,216,229
Robert G. Ashe.......... 150,000 3.1% $15.44 06/28/09 $1,105,857 $2,648,698
- -------
(1) Option awards are typically made following the release of the
Corporation's year-end results. During the course of the year other awards
may be granted in special circumstances. In all cases, option awards are
approved by the Human Resources & Compensation Committee, the
administrator of the Corporation's Stock Option Plans. Option awards to
employees typically vest on each of the successive four anniversaries of
the date of grant and expire on the eighth anniversary of the date of
grant.
(2) Exercise Price is equivalent to the market value, on The Toronto Stock
Exchange, of securities underlying options on the day preceding the date
of grant.
(3) These amounts represent the gain that may be realized upon exercise of the
options immediately prior to the expiration of their term (net of the
option exercise price but before taxes associated with the exercise)
assuming the specified compound rates of appreciation (5% and 10%) of the
Corporation's shares over the term of the options. These amounts are
calculated based on rules promulgated by the United States Securities and
Exchange Commission and do not reflect the Corporation's estimate of
future stock price increases. Actual gains, if any, on any stock option
exercises and resultant shareholdings are dependent on the timing of each
exercise and the future share performance. There can be no assurance that
the rates of appreciation assumed in this table can be achieved or that
the amounts reflected will be received by the individuals.
(4) The circumstances giving rise to the second award granted to Messrs.
Sirianni and Voogt are described in "Human Resources & Compensation
Committee Report on Executive Compensation -- Long-Term Incentives".
18
Aggregated Option Exercises and Fiscal Year-End Option Values
(All dollar amounts are in U.S. dollars)
The following table provides information on stock option exercises in the
fiscal year ended February 28, 2002, by the named executive officers and the
number and value of such officers' outstanding options as at February 28,
2002. Dollar values indicated represent the net of market value less exercise
price.
Number of Securities Value of Unexercised In-
Underlying Unexercised The-Money Options at
Shares Aggregate Options at Fiscal Year-End Fiscal Year End (1)
Acquired on Value ------------------------------ -------------------------
Name Exercise (#) Realized Exercisable Unexercisable Exercisable Unexercisable
- ---- ------------ ---------- ------------- -------------- ----------- -------------
Renato Zambonini........ -- -- 340,000 300,000 $4,956,803 $2,608,103
Terry Hall 175,008 $2,361,698 20,000 260,000 Nil $2,267,820
Tony Sirianni........... 19,626 $ 127,968 15,000 181,000 Nil $1,477,624
Ad Voogt................ -- -- 103,502 174,000 $1,360,273 $1,565,951
Robert G. Ashe.......... 140,000 $2,312,282 89,167 237,500 $1,162,207 $2,241,235
(1) Value of unexercised in-the-money options is calculated based on the fair
market value of the underlying shares on the Nasdaq, minus the exercise
price, and assumes sale of the underlying shares on February 28, 2002, the
last trading day in fiscal 2002, at a price of $25.49 being the fair
market value of the Corporation's shares on such date.
Employment Agreements
The employment agreement of Mr. Zambonini provides, among other things,
that if his employment is terminated without cause, the Corporation will pay
severance in an amount equal to one year's salary at the time of termination
and if he is subsequently employed by another party for any portion of the
year following termination, the severance payment will be reduced on a pro-
rata basis for that portion. The employment agreement of Mr. Sirianni was
amended during the fiscal year to provide for a severance payment of eighteen
months at his current target compensation should his employment be terminated
without cause.
In December 2001, Mr. Terry Hall and the Corporation reached an agreement
regarding the relinquishment of his executive positions on or before May 1,
2002. After May 1, 2002, Mr. Hall will remain as an employee of the
Corporation through December 10, 2003 and will be assigned responsibilities
relating to strategic corporate initiatives. Mr. Hall has announced his
intention to retire after that date. He will be subject to post-employment
non-competition and non-solicitation covenants for a period of one year
following his departure from the Corporation. As consideration for the
foregoing, Mr. Hall was paid a lump sum equivalent to one year's salary at his
current target earnings ($594,150) and, subject to certain conditions, he will
earn an equivalent amount over the period May 1, 2002 to the date of his
departure. In addition, the Corporation agreed to award Mr. Hall 100,000 stock
options in 2001 as part of his regular executive officer option grant, vesting
equally in 2002 and 2003. Mr. Hall's current benefits package will be
maintained and he will be entitled to expense reimbursement should he relocate
to Canada prior to December 2003.
19
Human Resources & Compensation Committee Report on Executive Compensation
Mandate of the Human Resources & Compensation Committee
The mandate of the Human Resources & Compensation Committee ("Committee")
is set out in "Corporate Governance--Board Committees". Among other matters,
it is responsible for reviewing and approving the compensation for the Chief
Executive Officer and other executive officers of the Corporation. The
Corporation's compensation program for executive officers comprises cash
compensation and long-term incentive compensation in the form of stock
options. A policy of stock ownership for executives of the Corporation was
adopted in fiscal 2000 (as described in "Share Ownership" below).
Cash Compensation
Each senior officer is assigned a target cash compensation amount at the
beginning of each fiscal year. This amount is based on salary surveys of both
similarly-sized software companies and larger software companies, some of
which are represented in the Performance Graph on page 25, as well as on job
responsibilities and performance. Target cash compensation is allocated
between two components: a fixed base salary and a variable bonus target.
Base salary is based on the criteria set out above, that is, on market
surveys, job responsibilities and performance.
The bonus target for each executive officer varies in accordance with his
role responsibilities and objectives. For the fiscal year ended February 28,
2002, the actual bonus for officers other than Messrs. Sirianni and Voogt was
to be a percentage (which could exceed 100%) of the bonus target, such
percentage being derived from a formula (the "Corporate Performance Formula")
based on a combination of the Corporation's revenue and profitability, and a
further formula (the "Executive Performance Formula") based on the
Corporation's performance against its major competition. Both these formulae
were established at the beginning of the fiscal year before the downturn in
the economy and the events of September 11, 2001. The application of the
Corporate Performance Formula in the calculation of the bonus amounts for
these officers would have resulted in a payout of 67% of the target bonus but
the application of the Executive Performance Formula resulted in a nil payout.
The Committee was of the view that these officers merited some reward for the
Corporation's strong financial performance in the face of a challenging and
unpredictable economic environment. Accordingly, based on these
considerations, the Committee recommended and the Board approved a payout of
50% of the bonus targets, a substantial reduction from the previous year. Mr.
Tom Manley was appointed Senior Vice President, Finance & Administration and
Chief Financial Officer of the Corporation in August 2001. His employment
agreement provided for a payout of two-thirds of his target bonus for the past
fiscal year only, after which time he will be subject to the same criteria as
are applicable to the other executive officers.
The bonus entitlement of Messrs. Sirianni and Voogt, senior sales
executives, was based on the attainment of specific sales and local
performance objectives within their respective territories. Under these
criteria, Messrs. Sirianni and Voogt were entitled to 123% and 162%, of their
respective bonus targets.
The range of total cash compensation (base plus bonus) earned by all named
executive officers was from 75% to 126% of their respective individual target
cash compensation amounts.
Long-Term Incentives
Long-term incentives are provided through stock options awarded under the
1997-2002 Stock Option Plan ("1997 Option Plan"), which was adopted by the
Board on April 9, 1997 and approved by shareholders on
20
June 25, 1997. Directors, officers, employees, and consultants of the
Corporation are eligible to participate in the 1997 Option Plan. Through the
award of stock options, the Corporation seeks to attract, reward and retain
employees by providing them with a means of sharing in the financial success
created by their combined efforts. In particular, the award of stock options
to executive officers seeks to provide them with an incentive to enhance
shareholder value. Options are granted on the basis of an individual's level
of responsibility and potential to contribute to the Corporation's future
success.
Options to employees are awarded at the discretion of management and
typically vest equally on each of the successive four anniversaries of the
date of grant and expire on the eighth anniversary of the date of grant.
Options to directors typically vest in their entirety on the date of grant.
All options are priced at the market price of the Corporation's shares on The
Toronto Stock Exchange on the trading day preceding the date of grant.
On April 10, 2001, following the release of the Corporation's year-end
results, and on June 28, 2001, following the completion of the Committee's
annual review of executive compensation, the Committee awarded option grants
to certain key employees of the Corporation and its subsidiaries, including
certain of its executive officers, as set out in "Option/SAR Grants in Last
Fiscal Year".
Mr. Rob Ashe was appointed Chief Corporate Officer on April 5, 2001. In
recognition of the importance of his appointment and the additional
responsibilities associated with the position, Mr. Ashe was awarded an option
to acquire 150,000 shares under the 1997 Option Plan on June 28, 2001. One-
half of that option award vests on the second anniversary of the date of
grant, and the balance vests equally on the third and fourth anniversaries,
and expires on the eighth anniversary of that date.
On September 25, 2001, in recognition of his promotion to Senior Vice
President, Mr. Ad Voogt was awarded an option to acquire 25,000 shares,
vesting equally on each of the next four anniversaries of the date of grant,
and expiring on the eighth anniversary of that date. On the same date, Messrs.
Voogt and Sirianni were each awarded an option to acquire 50,000 shares. The
Committee based this latter award on the importance of maintaining executive
stability in the North American and European sales organizations during a
period of economic challenges and executive change. These options vest equally
on each of the next four anniversaries of the date of grant and expire on the
eighth anniversary of that date.
As of the Record Date, options to purchase 13,590,576 shares under the 1997
Option Plan, and predecessor plans, were outstanding at a weighted average
exercise price of $19.23.
Share Ownership
To promote better alignment of management and shareholder interests, in May
1999 the Corporation adopted share ownership guidelines for the Chief
Executive Officer, Senior Vice Presidents and Vice Presidents of the
Corporation ("Executives"). Executives are expected to accumulate and hold
shares having a market value at least equal to a multiple of their annual base
salary. That multiple increases with the level of responsibility of the
executive. Executives generally have three years from the time they become
subject to the guidelines to achieve the designated level of stock ownership.
Compliance with the guidelines, while voluntary, is strongly recommended.
Failure to comply could result in the reduction or suspension from
participation in the Corporation's incentive programs.
Chief Executive Officer Compensation
The Chief Executive Officer's ("CEO") compensation is reviewed and
recommended to the Board by the Committee. During the fiscal year ended
February 28, 2002, one-half of Mr. Zambonini's compensation was in the form of
risk-based compensation tied to the performance of the Corporation based on
the
21
Executive Performance Formula. As discussed in "Human Resources & Compensation
Committee Report on Executive Compensation - Cash Compensation", although the
Executive Performance Formula resulted in a nil bonus payout, the Committee
authorized a bonus payout of 50% of his target bonus, $150,000 (C$234,697).
His base salary was set at $300,000 (C$469,394), representing a 17% increase
over his Canadian dollar base salary in the previous fiscal year. His bonus
target was increased by 56% over his Canadian dollar bonus target in the
previous fiscal year, to $300,000 (C$469,394).
This report has been provided by the Human Resources & Compensation
Committee of the Board of Directors.
Robert W. Korthals (Chairman)
Pierre Y. Ducros
Douglas J. Erwin
Human Resources & Compensation Committee Interlock and Insider Participation
in Compensation Decisions
The members of the Human Resources & Compensation Committee are Messrs.
Korthals (Chairman), Ducros and Erwin. No member of the Committee was at any
time during the past year an officer or employee of the Corporation or any of
its subsidiaries, was formerly an officer of the Corporation or any of its
subsidiaries, or had any relationship with the Corporation requiring
disclosure herein. During the last year, no executive officer of the
Corporation served as (i) a member of the compensation committee (or other
committee of the Board of Directors performing equivalent functions or, in the
absence of any such committee, the entire Board of Directors) of another
entity, one of whose executive officers served on the Human Resources &
Compensation Committee of the Corporation; (ii) a director of another entity,
one of whose executive officers served on the Human Resources & Compensation
Committee of the Corporation; or (iii) a member of the compensation committee
(or other committee of the Board of Directors performing equivalent functions
or in the absence of any such committee, the entire Board of Directors) of
another entity, one of whose executive officers served as a director of the
Corporation.
Certain Relationships and Other Transactions
Until November 2001, Mr. Cameron was an Investment Advisor with RBC
Dominion Securities, a subsidiary of the Royal Bank of Canada, the
Corporation's principal banker. From time to time, Mr. Cameron acted on behalf
of various executives and other employees of the Corporation in his capacity
as an Investment Advisor. The Board had been apprised by Mr. Cameron of these
relationships and was of the view that neither their nature nor the amounts
involved are significant. Mr. Cameron retired from his occupation in November
2001.
While the law firm of Torys LLP, of which Mr. Tory is Chair Emeritus and
Counsel, provides legal services to the Corporation, neither the amount nor
dollar value of these services is significant when compared to the overall
amount or dollar value of legal services obtained by the Corporation. Mr. Tory
himself provides no legal services to the Corporation and has no direct or
indirect responsibility for any legal services provided by Torys LLP to the
Corporation. The Board does not consider that the amount paid to Mr. Tory in
respect of additional duties carried out as Chairman of the Board (see
"Compensation of Directors") impairs his status as an unrelated director as
that amount is payable in respect of his additional responsibilities and
duties as Chairman of the Board.
The Corporation may license its products and sell its services in the
ordinary course of business to companies for which members of the
Corporation's Board serve as executive officers. In fiscal 2002, the
Corporation did business with Geac Computer Corporation Limited, of which
company Mr. Caldwell, a
22
member of the Audit Committee, was the Chief Executive Officer until December
2001. The Corporation also did business with Hewlett-Packard Company, of which
Mr. Russell, also a member of the Audit Committee, is a Vice President, and
the General Manager of its Software and Solutions Organization division. The
amount received from either of Geac and Hewlett-Packard with respect to the
license of products and the purchase of services is not considered sufficient
to impair the independence of either Messrs. Caldwell or Russell.
EQUITY COMPENSATION PLAN INFORMATION
The following table provides information with respect to shares of the
Corporation that may be issued upon the exercise of options, warrants or
rights under the Corporation's previous or existing equity compensation plans
as at Record Date. The plans consist of the 1993-1998 Stock Option Plan and
the 1997-2002 Stock Option Plan, both of which were submitted for approval to
the Corporation's shareholders and have expired, except for options
outstanding. No warrants or rights are outstanding under either of the
foregoing plans.
(a) (b) (c)
-------------------- ------------------- ------------------------
Number of Securities
Remaining Available
for Future Issuance
Number of Securities Under Equity
to be Issued Upon Weighted-Average Compensation Plans
Exercise of Exercise Price of (excluding securities
Plan Category Outstanding Options Outstanding Options reflected in column (a))
- ------------- -------------------- ------------------- ------------------------
Equity compensation
plans approved by
shareholders........... 13,590,576 $19.23 909,767(1)
Equity compensation
plans not approved by
shareholders........... -- -- --
Total................... 13,590,576 $19.23 909,767
(1) The number of securities indicated represent the number of shares of the
Corporation which remain available for future issuance under the
Corporation's Employee Stock Purchase Plan ("ESPP"). The ESPP terminates
on November 30, 2002. See "APPROVAL OF EXTENSION OF EMPLOYEE STOCK
PURCHASE PLAN".
COMPENSATION OF DIRECTORS
The compensation paid to directors of the Corporation was reviewed by the
Board in fiscal 2002 and amended to provide that compensation for U.S.-based
directors is denominated in U.S. dollars and that of Canadian-based Directors
is denominated in Canadian Dollars. The annual retainer payable to a non-
employee director is $15,000 and an additional annual retainer of $2,500 is
payable for each non-employee director who chairs a committee of the Board.
The Chairman receives additional compensation in respect of his duties in the
amount of $50,000. Each non-employee director receives meeting fees of $1,250
for attendance (including attendance by telephone) at each Board meeting and
committee meeting of which the director is a member. Directors are compensated
for duties outside those normally undertaken by directors
23
at the rate of $2,000 per day. Employees of the Corporation serving on the
Board do not receive directors' compensation.
A deferred share plan for non-employee directors ("DSP") was adopted in
April 1999. Under the DSP, non-employee directors may receive all or part of
their annual retainer fee in cash, options or deferred share units. A deferred
share unit ("DSU") is a unit, equivalent in value to a common share of the
Corporation, credited by means of a bookkeeping entry in the books of the
Corporation to an account in the name of the non-employee director. At the end
of the director's tenure as a member of the Board the director is either (a)
paid the market value of the shares represented by the DSUs, or (b) receives
the whole number equivalent of the number of DSUs in common shares of the
Corporation purchased on the open market. DSUs represent the variable (at
risk) component of the directors' compensation. All directors have elected to
receive their entire annual retainer in the form of DSUs. Additional
compensation consisting of deferred share units or an option award under the
DSP may be awarded to non-employee directors as the Board deems appropriate.
The total cash compensation earned by non-employee directors in fiscal 2002
for duties performed during the fiscal year was $76,234. The table at
"ELECTION OF DIRECTORS" sets out the number of DSUs held by each nominee for
director. No amounts were paid for duties outside those normally undertaken by
directors.
Non-executive directors hold stock options that are currently exercisable
or exercisable within 60 days from the Record Date ("Exercisable Optioned
Shares") as indicated in the notes to the table appearing in "Security
Ownership of CERTAIN BENEFICIAL OWNERS AND Management". The following table
sets out, for each of the non-executive directors, the grant date and exercise
price for those Exercisable Optioned Shares. Unless otherwise noted, all
option grants vest immediately on the date of grant, continue as long as the
grantee is a director, but expire in any event on the eighth anniversary of
the date of grant.
Grant Date / April 15, April 23, October 8, April 14, Sept. 28, June 25, Dec. 21, March 14, April 11, June 28, Dec. 26,
Exercise 1996 / 1997 / 1997 / 1998 / 1998 / 1999 / 1999 / 2000 / 2000 / 2001 / 2001 /
Price (1) $9.43 $11.35 $12.14 $14.09 $8.33 $10.75 $20.18 $33.80 $35.11 $15.44 $22.53
- ------------ --------- --------- ---------- --------- --------- -------- -------- --------- --------- -------- --------
J. Caldwell..... 20,000 2,000 3,000
D. Cameron...... 4,000 2,000 3,000
P. Ducros....... 3,000 3,000 4,000 2,000 3,000
D. Erwin........ 20,000 4,000 2,000 3,000
R. Korthals..... 20,000(3) 3,000 3,000 4,000 2,000 3,000
C. Obourn....... 20,000 2,000 3,000
W. Russell...... 10,000
J. Tory......... 9,000(2) 3,000 3,000 4,000 2,000 3,000
----- ------ ----- ----- ------ ------ ------ ------ ------ ------ ------
TOTAL........... 9,000 20,000 9,000 9,000 20,000 20,000 20,000 20,000 14,000 21,000 10,000
===== ====== ===== ===== ====== ====== ====== ====== ====== ====== ======
Grant Date /
Exercise
Price (1) Total
- ------------ -------
J. Caldwell..... 25,000
D. Cameron...... 9,000
P. Ducros....... 15,000
D. Erwin........ 29,000
R. Korthals..... 35,000
C. Obourn....... 25,000
W. Russell...... 10,000
J. Tory......... 24,000
-------
TOTAL........... 172,000
=======
(1) Options are granted in Canadian dollars. Exercise price shown in U.S.
dollars is quoted using the historical rate of exchange as at the date of
grant.
(2) Options expire on the seventh anniversary of the date of grant.
(3) Options vest in equal installments on each of the four successive
anniversaries of the date of grant.
All stock options referred to above were awarded under the Stock Option
Plans described under "Human Resources & Compensation Committee Report on
Executive Compensation -- Long-Term Incentives".
24
Directors' and Officers' Indemnification
The Corporation indemnifies each director and officer of the Corporation
against liability resulting from any civil, criminal or administrative action
or proceeding to which that person is made a party by reason of being, or
having been, a director or officer of the Corporation (including an action by
or on behalf of the Corporation), as long as that person (a) acted honestly
and in good faith with a view to the best interests of the Corporation, and
(b) had reasonable grounds for believing that his or her conduct was lawful in
any criminal or administrative proceeding that is enforced by a monetary
penalty.
During the year ended February 28, 2002, the Corporation carried directors'
and officers' liability insurance coverage with an aggregate policy limit of
$12.8 million (C$20 million) with a $4.8 million (C$7.5 million) deductible.
The annual premium for this coverage, amounting to $38,347 (C$60,000), was
paid by the Corporation.
Performance Graph
[GRAPH]
(1) Dollar amounts are in U.S. dollars.
(2) The stock price performance graph is not necessarily indicative of future
performance. Information used on the graph was obtained from The Nasdaq
Stock Market, Inc., a source believed to be reliable, but the Corporation
is not responsible for any errors or omissions in such information.
The above graph compares the five-year cumulative total return on the
Corporation's shares with the comparable cumulative return of a broad equity
index and an industry index. The indexes used are the Center for Research in
Securities Prices ("CRSP") Total Return Index for The Nasdaq Stock Market
(U.S. and Foreign Companies), and the Nasdaq Computer & Data Processing
Services Stocks Index.
The graph assumes $100 invested on February 28, 1997 in the Corporation's
shares and each of the Nasdaq indexes.
CORPORATE GOVERNANCE
25
Statement of Corporate Governance Practices
The Toronto Stock Exchange ("TSE") requires that the Corporation disclose
its approach to corporate governance and relate the corporate governance
practices of the Corporation to specific guidelines. These guidelines,
together with a brief description of the alignment of the Corporation's
practices with them, are set out in Annex 1 to this Proxy Statement. The
Corporation is satisfied that it complies with the recommended guidelines.
Board Meetings and Composition
The Board has five regularly scheduled meetings each year--following the
end of each fiscal quarter and a strategic planning session. Additional
meetings may be convened by the Board as required. The Board met seven times
during the recently completed fiscal year. Each director attended more than
75% of the total number of meetings of the Board in that period and the total
number of meetings held by all committees of the Board on which that director
served in that period.
All nominees for director, except Mr. Zambonini, are unrelated and outside
directors. The Corporation does not have a significant shareholder. A
significant shareholder is a shareholder with the ability to exercise a
majority of the votes for the election of the Board of Directors.
Board Committees
The Board has established three standing committees: the Corporate
Governance Committee, the Audit Committee, and the Human Resources &
Compensation Committee. The Board has adopted written mandates for each
committee.
Corporate Governance Committee
The Corporate Governance Committee is responsible for making
recommendations to the Board with respect to: (a) all matters relating to the
stewardship role of the Board in respect of the management of the Corporation,
(b) Board size, composition, and orientation, (c) Board compensation, and (d)
procedures necessary to allow the Board to function independently of
management. This committee is also responsible for reporting to the Board with
respect to appropriate candidates for nomination to the Board, and for
evaluating the performance of the Board. Although this committee did not meet
during the recently completed fiscal year, the matters for which it is
responsible were undertaken by the Board as a whole. This committee is
currently composed of the following directors: Mr. Tory (Chairman) and Mr.
Cameron. Each of them is an unrelated director.
Audit Committee
The Audit Committee is responsible for supervising the audit of the
Corporation's financial records as well as establishing policies and
procedures concerning the Corporation's financial reporting, internal
accounting, financial controls, management information, and risk management.
In 1998, the Board adopted a written charter for the Audit Committee, which is
reviewed and updated on a regular basis. The committee is responsible for
reviewing quarterly financial statements and the annual financial statements
prior to their approval by the full Board and therefore meets not less
frequently than each fiscal quarter in conjunction with each quarterly Board
meeting. The committee meets with the independent auditors of the Corporation
on a regular basis without any members of management present. The Audit
committee met four times during the most recently completed fiscal year. This
committee is currently composed of the following directors: Mr. Cameron
(Chairman), Mr. Caldwell, Ms. Obourn and Mr. Russell (from December
26
19, 2001). Each of them is an unrelated director and is otherwise independent
of the Corporation (as independence is defined in the listing standards of the
Nasdaq National Market).
Human Resources & Compensation Committee
The Human Resources & Compensation Committee reviews and recommends to the
Board the compensation for the Chief Executive Officer. It also reviews and
approves the compensation for other executive officers based, in part, on the
recommendations of the Chief Executive Officer. In addition, the committee
reviews and approves significant personnel policies of the Corporation,
including incentive programs, compensation, benefits, and overall compensation
policies. The committee met once and also took actions by written consent
during the most recently completed fiscal year. Consent actions related to the
approval of the issuance of options as required under the Corporation's stock
option plan. This committee is currently composed of unrelated directors,
namely: Mr. Korthals (Chairman), Mr. Ducros and Mr. Erwin.
Decisions Requiring Board Approval
In addition to those matters which must by law be approved by the Board,
management is also required to seek Board approval for any disposition,
commitment, venture, or significant expenditure in either monetary or business
terms. Changes in senior management are reviewed by the Human Resources &
Compensation Committee, and then referred to the Board for final disposition.
Expectations of Management
The Board expects management of the Corporation to effectively manage its
business in accordance with the strategic and policy directions approved by
the Board. Management is expected to fully inform the Board of its performance
in relation to those plans and any events that may affect those plans, and
propose to the Board remedial or alternate actions. The Board, either directly
or through its Corporate Governance Committee, will continue to review its
corporate governance practices and make any changes that it deems necessary.
Communications Policy
In response to Regulation FD promulgated by the U.S. Securities and
Exchange Commission, as well as other related regulatory initiatives, the
Corporation has adopted a Disclosure Policy ("Policy") which reflects its
commitment to providing timely and accurate corporate information to
investors, including shareholders, and to the general public. The Policy
requires prompt general disclosure of any material information and sets out
the procedures to be followed in communicating with investors, analysts and
the media, including analyst conferences via webcast over the Internet.
Shareholder Feedback
Inquiries from shareholders are responded to by the Vice President,
Corporate Relations, the Secretary or another appropriate officer of the
Corporation. The Corporation maintains regular communications with the
financial and investment community through industry analyst briefings by the
Chief Executive Officer, the Chief Operating Officer and the Chief Financial
Officer on at least a quarterly basis. The quarterly earnings conference calls
are webcast over the Internet and are accessible for a limited period of time
from the Corporation's investor relations web page at www.cognos.com.
27
AUDITOR INDEPENDENCE
Fees Paid To The Independent Auditors
Audit Fees
The aggregate fees billed by Ernst & Young LLP for professional services
rendered for the audit of the Corporation's annual consolidated financial
statements for the fiscal year ended February 28, 2002 and the reviews of the
unaudited interim financial statements included in the Corporation's Form 10-
Q's for the fiscal year ended February 28, 2002 ("Audit Services") were
$370,000.
Financial Information Systems Design and Implementation Fees
Ernst & Young did not perform any professional services with respect to
financial information systems design and implementation for the fiscal year
ended February 28, 2002 ("Technology Services").
All Other Fees
The aggregate fees billed by Ernst & Young LLP for professional services
other than Audit Services and Technology Services for the fiscal year ended
February 28, 2002 were $595,000.
Audit Committee Report
The Audit Committee has reviewed and discussed with management the
Corporation's audited consolidated financial statements as of and for the year
ended February 28, 2002.
The Audit Committee has also discussed with Ernst & Young LLP the matters
required to be discussed by Statement on Auditing Standards No. 61,
Communication with Audit Committees, as amended, by the Auditing Standards
Board of the American Institute of Certified Public Accountants.
The Audit Committee has received and reviewed the written disclosures and
the letter from Ernst & Young LLP required by Independence Standards Board
Standard No. 1, Independence Discussions with Audit Committees, as amended,
and has discussed with Ernst & Young LLP their independence and considered the
compatibility of non-audit services with the auditors' independence. The Audit
Committee had no concerns or reservations regarding the independence of the
auditor. However, in view of the increased focus and concerns regarding
auditor independence, the Audit Committee has strengthened its already
existing review process relating to services engagements undertaken by the
auditor and any other accounting firm. Furthermore, although the auditor has
in the past performed only limited non-audit services (strategic tax planning
being the only significant activity in that regard), the Audit Committee has
determined that no future non-audit engagements will be carried out by the
auditor. Non-audit services include: internal audit services, technology
services, appraisal and valuation services, and strategic tax planning. In the
case of tax planning, current engagements will be completed but no new
engagements will be assigned to the auditor.
In 2001, the U.S. Securities and Exchange Commission adopted new rules
regarding the composition and operation of the Audit Committee designed to
improve the qualifications of audit committee members and the quality of
financial information being given to the investing public. The rules are set
out in Annex 2 to this Proxy Statement, together with a brief description of
the alignment of the Corporation's practices with the rules. The Corporation
and the Board have reviewed the requirements under the new rules and are
satisfied that the Committee is in compliance with their requirements.
28
Based on the reviews and discussions referred to above, the Audit Committee
has recommended to the Board of Directors that the audited consolidated
financial statements referred to above be included in the Corporation's Annual
Report on Form 10-K for the fiscal year ended February 28, 2002 and that Ernst
& Young LLP be appointed independent auditors of the Corporation for 2003. The
foregoing report is provided by the following independent directors, who
constitute the Audit Committee.
Douglas C. Cameron (Chairman)
John E. Caldwell
Candy M. Obourn
William Russell
ADDITIONAL INFORMATION
EXPENSES AND SOLICITATION
The cost of solicitation of proxies will be borne by the Corporation. In
addition to soliciting shareholders by mail through its regular employees, the
Corporation may request banks and brokers to solicit their customers who have
shares of the Corporation registered in the names of a nominee and, if so,
will reimburse such banks and brokers for their reasonable out-of-pocket
costs. Solicitation by officers and employees of the Corporation may also be
made of some shareholders in person or by mail, telephone or fax following
original solicitation.
SHAREHOLDER PROPOSALS
To be considered for inclusion in next year's Proxy Statement, shareholder
proposals must be received at the Corporation's principal executive offices no
later than the close of business on February 7, 2003.
For any proposal that is not submitted for inclusion in next year's Proxy
Statement (as described in the preceding paragraph) but is instead sought to
be presented directly at next year's annual meeting, Securities and Exchange
Commission rules permit management to vote proxies in its discretion if (a)
the Corporation receives notice of the proposal before the close of business
on April 23, 2003 and advises stockholders in next year's Proxy Statement about
the nature of the matter and how management intends to vote on such matter, or
(b) does not receive notice of the proposal prior to the close of business on
April 23, 2003.
Notices of intention to present proposals at the fiscal 2003 Annual Meeting
should be addressed to The Secretary, Cognos Incorporated, 3755 Riverside
Drive, P.O. Box 9707, Station T, Ottawa, Ontario, Canada K1G 4K9. The
Corporation reserves the right to reject, rule out of order, or take other
appropriate action with respect to any proposal that does not comply with
these and other applicable requirements
ELECTRONIC ACCESS TO PROXY STATEMENT AND ANNUAL REPORT
The Corporation offers its shareholders the opportunity to view future
proxy statements, annual reports and quarterly reports through the Internet
instead of receiving paper copies in the mail. If you are a registered
shareholder you can choose this new option by following the instructions set
out in your form of proxy. If you hold your shares through an intermediary
(such as a bank or broker), please refer to the information provided by the
intermediary on how to choose to view our proxy statements, annual reports and
quarterly reports through the Internet.
29
APPROVAL BY BOARD OF DIRECTORS
The contents and the sending of this Proxy Statement have been approved by
the Board of Directors of the Corporation.
DATED at Ottawa this 31st day of May, 2002.
James M. Tory
Chairman of the Board
30
RESOLUTION A
FOR APPROVAL OF THE 2002-2003 STOCK OPTION PLAN
The shareholders of the Corporation will be asked to approve the following
resolution:
RESOLVED THAT:
The 2002-2003 Stock Option Plan approved by the Board of Directors of the
Corporation on April 10, 2002, subject to regulatory approval, described in
the Proxy Statement distributed by the management of the Corporation, and made
available to shareholders, is approved.
31
COGNOS INCORPORATED
2002-2003 STOCK OPTION PLAN
(Adopted by the Cognos Board of Directors on April 10, 2002, by its
Shareholders on XXXX XX, 2002,
and approved by the TSE on XXXXX, 2002)
1.PURPOSE
This 2002-2003 Stock Option Plan (the "Plan") is intended to provide
incentives to officers directors, employees and consultants of Cognos
Incorporated and any present or future subsidiary of the Corporation wherever
located (the "Corporation"), by providing them with opportunities to purchase
stock in the Corporation pursuant to options, with or without stock
appreciation rights ("Options"). Options may qualify as "incentive stock
options", or ISO's, under Section 422(b) of the United States Internal Revenue
Code of 1986, as amended (the "Code"). Options that are not ISO's are "non-
qualified stock options" or NQO's.
2.ADMINISTRATION OF THE PLAN
A.The Plan shall be administered by the Human Resources & Compensation
Committee (the "Committee") of the Board of Directors of the Corporation (the
"Board").
B.Subject to the terms of the Plan, the Committee shall have the authority to
(a) determine the employees of the Corporation and any Subsidiary (from among
the class of employees eligible under paragraph 3) to whom Options may be
granted; (b) determine the time or times at which Options may be granted; (c)
determine (subject to paragraph 6) the option price of shares subject to each
Option; (d) determine the limitations, restrictions, and conditions of any
grant of Options, including whether any Option granted is an ISO or a NQO or
whether it will have stock appreciation rights attached to it (subject to
paragraph 19); (e) determine (subject to paragraph 8) the time or times when
each Option shall become exercisable and the duration of the exercise period;
and (f) interpret the Plan and prescribe and rescind rules and regulations
relating to it. The interpretation and construction by the Committee of any
provisions of the Plan or of any Option granted under it is final unless
otherwise determined by the Board. The Committee may from time to time adopt
such rules and regulations for carrying out the Plan as it may consider
appropriate. No member of the Board or the Committee shall be liable for any
action or determination made in good faith with respect to the Plan or any
Option granted under it.
C.The date of grant of an Option under the Plan will be the date specified by
the Committee at the time it awards the Option.
D.Options may be granted to members of the Board, including members of the
Committee. All grants of Options to members of the Board shall be made in
accordance with the provisions of this Plan applicable to other eligible
persons. Members of the Board who either (a) are eligible to receive grants of
Options pursuant to the Plan or (b) have been granted Options may vote on any
matters affecting the administration of the Plan or the grant of any Options
pursuant to the Plan, except that no such member shall act upon the granting
to himself of Options, but any such member may be counted in determining the
existence of a quorum at any meeting of the Board during which such action is
taken with respect to the granting of Options to such member.
E.The Board in its discretion may take such action as may be necessary to
ensure that Options granted under the Plan qualify as "qualified performance-
based compensation" within the meaning of Section 162(m) of the Code and
applicable regulations promulgated thereunder ("Performance-Based
Compensation"). Options may be subject to such other terms and conditions as
are necessary to constitute compensation arising from their exercise or
disposition (or the disposition of any shares acquired thereunder) as
Performance-Based Compensation.
32
3.PARTICIPATION
A.Options may be granted to any officer, director (whether or not an
employee), employee or consultant of the Corporation or any Subsidiary (each
recipient of an award a "Participant"). ISO's may only be awarded to Employees
of the Corporation. All other Participants will be awarded NQO's.
B.Participation in the Plan is voluntary and is not a condition of employment.
No employee of the Corporation shall have any claim or right to be granted
Options or SARs pursuant to the Plan.
C.Neither the Corporation nor any Subsidiary assumes any liability for the
income or other tax consequences arising from participation in the Plan.
Participants should consult their own tax advisors in that respect.
4.STOCK
A.All stock issued under the Plan shall be authorized but unissued common
shares of capital stock of the Corporation without par value (the "Common
Shares").
B.The aggregate number of Common Shares which may be issued under the Plan is
3,800,000 subject to adjustment as provided in paragraph 16.
C.If any Option expires or terminates for any reason without having been
exercised in full or ceases for any reason to be exercisable in whole or in
part, the unpurchased Common Shares subject to that Option shall again be
available for grants of Options.
D.No officer, director (whether or not an employee), employee or consultant of
the Corporation or any Subsidiary may be granted Options that, together with
all of the Corporation's previously established or proposed share compensation
arrangements, could result, at any time, in:
(a) the number of Common Shares reserved for issuance to such persons
exceeding ten per cent (10%) of the number of Common Shares outstanding on
a non-diluted basis at such time ("outstanding issue");
(b) the issue to such persons, within a one-year period, of more than ten per
cent (10%) of the outstanding issue of Common Shares; or
(c) the issue to any one of such persons, within a one-year period, of more
than five per cent of the outstanding issue of Common Shares or, if less,
450,000 shares.
The foregoing limits will be adjusted to reflect any adjustments in the
capital of the Corporation as contemplated in paragraph 16.
5.TERM & EFFECTIVE DATE
A.This Plan was adopted by the Board on April 10, 2002. Options may be granted
under the Plan prior to the date of shareholder approval of the Plan. No
option may be exercised prior to shareholder approval of the Plan.
B.If the approval of shareholders is not obtained prior to July 31, 2002, any
Options granted under the Plan made prior to that date will be rescinded.
C.The Plan shall expire on May 1, 2003 (except as to Options outstanding on
that date).
6.MINIMUM OPTION PRICE
33
A.The price per Common Share specified in the agreement relating to each
Option granted under the Plan shall not be lower than 100% of the fair market
value of Common Shares on the date of grant, subject to adjustment in
accordance with the provisions of paragraph 16 and paragraph 21.
B.In the case of an ISO to be granted to an employee owning stock possessing
more than ten percent (10%) of the total combined voting power of all classes
of stock of the Corporation or any Subsidiary, the price per Common Share
specified in the agreement relating to each ISO shall not be less than one
hundred and ten percent (110%) of the fair market value of Common Shares on
the date of grant. For purposes of determining stock ownership under this
paragraph, the rules of Section 424(d) of the Code shall apply.
C.Each eligible employee may be granted Options treated as ISOs only to the
extent that, in the aggregate under this Plan and all incentive stock option
plans of the Corporation and any Subsidiary, ISOs do not become exercisable
for the first time by such employee during any calendar year with respect to
stock having a fair market value (determined at the time the ISOs were
granted) in excess of US$100,000. The Corporation intends to designate any
Options granted in excess of such limitation as NQOs. (To make this
calculation the conversion rate used shall be the purchase rate for U.S.
dollars on the date of grant as published by the Bank of Canada). The
foregoing shall be applied by taking Options into account in the order in
which they were granted. If the Committee determines to issue an NQO, it shall
take whatever actions it deems necessary, under Section 422 of the Code and
the regulations promulgated thereunder, to ensure that such Option is not
treated as an ISO.
D.For the purposes of the Plan, except for SAR's awarded pursuant to paragraph
19, "fair market value" on any particular day shall be determined at the close
of business on the last trading day preceding the date an Option is granted
and shall mean, (a) the closing price of the Common Shares on The Toronto
Stock Exchange, or if none is available then (b) the average of the closing
bid and asked prices on the NASDAQ Stock Market. If the Common Shares are not
publicly traded at the time an Option is granted, "fair market value" shall be
deemed to be the fair value of the Common Shares as determined by the Board
after taking into consideration all factors which it deems appropriate,
including, without limitation, recent sale and offer prices of the Common
Shares in private transactions negotiated at arm's length.
7.OPTION DURATION
Each Option shall expire on the date specified by the Committee, but not
more than (a) ten (10) years from the date of grant in the case of Options
generally and (b) five (5) years from the date of grant in the case of ISOs
contemplated in paragraph 6(B), except as provided in paragraph 21. The term
of each Option shall be set out in the instrument granting the Option ("Option
Agreement"), except with respect to any part of such ISO that is converted
into a NQO pursuant to paragraph 21.
8.WHEN OPTION BECOMES EXERCISABLE
Each Option shall be exercisable as follows:
A.The Option shall either be fully exercisable on the date of grant or shall
become exercisable thereafter in such installments as the Committee may
specify. Any reference to an Option in this Plan includes any installment of
that Option.
B.Once an installment becomes exercisable it shall remain exercisable until
expiration or termination of the Option.
C.Subject to such trading restrictions as may be imposed by the Corporation
from time to time, each Option may be exercised at any time or from time to
time for up to the total number of Common Shares with respect to which it is
then exercisable.
34
D.The Committee shall have the right to accelerate the date of exercise of any
Option or installment thereof. The date of exercise of any ISO (which has not
previously been converted to an NQO pursuant to paragraph 21) may be
accelerated only if that acceleration does not violate the annual vesting
limitation set out in paragraph 6(C).
9.TERMINATION OF EMPLOYMENT
A.If a Participant ceases to be employed by the Corporation or any Subsidiary,
other than by reason of "retirement" as defined in paragraph 10, death or
disability or for "cause" as defined in this paragraph 9, then, effective on
the date that termination becomes effective ("Without Cause Termination
Date"), no further installments of an Option will become exercisable, and the
Participant may exercise the Option to the extent the Participant could have
exercised, except to the extent the Committee accelerates the right of the
Participant to exercise an Option (in its sole and absolute discretion) on the
Without Cause Termination Date, at any time on or before the earlier of:
thirty (30) days from the Without Cause Termination Date or on the specified
expiration date of the Option.
B.Employment shall be considered as continuing uninterrupted during any bona
fide leave of absence (such as governmental service) on the condition that the
period of such leave does not exceed ninety (90) days or, if longer, any
period during which such Participant's right to re-employment is guaranteed by
statute or contract. A bona fide leave of absence with the written approval of
the Committee shall not be considered an interruption of employment under the
Plan, provided that such written approval contractually obligates the
Corporation or any Subsidiary to continue the employment of the Participant
after the approved period of absence.
C.Nothing in the Plan shall give any Participant the right to be retained in
employment by the Corporation for any period of time, nor shall it interfere
with the right of the Corporation to terminate the employment of any
Participant, with or without cause. Options granted under the Plan shall not
be affected by any change of employment within or among the Corporation, so
long as the Participant continues to be an employee of the Corporation.
D.If the employment of a Participant is terminated for "cause", any Option or
installment thereof shall terminate the last day of employment with the
Corporation and shall thereafter not be exercisable, except to the extent the
Committee accelerates the right of the Participant to exercise an Option (in
its sole and absolute discretion). "Cause" shall mean conduct recognized by
the laws applicable to the Participant as constituting just or proper cause
for dismissal without compensation. In granting any Option (including any
NQO), the Committee may specify that the Option shall be subject to the
restrictions set forth herein, or to such other termination or cancellation
provisions as it may determine.
E.In this paragraph 9, reference to the termination or cessation of employment
of a Participant who is (a) a director, shall mean the termination or
cessation of the appointment of that director as a member of the Board, and
(b) a consultant, shall mean the termination or cessation of the contract
retaining the consultant.
10.RETIREMENT
If a Participant whose age and aggregate number of years of service with
the Corporation totals 75 or greater, ceases to be employed by the Corporation
without cause and with the intent of ceasing full-time employment with any
party (the combination of the foregoing factors and such additional factors as
the Committee in its sole discretion may from time to time determine
constituting "Retirement" for purposes of this Plan), except to the extent the
Committee accelerates the right of the Participant to exercise an Option (in
its sole and absolute discretion), no further installments of an Option will
become exercisable, and the Participant may exercise the Option to the extent
the Participant could have exercised it on the date employment ceases, at any
time on or before the earlier of: (i) the second (2nd) anniversary of that
date, and (ii) the date that the
35
Option expires pursuant to Paragraph 7. If the Participant dies or is
incapacitated during that period, then the personal representatives of the
Participant may exercise the foregoing rights.
11.CEASING TO BE A DIRECTOR
If a Participant who is a Director ceases to be a member of the Board, the
Participant may exercise Options to the extent the Participant could have
exercised it on the date such appointment ceases, at any time on or before the
earlier of: the second (2nd) anniversary of that date and the specified
expiration date of the Options.
12.DEATH
If a Participant ceases to be employed by the Corporation or any Subsidiary
by reason of death, (i) all Options shall immediately become exercisable with
effect immediately prior to death, and (ii) the estate, personal
representative or beneficiary of the Participant who has acquired the Options
by will or by the laws of the descent and distribution, may exercise the
Options to the extent the Participant could have exercised them, at any time
on or before the earlier of: the second (2nd) anniversary of the date of the
Participant's death or the specified expiration date of the Option.
13.DISABILITY
If a Participant ceases to be employed by the Corporation or its
Subsidiaries by reason of disability, (i) all Options shall immediately become
exercisable with effect immediately prior to the date of termination of
employment, and (ii) the Participant or the personal representative of the
Participant, may exercise the Options to the extent the Participant could have
exercised them, at any time on or before the earlier of: the second (2nd)
anniversary of the date of the Participant's termination of employment or the
specified expiration date of the Option.
14.ASSIGNABILITY
No Option shall be assignable or transferable by the Participant except by
will or by the laws of descent and distribution, and Options shall be
exercisable during the lifetime of the Participant only by the Participant.
15.TERMS AND CONDITIONS OF OPTIONS
A.Options shall be evidenced by instruments (which need not be identical) in
such forms as the Committee may from time to time approve. Such instruments
shall conform to the terms and conditions set forth in paragraphs 6 through 14
and may contain such other provisions, as the Committee deems advisable, which
are not inconsistent with the Plan, including restrictions applicable to
Common Shares issuable upon exercise of Options.
B.The Committee may from time to time confer authority and responsibility on
one or more of its members or one or more officers of the Corporation to
execute and deliver such instruments. The proper officers of the Corporation
are authorized and directed to take any and all action necessary or advisable
from time to time to carry out the terms of such instruments.
16. ADJUSTMENTS
36
Upon the happening of any of the following described events, a
Participant's rights with respect to Options granted hereunder shall be
adjusted as follows:
A.If there is any subdivision or subdivisions of the Common Shares into a
greater number of shares at any time, or in the case of the issue of shares of
the Corporation to the holders of its outstanding Common Shares by way of
stock dividend or stock dividends (other than an issue of shares to
shareholders pursuant to their exercise of a right to receive dividends in the
form of shares of the Corporation in lieu of cash dividends declared payable
in the ordinary course by the Corporation on its Common Shares), the number of
Common Shares deliverable upon the exercise of Options shall be increased
proportionately, and appropriate adjustments shall be made in the purchase
price per share to reflect such subdivision or stock dividend.
B.If there is any consolidation or consolidations of the Common Shares into a
lesser number of shares at any time, the number of Common Shares deliverable
upon the exercise of Options shall be decreased proportionately, and
appropriate adjustments shall be made in the purchase price per share to
reflect such consolidation.
C.If there is any reclassification of the Common Shares, at any time a
Participant shall accept, at the time of purchase of shares pursuant to the
exercise of an Option, in lieu of the number of Common Shares in respect of
which the Option to purchase is being exercised, the number of shares of the
Corporation of the appropriate class or classes as the Participant would have
been entitled as a result of such reclassification or reclassifications had
the Option been exercised before such reclassification or reclassifications.
D.If the Corporation is to be amalgamated or consolidated with or acquired by
another entity in a merger, sale of all or substantially all of the
Corporation's assets or otherwise (an "Acquisition"), the Committee or the
board of directors of any entity assuming the obligations of the Corporation
under the Plan (the "Successor Board"), shall, as to outstanding Options,
either (a) make appropriate provision for the continuation of such Options by
substituting on an equitable basis for the shares then subject to such Options
the consideration payable with respect to the outstanding Common Shares in
connection with the Acquisition; or (b) upon written notice to participants,
provide that all Options must be exercised, to the extent then exercisable,
within a specified number of days of the date of such notice, at the end of
which period the Options shall terminate; or (c) terminate all Options in
exchange for a cash payment equal to the excess of the fair market value of
the shares subject to such Options (to the extent then exercisable) over the
exercise price thereof.
E.Despite the foregoing, any adjustments made pursuant to subparagraphs A, B,
C or D with respect to ISO's shall be made only after the Committee, after
consulting with counsel for the Corporation, determines whether such
adjustments would constitute a "modification" of those ISO's (as that term is
defined in Section 424 of the Code) or would cause any adverse tax
consequences for their holders. If the Committee determines that those
adjustments would constitute a "modification" of those ISO's, it may refrain
from making such adjustments.
F.If there is any proposed winding up, dissolution or liquidation of the
Corporation, each Option will terminate immediately prior to the consummation
of such proposed action or at such other time and subject to such other
conditions as shall be determined by the Committee.
G.Except as expressly provided herein, no issuance by the Corporation of
shares of stock of any class, or securities convertible into shares of stock
of any class, shall affect, and no adjustment by reason thereof shall be made
with respect to, the number or price of shares subject to Options. No
adjustments shall be made for dividends paid in cash or in property other than
securities of the Corporation.
H.No fractional shares shall be issued under the Plan. A Participant will
receive cash in lieu of fractional shares.
I.Upon the happening of any of the foregoing events described in subparagraphs
A, B, C or D above, the class and aggregate number of shares set forth in
paragraph 4 hereof that are subject to Options which
37
previously have been or subsequently may be granted under the Plan shall also
be appropriately adjusted to reflect the events described in such
subparagraphs. The Committee or the Successor Board shall determine the
specific adjustments to be made under this paragraph 16 and, subject to
paragraph 2, its determination shall be conclusive.
17.EXERCISE OF OPTIONS
A.An Option (or any part or installment thereof) shall be exercised by giving
written notice to the Company at its principal office address, or to such
transfer agent as the Company shall designate. The notice shall identify the
Option being exercised, specify the number of shares as to which such Option
is being exercised, and be accompanied by full payment of the purchase price
therefor either (a) in Canadian dollars in cash or by certified cheque, (b) at
the discretion of the Committee and consistent with applicable law, through
the delivery of an assignment to the Company of a sufficient amount of the
proceeds from the sale of the Common Shares acquired upon exercise of the
Option and an authorization to the broker or selling agent to pay that amount
to the Company, which sale shall be at the Participant's direction at the time
of exercise, or (c) at the discretion of the Committee, by such other method
as it deems appropriate, subject to such regulatory approval as may be
required. If the Committee exercises its discretion to permit payment of the
exercise price of an Option by means of the methods set forth in clauses (b)
or ) above, that discretion shall be exercised in writing at the time of the
grant of the Option in question.
B.The holder of an Option shall not have the rights of a shareholder with
respect to the Common Shares subject to Option until the date of issuance of a
stock certificate to the Participant for such Common Shares. Except as
expressly provided above in paragraph 16 with respect to changes in
capitalization and stock dividends, no adjustment shall be made for dividends
or similar rights for which the record date is before the date such stock
certificate is issued.
18.CONDITIONS OF EXERCISE
Each Option shall be subject to the requirement that, if at any time the
Committee or counsel for the Corporation shall determine, in its reasonable
discretion, that the listing, registration or qualification of the Common
Shares subject to such Option upon any stock exchange or under any applicable
law, or the consent or approval of any governmental body, is necessary or
desirable, as a condition of, or in connection with, the granting of such
Option or the issue or purchase of shares thereunder, no such Option may be
exercised in whole or in part unless such listing, registration,
qualification, consent or approval shall have been effected or obtained free
of any conditions not acceptable to the Committee and counsel for the
Corporation.
19.STOCK APPRECIATION RIGHTS
A.Subject to the provisions of the Plan, the Board may grant stock
appreciation rights in connection with the grant of any Option. A Stock
Appreciation Right ("SAR") means the right to surrender to the Corporation all
or a portion of an Option in exchange for an amount equal to the excess of (i)
the SAR fair market value, as of the date such Option or portion thereof is
transferred and surrendered, of the Common Shares subject to that Option, and
(ii) the SAR fair market value of those Common Shares as of the day the Option
was granted. Each SAR shall be subject to such other terms and conditions as
the Board shall determine. Any SARs shall be granted in the instrument
referred to in paragraph 15A.
B.SARs shall be exercisable: (a) at the sole discretion of the Committee, (b)
otherwise only at the same time, by the same persons and to the same extent
that the Option related thereto is exercisable. Upon exercise of any SAR, the
corresponding portion of the related Option shall be deemed to be surrendered
to the Corporation and canceled.
C.A SAR shall be transferable only in the manner and to the extent that the
related Option is transferable.
38
D.Payment of the amount to which a Participant is entitled upon the exercise
of a SAR shall be made in cash.
E."SAR fair market value" on any particular day shall mean the average of
either, (a) the average of the high and low trading prices of the Common
Shares on The Toronto Stock Exchange, or, if not available then (b) the
averages of the closing bid and asked prices on the NASDAQ Stock Market, on
the five trading days immediately prior to that day. If the Common Shares are
not publicly traded at the time an Option is granted, "fair market value"
shall be deemed to be the fair value of the Common Shares as determined by the
Board after taking into consideration all factors which it deems appropriate,
including, without limitation, recent sale and offer prices of the Common
Shares in private transactions negotiated at arm's length. Any reference
elsewhere in this Plan to "fair market value" shall mean "SAR fair market
value" when used in reference to a SAR.
20.TERM AND AMENDMENT OF THE PLAN
The Board may terminate or amend the Plan in any respect at any time, in
accordance with applicable legislation and subject to regulatory approval, if
any is required, except that the approval of shareholders is required: (a) if
such approval is required by applicable law or the rules or policies of any
stock exchange or inter-dealer quotation system on which the Common Shares are
then listed, or (b) if such approval is required for Option awards to qualify
for favorable treatment under Sections 162(m) or 422 of the Code, or any
successor provisions. No action of the Committee, Board or shareholders shall
alter or impair the rights of a Participant, without the consent of that
Participant, under any Option previously granted to him.
21.CONVERSION OF ISO's INTO NQO's
The Committee, at the written request of any Participant, may, in its
discretion and subject to such regulatory approval as may be required, take
such actions as may be necessary to convert that Participant's ISOs that have
not been exercised on the date of conversion into NQOs at any time prior to
the expiration of such ISOs, regardless of whether the Participant is an
employee of the Corporation or a Subsidiary at the time of such conversion.
Such actions may include, but are not limited to, extending the exercise
period or reducing the exercise price of the appropriate installments of such
ISO. At the time of conversion, the Committee (with the consent of the
Participant) may impose such conditions on the exercise of the resulting NQOs
as the Committee in its discretion may determine, on the condition that those
conditions shall not be inconsistent with this Plan. Nothing in the Plan shall
be deemed to give any Participant the right to have ISOs converted into NQOs,
and no conversion shall occur until and unless the Committee takes appropriate
action.
22.APPLICATION OF FUNDS
The proceeds received by the Corporation from the sale of Common Shares
pursuant to Options granted under the Plan shall be used for general corporate
purposes.
23.GOVERNMENTAL REGULATION
A.The Corporation's obligations to sell and deliver Common Shares under this
Plan are subject to the approval of any governmental or regulatory authority
required in connection with the authorization, issuance or sale of such
shares.
B.Government regulations may impose reporting or other obligations on the
Corporation with respect to the Plan. For example, the Corporation may be
required to send tax information statements to employees and
39
former employees that exercise Options, and the Corporation may be required to
file tax information returns reporting the income received by participants in
connection with the Plan.
24.WITHHOLDING OF ADDITIONAL INCOME TAXES
Upon the exercise of an Option, the making of a Disqualifying Disposition
(as defined in paragraph 25) or the vesting or transfer of restricted Common
Shares acquired on the exercise of an Option, or the making of a distribution
or other payment with respect to such Common Shares, the Corporation may
withhold taxes in respect of amounts that constitute compensation included in
gross income. The Committee in its discretion may condition (a) the exercise
of an Option or (b) the vesting of restricted Common Shares acquired by
exercising an Option, on the Participant's making satisfactory arrangement for
withholding. Such arrangement may include payment by the Participant in cash
or by cheque (certified in its discretion) of the amount of the withholding
taxes or, at the discretion of the Committee, by the Participant's delivery of
previously held Common Shares or the withholding of Common Shares otherwise
deliverable upon exercise of an Option having an aggregate fair market value
equal to the amount of such withholding taxes.
25.NOTICE TO CORPORATION OF DISQUALIFYING DISPOSITION
By accepting an ISO granted under the Plan, each Participant agrees to
notify the Corporation in writing immediately after the Participant makes a
disqualifying disposition of any Common Shares received pursuant to the
exercise of an ISO (a "Disqualifying Disposition"). Disqualifying Disposition
means any disposition (including any sale) of such stock on or before the
later of (a) two years from the date the employee was granted the ISO under
which he acquired such stock, or (b) one year after the employee acquired such
stock by exercising such ISO. If the employee has died before such stock is
sold, these holding period requirements do not apply and no Disqualifying
Disposition will thereafter occur.
26.GOVERNING LAW
The validity and construction of the Plan and the instruments evidencing
Options shall be governed by the laws of the Province of Ontario, Canada.
40
RESOLUTION B
FOR APPROVAL OF THE EXTENSION TO THE EMPLOYEE STOCK PURCHASE PLAN
The shareholders of the Corporation will be asked to approve the following
resolution:
RESOLVED THAT:
The extension of the term of the Employee Stock Purchase Plan of the
Corporation to November 30, 2005, approved by the Board of Directors of the
Corporation on April 10, 2002, subject to regulatory approval, described in the
Proxy Statement distributed by management of the Corporation, and made
available to shareholders, is hereby approved.
41
COGNOS
EMPLOYEE STOCK PURCHASE PLAN
TERMS AND CONDITIONS
(as amended by the Cognos Board of Directors on May 10, 2002)
1.PURPOSE
Participation in the Cognos Employee Stock Purchase Plan (the "Plan") is
being extended to all full-time and part-time permanent employees of the
Cognos group of companies (the "Corporation"). An employee can enroll in
the Plan at any time between December 1, 1993 and November 30, 2005. The
Plan is intended to provide a further incentive for employees to promote
the best interests of the Corporation and an additional opportunity to
participate in its economic progress. The stock subject to this Plan shall
be shares of the Corporation's authorized but unissued common stock, no par
value. The aggregate number of shares which may be issued pursuant to the
Plan is 3,000,000.
2.PAYROLL DEDUCTION
Under the Plan each participating employee (the "Employee") can elect to
have the Corporation deduct an amount per pay period not to exceed 5% of
his/her annual target salary divided by the number of pay periods per year
provided such amount is greater than $10.00 per month. Commencing on
December 1, 1993, the Corporation shall accumulate in its general fund on
behalf of each Employee the deductions made in each of the Corporation's
fiscal quarters (a "Purchase Period"). An Employee may elect to change the
amount deducted at any time to become effective at the beginning of the
next Purchase Period.
3.DATE OF ACQUISITION
On the first trading day after the end of each Purchase Period (the "Date
of Acquisition") (i.e., March 1, 1994, June 1, 1994, September 1, 1994 and
December 1, 1994 etc. through to November 30, 2005) each Employee's
cumulative deductions shall be applied towards the purchase of common
shares of Cognos Incorporated (the "Common Shares").
4.PRICE OF ACQUISITION
The purchase price per share shall be at a 10% discount from the lesser of
the simple average of the average of the high and low prices of the Common
Shares on The Toronto Stock Exchange (T.S.E.) on each of (a) the first five
trading days of the Purchase Period or (b) the last five trading days of
the Purchase Period.
5.RECORD OF ACQUISITION
Within one months after each Date of Acquisition, each Employee shall be
furnished with a record of the shares purchased, the purchase price per
share, and the balance remaining in his/her account along with the stock
certificate covering the shares purchased. No partial shares shall be
issued. Amounts remaining in an Employee's account which are insufficient
to purchase a whole share shall form the opening balance for the subsequent
Purchase Period.
6.TAX CONSEQUENCES
Because the Plan is available to employees of all of the Cognos group of
companies worldwide, no attempt has been made to determine the many special
provisions which could be applicable to a particular situation. Employees
should consult their own tax advisors to determine the specific tax
consequences to them.
7.TRANSFERABILITY OF SHARES
42
The Common Shares issued will be freely transferable on the T.S.E. and in
the over-the-counter market in the United States, subject to the
requirement that any resales by "affiliates" of the Corporation must be
made pursuant to Rule 144 of the United States Securities Act.
8.WITHDRAWAL AND TERMINATION
An employee may withdraw from the Plan at any time by providing written
notice to the attention of:
The Corporate Secretary
Cognos Incorporated
P.O. Box 9707
3755 Riverside Drive
Ottawa, Ontario
K1G 4K9
Upon withdrawal all deducted amounts which have not been applied to the
purchase of shares shall be returned to the Employee. No interest will be
payable to any Employee in respect of deductions made under the Plan.
Termination of employment for whatever cause shall constitute withdrawal
from the Plan. On termination all outstanding deductions which have not
been applied to the purchase of shares shall be immediately returned to the
Employee.
9.ADMINISTRATION
Rights under the Plan are not transferable by an Employee to any other
person. All funds received by the Corporation under the Plan shall be
included in the general fund of the Corporation. This Plan will be
administered by the Corporate Secretary whose decisions with regard thereto
shall be final and conclusive. The Plan shall be governed by the laws of
the Province of Ontario.
10.ELECTION TO PARTICIPATE
In order to participate in the Plan an employee must complete the attached
Election to Participate form by filling in the date deductions are to
commence and the amount of money per pay period which he/she desires to
have withheld. The form must then be dated, signed and returned to the
Corporate Secretary.
If you have any questions, please contact the Coordinator Shareholder
Relations at the Ottawa-Riverside office (738-1338 ext. 3392).
11.RESTRICTION ON PURCHASES
No employee of the Corporation may purchase Common Shares under the Plan
that, together with all of the Corporation's previously established or
proposed share compensation arrangements, could result, at any time, in:
(a) the number of Common Shares purchased or reserved for issuance to such
persons exceeding ten per cent (10%) of the number of Common Shares
outstanding on a non-diluted basis at such time ("outstanding issue");
(b) the purchase or issue to such persons, within a one-year period, of
more than ten per cent (10%) of the outstanding issue of Common Shares;
or
(c) the purchase or issue to any one of such persons, within a one-year
period, of more than five per cent of the outstanding issue of Common
Shares.
The foregoing limits will be adjusted to reflect any adjustments in the
capital the of the Corporation.
43
ELECTION TO PARTICIPATE
TO:COGNOS INCORPORATED and its subsidiaries and affiliates (the "Corporation")
I, the undersigned, acknowledge having received and read the Cognos Employee
Stock Purchase Plan (the "Plan") and agree to the terms contained therein. I
hereby authorize the Corporation in accordance with the terms of the Plan
commencing , 200 to withhold by way of payroll
deduction: per pay period
(NOTE: The amount indicated may not exceed 5% of your target salary divided by
the number of pay periods per year).
Unless given notice of any withdrawal from the Plan, I further authorize and
direct the Corporation on my behalf to apply the proceeds from such deductions
towards purchase of Common Shares of Cognos Incorporated on the first trading
day after the end of each Purchase Period.
I recognize and agree that purchase of such shares is conditional upon my
being a full-time employee of the Corporation at the time of purchase. I
acknowledge and agree that termination of employment for whatever cause shall
render my participation in the Plan null and void and all deductions made on
my behalf since the end of the fiscal quarter which preceded my termination
shall be returned to me in full.
Signature:
Name:
(Please Print)
Date:
Home
Address:
44
RESOLUTION C
FOR CONFIRMATION OF THE AMENDMENTS TO THE ARTICLES
AND BY-LAW NO. 1 OF THE CORPORATION
The shareholders of the Corporation will be asked to confirm the following
resolution:
RESOLVED THAT:
1. The amendments to By-law No. 1 in the form attached hereto are hereby
enacted, with such minor variations, if any, as the Chairman of the
Board and the General Counsel and Corporate Secretary may approve.
RESOLVED, AS A SPECIAL RESOLUTION, THAT
2. Paragraph 3 of the Articles of Amendment dated March 17, 1997 be deleted
and the following substituted:
"3. to provide that the directors may appoint one or more additional
directors, who shall hold office for a term expiring not later than the
close of the next annual meeting of shareholders, but the total number
of directors so appointed may not exceed one-third of the number of
directors elected at the previous annual meeting of shareholders."
45
BY-LAW NO. 1
of
COGNOS INCORPORATED
(the "Corporation")
(amended as underlined by the Board of Directors on April 10, 2002
and passed by the shareholders on XXXX XX, 2002)
1. REGISTERED OFFICE
1.1. The registered office of the Corporation shall be in the province or
territory of Canada specified in the articles of the Corporation and at such
location therein as the directors may from time to time determine.
2. CORPORATE SEAL
2.1. Until changed by the directors the corporate seal of the Corporation
shall be in the form impressed in the margin hereof.
3. DIRECTORS
3.1. Number and Quorum. The number of directors shall be determined by the
directors but shall be not fewer than the minimum and not more than the
maximum provided in the articles. A majority of directors or such greater or
lesser number as the directors may from time to time determine shall
constitute a quorum for the transaction of business at any meeting of
directors.
3.2. Qualification. No person shall be qualified to be a director if that
person is less than eighteen years of age; is of unsound mind and has been so
found by a court in Canada or elsewhere; or has the status of a bankrupt. At
least twenty-five percent of the directors shall be resident Canadians.
3.3. Election and Term of Office. The directors shall be elected at each
annual meeting of shareholders of the Corporation and each director shall hold
office until the close of the first annual meeting following that director's
election. If an election of directors is not held at an annual meeting of
shareholders, the directors then in office shall continue in office until
their successors are elected. Retiring directors are eligible for re-election.
3.4. Vacation of Office. A director ceases to hold office if the director dies
while holding office, is removed from office by the shareholders, ceases to be
qualified for election as a director or resigns by a written resignation
received by the Corporation. A written resignation of a director becomes
effective at the time it is received by the Corporation, or at the time
specified in the resignation, whichever is later.
3.5. Removal of Directors. The shareholders may by ordinary resolution at a
special meeting of shareholders remove any director or directors from office
provided that where the holders of any class or series of shares have an
exclusive right to elect one or more directors, a director so elected may only
be removed by an ordinary resolution at a meeting of the shareholders of that
class or series. A vacancy created by the removal of a director may be filled
at the meeting of the shareholders at which the director is removed.
3.6. Vacancies. Subject to the Act, a quorum of directors may fill a vacancy
among the directors. A director appointed or elected to fill a vacancy holds
office for the unexpired term of the director's predecessor.
3.7. Action by Directors. The directors shall manage, or supervise the
management of, the business and affairs of the Corporation. Subject to
sections 3.8 and 3.9 the powers of the directors may be exercised at a meeting
at which a quorum is present or by resolution in writing signed
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by all the directors entitled to vote on that resolution at a meeting of the
directors. Where there is a vacancy in the board of directors the remaining
directors may exercise all the powers of the board so long as a quorum remains
in office.
3.8. Canadian Residents Required at Meetings. The directors shall not transact
business at a meeting other than filling a vacancy in the board unless at
least twenty-five percent of the directors present are resident Canadians or
if a resident Canadian director who is unable to be present approves in
writing or by telephonic, electronic or other communication facility the
business transacted at the meeting and the required number of resident
Canadian directors would have been present had that director been present at
the meeting.
3.9. Telephonic or Electronic Meetings. If all the directors of the
Corporation present at or participating in the meeting consent, a meeting of
directors or of a committee of directors may be held by means of telephonic,
electronic or other communication facility that permits all participants to
communicate adequately with each other during the meeting and a director
participating in such a meeting by such means is deemed to be present at that
meeting.
3.10. Place of Meetings. Meetings of directors may be held at any place within
or outside of Canada.
3.11. Calling of Meetings. Meetings of the directors shall be held at such
time and place as the Chair of the Board or any two directors may determine.
3.12. Notice of Meeting. Notice of the time and place of each meeting of
directors shall be given to each director by telephone not less than 48 hours
before the time of the meeting or by written notice not less than four days
before the day of the meeting and, subject to the Act, need not specify the
purpose of or the business to be transacted at the meeting. Meetings of the
directors may be held at any time without notice if all the directors have
waived or are deemed to have waived notice.
3.13. First Meeting of New Board. No notice shall be necessary for the first
meeting of newly-elected directors held immediately following their election
at a meeting of shareholders.
3.14. Adjourned Meeting. Notice of an adjourned meeting of directors is not
required if the time and place of the adjourned meeting is announced at the
original meeting.
3.15. Regular Meetings. The directors may appoint a day or days in any month
or months for regular meetings and shall designate the place and time at which
such meetings are to be held. A copy of any resolution of directors fixing the
place and time of regular meetings of the board shall be sent to each director
forthwith after being passed, and no other notice shall be required for any
such regular meeting.
3.16. Chair. The Chair of the Board, or in the Chair's absence the Vice-Chair
(if one be appointed), or in the vice-Chair's absence, the President (if a
director), or in the President's absence a director chosen by the directors at
the meeting shall be the chair of any meeting of directors.
3.17. Voting at Meetings. Questions arising at any meeting of directors shall
be decided by a majority of votes. In the case of an equality of votes, the
chair of the meeting, in addition to an original vote, shall have a second or
casting vote.
3.18. Conflict of Interest. A director or officer, or any individual acting in
a similar capacity, who is a party to, or who is a director or officer of or
has a material interest in, any person who is a party to a material contract
or material transaction, whether entered into or proposed with the Corporation
shall disclose the nature and extent of that interest at the time and in the
manner provided by the Act.
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3.19. Remuneration and Expenses. The directors shall be paid such remuneration
as the directors may from time to time by resolution determine. The directors
are also be entitled to be paid their travelling and other expenses properly
incurred by them in going to, attending and returning from meetings of
directors or committees of directors. A director or officer of the Corporation
may be employed by or perform services for the Corporation otherwise than as a
director or officer, and may be a member of a firm or a shareholder, director
or officer of a body corporate which is employed by or performs services for
the Corporation, and such director, officer, firm or body corporate may
receive proper remuneration for this employment or services.
4. COMMITTEES
4.1. Committees of Directors. The directors may appoint from among their
number one or more committees of directors, establish their duties and
responsibilities, and delegate to them any of the powers of the directors
except those which under the Act a committee of directors has no authority to
exercise.
4.2. Audit Committee. The directors shall appoint from among their number an
audit committee composed of not fewer than three directors. No director who is
also an officer of the Corporation, or who is otherwise related to the
Corporation, except by reason of being a director or shareholder, may be a
member of the audit committee. In addition to such other duties as directors
may establish, the audit committee shall review the interim and annual
financial statements of the Corporation and shall report thereon to the
directors of the Corporation before such financial statements are approved by
the directors. In addition, the audit committee shall have such other duties,
responsibilities and powers as the directors may determine. The auditor of the
Corporation is entitled to receive notice of every meeting of the audit
committee and, at the expense of the Corporation, to attend and be heard at
each meeting; and, if so requested by a member of the audit committee, shall
attend every meeting of the committee held during the term of office of the
auditor. The auditor of the Corporation or any member of the audit committee
may call a meeting of the committee.
4.3. Transaction of Business. Subject to section 3.9, the powers of a
committee appointed by the directors may be exercised at a meeting at which a
quorum is present or by resolution in writing signed by all members of the
committee entitled to vote on that resolution at a meeting of the committee.
Meetings of a committee may be held at any place in or outside Canada.
4.4. Procedure. Unless otherwise determined by the directors each committee
has the power to fix its quorum and to regulate its procedure.
5. OFFICERS
5.1. General. The directors may from time to time appoint a Chair of the
Board, a vice-Chair, a President, one or more Vice-Presidents, a Secretary, a
Treasurer and such other officers as the directors may determine, including
one or more assistants to any of the officers so appointed. The officers so
appointed may but need not be members of the board of directors except as
provided in sections 5.3 and 5.4.
5.2. Term of Office. Any officer may be removed by the directors at any time
but such removal shall not affect the rights of that officer under any
contract of employment with the Corporation. Otherwise, each officer shall
hold office until the officer's successor is appointed.
5.3. The Chair of the Board. The Chair of the Board, if any, shall be
appointed from among the directors and shall, when present, be chair of
meetings of shareholders and directors and otherwise manage the processes of
the board of directors and be responsible for ensuring that it discharges its
responsibilities. If the Chair of the
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Board is a full-time employee of the Corporation, that person may also perform
such of the powers and duties assigned to the President, including those of
chief executive officer, as the directors may determine.
5.4. Vice-Chair of the Board. The Vice-Chair of the Board, if any, shall be
appointed from among the directors and shall act in the absence or incapacity
of the Chair and shall have such other powers and duties as the directors may
determine.
5.5. The President. Unless the directors otherwise determine, the President
shall be the chief executive officer of the Corporation and shall have general
supervision of its business and affairs and, if a director and in the absence
of the Chair or the Vice-Chair of the Board, shall be chair at meetings of
shareholders and directors when present.
5.6. Vice-President. A Vice-President shall have such powers and duties as the
directors or the President may determine.
5.7. Secretary. The Secretary shall give, or cause to be given, all notices
required to be given to shareholders, directors, auditors and members of
committees; shall attend and be secretary of all meetings of shareholders,
directors and committees appointed by the directors and shall enter or cause
to be entered in books kept for that purpose minutes of all proceedings at
such meetings; shall be the custodian of the corporate seal of the Corporation
and of all records, books, documents and other instruments belonging to the
Corporation; and shall have such other powers and duties as the directors or
the President may determine.
5.8. Treasurer. The Treasurer shall keep proper books of account and
accounting records with respect to all financial and other transactions of the
Corporation; shall be responsible for the deposit of money, the safe-keeping
of securities and the disbursement of the funds of the Corporation; shall
render to the directors when required an account of all the Treasurer's
transactions and of the financial position of the Corporation; and the
Treasurer shall have such other powers and duties as the directors or the
President may determine.
5.9. Other Officers. The powers and duties of all other officers shall be such
as the directors or the President may determine. Any of the powers and duties
of an officer to whom an assistant has been appointed may be exercised and
performed by such assistant, unless the directors or the President otherwise
direct.
5.10. Variation of Duties. The directors may, from time to time, vary, add to
or limit the powers and duties of any officer.
5.11. Conflict of Interest. An officer shall disclose the officer's interest
in any material contract or proposed material contract in accordance with
section 3.18.
5.12. Agents and Attorneys. The directors shall have power from time to time
to appoint agents or attorneys for the Corporation within or outside of Canada
with such powers (including the power to sub-delegate) of management,
administration or otherwise as the directors may specify.
6. PROTECTION OF DIRECTORS, OFFICERS AND OTHERS
6.1. Indemnification of Directors and Officers. The Corporation shall
indemnify a director or officer, a former director or officer or a person who
acts or acted at the Corporation's request as a director or officer, or an
individual acting in a similar capacity, of another entity, and the heirs and
legal representatives of such a person to the extent permitted by the Act.
6.2. Insurance. The Corporation may purchase and maintain insurance for the
benefit of any person referred to in section 6.1 to the extent permitted by
the Act.
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7. MEETINGS OF SHAREHOLDERS
7.1. Annual Meetings. The annual meeting of the shareholders shall be held at
the registered office of the Corporation or at such other place within Canada
as the directors may determine, or any place outside Canada specified in the
Articles or agreed to by all the shareholders entitled to vote at that
meeting, at such time in each year as the directors may determine, for the
purpose of receiving the reports and statements required to be placed before
the shareholders at an annual meeting, electing directors, appointing an
auditor or auditors, and for the transaction of such other business as may
properly be brought before the meeting.
7.2. Other Meetings. The directors shall have power at any time to call a
special meeting of shareholders to be held at such time and at such place
within Canada as the directors may determine, or any place outside Canada
specified in the Articles or agreed to by all the shareholders entitled to
vote at the meeting, as may be determined by the board of directors.
7.3. Notice of Meetings. Notice of the time and place of a meeting of
shareholders shall be given not less than twenty-one days nor more than sixty
days before the meeting to each holder of shares carrying voting rights at the
close of business on the record date for notice, to each director and to the
auditor of the Corporation. Notice of a meeting of shareholders at which
special business is to be transacted shall state the nature of that business
in sufficient detail to permit the shareholder to form a reasoned judgement
thereon and shall include the text of any special resolution to be submitted
to the meeting. All business transacted at a special meeting of shareholders
and all business transacted at an Annual meeting of shareholders, except
consideration of the financial statements, auditor's report, election of
directors and reappointment of the incumbent auditor, shall be deemed to be
special business.
7.4. Record Date for Notice. For the purpose of determining shareholders
entitled to receive notice of a meeting of shareholders, the directors may fix
in advance a date as the record date for such determination of shareholders,
but the record date shall not precede by more than sixty days or by less than
twenty-one days the date on which the meeting is to be held. Where no record
date is fixed, the record date for the determination of shareholders entitled
to receive notice of a meeting of shareholders shall be at the close of
business on the day immediately preceding the day on which the notice is
given, or, if no notice is given, shall be the day on which the meeting is
held. Subject to the provisions of the Act, if a record date is fixed, unless
notice of the record date is waived in writing by every holder of a share of
the class of shares or series affected whose name is set out in the securities
register at the close of business on the day the directors fix the record
date, notice thereof shall be given, not less than seven days before the date
so fixed, by advertisement in a newspaper published or distributed in the
place where the Corporation has its registered office and in each place in
Canada where it has a transfer agent or where a transfer of its shares may be
recorded and by written notice to each stock exchange in Canada on which the
shares of the Corporation are listed for trading.
7.5. Record Date for Voting. For the purpose of determining shareholders
entitled to vote at a meeting of shareholders, the directors may fix in
advance a date as the record date for such determination of shareholders, but
the record date shall not precede by more than sixty days or by less than
twenty-one days the date on which the meeting is to be held. If a record date
is fixed, unless notice of the record date is waived in writing by every
holder of a share of the class or series affected whose name is set out in the
securities register at the close of business on the day the directors fix the
record date, notice thereof shall be given, not less than seven days before
the date so fixed, by advertisement in a newspaper published or distributed in
the place where the Corporation has its registered office and in each place in
Canada where the transfer agent or where a transfer of its shares may be
recorded and by written notice to each stock exchange on which the shares of
the Corporation are listed for trading.
7.6. Persons Entitled to be Present. The only persons entitled to be present
at a meeting of shareholders shall be those entitled to vote thereat, the
directors, the auditor and other persons who are entitled or required under
any provision of the Act or the articles or by-laws of the Corporation to
attend a meeting of shareholders of the Corporation. Any other person may be
admitted only on the invitation of the chair of the meeting or with the
consent of the meeting.
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7.7. Chair. The Chair of the Board, or in the Chair's absence the Vice-Chair
(if one be appointed), or in the Vice-Chair's absence, the President (if a
director), or in the President's absence a person chosen by a vote at the
meeting shall be chair of meetings of shareholders.
7.8. Scrutineers. At each meeting of shareholders one or more scrutineers, who
need not be shareholders, may be appointed by a resolution or by the chair
with the consent of the meeting.
7.9. Quorum. A quorum of shareholders shall be the holders of thirty three and
one-third (33 1/3%) per cent of shares issued, either present in person or as
the duly appointed representative or proxy of a shareholder. A quorum must be
present at the opening of the meeting for the transaction of business but need
not be sustained throughout the meeting.
7.10. Right to Receive Notice. The Corporation shall prepare an alphabetical
list of it's shareholders entitled to receive notice of a meeting, showing the
number of shares held by each shareholder, which list shall be prepared,
7.10.1. if a record date for notice is fixed under section 7.4, not later
than ten days after that record date; and
7.10.2. if no record date for notice is fixed under section 7.4, on the
record date for notice established under section 7.4.
7.11 Right to Vote. The Corporation shall prepare a list of shareholders
entitled to vote at a meeting, arranged in alphabetical order and showing the
number of shares held by each shareholder, which list shall be prepared,
7.11.1 if a record date for voting is fixed under section 7.5, not later
than ten days after that record date; and
7.11.2. if no record date for voting is fixed, not later than ten days
after the record date for notice fixed under section 7.4 or, if no record
date for notice was so fixed, then not later than the record date for
notice established under section 7.4, and in both cases the list shall be
prepared as of the record date for notice.
A shareholder whose name appears in the list prepared under this section 7.11
is entitled to vote the shares shown opposite that shareholder's name at the
meeting to which the list relates.
7.12. Joint Shareholders. Where two or more persons hold shares jointly, one
of those holders present at a meeting of shareholders may in the absence of
the others vote the shares, but if two or more of those persons are present,
in person or by proxy, they shall vote as one on the shares jointly held by
them.
7.13. Representatives. Where a body corporate or association is a shareholder
of the Corporation, the Corporation shall recognise any individual authorised
by a resolution of the directors or governing body of the body corporate or
association to represent it at meetings of shareholders of the Corporation. An
individual so authorised may exercise on behalf of the body corporate or
association the individual represents all the powers it could exercise if it
were an individual shareholder.
7.14. Executors and Others. An executor, administrator, committee of a
mentally incompetent person, guardian or trustee and, where a corporation is
such executor, administrator, committee, guardian or trustee of a testator,
intestate, mentally incompetent person, ward or cestui que trust, any duly
appointed representative of such corporation, upon
51
filing with the secretary of the meeting sufficient proof of the person's
appointment, shall represent the shares in the person's or its hands at all
meetings of shareholders of the Corporation and may vote accordingly as a
shareholder in the same manner and to the same extent as the shareholder of
record. If there be more than one executor, administrator, committee, guardian
or trustee, the provisions of this by-law respecting joint shareholders shall
apply.
7.15. Proxyholders. Every shareholder entitled to vote at a meeting of
shareholders may by means of a proxy appoint a proxyholder or one or more
alternate proxyholders, who need not be shareholders, as the shareholder's
nominee to attend and act at the meeting in the manner, to the extent and with
the authority conferred by the proxy. A proxyholder or an alternative
proxyholder has the same rights as the shareholder who appointed the
proxyholder to speak at a meeting of shareholders in respect of any matter, to
vote by way of ballot at the meeting and, except where a proxyholder or an
alternative proxyholder has conflicting instructions from more than one
shareholder, to vote at such meeting in respect of any matter by way of any
show of hands. A proxy shall be executed by the shareholder or the
shareholder's attorney authorised in writing or, if the shareholder is a body
corporate, by an officer or attorney thereof duly authorised and shall be
valid only at the meeting in respect of which it is given or any adjournment
thereof. A proxy shall be in such form as may be prescribed from time to time
by the directors or in such other form as the chair of the meeting may accept
and as complies with all applicable laws and regulations.
7.16. Time for Deposit of Proxies. The directors may by resolution fix a time
not exceeding forty-eight hours, excluding Saturdays and holidays, preceding
any meeting or adjourned meeting of shareholders before which time proxies to
be used at that meeting must be deposited with the Corporation or an agent
thereof, and any period of time so fixed shall be specified in the notice
calling the meeting.
7.17. Votes to Govern. Subject to the Act and the articles of the Corporation,
at all meetings of shareholders every question shall be decided, either on a
show of hands or by ballot, by a majority of the votes cast on the question.
In case of an equality of votes, the chairman of the meeting shall have a
second or casting vote.
7.18. Electronic Meetings and Voting. If the directors or shareholders call a
meeting of shareholders, the directors or shareholders, as the case may be,
may determine that the meeting of shareholders shall be held entirely by means
of a telephonic, electronic or other communication facility that permits all
participants to communicate adequately with each other during the meeting (a
"communication facility"), and any vote at that meeting of shareholders shall
be held entirely by means of that communication facility. A meeting of
shareholders may also be held at which some, but not all, persons entitled to
attend may participate and vote by means of a communication facility, if the
Corporation makes one available. A person participating in a meeting by such
means is deemed to be present at the meeting. Any vote at a meeting of
shareholders may be held entirely by means of a communication facility, if the
Corporation makes one available, even if none of the persons entitled to
attend otherwise participates in the meeting by means of a communication
facility. For the purpose of voting, a communication facility that is made
available by the Corporation must enable votes to be gathered in a manner that
permits their subsequent verification and permits the tallied votes to be
presented to the Corporation without it being possible for the Corporation to
identify how each shareholder or group of shareholders voted.
7.19. Show of Hands. Voting at a meeting of shareholders shall be by show of
hands, or the functional equivalent of a show of hands by means of electronic,
telephonic or other communication facility, except where a ballot is demanded
by a shareholder or proxyholder entitled to vote at the meeting or where
required by the chair. A ballot may be demanded either before or after any
vote by show of hands or its functional equivalent. Upon a show of hands or
its functional equivalent, every person who is present and entitled to vote
shall have one vote. Whenever a vote by show of hands or its functional
equivalent shall have been taken upon a question, unless a ballot thereon be
required or demanded, an entry in the minutes of a meeting of shareholders to
the effect that the chair declared a resolution to be carried or defeated, in
the absence of evidence to the contrary, is proof of the number or proportion
of the votes recorded in favour of or against the resolution. A demand for a
ballot may be withdrawn at any time prior to taking of a poll on the ballot.
7.20. Ballots. If a ballot is demanded or required, the vote upon the question
shall be taken in such manner as the chair of the meeting shall direct, or as
provided by the electronic, telephonic or other communication facility through
which votes may be cast. Each person present and entitled to vote at the
meeting shall, unless the
52
articles of the Corporation otherwise provide, be entitled to one vote for
each share in respect of which that person is entitled to vote at the meeting.
7.21. Adjournment. The chair of any meeting of shareholders may, with the
consent of the meeting and subject to such conditions as the meeting may
decide, adjourn the same from time to time and from place to place. If a
meeting of shareholders is adjourned for less than thirty days it is not
necessary to give notice of the adjourned meeting other than by announcement
at the earliest meeting that is adjourned. If a meeting of shareholders is
adjourned by one or more adjournments for an aggregate of thirty days or more,
notice of the adjourned meeting shall be given as for an original meeting. Any
business may be brought before or dealt with at any adjourned meeting which
might have been brought before or dealt with at the original meeting in
accordance with the notice calling such original meeting.
7.22. Resolution in Lieu of Meeting. A resolution in writing signed by all the
shareholders entitled to vote on that resolution at a meeting of shareholders
is as valid as if it had been passed at a meeting of shareholders except where
a written statement in respect thereof has been submitted by a director or
where representations in writing are submitted by the auditor of the
Corporation, in either case, in accordance with the Act.
8. SHARES
8.1. Issue. Subject to the Act and the articles of the Corporation, shares of
the Corporation may be issued at such times and to such persons and for such
consideration as the directors may determine, provided that no shares may be
issued until it is fully paid as provided in the Act.
8.2. Commissions. The directors may authorise the Corporation to pay a
reasonable commission to any person in consideration of the person purchasing
or agreeing to purchase shares of the Corporation from the Corporation or from
any other person, or procuring or agreeing to procure purchasers for any such
shares.
8.3. Share Certificate. Every shareholder is entitled to receive a share
certificate in respect of the shares held by that shareholder that complies
with the Act or to a non-transferable written acknowledgement ("written
acknowledgement") of the shareholder's right to obtain a share certificate
from the Corporation in respect of the shares of the Corporation held by that
shareholder, but the Corporation is not bound to issue more than one share
certificate or written acknowledgement in respect of a share or shares held
jointly by several persons and delivery of a share certificate or written
acknowledgement to one of several joint holders is sufficient delivery to all.
Written acknowledgements shall be in such form or forms as the directors shall
from time to time by resolution determine. The Corporation may charge a fee
not exceeding the amount prescribed by the Act for a share certificate issued
in respect of a transfer. Subject to the provisions of the Act and to the
requirements of any stock exchange on which shares of the Corporation may be
listed, share certificates shall be in such form or forms as the directors
shall from time to time approve. Unless otherwise determined by the directors,
share certificates shall be signed by the Chair of the Board, the President,
or a Vice-President or a director and by the Secretary or an Assistant
Secretary and need not be under the corporate seal and certificates for shares
in respect of which a transfer agent or registrar has been appointed shall not
be valid unless countersigned on behalf of such transfer agent or registrar.
Share certificates shall be signed manually, or signatures shall be printed or
otherwise mechanically reproduced on the certificate, and shall include the
signature of, at least one director or officer of the Corporation or by or on
behalf of a registrar, transfer agent or branch transfer agent of the
Corporation. If a share certificate contains a printed or mechanically
reproduced signature of a person, the Corporation may issue the share
certificate, even though the person has ceased to be a director or an officer
of the Corporation, and the share certificate is as valid as if the person
were a director or an officer at the date of its issue.
8.4. Transfer Agents and Registrars. For each class of shares issued by it,
the Corporation may appoint one or more agents to keep the securities register
and the register of transfers and one or more branch registers. Such an agent
may be designated as a transfer agent or registrar according to functions and
one agent may be designated both transfer agent and registrar. The securities
register, the register of transfers and the branch register or registers shall
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be kept at the registered office of the Corporation or at such other place
designated by the directors as long as, if kept outside of Canada,
8.4.1 the records are available for inspection, by means of a computer
terminal or other technology, during regular office hours at the registered
office or any other place in Canada designated by the directors; and
8.4.2 the Corporation provided the technical assistance to facilitate an
inspection referred in section 8.4.1.
8.5. Transfer of Shares. Subject to the Act, no transfer of a share shall be
registered except upon presentation of the certificate representing such share
with an endorsement which complies with the Act, together with such reasonable
assurance that the endorsement is genuine and effective as the directors may
prescribe, upon payment of all applicable taxes and fees and upon compliance
with the articles of the Corporation.
8.6. Non-Recognition of Trust. Subject to the Act, the Corporation may treat
the registered holder of any share as the person exclusively entitled to vote,
to receive notices, to receive any dividend or other payment in respect of the
share, and to exercise all the rights and powers of an owner of the share.
8.7. Replacement of Share Certificates. Where the owner of a share certificate
claims that the share certificate has been lost, apparently destroyed or
wrongfully taken, the Corporation shall issue or cause to be issued a new
certificate in place of the original certificate if the owner (i) so requests
before the Corporation has notice that the share certificate has been acquired
by a bona fide purchaser; (ii) files with the Corporation an indemnity bond
sufficient in the Corporation's opinion to protect the Corporation and any
transfer agent, registrar or other agent of the Corporation from any loss that
it or any of them may suffer by complying with the request to issue a new
share certificate; and (iii) satisfies any other reasonable requirements
imposed from time to time by the Corporation.
9. DIVIDENDS AND RIGHTS
9.1. Declaration of Dividends. Subject to the Act, the directors may from time
to time declare dividends payable to the shareholders according to their
respective rights and interest in the Corporation.
9.2. Cheques. A dividend payable in money shall be paid by cheque to the order
of each registered holder of shares of the class or series in respect of which
it has been declared and mailed by prepaid ordinary mail to such registered
holder at the address of such holder in the Corporation's securities register,
unless such holder otherwise directs. In the case of joint holders the cheque
shall, unless such joint holders otherwise direct, be made payable to the
order of all such joint holders and mailed to them at their address in the
Corporation's securities register. The mailing of such cheque as aforesaid,
unless the same is not paid on due presentation, shall satisfy and discharge
the liability for the dividend to the extent of the sum represented thereby
plus the amount of any tax which the Corporation is required to and does
withhold.
9.3. Non-Receipt of Cheques. In the event of non-receipt of any dividend
cheque by the person to whom it is sent as aforesaid, the Corporation shall
issue to such person a replacement cheque for a like amount on such terms as
to indemnity, reimbursement of expenses and evidence of non-receipt and of
title as the directors may from time to time prescribe, whether generally or
in any particular case.
9.4. Record Date for Dividends and Rights. The directors may fix in advance a
date, preceding by not more than fifty days the date for payment of any
dividend or the date for the issue of any warrant or other evidence of the
right to subscribe for securities of the Corporation, as a record date for the
determination of the persons entitled to receive payment of such dividend or
to exercise the right to subscribe for such securities, and notice of any such
record date shall be given not less than seven days before such record date in
the manner provided by the Act. If no record date is so fixed, the record date
for the determination of the persons entitled to receive payment of any
dividend or to
54
exercise the right to subscribe for securities of the Corporation shall be at
the close of business on the day on which the resolution relating to such
dividend or right to subscribe is passed by the directors.
9.5. Unclaimed Dividends. Any dividend unclaimed after a period of six years
from the date on which the same has been declared to be payable shall be
forfeited and shall revert to the Corporation.
10. NOTICES
10.1. General. A notice or document required by the Act, the regulations
thereunder, the articles or the by-laws of the Corporation to be sent to a
shareholder or director of the Corporation may be sent by prepaid mail
addressed to, or may be delivered personally to, the shareholder or director
at the latest address of the shareholder or director as shown in the records
of the Corporation. A notice or document if mailed to a shareholder or
director of the Corporation shall be deemed to have been received at the time
it would be delivered in the ordinary course of mail unless there are
reasonable grounds for believing that the shareholder or director did not
receive the notice or document at that time or at all. If the Corporation
sends a notice or document to a shareholder in accordance with this section
and the notice or document is returned on two consecutive occasions because
the shareholder cannot be found, the Corporation is not required to send any
further notices or documents to the shareholder until the shareholder informs
the Corporation in writing of the shareholder's new address. An electronic
document is deemed to have been received when it enters the information system
designated by the addressee or, if the document is posted on or made available
through a generally accessible electronic source, when the addressee receives
notice in writing of the availability and location of that electronic
document, or, if such notice is sent electronically, when it enters the
information system designated by the addressee.
10.2. Electronic Delivery. Provided the addressee has consented in writing, or
electronically in accordance with the provisions of the Act and the
regulations thereunder, the Corporation may satisfy the requirement to send
any notice or document referred to in section 10.1 by providing an electronic
document in accordance with the Act and the regulations thereunder, unless the
notice or document is one that, as prescribed in the regulations under the
Act, may not be provided in electronic form.
10.3. Computation of Time. In computing the time when a notice or document
must be given or sent under any provision requiring a specified number of
days' notice of any meeting or other event, the day on which the notice or
document is given or sent shall be excluded and the day on which the meeting
or other event occurs shall be included.
10.4. Omission and Errors. The accidental omission to give any notice or send
any document to any shareholder, director or other person or the non-receipt
of any notice or document by any shareholder, director or other person or any
error in any notice or document not affecting the substance thereof shall not
invalidate any action taken at any meeting held pursuant to such notice or
otherwise founded on such notice or document.
10.5. Notice to Joint Shareholders. All notices or documents with respect to
any shares registered in more than one name may, if more than one address
appears on the securities register of the Corporation in respect of such joint
holding, be given to such joint shareholders at the first address so
appearing, and all notices so given or documents so sent shall be sufficient
notice to all the holders of such shares.
10.6. Proof of Service. A certificate of the Secretary or other duly
authorised officer of the Corporation, or of any agent of the Corporation, as
to facts in relation to the mailing or delivery or sending of any notice or
document to any shareholder or director of the Corporation or to any other
person or publication of any such notice or document, shall be conclusive
evidence thereof and shall be binding on every shareholder or director or
other person as the case may be.
55
10.7. Signature to Notice. The signature to any notice or document given by
the Corporation, if not in electronic form, may be printed or otherwise
mechanically reproduced thereon or partly printed or otherwise mechanically
reproduced thereon.
10.8. Waiver of Notice. Notice may be waived or the time for the sending of a
notice or document may be waived or abridged at any time with the consent in
writing of the person entitled thereto. Attendance of any director at a
meeting of the directors or of any shareholder at a meeting of shareholders is
a waiver of notice of such meeting, except where the director or shareholder
attends for the express purpose of objecting to the transaction of any
business on the grounds that the meeting is not lawfully called.
11. BUSINESS OF THE CORPORATION
11.1. Voting Shares and Securities in Other Corporations. All of the shares or
other securities carrying voting rights of any other body corporate or bodies
corporate held from time to time by the Corporation may be voted at any and
all meetings of holders of such securities of such other body corporate or
bodies corporate in such manner and by such person or persons as the directors
of the Corporation shall from time to time determine or failing such
determination the proper signing officers of the Corporation may also from
time to time execute and deliver for and on behalf of the Corporation
instruments of proxy and arrange for the issue of voting certificates and
other evidence of the right to vote in such names as they may determine.
11.2. Bank Accounts, Cheques, Drafts and Notes. The Corporation's bank
accounts shall be kept in such chartered bank or banks, trust company or trust
companies or other firm or corporation carrying on a banking business as the
directors may by resolution from time to time determine. Cheques on bank
accounts, drafts drawn or accepted by the Corporation, promissory notes given
by it, acceptances, bills of exchange, orders for the payment of money and
other instruments of a like nature may be made, signed, drawn, accepted or
endorsed, as the case may be, by such officer or officers, person or persons
as the directors may by resolution from time to time name for that purpose.
Cheques, promissory notes, bills of exchange, orders for the payment of money
and other negotiable paper may be endorsed for deposit to the credit of any
one of the Corporation's bank accounts by such officer or officers, person or
persons, as the directors may by resolution from time to time name for that
purpose, or they may be endorsed for such deposit by means of a stamp bearing
the Corporation's name.
11.3. Execution of Instruments. The Chair of the Board, the Vice-Chair, the
President, a Vice-President or any director, together with the Secretary, the
Treasurer, Assistant Secretary, Assistant Treasurer or any other director,
shall have authority to sign in the name and on behalf of the Corporation all
instruments in writing and any instruments in writing so signed shall be
binding upon the Corporation without any further authorisation or formality.
The board of directors shall have power from time to time by resolution to
appoint any other officer or officers or any person or persons on behalf of
the Corporation either to sign instruments in writing generally or to sign
specific instruments in writing. Any signing officer may affix the corporate
seal to any instrument requiring the same. The term "instruments in writing"
as used herein shall, without limiting the generality thereof, include
contracts, documents, powers of attorney, deeds, mortgages, hypothecs,
charges, conveyances, transfers and assignments of property (real or personal,
immovable or movable), agreements, tenders, releases, receipts and discharges
for the payment of money or other obligations, conveyances, transfers and
assignments of shares, stocks, bonds, debentures or other securities,
instruments of proxy and all paper writing.
11.4. Fiscal Year. Until changed by resolution of the directors, the fiscal
year of the Corporation shall terminate on the last day of February in each
year.
12. INTERPRETATION, REPEAL OF FORMER BY-LAWS & EFFECTIVE DATE
12.1. Interpretation. In this by-law, wherever the context requires or
permits, the singular shall include the plural and the plural the singular;
the word "person" shall include firms and corporations, and masculine gender
shall include the feminine and neuter genders. Wherever reference is made to
any determination or other action by the directors such
56
shall mean determination or other action by or pursuant to a resolution passed
at a meeting of the directors, or by or pursuant to a resolution consented to
by all the directors as evidenced by their signatures thereto. Wherever
reference is made to the "Canada Business Corporations Act" or the "Act", it
shall mean the Canada Business Corporations Act, R.S.C. l985, c. C-44, as
amended, and every other act or statute incorporated therewith or amending the
same, or any act or statute substituted therefor. Reference to the "Act", in
the absence of words to the contrary, includes all Regulations promulgated
under the provisions of the Act. Unless the context otherwise requires, all
words used in this by-law shall have the meanings given to such words in the
Act. If there is any conflict between the provisions of this by-law and the
Act, the provisions of the Act will prevail to the extent of such conflict.
12.2. Repeal of Former By-laws. All by-laws in force immediately prior to the
coming into force of this by-law are hereby repealed. The foregoing repeal
does not affect the previous operation of any by-law so repealed or affect the
validity of any action under or pursuant to such prior by-law. All officers
and persons acting under any by-law so repealed shall continue to act as if
appointed pursuant to the provisions of this by-law and all resolutions of
shareholders or of directors (including any committee of directors) with
continuing effect shall continue in full force and effect except to the extent
inconsistent with this by-law and until amended or repealed.
12.3. Effective Date. This by-law comes into force on the day it is adopted as
a by-law by the directors, subject to confirmation by an ordinary resolution
of shareholders at the next meeting of shareholders.
57
ANNEX 1
Alignment with TSE Corporate Governance Guidelines
Alignment
TSE Corporate Governance Guideline Status Comment
---------------------------------- --------- -------
1. Board should explicitly assume
responsibility for stewardship of the
corporation, and assume responsibility for:
(a) adoption of a strategic planning Yes The Board meets with management
process; annually to specifically discuss
strategic planning, product and
business plans, and risks and
opportunities. Updates are presented
at Board meetings.
(b) identification of principal risks and Yes Principal business risks are
implementing appropriate risk management assessed by the Board at the annual
systems; strategic planning session and
updated regularly by senior
management in compliance with
various legal and financial
requirements and management's
assessment of those risks. The Audit
Committee assists the Board with the
review of the risk management
program.
(c) succession planning, including Yes This responsibility is assigned to
appointing, training, and monitoring of the Human Resources & Compensation
senior management; Committee.
(d) communications policy; and Yes Communications with the
Corporation's stakeholders is done
by various means, including news
releases, the general media, the
corporate internet site
(www.cognos.com), mailings, and
regular staff meetings. Quarterly
and annual earnings releases are
approved by the Audit Committee and
Board. Other media releases and
communications are coordinated by
the Public Relations and Corporate
Relations departments and the
Corporate Human Resources
department.
(e) integrity of internal control and Yes The Audit Committee establishes and
management information systems. regularly monitors policies
regarding internal controls and
management information systems.
2. Majority of directors should be Yes The current Board consists of nine
"unrelated".(1) directors, eight of whom are
unrelated.
3. Disclose for each director whether he or Yes The table at "Election of Directors"
she is related and how that conclusion was sets out the principal occupation or
reached. employment of each proposed
director. In making the
determination as to whether a
proposed director is related, the
factual circumstances of each
proposed director are considered in
the context of many factors,
including the nature of any
interest, business or other
relationship which that proposed
directors has, which could, or could
be reasonably be perceived to
materially interfere with the
ability to act with a view to the
best interests of the Corporation.
(2)
4. Committee composed of unrelated (i.e. non- Yes This responsibility is assigned to
management) directors responsible for the Corporate Governance Committee.
nominations and assessment of directors. It is composed of unrelated
directors.
58
TSE Corporate Governance Guideline Alignment
---------------------------------- Status Comment
--------- -------
5. Implement a process to assess effectiveness Yes It is the Chairman's responsibility
of board, committees, and directors. to assess the effectiveness of the
individual Board members and take
such remedial action as is
necessary.
6. Provide orientation and education programs Yes All new directors receive a complete
for new directors. orientation program, consisting of
presentations and briefings by the
Chairman and senior management on
the business and operations of the
Corporation.
7. Consider board size with view to improving Yes The Corporate Governance Committee
effectiveness. makes recommendations with respect
to board size. The current size of
the Board is considered to be
effective and its composition
reflects diverse backgrounds and
skills.
8. Review adequacy and form of director Yes Directors' compensation was reviewed
compensation relative to risks and during fiscal 2002 and brought into
responsibilities. line with industry practices. Only
non-employee directors are
compensated and may elect to receive
all or a portion of their annual
retainer fee in the form of deferred
share units under a plan which took
effect in fiscal 2000.
9. Board committees should generally be Yes The Board committees are composed
composed of outside directors, a majority entirely of unrelated, outside
of whom should be unrelated. directors.
10. Appoint committee responsible for corporate Yes This responsibility is assigned to
governance issues. the Corporate Governance Committee.
11. Develop position descriptions to limit
management's responsibilities:
(a) for board and Chief Executive Officer; Yes Written mandates have been adopted
and for the Board, each of its
committees, and for the Chief
Executive Officer.
(b) approve corporate objectives for Chief Yes The Chief Executive Officer's
Executive Officer. objectives are established annually
during the strategic planning
session.
12. Establish procedures to enable board to Yes The positions of Chairman of the
function independently of management. Board and Chief Executive Officer
are held by different people. The
mandate of the Corporate Governance
Committee is structured to preserve
this separation. The Board has the
opportunity to meet without the
presence of management at each Board
meeting.
13. (a) Audit Committee should have a Yes The written mandate, including
specifically defined mandate, including specific responsibilities, has been
oversight responsibility for management adopted. See "Statement of Corporate
reporting on internal controls. Governance -- Audit Committee".
(b) All members should be outside Yes All members are outside directors.
directors.
(c) Have direct communication with Yes The Audit Committee meets with the
auditors. Corporation's auditors without
members of management present as
required, but not less than
annually.
14. Implement systems to enable individual Yes The Board, and individual directors
directors to engage outside advisor at may engage outside advisors at the
corporation's expense. expense of the Corporation in
appropriate circumstances, in
consultation with the Chairman.
(1) Under the TSE guidelines, the term "unrelated director" means a director
who is free from any interest and any business or other relationship which
could, or could reasonably be perceived to, materially interfere with the
59
director's ability to act with a view to the best interests of the
Corporation, other than interests arising from shareholding. An "outside
director" is a director who is not an officer (other than Chairman of the
Board) or employee of the Corporation or any of its affiliates.
(2) See "Certain Relationships and Other Transactions" for a discussion of the
factual circumstances relating to certain proposed directors.
60
ANNEX 2
Alignment with SEC audit committee rules
Alignment
SEC Audit Committee Rule Status Comment
------------------------ --------- -------
1. (a) Every audit Yes The Audit Committee is composed of
committee have at least three members.
three members;
(b) all audit committee Yes Each of them is independent, as
members must be defined by the National Association
independent; of Securities Dealers ("NASD")(1).
(c) committee members be Yes Each of them is a seasoned business
financially literate. person and meets the applicable NASD
requirements for financial literacy
and financial expertise.
2. At least one committee Yes All committee members have relevant
member have prior accounting or financial management
accounting or financial experience.
management experience.
3. The Board adopt a Yes A written charter has been adopted.
written audit committee
charter that describes
the committee's
responsibilities.
4. The proxy statement must Yes See "AUDITOR INDEPENDENCE -- Audit
include a report from Committee Report".
the audit committee.
5. Outside auditor review Yes The Corporation's auditors have
of quarterly financial historically conducted reviews of
statements prior to the Corporation's quarterly
filings. financial statements. Beginning in
fiscal 2000, the Corporation's
independent auditors have reviewed
quarterly financial statements prior
to filings.
- --------
(1) See "Certain Relationships and Other Transactions" for a discussion of the
factual circumstances relating to the individual members of the Audit
Committee.
61
[LOGO]
B. FINANCIAL INFORMATION
IN ACCORDANCE WITH CANADIAN GAAP
FOR THE FISCAL YEAR ENDED FEBRUARY 28, 2002
The consolidated financial information as set out in the Corporation's 2002
Annual Report is in United States (U.S.) dollars and in accordance with U.S.
generally accepted accounting principles (GAAP). In keeping with the
requirements of Canadian legislation, the Corporation is also providing its
shareholders with consolidated financial information in accordance with
Canadian GAAP (in United States dollars).
The generally accepted accounting principles in Canada differ in some
respects from those applicable in the U.S. The most significant difference in
fiscal 2002 arises from the accounting for acquisitions (see Note 5 of the
Notes to the Consolidated Financial Statements). All consolidated financial
statements were affected by this difference.
62
COGNOS INCORPORATED
CANADIAN GAAP FINANCIAL INFORMATION
Table of Contents
The information appearing in this document consists of the following
information for the fiscal year ended February 28, 2002:
PAGE
----
Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Canadian Supplement.......................... 64
Report of Management....................................................... 66
Auditors' Report........................................................... 67
Consolidated Financial Statements And Notes................................ 68
Five-Year Summary.......................................................... 90
63
COGNOS INCORPORATED
Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Canadian Supplement
(in United States dollars, unless otherwise indicated, and in accordance with
Canadian GAAP)
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations-Canadian Supplement ("Canadian Supplement") should
be read in conjunction with our Management's Discussion and Analysis of
Financial Condition and Results of Operations ("MD&A") included in our annual
report on form 10K as filed with the United States Security and Exchange
Commission (10K). The Canadian Supplement should also be read in conjunction
with the audited Consolidated Financial Statements and Notes prepared in
accordance with U.S. GAAP (included in our 10K), and the audited Consolidated
Financial Statements and Notes prepared in accordance with Canadian generally
accepted accounting principles ("Canadian GAAP") beginning on page 64.
The following contains forward-looking statements and should be read in
conjunction with the factors set forth in the "Certain Factors That May Affect
Future Results" section of the MD&A in our 10K. All dollar amounts in this
Canadian Supplement are in thousands of United States dollars unless otherwise
stated. The Canadian Supplement has been prepared by management to provide an
analysis of the material differences between Canadian GAAP and U.S. GAAP on
Cognos Incorporated financial condition and results of operations.
RESULTS OF OPERATIONS
Year ended
-----------------------
2002 2001 2000
------- ------- -------
Income before taxes -- U.S. GAAP....................... $28,169 $91,318 $81,688
Income before taxes -- Canadian GAAP................... $25,337 $93,911 $81,215
Income tax provision -- U.S. GAAP...................... $ 8,761 $27,058 $22,873
Income tax provision -- Canadian GAAP.................. $10,738 $31,175 $26,673
Net Income per share diluted -- U.S. GAAP.............. $ 0.21 $ 0.70 $ 0.67
Net Income per share diluted -- Canadian GAAP.......... $ 0.16 $ 0.68 $ 0.62
Acquired in-process technology
Canadian GAAP requires capitalization of the value assigned to acquired in-
process technology and amortization of this value over its estimated useful
life. Under U.S. GAAP, this value is written off
64
immediately. The impact of this difference was to decrease net income before
taxes by $7.6 million, $4.1 million and $6.7 million in fiscal 2002, 2001 and
2000, respectively, compared to U.S. GAAP.
Investment tax credits
Canadian GAAP requires that investment tax credits be deducted from
operating expense. Under U.S. GAAP, these amounts are to be deducted from the
income tax provision. The impact of this difference was to increase net income
before taxes and the income tax provision by $4.8 million, $6.7 million and
$6.2 million in fiscal 2002, 2001 and 2000, respectively, compared to U.S.
GAAP.
Deferred income taxes related to acquired in-process technology
The above noted difference related to the capitalization of in-process
technology created an additional deferred income tax liability on the Canadian
GAAP balance sheet as the capitalization of the in-process technology created
a temporary difference. The amortization of this balance decreased the income
tax provision by $2.9 million, $2.6 million and $2.4 million in fiscal 2002,
2001 and 2000, respectively, compared to U.S. GAAP.
65
REPORT OF MANAGEMENT
The Corporation's management is responsible for preparing the accompanying
consolidated financial statements in conformity with Canadian generally
accepted accounting principles. In preparing these consolidated financial
statements, management selects appropriate accounting policies and uses its
judgment and best estimates to report events and transactions as they occur.
Management has determined such amounts on a reasonable basis in order to
ensure that the financial statements are presented fairly, in all material
respects. Financial data included throughout this Annual Report is prepared on
a basis consistent with that of the financial statements.
The Corporation maintains a system of internal accounting controls designed
to provide reasonable assurance, at a reasonable cost, that assets are
safeguarded and that transactions are executed and recorded in accordance with
the Corporation's policies for doing business. This system is supported by
written policies and procedures for key business activities; the hiring of
qualified, competent staff; and by a continuous planning and monitoring
program.
Ernst & Young LLP, the independent auditors appointed by the stockholders,
have been engaged to conduct an examination of the consolidated financial
statements in accordance with generally accepted auditing standards, and have
expressed their opinion on these statements. During the course of their audit,
Ernst & Young LLP reviewed the Corporation's system of internal controls to
the extent necessary to render their opinion on the consolidated financial
statements.
The Board of Directors is responsible for ensuring that management fulfills
its responsibility for financial reporting and internal control, and is
ultimately responsible for reviewing and approving the consolidated financial
statements. The Board carries out this responsibility principally through its
Audit Committee; all members are outside Directors. The Committee meets four
times annually to review audited and unaudited financial information prior to
its public release. The Committee also considers, for review by the Board of
Directors and approval by the stockholders, the engagement or reappointment of
the external auditors. Ernst & Young LLP has full and free access to the Audit
Committee.
Management acknowledges its responsibility to provide financial information
that is representative of the Corporation's operations, is consistent and
reliable, and is relevant for the informed evaluation of the Corporation's
activities.
James M. Tory Ron Zambonini Tom Manley
Chairman President and Senior Vice President,
Chief Executive Officer Finance &
Administration, and
Chief Financial
Officer
March 28, 2002 (except note 14,
as to which the date is
May 24, 2002)
66
AUDITORS' REPORT
To the Board of Directors and Stockholders of Cognos Incorporated:
We have audited the consolidated balance sheets of Cognos Incorporated as
at February 28, 2002 and February 28, 2001 and the consolidated statements of
income, stockholders' equity, and cash flows for each of the years in the
three-year period ended February 28, 2002. These financial statements are the
responsibility of the Corporation's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with Canadian and United States
generally accepted auditing standards. Those standards require that we plan
and perform an audit to obtain reasonable assurance whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of the Corporation as at
February 28, 2002 and February 28, 2001, and the results of its operations and
its cash flows for each of the years in the three-year period ended February
28, 2002, in accordance with Canadian generally accepted accounting
principles.
On March 28, 2002 (except note 14, as to which the date is May 24, 2002), we
reported separately to the Board of Directors and Stockholders of Cognos
Incorporated on financial statements for the same periods, prepared in
accordance with United States generally accepted accounting principles.
Ottawa, Canada Ernst & Young LLP
March 28, 2002 (except note 14, Chartered Accountants
as to which the date is
May 24, 2002)
67
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(US$000s except share amounts, CDN GAAP)
Years Ended the Last Day
of February
----------------------------
Note 2002 2001 2000
---- -------- -------- --------
Revenue
Product license............................ $228,255 $262,766 $203,299
Product support............................ 175,636 147,589 118,061
Services................................... 87,411 85,297 64,280
-------- -------- --------
Total revenue............................... 491,302 495,652 385,640
-------- -------- --------
Operating expenses
Cost of product license.................... 3,609 7,315 5,235
Cost of product support.................... 16,576 17,820 13,758
Selling, general, and administrative....... 350,892 327,632 244,827
Research and development................... 74,614 67,264 53,548
Investment tax credits..................... (4,784) (6,690) (6,207)
Special charges............................ 7, 14 33,440 -- --
-------- -------- --------
Total operating expenses.................... 474,347 413,341 311,161
-------- -------- --------
Operating income............................ 16,955 82,311 74,479
Interest expense............................ (540) (786) (718)
Interest income............................. 8,922 12,386 7,454
-------- -------- --------
Income before taxes......................... 25,337 93,911 81,215
Income tax provision........................ 9 10,738 31,175 26,673
-------- -------- --------
Net income.................................. $ 14,599 $ 62,736 $ 54,542
Retained earnings at beginning of the
period..................................... 175,946 126,316 95,329
Repurchase of shares........................ (26,401) (13,106) (23,555)
-------- -------- --------
Retained earnings at end of the period...... $164,144 $175,946 $126,316
======== ======== ========
Net income per share........................ 10
Basic...................................... $ 0.17 $ 0.72 $ 0.63
======== ======== ========
Diluted.................................... $ 0.16 $ 0.68 $ 0.62
======== ======== ========
Weighted average number of shares (000s).... 10
Basic...................................... 87,807 87,324 85,972
======== ======== ========
Diluted.................................... 90,461 91,973 88,100
======== ======== ========
(See accompanying notes)
68
CONSOLIDATED BALANCE SHEETS
(US$000s, CDN GAAP)
February 28, February 28,
Note 2002 2001
-------- ------------ ------------
Assets
Current assets
Cash and cash equivalents................... 8 $192,900 $115,293
Short-term investments...................... 8 121,629 119,265
Accounts receivable......................... 2 114,059 146,867
Inventories................................. 537 730
Prepaid expenses............................ 6,765 8,648
Deferred tax assets......................... 6,404 --
-------- --------
442,294 390,803
Fixed assets................................. 3 59,008 74,208
Other assets................................. 4 29,433 46,780
-------- --------
$530,735 $511,791
======== ========
Liabilities
Current liabilities
Accounts payable............................ $ 26,387 $ 28,256
Accrued charges............................. 7, 14 34,210 21,830
Salaries, commissions, and related items.... 7 37,453 28,822
Income taxes payable........................ 9 6,167 17,548
Deferred revenue............................ 110,504 96,674
-------- --------
214,721 193,130
Long-term liabilities........................ 5, 14 9,131 1,539
Deferred income taxes........................ 9 6,328 16,402
-------- --------
230,180 211,071
-------- --------
Commitments and Contingencies................ 5, 6, 14
Stockholders' Equity.........................
Capital stock................................
Common shares
(2002 -- 87,997,220; 2001 -- 87,885,161)... 10 151,637 134,791
Retained earnings............................ 164,144 175,946
Accumulated other comprehensive income....... (15,226) (10,017)
-------- --------
300,555 300,720
-------- --------
$530,735 $511,791
======== ========
(See accompanying notes)
On behalf of the Board:
Douglas C. Cameron, Director James M. Tory, Chairman
69
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(US$000s except share amounts, CDN GAAP)
Accumulated
Common Stock Other
---------------- Retained Comprehensive
Shares Amount Earnings Income Total
------ -------- -------- ------------- --------
(000s)
Balances, February 28,
1999...................... 86,362 $ 88,579 $ 95,329 $ (8,712) $175,196
Issuance of stock
Stock option plans........ 1,973 15,420 15,420
Stock purchase plans...... 120 1,095 1,095
Amortization of deferred
stock-based compensation. 693 693
Repurchase of shares....... (2,286) (2,458) (23,555) (26,013)
Income tax effect related
to stock options.......... 894 894
------ -------- -------- -------- --------
86,169 104,223 71,774 (8,712) 167,285
------ -------- -------- -------- --------
Net income................. 54,542 54,542
Other comprehensive income
Foreign currency
translation adjustments.. 2,479 2,479
------ -------- -------- -------- --------
Comprehensive income....... 54,542 2,479 57,021
------ -------- -------- -------- --------
Balances, February 29,
2000...................... 86,169 $104,223 $126,316 $ (6,233) $224,306
------ -------- -------- -------- --------
Issuance of stock
Stock option plans........ 1,816 18,574 18,574
Stock purchase plans...... 73 2,018 2,018
Business acquisitions..... 253 9,070 9,070
Deferred stock-based
compensation............. (65) (2,656) (2,656)
Amortization of deferred
stock-based compensation. 219 1,233 1,233
Repurchase of shares....... (580) (881) (13,106) (13,987)
Income tax effect related
to stock options.......... 3,210 3,210
------ -------- -------- -------- --------
87,885 134,791 113,210 (6,233) 241,768
------ -------- -------- -------- --------
Net income................. 62,736 62,736
Other comprehensive income
Foreign currency
translation adjustments.. (3,784) (3,784)
------ -------- -------- -------- --------
Comprehensive income....... 62,736 (3,784) 58,952
------ -------- -------- -------- --------
Balances, February 28,
2001...................... 87,885 $134,791 $175,946 $(10,017) $300,720
------ -------- -------- -------- --------
Issuance of stock
Stock option plans........ 1,279 12,742 12,742
Stock purchase plans...... 157 2,337 2,337
Amortization of deferred
stock-based compensation. 292 3,341 3,341
Repurchase of shares....... (1,616) (2,638) (26,401) (29,039)
Income tax effect related
to stock options.......... 1,064 1,064
------ -------- -------- -------- --------
87,997 151,637 149,545 $(10,017) 291,165
------ -------- -------- -------- --------
Net income................. 14,599 14,599
Other comprehensive income.
Foreign currency
translation adjustments.. (5,209) (5,209)
------ -------- -------- -------- --------
Comprehensive income....... 14,599 (5,209) 9,390
------ -------- -------- -------- --------
Balances, February 28,
2002...................... 87,997 $151,637 $164,144 $(15,226) $300,555
====== ======== ======== ======== ========
(See accompanying notes)
70
CONSOLIDATED STATEMENTS OF CASH FLOWS
(US$000s, CDN GAAP)
Years Ended the Last Day of
February
-------------------------------
2002 2001 2000
--------- --------- ---------
Cash provided by (used in) operating
activities
Net income................................... $ 14,599 $ 62,736 $ 54,542
Non-cash items
Depreciation and amortization............... 38,646 30,754 24,228
Amortization of deferred stock-based
compensation............................... 3,341 1,233 693
Amortization of other deferred compensation. 4,767 1,809 1,351
Deferred income taxes....................... (15,917) (6,426) 4,756
Loss on disposal of fixed assets............ 1,114 561 148
--------- --------- ---------
46,550 90,667 85,718
Change in non-cash working capital
Decrease (increase) in accounts receivable.. 29,605 (39,824) (32,818)
Decrease in inventories..................... 165 37 31
Decrease (increase) in prepaid expenses..... 1,546 (731) (1,422)
Increase (decrease) in accounts payable..... (1,052) 4,320 3,930
Increase in accrued charges................. 13,204 3,145 1,004
Increase in salaries, commissions, and
related items.............................. 9,408 5,630 4,394
Increase (decrease) in income taxes payable. (11,218) 14,262 (3,993)
Increase in deferred revenue................ 15,481 21,467 26,374
--------- --------- ---------
103,689 98,973 83,218
--------- --------- ---------
Cash provided by (used in) investing
activities
Maturity of short-term investments........... 235,743 138,803 138,796
Purchase of short-term investments........... (240,974) (195,386) (146,238)
Additions to fixed assets.................... (12,588) (51,963) (28,096)
Acquisition costs............................ (2,193) (11,377) (2,146)
Proceeds from the sale of fixed assets....... -- 759 24
--------- --------- ---------
(20,012) (119,164) (37,660)
--------- --------- ---------
Cash provided by (used in) financing
activities
Issue of common shares....................... 16,143 23,802 17,409
Repurchase of shares......................... (29,039) (13,987) (26,013)
Increase in (repayment of) long-term debt
and long-term liabilities................... 7,798 (5,293) (467)
--------- --------- ---------
(5,098) 4,522 (9,071)
--------- --------- ---------
Effect of exchange rate changes on cash....... (972) (1,473) 2,331
--------- --------- ---------
Net increase (decrease) in cash and cash
equivalents.................................. 77,607 (17,142) 38,818
Cash and cash equivalents, beginning of
period....................................... 115,293 132,435 93,617
--------- --------- ---------
Cash and cash equivalents, end of period...... 192,900 115,293 132,435
Short-term investments, end of period......... 121,629 119,265 64,284
--------- --------- ---------
Cash, cash equivalents, and short-term
investments, end of period................... $ 314,529 $ 234,558 $ 196,719
========= ========= =========
(See accompanying notes)
71
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1.Summary of Significant Accounting Policies
Nature of Operations
Cognos Incorporated (the "Corporation") is a global provider of business
intelligence software solutions. The Corporation develops, markets, and
supports an integrated business intelligence solution that allows customers,
as well as their partners, customers, and suppliers, to analyze and report
data from multiple perspectives. The Corporation markets and supports these
solutions both directly and through resellers worldwide.
Basis of Presentation
These consolidated financial statements have been prepared by the Corporation
in United States (U.S.) dollars and in accordance with Canadian generally
accepted accounting principles (GAAP), applied on a consistent basis.
Consolidated financial statements prepared in accordance with United States
GAAP, in U.S. dollars, are made available to all shareholders, and filed with
various regulatory authorities.
Basis of Consolidation
These consolidated financial statements include the accounts of the
Corporation and its subsidiaries. All subsidiaries are wholly owned.
Intercompany transactions and balances have been eliminated.
Estimates
The preparation of these consolidated financial statements in conformity with
GAAP requires management to make estimates and assumptions that affect the
amounts reported in the consolidated financial statements and the accompanying
notes. In the opinion of management, these consolidated financial statements
reflect all adjustments necessary to present fairly the results for the
periods presented. Actual results could differ from these estimates.
Comprehensive Income
Comprehensive Income includes net income and other comprehensive income (OCI).
OCI refers to changes in net assets from transactions and other events, and
circumstances other than transactions with stockholders. These changes are
recorded directly as a separate component of Stockholders' Equity and excluded
from net income. The only comprehensive income item for the Corporation
relates to foreign currency translation adjustments pertaining to those
subsidiaries not using the U.S. dollar as their functional currency net of
derivative gains or losses.
Foreign Currency Translation
The financial statements of the parent company and its non-U.S. subsidiaries
have been translated into U.S. dollars in accordance with The Canadian
Institute of Chartered Accountants (CICA) Handbook, Section 1650, Foreign
Currency Translation. The financial statements of the foreign subsidiaries are
measured using local currency as the functional currency. All balance sheet
amounts have been translated using the exchange rates in effect at the
applicable year end. Income statement amounts have been translated using the
weighted average exchange rate for the applicable year. The gains and losses
resulting
72
from the changes in exchange rates from year to year have been reported as a
separate component of Stockholders' Equity. Currency transaction gains and
losses are immaterial for all periods presented.
Revenue
The Corporation recognizes revenue in accordance with Statement of Position
(SOP) 97-2, Software Revenue Recognition, issued by the American Institute of
Certified Public Accountants.
Substantially all of the Corporation's product license revenue is earned from
licenses of off-the-shelf software requiring no customization. Revenue from
these licenses is recognized when all of the following criteria are met:
persuasive evidence of an arrangement exists, delivery has occurred, the fee
is fixed or determinable, and collectibility is probable. If a license
includes the right to return the product for refund or credit, revenue is
recognized net of an allowance for estimated returns provided all the
requirements of SOP 97-2 have been met.
Revenue from product support contracts is recognized ratably over the life of
the contract. Incremental costs directly attributable to the acquisition of
product support contracts, and that would not have been incurred but for the
acquisition of that contract, are deferred and expensed in the period the
related revenue is recognized. These costs include commissions payable on
sales of support contracts.
Revenue from education, consulting, and other services is recognized at the
time such services are rendered.
For contracts with multiple obligations (e.g., deliverable and undeliverable
products, support obligations, education, consulting, and other services), the
Corporation allocates revenue to each element of the contract based on
objective evidence, specific to the Corporation, of the fair value of the
element.
Cash, Cash Equivalents, and Short-Term Investments
Cash includes cash equivalents, which are investments that are generally held
to maturity and have terms to maturity of three months or less at the time of
acquisition. Cash equivalents typically consist of commercial paper, term
deposits, banker's acceptances and bearer deposit notes issued by major North
American banks, and corporate debt. Cash and cash equivalents are carried at
cost, which approximates their fair value.
Short-term investments are investments that are generally held to maturity and
have terms greater than three months at the time of acquisition. Short-term
investments typically consist of commercial paper and corporate bonds. Short-
term investments are carried at cost, which approximates their fair value.
Derivative Financial Instruments
All derivatives, whether designated in hedging relationships or not, are
recorded on the balance sheet at fair value. If the derivative is designated
as a fair value hedge, the changes in the fair value of the derivative and of
the hedged item attributable to the hedged risk are recognized in net
income/loss. If the derivative is designated as a cash flow hedge, the
effective portions of changes in the fair value of the derivative are recorded
in OCI and are recognized in net income/loss when the hedged item affects net
income/loss. If the derivative is designated a hedge of net investment in
foreign operations, the changes in fair value are reported in OCI as part of
the cumulative translation adjustment to the extent that it is effective.
73
Inventories
Inventories are comprised principally of finished goods and are stated at the
lower of cost, on an average cost basis, and net realizable value.
Fixed Assets
Fixed assets are recorded at cost. Computer equipment and software, and the
building, are depreciated using the straight line method. Office furniture is
depreciated using the diminishing balance method. Building improvements are
amortized using the straight line method over the life of the improvement.
Leasehold improvements are amortized using the straight line method over
either the life of the improvement or the term of the lease, whichever is
shorter. Fixed assets are tested for impairment when evidence of a decline in
value exists and are adjusted to estimated fair value if the asset is
impaired.
Assets leased on terms that transfer substantially all of the benefits and
risks of ownership to the Corporation are accounted for as capital leases, as
though the asset had been purchased and a liability incurred. All other leases
are accounted for as operating leases.
Other Assets
This category includes acquired technology, goodwill, and other deferred
compensation associated with various acquisitions, and deferred software
development costs.
Acquired technology is initially recorded at fair value based on the present
value of the estimated net future income-producing capabilities of software
products acquired on acquisitions. Acquired technology is amortized over five
years on a straight line basis. The Corporation evaluates the expected future
net cash flows of the acquired technology at each reporting date, and adjusts
to estimated fair value if the value of the asset is impaired.
Goodwill represents the excess of the purchase price of acquired companies
over the estimated fair value of the tangible and intangible net assets
acquired. Goodwill resulting from acquisitions prior to June 30, 2001 is
amortized over five years on a straight line basis. Goodwill resulting from
acquisitions subsequent to June 30, 2001 is not amortized in accordance with
the transitional provisions of the Canadian Institute of Chartered Accountants
Handbook section 3062 (see Note 13). The Corporation evaluates the expected
future net cash flows of the acquired businesses at each reporting date, and
adjusts goodwill for any impairment.
Other deferred compensation includes cash consideration associated with
acquisitions made by the Corporation. Other deferred compensation is recorded
when its future payment is determinable and is payable contingent upon the
continued tenure of the principals of the acquired companies who have become
employees of the Corporation. Under generally accepted accounting principles
these amounts are accounted for as compensation rather than as a component of
purchase price.
Development costs incurred internally in creating computer software to be
sold, licensed, or otherwise marketed, are expensed as incurred unless they
meet generally accepted accounting criteria for deferral and amortization.
Software development costs incurred prior to the establishment of
technological feasibility do not meet these criteria, and are expensed as
incurred. Research costs are expensed as incurred. For costs that are
capitalized, the amortization is the greater of the amount calculated using
either (i) the ratio that the appropriate product's current gross revenues
bear to the total of current and anticipated future gross revenues for that
product, or (ii) the straight line method over the remaining economic life of
the product. Such amortization is recorded over a period not exceeding three
years. The Corporation reassesses whether it has met the relevant criteria for
continued deferral and amortization at each reporting date. The Corporation
did not capitalize any costs of internally-developed computer
74
software to be sold, licensed or otherwise marketed, and recognized no
amortization expense in each of fiscal 2002, 2001, and 2000.
Income Taxes
The liability method is used in accounting for income taxes. Under this
method, future tax assets and liabilities are determined based on differences
between financial reporting and income tax bases of assets and liabilities,
and are measured using the tax rates and laws that are expected to be in
effect when the differences reverse.
2.Accounts Receivable
Accounts receivable include an allowance for doubtful accounts of $8,808,000
and $11,521,000 as of February 28, 2002 and February 28, 2001, respectively.
3.Fixed Assets
2002 2001
---------------------- ----------------------
Accumulated Accumulated
Depreciation Depreciation Depreciation/
and and Amortization
Cost Amortization Cost Amortization Rate
--------- ------------ -------- ------------ -------------
($000s) ($000s)
Computer equipment and
software............... $ 62,500 $48,496 $ 72,100 $47,991 33%
Office furniture........ 27,819 15,077 27,779 12,538 20%
Building and Leasehold Life of
improvements........... 18,945 7,213 18,182 5,350 Improvement/
Lease Term
Land.................... 740 -- 775 -- --
Building................ 21,897 2,107 22,754 1,503 2.5%
--------- ------- -------- -------
131,901 $72,893 141,590 $67,382
======= =======
(72,893) (67,382)
--------- --------
Net book value.......... $ 59,008 $ 74,208
========= ========
Depreciation and amortization of fixed assets was $23,874,000, $18,475,000,
and $13,898,000 in each of fiscal 2002, 2001, and 2000, respectively.
4.Other assets
Other assets as at February 28, 2002, and February 28, 2001, include acquired
technology, goodwill, and other deferred compensation, and are disclosed net
of amortization.
The Corporation recorded $2,193,000 of goodwill in fiscal 2002, $23,421,000 of
acquired technology, goodwill, workforce, and other deferred compensation in
fiscal 2001, and $2,352,000 of goodwill and other deferred compensation in
fiscal 2000. Amortization of other assets was $19,540,000, $14,088,000, and
$11,681,000 in each of fiscal 2002, 2001, and 2000, respectively. (see Note
5).
75
The Corporation did not capitalize any costs of internally-developed computer
software to be sold, licensed, or otherwise marketed in each of fiscal 2002,
2001, and 2000, and did not record any amortization.
5.Acquisitions
Fiscal 2002 Acquisition
On February 28, 2002, the Corporation exercised its option to purchase 50% of
the voting shares representing all of the outstanding voting interest in the
Corporation's subsidiary in Japan, Teijin Cognos Incorporated (TCI). The
Corporation felt that TCI could more gainfully serve the Japanese market as a
wholly owned subsidiary. The Corporation has always consolidated the results
of TCI as it has had effective control over TCI. The former shareholders of
TCI received approximately $2,193,000 in cash upon completion of the purchase.
The Corporation will also pay Teijin Limited its accumulated minority interest
in TCI of approximately $1,462,000 due March 30, 2002. The Corporation has
also agreed to pay additional consideration at each period end for the next 8
quarters, based on the net revenue of TCI. This additional purchase price has
not been recorded as it cannot be reasonably estimated. The purchase of TCI
did not involve the purchase of any in-process research and development. The
acquisition was accounted for using the purchase method. The results of
operations of TCI are already consolidated and thus pro forma information has
not been provided.
Total consideration, including acquisition costs, was allocated based on
estimated fair values on the acquisition date as follows: ($000s)
Teijin Cognos
Incorporated
-------------
Assets acquired................................................... $ 3,712
Liabilities assumed............................................... (2,250)
-------
Net assets acquired............................................... 1,462
Goodwill.......................................................... 2,193
-------
Purchase price.................................................... $ 3,655
=======
Purchase price consideration
Cash.............................................................. 2,193
Deferred payment.................................................. 1,462
-------
$ 3,655
=======
Goodwill recorded as a result of this transaction will not be amortized in
accordance with CICA Handbook section 3062 but will be tested for impairment
as of March 1, 2002.
76
Fiscal 2001 Acquisitions
On June 1, 2000, the Corporation acquired Powerteam OY, the Corporation's
distributor in Finland. The agreement stipulated that the shareholders of
Powerteam OY would receive approximately $2,258,000 in cash in the two years
subsequent to the date of acquisition and could also receive cash payments not
to exceed $500,000 over the three years subsequent to the date of acquisition.
The Corporation has conditioned a portion of the consideration on the
continued tenure of certain employees. Under generally accepted accounting
principles these amounts are accounted for as compensation rather than as a
component of purchase price.
On September 21, 2000, the Corporation acquired NoticeCast Software Ltd.,
based in Twickenham, United Kingdom. NoticeCast's Enterprise Event Management
Software monitors business processes and delivers timely business intelligence
notifications to business users across the enterprise via e-mail on their
personal computer, hand-held or wireless device. The agreement stipulated that
the shareholders of NoticeCast Software Ltd. would receive approximately
$9,000,000 in cash on closing and would receive 148,468 shares of the
Corporation's common stock valued at approximately $4,820,000. The shares are
being held in escrow by the Corporation and will be released on the second
anniversary of the closing of the transaction.
On November 1, 2000, the Corporation completed the acquisition of Johnson &
Michaels, Inc. (JAMI), a leading provider of business intelligence consulting
services. The agreement stipulated that the shareholders of JAMI would receive
total cash consideration of approximately $3,915,000 over three years and
104,230 shares of the Corporation's common stock valued at $4,250,000 over the
same period. Approximately $1,406,000 was paid and 39,085 shares were issued
on closing; the remaining shares, all of which were issued, were held in
escrow by the Corporation and were scheduled to be released on the first
(33%), second (33%), and third (34%) anniversaries of the closing of the
transaction. The Corporation has conditioned a portion of the overall
consideration on the continued tenure of certain employees. Under generally
accepted accounting principles these amounts are accounted for as compensation
rather than as a component of purchase price. The deferred shares, valued at
$2,656,000, are accounted for as an offset to capital stock.
The scheduled aggregate annual payments for the long-term liabilities related
to these acquisitions are $921,000 and $1,539,000 in fiscal 2002 and 2003,
respectively. Amounts due within twelve months are included in accrued
charges.
The acquisitions have been accounted for using the purchase method. The
results of operations of all three acquired companies prior to the
acquisitions were not material, and thus pro forma information has not been
provided. The results of the acquired companies have been combined with those
of the Corporation from the date of the acquisition.
77
Total consideration, including acquisition costs, was allocated based on
estimated fair values on the acquisition date as follows: (000s)
Powerteam NoticeCast Johnson &
OY Software Inc. Michaels Inc. Total
--------- ------------- ------------- -------
Assets acquired
Acquired technology............ $ -- $ 5,000 $ -- $ 5,000
Other assets................... 3,906 450 814 5,170
------- ------- ------ -------
3,906 5,450 814 10,170
Liabilities assumed............. (2,502) (1,580) (922) (5,004)
Deferred tax credits............ -- (2,000) -- (2,000)
------- ------- ------ -------
Net assets acquired............. 1,404 1,870 (108) 3,166
Goodwill........................ 854 11,950 3,545 16,349
------- ------- ------ -------
Purchase price.................. $ 2,258 $13,820 $3,437 $19,515
======= ======= ====== =======
Purchase price consideration
Cash........................... $ 971 $ 9,000 $1,406 $11,377
Deferred payment............... 1,287 -- 437 1,724
Shares......................... -- 4,820 1,594 6,414
------- ------- ------ -------
$2,258 $13,820 $3,437 $19,515
======= ======= ====== =======
Other consideration
Deferred cash.................. -- -- 2,072 2,072
Deferred shares................ -- -- 2,656 2,656
------- ------- ------ -------
Total consideration............. $ 2,258 $13,820 $8,165 $24,243
======= ======= ====== =======
Fiscal 2000 Acquisitions
On May 28, 1999, the Corporation completed the acquisition of Information
Tools AG, the Corporation's distributor in Switzerland. The agreement
stipulated that the shareholders of Information Tools AG were to receive total
consideration of approximately $657,000 of which $458,000 was received in cash
during fiscal 2000. The remainder of the consideration ($199,000) are payable
equally on the first and second anniversaries of the closing of the
transaction. An amount not to exceed $500,000 could also be paid in contingent
consideration. Of that amount, approximately $235,000 was paid in fiscal 2003
based on fiscal 2002 results, approximately $60,000 was paid in fiscal 2002
relating to fiscal 2001 results, and approximately $120,000 was paid in fiscal
2001 relating to fiscal 2000 results. The Corporation has conditioned a
portion of the overall consideration on the continued tenure of certain
employees. Under generally accepted accounting principles, these amounts are
accounted for as compensation rather than as a component of purchase price.
On July 15, 1999, the Corporation completed the purchase of the entire
outstanding minority interest in the Corporation's subsidiary in Singapore,
Cognos Far East Pte Limited. The former minority shareholders of Cognos Far
East Pte Limited received approximately $1,688,000 in cash upon completion of
the purchase. No further consideration is due to the former minority
shareholders of the subsidiary.
Both acquisitions have been accounted for using the purchase method. The
results of operations of both acquired companies prior to the acquisition were
not material, and thus pro forma information has not been provided. The
results of both acquired companies have been combined with those of the
Corporation since their respective dates of acquisition.
78
Total consideration, including acquisition costs, was allocated based on
estimated fair values on the acquisition date as follows: ($000s)
Cognos Far
Information East Pte
Tools AG Limited Total
----------- ---------- ------
Assets acquired.................................. $ 683 $ -- $ 683
Liabilities assumed.............................. (570) -- (570)
------ ------ ------
Net assets acquired.............................. 113 -- 113
Goodwill......................................... 544 1,688 2,232
------ ------ ------
Purchase price................................... $ 657 $1,688 $2,345
====== ====== ======
Purchase price consideration
Cash............................................ 458 1,688 2,146
Deferred payment................................ 199 -- 199
------ ------ ------
$ 657 $1,688 $2,345
====== ====== ======
Other consideration
Deferred cash................................... 415 -- 415
------ ------ ------
Total consideration.............................. $1,072 $1,688 $2,760
====== ====== ======
6.Commitments
Certain of the Corporation's offices, computer equipment, and vehicles are
leased under various terms. The annual aggregate lease expense in each of
fiscal 2002, 2001, and 2000, was $15,959,000, $14,715,000, and $12,205,000,
respectively.
The aggregate amount of payments for these operating leases, in each of the
next five fiscal years and thereafter, is approximately as follows: ($000s)
2003................................. $12,205
2004................................. 8,231
2005................................. 6,347
2006................................. 4,372
2007................................. 2,814
Thereafter........................... 5,441
7.Business Restructuring Charges
In connection with a restructuring plan to align the Corporation's cost
structure and operations to the prevailing economic environment, the
Corporation recorded in the quarter ended May 31, 2001 a pre-tax business
restructuring charge to earnings of $12,798,000. Business restructuring
charges primarily relate to involuntary employee separations for approximately
300 employees, as well as asset write-downs, and accruals for net costs of
abandoning leases and related write-downs of leasehold improvements. The
remaining accrual is included on the balance sheet as accrued charges and
salaries, commissions and related items.
The employee separations impact all functional groups and geographic regions
of the Corporation. All employee separations were completed within the fiscal
year and substantially all amounts have been paid.
79
The adjustment of $2,589,000 to the restructuring accrual includes reversals
resulting from revisions to prior cost assumptions including: subleases of
closed sales offices of $504,000, reversal of employee severance and related
costs of $1,306,000, and outplacement costs of $430,000.
The following table displays the status of the restructuring reserve at
February 28, 2002: (000s)
Other
Employee Restructuring
Separations Costs Total
----------- ------------- -------
Restructuring charges in Q1 fiscal 2002...... $ 9,660 $ 3,138 $12,798
Cash Payments................................ (7,203) (1,040) (8,243)
Asset write-downs............................ -- (1,557) (1,557)
Adjustments to accrual....................... (2,306) (283) (2,589)
------- ------- -------
Balance as at February 28, 2002.............. $ 151 $ 258 $ 409
======= ======= =======
8.Financial Instruments
Foreign Exchange Forward Contracts
The Corporation's policy with respect to foreign currency exposure is to
manage its financial exposure to certain foreign exchange fluctuations with
the objective of neutralizing some of the impact of foreign currency exchange
movements. The corporation currently utilizes forward contracts to manage
foreign currency translation exposure of net investment in foreign operations.
As a result, the exchange gains and losses recorded on translation of the
subsidiaries financial statements are partially offset by gains and losses
attributable to the applicable foreign exchange forward contract. Realized and
unrealized gains and losses from these hedges are not included in income but
are shown in the cumulative translation adjustment account included in OCI.
During the years ended February 28, 2002, 2001, and February 29, 2000, the
amount recorded to the cumulative translation adjustment with respect to the
forward exchange contracts was a net gain of $973,000, $383,000, and a net
loss of $123,000, respectively.
The Corporation has foreign exchange conversion facilities that allow it to
hold foreign exchange contracts of Cdn $130,000,000 (US $81,012,000)
outstanding at any one time. The Corporation enters into foreign exchange
forward contracts with major Canadian chartered banks, and therefore does not
anticipate non-performance by these counterparties. The amount of the exposure
on account of any non-performance is restricted to the unrealized gains in
such contracts. As of February 28, 2002, the Corporation had foreign exchange
forward contracts, with maturity dates ranging from March 28, 2002 to July 25,
2002, to exchange various foreign currencies in the amount of $18,733,000 (the
estimated fair value was $19,124,000). As of February 28, 2001, the
Corporation had foreign exchange forward contracts, with maturity dates
ranging from March 29, 2001 to July 26, 2001, to exchange various foreign
currencies in the amount of $15,173,000 (the estimated fair value was
$15,353,000).
Concentration of Credit Risk
The investment of cash is regulated by the Corporation's investment policy,
which is periodically reviewed and approved by the Audit Committee of the
Board of Directors. The primary objective of the Corporation's investment
policy is security of principal. The Corporation manages its investment credit
risk through a combination of (i) a selection of securities with an acceptable
credit rating; (ii) selection of
80
term to maturity, which in no event exceeds one year in length; and (iii)
diversification of debt issuers, both individually and by industry grouping.
Included in cash, cash equivalents, and short-term investments as of February
28, 2002 and February 28, 2001 were corporate debt amounts of $40,000,000 and
$44,058,000, respectively. The corporate debt as of February 28, 2002 and
February 28, 2001 was with one and three distinct issuers, respectively. These
amounts were repaid, in full, at maturity in March of their respective years.
All the Corporation's short-term investments as of February 28, 2002 and
February 28, 2001 had maturity dates before the end of June of their
respective years. The Corporation's cash, cash equivalents, and short-term
investments are denominated predominantly in Canadian and U.S. dollars.
The Corporation has an unsecured credit facility, subject to annual renewal,
that includes an operating line and foreign exchange conversion facilities.
The operating line permits the Corporation to borrow funds or issue letters of
credit or guarantee up to an aggregate of Cdn $15,000,000 (US $9,348,000),
subject to certain covenants. As of February 28, 2002 and February 28, 2001,
there were no direct borrowings under this operating line.
There is no concentration of credit risk related to the Corporation's position
in trade accounts receivable. Credit risk, with respect to trade receivables,
is minimized because of the Corporation's large customer base and its
geographical dispersion (see Note 12).
Fair Value of Financial Instruments
For certain of the Corporation's financial instruments, including accounts
receivable, accounts payable, and other accrued charges, the carrying amounts
approximate the fair value due to their short maturities. Cash and cash
equivalents, short-term investments, long-term debt, and long-term liabilities
are carried at cost, which approximates their fair value. Foreign exchange
forward contracts are recorded at their estimated fair value.
9.Income Taxes
Details of the income tax provision (recovery) are as follows: ($000s)
2002 2001 2000
-------- ------- -------
Current
Canadian........................................... $ 16,274 $27,357 $16,880
Foreign............................................ 9,392 12,707 9,943
-------- ------- -------
25,666 40,064 26,823
-------- ------- -------
Deferred
Canadian........................................... (12,584) (5,727) 1,765
Foreign............................................ (2,344) (3,162) (1,915)
-------- ------- -------
(14,928) (8,889) (150)
-------- ------- -------
Income tax provision................................ $ 10,738 $31,175 $26,673
======== ======= =======
81
The reported income tax provision differs from the amount computed by applying
the Canadian rate to income before income taxes. The reasons for this
difference and the related tax effects are as follows: ($000s)
2002 2001 2000
------- ------- -------
Expected Canadian tax rate.......................... 41.0% 44.0% 44.0%
======= ======= =======
Expected tax provision.............................. $10,388 $41,320 $35,735
Tax rate differences................................ (8,622) (14,603) (10,422)
Net change in valuation allowance and other income
tax benefits earned................................ (544) 110 (2,680)
Non-deductible expenses and non-taxable income...... 7,607 2,101 2,876
Withholding tax on foreign income................... 1,759 1,774 1,179
Other............................................... 150 473 (15)
------- ------- -------
Reported income tax provision....................... $10,738 $31,175 $26,673
======= ======= =======
Significant components of the Corporation's deferred tax assets and
liabilities as of February 28, 2002 and February 28, 2001 are as follows:
($000s)
2002 2001
------- -------
Deferred tax assets
Net operating tax loss carryforwards......................... $ 3,257 $ 3,822
Investment tax credits....................................... -- --
Deferred revenue............................................. 2,213 2,811
Reserves..................................................... 3,126 2,742
Book and tax differences on assets........................... 1,155 681
Litigation settlement........................................ 6,404 --
Other........................................................ 200 (14)
------- -------
Total deferred tax assets..................................... 16,355 10,042
Valuation allowance for deferred tax assets................... (2,357) (3,022)
------- -------
Net deferred tax assets....................................... 13,998 7,020
------- -------
Deferred tax liabilities
Book and tax differences on assets........................... 6,758 14,737
Reserves and allowances...................................... 5,342 4,760
Investment tax credits....................................... 1,822 3,925
------- -------
Total deferred tax liabilities................................ 13,922 23,422
------- -------
Net deferred income tax asset (liability)..................... $ 76 $(16,402)
======= =======
The net change in the total valuation allowance for the years ended February
28, 2002 and February 28, 2001 was a decrease of $665,000 and $1,438,000,
respectively.
Realization of the net deferred tax assets is dependent on generating
sufficient taxable income in certain legal entities. Although realization is
not assured, management believes it is more likely than not that the net
amount of the future tax asset will be realized. However, this estimate could
change in the near term as future taxable income in these certain legal
entities changes.
As of February 28, 2002, the Corporation had tax loss carryforwards of
approximately $8,884,000 available to reduce future years' income for tax
purposes. These losses expire as follows: ($000s)
2005 - 2011........................... $3,693
82
Indefinitely.......................... 5,191
------
$8,884
======
Income before taxes attributable to all foreign operations was $24,990,000,
$41,232,000, and $37,215,000, in each of fiscal 2002, 2001, and 2000,
respectively.
The Corporation has provided for foreign withholding taxes on the portion of
the undistributed earnings of foreign subsidiaries expected to be remitted.
Income taxes paid were $29,368,000, $13,537,000, and $18,658,000, in each of
fiscal 2002, 2001, and 2000, respectively.
10.Stockholders' Equity
Capital Stock
The authorized capital of the Corporation consists of an unlimited number of
common shares, without nominal or par value, and an unlimited number of
preferred shares, issuable in series. No series of preferred shares has been
created or issued.
On April 6, 2000, the Corporation's Board of Directors authorized a two-for-
one stock split, effected in the form of a stock dividend, payable on or about
April 27, 2000 to stockholders of record at the close of business on April 20,
2000. Share and per-share amounts have been adjusted retroactively for this
split.
Share Repurchase Programs
The share repurchases made in the past three fiscal years were part of
distinct open market share repurchase programs through the Nasdaq National
Market. The share repurchases made in fiscal 2002 were part of two open market
share repurchase programs. The program adopted in October 2000 expired on
October 8, 2001. Under this program the Corporation repurchased 1,344,500 of
its shares; all repurchased shares were cancelled. In October 2001, the
Corporation adopted a new program that will enable it to purchase up to
4,400,943 common shares (not more than 5% of those issued and outstanding)
between October 9, 2001 and October 8, 2002. This program does not commit the
Corporation to make any share repurchases. Purchases will be made on The
Nasdaq National Market or the Toronto Stock Exchange at prevailing open market
prices and paid out of general corporate funds. All repurchased shares will be
cancelled.
The details of the share repurchases were as follows:
2002 2001 2000
-------------- -------------- --------------
Shares Cost Shares Cost Shares Cost
------ ------- ------ ------- ------ -------
(000s) ($000s) (000s) ($000s) (000s) ($000s)
October 1998 program............... -- -- -- -- 2,186 24,689
October 1999 program............... -- -- 50 2,041 100 1,324
October 2000 program............... 816 12,945 530 11,946 -- --
October 2001 program............... 800 16,094 -- -- -- --
----- ------- --- ------- ----- -------
1,616 $29,039 580 $13,987 2,286 $26,013
===== ======= === ======= ===== =======
83
The amount paid to acquire the shares over and above the average carrying
value has been charged to retained earnings.
Stock Option Plans
As of February 28, 2002, the Corporation had stock options outstanding under
two plans: 9,567,000 pertain to the 1997-2002 Stock Option Plan and 987,000
pertain to the 1993-1998 Stock Option Plan.
There were 14,000,000 shares of common stock originally reserved by the Board
of Directors for issuance under the Corporation's 1997-2002 Stock Option Plan
("the Plan"), which was approved by the Corporation's shareholders in June
1997 and replaced the 1993-1998 Stock Option Plan. Options may be granted to
directors, officers, employees, and consultants at such times and under such
terms as established by the Plan. Options may be fully exercisable on the date
of grant or may be exercisable in installments. Options will expire not later
than 10 years from the date of grant or any shorter period as may be
determined. All options are priced at the market price of the Corporation's
shares on The Toronto Stock Exchange on the trading day preceding the date of
grant. Options were awarded to employees, executive officers and directors in
each of April 1998, June 1999, 2000, and 2001. Substantially all options vest
equally in April of the next four years after the date of grant and expire in
April of the seventh year after the date of grant. There were 3,057,000
options available for grant under the Plan as of February 28, 2002.
Under the 1993-1998 Stock Option Plan, options were awarded to directors,
officers, and employees. For the options outstanding as of February 28, 2002,
the vesting dates have all passed and the expiry dates range from April 2003
to September 2005. In April 1996, options were awarded to certain key officers
under an executive option award. These options vested equally in April 1999,
April 2000, and April 2001, and expire in April 2003. All options were priced
at the market price of the Corporation's shares on The Toronto Stock Exchange
on the trading day preceding the date of grant. The 1993-1998 Stock Option
Plan expired on January 1, 1998.
Employee Stock Purchase Plan
This plan was approved by the Corporation's shareholders in July 1993 and was
amended on May 19, 1999. The amended plan was approved by the Corporation's
shareholders on June 22, 1999, and will terminate on November 30, 2002. Under
the plan, 3,000,000 common shares were reserved for issuance. A participant in
the Employee Stock Purchase Plan authorizes the Corporation to deduct an
amount per pay period that cannot exceed five (5) percent of annual target
salary divided by the number of pay periods per year. Deductions are
accumulated during each of the Corporation's fiscal quarters ("Purchase
Period") and on the first trading day following the end of any Purchase Period
these deductions are applied toward the purchase of common shares. The
purchase price per share is ninety (90) percent of the lesser of The Toronto
Stock Exchange average closing price on (a) the first five trading days of the
Purchase Period or (b) the last five trading days of the Purchase Period. All
full-time and part-time permanent employees may participate in the plan.
Accounting for Stock Option and Stock Purchase Plans
Under Canadian GAAP, the benefits of the Corporation's stock option and
purchase plans are not recognized as compensation expense. If the fair values
of the options granted had been recognized as compensation expense on a
straight line basis over the vesting period of the grant (consistent with the
method prescribed by FASB Statement No. 123), stock-based compensation costs
would have reduced net income by $25,467,000, $20,106,000, and $9,096,000,
reduced basic net income per share by $0.29, $0.23, and $0.11, and reduced
diluted net income per share by $0.28, $0.22, and $0.10 in fiscal 2002, 2001,
and 2000, respectively.
84
The fair value of the options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted average
assumptions for fiscal 2002, 2001, and 2000, respectively: risk-free interest
rates of 4.2%, 6.1%, and 5.8%, expected life of the options of 2.9 years, 3.0
years, and 2.8 years, expected volatility of 68%, 54%, and 55%, and for all
years, a dividend yield of zero.
Activity in the stock option plans for fiscal 2002, 2001, and 2000 was as
follows:
2002 2001 2000
----------------- ----------------- -----------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
------- -------- ------- -------- ------- --------
(000s) (000s) (000s)
Outstanding, beginning of
year....................... 7,569 $17.81 7,270 $11.17 6,769 $ 9.72
Granted.................... 4,835 16.71 2,537 34.02 2,772 11.18
Exercised.................. (1,279) 9.96 (1,816) 10.23 (1,973) 7.81
Cancelled.................. (571) 20.33 (422) 18.21 (298) 11.73
Outstanding, end of year.... 10,554 17.35 7,569 17.81 7,270 11.17
====== ====== ======
Options exercisable at year
end........................ 3,002 1,607 1,234
====== ====== ======
Weighted average per share
fair value of options
granted during the year
calculated using the Black-
Scholes option pricing
model...................... $ 7.48 $14.07 $ 4.59
====== ====== ======
The following table summarizes significant ranges of outstanding and
exercisable options held by directors, officers, and employees as of February
28, 2002:
Options Outstanding Options Exercisable
----------------------------------------- ------------------------
Range of Exercise Weighted Average Weighted Average Weighted Average
Prices Options Remaining Life Exercise Price Options Exercise Price
- ----------------- ------- ---------------- ---------------- ------- ----------------
(000s) (Years) (000s)
$7.91 -
$9.51 552 2.2 8.13 536 8.11
$9.84 -
$9.98 2,209 4.6 9.87 1,134 9.87
$10.06 -
$14.28 1,274 5.2 12.68 556 12.10
$14.55 -
$15.83 3,627 7.2 15.62 121 15.62
$15.84 -
$18.39 375 7.0 16.90 42 17.43
$18.69 -
$28.04 476 7.1 23.01 78 21.80
$28.07 -
$44.19 2,041 6.2 32.73 535 32.69
------ -----
10,554 5.9 17.35 3,002 14.66
====== =====
Deferred Stock-based Compensation
The Corporation recorded aggregate deferred stock-based compensation of $0,
$2,656,000, and $0 in fiscal 2002, 2001, and 2000, respectively. In each year
deferred stock-based compensation was recorded in connection with acquisitions
made by the Corporation in which stock was issued to principals of the
acquired companies, but held in escrow to be released on condition of
continued tenure. Under generally
85
accepted accounting principles, these amounts are accounted for as
compensation rather than as a component of purchase price.
Net Income per Share
On March 1, 2001 the Corporation adopted the recommendations issued by the
Canadian Institute of Chartered Accountants with respect to earnings per share
(Handbook section 3500). The section specifies the method of calculation,
presentation and disclosure for basic and diluted earnings per share. The
comparative financial statements have been restated to reflect these changes.
The effect of this change was not material in fiscal 2002. Diluted EPS for the
years ended February 28, 2001 and February 29, 2000 were restated to $0.68 and
$0.62, respectively.
The dilutive effect of stock options is excluded under the requirements of
Handbook section 3500 for calculating basic net income per share, but is
included in the calculation of diluted net income per share
The reconciliation of the numerator and denominator for the calculation of net
income per share and diluted net income per share is as follows: (000s, except
per-share amounts)
2002 2001 2000
------- ------- -------
Basic net Income per Share
Net income............................................ $14,599 $62,736 $54,542
======= ======= =======
Weighted average number of shares outstanding......... 87,807 87,324 85,972
======= ======= =======
Basic net income per share............................ $ 0.17 $ 0.72 $ 0.63
======= ======= =======
Diluted Net Income per Share
Net income............................................ $14,599 $62,736 $54,542
======= ======= =======
Weighted average number of shares outstanding......... 87,807 87,324 85,972
Dilutive effect of stock options* and deferred stock-
based compensation................................... 2,654 4,649 2,128
------- ------- -------
Adjusted weighted average number of shares
outstanding.......................................... 90,461 91,973 88,100
======= ======= =======
Diluted net income per share.......................... $ 0.16 $ 0.68 $ 0.62
======= ======= =======
* All anti-dilutive options have been excluded. The average number of anti-
dilutive options was 3,327,000, 557,000, and 1,580,000 for fiscal 2002, 2001,
and 2000, respectively.
11.Pension Plans
The Corporation operates a Retirement Savings Plan for the parent company and
also operates various other defined contribution pension plans for its
subsidiaries. The Corporation contributes amounts related to the level of
employee contributions for both types of plans.
The pension costs in fiscal 2002, 2001, and 2000 were $4,889,000, $4,248,000,
and $3,839,000, respectively.
86
12.Segmented Information
The Corporation operates in one business segment--computer software solutions.
This segment engages in business activities from which it earns license,
support, and services revenue, and incurs expenses. Within this business
segment, the Corporation develops, markets, and supports two complementary
lines of software solutions that are designed to satisfy enterprise-wide
business-critical needs. The Corporation's business intelligence software
solutions allow customers, as well as their partners, customers, and
suppliers, to analyze and report data from multiple perspectives. The
Corporation's client/server application development tools are designed to
increase the productivity of system analysts and developers. Cognos products
are distributed both directly and through resellers worldwide.
Revenue is derived from the licensing of software and the provision of related
services, which include product support and education, consulting, and other
services. The Corporation generally licenses software and provides services
subject to terms and conditions consistent with industry standards. Customers
may elect to contract with the Corporation for product support, which includes
product and documentation enhancements, as well as telephone support, by
paying either an annual fee or fees based on usage of support services.
The Corporation operates internationally, with a substantial portion of its
business conducted in foreign currencies. Accordingly, the Corporation's
results are affected by year-over-year exchange rate fluctuations of the
United States dollar relative to the Canadian dollar, to various European
currencies, and to a lesser extent, other foreign currencies.
No single customer accounted for 10% or more of the Corporation's revenue
during any of the last three fiscal years. In addition, the Corporation is not
dependent on any single customer or group of customers, or supplier.
The accounting policies for the segment are the same as those described in the
Summary of Significant Accounting Policies. The required financial information
for segment profit and segment assets is the same as that presented in the
Consolidated Financial Statements. Geographic information is as follows:
($000s)
2002 2001 2000
-------- -------- --------
Revenue to external customers*
U.S.A.............................................. $263,488 $281,907 $204,730
Canada............................................. 40,979 35,890 30,120
United Kingdom..................................... 45,759 44,381 44,972
Europe............................................. 107,278 101,888 77,778
Asia/Pacific....................................... 33,798 31,586 28,040
-------- -------- --------
$491,302 $495,652 $385,640
======== ======== ========
* Revenues are attributed to countries based on location of customer
Fixed assets
Canada............................................. $ 46,813 $ 55,466
U.S.A.............................................. 6,508 9,510
Other countries.................................... 5,687 9,232
-------- --------
$ 59,008 $ 74,208
======== ========
87
Other assets
Canada................................................ $17,944 $24,232
U.S.A................................................. 11,489 22,548
------- -------
$29,433 $46,780
======= =======
13.New Accounting Pronouncements
In June 2001, the Canadian Institute of Chartered Accountants issued new
Handbook sections 1581, Business Combinations and 3062, Goodwill and Other
Intangible Assets ("the pronouncements"), effective for fiscal years beginning
after December 15, 2001. Under the new rules, goodwill (and intangible assets
deemed to have indefinite lives) will no longer be amortized but will be
subject to annual impairment tests in accordance with the pronouncements.
Other intangible assets will continue to be amortized over their useful lives.
The Corporation will apply the new rules on accounting for goodwill and other
intangible assets beginning in the first quarter of fiscal 2003. Application
of the non-amortization provisions of the pronouncements is expected to result
in an increase in net income of $4,000,000 ($0.04 per diluted share) for
fiscal 2003. The Corporation performed the required impairment tests of
goodwill and indefinite-lived intangible assets as of March 1, 2002. The
effect of these tests was not material on the earnings and financial position
of the Corporation.
In October 2001, FASB issued SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets (SFAS 144), which addresses financial accounting
and reporting for the impairment or disposal of long-lived assets. This
Statement supersedes SFAS 121, and the accounting and reporting provisions of
APB 30, for the disposal of a segment of a business. The provisions of SFAS
144 are required to be adopted by March 1, 2002. The Corporation believes that
the adoption of SFAS 144 will not have a material effect on the business,
results of operations, and financial condition. The principles implied within
SFAS 144 are consistent with Canadian GAAP.
14.Litigation
On May 5, 2000, an action was filed in the United States District Court for the
Northern District of California against the Corporation and its subsidiary
Cognos Corporation by Business Objects S.A., for alleged patent infringement.
The complaint alleged that the Corporation's Impromptu product infringes
Business Objects' United States Patent No. 5,555,403 entitled "Relational
Database Access System using Semantically Dynamic Objects" (the "'403 Patent").
On May 24, 2002, subsequent to the balance sheet date, the Corporation and
Business Objects reached an agreement to settle that action. Under the terms of
the settlement agreement between the Corporation and Business Objects, Business
Objects has agreed to release the Corporation for any infringement of the '403
Patent (and any amendments or related patents) and to effect that release, has
granted the Corporation a license under the '403 Patent for the term of that
patent or any amendments or related patents. Both parties agreed to release the
other from all claims, liabilities, costs or expenses that either party hold
against the other, on account of actions taken prior to the effective date. The
Corporation and Business Objects have also entered into a covenant not to sue or
assert any claim against the other for infringement of any patents for a period
of 5 years from the effective date. As consideration for the settlement
agreement, the Corporation has agreed to pay Business Objects the sum of
$24,000,000 in the following installments: $10,000,000 on or before June 10,
2002, and $1,750,000 every quarter for the next eight quarters commencing on
July 1, 2002. The Corporation has recorded a special charge of $23,231,000, in
fiscal 2002, representing the present value of this payment stream discounted
using an interest rate of 6%, in accordance with FASB Statement 5 Contingent
Liabilities. The after-tax effect of this charge is $16,827,000. The remaining
balance of $769,000 represents the interest to be recognized over the payment
term. The principal amount is recorded in accrued charges and long-term
liabilities on the balance sheet as follows ($000's):
Accrued charges $14,861
Long-term liabilities 8,370
Payments in respect of this settlement are as follows ($000's):
2003 $15,250
2004 7,000
2005 1,750
In addition, the Corporation and its subsidiaries may, from time to time, be
involved in other legal proceedings, claims, and litigation that arise in the
ordinary course of business which the Corporation believes would not
reasonably be expected to have a material adverse effect on the financial
condition of the Corporation.
88
15.Comparative Results
Certain of the prior years' figures have been reclassified in order to conform
to the presentation adopted in the current year.
89
SELECTED CONSOLIDATED FINANCIAL DATA
Five-Year Summary
The following Selected Consolidated Financial Data has been derived from the
Corporation's consolidated financial statements, in accordance with Canadian
GAAP, that have been audited by Ernst & Young LLP, independent chartered
accountants. The Selected Consolidated Financial Data should be read in
conjunction with the Consolidated Financial Statements and related Notes, and
with Management's Discussion and Analysis of Financial Condition and Results
of Operations.
On April 6, 2000, the Board of Directors of the Corporation authorized a two-
for-one stock split, effected in the form of a stock dividend, payable on or
about April 27, 2000 to shareholders of record at the close of business on
April 20, 2000. All historic consolidated results have been restated for the
split.
Years Ended the Last Day of February
------------------------------------------------
2002 2001 2000 1999 1998
-------- -------- -------- -------- --------
(US$000s except share amounts, Canadian
GAAP)
Statement of Income Data
Revenue..................... $491,302 $495,652 $385,640 $301,125 $244,834
-------- -------- -------- -------- --------
Operating expenses
Cost of product license.... 3,609 7,315 5,235 5,738 3,828
Cost of product support.... 16,576 17,820 13,758 11,166 9,694
Selling, general, and
administrative............ 350,892 327,632 244,827 178,295 143,493
Research and development... 74,614 67,264 53,548 42,274 33,530
Investment tax credits..... (4,784) (6,690) (6,207) (14,880) (9,432)
Special charges............ 33,440 -- -- -- --
-------- -------- -------- -------- --------
Total operating expenses.... 474,347 413,341 311,161 222,593 181,113
-------- -------- -------- -------- --------
Operating income............ 16,955 82,311 74,479 78,532 63,721
Interest expense............ (540) (786) (718) (527) (481)
Interest income............. 8,922 12,386 7,454 6,430 5,340
-------- -------- -------- -------- --------
Income before taxes......... 25,337 93,911 81,215 84,435 68,580
Income tax provision........ 10,738 31,175 26,673 26,313 19,638
-------- -------- -------- -------- --------
Net income.................. $ 14,599 $ 62,736 $ 54,542 $ 58,122 $ 48,942
======== ======== ======== ======== ========
Net income per share
Basic...................... $ 0.17 $ 0.72 $ 0.63 $ 0.66 $ 0.55
Diluted.................... $ 0.16 $ 0.68 $ 0.62 $ 0.65 $ 0.53
Weighted average number of
shares (000s)
Basic...................... 87,807 87,324 85,972 87,416 88,414
Diluted.................... 90,461 91,973 88,100 88,940 91,544
Balance Sheet Data (at end
of period)
Working capital............. $227,573 $197,673 $166,455 $123,343 $112,846
Total assets................ 530,735 511,791 396,098 311,235 246,334
Total debt.................. 0 32 2,176 2,612 2,457
Stockholders' equity........ 300,555 300,720 224,306 175,196 147,305
90
EXHIBIT INDEX
The following documents are filed as part of this Proxy Statement:
EXHIBIT
NUMBER DESCRIPTION
99 Form of Proxy