Uncompensated Benefit?
By Michelle Tan and William Mackenzie
At the May 11, 2000 Annual Meeting of Onex Corporation, shareholders were asked to approve a two for one stock split with a twist. In virtually all stock split transactions, every share and every limit on shares is split on the same basis, for example, the number of shares reserved under an option plan, any limit on shares that may be subject to options and any minimum holding provision governing any particular shareholder. The twist in the Onex proposal was that the split would affect everything except for the minimum number of subordinate voting shares that Onex CEO Gerry Schwartz (and his immediate family) is required to hold in order to maintain Onex’s dual class capital structure.
In 1993, when the share structure of the corporation was reorganized creating the Multiple and Subordinate Voting Shares, a condition was added to the obligations of Mr. Schwartz relating to his control of the outstanding Multiple Voting Shares. This condition was to the effect that an Event of Change would include his ceasing to hold, directly or indirectly, more than 2,500,000 Subordinate Voting Shares of the corporation. In 1999 when a two-for-one stock split was authorized, Mr. Schwartz’s minimum holding of shares was also split so that his requirement increased to a holding of 5,000,000 Subordinate Voting Shares.
The minimum holding requirement was a reasonable requirement of the Onex board. Because Mr. Schwartz could continue unassailably as CEO and maintain through the holding of 100,000 multiple voting shares the non-dilutable right to control the Onex board, he should also be required to maintain a significant personal investment in the corporation. The company stated in the circular that in 1993, the ownership of 2,500,000 Subordinate Voting Shares represented an investment of approximately $29,000,000. After giving effect to the 1999 stock split the minimum holding of 5,000,000 Subordinate Voting Shares represents an investment of approximately $275,000,000, almost ten times the originally contemplated level.
P. 1 At Onex Corporation, Gerry Schwartz delivered. Then he sought approval to sell most of his shares. Should Onex shareholders have said ok?
Pg 3 A table showing the full voting results from the annual meetings of Canada’s six largest banks.
P. 4 New tax laws give option holders a break. Because they must hold shares to get the break, its good for shareholders too.
P. 6 A review of a recent survey on director compensation in the US.
P. 8 Governance News looks at proxy voting and the link between good governance and value creation
P. 10 Company News looks at poison pills, premium price options, option repricing, classified boards, Talisman dissident proposal gets strong support and big game options.
