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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 UNDER
THE SECURITIES EXCHANGE ACT OF 1934
For the month of OCTOBER , 2002.
----------------
VHQ ENTERTAINMENT INC.
- --------------------------------------------------------------------------------
(Translation of registrant's name into English)
6201 - 46th Avenue, Red Deer, Alberta Canada T4N 6Z1
- --------------------------------------------------------------------------------
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual
reports under cover of Form 20-F or Form 40-F:
Form 20-F X Form 40-F
------- --------
Indicate by check mark if the registrant is submitting the Form 6-K in
paper as permitted by Regulation S-T Rule 101(b)(1): _______
Note: Regulation S-T Rule 101(b)(1) only permits the submission in
paper of a Form 6-K if submitted solely to provide an attached annual report to
security holders.
Indicate by check mark if the registrant is submitting the Form 6-K in
paper as permitted by Regulation S-T Rule 101(b)(7): _______
Note: Regulation S-T Rule 101(b)(7) only permits the submission in
paper of a Form 6-K if submitted to furnish a report or other document that the
registrant foreign private issuer must furnish and make public under the laws of
the jurisdiction in which the registrant is incorporated, domiciled or legally
organized (the registrant's "home country"), or under the rules of the home
country exchange on which the registrant's securities are traded, as long as the
report or other document is not a press release, is not required to be and has
not been distributed to the registrant's security holders, and, if discussing a
material event, has already been the subject of a Form 6-K submission or other
Commission filing on EDGAR.
<page>
Indicate by check mark whether by furnishing the information contained
in this Form, the registrant is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes No X
------- -------
If "Yes" is marked, indicate below the file number assigned to the
registrant in connection with Rule 12g3-2(b): 82-_____________
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf of the
undersigned, thereunto duly authorized.
VHQ ENTERTAINMENT INC.
------------------------------------
(Registrant)
Date December 2, 2002 By /s/ TREVOR M. HILLMAN
------------------- ---------------------------------
(Signature)1
Trevor M. Hillman
Chief Executive Officer
- --------
1 Print the name and title of the signing officer under his signature.
[VHQ WHERE ENTERTAINMENT BEGINS!(TM) logo]
NOTICE OF ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON
NOVEMBER 27, 2002
INFORMATION CIRCULAR
DATED OCTOBER 18, 2002
<page>
TABLE OF CONTENTS
NOTICE OF ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS...........................1
INFORMATION CIRCULAR...........................................................2
PROXIES........................................................................2
Solicitation of Proxies.....................................................2
Revocability of Proxy.......................................................2
Advice to Beneficial Shareholders...........................................3
Persons Making The Solicitation.............................................3
Exercise of Discretion by Proxy.............................................3
INFORMATION CONCERNING THE CORPORATION.........................................4
Voting Shares and Principal Holders Thereof.................................4
Executive Compensation......................................................4
Composition of Compensation Committee....................................4
Report on Executive Compensation.........................................5
Compensation of Executive Officers.......................................5
Employment Contracts/Compensation in the Event of
Termination of Change of Control......................................7
Compensation of Directors................................................8
Performance Graph........................................................8
Indebtedness of Directors and Officers......................................9
Interests of Insiders in Material Transactions..............................9
Interest of Certain Persons in Matters to Be Acted Upon....................10
Stock Options..............................................................10
Employee Share Ownership Plan..............................................11
PARTICULARS OF MATTERS TO BE ACTED UPON AT MEETING............................12
Financial Statements.......................................................12
Fix Number of Directors....................................................12
Election of Directors......................................................12
Appointment of Auditors....................................................14
Advance Approval of the Issuance of Common Shares..........................14
Other Matters to Be Acted Upon.............................................16
CORPORATE GOVERNANCE..........................................................16
Mandate of the Board.......................................................16
Composition of the Board/Unrelated Directors/
Significant Shareholders................................................17
Nominating Committee.......................................................17
Assessment of Board, Committees and Individual Directors...................18
Orientation and Education Program..........................................18
Size of Board..............................................................18
Compensation of Directors..................................................18
Composition of Committees..................................................18
Corporate Governance.......................................................19
Mandate of the Chief Executive Officer.....................................19
Independence of the Board..................................................19
Engagement of Outside Advisors.............................................20
BOARD APPROVAL................................................................21
CERTIFICATE...................................................................21
<page>
1
VHQ ENTERTAINMENT INC.
NOTICE OF ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS
TO: THE SHAREHOLDERS OF VHQ ENTERTAINMENT INC.
TAKE NOTICE that an Annual and Special Meeting (the "Meeting") of the holders of
common shares of VHQ Entertainment Inc. (the "Corporation") will be held at the
Famous Players Park Plaza Theatre, 5214 - 47th Avenue, Red Deer, Alberta, on
November 27, 2002. There will be a "meet and greet" from 6:30 to 7:00 p.m. and
the Meeting will be held from 7:00 to 8:00 p.m., with a special movie
presentation to follow at 8:00 p.m. The Meeting is to be held for the following
purposes:
1. to receive and consider the consolidated financial statements of the
Corporation for the financial year ended May 31, 2002 and the auditors'
report thereon;
2. to fix the number of directors to be elected at the Meeting at not more
than five (5);
3. to elect directors of the Corporation for the ensuing year;
4. to re-appoint Collins Barrow as the auditors of the Corporation for the
ensuing year and to authorize the directors to fix their remuneration
as such;
5. to approve, by way of ordinary resolution, the issuance by the
Corporation, in one or more private placements, of such number of
securities of the Corporation that could result in the Corporation
making issuable in any six-month period during the next twelve months,
an amount of common shares of the Corporation equal to up to 12,538,559
common shares, or approximately 100% of the issued and outstanding
common shares as at October 18, 2002; and
6. to transact such other business as may properly be brought before the
Meeting or any adjournment thereof.
The specific details of the matters proposed to be put before the Meeting are
set forth in the Information Circular - Proxy Statement accompanying and forming
part of this Notice.
SHAREHOLDERS OF THE CORPORATION WHO ARE UNABLE TO ATTEND THE MEETING IN PERSON
ARE REQUESTED TO DATE AND SIGN THE ENCLOSED INSTRUMENT OF PROXY AND TO MAIL IT
TO OR DEPOSIT IT WITH THE CORPORATION, C/O COMPUTERSHARE TRUST COMPANY OF
CANADA, CORPORATE TRUST DEPARTMENT, 6TH FLOOR, 530 - 8TH AVENUE S.W., CALGARY,
ALBERTA T2P 3S8. IN ORDER TO BE VALID AND ACTED UPON AT THE MEETING, PROXIES
MUST BE RETURNED TO THE AFORESAID ADDRESS NOT LESS THAN 48 HOURS (EXCLUDING
SATURDAYS, SUNDAYS AND HOLIDAYS) BEFORE THE TIME SET FOR THE HOLDING OF THE
MEETING OR ANY ADJOURNMENT THEREOF.
SHAREHOLDERS ARE CAUTIONED THAT THE USE OF MAIL SERVICE TO TRANSMIT PROXIES IS
AT EACH SHAREHOLDER'S RISK.
The Board of Directors of the Corporation has fixed the record date for the
Meeting at the close of business on October 17, 2002 (the "Record Date"). Only
shareholders of the Corporation of record as at that date are entitled to
receive notice of the Meeting. Shareholders of record will be entitled to vote
those shares owned as at the Record Date, unless any such shareholder transfers
such shareholders shares after the Record Date and the transferee of those
shares establishes that the transferee owns the shares and demands, not later
than the close of business on November 17 2002 (10 days before the Meeting) that
the transferee's name be included in the list of shareholders entitled to vote
at the Meeting, in which case such transferee shall be entitled to vote such
shares at the Meeting.
DATED at Red Deer, Alberta, this 18th day of October, 2002.
BY ORDER OF THE BOARD OF DIRECTORS
"TREVOR M. HILLMAN"
- ------------------------------------------
TREVOR M. HILLMAN
CHIEF EXECUTIVE OFFICER AND DIRECTOR
<page>
2
VHQ ENTERTAINMENT INC.
INFORMATION CIRCULAR - PROXY STATEMENT
FOR THE ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON NOVEMBER 27, 2002
================================================================================
PROXIES
SOLICITATION OF PROXIES
This Information Circular - Proxy Statement is furnished in connection with the
solicitation of proxies by the management of VHQ Entertainment Inc. (the
"Corporation") for use at the Annual and Special Meeting of the holders (the
"Shareholders") of common shares (the "Common Shares") of the Corporation (the
"Meeting") and at any adjournment thereof, for the purposes set forth in the
enclosed Notice of Annual and Special Meeting. The Meeting will be held at the
Famous Players Park Plaza Theatre, 5214 - 47th Avenue, Red Deer, Alberta, on
November 27, 2002. There will be a "meet and greet" from 6:30 to 7:00 p.m. and
the Meeting will take place from 7:00 to 8:00 p.m. (Red Deer time), with a
special movie presentation to follow at 8:00 p.m. Instruments of proxy must be
received by the Corporation c/o Computershare Trust Company Canada, Corporate
Trust Department, 6th Floor, 530 - 8th Avenue S.W., Calgary, Alberta, T2P 3S8
not less than 48 hours (excluding Saturdays, Sundays and holidays) before the
time for the holding of the Meeting or any adjournment thereof. The Board of
Directors of the Corporation has fixed the record date for the Meeting at the
close of business on October 17, 2002 (the "Record Date"). Only Shareholders of
the Corporation of record as at that date are entitled to receive notice of the
Meeting. Shareholders of record will be entitled to vote those Common Shares
owned as at the Record Date, unless any such Shareholder transfers such
Shareholders Common Shares after the Record Date and the transferee of those
Common Shares establishes that the transferee owns the Common Shares and
demands, not later than the close of business on November 17, 2002 (10 days
before the Meeting) that the transferee's name be included in the list of
Shareholders entitled to vote at the Meeting, in which case such transferee
shall be entitled to vote such Common Shares at the Meeting.
The instrument appointing a proxy must be in writing and must be executed by the
Shareholder or his attorney duly authorized in writing or, if the Shareholder is
a corporation, under its corporate seal or by an officer or attorney thereof
duly authorized.
THE PERSONS NAMED IN THE ENCLOSED FORM OF PROXY ARE DIRECTORS AND/OR OFFICERS OF
THE CORPORATION. EACH SHAREHOLDER HAS THE RIGHT TO APPOINT A PROXYHOLDER OTHER
THAN THE PERSONS SO DESIGNATED, WHO NEED NOT BE A SHAREHOLDER, TO ATTEND AND TO
ACT FOR SUCH SHAREHOLDER AND ON SUCH SHAREHOLDER'S BEHALF AT THE MEETING. TO
EXERCISE SUCH RIGHT, THE NAMES OF THE NOMINEES OF MANAGEMENT SHOULD BE CROSSED
OUT AND THE NAME OF THE SHAREHOLDER'S APPOINTEE SHOULD BE LEGIBLY PRINTED IN THE
BLANK SPACE PROVIDED.
REVOCABILITY OF PROXY
A Shareholder who has submitted a proxy may revoke it at any time prior to the
exercise thereof. If a person who has given a proxy attends personally at the
Meeting at which such proxy is to be voted, such person may
<page>
3
revoke the proxy and vote in person. In addition to revocation in any other
manner permitted by law, a proxy may be revoked by instrument in writing
executed by the Shareholder or such Shareholder's attorney authorized in writing
or, if the Shareholder is a corporation, under its corporate seal or by an
officer or attorney thereof duly authorized and deposited either at the
registered office of the Corporation at any time up to and including the
business day preceding the day of the Meeting, or any adjournment thereof, at
which the proxy is to be used, or with the Chairman of the Meeting on the day of
the Meeting, or any adjournment thereof, and upon either of such deposits, the
proxy is revoked.
ADVICE TO BENEFICIAL SHAREHOLDERS
The information set forth in this section is of significant importance to many
Shareholders, as a substantial number of Shareholders do not hold Common Shares
in their own name. Shareholders who do not hold their Common Shares in their
names (referred to in this Information Circular as "Beneficial Shareholders")
should note that only proxies deposited by Shareholders whose names appear on
the records of the Corporation as the registered holders of Common Shares can be
recognized and acted upon at the Meeting. If Common Shares are listed in an
account statement provided to a Shareholder by a broker, then in almost all
cases those Common Shares will not be registered in the Shareholder's name on
the records of the Corporation. Such Common Shares will more likely be
registered under the name of the Shareholder's broker or an agent of that
broker. Common Shares held by brokers or their nominees can only be voted (for
or against resolutions) upon the instructions of the Beneficial Shareholder.
Without specific instructions, brokers and nominees are prohibited from voting
Common Shares for their clients.
Applicable regulatory policy requires intermediaries and brokers to seek voting
instructions from Beneficial Shareholders in advance of Shareholders' meetings.
Every intermediary and broker has its own mailing procedures and provides its
own return instructions, which should be carefully followed by Beneficial
Shareholders in order to ensure that their Common Shares are voted at the
Meeting. Often, the form of proxy supplied to a Beneficial Shareholder by its
broker is identical to the form of proxy provided to registered Shareholders;
however, its purpose is limited to instructing the registered Shareholder how to
vote on behalf of the Beneficial Shareholder. A Beneficial Shareholder receiving
a proxy from an intermediary or broker cannot use that proxy to vote Common
Shares directly at the Meeting; rather, the proxy must be returned to the
intermediary or broker well in advance of the Meeting in order to have the
Common Shares voted.
PERSONS MAKING THE SOLICITATION
THIS SOLICITATION IS MADE ON BEHALF OF THE MANAGEMENT OF THE CORPORATION. The
costs incurred in the preparation and mailing of the Instrument of Proxy, Notice
of Annual and Special Meeting and this Information Circular - Proxy Statement
will be borne by the Corporation. In addition to solicitation by mail, proxies
may be solicited by personal interviews, telephone or other means of
communication and by directors, officers and employees of the Corporation, who
will not be specifically remunerated therefor.
EXERCISE OF DISCRETION BY PROXY
The Common Shares represented by the enclosed instrument of proxy will be voted
or withheld from voting in accordance with the instructions of the Shareholder.
THE PERSONS APPOINTED UNDER THE ENCLOSED FORM OF PROXY ARE CONFERRED WITH
DISCRETIONARY AUTHORITY WITH RESPECT TO AMENDMENTS OR VARIATIONS OF THOSE
MATTERS SPECIFIED IN THE PROXY AND NOTICE OF ANNUAL AND SPECIAL MEETING AND WITH
RESPECT TO ANY OTHER MATTERS WHICH MAY PROPERLY BE BROUGHT BEFORE THE MEETING OR
ANY ADJOURNMENT THEREOF, IN ACCORDANCE WITH THEIR BEST JUDGEMENT. AT THE TIME OF
PRINTING THIS INFORMATION CIRCULAR - PROXY STATEMENT, THE MANAGEMENT OF THE
CORPORATION KNEW OF NO SUCH AMENDMENT, VARIATION, OR OTHER MATTER.
<page>
4
UNLESS OTHERWISE SPECIFIED, PROXIES IN THE ACCOMPANYING FORM WILL BE VOTED IN
FAVOUR OF:
1. FIXING THE NUMBER OF DIRECTORS TO BE ELECTED AT THE MEETING AT NOT MORE
THAN FIVE (5);
2. ELECTING THE NOMINEES, HEREINAFTER SET FORTH, AS DIRECTORS OF THE
CORPORATION (PROVIDED THAT IN THE EVENT THAT A VACANCY AMONG SUCH
NOMINEES OCCURS BECAUSE OF DEATH OR FOR ANY OTHER REASON PRIOR TO THE
MEETING, PROXIES SHALL NOT BE VOTED WITH RESPECT TO SUCH VACANCY);
3. RE-APPOINTING COLLINS BARROW, CHARTERED ACCOUNTANTS AS AUDITORS OF THE
CORPORATION; AND
4. APPROVING OF THE ISSUANCE BY THE CORPORATION OF UP TO 12,538,559 COMMON
SHARES, OR 100% OF THE ISSUED AND OUTSTANDING COMMON SHARES AS AT
OCTOBER 18, 2002, BY WAY OF PRIVATE PLACEMENT.
INFORMATION CONCERNING THE CORPORATION
VOTING SHARES AND PRINCIPAL HOLDERS THEREOF
As at October 18, 2002, 12,538,559 Common Shares of the Corporation were issued
and outstanding, each such share carrying the right to one vote on a ballot at
the Meeting. The close of business on October 17, 2002, is the record date for
the determination of holders of Common Shares who are entitled to notice of, and
to attend and vote at, the Meeting. Any transferee or person acquiring Common
Shares after such date may, on proof of ownership of Common Shares, demand not
later than 10 days before the Meeting that such transferees name be included in
the list of persons entitled to attend and vote at the Meeting. A quorum for the
transaction of business at the Meeting is not less than two (2) persons present
holding or representing not less than 5% of the shares entitled to be voted at
the Meeting.
To the knowledge of the directors and senior officers of the Corporation, as at
October 18, 2002, no person or company beneficially owned, directly or
indirectly, or exercised control or direction over, voting securities of the
Corporation carrying more than 10% of the voting rights attached to any class of
voting securities of the Corporation except as set out below:
<table>
<caption>
- ------------------------------------------------------------------------------------------------
SHAREHOLDER AND
MUNICIPALITY NUMBER OF COMMON PERCENTAGE OF
OF RESIDENCE TYPE OF OWNERSHIP SHARES COMMON SHARES
- ------------------------------------------------------------------------------------------------
<s>
Trevor M. Hillman (1) Beneficial 2,674,730 21.3%
Red Deer, Alberta
- ------------------------------------------------------------------------------------------------
</table>
Note: (1) This does not include 437,500 Common Shares issuable pursuant to
stock options granted to Trevor M. Hillman as a director and officer
of the Corporation. See "Stock Options".
EXECUTIVE COMPENSATION
COMPOSITION OF COMPENSATION COMMITTEE
The composition of the Compensation Committee (the "Committee") of the Board of
Directors of the Corporation currently consists of Catherine J. McDonough and
Peter A. Lacey. Mr. Lacey is the Chairman of the Compensation Committee.
Each of the members of the Compensation Committee, as directors of the
Corporation, have received options to purchase Common Shares pursuant to the
Corporation's Stock Option Plan. See "Stock Options". Further, outside directors
who are members of the Compensation Committee receive a fee of $500 for
attending
<page>
5
meetings of the Board of Directors. Note that directors are not paid a fee for
attending meetings of committees of the Board of Directors such as meetings of
the Compensation Committee or Audit Committee. See "Directors".
REPORT ON EXECUTIVE COMPENSATION
It is the task of the Committee to periodically review the compensation
structure of the Corporation with respect to its executive officers to ensure
that the Corporation continues to attract and retain quality and experienced
individuals to its management team and to motivate these individuals to perform
to the best of their ability and in the best interests of the Corporation. The
Committee makes recommendations with respect to the compensation of the
executive officers to the Board of Directors, which gives final approval with
respect to any executive compensation matters and issues.
The Corporation's policy with respect to the compensation of executive officers
is to establish annual goals with respect to corporate development and the
individual area of responsibility of the particular executive officer and then
review total compensation with respect to the achievement of these goals. The
key components of executive officer compensation are salaries, bonuses and stock
options.
It is the policy of the Corporation that the base salaries and bonuses paid to
its executive officers, in addition to the criteria set out above, reflect the
success of the Corporation in achieving the prior year's goals as well as the
individual responsibility and experience of the executive officer and the
contribution that is expected from the executive officer. Base salaries and
bonuses are reviewed by the Committee on an annual basis to ensure that these
criteria are satisfied.
Stock options under the Corporation's stock option plan are granted by the Board
of Directors to executive officers from time to time as a long term performance
incentive.
The base salary payable, bonuses issued and stock options granted to the Chief
Executive Officer of the Corporation are based upon the same criteria as set out
above with respect to the remaining executive officers of the Corporation.
COMPENSATION OF EXECUTIVE OFFICERS
The aggregate compensation paid to all our executive officers in the fiscal year
ended May 31, 2002 was $815,565. The following table sets forth compensation
information for Mr. Trevor M. Hillman, our Chairman and Chief Executive Officer,
Mr. Gregg C. Johnson, our President and Chief Operating Officer, Ayaz Kara, our
Vice President, Business Development, and Timothy J. Sebastian, our Secretary
and former General Counsel, for the periods indicated. We are not required to
disclose and do not publicly disclose the compensation of any executive officer
unless such officer received a combined base salary and bonus of more than
$100,000 during the fiscal year ended May 31, 2002.
<table>
<caption>
- ------------------------------------------------------------------------------------------------------------------------
Long Term
Compensation
- ------------------------------------------------------------------------------------------------------------------------
Annual Compensation Awards
- ------------------------------------------------------------------------------------------------------------------------
Other Annual
Name and Principal Fiscal Salary Compensation Securities Under All Other
Position Year ($) Bonus ($) ($)(1) Options($)(2) Compensation ($)(3)
- ------------------------------------------------------------------------------------------------------------------------
<s>
Trevor M. Hillman 2002 139,705 Nil 16,884 200,000 Nil
- ------------------------------------------------------------------------------------------------------------------------
</table>
<page>
6
<table>
<caption>
- ------------------------------------------------------------------------------------------------------------------------
Long Term
Compensation
- ------------------------------------------------------------------------------------------------------------------------
Annual Compensation Awards
- ------------------------------------------------------------------------------------------------------------------------
Other Annual
Name and Principal Fiscal Salary Compensation Securities Under All Other
Position Year ($) Bonus ($) ($)(1) Options($)(2) Compensation ($)(3)
- ------------------------------------------------------------------------------------------------------------------------
<s>
Chairman and Chief 2001 102,935 Nil 10,900 Nil Nil
Executive Officer
----------------------------------------------------------------------------------------------
2000 73,799 17,500 7,908 237,500 Nil
- ------------------------------------------------------------------------------------------------------------------------
Gregg C. Johnson 2002 139,705 Nil 6,000 200,000 Nil
President and Chief
Operating Officer
----------------------------------------------------------------------------------------------
2001 58,541 Nil Nil Nil Nil
----------------------------------------------------------------------------------------------
2000 26,110 Nil Nil 187,500 Nil
- ------------------------------------------------------------------------------------------------------------------------
Ayaz Kara 2002 50,753 57,954 Nil Nil Nil
Vice President,
Business Development
----------------------------------------------------------------------------------------------
2001 50,753 42,586 Nil 75,000 Nil
----------------------------------------------------------------------------------------------
2000 50,753 28,021 Nil Nil Nil
- ------------------------------------------------------------------------------------------------------------------------
Timothy J. Sebastian, 2002 104,376 Nil Nil 75,000 Nil
Secretary
----------------------------------------------------------------------------------------------
2001 86,251 Nil Nil Nil Nil
----------------------------------------------------------------------------------------------
2000 Nil Nil Nil Nil Nil
- ------------------------------------------------------------------------------------------------------------------------
</table>
(1) Relates to vehicle allowances.
(2) See the two tables below.
(3) Perquisites and other personal benefits do not exceed the lesser of
$50,000 and 10% of the annual salary.
The following table details information with respect to the grant of stock
options to Trevor M. Hillman, Gregg C. Johnson, Ayaz Kara, Marc L. Gignac and
Timothy J. Sebastian during the fiscal year ended May 31, 2002.
<table>
<caption>
- ------------------------------------------------------------------------------------------------------------------------
Market Value of
% of Total Securities
Securities Options Granted Exercise or Underlying Options
Name Under Option to Employees in Base Price on the Date of Expiration Date
Granted (#) Financial Year ($/Security) Grant ($/Security)
- ------------------------------------------------------------------------------------------------------------------------
<s>
Trevor M. Hillman 200,000 26.05 $1.80 $1.80 November 30, 2006
- ------------------------------------------------------------------------------------------------------------------------
Gregg C. Johnson 200,000 26.05 $1.80 $1.80 November 30, 2006
- ------------------------------------------------------------------------------------------------------------------------
Marc L. Gignac Nil N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------------
Ayaz Kara Nil N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------------
Timothy J. Sebastian 75,000 9.77% $1.80 $1.80 November 30, 2006
- ------------------------------------------------------------------------------------------------------------------------
</table>
The following table sets forth information with respect to all options exercised
by Trevor M. Hillman, Gregg C. Johnson, Ayaz Kara, Marc L. Gignac and Timothy J.
Sebastian during our most recently completed
<page>
7
fiscal year and all options held and outstanding by them on May 31, 2002.
<table>
<caption>
- --------------------------------------------------------------------------------------------------------------------------
Securities
Acquired on Aggregate Unexercised Options at Value of Unexercised in
Exercise Value Realized Financial Year End the Money Options at
Name (#) ($) (#) Financial Year End (1)<F1>
- --------------------------------------------------------------------------------------------------------------------------
<s>
Trevor M. Hillman Nil Nil 437,500 exercisable, Nil exercisable,
Nil unexercisable Nil unexercisable
- --------------------------------------------------------------------------------------------------------------------------
Gregg C. Johnson Nil Nil 387,500 exercisable, Nil exercisable,
Nil unexercisable Nil unexercisable
- --------------------------------------------------------------------------------------------------------------------------
Marc Gignac Nil Nil 75,000 exercisable, Nil exercisable,
Nil unexercisable Nil unexercisable
- --------------------------------------------------------------------------------------------------------------------------
Ayaz Kara Nil Nil 75,000 exercisable, Nil exercisable,
Nil unexercisable Nil unexercisable
- --------------------------------------------------------------------------------------------------------------------------
Timothy J. Sebastian Nil Nil 75,000 exercisable, Nil exercisable,
Nil unexercisable Nil unexercisable
- --------------------------------------------------------------------------------------------------------------------------
<FN>
(1)<F1> This amount was determined by multiplying the number of Common Shares
issuable under such options by the closing price of the Common Shares
on the TSX on May 31, 2002 ($0.85) and subtracting therefrom the
product of the number of such Common Shares and the exercise price
thereof.
</FN>
</table>
EMPLOYMENT CONTRACTS / COMPENSATION IN THE EVENT OF TERMINATION OF CHANGE OF
CONTROL
Trevor Hillman, Chief Executive Officer, Chairman of the Board and a
Director
We have a services agreement with TMH Holdings Ltd. ("TMH") for the services of
Trevor M. Hillman as our Chairman and Chief Executive Officer. Pursuant to the
agreement, we agreed to pay annually to TMH the greater of $60,000 and an amount
equal to 0.5% of the gross sales actually achieved by us during each fiscal year
provided that our earnings before interest, taxes, depreciation and amortization
exceeds 11% on an annualized basis.
The contract commenced on April 1, 2001 and ends on December 31, 2004 unless
terminated earlier in accordance with the agreement. We may terminate the
agreement at any time for cause without payment of any compensation either by
way of anticipated earnings or damages. The agreement may not otherwise be
terminated earlier by us without the consent of TMH. In the event of a change of
control of VHQ Entertainment, as defined in the agreement, TMH has the right to
terminate the agreement and be paid an amount equal to three times the highest
annual amount we paid to TMH during the three years prior to the change of
control.
Gregg C. Johnson, President, Chief Operating Officer and a Director
We have a services agreement with Summit Capital Corporation ("Summit") for the
services of Gregg C. Johnson as our President and Chief Operating Officer.
Pursuant to the agreement, we agreed to pay annually to Summit the greater of
$60,000 and an amount equal to 0.5% of the gross sales actually achieved by us
during each fiscal year provided that our earnings before interest, taxes,
depreciation and amortization exceeds 11% on an annualized basis.
<page>
8
The contract commenced on April 1, 2001 and ends on December 31, 2004 unless
terminated earlier in accordance with the agreement. We may terminate the
agreement at any time for cause without payment of any compensation either by
way of anticipated earnings or damages. The agreement may not otherwise be
terminated earlier by us without the consent of Summit. In the event of a change
of control of VHQ Entertainment, as defined in the agreement, Summit has the
right to terminate the agreement and be paid an amount equal to three times the
highest annual amount we paid to Summit during the three years prior to the
change of control.
Marc Gignac, Director of Operations, Saskatchewan
We have an employment contract with Marc Gignac for his services as our Director
of Operations, Saskatchewan. Pursuant to the agreement, we agreed to pay
annually to Marc Gignac $50,000 plus a quarterly bonus of 1% of gross sales
generated by our subsidiary, Star Vision Enterprises Ltd.
The agreement commenced on December 1, 1999 and is for a term of three years
unless terminated earlier in accordance with the agreement. The agreement may be
terminated by us at any time for cause without payment of any compensation
either by way of anticipated earnings or damages. If the agreement is terminated
earlier by us without cause, Marc Gignac is entitled to 12 months notice or 12
months salary in lieu of notice. There are no change of control provisions in
the agreement.
COMPENSATION OF DIRECTORS
We have five directors. Directors who are not also executive officers receive
$500 per meeting to a maximum of six meetings per year.
Our directors (including directors who are also executive officers) hold
outstanding options to purchase a total of 1,185,000 of our Common Shares. See
"Stock Options".
PERFORMANCE GRAPH
The following performance graph compares the yearly increase/decrease in the
Corporation's cumulative total Shareholder return on Common Shares since June 9,
1998 (the date the Common Shares commenced trading on a recognized Canadian
exchange), with the cumulative total Shareholder return on the TSE 300 Index and
the TSE Merchandising - Specialty Stores Index, assuming the reinvestment of
dividends, where applicable, for a comparable period.
[PERFORMANCE GRAPH]
<page>
9
<table>
<caption>
- ------------------------------------------------------------------------------------------------------------------
MAY 31
------------------------------------------------------
INDEX JUNE 9, 1998 1999 2000 2001 2002
- ----------------------------------------------------------- ------------- ------------- ------------ -------------
<s>
VHQ Entertainment Inc. $100.00 $226.56 $656.25 $343.75 $132.81
($0.64) ($1.45) ($4.20) ($2.20) ($0.85)
- ------------------------------------------------------------------------------------------------------------------
TSE 300 Index $100.00 $90.79 $126.77 $108.31 $101.60
(7535.43) (6841.80) (9251.99) (8161.87) (7656.13)
- ------------------------------------------------------------------------------------------------------------------
TSE Merchandising - Specialty Stores Index $100.00 $94.40 $51.22 $61.64 $94.18
(2393.05) (2259.18) (1225.91) (1475.08) (2253.89)
- ------------------------------------------------------------------------------------------------------------------
</table>
INDEBTEDNESS OF DIRECTORS AND OFFICERS
No individual who is, or at any time during the most recently completed
financial year of the Corporation was, a director, executive officer or senior
officer of the Corporation, nor any proposed nominee for election as a director
of the Corporation, nor any associate of any one of them:
a. is, or at any time since the beginning of the most recently completed
financial year of the Corporation has been, indebted to the Corporation
or any of its subsidiaries; or
b. was indebted to another entity, which such indebtedness is, or was at
any time during the most recently completed financial year of the
Corporation, the subject of a guarantee, support agreement, letter of
credit or other similar arrangement or understanding provided by the
Corporation or any of its subsidiaries.
INTERESTS OF INSIDERS IN MATERIAL TRANSACTIONS
None of the Corporation's insiders, proposed nominees for election as directors
of the Corporation or their associates and affiliates, has any material interest
in any transaction with the Corporation since the commencement of the
Corporation's last financial year which has not been previously disclosed in an
information circular of the Corporation except as follows.
1. We lease our principal office and warehouse facility in Red Deer,
Alberta from G&J Holdings Inc., a company controlled by Gordon Hillman,
the father of Trevor H. Hillman. At the time the lease was entered
into, Trevor M. Hillman was our President, Chief Executive Officer and
a Director. The lease is for a five year term commencing March 27,
1998. The rent payable was $3,723.96 per month in the first year and
increases by increments to $4,869.79 per month in the fifth year. We
are also responsible for operational costs under the lease. The lease
is renewable for two further five year terms under the same terms and
conditions and at a rental rate based on a current rental market in Red
Deer, Alberta.
2. We lease one of our retail locations in Saskatoon, Saskatchewan from a
company in which Marc Gignac and his spouse have a combined 50%
beneficial interest. At the time the lease was entered into, Marc
Gignac was our Director of Operations, Saskatchewan and a Director. The
lease is for a five year term commencing January 1, 2002. The rent
payable is $5,082 per month in the first two years and $5,505 per month
in the last three years. We are also responsible for operational costs
under the lease. The lease is renewable for one further five year term
under the same terms and conditions and at a rental rate based on a
current rental market in Saskatoon, Saskatchewan.
<page>
10
3. In January 2000, we completed a revenue sharing agreement whereby we
sold certain capital assets of Integrated Retail to Video LP. Holders
of the Video LP units included the following insiders of VHQ
Entertainment: Peter Lacey, at the time a Director of VHQ Entertainment
who beneficially owned 18.75% of the partnership units; Ayaz Kara, at
the time our Vice President, Business Development and a Director, who
beneficially owned 2.5% of the partnership units; Catherine McDonough,
a Director, who beneficially owned 2.5% of the partnership units;
Trevor Hillman, at the time our President, Chief Executive Officer and
a Director, who beneficially owned 1.25% of the partnership units;
Gregg C. Johnson, at the time our Executive Vice-President and a
Director, who beneficially owned 1.25% of the partnership units; and
Marc Gignac, at the time our Director of Operations, Saskatchewan, who
beneficially owned 1.25% of the partnership units.
Effective December 1, 2001, we acquired all of the outstanding
partnership units from the Video LP limited partners. The Video LP
limited partners had the option to receive units comprised of one
Common Share and one-half of a warrant exercisable until December 1,
2003 at $2.00 per share; or a portion of the Convertible Debenture. The
Convertible Debenture is convertible into Common Shares at $2.50 per
share for two years and $3.00 per share for the final year. As a result
of the acquisition of the Video LP units, we issued 546,336 units (each
unit comprised of 1 Common Share and 1/2 warrant) and $1,280,475
principal amount of the Convertible Debenture. Trevor Hillman received
22,764 Common Shares and 11,382 warrants; Gregg Johnson received 22,764
Common Shares and 11,382 warrants; Marc Gignac (through his holding
company) received 11,382 Common Shares and 5,691 warrants, and $17,073
principal amount of the Convertible Debenture; Peter Lacey received
45,528 Common Shares, 22,764 warrants, and $341,460 principal amount of
the Convertible Debenture; Ayaz Kara received 45,528 Common Shares and
22,764 warrants; and Catherine McDonough received 22,764 Common Shares
and 11,382 warrants.
4. On April 1, 2002, we received a loan of $200,000 from Hillman Holdings
Inc. a company controlled by Gordon Hillman, the father of Trevor H.
Hillman, our Chairman of the Board, Chief Executive Officer and a
Director. In return, we issued a promissory note in that principal
amount bearing interest at the rate of 1% for each month or portion
thereof that the principal amount remains outstanding. This promissory
note is payable on the date that is 30 days after we receive a written
demand for payment from the lender.
5. On May 6, 2002, we received a loan of $100,000 from Marc Gignac, our
Director of Operations, Saskatchewan and then a Director. In return, we
issued a promissory note in that principal amount bearing interest at
the rate of 10% per annum. The promissory note is payable in 12 equal
monthly installments of $8,771.55 commencing June 6, 2002 and ending
May 6, 2003.
INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
Other than as described elsewhere herein, none of the directors or senior
officers of the Corporation nor any of their known associates, has any
substantial interest, direct or indirect, by way of beneficial ownership of
securities or otherwise, in any matter to be acted upon at the Meeting.
STOCK OPTIONS
A maximum of 2,352,000 Common Shares may be issued on the exercise of stock
options granted pursuant to our stock option plan (the "Option Plan"). There are
two primary purposes for the Option Plan. The first is to develop the interest
of our directors, officers, employees and other persons who provide ongoing
services to us and our subsidiaries in our growth and development by providing
such persons with the opportunity to
<page>
11
acquire an increased proprietary interest in us. The second is to better enable
us and our subsidiaries to attract and retain persons of desired experience and
ability.
The Option Plan provides that the directors, subject to the price restrictions
and other requirements of the TSX and the Option Plan, shall fix the terms of
the options granted under the Option Plan. When we listed on the TSX, we amended
the Option Plan to state than the exercise price of an option may not be less
than the closing market price of the Common Shares on the TSX on the day
immediately preceding the date on which the option is granted. When we were
listed on the TSX Venture, the Option Plan allowed the exercise price of an
option to be at a discount to the market price provided that the discount was
not more than that allowed by the rules of TSX Venture. The Option Plan does not
restrict the number of Common Shares that may be issued to our directors or
officers as a group. However, the Option Plan does restrict the number of Common
Shares that may be granted to any one person pursuant to the Option Plan, and in
combination with any other share compensation arrangement, at not more than 5%
of our issued Common Shares. Options granted under the Option Plan may not be
for a period longer than 10 years.
There are currently outstanding options to purchase a total of 1,957,300 Common
Shares under the Option Plan. The following table sets forth certain information
concerning options granted pursuant to the Option Plan:
<table>
<caption>
Number of Market Price
Shares on Exercise
Group Date of Grant Under Option Date of Grant Price Expiration Date
- ----------------------- ------------------- ------------- ------------- ---------- --------------------
<s>
Executive Officers (7) January 19, 2000 550,000 $1.85 $1.51 January 19, 2005
September 20, 2000 50,000 $3.15 $2.68 September 20, 2005
November 30, 2001 635,000 $1.80 $1.80 November 30, 2006
Directors who are not January 19, 2000 200,000 $1.85 $1.51 January 19, 2005
Executive Officers (2) November 30, 2001 20,000 $1.80 $1.80 November 30, 2006
January 19, 2000 150,000 $1.85 $1.51 January 19, 2005
Employees September 20, 2000 39,800 $3.15 $2.68 September 20, 2005
November 30, 2001 62,500 $1.80 $1.80 November 30, 2006
Consultants May 10, 2002 200,000 $1.08 $1.10 May 10, 2006
---------
Total 1,907,300
---------
</table>
EMPLOYEE SHARE OWNERSHIP PLAN
A maximum of 600,000 Common Shares may be issued pursuant to our employee share
ownership plan (the "Purchase Plan"). Under the Purchase Plan, officers,
directors, consultants and certain employees may purchase Common Shares at
market prices. The purpose of the Purchase Plan is to facilitate the purchase of
our Common Shares by employees, continue our efforts to share our success with
our employees, improve our ability to retain a skilled work force, and encourage
teamwork and cooperation among our employees.
Eligible participants may make cash contributions to the Purchase Plan at any
time during a fiscal quarter. The maximum contribution is limited to 10% of each
participant's gross annual salary. We will match those contributions. We will
issue Common Shares at the market price within 30 business days of the end of
each fiscal quarter in which an eligible participant has subscribed for Common
Shares under the Purchase Plan.
<page>
12
For the purposes of the Purchase Plan, market price means the closing price of
the Common Shares on the TSX on the last business day of the applicable fiscal
quarter for which purchases are made under this plan.
The number of Common Shares that may be issued to an eligible participant
pursuant to the Purchase Plan, in combination with any other share compensation
arrangement, may not exceed 5% of our issued Common Shares.
As at October 18, 2002, a total of 5,726 Common Shares have been purchased by
our employees under the Purchase Plan.
PARTICULARS OF MATTERS TO BE ACTED UPON AT MEETING
FINANCIAL STATEMENTS
The audited financial statements of the Corporation for the period ended May 31,
2002 and the auditor's report thereon will be tabled before the Shareholders at
the Meeting for the consideration of the Shareholders. The audited financial
statements have been approved by the Audit Committee and by the Board of
Directors of the Corporation.
FIX NUMBER OF DIRECTORS
It is proposed that the number of directors to be elected at the meeting will be
five (5).
At the meeting, Shareholders will be asked to vote on the following resolution,
with or without variation:
BE IT RESOLVED THAT:
1. The number of directors to be elected at this Meeting is fixed
at not more than 5.
Notwithstanding the foregoing resolution, the directors may, between annual
general meetings, appoint one or more additional directors of the Corporation to
serve until the close of the next annual general meeting, but the total number
of additional directors shall not at any time exceed 1/3 of the number of
directors elected at the Meeting.
ELECTION OF DIRECTORS
As at October 18, 2002, there were 5 directors of the Corporation. At the
Meeting, it is proposed that Trevor M. Hillman, Gregg C. Johnson and Catherine
J. McDonough be elected for a 1 year term. It is anticipated that prior to or at
the Meeting two additional individuals not related to management will be
nominated by management for election to the board of directors for a 1 year
term.
The following table sets forth, in respect of each director and each nominee for
election as a director, all positions currently held with the Corporation,
principal occupation or employment within the preceding five years, and the
number of Common Shares of the Corporation beneficially owned, directly or
indirectly, or over which voting control is exercised by them as of October 18,
2002. The information contained herein is based upon information furnished by
the respective nominee and by the Corporation.
<page>
13
<table>
<caption>
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF
COMMON SHARES
OWNED
BENEFICIALLY OR
SUBJECT TO
NAME AND MUNICIPALITY CURRENT OFFICE IN CONTROL
OF RESIDENCE THE CORPORATION PRINCIPAL OCCUPATION FOR LAST 5 YEARS OR DIRECTION
- ------------------------------------------------------------------------------------------------------------------------------------
<s>
Trevor M. Hillman(1) Chief Executive Mr. Hillman has been our Chief Executive Officer and a Director since
Red Deer, Alberta Officer, Chairman December 1997. He was our President from December 1997 to November
of the Board and 2001, when he was appointed Chairman of the Board. Also, since July
Director. Director 1997, Mr. Hillman has been the President of Integrated Retail Corp
since December 11, which we acquired in September 1998. Mr. Hillman was a Director of
1997. E-Trend Networks Inc., a former subsidiary of ours, from inception
until December 2001. Mr. Hillman has been a Director of IROC Systems
Corp., a public company listed on the TSX Venture Exchange ("TSX 2,674,730
Venture"), involved in the oil and gas safety industry, since March
2000. Mr. Hillman also has been a Director of Chinook Energy Services
Inc., a public company listed on the TSX Venture, involved in
non-destructive testing in the oil and gas industry, since September
2000. From 1994 to 1997, Mr. Hillman provided consulting services to
entertainment based retail clients through TMH Holdings Ltd. Prior to
1994, Mr. Hillman was Operations Manager of Video View Ltd.
- ------------------------------------------------------------------------------------------------------------------------------------
Gregg C. Johnson President, Chief Mr. Johnson served as our Executive Vice President from December 1997
Red Deer County, Operating Officer to November 2001 when he was appointed as our President and Chief
Alberta and Director. Operating Officer. He has also been a Director since December 1997. A
Director since graduate of Osgoode Hall Law School of York University in Toronto,
December 11, 1997. Canada, in 1988, Mr. Johnson articled and was in private practice
with the law firm of Burnet Duckworth & Palmer in Calgary, Alberta
until he moved to Japan and joined the Japanese law firm, Aoki,
Christensen & Nomoto in 1989. In 1991, Mr. Johnson joined the law
office of Dr. Mujahid Al-Sawwaf in Jeddah, Saudi Arabia. In 1993, Mr.
Johnson joined The Tracker Corporation of Toronto, Ontario, a public
company trading on the OTCBB market, where he was primarily
responsible for legal, financing and public reporting matters. Since
August 1995, Mr. Johnson has provided investment banking services
with Summit Capital Corporation. Mr. Johnson was the Executive Vice
President and Secretary of Merch Performance Inc., a public company 948,036
listed on the TSX Venture engaged in the manufacture and distribution
of motorcycle engines and parts, from April 1997 to June 1998. Mr.
Johnson was a Director of Cervus Corporation, a public company listed
on the TSX Venture engaged in the acquisition and management of John
Deere dealerships, from inception until December 2001, and a Director
of IROC Systems Corp., a public company listed on the TSX Venture
involved in the oil and gas safety business, from inception until
April 2001. Mr. Johnson was the President of E-Trend Networks Inc., a
subsidiary of ours, from inception to February 2001, and a Director
of E-Trend Networks Inc. from inception to December 2001. Mr. Johnson
was also a Director of Chinook Energy Services Inc., a public company
listed on the TSX Venture involved in the non-destructive testing
business, from September 2001 to January 2002. Mr. Johnson was
elected to a second three-year term in October 2001 as a councilor
with Red Deer County, Alberta and is currently the Reeve (Mayor of
the municipality).
- ------------------------------------------------------------------------------------------------------------------------------------
</table>
<page>
14
<table>
<caption>
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF
COMMON SHARES
OWNED
BENEFICIALLY OR
SUBJECT TO
NAME AND MUNICIPALITY CURRENT OFFICE IN CONTROL
OF RESIDENCE THE CORPORATION PRINCIPAL OCCUPATION FOR LAST 5 YEARS OR DIRECTION
- ------------------------------------------------------------------------------------------------------------------------------------
<s>
Catherine J.(1) Director since Mrs. McDonough has been a Director of VHQ since November 1999. Mrs.
McDonough November 22, 1999 McDonough has been and continues to be a successful investor with
Red Deer County, over twenty years of investment experience. She owned and operated a
Alberta jewelry design business in Honolulu, Hawaii. She has been active in 32,765
charitable organizations and has served on the Boards of several of
them including the U.S. Navy Submarine Officer's Wives Club and
various charitable causes related to the Pearl Harbor Naval Station.
- ------------------------------------------------------------------------------------------------------------------------------------
</table>
Notes: (1) The Corporation is required by the CANADA BUSINESS CORPORATIONS ACT
to have an audit committee of the board of directors. Ms. McDonough
and Messrs. Lacey and Hillman are currently the members of the audit
committee. Mr. Lacey will not be standing for re-election at the
Meeting.
At the meeting, Shareholders will be asked to vote on the following resolution,
with or without variations:
BE IT RESOLVED THAT:
1. Trevor M. Hillman, Gregg C. Johnson and Catherine J. McDonough
be appointed as directors of the Corporation to hold office
until the close of the next annual general meeting of
Shareholders of the Corporation following their appointment.
It is anticipated that the Shareholders will be asked to consider the election
of two additional individuals who are not related to management as directors of
the Corporation for a 1 year term.
APPOINTMENT OF AUDITORS
It is proposed that the firm of Collins Barrow, Chartered Accountants, Red Deer,
Alberta, be re-appointed as auditors of the Corporation until the next annual
meeting of the Shareholders. Collins Barrow, Chartered Accountants, have been
the Corporation's auditors since April 27, 2001.
At the Meeting, Shareholders will be asked to vote on the following resolution,
with or without variation:
BE IT RESOLVED THAT:
1. The firm of Collins Barrow, Chartered Accountants, of Red Deer,
Alberta, be re-appointed as the auditors of the Corporation,
to hold office until the close of the next annual meeting of
Shareholders.
2. The Board of Directors is hereby authorized to fix the auditor's
remuneration as required to give effect to the aforementioned
Resolution.
<page>
15
ADVANCE APPROVAL OF THE ISSUANCE OF COMMON SHARES
The Corporation from time to time investigates opportunities to raise financing
on advantageous terms. If circumstances warrant, the Corporation may undertake
one or more financings over the next year and expects some of them may be
structured as private placements.
Under the rules of The Toronto Stock Exchange (the "TSX"), the aggregate number
of listed shares of a company which may be issued or made subject to issuance
(i.e. under a share purchase warrant, option or other convertible security) by
way of one or more private placement transactions during any particular
six-month period must not exceed 25% of the number of listed shares of the
company outstanding (on a non-diluted basis) immediately prior to the beginning
of such six-month period (the "TSX 25% Rule"), unless there has been Shareholder
approval of such transactions. The application of the TSX 25% Rule may restrict
the ability of the Corporation to raise, on a timely basis, equity funds in the
future by way of private placements of its securities.
Management of the Corporation considers it to be in the best interests of the
Corporation to retain its flexibility to raise equity funds for the purposes of
financing acquisitions or development of the Corporation's business. The TSX has
a working practice that it will accept advance approval by the Shareholders of
private placements that may exceed the TSX 25% Rule, provided such private
placements are completed within 12 months of the date such advance Shareholder
approval is given. As at October 18, 2002, 12,538,559 Common Shares of the
Corporation were issued and outstanding. The Corporation proposes that the
maximum number of Common Shares which would either be issued or made subject to
issuance under one or more private placements in the twelve month period
commencing on November 27, 2002, would not exceed 12,538,559 Common Shares, or
approximately 100% of the Corporation's issued and outstanding Common Shares as
at October 18, 2002.
Any private placement to be carried out by the Corporation under the advance
approval being sought at the Meeting will be subject to the following additional
restrictions:
1. it must be substantially with parties at arms-length to the
Corporation;
2. it cannot materially affect control of the Corporation;
3. it must be completed within a 12 month period following the date of
the Meeting or any adjournment thereof; and
4. it must comply with the private placement pricing rules of the TSX,
which currently require that the price per Common Share offered must
not be lower than the closing market price of the Common Shares on
the TSX on the trading day prior to the date that notice of the
private placement is given to the TSX (the "Market Price") less the
applicable discount, as follows:
MARKET PRICE MAXIMUM DISCOUNT
$0.50 or less 25%
$0.51 to $2.00 20%
above $2.00 15%
<page>
16
(For these purposes, a private placement of unlisted convertible securities is
deemed to be a private placement of the underlying listed securities at an issue
price equal to the lowest possible price at which the securities are convertible
by the holders thereof.)
In anticipation that the Corporation may need to enter into one or more private
placements in the next 12 months that in total will exceed the TSX 25% Rule, the
Corporation requests Shareholders to pass an ordinary resolution in the
following terms:
BE IT RESOLVED THAT:
1. The issuance by the Corporation in one or more private
placements during the twelve month period commencing November
27, 2002 of such number of securities that would result in the
Corporation issuing or making issuable in any six-month period
during that twelve month period an amount of Common Shares of
the Corporation aggregating up to 12,538,559 Common Shares, or
approximately 100% of the issued and outstanding Common Shares
of the Corporation as at October 18, 2002 as more particularly
described in, and subject to the restrictions described in, the
Corporation's Information Circular dated October 18, 2002, is
hereby approved.
2. The board of directors of the Corporation be and is hereby
authorized and directed to cause all such documents, instruments
or other writings to be executed and delivered and cause all
other actions to be taken as are necessary or appropriate to
give effect to the foregoing resolution.
The foregoing resolution must be approved by Shareholders holding a majority of
at least 50% plus one of the votes cast by Shareholders who vote on this
resolution at the Meeting. The directors of the Corporation believe the passing
of the above resolution is in the best interests of the Corporation and
recommend that the Shareholders vote in favour of the resolution. In the event
the resolution is not passed, the TSX may not approve any private placements
which result in the issuance or possible issuance of a number of Common Shares
which exceeds the TSX 25% Rule without specific Shareholder approval. Such
restriction could impede the Corporation's timely access to required funds on
favourable terms.
Notwithstanding that the above rules are complied with in connection with a
particular private placement and notwithstanding the approval of the resolution
referred to above, the TSX retains the discretion to determine whether or not a
particular private placement is substantially at arm's length or may materially
affect control of the Corporation, and in either case the TSX may still require
specific Shareholder approval for any private placement.
OTHER MATTERS TO BE ACTED UPON
Management knows of no matters to come before the Meeting other than the matters
referred to in the Notice of Meeting. However, if any other matters properly
come before the Meeting, the accompanying proxy will be voted on such matters in
the best judgement of the person or persons voting the proxy.
CORPORATE GOVERNANCE
In 1995, the TSX Committee on Corporate Governance issued a series of guidelines
(the "Guidelines") for effective Corporate Governance. The Guidelines address
matters such as the constitution of boards of directors and board committees,
their functions, their independence from Management and other matters
<page>
17
related to ensuring sound corporate governance. The TSX has adopted, as a
listing requirement, that each listed company disclose its corporate governance
system with reference to the previously-mentioned Guidelines.
MANDATE OF THE BOARD
The Guidelines state that the Board of Directors of the Corporation (the
"Board") should explicitly assume responsibility for the proper stewardship of
the Corporation. Within the corporate governance framework of the Corporation,
responsibilities not delegated to Management of the Corporation or to a
committee of the Board remain those of the full Board.
The Board participates in the ongoing strategic planning process for the
Corporation and assists Management in formulating short and long term objectives
of the Corporation. More specifically, the Board reviews the performance of both
the Corporation and Management in relation to these objectives. The Board
regularly identifies business and regulatory risks associated with the
activities of the Corporation as it considers appropriate.
The Board takes ultimate responsibility for the appointment and monitoring of
Management. The Corporation's policy is to attract management personnel whose
prior experience effectively trains them for their roles and responsibilities.
The Compensation Committee assists the full Board in monitoring the performance
of Management.
In consultation with Management, the Board ensures effective communication
between the Corporation and its Shareholders, regulators and the general public
by timely dissemination of financial and other material information on a regular
basis.
The Audit Committee assesses the report of the Corporation's independent
auditors, independently of Management, and evaluates financial reporting and
information gathering procedures in light of the auditors' report. The Audit
Committee reports its findings to the full Board.
COMPOSITION OF THE BOARD/UNRELATED DIRECTORS/SIGNIFICANT SHAREHOLDERS
The Guidelines state that a majority of the Board should be comprised of
"unrelated directors". An "unrelated director" is a director who is independent
of Management and who is free from any interest which could, or could reasonably
be perceived to, materially interfere with the director's ability to act with a
view to the best interests of the Corporation other than interests and
relationships arising from owning shares.
Of the individuals proposed for election to the Board, one is unrelated
directors ( Catherine J. McDonough) and two are related directors (Trevor M.
Hillman and Gregg C. Johnson). Each of the named unrelated directors is
considered as such because none of them has worked for the Corporation, received
remuneration from the Corporation in excess of director's fees and/or stock
options, nor have any of them entered into material contracts with the
Corporation. It is anticipated that prior to or at the Meeting two additional
individuals not related to management will be nominated by management for
election to the board of directors for a 1 year term.
The Guidelines state that where the Corporation has a "Significant Shareholder"
as defined in the Guidelines, the Board should include a number of directors who
do not have interests in or relationships with either the Corporation or the
"Significant Shareholder". "Significant Shareholder" is defined by the
Guidelines to be a
<page>
18
Shareholder with the ability to exercise a majority of votes for the election of
directors. The Corporation does not have a "Significant Shareholder".
NOMINATING COMMITTEE
The Guidelines state that the Board should appoint a committee of directors
composed exclusively of outside (i.e. non-management) directors, a majority of
whom are unrelated directors, with the responsibility for proposing to the full
Board new nominees to the Board and for assessing directors on an on-going
basis.
Currently, the Board has not appointed a formal nominating committee. The Board
as a whole determines who shall be a nominee for election to the Board.
Nominations are generally the result of recruitment efforts by the Chief
Executive Officer and informal/formal discussions with other Board members.
ASSESSMENT OF BOARD, COMMITTEES AND INDIVIDUAL DIRECTORS
The Guidelines state that the Board should implement a process to be carried out
by the nominating committee or other appropriate committee for assessing the
effectiveness of the Board as a whole, committees of the Board, and the
contribution of individual directors.
To date, the Board has not formally assessed the effectiveness of the Board as a
whole, committees of the Board, and the contribution of individual directors but
these items are assessed by the full board from time to time as the need arises.
ORIENTATION AND EDUCATION PROGRAM
The Guidelines state that the Board should implement an orientation and
education program for new members of the Board. The Corporation currently has an
informal process of orientation and education for new members of the Board. No
formal process is planned.
SIZE OF BOARD
The Guidelines state that a Board should examine its size and, with a view to
determining the impact of the number upon effectiveness, undertake where
appropriate, a program to reduce the number of directors to a number which
facilitates more effective decision-making.
The Board reviews its size on an on-going basis with a view to determining the
impact of the number upon effectiveness. The Board was previously comprised of
seven (7) directors and the Board proposes that the number be reduced to five
(5) directors, comprising two (2) from management and three (3) outside
unrelated directors. One outside director has been proposed and it is
anticipated that prior to or at the Meeting two additional individuals not
related to management will be nominated by management for election to the board
of directors for a 1 year term.]
COMPENSATION OF DIRECTORS
The Guidelines state that the Board should review the adequacy and form of the
compensation of directors and ensure that the compensation realistically
reflects the responsibilities and risks involved in being an effective director.
<page>
19
The Board currently has a Compensation Committee with a mandate for reviewing
the adequacy and form of compensation of directors and officers. The
Compensation Committee reports its findings to the full Board. See "Executive
Compensation."
COMPOSITION OF COMMITTEES
The Guidelines state that committees of the Board should generally be composed
of outside directors (i.e. non-management), a majority of whom are unrelated
directors, although some board committees, such as an Executive Committee, may
include one or more inside directors.
The Corporation currently has two standing committees of the Board; the Audit
Committee and the Compensation Committee.
The Audit Committee is responsible for the engagement of the Corporation's
independent auditors and reviews with them, independently of Management, the
scope and timing of their audit services and any other services they are asked
to perform, their report on the Corporation's financial statements following
completion of the audit and the Corporation's policies and procedures with
respect to internal accounting and financial controls. This committee is
currently comprised of two unrelated directors (Peter A. Lacey and Catherine J.
McDonough) and one related director (Trevor M. Hillman).
It is the task of the Compensation Committee to periodically review the
compensation structure of the Corporation with respect to its executive officers
and directors to ensure that the Corporation continues to attract and retain
quality and experienced individuals to its management team and Board and to
motivate these individuals to perform to the best of their ability and in the
best interests of the Corporation. The Compensation Committee makes
recommendations with respect to the compensation of the executive officers and
the Board to the Board, which gives final approval with respect to any executive
compensation and director compensation matters and issues. The Compensation
Committee is currently comprised of 2 unrelated directors (Peter A. Lacey and
Catherine J. McDonough).
The Board of Directors of the Corporation does not have an Executive Committee.
CORPORATE GOVERNANCE
The Guidelines state that the Board should expressly assume responsibility for,
or assign to a committee of directors the general responsibility for, developing
the Corporation's approach to corporate governance issues.
The Board explicitly and implicitly acknowledges its responsibility for
developing the Corporation's approach to Corporate Governance and has not
delegated this responsibility to a committee.
MANDATE OF THE CHIEF EXECUTIVE OFFICER
The Guidelines state that the Board, together with the Chief Executive Officer,
should develop position descriptions for the Chief Executive Officer and for the
Board, involving the definition of the limits to Management's responsibilities.
The Guidelines further state that the Board should approve or develop the
corporate objectives which the Chief Executive Officer is responsible for
meeting.
The Board has developed a formal position description for the Chief Executive
Officer including outlining the Chief Executive Officer's responsibility for
reporting to the Board. The Board, together with the Chief
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Executive Officer as a director on the Board, will continually review and
develop the corporate objectives which the Chief Executive Officer is
responsible for meeting.
The Board has not developed formal position descriptions for the Board. The
Board, together with the Chief Executive Officer as a director on the Board,
will continually review and develop the corporate objectives which the Board is
responsible for meeting.
INDEPENDENCE OF THE BOARD
The Guidelines state that the Board should have in place appropriate structures
and procedures to ensure that the Board can function independently of
Management. It is suggested that an appropriate structure would be to (i)
appoint a chair of the Board who is not a member of management with
responsibility to ensure the Board discharges its responsibilities or (ii) adopt
alternative measures such as assigning this responsibility to a committee of
directors or to a director, sometimes referred to as the "lead director". It is
suggested by the guidelines that appropriate procedures may involve the Board
meeting on a regular basis without management present or may expressly involve
assigning the responsibility for administering the Board's relationship to
Management or a committee of the Board
The Corporation does not separate the functions of the Chief Executive Officer
and Chairman of the Board but instead has assigned the responsibility for
administering the Board's relationship to the Chief Executive Officer. When
appropriate, the Board excuses Management from meetings and conducts business
and makes decisions exclusive of Management. The Chairman of the Board is
charged with the responsibility, among others, of ensuring that the Board
discharges its responsibilities.
ENGAGEMENT OF OUTSIDE ADVISORS
The Guidelines state that the Board should implement a system which enables an
individual director to engage an outside advisor at the expense of the
Corporation in appropriate circumstances.
The Corporation allows any member of the Board or committee of the Board to
engage an outside advisor at the expense of the Corporation in appropriate
circumstances.
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BOARD APPROVAL
The contents and the sending of this Information Circular have been approved by
the Board of Directors of the Corporation.
BY ORDER OF THE
BOARD OF DIRECTORS
OF THE CORPORATION
/s/ TREVOR M. HILLMAN
-------------------------------------
TREVOR M. HILLMAN
CHIEF EXECUTIVE OFFICER AND DIRECTOR
CERTIFICATE
The foregoing contains no untrue statement of a material fact and does not omit
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.
/s/ TREVOR M. HILLMAN /s/ DERREK R. WONG
- ---------------------------------- -----------------------------------
TREVOR M. HILLMAN DERREK R. WONG
CHIEF EXECUTIVE OFFICER AND DIRECTOR SENIOR VICE-PRESIDENT, FINANCE
AND CHIEF FINANCIAL OFFICER
Red Deer, Alberta
October 18, 2002