Hudbay Minerals Inc. - Exhibit 99.2 - Filed by newsfilecorp.com
NOTICE OF ANNUAL MEETING
OF SHAREHOLDERS
AND
MANAGEMENT INFORMATION CIRCULAR
in respect of the
ANNUAL MEETING OF
SHAREHOLDERS
OF HUDBAY MINERALS
INC.
TO BE HELD ON
MAY 4, 2017
___________________________________
MARCH 31, 2017
| HUDBAY MINERALS INC. |
| NOTICE OF
ANNUAL MEETING OF SHAREHOLDERS |
NOTICE IS HEREBY GIVEN that an annual meeting of
shareholders (the “Meeting”) of Hudbay Minerals Inc. (“Hudbay”)
will be held at St. Andrew’s Club & Conference Centre, Conservatory Lounge,
150 King Street West, 16th Floor, Toronto, Ontario, M5H 1J9 on Thursday, May 4,
2017 at 2:00 p.m. (Eastern Time), for the following purposes:
| 1. |
to receive Hudbay’s audited consolidated financial
statements for the years ended December 31, 2016 and 2015 and the
auditor’s report thereon; |
| 2. |
to elect the directors of Hudbay; |
| 3. |
to appoint Deloitte LLP as Hudbay’s auditor for the
ensuing year and to authorize the Board of Directors, upon the
recommendation of the Audit Committee, to fix the auditor’s
remuneration; |
| 4. |
to consider and, if deemed appropriate, to approve a
non-binding advisory resolution on executive compensation; and |
| 5. |
to transact such other business as may properly come
before the Meeting or any postponement or adjournment
thereof. |
The specific details of the matters proposed to be put before
the Meeting are set forth in the accompanying management information circular.
Shareholders who are unable to attend the Meeting are requested
to complete, date, sign and return the enclosed form of proxy so that as large a
representation as possible may be had at the Meeting.
Hudbay’s Board of Directors has fixed the close of business on
March 27, 2017 as the record date, being the date for the determination of the
registered holders of Hudbay common shares entitled to receive notice of and
vote at the Meeting or any postponement or adjournment thereof. Shareholders who
acquire common shares after March 27, 2017 should make arrangements with the
selling shareholder to direct how such common shares will be voted at the
Meeting.
Proxies to be used or acted upon at the Meeting or any
postponement or adjournment thereof must be deposited with Hudbay’s transfer
agent, TSX Trust Company, by completing and delivering the form of proxy in
accordance with the instructions indicated thereon, no later than 2:00 p.m.
(Eastern Time) on May 2, 2017 or 48 hours (excluding Saturdays, Sundays and
holidays) before any postponement or adjournment of the Meeting. Late proxies
may be accepted or rejected by the Chairman of the Meeting in his discretion,
and the Chairman is under no obligation to accept or reject any particular late
proxy.
DATED at Toronto, Ontario this
31st day of March, 2017.
By Order of the Board of Directors
W. Warren Holmes, Chairman
| MANAGEMENT INFORMATION CIRCULAR
|
This management information circular (“Circular”) is
furnished in connection with the solicitation of proxies by and on behalf of the
management of Hudbay Minerals Inc. for use at the annual meeting of shareholders
(the “Meeting”) to be held on Thursday, May 4, 2017 at 2:00 p.m. (Eastern
Time) at St. Andrew’s Club & Conference Centre, Conservatory Lounge, 150
King Street West, 16th Floor, Toronto, Ontario, M5H 1J9, or at any postponement
or adjournment thereof. The Meeting has been called for the purposes set forth
in the Notice of Annual Meeting of Shareholders (the “Notice of Meeting”)
that accompanies this Circular.
References in this Circular to “we”, “us”, “our” and similar
terms, as well as references to “Hudbay”, refer to Hudbay Minerals Inc. and
references to “Board” refer to our board of directors. Unless otherwise
indicated, the information in this Circular is given as at March 31, 2017 and
all dollar references in this Circular are to Canadian dollars, unless otherwise
stated.
| GENERAL PROXY INFORMATION |
This Circular provides the information you need to vote at the
Meeting.
| • |
If you are a registered holder of our common shares
(each, a “Hudbay Share”), a form of proxy is enclosed that you can
use to vote at the Meeting or you may attend in person. |
| • |
If you are a non-registered holder and your Hudbay Shares
are held by an intermediary (such as a broker or financial institution),
you may receive either a form of proxy or voting instruction form and
should follow the instructions provided with such form.
|
These materials are being sent to both registered and
non-registered owners of Hudbay Shares. If you are a non-registered owner, and
we or our agent have sent these materials directly to you, your name, address
and information about your share holdings have been obtained in accordance with
applicable securities regulatory requirements from the intermediary holding the
shares on your behalf. By choosing to send these materials to you directly, we
(and not the intermediary holding on your behalf) have assumed responsibility
for (i) delivering these materials to you, and (ii) providing you with a form of
proxy so you can vote your Hudbay Shares at the Meeting. See “Voting Information
– Voting Your Common Shares”.
The solicitation of proxies will be primarily by mail, but
proxies may also be solicited in person, by telephone or other form of
correspondence. The cost of preparing and mailing this Circular and other
materials relating to the Meeting and the cost of soliciting proxies has been or
will be borne by us.
VOTING MATTERS
At the Meeting, shareholders are voting on the:
| • |
election of directors; |
| |
|
| • |
appointment of our auditor for 2017 and the authorization
of our Board, upon the recommendation of the Audit Committee, to fix the
auditor’s remuneration; and |
| |
|
| • |
approval of a non-binding advisory resolution on
executive compensation. |
2017 MANAGEMENT INFORMATION CIRCULAR |
1
WHO CAN VOTE
The record date for the Meeting is March 27, 2017. Our transfer
agent has prepared a list, as of the close of business on the record date, of
the registered holders of Hudbay Shares. A holder of Hudbay Shares whose name
appears on such list is entitled to vote the shares on such list at the Meeting.
Each Hudbay Share entitles the holder to one vote on each item of business
identified in the Notice of Meeting.
VOTING YOUR COMMON SHARES
All shareholders are advised to carefully read the voting
instructions below that are applicable to them.
Registered Shareholders
If you were a registered shareholder on the record date, you
may vote in person at the Meeting or give another person authority to represent
you and vote your shares at the Meeting, as described below under the heading
‘‘Voting Your Common Shares by Proxy’’.
Non-Registered Shareholders
It is possible that your Hudbay Shares may be registered in the
name of an intermediary, which is usually a trust company, securities broker or
other financial institution. If your shares are registered in the name of an
intermediary, you are a non-registered shareholder. Your intermediary is
entitled to vote the Hudbay Shares held by it and beneficially owned by you on
the record date. However, it must first seek your instructions as to how to vote
your Hudbay Shares or otherwise make arrangements so that you may vote your
Hudbay Shares directly. An intermediary is not entitled to vote the Hudbay
Shares held by it without written instructions from the beneficial owner. You
may vote your Hudbay Shares through your intermediary or in person by taking the
appropriate steps, which are the same for objecting beneficial owners
(“OBO”) and non-objecting beneficial owners (“NOBO”) of Hudbay
Shares. You are an OBO if you have not allowed your intermediary to disclose
your ownership information to us. You are a NOBO if you have provided
instructions to your intermediary to disclose your ownership information to us.
NOBOs and OBOs
NOBOs and OBOs should carefully review the instructions
provided to them by their intermediary regarding how to provide voting
instructions or how to obtain a proxy with respect to their Hudbay Shares. Such
shareholders may also wish to contact their intermediary directly in order to
obtain instructions regarding how to vote Hudbay Shares that they beneficially
own.
Please note that if you are a NOBO or an OBO and you wish to
attend the Meeting, you will not be recognized at the Meeting for the purpose of
voting Hudbay Shares registered in the name of an intermediary unless you
appoint yourself as a proxyholder. In order to do this, you should follow the
instructions on the voting instruction form (“VIF”) and, in so doing,
specify your own name as the person whom you are appointing as proxy for the
purposes of voting your Hudbay Shares. You are reminded that any voting
instructions should be communicated to your intermediary in accordance with the
procedures set out in the VIF well in advance of the deadline for the receipt of
proxies.
VOTING YOUR COMMON SHARES BY PROXY
If you will not be at the Meeting or do not wish to vote in
person, you may vote by using the enclosed form of proxy or VIF. A proxy or VIF
must be properly completed in writing and must be executed by you or by your
attorney authorized in writing.
2 | HUDBAY
MINERALS INC.
Deadline for Proxies
Any proxy to be used at the Meeting must be received by
Hudbay’s transfer agent, TSX Trust Company, prior to 2:00 p.m. (Eastern Time) on
May 2, 2017, or 48 hours (excluding Saturdays, Sundays and holidays) before any
postponement or adjournment of the Meeting. Late proxies may be accepted or
rejected by the Chairman of the Meeting in his discretion, and the Chairman is
under no obligation to accept or reject any particular late proxy.
Registered shareholders may provide their voting instructions
by any of the following means:
| • |
by mail to TSX Trust Company, Suite 300, 200
University Avenue, Toronto, Ontario M5H 4H1 (a pre- paid, pre-addressed
return envelope is enclosed); |
| • |
by hand or by courier to TSX Trust Company, Suite
300, 200 University Avenue, Toronto, Ontario M5H 4H1; |
| • |
by fax to +1 416-595-9593; or |
| • |
by internet at www.voteproxyonline.com.
|
Non-registered shareholders may provide their voting
instructions by mail, by telephone or online by following the instructions in
the enclosed VIF.
Your Proxy Vote
On the form of proxy, you can indicate how you want to vote
your Hudbay Shares, or you can let your proxyholder decide for you.
All Hudbay Shares represented by properly completed proxies
received by Hudbay’s transfer agent, TSX Trust Company, no later than 2:00 p.m.
(Eastern Time) on May 2, 2017 or 48 hours (excluding Saturdays, Sundays and
holidays) before any postponement or adjournment of the Meeting will be voted
for, against or withheld from voting, in accordance with your instructions as
specified in the proxy, on any ballot votes that take place at the Meeting. Late
proxies may be accepted or rejected by the Chairman of the Meeting in his
discretion, and the Chairman is under no obligation to accept or reject any
particular late proxy.
If you give directions on how to vote your Hudbay Shares on
your form of proxy, your proxyholder must vote your Hudbay Shares according to
your instructions. If you have not specified how to vote on a particular matter
on your form of proxy, your proxyholder can vote your Hudbay Shares as he or she
sees fit. If neither you nor your proxyholder gives specific instructions, your
Hudbay Shares will be voted as follows:
| • |
FOR the election of each
of the ten nominees as directors; |
|
• |
FOR the appointment of Deloitte LLP as our auditor
for 2017 and the authorization of the Board, upon the recommendation of
the Audit Committee, to fix the auditor’s remuneration; and |
| • |
FOR the non-binding
advisory resolution approving our approach to executive compensation.
|
Appointing a Proxyholder
A proxyholder is the person you appoint to act on your behalf
at the Meeting (including any postponement of the Meeting or continuation after
an adjournment of the Meeting) and to vote your Hudbay Shares. You may choose
anyone to be your proxyholder, including someone who is not a shareholder of
Hudbay. Simply fill in the proxyholder’s name in the blank space provided on the
enclosed form of proxy. If you leave the space in the form of proxy blank, the
persons designated in the form, who are our Chairman and our President and Chief
Executive Officer, are appointed to act as your proxyholder.
Revoking Your Proxy
If you submit a form of proxy, you may revoke it at any time
before it is used by doing any one of the following:
2017 MANAGEMENT INFORMATION CIRCULAR | 3
| • |
you may send another form of proxy with a later date to
our transfer agent, TSX Trust Company, but it must reach the transfer
agent no later than 2:00 p.m. (Eastern Time) on May 2, 2017 or 48 hours
(excluding Saturdays, Sundays and holidays) before any postponement or
adjournment of the Meeting; |
| • |
you may deliver a signed written statement, stating that
you want to revoke your form of proxy, to our Corporate Secretary no later
than the last business day preceding the Meeting or any postponement or
adjournment of the Meeting, at 25 York Street, Suite 800, Toronto,
Ontario, M5J 2V5 or by facsimile at (416) 362-7844; |
| • |
you may attend the Meeting and notify the Chairman of the
Meeting prior to the commencement of the Meeting that you have revoked
your form of proxy; or |
| • |
you may revoke your form of proxy in any other manner
permitted by law. |
Late proxies may be accepted or rejected by the Chairman of the
Meeting in his discretion, and the Chairman is under no obligation to accept or
reject any particular late proxy.
ADDITIONAL MATTERS PRESENTED AT THE MEETING
The enclosed form of proxy or voting instruction form confers
discretionary authority upon the persons named as proxyholders therein with
respect to any amendments or variations to the matters identified in the Notice
of Meeting and with respect to other matters that may properly come before the
Meeting or any postponement or adjournment thereof. Our management is not aware
of any matters to be considered at the Meeting other than the matters described
in the Notice of Meeting, or any amendments or variations to the matters
described in such notice.
If you sign and return the voting instruction form, your Hudbay
Shares will be voted in accordance with your instructions and, with respect to
any matter presented at the Meeting, or at any postponement or adjournment
thereof, in addition, or as an amendment or variation to the matters described
in the Notice of Meeting, in accordance with the discretionary authority
provided therein.
If you sign and return the form of proxy and do not appoint a
proxyholder by filling in a name, the Hudbay representatives named as proxies
will vote in their best judgment.
VOTING SHARES AND PRINCIPAL HOLDERS
The Hudbay Shares are the only shares which entitle
shareholders to vote at the Meeting. The holders of common shares are entitled
to one vote per share. The presence of at least two people holding or
representing by proxy at least 10% of the total number of votes attached to the
issued common shares entitled to vote at the Meeting is necessary for a quorum
at the Meeting.
As at March 15, 2017, 237,271,188 Hudbay Shares were
issued and outstanding.
To the knowledge of the directors and executive officers of
Hudbay, based upon filings made with Canadian and United States securities
regulators on or before the date of this Circular, the persons who beneficially
own, or control or direct, directly or indirectly, voting securities carrying
more than 10% of the voting rights attached to any class of our voting
securities are as follows:
| Name |
Number of Hudbay Shares |
% of Outstanding Hudbay Shares |
| GMT Capital Corporation (U.S.) |
26,921,300 |
11.3% |
| Letko, Brosseau & Associates Inc. |
26,275,969 |
11.1% |
4 | HUDBAY
MINERALS INC.
| NOTICE TO UNITED STATES SHAREHOLDERS
|
The solicitation of proxies by Hudbay is not subject to the
requirements of Section 14(a) of the United States Securities Exchange Act of
1934, as amended (the “U.S. Exchange Act”), by virtue of an exemption
applicable to proxy solicitations by “foreign private issuers” as defined in
Rule 3b-4 promulgated under the U.S. Exchange Act. Accordingly, this Circular
has been prepared in accordance with the applicable disclosure requirements in
Canada. Shareholders in the United States should be aware that such requirements
are different than those of the United States applicable to proxy statements
under the U.S. Exchange Act.
| MATTERS TO BE ACTED UPON AT THE MEETING
|
1. FINANCIAL STATEMENTS
Our audited consolidated financial statements for the years
ended December 31, 2016 and 2015 and the auditor’s report thereon will be
presented at the Meeting.
2. ELECTION OF DIRECTORS
Our articles provide that the Board may consist of a minimum of
six and a maximum of thirteen directors. Our board is currently composed of ten
directors. The Board has determined to nominate each of the ten persons listed
below for election as a director at the Meeting. All of the nominees are current
members of our Board except for Carol T. Banducci (See “Nominees for Election as
Directors” below). The Board recommends that shareholders vote FOR the
election of each of the ten nominees as directors.
Each director elected at the Meeting shall hold office until
the close of the next annual meeting of shareholders or until a successor has
been elected or appointed in accordance with our articles and by-laws.
There are no contracts, arrangements or understandings between
any director or executive officer or any other person pursuant to which any of
the nominees has been nominated.
Majority Voting Policy
Pursuant to our Corporate Governance Guidelines (a copy of
which can be found at Schedule “A”), we have adopted a majority voting policy
governing the election of directors. Pursuant to such policy, a nominee proposed
for election as a director who receives a greater number of votes “withheld”
than votes “for” his or her election must immediately offer to tender his or her
resignation (which would be effective upon acceptance by the Board) to the
Chairman of the Board. The Corporate Governance and Nominating Committee (the
“CGN Committee”) of the Board will expeditiously consider, and make a
recommendation to the Board whether to accept, that offer to resign. The Board
of Directors will accept the offer to resign absent exceptional circumstances
and within 90 days following the meeting of shareholders. The Corporate
Governance Guidelines provide that a director who offers to tender his or her
resignation in this context should not participate in the deliberations of the
Board or any of its Committees pertaining to such resignation. This policy
applies only in circumstances involving an uncontested election of directors,
being one in which the number of director nominees does not exceed the number of
directors to be elected and in respect of which no proxy material is circulated
in support of one or more nominees who are not part of the slate supported by
the Board.
On a vote by a show of hands, each of the nine
incumbent nominees listed below was elected as a director of Hudbay at our
annual and special meeting of shareholders held on May 16, 2016 in Toronto,
Ontario (the “2016 meeting”). We received proxies representing
180,250,910 Hudbay Shares in connection with the 2016 meeting. Based on these
proxies, each director received the following favourable votes cast by proxy:
2017 MANAGEMENT INFORMATION CIRCULAR | 5
| Director |
Percentage of Favourable
Votes Cast by Proxy |
Number of Favourable
Votes
Cast by Proxy |
| Igor A. Gonzales |
75.75% |
134,519,833 |
| Tom A. Goodman |
82.65% |
146,776,395 |
| Alan Hair |
99.30% |
176,338,706 |
| Alan R. Hibben |
98.53% |
174,977,415 |
| W. Warren Holmes |
97.98% |
173,996,223 |
| Sarah B. Kavanagh |
98.55% |
175,005,446 |
| Carin S. Knickel |
98.52% |
174,958,464 |
| Alan J. Lenczner |
95.74% |
170,024,757 |
| Kenneth G. Stowe |
99.29% |
176,329,833 |
Nominees for Election as Directors
Unless authority to do so with respect to one or more directors
is withheld, the persons named in the accompanying form of proxy intend to vote
FOR the election of each of the nominees whose names are set forth below:
| Carol T. Banducci |
W. Warren Holmes |
| Igor A. Gonzales |
Sarah B. Kavanagh |
| Tom A. Goodman |
Carin S. Knickel |
| Alan Hair |
Alan J. Lenczner |
| Alan R. Hibben |
Kenneth G. Stowe |
Michael T. Waites, who has been a director of Hudbay since
2014, is not standing for re-election to the Board. The Board would like to
thank Mr. Waites for his dedicated service to the Board and to Hudbay
generally.
In connection with the departure of Mr. Waites, the CGN
Committee recommended and the Board has nominated Carol T. Banducci for
election. Ms. Banducci’s extensive experience as Chief Financial Officer of a
publicly-traded mining company, her experience as a board member for other
mining companies, and her more than 25 years of financial management and
strategic leadership experience with leading global companies, including other
mining companies, will be of great value to the Board (See “Board Composition
and Skills” below).
We do not contemplate that any of the nominees will be unable
to serve as a director, but if that should occur for any reason prior to the
Meeting or any postponement or adjournment thereof, it is intended that
discretionary authority shall be exercised by the persons named in the
accompanying form of proxy to vote any proxy for the election of the remaining
nominees and any other person or persons in place of any nominee or nominees
unable to serve.
6 | HUDBAY
MINERALS INC.
The following table sets forth biographical and other
information on each proposed nominee for election as a director.
2017 MANAGEMENT INFORMATION CIRCULAR | 7
8 | HUDBAY
MINERALS INC.
2017 MANAGEMENT INFORMATION CIRCULAR | 9
10 | HUDBAY
MINERALS INC.
| 1. |
The Hudbay Shares indicated for each nominee are those
beneficially owned, directly or indirectly, or over which control or
direction is exercised, by the nominee as at March 15, 2017. The
information about Hudbay Shares over which control or direction is
exercised, not being within the knowledge of Hudbay, has been furnished by
the respective nominees. Unless otherwise indicated, beneficial ownership
is direct and the nominee has sole voting and investment power. |
| 2. |
Based on the $9.64 closing price of Hudbay Shares on the
Toronto Stock Exchange on March 15, 2017. |
2017 MANAGEMENT INFORMATION CIRCULAR | 11
Corporate Cease Trade Orders or Bankruptcies
Mr. Holmes was a director of Campbell Resources Inc. (“Campbell”) from 2006 to 2008. Mr. Holmes joined Campbell as a director while it was already under the protection of the Companies’ Creditors Arrangement Act (the
“CCAA”). Mr. Holmes resigned from the board of directors of Campbell in November 2008. On January 28, 2009, Campbell once again obtained creditor protection under the CCAA. On December 10, 2009, a receiver was appointed over
Campbell’s assets with power to solicit offers for the sale of the assets.
Mr. Holmes was a director of Ferrinov Inc. (“Ferrinov”), a private technology company, from December 2008 to July 2012. In July 2012, Ferrinov filed for bankruptcy and was declared bankrupt under the Bankruptcy and Insolvency Act.
3. APPOINTMENT OF AUDITOR
Unless authority to do so is withheld, the persons named in the accompanying form of proxy intend to vote FOR the appointment of Deloitte LLP (“Deloitte”), as our auditor until the close of our next annual meeting of shareholders
and the authorization of the Board, upon the recommendation of the Audit Committee, to fix the remuneration of the auditor.
Deloitte was first appointed as our auditor on May 6, 2005. For the year ended December 31, 2016, Deloitte was paid $1,841,275 for audit services and $93,660 for audit-related services. Deloitte was not paid any fees for tax-related or other
services in 2016. All non-audit services provided by Deloitte are subject to pre-approval by our Audit Committee. Additional information regarding the compensation of Deloitte is contained in our Annual Information Form for the year ended December
31, 2016 under the heading “Audit Committee Disclosure”. Our Annual Information Form may be found on our website at www.hudbay.com, on SEDAR at www.sedar.com and on EDGAR at www.sec.gov.
The Board recommends that shareholders vote FOR the appointment of Deloitte as Hudbay’s auditor and the authorization of the Board, upon the recommendation of the Audit Committee, to fix the auditor’s remuneration.
4. SAY ON PAY ADVISORY VOTE
The Board has adopted a non-binding advisory vote relating to executive compensation to solicit feedback from shareholders on our approach to executive compensation, as disclosed under the heading “Statement of Executive Compensation”
found later in this Circular. As a formal opportunity to provide their views on the disclosed objectives of Hudbay’s compensation model, shareholders are asked to review and vote in a non-binding, advisory manner, on the following resolution:
“BE IT RESOLVED, on an advisory basis and not to diminish the role and responsibilities of the Board, that the shareholders accept the approach to executive compensation disclosed in the Circular.”
Since the vote is advisory, it will not be binding on the Board. The Compensation Committee and the Board will take the results of the vote into account, as appropriate, when considering future compensation policies, procedures and decisions, all of
which are to be consistent with Hudbay’s compensation philosophy (see the Statement of Executive Compensation for details). Hudbay’s compensation model is designed to: (i) provide competitive compensation to attract and retain talented
high-achievers and appropriately incent them to achieve our strategic and operational objectives; and (ii) align the interests of our executives with the long-term interests of our shareholders.
The Board recommends that shareholders vote FOR the advisory resolution approving Hudbay’s approach to executive compensation.
12 | HUDBAY
MINERALS INC.
| STATEMENT OF CORPORATE GOVERNANCE PRACTICES
|
Our Board believes that sound corporate governance practices
are essential to the effective management of Hudbay and the protection of its
employees and shareholders. Our Board oversees the management of our business
and affairs with a view to ensuring that shareholder value is enhanced and the
highest standards of ethical conduct are adhered to.
Our Board has adopted corporate governance policies and
procedures to assist it in fulfilling this oversight role. The Board fulfills
its mandate directly and through its Committees. The directors are kept informed
of our operations at regular and special Board and Committee meetings as well as
through reports and discussions with management. We believe Hudbay is best
served by a Board that functions independently of management and is informed and
engaged.
We regularly monitor our corporate governance policies and
procedures with a view to ensuring that they continue to guide the Board and
management to act in the best interests of Hudbay and our shareholders.
Our Corporate Governance Guidelines (including the Board
Charter) are set out in Schedule “A” to this Circular and can be viewed at our
website at www.hudbay.com. The following is a description of Hudbay’s corporate
governance practices as approved by the Board.
BOARD OF DIRECTORS: THE ROLE OF THE BOARD
The Board mandate has been formalized in a written Board
Charter that sets out specific responsibilities, which include:
| • |
reviewing and approving the strategic plan and business
objectives that are submitted by senior management and monitoring the
implementation by senior management of the strategic plan; |
| • |
reviewing the principal strategic, operational, reporting
and compliance risks for Hudbay and overseeing, with the assistance of the
Audit Committee, the implementation and monitoring of appropriate risk
management systems and monitoring of risks; |
| • |
ensuring, with the assistance of the CGN Committee, the
effective functioning of the Board and its Committees in compliance with
applicable corporate governance requirements, and that such compliance is
reviewed periodically by the CGN Committee; |
| • |
ensuring internal controls and management information
systems are in place and are evaluated and reviewed periodically on the
initiative of the Audit Committee; |
| • |
assessing the performance of senior management, including
monitoring the establishment of appropriate systems for succession
planning (including the development of policies and principles for Chief
Executive Officer selection and performance reviews) and periodically
monitoring the compensation levels of the members of senior management
based on the determinations and recommendations made by the Compensation
Committee; |
| • |
ensuring we have in place a policy for effective
communication with shareholders, other stakeholders and the public
generally; and |
| • |
reviewing and, where appropriate, approving the
recommendations made by the various Committees, including the selection of
nominees for election to the Board, appointment of directors to fill
vacancies on the Board, appointment of members of the various Committees
and establishing the form and amount of director compensation.
|
2017 MANAGEMENT INFORMATION CIRCULAR | 13
Independence
For a director to be considered independent under the policies
of the Canadian Securities Administrators, he or she must have no direct or
indirect material relationship with us, being a relationship that could, in the
view of the Board, reasonably be expected to interfere with the exercise of his
or her independent judgment, and must not be in any relationship deemed to be
not independent pursuant to such policies. To assist in determining the
independence of directors for purposes that include compliance with applicable
legal and regulatory requirements and policies, the Board has adopted certain
categorical standards, which are part of our Corporate Governance Guidelines.
With the assistance of the CGN Committee, the Board has
considered the relationship to Hudbay of each of the nominees for election by
the shareholders and has determined that nine of the ten directors nominated for
election at the Meeting are independent. The following table sets out the
relationship of the nominees for election as directors to Hudbay.
| Name |
Independent |
Not Independent |
Reason for Non-Independent
Status |
| Carol T. Banducci |
x |
|
|
| Igor A. Gonzales |
x |
|
|
| Tom A. Goodman |
x |
|
|
| Alan Hair |
|
x |
President and Chief Executive
Officer of Hudbay |
| Alan R. Hibben |
x |
|
|
| W. Warren Holmes |
x |
|
|
| Sarah B. Kavanagh |
x |
|
|
| Carin S. Knickel |
x |
|
|
| Alan J. Lenczner |
x |
|
|
| Kenneth G. Stowe |
x |
|
|
Restrictions on Board Membership at Other Entities
Our Corporate Governance Guidelines prohibit our directors from
having more than one interlocking directorship (being one in which two or more
of our directors sit together on the board of another reporting issuer), without
the approval of our CGN Committee. Currently, none of our directors sit together
on the board of directors of any other reporting issuer.
Our Corporate Governance Guidelines do not restrict the number
of public company boards of directors on which our directors may sit. However,
our Code of Business Conduct and Ethics requires that the Chairman approve any
other directorships held by our directors. In addition, directors are expected
to devote the required time and effort to discharge their obligations as members
of the Board. Currently, none of our directors sit on the boards of more than
two other reporting issuers.
For more information about the nominees for election at the
Meeting, including a listing of the reporting issuers on whose boards our
nominee directors sit, see above under the heading “Election of Directors –
Nominees for Election as Directors”.
Independent Chairman
In addition to having a majority of independent directors, the
Board has adopted a variety of procedures to allow for the independent
functioning of the Board from management. Those procedures include having a
Chairman who is an independent director with a formal mandate to assist the
Board in fulfilling
its duties effectively, efficiently and independent of management. The responsibilities of the Chairman include acting as a liaison between the Board and the Chief Executive Officer, working with the Chief Executive Officer to ensure that the Board
is appropriately involved in approving and supervising Hudbay’s strategy and recommending procedures to enhance the work of the Board. The Board has also adopted a position description for the Chair of each of the Board Committees. The
Chairman works with the Chairs of the Committees to assist them in carrying out their roles and responsibilities as detailed in their respective position descriptions and Committee charters. The full position descriptions of the Chairman and the
Chair of each Board Committee, including a complete list of their responsibilities, which have been approved by the Board, are available on our website at www.hudbay.com.
14 | HUDBAY
MINERALS INC.
In 2016, W. Warren Holmes advised the Board that, as part of the Board’s renewal process, he wished to cease serving as Chairman effective at the completion of our upcoming Meeting. Mr. Holmes agreed to put his name forward for re-election as
a director, in part to assist with the Chairmanship transition. Over the remainder of 2016, the Board planned for the transition and agreed it was preferable to have a current director serve as Chair. Alan R. Hibben expressed a willingness to serve
as Chair and the rest of the Board agreed that Mr. Hibben was a suitable candidate. Accordingly, should he be elected at the Meeting, the Board expects that Mr. Hibben will be appointed as Hudbay’s new Chairman.
CEO Position Description
The Board has approved a position description for the Chief Executive Officer (available on our website at www.hudbay.com), which delegates to him the responsibility for providing strategic leadership and vision by working with the Board and the
senior management team to establish, implement and oversee our long- range goals, strategies, plans and policies, subject to the direction and oversight of the Board. The Chief Executive Officer reports formally to the Board, as well as less
formally through discussions with members of the Board, to advise the Board on a timely basis of management’s current and proposed courses of action. The Board exercises its responsibility for oversight through the approval of all material
decisions and initiatives affecting Hudbay.
Board Composition and Skills
The CGN Committee, which is composed entirely of independent directors, assists the Board in identifying skills and areas of expertise that are desirable to add to the Board, assists the Board by identifying individuals qualified to become members
of the Board, and recommends to the Board nominees for election to the Board in annual meetings, and directors to be appointed to each Committee and as the Chair of each Committee. In doing so, the CGN Committee applies a number of criteria in
assessing individuals that may be qualified to become directors and members of Committees. The following Board skills matrix sets out the skills and expertise that the Board considers important to fulfill its oversight role in respect of Hudbay, the
specific skills and expertise of each director nominee and reflects the current strengths of the Board as a whole.
2017 MANAGEMENT INFORMATION CIRCULAR | 15
Each director is required to complete a self-assessment of his
or her skills and such data is compiled into the matrix. The Board skills matrix
is maintained to identify and evaluate the competencies and skills of its
members based on the individual experience and background of each director and
to identify areas for strengthening the Board, if any, and address them through
the recruitment of new members.
In assessing individual director nominees, the CGN Committee
considers, in addition to the skills and expertise highlighted in the Board
skills matrix, the following criteria: (i) judgment and character; (ii)
diversity of the Board, including diversity of gender, viewpoints, backgrounds,
experiences and other demographics; and (iii) the extent to which the interplay
of a nominee’s expertise, skills, knowledge and experience with that of other
members of the Board will build a Board that is effective, collegial and
responsive to our needs.
Board and Committee Evaluations
Annually, under the supervision of the CGN Committee, the
directors conduct a formal evaluation of the performance and effectiveness of
the Board and its Committees. As part of this process, each director is
interviewed by a member of the CGN Committee to assess the performance of the
Board and the individual directors, the independence of the Board, its
relationship with senior management, the performance of the Chairman and any
other issues of concern. The results of these interviews are then reviewed by
the CGN Committee, which reports to the full Board. Members of each Committee
are also required to complete questionnaires that deal with the performance of
the Committee and its Chair and ask the Committee members to raise any matters
of concern. The results of these questionnaires are discussed during in
camera sessions of the Committees.
Age and Term Limits; Focus on Board Renewal
We do not have age or term limits for service on the Board.
Instead, the Board focuses on renewal, as evidenced by our addition of five new
independent directors in the last five years. As part of this focus on board
renewal, the Board is vigilant in monitoring the performance of each director
and will ask directors who are no longer able to contribute effectively due to
age or other factors to step down from the Board.
16 | HUDBAY
MINERALS INC.
Board and Committee Meetings and Attendance
The Board meets a minimum of four times per year and as
otherwise required. Typically, each committee of the Board meets at least four
times each year, or more frequently as deemed necessary by the applicable
committee. The frequency of meetings and nature of each meeting agenda depend on
the business and affairs that Hudbay faces from time to time. The table below
provides details regarding director attendance at Board and committee meetings
held during the year ended December 31, 2016.
| Directors |
Board of
Directors |
Audit
Committee |
Compen-
sation
Committee |
Corporate Governance &
Nominating Committee |
EHSS
Committee |
Technical
Committee |
Totals |
Meetings
attended |
Meetings
attended |
Meetings
attended |
Meetings
attended |
Meetings
attended |
Meetings
attended |
Meetings
attended |
Overall %
Attendance |
| Alan Hair |
9 of 9 |
— |
— |
— |
— |
— |
9 |
100% |
| Igor A. Gonzales |
9 of 9 |
— |
— |
— |
5 of 5 |
6 of 7 |
20 |
95% |
| Tom A. Goodman |
8 of 9 |
6 of 7 |
— |
— |
5 of 5 |
— |
19 |
90% |
| Alan R. Hibben |
9 of 9 |
— |
6 of 6 |
4 of 4 |
— |
— |
19 |
100% |
| W. Warren Holmes |
9 of 9 |
— |
— |
4 of 4 |
— |
— |
13 |
100% |
| Sarah B. Kavanagh |
9 of 9 |
7 of 7 |
— |
4 of 4 |
— |
— |
20 |
100% |
| Alan J. Lenczner |
9 of 9 |
7 of 7 |
6 of 6 |
— |
— |
— |
22 |
100% |
| Carin S. Knickel |
9 of 9 |
— |
6 of 6 |
— |
4 of 5 |
— |
19 |
95% |
| Kenneth G. Stowe |
9 of 9 |
— |
— |
— |
5 of 5 |
6 of 7 |
20 |
95% |
| Michael T. Waites |
9 of 9 |
7 of 7 |
— |
— |
— |
7 of 7 |
23 |
100% |
In Camera Sessions without Management
The independent members of the Board meet without management in
in camera sessions at all regular Board meetings. During the year ended
December 31, 2016, the Board held seven in camera sessions of the
independent directors. In addition, all of the committees hold in camera
sessions without the presence of management at each regular meeting.
Director Orientation and Continuing Education
Senior management, working with the Board, provides appropriate
orientation and education for new directors to familiarize them with Hudbay and
its business. New directors are provided with a comprehensive manual which
includes, among other things, information about the duties and obligations of
directors (including copies of the Board Charter, Committee charters and Hudbay
policies), descriptions of our organizational structure, operations and
compensation plans, and copies of our most recent core public disclosure
documents. New directors are expected to meet with members of senior management
and attend site visits at our key properties within a short period after joining
the Board, and new directors are invited to sit in on meetings of Committees of
which they are not a member to get a sense of how these Committees operate.
Our directors are encouraged to attend third party educational
programs. In addition, we frequently include a director education topic on the
agenda at Board meetings and dinners. This typically involves presentations to
the Board by members of management and third party advisers in respect of our
business and operations, legal and regulatory matters, corporate social
responsibility and industry trends and practices. In 2016, the Board received
the following presentations as part of its director education program:
2017 MANAGEMENT INFORMATION CIRCULAR | 17
| Date |
Topic |
| January 13, 2016 |
IT Security |
| March 30, 2016 |
Fundamentals of Hedging |
| April 28, 2016 |
Anti-Bribery and Corruption
Training Session |
| July 26, 2016 |
Strategic Presentation on Copper
and Zinc Markets |
| November 1, 2016 |
Manitoba Business Unit Operations
Plan |
DIVERSITY POLICY
In March 2015, the Board amended our Corporate Governance
Guidelines (a copy of which can be found at Schedule “A”) to include a written
policy for the identification and nomination of director candidates who are
diverse in all aspects, including gender. Pursuant to our Corporate Governance
Guidelines, in assessing individual director nominees, the CGNCommittee
considers, among other things, diversity, including diversity of gender. Search
consultants, when engaged by Hudbay, are instructed by the Corporate Governance
and Nominating Committee to have broad selection criteria that includes a mix of
skills and expertise, and to identify candidates based on diversity of gender,
age, ethnicity and geographic background.
The Board recognizes the value of having directors with diverse
attributes on the Board and is committed to ensuring that there is increased
representation of women on the Board. There are currently two female directors
on the Board and the Board is nominating a third female director, Carol T.
Banducci, at the upcoming Meeting. The Board, however, has not established fixed
targets regarding female representation on the Board or in executive officer
positions. The Board believes that establishing quotas or taking a formulaic
approach does not necessarily result in the identification or selection of the
best candidates.
In addition to the expertise and experience required,
management considers the representation of women when making recommendations to
the Board on executive officer appointments and the Board considers both the
level of female representation and diversity as essential considerations in the
selection process for executive officers.
Hudbay intends to measure the effectiveness of its diversity
policy by looking at the increase in female representation on the Board and in
executive positions over time, including, for example, the appointments of Sarah
B. Kavanagh and Carin S. Knickel to the Board in 2013 and 2015, respectively,
and the nomination of Carol T. Banducci in 2017. During this same period,
Mary-Lynn Oke and Elizabeth Gitajn were appointed to the senior management team.
The CGN Committee is responsible for ensuring that the objectives of our
diversity policy are applied in identifying and evaluating candidates for Board
and executive leadership positions.
Assuming Ms. Banducci is elected to the Board, the number and
percentage of our directors and executive officers who are women will be as
follows:
| Female representation |
Number of Women |
Total Number |
Percentage |
| Board of Directors |
3 |
10 |
30% |
| Executive Officers |
2 |
13 |
15% |
18 | HUDBAY
MINERALS INC.
HudBay Peru SAC, a major subsidiary of Hudbay, does not have any directors. There are three executive officers of HudBay Peru SAC, none (0%) of whom are women.
COMMITTEES OF THE BOARD
The Board has established five standing Committees to assist it in discharging its mandate. The roles of the Committees are outlined below and their charters may be viewed on our website at www.hudbay.com.
Independence of Committees
The members of the Board’s Committees are appointed by the Board upon the recommendation of the CGN Committee. All of our directors who are currently members of Committees of the Board are independent directors.
Audit Committee
Members: Sarah B. Kavanagh (Chair), Tom A. Goodman, Alan J. Lenczner and Michael T. Waites.
The duties of the Audit Committee include making recommendations to the Board with respect to our quarterly and annual financial results, including management’s discussion and analysis thereof, and reporting to the Board any issues of which
the Audit Committee is aware respecting the quality or integrity of our financial statements, any significant financial reporting issues and judgments made in connection with the preparation of our financial statements and the adequacy of our
internal controls. The Audit Committee also oversees the performance of our independent auditor and the scope of its audit, including its assessment of audit risk, as well as our internal audit function. The Audit Committee also receives regular
reports from management on internal audit, risk management, tax strategy, insurance, litigation, compliance with our Code of Business Conduct and Ethics (the “Code”) and other matters.
In 2016, members of the Audit Committee received presentations on various topics, including information technology strategy and risk management, defined benefit pension plan actuarial valuation and investment performance and insurance coverages.
Members of the Audit Committee also conducted a site visit to our Constancia operations in 2016 and met with Hudbay’s Deloitte audit team in Peru.
In 2016, the Audit Committee oversaw a number of initiatives, including the development of management’s compliance program for the Extractive Sector Transparency Measures Act and the refinancing of our senior unsecured notes. The Audit
Committee also oversees our global risk management program and receives reports from management twice yearly to review management’s assessment of our key risks and to discuss and review our strategies for addressing such risks. In addition,
the Audit Committee is responsible for overseeing investigations relating to any complaints received by our third party whistleblower service and for ensuring that appropriate resources are allocated to such investigations.
The Canadian Securities Administrators, pursuant to National Instrument 52-110 - Audit Committees (“NI 52-110”), and the U.S. Securities and Exchange Commission (the “SEC”), pursuant to Rule 10A-3
(“Rule 10A-3”) promulgated under the U.S. Exchange Act, require that each member of a company’s Audit Committee be independent. All of the Audit Committee members are “independent” within the meaning of NI 52-110
and Rule 10A-3.
The Audit Committee meets at least quarterly and meets separately with senior management
periodically, and with the independent auditor as appropriate. All regular meetings of the Audit Committee include a session at which only members of the Audit Committee are present, a session at which the head of internal audit is present with the
Audit Committee without other members of management present and a session at which only the independent auditor is present with the Audit Committee.
2017 MANAGEMENT INFORMATION CIRCULAR | 19
None of the members of the Audit Committee may serve on the audit committee of more than three reporting issuers in addition to Hudbay without the prior approval of the Audit Committee, the CGN Committee and the Board. No member of the Audit
Committee serves on the audit committee of more than three other reporting issuers.
Information about the remuneration of the independent auditor for the last two years is contained in Hudbay’s Annual Information Form (“AIF”) for the year ended December 31, 2016 under the heading “Audit Committee
Disclosure” and a copy of the Audit Committee’s charter is attached as Schedule “C” to the AIF. Our AIF may be found on SEDAR at www.sedar.com and on EDGAR at www.sec.gov.
Compensation Committee
Members: Alan R. Hibben (Chair), Carin S. Knickel and Alan J. Lenczner
The Compensation Committee assists the Board in discharging its responsibilities relating to recruitment, development and retention of senior management, officer appointments, performance evaluations and compensation of senior management, senior
management succession planning, compensation structure for the Board and senior management, including salaries, annual and long-term incentive plans and plans involving share issuances and share unit awards and share ownership guidelines.
For a detailed discussion of the role and activities of the Compensation Committee see “Statement of Executive Compensation”.
Corporate Governance and Nominating Committee
Members: W. Warren Holmes (Chair), Alan R. Hibben and Sarah B. Kavanagh
The CGN Committee makes recommendations to the Board as to the size of the Board, standards for director independence, nominees for election as directors, the composition of Committees and development of appropriate corporate governance policies and
guidelines. In addition, it is responsible for administering the Code and the Confidentiality and Insider Trading Policy, assisting the Board and the Committees in their annual review of their performance, reviewing the relationship between the
Board and senior management and undertaking such other initiatives that may be necessary or desirable to enable the Board to provide effective corporate governance. The CGN Committee views its most important role as assessing the Board’s
ability to make effective decisions and to ensure the effective governance of Hudbay. The Board believes that our corporate governance policies, procedures and practices are in compliance with applicable guidelines, rules and other legal
requirements, and are appropriate for Hudbay.
In 2016, the CGN Committee reviewed and recommended for approval our Shareholder Engagement Policy, as described under “Shareholder Engagement” below. In connection with the anticipated departure of Michael T. Waites from the Board, the
CGN Committee conducted a search for a new director nominee and ultimately recommended Carol T. Banducci for election. The CGN Committee also assisted the Board in planning the Chairmanship transition following W. Warren Holmes’ announcement
that he wished to cease serving as Chairman effective at the completion of our upcoming Meeting.
20 | HUDBAY
MINERALS INC.
Environmental, Health, Safety and Sustainability Committee
Members: Tom A. Goodman (Chair), Igor A. Gonzales, Carin S. Knickel and Kenneth G. Stowe
The purpose of the EHSS Committee is to assist the Board in discharging its responsibilities relating to its oversight of our policies, programs and systems relating to environmental, health, safety and sustainability issues and performance, and
monitoring legal and regulatory issues to ensure our compliance with applicable legislation, rules and regulations and management best practices.
The EHSS Committee receives quarterly reports from management, which include reports on health and safety incidents that occurred during the quarter across all of our operations, as well as measures taken to reduce the likelihood of such incidents
occurring in the future, any non-compliances with applicable environmental regulations, and any internal and external environmental, health and safety audits conducted during the quarter. In addition, in 2016, the EHSS Committee’s activities
included overseeing the development of the Flin Flon closure plan, receiving reports from management on health and safety procedures and reporting at our mines, approving our corporate social responsibility report, and receiving reports describing
the management systems at our operations. Members of the EHSS Committee also conducted a site visit to our Flin Flon and Snow Lake operations in 2016.
Technical Committee
Members: Kenneth G. Stowe (Chair), Igor A. Gonzales and Michael T. Waites
The Technical Committee assists the Board in its oversight of technical and operational matters, including receiving regular updates from management on key technical and operational issues and initiatives, overseeing reserve/resource calculations,
reviewing operational budgets, receiving reports on production and cost performance, assessing our systems and processes for reviewing technical risks and technical controls in place at our operations, and discussing with management the technical
merits of proposed acquisition targets and significant operational initiatives proposed to be undertaken.
In 2016, the Technical Committee received regular reports on the status of our operations and various projects as well as reports on corporate development and exploration opportunities, post-project reviews, our reserves and resources and oversaw
the preparation of the Constancia and Rosemont Technical Reports and management’s cost-cutting initiatives. Members of the Technical Committee also conducted a site visit to our Flin Flon and Snow Lake operations in 2016.
SUCCESSION PLANNING FOR EXECUTIVE OFFICERS
Hudbay has a formal process for succession planning for its executive officers. At its meeting on November 22, 2016, the Compensation Committee received a report from management on succession planning for executives. This was followed by a formal
report by management on succession planning to the full Board at its meeting on January 17, 2017. When discussing succession planning, the Chief Executive Officer is solicited for his input on succession planning for his direct reports and other
executives. CEO succession planning is discussed during in camera meetings of the Compensation Committee and the full Board. At these meetings, the Compensation Committee and Board consider candidates with long-term potential to serve as
Hudbay’s CEO and they also identify candidates who could step into the role immediately in the event the CEO departs unexpectedly.
ETHICAL BUSINESS CONDUCT
As part of its commitment to maintaining the highest ethical standards, the Board has adopted a Code of Business Conduct and Ethics (the “Code”) which applies to all of our directors, officers and employees, our subsidiaries and
affiliates and other persons in similar relationships with those entities.
2017 MANAGEMENT INFORMATION CIRCULAR | 21
The Code addresses such matters as compliance with laws, conflicts of interest, confidential information, protection and proper use of Hudbay assets, fair dealing, rules and regulations and the reporting of illegal and unethical behaviour, including
laws prohibiting improper payments to government officials. In addition, the Board has adopted a Certification Policy, in accordance with which new employees and directors must read the Code when hired or appointed and acknowledge that they will
abide by the Code. The Certification Policy also requires that all directors, officers and all active employees across the organization certify their understanding of the Code and acknowledge that they will abide by the Code on an annual basis.
In March 2016, we amended our Statement on Anti-Corruption and Code to further demonstrate our commitment to conducting business honestly, ethically and in compliance with the laws of the jurisdictions in which we operate and have assets. We seek to
avoid any impropriety or the appearance of impropriety in the actions of our directors, officers, employees and agents. Accordingly, we regularly conduct training sessions across the organization relating to the applicable laws prohibiting bribery,
to ensure that certain employees, especially those who may interact with government and other third parties, understand such laws and know how to comply with them. Our Global Supplier Due Diligence Policy, adopted in 2015, and our Supplier Code of
Conduct and Ethics, adopted in March 2017, ensure that we and our subsidiaries transact with suppliers who share our expectations for ethical conduct.
We encourage personnel who become aware of a conflict or potential conflict or departures from the Code to bring it to the attention of a supervisor or department head. The Board has adopted a policy (the “Whistleblower Policy”)
for employees to report concerns regarding, among other things, violations of the Code or anti-bribery legislation or concerns regarding financial statement disclosure issues, accounting, internal accounting controls or auditing matters. These
concerns may be reported to the Chair of the Audit Committee, who will promptly conduct or mandate an individual, who may be a member of senior management or another person, to conduct a thorough investigation of the complaint. In additional, under
the Whistleblower Policy, Hudbay has a third party ethics hotline that allows individuals to report any concerns about inappropriate business conduct confidentially and anonymously. These concerns can be reported online, by mail or by phone.
The Board, through the Audit Committee, monitors compliance with the Code. Hudbay’s Vice President and General Counsel provides day-to-day management over Hudbay’s global compliance with the Code and other core policies, including
management of our Whistleblower Policy and program, and reporting quarterly on such matters to the Audit Committee.
Any waivers of the Code for directors or members of senior management may only be granted by the Board. The Board did not grant any waiver of the Code in 2016. In the unlikely event of such a waiver, it will be disclosed to shareholders as required
by applicable law.
A copy of the Code may be accessed on our website at www.hudbay.com or on Hudbay’s profile on SEDAR at www.sedar.com or on EDGAR at www.sec.gov. Copies of the Whistleblower Policy and the Statement on Anti-Corruption may be accessed on our
website at www.hudbay.com.
DISCLOSURE POLICY
In addition to our timely and continuous disclosure obligations under applicable law, we also have a formal policy for dealing with analysts, shareholders and the financial press. Our Disclosure Policy is intended to ensure that we provide timely
disclosure of material information in a manner that is broadly accessible on a non-exclusionary basis by all market participants.
Hudbay’s management has also established a Disclosure Committee that is responsible for ensuring that information is disclosed in accordance with the Disclosure Policy and otherwise in accordance with applicable securities laws. The members of
the Disclosure Committee include the President and Chief
Executive Officer, the Senior Vice President and Chief Financial Officer, the Senior Vice President and Chief Operating Officer, the Senior Vice President, Corporate Development and Strategy, the Vice President and General Counsel, the Director,
Investor Relations and such other members of senior management as shall be deemed appropriate from time to time by the Disclosure Committee.
22 | HUDBAY
MINERALS INC.
The Disclosure Committee reviews and supervises the preparation of all news releases and public filings prior to their release and assists Hudbay management with their evaluation of the effectiveness of our disclosure controls. In addition, the
Board gives final approval of material disclosure items and all news releases and public filings disclosing Hudbay’s financial performance are reviewed by the Audit Committee, who ultimately recommends such disclosure for approval by the
Board.
STRATEGIC PLANNING AND RISK MANAGEMENT
A key element of the Board’s responsibilities is to review the principal strategic, operational, reporting and compliance risks for the Company and oversee, with the assistance of the Audit Committee, the implementation and monitoring of
appropriate risk management systems and the monitoring of risks.
The Board is ultimately responsible for providing overall governance of the risk management function, by approving the risk management policy and assessing the risk associated with Hudbay’s strategy and corporate objectives, ensuring senior
management has instituted processes to identify and inform the Board of material risks the company faces, and overseeing management of top tier risks through quarterly risk reporting provided by risk management to the Board and Board committees, as
appropriate.
The Audit Committee, through its Charter, is responsible for assisting the Board and its Committees in its oversight and evaluation of the risk management process. In this capacity, the Audit Committee is responsible for, among other things,
recommending to the Board for approval a policy that sets out the risk philosophy of the Company, approving a formalized, disciplined and integrated risk management process that is developed by senior management and, as appropriate, the Board and
its Committees to monitor, manage and report principal risks, reviewing the quarterly risk reporting provided by the risk management team and meeting with management to review and discuss management’s timely identification of the most
significant risks. Among its responsibilities, management is responsible for the effective and timely management of risks and for creating a supportive environment that encourages risk management practices.
The head of internal audit is responsible for establishing a flexible, risk-based annual audit plan to determine the priorities of the internal audit function, consistent with Hudbay’s strategic plan and aligned with the enterprise risk
management program, including but not limited to risk registers and risk appetite and tolerance levels. The Audit Committee approves the annual internal audit plan.
SHAREHOLDER ENGAGEMENT
We communicate with our shareholders in a wide variety of ways, including through our website, news releases and other public disclosure documents, investor presentations, industry conferences and meetings with our shareholders. We also hold
conference calls in respect of quarterly earnings releases and major corporate developments and such calls are open to be heard by the public. Details of the notice of time, place, general substance and method of accessing any such call and
instructions as to where and how long the public will be able to access transcripts or replays are broadly disseminated.
The Board of Directors is committed to engaging in constructive communications with our shareholders and in March 2016 adopted a Shareholder Engagement Policy, which is available on our website at www.hudbay.com. In addition to our annual general
meeting, during which all shareholders have the opportunity to interact with our directors, the policy
expresses our directors’ interest in meeting with key shareholders to discuss
specific matters of mutual interest and concern. Shareholders may also initiate
communication directly with the Board by contacting our Chairman by mail or
email at:
2017 MANAGEMENT INFORMATION CIRCULAR | 23
Hudbay Minerals Inc.
Attention:
Chairman of the Board
25 York Street, Suite 800
Toronto, Ontario, Canada
M5J 2V5
Email: chairman@hudbay.com
In 2016, our Chairman and the Chair of our Compensation
Committee met with certain of our largest shareholders to discuss our corporate
governance, strategy and executive compensation.
THE NEW YORK STOCK EXCHANGE CORPORATE GOVERNANCE LISTING
STANDARDS
We, as a “foreign private issuer” in the United States, may
rely on home jurisdiction listing standards for compliance with the New York
Stock Exchange (“NYSE”) Corporate Governance Listing Standards but must
comply with the following NYSE rules: (i) the requirement (Section 303A.06) that
the Audit Committee meet the standards of Rule 10A 3; (ii) the requirement
(Section 303A.11) that we disclose in our annual report or on our website any
significant differences between our corporate governance practices and the NYSE
listing standards; (iii) the requirement (Section 303A.12(b)) that our CEO
notify the NYSE in writing after any executive officer becomes aware of any
non-compliance with the applicable provisions of NYSE Corporate Governance
Listing Standards; and (iv) the requirement (section 303A.12(c)) that we submit
an executed annual written affirmation affirming our compliance with audit
committee requirements of Rule 10A 3 or, as may be required from time to time,
an interim written affirmation to the NYSE in the event of certain changes to
the Audit Committee membership or a member’s independence. We must also provide
our statement of significant corporate governance differences in our annual
report to shareholders or on our website.
As required by the NYSE, a statement of the significant
differences between our current corporate governance practices and those
currently required for U.S. companies listed on the NYSE is available on our
website at www.hudbay.com.
| STATEMENT OF EXECUTIVE COMPENSATION
|
MESSAGE FROM THE CHAIR OF THE COMPENSATION COMMITTEE
Fellow Shareholders,
The Compensation Committee is pleased to provide you with an
overview of Hudbay’s performance in 2016 and a summary of our approach to
determining the compensation of our executives.
Hudbay’s Performance in 2016
It would be an understatement to say that 2016 was a
challenging year for the mining industry. Like our peers, Hudbay weathered a
period of extremely low metals prices and their resulting effect on our share
price and the capital markets environment. We also underwent a CEO transition,
which resulted in the appointments of Alan Hair as Chief Executive Officer and
Cashel Meagher as Chief Operating Officer. It was in this context that the
Compensation Committee and Board of Directors made their executive compensation
determinations.
Despite the difficult conditions in 2016, under the leadership
of our new Chief Executive Officer, Alan
Hair, we kept our mines and mills operating and embraced the opportunity to increase the efficiency of our operations. We met or exceeded our production guidance for all metals and successfully implemented a number of cost reduction initiatives that
reduced our all-in sustaining cash costs by 26% compared to 2015. Most importantly, we achieved this operational success with much better safety performance in 2016 than in 2015. Along with the focus on our operational performance, we strengthened
our balance sheet and improved our liquidity – most notably when we restructured our revolving credit facilities and refinanced our high yield notes at a much improved interest rate with extended maturities.
24 | HUDBAY
MINERALS INC.
The rebound in base metals prices in late 2016, along with our improved operating and financial performance, leave us well-positioned as we look ahead to growth opportunities in 2017. We are pleased that our shareholders received a corresponding
benefit, as the value of our shares increased by 45% over the course of 2016.
2016 Compensation
Because they were new to their roles, the Board, on the advice of the Compensation Committee, set target total compensation for Alan Hair and Cashel Meagher at substantial discounts to their respective predecessors. Aside from adjustments to
executive salaries in connection with the changes in management, we imposed a salary freeze on all of Hudbay’s executives and non-union employees, which reflected the challenging market conditions.
The Compensation Committee met several times in late 2016 and early 2017 to consider the performance of our company and its executives. On our recommendation, the Board assigned a final corporate performance score of 114 out of 100. Hudbay’s
compensation philosophy allows for substantial discretion on the part of the Board to consider all factors that might be relevant to shareholders in the determination of incentive awards. Based on Hudbay’s strong operating and financial
performance in 2016 in a difficult market environment, on the Compensation Committee’s recommendation, the Board exercised its discretion to increase the corporate score for 2016 from 114 out of 100 to 140 out of 100.
2017 Compensation Adjustments
Hudbay’s compensation philosophy is to target our executives’ pay at the market median, with a significant component of compensation being “at risk”. Our growth over the last two years has required changes to the comparator
group used to benchmark our executive compensation. The new comparator group, which includes the addition of larger base and precious metals peers, resulted in an increase to the market median for all elements of our senior executives’
compensation. In addition, because we set our new CEO’s and COO’s compensation below that of their predecessors, our benchmarking indicated that the 2016 compensation of our senior executives was well below the median. Accordingly, the
Board, on the recommendation of the Compensation Committee, approved increases to Alan Hair’s and Cashel Meagher’s 2017 target total direct compensation of 36% and 24%, respectively. These increases resulted in their respective target
compensation moving two-thirds of the way from their 2016 compensation to the median.
Our long-term incentive share units are front-end performance-conditioned, meaning the value of each year’s award is based on the prior year’s performance. Throughout 2016, the Compensation Committee undertook a comprehensive review of
our long-term incentive plan (LTIP) design, including consideration of multi-year, forward-looking performance metrics. This review resulted in the adoption of a relative total shareholder return (TSR) modifier, which will be applied to our LTIP
grant in respect of 2017 and which gives the Board discretion to adjust the grant date value of LTIP grants by +/- 20% based on Hudbay’s one, three and five year performance against a performance comparator group. This modifier will be in
addition to the front-end performance conditioning that is currently applied to our LTIP grants and will further enhance the alignment between executive compensation and the
performance of our shares.
2017 MANAGEMENT INFORMATION CIRCULAR | 25
Our Commitment to Transparency
We are pleased you will be able to have a say on our executive compensation, and we hope you will express your support for our approach to executive compensation in our inaugural “Say on Pay” vote. In 2016, we also adopted a Shareholder
Engagement Policy, which further evidences our desire for transparency and enhanced dialogue with our shareholders.
Additional detail on the individual performance of our senior executives, our performance against corporate objectives, and the various elements and amounts of compensation awarded to our executives and directors can be found in the pages that
follow. The Compensation Committee has reviewed and discussed with management the Compensation Discussion and Analysis and other compensation disclosure included below and recommended to the Board that it be included in this Circular. We encourage
you to take the time to review such information.
The Compensation Committee welcomes the opportunity for dialogue with shareholders, who can reach us directly at chairman@hudbay.com. In addition, we will be available at the Annual Meeting to answer any questions.
Sincerely,
Alan R. Hibben, Chair of Hudbay’s Compensation Committee
26 | HUDBAY
MINERALS INC.
COMPENSATION DISCUSSION AND ANALYSIS
Named Executive Officers
For 2016, our five most highly-paid executives, referred to as
our NEOs, were:
| • |
Alan Hair, President and Chief
Executive Officer (CEO); |
| • |
David Bryson, Senior Vice
President and Chief Financial Officer (CFO); |
| • |
Cashel Meagher, Senior Vice
President and Chief Operating Officer (COO); |
| • |
Terry Linde, Vice President,
Project and Technical Services; and |
| • |
Eric Caba, Vice President, South
America Business Unit. |
Overview of Compensation Philosophy
Our executive compensation philosophy is to: (i) provide
competitive compensation to attract and retain talented high-achievers and
appropriately incent them to achieve our strategic and operational objectives;
and (ii) align the interests of our executives with the long-term interests of
our shareholders. Accordingly, the Compensation Committee and the Board
recognize that a significant portion of total compensation must be variable and
linked to corporate and individual achievements tied to our strategic plan.
This, along with equity ownership guidelines and an employee share purchase
plan, helps to align the interests of management with the long-term interests of
our shareholders. We generally target our executive’s compensation at the market
median, with a significant component of compensation being “at risk”. Additional
detail on the link between executive compensation and corporate and individual
performance can be found under the heading “2016 Compensation Determinations”.
Compensation Committee
The members of our Compensation Committee are Alan R. Hibben
(Chair), Carin S. Knickel and Alan J. Lenczner. Each member is independent
within the meaning of National Instrument 58-101 – Disclosure of Corporate
Governance Practices. In addition, each member brings helpful and diverse
experience, which provides the Compensation Committee with the proper context to
assess the suitability of our compensation policies and practices. Messrs.
Hibben and Lenczner and Ms. Knickel have served on compensation committees of
other public companies, including as Chair. Mr. Hibben has a finance background
and is a certified director of the Institute of Corporate Directors. Mr.
Lenczner is a lawyer and a former Commissioner of the Ontario Securities
Commission. Ms. Knickel has significant resource industry and executive
compensation experience, including acting as the senior human resources
executive at ConocoPhillips from 2003 to 2012.
The responsibilities of the Compensation Committee, as set
forth in its Charter, are available on our website at www.hudbay.com.
Compensation Committee Activities
Among the activities undertaken by the Compensation Committee
in 2016 and early 2017 are the following:
| • |
increased equity ownership guidelines for the CEO and
Senior Vice Presidents and extended the guideline to the Vice Presidents;
|
| • |
updated the comparator group used in benchmarking
executive and director compensation; |
| • |
oversaw compensation benchmarking for our executives;
|
| • |
made recommendations to the Board in respect of the
compensation awarded to our CEO and Senior Vice Presidents and approved
the compensation awarded to our Vice Presidents; |
| • |
together with the Board, adopted a “Say on Pay” policy
that provides a non-binding shareholder vote on our executive compensation program; |
2017 MANAGEMENT INFORMATION CIRCULAR | 27
| • |
considered changes to our long-term incentive (LTIP)
program to add multi-year performance conditioning based on total
shareholder return (TSR) compared with a group of our peers; |
| • |
oversaw succession planning for our executives and made
recommendations to the Board respecting the compensation of our new
President and CEO and Senior Vice President and COO; |
| • |
the Compensation Committee Chair, along with Hudbay’s
Chairman, met with several of our largest shareholders to engage in
discussions about Hudbay’s compensation and governance practices;
|
| • |
reviewed regulatory and compensation trends; and
|
| • |
reviewed and recommended the Board’s approval of the
Statement of Executive Compensation in this Circular.
|
Role of Management
Members of senior management assist the Compensation Committee
by compiling information to be used in the Compensation Committee’s
determinations and reporting on historical compensation levels, methods of
compensation, compensation practices of industry peers, achieved performance
relative to corporate and individual objectives, succession planning and recent
compensation trends and regulatory initiatives.
The Compensation Committee also relies on the CEO to review the
performance of the other NEOs and make recommendations to the Compensation
Committee in this regard. Given the direct reporting relationship between the
CEO and the other NEOs, the Compensation Committee believes the CEO is in the
best position to directly assess the performance of the other senior executives.
While the CEO typically attends Compensation Committee meetings, he is not
present during in camera sessions of the Compensation Committee or when the
Compensation Committee is considering his performance or compensation.
Role of Compensation Consultant
To assist in carrying out its duties, the Compensation
Committee has authority to retain and receive advice from legal and other
advisers as it determines necessary, including the use of compensation
consultants to assist in the evaluation of executive and director compensation.
Since 2009, the Compensation Committee has retained Hugessen
Consulting Inc. to provide it with independent advice on executive and director
compensation and related governance matters. The nature and scope of services
provided by Hugessen to the Compensation Committee during 2016 included:
| • |
advice regarding NEO compensation levels; |
| • |
support in drafting compensation disclosure for the 2016
management information circular; |
| • |
providing insight on compensation practices during a CEO
transition; |
| • |
support in reviewing and developing recommendations on
performance conditioning of LTIP awards; |
| • |
reviewing and providing advice to the Compensation
Committee regarding management-prepared materials and recommendations; and
|
| • |
attending Compensation Committee meetings.
|
The Compensation Committee reviews and considers the
information and advice provided by Hugessen, among other factors, when it makes
its recommendations to the Board for approval. The Board, however, makes the
ultimate decisions with respect to executive compensation after considering the
Compensation Committee’s recommendations.
Hugessen does not provide any services to management directly
and work conducted by Hugessen raises no conflicts of interest. Any services
provided by Hugessen require Compensation Committee pre-approval and the Chair of the Compensation Committee approves
all invoices for work performed by Hugessen. The Compensation Committee reviews
Hugessen’s performance at least annually.
28 | HUDBAY
MINERALS INC.
The table below outlines the fees paid to Hugessen over the
last two years for services related to determining the compensation of our
directors and officers. Hugessen did not provide any other services in either
year.
| 2016 |
2015 |
Executive Compensation
Related Fees |
All Other Fees |
Executive Compensation
Related Fees |
All Other Fees |
| $82,892 |
Nil |
$90,650 |
Nil |
Risk Mitigation
The Compensation Committee has considered the implications of
the risks associated with our compensation policies and practices and has not
identified any risks arising from such policies and practices that are
reasonably likely to have a material adverse effect on Hudbay. The Compensation
Committee noted that, while it is possible that linking the majority of our
executives’ compensation to the achievement of annual corporate and individual
objectives could encourage excessive risk-taking, it believes this risk is
appropriately mitigated by, among other factors:
| • |
Vesting: long-term incentive share units vest
after three years and motivate long-term rather than short-term
performance; |
| • |
Balanced Scorecard: a balanced number of annual
performance objectives limits the impact any particular activity could
have on the overall performance score, and our scorecard includes a number
of multi-year strategic goals, including net asset value (NAV) per share;
|
| • |
Equity Ownership Guidelines: our senior executives
are required to comply with our equity ownership guidelines (which were
increased in January 2016; see “Equity Ownership Guidelines” for more
details), which further aligns the interests of management and our
shareholders; |
| • |
Use of Compensation Consultant: our compensation
consultant assists us by reviewing our executive and director compensation
against the compensation paid by a comparator group of mining company
peers and by providing independent advice to the Compensation Committee.
This helps us to ensure our compensation levels and practices are
reasonable and prudent while remaining competitive; |
| • |
Anti-Hedging Policy: our Confidentiality and
Insider Trading Policy prohibits our executives and directors from hedging
against declines in their equity-based compensation; |
| • |
Board Oversight of Performance Objective Setting:
the Board’s oversight of the performance objective setting process
reduces the possibility that the selected performance objectives and
targets will encourage excessive risk taking; and |
| • |
Board and Compensation Committee Discretion: the
Compensation Committee and the Board have discretion to award higher or
lower incentive-based compensation to our executives, where deemed
appropriate, to reflect our overall performance and value created for our
shareholders. The Compensation Committee exercised this discretion in both
2015 and 2016. |
Executive Compensation Recoupment Policy
The Board, on the advice of the Compensation Committee, has
adopted an executive incentive compensation recoupment policy to further align
the interests of management and our shareholders. This policy permits the Board
to recoup for the benefit of Hudbay the cash bonus and equity-based long-term
incentive awards granted to the CEO and Senior Vice Presidents in the event
there is (a) a restatement of our financial results due to material
non-compliance with any financial reporting requirement under applicable
securities laws, (b) such officers are determined to have engaged in fraud or intentional misconduct in connection with the
restatement and (c) the cash bonus and equity-based long-term incentives would
have been lower had they been calculated based on such restated financial
statements. The executive incentive compensation recoupment policy applies to
financial years commencing on or after January 1, 2015.
2017 MANAGEMENT INFORMATION CIRCULAR | 29
2016 Benchmarking
As part of the Compensation Committee’s consideration of our
executive compensation for 2016, the Compensation Committee engaged Hugessen to
make recommendations on updating the pay comparator group of peer companies used
to benchmark our compensation. The pay comparator group includes mid-tier base
and precious metals companies. The Compensation Committee believes including
precious metals producers in our comparator group is appropriate, as we compete
with all mining companies for executives and other personnel with specialized
skills and knowledge and there are a limited number of mid-tier base metals
producers to use as comparators. The pay comparator group that was used in the
benchmarking exercise undertaken by Hugessen in late 2015 to assist with 2016
compensation determinations consisted of the following mining companies whose
revenues or assets (or both) were approximately one-third to three times
Hudbay’s trailing 12-month assets and revenues when the peer group was developed
(in mid-2015):
| Company |
Total Revenues(1)
|
Total Assets(1)
|
| Lundin Mining Corporation |
$2,460 |
$9,112 |
| Sherritt International Corporation |
$1,314 |
$5,632 |
| IAMGOLD Corporation |
$1,203 |
$5,094 |
| New Gold, Inc. |
$967 |
$4,879 |
| Pan American Silver Corp. |
$908 |
$2,445 |
| KAZ Minerals plc |
$866 |
$6,897 |
| Centerra Gold Inc. |
$834 |
$2,235 |
| OZ Minerals Limited |
$883 |
$2,376 |
| B2Gold Corp. |
$763 |
$2,588 |
| Detour Gold Corporation |
$782 |
$3,105 |
| Thompson Creek Metals Company Inc. |
$684 |
$3,246 |
| Capstone Mining Corp |
$612 |
$2,161 |
| Hecla Mining Company |
$601 |
$2,860 |
| Katanga Mining Limited |
n/a |
$6,894 |
1. All financial figures in CAD $MM as at September 29, 2015,
the time at which benchmarking for 2016 compensation was completed.
30 | HUDBAY
MINERALS INC.
| Summary Statistics |
| |
Total Revenues(1) |
Total Assets(1) |
| 75th Percentile |
$967 |
$5,497 |
| Median |
$866 |
$3,175 |
| 25th Percentile |
$763 |
$2,481 |
| Hudbay Minerals Inc. |
$1,180 |
$6,192 |
Hugessen’s benchmarking focused on the CEO and Senior Vice
Presidents. Compensation for our Vice Presidents (including our fourth and fifth
NEOs) is determined using industry surveys and internal considerations. The
Compensation Committee believes that assessing compensation for Vice Presidents
who are NEOs based on the pay comparator group benchmarking could result in an
arbitrary disparity between the compensation received by these individuals and
Hudbay’s other Vice Presidents.
Elements of Executive Compensation
The following table provides a summary of the key elements of
our executive compensation program, which we believe form an appropriate mix of
compensation:
Compensation
Element |
Description
|
Link to Compensation Objectives
|
| Fixed Compensation |
| Base Salary |
Annual cash compensation |
Competitive, stable income enables attraction
and retention |
| Retirement Benefits |
Pension Plan |
Rewards executives for long service to Hudbay
enables attraction and retention |
| VariableCompensation |
| Short-Term Incentive Plan (STIP) |
Annual cash bonus based upon corporate and
individual performance |
Links compensation to corporate and individual
performance, which motivates executives to achieve objectives tied to
operations, financial performance and growth |
| Long-Term Incentive Plan (LTIP) |
Share units granted under our Long- Term Equity
Plan, which vest and become payable after three years |
Links compensation to corporate and individual
performance, which motivates executives to achieve objectives tied to
operations, financial performance and growth; provides link between
compensation and share price (and, starting with compensation for 2017,
relative share price performance against a performance comparator group),
thereby aligning the interests of executives and shareholders; encourages
retention |
| Other |
| Employee Share Purchase Plan |
Voluntary program whereby participants may
contribute a portion of their salary to acquire Hudbay shares, with a
matching contribution from Hudbay |
Motivates, attracts and encourages retention of
executives and other employees and aligns their interests with those of
our shareholders by encouraging voluntary equity participation in Hudbay |
2017 MANAGEMENT INFORMATION CIRCULAR | 31
Compensation
Element |
Description
|
Link to Compensation
Objectives
|
| Perquisites and Other Benefits |
Includes fitness memberships, comprehensive
medical examinations, life and accident insurance, parking and housing and
other subsidies and entitlements for executives who have been asked to
relocate at Hudbay’s request |
Represents an investment in the health and
well- being of our executives and otherwise assists with attraction and
retention |
Base Salary
The Compensation Committee believes that the base salaries of
our NEOs must be sufficiently competitive in the market to enable recruitment
and encourage retention, while reflecting the scope of responsibility, skill and
experience of each NEO. Encouraging retention is especially important in years
when, due to low metals prices and other factors beyond our control, our
financial performance warrants significantly lower annual bonuses and long-term
incentive awards. At the same time, having a base salary that is a relatively
low portion of overall compensation reflects our emphasis on linking executive
compensation to our performance and aligning executives’ interests with
long-term shareholder value creation. As base salary represents a reference for
a number of other compensation elements, significant attention is paid to
appropriately positioning salaries, taking into account the base salaries of
individuals with similar roles within Hudbay and in the comparator group.
Short-Term Incentive Plan (STIP)
The STIP is an annual incentive bonus, normally paid in cash,
and is a variable component of executive compensation based on corporate and
individual performance. This form of short-term incentive motivates executives
to achieve objectives that support the realization of shareholder value and
enables recognition of initiatives that improve our operational efficiency,
health, safety and environmental record, attainment of financial objectives and
execution of strategic initiatives.
Long-Term Incentive Plan (LTIP)
The Compensation Committee believes that long-term equity-based
compensation, in the form of share units, should form a significant portion of
our NEOs’ overall compensation in order to provide a strong link between
compensation and our total shareholder return, thereby aligning the interests of
our executives and shareholders. The share unit awards are front-end
performance-conditioned in that the actual aggregate value of share units
granted in a given year is based on the achievement of corporate and individual
performance objectives.
Long-term incentive share units are granted under our Long-Term
Equity Plan. A share unit is a notional unit which, depending on its terms, is
redeemable for either a Hudbay common share or a cash amount equal to the value
of a common share at a future date, and may be made subject to vesting and
performance criteria.
The Compensation Committee and our Board continue to believe
that compensating NEOs and other eligible employees with share units provides
superior alignment with shareholder interests compared to granting share
options. Moreover, adding front-end performance conditions to our share unit
grants further strengthens the alignment between executive compensation and
performance, which drives sustainable shareholder value creation, consistent
with our compensation philosophy and our commitment to responsible corporate
governance.
32 | HUDBAY
MINERALS INC.
The Compensation Committee’s current policy is to not make
share option grants to our executives and directors. No option grants have been
made since 2010.
Long-Term Equity Plan (LTEP)
The LTEP provides for grants of equity-based long-term
incentive awards in the form of share units for the purpose of advancing our
interests and those of our affiliates through the motivation, attraction and
retention of directors and eligible employees. While the LTEP permits the
granting of a limited number of share units to non-employee directors, we do not
make grants under the LTEP to our non-employee directors. Instead, all grants of
equity-based compensation to our non-employee directors are provided pursuant to
our Directors’ Deferred Share Unit Plan (see “Director Compensation” below).
Each grant of share units under the LTEP is evidenced by a
grant letter, which may contain terms and conditions in addition to the terms
and conditions of the LTEP.
The LTEP provides that share unit awards may be granted in a
calendar year by the Board, or its delegate as set out in the LTEP, to
participants as compensation for services rendered to us or an affiliate. The
number of share units awarded will be credited to the participant’s account
effective on the grant date of the share unit awards.
The table below provides a summary of the principal terms of
the LTEP. For additional detail, please refer to the full text of the LTEP,
which can be found on SEDAR at www.sedar.com and on EDGAR at www.sec.gov.
| Provision |
Description |
| Term / Entitlement Date |
Although share units do not have
a fixed term, the LTEP provides that the entitlement date, being the date
on which share units vest and settle, is a date that is no later than
December 31 of the third calendar year following the year in which the
services corresponding to such share unit awards were performed. |
| Assignment |
Except pursuant to a will or by
the laws of descent and distribution, share units are not assignable or
transferable. |
| Market Price |
The LTEP provides that the market
price of common shares (the “Market Price”) is the five day
average of the closing price of the common shares on the TSX ending on the
last trading day immediately preceding the grant date or entitlement date. |
Settlement
|
Subject to the terms of the LTEP and the applicable share unit grant
letter, on the entitlement date a share unit award will entitle the
Participant to a payment in fully paid common shares or, at our option,
the cash equivalent of such common shares.
The cash equivalent of common shares issuable pursuant to a share unit
award is determined by multiplying the applicable number of share units by
the Market Price on the applicable date. |
| Insider Participation Limit |
The LTEP limits insider
participation such that the maximum number of common shares (i) issuable,
at any time, and (ii) issued within any one-year period, to insiders,
under the LTEP and any other security based compensation arrangement of
ours, is 10% of the total number of common shares then issued and
outstanding. |
2017 MANAGEMENT INFORMATION CIRCULAR | 33
| Provision |
Description |
| Resignation and Termination |
The LTEP provides that, in the event a participant who is
an employee: (A) is terminated without cause, all share units credited to
such Participant immediately vest and become payable on the date of
termination; or (B) resigns or is terminated for cause, all share units
credited to such Participant immediately terminate. |
| Change of Control |
If a change of control occurs and a participant
ceases to be an eligible employee within 12 months of such change of
control (other than in connection with a termination for cause or
resignation), all outstanding share units of such Participant will
immediately vest. In the event of our wind-up, dissolution or liquidation,
all share units outstanding will immediately vest. |
Amendment Procedure
|
The LTEP provides that, without shareholder approval, the
Board may make the following amendments to the LTEP:
(a) amendments of a housekeeping nature;
(b) an addition or a change to the
vesting provisions of the LTEP;
(c) a
change to the termination provisions of a share unit or the LTEP;
(d) amendments to reflect changes to
applicable securities laws; and
(e)
amendments to ensure that the share units granted under the LTEP comply
with any provisions respecting income tax and other laws in force in any
country or jurisdiction of which a participant to whom a share unit has
been granted may from time to time be resident or a citizen. All other
amendments require shareholder approval. |
| Dividends |
Each participant under the LTEP is granted additional
share units equal to the aggregate amount of dividends that would have
been paid to the participant if the share units in the participant’s
account, if any, had been common shares, based on the Market Price of a
common share on such date. |
Retirement Benefits
In addition to rewarding employees for long service to Hudbay,
the Compensation Committee recognizes that retirement benefits are required in
order for our compensation program to be competitive with our peers.
Messrs. Hair, Bryson and Meagher participate in our defined
benefit pension plan. The pension plan is based on 2% of the average of the
member’s earnings during the 36 consecutive months of continuous service within
the ten-year period immediately preceding the member’s retirement, death or
termination of continuous service, in which the highest average is attained,
multiplied by the member’s credited service. The benefit is normally payable at
age 62 but can be paid up to 10 years earlier on a reduced basis (reduction of
4.8% per year for each year that retirement precedes age 62). Members in the
pension plan may elect to make optional ancillary contributions to the plan in
order to enhance the ancillary features of their pension. The cost of additional
benefits is fully paid by the member and contributions cannot exceed an annual
maximum of the lesser of 9% of the member’s earnings, or $18,787 for 2016.
The formula contains a partial offset for the Canada Pension
Plan benefit. The pension is payable for life with a guaranteed period of five
years. Pensions in excess of the Income Tax Act (Canada)
maximum pension limits are provided under the defined benefit component of our supplemental pension plan.
34 | HUDBAY
MINERALS INC.
The NEOs may also make a one-time irreversible election to reduce their eligibility to participate in all or a portion of the annual incentive bonus plan in exchange for eligibility for supplementary pension credits under the defined contribution
component of our supplemental pension plan. Supplementary pension credits are determined and awarded at the same time as annual incentive bonuses. The accounts are notional accounts which are secured with a letter of credit held in trust by a
financial institution. The accounts are credited with interest equal to the annual yield rate of Government of Canada marketable bonds with average yields over 10 years. We do not match or otherwise make contributions to this defined contribution
component of the supplemental pension plan.
Employee Share Purchase Plan
We maintain an Employee Share Purchase Plan (ESPP) for our executives and other eligible employees. Pursuant to the ESPP, participants may contribute between 1% and 10% of their pre-tax base salary to acquire Hudbay shares, which are acquired
through open-market purchases. We make a matching contribution of 75% of the participant’s contribution, one-third of which is immediately applied toward the tax withholding obligation on our contribution. Shares purchased with our
contribution may not be sold for 12 months and participants are subject to further restrictions on the number of transactions they may make and changes in their elected contribution.
Perquisites and Other Benefits
Perquisites and other benefits are intentionally limited and may include fitness memberships, comprehensive medical examinations, life and accident insurance, parking and housing and other subsidies and entitlements for executives who relocate at
Hudbay’s request.
2016 Compensation Determinations
The Compensation Committee’s process for making its determinations in respect of 2016 compensation commenced in July 2015, when it confirmed the members of the pay comparator group that would be used to benchmark compensation. The Compensation
Committee considered an updated benchmarking study at its meeting in November 2015 and had a preliminary discussion with management on the adoption of performance objectives for 2016. In December 2015, the Compensation Committee finalized its
recommendations to the Board regarding 2016 compensation and performance targets. These recommendations were approved by the Board in January 2016.
Alan Hair was promoted to President and Chief Executive Officer effective January 1, 2016. In recommending his 2016 compensation to the Board, the Compensation Committee considered that Mr. Hair was a first time CEO and recommended that his target
total direct compensation be positioned below the median of the pay comparator group and that of David Garofalo, his predecessor. Accordingly, the Board, upon the Compensation Committee’s recommendation, set Alan Hair’s base salary at
$625,000 and approved STIP and LTIP targets of 90% and 185% of his base salary, respectively. This represented an approximately 50% increase in Mr. Hair’s total direct compensation at target compared to his role as Senior Vice President
and COO and a discount of approximately 25% to Mr. Garofalo’s 2015 total direct compensation at target.
In connection with Cashel Meagher’s promotion from Vice President, South America Business Unit to Senior Vice President and COO, his base salary was set at $443,415 and his STIP and LTIP targets were set at 75% and 130% of his base salary,
respectively. This amounted to a 48% year-over-year increase in Mr. Meagher’s total direct compensation at target and a 14% discount compared to Alan Hair’s 2015 compensation as COO.
2017 MANAGEMENT INFORMATION CIRCULAR | 35
Aside from the increases in compensation in connection with
Messrs. Hair’s and Meagher’s promotions (and the corresponding promotion of Mr.
Caba to Vice President, South America Business Unit), there were no annual base
salary increases for Hudbay’s executives and other non-unionized employees in
2016. Further, no changes were made to the target STIP and LTIP percentages for
2016 for David Bryson, Terry Linde or any of Hudbay’s other executives.
The base salaries of our NEOs are shown in the table below:
| Name |
Title |
2015 Base
Salary |
2016 Base
Salary |
| Alan Hair |
President and CEO |
$473,800 |
$625,000 |
| David S. Bryson |
Senior Vice
President and
CFO |
$443,415 |
$443,415 |
| Cashel A. Meagher (1) |
Senior Vice
President
and COO |
$409,185 |
$443,415 |
| Terry Linde (2) |
Vice President,
Project
Services |
$396,397 |
$410,688 |
| Eric Caba (3) |
Vice President,
South
America Business Unit |
$297,444 |
$390,816 |
| 1. |
Mr. Meagher’s 2015 base salary was paid to him in United
States dollars and was US$320,001. His 2015 salary was converted to
Canadian dollars using the Bank of Canada’s annual average rate for 2015,
which was US$1.00:Cdn$1.2787. Since July 1, 2016, Mr. Meagher’s salary has
been calculated and paid in Canadian dollars. |
| |
|
| 2. |
Mr. Linde’s base salary is paid to him in United States
dollars and was US$310,000 as at December 31, 2015 (his pro-rated salary
for 2015 was US$303,400) and US$310,000 in 2016. The salaries reflected in
this table are in Canadian dollars and were converted using the Bank of
Canada’s annual average rate for 2015 and 2016, which were
US$1.00:Cdn$1.2787 and US$1.00:Cdn$1.3248, respectively. |
| |
|
| 3. |
Mr. Caba’s base salary is paid to him in United States
dollars and was US$232,614 in 2015 and US$295,000 in 2016. The salaries
reflected in this table are in Canadian dollars and were converted using
the Bank of Canada’s annual average rate for 2015 and 2016, which were
US$1.00:Cdn$1.2787 and US$1.00:Cdn$1.3248,
respectively. |
The following table sets out the STIP and LTIP targets in 2016
for each NEO as a percentage of his respective base salary.
| |
Targets (% of Base Salary) |
Performance Weighting |
| Name |
STIP |
LTIP Grant |
Corporate |
Individual |
| Alan Hair |
90% |
185% |
100% |
N/A |
| David S. Bryson |
75% |
130% |
60% |
40% |
| Cashel A. Meagher |
75% |
130% |
60% |
40% |
| Terry Linde |
50% |
70% |
60% |
40% |
| Eric Caba |
50% |
70% |
60% |
40% |
Corporate Scorecard
Our executives’ annual incentive bonus (STIP) and long-term
incentive awards (LTIP) are determined by a combination of individual and
corporate performance. The corporate performance score accounts for 60% of our
non-CEO NEOs’ STIP and LTIP grants. An individual performance score is
determined for each of these executives and such score accounts for the
remaining 40% of their STIP and LTIP grants. The Compensation Committee feels that this balance
between corporate and individual performance ensures sufficient variability
among awards, and ensures executives are rewarded for their individual
achievements.
36 | HUDBAY
MINERALS INC.
The overall score for our non-CEO NEOs, based on the combined
corporate and individual scores, and Mr. Hair’s overall score (based 100% on
corporate performance) is used to determine the value of STIP and LTIP. The
maximum score that can be awarded for superior performance is 200% of the target
score and the minimum/threshold award is 0%. The Compensation Committee feels
that providing for variability of awards is important in ensuring that
executives are appropriately compensated for superior performance and that
compensation is reduced significantly when performance is below expectations.
At the start of each year, the Board, upon the recommendation
of the Compensation Committee, adopts its corporate scorecard, which sets forth
key performance areas that guide and motivate our executives as they carry out
Hudbay’s strategy over the course of the year. Performance is monitored
throughout the year, and at year-end, the Compensation Committee assesses the
company’s performance against each scorecard objective and considers all
relevant factors, both positive and negative.
The 2016 corporate scorecard and the key factors that
influenced the scores in each performance objective are set forth below.
2017 MANAGEMENT INFORMATION CIRCULAR | 37
| Category/Weight |
Score |
Compensation Committee Decision
Factors |
|
Operations – 50%
Environment, Health and Safety |
69/50 140/100 |
• |
Total reportable injuries down over 30%, total reportable
accident frequency lower and severity down nearly 40%, in each case in
2016 YTD compared to 2015 YTD |
| Production and cost performance |
125/100 |
• |
Strong safety culture in Peru and steps taken to change
safety culture in Manitoba |
| |
|
• |
No significant environmental incidents |
| Relationships with key stakeholders, |
150/100 |
• |
Cu Eq production within guidance and ~97% of budget |
| regulators, governments, communities, etc. |
|
• |
Cash costs, sustaining cash costs and all-in sustaining cash
cost >10% under original budget and tracking against revised budget |
| |
|
• |
Management change and metals price environment resulted in
renewed focus on cost savings initiatives |
| |
|
• |
Continued strong management of potentially high-risk
community issues, including recent occupation of Constancia pit and road
blockades |
| |
|
• |
Otherwise, strong community relations in Peru have garnered
recognition from the Canadian government and United Nations Development
Panel |
| |
|
• |
Increased aboriginal engagement in
Manitoba and socialization of Flin Flon community to eventual closure |
| Financial Excellence – 30% |
22/30 |
• |
operating cash flow of $387.9 million is 95% of budget ($406
million) |
| Operating Cash Flow (target of $406 million, with a $203
million threshold) |
94/100 |
• |
In Q1 (during a very difficult metals price environment)
combined and restructured corporate revolver and the Constancia cost
overrun facility into a single facility with two secured tranches with
significant covenant flexibility, extended maturity and deferral of COF
facility amortization |
| Access to/cost of capital |
200/100 |
| Share price performance vs. performance comparator group |
0/100 |
• |
Recent ratings agencies upgrades by Moodys (to B3) and
S&P (restoring our B (stable) rating) |
| |
|
• |
Successful completion of bond re-financing |
| Growth in net asset value per share (between 5% and 8%) |
0/100 |
• |
>10% share price underperformance versus performance
comparator group |
| |
|
• |
5% NAV accretion threshold not met |
| Growth – 20% |
22.5/20 |
• |
Rosemont project optimization has resulted in a more robust
project with better returns. Although Army Corps decision remains pending,
biological opinion was received and we achieved success in air permit and
Pima County lighting code litigation |
| Project Development – time and budget management |
125/100 |
| Growth acquisitions, renewal of project pipeline and
reserve/resource growth |
100/100 |
• |
Snow Lake engineering completed as planned and initial
development of paste plant underway |
| |
|
• |
Some tonnage added at Lalor with resource to reserve
conversion of gold zone by end of year; however, reduction in
discretionary spending resulted in minimal exploration and a focus away
from reserve/resource renewal |
| |
|
• |
Notwithstanding the focus on
operational efficiency and fiscal prudence, greenfields projects added in
Chile and Peru and junior exploration dollars being leveraged through the
optioning of a number of properties to other companies |
| Total Score (unadjusted) |
114% |
|
|
| Final Amended Score (after exercise of Board
discretion to increase score) |
140% |
|
|
38 | HUDBAY
MINERALS INC.
On the Compensation Committee’s recommendation, the Board
approved a corporate performance score of 114 out of 100. Hudbay’s compensation
philosophy provides the Board with substantial discretion to consider all
relevant factors in making compensation determinations. The Compensation
Committee believes this is a critical responsibility and has applied this
discretion in respect of 2015 and 2016 compensation. Upon recommendation from
the Compensation Committee, and considering Hudbay’s strong operational and
financial performance in a prolonged difficult market environment in 2016, the
Board exercised its discretion to adjust the final corporate performance score
from 114 out of 100 to 140 out of 100. In 2015, the Board exercised its
discretion and reduced the corporate performance score by 25%.
Determination of Individual Performance
The individual performance score for each of our non-CEO NEOs
represents 40% of his overall annual performance score. As with the corporate
objectives, the non-CEO NEOs’ individual performance scores involve the
application of judgment, with reference to key elements of their performance
within their respective areas of responsibility. In making its determinations
respecting the non-CEO NEOs’ individual performance scores, the Compensation
Committee considered recommendations made by Mr. Hair.
Mr. Hair’s STIP and LTIP awards are determined 100% based on
the corporate performance score. The Compensation Committee feels this is
appropriate given the CEO’s responsibility for all aspects of corporate
performance.
The table below shows the individual performance score of each
non-CEO NEO, as well as the decision factors that were considered by the
Compensation Committee in determining such scores.
Name
|
Individual
Performance
Scores |
Decision Factors
|
David S. Bryson |
54/40 |
•
|
Successfully restructured credit facilities in Q1/16 to
weather depressed metal price environment |
| |
|
• |
Moved rapidly to capitalize on improved market conditions
and refinanced bonds for substantial cost savings and term extension |
| |
|
• |
New bond indenture provides substantial financial
flexibility to support Rosemont funding |
| |
|
• |
Corporate spending in line with reduced budget; new
authorization for expenditures process implemented and long-range planning
models enhanced |
| |
|
• |
Supported new CEO in establishing strong support with the
investment community |
| |
|
• |
Initial quarterly business unit
review meetings conducted |
| |
|
|
|
| |
|
• |
Improvements in safety performance over 2015 |
| Cashel A. Meagher |
54/40 |
• |
Met production guidance in Manitoba despite various issues |
| |
|
• |
Strong production at Constancia |
| |
|
• |
Cost cutting measures implemented successfully; met all-in
sustaining costs targets |
| |
|
• |
Managed Constancia community issues very well |
| |
|
• |
Acquired exploration opportunities and target generation |
| |
|
• |
Constancia NI 43-101 Technical Report completed; Rosemont
definitive feasibility study near completion |
| |
|
• |
Organizational improvements in Peru
and new leadership in Manitoba |
| |
|
• |
Completed Constancia NI 43-101 Technical Report |
| Terry Linde |
40/40 |
• |
Used in-house project expertise in other business units |
| |
|
• |
In-house completion of improved Rosemont mine plan and
definitive feasibility study |
| |
|
• |
Managed Snow Lake group of capital projects |
| |
|
• |
Helped acquire and review exploration
opportunity in Chile |
2017 MANAGEMENT INFORMATION CIRCULAR | 39
| |
|
•
|
Managed to favourable outcome
regarding mine invasion |
| Eric Caba |
48/40 |
• |
Completed trunnion change on time and budget |
| |
|
• |
Increased exploration footprint in Peru |
| |
|
• |
Improved safety statistics and implementation of Visible
Felt Leadership |
| |
|
• |
Exceeded budget in copper produced |
| |
|
• |
Achieved better cost than budget |
| |
|
• |
Efficiency achieved in lower
sustaining cost per unit in dam construction |
Annual Incentive Bonus (STIP) in respect of 2016 Performance
Each NEO’s annual incentive bonus is determined by applying his
overall performance score against the target bonus approved by the Board. The
following table shows each NEO’s performance scores and target bonus for 2016 as
well as the actual amount awarded to each such NEO for 2016.
| Name |
Individual
Performance
Scores |
Corporate
Performance
Scores |
Target Bonus
(%
of Base
Salary) |
100% of
Bonus
at
Target |
% of Target
Bonus
Awarded
(2016 Perfor-
mance Score) |
Amount
of
Bonus
Awarded |
| Alan Hair(1) |
N/A |
140% |
90% |
$562,500 |
140% |
$787,500 |
| David S. Bryson |
135% |
140% |
75% |
$332,561 |
138% |
$458,935 |
| Cashel A. Meagher |
135% |
140% |
75% |
$332,561 |
138% |
$458,935 |
| Terry Linde(2) |
100% |
140% |
50% |
$205,344 |
124% |
$254,627 |
| Eric Caba(2) |
120% |
140% |
50% |
$195,408 |
132% |
$257,939 |
| 1. |
The corporate performance score was used to determine
100% of Mr. Hair’s annual incentive bonus. |
| 2. |
Mr. Linde’s and Mr. Caba’s STIP are paid to them in
United States dollars and were US$192,200 and US$194,700, respectively;
these amounts were converted to Canadian dollars using the Bank of
Canada’s annual average rate for 2016, which was
US$1.00:Cdn$1.3248. |
Long-Term Incentive Grant in Respect of 2016 Performance
In early 2017, the Board approved LTIP grants for our NEOs in
respect of 2016 performance. As is the case with the STIP, the value of LTIP
grants is determined by applying each of our NEO’s overall performance scores
(based on combined individual and corporate performance scores) against the
target LTIP grant approved by the Board.
40 | HUDBAY
MINERALS INC.
The following table shows the LTIP awards granted to our NEOs
in respect of 2016 performance.
| Name |
Target LTIP
Grant
(% of Base
Salary) |
100% of LTIP
Grant at Target |
% of Target LTIP
Grant Awarded
(2016 Perfor-
mance Score)
|
Amount of
LTIP
Award |
# of Share
Units
Granted(1) |
| Alan Hair |
185% |
$1,156,250 |
140% |
$1,618,750 |
152,281 |
| David S. Bryson |
130% |
$576,440 |
138% |
$795,487 |
74,834 |
| Cashel A. Meagher |
130% |
$576,440 |
138% |
$795,487 |
74,834 |
| Terry Linde(2) |
70% |
$284,292 |
124% |
$352,522 |
33,163 |
| Eric Caba(2) |
70% |
$270,536 |
132% |
$357,107 |
33,594 |
| 1. |
The 2016 LTIP grants were made on February 27, 2017. The
grant price for the share units granted was based on the five day average
of the closing price of Hudbay Shares on the Toronto Stock Exchange ending
on the last trading day immediately preceding February 27, 2017, being
$10.63. |
| 2. |
Because the LTIP awards were granted on February 27,
2017, for purposes of calculating their LTIP awards, Mr. Linde’s and Mr.
Caba’s 2016 base salaries of US$310,000 and US$295,000, respectively, were
converted to Canadian dollars using the Bank of Canada’s noon exchange
rate on February 27, 2017, being
US$1.00:Cdn$1.3101. |
Tally Sheets and Realized/Realizable Compensation
As a part of its annual process, the Compensation Committee
reviews a comprehensive analysis and summary of all components of total
compensation and accumulated wealth for our CEO, CFO and COO, including base
salary, STIP and LTIP grants, pension benefits and other benefits paid. The
primary purpose of these “tally sheets” is to summarize the individual elements
of NEO compensation and the estimated value of compensation and provide a
historical summary of accumulated wealth for each such individual.
The Compensation Committee also reviews a report on realized
and realizable pay, which outlines the differences between the target pay for
each of the CEO, CFO and COO and their compensation earned and vested (realized)
and the value of their LTIP awards that have not yet vested (realizable). These
reports include a comparison of executive compensation against the shareholder
experience and provide the Compensation Committee with additional perspective on
the pay-for-performance linkage over time, which provides a basis for discussion
around the effectiveness of current pay programs and their alignment with
company performance and shareholder value creation.
The graph below illustrates Mr. Hair’s target total direct
compensation compared to actual pay awarded and the realized/realizable
compensation for the last five years. Note that the table below includes Mr.
Hair’s compensation while he held three different roles, including Senior Vice
President, Business Development & Technical Services (early 2012) and Senior
Vice President and Chief Operating Officer (June 2012 to December 2015). Over
the past five years, STIP and LTIP awarded to Mr. Hair has varied above and
below target based on performance against corporate and individual performance
objectives. Realized/realizable compensation has been generally aligned with
shareholder experience over the stated performance periods due to the
share-based nature of the LTIP awards. While the STIP is usually awarded in
cash, in light of the industry environment in late 2015 and early 2016, and to
conserve cash, the Board (on the recommendation of the Compensation Committee)
determined that the 2015 STIP would be paid in share units that settle after
three years. For 2015, realized/realizable compensation is tracking above target
and awarded pay as the LTIP and STIP share units awarded in respect of 2015
performance were granted in March 2016 in a low share price environment. These
awards have since benefitted from the significant share price appreciation that
has taken place over the past year. Because all other NEOs have a similar
compensation structure, Mr. Hair’s compensation is being depicted as a proxy for
all NEO compensation.
2017 MANAGEMENT INFORMATION CIRCULAR | 41
*As LTIP awarded in respect of 2016 performance was granted
in early 2017, realized and realizable pay for this period is not yet
applicable.
**Cumulative TSR reflects performance from January 1 of
the stated year to a) the LTIP vesting date, or b) December 31, 2016 (for
years where LTIP remains unvested and outstanding)
Where:
| • |
Target is annual base salary, target STIP award, and
target LTIP award in respect of the performance year (STIP and LTIP are
awarded shortly following year-end); |
| • |
Awarded is annual base salary, actual STIP cash award
paid (except in 2015, when STIP was awarded in the form of share units),
and grant-date value of actual LTIP awarded (STIP and LTIP as disclosed in
the Summary Compensation Table and based on annual performance score); and
|
| • |
Realized & Realizable is annual base salary, actual
STIP cash award paid, and the value of LTIP vested and paid out (realized)
or, if LTIP has not yet vested, the value of unvested LTIP outstanding as
at December 30, 2016 (realizable). In the case of 2015, STIP was awarded
in the form of share units and the value of these outstanding share units
is shown as at December 31, 2016 (realizable).
|
42 | HUDBAY
MINERALS INC.
Executive Compensation Changes for 2017
In 2016, benchmarking was undertaken based on an updated comparator group reflecting Hudbay’s increased size and revenue. The benchmarking indicated that total direct compensation at target for each of Messrs. Hair, Bryson and Meagher was
significantly below the pay comparator group median. The Board, on the Compensation Committee's recommendation, adjusted Mr. Hair's base salary from $625,000 to $750,000 and his STIP and LTIP targets from 90% and 185%, respectively, to 100%
and 225%, respectively. Cashel Meagher's 2017 base salary was increased from $443,415 to $510,000 and his STIP and LTIP targets were raised from 75% and 130%, respectively to 80% and 150%, respectively. David Bryson's base salary was
increased from $443,415 to $480,000 and his LTIP target was raised from 130% to 145%. These changes to their 2017 total direct compensation resulted in their respective compensation moving approximately two-thirds of the way from their 2016
compensation to the market median, with the intention that target compensation will be moved to the median over time.
Throughout 2016, the Compensation Committee undertook a comprehensive review of our long-term incentive plan (LTIP) design, including consideration of multi-year, forward-looking performance metrics. During the review, the Compensation Committee
determined that there were a number of difficulties involved in adopting performance conditions based on increase to net asset value or other operational metrics. It was agreed that relative total shareholder return (TSR) represented the preferred
method of performance conditioning for LTIP grants. However, the Compensation Committee also concluded that the differences between Hudbay and the proposed members of the performance comparator group meant that Hudbay’s relative share price
performance may not always be a true reflection of Hudbay’s actual performance compared to its peers. As a result, the Board, on the Compensation Committee’s recommendation, adopted a relative TSR modifier, which will be applied to our
LTIP grant in respect of 2017 performance and which gives the Board discretion to adjust the grant date value of LTIP grants by +/- 20% based on Hudbay’s one, three and five year performance against a performance comparator group. This
modifier will be in addition to the front-end performance conditioning that is applied to our LTIP grants and will further enhance the alignment between executive compensation and the shareholder experience.
Equity Ownership Guidelines
The Board has established a policy that requires executives to own a minimum number of Hudbay shares and share units based on targets varying by position level. Any options held by the executives will not be counted towards the required equity
holdings, however unvested share units will be. Executives subject to the guidelines have four years in which to attain the required equity holdings, and as their base salaries increase, they must continue to meet the guidelines, but they will have
four years from the date of the increase to meet the additional requirement. For the purpose of determining the value of shares and share units held, the holdings will be based on the cost of acquisition or value at the time of grant. In the event
an executive does not meet the requirement, he or she will not be allowed to sell shares until the requirement is met.
In addition to the requirements imposed by the equity ownership guidelines, our NEOs and others who, from time to time, may be in possession of material non-public information are subject to restrictions on their ability to trade in our securities
by our Confidentiality and Insider Trading Policy, which includes a prohibition on trading during our blackout periods and a requirement to obtain the approval of two members of our Disclosure Committee before making any trades or exercising
options.
In January 2016, our equity ownership guidelines were amended to require that the CEO hold equity worth three times his base salary, the Senior Vice Presidents hold equity worth two times their base salaries and we introduced a new requirement that
the Vice Presidents hold equity worth the amount of their base salaries. Our NEOs’ progress in meeting our share ownership guidelines as at March 15, 2017 is shown in the following table:
2017 MANAGEMENT INFORMATION CIRCULAR | 43
| Name |
Share
Ownership
Guideline |
Target
Equity
Required(1)
($) |
Total Equity
Ownership(2) |
Value of
Equity
Ownership as
a Percentage
of Target (%) |
Share
Units
($) |
Hudbay Shares
($) |
| Alan Hair |
Three times base salary |
$2,250,000 |
3,397,350 |
875,200 |
190 |
| David Bryson |
Two times base salary |
$960,000 |
2,290,292 |
515,945 |
292 |
| Cashel Meagher |
Two times base salary |
$1,020,000 |
1,671,468 |
367,730 |
200 |
| Terry Linde |
Equal to base salary |
$416,981 |
1,108,739 |
148,081 |
301 |
| Eric Caba |
Equal to base salary |
$410,256 |
648,365 |
78,962 |
177 |
| 1. |
Officers subject to the guidelines have four years in
which to attain the required shareholdings and as their base salaries
increase, they must continue to meet the guidelines, but will have four
years from the date of the increase to meet the requirement. The Target
Equity Required is based on our executives’ base salaries at March 15,
2017. The base salaries of Messrs. Linde (US$310,000) and Caba
(US$305,000) were converted to Canadian dollars using the Bank of Canada’s
noon exchange rate on March 15, 2017, being US$1.00:Cdn.$1.3451. |
| 2. |
Includes the grant date value of share units held and the
acquisition value of Hudbay Shares held. |
Employment Agreements
Each of the NEOs is party to an employment agreement with our
company. The NEOs’ employment agreements establish their base salary and right
to participate in our annual incentive bonus, long-term incentive and pension
plans. Each of our NEOs is required by their respective employment agreements to
not solicit officers, employees or agents of Hudbay for 12 months following the
termination of their employment and they are also required to maintain the
confidentiality of our confidential information. The following table summarizes
the payments and benefits to which our CEO and other NEOs are entitled under
their respective employment agreements following their involuntary termination
without cause, or resignation for certain specified events, defined as “good
reason”, including but not limited to a substantial change in the employment
conditions or duties of the NEO that adversely affects the extent, nature or
status of his responsibilities, any reduction in the NEO’s base salary, any
transaction that results in a change in the status of Hudbay as a
publicly-listed entity to one that is privately held, following which he is not
appointed to continue in the same role, or any requirement that the NEO
relocate.
| Payment/Benefit |
Alan Hair, David Bryson,
Cashel Meagher |
Terry Linde, Eric Caba |
| Salary and STIP to the date of termination |
All salary earned and not paid to the date of
termination, plus a prorated STIP grant at target for the period from
January 1 of the year of termination to the date of termination |
All salary earned and not paid to the date of
termination, plus a prorated STIP grant at target for the period from
January 1 of the year of termination to the date of termination |
| Lump sum payment |
An amount equal to 24 months’ base salary |
An amount equal to 12 months’ base salary |
| Additional lump sum payment |
An amount equal to 2 times the average annual
incentive bonus earned over the two fiscal years immediately preceding the
termination date |
An amount equal to 1 times the average annual
incentive bonus earned over the two fiscal years immediately preceding the
termination date |
| Employee pension and benefit plans |
Entitled to continue to participate for 24
months or receive a lump sum payment equal to the premium contributions
and pension entitlements during a 24 month period |
Entitled to continue to participate for 12
months or receive a lump sum payment equal to the premium contributions
and pension entitlements during a 12 month period |
| Vesting of share units and share options |
Share units and share options, if issued,
shall become immediately vested and options will be exercisable in
accordance with the terms of the Share Option Plan |
Share units, if issued, will vestimmediately
and share options will continue to vest in the ordinary course and be
exercisable in accordance with the terms of the Share Option Plan |
44 | HUDBAY
MINERALS INC.
Payments on Termination
The following table provides details regarding the estimated
incremental payments to each of the NEOs assuming termination without cause on
December 31, 2016:
Name
|
Pro-rated STIP
to Date of
Termination
($)
|
Severance
(Multiple of
Base Salary)
($)
|
Severance
(Multiple of
Average
Bonus)
($) |
Severance
(Value of
Benefits)
($)
|
Value of
Immediately
Vested
Share Units
($) |
Total ($)
|
| Alan Hair |
562,500 |
1,250,000 |
1,166,872 |
376,317 |
2,848,052 |
6,203,741 |
| David S. Bryson |
332,561 |
886,830 |
745,603 |
256,400 |
2,361,843 |
4,583,237 |
| Cashel A. Meagher |
332,561 |
886,830 |
655,753 |
202,681 |
1,367,100 |
3,444,925 |
| Terry Linde(1) |
205,344 |
410,688 |
219,407 |
29,415 |
1,222,551 |
2,087,405 |
| Eric Caba(1) |
195,408 |
390,816 |
189,303 |
24,121 |
452,423 |
1,252,071 |
| |
1. |
The compensation payable to Messrs. Linde and Caba was
converted to Canadian dollars using the Bank of Canada’s annual average
rate for 2016, being US$1.00:Cdn$1.3248. |
Double-Trigger Payment on Termination
None of our NEOs is entitled to any payments or accelerated
vesting of equity based awards in a circumstance where there is a change of
control and they are not terminated or they do not resign for “good reason”, as
described in more detail under “Employment Agreements” above. Such entitlements
will only arise if their employment is terminated.
Performance Graphs
The following graph compares the yearly percentage change in
the cumulative total shareholder return on the Toronto Stock Exchange for $100
invested in Hudbay Shares on December 31, 2011 against the cumulative total
shareholder return of the S&P/TSX Composite Index and a custom index
consisting of the following peers: Antofagasta, Turquoise Hill, Boliden, First
Quantum, Lundin, Oz Minerals, Nevsun, Imperial and Capstone.
2017 MANAGEMENT INFORMATION CIRCULAR | 45
| (in Cdn. $) |
2011 |
2012 |
2013 |
2014 |
2015 |
2016 |
| Hudbay Minerals Inc. (TSX) |
100 |
101 |
89 |
103 |
54 |
79 |
| S&P/TSX Composite Index |
100 |
107 |
121 |
134 |
123 |
149 |
| Custom Group |
100 |
96 |
87 |
85 |
65 |
98 |
46 | HUDBAY
MINERALS INC.
The following graph compares the yearly percentage change in
the cumulative total shareholder return on the Toronto Stock Exchange for $100
invested in Hudbay Shares on December 31, 2011 against the total direct
compensation (base salary, STIP and LTIP) for our CEO, CFO and COO in each given
year.1 Except for 2012 and 2016, the trend in our CEO, CFO and COO
total direct compensation has been similar to the trend in our share price
performance. Total direct compensation of our CEO, CFO and COO was relatively
flat from 2015 to 2016 because of the change in management and positioning of
target total direct compensation of our new CEO and COO below that of their
predecessors. Because the other NEOs have a majority of their incentive
compensation determined based on our corporate performance score, we expect the
trend in their compensation during this period to be similar to this graph.
| 1. |
For 2011, the total direct compensation of David Garofalo
(CEO), David Bryson (CFO) and Tom Goodman (COO) was used. For years 2012
through 2015, the total direct compensation of David Garofalo (CEO), David
Bryson (CFO) and Alan Hair (COO as of June 2012) was used. For 2016, the
total direct compensation of Alan Hair (CEO), David Bryson (CFO) and
Cashel Meagher (COO) was used. |
| (in Cdn. $) |
2011 |
2012 |
2013 |
2014 |
2015 |
2016 |
| Hudbay Minerals Inc. (TSX) |
100 |
124 |
115 |
170 |
105 |
105 |
| Total Direct Compensation (CEO, CFO, COO) |
100 |
101 |
89 |
103 |
54 |
78 |
2017 MANAGEMENT INFORMATION CIRCULAR | 47
Summary Compensation Table
The following table provides information respecting
compensation received in or in respect of the financial years ended December 31,
2016, 2015 and 2014 by each of the NEOs. In the share-based awards and annual
incentive plan columns of our Summary Compensation Table, the awards disclosed
for 2016, 2015 and 2014 are the amounts approved by the Board and awarded in
early 2017, 2016 and 2015, respectively, in respect of the prior year’s
performance.
| Name and
principal position |
Year |
Salary ($) |
Share-
based awards ($) |
Option
awards ($) |
Non-equity
incentive plan
compensation
|
Pension
Value ($) |
All other
compensation(1) ($) |
Total
compensation ($) |
Annual
incentive
plan ($) |
Long-term
incentive
plan ($) |
Alan Hair
President and CEO
|
2016
2015
2014 |
625,000
473,800
460,000 |
1,618,750
647,163
744,096 |
-
-
- |
787,500
379,372
434,056 |
-
-
- |
136,210
135,160
60,361 |
61,487
45,707
39,705 |
3,228,947
1,681,202
1,738,218 |
David S. Bryson
Senior Vice President
and CFO |
2016
2015
2014 |
443,415
443,415
430,500 |
795,487
496,891
704,642 |
-
-
- |
458,935
286,668
411,041 |
-
-
- |
127,130
130,010
92,018 |
51,487
46,409
37,856 |
1,876,454
1,403,393
1,676,057 |
Cashel A. Meagher
Senior Vice President
and COO |
2016
2015
2014 |
443,415
409,185
336,641 |
795,487
288,905
376,803 |
-
-
- |
458,935
196,818
236,323 |
-
-
- |
108,340
91,810
41,780 |
342,219
517,039
388,351 |
2,148,396
1,503,757
1,379,898 |
Terry Linde(2)
Vice President,
Project
and Technical Services |
2016
2015
2014 |
410,688
387,958
327,845 |
352,522
265,330
297,957 |
-
-
- |
254,627
180,757
261,620 |
-
569,022(3)
- |
-
-
- |
39,736
114,042
265,928 |
1,057,573
1,517,109
1,153,350 |
Eric Caba(2)
Vice President,
South
America Business Unit |
2016
2015
2014 |
390,816
297,444
237,785 |
357,107
235,684
116,666 |
-
-
- |
257,939
58,597
38,891 |
-
-
- |
-
-
- |
384,277
344,287
151,967 |
1,390,139
936,012
545,309 |
| 1. |
In 2016, Messrs. Meagher and Caba received perquisites
that, in the aggregate, amounted to greater than $50,000, most of which
related to their relocation at Hudbay’s request and were granted in
accordance with Hudbay’s Expatriate Mobility Policy. Such relocation
benefits included a location premium (to recognize Messrs. Meagher and
Caba for their acceptance of global assignments and possible living
challenges that may be encountered in Peru), mobility premiums (to
encourage Messrs. Meagher and Caba to accept their global assignments),
housing allowances, a travel allowance, mobility premium for Mr. Meagher’s
return to Toronto from Peru mid-2016, and tax gross-ups of the amount of
taxes paid on the taxable portion of any such amounts. None of the other
NEOs received perquisites that in the aggregate amounted to greater than
$50,000. In addition to perquisites, amounts in this column include
company contributions under our Employee Share Purchase Plan and the
payment of dividend equivalents on share units held by the NEOs. |
| 2. |
Mr. Linde’s and Mr. Caba’s 2014, 2015 and 2016
compensation, and Mr. Meagher’s 2014 and 2015 compensation, was paid to
them in United States dollars and was converted to Canadian dollars using
the Bank of Canada’s annual average rates for 2014, 2015 and 2016 which
were US$1.00:Cdn$1.1046, US$1.00:Cdn$1.2787 and US$1.00:Cdn$1.3248,
respectively. |
| 3. |
Mr. Linde was awarded a completion bonus in the amount of
US$445,000 on July 15, 2015 for the successful completion of the
Constancia project. The completion bonus was converted to Canadian dollars
using the Bank of Canada’s annual average rates for 2015, being
US$1.00:Cdn$1.2787. |
48 | HUDBAY
MINERALS INC.
Incentive Plan Awards
The following table provides information regarding the
incentive plan awards for each NEO outstanding as of December 31, 2016.
Outstanding Option-based Awards and Share-based Awards
| |
Option-based Awards |
Share-based Awards |
| Name |
Grant Date |
Number of
securities
underlying
options at the
date of grant
(#) |
Number of
securities
underlying
unexercised
options
(#) |
Option
exercise
price
($)
|
Option
expiration
date
|
Value of
unexercised
in-the-
money
options($) (1) |
Number of
shares
or
units of
shares that
have not
vested (#)(2) |
Market or payout
value of share-
based awards
that have not
vested ($)(1) |
Market or payout
value of vested
share-based
awards not
paid
out or distributed
($) |
| Alan Hair |
12-Mar-2007 |
75,000 |
75,000 |
20.80 |
12-Mar-2017 |
0.00 |
233,472 |
1,793,065 |
1,054,987 |
| |
20-Mar-2008 |
50,000 |
50,000 |
15.86 |
20-Mar-2018 |
|
|
|
|
| David S. Bryson |
- |
- |
- |
- |
- |
- |
192,058 |
1,475,002 |
886,841 |
| Cashel A. Meagher |
- |
- |
- |
- |
- |
- |
108,510 |
833,354 |
533,746 |
| Terry Linde |
- |
- |
- |
- |
- |
- |
95,038 |
729,893 |
492,658 |
| Eric Caba |
- |
- |
- |
- |
- |
- |
40,906 |
314,158 |
138,265 |
| 1. |
Based on the closing price of Hudbay Shares on the
Toronto Stock Exchange of $7.68 on December 30, 2016. |
| 2. |
Excludes the share units that vested on December 30,
2016. |
NEO Options Exercised in 2016
The Compensation Committee’s current policy is not to make
share option grants to our executives or directors. The only NEO that holds
options is Mr. Hair and those were granted in 2007 and 2008. None of our NEOs
exercised options in 2016.
Incentive Plan Awards Vested or Earned in 2016
The following table provides information regarding the value on
pay-out or vesting of incentive plan awards for the financial year ended
December 31, 2016.
Name
|
Option-based awards —
Value
vested during the
year ($)
|
Share-based awards –
Value
vested during the
year ($)
|
Non-equity incentive plan
compensation — Value
earned during the
year(1)($)
|
| Alan Hair |
- |
518,107 |
787,500 |
| David S. Bryson |
- |
505,687 |
458,935 |
| Cashel A. Meagher |
- |
225,091 |
458,935 |
| Terry Linde(2) |
- |
194,298 |
254,627 |
| Eric Caba(2) |
- |
20,116 |
257,939 |
| 1. |
Represents the annual short term incentive bonus awarded
in respect of 2016. |
| 2. |
Mr. Linde’s and Mr. Caba’s STIP are paid to them in
United States dollars and were US$192,200 and US$194,700, respectively;
these amounts were converted to Canadian dollars using the Bank of
Canada’s annual average rate for 2016, which was
US$1.00:Cdn$1.3248. |
2017 MANAGEMENT INFORMATION CIRCULAR | 49
Pension Plan Benefits: Defined Benefit Plan
Name
|
Number
of
years
credited
service
(#) |
Annual benefits |
Opening
present
value of
defined
benefit
obligation
($) |
Compensatory
change ($)
|
Non-
Compensatory
change ($)
|
Closing
present
value
of defined
benefit
obligation
($) |
At year
end ($)
|
At age 65
($)
|
| Alan Hair |
12.0 |
120,104 |
220,191 |
1,509,611 |
589,280 |
183,531 |
2,282,422 |
| David S. Bryson |
8.3 |
69,991 |
212,071 |
943,104 |
78,702 |
103,641 |
1,125,447 |
| Cashel A. Meagher |
8.1 |
55,377 |
198,673 |
765,159 |
230,961 |
101,628 |
1,097,748 |
| Terry Linde(1) |
— |
— |
— |
— |
— |
— |
— |
| Eric Caba(1) |
— |
— |
— |
— |
— |
— |
— |
| 1. |
Messrs. Linde and Caba do not participate in any
retirement arrangements sponsored by Hudbay. |
Defined Contribution Plan — Supplemental
Pension Plan(1)
| Name |
Accumulated value at
start of year ($) |
Compensatory ($) |
Accumulated value at
year end ($) |
| Alan Hair |
1,397,223 |
0 |
1,423,902 |
| David S. Bryson |
— |
— |
— |
| Cashel A. Meagher |
— |
— |
— |
| Eric Caba |
— |
— |
— |
| Terry Linde |
— |
— |
— |
| 1. |
Under the supplemental pension plan, the NEOs may make a
one-time irreversible election to receive all or a portion of their future
annual incentive bonuses as supplementary pension credits. See “Elements
of Executive Compensation — Retirement Benefits.” |
Director Compensation
Our director compensation program compensates non-executive
directors (for purposes of this section, “Directors”) for the time and effort
they are expected to devote to company matters. Executive directors (currently
only our CEO) are compensated in their capacity as executives only.
The compensation arrangements for our Directors include a
combination of cash retainers, equity-based retainers payable in DSUs and
meeting fees. The amount of such retainers and fees payable in a calendar year
are described below. These retainers and fees were approved by the Board
effective January 1, 2015 and have not been increased since that date.
| Position |
Annual Cash
Retainer $ |
Annual Equity-Based
Retainer (1) |
Board or Committee
Meeting Fee(2)(3) $ |
| Chairman |
167,500 |
167,500 |
- |
| Director (other than Chairman) |
50,000 |
80,000 |
1,500 |
| Chair, Audit Committee |
40,000 |
- |
1,500 |
| Chair, Compensation Committee |
20,000 |
- |
1,500 |
| Chair, other Committee of the Board |
10,000 |
- |
1,500 |
| Member, Committee |
- |
- |
1,500 |
50 | HUDBAY
MINERALS INC.
| 1. |
Payable in DSUs. |
| 2. |
Payable for meetings attended in person or via
teleconference. |
| 3. |
Directors whose travel time within North America to
attend a Board or Committee meeting is more than four hours are also
entitled to a travel fee of $1,500 per meeting. Directors who are required
to travel to or from Peru for a Board or Committee meeting are entitled to
a travel fee of $6,000 per meeting. |
Equity-based compensation for our Directors is awarded in the
form of deferred share units (DSUs). As with the share units payable to our
NEOs, DSUs, which are granted pursuant to our Directors’ Deferred Share Unit
Plan, track the value of the Hudbay Shares. DSUs are vested at the time of grant
but they are not paid out until a Director departs from the Board, at which time
they are paid out in cash equal to the number of DSUs held multiplied by the
price of the Hudbay Shares at the time the DSUs are paid. Ensuring that
Directors have an equity interest in Hudbay helps to align the interests of our
Directors with the long-term interests of our shareholders and is consistent
with our desire to implement best practices in our compensation programs. To
further align their interests with those of our shareholders, Directors may
elect to have all or a portion of their cash retainer and meeting fees payable
to them in DSUs.
Our Chairman’s compensation is based on a flat retainer of
$335,000 (without an entitlement to meeting fees), which is split evenly between
cash and DSUs. The Compensation Committee believes that paying the Chairman
meeting fees would not adequately account for the significant amount of time he
spends on company matters outside of formal board meetings and the flat fee
enables him to be compensated for his overall contribution as Chairman.
Director Compensation Table
The following table sets out the compensation paid to each of
our Directors in respect of the year ended December 31, 2016.
| Name |
Fees earned (1) ($) |
Share-based
awards (2)
($) |
All other
compensation (3)
($) |
Total ($) |
| Tom A. Goodman |
111,000 |
80,000 |
661 |
191,661 |
| Igor Gonzales |
93,500 |
80,000 |
505 |
174,005 |
| Alan R. Hibben |
- |
187,500 |
2,634 |
190,134 |
| W. Warren Holmes |
180,500 |
167,500 |
4,040 |
352,040 |
| Sarah B. Kavanagh |
135,000 |
80,000 |
505 |
215,505 |
| Carin S. Knickel |
- |
179,500 |
544 |
180,044 |
| Alan J. Lenczner |
95,000 |
80,000 |
1,018 |
176,018 |
| Kenneth G. Stowe |
94,500 |
80,000 |
816 |
175,316 |
| Michael T. Waites |
- |
172,000 |
905 |
172,905 |
| 1. |
Represents fees and retainers paid in cash. Directors can
elect to have all or a portion of their cash retainers and meeting fees
paid to them in DSUs. |
| 2. |
Represents fees and retainers paid in DSUs. The DSUs are
vested at the time of grant and become payable to the directors upon their
departure from the Board. |
| 3. |
Represents amounts paid in additional DSUs as dividend
equivalents following the payment of our $0.01 per share dividend on March
31, 2016 and $0.01 per share dividend on September 30,
2016. |
2017 MANAGEMENT INFORMATION CIRCULAR | 51
Value on Pay-Out or Vesting of Incentive Plan Awards
Name
|
Option-based awards — Value
vested during the year ($) |
Share-based awards —
Value
vested during the year ($)(1) |
| Tom A. Goodman |
— |
80,000 |
| Igor Gonzales |
— |
80,000 |
| Alan R. Hibben |
— |
187,500 |
| W. Warren Holmes |
— |
167,500 |
| Sarah B. Kavanagh |
— |
80,000 |
| Carin S. Knickel |
— |
179,500 |
| Alan J. Lenczner |
— |
80,000 |
| Kenneth G. Stowe |
— |
80,000 |
| Michael T. Waites |
— |
172,000 |
| 1. |
Represents the amount of DSUs granted to each director in
respect of 2016 pursuant to our Directors’ DSU plan (excluding amounts
paid in additional DSUs as dividend equivalents). DSUs are considered
vested at the time of grant. For greater certainty, DSUs are not paid out
until a Director departs from the Board. No share options have been
granted to the current Directors and, accordingly, none of the Directors
hold unvested equity awards. |
Outstanding Share-Based Awards
The following table provides information regarding the
share-based awards for each director outstanding as of December 31, 2016.
| Name |
Grant Date |
Number of
securities underlying options at the date of
grant (#) |
Number of
securities underlying unexercised options (#) |
Option exercise
price ($) |
Option
expiration date |
Value of
unexercised in-the- money (1) options
($) |
Number of shares
or units of shares that have not vested (#) |
Market or payout
value of share- based awards that have not
(1) vested ($) |
Market or payout value
of vested share-based awards not paid out or
(1) distributed ($) |
Tom A. Goodman(2)
|
12-Mar-2007
20-Mar-2008 |
75,000
50,000 |
75,000
50,000 |
20.80
15.86 |
12-Mar-2017
20-Mar-2018 |
0.00 |
- |
- |
314,356 |
| Igor Gonzales |
- |
- |
- |
- |
- |
- |
- |
- |
254,249 |
| Alan R. Hibben |
- |
- |
- |
- |
- |
- |
- |
- |
1,148,130 |
| W. Warren Holmes |
- |
- |
- |
- |
- |
- |
- |
- |
1,681,348 |
| Sarah B. Kavanagh |
- |
- |
- |
- |
- |
- |
- |
- |
254,249 |
| Carin S. Knickel |
- |
- |
- |
- |
- |
- |
- |
- |
333,936 |
| Alan J. Lenczner |
- |
- |
- |
- |
- |
- |
- |
- |
451,711 |
| Kenneth G. Stowe |
- |
- |
- |
- |
- |
- |
- |
- |
374,201 |
| Michael T. Waites |
- |
- |
- |
- |
- |
- |
- |
- |
468,963 |
| 1. |
Based on the closing price of Hudbay Shares on the
Toronto Stock Exchange of $7.68 on December 30, 2016. |
| 2. |
The option-based awards were made to Mr. Goodman during
his tenure as an executive officer of Hudbay. |
52 | HUDBAY
MINERALS INC.
Equity Ownership Guidelines for Directors
The Corporate Governance Guidelines adopted by the Board impose
minimum equity ownership requirements on the directors, pursuant to which each
director will be required to acquire Hudbay Shares or DSUs having an initial
acquisition or grant date value equal to three times the aggregate value of his
or her annual cash and equity retainer. For the purpose of determining the value
of shares and share units held, the holdings will be based on the cost of
acquisition or value at the time of grant. Directors are expected to achieve
this level of ownership within five years from the date they become directors.
The Directors’ progress in meeting our equity ownership guidelines as at March
15, 2017 is shown in the following table:
Name
|
Value of Equity
Required ($)
|
Total Equity
Ownership(1)($)
|
Target
Achieved?(2)
|
| Tom A. Goodman |
390,000 |
462,227 |
Yes |
| Igor Gonzales |
390,000 |
245,931 |
On track (3) |
| Alan R. Hibben |
390,000 |
1,530,513 |
Yes |
| W. Warren Holmes |
1,005,000 |
2,200,888 |
Yes |
| Sarah B. Kavanagh |
390,000 |
245,931 |
On track (4) |
| Carin S. Knickel |
390,000 |
297,092 |
On track(5) |
| Alan J. Lenczner |
390,000 |
639,127 |
Yes |
| Kenneth G. Stowe |
390,000 |
508,906 |
Yes |
| Michael T. Waites |
390,000 |
645,745 |
Yes |
| 1. |
Includes the grant date value of share units and DSUs
held and the acquisition value of common shares held. |
| 2. |
Directors are expected to achieve their level of
ownership within five years from the date they became directors. When
there is an increase to the annual retainer, directors are required to
achieve the increased minimum equity ownership level within two years of
the effective date of the increase in the annual retainer. |
| 3. |
Mr. Gonzales has until July 2018 to achieve his initial
required ownership and, due to an increase in the cash and equity
retainers on January 1, 2015, Mr. Gonzales has until July 2020 to achieve
his additional required ownership. |
| 4. |
Ms. Kavanagh has until July 2018 to achieve her initial
required ownership and, due to an increase in the cash and equity
retainers on January 1, 2015, Ms. Kavanagh has until July 2020 to achieve
her additional required ownership. |
| 5. |
Ms. Knickel has until May 2020 to achieve her required
ownership. |
| EQUITY COMPENSATION PLAN INFORMATION
|
The following table provides information concerning our equity
compensation plans as at December 31, 2016.
| Plan
Category |
Number of securities to be issued upon
exercise of outstanding options, warrants and rights
(2) |
Weighted average exercise price of
outstanding options, warrants and rights(3)
($) |
Number of securities remaining available for
future issuance under equity compensation plans
(2) |
| Equity compensation plans approved by
securityholders(1) |
4,962,785 |
19.24 |
11,415,642 |
| Equity compensation plans not approved by
securityholders |
- |
- |
- |
| Total |
4,962,785 |
19.24 |
11,415,642
|
| 1. |
Includes the Share Option Plan and LTEP, as approved by
our shareholders at our 2008 and 2016 annual and special meetings,
respectively. |
| 2. |
Assumes that all of the outstanding share units under our
LTEP will be settled by the issuance of Hudbay Shares. |
| 3. |
Represents the weighted average exercise price of the
outstanding options under our Share Option
Plan. |
2017 MANAGEMENT INFORMATION CIRCULAR | 53
If all of the outstanding options as at December 31, 2016 were
exercised, the Hudbay Shares issued upon such exercise would have represented
approximately 0.62% of our issued and outstanding Hudbay Shares as at such date.
If all of the 3,492,408 outstanding share units under our LTEP as at December
31, 2016 were settled by the issuance of Hudbay Shares, the Hudbay Shares issued
upon such settlement would have represented approximately 1.47% of our issued
and outstanding Hudbay Shares as at such date.
| INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
|
None of our directors or executive officers are aware of any
material interest, direct or indirect, of any person who: (i) has been a
director or executive officer of Hudbay at any time since January 1, 2016; (ii)
is a proposed nominee for election; or (iii) is an associate or affiliate of any
person described in (i) or (ii), in any of the matters to be acted upon at the
Meeting other than the election of directors.
| INDEBTEDNESS OF DIRECTORS AND EXECUTIVE OFFICERS
|
None of our current or former directors, executive officers or
employees or those of any of our subsidiaries had any indebtedness outstanding
to Hudbay or any of our subsidiaries during the year ended December 31, 2016 or
as at the date hereof. Additionally, Hudbay has not provided any guarantee,
support agreement, letter of credit or other similar arrangement or undertaking
in respect of any indebtedness of any such person to any other person or entity.
| INTEREST OF INFORMED PERSONS IN MATERIAL TRANSACTIONS
|
To the knowledge of the directors and executive officers of
Hudbay, no “informed person”, any proposed nominee or any associate or affiliate
of any informed person or proposed nominee, has had any material interest,
direct or indirect, in any transaction since January 1, 2016, or has had any
such interest in any proposed transaction that has materially affected us or
would materially affect us or any of our subsidiaries. “Informed Person” means
(a) a director or executive officer of Hudbay, (b) a director or executive
officer of a person or company that is itself an informed person or subsidiary
of Hudbay, (c) any person or company who beneficially owns, or controls or
directs, directly or indirectly, Hudbay Shares carrying more than 10% of the
voting rights attached to all of the Hudbay Shares, and (d) Hudbay, if we have
purchased, redeemed or otherwise acquired any of our securities, for so long as
we hold any of our securities.
| DIRECTORS’ AND OFFICERS’ INSURANCE AND INDEMNIFICATION
|
We have purchased insurance for the benefit of the directors
and officers of Hudbay and its subsidiaries against any liability incurred by
them in their capacity as directors and officers, subject to certain limitations
contained in the Canada Business Corporations Act. The annual premium for such
insurance is US$619,700. The policy provides an annual aggregate coverage limit
of US$60 million in the policy year.
In accordance with the provisions of the Canada Business
Corporations Act, our By-law provides that we will indemnify a director or
officer, a former director or officer, or another individual who acts or acted
at our request as a director or officer, or an individual acting in a similar
capacity, of another entity, against all costs, charges and expenses, including
an amount paid to settle an action or to satisfy a judgment, reasonably incurred
in respect of any civil, criminal, administrative, investigative or other
proceeding to which the individual is involved because of the association with
us or other entity, if:
|
• |
the individual acted honestly and in good faith with a
view to our best interests or, as the case may be, to the best interests
of the other entity for which the individual acted as a director or
officer or in a similar capacity at our request; and |
54 | HUDBAY
MINERALS INC.
| • |
in the case of a criminal or administrative action or
proceeding that is enforced by a monetary penalty, the individual has
reasonable grounds for believing that the individual’s conduct was lawful.
|
We have entered into indemnification agreements with each of
our directors and officers, which agreements provide that we undertake and agree
to indemnify the director or officer to the fullest extent permitted by law,
against any reasonable expense that the director may suffer or incur in respect
of any claim, action, suit or proceeding (including, without limitation, any
claim, demand, suit, proceeding, inquiry, hearing, discovery or investigation
whether civil, criminal, administrative or investigative and whether brought by
or on behalf of us or otherwise) involving the director or officer or to which
the director or officer is made party and which arises as a direct or indirect
result of the director or officer being or having been a director or officer of
Hudbay, including any act or thing done or not done in the director’s capacity
as director or officer provided the director has acted as set out above in
accordance with our By-law.
If we become liable under the terms of our By-law or the
indemnification agreements, the insurance coverage will extend to such
liability; however, each claim will be subject to a deductible of
US$500,000.
| WHERE YOU CAN FIND ADDITIONAL INFORMATION
|
We file reports and other information with the Canadian
Securities Administrators. These reports and information are available to the
public free of charge on SEDAR at www.sedar.com and on EDGAR at www. sec.gov.
Financial information is provided in our audited comparative consolidated
financial statements and management’s discussion and analysis for the year ended
December 31, 2016, which can be found on SEDAR at www.sedar.com and on EDGAR at
www.sec.gov. Our shareholders may also request copies of these documents from
our Vice President and General Counsel by telephone at (416) 362-8181 or by
e-mail at info@hudbay.com.
2017 MANAGEMENT INFORMATION CIRCULAR | 55
The contents of this Circular and the sending thereof to our
shareholders have been approved by the of Directors of Hudbay Minerals Inc.
By Order of the Board of Directors
W. Warren Holmes, Chairman
March 31, 2017
56 | HUDBAY
MINERALS INC.
HUDBAY MINERALS INC.
(the “Company”)
CORPORATE GOVERNANCE
GUIDELINES AND BOARD MANDATE
_______________________________
Introduction
The Board of Directors is committed to fulfilling its statutory
mandate to supervise the management of the business and affairs of the Company
with the highest standards of ethical conduct and in the best interests of the
Company and its shareholders. The Board of Directors, acting on the
recommendation of its Corporate Governance and Nominating Committee, has adopted
these corporate governance guidelines to promote the effective functioning of
the Board of Directors and its committees, to promote the interests of
shareholders, and to establish a common set of expectations as to how the Board
of Directors, its various committees, individual directors and senior management
should perform their functions.
Guidelines
Board of Directors’ Responsibilities
The business and affairs of the Company are managed by or under
the supervision of the Board of Directors in accordance with applicable
legislation, regulatory requirements and policies of the Canadian Securities
Administrators. The responsibility of the Board of Directors is to provide
direction and oversight. The Board of Directors approves the strategic direction
of the Company and oversees the performance of the Company's business and senior
management. The senior management of the Company is responsible for presenting
strategic plans to the Board of Directors for review and approval and for
implementing the Company's strategic direction.
In performing their duties, the primary responsibility of the
directors is to exercise their business judgment in what they reasonably believe
to be the best interests of the Company. In discharging that obligation,
directors should be entitled to rely on the honesty and the integrity of the
Company's senior management and outside advisors and auditors. The directors
also should be entitled to have the Company purchase reasonable directors' and
officers' liability insurance on their behalf, and to the benefits of
indemnification to the fullest extent permitted by applicable law and to
exculpation as provided by applicable law.
In fulfilling its statutory mandate and discharging its duty of
stewardship of the Company, the Board of Directors assumes responsibility for
those matters set forth in its Charter (which also is its mandate), a copy of
which is attached as Schedule 1.
Board of Directors’ Size
It is the current view of the Board of Directors that the Board
of Directors should consist of no more than 13 members to facilitate its
effective functioning.
Chairman of the Board of Directors
The Chairman should be a director who is independent and not a
member of senior management who is appointed by the Board of Directors.
2017 MANAGEMENT INFORMATION CIRCULAR | 57
Board Selection and Diversity
The Corporate Governance and Nominating Committee is responsible for identifying and recommending to the Board of Directors individuals qualified to become members of the Board of Directors. In assessing individual director nominees, the Corporate
Governance and Nominating Committee considers:
-
relevant skills and expertise in areas including leadership, mining, finance and mergers and acquisitions, operations, international business, government relations, environment, health, safety and sustainability, human resources and executive
compensation, corporate governance, risk management, marketing and legal and regulatory,
-
judgment and character,
-
diversity, including diversity of gender, viewpoints, backgrounds, experiences and other demographics, and
-
the extent to which the interplay of an individual’s expertise, skills, knowledge and experience with that of other members of the Board of Directors will build a board that is effective, diverse, collegial and responsive to the needs of the
Company.
The Corporate Governance and Nominating Committee will review the Board of Directors’ skills matrix to help identify areas for strengthening the Board of Directors, if any, and address them through the recruitment of new members. In addition
to its own search for director nominees, the Corporate Governance and Nominating Committee may engage experienced and independent external consultants. When engaging the services of search consultants, the Corporate Governance and Nominating
Committee instructs them to have broad selection criteria that include a mix of skills and expertise, and to identify candidates who are diverse in all aspects, including gender.
The Corporate Governance and Nominating Committee also will be responsible for initially assessing whether a candidate would be independent (and in that process applying the Categorical Standards for Determining Independence of Directors that are
appended to the Board of Directors Charter) and advising the Board of Directors of that assessment.
The Board of Directors, taking into consideration the recommendations of the Corporate Governance and Nominating Committee, will be responsible for selecting the nominees for election to the Board of Directors, for appointing directors to fill
vacancies, and determining whether a nominee or appointee is independent.
Election of Directors
Each director should be elected by the vote of a majority of the shares represented in person or proxy at any meeting for the election of directors. If any nominee for election as director receives, from the shares voted at the meeting in person or
by proxy, a greater number of votes “withheld” than votes “for” his or her election, the director must immediately tender his or her resignation to the Chairman of the Board of Directors following the meeting, to take effect
upon acceptance by the Board of Directors. The Corporate Governance and Nominating Committee will expeditiously consider the director’s offer to resign and make a recommendation to the Board of Directors whether to accept that offer. The
Board of Directors will accept the offer to resign absent exceptional circumstances and within 90 days of the meeting of shareholders, the Board of Directors will make a final decision concerning the acceptance of the director’s resignation
and announce that decision by way of a news release. Any director who tenders his or her resignation will not participate in the deliberations of the Board of Directors or any of its committees pertaining to the resignation. This process applies
only in circumstances involving an “uncontested” election of directors – where the number of director nominees does not exceed the number of directors to be elected and where no proxy materials are circulated in support of one or
more nominees who are not part of the slate supported by the Board of Directors for election at the meeting. If any director fails to tender his or her resignation as contemplated in this paragraph, the Board of Directors will not re-nominate that
director. Subject to any corporate law restrictions, where the Board of Directors accepts the offer of resignation of a director and that director resigns, the Board of Directors may exercise its discretion with respect to the resulting vacancy and
may, without limitation, leave the resultant vacancy unfilled until the
next annual meeting of shareholders, fill the vacancy through the appointment of a new director whom the Board of Directors considers to merit the confidence of the shareholders, or call a special meeting of shareholders to elect a new nominee to
fill the vacant position.
58 | HUDBAY
MINERALS INC.
Continuation as a Director
The Board of Directors does not believe it is appropriate to have an arbitrary age or term limit for service on the Board. Instead, the Board will focus on renewal and will be vigilant in monitoring the performance of each director and ask directors
who are no longer able to contribute effectively due to age or other factors to step down from the Board.
When a director's principal occupation or business association changes substantially from the position he or she held when originally invited to join the Board of Directors (determined by reference to factors such as country of principal residence,
industry affiliation, etc.), that director should tender a letter of proposed resignation to the Chair of the Corporate Governance and Nominating Committee. The Corporate Governance and Nominating Committee will review that director's continuation
on the Board of Directors and recommend to the Board of Directors whether, in light of all the circumstances, the Board of Directors should accept the proposed resignation or request that the director continue to serve.
Committee Membership
Each of the Audit Committee, the Compensation Committee, the Corporate Governance and Nominating Committee, the Environmental, Health, Safety and Sustainability Committee and the Technical Committee will be composed of no fewer than three members,
each of whom will satisfy the membership criteria set out in the relevant committee charter. Members of committees will be appointed by the Board of Directors upon the recommendation of the Corporate Governance and Nominating Committee. The Board
of Directors, taking into account the recommendation of the Corporate Governance and Nominating Committee, generally will designate one member of each committee as chair of that committee. Membership on these committees, including the person serving
as Chair, should be changed from time to time in order to allow for new perspectives, keeping in mind the skills required to serve on each committee. Membership on these committees, including the person serving as Chair, should be changed from time
to time in order to allow for new perspectives, keeping in mind the skills required to serve on each committee.
Evaluating Board of Directors and Committee Performance
The Board of Directors and each committee under the guidance and direction of the Corporate Governance and Nominating Committee will:
-
Conduct an annual self-evaluation; and
-
Periodically review and assess the adequacy of its Charter and the position description for the Chairman and recommend any improvements to the Corporate Governance and Nominating Committee for recommendation to the Board of Directors.
Authority to make minor technical amendments to the Charters may be made by the head of the Legal group, who will report any such amendments to the Board of Directors, or the relevant committee, at its next regular meeting.
Board of Directors and Committee Meetings
Quorum for the transaction of business at any meeting of the Board of Directors or committee, as the case may be, shall be a majority of the number of members or such greater number as the Board or committee shall by resolution determine. The powers
of the board or committee, as the case may be, may be exercised at a meeting at which a quorum is present in person or by telephone or other electronic means or by a resolution signed by all members entitled to vote on that resolution. Each member
(including the Chair) is entitled to one (but only one) vote in any proceedings.
2017 MANAGEMENT INFORMATION CIRCULAR | 59
Meetings of the Board of Directors or committee, as the case may be, shall be held from time to time and at such place as a member of the Board of committee may request upon 48 hours prior notice. The notice period may be waived by a quorum of the
Board or the committee.
To ensure free and open discussion and communication among directors, the independent directors will meet in executive session (with no members of senior management or non-independent directors present) after every regularly scheduled meeting of the
Board of Directors and otherwise as those directors determine. The Chairman will preside at these executive sessions, unless the directors present at such meetings determine otherwise. Any interested party may communicate directly with the
Chairman, who may invite such person to address an executive session.
Unless the Chair of a committee otherwise determines, the agenda, materials and minutes for each committee meeting will be available on request to all directors, and all directors will be free to attend any committee meeting. All meetings of a
committee will have a session in which the members of the committee will meet with no non-committee members present and, at any time in a meeting of a committee, directors who are not members may be asked to leave the meeting to ensure free and open
discussion and communication among members of the committee. Directors who are not members of a committee will not be compensated for attending meetings of that committee.
Director Compensation
As provided for in the Compensation Committee’s Charter, the form and amount of director compensation will be determined by the Board of Directors upon the recommendation of the Compensation Committee.
Share Ownership Guidelines
Each director is required to acquire common shares of the Company having an initial acquisition value equal to three times his or her annual retainer. Directors are expected to achieve this level of ownership within five years from the date they
become directors. Directors may apply the deferred share units that they receive as payment for all or part of their annual retainer towards this minimum equity ownership requirement. If the annual retainer is increased, all directors are required
to achieve the increased minimum equity ownership level within two years of the effective date of the increase in the annual retainer. For greater certainty, the determination as to whether a director has met this minimum equity ownership level will
be made with reference to the value of the common shares (or deferred share units) at the time of their acquisition, and not the then current market price.
Expectations of Directors
The Board of Directors has developed a number of specific expectations of directors to promote the discharge by the directors of their responsibilities and to promote the efficient conduct of the Board of Directors.
Commitment and Attendance. All directors should strive to attend all meetings of the Board of Directors and the committees of which they are members. Attendance by telephone or video conference may be used when necessary to facilitate a
director's attendance.
Participation in Meetings. Each director should be sufficiently familiar with the business of the Company, including its financial statements and capital structure, and the risks and the competition it faces, to ensure active and effective
participation in the deliberations of the Board of Directors and of each committee on which he or she serves.
Loyalty and Ethics. In their roles as directors, all directors owe a duty of loyalty to the Company. This duty of loyalty mandates that the best interests of the Company take precedence over any other interest possessed by a director.
Directors should conduct themselves in accordance with the Company's Code of Business Conduct and Ethics.
60 | HUDBAY
MINERALS INC.
Interlocking Directorships. Without the approval of the
Corporate Governance and Nominating Committee, no director should serve on more
than one other public company board of directors on which another director of
the Company serves.
Contact with Senior Management and Employees. All
directors should be free to contact the Chief Executive Officer and other
members of the Company’s senior management at any time to discuss any aspect of
the Company's business. The Board of Directors expects that there will be
frequent opportunities for directors to meet with the Chief Executive Officer
and other members of senior management in meetings of the Board of Directors and
committees, or in other formal or informal settings.
Confidentiality. The proceedings and deliberations of
the Board of Directors and its committees are confidential. Each director will
maintain the confidentiality of information received in connection with his or
her service as a director.
Orientation and Continuing Education
Senior management, working with the Board of Directors, will
provide appropriate orientation and education for new directors to familiarize
them with the Company and its business, as well as the expected contribution of
individual directors. All new directors will participate in this program
orientation and education, which should be completed within four months of a
director first joining the Board of Directors. In addition, senior management
will schedule periodic presentations for the Board of Directors to ensure they
are aware of major business trends and industry practices as and when required.
Shareholder Engagement
The Board of Directors is committed to engaging in constructive
communications with the Company’s shareholders. As a result, the Board of
Directors, acting on the recommendation of the Corporate Governance and
Nominating Committee, has adopted a Shareholder Engagement Policy in order to
promote open and sustained dialogue with the Company’s shareholders.
2017 MANAGEMENT INFORMATION CIRCULAR | 61
HUDBAY MINERALS INC.
(the “Company”)
BOARD OF DIRECTORS
CHARTER
The Board of Directors is elected by the Company’s shareholders
to supervise the management of the business and affairs of the Company, in the
best interests of the Company. The Board of Directors shall:
| • |
Review and approve the strategic plan and business
objectives of the Company that are submitted by senior management and
monitor the implementation by senior management of the strategic plan.
During at least one meeting each year, the Board of Directors will review
the Company’s long term strategic plans and the principal issues that the
Company expects to face in the future. |
| • |
Review the principal strategic, operational, reporting
and compliance risks for the Company and oversee, with the assistance of
the Audit Committee, the implementation and monitoring of appropriate risk
management systems and the monitoring of risks. |
| • |
Ensure, with the assistance of the Corporate Governance
and Nominating Committee, the effective functioning of the Board of
Directors and its committees in compliance with the corporate governance
requirements of applicable legislation, and that such compliance is
reviewed periodically by the Corporate Governance and Nominating
Committee. |
| • |
Ensure internal controls and management information
systems for the Company are in place and are evaluated and reviewed
periodically on the initiative of the Audit Committee. |
| • |
Assess the performance of the Company’s senior
management, including monitoring the establishment of appropriate systems
for succession planning (including the development of policies and
principles for Chief Executive Officer selection and performance review
and policies regarding succession in an emergency or upon retirement of
the Chief Executive Officer) and for periodically monitoring the
compensation levels of such senior management based on determinations and
recommendations made by the Compensation Committee. |
| • |
Ensure that the Company has in place a policy for
effective communication with shareholders, other stakeholders and the
public generally. |
| • |
Review and, where appropriate, approve the
recommendations made by the various committees of the Board of Directors,
including, without limitation, to: select nominees for election to the
Board of Directors; appoint directors to fill vacancies on the Board of
Directors; appoint members of the various committees of the Board of
Directors; and, establish the form and amount of director compensation.
|
Composition
The Board of Directors should be diverse in gender, viewpoints,
backgrounds and other demographics and collectively should possess a broad range
of skills, expertise, industry and other knowledge, and business and other
experience useful to the effective oversight of the Company’s business. A
majority of the Board of Directors should meet the independence requirements of
applicable legislation, regulatory requirements and policies of the Canadian
Securities Administrators. The Board of Directors has adopted a set of
categorical standards for determining whether directors satisfy those
requirements for independence. A copy of those standards is attached as Appendix
A. The Board of Directors, upon the recommendation of the Corporate Governance
and Nominating Committee, shall designate the Chairman by majority vote of the
Board of Directors.
62 | HUDBAY
MINERALS INC.
Committees
The Board of Directors may delegate authority to individual
directors and committees where the Board of Directors determines it is
appropriate to do so. The Board of Directors expects to accomplish a substantial
amount of its work through committees and shall form at least the following four
committees: the Audit Committee, the Compensation Committee, and the Corporate
Governance and Nominating Committee and the Environmental Health, Safety and
Sustainability Committee. The Board of Directors may, from time to time,
establish or maintain additional standing or special committees as it determines
to be necessary or appropriate. Each committee should have a written charter and
should report regularly to the Board of Directors, summarizing the committee’s
actions and any significant issues considered by the committee.
Independent Advice
In discharging its mandate, the Board of Directors shall have
the authority to retain (and authorize the payment by the Company of) and
receive advice from special legal, accounting or other advisors as the Board of
Directors determines to be necessary to permit it to carry out its duties.
2017 MANAGEMENT INFORMATION CIRCULAR | 63
| HUDBAY MINERALS INC. |
| (the “Company”) |
| CATEGORICAL STANDARDS FOR |
| DETERMINING INDEPENDENCE |
| OF DIRECTORS |
| |
For a director to be considered independent under the policies
of the Canadian Securities Administrators, he or she must have no direct or
indirect material relationship with the Company, being a relationship that
could, in the view of the Board of Directors, reasonably interfere with the
exercise of a Director’s independent judgment.
The Board of Directors, upon the recommendation of the
Corporate Governance and Nominating Committee, has considered the types of
relationships that could reasonably be expected to be relevant to the
independence of a director of the Company. The Board of Directors has determined
that:
| 1. |
A director’s interests and relationships arising solely
from his or her (or any immediate family members’1)
shareholdings in the Company are not, in and of themselves, a bar to
independence. |
| 2. |
Unless a specific determination to the contrary is made
by the Corporate Governance and Nominating Committee as a result of there
being another direct or indirect material relationship with the Company, a
director will be independent unless currently, or at any time within the
past three years, he or she or any immediate family
member: |
| |
• |
Employment. Is (or has been) an officer or
employee (or, in the case of an immediate family member, an executive
officer) or (in the case of the director only) an affiliate 2
of the Company or any of its subsidiaries or affiliates
(collectively, the “Company Group”) or is actively involved in the
day-to-day management of the Company; |
| |
|
|
| |
• |
Direct Compensation. Receives (or has received)
direct compensation during any twelve-month period from the Company Group
(other than director fees and committee fees and pension or other forms of
deferred compensation for prior service, provided it is not contingent on
continued service)3; |
| |
|
|
| |
• |
Auditor Relationship. Is (or has been) a partner
or employee of a firm that is the Company’s internal or independent
auditor (provided that in the case of an immediate family member, he or
she participates in its audit, assurance or tax compliance (but not tax
planning practice)) and if during that time, he or she or an immediate
family member was a partner or employee of that firm but no longer is
such, he or she or the immediate family member personally worked on the
Company’s audit; |
| |
|
|
| |
• |
Material Commercial Relationship. Has (or has
had), or is an executive officer, employee or significant shareholder of a
person that has (or has had), a significant commercial relationship with
the Company Group. |
|
Notes: |
|
| 1. |
A (i) spouse, parent, child, sibling, mother-in-law,
father-in-law, son-in-law, daughter-in-law, brother-in-law, sister-in-law,
or (ii) any person (other than domestic employees) who shares that
director’s home. |
| 2. |
A company is a subsidiary of another company if it is
controlled, directly or indirectly, by that other company (through one or
more intermediaries or otherwise). An “Affiliate” of a person is a person
that, directly or indirectly through one or more intermediaries, controls,
or is controlled by, or is under common control with the first
person. |
| 3. |
Employment as an interim chair or an interim Chief
Executive Officer need not preclude a director from being considered
independent following the end of that employment. Receipt of compensation
by an immediate family member need not preclude a director from being
independent if that family member is a non-executive
employee. |
64 | HUDBAY
MINERALS INC.
| |
• |
Cross-Compensation Committee Link. Is employed as
an executive officer of another entity whose compensation committee (or
similar body) during that period of employment included a current
executive officer of the Company. |
| |
|
|
| |
• |
Material Association. Has (or has had) a close
association with an executive officer of the Company.
|
Notwithstanding the foregoing, no director will be considered
independent if applicable securities legislation, rules or regulations expressly
prohibit such person from being considered independent.
2017 MANAGEMENT INFORMATION CIRCULAR | 65
