SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. ________)
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[Graphic Omitted] MERCER INTERNATIONAL INC.
(Name of Registrant as Specified in its Charter)
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MERCER INTERNATIONAL INC.
June 30, 2003
Dear Valued Shareholders:
Your board of trustees (the "Board") of Mercer International Inc. ("Mercer"
or the "Company") has received and considered preliminary proxy materials (the
"Greenlight Statement") filed by a hedge fund, Greenlight Capital LLC and
Greenlight Capital, Inc. ("Greenlight"), with the Securities and Exchange
Commission (the "SEC") on June 20, 2003 indicating its intention to nominate its
own slate of two nominees to the Board at the annual meeting of shareholders
(the "Meeting"). Following its consideration, the Board determined that:
* The election of Greenlight's nominees is not in the best interests of
Mercer and its shareholders. We strongly recommend that you vote to elect
management's nominees, Per Gundersby and Michel Arnulphy, to the Board.
* This is the most critical time in the Company's history as it
fundamentally transforms its business to significantly increase its assets,
revenues and earnings potential. The cornerstone of this plan is the Stendal
project, a greenfield construction of a 552,000 tonne per annum kraft pulp mill
(the "Stendal mill") near Stendal, Germany. In relation to the Stendal mill,
Mercer is pursuing a refinancing (the "Refinancing") of two bridge loans (the
"Bridge Loans") which were incurred in connection with Mercer's investment in
the Stendal project. As of May 31, 2003, the Bridge Loans, including fees and
accrued interest, aggregated approximately E54.4 million and mature commencing
October 2003. As a result of Greenlight's actions, which appear to be
deliberately designed to derail or significantly delay the Refinancing, the
Board has been forced to put the Refinancing on hold.
* Now is not the time to experiment with two inexperienced persons on the
Board who lack knowledge about the Company's business and industry, do not have
the support of other Board members or management and are receiving lucrative
short-term pay packages directly from Greenlight. The election of such nominees
to the Board could result in delays, other disruptions and potentially
dissension at the highest levels of the Company. Such nominees may not be
committed to the Company's long-term strategy, may have their own agenda to
follow and will have to "learn" the business and industry. This could adversely
impact the Company's ability to successfully complete the Refinancing, implement
the Stendal project and consequently enhance shareholder value.
* In our previous discussions with Greenlight, we informed Greenlight of our
intention to increase the size of the Board by adding up to two additional
independent qualified trustees and using an independent search firm to identify
qualified candidates. However, Greenlight insisted on having sole veto power
over the new trustees. The Board cannot, as fiduciaries to all of its
shareholders, simply rubber stamp the appointment of Greenlight's nominees. Any
additional independent trustees must be acceptable to the Board and, ultimately,
to all of Mercer's shareholders and not just one minority shareholder.
* We are disappointed by the opportunistic actions of Greenlight, in its
attempt to take control over part of the Board at the most critical point in the
Company's development and growth utilizing highly misleading and unsupported
statements to impugn the integrity of management and the Board.
We believe Mercer's success in enhancing operations and maximizing
intrinsic value for our shareholders offers the best rebuttal to the criticisms
put forth by Greenlight. We encourage you to review the detailed information
below, which outlines our position in greater detail.
MERCER
* Mercer's mission has always been to build long-term shareholder value. In
recent years, the Company has undertaken significant actions to position Mercer
as an efficient, low-cost pulp producer, which management and the Board believe
to be the proper strategy to generate value in a commodity marketplace where
prices are subject to wide fluctuations. Once the Stendal mill is completed,
Mercer will operate two of the most efficient and lowest cost global NBSK pulp
facilities, almost triple its aggregate annual pulp production capacity to
approximately 852,000 tonnes and become one of the largest global market pulp
producers.
* Mercer's strategic plan has not been challenged or disputed by Greenlight.
In fact, it explicitly notes that the Company has valuable assets. These assets
exist as a result of the current management team and the Board.
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* Coincident with the growth and evolvement of Mercer, the Board has also
demonstrated its commitment to enhance investor confidence and corporate
governance by undertaking the following: (i) appointing a big-four accounting
firm, Deloitte & Touche LLP, as the Company's new independent auditors effective
as at the Meeting; (ii) voluntarily adopting a Code of Business Conduct and
Ethics in advance of the prescribed time set out by the SEC; (iii) adopting a
new Audit Committee Charter; (iv) successfully obtaining a listing of its shares
of beneficial interest on the Toronto Stock Exchange, the senior stock exchange
in Canada, in an effort to increase liquidity, and analyst and shareholder
exposure, of its shares; (v) engaging a leading North American investment bank
to lead a private placement of securities to effect the Refinancing; and (vi)
seeking to increase the size of the Board by adding up to two additional
independent qualified trustees in connection with the Company's expansion and
growth.
The Board believes that the most critical issues facing the Company
and the enhancement of shareholder value are the successful management,
completion and start-up of the Stendal mill and the Refinancing.
DISCUSSIONS WITH GREENLIGHT
In connection with Mercer's proposed private placement of securities to
complete the Refinancing, management met with Greenlight to provide it with an
opportunity to participate in the proposed offering. At this time, Greenlight
discussed with Mercer its desire to appoint two additional trustees to the
Board.
* The Board advised that it is committed to enhancing its independence, was
already seeking to increase its size by adding up to two additional qualified
independent trustees and proposed utilizing an independent search firm to
identify qualified candidates.
* Greenlight, however, wanted the sole right to veto the two additional
trustees. The Company declined, but offered instead to institute a veto right
by a majority of specified security holders.
* Greenlight rejected this reasonable compromise.
* Greenlight never approached the Company with any proposed nominees and
chose instead to file the Greenlight Statement.
While Greenlight is Mercer's largest shareholder, with a 14.9% interest,
the Board cannot, as fiduciaries to all of its shareholders, simply rubber stamp
the appointment of Greenlight's handpicked designees. The Board strongly
believes that additional independent trustees must be acceptable to the Board
and, ultimately, to all Mercer shareholders and not just one minority
shareholder.
Greenlight has asked you to elect its handpicked nominees who have no
specified plans for Mercer. Your Board believes that it would not be
constructive to allow two disruptive nominee trustees to be elected to the Board
in the midst of the Refinancing, the completion of the Stendal project and the
current challenging market conditions. The Board is fully aware of its fiduciary
duties and will continue to consider strategic opportunities for the benefit of
all shareholders.
INFORMATION REGARDING GREENLIGHT AND ITS NOMINEES
We firmly believe that the actions Greenlight has taken could result in a
significant obstacle in the successful execution of our operating strategy.
Shareholders should also be informed about the background of Greenlight and its
nominees in order to gain insight into the motives and true objectives of
Greenlight.
* Greenlight has been a shareholder of Mercer for many years. During that
time, the hedge fund has actively participated in quarterly earnings calls and
has been visited regularly by management to review the Company and discuss any
issues or concerns. Not until very recently did Greenlight ever mention any
concerns with respect to governance matters or otherwise.
* Greenlight's actions have already resulted in the temporary suspension of
our previously announced proposed offering of $65 million of convertible notes
or equity based securities. As the Company will face a E15 million principal
payment, plus fees and interest, in the next few months, it is critical that the
Refinancing be completed. In the event the Company does not effect the
Refinancing, it will be in default under the Bridge Loans. This could very well
trigger default provisions on other debt obligations of the Company. If the
proposed offering cannot continue, management will be forced to seek refinancing
through other, less financially attractive means that will negatively impact
shareholder value.
* Despite the obvious negative effect of Greenlight's actions on the
Refinancing, Greenlight has not presented an alternative financing plan for the
Company. We, therefore, are concerned that Greenlight's ultimate goal may be to
force the Company into onerous financing arrangements with, or arranged by,
Greenlight which would ensure that any cash flow generated from Mercer would be
captured by Greenlight or its affiliates instead of all shareholders.
* In June 2001, the U.S. District Court for the District of Kansas ruled
that Guy Adams violated federal securities laws by making false and misleading
statements in his proxy materials to solicit votes for election to the board of
directors of
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Lone Star Steakhouse and Saloon, Inc. The court issued an injunction requiring
Guy Adams to make corrective disclosure.
* Guy Adams and Saul Diamond, by their own admission, have no corporate
experience, no experience in the pulp and paper industry, no international or
European business experience and no board level experience on public companies
with the complexity of Mercer.
* Given that the Greenlight nominees are being extremely well compensated by
Greenlight, it is questionable whether they will represent the best interests of
all shareholders or the interests of Greenlight who is providing them with
substantial remuneration. Saul Diamond will receive a payment of $100,000 and
Guy Adams will receive a payment of $75,000 from Greenlight. In addition, they
are also being indemnified by Greenlight for all losses, fees and expenses.
Each has also received substantial "in the money" stock options. Mr. Diamond
received options on 50,000 shares at $4.53 per share exercisable for one year.
Mr. Adams and the fund he controls received aggregate options on 325,000 shares
at $4.53 per share exercisable until the later of 60 days or 30 days after the
Meeting. Given the very short time frames for the exercise of the options,
Messrs. Diamond and Adams will be motivated to focus on extremely short-term
gains rather than the long-term value of Mercer.
IN SHORT, GREENLIGHT'S ACTIONS APPEAR TO BE DELIBERATELY DESIGNED TO DERAIL
OR SIGNIFICANTLY DELAY THE REFINANCING AND CREATE CONFLICT WITHIN OUR BOARD THAT
MAY PERMIT IT TO EXERCISE OR ACQUIRE CONTROL. ARE THESE THE ACTIONS OF A PARTY
INTERESTED IN INCREASING VALUE FOR ALL SHAREHOLDERS?
WE DON'T THINK SO. DO NOT BE MISLED - GREENLIGHT WANTS CONTROL, NOT
INDEPENDENT BOARD MEMBERS.
Greenlight has also indicated it is asking to declassify the Board and
eliminate the Company's poison pill. This would effectively enable Greenlight
to acquire control of Mercer without paying any premium to the shareholders. The
poison pill is for the protection of the shareholders as it ensures that the
Company has time to adequately assess all potential offers and determine if the
potential offers are in the best interests of the Company and its shareholders.
THE GREENLIGHT STATEMENT: A LITANY OF MISLEADING AND UNSUPPORTED STATEMENTS
The Greenlight Statement contains a number of unsupported allegations and
misleading statements. The Board wishes to respond by noting the following:
* The Board has historically acted by way of consent resolutions, which
require the unanimous consent of the Board, and which is expressly permitted by
the Company's Declaration of Trust. The Company's trustees reside in North
America, Europe and Asia and it is difficult to schedule meetings due to the
time differences involved. Management reviews and discusses all material
matters with the Board in groups or individually by telephone and other means on
a regular basis. Upon reaching a consensus regarding matters to be approved,
consent resolutions are circulated for signature to record such agreements. The
Board is fully aware of its fiduciary duties and seeks to discharge such duties
with the utmost diligence.
* Greenlight's criticism of Mercer's share price performance is unjustified.
The Company's primary product is pulp which is largely a commodity product
subject to wide price fluctuations. It is commonly known and accepted that the
shares of all pulp producers trade relative to the underlying commodity price.
When compared to its peer group in the pulp industry, Mercer's share price has
performed relatively well.
COMPARABLE COMPANY TRADING PERFORMANCE
PERCENTAGE PRICE CHANGE FROM
-------------------------------------------------------
COMPANY YEAR-TO-DATE LAST SIX MONTHS LAST TWELVE MONTHS
------- ------------ --------------- ------------------
Tembec Inc. -29.7% -29.0% -45.8%
Pope & Talbot Inc. -27.4% -24.2% -42.3%
SFK Pulp Fund -24.0% -23.6% n/a
Mercer -7.8% -9.3% -37.8%
Canfor Corporation -6.5% -3.4% -23.3%
Aracruz Cellulose S.A 4.7% 8.8% 1.0%
* The Board has always sought candidates who bring substantial industry or
relevant experience. Given the changing needs and growth of the Company and the
changing regulatory requirements that govern the Company, the Board has sought
and continues to seek individuals who satisfy the needs of the Company and the
new regulatory requirements with respect to independent trustees. Although the
Company previously announced that two of its trustees, Messrs. Ryu and Moon,
would not be seeking re-election, Mr. Moon has decided to continue on with the
Company, for which the Board is grateful.
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* In December 2001, the Company acquired Landqart AG, which operates a
specialty paper mill, for approximately $2.7 million. At the time of
acquisition, Landqart was, we believed, an undervalued asset that could be
successfully developed through Mercer's hands-on management and the investment
of capital. Subsequently, in August 2002, Mercer completed the closing of the
financing of the Stendal project which required that Mercer invest approximately
E65 million in the project company building the mill. This investment was made
utilizing Mercer's cash on hand at the time and entering into the Bridge Loans.
In light of the Mercer cash investment, the requirement to repay or refinance
the Bridge Loans, the increasing tightness of the capital markets and the
significant capital and working capital requirements of Landqart, management
determined to focus its capital and resources on the Stendal project and the
Refinancing.
* In December 2002, the Company reorganized its interest in Landqart by
selling 20% of Landqart to an arm's length Swiss bank, Graubundner Kantonalbank,
in consideration of the forgiveness of Landqart debt and subsequently
contributed the balance of its interest to a limited partnership in exchange for
a 49% interest therein. The reorganization of Landqart allowed Mercer to manage
its capital requirements and participate and share in the upside of Landqart
through its interest in the limited partnership.
* Given the modest value of the Landqart investment relative to Mercer's
overall asset base, and Mercer's significant and continued participation in the
limited partnership, the Board believed a fairness opinion was not necessary and
a waste of corporate assets.
* Despite being advised in writing that Babington Ltd. is a wholly-owned
subsidiary of Mercer, Greenlight has intentionally chosen to mislead
shareholders by improperly reporting that Jimmy S.H. Lee controls Babington in
an effort to discredit Mr. Lee as having conflicts of interest.
* Greenlight has historically complimented the Company's strategy and
management team, including its Chief Executive Officer, Jimmy S.H. Lee, who has
been largely responsible for the Company's strategy and the assembly of its
assets. Greenlight is now, however, raising spurious allegations in order to
try to discredit Mr. Lee and to justify its actions in trying to elect its own
nominees, thereby controlling a portion of the Board. As such, the hedge fund
improperly tries to make much out of Mr. Lee's non-executive directorship role
with MFC Merchant Bank S.A. ("MFC Bank"), an affiliate of MFC Bancorp Ltd. Mr.
Lee's role with MFC Bank is a non-executive one and, as such, he does not
participate in its operations.
* Contrary to the Greenlight Statement, MFC Bank arranged a E30 million
bridge loan used in connection with the financing of the Stendal project and
placed it with other affiliates of which Mr. Lee is neither an officer nor a
director. The Board finds such innuendo to be disingenuous in light of the
broad acceptance of the merits of the Stendal project and the fact that it could
not have been financed without such bridge loan.
* As publicly disclosed, Mercer owns an approximate 26% interest in Cade
Struktur Corporation ("CSC") and Mr. Lee served as an officer and director of
CSC from July 2001 to December 2002. During such time, Mr. Lee received no
remuneration of any sort from CSC and did not have any ownership interest
therein. At the time of the Landqart reorganization, involving a wholly-owned
subsidiary of CSC, Mr. Lee was neither an officer nor a director of CSC.
* Contrary to the unfounded innuendo reported by Greenlight, the Company's
former Chief Financial Officer resigned as a result of an ongoing criminal
investigation relating to a European internet service provider called Ision
Internet AG, of which he was the chief financial officer from November 1999 to
approximately February 2002. Such investigation has nothing to do with Mercer
or any of its other officers and trustees and Greenlight is fully aware of the
same as it was reported in our Form 8-K filed on June 18, 2003.
* The innuendo relating to the Med Net International Inc. ("Med Net")
disclosure can be clarified by the fact that the Med Net board unanimously
concluded that the unsolicited takeover bid offer by MFC Bancorp Ltd. was
inadequate from a financial point of view. In and of itself, the fact that the
Med Net board did not endorse or recommend that the takeover bid be accepted
indicates that Mr. Lee had no conflict of interest. Mr. Lee resigned as a
director and officer of Med Net in April 2003.
* The alleged shuffling of the delegated Board terms of certain trustees to
reduce the number of trustees to be elected at the Meeting from three to two is
entirely without legal foundation and is intentionally misleading. Only the
terms of class III trustees are expiring, therefore, two class III trustees are
to be nominated for re-election at the Meeting.
* Greenlight's report on the Company's prior year's election results
relating to the votes cast in favour of Jimmy S.H. Lee and R. Ian Rigg was
incorrectly reported. The Company corrected the reporting of the results of
such meeting in its Form 10-Q/A filed with the SEC on June 30, 2003. The Form
10-Q/A clarifies that Messrs. Lee and Rigg were duly elected at last year's
shareholders' meeting.
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SHAREHOLDERS' MEETING
In order to ensure that all shareholders are provided ample time to
carefully evaluate the proposals being placed before them and in order to permit
such shareholders to make an informed decision and to attend the Meeting if they
so choose, management and the Board have rescheduled the time and the location
of the Meeting to 10:00 a.m. (Vancouver time) on August 22, 2003. The
rescheduled Meeting will be held at the Terminal City Club, 837 West Hastings
Street, Vancouver, British Columbia, Canada. Shareholders of record as of July
23, 2003 will be entitled to vote at the Meeting. The Meeting had originally
been scheduled for July 15, 2003.
Shareholders will be asked to vote to elect two trustees of the Company.
The Board strongly recommends a vote in favor of Per Gundersby and Michel
Arnulphy. Per Gundersby has over 25 years experience at the highest levels in
the European pulp and paper industry, including as the head of the leading
international pulp and paper consultancy firm, Jaako Poyry. Mr. Arnulphy has
been a trustee since June 1995 and was part of our Board during the conversion
of the Rosenthal mill and the implementation of the Stendal project.
WE URGE YOU TO VOTE FOR YOUR MANAGEMENT'S NOMINEES:
PER GUNDERSBY AND MICHEL ARNULPHY
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HOW TO VOTE
YOUR VOTE IS IMPORTANT, NO MATTER HOW MANY OR HOW FEW SHARES YOU OWN.
1. If your shares are registered in your own name, please sign, date and
mail the WHITE Proxy Card to Georgeson Shareholder Communications
Inc.
2. If your shares are held in the name of a brokerage firm, bank nominee or
other institution, only it can sign a WHITE Proxy Card with respect
to your shares and only after receiving your specific instructions.
Accordingly, please sign, date and mail the WHITE Proxy Card, and to
ensure that your shares are voted, you should also contact the person
responsible for your account and give instructions for a WHITE Proxy
Card to be issued representing your shares.
3. After signing the WHITE Proxy Card, do not sign or return the Green proxy
card. Remember - only your latest dated proxy will determine how your
shares are to be voted at the Meeting. IF YOU VOTED A GREEN PROXY
CARD AND WANT TO CHANGE YOUR VOTE, YOU CAN DO SO NOW BY SENDING
IN A WHITE PROXY CARD.
PLEASE VOTE THE WHITE PROXY CARD. PLEASE DO NOT RETURN ANY GREEN PROXY
CARD FOR ANY REASON. ONLY YOUR LATEST PROXY CARD WILL BE COUNTED. IF YOU HAVE
ANY QUESTIONS, PLEASE CALL OUR PROXY SOLICITOR OR OUR INVESTOR RELATIONS AGENT:
GEORGESON SHAREHOLDER FD MORGEN-WALKE
COMMUNICATIONS INC. 380 LEXINGTON AVENUE, 50TH FLOOR
17 STATE STREET,10TH FLOOR NEW YORK, NY 10168
NEW YORK, NY 10004 Phone: (212) 850-5600
Shareholders call toll free: Shareholders: Eric Boyriven
(800) 293-6057 Paul Johnson
Banks and brokerage firms Media: Jeffrey Zack
please call collect: (212) 440-9800
================================================================================
If you have any questions regarding Mercer, please call Jimmy S.H. Lee,
Chairman, President and CEO, at (41) 43 34 7070.
We thank you for your consideration and continued support.
Sincerely,
/s/ Jimmy S.H. Lee
Jimmy S.H. Lee
Chairman, President and CEO
Mercer International Inc.
FORWARD-LOOKING STATEMENT
Certain statements in this letter may constitute forward-looking
statements. They are based on management's current expectations and could be
affected by numerous factors and are subject to various risks and uncertainties.
Certain of those risks and uncertainties are discussed in the Company's filings
with the SEC, including the Company's annual report on Form 10-K and quarterly
reports on Form 10-Q. Do not rely on any forward-looking statement, as we
cannot predict or control many of the factors that ultimately may affect our
ability to achieve the results estimated. We make no promise to update any
forward-looking statement, whether as a result of changes in underlying factors,
new information, future events or otherwise.