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Case Study:

The proposal of Clearwater Fine Foods of Nova Scotia (NS) on the 6th September 2001 for integrating with fishing giant Fisheries Products International (FPI) of Newfoundland (Nfld) was the result of an aggressive move by Clearwater to gain control of the Board of Directors at FPI and to oust the existing FPI management. This case study examines the fascinating ventures of these two firms and their current business positions leading up to the recent events of the takeover attempt, and subsequent reaction and withdrawal of the proposed merger. The implications for international markets and competition and / or domestic relations in Atlantic Provinces namely NS and Nfld, employment, fish allocations, etc., are discussed. The purpose of this report is to describe a business case study of the firms involved including, historical background on the situation, as well as to provide a critical assessment of the imminent future reconciliation of business strategy in the fishing sector.

Research member:

Dr. Daniel Lane dlane@uottawa.ca (Supervisor)

Arthur So aso@uottawa.ca

Date: 1st March 2002

Table of Contents

Abstract 3
Introduction 4
Historic background 5 Highlights and milestones of FPI 5 Reference 7 Highlights and milestones of Clearwater 8 Reference 9

Business Drivers 11 FPI 11 Clearwater Fine Foods Inc. 11

Global Markets Analysis 12
Domestic Markets Analysis 17
The Merger Reaction 19
Critical Success Factors and Risks Analysis 20
Projection of the acquisition of FPI by Clearwater 21
Conclusion 22
References 24
Annex A 27 FPI 2000 / 2001 Financial Report 27

Annex B 32 Monthly Average of the Stock Prices 32

Abstract

The announcement from the Chairperson of Fishery Products International Ltd. (FPI) on the 6th September 2001, at St. John's, Newfoundland (Nfld), to acquire the assets of Clearwater Fine Foods Inc. for $510 million would have resulted in the creation of the largest seafood company in Canada. The closure of the transaction was eventually aborted by FPI after a concerted effort by Newfoundland provincial politicians and the negative public reaction on subsequent statements made by FPI regarding its proposed strategic plan for Newfoundland fish plants. This study describes the events leading up to the proposed merger, and the circumstances that followed the merger’s demise. As a business case, the purpose of the report is to analyze the background of the key parties to the proposed venture and its potential impact on the fisheries business sector and its stakeholders. This will include FPI employees’ employment stability and the assessment of the impact of market share, nationally and internationally by its products and its global competitors. In the course of this study the unique status of the FPI Shares Limitation Act, through the governing Nfld provincial legislation, is reviewed along with Provincial and Federal law that have, at once, supported the growth of FPI and presented insurmountable obstacles that jeopardized the completion of the merger.

The report provides with the evaluation of merger’s proposed intention for securing international markets and its expectation of long-term profitable business operations. It concludes with a critical assessment of the future impact on the fisheries business sector in Atlantic Canada.

Introduction

The scallop fishery on Georges Bank has been developed since 1940. Since 1973, there were 76 licenses awarded for vessels greater than 65 foot according to the Department of Fisheries and Oceans (DFO) Offshore Scallop 2000 report. In 1977, Canada had the concept of a 200-mile exclusive fisheries zone but it was not incorporated into Law of the Sea Convention (“UNCLOS III”) until 1982. This extended jurisdiction was to enforce and to protect the Atlantic depleting fish stocks. The fishing industry crisis was first recognized as early as in 1928. There was the Report of the Royal Commission on Maritime and Quebec Fisheries that raised the issues of the Atlantic fishing industry. Fifty years later, the Prime Minister announced the appointment of a Task Force on Atlantic Fisheries on January 9, 1982 to address the similar problem. The primary objective of the Task Force was to recommend “how to achieve and maintain a viable Atlantic fishing industry, with the consideration for the overall economic and social development of the Atlantic Provinces”. Dr. Michael Kirby headed this Task Force and the report, was completed in December 1982. The report, later referred to the Kirby Report consisted of three major key elements: the environment, the options and the recommendations respectively. Unfortunately, the depletion of Atlantic species continues to threaten it’s the local economy and the growth of the communities. The world oil crisis during the same period has also raised the cost to run the business. Other measures are required to stimulate the economy of the Atlantic Provinces along with the subvention from the government.

The main Atlantic coast catches are always species like cod, herring, lobster and scallops. By 1984, the fisheries industry has seen an increase of bankruptcies and high unemployment in the region. The company Fisheries Products International (FPI) was formed by re-grouping some of the bankrupted fishing companies into one with the subvention from the provincial government. Mr. Vic Young was then appointed as FPI’s CEO when FPI was privatized in 1987 and he remained with the company until 2001. One of his major achievements was nursing FPI through the cod moratorium without closing any plants during the period of 1992 and 1993.

The removal of Mr. Vic Young and his replacement with Mr. Derrick Rowe as CEO of FPI in May 2001 has been interpreted as part of a direct strategy of Mr. Risley to acquire FPI after an earlier failure to take over the same company in 1999. This study begins with the past events and milestones of both companies and then describes the business drivers that fuelled the interest in such a merger. It then follows with an analysis of the global and domestic markets that will enable further understanding of Mr. Risley’s vision in the fisheries business. The discussion of diversified of fisheries and the value-added in the products in order to compensate the decrease of revenue and fish stocks have been seen as Mr. Risley's business strategy. The would-be acquisition is analyzed in terms of critical factors and risks especially with the disputes from the employees and the union. A projected plan of action is considered that would persuade the opponents about the advantages of this merger if it were successful. The study concludes with a critical analysis of the future impact on the fisheries business sector in Atlantic Canada in short and long term.

Historic background

Highlights and milestones of FPI

The 1982 Kirby Report showed the deficiencies of the Atlantic fisheries and outlined recommendations to remedy the situation. In 1984, seven bankrupt, ruined fisheries companies in St John’s formed FPI with a $150 million rescue package from the Newfoundland (Nfld) provincial government. FPI reverted into a profitable company, paid off its debts and then converted into a public company traded on the Toronto Stock Exchange in 1987. The company has also created the 15% limitation of right to vote share ruling on each shareholder. This particular Act was to ensure that there is no monopoly takeover of the business and that the workers’ employment is protected. The company was under Mr. Vic Young’s direction from 1987 until Mr. Derrick Rowe replaced him in May 2001. The most significance work that Mr. Young did was nursing the company through the cod moratorium without closing any plants in 1993. FPI participates as the dominant player in the seafood industry of Nfld and Labrador, especially in many rural communities. Therefore the announcement of the merger and the intention of closing fish plants were considered as uninvited economic solution to the communities. Although there is an “open for business” economic policy adopted by Nfld and Labrador government some time ago, the reduction of work force strategy has violated the main theme of their Renewal Strategy for Jobs and Growth that was released in 2001 by the same government. Hence, the proposed merger was viewed by the workers as a hostile takeover without the consideration of the local community economic and tradition.

Fig I Share Prices Performance 1999 - 2002

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Fig 2 Financial Data

| |2000 |2001 |2002e |
|Earnings per Share |0.90 |0.89* |0.94 |
|Price to Earnings (times) |10.0 |10.1 |9.6 |
|Dividend ($) |0.15 |0.18 |0.18 |
|Dividend Yield (%) |1.67 |2.00 |2.00 |
|Book Value ($) |12.96 |12.75 |13.51 |
|Price to Book Value (times) |0.69 |0.71 |0.67 |
|*Excluding extraordinary cost of $0.96 |

Trace through the annual reports – purchase and diversification of FPI; sale of offshore trawler fleet.

The company operates with eight onshore processing facilities in Newfoundland, three vessel service and/or refit centers in Newfoundland and Nova Scotia, a fleet of 13 groundfish vessels, and one frozen-at-sea cold water shrimp processing vessel. FPI employs about 2,600 employees and purchases fish and shellfish from more than 3,000 independent harvesters in Newfoundland. For the year ended December 2001 (Annex A), FPI recorded income before unusual items of $10.5 million (69 cents per share) on sales of $703.1 million. There is a $20.1 million decrease from the 2001 sales and net loss for the year was reported as $1.0 million (7 cents per share) compared to year 2000 sales of $723.2 million with a net income of $13.6 million (90 cents per share) in 2000 [1]. Their auditor Ernst & Young prepared the company consolidated financial statement and commented that the gross profit decrease was due to several factors. The principal cause was the lower pricing of shellfish, coupled with higher costs associated with groundfish operations. There are also the unusual items expenditures of $14 million incurred for the year 2001 for such things as the proxy contest costs, severance costs for the previous managing directors and other write-off costs as described in the 2001 financial statement.

|Date |Description |Reference |
|1973 |76 Licences for vessels > 65’ LOA |DFO Offshore Scallop 2000 Report |
|1980-82 |Kirby Report on Atlantic Fisheries with |Navigating Troubled Waters, Kirby Report |
| |survival recommendations | |
|1984 |Less than 2000t of scallop, lowest catch on |DFO Offshore Scallop 2000 Report |
| |record | |
|1984 |FPI was formed by integrating the bankrupt |Macleans Apr, 2001 |
| |ruins of seven companies and $150 M rescue | |
| |package from NS provincial government | |
|1987 |FPI Privatized into public company with the 15%|CBCA Canadian Press Newswire, May 1, 01 |
| |stock limitation act and paid off debts | |
|1992 |Vic Young, FPI, nursed through the cod |CBCA search – Financial Post May 2’01 pg C1, C10 |
| |moratorium without closing any plants | |
|1992 |Groundfish moratorium devastated the Atlantic |Canadian Business, Apr 30, 1999, Vol 72 no8 p50-2 |
| |fishery with cod the major hit | |
|1999 |Clearwater’s bid to take over FPI |http://www.seafoodbusiness.com/archives/searchframe.asp |
|01/05/2001 |82% in favour of replacing the existing board |Kevin Cox, Canadian Press, 2 May 2001 |
| |of directors | |
|06/092001 |Announced the FPI and Clearwater merger |Canada NewsWire |
|Sep 2001 |Minister responds to FPI’s proposed acquisition|http://www.gov.nf.ca/releases/2001/fishaq/0906n05.htm |
|18/01/2002 |Gerry Reid, Minister of Fisheries commented on |FPI Press Release 18/01/2002 |
| |the acquisition and FPI’s 15% share limitation | |
| |act | |
|22/01/2002 |FPI plan to revamp groundfish processing by |World Watch 22/01/2002 |
| |eliminating 580 jobs and modernizing 3 plants | |
| |in Nfld | |
|28/01/2002 |Provincial hearing of the FPI Act and Hon John |Canada NewsWire |
| |Crosbie | |
|15/02/2002 |FPI announced not to proceed with the |globeinvestor.com |
| |acquisition | |
|21/03/2002 |Amendments to the 1987 FPI's15 per cent |Canada Newswire |
| |ownership restriction be extended to include | |
| |all company shares | |
|03/05/2002 |Agreement with the union |Canada NewsWire |
|15/05/2002 |-Appointed Mr. Rowe as President and CEO |Canada NewsWire |
| |-23% increase in the first quarter earnings | |
| | | |
| | | |

Highlights and milestones of Clearwater

Mr. John Risley and his brother-in-law, Mr. Colin MacDonald first started as local lobsters retail outlet in Bedford, NS in 1976. They then expanded to wholesale export in Boston seafood markets before the company becomes a multi million international business. By 1988, this company has fourteen plants with three in United Kingdoms and eight in the USA and has a work force of 1,800. The seven corporate license holders of the offshore quota for the 24 vessels that harvests of more than 45 million pounds of product per annum with an estimated wharf value of $60 million annually. Their catches are mostly lobster, scallop, clam and shrimp. Mr. Risley diversified his business into fisheries processing plants in which he predicts that the ready-to-serve business will be the future driver of the business. Hence the company emphasis on new species development and bleeding-edge process technology in each of its major production lines. As a consequence, Clearwater has invested more than $200 million in processing plants and vessels upgrades over the past five years. Mr. Risley’s use of technological innovation to support persistent marketing has been successful throughout his business.

|Date |Description |Reference |
|1976 |Clearwater formed by John Risley and Colin |Macleans Apr 30, 2001, vol 114 no18, p 34,36 |
| |MacDonald | |
|By 1988 |Clearwater operated 14 plants with 3 in UK and 8 |Canadian Business Apr 30,1999, Vol 72 no 8 p 50-2 |
| |in US | |
|1989 |Clearwater closed groundfish plants,150 people out|Canadian Business Apr 30,1999, Vol 72 no 8 p 54+ |
| |of work, sold foreign assets-Hillsdown deal | |
|1997 |John Risley was named entrepreneur of the year by |Canadian Business, Apr 30, 1999 |
| |Ernst & Young | |
|1999 |Bidding of FPI |Canadian business Dec 31,2001, Vol 74 no 24, p95 |
|06/09/ 2001 |Second attempt to acquire FPI with 16 million |Canadian business Dec 31,2001, Vol 74 no 24, p95 |
| |non-voting shares, $100 million in preferred | |
| |shares and assume Clearwater's $210 M debt | |
|18/01/2002 |Public hearing of Nfld Fisheries Minister to the |Worldcatch.com, Article ID=6944 |
| |FPI Act | |
|18/03/2002 |Interview of John Risley by Jason Kirby |Canadian Business; Toronto; Apr 1, 2002; Vol. 75, Iss. 6; pg. 21 |
| | | |
| | | |
| | | |
| | | |

Clearwater Fine Foods Inc. sales charts by regions and by species in the year 2000 were obtained from the company as shown below. Due to the privacy status of the company, no actual accounting figures were provided. It is evident that the majority of its species are shellfish; mainly lobster and its markets are concentrated in North America.

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Courtesy from Clearwater Inc.

Business Drivers

We now analyze the business drivers of the two firms in terms of performance and operational success in harvesting, production and marketing of fish. With the identification of the main components as strategy or improvement, business excellence could be achieved in the post merger era.

FPI

FPI is one of the largest suppliers of seafood in North America. Its primary catches are groundfish and shellfish as indicated in the company annual report. The company has also been a leader in developing and implementing new and sustainable harvesting techniques. Much of this innovative harvesting research is carried out in partnership with the Marine Institute at Memorial University, Newfoundland. In addition, the company has diversified into the prepared seafood industry. Branded under the FPI, Mirabel, Sea Cuisine and Maripac labels, FPI products are marketed to foodservice and retail customers in over fifteen countries. FPI is also the exclusive international marketer of Atlantic Queen Seafood’s Luxury brand snow crab products.

Clearwater Fine Foods Inc.

Clearwater’s sales of live lobsters by air shipment to the US is not only the first Canadian company that broke through the US lobster markets but it has also opened the door to Asia and European markets. The success has extended more recently in the development of surf clam and shrimp markets in Japan and China.

Much of Clearwater’s recent growth has come from successful joint venture relationships with a diverse range of partners as the following:
Glaciar Pesquera – an Argentine subsidiary;
Clearwater Ocean Prawns Joint Venture in the Northern Shrimp Management Plan (1997-1998);
Unaaq Fisheries - an Inuit joint venture in Canada’s northern shrimp fishery since 1987;
Deep Sea Clam Company and Knickle Ltd. Both with surf clam and sea scallop fisheries;
Ocean Nutrition Canada in marine based nutritional products.
The above information was extracted from the company’s backgrounder about its growth strategy. The company’s combination of business partnerships and strategic investments has shown its interest in the diversification into marine based nutritional products. The company has also plan to establish sales offices in each of its marketing group over the next two years around the world in countries such as Japan, China, France, Germany, Spain, Belgium, and Norway etc. The geographic diversity of its markets will also be supported by the diverse language and cultural backgrounds.

Global Markets Analysis

The 1999 and 2000 aquaculture imports and exports statistics obtained from DFO has demonstrated that there is an overall increase in both imports and exports for Canada. This report has only selected exports / imports for species such as finfish, groundfish, cod, clam, scallops, lobster, crab and shrimp and the countries such as USA, EU & non-EU, Central & South America, Japan, China, Taiwan and Thailand to be analyzed. It is proven that the effort in augmenting exports will stimulate the local and Canadian economy.

| | |Jan to Dec, 2000 | | |Jan to Dec, 1999 | |
|Grand Total |Quantity |Value |$/KG |Quantity |Value |$/KG |
|Imports |426,918 |2,018,619 |4.73 |488,422 |2,008,219 |4.11 |
|Exports |495,976 |4,067,363 |8.20 |506,312 |3,742,283 |7.39 |

The following charts are compiled from 1999 and 2000 data showing the exports / imports of the above selected countries and species in sales and tonnages. The figures will be used to demonstrate the benefit of the proposed merger.
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NES – Not Elsewhere Specified.

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Domestic Markets Analysis

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The above two years of Canadian and the two companies exports statistics showed that there is the advantage of bargaining power in the pre and post merge (if in lieu). The combined operation would cut down the administrative tasks and sharing resources in terms of manpower and material. In doing so, the cost of operation could be lowered; the fisheries prices could therefore be lowered to compete with the world markets. Increasing exports especially to the US markets could be a successful spin-off to the Canadian economy.

The Merger Reaction

The first takeover of FPI was attempted in 1999 by Mr. Risley but failed. Mr. Risley currently owns 13.6% of the FPI voting shares and has control of nearly 40% of FPI shares with the combination of Clearwater, Icelandic and Bill Barry’s firm. The announcement on the 6th September 2001 of the offer of Clearwater to acquire FPI has created an issue with the Newfoundland Provincial Fishery Products International Limited Act[1] on Chapter F-15 in which the most concerned item is the limit of 15% voting shares ruling.

The merger transaction was subjected approval from governmental regulatory bodies, Bureau of Competition Policy, Industrial Canada and shareholders. In the meantime, Mr. Risley was also promoting the modernization of the fish plants and this would lead to streamline its operations and minimize the work force. The idea of decrease work force has sparked opposition to such merger by the local communities and government bodies. A comment from the Provincial Fishery Minister, Mr. Gerry Reid, has led to an inquiry of this venture. This later resulted in the imposition of a 15% ownership cap on all types of votes by the Newfoundland Premier Roger Grimes on the 28th January 2002. There was criticism about the amended act and the Premier’s “open for business” initiatives to encourage investment in the region have been challenged in the Canadian Business communities.

Finally, on the 15 February 2002, FPI announced that they would not proceed with the merger. A journalist, Jason Kirby, later interviewed Mr. Risley in March about the withdrawal of the merger but he did not indicate any particular reason to recede the transaction. The interview terminated with the impression that Mr. Risley will not abandon the idea of acquisition and he will try again with other venues [9].

Apart from the opposition from the Newfoundland locals, the merger would have created the largest Canadian fishery firm in the eyes of the business world. FPI and Clearwater could increase its sales by combining both company value-added businesses. The Atlantic fishery is proven to be volatile due to external risks such as government-induced quotas and depleted fish stocks.

Critical Success Factors and Risks Analysis

In order to have completed the merger transaction successfully, there were several major factors that needed to be considered. The FPI Shares Limitation Act presents an obstacle because Mr. Risley’s amount of voting and privileged shares indicated above. The Nfld provincial government has also amended the 15% limit across all categories of shares in January 2002 so that Mr. Risley would not qualify to bid for the merger. The announcement of modernization of the fish plants that may cause the closure of the plants may be pre-mature without prior seeking a public approval of the merger. The workers in the communities would only assume that the closing of the plants would decrease employments from their past experience extracted from the Business Magazine – Atlantic Report, v 27(1) March, 1992 pg 16-20. • In February 1992, there were 7,000 fewer jobs in Newfoundland and the Hibernia spending was cut by 50%, increasing the unemployment rate to 18.9%. • In 1991, FPI closed its Catalina plant, affecting 1,000 jobs. • In March 1992, FPI closed its Marystown plant. • In 1991, National Sea Products (NSP) closed down its Newfoundland operations, laying off 375 workers in Arnold's Cove and 170 at its St. John's trawler base.

From a global market point of view, the merger could probably lower the fish prices and allow for competition in world markets such as Japan, China, Europe and the US. But we have to investigate into the import and export fishery products treaty with other countries. Abiding the quotas and restrictions could offset this opportunity.

The stock market is very much sensitive to any changes within the company and the economy. The following stock prices for the past five years reflect the ups and downs for FPI. As an example, the replacement of Mr. Vic Young by Mr. Derrick Rowe on the 1 May 2001 has probably caused the peak of share price of $11.50 on the 30 April 2001 prior to the announcement of the Board of Directors replacement. The stock prices stabilized until the merger news on the September 6, 2001 in which the share has peaked to almost $11 again.
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Then the price was on the downward trend to below the $8 value in the beginning of February 2002. This was due to the negative view of the merger and protest from the public especially the resident of Newfoundland as discussed above. Once the merger proposal was withdrawn on the 14 February 2002, the price went back up and the company is trading presently between $8 and $9.

Observing the Newfoundland tradition can be considered as criteria to the success of the merger. In a community of Newfoundland, trust and respect can gain a lot of support of the people and the local government. In addition, Mr. Risley’s decision to close a Clearwater groundfish plant in 1989, throwing 150 people out of work did not gain the confidence of Newfoundlanders. Implementing new technology can always cause resistance from employees. They have to be re-trained and the productivity would decrease due to the learning curve of any new skills. Mr. Risley has his long-term vision but the immediate impact on the communities caused them to raise objections to the merger.

Projection of the acquisition of FPI by Clearwater

Now come to the discussion of what if the merger transaction had been successful. What are the outcomes of the two companies? The objective to merge the two companies, in my opinion, is to offset risks, augment revenues and earnings. We are now in a health conscious society especially in the North America where fish is considered to be a prime health food. Therefore, diversification into the fishery products is an effective strategy and the merger would assist the innovative value-added products by sharing the companies’ resources and their markets. In fact, the average North Americans consume only 15 pounds of seafood a year while Europeans consume four times that amount. The merge would have helped both companies to complete in the world markets.
The merge would have also resulted in FPI buying Mr. Risley’s Clearwater for $510 million by issuing 16 million non-voting shares and $100 million in preferred shares. Clearwater’s $210 million debt would also be assumed by FPI. The merger would create Canada’s largest seafood company with a estimated of $1 billion in sales. Clearwater would have gained more cash flow and FPI would be modernized by Mr. Risley’s plant transformation plan.

Here is a quote from Canadian Business; Toronto; Feb 4, 2002 by Matthew McClearn:

The quotation has reflected the reaction of a business minded person. The stock price performance in the announcement of the merger has also demonstrated the positive move by the eyes of the investors. The price has gone up from around $10.50 to a high of $11.50 per share in September 2001. The price remained at the $10 level until the Clearwater announced the withdrawal in February 2002. The stock price dropped to the $8 level.

Conclusion

This concludes the study of the proposed merger of Clearwater to FPI. The withdrawal of the proposal in the midst of drafting this study has led to some changes in some thoughts and the structure of this document. The merger would have been successful if more consideration had been given to the communities involved, their traditions, potential job losses and past experiences with the fishery industry. The interview last March with Mr. Risley by Jason Kirby as reported in Canadian Business has indicated that Clearwater might become a public company as FPI did in order to raise equity. In the mean time, Clearwater will be concentrating on improving its core operations. Mr. Risley also commented that his merger proposal was meant to be in the best interest of the Newfoundland economy and depleted fish stocks. He also regretted that the Newfoundlanders have formed different opinions that were distorted by the controversy of job layoffs. My final prediction for this saga is that the two companies will be in a joint partnership relationship in the future. Mr. Risley will continue with his venture by taking more calculated risks as he is called a “Gambler” in one of the Profit Guide articles. On May 28, 2002, The Halifax Daily News has already reported that Clearwater was hoping to raise as much as $200 million to pay for planned acquisitions of processing companies in the United States and Europe. This is the latest exploit of Mr. Risley after the merger withdrawal of FPI and Clearwater.

References

ABC Funds (2000), Value Investigator (June), Internet: http://www.abcfunds.com/value/valuefavourites/fpl.shtml Baird, Moira, Clearwater acting alone, says Risley, The Telegram (St. John's), March 28, 2001, Final Edition, p.1 / FRONT

Bertin, Oliver, Canada’s seafood industry giants to merge, The Globe and Mail, Friday, September 7, 2001, p. B3

Brent, Paul (2001), Shareholders in a fine kettle of fish, Financial Post (National Post), May 1, 2001 p. C2

Caldwell, Brad M. (2001), United Nations Fishing Agreement Review, (Dec 11), Internet: http://www.admiraltylaw.com/fisheries/Papers/unclos.htm Chidley, Joy (2002), Roger and Me, Canadian Business, Toronto (March 18), Vol. 75, Iss. 5; pg. 60, 4 pgs

Cleary, Ryan, Taking over: FPI to swallow bigger fish in Clearwater, The Western Star (Corner Brook), Friday, September 7, 2001, p. 1 / FRONT

DeMont, John (2001), Claws come out: two Atlantic seafood tycoons square off over control of Newfoundland's biggest company, Maclean's, April 30 2001, vol 114 no 18, p 34,36

DFO Statistics (1999-2000), Domestic Imports / Exports of Selected Commodities, (December), Internet: http://www.dfo-mpo.gc.ca/communic/statistics/trade/trade2.htm http://www.dfo-mpo.gc.ca/communic/statistics/trade/MMKT9900.htm

Editorial (2002), Risley plans to cast net for Clearwater investors, The Halifax Daily News, Daily Edition, (May 28), p.23

Foot, Richard, Hearings about to begin into FPI's future: Emotional issue, Financial Post, January 26, 2002, p FP5

FPI earnings stronger than expected, The National Post (March 22, 2001), J1 10’00 p. D2

FPI Reported Revenue of $535M, Globe & Mail (1991), Toronto Metro edition, February 26, p. B15

Faulkner, Robert, Seafood swallows rival, The Toronto Star, Friday, September 7, 2001, p. BU03

Grimes, Roger, Newfoundland just doing what everyone else does, Financial Post, F 22 2002, p. FP15

Guzzwell, Diane (2002), Administrative Assistant, FPI 2001 Annual Report (May 1), Internet: http://www1.newswire.ca/releases/February2002/19/c3425.html High Liner pulls in Q3 profit increase; FPI net lower despite gutted costs, Canadian Press Newswire, O 30 2001

Hoare, Eva (2001), Clearwater, FPI merge; Risley in control, The Chronicle-Herald, Friday September 7, 2001, p. A1

Kirby, Jason (2001), The rich 100 - in depth: a new sea-e-o, Canadian Business, Toronto (December 31), Vol. 74, Iss. 24; pg. 95, 1 pg

Kirby, Jason (2002), The one that got away, Canadian Business, Toronto (March 18), Vol. 75, Iss. 5; pg. 60, 4 pgs

Kirby, Michael JL (1982), Navigating Troubled Waters, December, [Canadian Govt Publishing Press], p.3-6, p.201-205, p.222-231, p.238, p.303, p.328, p.336-343

McClearn, Matthew (2002), Time to cut bait? Canadian Business, Toronto, (February 4), Vol. 75, Iss. 2; pg. 17, 1 pgs

McLeod, John (2002), More than tradition at stake in Newfoundland, The Halifax Daily News, Daily Edition (February 3), p.38

Minister Gerry Reid, All-Party Committee Review of FPI Act, January 28, 2002, Internet: http://www.gov.nf.ca/fpiactconsultations/finalreport.htm Minister Gerry Reid (2002), Letter to Mr. Derrick Rowe, News Release, Govt Nfld Labrador (January 4, 2002)

Minister’s two-year moratorium on northern cod that resulted in layoffs of 31,000 employees, Globe & Mail (1992), Toronto Metro edition, (July 3), p.B1, B4

Newfoundland Economic Conditions (1992), Provincial Report, v. 27(1) March, 1992 p.16-20

MacDonald, Michael (2001), A shudder of fear rolled through Newfoundland on Tuesday, Canadian Press Newswire, May 1, 2001

Meek, Jim (1999), The new Shell Game, Canadian Business (April 30), vol 72 no 8, p 50-2,54+

Moore, Charles, Grimes may have sealed fate of FPI, Atlantic Fisherman, April 2002

Pearson, Kali, (2000), The Gambler [Profit guide], Internet: http://www.profitguide.com/inc/print_article.asp?ID=925 Roe, Eric (2002), Clearwater Fine Foods Inc backgrounder and Markets Distribution Charts for 1999 & 2000, e-mail (February 11)

Rowe, Derrick, President (2002), An Open Letter to All Shareholders of FPI, News Release, Govt Nfld Labrador (May 1, 2001)

Rowe, Derrick, President (2002), Letter to Minister Gerry Reid, News Release, Govt Nfld Labrador (May 9 & 18, 2001)

Rowe, Allan, CEO (2002), FPI Press Release (May 15), Internet: http://www.fpil.com/currents/may16.htm Rubin, Sandra (2001), Dissident shareholders win fight to control FPI: board ousted, Financial Post, May 2, 2001, p. C1, C10

Stokes Sullivan, Deana (2002), Message is clear: Directors have lost credibility, St John's Telegram (February 3), p. A4

The Canadian Awards for Business Excellence, Atlantic Provinces Economic Council Newsletter (1991), v. 35(7) October/November, p.3

Tutton, Michael, Seafood combo: FPI, Clearwater Merge, The Montreal Gazette, Friday, 7 September 2001, p. C10

Unemployment rate of 18.9% in Newfoundland, Atlantic Report (1992), v. 27(1) March, p.16-20

Canadian Business (1999), (Apr 30), Vol 72 no 8 p 50-2

Annex A

FPI 2000 / 2001 Financial Report

FPI Limited
Consolidated Balance Sheets ( courtesy from FPI customer service)

December 31, December 31, (Dollars in thousands) 2001 2000 (Unaudited) (Audited)
------------------------------------------------------------------------------------------------------------------
ASSETS Current Assets Cash 1,577 221 Accounts receivable 80,047 76,043 Inventories 129,010 120,642 Prepaid expenses 4,340 6,693 Future income tax assets 2,114 860
------------------------------------------------------------------------------------------------------------------
Total current assets 217,088 204,459

Capital assets 96,617 93,622 Future income tax assets 18,555 15,446 Other assets 17,284 13,880

------------------------------------------------------------------------------------------------------------------ 349,544 327,407
------------------------------------------------------------------------------------------------------------------

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities Bank indebtedness 44,059 23,004 Accounts payable and accrued liabilities 45,935 37,122 Current portion of long-term debt 10,678 11,057
------------------------------------------------------------------------------------------------------------------
Total current liabilities 100,672 71,183

Long-term debt 55,821 62,275
------------------------------------------------------------------------------------------------------------------
156,493 133,458
------------------------------------------------------------------------------------------------------------------

Shareholders' equity Share capital 51,174 48,053 Contributed surplus 71,642 73,064 Retained earnings 67,229 70,965 Foreign currency translation adjustment 3,006 1,867
------------------------------------------------------------------------------------------------------------------
193,051 193,949
------------------------------------------------------------------------------------------------------------------
349,544 327,407
------------------------------------------------------------------------------------------------------------------

FPI Limited
Consolidated Statements of Operations Thirteen Weeks Ended Fifty-Two Weeks Ended (unaudited) (audited) (dollars in thousands, DEC. 31, DEC. 31, DEC. 31, DEC. 31, except per share amounts) 2000 2000 2001 2000
------------------------------------------------------------------------------------------------------------------

SALES 191,309 187,758 703,115 723,153 Cost of goods sold 168,488 167,539 623,392 638,265
------------------------------------------------------------------------------------------------------------------
Gross Profit 22,821 20,219 79,723 84,888

Commission Income 698 756 2,988 3,271
------------------------------------------------------------------------------------------------------------------
23,519 20,975 82,711 88,159

Administrative and marketing expenses 12,499 10,733 47,086 46,154 Depreciation and amortization 2,460 2,290 10,113 9,525 Provision for incentives and profit sharing 502 602 1,800 2,570
------------------------------------------------------------------------------------------------------------------
Operating income before the under noted 8,058 7,350 23,712 29,910 Interest 1,674 1,933 5,731 6,742 Unusual Items 1,868 - 14,543 0
------------------------------------------------------------------------------------------------------------------
Income before income taxes 4,516 5,417 3,438 23,168 Income taxes 2,657 2,244 4,445 9,615
------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) FOR THE PERIOD 1,859 3,173 (1,007) 13,553
------------------------------------------------------------------------------------------------------------------

EARNINGS (LOSS) PER COMMON SHARE Basic 0.12 0.21 (0.07) 0.90 Diluted 0.12 0.20 (0.07) 0.86

Weighted average common shares outstanding (thousands) Basic 15,383 15,009 15,143 15,103 Diluted 15,395 15,189 15,143 15,782

FPI Limited Consolidated Statements Thirteen Weeks Ended Fifty-Two Weeks Ended of Retained Earnings (unaudited) (audited) (dollars in thousands) DEC. 31, DEC. 31, DEC. 31, DEC. 31, 2001 2000 2001 2000
------------------------------------------------------------------------------------------------------------------
Retained earnings, beginning of period 66,062 68,354 70,965 59,569 Net income (loss) for the period 1,859 3,173 (1,007) 13,553
------------------------------------------------------------------------------------------------------------------
67,921 71,527 69,958 73,122

Dividends 692 562 2,729 2,157
------------------------------------------------------------------------------------------------------------------
Retained earnings, end of period 67,229 70,965 67,229 70,965
------------------------------------------------------------------------------------------------------------------

FPI Limited Consolidated Statements of Cash Flows Thirteen Weeks Ended Fifty-Two Weeks Ended (unaudited) (audited)
------------------------------------------------------------------------------------------------------------------
(dollars in thousands) DEC. 31, DEC. 31, DEC. 31, DEC. 31, 2001 2000 2001 2000
------------------------------------------------------------------------------------------------------------------
Operations Net income (loss) 1,859 3,173 (1,007) 13,553 Add (deduct) items not affecting cash Depreciation and amortization 2,460 2,290 10,113 9,525 Future income tax (81) 818 (3,153) 2,581 Net loss on disposal of capital assets (3) - 84 (39) Provision for investment in joint venture - - 2,329 0 Write-down of capital assets - - 682 0
------------------------------------------------------------------------------------------------------------------
Cash generated from operations before the undernoted 4,235 6,281 9,048 25,620 Changes in non-cash working capital balances related to operations: Accounts receivable (6,507) (3,013) (3,224) 4,862 Inventory 19,308 46,992 (3,730) 1,410 Prepaid expenses 1,304 1,110 2,429 (1,053) Accounts payable and accrued liabilities 1,346 (6,402) 7,480 114 Foreign currency translation adjustments (1,922) (387) (3,442) (903) Accrued benefit asset (698) (2,225) (2,887) (2,121)
------------------------------------------------------------------------------------------------------------------
Cash provided by operating activities 17,066 42,356 5,674 27,929
------------------------------------------------------------------------------------------------------------------
Investing Additions to capital assets (5,413) (1,845) (14,874) (8,322) Proceeds from disposal of capital assets 0 - 11 1,100 Mortgages receivable (82) (643) 1,128 1,757 Other investing activities (355) (364) (1,928) (464)
------------------------------------------------------------------------------------------------------------------
Cash applied to investing activities (5,850) (2,852) (15,663) (5,929)
------------------------------------------------------------------------------------------------------------------
Financing Issue of long-term debt 3,063 10,000 3,063 10,000 Repayment of long-term debt (921) (1,133) (11,359) (8,439) Net change in short-term bank loans (12,070) (47,356) 20,018 (20,256) Dividends paid (692) (562) (2,729) (2,157) Issue of common shares 236 40 3,934 1,131 Repurchase of common shares - (1,045) (2,235) (3,141)
------------------------------------------------------------------------------------------------------------------
Cash (applied to) provided by financing activities (10,384) (40,056) 10,692 (22,862)
------------------------------------------------------------------------------------------------------------------

Effect of exchange rate changes on cash 189 (23) 653 167
------------------------------------------------------------------------------------------------------------------

Change in cash position during the period 1,021 (575) 1,356 (695) Cash position, beginning of period 556 796 221 916
------------------------------------------------------------------------------------------------------------------
CASH POSITION, END OF PERIOD 1,577 221 1,577 221
------------------------------------------------------------------------------------------------------------------

Supplemental cash flow information
------------------------------------------------------------------------------------------------------------------
(dollars in thousands)
------------------------------------------------------------------------------------------------------------------
Cash paid for: Interest 1,411 1,672 6,226 7,439 Income taxes 1,511 2,369 6,634 7,279
------------------------------------------------------------------------------------------------------------------

Annex B

Monthly Average of the Stock Prices

|Date |Price $ |
|1966-01 |4.77 |
|1996-02 |4.73 |
|1996-03 |4.64 |
|1996-04 |4.56 |
|1996-05 |4.68 |
|1996-06 |4.63 |
|1996-07 |4.76 |
|1996-08 |5.03 |
|1996-09 |5.25 |
|1996-10 |5.62 |
|1996-11 |5.87 |
|1996-12 |5.29 |
|1997-01 |5.81 |
|1997-02 |6.10 |
|1997-03 |6.33 |
|1997-04 |6.26 |
|1997-05 |6.31 |
|1997-06 |7.06 |
|1997-07 |7.38 |
|1997-08 |6.86 |
|1997-09 |6.48 |
|1997-10 |6.57 |
|1997-11 |7.23 |
|1997-12 |6.98 |
|1998-01 |6.32 |
|1998-02 |6.16 |
|1998-03 |6.40 |
|1998-04 |6.82 |
|1998-05 |7.15 |
|1998-06 |6.49 |
|1998-07 |6.14 |
|1998-08 |5.76 |
|1998-09 |5.01 |
|1998-10 |4.67 |
|1998-11 |5.03 |
|1998-12 |4.98 |
|1999-01 |5.05 |
|1999-02 |5.08 |
|1999-03 |5.03 |
|1999-04 |5.53 |
|1999-05 |6.25 |
|1999-06 |6.28 |
|1999-07 |6.70 |
|1999-08 |6.59 |
|1999-09 |6.42 |
|1999-10 |6.21 |
|1999-11 |8.23 |
|1999-12 |8.06 |
|2000-01 |8.33 |
|2000-02 |9.18 |
|2000-03 |9.83 |
|2000-04 |9.10 |
|2000-05 |9.04 |
|2000-06 |9.12 |
|2000-07 |9.01 |
|2000-08 |9.15 |
|2000-09 |9.01 |
|2000-10 |8.91 |
|2000-11 |9.04 |
|2000-12 |9.01 |
|2001-01 |9.04 |
|2001-02 |8.88 |
|2001-03 |9.16 |
|2001-04 |10.63 |
|2001-05 |10.06 |
|2001-06 |9.66 |
|2001-07 |10.54 |
|2001-08 |10.40 |
|2001-09 |10.39 |
|2001-10 |9.74 |
|2001-11 |9.18 |
|2001-12 |8.88 |
|2002-01 |9.19 |
|2002-02 |7.89 |
|2002-03 |8.09 |
|2002-04 |8.03 |
|2002-05 |8.79 |
|2002-06 |8.59 |
|2002-07 |8.46 |
|2002-08 | |
|2002-09 | |
|2002-10 | |
|2002-11 | |
|2002-12 | |

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[1] Nfld Fishery Products International Act