Table of Contents

As filed with the Securities and Exchange Commission on December 2, 2019.

Registration No. 333-                

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM F-10

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

FIRSTSERVICE CORPORATION

(Exact name of Registrant as specified in its charter)

 

 

 

Ontario, Canada    6500    NOT APPLICABLE

(Province or other jurisdiction of

incorporation or organization)

  

(Primary Standard Industrial
Classification Code Number

(if applicable))

   (I.R.S. Employer Identification No.
(if applicable))

1140 Bay Street, Suite 4000

Toronto, Ontario, Canada M5S 2B4

416-960-9500

(Address and telephone number of Registrant’s principal executive offices)

Mr. Santino Ferrante, Ferrante & Associates

126 Prospect Street, Cambridge, MA 02139

617-868-5000

(Name, address (including zip code) and telephone number (including area code) of agent for service in the United States)

 

 

Copies to:

 

Jeremy Rakusin

Chief Financial Officer

FirstService Corporation

1140 Bay Street,

Suite 4000

Toronto, Ontario M5S 2B4

(416) 960-9500

 

Mile T. Kurta, Esq.

Torys LLP

1114 Avenue Of The Americas

New York, New York

10036

(212) 880-6000

 

Elliott A. Vardin

Fogler, Rubinoff LLP

77 King Street West

Suite 3000, P.O. Box 95

TD Centre North Tower

Toronto, Ontario

M5K 1G8

(416) 864-9700

 

Christopher J. Cummings

Paul, Weiss, Rifkind, Wharton & Garrison LLP

77 King Street West, Suite 3100

P.O. Box 226

Toronto, ON M5K 1J3

(416) 504-0520

 

David Weinberger

Stikeman Elliott LLP

Commerce Court West,

199 Bay Street, Suite 5300

Toronto, Ontario

M5L 1B9

(416) 869-5515

Approximate date of commencement of proposed sale of the securities to the public:

As soon as practicable after this Registration Statement becomes effective.

Ontario, Canada

(Principal jurisdiction regulating this offering)

It is proposed that this filing shall become effective (check appropriate box):

 

A.

 

 

upon filing with the Commission pursuant to Rule 467(a) (if in connection with an offering being made contemporaneously in the United States and Canada).

B.

 

 

at some future date (check the appropriate box below)

 

1.

 

  

pursuant to Rule 467(b) on (    ) at (    ) (designate a time not sooner than 7 calendar days after filing).

 

2.

 

  

pursuant to Rule 467(b) on (    ) at (    ) (designate a time 7 calendar days or sooner after filing) because the securities regulatory authority in the review jurisdiction has issued a receipt or notification of clearance on (    ).

 

3.

 

  

pursuant to Rule 467(b) as soon as practicable after notification of the Commission by the Registrant or the Canadian securities regulatory authority of the review jurisdiction that a receipt or notification of clearance has been issued with respect hereto.

 

4.

 

  

after the filing of the next amendment to this Form (if preliminary material is being filed).

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to the home jurisdiction’s shelf prospectus offering procedures, check the following box. ☐

 

 

CALCULATION OF REGISTRATION FEE

 

 

Title of each class of

securities to be registered

  Amount to be
Registered
 

Proposed Maximum

Offering Price

Per Share

 

Proposed Maximum

Aggregate

Offering Price(1)

 

Amount of

Registration Fee

Common Shares

  N/A(1)   N/A(1)   $230,000,000   $29,854

 

 

(1)

Calculated pursuant to Rule 457(o) under the Securities Act of 1933, as amended (the “Securities Act”). There are being registered under this Registration Statement such indeterminate number of Common Shares of the Registrant as shall have an aggregate offering price not to exceed $230,000,000.

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registration Statement shall become effective as provided in Rule 467 under the Securities Act, or on such date as the Commission, acting pursuant to Section 8(a) of the Securities Act, may determine.

 

 

 

 


Table of Contents

PART I

INFORMATION REQUIRED TO BE DELIVERED TO OFFEREES OR PURCHASERS


Table of Contents

Information contained herein may not be complete and may have to be amended. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. The securities may not be sold nor may offers to buy be accepted until the registration statement becomes effective. This preliminary short form prospectus shall not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of these securities in any U.S. state in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such U.S. state.

A copy of this preliminary short form prospectus has been filed with the securities regulatory authorities in each of the provinces of Canada (except Québec) but has not yet become final for the purpose of the sale of securities. The securities may not be sold nor may offers to buy be accepted until a receipt for the short form prospectus is obtained from the applicable Canadian securities regulatory authorities.

No securities regulatory authority has expressed an opinion about these securities and it is an offence to claim otherwise. This short form prospectus constitutes a public offering of these securities only in those jurisdictions where they may be lawfully offered for sale and therein only by persons permitted to sell such securities. See “Plan of Distribution”.

Information has been incorporated by reference in this short form prospectus from documents filed with securities commissions or similar authorities in Canada (except Québec) and with the U.S. Securities and Exchange Commission. Copies of the documents incorporated herein by reference may be obtained on request without charge from the Corporate Secretary of FirstService Corporation at 1140 Bay Street, Suite 4000, Toronto, Ontario, Canada M5S 2B4, Telephone 416-960-9500, and are also available electronically at www.sedar.com and www.sec.gov.

PRELIMINARY SHORT FORM PROSPECTUS

 

New Issue

   December 2, 2019

 

LOGO

FIRSTSERVICE CORPORATION

US$    

         Common Shares

This short form prospectus qualifies the distribution (the “Offering”) from treasury of    ●    common shares (the “Offered Shares”) in the capital of FirstService Corporation (the “Corporation”, “FirstService”, “we”, “our” or “us”) at a price of US$    ●    per Offered Share (the “Offering Price”). See “Plan of Distribution”.

The Offering is being made concurrently in Canada under the terms of this short form prospectus and in the United States of America (the “United States” or the “U.S.”) pursuant to our registration statement on Form F-10 (the “Registration Statement”) filed with the United States Securities and Exchange Commission (the “SEC”).

Our outstanding common shares (the “Common Shares”) are listed and posted for trading on the Toronto Stock Exchange (the “TSX”) and the NASDAQ Global Select Market (“Nasdaq”) under the symbol “FSV”. We have applied to list the Offered Shares (including the Common Shares issuable pursuant to the exercise of the Over-Allotment Option (as defined herein)) being distributed under this short form prospectus on the TSX. Listing will be subject to us fulfilling all of the listing requirements of the TSX. We will provide notice of the Offering to Nasdaq in accordance with the rules of that exchange. On November 29, 2019, the last trading day prior to the date of this short form prospectus, the closing prices of the outstanding Common Shares on the TSX and Nasdaq were C$127.08 and US$95.89, respectively.

 

 

Offering Price: US$         per Offered Share

 

 

    

Price to Public

  

Underwriters’ Fee (1)

  

Net Proceeds to
the Corporation(2)

Per Offered Share

   US$    ●    US$    ●    US$    ●

Total(3)

   US$    ●    US$    ●    US$    ●

 

Notes:

(1)

We have agreed to pay the Underwriters a fee equal to     ●    % of the aggregate gross proceeds of the Offering, equal to US$ ●     per Offered Share, including any Common Shares sold pursuant to the exercise of the Over-Allotment Option (as defined herein). See “Plan of Distribution”.


Table of Contents
(2)

Before deducting the expenses of the Offering, estimated to be US$    ●    , which, together with the Underwriters’ fee, will be payable from the proceeds of the Offering.

(3)

We have granted to the Underwriters an option to purchase up to an additional     ●     Common Shares at a price of US$    ●     per Common Share (the “Over-Allotment Option”) exercisable at the Underwriters’ sole option and without obligation, in whole or in part, at any time up to 30 days after the closing of the Offering, to cover over-allotments, if any, and for market stabilization purposes. If the Over-Allotment Option is exercised in full, the “Price to Public”, “Underwriters’ Fee” and “Net Proceeds to the Corporation” (before deducting the estimated expenses of the Offering) will be US$    ●    , US$    ●     and US$ ●, respectively. This short form prospectus also qualifies for distribution the grant of the Over-Allotment Option and the distribution of any Common Shares pursuant to the exercise of the Over-Allotment Option. A purchaser who acquires Common Shares forming part of the Underwriters’ over-allocation position acquires those securities under this short form prospectus, regardless of whether the over-allocation position is ultimately filled through the exercise of the Over-Allotment Option or secondary market purchases. See “Plan of Distribution”.

 

Underwriters’ Position

  

Maximum Size

  

Exercise Period

  

Exercise Price

Over-Allotment Option

       ●    Common Shares    Up to 30 days after the closing of the Offering    US$    ●     per Common Share

NEITHER THE SEC NOR ANY STATE OR CANADIAN SECURITIES REGULATOR HAS APPROVED OR DISAPPROVED OF THE SECURITIES OFFERED HEREBY, PASSED UPON THE ACCURACY OR ADEQUACY OF THIS SHORT FORM PROSPECTUS OR DETERMINED IF THIS SHORT FORM PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENCE.

This Offering is being made by a Canadian issuer that is permitted, under a multijurisdictional disclosure system adopted in the United States and Canada, to prepare this short form prospectus in accordance with Canadian disclosure requirements. Prospective investors should be aware that such requirements are different from those of the United States. We prepare our financial statements in accordance with generally accepted accounting principles in the United States as promulgated from time to time by the Financial Accounting Standards Board (“GAAP”).

Purchasers of the Offered Shares should be aware that the acquisition of such Offered Shares may have tax consequences both in the United States and in Canada. This short form prospectus may not describe these tax consequences fully. See “Certain Canadian Federal Income Tax Considerations” and “Certain U.S. Federal Income Tax Considerations”. Purchasers of the Offered Shares are urged to consult their own tax advisors.

The enforcement by investors of civil liabilities under United States federal securities laws may be affected adversely by the fact that we are incorporated under the laws of the Province of Ontario, Canada, that most of our officers and directors and some of the experts named in this short form prospectus are residents of Canada, and that some of our assets and all or a substantial portion of the assets of these persons are located outside of the United States. In addition, some or all of the underwriters named in this short form prospectus are not resident in the United States. See “Enforceability of Civil Liabilities”.

An investment in Offered Shares involves significant risks that should be carefully considered by prospective investors before purchasing Offered Shares. The risks outlined in this short form prospectus and in the documents incorporated by reference herein and therein should be carefully reviewed and considered by prospective investors in connection with any investment in Offered Shares. See “Risk Factors” and “Forward-Looking Statements”.

BMO Nesbitt Burns Inc. and TD Securities Inc. (collectively, the “Lead Underwriters”), as co-lead underwriters and joint bookrunners, and     ●    ,     ●    ,     ●    ,     ●     and     ●     (together with the Lead Underwriters, the “Underwriters”), as principals, conditionally offer the Offered Shares, subject to prior sale, if, as and when issued by us and accepted by the Underwriters in accordance with the conditions contained in the underwriting agreement referred to under “Plan of Distribution” and subject to the approval of certain legal matters on our behalf by Fogler, Rubinoff LLP with respect to Canadian law and Torys LLP with respect to United States law, and on behalf of the Underwriters by Stikeman Elliott LLP with respect to Canadian law and Paul, Weiss, Rifkind, Wharton & Garrison LLP with respect to United States law.


Table of Contents

The Offering Price is payable in U.S. dollars only. The Offering Price was determined by negotiation between us and the Underwriters with reference to prevailing market conditions. The Underwriters propose to offer the Offered Shares initially at the Offering Price. After a reasonable effort has been made to sell all of the Offered Shares at the Offering Price, the Underwriters may subsequently reduce the selling price to investors from time to time in order to sell any Offered Shares remaining unsold. Any such reduction will not affect the proceeds received by us. See “Plan of Distribution”.

Subscriptions for the Offered Shares will be received subject to rejection or allotment, in whole or in part, and the right is reserved to close the subscription books at any time without notice. It is intended that the closing of the Offering will occur on or about     ●    , 2019 or such other date as may be agreed upon by us and the Underwriters but in any event, no later than 42 days following the date of the receipt issued by the Ontario Securities Commission for our (final) short form prospectus filed to qualify the distribution of the Offered Shares (the “Closing Date”).

All dollar amounts in this short form prospectus are in United States dollars, unless otherwise indicated. See “Currency Presentation and Exchange Rate Information”.

The Offered Shares will be issued and deposited in electronic form with CDS Clearing and Depository Services Inc. (“CDS”) or its nominee pursuant to the book-based system administered by CDS. No certificates evidencing the Offered Shares will be issued to purchasers, and registration will be made in the depository service of CDS. Purchasers of Offered Shares will receive only a customer confirmation from the registered dealer who is a CDS participant and from or through whom a beneficial interest in the Offered Shares is purchased. See “Plan of Distribution”.

The Underwriters may, in connection with the Offering and subject to applicable laws, effect transactions which stabilize or maintain the market price for the Common Shares at levels other than those which might otherwise prevail in the open market. Such transactions, if commenced, may be discontinued at any time. See “Plan of Distribution”.

Each of BMO Nesbitt Burns Inc., TD Securities Inc.,          and          is, directly or indirectly, a subsidiary of a Canadian chartered bank which is a lender to FirstService under a revolving credit facility and term loan provided pursuant to an amended and restated credit agreement dated as of June 21, 2019 (the “Credit Agreement”). Consequently, we may be considered to be a connected issuer of BMO Nesbitt Burns Inc., TD Securities Inc.,          and          under applicable Canadian securities legislation. We intend to use the full amount of the net proceeds of the Offering to repay a portion of our existing indebtedness under the Credit Agreement. The amount so repaid will be used to reduce amounts owing under the revolving credit facility contained in the Credit Agreement (and such amount will then be available to be drawn by us under the Credit Agreement, as required, for working capital, acquisitions and associated contingent purchase consideration and/or for general corporate purposes). See “Relationship Between the Corporation and Certain Underwriters”, “Use of Proceeds” and “Plan of Distribution – Conflicts of Interest”.

Each of Frederick F. Reichheld and Erin J. Wallace, directors of FirstService, and BDO USA LLP, the independent auditors of FirstOnSite USA Holdings Inc. (“Global Restoration”), a subsidiary of FirstService, reside outside of Canada, and each such director has appointed FirstService, at its address at 1140 Bay Street, Suite 4000, Toronto, Ontario, Canada M5S 2B4, as his or her agent for service of process in Canada. Purchasers are advised that it may not be possible for investors to enforce judgments obtained in Canada against any person or company that resides outside of Canada, or that is incorporated, continued or otherwise organized under the laws of a foreign jurisdiction, even if the person has appointed an agent for service of process in Canada. See “Enforceability of Judgments”.

We were formed under the Business Corporations Act (Ontario) (the “OBCA”). Our registered and head office is located at 1140 Bay Street, Suite 4000, Toronto, Ontario, Canada M5S 2B4.

 


Table of Contents

TABLE OF CONTENTS

 

 

 

IMPORTANT INFORMATION ABOUT THIS PROSPECTUS

Readers should rely only on the information contained or incorporated by reference in this short form prospectus. We have not authorized any person to provide different or additional information. The information contained on or available through our websites, including at www.firstservice.com, is not intended to be included in or incorporated by reference into this short form prospectus, and prospective investors should not rely on such information when deciding whether or not to invest in the Offered Shares. Any graphs, tables or other information demonstrating our historical performance or of any other entity contained in or incorporated by reference into this short form prospectus are intended only to illustrate past performance and are not necessarily indicative of our or such entity’s future performance. The Offered Shares may be sold only in those jurisdictions where offers and sales are permitted. This short form prospectus is not an offer to sell or a solicitation of an offer to buy the Offered Shares in any jurisdiction where it is unlawful. The information contained in this short form prospectus is accurate only as of the date specified in this short form prospectus or the date specified in the document incorporated by reference herein, as applicable, regardless of the time of delivery of this short form prospectus or of any sale of the Offered Shares.

Unless the context otherwise permits, indicates or requires, all references in this short form prospectus to the “Corporation”, “FirstService”, “we”, “our”, “us” and similar expressions are references to FirstService Corporation and the business carried on directly or indirectly by it. Unless otherwise indicated, all financial information included or incorporated by reference in this short form prospectus and the documents incorporated by reference herein and therein, including financial statements, has been prepared in accordance with GAAP.

 

1


Table of Contents

FORWARD-LOOKING STATEMENTS

Certain statements contained in this short form prospectus, and in certain documents incorporated by reference herein, constitute forward-looking statements or information about FirstService’s business outlook, objectives, strategies, plans, priorities and results of operations as well as other statements that are not historical facts. All such forward-looking statements are made under the provisions of the United States Private Securities Litigation Reform Act of 1995, Section 27A of the United States Securities Act of 1933, as amended (the “U.S. Securities Act”), and Section 21E of the United States Securities Exchange Act of 1934, as amended (the “U.S. Exchange Act”), and constitute forward-looking information within the meaning of applicable Canadian securities legislation. These statements relate to future events or our future performance. All statements other than statements of historical fact may be forward-looking statements. Forward-looking statements are often, but not always, identified by the use of words such as “seek”, “anticipate”, “plan”, “continue”, “estimate”, “expect”, “may”, “will”, “project”, “predict”, “potential”, “targeting”, “intend”, “could”, “might”, “should”, “believe” and similar expressions. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. As well as those factors discussed in the section entitled “Risk Factors” in this short form prospectus and the documents incorporated by reference herein, these risks and uncertainties include, among other things: the completion of the Offering; use of proceeds from the Offering; economic conditions, especially as they relate to credit conditions, consumer spending and demand for managed residential property; residential real estate property values, resale rates and general conditions of financial liquidity for real estate transactions; extreme weather conditions impacting demand for our services or our ability to perform those services; economic deterioration impacting our ability to recover goodwill and other intangible assets; a decline in our ability to generate cash from our businesses to fund future acquisitions and meet our debt obligations; the effects of changes in foreign exchange rates in relation to the U.S. dollar on our Canadian dollar denominated revenues and expenses; competition in the markets served by FirstService; labour shortages or increases in wage and benefit costs; the effects of changes in interest rates on our cost of borrowing; a decline in our performance impacting our continued compliance with the financial covenants under our debt agreements, or our ability to negotiate a waiver of certain covenants with our lenders; unexpected increases in operating costs, such as insurance, workers’ compensation, health care and fuel prices; changes in the frequency or severity of insurance incidents relative to our historical experience; a decline in our ability to make acquisitions at reasonable prices and successfully integrate acquired operations (including the acquisition of Global Restoration and recent and future tuck-under acquisitions); the performance of Global Restoration’s business and potential liabilities acquired in connection with the acquisition of Global Restoration; changes in laws, regulations and government policies at the federal, state/provincial or local level that may adversely impact our businesses; risks related to liability for employee acts or omissions, or installation/system failure, in our fire protection businesses; a decline in our performance impacting our ability to pay dividends on Common Shares; risks arising from any regulatory review and litigation; risks associated with intellectual property and other proprietary rights that are material to our business; disruptions or security failures in our information technology systems; political conditions, including any outbreak or escalation of terrorism or hostilities and the impact thereof on our business; performance in our commercial and large loss property restoration business; volatility of the market price of the Common Shares; the loss of qualified investment eligibility of the Common Shares; potential future dilution to the holders of the Common Shares; and risks related to our qualification as a foreign private issuer. Readers are cautioned that the foregoing list is not exhaustive.

While we believe that the expectations reflected in the forward-looking statements contained in this short form prospectus and in the documents incorporated by reference herein are reasonable, no assurance can be given that these expectations will prove to be correct, and such forward-looking statements included, or incorporated by reference, in such documents should not be unduly relied upon. These statements speak only as of the date of this short form prospectus or as of the date specified in the documents incorporated by reference herein, as the case may be. Except as required by law, we do not assume any obligation to update the aforementioned forward-looking statements. Our actual results could differ materially from those anticipated in the aforementioned forward-looking statements, as applicable, including as a result of the risk factors set forth elsewhere in this short

 

2


Table of Contents

form prospectus and in our filings with Canadian securities regulatory authorities which are available on the System for Electronic Document Analysis and Retrieval (“SEDAR”) at www.sedar.com and our filings with the SEC available on the SEC’s Electronic Document Gathering and Retrieval System (“EDGAR”) at www.sec.gov.

CURRENCY PRESENTATION AND EXCHANGE RATE INFORMATION

Unless otherwise indicated, all references in this short form prospectus and any document incorporated by reference herein or therein to dollars, “$” and “US$” are to United States dollars, and all references to Canadian dollars and “C$” are to Canadian dollars.

The following table sets out the high and low rates of exchange for one United States dollar expressed in Canadian dollars during each of the following periods, the average rate of exchange for those periods and the rate of exchange in effect at the end of each of those periods, each based on the rate of exchange published by the Bank of Canada for conversion of United States dollars into Canadian dollars.

 

     Nine Months Ended      Year Ended  
   September 30,
2019
     September 30,
2018
     December 31,
2018
     December 31,
2017
 
     (C$)      (C$)      (C$)      (C$)  

Highest rate during the period

     1.3600        1.3310        1.3642        1.3743  

Lowest rate during the period

     1.3038        1.2288        1.2288        1.2128  

Average rate for the period

     1.3292        1.2876        1.2957        1.2986  

Rate at the end of the period

     1.3243        1.2945        1.3642        1.2545  

On November 29, 2019, the last banking day prior to the date of this short form prospectus, the rate of exchange posted by the Bank of Canada for conversion of United States dollars into Canadian dollars was US$1.00 equals C$1.3289. No representation is made that United States dollars could be converted into Canadian dollars at that rate or any other rate.

DOCUMENTS INCORPORATED BY REFERENCE

Information has been incorporated by reference in this short form prospectus from documents filed with securities commissions or similar regulatory authorities in Canada (except Québec) and with the SEC in the United States. Copies of these documents may be obtained on request without charge from the Corporate Secretary of FirstService at our head office located at 1140 Bay Street, Suite 4000, Toronto, Ontario, Canada M5S 2B4, by telephone at 416-960-9500, or by accessing these documents through the Internet on our website at www.firstservice.com, on SEDAR at www.sedar.com or on EDGAR at www.sec.gov.

Except to the extent that their contents are modified or superseded by a statement contained in this short form prospectus or in any other subsequently filed document that is also incorporated by reference in this short form prospectus, the following documents of FirstService filed with the securities commissions or similar regulatory authorities in Canada (except Québec) and with the SEC in the United States are specifically incorporated by reference into, and form an integral part of, this short form prospectus:

 

  (a)

our annual information form for the year ended December 31, 2018 dated February 20, 2019 (the “Current AIF”);

 

  (b)

our management information circular dated March 25, 2019 relating to our annual and special meeting of shareholders held on May 3, 2019 (the “Current Circular”);

 

  (c)

our audited consolidated financial statements and the notes thereto as at December 31, 2018 and 2017 and for each of the years then ended and management’s annual report on internal controls over financial reporting as of December 31, 2018, together with the report of our independent registered public accounting firm thereon;

 

3


Table of Contents
  (d)

our management’s discussion and analysis for the year ended December 31, 2018 dated February 20, 2019 (the “Current Annual MD&A”);

 

  (e)

our unaudited interim consolidated financial statements and the notes thereto as at September 30, 2019 and for the three and nine-month periods then ended;

 

  (f)

our management’s discussion and analysis for the nine-month period ended September 30, 2019 dated November 8, 2019 (the “Current Interim MD&A”);

 

  (g)

our material change reports dated March 13, 2019 and May 10, 2019 with respect to entering into an agreement to settle the Restated Management Services Agreement (the “MSA”), including the long-term incentive arrangement (the “LTIA”) therein, between FirstService, Jay S. Hennick and Jayset Management FSV Inc. and the elimination of FirstService’s dual class share structure, and the completion of such settlement and elimination, respectively;

 

  (h)

our material change report dated April 12, 2019 with respect to the expansion of our revolving credit facility by $100 million, to a total borrowing capacity of $450 million;

 

  (i)

our material change reports dated May 27, 2019 and June 21, 2019 with respect to our entering into a definitive agreement to acquire Bellwether FOS Holdco, Inc. (the “Global Restoration Acquisition”), which wholly owns Global Restoration, and the completion of such acquisition and the advance of the term loan under the Credit Agreement, respectively; and

 

  (j)

our business acquisition report dated August 23, 2019 in respect of the Global Restoration Acquisition (and the business of Global Restoration) completed on June 21, 2019 (the “Business Acquisition Report”).

Documents referenced in any of the documents incorporated by reference in this short form prospectus but not expressly incorporated by reference therein or herein and not otherwise required to be incorporated by reference therein or in this short form prospectus are not incorporated by reference in this short form prospectus. Any documents of the type required by National Instrument 44-101Short Form Prospectus Distributions to be incorporated by reference in a short form prospectus, including any annual information form, annual financial statements and the auditors’ report thereon, interim financial statements, management’s discussion and analysis, material change reports (except confidential material change reports), business acquisition reports and information circulars, filed by us with securities commissions or similar authorities in Canada (except Québec) after the date of this short form prospectus and before the termination of the distribution are deemed to be incorporated by reference in this short form prospectus. In addition, all documents filed on Form 6-K or Form 40-F by us with the SEC on or after the date of this short form prospectus shall be deemed to be incorporated by reference into the Registration Statement, of which this short form prospectus forms a part, if and to the extent, in the case of any Report on Form 6-K, expressly provided in such document. The documents incorporated or deemed to be incorporated herein by reference contain meaningful and material information relating to FirstService and readers should review all information contained in this short form prospectus and the documents incorporated or deemed to be incorporated by reference herein and therein.

Notwithstanding anything herein to the contrary, any statement contained in this short form prospectus or in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for the purposes of this short form prospectus to the extent that a statement contained herein or in any other subsequently filed document incorporated or deemed to be incorporated by reference herein modifies or supersedes such prior statement. The modifying or superseding statement need not state that it has modified or superseded a prior statement or include any other information set forth in the document that it modifies or supersedes. The making of a modifying or superseding statement shall not be deemed an admission for any purposes that the modified or superseded statement, when made, constituted a misrepresentation, an untrue statement of a material fact or an omission to state a material fact that is required to be stated or that is necessary to make a statement not misleading in light of the circumstances in which it was made. Any statement so modified or superseded shall thereafter neither constitute, nor be deemed to constitute, a part of this short form prospectus, except as so modified or superseded.

 

4


Table of Contents

ENFORCEABILITY OF CIVIL LIABILITIES

We are a corporation incorporated under and governed by the OBCA. Most of our directors and officers and some of the experts named in this short form prospectus reside principally in Canada, and some of our assets and all or a substantial portion of the assets of these persons is located outside the United States. In addition, some or all of the underwriters named in this short form prospectus are not resident in the United States. We have appointed an agent for service of process in the United States, but it may be difficult for investors who reside in the United States to effect service of process upon these persons in the United States, or to enforce a U.S. court judgment predicated upon the civil liability provisions of the U.S. federal securities laws against us or any of these persons. There is substantial doubt whether an action could be brought in Canada in the first instance predicated solely upon U.S. federal securities laws.

We filed with the SEC, concurrently with our Registration Statement, an appointment of agent for service of process on Form F-X. Under the Form F-X, we appointed Mr. Santino Ferrante of Ferrante & Associates as our agent for service of process in the United States in connection with any investigation or administrative proceeding conducted by the SEC and any civil suit or action brought against or involving us in a United States court arising out of or related to or concerning the offering of Offered Shares under this short form prospectus.

MARKETING MATERIALS

Any “template version” of “marketing materials” (as such terms are defined in National Instrument 41-101General Prospectus Requirements) will be incorporated by reference in the final short form prospectus. However, such “template version” of “marketing materials” will not form part of the final short form prospectus to the extent that the contents of the “template version” of “marketing materials” are modified or superseded by a statement contained in the final short form prospectus. Any “template version” of “marketing materials” filed on SEDAR after the date of the final short form prospectus and before the termination of the distribution under the Offering will be deemed to be incorporated into the final short form prospectus.

NON-GAAP FINANCIAL MEASURES

This short form prospectus and the documents incorporated by reference herein include non-GAAP financial measures such as “adjusted EBITDA” and “adjusted earnings per share”. Non-GAAP financial measures do not have any standardized meaning and are therefore unlikely to be comparable to similar measures presented by other issuers. We use these non-GAAP financial measures to assist management and investors in understanding our operating performance, our ability to service debt, to assist in determining our overall enterprise valuation and to evaluate acquisition targets, and such measures are an integral part of our planning and reporting systems. We provide non-GAAP financial measures because we believe such measures are useful to investors as a reasonable indicator of our operating performance given the low capital intensity of our service operations and provide a supplemental way to understand our underlying operating performance that enhances the comparability of operating results from period to period, and such measures are commonly used by many investors to compare companies, especially in the services industry. We have also chosen to provide such measures to investors so they can analyze our operating results in the same way that management does and use such measures in their assessment of our core business and valuation. Investors are cautioned that non-GAAP financial measures should not be relied upon as a substitute for financial measures prepared in accordance with GAAP. Please see the reconciliation of non-GAAP financial measures to the most directly comparable GAAP measures in the documents incorporated herein by reference. See “Reconciliation of non-GAAP financial measures” in the Current AIF and Current Annual MD&A, and “Reconciliation of non-GAAP measures” in the Current Interim MD&A.

 

5


Table of Contents

ELIGIBILITY FOR INVESTMENT

In the opinion of Fogler, Rubinoff LLP, Canadian counsel to FirstService, and Stikeman Elliott LLP, Canadian counsel to the Underwriters, based on the provisions of the Income Tax Act (Canada) (the “Tax Act”) in force as of the date hereof, provided the Offered Shares are listed on a “designated stock exchange” in Canada as defined in the Tax Act (which currently includes the TSX) on the Closing Date, the Offered Shares will, as at the Closing Date, be qualified investments under the Tax Act and the regulations thereunder for trusts governed by registered retirement savings plans (“RRSPs”), registered retirement income funds (“RRIFs”), deferred profit sharing plans, registered disability savings plans (“RDSPs”), registered education savings plans (“RESPs”) and tax-free savings accounts (“TFSAs” and, together with RRSPs, RRIFs, RDSPs and RESPs, the “Plans”).

Notwithstanding that the Offered Shares may be a qualified investment for a Plan, the holder of a TFSA or RDSP, the annuitant of a RRSP or RRIF or the subscriber of a RESP, as the case may be, which acquires Offered Shares will be subject to a penalty tax under the Tax Act if such Offered Shares are a “prohibited investment” (within the meaning of the Tax Act) for the particular Plan. Offered Shares will not be a prohibited investment for a Plan provided the holder of the TFSA or RDSP, the annuitant of the RRSP or RRIF or the subscriber of a RESP, as applicable, deals at arm’s length with FirstService for purposes of the Tax Act and does not have a “significant interest” (within the meaning of the Tax Act) in FirstService. A “significant interest” of a shareholder of FirstService generally means ownership by the shareholder, either alone or together with persons with which the shareholder does not deal at arm’s length for purposes of the Tax Act, of 10% or more of the issued shares of any class of the capital stock of FirstService. In addition, the Offered Shares will not be a prohibited investment if they are “excluded property” as defined in the Tax Act for trusts governed by a Plan. Holders, annuitants and subscribers should consult their own tax advisors to ensure that the Offered Shares would not be a prohibited investment for a trust governed by a Plan in their particular circumstances.

WHERE YOU CAN FIND MORE INFORMATION

FirstService files certain reports with, and furnishes other information to, each of the SEC and certain securities regulatory authorities of Canada. Under a multijurisdictional disclosure system adopted by the United States and Canada, such reports and other information may be prepared in accordance with the disclosure requirements of the securities regulatory authorities of Canada, which requirements are different from those of the United States. As a foreign private issuer, FirstService is exempt from the rules under the U.S. Exchange Act prescribing the furnishing and content of proxy statements, and FirstService officers and directors are exempt from the reporting and short swing profit liability provisions contained in Section 16 of the U.S. Exchange Act. FirstService’s reports and other information filed or furnished with or to the SEC are available from EDGAR at www.sec.gov, as well as from commercial document retrieval services, and on our website at www.firstservice.com. FirstService’s Canadian filings are available on SEDAR at www.sedar.com.

FirstService has filed the Registration Statement with the SEC under the U.S. Securities Act relating to the securities being offered hereunder, of which this short form prospectus forms a part. This short form prospectus does not contain all of the information set forth in the Registration Statement, certain items of which are contained in the exhibits to the Registration Statement as permitted or required by the rules and regulations of the SEC. Items of information omitted from this short form prospectus but contained in the Registration Statement will be available on EDGAR at www.sec.gov.

 

6


Table of Contents

FIRSTSERVICE CORPORATION

We were formed under the OBCA as “New FSV Corporation” pursuant to Articles of Incorporation effective on October 6, 2014. On June 1, 2015, our predecessor, FirstService Corporation (“Old FSV”), completed a plan of arrangement (the “spin-off”) which separated Old FSV into two independent publicly traded companies – FirstService and Colliers International Group Inc. Under the spin-off, Old FSV shareholders received one FirstService share and one Colliers International Group Inc. share of the same class as each Old FSV share previously held, Old FSV amalgamated with a wholly-owned subsidiary and changed its name to Colliers International Group Inc., and FirstService’s name was changed to “FirstService Corporation”.

On May 10, 2019, we completed the settlement of the MSA and eliminated FirstService’s dual class share structure. On that date, FirstService also effected an amendment to its articles that eliminated the multiple voting shares and the “blank cheque” preference shares as part of the authorized capital of FirstService, and re-classified its subordinate voting shares as Common Shares. See “Recent Developments – Settlement of Long-Term Incentive Arrangement and Elimination of Dual Class Voting Structure”.

Our registered and head office is located at 1140 Bay Street, Suite 4000, Toronto, Ontario, Canada M5S 2B4.

SUMMARY DESCRIPTION OF THE BUSINESS

Overview

FirstService is a leading provider of branded essential property services comprised of two operating divisions: FirstService Residential, the largest provider of residential property management services in North America, and FirstService Brands, a leading provider of essential property services to residential and commercial customers through both franchise systems and company-owned operations. With our recently completed Global Restoration Acquisition, FirstService Brands has significantly expanded its scale and capabilities in commercial and large loss property restoration in North America. See “– FirstService Brands Segment – Global Restoration” and “Recent Developments – Global Restoration Acquisition”.

FirstService Residential and FirstService Brands both rely on the same operational foundations for success – a core competency in managing and growing market-leading, value-added outsourced essential property services businesses; a focus on client service excellence; economies of scale that are leveraged wherever possible to create more value for clients; and strong brand recognition. These pillars provide our businesses with competitive advantages that are difficult to replicate. Our two business lines also have similar highly attractive financial profiles, including a high proportion of recurring revenue streams, low capital expenditure and working capital requirements, high free cash flow generation, and significant financial strength to grow both organically and through consolidation of highly fragmented industries.

For a more detailed description of our business than that set out herein, see the sections entitled “General development of the business” and “Business description” in the Current AIF.

FirstService Residential Segment

FirstService Residential is North America’s largest manager of private residential communities, offering a full range of services across multiple geographies to a wide variety of clients, including condominiums (high, medium and low-rise), co-operatives, homeowner associations, master-planned communities, active adult and lifestyle communities, and a variety of other residential developments governed by common interest or multi-unit residential community associations. Our more than 15,000 employees in approximately 100 offices across 25 U.S. states and 3 Canadian provinces manage approximately 8,500 communities, representing more than 4 million residents in over 1.7 million residential units. Our operational and client coverage footprint is extensive, with a presence in major markets that constitute over 70% of the North American population. In 2018, FirstService Residential segment revenues were $1.25 billion.

 

7


Table of Contents

Typically, owners of residential units within these communities are required to pay monthly or quarterly fees to cover all expenses to operate and maintain the common areas of the communities. Resident owners elect volunteer homeowners to serve on a board of directors to oversee the operations of the community association. Historically, decision-making for the day-to-day operations of the communities was delegated to these volunteer board members, although, increasingly, these boards outsource this responsibility to professional property management companies like FirstService Residential.

There are two types of professional property management companies within the industry – traditional or full-service:

 

   

Traditional property management: Traditional property managers focus principally on administrative and governance property management functions on behalf of community association clients, including advising homeowner boards on matters relating to the operation of their communities, collection of monthly maintenance fees, sourcing and payments to suppliers, financial statement preparation, and outsourcing of support services.

 

   

Full service property management: Full service property managers provide all of the traditional functions, plus a range of ancillary services including, among other things, on-site staffing (in areas such as building engineering and maintenance, full-service amenity management, security and concierge/front desk), banking and insurance products, energy conservation and management solutions, and resale processing services.

Only a small number of industry participants have the expertise and capital to provide full-service property management services comparable to FirstService Residential. We have the scale, highly recognized brand, geographic footprint, resources, operating expertise and innovation to deliver a full-service offering. We combine our advantages of size and national presence with a local touch and dedication focusing on service excellence, which solidifies our client relationships and market-leading reputation. The annual aggregate budget of the community associations managed by FirstService Residential exceeds $8 billion.

As a full-service property manager, FirstService Residential provides a full range of ancillary services, including on-site staffing for building engineering and maintenance, full-service swimming pool and amenity management, security and concierge/front desk. In most markets, we provide financial services (cash management, other banking transaction-related services, and specialized property insurance brokerage), energy management solutions and advisory services, and resale processing services, utilizing the scale of our operations to economically benefit clients.

We generally provide residential property management and recurring ancillary services under contract, with a fixed monthly fee. These contracts typically range in duration from one to three years, yet are generally cancellable by either party with 30 to 90 days’ notice. Historically, a significant proportion of our revenue is recurring due to the nature of our contracts, which have a 95% retention rate, and therefore have a long-term tenure.

FirstService Brands Segment

FirstService Brands is a leading North American operator and provider of essential property services to residential and commercial customers. The principal brands in this division include Paul Davis Restoration, Interstate Restoration, FirstOnSite Restoration, Century Fire Protection, CertaPro Painters, California Closets, Pillar to Post Home Inspectors, and Floor Coverings International. In 2018, FirstService Brands segment revenues were $676.6 million.

 

8


Table of Contents

Franchised Operations

We own and operate five franchise networks as follows:

 

(i)

Paul Davis Restoration is a franchisor of residential and light commercial restoration services serving the insurance industry in the United States and Canada through 313 franchises. Paul Davis provides full service water, fire and mold cleanup, construction rebuild and restoration services for property damaged by natural or man-made disasters. Royalties are earned from franchisees based on a percentage of franchisee gross revenues.

 

(ii)

CertaPro Painters is the largest provider of residential and commercial painting services in North America. CertaPro has 353 franchises operating in major markets across the United States and Canada, as well as master franchises in other countries around the world. CertaPro Painters focuses on high-end residential and commercial painting and decorating work. CertaPro completes more than 100,000 projects in a typical year. Royalties are earned based on a percentage of franchisee gross revenues or a fixed monthly fee, plus administrative fees for various ancillary services.

 

(iii)

California Closets is North America’s largest provider of custom-designed and installed closet and home storage solutions. California Closets has 86 franchises in the United States and Canada, as well as master franchises in other countries around the world. There are currently approximately 145 branded California Closets retail showrooms in operation in North America which are used by franchisees to demonstrate and sell the product. California Closets franchise and corporate locations install more than 64,000 jobs annually across North America. Royalties are earned based on a percentage of franchisee gross revenues.

 

(iv)

Pillar to Post Home Inspectors is one of North America’s largest home inspection service providers. Services are provided through a network of nearly 800 home inspectors in 538 franchises. Through its proprietary inspection model, Pillar to Post Home Inspectors can assess many categories or items inside and outside the home as part of its evaluation process. Pillar to Post Home Inspectors inspects more than $50 billion in residential real estate each year. Royalties are earned on a percentage of franchisee gross revenues.

 

(v)

Floor Coverings International is a residential and commercial floor coverings design and installation franchise system operating in North America with 141 franchises. Royalties are earned based on a percentage of franchisee gross revenues.

The aggregate system-wide revenues of our 1,794 franchisees were greater than $1.9 billion for 2018. Franchise agreements are for terms of five or ten years. Royalties are reported and paid to us monthly in arrears. All franchise agreements contain renewal provisions that can be invoked by FirstService Brands at little or no cost.

The franchised property services industry is highly fragmented, consisting principally of a large number of smaller, single-service or single-concept companies. Due to the large size of the overall market for these services, dominant market share is not considered necessary for becoming a major player in the industry. However, because of the low barriers to entry in this segment, we believe that brand name recognition among consumers is a critical factor in achieving long-term success in the businesses we operate.

Company-Owned Operations

FirstService Brands owns and operates 19 California Closets locations and 11 Paul Davis Restoration locations in major metropolitan markets in the United States and Canada. The California Closets and Paul Davis Restoration operations were acquired from franchisees with the goal of accelerating revenue growth and realizing operating margin expansion potential.

Century Fire Protection

FirstService acquired Century Fire Protection in April 2016. Century Fire Protection is one of the largest full-service fire protection companies in the Southeastern United States. The acquisition added an important service

 

9


Table of Contents

capability to FirstService’s portfolio of essential property services. Headquartered in Duluth, Georgia, Century Fire Protection provides end-to-end fire protection solutions, including design, fabrication, installation, maintenance, repair, service and inspection services for commercial, residential, industrial and institutional clients. Century Fire Protection employs approximately 1,500 staff operating out of 24 offices throughout Georgia, Alabama, North Carolina, South Carolina, Tennessee and Texas. Century Fire Protection has completed tuck-under acquisitions of Fort Lauderdale, Florida-based Advanced Fire, Georgia-based ASA Fire, Swift Fire and Advantage Fire Sprinkler, southwestern Florida-based Commercial Fire, North Carolina-based Allied Fire and Houston, Texas-based Chief Fire Systems.

Global Restoration

On June 21, 2019, we completed the acquisition of Global Restoration, the second largest commercial and large loss property restoration firm in North America. This acquisition expanded FirstService’s scale and capabilities in the property restoration sector and complements our Paul Davis Restoration franchised and company-owned operations, which collectively are a leading player in the residential segment of the industry. FirstService acquired approximately 95% of Bellwether FOS Holdco, Inc., which wholly owns Global Restoration, for a purchase price of approximately $505 million. We funded the purchase price through a combination of cash-on-hand and funds borrowed pursuant to the revolving credit facility and term loan under the Credit Agreement. See “Recent Developments – Global Restoration Acquisition”.

Headquartered in Denver, Colorado and founded in 1998, Global Restoration provides integrated end-to-end solutions encompassing mitigation, restoration and reconstruction services on behalf of blue chip, national clients which include large, multi-location commercial customers, property owners and insurance companies. Global Restoration operates under two highly recognized brands, Interstate Restoration in the U.S. and FirstOnSite Restoration in Canada, and employs more than 1,500 staff operating out of approximately 60 regional offices throughout North America. In 2018, Global Restoration generated revenues of $436 million and operating income of $40 million.

RECENT DEVELOPMENTS

The following is an overview of the recent developments at FirstService.

Credit Agreement Expansion

On June 21, 2019, we entered into the Credit Agreement with a syndicate of lenders. The Credit Agreement is comprised of a committed multi-currency revolving credit facility of $450 million (of which $343.5 million is outstanding as at November 29, 2019) and a term loan (drawn in a single advance) in the aggregate amount of $440 million (all of which remains outstanding as at November 29, 2019). The Credit Agreement replaced our prior credit agreement which had been in effect since June 1, 2015 and which was comprised solely of a revolving credit facility with an initial financing capacity of $200 million, which financing capacity was increased to $250 million in January 2018, further increased to $350 million in March 2019 through FirstService’s exercise in full of the incremental facility therein and lastly increased to $450 million in April 2019. The revolving credit facility portion of the Credit Agreement has a term ending on January 17, 2023 and bears interest at 0.25% to 2.50% over floating preference rates, depending on certain leverage ratios (which is the same rate as under our prior credit agreement). The term loan portion of the Credit Agreement was implemented in order to substantially finance the purchase price for the Global Restoration Acquisition, has a five-year term (from the closing of the Global Restoration Acquisition) ending on June 21, 2024 (with repayments of 5% of the principal amount of the term loan per annum in years 2, 3, 4 and 5 of the term, payable in equal quarterly payments, with the balance due at maturity) and bears interest at 0.25% to 2.50% over floating preference rates, depending on certain leverage ratios. The Credit Agreement requires a commitment fee of 0.25% to 0.50% of the unused portion, depending on certain leverage ratios (which is the same commitment fee as under our prior credit agreement). See “Consolidated Capitalization” and “– Global Restoration Acquisition”.

 

10


Table of Contents

Global Restoration Acquisition

On June 21, 2019, we acquired approximately 95% of the shares in the capital of Bellwether FOS Holdco, Inc., which wholly owns Global Restoration, a commercial and large loss property restoration firm. Global Restoration’s senior management team retained the balance of the equity. At closing, we paid approximately $505 million, utilizing cash-on-hand and funds borrowed pursuant to the revolving credit facility and the term loan under the Credit Agreement. Global Restoration provides integrated end-to-end solutions encompassing mitigation, restoration and reconstruction services on behalf of blue chip, national clients which include large, multi-location commercial customers, property owners and insurance companies. See “Summary Description of the Business – FirstService Brands Segment – Global Restoration”.

Settlement of Long-Term Incentive Arrangement and Elimination of Dual Class Voting Structure

On May 10, 2019, we completed the settlement of the MSA and eliminated FirstService’s dual class share structure. On that day, we also effected an amendment to our articles that eliminated the multiple voting shares and the “blank cheque” preference shares as part of the authorized capital of FirstService, and re-classified our subordinate voting shares as Common Shares. The Common Shares commenced trading under the symbol “FSV” on the TSX and Nasdaq at the start of trading on May 14, 2019.

As part of this transaction: (a) all multiple voting shares of FirstService were converted into subordinate voting shares of FirstService (now re-classified as Common Shares) on a one-for-one basis and for no consideration, thereby eliminating FirstService’s dual class share structure; (b) FirstService acquired, indirectly, all of the shares of Jayset Management FSV Inc., the recipient of all fees and other entitlements under the MSA, for a purchase price determined with reference to the LTIA formula provided in the MSA which would have applied on a change of control transaction, and thereafter FirstService terminated the MSA thereby eliminating the LTIA and all future fees and other entitlements owing thereafter; (c) Jay S. Hennick remained as Chairman of FirstService, at the discretion of our board of directors, with compensation commensurate with that of a Non-Executive Chairman of a public company of similar size to FirstService; and (d) FirstService paid C$84.3 million ($62.9 million) in cash (less an adjustment to account for certain tax liabilities) and issued a total of 2,918,860 subordinate voting shares of FirstService (now re-classified as Common Shares) to the relevant entity controlled by Mr. Hennick. The cash portion was funded under FirstService’s prior credit agreement. See “– Credit Agreement Expansion”. This transaction is further described in the Current Circular under “Business of the Meeting – Approval of Transaction” and “Business of the Meeting – Approval of Amendment to the Articles”.

DIVIDEND POLICY

Our board of directors has adopted a dividend policy pursuant to which we intend to make quarterly cash dividends to holders of Common Shares of record at the close of business on the last business day of each calendar quarter. The quarterly dividend post-spin-off during 2015 was set at $0.10 per Common Share (a rate of $0.40 per annum), which was increased during 2016 to $0.11 per Common Share (a rate of $0.44 per annum), which was further increased during 2017 to $0.1225 per Common Share (a rate of $0.49 per annum), which was further increased during 2018 to $0.135 per Common Share (a rate of $0.54 per annum), and which was again increased for 2019 to the current rate of $0.15 per Common Share (a rate of $0.60 per annum). Each quarterly dividend is paid within 30 days after the applicable record date. The first dividend which purchasers of Offered Shares are expected to be eligible to receive is the dividend payable to holders of Common Shares of record at the close of business on the last business day in December 2019, such dividend being paid in January 2020. For the purposes of the Tax Act and any similar provincial legislation, all dividends on the Common Shares will be eligible dividends unless indicated otherwise.

The terms of our dividend policy remain, among other things, at the discretion of our board of directors. Future dividends on the Common Shares, if any, will depend on the results of our operations, cash requirements, financial condition, contractual restrictions, business opportunities, provisions of applicable law and other

 

11


Table of Contents

relevant factors. Under the terms of the Credit Agreement and the Note Agreement (as defined under “Consolidated Capitalization”), we are not permitted to pay dividends, whether in cash or in specie, in the circumstances of an event of default thereunder occurring and continuing or an event of default occurring as a consequence thereof. See “Risk Factors – Risks Relating to the Offering – Dividends”.

The aggregate cash dividends declared per Common Share in respect of the years ended December 31, 2018 and 2017 were $0.54 and $0.49, respectively.

USE OF PROCEEDS

The net proceeds to FirstService from the issue and sale of the Offered Shares, after payment of the Underwriters’ fee of $    ●     and the expenses of the Offering estimated to be $    ●    , will be approximately $    ●    . If the Over-Allotment Option is exercised in full, the net proceeds to FirstService (after payment of the Underwriters’ fee of $    ●     and the expenses of the Offering estimated to be $    ●    ) will be approximately $    ●    .

We intend to use the full amount of the net proceeds of the Offering to repay a portion of our indebtedness under the Credit Agreement, which as at the close of business on November 29, 2019, had an outstanding balance owing of $783.5 million. The amount so repaid will be used to reduce amounts owing under the revolving credit facility contained in the Credit Agreement (and such amount will then be available to be drawn by us under the Credit Agreement, as required). See “Recent Developments – Credit Agreement Expansion”. Our indebtedness under the Credit Agreement (and our prior credit agreement) was used by us for the purposes of providing funding for working capital, acquisitions (including the Global Restoration Acquisition and recent tuck-under acquisitions) and any associated contingent purchase consideration, and for general corporate purposes.

As a result of current market conditions, combined with our ongoing strategic interest in value-enhancing acquisitions, we evaluate potential acquisition targets and business opportunities on a regular basis. By creating further capacity under the revolving credit facility contained in our Credit Agreement, the net proceeds of this Offering will increase our ability to pursue acquisitions and respond to those opportunities.

While we currently anticipate that we will use the net proceeds from the Offering as outlined above, the actual use of the net proceeds may vary depending upon numerous factors, including but not limited to our operating and capital requirements, our strategy and other conditions in effect at the time. See “Risk Factors”.

DESCRIPTION OF SHARE CAPITAL

Authorized and Issued Capital

Our authorized capital consists of an unlimited number of Common Shares, of which, as at the date hereof, there were 39,330,957 Common Shares issued and outstanding.

Common Shares

Holders of Common Shares are entitled to receive: (i) notice of, to attend and speak at and to vote at any meeting of the shareholders of FirstService, and at such meeting holders of Common Shares have one vote for each Common Share held; (ii) dividends as may be declared thereon by our board of directors; and (iii) our remaining property and assets, in equal amounts per share on all Common Shares at the time outstanding without preference or distinction, upon our liquidation, dissolution or winding up, or other distribution of our assets among our shareholders for the purposes of winding-up our affairs. The holders of Common Shares do not have any right to vote separately upon any proposal to amend our articles to increase any maximum number of authorized shares of any class or series having rights or privileges equal or superior to the Common Shares or to create a new class

 

12


Table of Contents

of shares equal or superior to the Common Shares. The Common Shares are not redeemable nor retractable but are, subject to applicable law, able to be purchased for cancellation by FirstService in the open market, by private contract or otherwise.

CONSOLIDATED CAPITALIZATION

The following table sets forth the consolidated capitalization of FirstService as at September 30, 2019 both before and after giving effect to the Offering:

 

Designation

   Authorized      As at September 30, 2019
before giving effect
to the Offering
     As at September 30, 2019
after giving effect to
the Offering
 
     (in millions, other than share amounts)  

Credit Agreement(1)

     $890.0        $790.3        $    ●     (7) 

Senior Notes(2)

     $150.0        $150.0        $ 150.0  

Common Shares(3)(4)(5)(6)

     Unlimited       

$411.5

(39,244,457 shares)

 

 

    

$    ●    

(    ●     shares)

 

 

 

Notes:

(1)

On June 21, 2019, we entered into the Credit Agreement with a syndicate of lenders. The Credit Agreement replaced our prior credit agreement which had been in effect since June 1, 2015. See “Recent Developments – Credit Agreement Expansion”. The Credit Agreement is comprised of a committed multi-currency revolving credit facility of $450 million and a term loan (drawn in a single advance) in the aggregate amount of $440 million. The revolving credit facility portion of the Credit Agreement has a term ending on January 17, 2023 and bears interest at 0.25% to 2.50% over floating preference rates, depending on certain leverage ratios (which is the same rate as under our prior credit agreement). The term loan portion of the Credit Agreement was implemented in order to substantially finance the purchase price for the Global Restoration Acquisition, has a five-year term (from the closing of the Global Restoration Acquisition) ending on June 21, 2024 (with repayments of 5% of the principal amount of the term loan per annum in years 2, 3, 4 and 5 of the term, payable in equal quarterly payments, with the balance due at maturity) and bears interest at 0.25% to 2.50% over floating preference rates, depending on certain leverage ratios. The Credit Agreement requires a commitment fee of 0.25% to 0.50% of the unused portion, depending on certain leverage ratios (which is the same commitment fee as under our prior credit agreement). The indebtedness under the Credit Agreement and the Senior Notes (as defined in note 2 below) rank equally in terms of seniority. We have granted the lenders under the Credit Agreement and the holders of the Senior Notes various security, including an interest in all of our assets (including our share of our material subsidiaries), an assignment of material contracts and an assignment of our “call” rights with respect to securities of our subsidiaries held by non-controlling interests. We may repay amounts owing under the Credit Agreement at any time without penalty. Advances under the revolving credit facility portion of the Credit Agreement are subject to certain conditions of drawdown, and may be made by way of US and Canadian prime rate/base rate/LIBOR loans, bankers acceptances or letters of credit. The financial covenants contained in the Credit Agreement require (and in our prior credit agreement required) that we maintain a total debt to consolidated EBITDA ratio of not more than 3.5 to 1.0, on a consolidated and rolling four quarters basis, an interest coverage ratio of greater than 2.0 to 1 and minimum shareholders’ equity of $165 million, plus one-half of our consolidated net earnings and the net proceeds from certain sales of our shares. To date, we have always complied with the foregoing covenants. All outstanding amounts under the Credit Agreement will be accelerated and must be repaid upon the occurrence of an event of default under the Credit Agreement, in certain circumstances, following written notice from the lenders to such effect. We are prohibited under the Credit Agreement from undertaking certain acquisitions and dispositions, and incurring certain indebtedness and encumbrances, without prior approval of the lenders under the Credit Agreement. See “Recent Developments” and “Relationship Between the Corporation and Certain Underwriters”.

 

13


Table of Contents
(2)

On June 1, 2015, we entered into an Amended and Restated Note and Guarantee Agreement (the “Note Agreement”) pursuant to which FirstService assumed from Old FSV $150 million of senior secured notes (the “Senior Notes”) bearing interest at a rate of 3.84% to 4.84%, depending on leverage ratios. As of September 30, 2019, the current interest rate on the Senior Notes is 4.84%. The Senior Notes are due on January 16, 2025, with five annual equal repayments beginning on January 16, 2021, and rank equally with the indebtedness under the Credit Agreement in terms of seniority. We may prepay the Senior Notes at any time in an amount of not less than $5 million at the principal amount of the notes then being repaid, plus accrued interest and a make whole payment. The financial covenants contained in the Note Agreement require that we maintain a total debt to consolidated EBITDA ratio of not more than 3.5 to 1.0, on a consolidated and rolling four quarters basis, an interest coverage ratio of greater than 2.0 to 1, a consolidated net worth as of the end of a fiscal quarter that is greater than $165 million, plus one-half of our consolidated net earnings and the net proceeds from certain sales of our shares, and ensure that our priority debt does not at any time exceed 10% of our consolidated total tangible assets. To date, we have complied with the foregoing covenants. All outstanding amounts under the Senior Notes will be accelerated and must be repaid upon the occurrence of certain events of default under the Note Agreement. We are prohibited under the Note Agreement from undertaking certain acquisitions and dispositions, and incurring certain indebtedness and encumbrances, without prior approval of the holders of the Senior Notes.

(3)

Prior to May 10, 2019, the issued share capital of FirstService was comprised of subordinate voting shares and multiple voting shares of FirstService. On May 10, 2019, we eliminated FirstService’s dual class share structure and effected an amendment to our articles that eliminated the multiple voting shares and the “blank cheque” preference shares as part of the authorized capital of FirstService, and re-classified our subordinate voting shares as Common Shares. See “Recent Developments – Settlement of Long-Term Incentive Arrangement and Elimination of Dual Class Voting Structure”.

(4)

After deducting the Underwriter’s fee and the estimated expenses for the Offering. Excludes up to     ●    Common Shares which may be issued on exercise of the Over-Allotment Option. See “Plan of Distribution”.

(5)

Excludes: (i) 1,725,600 Common Shares issuable upon exercise of options granted under our stock option plan as at September 30, 2019; (ii) 689,500 Common Shares issuable upon exercise of options reserved for future grants under our stock option plan as at September 30, 2019; and (iii) up to 1,500,000 Common Shares issuable upon settlement of put or call options under redeemable non-controlling interests in respect of our minority equity positions in subsidiaries. See note 11 to our unaudited interim consolidated financial statements as at September 30, 2019 and for the three and nine-month periods then ended.

(6)

We commenced a normal course issuer bid on August 24, 2019 pursuant to which we may make open market purchases of up to 2,500,000 Common Shares (for cancellation) through the facilities of the TSX or Nasdaq.

(7)

Assumes that the net proceeds of the Offering, after payment of the Underwriters’ fee of $    ●     and the expenses of the Offering estimated to be $    ●     and before any exercise of the Over-Allotment Option, are applied to repay amounts owing under the revolving credit facility contained in the Credit Agreement.

There have been no material changes in our equity or loan capital structure since September 30, 2019, other than: (a) we issued an aggregate of 86,500 Common Shares during the period from September 30, 2019 to the date hereof pursuant to the exercise of stock options under our stock option plan; and (b) net repayments under the revolving credit facility of the Credit Agreement (up to the close of business on November 29, 2019) of $6.8 million (such that, as at the close of business on November 29, 2019, there was $783.5 million of indebtedness under the Credit Agreement). See “Recent Developments”.

As at the date hereof, there are 39,330,957 Common Shares issued and outstanding, and options granted under our stock option plan to acquire an aggregate of 1,639,100 Common Shares. In addition, as of the date hereof, there are 689,500 Common Shares issuable upon exercise of options reserved for future grants under our stock option plan.

 

14


Table of Contents

PLAN OF DISTRIBUTION

Under an agreement (the “Underwriting Agreement”) dated     ●    , 2019 among us and the Underwriters, we have agreed to sell and the Underwriters have agreed to purchase on the Closing Date, subject to the terms and conditions contained therein,     ●     Offered Shares at a price of $    ●     per Offered Share payable in cash to us against delivery, for aggregate gross proceeds of $    ●    . In connection with the Offering, we have agreed to pay the Underwriters a fee of $    ●     per Offered Share issued by us (or    ●    % of the total gross proceeds of the Offering) for aggregate consideration of $    ●     for their services performed in connection with the Offering, upon completion of the Offering. The obligations of the Underwriters under the Underwriting Agreement are several and not joint and may be terminated at their discretion upon the occurrence of certain stated events as follows: (a) there should occur any material change (actual, contemplated or threatened) in the business, affairs, operations, assets, liabilities (contingent or otherwise), condition (financial or otherwise) or capital of the Corporation or a change in any material fact, or the Underwriters become aware of any undisclosed material information, which in the opinion of an Underwriter, acting reasonably, would reasonably be expected to have a material adverse effect on the market price or value of the Offered Shares; (b) there should develop, occur or come into effect or existence any event, action, state, condition or major financial occurrence, catastrophe, accident, natural disaster, public protest, war or act of terrorism of national or international consequence or any new law or regulation or a change thereof which, in the opinion of an Underwriter, acting reasonably, seriously adversely affects, or involves, or is expected to seriously adversely affect, or involve, financial markets in Canada or the United States generally or the business, operations, assets, liabilities (contingent or otherwise) or capital of the Corporation; (c) there should occur or commence or be announced or threatened any inquiry, action, suit, investigation or other proceeding (whether formal or informal) by any governmental authority or any order or ruling is issued under or pursuant to any statute of Canada or the United States or of any province or territory of Canada, or state of the United States by any governmental authority (other than any such inquiry, action, suit, investigation or other proceeding or order relating solely to any of the Underwriters), which in the reasonable opinion of an Underwriter would be expected to operate to prevent or materially restrict trading in or distribution of the Offered Shares or would have a material adverse effect on the market price or value of the Offered Shares; or (d) the Corporation is in breach of any term, condition or covenant of the Underwriting Agreement in any material respect.

Our expenses of the Offering, estimated to be approximately $    ●    , will be paid for by us out of the gross proceeds of the Offering. The Underwriters are responsible for their expenses of the Offering. Subject to certain exceptions contained in the Underwriting Agreement, if an Underwriter fails to purchase the Offered Shares which it has agreed to purchase, the other Underwriters may, but are not obligated to, purchase such Offered Shares. The Underwriters are, however, obligated to take up and pay for all the Offered Shares if any Offered Shares are purchased under the Underwriting Agreement.

This Offering is being made concurrently in each of the provinces of Canada (except Québec) and in the United States pursuant to the multi-jurisdictional disclosure system implemented by securities regulatory authorities in the United States and Canada. The Underwriters will offer the Offered Shares for sale in the United States and Canada either directly or through their respective broker-dealer affiliates or agents registered in each jurisdiction. No securities will be sold in any jurisdiction except by a dealer appropriately registered under the securities laws of that jurisdiction or pursuant to an exemption from the registered dealer requirements of the securities laws of that jurisdiction. Subject to applicable law and the terms of the Underwriting Agreement, the Underwriters may offer the Offered Shares outside the United States and Canada.

The Offering Price was determined by negotiation between us and the Underwriters with reference to prevailing market conditions. All fees payable to the Underwriters will be paid on account of services rendered in connection with the Offering and will be paid from the proceeds of the Offering.

We have also granted the Underwriters the Over-Allotment Option, exercisable at the Underwriters’ sole option and without obligation, in whole or in part, at any time up to 30 days after the Closing Date, to purchase up to an additional     ●     Common Shares at a price of $    ●     per Common Share on the same terms as set out above to

 

15


Table of Contents

cover over-allotments, if any, and for market stabilization purposes. If the Over-Allotment Option is exercised in full, the price to the public, Underwriters’ fee and net proceeds to the Corporation (before payment of the estimated expenses of the Offering) will be $    ●    , $    ●     and $    ●    , respectively. This short form prospectus also qualifies for distribution the grant of the Over-Allotment Option and the distribution of any Common Shares pursuant to the exercise of the Over-Allotment Option. A purchaser who acquires Common Shares forming part of the Underwriters’ over-allocation position acquires those Common Shares under this short form prospectus, regardless of whether the over-allocation position is ultimately filled through the exercise of the Over-Allotment Option or secondary market purchases.

We have applied to list the Offered Shares (including the Common Shares issuable pursuant to the exercise of the Over-Allotment Option) being distributed under this short form prospectus on the TSX. Listing will be subject to us fulfilling all of the listing requirements of the TSX. We will provide notice of the Offering to Nasdaq in accordance with the rules of that exchange.

Pursuant to rules and policy statements of certain Canadian securities regulators, the Underwriters may not, at any time during the period ending on the date the selling process for the Offered Shares ends and all stabilization arrangements relating to the Offered Shares are terminated, bid for or purchase Common Shares. The foregoing restrictions are subject to certain exceptions including: (i) a bid for or purchase of Common Shares if the bid or purchase is made through the facilities of the TSX or Nasdaq in accordance with the Universal Market Integrity Rules of the Investment Industry Regulatory Organization of Canada; (ii) a bid or purchase on behalf of a client, other than certain prescribed clients, provided that the client’s order was not solicited by the Underwriter or if the client’s order was solicited, the solicitation occurred before the commencement of a prescribed restricted period; and (iii) a bid or purchase to cover a short position entered into prior to the commencement of a prescribed restricted period. In connection with this Offering, the Underwriters may over-allot or effect transactions that stabilize or maintain the market price of the Common Shares at levels other than those which otherwise might prevail on the open market, including: stabilizing transactions; short sales; purchases to cover positions created by short sales; imposition of penalty bids; and syndicate covering transactions. The Underwriters may conduct these transactions on the TSX or Nasdaq. If the Underwriters commence any of these transactions, they may discontinue them at any time.

Stabilizing transactions consist of bids or purchases made for the purpose of preventing or retarding a decline in the market price of the Common Shares while the Offering is in progress. These transactions may also include making short sales of the Common Shares, which involve the sale by the Underwriters of a greater number of Offered Shares than they are required to purchase under the Offering. Short sales may be “covered short sales”, which are short positions in an amount not greater than the Over-Allotment Option, or may be “naked short sales”, which are short positions in excess of that amount.

The Underwriters may close out any covered short position either by exercising the Over-Allotment Option, in whole or in part, or by purchasing Common Shares in the open market. In making this determination, the Underwriters will consider, among other things, the price of Common Shares available for purchase in the open market compared to the price at which they may purchase Common Shares through the Over-Allotment Option. The Underwriters must close out any naked short position by purchasing Common Shares in the open market. A naked short position is more likely to be created if the Underwriters are concerned that there may be downward pressure on the price of the Common Shares in the open market that could adversely affect investors who purchase under the Offering. Any naked short position would form part of the Underwriters’ over-allocation position.

The Offering Price is payable in U.S. dollars only. The Underwriters propose to offer the Offered Shares initially at the Offering Price. After the Underwriters have made a reasonable effort to sell all of the Offered Shares offered by this short form prospectus at the Offering Price, the offering price may be decreased, and further changed from time to time, by the Underwriters to an amount not greater than the Offering Price and, in such case, the compensation realized by the Underwriters will be decreased by the amount that the aggregate price

 

16


Table of Contents

paid by the purchasers for the Offered Shares is less than the gross proceeds paid by the Underwriters to us. Any such reduction to the Offering Price will not affect the proceeds received by us.

We have agreed to indemnify the Underwriters and their affiliates and their respective directors, officers, employees and agents against certain liabilities, including liabilities under applicable Canadian securities laws and the U.S. Securities Act.

We have agreed that, subject to certain stated exceptions set forth in the Underwriting Agreement, we will not, without the prior written consent of the Lead Underwriters (such consent not to be unreasonably withheld or delayed), on behalf of the Underwriters, directly or indirectly issue, offer, pledge, sell, contract to sell, contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase or otherwise transfer, lend or dispose of, directly or indirectly, any Common Shares or securities or other financial instruments convertible into or having the right to acquire Common Shares, or enter into any agreement or arrangement under which the Corporation would acquire or transfer to another, in whole or in part, any of the economic consequences of ownership of Common Shares, whether that agreement or arrangement may be settled by the delivery of Common Shares or other securities or cash, or agree to become bound to do so, or disclose to the public any intention to do so, at any time prior to the expiry of 90 days following the closing of the Offering. Our directors and senior officers will also agree, prior to the closing of the Offering and subject to certain exceptions, not to, without the prior written consent of the Lead Underwriters (such consent not to be unreasonably withheld or delayed), on behalf of the Underwriters, directly or indirectly, offer to sell, sell, contract to sell, transfer, assign, pledge, grant any option to purchase, make any short sale or otherwise dispose of or monetize any shares of the Corporation, or any options or warrants to purchase any shares of the Corporation, or any securities convertible into, exchangeable for, or that represent the right to receive, shares of the Corporation, presently owned directly or indirectly, or under control or direction or with respect to which he or she has beneficial ownership, or subsequently acquired, directly or indirectly, or under control or direction or with respect to which he or she acquires beneficial ownership, or enter into any swap, forward or other arrangement that transfers all or a portion of the economic consequences associated with the ownership of such securities (regardless of whether any such arrangement is to be settled by the delivery of securities of the Corporation, securities of another person, cash or otherwise) or agree to do any of the foregoing or publicly announce any intention to do any of the foregoing, at any time prior to the expiry of 90 days following the closing of the Offering.

Subscriptions for Offered Shares will be received subject to rejection or allotment, in whole or in part, and the right is reserved to close the subscription books at any time without prior notice. The closing of the Offering will take place on the Closing Date. The Offered Shares will be issued and deposited in electronic form with CDS or its nominee pursuant to the book-based system administered by CDS. No certificates evidencing the Offered Shares will be issued to purchasers, and registration will be made in the depository service of CDS. Purchasers of Offered Shares will receive only a customer confirmation from the registered dealer who is a CDS participant and from or through whom a beneficial interest in the Offered Shares is purchased.

Other than in the United States and in each of the provinces of Canada (except Québec), no action has been taken by FirstService that would permit a public offering of the Offered Shares in any jurisdiction where action for that purpose is required. The Offered Shares may not be offered or sold, directly or indirectly, nor may this short form prospectus or any other offering material or advertisements in connection with the offer and sale of any Offered Shares be distributed or published in any jurisdiction, except under circumstances that will result in compliance with the applicable rules and regulations of that jurisdiction. Persons into whose possession this short form prospectus comes are advised to inform themselves about and to observe any restrictions relating to the Offering and the distribution of this short form prospectus. This short form prospectus does not constitute an offer to sell or a solicitation of an offer to buy any Offered Shares in any jurisdiction in which such an offer or a solicitation is unlawful.

 

17


Table of Contents

Conflicts of Interest

As described in “Use of Proceeds”, the net proceeds of the Offering will be used to repay a portion of our indebtedness under the Credit Agreement. As a result, affiliates of one or more of the Underwriters may receive more than 5% of the net proceeds from the Offering in the form of the repayment of such indebtedness. Accordingly, the Offering is being conducted in compliance with FINRA Rule 5121, as administered by the Financial Industry Regulatory Authority (“FINRA”). Pursuant to that rule, the appointment of a qualified independent underwriter is not necessary in connection with the Offering, as the Offering is of a class of equity securities for which there is a “bona fide public market,” as defined by FINRA rules.

PRIOR SALES

Other than as set out below, we have not issued any Common Shares, nor any securities convertible into or exchangeable for Common Shares, in the twelve month period preceding the date of this short form prospectus. Except as otherwise noted, all of the issuances of Common Shares noted below (which includes issuances of the previous subordinate voting shares of FirstService, which subordinate voting shares were re-classified as Common Shares) are in respect of the exercise of stock options granted under our stock option plan.

 

Date of Issuance

   Number of
Common Shares
Issued
     Exercise/Issue
Price per

Common Share
($)
 

September 18, 2018

     9,900        21.40 – 66.31  

November 16, 2018

     2,400        20.52  

November 23, 2018

     45,000        20.52  

November 29, 2018

     5,000        16.84  

February 8, 2019

     25,500        20.52  

February 14, 2019

     10,900        21.40 – 66.31  

February 19, 2019

     18,750        54.88 – 66.31  

March 4, 2019

     63,750        20.52 – 23.96  

March 6, 2019

     8,400        20.52 – 23.96  

March 21, 2019

     3,600        23.96  

March 26, 2019

     3,750        20.52  

April 22, 2019

     54,000        23.96  

May 1, 2019

     4,500        54.88  

May 6, 2019

     6,400        35.96 – 83.89  

May 8, 2019

     11,500        20.52  

May 10, 2019

     111,250        20.52  

May 10, 2019(1)

     1,325,694         

May 10, 2019(2)

     2,918,860        86.17  

June 7, 2019

     750        23.96  

September 20, 2019

     22,500        23.96  

October 28, 2019

     73,000        23.96  

October 31, 2019

     13,500        23.96  
  

 

 

    

Total:

     4,738,904     
  

 

 

    

 

Notes:

(1)

Relates to subordinate voting shares of FirstService issued in connection with the conversion of the multiple voting shares of FirstService on a one-for-one basis (and for no consideration) on May 10, 2019, thereby eliminating FirstService’s dual class share structure (which subordinate voting shares were re-classified as Common Shares on May 10, 2019). See “Recent Developments – Settlement of Long-Term Incentive Arrangement and Elimination of Dual Class Voting Structure”.

 

18


Table of Contents
(2)

Relates to subordinate voting shares of FirstService issued on May 10, 2019 in connection with the settlement of the MSA (which subordinate voting shares were re-classified as Common Shares on May 10, 2019) at an effective issue price of C$115.58 per share (converted into U.S. dollars using the Bank of Canada exchange rate on March 11, 2019 of C$1.00 = US$0.7455). See “Recent Developments – Settlement of Long-Term Incentive Arrangement and Elimination of Dual Class Voting Structure”.

As at the date hereof, there are options granted under our stock option plan to acquire an aggregate of 1,639,100 Common Shares.

TRADING PRICE AND VOLUME

The outstanding Common Shares are listed and posted for trading on the TSX and Nasdaq under the symbol “FSV”. No other securities of FirstService are listed for trading on any marketplace. The following table sets forth, for the periods indicated, the reported high and low trading prices and the aggregate volume of trading of the Common Shares on Nasdaq (in United States dollars) and on the TSX (in Canadian dollars):

 

     Nasdaq(1)      TSX(1)  

Month

   High
Price
(US$)
     Low
Price
(US$)
     Volume
Traded
     High
Price
(C$)
     Low
Price
(C$)
     Volume
Traded
 

December 2018

     78.28        64.87        796,929        103.35        88.45        1,012,243  

January 2019

     81.95        65.55        809,624        108.11        88.42        1,037,007  

February 2019

     89.17        80.98        741,012        117.86        105.94        1,139,645  

March 2019

     89.67        83.22        677,200        119.76        111.19        986,016  

April 2019

     89.95        83.02        529,195        120.08        113.90        802,810  

May 2019

     95.55        85.17        1,130,105        129.95        114.40        1,056,050  

June 2019

     100.19        90.23        633,907        132.32        121.51        680,421  

July 2019

     106.73        95.02        897,845        140.36        124.52        899,643  

August 2019

     108.42        98.02        690,963        143.26        131.40        885,808  

September 2019

     111.09        98.62        512,588        140.99        131.00        741,549  

October 2019

     106.31        85.88        1,183,814        139.30        112.23        1,357,020  

November 2019

     97.14        86.53        828,496        129.00        113.74        1,181,832  

 

Note:

(1)

On May 10, 2019, FirstService effected an amendment to its articles that eliminated the multiple voting shares and the “blank cheque” preference shares as part of the authorized capital of FirstService, and re-classified its subordinate voting shares as Common Shares. See “FirstService Corporation” and “Recent Developments – Settlement of Long-Term Incentive Arrangement and Elimination of Dual Class Voting Structure”. The information in the table provided prior to May 10, 2019 relates to the subordinate voting shares of FirstService.

On November 29, 2019, the last trading day prior to the date of this short form prospectus, the closing prices of the outstanding Common Shares on the TSX and Nasdaq were C$127.08 and US$95.89, respectively. We have applied to list the Offered Shares (including the Common Shares issuable pursuant to the exercise of the Over-Allotment Option) being distributed under this short form prospectus on the TSX. Listing will be subject to us fulfilling all of the listing requirements of the TSX. We will provide notice of the Offering to Nasdaq in accordance with the rules of that exchange.

 

19


Table of Contents

CERTAIN CANADIAN FEDERAL INCOME TAX CONSIDERATIONS

In the opinion of Fogler, Rubinoff LLP, Canadian counsel to the Corporation, and Stikeman Elliott LLP, Canadian counsel to the Underwriters (collectively, “Counsel”), the following is a general summary, as of the date hereof, of the principal Canadian federal income tax considerations under the Tax Act and the regulations thereunder generally applicable to a holder who acquires, as beneficial owner, Offered Shares pursuant to the Offering. This summary only applies to a holder who, for the purposes of the Tax Act and at all relevant times: (i) deals at arm’s length with the Corporation and the Underwriters and is not affiliated with the Corporation or the Underwriters; and (ii) acquires and holds the Offered Shares as capital property (a “Holder”). The Offered Shares will generally be considered to be capital property to a Holder unless they are held in the course of carrying on a business or were acquired in one or more transactions considered to be an adventure or concern in the nature of trade.

This summary is based upon: (i) the current provisions of the Tax Act and the regulations thereunder in force as of the date hereof; (ii) all specific proposals (the “Tax Proposals”) to amend the Tax Act and the regulations thereunder that have been publicly announced by, or on behalf of, the Minister of Finance (Canada) prior to the date hereof; (iii) the Canada-United States Tax Convention (1980), as amended (the “Treaty”) and (iv) Counsel’s understanding of the current published administrative policies and assessing practices of the Canada Revenue Agency (the “CRA”) made publicly available prior to the date hereof. This summary assumes that all such Tax Proposals will be enacted in the form currently proposed but no assurance can be given that they will be enacted in the form proposed or at all. This summary is not exhaustive of all possible Canadian federal income tax considerations and, except for the Tax Proposals, does not otherwise take into account or anticipate any changes in law, administrative policy or assessing practice, whether by legislative, regulatory, administrative, governmental or judicial interpretation, decision or action, nor does it take into account the tax laws of any province or territory of Canada or of any jurisdiction outside of Canada, which may differ from the Canadian federal income tax considerations described herein. In addition, this summary does not address the deductibility of interest by a Holder who has borrowed money or otherwise incurred debt in connection with the acquisition of Offered Shares.

Subject to certain exceptions that are not discussed in this summary, for the purposes of the Tax Act, all amounts relating to the acquisition, holding or disposition of Offered Shares must be determined in Canadian dollars based on the rate of exchange quoted by the Bank of Canada on the date such amount arose or such other rate of exchange as may be acceptable to the CRA.

This summary is not exhaustive of all possible Canadian federal income tax considerations of purchasing, holding or disposing of the Offered Shares. Moreover, this summary is of a general nature only and is not intended to be, nor should it be construed to be, legal or tax advice to any particular Holder and no representation with respect to the income tax consequences to any particular Holder is made. Accordingly, Holders are urged to consult their own tax advisors about the specific tax consequences to them of acquiring, holding and disposing of Offered Shares in their particular circumstances.

Holders Resident in Canada

This portion of the summary applies to a Holder who, for purposes of the Tax Act and at all relevant times, is or is deemed to be a resident of Canada (a “Resident Holder”). This summary is not applicable to a Resident Holder: (i) that is a “financial institution” within the meaning of the Tax Act (including for the purposes of the mark-to-market rules in the Tax Act); (ii) that is a “specified financial institution” or “restricted financial institution” within the meaning of the Tax Act; (iii) that reports its “Canadian tax results” within the meaning of the Tax Act in a currency other than Canadian currency; (iv) an interest in which is a “tax shelter investment” within the meaning of the Tax Act; or (v) that enters into or has entered into, with respect to the Offered Shares, a “derivative forward agreement” or a “synthetic disposition arrangement” as those terms are defined in the Tax Act. Such Resident Holders should consult their own tax advisors.

 

20


Table of Contents

A Resident Holder whose Offered Shares might not otherwise qualify as capital property may, in certain circumstances, be entitled to make the irrevocable election provided by subsection 39(4) of the Tax Act to have its Offered Shares and every other “Canadian security” (as defined in the Tax Act) owned by such Resident Holder in the taxation year of the election and in all subsequent taxation years deemed to be capital property. Such Resident Holders should consult their own tax advisors as to whether an election under subsection 39(4) of the Tax Act is available and/or advisable in their particular circumstances.

Additional considerations, not discussed herein, may be applicable to a Resident Holder that is a corporation resident in Canada, and is, or becomes, or does not deal at arm’s length with a corporation resident in Canada that is, or becomes, as part of a transaction or event or series of transactions or events that includes the acquisition of Offered Shares, controlled by a non-resident corporation for purposes of the “foreign affiliate dumping” rules in section 212.3 of the Tax Act. Such Resident Holders should consult their tax advisors with respect to the consequences of acquiring Offered Shares.

Dividends on Offered Shares

A Resident Holder will be required to include in computing its income for a taxation year any taxable dividend received or deemed to be received on the Offered Shares. In the case of a Resident Holder that is an individual (other than certain trusts), such dividend will be subject to the gross-up and dividend tax credit rules normally applicable under the Tax Act to taxable dividends received from taxable Canadian corporations. Taxable dividends that are designated by the Corporation as “eligible dividends” will be subject to an enhanced gross-up and tax credit regime in accordance with the rules in the Tax Act. There may be limitations on the ability of the Corporation to designate dividends as eligible dividends.

In the case of a Resident Holder that is a corporation, the amount of any such taxable dividend that is included in its income for a taxation year will generally be deductible in computing its taxable income for that taxation year. In certain circumstances, a taxable dividend received by a Resident Holder that is a corporation may be treated as proceeds of disposition or a capital gain pursuant to the rules in subsection 55(2) of the Tax Act. Corporate Resident Holders should contact their own tax advisors with respect to the application of these rules in their particular circumstances.

Dispositions of Offered Shares

A Resident Holder who disposes of or is deemed for the purposes of the Tax Act to have disposed of an Offered Share (other than to the Corporation unless purchased by the Corporation in the open market in the manner in which shares are normally purchased by any member of the public in the open market) will generally realize a capital gain (or capital loss) in the taxation year of the disposition equal to the amount by which the proceeds of disposition are greater (or are less) than the total of: (i) the adjusted cost base, as defined in the Tax Act, to the Resident Holder of the Offered Shares immediately before the disposition or deemed disposition; and (ii) any reasonable costs of disposition. For purposes of determining the adjusted cost base to a Resident Holder of Offered Shares acquired pursuant to this Offering, the cost of such Offered Shares will be averaged with the adjusted cost base of all other Common Shares (if any) held by the Resident Holder as capital property immediately before that time.

A Resident Holder will generally be required to include in computing its income for the taxation year of disposition, one-half of the amount of any capital gain (a “taxable capital gain”) realized in such year. Subject to and in accordance with the provisions of the Tax Act, a Resident Holder will generally be required to deduct one-half of the amount of any capital loss (an “allowable capital loss”) realized in the taxation year of disposition against taxable capital gains realized in the same taxation year. Allowable capital losses in excess of taxable capital gains for the taxation year of disposition generally may be carried back and deducted in any of the three preceding taxation years or carried forward and deducted in any subsequent taxation year against net taxable capital gains realized in such taxation years, to the extent and under the circumstances specified in the Tax Act.

 

21


Table of Contents

If a Resident Holder is a corporation, any capital loss realized on a disposition or deemed disposition of Offered Shares may, in certain circumstances prescribed by the Tax Act, be reduced by the amount of any dividends which have been received or which are deemed to have been received on such Offered Shares. Similar rules may apply where a Resident Holder that is a corporation is a member of a partnership or a beneficiary of a trust that owns Offered Shares directly or indirectly through a partnership or a trust. Resident Holders to whom these rules may be relevant should consult their own tax advisors.

Other Taxes

A Resident Holder that is a “private corporation” or a “subject corporation”, as defined in the Tax Act, will generally be liable to pay a refundable tax under Part IV of the Tax Act on dividends received on the Offered Shares to the extent such dividends are deductible in computing the Resident Holder’s taxable income for the year. This tax will generally be refunded to the corporation when sufficient taxable dividends are paid while it is a private corporation or a subject corporation.

A Resident Holder that is throughout the relevant taxation year a “Canadian-controlled private corporation” (as defined in the Tax Act) may be liable to pay an additional refundable tax on its “aggregate investment income” (as defined in the Tax Act) for the year, including taxable capital gains realized on the disposition of Offered Shares.

Capital gains realized and taxable dividends received by a Resident Holder who is an individual (other than certain trusts) may result in such Resident Holder being liable for alternative minimum tax under the Tax Act. Such Resident Holders should consult their own tax advisors in this regard.

Holders Not Resident in Canada

This portion of the summary applies to a Holder who, for purposes of the Tax Act and at all relevant times: (i) is not and is not deemed to be a resident of Canada; and (ii) does not use or hold, and is not deemed to use or hold, Offered Shares in the course of carrying on, or otherwise in connection with, a business in Canada (a “Non-Canadian Holder”). Special rules, which are not discussed in this summary, apply to a Non-Canadian Holder that is an insurer carrying on an insurance business in Canada and elsewhere. Such Non-Canadian Holders should consult their own tax advisors.

Dividends on Offered Shares

Dividends paid or credited or deemed to be paid or credited to a Non-Canadian Holder on the Offered Shares will be subject to Canadian withholding tax. The Tax Act imposes withholding tax at a rate of 25% on the gross amount of the dividend, although such rate may be reduced by virtue of an applicable tax treaty. For example, under the Treaty, where dividends on the Offered Shares are considered to be paid to a Non-Canadian Holder that is the beneficial owner of the dividends and is a United States resident for the purposes of, and is entitled to all of the benefits of, the Treaty (a “Qualifying Person”), the applicable rate of Canadian withholding tax is generally reduced to 15%. The Corporation will be required to withhold the applicable withholding tax from any dividend and remit it to the Canadian government for the Non-Canadian Holder’s account.

Disposition of Offered Shares

A Non-Canadian Holder will not be subject to Canadian federal income tax under the Tax Act on a capital gain realized on a disposition or deemed disposition of an Offered Share unless, at the time of disposition, such Offered Share constitutes “taxable Canadian property” to the Non-Canadian Holder for the purposes of the Tax Act and the Non-Canadian Holder is not entitled to relief under an applicable income tax convention between Canada and the country in which the Non-Canadian Holder is resident.

 

22


Table of Contents

If an Offered Share is listed on a designated stock exchange for purposes of the Tax Act (which includes the TSX) at the time it is disposed of, such Offered Share will generally not constitute “taxable Canadian property” to a Non-Canadian Holder unless, at that time or at any particular time within the preceding 60 months:

 

   

25% or more of the issued shares of any class or series of the Corporation’s shares were owned by one or any combination of: (1) the Non-Canadian Holder; (2) persons with whom the Non-Canadian Holder did not deal at “arm’s length” (within the meaning of the Tax Act); and (3) partnerships in which the Non-Canadian Holder or a person described in (2) holds a membership interest directly or indirectly through one or more partnerships; and

 

   

more than 50% of the fair market value of the Offered Share was derived directly or indirectly from one or any combination of real or immovable property situated in Canada, “Canadian resource properties” (as defined in the Tax Act), “timber resource properties” (as defined in the Tax Act), and options in respect of, or interests in, or for civil law rights in, any such foregoing properties, whether or not such properties exist.

If an Offered Share is taxable Canadian property to a Non-Canadian Holder that is a Qualifying Person, any capital gain realized on a disposition or deemed disposition of such share will nevertheless generally not be subject to Canadian federal income tax by virtue of the Treaty if the value of the Offered Share at the time of the disposition or deemed disposition is not derived principally from “real property situated in Canada” for purposes of the Treaty.

A Non-Canadian Holder whose Offered Shares may constitute taxable Canadian property is urged to consult with the Non-Canadian Holder’s own tax advisors.

CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS

The following is a discussion of the U.S. federal income tax considerations generally applicable to a U.S. Holder (as defined below) of the acquisition, ownership, and disposition of Common Shares. This summary does not purport to address all U.S. federal income tax matters that may be relevant to a particular U.S. Holder of Common Shares, nor is it a complete analysis of all potential U.S. federal income tax consequences. This summary does not address any tax consequences arising under any state, local or non-U.S. tax laws or U.S. federal estate or gift tax laws. This summary is based on the provisions of the Internal Revenue Code of 1986, as amended (the “Code”), the Treasury regulations thereunder, and administrative and judicial interpretations thereof, all as in effect on the date hereof and all of which are subject to change, possibly with retroactive effect. This discussion is limited to U.S. Holders that hold Common Shares as capital assets within the meaning of Section 1221 of the Code (generally, property held for investment). This discussion does not address all U.S. federal income tax considerations that may be relevant to shareholders that are subject to special tax rules, including, without limitation, expatriates and certain former citizens of the United States, partnerships and other pass-through entities, financial institutions, insurance companies, brokers, dealers or traders in securities, commodities or currencies, tax-exempt organizations, tax qualified retirement plans, persons subject to the alternative minimum tax, persons whose functional currency for U.S. federal income tax purposes is not the U.S. dollar, persons holding Common Shares as part of a hedge, straddle or other risk reduction strategy or as part of a hedging or conversion transaction or other integrated investment, persons that own or have owned (directly, indirectly, or by attribution) 10% or more of the total combined voting power or value of the outstanding shares of FirstService, and persons who acquired their Common Shares through stock option or stock purchase plan programs or from other compensatory arrangements.

If a partnership (or other entity taxed as a partnership for U.S. federal income tax purposes) holds Common Shares, the tax treatment of a partner in the partnership generally will depend upon the status of the partner and the activities of the partnership. Partnerships and partners in such a partnership are urged to consult their tax advisers regarding the tax consequences of acquiring, owning, and disposing of Common Shares.

 

23


Table of Contents

For purposes of this discussion, a “U.S. Holder” is a beneficial owner of Common Shares that is: (i) a citizen or an individual who is a resident of the United States as determined for U.S. federal income tax purposes; (ii) a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) created or organized under the laws of the United States, any State or political subdivision thereof or the District of Columbia; (iii) an estate, the income of which is subject to U.S. federal income taxation regardless of its source; or (iv) a trust (1) if a court within the United States is able to exercise primary supervision over its administration and one or more U.S. persons has the authority to control all of the substantial decisions of the trust or (2) that has a valid election in effect under applicable Treasury regulations to be treated as a U.S. person.

This summary is of a general nature only and is not intended to be tax advice to any prospective investor, and no representation with respect to the tax consequences to any particular investor is made. Prospective investors are urged to consult their tax advisers with respect to the U.S. federal, state, local and non-U.S. income and other tax considerations relevant to them, having regard to their particular circumstances.

Distributions

Subject to the passive foreign investment company rules discussed below, the gross amount of a distribution paid to a U.S. Holder with respect to Common Shares (including amounts withheld to pay Canadian withholding taxes) will be included in such holder’s gross income as dividend income to the extent that the distribution is paid out of our current or accumulated earnings and profits (as determined under U.S. federal income tax principles). To the extent that the amount of a distribution exceeds our current and accumulated earnings and profits, it will be treated first as a tax-free return of a U.S. Holder’s tax basis in its Common Shares, and to the extent the amount of the distribution exceeds such U.S. Holder’s tax basis, the excess will be taxed as a capital gain. Because we do not expect to calculate our earnings and profits in accordance with U.S. federal income tax principles, U.S. Holders should expect that a distribution generally will be treated as a dividend for U.S. federal income tax purposes.

Dividends received by individuals and other non-corporate U.S. Holders of Common Shares traded on the Nasdaq generally will be subject to tax at preferential rates applicable to long-term capital gains, provided that such holders meet certain holding period and other requirements and FirstService is not treated as a PFIC (as defined below) for the taxable year in which the dividend is paid or for the preceding taxable year. Dividends on Common Shares will generally not be eligible for the dividends-received deduction allowed to corporations. U.S. Holders are urged to consult their tax advisers regarding the application of the relevant rules to their particular circumstances.

Dividends paid on Common Shares generally will constitute foreign-source income for foreign tax credit limitation purposes. A U.S. Holder may be entitled to deduct or credit any Canadian withholding taxes on dividends in determining its U.S. income tax liability, subject to certain limitations (including that the election to deduct or credit foreign taxes applies to all of such U.S. Holder’s foreign taxes for a particular tax year). The limitation on foreign taxes eligible for credit is calculated separately with respect to specific classes of income. Dividends distributed with respect to Common Shares generally will constitute “passive category income.” The rules governing the foreign tax credit are complex. U.S. Holders are urged to consult their tax advisers regarding the availability of the foreign tax credit under their particular circumstances.

Sale or Other Disposition of Common Shares

Subject to the passive foreign investment company rules discussed below, a U.S. Holder will recognize taxable gain or loss upon the sale, exchange, or other taxable disposition of a Common Share equal to the difference, if any, between the amount realized for the Common Share and the U.S. Holder’s tax basis in such Common Share. The gain or loss will be considered a capital gain or loss. Non-corporate U.S. Holders, including individual U.S. Holders that have held Common Shares for more than one year, currently are eligible for reduced tax rates. The deductibility of capital losses is subject to limitations. Any such gain or loss recognized by a U.S. Holder generally will be treated as U.S.-source gain or loss for foreign tax credit limitation purposes.

 

24


Table of Contents

Passive Foreign Investment Company

Certain adverse tax consequences could apply to a U.S. Holder if we are treated as a passive foreign investment company (“PFIC”) for any taxable year during which the U.S. Holder holds Common Shares. A non-U.S. corporation, such as FirstService, will be classified as a PFIC for U.S. federal income tax purposes for any taxable year in which, after applying certain look-through rules, either: (i) 75% or more of its gross income for such year consists of certain types of “passive” income; or (ii) 50% or more of the value of its assets (determined on the basis of a quarterly average) during such year produce or are held for the production of passive income. Passive income generally includes dividends, interest, royalties, rents, annuities, net gains from the sale or exchange of property producing such income, and net foreign currency gains. We do not believe that we were a PFIC for the preceding taxable year, nor do we expect to be a PFIC for the current taxable year or for the foreseeable future. However, the determination of whether we are or will be a PFIC must be made annually as of the close of each taxable year. Because PFIC status depends upon the composition of our income and assets from time to time, there can be no assurance that we will not be considered a PFIC for any taxable year, or that the U.S. Internal Revenue Service (“IRS”) or a court will agree with our determination as to our PFIC status.

If we were a PFIC for any taxable year during which a U.S. Holder held Common Shares, then any gain recognized by such holder upon the sale or other disposition of the Common Shares would be allocated ratably over such holder’s holding period for the Common Shares. The amounts allocated to the taxable year of the sale or other disposition and to any year before we became a PFIC would be taxed as ordinary income. The amount allocated to each other taxable year would be subject to tax at the highest rate on ordinary income in effect for individuals or corporations, as appropriate for that taxable year, and an interest charge would be imposed on the resulting tax liability. Further, to the extent that any distribution received by a U.S. Holder on its Common Shares were to exceed 125% of the average of the annual distributions received on the Common Shares received during the preceding three years or the U.S. Holder’s holding period, whichever is shorter, such excess would be subject to taxation in the same manner as gain, described immediately above. Certain elections (including a mark-to-market election) may be available to U.S. Holders to mitigate some of the adverse tax consequences resulting from PFIC treatment. If we were a PFIC for any taxable year during which a U.S. Holder held Common Shares, then such U.S. Holder would be required to file an annual report on IRS Form 8621, subject to certain exceptions. U.S. Holders are urged to consult their tax advisers regarding the application of the PFIC rules to an investment in Common Shares.

Receipt of Foreign Currency

The U.S. dollar value of any distribution on Common Shares made in Canadian dollars generally will be calculated by reference to the exchange rate between the U.S. dollar and the Canadian dollar in effect on the date of actual or constructive receipt of such distribution by the U.S. Holder, regardless of whether the Canadian dollars so received are in fact converted into U.S. dollars. If the Canadian dollars so received are converted into U.S. dollars on the date of receipt, then a U.S. Holder generally will not recognize foreign currency gain or loss on such conversion. If the Canadian dollars so received are not converted into U.S. dollars on the date of receipt, then a U.S. Holder generally will have a tax basis in the Canadian dollars equal to the U.S. dollar value of such Canadian dollars on the date of receipt. Any gain or loss on a subsequent conversion or other disposition of the Canadian dollars generally will be treated as ordinary income or loss to a U.S. Holder and generally will be U.S.-source income or loss for U.S. foreign tax credit purposes. U.S. Holders are urged to consult their tax advisers regarding the U.S. federal income tax consequences of receiving distributions on Common Shares in Canadian dollars. The considerations set forth in this paragraph are not relevant for U.S. Holders that receive distributions on Common Shares in U.S. dollars.

Additional Tax on Net Investment Income

Certain U.S. Holders that are individuals, estates or trusts are subject to a 3.8% tax on all or a portion of their “net investment income,” which may include all or a portion of their dividend income and net gains from the

 

25


Table of Contents

disposition of Common Shares. Each U.S. Holder that is an individual, estate or trust is urged to consult its tax advisers regarding the applicability of this tax to its income and gains in respect of Common Shares.

Foreign Financial Asset Reporting

Citizens or individual residents of the United States holding “specified foreign financial assets” (which generally include stock and other securities issued by a foreign person unless held in an account maintained by a financial institution) that exceed certain U.S. dollar thresholds are required to report information relating to such assets, which could include Common Shares, by filing a completed IRS Form 8938 (Statement of Specified Foreign Financial Assets) with their tax returns. Significant penalties may apply for the failure to satisfy this reporting obligation. U.S. Holders are urged to consult their tax advisers regarding the foregoing reporting obligation with regard to their ownership of Common Shares.

Information Reporting and Backup Withholding

Distributions with respect to Common Shares and proceeds from the sale, exchange, or redemption of Common Shares may be subject to information reporting to the IRS and U.S. backup withholding. Backup withholding will not apply, however, to a U.S. Holder who furnishes a correct taxpayer identification number and makes other required certifications, or who is otherwise exempt from backup withholding and properly establishes such exempt status. Backup withholding is not an additional tax. Amounts withheld as backup withholding may be credited against a U.S. Holder’s U.S. federal income tax liability, and a U.S. Holder generally may obtain a refund of any excess amounts withheld under the backup withholding rules by timely filing the appropriate claim for refund with the IRS and furnishing any required information.

RELATIONSHIP BETWEEN THE CORPORATION AND CERTAIN UNDERWRITERS

BMO Nesbitt Burns Inc., TD Securities Inc.,     ●     and     ●     are each, directly or indirectly, a subsidiary of a Canadian chartered bank which is a lender to FirstService and its subsidiaries and a member of syndicate of lenders (collectively, the “lenders”) under the Credit Agreement. Accordingly, FirstService may be considered to be a connected issuer of each of these Underwriters under applicable Canadian securities legislation. The net proceeds of this Offering will be used by FirstService to repay a portion of our existing indebtedness under the Credit Agreement, which will then be available to be drawn, as required, for working capital, acquisitions and associated contingent purchase consideration and/or for general corporate purposes. Our financial position has not changed substantially and adversely since the indebtedness under the Credit Agreement was incurred. As at November 29, 2019, we were indebted to the lenders in respect of the Credit Agreement in the aggregate amount of $783.5 million. See “Consolidated Capitalization”.

We will use the net proceeds of the Offering to reduce our indebtedness to the lenders under the Credit Agreement by approximately $    ●     (approximately $    ●     if the Over-Allotment Option is exercised in full). See “Use of Proceeds” and “Plan of Distribution – Conflicts of Interest”. The decision to distribute the Offered Shares and the determination of the terms of distribution of the Offered Shares, including the Offering Price, were made through negotiations between us and the Underwriters with reference to prevailing market conditions. The lenders did not have any involvement in such decision or determination, however, the lenders have been advised of the Offering and the terms thereof. None of the Underwriters, including BMO Nesbitt Burns Inc., TD Securities Inc.,     ●     and     ●    , will receive any benefit from the Offering other than its respective portion of the Underwriters’ fee payable by us. The lenders will receive the net proceeds from the Offering from us as a repayment of outstanding indebtedness under the Credit Agreement, and such amount so received by the lenders as a repayment of the revolving credit facility portion of the Credit Agreement will then be available to be drawn by us under the Credit Agreement, as required, for working capital, acquisitions and associated contingent purchase consideration and/or general corporate purposes.

 

26


Table of Contents

RISK FACTORS

Before making an investment decision, prospective purchasers of Offered Shares should carefully consider the information described in this short form prospectus and the documents incorporated by reference herein. There are certain risks inherent in an investment in Common Shares and in our business and activities, and prospective purchasers should carefully consider those risks described under “Forward-Looking Statements” and the risks described below before investing in the Offered Shares. Readers are cautioned that such risk factors are not exhaustive. Our business, financial condition and results of operations could be materially adversely affected by any of these risks and past performance is no guarantee of future performance.

The risks and uncertainties set out below and incorporated by reference herein are not the only ones we are facing. Additional risks and uncertainties not currently known to us, or that we currently deem immaterial, may also impair our operations. If any of these risks actually occur, our business, financial condition and operating results could be adversely affected. As a result, the trading price of the Common Shares could decline and investors could lose part or all of their investment.

Risks Relating to FirstService and our Business

A prospective purchaser of Offered Shares should carefully consider the risk factors described under the heading “Risk factors” in the Current AIF and under the headings “Market risk of financial instruments” and “Forward-looking statements and risks” in the Current Annual MD&A. These risks and uncertainties include, among other things: economic conditions, especially as they relate to credit conditions, consumer spending and demand for managed residential property; residential real estate property values, resale rates and general conditions of financial liquidity for real estate transactions; extreme weather conditions impacting demand for our services or our ability to perform those services; economic deterioration impacting our ability to recover goodwill and other intangible assets; a decline in our ability to generate cash from our businesses to fund future acquisitions and meet our debt obligations; the effects of changes in foreign exchange rates in relation to the U.S. dollar on our Canadian dollar denominated revenues and expenses; competition in the markets served by FirstService; labour shortages or increases in wage and benefit costs; the effects of changes in interest rates on our cost of borrowing; a decline in our performance impacting our continued compliance with the financial covenants under our debt agreements, or our ability to negotiate a waiver of certain covenants with our lenders; unexpected increases in operating costs, such as insurance, workers’ compensation, health care and fuel prices; changes in the frequency or severity of insurance incidents relative to our historical experience; a decline in our ability to make acquisitions at reasonable prices and successfully integrate acquired operations (including the Global Restoration Acquisition and recent and future tuck-under acquisitions); changes in laws, regulations and government policies at the federal, state/provincial or local level that may adversely impact our businesses; risks related to liability for employee acts or omissions, or installation/system failure, in our fire protection businesses; a decline in our performance impacting our ability to pay dividends on Common Shares; risks arising from any regulatory review and litigation; risks associated with intellectual property and other proprietary rights that are material to our business; disruptions or security failures in our information technology systems; and political conditions, including any outbreak or escalation of terrorism or hostilities and the impact thereof on our business.

Risks Relating to the Global Restoration Acquisition and Business

No Assurance of Global Restoration’s Future Performance

Historic and current performance of the business of Global Restoration may not be indicative of success in future periods. The Global Restoration business may not perform as well as we anticipate or we may incur unanticipated costs and expenses relating to its operations. The future performance of the business of Global Restoration may be influenced by, among other factors, weather and climate patterns which are unpredictable, economic downturns, regulatory changes and other factors beyond the control of FirstService. There is no assurance that revenues generated from the Global Restoration business acquired by FirstService will increase in future years. As a result of any one or more of these factors, the operations and financial performance of the

 

27


Table of Contents

business of Global Restoration may be negatively affected, which could materially and adversely affect FirstService’s financial results.

Indebtedness Following Completion of the Global Restoration Acquisition is Substantial

In connection with the closing of the Global Restoration Acquisition, we completed a refinancing of our long-term senior debt by entering into the Credit Agreement. The Credit Agreement is comprised of a committed multi-currency revolving credit facility of $450 million (of which $343.5 million is outstanding as at November 29, 2019) and a term loan (drawn in a single advance) in the aggregate amount of $440 million (all of which remains outstanding as at November 29, 2019). See “Recent Developments – Credit Agreement Expansion” and “Consolidated Capitalization”. Although we expect to repay a portion of our indebtedness under the revolving credit facility portion of the Credit Agreement with the net proceeds of this Offering, we can provide no assurance that we will use the net proceeds in this manner, and the amount of our indebtedness under the Credit Agreement that remains outstanding after such repayment may still be substantial. FirstService’s degree of leverage as a result of the financing required to complete the Global Restoration Acquisition could have adverse consequences for FirstService, including: limiting our ability to obtain additional financing for working capital, capital expenditures, debt service requirements, acquisitions and associated contingent purchase consideration, and/or for general corporate purposes; restricting our flexibility and discretion to operate our business; limiting our ability to declare dividends on the Common Shares; having to dedicate a portion of our cash flows from operations to the payment of interest on our existing indebtedness and not having such cash flows available for other purposes, including operations, capital expenditures, acquisitions and other future business opportunities; exposing us to increased interest expense on borrowings; limiting our ability to adjust to changing market conditions; placing us at a competitive disadvantage compared to its competitors that have less debt; making us vulnerable in a downturn in general economic conditions; and making us unable to make capital expenditures that are important to our growth and strategies. In the event that we are unable to make principal or interest payments on our indebtedness outstanding under the Credit Agreement or our other indebtedness as required, we could be in default and such indebtedness could be accelerated, and we may not be able to repay or refinance such indebtedness. Any such default and acceleration could require us to raise additional equity capital (resulting in dilution) or take on additional indebtedness, which could have more onerous terms than our existing indebtedness, or to sell assets or take other actions that could adversely affect our business.

Potential Liabilities Associated with the Global Restoration Acquisition

Under the Global Restoration Acquisition, the liabilities of the Global Restoration business remained with Global Restoration. There may be liabilities that FirstService failed to discover or was unable to quantify accurately or at all in the due diligence review that we conducted prior to entering into the Global Restoration Acquisition. Although FirstService has obtained buyer-side representation and warranty insurance in respect of the Global Restoration Acquisition and has certain limited indemnification rights, these may be insufficient to satisfy any losses resulting from such liabilities. In addition, FirstService is required to allocate the purchase price to tangible and identifiable intangible assets acquired and liabilities assumed based on their fair values. The excess of the purchase price over those fair values is recorded as goodwill. As the transaction was completed recently, the accounting for the acquisition, including estimating the fair values of assets and liabilities acquired, is still being completed. As a result, the final purchase price allocation may differ significantly from the estimates. The reduction in the fair value of any assets or the discovery of any material liabilities could have a material adverse effect on FirstService’s business, financial condition or future prospects.

Risks Relating to the Offering

Volatility of Market Price of the Common Shares

We have applied to list the Offered Shares (including the Common Shares issuable pursuant to the exercise of the Over-Allotment Option) being distributed under this short form prospectus on the TSX. Listing will be subject to us fulfilling all of the listing requirements of the TSX. We will provide notice of the Offering to Nasdaq in

 

28


Table of Contents

accordance with the rules of that exchange. There can be no assurance that an active public market for trading in the Common Shares will persist and, as a result, the market price of the Common Shares may be adversely affected.

The market price of the Common Shares may be volatile and subject to wide fluctuations in response to numerous factors, many of which are beyond our control, including the following:

 

   

actual or anticipated fluctuations in our annual or quarterly results of operations;

 

   

changes in estimates of future results of operations by us or by securities research analysts;

 

   

changes in the economic performance or market valuations of other companies that investors deem comparable to us;

 

   

the addition or departure of our executive officers or other key personnel;

 

   

litigation or regulatory action against us;

 

   

issuances or expected issuances of additional Common Shares or other forms of our securities;

 

   

changes in applicable laws and regulations, including tax laws, or changes in the manner in which those laws are applied;

 

   

significant acquisitions or business combinations, strategic partnerships, joint ventures or capital commitments by or involving us or our competitors; and

 

   

news reports relating to the conditions in the economy in general and/or trends, concerns or competitive developments, regulatory changes and other related issues in our industry.

The volatility may affect the ability of holders of Common Shares to sell the Common Shares at an advantageous price.

Financial markets have, at times, experienced significant price and volume fluctuations that have particularly affected the market prices of securities of companies and that have, in many cases, been unrelated to the operating performance, underlying asset values or prospects of such companies. Accordingly, the market price of the Common Shares may decline even if our operating results, underlying asset values or prospects have not changed. Additionally, these factors, as well as other related factors, may cause decreases in asset values that are deemed to be other than temporary, which may result in impairment losses. As well, certain institutional investors may base their investment decisions on consideration of our environmental, governance and social practices and performance against such institutions’ respective investment guidelines and criteria, and failure to meet such criteria may result in a limited or no investment in the Common Shares by those institutions, which could adversely affect the trading price of the Common Shares. There can be no assurance that fluctuations in price and volume will not occur. If such increased levels of volatility and market turmoil occur, our operations could be adversely impacted and the trading price of the Common Shares may be adversely affected.

Qualified Investment Eligibility

We will endeavor to ensure that the Common Shares continue to be qualified investments for trusts governed by Plans. No assurance can be given in this regard. If the Common Shares are not qualified investments for Plans, such Plans (and, in the case of certain Plans, the annuitants, subscribers or beneficiaries thereunder or holders thereof) may be subject to adverse tax consequences including, in the case of RESPs, the revocation of such Plans.

Dividends

Although we intend to make cash dividends to shareholders in accordance with our existing dividend policy, these dividends are not assured. Future dividends on the Common Shares will depend on our results of operations, financial condition, capital requirements, general business conditions and other factors that our board

 

29


Table of Contents

of directors may deem relevant. Additionally, under the Credit Agreement and the Note Agreement, we are not permitted to pay dividends, whether in cash or in specie, in the circumstances of an event of default thereunder occurring and continuing or an event of default occurring as a consequence thereof. The market value of the Common Shares may deteriorate if we are unable to pay dividends pursuant to our existing dividend policy in the future.

Potential Dilution

We are authorized to issue an unlimited number of Common Shares for consideration and terms and conditions as established by our board of directors, in many cases, without any requirement for explicit shareholder approval, and shareholders have no pre-emptive rights in connection with such further issuances. Except as described under the heading “Plan of Distribution”, we may issue additional Common Shares in subsequent offerings (including through the sale of securities convertible into or exchangeable for Common Shares) and pursuant to the exercise of options under our stock option plan. We cannot predict the size of future issuances of Common Shares or the effect that future issuances and sales of Common Shares will have on the market price of the Common Shares. Issuances of a substantial number of additional Common Shares, or the perception that such issuances could occur, may adversely affect prevailing market prices for the Common Shares. With any additional issuance of Common Shares, holders of Common Shares will suffer dilution and we may experience dilution in our earnings per share.

Foreign Private Issuer

We are a “foreign private issuer”, as such term is defined in Rule 405 under the U.S. Securities Act, and are permitted, under a multijurisdictional disclosure system adopted by the United States and Canada, to prepare our disclosure documents filed under the U.S. Exchange Act in accordance with Canadian disclosure requirements. Under the U.S. Exchange Act, we are subject to reporting obligations that, in certain respects, are less detailed and less frequent than those of U.S. domestic reporting companies. As a result, we do not file the same reports that a U.S. domestic issuer would file with the SEC, although we are required to file or furnish to the SEC the continuous disclosure documents that we are required to file in Canada under Canadian securities laws. In addition, our officers, directors, and principal shareholders are exempt from the reporting and short swing profit liability provisions of Section 16 of the U.S. Exchange Act. Therefore, our shareholders may not know on as timely a basis when our officers, directors and principal shareholders purchase or sell shares, as the reporting deadlines under the corresponding Canadian insider reporting requirements are generally longer.

As a foreign private issuer, we are exempt from the rules and regulations under the U.S. Exchange Act related to the furnishing and content of proxy statements. We are also exempt from Regulation FD, which prohibits issuers from making selective disclosures of material non-public information. While we will comply with the corresponding requirements relating to proxy statements and disclosure of material non-public information under Canadian securities laws, these requirements differ from those under the U.S. Exchange Act and Regulation FD, and shareholders should not expect to receive the same information at the same time as such information is provided by U.S. domestic companies.

In addition, as a foreign private issuer, we have the option to follow certain Canadian corporate governance practices, except to the extent that such laws would be contrary to U.S. securities laws, and provided that we disclose the requirements we are not following and describe the Canadian practices we follow instead. We currently rely on this exemption with respect to requirements regarding the quorum for any meeting of our shareholders, the requirement to obtain shareholder approval prior to an issuance of securities in certain circumstances and certain responsibilities of the Executive Compensation Committee of our board of directors. We may in the future elect to follow home country practices in Canada with regard to other matters. As a result, our shareholders may not have the same protections afforded to shareholders of U.S. domestic companies that are subject to all corporate governance requirements.

 

30


Table of Contents

LEGAL MATTERS

Certain legal matters relating to Canadian law with respect to the Offering will be passed upon on behalf of FirstService by Fogler, Rubinoff LLP and on behalf of the Underwriters by Stikeman Elliott LLP. Certain legal matters relating to United States law with respect to the Offering will be passed upon on behalf of FirstService by Torys LLP and on behalf of the Underwriters by Paul, Weiss, Rifkind, Wharton & Garrison LLP. As of the date hereof, the partners, counsel and associates, as a group, of each of Fogler, Rubinoff LLP and Stikeman Elliott LLP own beneficially, directly or indirectly, less than 1% of the outstanding Common Shares.

AUDITORS, TRANSFER AGENT AND REGISTRAR

The independent auditors of FirstService are PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm, Toronto, Ontario, Canada, who has advised that they are independent with respect to FirstService within the meaning of the Rules of Professional Conduct of the Chartered Professional Accountants of Ontario and within the meaning of the U.S. Securities Act and the applicable rules and regulations thereunder adopted by the SEC. PricewaterhouseCoopers LLP is registered with the Public Company Accounting Oversight Board.

The independent auditors of Global Restoration for the purposes of Global Restoration’s audited consolidated financial statements and the notes thereto as at December 31, 2018 and for the year then ended included in the Business Acquisition Report are BDO USA LLP, Fort Worth, Texas, United States.

The transfer agent and registrar for the Common Shares is TSX Trust Company at its principal offices located in Toronto, Ontario, Canada.

ENFORCEABILITY OF JUDGMENTS

Each of Frederick F. Reichheld and Erin J. Wallace, directors of FirstService, and BDO USA LLP, the independent auditors of Global Restoration for the purposes of Global Restoration’s audited consolidated financial statements contained in the Business Acquisition Report, reside outside of Canada, and each such director has appointed FirstService, at its address at 1140 Bay Street, Suite 4000, Toronto, Ontario, Canada M5S 2B4, as his or her agent for service of process in Canada. Purchasers are advised that it may not be possible for investors to enforce judgments obtained in Canada against any person or company that resides outside of Canada, or that is incorporated, continued or otherwise organized under the laws of a foreign jurisdiction, even if the person has appointed an agent for service of process in Canada.

DOCUMENTS FILED AS PART OF THE REGISTRATION STATEMENT

The following documents have been or will be filed with the SEC as part of the Registration Statement of which this short form prospectus forms a part: (a) the documents listed under the heading “Documents Incorporated by Reference”; (b) powers of attorney from our directors or officers, as applicable; (c) the consent of PricewaterhouseCoopers LLP; (d) the consent of BDO USA LLP; (e) the consent of Fogler, Rubinoff LLP; (f) the consent of Stikeman Elliott LLP; and (g) the Underwriting Agreement. Concurrently with the Registration Statement, we separately filed a Form F-X with the SEC. See “Enforceability of Civil Liabilities”.

 

 

31


Table of Contents

LOGO

 


Table of Contents

PART II

INFORMATION NOT REQUIRED TO BE DELIVERED TO

OFFEREES OR PURCHASERS

INDEMNIFICATION OF DIRECTORS AND OFFICERS

Under the Business Corporations Act (Ontario), the Registrant may indemnify a director or officer of the Registrant, a former director or officer of the Registrant or another individual who acts or acted at the Registrant’s request as a director or officer, or an individual acting in a similar capacity, of another entity (each of the foregoing, an “individual”), against all costs, charges and expenses, including an amount paid to settle an action or satisfy a judgment, reasonably incurred by the individual in respect of any civil, criminal, administrative, investigative or other proceeding in which the individual is involved because of that association with the Registrant or other entity, on the condition that (i) such individual acted honestly and in good faith with a view to the best interests of the Registrant or, as the case may be, to the best interests of the other entity for which such individual acted as a director or officer or in a similar capacity at the Registrant’s request; and (ii) if the matter is a criminal or administrative action or proceeding that is enforced by a monetary penalty, the Registrant shall not indemnify such individual unless such individual had reasonable grounds for believing that such individual’s conduct was lawful.

Further, the Registrant may, with the approval of a court, indemnify an individual in respect of an action by or on behalf of the Registrant or other entity to obtain a judgment in its favour, to which the individual is made a party because of the individual’s association with the Registrant or other entity as a director or officer, a former director or officer, an individual who acts or acted at the Registrant’s request as a director or officer, or an individual acting in a similar capacity, against all costs, charges and expenses reasonably incurred by the individual in connection with such action, if the individual fulfills the condition in (i) above. Such individuals are entitled to indemnification from the Registrant in respect of all costs, charges and expenses reasonably incurred by the individual in connection with the defence of any civil, criminal, administrative, investigative or other proceeding to which the individual is subject because of the individual’s association with the Registrant or other entity as described above, provided the individual seeking an indemnity: (A) was not judged by a court or other competent authority to have committed any fault or omitted to do anything that the individual ought to have done; and (B) fulfills the conditions in (i) and (ii) above.

The by-laws of the Registrant provide that the Registrant shall indemnify a director or officer of the Registrant, a former director or officer of the Registrant or another individual who acts or acted at the Registrant’s request as a director or officer, or an individual acting in a similar capacity, of another entity, against all costs, charges and expenses, including an amount paid to settle an action or satisfy a judgment, reasonably incurred by such person in respect of any civil, criminal, administrative or investigative action or other proceeding in which the individual is involved because of that association with the Registrant or other entity. The by-laws of the Registrant further provide that the Registrant shall advance monies to such individual for the costs, charges and expenses of a proceeding referred to in the foregoing sentence provided that such individual agrees in advance, in writing, to repay the monies if the individual does not fulfill the following conditions. The Registrant may not indemnify an individual pursuant to its by-laws as provided above unless the individual: (a) acted honestly and in good faith with a view to the best interests of the Registrant or other entity for which the individual acted as a director or officer or in a similar capacity at the Registrant’s request, as the case may be; and (b) in the case of a criminal or administrative action or proceeding that is enforced by a monetary penalty, had reasonable grounds for believing that his or her conduct was lawful. To the extent required by the Business Corporations Act (Ontario) or applicable law, the by-laws of the Registrant provide that it shall also seek the approval of a court to indemnify an individual referred to above, or advance monies as provided above in respect of an action by or on behalf of the Registrant or other entity to procure a judgment in its favour, to which such individual is made a party because of the individual’s association with the Registrant or other entity as described above, against all costs, charges and expenses reasonably incurred by the individual in connection with such action, if the individual fulfills the conditions set out in (b) and (c) above. Subject to the Business Corporations Act (Ontario), the Registrant’s by-laws provide that it may indemnify its employees and agents on the same basis as that upon which the persons referred to above are indemnified.

The Registrant maintains directors’ and officers’ liability insurance which insures directors and officers for losses as a result of claims against the directors and officers of the Registrant in their capacity as directors and officers and also reimburses the Registrant for payments made pursuant to the indemnity provisions under the by-laws of the Registrant and the Business Corporations Act (Ontario).

Insofar as indemnification for liabilities arising under the Securities Act, may be permitted to directors, officers or persons controlling the Registrant pursuant to the foregoing provisions, the Registrant has been informed that in the opinion of the U.S. Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.

 

II-1


Table of Contents

EXHIBITS

 

Exhibit

  

Description

3.1   

Underwriting Agreement*

4.1   

Annual Information Form of the Registrant dated as of February 20, 2019 for the year ended December 31, 2018 (incorporated by reference to exhibit 1 to the Registrant’s Annual Report on Form 40-F for the year ended December 31, 2018, filed with the Commission on February 20, 2019 (Commission File No. 001-36897) (the “Annual Report on Form 40-F”)).

4.2   

Audited Consolidated Financial Statements of the Registrant and the notes thereto as at and for the years ended December 31, 2018 and 2017, and the annual report of the Registrant’s management on internal controls over financial reporting as of December 31, 2018, together with the report of the independent registered public accounting firm thereon dated February 20, 2019 (incorporated by reference to exhibit 2 to the Registrant’s Annual Report on Form 40-F).

4.3   

Management’s Discussion and Analysis of the Registrant for the year ended December 31, 2018 dated February 20, 2019 (incorporated by reference to exhibit 3 to the Registrant’s Annual Report on Form 40-F).

4.4   

Management Information Circular dated March  25, 2019 relating to the Registrant’s annual and special meeting of shareholders held on May 3, 2019.

4.5   

Unaudited Interim Consolidated Financial Statements of the Registrant and the notes thereto as at September 30, 2019 and for the three and nine-month periods then ended.

4.6   

Management’s Discussion and Analysis of the Registrant for the nine-month period ended September 30, 2019 dated November 8, 2019.

4.7   

Material Change Reports dated March 13, 2019 and May  10, 2019 with respect to entering into an agreement to settle the Restated Management Services Agreement, including the long-term incentive arrangement therein, between the Registrant, Jay S. Hennick and Jayset Management FSV Inc. and eliminating the Registrant’s dual class share structure, and the completion of such settlement and elimination, respectively.

4.8   

Material Change Report dated April  12, 2019 with respect to the expansion of the Registrant’s revolving credit facility by $100 million, to a total borrowing capacity of $450 million.

4.9   

Material Change Reports dated May 27, 2019 and June  21, 2019 with respect to the Registrant’s entering into a definitive agreement to acquire Bellwether FOS Holdco, Inc., which wholly owns FirstOnSite USA Holdings, Inc. (“Global Restoration”), and the completion of such acquisition and the advance of the term loan under the Registrant’s amended and restated credit agreement dated as of June 21, 2019, respectively.

4.10   

Business Acquisition Report dated August  23, 2019 in respect of the Registrant’s acquisition of Bellwether FOS Holdco, Inc. (and the business of Global Restoration) completed on June 21, 2019.

5.1    Consent of PricewaterhouseCoopers LLP.
5.2    Consent of BDO USA, LLP.
5.3    Consent of Fogler, Rubinoff LLP.
5.4    Consent of Stikeman Elliott LLP.
6.1    Powers of Attorney (included on the signature pages of this Registration Statement).

 

*

To be filed by amendment.

 

II-2


Table of Contents

PART III

UNDERTAKING AND CONSENT TO SERVICE OF PROCESS

 

ITEM 1.

UNDERTAKING

The Registrant undertakes to make available, in person or by telephone, representatives to respond to inquiries made by the Commission staff, and to furnish promptly, when requested to do so by the Commission staff, information relating to the securities registered pursuant to this Form F-10 or to transactions in said securities.

 

ITEM 2.

CONSENT TO SERVICE OF PROCESS

Concurrently with the filing of this Registration Statement on Form F-10, the Registrant will file with the Commission a written irrevocable consent and power of attorney on Form F-X.

Any change to the name or address of the agent for service of the Registrant shall be communicated promptly to the Commission by amendment of the Form F-X referencing the file number of this Registration Statement.

 

III-1


Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Act, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form F-10 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Toronto, Ontario, Canada, on the 2nd day of December 2019.

 

FIRSTSERVICE CORPORATION
By:  

/s/ Jeremy Rakusin

  Name:   Jeremy Rakusin
  Title:   Chief Financial Officer

POWER OF ATTORNEY

Each person whose signature appears below constitutes and appoints Jeremy Rakusin as his or her true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any or all amendments (including post-effective amendments) to this Registration Statement and registration statements filed pursuant to Rule 462(b) or Rule 429 under the Securities Act, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent or his substitute or substitutes may lawfully do or cause to be done by virtue hereof.

This Power of Attorney may be executed in multiple counterparts, each of which shall be deemed an original, but when taken together shall constitute one instrument.

Pursuant to the requirements of the Securities Act, this Registration Statement has been signed by the following persons in the capacities indicated and on the 2nd day of December 2019.

 

Signature

  

Title

/s/ D. Scott Patterson

D. Scott Patterson

  

President, Chief Executive Officer and Director

(principal executive officer)

/s/ Jeremy Rakusin

Jeremy Rakusin

  

Chief Financial Officer

(principal financial officer and principal accounting officer)

/s/ Brendan Calder

Brendan Calder

  

Director

/s/ Bernard L. Ghert

Bernard I. Ghert

  

Director

/s/ Jay S. Hennick

Jay S. Hennick

  

Director

/s/ Michael Stein

Michael Stein

  

Director

/s/ Frederick F. Reichheld

Frederick F. Reichheld

  

Director

/s/ Joan Eloise Sproul

Joan Eloise Sproul

  

Director

/s/ Erin J. Wallace

Erin J. Wallace

  

Director

 

III-2


Table of Contents

AUTHORIZED REPRESENTATIVE

Pursuant to the requirements of the Securities Act, this Registration Statement on Form F-10 has been signed below by the undersigned, solely in its capacity as the Registrant’s duly authorized representative in the United States, on this 2nd day of December 2019.

 

By:  

/s/ Santino Ferrante

 

Name:

 

Santino Ferrante

 

III-3

Exhibit 4.4

 

 

 

 

 

 

 

Notice of Annual and Special Meeting

 

of Shareholders

 

and

 

Management Information Circular

 

of

 

FirstService Corporation

 

 

 

 

 

Friday, May 3, 2019

at 2:00 pm (Toronto time)

____________________________

 

The Design Exchange, 234 Bay Street

Toronto-Dominion Centre, Toronto, Ontario M5K 1B2

 

 

 

This Notice, Management Information Circular and the accompanying materials require your immediate attention. If you are in doubt as to how to deal with these documents or the matters they refer to, please consult your professional advisors. Any questions regarding the meeting or voting your shares can be directed to our strategic shareholder advisor and proxy solicitation agent Kingsdale Advisors at 1-866-851-2484, or collect call outside North America at 416-867-2272, or by e-mail at contactus@kingsdaleadvisors.com.

 

 

 

 

 

 

 

March 25, 2019

 

Dear Shareholder:

 

On behalf of both our Board of Directors and management, we are pleased to invite you to attend an annual and special meeting (the “Meeting”) of holders of Subordinate Voting Shares (“Subordinate Voting Shares”) and Multiple Voting Shares (“Multiple Voting Shares”) of FirstService Corporation (“FirstService”) which will be held at The Design Exchange, 234 Bay Street, Toronto-Dominion Centre, Toronto, Ontario M5K 1B2 on Friday, May 3, 2019 at 2:00 p.m. (Toronto time). At the Meeting, you will be asked to consider the matters relating to our usual annual business as outlined in the accompanying Notice of Meeting. You will also be asked to consider the transaction described below.

 

On March 12, 2019, we announced that we entered into an agreement with Jay S. Hennick, FirstService’s Founder, Chairman and largest voting shareholder, and entities related to him with respect to a proposed transaction (the “Transaction”) to settle the restated management services agreement (the “Management Services Agreement”), including the long-term incentive arrangement (the “Long Term Arrangement”), between FirstService, Mr. Hennick and Jayset Management FSV Inc. (“Jayset Mgt”), a corporation controlled by Mr. Hennick, and to eliminate the dual class voting structure of FirstService.

 

As part of the Transaction:

 

Henset Capital Inc., a corporation controlled by Mr. Hennick, will convert 1,325,694 Multiple Voting Shares of FirstService (being 100% of the outstanding Multiple Voting Shares) into Subordinate Voting Shares on a one-for-one basis and for no consideration, thereby eliminating FirstService’s dual class share structure;

 

FirstService will acquire, directly or indirectly, all of the shares of Jayset Mgt, the recipient of all fees and other entitlements under the Management Services Agreement, for a purchase price determined with reference to the Long Term Arrangement formula provided in the Management Services Agreement, and the Management Services Agreement will be terminated, thereby eliminating the Long Term Arrangement and all future fees and other entitlements owing thereafter. Mr. Hennick has agreed that 80% of the purchase price will be payable in Subordinate Voting Shares, with the balance paid in cash;

 

Mr. Hennick will retain his role as Chairman of FirstService, at the discretion of the Board, with compensation commensurate with that of a Non-Executive Chairman of a public company of similar size to FirstService; and

 

Mr. Hennick has agreed to waive entitlement to any termination fee under the Management Services Agreement.

 

Subject to and following completion of the Transaction, FirstService proposes to amend its articles to eliminate the Multiple Voting Shares and the “blank cheque” preference shares as part of the authorized capital of FirstService and to re-designate its Subordinate Voting Shares as “common shares”, after which FirstService would have a single class of voting equity securities (being “common shares”), each having one vote per share, and Mr. Hennick would indirectly own or control approximately 14.8% of such outstanding shares.

 

The Board identified, among others, the following material benefits expected to be achieved on completion of the Transaction and the associated articles amendment:

 

the Transaction will result in the elimination of FirstService’s dual class voting structure for no consideration, the result of which:

 

provides all shareholders with the same vote in proportion to their relative equity stake in FirstService; and

 

- 2 -

 

allows investors who may not wish to invest, or whose investment policies prevent them from investing in, shares of companies with dual class share structures to purchase Subordinate Voting Shares, thereby potentially enhancing liquidity;

 

the Transaction allows FirstService to use the Subordinate Voting Shares for purposes of raising additional capital, effecting an acquisition or merger transaction or issuing additional equity without further dilution resulting from the Management Services Agreement. Likewise, the removal of the preference shares as part of FirstService’s authorized capital eliminates potential dilution and perceived anti-takeover measures previously faced by holders of Subordinate Voting Shares;

 

the Transaction will facilitate an orderly transition of effective control by FirstService’s Founder to its shareholders, the Board and its professional management team and will provide shareholders with greater flexibility to determine the future direction of FirstService without a possible veto by Mr. Hennick;

 

Mr. Hennick agreed to: (i) forgo any entitlement to a termination fee and all future fees and other entitlements to which he would otherwise be permitted under the Management Services Agreement; (ii) give up his Multiple Voting Shares without a premium; and (iii) accept a substantial portion of the consideration under the Transaction in Subordinate Voting Shares; and

 

Mr. Hennick remains committed to the future direction of FirstService, and is expected to own or control approximately 14.8% of the outstanding shares of FirstService at the time of the completion of the Transaction. He has agreed to continue to serve as non-executive Chairman of the Board.

 

The Board has reviewed the terms and conditions of the Transaction and, for the reasons set out in the accompanying Management Information Circular (the “Circular”), has (with Mr. Hennick recusing himself) unanimously concluded that the Transaction is in the best interests of FirstService and the holders of Subordinate Voting Shares.

 

The Board (with Mr. Hennick recusing himself) unanimously recommends that holders of Subordinate Voting Shares vote FOR the resolutions approving the Transaction and the amendment to FirstService’s articles at the Meeting. The members of the Board and the executive officers of FirstService (in each case, excluding Mr. Hennick) have advised that they intend to vote their Subordinate Voting Shares FOR these resolutions. In addition, T. Rowe Price Associates, Inc., the largest holder of Subordinate Voting Shares, has advised FirstService that, based on the information provided to it by FirstService, it is supportive of the Transaction. As at March 25, 2019, to the knowledge of the directors and executive officers of FirstService, T. Rowe Price Associates, Inc. beneficially owned, or exercised control or direction over, 6,112,471 Subordinate Voting Shares, representing 17.6% of the outstanding Subordinate Voting Shares.

 

The resolution in respect of the Transaction must be approved by a simple majority of the votes cast at the Meeting by the disinterested “minority” holders of Subordinate Voting Shares, voting separately as a class. The resolution approving the amendment to FirstService’s articles must be approved by not less than 66⅔% of the votes cast at the Meeting by the holders of Subordinate Voting Shares, voting separately as a class. The resolution approving the amendment to FirstService’s articles will only be put to the Meeting and voted on if the resolution in respect of the Transaction is approved.

 

The Transaction is subject to the satisfaction of certain other conditions, including the receipt of required regulatory approvals from the Toronto Stock Exchange and The NASDAQ Global Select Market. Subject to the receipt of such approvals and the satisfaction or waiver, as applicable, of the other conditions to closing, it is anticipated that the Transaction will be completed on or around May 10, 2019.

 

The Circular provides a detailed description of the Transaction and the other matters to be considered at the Meeting. You are urged to read this information carefully and, if you require assistance, to consult your own legal, financial or other professional advisor.

 

Following the custom of past annual meetings, we will also review our business operations and will be answering your questions following the formal part of the Meeting.

 

- 3 -

 

Your vote and participation in FirstService’s business is important regardless of the number of shares that you own. You have the ability to exercise your vote by telephone, internet, mail, facsimile or by coming to the Meeting in person. Please consult the Circular and the notice of Meeting which, together, contain all of the information you need about the Meeting and how to exercise your vote.

 

Kingsdale Advisors has been engaged as our strategic shareholder advisor and proxy solicitation agent in connection with the solicitation of proxies with respect to the Transaction for the Meeting. Any questions regarding the Meeting or voting your shares can be directed to Kingsdale Advisors at 1-866-851-2484, or collect call outside North America at 416-867-2272, or by e-mail at contactus@kingsdaleadvisors.com.

 

On behalf of the Board, management and the employees of FirstService, we would like to thank you for your support of FirstService. We look forward to seeing you at the Meeting.

 

Sincerely yours,

 


 

Bernard I. Ghert

Lead Director

 

 

 

 

 

 

 

 

 

 

FIRSTSERVICE CORPORATION

 

ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS

 

THIS BOOKLET EXPLAINS:

 

Details of the matters to be voted upon at the annual and special meeting (the “Meeting”) of shareholders of FirstService Corporation (“FirstService”); and  
       
  How to exercise your vote even if you are unable to attend the Meeting.  

 

THIS BOOKLET CONTAINS:

 

  The notice of annual and special meeting of shareholders (the “Notice of Meeting”);  
       
  A management information circular (the “Circular”); and  
       
  A form of proxy (a “Form of Proxy”) that registered shareholders may use to vote their shares without attending the Meeting.  
       
  The Circular and Form of Proxy are furnished in connection with the solicitation of proxies by or on behalf of management of FirstService for use at the Meeting to be held on Friday, May 3, 2019, at 2:00 p.m. (Toronto time).  
     
  At the Meeting, management will report on FirstService’s performance for the year ended December 31, 2018 and FirstService’s plans for the coming year. The Meeting will deal with, among other things, the usual matters of governance, including the presentation of financial results, the election of directors and the appointment of auditors, as well as seeking approval of a transaction that, if approved, will terminate the restated management services agreement with FirstService’s Founder and Chairman, Jay S. Hennick, and entities controlled by Mr. Hennick and eliminate the dual class share structure of FirstService. Your presence, or at least your vote if you are unable to attend in person, is important.  
     
  Any questions regarding the Meeting or voting your shares can be directed to our strategic shareholder advisor and proxy solicitation agent, Kingsdale Advisors, at 1-866-851-2484, or collect call outside North America at 416-867-2272, or by e-mail at contactus@kingsdaleadvisors.com.  
     
REGISTERED SHAREHOLDERS
 
  A Form of Proxy is enclosed that may be used to vote your shares if you are unable to attend the Meeting in person. Instructions on how to vote using this Form of Proxy are found in the Circular.  
     
NON-REGISTERED BENEFICIAL SHAREHOLDERS
     
  If your shares are held on your behalf, or for your account, by a broker, securities dealer, bank, trust company or similar entity (an “Intermediary”), you may not be able to vote unless you carefully follow the instructions provided by your Intermediary with this booklet.  

 

NOTICE TO UNITED STATES SHAREHOLDERS
     
  The solicitation of proxies by FirstService is not subject to the requirements of Section 14(a) of the United States Securities Exchange Act of 1934, as amended (the “US Exchange Act”), by virtue of an exemption applicable to proxy solicitations by “foreign private issuers” as defined in Rule 3b-4 under the US Exchange Act. Accordingly, this Circular has been prepared in accordance with the applicable disclosure requirements in Canada. Residents of the United States should be aware that such requirements are different than those of the United States applicable to proxy statements under the US Exchange Act.  
     

  

 

 

 

 

NOTICE OF ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS

 

NOTICE IS HEREBY GIVEN that an annual and special meeting (the “Meeting”) of the shareholders of FirstService Corporation (“FirstService”) will be held at The Design Exchange, 234 Bay Street, Toronto-Dominion Centre, Toronto, Ontario M5K 1B2 on Friday, May 3, 2019, at 2:00 p.m. (Toronto time) for the following purposes:

 

1. to receive the audited consolidated financial statements of FirstService for the year ended December 31, 2018 and the report of the auditors’ thereon;

 

2. to appoint PricewaterhouseCoopers LLP as independent auditors of FirstService and to authorize the directors to fix their remuneration;

 

3. to elect the directors of FirstService for the ensuing year;

 

4. to consider and, if deemed advisable, pass a non-binding advisory resolution on FirstService’s approach to executive compensation;

 

5. for holders of subordinate voting shares of FirstService to consider and, if deemed advisable, approve a resolution (the “Transaction Resolution”), the full text of which is set out in Appendix A to the accompanying Management Information Circular (the “Circular”), approving a transaction (the “Transaction”) pursuant to which FirstService will terminate the restated management services agreement with FirstService’s Founder and Chairman, Jay S. Hennick, and entities controlled by Mr. Hennick and eliminate the dual class share structure of FirstService, all as more particularly set forth and described in the accompanying Circular;

 

6. if the Transaction Resolution is approved, for holders of subordinate voting shares of FirstService to consider and, if deemed advisable, approve a special resolution, the full text of which is set out in Appendix B to the accompanying Circular, to amend the articles of FirstService, subject to and following completion of the Transaction, to remove all references to the multiple voting shares and preference shares of FirstService, and to re-designate the subordinate voting shares of FirstService as “common shares”; and

 

7. to transact such further or other business as may properly come before the Meeting or any adjournment(s) or postponement(s) thereof.

 

Specific details relating to the Transaction and the other matters to be considered at the Meeting are set forth in the accompanying Circular.

 

The board of directors of FirstService has fixed the close of business on Friday, March 8, 2019 as the record date for determining shareholders of record who are entitled to receive notice of the Meeting and to attend and vote at the Meeting, or at any adjournment(s) or postponement(s) thereof.

 

If you are a registered shareholder and are unable to attend the Meeting in person, please complete, sign, date and return the enclosed form of proxy to TSX Trust Company, 301 – 100 Adelaide Street West, Toronto, Ontario M5H 4H1, or by facsimile to 416-595-9593, or complete the form of proxy by such other method as is identified, and pursuant to any instructions contained, in the form of proxy. In order to be valid for use at the Meeting, proxies must be received not less than 48 hours (excluding Saturdays, Sundays and holidays) prior to the Meeting or any adjournment(s) or postponement(s) thereof.

 

If you are a non-registered shareholder and receive these materials through your broker or through another intermediary, please complete and return the materials in accordance with the instructions provided to you by your broker or such other intermediary. If you are a non-registered shareholder and do not complete and return the materials in accordance with such instructions, you may lose the right to vote at the Meeting, either in person or by proxy.

 

- ii -

 

Further information with respect to voting by proxy is included in the accompanying Circular. Any questions regarding the Meeting or voting your shares can be directed to our strategic shareholder advisor and proxy solicitation agent Kingsdale Advisors at 1-866-851-2484, or collect call outside North America at 416-867-2272, or by e-mail at contactus@kingsdaleadvisors.com.

 

DATED at Toronto, Ontario this 25th day of March, 2019.

 

    By Order of the Board of Directors
     
   
     
    DOUGLAS G. COOKE
    Vice President, Corporate Controller and Corporate
    Secretary

 

 

 

 

 

 

 

 

 

 

MANAGEMENT INFORMATION CIRCULAR

 

ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS

 

MAY 3, 2019

 

 

GENERAL PROXY MATTERS

 

Introduction

 

This management information circular (this “Circular”) is furnished in connection with the solicitation of proxies by and on behalf of management (“Management”) of FirstService Corporation (“FirstService”) and its board of directors (the “Board”) for use at the annual and special meeting of shareholders of FirstService (the “Meeting”) to be held at the time and place and for the purposes set forth in the accompanying notice of Meeting (the “Notice of Meeting”), and at any adjournment(s) or postponement(s) thereof. This Circular’s purpose is to:

 

  explain how you, as a shareholder of FirstService, can vote at the Meeting, either in person or by transferring your vote to someone else to vote on your behalf;
     
  request that you authorize the Lead Director of the Board (or his alternate) to vote on your behalf in accordance with your instructions set out on the accompanying form of proxy;
     
  inform you about the business to be conducted at the Meeting, including the election of directors of FirstService and the appointment of independent auditors of FirstService for the coming year, as well as seeking approval of a transaction that, if approved, will terminate the restated management services agreement with FirstService’s Founder and Chairman, Jay S. Hennick, and entities controlled by Mr. Hennick and eliminate the dual class share structure of FirstService; and
     
  give you some important background information to assist you in deciding how to vote.

 

FirstService provides detailed information on its business and financial results on its website located at www.firstservice.com. FirstService’s news releases and other prescribed documents are required to be filed on the electronic database maintained by the Canadian Securities Administrators (known as SEDAR) located at www.sedar.com and by the U.S. Securities and Exchange Commission (the “SEC”) (known as EDGAR) located at www.sec.gov. A copy of this Circular is available on SEDAR and EDGAR.

 

Unless otherwise specifically stated, all information set forth herein is given as at March 25, 2019. In this Circular, references to “$”, “C$” and “Canadian dollars” are to the lawful currency of Canada and references to “US$” and “United States dollars” are to the lawful currency of the United States of America. All dollar amounts herein are in Canadian dollars, unless otherwise stated. The address of the registered office of FirstService is 1140 Bay Street, Suite 4000, Toronto, Ontario M5S 2B4.

 

Live Webcast of the Meeting

 

Shareholders who are unable to attend the Meeting in person have the opportunity to listen to a live webcast of the Meeting. The details concerning the live webcast will be provided on FirstService’s website at www.firstservice.com prior to the Meeting. Shareholders unable to listen to the live webcast will also be able to listen to a recorded version of the Meeting at a later date, as one will be made available on FirstService’s website.

 

- 2 -

 

Solicitation of Proxies

 

The form of proxy accompanying this Circular is being solicited on behalf of Management in connection with the Meeting. The solicitation of proxies will be primarily by mail, but some proxies may be solicited by newspaper publication, personal interviews, email, telephone or facsimile communication by directors, officers or employees (or representatives thereof) of FirstService, who will not be specifically compensated therefor, or agents of FirstService who will be specifically compensated therefor. Kingsdale Advisors has been retained as our strategic shareholder advisor and proxy solicitation agent in connection with the solicitation of proxies for the Meeting and, in such capacity, is entitled to receive a fixed fee of $125,000 plus out-of-pocket expenses. Any questions regarding the Meeting or voting your shares can be directed to Kingsdale Advisors at 1-866-851-2484, or collect call outside North America at 416-867-2272, or by e-mail at contactus@kingsdaleadvisors.com. All costs of the solicitation will be borne, directly or indirectly, by FirstService.

 

Management does not intend to pay for intermediaries to forward to objecting beneficial owners under National Instrument 54-101 – Communication with Beneficial Owners of Securities of a Reporting Issuer this Circular and related Meeting materials, and in the case of an objecting beneficial owner, the objecting beneficial owner will not receive these materials unless the objecting beneficial owner’s intermediary assumes the cost of delivery.

 

Information for Registered Shareholders

 

A registered holder may vote in any of the ways set out below:

 

In person at the Meeting: A registered shareholder who wishes to vote in person at the Meeting should not complete or return the form of proxy included with this Circular, and instead will have their votes taken at the Meeting.

 

Voting by Internet: A registered shareholder may submit his or her proxy over the Internet by going to www.voteproxyonline.com and following the instructions. Such shareholder will require a 12-digit control number (located on the front of the form of proxy) to identify himself or herself to the system.

 

Voting by Fax: 416-595-9593 or 1-866-623-5305 (send both pages of their completed and signed form of proxy).

 

Voting by Mail: Complete, sign, date and return the form of proxy to TSX Trust Company, 301 – 100 Adelaide Street West, Toronto, Ontario M5H 4H1

 

Any questions regarding the Meeting or voting your shares can be directed to Kingsdale Advisors at 1-866-851-2484, or collect call outside North America at 416-867-2272, or by e-mail at contactus@kingsdaleadvisors.com.

 

Information for Non-Registered Shareholders

 

Holders of Shares who are Non-Registered Shareholders

 

Subject to applicable laws, the only shareholders entitled to vote at the Meeting are those whose names have been entered into FirstService’s register as holders of subordinate voting shares or multiple voting shares (each, a “Registered Shareholder”). However, the shares of the majority of FirstService’s shareholders are not held in their own name, but rather are registered in the name of nominee accounts (the “Non-Registered Shareholders”), usually The Canadian Depository for Securities Limited (“CDS”). CDS acts as clearing agent for brokers and other intermediaries (the “Intermediaries”) who, in turn, act on behalf of the holders of FirstService shares.

 

As a result, Non-Registered Shareholders can only exercise their rights as beneficial owners of voting shares through CDS or a participant in the CDS depository service. This means that in order for Non-Registered Shareholders to exercise their rights to vote their shares at the Meeting, they must provide voting instructions to the Registered Shareholder.

 

If Non-Registered Shareholders wish to vote their shares, they must carefully review and follow the voting instructions provided by their Intermediary.

 

- 3 -

 

Delivery of Voting Instructions by Non-Registered Shareholders

 

Applicable regulatory policies require Intermediaries to seek voting instructions from Non-Registered Shareholders in advance of shareholder meetings. Each Intermediary has its own mailing procedures and provides its own return instructions, which should be carefully followed by Non-Registered Shareholders in order to ensure their FirstService’s shares are voted at the Meeting. Generally, Non-Registered Shareholders who receive meeting materials will be given either:

 

(a) a form of proxy which has already been signed by the Intermediary (typically by a facsimile, stamped signature), which is restricted as to the number of FirstService’s shares beneficially owned by the Non-Registered Shareholder but which is otherwise not completed. This form of proxy need not be signed by the Non-Registered Shareholder. In this case, the Non-Registered Shareholder who wishes to submit a proxy should complete the rest of the form of proxy and deliver the proxy in accordance with the instructions provided by the Intermediary; or

 

(b) a voting instruction form which must be completed and signed by the Non-Registered Shareholder in accordance with the directions on the voting instruction form and returned to the Intermediary or its service company. In some cases, the completion of the voting instruction form by telephone, the internet or facsimile is permitted.

 

The purpose of these procedures is to permit Non-Registered Shareholders to direct the voting of the FirstService shares that they beneficially own. These procedures do not permit a Non-Registered Shareholder to vote FirstService shares in person at the Meeting.

 

Voting in Person by Non-Registered Shareholders

 

A Non-Registered Shareholder who receives a form of proxy or a voting instruction form and wishes to vote at the Meeting in person should, in the case of a form of proxy, strike out the names of the persons designated in the form of proxy and insert the Non-Registered Shareholder’s name in the blank space provided or, in the case of a voting instruction form, follow the corresponding directions on the form. In either case, Non-Registered Shareholders should carefully follow the instructions of their Intermediary, including those regarding when and where the proxy or voting instruction form is to be delivered.

 

Any questions regarding the Meeting or voting your shares can be directed to Kingsdale Advisors at 1-866-851-2484, or collect call outside North America at 416-867-2272, or by e-mail at contactus@kingsdaleadvisors.com.

 

Appointment of Proxyholder

 

The individuals specified as proxyholders in the enclosed form of proxy are representatives of Management and are directors and/or officers of FirstService. A shareholder may, by properly marking, executing and depositing the accompanying form of proxy, appoint as proxyholder the individuals named in the accompanying form of proxy, or some other individual or entity, who need not be a shareholder. This latter right may be exercised by striking out the names of the designated individuals and inserting the name of such other proxyholder in the blank space provided in the enclosed form of proxy or by completing another proxy in proper form. The proxyholder may attend and act for the shareholder at the Meeting and any adjournment(s) or postponement(s) thereof.

 

Execution and Deposit of Proxy

 

If a shareholder is an individual, the form of proxy must be executed by the shareholder or a duly authorized attorney of the Registered Shareholder. If a shareholder is a corporation or other form of entity, the form of proxy must be executed by a duly authorized attorney or officer of the corporation or other form of entity. Where a form of proxy is executed by an attorney or officer of a corporation or other form of entity, the authorizing documents (or notarized copies thereof) may be requested to accompany the form of proxy. To be valid, an executed form of proxy must be received at the offices of TSX Trust Company, 301 – 100 Adelaide Street West, Toronto, Ontario M5H 4H1, if sent by facsimile, to 416-595-9593, or if by such other method as is identified in the form of proxy, in accordance with the instructions set out in the form of proxy, in any case, not later than 2:00 p.m. (Toronto time) on Wednesday, May 1, 2019 or, if the Meeting is adjourned, not later than 48 hours, excluding Saturdays, Sundays and holidays, preceding the time of such adjourned Meeting. The time limit for the deposit of proxies may be waived or extended by the Chair of the Meeting at his or her discretion without notice.

 

- 4 -

 

Manner Proxies Will Be Voted

 

The FirstService shares represented by the accompanying form of proxy will be voted or withheld from voting, as the case may be, on any ballot that may be called for at the Meeting and, subject to the provisions of the Business Corporations Act (Ontario) (“OBCA”), where a choice is specified in respect of any matter to be acted upon, will be voted in accordance with the specification made. If a shareholder does NOT specify how to vote on a particular matter, the proxyholder is entitled to vote the FirstService shares as he or she sees fit. Please note that if a completed form of proxy does not specify how to vote on any particular matter, and if a shareholder has authorized either of the individuals named therein to act as proxyholder (by leaving the line for the proxyholder’s name blank on the form of proxy), your FirstService shares will be voted at the Meeting as follows:

 

FOR the election of the eight nominees to the board of directors of FirstService, those nominees being the eight current directors of FirstService;

 

FOR the appointment of PricewaterhouseCoopers LLP, Chartered Accountants and Licensed Public Accountants, as independent auditors of FirstService and to authorize the board of directors of FirstService to fix the auditors’ remuneration;

 

FOR the approval of the non-binding advisory resolution on FirstService’s approach to executive compensation;

 

FOR the approval of a resolution (the “Transaction Resolution”), the full text of which is set out in Appendix A to this Circular, approving a transaction (the “Transaction”) pursuant to which FirstService will terminate the restated management services agreement with FirstService’s Founder and Chairman, Jay S. Hennick, and entities controlled by Mr. Hennick and eliminate the dual class share structure of FirstService; and

 

FOR the approval of a special resolution (the “Articles Resolution”), the full text of which is set out in Appendix B to this Circular, to amend the articles of FirstService, subject to and following completion of the Transaction, to remove all references to the multiple voting shares and preference shares of FirstService, and to re-designate the subordinate voting shares of FirstService as “common shares”.

 

For more information on these matters, please see the section entitled “Business of the Meeting” below. If any other matters properly arise at the Meeting that are not described in the Notice of Meeting, or if any amendments are proposed to the matters described in the Notice of Meeting, a proxyholder is entitled to vote the FirstService shares as he or she sees fit. The Notice of Meeting sets out all the matters to be determined at the Meeting that are known to Management as of March 25, 2019.

 

Revocability of Proxy

 

A shareholder giving a proxy has the power to revoke it. Such revocation may be made by the shareholder attending the Meeting, duly executing another form of proxy bearing a later date and depositing it before the specified time, or may be made by written instrument revoking such proxy executed by the shareholder or by his or her attorney authorized in writing and deposited either at the registered office of FirstService at any time up to and including the last business day preceding the day of the Meeting or any adjournment thereof, or with the Chair of the Meeting on the day of the Meeting or any adjournment thereof or in any other manner permitted by law. If such written instrument is deposited with the Chair of the Meeting on the day of the Meeting or any adjournment thereof, such instrument will not be effective with respect to any matter on which a vote has already been cast pursuant to such proxy.

 

- 5 -

 

Quorum

 

The by-laws of FirstService provide that a quorum for the Meeting is two or more individuals holding, or representing by proxy, not less than 5% of the votes attached to all outstanding shares of FirstService entitled to be voted at the Meeting. In the event that such quorum is not present at the appointed place on the date for which the Meeting is called within 30 minutes after the time fixed for the holding of the Meeting, the Meeting will stand adjourned to such day being not less than 10 days later and to such place and at such time as may be determined by the chair of the Meeting. If at such adjourned Meeting a quorum is not present, the shareholders present either personally or represented by proxy will constitute a quorum and any business which could have been brought before or dealt with at the original Meeting in accordance with the Notice of Meeting may be brought before or dealt with at such adjourned Meeting. A quorum need not be present throughout the Meeting provided that a quorum is present at the opening of the Meeting.

 

Voting Results

 

Voting results of the Meeting will be filed on SEDAR at www.sedar.com following the Meeting. Voting results on each of the matters voted on at FirstService’s annual and special meeting of shareholders held on April 11, 2018 (together with the preceding year, as applicable) are as follows:

 

Brief Description of

Matter Voted Upon

Outcome of the Vote(1)
2018 2017
Approved For Approved For
Appointment of PricewaterhouseCoopers LLP as the independent auditors of FirstService Yes 99.74% Yes 99.43%
The election of each of the following nominees as members of the Board:        
Brendan Calder Yes 99.32% Yes 99.30%
Bernard I. Ghert Yes 99.69% Yes 99.30%
Jay S. Hennick Yes 98.57% Yes 98.28%
D. Scott Patterson Yes 99.97% Yes 99.35%
Frederick F. Reichheld Yes 99.65% Yes 99.33%
Michael Stein Yes 99.61% Yes 98.20%
Erin J. Wallace Yes 99.51% Yes 99.33%
Approving an amendment to the FirstService Stock Option Plan Yes 84.83% N/A N/A
Say-on-Pay N/A N/A N/A N/A

___________

Note:

(1) All votes were conducted and approved by way of a show of hands; the number of votes disclosed for these items reflects those proxies received by Management in advance of the applicable meeting.

 

Authorized Capital, Outstanding Shares and Principal Holders of Shares

 

The authorized capital of FirstService consists of an unlimited number of preference shares, issuable in series, an unlimited number of subordinate voting shares (the “Subordinate Voting Shares”) and an unlimited number of multiple voting shares (the “Multiple Voting Shares”, and together with the Subordinate Voting Shares, the “FirstService Shares”). The holders of Subordinate Voting Shares are entitled to one vote in respect of each Subordinate Voting Share held at all meetings of the shareholders of FirstService. The holders of Multiple Voting Shares are entitled to twenty votes in respect of each Multiple Voting Share held at all meetings of the shareholders of FirstService. At the Meeting, if the Transaction Resolution and Articles Resolution are approved and the matters therein implemented, the dual class share structure of FirstService will be eliminated, all references to the Multiple Voting Shares and preference shares will be removed from FirstService’s articles and the Subordinate Voting Shares will be re-designated as “common shares”. See “Business of the Meeting – Approval of Transaction” and “Business of the Meeting –” Approval of Amendment to the Articles”.

 

As at March 25, 2019, FirstService has outstanding 34,785,253 Subordinate Voting Shares (having 56.7% of the total votes attached to all FirstService Shares) and 1,325,694 Multiple Voting Shares (having 43.3% of the total votes attached to all FirstService Shares). Only those holders of outstanding FirstService Shares of record at the close of business on March 8, 2019 (the “Record Date”) are entitled to vote their FirstService Shares at the Meeting or any adjournment(s) thereof. The Record Date was fixed by the Board.

 

- 6 -

 

Voting at the Meeting will be by show of hands, except with respect to the Transaction Resolution, the Articles Resolution or where a ballot is demanded by a shareholder or proxyholder entitled to vote at the Meeting. Each shareholder will be entitled to vote with respect to such number of FirstService Shares shown as registered in his, her or its name on the list of shareholders as of the Record Date prepared by FirstService, which list is available for inspection by shareholders at the Meeting or, after the 10th day following the Record Date, during usual business hours at the registered office of FirstService or the office of the registrar and transfer agent of the Subordinate Voting Shares and/or Multiple Voting Shares.

 

The following table sets forth, as at March 25, 2019, the only persons who, to the knowledge of the directors and executive officers of FirstService, beneficially own, or control or direct, directly or indirectly, 10% or more of the issued and outstanding Subordinate Voting Shares or Multiple Voting Shares, the approximate number of outstanding Subordinate Voting Shares and Multiple Voting Shares beneficially owned, or controlled or directed, directly or indirectly, by such persons and the percentage of outstanding Subordinate Voting Shares and Multiple Voting Shares and votes represented by the number of Subordinate Voting Shares and Multiple Voting Shares so owned or controlled or directed:

 

  Number of FirstService Shares
Owned or Controlled or Directed
Percentage of Percentage of
 

Subordinate

Voting Shares

Multiple Voting
Shares

Subordinate

Voting Shares

Multiple Voting
Shares

Total

FirstService Shares

Total

Votes

Jay S. Hennick (1)

Toronto, Ontario

 

1,522,526 1,325,694   4.4% 100.0%   7.9% 45.7%

T. Rowe Price Associates, Inc. (2)

Baltimore, Maryland

 

6,112,471               0 17.6%     0.0% 16.9% 10.0%

___________

Notes:

(1) 1,522,526 Subordinate Voting Shares and 1,325,694 Multiple Voting Shares are held by Henset Capital Inc. and The Jay and Barbara Hennick Family Foundation, entities controlled by Mr. Hennick. See “Business of the Meeting – Approval of Transaction” for additional Subordinate Voting Shares to be issued indirectly by Mr. Hennick in connection with the completion of the Transaction.
(2) Information provided is obtained from the most recent SEDAR filings made in accordance with applicable Canadian securities laws.

 

Certain Rights of Holders of Subordinate Voting Shares

 

The following is a summary of the rights attaching to the Subordinate Voting Shares in the event that a take-over bid is made for Multiple Voting Shares. Reference should be made to the articles of FirstService for the full text of these provisions.

 

If a take-over bid (as defined in the Securities Act (Ontario)) is made to the holders of the Multiple Voting Shares, each Subordinate Voting Share shall become convertible into a Multiple Voting Share at the option of the holder thereof at any time during the period commencing on the eighth day after the date on which the offer is made and ending on the last date upon which holders of Multiple Voting Shares will be entitled to accept the offer. However, this conversion right shall not come into effect if:

 

(a) an identical offer is made concurrently to purchase Subordinate Voting Shares (if any are then issued and outstanding), which offer has no condition attached to it other than the right to not take-up and pay for shares tendered if no shares are purchased pursuant to the take-over bid for Multiple Voting Shares;

 

(b) holders of more than 50% of the issued and outstanding Multiple Voting Shares deliver a certificate or certificates to FirstService’s transfer agent certifying that such holders will not deposit such Multiple Voting Shares under the take-over bid therefor; or

 

(c) the take-over bid for Multiple Voting Shares is not completed by the offeror.

 

- 7 -

 

The articles of FirstService provide that a holder of Multiple Voting Shares is entitled at any time and from time to time to convert all or any part of the Multiple Voting Shares held by such holder into Subordinate Voting Shares on a share-for-share basis, upon irrevocable notice.

 

Jay S. Hennick and Henset Capital Inc. (the “Multiple Voting Shareholder”) are subject to an agreement (the “Trust Agreement”) with Equity Financial Trust Company (the “Trustee”) and FirstService in order to provide the holders of Subordinate Voting Shares with certain additional rights in the event that a take-over bid, having certain characteristics, is made for the Multiple Voting Shares. Under applicable securities laws, an offer to purchase Multiple Voting Shares would not necessarily require that an offer be made to purchase Subordinate Voting Shares.

 

The Trust Agreement prevents the sale, directly or indirectly, of Multiple Voting Shares owned by the Multiple Voting Shareholder pursuant to a take-over bid at a price per share in excess of 115% of the then current market price of the Subordinate Voting Shares, as determined under applicable legislation. This prohibition does not apply if: (a) such sale is made pursuant to an offer to purchase Multiple Voting Shares made to all holders of Multiple Voting Shares and an offer identical in all material respects is made concurrently to purchase Subordinate Voting Shares, which identical offer has no condition attached other than the right not to take-up and pay for shares tendered if no shares are purchased pursuant to the offer for Multiple Voting Shares; or (b) there is a concurrent unconditional offer to purchase all of the Subordinate Voting Shares at a price per share at least as high as the highest price per share paid pursuant to the take-over bid for the Multiple Voting Shares.

 

The Trust Agreement provides, among other things, that prior to any direct or indirect transfer of any or all of the Multiple Voting Shares owned by the Multiple Voting Shareholder to any party other than a member of the Hennick Family (as defined below), the transferred Multiple Voting Shares will be automatically converted to Subordinate Voting Shares. The Trust Agreement does not prevent certain indirect sales resulting from the transfer of shares of a corporation which, directly or indirectly, controls or is controlled by the Multiple Voting Shareholder or FirstService, where the transferor and transferee are members of the Hennick Family and the transferee is the spouse or child of the transferor and where the sale is otherwise made in accordance with applicable law. The phrase “Hennick Family” is defined to mean: (i) Jay S. Hennick; (ii) the spouse, children or estate of Jay S. Hennick; (iii) a trust, the sole beneficiaries of which are any of the foregoing; and (iv) any and all corporations or entities which are directly or indirectly controlled by any of the foregoing.

 

The Trust Agreement contains provisions for the authorization of action by the Trustee to enforce the rights thereunder on behalf of the holders of the Subordinate Voting Shares. No holder of Subordinate Voting Shares has the right, other than through the Trustee, to institute any action or proceeding or to exercise any other remedy to enforce any rights arising under the Trust Agreement unless the Trustee fails to act on a request authorized by holders of not less than 10% of the outstanding Subordinate Voting Shares after provision of reasonable funds and indemnity to the Trustee and evidence of the registered holdings of the requesting shareholders.

 

Holders of Subordinate Voting Shares may have additional rights under applicable securities legislation in the event of a take-over bid.

 

At the Meeting, if the Transaction Resolution and Articles Resolution are approved and the matters therein implemented, the dual class share structure of FirstService will be eliminated, all references to the Multiple Voting Shares and preference shares will be removed from FirstService’s articles and the Subordinate Voting Shares will be re-designated as “common shares”. See “Business of the Meeting – Approval of Transaction” and “Business of the Meeting – Approval of Amendment to the Articles”. In such event, the rights described above attaching to the Subordinate Voting Shares will be removed from FirstService’s articles, and the Trust Agreement described above will terminate.

 

STATEMENT OF CORPORATE GOVERNANCE PRACTICES

 

The Board considers good corporate governance practices to be an important factor in the overall success of FirstService. Under National Instrument 58-101 – Disclosure of Corporate Governance Practices and National Policy 58-201 – Corporate Governance Guidelines (collectively, the “Corporate Governance Rules”), FirstService is required to disclose information relating to its corporate governance practices, which disclosure is set out herein. FirstService is committed to adopting and adhering to corporate governance practices that either meet or exceed applicable corporate governance standards. FirstService believes that its corporate governance practices should be compared to the highest standards currently in force and applicable to it as well as to best market practices. In light of the foregoing, the Board believes FirstService’s corporate governance practices can and should evolve over time. Accordingly, the Board has decided to present to shareholders an advisory resolution with respect to FirstService’s approach to executive compensation as described below under “Business of the Meeting – Advisory Resolution on Executive Compensation”. The Board will continue to follow market or regulatory initiatives, remain open to discussions with its shareholders and to consider potential corporate governance changes and refinements when and as appropriate.

 

- 8 -

 

In addition, FirstService believes that director, officer and employee honesty and integrity are important factors in ensuring good corporate governance, which in turn improves corporate performance and benefits all shareholders. To that end, the Board has adopted a Code of Ethics and Conduct, which code applies to all directors, officers and employees of FirstService and its subsidiaries, and a Financial Management Code of Ethics and Conduct, which code applies to officers, senior management and senior financial and accounting personnel of FirstService and its subsidiaries. The Code of Ethics and Conduct and the Financial Management Code of Ethics and Conduct can each be viewed on FirstService’s website (www.firstservice.com). Any deviations from the Code of Ethics and Conduct are required to be reported to an employee’s supervisor and, if appropriate, FirstService’s Chief Financial Officer and the Board. Any deviations from the Financial Management Code of Ethics and Conduct are required to be reported to FirstService’s Director, Compliance and Risk Management, the Chief Executive Officer (the “CEO”) and/or the Chair of the Audit Committee of the Board (the “Audit Committee”). Furthermore, FirstService maintains an ethics hotline, FirstLine, and an ethics hotline policy in which any director, officer and employee of FirstService or its subsidiaries has a responsibility to report any activity or suspected activity of which he or she may have knowledge relating to the integrity of FirstService’s financial reporting or which otherwise might be considered sensitive in preserving FirstService’s reputation. All reports made to the ethics hotline are reviewed by the Audit Committee.

 

With respect to the United States, FirstService is required to comply with the provisions of the Sarbanes-Oxley Act of 2002 and the rules adopted by the SEC pursuant to that Act, as well as the governance rules of The NASDAQ Global Select Market (“NASDAQ”), in each case, as applicable to foreign private issuers like FirstService. Most of the NASDAQ corporate governance standards are not mandatory for FirstService as a foreign private issuer, but FirstService is required to disclose the significant differences between its corporate governance practices and the requirements applicable to U.S. issuers listed on NASDAQ under NASDAQ corporate governance standards. Except as may be summarized on FirstService’s website, www.firstservice.com, FirstService is in compliance with the NASDAQ corporate governance standards.

 

Board Composition

 

The Board is currently comprised of eight members, seven of which were elected at FirstService’s annual and special meeting of shareholders held in 2018, and one of which, Joan Eloise Sproul, was appointed as a director in May 2018. A majority of the Board is comprised of independent directors. Six of the current eight members of the Board (or 75%), being Brendan Calder, Bernard I. Ghert, Frederick F. Reichheld, Joan Eloise Sproul, Michael Stein and Erin J. Wallace, are considered by the Board to be independent directors within the meaning of the Corporate Governance Rules as each has “no direct or indirect material relationship” with FirstService. Jay S. Hennick and D. Scott Patterson, the other Board members, are not independent directors within the meaning of the Corporate Governance Rules. Mr. Hennick is the Founder and Chairman of the Board of FirstService and provides services to FirstService pursuant to a management services agreement (see “Executive Compensation – Management Contract” below), and Mr. Patterson is the President and Chief Executive Officer of FirstService. In deciding whether a particular director is or is not an independent director, the Board examined the factual circumstances of each director and considered them in the context of many factors. All eight nominees for election to the Board at the Meeting are current members of the Board.

 

Majority Voting Policy

 

The Board has adopted a majority voting policy for the election of directors. See “Business of the Meeting – Election of Directors”.

 

- 9 -

 

Policy on Directors’ Tenure and Priorities

 

The Board has adopted a policy relating to a director’s tenure and priorities. Under this policy, upon a FirstService director reaching the age of 75, and on each anniversary thereafter for so long as such individual continues to serve as a director, such director must tender his or her written resignation from the Board to the Nominating and Corporate Governance Committee (the “Governance Committee”). The Governance Committee will, within 30 days, consider the resignation offer and will recommend to the Board whether or not to accept it. The Board will thereafter act on the Governance Committee’s recommendation within 30 days. If a resignation is accepted, it will be effective either: (i) prior to the commencement of the next annual meeting of FirstService’s shareholders at which directors are to be elected; or (ii) upon acceptance of such offer of resignation by the Board, as determined by the Board. The foregoing applies to all current and future directors of FirstService, other than Bernard I. Ghert, who was exempted by the Board after having regard to his age and his past service as a director and Chair of the Audit Committee. In addition, this policy provides that upon initially becoming a director of FirstService, and at each annual Board meeting occurring immediately prior to the annual meeting of FirstService’s shareholders at which directors are to be elected, each director will represent to the Board that membership on the Board and the carrying out of such director’s Board and committee duties is one of such director’s “top three” priorities and that such director’s personal or professional circumstances do not adversely affect such director’s ability to effectively serve as a director of FirstService.

 

Independent Lead Director

 

The Board recognizes the importance of independent leadership on the Board, as evidenced by its designation of Bernard I. Ghert, an independent director, as Lead Director of the Board, thereby separating the roles of Lead Director (Mr. Ghert) and Chairman (Mr. Hennick). The Board has adopted a formal position description for the Lead Director of the Board, which requires that the Board appoint an independent director as Lead Director in the event that the Chairman of the Board is not independent. The formal position description for the Lead Director provides that the Lead Director will facilitate the functioning of the Board independently of management of FirstService and provide independent leadership to the Board, with the following included as part of the Lead Director’s responsibilities: (i) reviewing with the Chairman and CEO items of importance for consideration by the Board; (ii) consulting and meeting with any or all of the independent directors and representing such directors in discussions with management of FirstService on corporate governance issues and other matters; (iii) recommending, where necessary, the holding of special meetings of the Board; (iv) promoting best practices and high standards of corporate governance; and (v) assisting in the process of conducting director evaluations.

 

Chairman

 

As Chairman of the Board, Mr. Hennick provides leadership to directors in discharging their mandate, including by leading, managing and organizing the Board consistent with the approach to corporate governance adopted by the Board from time to time, promoting cohesiveness among the directors and being satisfied that the responsibilities of the Board and its committees are well understood by the directors. The Chairman of the Board is responsible for taking all reasonable measures to ensure that the Board fully executes its responsibilities. The Board has adopted a formal position description for the Chairman of the Board, which position description provides, among other things, that the Chairman will: (i) ensure that all business required to come before the Board is brought before the Board such that the Board is able to carry out all of its duties to manage or supervise the management of the business and affairs of FirstService; (ii) arrange for an appropriate information package to be provided on a timely basis to each director in advance of a Board meeting and monitoring the adequacy of materials provided to the directors in connection with the Board’s deliberations; (iii) ensure the Board has the opportunity, at each regularly scheduled meeting, to meet separately, without non-independent directors and management personnel present; and (iv) in conjunction with the relevant committee of the Board (and its Chair), review and assess the directors’ meeting attendance records and the effectiveness and performance of the Board, its committees (and their Chairs) and individual directors. The position description for the Chairman also provides that, in the event the Chairman is not independent, the Board appoint an independent Lead Director to carry out the responsibilities set out in the position description of the Lead Director.

 

- 10 -

 

Board Mandate

 

The Board has adopted a written Board mandate, which mandate provides that the Board is responsible for the stewardship of FirstService and requires the Board to oversee the conduct of the business and affairs of FirstService (both directly and through committees) and approve FirstService’s goals, objectives and strategies. The Board is also responsible for overseeing the implementation of appropriate risk assessment systems to identify and manage principal risks of FirstService’s business. The Board mandate is annexed hereto as Appendix C and can also be viewed on FirstService’s website (www.firstservice.com). The Board mandate further provides that all members of the Board have suitable experience, characteristics/traits and skills given the nature of FirstService and its businesses, and directors are expected to commit the time and resources necessary to properly carry out their duties. Members of the Board are also required to carry out their responsibilities objectively, honestly and in good faith with a view to the best interests of FirstService and are expected to conduct themselves according to the highest standards of personal and professional integrity. If an actual or potential conflict of interest arises, a director must promptly inform the Chairman or Lead Director and refrain from voting or participating in discussion of the matter in respect of which he has an actual or potential conflict of interest. If it is determined that a significant conflict of interest exists and cannot be resolved, the director is expected to resign.

 

The Board mandate also provides that the Board meet in accordance with a schedule established each year by the Board, and at such other times as the Board may determine. Meeting agendas are developed in consultation with the Chairman or Lead Director. Board members may propose agenda items though communication with the Chairman or Lead Director. The Chairman is responsible for ensuring that a suitably comprehensive information package is sent to each director in advance of each meeting. Independent directors are required to have the opportunity to meet at appropriate times without management present at all Board meetings. The Lead Director is responsible for presiding over meetings of the independent directors.

 

The Board mandate further provides that the Board is responsible for the following specific matters: reviewing and approving management’s strategic plans; reviewing and approving FirstService’s financial objectives, business plans and budgets; monitoring corporate performance against the strategic plans and budgets; management succession planning; assessing its own effectiveness in fulfilling its responsibilities, including monitoring the effectiveness of individual directors; ensuring the integrity of FirstService’s internal control system and management information systems; developing FirstService’s approach to corporate governance; and satisfying itself that appropriate policies and procedures are in place regarding public disclosure and restricted trading by insiders.

 

Women on the Board

 

Two (or 25%) of the eight members of the Board are women. While FirstService has not adopted a written policy relating to the identification and nomination of women directors, it has adopted a target regarding women on its Board and has developed a set of principles and practices regarding diversity and inclusion of women on its Board as set out below.

 

FirstService believes in diversity and values the benefit that diversity can bring to its Board. Diversity promotes the inclusion of different perspectives and ideas, mitigates against group think and ensures that FirstService has the opportunity to benefit from all available talent. FirstService seeks to maintain a Board comprised of talented and dedicated directors with a diverse mix of expertise, experience, skills and backgrounds. FirstService believes that the skills and backgrounds collectively represented on the Board should reflect the diverse nature of the business environment in which FirstService operates.

 

FirstService is committed to a merit based system for Board composition within a diverse and inclusive culture which solicits multiple perspectives and views and is free of bias and discrimination. When assessing Board composition or identifying suitable candidates for appointment or re-election to the Board, FirstService will consider candidates on merit against objective criteria having regard to the benefit of diversity and the needs of the Board.

 

In furtherance of Board diversity, FirstService aspires to attain as soon as practicably, but by the annual meeting held in 2024, and thereafter maintain, a Board composition in which at least one-third of the Board members are women. FirstService has made significant progress in this regard over the last few years. In 2018, the proportion of women on the Board increased to 25% from 14% in 2017. FirstService has a number of measures in place that are intended to further improve Board diversity over time. For example, the Chair of the Governance Committee conducts annual Board evaluations, which not only enhance the quality of the composition of the Board members, but are also an effective way to optimize Board renewal and encourage diversity, including gender diversity, and to identify where and how diversity improvements can be made. See “Board Evaluation and Peer Review” below. Moreover, a disciplined approach to Board renewal remains the most fundamental condition for refreshing Board composition and creating an opportunity to increase the diversity of the Board members. To this end, the Board has adopted a policy which provides an age limit to a director’s tenure. See “Board Composition – Policy on Director’s Tenure and Priorities” above.

 

- 11 -

 

FirstService will periodically assess the expertise, experience, skills and backgrounds of its directors in light of the needs of the Board, including the extent to which the current composition of the Board reflects a diverse mix of knowledge, experience, skills and backgrounds, including an appropriate number of women directors. Any search firm engaged to assist the Board or the Governance Committee in identifying candidates for appointment to the Board will be specifically directed to include diverse candidates generally, and women candidates in particular. The Board or the Governance Committee will annually assess its progress in promoting a diverse Board.

 

Gender Composition of Leaders, Managers and Executive Officers

 

In addition to Board diversity, FirstService understands the benefits of a diversified work force. 263 (48%) of the leaders, managers and executive officers of FirstService, including all of its major subsidiaries, are women. While FirstService does not have a fixed target for the representation of women in executive officer positions, it is committed to promoting diversity among its senior leadership and will consider the level of female representation and the other indicia of diversity when deliberating on hires and promotions regarding all senior leadership positions, including executive officers. In identifying and considering potential candidates for senior leadership, including executive officer appointments, FirstService considers factors such as years of service, regional background, merit, experience and qualifications. In addition, unlike the identification and selection process for the Board, the diversity of FirstService’s senior leadership team is driven by other factors, some of which are outside of the control of FirstService, including the level of employee turnover, the times at which hiring and promotion opportunities arise, the available pipeline of employees with the necessary skills and experiences, and various other factors. FirstService has, and will continue to, assess and develop ways to promote women within FirstService and to ensure women are provided greater opportunities for advancement within FirstService. FirstService’s commitment to diversity extends beyond formal programs and initiatives. FirstService strives to create a culture in which both visible and tacit differences are recognized and valued, and where all employees are able to contribute and fulfil their potential without artificial barriers.

 

People Development and Succession Planning

 

There is a process of annual leadership review and evaluation at each FirstService platform, and a ranked list of successors at each FirstService platform is maintained and refreshed annually. There is also a development plan to ensure leadership successors are prepared for their future role. The Board reviews the executive succession plan by platform and has the similar evaluation discussion and ranked list for FirstService’s executive leadership, including its CEO.

 

Board Equity Ownership Policy

 

The Board approved a board equity ownership policy which provides that each member of the Board is required to achieve and maintain, at all times during the period that he or she is a director of FirstService, minimum ownership of shares of FirstService having a value of at least US$100,000 (which amount is subject to adjustment for share and other capital reorganizations). Newly elected or appointed directors of FirstService are permitted two years within which to attain the foregoing minimum ownership amount. All existing directors of FirstService currently comply with this policy. In addition, on December 31, 2018, all current directors of FirstService, other than those individuals who most recently became a director, Joan Eloise Sproul and Erin J. Wallace, owned securities of FirstService having a value of at least three times the amount of the cash retainer paid to non-employee directors. See the biographies, and the footnotes thereto, of each director nominee set out under “Business of the Meeting – Election of Directors”.

 

- 12 -

 

Board and Committee Process

 

In addition to having a Board comprised of a majority of independent directors, FirstService has adopted a variety of structures to allow for the independence of the Board from Management. Those structures include the appointment of Bernard I. Ghert, an independent director, as Lead Director of the Board with a mandate to facilitate the functioning of the Board independently of Management and provide independent leadership to the Board, the practice of having the independent members of the Board or its committees meet as a group (with no members of Management, including the CEO, present) regularly at every Board meeting and committee meeting, and members of the Board and its committees having the opportunity to initiate discussions with senior Management without the CEO present so that they may freely discuss any concerns they may have, and the ongoing monitoring of the relationship between the Board and its committees and Management by the Governance Committee, which is composed entirely of independent directors. The Board believes that it and its committees have functioned, and continue to function, independently of Management.

 

FirstService’s CEO reports formally to the Board, and, where appropriate, to its committees, as well as less formally through discussions with members of the Board and its committees, to advise the Board and its committees on a timely basis of courses of action that are being considered by Management and are being followed. The Board exercises its responsibility for oversight through the approval of all significant decisions and initiatives affecting FirstService. The Board is satisfied that FirstService’s CEO has reported to, and sought the consent of, the Board where necessary and appropriate. The Board has developed a formal position description for the CEO, which position description provides that the CEO has the primary responsibility for the management of the business and affairs of FirstService. As such, the CEO establishes the strategic and operational orientation of FirstService and, in so doing, provides leadership and vision for the effective overall management, profitability, increase in shareholder value and growth of FirstService and for conformity with policies agreed upon by the Board. The CEO is directly accountable to the Board for all activities of FirstService. The Board has not approved formal corporate objectives which the CEO is responsible for achieving; however, the Board and the CEO engage in regular dialogue regarding the performance of the senior management team, including the CEO, in achieving FirstService’s strategic objectives as determined by Management and the Board.

 

Management, working with the Board and the Governance Committee, provides an orientation program for new directors and a continuing education program for all directors to familiarize and update them with respect to FirstService and its businesses. Prior to agreeing to join the Board, new directors are given a clear indication of the workload and time commitment required. The Chairman of the Board ensures the orientation program is carried out as directed by the Governance Committee. New directors to FirstService have generally been executives with extensive business experience. Orientation for these individuals is provided through a review of past Board materials and other private and public documents concerning FirstService and visits to certain of FirstService’s businesses and offices. On a periodic basis, management of FirstService and its regions provide presentations for the Board to ensure that directors are fully informed of FirstService operations, major business and regional trends and industry practices, and directors are free to contact the CEO, the Chief Financial Officer and other members of Management at any time to discuss any aspect of FirstService’s businesses. In September 2018, the Board received presentations from the executive leaders of Paul Davis Restoration, who provided the Board with an overview of the Paul Davis Restoration executive team, history, business, financial results and opportunities.

 

The Board, either directly or through Board committees, is responsible for overseeing the business and affairs of FirstService and for approving the overall direction of FirstService, in a manner which is in the best interests of FirstService and its shareholders. At least four regular meetings and, if required, strategy meetings of the Board are scheduled each year at which the directors review in detail the financial statements, operating reports, forecasts, future prospects, budgets and reports from the committees of the Board and from Management. The frequency of meetings as well as the nature of agenda items changes depending upon the state of FirstService’s affairs and in light of opportunities or issues that FirstService may face. There were four Board meetings held in 2018. The meeting agenda is circulated in advance to all directors, meetings are scheduled well in advance and a core agenda of items, together with a book of materials, is circulated prior to each meeting.

 

Certain directors and executive officers of FirstService are engaged in and will continue to engage in activities outside FirstService, and as a result, certain directors and executive officers of FirstService may become subject to conflicts of interest. The OBCA provides that in the event that a director or executive officer has an interest in a contract or proposed contract or agreement, the director or executive officer shall disclose his or her interest in such contract or agreement and shall refrain from voting on any matter in respect of such contract or agreement unless otherwise provided under the OBCA. In addition, the Board mandate provides that if an actual or potential conflict of interest arises, a director must promptly inform the Chairman or Lead Director and refrain from voting or participating in discussion of the matter in respect of which he has an actual or potential conflict of interest. If it is determined that a significant conflict of interest exists and cannot be resolved, the director is expected to resign. To the extent that conflicts of interest arise, such conflicts will be resolved in accordance with the provisions of the OBCA and the Board mandate.

 

- 13 -

 

During 2018, none of the proposed nominees for election to the Board at the Meeting have served together as directors on the boards of other companies or as trustees for other entities. Please see the biographies under “Business of the Meeting – Election of Directors” for the name of each publicly traded issuer’s board (other than FirstService’s) on which the nominees for election to the Board at the Meeting are currently, or were during the past five years, members.

 

Proportionate Representation

 

FirstService is controlled by Jay S. Hennick who, directly or indirectly, owns, controls or directs 4.4% of the total outstanding number of Subordinate Voting Shares and 100.0% of the total outstanding number of Multiple Voting Shares (7.9% of total outstanding number of FirstService Shares; 45.7% of total votes of all FirstService Shares). 92.1% of the outstanding FirstService Shares and 54.3% of the votes of all FirstService Shares are held by shareholders other than FirstService’s significant shareholder. Six of the current eight directors, or 75% of the total number of current directors, are independent directors and are, therefore, free from any relationships with the significant shareholder. The Board believes that the membership on the Board of these six directors fairly reflects the investment in FirstService by shareholders other than FirstService’s significant shareholder.

 

Board Committees

 

The Board has three standing committees: the Audit Committee, the Executive Compensation Committee (the “Compensation Committee”) and the Governance Committee. The roles of these committees are outlined below. Each committee reviews and assesses its mandate at least annually and has the authority to retain special legal, accounting or other advisors. From time to time ad hoc committees of the Board may be appointed. As the Board has plenary power, any responsibility which is not delegated to Management or a Board committee remains with the Board. The Board has not developed a formal position description for the Chair of any standing committee. However, the Board has developed a committee mandate for each standing committee which is sufficiently detailed and contains appropriate information to delineate the role and responsibilities of the applicable committee, and thereby the Chair of the applicable committee. The committee mandates are published on FirstService’s website (www.firstservice.com). The Board delineates the role and responsibilities of the Chair of the Audit Committee, the Compensation Committee and the Governance Committee by tasking the Chair of the applicable committee with taking all reasonable measures to ensure that the applicable committee executes and fulfills its responsibilities under the applicable committee mandate and assumes each of the responsibilities specifically given to a Chair of a committee under the applicable committee mandate.

 

Audit Committee

 

The Audit Committee is comprised of three members who are each independent and financially literate as required by Multilateral Instrument 52-110 – Audit Committees (the “Audit Committee Rule”). The members of the Audit Committee are Bernard I. Ghert (Chair), Michael Stein and Joan Eloise Sproul. The Audit Committee is appointed by, and assists, the Board in fulfilling its oversight responsibilities in the following principal areas: (i) accounting policies and practices; (ii) the financial reporting process; (iii) financial statements provided by FirstService to the public; (iv) risk management, including systems of internal accounting and financial controls; (v) appointing, overseeing and evaluating the work of the external auditors; and (vi) compliance with applicable legal and regulatory requirements. The Audit Committee has the resources and the authority to discharge its responsibilities, including the authority to engage, at the expense of FirstService, outside consultants, independent legal counsel and other advisors as it determines necessary to carry out its duties, without seeking approval of the Board or Management. The Audit Committee also has the authority to conduct any investigation necessary and appropriate to fulfilling its responsibilities, and has direct access to communicate with the external auditors, legal counsel and officers and employees of FirstService. The Audit Committee meets at least four times annually, or more frequently as circumstances dictate. There were five meetings of the Audit Committee held in 2018.

 

- 14 -

 

The Audit Committee reviews the annual and interim financial statements intended for circulation among shareholders and reports upon these to the Board prior to their approval by the full Board. The Audit Committee is also responsible for reviewing the integrity of FirstService’s financial reporting process, both internal and external, and any major issues as to the adequacy of the internal controls and any special audit procedures adopted in light of any material control deficiencies. The Audit Committee communicates directly with FirstService’s external auditors in order to discuss audit and related matters whenever appropriate. In addition, the Board may refer to the Audit Committee such matters and questions relating to the financial position of FirstService and its subsidiaries. All reports made to FirstService’s ethics hotline are reviewed by the Chair of the Audit Committee and then by the entire Audit Committee at its next meeting. The Board has adopted an Audit Committee mandate, a copy of which is annexed to the annual information form (the “AIF”) of FirstService for the year ended December 31, 2018 and is also published on FirstService’s website (www.firstservice.com). The education and related experience of each of the members of the Audit Committee that is relevant to the performance by such members of their responsibilities on such committee is described in the AIF under the heading “Audit Committee”. A copy of the AIF is available on SEDAR at www.sedar.com.

 

The SEC requires that each member of a company’s audit committee be independent. All of the members of the Audit Committee are “independent”, as that term is defined by the SEC. The SEC further requires a company, like FirstService, that files reports under the United States Securities Exchange Act of 1934, as amended, to disclose annually whether its Board has determined that there is at least one “audit committee financial expert” on its audit committee, and if so, the name of the audit committee financial expert. Two Audit Committee members, Mr. Ghert and Ms. Sproul, have been determined by the Board to be an “audit committee financial expert” as that term is defined by the SEC.

 

The Audit Committee is responsible for the selection, nomination, compensation, retention, termination and oversight of the work of the external auditors engaged for the purpose of issuing an auditor’s report or performing other audit, review or attest services for FirstService and, in such regard, recommend to the Board the external auditors to be nominated for approval by FirstService shareholders. The Audit Committee mandate provides that the Audit Committee must pre-approve all audit engagements and the provision by the external auditors of all non-audit services, including fees and terms for all audit engagements and non-audit engagements. The Audit Committee mandate further provides that the Audit Committee consider, assess and report to the Board with regard to the independence and performance of the external auditors. The Audit Committee has adopted a pre-approval policy pursuant to which FirstService may not engage FirstService’s external auditor to carry out certain non-audit services that are deemed inconsistent with the independence of auditors under applicable U.S. and Canadian laws. The Audit Committee is also responsible for reviewing hiring policies for current and former partners or employees of the external auditors.

 

The Audit Committee mandate also provides, and the general practice at FirstService is, that the Audit Committee will review all material transactions and contracts entered into by FirstService with any insider or related party of FirstService, other than director, officer or employee compensation arrangements which are approved by the Compensation Committee. Material transactions and agreements related to compensation matters are generally reviewed and approved by the Compensation Committee. Otherwise, from time to time ad hoc committees of the Board may be appointed. In practice, and as is customary or appropriate, the Board will establish “special” or “independent” ad hoc committees of the Board as needed from time to time to review, pass upon or deal with material matters (including considering transactions and agreements in respect of which a director or executive officer has or may have a material interest), and the committee members of any such ad hoc committee are selected and appointed based on their independence from management as well as their independence from the matter at hand which has required the establishment of such ad hoc committee.

 

The Board and the Audit Committee have established procedures (which procedures are subject to monitoring by the Audit Committee) for the receipt, retention and treatment of complaints or concerns received by FirstService regarding accounting, internal accounting controls or auditing matters, including the anonymous submission by employees of concerns respecting accounting or auditing matters. Please refer to the Financial Management Code of Ethics and Conduct published on FirstService’s website (www.firstservice.com). Additional information regarding the Audit Committee has been included in the AIF in accordance with the Audit Committee Rule.

 

- 15 -

 

Compensation Committee

 

The Compensation Committee is comprised of three members, all of whom are independent directors within the meaning of the Corporate Governance Rules. The members of the Compensation Committee are Michael Stein (Chair), Brendan Calder and Bernard I. Ghert. The Compensation Committee, among other things, reviews and approves the compensation of the CEO and provides input to the CEO in terms of the compensation for the other executive officers of FirstService. The Compensation Committee also reviews the compensation of the directors of FirstService and any compensation programs applicable to senior management of FirstService, such as the stock option plan. In the case of grants of options under FirstService’s stock option plan, all proposed option grants are submitted to Compensation Committee for review and a recommendation is made to the full Board. The Board has adopted a Compensation Committee mandate, a copy of which is published on FirstService’s website (www.firstservice.com).

 

Governance Committee

 

The Governance Committee is comprised of Brendan Calder (Chair), Frederick F. Reichheld and Erin J. Wallace, all of whom are independent directors within the meaning of the Corporate Governance Rules. The Board has adopted a Governance Committee mandate, a copy of which is published on FirstService’s website (www.firstservice.com). The Governance Committee, among other things, is responsible for identifying and recommending to the Board appropriate director nominee candidates. In addition, the Governance Committee is responsible for advising the Board with respect to the Board’s composition, procedures and committees and developing, recommending and monitoring FirstService’s corporate governance and other policies, assisting the Board and the committees in their annual review of their performance and their charters, reviewing and making recommendations to the Board with respect to the compensation of directors, succession plans and undertaking such other initiatives that may be necessary or desirable to enable the Board to provide effective corporate governance. The Governance Committee conducts annual surveys of the Board’s effectiveness and, every few years, a peer review of the individual members of the Board.

 

The Governance Committee is mandated to assess at least annually the optimum Board size and beneficial skill sets and makes recommendations to the Board on any changes. The number of directors proposed for election to the Board at the Meeting is eight. The Board considers that the appropriate number of directors for FirstService is approximately seven to nine. The Governance Committee and the Board have considered the matter of Board size, Board diversity and the skill sets of the current and nominee directors and are of the view that the proposed Board membership has the necessary breadth and diversity of experience and background and is of an adequate size to provide for effective decision-making and staffing of Board committees.

 

The Governance Committee is responsible for determining the appropriate criteria for selecting and assessing potential directors and selects candidates for nomination to the Board accordingly. At such time as it is determined that a new director is desirable, the Governance Committee will engage in various activities to ensure an effective process for selecting candidates for nomination, including developing criteria for the selection of a new director, developing and maintaining a director skills matrix (identifying the desired competencies, independence, expertise, skills, background and personal qualities that are being sought in potential candidates) having regard to the benefit of diversity, identifying and recommending individuals qualified and suitable to become directors, the Chairman, the Lead Director and/or other directors will meet with potential new candidates prior to nomination to discuss the time commitments and performance expectations of the position and formal approval will be sought and obtained from the Board in respect of candidates for nomination.

 

Board Evaluation and Peer Review

 

At the end of 2018, an evaluation of the Board, as a whole, was conducted by the Chair of the Governance Committee in which each Board member was contacted by the Chair of the Governance Committee to complete a customized written questionnaire. Responses were reviewed by the Chair of the Governance Committee with the Governance Committee, the Chairman and the CEO and then reported to the full Board. The Chair of the Governance Committee discussed the results with each of the directors, as appropriate, and engaged in a full and frank discussion on any and all issues which any Board member wished to raise, including how the directors, both individually and collectively, could operate more effectively. At the conclusion of the evaluation, matters requiring follow-up were identified, responses were developed and there is ongoing monitoring by the Chair of the Governance Committee to ensure satisfactory results. An evaluation is expected to occur annually, either by telephone or by having Board members complete a detailed customized questionnaire.

 

- 16 -

 

In addition, the Chair of the Governance Committee meets with the individual members of the Board on an ongoing basis to discuss the individual’s contribution to the Board. A formal peer review of the individual members of the Board was completed at the end of 2018, and is expected to occur every few years. Whether a peer review is completed formally or informally, each director is encouraged to view any feedback as constructive advice to enhance both their individual contribution and overall Board effectiveness.

 

Attendance

 

The following table sets forth the record of attendance of the members of the Board (either in person or by phone) at meetings of the Board and its standing committees and the number of meetings of the Board and such committees held during 2018.

 

Director

Board

4 Meetings

Board Committees Overall
Attendance

Audit

5 Meetings

Compensation

2 Meetings

Governance

1 Meeting

Overall Committee Attendance
No. % No. % No. % No. % No. % No. %
Brendan Calder 4 of 4 100 2 of 2 100

1 of 1

(Chair)

100 3 of 3 100 7 of 7 100
Bernard I. Ghert

3 of 4

(Lead Dir.)

  75

4 of 5

(Chair)

  80 2 of 2 100 6 of 7   86 9 of 11   82
Jay S. Hennick

4 of 4

(Chair)

100 4 of 4 100
D. Scott Patterson 4 of 4 100 4 of 4 100
Frederick F. Reichheld 4 of 4 100 1 of 1 100 1 of 1 100 5 of 5 100
Joan Eloise Sproul(1) 3 of 3 100 3 of 3 100 3 of 3 100 6 of 6 100
Michael Stein 4 of 4 100 5 of 5 100

2 of 2

(Chair)

100 7 of 7 100 11 of 11 100
Erin J. Wallace(2) 4 of 4 100 2 of 2 100 1 of 1 100 3 of 3 100 7 of 7 100

___________

Notes:

(1) Ms. Sproul became a director of FirstService and a member of the Audit Committee in May 2018. The attendance noted reflects meetings held and attended only while she was such a member.
(2) Ms. Wallace ceased to be a member of the Audit Committee in May 2018. The attendance noted reflects meetings held and attended only while she was such a member.

 

EXECUTIVE COMPENSATION

 

Compensation Discussion and Analysis

 

Introduction

 

The Compensation Discussion and Analysis section of this Circular sets out the objectives of FirstService’s executive compensation arrangements, FirstService’s executive compensation philosophy and the application of this philosophy to FirstService’s executive compensation arrangements. It also provides an analysis of the compensation design, and the decisions that the Compensation Committee made in 2018 with respect to the Named Executive Officers (as this term is defined below under “– Compensation of Named Executive Officers”). When determining the compensation arrangements for the Named Executive Officers, the Compensation Committee considers the objectives of: (i) retaining an executive critical to the success of FirstService and/or its subsidiaries and the enhancement of shareholder value; (ii) providing fair and competitive compensation; (iii) balancing the interests of management and shareholders of FirstService; (iv) rewarding performance, both on an individual basis and with respect to the business in general; and (v) ensuring the recognition of the fact that FirstService carries on business with a small number of executive officers relative to other public companies of similar size.

 

- 17 -

 

The Board and the Compensation Committee have considered the implications of the risks associated with FirstService’s compensation policies and practices. In this regard, the Compensation Committee specifically considered various pertinent and relevant elements where compensation and risk may be related in relation to the current compensation policies and practices for senior executives of FirstService (such as pay philosophy, the mix of fixed versus variable compensation, the mix of short versus long term compensation, share ownership requirements and trading policies, reimbursement policies and the level of severance in any contractual arrangements). As further described hereunder, the components of compensation are fairly straightforward and include base salary, short-term incentive (annual bonus) and long-term incentive (stock options and, in the case of the Founder and Chairman, the Long Term Arrangement (as this term is defined below under “– Management Contract”)). Where any risks were identified, the Board and the Compensation Committee have determined that processes and controls are in place to mitigate such risks and, overall, such risks were not significant and not reasonably likely to have a material adverse effect on FirstService. The risks and uncertainties that are likely to have a material adverse effect on FirstService are disclosed in the AIF. No such risks relate to FirstService’s compensation policies and practices.

 

The Board has adopted a policy relating to the trading in securities of FirstService by directors, senior executives, employees and other insiders of FirstService and its subsidiaries (the “Trading Policy”). Among other things, the following are prohibited by the Trading Policy: (i) short sales of FirstService’s securities; (ii) transactions in puts, calls or other derivative securities, on an exchange or in any other organized market; (iii) hedging or monetization transactions that allow an individual to continue to own the covered securities, but without the full risks and rewards of ownership; and (iv) the resale of securities of FirstService purchased in the open market prior to the expiration of three months from the purchase date. Consequently, the foregoing prohibitions in the Trading Policy do not permit a Named Executive Officer or director to purchase financial instruments that are designed to hedge or offset a decrease in market value of FirstService’s equity securities granted as compensation or held, directly or indirectly, by a Named Executive Officer or director.

 

Role of the Compensation Committee

 

In 2018, Michael Stein (Chair), Brendan Calder and Bernard I. Ghert served as members of the Compensation Committee. None of these individuals was an officer, employee or former officer or employee of FirstService or any of its subsidiaries during 2018. The mandate of the Compensation Committee requires that the Compensation Committee be comprised of three or more members of the Board, each of whom is, in the business judgment of the Board, independent under the rules of the Toronto Stock Exchange (“TSX”) and NASDAQ. See “Statement of Corporate Governance Practices – Board Committees – Compensation Committee” for additional information on the Compensation Committee. Under the Compensation Committee’s mandate, the Compensation Committee is responsible for, among other things: (a) in consultation with senior management, establishing FirstService’s general compensation philosophy, and overseeing the development and implementation of compensation programs; (b) reviewing and approving the compensation of the CEO; (c) reviewing compensation programs applicable to the senior management of FirstService; and (d) making recommendations to the Board with respect to FirstService’s incentive compensation plans and equity-based plans, the activities of the individuals and committees responsible for administering these plans, and discharging any responsibilities imposed on the Compensation Committee by any of these plans.

 

During 2018, the Compensation Committee addressed a number of items, including considering and/or approving and/or making recommendations in respect of all option grants to officers, employees and directors of FirstService or subsidiaries of FirstService; any change to the CEOs base compensation for 2018; and determining, for the purposes of the FirstService annual performance-based bonus plan, 2018 adjusted earnings per share. In addition, the Compensation Committee played a central role in evaluating and negotiating the Transaction. See “Business of the Meeting – Approval of Transaction”.

 

Independent Compensation Consultant

 

Under its mandate, the Compensation Committee has the sole authority to select, retain and terminate a compensation consultant and to approve the consultant’s fees and other retention terms. The Compensation Committee is also entitled to the resources and authority appropriate to discharge its duties and responsibilities, including the authority to retain counsel and other experts or consultants. In August 2015, the Compensation Committee engaged H. Wilkinson Consulting Group Inc. (the “EC Consultant”) as its independent compensation consultant. The EC Consultant was retained by the Compensation Committee to recommend a peer group for FirstService and market competitive compensation for the Founder and Chairman, CEO and CFO. The EC Consultant also made recommendations to the Compensation Committee in respect of market competitive compensation of non-employee directors. See “Compensation of Directors” below. During 2018, neither the EC Consultant nor any other compensation consultant provided any services to the Compensation Committee or FirstService, or to any affiliated or subsidiary entities of FirstService or to any member of the Board or Management. No fees were paid to the EC Consultant or any other compensation consultant by FirstService during the financial years ended December 31, 2017 and 2018. However, in January 2019, the Compensation Committee retained Hugessen Consulting, an independent compensation consultant, who advised the Compensation Committee and the Board in connection with the Transaction. See “Business of the Meeting – Approval of Transaction”.

 

- 18 -

 

Benchmarking

 

The Compensation Committee may consider many factors when designing and establishing executive compensation arrangements for the Founder and Chairman, CEO and CFO and reviewing and making recommendations for such arrangements for the other executive officers of FirstService. Every several years, a benchmarking analysis is expected to be conducted by the Compensation Committee to ensure that the executive compensation arrangements for the relevant executive officers remain appropriate and competitive. When a benchmarking analysis is conducted, FirstService will not typically position executive pay to reflect a single percentile within the peer group for each executive. Rather, in determining the compensation level for each executive, the Compensation Committee (for the Founder and Chairman and CEO) or the CEO (for the CFO) may look at factors such as the relative complexity of the executive’s role within the organization, the executive’s performance and potential for future advancement, the compensation paid by FirstService’s peer group and other companies identified by relevant market survey data, and pay equity considerations.

 

The starting point for the benchmarking analysis is the analysis of comparable market data. At the end of 2015, the Compensation Committee, with the assistance of the EC Consultant, determined that the following service companies would constitute FirstService’s peer group for benchmarking purposes: Altisource Residential Corporation, Lennox International Inc., ADT Corp., ServiceMaster Global Holdings Inc., ABM Industries, Inc., Apartment Investment and Management Co., Rollins, Inc., Essex Property Trust Inc., Ascent Capital Group Inc., GDI Integrated Facility Services Inc., Comfort Systems USA, Inc., G & K Services, Inc., Healthcare Services Group, Inc. and UniFirst Corporation. As FirstService has a client base that is primarily in the USA, the peer group members are primarily similarly sized USA service companies (by revenue). The Compensation Committee then reviewed the peer group data to determine where base salaries and total compensation for the Founder and Chairman, CEO and CFO should be appropriately positioned. While these benchmarks represent useful guidelines, discretion may be used in setting individual executive pay so that it appropriately reflects the value and contributions of each executive, as well as the executive’s leadership, commitment to FirstService’s values and potential for advancement.

 

A range of factors was analyzed by the EC Consultant for each member of the peer group, including: (i) various financial size and performance metrics; (ii) number of employees; (iii) business lines and the extent that they overlap FirstService’s business lines; and (iv) other indicia of common managerial skill sets. It is anticipated that the peer group will change if FirstService’s size or lines of business change, or if the peer group members show changes in their businesses or operations.

 

Recommendations of Management

 

In general, the Compensation Committee (with the assistance and advice of a consultant, if applicable) reviews and discusses matters involving the compensation of the Founder and Chairman and CEO. After this review, the Compensation Committee prepares a recommendation for the Board to review and discuss. The independent members of the Board have the sole authority to approve compensation decisions made with respect to the Founder and Chairman and CEO.

 

With respect to FirstService’s other senior management and employees, it is the CEO (with the assistance of the independent compensation consultant for senior management, if applicable) who develops the pay strategies and recommendations, which the Compensation Committee then reviews and discusses. However, the authority to approve those strategies and recommendations resides with different parties according to the employee’s level. For senior management, decisions must be approved by the CEO, subject to the Compensation Committee’s overall review and acceptance. For employees below the level of senior management, the CEO and his designees have the authority to approve pay actions. However, the Compensation Committee is responsible for approving actions related to other aspects of these employee’s compensation, such as any grant of options and, if appropriate, the amount of any discretionary bonus pool.

 

- 19 -

 

Elements of Compensation

 

The compensation paid to the Named Executive Officers in any year consists of three primary components:

 

(a) base salary;

 

(b) an annual performance-based bonus plan; and

 

(c) a long-term incentive in the form of stock options granted under the FirstService Stock Option Plan, as amended (the “Option Plan”) (other than Mr. Hennick, who is not entitled to participate in the Option Plan).

 

FirstService believes that making a significant portion of the Named Executive Officers’ compensation both variable/performance-based and long-term supports FirstService’s executive compensation philosophy, as these forms of compensation primarily depend on performance metrics that are fundamentally aligned with the best-interests of FirstService’s shareholders. At the same time, FirstService utilizes stock option based compensation to allow those most accountable for FirstService’s long-term success to acquire and hold shares of FirstService. The key features of the three primary components of compensation are described below.

 

Base Salary

 

Base salary recognizes the value of an individual to FirstService or a subsidiary based on his or her role, skill, performance, contributions, leadership and potential. It is critical in attracting and retaining executive talent in the markets in which FirstService or a subsidiary competes for talent. Base salaries for the Named Executive Officers are reviewed annually (for the Founder and Chairman and CEO, by the Compensation Committee, for the other executive officers of FirstService, by the CEO). For the Founder and Chairman, the base fee is determined in accordance with the Management Services Agreement (as this term is defined below under “– Management Contract”) and is subject to increase annually in an amount in the discretion of the Board or the Compensation Committee, with any such annual increase to be, absent the consent of Jayset Management FSV Inc. (“Jayset Mgt”), not less than 5% of the then current base fee. See “Management Contract” below. FirstService also pays to Jayset Mgt a further annual fee equal to 2% of the aggregate of the base fee and the annual bonus payment pursuant to the Management Services Agreement.

 

For 2018, the Compensation Committee approved a 5% increase in the base fee of the Founder and Chairman and a 3.5% increase to the base compensation of the CEO, and the CEO approved increases to the base compensation of the remaining three Named Executive Officers.

 

Annual Performance-Based Bonus Plan

 

FirstService has an annual performance-based bonus plan pursuant to which an annual cash performance bonus is awarded to FirstService management and employees based entirely on percentage growth in adjusted earnings per share (“AEPS”) over the prior year. In the event that no such year-over-year growth in adjusted earnings per share occurs in a given year, no amounts would be payable pursuant to the annual performance-based bonus plan. Annual performance bonuses are paid as a percentage of base salary, which percentage increases the larger the percentage growth in adjusted earnings per share is for the year in question. FirstService believes that using annual AEPS growth as the sole metric in determining payments to Named Executive Officers pursuant to this annual performance-based bonus plan best aligns the interests of participants in this plan with those of FirstService shareholders, and is best suited to holding these individuals accountable for FirstService’s overall operating performance. Furthermore, this annual performance-based bonus plan results in a significant proportion of the Named Executive Officers’ total compensation being wholly dependent on the operating performance of FirstService, and accordingly only rewards such individuals when FirstService as a whole is performing well.

 

- 20 -

 

At the beginning of 2018, the Compensation Committee and the Board determined that, for the purposes of the annual performance-based bonus plan, 2017 adjusted diluted earnings per share was US$1.99. In February 2019, the Compensation Committee and the Board also determined that, for the purposes of the annual performance-based bonus plan, adjusted diluted earnings per share percentage growth over the prior year was 29%.

 

In determining the percentage growth, the impact on earnings per share of any disposition of material investments or assets are excluded. This establishes a direct link between executive compensation and FirstService’s regular operating performance. For the Founder and Chairman, the formula to be used for determining the amount of the annual performance bonus is established in the Management Services Agreement (see “– Management Contract” below) and, for 2018, the Founder and Chairman was entitled to earn 7.5% of the aggregate base fee in 2018 as an annual bonus for that year for each 1% growth in adjusted earnings per share in that year over the prior year. The remaining four Named Executive Officers earn an annual performance bonus calculated on the same basis as the Founder and Chairman, but determined using the following percentages of their respective base salaries in 2018: for the CEO, 6.5%; for the CFO, 4.5%; for the VP, Corporate Controller and Corporate Secretary, 3.25%; and for the VP, Strategy and Corporate Development, 3.5%. A summary of the bonuses paid to each of the Named Executive Officers and the applicable AEPS growth figures for each of 2016, 2017 and 2018 is set out below. See “Executive Compensation – Compensation of Named Executive Officers” below.

 

Year Adjusted Earnings Per Share Growth vs. Prior Year

Named Executive Officer Annual Performance-Based Bonus Payments (US$)(1)

Total Annual Performance-Based Bonus Payments to Named Executive Officers (US$)
Jay S. Hennick,
Founder and
Chairman
D. Scott Patterson, President and Chief Executive Officer Jeremy Rakusin,
Chief Financial
Officer
Douglas G. Cooke,
VP, Corp.
Controller and
Corp. Secretary

Alex Nguyen,

VP Strategy
and Corp.
Development

2018 29% 1,310,400 1,146,400 469,200 202,600 197,200 3,325,800
2017 25% 1,074,800    953,900 368,700 168,600 140,700 2,706,700
2016 35% 1,473,300 1,263,300 449,200 223,300 186,300 3,595,400

___________

Note:

(1) All Named Executive Officers’ annual bonus incentive amounts were paid in Canadian dollars (an average 2018 exchange rate of US$1.00 = C$1.2955 has been used in the table above).

 

The Compensation Committee may also recommend, and the Board may also approve, a non-annual discretionary bonus based on an individual or FirstService achieving certain designated objectives (other than adjusted earnings per share) and for superior or exceptional performance in relation to such objectives. In 2018, no one-time special discretionary bonuses were awarded to any of the Named Executive Officers.

 

- 21 -

 

FirstService Stock Option Awards

 

FirstService provides long-term incentive to the Named Executive Officers in the form of stock options as part of its overall executive compensation strategy. For a description of the material terms of the Option Plan and option grants to Named Executive Officers, see “Incentive Award Plans of FirstService – FirstService Stock Option Plan” and “NEO Outstanding Option-Based Awards” below. The Compensation Committee believes that stock option grants serve FirstService’s executive compensation philosophy in several ways. It helps attract, retain and motivate talent. It aligns the interests of the Named Executive Officers with those of shareholders by linking a significant portion of the officer’s total pay opportunity to share price. It also provides long-term accountability for Named Executive Officers.

 

Typically, stock options are granted to a Named Executive Officer of FirstService under the Option Plan shortly following the end of each year. Effective February 8, 2019, an aggregate of 260,000 options were issued to the Named Executive Officers (other than the Founder and Chairman) in respect of the year ended December 31, 2018. See “Incentive Award Plans of FirstService – FirstService Stock Option Plan” and “NEO Outstanding Option-Based Awards” below. In determining the long-term incentive component of the Named Executive Officers’ compensation, the Compensation Committee will consider, among other factors, the recommendations of Management, FirstService’s performance and relative shareholder return, the level of dilution to shareholders, the value of similar incentive awards to executive officers at comparable companies and awards given to the Named Executive Officers in past years.

 

Executive Benefit Plans and Other Elements of Compensation

 

All of the Named Executive Officers are eligible to participate in the benefit plans that are available to substantially all of the other employees of FirstService. These benefit programs include supplementary medical insurance, dental insurance, life insurance, long-term disability and long-term care plans. FirstService does not provide any additional perquisites or other benefits to the Named Executive Officers.

 

Furthermore, FirstService does not provide any post-retirement benefits to any Named Executive Officers or other employees.

 

Compensation Committee Report on Executive Compensation

 

The Compensation Committee has reviewed with senior management this Compensation Discussion and Analysis and, based on such review, has recommended to the Board that this Compensation Discussion and Analysis be included in this Circular.

 

Submitted by the Compensation Committee: Bernard I. Ghert, Brendan Calder and Michael Stein (Chair)

 

Compensation of Named Executive Officers

 

The following table provides a summary of total compensation earned during the twelve month periods ended December 31, 2018, 2017 and 2016, respectively, by FirstService’s Chief Executive Officer and Chief Financial Officer, each of the three other most highly compensated executive officers of FirstService, including any of its subsidiaries, who were serving as such as at December 31, 2018 and whose total compensation was, individually, more than C$150,000 (the “Other Executive Officers”) and each other individual who would have been an Other Executive Officer but for the fact that such individual was neither serving as an executive officer, nor acting in a similar capacity, as at December 31, 2018 (collectively, the “Named Executive Officers”) for services rendered in all capacities during such periods.

 

- 22 -

 

SUMMARY COMPENSATION TABLE
Name and Principal Position
of Named Executive Officer
Twelve
Months
Ended
Dec. 31
(1)
Salary
(US$)
Option-
Based
Awards

(US$)(1)

Non-Equity

Incentive Plan Compensation

All Other
Compensation

(US$)
Total
Compensation

(US$)(3)
Annual
Incentive
Plans
(Performance-
Based Bonus
Plan) (US$)
(2)
Long-Term
Incentive
Plans (US$)
Jay S. Hennick(4)
Founder and Chairman

2018

2017

2016

602,500

573,200

561,300

Nil

Nil

Nil

1,310,400

1,074,800

1,473,300

Nil

Nil

Nil

Nil

Nil

Nil

1,912,900

1,648,000

2,034,600

D. Scott Patterson(5)
President and Chief Executive Officer

2018

2017

2016

608,200

587,000

555,300

2,235,000

1,821,300

1,206,250

1,146,400

953,900

1,263,300

Nil

Nil

Nil

Nil

Nil

Nil

3,989,600

3,362,200

3,024,850

Jeremy Rakusin
Chief Financial Officer

2018

2017

2016

359,500

347,000

302,000

1,072,800

874,200

482,500

469,200

368,700

449,200

Nil

Nil

Nil

Nil

Nil

Nil

1,901,500

1,589,900

1,233,700

Douglas G. Cooke
Vice President, Corporate Controller and Corp. Secretary

2018

2017

2016

215,000

207,500

196,300

670,500

546,400

361,900

202,600

168,600

223,300

Nil

Nil

Nil

Nil

Nil

Nil

1,088,100

922,500

781,500

Alex Nguyen
Vice President, Strategy and Corporate Development

2018

2017

2016

194,300

187,600

177,400

670,500

546,400

361,900

197,200

140,700

186,300

Nil

Nil

Nil

Nil

Nil

Nil

1,062,000

874,700

725,600

___________

Notes:

(1) The amounts reported represent the grant date fair value of stock option awards granted to each of the Named Executive Officers, calculated in accordance with the Financial Accounting Standards Board Accounting Standards Codification 718, Compensation – Stock Compensation. The assumptions used by FirstService in calculating these amounts are incorporated herein by reference to Note 12 to FirstService’s audited consolidated financial statements for the year ended December 31, 2018. For a description of the material terms of the stock option plan of FirstService and each option grant, see “Incentive Award Plans of FirstService – FirstService Stock Option Plan” and “NEO Outstanding Option-Based Awards” below.
(2) The only annual incentive plan of FirstService is FirstService’s annual performance-based bonus plan. See “Compensation Discussion and Analysis – Annual Bonus Incentive” above. Annual incentive awards are accrued and finalized and paid following year-end once reviewed and approved by the Compensation Committee, the Board or the CEO, as applicable.
(3) All Named Executive Officers’ base salary and annual bonus incentive amounts were paid in Canadian dollars (an average 2018 exchange rate of US$1.00 = C$1.2955 has been used in the table above).
(4) The compensation indicated for Mr. Hennick was payable to Jayset Mgt pursuant to a management services agreement (see “Management Contract” below). Mr. Hennick received no compensation in connection with being a member of the Board.
(5) Mr. Patterson received no compensation in connection with being a member of the Board.

 

In 2018, the total cost of the compensation of all of the Named Executive Officers represented 5% of FirstService’s adjusted earnings before interest, taxes, depreciation and amortization.

 

NEO Outstanding Option-Based Awards

 

The table below reflects all option-based awards for each Named Executive Officer outstanding as at December 31, 2018. FirstService does not have any other equity incentive plan other than its stock option plan.

 

- 23 -

 

NEO OPTION–BASED AWARDS OUTSTANDING AS AT DECEMBER 31, 2018

 

 

Name of

Named Executive Officer(1)

 

Number of

Securities Underlying Unexercised Options(2)

 

Option

Exercise Price

(US$/Security)

 

 

Option

Expiration Date(3)

Value of Unexercised

In-the-Money

Options

(US$)(4)

D. Scott Patterson

125,000

125,000

125,000

60,000

60,000

66.31

54.88

35.96

23.96

20.52

February 9, 2023

February 14, 2022

February 12, 2021

February 13, 2020

May 15, 2019

271,250

1,700,000

4,065,000

2,671,200

2,877,600

Jeremy Rakusin

60,000

60,000

50,000

40,000

40,000

66.31

54.88

35.96

23.96

20.52

February 9, 2023

February 14, 2022

February 12, 2021

February 13, 2020

May 15, 2019

130,200

816,000

1,626,000

1,780,800

1,918,400

Douglas G. Cooke

37,500

37,500

37,500

22,500

18,750

66.31

54.88

35.96

23.96

20.52

February 9, 2023

February 14, 2022

February 12, 2021

February 13, 2020

May 15, 2019

81,375

510,000

1,219,500

1,001,700

899,250

Alex Nguyen

37,500

37,500

37,500

13,500

11,250

66.31

54.88

35.96

23.96

20.52

February 9, 2023

February 14, 2022

February 12, 2021

February 13, 2020

May 15, 2019

81,375

510,000

1,219,500

601,020

539,550

___________

Notes:

(1) Under the terms of the Option Plan, the Founder and Chairman of FirstService, Jay S. Hennick, is not eligible to participate in the Option Plan or to receive grants of options thereunder. See “Executive Compensation – Management Contract”.
(2) Each option entitles the holder to purchase one Subordinate Voting Share. Effective February 8, 2019, an aggregate of 438,000 options were granted under the Option Plan to directors and employees in respect of the year ended December 31, 2018, including to certain of the Named Executive Officers. See “Incentive Award Plans of FirstService – FirstService Stock Option Plan”.
(3) The options vest 10% on the grant date, 15% on the first anniversary, 20% on the second anniversary, 25% on the third anniversary and 30% on the fourth anniversary of the grant date. The expiration date is the fifth anniversary of the grant date.
(4) Calculated using the closing price per Subordinate Voting Share on NASDAQ on December 31, 2018 of US$68.48 less the exercise price of the applicable stock options.

 

During the year ended December 31, 2018, none of the Named Executive Officers exercised any options of FirstService or any of its subsidiaries other than: (i) D. Scott Patterson, who exercised options for a total of 60,000 Subordinate Voting Shares at an exercise price per share of US$12.85; and (ii) Alex Nguyen, who exercised options for a total of 5,500 Subordinate Voting Shares at an exercise price per share of US$12.85.

 

Incentive Award Plans of FirstService

 

The following table provides information concerning the incentive award plans of FirstService with respect to each Named Executive Officer during the year ended December 31, 2018. The only incentive award plans of FirstService during such period were its stock option plan, an annual performance-based bonus plan and, with respect to the Founder and Chairman, pursuant to an acquisition of control arrangement. See “– Annual Performance-Based Bonus Plan”, “– FirstService Stock Option Plan” and “Management Contract” below.

 

- 24 -

 

 

INCENTIVE AWARD PLANS – VALUE VESTED OR EARNED DURING THE YEAR ENDED DECEMBER 31, 2018

Name of

Named Executive Officer(1)

Option-Based Awards –

Value Vested During the Year Ended

December 31, 2018 (US$)(2)

Non-Equity Incentive Plan Compensation –

Value Earned During the Year Ended

December 31, 2018 (US$)

D. Scott Patterson 2,682,800 Nil
Jeremy Rakusin 1,517,500 Nil
Douglas G. Cooke    989,300 Nil
Alex Nguyen    725,800 Nil

___________

Notes:

(1) Under the terms of the Option Plan, the Founder and Chairman of FirstService, Jay S. Hennick, is not eligible to participate in the Option Plan or to receive grants of options thereunder. See “Executive Compensation – Management Contract” and “Incentive Award Plans of FirstService – FirstService Stock Option Plan”.
(2) Calculated using the closing price per Subordinate Voting Share on NASDAQ on the applicable vesting date less the exercise price of the applicable stock options.

 

Annual Performance-Based Bonus Plan

 

FirstService has an annual performance-based bonus plan pursuant to which an annual cash performance bonus is awarded to Management and employees based entirely on percentage growth in adjusted earnings per share over the prior year. If no such annual growth occurs in a given year, no bonus amounts would be payable to the Named Executive Officers under this annual performance-based bonus plan. For a further discussion of this annual performance-based bonus plan, see “Compensation Discussion and Analysis – Annual Performance-Based Bonus Plan” above. The Compensation Committee may also recommend, and the Board may also approve, a non-annual discretionary bonus based on an individual or FirstService achieving certain designated objectives (other than adjusted earnings per share) and for superior or exceptional performance in relation to such objectives. For a further discussion of the calculation of adjusted earnings per share, please see the AIF.

 

FirstService Stock Option Plan

 

FirstService provides a long-term incentive by granting stock options to directors, officers and full-time employees of FirstService or its subsidiaries (other than Mr. Hennick) through the Option Plan. Shareholders adopted the Option Plan in 2015 and have subsequently approved amendments thereto.

 

Subject to the terms of the Option Plan, the Board has the authority to select those individuals to whom options will be granted and to fix the terms of such options which may not be for less than one year nor more than ten years from the date of grant (subject to an automatic 10 business day extension to the expiry date of an option which otherwise would expire within a blackout period). The Option Plan provides flexible vesting, completely at the discretion of the Board. Jay S. Hennick is not eligible to participate in the Option Plan or to receive grants of options thereunder. The Option Plan is administered solely by the Board and grants of options under the Option Plan are made as follows: all proposed option grants are submitted to the Compensation Committee for review and a recommendation is made to the Board; proposed option grants recommended by the Compensation Committee are then submitted to the Board for approval and, if approved, are granted on the date so approved by the Board. The Compensation Committee, in considering any grant of options, and the Board in approving any grant of options, take in account whether the amount of options proposed to be granted to each optionee is competitive, both in terms of past practice at FirstService as well as with respect to equity awards granted to officers, employees and directors of public company peers of FirstService, as well as the contribution of the optionee in the success of the business. Grants of options are approved subject to compliance with the Option Plan and all applicable laws and regulatory and stock exchange requirements.

 

The option price per Subordinate Voting Share with respect to any option granted under the Option Plan is determined by the Board at the time the option is granted, but such price shall not be less than the Minimum Price on the day on which the issuance of the option is authorized or approved by the Board. For the purposes of the Option Plan, “Minimum Price” means: (i) in the event that the Subordinate Voting Shares are then traded on the TSX and/or NASDAQ, the closing price of the Subordinate Voting Shares on the TSX or NASDAQ on the trading day prior to the day on which the issuance of the option is authorized or approved by the Board; (ii) in the event that the Subordinate Voting Shares are not then traded on the TSX and NASDAQ, the closing price of the Subordinate Voting Shares on such public market on which the Subordinate Voting Shares are then traded, as selected by the Board, in its sole discretion, on the trading day prior to the day on which the issuance of the option is authorized or approved by the Board; or (iii) in the event that the Subordinate Voting Shares are not then traded on any public market, the price of the Subordinate Voting Shares as determined by the Board, in its sole discretion, on the day on which the issuance of the option is authorized or approved by the Board.

 

- 25 -

 

The maximum number of Subordinate Voting Shares subject to grants of options under the Option Plan at December 31, 2018 was limited to 3,913,500 (or 10.9% of the aggregate outstanding FirstService Shares on that date), of which options exercisable for 1,633,150 Subordinate Voting Shares (or 4.5% of the aggregate outstanding FirstService Shares) had been granted and were outstanding at December 31, 2018. At December 31, 2018 under the Option Plan, options which were exercisable for 1,152,850 Subordinate Voting Shares (or 3.2% of the aggregate outstanding FirstService Shares) had been exercised or expired and options exercisable for 54,750 Subordinate Voting Shares were cancelled and returned to the pool of options available to be granted. Accordingly, options exercisable for 1,127,500 Subordinate Voting Shares (or 3.1% of the aggregate outstanding FirstService Shares) were available for granting at that date. In the event of the death of an optionee while in the employment, or as an officer, of FirstService or a subsidiary prior to the end of the term of the option, the optionee’s legal representative may exercise the option for a period of one year following the death of the optionee or the expiry of the term of the option, whichever is earlier. In the event that an employee optionee resigns, is removed as an officer or is discharged for “cause” as an employee of FirstService or a subsidiary, the option will in all respects cease and terminate. In the event an optionee’s employment is otherwise terminated by FirstService or a subsidiary, such optionee may exercise the option for a period of 30 days following the effective date of termination or the expiry of the term of the option, whichever is earlier.

 

Set out below is information related to the applicable “annual burn rate” of options granted under the Option Plan. “Annual burn rate” is the number of stock options granted under the Option Plan during the applicable fiscal year divided by the weighted average number of FirstService Shares outstanding for the applicable fiscal year.

 

Year Number of Options Granted
under Option Plan
Weighted Average Number of
FirstService Shares
Outstanding for the
Applicable Year
Annual Burn Rate
2018 430,500 35,952,211 1.2%
2017 390,500 35,908,740 1.1%
2016 328,500 35,965,797 0.9%

 

The Option Plan provides that the aggregate number of Subordinate Voting Shares reserved for issuance pursuant to all options granted to any one optionee shall not exceed 5% of the number of Subordinate Voting Shares outstanding on a non-diluted basis at the time of such grant. In addition, the Option Plan provides that the aggregate number of securities of FirstService: (a) issued to insiders of FirstService, within any one year period; and (b) issuable to insiders of FirstService, at any time under the Option Plan, or when combined with all of FirstService’s other share compensation arrangements, shall not exceed 10% of FirstService’s total issued and outstanding securities. As at December 31, 2018, FirstService had outstanding options under the Option Plan to purchase an aggregate of 1,633,150 Subordinate Voting Shares (being 4.5% of the aggregate outstanding FirstService Shares on that date). These options are held by various directors, officers and employees of FirstService (or former FirstService Corporation, pre-spin-off) and its subsidiaries and are non-assignable.

 

Where there is a take-over bid to acquire the outstanding shares or FirstService enters into an agreement providing for the sale of all or substantially all of the assets of FirstService such that, following completion of such sale, FirstService will cease to carry on, directly or indirectly, an active business, the Board may advise optionees that all options will expire (subject to certain limitations) on the date determined by the Board and each optionee shall have the right to exercise their options in whole or in part, regardless of vesting.

 

The Option Plan provides that appropriate adjustments in the number of Subordinate Voting Shares and in the exercise price per Subordinate Voting Share, relating to options granted or to be granted, shall be made by the Board to give effect to adjustments in the number of Subordinate Voting Shares resulting from any subdivisions, consolidations or reclassifications of the Subordinate Voting Shares, the payment of stock dividends by FirstService or other relevant changes in the capital structure of FirstService. Any such adjustments shall be subject to the approval thereof by such stock exchanges on which the Subordinate Voting Shares are then listed for trading (including, if required by any such stock exchanges, approval of the shareholders).

 

- 26 -

 

The Option Plan provides that, subject to regulatory approval, the approval of any stock exchange on which the Subordinate Voting Shares are then listed for trading and the limitations set out in the next two following paragraphs, the Board may, by resolution, amend, vary or discontinue the Option Plan, or any agreement or entitlement subject to the Option Plan, at any time without notice to or approval of the shareholders of FirstService, including, without limitation, for the purpose of: (i) changing the class of persons who will be eligible to be granted options pursuant to the Option Plan; (ii) ensuring continuing compliance with applicable laws and regulations and the requirements or policies of any governmental or regulatory authority, securities commission or stock exchange having authority over FirstService or the Option Plan; (iii) changes of a “housekeeping”, clerical, technical or stylistic nature; (iv) changing the method of determining the option price for options granted pursuant to the Option Plan, provided that the option price shall not in any case be lower than the “market price” of a Subordinate Voting Share, as that term (or any successor term) is interpreted and applied by the TSX; (v) changing the following terms governing options under the Option Plan: (A) vesting terms (including the acceleration of vesting); (B) exercise and payment method and frequency; (C) transferability or assignability; (D) to fairly or properly take into account a sale, arrangement or take-over bid; (E) adjustments required in the circumstances of a change in the structure of the capital of FirstService; and (F) the effect of termination (for whatever reason) of the optionee’s employment or service; (vi) determining that any of the provisions of the Option Plan or any agreement subject to the Option Plan concerning the effect of termination (for whatever reason) of the optionee’s employment, service or consulting agreement/arrangement or cessation of the optionee’s directorship or office, shall not apply for any reason acceptable to the Board; (vii) changing the terms and conditions of any financial assistance which may be provided by FirstService to the optionees to facilitate the purchase of Subordinate Voting Shares, or adding or removing any provisions providing for such financial assistance; (viii) adding or amending a cashless exercise feature, payable in cash or securities, provided the same includes a full deduction of the number of underlying Subordinate Voting Shares from the Option Plan reserved under the Option Plan; (ix) providing for the granting of non-equity based kinds of awards under the Option Plan; (x) adding or amending provisions necessary for options under the Option Plan to qualify for favourable tax treatment to optionees and/or FirstService under applicable tax laws; (xi) changing any terms relating to the administration of the Option Plan; and (xii) any other amendment, whether fundamental or otherwise, not requiring shareholder approval under applicable law (including, without limitation, the rules and policies of the TSX and of any other stock exchange or market having authority over FirstService or the Option Plan).

 

The Option Plan further provides that, subject to regulatory approval, the approval of any stock exchange on which the Subordinate Voting Shares are then listed for trading and the limitations set out later in this section, the Board may, by resolution, amend, vary or discontinue the Option Plan, or any agreement or entitlement subject to the Option Plan, at any time for the following purposes, provided that any such amendment, variance or discontinuance will not become effective unless and until approved by a majority of the votes cast by shareholders of FirstService, in person or by proxy, at a meeting of shareholders: (a) any increase in the maximum number of Subordinate Voting Shares issuable under the Option Plan or any change from a fixed maximum number of Subordinate Voting Shares issuable under the Plan to a fixed maximum percentage; (b) any reduction in the option price of an outstanding option except for the purpose of maintaining option value in connection with a change in the structure of the capital of FirstService (for this purpose, the cancellation or termination of an option of an optionee prior to expiry of the option term for the purpose of reissuing an option to the same optionee with a lower exercise price shall be treated as an amendment to reduce the option price of an option); (c) any extension of the option term or any amendment to permit the grant of an option with an expiry date of more than 10 years from the date the option is granted; (d) permitting any option granted under the Option Plan (or any other kind of award which may hereafter form part of the Option Plan) to be transferable or assignable other than for estate planning or normal estate settlement purposes; (e) providing for the granting of equity based kinds of awards under the Option Plan; and (f) any other amendment requiring shareholder approval under applicable law (including, without limitation, a reduction in the exercise price benefiting an insider of FirstService, any amendment to remove or to exceed the insider participation limit and amendments to the amending provision within the Option Plan, in addition to any other matters mandated under the rules and policies of the TSX and of any other stock exchange or market having authority over FirstService or the Option Plan). In the case of any amendment or variance referred to above, insiders of FirstService who directly benefit from such amendment or variance will not have the votes attaching to the Subordinate Voting Shares or other securities of FirstService held, directly or indirectly, by them counted in respect of the required approval of the shareholders of FirstService.

 

- 27 -

 

Notwithstanding the two immediately preceding paragraphs, the Option Plan provides that no amendment, variance or discontinuance of the Option Plan, or any agreement or entitlement subject to the Option Plan, may be made, without the prior written consent of the optionee, if the Board determines that the effect thereof is to impair, derogate from or otherwise materially and adversely affect any option previously granted to such optionee under the Option Plan.

 

In addition, the Option Plan provides that FirstService shall have the right, in certain circumstances and in lieu of delivering Subordinate Voting Shares, to pay to an optionee the “in the money” amount of the stock options held by such optionee, at its election, in the event of a formal take-over bid for all of the shares of FirstService, a sale of all or substantially all of the assets of FirstService (under circumstances such that, following the completion of such sale, FirstService will cease to carry on an active business) or any merger, arrangement, amalgamation or other similar form of transaction involving FirstService under circumstances such that, following the completion of such transaction, there is a change in control of FirstService.

 

The objective of granting options is to encourage the executives to acquire an increased ownership interest in FirstService over a period of time, which acts as a financial incentive for the executives to consider the long-term interests of FirstService and its shareholders.

 

Effective February 8, 2019, an aggregate of 438,000 options (or 1.2% of the outstanding FirstService Shares on such date) were granted under the Option Plan (including 125,000 options to D. Scott Patterson, 60,000 options to Jeremy Rakusin, 37,500 options to Douglas G. Cooke and 37,500 options to Alex Nguyen), each having an exercise price of US$83.89, an expiration date of February 8, 2024 and vesting as follows: 10% on the grant date, 15% on the first anniversary of the grant date, 20% on the second anniversary of the grant date, 25% on the third anniversary of the grant date and 30% on the fourth anniversary of the grant date.

 

Stock Option Plan – Value of Notional Gains Achieved by Named Executive Officers During 2018

 

During 2018, only two of the Named Executive Officers exercised options of FirstService and achieved notional gains as noted in the following table:

 

STOCK OPTIONS – NOTIONAL GAINS ACHIEVED IN 2018

Name of

Named Executive Officer(1)

No. of Options Exercised
During 2018
Exercise Price of Options
Exercised (US$)(2)

Notional Gains Achieved in 2018

(US$)(1)

D. Scott Patterson 60,000 12.85 3,115,500
Alex Nguyen   5,500 12.85    285,600

___________

Note:

(1) Notional gains achieved is calculated using the closing price per Subordinate Voting Share on NASDAQ on the applicable exercise date less the exercise price of the applicable stock options. Notional gains achieved does not take into account whether or not the Named Executive Officer sold the Subordinate Voting Shares received upon exercise of any options. In some cases, the Named Executive Officer has retained all or a portion of these Subordinate Voting Shares. Mr. Patterson has retained all of the Subordinate Voting Shares received by him from option exercises in 2018.

 

- 28 -

 

Equity Compensation Plan Information

 

The following table sets forth aggregated information as at December 31, 2018 with respect to compensation plans of FirstService under which equity securities of FirstService are authorized for issuance.

 

 

 

 

Plan Category(1)

Number of Securities to be
Issued Upon Exercise of
Outstanding Options,
Warrants and Rights

 

Weighted-Average Exercise
Price of Outstanding Options,
Warrants and Rights (US$)

Number of Securities Remaining
Available for Future Issuance under
Equity Compensation Plans (excluding
securities reflected in the second column)
Stock Option Plan 1,633,150 (2) $44.68 1,127,500 (2)

___________

Notes:

(1) The only equity compensation plan of FirstService is the Option Plan, which Option Plan has been approved by the shareholders. See “Incentive Award Plans of FirstService – FirstService Stock Option Plan” above.
(2) Effective February 8, 2019, an aggregate of 438,000 options were granted under the Option Plan in respect of the year ended December 31, 2018. See “Incentive Award Plans of FirstService – FirstService Stock Option Plan” above.

 

Management Contract

 

In connection with the completion of the spin-off of former FirstService Corporation, the services under the original management services agreement that were applicable only to FirstService were documented in a restated management services agreement with FirstService, Jayset Mgt and Jay S. Hennick (as amended, the “Management Services Agreement”). The fees and base prices under the original management services agreement were allocated under the spin-off, and the portion applicable to FirstService is contained in the Management Services Agreement. Mr. Hennick is a director, an officer and the sole indirect shareholder of Jayset Mgt, the registered office of which is located at 1140 Bay Street, Suite 4000, Toronto, Ontario M5S 2B4. Under the terms of the Management Services Agreement, Mr. Hennick performs the services of Founder and Chairman of FirstService on behalf of Jayset Mgt. The amounts paid or payable to Jayset Mgt pursuant to the Management Services Agreement are included in the information provided for Mr. Hennick in the Summary Compensation Table above under “Executive Compensation – Compensation of Named Executive Officers”. Jayset Mgt, in turn, transfers such amounts to Mr. Hennick at such times as Mr. Hennick determines. The Management Services Agreement had an initial term which ended on February 1, 2016, with successive one-year renewals at the option of Jayset Mgt. Jayset Mgt may voluntarily terminate the Management Services Agreement upon six-months prior written notice to FirstService. FirstService may elect to discontinue the use of Jayset Mgt’s services upon payment to Jayset Mgt of the following amounts:

 

(a) 300% of the aggregate of: (i) the average base management fee and any other fees for the three years prior to the termination; and (ii) the average incentive fee for the three years prior to the termination; and

 

(b) US$74,569.

 

In the event of a change of control of FirstService, a transfer of all or substantially all of the assets of FirstService to the shareholders of FirstService or if the Management Services Agreement is not renewed at the end of the initial term or any renewal term, then the Management Services Agreement will be deemed to be terminated and the payments described in (a) and (b) above will be payable to Jayset Mgt. For an estimated amount of such payment as at December 31, 2018, see “Executive Compensation – Termination and Change of Control Benefit”.

 

The Management Services Agreement also contains an acquisition of control arrangement (the “Long Term Arrangement”) for Mr. Hennick, the Founder and Chairman of FirstService. The Long Term Arrangement is provided to Mr. Hennick in lieu of his participation in the Option Plan or receiving grants of options thereunder. Under the Long Term Arrangement, FirstService has agreed that it will make a payment to Jayset Mgt on (each of the following circumstances, an “Event”): (a) an arm’s length acquisition of control of FirstService; or (b) a special dividend or other distribution to the shareholders of FirstService or in the event of a transaction the effect of which results in a transfer of assets of FirstService to the shareholders of FirstService (either of which, a “Partial Event”). The Long Term Arrangement provides for Jayset Mgt to receive the following two payments. The first payment will be an amount equal to 5% of the product of: (i) the aggregate number of Subordinate Voting Shares and Multiple Voting Shares outstanding on a fully diluted basis at the time of the Event; and (ii) the per share consideration received or deemed to be received by the holders of Subordinate Voting Shares on or as a result of the applicable Event minus a base price of C$2.351. The second and additional payment will be an amount equal to 5% of the product of: (i) the aggregate number of Subordinate Voting Shares and Multiple Voting Shares outstanding on a fully diluted basis at the time of the Event; and (ii) the per share consideration received or deemed to be received by the holders of Subordinate Voting Shares on or as a result of the applicable Event minus a base price of C$4.578.

 

- 29 -

 

Upon the occurrence of a Partial Event, each of base prices noted above will be adjusted by subtracting from each base price, respectively, an amount equal to the per share consideration received or to be received by the holders of the Subordinate Voting Shares of FirstService on or as a result of such Partial Event; in no event will either base price be permitted to fall below zero. The base prices are also appropriately adjusted to reflect stock splits and consolidations. The right to receive the two payments may be transferred, in whole or in part, to person(s) who are not at arm’s length to Jayset Mgt.

 

Assuming that an arm’s length acquisition of control of FirstService took place on December 31, 2018 at a price per share of C$93.69 (being the closing price per Subordinate Voting Share on the TSX on December 31, 2018), FirstService would have been required to make a payment to Jayset Mgt in the aggregate amount of US$248.8 million pursuant to the Long Term Arrangement (and taking into account the change of control payment to Jayset Mgt referred to under “Termination and Change of Control Benefits” below, the total amount payable in such circumstance would have been US$254.3 million).

 

At the Meeting, if the Transaction Resolution is approved and the matters therein implemented, the Management Services Agreement, including the Long Term Arrangement, will be terminated. See “Business of the Meeting – Approval of Transaction”.

 

Executive Share Ownership Policy

 

FirstService has an executive share ownership policy (the “ESO Policy”) requiring that the CEO and the CFO of FirstService (collectively, the “Designated Executives”) to achieve and maintain, for the duration of their employment at FirstService, minimum ownership of shares of FirstService having a value, in the case of the CEO, of three times base salary and, in the case of the CFO, two times base salary. All Designated Executives are permitted five years from the effective date of the ESO Policy to achieve the required minimum ownership of shares. Any newly appointed, retained or promoted Designated Executives will be permitted two years from their appointment/retention/promotion date to achieve the required minimum ownership of shares. For the purposes of the ESO Policy, the base salary or management fee used will be fixed to such base salary or management fee in effect at the time the Designated Executive first becomes subject to the ESO Policy. Upon a Designated Executive achieving the minimum ownership of shares required under the ESO Policy, the Designated Executive will no longer be required to acquire further shares of FirstService, including as a result of any decrease in the market price of FirstService’s shares. The minimum ownership of shares is not required to continue following the cessation of a Designated Executive’s employment with FirstService. Upon a Designated Executive achieving the minimum ownership of shares required under the ESO Policy, such Designated Executive will not be permitted to purchase financial instruments that are designed to hedge or offset the economic exposure of such Designated Executive’s ownership in shares of FirstService such that the effective economic exposure is less than the required minimum ownership threshold under the ESO Policy. The Board may grant exceptions to the ESO Policy where circumstances warrant, including, but not limited to, tax and estate planning considerations. As of the date hereof, all of the Designated Executives are in compliance with the ESO Policy.

 

Incentive Compensation Reimbursement Policy

 

In order to further align management’s interests with the interests of shareholders and in support good governance practices, FirstService has an incentive compensation reimbursement policy (the “ICR Policy”). Under the ICR Policy, FirstService will require reimbursement, in all appropriate cases, of any incentive compensation awarded to any management personnel if, within one year of receiving such award: (a) the amount of the incentive compensation was calculated based upon the achievement of certain financial results of FirstService that were subsequently the subject of a financial restatement; and (b) the amount of the incentive compensation that would have been awarded had the financial results been properly reported would have been lower than the amount actually awarded. To do this, FirstService may pursue various ways to recover by: (i) seeking repayment; (ii) reducing the amount that would otherwise be payable under another incentive compensation award; (iii) withholding future equity grants, incentive awards or salary increases; or (iv) take any combination of these actions.

 

- 30 -

 

Termination and Change of Control Benefits

 

As noted under “Management Contract” above, FirstService may elect to discontinue the use of Jayset Mgt’s services pursuant to the Management Services Agreement upon payment to Jayset Mgt of the following amounts: (a) 300% of the aggregate of: (i) the average base management fee and any other fees for the three years prior to the termination; and (ii) the average incentive fee for the three years prior to the termination; and (b) US$74,569. Furthermore, the Management Services Agreement provides that in the event of a change of control of FirstService, a transfer of all or substantially all of the assets of FirstService to the shareholders of FirstService or if the Management Services Agreement is not renewed at the end of the initial term or any renewal term, then the Management Services Agreement will be deemed to be terminated and the foregoing payments described in (a) and (b) will be payable to Jayset Mgt. Assuming that a change of control of FirstService or a discontinuance of Jayset Mgt’s services took place on December 31, 2018, FirstService would have been required to make a payment to Jayset Mgt in the aggregate amount of US$5.5 million pursuant to the Management Services Agreement (not taking into account the Long Term Arrangement). At the Meeting, if the Transaction Resolution is approved and the matters therein implemented, the Management Services Agreement, including the Long Term Arrangement, will be terminated without the requirement to make the termination payment referenced above. See “Business of the Meeting – Approval of Transaction”.

 

Under the Long Term Arrangement, FirstService has agreed that it will make a payment to Jayset Mgt on the occurrence of an Event. See “Management Contract” above. Assuming that an arm’s length acquisition of control of FirstService took place on December 31, 2018 at a price per share of C$93.69 (being the closing price per Subordinate Voting Share on the TSX on December 31, 2018), FirstService would have been required to make a payment to Jayset Mgt in the aggregate amount of US$248.8 million pursuant to the Long Term Arrangement (and taking into account the change of control payment to Jayset Mgt referred to above, the total amount payable in such circumstance would have been US$254.3million). At the Meeting, if the Transaction Resolution is approved and the matters therein implemented, the Management Services Agreement, including the Long Term Arrangement, will be terminated, in consideration for a payment determined by applying the formula provided in the Management Services Agreement for the Long Term Arrangement as if an Event had occurred. See “Business of the Meeting – Approval of Transaction”.

 

Pursuant to the terms of the Option Plan, where there is a take-over bid to acquire the outstanding shares or FirstService enters into an agreement providing for the sale of all or substantially all of the assets of FirstService such that, following completion of such sale, FirstService will cease to carry on, directly or indirectly, an active business, the Board may advise optionees (including any Named Executive Officers who are optionees at the time) that all options will expire (subject to certain limitations) on the date determined by the Board and each optionee shall have the right to exercise their options in whole or in part, regardless of vesting. In addition, the Option Plan provides that FirstService shall have the right, in certain circumstances and in lieu of delivering Subordinate Voting Shares, to pay to an optionee the “in the money” amount of the stock options held by such optionee, at its election, in the event of a formal take-over bid for all of the shares of FirstService, a sale of all or substantially all of the assets of FirstService (under circumstances such that, following the completion of such sale, FirstService will cease to carry on an active business) or any merger, arrangement, amalgamation or other similar form of transaction involving FirstService under circumstances such that, following the completion of such transaction, there is a change in control of FirstService. See “Incentive Award Plans of FirstService – FirstService Stock Option Plan” above.

 

Compensation of Directors

 

In December 2015, upon the recommendation of the Compensation Committee (which received the advice and assistance of H. Wilkinson Consulting Group Inc. as its independent compensation consultant), the Board approved new director compensation arrangements. In 2018, each director of FirstService who was not a full time employee of, or providing management services to, FirstService or any of its subsidiaries received: (i) an annual retainer of US$75,000; and (ii) meeting fees equal to US$1,750 for each meeting of the Board or committee thereof attended by such director in person and US$1,000 for each meeting attended by telephone. The Lead Director of the Board received an annual retainer of US$10,000, the Chair of the Audit Committee received an annual retainer of US$20,000 and the Chair of the Compensation Committee received an annual retainer of US$5,000.

 

In addition to the above, it is anticipated that each director of FirstService who was not a full time employee of, or providing management services to, FirstService or any of its subsidiaries will receive an annual grant of Options exercisable for 8,000 Subordinate Voting Shares. Effective February 8, 2019, 8,000 Options were issued to each such director at an exercise price of US$83.89 per share. See “– Director Outstanding Option-Based Awards” and the biographies of each director set out under “Business of the Meeting – Election of Directors” for additional information on such option grants.

 

- 31 -

 

Individual Director Compensation for 2018

 

The following table provides a summary of all amounts of compensation provided to the directors of FirstService during the year ended December 31, 2018. Jay S. Hennick and D. Scott Patterson do not receive any compensation in acting as directors of FirstService.

 

DIRECTOR COMPENSATION TABLE FOR THE YEAR ENDED DECEMBER 31, 2018
Name Fee Earned
(US$)
Option-Based Awards
(US$)(1)

Non-Equity

Incentive Plan Compensation

(US$)

All Other
Compensation

(US$)
Total
(US$)
Brendan Calder   88,000 143,000 Nil Nil 231,000
Bernard I. Ghert 117,000 143,000 Nil Nil 260,000
Frederick F. Reichheld   83,000 143,000 Nil Nil 226,000
Joan Eloise Sproul   66,250 143,000 Nil Nil 227,250
Michael Stein   90,000 143,000 Nil Nil 233,000
Erin J. Wallace   84,000 143,000 Nil Nil 227,000

___________

Note:

(1) The amounts reported represent the grant date fair value of stock option awards granted to each of the noted directors, calculated in accordance with the Financial Accounting Standards Board Accounting Standards Codification 718, Compensation – Stock Compensation. The assumptions used by FirstService in calculating these amounts are incorporated herein by reference to Note 12 to FirstService’s audited consolidated financial statements for the year ended December 31, 2018. For a description of the material terms of the Option Plan and each option grant, see “Incentive Award Plans of FirstService – FirstService Stock Option Plan” above and “Director Outstanding Option-Based Awards” below.

 

The following table summarizes the fees paid to individual directors during the year ended December 31, 2018. During such period, FirstService paid to such directors, in their capacity as such, aggregate fees equal to US$528,250.

 

Name

Board & Lead
Director
Annual
Retainer

(US$)

Committee &
Committee

Chair Annual
Retainer

(US$)

Total Board
Attendance
Fees

(US$)

Total
Committee
Attendance
Fees

(US$)

Total Fees
Payable

(US$)

Total Fees
Paid in Cash
(US$)

Brendan Calder 75,000   5,000 7,000 1,000   88,000   88,000
Bernard I. Ghert 75,000 30,000 4,375 7,625 117,000 117,000
Frederick F. Reichheld 75,000         – 7,000 1,000   83,000   83,000
Joan Eloise Sproul 56,250         – 4,375 5,625   66,250   66,250
Michael Stein 75,000   5,000 5,250 4,750   90,000   90,000
Erin J. Wallace 75,000         – 6,125 2,875   84,000   84,000

 

Director Outstanding Option-Based Awards

 

The table below reflects all option-based awards for each director of FirstService outstanding as at December 31, 2018. FirstService does not have any other equity incentive plan other than the Option Plan.

 

- 32 -

 

DIRECTOR OPTION–BASED AWARDS OUTSTANDING AS AT DECEMBER 31, 2018(1)(2)

Name of Director

 

Number of

Securities Underlying
Unexercised Options
(3)

 

Option

Exercise Price

(US$/Security)

 

 

Option

Expiration Date

Value of Unexercised

In-the-Money

Options

(US$)(4)

Brendan Calder

8,000

6,000

1,650

2,750

66.31

54.88

35.96

39.29

February, 9, 2023

February 14, 2022

February 12, 2021

December 14, 2020

17,360

81,600

53,660

80,270

Bernard I. Ghert

8,000

8,000

3,000

5,000

66.31

54.88

35.96

39.29

February, 9, 2023

February 14, 2022

February 12, 2021

December 14, 2020

17,360

108,800

97,560

145,950

Frederick F. Reichheld

7,200

6,000

1,650

2,750

1,500

66.31

54.88

35.96

39.29

21.40

February, 9, 2023

February 14, 2022

February 12, 2021

December 14, 2020

November 17, 2019

15,620

81,600

53,660

80,270

70,620

Joan Eloise Sproul 8,000 70.40 May 15, 2023          –
Michael Stein

8,000

8,000

3,000

5,000

66.31

54.88

35.96

39.29

February, 9, 2023

February 14, 2022

February 12, 2021

December 14, 2020

17,360

108,800

97,560

145,950

Erin J. Wallace

8,000

8,000

3,000

10,000

66.31

54.88

35.96

39.29

February, 9, 2023

February 14, 2022

February 12, 2021

December 14, 2020

17,360

108,800

97,560

291,900

___________

Notes:

(1) The Options vest 10% on the grant date, 15% on the first anniversary, 20% on the second anniversary, 25% on the third anniversary and 30% on the fourth anniversary of the grant date. Notwithstanding the foregoing, the Option Plan provides that the vesting of the noted options held by each non-employee director is accelerated, such that they become immediately fully vested and exercisable, in the event that such director does not stand for re-election, resigns as a director or fails to be re-elected as a director, in each case, in circumstances where there is no willful and substantial breach of such director’s fiduciary duties or other legal obligations to FirstService. The expiration date is the fifth anniversary of the grant date.
(2) Under the terms of the Option Plan, the Founder and Chairman of FirstService, Jay S. Hennick, is not eligible to participate in the Option Plan or to receive grants of options thereunder. See “Executive Compensation – Management Contract”. See “Executive Compensation – NEO Outstanding Option-Based Awards” for options granted to D. Scott Patterson which are outstanding as at December 31, 2018. Effective February 8, 2019, 8,000 options were granted under the Option Plan to each director of FirstService who was not a full time employee of, or providing management services to, FirstService or any of its subsidiaries.
(3) Each Option entitles the holder to purchase one Subordinate Voting Share. See “Incentive Award Plans of FirstService – FirstService Stock Option Plan”.
(4) Calculated using the closing price per Subordinate Voting Share on NASDAQ on December 31, 2018 of US$68.48 less the exercise price of the applicable stock options.

 

The following table provides information concerning the incentive award plans of FirstService with respect to each director of FirstService during the year ended December 31, 2018. The only incentive award plan of FirstService applicable to directors during 2018 was the Option Plan.

 

- 33 -

 

INCENTIVE AWARD PLANS – VALUE VESTED OR EARNED DURING

THE YEAR ENDED DECEMBER 31, 2018(1)

Name of Director

Option-Based Awards –

Value Vested During 2018 (US$)(2)

Non-Equity Incentive Plan Compensation –

Value Earned During 2018 (US$)

Brendan Calder   76,920 Nil
Bernard I. Ghert   76,920 Nil
Frederick F. Reichheld 154,760 Nil
Joan Eloise Sproul        240 Nil
Michael Stein   76,290 Nil
Erin J. Wallace 116,000 Nil

___________

Notes:

(1) Under the terms of the Option Plan, the Founder and Chairman of FirstService, Jay S. Hennick, is not eligible to participate in the Option Plan or to receive grants of options thereunder. See “Executive Compensation – Management Contract” and “Incentive Award Plans of FirstService – FirstService Stock Option Plan”. See “Executive Compensation – Incentive Award Plans of FirstService” for vesting of options granted to D. Scott Patterson during the year ended December 31, 2018.
(2) Calculated using the closing price per Subordinate Voting Share on NASDAQ on the applicable vesting date less the exercise price of the applicable stock options.

 

Performance Graph

 

The following graph compares the total cumulative shareholder return for C$100 invested in Subordinate Voting Shares (with any cash dividends reinvested into Subordinate Voting Shares)(1) on the TSX (symbol: FSV) with the S&P/TSX Composite Total Return Index(2) for the period commencing June 2, 2015 and ending December 31, 2018 (being the period during which the Subordinate Voting Shares have traded on the TSX). The Subordinate Voting Shares are also traded on NASDAQ (symbol: FSV).

 

 

 

- 34 -

 

  June 2,
2015
June 30,
2015
Dec 31,
2015
June 30,
2016
Dec 31,
2016
June 30,
2017
Dec 31,
2017
June 30,
2018
Dec 31,
2018
Subordinate Voting
Shares(1)
100.0 103.6 167.9 178.4 193.4 253.6 269.0 307.0 288.6
S&P/TSX Composite
Total Return Index(2)
100.0 96.6 87.8 96.4 106.3 107.1 116.0 118.2 105.6

___________

Notes:

(1) The cumulative return of the Subordinate Voting Shares (in C$) is based on the closing prices of the Subordinate Voting Shares on the TSX on June 2, 2015, June 30, 2015, December 31, 2015, June 30, 2016, December 31, 2016, June 30, 2017, December 31, 2017, June 30, 2018 and December 31, 2018 or, if there was no trading on such date, the closing price on the last trading day prior to such date. Cash dividends on the shares have been treated as being reinvested into additional shares on the payment date of each dividend. The Subordinate Voting Shares commenced trading on the TSX on June 2, 2015.
(2) The S&P/TSX Composite Total Return Index is a total return index (in C$), the calculation of which includes dividends and distributions reinvested.

 

As noted in the graph above, from June 2, 2015 until December 31, 2018, assuming reinvestment of all dividends, the cumulative total shareholder return on the Subordinate Voting Shares was 188.6% as compared to a cumulative total return of 5.6% on the S&P/TSX Composite Total Return Index over the same period. Due to the fact that FirstService became a stand-alone public company in mid-2015, it is difficult to meaningfully compare the trend of the aggregate compensation of the Named Executive Officers of FirstService relative to shareholder returns as measured by the equity trading price since June 2, 2015. However, during the post-spin-off period, the total cumulative shareholder return for C$100 invested in Subordinate Voting Shares significantly outpaced the S&P/TSX Composite Total Return Index. In 2018, the shareholder return reflected a 31% increase in FirstService’s adjusted earnings per share for 2018 over the prior year (and 29% for the purposes of the annual performance-based bonus plan), and consequently, an annual performance bonus was earned by each Named Executive Officer in 2018. See “Compensation Discussion and Analysis – Base Salary” and “– Annual Bonus Incentive” above.

 

NORMAL COURSE ISSUER BID

 

Pursuant to a notice of intention to make a normal course issuer bid dated August 13, 2018, FirstService commenced a normal course issuer bid to purchase up to a maximum of 3,100,000 Subordinate Voting Shares, being approximately 10% of the “public float” of such class of shares as at August 13, 2018 (the “NCIB”). FirstService may purchase its Subordinate Voting Shares from time to time if it believes that the market price of its Subordinate Voting Shares is attractive and that the purchase would be an appropriate use of corporate funds and in the best interests of FirstService. FirstService may also purchase its Subordinate Voting Shares in order to mitigate the dilutive effect of stock options issued under the Option Plan. Purchases pursuant to the NCIB may occur on the TSX and NASDAQ between August 24, 2018 and August 23, 2019 at prices not exceeding the market price of the Subordinate Voting Shares at the time of acquisition. The actual number of Subordinate Voting Shares which may be purchased pursuant to the NCIB and the timing of any such purchases is determined by senior management of FirstService. Daily purchases under the NCIB are limited to 11,257 Subordinate Voting Shares, other than block purchases. During 2018, FirstService purchased a total of 130,436 Subordinate Voting Shares (at an average price of US$68.98 per share) on the TSX and NASDAQ under the NCIB.

 

The purchase price for Subordinate Voting Shares purchased by FirstService under the NCIB, if any, is paid in cash on delivery of the shares. FirstService intends to finance any purchase of Subordinate Voting Shares under the NCIB from its working capital. Subordinate Voting Shares purchased by FirstService under the NCIB are cancelled. Shareholders can obtain a copy of the Notice of Intention to Make a Normal Course Issuer Bid filed with regulators by FirstService in relation to the NCIB by requesting a copy in writing from FirstService at 1140 Bay Street, Suite 4000, Toronto, Ontario M5S 2B4.

 

Indebtedness of Directors AND

Executive Officers under Securities Purchase AND OTHER Programs

 

The following table sets out certain information regarding the aggregate indebtedness owing to FirstService or its subsidiaries which is outstanding as at December 31, 2018 by all executive officers, directors, employees and former executive officers directors and employees of FirstService and its subsidiaries:

 

 

- 35 -

 

AGGREGATE INDEBTEDNESS (US$)
Purpose To FirstService or its Subsidiaries(1) To Another Entity
Share Purchases              Nil
Other(2) $2,064,000

___________

Notes:

(1) All indebtedness noted is owing to subsidiaries of FirstService from directors and employees of subsidiaries of FirstService. Amounts noted relating to share purchases are in connection with acquisitions of shares of a subsidiary of FirstService. No individual who is, or at any time during the year ended December 31, 2018 was, a director or executive officer of FirstService, a proposed nominee for election as a director of FirstService or an associate of any such director, executive officer or proposed nominee is indebted to FirstService or any of its subsidiaries in respect of a security purchase program or otherwise.
(2) The amount noted represents advances to minority shareholders of FirstService subsidiaries for tax payments in connection the acquisition of such subsidiaries by FirstService.

 

Other than as set out above, as at the date hereof, there was no other indebtedness owed to FirstService or any of its subsidiaries from executive officers, directors, employees and former executive officers, directors and employees of FirstService or any of its subsidiaries (or to another entity as a result of the indebtedness being subject to a guarantee, support agreement, letter of credit or other similar arrangement or understanding provided by FirstService or any of its subsidiaries).

 

The Board has adopted a policy that prohibits any loans to the directors or executive officers of FirstService.

 

BUSINESS OF THE MEETING

 

Receipt of Financial Statements

 

The audited consolidated financial statements of FirstService for the year ended December 31, 2018 and the report of the auditors thereon will be presented to the Meeting. No vote by the shareholders with respect thereto is required. If any shareholders have questions regarding such financial statements, the questions may be brought forward at the Meeting. The audited consolidated financial statements of FirstService for the year ended December 31, 2018 and Management’s Report on the Internal Control over Financial Reporting, and the report of the auditors’ thereon and management’s discussion and analysis relating thereto are included in the 2018 Annual Report of FirstService sent to shareholders.

 

Appointment of Auditors

 

PricewaterhouseCoopers LLP, Chartered Accountants and Licensed Public Accountants, are the independent auditors of FirstService and have served as its auditors since 2014. Management recommends that shareholders reappoint PricewaterhouseCoopers LLP as the auditors of FirstService to hold office until the close of the next annual meeting of the shareholders, and to authorize the Board to fix the remuneration of the auditors. It is intended that the persons named in the accompanying form of proxy (provided the same is duly executed in their favour and is duly deposited), unless their authority to do so has been withheld, will vote the FirstService shares represented thereby in favour of appointing PricewaterhouseCoopers LLP as the auditors of FirstService and authorizing the directors of FirstService to fix their remuneration.

 

From time to time, PricewaterhouseCoopers LLP also provides non-audit services to FirstService and its subsidiaries. The Audit Committee has considered whether the provision of non-audit services is compatible with maintaining PricewaterhouseCoopers LLP’s independence and has concluded that it is. Total fees paid to PricewaterhouseCoopers LLP in 2018 were approximately US$939,000. Of such amount, US$726,000 related to audit fees (being fees billed by FirstService’s external auditor for audit services, including subsidiary audits), US$45,000 related to audit-related fees (being fees billed for statutory audits or assurance and related services by FirstService’s external auditor that are reasonably related to the performance of the audit or review of FirstService’s financial statements and are not reported under audit fees), US$50,000 related to tax fees (being the fees billed for professional services rendered by FirstService’s external auditor for tax compliance, tax advice and tax planning) and US$6,000 related to all other fees (being fees for licensing and subscriptions to accounting and tax research tools). In addition, US$112,000 in administration and out-of-pocket expenses were reimbursed during 2018 to PricewaterhouseCoopers LLP. For more information on the Audit Committee, consult the Annual Information Form of FirstService for the year ended December 31, 2018 available at www.sedar.com.

 

- 36 -

 

Election of Directors

 

The Board currently consists of eight directors. Pursuant to the articles of FirstService, the number of directors to be elected by the shareholders shall be a minimum of one and a maximum of twenty. The Board proposes to nominate the following eight individuals for election by the shareholders at the Meeting as directors of FirstService: Brendan Calder, Bernard I. Ghert, Jay S. Hennick, D. Scott Patterson, Frederick F. Reichheld, Joan Eloise Sproul, Michael Stein and Erin J. Wallace. Each director elected will hold office until the close of the next annual meeting of FirstService, or until his or her successor is duly elected or appointed, unless: (i) his or her office is earlier vacated in accordance with the articles and by-laws of FirstService; or (ii) he or she becomes disqualified to act as a director. All of the nominees are currently directors of FirstService.

 

Unless provided to the contrary, the persons named in the accompanying form of proxy (if the same is duly executed in their favour and is duly deposited) will vote the FirstService shares represented thereby in favour of electing as directors the nominees named below. In case any of the following nominees should become unavailable for election for any reason, unless provided to the contrary, the persons named in the accompanying form of proxy will vote the FirstService shares represented thereby in favour of electing the remaining nominees and such other substitute nominees as a majority of the directors of FirstService may designate in such event.

 

FirstService has adopted a policy for non-contested meetings whereby shareholders vote separately for each director nominee and each director to be elected at a meeting of shareholders must be elected by a majority (50% + 1 vote) of the votes cast with respect to his or her election. Any director nominee must immediately tender his or her resignation to the Board if he or she is not elected by at least a majority (50% + 1 vote) of the votes cast with respect to his or her election even though duly elected as a matter of corporate law. Such director nominee’s resignation to the Board must be effective when accepted by the Board. The Board shall determine whether or not to accept a director nominee’s resignation tendered pursuant to the policy within 90 days after the date of the relevant shareholders’ meeting. The Board shall accept the resignation absent exceptional circumstances. FirstService will promptly issue a press release announcing the resignation of the director or explaining the reasons justifying its decision not to accept such resignation.

 

The following information is submitted with respect to the individuals proposed to be nominated for election as directors at the Meeting:

 

Brendan Calder

Ontario, Canada

Age: 72

Mr. Calder has been a Professor and an Entrepreneur in Residence at the Rotman School of Management, University of Toronto since 2001 (currently conducting the MBA course, GettingItDone), is Chair of Rotman’s Desautels Centre for Integrative Thinking, was the founding Chair of the Rotman International Centre for Pension Management and is a Senior Fellow at Massey College. Mr. Calder was a successful mortgage banker before that. Mr. Calder is also past Chair of the Peter F. Drucker Canadian Foundation and The Toronto International Film Festival Group and was a director of the public entities listed below. He is a director of EllisDon Corporation and Haventree Bank. Mr. Calder holds a Bachelor of Mathematics degree from the University of Waterloo and attended the Advanced Management Program at Harvard University. Mr. Calder is an Institute of Corporate Directors certified director (ICD.D).
 
Director Since: June 1, 2015
 

Independent

 

Areas of Expertise:

Governance Board & Committees Attendance Securities Owned, Controlled or Directed(1)(2)

• Finance

• Management

Board

Compensation

Governance (Chair)

4 of 4

2 of 2

1 of 1

100%

100%

100%

Subordinate Voting Shares

Total Value of Securities(5)

Equity Ownership Policy(7)

5,082

US$348,015

Met

  Options Held(6)
  Date Granted Expiry Date No. Granted Exercise Price Total Unexercised Value
  Dec. 14, 2015 Dec. 14, 2020 5,000 US$39.29 2,750 US$80,270
  Feb. 12, 2016 Feb. 12, 2021 3,000 US$35.96 1,650 US$53,660
  Feb. 14, 2017 Feb. 14, 2022 8,000 US$54.88 6,000 US$81,600
  Feb. 9, 2018 Feb. 9, 2023 8,000 US$66.31 8,000 US$17,360
  Feb. 8, 2019 Feb. 8, 2024 8,000 US$83.89 8,000
  Public Board Memberships During the Last Five Years  
 

Equity Financial Holdings Inc.

Colliers International Group Inc.

2014 – 2017

1996 – 2015

                       

 

- 37 -

 

Bernard I. Ghert, c.m.

Ontario, Canada

Age: 79

Mr. Ghert was previously President and Chief Executive Officer of the Cadillac Fairview Corporation Limited from 1981 to 1987 and President of Stelworth Investments Inc. from 1987 to 1992. Mr. Ghert has been a director of many organizations in the private and public sectors, including Cadillac Fairview, Stelworth, CT Financial and Canada Trust, Wellington Insurance and the Canada Deposit Insurance Corporation. Mr. Ghert has served as Director of the Managers of several Middlefield Funds, President of the Canadian Institute of Public Real Estate Companies and was a former member of the Advisory Board of the Office of the Superintendent of Financial Institutions. Mr. Ghert currently is Chairman of the Independent Review Committee of Middlefield Fund Management Limited, President of the B.I. Ghert Family Foundation, President of Coppi Holdings Ltd., a Director on Sinai Health System’s Board and Past Chair of the Mount Sinai Hospital Board of Directors.
 
Director Since: June 1, 2015
 

Lead Director of the Board Since: June 2015

 

Independent Board & Committees Attendance Securities Owned, Controlled or Directed(1)(3)

 

Areas of Expertise:

Board

Audit (Chair)

3 of 4

4 of 5

75%

80%

Subordinate Voting Shares

34,679

 

Governance Compensation 2 of 2 100% Total Value of Securities(5) US$2,374,818
• Finance       Equity Ownership Policy(7)

Met

• Real Estate Options Held(6)
Date Granted Expiry Date No. Granted Exercise Price Total Unexercised Value
  Dec. 14, 2015 Dec. 14, 2020 5,000 US$39.29 5,000 US$145,950
  Feb. 12, 2016 Feb. 12, 2021 3,000 US$35.96 3,000 US$97,560
  Feb. 14, 2017 Feb. 14, 2022 8,000 US$54.88 8,000 US$108,800
  Feb. 9, 2018 Feb. 9, 2023 8,000 US$66.31 8,000

US$17,360

  Feb. 8, 2019 Feb. 8, 2024 8,000 US$83.89 8,000
  Public Board Memberships During the Last Five Years  
 

Chairman of the Independent Review Committee of Middlefield Limited, as Manager of the following:

 
 

TSX-Listed Funds: ACTIVEnergy Income Fund (as of September 25, 2009), COMPASS Income Fund, INDEXPLUS Income Fund, MINT Income Fund, MBN Corporation (formerly, Middlefield Tactical Energy Corporation), ENERGY INDEXPLUS Dividend Fund (2011-2015), Uranium Focused Energy Fund (2009-2013), YIELDPLUS Income Fund, Pathfinder Income Fund (formerly, Pathfinder Convertible Debenture Fund) (as of December 21, 2009), Convertible Debenture Trust (2009-2014), GMIncome & Growth Fund (2010-2011), INDEXPLUS Dividend Fund (2011-2012), American Core Sectors Dividend Fund (as of December 19, 2013), Global Dividend Growers Income Fund (as of March 22, 2013), Global Healthcare Dividend Fund (as of October 23, 2014), Global Infrastructure Dividend Fund (as of July 24, 2014), Global Real Estate Dividend Growers Corp. (as of July 24, 2015) Middlefield Can-Global REIT Income Fund (as of November 19, 2012), REIT INDEXPLUS Income Fund (as of April 20, 2011), U.S. Dividend Growers Income Corp. (as of March 20, 2015), and Globalance Dividend Growers Corp. (as of October 23, 2015)

 

Resource Funds: MRF 2010 Resource Limited Partnership (2010-2012), Discovery 2010 Flow-Through Limited Partnership (2010 - 2013) and MRF 2011 Resource Limited Partnership (2011 - 2013), Discovery 2011 Flow-Through Limited Partnership (2011-2014) and MRF 2012 Resource Limited Partnership (2012-2014), Discovery 2012 Flow-Through Limited Partnership (2012-2015) and MRF 2013 Resource Limited Partnership (2013-2015), Discovery 2013 Flow-Through Limited Partnership (2013-2016) and MRF 2014 Resource Limited Partnership (as of February 20, 2014), Discovery 2014 Flow-Through Limited Partnership (as of August 29, 2014) and MRF 2015 Resource Limited Partnership (as of February 19, 2015)

 

Middlefield Mutual Funds Limited (a mutual fund corporation comprising a number of outstanding classes of mutual funds)

 

Middlefield Global Healthcare Dividend Fund (as of May 22, 2015)

 

Middlefield Global Infrastructure Fund (as of June 12, 2013)

 

December 1, 2009 (except where noted) – Present

  Colliers International Group Inc. 2004 – 2015

                     

 

- 38 -

 

Jay S. Hennick, C.M.

Ontario, Canada

Age: 62

Mr. Hennick is the Founder and Chairman of FirstService. In June 2015, Mr. Hennick became the Chairman and CEO of Colliers International Group Inc. Pre-spin-off, Mr. Hennick was the CEO of former FirstService Corporation from 1988 to 2015. In 1998, Mr. Hennick was awarded Canada’s Entrepreneur of the Year, in 2001 he was named Canada’s CEO of the Year by Canadian Business Magazine and in 2011, received an honorary Doctorate of Laws from York University and the University of Ottawa. Mr. Hennick has recently been recognized with an Order of Canada designation, and is also the 2019 International Horatio Alger Award recipient. Mr. Hennick served as past Chairman of the Board of Directors of the Sinai Health System, in Toronto and is the immediate past Chairman of The Mount Sinai Hospital Board of Directors. In addition, Mr. Hennick has endowed the Jay S. Hennick JD-MBA Program at the Faculty of Law and School of Management at the University of Ottawa Law School, his alma mater, and The Hennick Centre for Business and Law, a joint program of the Osgoode Hall Law School and the Schulich School of Business at York University. Mr. Hennick holds a Bachelor of Arts degree from York University in Toronto and a Doctorate of Laws from the University of Ottawa.
 
Director Since: June 1, 2015
 

Chairman of the

Board Since: June 2015

 

Non-Independent

 

Areas of Expertise: Board & Committees Attendance Securities Owned, Controlled or Directed(1)(4)

• Management

• Real Estate

• Finance

Board 4 of 4 100%

Subordinate Voting Shares

Multiple Voting Shares

1,522,526

1,325,694

 

       

Total Value of Securities(5)

Equity Ownership Policy(7)

US$195,046,106

Met

  Options Held
  None. Mr. Hennick is not eligible to participate in the Option Plan or to receive grants of options thereunder. See “Executive Compensation – Management Contract”.
  Public Board Memberships During the Last Five Years  
  Colliers International Group Inc. (Chair) 1988 – Present
             

 

D. Scott Patterson

Ontario, Canada

Age: 58

Mr. Patterson is the President and CEO of FirstService. Pre-spin-off, Mr. Patterson was the President and Chief Operating Officer of former FirstService Corporation from 2003 to 2015. He joined former FirstService Corporation in 1994 as Vice President Corporate Development, and was its Chief Financial Officer from February 1995 until September 2003. Prior to joining former FirstService Corporation, Mr. Patterson was an investment banker at Bankers Trust. Mr. Patterson qualified as a Chartered Accountant in 1985 and began his career at PricewaterhouseCoopers. Mr. Patterson holds a Bachelor of Arts degree in Business Administration from the University of Western Ontario.
 
Director Since: June 1, 2015
 
Non-Independent Board & Committees Attendance Securities Owned, Controlled or Directed(1)

 

Areas of Expertise:

Board 4 of 4 100%

Subordinate Voting Shares

 

Total Value of Securities(5)

Equity Ownership Policy(7)

885,262

 

US$60,622,742

Met

Management Options Held(6)
Real Estate Date Granted Expiry Date No. Granted Exercise Price Total Unexercised Value
  May 15, 2014 May 15, 2019   60,000 US$20.52   60,000 US$2,877,600
  Feb. 13, 2015 Feb. 13, 2020   60,000 US$23.96   60,000 US$2,671,200
  Feb. 12, 2016 Feb. 12, 2021 125,000 US$35.96 125,000 US$4,065,000
  Feb. 14, 2017 Feb. 14, 2022 125,000 US$54.88 125,000 US$1,700,000
  Feb. 9, 2018 Feb. 9, 2023 125,000 US$66.31 125,000 US$271,250
  Feb. 8, 2019 Feb. 8, 2024 125,000 US$83.89 125,000
  Public Board Memberships During the Last Five Years  
  Laramide Resources Ltd. 1995 – Present
                       

 

- 39 -

 

Frederick F. Reichheld

Massachusetts, USA

Age: 67

Since 1977, Mr. Reichheld has been employed at Bain & Company, Inc., a global business consulting firm, and was elected to the partnership at Bain in 1982. Mr. Reichheld is the creator of the Net Promoter® system of management and founded Bain’s Loyalty practice, which helps clients achieve superior results through improvements in customer, employee, partner and investor loyalty and has also served in a variety of other roles, including as a member of Bain & Company’s Worldwide Management, Nominating, and Compensation Committees. In January 1999, he was elected by the firm to become the first Bain Fellow. Mr. Reichheld is a frequent speaker to major business forums and groups of CEOs and senior executives worldwide and has authored several books, including The Loyalty Effect: The Hidden Force Behind Growth, Profits, and Lasting Value (Harvard Business School Press, 1996), The Loyalty Rules!: How Today’s Leaders Build Lasting Relationships (Harvard Business School Press 2003), The Ultimate Question (Harvard Business School Press, 2006) and The Ultimate Question 2.0 (Harvard Business School Press 2011). Mr. Reichheld received his BA from Harvard College and his MBA from Harvard Business School.

Director Since: June 1, 2015

 

Independent

Areas of Expertise:

• Consulting/Professional Services

• Competitive Strategy

• Service Quality Board & Committees Attendance Securities Owned, Controlled or Directed(1)
• Customer and Employee Loyalty

Board

Governance

4 of 4

1 of 1

100%

100%

Subordinate Voting Shares

 

2,100
       

Total Value of Securities(5)

Equity Ownership Policy(7)

US$143,808

Met

  Options Held(6)
  Date Granted Expiry Date No. Granted Exercise Price Total Unexercised Value
  Dec. 14, 2015 Dec. 14, 2020 5,000 US$39.29 1,500 US$43,790
  Feb. 12, 2016 Feb. 12, 2021 3,000 US$35.96    900 US$29,270
  Feb. 14, 2017 Feb. 14, 2022 8,000 US$54.88 4,400 US$59,840
  Feb. 9, 2018 Feb. 9, 2023 8,000 US$66.31 6,000 US$13,020
  Feb. 8, 2019 Feb. 8, 2024 8,000 US$83.89 8,000
  Public Board Memberships During the Last Five Years  
 

Rackspace Hosting, Inc.

Colliers International Group Inc.

2008 – 2016

2014 – 2015

                       

 

Joan Eloise Sproul

Ontario, Canada

Age: 62

Ms. Sproul was most recently the Executive Vice President, Finance (CFO) & Chief Administrative Officer of the Sinai Health System in Toronto, Canada, which is comprised of Mount Sinai Hospital, Bridgepoint Active Healthcare and Lunenfeld-Tanenbaum Research Institute. In addition to serving more than 20 years in various finance and corporate-related roles at Mount Sinai Hospital, she previously held a number of senior financial positions in the hospitality industry. Ms. Sproul was named to the list of Canada's Most Powerful Women, Women's Executive Network, 2013. Ms. Sproul holds a Chartered Professional Accountant (CPA) designation, having qualified as a Chartered Accountant in 1981 and began her career at Ernst & Whinney. Ms. Sproul holds a Bachelor of Commerce degree from the University of Toronto.
 
Director Since: May 15, 2018
 

Independent

 

Areas of Expertise:

Governance Board & Committees Attendance Securities Owned, Controlled or Directed(1)(2)

• Finance

• Management

Board

Audit

3 of 3

3 of 3

100%

100%

Subordinate Voting Shares

 

Total Value of Securities(5)

Equity Ownership Policy(7)

500

 

US$34,240

2 years to attain

  Options Held(6)
  Date Granted Expiry Date No. Granted Exercise Price Total Unexercised Value
  May 15, 2018 May 15, 2023 8,000 US$70.40 8,000
  Feb. 8, 2019 Feb. 8, 2024 8,000 US$83.89 8,000
  Public Board Memberships During the Last Five Years  
  None.  
                       

 

- 40 -

 

Michael Stein

Ontario, Canada

Age: 67

Mr. Stein is the founder, Chairman and CEO of the MPI Group, a property development and investment group with a track record in incubating, investing in, and managing successful companies. Between 1978 and 1987, Mr. Stein held progressively senior positions with the Mortgage Insurance Company of Canada, ultimately holding the position of Executive Vice-President responsible for operations. Mr. Stein is a founder of CAPREIT, Canada’s first TSX listed apartment REIT, where he continues to serve as chairman. He currently serves as a director of McEwen Mining Inc. (NYSE/TSX), chairman of Cliffside Capital Ltd. (TSX-V) and previously served as a director of Goldcorp Inc. Mr. Stein is a graduate engineer and has an MBA in finance and international business from Columbia University.
 

Director Since: June 1, 2015

 

Independent

Areas of Expertise: Board & Committees Attendance Securities Owned, Controlled or Directed(1)

• Real Estate

• Management

Board

Audit

4 of 4

5 of 5

100%

100%

Subordinate Voting Shares

Total Value of Securities(5)

15,000

US$1,027,200

Human Resources Compensation (Chair) 2 of 2 100% Equity Ownership Policy(7) Met
Governance Options Held(6)
Finance Date Granted Expiry Date No. Granted Exercise Price Total Unexercised Value
Capital Markets Dec. 14, 2015 Dec. 14, 2020 5,000 US$39.29 5,000 US$145,950
  Feb. 12, 2016 Feb. 12, 2021 3,000 US$35.96 3,000 US$97,560
  Feb. 14, 2017 Feb. 14, 2022 8,000 US$54.88 8,000 US$108,800
  Feb. 9, 2018 Feb. 9, 2023 8,000 US$66.31 8,000 US$17,360
  Feb. 8, 2019 Feb. 8, 2024 8,000 US$83.89 8,000
  Public Board Memberships During the Last Five Years  
 

Canadian Apartment Properties REIT (Chair)

McEwan Mining Inc.

Cliffside Capital Ltd.

Colliers International Group Inc.

1997 – Present

2012 – Present

2014 – Present

2013 – 2015

                       

 

Erin J. Wallace

Illinois, USA

Age: 59

Ms. Wallace is the Chief Operating Officer at Great Wolf Resorts, Inc., a role she has held since August 2016. In this role, she is responsible for leading more than 8,600 Great Wolf Pack Member employees at 16 lodges throughout the United States. Great Wolf Resorts, Inc. is America’s largest family of indoor water park resorts and had over 4.7 million guests in 2018. Before joining Great Wolf Resorts, Inc., Ms. Wallace was the Chief Operating Officer of Learning Care Group, Inc. from February 2015 to August 2016, where she led more than 16,000 Learning Care Group employees in delivering operational excellence to the families served at more than 900 schools throughout its umbrella of 5 brands. Prior to that, Ms. Wallace’s nearly 30 year career at the Walt Disney Company spanned many roles in Theme Parks and Resorts concluding with Executive Vice President of Operations Strategy, Planning and Revenue Management, working with all of Disney Parks’ domestic and international sites. After joining Disney as an industrial engineer in 1985, Ms. Wallace held a variety of managerial roles within Walt Disney Parks and Resorts, contributing to 30 years of leadership at The Walt Disney Company. Ms. Wallace’s previous roles include Senior Vice President of Walt Disney World Operations – where she oversaw the largest and most popular resort destination in the world. She has also served as Vice President of Walt Disney World’s Magic Kingdom® and general manager for Disney’s Animal Kingdom® and Disney’s All-Star Resort. Ms. Wallace graduated with honors from the University of Florida (UF) and was recognized with the Distinguished Alumni Award from UF in 2012. Ms. Wallace earned her MBA from Rollins College Crummer School of Business in 1993. In 2006, Ms. Wallace was inducted into the Crummer Graduate School of Business Alumni Hall of Fame. Ms. Wallace has been an active member of the Central Florida community, serving on numerous academic and civic boards and committees. She is also a member of the Institute of Industrial Engineers and the Society of Women Engineers.

Director Since: October 8, 2015

 

Independent

 

Areas of Expertise:

• Management

• Finance

• Marketing

  Board & Committees Attendance Securities Owned, Controlled or Directed(1)
 

Board

Audit

Governance

4 of 4

2 of 2

1 of 1

100%

100%

100%

Subordinate Voting Shares

Total Value of Securities(5)

Equity Ownership Policy(7)

2,435

US$166,749

Met

  Options Held(6)
  Date Granted Expiry Date No. Granted Exercise Price Total Unexercised Value
  Dec. 14, 2015 Dec. 14, 2020 10,000 US$39.29 10,000 US$291,900
  Feb. 12, 2016 Feb. 12, 2021   3,000 US$35.96   3,000 US$97,560
  Feb. 14, 2017 Feb. 14, 2022   8,000 US$54.88   8,000 US$108,800
  Feb. 9, 2018 Feb. 9, 2023   8,000 US$66.31   8,000 US$17,360
  Feb. 8, 2019 Feb. 8, 2024   8,000 US$83.89   8,000
  Public Board Memberships During the Last Five Years  
  None.  
                       

 

- 41 -

 

___________

Notes:

(1) Securities relates to Subordinate Voting Shares and Multiple Voting Shares held as at the date hereof. See “Authorized Capital, Outstanding Shares and Principal Holders of Shares”. The information contained herein as to securities beneficially owned, or controlled or directed, directly or indirectly is based upon information furnished to FirstService by the respective director nominees.
(2) All Subordinate Voting Shares are held in a registered retirement savings plan of which Mr. Calder is the annuitant.
(3) 1306159 Ontario Limited, a corporation which Mr. Ghert controls or directs, is the direct holder of 888 Subordinate Voting Shares. The B.I. Ghert Family Foundation, an entity which Mr. Ghert controls or directs, is the direct holder of 2,300 Subordinate Voting Shares. Mr. Ghert owns 777 Subordinate Voting Shares in a life income fund. The remainder of the shares listed are directly owned by Mr. Ghert.
(4) Beneficially owns, or controls or directs, directly or indirectly, Subordinate Voting Shares and Multiple Voting Shares as described under “Authorized Capital, Outstanding Shares and Principal Holders of Shares”. 1,522,526 Subordinate Voting Shares and 1,325,694 Multiple Voting Shares are held by Henset Capital Inc. and The Jay and Barbara Hennick Family Foundation, entities controlled by Mr. Hennick. Mr. Hennick also has rights under the Long Term Arrangement and is expected to be issued indirectly Subordinate Voting Shares in connection with the completion of the Transaction. See “Executive Compensation – Management Contract” and “Business of the Meeting – Approval of Transaction”.
(5) Determined using the closing price per Subordinate Voting Share on NASDAQ on December 31, 2018 of US$68.48.
(6) Information includes options held as at the date hereof. The options vest 10% on the grant date, 15% on the first anniversary, 20% on the second anniversary, 25% on the third anniversary and the balance on the fourth anniversary of the grant date. Notwithstanding the foregoing, the Option Plan provides that the vesting of the noted options held by each non-employee director is automatically accelerated, such that they become immediately fully vested and exercisable, in the event that such director does not stand for re-election, resigns as a director or fails to be re-elected as a director, in each case, in circumstances where there is no willful and substantial breach of such director’s fiduciary duties or other legal obligations to FirstService. The expiration date is the fifth anniversary of the grant date. The value of the options was determined using the closing price of the Subordinate Voting Shares on NASDAQ on December 31, 2018 of US$68.48 less the exercise price of the applicable stock options.
(7) The Board has a board equity ownership policy which provides that each member of the Board is required to achieve and maintain, at all times during the period that he or she is a director of FirstService, minimum ownership of shares of FirstService having a value of at least US$100,000. Newly elected or appointed directors of FirstService are permitted two years within which to attain the foregoing minimum ownership amount. See “Statement of Corporate Governance Practices – Board Equity Ownership Policy”.

 

Following the Meeting, FirstService will issue a news release disclosing the detailed results of the vote for the election of directors in accordance with the rules of the TSX.

 

Corporate Cease Trade Orders, Bankruptcies, Penalties or Sanctions

 

To the best of the knowledge of FirstService and based upon information provided to it by the proposed directors for election to the Board, none of the proposed directors:

 

(a) is, as at the date of this Circular, or has been, within 10 years before the date of this Circular, a director, chief executive officer or chief financial officer of any company (including FirstService) that: (i) was subject to a cease trade or similar order or an order that denied the relevant company access to any exemption under securities legislation, in each case, that was in effect for a period of more than 30 consecutive days (collectively, an “Order”) that was issued while the proposed director was acting in the capacity as director, chief executive officer or chief financial officer; or (ii) was subject to an Order that was issued after the proposed director ceased to be a director, chief executive officer or chief financial officer and which resulted from an event that occurred while that person was acting in the capacity as director, chief executive officer or chief financial officer;

 

(b) is, as at the date of this Circular, or has been, within 10 years before the date of this Circular, a director or executive officer of any company (including FirstService) that, while that person was acting in that capacity, or within a year of that person ceasing to act in that capacity, became bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency or was subject to or instituted any proceedings, arrangement or compromise with creditors or had a receiver, receiver manager or trustee appointed to hold its assets; or

 

(c) has, within the 10 years before the date of this Circular, become bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency, or become subject to or instituted any proceedings, arrangement or compromise with creditors, or had a receiver, receiver manager or trustee appointed to hold the assets of the proposed director;

 

except for Michael Stein, who served as a director of a privately held United Kingdom-registered company from February 2012 to January 2019 and, on March 21, 2019, the company voluntarily appointed an administrator under the United Kingdom insolvency act (Insolvency Act 1986).

 

- 42 -

 

Advisory Resolution on Executive Compensation

 

FirstService believes that its compensation objectives and approach to executive compensation appropriately align the interests of Management with the long term interests of shareholders. Details of FirstService’s approach to executive compensation is disclosed above. See “Executive Compensation – Compensation Discussion and Analysis”.

 

The Board recently adopted a policy providing that shareholders shall have the opportunity to cast an advisory vote on FirstService’s approach to executive compensation on an annual basis. This policy can be viewed on FirstService’s website (www.firstservice.com). Shareholders will be asked at the Meeting to consider and, if deemed advisable, pass the following non-binding advisory resolution (the “Say on Pay Resolution”):

 

“RESOLVED, on an advisory basis and without diminishing the role and responsibilities of the Board, that the shareholders of FirstService accept the approach to executive compensation disclosed in the management information circular delivered in advance of the annual and special meeting of shareholders held on May 3, 2019.”

 

The Board recommends that shareholders vote for the Say on Pay Resolution. Unless provided to the contrary, the persons named in the accompanying form of proxy (if the same is duly executed in their favour and is duly deposited) will vote the FirstService shares represented thereby for the Say on Pay Resolution.

 

Because the Say on Pay Resolution is an advisory vote, the results are not binding upon the Board. However, the Board and the Compensation Committee will take the results of the vote into account when considering future compensation policies, procedures and decisions and in determining whether there is a need to change its engagement with FirstService shareholders on executive compensation and related matters. FirstService will disclose the results of the Say on Pay Resolution as a part of its report on voting results for the Meeting. The Board welcomes comments and questions on FirstService’s executive compensation practices. Shareholders who wish to contact the Board can do so as noted below under “Shareholder Engagement”.

 

Approval of Transaction

 

General

 

On March 12, 2019, FirstService announced in a press release that it had entered into a binding term sheet (the “Term Sheet”) with Henset Capital Inc., Jayset Capital Corp., Jayset Mgt and Jay S. Hennick providing for the Transaction. The Term Sheet was approved unanimously by the Board (with Mr. Hennick recusing himself) upon the recommendation of the Compensation Committee. The Term Sheet contemplates that the parties will negotiate in good faith to conclude and execute a definitive agreement to govern the Transaction (the “Transaction Agreement”), incorporating the provisions of the Term Sheet and otherwise containing terms and conditions customary for transactions of this nature, including representations, warranties, covenants and conditions as appropriate taking into account the structure of the Transaction.

 

Subsequently, on April 2, 2019, FirstService, Henset Capital Inc., Jayset Capital Corp., FSV Shares LP, Jayset Mgt and Jay S. Hennick entered into the Transaction Agreement providing for the Transaction. A summary of certain material terms of the Transaction Agreement is included under “Transaction Agreement” below. A copy of the Transaction Agreement is available under FirstService’s SEDAR profile at www.sedar.com.

 

Background to the Transaction

 

The terms of the Transaction are the result of arm’s length negotiations conducted between FirstService (acting through the Compensation Committee and its independent advisors) and Mr. Hennick and his advisors. The following is a summary of the background and principal events leading up to the Term Sheet, the finalization of the Transaction Agreement and the meetings, discussions and other actions between the parties that preceded the public announcement of the Transaction and the calling of the Meeting.

 

- 43 -

 

The Management Services Agreement and Multiple Voting Shares

 

On June 1, 2015, former FirstService Corporation (“Old FSV”) completed a plan of arrangement (the “Spin-off”) which separated Old FSV into two independent publicly traded companies – FirstService and Colliers International Group Inc. The Spin-off and related transactions were overwhelmingly approved by shareholders of Old FSV at a meeting called to consider the Spin-off.

 

FirstService, Jay S. Hennick and Jayset Mgt are parties to the Management Services Agreement pursuant to which Jayset Mgt, through Mr. Hennick, provides various management and other services to FirstService. See “Executive Compensation – Management Contract” above. Among other things, the Management Services Agreement provides for a base fee (akin to a base salary), an incentive fee (akin to an annual bonus) and the Long Term Arrangement (in lieu of stock options) pursuant to which, in certain circumstances, FirstService will pay Jayset Mgt an amount determined based on a formula set out in the Management Services Agreement, as described in detail under “Executive Compensation – Management Contract” above. Any termination of the Management Services Agreement in accordance with its terms will result in the payment by FirstService of a termination fee also described in detail under “Executive Compensation – Management Contract” above.

 

The terms of the Management Services Agreement, including the Long Term Arrangement and the termination fee (and the respective amounts payable thereunder at December 31), have been disclosed in the management information circulars and annual financial statements of FirstService (and prior to the Spin-off, Old FSV) since 2004. The Long Term Arrangement was included in a management services agreement similar to the Management Services Agreement established in 2004 as part of Old FSV, and continued as part of the Management Services Agreement entered into in 2015 in connection with the Spin-off.

 

Mr. Hennick currently also has effective control of FirstService through his indirect ownership or control of all of the issued and outstanding Multiple Voting Shares. The dual class share structure was part of Old FSV when Old FSV first became a public company in 1993, and was maintained as part of FirstService’s share structure in connection with the completion of the Spin-off. The Multiple Voting Shares carry 20 votes per share, representing approximately 43.3% of the votes attached to FirstService’s outstanding voting securities, are transferable, directly or indirectly, among the Hennick Family and do not contain any “sunset” provision pursuant to which the Multiple Voting Shares would automatically terminate or convert into another class of shares as of a specified date. See “Authorized Capital, Outstanding Shares and Principal Holders of Shares” and “Certain Rights of Holders of Subordinate Voting Shares” above.

 

Through Mr. Hennick’s control of the Multiple Voting Shares and the services performed by Mr. Hennick under the Management Services Agreement, Mr. Hennick developed and has been the custodian of FirstService’s unique entrepreneurial corporate culture and guiding operating principles that have been critical to FirstService’s long-term success. The terms of the Management Services Agreement (and its predecessor) were consistent with similar arrangements implemented at the time to motivate entrepreneurial founders/CEOs to create long-term value for shareholders. Since 2004, when the arrangements reflected in the Management Services Agreement were first implemented, FirstService has seen its market value increase by more than US$3 billion, representing an annualized return of over 24% for FirstService shareholders.

 

Initial Discussions

 

Given the growth of the FirstService business and the development of a seasoned management team, which has gradually taken on greater responsibility for the management and success of FirstService since the Spin-off, the Board began discussing with Mr. Hennick his longer term involvement in FirstService and the services being provided to FirstService under the Management Services Agreement. In May 2017, Mr. Hennick indicated to the Chair of the Audit Committee and FirstService senior management that he was open to receiving a proposal from FirstService to terminate the Management Services Agreement and unwind the dual class share structure of FirstService, thereby relinquishing control of FirstService to the shareholders, without a sale of FirstService.

 

As the matters being considered in 2017 would have been a “related party transaction” (within the meaning of Multilateral Instrument 61-101 – Protection of Minority Security Holders in Special Transactions (“MI 61-101”)) between FirstService and its then largest shareholder, at a meeting on May 15, 2017, the Board established a special committee (the “Special Committee”) of independent directors to evaluate, make proposals with respect to, negotiate, consider the desirability, feasibility and fairness of, and report to the board on such matters, including as to whether such matters were in the best interests of FirstService. The Special Committee consisted of Bernard I. Ghert (Chair), Michael Stein and Brendan Calder, each of whom was an independent director. The Special Committee retained independent advisors (including independent legal counsel and an independent financial advisor) for the purposes of evaluating a potential transaction, and conducted a robust review of the merits of pursuing a potential transaction as compared to other alternatives available to FirstService (such as the status quo or a sale transaction), as well as the potential terms thereof. At all times, the Special Committee conducted its process independently and was given a broad mandate and the authority and opportunity to discharge its mandate without undue influence from Mr. Hennick or deference to the interests of Mr. Hennick. In the course of its deliberations during 2017, the Special Committee met formally more than fifteen times.

 

- 44 -

 

From July 2017 to November 2017, the Special Committee, Mr. Hennick and their respective advisors pursued negotiations regarding such potential transaction. The substantive discussions and negotiations with respect to that potential transaction were undertaken by the Chair of the Special Committee directly with Mr. Hennick or his advisors or between the Special Committee’s and Mr. Hennick’s advisors. The Special Committee evaluated that potential transaction on both a qualitative basis and an economic basis.

 

In early November, 2017, the parties agreed on a non-binding term sheet outlining a potential transaction. However, after a great deal of consideration and discussions between Mr. Hennick and the Special Committee, the parties elected not proceed with a potential transaction at that time and discussions terminated in December 2017.

 

Compensation Committee Process

 

Following the termination of discussions in 2017, the Board continued to consider ways to address the Management Services Agreement (including the Long Term Arrangement) and the dual class share structure, including the continued growth in the value of the Long Term Arrangement, which is uncapped and grows by both increases in the share price and increases in the number of outstanding shares. The following table shows the growth in the market capitalization of FirstService at various points of time over the past ten fiscal years, together with the corresponding growth in the notional value of the Long Term Arrangement:

 

Date Estimated Value of Long Term Arrangement FirstService Market Capitalization
March 11, 2019 US$314 million US$3,132 million
December 31, 2018 US$249 million US$2,464 million
December 31, 2017 US$251 million US$2,511 million
December 31, 2015 US$141 million US$1,453 million
December 31, 2013    US$55 million    US$583 million
December 31, 2008      US$7 million    US$161 million

 

This renewed effort was focused in late 2018 through the Compensation Committee, which is comprised of the same directors as served on the Special Committee. The Compensation Committee approached Mr. Hennick towards the end of 2018, asking him to consider re-opening discussions. Mr. Hennick indicated a willingness to do so, provided that any proposal would have to be supported by the Board and subject to disinterested shareholder approval. The Compensation Committee then retained Hugessen Consulting, an independent compensation consultant, in January 2019 to review the current compensation arrangements between FirstService and Mr. Hennick. In February 2019, the scope of the retainer of Hugessen Consulting was expanded to consider a proposal for the possible termination of the Management Services Agreement (including the Long Term Arrangement) and the conversion of the Multiple Voting Shares.

 

In February 2019, the members of the Compensation Committee, comprised of Michael Stein (Chair), Bernard I. Ghert and Brendan Calder, each of whom is an independent director, were empowered by the FirstService board to evaluate and, if determined advisable, negotiate the Transaction. The Compensation Committee then continued the robust review undertaken when the same committee members were part of the former Special Committee. The Compensation Committee sought the advice of independent legal counsel (Miller Thomson LLP) and an independent compensation consultant (Hugessen Consulting), along with corporate counsel (Fogler, Rubinoff LLP) and the auditors and tax advisors of FirstService (PricewaterhouseCoopers LLP). In the course of its deliberations related to the Transaction, the Compensation Committee met formally four times. The substantive discussions and negotiations with respect to the Transaction were undertaken by the Chair of the Compensation Committee directly with Mr. Hennick or his advisors or between the Compensation Committee’s and Mr. Hennick’s advisors.

 

- 45 -

 

This process resulted in the Compensation Committee and its advisors negotiating the terms of the Transaction with Mr. Hennick and his advisors. On March 12, 2019, after confirming Mr. Hennick’s willingness to accept the Transaction (subject to Board and shareholder approval thereof) and consulting with T. Rowe Price Associates Inc., the largest holder of Subordinate Voting Shares, who advised that, based on the information provided to it by FirstService, it was supportive of the Transaction, and after receiving an updated presentation from Hugessen Consulting, confirming its analysis of the Transaction as set out below under “Opinion of Hugessen Consulting”, the Compensation Committee unanimously recommended the Transaction to Board, who then unanimously (with Mr. Hennick recusing himself and abstaining from voting) approved the Transaction. The Board (with Mr. Hennick recusing himself and abstaining from voting) determined that the Transaction is in the best interests of FirstService and the holders of Subordinate Voting Shares.

 

Reasons for the Transaction

 

The Board and the Compensation Committee, acting with the advice and assistance of its advisors, carefully evaluated the Transaction, and the Board (with Mr. Hennick recusing himself) unanimously: (i) determined that the Transaction is in the best interests of FirstService and the holders of Subordinate Voting Shares; and (ii) recommends that holders of Subordinate Voting Shares vote FOR the Transaction Resolution.

 

In reaching these determinations, the Compensation Committee and the Board considered and relied upon a number of factors, including, among other things, the following:

 

Fixes and Eliminates Payments Under the Management Services Agreement.

 

The Long Term Arrangement survives any termination of the Management Services Agreement and is payable in full on one of the triggering Events in the Management Services Agreement referred to under “Executive Compensation – Management Contract” above, such as a change of control. The value of the Long Term Arrangement is not capped and increases as a result of both increases in the share price and increases in the number of outstanding shares. It has increased in value by over US$260 million in the last five years alone, and by US$63 million from the end of 2017, when the prior discussions concerning a potential transaction were terminated, to March 12, 2019, when the Transaction was agreed upon. The terms of the Transaction fix the value of the Long Term Arrangement, thereby stemming the continued growth in the value of the Long Term Arrangement and the resulting continued dilution to FirstService shareholders.

 

In addition to eliminating the significant continuing incremental dilution under the Long Term Arrangement, the Transaction also eliminates the annual management fee under the Management Services Agreement, which has been approximately US$2 million in recent years, and the termination fee under the Management Services Agreement (currently approximately US$5.5 million), which Mr. Hennick has agreed to waive.

 

Under the terms of the Management Services Agreement, Mr. Hennick is entitled to be paid the value of the Long Term Arrangement in cash. Under the terms of the Transaction, Mr. Hennick has agreed to accept 80% of the total consideration in Subordinate Voting Shares, thereby increasing his equity stake in the company and ensuring his continuing commitment to FirstService.

 

Under the Transaction, Mr. Hennick has agreed to forgo all other future fees and other entitlements to which he would otherwise be permitted under the Management Services Agreement.

 

Aligns with Current Management Structure of FirstService.

 

Mr. Hennick no longer serves as FirstService’s Chief Executive Officer, which since the completion of the Spin-off on June 1, 2015, has been D. Scott Patterson. As a consequence, while Mr. Hennick continues to provide services under the Management Services Agreement, the incentive mechanism provided by the Long Term Arrangement may not continue to effectively serve the interests of FirstService and its shareholders.

 

- 46 -

 

Mr. Hennick remains committed to the future direction of FirstService, and is expected to own or control approximately 14.8% of the outstanding shares of FirstService at the time of the completion of the Transaction. He has also agreed to continue to serve as non-executive Chairman of the Board.

 

Elimination of Dual Class Structure. There is no “sunset” provision under the terms of the Multiple Voting Shares providing for their automatic conversion, and as a result the existing dual class share structure cannot be eliminated without the consent of Mr. Hennick and can be passed on to designated family members of Mr. Hennick. The Transaction will result in the elimination of FirstService’s dual class voting structure without the payment of a premium, the result of which:

 

provides all shareholders with the same vote in proportion to their relative equity stake in FirstService, better aligning the economic and voting interests of shareholders;

 

allows investors who may not wish to invest, or whose investment policies prevent them from investing in, shares of companies with dual class share structures to purchase common shares, thereby potentially enhancing liquidity for the benefit of all shareholders; and

 

allows shareholders and the Board to consider a broad range of corporate decisions and strategic alternatives without a possible veto by Mr. Hennick.

 

Releases Control of FirstService to the Market. The degree of voting power attached to the outstanding Multiple Voting Shares provides Mr. Hennick with substantial control over FirstService. This existing control will, upon completion of the Transaction, be released to the general shareholder body of FirstService.

 

Facilitates Transition. The existence of the control position imbedded in the Multiple Voting Shares has the potential to create uncertainty for FirstService, management and the Board, as well as its other shareholders. The Transaction is expected to facilitate an orderly transition of effective control by FirstService’s founder to its shareholders, the Board and its management team.

 

Additional Capital Raising. The Transaction allows FirstService to use the common shares for purposes of raising additional capital, or effecting an acquisition or merger transaction, without further potential dilution from the Management Services Agreement and the Long Term Arrangement. The value of the Long Term Arrangement otherwise increases as a result of increases in the number of outstanding shares, resulting in continuing dilution to shareholders from equity issuances and increasing the effective cost of equity to FirstService. Likewise, the removal of the preference shares as part of FirstService’s authorized capital eliminates potential dilution and perceived anti-takeover measures previously faced by holders of Subordinate Voting Shares.

 

Disinterested Shareholder Approval. The Transaction is conditional upon, among other things, disinterested FirstService shareholder approval. T. Rowe Price Associates, Inc., the largest holder of Subordinate Voting Shares, has advised FirstService that, based on the information provided to it by FirstService, it is supportive of the Transaction.

 

Alternative Transactions. If the Transaction is not pursued, there is no assurance that any further proposal to eliminate the dual class share structure of FirstService or to otherwise address the terms of the Management Services Agreement would be forthcoming.

 

- 47 -

 

The Compensation Committee and the Board also considered risks and potential detriments concerning the Transaction, including the following:

 

the Long Term Arrangement is being paid out in circumstances where FirstService shareholders will not be participating in a change of control transaction;

 

FirstService shareholders will experience dilution, which could affect the trading price of the Subordinate Voting Shares in the short term; and

 

FirstService will use a portion of its existing revolving credit facility to satisfy the cash consideration required to be paid by it under the terms of the Transaction.

 

The foregoing are the material factors considered by the Board and the Compensation Committee in its consideration of the Transaction, but this discussion is not intended to be exhaustive. In view of the wide variety of factors considered by the Board and the Compensation Committee, and the complexity of these matters, the Board and the Compensation Committee did not find it practicable to quantify or otherwise assign relative weights to the foregoing factors. The Board and the Compensation Committee concluded that the risks and potential detriments associated with the Transaction were outweighed by the benefits that the Board and Compensation Committee expect FirstService and its shareholders to realize as a result of the Transaction.

 

Recommendation of the Board

 

The Board (with Mr. Hennick recusing himself) has unanimously determined that the Transaction is in the best interests of FirstService and the holders of Subordinate Voting Shares. The Board (with Mr. Hennick recusing himself) unanimously recommends that you vote FOR the Transaction Resolution.

 

Opinion of Hugessen Consulting

 

In connection with the evaluation of the Transaction by the Board and the Compensation Committee, the Board and the Compensation Committee considered, among other things, an opinion from Hugessen Consulting, an independent compensation consultant, in respect of the appropriateness, from a compensation perspective, of terminating the Management Services Agreement. Hugessen Consulting advised the Board and the Compensation Committee that it believed that the Transaction was desirable from a compensation perspective as it would stem the ongoing dilutive effective of the Long Term Arrangement, and better suit the current stage in FirstService’s development and Mr. Hennick’s current role. Hugessen Consulting believed that it was reasonable and appropriate that disinterested shareholders of FirstService be given the opportunity to vote on the Transaction. FirstService will pay fees to Hugessen Consulting in connection with its services, none of which are contingent upon the completion of the Transaction.

 

Details of the Transaction

 

As part of the Transaction:

 

Henset Capital Inc., a corporation controlled by Mr. Hennick, will convert 1,325,694 Multiple Voting Shares of FirstService (being 100% of the outstanding Multiple Voting Shares) into Subordinate Voting Shares on a one-for-one basis and for no consideration, thereby eliminating FirstService’s dual class share structure. The foregoing conversion will result in the issuance of 1,325,694 Subordinate Voting Shares to Henset Capital Inc., and the cancellation of all outstanding Multiple Voting Shares. The conversion will be effected using the existing terms of the Multiple Voting Shares contained in the articles of FirstService which allow for the conversion of the Multiple Voting Shares into Subordinate Voting Shares on a one-for-one basis;

 

FirstService will acquire, directly or indirectly, all of the shares of Jayset Mgt, the recipient of all fees and other entitlements under the Management Services Agreement, for a purchase price determined with reference to the Long Term Arrangement formula provided in the Management Services Agreement which would have applied on a change of control transaction, and thereafter FirstService will terminate the Management Services Agreement thereby eliminating the Long Term Arrangement and all future fees and other entitlements owing thereafter;

 

Mr. Hennick will retain his role as Chairman of FirstService, at the discretion of the Board, with compensation commensurate with that of a Non-Executive Chairman of a public company of similar size to FirstService; and

 

- 48 -

 

FirstService will pay US$62.9 million (C$84.3 million) in cash (less an adjustment to account for certain tax liabilities) and issue a total of 2,918,860 Subordinate Voting Shares to the relevant entity or entities controlled by Mr. Hennick. The cash portion will be funded via FirstService’s revolving credit facility. The total purchase price was determined by applying the formula provided in the Management Services Agreement for the Long Term Arrangement as if an Event had occurred, with the “per share consideration” being C$115.58 (which is the 20-trading day volume-weighted average price of the Subordinate Voting Shares on the TSX determined on March 11, 2019, the day prior to the announcement of the Transaction) and the “the aggregate number of Subordinate Voting Shares and Multiple Voting Shares outstanding on a fully diluted basis at the time of the Event” being 37,613,197 (which is the number of FirstService Shares and FirstService options (less the options most recently granted on February 8, 2019) issued and outstanding at the close of business on March 11, 2019).

 

In addition, subject to and following completion of the Transaction, FirstService proposes to amend its articles to eliminate the Multiple Voting Shares and preference shares as part of the authorized capital of FirstService and to re-designate its Subordinate Voting Shares as “common shares”. See “Approval of Amendment to the Articles” below.

 

Following completion of the Transaction and the amendment to FirstService’s articles, FirstService would have a single class of voting equity securities (being “common shares”), each having one vote per share, and Mr. Hennick would indirectly own or control approximately 14.8% of such outstanding shares.

 

Transaction Agreement

 

The following is a summary of certain terms of the Transaction Agreement and is qualified in its entirety by reference to the full text of the Transaction Agreement, a copy of which is available under FirstService’s SEDAR profile at www.sedar.com. Holders of Subordinate Voting Shares are urged to, and should, read the Transaction Agreement in its entirety.

 

FirstService, Henset Capital Inc., Jayset Capital Corp., FSV Shares LP, Jayset Mgt and Jay S. Hennick have entered into the Transaction Agreement providing for, among other things, the terms of the Transaction, customary representations, warranties and covenants of the parties, and typical conditions precedent to completion of the Transaction.

 

Under the Transaction Agreement, Mr. Hennick and his related entities have, following closing, jointly and severally agreed to indemnify FirstService and the entities being acquired by FirstService under the Transaction Agreement (i.e., Jayset Mgt and any holding companies thereof) from certain liabilities (including tax liabilities) as a result of or in any way relating to: (a) any of the representations and warranties of Mr. Hennick or certain of his related entities contained in the Transaction Agreement having been untrue or inaccurate; (b) any non-compliance by Mr. Hennick or certain of his related entities with any of such person’s covenants and agreements contained in the Transaction Agreement; and (c) the reorganization to be carried out by Mr. Hennick and his related entities in contemplation of the completion of the Transaction and any and all taxes arising therefrom, and any and all other liabilities of an entity being acquired by FirstService under the Transaction Agreement in existence as at the closing time (in each case, other than as accounted for in an adjustment to the purchase price under the Transaction Agreement). The maximum aggregate liability of Mr. Hennick and his related entities for their indemnification obligations under the Transaction Agreement is the aggregate purchase price paid by the FirstService.

 

The Transaction Agreement may be terminated and the Transaction may be abandoned at any time prior to the closing of the Transaction (notwithstanding any approval and authorization of the Transaction Agreement or the Transaction Resolution by shareholders):

 

by the mutual written consent of the parties to the Transaction Agreement;

 

by either FirstService or Mr. Hennick/an entity related to Mr. Hennick if: (i) any governmental authority of competent jurisdiction shall have issued a judgment, order, injunction, rule or decree, or taken any other action restraining, enjoining or otherwise prohibiting the Transaction and such judgment, order, injunction, rule, decree or other action shall have become final and non-appealable; or (ii) the closing time of the Transaction shall not have occurred by 5:00 p.m. (Toronto, Ontario local time) on June 28, 2019 (the “End Date”);

 

- 49 -

 

by Mr. Hennick or his related entities if there has been a breach of any representation, warranty, covenant or agreement made by FirstService in the Transaction Agreement, and such breach or failure is incapable of being cured or is not cured on or prior to the End Date;

 

by FirstService if there has been a breach of any representation, warranty, covenant or agreement made by Mr. Hennick or his related entities in the Transaction Agreement, and such breach or failure is incapable of being cured or is not cured on or prior to the End Date; or

 

by any party to the Transaction Agreement if the Transaction Resolution is not approved by the requisite number of votes cast by the holders of Subordinate Voting Shares at the Meeting as contemplated by the Transaction Agreement.

 

The Transaction Agreement may not be amended, superseded or cancelled except by a written instrument signed by all of the parties to the Transaction Agreement.

 

Timing

 

Subject to the receipt of the required approval of the holders of Subordinate Voting Shares, receipt of the required approvals of the TSX and NASDAQ and the satisfaction or waiver of the other conditions precedent set out in the Transaction Agreement, it is anticipated that the Transaction will be completed on or about May 10, 2019. However, completion of the Transaction is dependent on many factors and it is not possible at this time to determine precisely when the Transaction will be completed.

 

Shareholder Approval

 

At the Meeting, holders of Subordinate Voting Shares will be asked to approve the Transaction Resolution. In accordance with the Transaction Agreement and Section 604(a)(ii) of the TSX Company Manual, the approval of the Transaction Resolution will require the affirmative vote of not less than a majority of the votes cast at the Meeting by the holders of Subordinate Voting Shares, voting separately as a class (other than the votes attaching to Subordinate Voting Shares held by each seller under the Transaction Agreement, each related party (as such term is defined in MI 61-101) of each seller, each joint actor (as such term is described in MI 61-101) of each seller and its related parties and any other holder of Subordinate Voting Shares whose votes would be excluded if the Transaction Resolution was subject to “minority approval” as defined in MI 61-101) (the “Minority Subordinate Voting Shareholders”). See “Canadian Securities Law Matters” below.

 

The Minority Subordinate Voting Shareholders will include all holders of Subordinate Voting Shareholders other than Henset Capital Inc. and The Jay and Barbara Hennick Family Foundation, entities controlled by Jay S. Hennick. As at March 25, 2019, 1,522,526 Subordinate Voting Shares are held by Henset Capital Inc. and The Jay and Barbara Hennick Family Foundation, representing 4.4% of the Subordinate Voting Shares then outstanding. See “Authorized Capital, Outstanding Shares and Principal Holders of Shares”. Accordingly, as at March 25, 2019, in relation to the Transaction, “minority approval” means approval by a majority of the votes cast at the Meeting by the holders of Subordinate Voting Shares, voting separately as a class, other than by Henset Capital Inc. and The Jay and Barbara Hennick Family Foundation.

 

Notwithstanding the approval by the holders Subordinate Voting Shares of the Transaction Resolution in accordance with the foregoing, the Transaction Resolution authorizes the Board, at its discretion and without further notice to, or approval of, the holders of Subordinate Voting Shares: (i) to amend, modify or supplement the Transaction Agreement to the extent permitted thereby, as described under “Transaction Agreement”; and (ii) subject to the terms of the Transaction Agreement, not to proceed with the Transaction.

 

Canadian Securities Law Matters

 

MI 61-101 regulates certain types of related party transactions to ensure the protection and fair treatment of minority security holders. The purchase, directly or indirectly, of all of the shares of Jayset Mgt by FirstService pursuant to the Transaction is a “related party transaction” for the purposes of MI 61-101.

 

- 50 -

 

MI 61-101 provides that in certain circumstances, unless exempted, an issuer proposing to carry out a related party transaction is required to obtain a formal valuation for the related party transaction from a qualified and independent valuator and to provide security holders with a summary of such valuation. FirstService is relying on an exemption from the formal valuation requirement contained in section 5.5 of MI 61-101 for a related party transaction which provides that a formal valuation is not required if neither the fair market value of the subject matter of, nor the fair market value of the consideration for, the transaction, insofar as it involves interested parties, exceeds 25% of the issuer’s market capitalization (the “market cap exemption”).

 

MI 61-101 also requires that, in addition to any other security holder approval, unless exempted, a related party transaction must be approved by at least a simple majority of the votes cast by “minority” shareholders of each class of affected securities, voting separately as a class. In the circumstances of the Transaction, the “minority” shareholders of FirstService are the Minority Subordinate Voting Shareholders. The related party transaction is exempt from the requirement to obtain minority shareholder approval by application of the market cap exemption contained in section 5.7 of MI 61-101.

 

This minority shareholder approval being sought at the Meeting was adopted by the parties notwithstanding the availability under MI 61-101 of the market cap exemption in respect of the related party transaction, and although it is not a requirement under applicable corporate or securities law. Specifically, the Board, on the recommendation of the Compensation Committee, and Mr. Hennick as a pre-condition to his agreement to enter into the Transaction Agreement, have required that the Transaction be approved by a simple majority of the votes cast by the Minority Subordinate Voting Shareholders.

 

25% of FirstService’s market capitalization (calculated in accordance with MI 61-101) is approximately C$1.03 billion. The aggregate purchase price payable by FirstService under the Transaction in consideration for, directly or indirectly, all of the shares of Jayset Mgt (being US$62.9 million (C$84.3 million) in cash and 2,918,860 Subordinate Voting Shares) is approximately C$421.7 million (based on the closing price of the Subordinate Voting Shares on the TSX on February 28, 2019 of C$114.25), which is less than 25% of FirstService’s market capitalization (as calculated in accordance with MI 61-101).

 

Stock Exchange Matters

 

The outstanding Subordinate Voting Shares are listed for trading on the TSX and NASDAQ. It is a closing condition of the Transaction Agreement that the Subordinate Voting Shares issuable pursuant to the Transaction shall have been approved for listing on the TSX and the NASDAQ. FirstService has filed an application with the TSX and a notice with NASDAQ to approve the listing of an additional 2,918,860 Subordinate Voting Shares issuable in connection with the Transaction. FirstService has also filed substitutional listing applications/notices with the TSX and NASDAQ in connection with the proposed re-designation of the Subordinate Voting Shares as “common shares”. FirstService has also requested that the stock symbol assigned to its “common shares” on the TSX and NASDAQ remain as “FSV”. Holders of Subordinate Voting Shares do not need to take any action in order to receive the common shares to which they are entitled. Certificates representing Subordinate Voting Shares will continue to represent a like number of common shares following the re-classification until replaced against transfer.

 

The TSX has conditionally approved the listing of the additional 2,918,860 Subordinate Voting Shares issuable in connection with the Transaction, subject to satisfaction of customary requirements and approval of the Transaction by a simple majority of the votes cast by the Minority Subordinate Voting Shareholders.

 

Pro Forma Equity Capitalization Table

 

The following table indicates: (a) the current aggregate direct and indirect equity interests of the public shareholders and Mr. Hennick in FirstService and the percentage of total votes represented by their respective equity interests; and (b) the aggregate direct and indirect equity interests of the public shareholders and Mr. Hennick in FirstService and the percentage of total votes represented by their respective equity interests on a pro forma basis after giving effect to the completion of the Transaction.

 

- 51 -

 

  Current Pro Forma
  Subordinate
Voting Shares
Multiple Voting
Shares
% Votes Common Shares (1) % Votes
Public Shareholders 33,262,727              –   54.3 33,262,727   85.2
Jay S. Hennick (2)   1,522,526 1,325,694   45.7   5,767,080   14.8
Total:     34,785,253 1,325,694 100.0 39,029,807 100.0

___________

Notes:

(1) Pursuant to the Transaction, the Multiple Voting Shares and preference shares will be removed from the authorized capital of FirstService and the Subordinate Voting Shares will be re-designated as “common shares”.
(2) Pre-Transaction, 1,522,526 Subordinate Voting Shares and 1,325,694 Multiple Voting Shares are held by Henset Capital Inc. and The Jay and Barbara Hennick Family Foundation, entities controlled by Mr. Hennick. See “Business of the Meeting – Approval of Transaction” for additional Subordinate Voting Shares to be issued indirectly by Mr. Hennick in connection with the completion of the Transaction.

 

Trading Price and Volume

 

The outstanding Subordinate Voting Shares are listed for trading on the TSX and NASDAQ, in each case, under the symbol “FSV”. The Multiple Voting Shares are not listed and do not trade on any public market or quotation system.

 

The following table sets forth the reported high and low trading prices and the aggregate volume of trading of the Subordinate Voting Shares on NASDAQ (in United States dollars) and on the TSX (in Canadian dollars) for each month in the twelve-month period preceding the date of this Circular.

 

  NASDAQ TSX

 

 

Month

High

Price

(US$)

Low

Price

(US$)

 

Volume

Traded

High

Price

(C$)

Low

Price

(C$)

 

Volume

Traded

March 2018 73.51 68.30    554,098   94.64   88.13    789,561
April 2018 73.63 69.23    534,192   94.55   87.56 1,206,405
May 2018 71.92 69.29    486,085   93.29   88.63    833,682
June 2018    76.3199 70.05    330,291 101.00   90.86    783,060
July 2018 86.05 75.00    698,276 112.60   99.32    764,075
August 2018   90.205 80.82    557,482 114.13 105.72    910,597
September 2018   87.565 82.64    385,499 115.17 107.25    727,575
October 2018 86.08 70.75    836,513 109.66   92.30 1,342,438
November 2018 75.85 71.91 1,329,362 100.82   94.47 1,331,806
December 2018 78.28 64.87    796,929 103.35   88.45 1,012,243
January 2019 81.95 65.55    809,624 108.11   88.42 1,037,007
February 2019 89.17 80.98    741,012 117.855 105.94 1,139,645
March 1 to 25, 2019 88.07 83.22    588,651 117.52 111.19    810,798

 

On March 12, 2019, the last full trading day prior to the public announcement of the Transaction, the closing sale price per Subordinate Voting Share as reported on the TSX was $115.68 and the closing sale price per Subordinate Voting Share, as reported on NASDAQ, was US$86.65. On March 25, 2019, the date of this Circular, the closing sale price per Subordinate Voting Share, as reported on the TSX, was $113.91, and the closing sale price per Subordinate Voting Share, as reported on NASDAQ, was US$85.22. Shareholders are urged to obtain current market quotations for their Subordinate Voting Shares. Historical trading prices are not indicative of future trading prices.

 

Effects on FirstService if the Transaction is Not Completed

 

If the Transaction is not approved by the holders of Subordinate Voting Shares, or if the Transaction is not completed for any other reason, the Transaction will not be implemented with the result that FirstService’s dual class share structure will remain in place, Mr. Hennick will continue to effectively control FirstService through his indirect ownership or control of all the issued and outstanding Multiple Voting Shares and the Management Services Agreement (including the Long Term Arrangement) will remain in place. In addition, the amendment to the articles of FirstService contemplated by the Articles Resolution will not be implemented. In these circumstances, the Board will continue to supervise and oversee the business and affairs of FirstService with a view to the best interests of FirstService and having regard for its unique entrepreneurial culture and operating principles.

 

- 52 -

 

Risk Factors

 

The following risk factors should be carefully considered by holders of Subordinate Voting Shares in deciding how to vote on the Transaction Resolution. Shareholders should also consider the risks set out under “Risk factors” in the AIF, which is incorporated by reference herein.

 

Completion of the Transaction may be delayed or may not occur at all: The completion of the Transaction is subject to a number of conditions precedent, certain of which are outside the control of the parties to the Transaction Agreement, including obtaining the requisite approval from the Minority Subordinate Voting Shareholders. A substantial delay in obtaining approvals could delay the completion of the Transaction or could result in the Transaction not completing due to one or more conditions precedent not being satisfied. There is no certainty, nor can FirstService provide any assurance, that these conditions will be satisfied or, if satisfied, when they will be satisfied. In addition, each of FirstService and Mr. Hennick has the right to terminate the Transaction Agreement in certain circumstances. Accordingly, there is no certainty, nor can FirstService provide any assurance, that the Transaction will not be terminated before its completion.

 

If the Transaction is completed, there will be dilution to the holders of Subordinate Voting Shares: Currently, the Mr. Hennick indirectly owns or controls 1,522,526 Subordinate Voting Shares and all of the outstanding 1,325,694 Multiple Voting Shares, representing approximately 45.7% of the total votes attached to all of FirstService’s outstanding voting securities and 7.9% of the equity interest in FirstService. Under the terms of the Transaction, Mr. Hennick will receive, indirectly, 2,918,860 Subordinate Voting Shares. After giving effect to the Transaction, Mr. Hennick is expected to, indirectly, own or control approximately 14.8% of the anticipated 39,026,207 issued and outstanding shares of FirstService.

 

If the Transaction is completed, FirstService will no longer be controlled by Mr. Hennick and will become widely-held with the result that it may become more vulnerable to a take-over or tender offer: The consummation of the Transaction will eliminate FirstService’s dual class share structure. As a result, voting power would be spread out amongst a wide shareholder base without a controlling shareholder, and the inherent protection from an unsolicited take-over bid afforded by a dual-class share structure will no longer exist. Accordingly, FirstService may become more vulnerable to a take-over bid or a tender offer.

 

Intention of Directors and Executive Officers

 

Each of the directors and executive officers of FirstService (excluding Mr. Hennick and his related entities) has indicated an intention to vote FOR the Transaction Resolution and the Articles Resolution. As at March 25, 2019, such directors and executive officers beneficially own, directly or indirectly, or exercise control or direction over, an aggregate of 1,254,370 Subordinate Voting Shares, representing approximately 3.6% of the issued and outstanding Subordinate Voting Shares.

 

Expenses of the Transaction

 

Each of FirstService and Mr. Hennick (and his related entities) will bear and pay its own costs, expenses and fees incurred by it in connection with the transactions contemplated by the Transaction Agreement. FirstService estimates that the expenses to be borne by it in connection with the Transaction, including, without limitation, legal and accounting fees, printing and mailing costs, proxy solicitation fees, compensation consultant fees, and stock exchange and regulatory filing fees, will be less than US$400,000.

 

Source of Funds for the Transaction

 

Under the terms of the Transaction Agreement, FirstService is required to pay US$62.9 million (C$84.3 million) in cash (less an adjustment to account for certain tax liabilities) to the relevant entity or entities related to Mr. Hennick. FirstService intends to make such payment from cash available under its revolving credit facility. On March 26, 2019, FirstService completed the exercise of the accordion feature contained in its revolving credit facility and increased its borrowing capacity thereunder by US$100 million, to a total US$350 million. As of March 25, 2019, FirstService had an aggregate of approximately US$230 million of indebtedness under its revolving credit facility.

 

- 53 -

 

Notice to Shareholders

 

THE TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY ANY CANADIAN SECURITIES REGULATORY AUTHORITY, THE SECURITIES AND EXCHANGE COMMISSION OR ANY U.S. STATE SECURITIES COMMISSION, NOR HAS ANY CANADIAN SECURITIES REGULATORY AUTHORITY, THE SECURITIES AND EXCHANGE COMMISSION OR ANY U.S. STATE SECURITIES COMMISSION EXPRESSED AN OPINION ABOUT, OR PASSED UPON THE FAIRNESS OR MERITS OF THE TRANSACTION OR THE ACCURACY, ADEQUACY OR COMPLETENESS OF THE INFORMATION CONTAINED IN THIS CIRCULAR AND ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL AND MAY BE A CRIMINAL OFFENCE.

 

Approval of Amendment to the Articles

 

If the Transaction Resolution is approved and the Transaction subsequently completed, all of the Multiple Voting Shares will be converted into Subordinate Voting Shares, on a one-for-one basis. Accordingly, at such time, FirstService will no longer have any outstanding Multiple Voting Shares and FirstService will not issue any new Multiple Voting Shares.

 

As a result, the Subordinate Voting Shares will be the only class of voting and equity securities of FirstService. To reflect this fact, FirstService proposes to, subject to and following completion of the Transaction, amend its articles to remove references to what will then be defunct Multiple Voting Shares as well as references to preference shares, and to re-designate the Subordinate Voting Shares as “common shares” of FirstService.

 

The proposed amendment to the articles of FirstService in relation to the Subordinate Voting Shares is of a “housekeeping” nature, and will not modify in any way the rights and privileges attached to the Subordinate Voting Shares. The re-designation of the Subordinate Voting Shares as “common shares” will clarify that, following completion of the Transaction, there will no longer exist other shares of FirstService with different voting rights. The elimination of the “blank cheque” preference shares as authorized capital has been done in line with market best practices, reflecting concerns of common shareholders that such preference shares can be excessively dilutive or used in anti-takeover circumstances, while also reflecting a confidence by FirstService that, despite these preference shares being a flexible financing source, FirstService believes that any required capital can be raised, should the need arise, by issuing common shares.

 

The proposed amendment to the articles of FirstService requires the approval of holders of Subordinate Voting Shares by way of a special resolution, meaning the positive vote of at least two-thirds of the Subordinate Voting Shares voted at the Meeting in respect of the Articles Resolution. Henset Capital Inc., the holder of all of the Multiple Voting Shares, has approved the proposed amendment to the articles of FirstService.

 

The full text of the Articles Resolution approving the amendment of the articles of FirstService is set out in Appendix B to this Circular.

 

FirstService has filed substitutional listing applications with the TSX and Nasdaq in connection with the proposed re-classification of the Subordinate Voting Shares as “common shares”. FirstService has also requested that the stock symbol assigned to its “common shares” on the TSX and Nasdaq remain as “FSV”. The TSX has conditionally approved the re-classification of the Subordinate Voting Shares into “common shares” and the continued use of the “FSV” stock symbol for the “common shares”, subject to satisfaction of customary requirements and approval of the Transaction by a simple majority of the votes cast by the Minority Subordinate Voting Shareholders.

 

Unless provided to the contrary, the persons named in the accompanying form of proxy (if the same is duly executed in their favour and is duly deposited) will vote the Subordinate Voting Shares represented thereby in favour of the Articles Resolution. The Board (with Mr. Hennick recusing himself) unanimously recommends that you vote FOR the Articles Resolution.

 

- 54 -

 

INTEREST OF CERTAIN PERSONS OR COMPANIES IN MATTERS TO BE ACTED UPON

 

Except as otherwise indicated in this Circular, no person who has been a director or executive officer of FirstService at any time since the beginning of FirstService’s last financial year, no proposed nominee for election as a director of FirstService, and no associate or affiliate of any of the foregoing has any material interest, direct or indirect, by way of beneficial ownership of securities or otherwise, in any matter to be acted upon at the Meeting other than the election of directors or the appointment of auditors.

 

INTEREST OF INFORMED PERSONS IN MATERIAL TRANSACTIONS

 

To the knowledge of FirstService, other than as disclosed elsewhere in this Circular, no informed person of FirstService, any proposed director of FirstService or any associate or affiliate of any informed person or proposed director of FirstService has had any material interest, direct or indirect, in any transaction since the commencement of FirstService’s most recently completed financial year or in any proposed transaction which has materially affected or would materially affect FirstService or any of its subsidiaries. An “informed person” means a director or executive officer of FirstService, a director or executive officer of a person or company that is itself an informed person or subsidiary of FirstService, or any person or company who beneficially owns, or controls or directs, directly or indirectly, voting securities of FirstService or a combination of both carrying more than 10% of the voting rights attached to all outstanding voting securities of FirstService.

 

INSURANCE

 

FirstService holds a directors’ and officers’ liability insurance policy (the “Policy”) which is designed to protect FirstService and its directors and officers against any legal action which may arise as a result of wrongful acts on the part of directors and/or officers of FirstService. The Policy is written for limits of US$85,000,000 subject to a corporate deductible of US$750,000 on securities claims and US$250,000 on all other claims. In respect of the year ended December 31, 2018, the cost to FirstService in maintaining the Policy was US$469,400.

 

PROXY SOLICITATION

 

Kingsdale Advisors is acting as FirstService’s strategic shareholder advisor and proxy solicitation agent in connection with the Meeting.

 

LEGAL MATTERS

 

Certain legal matters in connection with the Transaction will be passed upon by Fogler, Rubinoff LLP on behalf of FirstService and by Miller Thomson LLP on behalf of the Compensation Committee.

 

ADDITIONAL INFORMATION

 

Additional information relating to FirstService is available on SEDAR at www.sedar.com. Financial information is being provided in FirstService’s comparative financial statements for the year ended December 31, 2018 and the related management’s discussion and analysis. A copy of the following documents may be obtained, without charge, upon request to the Chief Financial Officer of FirstService at 1140 Bay Street, Suite 4000, Toronto, Ontario M5S 2B4, Phone 416-960-9500, Fax: 647-258-0008: (a) the latest Annual Information Form of FirstService together with any document, or the pertinent pages of any document, incorporated by reference therein; (b) the comparative financial statements of FirstService for the year ended December 31, 2018 together with the accompanying report of the auditors thereon, any interim financial statements of FirstService for periods subsequent to December 31, 2018 and the related management’s discussion and analysis therefor; and (c) this Circular.

 

- 55 -

 

FORWARD-LOOKING STATEMENTS

 

This Circular contains statements that constitute “forward-looking statements” within the meaning of applicable securities legislation, including, but not limited to, statements relating to the results and the potential benefits expected to be achieved from the completion of the Transaction, including the increased marketability and improved liquidity of the Subordinate Voting Shares. The forward-looking information in this Circular is presented for the purpose of providing information about FirstService’s current expectations having regard for the plans and proposals relating to the Transaction and such information may not be appropriate for other purposes. Forward-looking statements may also include statements regarding our future plans, objectives or economic performance, or the assumptions underlying any of the foregoing, and other statements that are not recitations of historical fact. We use words such as “may”, “would”, “could”, “should”, “will”, “likely”, “expect”, “anticipate”, “believe”, “intend”, “plan”, “forecast”, “outlook”, “project”, “estimate” and similar expressions suggesting future outcomes or events to identify forward-looking statements. Any such forward-looking statements are based on information currently available to us, and are based on assumptions and analyses made by us in light of our experience and our perception of historical trends, current conditions and expected future developments, as well as other factors we believe are appropriate in the circumstances. However, whether actual results and developments will conform with our expectations and predictions is subject to a number of risks, assumptions and uncertainties, many of which are beyond our control, and the effects of which can be difficult to predict, including, without limitation, risks, assumptions and uncertainties related to: the consummation of the Transaction, including, shareholder approval, the satisfaction or waiver of the conditions to complete the Transaction, and the termination of the transaction agreements; the market value and trading price of the Subordinate Voting Shares; and other factors set out in this Circular and in the AIF filed with securities commissions in Canada and our Annual Report on Form 40-F filed with the SEC, and subsequent filings. In evaluating any forward-looking statements in this Circular, we caution readers not to place undue reliance on any forward-looking statements. Readers should specifically consider the various factors which could cause actual events or results to differ materially from those indicated by our forward-looking statements. Unless otherwise required by applicable securities laws, we do not intend, nor do we undertake any obligation, to update or revise any forward-looking statements contained in this Circular to reflect subsequent information, events, results or circumstances or otherwise.

 

SHAREHOLDER ENGAGEMENT

 

Shareholders, employees and other interested parties may communicate directly with the Board through the Lead Director of the Board by writing to:

 

  Lead Director of the Board  
  FirstService Corporation  
  1140 Bay Street, Suite 4000  
  Toronto, Ontario, Canada  
  M5S 2B4  

 

GENERAL

 

Management knows of no matters to come before the Meeting other than the matters referred to in the Notice of Meeting. However, if matters not now known to management should come before the Meeting, FirstService shares represented by proxies solicited by Management will be voted on each such matter in accordance with the best judgement of the nominees voting same. The contents and the sending of the Notice of Meeting and this Circular have been approved by the Board.

 

    By Order of the Board
     
   
    DOUGLAS G. COOKE
March 25, 2019   Vice President, Corporate Controller and Corporate
    Secretary

 

 

 

 

 

APPENDIX A

 

TRANSACTION RESOLUTION

 

BE IT RESOLVED THAT:

 

1. the transaction (the “Transaction”) involving FirstService Corporation (“FirstService”), as more particularly described and set forth in the Management Information Circular of FirstService dated March 25, 2019 (as the Transaction is contemplated by, and may be, or may have been, amended, modified or supplemented in accordance with the terms of, the transaction agreement dated April 2, 2019 among FirstService, Henset Capital Inc., Jayset Capital Corp., FSV Shares LP, Jayset Management FSV Inc. and Jay S. Hennick (the “Transaction Agreement”)), is authorized, approved and adopted;

 

2. the Transaction Agreement, and all the matters contemplated therein, together with the actions of the directors of FirstService in approving the Transaction and the actions of the directors and officers of FirstService in executing and delivering the Transaction Agreement, together with any amendments, modifications or supplements thereto, are hereby ratified and approved;

 

3. any one or more directors or officers of FirstService are authorized, for and on behalf and in the name of FirstService, to execute, whether under the corporate seal of FirstService or otherwise, and deliver all such agreements, forms, waivers, notices, certificates, confirmations and other documents and instruments and to do or cause to be done