-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, H05/R1boUccEFKx0nCxGaosj7//zUE0ODLeyLTMJJIflBjeB7Uxjf+sFwpHBmlip JcdcbbKh5F00QHqHZgefpg== 0000912057-00-012000.txt : 20000317 0000912057-00-012000.hdr.sgml : 20000317 ACCESSION NUMBER: 0000912057-00-012000 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000316 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MOORE CORPORATION LTD CENTRAL INDEX KEY: 0000067931 STANDARD INDUSTRIAL CLASSIFICATION: MANIFOLD BUSINESS FORMS [2761] IRS NUMBER: 980154502 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-08014 FILM NUMBER: 571548 BUSINESS ADDRESS: STREET 1: 1 FIRST CANADIAN PLACE STREET 2: P O BOX 78 CITY: TORONTO ONTARIO CANA STATE: A6 BUSINESS PHONE: 4163642600 MAIL ADDRESS: STREET 1: 1 FIRST CANADIAN PLACE STREET 2: P O BOX 78 CITY: TORONTO ONTARIO 10-K 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K --------- ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1999. Commission file number 1-8014. MOORE CORPORATION LIMITED ------------------------- (Exact name of registrant as specified in its charter) Ontario, Canada 98-0154502 - ------------------------------- ------------------ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1 First Canadian Place, Toronto, Ontario, Canada M5X 1G5 - ------------------------------------------------ ------------ (Address of principal executive offices) (Postal Code) Registrant's telephone number, including area code: (416) 364-2600 ------------------ Securities registered pursuant to Section 12(g) of the Act: Title of Each Class Name of Each Exchange On Which Registered - ------------------- ----------------------------------------- Common Shares New York Stock Exchange, Inc. Without Par Value The common shares without par value of Moore Corporation Limited are also listed on The Toronto Stock Exchange in Canada. Securities registered pursuant to Section 12(g) of the Act: NONE ---------------- (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge in definitive proxy or information statements incorporated by reference, in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the voting common shares without par value held by non-affiliates of the registrant as computed by reference to the closing price on the New York Stock Exchange on February 15, 2000 was $480,984,611. The number of common shares without par value outstanding as of February 15, 2000 was 88,456,940. MOORE CORPORATION LIMITED FORM 10-K DOCUMENTS INCORPORATED BY REFERENCE
Document Part of Form 10-K - -------------------------------------------------------------------------------------------------------------------------------- 1. Annual Report to Shareholders for the year ended Parts I, II and December 31, 1999. With the exception of those IV portions which are incorporated by reference into this Form 10-K, the Annual Report is not deemed to be filed. 2. Management Information Circular and Proxy Statement dated March 15, 2000 Part III for the Annual and Special Meeting of Shareholders to be held on April 28, 2000.
CAUTIONARY STATEMENT This Annual Report on Form 10-K, contains statements relating to the future results of the Corporation (including certain anticipated, planned, forecasted, expected, targeted and estimated results and certain matters discussed in Part I, Item I - Business and in Part II, Item 7 - Management's Discussion and Analysis, Results of Operations and Financial Condition) that are "forward-looking statements" as defined in the U.S. Private Securities Litigation Reform Act of 1995. Readers are cautioned not to place undue reliance on these forward-looking statements and any such forward-looking statements are qualified in their entirety by reference to the following cautionary statements. All forward-looking statements speak only as of the date hereof and are based on current expectations and involve a number of assumptions, risks and uncertainties that could cause the actual results to differ materially from such forward-looking statements. Factors that could cause such material differences include, without limitation, the following: the successful completion of the restructuring program announced in 1998 within the timeframe anticipated to execute the respective restructuring actions and achieving the associated benefits, the successful implementation of the Enterprise Resource Planning system within anticipated time frames and achieving associated benefits, the effects of paper price fluctuations, successful execution of key strategies (including the digital and Internet strategies), maintenance of growth rates in Customer Communication Services businesses, the impact of currency fluctuations in the countries in which the Corporation operates, general economic and other factors beyond the Corporation's control, and other assumptions, risks and uncertainties described in this Annual Report on Form 10-K and from time to time in the Corporation's periodic filings with Securities Regulators. 2 MOORE CORPORATION LIMITED FORM 10-K - 1999 TABLE OF CONTENTS
DESCRIPTION PAGE ----------- ---- PART I Item 1 Business 4 2 Properties 11 3 Legal Proceedings 12 4 Submission of Matters to a Vote of 12 Security Holders PART II Item 5 Market for Registrant's Common Stock 13 and Related Stockholder Matters 6 Selected Financial Data 13 7 Management's Discussion and Analysis of 13 Results of Operations and Financial Condition 7A Quantitative and Qualitative Disclosures 13 About Market Risk 8 Financial Statements and Supplementary 13 Data 9 Changes in and Disagreements with 13 Accountants on Accounting and Financial Disclosure PART III Item 10 Directors and Executive Officers of the Registrant 14 11 Executive Compensation 16 12 Security Ownership of Management 16 13 Certain Relationships and Related 17 Transactions PART IV Item 14 Exhibits, Financial Statement Schedules 18 and Reports on Form 8-K SIGNATURES 19
NOTE: Unless otherwise indicated by the designation "Canadian" or "Cdn.", all dollar amounts in this Form are expressed in United States currency. 3 MOORE CORPORATION LIMITED FORM 10-K- 1999 PART I ITEM 1 BUSINESS a) GENERAL DEVELOPMENT OF BUSINESS Moore Corporation Limited, a corporation incorporated under the laws of Ontario, Canada, together with its subsidiaries, referred to herein as Moore or the Corporation, was established in 1882. At December 31, 1999, Moore had approximately 15,800 employees worldwide. Moore is a leading international provider of products and services that help companies communicate through print and digital technologies. As a leading supplier of document formatted information, print outsourcing and data based marketing, Moore designs, manufactures and delivers business communication products, services and solutions to customers. Moore operates in two distinct, but complementary market segments: (1) Forms, Print Management and Related Products which includes Labels and Label Systems and (2) Customer Communication Services ("CCS"), which includes personalized direct mail, statement printing and database management. Moore operates on a decentralized strategic business unit basis within each geographical segment. In order to better serve customer needs for sales and marketing, Moore also specializes by industry segment and process application. As of December 31, 1999, the Corporation operated in the following operating segments: (1) Moore North America, (2) CCS United States, (3) Europe and (4) Latin America. With the 1998 divestment of the Australasian business and the commencement of the liquidation process of the China joint ventures, the Asia Pacific operating segment, which existed in 1998, no longer exists in 1999. For the year ended December 31, 1999, Moore derived approximately 86% of its revenues from North America. Moore is committed to growth. A key element of accomplishing this strategy is internal development or external purchase of leading-edge technologies. For 1999, research and development expenditures totaled $23 million, compared to $27 million in 1998 and $30 million in 1997. In the business document arena, development expenditures were focused on continuing to improve our market-leading pressure seal-mailers, new label constructions, and growing our print-on-demand offerings. For the high speed digital printing business, a new workflow was introduced in our direct marketing business, and a number of new, higher print quality offerings were introduced that improved the product appearance and supported new, higher information density bar codes. For Internet-based applications, the Corporation focused on development of seamless fulfillment for digital print and communication products, as well as systems that provide flexible, cost efficient management of forms and documents that are easily accessible to end users. In 2000, Moore expects to invest approximately $25 million for research and development. 4 RESTRUCTURING CHARGES In the third quarter of 1998, the Board of Directors approved a restructuring program as part of the Corporation's continuing initiative to enhance Moore's competitive position in its Forms business and to strengthen its long-term prospects for profitable growth. The restructuring program is the first step in a comprehensive plan to substantially improve the Corporation's cost structure and enhance shareholder value and profitability. Accordingly, a pre-tax restructuring charge of $630 million was recorded in the third quarter of 1998. During the fourth quarters of 1998 and 1999, the restructuring provision was reduced by $15 million and $68 million respectively. After tax, the impact of the restructuring charge on the 1998 statement of earnings was $531 million or $6.00 per share. In 1999, the after tax impact of the restructuring charge reversal was $48 million or $0.55 per share. Included in the net charge were costs related to the following actions and activities: ORGANIZATIONAL INTEGRATION ($122 MILLION). This action covers the integration of the sales and marketing, and logistics and manufacturing operations in North America. Included in the restructuring charge are costs associated with upgrading administrative and transaction processing systems to improve efficiency and responsiveness in the order-to-delivery cycle, and the creation of a shared services organization involving finance, procurement, human resources, communications, information technology and research and development resulting in workforce reductions. NON-STRATEGIC ASSET ELIMINATION ($322 MILLION). The restructuring includes the sale of certain international and North American businesses and a revaluation of goodwill related to certain acquisitions. MANUFACTURING RATIONALIZATION ($103 MILLION). The Corporation is consolidating Forms manufacturing operations across North America and internationally, and ceasing production of certain unprofitable products which resulted in the closure of 10 manufacturing facilities, primarily in North America. In addition, the print centers in the United States and Canada will be integrated into the North American manufacturing and logistics organization. Costs associated with the restructuring plan included non-cash costs of $358 million, and cash costs of $189 million, which will be funded through normal operations and borrowings. Included in the restructuring program are charges associated with the divestiture of certain international and North American businesses, and the write-down of goodwill and property, plant and equipment. The asset write-downs of $221 million for goodwill and other assets and $137 million for property, plant and equipment represent mainly a revaluation made for selective acquisitions and property, plant and equipment, primarily to be abandoned, under the Moore North America operating segment. 5 The restructuring charge includes amounts to be paid in cash of $189 million. Cash costs include mainly severance and termination benefits of $107 million to be paid to employees. Other cash costs of $82 million include costs for lease terminations, service contract buyouts and other obligations. Future payments for severance and termination benefits are expected to be funded through normal operations and borrowings. Actions under the restructuring program commenced in the third quarter of 1998 and are expected to be completed in the year 2001. The majority of the restructuring actions were executed in 1999. By reducing manufacturing capacity and overhead costs, the Corporation expects to generate annual savings of $120 million by the year 2001. RESTRUCTURING ACTIONS COMPLETED THROUGH DECEMBER 31, 1998 The Corporation was successful in completing certain actions during 1998, especially in relation to the European and Australasia Forms businesses which were exited on more favorable terms than initially anticipated, and actual and planned workforce reductions at a lower cost. On August 1, 1998, the Corporation disposed of its European Forms business resulting in a pre-tax loss of $85 million, of which $44 million was provided for in the 1998 restructuring charge, and $41 million was provided for in 1997. The Australian and New Zealand businesses were divested on December 30, 1998 resulting in a pre-tax loss of $42 million which was fully provided for in the restructuring provision. In the fourth quarter of 1998, the Corporation initiated steps to liquidate its joint ventures in China at an estimated loss of $8 million as provided for in the restructuring provision. In the last six months of 1998, the Corporation undertook substantial steps to complete the integration of its sales and marketing, and logistics and manufacturing operations in North America, resulting in the consolidation of 10 operating units into one business. The creation of the North American shared services functions began, including the process of streamlining administrative functions. The Corporation closed two plants in North America, eliminated numerous management positions in its North America Forms and Labels operations, and commenced other workforce delayering actions. The employee base was reduced by approximately 2,900 people by December 1998 due to the impact of the divestitures contemplated by the restructuring plan (2,600 employees), plant closures and other workforce reduction actions. RESTRUCTURING ACTIONS COMPLETED THROUGH DECEMBER 31, 1999 The Corporation completed a number of restructuring actions in 1999 including in the closure of five manufacturing facilities, bringing the total number of plant closures in North America to seven. Since July 1999, the Corporation started the process of closing and integrating its warehouses and U.S. print centers into a new manufacturing organization. Other actions in North America during 1999 included the consolidation of the Canadian and U.S. sales and administrative offices, the implementation of a shared services organization, and the continuation 6 of workforce delayering actions. In Europe, the Corporation has substantially completed the consolidation of its manufacturing facilities in France and has finalized the liquidation of a joint venture investment. Since the restructuring program began, the employee base has been reduced by approximately 3,900 people by December 1999 due to divestitures contemplated by the restructuring plan (2,600 employees), plant closures and other workforce reduction actions. The successful completion of several restructuring actions within all three noted action areas (Organizational Integration, Non-Strategic Asset Elimination and Manufacturing Rationalization) at lower than anticipated costs and the current forecast for outstanding actions have resulted in the Corporation reversing $68 million of charges under the 1998 restructuring program during the fourth quarter of 1999. These activities included the sale of certain North American businesses, the favorable settlement of claims related to the disposition of the European and Australasia Forms businesses and the negotiation of costs to exit customer contracts and lease agreements at more favorable terms than originally planned. The reversal also reflects decisions made by management, during the fourth quarter, to maintain some businesses that were originally earmarked for disposal. Gains on disposals have been credited to the restructuring provision to the extent that an impairment loss was classified as restructuring in the original provision. The carrying value of remaining assets held for disposal as at December 31, 1999 is $9 million. Results of operations related to assets held for disposal at December 31, 1999 are sales of $39 million ($46 million in 1998) and losses from operations of $1 million in 1999 ($2 million in 1998). Severance and termination benefits charged in 1999 and 1998 relate mainly to capacity rationalization, organizational delayering and other workforce reduction actions. During 1999, approximately $17 million (1998 - $13 million) of severance and termination benefits were paid out to employees. b) FINANCIAL INFORMATION ABOUT INDUSTRY AND GEOGRAPHIC SEGMENTS Operating and geographical segment definitions and financial information for the three years ended December 31, 1999 are presented in Note 20 of the Notes to Consolidated Financial Statements on pages 43 through 46 of the Moore Corporation Limited 1999 Annual Report to Shareholders and are incorporated herein by reference. c) NARRATIVE DESCRIPTION OF BUSINESS Products and Services Moore serves the business communication needs of corporations, governments and other enterprises through primarily two industry segments: (1) Forms, Labels and Related Products and (2) CCS. Moore manages the products and services offered through four different operating segments: Moore North America, CCS United States, Latin America and Europe. Due to dispositions made in 1998, the Asia Pacific 7 operating segment, which existed in 1998 and prior, no longer exists in 1999. Forms, Labels and Related Products include a comprehensive line of forms and services that are both paper-based and electronic-based. The forms and labels business represented 69% of Moore's revenues of $2.4 billion in 1999 (1998 - 72% of revenues of $2.7 billion). It encompasses custom business forms and equipment, print management outsourcing, commercial printing, on-demand and data based publishing, facilities management, pressure seal mailing services, pressure sensitive labels, linerless labels, variable image bar codes, integrated forms/labels combinations and electronic forms. Moore North America and the Latin American businesses each provide predominantly forms and label products and services, while Europe provides only CCS products and services. The CCS businesses represented 31% of total revenue in 1999 (1998 - 28%). The principal operations are conducted through Business Communication Services ("BCS") and Response Marketing Services ("RMS"). Included in the RMS group are RMS and Phoenix Group in the United States, RMS in Continental Europe and Colleagues Direct Marketing in the United Kingdom. BCS services include statement re-engineering and printing, image and mail outsourcing, compliance mailings and prepaid calling cards. BCS accesses, selects and formats customer information and supplies appropriate marketing-oriented output, which is either paper-based or electronic. BCS uses proprietary Moore technology to provide cost-effective product and service offerings. RMS in the United States and Europe uses proprietary Moore technology to create, produce and manage effective personalized direct marketing programs. Phoenix Group is a database marketing organization that provides research, database expertise, customer relationship management and teleservicing services. Colleagues Direct Marketing is the largest independent direct marketing services firm in the U.K. It offers a variety of services from total campaign outsourcing services to large scale personalized promotional printing. Competition The Corporation derives 76% (1998 - 69%) of its revenue from the United States marketplace with sales in Forms, Print Management and Related Products representing the largest component of its United States revenue. The business forms industry in the United States is going through a period of consolidation. There are 15 to 20 national forms companies of which Standard Register, Reynolds & Reynolds, and Wallace Computer Services Inc. in addition to Moore, are the largest. Other key competitors are Willamette, Corporate Express and Workflow Management. Moore believes the top seven companies have in total approximately 42% 8 (1998 - 42%) of the market in comparison to Moore's estimated 14% market share in 1999 (1998 - 14%). In addition, there are approximately 500 smaller companies organized on a regional and local basis. There are approximately 675 manufacturing plants in the United States serving the marketplace. The industry is very competitive with customers focused on increasing their revenue, controlling expenses and managing assets more effectively. Moore's strategy, in line with this environment, is to provide integrated management of all business documents - both paper and digital - and the services that support these documents and programs throughout their life cycle. In 1999, the United States business forms industry, including pressure sensitive labels and form/label combinations, sold approximately $11.5 billion of products, approximately the same as 1998. Industry sales are expected to show slight growth in 2000, as new products are introduced and new markets entered. The traditional United States forms marketplace is experiencing competition from commercial printing markets, label manufacturers, office products suppliers, and direct mail production companies as well as service bureaus. The trends in the marketplace are toward electronic commerce, integrated business communications management; shorter production runs; the logical extension of forms into direct mail and other targeted communications; and the conversion of most business information to digital format including changing what is printed as well as quantity, method and frequency of printing. Raw Material Paper continues to be the most significant item of raw material. The Corporation has long standing business relationships with critical paper manufacturers. The paper marketplace underwent three price increases in 1999 (year over year in excess of 35% increase in our predominant grades of paper that form the primary base of our production) resulting from a bullish marketplace. Without any new supply capacity expected in the future coupled by a fear of the unknown Year 2000 impacts, demand was firm throughout 1999. Imports had minimal impact on pricing, as they were not a major force in 1999. Intellectual Property Moore, through years of research and commercialization, has developed a proprietary portfolio of intellectual property consisting of patents, trademarks, copyrights and trade secrets. Since its founding, Moore has recognized the importance of intellectual property and is continually working to develop new technologies to provide additional value to its customers. Moore currently holds approximately 2,477 patents and applications throughout the world with about 410 patents in the United States. Moore's technology is constantly evolving and innovation remains 9 important with some 975 currently pending patent applications on file. Moore holds patents for Intelligent Imaging(R) applications, the ability to print variable data either alone or in combination with fixed field formats, pressure sensitive products, such as labels and including proprietary laminate products, pressure seal configurations and form constructions, used in self-mailer applications particularly in compliance and financial reporting, forms handling and processing equipment, automated systems, for electronic forms and print on demand, printing solutions, including electrostatic imaging and ink jet, as well as the more conventional business products which help our customers effectively manage their continually changing business needs. Moore endeavors to provide customers with leading edge technology. Also in 1999, the Corporation realized more than four million dollars in benefit from the licensing of the Corporation's technology and settlement of pending litigation. Moore's proprietary information handling products continue to offer advantages. The Corporation's traditional base of business forms has been modified and enhanced to meet the challenges of today's high speed printing applications. Form/label combinations continue to grow as product solutions in many areas, such as bar coding applications. Recently, Moore focused its developmental efforts on radio frequency identification products ("RFID"). RFID labels allow for more efficient tracking of tagged items thereby reducing process and handling costs. Linerless label technology is continuing to grow in its acceptance and supplanting the more conventional pressure sensitive products particularly in environmentally sensitive areas. Moore's pressure seal technology provides customers with an innovative way to reduce cycle time and improve document processing while maintaining the integrity of the mailers and indicating potential tampering. Moore has commenced a number of patent infringement actions and has successfully settled two lawsuits in connection with this effort. In its CCS businesses, Moore recently obtained several new patents related to imaging. Systems such as the XL Data System and PC Configuration allow serially connected printers to produce highly personalized and variable documents. These systems allow the user to merge text and graphics while simultaneously performing print commands at full printer speed. The proprietary MIPS system enables the user to selectively apply coloured graphics along with variable text. Moore is currently developing a new generation data system that is expected to enable customers to supply text graphics and image files directly to the Corporation's paper and electronic output processes without modification. Moore is actively pursuing a number of Internet based solutions to match its emerging e-business strategy. Moore has currently about 210 Registered US Trademarks with about 1300 registered worldwide. In connection with Moore's widely perceived brand recognition in the industry, a number of trademark oppositions have been commenced to prohibit the use of the Moore name or phonetic equivalents in Moore's field of endeavor. 10 Moore actively pursues copyright protection for its form and stationery products to prevent copycat production by competitors. In addition, Moore utilizes copyright protection for certain software and firmware developments. Backlog At December 31, 1999, the backlog of firm customer orders to be handled in the next 120 days was approximately $115 million. ($127 million at December 31, 1998). The Corporation has also built a backlog of approximately $1.6 billion of multi-year contracts for print management. Working Capital Short-term securities, accounts receivables and inventory comprise substantially all of the working capital in the Corporation. In North America, the Corporation sells its products and services principally on a "net 30 days" basis, which is the standard industry payment term. For the Corporation's other subsidiaries the payment terms are standard within their business segment and country. Raw material inventory is mainly paper and is comprised of externally purchased plain paper and a combination of internally converted carbonless and carbonized paper. Raw material on hand as of December 31, 1999 and December 31, 1998 was 1.1 months and 1.0 months, respectively. Finished goods inventory is comprised principally of orders custom-manufactured for customers under forms management agreements under which the forms are released to the customers over a set period of time. The cost of warehousing and financing these inventories is included with the price of the products. The finished goods inventory was 65% of total inventory at December 31, 1999 (December 31, 1998 - 64%). Employees At December 31, 1999, the Corporation employed 15,812 employees (December 31, 1998 - 17,135). ITEM 2 PROPERTIES The operations of the Corporation are carried on in 10.9 million square feet of manufacturing, administrative, warehouse, sales offices and research space. This is a slight increase from 1998 space of 10.8 million square feet. The increase is attributable to the actions brought upon by the restructuring plan. The plan has resulted in the closure of many manufacturing and administrative locations but these locations are still included in the total figures until they are sublet or sold. 11 The following table summarizes the manufacturing and administrative space of the Corporation at December 31, 1999:
Location Number of Plants Square Feet (000'S) -------- ---------------- ------------------- Manufacturing Plants -------------------- United States -owned 29 -leased 26 --- 55 4,306 --- Canada -owned 4 -leased 4 --- 8 690 --- Other Countries -owned 15 -leased 12 --- 27 1,599 --- ----- Total Manufacturing 90 6,595 === ===== Administrative Locations ------------------------ -owned 6 -leased 24 ---- Total Administrative 30 1,356 ==== =====
In addition to the above listed properties, the Corporation maintains warehouse facilities and sales offices, most of which are leased. The Corporation's facilities have been well maintained and, with a few exceptions in the overseas subsidiaries, are believed to conform to modern industrial standards in their respective locations. At December 31, 1999, 83.4% of the total square footage was utilized. The utilization rate is affected by the existence of empty plants resulting from the restructuring actions as mentioned above. These locations comprise 1.1 million square feet or 10.25% of the total square footage mentioned above. ITEM 3 LEGAL PROCEEDINGS At December 31, 1999, certain lawsuits and other claims were pending against the Corporation. While the outcome of these matters is subject to future resolution, management's evaluation and analysis of such matters indicates that, individually and in the aggregate, the probable ultimate resolution of such matters will not have a materially adverse effect on the financial position or results of operations of the Corporation. ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of the shareholders of the Corporation during the fourth quarter of 1999. 12 PART II ITEM 5 MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS The information regarding the market for and dividends on the common shares without par value of the Corporation and related security holder matters appears on page 56 of the Moore Corporation Limited 1999 Annual Report to Shareholders and is incorporated herein by reference. As of February 15, 2000, there were 5,005 record holders of the common shares without par value of the Corporation. ITEM 6 SELECTED FINANCIAL DATA The information regarding selected financial data for eleven years appears on pages 54 and 55 of the Moore Corporation Limited 1999 Annual Report to Shareholders and is incorporated herein by reference. ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Management's discussion and analysis of results of operations and financial condition appears on pages 8 to 25 of the Moore Corporation Limited 1999 Annual Report to Shareholders and is incorporated herein by reference. ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The information appearing under the caption "Market Risk" on pages 22 to 24 of the Moore Corporation Limited 1999 Annual Report to Shareholders is incorporated herein by reference. ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The consolidated financial statements of the Corporation, which are incorporated herein by reference, are described in the accompanying Index to Financial Statements and Schedule on page F-1. The Corporation's Selected Quarterly Financial Data for the two years ended December 31, 1999 appears on page 54 of the Moore Corporation Limited 1999 Annual Report to Shareholders and is incorporated herein by reference. ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There were no disagreements with the independent accountants on accounting and financial disclosure. 13 PART III ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information regarding the Directors of the Corporation appears on pages 3 to 5 of the Management Information Circular and Proxy Statement for the Annual and Special Meeting of Shareholders to be held on April 28, 2000 and is incorporated herein by reference. EXECUTIVE OFFICERS OF THE REGISTRANT
Name Age Positions Held During Last Five Years ---- --- ------------------------------------- Thomas E. Kierans 59 Chairman of the Board since October, 1997; and Chairman and CEO, Canadian Institute for Advanced Research; prior to September, 1999 Mr. Kierans was President and Chief Executive Officer, C.D. Howe Institute. W. Ed Tyler 47 President and Chief Executive Officer since April, 1998; prior thereto, Mr. Tyler held various positions with R.R. Donnelley & Sons Company; most recently he was Executive Vice President. Thomas J. McKiernan 61 Executive Vice President since April, 1998; between October, 1997 and April, 1998, Mr. McKiernan was Vice President and Interim CEO, Moore Corporation Limited and President, Moore Customer Communication Services; between September, 1995 and October, 1997, Mr. McKiernan was Vice President, Moore Corporation Limited and President, Moore Customer Communication Services; prior thereto, Mr. McKiernan was President, Moore Response Marketing Services. James B. Currie 51 Senior Vice President, Business Development since January, l999; between September, l996 and December, l998 Mr. Currie was President, J.B Consulting; between March, 1995 and August, 1996 Mr. Currie was Executive Vice President, General Counsel and Secretary of Chicago Title and Trust Company; prior thereto Mr. Currie was Executive Vice President, General Counsel and Secretary of Heller Financial, Inc. Michael S. Rousseau 41 Senior Vice President and Chief Financial Officer since May, 1999; prior to May, 1999 Mr. Rousseau was Vice President and Chief Financial Officer of Silcorp Limited. 14 Name Age Positions Held During Last Five Years ---- --- ------------------------------------- Patrick T. Brong 55 Vice President of Moore and President of Logistics and Operations, Moore North America since July, 1998; between November, 1997 and June, 1998 Mr. Brong was President, Moore North America; between April, 1995 and October, 1997, Mr. Brong was Vice President- Manufacturing, Moore Document Solutions; prior thereto, Mr. Brong was Vice President - Manufacturing, Moore Canada. Sieg E. Buck 50 Vice President, Moore Corporation Limited and President, Sales and Marketing, Moore North America, Inc. since July, 1998; between October, 1997 and July, 1998, Mr. Buck was President, Integrated Customer Solutions; prior to October, 1997 Mr. Buck was President, Image Management Services; between January, 1996 and May, 1997 Mr. Buck was Vice President, Document Automation Systems; prior thereto, Mr. Buck was Group President, Bell Sports Corporation. Charles F. Canfield 50 Vice President, Human Resources and Corporate Communications since June 1998; between July, 1997 and June, 1998, Mr. Canfield was Vice President, Human Resources and President, Moore Canada; prior thereto, Mr. Canfield was Vice President, Human Resources. Russell I. Johnson 64 Vice President, Procurement. Robert M. Jones 49 Vice President and Chief Information Officer since December, 1997; prior to December, 1997 Mr. Jones was Chief Information Officer of Whirlpool Corporation. John V. Laurie 47 Vice President and Treasurer since January, 2000; between November, 1998 and January, 2000 Mr. Laurie was Vice President and Treasurer of Maple Leaf Foods Inc.; between February, 1998 and November, 1998 Mr. Laurie was an Analyst at RBC Dominion Securities; between December, 1996 and February, 1998 Mr. Laurie was an independent consultant; prior to December, 1996 Mr. Laurie held several positions with George Weston Limited most recently as Vice President of Pensions and Treasurer. 15 Name Age Positions Held During Last Five Years ---- --- ------------------------------------- Peter F. Murphy 44 Vice President and Controller since September, 1999; prior to September, 1999 Mr. Murphy was Vice President and Controller of R.R. Donnelley and Sons Company. Robert Z. Slaughter 45 Vice President and General Counsel since January, 1999; between April, 1997 and December, 1998 Mr. Slaughter was Associate General Counsel; prior to March, 1997, Mr. Slaughter held various positions with Ameritech Corporation, most recently as Vice President and General Counsel of Ameritech's custom business services unit. Joan M. Wilson 44 Vice President and Secretary. James D. Wyner 56 Vice President, Moore Corporation Limited and President, Peak Technologies, Inc. since January, 1998; prior to January, 1998 Mr. Wyner was President, Moore Labels and Label Systems and a Vice President, Moore Corporation Limited; prior to June, 1996, Mr. Wyner was Executive Vice President - Operations, Paxar Corporation.
ITEM 11 EXECUTIVE COMPENSATION The information regarding the Directors' and Executive Officers' compensation appears on pages 8 to 15 of the Management Information Circular and Proxy Statement for the Annual and Special Meeting of Shareholders to be held on April 28, 2000 and is incorporated herein by reference. ITEM 12 SECURITY OWNERSHIP OF MANAGEMENT The information regarding the Security Ownership of the Directors and certain significant shareholders appears on pages 2 to 5 of the Management Information Circular and Proxy Statements for the Annual and Special Meeting of Shareholders to be held on April 28, 2000 and is incorporated herein by reference. The following table shows the beneficial ownership of, or control or direction over, common shares of the Corporation as of February 15, 2000, by each of the Corporation's most highly compensated executive officers: 16
Number of Nature of Name Shares Beneficial Ownership % of Class ---- --------- -------------------- ---------- W.E. Tyler 10,000(1) Sole investment and voting power (*) T.J. McKiernan 2,381(2) Sole investment and voting power (*) S.E. Buck 306(3) Sole investment (*) and voting power R. M. Jones -(4) - (*) J.D. Wyner -(5) - (*) M.S. Rousseau 10,000 Sole investment and voting power (*)
(*) All officers and directors of the Corporation as a group beneficially own less than 1% of the outstanding common shares. 1 Mr. Tyler has stock options to acquire 329,506 common shares that are exercisable within 60 days of February 15, 2000. 2 Mr. McKiernan has stock options to acquire 109,400 common shares that are exercisable within 60 days of February 15, 2000. 3 Mr. Buck has stock options to acquire 15,000 common shares that are exercisable within 60 days of February 15, 2000. 4 Mr. Jones has stock options to acquire 13,000 common shares that are exercisable within 60 days of February 15, 2000. 5 Mr. Wyner has stock options to acquire 17,500 common shares that are exercisable within 60 days of February 15, 2000. ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information regarding Certain Relationships and Related Transactions appears on pages 16 to 17 of the Management Information Circular and Proxy Statement for the Annual and Special Meeting of Shareholders to be held on April 28, 2000 and is incorporated herein by reference. 17 ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K Documents filed as part of the report. 1, 2 Financial Statements and Financial Statement Schedules See Index to Financial Statements and Schedule of Moore Corporation Limited on page F-1 which index is incorporated herein by reference.
3 Exhibit # Description --------- ----------- 3(i) Articles of Amalgamation dated January 1, 1993 (Previously filed as Exhibit 3(a) to Form 10-K for the fiscal year ended December 31, 1992, File I-8014 which is incorporated herein by reference.) 3(ii) Bylaw No. 1, as consolidated text as of April 12, 1990 (Previously filed as Exhibit 3(g) to Form 10-K for the fiscal year ended December 31, 1989, which is incorporated herein by reference.) 4(a) Dividend Reinvestment and Share Purchase Plan dated March 3, 1994 (Previously filed as Exhibit 4(a) to Form 10-K for the fiscal year ended December 31, 1993, which is incorporated herein by reference.) 4(b) Shareholder Rights Plan Agreement dated April 12, 1995 (Previously filed as Exhibit 1 to Form 8-K dated April 27, 1995 which is incorporated herein by reference.) 11 Statement re computation of per share earnings 13 Annual Report to Shareholders for the year ended December 31, 1999 21 Subsidiaries of the registrant 23 Consents of PricewaterhouseCoopers LLP dated February 17, 2000 Reports on Form 8-K No reports on Form 8-K were filed in the forth quarter of the year ended December 31, 1999.
18 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Moore Corporation Limited ------------------------- (Registrant) By: s/b W.E. Tyler -------------------------------------- W.E. Tyler, Director, President and Chief Executive Officer By: s/b J.M. Wilson -------------------------------------- J.M. Wilson, Vice President and Secretary Dated: February 17, 2000 19 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature Title Date --------- ----- ---- s/b T.E. Kierans Director and Chairman February 17, 2000 - ---------------- of the Board T.E. Kierans s/b W.E. Tyler Director, President February 17, 2000 - -------------- and Chief Executive W.E. Tyler Officer s/b M.S. Rousseau Senior Vice President February 17, 2000 - ----------------- and Chief Financial M.S. Rousseau Officer s/b P.F. Murphy Vice President and February 17, 2000 - --------------- Controller P.F. Murphy s/b D.H. Burney Director February 17, 2000 - --------------- D.H. Burney s/b S.A. Dawe Director February 17, 2000 - ------------- S.A. Dawe s/b R.J. Lehmann Director February 17, 2000 - ---------------- R.J. Lehmann s/b J.R.S. Prichard Director February 17, 2000 - ------------------- J.R.S. Prichard s/b D.R. McCamus Director February 17, 2000 - ---------------- D.R. McCamus
20 MOORE CORPORATION LIMITED INDEX TO FINANCIAL STATEMENTS AND SCHEDULE The Consolidated Balance Sheets as at December 31, 1999 and 1998, the Consolidated Statements of Earnings, Retained Earnings and Cash Flows for each of the three years in the period ended December 31, 1999, the Notes to the Consolidated Financial Statements, together with the report thereon of PricewaterhouseCoopers LLP dated February 17, 2000, appearing on pages 26 to 53 of the Moore Corporation Limited 1999 Annual Report to Shareholders, are incorporated by reference in this Form 10-K. With the exception of the aforementioned information and the information incorporated in Items 1, 5, 6, 7 and 8 of this Form 10-K, the Moore Corporation Limited 1999 Annual Report to Shareholders is not to be deemed filed as part of this report. The financial statement schedule which follows should be read in conjunction with the financial statements in the Moore Corporation Limited 1999 Annual Report to Shareholders. Financial statement schedules not included have been omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. Separate financial statements of associated companies accounted for by the equity method have been omitted because the proportionate share of their profit before income taxes and total assets of each company are less than 20% of the respective consolidated amounts, and investments in such companies are individually less than 20% of consolidated total assets of the Registrant. The Report of Independent Accountants on the Financial Statement Schedule appears on page F-2.
Financial Statement Schedule Page - ---------------------------- ---- II Allowance for doubtful accounts F-3
F-1 REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE To the Board of Directors of Moore Corporation Limited Our audits of the consolidated financial statements referred to in our report dated February 17, 2000 appearing on page 53 of the 1999 Annual Report to Shareholders of Moore Corporation Limited, (which report and consolidated financial statements are incorporated by reference in this Form 10-K) also included an audit of the Financial Statement Schedule listed in the foregoing index in this Form 10-K. In our opinion, the Financial Statement Schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. PRICEWATERHOUSECOOPERS LLP CHARTERED ACCOUNTANTS Toronto, Canada February 17, 2000 F-2 MOORE CORPORATION LIMITED SCHEDULE II - ALLOWANCE FOR DOUBTFUL ACCOUNTS (Expressed in United States currency in thousands of dollars)
Additions Balance at Charged to Beginning Costs and Deductions Balance at of Year Expenses (Note 1) End of Year ---------- ---------- ---------- ----------- 1997 9,311 6,905 (6,254) 9,962 1998 9,962 7,115 (2,865) 14,212 1999 14,212 2,129 (2,417) 13,924
Note 1 - Primarily write-offs, recoveries and foreign currency translation adjustments. F-3 EX-11 2 EXHIBIT 11 MOORE CORPORATION LIMITED EXHIBIT 11 - CALCULATION OF EARNINGS AND EARNINGS PER SHARE UNDER UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (Expressed in United States currency)
1999 1998 1997 ---- ---- ---- Net earnings (loss) as determined under United States generally accepted accounting principles (000's)(1) $ 72,884 $ (454,142) $ (1,206) ======================= ======================= ======================= Weighted average number of shares outstanding - Basic 88,456,940 88,455,512 93,200,395 - Diluted 89,209,291 89,013,151 93,611,677 Earnings (loss) per share - Basic $ 0.82 $ (5.13) $ (0.01) ======================= ======================= ======================= - Diluted $ 0.82 $ (5.13) $ (0.01) ======================= ======================= =======================
(1) Refer to Note 25 of the Notes to the Consolidated Financial Statements on pages 47 to 51 of the Moore Corporation Limited 1999 Annual Report to Shareholders. E-1 EX-13 3 EXHIBIT 13 M O O R E CORPORATION LIMITED 1999 Annual Report www.moore.com [MOORE LOGO] Financial Highlights
EXPRESSED IN UNITED STATES CURRENCY AND, EXCEPT PER SHARE AMOUNTS, IN MILLIONS OF DOLLARS 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------- CONSOLIDATED STATEMENT OF EARNINGS Sales $ 2,425 $ 2,718 $ 2,631 Income (loss) from operations, before restructuring 73 (16) 49 Income (loss) from operations 142 (631) 49 Per dollar of sales 5.8CENTS (23.2)CENTS 1.9CENTS Income tax expense (recovery) 35 (94) 49 Percentage of pre-tax earnings 27% 15% 47% Net earnings (loss), before restructuring 44 (17) 55 Net earnings (loss) 93 (548) 55 Per dollar of sales 3.8CENTS (20.2)CENTS 2.1CENTS - ------------------------------------------------------------------------------------------------------------------- CONSOLIDATED BALANCE SHEET Working capital $ 128 $ (47) $ 175 Ratio of current assets to current liabilities 1.2:1 1.0:1 1.2:1 Capital employed in business 1,046 1,033 1,534 Return on capital employed 8.9% (42.7)% 3.3% Shareholders' equity 673 610 1,186 Return on shareholders' equity 14.4% (61.0)% 4.0% Total assets 1,630 1,726 2,175 Expenditure for property, plant and equipment 101 75 136 - ------------------------------------------------------------------------------------------------------------------- PER COMMON SHARE Net earnings (loss), before restructuring $ 0.50 $ (0.19) $ 0.59 Net earnings (loss) 1.05 (6.19) 0.59 Dividends declared 0.20 0.385 0.94 Shareholders' equity 7.60 6.90 13.40 Average shares outstanding (in thousands) 88,457 88,456 93,200 - -------------------------------------------------------------------------------------------------------------------
SALES INCOME (LOSS) FROM OPERATIONS (millions of dollars) (millions of dollars)
NET EARNINGS (LOSS) RETURN ON SHAREHOLDERS' EQUITY (millions of dollars) (%)
OUR VISION Moore will be a HIGH-GROWTH, TECHNOLOGY-BASED LEADER in the management and communication of customer information, thereby creating value for customers, employees and shareholders. 1999 Annual Report MOORE CORPORATION LIMITED 1 MESSAGE TO SHAREHOLDERS 1999 THE YEAR 2000 REPRESENTS AN EXCITING NEW BEGINNING FOR MOORE. 1999 WAS A TRANSITION YEAR MOVING FROM THE RESTRUCTURING PHASE TO THE DEVELOPMENT OF A NEW VISION AND GROWTH STRATEGY FOR MOORE. The business transformation we set in motion in 1998 delivered expected results, and we made significant progress in positioning your company for future growth through a strategic plan that embraces technology solutions for our customers. The restructuring has successfully positioned us to compete in the future. While we have a long way to go, we are clearly staking out our space in this rapidly evolving, technology-driven industry. Our new direction and prospects for success are exciting. We have a clear strategic focus and there is a game plan for success. The first step was to regain financial strength through our restructuring plan. We are pleased to announce improvement on a variety of fronts: - - Delivered $60 million in annual savings as a result of restructuring initiatives and are on target to meet $120 million in annualized savings by 2001. - - Dramatically improved profitability and cash flow in the Forms business, while expanding market opportunities through digital products. - - Continued to grow the Customer Communication Services business, despite a revenue decline in Response Marketing Services (RMS) related to the uncertainty of increased regulations in the sweepstakes industry. The Phoenix Group revenue increased by 39 percent. - - Grew earnings per share to $0.53 in 1999, on a normalized basis, compared to $0.12 per share in 1998. - - Achieved our corporate Economic Value Added-Registered Trademark- (EVA) improvement target. These trends provide a foundation to allow us to meet our growth targets. They indicate that our restructuring is working and that we have established a strong base for future growth. Part of our restructuring meant divestitures and liquidations of less-profitable operations, which resulted in a decrease in 1999 revenues to $2.4 billion. Your management team is confident that revenues will grow hereafter. Our confidence is based on our having won key contracts in 1999 that open up new market opportunities, as well as our completion in 1999 of a strategic growth plan. 1999 wins included a contract with Novation, which together with our Premier Partners contract in 1998, establishes Moore as the leading healthcare document management provider in the U.S. Major new contracts 2 LEFT TO RIGHT: Thomas E. Kierans CHAIRMAN OF THE BOARD W. Ed Tyler [PHOTO] PRESIDENT AND CHIEF EXECUTIVE OFFICER Photo of Thomas E. Kierans and W. Ed Tyler THE MOORE SENIOR MANAGEMENT TEAM ANALYZED EVERY MARKET SEGMENT RELATED TO OUR INDUSTRY. WE THEN STAKED OUT OUR PLAN TO LEAD THE INDUSTRY EVOLUTION INCLUDING THE TRANSITION TO DIGITAL. ---------------------------------------- in Argentina and Brazil expand Moore's opportunities in offshore markets, as does our opening of Moore Chile. Also during the year, GE Capital Global Consumer Finance selected Moore's Colleagues Group in England as its outsourcing partner for all print and related materials. This has the potential to significantly increase the size of our operation in England. A more detailed progress report on 1999 accomplishments and how they track against 1998 goals follows this letter. With the addition of Jim Currie, who joined the company in January as senior vice-president, business development; and Mike Rousseau, who joined in May as senior vice-president and chief financial officer, we now have the senior management team in place to drive our new strategy. During 1999, Moore's management team analyzed every market segment related to our industry. We then staked out our plan to lead the industry evolution including the transition to digital. Key to achieving our growth vision is the migration towards expanded integrated marketing services. We will continue to grow our core Forms business, but will seek service business opportunities that provide higher growth rates, more attractive margins and expansion of value-added relationships with customers. Growth in both our Forms and Customer Communication Services businesses will take advantage of Moore's significant technology expertise. To remain at the forefront of industry innovation, we are continuing to invest approximately $25 million annually in R&D. We expect an incremental technology investment of approximately $35 million in 2000 to position Moore as a leader in delivering digital information systems and to continue the enterprise resource planning system transition. Moore is in a unique position to integrate customers' print and digital solutions by leveraging our variable digital print technology, applications experience and open systems platform. These technology advantages coupled with our strong and 3 OUR TECHNOLOGY INVESTMENT INCLUDES BOTH DEVELOPMENT OF EXISTING DIGITAL AND INTERNET CAPABILITIES AS WELL AS POTENTIAL ACQUISITIONS, ALLIANCES AND PARTNERSHIPS. - --------------------------------------- diversified customer base, brand equity and experienced management team give Moore a critical, competitive edge. We provide a number of digital and Internet solutions, including sophisticated Digital PreSets-TM- and the first, integrated, business-to-business print-on-demand products. We are extremely well positioned to capture a large share of the potential $1 billion Radio Frequency Identification (RFID) market segment by leveraging Peak Technologies' innovative bar code based data capture technology. In December, we launched a cross-functional, cross-divisional team to aggressively position Moore as a leader in RFID integrated solutions. Our Customer Communication Services business has also launched several web-based, interactive marketing service offerings and is aggressively seeking digital service extensions. In 1999 our e-commerce business in Moore North America accounted for approximately $125 million in revenue which represents about eight percent of Moore North America's total revenue. In 2000, we plan to roll out additional digital products critical to workplace efficiency, such as smart documents, digital content management, digital publications and workflow applications. In the third quarter of 1999, we formed a Digital Solutions Delivery team to expedite our rollout of this offering. To capitalize on the enormous opportunities created by the Internet, last July we established Moore Interactive--a venture dedicated to developing interactive Internet applications across all business segments. Applications offering greatest growth potential relate to customers' brand building efforts and customer acquisition, loyalty and retention programs. We will continue to leverage a variety of channels to sell these interactive products, including strategic alliances that complement our strengths. As part of this plan, in November, we announced an alliance with Blockbuster to provide personalized Internet greeting and gift cards. We also established a customized, interactive New Car Workbook for new car buyers. We digitally print a personalized workbook for consumers with Edmunds.com. To see Moore at work with Blockbuster and Edmunds.com, visit their Web sites. Our employees are critical to the successful execution of our vision. We are proud that our employees are responding to the dual demands of restructuring and growth with tenacity, creativity and commitment. With their efforts and support, we are building a corporate culture based on teamwork, pride, entrepreneurship and integrity. We believe the milestones achieved in 1999 demonstrate our commitment to reinventing a 118-year-old company. As we successfully implement our vision, we anticipate even stronger performance in the coming years. Thank you for your loyalty and support. W. Ed Tyler (Signed) Thomas E. Kierans (Signed) PRESIDENT AND CHAIRMAN OF THE BOARD CHIEF EXECUTIVE OFFICER 4 1999
1999 BUSINESS OBJECTIVES KEY 1999 ACTIONS PROGRESS TO DATE - ----------------------------------------------------------------------------------------------------------------------------------- GROW MARKET LEADERSHIP - Initiate major restructuring - Plant utilization increased significantly and now ranks POSITION IN NORTH AMERICAN program Moore among the leaders in the industry. FORMS AND LABELS BUSINESS - Rationalize manufacturing - Five plants were closed or sold in 1999, completing the capacity seven North American plants announced as part of the restructuring. The Corporation realized $60 million in operating income benefits in 1999 from restructuring activities. - Create integrated, delayered - Management delayering initiated throughout the company. With North American organization restructuring and divestiture, some 4,500 jobs have been eliminated since July 1998. - ----------------------------------------------------------------------------------------------------------------------------------- EXPAND DIGITAL AND - Form Emerging Technologies - In July, announced Moore Interactive to focus on expanding ELECTRONIC SOLUTIONS group the growth of the company's Internet-based, variable digital CAPABILITIES print and communications businesses. - Launch new suite of - Formed Digital Solutions Delivery team in 3rd quarter to electronic solutions expedite our abilities to drive digital solutions to the marketplace. Introduced Digital PreSets-TM.- - Offer multiple choices - TeamServ-TM- deployed as an alternative sales channel. for electronics deployment - ----------------------------------------------------------------------------------------------------------------------------------- ACCELERATE GROWTH - Deliver integrated value - Began creating synergies between BCS/RMS/Phoenix and IN MARKETING SERVICES proposition worked together on several accounts. AND BUSINESS COMMUNICATIONS - Develop customer relationship - Launched innovative programs to customers to assist in lead OPERATIONS management solutions generation. - Add scale and enhance - Signed agreement with Commerce One and formed venture capabilities through selected capital investment partnership with Atrium Capital. alliances and acquisitions - ----------------------------------------------------------------------------------------------------------------------------------- STREAMLINE BUSINESS - Divest non-strategic, - Data Management Services (DMS) sold to VISTAinfo, Moore PORTFOLIO AND IMPROVE unprofitable businesses and takes a 10 percent equity position in VISTAinfo. PRODUCTIVITY THROUGH products RESTRUCTURING - Integrate, standardize and - SAP deployed in Canadian plants and administrative offices improve business processes during 1999. Moore North America to continue deployment through enterprise-wide system in 2000/2001. - Reduce layers of management; - In 4th quarter, five Chicagoland offices were centralized implement Shared Service into a single building. Canadian operations were also consolidated for further cost savings. - ----------------------------------------------------------------------------------------------------------------------------------- EXCEED CUSTOMER - Align sales, production and - Adopted in January 1999, EVA to help drive value creation EXPECTATIONS AND FOSTER distribution resources at Moore. By year's end, the EVA improvement target for EMPLOYEE COMMITMENT 1999 was achieved. - Act on customer satisfaction - Annual customer satisfaction survey results showed survey results improvements in every area over 1998 benchmark scores. - Use EVA as key measure for - Senior executive incentive program aligned to EVA short- and long-term incentive improvement targets. programs - Launch new training and - Leadership Development initiatives were launched in development programs February. Aimed to retain, develop, and acquire the skill sets required as the company moves forward in executing its growth strategies. - -----------------------------------------------------------------------------------------------------------------------------------
5 THE BOARD OF DIRECTORS AND CORPORATE GOVERNANCE THE PRIMARY OBJECTIVE OF THE MOORE BOARD OF DIRECTORS IS TO PRESERVE AND GROW SHAREHOLDER VALUE. TO THIS END, THE BOARD ASSUMES ULTIMATE RESPONSIBILITY FOR THE STEWARDSHIP OF THE CORPORATION, DIRECTLY AND THROUGH ITS FIVE COMMITTEES. THE BOARD BELIEVES ITS POLICIES AND PRACTICES ARE IN COMPLIANCE WITH THE CORPORATE GOVERNANCE GUIDELINES ESTABLISHED BY THE TORONTO STOCK EXCHANGE. A FULL DISCUSSION OF MOORE'S GOVERNANCE PRACTICES IS CONTAINED IN THE MANAGEMENT INFORMATION CIRCULAR AND PROXY STATEMENT SENT TO SHAREHOLDERS WITH THIS ANNUAL REPORT. DIRECTORS The following persons will be nominated as directors at the 2000 Annual and Special Meeting of Shareholders. THOMAS E. KIERANS Toronto, ON CHAIRMAN OF THE BOARD SINCE 1997 PRESIDENT AND CHIEF EXECUTIVE OFFICER CANADIAN INSTITUTE FOR ADVANCED RESEARCH DEREK H. BURNEY, O.C. Toronto, ON DIRECTOR SINCE 1993 PRESIDENT AND CHIEF EXECUTIVE OFFICER CAE INC. LEON COURVILLE Montreal, QC DIRECTOR SINCE 1999 CORPORATE DIRECTOR SHIRLEY A. DAWE Toronto, ON DIRECTOR SINCE 1989 PRESIDENT SHIRLEY DAWE ASSOCIATES INC. BARTON L. FABER Phoenix, AZ DIRECTOR SINCE 1999 CHAIRMAN AND CHIEF EXECUTIVE OFFICER FABERCAPITAL CORPORATION RICHARD J. LEHMANN Phoenix, AZ DIRECTOR SINCE 1997 RETIRED VICE CHAIRMAN BANK ONE CORPORATION JEANETTE P. LERMAN Philadelphia, PA DIRECTOR SINCE 1995 PRESIDENT J.P. LERMAN & CO. BRIAN M. LEVITT Montreal, QC DIRECTOR SINCE 1996 CORPORATE DIRECTOR DAVID R. MCCAMUS Oakville, ON DIRECTOR SINCE 1997 CORPORATE DIRECTOR J. ROBERT S. PRICHARD, O.C. Toronto, ON DIRECTOR SINCE 1996 PRESIDENT UNIVERSITY OF TORONTO W. ED TYLER Chicago, IL DIRECTOR SINCE 1998 PRESIDENT AND CHIEF EXECUTIVE OFFICER MOORE CORPORATION LIMITED DEPARTURES The Board of Directors wishes to thank James M. Stanford and Thomas M. Taylor for their contribution during their tenure as Directors. 6 CORPORATE MANAGEMENT W. ED TYLER ^ PRESIDENT AND CHIEF EXECUTIVE OFFICER THOMAS J. MCKIERNAN ^ EXECUTIVE VICE PRESIDENT JAMES B. CURRIE ^ SENIOR VICE PRESIDENT BUSINESS DEVELOPMENT MICHAEL S. ROUSSEAU ^ SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER CHARLES F. CANFIELD ^ VICE PRESIDENT HUMAN RESOURCES AND CORPORATE COMMUNICATIONS CHRISTIAN J. HIPP VICE PRESIDENT RESEARCH AND CHIEF ENVIRONMENTAL OFFICER RUSSELL I. JOHNSON ^ VICE PRESIDENT PROCUREMENT ROBERT M. JONES VICE PRESIDENT AND CHIEF INFORMATION OFFICER JOHN V. LAURIE ^ VICE PRESIDENT AND TREASURER PETER F. MURPHY ^ VICE PRESIDENT AND CONTROLLER ROBERT Z. SLAUGHTER ^ VICE PRESIDENT AND GENERAL COUNSEL JOAN M. WILSON ^ VICE PRESIDENT AND SECRETARY OPERATING MANAGEMENT WAYNE K. ADAMS PRESIDENT MOORE LATIN AMERICA GARY W. AMPULSKI PRESIDENT BUSINESS COMMUNICATION SERVICES PATRICK T. BRONG ^ PRESIDENT LOGISTICS AND OPERATIONS MOORE NORTH AMERICA SIEGFRIED E. BUCK ^ PRESIDENT SALES AND MARKETING MOORE NORTH AMERICA EDWARD L. DORRINGTON PRESIDENT PHOENIX GROUP JOHN S. SCHULTE MANAGING DIRECTOR CCS EUROPE JAMES D. WYNER ^ PRESIDENT PEAK TECHNOLOGIES RICHARD M. ZAGORSKI PRESIDENT RESPONSE MARKETING SERVICES ^ CORPORATE OFFICER 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION THIS SECTION PROVIDES A REVIEW OF THE FINANCIAL PERFORMANCE OF MOORE CORPORATION LIMITED DURING THE THREE YEARS ENDED DECEMBER 31, 1999. THE ANALYSIS IS BASED ON THE CONSOLIDATED FINANCIAL STATEMENTS THAT ARE PRESENTED STARTING ON PAGE 26, PREPARED IN ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP) IN CANADA. DIFFERENCES FROM GAAP IN THE UNITED STATES ARE DISCLOSED IN NOTE 25 ON PAGE 47. PLEASE NOTE THAT WHERE APPROPRIATE, COMPARATIVE FIGURES HAVE BEEN CHANGED TO CONFORM TO THE CURRENT PRESENTATION. OVERVIEW THE CORPORATION MADE SIGNIFICANT PROGRESS DURING 1999 IN DELIVERING RESULTS FROM ITS RESTRUCTURING PLAN BEGUN IN 1998 AND IN EMBARKING ON A NEW STRATEGIC GROWTH VISION. FOLLOWING ARE HIGHLIGHTS OF THE FINANCIAL AND OPERATING MILESTONES ACHIEVED DURING 1999: - DELIVERED $60 MILLION IN ANNUAL SAVINGS AS A RESULT OF RESTRUCTURING INITIATIVES AND ARE ON TARGET TO MEET $120 MILLION IN ANNUALIZED SAVINGS BY 2001. - DRAMATICALLY IMPROVED PROFITABILITY AND CASH FLOW IN THE FORMS BUSINESS, WHILE EXPANDING MARKET OPPORTUNITIES THROUGH MAJOR CONTRACT WINS, INTERNATIONAL EXPANSION AND DEVELOPMENT OF DIGITAL PRODUCTS. - CONTINUED TO GROW THE CUSTOMER COMMUNICATION SERVICES BUSINESS, DESPITE A REVENUE DECLINE IN RESPONSE MARKETING SERVICES (RMS). THE PHOENIX GROUP REVENUE INCREASED BY 39%. - BEGAN TO INVEST IN A COMPREHENSIVE TECHNOLOGY STRATEGY THAT WILL CAPITALIZE ON DIGITAL OPPORTUNITIES IN HIGH-GROWTH AREAS SUCH AS CUSTOMER ACQUISITION, LOYALTY AND RETENTION. - LAUNCHED MOORE INTERACTIVE AS A DEDICATED UNIT TO LEVERAGE THE INTERNET AS A PLATFORM ACROSS ALL BUSINESSES. IN ADDITION, THE CORPORATION INITIATED A STRATEGIC PLAN AIMED AT CREATING VALUE AS A HIGH-GROWTH, TECHNOLOGY-BASED LEADER IN THE MANAGEMENT AND COMMUNICATION OF CUSTOMER INFORMATION. THE CORPORATION BELIEVES IT WILL ACHIEVE THIS THROUGH LEVERAGING KEY STRENGTHS INCLUDING ITS BRAND EQUITY, CUSTOMER RELATIONSHIPS, TECHNOLOGY EXPERTISE, COMMITMENT OF EMPLOYEES AND OPERATIONAL DISCIPLINES. 8 RESULTS OF OPERATIONS The Corporation has four (1998 - five) distinct operating segments in which management assesses information on a regular basis for decision-making purposes. Together, these segments market products and services of both Forms and Labels (Forms) and Customer Communication Services (CCS) to customers worldwide. The four segments are Moore North America, CCS United States, Latin America and Europe. As part of the restructuring plan, the Asia Pacific operating segment and the European Forms operations that existed prior to 1999 were eliminated through divestitures and liquidations that occurred between August and December 1998. The following discussions include information on a corporate-wide basis and on an operating segment basis. 1999 VERSUS 1998 Highlights of the consolidated results reported for 1999 and 1998 are: - - Sales in 1999 of $2,425 million decreased by $293 million or 11% compared to 1998 sales of $2,718 million. The decrease is mainly the result of divestitures and liquidations ($230 million) and the continued devaluation of foreign currencies ($51 million) associated with international operations. - Forms sales in 1999 of $1,662 million decreased by $297 million compared to Forms sales in 1998 of $1,959 million. Included in Forms sales are Labels and Label Systems sales of $477 million (1998 - $471 million), an increase of $6 million from 1998 levels. Forms sales represent 69% of the Corporation's total sales compared to 72% in 1998. - CCS sales in 1999 of $763 million increased 1% from $759 million in 1998. CCS sales represent 31% of total sales compared to 28% in 1998. - - Cost of sales in 1999 is 67.7% of sales compared to 69.6% in 1998. - - Selling, general and administrative costs (SG&A) in 1999 decreased to $585 million from $697 million in 1998. The ratio of SG&A costs to sales in 1999 decreased to 24.1% compared to 25.7% in 1998. - - A restructuring reversal of $68 million was recorded in 1999 compared to a $615 million provision in 1998. The restructuring program is described in a separate section of the Management's Discussion and Analysis. - - Capital asset amortization of $101 million in 1999 decreased by $17 million from $118 million in 1998. - - Research and development costs for 1999 of $23 million were $4 million below the $27 million incurred in 1998. - - Income from operations in 1999 was $142 million compared to a loss from operations in 1998 of $631 million. - Forms operating income in 1999 was $85 million compared with an operating loss in 1998 of $624 million. The Labels component represented $30 million of the operating income in 1999 and $168 million of the 1998 operating loss. - CCS operating income in 1999 of $52 million increased $57 million from the 1998 operating loss of $5 million. - - Investment and other income of $11 million in 1999 increased from $7 million in 1998. - - The 1999 effective tax rate of 27% represents a provision for income taxes compared to the 1998 recovery of income taxes of 15%. - - The net income for 1999 was $93 million or earnings per share of $1.05, compared with a loss of $548 million and a loss per share of $6.19 in 1998. 9 1999 VERSUS 1998 EXCLUDING UNUSUAL ITEMS In order to provide a more meaningful comparison of 1999 results to 1998 results, the Corporation has identified transactions that affect the two years in a disproportionate manner. These are divestitures, restructuring, Year 2000 costs and other one-time transactions. These items have been removed from the operating results of the affected year as follows: - - The 1998 restructuring provision of $615 million and the 1999 restructuring reversal of $68.4 million that are explained in greater detail in a separate section of the Management's Discussion and Analysis. - - The 1998 comparative results of businesses divested or liquidated in 1998: - European Forms business with sales of $109.4 million and operating losses of $6.6 million, - Australian and New Zealand businesses with sales of $105.2 million and operating losses of $6.9 million, - Asia Pacific joint ventures with sales of $2.8 million and operating losses of $2.5 million and - Rediform business with sales of $12.8 million and operating income of $1.1 million. - - The $25.3 million and $17.4 million of Year 2000 costs spent in 1998 and 1999 respectively. - - The $7.3 million gain relating to the December 1999 sale of Data Management Services. - - The 1998 operational charge and other one time items of $20.8 million. - - The 1998 investment and other income of $5.0 million relating to: - the gain on sale of the Cordant Holdings Corporation investment, - the gain on sale of the Rediform business and o the gain on sale of the Albany, Georgia manufacturing facility. - Partially offset by: - the decoupling accrual required to separate the CCS Europe business from the European Forms business and - the write-off of certain capitalized software costs and other one time items. All further discussions, including the operating segment discussions, will be based on the Corporation's operating results net of the above mentioned items.
---------------------------------- PRESENTED NET OF ABOVE NOTED ITEMS - --------------------------------------------------------------------------------------------------------------------- FOR THE YEAR ENDED DECEMBER 31 EXPRESSED IN UNITED STATES CURRENCY AND, EXCEPT EARNINGS PER SHARE, IN MILLIONS OF DOLLARS 1999 1998 - --------------------------------------------------------------------------------------------------------------------- Sales $ 2,425.1 $ 2,487.5 Income from operations 90.7 45.5 NET EARNINGS 47.0 29.3 NET EARNINGS PER COMMON SHARE $ 0.53 $ 0.33 Average shares outstanding (in thousands) 88,457 88,456 - ---------------------------------------------------------------------------------------------------------------------
10 - - Sales of $2,425 million decreased by 3% over 1998 sales. This decrease includes a foreign exchange impact of $51 million, relating to the devaluation of foreign currencies versus the U.S. dollar. - Forms sales declined 4% from $1,738 million in 1998 to $1,662 million in 1999. Forms sales represent 69% of total sales compared to 70% in 1998. This decrease includes a foreign exchange impact of $35 million. The Labels component increased by 8% from $440 million in 1998 to $477 million in 1999 and represents 20% of total sales compared to 18% in 1998. - CCS sales increased by 2% from $750 million in 1998 to $763 million in 1999. This increase includes a negative foreign exchange impact of $16 million. CCS sales represent 31% of total sales compared to 30% in 1998. - - Income from operations in 1999 was $91 million compared to $46 million in 1998. - - Net earnings were $47 million compared to $29 million in 1998. - - Earnings per share were $0.53 compared to $0.33 in 1998. - - Research and development expenditures totalled $23 million in 1999, compared to $27 million in 1998. In the business document arena, development expenditures were focused on continuing to improve our market-leading pressure seal-mailers, new label constructions, and growing our print-on-demand offerings. For the high speed digital printing business, a new workflow was introduced in our direct marketing business, and a number of new, higher print quality offerings were introduced that improved the product appearance and supported new, higher information density bar codes. For Internet-based applications, the Corporation focused on development of seamless fulfillment for digital print and communication products, as well as systems that provide flexible, cost efficient management of forms and documents that are easily accessible to end users. In 2000, the Corporation expects to invest approximately $25 million for research and development. MOORE NORTH AMERICA
---------------------------------- PRESENTED NET OF ABOVE NOTED ITEMS - --------------------------------------------------------------------------------------------------------------------- FOR THE YEAR ENDED DECEMBER 31 EXPRESSED IN UNITED STATES CURRENCY IN MILLIONS OF DOLLARS 1999 1998 - --------------------------------------------------------------------------------------------------------------------- Sales $ 1,563.6 $ 1,608.4 Income from operations 49.9 7.8 - ---------------------------------------------------------------------------------------------------------------------
North American sales have decreased by $45 million from 1998 to 1999. The decrease is attributable to decreased volumes in the Forms and core print activities. As a result of the restructuring plan implemented in 1998, Moore North America reviewed manufacturing capacity as well as product lines and customer contracts to eliminate low profit generating items. The review resulted in the cancellation of certain customer contracts as well as the elimination of certain product lines. While these actions contributed to a decline in sales of approximately $60 million, they resulted in an increase in operating income. The sales decreases were partially offset by modest price increases and by an increase in the Labels volume, especially in the Peak Technologies (Peak) operating units. Peak's sales, comprised wholly of Labels and Label Systems business, increased by $16 million. 11 Operating income increased by $42 million from 1998. The increase is a result of modest pricing increases coupled with a reduction of research costs, higher volume of higher margin products and cost controls instituted as a result of the restructuring program. The increase was also affected by the elimination of low profit generating contracts and product lines as mentioned above. These increases were partially offset by large paper price increases and increased LIFO inventory costs. The increase in operating income was also affected by the incremental volume in Peak's operations. Peak's operating income improved by $6.7 million from 1998 to 1999. CCS UNITED STATES
---------------------------------- PRESENTED NET OF ABOVE NOTED ITEMS - --------------------------------------------------------------------------------------------------------------------- FOR THE YEAR ENDED DECEMBER 31 EXPRESSED IN UNITED STATES CURRENCY IN MILLIONS OF DOLLARS 1999 1998 - --------------------------------------------------------------------------------------------------------------------- Sales $ 526.5 $ 519.6 Income from operations 37.9 34.8 - ---------------------------------------------------------------------------------------------------------------------
CCS sales in 1999 of $527 million increased by $7 million (1.3%) compared to 1998 sales of $520 million. The sales increase is due in part to volume increases in the Business Communication Services (BCS) and Phoenix Group units. This increase was also partially offset by the decision to exit low profit generating contracts in BCS. While these actions reduced net sales by $7.5 million, they resulted in an increase in income from operations. The Phoenix Group's volume increases were a result of obtaining new customer business as well as expanding on the existing customer base. This increase was partially offset by a $25 million decline in sweepstakes mailing volumes within the RMS unit. The decline in sweepstakes volume was partially offset within RMS by accepting lower prices for the sweepstakes volume that was produced and by aggressively seeking new revenue opportunities to replace otherwise idle press time. These lower prices were accepted to ensure that customer mailings continued despite the uncertainty involving the legislative changes in sweepstakes mailing disclosures. A U.S. Federal legislation bill, the Deceptive Mail Prevention and Enforcement Act, regulating specific sweepstakes disclosures was signed in December 1999 and is effective on April 13, 2000. Now that the new Federal requirements are known, new customer mailings are being prepared by RMS to test the marketplace response. It is still too early to determine the future impact on operations of the legislation changes. Operating income of $38 million increased by $3 million from $35 million in 1998. This increase is partly due to the manufacturing cost controls and SG&A cost controls resulting from the 1998 restructuring program. Increased costs were incurred in the Phoenix Group due to new business set-up costs resulting from the large sales volume increases throughout the year. Although the total costs as a percentage of sales increased, the overall revenue growth within Phoenix Group and BCS contributed to the operating income growth. 12 LATIN AMERICA
---------------------------------- PRESENTED NET OF ABOVE NOTED ITEMS - --------------------------------------------------------------------------------------------------------------------- FOR THE YEAR ENDED DECEMBER 31 EXPRESSED IN UNITED STATES CURRENCY IN MILLIONS OF DOLLARS 1999 1998 - --------------------------------------------------------------------------------------------------------------------- Sales $ 160.8 $ 193.8 Income from operations 1.4 1.8 - ---------------------------------------------------------------------------------------------------------------------
Sales decreased by $33 million (17%) from 1998 to 1999. This decrease is a direct result of the devaluation of the Brazilian real, accounting for $41 million, partially offset by continued high inflation within the Venezuelan economy. Paper prices have increased significantly and these pricing increases have been recovered under the terms of customer sales agreements. Overall volumes in Latin America have increased from 1998 levels and are expected to continue their climb in 2000. Operating income decreased by $0.4 million compared to 1998. Operating income was negatively impacted by the devaluation of the Brazilian real, as noted above. This decrease was partially offset by the implementation of the 1998 restructuring program that shifted the Latin American product mix to higher margin business. A focused effort was also enacted to control SG&A expenditures during the year. EUROPE
---------------------------------- PRESENTED NET OF ABOVE NOTED ITEMS - --------------------------------------------------------------------------------------------------------------------- FOR THE YEAR ENDED DECEMBER 31 EXPRESSED IN UNITED STATES CURRENCY IN MILLIONS OF DOLLARS 1999 1998 - --------------------------------------------------------------------------------------------------------------------- Sales $ 174.1 $ 165.7 Income from operations 3.9 2.4 - ---------------------------------------------------------------------------------------------------------------------
These results reflect the fact that Europe now operates entirely in the CCS segment since the Forms businesses were sold in 1998. Sales in 1999 increased by $8 million over 1998 sales. The sales increase occurred despite foreign currency fluctuations that adversely affected annual sales results by $5 million. Overall sales increased as a result of being awarded some significant contracts in the United Kingdom and obtaining new high-margin fee work in the database and creative design areas. Operating income for 1999 was $1.5 million higher than 1998. The results were impacted by the devaluation of the European currencies compared to the U.S. dollar. SG&A costs were monitored through cost-control measures undertaken as a result of the 1998 restructuring program. The operating income increase was also influenced by the implementation of the 1998 European decoupling actions. A concerted effort to attain higher margin contracts as well as eliminate less profitable contracts was the focus of the 1998 cost-saving restructuring actions. 13 1998 VERSUS 1997 Highlights of the consolidated results reported for 1998 and 1997 are: - - Sales in 1998 of $2,718 million increased by $87 million compared to 1997 sales of $2,631 million. - Forms sales in 1998 of $1,959 million decreased by 2% compared to Forms sales in 1997 of $1,999 million. Included in Forms sales are Labels and Label Systems sales of $471 million, an increase of $106 million from 1997 with $100 million of the sales increase due to the acquisition of two Labels businesses in 1997. Forms sales represent 72% of the Corporation's total sales compared to 76% in 1997. - CCS sales in 1998 of $759 million increased 20% from $632 million in 1997. The sales increase reflected mainly the acquisition in 1997 of Colleagues Group plc and the Phoenix Group. CCS sales represent 28% of total sales compared to 24% in 1997. - - Cost of sales in 1998 were 69.6% of sales compared to 67.7% in 1997. - - Selling, general and administrative (SG&A) costs in 1998 increased to $697 million from $624 million in 1997. The ratio of SG&A costs to sales in 1998 increased to 25.7% compared to 23.7% in 1997. - - A restructuring provision of $615 million was recorded in 1998. The restructuring program is described in a separate section of the Management's Discussion and Analysis. - - In 1997, a realignment charge of $32 million was recorded. - - Capital asset amortization of $118 million in 1998 increased by $2 million from $116 million in 1997. - - Research and development costs for 1998 of $27 million were $3 million below $30 million in 1997. - - The loss from operations in 1998 was $631 million compared to income from operations in 1997 of $49 million. - Forms operating loss in 1998 was $624 million compared to an operating profit in 1997 of $10 million. The Labels component represented $168 million of the operating loss in 1998 and $22 million of the 1997 operating income. - CCS operating loss in 1998 of $5 million decreased $45 million from the 1997 operating profit of $40 million. - - Investment and other income of $7 million in 1998 decreased from $69 million in 1997. - - The 1998 effective tax rate of 15% represents a recovery of income taxes compared to the 1997 effective tax rate provision of 47%. - - The net loss for 1998 was $548 million or a loss per share of $6.19, compared to 1997 net income of $55 million and earnings per share of $0.59. 1998 VERSUS 1997 EXCLUDING UNUSUAL ITEMS In order to provide a more meaningful comparison of 1998 results to 1997 results, the Corporation has identified transactions that affect the two years in a disproportionate manner. These are acquisitions, divestitures, restructuring, realignment, Year 2000 costs and other one-time transactions. (PLEASE NOTE THAT THE 1998 RESULTS DISCLOSED BELOW DO NOT AGREE TO THE 1998 RESULTS REFLECTED IN THE 1999 VERSUS 1998 EXCLUDING UNUSUAL ITEMS SECTION. THE DIFFERENCE IS CAUSED BY THE DIFFERENT UNUSUAL ITEM EXCLUSIONS NOTED BELOW.) These items have been removed from the operating results of the affected year as follows: - - The 1998 restructuring provision of $615 million which is explained in greater detail in a separate section of the Management's Discussion and Analysis. 14 - - The 1997 comparative results of businesses divested or liquidated in 1998: - the operating results of the European Forms business, disposed of in August 1998, with sales of $86.3 million and operating losses of $7.2 million from August to December 1997 and sales of $4.4 million and operating losses of $0.7 million in 1998, - the operating results of the Australian and New Zealand businesses, disposed of in December 1998, with sales of $9.7 million and operating losses of $0.5 million in December 1997, - the operating results of the Asia Pacific joint ventures, liquidation started in December 1998, with sales $0.1 million and operating losses of $0.6 million in 1997 and - the operating results of the Rediform business, disposed of in September 1998, with sales of $5.4 million and operating income of $0.9 million from October to December 1997. - - The 1997 realignment costs of $32 million. - - The $25.3 million of Year 2000 costs spent in 1998. - - The 1998 investment and other income of $5.0 million relating to: - the gain on sale of the Cordant Holdings Corporation investment, - the gain on sale of the Rediform business and - the gain on sale of the Albany, Georgia manufacturing facility. - Partially offset by: - the decoupling accrual required to separate the CCS Europe business from the European Forms business and - the write-off of capitalized software costs and other one time items. - - The elimination of operating results of significant businesses acquired in 1997, from the 1998 comparative results: - Colleagues Group plc, acquired in August 1997, with sales of $43.9 million and operating income of $1.3 million from January to August 1998, - Phoenix Group direct marketing services firms, acquired in July 1997, with sales of $20.1 million and operating income of $1.1 million from January to July 1998, - United Ad Label Co., Inc., acquired in May 1997, with sales of $16.3 million and operating income of $2.5 million from January to June 1998 and - Peak Technologies Group Inc., acquired in May 1997, with sales of $83.8 million and operating losses of $1.6 million from January to May 1998. - - The 1998 operational charge and other one time items of $20.8 million. - - The 1997 $35.2 million gain related to the repatriation of foreign share capital of a Netherlands subsidiary. - - The 1997 gain of $66.5 million created by the sale of the remaining 10% equity interest in Toppan Moore. - - The 1997 European divestiture provision of $51.5 million in investment and other income. All further discussions, including the operating segment discussions, will be based on the Corporation's operating results net of the above mentioned items. 15
---------------------------------- PRESENTED NET OF ABOVE NOTED ITEMS - --------------------------------------------------------------------------------------------------------------------- FOR THE YEAR ENDED DECEMBER 31 EXPRESSED IN UNITED STATES CURRENCY AND, EXCEPT EARNINGS PER SHARE, IN MILLIONS OF DOLLARS 1998 1997 - --------------------------------------------------------------------------------------------------------------------- Sales $ 2,549.2 $ 2,529.6 Income from operations 28.0 88.8 NET EARNINGS 18.3 64.9 NET EARNINGS PER COMMON SHARE $ 0.21 $ 0.70 Average shares outstanding (in thousands) 88,456 93,200 - ---------------------------------------------------------------------------------------------------------------------
- - Sales increased by 1% over 1997 sales levels. This increase includes a foreign exchange impact of $52 million relating to the devaluation of foreign currencies versus the U.S. dollar. - Forms sales decreased in 1998 to $1,854 million from $1,901 million in 1997, a decrease of 2%. This decrease includes a foreign exchange impact of $45 million. The Labels component increased from $351 million in 1997 to $371 million in 1998, a 6% increase. - CCS 1998 sales increased 10% from $629 million in 1997 to $695 million in 1998. This increase includes a negative foreign exchange impact of $7 million. - - Income from operations in 1998 was $28 million compared to $89 million in 1997. - - Net earnings were $18 million compared to $65 million in 1997. - - Earnings per share were $0.21 compared to $0.70 in 1997. - - Research and development investments in leading-edge technologies for 1998 focused on pressure seal self-mailers, several fraud deterrent features for negotiable documents, and new label constructions. For the high-speed digital printing business, a number of new, higher print quality offerings were introduced that improved the product appearance and supported new, higher information density bar codes. In addition, significant ink jet offerings were introduced and new digital printing software was developed. MOORE NORTH AMERICA
---------------------------------- PRESENTED NET OF ABOVE NOTED ITEMS - --------------------------------------------------------------------------------------------------------------------- FOR THE YEAR ENDED DECEMBER 31 EXPRESSED IN UNITED STATES CURRENCY IN MILLIONS OF DOLLARS 1998 1997 - --------------------------------------------------------------------------------------------------------------------- Sales $ 1,521.1 $ 1,509.1 Income from operations 8.0 58.1 - ---------------------------------------------------------------------------------------------------------------------
Sales in 1998 were 1% above the 1997 sales level. Lower Forms volumes were offset by increased selling prices in the United States Forms business and additional volumes to financial institutions in Canada. Income from operations decreased by 86% compared to 1997. The profit reduction reflected the impact of lower Forms volume and excess manufacturing capacity, increased volumes of lower margin products, and additional investments in the information technology infrastructure, offset in part by the effect of actions taken under the restructuring program to lower overhead costs and increase selling prices. 16 CCS UNITED STATES
---------------------------------- PRESENTED NET OF ABOVE NOTED ITEMS - --------------------------------------------------------------------------------------------------------------------- FOR THE YEAR ENDED DECEMBER 31 EXPRESSED IN UNITED STATES CURRENCY IN MILLIONS OF DOLLARS 1998 1997 - --------------------------------------------------------------------------------------------------------------------- Sales $ 499.5 $ 462.4 Income from operations 33.7 36.9 - ---------------------------------------------------------------------------------------------------------------------
CCS sales in 1998 increased by $37 million compared to 1997. Increased sales to existing customers and new customer contracts contributed to double-digit volume growth in the business communications division and a 4% sales increase in the direct marketing services business. The Corporation continued to invest in the direct sales organizations of the CCS businesses. Segment operating profit in 1998 of $34 million was $3 million below the 1997 profit level. LATIN AMERICA
---------------------------------- PRESENTED NET OF ABOVE NOTED ITEMS - --------------------------------------------------------------------------------------------------------------------- FOR THE YEAR ENDED DECEMBER 31 EXPRESSED IN UNITED STATES CURRENCY IN MILLIONS OF DOLLARS 1998 1997 - --------------------------------------------------------------------------------------------------------------------- Sales $ 193.8 $ 206.3 Income (loss) from operations 1.8 (3.9) - ---------------------------------------------------------------------------------------------------------------------
Latin America predominately operates in the Forms market. Sales in 1998 decreased slightly from the 1997 sales levels. Segment operating profit in 1998 of $2 million improved from 1997 level due mainly to actions initiated in late 1997 to lower overhead costs. EUROPE
---------------------------------- PRESENTED NET OF ABOVE NOTED ITEMS - --------------------------------------------------------------------------------------------------------------------- FOR THE YEAR ENDED DECEMBER 31 EXPRESSED IN UNITED STATES CURRENCY IN MILLIONS OF DOLLARS 1998 1997 - --------------------------------------------------------------------------------------------------------------------- Sales $ 226.8 $ 212.1 Income (loss) from operations (4.9) 1.4 - ---------------------------------------------------------------------------------------------------------------------
European sales in 1998 increased by $15 million or 7%. Segment operating loss for 1998 was below the 1997 operating income as a result of the inclusion in 1997 of an $8 million pension credit. Excluding the pension credit, income from operations increased due to increased sales of higher margin products and the benefits of actions to lower overhead costs. 17 ASIA PACIFIC
---------------------------------- PRESENTED NET OF ABOVE NOTED ITEMS - --------------------------------------------------------------------------------------------------------------------- FOR THE YEAR ENDED DECEMBER 31 EXPRESSED IN UNITED STATES CURRENCY IN MILLIONS OF DOLLARS 1998 1997 - --------------------------------------------------------------------------------------------------------------------- Sales $ 108.0 $ 139.8 Income (loss) from operations (9.2) (3.2) - ---------------------------------------------------------------------------------------------------------------------
Sales in 1998 of $108 million declined by $32 million or 23% from the 1997 sales level of $140 million. The lower sales volume reflected mainly increased competitive pressures and the continued erosion of the Australasian businesses. Segment operating loss in 1998 of $9 million was higher than the 1997 loss level of $3 million due to lower Forms volume. RESTRUCTURING CHARGES In the third quarter of 1998, the Board of Directors approved a restructuring program as part of the Corporation's continuing initiative to enhance Moore's competitive position in its Forms business and to strengthen its long-term prospects for profitable growth. The restructuring program is the first step in a comprehensive plan to substantially improve the Corporation's cost structure and enhance shareholder value and profitability. Accordingly, a pre-tax restructuring charge of $630 million was recorded in the third quarter of 1998. During the fourth quarters of 1998 and 1999, the restructuring provision was reduced by $15 million and $68 million respectively. After tax, the impact of the restructuring charge on the 1998 statement of earnings was $531 million or $6.00 per share. In 1999, the after tax impact of the restructuring charge reversal was $48 million or $0.55 per share. Included in the net charge were costs related to the following actions and activities: ORGANIZATIONAL INTEGRATION ($122 MILLION). This action covers the integration of the sales and marketing, and logistics and manufacturing operations in North America. Included in the restructuring charge are costs associated with upgrading administrative and transaction processing systems to improve efficiency and responsiveness in the order-to-delivery cycle, and the creation of a shared services organization involving finance, procurement, human resources, communications, information technology and research and development resulting in workforce reductions. NON-STRATEGIC ASSET ELIMINATION ($322 MILLION). The restructuring includes the sale of certain international and North American businesses and a revaluation of goodwill related to certain acquisitions. MANUFACTURING RATIONALIZATION ($103 MILLION). The Corporation is consolidating Forms manufacturing operations across North America and internationally, and ceasing production of certain unprofitable products which resulted in the closure of 10 manufacturing facilities, primarily in North America. In addition, the print centres in the United States and Canada will be integrated into the North American manufacturing and logistics organization. 18 Costs associated with the restructuring plan included non-cash costs of $358 million, and cash costs of $189 million, which will be funded through normal operations and borrowings. Included in the restructuring program are charges associated with the divestiture of certain international and North American businesses, and the writedown of goodwill and property, plant and equipment. The asset writedowns of $221 million for goodwill and other assets and $137 million for property, plant and equipment represent mainly a revaluation made for selective acquisitions and property, plant and equipment, primarily to be abandoned, under the Moore North America operating segment. The restructuring charge includes amounts to be paid in cash of $189 million. Cash costs include mainly severance and termination benefits of $107 million to be paid to employees. Other cash costs of $82 million include costs for lease terminations, service contract buyouts and other obligations. Future payments for severance and termination benefits are expected to be funded through normal operations and borrowings. Actions under the restructuring program commenced in the third quarter of 1998 and are expected to be completed in the year 2001. The majority of restructuring actions were executed in 1999. By reducing manufacturing capacity and overhead costs, the Corporation expects to generate annual savings of $120 million by the year 2001. RESTRUCTURING ACTIONS COMPLETED THROUGH DECEMBER 31, 1998 The Corporation was successful in completing certain actions during 1998, especially in relation to the European and Australasia Forms businesses which were exited on more favourable terms than initially anticipated, and actual and planned workforce reductions at a lower cost. On August 1, 1998, the Corporation disposed of its European Forms business resulting in a pre-tax loss of $85 million, of which $44 million was provided for in the 1998 restructuring charge, and $41 million was provided for in 1997. The Australian and New Zealand businesses were divested on December 30, 1998 resulting in a pre-tax loss of $42 million which was fully provided for in the restructuring provision. In the fourth quarter of 1998, the Corporation initiated steps to liquidate its joint ventures in China at an estimated loss of $8 million as provided for in the restructuring provision. In the last six months of 1998, Moore undertook substantial steps to complete the integration of its sales and marketing, and logistics and manufacturing operations in North America, resulting in the consolidation of 10 operating units into one business. The creation of the North American shared services functions began, including the process of streamlining administrative functions. The Corporation closed two plants in North America, eliminated numerous management positions in its North America Forms and Labels operations, and commenced other workforce delayering actions. The employee base was reduced by approximately 2,900 people by December 1998 due to the impact of the divestitures contemplated by the restructuring plan (2,600 employees), plant closures and other workforce reduction actions. 19 RESTRUCTURING ACTIONS COMPLETED THROUGH DECEMBER 31, 1999 The Corporation completed a number of restructuring actions in 1999 including the closure of five manufacturing facilities, bringing the total number of plant closures in North America to seven. Since July 1999, the Corporation started the process of closing and integrating its warehouses and U.S. print centres into a new manufacturing organization. Other actions in North America during 1999 included the consolidation of the Canadian and U.S. sales and administrative offices, the implementation of a shared services organization and the continuation of workforce delayering actions. In Europe, the Corporation has substantially completed the consolidation of its manufacturing facilities in France and has finalized the liquidation of a joint venture investment. Since the restructuring program began, the employee base has been reduced by approximately 3,900 people by December 1999 due to divestitures contemplated by the restructuring plan (2,600 employees), plant closures and other workforce reduction actions. The successful completion of several restructuring actions within all three noted action areas (Organizational Integration, Non-Strategic Asset Elimination and Manufacturing Rationalization) at lower than anticipated costs and the current forecast for outstanding actions have resulted in the Corporation reversing $68 million of charges under the 1998 restructuring program during the fourth quarter of 1999. These activities included the sale of certain North American businesses, the favourable settlement of claims related to the disposition of the European and Australasia Forms businesses and the negotiation of costs to exit customer contracts and lease agreements at more favourable terms than originally planned. The reversal also reflects decisions made by management, during the fourth quarter, to maintain some businesses that were originally earmarked for disposal. Gains on disposals have been credited to the restructuring provision to the extent that an impairment loss was classified as restructuring in the original provision. The carrying value of remaining assets held for disposal as at December 31, 1999 is $9 million. Results of operations related to assets held for disposal at December 31, 1999 are sales of $39 million ($46 million in 1998) and losses from operations of $1 million in 1999 ($2 million in 1998). Severance and termination benefits charged in 1999 and 1998 relate mainly to capacity rationalization, organizational delayering and other workforce reduction actions. During 1999, approximately $17 million (1998 - $13 million) of severance and termination benefits were paid out to employees. RECENTLY ISSUED ACCOUNTING STANDARDS NOT YET IMPLEMENTED The Corporation will be required to adopt in future years the following recently issued accounting standards for Canadian and United States reporting purposes. SFAS NO. 133 - ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES In June 1998, the United States Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133 that standardized the accounting for all derivatives. The new standard must be implemented for year-ends ending after June 15, 2000. The Corporation has not yet determined the impact the adoption of SFAS No. 133 will have on its earnings or statement of cash flows. However, the Corporation does not use derivative financial instruments for trading purposes and only enters into normal commercial hedges. 20 CICA SECTION 3465 - ACCOUNTING FOR INCOME TAXES Effective January 1, 2000, the Corporation will change its method of accounting for income taxes from the tax allocation basis (deferral method), which related income taxes to the accounting income for the year, to the liability method of tax allocation as required by The Canadian Institute of Chartered Accountants' Section 3465. The liability method records future tax assets and liabilities which reflect the net tax effects of temporary differences between carrying amounts for financial reporting purposes and the amounts used for tax purposes. The cumulative effect of this change as of January 1, 2000 will result in an increase of assets by $69 million, an increase in liabilities by $67 million and an increase in opening retained earnings by $2 million. As permitted under the standard, prior year financial statements will not be restated, however the effect will be applied retroactively as an adjustment to opening retained earnings. CICA SECTION 3461 - EMPLOYEE FUTURE BENEFITS Effective January 1, 2000, the Corporation will change its method of accounting for postretirement benefits other than pensions. Under current Canadian standards the Corporation recognizes the cost of these benefits as an expense when paid. The new standard requires that the expected costs of the employees' postretirement benefits be expensed during the years that the employees render services to the Corporation. In addition, the new standard changes the accounting for recognition of involuntary termination benefits. For accrual purposes, the new standard requires that benefit arrangements are communicated to employees in sufficient detail to enable them to determine the type and amount of benefits they will receive when their employment is terminated. Current Canadian standards do not require this condition and included in the Corporation's 1998 restructuring charge were special termination benefits not yet communicated to employees. The cumulative effect of this change as of January 1, 2000 will result in an increase of assets by $232 million, an increase in liabilities by $198 million and an increase in opening retained earnings by $34 million. As permitted under the new standard, prior year financial statements will not be restated, however the effect will be applied retroactively as an adjustment to opening retained earnings. LIQUIDITY AND CAPITAL RESOURCES Current and future cash requirements, including debt obligations, are covered by internally generated funds and by borrowings as required. At December 31, 1999, the Corporation's cash and short-term securities of $38 million consisted of time deposits ($16 million), cash ($19 million) and other money market instruments ($3 million). Net cash resources of $25 million decreased $106 million during 1999 from $131 million at December 31, 1998. Cash reductions included $101 million of expenditures for property, plant and equipment, $219 million for the repayment of short-term debt, $18 million for the payment of dividends, and $57 million of software expenditures. Cash increases included $20 million of cash proceeds related to the sale of Data Management Services and, the issuance of $200 million worth of senior guaranteed notes. 21 Cash generated from operations of $87 million in 1999 increased $48 million from 1998 due mainly to higher earnings offset by restructuring cash expenditures and an increase in working capital requirements. The current assets to current liabilities ratio improved to 1.2:1 from 1.0:1 in 1998. The increase reflected the repayment of short-term debt and the reversal of restructuring accruals. The short-term debt was originally required to fund the plant closings, termination benefits for employees terminated under the restructuring plan and other restructuring actions. In early February 1999, the Corporation sold privately $200 million in senior guaranteed notes. The net proceeds from the offering were used to repay indebtedness and for general corporate purposes. In July 1999, the Corporation renegotiated its operating line with a consortium of banks. The new operating line is $420 million. Of the $420 million, $252 million is available until August 5, 2000 with the remaining $168 million committed until August 5, 2002. At year-end $37 million was drawn down. The line will be used as required to fund operating requirements. Capital expenditures were $101 million in 1999, mainly for machinery and equipment compared with $75 million in 1998 and $136 million in 1997. Included in 1999 expenditures were $2 million of environmentally related expenditures (1998 - $3 million, 1997 - $8 million). Capital expenditures in 2000 are anticipated to be approximately $112 million. In addition the Corporation expects to invest $23 million in its enterprise-wide resource planning program (SAP) in 2000. The Corporation implemented an action plan to facilitate the Euro conversion beginning on January 1, 1999. Plans are currently in progress to ensure that a dual currency system is in place effective January 2002. The impact of the conversion is not expected to be material to the Corporation's future results of operations and financial condition. MARKET RISK DISCLOSURE The risk inherent in the Corporation's market risk sensitive instruments and positions is summarized as: the potential loss arising from adverse changes in interest rates, foreign currency exchange rates, marketable equity security prices and certain commodity prices. INTEREST RATES A significant market risk exposure to the Corporation is changing interest rates, primarily in the United States. The Corporation has a variable rate revolving line of credit from which it has drawn $37 million as of December 31, 1999. In addition, the Corporation operates a wholly owned insurance captive, which has $25.0 million in fixed income securities as at December 31, 1999. 22 FOREIGN CURRENCY In order to manage the volatility relating to its more significant market risks, over the short-term, the Corporation uses financial instruments including swap and forward contracts to hedge currency exposures. The swap and forward contracts are entered into for periods consistent with related underlying exposures and do not constitute positions independent of those exposures. The Corporation does not use derivative financial instruments for trading purposes. The table below provides information as of December 31, 1999 about the Corporation's forward exchange contracts. The table presents the contractual amount and the related weighted average contract exchange rates for significant currency contracts outstanding as of December 31, 1999. All contracts expire in 2000.
- ------------------------------------------------------------------------------------------------------------------- Forward Exchange Contracts - ------------------------------------------------------------------------------------------------------------------- (US$ EQUIVALENTS IN MILLIONS) CONTRACT AMOUNT AVERAGE CONTRACTUAL EXCHANGE RATE - ------------------------------------------------------------------------------------------------------------------- Receive USD/Pay GBP $ 9.8 1.6323 - -------------------------------------------------------------------------------------------------------------------
The Corporation has an additional $4.4 million in a number of smaller contracts to purchase or sell various other currencies, principally European, as of December 31, 1999. The aggregate cost to settle all contracts as of December 31, 1999 is not material. The Corporation also has swap agreements with financial institutions that cover both interest rate and foreign currency exposures. The notional amounts of these swaps, which expire in 2000, were $4.3 million and the cost to settle the swaps is not material at December 31, 1999. Longer-term market risk associated with foreign currency exchange rate fluctuations is managed using the following strategy: The Corporation establishes local production facilities in the major markets it serves and invoices customers in the same currency as the source of the products. Currency parity clauses are also included in agreements with foreign suppliers and customers. Translation exposure related to investments in the net assets of foreign operations are mitigated by minimizing parent company capital contributions and financing investments with local currency debt, subject to local exchange controls and tax implications, royalties and maximizing the repatriation of earnings through inter-company dividends. 23 MARKETABLE EQUITY SECURITIES Marketable equity securities at December 31, 1999 are recorded at cost of $20 million and have exposure to price risk. In addition, the Corporation operates a wholly owned insurance captive which has $12.1 million in equity investments at December 31, 1999. COMMODITIES Paper continues to be the most significant item of raw material. The price of paper is subject to fluctuations. To reduce price risk caused by market fluctuations, the Corporation has incorporated price adjustment clauses in certain sales contracts. An independent index is used and adjustments are triggered based on certain criteria (such as the index moving in the same direction for two consecutive months). The Corporation makes modest purchases of spot paper tonnage in order to gauge the market price of paper without jeopardizing supply to its plants. YEAR 2000 ISSUE The Year 2000 issue arises from the fact that many computerized systems use two digits rather than four to identify a year. Date sensitive systems may recognize the year 2000 as 1900 or some other date, resulting in errors when information using Year 2000 dates is processed. In addition, similar problems may arise in some systems, which use certain dates in 1999 to represent something other than a date. The Corporation established a plan to address the impact of Year 2000 on its information technology systems and processes, including those involved in providing services to its customers, and treated the Year 2000 issue as a business priority. The Corporation addressed the Year 2000 issue in four ways, which are described in detail in the Corporation's 1998 annual report to shareholders. Complete inventories for infrastructure, software applications, and suppliers were completed, as were assessments of those identified as critical. Full assessments were completed for all major business unit system components. Year 2000 changes were completed for all mission-critical systems and non-mission-critical systems. The Corporation's Year 2000 master business continuity plan was completed in the first quarter of 1999. The business continuity plan was intended to provide actions, procedures and responsibilities to be taken or performed by each operating site to recover from a potential Year 2000 disruption and continue to deliver the products and services to customers. The cost for the entire Year 2000 program was forecasted at approximately $42 million, which was funded through normal operations. Expenditures totalled $42.7 million with $17.4 million charged to the 1999 earnings ($25.3 million in 1998). The majority of the expenditures represent payments to external information technology specialists to assist in the renovation and testing work on current systems and to replace or change software applications and hardware components. 24 Although the change in date has occurred without any disruptions in the Corporation's operations, it is not possible to conclude that all aspects of the Year 2000 issue that may affect the Corporation, including those related to the efforts of customers, suppliers or other third parties, have been fully resolved. Management believes it has achieved its project plan; however, there is no assurance that the Corporation's or its suppliers' or customers' remediation efforts will be sufficiently comprehensive to address all aspects of the Year 2000 issue. FORWARD-LOOKING STATEMENTS This Annual Report (including Management's Discussion and Analysis) as well as other reports, presentations to analysts and others, and in filings with Securities Regulators contain statements relating to future results of the Corporation (including certain anticipated, planned, forecasted, expected, targeted and estimated results) that are "forward-looking statements" as defined in the U.S. Private Securities Litigation Reform Act of 1995. Readers are cautioned not to place undue reliance on these forward-looking statements and any such forward-looking statements are qualified in their entirety by reference to the following cautionary statements. All forward-looking statements speak only as of the date hereof and are based on current expectations and involve a number of assumptions, risks and uncertainties that could cause the actual results to differ materially from such forward-looking statements. Factors that could cause such material differences include, without limitation, the following: the successful completion of the restructuring program announced in 1998 within the time frame anticipated to execute the respective restructuring actions and achieving associated benefits, the successful implementation of the Enterprise Resource Planning system within anticipated time frames and achieving associated benefits, the effects of paper price fluctuations, successful execution of key strategies (including the digital and Internet strategies), maintenance of growth rates in Customer Communication Services businesses, the impact of currency fluctuations in the countries in which the Corporation operates, general economic and other factors beyond the Corporation's control, and other assumptions, risks and uncertainties described in this Annual Report and from time to time in the Corporation's periodic filings with Securities Regulators. 25 CONSOLIDATED BALANCE SHEET
- ---------------------------------------------------------------------------------------------------------------------- AS AT DECEMBER 31 EXPRESSED IN UNITED STATES CURRENCY IN THOUSANDS OF DOLLARS 1999 1998 - ---------------------------------------------------------------------------------------------------------------------- ASSETS Current assets: Cash and short-term securities $ 38,179 $ 138,575 Accounts receivable, less allowance for doubtful accounts of $13,924 (1998 - $14,212) 477,083 479,086 Inventories (Note 2) 178,666 176,650 Prepaid expenses 23,930 23,591 Deferred income taxes 33,002 76,441 - ---------------------------------------------------------------------------------------------------------------------- Total current assets 750,860 894,343 ----------------------------- Property, plant and equipment: Land 23,595 24,743 Buildings 204,754 218,204 Machinery and equipment 971,473 1,027,251 - ---------------------------------------------------------------------------------------------------------------------- 1,199,822 1,270,198 Less: Accumulated depreciation 741,014 804,000 - ---------------------------------------------------------------------------------------------------------------------- 458,808 466,198 ----------------------------- Investments (Note 3) 25,430 20,011 Other assets (Note 4) 395,195 345,583 - ---------------------------------------------------------------------------------------------------------------------- TOTAL ASSETS $ 1,630,293 $ 1,726,135 ============================= LIABILITIES Current liabilities: Bank loans $ 13,086 $ 7,604 Accounts payable and accruals (Note 5) 533,010 641,649 Short-term debt (Note 6) 40,140 256,397 Dividends payable 4,423 4,423 Income taxes 31,805 30,961 - ---------------------------------------------------------------------------------------------------------------------- Total current liabilities 622,464 941,034 Long-term debt (Note 7) 201,686 4,841 Deferred income taxes and liabilities (Note 8) 118,888 154,269 Equity of minority shareholders in subsidiary corporations 14,581 15,846 - ---------------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES 957,619 1,115,990 ----------------------------- SHAREHOLDERS' EQUITY Share capital (Note 9) 310,881 310,881 Unrealized foreign currency translation adjustments (Note 10) (118,256) (105,878) Retained earnings 480,049 405,142 - ---------------------------------------------------------------------------------------------------------------------- 672,674 610,145 - ---------------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,630,293 $ 1,726,135 ======================================================================================================================
APPROVED BY THE BOARD OF DIRECTORS: Thomas E. Kierans (Signed) W. Ed Tyler (Signed) CHAIRMAN OF THE BOARD PRESIDENT AND CHIEF EXECUTIVE OFFICER 26 CONSOLIDATED STATEMENT OF EARNINGS
- ---------------------------------------------------------------------------------------------------------------------- FOR THE YEAR ENDED DECEMBER 31 EXPRESSED IN UNITED STATES CURRENCY AND, EXCEPT EARNINGS (LOSS) PER SHARE, IN THOUSANDS OF DOLLARS 1999 1998 1997 - ---------------------------------------------------------------------------------------------------------------------- SALES $ 2,425,116 $ 2,717,702 $ 2,631,014 - ---------------------------------------------------------------------------------------------------------------------- Cost of sales 1,641,976 1,891,249 1,780,010 Selling, general and administrative expenses 585,316 697,325 623,868 Provision for restructuring costs (Note 16) (68,410) 615,000 -- Realignment costs (Note 17) -- -- 32,000 Capital asset amortization 101,335 117,808 115,830 Research and development expense 23,218 26,820 29,895 - ---------------------------------------------------------------------------------------------------------------------- 2,283,435 3,348,202 2,581,603 --------------------------------------------- Income (loss) from operations 141,681 (630,500) 49,411 Investment and other income (Notes 3 and 13) 11,113 6,636 69,052 Interest expense (Note 13) 24,184 19,054 14,197 - ---------------------------------------------------------------------------------------------------------------------- Earnings (loss) before income taxes and minority interests 128,610 (642,918) 104,266 Income tax expense (recovery) (Note 18) 35,286 (94,330) 49,171 Minority interests 725 (722) (4) - ---------------------------------------------------------------------------------------------------------------------- NET EARNINGS (LOSS) $ 92,599 $ (547,866) $ 55,099 --------------------------------------------- NET EARNINGS (LOSS) PER COMMON SHARE (Note 19) $ 1.05 $ (6.19) $ 0.59 Average shares outstanding (in thousands) 88,457 88,456 93,200 ======================================================================================================================
CONSOLIDATED STATEMENT OF RETAINED EARNINGS
- ---------------------------------------------------------------------------------------------------------------------- FOR THE YEAR ENDED DECEMBER 31 EXPRESSED IN UNITED STATES CURRENCY IN THOUSANDS OF DOLLARS 1999 1998 1997 Balance at beginning of year $ 405,142 $ 987,065 $ 1,243,714 NET EARNINGS (LOSS) 92,599 (547,866) 55,099 - ---------------------------------------------------------------------------------------------------------------------- 497,741 439,199 1,298,813 DIVIDENDS 20CENTS PER SHARE (38.5CENTS in 1998 and 94CENTS in 1997) 17,692 34,057 85,830 - ---------------------------------------------------------------------------------------------------------------------- Repurchase of common shares (Note 9) -- -- 225,918 - ---------------------------------------------------------------------------------------------------------------------- BALANCE AT END OF YEAR $ 480,049 $ 405,142 $ 987,065 ======================================================================================================================
27 CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31 EXPRESSED IN UNITED STATES CURRENCY IN THOUSANDS OF DOLLARS 1999 1998 1997 - ---------------------------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES NET EARNINGS (LOSS) $ 92,599 $ (547,866) $ 55,099 --------------------------------------------- Items not affecting cash resources: Capital asset amortization(a) 102,943 119,934 118,380 Loss (gain) on sale of property, plant and equipment 2,082 (4,671) 573 Equity in (earnings) loss of associated corporations (105) 775 217 Gain on sale of investments -- (14,973) (67,095) Gain on sale of business (7,269) (4,698) -- International divestiture provisions -- -- 51,175 Provision for restructuring costs, net of cash (68,410) 596,719 -- Deferred income taxes 16,552 (73,410) 9,963 Other (12,882) 15,234 (15,865) - ---------------------------------------------------------------------------------------------------------------------- 32,911 634,910 97,348 --------------------------------------------- Decrease (increase) in working capital other than cash resources: Accounts receivable 2,003 (3,027) (28,465) Inventories (2,016) 18,613 (26,036) Accounts payable and accruals (45,549) (82,340) 125,653 Income taxes 844 22,515 4,156 Deferred income taxes 8,928 7,676 (18,185) Other (2,521) (11,958) (11,237) - ---------------------------------------------------------------------------------------------------------------------- (38,311) (48,521) 45,886 --------------------------------------------- TOTAL $ 87,199 $ 38,523 $ 198,333 --------------------------------------------- INVESTING ACTIVITIES Expenditure for property, plant and equipment $ (100,837) $ (75,449) $ (136,302) Sale of property, plant and equipment 14,319 22,346 4,335 Decrease (increase) in long-term receivables (1,538) 4,903 (654) Acquisition of businesses (8,077) (31,267) (309,054) Disposal of businesses 18,143 13,167 500 Proceeds from sale of investments -- 21,629 97,761 Taxes on sale of an investment -- (16,519) -- Investment in associated corporations -- -- (1,813) Software expenditures (57,035) (60,717) (33,134) Other (13,628) (9,857) (10,311) - ---------------------------------------------------------------------------------------------------------------------- TOTAL $ (148,653) $ (131,764) $ (388,672) --------------------------------------------- FINANCING ACTIVITIES Dividends $ (17,692) $ (50,420) $ (85,830) Repurchase of common shares -- -- (267,396) Addition to debt 239,734 141,695 131,001 Reduction in debt (259,106) (61,871) (46,071) Other (5,313) (835) 1,814 - ---------------------------------------------------------------------------------------------------------------------- TOTAL $ (42,377) $ 28,569 $ (266,482) --------------------------------------------- Decrease in cash resources before unrealized exchange adjustments $ (103,831) $ (64,672) $ (456,821) Unrealized exchange adjustments (2,047) (336) (1,374) --------------------------------------------- Decrease in cash resources (105,878) (65,008) (458,195) Cash resources at beginning of year(b) 130,971 195,979 654,174 - ---------------------------------------------------------------------------------------------------------------------- CASH RESOURCES AT END OF YEAR(b) $ 25,093 $ 130,971 $ 195,979 ======================================================================================================================
(a) Includes depreciation that has been classified in research and development expense. (b) Cash resources are defined as cash and short-term securities less bank loans. 28 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31 EXPRESSED IN UNITED STATES CURRENCY 1. SUMMARY OF ACCOUNTING POLICIES ACCOUNTING PRINCIPLES Moore Corporation Limited is incorporated under the laws of the Province of Ontario, Canada. The consolidated financial statements are prepared in accordance with accounting principles generally accepted in Canada. PRINCIPLES OF CONSOLIDATION The financial statements of entities which are controlled by the Corporation, referred to as subsidiaries, are consolidated; entities which are jointly controlled are proportionately consolidated; entities which are not controlled and which the Corporation has the ability to exercise significant influence over are accounted for using the equity method; and investments in other entities are accounted for using the cost method. TRANSLATION OF FOREIGN CURRENCIES The consolidated financial statements are expressed in United States currency because a significant part of the net assets and earnings are located or originate in the United States. Except for the foreign currency financial statements of subsidiaries in countries with highly inflationary economies, Canadian and other foreign currency financial statements have been translated into United States currency on the following bases: all assets and liabilities at the year-end rates of exchange; income and expenses at average exchange rates during the year. Net unrealized exchange adjustments arising on translation of foreign currency financial statements are charged or credited directly to shareholders' equity and shown as unrealized foreign currency translation adjustments. Realized exchange losses or gains are included in earnings. Unrealized exchange losses or gains related to monetary items with a fixed or ascertainable life extending beyond the end of the following fiscal year are deferred and amortized over the remaining life of the asset or liability. The foreign currency financial statements of subsidiaries in countries with highly inflationary economies are translated into United States currency using the temporal method whereby monetary items are translated at current rates of exchange, and non-monetary items are translated at historical rates of exchange. Financial statements of subsidiaries in the following countries were treated as highly inflationary: 1999 - Venezuela (1998 - Venezuela; 1997 - Venezuela and Brazil). FINANCIAL INSTRUMENTS The Corporation enters into forward exchange contracts to manage exposures resulting from foreign exchange fluctuations in the ordinary course of business. The contracts are normally for terms up to six months and are used as hedges of foreign denominated revenue streams, costs and loans. The unrealized gains and losses on outstanding contracts are offset against the gains and losses of the hedged item at the completion of the underlying transactions. Short-term securities consist of investment grade, highly liquid instruments of highly rated governments, financial institutions and corporations. Unless disclosed otherwise in the notes to the consolidated financial statements, the estimated fair value of financial assets and liabilities approximates carrying value. INVENTORIES Inventories of raw materials and work in process are valued at the lower of cost and replacement cost and inventories of finished goods at the lower of cost and net realizable value. The cost of the principal raw material inventories and the raw material content of finished goods inventories in the United States is determined on the last-in, first-out basis. The cost of all other inventories is determined on the first-in, first-out basis. 29 PROPERTY, PLANT AND EQUIPMENT AND DEPRECIATION Property, plant and equipment are stated at historical cost after deducting investment tax credits and other grants on eligible capital assets. Depreciation is provided on a basis that will amortize the cost of depreciable assets over their estimated useful lives using the straight-line method. All costs for repairs and maintenance are expensed as incurred. The estimated useful lives of buildings range from 20 to 50 years and of machinery and equipment from 3 to 17 years. Gains or losses on the disposal of property, plant and equipment are included in investment and other income, and the cost and accumulated depreciation related to these assets are removed from the accounts. GOODWILL The estimated useful life of goodwill arising from acquisitions is determined based on the particular circumstances of each investment. Goodwill is amortized on a straight-line basis over its estimated useful life, not exceeding 40 years. On an annual basis, the Corporation reviews the valuation and amortization of goodwill, including any events and circumstances which may have impaired the carrying value. The evaluation for impairment of goodwill is determined by assessing recoverability based on undiscounted future earnings and cashflows of the related business. Any permanent impairment in the value of goodwill is written off against earnings. AMORTIZATION OF DEFERRED CHARGES Deferred charges include certain costs to acquire and develop computer software which are amortized over periods deemed appropriate to match expenses with the related revenues, up to a maximum of seven years. INCOME TAXES Income taxes are accounted for on the tax allocation basis which relates income taxes to the accounting income for the year. No provision has been made for taxes on undistributed earnings of subsidiaries not currently available for paying dividends as such earnings have been reinvested in the business. STOCK-BASED COMPENSATION The Corporation has two stock-based compensation plans, which are described in Note 9. The amount granted is expensed when earned by the relevant participants of the plans. USE OF ESTIMATES The consolidated financial statements have been prepared in conformity with generally accepted accounting principles and, as such, include estimates and assumptions of management that affect the amounts reported in the consolidated financial statements. Actual results could differ from these estimates. 2. INVENTORIES
- ------------------------------------------------------------------------------------------------------------------- IN THOUSANDS 1999 1998 - ------------------------------------------------------------------------------------------------------------------- Raw materials $ 42,653 $ 42,175 Work in process 15,918 17,620 Finished goods 115,555 112,248 Other 4,540 4,607 - ------------------------------------------------------------------------------------------------------------------- $ 178,666 $ 176,650 ===================================================================================================================
The current cost of these inventories exceeds the last-in, first-out cost by approximately $17,757,000 at December 31, 1999 (1998 - $16,824,000). 30 3. INVESTMENTS
- ------------------------------------------------------------------------------------------------------------------- IN THOUSANDS 1999 1998 - ------------------------------------------------------------------------------------------------------------------- Accounted for on the equity basis $ 5,521 $ 2,720 Accounted for on the cost basis: JetForm Corporation 17,291 17,291 Vista Information Solutions Inc. (Note 15) 2,618 -- - ------------------------------------------------------------------------------------------------------------------- $ 25,430 $ 20,011 ===================================================================================================================
On February 2, 1999, the Corporation purchased a 40% equity interest in Quality Color Press Inc. The fair value of investments accounted for on the cost basis is approximately $15,656,000 as at December 31, 1999 (1998 - $31,000,000). Fair value is calculated by reference to quoted market prices. The difference between cost and fair value of investments accounted for on the cost basis is not considered to be a permanent impairment in value. 4. OTHER ASSETS
- ------------------------------------------------------------------------------------------------------------------- IN THOUSANDS 1999 1998 - ------------------------------------------------------------------------------------------------------------------- Prepaid pension cost $ 38,435 $ 28,251 Goodwill, net of writedowns and accumulated amortization of $250,768 (1998 - $233,899) 156,867 173,736 Computer software, net of accumulated amortization of $33,482 (1997 - $21,859) 139,032 93,664 Notes receivables -- 7,685 Other long-term receivables 5,057 4,148 Long-term bonds 33,968 27,907 Vista Information Solutions Inc., secured convertible note receivable (Note 15) 9,864 -- Other 11,972 10,192 - ------------------------------------------------------------------------------------------------------------------- $ 395,195 $ 345,583 ===================================================================================================================
5. ACCOUNTS PAYABLE AND ACCRUALS
- ------------------------------------------------------------------------------------------------------------------- IN THOUSANDS 1999 1998 - ------------------------------------------------------------------------------------------------------------------- Trade accounts payable $ 148,901 $ 154,278 Other payables 95,451 98,611 - ------------------------------------------------------------------------------------------------------------------- 244,352 252,889 - ------------------------------------------------------------------------------------------------------------------- Accrued payroll costs 54,097 48,443 Accrued employee benefit costs 27,203 20,374 Provision for restructuring costs 92,791 199,180 Other accruals 114,567 120,763 - ------------------------------------------------------------------------------------------------------------------- 288,658 388,760 - ------------------------------------------------------------------------------------------------------------------- $ 533,010 $ 641,649 ===================================================================================================================
31 6. SHORT-TERM DEBT On August 5, 1999, the Corporation's existing credit facility expired and was replaced by a committed $420,000,000 syndicated credit facility with nine banks with an interest rate of libor plus 1.25%. Of the $420,000,000 credit facility, $252,000,000 is committed for a one-year term, while $168,000,000 is committed for three years. In addition, the Corporation's international subsidiaries maintain a number of uncommitted credit facilities. The weighted average interest rate on short-term debt outstanding as of December 31, 1999 was 7.9% (1998 - 5.9%; 1997 - 5.9%). The unused lines of credit outstanding at December 31, 1999, for short-term financing are $493,807,000 (1998 - $548,481,000). 7. LONG-TERM DEBT
- ------------------------------------------------------------------------------------------------------------------- IN THOUSANDS 1999 1998 - ------------------------------------------------------------------------------------------------------------------- Senior guaranteed notes $ 200,000 $ -- Secured loans -- 2,077 Capital lease commitments 790 813 Unsecured loans 896 1,951 - ------------------------------------------------------------------------------------------------------------------- $ 201,686 $ 4,841 ===================================================================================================================
On March 25, 1999, Moore North America Finance Inc., a subsidiary of the Corporation, completed a $200,000,000 senior guaranteed note issue in the United States private placement market. The notes were issued in two tranches: $85,500,000 of Senior Guaranteed Notes, Series A, at a coupon rate of 7.84%, maturing March 25, 2006; and $114,500,000 of Senior Guaranteed Notes, Series B, at a coupon rate of 8.05%, maturing March 25, 2009. Semi-annual interest payments commenced in 1999. Other long-term debt bears interest at rates ranging from 3.1% to 17.4% and matures on various dates to 2006. Loans of other subsidiaries amounting to $790,000 (1998 - $2,960,000) are payable in currencies other than United States dollars. The net book value of assets subject to lien approximates $5,200,000 (1998 - $21,000,000). The liens are primarily mortgages against property, plant and equipment and pledges of accounts receivable, inventory, and other current assets. An amount of $2,054,000 (1998 - $3,401,000) of long-term debt due within one year is included in current liabilities. For the years 2001 through 2004, payments required on long-term debt are as follows: 2001 - $ 449,000; 2002 - $176,000; 2003 - $ 181,000; and 2004 - $ 880,000. 8. DEFERRED INCOME TAXES AND LIABILITIES
- ------------------------------------------------------------------------------------------------------------------- IN THOUSANDS 1999 1998 - ------------------------------------------------------------------------------------------------------------------- Deferred income taxes $ 24,439 $ 42,305 Reserve for pensions 16,112 29,148 Provision for restructuring costs 65,300 65,230 Other 13,037 17,586 - ------------------------------------------------------------------------------------------------------------------- $ 118,888 $ 154,269 ===================================================================================================================
32 9. SHARE CAPITAL The Corporation's articles of incorporation provide that its authorized share capital be divided into an unlimited number of common shares without par value and an unlimited number of preference shares without par value, issuable in one or more series. The preference shares are non-voting except on arrears of dividends. CHANGES IN THE ISSUED COMMON SHARE CAPITAL
AMOUNT SHARES ISSUED (IN THOUSANDS) - ------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1996 100,039,066 $ 344,968 Share repurchase (11,999,996) (41,478) Exercise of executive stock options 407,420 7,220 Employee awards 2,650 55 - ------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1997 88,449,140 310,765 Exercise of executive stock options 4,700 69 Employee awards 3,100 47 - ------------------------------------------------------------------------------------------------------------------- BALANCE, DECEMBER 31, 1998 AND 1999 88,456,940 $ 310,881 ===================================================================================================================
On May 30, 1997, the Corporation repurchased 11,999,996 of its common shares at an average purchase price of CDN$30.50 per share (equivalent to US$22.28 per share) for a total cash consideration of $267,395,698. The Corporation has a long-term incentive program under which stock options and restricted stock awards may be granted to certain key employees. As at December 31, 1999, 880,400 common shares were available for grants (1998 - nil; 1997 - 1,483,000). The exercise price under all options is the fair market value of the shares covered by the option on the day prior to the date of grant. Prior to July 1998, options granted vest at 20% per annum from the date of grant. Options granted subsequent to June 1998 vest in four years or, on the attainment of targeted performance measures, at 25% per annum. Upon retirement, all options become vested and are eligible for exercise for five years after the date of retirement. The options expire not more than 10 years from the date granted. In 1999 certain senior executives participated in a new long-term incentive performance plan to help focus executive management on the long term profitable growth of the Corporation through the creation of shareholder value. Improvement in Economic Value Added-REGISTERED TRADEMARK- (EVA) is the performance measure used in the plan. Contingent annual grants are denominated in the Corporation's common shares and are earned over a three-year period. Guidelines for share ownership have been established for the participants in this plan at a value equal to two to five times annual salary. Earned awards will be paid out in the form of deferred share units that the executive must hold until they have reached the guideline level of share ownership. Results for 1999 exceeded the targeted improvement in EVA for the year. Improvement targets for 2000 and 2001 must also be met for the 1999 grant to be paid. Contingent share units of 354,800 were granted in 1999 with a cost base of approximately $3,056,000. 33 The Corporation has a shareholders' rights plan (Rights Plan), the terms and conditions of which are set out in the Shareholders' Rights Plan Agreement dated April 12, 1995. The Rights Plan was adopted to provide the Corporation with sufficient time, in the event of a public takeover bid or tender offer for the Corporation's common shares, to pursue alternatives to enhance shareholder value. All holders of Rights, with the exception of such acquiring person or group, are entitled to purchase from the Corporation upon payment of an exercise price of CDN$120.00 the number of additional common shares that can be purchased for twice the exercise price, based on the market value of the Corporation's common shares at the time the Rights become exercisable. The Rights Plan expires in April 2000. Shareholders will be asked to reconfirm the Rights Plan at the April 28, 2000 annual and special meeting. During the year, the Corporation issued share units as employee stock based compensation equivalent to 8,415 (1998 - 407,629) common shares. Share units are exercisable for either cash or common shares and as at December 31, 1999, 309,492 (1998 - 285,414) share units are exercisable and the remainder vest over the next two years. During 1998, the Corporation purchased for cancellation a total of 1,182,940 options, all with the consent of the stock exchanges on which the Corporation's common shares are listed. The Board of Directors awarded 2,350 (1998 - 3,100; 1997 - 2,650) common shares to employees in 1999. In 1999, the total cost of stock based employee compensation awards was $3,095,000 (1998 - $4,502,000; 1997 - $55,000). As at December 31, 1999, there were no issued preference shares (1998 - nil; 1997 - nil). A summary of the Corporation's stock option activity for the three years ended December 31, 1999 is presented below (in Canadian currency):
----------------------------------------------------------------------------------------------- 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------------------- WEIGHTED- WEIGHTED- WEIGHTED- AVERAGE AVERAGE AVERAGE SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE - ------------------------------------------------------------------------------------------------------------------------------- Options outstanding at beginning of year 5,281,686 $ 27.88 5,083,800 $ 26.97 5,219,960 $ 26.54 Options granted 1,789,500 11.47 3,173,906 18.38 1,664,800 27.99 Options lapsed (364,700) 22.53 (1,636,080) 24.27 (1,185,640) 26.67 Options exercised -- -- (4,700) 20.94 (407,420) 24.42 Options cancelled (241,800) 25.41 (1,184,140) 26.62 (19,800) 25.51 Options expired (112,200) 34.88 (151,100) 28.56 (188,100) 31.88 - ------------------------------------------------------------------------------------------------------------------------------- Options outstanding at year-end 6,352,486 $ 18.73 5,281,686 $ 27.88 5,083,800 $ 26.97 - ------------------------------------------------------------------------------------------------------------------------------- Options exercisable at year-end 1,600,093 $ 23.82 1,338,492 $ 25.51 2,000,228 $ 27.01 ===============================================================================================================================
34 The following table summarizes information about stock options outstanding at December 31, 1999 (in Canadian currency):
----------------------------------------------------------------------------------------------------- OPTIONS OUTSTANDING OPTIONS EXERCISABLE - --------------------------------------------------------------------------------------------------------------------- WEIGHTED-AVERAGE RANGE OF NUMBER REMAINING NUMBER EXERCISE OUTSTANDING AT CONTRACTUAL WEIGHTED-AVERAGE EXERCISABLE AT WEIGHTED-AVERAGE PRICES DECEMBER 31, 1999 LIFE (YEARS) EXERCISE PRICE DECEMBER 31, 1999 EXERCISE PRICE - --------------------------------------------------------------------------------------------------------------------- $9 to $15 2,044,106 9.5 $ 11.81 150,000 $ 14.99 $16 to $23 2,677,500 8.3 18.85 420,925 19.52 $24 to $30 1,630,880 6.1 27.16 1,029,168 26.86 - --------------------------------------------------------------------------------------------------------------------- $9 to $30 6,352,486 6.5 $ 18.73 1,600,093 $ 23.82 =====================================================================================================================
10. UNREALIZED FOREIGN CURRENCY TRANSLATION ADJUSTMENTS
- --------------------------------------------------------------------------------------------------------------------- IN THOUSANDS 1999 1998 1997 - --------------------------------------------------------------------------------------------------------------------- Balance at beginning of year $ (105,878) $ (112,218) $ (38,863) Translation adjustments related to net assets of foreign operations (12,378) (6,402) (15,170) Amounts transferred to income on sale or liquidation of foreign operations -- 12,742 (58,185) - --------------------------------------------------------------------------------------------------------------------- Balance at end of year $ (118,256) $ (105,878) $ (112,218) =====================================================================================================================
The translation adjustments for each year result from the variation from year to year in rates of exchange at which foreign currency net assets are translated to United States currency. During 1998, foreign currency translation losses relate to the dispositions of the European and Australasian Forms and Labels businesses. In 1997, foreign currency translation gains were realized on repatriation of the Corporation's share capital investment in a Netherlands subsidiary and on the sale of its remaining equity interest in Toppan Moore Company Ltd. 11. RETIREMENT PROGRAMS DEFINED BENEFIT PENSION PLANS The Corporation and its subsidiaries have several programs covering substantially all of the employees in Canada, the United States, Puerto Rico and the United Kingdom. 35 The following data is based upon reports from independent consulting actuaries as at December 31:
UNITED STATES CANADA INTERNATIONAL - -------------------------------------------------------------------------------------------------------------------------------- IN THOUSANDS 1999 1998 1997 1999 1998 1997 1999 1998 1997 - -------------------------------------------------------------------------------------------------------------------------------- FUNDED STATUS Actuarial present value of: Projected benefit obligation at beginning of year $ 636,409 $ 569,944 $ 585,153 $ 68,085 $ 67,513 $ 72,048 $ 121,380 $ 69,208 $ 79,268 Service cost 11,965 12,095 12,186 2,331 2,279 1,922 220 3,229 2,635 Interest cost 50,343 48,579 48,490 5,644 5,269 5,763 9,484 5,541 5,693 Amendments 1,765 10,393 (45,315) -- (1,472) -- -- 18,563 -- Actuarial loss (gain) 1,169 34,504 9,384 780 4,583 (2,805) 4,567 2,330 (5,943) Effect of settlement -- -- -- -- -- -- -- 48,766 -- Effect of dispositions -- -- -- -- -- -- -- (16,006) -- Foreign currency exchange rate changes -- -- -- 4,215 (4,638) (2,945) (3,474) 468 (5,218) Benefits paid (39,915) (39,106) (39,954) (5,270) (5,449) (6,470) (6,472) (10,719) (7,227) ----------------------------------------------------------------------------------------------------- Projected benefit obligation at end of year $ 661,736 $ 636,409 $ 569,944 $ 75,785 $ 68,085 $ 67,513 $ 125,705 $ 121,380 $ 69,208 - -------------------------------------------------------------------------------------------------------------------------------- Plan assets at fair value at beginning of year $ 845,898 $ 784,281 $ 694,125 $ 95,325 $ 106,747 $ 99,942 $ 140,685 $ 150,466 $ 143,540 Actual return on assets 127,142 100,723 127,360 5,085 956 17,784 14,762 15,206 21,203 Foreign currency exchange rate changes -- -- -- 5,755 (6,929) (4,509) (4,025) 798 (8,896) Effect of dispositions -- -- -- -- -- -- -- (15,986) -- Employer contribution -- -- 2,750 -- -- -- -- 920 1,846 Benefits paid (39,915) (39,106) (39,954) (5,270) (5,449) (6,470) (6,472) (10,719) (7,227) ----------------------------------------------------------------------------------------------------- Plan assets at fair value at end of year $ 933,125 $ 845,898 $ 784,281 $ 100,895 $ 95,325 $ 106,747 $ 144,950 $ 140,685 $ 150,466 - -------------------------------------------------------------------------------------------------------------------------------- Excess of plan assets over projected benefit obligation $ 271,389 $ 209,489 $ 214,337 $ 25,110 $ 27,240 $ 39,234 $ 19,245 $ 19,305 $ 81,258 Unrecognized net gain (252,692) (210,090) (215,790) (10,292) (13,891) (26,692) (2,197) (3,472) (27,526) Unrecognized net asset (3,058) (6,106) (9,154) (935) (1,763) (2,832) -- -- (1,214) Unrecognized prior service cost (credit) (8,247) (5,251) (12,645) 485 623 2,370 -- 236 (2,992) ----------------------------------------------------------------------------------------------------- Prepaid (accrued) pension cost included in consolidated balance sheet $ 7,392 $ (11,958) $ (23,252) $ 14,368 $ 12,209 $ 12,080 $ 17,048 $ 16,069 $ 49,526 ================================================================================================================================ 36 UNITED STATES CANADA INTERNATIONAL - -------------------------------------------------------------------------------------------------------------------------------- IN THOUSANDS 1999 1998 1997 1999 1998 1997 1999 1998 1997 - -------------------------------------------------------------------------------------------------------------------------------- PENSION EXPENSE Service cost $ 11,965 $ 12,095 $ 12,186 $ 2,331 $ 2,279 $ 1,922 $ 220 $ 3,229 $ 2,635 Interest cost 50,343 48,579 48,490 5,644 5,269 5,763 9,484 5,541 5,693 Expected return on assets (70,626) (63,114) (60,977) (7,742) (7,205) (7,335) (11,034) (11,420) (11,887) Settlement loss -- -- -- -- -- -- -- 48,766 -- Amortization of net loss (gain) (12,746) (8,804) (8,413) (876) (562) (316) (338) (31,693) (1,541) Amortization of net asset (3,048) (3,048) (3,048) (908) (910) (974) -- (1,139) (2,464) Amortization of prior service cost 2,997 2,997 3,904 170 171 287 230 21,265 591 Amendments 1,765 -- -- -- -- -- -- -- -- - -------------------------------------------------------------------------------------------------------------------------------- Net pension expense (credit) $ (19,350) $ (11,295) $ (7,858) $ (1,381) $ (958) $ (653) $ (1,438) $ 34,549 $ (6,973) - -------------------------------------------------------------------------------------------------------------------------------- OTHER INFORMATION Assumptions: Discount rates January 1 8.0% 8.0% 8.5% 8.0% 8.0% 8.5% 8.3% 8.3% 8.1% December 31 8.0% 8.0% 8.5% 8.0% 8.0% 8.5% 8.3% 8.3% 8.2% Rate of return on plan assets 9.0% 9.0% 9.5% 8.0% 8.0% 8.5% 8.3% 8.3% 8.2% Rate of compensation increase 5.0% 5.0% 5.5% 5.0% 5.0% 5.5% 5.0% 5.0% 7.3% Amortization period 13 years 13 years 14 years 15 years 15 years 15 years 10 years 10 years 11 years ================================================================================================================================
As a result of the disposition of the Australasia Forms and Labels business on December 30, 1998, the Corporation eliminated its obligation with respect to the Australia and New Zealand plans. In addition, a contingent loss of $31,000,000 was recognized in 1998 as a result of the Corporation's intention to partially settle the obligation of the United Kingdom plan. Included in the 1998 net pension expense in the above table is $31,000,000 classified as provision for restructuring costs in the statement of earnings. In some subsidiaries, where either state or funded retirement plans exist, there are certain small supplementary unfunded plans. Pensionable service prior to establishing funded contributory retirement plans in other subsidiaries, covered by former discretionary non-contributory retirement plans, was assumed as a prior service obligation. In addition, the Corporation has entered into retiring allowance and supplemental retirement agreements with certain senior executives. The deferred liability for pensions at December 31, 1999 referred to in Note 8 includes the unfunded portion of this prior service obligation and the supplementary unfunded plans. All of the retirement plans are non-contributory. Retirement benefits are generally based on years of service and employees' compensation during the last years of employment. The Corporation introduced "Total Retirement Planning" to employees in the United States effective July 1, 1997, and in Canada effective January 1, 1998. This program, which modifies the existing two components of the retirement program, the Retirement Income Plan and the Savings Plan, provides a retirement benefit more closely linked to the performance of the Corporation. For employees nearing retirement age, the option exists to remain covered under the current retirement arrangement. At December 31, 1999, approximately 76% of the United States plan's assets, approximately 62% of the Canadian plan's assets and approximately 55% of the international plan's assets were held in equity securities with the remaining portion of the asset funds being mainly fixed income securities. The Corporation's funding policy is to satisfy the funding standards of the regulatory 37 authorities and to make contributions in order to provide for the accumulated benefit obligation and current service cost. To the extent that pension obligations are fully covered by existing assets, a contribution may not be made in a particular year. DEFINED CONTRIBUTION PENSION PLAN Savings plans are maintained in Canada, the United States and the United Kingdom. Only the savings plan in the United Kingdom requires company contributions for all employees who are eligible to participate in the retirement plans. These annual contributions consist of a retirement savings benefit contribution ranging from 1% to 3% of each year's compensation depending upon age. For all savings plans, if an employee contribution is made, a portion of such contribution may be eligible for a contribution match by the Corporation. In the aggregate, the defined contribution pension plan expenses were $4,868,000 (1998 - $6,681,000; 1997 - $5,955,000). 12. POSTRETIREMENT HEALTHCARE AND LIFE INSURANCE BENEFITS In addition to providing pension benefits, the Corporation and its United States subsidiary provide retired employees with healthcare and life insurance benefits. The cost of these healthcare and life insurance benefits is recognized as an expense as incurred. In 1999, the cost of these benefits was approximately $13,705,000 (1998 - $12,878,000; 1997 - $11,548,000). 13. CONSOLIDATED STATEMENTS OF EARNINGS INFORMATION
- ------------------------------------------------------------------------------------------------------------------- IN THOUSANDS 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------- INTEREST EXPENSE Interest on long-term debt $ 12,924 $ 2,219 $ 3,568 Other interest 11,260 16,835 10,629 - ------------------------------------------------------------------------------------------------------------------- $ 24,184 $ 19,054 $ 14,197 ------------------------------------------------- INVESTMENT AND OTHER INCOME Interest on short-term investments $ 6,123 $ 8,368 $ 24,190 Equity in income (loss) of associated corporations 105 (775) (217) Gain on sale of equity interest in Cordant Holdings Corporation -- 14,973 -- Gain on sale of the Rediform business -- 4,698 -- Write-off of warehouse software investment -- (7,697) -- European decoupling provision -- (8,000) -- Gain on sale of equity interest in Toppan Moore -- -- 66,470 Gain on reduction of investment in European subsidiary -- -- 35,184 International divestiture provisions -- -- (51,500) Gain on sale of Data Management Services 7,269 -- -- Gain (loss) on sale of property, plant and equipment (2,082) 4,671 (573) Unrealized exchange adjustments (233) (325) (879) Miscellaneous (69) (9,277) (3,623) - ------------------------------------------------------------------------------------------------------------------- $ 11,113 $ 6,636 $ 69,052 ------------------------------------------------ OTHER EXPENSE (INCOME) Rent $ 63,344 $ 57,084 $ 60,857 Retirement programs (10,535) 33,237 (395) Goodwill amortization and write-offs 9,022 182,375 18,919 Computer software amortization and write-offs 12,252 16,215 3,642 ===================================================================================================================
38 14. ACQUISITIONS During 1997, the Corporation acquired 100% of the following companies for a total consideration of $370,414,000. There were no acquisitions made during 1999 and 1998. The following information is provided for comparative purposes.
COMPANY NATURE OF BUSINESS ACQUISITION DATE - ------------------------------------------------------------------------------------------------------------------- 1997 The Peak Technologies Group Inc. Systems integrator of bar code-based data capture systems May 1997 in North America and Europe United Ad Label Co., Inc. Manufacturer and distributor of pressure sensitive labels May 1997 in the United States Phoenix Group, Inc. Provider of direct marketing services in the United States July 1997 and Europe Colleagues Group plc Provider of direct marketing services in the United Kingdom August 1997
- -------------------------------------------------------------------------------------------------------------------- IN THOUSANDS 1997 - -------------------------------------------------------------------------------------------------------------------- Financial summary of these acquisitions is as follows: Net assets acquired: Total assets $ 407,180 Total liabilities (36,766) - -------------------------------------------------------------------------------------------------------------------- Total acquisition cost $ 370,414 - -------------------------------------------------------------------------------------------------------------------- Consideration given: Cash and other $ 350,414 Payable over the next 2 years 20,000 - -------------------------------------------------------------------------------------------------------------------- $ 370,414 ====================================================================================================================
The acquisitions have been accounted for by the purchase method, with the results of operations included in income from the acquisition dates. 15. DISPOSITIONS On December 17, 1999, the Corporation sold its Data Management Services business unit for proceeds valued at approximately $40 million to Vista Information Solutions Inc. (Vista). The sale price included cash of $20 million, a working capital note from Vista, secured convertible notes from Vista and non-registered common shares of Vista. The gain on sale of $7 million is recorded in investment and other income. During 1998, the Corporation sold the following businesses for cash consideration of $24 million, annual fees for use of certain technologies and services, and contingent proceeds in the future based on realizing specific financial targets. 39
COMPANY NATURE OF BUSINESS DISPOSITION DATE - --------------------------------------------------------------------------------------------------------------------------- Copynomie Outsourcing of facilities management services in the Netherlands April 1998 European Forms and Labels Manufacturer of forms and labels for customers located in the August 1998 United Kingdom and Continental Europe Rediform Manufacturer and distributor of stock business forms and supplies September 1998 Australasia Forms and Labels Manufacturer of forms and labels located in Australia, December 1998 New Zealand and Papua New Guinea
Included in the Corporation's results of operations for 1999 are sales of $62 million (1998 - $298 million; 1997 - $436 million) and losses from operations of $4 million (1998 - $17 million; 1997 - $6 million) from the divested businesses. The loss before taxes of $3 million on the sale of the Copynomie business was fully provided for in investment and other income in 1997. The loss before taxes of $85 million on the sale of the European Forms and Labels business was fully provided for; $44 million included in the provision for restructuring costs for 1998, and $41 million in investment and other income for 1997. The $5 million before-tax gain in 1998 on the sale of the Rediform business is recorded in investment and other income. The loss before taxes of $42 million on the sale of the Australasia Forms and Labels business was fully provided for in the restructuring provision for 1998. 16. PROVISION FOR RESTRUCTURING COSTS In 1998, the Corporation incurred a pre-tax charge of $615 million, $531 million after tax, related to a restructuring plan directed at reducing costs and restoring profitability to the Forms business, and increasing profitability of the Customer Communication Services businesses. The key restructuring actions included the integration of North American operations, the disposal of non-strategic assets, and exiting of certain unprofitable products. The following table summarizes the activity in the restructuring reserve during 1998 and 1999:
---------------------------------------------------------- SELLING, GENERAL & ADMINISTRATIVE MANUFACTURING - ------------------------------------------------------------------------------------------------------------------------ TERMINATION OTHER TERMINATION OTHER TOTAL NON-CASH TOTAL IN MILLIONS BENEFITS CASH COSTS BENEFITS CASH COSTS CASH COSTS COSTS PROVISION - ------------------------------------------------------------------------------------------------------------------------ Restructuring provision $ 105 $ 60 $ 42 $ 55 $ 262 $ 368 $ 630 Adjustments (9) (3) (3) (14) (29) 14 (15) Reductions (4) (2) (9) (3) (18) (333) (351) - ------------------------------------------------------------------------------------------------------------------------ Reserve balance, December 31, 1998 $ 92 $ 55 $ 30 $ 38 $ 215 $ 49 $ 264 Adjustments (23) (5) (5) (11) (44) (24) (68) Reductions (7) (14) (8) (9) (38) -- (38) - ------------------------------------------------------------------------------------------------------------------------ Reserve balance, December 31, 1999 $ 62 $ 36 $ 17 $ 18 $ 133 $ 25 $ 158 ========================================================================================================================
40 The Corporation was successful in completing certain restructuring actions during 1998, predominantly in relation to the European and Australasia Forms businesses which were exited on more favourable terms than initially anticipated and from actual and planned workforce reductions at lower costs. This resulted in a reduction to the restructuring provision during the fourth quarter of 1998. In 1999, the Corporation completed actions resulting in the closure of five manufacturing facilities in North America and began the process of integrating its warehouses and U.S. print centres into the new manufacturing organization. Actions concerning the integration of sales and marketing activities in North America and the consolidation of U.S. and Canadian sales and administrative offices were also initiated during the year. In Europe, the Corporation has finalized the liquidation of a joint venture investment and has substantially completed the consolidation of manufacturing facilities in France. In the fourth quarter of 1999, the Corporation reversed $68 million of charges under the 1998 restructuring plan. The reversal was primarily the result of: the favourable settlement of liabilities for obligations and future payments related to the disposition of the European and Australasia Forms businesses; negotiated costs to exit customer contracts and lease agreements under several actions were lower than originally planned; the decision to sell rather than restructure the Moore Data Management Services business; and the decision to not fully implement certain restructuring actions under the plan, including the sale of certain North American businesses. Net of adjustments, non-cash costs include impairment losses of $292 million related to assets held for disposal. The losses comprise $172 million related to goodwill and other assets and $120 million related to property, plant and equipment. A significant portion of the assets associated with these impairment losses were disposed of in 1998 as part of the sale of the Australasia and European Forms operations. Subsequent gains on the disposal of assets have been included in adjustments to the extent that an impairment loss was classified as restructuring in the original provision. The carrying value of remaining assets held for disposal as at December 31, 1999, is $9 million (1998 - $112 million). Results of operations for businesses sold are disclosed in Note 15. Results of operations related to assets held for disposal at December 31, 1999, are sales in 1999 of $39 million (1998 - $46 million; 1997 - $47 million) and losses from operations of $1 million (1998 - $2 million; 1997 - $2 million). Also included in non-cash costs are impairment losses of $35 million related to assets held for use. The losses comprise $18 million related to goodwill and other assets and $17 million related to property, plant and equipment. The impairment losses were required based on an assessment of net recoverable amounts and fair values of the assets. Non-cash costs also include $31 million related to a contingent loss on settlement of the United Kingdom pension plan and realization of recorded pension assets. The restructuring plan includes actions to exit products and facilities. The cash costs associated with these activities have been included in the provision and include $39 million related to minimum lease commitments extending to year 2004, $12 million to exit certain service contracts, and $26 million for obligations and future payments related to businesses exited or divested. As at December 31, 1999, approximately 3,900 employees have left the Corporation, representing 2,600 due to divestitures contemplated by the restructuring plan and 1,300 from other restructuring actions. Provisions for restructuring costs include management's best estimates of the amounts expected to be realized on the sale of businesses and amounts to be incurred on the closure of manufacturing plants and integration of the North American operations. The amounts the Corporation will ultimately realize on the sale of certain businesses could differ in the near term from the amounts assumed in determining the provision. 41 17. REALIGNMENT In 1997, the Corporation recorded a before tax realignment provision of $32 million reflecting expenditures to reduce selling, general and administrative expenses and manufacturing overheads. Of the total provision, 90% related to the North American operations where sales declined and the product mix changed. About $29 million of the provision represents cash expenditures to reduce the work force by almost 700 people. The Corporation completed all realignment activities during 1998. 18. INCOME TAXES The components of earnings (loss) before income taxes for the three years ended December 31 were as follows:
- -------------------------------------------------------------------------------------------------------------------- IN THOUSANDS 1999 1998 1997 - -------------------------------------------------------------------------------------------------------------------- EARNINGS (LOSS) BEFORE INCOME TAXES Canada $ 2,485 $ (52,170) $ 44,828 United States 67,329 (431,024) 37,933 Other countries 58,796 (159,724) 21,505 - -------------------------------------------------------------------------------------------------------------------- $ 128,610 $ (642,918) $ 104,266 ====================================================================================================================
- -------------------------------------------------------------------------------------------------------------------- 1999 1998 1997 IN THOUSANDS CURRENT DEFERRED CURRENT DEFERRED CURRENT DEFERRED - -------------------------------------------------------------------------------------------------------------------- PROVISION (RECOVERY) FOR INCOME TAXES Canada $ 561 $ 815 $ (2,317) $ (4,161) $ 26,209 $ 518 United States 2,011 25,940 (23,304) (69,869) 10,255 6,144 Other countries 8,074 (2,251) 5,105 140 (1,326) 7,258 Withholding taxes on intercompany dividends 136 -- 76 -- 113 -- - -------------------------------------------------------------------------------------------------------------------- $ 10,782 $ 24,504 $ (20,440) $ (73,890) $ 35,251 $ 13,920 ====================================================================================================================
Deferred income taxes in each of the three years arose from a number of differences of a timing nature between income for accounting purposes and taxable income in the jurisdictions in which the Corporation and its subsidiaries operate. The sources of major timing differences and the tax effect of each were as follows:
- -------------------------------------------------------------------------------------------------------------------- IN THOUSANDS 1999 1998 1997 - -------------------------------------------------------------------------------------------------------------------- DEFERRED INCOME TAXES Depreciation $ 2,968 $ 6,840 $ 9,085 Pensions 7,436 4,424 6,705 Inventories (284) (524) (386) Restructuring and realignment costs 30,917 (73,916) (5,526) Net operating loss carryforwards (16,746) (8,542) 687 Other 213 (2,172) 3,355 - -------------------------------------------------------------------------------------------------------------------- $ 24,504 $ (73,890) $ 13,920 ====================================================================================================================
42 The effective rates of tax for each year compared with the statutory Canadian rates were as follows:
- ------------------------------------------------------------------------------------------------------- 1999 1998 1997 - ------------------------------------------------------------------------------------------------------- Effective tax expense (recovery) rate CANADA Combined federal and provincial statutory rate 43.8% (43.8)% 43.8% Corporate surtax 1.1 (1.1) 1.1 Manufacturing and processing rate reduction (6.3) 6.3 (6.3) - --------------------------------------------------------------------------------------------------------- Expected income tax expense (recovery) rate 38.6 (38.6) 38.6 Tax rate differences in other jurisdictions (10.6) (2.3) (14.4) Tax benefit of losses previously not recognized (1.2) (0.3) (0.9) Non-deductible tax losses 1.8 1.8 10.6 Restructuring costs (5.0) 23.8 -- International divestiture provisions -- 0.5 19.1 Withholding taxes 0.1 -- 0.1 Other 3.7 0.4 (5.9) - --------------------------------------------------------------------------------------------------------- Total consolidated effective tax expense (recovery) rate 27.4% (14.7)% 47.2% =========================================================================================================
At December 31, 1999, loss carryforwards of approximately $71 million have not been recognized in the consolidated financial statements. Of that amount, $42 million expires between 2000 and 2009 and $29 million has no expiry date. In addition, the Corporation has unrecognized timing differences of approximately $23 million available for utilization in future years. 19. EARNINGS AND FULLY DILUTED EARNINGS PER COMMON SHARE The earnings per share calculations are based on the weighted average number of common shares outstanding during the year. In the calculation of fully diluted earnings per share, consideration is given to potentially dilutive share options outstanding. This calculation produces no dilutive effect for 1998 and 1997. The 1999 fully diluted earnings per share is $1.04. Imputed earnings on the proceeds from the exercise of the options are calculated using a 4.0% after-tax rate of return. 20. SEGMENTED INFORMATION The Corporation and its subsidiaries operate within four (1998 - five) segments in two industries. These two main industries include Forms, Print Management and Related Products (Forms) and Customer Communication Services (CCS). The Corporation's reportable segments are strategic business units that operate in specific geographic locations or offer different products or services. The segments are managed separately because each unit requires unique marketing and manufacturing strategies or is exposed to different economic environments. The Corporation's reportable segments are: 43 MOORE NORTH AMERICA In this segment, the Corporation derives its revenue in the forms industry in the United States and Canada. This segment designs and manufactures business forms and related products, systems and services which include: - - custom business forms and equipment - - electronic forms and services - - print services such as digital colour printing - - pressure sensitive labels - - proprietary label products - - variable-imaged bar codes - - integrated form-label applications - - printers, applicators and software products and solutions CUSTOMER COMMUNICATION SERVICES (CCS), UNITED STATES In this segment, the Corporation derives its revenue from its CCS operations by producing personalized direct mail, and offering outsourcing services for statement printing, imaging, processing and distribution including: - - creation and production of personalized mail - - direct marketing program development - - database management and segmentation services - - response analysis services - - mail production outsourcing services LATIN AMERICA In this segment, the Corporation derives its revenue mainly from its Forms operations in various locations throughout Central and South America. While there are distinct CCS operations in Brazil and Mexico, the businesses are run in close association with the business forms operations and offer products and services similar to Moore North America. This segment has full access to the Corporation's products, services, technology and manufacturing techniques. EUROPE In this segment, the Corporation derives its revenue from the CCS operations and, up to August 1998, the Forms operations throughout Europe. On August 1, 1998, the Corporation sold its entire Forms operations. The segment's Forms operations provided products and services similar to Moore North America. The CCS operations manufacture or purchase and distribute a comprehensive group of direct marketing products and business communication products and services to its customers. These include: - - printed direct mail items - - magazine inserts - - variably imaged promotional pieces - - statement printing ASIA PACIFIC In this segment (1998 and prior), the Corporation derived its revenue from Forms operations in Australia, New Zealand, Papua New Guinea and China. The segment provided products and services, which are similar to Moore North America, and had full access to the Corporation's products, services, technology and manufacturing techniques. During 1998, the Corporation ceased operations in China and, on December 30, 1998, the Australasia operations were sold. Transfers of products between segments are generally accounted for on a basis that results in a fair profit being earned by each segment. Sales to customers outside the enterprise are attributed to geographic segments based on the location of the business unit providing the product or service. 44 Operating segments
- ----------------------------------------------------------------------------------------------------------------------- MOORE CCS, LATIN IN THOUSANDS NORTH AMERICA UNITED STATES AMERICA EUROPE ASIA PACIFIC CONSOLIDATED - ----------------------------------------------------------------------------------------------------------------------- 1999 Total revenue $ 1,583,095 $ 527,443 $ 160,806 $ 174,132 $ 2,445,476 Intersegment revenue (19,456) (904) -- -- (20,360) - ----------------------------------------------------------------------------------------------------------------------- Sales to customers outside the enterprise $ 1,563,639 $ 526,539 $ 160,806 $ 174,132 $ 2,425,116 - ----------------------------------------------------------------------------------------------------------------------- Segment operating profit $ 82,900 $ 44,062 $ 1,405 $ 8,379 $ 136,746 ----------------------------------------------------------------------- General corporate income 4,935 -------------- Income from operations $ 141,681 -------------- Segment assets $ 816,769 $ 178,257 $ 97,268 $ 144,066 $ 1,236,360 ----------------------------------------------------------------------- Corporate assets including investments 393,933 -------------- Total assets $ 1,630,293 -------------- Provision for restructuring costs $(50,420) $(6,150) $ -- $ (4,500) $ (61,070) ----------------------------------------------------------------------- General corporate (7,340) -------------- Total provision for restructuring costs $ (68,410) -------------- Capital asset amortization $ 53,492 $ 32,436 $ 6,154 $ 9,253 $ 101,335 - ----------------------------------------------------------------------------------------------------------------------- Capital expenditures $ 59,257 $ 25,706 $ 10,124 $ 5,750 $ 100,837 - ----------------------------------------------------------------------------------------------------------------------- 1998 Total revenue $ 1,661,604 $ 520,837 $ 193,777 $ 281,662 $ 108,068 $ 2,765,948 Intersegment revenue (40,412) (1,239) -- (6,595) -- (48,246) - ----------------------------------------------------------------------------------------------------------------------- Sales to customers outside the enterprise $ 1,621,192 $ 519,598 $ 193,777 $ 275,067 $ 108,068 $ 2,717,702 - ----------------------------------------------------------------------------------------------------------------------- Segment operating profit (loss) $ (448,480)$ 5,701 $ (22,305) $ (104,251)$ (59,910)$ (629,245) ----------------------------------------------------------------------- General corporate expenses (1,255) -------------- Loss from operations $ (630,500) -------------- Segment assets $ 823,041 $ 299,053 $ 107,170 $ 157,544 $ 17,820 $ 1,404,628 ----------------------------------------------------------------------- Corporate assets including investments 321,507 -------------- Total assets $ 1,726,135 -------------- Provision for restructuring costs Cash $ 168,820 $ 13,470 $ 3,000 $ 33,280 $ 14,600 $ 233,170 Non-cash 245,490 13,110 20,840 66,490 35,900 381,830 - ----------------------------------------------------------------------------------------------------------------------- Total provision for restructuring costs $ 414,310 $ 26,580 $ 23,840 $ 99,770 $ 50,500 $ 615,000 - ----------------------------------------------------------------------------------------------------------------------- Capital asset amortization $ 59,606 $ 31,096 $ 7,504 $ 14,063 $ 5,539 $ 117,808 - ----------------------------------------------------------------------------------------------------------------------- Capital expenditures $ 33,187 $ 21,735 $ 6,334 $ 12,996 $ 1,197 $ 75,449 - ----------------------------------------------------------------------------------------------------------------------- 1997 Total revenue $ 1,567,016 $ 463,146 $ 206,289 $ 298,563 $ 149,525 $ 2,684,539 Intersegment revenue (52,562) (768) -- (195) -- (53,525) - ----------------------------------------------------------------------------------------------------------------------- Sales to customers outside the enterprise $ 1,514,454 $ 462,378 $ 206,289 $ 298,368 $ 149,525 $ 2,631,014 - ----------------------------------------------------------------------------------------------------------------------- Segment operating profit (loss) $ 30,742 $ 36,486 $ (7,235) $ (5,858)$ (4,253)$ 49,882 ----------------------------------------------------------------------- General corporate expenses (471) -------------- Income from operations $ 49,411 -------------- Segment assets $ 1,056,739 $ 313,542 $ 112,640 $ 262,866 $ 80,467 $ 1,826,254 ----------------------------------------------------------------------- Corporate assets including investments 348,318 -------------- Total assets $ 2,174,572 -------------- Capital asset amortization $ 58,974 $ 26,616 $ 8,466 $ 14,055 $ 7,719 $ 115,830 - ----------------------------------------------------------------------------------------------------------------------- Capital expenditures $ 69,407 $ 34,033 $ 10,230 $ 13,938 $ 8,694 $ 136,302 =======================================================================================================================
45 GEOGRAPHIC INFORMATION
- ----------------------------------------------------------------------------------------------------------------------- IN THOUSANDS CANADA UNITED STATES INTERNATIONAL CONSOLIDATED - ----------------------------------------------------------------------------------------------------------------------- 1999 Sales to customers outside the enterprise $ 218,870 $ 1,831,503 $ 374,743 $ 2,425,116 - ----------------------------------------------------------------------------------------------------------------------- Capital assets and goodwill $ 42,321 $ 473,886 $ 99,471 $ 615,678 1998 Sales to customers outside the enterprise $ 212,406 $ 1,887,866 $ 617,430 $ 2,717,702 - ----------------------------------------------------------------------------------------------------------------------- Capital assets and goodwill $ 37,844 $ 483,200 $ 118,890 $ 639,934 ------------------------------------------------------------------ 1997 Sales to customers outside the enterprise $181,523 $ 1,769,386 $ 680,105 $ 2,631,014 - ----------------------------------------------------------------------------------------------------------------------- Capital assets and goodwill $42,180 $ 777,266 $ 186,795 $ 1,006,241 =======================================================================================================================
INDUSTRY SALES INFORMATION
- ----------------------------------------------------------------------------------------------------------------------- IN THOUSANDS 1999 1998 1997 - ----------------------------------------------------------------------------------------------------------------------- SALES Forms $ 1,662,462 $ 1,958,730 $ 1,999,336 CCS 762,654 758,972 631,678 - ----------------------------------------------------------------------------------------------------------------------- $ 2,425,116 $ 2,717,702 $ 2,631,014 =======================================================================================================================
21. LEASE COMMITMENTS (IN THOUSANDS) At December 31, 1999, long-term operating lease commitments require approximate future rental payments as follows: 2000 $ 57,448 2003 $ 19,854 - ------------------------------------------------------------------------------------------------------------------- 2001 41,599 2004 16,212 - ------------------------------------------------------------------------------------------------------------------- 2002 27,435 2005 and thereafter 9,542 - -------------------------------------------------------------------------------------------------------------------
22. CONTINGENCIES At December 31, 1999, certain lawsuits and other claims were pending against the Corporation. While the outcome of these matters is subject to future resolution, management's evaluation and analysis of such matters indicates that, individually and in the aggregate, the probable ultimate resolution of such matters will not have a material effect on the Corporation's consolidated financial statements. 23. FINANCIAL INSTRUMENTS At December 31, 1999, the aggregate notional principal amount of forward exchange contracts used as hedges was approximately $14,200,000 (1998 - $32,200,000). Net deferred gains and losses from these contracts were not significant at December 31, 1999. The Corporation may be exposed to losses if the counterparties to the above contracts fail to perform. The Corporation manages this risk by dealing only with financially sound counterparties and by establishing dollar and term limits for each counterparty. The fair value of the senior guaranteed notes, both series A and B, based on borrowing rates currently available to the Corporation for debt issues with similar terms and maturities is approximately $185,072,000. The Corporation does not use derivative financial instruments for trading purposes. 46 24. CASH FLOW DISCLOSURE The following cash flow disclosure is required for both Canadian and United States Generally Accepted Accounting Principles.
- ------------------------------------------------------------------------------------------------------------------- IN THOUSANDS 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------- Interest paid $ 20,169 $ 19,385 $ 13,707 - ------------------------------------------------------------------------------------------------------------------- Income taxes paid (refunded)(a) (29,426) 5,741 33,684 ===================================================================================================================
(a) In 1998, $16,519 was included in investing activities that would have been included in operating activities. 25. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES The continued registration of the common shares of the Corporation with the Securities and Exchange Commission (SEC) and listing of the shares on the New York Stock Exchange require compliance with the integrated disclosure rules of the SEC. The accounting policies in Note 1 and accounting principles generally accepted in Canada are consistent in all material aspects with United States generally accepted accounting principles (GAAP) with the following exceptions. PENSIONS (SFAS NO. 87) Under Canadian GAAP, the discount rate is a long-term based interest rate, whereas under United States GAAP, the discount rate reflects an interest rate at which the pension obligation could effectively be settled at the previous year-end date. The discount rates used at January 1, 1999, under United States GAAP for Canada and the United States were 6.25% (1998 - 6.5%; 1997 - 7.5%) and 6.75% (1998 - 7.0%; 1997 - 7.75%), respectively. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (SFAS NO. 106) SFAS No. 106 requires that the expected costs of the employees' postretirement benefits be expensed during the years that the employees render services, whereas under Canadian GAAP, the Corporation recognizes the costs of these benefits as an expense as incurred (see Note 12). INCOME TAXES (SFAS NO. 109) SFAS No. 109 requires a liability method under which temporary differences are tax effected at current rates, whereas under Canadian GAAP, timing differences are tax effected at the rates in effect when they arise. EARNINGS PER SHARE (SFAS NO. 128) Under Canadian GAAP, diluted earnings per share is calculated using the imputed interest method, whereas the treasury stock method is required for United States GAAP. STOCK COMPENSATION (SFAS NO. 123) SFAS No. 123 requires proforma disclosures of net income and earnings per share, as if the fair value-based method of accounting for employee stock options had been applied. The Corporation uses the intrinsic value method for accounting for stock options. The disclosures in the table show the Corporation's net income and earnings per share on a proforma basis using the fair value method and Black-Scholes option pricing model. COMPREHENSIVE INCOME (SFAS NO. 130) SFAS No. 130 requires disclosure of comprehensive income and its components. Comprehensive income is the change in equity of the Corporation from transactions and other events other than those resulting from transactions with owners, and is comprised of net income and other comprehensive income. The only components of other comprehensive income for the Corporation are unrealized foreign currency translation adjustments and unrealized gains (losses) on available-for-sale securities. Under Canadian GAAP, there is no standard for reporting comprehensive income. FOREIGN CURRENCY TRANSLATION Under United States GAAP, foreign currency translation gains or losses are only recognized due to the sale or substantial liquidation of a foreign subsidiary. Under Canadian GAAP, a foreign currency gain or loss due to a partial liquidation is recognized in income. 47 INTERNAL USE COMPUTER SOFTWARE AND BUSINESS PROCESS RE-ENGINEERING Under United States GAAP, business process re-engineering activities involved with information technology transformation projects are expensed as incurred. Prior to October 28, 1998, Canadian GAAP permitted these costs to be capitalized or expensed depending on the company's accounting policy. Subsequent to October 28, 1998, Canadian GAAP requires the cost of business process re-engineering activities to be expensed as incurred. The Corporation had a policy of capitalizing software development costs, including business process re-engineering costs until October 28, 1998. Under United States GAAP, SOP 98-1 and EITF 97-13, certain costs incurred with respect to the Corporation's Enterprise Resource Planning (ERP) should be expensed when incurred. For Canadian GAAP purposes, these costs are capitalized and deferred over their useful life. TERMINATION LIABILITIES Under United States GAAP, a liability for termination benefits is recognized provided that certain conditions are met. Prior to December 31, the details of the benefit arrangement under the approved plan must be communicated to the employees. Under Canadian GAAP, the communication of the benefit arrangements to the employees before the financial statement date is not required. The provision for restructuring costs recorded in 1998 includes termination liabilities not yet recognizable under United States GAAP. Included in the 1999 earnings before taxes for United States GAAP is $16 million (1998 - $23 million) of termination liabilities incurred under the restructuring program. Realignment costs recorded in 1997 under Canadian GAAP include termination liabilities recognized in 1998 under United States GAAP. SETTLEMENTS OF PENSION PLANS (SFAS NO. 88) Under United States GAAP, a gain or loss arising upon the settlement of a pension plan is only recognized once responsibility for the pension obligation has been relieved. Under Canadian GAAP, an intention to settle or curtail a pension plan that is expected to result in a loss requires recognition once the amount is likely and can be reasonably estimated. The provision for restructuring costs recorded in 1998 includes a contingent loss for the writedown of pension assets that is not yet recognizable under United States GAAP. INCOME FROM OPERATIONS Under Canadian GAAP, the 1998 provision of $8,000,000 for the decoupling of the European Forms and Labels business from the Customer Communication Services business, and the provision of $51,500,000 charged in 1997 for the disposal of unprofitable operations, are recorded in investment and other income. Under United States GAAP, these provisions are charged to income from operations. The classification difference has no impact on earnings. The following table provides information required under United States GAAP:
- ------------------------------------------------------------------------------------------------------------------------ IN THOUSANDS 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------------ Net earnings (loss) as reported $ 92,599 $ (547,866) $ 55,099 - ------------------------------------------------------------------------------------------------------------------------ Decreased (increased) pension expense (6,775) 1,592 (3,795) Reduced loss on pension settlement -- 31,000 -- Decreased (increased) postretirement benefits 8,565 4,986 (224) Internal use computer software and business process re-engineering: - in the year (7,521) (8,992) (16,774) - prior to 1997 -- -- (14,000) Decreased (increased) termination liabilities (44,372) 99,837 12,500 Foreign currency gain -- -- (35,184) Decreased (increased) income taxes(a) 30,388 (34,699) 1,172 - ------------------------------------------------------------------------------------------------------------------------ Net earnings (loss) determined under United States GAAP $ 72,884 $ (454,142) $ (1,206) ======================================================================================================================== (a) SFAS No. 109 income tax adjustments $ 10,637 $ (2,542) $ (7,437) ========================================================================================================================
48 EARNINGS PER SHARE
- ------------------------------------------------------------------------------------------------------------------- IN THOUSANDS, EXCEPT PER SHARE AMOUNTS 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------- Net earnings (loss) $ 72,884 $ (454,142) $ (1,206) - ------------------------------------------------------------------------------------------------------------------- Basic earnings (loss) per share: Earnings (loss) before cumulative effect of change in accounting $ 0.82 $ (5.13) $ 0.14 Cumulative effect of change in accounting principles(a) -- -- (0.15) Earnings (loss) per share $ 0.82 $ (5.13) $ (0.01) - ------------------------------------------------------------------------------------------------------------------- Diluted earnings (loss) per share: Earnings (loss) before cumulative effect of change in accounting $ 0.82 $ (5.13) $ 0.14 Cumulative effect of change in accounting principles(a) -- -- (0.15) Earnings (loss) per share $ 0.82 $ (5.13) $ (0.01) ===================================================================================================================
(a) Accounting policy for business process re-engineering costs changed in the 1997 fourth quarter to expensed as incurred. The cumulative effect of prior period costs previously capitalized was charged to 1997 earnings. COMPREHENSIVE INCOME
- ---------------------------------------------------------------------------------------------------------------------- IN THOUSANDS 1999 1998 1997 - ---------------------------------------------------------------------------------------------------------------------- Net earnings (loss) $ 72,884 $ (454,142) $ (1,206) - ---------------------------------------------------------------------------------------------------------------------- Other comprehensive income (loss): Unrealized foreign currency translation adjustments (12,378) (6,402) (15,170) Reclassification adjustment for losses (gains) included in income -- 12,742 (23,001) Unrealized losses on available-for-sale securities (4,253) -- -- Other comprehensive income (loss) (16,631) 6,340 (38,171) - ---------------------------------------------------------------------------------------------------------------------- Total comprehensive income (loss) $ 56,253 $ (447,802) $ (39,377) ======================================================================================================================
PROFORMA STOCK COMPENSATION DISCLOSURES
- ---------------------------------------------------------------------------------------------------------------------- IN THOUSANDS, EXCEPT PER SHARE AMOUNTS 1999 1998 1997 - ---------------------------------------------------------------------------------------------------------------------- Proforma earnings (loss) $ 70,981 $ (453,939) $ (2,429) - ---------------------------------------------------------------------------------------------------------------------- Earnings (loss) per share Basic $ 0.80 $ (5.13) $ (0.03) Diluted $ 0.80 $ (5.13) $ (0.03) Assumptions: Risk-free interest rates 6.1% 5.3% 5.7% Expected lives (in years) 6 6 6 Dividend yield 2.7% 3.9% 4.6% Volatility 26% 26% 23% ======================================================================================================================
49 The following data is based upon reports from independent consulting actuaries as at December 31:
- ------------------------------------------------------------------------------------------------------------------- IN THOUSANDS 1999 1998 - ------------------------------------------------------------------------------------------------------------------- ACCRUED POSTRETIREMENT BENEFIT COST Projected postretirement benefit obligation at beginning of year $ 297,704 $ 279,492 Service cost 2,058 2,674 Interest cost 18,019 19,167 Amendments -- 14,255 Actuarial gain (62,798) (4,120) Foreign currency exchange rate changes 559 (886) Benefits paid (13,705) (12,878) - ------------------------------------------------------------------------------------------------------------------- Projected postretirement benefit obligation at end of year $ 241,837 $ 297,704 Unrecognized net loss 38,855 (16,612) Unrecognized prior service credit 145,819 152,583 - ------------------------------------------------------------------------------------------------------------------- Accrued postretirement benefit cost liability $ 426,511 $ 433,675 - ------------------------------------------------------------------------------------------------------------------- POSTRETIREMENT BENEFIT EXPENSE Service cost $ 2,058 $ 2,674 Interest cost 18,019 19,167 Amortization of net (gain)/loss (40) -- Amortization of unrecognized service (14,897) (13,949) - ------------------------------------------------------------------------------------------------------------------- Net postretirement benefit expense $ 5,140 $ 7,892 - ------------------------------------------------------------------------------------------------------------------- ASSUMPTIONS AND OTHER INFORMATION Weighted average discount rate 7.9% 7.0% Weighted average healthcare cost trend rate Before age 65 7.8% 8.8% After age 65 5.8% 6.8% The general trend in the rate thereafter is a reduction of 0.7% per year. Weighted average ultimate healthcare cost trend rate 5.2% 5.2% Year in which ultimate healthcare cost trend rate will be achieved Canada 2004 2004 United States 2002 2002 The following is the effect of a 1% increase in the assumed healthcare cost trend rates for each future year on: (a) Accumulated postretirement benefit obligation $ 16,651 $ 15,743 (b) Aggregate of the service and interest cost components of net postretirement benefit cost 1,145 1,215 The following is the effect of a 1% decrease in the assumed healthcare cost trend rates for each future year on: (a) Accumulated postretirement benefit obligation $ 16,313 $ 15,743 (b) Aggregate of the service and interest cost components of net postretirement benefit cost 1,111 1,215 ===================================================================================================================
50 BALANCE SHEET ITEMS AS AT DECEMBER 31
- ------------------------------------------------------------------------------------------------------------------- 1999 1998 IN THOUSANDS AS REPORTED US GAAP AS REPORTED US GAAP - ------------------------------------------------------------------------------------------------------------------- Net pension liability (asset) $ (22,323) $ (30,140) $ 897 $ (14,930) Other assets - computer software (139,032) (91,745) (93,664) (53,898) Postretirement benefit cost liability -- 426,511 -- 433,675 Deferred income taxes asset (33,002) (260,635) (76,441) (254,283) Deferred income taxes liability 24,439 91,736 42,305 92,835 Accounts payable and accruals 533,010 459,045 641,649 523,312 Unrealized foreign currency translation adjustments (118,256) (83,072) (105,878) (70,694) Retained earnings 480,049 213,185 405,142 157,993 ===================================================================================================================
The following table shows the main items included in deferred income taxes under United States GAAP: DEFERRED INCOME TAXES
- ------------------------------------------------------------------------------------------------------------------- IN THOUSANDS 1999 1998 - ------------------------------------------------------------------------------------------------------------------- Assets: Postretirement benefits other than pensions $ 168,365 $ 171,266 Tax benefit of loss carryovers 40,965 31,584 Pensions 15,498 14,096 Restructuring costs 29,352 53,888 Other 46,516 20,668 - ------------------------------------------------------------------------------------------------------------------- 300,696 291,502 Valuation allowance (40,061) (37,219) - ------------------------------------------------------------------------------------------------------------------- 260,635 254,283 - ------------------------------------------------------------------------------------------------------------------- Liabilities: Depreciation 47,436 62,874 Pensions 13,566 3,192 Other 30,734 26,769 - ------------------------------------------------------------------------------------------------------------------- 91,736 92,835 - ------------------------------------------------------------------------------------------------------------------- Net deferred income taxes $ 168,899 $ 161,448 ===================================================================================================================
26. UNCERTAINTY DUE TO YEAR 2000 ISSUE The Year 2000 Issue arises because many computerized systems use two digits rather than four to identify a year. Date sensitive systems may recognize the year 2000 as 1900 or some other date, resulting in errors when information using Year 2000 dates is processed. In addition, similar problems may arise in some systems which use certain dates in 1999 to represent something other than a date. Although the change in date has occurred without any disruptions to the Corporation's operations, it is not possible to conclude that all aspects of the Year 2000 Issue that may affect the Corporation, including those related to the efforts of customers, suppliers or other third parties, have been fully resolved. 51 27. PENDING ACCOUNTING STANDARDS SFAS NO. 133 - ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES In June 1998, the United States Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133 which standardized the accounting for all derivatives. The new standard must be implemented for year-ends ending after June 15, 2000. The Corporation has not yet determined the impact the adoption of SFAS No. 133 will have on its earnings or statement of cash flows. However, the Corporation does not use derivative financial instruments for trading purposes and only enters into normal commercial hedges. CICA SECTION 3465 - ACCOUNTING FOR INCOME TAXES Effective January 1, 2000, the Corporation will change its method of accounting for income taxes from the tax allocation basis (deferral method), which related income taxes to the accounting income for the year, to the liability method of tax allocation as required by the Canadian Institute of Chartered Accountants' Section 3465. The liability method records future tax assets and liabilities which reflect the net tax effects of temporary differences between carrying amounts for financial reporting purposes and the amounts used for tax purposes. The cumulative effect of this change as of January 1, 2000, will result in an increase of assets by $69 million, an increase in liabilities by $67 million and an increase in opening retained earnings by $2 million. As permitted under the pending standard, prior year financial statements will not be restated; however, the effect will be applied retroactively as an adjustment to the opening retained earnings. CICA SECTION 3461 - EMPLOYEE FUTURE BENEFITS Effective January 1, 2000, the Corporation will change its method of accounting for postretirement benefits other than pensions. Under current Canadian standards the Corporation recognizes the cost of these benefits as an expense when paid. The new standard requires that the expected costs of the employees' postretirement benefits be expensed during the years that the employees render services to the Corporation. In addition, the new standard changes the accounting for recognition of involuntary termination benefits. For accrual purposes, the new standard requires that benefit arrangements are communicated to employees in sufficient detail to enable them to determine the type and amount of benefits they will receive when their employment is terminated. Current Canadian standards do not require this condition and included in the Corporation's 1998 restructuring charge were special termination benefits not yet communicated to employees. The cumulative effect of this change as of January 1, 2000, will result in an increase of assets by $232 million, an increase in liabilities by $198 million and an increase in opening retained earnings by $34 million. As permitted under the new standard, prior year financial statements will not be restated; however, the effect will be applied retroactively as an adjustment to opening retained earnings. 28. COMPARATIVE CONSOLIDATED FINANCIAL STATEMENTS Comparative figures have been restated where appropriate to conform to the current presentation. 52 MANAGEMENT REPORT All of the information in this annual report is the responsibility of management and has been approved by the Board of Directors. The financial information contained herein conforms to the accompanying consolidated financial statements, which have been prepared and presented in accordance with accounting principles generally accepted in Canada and necessarily include amounts that are based on judgments and estimates applied consistently and considered appropriate in the circumstances. The consolidated financial statements have been audited by the Corporation's independent accountants, PricewaterhouseCoopers LLP, and their report is included below. The Corporation maintains a system of internal control which is designed to provide reasonable assurance that assets are safeguarded, that accurate accounting records are maintained, and that reliable financial information is prepared on a timely basis. To monitor compliance with the system of internal controls and to evaluate its effectiveness, management has contracted with and directs PricewaterhouseCoopers LLP in an ongoing program of internal auditing. The Audit Committee of the Board of Directors is composed entirely of outside directors and meets quarterly with management and PricewaterhouseCoopers LLP to review management's evaluation of internal controls, approve the scope of the program of internal auditing, and discuss the scope and results of audit examinations performed by PricewaterhouseCoopers LLP. PricewaterhouseCoopers LLP has unrestricted access to the Audit Committee including the ability to meet without management representatives present. W. Ed Tyler (Signed) M. S. Rousseau (Signed) PRESIDENT AND SENIOR VICE PRESIDENT CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER FEBRUARY 17, 2000 AUDITORS' REPORT TO THE SHAREHOLDERS OF MOORE CORPORATION LIMITED: We have audited the consolidated balance sheets of Moore Corporation Limited as at December 31, 1999 and 1998 and the consolidated statements of earnings, retained earnings and cash flows for each of the three years in the period ended December 31, 1999. These consolidated financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards in Canada. 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 December 31, 1999 and 1998 and the results of its operations and the changes in its cash flows for each of the three years in the period ended December 31, 1999 in accordance with generally accepted accounting principles in Canada. PricewaterhouseCoopers LLP (Signed) CHARTERED ACCOUNTANTS, TORONTO, CANADA FEBRUARY 17, 2000 53 ELEVEN-YEAR SUMMARY
- --------------------------------------------------------------------------------------------------------------------------------- EXPRESSED IN UNITED STATES CURRENCY AND, EXCEPT PER SHARE AMOUNTS, IN THOUSANDS OF DOLLARS 1999 1998 1997 1996 - --------------------------------------------------------------------------------------------------------------------------------- INCOME STATISTICS Sales $ 2,425,116 $ 2,717,702 $ 2,631,014 $ 2,517,673 - --------------------------------------------------------------------------------------------------------------------------------- Income (loss) from operations 141,681 (630,500) 49,411 142,608 Per dollar of sales 5.8CENTS (23.2)CENTS 1.9CENTS 5.7CENTS - --------------------------------------------------------------------------------------------------------------------------------- Income tax expense (recovery) 35,286 (94,330) 49,171 48,570 Percent of pre-tax earnings 27.4% 14.7% 47.2% 24.4% - --------------------------------------------------------------------------------------------------------------------------------- Net earnings (loss) 92,599 (547,866) 55,099 149,923 Per dollar of sales 3.8CENTS (20.2)CENTS 2.1CENTS 6.0CENTS Per common share $ 1.05 $ (6.19) $ 0.59 $ 1.50 - --------------------------------------------------------------------------------------------------------------------------------- Dividends 17,692 34,057 85,830 94,183 Per common share 20CENTS 38.5CENTS 94CENTS 94CENTS - --------------------------------------------------------------------------------------------------------------------------------- Earnings retained in (losses and dividends funded by) the business 74,907 (581,923) (30,731) 55,740 - --------------------------------------------------------------------------------------------------------------------------------- BALANCE SHEET AND OTHER STATISTICS Current assets $ 750,860 $ 894,343 $ 965,078 $ 1,369,579 Current liabilities 622,464 941,034 790,454 485,739 - --------------------------------------------------------------------------------------------------------------------------------- Working capital 128,396 (46,691) 174,624 883,840 Ratio of current assets to current liabilities 1.2:1 1.0:1 1.2:1 2.8:1 - --------------------------------------------------------------------------------------------------------------------------------- Property, plant and equipment (net) 458,808 466,198 635,770 603,750 - --------------------------------------------------------------------------------------------------------------------------------- Long-term debt 201,686 4,841 49,109 53,811 Ratio of debt to equity 0.3:1 0.0:1 0.0:1 0.0:1 - --------------------------------------------------------------------------------------------------------------------------------- Shareholders' equity 672,674 610,145 1,185,612 1,549,819 Per common share $ 7.60 $ 6.90 $ 13.40 $15.49 - --------------------------------------------------------------------------------------------------------------------------------- Total assets 1,630,293 1,726,135 2,174,572 2,224,040 - --------------------------------------------------------------------------------------------------------------------------------- Average shares outstanding (a) 88,457 88,456 93,200 99,967 - --------------------------------------------------------------------------------------------------------------------------------- Number of shareholders of record at year-end 5,074 5,506 6,482 6,901 - --------------------------------------------------------------------------------------------------------------------------------- Number of employees 15,812 17,135 20,084 18,849 =================================================================================================================================
(a) In thousands QUARTERLY FINANCIAL INFORMATION
- ---------------------------------------------------------------------------------------------------------------------------- EXPRESSED IN UNITED STATES CURRENCY 1999 1998 AND, EXCEPT PER SHARE AMOUNTS, IN FOURTH THIRD SECOND FIRST FOURTH THIRD SECOND FIRST THOUSANDS OF DOLLARS (UNAUDITED) QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER - ---------------------------------------------------------------------------------------------------------------------------- Sales $ 647,187 $ 596,363 $572,638 $ 608,928 $698,875 $651,325 $667,694 $ 699,808 Cost of sales 435,566 404,768 388,197 413,445 484,277 455,611 470,267 481,094 Income (loss) from operations 101,145 18,690 8,298 13,548 26,204 (644,456) (21,098) 8,850 Net earnings (loss) 72,342 8,687 1,891 9,679 15,234 (546,864) (21,470) 5,234 Per common share $ 0.82 $ 0.10 $ 0.02 $ 0.11 $ 0.17 $(6.18) $(0.24) $ 0.06 - ---------------------------------------------------------------------------------------------------------------------------- Net earnings (loss) based on United States generally accepted accounting principles (Note 25) 63,669 4,488 (1,152) 5,879 (347) (429,370) (29,843) 5,418 Per common share - Basic $ 0.71 $ 0.05 $(0.01) $ 0.07 $-- $(4.85) $(0.34) $ 0.06 Per common share - Diluted $ 0.71 $ 0.05 $ (0.01) $ 0.07 $-- $(4.85) $(0.34) $ 0.06 ============================================================================================================================
54
- ------------------------------------------------------------------------------------------------------------------------------------ 1995 1994 1993 1992 1991 1990 1989 $ 2,602,254 $ 2,406,048 $ 2,331,796 $ 2,432,998 $ 2,492,278 $ 2,769,596 $ 2,708,406 - ------------------------------------------------------------------------------------------------------------------------------------ 113,612 135,263 (97,223) 24,258 111,833 179,864 282,073 4.4CENTS 5.6CENTS (4.2)CENTS 1.0CENTS 4.5CENTS 6.5CENTS 10.4CENTS - ------------------------------------------------------------------------------------------------------------------------------------ 123,738 43,853 (18,796) 25,757 47,922 74,030 98,269 31.6% 26.4% (19.8)% 100.7% 35.0% 37.8% 32.7% - ------------------------------------------------------------------------------------------------------------------------------------ 267,501 121,400 (77,606) (2,327) 88,074 120,629 201,721 10.3CENTS 5.0CENTS (3.3)CENTS (0.1)CENTS 3.5CENTS 4.4CENTS 7.4CENTS $ 2.68 $ 1.22 $ (0.78) $ (0.02) $ 0.91 $ 1.27 $ 2.15 - ------------------------------------------------------------------------------------------------------------------------------------ 93,784 93,567 93,521 93,108 91,215 89,539 82,609 94CENTS 94CENTS 94CENTS 94CENTS 94CENTS 94CENTS 88CENTS - ------------------------------------------------------------------------------------------------------------------------------------ 173,717 27,833 (171,127) (95,435) (3,141) 31,090 119,112 - ------------------------------------------------------------------------------------------------------------------------------------ $ 1,449,722 $ 1,009,714 $ 1,010,441 $ 1,063,144 $ 1,096,062 $ 1,181,316 $ 1,150,833 541,730 446,608 451,011 352,491 332,979 411,349 375,581 - ------------------------------------------------------------------------------------------------------------------------------------ 907,992 563,106 559,430 710,653 763,083 769,967 775,252 2.7:1 2.3:1 2.2:1 3.0:1 3.3:1 2.9:1 3.1:1 - ------------------------------------------------------------------------------------------------------------------------------------ 572,008 607,096 617,341 655,665 696,390 679,275 590,183 - ------------------------------------------------------------------------------------------------------------------------------------ 71,512 77,495 67,608 59,718 75,045 94,494 40,267 0.1:1 0.1:1 0.1:1 0.0:1 0.1:1 0.1:1 0.0:1 - ------------------------------------------------------------------------------------------------------------------------------------ 1,488,170 1,365,174 1,312,896 1,475,508 1,584,780 1,537,671 1,440,966 $ 14.90 $ 13.71 $ 13.19 $ 14.83 $ 16.21 $ 16.05 $ 15.27 - ------------------------------------------------------------------------------------------------------------------------------------ 2,235,638 2,031,336 1,974,032 2,020,715 2,134,436 2,205,043 2,008,319 - ------------------------------------------------------------------------------------------------------------------------------------ 99,754 99,538 99,487 99,045 97,028 95,245 93,860 - ------------------------------------------------------------------------------------------------------------------------------------ 7,236 7,317 7,644 8,440 8,670 8,903 9,683 - ------------------------------------------------------------------------------------------------------------------------------------ 18,771 19,890 22,014 23,124 23,556 25,021 26,359 ====================================================================================================================================
DISTRIBUTION OF REVENUE
------------------------------------------------------------------------------------------------------------------- 1999 1998 1997 ------------------------------------------------------------------------------------------------------------------- Sales and investment and other income 100.0% 100.0% 100.0% ------------------------------------------------------------------------------------------------------------------- Used as follows: Wages, salaries and employee benefits 33.8% 34.4% 33.4% Materials, supplies and services 59.1 61.9 57.9 Restructuring (2.8) 19.5 -- Capital asset amortization 4.2 4.3 4.3 Income, property and other taxes 1.9 0.1 2.3 Dividends 0.7 1.2 3.2 Earnings retained in (losses and dividends funded by) the business 3.1 (21.4) (1.1) ====================================================================================================================
55 SHAREHOLDER INFORMATION CORPORATE OFFICE Moore Corporation Limited 1 First Canadian Place P.O. Box 78, Toronto, Ontario M5X 1G5 Telephone: (416) 364-2600 Facsimile: (416) 364-1667 Internet: http://www.moore.com STOCK EXCHANGE LISTINGS Stock Symbol: MCL CUSIP No: 615785 10 2 Markets: Toronto and New York As at December 31, 1999 the common shares of the Corporation are also included in the Toronto 35 Index, S&P/TSE 60 Index, the Toronto 100 Index and the TSE 300 Composite Index. MARKET PRICE OF COMMON SHARES The following table sets forth the high and low prices of the common shares of the Corporation on the Toronto and New York exchanges.
----------------------------------------------- THE TORONTO NEW YORK STOCK EXCHANGE (C$) STOCK EXCHANGE (US$) - ------------------------------------------------------------- HIGH LOW HIGH LOW - ------------------------------------------------------------- 1999 4th quarter 14.75 8.55 9.625 6.000 3rd quarter 14.95 11.50 10.000 7.750 2nd quarter 15.75 11.40 10.250 7.875 1st quarter 18.80 14.75 12.375 9.875 1998 4th quarter 19.20 15.00 12.4375 9.75 3rd quarter 20.00 14.60 13.5625 9.4375 2nd quarter 24.20 18.00 17.0000 12.3125 1st quarter 25.35 20.50 17.6875 14.375 ==============================================================
DIVIDENDS In 1999, the Corporation paid a dividend of 5(cent) (U.S.) per common share each quarter. Subject to formal declaration by the Board of Directors, dividend record and payment dates for the next four dividends will be as follows:
RECORD DATE PAYMENT DATE March 3, 2000 April 3, 2000 - ------------------------------------------------------- June 2, 2000 July 5, 2000 - ------------------------------------------------------- September 1, 2000 October 3, 2000 - ------------------------------------------------------- December 1, 2000 January 3, 2001
Dividends are declared and paid in United States dollars. Shareholders have the option of receiving dividends in equivalent Canadian funds or participating in the Dividend Reinvestment and Share Purchase Plan. The Dividend Reinvestment Option allows shareholders to have their cash dividends reinvested to acquire additional shares. The Share Purchase Option allows shareholders to purchase shares by making a cash payment of not less than CDN$50 and not more than CDN$5,000 in each quarter. Withholding taxes at the rate of 25% are imposed on the payment of dividends to non-residents of Canada. Under the present Canada/ United States tax treaty, such rate is generally reduced to 15%. TRANSFER AGENT AND REGISTRAR Until April 30, 2000 the transfer agent and registrar for the common shares of the Corporation is the CIBC Mellon Trust Company at its offices in Montreal, Toronto, Winnipeg, Calgary and Vancouver. The co-transfer agent and registrar is ChaseMellon Shareholder Services in New York. Effective May 1, 2000 the transfer agent of the Corporation will be Montreal Trust Company of Canada at its offices in Montreal, Toronto, Winnipeg, Calgary and Vancouver. The co-transfer agent and registrar will be The American Securities Transfer and Trust, Inc. in New York. SHAREHOLDER ACCOUNT INQUIRIES Until April 30, 2000 CIBC Mellon Trust can be reached by dialing toll-free 1-800-387-0825 or (416) 643-5500. Their Internet address is www.cibcmellon.ca Correspondence may be addressed to: Moore Corporation Limited c/o CIBC Mellon Trust Company P.O. Box 7010 Adelaide Street Postal Station Toronto, Ontario, Canada, M5C 2W9 Effective May 1, 2000 Montreal Trust can be reached by dialing toll-free 1-800-663-9097 or (416) 981-9633. Shareholders can also e-mail at faq@montrealtrust.com. Their internet address is www.montrealtrust.com Correspondence may be addressed to: Moore Corporation Limited c/o Montreal Trust Company of Canada 8th floor, 150 Front Street West Toronto, Ontario, Canada, M2J 2N1 INVESTOR RELATIONS Institutional and individual investors seeking financial information about the company are invited to contact John V. Laurie, Vice President and Treasurer, at the Corporate office. FORM 10-K/ANNUAL INFORMATION FORM The Annual Report on Form 10-K is filed with the United States Securities and Exchange Commission and with the Canadian securities authorities as the Annual Information Form. It is available without charge by contacting the Corporate Communications Department, at http://www.sedar.com and at http://www.sec.gov/edgarhp.htm ECONOMIC VALUE ADDED IS A REGISTERED TRADEMARK OF STERN STEWART & CO. ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS WILL BE HELD AT THE GLENN GOULD STUDIO, CANADIAN BROADCASTING CENTRE, 250 FRONT STREET WEST, TORONTO, CANADA ON FRIDAY, APRIL 28, 2000 AT 10:00 A.M. TORONTO TIME. MOORE MOORE CORPORATION LIMITED 1 FIRST CANADIAN PLACE P.O. BOX 78 TORONTO, ON CANADA M5X 1G5 T 416.364.2600 F 416.364.1667 EXECUTIVE OFFICES 1200 LAKESIDE DR. BANNOCKBURN, IL USA 60015 T 847.607.6000 VISIT US ON THE INTERNET AT http://www.moore.com EX-21 4 EXHIBIT 21 MOORE CORPORATION LIMITED EXHIBIT 21 - SUBSIDIARIES AND ASSOCIATED CORPORATIONS No person is a parent of the Corporation.
Jurisdiction of Subsidiaries Incorporation - ------------ ------------- Moore Holdings U.S.A. Inc. Delaware Moore North America Finance, Inc. Delaware Moore North America, Inc. Delaware Moore International Sales, Inc. Barbados Moore Financial Inc. Nevada FRDK, Inc. New York G2.com, Inc. Delaware Peak Technologies, Inc. Illinois Peak Technologies Canada Ltd. Ontario Telpar, Inc. Delaware Peak Technologies Holdings Ltd. United Kingdom Peak Technologies UK Ltd. United Kingdom AccuScan International Ltd. United Kingdom Peak Technologies SA France AccuScan International SA France Peak Technologies Benelux BV Belgium Barcode BC Systeme AG Switzerland Peak Technologies Holdings GmbH Germany Peak Technologies GmbH Germany AccuScan GmbH Germany FGSU Holding B.V. The Netherlands Phoenix Espana, S.L. Spain Logidec Canada Inc. Canada Logidec Inc. Quebec
E-2 MOORE CORPORATION LIMITED EXHIBIT 21 - SUBSIDIARIES AND ASSOCIATED CORPORATIONS - CONT'D No person is a parent of the Corporation.
Jurisdiction of Subsidiaries Incorporation - ------------ ------------- Moore Group Services B.V.B.A. Belgium MI Insurance (Barbados) Ltd. Barbados Moore International Financial Services Ltd. Barbados Moore International B.V. The Netherlands Moore Response Marketing B.V. The Netherlands Moore IMS B.V. The Netherlands Toets 9220 International B.V. (50%) The Netherlands Moore Cayman Islands Ltd. Cayman Islands Moore Paragon (Caribbean) Limited (60%) Barbados Moore Trinidad Ltd.(99%) Trinidad GCS Limited(50%) Barbados Moore Granada Limited Granada Moore Belgium N.V./S.A. Belgium Moore Response Marketing N.V./S.A. Belgium Moore Response Marketing S.A. (99.9%) France Moore Response Marketing GmbH Germany Response Marketing SARL (99.9%) France Sigma Moore SPA (50%) Italy Polimoore SRL Italy Moore International Ireland Ireland Moore Business Forms Holdings U.K. Ltd. United Kingdom Colleagues Group Limited United Kingdom Colleagues Direct Marketing Ltd. United Kingdom Moore Business Forms Limited United Kingdom Moore Business Forms Pensions Trustees UK Ltd. United Kingdom Moore I.M.S. Ltd. United Kingdom Moore CCS Europe Limited United Kingdom
E-3 MOORE CORPORATION LIMITED EXHIBIT 21 - SUBSIDIARIES AND ASSOCIATED CORPORATIONS - CONT'D
Jurisdiction of Subsidiaries Incorporation - ------------ ------------- Shanghai Jielong Moore Business Forms China & Systems Co. Ltd. (60%) Moore Aust. Pty Ltd. Australia Distaga Pty Limited Australia MILAC Pty Limited Australia Moore Argentina S.A. Argentina Moore Communicacion Dinamica SA Argentina Moore Brazil Ltda. Brazil Inversiones Moore CA Venezuela Moore Technology and Trading CA Venezuela Yost Investments Venezuela Moore de Venezuela S.A. (50.1%) Venezuela Moore Chile S.A. Chile Moore de Mexico Holdings, S.A. de C.V. Mexico Moore de Mexico S.A. de C.V. Mexico Moore Business Forms de Puerto Rico S.A. Puerto Rico Moore de Centro America, S.A. (56%) (A) Guatemala Moore de Centro America S.A. de C.V. (56%) El Salvador Moore de Centro America S.A. de C.V. Honduras (74.3%+25.7% owned by(A)) Moore de Centro America S.A. (56%) Costa Rica
OTHER CORPORATIONS Moore-Hong Leong Strategic Holdings Pte Ltd. Singapore (49.9%) Moore Business Forms Caribbean Ltd. (40%) Jamaica Quality Color Press Inc. (50%) Alberta Jetform Corporation (12.8%) Ontario Vista Information Solutions, Inc. (10%) Delaware
NOTES: (1) There are no other significant subsidiaries or associated corporations of the Corporation. (2) Percentage ownership is 100% unless otherwise stated (shown in brackets). Any companies owned by another company are shown immediately after the parent company with indentation. E-4 EX-23 5 EXHIBIT 23 EXHIBIT 23 - CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements Form S-8 (No. 333-10630 and No. 333-6366) of our reports dated February 17, 2000, with respect to the consolidated financial statements and financial statement schedules of Moore Corporation Limited and subsidiaries included or incorporated by reference in this Annual Report on Form 10-K. PRICEWATERHOUSECOOPERS LLP Chartered Accountants Toronto, Canada February 17, 2000 E-5 EX-99.1 6 EXHIBIT 99.1 Moore Corporation Limited 1 First Canadian Place P.O. Box 78 Toronto, Canada M5X 1G5 NOTICE OF ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS The annual and special meeting of shareholders of Moore Corporation Limited will be held at the Glenn Gould Studio, Canadian Broadcasting Centre, 250 Front Street West, Toronto, Canada on Friday, the 28th day of April, 2000 at 10:00 a.m. for the following purposes: 1. To receive the consolidated financial statements of the Corporation for the year ended December 31, 1999, together with the auditor's report on those statements; 2. To elect directors for the ensuing year; 3. To appoint auditors for the ensuing year and to authorize the directors to fix the remuneration to be paid to the auditors; 4. To consider and, if thought fit, reconfirm with or without variation the adoption of the amended and restated Shareholder Rights Plan Agreement; and 5. To transact any other business properly before the meeting. Dated at Toronto, Canada, this 15th day of March, 2000. By Order of the Board, J.M. Wilson Vice President and Secretary IF YOU ARE A REGISTERED SHAREHOLDER, YOUR FORM OF PROXY, IMPRINTED WITH YOUR NAME AND ADDRESS, IS ENCLOSED IN THE ENVELOPE IN WHICH YOUR MATERIALS FOR THE ANNUAL AND SPECIAL MEETING WERE MAILED TO YOU. PLEASE EXERCISE YOUR RIGHT TO VOTE BY SIGNING AND RETURNING YOUR FORM OF PROXY IN THE ENCLOSED ENVELOPE OR VIA FACSIMILE TO CIBC MELLON TRUST COMPANY (416-368-2502). PROXIES ARE COUNTED AND TABULATED BY CIBC MELLON TRUST COMPANY, MOORE'S REGISTRAR AND TRANSFER AGENT, TO PROTECT THE CONFIDENTIALITY OF HOW A PARTICULAR SHAREHOLDER VOTES. A PROXY IS REFERRED TO MOORE ONLY IN CASES WHERE IT IS CLEARLY MARKED TO INDICATE A PARTICULAR INSTRUCTION TO MANAGEMENT, OR UNLESS IT IS NECESSARY TO REFER TO THE PROXY IN ORDER TO DETERMINE ITS VALIDITY OR WHEN IT IS NECESSARY TO DO SO TO PERMIT MANAGEMENT TO MEET ITS LEGAL RESPONSIBILITY TO SHAREHOLDERS. INVESTORS WHO HAVE QUESTIONS ABOUT ITEMS BEING VOTED ON AT THE MEETING MAY TELEPHONE TOLL FREE MOORE'S PROXY SOLICITATION AGENTS IN CANADA AT 1-800-890-1037 AND IN THE UNITED STATES AT 1-800-223-2064 OR 212-440-9800 (COLLECT). MANAGEMENT INFORMATION CIRCULAR AND PROXY STATEMENT UNLESS OTHERWISE STATED, THE INFORMATION IN THIS STATEMENT IS AS OF FEBRUARY 15, 2000, AND UNLESS OTHERWISE INDICATED, ALL DOLLAR AMOUNTS ARE EXPRESSED IN UNITED STATES CURRENCY. SOLICITATION OF PROXIES THIS MANAGEMENT INFORMATION CIRCULAR AND PROXY STATEMENT IS FURNISHED IN CONNECTION WITH THE SOLICITATION OF PROXIES BY THE MANAGEMENT OF MOORE CORPORATION LIMITED (THE "CORPORATION" AND COLLECTIVELY WITH ITS SUBSIDIARIES "MOORE") TO BE USED AT THE ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS ON APRIL 28, 2000 AND AT ALL ADJOURNMENTS THEREOF, FOR THE PURPOSES SET FORTH IN THE ACCOMPANYING NOTICE OF MEETING. Solicitation will be made by mail commencing March 15, 2000, but proxies may also be solicited personally by employees of the Corporation. In addition, the Corporation will retain Georgeson Shareholder Communications Canada of Toronto, Ontario, to aid in the solicitation of proxies at a fee of approximately $Cdn.25,000 plus expenses. The total cost of the solicitation will be borne by the Corporation. APPOINTMENT AND REVOCATION OF PROXIES The persons named in the enclosed form of proxy are directors of the Corporation and will vote or withhold from voting the shares in respect of which they are appointed on any ballot that may be called for in accordance with the instructions of the shareholder as indicated on the proxy. A SHAREHOLDER DESIRING TO APPOINT SOME OTHER PERSON AS A REPRESENTATIVE AT THE MEETING MAY DO SO either by inserting such person's name in the blank space provided in the form of proxy or by completing another proper form of proxy and delivering the completed form of proxy to the Secretary of the Corporation in time for use at the meeting. A shareholder who has given a proxy may revoke it either (a) by signing a form of proxy bearing a later date and depositing it in time for use at the meeting or (b) by depositing an instrument in writing executed by the shareholder or by the shareholder's attorney authorized in writing at the registered office of the Corporation at any time up to and including the last business day preceding the day of the meeting, or any adjournment thereof, at which the proxy is to be used, or with the Chairman of the meeting on the day of the meeting, or any adjournment thereof, or (c) in any other manner permitted by law. The enclosed form of proxy confers discretionary authority upon the persons named therein with respect to amendments to or variations of matters identified in the notice of meeting, and with respect to other matters which may properly come before the meeting or any adjournment thereof. At the date of this circular, the management of the Corporation knows of no such amendments, variations or other matters. VOTING SECURITIES On February 15, 2000, the Corporation had 88,456,940 common shares outstanding. Shareholders of record at the close of business on March 10, 2000 (record date) will be entitled to one vote for each common share held by them. If a person has transferred any common shares after the record date and the transferee of such common shares establishes proper ownership and asks, not later than April 18, 2000, to be included in the list of shareholders entitled to vote at the meeting, the transferee will be entitled to vote such common shares. A majority of votes cast at the meeting is required for approval of each item of regular business. A majority of votes cast by Independent Shareholders at the meeting is required for adoption of the Shareholder Rights Plan. See Shareholder Approval on page 21. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS On February 15, 2000, Trimark Investment Management Inc. of Toronto, Ontario had voting control over 17,029,300 or 19.3% of the common shares of the Corporation. The Corporation is not aware of any other person holding in excess of 10% of the common shares of the Corporation. 2 ELECTION OF DIRECTORS The Corporation's by-laws and articles allow for the election of between nine and fifteen directors. On March 3, 2000, the directors of the Corporation set the number of directors to be elected at the meeting at eleven. The persons whose names are set out in the following table are proposed to be nominated as directors at the annual and special meeting of shareholders. The management representatives designated in the enclosed form of proxy intend to vote for the election of such nominees. Management does not contemplate that any of the proposed nominees will be unable to serve as a director but, if that should occur for any reason prior to the meeting, the persons designated in the enclosed form of proxy reserve the right to vote for another nominee at their discretion. Each director elected will hold office until the next annual meeting of shareholders or until a successor is elected or appointed. Information is provided in the following table with respect to the persons to be nominated for election as directors and contains the number of common shares of the Corporation reported by such persons as being beneficially owned by them as well as the number of share units owned by them, in each case, on February 15, 2000. For such purposes, a person who exercises control or direction over securities is deemed to have beneficial ownership thereof. All officers and directors of the Corporation as a group beneficially own approximately 1.3% of the outstanding common shares.
Common Principal Occupation or Employment Shares Name, Age and During Past Five Years, Positions with Beneficially Period of Service Moore and Directorships(1) Owned Units(2) Total - ----------------------------------------------------------------------------------------------------------------- DEREK H. BURNEY, O.C. Director, President and Chief 2,300 4,539 6,839 Toronto, ON Executive Officer, CAE Inc. (advanced 60 technology company); prior to October, Since April, 1993 1999 Mr. Burney was Chairman and Chief Executive Officer of Bell Canada International Inc. Mr. Burney is a director of Rio Algom Limited, Teleglobe Inc. and Northbridge Programming Inc. - ----------------------------------------------------------------------------------------------------------------- LEON COURVILLE Corporate Director, prior to November, 700 770 1,470 Outremont, PQ 1999 Mr. Courville was President, 54 Personal and Commercial Bank and Chief Since April, 1999 Operating Officer, National Bank of Canada - ----------------------------------------------------------------------------------------------------------------- SHIRLEY A. DAWE President, Shirley Dawe Associates 4,100 4,898 8,998 Toronto, ON Inc. (consulting firm specializing in 53 retail management) and Corporate Since November, 1989 Director. Ms. Dawe is a director of Gilmore's Specialty Stores, National Bank of Canada, OshKosh B'Gosh, Inc. and Henry Birks & Sons Inc. - ----------------------------------------------------------------------------------------------------------------- BARTON L. FABER Chairman and Chief Executive Officer 950 770 1,720 Phoenix, AZ FABERcapital Corporation (equity 52 investments); between June, 1996 and Since April, 1999 June, 1998 Mr. Faber was Chairman of Metromail Corporation; prior to June 1996 Mr. Faber was Chairman of Metromail Corporation and President, Information Resources Business Group, R.R. Donnelley & Sons Company. Mr. Faber is director, Interim President and Chief Executive Officer, Document Sciences Corporation, and a director of Looking Glass Technologies and Intervisual Communications. - -----------------------------------------------------------------------------------------------------------------
3
Common Principal Occupation or Employment Shares Name, Age and During Past Five Years, Positions with Beneficially Period of Service Moore and Directorships(1) Owned Units(2) Total - ----------------------------------------------------------------------------------------------------------------- THOMAS E. KIERANS Chairman of the Board of the 10,000 25,370 35,370 Toronto, ON Corporation since October, 1997 and 59 Chairman and Chief Executive Officer, Since October, 1997 Canadian Institute for Advanced Research (social and natural sciences research); prior to September, 1999 Mr. Kierans was President and Chief Executive Officer, C.D. Howe Institute. Mr. Kierans is chairman of the board of The Toronto International Leadership Centre for Financial Sector Supervision and a director of BCE Inc., CGI Group Inc., FPI Limited, Inmet Mining Corporation, Ipsco Inc., The Manufacturers Life Insurance Company, National Bank Financial & Co. Inc. and Petro-Canada. - ----------------------------------------------------------------------------------------------------------------- RICHARD J. LEHMANN Retired Vice Chairman, Bank One 3,312 2,432 5,744 Phoenix, AZ Corporation (banking); prior to 55 December, 1999 Mr. Lehman was Vice Since April, 1997 Chairman; between January, 1996 and October, 1998 Mr. Lehmann was President and Chief Operating Officer; between April, 1995 and January, 1996 Mr. Lehmann was President; prior to April, 1995 Mr. Lehmann was Chairman and Chief Executive Officer, Banc One Arizona Corporation and Bank One, Arizona, N.A. - ----------------------------------------------------------------------------------------------------------------- JEANETTE P. LERMAN President, J.P. Lerman & Co. 2,438 7,295 9,733 Philadelphia, PA (communications consulting); prior to 52 September, 1997 Ms. Lerman was Vice Since June, 1995 President, Corporate Communications, Time Warner Inc. - ----------------------------------------------------------------------------------------------------------------- BRIAN M. LEVITT Corporate Director; prior to February, 1,600 4,863 6,463 Montreal, PQ 2000 Mr. Levitt was director, President 52 & Chief Executive Officer, Imasco Since December, 1996 Limited (consumer products and services); prior to May, 1995 Mr. Levitt was President and Chief Operating Officer. Mr. Levitt is a director of BCE Inc. and Domtar Inc. - ----------------------------------------------------------------------------------------------------------------- DAVID R. MCCAMUS Corporate Director. Mr. McCamus is a 1,000 2,300 3,300 Oakville, ON director of Dofasco Ltd. and Trilon 68 Financial Ltd. Since November, 1997 - -----------------------------------------------------------------------------------------------------------------
4
Common Principal Occupation or Employment Shares Name, Age and During Past Five Years, Positions with Beneficially Period of Service Moore and Directorships(1) Owned Units(2) Total - ----------------------------------------------------------------------------------------------------------------- J. ROBERT S. PRICHARD, O.C. President, University of Toronto (post 1,681 7,295 8,976 Toronto, ON secondary educational institution). 51 Mr. Prichard is a director of BioChem Since April, 1996 Pharma, Four Seasons Hotels Inc., Onex Corporation, Tesma International Inc. and Visible Genetics. - ----------------------------------------------------------------------------------------------------------------- W. ED TYLER President and Chief Executive Officer 756,173(3) 419,308 1,175,481 Chicago, IL of the Corporation; prior to April, 1998 47 Mr. Tyler held various positions with Since April, 1998 R.R. Donnelley & Sons Company; most recently he was Executive Vice President. Mr. Tyler is a director of the Cherry Corporation and Vista Information Solutions, Inc. - -----------------------------------------------------------------------------------------------------------------
NOTES 1. Membership on the various Committees of the Board of Directors is listed in the Statement of Corporate Governance Practices below. 2. Represents deferred share units awarded to non-employee directors under a share plan described under Compensation of Directors on page 8, except for Mr. Tyler who does not participate in this plan. Share units were awarded to Mr. Tyler as an inducement to join Moore. 3. Includes stock options to acquire 746,173 common shares which are exercisable within 60 days of February 15, 2000. STATEMENT OF CORPORATE GOVERNANCE PRACTICES BOARD MANDATE The Board of Directors assumes ultimate responsibility for the stewardship of Moore and carries out its mandate directly and through considering recommendations it receives from the five Committees of the Board and from management. Management is responsible for the day-to-day operations of Moore, and pursues Board approved strategic initiatives within the context of authorized business and capital plans and corporate policies. Management is expected to report to the Board on a regular basis on short term results and longer term development activities. The Board is specifically responsible for: 5 (a) ADOPTION OF A STRATEGIC PLANNING PROCESS The Board's role is to ensure a strategic planning process is in place, to review corporate and business unit strategies annually and to approve Moore's annual business plan. Quarterly updates on achievement of financial objectives of the annual business plan, business development and strategic initiatives are presented to the Board by management. (b) IDENTIFICATION OF PRINCIPAL RISKS AND IMPLEMENTING RISK-MANAGEMENT SYSTEMS The strategic planning process involves consideration and understanding by the Board of the principal risks inherent in Moore's business. Committees of the Board address specific risks. The Audit Committee reviews financial risk- management issues and programs. During l998, the Audit Committee approved the adoption of an integrated audit approach which involves undertaking audits based on a risk assessment. The Environment, Health and Safety Committee monitors risks and compliance issues related to Moore's environment, health and safety policies and procedures. (c) SUCCESSION PLANNING AND MONITORING SENIOR MANAGEMENT PERFORMANCE The Management Resource Committee reviews the performance of the Chief Executive Officer and all matters related to senior management recruitment, development, performance, compensation, organization structure and succession planning. On an annual basis, leadership development is reviewed with the Board. (d) COMMUNICATIONS POLICY The Board reviews and approves communications of a regulatory nature prior to mailing to shareholders. The Board receives quarterly updates on reports by analysts following the Corporation. Analyst meetings are held following the release of quarterly results and management regularly meets with investors. Shareholder and investor inquiries are handled promptly by or under the direction of the appropriate officer of the Corporation. Moore has adopted a confidential shareholder voting policy. (e) INTEGRITY OF INTERNAL CONTROL AND MANAGEMENT INFORMATION SYSTEMS The Audit Committee is responsible for overseeing reporting on internal control and management information systems. The Audit Committee meets privately at each meeting with the representatives of PricewaterhouseCoopers LLP, the Corporation's auditors, to discuss matters of interest to the Committee. The directors have confidence that the information provided by management is accurate and sufficient to allow the Board to carry out its mandate. HOW THE BOARD OPERATES The Board currently has twelve members who are elected annually by shareholders. Eleven directors are standing for election at the upcoming meeting of shareholders. The Corporation's by-laws and articles allow for the election of between nine and fifteen members; a range that allows for the active participation of all members. The Board has a majority of Canadian resident directors. Currently four of the directors are U.S. residents and a number of the directors have international business experience. W. Ed Tyler was appointed President and Chief Executive Officer and a director of the Corporation in April, l998. All current directors except Mr. Tyler are unrelated (within the meaning of that term in the l994 Report of The Toronto Stock Exchange Committee on Corporate Governance in Canada). Thomas E. Kierans, a director, serves as non-executive Chairman of the Board of the Corporation. The separation of the roles of Chairman and Chief Executive Officer enhances the ability of the Board to function independently of management. The Corporate Governance Committee has implemented an annual review process for evaluating the effectiveness of the Board. Directors may engage outside advisors at the expense of the Corporation with approval from the Chairman of the Corporate Governance Committee. 6 The Board has nine regularly scheduled meetings a year with special meetings to review matters such as acquisitions when needed. Transactions involving amounts in excess of $20 million are brought to the Board for review and approval. The Board of Directors met nine times in 1999. Orientation for new directors includes meetings with the Chief Executive Officer and the Chief Financial Officer focusing on strategic direction, financial matters and business operations. Director candidates are provided with company-specific information during the selection process and a new directors' manual when they join the Board. To promote a greater alignment of interests between non-employee directors and shareholders, between one third and the full amount of a director's retainer is, at the election of each director, paid in the form of share units. Awarded share units are held until a director is no longer serving on the Board. BOARD COMMITTEES All Committees report and make recommendations to the Board on matters reviewed. Following is a brief description of each Committee. AUDIT COMMITTEE The principal duties of the Audit Committee are to review annual and interim financial statements and all legally required public disclosure documents containing financial information prior to their approval by the directors, review the planned scope of the examination of the annual consolidated financial statements by the auditors of the Corporation and review the adequacy of the systems of internal accounting and audit controls established by the Corporation. The Audit Committee met four times in 1999. The members of the committee are J. Robert S. Prichard (Chairman), Leon Courville, Shirley A. Dawe, Richard J. Lehmann and David R. McCamus. CORPORATE GOVERNANCE COMMITTEE The principal duties of the Corporate Governance Committee are to review matters relating to effective corporate governance including director recruitment, performance, compensation and board composition. The Corporate Governance Committee met three times in 1999. The members of the committee are Derek H. Burney (Chairman), Shirley A. Dawe, Thomas E. Kierans and Brian M. Levitt. ENVIRONMENT, HEALTH AND SAFETY COMMITTEE The principal duties of the Environment, Health and Safety Committee are to review matters relating to the Corporation's environment, health and safety policies including monitoring compliance with the policies and reviewing responses to any related incidents. The Environmental Health and Safety Committee met twice in 1999. The members of the committee are Jeanette P. Lerman (Chair), Barton L. Faber, Thomas E. Kierans, David R. McCamus and J. Robert S. Prichard. MANAGEMENT RESOURCE COMMITTEE The principal duties of the Management Resource Committee are to review matters relating to executive recruitment, performance, development, compensation, resignations, terminations and organization planning. The duties of the Committee include evaluating the performance of senior executives, determining appropriate policies and levels for executive officer compensation and establishing and administering appropriate short and long term incentive arrangements for executives. The Management Resource Committee met six times in 1999. The members of the committee are Brian M. Levitt (Chairman), Derek H. Burney, Richard J. Lehmann, Thomas E. Kierans and Jeanette P. Lerman. 7 PENSION COMMITTEE The principal duties of the Pension Committee are to review matters relating to the supervision of Moore's pension and savings plans. The Pension Committee met three times in 1999. The members of the committee are Shirley A. Dawe (Chair), Jeanette P. Lerman and W. Ed Tyler and two management appointees, Charles E. Canfield (Vice President, Human Resources and Corporate Communications) and Michael S. Rousseau (Senior Vice President and Chief Financial Officer). In 1999 a Management Pension Committee was established which carries out delegated responsibilities and makes recommendations to the Board Pension Committee. DIRECTORS' AND EXECUTIVE OFFICERS' COMPENSATION COMPENSATION OF DIRECTORS Each director who is not an employee of Moore is entitled to receive an annual retainer of $30,000. The Board of Directors has adopted the Share Plan for Non-Employee Directors under which each director receives $10,000 of the retainer in the form of deferred share units. Each director may then elect to take the balance of $20,000 in cash, deferred share units or common shares purchased on the open market. A deferred share unit is a bookkeeping entry, equivalent in value to one common share of the Corporation. Deferred share units awarded are held until the director is no longer serving on the Board. Following termination of Board service, the fair market value of the equivalent number of common shares is paid to a director, net of withholdings, in cash or common shares. The Chairman of each Board Committee receives an additional retainer of $3,500. A fee of $1,000 is paid for each meeting of the Board of Directors and each meeting of a Committee which the director attends in person. The fee for participating in Board of Directors or Board Committee meetings by telephone is set at $500. Each director is reimbursed for expenses incurred in attending meetings. Mr. Thomas Kierans, the Chairman of the Board, is a non-executive director. Until April 22, 1999, Mr. Kierans received an annual retainer of $200,000 paid $100,000 in cash and $100,000 in deferred share units and meeting fees on the basis described under Compensation of Directors. Effective April 22, 1999, Mr. Kierans no longer received Committee chair retainer fees and meeting fees. Effective July 1, 1999, Mr. Kierans received his total annual retainer in cash. COMPENSATION OF EXECUTIVE OFFICERS The following table provides a summary of the compensation earned by the Chief Executive Officer in 1999 and the four other most highly compensated executive officers of Moore (the "Named Executive Officers") who served as executive officers at the end of 1999. In addition, Michael S. Rousseau, who was appointed Senior Vice President and Chief Financial Officer in May, 1999, is included. It is anticipated that Mr. Rousseau will be a Named Executive Officer in 2000. Specific aspects of the compensation are dealt with further in the tables and narrative following this table. 8 SUMMARY COMPENSATION TABLE
- ----------------------------- ------- ---------------------------------- ---------------------------------- ----------- Annual Compensation Long-Term Compensation ------------------------------------------ ---------------------------------- Awards Payouts - ----------------------------- ------- ---------- ------------ ---------- ----------------------- --------- ----------- Name and Principal Position Year Salary Bonus(1) Other Securities Restricted LTIP All Other Annual Under Shares Payouts Compen- Compen- Options/ or sation sation SARs Restricted Granted(2) Share Units(3) $ $ $ (#) (#) ($) ($) - ----------------------------- ------- ---------- ------------ ---------- ------------ ----------- --------- ----------- W. Ed Tyler(4) 1999 806,250 1,431,900 - 379,000 9,863 - 122,212(4) President and Chief 1998 562,500 562,500 - 1,579,506 409,445 - - Executive Officer - ----------------------------- ------- ---------- ------------ ---------- ------------ ----------- --------- ----------- Thomas J. McKiernan 1999 430,000 458,208 - 42,000 - - Executive Vice President 1998 410,000 123,000 - 70,000 - - 8,735(5) 1997 281,703 70,000 - 25,000 - - 2,000(5) 2,000(5) - ----------------------------- ------- ---------- ------------ ---------- ------------ ----------- --------- ----------- Sieg E. Buck 1999 275,000 210,994 - 28,000 - - 28,870(6) Vice President and 1998 237,500 59,375 - 28,000 - - 27,396(6) President, Sales and 1997 220,417 18,000 - 20,000 - - 26,567(6) Marketing, Moore North America, Inc. - ----------------------------- ------- ---------- ------------ ---------- ------------ ----------- --------- ----------- Robert M. Jones(7) 1999 262,500 209,790 - 25,000 - - 40,253(7) Vice President and Chief 1998 250,000 56,250 - 20,000 - - - Information Officer 1997 20,833 - - 40,000 - - 60,000(7) - ----------------------------- ------- ---------- ------------ ---------- ------------ ----------- --------- ----------- James D. Wyner 1999 260,000 215,183 - 25,000 - - 31,848(8) Vice President and 1998 250,000 277,750 - 30,000 - - 88,294(8) President 1997 243,796 11,917 - 25,000 - - 64,743(8) Peak Technologies Inc. - ----------------------------- ------- ---------- ------------ ---------- ------------ ----------- --------- ----------- Michael S. Rousseau(9) 1999 177,686 244,200 - 130,000 - - 54,581(9) Senior Vice President and Chief Financial Officer - ----------------------------- ------- ---------- ------------ ---------- ------------ ----------- --------- -----------
NOTES: 1. All Named Executive Officers are required to receive 25% of their 1999 bonus in the form of deferred share units to be held throughout their employment at Moore. 2. Awards are options to acquire the Corporation's common shares under the Corporation's Long Term Incentive Plan. 3. The aggregate value of all share units held by Mr. Tyler at December 31, 1999 is $2,499,076, based on the closing stock price on December 31, 1999. In 1999 Mr. Tyler received 9,863 share units as dividend payments on share units granted to him when he joined Moore. 9 4. Mr. Tyler became President and Chief Executive Officer of the Corporation on April 1, 1998 and his 1998 compensation is shown from that date. Mr. Tyler received moving expenses in 1999. 5. Mr. McKiernan received financial counseling in the amount of $6,675 in 1999. The amounts shown also include matching contributions made by Moore pursuant to a Moore retirement savings plan available to all employees. 6. Mr. Buck received a relocation allowance in 1999 of $12,846, in 1998 of $25,396 and in 1997 of $25,693. Mr. Buck received financial counseling in 1999 in the amount of $11,274. The amounts shown also include matching contributions made by Moore pursuant to a Moore retirement savings plan available to all employees. 7. Mr. Jones' employment commenced in December, 1997 and his 1997 compensation is shown from that date. Mr. Jones received a hiring bonus of $60,000 in 1997. In 1999 Mr. Jones received a relocation allowance of $20,833 and moving expenses of $19,420. 8. Mr. Wyner received financial counseling in the amount of $6,775 in 1999. Mr. Wyner received a relocation allowance of $20,360 in each of 1999 and 1998 and $13,373 in 1997 plus moving expenses of $2,914 in 1999, $42,463 in 1998 and $51,170 in 1997. In 1998, Mr. Wyner received $23,500 in connection with the cancellation of 20,000 of his stock options. The amounts shown also include matching contributions made by Moore pursuant to a Moore retirement savings plan available to all employees. 9. Mr. Rousseau's employment commenced in May, 1999 and his compensation is shown from that date. In 1999 Mr. Rousseau received a relocation allowance of $22,917 and moving expenses of $31,664. OPTION/SAR GRANTS DURING THE MOST RECENTLY COMPLETED FINANCIAL YEAR
- --------------------- --------------- ------------- --------------- ---------------- -------------------- Market Value of % of Total Securities Options/SARs Underlying Securities Granted to Exercise Options/SARs Under Employees in Or on the Date of Options/SARs Financial Base Price Grant Name Granted (#) Year ($Cdn/Security) ($Cdn/Security) Expiration Date - --------------------- --------------- ------------- --------------- ---------------- -------------------- W.E. Tyler 379,000(1) 21.2% 9.054 9.054 Dec. 13, 2009 - --------------------- --------------- ------------- --------------- ---------------- -------------------- T.J. McKiernan 42,000(2) 2.3% 11.875 11.875 July 21, 2009 - --------------------- --------------- ------------- --------------- ---------------- -------------------- S.E. Buck 28,000(2) 1.6% 11.875 11.875 July 21, 2009 - --------------------- --------------- ------------- --------------- ---------------- -------------------- R.M. Jones 25,000(2) 1.4% 11.875 11.875 July 21, 2009 - --------------------- --------------- ------------- --------------- ---------------- -------------------- J.D. Wyner 25,000(2) 1.4% 11.875 11.875 July 21, 2009 - --------------------- --------------- ------------- --------------- ---------------- -------------------- M.S. Rousseau 130,000(2) 7.3% 11.875 11.875 July 21, 2009 - --------------------- --------------- ------------- --------------- ---------------- --------------------
NOTES: 1. Options granted in 1999 are exercisable for common shares of the Corporation on December 13, 2003, or upon the annual attainment of targeted corporate performance measures at the rate of 25% per year commencing December, 2000. 2. Options granted in 1999 are exercisable for common shares of the Corporation on July 21, 2003, or upon the annual attainment of targeted corporate performance measures at the rate of 25% per year commencing December, 2000. AGGREGATED OPTION/SAR EXERCISES DURING THE MOST RECENTLY COMPLETED FINANCIAL YEAR AND FINANCIAL YEAR-END OPTION/SAR VALUES
- --------------------------------------------------------------------------------------------------- Name Securities Aggregate Value Unexercised Value of Unexercised Acquired on Realized Options/SARs at In-the-Money Exercise ($) December 31, 1999 Options/SARs at (#) (#) December 31, 1999(1) ($) Exercisable/ Exercisable/ Unexercisable Unexercisable - --------------------------------------------------------------------------------------------------- W.E. Tyler - - 329,506/1,629,000 0/0 - --------------------------------------------------------------------------------------------------- T.J. McKiernan - - 109,400/127,500 0/0 - --------------------------------------------------------------------------------------------------- S.E. Buck - - 15,000/61,000 0/0 - --------------------------------------------------------------------------------------------------- R.M. Jones - - 13,000/72,000 0/0 - --------------------------------------------------------------------------------------------------- J.D. Wyner - - 17,500/62,500 0/0 - --------------------------------------------------------------------------------------------------- M.S. Rousseau - - 0/130,000 0/0 - ---------------------------------------------------------------------------------------------------
NOTE: 1. The closing price of the Corporation's common shares on The Toronto Stock Exchange on December 31, 1999 was $Cdn.8.60 LONG TERM INCENTIVE PLANS -- AWARDS IN THE MOST RECENTLY COMPLETED FINANCIAL YEAR
- ----------------------------------------------------------------------------------------------------------------------- Estimated Future Payouts Under Non-Securities-Price Based Plans(1) - ----------------------------------------------------------------------------------------------------------------------- Performance or Securities Units Other Period Until Threshold Target Maximum Name or Other Rights(1) Maturation or (#) Payout (#) (#) (#) - ----------------------------------------------------------------------------------------------------------------------- W.E. Tyler 225,000 December, 2001 56,250 225,000 450,000 - ----------------------------------------------------------------------------------------------------------------------- T.J. McKiernan 22,800 December, 2001 5,700 22,800 24,200 - ----------------------------------------------------------------------------------------------------------------------- S.E. Buck 12,100 December, 2001 3,025 12,100 24,200 - ----------------------------------------------------------------------------------------------------------------------- R.M. Jones 10,400 December, 2001 2,600 10,400 20,800 - ----------------------------------------------------------------------------------------------------------------------- J.D. Wyner - December, 2001 - - - - ----------------------------------------------------------------------------------------------------------------------- M.S. Rousseau 12,100 December, 2001 3,025 12,100 24,200 - -----------------------------------------------------------------------------------------------------------------------
NOTE: 1. Represents 1999 contingent grant denominated in Moore common shares as first year of a three-year performance period under the Long Term Incentive Performance Plan described more fully on page 14. 11 RETIREMENT ARRANGEMENTS TABLE 1 ESTIMATED ANNUAL PENSION BENEFITS PAYABLE
- --------------------------------------------------------------------------------------- Remuneration Years of Service - --------------------------------------------------------------------------------------- ($) 15 20 25 30 35 40 - --------------------------------------------------------------------------------------- 300,000 72,000 96,000 120,000 144,000 168,000 192,000 - --------------------------------------------------------------------------------------- 400,000 96,000 128,000 160,000 192,000 224,000 256,000 - --------------------------------------------------------------------------------------- 500,000 120,000 160,000 200,000 240,000 280,000 320,000 - --------------------------------------------------------------------------------------- 600,000 144,000 192,000 240,000 288,000 336,000 384,000 - --------------------------------------------------------------------------------------- 700,000 168,000 224,000 280,000 336,000 392,000 448,000 - --------------------------------------------------------------------------------------- 800,000 192,000 256,000 320,000 384,000 448,000 512,000 - ---------------------------------------------------------------------------------------
Table 1 shows the total estimated annual retirement benefits payable to Messrs. McKiernan, Wyner, Buck, Jones and Rousseau. Remuneration is based on three-year final average earnings including salary and bonus. The benefits shown are assumed to be payable at age 65 as a joint survivor annuity and are subject to reduction by any social security benefits. TABLE 2 ESTIMATED ANNUAL PENSION BENEFITS PAYABLE
- ------------------------------------------------------------------- Remuneration Years of Service - ------------------------------------------------------------------- ($) 25 30 35 40 - ------------------------------------------------------------------- 1,900,000 855,000 1,026,000 1,197,000 1,368,000 - ------------------------------------------------------------------- 2,000,000 900,000 1,080,000 1,260,000 1,440,000 - ------------------------------------------------------------------- 2,100,000 945,000 1,134,000 1,323,000 1,512,000 - ------------------------------------------------------------------- 2,200,000 990,000 1,188,000 1,386,000 1,584,000 - ------------------------------------------------------------------- 2,300,000 1,035,000 1,242,000 1,449,000 1,656,000 - -------------------------------------------------------------------
Table 2 shows the total estimated annual retirement benefits payable to Mr. Tyler. The benefits shown are assumed to be payable at age 60 as a surviving spouse annuity. The Named Executive Officers have the following periods of credited service under the retirement program as of December 31, 1999: Mr. Tyler - 26.8 years; Mr. McKiernan - 38.6 years; Mr. Wyner - 7.2 years; Mr. Buck - 4.0 years; Mr. Jones - 2.1 years; and Mr. Rousseau - 0.6 years. Credited service for Mr. Wyner is accruing at the rate of two years for each year during the first five years of service. The average pensionable earnings as of December 31, 1999 were: $1,921,800 for Mr. Tyler; $590,970 for Mr. McKiernan; $419,549 for Mr. Wyner; $340,429 for Mr. Buck; $384,314 for Mr. Jones; and $526,241 for Mr. Rousseau. In the event Mr. Wyner was to terminate prior to completing five years of service, his credited service would be accelerated to ten years. Messrs. McKiernan, Wyner, Buck, Jones and Rousseau are provided with the option of purchasing an annuity only upon a defined change of control of the Corporation, under a supplementary executive retirement plan. Moore will equalize the executive's tax position for any additional income tax to be paid as a result of the purchase of an annuity. Mr. Tyler's supplemental executive retirement program provides for a target retirement income of 72% of final average earnings, upon the completion of 40 years of pension service. This target benefit is payable at age 60 and is inclusive of any other Moore pensions. Mr. Tyler was granted 25 years of credited service at the time of hire. Upon a defined change of control and under the terms of Mr. Tyler's employment agreement, the present value of the annuity described above shall be paid in a lump sum. 12 EMPLOYMENT ARRANGEMENTS Moore's employment arrangements with its Named Executive Officers provide for their participation in Moore's executive compensation and benefit programs which are available to all management employees. Confidentiality and non-competition clauses are included to protect Moore should the employment of any Named Executive Officer be terminated. In the event of such termination, compensation would be provided in consideration of certain non-competition covenants. Messrs. Buck, McKiernan and Wyner would receive payments of an amount equal to two times their annual salary. Messrs. Rousseau and Jones would receive a payment equal to their annual salary, which would be extended by six months if they are not employed after one year. Named Executive Officers may also receive vested benefits under Moore's primary pension plans and supplemental executive retirement program. Mr. Tyler's employment arrangements are described under the section "Chief Executive Officer's Compensation." Moore has change of control agreements with Messrs. Jones, McKiernan and Rousseau. The change of control agreements are meant to induce these employees to remain with the Corporation, and to reinforce and encourage their continued attention and dedication when faced with the possibility of a change of control of the Corporation. If a change of control of the Corporation is effected, the agreements include provisions to pay two-and-a-half years of salary and annual bonus for Mr. McKiernan and two times salary and annual bonus for Messrs. Jones and Rousseau. All awards under the Long Term Incentive Performance Plan will be paid out at target or actual level of achievement, if that level exceeds target. Any options to acquire shares of the Corporation which have been granted and are still outstanding at the date of a change in control shall become fully exercisable. A deferred compensation plan is in place for senior executives of Moore North America, Inc., the Corporation's principal U.S. subsidiary. The purpose of the plan is to allow participating executives an opportunity to defer receipt of their annual incentive plan compensation. In 1999 all Named Executive Officers were required to defer 25% of their annual incentive plan compensation. COMPOSITION OF THE MANAGEMENT RESOURCE COMMITTEE The Management Resource Committee members are Brian M. Levitt (Chairman), Derek H. Burney, Thomas E. Kierans, Richard J. Lehmann and Jeanette P. Lerman. With the exception of Mr. Kierans, who is Chairman of the Board, none of the Committee members are, or have been, an officer or an employee of Moore or any of its subsidiaries. REPORT ON EXECUTIVE COMPENSATION COMPENSATION POLICY The objectives of the executive compensation policies are to target a competitive level of compensation which will enable Moore to attract, retain and motivate qualified executives to create shareholder value, to carry out its strategic objectives and to link the level of compensation to the performance of Moore and the executive. Moore's aim is to pay total compensation to its executives in the mid-range of compensation paid to executives with similar responsibilities at comparable corporations. Compensation packages at Moore consist of base salary, annual incentive awards and equity based awards under long term incentive plans. The compensation packages are designed to deliver up to 75th percentile compensation for superior performance. The Committee believes that providing an equity interest in the advancement of Moore through the issuance of options and contingent share units, together with the potential to achieve annual cash bonuses, serves to align effective executive and corporate performance. In 1999 an incentive program was introduced which focuses on improvement in Economic Value Added-Registered Trademark- (EVA) as a performance measure to increase senior executive focus on creating shareholder value. 13 From time to time, Moore retains independent consultants to assist its human resources staff and the Committee in obtaining competitive data and to provide advice on meeting its overall compensation objectives. BASE SALARY The executive salary structure consists of salary ranges for all executive positions including those of the Named Executive Officers. The salary structure is reviewed each year to determine its competitive level relative to a group of comparable companies. Moore's objective is to establish salary-range mid-points at the 50th (median) percentile of the comparator group. The Committee reviews and recommends to the Board for approval any proposed adjustment to the salary structure. With respect to senior executives, the Committee assesses the overall scope and level of responsibility of the senior executive position relative to other positions within Moore and to the scope and level of responsibility of comparable positions within the comparable group of companies. The executive salary structure was increased by 3% for 1999. Senior executive salary reviews are based on pay for performance and are reviewed on an annual basis. The Committee takes into consideration Moore's overall performance, the performance of the unit headed by the executive, the performance of the executive, the relationship of the executive's salary to the salary range for the position and other considerations the Committee believes are appropriate in the circumstances. Assessment of performance takes into consideration attainment of pre-established financial objectives including revenues, earnings per share, cash flow and EVA targets and the relative achievement of other operating objectives such as restructuring, market share improvement, new product introduction and succession planning and development. The Committee makes recommendations on salary adjustments for senior executives to the Board for approval. For l999 the Committee recommended increases for a number, but not all, of the incumbent senior executives. The average increase was 3.6%. Effective January 1, l999, Mr. Tyler received a 7.5% increase, Mr. Buck a 10% increase, Mr. Jones a 5% increase and Mr. Wyner a 4% increase. ANNUAL INCENTIVE PLAN In 1999 the annual incentive plan focused on creating shareholder value and was based on achievement of pre-established targets for operating income and improvement in corporate EVA. A portion of the bonus for all participants was based on corporate EVA improvement results. The balance of the bonus was based on either corporate or business unit operating income results as appropriate for each executive. Executives are required to receive 25% of their 1999 bonuses in the form of deferred share units to be held throughout their employment at Moore. Results for corporate EVA improvement exceeded target and the maximum bonus was paid on that portion of the plan. The corporate operating income target was also exceeded which resulted in above target but less than maximum bonus paid on that measure. Business unit operating income results varied by business unit and bonuses were paid accordingly. LONG TERM INCENTIVE PLAN The purpose of the long term incentive plan is to advance the interests of Moore by providing certain of its key employees with additional equity based incentives; encouraging stock ownership by such employees, thereby increasing their proprietary interest in the success of Moore; encouraging them to remain employees of Moore; and attracting new key employees. The plan is an integral part of total executive compensation. In 1999 the Committee recommended and the Board approved option grants at the median level of grants extended to positions within comparable companies. LONG TERM INCENTIVE PERFORMANCE PLAN In 1999 certain senior executives participated in a new incentive plan to help focus executive management on the long term profitable growth of Moore through the creation of shareholder value. Improvement in corporate EVA is 14 the performance measure used in the plan. Contingent annual grants are denominated in Moore common shares and are earned over a three-year period. Guidelines for share ownership have been established for the participants in this plan at a value equal to two to five times annual salary. Earned awards will be paid out in the form of deferred share units that the executive must hold until they have reached the guideline level of share ownership. Results for 1999 exceeded the targeted improvement in corporate EVA for the year. Results achieved for 1999 exceeded the prorated target for the year but the amount actually earned will be determined on the cumulative results over a performance period of three years. Contingent share units of 354,800 were granted in 1999. A contingent grant will also be made for the performance period 2000 through 2002. CHIEF EXECUTIVE OFFICER'S COMPENSATION W. Ed Tyler was appointed President and Chief Executive Officer of the Corporation on April 1, 1998. At that time, an employment agreement was entered into with Mr. Tyler which provides for an annual salary of not less than $750,000. Mr. Tyler was given a 7.5% increase effective January 1, l999 to bring his annual salary to $806,250. Mr. Tyler is eligible to receive an annual cash bonus not to exceed 200% of his salary, with a target of 100%. In l999 the bonus was based on achievement of established targets for improvement in corporate EVA and operating income. Mr. Tyler's bonus of $1,431,900 was at 177.6% of his salary. Mr. Tyler is required to receive 25% of this bonus in the form of deferred share units to be held throughout his employment at Moore. Mr. Tyler received a stock option grant of 379,000 common shares under the Long Term Incentive Plan in l999. Mr. Tyler participated in the Long Term Incentive Performance Plan in l999 and received a 225,000 contingent grant denominated in Moore shares. Results achieved for 1999 exceeded the prorated target for the year but the amount actually earned will be determined on the cumulative results over a performance period of three years. In 1999 Mr. Tyler received 9,863 share units as dividend payments on share units granted to him when he joined Moore. Mr. Tyler participated in the deferred compensation plan for senior executives of Moore North America, Inc. in 1999. Mr. Tyler's employment agreement has change of control provisions. If a change of control of the Corporation is effected, the provisions provide for Mr. Tyler to be paid an amount equal to the greater of three years annualized total compensation or the number of whole and fractional years remaining under his employment agreement. Any options to acquire shares of the Corporation, which have been granted and are still outstanding at the date of a change in control, shall become fully exercisable. Mr. Tyler's pension benefits are described under Retirement Arrangements on page 12. In the event of Termination without Cause (as defined) or a Termination for Good Reason (as defined), Mr. Tyler shall be entitled to all amounts then owing to him plus a lump sum equal to two times his Annualized Total Compensation (as defined) and certain benefits for two years. In the event such termination is within two years after a Change of Control, the multiple is increased to three times. In addition, in calculating supplemental retirement benefits, Mr. Tyler will be credited with these additional years of service or, if greater, the period then remaining in the employment period. MANAGEMENT RESOURCE COMMITTEE Signed by: Brian M. Levitt (Chairman), Derek H. Burney, Thomas E. Kierans, Richard J. Lehmann and Jeanette P. Lerman. 15 PERFORMANCE GRAPH The following graph and related information compares the annual changes over the last five years in the value of $Cdn.100 invested in Moore common shares, assuming reinvestment of dividends in Canadian dollars, and the TSE 300 Index which incorporates dividend reinvestment. [GRAPH] MCL $100 $102 $119 $ 96 $ 75 $ 39 TSE 300 $100 $114 $147 $169 $166 $219
INDEBTEDNESS OF DIRECTORS, EXECUTIVE OFFICERS AND SENIOR OFFICERS OTHER THAN UNDER SECURITIES PURCHASE PROGRAMS As at February 15, 2000, the aggregate indebtedness (other than routine indebtedness) of directors, executive officers, senior officers and employees outstanding to the Corporation and its subsidiaries was $945,834. These loans are in excess of the employee's annual salary and represent house loans provided to employees under the corporate house loan policy following a company requested relocation. The loans bear interest at 4.3% per annum, have a term of 7 years and are secured by mortgages on the houses. Indebtedness under the house loan policy of senior officers is set out in the table following. 16 TABLE OF INDEBTEDNESS OF DIRECTORS, EXECUTIVE OFFICERS AND SENIOR OFFICERS
- ------------------------------------------------------------------------------------------------------------------ Name and Principal Position Involvement of Moore Largest Amount Outstanding Amount Outstanding as During 1999 at February 15, 2000 ($) ($) - ------------------------------------------------------------------------------------------------------------------ J.D. Wyner A subsidiary of Moore 350,000 349,129 Vice President and President, as lender Peak Technologies Inc. Potomac, Maryland - ------------------------------------------------------------------------------------------------------------------ M.S. Rousseau A subsidiary of Moore 600,000 596,705 Senior Vice President and Chief as lender Financial Officer - ------------------------------------------------------------------------------------------------------------------
DIRECTORS' AND OFFICERS' INSURANCE The Corporation has purchased insurance for the benefit of the directors and officers subject to certain limitations contained in the Business Corporations Act (Ontario). The premium amounts to $177,104 annually. The policies provide coverage of $50 million for each director and officer subject to a maximum of $50 million in any policy year. Each claim against a director or officer is not subject to any deductible for the individual director or officer or directors and officers as a group. The policy provides for a deductible of $500,000 per occurrence for losses occurring in the United States and $250,000 per occurrence for losses occurring elsewhere. The by-laws of the Corporation provide for the indemnification of directors and officers from and against any liability and costs in respect of any action or suit against them in respect of the execution of their duties of office subject to the limitations referred to therein. In 1999 indemnification agreements were put in place for directors and officers of the Corporation. These agreements are complementary to by-law and insurance policy provisions and specify the process for indemnification claims. APPOINTMENT OF AUDITORS A resolution will be submitted to the meeting to appoint PricewaterhouseCoopers LLP as auditors of the Corporation for a term expiring with the annual meeting of shareholders in 2001 and to authorize the directors to fix the remuneration to be paid to the auditors. To become effective, such resolution must be approved by a majority of the votes cast at the meeting. PricewaterhouseCoopers LLP have served as auditors of the Corporation since 1929. PricewaterhouseCoopers LLP will be represented at the meeting and will have an opportunity to make a statement if they so desire and to answer appropriate questions. RECONFIRMATION OF SHAREHOLDER RIGHTS PLAN At the meeting, shareholders will be asked to reconfirm the Corporation's shareholder rights plan ("Rights Plan"), the terms and conditions of which are set out in the amended and restated Shareholder Rights Plan Agreement ("Rights Agreement") dated as of February 28, 2000, between the Corporation and Montreal Trust Company of Canada (the "Rights Agent"), a copy of which is set forth in Schedule A. The Rights Agreement amends and restates the terms of Moore's existing shareholder rights plan agreement. 17 RECONFIRMATION BY SHAREHOLDERS Under the provisions of the Rights Agreement, the Rights and the Rights Agreement will terminate if the Rights Agreement is not reconfirmed by ordinary resolution passed by shareholders at the annual and special meeting. See "Shareholder Approval" on page 21. RECOMMENDATION OF THE BOARD OF DIRECTORS In adopting the amended and restated Rights Agreement, the Board of Directors of Moore considered the appropriateness of maintaining a shareholder rights plan in place and concluded, for the reasons discussed below, that it was in the best interests of the Corporation and its shareholders to do so. In amending and restating the Rights Plan, the Board has taken into account comments by institutional investors on the terms of rights plans generally. The Rights Plan as amended and restated is consistent with the form of current plans adopted by other major Canadian companies. The Board of Directors has made few substantive changes to the Corporation's existing Rights Plan. Those changes include the following: (i) extending the Rights Plan for a period of three years; (ii) reducing the period a Permitted Bid must be outstanding to 60 days; (iii) facilitating so-called "lock-up agreements" between an Offeror and shareholders provided such agreements meet certain requirements; (iv) narrowing the definition of "acting jointly and in concert"; and (v) appointing Montreal Trust Company of Canada as successor Rights Agent. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS RECONFIRM THE RIGHTS AGREEMENT, AS AMENDED AND RESTATED, BY VOTING IN FAVOUR OF THE RESOLUTION TO BE SUBMITTED TO THE MEETING. REASONS FOR RECONFIRMATION OF THE RIGHTS PLAN The Rights Plan was originally adopted in 1990 (and renewed in 1995) to provide the Board of Directors of the Corporation with sufficient time, in the event of a public take-over bid or tender offer for the common shares of the Corporation, to pursue alternatives to enhance shareholder value. These alternatives could include take-over bids or offers from other interested parties to provide shareholders the best opportunity to realize the maximum sale price. In addition, the directors would be able to explore and, if feasible, advance other alternatives to maximize share value through possible corporate reorganizations or other transactions. The Board of Directors believes that under the current rules relating to take-over bids and tender offers in Canada and the United States, being essentially the same rules that were applicable at the time the Rights Plan was originally adopted, there is not sufficient time for the directors to explore and develop alternatives for shareholders in the event of a bid. Under these rules, a take-over bid must remain open in Canada for a minimum of 21 days and in the United States for a minimum of 20 business days. The result is that shareholders may fail, in the absence of the Rights Plan, to realize the maximum value for their shares. In addition, the Board of Directors believes that the Rights Plan will encourage persons seeking to acquire control of the Corporation to do so by means of a public take-over bid or tender offer available to all shareholders. The Rights Plan will deter acquisitions by means that deny some shareholders the opportunity to share in the premium that an acquiror is likely to pay upon an acquisition of control. The common shares of the Corporation are listed on stock exchanges in Canada and the United States and there is no uniformity in the rules which apply in these markets to ensure that the tactics of persons seeking to acquire control of the Corporation, such as market accumulations and 18 "street sweeps", will not be contrary to the best interests of shareholders. The Rights Plan is designed to ameliorate this situation. Decisions of Canadian securities regulators indicate that a shareholder rights plan can be appropriately used to encourage persons seeking to acquire control of the Corporation to do so by means of a public take-over bid or tender offer available to all shareholders. The Board of Directors believes that the Rights Plan will not adversely limit the opportunity for shareholders to dispose of their shares through a take-over bid or tender offer for the Corporation which provides fair value to all shareholders. The Directors will continue to be bound to consider fully and fairly any take-over bid or tender offer for shares of the Corporation and to discharge those responsibilities with a view to the best interests of shareholders. The provisions of the Rights Plan relating to Permitted Bids, which are described below under "The Corporation's Rights Plan - Permitted Bids", will permit shareholders to tender to a take-over bid or tender offer which is a "Permitted Bid" regardless of the views of the Board of Directors as to the acceptability of the bid or offer. It is not the intention of the Board of Directors in recommending the reconfirmation of the Rights Plan to secure the continuance in office of the existing members of the Board or to avoid an acquisition of control of the Corporation in a transaction that is fair and in the best interests of shareholders. The rights of shareholders under existing law to seek a change in the management of the Corporation or to influence or promote action of management in a particular manner will not be affected by the Rights Plan. The proposal to reconfirm the Rights Plan is not being made in response to or in anticipation of any pending or threatened take-over bid or tender offer for the common shares of the Corporation. THE CORPORATION'S RIGHTS PLAN The principal terms of the Rights Plan, as amended and restated, are summarized below. Capitalized terms used but not defined in this summary are used as defined in the Rights Agreement. For full particulars, please refer to the text of the Rights Agreement attached as Schedule A. The summary below is qualified by reference to the actual provisions of the Rights Agreement. GENERAL The Rights were issued pursuant to the Rights Agreement between the Corporation and the former Rights Agent. Each Right entitles the registered holder thereof to purchase from the Corporation on the occurrence of certain events described below, one common share at the price of $120 per common share, subject to adjustment (the "Exercise Price"). If a Flip-in Event occurs, each of the Rights entitles the registered holder to receive, upon payment of the Exercise Price, the number of common shares that have a Market Price at the date of that occurrence equal to twice the Exercise Price. The Rights are not exercisable until the Separation Time. The Rights expire on the termination of the annual meeting of the Corporation in the year 2003, unless earlier terminated by the Board in accordance with the Rights Agreement. TRADING OF RIGHTS Until the Separation Time, the Rights are evidenced only by outstanding common share certificates. The Rights Plan provides that, until the Separation Time, the Rights will be transferred with and only with the associated common shares. Promptly following the Separation Time, separate certificates evidencing the Rights ("Rights Certificates") will be mailed to the holders of record of common shares as of the close of business at the Separation Time and, thereafter, the Rights Certificates alone will evidence the Rights. SEPARATION TIME The Rights will separate and trade apart from the common shares following the Separation Time. The Separation Time means the close of business on the tenth Trading Day after the earlier of (i) the first date (the "Stock 19 Acquisition Date") of public announcement of facts indicating that a person has become an Acquiring Person; and (ii) the date of commencement of, or the first public announcement of the intent of any person to commence a Take-over Bid; or such later date as may be determined by the Board. ACQUIRING PERSON AND BENEFICIAL OWNERSHIP An "Acquiring Person" is a person who Beneficially Owns 20% or more of the outstanding common shares of the Corporation. The Rights Agreement provides certain exceptions including a person who acquires 20% or more of the outstanding common shares through a Voting Share Reduction, a Permitted Bid Acquisition, an Exempt Acquisition, a Pro-Rata Acquisition or a Convertible Security Acquisition. There are also certain exceptions for the benefit of Fund Managers, Trust Companies and administrators of pension funds or plans. A Person is not deemed to Beneficially Own any security deposited, without any prior agreement or arrangement with the Offeror, to a Take-over Bid until such security is taken-up under the bid. In addition, a Person is not deemed to Beneficially Own any security deposited to a Take-over Bid pursuant to a Lock-up Agreement which meets certain requirements. For this purpose, a Lock-up Agreement is an agreement between an Offeror and a shareholder under which the shareholder agrees to deposit common shares to a Take-over Bid made by the Offeror. In order to constitute a Lock-up Agreement as defined, the agreement must permit the shareholder to withdraw any common shares tendered to the Take-over Bid in order to deposit them to a higher offer. The Lock-up Agreement may not provide for fees payable by the shareholder for doing so which exceed the greater of 2.5% of the consideration payable to the shareholder under the original Take-over Bid and 50% of the amount of the increase in consideration offered pursuant to a competing bid. FLIP-IN EVENT If a person becomes an Acquiring Person (this is called a "Flip-in Event"), each Right, other than those held by the Acquiring Person and certain related parties, becomes the right to purchase from the Corporation, upon exercise, the number of common shares having an aggregate Market Price on the date of the Flip-in Event equal to twice the Exercise Price upon payment of an amount in cash equal to the Exercise Price. The result is the potential for huge dilution to the shareholding of an Acquiring Person. As a result, an Offeror making a Take-over Bid will ensure that it does not become an Acquiring Person and thereby trigger the Plan. PERMITTED BIDS A Flip-in Event does not occur if a Take-over Bid is a Permitted Bid. A Permitted Bid is a Take-over Bid made by means of a Take-over Bid circular which among other things contains, and the take-up and payment for common shares deposited is subject to, an irrevocable and unqualified provision that: (a) shares deposited pursuant to the Take-over Bid may be withdrawn at any time prior to such shares being taken-up and paid for; (b) no shares shall be taken-up or paid for pursuant to the Take-over Bid (x) prior to the Close of Business on a date which is not less than 60 days following the date of the Take-over Bid and (y) unless at the date of take-up and payment more than 50% of the then outstanding common shares held by Independent Shareholders have been deposited to the Take-over Bid and not withdrawn; and (c) in the event that common shares are taken-up and paid for, a public announcement will be made of that fact and the Take-over Bid will remain open for further deposits of common shares on the same terms for a period of not less than 10 days from the date of such public announcement. 20 TAKE-OVER BID A Take-over Bid is defined in the Rights Plan as an offer to acquire common shares or securities convertible into common shares, where the common shares subject to such offer, together with the common shares into which the securities subject to the offer are convertible, and the Offeror's Securities, constitute in the aggregate 20% or more of the outstanding common shares of the Corporation at the date of such offer. REDEMPTION The Board of Directors may, with prior shareholder approval, and at any time prior to the occurrence of a Flip-in Event, elect to redeem all, but not less than all, of the outstanding Rights at a redemption price of $0.0001 per Right, subject to adjustment in certain events. WAIVER The Board of Directors may at any time prior to the occurrence of a Flip-in Event determine to waive the application of the Flip-in Event provisions of the Rights Agreement to a Flip-in Event that may occur by reason of a Take-over Bid made by means of a Take-over Bid circular. If the Board of Directors waives the application of the Flip-in Event provisions to such a Flip-in Event, the Board of Directors is deemed to have waived the application of the Flip-in Event provisions to any other Flip-in Event occurring by reason of any competing Take-over Bid made by means of a Take-over Bid circular prior to or reasonably contemporaneously with the granting of such waiver. The Board of Directors may also waive the application of the Flip-in Event provisions to a Flip-in Event where the Acquiring Person became such by inadvertence provided such Acquiring Person reduces its beneficial ownership of shares within 30 days such that it is no longer an Acquiring Person. AMENDMENTS The Corporation may make amendments to the Rights Agreement to correct clerical or typographical errors or to make changes which the Board of Directors considers are required to maintain the validity of the Rights Agreement as a result of any change in applicable legislation. Any such change must be submitted to shareholders for their approval at the next meeting of shareholders (or if made after the Separation Time, to a meeting of holders of the Rights at a meeting called for a date not later than the date of the next meeting of shareholders of the Corporation). The Corporation may, with the prior consent of the holders of common shares, at any time before the Separation Time or, if after the Separation Time, with the prior consent of holders of Rights, supplement, amend, vary or rescind any provision of the Rights Agreement and the Rights (whether or not such action would materially adversely affect the interests of holders of Rights, generally). No such amendment or variation will be made without the prior approval, where required, of The Toronto Stock Exchange. SHAREHOLDER APPROVAL In order for the Rights Agreement to remain effective, the Rights Agreement, as amended and restated, must be reconfirmed by a resolution passed by a majority of the votes cast by Independent Shareholders who vote in respect of the reconfirmation of the Rights Agreement at the annual and special meeting. As of the date of this circular, to the knowledge of the directors, all outstanding common shares of the Corporation are eligible to be voted in respect of the resolution reconfirming the Rights Plan. See the definition of "Independent Shareholders" in the Rights Agreement. SHAREHOLDER PROPOSALS Any shareholder proposals for the 2001 annual meeting of shareholders must be submitted no later than February 17, 2001 to the Secretary of the Corporation, at 1 First Canadian Place, P.O. Box 78, Toronto, Canada M5X 1G5, in order to be considered for inclusion in the Corporation's management information circular and proxy statement for that meeting. 21 DIRECTORS' APPROVAL The contents of this circular and the sending of it to the shareholders of the Corporation have been approved by the Board of Directors of the Corporation. By order of the Board. J.M. Wilson Vice President and Secretary Toronto, Canada March 15, 2000 COPIES OF THE CORPORATION'S LATEST ANNUAL REPORT ON FORM 10-K AS FILED WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION AND WITH THE CANADIAN SECURITIES AUTHORITIES AS THE ANNUAL INFORMATION FORM (TOGETHER WITH THE DOCUMENTS INCORPORATED THEREIN BY REFERENCE), MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE CORPORATION'S FINANCIAL CONDITION AND RESULTS FOR 1999, COMPARATIVE CONSOLIDATED FINANCIAL STATEMENTS OF THE CORPORATION FOR 1999, TOGETHER WITH THE REPORT OF THE AUDITORS THEREON AND THIS CIRCULAR ARE AVAILABLE THROUGH SEDAR AT HTTP://WWW.SEDAR.COM AND EDGAR AT HTTP://WWW.SEC.GOV/EDGARHP.HTM OR UPON REQUEST FROM THE CORPORATE COMMUNICATIONS DEPARTMENT. 22 SCHEDULE A SHAREHOLDER RIGHTS PLAN AGREEMENT - ------------------------------------------------------------------------------ DATED AS OF FEBRUARY 28, 2000 BETWEEN MOORE CORPORATION LIMITED AND MONTREAL TRUST COMPANY OF CANADA AS RIGHTS AGENT - ------------------------------------------------------------------------------ TABLE OF CONTENTS ARTICLE 1. INTERPRETATION.......................................................2 1.1. CERTAIN DEFINITIONS........................................................2 1.2. CURRENCY..................................................................16 1.3. NUMBER AND GENDER.........................................................16 1.4. SECTIONS AND HEADINGS.....................................................16 1.5. STATUTORY REFERENCES......................................................16 1.6. ACTING JOINTLY OR IN CONCERT..............................................17 1.7. DETERMINATION OF PERCENTAGE OWNERSHIP.....................................17 ARTICLE 2. THE RIGHTS..........................................................17 2.1. LEGEND ON VOTING SHARE CERTIFICATES.......................................17 2.2. EXERCISE PRICE; EXERCISE OF RIGHTS; DETACHMENT OF RIGHTS..................18 2.3. ADJUSTMENTS TO EXERCISE PRICE; NUMBER OF RIGHTS...........................21 2.4. DATE ON WHICH EXERCISE IS EFFECTIVE.......................................27 2.5. EXECUTION, AUTHENTICATION, DELIVERY AND DATING OF RIGHTS CERTIFICATES.....27 2.6. REGISTRATION, REGISTRATION OF TRANSFER AND EXCHANGE.......................28 2.7. MUTILATED, DESTROYED, LOST AND STOLEN RIGHTS CERTIFICATES.................29 2.8. PERSONS DEEMED OWNERS.....................................................29 2.9. DELIVERY AND CANCELLATION OF CERTIFICATES.................................30 2.10. AGREEMENT OF RIGHTS HOLDERS..............................................30 ARTICLE 3. ADJUSTMENTS TO THE RIGHTS UPON FLIP-IN EVENT........................31 3.1. FLIP-IN EVENT.............................................................31 ARTICLE 4. THE RIGHTS AGENT....................................................33 4.1. GENERAL...................................................................33 4.2. MERGER, AMALGAMATION OR CONSOLIDATION OR CHANGE OF NAME OF RIGHTS AGENT...34 4.3. DUTIES OF RIGHTS AGENT....................................................34 4.4. CHANGE OF RIGHTS AGENT....................................................37 ARTICLE 5. MISCELLANEOUS.......................................................38 5.1. REDEMPTION AND TERMINATION................................................38 5.2. EXPIRATION................................................................39 5.3. ISSUANCE OF NEW RIGHTS CERTIFICATES.......................................40 5.4. SUPPLEMENTS AND AMENDMENTS................................................40 5.5. FRACTIONAL RIGHTS AND FRACTIONAL SHARES...................................41 5.6. RIGHTS OF ACTION..........................................................42 5.7. HOLDER OF RIGHTS NOT DEEMED A SHAREHOLDER.................................42 5.8. NOTICE OF PROPOSED ACTIONS................................................43 5.9. NOTICES...................................................................43 5.10. COSTS OF ENFORCEMENT.....................................................44 5.11. REGULATORY APPROVALS.....................................................44 5.12. DECLARATION AS TO NON-CANADIAN AND NON-U.S. HOLDERS......................44 5.13. SUCCESSORS...............................................................44 5.14. BENEFITS OF THIS AGREEMENT...............................................45 5.15. GOVERNING LAW............................................................45 5.16. LANGUAGE.................................................................45 5.17. COUNTERPARTS.............................................................45 -2- 5.18. SEVERABILITY.............................................................45 5.19. EFFECTIVE DATE...........................................................45 5.20. SHAREHOLDER APPROVAL.....................................................46 5.21. TIME OF THE ESSENCE......................................................46 5.22. DETERMINATIONS AND ACTIONS BY THE BOARD OF DIRECTORS.....................46 5.23. FIDUCIARY DUTIES OF THE BOARD OF DIRECTORS...............................46
AMENDED AND RESTATED SHAREHOLDER RIGHTS PLAN AGREEMENT THIS AGREEMENT DATED AS OF FEBRUARY 28, 2000, B E T W E E N: MOORE CORPORATION LIMITED, a corporation incorporated under the laws of Ontario (the "Corporation") - and - MONTREAL TRUST COMPANY OF CANADA, a trust company incorporated under the laws of Canada, as Rights Agent (the "Rights Agent", which term shall include any successor Rights Agent hereunder), WHEREAS the Corporation adopted an amended and restated Shareholder Rights Plan Agreement as of February 22, 1995 (the "Former Rights Plan") to ensure, to the extent possible, that all shareholders of the Corporation are treated fairly in connection with any take-over bid for the Corporation; AND WHEREAS the Former Rights Plan expires at the termination of the annual meeting of the Corporation in the year 2000; AND WHEREAS the Board of Directors has determined that it is advisable and in the best interests of the Corporation to adopt an amended and restated version of the Former Rights Plan ("the Amended and Restated Rights Plan") and to propose that the shareholders of the Corporation approve the Amended and Restated Rights Plan at the annual meeting of shareholders in the year 2000; AND WHEREAS in connection with the implementation of the Former Rights Plan, the Board of Directors of the Corporation: (a) authorized and declared a distribution of one right (a "Right") in respect of each common share of the Corporation outstanding at the Record Time; and (b) authorized the issuance of one Right in respect of each common share subsequently issued by the Corporation; all on the terms provided in the Former Rights Plan, and such Rights remain outstanding as of the date hereof; -2- AND WHEREAS on and from the Effective Date each Right shall entitle the holder thereof, after the Separation Time, to purchase securities of the Corporation pursuant to the terms and subject to the conditions set forth herein; AND WHEREAS the Corporation has appointed Montreal Trust Company of Canada as successor Rights Agent to act on behalf of the Corporation, and the Rights Agent is willing to so act, in connection with the issuance, transfer, exchange and replacement of Rights Certificates (as hereinafter defined), the exercise of Rights and other matters referred to herein; NOW THEREFORE in consideration of the premises and their respective agreements set forth herein, the parties hereby agree as follows: ARTICLE 1. INTERPRETATION 1.1. CERTAIN DEFINITIONS For purposes of this Agreement, the following terms have the meanings indicated: (a) "ACQUIRING PERSON" means any Person who is the Beneficial Owner of 20% or more of the outstanding Voting Shares of the Corporation, but does not include: (i) the Corporation or any Subsidiary of the Corporation; (ii) any Person who becomes the Beneficial Owner of 20% or more of the outstanding Voting Shares of the Corporation as a result of: (A) a Voting Share Reduction; (B) a Permitted Bid Acquisition; (C) an Exempt Acquisition; (D) a Pro Rata Acquisition; or (E) a Convertible Security Acquisition; -3- provided, however, that if a Person becomes the Beneficial Owner of 20% or more of the Voting Shares of the Corporation then outstanding by reason of a Voting Share Reduction, a Permitted Bid Acquisition, an Exemption Acquisition, a Pro Rata Acquisition or a Convertible Security Acquisition and thereafter becomes the Beneficial Owner of an additional 1% of the Voting Shares then outstanding (other than pursuant to a Voting Share Reduction, a Permitted Bid Acquisition, an Exempt Acquisition, a Pro Rata Acquisition or a Convertible Security Acquisition), then as of the date that such Person becomes the Beneficial Owner of such additional Voting Shares, such Person shall be an "Acquiring Person"; (iii) for the period of 10 days after the Disqualification Date (as defined below), any Person who becomes the Beneficial Owner of 20% or more of the outstanding Voting Shares as a result of such Person becoming disqualified from relying on Clause 1.1(e)(v) solely because such Person makes or proposes to make a Take-over Bid either alone or by acting jointly or in concert with any other Person. For the purposes of this definition, "Disqualification Date" means the first date of public announcement that any Person is making or proposes to make a Take-over Bid including, without limitation, a report filed pursuant to Section 101 of the SECURITIES ACT or Section 13(d) of the 1934 EXCHANGE ACT; or (iv) an underwriter or member of the banking or selling group that becomes the Beneficial Owner of 20% or more of the Voting Shares in connection with a distribution to the public of securities provided that such Person does not make or propose to make a Take-over Bid alone or by acting jointly or in concert with any other Person. (b) "AFFILIATE" when used to indicate a relationship with a specified Person, means a Person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under voting control with, such specified Person. (c) "AGREEMENT" means this amended and restated shareholder rights plan agreement, as it may be amended, modified or supplemented from time to time hereafter. (d) "ASSOCIATE", when used to indicate a relationship with a specified Person, means any relative of such specified Person who has the same home as such specified Person, or any person to whom such specified Person is married, or any person with whom such specified Person is living in a conjugal relationship outside marriage, or any relative of such spouse or other person who has the same home as such specified Person. (e) A Person shall be deemed the "BENEFICIAL OWNER", and to have "BENEFICIAL OWNERSHIP", of, and to "BENEFICIALLY OWN": -4- (i) any securities as to which such Person or any Affiliate or Associate of such Person is the owner in law or equity; (ii) any securities as to which such Person or any of such Person's Affiliates or Associates has the right to acquire, whether or not on condition or the happening of any contingency, either immediately or at any time within a period of 60 days: (A) upon the exercise of any Convertible Securities; or (B) pursuant to any agreement, arrangement or understanding (other than customary agreements with and between underwriters and banking group or selling group members with respect to a distribution of securities or pursuant to a pledge of securities in the ordinary course of business); and (iii) any securities which are Beneficially Owned within the meaning of Clauses 1.1(e)(i) or (ii) above by any other Person with which such Person is acting jointly or in concert; provided, however, that a Person shall not be deemed the "Beneficial Owner", or to have "Beneficial Ownership" of, or to "Beneficially Own", any security: (iv) because such security has been deposited or tendered, without any prior agreement (other than a Lock-up Agreement) or arrangement in respect thereof, pursuant to any tender or exchange offer or Take-over Bid made by such Person or made by any Affiliate or Associate of such Person or made by any other Person acting jointly or in concert with such Person, unless such deposited or tendered security has been taken-up under such offer or Take-over Bid; (v) because: (A) such Person, or any of such Person's Affiliates or Associates or any other Person acting jointly or in concert with such Person, holds such security, provided that the ordinary course of business of any such Person (the "Fund Manager") includes the management of investment funds for others and such security is held by the Fund Manager in the ordinary course of such business in the performance of such Fund Manager's duties for the account of any other Person (a "Client"); (B) such Person (the "Trust Company") is licensed to carry on business of a trust company under applicable laws and, as such, acts as trustee or administrator or in a similar capacity in relation to the estates of deceased or incompetent Persons (each an "Estate Account") or in relation to other accounts (each an "Other Account") and holds such security in the ordinary course of such duties for such Estate Accounts or for such Other Accounts; -5- (C) such Person (the "Plan Administrator") is the administrator or the trustee of one or more pension funds or plans (a "Plan") registered under the laws of Canada or any province thereof or the laws of the United States of America or any state thereof; (D) such Person (the "Crown Agent") is established by statute for purposes that included, and the ordinary business or activity of such Person includes, the management of investment funds for employee benefit plans, pension plans, insurance plans, or various public bodies; or (E) such Person is a Plan; provided, however, that in any of the foregoing cases the Fund Manager, the Trust Company, the Plan Administrator, the Crown Agent or the Plan, as the case may be, is not then making and has not then announced a current intention to make a Take-over Bid, alone or by acting jointly or in concert with any other Person, other than an Offer to Acquire (x) in connection with a distribution by the Corporation, (y) by means of a Permitted Bid Acquisition, or (z) by means of market transactions made in the ordinary course of the business of such Person (including pre-arranged trades entered into in the ordinary course of business of such Person) executed through the facilities of a stock exchange or organized over-the-counter market; (vi) because such Person is a Client of the same Fund Manager as another Person on whose account the Fund Manager holds such security, or because such Person is an Estate Account or an Other Account of the same Trust Company as another Person on whose account the Trust Company holds such security, or because such Person is a Plan with the same Plan Administrator as another Plan on whose account the Plan Administrator holds such security; (vii) because such Person is a Client of a Fund Manager and such security is owned at law or in equity by the Fund Manager or because such Person is an Estate Account or an Other Account of a Trust Company and such security is owned at law or in equity by the Trust Company or such Person is a Plan and such security is owned at law or in equity by the Plan Administrator; (viii) because such Person is the registered holder of securities as a result of carrying on the business of, or acting as, a nominee of a securities depository. -6- (f) "BOARD OF DIRECTORS" means, at any time, the board of directors of the Corporation as then constituted. (g) "BUSINESS DAY" shall mean any day other than a Saturday, Sunday or a day on which chartered banks in the City of Toronto are authorized or obliged by law to close. (h) "BUSINESS CORPORATIONS ACT (ONTARIO)" shall mean the BUSINESS CORPORATIONS ACT, R.S.O. 1990, c.B.16, and the regulations thereunder. (i) "CANADIAN-U.S. EXCHANGE RATE" shall mean on any date the inverse of the U.S.-Canadian Exchange Rate in effect on such date. (j) "CANADIAN DOLLAR EQUIVALENT" of any amount which is expressed in United States dollars shall mean on any day the Canadian dollar equivalent of such amount determined by multiplying such amount by the Canadian-U.S. Exchange Rate in effect on such date. (k) "CLOSE OF BUSINESS" on any given date shall mean the time on such date (or, if such date is not a Business Day, the time on the next succeeding Business Day) at which the office of the transfer agent for the Voting Shares in the City of Toronto (or, after the Separation Time, the offices of the Rights Agent in the City of Toronto) becomes closed to the public. (l) "COMMON SHARES" means the common shares in the capital of the Corporation and "common shares", when used with reference to any Person other than the Corporation means the class or classes of shares (or similar equity interests) with the greatest per share voting power entitled to vote generally in the election of all directors of such other Person or the class or classes of shares (or similar equity interests) having power (whether or not exercised) to control or direct the management of such other Person or, if such other Person is a Subsidiary of another Person, the Person or Persons which ultimately control such first-mentioned other Person. (m) "COMPETING PERMITTED BID" means a Take-over Bid that: (i) is made while another Take-over Bid which is a Permitted Bid is outstanding; (ii) satisfies all components of the definition of a Permitted Bid except that the definition of a Permitted Bid shall be satisfied for the purposes of this Clause 1.1(m)(ii) if the Take-over Bid contains, and the take-up and payment for securities tendered or deposited thereunder is subject to, an irrevocable and unqualified condition that no Voting Shares shall be taken-up or paid for pursuant to the Competing Bid prior to the later of: -7- (A) the date which is 21 days after the date the Competing Permitted Bid is made; and (B) the 60th day after the earliest of any other Permitted Bid that is then outstanding, provided that the expiry of the Competing Permitted Bid shall not occur at a time of day that is prior to the time of expiry of the earliest Permitted Bid on such date. (n) "CONTROL": a corporation is "controlled" by another Person if: (i) securities entitled to vote in the election of directors carrying more than fifty percent (50%) of the votes for the election of directors are held, directly or indirectly, by or for the benefit of the other Person; and (ii) the votes carried by such securities are entitled, if exercised, to elect a majority of the board of directors of such corporation; and "controls", "controlling" and "under voting control with" shall be interpreted accordingly. (o) "CONVERTIBLE SECURITIES" means at any time any right (regardless of whether such right constitutes a security) to acquire Voting Shares from the Corporation and any securities issued by the Corporation from time to time (other than the Rights) carrying any exercise, conversion or exchange right (whether such right is exercisable immediately or within a period of 60 days after the relevant time and whether or not on condition or the happening of any contingency). (p) "CONVERTIBLE SECURITY ACQUISITION" means the acquisition of Voting Shares upon the exercise of Convertible Securities received by a Person pursuant to a Permitted Bid Acquisition, an Exempt Acquisition or Pro Rata Acquisition. (q) "EFFECTIVE DATE" shall have the meaning attributed thereto in Section 5.19. (r) "ELECTION TO EXERCISE" has the meaning attributed thereto in Clause 2.2(d)(i). (s) "EXEMPT ACQUISITION" means an acquisition: (i) in respect of which the Board of Directors has waived the application of Section 3.1 hereof pursuant to the provisions of Subsections 5.1(b), 5.1(c) or 5.1(d) hereof; (ii) which was made pursuant to a dividend reinvestment plan of the Corporation; -8- (iii) pursuant to a distribution to the public by the Corporation of Voting Shares or Convertible Securities made pursuant to a prospectus; or (iv) pursuant to a distribution by the Corporation of Voting Shares or Convertible Securities by way of a private placement by the Corporation, provided that: (A) all necessary stock exchange approvals for such private placement have been obtained and such private placement complies with the terms and conditions of such approvals; and (B) the purchaser does not become the Beneficial Owner of more than 25% of the Voting Shares outstanding immediately prior to the private placement (and in making this determination, the securities to be issued to such purchaser pursuant to the private placement shall be deemed to be held by such purchaser but shall not be included in the aggregate number of outstanding Voting Shares immediately prior to the private placement). (t) "EXERCISE PRICE" shall mean, as of any date, the price at which a holder of a Right may purchase the securities issuable upon exercise of one whole Right and until adjustment thereof in accordance with the terms hereof, the Exercise Price shall equal $120.00 (Canadian). (u) "EXPIRATION TIME" shall mean the earlier of: (i) the Termination Time; (ii) the termination of the annual meeting of the Corporation held in the year 2000 if the resolution referred to in Section 5.20 to be submitted to the annual meeting of the Corporation in the year 2000 is submitted to Independent Shareholders for their consideration and approval and if such approval is not given by the Independent Shareholders in accordance with Section 5.20 at such meeting; (iii) the termination of the annual meeting of shareholders of the Corporation held in the year 2003 if the resolution referred to in Section 5.20 to be submitted to the annual meeting of the Corporation in the year 2003 is submitted to Independent Shareholders for their consideration and approval and if such approval is not given by the Independent Shareholders in accordance with Section 5.20; and (iv) the termination of the annual meeting of shareholders of the Corporation in the year 2006. -9- (v) A "FLIP-IN EVENT" shall mean any transaction or event in or pursuant to which any Person becomes an Acquiring Person. (w) "INDEPENDENT SHAREHOLDERS" shall mean holders of Voting Shares of the Corporation but shall not include: (i) any Acquiring Person; (ii) any Offeror other than one referred to in Clause 1.1(e)(v); (iii) any Affiliate or Associate of such Acquiring Person; (iv) any Person acting jointly or in concert with such Acquiring Person; or (v) any employee benefit plan, stock purchase plan, deferred profit sharing plan or any similar plan or trust for the benefit of employees of the Corporation or a Subsidiary of the Corporation, unless the beneficiaries of any such plan or trust direct the manner in which the Voting Shares are to be voted or direct whether the Voting Shares are to be tendered to a take-over bid. (x) "LOCK-UP AGREEMENT" means an agreement between an Offeror and another Person (the "Locked-up Person") under which the Locked-up Person agrees to deposit or tender the Voting Shares held by the Locked-up Person to the Offeror's Take-over Bid where: (i) the agreement: (A) permits the Locked-up Person to withdraw the Voting Shares from the agreement in order to tender or deposit the Voting Shares to another Take-over Bid, or to support another transaction, that provides for a consideration for each Voting Share that is higher than the consideration contained in or proposed to be contained in, and is made for at least the same number of Voting Shares as, the Take-over Bid that the Locked-up Person has agreed to deposit or tender Voting Shares to pursuant to the Lock-up Agreement; or (B) (a) permits the Locked-up Person to withdraw the Voting Shares from the agreement in order to tender or deposit the Voting Shares to another Take-over Bid, or to support another transaction, that provides for a consideration for each Voting Share that exceeds by as much as or more than a specified amount (the "Specified Amount") the consideration for each Voting Share contained in or -10- proposed to be contained in, and is made for at least the same number of Voting Shares as, the Take-over Bid that the Locked-up Person has agreed to deposit or tender Voting Shares to pursuant to the Lock-up Agreement, and (b) does not by its terms provide for a Specified Amount that is greater than 7% over the consideration for each Voting Share contained in or proposed to be contained in the Take-over Bid that the Locked-up Person has agreed to deposit or tender Voting Shares to pursuant to the Lock-up Agreement; and for greater certainty, the Lock-up Agreement may contain a right of first refusal or require a period of delay to give the Offeror an opportunity to at least match a higher consideration in another Take-over Bid or transaction or other similar limitation on a Locked-up Person's right to withdraw Voting Shares from the Lock-up Agreement and not tender such Voting Shares to the Take-over Bid to which the Locked-up Person has agreed to deposit or tender, so long as the limitation does not preclude the exercise by the Locked-up Person of the right to withdraw Voting Shares in sufficient time to tender to the other Take-over Bid or participate in the other transaction; and (ii) the agreement does not provide for any "break-up fees", "top-up fees", penalties, expense reimbursement or other amounts that exceed in the aggregate the greater of: (A) the cash equivalent of 2.5% of the consideration payable under the Take-over Bid to the Locked-up Person; and (B) 50% of the amount by which the consideration payable under another Take-over Bid or transaction to a Locked-up Person exceeds the consideration that such Locked-up Person would have received under the Take-over Bid; to be paid by a Locked-up Person pursuant to the Lock-up Agreement in the event that the Locked-up Person fails to deposit or tender Voting Shares to the Take-over Bid or withdraws Voting Shares in order to tender to another Take-over Bid or participate in another transaction. (y) "MARKET PRICE" per security of any securities on any date of determination shall mean the average of the daily closing prices per security of such securities (determined as described below) on each of the 20 consecutive Trading Days through and including the Trading Day immediately preceding such date; provided, however, that if an event of a type analogous to any of the events described in Section 2.3 hereof shall have caused the closing prices used to determine the Market Price on any Trading Day not to be fully comparable with the closing price on the Trading Day immediately preceding such date of determination, each such closing price so used shall be appropriately -11- adjusted in a manner analogous to the applicable adjustment provided for in Section 2.3 in order to make it fully comparable with the closing price on the Trading Day immediately preceding such date of determination. The closing price per security of any securities on any date shall be: (i) the closing board lot sale price or, in case no such sale takes place on such date, the average of the closing bid and asked prices for such securities as reported by the principal Canadian stock exchange on which such securities are listed or admitted to trading; or (ii) if for any reason none of such prices is available on such day or the securities are not listed or posted for trading on a Canadian stock exchange, the last sale price or, in case no such sale takes place on such date, the average of the closing bid and asked prices for such securities as reported by the principal national United States securities exchange on which such securities are listed or admitted to trading; (iii) if for any reason none of the foregoing prices are available on such day or the securities are not listed or admitted to trading on a Canadian stock exchange or a national United States securities exchange, the last sale price, or in case no sale takes place on such date, the average of the high bid and low asked prices for such securities in the over-the-counter market, as quoted by any reporting system then in use; or (iv) if for any reason none of the foregoing prices are available on such day or the securities are not listed or admitted to trading on a Canadian stock exchange or a national United States securities exchange or quoted by any such reporting system, the average of the closing bid and asked prices as furnished by a professional market maker (selected by the Board of Directors) making a market in the securities; provided, however, that if for any reason none of such prices is available on such day, the closing price per security of such securities on such date means the fair value per security of such securities on such date as determined by a nationally recognized investment dealer or investment banker (selected by the Board of Directors). The Market Price shall be expressed in Canadian dollars and if initially determined in respect of any day forming part of the 20 consecutive Trading Day period in question in United States dollars, such amount shall be translated into Canadian dollars at the Canadian Dollar Equivalent thereof. (z) "1933 SECURITIES ACT" shall mean the SECURITIES ACT OF 1933 of the United States, as amended, and the rules and regulations thereunder. (aa) "1934 EXCHANGE ACT" shall mean the SECURITIES EXCHANGE ACT OF 1934 of the United States, as amended, and the rules and regulations thereunder. -12- (bb) "OFFER TO ACQUIRE" shall include: (i) an offer to purchase, or a solicitation of an offer to sell, Voting Shares, or a public announcement of an intention to make such an offer or solicitation; and (ii) an acceptance of an offer to sell Voting Shares, whether or not such offer to sell has been solicited; or any combination thereof, and the Person accepting an offer to sell shall be deemed to be making an Offer to Acquire to the Person that made the offer to sell. (cc) "OFFEROR" means a Person who has announced (and has not withdrawn) an intention to make, or who has made (and has not withdrawn), a Take-over Bid and includes any Affiliate or Associate of the Offeror and any person acting jointly and in concert with the Offeror but does not include a Person who has made a Take-over Bid that has terminated or expired and in respect of which such Person has no continuing right to take-up Voting Shares tendered to such Take-over Bid. (dd) "OFFEROR'S SECURITIES" means the Voting Shares Beneficially Owned on the date of a Take-over Bid by an Offeror. (ee) "PERMITTED BID" means a Take-over Bid made by an Offeror that is made by means of a Take-over Bid circular and which complies with the following provisions: (i) the Take-over Bid contains, and the take-up and payment for securities tendered or deposited is subject to, an irrevocable and unqualified condition that no Voting Shares of the Corporation shall be taken-up or paid for pursuant to the Take-over Bid (x) prior to the Close of Business on the date which is not less than 60 days following the date of the Take-over Bid and (y) unless, at such date, more than 50% of the then outstanding Voting Shares held by Independent Shareholders have been deposited pursuant to the Take-over Bid and not withdrawn; (ii) the Take-over Bid contains an irrevocable and unqualified provision that, unless the Take-over Bid is withdrawn, Voting Shares of the Corporation may be deposited pursuant to the Take-over Bid at any time during the period of time described in Clause (i) of this Subsection 1.1(ee) and that any Voting Shares deposited pursuant to the Take-over Bid may be withdrawn until taken-up and paid for; (iii) the Take-over Bid contains an irrevocable and unqualified provision that in the event that the condition set forth in Clause (i) of this Subsection 1.1(ee) is satisfied, the Offeror -13- making the Take-over Bid will make a public announcement of that fact and the Take-over Bid will remain open for deposits and tenders of Voting Shares for not less than 10 days from the date of such public announcement; and the term Permitted Bid shall include a Competing Permitted Bid. (ff) "PERMITTED BID ACQUISITION" means an acquisition of Voting Shares made pursuant to a Permitted Bid or a Competing Permitted Bid. (gg) "PERSON" includes any individual, firm, partnership, association, trust, trustee, executor, administrator, legal personal representative, government, governmental body or authority, group (as such term is used in Rule 13d-5 under the 1934 EXCHANGE ACT, as in effect on the date of this Agreement), corporation or other incorporated or unincorporated organization. (hh) "PRO RATA ACQUISITION" means an acquisition as a result of: (i) a stock dividend or a stock split or other event pursuant to which a Person receives or acquires Voting Shares or Convertible Securities on the same pro rata basis as all other holders of Voting Shares of the same class; or (ii) any other event pursuant to which all holders of Voting Shares of the Corporation are entitled to receive Voting Shares or Convertible Securities on a pro rata basis, including, without limiting the generality of the foregoing, pursuant to the receipt or exercise of rights issued by the Corporation and distributed to all the holders of a series or class of Voting Shares to subscribe for or purchase Voting Shares or Convertible Securities of the Corporation, provided that such rights are acquired directly from the Corporation and not from any other Person. (ii) "RECORD TIME" shall have the meaning ascribed to that term in the Former Rights Plan. (jj) "REDEMPTION PRICE" has the meaning attributed thereto in Subsection 5.1(a). (kk) "REGULAR PERIODIC CASH DIVIDEND" shall mean cash dividends paid on Voting Shares at regular intervals in any fiscal year of the Corporation to the extent that such cash dividends do not exceed, in the aggregate in any fiscal year, the greatest of: (i) 200% of the aggregate amount of cash dividends declared payable by the Corporation on its Voting Shares in its immediately preceding fiscal year; -14- (ii) 300% of the arithmetic mean of the aggregate amounts of cash dividends declared payable by the Corporation on its Voting Shares in its three immediately preceding fiscal years; and (iii) 100% of the aggregate consolidated net income of the Corporation, before extraordinary items, for its immediately preceding fiscal year. (ll) "RIGHTS CERTIFICATE" means the certificates representing the Rights after the Separation Time which shall be substantially in the form attached hereto as Exhibit A. (mm) "SECURITIES ACT" shall mean the SECURITIES ACT, R.S.O. 1990, c. s.5 and the rules and regulations thereunder. (nn) "SEPARATION TIME" shall mean the close of business on the tenth Trading Day after the earlier of: (i) the Stock Acquisition Date; and (ii) the date of the commencement of, or first public announcement of the intent of any Person (other than the Corporation or any Subsidiary of the Corporation) to commence, a Take-over Bid other than a Take-over Bid which is a Permitted Bid or a Competing Permitted Bid; or such later date as may from time to time be determined by the Board of Directors, provided that, if any such Take-over Bid expires, is cancelled, terminated or otherwise withdrawn prior to the Separation Time, such Take-over Bid shall be deemed, for purposes of this Subsection 1.1(nn), never to have been made, and provided further that if the Board of Directors determines pursuant to Subsections 5.1(b), 5.1(c) or 5.1(d) hereof to waive the application of Section 3.1 hereof to a Flip-in Event, the Separation Time in respect of such Flip-in Event shall be deemed never to have occurred. (oo) "STOCK ACQUISITION DATE" shall mean the first date of public announcement (which, for purposes of this definition, shall include, without limitation, a report filed pursuant to Section 101 of the SECURITIES ACT or the 1934 EXCHANGE ACT) of facts indicating that a Person has become an Acquiring Person. (pp) "SUBSIDIARY" shall mean, in relation to another corporation, a corporation which: (i) is controlled by: (A) that other corporation; or -15- (B) that other corporation and one or more corporations each of which is controlled by that other corporation; or (C) two or more corporations each of which is controlled by that other; or (ii) is a Subsidiary of a corporation that is that other corporation's Subsidiary. (qq) "TAKE-OVER BID" shall mean an Offer to Acquire Voting Shares or securities convertible into Voting Shares, where the Voting Shares subject to the Offer to Acquire, together with the Voting Shares into which the securities subject to the Offer to Acquire are convertible or exchangeable, and the Offeror's Securities, constitute in the aggregate 20% or more of the outstanding Voting Shares at the date of the Offer to Acquire. (rr) "TERMINATION TIME" shall mean the time at which the right to exercise Rights shall terminate pursuant to Section 5.1 or 5.20 hereof. (ss) "TRADING DAY", when used with respect to any securities, shall mean a day on which the principal Canadian or United States securities exchange (as determined by the Board of Directors) on which such securities are listed or admitted to trading is open for the transaction of business or, if the securities are not listed or admitted to trading on any Canadian or United States securities exchange, a Business Day. (tt) "U.S. - CANADIAN EXCHANGE RATE" shall mean, on any date: (i) if on such date the Bank of Canada sets an average noon spot rate of exchange for the conversion of one United States dollar into Canadian dollars, such rate; and (ii) in any other case, the rate for such date for the conversion of one United States dollar into Canadian dollars calculated such manner as may be determined by the Board of Directors from time to time acting in good faith. (uu) "U.S. DOLLAR EQUIVALENT" of any amount which is expressed in Canadian dollars shall mean on any day the United States dollar equivalent of such amount determined by multiplying such amount by the U.S.-Canadian Exchange Rate in effect on such date. (vv) "VOTING SHARES" means the Common Shares of the Corporation and any other shares of capital stock or voting interests of the Corporation entitled to vote generally in the election of directors and "Voting Shares", when used with reference to any Person other than the Corporation, means Voting Shares of such other Person and any other shares of capital stock or voting interests of such other Person entitled to vote generally in the election of the directors of such other person. -16- (ww) "VOTING SHARE REDUCTION" means an acquisition by the Corporation or the redemption by the Corporation of Voting Shares of the Corporation which by reducing the number of Voting Shares of the Corporation outstanding increases the proportionate number of Voting Shares Beneficially Owned by any Person. 1.2. CURRENCY All sums of money which are referred to in this Agreement are expressed in lawful money of Canada, unless otherwise specified. 1.3. NUMBER AND GENDER Wherever the context so requires, terms used herein importing the singular number only shall include the plural and vice versa and words importing any one gender shall include all others. 1.4. SECTIONS AND HEADINGS The division of this Agreement into Articles, Sections, Subsections, Clauses and Subclauses and the insertion of headings are for convenience of reference only and shall not affect the construction or interpretation of this Agreement. The terms "this Agreement", "hereof", "hereunder" and similar expressions refer to this Agreement and not to any particular Article, Section or other portion hereof and include any agreement or instrument supplemental or ancillary hereto. Unless something in the subject matter or context is inconsistent therewith, references herein to Articles, Sections, Subsections, Clauses and Subclauses are to Articles, Sections, Subsections, Clauses and Subclauses of this Agreement. 1.5. STATUTORY REFERENCES Unless the context otherwise requires, any reference herein to any act or rule or regulation thereunder shall be deemed to refer to the same as it may be amended, re-enacted or replaced or, if repealed and there shall be no replacement therefor, to the same as it was in effect on the date of such repeal. -17- 1.6. ACTING JOINTLY OR IN CONCERT For the purposes of this Agreement, a person is acting jointly or in concert with every Person who is a party to an agreement, commitment or understanding, whether formal or informal, with the first mentioned Person or any Associate or Affiliate of such first mentioned Person to acquire or make an Offer to Acquire Voting Shares of the Corporation (other than customary agreements with and between underwriters or banking group members or selling group members with respect to a distribution of securities or to a pledge of securities in the ordinary course of business). 1.7. DETERMINATION OF PERCENTAGE OWNERSHIP For purposes of this Agreement, the percentage of Voting Shares Beneficially Owned by any Person shall be, and be deemed to be, the product determined by the formula: 100 X A B where A = the aggregate number of votes for the election of all directors generally attaching to the Voting Shares Beneficially Owned by such person; and B = the aggregate number of votes for the election of all directors generally attaching to all outstanding Voting Shares. For purposes of this Agreement, in determining the percentage of the outstanding Voting Shares with respect to which a Person is or is deemed to be the Beneficial Owner, all unissued Voting Shares as to which such Person is deemed the Beneficial Owner shall be deemed outstanding. ARTICLE 2. THE RIGHTS 2.1. LEGEND ON VOTING SHARE CERTIFICATES (a) Certificates for the Voting Shares issued after the Effective Date but prior to the earlier of (i) the Separation Time and (ii) the Expiration Time, shall, subject to Subsection 2.3, evidence one Right for each Voting Share represented thereby and shall have impressed on, printed on, written on or otherwise affixed to them the following legend: -18- "Until the Separation Time (as defined in the Rights Agreement referred to below), this certificate also evidences and entitles the holder hereof to certain Rights as set forth in the Amended and Restated Shareholder Rights Plan Agreement (the "Rights Agreement"), dated as of February 28, 2000 between Moore Corporation Limited (the "Corporation") and Montreal Trust Company of Canada, as Rights Agent, the terms of which are hereby incorporated herein by reference and a copy of which is on file at the principal executive offices of the Corporation. In certain circumstances, as set forth in the Rights Agreement, such Rights may be amended or redeemed, may expire, may become void (if, in certain cases, they are "Beneficially Owned" by an "Acquiring Person", as such terms are defined in the Rights Agreement, or a transferee thereof) or may be evidenced by separate certificates and may no longer be evidenced by this certificate. The Corporation will mail or arrange for the mailing of, a copy of the Rights Agreement to the holder of this certificate without charge promptly after receipt of a written request therefor." (b) Certificates representing Voting Shares that are issued and outstanding on the Effective Date shall evidence one Right for each Voting Share evidenced thereby, notwithstanding the absence of the foregoing legend, until the earlier of (i) the Separation Time and (ii) the Expiration Time. 2.2. EXERCISE PRICE; EXERCISE OF RIGHTS; DETACHMENT OF RIGHTS (a) Subject to adjustment as herein set forth, each Right shall entitle the holder thereof, after the Separation Time and prior to the Expiration Time, to purchase one Voting Share for the Exercise Price, or the U.S. Dollar Equivalent of the Exercise Price, as at the Business Day immediately preceding the Separation Time (which Exercise Price and number of Voting Shares are subject to adjustment as set forth below). Notwithstanding any other provision of this Agreement, any Rights held by the Corporation or any of its Subsidiaries shall be void. (b) Until the Separation Time, (i) the Rights shall not be exerciseable and no Right may be exercised and (ii) each Right shall be evidenced by the certificate for the associated Voting Share registered in the name of the holder thereof and shall be transferable only together with, and shall be transferred by a transfer of, such associated Voting Share. (c) From and after the Separation Time and prior to the Expiration Time, the Rights may be exercised and the registration and transfer of the Rights shall be separate from and independent of Voting Shares. Promptly following the Separation Time, the Corporation shall issue and the Rights Agent shall mail to each holder of record of Voting Shares as of the Separation Time (other than an -19- Acquiring Person and, in respect of any Rights Beneficially Owned by such Acquiring Person which are not held of record by such Acquiring Person, the holder of record of such Rights) at such holder's address as shown by the records of the Corporation (the Corporation hereby agreeing to furnish copies of such records to the Rights Agent for this purpose): (i) a Rights Certificate in substantially the form set out in Exhibit A hereto, appropriately completed, representing the number of Rights held by such holder at the Separation Time and having such marks of identification or designation and such legends, summaries or endorsements printed thereon as the Corporation may deem appropriate and as are not inconsistent with the provisions of this Agreement, or as may be required to comply with any law or with any rule, regulation or judicial or administrative order made pursuant thereto or with any rule or regulation of any stock exchange or quotation system or self-regulatory organization on which the Rights may from time to time be listed or traded, or to conform to usage, and (ii) a disclosure statement prepared by the Corporation describing the Rights, provided that such materials shall not be sent to (A) an Acquiring Person or (B) to a holder of record (a "Nominee") of Voting Shares or securities convertible into Voting Shares in respect of any Rights Beneficially Owned by an Acquiring Person; and the Corporation may require any Nominee or suspected Nominee to provide such information and documentation as the Corporation may reasonably require for such purpose. (d) Rights may be exercised in whole or in part on any Business Day after the Separation Time and prior to the Expiration Time by submitting to the Rights Agent (at its office in the city of Toronto, Canada or at any other office of the Rights Agent in the cities designated from time to time for that purpose by the Corporation): (i) the Rights Certificate evidencing such Rights, with an election to exercise an "Election to Exercise" substantially in the form attached to the Rights Certificate appropriately completed and duly executed by the holder or his executors or administrators or other legal personal representatives or his or their attorney duly appointed by an instrument in writing in form and executed in a manner satisfactory to the Rights Agent; and (ii) payment by certified cheque or money order payable to the order of the Rights Agent, of a sum equal to the Exercise Price multiplied by the number of Rights being exercised and a sum sufficient to cover any transfer tax or charge which may be payable in respect of any transfer involved in the transfer or delivery of Rights Certificates or the issuance or delivery of certificates for Voting Shares in a name other than that of the holder of the Rights being exercised. -20- (e) Upon receipt of a Rights Certificate, with an Election to Exercise appropriately completed and duly executed, which does not indicate that such Rights are null and void as provided by Subsection 3.1(b), accompanied by payment as set forth in Clause 2.2(d)(ii), the Rights Agent (unless otherwise instructed in writing by the Corporation) will thereupon promptly: (i) requisition from the transfer agent of the Voting Shares certificates for the number of Voting Shares to be purchased (the Corporation hereby agreeing to authorize its transfer agent to comply with all such requisitions); (ii) after receipt of such Voting Share certificates, deliver the same to or upon the order of the registered holder of such Rights Certificate, registered in such name or names as may be designated by such holder; (iii) when appropriate, requisition from the Corporation the amount of cash, if any, to be paid in lieu of issuing fractional Voting Shares or fractional Rights; (iv) after receipt of such cash, deliver such cash to or to the order of the registered holder of the Rights Certificate; (v) tender to the Corporation all payments received on exercise of the Rights. (f) In case the holder of any Rights shall exercise less than all the Rights evidenced by such holder's Rights Certificate, a new Rights Certificate evidencing the Rights remaining unexercised will be issued by the Rights Agent to such holder or to such holder's duly authorized assigns. (g) The Corporation covenants and agrees that it will: (i) take all such action as may be necessary and within its power to ensure that all Voting Shares delivered upon exercise of Rights shall, at the time of delivery of the certificates for such shares (subject to payment of the Exercise Price), be duly and validly authorized, executed, issued and delivered and fully paid and non-assessable; (ii) take all such action as may reasonably be considered to be necessary and within its power to comply with any applicable requirements of the BUSINESS CORPORATIONS ACT (Ontario), the SECURITIES ACT and the securities legislation of each of the other provinces and territories of Canada, in connection with the issuance and delivery of the Rights Certificates and the issuance of any Voting Shares upon exercise of Rights; -21- (iii) use reasonable efforts to cause all Voting Shares issued upon exercise of Rights to be listed on the stock exchange(s) where the Voting Shares may be listed at that time; (iv) cause to be reserved and kept available out of its authorized and unissued Voting Shares, the number of Voting Shares that, as provided in this Agreement, will from time to time be sufficient to permit the exercise in full of all outstanding Rights; (v) pay when due and payable, any and all Canadian and United States federal, provincial and state transfer taxes (not in the nature of income or withholding taxes) and charges which may be payable in respect of the original issuance or delivery of the Rights Certificates or certificates for Voting Shares, provided that the Corporation shall not be required to pay any transfer tax or charge which may be payable in respect of any transfer of Rights or the issuance or delivery of certificates for Voting Shares issued upon exercise of Rights in a name other than that of the holder of the Rights being exercised; and (vi) after the Separation Time, except as permitted by Section 5.1 or authorized under Section 5.4, not take (or permit any corporation it controls to take) any action if at the time such action is taken it is reasonably foreseeable that such action would diminish substantially or eliminate the benefits intended to be afforded by the Rights. 2.3. ADJUSTMENTS TO EXERCISE PRICE; NUMBER OF RIGHTS (a) The Exercise Price, the number and kind of securities subject to purchase upon exercise of each Right and the number of Rights outstanding are subject to adjustment from time to time as provided in this Section 2.3. Fractional interests in securities resulting from such adjustments are subject to Section 5.5; (b) In the event that the Corporation at any time after the Record Time and prior to the Expiration Time: (i) declares or pays a dividend on the Voting Shares payable in Voting Shares (or other securities exchangeable for or convertible into or giving a right to acquire Voting Shares) other than pursuant to any dividend reinvestment plan of the Corporation and other than a dividend payable in Voting Shares (or other securities exchangeable for or convertible into or giving a right to acquire Voting Shares) in lieu of (and having a value no greater than) a regular periodic cash dividend; -22- (ii) subdivides or changes the then outstanding Voting Shares into a greater number of Voting Shares; (iii) consolidates or changes the then outstanding Voting Shares into a smaller number of Voting Shares; (iv) issues any Voting Shares (or other securities exchangeable for or convertible into or giving a right to acquire Voting Shares) in respect of, in lieu of or in exchange for existing Voting Shares; the Exercise Price and the number of Rights outstanding shall be adjusted as follows: (A) the Exercise Price in effect after such adjustment will be equal to the Exercise Price in effect immediately prior to such adjustment divided by the number of Voting Shares (the "Adjustment Factor") that a holder of one Voting Share immediately prior to such dividend, subdivision, change, consolidation or issuance would hold thereafter as a result thereof (assuming the exercise of all such exchange or conversion rights, if any); and (B) each Right held prior to such adjustment will become that number of Rights equal to the Adjustment Factor, and the adjusted number of Rights will be deemed to be distributed among the Voting Shares with respect to which the Original Rights were associated (if they remain outstanding) and the shares issued in respect of such dividend, subdivision, change, consolidation or issuance, so that each such Voting Share will have exactly one Right associated with it. (c) Adjustments pursuant to Subsection 2.3(b) shall be made successively, whenever an event referred to in Subsection 2.3(b) occurs. (d) If an event occurs which would require an adjustment under both this Section 2.3 and Section 3.1 hereof, the adjustment provided for in this Section 2.3 shall be in addition to, and shall be made prior to, any adjustment pursuant to Section 3.1 hereof. (e) In the event the Corporation shall at any time after the Record Time and prior to the Separation Time issue any Voting Shares or otherwise change the number of outstanding Voting Shares (otherwise than in a transaction referred to in Subsection 2.3(b)), each such Voting Share so issued and each outstanding Voting Share after giving effect to such change shall automatically have one Right associated with it, which Right shall be evidenced by the certificate representing such Voting Share. - 23 - (f) In the event that the Corporation at any time on or after the Separation Time and prior to the Expiration Time fixes a record date for the making of a distribution to substantially all holders of Voting Shares of rights or warrants entitling them (for a period expiring within 45 calendar days after such record date) to subscribe for or purchase Voting Shares (or securities convertible into or exchangeable for or carrying a right to purchase or subscribe for Voting Shares) at a price per Voting Share (or, in the case of a security convertible into or exchangeable for or carrying a right to purchase or subscribe for Voting Shares, having a conversion, exchange or exercise price per share (including the price required to be paid to purchase such convertible or exchangeable security or right)) less than 90 per cent of the Market Price per Voting Share on such record date, the Exercise Price shall be adjusted. The Exercise Price in effect after such record date will equal the Exercise Price in effect immediately prior to such record date multiplied by a fraction, of which the numerator shall be the number of Voting Shares outstanding on such record date plus the number of Voting Shares which the aggregate offering price of the total number of Voting Shares so to be offered (and/or the aggregate initial conversion, exchange or exercise price of the convertible or exchangeable securities or rights so to be offered (including the price required to be paid to purchase such convertible or exchangeable securities or rights)) would purchase at such Market Price per Voting Share and of which the denominator shall be the number of Voting Shares outstanding on such record date plus the number of additional Voting Shares to be offered for subscription or purchase (or into which the convertible or exchangeable securities or rights to be so offered are initially convertible, exchangeable or exercisable). In case such subscription price may be paid in a consideration part or all of which may be in a form other than cash, the value of such consideration shall be as determined in good faith by the Board of Directors. To the extent that such rights or warrants are not exercised prior to the expiration thereof, the Exercise Price shall be readjusted to the Exercise Price which would then be in effect based on the number of Voting Shares (or securities convertible into or exchangeable for Voting Shares) actually issued upon the exercise of such rights. For purposes of this Agreement, the granting of the right to purchase Voting Shares (whether from treasury shares or otherwise) pursuant to any dividend reinvestment plan and/or any share purchase plan (so long as such right to purchase is in no case evidenced by the delivery of rights or warrants by the Corporation) shall not be deemed to constitute an issue of rights or warrants by the Corporation; provided, however, that, in the case of any dividend reinvestment plan or share purchase plan, the right to purchase Voting Shares is at a price per share of not less than 90 per cent of the current market price per share (determined in accordance with such plans) of the Voting Shares. (g) In the event that the Corporation at any time on or after the Separation Time and prior to the Expiration Time fixes a record date for the making of a distribution to substantially all holders of - 24 - Voting Shares of (i) evidences of indebtedness or assets (other than a Regular Periodic Cash Dividend or a dividend paid in Voting Shares but including any dividend payable in securities other than Voting Shares) or (ii) rights or warrants entitling them to subscribe for or purchase Voting Shares (or securities convertible into or exchangeable for or carrying a right to purchase or subscribe for Voting Shares) at a price per Voting Share (or, in the case of a security convertible into or exchangeable for or carrying a right to purchase or subscribe for Voting Shares, having a conversion, exchange or exercise price per share (including the price required to be paid to purchase such convertible or exchangeable security or right) less than 90 per cent of the Market Price per Voting Share on such record date (excluding rights or warrants referred to in Subsection 2.3 (c)), then, in the case of each of (i) or (ii), the Exercise Price in effect after such record date shall be equal to the Exercise Price in effect immediately prior to such record date less the fair market value (as determined by the Board of Directors) of the portion of the assets, evidences of indebtedness, rights or warrants so to be distributed applicable to a Voting Share. (h) Each adjustment made pursuant to this Section 2.3 shall be made as of: (i) the payment or effective date for the applicable dividend, subdivision, change, consolidation or issuance, in the case of an adjustment made pursuant to Subsection 2.3(b); and (ii) the record date for the applicable dividend or distribution, in the case of an adjustment made pursuant to Subsections 2.3(f) or (g). (i) In the event that the Corporation shall at any time on or after the Separation Time and prior to the Expiration Time issue any shares of capital stock (other than Voting Shares), or rights or warrants to subscribe for or purchase any such capital stock, or securities convertible into or exchangeable for any such capital stock, in a transaction referred to in Clause (i) or (v) of Subsection 2.3(b), if the Board of Directors acting in good faith determines that the adjustments contemplated by Subsections 2.3(b), (f) or (g) in connection with such transaction will not appropriately protect the interests of the holders of Rights, the Corporation may determine what other adjustments to the Exercise Price, number of Rights and/or securities purchasable upon exercise of Rights would be appropriate and, notwithstanding Subsections 2.3(b), (f) and (g), such adjustments, rather than the adjustments contemplated by Subsections 2.3(b), (f) and (g) shall be made. The Corporation and the Rights Agent shall amend this Agreement, in accordance with Section 5.4, as appropriate to provide for such adjustments. (j) Notwithstanding anything herein to the contrary, no adjustment of the Exercise Price shall be required unless such adjustment would require an increase or decrease of at least one per cent in such Exercise Price; provided, however, that any adjustments which by reason of this Subsection 2.3 (j) are not required to be made shall be carried forward and taken into account in any - 25 - subsequent adjustment. All adjustments made pursuant to this Section 2.3 shall be made to the nearest cent or to the nearest one ten-thousandth of a Voting Share or a Right, as the case may be. (k) All Rights originally issued by the Corporation subsequent to any adjustment made to an Exercise Price hereunder shall evidence the right to purchase, at the adjusted Exercise Price, the number of Voting Shares purchasable from time to time hereunder upon exercise of the Rights, all subject to further adjustment as provided herein. (l) Unless the Corporation shall have exercised its election, as provided in Subsection 2.3(m), upon each adjustment of an Exercise Price as a result of the calculations made in Subsections 2.3 (f) and (g), each Right outstanding immediately prior to the making of such adjustment shall thereafter evidence the right to purchase, at the adjusted Exercise Price, that number of Voting Shares obtained by: (i) multiplying (A) the number of Voting Shares covered by a Right immediately prior to this adjustment, by (B) the relevant Exercise Price in effect immediately prior to such adjustment of the relevant Exercise Price; and (ii) dividing the product so obtained by the relevant Exercise Price in effect immediately after such adjustment of the relevant Exercise Price. (m) The Corporation may elect on or after the date of any adjustment of an Exercise Price to adjust the number of Rights, in lieu of any adjustment in the number of Voting Shares purchasable upon the exercise of a Right. Each of the Rights outstanding after the adjustment in the number of Rights shall be exercisable for the number of Voting Shares for which a Right was exercisable immediately prior to such adjustment. Each Right held of record prior to such adjustment of the number of Rights shall become the number of Rights obtained by dividing the relevant Exercise Price in effect immediately prior to adjustment of the relevant Exercise Price by the relevant Exercise Price in effect immediately after adjustment of the relevant Exercise Price. The Corporation shall make a public announcement of its election to adjust the number of Rights, indicating the record date for the adjustment, and, if known at the time, the amount of the adjustment to be made. This record date may be the date on which the relevant Exercise Price is adjusted or any day thereafter, but, if the Rights Certificates have been issued, shall be at least 10 calendar days later than the date of the public announcement. If Rights Certificates have been - 26 - issued, upon each adjustment of the number of Rights pursuant to this Subsection 2.3 (m) the Corporation shall, as promptly as practicable, cause to be distributed to holders of record of Rights Certificates on such record date, Rights Certificates evidencing, subject to Section 5.5, the additional Rights to which such holders shall be entitled as a result of such adjustment, or, at the option of the Corporation, shall cause to be distributed to such holders of record in substitution and replacement for the Rights Certificates held by such holders prior to the date of adjustment, and upon surrender thereof, if required by the Corporation, new Rights Certificates evidencing all the Rights to which such holders shall be entitled after such adjustment. Rights Certificates so to be distributed shall be issued, executed and countersigned in the manner provided for herein and may bear, at the option of the Corporation, the relevant adjusted Exercise Price and shall be registered in the names of holders of record of Rights Certificates on the record date specified in the public announcement. (n) Irrespective of any adjustment or change in the securities purchasable upon exercise of the Rights, the Rights Certificates heretofore and hereafter issued may continue to identify the securities so purchasable which were identified in the Rights Certificates issued hereunder. (o) In any case in which this Section 2.3 shall require that an adjustment in an Exercise Price be made effective as of a record date for a specified event, the Corporation may elect to defer until the occurrence of such event the issuance to the holder of any Right exercised after such record date of the number of Voting Shares and other securities of the Corporation, if any, issuable upon such exercise over and above the number of Voting Shares and other securities of the Corporation, if any, issuable upon such exercise on the basis of the relevant Exercise Price in effect prior to such adjustment; provided, however, that the Corporation shall deliver to such holder a due bill or other appropriate instrument evidencing such holder's right to receive such additional Voting Shares (fractional or otherwise) or other securities upon the occurrence of the event requiring such adjustment. (p) Notwithstanding anything in this Section 2.3 to the contrary, the Corporation shall be entitled to make such reductions in the Exercise Price, in addition to those adjustments expressly required by this Section 2.3, as and to the extent that in its good faith judgment the Board of Directors shall determine to be advisable in order that any (i) subdivision or consolidation of the Voting Shares, (ii) issuance wholly for cash of any Voting Shares at less than the applicable Market Price, (iii) issuance wholly for cash of any Voting Shares or securities that by their terms are exchangeable for or convertible into or give a right to acquire Voting Shares, (iv) stock dividends or (v) issuance of rights, options or warrants referred to in this Section 2.3, hereafter made by the Corporation to - 27 - holders of its Voting Shares, subject to applicable taxation laws, shall not be taxable to such shareholders. (q) Whenever an adjustment to the Exercise Price or a change in the securities purchasable upon exercise of the Rights is made pursuant to this Section 2.3, the Corporation shall: (i) promptly file with the Rights Agent and with the transfer agent for the Voting Shares a certificate specifying the particulars of such adjustment or change; and (ii) promptly on or after the Separation Time cause notice of the particulars of all prior adjustments or changes to be given to the holders of the Rights. Failure to file such certificate or to cause such notice to be given as aforesaid, or any defect therein, shall not affect the validity of any such adjustment or change. 2.4. DATE ON WHICH EXERCISE IS EFFECTIVE Each Person in whose name any certificate for Voting Shares is issued upon the exercise of Rights shall for all purposes be deemed to have become the holder of record of the Voting Shares represented thereby on, and such certificate shall be dated, the date upon which the Rights Certificate evidencing such Rights was duly surrendered (together with an appropriately completed and a duly executed Election to Exercise) and payment of the Exercise Price for such Rights (and any applicable transfer taxes and other governmental charges payable by such person hereunder) was made in accordance with Subsection 2.2(d); provided, however, that if the date of such surrender and payment is a date upon which the Voting Share transfer books of the Corporation are closed, such Person shall be deemed to have become the record holder of such shares on, and such certificate shall be dated, the next succeeding Business Day on which the Voting Share transfer books of the Corporation are open. 2.5. EXECUTION, AUTHENTICATION, DELIVERY AND DATING OF RIGHTS CERTIFICATES (a) The Rights Certificates shall be executed on behalf of the Corporation by its Chief Executive Officer, its Chief Financial Officer or its Secretary. The signature of any of these officers on the Rights Certificates may be manual or facsimile. Rights Certificates bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Corporation shall bind the Corporation, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the countersignature and delivery of such Rights Certificates. - 28 - (b) Promptly following the Separation Time, the Corporation will notify the Rights Agent of such Separation Time and will deliver Rights Certificates executed by the Corporation to the Rights Agent for countersignature, together with a disclosure statement describing the Rights, and the Rights Agent shall countersign (manually or by facsimile signature in a manner satisfactory to the Corporation) and mail such Rights Certificates and disclosure statement to the holders of the Rights pursuant to Subsection 2.2(c) hereof. No Rights Certificate shall be valid for any purpose until countersigned by the Rights Agent as aforesaid. (c) Each Rights Certificate shall be dated the date of countersignature thereof. 2.6. REGISTRATION, REGISTRATION OF TRANSFER AND EXCHANGE (a) After the Separation Time, the Corporation will cause to be kept a register (the "Rights Register") in which, subject to such reasonable regulations as it may prescribe, the Corporation will provide for the registration and transfer of Rights. The Rights Agent is hereby appointed "Rights Registrar" for the purpose of maintaining the Rights Register for the Corporation and registering Rights and transfers and exchanges of Rights as herein provided. In the event that the Rights Agent shall cease to be the Rights Registrar, the Rights Agent will have the right to examine the Rights Register at all reasonable times. (b) After the Separation Time and prior to the Expiration Time, upon surrender for registration of transfer or exchange of any Rights Certificate, and subject to the provisions of Subsections 2.6(d) and 3.1(b), the Corporation will execute, and the Rights Agent will countersign, deliver and register, in the name of the holder or the designated transferee or transferees, as required pursuant to the holder's instructions, one or more new Rights Certificates evidencing the same aggregate number of Rights as did the Rights Certificates so surrendered. (c) All Rights issued upon any registration of transfer or exchange of Rights Certificates shall be the valid obligations of the Corporation, and such Rights shall be entitled to the same benefits under this Agreement as the Rights surrendered upon such registration of transfer or exchange. (d) Every Rights Certificate surrendered for registration of transfer or exchange shall be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Corporation or the Rights Agent, as the case may be, duly executed by the holder thereof or such holder's attorney duly authorized in writing. As a condition to the issuance of any new Rights Certificate under this Section 2.6, the Corporation may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Rights Agent) connected therewith. - 29 - 2.7. MUTILATED, DESTROYED, LOST AND STOLEN RIGHTS CERTIFICATES (a) If any mutilated Rights Certificate is surrendered to the Rights Agent prior to the Expiration Time, the Corporation shall execute and the Rights Agent shall countersign and deliver in exchange therefor a new Rights Certificate evidencing the same number of Rights as did the Rights Certificate so surrendered. (b) If there shall be delivered to the Corporation and the Rights Agent prior to the Expiration Time (i) evidence to their satisfaction of the destruction, loss or theft of any Rights Certificate and (ii) such security or indemnity as may be required by them to save each of them and any of their agents harmless, then, in the absence of notice to the Corporation or the Rights Agent that such Rights Certificate has been acquired by a bona fide purchaser, the Corporation shall execute and upon its request the Rights Agent shall countersign and deliver, in lieu of any such destroyed, lost or stolen Rights Certificate, a new Rights Certificate evidencing the same number of Rights as did the Rights Certificate so destroyed, lost or stolen. (c) As a condition to the issuance of any new Rights Certificate under this Section 2.7, the Corporation may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Rights Agent) connected therewith. (d) Every new Rights Certificate issued pursuant to this Section 2.7 in lieu of any destroyed, lost or stolen Rights Certificate shall evidence an original additional contractual obligation of the Corporation, whether or not the destroyed, lost or stolen Rights Certificate shall be at any time enforceable by anyone, and shall be entitled to all the benefits of this Agreement equally and proportionately with any and all other Rights duly issued hereunder. 2.8. PERSONS DEEMED OWNERS Prior to due presentment of a Rights Certificate (or, prior to the Separation Time, the associated Voting Share certificate) for registration of transfer, the Corporation, the Rights Agent and any agent of the Corporation or the Rights Agent may deem and treat the Person in whose name such Rights Certificate (or, prior to the Separation Time, such Voting Share certificate) is registered as the absolute owner thereof and of the Rights evidenced thereby for all purposes whatsoever. As used in this Agreement, unless the context otherwise requires, the term "holder" of any Rights shall mean the registered holder of such Rights (or, prior to the Separation Time, the associated Voting Shares). - 30 - 2.9. DELIVERY AND CANCELLATION OF CERTIFICATES All Rights Certificates surrendered upon exercise or for redemption, registration of transfer or exchange shall, if surrendered to any Person other than the Rights Agent, be delivered to the Rights Agent and, in any case, shall be promptly cancelled by the Rights Agent. The Corporation may at any time deliver to the Rights Agent for cancellation any Rights Certificates previously countersigned and delivered hereunder which the Corporation may have acquired in any manner whatsoever, and all Rights Certificates so delivered shall be promptly cancelled by the Rights Agent. No Rights Certificate shall be countersigned in lieu of or in exchange for any Rights Certificates cancelled as provided in this Section 2.9, except as expressly permitted by this Agreement. The Rights Agent shall, subject to applicable law, destroy all cancelled Rights Certificates and deliver a certificate of destruction to the Corporation. 2.10. AGREEMENT OF RIGHTS HOLDERS Every holder of Rights by accepting the same consents and agrees with the Corporation and the Rights Agent and with every other holder of Rights that: (a) such holder shall be bound by and subject to the provisions of this Agreement, as amended from time to time in accordance with the terms hereof, in respect of all Rights held; (b) prior to the Separation Time, each Right will be transferable only together with, and will be transferred by a transfer of, the associated Voting Share certificate representing such Right; (c) after the Separation Time, the Rights will be transferable only on the Rights Register as provided herein; (d) prior to due presentment of a Rights Certificate (or, prior to the Separation Time, the associated Voting Share certificate) for registration of transfer, the Corporation, the Rights Agent and any agent of the Corporation or the Rights Agent may deem and treat the Person in whose name the Rights Certificate (or, prior to the Separation Time, the associated Voting Share certificate) is registered as the absolute owner thereof and of the Rights evidenced thereby (notwithstanding any notations of ownership or writing on such Rights Certificate or the associated Voting Share certificate made by anyone other than the Corporation or the Rights Agent) for all purposes whatsoever, and neither the Corporation nor the Rights Agent shall be affected by any notice to the contrary; (e) such holder is not entitled to receive any fractional Rights or any fractional Voting Shares upon the exercise of Rights; - 31 - (f) that, subject to the provisions of Section 5.4, without the approval of any holder of Rights and upon the sole authority of the Board of Directors this Agreement may be supplemented or amended from time to time as provided herein; and (g) that notwithstanding anything in this Agreement to the contrary, neither the Corporation nor the Rights Agent shall have any liability whatsoever to any holder of a Right or any other Person as a result of its inability to perform any of its obligations under this Agreement by reason of any preliminary or permanent injunction or other order, decree or ruling issued by a court of competent jurisdiction or by a governmental, regulatory or administrative agency or commission, or any statute, rule, regulation or executive order promulgated or enacted by any governmental authority, prohibiting or otherwise restraining performance of such obligation. ARTICLE 3. ADJUSTMENTS TO THE RIGHTS UPON FLIP-IN EVENT 3.1. FLIP-IN EVENT (a) Subject to Subsection 3.1(b) and Section 5.1 hereof, in the event that prior to the Expiration Time a Flip-in Event shall occur, each Right shall constitute, effective from and after the Close of Business on the tenth Trading Day following the Stock Acquisition Date, the right to purchase from the Corporation, upon exercise thereof in accordance with the terms hereof, that number of Voting Shares of the Corporation having an aggregate Market Price on the date of consummation or occurrence of such Flip-in Event equal to twice the Exercise Price upon payment to the Corporation of an amount in cash equal to the Exercise Price (such right to be appropriately adjusted pursuant to Section 2.3 in the event that after such date of consummation or occurrence an event of a type analogous to any of the events described in Section 2.3 shall have occurred with respect to the Voting Shares). (b) Subject to Section 5.1 but notwithstanding any other provision of this Agreement to the contrary, upon the occurrence of any Flip-in Event, any Rights that are or were Beneficially Owned on or after the earlier of the Separation Time and the Stock Acquisition Date by: (i) an Acquiring Person (or any Affiliate or Associate of an Acquiring Person or any Person acting jointly or in concert with an Acquiring Person or any Affiliate or Associate of an Acquiring Person); or (ii) a transferee of Rights, direct or indirect, from an Acquiring Person (or any Affiliate or Associate of an Acquiring Person or any Person acting jointly or in concert with an Acquiring Person or any Affiliate or Associate of an Acquiring Person) where such - 32 - transferee becomes a transferee concurrently with or subsequent to the Acquiring Person becoming such in a transfer that the Board of Directors has determined is part of a plan, arrangement or scheme of an Acquiring Person that has the purpose or effect of avoiding Clause (i) of this Section 3.1(b), shall become void without any further action and any holder of such Rights (including transferees) shall thereafter have no right to exercise such Rights under any provision of this Agreement and shall have no other rights whatsoever with respect to such Rights, whether under any provision of this Agreement or otherwise. The holder of any Rights represented by a Rights Certificate which is submitted to the Rights Agent upon exercise or for registration of transfer or exchange which does not contain the necessary certifications set forth in the Rights Certificate establishing that such Rights are not void under this Subsection 3.1(b) shall be deemed to be an Acquiring Person for the purposes of this Subsection 3.1(b) and such Rights shall become null and void. (c) Any Rights Certificate that represents Rights Beneficially Owned by a Person described in either Clause (i) or (ii) of Subsection 3.1(b) or transferred to any nominee of any such Person, and any Rights Certificate issued upon transfer, exchange, replacement or adjustment of any Rights Certificate referred to in this sentence, shall contain the following legend: "The Rights represented by this Rights Certificate are or were Beneficially Owned by a Person who was an Acquiring Person or an Affiliate or Associate of an Acquiring Person or who was acting jointly or in concert with such Person. This Rights Certificate and the Rights represented hereby are void." provided that the Rights Agent shall not be under any responsibility to ascertain the existence of facts that would require the imposition of such legend but shall impose such legend only if instructed to do so by the Corporation in writing or if a holder fails to certify upon transfer or exchange in the space provided on the Rights Certificate that such holder is not a Person described in Subsection 3.1(b). The issuance of a Rights Certificate without the legend referred to in this Subsection 3.1(c) shall not affect the application of Subsection 3.1(b) (d) After the Separation Time, the Corporation shall do all such acts and things as are necessary and within its power to ensure compliance with the provisions of this Section 3.1 including, without limitation, all such acts and things as may be required to satisfy the requirements of the BUSINESS CORPORATION ACT (Ontario), the SECURITIES ACT, the securities laws or comparable legislation in each of the provinces of Canada and in any other jurisdiction where the Corporation is subject to such laws, and the rules of the stock exchanges where the Voting Shares are listed at such time, in connection with the issue of Voting Shares upon the exercise of Rights in accordance with this Agreement. - 33 - ARTICLE 4. THE RIGHTS AGENT 4.1. GENERAL (a) The Corporation hereby appoints the Rights Agent to act as agent for the Corporation and the holders of Rights in accordance with the terms and conditions hereof, and the Rights Agent hereby accepts such appointment. The Corporation may from time to time appoint such Co-Rights Agents as it may deem necessary or desirable. In the event the Corporation appoints one or more Co-Rights Agents, the respective duties of the Rights Agent and Co-Rights Agents shall be as the Corporation may determine with the approval of the Rights Agent and the Co-Rights Agent. The Corporation agrees to pay to the Rights Agent reasonable compensation for all services rendered by it hereunder and, from time to time, on demand of the Rights Agent, its reasonable expenses and counsel fees and other disbursements incurred in the execution and administration of this Agreement and the exercise and performance of its duties hereunder (including the fees and disbursements of any expert retained by the Rights Agent). The Corporation also agrees to indemnify the Rights Agent, its directors, officers, employees and agents for, and to hold it harmless against, any loss, liability, cost, claim, action, suit, damage or expense, incurred without gross negligence, bad faith or wilful misconduct on the part of the Rights Agent, for anything done or omitted by the Rights Agent in connection with the acceptance, execution and administration of this Agreement, including but not limited to the costs and expenses of defending against any claim of liability, which right to indemnification will survive the termination of this Agreement and the resignation or removal of the Rights Agent. (b) The Rights Agent shall be protected and shall incur no liability for or in respect of any action taken, suffered or omitted by it in connection with its administration of this Agreement in reliance upon any certificate for Voting Shares, Rights Certificate, certificate for other securities of the Corporation, instrument of assignment or transfer, power of attorney, endorsement, affidavit, letter, notice, direction, consent, certificate, statement, or other paper or document believed by it to be genuine and to be signed, executed and, where necessary, verified or acknowledged, by the proper Person or Persons. (c) The Corporation shall inform the Rights Agent in a reasonably timely manner of events which may materially affect the administration of this Agreement by the Rights Agent and, at any time upon request, shall provide to the Rights Agent an incumbency certificate certifying the then current officers of the Corporation. - 34 - 4.2. MERGER, AMALGAMATION OR CONSOLIDATION OR CHANGE OF NAME OF RIGHTS AGENT (a) Any corporation into which the Rights Agent or any successor Rights Agent may be merged or amalgamated or with which it may be consolidated, or any corporation resulting from any merger, amalgamation or consolidation to which the Rights Agent or any successor Rights Agent is a party, or any corporation succeeding to the shareholder or stockholder services business of the Rights Agent or any successor Rights Agent, will be the successor to the Rights Agent under this Agreement without the execution or filing of any paper or any further act on the part of any of the parties hereto, provided that such corporation would be eligible for appointment as a successor Rights Agent under the provisions of Section 4.4 hereof. In case, at the time such successor Rights Agent succeeds to the agency created by this Agreement, any of the Rights Certificates have been countersigned but not delivered, any such successor Rights Agent may adopt the countersignature of the predecessor Rights Agent and deliver such Right Certificates so countersigned; and in case at that time any of the Rights Certificates have not been countersigned, any successor Right Agent may countersign such Rights Certificates either in the name of the predecessor Rights Agent or in the name of the successor Rights Agent; and in all such cases such Rights Certificates will have the full force provided in the Rights Certificates and in this Agreement. (b) In case at any time the name of the Rights Agent is changed and at such time any of the Rights Certificates shall have been countersigned but not delivered, the Rights Agent may adopt the countersignature under its prior name and deliver Rights Certificates so countersigned; and in case at that time any of the Rights Certificates shall not have been countersigned, the Rights Agent may countersign such Rights Certificates either in its prior name or in its changed name; and in all such cases such Rights Certificates shall have the full force provided in the Rights Certificates and in this Agreement. 4.3. DUTIES OF RIGHTS AGENT The Rights Agent undertakes the duties and obligations imposed by this Agreement upon the following terms and conditions, by all of which the Corporation and the holders of Rights Certificates, by their acceptance thereof, shall be bound: (a) The Rights Agent may retain and consult with legal counsel (who may be legal counsel for the Corporation and the opinion of such counsel will be full and complete authorization and protection to the Rights Agent as to any action taken or omitted by it in good faith and in accordance with such opinion; the Rights Agent may also, with the approval of the Corporation (such approval not to be unreasonably withheld) and at the expense of the Corporation, consult with such other experts as the Rights Agent shall consider necessary or appropriate to properly carry out the duties and obligations imposed under this Agreement and the Rights Agent shall be entitled to rely in - 35 - good faith on the advice of any such expert. Any remuneration so paid by the Rights Agent shall be repaid to the Rights Agent in accordance with Section 4.1(a). (b) Whenever in the performance of its duties under this Agreement the Rights Agent deems it necessary or desirable that any fact or matter be proved or established by the Corporation prior to taking or suffering any action hereunder, such fact or matter (unless other evidence in respect thereof be herein specifically prescribed) may be deemed to be conclusively proved and established by a certificate signed by a person believed by the Rights Agent to be the Chairman of the Board, a Vice-Chairman of the Board, the President, any Vice-President, the Treasurer, any Assistant Treasurer, the Secretary or any Assistant Secretary of the Corporation and delivered to the Rights Agent; and such certificate will be full authorization to the Rights Agent for any action taken or suffered in good faith by it under the provisions of this Agreement in reliance upon such certificate. (c) The Rights Agent will be liable hereunder only for its own gross negligence, bad faith or wilful misconduct. (d) The Rights Agent will not be liable for or by reason of any of the statements of fact or recitals contained in this Agreement or in the certificates for Voting Shares or the Rights Certificates (except its countersignature thereof) or be required to verify the same, but all such statements and recitals are and will be deemed to have been made by the Corporation only. (e) The Rights Agent will not be under any responsibility in respect of: (i) the validity of this Agreement or the execution and delivery hereof (except the due authorization, execution and delivery hereof by the Rights Agent) or in respect of the validity or execution of any Voting Share certificate or Rights Certificate (except its countersignature thereof); (ii) any breach by the Corporation of any covenant or condition contained in this Agreement or in any Rights Certificate; (iii) any change in the exercisability of the Rights (including the Rights becoming void pursuant to Subsection 3.1(b) hereof); (iv) any adjustment made under the provisions of Section 2.3 hereof; (v) the manner, method or amount of any such adjustment or the ascertaining of the existence of facts that would require any such adjustment (except with respect to the exercise of Rights after receipt of a certificate contemplated by Subsection 2.3(r) describing any such adjustment); - 36 - (vi) will not by any act hereunder be deemed to make any representation or warranty as to the authorization of any Voting Shares to be issued pursuant to this Agreement or any Rights or as to whether any Voting Shares will, when issued, be duly and validly authorized, executed, issued and delivered and fully paid and non-assessable. (f) The Corporation agrees that it will perform, execute, acknowledge and deliver or cause to be performed, executed, acknowledged and delivered all such further and other acts, instruments and assurances as may reasonably be required by the Rights Agent for the carrying out or performing by the Rights Agent of the provisions of this Agreement. (g) The Rights Agent is hereby authorized and directed to accept instructions with respect to the performance of its duties hereunder from any person believed by the Rights Agent to be the Chairman of the Board, a Vice Chairman of the Board, the President, any Vice President, the Treasurer, any Assistant Treasurer or the Secretary or Assistant Secretary of the Corporation, and to apply to such persons for advice or instructions in connection with its duties, and it shall not be liable for any action taken or suffered by it in good faith in reliance upon instructions of any such person: it is understood that instructions to the Rights Agent shall, except where circumstances make it impracticable or the Rights Agent otherwise agrees, be given in writing and, where not in writing, such instructions shall be confirmed in writing as soon as reasonably possible after the giving of such instructions. (h) The Rights Agent and any shareholder, director, officer or employee of the Rights Agent may buy, sell or deal in Voting Shares, Rights or other securities of the Corporation or become pecuniarily interested in any transaction in which the Corporation may be interested, or contract with or lend money to the Corporation or otherwise act as fully and freely as though it were not Rights Agent under this Agreement. Nothing herein shall preclude the Rights Agent from acting in any other capacity for the Corporation or for any other legal entity. (i) The Rights Agent may execute and exercise any of the rights or powers hereby vested in it or perform any duty hereunder either itself or by or through its attorneys or agents, and the Rights Agent will not be answerable or accountable for any act, omission, default, neglect or misconduct of any such attorneys or agents or for any loss to the Corporation resulting from any such act, omission, default, neglect or misconduct, provided reasonable care was exercised in the selection and continued employment of such attorney or agent. - 37 - 4.4. CHANGE OF RIGHTS AGENT The Rights Agent may resign and be discharged from its duties under this Agreement upon 60 days' notice (or such lesser notice as is acceptable to the Corporation) in writing mailed to the Corporation and to the transfer agent of Voting Shares by registered and certified mail, and to the holders of the Rights in accordance with Section 5.9, all of which shall be at the expense of the Corporation. The Corporation may remove the Rights Agent upon 30 days' notice in writing, mailed to the Rights Agent and to the transfer agent of the Voting Shares by registered or certified mail and to the holders of the Rights in accordance with Section 5.9. If the Rights Agent should resign or be removed or otherwise become incapable of acting, the Corporation will appoint a successor to the Rights Agent. If the Corporation fails to make such appointment within a period of 30 days after such removal or after it has been notified in writing of such resignation or incapacity by the resigning or incapacitated Rights Agent then the holder of any Rights (which holder shall, with such notice, submit such holder's Rights Certificate for inspection by the Corporation) may (at the Corporation's expense) apply to any court of competent jurisdiction for the appointment of a new Rights Agent. Any successor Rights Agent, whether appointed by the Corporation or by such a court, shall be a corporation incorporated under the laws of Canada or a province thereof authorized to carry on the business of a trust company in the Province of Ontario. After appointment, the successor Rights Agent will be vested with the same powers, rights, duties and responsibilities as if it had been originally named as Rights Agent without further act or deed; but the predecessor Rights Agent shall, upon payment in full of any outstanding amounts owing by the Corporation to the Rights Agent under this Agreement, deliver and transfer to the successor Rights Agent any property at the time held by it hereunder, and execute and deliver any further assurance, conveyance, act or deed necessary for the purpose. Not later than the effective date of any such appointment, the Corporation will file notice thereof in writing with the predecessor Rights Agent and each transfer agent of the Voting Shares, and mail a notice thereof to the holders of the Rights. Failure to give any notice provided for in this Section 4.4, however, or any defect therein, shall not affect the legality or validity of the resignation or removal of the Rights Agent or the appointment of the successor Rights Agent, as the case may be. -38- ARTICLE 5. MISCELLANEOUS 5.1. REDEMPTION AND TERMINATION (a) The Board of Directors acting in good faith may, with prior shareholder approval, and at any time prior to the occurrence of a Flip-in Event, elect to redeem all but not less than all of the then outstanding Rights at a redemption price of $0.0001 per Right appropriately adjusted in a manner analogous to the applicable adjustments provided for in Section 2.3 if an event of a type analogous to any of the events described in Section 2.3 shall have occurred (such redemption price being herein referred to as the "Redemption Price"). (b) The Board of Directors acting in good faith may waive the application of Section 3.1 in respect of the occurrence of any Flip-in Event if the Board of Directors has determined, following the Stock Acquisition Date and prior to the Separation Time, that a Person became an Acquiring Person by inadvertence and without any intention to become, or knowledge that it would become, an Acquiring Person under this Agreement and, in the event that such a waiver is granted by the Board of Directors, such Stock Acquisition Date shall be deemed not to have occurred. Any such waiver pursuant to this Subsection 5.1(b) may only be given on the condition that such Person, within 30 days after the foregoing determination by the Board of Directors or such later date as the Board of Directors may determine (the "Disposition Date"), has reduced its Beneficial Ownership of Voting Shares such that the Person is no longer an Acquiring Person. If the Person remains an Acquiring Person at the Close of Business on the Disposition Date, the Disposition Date shall be deemed to be the date of occurrence of a further Stock Acquisition Date and Section 3.1 shall apply thereto. (c) The Board of Directors acting in good faith may, prior to the occurrence of the relevant Flip-in Event, upon prior written notice delivered to the Rights Agent, determine to waive the application of Section 3.1 to a Flip-in Event that may occur by reason of a Take-over Bid made by means of a Take-over Bid circular to all holders of Voting Shares, provided that if the Board of Directors waives the application of Section 3.1 in respect of a Take-over Bid pursuant to this Subsection 5.1(c), the Board of Directors shall be deemed to have waived the application of Section 3.1 in respect of any other Take-over Bid made by means of a Take-over Bid circular to all holders of Voting Shares prior to the expiry of any Take-over Bid in respect of which a waiver is, or is deemed to have been, granted under this Subsection 5.1(c). -39- (d) The Board of Directors acting in good faith may, prior to the Close of Business on the tenth Trading Day following a Stock Acquisition Date or such later Trading Day as the Board of Directors may from time to time determine, upon prior written notice delivered to the Rights Agent, waive the application of Section 3.1 to the relevant Flip-in Event, provided that the Acquiring Person has reduced its Beneficial Ownership of Voting Shares (or has entered into a contractual arrangement with the Corporation acceptable to the Board of Directors to do so within 10 days of the date on which such contractual arrangement is entered into or such later date as the Board of Directors may determine) such that at the time the waiver becomes effective pursuant to this Subsection 5.1(d) such Person is no longer (or would no longer be) an Acquiring Person. In the event of such a waiver becoming effective prior to the Separation Time, such Flip-in Event shall be deemed not to have occurred. (e) Where a Person acquires pursuant to a Permitted Bid or a Competing Permitted Bid outstanding Voting Shares, other than Voting Shares Beneficially Owned by such Person at the date of such Permitted Bid or Competing Permitted Bid, then the Corporation shall immediately upon the consummation of such acquisition redeem the Rights at the Redemption Price. (f) Where a Take-over Bid that is not a Permitted Bid is withdrawn or otherwise terminated after the Separation Time has occurred and prior to the occurrence of a Flip-In Event, the Board of Directors may elect to redeem all the outstanding Rights at the Redemption Price. In such event, all the provisions of this Agreement shall continue to apply as if the Separation Time had not occurred and as if Rights Certificates representing the number of Rights held by each holder of Voting Shares as of the Separation Time had not been mailed to each such holder and for all purposes of this Agreement the Separation Time shall be deemed not to have occurred. (g) If the Board of Directors elects or the Corporation is obliged to redeem the Rights, the right to exercise the Rights will thereupon without further action and without notice terminate and the only right thereafter of the holder of a Right shall be to receive the Redemption Price. Within 10 days of the Board of Directors electing or being deemed to have elected to redeem the Rights, the Corporation shall give notice of such redemption to the holders of the then outstanding Rights. Each such notice of redemption shall state the method by which the payment of the Redemption Price shall be made. 5.2. EXPIRATION No Person shall have any rights pursuant to this Agreement or in respect of any Right after the Expiration Time, except the Rights Agent as specified in Section 4.1(a) of this Agreement. -40- 5.3. ISSUANCE OF NEW RIGHTS CERTIFICATES Notwithstanding any of the provisions of this Agreement or of the Rights to the contrary, the Corporation may, at its option, issue new Rights Certificates evidencing Rights in such form as may be approved by its Board of Directors to reflect any adjustment or change in the number of Voting Shares purchasable upon exercise of Rights made in accordance with the provisions of this Agreement. 5.4. SUPPLEMENTS AND AMENDMENTS (a) The Corporation may from time to time supplement, amend or vary this Agreement without the approval of any holder of Rights or Voting Shares to correct any clerical or typographical error or to maintain the validity of the Agreement as a result of any change in any applicable legislation, rules or the regulations thereunder. (b) Any supplement, amendment or variation made by the Board of Directors pursuant to Subsection 5.4(a) shall: (i) if made prior to the Separation Time, be submitted to the holders of Voting Shares at the next meeting of shareholders of the Corporation and the holders of Voting Shares may, by resolution passed by a majority of the votes cast by Independent Shareholders who vote in respect of such supplement, amendment or variation, confirm or reject such supplement, amendment or variation; or (ii) if made after the Separation Time, be submitted to the holders of Rights at a meeting to be held on a date not later than the date of the next meeting of shareholders of the Corporation and the holders of Rights may, by resolution passed by a majority of the votes cast by the holders of Rights who vote in respect of such supplement, amendment or variation confirm or reject such supplement, amendment or variation. (c) Any supplement, amendment or variation pursuant to Subsection 5.4(a) shall be effective from the date of the resolution of the Board of Directors adopting such supplement, amendment or variation and shall continue in effect until it ceases to be effective in accordance with this Subsection. If a supplement, amendment or variation pursuant to Subsection 5.4(a) is not approved by the holders of Voting Shares or the holders of Rights or is not submitted to the holders of Voting Shares or the holders of Rights as required pursuant to Clauses (i) or (ii) of Subsection 5.4(b), then such supplement, amendment or variation shall cease to be effective from and after the termination of the meeting at which it was not approved or to which it should have been but was not submitted or from and after the date of the meeting of holders of Rights that should have been but was not held, and no subsequent resolution of the Board of Directors to supplement, amend or vary any -41- provision of this Agreement to substantially the same effect shall be effective until confirmed by the holders of Voting Shares or the holders of Rights, as the case may be. (d) The Corporation may, with the prior consent of the holders of Voting Shares obtained as set forth below, at any time before the Separation Time, supplement, amend, vary or rescind any of the provisions of this Agreement and the Rights (whether or not such action would materially adversely affect the interests of the holders of Rights generally). Such consent shall be deemed to have been given if the action requiring such approval is approved by the affirmative vote of a majority of the votes cast by Independent Shareholders present or represented at and entitled to vote at a meeting of the holders of Voting Shares duly called and held in compliance with applicable laws and the articles and by-laws of the Corporation (e) The Corporation may, with the prior consent of the holders of Rights obtained as set forth below, at any time after the Separation Time, supplement, amend, vary or rescind any of the provisions of this Agreement and the Rights (whether or not such action would materially adversely affect the interests of the holders of Rights generally). Such consent shall be deemed to have been given if the action requiring such approval is approved by the affirmative vote of a majority of the votes cast by the holders of Rights (other than any holder of Rights whose Rights have become null and void pursuant to the provisions hereof) present or represented at and entitled to vote at a meeting of the holders of Rights. For the purposes hereof, the procedures for the calling, holding and conduct of a meeting of the holders of Rights shall be those, as nearly as may be, which are provided in the Corporation's by-laws with respect to meetings of its shareholders. (f) For greater certainty, neither the exercise by the Board of Directors of any power or discretion conferred on it hereunder nor the making by the Board of Directors of any determination or the granting of any waiver it is permitted to make or give hereunder shall constitute an amendment, variation or rescission of the provisions of this Agreement or the Rights for purposes of this Section 5.4 or otherwise. (g) Notwithstanding anything in this Section 5.4 to the contrary, no such supplement, amendment, variation or rescission shall be made to the provisions of Article 4 except with the written concurrence of the Rights Agent to such supplement, amendment, variation or rescission. The Corporation shall be required to provide the Rights Agent with notice in writing of any such supplement, amendment, variation or rescission within 5 days of effecting such supplement, amendment, variation or rescission. 5.5. FRACTIONAL RIGHTS AND FRACTIONAL SHARES (a) The Corporation shall not be required to issue fractions of Rights or to distribute Rights Certificates which evidence fractional Rights. After the Separation Time, there shall be paid to the -42- registered holders of the Rights Certificates with regard to which fractional Rights would otherwise be issuable, an amount in cash equal to the same fraction of the Market Price of a whole Right in lieu of such fractional Rights. The Rights Agent shall have no obligation to make any payments in lieu of fractional Rights unless the Corporation shall have provided the Rights Agent with the necessary funds to pay in full all amounts payable in accordance with Section 2.2(e). (b) The Corporation shall not be required to issue fractional Voting Shares upon exercise of the Rights or to distribute certificates which evidence fractional Voting Shares. In lieu of issuing fractional Voting Shares, the Corporation shall pay to the registered holder of Rights at the time such Rights are exercised as herein provided, an amount in cash equal to the same fraction of the Market Price of one Voting Share. The Rights Agent shall have no obligation to make any payments in lieu of fractional Voting Shares unless the Corporation shall have provided the Rights Agent with the necessary funds to pay in full all amounts payable in accordance with Section 2.2(e). 5.6. RIGHTS OF ACTION Subject to the terms of this Agreement, rights of action in respect of this Agreement, other than rights of action vested solely in the Rights Agent, are vested in the respective holders of the Rights; and any holder of any Rights, without the consent of the Rights Agent or of the holder of any other Rights, may, on such holder's own behalf and for such holder's own benefit and the benefit of other holders of Rights, enforce, and may institute and maintain any suit, action or proceeding against the Corporation to enforce, or otherwise act in respect of, such holder's right to exercise such holder's Rights in the manner provided in this Agreement and in such holder's Rights Certificate. Without limiting the foregoing or any remedies available to the holders of Rights it is specifically acknowledged that the holders of Rights would not have an adequate remedy at law for any breach of this Agreement and will be entitled to specific performance of the obligations under, and injunctive relief against actual or threatened violations of, the obligations of any Person subject to this Agreement. 5.7. HOLDER OF RIGHTS NOT DEEMED A SHAREHOLDER No holder, as such, of any Rights shall be entitled to vote, receive dividends or be deemed for any purpose the holder of Voting Shares or any other securities which may at any time be issuable on the exercise of such Rights, nor shall anything contained herein or in any Rights Certificate be construed to confer upon the holder of any Rights, as such, any of the rights of a shareholder of the Corporation or any right to vote for the election of directors or upon any matter submitted to shareholders at any meeting thereof, or to give or withhold consent to any corporate action, or to receive notice of meetings or other actions affecting shareholders (except as provided in Section 5.8 hereof), or to receive dividends or subscription rights or otherwise, until such Rights shall have been exercised in accordance with the provisions hereof. -43- 5.8. NOTICE OF PROPOSED ACTIONS In case the Corporation shall propose after the Separation Time and prior to the Expiration Time to effect the liquidation, dissolution or winding-up of the Corporation or the sale of all or substantially all of the Corporation's assets, then, in each case, the Corporation shall give to each holder of a Right a notice of such proposed action which shall specify the date on which such liquidation, dissolution, or winding up is to take place, and such notice shall be so given at least 20 Business Days prior to the date of taking of such proposed action by the Corporation. 5.9. NOTICES Notices or demands authorized or required by this Agreement to be given or made by the Rights Agent or by the holder of any Rights to or on the Corporation shall be sufficiently given or made if delivered or sent by first-class mail, postage prepaid, or by facsimile transmission addressed (until another address is filed in writing with the Rights Agent) as follows: Moore Corporation Limited 72nd Floor, P.O. Box 78 1 First Canadian Place Toronto, Ontario M5X 1G5 Attention: The Secretary Fax: (416) 364-1667 Notices or demands authorized or required by this Agreement to be given by the Corporation or by the holder of any Rights to or on the Rights Agent shall be sufficiently given or made if delivered or sent by first-class mail, postage prepaid, or by facsimile transmission addressed (until another address is filed in writing with the Corporation) as follows: Montreal Trust Company of Canada 151 Front Street West, 8th Floor Toronto, Ontario M5J 2N1 Attention: Senior Manager - Client Services Fax: (416) 981-9800 Notices or demands authorized or required by this Agreement to be given or made by the Corporation or the Rights Agent to or on the holder of any Rights shall be sufficiently given or made if delivered or sent by first-class mail, postage prepaid, addressed to such holder at the address of such holder as it appears upon the -44- Rights Register or, prior to the Separation Time, on the register of the Corporation for the Voting Shares. Any notice which is mailed in the manner herein provided shall be deemed given, whether or not the holder receives the notice. 5.10. COSTS OF ENFORCEMENT The Corporation agrees that if the Corporation or any other Person the securities of which are purchasable upon exercise of Rights fails to fulfil any of its obligations pursuant to this Agreement, then the Corporation shall reimburse the holder of any Rights for the costs and expenses (including legal fees) incurred by such holder in any successful action to enforce such holder's rights pursuant to any Rights or this Agreement. 5.11. REGULATORY APPROVALS Any obligation of the Corporation or action or event contemplated by this Agreement shall be subject to the receipt of any required approval or consent from any governmental or regulatory authority. Without limiting the generality of the foregoing, any issuance or delivery of securities of the Corporation upon the exercise of Rights and any amendment to this Agreement shall be subject, if required, to the consent of The Toronto Stock Exchange. 5.12. DECLARATION AS TO NON-CANADIAN AND NON-U.S. HOLDERS If in the opinion of the Board of Directors (who may rely upon the advice of counsel) any action or event contemplated by this Agreement would require compliance with the securities laws or comparable legislation of a jurisdiction outside Canada and the United States of America, the Board of Directors acting in good faith may take such actions as it may deem appropriate to ensure that such compliance is not required, including without limitation establishing procedures for the issuance to a Canadian resident fiduciary of Rights or securities issuable on exercise of Rights, the holding thereof in trust for the Persons entitled thereto (but reserving to the fiduciary or to the fiduciary and the Corporation, as the Corporation may determine, absolute discretion with respect thereto) and the sale thereof and remittance of the proceeds of such sale, if any, to the Persons entitled thereto. In no event shall the Corporation or the Rights Agent be required to issue or deliver Rights or securities issuable on exercise of Rights to Persons who are citizens, residents or nationals of any jurisdiction other than Canada and any province or territory thereof and the United States of America in which such issue or delivery would be unlawful without registration of the relevant Persons or securities for such purposes. 5.13. SUCCESSORS All the covenants and provisions of this Agreement by or for the benefit of the Corporation or the Rights Agent shall bind and enure to the benefit of their respective successors and assigns hereunder. -45- 5.14. BENEFITS OF THIS AGREEMENT Nothing in this Agreement shall be construed to give to any Person other than the Corporation, the Rights Agent and the holders of the Rights any legal or equitable right, remedy or claim under this Agreement; but this Agreement shall be for the sole and exclusive benefit of the Corporation, the Rights Agent and the holders of the Rights. 5.15. GOVERNING LAW This Agreement and each Right issued hereunder shall be deemed to be a contract made under the laws of the Province of Ontario and for all purposes shall be governed by and construed in accordance with the laws of such province applicable to contracts to be made and performed entirely within such Province. 5.16. LANGUAGE Les parties aux presentes ont exigees que la presente convention ainsi que tous les documents et avis qui s'y rattachent et/ou qui en decouleront soient rediges en langue anglaise. The parties hereto have required that this Agreement and all documents and notices related thereto and/or resulting therefrom be in the English language. 5.17. COUNTERPARTS This Agreement may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument. 5.18. SEVERABILITY If any term or provision hereof or the application thereof to any circumstance is, in any jurisdiction and to any extent, invalid or unenforceable, such term or provision shall be ineffective as to such jurisdiction to the extent of such invalidity or unenforceability without invalidating or rendering unenforceable the remaining terms and provisions hereof or the application of such term or provision to circumstances other than those as to which it is held invalid or unenforceable. 5.19. EFFECTIVE DATE This Agreement shall be effective on and from the date of termination of the annual meeting of the Corporation in the year 2000 if the resolution referred to in Section 5.20 to be submitted to the annual meeting of the Corporation in the year 2000 is submitted to Independent Shareholders for their consideration and approval and if such approval is given by the Independent Shareholders in accordance with Section 5.20 (the "Effective Date"). -46- 5.20. SHAREHOLDER APPROVAL At each of (i) the annual meeting of shareholders of the Corporation held in the year 2000 and (ii) the annual meeting of shareholders of the Corporation held in the year 2003, provided that a Flip-in Event has not occurred prior to such time (other than a Flip-in Event in respect of which the application of Section 3.1 has been waived pursuant to Section 5.1), the Board of Directors shall submit a resolution to the Independent Shareholders for their consideration and approval, ratifying this Agreement and its continued existence after each such meeting. If a majority of the votes cast by Independent Shareholders who vote in respect of such resolution at any such meeting are not voted in favour of this Agreement and its continued existence, then the Board of Directors shall immediately upon the confirmation by the Chairman of such shareholders' meeting of the result of the vote on such resolution, without further formality, be deemed to have elected to redeem the Rights at the Redemption Price. 5.21. TIME OF THE ESSENCE Time shall be of the essence hereof. 5.22. DETERMINATIONS AND ACTIONS BY THE BOARD OF DIRECTORS All actions and determinations (including all omissions with respect to the foregoing) which are done or made by the Board of Directors in good faith pursuant to this Agreement shall not subject the Board of Directors to any liability to the holders of the Rights or any other Person. 5.23. FIDUCIARY DUTIES OF THE BOARD OF DIRECTORS For greater certainty, nothing contained herein shall be construed to suggest or imply that the Board of Directors shall not be entitled to recommend that holders of Voting Shares reject or accept any Take-over Bid (whether or not such Take-over Bid is a Permitted Bid or a Competing Permitted Bid) or take any other action (including, without limitation, the commencement, prosecution, defence or settlement of any litigation) with respect to any Take-over Bid or otherwise that the Board of Directors believes is necessary or appropriate in the exercise of its fiduciary duties. -47- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written. MOORE CORPORATION LIMITED By: s/b J. M. WILSON --------------------------------- J. M. Wilson Vice President and Secretary and: s/b J.V. LAURIE --------------------------------- J. V. Laurie Vice President and Treasurer MONTREAL TRUST COMPANY OF CANADA By: s/b SARAH JACKEL --------------------------------- Sarah Jackel Senior Account Manager and: s/b LARA DONALDSON --------------------------------- Lara Donaldson Senior Account Manager EXHIBIT A [Form of Rights Certificates] Certificate No. Rights THE RIGHTS ARE SUBJECT TO REDEMPTION AT THE OPTION OF THE CORPORATION ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT. IN CERTAIN CIRCUMSTANCES (SPECIFIED IN SUBSECTION 3.1(b) OF THE RIGHTS AGREEMENT), RIGHTS BENEFICIALLY OWNED BY AN ACQUIRING PERSON OR TRANSFEREES OF AN ACQUIRING PERSON MAY BECOME VOID. Rights Certificate This certifies that _______________, or registered assigns, is the registered holder of the number of Rights set forth above, each of which entitles the registered holder thereof, subject to the terms and conditions of the amended and restated Shareholder Rights Plan Agreement dated as of February 28, 2000 (the "Rights Agreement") between Moore Corporation Limited, a corporation incorporated under the laws of Ontario (the "Corporation") and Montreal Trust Company of Canada, a trust company incorporated under the laws of Canada, as Rights Agent (the "Rights Agent", which term includes any successor Rights Agent under the Rights Agreement) to purchase from the Corporation at any time after the Separation Time and prior to the Termination Time one fully paid Voting Share of the Corporation (a "Voting Share") at the Exercise Price, upon presentation and surrender of this Rights Certificate together with the Form of Election to Exercise duly executed to the Rights Agent at its principal office in the City of Toronto or in such other cities as may be designated by the Corporation from time to time. The Exercise Price is initially $120.00 (Canadian) per Right and is subject to adjustment in certain events as provided in the Rights Agreement. In certain circumstances described in the Rights Agreement, the number of Voting Shares which each Right entitles the registered holder thereof to purchase may be adjusted as provided in the Rights Agreement. This Rights Certificate is subject to all of the terms and conditions of the Rights Agreement which terms and conditions are hereby incorporated by reference and made a part hereof and to which Rights Agreement reference is hereby made for a full description of the rights, limitations of rights, obligations, duties and immunities thereunder of the Rights Agent, the Corporation and the holders of the Rights Certificates. Except as otherwise expressly provided in this Rights Certificate, all terms used in this Rights Certificate which are defined in the Rights Agreement are used herein as so defined. Copies of the Rights Agreement are on file at the principal executive offices of the Corporation and are available upon written request. This Rights Certificate, with or without other Rights Certificates, upon surrender at any of the offices of the Rights Agent designated for such purpose, may be exchanged for another Rights Certificate or Rights Certificates of like tenor and date evidencing an aggregate number of Rights equal to the aggregate number of Rights evidenced by the Rights Certificate or Rights Certificates surrendered. If this Rights Certificate is exercised in part, the registered -ii- holder is entitled to receive, upon surrender hereof, another Rights Certificate or Rights Certificates for the number of whole Rights not exercised. Subject to the provisions of the Rights Agreement, the Rights evidenced by this Certificate may in certain circumstances be redeemed by the Corporation at its option at a redemption price of $0.0001 per Right, subject to adjustment in certain events. No fractional Voting Shares will be issued upon the exercise of any Rights evidenced hereby but in lieu thereof a cash payment will be made, as provided in the Rights Agreement. No holder of this Rights Certificate, as such, is entitled to vote or receive dividends or to be treated for any purpose as the holder of Voting Shares; nor is anything contained in the Rights Agreement or herein to be construed to confer upon the holder hereof, as such, any of the rights of a shareholder of the Corporation or any right to vote for the election of directors or upon any matter submitted to shareholders at any meeting thereof, or to give or withhold consent to any corporate action, or to receive notice of meetings or other actions affecting shareholders (except as provided in the Rights Agreement), or to receive dividends or subscription rights, or otherwise, until the Rights evidenced by this Rights Certificate have been exercised as provided in the Rights Agreement. This Rights Certificate is not valid or obligatory for any purpose until it has been countersigned by the Rights Agent. WITNESS the facsimile signature of the proper officers of the Corporation and its corporate seal. Date: _______________________________ MOORE CORPORATION LIMITED By: _________________________________ By: _________________________________ President Secretary Countersigned: MONTREAL TRUST COMPANY OF CANADA By: _________________________________ Authorized Signature FORM OF ASSIGNMENT (To be executed by the registered holder if such holder wishes to transfer the Rights represented by this Rights Certificate.) FOR VALUE RECEIVED __________________________________ hereby sells, assigns and transfers to __________________________________________________________________ _______________________________________________________________________________ (Please print name and address of transferee) the Rights represented by this Rights Certificate, together with all right, title and interest therein. Dated: ______________________________ Signature Guaranteed: ______________________________________ Signature (Signature must correspond to name as written upon the face of this Rights Certificate in every particular, without alteration or enlargement or any change whatsoever). Signature must be guaranteed by a Canadian chartered bank, a Canadian trust company, a member of a recognized stock exchange or a member of the Transfer Agents Medallion Program (STAMP). - ------------------------------------------------------------------------------- (To be completed if true) The undersigned hereby represents, for the benefit of all holders of Rights and Voting Shares, that the Rights evidenced by this Rights Certificate are not, and, to the knowledge of the undersigned, have never been, Beneficially Owned by an Acquiring Person or an Affiliate or Associate thereof or by any Person acting jointly or in concert with any of the foregoing (all capitalized terms are used as defined in the Rights Agreement). Dated: ______________________________ ______________________________________ Signature -ii- (To be attached to each Rights Certificate) FORM OF ELECTION TO EXERCISE TO: MOORE CORPORATION LIMITED The undersigned hereby irrevocably elects to exercise [insert number] whole Rights represented by the attached Rights Certificate to purchase the Voting Shares issuable upon the exercise of such Rights and requests that certificates for such shares be issued in the name of: _______________________________________ (Name) _______________________________________ (Street) _______________________________________ (City and State or Province) _______________________________________ (Postal Code or Zip Code) _______________________________________ SOCIAL INSURANCE, SOCIAL SECURITY OR OTHER TAXPAYER IDENTIFICATION NUMBER If such number of Rights is not all of the Rights evidenced by this Rights Certificate, a new Rights Certificate for the balance of such Rights shall be registered in the name of and delivered to: _______________________________________ (Name) _______________________________________ (Street) _______________________________________ (City and State or Province) _______________________________________ (Postal Code or Zip Code) _______________________________________ SOCIAL INSURANCE, SOCIAL SECURITY OR OTHER TAXPAYER IDENTIFICATION NUMBER -iii- Dated: ______________________________ Signature Guaranteed: ______________________________________ Signature (Signature must correspond to name as written upon the face of this Rights Certificate in every particular, without alteration or enlargement or any change whatsoever). Signature must be guaranteed by a Canadian chartered bank, a Canadian trust company, a member of a recognized stock exchange or a member of the Transfer Agents Medallion Program (STAMP). - ------------------------------------------------------------------------------- (To be completed if true) The undersigned hereby represents, for the benefit of all holders of Rights and Voting Shares, that the Rights evidenced by this Rights Certificate are not, and, to the knowledge of the undersigned, have never been, Beneficially Owned by an Acquiring Person or an Affiliate or Associate thereof or by any Person acting jointly or in concert with any of the foregoing (all capitalized terms are used as defined in the Rights Agreement). Dated: ______________________________ ______________________________________ Signature NOTICE In the event the certification set forth above in the Form of Election to Exercise is not completed upon exercise of the Right(s) evidenced hereby or in the event that the certification set forth above in the Form of Assignment is not completed upon the assignment of the Right(s) evidenced hereby, the Corporation will deem and treat the Beneficial Owner of the Right(s) evidenced by this Rights Certificate to be an Acquiring Person (as defined in the Rights Agreement) and, in the case of an assignment, will affix a legend to that effect on any Rights Certificates issued in exchange for this Rights Certificate. -----END PRIVACY-ENHANCED MESSAGE-----