Exhibit 99.6
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▇▇▇▇▇▇▇▇▇ Corporation
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Directors' Circular
Recommending
REJECTION
of the Offers
by
SCH Acquisition Inc.,
a wholly-owned subsidiary of Maple Leaf Foods Inc.,
to purchase all of the Common Shares and
all of the Class A Non-Voting Shares
of
▇▇▇▇▇▇▇▇▇ CORPORATION
The Board of Directors of ▇▇▇▇▇▇▇▇▇ has unanimously determined
that the Maple Leaf Offers are inadequate, unfair and
opportunistic and therefore not in the best interests of
Shareholders. The Board of Directors recommends that the Offers be
REJECTED and that Shareholders NOT tender their Shares to the
Offers.
November 23, 1997
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▇▇▇▇▇▇▇▇▇ Corporation
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November 23, 1997
Dear Shareholder:
You have been made aware of unsolicited offers to purchase all of
▇▇▇▇▇▇▇▇▇'▇ common shares and class non-voting shares for $ 19.00 per share.
Those offers were made by SCH Acquisition Inc., a wholly-owned subsidiary of
Maple Leaf Foods Inc.
The Board of Directors has unanimously determined that the Maple Leaf
offers are inadequate, unfair and opportunistic and therefore not in your best
interests. The Board recommends that you REJECT the offers and NOT tender your
shares.
In reaching its conclusions the Board, assisted by its financial and legal
advisers, carefully considered all aspect of the offers as well as the factors
described in the enclosed Directors' Circular. In examining the offers, you
might wish to consider that:
(1) the Maple Leaf offers are opportunistic and not reflective of the fair
value of ▇▇▇▇▇▇▇▇▇'▇ shares as, among other things, the Corporation has
only recently begun to realize the benefits of its significant facility
rationalization and expansion projects and the end of the longest high
cost hog cycle in history;
(2) ▇▇▇▇▇▇▇▇▇'▇ net earnings for its 1997 fiscal year are expected to be
significantly greater than its net earnings for fiscal 1996. ▇▇▇▇▇▇▇▇▇'▇
net earnings for its 1998 fiscal year ending October 31, 1998 are
forecast by management to be even greater at $ 12.325 million or $ 1.70
per share on a fully- diluted basis, reflecting the Corporation's
continued improvement in operating performance;
(3) the Board of Directors has received an opinion from its financial
adviser stating that the consideration offered is inadequate, from a
financial point of view, to the holders of common shares and class A
shares; and
(4) the ▇▇▇▇▇▇▇▇▇ family, which collectively owns or controls
approximately 75% of the common shares and approximately 17% of the
class A shares on a fully-diluted basis, has confirmed to the Board that
it also considers the Maple Leaf offers to be inadequate and that it has
no intention of accepting the offers and tendering any of its shares.
Accordingly, the minimum tender condition of the Maple Leaf offers is
incapable of satisfaction.
None of the directors or senior officers of ▇▇▇▇▇▇▇▇▇ has accepted or
intends to accept the offers.
▇▇▇▇▇▇▇▇▇'▇ Board and its financial adviser are actively exploring
alternatives to maximize shareholder value. In this connection, the ▇▇▇▇▇▇▇▇▇
family has indicated that it might consider accepting a financially more
attractive offer for its shares. Discussions with numerous interested parties
are underway. Shareholders are advised not to tender shares to the Maple Leaf
offers or any other offer until the results of this process have been
determined and the Board has had a further opportunity to communicate with
shareholders.
We urge you to read the enclosed material carefully. If you have any
questions about the offers, please call one of the individuals named on the
last page of the enclosed Directors' Circular.
Sincerely,
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
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▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Chairman and Chief Executive Officer
On behalf of the Board of Directors
TABLE OF CONTENTS
Page
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SUMMARY .................................................................... 1
▇▇▇▇▇▇▇▇▇ CORPORATION ...................................................... 2
BACKGROUND TO MAPLE LEAF OFFERS AND RESPONSE OF ▇▇▇▇▇▇▇▇▇ .................. 3
REASONS FOR RECOMMENDATION ................................................. 4
FINANCIAL FORECAST ......................................................... 7
ALTERNATIVES TO THE OFFERS ................................................. 11
DIRECTORS AND SENIOR OFFICERS OF ▇▇▇▇▇▇▇▇▇ AND OWNERSHIP OF SECURITIES ..... 11
PRINCIPAL HOLDERS OF SECURITIES ............................................ 12
INTENTION WITH RESPECT TO THE OFFERS ....................................... 12
TRADING IN SECURITIES OF ▇▇▇▇▇▇▇▇▇ ......................................... 12
ISSUANCES OF SECURITIES .................................................... 13
OWNERSHIP OF SECURITIES OF THE OFFEROR ..................................... 14
RELATIONSHIP BETWEEN THE OFFEROR AND DIRECTORS AND SENIOR OFFICERS ......... 14
AGREEMENTS BETWEEN ▇▇▇▇▇▇▇▇▇ AND ITS DIRECTORS AND SENIOR OFFICERS ......... 14
SHARE OPTION PLAN .......................................................... 15
MATERIAL CHANGES IN THE AFFAIRS OF ▇▇▇▇▇▇▇▇▇ ............................... 15
OTHER INFORMATION .......................................................... 15
STATUTORY RIGHTS ........................................................... 15
APPROVAL OF THE DIRECTORS' CIRCULAR ........................................ 15
CONSENTS ................................................................... 16
CERTIFICATE ................................................................ 17
SCHEDULE A -- ▇▇▇▇▇▇▇ ▇▇▇▇▇ INC. -- INADEQUACY OPINION ..................... A-1
SUMMARY
The information set out below is intended as a summary only and is
qualified in its entirety by the more detailed information appearing elsewhere
in this Directors' Circular. All capitalized terms in the summary are used with
the meanings ascribed to them elsewhere in this Directors' Circular.
Recommendation of the The Board of Directors unanimously recommends that
Board of Directors: the Offers be REJECTED and that Shareholders NOT
tender their Shares to the Maple Leaf Offers.
Reasons for
Recommendation: The Board of Directors has determined that the Maple
Leaf Offers are inadequate, unfair and opportunistic
and therefore not in the best interests of
Shareholders. In making its recommendation, the
Board of Directors carefully considered all aspects
of the Maple Leaf Offers and received the benefit of
advice from its financial and legal advisers. The
Board of Directors identified a number of factors
set out under "Reasons for Recommendation",
including the following, as being most relevant:
(i) the Maple Leaf Offers are opportunistic and
not reflective of the fair value of the Shares
as, among other things, the Corporation has
only recently begun to realize the benefits of
its significant facility rationalization and
expansion projects and the end of the longest
high cost hog cycle in history;
(ii) ▇▇▇▇▇▇▇▇▇'▇ net earnings for the 1997 fiscal
year are expected to be significantly greater
than its net earnings for fiscal 1996.
▇▇▇▇▇▇▇▇▇'▇ net earnings for its 1998 fiscal
year ending October 31, 1998 are forecast to
be even greater at $12.325 million or $1.70
per share on a fully-diluted basis, reflecting
the Corporation's continued improvement in
operating performance;
(iii) the Board of Directors has received an
opinion from its financial adviser stating
that the consideration offered is inadequate,
from a financial point of view, to
Shareholders; and
(iv) the ▇▇▇▇▇▇▇▇▇ family, which collectively owns
or controls approximately 75% of the Common
Shares and approximately 17% of the Class A
Shares on a fully-diluted basis, has advised
the Board of Directors that it also considers
the Maple Leaf Offers to be inadequate and
that it has no intention of accepting the
Offers and tendering any of its Shares.
Accordingly, the "Minimum Condition" of the
Maple Leaf Offers is incapable of
satisfaction. The tender of Shares to the
Maple Leaf Offers will represent little more
than the grant to Maple Leaf by Shareholders
of an option to acquire such Shares and may
reduce the likelihood of a more appropriate
transaction.
Alternatives to
the Offers: The Board of Directors and its financial and legal
advisers are actively exploring alternatives to
maximize Shareholder value. The ▇▇▇▇▇▇▇▇▇ family has
indicated that it might consider accepting a
financially more attractive offer for its Shares.
Discussions with numerous interested parties are
underway. Accordingly, Shareholders are advised not
to tender Shares to the Maple Leaf Offers or any
other offer until the results of this process have
been determined.
Intention with respect to The Board of Directors has been informed that, as
the Offers by Directors of the date of this Directors' Circular, none of the
and Officers: directors or senior officers who hold Shares
exercisable or convertible into Shares has accepted
or intends to accept the Maple Leaf Offers.
4
▇▇▇▇▇▇▇▇▇ CORPORATION
DIRECTORS' CIRCULAR
This Directors' Circular is issued by the board of directors (the "Board
of Directors") of ▇▇▇▇▇▇▇▇▇ Corporation ("▇▇▇▇▇▇▇▇▇" or the "Corporation") in
connection with the offers (the "Offers" or the "Maple Leaf Offers") made by
SCH Acquisition Inc. (the "Offeror"), a wholly-owned subsidiary of Maple Leaf
Foods Inc. ("Maple Leaf"), to purchase all of the common shares (the "Common
Shares") and all of the class A non-voting shares (the "Class A Shares") of the
Corporation upon the terms and subject to the conditions set forth in the
Offers and accompanying circular (together, the "Circular") of the Offeror
dated November 14, 1997. All amounts in this Directors' Circular are expressed
in Canadian dollars.
▇▇▇▇▇▇▇▇▇ CORPORATION
Overiew
▇▇▇▇▇▇▇▇▇ Corporation of Kitchener, Ontario is one of Canada's largest
producers of premium quality food products. The business was founded in 1890 by
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇. Today, the Corporation is publicly owned and has 3,500
employees manufacturing and selling its branded and private label products in
the retail and food service markets. These products are sold throughout Canada
and the United States, Japan and other foreign markets.
The Corporation manages its various subsidiaries and joint-ventures
through two operating groups -- Consumer Foods and Agribusiness.
The Consumer Foods group, which is comprised of ▇▇▇▇▇▇▇▇▇'▇ processed meat
and baked goods operations, focuses on identifying and meeting the needs of
retail and food service customers and consumers. The Corporation produces more
than 1,000 products such as ham, sausage, wieners, bacon, luncheon meats and
specialty meats for sale through traditional grocery stores, delicatessens and
food service establishments. The Corporation has process meat operations in
Kitchener, Ontario; Winnipeg, Manitoba; Surrey, British Columbia; and ▇▇.
▇▇▇▇▇▇▇, ▇▇▇▇▇▇. In addition, it participates in the processed meat sector
through joint ventures with the Prince Group of Princeville Quebec; ▇▇▇▇▇▇▇
Food of Toronto, Ontario; National Meats of Toronto, Ontario; Johnsonville
Sausage of Kohler, Wisconsin; and Luigino's of Duluth, Minnesota.
The Corporation's baked goods plants in ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇ and ▇▇.
▇▇▇▇▇▇▇, ▇▇▇▇▇▇ manufacture products which are sold in Canada and the United
States under national brands and private labels. Products include meat pies,
butter tarts, tourti eres, pie and tart shells, sausage rolls and quiches.
The Agribusiness group, which is comprised of ▇▇▇▇▇▇▇▇▇'▇ fresh pork and
poultry operations, focuses on identifying and meeting the needs of retail,
food service and export customers. The Corporation's plant in Winnipeg,
Manitoba produces fresh pork products for sale in Canada, the Pacific Rim, the
United States and other international markets.
The Corporation participates in the poultry sector through major
facilities in Hanover, ▇▇. ▇▇▇▇▇ ▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇. Fresh and value-added
products in this growing market sector are marketed under the ▇▇▇▇▇▇▇▇▇'▇ brand
and private labels for retail and food service customers.
Capital Structure
The Corporation is authorized to issue 747,254 Common Shares and
10,802,000 Class A Shares. As at November 21, 1997, 738,954 Common Shares were
issued and outstanding and 6,105,565 Class A Shares were issued and
outstanding. The Common Shares and Class A Shares are referred to collectively
as the "Shares". Holders of Common Shares are entitled to one vote in respect
of each Common Share held by them at all meetings of the Shareholders. The
Class A Shares are "restricted shares", in that they are generally non-voting
and vote only in limited circumstances on matters respecting the attributes of
the class itself or in relation to the Common Shares where class approval is
specifically required under the Business Corporation Act (Ontario). The holders
of Common Shares and the holders of Class A Shares are referred to collectively
as the "Shareholders".
If an Exclusionary Offer (as defined below) is made, each outstanding
Class A Share shall be convertible into one Common Share at the option of the
holder during the period commencing on the eighth day after the date of the
Exclusionary Offer and terminating on the last day upon which holders of Common
Shares may accept the Exclusionary Offer. An election by a holder of a Class A
Share to exercise this conversion right shall be deemed to also constitute
irrevocable elections by such holder to deposit the Common Shares resulting
from such conversion ("Converted Shares") pursuant to the Exclusionary Offer
(subject to such holder's right to subsequently withdraw the Converted Shares
from the Exclusionary
5
Offer) and to exercise the right to reconvert any such Converted Shares in
respect of which such holder exercises his, her or its right of withdrawal, or
which are otherwise not take up under the Exclusionary Offer, into Class A
Shares.
An Exclusionary Offer means an offer to purchase Common Shares that (i)
must, by reason of applicable securities legislation or the requirements of a
stock exchange on which the Common Shares are listed, be made to all or
substantially all holders of Common Shares who are in a province of Canada to
which the requirement applies; and (ii) is not made concurrently with an offer
to purchase Class A Shares that is identical to the offer to purchase Common
Shares in terms of price per share and percentage of outstanding shares to be
taken up, exclusive of shares owned immediately prior to the offer to purchase
by the offeror, and in all other material respects, and that has no condition
attached other than the right not to take up and pay for Shares tendered if no
Shares are tendered pursuant to the offer to purchase Common Shares. The Offer
to acquire the Common Shares made by the Offeror is not an Exclusionary Offer.
The conversion right referred to above is deemed not to come into effect
if, prior to the time the Exclusionary Offer is made or, if the Exclusionary
Offer has been made, within seven days of the date of the Exclusionary Offer,
there is delivered to the transfer agent and the Secretary of the Corporation a
certificate or certificates signed by o on behalf of one or more Shareholders
owning, in the aggregate, as at the time the Exclusionary Offer is made, more
than 50% of the then outstanding Common Shares, exclusive of Common Shares
owned immediately prior to the Exclusionary Offer by the offeror, confirming
(a) such ownership of Common Shares, and (b) that each such Shareholder shall
not (i) accept the Exclusionary Offer, (ii) shall not make or is not making any
Exclusionary Offer, (iii) is not an associate or affiliate of, or acting
jointly or in concert with, any person or company that makes or that has made
any Exclusionary Offer, and (iv) shall not transfer any Common Shares, directly
or indirectly, during the time at which any Exclusionary Offer is outstanding.
BACKGROUND TO MAPLE LEAF OFFERS AND RESPONSE OF ▇▇▇▇▇▇▇▇▇
Background
On September 16, 1997, ▇▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇, Chairman and Chief Executive
Officer of ▇▇▇▇▇▇▇▇▇, accepted the invitation of and met with Messrs. McCain
and ▇▇▇▇, the Chairman and the Executive Vice- President and Chief Financial
Officer, respectively, of Maple Leaf. At this meeting, Messrs. McCain and ▇▇▇▇
informed ▇▇. ▇▇▇▇▇ that Maple Leaf had an interest in acquiring the Corporation
and enquired as to whether ▇▇. ▇▇▇▇▇ believed that the ▇▇▇▇▇▇▇▇▇ family, which
collectively beneficially owns or controls approximately 75% of the Common
Shares and approximately 17% of the Class A Shares on a fully-diluted basis and
without whose support the proposal could not proceed, would consider such a
transaction. ▇▇. ▇▇▇▇▇ advised Messrs. McCain and ▇▇▇▇ that, while he did not
believe that the ▇▇▇▇▇▇▇▇▇ family would be amenable to such a transaction, he
would nevertheless discuss the proposal with the ▇▇▇▇▇▇▇▇▇ family.
On October 29, 1997, ▇▇. ▇▇▇▇▇ met with the ▇▇▇▇▇▇▇▇▇ family to discuss
Maple Leaf's expression of interest. At this meeting, the ▇▇▇▇▇▇▇▇▇ family
advised ▇▇. ▇▇▇▇▇ that it was not then in a position to consider any control
transaction involving the Corporation. ▇▇. ▇▇▇▇▇ advised ▇▇. ▇▇▇▇▇▇ of the
outcome of his meeting with the ▇▇▇▇▇▇▇▇▇ family the following day.
On November 5, 1997, Maple Leaf announced its intention to make the
Offers. In its press release, Maple Leaf stated that the Offers would, in
addition to customary conditions, contain a condition that none of the
resolutions to have been proposed at the special meeting of Shareholders (the
"Special Meeting") to be held on November 14, 1997 be approved. On November 6,
1997, the Board of Directors formed a special committee of directors (the
"Special Committee") comprised of Messrs. Morash, Pearson, Ruby, ▇▇▇▇▇▇▇ and
▇▇▇▇▇ (none of whom is an officer or employee of the Corporation or a member of
or otherwise related to the ▇▇▇▇▇▇▇▇▇ family) to consider, if and when received
from Maple Leaf, the Offers and to report thereon to the Board of Directors.
Shortly thereafter, the Special Committee retained ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇
as its independent legal counsel and requested, with the consent of management,
that ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ also act as special counsel to the Corporation
in connection with the Maple Leaf proposal.
On November 13, 1997, the Board of Directors determined that, on the basis
of proxies received, certain of the resolutions to have been proposed at the
Special Meeting would have been approved and the conditions of the Maple Leaf
Offers could not have been satisfied. Although no formal offer had then been
made by Maple Leaf, the Board of Directors resolved to cancel the Special
Meeting in order to give Shareholders the opportunity to assess any offers that
might be forthcoming from Maple Leaf, unencumbered by the results of what was
to have been a routine meeting.
On November 17, 1997, ▇▇▇▇▇▇▇▇▇ issued a press release announcing that it
had been advised that Maple Leaf had mailed the Offers late on Friday, November
14, 1997 and that the Special Committee had engaged ▇▇▇▇▇▇▇ ▇▇▇▇▇ Inc.
("▇▇▇▇▇▇▇ ▇▇▇▇▇") as its independent financial adviser. Prior to finalizing
this engagement, the Special Committee satisfied
6
itself as to the independence and qualifications of ▇▇▇▇▇▇▇ ▇▇▇▇▇. The Special
Committee instructed ▇▇▇▇▇▇▇ ▇▇▇▇▇ to pursue value maximizing alternatives to
the Maple Leaf Offers. Since that day, the Corporation and ▇▇▇▇▇▇▇ ▇▇▇▇▇ have
held discussions with several interested parties in respect of alternative
transactions. See "Alternatives to the Offers".
On November 21, 1997, the Special Committee and the full Board of
Directors undertook a detailed review of the terms of the Offers with their
financial and legal advisers. At that meeting, ▇▇▇▇▇▇▇ ▇▇▇▇▇ reported, among
other things, that discussions were being held with potential purchasers who,
after executing confidentiality agreements, would be granted access to
▇▇▇▇▇▇▇▇▇'▇ data rooms to permit them to assess alternative transactions that
could maximize value for all Shareholders. ▇▇▇▇▇▇▇ ▇▇▇▇▇ also made a detailed
presentation as to its assessment of the adequacy of the Offers, from a
financial point of view, to Shareholders. The Special Committee, on behalf of
the Board of Directors, instructed ▇▇▇▇▇▇▇ ▇▇▇▇▇ to complete its assessment and
to be in a position to deliver its formal opinion with respect to the Offers at
the next meeting of the Board of Directors.
On November 23, 1997, a further meeting of the Board of Directors was
convened. At that meeting, ▇▇▇▇▇▇▇ ▇▇▇▇▇ delivered to the Board of Directors
its opinion (which had in first instance been prepared for the Special
Committee) that the consideration offered under the Offers is inadequate, from
a financial point of view, to Shareholders. A copy of ▇▇▇▇▇▇▇ ▇▇▇▇▇' opinion is
attached as Schedule "A" to this Directors' Circular. Also at this meeting, the
▇▇▇▇▇▇▇▇▇ family confirmed to the Board of Directors that it also considered
the Maple Leaf Offers to be inadequate and that it had no intention of
accepting the Offers and tendering its Shares. The ▇▇▇▇▇▇▇▇▇ family also
advised the Board of Directors that it might consider accepting a financially
more attractive offer for its Shares
Board Recommendation
On November 23, 1997, ▇▇▇▇▇▇▇ ▇▇▇▇▇ presented to the Special Committee its
conclusion that the consideration offered under the Offers is inadequate, from
a financial point of view, to Shareholders. On the basis of that opinion and
other factors described below, the Special Committee reported to the Board of
Directors that it had unanimously concluded that the Maple Leaf Offers are
inadequate, unfair and opportunistic, and that the Board of Directors should
recommend that Shareholders reject the Offers and not tender their Shares to
the Offers. The Board of Directors unanimously adopted the report and
recommendations of the Special Committee and requested that the written opinion
of ▇▇▇▇▇▇▇ ▇▇▇▇▇ be addressed to the full Board of Directors.
REJECTION RECOMMENDED
The Board of Directors of ▇▇▇▇▇▇▇▇▇ has unanimously determined that
the Maple Leaf Offers are inadequate, unfair and opportunistic and
therefore not in the best interests of Shareholders. The Board of
Directors recommends that the Offers be REJECTED and that Shareholders
NOT tender their Shares to the Offers.
REASONS FOR RECOMMENDATION
The Board of Directors has carefully considered the Maple Leaf Offers and
received the benefit of advice from its financial and legal advisers. In
unanimously concluding that the Maple Leaf Offers are inadequate, unfair and
opportunistic and not in the best interests of Shareholders, the Board of
Directors identified a number of factors as being most relevant, including the
following:
Maple Leaf Offers Opportunistic and Not Reflective of the Value of ▇▇▇▇▇▇▇▇▇
The Maple Leaf Offers are opportunistic and not reflective of the
underlying fundamental value of the Corporation and do not recognize the
benefits to ▇▇▇▇▇▇▇▇▇ of the $52 million in capital expenditures incurred over
the past two years, for the following reasons:
(a) Fresh Pork Initiatives. ▇▇▇▇▇▇▇▇▇'▇ Agribusiness group completed
commissioning its technologically advanced hog processing facility in
Winnipeg, Manitoba in June, 1997. This phase of the project, which has
cost ▇▇▇▇▇▇▇▇▇ approximately $25 million over the past two years, will
operate at 25,000 hogs per week during fiscal 1998. When
7
phase two of this initiative is completed, it will be one of the most
modern facilities of its kind in the world and will increase the
Corporation's processing capacity in Manitoba to approximately 50,000 hogs
per week. A significant portion of the value-added fresh pork products
produced in this facility are destined for the Pactfic Rim, the United
States and other international markets.
(b) Fleetwood Expansion -- New Western Distribution Facility. The
Corporation also completed construction of a modern distribution centre
in Coquitlam, British Columbia in April, 1997. By transferring
distribution functions from its Fleetwood facility in Surrey, British
Columbia to its new Coquitlam facility, the Corporation is able to double
production space at the Fleetwood facility which had been at capacity for
the past two years. The benefits of this project to ▇▇▇▇▇▇▇▇▇ in terms of
earnings only recently commenced in the Corporation's fourth quarter of
fiscal 1997.
(c) Increased Bacon Production Capacity. In September, 1997, the
Corporation, through its joint-venture with the Prince Group, completed a
major expansion of its Drummondville facility in Quebec, doubling its
bacon production capacity. The Prince Group is currently one of the
largest and most efficient bacon producers in North America. The benefits
of this project to the Corporation in terms of earnings also commenced
only in the Corporation's fourth quarter of fiscal 1997.
(d) Italian Deli Line Expansion. During fiscal 1997, the Corporation
(through its joint-venture with ▇▇▇▇▇▇▇ Food of Toronto), doubled
capacity of ▇▇▇▇▇▇▇'▇ existing product lines and acquired and outfitted a
new facility in North York, Ontario, increasing ▇▇▇▇▇▇▇'▇ offerings to
include a full line of high quality Italian specialty meats. The benefits
to the Corporation of this project in terms of earnings will commence in
fiscal 1998.
(e) Discontinuation of Pork ▇▇▇▇▇▇▇▇▇ & Cut Operations. The Corporation
experienced a one time $12 million pre-tax charge in fiscal 1996 as a
result of the discontinuance of its pork ▇▇▇▇▇▇▇▇▇ and cut operations in
Kitchener, Ontario. Since its discontinuance, the Corporation has focused
on restructuring and increasing the efficiency of this facility which is
resulting in substantial cost savings to the Corporation.
(f) Longest High Cost Hog Cycle in History. During the Corporation's fourth
quarter of fiscal 1997, the longest high cost hog cycle in history began
to diminish. During this cycle, ▇▇▇▇▇▇▇▇▇ experienced substantial cut-out
losses in its pork operations and high raw material costs on processed
products using pork as a primary ingredient. Live hog prices have fallen
approximately 16% in the Corporation's fourth quarter of fiscal 1997,
resulting in an increase in the Corporation's gross margin. These
improvements are expected to continue in fiscal 1998.
(g) Offers Do Not Reflect Synergies. In its Circular, the Offeror states
that it believes that the combination of ▇▇▇▇▇▇▇▇▇ and Maple Leaf will
permit the creation of a world-class competitive Canadian owned meat
products business. The Board of Directors also believes that the
combination of the Corporation with Maple Leaf or other strategic
partners will result in significant synergistic benefits which should be
reflected in the consideration offered to Shareholders in connection with
any such transaction. The consideration offered under the Offers does not
reflect, and deprives Shareholders of any benefit of, these synergies.
The Board of Directors believes that the enhanced value of the Shares
resulting from the opportunity available to a party acquiring control of
▇▇▇▇▇▇▇▇▇ to realize the benefits of the foregoing should be recognized in any
offer for the Shares. The Board of Directors has included the Financial
Forecast herein to emphasize the inadequacy, unfairness and opportunistic
nature of the Offers. See "Financial Forecast".
Opportunistic Timing and Effect of Mail Service Interruption
Securities laws require that an offer be open for acceptance for a period
of at least 21 days. It has generally been recognized, and the Board of
Directors is concerned, that the minimum 21 day period is not sufficient to
permit alternative transactions that might enhance Shareholder value. The Maple
Leaf Offers are open only for the minimum time period required by law.
Moreover, by mailing the Offers late in the evening on Friday, November 14,
1997 and by not making any public announcement of its mailing of the Maple Leaf
Offers until Monday, November 17, 1997 (at which time Maple Leaf filed its
Circular with the applicable securities regulators), the Maple Leaf Offers are
effectively open for consideration by Shareholders for only 19 days (which
includes the U.S. Thanksgiving holiday). Moreover, less than three business
days after the mailing of the Offers, postal service in Canada was indefinitely
interrupted as a result of a labour dispute between Canada Post and unions
representing the employees of Canada Post, decreasing the likelihood that
Shareholders will have a sufficient period to consider the Maple Leaf Offers.
8
Opinion of Financial Adviser
The Board of Directors has received an opinion letter dated November 23,
1997 from ▇▇▇▇▇▇▇ ▇▇▇▇▇ stating that, in its opinion, the consideration offered
pursuant to the Maple Leaf Offers is inadequate, from a financial point of
view, to Shareholders. A copy of ▇▇▇▇▇▇▇ ▇▇▇▇▇' opinion is attached as Schedule
"A" to this Directors' Circular. The Board of Directors has adopted the opinion
of ▇▇▇▇▇▇▇ ▇▇▇▇▇ as one of the reasons for its rejection of the Maple Leaf
Offers.
Maple Leaf Offers Highly Conditional and Not Possible of Satisfaction
The Board of Directors believes that the Offers are highly conditional.
The Maple Leaf Offers contain 10 conditions, any of which, if not satisfied or
waived (as a result of action or inaction on the part of the Offeror of
otherwise), would permit the Offeror to terminate the Offers regardless of the
circumstances giving rise thereto. Several of these conditions are so broad
that the Offeror could terminate the Maple Leaf Offers virtually at will,
without any obligation to purchase Shares. Moreover, the ▇▇▇▇▇▇▇▇▇ family,
which collectively beneficially owns or controls approximately 75% of the
Common Shares and approximately 17% of the Class A Shares on a fully-diluted
basis, has advised the Board of Directors that it considers the Maple Leaf
Offers to be inadequate and that it has no intention of accepting the Offers
and tendering its Shares to the Offers. Accordingly, the "Minimum Condition" of
the Offers, that there be validly deposited under the Offers and not withdrawn
such number of Class A Shares and Common Shares that represents at least
66 2/3% of each such class on a diluted basis, is incapable of satisfaction.
The tender of Shares to the Maple Leaf Offers will represent little more than
the grant to Maple Leaf by Shareholders of an option to acquire such Shares and
may reduce the likelihood of a more appropriate transaction.
Deficient Disclosure
The Board of Directors is concerned that the Offeror's Circular has failed
to disclose certain information that is of significant importance to
Shareholders, thereby making it difficult for Shareholders to make an informed
decision with respect to the Maple Leaf Offers.
Securities laws require an offeror to disclose the particulars of any
plans or proposals of the offeror for material changes in the affairs of the
offeree issuer. The Offeror does not explain in its Circular any plans in
respect of any changes in ▇▇▇▇▇▇▇▇▇'▇ assets, business strategies or personnel
following the acquisition of the Common Shares and Class A Shares pursuant to
the Offers. While the Offeror does believe that the combination of ▇▇▇▇▇▇▇▇▇
and Maple Leaf will permit the creation of a world-class competitive Canadian
owned meat products business, the Offeror has not disclosed the synergistic
benefits from the proposed combination or the value of these benefits.
In its Circular, the Offeror states that if it takes up and pays for
Shares validly deposited under the Offers, and the statutory right of
acquisition is not available to the Offeror in respect of Shares not tendered
to the Offers or if the Offeror elects not to pursue such right, the Offeror
intends to pursue other means of acquiring, directly or indirectly, all of the
issued and outstanding Shares in accordance with applicable law, including a
going private transaction. The Offeror does not state its plans for ▇▇▇▇▇▇▇▇▇
in the event that the Offeror is unable to exercise the statutory right of
acquisition or to effect a going private transaction. Similarly, while the
Offeror states in its Circular that it intends that the consideration offered
in any going private transaction proposed subsequent to the Offers would be
identical to the consideration offered under the Offers and, accordingly, that
a simple majority of the votes cast by "minority" shareholders would have to be
obtained, the Offeror omits to state that in the event that relief from the
requirement to prepare a valuation of the affected securities under Ontario
Securities Commission Policy 9.1 and Policy Q-27 of the Commission des valeurs
mobiliere du Quebec is not obtained, the proportion of votes to be included in
the minority approval is two-thirds unless the amount payable is greater than
the amount per Share or the simple average of the high and low ends of the
range of per Share values arrived at by the formal valuation.
9
FINANCIAL FORECAST
The forecast of the Corporation is based upon the operating financial plan
for ▇▇▇▇▇▇▇▇▇'▇ 1998 fiscal year prepared by management of the Corporation in
accordance with the normal business planning cycle. The forecast, which has
been adjusted to reflect the estimated cost of responding to the Maple Leaf
Offers, was reviewed and approved by the Board of Directors on November 23,
1997. The forecast has been prepared based on assumptions which reflect the
Corporation's planned courses of action for the periods covered given
management's judgment as at November 20,1997, as to the most probable set of
economic conditions. The forecast will be compared with the reported results
for the forecast periods and any significant differences will be disclosed.
The reader is cautioned that some of the assumptions used in the
preparation of the forecast, although considered reasonable by the Corporation
at the time of preparation, may prove to be incorrect. The actual results
achieved for the forecast period will vary from the forecast and the variations
may be material.
Auditors' Report on Financial Forecast
To the Directors of
▇▇▇▇▇▇▇▇▇ CORPORATION
The accompanying forecast of ▇▇▇▇▇▇▇▇▇ Corporation consisting of a
consolidated statement of earnings for the year ending October 31, 1998 has
been prepared by management using assumptions with an effective date of
November 20, 1997. We have examined the support provided by management for the
assumptions, and the preparation and presentation of this forecast. Our
examination was made in accordance with the applicable Auditing Guideline
issued by The Canadian Institute of Chartered Accountants. We have no
responsibility to update this report for events and circumstances occurring
after the date of this report.
In our opinion:
o As at the date of this report, the assumptions developed by management
are suitably supported and consistent with the plans of the Corporation,
and provide a reasonable basis for the forecast;
o This forecast reflects such assumptions; and
o This forecast complies with the presentation and disclosure standards for
forecasts established by The Canadian Institute of Chartered Accountants.
Since this forecast is based on assumptions regarding future events,
actual results will vary from the information presented and the variations may
be material. Accordingly, we express no opinion as to whether this forecast
will be achieved.
Waterloo, Canada KPMG
November 23, 1997 Chartered Accountants
10
▇▇▇▇▇▇▇▇▇ CORPORATION
FORECAST CONSOLIDATED STATEMENT OF EARNINGS
(thousands of dollars except per share amounts)
Year ending
October 31, 1998
-----------------
Net Sales ........................................................... $ 926,014
Costs and Expenses
Cost of sales, selling & administration expenses .................... 878,743
Depreciation and amortization ....................................... 16,220
Interest expense .................................................... 8,946
---------
$ 903,909
---------
Earnings before the Undernoted ...................................... $ 22,105
Unusual item (note 2) ............................................... 1,000
---------
Earnings before Income Tax .......................................... $ 21,105
---------
Income taxes ........................................................ 8,780
---------
Net Earnings ........................................................ $ 12,325
=========
Earnings per Common Share and Class A Share (basic) ................. $ 1.80
=========
Earnings per Common Share and Class A Share (fully-diluted) ......... $ 1.70
=========
11
▇▇▇▇▇▇▇▇▇ CORPORATION
Summary of Significant Forecast Assumptions
Year ending October 31, 1998
This forecast has been prepared as at November 20,1997 on the basis of the
following assumptions prepared by management of ▇▇▇▇▇▇▇▇▇ Corporation (the
"Corporation"). The forecast has been prepared using assumptions that reflect
management's judgment as to the most probable set of economic conditions and
the Corporation's planned courses of action, based on information existing at
the date the forecast was prepared. However, unanticipated events and
circumstances may occur, therefore, the actual results achieved during the
forecast period will vary from the forecasted results and the variations may be
material. The forecast will be reviewed and compared with actual results by
management and, if necessary, updated in any financial statements to be sent to
shareholders.
1. The forecast consolidated statement of earnings has been prepared using the
following major assumptions:
(i) Sales have been forecast on a product category basis with reference to
historical results, environmental factors, competitor information and
Corporation initiatives. Sales are forecast to increase, expressed in
thousands of dollars and volume, for the year ending October 31,1998 from
the year ended October 25, 1997 approximately as follows:
Volume Dollars
-------- --------
Consumer Foods .......... 14% 9%
Agribusiness ............ 34% 24%
Increases in Consumer Foods sales are expected to be achieved through
increased marketing expenditures, expansion into new markets and the
launch of new products. Agribusiness sales in 1997 reflect the closure of
the Kitchener pork operation in February, 1997 and 1998 sales reflect the
opening of the world class Winnipeg plant in September, 1997.
(ii) Cost of products sold has been forecast on a product category basis with
reference to historical data, environmental factors and expected increases
or decreases in costs, negotiated prices where applicable, and reflecting
anticipated actions to improve efficiency.
(iii) Selling, marketing, distribution and administration expenses have been
forecast on a specific item basis with reference to historical data and
expected increases or decreases in costs, reflecting anticipated actions
and including inflationary factors.
(iv) Earnings from operations are forecast to be substantially improved in 1998
reflecting the benefits of facility rationalization in 1997, the capital
expenditure program of $52 million over the past two years and the end of
the longest high cost hog cycle in history.
(v) Raw material cost assumptions are as follows:
o Hog prices for 1998 will moderate from 1997 average costs by 14%.
o Pork raw material costs, including primal cuts, will decline by 12%
below 1997 levels.
o Beef raw materials will increase by 10% from 1997 levels.
o The poultry processing industry will be capable of matching broiler
production to market demand for poultry products; therefore, poultry
prices will be stable for 1998.
(vi) Depreciation and amortization have been forecast based on rates
consistent with those previously used after taking into consideration $5
million of capital additions planned. The forecast assumes the
Corporation will not acquire or divest any businesses during the year.
(vii) The interest expense is based on forecast borrowings during the year.
(viii) The provision for income taxes is based on forecast income before income
taxes and has been calculated at a rate of 41.6%.
(ix) Earnings per share have been calculated using a weighted average number
of shares outstanding of 6,844,519 (7,389,619 on a fully-diluted basis).
2. On November 14, 1997, Maple Leaf Foods Inc. made an unsolicited bid for 100%
of the shares of the Corporation. The Corporation has undertaken a process
to evaluate this bid and ensure shareholder value is maximized. It is
estimated that a minimum $1 million in costs will be incurred in this
process.
3. This forecast has been prepared using generally accepted accounting
principles and reflect the following accounting policies:
12
Principles of consolidation
The consolidated financial statements include the accounts of the
Corporation, subsidiaries and 50% owned joint-ventures. Interests in
joint-ventures are accounted for using the proportionate consolidation method
to consolidate the Corporation's share of the joint-ventures' assets,
liabilities, revenues and expenses.
Inventories
Products are valued at the lower of cost and net realizable value. Cost
includes laid down material cost, manufacturing labour and certain elements of
overhead to the stage of production completion. Net realizable value is based
on the adjusted wholesale trading price at the balance sheet date.
Certain raw materials and supplies, which include packaging, maintenance
and manufacturing materials, are valued at the lower of cost and replacement
cost.
Property, plant and equipment
Property, plant and equipment are recorded at cost, which includes
capitalized interest incurred on major projects during the period of
construction. Depreciation is provided on a straight-line basis over the
estimated useful lives of the assets as follows: Buildings -- 2.5% to 10%;
Machinery & Equipment -- 10% to 20%.
Other assets
Production licenses and rights and intangible assets are being amortized
on a straight-line basis over their estimated lives. Intangible assets include
the excess cost of shares over assigned values of net assets acquired. The
carrying cost of goodwill is regularly evaluated for impairment based on the
undiscounted cash flows from operations of the related business. Any permanent
impairment in the value of the goodwill is written off against earnings.
Derivative financial instruments
The Corporation uses derivative financial instruments to manage its
exposure to interest rate fluctuations. These financial instruments are
accounted for on an accrual basis. Net payments on interest rate instruments
are included in income as part of interest expense.
Pensions
Pension obligations are determined by independent actuarial valuation
using the projected benefit method and based on management's best estimates.
Pension costs related to current service are charged to earnings as services
are rendered, and past service costs, as well as variations between plan
experience and the actuarial estimates, are amortized over the expected average
remaining service life of each employee group.
The Corporation provides retirement benefits for most employees under
several defined benefit and defined contribution plans. The comparison of
defined benefit obligations with assets of the pension plans as at October 26,
1997 is as follows:
Pension plan assets at market value ......................... $248,696,000
Estimated present value of pension plan obligations ......... 199,047,000
Post employment benefits
The Corporation has post employment benefit plans that provide defined
health and dental benefits for retirees and eligible dependents. The
Corporation expenses post employment benefit costs, other than pension, as
incurred.
13
ALTERNATIVES TO THE OFFERS
The Board of Directors is committed to maximizing Shareholder value. In
this connection, the Corporation and ▇▇▇▇▇▇▇ ▇▇▇▇▇ have held discussions with
several interested parties concerning possible transactions which would result
in Shareholders receiving greater value for their Shares than under the Maple
Leaf Offers. The Board of Directors and ▇▇▇▇▇▇▇ ▇▇▇▇▇ are actively exploring
alternatives to maximize Shareholder value. The ▇▇▇▇▇▇▇▇▇ family, which
collectively beneficially owns or controls approximately 75% of the Common
Shares and approximately 17% of the Class A Shares on a fully-diluted basis,
has advised the Board of Directors that it might consider accepting a
financially more attractive offer for its Shares. The Board of Directors is
concerned, however, that the 19 days provided by the Maple Leaf Offers is
insufficient to properly explore value maximizing alternatives for
Shareholders.
To ensure that any information provided to interested parties cannot be
used in a manner which would be detrimental to the Corporation or Shareholders,
a party will not be provided with documentation until such party executes a
suitable confidentiality agreement. Confidentiality agreements have been signed
by or are being negotiated with a number of interested parties. Shareholders
are advised not to tender Shares to the Maple Leaf Offers or any other offer
until the results of the process initiated by the Board of Directors and
▇▇▇▇▇▇▇ ▇▇▇▇▇ have been determined.
The Board of Directors intends to provide Shareholders with information
about alternative transactions on a timely basis to enable Shareholders to make
appropriate and informed decisions.
DIRECTORS AND SENIOR OFFICERS OF ▇▇▇▇▇▇▇▇▇ AND OWNERSHIP OF SECURITIES
The following table sets out the names and positions with the Corporation
of all directors and senior officers of the Corporation and the number of
Shares owned, directly or indirectly, or over which control or direction is
exercised by each such director and senior officer and, where known after
reasonable enquiry, by their respective associates.
Shares of the Corporation Beneficially
Owned Directly or Indirectly (1)
----------------------------------------------------------
Name Position(s) with ▇▇▇▇▇▇▇▇▇ Common Shares % Class A Shares %
----------------------------- ---------------------------------- --------------- --------- ---------------- ---------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ ............ Director, Chairman and Chief 13,750 1.86 23,350 0.38
Executive Officer
▇▇▇▇ ▇. ▇▇▇▇▇▇ .............. Director, Director of Logistics, 4,783 0.65 8,234 0.14
▇.▇. ▇▇▇▇▇▇▇▇▇ Inc.
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ ............ Director, Vice President and 8,200 1.11 10,000 0.16
Chief Financial Officer
▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ ......... Director 100 0.01 -- --
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ ............ Director -- -- -- --
▇▇▇▇▇ ▇. ▇▇▇▇ ............... Director 200 0.03 -- --
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ ........... Director, Vice President, 24,934 3.37 700 0.01
Secretary and General Counsel
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ ........... Director -- -- -- --
▇▇▇▇ ▇. ▇▇▇▇▇ ............... Director 100 0.01 -- --
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ ........... Treasurer -- -- -- --
▇▇▇▇ ▇. ▇▇▇▇▇ ............... President, Agribusiness 200 0.03 9,780 0.14
▇.▇. ▇▇▇▇▇▇▇▇▇, Inc.
▇▇▇▇ ▇. ▇▇▇▇ ................ President, Consumer Foods -- -- 13,090 0.21
▇.▇. ▇▇▇▇▇▇▇▇▇ Inc
---------
(1) The information as to Shares beneficially owned, directly or indirectly, or
over which control or direction is exercised, not being within the knowledge
of the Corporation has been furnished by the respective directors and senior
officers.
See also "Issuances of Securities -- Option Grants".
14
PRINCIPAL HOLDERS OF SECURITIES
No person or company is acting jointly or in concert with the Corporation.
To the knowledge of the directors and senior officers of the Corporation, based
solely on information disclosed in insider reports filed with securities
regulatory authorities, no person or company baneficially owns or exercises
control or direction over in excess of 10% of the Common Shares other than as
set forth below (the "Principal Common Shareholders") or the Class A Shares
other than as set forth below:
Number and Class of Shares Percentage of Shares
-------------------------------- -------------------------------
Name Common Shares Class A Shares Common Shares Class A Shares
-------------------------------- --------------- ---------------- --------------- ---------------
▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ ......... 215,012 346,856 29.1 5.68
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ ............. 121,348 308,912 16.4 5.06
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ ........... 102,230 141,530 13.8 2.32
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ ............... 82,500 227,070 11.2 3.72
Royal Mutual Funds Inc ......... -- 935,200 -- 15.32
INTENTION WITH RESPECT TO THE OFFERS
Each of the directors and senior officers of the Corporation set out above
has indicated that he or she does not intend to accept the Maple Leaf Offers.
To the knowledge of the directors and senior officers of the Corporation, after
reasonable enquiry, no director or senior officer of the Corporation or any
associate of them who own Shares has accepted or indicated an intention to
accept the Maple Leaf Offers. The ▇▇▇▇▇▇▇▇▇ family, including the Principal
Common Shareholders, which collectively baneficially owns or controls
approximately 75% of the Common Shares and approximately 17% of the Class A
Shares on a fully-diluted basis, has confirmed to the Board of Directors that
it considers the Maple Leaf Offers to be inadequate and that it has no
intention of accepting the Offers and tendering its Shares. The directors and
senior officers of the Corporation have no knowledge as to whether Royal Mutual
Funds Inc. intends to accept the Maple Leaf Offers.
15
TRADING IN SECURITIES OF ▇▇▇▇▇▇▇▇▇
During the six months preceding the date of the Maple Leaf Offers, none of
the Corporation, the directors and senior officers of the Corporation nor, to
the knowledge of the directors and senior officers of the Corporation after
reasonable inquiry, any of their respective associates, has traded any
securities or rights to acquire securities of the Corporation except for the
trades listed under "Issuances of Securities", a private placement by the
Corporation of 500,000 Class A Shares on September 30, 1997 to the
Corporation's pension plan at $13.05 per share and the following purchases by
the Corporation in connection with its normal course issuer bid:
Number of Shares
-----------------------------------
Date of Trade Class A Shares Price For Share
---------------------------- ---------------- ----------------
April 28, 1997 ............. 200 $ 11.30
May 12, 1997 ............... 600 $ 11.30
September 29, 1997 ......... 200 $ 13.60
October 2, 1997 ............ 200 $ 13.60
October 3, 1997 ............ 200 $ 13.50
October 10, 1997 ........... 200 $ 13.50
October 14, 1997 ........... 1,100 $ 13.40
October 20, 1997 ........... 2,800 $ 13.30
October 20, 1997 ........... 700 $ 13.25
October 27, 1997 ........... 200 $ 13.30
October 27, 1997 ........... 400 $ 13.25
October 27, 1997 ........... 200 $ 13.20
October27, 1997 ............ 400 $ 13.00
October 27, 1997 ........... 200 $ 12.95
October 27, 1997 ........... 200 $ 12.90
October 27, 1997 ........... 300 $ 12.80
October 27, 1997 ........... 300 $ 12.75
The directors and senior officers of the Corporation have no knowledge of
any trades during the six months preceding the Maple Leaf Offers by the
Principal Common Shareholders or Royal Mutual Funds Inc. in securities or
rights to acquire securities of the Corporation.
No director or senior officer of the Corporation intends to purchase
securities of the Corporation before the expire of the Maple Leaf Offers nor
knows of the existence of such an intention on the part of any other person.
16
ISSUANCES OF SECURITIES
No Shares, or securities convertible into either Common Shares or Class A
Shares, have been issued to the directors or senior officers of the Corporation
during the two years preceding the date of this Directors' Circular, other than
the options to purchase Class A Shares granted under the Key Employees and
Directors Long Term Incentive Stock Option Plan indicated below:
Option Grants
Number of Options
Grantee Granted (1) Date of Grant Exercise Price Expiry Date
--------------------------- ------------------ -------------------- ---------------- ------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ .......... 42,300 November 1, 1992 $ 14.75 October 15, 2002
30,000 September 14, 1994 $ 12.75 September 8, 2004
30,000 October 21, 1994 $ 13.50 October 20, 2004
30,000 November 1, 1995 $ 13.75 October 25, 2005
75,000 November 1, 1996 $ 10.50 October 23, 2006
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ .......... 17,700 November l, 1992 $ 14.75 October l5, 2002
10,000 September 14, 1994 $ 12.75 September 8, 2004
10,000 October 21, 1994 $ 13.50 October 20, 2004
10,000 November 1, 1995 $ 13.75 October 25, 2005
25,000 November 1, 1996 $ 10.50 October 23, 2006
▇▇▇▇ ▇. ▇▇▇▇ .............. 9,000 November 1, 1992 $ 14.75 October 15, 2002
7,500 September 14, 1994 $ 12.75 September 8, 2004
7,500 October 21, 1994 $ 13.50 October 20, 2004
10,000 November 1, 1995 $ 13.75 October 25, 2005
25,000 November 1, 1996 $ 10.50 October 23, 2006
▇▇▇▇ ▇. ▇▇▇▇▇ ............. 9,300 November 1, 1992 $ 14.75 October 15, 2002
7,500 September 14, 1994 $ 12.75 September 8, 2004
7,500 October 21, 1994 $ 13.50 October 20, 2005
10,000 November l, 1995 $ 13.75 October 25, 2005
25,000 November 1, 1996 $ 10.50 October 23, ▇▇▇▇
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ ......... 7,800 November 1, 1992 $ 14.75 October 15, 2002
5,000 September 14, 1994 $ 12.75 September 8, 2004
5,000 October 21, 1994 $ 13.50 October 20, 2004
5,000 November 1, 1995 $ 13.75 October 25, 2005
15,000 November 1, 1996 $ 10.50 October 23, 2006
▇▇▇▇ ▇. ▇▇▇▇▇▇▇ ........... 1,500 November 1, 1992 $ 14.75 October 15, 2002
2,500 November 1, 1995 $ 13.75 October 25, 2005
2,000 November 1, 1996 $ 10.50 October 23, 2006
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ ......... 2,500 November 1, 1995 $ 13.75 October 25, 2005
2,000 November 1, 1996 $ 10.50 October 23, 2006
---------
(1) Each option entitles the holder to acquire one Class A Share of ▇▇▇▇▇▇▇▇▇.
For a description of certain amendments to the Key Employees and Directors
Long Term Incentive Stock Option Plan see "Share Option Plan".
OWNERSHIP OF SECURITIES OF THE OFFEROR
None of the Corporation, the directors and senior officers of the
Corporation and, to the knowledge of the directors and senior officers, after
reasonable inquiry, none of the associates of these directors and senior
officers and none of the Principal Common Shareholders, owns, directly or
indirectly, or exercises control or direction over, securities of the Offeror.
The directors and senior officers of t ho Corporation have no knowledge as to
whether Royal Mutual Funds Inc. owns, directly or indirectly, or exercises
control or direction over, securities of the Offeror.
17
RELATIONSHIP BETWEEN THE OFFEROR AND DIRECTORS AND SENIOR OFFICERS
No contracts, arrangements or agreements (including any contracts,
arrangements or agreements as to any payments or other benefits to be made or
given by way of compensation for loss of office or as to the directors or
senior officers of the Corporation remaining or retiring from office if the
Maple Leaf Offers is successful) have been made or proposed to be made between
the Offeror and any of the directors or senior officers of the Corporation.
None of the directors or senior officers of the Corporation are also directors
or senior officers of the Offeror or any subsidiary of the Offeror. None of the
directors and senior officers of the Corporation and, to the knowledge of the
directors and senior officers of the Corporation, none of their respective
associates and none of the Principal Common Shareholders, has any interest in
any material contract to which the Offeror is a party. The directors and senior
officers of the Corporation have no knowledge as to whether Royal Mutual Funds
Inc. has any interest in any material contract to which the Offeror is a party.
AGREEMENTS BETWEEN ▇▇▇▇▇▇▇▇▇ AND ITS DIRECTORS AND SENIOR OFFICERS
Except as set forth below, there is no arrangement or agreement made or
proposed to be made between the Corporation and any of its directors or senior
officers pursuant to which a payment or other benefit is to be made or given by
way of compensation for loss of office or as to the remaining in or retiring
from office if the Maple Leaf Offers are successful.
Each of ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇▇▇ ▇. ▇▇▇▇, ▇▇▇▇ ▇. ▇▇▇▇▇
and ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ (the "Executives") has an agreement in respect of his
employment with the Corporation and its affiliates. The salaries payable under
the employment agreements are determined following annual reviews by the
Compensation and Human Resources Committee of the Board of Directors. These
employment agreements contain restrictions on employment of the employees in
competition with the Corporation for a period of time after the termination of
their employment which varies from 24 months to 30 months. The employment
agreements also provide for life insurance, health, pension and other benefits.
If the employment of the Executives, other than ▇▇. ▇▇▇▇▇, is terminated by the
Corporation without just cause, the Corporation is required to pay the
Executive from 24 to 30 months remuneration in lieu of notice of termination.
If ▇▇. ▇▇▇▇▇' employment is terminated by the Corporation without just cause,
the Corporation is required to pay him 30 to 36 months remuneration in lieu of
notice of termination. In the event of a change of control, ▇▇. ▇▇▇▇▇ may elect
to resign and receive 30 months remuneration.
On November 14, 1997, in order to ensure that the Executives would not be
distracted from the business of the Corporation and would continue to act in
the best interests of the Corporation and Shareholders in the circumstances of
the Maple Leaf Offers, the Board of Directors approved the entering into of
employment amending agreements with the Executives. Pursuant to these amending
agreements, each of the Executives (other than ▇▇. ▇▇▇▇▇) would be entitled to
resign his employment within a one year period immediately following a change
of control upon three months' notice. Such Executives would be entitled, upon
such resignation, to receive 24 months remuneMtion in the case of Messrs.
▇▇▇▇▇▇ and ▇▇▇▇▇▇▇▇▇ and 18 months remuneration in the case of Messrs. Lang and
▇▇▇▇▇.
SHARE OPTION PLAN
The Key Employees and Directors Long Term Incentive Stock Option Plan (the
"Plan") of the Corporation has been amended, subject to regulatory and
Shareholder approval, to provide that (i) all vesting requirements be
accelerated such that all of the options granted under the Plan are
contingently currently exercisable; and (ii) holders of options shall be
permitted to contingently exercise their options and to tender the Class A
Shares issuable upon such exercise to a take-over bid made for the Class A
Shares. The mechanism for contingent exercise of options provides that if the
Class A Shares so deposited are taken up under the relevant take-over bid, the
optionholder will be deemed to have exercised the related options immediately
before expiry of the take up period. The proceeds will be directed to the
Corporation's transfer agent or other specified intermediary, which will pay
the exercise price of the exercised options to the Corporation and remit the
balance to the optionholder.
MATERIAL CHANGES IN THE AFFAIRS OF ▇▇▇▇▇▇▇▇▇
Except as otherwise described or referred to in this Directors' Circular,
no other information is known to the directors or senior officers of ▇▇▇▇▇▇▇▇▇
that indicates any material change in the affairs or prospects of ▇▇▇▇▇▇▇▇▇
since August 2, 1997, the date of the Corporation's most recent interim
financial statements.
18
OTHER INFORMATION
Financial Advisor
▇▇▇▇▇▇▇ ▇▇▇▇▇ will be paid a fee for its services as financial adviser to
the Special Committee and the Board of Directors, including fees that are
contingent on a change of control or certain other events.
Additional Information
Except as disclosed in this Directors' Circular there is no information
that is known to the directors of ▇▇▇▇▇▇▇▇▇ that would reasonably be expected
to affect the decision fo the holders of Shares, or securities convertible into
Shares, to accept or reject the Maple Leaf Offers.
STATUTORY RIGHTS
Securities legislation in ceratin of the provinces and territories of
Canada provides holders of Shares with, in addition to any other rights they
may have at law, rights of rescission or to damages, or both, if there is a
misrepresentation in a circular or a notice that is required to be delivered to
the holders of Shares. However, such rights must be exercised within prescribed
time limits. Holders of Shares should refer to the applicable provisions of the
securities legislation of their province or territory for particulars of those
rights or consult with a lawyer.
APPROVAL OF THE DIRECTORS' CIRCULAR
The contents of this Directors' Circular have been approved and the
delivery of this Directors' Circular has been authorized by the Board of
Directors.
CONSENT
To: The Board of Directors of ▇▇▇▇▇▇▇▇▇ Corporation
We hereby consent to the reference to our firm under the headings "Summary
-- Reasons for Recommendation", "Background to Maple Leaf Offers and Response
of ▇▇▇▇▇▇▇▇▇", "Reasons for Recommendation" and "Alternatives to the Offers"
and to the inclusion of the text of our opinion dated November 23, 1997 in the
Directors' Circular of ▇▇▇▇▇▇▇▇▇ Corporation dated November 23, 1997.
Toronto, Ontario
November 23, 1997 ▇▇▇▇▇▇▇ ▇▇▇▇▇ Inc.
CONSENT
To: The Board of Directors of ▇▇▇▇▇▇▇▇▇ Corporation
We hereby consent to the inclusion of the text of our report dated
November 23, 1997 in the Directors' Circular of ▇▇▇▇▇▇▇▇▇ Corporation dated
November 23, 1997.
Waterloo, Ontario KPMG Chartered Accountants
November 23, 1997
19
CERTIFICATE
DATED: November 23, 1997
The foregoing contains no untrue statement of a material fact and does not
omit to state a material fact that is required to be stated or that is
necessary to make a statement not misleading in light of the circumstances in
which it was made. The foregoing does not contain any misrepresentation likely
to affect the value or the market price of the securities subject to the Maple
Leaf Offers within the meaning of the Securities Act (Quebec).
On behalf of the Board of Directors
(Signed) ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ (Signed) ▇▇▇▇▇ ▇. ▇▇▇▇
Director, Chairman Director, Chairman
and Chief Executive Officer of Special Committee
20
SCHEDULE A
[▇▇▇▇▇▇▇ ▇▇▇▇▇ LOGO]
November 23, 1997
▇▇▇▇▇▇▇▇▇ Corporation
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇. ▇▇▇▇
▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇
▇▇▇ ▇▇▇
To the Board of Directors:
We understand that SCH Acquisition Inc. (the "Offeror"), a wholly-owned
subsidiary of Maple Leaf Foods Inc., has made offers (the "Offers") to purchase
all of the issued and outstanding common shares (the "Common Shares") and class
A non-voting shares (the "Class A Shares") of ▇▇▇▇▇▇▇▇▇ Corporation
("▇▇▇▇▇▇▇▇▇"). The Offers are open for acceptance until 12:01 a.m. (local time)
on December 6, 1997, unless withdrawn or extended. The consideration under the
Offers is Cdn$ 19.00 in cash per share. The terms and conditions of the Offers
are set out in an Offers to Purchase document prepared by the Offeror and dated
November 14, 1997 (the "Offering Circular").
The special committee (the "Special Committee") of the board of directors
of ▇▇▇▇▇▇▇▇▇ (the "Board") has retained ▇▇▇▇▇▇▇ ▇▇▇▇▇ Inc. ("▇▇▇▇▇▇▇ ▇▇▇▇▇") to
provide financial advice to the Special Committee and the Board and our opinion
(the "Opinion") addressed to the Board as to the adequacy of the Offers, from a
financial point of view, to the holders of Common Shares and Class A Shares. We
consent to the references to this Opinion and its inclusion in the Directors'
Circular. Our Opinion is not, and should not be construed as, a valuation of
▇▇▇▇▇▇▇▇▇ or any of its assets.
Credentials of ▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇ is one of Canada's largest investment banking firms, with
operations in all facets of corporate and government finance, mergers and
acquisitions, equity and fixed income sales and trading, investment research
and investment management. The Opinion expressed herein is the opinion of
▇▇▇▇▇▇▇ ▇▇▇▇▇ and the form and content herein have been approved for release by
a committee of its directors and officers, each of whom is experienced in
merger, acquisition, divestiture and valuation matters.
Scope of Review
In connection with rendering our Opinion, we have reviewed and relied
upon, or carried out, among other things, the following:
i) the Offering Circular,
ii) a draft of the ▇▇▇▇▇▇▇▇▇ Directors' Circular dated November 23, 1997
relating to the Offers, including the financial forecast set forth therein;
iii) the audited annual financial statements and interim reports, Annual
Reports, Annual Information Forms and Proxy Statements of ▇▇▇▇▇▇▇▇▇ for each of
the three consecutive fiscal years ending October 25, 1996;
iv) the unaudited interim quarterly reports of ▇▇▇▇▇▇▇▇▇ for the first
three quarters of fiscal 1997;
v) the fourth quarter and fiscal 1997 preliminary financial results;
vi) the fiscal 1998 budget and 1998-2000 Business Plan prepared by the
management of ▇▇▇▇▇▇▇▇▇,
vii) financial and operating plans relating to the expected future
performance of ▇▇▇▇▇▇▇▇▇ and its major business units;
viii) information prepared by the management of ▇▇▇▇▇▇▇▇▇ relating to certain
joint venture investments held by ▇▇▇▇▇▇▇▇▇;
ix) certain information and discussions with the management of ▇▇▇▇▇▇▇▇▇
relating to the operating and financial results of ▇▇▇▇▇▇▇▇▇ and the impact of
recent industry trends and events on ▇▇▇▇▇▇▇▇▇;
x) certain additional confidential information and discussions with the
management of ▇▇▇▇▇▇▇▇▇ regarding, among other things, ▇▇▇▇▇▇▇▇▇'▇ assets,
liabilities, operations, and business prospects;
xi) discussions with ▇▇▇▇▇▇▇▇▇'▇ legal counsel with respect to various
matters;
21
xii) public information relating to the business, operations, financial
performance and stock trading history of ▇▇▇▇▇▇▇▇▇, Maple Leaf Foods Inc. and
other selected public companies that we considered relevant;
xiii) data with respect to other transactions of a comparable nature that we
considered relevant;
xiv) a letter of representation as to certain factual matters dated the date
hereof provided by senior officers of ▇▇▇▇▇▇▇▇▇ and addressed to us; and
xv) such other information, investigations and analyses as we considered
appropriate in the circumstances.
Assumptions and Limitations
We have relied upon, and have assumed the completeness, accuracy and fair
representation of all financial and other information, data, advice, opinions
and representations obtained by us from public sources including the Offering
Circular or provided to us by ▇▇▇▇▇▇▇▇▇ and its affiliates or advisors or
otherwise pursuant to our engagement, and the Opinion is conditional upon such
completeness, accuracy and fair representation. Subject to the exercise of
professional judgment and except as expressly described herein, we have not
attempted to verify independently the accuracy or completeness of any such
information, data, advice, opinions and representations. Senior management of
▇▇▇▇▇▇▇▇▇ has represented to us, in a letter delivered as at the date hereof,
amongst other things that the information, data, opinions and other materials
(the "Information") provided to us by or on behalf of ▇▇▇▇▇▇▇▇▇ are complete and
correct at the date the Information was provided to us and that since the date
of the Information, there has been no material change, financial or otherwise,
in the position of ▇▇▇▇▇▇▇▇▇, or in its assets, liabilities (contingent or
otherwise), business or operations and there has been no change of any material
fact which is of a nature as to render the Information untrue or misleading in
any material respect.
The Opinion is rendered on the basis of securities markets, economic and
general business and financial conditions prevailing as at the date hereof and
the condition and prospects, financial and otherwise, of ▇▇▇▇▇▇▇▇▇ as they were
reflected in the information and documents reviewed by us and as they were
represented to us in our discussions with management of ▇▇▇▇▇▇▇▇▇. In our
analyses and in connection with the preparation of the Opinion, we made
numerous assumptions with respect to industry performance, general business,
market and economic conditions and other matters, many of which are beyond the
control of any party involved in the Offers.
Conclusion
Based upon and subject to the foregoing, it is our opinion that the Offers
are inadequate, from a financial point of view, to the holders of Common Shares
and Class A Shares.
Yours truly,
/s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇ Inc.
22
ANY QUESTIONS OR REQUESTS FOR ASSISTANCE MAY BE DIRECTED TO:
▇▇▇▇▇▇▇▇▇ Corporation
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇
▇▇▇ ▇▇▇
Contact: ▇▇▇▇▇▇▇ ▇▇▇▇▇,
Chairman and Chief Executive Officer
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇ Inc.
I First Canadian Place
Suite 400
Toronto, Ontario
M5X 1H3
Contact: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
CIBC Mellon Trust Company:
▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇
▇▇▇ ▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Toll Free: ▇-▇▇▇-▇▇▇-▇▇▇▇
23