Management Information Circular (2005)Full Document 

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CHAP MERCANTILE INC.

MANAGEMENT INFORMATION CIRCULAR

Solicitation of Proxies

This management information circular is furnished in connection with the solicitation of proxies by the management of Chap Mercantile Inc. (the “Company”) for use at the annual and special meeting of shareholders (the “Meeting”) of the Company to be held at the time and place and for the purposes set forth in the accompanying Notice of Meeting.  References in this management information circular to the Meeting include any adjournment or adjournments thereof.  It is expected that the solicitation will be primarily by mail, however, proxies may also be solicited personally by regular employees of the Company and the Company may use the services of an outside proxy solicitation agency to solicit proxies.  The cost of solicitation will be borne by the Company.


The board of directors of the Company (the “Board”) has fixed the close of business on November 3, 2004 as the record date, being the date for the determination of the registered holders of securities entitled to receive notice of the Meeting.  Duly completed and executed proxies must be received by the Company’s transfer agent at the address indicated on the enclosed envelope no later than 12:00 p.m. (Calgary time) on December 6, 2004, or no later than 48 hours (excluding Saturdays, Sundays and holidays) before the time of any adjourned Meeting.


Unless otherwise stated, the information contained in this management information circular is as of November 10, 2004.  All dollar amounts referenced, unless otherwise indicated, are expressed in Canadian dollars and United States dollars are referred to as “US$”.


Appointment and Revocation of Proxies


The persons named in the enclosed form of proxy are officers or directors of the Company.  A shareholder desiring to appoint some other person, who need not be a shareholder, to represent him at the Meeting, may do so by inserting such person’s name in the blank space provided in the enclosed form of proxy or by completing another proper form of proxy and, in either case, depositing the completed and executed proxy at the office of the Company’s transfer agent at the address indicated on the enclosed envelope no later than 12:00 p.m. (Calgary time) on December 6, 2004, or no later than 48 hours (excluding Saturdays, Sundays and holidays) before the time of any adjourned Meeting.


A shareholder forwarding the enclosed proxy may indicate the manner in which the appointee is to vote with respect to any specific item by checking the appropriate space.  If the shareholder giving the proxy wishes to confer a discretionary authority with respect to any item of business, then the space opposite the item is to be left blank.  The shares represented by the proxy submitted by a shareholder will be voted in accordance with the directions, if any, given in the proxy.


A proxy given pursuant to this solicitation may be revoked by an instrument in writing executed by a shareholder or by a shareholder’s attorney authorized in writing (or, if the shareholder is a corporation, by a duly authorized officer or attorney) and deposited either at the office of the Company’s transfer agent (2300 – 125 9th Avenue S.E., Calgary, Alberta, T2G 0P6) at any time up to and including the last business day preceding the day of the Meeting or with the Chairman of the Meeting on the day of the Meeting or in any other manner permitted by law.


Exercise of Discretion by Proxies


The persons named in the enclosed form of proxy will vote the shares in respect of which they are appointed in accordance with the direction of the shareholders appointing them.  In the absence of such direction, such shares will be voted in favour of the passing of all the resolutions described below.  The enclosed form of proxy confers discretionary authority upon the persons named therein with respect to amendments or variations to matters identified in the Notice of Meeting and with respect to other matters which may properly come before the Meeting.  At the time of printing of this management information circular, management knows of no such amendments, variations or other matters to come before the Meeting.  However, if any other matters which are not now known to management should properly come before the Meeting, the proxy will be voted on such matters in accordance with the best judgment of the named proxies.


Voting by Non-Registered Shareholders


Only registered shareholders of the Company or the persons they appoint as their proxies are permitted to vote at the Meeting.  Most shareholders of the Company are “non-registered” shareholders (“Non-Registered Shareholders”) because the shares they own are not registered in their names but are instead registered in the name of the brokerage firm, bank or trust company through which they purchased the shares.  Shares beneficially owned by a Non-Registered Shareholder are registered either: (i) in the name of an intermediary (an “Intermediary”) that the Non-Registered Shareholder deals with in respect of the shares of the Company (Intermediaries include, among others, banks, trust companies, securities dealers or brokers and trustees or administrators of self-administered RRSPs, RRIFs, RESPs and similar plans); or (ii) in the name of a clearing agency (such as The Canadian Depository for Securities Limited) of which the Intermediary is a participant.  In accordance with applicable securities law requirements, the Company will have distributed copies of the Notice of Meeting, this management information circular, the form of proxy and the request form (collectively, the “Meeting Materials”) to the clearing agencies and Intermediaries for distribution to Non-Registered Shareholders.


Intermediaries are required to forward the Meeting Materials to Non-Registered Shareholders unless a Non-Registered Shareholder has waived the right to receive them.  Intermediaries often use service companies to forward the Meeting Materials to Non-Registered Shareholders.  Generally, Non-Registered Shareholders who have not waived the right to receive Meeting Materials will either:


(i)

be given a voting instruction form which is not signed by the Intermediary and which, when properly completed and signed by the Non-Registered Shareholder and returned to the Intermediary or its service company, will constitute voting instructions (often called a “voting instruction form”) which the Intermediary must follow.  Typically, the voting instruction form will consist of a one page pre-printed form.  Sometimes, instead of the one page pre-printed form, the voting instruction form will consist of a regular printed proxy form accompanied by a page of instructions which contains a removable label with a bar-code and other information.  In order for the form of proxy to validly constitute a voting instruction form, the Non-Registered Shareholder must remove the label from the instructions and affix it to the form of proxy, properly complete and sign the form of proxy and submit it to the Intermediary or its service company in accordance with the instructions of the Intermediary or its service company; or


(ii)

be given 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 shares beneficially owned by the Non-Registered Shareholder but which is otherwise not completed by the Intermediary.  Because the Intermediary has already signed the form of proxy, this form of proxy is not required to be signed by the Non-Registered Shareholder when submitting the proxy.  In this case, the Non-Registered Shareholder who wishes to submit a proxy should properly complete the form of proxy and deposit it with the Company, c/o Olympia Trust Company, 2300 – 125 9th Avenue S.E., Calgary, Alberta, T2G 0P6.


In either case, the purpose of these procedures is to permit Non-Registered Shareholders to direct the voting of the shares of the Company they beneficially own.  Should a Non-Registered Shareholder who receives one of the above forms wish to vote at the Meeting in person (or have another person attend and vote on behalf of the Non-Registered Shareholder), the Non-Registered Shareholder should strike out the persons named in the form of proxy and insert the Non-Registered Shareholder or such other person’s name in the blank space provided.  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.


A Non-Registered Shareholder may revoke a voting instruction form or a waiver of the right to receive Meeting Materials and to vote which has been given to an Intermediary at any time by written notice to the Intermediary provided that an Intermediary is not required to act on a revocation of a voting instruction form or of a waiver of the right to receive Meeting Materials and to vote which is not received by the Intermediary at least seven days prior to the Meeting.


Voting Securities and Principal Holders Thereof


As of the date hereof, 723,900,000 common shares (the “Common Shares”) in the capital of the Company are issued and outstanding.  Each Common Share entitles the holder thereof to one vote on all matters to be acted upon at the Meeting.  The record date for the determination of shareholders entitled to receive notice of the Meeting has been fixed at November 3, 2004.  In accordance with the provisions of the Business Corporations Act (Alberta) (the “ABCA”), the Company will prepare a list of holders of Common Shares as of such record date.  Each holder of Common Shares named in the list will be entitled to vote the shares shown opposite his or her name on the list at the Meeting, except to the extent that (a) the shareholder has transferred any of his or her shares after the record date, and (b) the transferee of those shares produces properly endorsed share certificates or otherwise establishes that he or she owns such shares and demands not later than ten days prior to the Meeting that his or her name be included in the list before the Meeting, in which case the transferee is entitled to vote his or her shares at the Meeting.  All such holders of record of Common Shares are entitled either to attend and vote thereat in person the Common Shares held by them or, provided a completed and executed proxy shall have been delivered to the Company’s transfer agent within the time specified in the attached Notice of Meeting, to attend and vote thereat by proxy the Common Shares held by them.


To the knowledge of the directors and executive officers of the Company, as of the date hereof, the only persons or companies who beneficially own, directly or indirectly, or exercise control or direction over voting securities of the Company carrying more than 10% of the voting rights attached to any class of voting securities of the Company are as follows:



Name

Number of

Common Shares

Percentage of

Outstanding Common Shares

Wheaton Trading (Caymans) Ltd.

540,000,000

74.6% (1)

_____________________

(1)

On a fully-diluted basis, assuming exercise of all outstanding options and warrants, Wheaton Trading (Caymans) Ltd., a wholly-owned subsidiary of Wheaton River Minerals Ltd., will own approximately 64.0% of the outstanding Common Shares.







Statement of Executive Compensation


The following table provides information for the three financial years ended August 31, 2004 regarding compensation paid to or earned by the Company’s former Presidents (the “Named Executive Officers”).  The Company did not have a Chief Financial Officer or any other officers as at August 31, 2004.


Summary Compensation Table


   



Annual Compensation


Long-Term Compensation

 



Name and Principal Position




Year



Salary

($)



Bonus

($)


Other Annual Compensation

($)


Securities Under Options Granted

(#)


All Other Compensation

($)


Geir Liland

President (1)


2004

2003

2002


-

N/A

N/A



-

N/A

N/A



-

N/A

N/A



100,000

N/A

N/A



6,000

N/A

N/A



Peter Kruczko

President (2)


2004

2003

2002


-

-

-



-

-

-



-

-

-



-

-

-



15,500

18,000

18,000


________________

(1)

Mr. Liland resigned as President and a director of the Company effective October 15, 2004.

(2)

Mr. Kruczko resigned as President and a director of the Company effective February 25, 2004.


Stock Options


The following table provides details of stock options granted to the Named Executive Officers during the financial year ended August 31, 2004.


Option Grants During the Financial Year Ended August 31, 2004








Name




Securities Under Options Granted (#)




% of Total Options Granted to Employees in Financial Year (1)





Exercise or Base Price ($/Security)


Market Value of Securities Underlying Options on the Date of Grant ($/Security)







Expiration Date


Geir Liland


100,000


22.2%


0.15


0.15


January 13, 2005


Peter Kruczko


Nil


N/A


N/A


N/A


N/A

__________________

(1)

Based on the total number of options granted to consultants of the Company during the financial year ended August 31, 2004 of 450,000.







The following table provides details regarding stock options exercised by the Named Executive Officers during the financial year ended August 31, 2004 and year-end option values.


Aggregated Option Exercises During the Financial Year Ended August 31, 2004

and Year-End Option Values


     



Unexercised Options at August 31, 2004


Value of Unexercised in-the-money Options at August 31, 2004 (1)




Name


Securities Acquired on Exercise (#)


Aggregate Value Realized ($)



Exercisable

(#)



Unexercisable

(#)



Exercisable ($)



Unexercisable ($)


Geir Liland


Nil


Nil


100,000


Nil


39,000


Nil


Peter Kruczko


Nil


Nil


Nil


Nil


Nil


Nil

________________

(1)

Calculated using the closing price of the Common Shares on the TSX Venture Exchange on August 31, 2004 of $0.54 less the exercise price of in-the-money stock options.  These options have not been, and may never be, exercised and actual gains, if any, on exercise will depend on the value of the Common Shares on the date of exercise.


Employment Agreements


The Company and its subsidiaries have no compensatory plans or arrangements with respect to the Named Executive Officers that results or will result from the resignation, retirement or any other termination of employment of such officers’ employment with the Company and its subsidiaries, from a change of control of the Company and its subsidiaries or a change in the Named Executive Officers’ responsibilities following a change of control.


Compensation of Directors


Directors were not paid any fees in their capacity as directors of the Company during the financial year ended August 31, 2004.  During the financial year ended August 31, 2004, the Company granted options to purchase an aggregate of 350,000 Common Shares to its three directors at an exercise price of $0.15 per share which expire on January 13, 2005.  Subsequent to the financial year ended August 31, 2004 and in connection with the Silver Wheaton Transaction (see “Interest of Informed Persons in Material Transactions” below), a new board of directors was appointed.  The new board is currently investigating the issue of director compensation.


Directors’ and Officers’ Liability Insurance


The Company has purchased, for the benefit of the Company, its subsidiaries and their directors and officers, insurance against liability incurred by the directors or officers in their capacity as directors or officers of the Company or any subsidiary.  The following are particulars of such insurance:


(a)

the total amount of insurance is US$10,000,000 and, subject to the deductible portion referred to below, up to the full face amount of the policy is payable, regardless of the number of directors and officers involved;

(b)

the annual premium is US$58,000.  The policy does not specify that a part of the premium is paid in respect of either directors as a group or officers as a group; and

(c)

the policy provides for deductibles as follows:

(i)

with respect to the directors and officers there is no deductible applicable; and

(ii)

with respect to reimbursement of the Company there is a deductible per claim of US$150,000 for securities claims and US$100,000 for all other claims.


Statement of Corporate Governance Practices


The Company and the Board recognize the importance of corporate governance to the effective management of the Company and to the protection of its employees and shareholders.  The Company’s approach to significant issues of corporate governance is designed with a view to ensuring that the business and affairs of the Company are effectively managed so as to enhance shareholder value.


The Company’s corporate governance practices are in compliance with applicable Canadian requirements.  The Company continues to monitor developments in Canada with a view to further revising its governance policies and practices, as appropriate.


The Company’s disclosure addressing each of the Toronto Stock Exchange’s corporate governance guidelines is attached as Schedule “A” to this management information circular.  This disclosure statement, including Schedule “A”, has been prepared by the Corporate Governance and Nominating Committee of the Board and has been approved by the Board.


Equity Compensation Plan Information


The following table provides details of compensation arrangements under which equity securities of the Company are authorized for issuance as of the financial year ended August 31, 2004.






Plan Category


Number of securities to be issued upon exercise of outstanding options, warrants and rights



Weighted-average price of outstanding options, warrants and rights


Number of securities remaining available for future issuance under equity compensation plans

Equity compensation plans approved by securityholders

Nil

N/A

N/A

Equity compensation plans not approved by securityholders

350,000 (1)

$0.15

Nil

Total

350,000

$0.15

Nil

_______________

(1)

An aggregate of 200,000 of these options were exercised subsequent to the financial year ended August 31, 2004.


Indebtedness of Directors, Executive Officers and Senior Officers


As at November 10, 2004, no director, executive officer or employee of the Company or any of its subsidiaries, or former director, executive officer or employee of the Company was indebted to the Company or any of its subsidiaries, nor were any of these individuals indebted to another entity which indebtedness was the subject of a guarantee, support agreement, letter of credit or similar arrangement or undertaking provided by the Company or any of its subsidiaries.


Interest of Informed Persons in Material Transactions


Other than as described below and elsewhere in this management information circular, since the commencement of the Company’s last completed financial year, no informed person of the Company, nominee for election as a director of the Company, or any associate or affiliate of an informed person or nominee, has or had any material interest, direct or indirect, in any transaction or any proposed transaction which has materially affected or will materially affect the Company or any of its subsidiaries.


On October 15, 2004, the Company completed the purchase of 100% of the silver produced by Wheaton River Minerals Ltd.’s (“Wheaton River”) Luismin mining operations in Mexico for an upfront payment of $46 million in cash and 540 million Common Shares plus a payment of US$3.90 per ounce of delivered refined silver, subject to adjustment (the “Silver Wheaton Transaction”).


In connection with the Silver Wheaton Transaction, the Company entered into an administration and management services agreement (the “Services Agreement”) with Wheaton River whereby the Company has agreed to reimburse Wheaton River for its office facilities and the services of its personnel.  The Company will pay a monthly fee of $65,000 to Wheaton River under the Services Agreement.  A director of the Company (Ian Telfer) is Chairman and Chief Executive Officer of Wheaton River; the Interim Chief Executive Officer of the Company (Eduardo Luna) is Executive Vice President and a director of Wheaton River; and the Executive Vice President and Chief Financial Officer of the Company (Peter Barnes) is Executive Vice President and Chief Financial Officer of Wheaton River.


Election of Directors


The Company’s Articles of Incorporation and the ABCA provide that the Board consist of a minimum of three and a maximum of ten directors.  The Board currently consists of four directors.  It is proposed to fix the number of directors for the following year at five.  Each director will hold office until the close of the first annual meeting of shareholder of the Company following his election or until his successor is duly elected unless his office is earlier vacated in accordance with the by-laws of the Company.


At the Meeting, the five persons named hereunder will be proposed for election as directors of the Company (the “Nominees”).  Unless authority to do so is withheld, the persons named in the accompanying proxy intend to vote for the election of the Nominees.  Management does not contemplate that any of the Nominees will be unable to serve as a director, but if that should occur for any reason prior to the Meeting, it is intended that discretionary authority shall be exercised by the persons named in the accompanying proxy to vote the proxy for the election of any other person or persons in place of any Nominee or Nominees unable to serve.

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