Sutter Gold Mining Inc. (SGMNF: OTC Link) | Notice of Annual and Special General Meeting and Information Circular

SUTTER GOLD MINING INC.

165 S. Union Blvd, Suite 565

Lakewood, Colorado, 80228

INFORMATION CIRCULAR
(as at May 4, 2010 except as otherwise indicated)

This information circular (the “Circular”) is provided in connection with the solicitation of proxies by the management of Sutter Gold Mining Inc. (the “Company”).  The form of proxy which accompanies this Circular (the “Proxy”) is for use at the annual and special general meeting of the shareholders of the Company to be held on Tuesday, June 8, 2010 (the “Meeting”), at the time and place set out in the accompanying notice of meeting (the “Notice of Meeting”).  The Company will bear the cost of this solicitation.  The solicitation will be made by mail, but may also be made by telephone.

The persons named in the Proxy are directors and/or officers of the Company.  A registered shareholder who wishes to appoint some other person to serve as their representative at the Meeting may do so by striking out the printed names and inserting the desired person’s name in the blank space provided.  The completed Proxy should be delivered to Computershare Trust Company of Canada (“Computershare”) by 2:00 pm on Friday, June 4, 2010 (excluding Saturdays, Sundays and holidays).

The Proxy may be revoked by:

(a)                signing a proxy with a later date and delivering it at the time and place noted above;

(b)                signing and dating a written notice of revocation and delivering it at the time and to the place noted above; or

(c)                attending the Meeting or any adjournment of the Meeting and registering with the scrutineer as a shareholder present in person.

Provisions Relating to Voting of Proxies

The shares represented by proxy in the enclosed form will be voted or withheld from voting by the designated holder in accordance with the direction of the registered shareholder appointing him.  If there is no direction by the registered shareholder, those shares will be voted for all proposals set out in the Proxy and for the election of directors and the appointment of the auditors as set out in this Circular.  The Proxy gives the person named in it the discretion to vote as such person sees fit on any amendments or variations to matters identified in the Notice of Meeting, or any other matters which may properly come before the Meeting.  At the time of printing of this Circular, the management of the Company knows of no other matters which may come before the Meeting other than those referred to in the Notice of Meeting.

Non-Registered Holders

Only registered shareholders or duly appointed proxyholders are permitted to vote at the Meeting.  Most shareholders of the Company are “non-registered” shareholders because the shares they own are not registered in their names but are instead registered in the name of the brokerage firm, bank or trust company through which they purchased the shares.  A person is not a registered shareholder (a “Non-Registered Holder”) in respect of shares which are held either:  (a) in the name of an intermediary (an “Intermediary”) that the Non-Registered Holder deals with in respect of the shares (Intermediaries include, among others, banks, trust companies, securities dealers or brokers and trustees or administrators of self-administered RRSPs, RRIFs, RESPs and similar plans); or (b) in the name of a clearing agency (such as The Canadian Depository for Securities Limited (“CDS”)), of which the Intermediary is a participant.

Non-Registered Holders who have not objected to their Intermediary disclosing certain ownership information about themselves to the Company are referred to as “NOBOs”.  Those Non-Registered Holders who have objected to their Intermediary disclosing ownership information about themselves to the Company are referred to as “OBOs”.  In accordance with the requirements of National Instrument 54-101 of the Canadian Securities Administrators, the Company has elected to send the Notice of Meeting, this Circular and the Proxy (collectively, the “Meeting Materials”) directly to the NOBOs, and indirectly through Intermediaries to the OBOs.  The Intermediaries (or their service companies) are responsible for forwarding the Meeting Materials to each OBO, unless the OBO has waived the right to receive them.

Intermediaries will frequently use service companies to forward the Meeting Materials to the OBOs.  Generally, an OBO who has not waived the right to receive Meeting Materials will either:

(a)                be given a form of proxy which has already been signed by the Intermediary (typically by a facsimile, stamped signature), which is restricted as to the number of shares beneficially owned by the OBO and must be completed, but not signed, by the OBO and deposited with Pacific Corporate Trust Company; or

(b)                more typically, be given a voting instruction form (“VIF”) which is not signed by the Intermediary, and which, when properly completed and signed by the OBO and returned to the Intermediary or its service company, will constitute voting instructions which the Intermediary must follow.

These securityholder materials are being sent to both registered shareholders and Non-Registered Holders.  If you are a Non-Registered Holder, and the Company or its agent has sent these materials to you, your name and address and information about your holdings of securities have been obtained in accordance with applicable securities regulatory requirements from the Intermediary holding on your behalf.  By choosing to send these materials to you directly, the Company (and not the Intermediary holding on your behalf) has assumed responsibility for (i) delivering these materials to you, and (ii) executing your proper voting instructions.  Please return your voting instructions as specified in the request for voting instruction.

The Meeting Materials sent to NOBOs who have not waived the right to receive meeting materials are accompanied by a VIF, instead of a form of proxy.  By returning the VIF in accordance with the instructions noted on it, a NOBO is able to instruct the voting of the Shares owned by it.

VIFs, whether provided by the Company or by an Intermediary, should be completed and returned in accordance with the specific instructions noted on the VIF.  The purpose of this procedure is to permit Non-Registered Holders to direct the voting of the Shares which they beneficially own.  Should a Non-Registered Holder who receives a VIF wish to attend the Meeting or have someone else attend on his or her behalf, the Non-Registered Holder may request a legal proxy as set forth in the VIF, which will grant the Non-Registered Holder, or his or her nominee, the right to attend and vote at the Meeting.

Please return your voting instructions as specified in the VIF.  Non-Registered Holders should carefully follow the instructions set out in the VIF, including those regarding when and where the VIF is to be delivered.

Financial Statements

The audited financial statements of the Company for the year ended December 31, 2009 together with the auditor’s report on those statements (the “Financial Statements”), will be presented to the shareholders at the Meeting. 

As at the date of the accompanying Notice of Meeting, the Company’s authorized capital consists of an unlimited number of Common shares without par value, an unlimited number of Preference shares without par value and an unlimited number of Series 1 Convertible Redeemable Preference shares, of which 102,677,303 common shares are issued and outstanding. All common shares in the capital of the Company carry the right to one vote.

Shareholders registered as at May 4, 2010 are entitled to attend and vote at the Meeting. Shareholders who wish to be represented by proxy at the Meeting must, to entitle the person appointed by the Proxy to attend and vote, deliver their Proxies at the place and within the time set forth in the notes to the Proxy.

To the knowledge of the directors and executive officers of the Company, as of the date of this circular, the following persons beneficially own, directly or indirectly, or exercise control or direction over, 10% or more of the issued and outstanding common shares of the Company:

            Note:

                                (1)         The beneficial owners of common shares held by depositories are not known to the directors or executive officers of the Company.

As at the May 4, 2010, the total number of common shares owned or controlled by management and the directors of the Company and their associates or affiliates was 54,590,870 common shares, representing 52.6% of the total issued and outstanding common shares.

The directors of the Company are elected annually and hold office until the next annual general meeting of the shareholders or until their successors are elected or appointed.  The management of the Company proposes to nominate the persons listed below for election as directors of the Company to serve until their successors are elected or appointed.  In the absence of instructions to the contrary, Proxies given pursuant to the solicitation by the management of the Company will be voted for the nominees listed in this Circular.  Management does not contemplate that any of the nominees will be unable to serve as a director.

The number of directors on the board of directors of the Company is currently set at six.  Shareholders will be asked at the Meeting to pass an ordinary resolution to set the number of directors at five.

The following table sets out the names of the nominees for election as directors, the offices they hold within the Company, their occupations, the length of time they have served as directors of the Company, and the number of shares of the Company which each beneficially owns, directly or indirectly, or over which control or direction is exercised, as of the date of this Circular:

 

Notes:

(1)      The information as to common shares beneficially owned or controlled has been provided by the directors themselves.

(2)      Member of the Company’s Audit Committee.

No proposed director is being elected under any arrangement or understanding between the proposed director and any other person or company except the directors and executive officers of the Company acting solely in such capacity.

Corporate Cease Trade Orders or Bankruptcies

No director or proposed director of the Company is, or within the ten years prior to the date of this Circular has been, a director or executive officer of any company, including the Company, that while that person was acting in that capacity:

(a)        was the subject of a cease trade order or similar order or an order that denied the company access to any exemption under securities legislation for a period of more than 30 consecutive days; or

(b)        was subject to an event that resulted, after the director ceased to be a director or executive officer of the company being the subject of a cease trade order or similar order or an order that denied the relevant company access to any exemption under securities legislation, for a period of more than 30 consecutive days; or

(c)        within a year of that person ceasing to act in that capacity, became bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency or was subject to or instituted any proceedings, arrangement or compromise with creditors or had a receiver, receiver manager or trustee appointed to hold its assets.

Individual Bankruptcies

No director or proposed director of the Company has, within the ten years prior to the date of this Circular, become bankrupt or made a proposal under any legislation relating to bankruptcy or insolvency, or been subject to or instituted any proceedings, arrangement or compromise with creditors, or had a receiver, receiver manager or trustee appointed to hold the assets of that individual.

Named Executive Officers

“Named Executive Officer” means: (a) each Chief Executive Officer, (b) each Chief Financial Officer, (c) each of the three most highly compensated executive officers, or the three most highly compensated individuals acting in a similar capacity, other than the Chief Executive Officer and Chief Financial Officer, at the end of the most recently completed financial year whose total compensation was, individually, more than $150,000; and (d) each individual who would be an NEO under paragraph (c) but for the fact that the individual was neither an executive officer of the company, nor acting in a similar capacity, at the end of that financial year.

During the financial year ended December 31, 2009, the Company had three Named Executive Officers of the Company, being: James A. Crombie, the President and Chief Executive Officer of the Company, Robert Hutmacher, the Chief Financial Officer of the Company and A. Clayr Alexander, the former President and Chief Executive Officer of the Company.

Compensation Discussion Analysis

Compensation Discussion Analysis

The Board of Directors of the Company determines the compensation payable to its NEOs.  The Board’s compensation program is based on the knowledge and experience of the NEOs and is designed to provide competitive levels of compensation in line with industry standards, a significant portion of which is dependent upon individual knowledge and experience and contribution to increasing shareholder value.  The Board recognizes the need to provide a total compensation package that will attract and retain qualified and experienced executives as well as align the compensation level of each executive to that executive’s level of responsibility. In general, a NEO’s compensation is comprised of three components:

            (a)        Salary;

(b)        Bonus; and

(c)        Stock option grants.

Bonuses are granted to the Company’s NEOs based on performance and the compensation program is designed to reward performance related milestones.  While the Company does not actively benchmark its executive compensation program, and the individual components thereof, with comparable companies, it does review the compensation practices of comparable entities to ensure the compensation that it is paying to its executive officers is competitive with those other entities.  The Company’s general executive compensation philosophy is to, whenever possible, pay its executive officers “base” compensation in the form of salaries that are competitive in comparison to those earned by executive officers holding comparable positions with other Canadian publicly traded entities similar to the Company while at the same time providing its executive officers with the opportunity to earn above average “total” compensation through the potential attainment of annual incentive bonuses and through the Company’s stock option plan.

No directors’ fees are paid.

Option-Based Awards

The stock option component of executive officers’ compensation is intended to advance the interests of the Company by encouraging the directors, officers, employees and consultants of the Company to acquire shares, thereby increasing their proprietary interest in the Company, encouraging them to remain associated with the Company and furnishing them with additional incentive in their efforts on behalf of the Company in the conduct of its affairs.  Grants under the Company’s stock option plan (the “Stock Option Plan”) are intended to provide long term awards linked directly to the market value performance of the Company’s shares. 

The Board of the Company determines the grant of option-based awards to the Company’s executive officers.  Stock options are granted according to the specific level of responsibility of the particular executive and the number of options for each level of responsibility is determined by the Board.  The number of outstanding options is also considered by the Board when determining the number of options to be granted in any particular year due to the limited number of options which are available for grant under the stock option plan.

The Stock Option Plan was initially adopted by the Board on October 12, 2006 and approved by the Company’s shareholders at the 2008 Annual General Meeting held on July 29, 2008.  The stock option plan complies with the rules set forth for such plans by the TSX Venture Exchange (the “TSXV”).

The material terms of the Stock Option Plan as it currently exists can be summarized as follows:

General

·         The Board of Directors may from time to time grant to directors, employees or consultants options to acquire shares of the Company. The Stock Option Plan is administered by the Corporate Secretary on the instructions of the Board of Directors or such director or other senior officer or employee of the Company as may be designated administrator by the Board from time to time.

·         The maximum number of shares issuable under the Stock Option Plan, together with the number of shares issuable under outstanding options granted otherwise than under the Stock Option Plan, shall not in the aggregate exceed 10% of the issued and outstanding shares (calculated as at the award date of such options).  The Company is prohibited from granting options to any one person which will, when exercised, exceed 5% of the issued and outstanding shares of the Company.  If an option expires or is otherwise terminated without having been exercised in full, the number of shares in respect of which the option expired or terminated shall again be available for the purposes of the  stock option plan.

Expiry of Options

·         The expiry date of an option shall be the date fixed by the Board of Directors at the time the particular option is granted, provided that the expiry date shall not exceed five years from the date of grant.

·         In the event of the death of an option holder, the expiry date shall be one year from the date of death.  Any options which are unvested as of the date of death will not vest.  Notwithstanding the foregoing, the Board of Directors may, in their discretion, determine that any unvested options of the option holder will immediately vest and become exercisable.

·         In the event the option holder is a director and ceases to be a director of the Company other than by reason of death, all unvested options shall immediately vest and become exercisable and the expiry date of the option shall be the 30th day following the date the option holder ceased to be a director of the Company (unless the option holder ceases to be a director as the result of certain prescribed circumstances).

·         In the event that an option holder is an employee or consultant and ceases to be employed by the Company or act as a consultant to the Company (other than by reason of death), the expiry date of the option shall be the 30th day following the date the employee ceases to be employed.  All options which are not vested as of the date the employee ceases to be employed or the consultant ceases to act in such a capacity shall not vest.  Notwithstanding the foregoing, the Board of Directors may, in their discretion, determine that any unvested options of the option holder will immediately vest and become exercisable. 

Exercise Price

·         The exercise price of options shall be determined by the Board of Directors and announced as of the award date and shall not be less than the closing price of the shares on the TSXV on the last day immediately preceding the grant, less any allowable discount permitted by the TSXV.

Vesting of Options

All Options granted pursuant to the Plan will be subject to such vesting requirements as may be prescribed by the TSXV, if applicable, or as may be imposed by the Board.  All Options granted to consultants performing investor relations activities will vest in stages over 12 months with no more than one-quarter of the Options vesting in any three month period. The option certificate representing any such Option will disclose any vesting conditions.

Assignment of Options

Options are non-assignable and non-transferable. 

Amendment and Termination

·         Subject to the approval of the TSXV, the Board of Directors may from time to time amend the Stock Option Plan and the terms and conditions of any option thereafter to be granted.  Any such amendment shall not alter the terms of any options granted prior to such amendment.

·         Subject to the approval of the TSXV and with the consent of the affected option holders, the Board of Directors may from time to time retrospectively amend the stock option plan and retrospectively amend the terms and conditions of any options granted subject to obtaining disinterested shareholder approval, if required.

·         Any substantive amendments to the Stock Option Plan are subject to the Company first obtaining the approvals of the shareholders of the Company and the TSXV.

·         The Board of Directors may terminate the Stock Option Plan at any time provided that such termination will not alter the terms or conditions of any option awarded prior to the date of such termination.

SUMMARY COMPENSATION TABLE

Summary Compensation Table

Set out below is a summary of compensation paid during the Company’s most recently completed financial year to the Company’s Named Executive Officers:

Summary Compensation Table

(US$)

Notes:

(1)      Mr. Crombie was appointed as the President and Chief Executive Officer of the Company on September 25, 2009.

(2)      Mr. Hutmacher was appointed as the Chief Financial Officer of the Company on October 6, 2008.

(3)      Mr. Alexander resigned as the President and Chief Executive Officer of the Company on September 25, 2009.

(4)      The fair value of option-based awards which are vested during 2009 is determined by the Black-Scholes Option Pricing Model with assumptions for risk-free interest rates, dividend yields, volatility factors of the expected market price of the Company’s common shares and expected life of the options.  The options granted to the NEO’s in 2008 and 2009 are vested as follows:  50% are vested upon the date of grant and the remaining 50% are vested 12 months after the date of grant.

(5)      All dollar values are reflected in U.S. currency, which is the reporting currency of the Company.

Following are the significant terms of each the Company’s Named Executive Officers’ employment agreements:

Employment Agreement – A. Clayr Alexander – President and Chief Executive Officer

Mr. Alexander resigned as the Company’s Chief Executive Officer on September 25, 2009.  Mr. Alexander received a severance of $73,320 upon his resignation.

Employment Agreement – Robert J. Hutmacher – Chief Financial Officer

The Company entered into an Employment Agreement effective October 6, 2008, pursuant to which Mr. Hutmacher is employed as Chief Financial Officer for an unspecified term at a current salary of US$200,000 per annum, payable monthly, plus benefits and the granting of stock options and the awarding of bonuses which shall be determined upon the Company having reached certain performance milestones and all such other annual bonuses and options as may be awarded at the sole discretion of the Board, from time to time.  In connection with his employment, Mr. Hutmacher received an aggregate of 1,000,000 stock options, 50% of which options vested immediately upon such date of grant and the remaining 50% of which will vest upon the first anniversary of his employment.  Mr. Hutmacher also received a bonus in the amount of US$100,000 for the year ended December 31, 2008 as a result of completing a certain performance milestone.  Mr. Hutmacher will not, with the prior written consent of the Company, during his employment with the Company, and at any time during the period of one year following the termination of his employment with the Company, directly or indirectly, engage in a business which is competitive with the Company. For information regarding termination and change of control provisions set out in Mr. Hutmacher’s employment agreement, refer to the heading “Statement of Executive Compensation – Termination and Change of Control Benefits.”

Incentive Plan Awards

Outstanding Option-Based Awards

The following tables set forth the outstanding option-based awards held by the Named Executive Officers of the Company at the end of the most recently completed financial year:

Outstanding Share-Based Awards and
Option-Based Awards

(US$)

Notes:

(1)       The market price for the Company’s common shares on December 30, 2009 being the last day the shares traded before the Company’s year end was CDN$0.10. No value has been given to unexercised options that were out-of-the-money on December 31, 2009.

(2)       The rate of exchange used to convert Canadian dollars to US dollars is 0.9555 per Bank of Canada on December 31, 2009 resulting in a US$ option price of $0.11.

(3)       Mr. Alexander resigned from the Company on September 25, 2009.  In accordance with our stock option plan his vested options expired 30 days after his resignation and his unvested options expired immediately.

Incentive Plan Awards – Value Vested or Earned During the Year

The following table sets forth details of the value vested or earned for all incentive plan awards during the most recently completed financial year by each Named Executive Officer:

Value Vested or Earned for Incentive Plan Awards During the Most
Recently Completed Financial Year

(US$)

Notes:

(1)       The options granted to the Named Executive Officers are to vest as follows:  50% vested upon the date of grant and the remaining 50% are to vest 12 months after the date of grant.  The aggregate dollar value that would have been realized if the options under the option-based award had been exercised on the vesting date is calculated by determining the difference between the market price of the underlying securities on the date of vesting and the exercise price of the options under the option-based award multiplied by the number of options vested on the vesting date.

TERMINATION AND CHANGE OF CONTROL BENEFITS

Each of the current Named Executive Officers have termination and change and control benefits provided for in their employment agreements. 

Employment Agreement – A. Clayr Alexander – President and Chief Executive Officer

Mr. Alexander resigned as the Company’s Chief Executive Officer on September 25, 2009.  Mr. Alexander received a severance of $73,320 upon his resignation.

Employment Agreement – Robert J. Hutmacher – Chief Financial Officer

Mr. Hutmacher’s employment agreement may be terminated by Mr. Hutmacher with a minimum of 14 and a maximum of 30 days’ written notice or by the Company at any time, without cause, by payment of a one-time severance payment in accordance with the Company’s severance policy then in effect, if any. In the absence of an effective severance policy, the severance payment shall be determined by multiplying each full year of service with the Company by one pro-rata week of Mr. Hutmacher’s annual salary, less all ordinary deductions for taxes and other authorized deductions in accordance with law.

In the event of a change of control, the Company will pay Mr. Hutmacher an amount equal to US$400,000 less any ordinary taxes and authorized deductions. This amount shall be paid in addition to any severance payment to which Mr. Hutmacher will be eligible under the Company’s then existing severance policy or pursuant to his employment agreement. He will also be entitled to any bonuses earned at that time in accordance with the provisions of his employment agreement. In the event of a change of control, any restrictions upon the stock options granted to Mr. Hutmacher will lapse and all stock options granted will become fully vested.

DIRECTOR COMPENSATION

Director Compensation Table

Other than compensation paid to the Named Executive Officers, and except as noted below, no compensation was paid to directors in their capacity as directors of the Company or its subsidiaries, in their capacity as members of a committee of the Board or of a committee of the board of directors of its subsidiaries, or as consultants or experts, during the Company’s most recently completed financial year.

The following table sets forth the details of compensation provided to the directors, other than the Named Executive Officers during the Company’s most recently completed financial year:

Director Compensation Table

(US$)

Notes:  

(1)       The fair value of option-based awards which are vested is determined by the Black-Scholes Option Pricing Model with assumptions for risk-free interest rates, dividend yields, volatility factors of the expected market price of the Company’s common shares and expected life of the options. 

Narrative Discussion

Directors are only compensated through the grant of stock options. No directors’ fees are paid.

Incentive Plan Awards

Outstanding Option-Based Awards

The following table sets forth the outstanding option-based awards held by the directors of the Company at the end of the most recently completed financial year:

Outstanding Share-Based Awards and
Option-Based Awards

(CDN$)

Notes:

(1)       The rate of exchange used to convert Canadian dollars to US dollars is 0.9555 per Bank of Canada on December 31, 2009 resulting in US$ option prices of $0.29, $0.11 and $0.27 respectively.

(2)       The market price for the Company’s common shares on December 30, 2009 being the last day the shares traded before the Company’s year end was CDN$0.10. No value has been given to unexercised options that were out-of-the-money on December 31, 2009.

Incentive Plan Awards – Value Vested or Earned During the Year

The following table sets forth details of the value vested or earned for all incentive plan awards during the most recently completed fiscal year by each director:

Value Vested or Earned for Incentive Plan Awards during the Most
Recently Completed Financial Year

(US$)

Notes:

(1)       No options were vested on December 31, 2009.

The following table sets out those securities of the Company which have been authorized for issuance under equity compensation plans, as at December 31, 2009:

None of the current or former directors, executive officers, employees of the Company, the proposed nominees for election to the board of directors of the Company, or their respective associates or affiliates, are or have been indebted to the Company since the beginning of the last completed financial year of the Company.

No director or executive officer of the Company or any proposed nominee of management of the Company for election as a director of the Company, nor any associate or affiliate of the foregoing persons, has any material interest, direct or indirect, by way of beneficial ownership of securities or otherwise, since the beginning of the Company’s last financial year in matters to be acted upon at the Meeting, other than the election of directors or the appointment of auditors.

None of the persons who were directors or executive officers of the Company or a subsidiary of the Company at any time during the Company’s last financial year, the proposed nominees for election to the board of directors of the Company, any person or company who beneficially owns, directly or indirectly, or who exercises control or direction over (or a combination of both) more than 10% of the issued and outstanding common shares of the Company, nor any associate or affiliate of those persons, has any material interest, direct or indirect, by way of beneficial ownership of securities or otherwise, in any transaction or proposed transaction which has materially affected or would materially affect the Company.

Other than as disclosed herein, no management functions of the Company are to any substantial degree performed by a person or company other than the directors or executive officers of the Company.

Auditor

The management of the Company intends to nominate DeVisser Gray, Chartered Accountants, for re-appointment as auditor of the Company.  Forms of proxy given pursuant to the solicitation by the management of the Company will, on any poll, be voted as directed and, if there is no direction, for the re-appointment of DeVisser Gray, Chartered Accountants, as auditor of the Company to hold office until the close of the next annual general meeting of the Company, at a remuneration to be fixed by the directors.  DeVisser Gray, Chartered Accountants, was first appointed as auditor of the Company on September 18, 2001.

AUDIT COMMITTEE

The Company is required to have an audit committee comprised of not less than three directors, a majority of whom are not officers, control persons or employees of the Company or an affiliate of the Company.  The Company’s audit committee is comprised of Mark T. Brown (Chairman), Allen S. Winters and James Crombie.

Relevant Education and Experience

Based on their business and educational experiences, each audit committee member has a reasonable understanding of the accounting principles used by the Company; an ability to assess the general application of such principles in connection of the accounting for estimates, accruals and reserves; experience analyzing and evaluating financial statements that present a breadth and level of complexity of issues that can reasonably be expected to be raised by the Company’s financial statements, or experience actively supervising one or more individuals engaged in such activities; and an understanding of internal controls and procedures for financial reporting.

Mark T. Brown received a Bachelor of Commerce Degree from the University of British Columbia in 1990 and is a member of the Institute of Chartered Accountants of British Columbia.  He is currently President of Pacific Opportunity Capital Ltd., a private company which provides financial solutions, equity and management services to small and medium size entrepreneurial enterprises.  Prior to joining Pacific Opportunity Capital Ltd., Mr. Brown was the controller of three companies:  Eldorado Gold Corporation, Miramar Mining Corporation and Northern Orion Exploration Ltd.  Eldorado Gold Corporation is currently listed on the Toronto Stock Exchange and the American Stock and Options Exchange and Miramar Mining Corporation is listed on the Toronto Stock Exchange.  Between 1990 and 1994, Mr. Brown worked with PricewaterhouseCoopers.  He is currently a director and /or officer of various other public companies. 

Allen S. Winters is currently a consultant to the mining industry and served in a variety of senior executive management positions with Homestake Mining Co. over a 20-year period (1975-1995). Homestake Mining Co. merged into Barrick Gold Corporation in December 2001 to create one of the world’s largest gold mining companies. At the time of his retirement from Homestake in 1995, Mr. Winters was Vice President and General Manager of the Homestake Mine in Lead, South Dakota. From 1988 through 1992, he served as Vice President of U.S. Operations for Homestake and had direct responsibility for five domestic mining operations producing precious metals and uranium for two joint ventures.

 

James A. Crombie graduated from the Royal School of Mines, London, in 1980 with a B.Sc. (Hons) in Mining Engineering, having been awarded an Anglo American scholarship. Mr. Crombie held various positions with DeBeers Consolidated Mines and the Anglo American Corporation in South Africa and Angola between 1980 and 1986. He spent the next thirteen years as a mining analyst and investment banker with Shepards, Merrill Lynch, James Capel Co. and finally with Yorkton Securities. Mr. Crombie was the Vice President, Corporate Development of Hope Bay Mining Corporation Inc. from February 1999 through May 2002 and President and CEO of Ariane Gold Corp. from August 2002 to November 2003. Mr. Crombie was President, CEO and a director of Palmarejo Silver and Gold Corporation until the merger with Coeur d’Alene Mines Corporation, in December 2007. He was a director of Sherwood Copper Corporation until its business combination with Capstone Mining Corp. in November 2008. Currently, Mr. Crombie is the President, CEO and a director of Reunion, CEO and Executive Vice-Chairman of Queensland Minerals Ltd. and President, CEO and director of Odyssey Resources Ltd.  He is interim President and CEO and a director of Sutter Gold and a director of Arian Silver Corporation.

Audit Committee Charter

The text of the audit committee’s charter is attached as Schedule “A” to this Circular.

Independence

National Instrument 52-110 Audit Committees, (“NI 52-110”) provides that a member of an audit committee is “independent” if the member has no direct or indirect material relationship with the Company, which could, in the view of the Company’s board of directors, reasonably interfere with the exercise of the member’s independent judgment. 

Two of the three members of the Company’s audit committee are independent as that term is defined.  As a Venture Issuer, the Company is not required to have all independent directors on its audit committee.

Financial Literacy

NI 52-110 provides that an individual is “financially literate” if he or she has the ability to read and understand a set of financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of the issues that can reasonably be expected to be raised by the Company’s financial statements.

All of the members of the Company’s audit committee are financially literate as that term is defined.

Audit Committee Oversight

Since the commencement of the Company’s most recently completed financial year, the audit committee of the Company has not made any recommendations to nominate or compensate an external auditor which were not adopted by the board of directors of the Company.

Reliance on Certain Exemptions

Since the commencement of the Company’s most recently completed financial year, the Company has not relied on:

(a)        the exemption in section 2.4 (De Minimis Non-audit Services) of NI 52-110; or

(b)        an exemption from NI 52-110, in whole or in part, granted under Part 8 (Exemptions).

Pre-Approval Policies and Procedures

The audit committee has not adopted any specific policies and procedures for the engagement of non-audit services. 

Audit Fees

The following table sets forth the fees paid by the Company to DeVisser Gray, Chartered Accountants, for services rendered in the last two fiscal years:                                    

Exemption in Section 6.1

The Company is a “venture issuer” as defined in NI 52-110 and is relying on the exemption in section 6.1 of NI 52-110 relating to Parts 3 (Composition of Audit Committee) and 5 (Reporting Obligations).

National Instrument 58-101, Disclosure of Corporate Governance Practices, requires all reporting issuers to provide certain annual disclosure of their corporate governance practices with respect to the corporate governance guidelines (the “Guidelines”) adopted in National Policy 58-201.  These Guidelines are not prescriptive, but have been used by the Company in adopting its corporate governance practices.  The Company’s approach to corporate governance is set out below.

Board of Directors

Management is nominating five individuals to the Company’s board of directors (the “Board”), all of whom are current directors.

The Guidelines suggest that the board of directors of every reporting issuer should be constituted with a majority of individuals who qualify as “independent” directors under NI 52-110, which provides that a director is independent if he or she has no direct or indirect “material relationship” with the Company. The majority of the Company’s board is independent as that term is defined in NI 52-110.

The Company doesn’t currently have a chairman or a lead director of the board.

Directorships

The following directors of the Company are directors of other reporting issuers:

·                   Mark T. Brown is a director of Everclear Capital Ltd., Fox Resources Ltd., Portal Resources Ltd., Rare Element Resources Ltd., Strategem Capital Corporation and Animas Resources Ltd.

·                   Allen S. Winters is a director of U.S. Energy Corp.

·                   David Fennell is a director of Gleichen Resources Ltd., Sabina Gold and Silver Corp., Reunion Gold Corporation, Queensland Minerals Ltd., Rodeo Capital Corporation and Major Drilling Group International Inc.  

·                   James A. Crombie is a director of Arian Silver Corporation, Reunion Gold Corporation, Queensland Minerals Ltd., Rodeo Capital Corporation and Odyssey Resources Ltd.

Orientation and Continuing Education

The Board does not have any formal policies with respect to the orientation of new directors nor does it take any measures to provide continuing education for the directors.  At this stage of the Company’s development the Board does not feel it necessary to have such policies or programs in place.

Ethical Business Conduct

To date, the Board has not adopted a formal written Code of Business Conduct and Ethics.  However, the current limited size of the Company’s operations, and the small number of officers and consultants, allow the Board to monitor on an ongoing basis the activities of management and to ensure that the highest standard of ethical conduct is maintained.  As the Company grows in size and scope, the Board anticipates that it will formulate and implement a formal Code of Business Conduct and Ethics.

Nomination and Assessment

The Board does not have a formal process in place with respect to the appointment of new directors.  The Board expects that when the time comes to appoint new directors to the Board that the nominees would be recruited by the current Board members, and the recruitment process would involve both formal and informal discussions among Board members and the CEO.  The Board monitors, but does not formally assess, the performance of individual Board members and their contributions.

The Board does not, at present, have a formal process in place for assessing the effectiveness of the Board as a whole, its committees or individual directors, but will consider implementing one in the future should circumstances warrant.  Based on the Company’s size, its stage of development and the limited number of individuals on the Board, the Board considers a formal assessment process to be inappropriate at this time.

Compensation

The Company formed a Corporate Governance and Compensation Committee comprised of Mark Brown, Chairman, Jim Crombie, and David Fennell. The quantity and quality of the Board compensation is reviewed on an annual basis by the Board. At present, the Board is satisfied that the current compensation arrangements, which currently consist solely of incentive stock options, adequately reflect the responsibilities and risks involved in being an effective director of the Company.

Other Board Committees

The written charter of the Audit Committee, as required by NI 52-110, is contained in Schedule “A” to this Circular.  The Company also formed a Health, Environmental Safety Committee comprised of David Fennell, Chairman, Rick Winters, and Al Winters.  As the Company grows, and its operations and management structure became more complex, the Board expects it will constitute formal standing committees, and are composed of at least a majority of independent directors.

Amendment to Articles

Shareholders will be asked to approve by special resolution, to adopt a new form of Articles of the Company.

The Board of Directors has determined that the adoption of a new form Articles of the Company is in the best interests of the Company and its shareholders and accordingly, the Board of Directors recommends that shareholders vote in favour of the new form of Articles.

The special resolution to adopt the new form of Articles of the Company must be passed by not less than two thirds (2/3) of the votes cast by the shareholders present in person or by proxy at the Meeting.  Accordingly, the Company’s shareholders will be asked to consider, and if thought appropriate, to pass, with or without amendment, a special resolution as follows:

“IT IS RESOLVED, as a special resolution that:

1.         The existing Articles of the Company be deleted in their entirety and that the new form of Articles presented at the Meeting be adopted as the Articles of the Company.

2.         The alterations made to the Company’s Articles shall take effect upon deposit of this resolution at the Company’s records office.

3.         Any one director or officer of the Company, signing alone, be authorized to execute and deliver all such documents and instruments, including the new form of the Articles, and to do such further acts, as may be necessary to give full effect to these resolutions or as may be required to carry out the full intent and meaning thereof.”

The above amendment to the Articles, if approved by the shareholders, shall take effect immediately on the date and time of their execution and delivery to the records office of the Company.  Note that Articles are no longer required to be filed with the Registrar of Companies.

Confirming Stock Option Plan

Shareholders are being asked to confirm approval of the Company’s Stock Option Plan which was initially adopted by the directors of the Company on October 12, 2006.  There have been no changes to the Stock Option Plan since it was adopted by the directors.  The Stock Option Plan remains subject to acceptance by the TSXV, which the Company expects to have received by the date of the Meeting.  The purpose of the Stock Option Plan is described in the section “Executive Compensation – Options and Stock Appreciation Rights (SARS)” of the information circular. 

The following information is intended as a brief description of the Stock Option Plan and is qualified in its entirety by the full text of the Stock Option Plan, which will be available for review at the Meeting.

1.         The maximum number of shares that may be issued upon the exercise of stock options granted under the Stock Option Plan shall not exceed 10% of the issued and outstanding common shares of the Company at the time of grant, the exercise price of which, as determined by the board of directors in its sole discretion, shall not be less than the closing price of the Company’s shares traded through the facilities of the Exchange on the date prior to the date of grant, less allowable discounts, in accordance with the policies of the Exchange or, if the shares are no longer listed for trading on the Exchange, then such other exchange or quotation system on which the shares are listed or quoted for trading.

2.         The board of directors shall not grant options to any one person in any 12 month period which will, when exercised, exceed 5% of the issued and outstanding shares of the Company or to any one consultant or to those persons employed by the Company who perform investor relations services which will, when exercised, exceed 2% of the issued and outstanding shares of the Company.

3.         Upon expiry of an option, or in the event an option is otherwise terminated for any reason, the number of shares in respect of the expired or terminated option shall again be available for the purposes of the Stock Option Plan.  All options granted under the Stock Option Plan may not have an expiry date exceeding ten years from the date on which the board of directors grant and announce the granting of the option provided the Company is a Tier 1 Issuer or five years if the Company is a Tier 2 Issuer.

4.         If the option holder ceases to be a director of the Company or ceases to be employed by the Company (other than by reason of death), or ceases to be a consultant of the Company as the case may be, then the option granted shall expire on no later than the 30th day following the date that the option holder ceases to be a director, ceases to be employed by the Company or ceases to be a consultant of the Company, subject to the terms and conditions set out in the Stock Option Plan.

In accordance with the policies of the Exchange, a plan with a rolling 10% maximum issuance, as set out in paragraph 1 above, must be confirmed by shareholders at each annual general meeting.

Accordingly, at the Meeting, the shareholders will be asked to pass the following resolution:

            IT IS RESOLVED THAT the Stock Option Plan is hereby confirmed.

General Matters

It is not known whether any other matters will come before the Meeting other than those set forth above and in the Notice of Meeting, but if any other matters do arise, the person named in the Proxy intends to vote on any poll, in accordance with his or her best judgement, exercising discretionary authority with respect to amendments or variations of matters set forth in the Notice of Meeting and other matters which may properly come before the Meeting or any adjournment of the Meeting. 

Additional information relating to the Company may be found on SEDAR at www.sedar.com.  Financial information about the Company is provided by the Company’s comparative annual financial statements to December 31, 2009.  Additional financial information concerning the Company may be obtained by any securityholder of the Company free of charge by contacting the Company at 165 South Union Blvd., Suite 565, Lakewood, Colorado, 80228.

The contents of this Circular have been approved and its mailing authorized by the directors of the Company.

DATED at Vancouver, British Columbia, the 4th day of May, 2010.

ON BEHALF OF THE BOARD

 

James Crombie,

Chief Executive Officer and President

Article source: http://www.otcmarkets.com/stock/SGMNF/news?id=39968

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