Annual meeting May 21
This was taken from Sedar site
SOFTQUAD INTERNATIONAL INC.
20 Eglinton Avenue West
13th Floor
Toronto, Ontario
M4R 1K8
INFORMATION CIRCULAR
AS AT APRIL 15, 1998
SOLICITATION OF PROXIES
THIS INFORMATION CIRCULAR IS FURNISHED IN CONNECTION WITH THE SOLICITATION BY THE MANAGEMENT OF SOFTQUAD INTERNATIONAL INC. (the "Company") of proxies to be used at the Annual and Special Meeting of Shareholders of the Company (the "meeting") to be held at Room 104D, Metro Toronto Convention Centre, 255 Front Street West, Toronto, Ontario on May 21, 1998 at 3:00 o'clock in the afternoon (Toronto time) and at any adjournment thereof for the purposes set forth in the enclosed Notice of Meeting. Proxies will be solicited primarily by mail and may also be solicited personally or by telephone by the directors and/or officers of the Company at nominal cost. The cost of solicitation by management will be borne by the Company.
The Company may pay the reasonable costs incurred by persons who are the registered but not beneficial owners of voting shares of the Company (such as brokers, dealers, other registrants under applicable securities laws, nominees and/or custodians) in sending or delivering copies of this circular, the notice of meeting and form of proxy to the beneficial owners of such shares. The Company will provide, without cost to such persons, upon request to the Secretary of the Company, additional copies of the foregoing documents required for this purpose.
All dollar amounts herein are Canadian dollars unless otherwise indicated.
ELECTION OF DIRECTORS
The board of directors consists of seven (7) directors to be elected annually. The following table, the notes thereto and the information that follows set out the names of all the persons proposed to be nominated by management for election as directors, all other positions and offices with the Company now held by them, their principal occupations or employment, the period or periods of service as directors of the Company and the approximate number of voting securities of the Company beneficially owned, directly or indirectly, or over which control or direction is exercised by each of them as of the date hereof.
Name, Office and
Principal Occupation(1)
Roberto Drassinower
David J. Gurney
Richard Rabins(7)
Selwyn Rabins (3)(8)
Mark Skapinker
John Stewart(3)
Jeffrey Tarter (3)
In the event that certain resolutions regarding the continuance of the Company and the adoption of a new By- Law or the confirmation of an amendment to the Company's current By-Law are not passed, it is contemplated that, in order to comply with applicable Canadian residency requirements, management will nominate five (5) directors and that Mr. Drassinower and Mr. Richard Rabins will not be nominated as directors. See "Special Business - Continuance", "Special Business - By-Law No. 2" and "Special Business - Amendment to By-Law No. 1".
Notes:
(1) The principal occupations of the each of the nominees during the past five years is as set forth below.
(2) The information as to voting securities beneficially owned, controlled or directed, not being within the knowledge of the Company, has been furnished by the respective nominees individually.
(3) Member of the audit committee.
(4) Of these shares, 118,812 common shares are beneficially owned by the Gurney Family Trust, a trust established for the benefit of Mr. Gurney's spouse and children. Mr. Gurney does not have any beneficial interest in such shares but is presently the sole trustee of such trust and, as such, exercises control and direction over the shares of the Company held by such trust.
(5) Of these shares, 396,040 are owned by Gurney/Ruffolo Inc., a corporation controlled by Mr. Gurney and a former director of the Company.
(6) Held directly and indirectly through companies controlled by Mr. Stewart.
(7) Mr. Rabins has pledged 89,250 shares to the Company to secure a US$175,000 principal loan made to him by the Company. See "Executive Compensation - Agreements with Executive Officers". In connection with the acquisition of Alpha Software Corporation by the Company effective December 1996, Mr. Rabins entered into an option agreement with respect to 97,950 shares, pursuant to which he granted certain third parties the right to acquire such shares from him at a price of $0.01 on certain terms and conditions. Under the terms of such agreement, Mr. Rabins is entitled to direct the manner in which such shares are to be voted prior to the exercise of such options. Mr. Rabins has also entered into an agreement with the Company dated September 1, 1997, pursuant to which, among other things, the Company has agreed Mr. Rabins shall be included in management's slate of director nominees proposed for annual election during the term of such agreement and the Company has agreed to use its reasonable best efforts to ensure Mr. Rabins serves as a director of the Company during the term of such agreement. Notwithstanding such requirement in his employment agreement, Mr Rabins has agreed that he may be omitted from management's slate of directors at the meeting if it is necessary in order to meet applicable Canadian residency requirements.
(8) Mr. Rabins has pledged 89,250 shares to the Company to secure a US$175,000 loan made to him by the Company. See "Executive Compensation - Agreements with Executive Officers". In connection with the acquisition of Alpha Software Corporation by the Company effective December 1996, Mr. Rabins entered into an option agreement with respect to 97,950 shares, pursuant to which he granted certain third parties the right to acquire such shares from him at a price of $0.01 on certain terms and conditions. Under the terms of such agreement, Mr. Rabins is entitled to direct the manner in which such shares are to be voted prior to the exercise of such options. Mr. Rabins has also entered into an employment agreement with the Company dated September 1, 1997, pursuant to which, among other things, the Company agreed to ensure Mr. Rabins forms part of management's slate of director nominees proposed for annual election during the term of such agreement and to use its reasonable best efforts to ensure Mr. Rabins serves as a director of the Company during the term of such agreement.
Mr. Drassinower became a director of the Company in January 1998. He has been employed by the Company since 1994 and is currently a Vice-President and General Manager of SoftQuad Inc., a subsidiary of the Company. Prior to joining the Company, Mr. Drassinower served as the Vice-President of Technical Operations at Carolian Systems Corporation, a private software company.
Mr. Gurney has served as Chairman and a director of the Company since March 1993 and co-founded Carolian Systems Corporation, a private software company. Mr. Gurney served as Chief Executive Officer of the Company from March 1993 to August 1997. Mr. Gurney resigned as Chief Executive Officer effective August 29, 1997. Prior to 1993 Mr. Gurney served as a director and officer of Delrina Corporation, a Canadian software development company which he co-founded eight years ago. Mr. Gurney is also Chairman of the Board of The Information Technology Research Centre, and Chairman of the Yuri Rubinsky Insight Foundation.
Mr. Richard Rabins has served as Executive Vice-President since January, 1997. In September, 1997, Mr. Rabins was appointed a director and Chief Executive Officer of the Company. Mr. Rabins co-founded Alpha Software Corporation in 1982.
Mr. Selwyn Rabins became a director of the Company in January 1997 and has served as Executive Vice- President since such date. In September 1997, Mr. Rabins was appointed President of the Company. Mr. Rabins co- founded Alpha Software Corporation in 1982.
Mr. Skapinker became a director of the Company in October 1997. Mr. Skapinker is currently President and Chief Executive Officer of Balisoft Technologies Inc., a software company based in Canada and Israel and focussing on creating internet software products and utilities. Mr. Skapinker was the co-founder of Delrina Corporation, a software company, and served as President of Delrina Corporation until it was acquired by Symantec in November 1995.
Mr. Stewart became a director of the Company in August 1992. Since 1989, Mr. Stewart has been Vice- President of Stewart Investments Inc., a private investment management company headquartered in Toronto, Ontario.
Mr. Tarter became a director in January 1997. Mr. Tarter is the editor and publisher of Softletter, an industry newsletter that reports on trends in personal computer software publishing. Mr. Tarter has been twice named "Best Industry Analyst" by the Software Publishers Association.
The term of office of each director will be from the date of the meeting at which he is elected until the next annual meeting, or until his successor is elected or appointed.
PROXIES RECEIVED IN FAVOUR OF MANAGEMENT WILL BE VOTED FOR THE ELECTION OF THE ABOVE-NAMED NOMINEES, UNLESS THE SHAREHOLDER HAS SPECIFIED IN THE PROXY THAT HIS OR HER SHARES ARE TO BE WITHHELD FROM VOTING IN RESPECT THEREOF. MANAGEMENT HAS NO REASON TO BELIEVE THAT ANY OF THE NOMINEES WILL BE UNABLE TO SERVE AS A DIRECTOR BUT, IF A NOMINEE IS FOR ANY REASON UNAVAILABLE TO SERVE AS A DIRECTOR, PROXIES IN FAVOUR OF MANAGEMENT WILL BE VOTED IN FAVOUR OF THE REMAINING NOMINEES AND MAY BE VOTED FOR A SUBSTITUTE NOMINEE UNLESS THE SHAREHOLDER HAS SPECIFIED IN THE PROXY THAT HIS OR HER SHARES ARE TO BE WITHHELD FROM VOTING IN RESPECT OF THE ELECTION OF DIRECTORS.
APPOINTMENT OF AUDITORS
PROXIES RECEIVED IN FAVOUR OF MANAGEMENT WILL BE VOTED IN FAVOUR OF THE APPOINTMENT OF DELOITTE & TOUCHE, CHARTERED ACCOUNTANTS, AS AUDITORS OF THE COMPANY TO HOLD OFFICE UNTIL THE NEXT ANNUAL MEETING OF SHAREHOLDERS AND THE AUTHORIZATION OF THE DIRECTORS TO FIX THEIR REMUNERATION, UNLESS THE SHAREHOLDER HAS SPECIFIED IN THE PROXY THAT HIS SHARES ARE TO BE WITHHELD FROM VOTING IN RESPECT THEREOF. Deloitte & Touche were first appointed auditors of the Company on August 24, 1994.
REPORT OF DIRECTORS AND
AUDITED FINANCIAL STATEMENTS
The 1997 Annual Report, including the financial statements for the fiscal year ended December 31, 1997 and the report of the auditors thereon, will be submitted to the meeting of shareholders. Receipt at such meeting of the auditors' report and the Company's financial statements for its last completed fiscal period will not constitute approval or disapproval of any matters referred to therein.
EXECUTIVE COMPENSATION
Compensation Summary
The table below sets forth information concerning the compensation of the Company's named executive officers in respect of the fiscal years ended December 31, 1995, 1996 and 1997. All figures are in Canadian dollars unless otherwise indicated.
Summary Compensation Table
Name and
Principal
Position
Richard Rabins(3)
Chief Executive Officer
David Gurney(6)
Chief Executive Officer
Selwyn Rabins(11)
President
Steven Schneider(13)
Chief Financial Officer
Notes:
(1) "SAR" means stock appreciation rights.
(2) "LTIP" means long term incentive plans.
(3) Mr. Rabins was appointed Chief Executive Officer of the Company in September 1997.
(4) For the year ended December 31, 1997, US$22,051 represents the following expenses paid by the Company on behalf of Mr. Richard Rabins: life insurance premiums - US$6,358, reimbursable automobile allowance - US$12,177, additional benefits - US$3,516.
(5) Of such options, a grant of 125,000 options, which occurred in December 1996, to each of Mr. Richard Rabins and Mr. Selwyn Rabins is subject to shareholder approval, which shareholder approval has not been sought to date.
(6) Represents 8 months. Mr. Gurney served as Chief Executive Officer of the Company from March 1993 until his resignation in August 1997.
(7) For the year ended December 31, 1997, $9,652 represents the following expenses paid by the Company on behalf of Mr. Gurney: parking - $1,200, life insurance premiums - $452, reimbursable car allowance - $8,000.
(8) In addition, 50,000 options were granted to Mr. Gurney in 1996 and voluntarily cancelled by him in that year. In 1997, Mr. Gurney voluntarily cancelled all of the remaining 191,052 options previously granted to him, as well as 8,888 options granted to him in 1997.
(9) Represents amounts paid in respect of a reimbursable car allowance.
(10) Mr. Gurney resigned as Chief Executive Officer in August 1997 and received a one-time payment of $250,000 as well as accrued vacation pay of $16,232 and $2,000 in respect of legal fees. In addition, Mr. Gurney was paid a total of $50,000 in respect of consulting fees for the period from September to December 1997.
(11) Mr. Selwyn Rabins was appointed President of the Company in September 1997.
(12) For the year ended December 31, 1997, US$28,552 represents the following expenses paid by the Company on behalf of Mr. Selwyn Rabins: life insurance premiums - US$11,179, reimbursable automobile allowance - US$9,598, additional benefits - US$7,775.
(13) Represents 6 months. Mr. Schneider has served as Chief Financial Officer of the Company since July 1997.
Stock Option Plan
On June 29, 1994, a new stock option plan was implemented (the "Plan") to encourage ownership of the common shares by directors, officers and employees of the Company and its subsidiaries and by certain others. The maximum number of common shares which may be set aside for issue under the Plan is currently 1,400,000 provided that the Board of Directors has the right, from time to time, to increase such number subject to the approval of the shareholders of the Company. The maximum number of common shares which may be reserved for issuance to any one person under the Plan is 5% of the common shares outstanding at the time of the grant (calculated on a non-diluted basis) less the number of shares reserved for issuance to such person under any option to purchase common shares granted as a compensation or incentive mechanism. Any shares subject to an option which, for any reason, are cancelled or terminated prior to exercise thereof, will be available for grant under the Plan. The option price of any common shares cannot be less than the closing price of the shares on the stock exchange or other market on which the common shares are listed or quoted on the day immediately preceding the day upon which the option is granted. Options granted under the Plan may be exercised during a period not exceeding five years from the date of grant, subject to earlier termination upon the optionee ceasing to be an employee, senior officer, director or consultant of the Company or any of its subsidiaries, as applicable, or upon the optionee becoming permanently disabled or upon death of the optionee. The options are non-transferable.
At the date hereof, there are 1,299,950 common shares reserved for issuance in connection with options outstanding under the Plan. In addition, each of Mr. Richard Rabins and Mr. Selwyn Rabins has been granted options to purchase 125,000 common shares of the Company exercisable at $4.20 per share, which grants are subject to shareholder approval which has not been sought to date.
Stock Option Grants
The following table discloses information related to the options granted during the 1997 fiscal year to the named executive officers of the Company.
Options Granted During The Most Recently
Completed Fiscal Year(1)
Name
Richard Rabins
David Gurney
Selwyn Rabins
Steven Schneider
Notes:
(1) See "Executive Compensation - Stock Option Plan" for details of the stock option plan pursuant to which these options were granted.
(2) On his departure in 1997, Mr. Gurney voluntarily cancelled such options, as well as all other options previously granted to him.
(3) Such 8,888 options were voluntarily cancelled by Mr. Selwyn Rabins in fiscal 1997.
The information below describes each exercise of options during the most recently completed financial year ended December 31, 1997 by the Company's named executive officers and the financial year-end value of unexercised options, on an aggregated basis.
Aggregated Option Exercises During the Most
Recently Completed Financial Year
and Fiscal Year-End Option Values
Name
Richard Rabins
David Gurney(2)
Selwyn Rabins
Steven Schneider
Notes:
(1) The closing price for the Company's common shares on December 31, 1997 was $1.65.
(2) All options previously held by Mr. Gurney have been voluntarily cancelled.
(3) The grant of 125,000 options to each of Mr. Richard Rabins and Mr. Selwyn Rabins is subject to shareholder approval, which shareholder approval has not been sought to date.
Compensation of Directors
Each director of the Company (other than those directors who are also executive officers of the Company) is entitled to receive $400 for each directors' meeting attended and is reimbursed for travel and other out-of-pocket expenses incurred in attending directors' and shareholders' meetings. Directors participate in the Company's stock option plan. During the fiscal year ended December 31, 1997, $11,200 was paid to directors in respect of director's fees. During the fiscal year ended December 31, 1997, $91,322 was paid to corporations controlled by Mr. Ruffolo, a director of the Company until January 1998, in respect of consulting services provided to the Company during 1997 and $24,610 was paid to a corporation controlled by Mr. Comber, a director of the Company, in respect of consulting services provided to the Company during 1997. Also, during 1997 Mr. Gurney, a director and senior officer of the Company, received $50,000 in respect of consulting services provided during the year. See "Executive Compensation - Summary Compensation Table". During the fiscal year ended December 31, 1997, options to purchase 38,664 common shares were granted to directors who are not executive officers of the Company or its subsidiaries, all of which options were voluntarily cancelled during the fiscal year.
Indemnification of Directors and Officers
The Company does not currently provide separate directors' and officers' insurance for the benefit of its directors and officers against liability incurred by them in these capacities but is considering obtaining such insurance. The Company has entered into indemnity agreements with each of its officers and directors. Pursuant to such agreements the Company has agreed to indemnify each such person for all costs, expenses and amounts paid in respect of civil, criminal and administrative proceedings (including, with the approval of the court, proceedings initiated by or on behalf of the Company) to which such person is a party or threatened to be made a party by reason of being or having been a director and/or officer of the Company or by reason of any act or omission of such person in such capacity, provided that such person acted honestly and in good faith with a view to the Company's best interests and, in the case of criminal or administrative actions, such person had reasonable grounds for believing the conduct was lawful.
Agreements with Executive Officers
The Company entered into an employment agreement with Mr. Gurney, the former Chief Executive Officer of the Company, on March 8, 1993, as amended, which was in effect during the Company's 1997 fiscal year until it was terminated in August, 1997. The term of such agreement expired on June 30, 1998 and was automatically renewable for an additional four year term. The agreement could be terminated upon written notice from the Company as specified in the agreement or upon payment by the Company of an amount equal to one year's base salary plus bonus and one month's salary for each year or part thereof that Mr. Gurney was employed with the Company. The agreement provided that Mr. Gurney was paid the sum of $150,000 per annum. The agreement contains a provision for the payment of an additional annual bonus of 50% of base salary in cash or in the equivalent value of shares or options, subject to the Company achieving certain performance criteria. Under the terms of the employment agreement, the Company agreed that in the event Mr. Gurney elected to terminate his employment in certain stated events, including a transaction pursuant in which a person or entity acquired greater than 30% of the voting shares of the Company, Mr. Gurney would be entitled to receive a payment from the Company equivalent to one years base salary plus bonus and one months salary for each year or part thereof that Mr. Gurney was employed with the Company. The Board of Directors granted Mr. Gurney options to acquire an additional 20,000 shares exercisable at $3.75 in respect of his 1993 bonus, options to acquire 10,000 shares exercisable at $5.125 in respect of his 1994 bonus and granted Mr. Gurney options to acquire 50,000 common shares exercisable at $14.625 in respect of his 1995 bonus. Mr. Gurney did not receive a bonus in respect of the 1996 fiscal year. All options granted to Mr. Gurney were cancelled by him in 1997. Mr. Gurney's employment agreement was terminated effective August 29, 1997 and at the time of termination of such employment agreement, Mr. Gurney received a one time payment of $250,000 as well as accrued vacation pay of $16,232 and $2,000 in respect of legal fees. At such time, the Company entered into a consulting agreement with Mr. Gurney pursuant to which Mr. Gurney agreed to provide certain consulting services to the Company for the period from September 1, 1997 to December 31, 1997 at a rate of $12,500 per month. A total of $50,000 was paid to Mr. Gurney in respect of the consulting services provided during this period.
At the time of completing the acquisition of Alpha Software Corporation the Company entered into employment agreements with Messrs. Richard Rabins and Selwyn Rabins. Pursuant to the terms of these agreements, each of Messrs. Richard and Selwyn Rabins was employed in the capacity of an Executive Vice-President of the Company. Such agreements were for a five year term commencing on January 31, 1997 and provided for an annual base salary of US$120,000. The agreements could be terminated by the Company upon payment by the Company of one year's base salary. Under the terms of these agreements, each of Messrs. Richard and Selwyn Rabins received a signing bonus of US$250,000. Pursuant to these agreements each of Messrs. Richard and Selwyn Rabins was to be granted options to purchase an aggregate of 125,000 common shares of the Company at an exercise price of $4.20, subject to shareholder approval. To date shareholder approval for such grants of options has not been sought.
During 1997, the Company underwent significant management changes and, among other things, Mr. Richard Rabins was appointed Chief Executive Officer of the Company and Mr. Selwyn Rabins was appointed President of the Company. At the time of these management changes, new employment agreements were entered into between the Company, Alpha Software Corporation and each of Messrs. Richard and Selwyn Rabins. The new employment agreements are for a three year term commencing on September 1, 1997 and provide for an annual base salary of US$175,000 and a minimum guaranteed bonus of US$75,000. These agreements may be terminated by the Company after September 1, 1999 by payment of one year's salary and bonus. Under the agreements, in the event that the executive elects to terminate his employment in certain stated events, including any transaction pursuant to which a person or entity acquires greater than 30% of the voting shares of the Company or Alpha Software Corporation, the executive will be entitled to receive a payment from the Company equal to one year's base salary plus guaranteed bonus. Under the terms of the employment agreements, the Company has agreed to lend each executive up to US$250,000. Such loans will be interest free and will be made on a non-recourse basis and will be payable five years from the date the loan was made. In the event any such loan is made, the executive will pledge shares of the Company, or other security satisfactory to the Company, as security for repayment of any such loan. In October 1997, the Company loaned to each of Messrs. Richard and Selwyn Rabins U.S. $175,000 on a non-recourse basis bearing interest, payable monthly, at the rate of 5.94% per year maturing on October 17, 2002. As security for such loan, 89,250 common shares of the Company were pledged to the Company by each of Mr. Richard Rabins and Mr. Selwyn Rabins. In conjunction with the management changes, Messrs. Richard and Selwyn Rabins were each granted five year options to acquire 462,500 common shares of the Company at an exercise price of $1.40.
During 1998, the Company entered into an agreement with Mr. Schneider, the Chief Financial Officer of the Company, pursuant to which, in the event that Mr. Schneider elects to terminate his employment in certain stated events, he will be entitled to receive a payment from the Company equal to one year's salary plus bonus. Events triggering such entitlement include a transaction pursuant to which a person or entity (other than Messrs. Richard or Selwyn Rabins) acquires 30% or more of the voting power of the outstanding securities of the Company or shareholder approval of a reorganization, merger or consolidation resulting in a change in control or a liquidation or dissolution of the Company or a sale of all or substantially all of the assets of the Company or a change in the majority of the board of directors following a tender offer, exchange offer, merger, consolidation, sale of assets or combination thereof.
Composition and Role of the Compensation Committee
The Company has a Compensation Committee (currently comprised of Messrs. Tarter and Skapinker) for the purpose of reviewing and approving the compensation of executive officers and reporting thereon to the Board of Directors.
Report on Executive Compensation
The compensation of the executive officers of the Company is determined on the basis of several factors, including compensation paid for similar positions at companies of comparable size within the computer software industry, the individual's experience, education and corporate responsibilities and the performance of the individual and the Company. The current compensation plan is comprised of salary, bonus and stock options. The executive officers of the Company are entitled to receive all benefits which are available to employees generally.
The Board of Directors believes that the compensation paid to the Company's executive officers should be tied to the Company's overall performance. The current policy is to establish salaries and benefits paid to the Company's executive officers, including the Chief Executive Officer, which are competitive with those generally paid to persons performing similar functions in corporations within the computer software industry of comparable size in similar businesses and geographical areas, taking into account all relevant circumstances. Stock options are used to provide incentives to the executive officers and are intended to be an important part of compensation.
The Board of Directors conducts an annual review to consider and adjust executive compensation and grants, from time to time during each year, stock options. At that time the Board of Directors reviews executive compensation paid by other corporations in the computer software industry and other comparable corporations as published in available surveys.
The Compensation Committee assesses the performance of the Chief Executive Officer on an annual basis and determines his annual compensation in the same way that the compensation of the other executive officers is determined.
The stock options currently comprise a significant incentive plan for executive officers and key personnel. The primary objective of the granting of stock options is to align executive and shareholder interests by attempting to create a direct link between executive pay and shareholder return. Participation in stock options rewards overall corporate performance, as measured through the price of the Company's shares. In addition, the granting of stock options enables executives to develop and maintain a significant ownership position in the Company. All options that have been issued to eligible participants have been issued at an option price not less than the market value of the common shares on the date of the grant. A formal stock option plan has been implemented for the Company (See "Executive Compensation - Stock Option Plan").
During 1997, the Company underwent a significant change in senior management. Among other things, Mr. Richard Rabins was appointed as Chief Executive Officer of the Company and Mr. Selwyn Rabins was appointed President of the Company. As a result of these management changes, the Company entered into new management agreements with Messrs. Richard and Selwyn Rabins (see "Executive Compensation - Agreements with Executive Officers"). In establishing the new compensation arrangements, the compensation committee reviewed comparable industry compensation data and considered the various factors described above.
The following information concerns each individual who is, or at any time during the financial year of the Company ended December 31, 1997 was, a director, executive officer or senior officer of the Company, each proposed nomin |
