EXHIBIT 2
[LOGO] B BREAKWATER RESOURCES LTD.
95 WELLINGTON STREET WEST, SUITE 950
TORONTO, ONT., M5J 2N7
- --------------------------------------------------------------------------------
Management Proxy Circular
QUESTIONS AND ANSWERS ON VOTING AND PROXIES
To ensure representation of your shares at the annual and special meeting of
shareholders of Breakwater Resources Ltd. ("Breakwater" or the "Corporation") to
be held in Toronto, Ontario, Tuesday, June 1, 2004 at 4:00 pm (the "Meeting") at
the TSX Conference Centre located at The Exchange Tower, 130 King Street West,
please complete, sign and return your proxy form or, if you are not a registered
shareholder, the request for voting instructions form, as the case may be, that
was sent to you, as soon as possible. It is important that your shares be
represented at the Meeting and that your wishes be made known to the directors.
This will be assured, whether or not you attend the Meeting, if you complete and
sign the proxy form or request for voting instructions, as the case may be, that
was sent to you and return it as soon as possible. The following questions and
answers provide guidance on how to vote your shares. If you are not a registered
shareholder, please refer to Q&A No. 17 below for a description of the procedure
to be followed to vote your shares.
1. Q. WHO IS SOLICITING MY PROXY?
A. This management proxy circular (the "Circular") is provided in connection
with the solicitation of proxies by the management and directors of Breakwater
for use at the Meeting and at all adjournments thereof. It is anticipated that
the solicitation of proxies will be made primarily by mail, but proxies may also
be solicited personally, by telephone, by facsimile or by email by officers,
directors or regular employees of the Corporation. The Corporation may also
retain, and pay a fee to, one or more professional proxy solicitation firms to
solicit proxies from the shareholders of the Corporation. Breakwater may pay
brokers or other persons holding common shares of the Corporation ("Common
Shares") in their own names, or in the names of nominees, for their reasonable
expenses for sending proxies and this Circular to beneficial owners of Common
Shares and obtaining proxies therefrom. THE SOLICITATION OF PROXIES BY THIS
CIRCULAR IS BEING MADE BY AND ON BEHALF OF THE MANAGEMENT AND DIRECTORS OF
BREAKWATER. The cost of the solicitation will be borne by the Corporation.
2. Q. WHAT AM I VOTING ON?
A.
1. The election of the directors to the board of directors of the
Corporation,
2. the appointment of the auditors of the Corporation until the next annual
meeting,
3. the proposed amendment to the share incentive plan of the Corporation,
and
4. the granting of 4,000,000 options to purchase Common Shares
Shares may be voted for or withheld from voting on the election of directors and
the appointment of auditors and voted for or against the proposed amendment to
the share incentive plan of the Corporation and the grant of options to purchase
Common Shares. AS INDICATED ELSEWHERE IN THIS CIRCULAR, THE CORPORATION'S BOARD
OF DIRECTORS AND MANAGEMENT RECOMMEND THAT SHAREHOLDERS VOTE FOR THE ABOVE
RESOLUTIONS.
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3. Q. WHAT DOCUMENTS FORM PART OF THE PACKAGE SENT TO ME?
A. In addition to the usual annual corporate documents (i.e., Breakwater's 2003
Annual Report, this Circular and the proxy form) you will find included in your
package a supplemental mail list card.
4. Q. WHO IS ENTITLED TO VOTE?
A. Shareholders as of the close of business on April 13, 2004 or their duly
appointed proxies will be entitled to attend the Meeting or to register a vote.
If you have acquired Common Shares after April 13, 2004, please refer to Q&A No.
13 to determine whether and how you may vote such shares.
5. Q. HOW DO I VOTE?
A. There are two ways that you can vote your shares if you are a REGISTERED
shareholder.
You may vote in person at the Meeting, or you may complete and sign the enclosed
proxy form appointing the named persons or some other person you choose to
represent you and vote your shares at the Meeting. If you wish to vote in person
at the Meeting, do not complete or return the proxy form. Your vote will be
taken and counted at the Meeting. Completing, signing and returning your proxy
form does not preclude you from attending the Meeting in person.
If you do not wish to attend the Meeting or do not wish to vote in person, your
proxy will be voted for or against or withheld from voting in accordance with
your wishes as specified thereon on any ballot that may be called at the
Meeting. A PROXY MUST BE IN WRITING AND MUST BE EXECUTED BY THE SHAREHOLDER OR
BY THE SHAREHOLDER'S ATTORNEY AUTHORIZED IN WRITING OR, IF THE SHAREHOLDER IS A
CORPORATION, BY AN OFFICER OR ATTORNEY THEREOF DULY AUTHORIZED.
If your shares are held in a brokerage account or REGISTERED in the name of some
other NOMINEE, please see Q&A No. 17 for voting instructions.
6. Q. HOW DO I ATTEND THE MEETING IN PERSON?
A. Shareholders should present themselves to a representative of Breakwater's
transfer agent, Computershare Trust Company of Canada, at the Meeting. Persons
who are not proxyholders or shareholders may be admitted subject to the
discretion of the chairman of the Meeting and subject to any space constraints
after addressing themselves to a representative of Computershare Trust Company
of Canada. Non-registered shareholders wishing to attend the Meeting should
refer to Q&A No. 17.
7. Q. WHAT IF I SIGN THE PROXY FORM ENCLOSED WITH THIS CIRCULAR?
A. Signing the enclosed proxy form gives authority to Mr. Garth A.C. MacRae or
Mr. Colin K. Benner, both of whom are directors of the Corporation, to vote your
shares at the Meeting.
8. Q. CAN I APPOINT SOMEONE OTHER THAN THESE DIRECTORS TO VOTE MY SHARES?
A. YES. WRITE THE NAME OF THIS PERSON, WHO NEED NOT BE A SHAREHOLDER, IN THE
BLANK SPACE PROVIDED IN THE PROXY FORM. (NOTE: IT IS IMPORTANT TO ENSURE THAT
ANY OTHER PERSON YOU APPOINT IS ATTENDING THE MEETING AND IS AWARE THAT HIS OR
HER APPOINTMENT HAS BEEN MADE TO VOTE YOUR SHARES. PROXYHOLDERS SHOULD, AT THE
MEETING, PRESENT THEMSELVES TO A REPRESENTATIVE OF
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COMPUTERSHARE TRUST COMPANY OF CANADA.)
9. Q. WHAT DO I DO WITH MY COMPLETED PROXY FORM?
A. Return it to the Corporation's transfer agent, Computershare Trust Company of
Canada, in the envelope provided so that it arrives NO LATER THAN 5:00 P.M.
(TORONTO TIME) ON FRIDAY, MAY 28, 2004. All shares represented by properly
executed proxy forms received by Computershare Trust Company of Canada prior to
such time will be voted for or against or withheld from voting, in accordance
with your instructions as specified in the proxy form, on any ballot that may be
called at the Meeting.
10. Q. HOW WILL MY SHARES BE VOTED IF I GIVE MY PROXY?
A. The persons named in the proxy form MUST vote or withhold from voting your
shares in accordance with your directions. IN THE ABSENCE OF SUCH DIRECTIONS,
HOWEVER, YOUR SHARES WILL BE VOTED FOR THE ELECTION OF DIRECTORS, FOR THE
APPOINTMENT OF AUDITORS, FOR THE PROPOSED AMENDMENTS TO THE SHARE INCENTIVE PLAN
OF THE CORPORATION AND FOR THE GRANT OF OPTIONS TO PURCHASE COMMON SHARES AS SET
OUT IN THIS CIRCULAR.
11. Q. IF I CHANGE MY MIND, CAN I TAKE BACK MY PROXY ONCE I HAVE GIVEN IT?
A. Yes. A shareholder who has given a proxy may revoke it by depositing an
instrument in writing (which includes another proxy form with a later date)
executed by the shareholder or by the shareholder's attorney authorized in
writing with the Corporate Secretary, c/o Breakwater Resources Ltd. at 95
Wellington Street West, Suite 950, Toronto, Ontario M5J 2N7 at any time up to
and including the second last business day preceding the day of the Meeting, or
any adjournment or postponement thereof, or by depositing it with the chairman
of the Meeting on the day of the Meeting, or any adjournment or postponement
thereof. A shareholder may also revoke a proxy in any other manner permitted by
law.
It should be noted that the participation in person by a shareholder in a vote
by ballot at the Meeting will automatically revoke any proxy which has been
previously given by the shareholder in respect of business covered by that vote.
12. Q. WHAT IF AMENDMENTS ARE MADE TO THESE MATTERS OR IF OTHER MATTERS ARE
BROUGHT BEFORE THE MEETING?
A. The person named in the proxy form will have discretionary authority with
respect to amendments or variations to matters identified in the notice of the
Meeting and to other matters which may properly come before the Meeting. As of
the date of this Circular, the management of the Corporation knows of no such
amendment, variation or other matter expected to come before the Meeting. If any
other matters properly come before the Meeting, the persons named in the proxy
form will vote on them in accordance with their best judgment.
13. Q. WHAT IF OWNERSHIP OF SHARES IS TRANSFERRED AFTER APRIL 13, 2004?
A. The person who acquires shares after April 13, 2004 (the "transferee") must
produce properly endorsed share certificates or otherwise establish that he or
she owns the shares and must ask the Corporation's transfer agent, Computershare
Trust Company of Canada, no later than the close of business on May 21, 2004
that his or her name be included in the list of shareholders before the Meeting
in order to be entitled to vote these shares. If the transferee does not satisfy
these requirements, the transferor will continue to be entitled to vote these
shares.
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14. Q. HOW WILL THE VOTES BE COUNTED?
A. The election of directors, the appointment of auditors and the
amendments to the share option plan and share purchase plan portions of the
share incentive plan of the Corporation will each be determined by a majority of
the votes cast. The amendment to the share bonus plan portion of the share
incentive plan of the Corporation and the grant of options to purchase Common
Shares will be determined by a majority of the votes cast by disinterested
shareholders. In the first circumstance shareholders who will not be eligible to
vote comprise any officer or director who is eligible to receive common shares
issued under the share bonus plan portion of the share incentive plan. In the
second circumstance shareholders who will not be eligible to vote comprise any
individual who was subject to the grant of options to purchase Common Shares for
which the Corporation is seeking approval.
15. Q. WHO COUNTS THE VOTES?
A. The Corporation's transfer agent, Computershare Trust Company of Canada,
counts and tabulates the proxies. This is done independently of the Corporation
to preserve the confidentiality of individual shareholder votes.
Proxies are referred to the Corporation only in cases where a shareholder
clearly intends to communicate with management (by making a written statement on
the proxy form), in the event of a proxy contest or when it is necessary to do
so to meet the requirements of applicable law.
16. Q. HOW CAN I CONTACT THE TRANSFER AGENT?
A. You can contact the transfer agent at the following locations:
Computershare Trust Company of Canada
Stock Transfer Services
100 University Avenue
9th Floor
Toronto, ON
M5J 2Y1
Telephone: (514) 982-7555 or (800) 564-6253
Facsimile: (866) 249-7775 or (416) 263-9524
Stock Transfer Services
510 Burrard Street
2nd Floor
Vancouver, BC
V6C 3B9
Telephone: (514) 982-7555 or (800) 564-6253
Facsimile: (866) 249-7775
Computershare Trust Company, Inc.
Stock Transfer Services
350 Indiana Street
Suite 800
Golden, Colorado
80401
Telephone: (303) 262-0600
Facsimile: (303) 262-0603
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Web site: www.computershare.com
E-mail: service@computershare.com
17. Q. IF MY SHARES ARE NOT REGISTERED IN MY NAME BUT ARE HELD IN THE NAME OF A
NOMINEE (A BANK, TRUST COMPANY, SECURITIES BROKER, TRUSTEE OR OTHER), HOW DO I
VOTE MY SHARES?
A. If you are a non-registered shareholder, there are, as discussed below, TWO
ways that you can vote your shares held by your nominee. Applicable securities
laws require your nominee to seek voting instructions from you in advance of the
meeting. Accordingly, you will receive or have already received from your
nominee either a request for voting instructions or a proxy form for the number
of shares you hold. Every nominee has its own mailing procedures and provides
its own signing and return instructions, which should be carefully followed by
non-registered shareholders to ensure that their shares are voted at the
meeting.
Accordingly, for your shares to be voted for you, please follow the voting
instructions provided by your nominee. HOWEVER, IF YOU WISH TO VOTE IN PERSON AT
THE MEETING, INSERT YOUR OWN NAME IN THE SPACE PROVIDED ON THE REQUEST FOR
VOTING INSTRUCTIONS OR PROXY FORM TO APPOINT YOURSELF AS PROXYHOLDER AND FOLLOW
THE SIGNING AND RETURN INSTRUCTIONS OF YOUR NOMINEE. NON-REGISTERED SHAREHOLDERS
WHO APPOINT THEMSELVES AS PROXYHOLDERS SHOULD, AT THE MEETING, PRESENT
THEMSELVES TO A REPRESENTATIVE OF COMPUTERSHARE TRUST COMPANY OF CANADA.
18. Q. WHAT IS THE SUPPLEMENTAL MAIL LIST CARD FOR?
A. If you are a non-registered shareholder you may not receive Breakwater's
quarterly financial statements from your nominee. You may elect to receive the
quarterly financial statements by completing and returning the card with your
name and address and you will be added to the Corporation's supplemental mailing
list.
19. Q. IF I WISH TO SUBMIT A SHAREHOLDER PROPOSAL FOR CONSIDERATION AT THE NEXT
ANNUAL MEETING OF SHAREHOLDERS WHAT IS THE DEADLINE FOR SUBMITTING SUCH
PROPOSAL?
A. The last date for submitting a shareholder's proposal is January 28, 2005.
No person is authorized to give any information or to make any representation
other than those contained in this Circular and, if given or made, such
information or representation should not be relied upon as having been
authorized by the management or directors of the Corporation. The delivery of
this Circular shall not, under any circumstances, create an implication that
there has been no change in the information set forth herein since the date of
this Circular. Except as otherwise indicated herein, the information contained
herein is given as of April 29, 2004.
VOTING SECURITIES AND PRINCIPAL HOLDER THEREOF
The Corporation is authorized to issue an unlimited number of Common
Shares and 200,000,000 preferred shares, issuable in series. There are no
preferred shares outstanding. On April 29, 2004 there were 344,490,932 Common
Shares outstanding. Each Common Share entitles the holder of record thereof to
one vote at all meetings of shareholders of the Corporation, except at meetings
at which only holders of another class or series of shares of the Corporation
are entitled to vote.
As at April 29, 2004, to the knowledge of the directors and officers of
the Corporation, the only
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persons, firms or corporations which beneficially own, directly or indirectly,
or exercise control or direction over, voting securities of the Corporation
carrying more than 10 percent of the voting rights attaching to any class of
voting securities of the Corporation are as follows:
- --------------------------------------- --------------------------- -------------------------------
Name and Municipality Percentage of
of Residence Number of Common Shares Outstanding Common Shares
- --------------------------------------- --------------------------- -------------------------------
Dundee Bancorp Inc.(1) 52,078,651(2) 15.1%
Toronto, Ontario
- --------------------------------------- --------------------------- -------------------------------
Wellington Management Company, LLP 46,138,504 13.4%
Boston, Massachusetts
- --------------------------------------- --------------------------- -------------------------------
(1) Dundee Bancorp Inc. also holds 30,801,410 warrants to purchase Common Shares at $0.20 and
1,000,000 warrants to purchase Common Shares at $0.19.
(2) 51,893,651 Common Shares are held indirectly through a wholly-owned subsidiary of Dundee
Bancorp Inc. and 185,000 Common Shares are held in accounts, managed by subsidiaries of Dundee
Bancorp Inc.
ELECTION OF DIRECTORS
Shareholders of the Corporation will be asked to elect seven directors
for the ensuing year. The persons named in the form of proxy accompanying this
Circular intend to vote for the election of the nominees whose names are set
forth below, each of whom is now a director of the Corporation and has been a
director of the Corporation since the date indicated, unless the shareholder who
has given such proxy has directed that the Common Shares represented by such
proxy be withheld from voting in respect of the election of directors of the
Corporation. Management of the Corporation does not contemplate that any of the
nominees will be unable to serve as a director of the Corporation for the
ensuing year but if that should occur for any reason prior to the Meeting or any
adjournment thereof, the persons named in the form of proxy accompanying this
Circular have the right to vote for the election of the remaining nominees and
may vote for the election of a substitute nominee in their discretion. Each
director elected will hold office until the close of business on the day of the
first annual meeting of the shareholders of the Corporation following his
election unless his office is earlier vacated in accordance with the by-laws of
the Corporation.
The names of the nominees, their position with the Corporation, their
principal occupation during the last five years, the dates upon which they
became directors of the Corporation and the number of Common Shares beneficially
owned by them, directly or indirectly, or over which control or direction is
exercised by them as of April 29, 2004, are as follows:
- ----------------- -------------------------- ------------------------------------- ------------------ ----------------
COMMON SHARES
NAME, HELD OR OVER
PROVINCE AND WHICH CONTROL
COUNTRY OF DATE ELECTED OR DIRECTION
RESIDENCE POSITION WITH CORPORATION PRINCIPAL OCCUPATION DIRECTOR IS EXERCISED(1)
- ----------------- -------------------------- ------------------------------------- ------------------ ----------------
Colin K. Benner President, Chief Officer of the Corporation June 7, 1995 648,861
Ontario, Canada Executive Officer and
Director
- ----------------- -------------------------- ------------------------------------- ------------------ ----------------
Gordon F. Bub Director President and Chief Executive Nov. 12, 1993 27,500
Ontario, Canada Officer, Gold Hawk Resources Inc.,
a precious metals exploration
company
- ----------------- -------------------------- ------------------------------------- ------------------ ----------------
Donald K. Director Executive Vice President, Dundee June 14, 1999 41,560(2)
Charter Bancorp Inc. and Dundee Wealth
Ontario, Canada Management Inc., a financial
service company, and Chairman and
Chief Executive Officer, Dundee
Securities Corporation, an
investment dealer
- ----------------- -------------------------- ------------------------------------- ------------------ ----------------
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- ----------------- -------------------------- ------------------------------------- ------------------ ----------------
Jonathan C. Director President and Chief Executive June 19, 2001 80,850(2)
Goodman Officer, Dundee Precious Metals
Ontario, Canada Inc., a gold mining company,
Director, Dundee Bancorp Inc.
- ----------------- -------------------------- ------------------------------------- ------------------ ----------------
Garth A.C. Chairman and Director Vice-Chairman, Dundee Bancorp Inc., Sept. 9, 1993 343,635(2)
MacRae a merchant banking and financial
Ontario, Canada service company
- ----------------- -------------------------- ------------------------------------- ------------------ ----------------
Allen J. Director President and Chief Executive Sept. 9, 1993 Nil
Palmiere Officer, Silk Road Resources Ltd.
Ontario, Canada
- ----------------- -------------------------- ------------------------------------- ------------------ ----------------
A. Murray Director President, Quest Ventures Ltd., a Nov. 20, 1992 Nil
Sinclair, Jr. merchant banking company
British
Columbia, Canada
- ----------------- -------------------------- ------------------------------------- ------------------ ----------------
(1) The number of Common Shares beneficially owned or over which control or direction is exercised has been furnished
by the respective nominee.
(2) See Voting Securities and Principal Holder Thereof.
Each of the foregoing directors has held his or her present or principal
occupation or similar positions with his or her present employer or its
predecessor or affiliates for the past five years except for Mr. Benner who,
prior to November 30, 2001, was President and Chief Operating Officer of the
Corporation, Mr. Bub who, prior to November 30, 2001, was Chairman and Chief
Executive Officer of the Corporation and Mr. Palmiere who, prior to May 2003,
was Vice President and Chief Financial Officer of Zemex Corporation, an
industrial minerals company.
COMMITTEES OF THE DIRECTORS
The audit committee of the directors of the Corporation is composed of
three directors, being Messrs. Palmiere, Sinclair and Goodman. The compensation
committee of the directors of the Corporation is currently composed of three
directors Messrs. Charter, Palmiere and Sinclair. The hedging committee of the
Corporation is composed of two directors, being Messrs. Benner and MacRae, and a
senior officer of the Corporation, being Richard R. Godfrey, Vice President,
Finance and Chief Financial Officer (Acting). The directors of the Corporation
have not appointed an executive committee.
EXECUTIVE COMPENSATION
The following table sets forth all annual and long-term compensation for
services in all capacities rendered to the Corporation and its subsidiaries for
the financial years of the Corporation ended December 31, 2003, 2002 and 2001 in
respect of each of the individuals who were, during the year ended December 31,
2003, the Chief Executive Officer of the Corporation and, as at December 31,
2003, the four other most highly compensated executive officers of the
Corporation (collectively the "Named Executive Officers").
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SUMMARY COMPENSATION TABLE
- ------------------------------ ------- ------------------------------------------ ---------------- ----------------
Long-term
Annual Compensation Compensation
Awards
------------------------------------------ ----------------
Securities
Under
Other Annual Options All Other
Name and Principal Salary Bonus Compensation(1) Granted(2) Compensation(3)
Position Year ($) ($) ($) (#) ($)
- ------------------------------ ------- ------------- ----------- ---------------- ---------------- ----------------
Colin K. Benner 2003 500,000 200,000 - 1,000,000 13,500
President and 2002 408,430 175,000(4) 56,888(5) 1,000,000 13,500
Chief Executive Officer 2001 400,000 75,000 - - 13,500
- ------------------------------ ------- ------------- ----------- ---------------- ---------------- ----------------
Rene R. Galipeau 2003 275,000 - 1,625(6) 250,000 13,500
Executive Vice President 2002 275,000 36,000 1,375(6) 150,000 13,500
and Chief Financial Officer 2001 275,000 35,000 2,750(6) - 13,500
- ------------------------------ ------- ------------- ----------- ---------------- ---------------- ----------------
J. Steven Hayes 2003 166,667 36,000 - - 75,000
Vice President, Marketing 2002 145,000 5,000 - 100,000 13,500
2001 145,000 10,000 13,500 - 13,500
- ------------------------------ ------- ------------- ----------- ---------------- ---------------- ----------------
William M. Heath 2003 190,000 47,500 - 150,000 13,500
Vice President, 2002 190,000 88,000 3,275(5) 100,000 13,500
Administration 2001 175,000 20,000 - - 13,500
- ------------------------------ ------- ------------- ----------- ---------------- ---------------- ----------------
John B. McCombe 2003 US$151,667 US$47,500 US$77,720(7) - -
Vice President, 2002 US$130,002 - US$82,065(7) 100,000 -
Latin American Operations 2001 US$120,000 - US$81,090(7) - -
- ------------------------------ ------- ------------- ----------- ---------------- ---------------- ----------------
(1) Where no figures have been provided, the only other annual compensation was taxable benefits that did not
exceed minimum threshold disclosure levels.
(2) Options granted under the share option plan comprising part of the share incentive plan of the Corporation.
(3) Except in the case of Mr. McCombe, represents the dollar value of any contribution paid by the Corporation
during the year with respect to a registered retirement savings plan for the benefit of the Named Executive
Officer.
(4) This bonus comprises a cash payment of $125,000 paid in April of 2003 and the issue, in February 2003, of
200,000 Common Shares from the share bonus plan portion of the share incentive plan of the Corporation, the
fair market value of which was $50,000 on the day the compensation was awarded.
(5) Represents a payout of vacation time earned but not taken.
(6) Represents the dollar value of imputed interest benefits from loans provided to the Mr. Galipeau by the
Corporation as computed in accordance with the Income Tax Act (Canada).
(7) Represents a US$42,000 housing allowance per annum with the balance applicable to education expenses incurred
on behalf of Mr. McCombe.
The following table sets forth information regarding options granted
during the financial year of the Corporation ended December 31, 2003, to the
Named Executive Officers.
OPTION GRANTS DURING THE MOST RECENTLY COMPLETED FINANCIAL YEAR
- ------------------------- --------------- --------------- --------------- ----------------- -----------------------
Market Value
Percent of of Securities
Total Options Underlying
Securities, Granted to Options on the
Under Options Employees in Exercise Price Date of Grant(1)
Name Granted Financial Year ($/security) ($/security) Expiration Date
- ------------------------- --------------- --------------- --------------- ----------------- -----------------------
Colin K. Benner 1,000,000 61.0% $0.255 $0.255 February 27, 2013
Common Shares
- ------------------------- --------------- --------------- --------------- ----------------- -----------------------
Rene R. Galipeau 250,000 15.2% $0.29 $0.29 September 11, 2013
Common Shares
- ------------------------- --------------- --------------- --------------- ----------------- -----------------------
J. Steven Hayes 75,000 4.6% $0.285 $0.285 August 11, 2013
Common Shares
- ------------------------- --------------- --------------- --------------- ----------------- -----------------------
William M. Heath 150,000 9.1% $0.285 $0.285 August 11, 2013
Common Shares
- ------------------------- --------------- --------------- --------------- ----------------- -----------------------
John B. McCombe 0 n/a n/a n/a n/a
Common Shares
- ------------------------- --------------- --------------- --------------- ----------------- -----------------------
(1) Reflects the closing price of the Common Shares on the Toronto Stock Exchange on the day before the date
of grant.
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The following table sets forth information regarding exercises of
options during the financial year of the Corporation ended December 31, 2003, by
the Named Executive Officers and the value as at December 31, 2003 of
unexercised options held by the Named Executive Officers on an aggregate basis.
AGGREGATED OPTION EXERCISES DURING THE MOST RECENTLY COMPLETED FINANCIAL YEAR AND FINANCIAL
YEAR-END OPTION VALUES
- ------------------------ ------------- ------------- --------------------------- -------------------------------------
Securities Aggregate Unexercised Options at Value of Unexercised
Acquired Value FY-End in-the-money Options at FY-End
Name on Exercise Realized December 31, 2003 December 31, 2003(1)
- ------------------------ ------------- ------------- --------------------------- -------------------------------------
Exercisable Unexercisable Exercisable Unexercisable
(#) ($) (#) (#) ($) ($)
- ------------------------ ------------- ------------- ------------ -------------- ------------------ ------------------
Colin K. Benner 250,000 113,500 1,926,667 333,333 572,500 150,000
- ------------------------ ------------- ------------- ------------ -------------- ------------------ ------------------
Rene R. Galipeau - - 496,667 183,333 92,500 72,500
- ------------------------ ------------- ------------- ------------ -------------- ------------------ ------------------
J. Steven Hayes - - 166,667 83,333 38,875 32,750
- ------------------------ ------------- ------------- ------------ -------------- ------------------ ------------------
William M. Heath - - 266,667 133,333 62,500 31,250
- ------------------------ ------------- ------------- ------------ -------------- ------------------ ------------------
John B. McCombe - - 151,667 33,333 30,000 15,000
- ------------------------ ------------- ------------- ------------ -------------- ------------------ ------------------
(2) Based upon the closing price of the Common Shares on the Toronto Stock Exchange on December 31, 2003 of
$0.64.
EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth information with respect to compensation
plans under which Common Shares are authorized for issue for the financial year
of the Corporation ended December 31, 2003.
- ------------------------------- ---------------------------- -------------------------- ---------------------------
Number of securities
remaining available for
Number of securities to be Weighted-average exercise future issuance under
issued upon exercise of price of outstanding equity compensation plans
outstanding options, options, warrants and (excluding securities
warrants and rights rights reflected in column (a)
PLAN CATEGORY (a) (b) (c)
- ------------------------------- ---------------------------- -------------------------- ---------------------------
EQUITY COMPENSATION PLANS
APPROVED BY SECURITYHOLDERS 9,647,434 $1.22 18,332
- ------------------------------- ---------------------------- -------------------------- ---------------------------
EQUITY COMPENSATION PLANS NOT
APPROVED BY SECURITYHOLDERS - - -
- ------------------------------- ---------------------------- -------------------------- ---------------------------
TOTAL 9,647,434 $1.22 18,332
- ------------------------------- ---------------------------- -------------------------- ---------------------------
TERMINATION OF EMPLOYMENT, CHANGE IN RESPONSIBILITIES AND EMPLOYMENT CONTRACTS
Colin K. Benner has entered into a four-year employment agreement with
the Corporation, which expires on December 31, 2006, and which is effective as
of December 19, 2002. The agreement calls for automatic renewal for two-year
terms beyond that termination date unless Mr. Benner's employment with the
Corporation is terminated.
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Mr. Benner's agreement provides for an annual salary of $500,000, which
amount is reviewed annually by the compensation committee of the directors of
the Corporation. It further stipulates that the annual salary paid to Mr. Benner
would be limited to $400,000 while the Corporation was experiencing financial
hardship. The difference between these two amounts was to be deferred, and
payment of this deferred amount, in a lump sum, and the implementation of the
higher salary level, would occur when Mr. Benner and the directors of the
Corporation mutually agreed that the financial affairs of the Corporation were
improved, allowing such payments.
By way of letter to the directors of the Corporation dated January 6,
2004, Mr. Benner acknowledged that the deferral terms of his employment
agreement had been satisfied, that all deferred amounts had been paid, and that
Mr. Benner's base annual salary had been adjusted accordingly.
In the event of termination of Mr. Benner's employment without cause,
not associated with a change of control, Mr. Benner is entitled to either 30
months' written notice of termination or pay in lieu of notice, as well as
benefits continuation for the 30-month period. If Mr. Benner elects to resign
his employment with Breakwater, he will be required to provide no less than one
months' written notice of his decision.
The agreement defines a "change of control" as the acquisition by any
group, other than Dundee Bancorp Inc. ("Dundee") or an affiliate of Dundee, of
sufficient security that the acquiring group establishes the right to cast more
than 30 percent of the votes that may be cast to elect directors of the
Corporation, AND the exercise of such voting rights causes the incumbent
directors of the Corporation to cease to be the majority.
In the event of a change of control, Mr. Benner has the unilateral right
to terminate his employment by providing notice to the Corporation, at which
time he will be paid a lump sum equal to 250 percent of his base annual salary
at the time notice is given plus an amount equal to 250 percent of the average
of any bonuses paid to Mr. Benner in the prior three financial years. In the
event that Mr. Benner's employment is terminated without cause following a
change of control, he will be entitled to these two payments plus payment in
lieu of benefits.
COMPOSITION OF THE COMPENSATION COMMITTEE
The members of the Compensation Committee during the financial year
ended December 31, 2003, were Donald K. Charter, Allen J. Palmiere and A. Murray
Sinclair, Jr. No member of the Compensation Committee was an officer or employee
of the Corporation or any of its subsidiaries during the year ended December 31,
2003. Mr. Charter is an Executive Vice President of Dundee and is the Chairman
and Chief Executive Officer of Dundee Securities Corporation ("DSC"). DSC is an
indirect, partially-owned subsidiary of Dundee.
The Compensation Committee makes determinations and recommendations to
the directors of the Corporation concerning the cash and incentive compensation
of the executive officers of the Corporation. The Compensation Committee, which
met once in 2003, has furnished the following report on executive compensation.
REPORT ON EXECUTIVE COMPENSATION
The primary goal of the Compensation Committee is to ensure that the
compensation provided to the executive officers of the Corporation is determined
with regard to the business strategies and objectives of the Corporation, such
that the financial interest of the executive officers of the Corporation is
consistent with the financial interest of the shareholders of the Corporation.
The Compensation Committee strives to ensure that the executive officers of the
Corporation are paid fairly and commensurate with their
11
contributions to furthering the strategic direction and objectives of the
Corporation. The Compensation Committee reviews, recommends and/or determines
all elements of the compensation of the executive officers of the Corporation on
an annual basis and periodically retains an independent consultant to evaluate
the compensation levels and policies relative to the market for executives in
positions similar to those of the executive officers of the Corporation. The
Compensation Committee has developed the following executive compensation
philosophy and policies to meet the foregoing objectives.
BASE SALARIES. The Compensation Committee recommends base salaries for each of
the executive officers of the Corporation on an individual basis, taking into
consideration the individual's performance and contributions to the success of
the Corporation, tenure in the job, competitive industry pay practices for
comparable positions and internal equities among positions. A periodic survey of
companies of similar size in terms of sales revenues, lines of business,
geographic location and employment levels provides insight into competitive base
salaries.
ANNUAL INCENTIVES. The executive officers of the Corporation have an opportunity
to earn annual bonuses. Award opportunities vary based on the individual's
position and contributions to the performance of the Corporation. Bonuses are
paid based on the performance of the individual and the results of the
Corporation measured against its annual budget.
LONG-TERM INCENTIVES. The Compensation Committee believes that options to
purchase Common Shares encourage the executive officers of the Corporation to
own and hold Common Shares and tie their long-term interests directly to those
of the shareholders of the Corporation. Under the terms of the share option plan
portion of the share incentive plan of the Corporation, the directors of the
Corporation, acting on the recommendations of the Compensation Committee, may
designate employees, including executive officers, eligible to receive options
to acquire such numbers of Common Shares as the directors determine at the then
current trading price of the Common Shares on the Toronto Stock Exchange (the
"TSX").
When granting options, consideration is given to the exercise price of
the aggregate options that would be held by the executive officer of the
Corporation after the grant under consideration is made. In determining
individual grants of options, the Compensation Committee considers the following
factors, among others, the performance and contributions to the success of the
Corporation of the executive officer, the relative position of the executive
officer, the years of service of the executive officer and past grants of
options to the executive officer.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER. The components of the total
compensation of Mr. Colin Benner, the Chief Executive Officer of the Corporation
and the manner in which they are reviewed and evaluated by the Compensation
Committee are similar to those for other executive officers of the Corporation.
Mr. Benner receives a base salary and annual incentive compensation, if any,
based on the performance of the Corporation and his individual performance. The
review of Mr. Benner's performance includes achieving production targets,
strategy and financial performance of the Corporation. On February 28, 2003, Mr.
Benner received, as partial payment for an incentive bonus for the financial
year ended December 31, 2002, 1,000,000 options to purchase Common Shares at an
exercise price of $0.255 and 200,000 Common Shares under the share bonus plan
portion of the share incentive plan of the Corporation. In April 2003, Mr.
Benner received $125,000 representing the balance of the incentive bonus payable
for 2002. In March 2004, Mr. Benner received $200,000 and 1,500,000 options to
purchase Common Shares at an exercise price of $0.67, subject to regulatory and
shareholder approval, as an incentive bonus payable for 2003.
Effective March 11, 2004, Mr. Rene R. Galipeau, Executive Vice President and
Chief Financial Officer resigned in order to pursue other interests. Mr. Richard
R. Godfrey, Vice President, Finance was appointed to the position of Chief
Financial Officer (Acting).
12
SUMMARY. The Compensation Committee will continue to evaluate the executive
compensation programs of the Corporation on an ongoing basis to ensure that the
compensation practices and philosophies of the Corporation are consistent with
the objective of enhancing shareholder value.
The members of the Compensation Committee have provided the foregoing report.
Donald K. Charter
Allen J. Palmiere
A. Murray Sinclair, Jr.
SHAREHOLDER RETURN PERFORMANCE GRAPH
The following table shows the yearly percentage change in the cumulative
shareholder return on the Common Shares compared to the cumulative total return
of the S&P/TSX Composite (formerly the TSE 300 Index) for the past five years
assuming an investment of $100 on December 31, 1998.
- ---------------------------------------------- ------------- ------------ ------------ ------------ ----------- -----------
Cdn. $ 1998 1999 2000 2001 2002 2003
- ---------------------------------------------- ------------- ------------ ------------ ------------ ----------- -----------
Stock Closing Price @ December 31 0.95 3.99 1.45 0.21 0.14 0.64
- ---------------------------------------------- ------------- ------------ ------------ ------------ ----------- -----------
Corporation Total Return - Base 1998 100 420 153 22 15 67
- ---------------------------------------------- ------------- ------------ ------------ ------------ ----------- -----------
Total Return Index - S&P/TSX Composite 13,648.84 17,977.46 19,309.36 16,881.75 14782.01 18732.48
- ---------------------------------------------- ------------- ------------ ------------ ------------ ----------- -----------
Total Return Index - Base 1998 100 132 141 124 108 137
- ---------------------------------------------- ------------- ------------ ------------ ------------ ----------- -----------
The following table is a graphical representation of the above-noted
information.
[PERFORMANCE GRAPH]
COMPENSATION OF DIRECTORS
In October 1996, the Corporation implemented a standard arrangement
pursuant to which non-management directors of the Corporation are compensated
for their services in their capacity as directors. Non-management directors are
paid $5,000 per annum and $750 per meeting attended (either of the directors or
of a committee thereof). The directors of the Corporation are eligible to
participate in the share incentive plan of the Corporation. Effective January 1,
2004 non-management directors are to receive $15,000 per annum and $1,000 per
meeting attended (either of the directors or of a committee thereof). In
addition, any non-management chair of a committee of the directors is to receive
$5,000 per annum.
The following table sets forth information regarding amounts earned by
non-management directors of Breakwater for their services as directors during
the financial year of the Corporation ended December 31, 2003.
13
- ------------------------- ------------------------------ ----------------------------- ---------------
Director Directors' Meetings Attended Committee Meetings Attended 2003 Earnings
- ------------------------- ------------------------------ ----------------------------- ---------------
Gordon F. Bub 6 n/a $9,500
- ------------------------- ------------------------------ ----------------------------- ---------------
Donald K. Charter 3 1 $8,000
- ------------------------- ------------------------------ ----------------------------- ---------------
Jonathan C. Goodman 5 2 $10,250
- ------------------------- ------------------------------ ----------------------------- ---------------
Allen J. Palmiere 5 4 $11,750
- ------------------------- ------------------------------ ----------------------------- ---------------
A. Murray Sinclair, Jr. 4 3 $10,250
- ------------------------- ------------------------------ ----------------------------- ---------------
DIRECTORS' AND OFFICERS' LIABILITY INSURANCE
The Corporation maintains directors' and officers' liability insurance
for the directors and officers of the Corporation providing coverage in the
amount of $25,000,000 in each policy year. The deductible amount on the policy
is $250,000 and the total annual premium in 2003 was $233,500.
INDEBTEDNESS OF DIRECTORS AND OFFICERS
The following table sets forth details of the indebtedness to, or
guaranteed or supported by, the Corporation or any of its subsidiaries of each
director and executive officer of the Corporation and each associate of any such
director or executive officer for the financial year of the Corporation ended
December 31, 2003.
INDEBTEDNESS OF DIRECTORS AND EXECUTIVE OFFICERS
- ------------------------------- --------------- ---------------- -------------- -------------- ------------- ---------------
Largest Amount Financially Amount
Outstanding Amount Assisted Forgiven
Involvement During Year Outstanding Securities During Year
of Corporation Ended as at Purchases Ended
Name and or Subsidiary December 31, April 29, During 2003 Security for December 31,
Principal Position 2003 2004 (#) Indebtedness 2003
- ------------------------------- --------------- ---------------- -------------- -------------- ------------- ---------------
Rene R. Galipeau(1) Corporation $50,000 $0 - - $0
Executive Vice President acted as
and Chief Financial Officer Lender
- ------------------------------- --------------- ---------------- -------------- -------------- ------------- ---------------
(1) Mr. Galipeau executed and delivered to the Corporation a promissory note dated December 16, 1994 pursuant to which
Mr. Galipeau agreed to pay to the Corporation, on demand, the amount of $50,000 plus interest calculated from
December 16, 1994 to the date of repayment at the rate of 10 percent per annum on such portion of the principal amount
as remains unpaid from time to time until such principal is fully paid. Mr. Galipeau used the proceeds of this loan to
purchase 25,000 Common Shares. Mr. Galipeau has paid the accrued interest on this loan and, effective January 1, 1998,
the arrangement with Mr. GaIipeau was amended to be non-interest bearing. Effective March 11, 2004 Mr. Galipeau's
indebtedness was retired.
The following table sets forth details of the aggregate indebtedness to,
or guaranteed or supported by, the Corporation or any of its subsidiaries of
employees of the Corporation or any of its subsidiaries for the financial year
of the Corporation ended December 31, 2003.
INDEBTEDNESS OF EMPLOYEES
- --------------------------------------------------------------------------------------------------------------------
AGGREGATE INDEBTEDNESS ($)
- --------------------------------------------------------------------------------------------------------------------
Purpose To the Company or its To Another Entity
Subsidiaries
- -------------------------------------------- ------------------------------- ---------------------------------------
Share Purchases - -
- -------------------------------------------- ------------------------------- ---------------------------------------
Other(1) $50,000 -
- -------------------------------------------- ------------------------------- ---------------------------------------
(1) Mr. St-Pierre was transferred from the Langlois Mine to serve as General Manager of the Bouchard-Hebert
Mine near Rouyn-Noranda, Quebec. As part of the transfer Mr. St-Pierre was required to move from Breakwater
provided accommodations to privately owned accommodations. Breakwater provided to Mr. St-Pierre an interest
free loan in the amount of $50,000 for the sole purpose of purchasing accommodations. Within thirty (30)
days of leaving his employment with Breakwater for any reason, Mr. St-Pierre is required to repay the loan in
its entirety. The loan is unsecured.
14
INTERESTS OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS
The only material transactions entered into since January 1, 2003 or
proposed to be entered into that have affected or are expected to materially
affect the Corporation or any of the affiliates of the Corporation involving an
officer or director of the Corporation, the principal shareholder of the
Corporation or any associate or affiliate of any such persons or companies are
as follows:
a) The Corporation and DSC, entered into an agreement in late 1998,
for DSC to act as the exclusive financial advisor to the
Corporation. The agreement was for an initial term of one year
and thereafter year to year until cancelled, and provided the
Corporation with the right to cancel the agreement. The
Corporation was obligated to pay to DSC a monthly work fee of
$25,000 up to a maximum of $250,000 per annum and an advisory
fee of up to one percent of the value of any transaction (the
amount being dependent on the type of transaction) completed by
the Corporation and 0.5 percent of any equity or debt financing.
Pursuant to the terms of the agreement, the Corporation is
obligated to pay DSC a fee of $543,000 in connection with the
acquisition of the Bouchard-Hebert Mine and the Langlois Mine by
the Corporation in May 2000, a fee of $715,000 in connection
with the refinancing of the Corporation in April 2000 resulting
in the Syndicated Credit Facility, a fee of $101,500 in
connection with a public offering of Common Shares completed by
the Corporation in May 1999 and a fee of $75,000 in connection
with a restructuring of the credit arrangements of the
Corporation completed in March 1999. The agreement was
terminated by the Corporation effective December 31, 2000. The
unpaid balance of $1,000,000 for the above fees (unchanged from
2002) was paid in February 2004. Donald K. Charter, a director
of the Corporation, is the Chairman and Chief Executive Officer
of DSC. DSC is an indirect, partially-owned subsidiary of
Dundee.
b) Under an agreement reached on December 23, 2002, with the
Lenders and Dundee, the Corporation, in consideration for
restructuring the credit facilities of the Corporation, granted
to the Lenders and Dundee the right to purchase 2,000,000 and
1,000,000 Common Shares respectively, at an exercise price of
$0.19. Garth A.C. MacRae, the Chairman and a director of the
Corporation, is the Vice-Chairman of Dundee, Donald K. Charter,
a director of the Corporation, is the Executive Vice President
of Dundee and Jonathan C. Goodman a director of the Corporation,
is a director of Dundee.
c) The Corporation accrued expenses of $500,000 for services
provided by Dundee, during the period from October 2001 to
December 2003.
APPOINTMENT OF AUDITORS
The auditor of the Corporation is Deloitte & Touche LLP, Chartered
Accountants. The persons named in the form of proxy accompanying this Circular
intend to vote for the reappointment of Deloitte & Touche LLP as the auditor of
the Corporation for the ensuing year or until its successor is appointed at a
remuneration to be fixed by the directors of the Corporation, unless the
shareholder has specified in the form of proxy that the Common Shares
represented by such proxy are to be withheld from voting in respect thereof.
15
SPECIAL BUSINESS
AMENDMENT OF THE SHARE INCENTIVE PLAN
Shareholders of the Corporation will be asked to approve an amendment to
the share incentive plan of the Corporation, which plan was amended and restated
as of May 6, 2002 (the "Plan").
The Plan is designed to advance the interests of the Corporation by
encouraging employees and directors to hold equity in the Corporation through
the acquisition of Common Shares. The Plan consists of a share purchase plan, a
share option plan and a share bonus plan and is administered by the directors of
the Corporation. The Plan currently provides that the maximum number of Common
Shares that may be issued for all purposes under the Plan is 22,000,000 Common
Shares.
Under the Plan, (a) the maximum number of Common Shares that may be
reserved for issue pursuant to options granted under the Plan to insiders of the
Corporation may not exceed 10 percent of the Common Shares outstanding at the
time of issue (on a non-diluted basis), (b) the maximum number of Common Shares
that may be issued under the Plan to insiders of the Corporation within a
one-year period may not exceed 10 percent of the number of Common Shares
outstanding at the time of issue (on a non-diluted basis), and (c) the maximum
number of Common Shares which may be issued under the Plan within a one-year
period to any one insider of the Corporation and such insider's associates may
not exceed 5 percent of the number of Common Shares outstanding at the time of
issue (on a non-diluted basis), in each case less the aggregate number of Common
Shares reserved for issue or issued, as the case may be, to such persons under
any other share compensation arrangement (within the meaning of the policy of
the TSX of the Corporation.
SHARE PURCHASE PLAN
The share purchase plan, a component of the Plan (the "Share Purchase
Plan"), entitles certain employees of the Corporation to contribute up to 10
percent of their annual basic salary to purchase Common Shares. The Corporation
matches each participant's contribution on a quarterly basis and issues Common
Shares having a value equal to the aggregate amount contributed to the Share
Purchase Plan by each participant and the Corporation. The purchase price per
Common Share is the weighted-average of the trading prices of the Common Shares
on the TSX for the calendar quarter in respect of which the Common Shares are
issued. The Common Shares are delivered to participants who are listed on the
head office payroll ("Head Office Participants") 12 months following their date
of issue. Participants who are not Head Office Participants ("On-Site
Participants") may contribute up to 5 percent of their annual basic salary.
On-Site Participants may direct the Corporation to deliver those Common Shares
that were acquired with that participant's contribution at any time. Common
Shares acquired with the Corporation's contribution are held in safekeeping and
delivered 12 months following their date of issue. If there is a take-over bid
made for the Common Shares, the directors may, by resolution, make any Common
Shares held in trust for a participant immediately deliverable. The Plan
currently provides that the maximum number of Common Shares that may be issued
under the Share Purchase Plan is 6,500,000 Common Shares, of which 4,343,204
have been issued as of April 29, 2004.
SHARE OPTION PLAN
The share option plan, a component of the Plan (the "Share Option
Plan"), provides that eligible persons thereunder include any director, employee
(full-time or part-time), officer or consultant of the Corporation or any
subsidiary thereof. A consultant is a person with whom the Corporation or a
subsidiary thereof has an agreement for the provision of substantial services.
16
The directors of the Corporation have the authority to determine, among
other things, subject to the terms and conditions of the Share Option Plan, the
terms, limitations, restrictions and conditions of the options granted under the
Share Option Plan.
The Plan currently provides that the maximum number of Common Shares
that may be reserved for issue pursuant to options granted under the Share
Option Plan is 12,500,000 Common Shares. As of April 29, 2004, 2,319,233 Common
Shares have been issued upon the exercise of options granted under the Share
Option Plan, 13,647,434 Common Shares have been reserved for issue pursuant to
outstanding options granted under the Share Option Plan and 515,000 Common
Shares previously subject to options under the Share Option Plan are no longer
available by virtue of the exercise by the optionees of their right to terminate
their options and to receive cash or Common Shares equal in value to the
difference between the fair market value of the Common Shares subject to their
option and the exercise price of their option. Accordingly, as of April 29, 2004
there were 3,981,668 more options outstanding than Common Shares available for
future option grants under the Stock Option Plan. Of the currently outstanding
options, 700,000 options to purchase Common Shares were granted, subject to
regulatory and shareholder approval, to five senior officers and one senior
employee on February 19, 2004, at an exercise price of $0.75, expiring February
18, 2009, 2,250,000 options to purchase Common Shares were granted, subject to
regulatory and shareholder approval, to two executive officers on March 9, 2004,
at an exercise price of $0.67, expiring March 8, 2009, 1,000,000 options to
purchase Common Shares were granted, subject to regulatory and shareholder
approval, to five outside directors on March 9, 2004, at an exercise price of
$0.67, expiring March 8, 2009 and 50,000 options to purchase Common Shares were
granted, subject to regulatory and shareholder approval, to a senior employee on
April 29, 2004, at an exercise price equal to the price of the Common Shares on
the TSX at the close of trading on May 3, 2004, expiring April 28, 2009.
The directors of the Corporation have the authority under the Share
Option Plan to establish the exercise price of the option at the time each
option is granted thereunder, which exercise price shall in all cases be not
less than the closing price of the Common Shares on the TSX on the trading day
immediately preceding the date of the grant of such options or such other day as
the directors determine.
Options granted under the Share Option Plan must be exercised no later
than ten years after the date of the grant thereof and options are not
transferable other than by will or the laws of descent and distribution. If an
optionee ceases to be an eligible person under the Plan for any reason
whatsoever other than death, each option held by such optionee will cease to be
exercisable three months from the date of termination (being the date on which
such optionee ceases to be an eligible person). If an optionee dies, the legal
representative of the optionee may exercise the optionee's options within one
year after the date of the optionee's death but only up to and including the
original option expiry date. The Share Option Plan also provides that the grant
of options to consultants as well as the termination thereof will be made in
accordance with the terms of the agreement entered into between the Corporation
and the applicable consultant. Any Common Shares subject to an option that for
any reason is cancelled or terminated without having been exercised are again
reserved for issue pursuant to the Share Option Plan.
The Share Option Plan provides that options granted thereunder are
subject to vesting provisions unless the directors of the Corporation determine
otherwise. The Share Option Plan also contains a provision for all unexercised
options (whether vested or unvested) to become immediately exercisable in the
event of the acquisition by a person of securities which would entitle such
person to exercise 30 percent or more of the votes entitled to be cast at a
meeting of the shareholders of the Corporation or the sale of all or
substantially all of the property or assets of the Corporation.
The Corporation may, but is not obligated to, provide any optionee with
financial assistance in order to enable such optionee to exercise options
granted under the Share Option Plan. The directors of the
17
Corporation are empowered to determine the interest rate charged and the
schedule for the repayment of any loan made to an optionee. Any such loan is to
be repayable upon maturity or upon the death of the optionee or earlier in
certain other circumstances such as termination of employment and in any event
shall be full recourse and repayable within ten years of the exercise of the
option. Such loan is to be secured by a pledge of the Common Shares purchased
with the proceeds of the loan.
An optionee may elect under the Share Option Plan to terminate an
option, in which case the optionee is entitled to receive consideration either
in Common Shares, or with the consent of the Corporation, cash equal in value to
the difference between the fair market value of the Common Shares subject to the
option and the exercise price of the option.
Subject to the approval of the directors of the Corporation, options
granted under the Share Option Plan may be assigned to the spouse of an
optionee, any minor children of the optionee, any minor grandchildren of the
optionee, a corporation controlled by the optionee where the only other
shareholders of such corporation are the spouse, minor children or minor
grandchildren of the optionee, or a family-trust where the optionee is the
trustee of such trust and the beneficiaries of such trust do not include anyone
other than the spouse, minor children or minor grandchildren.
SHARE BONUS PLAN
The share bonus plan, a component of the Share Incentive Plan (the
"Share Bonus Plan"), allows for the issue of Common Shares as a discretionary
bonus to any director, employee (full-time or part-time), officer or consultant
of the Corporation or any subsidiary thereof who are designated under the Share
Bonus Plan from time to time. The number of Common Shares reserved for issue
under the Share Bonus Plan is 3,000,000 Common Shares of which 1,200,000 have
been issued as of April 29, 2004.
PROPOSED AMENDMENT
The directors of the Corporation have approved the amendment of the Plan
to provide that the maximum number of Common Shares that may be issued under the
Plan shall be 34,500,000 Common Shares, that the maximum number of Common Shares
that may be issued pursuant to the Share Purchase Plan shall be 7,500,000 Common
Shares, that the maximum number of Common Shares that may be issued upon the
exercise of options granted under the Share Option Plan shall be 23,000,000
Common Shares and that the maximum number of Common Shares that may be issued
under the Share Bonus Plan shall be 4,000,000 Common Shares.
According to the policy of the TSX relating to share compensation
arrangements, when shareholders approve a share incentive plan, the maximum
number of shares that may be issued under the share incentive plan must be
specified. A change in the maximum number of shares that may be issued under a
share incentive plan is considered to be an amendment to a share incentive plan
and, in accordance with such policy of the TSX, is required to be approved by
shareholders. Accordingly, shareholders of the Corporation will be asked to
consider approving the amendment of the Plan to, among other things, increase
the maximum number of Common Shares that may be issued under the Plan to
34,500,000 Common Shares, of which 7,500,000 will be the maximum number that may
be issued under the Share Purchase Plan, 23,000,000 will be the maximum number
that may be issued under the Share Option Plan and 4,000,000 will be the maximum
number that may be issued under the Share Bonus Plan.
The affirmative vote of a majority of the votes cast in respect thereof
is required in order to approve such amendments to the Share Purchase Plan and
Share Option Plan portions of the Plan. The affirmative vote of a majority of
the disinterested votes cast in respect thereof is required in order to approve
the proposed amendment to the Share Bonus Plan portion of the Plan. Shareholders
who will not
18
be eligible to vote in respect of the proposed amendment to the Share Bonus Plan
comprise any officer or director who is eligible to receive Common Shares issued
under the Share Bonus Plan portion of the Plan. The number of Common Shares that
will not be eligible to vote in respect of the proposed amendment to the Share
Bonus Plan is 1,330,219.
Shareholders will be asked to consider and, if thought fit, approve a
resolution authorizing the grant of an aggregate 700,000 options to purchase
Common Shares on February 19, 2004 at an exercise price of $0.75, expiring
February 18, 2009, 3,250,000 options to purchase Common Shares on March 9, 2004
at an exercise price of $0.67, expiring March 8, 2009 and 50,000 options to
purchase Common Shares on April 29, 2004 at a price equal to the price of the
Common Shares on the TSX at the close of trading on May 3, 2004, expiring April
28, 2009.
The affirmative vote of a majority of the disinterested votes cast in
respect thereof is required in order to approve the proposed grant of options to
purchase Common Shares. Shareholders who will not be eligible to vote in respect
of the proposed grant of options to purchase Common Shares comprise any officer
or director who was granted any of the options to purchase Common Shares which
were subject to the regulatory and shareholder approval. The number of Common
Shares that will not be eligible to vote in respect of the proposed grant of
options to purchase Common Shares is 1,237,784.
INTENTION OF DIRECTORS AND EXECUTIVE OFFICERS
All of the directors and executive officers of the Corporation have
indicated that they intend to vote their Common Shares for each of the motions
described in the Notice of the Meeting. IN ADDITION, UNLESS INSTRUCTED
OTHERWISE, THE PERSONS NAMED IN THE FORM OF PROXY ACCOMPANYING THIS CIRCULAR
INTEND TO VOTE THE COMMON SHARES REPRESENTED BY SUCH PROXIES FOR EACH OF THE
MOTIONS.
STATEMENT OF CORPORATE GOVERNANCE PRACTICES
The TSX has adopted corporate governance guidelines that address matters
such as the constitution and independence of corporate boards, the functions to
be performed by the boards and other matters meant to further sound corporate
governance. Listed companies are required to provide a complete description of
corporate governance systems, where the listed company differs in its practices
from those recommended by the TSX and where the corporate governance practices
recommended by the TSX may not be applicable to the specific listed company.
The board of directors of the Corporation believes that sound and
appropriate corporate governance practices are important for the effective and
efficient operation of the Corporation. In accordance with the disclosure
requirements of the TSX the particulars of the Corporation's system of corporate
governance are set out in Schedule `A' attached hereto.
GENERAL
Financial information is provided in the Corporation's comparative
financial statements and management's discussion and analysis ("MD&A") thereof
for the year ended December 31, 2003. Copies of the most recent annual
information form, annual report, which includes the MD&A and financial
statements for the year ended December 31, 2003 and subsequent interim reports
which include interim MD&A and interim financial statements of the Corporation
may be obtained, upon request, from the Secretary of the Corporation, Suite 950,
95 Wellington Street West, Toronto, Ontario M5J 2N7, telephone: 416-363-4798,
email: INVESTORINFO@BREAKWATER.CA, website: WWW.BREAKWATER.CA or by accessing
the disclosure documents of the Corporation available through the internet on
the Canadian System for Electronic Document Analysis and Retrieval (SEDAR) which
can be accessed at www.sedar.com. The Corporation
19
may require the payment of a reasonable fee in respect of a request therefor
made by a person who is not a shareholder of the Corporation.
The contents of this Circular and the sending thereof to the
shareholders of the Corporation have been approved by the directors of the
Corporation.
By Order of the Board
April 29, 2004 (signed) Garth A.C. MacRae
Chairman of the Board
20
SCHEDULE `A'
STATEMENT OF CORPORATE GOVERNANCE PRACTICES
- -------------------------------------------------------------------------------------------------------------
CORPORATE GOVERNANCE GUIDELINE IS BREAKWATER REMARKS
ALIGNED?
- -------------------------------------------------------------------------------------------------------------
1. Explicit assumption of
responsibility for the stewardship
of the Corporation, and
specifically for:
- -------------------------------------------------------------------------------------------------------------
a. adoption of a strategic planning YES Management is responsible for developing
process corporate strategies and making recommendations
as to the implementation thereof. The directors
of the Corporation are responsible for reviewing
and approving such strategies, on a regular
basis, and monitoring management's success at
implementing those strategies that meet with the
directors' approval.
- -------------------------------------------------------------------------------------------------------------
b. identification of principal YES The directors of the Corporation require
risks, and implementing risk management of the Corporation to provide complete
management systems and accurate information with respect to the
Corporation's activities and to provide relevant
information concerning the industry in which the
Corporation operates in order to identify and
manage business risks.
- -------------------------------------------------------------------------------------------------------------
c. succession planning including YES The Compensation Committee, reviews and, where
appointing, training and monitoring appropriate, provides recommendations to the
senior management directors of the Corporation regarding the
appointment of officers and succession plans for
officers.
- -------------------------------------------------------------------------------------------------------------
d. communications policy YES Information regarding the Corporation is
available to shareholders via the internet,
email, mail, facsimile and telephone.
Shareholder inquiries are responded to on a
timely basis by the appropriate officer of the
Corporation.
- -------------------------------------------------------------------------------------------------------------
e. integrity of internal control YES The Corporation maintains a system of internal
and management information systems controls designed to provide reasonable assurance
that the Corporation's assets are protected and
that events and transactions are properly recorded
as they occur. The internal control structure is
tested and evaluated by the independent auditors
in connection with their annual audit. Deloitte &
Touche LLP, the independent auditors appointed by
the shareholders to audit the consolidated financial
statements, have full and unrestricted access to
the Audit
- -------------------------------------------------------------------------------------------------------------
21
- -------------------------------------------------------------------------------------------------------------
Committee to discuss their audit and their related
findings as to the integrity of the financial
reporting process. During the course of their audit,
Deloitte & Touche LLP review the Corporation's
system of internal controls to the extent necessary
to render their opinion on the consolidated
financial statements.
The directors of the Corporation are responsible
for ensuring that management fulfills its
responsibilities for financial reporting and
internal control. The board is assisted in
exercising its responsibilities through the Audit
Committee, which is composed of three unrelated
directors. The Audit Committee meets periodically
with management and the independent auditors to
satisfy itself that management's responsibilities
are properly discharged, to review the
consolidated financial statements and to
recommend approval of the consolidated financial
statements to the board.
- -------------------------------------------------------------------------------------------------------------
2. Majority of directors should be YES In 2003 the Corporation had seven directors. The
"unrelated" (independent from directors of the Corporation have concluded that
management and free from four of the seven directors were unrelated.
interfering or conflicting interest)
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3. Principles supporting the YES Three of the directors are also officers or
determination of whether a director former officers of the Corporation and as such
is "unrelated" are considered to be related directors. They are
Garth A.C. MacRae, Chairman; Colin K. Benner,
President and Chief Executive Officer and Gordon
F. Bub, former Chairman and Chief Executive
Officer. Donald K.Charter, Jonathan C. Goodman,
Allen J. Palmiere and A. Murray Sinclair, Jr. are
considered to be independent of management and
free of any interest or business relationship
that may interfere with their judgement. No
shareholder of the Corporation has the ability to
exercise a majority of the votes for the election
of the directors of the Corporation.
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4. Appoint a committee responsible NO The responsibility for proposing new nominees to
for proposing and assessing the board falls to the full board of directors of
directors the Corporation.
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5. Implement a process for NO The directors of the Corporation did not formally
assessing the effectiveness of the assess the effectiveness of the board as a whole,
board, its committees and committees of the board or individual directors.
individual directors
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6. Provide orientation and YES Orientation and education of new directors is
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education programs for new directors tailored to the new director's background and
experience.
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7. Examine the size of the board YES The directors of the Corporation have considered
with a view to the board's the size of the board with a view to determining
effectiveness in making decisions their effectiveness and have concluded that the
number of directors is appropriate. As the board
is presently constituted, the directors' skills,
backgrounds and strengths allow for diverse
representation while the number of directors is
small enough to allow for effective deliberation.
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8. Review the adequacy and form of YES From time to time the directors of the
compensation of directors in light Corporation review the adequacy and form of
of risks and responsibilities of an compensation of directors in order to ensure
effective director compensation is commensurate with the risks and
responsibilities the directors assume.
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9. Committees - Description of The board of directors of the Corporation has
board committees, mandates, three committees, the audit committee, the
activities and composition compensation committee and the hedging strategies
committee. From time to time ad hoc committees
of the directors may be formed as necessary to
deal with specific situations.
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a. Audit Committee YES In 2003 the audit committee was composed of three
directors, all of whom were unrelated directors.
The audit committee is responsible for reviewing
the Corporation's financial reporting procedures,
internal controls and the performance of the
financial management and independent auditors of
the Corporation. The audit committee also
reviews the annual audited financial statements
and recommends their acceptance to the board.
(See also 1.e.) During 2003 the members of the
audit committee were Allen J. Palmiere (Chair),
A. Murray Sinclair, Jr. and Jonathan C. Goodman.
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b. Compensation Committee YES The compensation committee is responsible for
administering the Corporation's share incentive
plan and reviewing and approving the levels of
compensation for the senior executives of the
Corporation. In 2003 the committee was composed
of three directors, all of whom were unrelated
directors. The members of the committee were
Donald K. Charter (Chair), A. Murray Sinclair,
Jr. and Allen J. Palmiere.
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c. Hedging Committee DOES NOT ALIGN AS The hedging committee is responsible for
TO COMPOSITION. formulating and implementing hedging strategies
for the Corporation. In 2003 the
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committee was composed of two directors, both of
whom were related directors, and the Chief
Financial Officer. During 2003 the members of the
committee were Colin K. Benner, Garth A.C. MacRae
and Rene R. Galipeau.
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10. Express assumption of YES It is the view of the board at this time that all
responsibility for corporate of the directors of the Corporation should assume
governance either by the board or a responsibility for corporate governance issues.
committee thereof
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11. a. Define limits to
management's responsibilities by
developing mandates for:
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i. the Board YES The directors of the Corporation operate pursuant
to the mandate set out in the Canada Business
Corporations Act that provides that the directors
of the Corporation are to manage the business and
affairs of the Corporation and to act with a view
to the best interests of the Corporation.
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ii. the CEO YES Subject to the authority of the directors of the
Corporation, the CEO has a mandate to generally
supervise the business and affairs of the
Corporation.
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b. Board should approve CEO's YES The directors of the Corporation, in their
corporate objectives regular meetings, assess the performance of
management of the Corporation, including the CEO.
Management of the Corporation clearly understands
that all transactions or matters of a material
nature must be presented by management to the
directors for approval.
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12. Establish structures and YES Garth A.C. MacRae is Chairman of the board of
procedures to ensure that the board directors while Colin K. Benner is the Chief
can function independently of Executive Officer of the Corporation.
management
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13.a. Establish an Audit Committee YES See 9.a. above.
with a defined mandate
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b. Audit Committee composed only of YES See 9.a. above.
outside directors
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14. Implement a system which YES Individual directors may engage independent,
enables individual directors to professional advisors at the Corporation's
engage outside advisors at the expense in appropriate circumstances. The Audit
Corporation's expense Committee approves such requests.
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