Item 6. Directors, Senior Management and Employees
A. Directors and Senior Management
The following is a list of the Company’s directors and senior management as at December 31, 2013. The directors were elected by the Shareholders on May 31, 2013 and are elected for a term of one year, which term expires at the election of the directors at the next annual meeting of shareholders.
Name, Position(s) with the Company
and Municipality of Residence
|
Principal Occupation
|
Period (s) Served
as a Director
|
Bryce G. Roxburgh
Co-Chairman of the Board Director
Philippines
|
Co-Chairman of the Company since February 27, 2013; President and CEO of the Company from September 2003 to March 2013; Co-Chairman of Extorre Gold Mines Limited from March 2010 until August 2012; Chairman of Rugby Mining Limited since January 2007.
|
March 20, 2003 to date
|
Yale R. Simpson
Co-Chairman of the Board Director
West Vancouver, B.C. Canada
|
Co-Chairman of the Company since February 27, 2013; Chairman of the Company from September 11, 2003 to February 27, 2013; Co-Chairman of Extorre Gold Mines Limited from March 2010 until August 2012; President of Canaust Resource Consultants Ltd. since 1992; Director of Independence Gold Corp. since December 2011, Adamera Minerals since February 2013 and Rugby Mining Limited since January 2007.
|
June 10, 2003 to date
|
Robert G. Reynolds
Director
Sydney, Australia
|
Chartered Accountant; Chairman of Alacer Gold Corp./Avoca Resources Limited March 2002 to August 2011; Director of Extorre Gold Mines Limited from March 2010 until August 2012; Rugby Mining Limited since January 24, 2007; Dacian Gold Limited since October 2012; Global Geoscience Limited since December 2007; Convergent Minerals Limited since December 2011 and Chesser Resources Limited since October 2012.
|
June 12, 2007 to date
|
Julian Bavin
Director
Santiago, Chile
|
Director of Pan Global Resources since June 2010 and CEO since December 2010; Director of Estrella Resources since March 2012 and Prism Resources since May 2012; served as Rio Tinto’s Exploration Director for South America between 2001 and 2009.
|
March 25, 2010 to date
|
John Simmons
Director
Sydney, Australia
|
Fellow of the Institute of Chartered Accountants in Australia. Partner with Simmons Johnson & Co. Chartered Accountants (now Nexia Court) from 1978 to 2012.
|
August 18, 2010 to date
|
Wendell M. Zerb
President and Chief Executive Officer
Burnaby, B.C. Canada
|
A Appointed as President and Chief Executive Officer on February 27, 2013; Senior Mining Analyst for Canaccord Capital from March 2005 to July 2012 and a registered Professional Geologist with the Association of Professional Engineers, and Geoscientists of Alberta (APEGA).
|
N/A
|
S. R. Jeremy Perkins
VP Development and Operations
Sydney, Australia
|
Appointed as Vice President Development and Operations on February 1, 2005; AusIMM Chartered Professional and Fellow, Director and Principal, J Perkins & Associates Pty Ltd, an industry consultant firm since 1989.
|
N/A
|
Cecil Bond
Chief Financial Officer
Langley, B.C. Canada
|
Appointed as Chief Financial Officer on April 13, 2005; Chartered Accountant. CFO of Rugby Mining Limited (formerly Carlyle Mining Corp.) from February 2007 to March 2009; Director of Rugby Mining Limited from March 2009 until September 2012; Director of Extorre Gold Mines Limited from December 2009 to March 2010; VP Finance of Extorre from March 2010 until August 2012; and Director and officer of various private companies.
|
N/A
|
Family Relationships
There are no family relationships between any directors or executive officers of the Company.
Arrangements
There are no known arrangements or understandings with any major shareholders, customers, suppliers or others, pursuant to which any of the Company’s officers or directors was selected as an officer or director of the Company.
Conflicts of Interest
There are no existing or potential conflicts of interest among the Company, its directors, officers or promoters as a result of their outside business interests with the exception that certain of the Company’s directors, officers and promoters serve as directors, officers and promoters of other companies, as set out below, and, therefore, it is possible that a conflict may arise
between their duties as a director, officer or promoter of the Company and their duties as a director or officer of such other companies.
The directors and officers of the Company are aware of the existence of laws governing accountability of directors and officers for corporate opportunity and requiring disclosures by directors of conflicts of interest and the Company will rely upon such laws in respect of any directors’ and officers’ conflicts of interest or in respect of any breaches of duty by any of its directors or officers. All such conflicts will be disclosed by such directors or officers in accordance with the British Columbia Business Corporations Act, and they will govern themselves in respect thereof to the best of their ability in accordance with the obligations imposed upon them by law.
The majority of the Company’s directors are also directors, officers or shareholders of other companies that are engaged in the business of acquiring, developing and exploiting natural resource properties including properties in countries where the Company is conducting its operations. Such associations may give rise to conflicts of interest from time to time. Such a conflict poses the risk that the Company may enter into a transaction on terms which place the Company in a worse position than if no conflict existed. The directors of the Company are required by law to act honestly and in good faith with a view to the best interest of the Company and to disclose any interest which they may have in any project or opportunity of the Company. However, each director has a similar obligation to other companies for which such director serves as an officer or director. The Company has no specific internal policy governing conflicts of interest.
In addition to their positions on the Board, the following directors also serve as directors of the following reporting issuers or reporting issuer equivalent(s):
Name of Director
|
Reporting Issuer(s) or Equivalent(s)
|
Bryce G. Roxburgh
|
Rugby Mining Limited
|
Yale R. Simpson
|
Independence Gold Corp.
Rugby Mining Limited
Adamera Minerals Corp.
|
Robert G. Reynolds
|
Rugby Mining Limited
Global Geoscience Limited
Dacian Gold Limited
Convergent Minerals Limited
Chesser Resources Limited
|
John C. Simmons
|
None
|
Julian Bavin
|
Pan Global Resources Inc.
Estrella Resources Limited
Prism Resources
|
The Company does not have a formal compensation program. However, the Compensation Committee of the Board meets to discuss and determine the recommendations that it will make to the Board regarding management compensation, without reference to formal objectives, criteria or analysis. The general objectives of the Company’s compensation strategy are to (a) compensate management in a manner that encourages and rewards a high level of performance and outstanding results with a view to increasing long-term shareholder value; (b) align management’s interests with the long-term interests of shareholders; (c) provide a compensation package that is commensurate with other junior mineral exploration companies to enable the Company to attract and retain talent; and (d) ensure that the total compensation package is designed in a manner that takes into account the constraints that the Company is under by virtue of the fact that it is a junior mineral exploration company without a history of earnings.
The Compensation Committee is composed of Robert G. Reynolds, John C. Simmons and Julian Bavin, all of whom are independent directors, applying the definition set out in section 1.4 of National Instrument 52- 110 – Audit Committees (“NI 52-110”) and Rules 803A and 805(c)(1) of the NYSE MKT Company Guide.
The Compensation Committee considers and evaluates executive compensation levels on an annual basis against available information for “peer group” companies, which are principally comprised of “junior mineral exploration” companies, to ensure that the Company’s executive compensation levels are within the range of comparable norms. In selecting peer
group companies, the Compensation Committee primarily looks for public companies that are comparable in terms of business and size. In 2012 the Compensation Committee commissioned an independent organization to provide an up to date review of the Company’s executive compensation package.
Currently, the principal components of the Company’s executive compensation packages are base remuneration, long-term incentive in the form of stock options, and a discretionary annual incentive cash bonus. The Company targets base remuneration, bonuses, and option based awards towards an upper level relative to peer companies for similarly experienced executives performing similar duties. Generally, awards are made within this range, although compensation is awarded above or below in cases of exceptional or poor corporate and/or individual performance or other individual factors relating to a Named Executive Officer. The Company benchmarks against upper compensation levels to attract and retain executives, and provide an incentive for executives to strive for better than average performance to earn better than average compensation and helps the Company to manage the overall cost of management compensation.
While the Compensation Committee believes that it is important to use benchmarking data to assist it in determining appropriate ranges for executive compensation, it also considers other factors when awarding executive compensation, such as the overall financial strength of the Company, its exploration successes and equity financing success.
Base remuneration is used to provide the Named Executive Officers a set amount of money during the year with the expectation that each Named Executive Officer will perform his responsibilities to the best of his ability and in the best interests of the Company.
The granting of incentive stock options provides a link between management compensation and the Company’s share price. It also rewards management for achieving results that improve Company performance and thereby increase shareholder value. Stock options are generally awarded to executive officers at the commencement of employment and periodically thereafter. In making a determination as to whether a grant of long-term incentive stock options is appropriate, and if so, the number of options that should be granted, consideration is given to: the number and terms of outstanding incentive stock options held by the Named Executive Officer; current and expected future performance of the Named Executive Officer; the potential dilution to shareholders and the cost to the Company; general industry standards and the limits imposed by the terms of the Company’s stock option plan, as amended (the “Option Plan”) and the Toronto Stock Exchange (the “TSX”). The Company considers the granting of incentive stock options to be a particularly important element of compensation as it allows the Company to reward each Named Executive Officer’s efforts to increase value for shareholders without requiring the Company to use cash from its treasury. The terms and conditions of the Company’s stock option grants, including vesting provisions and exercise prices, are governed by the terms of the Option Plan, which are described under “Incentive Plan Awards” below.
Finally, the Compensation Committee will consider whether it is appropriate and in the best interests of the Company to award a discretionary cash bonus to the Named Executive Officers and if so, in what amount. A cash bonus may be awarded to reward extraordinary performance that has led to increased value for shareholders through strategic corporate transactions, property acquisitions or divestitures, the formation of new strategic or joint venture relationships and/or capital raising efforts. Demonstrations of extraordinary personal commitment to the Company’s interests, the community and the industry may also be rewarded through a cash bonus.
The Compensation Committee considers the implications and risks of the Company’s compensation policies and practices as a factor in assisting the Board in approving and monitoring guidelines and practices regarding the compensation and benefits of officers. In particular, the committee considers the impact on NEOs and other senior executives to ensure that they do not take undue risks. The Compensation Committee has not identified any risks in the Company’s existing compensation policies and practices that it believes would be reasonably likely to have a material adverse effect on the Company.
The Company does not have a formal policy prohibiting a NEO or director from purchasing financial instruments that are designed to hedge or offset a decrease in market value of equity securities granted as compensation and held, directly or indirectly, by the NEO or director.
Summary Compensation Table
The following table is a summary of compensation paid to the Named Executive Officers for the three most recently completed financial years.
Name and
Principal Position
|
Year
|
Salary
($)
|
Share- based awards ($)
|
O
p
t
io
n
-
b
a
s
e
d
a
w
a
r
d
s
(
$
)
(1)
|
Non-equity incentive plan compensation
|
P
e
n
s
i
o
n
v
a
l
u
e
(
$
)
(3)
|
All other compensation
($)
|
Total
compensation
($)
|
A
nnu
a
l
i
n
ce
n
t
i
v
e
p
l
a
n
(2)
|
L
o
n
g
-
t
e
r
m
i
n
ce
n
t
i
v
e
p
l
a
n
(2)
|
Bryce G. Roxburgh, Co-Chairman
(5)
|
2013
2012
2011
|
$280,000
(7)
$360,000
(8)
$360,000
(8)
|
Nil
Nil
Nil
|
$339,900
$1,358,175
$606,740
|
Nil
Nil
$125,000
(4)
|
Nil
Nil
Nil
|
Nil
Nil
Nil
|
Nil
Nil
Nil
|
$619,900
$1,718,175
$1,091,740
|
Yale R. Simpson, Co-Chairman
|
2013
2012
2011
|
$120,000
(9)
$160,000
(9)
$175,000
(9)
|
Nil
Nil
Nil
|
$203,940
$981,939
$407,053
|
Nil
Nil
$75,000
(4)
|
Nil
Nil
Nil
|
Nil
Nil
Nil
|
Nil
Nil
Nil
|
$323,940
$1,141,939
$657,050
|
Wendell M. Zerb, President and Chief Executive Officer
(6)
|
2013
2012
2011
|
$350,000
Nil
Nil
|
Nil
Nil
Nil
|
$1,115,400
Nil
Nil
|
Nil
Nil
Nil
|
Nil
Nil
Nil
|
Nil
Nil
Nil
|
Nil
Nil
Nil
|
$1,465,400
Nil
Nil
|
Cecil R. Bond, Chief Financial Officer
|
2013
2012
2011
|
$250,000
(10)
$200,000
(11)
$200,000
(11)
|
Nil
Nil
Nil
|
$203,940
$886,658
$460,815
|
Nil
Nil
$
10
0
,
0
0
0
(4)
|
Nil
Nil
Nil
|
Nil
Nil
Nil
|
Nil
Nil
Nil
|
$453,940
$1,086,658
$760,815
|
S. R. Jeremy Perkins, VP Development & Operations
|
2013
2012
2011
|
$212,389
(12)
$288,508
(12)
$260,981
(12)
|
Nil
Nil
Nil
|
Nil
$541,640
Nil
|
Nil
Nil
$
5
0
,
0
00
(4)
|
Nil
Nil
Nil
|
Nil
Nil
Nil
|
Nil
Nil
Nil
|
$212,389
$830,148
$310,981
|
|
(1)
|
The Company used the Black-Scholes option pricing model for determining the fair value of stock options issued at grant date. These values do not represent actual amounts received by the NEOs as the gain, if any, will depend on the market value of the shares on the date that the option is exercised.
|
|
(2)
|
The Company does not currently have a formal annual incentive plan or long term incentive plan for any of its executive officers, including its Named Executive Officers, but may award discretionary bonus payments from time to time.
|
|
(3)
|
The Company does not have any pension, retirement or deferred compensation plans, including defined contribution plans.
|
|
(4)
|
Discretionary bonus paid for continuing and past service.
|
|
(5)
|
Mr. Roxburgh transitioned from the role of President and Chief Executive Officer to the role of Co-Chairman, a position shared with Mr. Simpson, on February 28, 2013.
|
|
(6)
|
Mr. Zerb was appointed President and Chief Executive Officer on February 28, 2013.
|
|
(7)
|
The Company paid a fee of $30,000 per month for the first six months and $16,667 per month for the last six months of the financial year ended December 31, 2013 to Rowen Company Limited (“Rowen”) a company controlled by Mr. Roxburgh.
|
|
(8)
|
The Company paid a fee of $30,000 per month during the financial year ended December 31, 2012, and 2011 to Rowen.
|
|
(9)
|
The Company paid a fee of $14,583 per month for the financial years ended December 31, 2013, 2012 and 2011 to Canaust Resource Consultants Ltd. (“Canaust”). Canaust is controlled by Mr. Simpson.
|
|
(10)
|
The Company paid a fee of $20,833 per month for the financial year ended December 31, 2013 to 667060 B.C. Ltd. (“667060”), a company controlled by Mr. Bond.
|
|
(11)
|
The Company paid a fee of $16,667 per month for the financial years ended December 31, 2012 and 2011 to 667060
.
|
|
(12)
|
Fees paid by the Company, based upon time charged, are paid to J Perkins & Associates Pty Ltd. (“JPA”), a company controlled by Mr. Perkins
.
|
The Company entered into consulting agreements dated as of September 1, 2010 with Bryce Roxburgh (“Roxburgh”), Cecil Bond (“Bond”) and Yale Simpson (“Simpson”) and the companies through which their services are provided.
Pursuant to the consulting agreement between the Company, Rowen of Hong Kong and Roxburgh, Rowen provides the services of Roxburgh to the Company, and provides for Roxburgh to serve as a director of the Company as elected and to hold office at the pleasure of the Board. Roxburgh is a beneficiary of Rowen. The Company pays Rowen a monthly consulting fee of $16,667 for Roxburgh’s services. The agreement has a term of two years, and upon expiry, will automatically be extended for a further two years unless the Company gives 180 days’ notice that it will not extend the agreement. With no notice provided by the Company, on March
1, 2012 the consulting agreement is extended to August 31, 2014. See “Termination and Change of Control Benefits” below.
Pursuant to the consulting agreement between the Company, 667060 of British Columbia and Bond, 667060 provides the services of Bond to the Company, and provides for Bond to serve as CFO of the Company at the pleasure of the Board. 667060 is controlled by Bond. The Company pays 667060 a monthly consulting fee of $20,833 for Bond’s services. The agreement has a term of two years, and upon expiry, will automatically be extended for a further two years unless the Company gives 180 days’ notice that it will not extend the agreement. With no notice provided by the Company, on March 1, 2012 the consulting agreement was extended to August 31, 2014. See “Termination and Change of Control Benefits” below.
Pursuant to the consulting agreement between the Company, Canaust of British Columbia and Simpson, Canaust provides the services of Simpson to the Company, and provides for Simpson to serve as a director of the Company as elected and to hold the office of Chairman at the pleasure of the Board. Canaust is controlled by Simpson. The Company pays Canaust a monthly consulting fee of $14,583 for Simpson’s services. The agreement has a term of two years, and upon expiry, will automatically be extended for a further two years unless the Company gives 180 days’ notice that it will not extend the agreement. With no notice provided by the Company, on March 1, 2012 the consulting agreement was extended to August 31, 2014. See “Termination and Change of Control Benefits” below.
Incentive Plan Awards
Outstanding Share-Based Awards and Option-Based Awards – NEOs
The following table is a summary of all option-based awards and share-based awards to the Named Executive Officers that were outstanding at the end of the most recently completed financial year.
|
Option based Awards
|
Share based Awards
|
Name
|
Number of securities underlying unexercised options
(#)
|
Option
exercise
price
($)
|
Option
expiration
date
|
Value of unexercised
in-the-money options
(1)
($)
|
Number of
shares or units
of shares
that
have
not
vested
(#)
|
Market or
payout value
of shares-
based awards
that
have
not
vested
|
Market or
payout value
of shares-
based awards
not paid
out or
distributed
($)
|
Bryce G. Roxburgh
|
750,000
500,000
|
$1.31
$1.20
|
Nov. 16, 2017
Mar. 11, 2018
|
Nil
|
Nil
|
Nil
|
Nil
|
Yale R. Simpson
|
385,000
300,000
|
$1.31
$1.20
|
Nov. 16, 2017
Mar. 11, 2018
|
Nil
|
Nil
|
Nil
|
Nil
|
Wendell M. Zerb
|
1,500,000
|
$1.22
|
Jan. 10, 2018
|
Nil
|
Nil
|
Nil
|
Nil
|
Cecil R. Bond
|
585,000
300,000
|
$1.31
$1.20
|
Nov. 16, 2017
Mar. 11, 2018
|
Nil
|
Nil
|
Nil
|
Nil
|
S. R. Jeremy Perkins
|
250,000
|
$1.31
|
Nov. 16, 2017
|
Nil
|
Nil
|
Nil
|
Nil
|
(1) In-the-money options are those where the market value of the underlying securities as at the most recent financial year end exceeds the option exercise price. This amount is calculated as the difference between the market value of the securities underlying the options on December 31, 2013, being the last trading day of the Company’s shares for the financial year, and the exercise price of the option. The closing market price of the Company’s shares as at December 31, 2013 was $0.53. These options have not been, and may never be, exercised and actual gains, if any, on exercise will depend on the market value of the underlying securities on the date of exercise.
Incentive Plan Awards – Value Vested or Earning During The Year - NEOs
The following table is a summary of the value of awards vested or earned during the most recently completed financial year for the Named Executive Officers.
Name
|
Option-based awards –
Value vested during the
year
(1)(2)
($)
|
Share-based awards –
Value vested during the year
($)
|
Non-equity incentive
plan compensation –
Value earned during
the year ($)
|
Bryce G. Roxburgh
|
Nil
|
Nil
|
Nil
|
Yale R. Simpson
|
Nil
|
Nil
|
Nil
|
Wendell M. Zerb
|
Nil
|
Nil
|
Nil
|
Cecil R. Bond
|
Nil
|
Nil
|
Nil
|
S. R. Jeremy Perkins
|
Nil
|
Nil
|
Nil
|
(1) Value vested during the year is calculated by subtracting the market price of the Company’s common shares on the date the option vested (being the closing price of the Company’s shares on the TSX on the last trading day prior to the vesting date) from the exercise price of the option.
(2) No options vested during the year, options vested immediately or the market price of the Company’s common shares on the date the option vested was equal to or lower than the exercise price of the option.
Stock Option Plan
The Company has adopted an incentive stock option plan (the “Plan”), the essential elements of which are as follows: On May 31, 2013, shareholders approved an amended Plan reducing the aggregate number of shares of the Company’s capital stock issuable pursuant to options granted under the Plan, such that options granted under the Plan may not exceed 10% of the issued and outstanding shares of the Company at the time of the option grant. No additional options may be granted until the number of options falls below the Plan limit. At December 31, 2013, the maximum number of options issuable under the Plan was 8,840,775. The Plan provides for a limit on insider participation such that the shares reserved for issuance to insiders does not exceed 10% of the issued and outstanding shares of the Company. Options granted under the Plan may have a maximum term of ten years, but options granted to date have had a life of 5 years. Unless subsequently amended, the exercise price of options granted under the Plan will not be less than the last closing market price of the Company’s shares immediately preceding the grant date. Options granted under the Plan may be subject to vesting at times as determined by the directors of the Company and the Toronto Stock Exchange.
Termination and Change of Control Benefits
The Company has entered into consulting agreements with each of Rowen and Bryce Roxburgh; 667060 and Cecil Bond and Canaust and Yale Simpson and an employment agreement with Wendell Zerb. Pursuant to the terms of the consulting agreements, where termination notice is given by the Company, other than for certain specified reasons, the Company will pay Rowen, 667060 or Canaust, as applicable, a lump sum equal to 24 times the monthly consulting fee under the agreement plus an amount equivalent to the highest annual bonus paid in the immediately preceding two years. Pursuant to the employment agreement, where termination notice is given by the Company, other than for certain specified reasons, the Company will pay Wendell Zerb, a lump sum equal to 24 times the monthly salary under the agreement plus, if termination notice is given after the first year of the agreement, an amount equivalent to the highest annual bonus paid in the immediately preceding two years. If no such annual bonus has been paid then the deemed annual bonus will be fifty percent of the annual fee paid to the consultant or employee. Where termination notice is delivered by either party within the 90-day period following a Change of Control (as defined below), the Company will pay Rowen, 667060 or Canaust, as applicable, a lump sum equal to 30 times the monthly consulting fee under the agreement, plus 2 times the annual bonus or deemed annual bonus and the Company will pay Wendell Zerb a lump sum equal to 24 times the monthly consulting fee under the agreement, plus 2 times the annual bonus or deemed annual bonus.
“Change of Control” is defined as:
(i)
|
the sale, transfer or disposition of the Company’s assets in complete liquidation or dissolution of the Company; or
|
(ii)
|
the Company amalgamates, merges or enters into a plan of arrangement with another company at arm’s length to the Company and its affiliates, other than an amalgamation, merger or plan of arrangement that would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving or resulting entity) more than 50% of the combined voting power of the surviving or resulting entity outstanding immediately after such amalgamation, merger or plan of arrangement; or
|
(iii)
|
any Person or combination of Persons at arm’s length to the Company and its affiliates acquires or becomes the beneficial owner of, directly or indirectly, more than 20% of the voting securities of the Company, whether through the acquisition of previously issued and outstanding voting securities, or of voting securities that have not been previously issued, or any combination thereof, or any other transaction having a similar effect, and such person or combination of persons exercise(s) the voting power attached to such securities in a manner that causes the Incumbent Directors to cease to constitute a majority of the Board; or
|
(iv)
|
any Person or combination of Persons at arm’s length to the Company and its affiliates acquires or becomes the beneficial owner of, directly or indirectly, more than 50% of the voting securities of the Company, whether through the acquisition of previously issued and outstanding voting securities, or of voting securities that have not been previously issued, or any combination thereof, or any other transaction having a similar effect; or
|
(v)
|
the removal, by extraordinary resolution to the shareholders of the Company, of more than 51% of the then Incumbent Directors of the Company, or the election of a majority of directors to the Board who were not nominees of the Incumbent Board at the time immediately preceding such election.
|
“Incumbent Director” means any member of the Board who was a member of the Board prior to the occurrence of the transaction, transactions or elections giving rise to a Change of Control and any successor to an Incumbent Director who was recommended or elected or appointed to succeed an Incumbent Director by the affirmative vote of a majority of the Incumbent Directors then on the Board.
“Person” means any individual, partnership, limited partnership, joint venture, syndicate, sole proprietorship, company or corporation with or without share capital, unincorporated association, trust, trustee, executor, administrator or other legal personal representative, regulatory body or agency, government or governmental agency or entity however designated or constituted.
Had a notice of termination been given on December 31, 2013 in the circumstances described above, other than a Change of Control, Rowen would have been entitled to an immediate payment of approximately $500,000; 667060 would have been entitled to an immediate payment of approximately $625,000; Canaust would have been entitled to an immediate payment of approximately $437,500 and Wendell Zerb would have been entitled to an immediate payment of approximately $700,000.
Had a Change of Control occurred on December 31, 2013, and the Company determined that it would act in accordance with the provisions of the contracts and where such notice of termination was given under each of the consulting and employment agreements, Rowen would have been entitled to an immediate payment of approximately $700,000; 667060 would have been entitled to an immediate payment of approximately $875,000; Canaust would have been entitled to an immediate payment of approximately $612,500 and Wendell Zerb would have been entitled to an immediate payment of approximately $1,050,000.
Director Compensation
Effective January 1, 2012, non-executive directors received fees totaling $50,000 per annum payable quarterly. The granting of incentive stock options provides a link between director compensation and the Company’s share price. Stock options are generally awarded to directors when they are first elected by the shareholders or appointed by the Board and periodically thereafter. In making a determination as to whether a grant of long-term incentive stock options is appropriate, and if so, the number of options that should be granted, consideration is given to: the number and terms of outstanding incentive stock options held by the director; current and expected future contribution of the director; the potential dilution to shareholders and the cost to the Company; general industry standards; and the limits imposed by the terms of the Option Plan and the TSX. The Company considers the granting of incentive stock options to be a particularly important element of compensation as it allows the Company to reward each director’s efforts to increase value for shareholders without requiring the Company to use cash from its treasury.
Director Compensation Table
The following table is a summary of all compensation provided to the directors of the Company for the most recently completed financial year.
Name
(1)
|
Fees
earned
($)
|
Share- based awards
($)
|
Option- based awards
($)(2)
|
Non-equity
incentive plan compensation
($)
|
Pension
value
($)
|
All other
compensation
(
$)
|
Total
($)
|
Robert G. Reynolds
|
$50,000
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
$50,000
|
Julian Bavin
|
$50,000
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
$50,000
|
John C. Simmons
|
$50,000
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
$50,000
|
Douglas W. Scheving
(3)
|
$12,500
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
$12,500
|
(1) For disclosure regarding compensation for any directors whom are also NEOs, please refer to the ‘Summary Compensation Table’ above. There was no compensation payable to these NEOs in their role as directors.
(2) The Company used the Black-Scholes option pricing model for determining the fair value of stock options issued at grant date. These amounts do not represent actual amounts received by the directors, as any gain, if any, will depend on the market value of the shares on the date that the option is exercised.
(3) Mr. Scheving ceased to be a director on February 27, 2013.
Outstanding Share-Based Awards and Option-Based Awards
The following table is a summary of all option-based awards to the directors of the Company that were outstanding at the end of the most recently completed financial year. There were no share-based awards outstanding at the end of the most recently completed financial year.
|
Option based Awards
|
Share based Awards
|
Name
(1)
|
Number of
Securities
underlying
unexercised
options
(#)
|
Option
exercise
price
($)
|
Option
expiration
date
|
Value of unexercised
in-the-money options
(2)
($)
|
Number of
shares
or units
of shares
that have not
vested
(#)
|
Market or
payout value
of shares-
based awards
that have not
vested
(#)
|
Market or
payout value
of shares-
based awards
not paid out
or distributed
($)
|
Robert G. Reynolds
|
285,000
|
$1.31
|
Nov. 16, 2017
|
Nil
|
Nil
|
Nil
|
Nil
|
Julian Bavin
|
285,000
|
$1.31
|
Nov. 16, 2017
|
Nil
|
Nil
|
Nil
|
Nil
|
John C.
Simmons
|
285,000
|
$1.31
|
Nov. 16, 2017
|
Nil
|
Nil
|
Nil
|
Nil
|
Douglas W. Scheving
(3)
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
(1) For disclosure regarding option-based awards outstanding at the end of the most recently completed financial year for any directors whom are also NEOs, please refer to the ‘Outstanding Share-Based Awards and Option-Based Awards - NEOs’ table above.
(2) In-the-money options are those where the market value of the underlying securities as at the most recent financial year end exceeds the option exercise price. This amount is calculated as the difference between the market value of the securities underlying the options on December 31, 2013, being the last trading day of the Company’s shares for the financial year, and the exercise price of the option. The closing market price of the Company’s shares as at December 31, 2013 was $0.53. These options have not been, and may never be, exercised and actual gains, if any, on exercise will depend on the market value of the underlying securities on the date of exercise.
(3) Mr. Scheving ceased to be a director on February 27, 2013.
Incentive Plan Awards – Value Vested or Earned During The Year
The following table is a summary of all value vested or earned during the most recently completed financial year for the directors of the Company.
Name
(1)
|
Option-based awards –
Value vested during
the year
(2)(3)
($)
|
Share-based awards –
Value vested during
the year
($)
|
Non-equity incentive
plan compensation –
Value earned during
the year
($)
|
Robert G. Reynolds
|
Nil
|
Nil
|
Nil
|
Julian Bavin
|
Nil
|
Nil
|
Nil
|
John C. Simmons
|
Nil
|
Nil
|
Nil
|
Douglas W. Scheving
(4)
|
Nil
|
Nil
|
Nil
|
|
(1)
|
For disclosure regarding incentive plan awards for any directors whom are also NEOs, please refer to the “Incentive Plan Awards – Value Vested or Earned During The Year - NEOs” table above.
|
|
(2)
|
Value vested during the year is calculated by subtracting the market price of the Company’s common shares on the date the option vested (being the closing price of the Company’s shares on the TSX on the last trading day prior to the vesting date) from the exercise price of the option.
|
|
(3)
|
No options vested during the year, options vested immediately or the market price of the Company’s common shares on the date the option vested was lower than or equal to the exercise price of the option.
|
|
(4)
|
Mr. Scheving ceased to be a director on February 27, 2013.
|
C. Board Practices
The Board is currently comprised of five directors. The size and experience of the Board is important for providing the Company with effective governance in the mining industry. The Board’s mandate and responsibilities can be effectively
and efficiently administered at its current size. The Board has functioned, and is of the view that it can continue to function, independently of management as required. Directors are elected for a term of one year at the annual general meeting. At the Annual General Meeting, held on May 31, 2013, the shareholders elected Messrs. Roxburgh, Simpson, Reynolds, Simmons and Bavin as directors.
The Board has considered the relationship of each director to the Company and currently considers three of the five directors to be independent directors (Messrs. Reynolds, Simmons and Bavin) because they independent of management and free from any interest and any business or other relationship which could reasonably be expected to interfere with the director’s ability to act with a view to the best interest of the Company, other than interests and relationships arising solely from shareholdings. Bryce G. Roxburgh and Yale R. Simpson, co-chairmen of the board, are not independent by virtue of the fact that they are or have within the last three years been executive officers of the Company.
Procedures are in place to allow the Board to function independently. At the present time, the Board has experienced directors that have made a significant contribution to the Company’s success, and are satisfied that it is not constrained in its access to information, in its deliberations or in its ability to satisfy the mandate established by law to supervise the business and affairs of the Company. Committees meet independent of management and other directors.
Mandate of the Board of Directors, its Committees and Management
The Board does not have a written mandate. However, it is required to supervise the management of the business and affairs of the Company and to act with a view to the best interests of the Company. The Board actively oversees the development, adoption and implementation of the Company’s strategies and plans. The Board’s responsibilities include:
|
●
|
to the extent feasible, satisfying itself as to the integrity of the CEO and other executive officers and that the executive officers create a culture of integrity throughout the Company,
|
|
●
|
the Company’s strategic planning process,
|
|
●
|
the identification of the principal risks of the Company’s business and ensuring the implementation of appropriate systems to manage risk,
|
|
●
|
the Company’s succession planning, including appointing, training and monitoring senior management,
|
|
●
|
the Company’s major business development initiatives,
|
|
●
|
the integrity of the Company’s internal control and management information systems,
|
|
●
|
the Company’s policies for communicating with shareholders and others, and
|
|
●
|
the general review of the Company’s results of operations.
|
The Board considers that certain decisions are sufficiently important that management should seek prior approval of the Board. Such decisions include:
|
●
|
approval of the annual capital budget and any material changes to the operating budget,
|
|
●
|
approval of the Company’s business plan,
|
|
●
|
acquisition of, or investments in new business,
|
|
●
|
changes in the nature of the Company’s business,
|
|
●
|
changes in senior management, and
|
|
●
|
all matters as required under the Business Corporations Act, applicable Canadian and U.S. securities laws and exchange rules and regulations.
|
Audit Committee
The Company’s Board of Directors has a separately-designated standing Audit Committee established for the purpose of overseeing the accounting and financial reporting processes of the Company and audits of the Company’s annual financial statements in accordance with Section 3(a)(58)(A) of the Exchange Act. As of the date of this Annual Report on Form 20-F, the Company’s Audit Committee is comprised of John C. Simmons, Robert G. Reynolds (Chairman) and Julian Bavin.
In the opinion of the Company’s Board of Directors, all the members of the Audit Committee are independent (as determined under Rule 10A-3 of the Exchange Act and Section 803A of the NYSE MKT Company Guide). The Audit Committee meets the composition requirements set forth by Section 803B(2) of NYSE MKT Company Guide. All three members of the Audit Committee are financially literate, meaning they are able to read and understand the Registrant’s financial statements and to understand the breadth and level of complexity of the issues that can reasonably be expected to be raised by the Registrant’s financial statements.
The members of the Audit Committee do not have fixed terms and are appointed and replaced from time to time by resolution of the Board of Directors.
The Audit Committee meets with the CEO and CFO of the Company and the independent auditors to review and inquire into matters affecting financial reporting matters, the system of internal accounting and financial controls and procedures and the audit procedures and audit plans. The Audit Committee also recommends to the Board the independent registered public accounting firm to be appointed, subject to shareholder approval. In addition, the Audit Committee reviews and recommends to the Board for approval the annual financial statements, the annual report and certain other documents required by regulatory authorities.
The Board has not developed a written position description for the Chairman of the Audit Committee but considers the Chairman to be responsible for setting the tone for the committee work, ensuring that members have the information needed to do their jobs, overseeing the logistics of the Audit Committee’s operations, reporting to the Board on the Audit Committee’s decisions and recommendations, setting the agenda and running and maintaining minutes of the meetings of the Audit Committee.
Compensation Committee
The Compensation Committee is responsible for discussing and determining the recommendations that it will make to the Board regarding the CEO’s compensation, with reference to the general objectives of the Company’s compensation strategy. The Compensation Committee also makes recommendations to the Board with respect to non-CEO officer and director compensation, incentive-compensation plans and equity-based plans. The Compensation Committee reviews executive compensation disclosure before the Company publicly discloses the information. Compensation matters may also be reviewed and approved by the entire Board.
The Compensation Committee is composed of John C. Simmons (Chairman), Robert G. Reynolds and Julian Bavin, all of whom are independent (as determined in Sections 803A and 805(c)(1) of the NYSE MKT Company Guide).
The Board has not developed a written position description for the Chairman of the Compensation Committee but considers the Chairman to be responsible for setting the tone for the committee work, ensuring that members have the information needed to do their jobs, overseeing the logistics of the Compensation Committee’s operations, reporting to the Board on the Compensation Committee’s decisions and recommendations, setting the agenda and running and maintaining the minutes of meeting of the Compensation Committee.
While the Compensation Committee has the authority to retain compensation consultants to advise the committee, no such consultants were retained since the beginning of the Company’s most recently completed financial year.
Governance and Nominating Committee
The Nominating and Corporate Governance Committee is composed of Julian Bavin (Chairman), Robert G. Reynolds and John C. Simmons, all of whom are independent directors. The Nominating and Corporate Governance Committee has no formal mandate; however, it oversees, monitors and reviews the quality and effectiveness of corporate governance best practices and disclosure policies. It reviews the composition of the Board members, on a periodic basis, makes
recommendations regarding Board composition, analyzes the need for new nominees when vacancies arise and identifies and proposes new nominees who have the necessary competencies and characteristics to meet such needs.
When considering potential Board nominees, the Nominating and Corporate Governance Committee takes into account a number of factors, which may include the current composition of the Board, the ability of the individual candidate to contribute on an overall basis, the ability of the individual to contribute sufficient time and resources to the Board, the current and future needs of the Company, the skills and competencies the Board has, and the skills and competencies the Board should have, the individual’s direct experience with public companies in general and mining companies in particular as well as the individual’s skills and knowledge and the skills and knowledge of existing members of the Board.
The Board has not developed a written position description for the Chairman of the Nominating and Corporate Governance Committee but considers the Chairman to be responsible for setting the tone for the committee work, ensuring that members have the information needed to do their jobs, overseeing the logistics of the Nominating and Corporate Governance Committee’s operations, reporting to the Board on the Nominating and Corporate Governance Committee’s decisions and recommendations, setting the agenda and running and maintaining minutes of the meetings of the Nominating and Corporate Governance Committee.
D. Employees
As of December 31, 2013, the Company had 5 employees in Canada (5 as of the date hereof), and approximately 14 employees in Chile (14 as of the date hereof). The Company relies on and engages consultants on a contract basis to provide services, management and personnel who assist the Company, to carry on its administrative or exploration activities either in Canada or Chile.
E. Share Ownership
As of April 14, 2014, the Company had 88,407,753 shares outstanding. The following table sets forth details of all Named Executive Officer and Director beneficial share ownership and percentage of ownership as of April 14, 2014.
Name of Beneficial Owner
|
Number of Shares
Beneficially Held
|
|
Percent
(*)
|
Bryce G. Roxburgh
(1)
|
5,359,450
|
|
5.98%
|
Yale R. Simpson
(2)
|
2,432,350
|
|
2.73%
|
Robert G. Reynolds
(3)
|
285,000
|
|
**
|
John C. Simmons
(4)
|
285,000
|
|
**
|
Julian Bavin
(5)
|
285,000
|
|
**
|
Wendell M. Zerb
(6)
|
645,500
|
|
**
|
Cecil R. Bond
(7)
|
994,200
|
|
1.11%
|
S. R. Jeremy Perkins
(8)
|
520,652
|
|
**
|
|
*
|
Where persons listed on this table have the right to obtain additional common shares through the exercise of outstanding options within 60 days from April 14, 2014, these additional shares are deemed to be outstanding for the purpose of computing the percentage of common share owned by such persons, but are not deemed to be outstanding for the purpose of computing the percentage owned by any other person. Based on 88,407,753 common shares outstanding as of April 14, 2014.
|
|
(1)
|
Includes 1,250,000 shares issuable upon exercise of outstanding options within 60 days of April 14, 2014 and includes 2,600,000 shares registered in the name of Rowen.
|
|
(2)
|
Includes 685,000 shares issuable upon exercise of outstanding options within 60 days of April 14, 2014.
|
|
(3)
|
Includes 285,000 shares issuable upon exercise of outstanding options within 60 days of April 14, 2014.
|
|
(4)
|
Includes 285,000 shares issuable upon exercise of outstanding options within 60 days of April 14, 2014.
|
|
(5)
|
Includes 285,000 shares issuable upon exercise of outstanding options within 60 days of April 14, 2014.
|
|
(6)
|
Includes 500,000 shares issuable upon exercise of outstanding options within 60 days of April 14, 2014. Does not include 1,000,000 shares issuable upon exercise of outstanding options not within 60 days of April 14, 2014.
|
|
(7)
|
Includes 885,000 shares issuable upon exercise of outstanding options within 60 days of April 14, 2014.
|
|
(8)
|
Includes 250,000 shares issuable upon exercise of outstanding options within 60 days of April 14, 2014.
|
The following information, as of December 31, 2013, reflects outstanding options held by the individuals referred to in “Compensation”:
|
No. of Options
|
|
Date of Grant
|
Exercise Price
|
Expiration Date
|
Bryce G. Roxburgh
|
750,000
500,000
|
|
16 November, 2012
11 March, 2013
|
$1.31
$1.20
|
16 November, 2017
11 March, 2018
|
Yale R. Simpson
|
385,000
300,000
|
|
16 November, 2012
11 March, 2013
|
$1.31
$1.20
|
16 November, 2017
11 March, 2018
|
Robert G. Reynolds
|
285,000
|
|
16 November, 2012
|
$1.31
|
16 November, 2017
|
John C. Simmons
|
285,000
|
|
16 November, 2012
|
$1.31
|
16 November, 2017
|
Julian Bavin
|
285,000
|
|
16 November, 2012
|
$1.31
|
16 November, 2017
|
Wendell M. Zerb
|
1,500,000
|
|
10 January, 2013
|
$1.22
|
10 January, 2018
|
Cecil R. Bond
|
585,000
300,000
|
|
16 November, 2012
11 March, 2013
|
$1.31
$1.20
|
16 November, 2017
11 March, 2018
|
S. R. Jeremy Perkins
|
250,000
|
|
16 November, 2012
|
$1.31
|
16 November, 2017
|
Equity Compensation Plan Information
The following table sets out information as of the end of the Company’s most recently completed financial year, December 31, 2013, with respect to compensation plans under which equity securities of the Company are authorized for issuance.
Plan Category
|
Number of securities to
be issued upon exercise of
outstanding options, warrants
and rights
(a)
|
Weighted-average exercise
price of outstanding options, warrants and rights
(b)
|
Number of securities remaining
available for future issuances
under equity compensation plans (excluding securities reflected
in column (a))
(c)
|
Equity compensation plans approved by securityholders*
|
8,923,000
|
$1.30
|
Nil
|
Equity compensation plans not approved by securityholders
|
N/A
|
N/A
|
N/A
|
Total
|
8,923,000
|
$1.30
|
Nil
|
|
*
|
On May 31, 2013, shareholders approved an amended Plan reducing the aggregate number of shares of the Company’s capital stock issuable pursuant to options granted under the Plan, such that options granted under the Plan may not exceed 10% of the issued and outstanding shares of the Company at the time of the option grant. No additional options may be granted until the number of options falls below the Plan limit. At December 31, 2013, the maximum number of options issuable under the Plan was 8,840,775.
|
Item 7. Major Shareholders and Related Party Transactions
A. Major Shareholders
As far as it is known to the Company, other than identified below, it is not directly or indirectly owned or controlled by any other corporation or by the Canadian Government, or any foreign government, or by any other natural or legal person.
To the knowledge of the Company’s directors and senior officers, the following table sets forth certain information as at April 14, 2014, concerning the ownership of the Company’s common shares as to each person known by the directors and senior officers, based solely upon public records and filings, to be the direct and/or indirect owner of more than five (5%) percent of the Company’s common shares, who owned more than five percent of the outstanding shares of each class of the Company’s voting securities.
Name
|
Number of Shares of
Common Stock Owned
|
Percent of
Class *
|
Geologic Resource Partners, LLC
|
6,050,700
|
6.94%
|
TSP Capital Management Group, LLC
|
|
6.41%
|
Bryce G. Roxburgh
(1)
|
5,359,450
|
5.98%
|
*
|
Where persons listed on this table have the right to obtain additional common shares through the exercise of outstanding options within 60 days from April 14, 2014, these additional shares are deemed to be outstanding for the purpose of computing the percentage of common share owned by such persons, but are not deemed to be outstanding for the purpose of computing the percentage owned by any other person. Based on 88,407,753 common shares outstanding as of April 14, 2014.
|
|
|
(1)
|
Includes 1,250,000 shares issuable upon exercise of outstanding options within 60 days of April 14, 2014 and includes 2,600,000 shares registered in the name of Rowen.
|
Changes
in
ownership
by
major
shareholders
To the knowledge of the Company’s directors and senior officers, during the year a major shareholder, Van Eck Associates Corporation reduced its holdings, which was zero at December 31, 2013 from a high of 7.6% during 2013.
To the best of the Company’s knowledge there have been no changes in the ownership of the Company’s shares by major shareholders other than disclosed herein.
Voting Rights
The Company’s major shareholders do not have different voting rights.
Shares
Held
in
the
United
States
As of March 31, 2014, there were approximately 71 registered holders of the Company’s shares in the United States, with combined holdings of 28, 543,745 common shares.
Change
of
Control
As of the date of this Annual Report on Form 20-F, there were no arrangements known to the Company which may, at a subsequent date, result in a change of control of the Company.
Control
by
Others
To the best of the Company’s knowledge, the Company is not directly or indirectly owned or controlled by another corporation, any foreign government, or any other natural or legal person, severally or jointly.
B. Related Party Transactions
During the three-year period ended December 31, 2013:
|
Amounts due from related parties of $21,000 at December 31, 2013 (December 31, 2012 - $95,000; December 31, 2011 - $93,000) is for the recovery of common expenditures from associated companies. The amounts due from related parties are non-interest bearing and are due on demand.
|
|
Amounts due to related parties of $42,000 at December 31, 2013 (December 31, 2012 - $50,000; December 31, 2011 - $126,000) is for management, consulting and exploration fees and for expenses incurred while conducting the Company’s business. The amounts due to related parties are non-interest bearing and are due on demand.
|
|
During the period ended December 31, 2013 a total of $900,000 (2012 - $1,734,000; 2011 - $1,719,000) was paid or accrued for related party transactions as described below:
|
|
a)
|
Exploration and consulting fees of $280,000 (2012 - $360,000; 2011 - $485,000, which included a bonus of $125,000) were paid or accrued to a corporation of which a Co-Chairman and former President and CEO of the Company is a principal. As at December 31, 2013, the Company had amounts owing of $10,000 (December 31, 2012 - $23,000; December 31, 2011 - $8,000) to this company.
|
|
b)
|
Exploration fees of $212,389 (2012 - $288,508; 2011 – $310,981) were paid or accrued to a corporation controlled by the Vice-President, Exploration and Development. As at December 31, 2013, the Company had amounts owing of $20,000 (December 31, 2012 - $10,000; December 31, 2011 - $86,000) to this company.
|
|
c)
|
Management fees of $120,000 (2012 - $160,000; 2011 - $250,000) were paid to a corporation controlled by a Co-Chairman of the Company. As at December 31, 2013, the Company had amounts owing of $12,000 (December 31, 2012 - $7,000; December 31, 2011 - $15,000) to this company.
|
|
d)
|
Management fees of $250,000 (2012 - $200,000; 2011 - $300,000) were paid or accrued to a corporation controlled by the Chief Financial Officer of the Company. As at December 31, 2013, the Company had amounts owing of $Nil (December 31, 2012 - $Nil; December 31, 2011 - $Nil) to this company.
|
|
e)
|
Management fees of $Nil (2012 - $650,000; 2011 - $300,000) were paid or accrued to a corporation controlled by the former Vice-President, Corporate Development and Legal Counsel. As at December 31, 2013, the Company had amounts owing of $Nil (December 31, 2012 - $Nil; December 31, 2011 - $Nil) to this company.
|
|
f)
|
The Company paid or accrued rent expense of $38,000 (2012 - $75,000; 2011 - $63,000) to a company controlled by a director of the Company. Of this amount, $20,000 (2012 - $35,000; 2011 - $31,000) was recovered from a corporation with directors in common. As at December 31, 2013, the Company had amounts owing of $Nil (December 31, 2012 - $10,000; December 31, 2011 - $15,000) to this company.
|
During the period, the Company shared costs of certain common expenditures including administrative support, office overhead and travel with Rugby Mining Limited (“Rugby”).
|
g)
|
The Company, along with Rugby, incurs certain expenditures for staff and exploration expenditures on behalf of each other. The net amount provided or incurred by the Company on behalf of Rugby during the period ended December 31, 2013 was $317,000 (2012 - $270,000). As at December 31, 2013, the Company had amounts receivable of $21,000 (December 31, 2012- $95,000; December 31, 2011 - $49,000) from Rugby. The amounts due from Rugby are non-interest bearing and are due on demand.
|
C. Interests of Experts and Counsel
Not Applicable.
Item 8. Financial Information
A. Consolidated Statements and Other Financial Information
The following financial statements of the Company are attached to this Annual Report on Form 20-F:
|
·
|
Consolidated Statements of Financial Position as at December 31, 2013 and December 31, 2012;
|
|
·
|
Consolidated Statements of Loss and Comprehensive Loss for the years ended December 31, 2013, 2012 and 2011;
|
|
·
|
Consolidated Statements of Cash Flows for the years ended December 31, 2013, 2012 and 2011;
|
|
·
|
Consolidated Statements of Changes in Equity for the years ended December 31, 2013, 2012 and 2011; and
|
|
·
|
Notes to Financial Statements for the years ended December 31, 2013, 2012 and 2011.
|
Exeter’s Chilean subsidiary, Eton Chile, has been served with a court claim challenging the Chilean Government’s grant of a surface easement required for the potential development of its Caspiche project. The claim, filed before the Santiago Civil Court, was filed by a private Chilean mineral exploration company, Cerro del Medio.
Under Chilean mining law there are provisions which provide for securing necessary surface access for the development of mineral deposits. Cerro del Medio’s claim, cites “non-compliance by the Chilean Government of certain legal formalities required to approve the easement” and “that the easement granted overlaps Cerro del Medio’s Santa Cecilia project mining properties”.
A review of the claim by Eton Chile’s Chilean legal counsel has concluded that Cerro del Medio’s claim has no grounds under Chilean law and should be rejected.
Other than the above claim, the Company is not a party to any legal proceedings, nor to the knowledge of management, are there any legal proceedings pending which may materially affect the business and affairs of the Company.
Dividend Policy
The Company has not paid any dividends on its common shares and does not intend to pay dividends on its common shares in the immediate future. Any decision to pay dividends on its common shares in the future will be made by the Board of Directors of the Company on the basis of earnings, financial requirements and other such conditions that may exist at that time.
B. Significant Changes
None.
Item 9. The Offer and Listing
A. Price History of Stock
The common shares of Exeter are listed on the Toronto Stock Exchange under the symbol "XRC", on the NYSE MKT under the symbol "XRA", and on the Deutsche Borse AG Regulated Unofficial Market of the Frankfurt Stock Exchange under the symbol "EXB". The Company's common shares commenced trading on the TSX on October 27, 2009. Prior to trading on the TSX, the Company's common shares were listed for trading on the TSX Venture Exchange (“TSX-V”).
The following table sets forth the high and low prices expressed in Canadian dollars on the TSX and in United States dollars on NYSE MKT in the United States for the Company’s common shares for the past five years, for each quarter for the last two fiscal years, and for the last six months.
|
TSX
(Canadian Dollars)
|
NYSE MKT
(United States Dollars)
|
Last Five Fiscal Years
|
High
|
Low
|
High
|
Low
|
2013
|
1.49
|
0.53
|
1.49
|
0.49
|
2012
|
4.19
|
1.05
|
4.20
|
1.09
|
2011
|
6.20
|
2.49
|
6.50
|
2.42
|
2010
|
9.32
|
5.47
|
9.41
|
5.33
|
2009 *
|
8.31
|
5.50
|
8.50
|
1.64
|
2013
|
High
|
Low
|
High
|
Low
|
Fourth Quarter ended December 31, 2013
|
0.84
|
0.53
|
0.82
|
0.49
|
Third Quarter ended September 31, 2013
|
1.15
|
0.75
|
1.13
|
0.70
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Second Quarter ended June 30, 2013
|
1.21
|
0.65
|
1.20
|
0.62
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First Quarter ended March 31, 2013
|
1.49
|
1.07
|
1.49
|
1.05
|
2012
|
High
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Low
|
High
|
Low
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Fourth Quarter ended December 31, 2012
|
1.71
|
1.05
|
1.72
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1.09
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Third Quarter ended September 31, 2012
|
1.96
|
1.24
|
2.02
|
1.21
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Second Quarter ended June 30, 2012
|
2.87
|
1.52
|
2.90
|
1.41
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First Quarter ended March 31, 2012
|
4.19
|
2.45
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4.20
|
2.45
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Last Six Months
|
High
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Low
|
High
|
Low
|
February 2014
|
0.94
|
0.68
|
0.85
|
0.61
|
January 2014
|
0.77
|
0.58
|
0.69
|
0.54
|
December 2013
|
0.69
|
0.53
|
0.65
|
0.49
|
November 2013
|
0.82
|
0.64
|
0.79
|
0.62
|
October 2013
|
0.84
|
0.65
|
0.82
|
0.62
|
September 2013
|
0.92
|
0.77
|
0.89
|
0.74
|
*
The Company listed on the Toronto Stock Exchange on October 27, 2009 under the symbol “XRC”
B. Plan of Distribution
Not Applicable.
C. Markets
The common shares of Exeter are listed on the Toronto Stock Exchange under the symbol "XRC", on the NYSE MKT under the symbol "XRA", and on the Deutsche Borse AG Regulated Unofficial Market of the Frankfurt Stock Exchange under the symbol "EXB".
D. Selling Shareholders
Not Applicable.
E. Dilution
Not Applicable.
F. Expenses of the Issue
Not Applicable.
Item 10 Additional Information
A. Share Capital
Not Applicable.
B. Memorandum and Articles of Association
The Company was incorporated under the British Columbia Company Act (the “Company Act”). On March 29, 2004, the British Columbia legislature enacted the British Columbia Business Corporations Act ("BCBCA") and repealed the Company Act. The BCBCA is free of many of the restrictions that were found in the Company Act, including restrictions on the residency of directors, the location of annual general meetings and limits on authorized share capital. As well, the BCBCA uses new forms and terminology and has replaced one of the constating documents, the Memorandum, with a Notice of Articles.
The regulations under the BCBCA provide that certain “Pre-existing Company Provisions” (“PCPs”) will apply to companies that were incorporated under the Company Act, unless and until shareholders pass a special resolution to remove the application of the PCPs. The PCPs contain some of the restrictions that were found in the Company Act. For example,
the PCPs provide that a special resolution or a special separate resolution must be passed by at least three-quarters of the votes cast by shareholders present in person or by proxy at a meeting. This is the majority that was required under the Company Act. The BCBCA allows a special resolution to be passed by a two-thirds vote of shareholders.
At the Company’s annual and special general meeting held on June 24, 2005, shareholders passed a special resolution to remove the application of the PCPs. The Company’s Notice of Articles was amended accordingly. Shareholders also passed a special resolution adopting a new set of Articles (the “Articles”) that comply with the BCBCA.
Pursuant to the BCBCA, as the Articles do not specify the majority of votes required to pass a special resolution, a special resolution must be passed by two-thirds of the votes cast by shareholders present in person or by proxy at a meeting. Management believes that this provides the Company with greater flexibility for future corporate activities and is consistent with special resolution requirements for companies in other jurisdictions.
The Notice of Articles and Articles do not address the Company’s objects and purposes and there are no restrictions on the business the Company may carry on.
A director who has, directly or indirectly, a material interest in an existing or proposed material contract or transaction of the Company or who holds any office or possesses any property whereby, directly or indirectly, a duty or interest might be created to conflict with his duty or interest as a director, shall not vote in respect of any such proposed material contract or transaction and if he shall do so his vote shall not be counted, but he shall be counted in the quorum present at the meeting at which such vote is taken. Notwithstanding the foregoing, if all of the directors have a material interest in a proposed material contract or transaction, any or all of those directors may vote on a resolution to approve the contract or transaction.
Part 9 of the Articles details the directors’ borrowing powers. The directors may from time to time on behalf of the Company:
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(a)
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borrow money in such amount, in such manner, on any security, from such sources and upon any terms and conditions as they think fit;
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(b)
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guarantee the repayment of money borrowed by any person or the performance of any obligation of any person;
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(c)
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issue bonds, debentures, notes and other debt obligations either outright or as continuing security for any indebtedness or liability, direct or indirect, or obligations of the Company or of any other person; and
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(d)
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mortgage, charge (whether by way of specific or floating charge), grant a security interest in or give other security on the undertaking, or on the whole or any part of the property and assets of the Company, both present and future.
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There are no age considerations pertaining to the retirement or non-retirement of directors.
A director is not required to hold a share in the capital of the Company as qualification for his office but must be qualified as required by the BCBCA to become, act or continue as a director.
There are no specified limits upon a director’s ability to hold any office or place of profit with the Company in conjunction with his office of director. Directors are repaid such reasonable traveling, hotel and other expenses as they may incur in conducting the business of the Company. If any director performs extra services for the Company, he is entitled to receive remuneration fixed by the Board of Directors or the Company at a general meeting.
Subject to the provisions of the BCBCA, the directors shall cause the Company to indemnify a director, officer or alternate director or a former director, officer or alternate director of the Company or a person who, at the request of the Company, is or was a director, alternate director or officer of another corporation, at a time when the corporation is or was an affiliate of the Company or a person who, at the request of the Company, is or was, or holds or held a position equivalent to that of, a director, alternate director or officer of a partnership, trust, joint venture or other unincorporated entity (in each case, an “eligible party”), and the heirs and personal representatives of any such eligible party, against all judgments, penalties or fines awarded or imposed in, or an amount paid in settlement of, a legal proceeding or investigative action (whether current, threatened, pending or completed) in which such eligible party or any of the heirs and personal representatives of such eligible party, by reason of such eligible party being or having been a director, alternate director or officer or holding or having held a position equivalent to that of a director, alternate director or officer, is or may be joined as a party or is or
may be liable for or in respect of a judgment, penalty or fine in, or expenses related to the proceeding. Provided the Company first receives a written undertaking from the eligible party to repay amounts advanced if so required under the BCBCA, the directors shall cause the Company to pay, as they are incurred in advance of the final disposition of the proceeding, the costs, charges and expenses, including legal and other fees actually and reasonably incurred by the eligible party in respect of the proceeding. After the final disposition of the proceeding, the directors shall cause the Company to pay the expenses actually and reasonably incurred by the eligible party in respect of the proceeding,to the extent the eligible party has not already been reimbursed for such expenses, subject to the provisions of the BCBCA. Each director, alternate director and officer of the Company on being elected or appointed shall be deemed to have contracted with the Company on the terms of the foregoing indemnity.
All of the authorized common shares of the Company are of the same class and, once issued, rank equally as to dividends, voting powers, and participation in assets. Holders of common shares are entitled to one vote for each share held of record on all matters to be acted upon by the shareholders. Holders of common shares are entitled to receive such dividends as may be declared from time to time by the Board of Directors, in its discretion, out of funds legally available therefore.
Upon liquidation, dissolution or winding up of the Company, holders of common shares are entitled to receive pro rata the assets of the Company, if any, remaining after payments of all debts and liabilities. No shares have been issued subject to call or assessment. There are no pre-emptive or conversion rights and no provisions for redemption or purchase for cancellation, surrender, or sinking or purchase funds.
Unless the BCBCA or the Company’s Articles otherwise provide, any action to be taken by a resolution of the shareholders must be taken by a “special resolution”. Such a “special resolution” requires a two-thirds vote of shareholders rather than a simple majority for passage. The BCBCA contains provisions which require a “special resolution” for effecting certain corporate actions. The principle corporate actions that require a “special resolution” include:
(a)
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reducing share capital, subject to certain limits;
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(b)
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altering the Notice of Articles to change the majority required to pass a special resolution or a special separate resolution;
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(c)
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approving various forms of amalgamation, including an amalgamation into a foreign jurisdiction;
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(d)
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approving an arrangement with shareholders;
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(e)
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approving the disposition of the whole or substantially the whole of the undertaking of the Company;
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(f)
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continuing the Company into another jurisdiction; and
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(g)
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authorizing a voluntary liquidation or the removal of a liquidator.
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There are no restrictions on the repurchase or redemption of common shares of the Company while there is any arrearage in the payment of dividends or sinking fund installments.
There is no liability to further capital calls by the Company.
There are no provisions discriminating against any existing or prospective holder of securities as a result of such shareholder owning a substantial number of shares.
The Company’s Articles provide that the authorized share structure may be increased, subdivided, consolidated or otherwise changed by the Board of Directors, provided that the change does not prejudice or interfere with a right attached to issued shares. An ordinary resolution of the shareholders will be required before the Company may create, vary or delete special rights and restrictions attached to a class or series of shares, or if a change prejudices or interferes with a right attached to issued shares. In addition, if a change prejudices or interferes with a right attached to issued shares, shareholders holding that class or series of shares must consent to the change by a separate special resolution.
Subject to Part 10.1 of the Articles and the BCBCA, annual general meetings shall be held once in every calendar year, at a time not being more than 15 months after the holding of the last preceding annual general meeting, and at a place as the directors shall appoint. In default of the meeting being held, the court may, on its own motion or on the application of the Company, a director or a shareholder entitled to vote at the meeting, order that a meeting of shareholders be held.
The directors may, whenever they think fit, convene a general meeting. Shareholders holding in the aggregate at least 1/20 of the shares of the Company that carry the right to vote at meetings may also requisition a general meeting for the purpose of transacting any business that may be transacted at a general meeting. A general meeting, if requisitioned in accordance with the BCBCA, shall be convened by the directors or, if not convened by the directors, may be convened by the requisitionists as provided in the BCBCA.
Not less than 21 days’ notice of any general meeting specifying the date, time and place of the meeting and in case of special business, the general nature of that business shall be given in the manner mentioned in Part 24 of the Articles or otherwise as prescribed by law to any person as may by law or under the Articles or other regulations of the Company be entitled to receive the notice from the Company. The accidental omission to give notice of any meeting to, or the non-receipt of any notice by, any person shall not invalidate any proceedings at that meeting. Persons entitled to notice of a general meeting may waive or reduce the period of notice convening the meeting.
There are no limitations on the rights to own securities.
There is no provision of the Company’s Articles that would have an effect of delaying, deferring or preventing a change in control of the Company and that would operate only with respect to a merger, acquisition or corporate restructuring involving the Company (or any of its subsidiaries).
There are no provisions in the Company’s Articles or in the BCBCA governing the threshold above which shareholder ownership must be disclosed. Under applicable Canadian securities laws, any person holding or having beneficial ownership or control or direction over more than 10% of the Company’s issued shares is required to file insider and other reports disclosing such shareholdings.
C. Material Contracts
The Company has the following material contracts:
1. Purchase Agreement dated April 13, 2011 between Sociedad Contractual Minera Eton Chile (Exeter Resource Corporation) and Anglo American Norte S.A. (formerly Minera Anglo American Chile Limitada and Empresa Mantos Blancos S.A.). Pursuant to this agreement, the Company acquired the mineral properties comprising the Caspiche gold-copper project in the Maricunga district, Chile from Anglo American (“Anglo”). By an agreement dated October 11, 2005 and subsequently amended, the Company had acquired the right to review a number of properties in the Maricunga region of Chile. Under the terms of the agreement, the Company had the right to earn a 100% interest in the properties by incurring aggregate expenditures of US$2.55 million over five years including conducting 15,500 meters (“m”) of drilling with the vendor retaining a 3% net smelter royalty (“NSR”) in the properties. Having met these conditions, Anglo transferred title to the mineral properties to Exeter and retained a 3% net smelter royalty on production from the project. Anglo also retained the right to repurchase the mineral properties for the amount that the Company has incurred on the property in the event that commercial production has not commenced prior to March 31, 2021. The Company is required to make a US$250,000 advance royalty payment annually up until March 31, 2020 (US$750,000 paid to December 31, 2013) and thereafter US$1.0 million annually for the period March 31, 2021 to March 31, 2025 or until commencement of commercial production. Should production commence prior to March 31, 2025, the advance royalty will cease and NSR will be payable.
2. Easement Agreement dated June 10, 2013 between Sociedad Contractual Minera Eton Chile (Exeter Resource Corporation) and the Chilean Government. The Company already has a lease agreement with the Chilean Government for the surface rights that correspond to its initial mineral rights in the area, and this new easement extends this area to cover most of its additional tenements as well as surfaces that may be required for Caspiche development. The Company paid US$1.5 million and is required to make 10 payments of approximately US$600,000 annually commencing December 31, 2013 (paid US$600,000 to December 31, 2013) to maintain the easement which is valid for 25 years.
D. Exchange Controls
Canada has no system of exchange controls. There are no Canadian restrictions on the repatriation of capital or earnings of a Canadian public company to non-resident investors. There are no laws in Canada or exchange restrictions affecting the remittance of dividends, profits, interest, royalties and other payments to non-resident holders of the Issuer’s securities, except as discussed below under “Item 10. Additional Information, E. Taxation.”
There are no limitations under the laws of Canada or in the organizing documents of the Company on the right of foreigners to hold or vote securities of the Company, except that the Investment Canada Act may require review and approval by the Minister of Industry (Canada) of certain acquisitions of “control” of the Company by a “non-Canadian”. The threshold for acquisitions of control is generally defined as being one-third or more of the voting shares of the Company. “Non-Canadian” generally means an individual who is not a Canadian citizen, or a corporation, partnership, trust or joint venture that is ultimately controlled by non-Canadians.
E. Taxation
Canadian Federal Income Tax Consequences
The following summarizes the principal Canadian federal income tax consequences applicable to the holding and disposition of common shares in the capital of the Company by a holder who, for purposes of the Income Tax Act (Canada) (the “Tax Act”) and the Canada-United States Income Tax Convention, 1980, as amended (the “Treaty”), is resident in the United States, holds the common shares as capital property and does not use or hold the common shares in the course of carrying on a business in Canada (a “U.S. Holder”). The common shares will generally be considered to be capital property unless the U.S. Holder holds the common shares in the course of carrying on a business, or acquires the common shares in a transaction or transactions considered to be an adventure in the nature of trade.
This summary is based on the current provisions of the Tax Act, the regulations thereunder, all amendments thereto publicly proposed by the government of Canada, the published administrative practices of the Canada Revenue Agency and the current provisions of the Treaty. This summary does not otherwise take into account or anticipate any changes in law, whether by way of legislative, judicial or administrative action or interpretation, nor does it address any provincial, territorial or foreign (including without limitation, any United States) tax considerations.
This summary is of a general nature only and it is not intended to be, nor should it be construed to be, legal or tax advice to any particular U.S. Holder. Accordingly, U.S. Holders are urged to consult with their own tax advisors about the specific tax consequences of acquiring, holding and disposing of common shares.
A U.S. Holder will be liable to pay a Canadian withholding tax on every dividend that is or is deemed to be paid or credited to the U.S. Holder on the U.S. Holder’s common shares. The rate of withholding tax under the Tax Act is 25% of the gross amount of the dividend paid. However, the Treaty will reduce that withholding tax rate, provided the U.S. Holder is eligible for benefits under the Treaty. Where applicable, the general rate of withholding tax under the Treaty will be 15% of the gross amount of the dividend, but if the U.S. Holder is a company that owns at least 10% of the voting stock of the Company, the rate of withholding tax will be reduced to 5%. The Company will be required to withhold the applicable tax from the dividend payable to the U.S. Holder, and to remit that tax to the Receiver General for Canada on account of the U. S. Holder. Not all persons who are residents of the United States will qualify for benefits under the Treaty. U.S. Holders are advised to consult their own tax advisors in this regard.
A U.S. Holder will generally not be subject to tax under the Tax Act in respect of a capital gain realized on the disposition or deemed disposition of a common share, unless the common share constitutes “taxable Canadian property” to the U.S.
Holder for purposes of the Tax Act. Provided that the common shares are listed on a “designated stock exchange” for purposes of the Tax Act (which includes the TSX) at the time of disposition, the common shares will generally not constitute “taxable Canadian property” to a U.S. Holder unless, at any time during the 60-month period immediately preceding the disposition (i) the U.S. Holder, together with persons with whom the U.S. Holder does not deal at “arm’s length” for the purposes of the Tax Act, owned 25% or more of the issued shares of any class of shares of the Company and (ii) more than 50% of the fair market value of the common shares was derived directly or indirectly from one or a combination of real or immovable property situated in Canada, “Canadian resource properties” or “timber resource properties” (as such terms are defined in the Tax Act), or options or interests in respect of any such properties.
Provided the common shares are listed at the time of disposition on the TSX or other “recognized stock exchange” for purposes of the Tax Act, a U.S. Holder who disposes of common shares will not be required to satisfy the obligations imposed under Section 116 of the Tax Act and, as such, the purchaser of such shares will not be required to withhold any amount on the purchase price paid.
U.S. Holders whose common shares may constitute “taxable Canadian property” should consult their own tax advisors.
Certain United States Federal Income Tax Consequences
The following is a general summary of certain material U.S. federal income tax considerations applicable to a U.S. Holder (as defined below) arising from and relating to the acquisition, ownership, and disposition of common shares of the Company.
This summary is for general information purposes only and does not purport to be a complete analysis or listing of all potential U.S. federal income tax considerations that may apply to a U.S. Holder arising from and relating to the acquisition, ownership, and disposition of common shares. In addition, this summary does not take into account the individual facts and circumstances of any particular U.S. Holder that may affect the U.S. federal income tax consequences to such U.S. Holder, including specific tax consequences to a U.S. Holder under an applicable tax treaty. Accordingly, this summary is not intended to be, and should not be construed as, legal or U.S. federal income tax advice with respect to any U.S. Holder. This summary does not address the U.S. federal alternative minimum, U.S. federal estate and gift, U.S. state and local, and non-U.S. tax consequences to U.S. Holders of the acquisition, ownership, and disposition of common shares. Except as specifically set forth below, this summary does not discuss applicable tax reporting requirements. Each U.S. Holder should consult its own tax advisor regarding the U.S. federal, U.S. federal alternative minimum, U.S. federal estate and gift, U.S. state and local, and non-U.S. tax consequences relating to the acquisition, ownership and disposition of common shares.
No legal opinion from U.S. legal counsel or ruling from the Internal Revenue Service (the “IRS”) has been requested, or will be obtained, regarding the U.S. federal income tax consequences of the acquisition, ownership, and disposition of common shares. This summary is not binding on the IRS, and the IRS is not precluded from taking a position that is different from, and contrary to, the positions taken in this summary. In addition, because the authorities on which this summary is based are subject to various interpretations, the IRS and the U.S. courts could disagree with one or more of the positions taken in this summary.
Scope of this Summary
Authorities
This summary is based on the Internal Revenue Code of 1986, as amended, or the Code, Treasury Regulations (whether final, temporary, or proposed), published rulings of the IRS, published administrative positions of the IRS, the Convention Between Canada and the United States of America with Respect to Taxes on Income and on Capital, signed September 26, 1980, as amended, or the Canada-U.S. Tax Convention, and U.S. court decisions that are applicable and, in each case, as in effect and available, as of the date of this document. Any of the authorities on which this summary is based could be changed in a material and adverse manner at any time, and any such change could be applied on a retroactive or prospective basis which could affect the U.S. federal income tax considerations described in this summary. This summary does not discuss the potential effects, whether adverse or beneficial, of any proposed legislation that, if enacted, could be applied on a retroactive or prospective basis.
For purposes of this summary, the term “U.S. Holder” means a beneficial owner of common shares that is for U.S. federal income tax purposes:
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·
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an individual who is a citizen or resident of the U.S.;
|
|
·
|
a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) organized under the laws of the U.S., any state thereof or the District of Columbia;
|
|
·
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an estate whose income is subject to U.S. federal income taxation regardless of its source; or
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|
·
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a trust that (1) is subject to the primary supervision of a court within the U.S. and the control of one or more U.S. persons for all substantial decisions or (2) has a valid election in effect under applicable Treasury Regulations to be treated as a U.S. person.
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Non-U.S. Holders
For purposes of this summary, a “non-U.S. Holder” is a beneficial owner of common shares that is not a U.S. Holder. This summary does not address the U.S. federal income tax consequences to non-U.S. Holders arising from and relating to the acquisition, ownership, and disposition of common shares. Accordingly, a non-U.S. Holder should consult its own tax advisor regarding the U.S. federal, U.S. federal alternative minimum, U.S. federal estate and gift, U.S. state and local, and non-U.S. tax consequences (including the potential application of and operation of any income tax treaties) relating to the acquisition, ownership, and disposition of common shares.
U.S. Holders Subject to Special U.S. Federal Income Tax Rules Not Addressed
This summary does not address the U.S. federal income tax considerations applicable to U.S. Holders that are subject to special provisions under the Code, including, but not limited to, the following: (a) U.S. Holders that are tax-exempt organizations, qualified retirement plans, individual retirement accounts, or other tax-deferred accounts; (b) U.S. Holders that are financial institutions, underwriters, insurance companies, real estate investment trusts, or regulated investment companies; (c) U.S. Holders that are broker-dealers, dealers, or traders in securities or currencies that elect to apply a mark-to-market accounting method; (d) U.S. Holders that have a “functional currency” other than the U.S. dollar; (e) U.S. Holders that own common shares as part of a straddle, hedging transaction, conversion transaction, constructive sale, or other arrangement involving more than one position; (f) U.S. Holders that acquired common shares in connection with the exercise of employee stock options or otherwise as compensation for services; (g) U.S. Holders that hold common shares other than as a capital asset within the meaning of Section 1221 of the Code (generally, property held for investment purposes); or (h) U.S. Holders that own or have owned (directly, indirectly, or by attribution) 10% or more of the total combined voting power of the outstanding shares of the Company. This summary also does not address the U.S. federal income tax considerations applicable to U.S. Holders who are: (a) U.S. expatriates or former long-term residents of the U.S.; (b) persons that have been, are, or will be a resident or deemed to be a resident in Canada for purposes of the Income Tax Act (Canada) (the “Tax Act”); (c) persons that use or hold, will use or hold, or that are or will be deemed to use or hold common shares in connection with carrying on a business in Canada; (d) persons whose common shares constitute “taxable Canadian property” under the Tax Act; or (e) persons that have a permanent establishment in Canada for the purposes of the Canada-U.S. Tax Convention. U.S. Holders that are subject to special provisions under the Code, including, but not limited to, U.S. Holders described immediately above, should consult their own tax advisor regarding the U.S. federal, U.S. federal alternative minimum, U.S. federal estate and gift, U.S. state and local, and non-U.S. tax consequences relating to the acquisition, ownership and disposition of common shares.
If an entity or arrangement that is classified as a partnership (or “pass-through” entity) for U.S. federal income tax purposes holds common shares, the U.S. federal income tax consequences to such partnership and the partners of such partnership generally will depend on the activities of the partnership and the status of such partners (or owners). This summary does not address the tax consequences to any such partnership or partner. Partners of entities or arrangements that are classified as partnerships for U.S. federal income tax purposes should consult their own tax advisors regarding the U.S. federal income tax consequences arising from and relating to the acquisition, ownership, and disposition of common shares.
Passive Foreign Investment Company Rules
If the Company were to constitute a “passive foreign investment company” under the meaning of Section 1297 of the Code, or a PFIC, as defined below, for any year during a U.S. Holder’s holding period, then certain different and potentially adverse rules will affect the U.S. federal income tax consequences to a U.S. Holder resulting from the acquisition, ownership and disposition of common shares. In addition, in any year in which the Company is classified as a PFIC, such holder may be required to file an annual report with the IRS containing such information as Treasury Regulations and/or
other IRS guidance may require. U.S. Holders should consult their own tax advisors regarding the requirements of filing such information returns under these rules, including the requirement to file an IRS Form 8621.
PFIC Status of the Company
The Company generally will be a PFIC if, for a tax year, (a) 75% or more of the gross income of the Company is passive income (the “income test”) or (b) 50% or more of the value of the Company’s assets either produce passive income or are held for the production of passive income, based on the quarterly average of the fair market value of such assets (the “asset test”). “Gross income” generally includes all sales revenues less the cost of goods sold, plus income from investments and from incidental or outside operations or sources, and “passive income” generally includes, for example, dividends, interest, certain rents and royalties, certain gains from the sale of stock and securities, and certain gains from commodities transactions.
Active business gains arising from the sale of commodities generally are excluded from passive income if substantially all (85% or more) of a foreign corporation’s commodities are stock in trade of such foreign corporation or other property of a kind which would properly be included in inventory of such foreign corporation, or property held by such foreign corporation primarily for sale to customers in the ordinary course of business and certain other requirements are satisfied.
For purposes of the PFIC income test and asset test described above, if the Company owns, directly or indirectly, 25% or more of the total value of the outstanding shares of another corporation, the Company will be treated as if it (a) held a proportionate share of the assets of such other corporation and (b) received directly a proportionate share of the income of such other corporation. In addition, for purposes of the PFIC income test and asset test described above, and assuming certain other requirements are met, “passive income” does not include certain interest, dividends, rents, or royalties that are received or accrued by the Company from certain “related persons” (as defined in Section 954(d)(3) of the Code), to the extent such items are properly allocable to the income of such related person that is not passive income.
In addition, under certain attribution rules, if the Company is a PFIC, U.S. Holders will be deemed to own their proportionate share of the stock of any subsidiary of the Company that is also a PFIC, or a Subsidiary PFIC, and will be subject to U.S. federal income tax on their proportionate share of (a) a distribution on the stock of a Subsidiary PFIC and (b) a disposition or deemed disposition of the stock of a Subsidiary PFIC, both as if such U.S. Holders directly held the shares of such Subsidiary PFIC.
The Company believes that it was classified as a PFIC during the tax year ended December 31, 2013, and may be a PFIC in future tax years. The determination of whether any corporation was, or will be, a PFIC for a tax year depends, in part, on the application of complex U.S. federal income tax rules, which are subject to differing interpretations. In addition, whether any corporation will be a PFIC for any tax year depends on the assets and income of such corporation over the course of each such tax year and, as a result, cannot be predicted with certainty as of the date of this document. Accordingly, there can be no assurance that the IRS will not challenge any determination made by the Company (or a Subsidiary PFIC) concerning its PFIC status. Each U.S. Holder should consult its own tax advisor regarding the PFIC status of the Company and any Subsidiary PFIC.
Default PFIC Rules Under Section 1291 of the Code
If the Company is a PFIC, the U.S. federal income tax consequences to a U.S. Holder of the acquisition, ownership, and disposition of common shares will depend on whether such U.S. Holder makes an election to treat the Company and each Subsidiary PFIC, if any, as a “qualified electing fund” or “QEF” under Section 1295 of the Code, or a QEF Election, or a mark-to-market election under Section 1296 of the Code, or a Mark-to-Market Election. A U.S. Holder that does not make either a QEF Election or a Mark-to-Market Election will be referred to in this summary as a “Non-Electing U.S. Holder.”
A Non-Electing U.S. Holder will be subject to the rules of Section 1291 of the Code with respect to (a) any gain recognized on the sale or other taxable disposition of common shares and (b) any excess distribution received on our common shares. A distribution generally will be an “excess distribution” to the extent that such distribution (together with all other distributions received in the current tax year) exceeds 125% of the average distributions received during the three preceding tax years (or during a U.S. Holder’s holding period for our common shares, if shorter).
Under Section 1291 of the Code, any gain recognized on the sale or other taxable disposition of common shares (including an indirect disposition of the stock of any Subsidiary PFIC), and any “excess distribution” received on common shares, must be ratably allocated to each day in a Non-Electing U.S. Holder’s holding period for the respective common shares. The amount of any such gain or excess distribution allocated to the tax year of disposition or distribution of the excess
distribution and to years before the entity became a PFIC, if any, would be taxed as ordinary income. The amounts allocated to any other tax year would be subject to U.S. federal income tax at the highest tax rate applicable to ordinary income in each such year, and an interest charge would be imposed on the tax liability for each such year, calculated as if such tax liability had been due in each such year. A Non-Electing U.S. Holder that is not a corporation must treat any such interest paid as “personal interest,” which is not deductible.
If the Company is a PFIC for any tax year during which a Non-Electing U.S. Holder holds common shares, the Company will continue to be treated as a PFIC with respect to such Non-Electing U.S. Holder, regardless of whether the Company ceases to be a PFIC in one or more subsequent tax years. A Non-Electing U.S. Holder may terminate this deemed PFIC status by electing to recognize gain (which will be taxed under the rules of Section 1291 of the Code discussed above), but not loss, as if such common shares were sold on the last day of the last tax year for which the Company was a PFIC.
QEF Election
A U.S. Holder that makes a timely and effective QEF Election for the first tax year in which its holding period of its common shares begins generally will not be subject to the rules of Section 1291 of the Code discussed above with respect to its common shares. A U.S. Holder that makes a timely and effective QEF Election will be subject to U.S. federal income tax on such U.S. Holder’s pro rata share of (a) the net capital gain of the Company, which will be taxed as long-term capital gain to such U.S. Holder, and (b) the ordinary earnings of the Company, which will be taxed as ordinary income to such U.S. Holder. Generally, “net capital gain” is the excess of (a) net long-term capital gain over (b) net short-term capital loss, and “ordinary earnings” are the excess of (a) “earnings and profits” over (b) net capital gain. A U.S. Holder that makes a QEF Election will be subject to U.S. federal income tax on such amounts for each tax year in which the Company is a PFIC, regardless of whether such amounts are actually distributed to such U.S. Holder by the Company. However, for any tax year in which the Company is a PFIC and has no net income or gain, U.S. Holders that have made a QEF Election would not have any income inclusions as a result of the QEF Election. If a U.S. Holder that made a QEF Election has an income inclusion, such a U.S. Holder may, subject to certain limitations, elect to defer payment of current U.S. federal income tax on such amounts, subject to an interest charge. If such U.S. Holder is not a corporation, any such interest paid will be treated as “personal interest,” which is not deductible.
A U.S. Holder that makes a timely and effective QEF Election with respect to the Company generally (a) may receive a tax-free distribution from the Company to the extent that such distribution represents “earnings and profits” of the Company that were previously included in income by the U.S. Holder because of such QEF Election and (b) will adjust such U.S. Holder’s tax basis in our common shares to reflect the amount included in income or allowed as a tax-free distribution because of such QEF Election. In addition, a U.S. Holder that makes a QEF Election generally will recognize capital gain or loss on the sale or other taxable disposition of common shares.
The procedure for making a QEF Election, and the U.S. federal income tax consequences of making a QEF Election, will depend on whether such QEF Election is timely. A QEF Election will be treated as “timely” if such QEF Election is made for the first year in the U.S. Holder’s holding period for our common shares in which the Company was a PFIC. A U.S. Holder may make a timely QEF Election by filing the appropriate QEF Election documents at the time such U.S. Holder files a U.S. federal income tax return for such year. If a U.S. Holder does not make a timely and effective QEF Election for the first year in the U.S. Holder’s holding period for our common shares, the U.S. Holder may still be able to make a timely and effective QEF Election in a subsequent year if such U.S. Holder also makes a “purging” election to recognize gain (which will be taxed under the rules of Section 1291 of the Code discussed above) as if such common shares were sold for their fair market value on the day the QEF Election is effective.
A QEF Election will apply to the tax year for which such QEF Election is timely made and to all subsequent tax years, unless such QEF Election is invalidated or terminated or the IRS consents to revocation of such QEF Election. If a U.S. Holder makes a QEF Election and, in a subsequent tax year, the Company ceases to be a PFIC, the QEF Election will remain in effect (although it will not be applicable) during those tax years in which the Company is not a PFIC. Accordingly, if the Company becomes a PFIC in another subsequent tax year, the QEF Election will be effective and the U.S. Holder will be subject to the QEF rules described above during any subsequent tax year in which the Company qualifies as a PFIC.
U.S. Holders should be aware that there can be no assurance that the Company will satisfy record keeping requirements that apply to a QEF, or that the Company will supply U.S. Holders with information that such U.S. Holders require to report under the QEF rules, in event that the Company is a PFIC and a U.S. Holder wishes to make a QEF Election. Thus, U.S. Holders may not be able to make a QEF Election with respect to their common shares. Each U.S. Holder should consult its own tax advisor regarding the availability of, and procedure for making, a QEF Election.
A U.S. Holder may make a Mark-to-Market Election only if the common shares are marketable stock. Our common shares generally will be “marketable stock” if our common shares are regularly traded on (a) a national securities exchange that is registered with the Securities and Exchange Commission, (b) the national market system established pursuant to section 11A of the Securities and Exchange Act of 1934, or (c) a foreign securities exchange that is regulated or supervised by a governmental authority of the country in which the market is located, provided that (i) such foreign exchange has trading volume, listing, financial disclosure, and meets other requirements and the laws of the country in which such foreign exchange is located, together with the rules of such foreign exchange, ensure that such requirements are actually enforced and (ii) the rules of such foreign exchange ensure active trading of listed stocks. If such stock is traded on such a qualified exchange or other market, such stock generally will be “regularly traded” for any calendar year during which such stock is traded, other than in de minimis quantities, on at least 15 days during each calendar quarter.
A U.S. Holder that makes a Mark-to-Market Election with respect to its common shares generally will not be subject to the rules of Section 1291 of the Code discussed above with respect to such common shares. However, if a U.S. Holder does not make a Mark-to-Market Election beginning in the first tax year of such U.S. Holder’s holding period for our common shares or such U.S. Holder has not made a timely QEF Election, the rules of Section 1291 of the Code discussed above will apply to certain dispositions of, and distributions on, our common shares.
A U.S. Holder that makes a Mark-to-Market Election will include in ordinary income, for each tax year in which the Company is a PFIC, an amount equal to the excess, if any, of (a) the fair market value of our common shares, as of the close of such tax year over (b) such U.S. Holder’s tax basis in such common shares. A U.S. Holder that makes a Mark-to-Market Election will be allowed a deduction in an amount equal to the excess, if any, of (a) such U.S. Holder’s adjusted tax basis in our common shares, over (b) the fair market value of such common shares (but only to the extent of the net amount of previously included income as a result of the Mark-to-Market Election for prior tax years).
A U.S. Holder that makes a Mark-to-Market Election generally also will adjust such U.S. Holder’s tax basis in our common shares to reflect the amount included in gross income or allowed as a deduction because of such Mark-to-Market Election. In addition, upon a sale or other taxable disposition of common shares, a U.S. Holder that makes a Mark-to-Market Election will recognize ordinary income or ordinary loss (not to exceed the excess, if any, of (a) the amount included in ordinary income because of such Mark-to-Market Election for prior tax years over (b) the amount allowed as a deduction because of such Mark-to-Market Election for prior tax years).
A Mark-to-Market Election applies to the tax year in which such Mark-to-Market Election is made and to each subsequent tax year, unless our common shares cease to be “marketable stock” or the IRS consents to revocation of such election. Each U.S. Holder should consult its own tax advisor regarding the availability of, and procedure for making, a Mark-to-Market Election.
Although a U.S. Holder may be eligible to make a Mark-to-Market Election with respect to our common shares, no such election may be made with respect to the stock of any Subsidiary PFIC that a U.S. Holder is treated as owning, because such stock is not marketable. Hence, the Mark-to-Market Election will not be effective to eliminate the application of the default rules of Section 1291 of the Code described above with respect to deemed dispositions of Subsidiary PFIC stock or distributions from a Subsidiary PFIC.
Other PFIC Rules
Under Section 1291(f) of the Code, the IRS has issued proposed Treasury Regulations that, subject to certain exceptions, would cause a U.S. Holder that had not made a timely QEF Election to recognize gain (but not loss) upon certain transfers of common shares that would otherwise be tax-deferred (e.g., gifts and exchanges pursuant to corporate reorganizations). However, the specific U.S. federal income tax consequences to a U.S. Holder may vary based on the manner in which common shares are transferred.
Certain additional adverse rules will apply with respect to a U.S. Holder if the Company is a PFIC, regardless of whether such U.S. Holder makes a QEF Election. For example under Section 1298(b)(6) of the Code, a U.S. Holder that uses common shares as security for a loan will, except as may be provided in Treasury Regulations, be treated as having made a taxable disposition of such common shares.
Special rules also apply to the amount of foreign tax credit that a U.S. Holder may claim on a distribution from a PFIC. Subject to such special rules, foreign taxes paid with respect to any distribution in respect of stock in a PFIC are generally
eligible for the foreign tax credit. The rules relating to distributions by a PFIC and their eligibility for the foreign tax credit are complicated, and a U.S. Holder should consult with their own tax advisor regarding the availability of the foreign tax credit with respect to distributions by a PFIC.
The PFIC rules are complex, and each U.S. Holder should consult its own tax advisor regarding the PFIC rules and how the PFIC rules may affect the U.S. federal income tax consequences of the acquisition, ownership, and disposition of common shares.
Ownership and Disposition of common shares
The following discussion is subject to the rules described above under the heading “Passive Foreign Investment Company Rules.”
Distributions on common shares
Subject to the PFIC rules discussed above, a U.S. Holder that receives a distribution, including a constructive distribution, with respect to an Offered Share will be required to include the amount of such distribution in gross income as a dividend (without reduction for any Canadian income tax withheld from such distribution) to the extent of the current or accumulated “earnings and profits” of the Company, as computed for U.S. federal income tax purposes. A dividend generally will be taxed to a U.S. Holder at ordinary income tax rates if the Company is a PFIC. To the extent that a distribution exceeds the current and accumulated “earnings and profits” of the Company, such distribution will be treated first as a tax-free return of capital to the extent of a U.S. Holder's tax basis in our common shares and thereafter as gain from the sale or exchange of such common shares. (See “Sale or Other Taxable Disposition of common shares” below). However, the Company may not maintain the calculations of earnings and profits in accordance with U.S. federal income tax principles, and each U.S. Holder should therefore assume that any distribution by the Company with respect to our common shares will constitute ordinary dividend income. Dividends received on common shares generally will not be eligible for the “dividends received deduction”. Subject to applicable limitations and provided the Company is eligible for the benefits of the Canada-U.S. Tax Convention, dividends paid by the Company to non-corporate U.S. Holders, including individuals, generally will be eligible for the preferential tax rates applicable to long-term capital gains for dividends, provided certain holding period and other conditions are satisfied, including that the Company not be classified as a PFIC in the tax year of distribution or in the preceding tax year. The dividend rules are complex, and each U.S. Holder should consult its own tax advisor regarding the application of such rules.
Sale or Other Taxable Disposition of common shares
Subject to the PFIC rules discussed above, upon the sale or other taxable disposition of common shares, a U.S. Holder generally will recognize capital gain or loss in an amount equal to the difference between the amount of cash plus the fair market value of any property received and such U.S. Holder's tax basis in such common shares sold or otherwise disposed of. Subject to the PFIC rules discussed above, gain or loss recognized on such sale or other disposition generally will be long-term capital gain or loss if, at the time of the sale or other disposition, our common shares have been held for more than one year.
Preferential tax rates apply to long-term capital gain of a U.S. Holder that is an individual, estate, or trust. There are currently no preferential tax rates for long-term capital gain of a U.S. Holder that is a corporation. Deductions for capital losses are subject to significant limitations under the Code.
Additional Considerations
Additional Tax on Passive Income
Individuals, estates and certain trusts whose income exceeds certain thresholds will be required to pay a 3.8% Medicare surtax on “net investment income” including, among other things, dividends and net gain from disposition of property (other than property held in certain trades or businesses). U.S. Holders should consult with their own tax advisors regarding the effect, if any, of this tax on their ownership and disposition of common shares.
Receipt of Foreign Currency
The amount of any distribution paid to a U.S. Holder in foreign currency, or on the sale, exchange or other taxable disposition of common shares, generally will be equal to the U.S. dollar value of such foreign currency based on the
exchange rate applicable on the date of receipt (regardless of whether such foreign currency is converted into U.S. dollars at that time). A U.S. Holder will have a basis in the foreign currency equal to its U.S. dollar value on the date of receipt. Any U.S. Holder who converts or otherwise disposes of the foreign currency after the date of receipt may have a foreign currency exchange gain or loss that would be treated as ordinary income or loss, and generally will be U.S. source income or loss for foreign tax credit purposes. Each U.S. Holder should consult its own U.S. tax advisor regarding the U.S. federal income tax consequences of receiving, owning, and disposing of foreign currency.
Foreign Tax Credit
Subject to the PFIC rules discussed above, a U.S. Holder that pays (whether directly or through withholding) Canadian income tax with respect to dividends paid on our common shares generally will be entitled, at the election of such U.S. Holder, to receive either a deduction or a credit for such Canadian income tax paid. Generally, a credit will reduce a U.S. Holder’s U.S. federal income tax liability on a dollar-for-dollar basis, whereas a deduction will reduce a U.S. Holder’s income subject to U.S. federal income tax. This election is made on a year-by-year basis and applies to all foreign taxes paid (whether directly or through withholding) by a U.S. Holder during a year.
Complex limitations apply to the foreign tax credit, including the general limitation that the credit cannot exceed the proportionate share of a U.S. Holder’s U.S. federal income tax liability that such U.S. Holder’s “foreign source” taxable income bears to such U.S. Holder’s worldwide taxable income. In applying this limitation, a U.S. Holder’s various items of income and deduction must be classified, under complex rules, as either “foreign source” or “U.S. source.” Generally, dividends paid by a foreign corporation should be treated as foreign source for this purpose, and gains recognized on the sale of stock of a foreign corporation by a U.S. Holder should be treated as U.S. source for this purpose, except as otherwise provided in an applicable income tax treaty, and if an election is properly made under the Code. However, the amount of a distribution with respect to our common shares that is treated as a “dividend” may be lower for U.S. federal income tax purposes than it is for Canadian federal income tax purposes, resulting in a reduced foreign tax credit allowance to a U.S. Holder. In addition, this limitation is calculated separately with respect to specific categories of income. The foreign tax credit rules are complex, and each U.S. Holder should consult its own U.S. tax advisor regarding the foreign tax credit rules.
Backup Withholding and Information Reporting
Under U.S. federal income tax law and Treasury Regulations, certain categories of U.S. Holders must file information returns with respect to their investment in, or involvement in, a foreign corporation. For example, recently enacted legislation generally imposes new U.S. return disclosure obligations (and related penalties) on individuals who are U.S. Holders that hold certain specified foreign financial assets in excess of certain threshold amounts. The definition of specified foreign financial assets includes not only financial accounts maintained in foreign financial institutions, but also, unless held in accounts maintained by a financial institution, any stock or security issued by a non-U.S. person, any financial instrument or contract held for investment that has an issuer or counterparty other than a U.S. person and any interest in a foreign entity. U.S. Holders may be subject to these reporting requirements unless their common shares are held in an account at certain financial institutions. Penalties for failure to file certain of these information returns are substantial. U.S. Holders should consult with their own tax advisors regarding the requirements of filing information returns, including the requirement to file an IRS Form 8938.
Payments made within the U.S. or by a U.S. payor or U.S. middleman, of dividends on, and proceeds arising from the sale or other taxable disposition of, common shares will generally be subject to information reporting and backup withholding tax, at the rate of 28%, if a U.S. Holder (a) fails to furnish such U.S. Holder’s correct U.S. taxpayer identification number (generally on Form W-9), (b) furnishes an incorrect U.S. taxpayer identification number, (c) is notified by the IRS that such U.S. Holder has previously failed to properly report items subject to backup withholding tax, or (d) fails to certify, under penalty of perjury, that such U.S. Holder has furnished its correct U.S. taxpayer identification number and that the IRS has not notified such U.S. Holder that it is subject to backup withholding tax. However, certain exempt persons generally are excluded from these information reporting and backup withholding rules. Any amounts withheld under the U.S. backup withholding tax rules will be allowed as a credit against a U.S. Holder’s U.S. federal income tax liability, if any, or will be refunded, if such U.S. Holder furnishes required information to the IRS in a timely manner. Each U.S. Holder should consult its own tax advisor regarding the information reporting and backup withholding rules.
F. Dividends and Paying Agents
Not Applicable.
Not Applicable.
H. Documents on Display
We are subject to the informational requirements of the Exchange Act and file reports and other information with the SEC. You may read and copy any of our reports and other information at, and obtain copies upon payment of prescribed fees from, the Public Reference Room maintained by the SEC at 100 F Street, N.E., Washington, D.C. 20549. In addition, the SEC maintains a Website that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC at http://www.sec.gov. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
We are required to file reports and other information with the securities commissions in Canada. You are invited to read and copy any reports, statements or other information, other than confidential filings, that we file with the provincial securities commissions. These filings are also electronically available from the Canadian System for Electronic Document Analysis and Retrieval ("SEDAR") (
www.sedar.com
), the Canadian equivalent of the SEC's electronic document gathering and retrieval system.
We "incorporate by reference" information that we file with the SEC, which means that we can disclose important information to you by referring you to those documents. The information incorporated by reference is an important part of this Form 20-F and more recent information automatically updates and supersedes more dated information contained or incorporated by reference in this Form 20-F.
As a foreign private issuer, we are exempt from the rules under the Exchange Act prescribing the furnishing and content of proxy statements to shareholders.
We will provide without charge to each person, including any beneficial owner, to whom a copy of this Annual Report on Form 20-F has been delivered, on the written or oral request of such person, a copy of any or all documents referred to above which have been or may be incorporated by reference in this Annual Report on Form 20-F (not including exhibits to such incorporated information that are not specifically incorporated by reference into such information). Requests for such copies should be directed to us at the following address: 999 West Hastings Street, Suite 1660, Vancouver, British Columbia, Canada, V6C 2W2. The Company is required to file financial statements and other information with the Securities Commission in each of the Provinces of Canada, except Quebec, electronically through SEDAR which can be viewed at
www.sedar.com
.
The Company files annual reports and furnishes other information with the SEC. You may read and copy any document that we file at the SEC’s Public Reference Room at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549 or by accessing the Commission’s website (http://www.sec.gov).
I. Subsidiary Information
Not Applicable.
Item 11 Quantitative and Qualitative Disclosures about Market Risk
Credit risk
Credit risk is the risk that one party to a financial instrument, will fail to discharge an obligation and cause the other party to incur a financial loss. Financial instruments that potentially subject the Company to credit risk consist of cash and cash equivalents and amounts receivable. The Company deposits the majority of its cash and cash equivalents with high credit quality financial institutions in Canada and holds balances in banks in Chile as required to meet current expenditures. The carrying amount of financial assets recorded in the financial statements, net of any allowances for losses, represents the Company’s maximum exposure to credit risk.
The carrying amount of cash and cash equivalents, amounts receivable, accounts payable and accrued liabilities and due to and from related parties approximates fair value due to the short term nature of these financial instruments.
The Company operates in a number of countries, including Canada and Chile, and it is therefore exposed to foreign exchange risk arising from transactions denominated in a foreign currency.
The Company’s cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities are held in several currencies (mainly Canadian Dollars, Chilean Pesos, US Dollars and Australian Dollars). Such foreign currency balances, which are held in the Canadian parent, are subject to fluctuation against the Canadian Dollar. Such foreign currency balances, which are held in the Chilean subsidiary, are subject to fluctuation against the Chilean Peso.
The Canadian parent company had the following balances in foreign currencies as at December 31, 2013 and 2012:
|
|
|
|
|
|
US
Dollars
|
Cash and cash equivalents
|
|
|
364
|
Accounts payable and accrued liabilities
|
|
|
(73)
|
Net balance
|
|
|
291
|
Equivalent in Canadian Dollars
|
|
|
310
|
Rate to convert to $ CDN
|
|
|
1.0636
|
|
|
|
|
|
|
|
|
|
|
|
US
Dollars
|
|
|
Australian
Dollars
|
|
Cash and cash equivalents
|
|
|
782
|
|
|
|
–
|
|
Accounts payable and accrued liabilities
|
|
|
(35
|
)
|
|
|
(110
|
)
|
Net balance
|
|
|
747
|
|
|
|
(110
|
)
|
Equivalent in Canadian Dollars
|
|
|
743
|
|
|
|
(114
|
)
|
Rate to convert to $ CDN
|
|
|
0.9949
|
|
|
|
1.0339
|
|
Based on the above net exposures as at December 31, 2013, and assuming that all other variables remain constant, a 10% depreciation or appreciation of the US dollar and Australian dollar against the Canadian dollar would result in an increase/decrease of $31,000 (2012 - $74,300 and $11,400 for the US dollar and Australian dollar respectively) in the Company’s net loss.
Interest rate risk
Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate due to changes in market interest rates. The Company’s interest rate risk mainly arises from the interest rate impact on the cash and cash equivalents. Cash and cash equivalents earn interest based on current market interest rates, which at December 31, 2013 ranged between 1.25% and 1.50%.
Based on the amount of cash and cash equivalents invested at December 31, 2013, and assuming that all other variables remain constant, a 0.5% change in the applicable interest rate would result in an increase/decrease of $202,000 in the interest earned by the Company per annum.
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company manages its liquidity risk by forecasting cash flows required by operations and anticipated investing and financing activities. The Company had cash at December 31, 2013 in the amount of $40.44 million in order to meet short-term business requirements. At December 31, 2013, the Company had current liabilities of $0.895 million which are due on demand or within 30 days.
Item 12. Description of Securities Other than Equity Securities
A. – C.
Not Applicable.
D. American Depository Receipts
The Company does not have securities registered as American Depository Receipts.
Part II
Item 13. Defaults, Dividend Arrearages and Delinquencies
Not Applicable.
Item 14 Material Modifications to the Rights of Security Holders and Use of Proceeds
A.-D.
None.
E. Use of Proceeds
Not Applicable.
Item 15 Controls and Procedures
A.
Disclosure Controls and Procedures
An evaluation was performed under the supervision and with the participation of the Company’s audit committee and management, including the Company’s Chief Executive Officer and the Company’s Chief Financial Officer of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Rules 13a-15(b) and 15d-15(b) of the Exchange Act as of December 31, 2013. Based on their evaluation, the Company’s Chief Executive Officer (the “CEO”) have concluded that the disclosure controls and procedures were effective to give reasonable assurance that the information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and (ii) accumulated and communicated to management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
B. Management’s Annual Report on Internal Control Over Financial Reporting
The Company’s management, including the Company’s CEO and CFO, is responsible for establishing and maintaining adequate internal control over the Company’s internal control over financial reporting, as such term is defined in Rule 13a-15(f) under the Exchange Act. The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with IFRS. The Company’s internal control over financial reporting includes policies and procedures that: pertain to the maintenance of records that, in reasonable detail accurately and fairly reflect the transactions and disposition of assets; provide reasonable assurance that transactions are recorded as necessary to permit preparation of the consolidated financial statements in accordance with IFRS and that receipts and expenditures are being made only in accordance with authorization of management and directors of the Company; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on the consolidated financial statements.
Because of their inherent limitations, internal control over financial reporting can provide only reasonable assurance and may not prevent or detect misstatements. Furthermore, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
The Company’s management, (with the participation of the CEO and the CFO), conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2013. This evaluation was based on the criteria set forth in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on its assessment, management has concluded that the Company’s internal control over financial reporting was effective as at December 31, 2013, and management’s assessment did not identify any material weaknesses.
The Company is required to provide an auditor’s attestation report on internal control over financial reporting for the fiscal year ended December 31, 2013. In this report, the Company’s independent registered auditor, PricewaterhouseCoopers LLP, must state its opinion as to the effectiveness of the Company’s internal control over financial reporting for the fiscal year ended December 31, 2013. PricewaterhouseCoopers LLP has audited the Company’s financial statements included in this Annual Report on Form 20-F and has issued an attestation report on the Company’s internal control over financial reporting.
C. Attestation Report of the Registered Public Accounting Firm
The effectiveness of our internal control over financial reporting as of December 31, 2013, has been audited by our independent registered public accounting firm, PricewaterhouseCoopers LLP, which also audited our consolidated financial statements for the year ended December 31, 2013. PricewaterhouseCoopers LLP have expressed an unqualified opinion on the effectiveness of our internal control over financial reporting as of December 31, 2013, and their report is included with the Company’s consolidated financial statements.
D. Changes in Internal Control Over Financial Reporting
Based upon their evaluation of our controls, our CEO and CFO have concluded that, there were no significant changes in our internal control over financial reporting or in other factors during our last fiscal year that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 16.
[Reserved]
Item 16A Audit Committee Financial Expert
The Company’s Board of Directors has determined that Robert G. Reynolds qualifies as a financial expert (as defined in Item 407(d)(5)(ii) of Regulation S-K under the Exchange Act) and is independent (as determined under Exchange Act Rule 10A-3 and Section 803A of the NYSE MKT Company Guide).
Item 16B Code of Ethics
The Company is committed to the highest standards of legal and ethical business conduct. The Company has adopted a Code of Business Conduct and Ethics (the “Code”) that applies to all of its directors, officers and employees, including the CEO and CFO. This Code summarizes the legal, ethical and regulatory standards that the Company must follow and serves as a reminder to the directors, officers and employees, of the seriousness of that commitment. Compliance with this Code and high standards of business conduct is mandatory for every director, officer and employee of the Company. The Code meets the requirements for a “code of ethics” within the meaning of that term in Form 20-F.
A copy of the Code in full text is available on the Company’s website at www.exeterresource.com and in print to any shareholder who requests it. All required substantive amendments to the code, and all waivers of the code with respect to any of the officers covered by it, will be posted on the Company’s website at www.exeterresource.com within five business days of the amendment or waiver
,
and provided in print to any shareholder who requests them.
During the fiscal year ended December 31, 2013, the Company did not substantively amend, waive or implicitly waive any provision of the Code with respect to any of the directors, officers or employees subject to it.
Item 16C Principal Accountant Fees and Services
The independent auditor for the years ended December 31, 2013, 2012 and 2011 was PricewaterhouseCoopers LLP.
The following table sets out the aggregate fees billed by the Company’s external auditor for the three most recently completed financial years.
PricewaterhouseCoopers LLP
|
Financial Year Ending
|
Audit Fees
(1)
|
Audit-Related Fees
(2)
|
Tax Fees
(3)
|
All Other Fees
(4)
|
2013
|
$97,500
|
$20,000
|
$688
|
$Nil
|
2012
|
$
88,000
|
$45,000
|
$2,094
|
$Nil
|
2011
|
$
111,500
|
$61,500
|
$17,242
|
$Nil
|
(1)
|
The aggregate fees billed by the Company’s external auditor for audit services.
|
(2)
|
The aggregate fees billed by the Company’s external auditor for assurance and related services such as engagements relating to specific procedures.
|
(3)
|
The aggregate fees billed for tax compliance, tax advice and tax planning services.
|
(4)
|
Other than as disclosed above, the Company’s external auditor has not billed the Company for any products or services during the last two financial years. Fees relate to services relating to short form prospectus filings and information circulars.
|
The Audit Committee approved 100% of the fees paid to the principal accountant for audit-related, tax and other fees in the fiscal year 2013. The Audit Committee pre-approves all non-audit services to be performed by the auditor in accordance with the Audit Committee Charter. There were no hours expended on the principal accountant's engagement to audit the Company's financial statements for the most recent fiscal year that were attributed to work performed by persons other than the principal accountant's full-time, permanent employees.
Item 16D Exemptions from the Listing Standards for Audit Committees
None.
Item 16E Purchases of Equity Securities by the Issuer and Affiliated Purchasers
None.
Item 16F Changes in Registrants Certifying Accountant
None.
Item 16G Corporate Governance
The Company’s common shares are listed on the NYSE MKT. Section 110 of the NYSE MKT Company Guide permits the NYSE MKT to consider the laws, customs and practices of foreign issuers in relaxing certain NYSE MKT listing criteria, and to grant exemptions from NYSE MKT listing criteria based on these considerations. A description of the significant ways in which the Company’s governance practices differ from those followed by domestic companies pursuant to NYSE MKT standards is set forth on the Company’s website at
www.exeterresource.com
.
In addition, the Company may from time-to-time seek relief from NYSE MKT corporate governance requirements on specific transactions under Section 110 of the NYSE MKT Company Guide by providing written certification from independent local counsel that the non-complying practice is not prohibited by our home country law, in which case, the Company shall make the disclosure of such transactions available on its website at www.exeterresource.com. Information contained on the Company’s website is not part of this Annual Report on Form 20-F.
A description of the significant ways in which the Company’s governance practices differ from those followed by domestic companies pursuant to NYSE MKT standards is as follows:
Shareholder Meeting Quorum Requirement:
NYSE MKT minimum quorum requirement for a shareholder meeting is one-third of the outstanding shares of common stock. In addition, a company listed on NYSE MKT is required to state its quorum requirement in its by-law. The Company's quorum requirement is set forth in its articles of incorporation, which provides that a quorum for the transaction of business at any meeting of shareholders shall be two persons present in person, each being a shareholder entitled to vote thereat, holding not less than one-tenth of the voting shares of the Company, each of whom is present in person or by proxy or represented by a representative for a shareholder so entitled.
Proxy Delivery Requirement
: NYSE MKT requires the solicitation of proxies and delivery of proxy statements for all shareholder meetings, and requires that these proxies shall be solicited pursuant to a proxy statement that conforms to SEC
proxy rules. The Company is a “foreign private issuer” as defined in Rule 3b-4 under the Exchange Act and Rule 405 under the Securities Act and the equity securities of the Company are accordingly exempt from the proxy rules set forth in Sections 14(a), 14(b), 14(c) and 14(f) of the Exchange Act. The Company solicits proxies in accordance with applicable rules and regulations in Canada.
Shareholder Approval Requirement:
The Company will follow the Canadian securities regulatory authorities and TSX rules for shareholder approval of new issuances of its common shares. Following securities and exchange rules, shareholder approval is required for certain issuances of shares that: (i) materially affect control of the Company; or (ii) provide consideration to insiders in aggregate of 10% or greater of the market capitalization of the listed issuer and have not been negotiated at arm’s length. Shareholder approval is also required, pursuant to TSX rules, in the case of most private placements: (x) for an aggregate number of listed securities issuable greater than 25% of the number of securities of the listed issuer which are outstanding, on a non-diluted basis, prior to the date of closing of the transaction if the price per security is less than the market price; or (y) that during any six month period are to insiders for listed securities or options, rights or other entitlements to listed securities greater than 10% of the number of securities of the listed issuer which are outstanding, on a non-diluted basis, prior to the date of the closing of the first private placement to an insider during the six month period.
Item 16H Mine Safety Disclosure.
Pursuant to Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, issuers that are operators, or that have a subsidiary that is an operator, of a coal or other mine in the United States are required to disclose in their periodic reports filed with the SEC information regarding specified health and safety violations, orders and citations, related assessments and legal actions, and mining-related fatalities with respect to mining operations and properties in the United States that are subject to regulation by the Federal Mine Safety and Health Administration (“MSHA”) under the Federal Mine Safety and Health Act of 1977 (the “Mine Act”). During the year ended December 31, 2013, the Company had no mines in the United States that were subject to regulation by the MSHA under the Mine Act.
Part III