SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, For Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
GOLD RESERVE CORPORATION
------------------------------------------------
(Name of Registrant as Specified in Its Charter)
NOT APPLICABLE
------------------------------------------------
(Name of Person(s) Filing Proxy Statement,
if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), or 14a-6(i), or Item
22(a)(2) of Schedule 14A.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act
Rule 11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
Fee paid previously with preliminary materials:
Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or Schedule
and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
GOLD RESERVE CORPORATION
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON
June 5, 1997
TO: THE SHAREHOLDERS OF GOLD RESERVE CORPORATION
The 1997 annual meeting of shareholders of GOLD RESERVE CORPORATION
(the "Company") will be held at the Yakima Valley Room of the Spokane
Convention Center, West 334 Spokane Falls Boulevard, Spokane,
Washington, on June 5, 1997 at 2:00 p.m., local time, for the
following purposes:
(1) To elect seven members to the board of directors of the Company
to hold such positions until the next annual meeting of
shareholders or until their successors are elected and have
qualified;
(2) To consider and approve an amendment to the Articles of
Incorporation to reduce the quorum required at shareholder
meetings from a majority of all outstanding shares to one-third
of all outstanding shares present in person or by proxy;
(3) To consider and approve an amendment to the Articles of
Incorporation to reduce the number of votes necessary to approve
a merger, share exchange, dissolution or sale of the Company's
assets out of the ordinary course of business from two-thirds of
the outstanding shares entitled to vote, to a majority of the
outstanding shares entitled to vote;
(4) To consider and approve an amendment to the Company's Articles of
Incorporation increasing the number of authorized shares of
capital stock from a total of 50,000,000 shares, to a total of
500,000,000 shares, of which 20,000,000 shares will be designated
preferred stock;
(5) To consider and approve the Company's Shareholder Rights Plan;
(6) To consider and approve the Company's 1997 Equity Incentive Plan
including the administration under the 1997 Plan of shares
subject to return under the Company's previously approved option
plans;
(7) To approve the purchase of common stock by the combined 401(k)
Salary Reduction Plan and Employee Stock Ownership Plan;
(8) To ratify the selection of Coopers & Lybrand L.L.P. as the
Company's independent auditor for the year ended December 31,
1997 and any interim period;
(9) To conduct any other business as may properly come before the
meeting or any adjournment thereof.
<PAGE>
Shareholders of record at the close of business on April 7, 1997 are
entitled to vote at the annual meeting and any adjournment(s) or
postponement(s) thereof. Whether or not you plan to attend the annual
meeting, please sign, date and return the enclosed proxy in the reply
envelope provided. The prompt return of your proxy will assist us in
preparing for the meeting.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Mary E. Smith
---------------------------------------------
Mary E. Smith, Secretary
<PAGE>
GOLD RESERVE CORPORATION
PROXY STATEMENT FOR
ANNUAL MEETING OF SHAREHOLDERS
To Be Held on June 5, 1997
This proxy statement is furnished in connection with the solicitation
of proxies by the board of directors of GOLD RESERVE CORPORATION, a
Montana corporation (the "Company"), for the 1997 annual meeting of
shareholders of the Company to be held at 2:00 p.m., local time, on
June 5, 1997, and any adjournment thereof. These proxy materials were
first mailed to shareholders on or about May 7, 1997.
The annual meeting will be held in the Yakima Valley Room of the
Spokane Convention Center, West 334 Spokane Falls Boulevard, Spokane,
Washington. The principal executive offices of the Company are located
at 1940 Seafirst Financial Center, Spokane, Washington 99201.
PURPOSE OF MEETING
------------------
The specific proposals to be considered and acted upon at the annual
meeting are summarized in the enclosed Notice of Annual Meeting of
Shareholders. Each of the proposals is described in more detail in
subsequent sections of this Proxy Statement.
VOTING RIGHTS AND SOLICITATIONS
-------------------------------
The Company's common stock is the only security entitled to vote at
the annual meeting. If you were a shareholder of record of common
stock of the Company at the close of business on April 7, 1997 (the
"record date"), you may vote at the annual meeting. On all matters
requiring a shareholder vote at the annual meeting, excluding the
election of directors, each shareholder is entitled to one vote, in
person or by proxy, for each share of common stock of the Company
recorded in his or her name. With respect to the election of
directors, each shareholder is entitled to cumulate his or her votes,
meaning that such shareholder can multiply the number of shares owned
by the number of Board positions to be filled (of which there are
seven), and allocate such votes for all or as many director-nominees
as he or she may designate.
On the record date, the number of shares of common stock of the
Company outstanding or deemed outstanding pursuant to options
presently exercisable was 24,568,065. The number of outstanding shares
of common stock of the Company eligible to be voted at the annual
meeting at such date was 22,813,021.
Pursuant to the Montana Business Corporation Act and the Company's
bylaws, the affirmative vote of the holders of a majority of the
shares present at the annual meeting, in person or by proxy, is
required to elect directors (Item 1) and approve Items 4, 5, and 8.
Approval of Item No 2 will require the affirmative vote, in person or
by proxy, of a majority of the outstanding shares as of the record
date. Approval of Item No. 3 will require the affirmative vote in
person or by proxy, of two-thirds of the shares of outstanding common
<PAGE>
stock as of the record date. Pursuant to the requirements of The
Toronto Stock Exchange ("TSE") on which the common stock of the
Company is listed for trading, the affirmative vote of the majority of
the shares present at the annual meeting, in person or by proxy, held
by disinterested persons is required to approve Items 6 and 7. As is
explained elsewhere in this Proxy Statement, certain executive
officers, directors and other affiliates of the Company (who owned an
aggregate of 1,622,758 shares of common stock as of the record date,
representing approximately 7.1% of the shares eligible to vote at the
annual meeting) will conditionally vote with respect to Items 6 and 7.
Abstentions and broker non-votes will be treated as present for
purposes of obtaining a quorum with respect to all matters to be
considered at the annual meeting, but will not be counted for or
against any of the proposals to be voted upon at the meeting.
If you are unable to attend the annual meeting, you may vote by proxy.
The enclosed proxy card is solicited by the board of directors of the
Company and when returned, properly completed, will be voted as you
direct on your proxy card. If the card is returned with no
instructions on how the shares are to be voted, shares represented by
such proxies will be voted FOR approval of Items 1 through 8.
You may revoke or change your proxy at any time before it is exercised
at the annual meeting. To do this, send a written notice of
revocation or another signed proxy bearing a later date to the
secretary of the Company at its principal executive office. You may
also revoke your proxy by giving notice and voting in person at the
annual meeting.
COSTS OF SOLICITATION
---------------------
The cost of soliciting proxies will be borne by the Company. In
addition, the Company will reimburse brokerage firms, custodians,
nominees and fiduciaries for their expenses in forwarding solicitation
material to beneficial owners. Proxies may also be solicited
personally or by telephone, telegram or facsimile by certain
representatives of the Company including directors, executive officers
and other employees, who will not receive additional compensation
therefor. The Company also intends to use the services of the Proxy
Solicitation Company, Ltd. and Allen Nelson & Co. to assist in the
solicitation of proxies. The total cost of proxy solicitation,
including legal fees and expenses incurred in connection with the
preparation of this Proxy Statement, is estimated to be $50,000.
THE COMPANY AND SUBSIDIARIES
----------------------------
Unless the context indicates otherwise, the term the "Company" used
throughout this Proxy Statement refers to Gold Reserve Corporation and
the following majority-owned subsidiaries: Great Basin Energies, Inc.
("Great Basin"); MegaGold Corporation ("MegaGold"); and wholly-owned
subsidiaries Compania Aurifera Brisas del Cuyuni, C.A. ("Brisas");
Gold Reserve de Venezuela, C.A. ("GLDRV"); Compania Minera Unicornio,
C.A. ("Unicorn"); Gold Reserve Holdings A.V.V.; Gold Reserve de Aruba
A.V.V.; G.L.D.R.V. Aruba A.V.V.; Glandon Company A.V.V.; GoldenLake
A.V.V.; Stanco Investments A.V.V.; and Mont Ventoux A.V.V.
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
The following table sets forth as of April 7, 1997 the names of, and
number of shares beneficially owned by, persons known to the Company
to own more than five percent (5%) of the Company's common stock; the
names of, and number of shares beneficially owned by each director and
executive officer of the Company; and the number of shares
beneficially owned by, all directors and executive officers as a
group. At such date, the number of shares of common stock of the
Company outstanding or deemed outstanding pursuant to options
presently exercisable and warrants (including 1,755,044 shares subject
to options exercisable within 60 days) was 24,568,065.
Name of Owner Beneficial Ownership (1) Percent of Class
----------------------- -------------------------- ----------------
Rockne J. Timm 988,572(5) 4.0%
A. Douglas Belanger 770,103(5) 3.1%
Patrick D. McChesney 137,262(5) *
Jean Charles Potvin 129,167 *
James H. Coleman 191,500 *
James P. Geyer 5,000 *
Robert A. McGuinness 141,997 *
Richard J. Kehmeier --- *
Mary E. Smith 1,000 *
----------------------------------------------------------------------
All directors and
executive officers
as a group (9 persons) 2,364,601 9.6%
======================================================================
Great Basin Energies,
Inc.(2) 391,161 1.6%
MegaGold Corporation(3) 125,083 *
Stanco Investments
A.V.V.(4) 177,118 *
BlueGrotto Trading
Ltd.(6) 1,198,400 4.9%
-------
*Less than 1%
(1) Includes common shares issuable pursuant to presently exercisable
common stock options as of the record date or common stock
options exercisable within 60 days of the record date as follows:
Mr. Timm 490,500, Mr. Belanger 433,500, Mr. McChesney 99,652, Mr.
Potvin 129,167, Mr. Coleman 181,666 and Mr. McGuinness 113,485.
Excludes common stock options not presently exercisable or
exercisible within 60 days as follows: Mr. Geyer 155,000, Mr.
McGuinness 67,500, Mr. Kehmeier 60,000 and Ms. Smith 21,000.
(2) Mr. Timm, Mr. Belanger, Mr. Coleman, Mr. McGuinness and Ms. Smith
are directors and/or officers of Great Basin Energies, Inc. and
own 6.8%, 4.0%, 1.7%, .6%, and 0%, respectively, of the
outstanding shares of Great Basin Energies, Inc. and may be
deemed indirectly to have an interest in the Company through
their respective interests in Great Basin Energies, Inc. Each of
the foregoing individuals disclaims any beneficial ownership of
common shares of the Company owned by Great Basin Energies, Inc.
<PAGE>
(3) Mr. Timm, Mr. Belanger, Mr. McChesney, Mr. Coleman, Mr.
McGuinness and Ms. Smith are directors and/or officers of
MegaGold Corporation and own 6.5%, 6.3%, 2.1%, 2.8%, .8%, and 0%
respectively, of the outstanding shares of MegaGold Corporation
and may be deemed indirectly to have an interest in the Company
through their respective interests in MegaGold Corporation. Each
of the foregoing individuals disclaims any beneficial ownership
of common shares of the Company owned by MegaGold Corporation.
(4) Company shares owned by Stanco Investments A.V.V. are held in
escrow and are voted by the escrow agent, Robert Kovacevich.
(5) Excludes for each of the named executive or director shares held
by independent trustees for the benefit of minor children as
follows: Mr. Timm 44,841 shares, Mr. Belanger 164,863 shares,
Mr. McChesney 24,921 shares and Mr. McGuinness 1,318 shares. Mr.
Timm, Mr. Belanger, Mr. McChesney and Mr. McGuinness disclaim any
beneficial ownership of common shares of the Company held by the
trustees for their minor children. The trustee holding the
shares for Mr. Timm's minor child is Chris Mikkelsen, who is also
a nominee for the position of director of the Company.
(6) Information relating to the beneficial ownership of Blue Grotto
Trading, Ltd. was obtained from the Company's stock transfer
agent, Transecurities International Inc.
DIRECTORS AND EXECUTIVE OFFICERS
--------------------------------
The names, ages, business experience (for at least the last five
years) and positions of the directors and executive officers of the
Company as of April 7, 1997 are set out below. The Company's board of
directors presently consists of five members. However, as stated in
Item No. 1, the board of directors has increased the number of
director positions from five to seven and shareholders will be allowed
to vote for seven directors at the annual meeting. All directors
presently serve until the next annual meeting of the Company's
shareholders or until their successors are elected and qualified.
Officers are appointed by the board of directors. There are no family
relationships among these officers, nor any arrangements or
understandings between any officer and any other person pursuant to
which the officer was elected.
Rockne J. Timm
President and Chief Executive Officer and Director - 51
--------------------------------------------------------
Mr. Timm became Treasurer and Director in March 1984, and became
President and Chief Executive Officer in August 1988. He was a
Director of Neptune Resources Inc. and its successor, Northwest Gold
Corp., from 1987 to 1993 and Vice President of Finance, Treasurer and
Chief Financial Officer of Pegasus Gold Inc. from 1981 to 1987. Mr.
Timm is also President and Director of Great Basin Energies, Inc.,
President and Director of MegaGold Corporation, and a director and
executive officer of each of the company's foreign subsidiaries. Mr.
Timm is a certified public accountant and resides in Spokane,
Washington.
<PAGE>
A. Douglas Belanger
Executive Vice President and Director - 44
------------------------------------------
Mr. Belanger became Executive Vice President in August 1988 and
Secretary from June 1993 through December 1996. He also serves as
Vice President and Director of Great Basin Energies, Inc., Vice
President and Director of MegaGold Corporation, and director and
executive officer of each of the company's foreign subsidiaries. Mr.
Belanger served as Vice President for corporate affairs of Pegasus
Gold Inc. from April 1982 to June 1987. Mr. Belanger resides in
Spokane, Washington.
Patrick D. McChesney
Director - 47
--------------------
Mr. McChesney was Vice President of Finance until March 1993 and was
Chief Financial Officer from August 1988 until June 1993. Since July
1987, Mr. McChesney's principal occupation has been as President of
Logue-McDonald Automation, Inc. Since March of 1996, Mr. McChesney
has also been the President of ALAMO Test Systems, Inc. He is also a
Director of MegaGold Corporation. From 1983 through June 1987, Mr.
McChesney was Controller of Pegasus Gold Inc. Mr. McChesney is a
certified public accountant and resides in Spokane, Washington.
Jean Charles Potvin
Director - 44
-------------------
Mr. Potvin became a Director in November 1993 and is also Director,
Chairman and Chief Executive Officer of Tiomin Resources Inc., and a
Director, President and Chief Executive Officer of Pangea Goldfields,
Inc. Prior to becoming a Director, Mr. Potvin was Senior Gold Mining
Analyst, a Vice President and a Director of Nesbitt Burns Inc.
(formerly Burns Fry Ltd.) a major Canadian investment dealer. Mr.
Potvin resides in Toronto, Ontario.
James H. Coleman, Director - 46
-------------------------------
Mr. Coleman became a Director in February 1994 and is a senior partner
and Chairman of the Executive Committee of the law firm of Macleod
Dixon of Calgary, Alberta, counsel to the Company. He is also a
Director of Total Resources (Canada) Limited, McCarthy Corporation
plc, Minven Inc., Energold Mining Ltd., Parys Mountain Mines Ltd.,
ENVIROX, Net Shepard Inc. and Anadime Corp. From 1989 to 1993 he was a
Director of Northwest Gold Corp. and from 1988 to 1995 was a Director
of Ranchmen's Resources Ltd.. Mr. Coleman resides in Calgary,
Alberta.
James P. Geyer
Senior Vice President - 44
--------------------------
Mr. Geyer became Senior Vice President in January of 1997. During the
previous ten years, Mr. Geyer was employed by Pegasus Gold, Inc., most
recently as Vice President of Operations. Mr. Geyer has twenty-four
years experience in underground and open pit mining and has held
various engineering and operations positions with AMAX and ASARCO.
Mr. Geyer has a Bachelor of Science degree in mining engineering from
the Colorado School of Mines. Mr. Geyer resides in Spokane,
Washington.
<PAGE>
Robert A. McGuinness
Vice President of Finance and Chief Financial Officer - 41
----------------------------------------------------------
Mr. McGuinness became Vice President of Finance in March 1993 and
Chief Financial Officer in June 1993. Mr. McGuinness is also Vice
President of Finance and Chief Financial Officer of Great Basin
Energies, Inc. and MegaGold Corporation. During the previous three
years, Mr. McGuinness was Vice President of Finance for Millisat
Holdings Incorporated. Prior to 1990, Mr. McGuinness served as a
financial officer for several domestic and internationally-based
companies specializing in electronics and biotechnology. Mr.
McGuinness is a certified public accountant and resides in Spokane,
Washington.
Richard J. Kehmeier
Vice President of Exploration - 49
----------------------------------
Mr. Kehmeier became Vice President of Exploration in November of 1996.
During the previous three years, Mr. Kehmeier was a geological
consultant to the mining industry. Mr. Kehmeier was Vice President of
Exploration for Atlas Corporation from 1990 to 1993. Prior to that
time, Mr. Kehmeier worked for Atlas in various field and management
positions. Mr. Kehmeier has a Bachelor of Science and a Masters of
Science in geological engineering and geology from the Colorado School
of Mines. He has over twenty-seven years of experience in mining and
exploration. He resides in Spokane, Washington.
Mary E. Smith
Vice President of Administration and Secretary - 44
---------------------------------------------------
Ms. Smith became Vice President of Administration and Secretary in
January 1997. During the previous 16 years, she was employed by
Pegasus Gold Corporation in several administrative positions and most
recently as Manager of Compensation and Benefits for Pegasus. She
resides in Colbert, Washington.
Section 16(a) Reporting Obligations.
------------------------------------
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") requires the Company's directors and executive
officers, and persons who own more than 10% of a registered class of
the Company's equity securities, to file initial reports of ownership
and reports of changes in ownership with the Securities and Exchange
Commission (the "Commission"). Such persons are required by
Commission regulations to furnish the Company with copies of all
Section 16(a) forms they file. Based solely on its review of copies of
reports made pursuant to Section 16(a) of the Exchange Act and related
regulations, the Company believes that during the year ended
December 31, 1996, all filing requirements applicable to its
directors, executive officers and 10% shareholders were satisfied.
<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation Table.
---------------------------
The following table discloses compensation received by the Company's
chief executive officer, executive vice president, and vice president
of finance/chief financial officer, for the years ended December 31,
1996, 1995 and 1994.
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
-------------------------------------- -------------------------------------
Securities
Dollar Value of Underyling
Other Annual Restricted Stock Options/ LTIP All Other
Executive Officer Year Salary Bonus Compensation Awards SAR(1) Payouts Compensation(2)
------------------------- ---- -------- -------- ------------ ---------------- ----------- ------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Rockne J. Timm 1996 $165,000 $ 56,700 - - 390,500 $ - $ 30,000
President and Chief 1995 150,000 45,000 - - 185,000 - 30,000
Executive Officer 1994 105,362 - - - 85,000 - 26,341
A. Douglas Belanger 1996 132,000 43,200 - - 353,500 - 30,000
Executive Vice 1995 120,000 38,000 - - 160,000 - 30,000
President 1994 87,028 - - - 75,000 - 21,757
Robert A. McGuinness 1996 93,000 28,925 - - 120,985 - 25,160
Vice President of 1995 74,938 25,313 - - 150,985 - 21,658
Finance and Chief 1994 80,412 - - - 65,000 - 10,052
Financial Officer
</TABLE>
(1) Consists of the number of shares of common stock of the Company
issuable to the named executive officers pursuant to options
held at the end of each reported period. For information
concerning the value of the unexercised portion of such options
at December 31, 1996, see the table appearing on the following
page of this Proxy Statement.
(2) Consists of the dollar value of common stock of the Company
purchased by the Company's combined 401(k) salary reduction plan
and employee stock ownership plan, known as the Gold Reserve KSOP
Plan, and allocated to the account of each named executive
officer during 1996, 1995 and 1994, respectively, as follows: Mr.
Timm - 5,581 shares, 4,880 shares, 10,241 shares; Mr. Belanger -
5,581 shares, 4,880 shares, 8459 shares; and Mr. McGuinness -
4,681 shares, 3,523 shares, 3,908 shares.
<PAGE>
Options Granted in 1996.
------------------------
The following table provides information on options granted during the
year ended December 31, 1996 to the named executive officers of the
Company.
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of Stock
Percent of Price Appreciation for
Number of Total Options Option Option Term
Options Granted to Exercise Expiration -----------------------
Executive Officer Granted(1) Employees(2) Price Date at 5% at 10%
---------------------- ---------- ------------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Rockne J. Timm 190,000 19.8% $ 5.63 1/3/06 $ 672,131 $1,703,512
President and Chief 19,500 2.0% 13.51 10/2/06 165,679 419,863
Executive Officer
A. Douglas Belanger 180,000 18.8% 5.63 1/3/06 636,755 1,613,624
Executive Vice 17,500 1.8% 13.51 10/2/06 148,686 376,800
President
Robert A. McGuinness 12,500 1.3% 13.51 10/2/06 106,205 269,143
Vice President of
Finance and Chief
Financial Officer
</TABLE>
(1) Options granted during the year ended December 31, 1996 were
authorized pursuant to the Company's Stock Option Plans and are
intended to qualify under Section 422A of the Internal Revenue
Code of 1986, as amended. In the case of Mr. Timm and Mr.
Belanger all such options were fully vested at date of grant. In
the case of Mr. McGuinness, shares vest ratably over 2 years.
Options are exercisable for shares of common stock of the
Company, at the exercise prices set forth in the table, for a
period of ten years, measured from the respective grant dates.
(2) During the year ended December 31, 1996, the Company granted
options for the purchase of 899,600 shares of common stock to
eligible participants under its incentive stock option plans.
<PAGE>
(3) The potential realizable value of the options has been calculated
according to prescribed regulations, and assumes the market price
of the underlying common stock appreciates in value from the date
such options were granted until the expiration date of the
options, at the specified annual compounded rates. Insofar as
such appreciation in potential realizable value is based on the
market price prevailing at the time such options were granted
(which is also the exercise price of the options), the foregoing
table does not set forth the value of the unexercised portion of
such options at December 31, 1996. Such value, measured as the
difference between the closing sales price of the common stock of
the Company at such date and the exercise price of the options,
is set forth on the following table.
Option Exercises and Option Values.
-----------------------------------
The following table provides information on options exercised during
the year ended December 31, 1996 by the named executive officers of
the Company and the value of such officers' unexercised options at
December 31, 1996.
<TABLE>
<CAPTION>
Shares Number of Value of Unexercised
Acquired Value Unexercised Options at In-The-Money Options at
Executive Officer on Exercise Realized(1) December 31, 1996(2) December 31, 1996(3)
--------------------- ----------- ----------- ---------------------- -----------------------
<S> <C> <C> <C> <C>
Rockne J. Timm
President and Chief 4,000 $ 33,890 390,500 $1,681,145
Executive Officer
A. Douglas Belanger
Executive Vice
President and 4,000 33,890 353,500 1,519,990
Secretary
Robert A. McGuinness
Vice President of
Finance and Chief 42,500 413,463 120,985 222,935
Financial Officer
</TABLE>
<PAGE>
(1) The value realized is measured by the difference between the
closing sales price of the Company's common stock at the date of
exercise and the exercise price of such options and does not
reflect shares, if any, which were not sold by such individuals
after exercise.
(2) All such options were presently exercisable at December 31, 1996
with the exception of 55,000 options held by Mr. McGuinness.
(3) At December 31, 1996, the closing sales price of the common stock
of the Company, as reported by The NASDAQ Stock Market, was
$9.563. The potential realizable value of such unexercised
options at December 31, 1996 is measured by the difference
between the closing sales price of the Company's common stock at
such date and the exercise price of such in-the-money options.
EMPLOYMENT CONTRACTS
The Company has entered into an employment agreement with James P.
Geyer, its Senior Vice President. Subject to certain exceptions, the
term of the agreement is for two (2) years commencing February 4,
1997. The agreement provides for an immediate benefit to Mr. Geyer
(the "employee") upon termination by the Company without cause, or for
termination by Mr. Geyer of his employment for "Good Reason" (as that
term is defined in the contract which can include events occurring
following a change in control) or upon the death or disability of the
employee. The agreement provides that the employee will receive a
lump sum amount equal to twenty four (24) months salary upon
termination for other than cause including termination for "Good
Reason." If the employee dies or is disabled, compensation equal to
three (3) months salary will be paid. The agreement also provides
that following termination other than for cause, including termination
for "Good Reason," other benefits, such as life and health insurance,
will be continued for a period of twelve months or until replaced by
benefits of a similar nature by a new employer. The Company will
likely enter into similar agreements with its other officers during
1997.
Compensation Committee Interlocks and Insider Participation.
------------------------------------------------------------
The Company's compensation program was jointly administered during
1996 by an Executive Remuneration Committee, described below, and by
the Compensation Committee of the board of directors of the Company,
composed of Mr. Coleman and Mr. Potvin. The primary function of the
Executive Remuneration Committee during the year was to review and
evaluate the fairness of the recommendations of management and the
Compensation Committee of the Board for awards of equity-based
compensation to the Company's executive officers and directors
pursuant to the Company's stock option plans. The function of the
Compensation Committee of the Board in respect of such compensation
matters during the year was to evaluate the Company's performance and
the performance of its executive officers, and to determine and
approve the cash compensation and equity-based compensation of such
executive officers, taking into account the views of the Executive
Remuneration Committee. One member of the Executive Remuneration
Committee, Mark D. Bantz, is also a director of MegaGold Corporation,
a subsidiary of the Company.
<PAGE>
Directors' Compensation.
------------------------
Directors of the Company each received compensation in the amount of
$20,000, in 1996. The law firm of Macleod Dixon, of which Mr. Coleman
is a partner, was paid approximately $149,000 during the year for
legal services rendered on behalf of the Company. Mr. McChesney, Mr.
Potvin and Mr. Coleman were granted options during the year to
purchase 27,500, 27,500 and 50,000 shares of common stock,
respectively.
Description of Incentive Stock Option and Employee Stock
Ownership Plans.
--------------------------------------------------------
The Company currently maintains three stock option plans, the 1985
Stock Option Plan, the 1992 Stock Option Plan and the 1994 Stock
Option Plan. As discussed in greater detail below, subject to
shareholder approval of the 1997 Equity Incentive Plan, the 1985, 1992
and 1994 plans will be terminated and the Executive Remuneration
Committee will be replaced as the mechanism for administering the 1997
Equity Incentive Plan. All plans provide for the issuance of
incentive stock options intended to qualify under Section 422A of the
Internal Revenue Code of 1986, as amended (the "Code"), and options
that are not qualified under the Code. Key individuals of the Company
and its subsidiaries, including officers and directors who are also
employees, are eligible to receive grants of options under the plans.
All options under the 1985, 1992 and 1994 Plans are exercisable at
prices equivalent to the average of the closing bid and ask sales
prices of the common stock, as reported by the NASDAQ Stock Market and
the TSE as of the date of grant.
At April 7, 1997, all options had been granted under the prior stock
option plans. At such date, options for the purchase of 32,000
shares, 400,037 shares and 1,737,974 shares granted under the 1985,
1992 and 1994 plans, for a total of 2,170,011 shares, remained
unexercised. The Company also maintains a combined 401(k) salary
reduction plan and employee stock ownership plan, known as the Gold
Reserve KSOP Plan, for the benefit of eligible employees of the
Company and its subsidiaries. The plan invests in common stock of the
Company through Company-guaranteed loans. During 1994 and 1995, the
plan purchased 20,000 shares and 50,000 shares of common stock from
the Company, respectively, at then-prevailing market prices, for
consideration of $123,800 and $280,195, respectively. No shares of
common stock of the Company were purchased during 1996. Such shares
were allocated to participants' accounts based on the contributions by
the Company during the plan year and the prices at which such shares
were purchased by the plan. The terms of the plan permit investment in
approved securities other than the Company's common stock, and allow
plan participants to self-direct the investment of their account. To
date, the plan's sole investment has been common stock of the Company.
The employee stock ownership component of the plan is intended to
qualify under Sections 421 and 423 of the Code. The salary reduction
component of the plan has not been utilized to date.
<PAGE>
Contributions to the plan are limited in each year to (i) the total
amount of salary reduction the employee elected to defer during the
year (which is limited to 10% of such employee's compensation during
the year, or such amount as is established by law), (ii) a matching
contribution from the Company equal to 50% of any salary reduction the
employee elected to defer during the year, (iii) special contributions
by the Company equal to a percentage of the employee's compensation
during the year and (iv) discretionary contributions by the Company
determined in each year by the Company. The plan is available to all
eligible employees of the Company or subsidiaries who have been
employed for a period in excess of one year and who have worked at
least 480 hours during the year in which any allocation is to be made.
Employer and employee contributions to the plan are limited to 25% of
salary, and distributions from the plan are not permitted before the
participating employee reaches the age of 59 1/2, except in the case
of death, disability, termination of employment by the Company or
financial hardship.
Composition of the Executive Remuneration Committee.
----------------------------------------------------
The Executive Remuneration Committee of the Company consists of three
individuals, two of whom are not affiliated, directly or indirectly,
with the Company and one of whom (Mark D. Bantz) is a director of
MegaGold, which is a majority-owned subsidiary of the Company. (As
discussed in greater detail below, changes in the manner in which the
Company's options are granted will, if approved by the shareholders,
result in administration of the Company's total compensation program,
including its option program, from the procedure described herein to a
Board or a Committee of at least two directors who are not also
officers of the Company. The Executive Remuneration Committee will be
abolished.) The names and addresses, ages and business experience (for
at least the past five years) of the members of the Committee are set
forth in the following table:
Wesley L. Delaney, Spokane, Washington - 48
-------------------------------------------
Mr. Delaney is a certified public accountant and has for at least the
past five years been a principal of the firm of Brown & Delaney. He
is also a director of Winnstar Foods, Inc., a privately-held food
processing company with headquarters in Oredale, New Jersey. Mr.
Delaney graduated from Seattle University in 1971 with a degree in
accounting.
Gregory B. Lipsker, Spokane, Washington - 47
--------------------------------------------
Mr. Lipsker is a practicing securities and business attorney with the
firm of Workland, Witherspoon, Riherd & Brajcich in Spokane, and has
been a member of the Washington State Bar Association since 1977. He
is also a member of the Spokane Citizens Advisory Review Panel, a
director of the West Central Community Center, and director and
president of Spokane Sports Unlimited, a non-profit corporation. Mr.
Lipsker also presently serves as an interim director of Metaline
Mining and Leasing Corporation and Cimarron-Grandview Group, Inc.,
both of which are inactive corporations.
<PAGE>
Mark D. Bantz, Spokane, Washington - 49
---------------------------------------
Mr. Bantz is a practicing business, mining and securities lawyer in
Spokane, and has been a member of the Washington State Bar Association
since 1977. From 1977 to 1979, he was an assistant prosecutor in the
Whatcom County (Washington) Prosecuting Attorney's Office, and since
1989, he has been a director of MegaGold Corporation, a subsidiary of
the Company.
The Company generally pays each member of the Committee for each
meeting attended and each interim telephonic meeting in which the
member participated, at hourly rates normally charged by such members
in their respective professions.
No member of the Executive Remuneration Committee owned any shares of
common stock of the Company at April 7, 1997, with the exception of
Mr. Bantz. Mr. Bantz is the beneficial owner of 2,500 shares of
common stock of the Company held by him as custodian for the benefit
of his minor children under the Washington Uniform Transfers to Minors
Act. In addition, Mr. Bantz owns 575,350 shares of MegaGold, 215,827
shares of Great Basin. Members of the Executive Remuneration Committee
advise the board on executive compensation matters. They are neither
employees nor agents of the Company. Members of the Executive
Remuneration Committee are authorized and empowered to conduct such
investigation as is necessary to advise the board of the fairness of
such matters. In discharging their duties, members of the Executive
Remuneration Committee are expected to exercise the same degree of
care and judgment as is exercised by the Compensation Committee of the
board of directors.
Combined Report of the Executive Remuneration Committee and the
Compensation Committee of the Board of Directors.
---------------------------------------------------------------
The Company applies a consistent compensation philosophy to all
employees, including senior management. This philosophy is premised
on the belief that the Company's performance is the result of
coordinated efforts directed toward common objectives.
COMPENSATION PHILOSOPHY AND GOALS. The goal of the compensation
program is to attract, retain and reward employees and other key
individuals who contribute to both the immediate and the long-term
success of the Company. Contributions are largely measured
subjectively, and are rewarded through cash and equity-based
compensation vehicles. The Company believes that employees and
executive officers should be fairly rewarded for sustained
performance. Accordingly, the Company evaluates the extent to which
strategic and business goals are met, and measures individual
performance, albeit subjectively, against development objectives and
the degree to which teamwork and Company objectives are promoted. The
Company strives to achieve a balance between the compensation paid to
a particular individual and the compensation paid to other employees
and executives having similar responsibilities within the Company.
The Company also strives to ensure that each employee understands the
components of his or her salary, and the bases upon which it is
determined and adjusted.
<PAGE>
ADMINISTRATION. During 1996, the Company's compensation program was
jointly administered by the Executive Remuneration Committee,
described above, which was responsible for reviewing and evaluating
the fairness of the recommendations of the Company's board of
directors for awards of equity-based compensation pursuant to the
Company's stock option plans, and by the Compensation Committee of the
board of directors of the Company, which was responsible for
determining the cash and cash equivalent salaries of the executive
officers, taking into account the views of the Executive Remuneration
Committee.
COMPENSATION VEHICLES. The Company has a simple compensation program
consisting of cash and equity-based compensation. Equity-based
compensation has been the dominant component of the Company's
compensation program for the past several years, owing to previously
limited cash resources, and is designed to provide additional
incentives to work to maximize shareholder value. The Company
maintains incentive stock option programs which provide for the award
of both qualified and nonqualified options, and grants stock options
periodically to persons eligible to participate in the plans. The
Company also allows all eligible employees to participate in stock
ownership through the Gold Reserve KSOP Plan.
CHIEF EXECUTIVE OFFICER'S COMPENSATION. Mr. Timm's salary base was
increased to $165,000 and he received a cash bonus of $56,700 during
the year. The Company has not developed specific quantitative or
qualitative performance measures or other specific criteria for
determining the compensation of its chief executive officer, primarily
because it does not yet have a producing mine or other operations from
which such quantitative data can be derived. As a consequence, the
determination of the chief executive officer's compensation in 1996
was largely subjective, and was based on the Company's progress in
addressing its more immediate concerns - these being procurement of
the veta concession on the Brisas property, continued exploration of
the Brisas concession, financing of the Company's exploration and
development activities, and identifying and analyzing new corporate
opportunities.
The Company can be expected to develop quantitative, performance-
oriented compensation measures for its chief executive officer and all
other executive officers if its Venezuelan mining concessions are
placed into production. The Company expects that such measures will
take into account standard means of evaluating executive officer
performance, such as revenues and earnings, the market price of the
Company's common stock, and the Company's relative success in bringing
its concessions into production and in acquiring additional mining
properties or concessions. Executive compensation levels can be
expected to increase in future years due to increased cash resources.
The Company expects its equity-based compensation vehicles will be
continued in future years, but that they will be supplanted by
increased cash compensation to the Company's employees and executive
officers due to increased cash resources.
<PAGE>
COMPENSATION COMMITTEE OF EXECUTIVE REMUNERATION
THE BOARD OF DIRECTORS COMMITTEE
------------------------- ----------------------
Jean Charles Potvin Gregory B. Lipsker
James H. Coleman Wesley L. Delaney
Mark D. Bantz
It is the Compensation Committee's belief that, in light of current
compensation levels of the Company's executive officers, the Company
will not be affected by the provisions of 162(m) of the Code, which
limits the deductibility of certain executive compensation.
Therefore, the Committee has not adopted a policy as to compliance
with the requirements of Section 162(m).
Performance Graph.
------------------
The following graph compares the six year cumulative total return on
an investment of $100 between the Company, The NASDAQ Stock Market
Index and the S&P Gold Index, assuming reinvestment of dividends
received. Cumulative total return is measured by the difference
between the median high and low bid prices of the Company's common
stock, as reported by The NASDAQ Stock Market, at the end and
beginning of the measurement period.
1991 1992 1993 1994 1995 1996
---- ---- ----- ----- ----- -----
Gold Reserve Corporation 100 700 2,550 1,694 1,125 1,913
The NASDAQ Stock Market 100 116 134 131 185 227
S & P Gold Index 100 93 171 138 156 154
ITEM NO. 1 -- ELECTION OF DIRECTORS
------------------------------------
At the annual meeting, seven directors are to be elected. Unless
authority to vote is withheld on a proxy, proxies in the form enclosed
will be voted for the director-nominees identified below. If any
nominee is not available for election (a contingency which the Company
does not now foresee), it is the intention of the board of directors
to recommend the election of a substitute nominee, and proxies in the
form enclosed will be voted for the election of such substitute
nominee unless authority to vote such proxies in the election of
directors has been withheld.
NOMINEES TO THE BOARD OF DIRECTORS
Name Position Held Since Age
----------------------- -------------------------- ----- ---
Rockne J. Timm President, Chief Executive
Officer and Director 1984 51
A. Douglas Belanger Executive Vice President,
Secretary and Director 1988 44
James P. Geyer Senior Vice President and
Director - 44
Patrick D. McChesney Director 1988 47
Jean Charles Potvin Director 1993 44
James H. Coleman Director 1994 46
Chris D. Mikkelsen Director - 45
<PAGE>
Background of Nominees.
-----------------------
The business experience of Mr. Mikkelsen for the past five years
is as follows:
Mr. Mikkelsen has been a shareholder and officer in the accounting
firm of McDirmid, Mikkelsen & Secrest, P.S., since 1976. He is a
certified public accountant with an extensive background in providing
operational and tax advice to a wide variety of clients and
businesses. He is also a director of MegaGold Corporation and Great
Basin Energies, Inc. Mr. Mikkelsen resides in Spokane, Washington.
As of the record date, Mr. Mikkelsen was the beneficial owner of
68,000 shares of the Company's common stock. This includes 50,000
common shares issuable pursuant to presently exercisable options as of
the record date. Mr. Mikkelsen is also the trustee of 44,841 shares
of common stock of the Company for the minor child of Mr. Timm.
Mr. Mikkelsen is also the beneficial owner of 519,751 and 359,712
shares of common stock of MegaGold Corporation and Great Basin
Energies, Inc., respectively, comprising 1.4% and .9% respectively of
the outstanding shares of those companies and may be deemed indirectly
to have an interest in the Company through his interest in these
subsidiaries. He disclaims any beneficial interest of common shares
of the Company owned by MegaGold and Great Basin Energies, Inc.
The background of the remaining nominees is set forth in the section
of this Proxy Statement entitled Directors and Executive Officers.
Requisite Approval.
-------------------
The affirmative vote of a majority of the shares present at the annual
meeting, in person or by proxy, is required to elect directors.
Shareholders are entitled to cumulate their votes in voting for
directors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE FOREGOING NOMINEES TO
THE BOARD OF DIRECTORS. ---
ITEM NO. 2 -- APPROVAL OF AMENDMENT TO THE ARTICLES OF
INCORPORATION AND BYLAWS TO REDUCE THE QUORUM REQUIREMENT
---------------------------------------------------------
At the annual meeting, the shareholders will be asked to approve an
Amendment to the Articles of Incorporation and to approve an amendment
to Article 2, subsection 2.6 of the Company's Bylaws to reduce the
quorum from a majority of the outstanding shares present in person or
by proxy to one-third of all outstanding shares present in person or
by proxy. Article 2, subsection 2.6 of the Bylaws of the Company
presently defines a quorum at any meeting of the shareholders to be a
majority of the outstanding shares of the Company entitled to vote,
represented in person or by proxy. If less than a majority of the
outstanding shares entitled to vote are represented at a meeting, a
majority of the shares so represented may adjourn the meeting from
time to time without further notice. If a quorum is present, the
affirmative vote of the majority of the shares represented at the
<PAGE>
meeting and entitled to vote on the subject matter constitutes the
act of the shareholders, unless the vote of a greater number is
required by the Company's Bylaws, Articles of Incorporation or the
Montana Business Corporation Act.
Under the Montana Business Corporation Act, the Articles of
Incorporation may provide for a quorum of less than a majority of the
outstanding shares of the corporation entitled to vote. Prior to
1992, the Montana Business Corporation Act established a minimum
quorum requirement of one-third of the outstanding shares entitled to
vote. The Act has since been amended to allow corporations, effective
January 1, 1992, to set the quorum requirement in the corporation's
Articles of Incorporation at any level the corporation deems
appropriate.
At the Company's annual meeting in June of 1996, the Company was
unable to obtain a quorum to conduct the regular business of the
Company. The outstanding shares as of the record date of April 10,
1996 were 20,609,492. At the annual meeting of June 7, 1996, 45.19% of
the outstanding shares were present and entitled to vote either in
person or by proxy. The meeting had to be adjourned until July 10,
1996 and a resolicitation of proxies undertaken. At the July meeting,
a quorum was ultimately obtained at 50.45% of the outstanding shares
entitled to vote.
The board of directors believes that reducing the quorum requirement
for approval of general corporate matters to one-third from a simple
majority is in the best interests of the Company. Such a reduction in
the quorum requirement will reduce the likelihood that a quorum will
not be obtained at the annual meeting and thereby reduce the potential
for delays of important corporate decisions and the added expense
accompanying the resolicitation of proxies. However, to the extent
shareholders do not exercise their rights to vote, reducing the quorum
requirement does have the effect of allowing significant corporate
decisions to be approved by a smaller number of shareholders. The TSE
and NASDAQ rules do not prohibit the one-third quorum proposal. The
board of directors has voted unanimously to authorize the proposed
amendment to the Articles of Incorporation and to recommend the
proposed amendment to the shareholders for adoption.
TEXT OF AMENDMENT. A copy of the proposed Amendment to the Company's
Articles of Incorporation is attached hereto as "Schedule A" and the
shareholders are urged to study the proposed amendment carefully for a
more complete understanding of the proposal. If amendment to the
Articles of Incorporation is approved, the Board will then amend the
Bylaws to be consistent with the amended Articles.
REQUISITE APPROVAL. The affirmative vote, in person or by proxy, of
the holders of a majority of the shares of common stock outstanding as
of the record date is necessary to approve the Amendment to the
Articles of Incorporation reducing the quorum requirement.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR AMENDMENT TO THE
COMPANY'S ARTICLES OF INCORPORATION AND BYLAWS TO REDUCE THE QUORUM
REQUIREMENT FOR ALL FUTURE SHAREHOLDER MEETINGS TO ONE-THIRD OF THE
OUTSTANDING SHARES PRESENT IN PERSON OR BY PROXY.
<PAGE>
ITEM NO. 3 -- APPROVAL OF AMENDMENT TO THE
ARTICLES OF INCORPORATION TO REDUCE VOTING REQUIREMENTS
-------------------------------------------------------
Under the Montana Business Corporation Act, certain transactions or
events are required to be approved by more than a simple majority of
the number of shares entitled to vote. Transactions involving the
merger of the Company, a share exchange, a dissolution of the Company
or the approval of the sale of substantially all of the Company's
assets out of the ordinary course of business requires the affirmative
vote of two-thirds of all of the votes entitled to be cast on that
proposal.
The voting requirements for a merger, share exchange, sale of assets
other than in the regular course of business and dissolution, if
provided for in the Articles of Incorporation, may, in accordance with
the Montana Business Corporation Act, be reduced to a majority of all
votes entitled to be cast by each voting group on these issues.
At the present time, the Board is not contemplating any of the
foregoing transactions. However, the Board believes that reducing the
voting requirements for the approval of merger, share exchange,
dissolution or sale of corporate assets out of the ordinary course of
business to a simple majority from two-thirds, is in the best
interests of the Company. Such a reduction in the requirements will
provide greater flexibility in the decision-making process and may
enhance the Company's ability to obtain approval of the foregoing
important decisions on an expedited basis. However, to the extent
shareholders do not exercise their rights to vote for such
transactions, reducing the voting requirements will have the effect of
allowing these significant corporate decisions to be approved by a
smaller number of shareholders. Reducing the voting requirements
could also reduce the effectiveness of the Shareholder Rights Plan
described in Item 6 of this proxy statement, particularly if a bidder
seeking to acquire control of the Company were to do so by proposing a
merger or other acquisition in the context of a proxy contest as
opposed to a tender or exchange offer.
TEXT OF AMENDMENT. A copy of the proposed Amendment is attached
hereto as "Schedule A." Shareholders are encouraged to read the
amendment carefully for a more complete understanding of the proposal.
The board of directors has voted unanimously to authorize the
amendment to the Articles of Incorporation and to recommend the
proposed amendment to the shareholders for adoption.
REQUISITE APPROVAL: The affirmative vote in person or by proxy of the
holders of two-thirds of the shares of common stock outstanding as of
the record date is necessary to approve the Amendment to the Articles
of Incorporation reducing the number of votes required for approving a
merger, share exchange, sale of corporate assets out of the ordinary
course of business and dissolution of the Company.
<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
AMENDMENT TO THE ARTICLES OF INCORPOR- ---
ATION TO DECREASE THE NUMBER OF VOTES
REQUIRED FOR APPROVAL OF A MERGER, SHARE EXCHANGE,
SALE OF ALL OR SUBSTANTIALLY ALL OF THE COMPANY'S ASSETS OUT OF THE
ORDINARY COURSE OF BUSINESS OR APPROVAL OF A PROPOSAL TO DISSOLVE THE
COMPANY FROM TWO-THIRDS OF THE SHARES OF EACH VOTING GROUP ENTITLED TO
VOTE TO A SIMPLE MAJORITY OF THE SHARES OF EACH VOTING GROUP ENTITLED
TO VOTE.
ITEM NO. 4 -- APPROVAL OF AMENDMENT TO THE ARTICLES OF
INCORPORATION TO INCREASE THE COMPANY'S AUTHORIZED CAPITAL STOCK
----------------------------------------------------------------
At the annual meeting, the shareholders of the Company will be asked
to consider and approve an amendment to the Company's Articles of
Incorporation increasing the number of authorized shares of capital
stock from 50 million shares to 500 million shares, of which, 20
million shares will be designated preferred stock issuable in one or
more series. Important information concerning the current
capitalization of the Company, and the purpose and effect of the
proposed amendment is set forth below.
Capitalization of the Company.
------------------------------
The authorized capital of the Company presently consists of 40 million
shares of common stock, no par value per share, and 10 million shares
of preferred stock, no par value per share, issuable in one or more
series, with such rights, preferences, limitations and other
characteristics as the Board of Directors of the Company from time to
time may determine. On April 7, 1997, the number of issued and
outstanding shares of common stock of the Company was 22,813,021. An
additional 1,755,044 shares of common stock were deemed outstanding
pursuant to presently exercisable options and warrants at such date.
Purpose of the Proposal.
------------------------
The Company historically has financed its mining activities in
Venezuela from the sale of equity and through acquisition
indebtedness. The board of directors believes that substantial
additional equity will be required to complete exploration and
development activities at the Company's Brisas concession, complete
technical and feasibility studies, put the concession into production
and, if warranted, pursue other business opportunities that may be
presented to the Company. In addition, as is discussed elsewhere in
this Proxy Statement, the board of directors believes it advisable to
adopt a Shareholder Rights Plan which, if approved by the
shareholders, would result in the potential need for shares of
additional stock in accordance with the formulas set forth in the
Shareholder Rights Plan.
<PAGE>
The principal purpose of the proposed amendment is to authorize
additional shares of capital stock which will be available in the
event the board of directors of the Company determines that it is
necessary or appropriate to raise additional capital through the sale
of securities to acquire another Company or its business or assets, to
work and establish a strategic relationship with a corporate partner,
or for any other appropriate corporate purpose as the board of
directors may deem advisable. It is the board of directors' continued
belief that the preferred stock will allow the Company greater
flexibility in raising equity capital to support its activities since
the preferred stock can be tailored, by series, to meet the
requirements of the capital markets, and in particular the
requirements of institutional investors who now occupy a dominant role
in these markets. The board of directors believes that the
designation of preferred stock allows the Company to respond more
rapidly to the changing conditions of the capital markets, since each
such series can be approved by the board of directors without further
shareholder approval. The board of directors believes that these
features will enable the Company to raise additional equity capital,
as needed, from a wider variety of financing sources, and on such
terms that may be more favorable than those obtained through
conventional common stock offerings.
The increase in the number of authorized shares of capital stock from
50 million shares to 500 million shares, including the increase of 10
million shares of preferred stock to 20 million shares of preferred
stock, will not have any immediate effect on the rights of existing
shareholders. To the extent additional shares are issued in the
future, however, the existing shareholders' percentage equity
ownership and the voting power will decrease. Depending on the price
at which the shares are issued, any such issuance also could have the
effect of diluting the earnings per share and book value per share of
the outstanding shares. The Company presently has no plan, agreement
or arrangement or understanding to issue any of the shares for which
approval is sought, and is not presently engaged in any discussions or
negotiations with respect to any such issuance. If the amendment is
approved by the shareholders of the Company, the board of directors
does not intend to solicit further shareholder approval prior to the
issuance of any additional shares, except as may be required by
applicable law. The board of directors has unanimously authorized the
proposed amendment and has voted to recommend the proposed amendment
to the shareholders for adoption.
Text of Amendment.
------------------
The text of the proposed amendment to the Company's Articles of
Incorporation appears as Schedule A to this Proxy Statement.
Shareholders are encouraged to read the amendment carefully for a more
complete understanding of the proposal.
Requisite Approval.
-------------------
Approval of Item 4 requires the affirmative vote of the holders of the
majority of the shares present at the annual meeting, in person or by
proxy.
<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
AMENDMENT OF THE ARTICLES OF INCORPORA- ---
TION TO INCREASE THE COMPANY'S AUTHORIZED CAPITAL, INCLUDING AN
INCREASE IN THE NUMBER OF PREVIOUSLY AUTHORIZED PREFERRED STOCK.
ITEM NO. 5 -- APPROVAL OF SHAREHOLDER RIGHTS PLAN
--------------------------------------------------
Shareholder Rights Plan.
------------------------
Shareholders will be asked at the Meeting to consider and approve the
Gold Reserve Shareholder Rights Plan (the "Rights Plan"). The full
text of the Rights Plan is attached as Schedule "B" to this proxy
statement. The following information concerning the Rights Plan
constitutes a summary only and the actual Rights Plan should be
consulted for details of the Plan.
The board of directors has determined that the Rights Plan is in the
best interests of the Company and recommends that the shareholders
vote in favor of the Rights Plan.
In considering whether to adopt the Rights Plan, the board of
directors considered the current legislative framework in Canada and
the United States governing take-over bids and tender offers.
Time.
-----
Current Canadian legislation permits a take-over bid to expire 21 days
after it is initiated. A take-over bid in the U.S. must remain open
for at least 20 business days after it is initiated. The board of
directors is of the view that this is not sufficient time to permit
shareholders to consider a take-over bid and make a reasoned and
unhurried decision and also does not allow the board of directors
sufficient time to seek alternatives to maximize shareholder value.
Pressure to Tender.
-------------------
A shareholder may feel compelled to tender to a take-over bid which
the shareholder considers to be inadequate, out of a concern that in
failing to do so, the shareholder may be left with illiquid or
minority discounted shares. The board of directors believes that the
Rights Plan provides a shareholder with an approval mechanism which is
intended to ensure that a shareholder can separate the decision to
tender from the approval or disapproval of a particular take-over bid.
Unequal Treatment.
------------------
The board of directors was concerned that a person seeking such
control might attempt, among other things, a gradual accumulation of
shares in the open market or the accumulation of a large block of
shares in a highly compressed period of time from institutional
shareholders and professional speculators or arbitrageurs. The Rights
Plan effectively prohibits the acquisition of more than 20% of the
Company's common shares in such a manner. Because the common
<PAGE>
shares of the Company are quoted on the NASDAQ Stock Market and
therefore trade in the United States, as well as Canada, there is a
possibility that the differences between United States and Canadian
securities regulations could result in unequal treatment of
shareholders in the two jurisdictions. The Rights Plan is designed to
encourage any bidder to provide shareholders with equal treatment in a
take-over bid.
Purpose of the Rights Plan.
---------------------------
The purpose of the Rights Plan is to give adequate time for
shareholders of the Company to properly assess the merits of a bid
without pressure and to allow competing bids to emerge. The Rights
Plan is designed to give the board of directors time to consider
alternatives to allow shareholders to receive full and fair value for
their common shares. The Rights Plan is not being recommended for
adoption by the board of directors in response to, or anticipation of,
any acquisition proposal and is not intended to prevent a take-over of
the Company or to secure continuance in office of management or the
directors. The Ontario Securities Commission has concluded in two
recent decisions relating to shareholder rights plans that a target
company's board will not be permitted to maintain a shareholder rights
plan solely to prevent a successful bid, but only so long as the board
is actively seeking alternatives to a take-over bid and there is a
real and substantial possibility that it can increase shareholder
choice and maximize shareholder value. The Rights Plan may, however,
increase the price to be paid by a potential offeror to obtain control
of the Corporation and may discourage certain transactions.
The Issuance of the Rights (as defined below) will not in any way
alter the financial condition of the Company. The issuance is not of
itself dilutive, will not affect reported earnings per share and will
not change the way in which shareholders would otherwise trade common
shares. By permitting holders of Rights other than an
"Acquiring-Person" (as defined below) to acquire shares of the Company
at a discount to market value, the Rights may cause substantial
dilution to a person or group that acquires 20% or more of the voting
securities of the Company other than by way of a Permitted Bid (as
defined below) or other than in circumstances where the Rights are
redeemed or the application of the Rights Plan is waived.
The Rights Plan is intended to provide adequate time for shareholders
to assess a bid and to permit competing bids to emerge. It also gives
the board of directors sufficient time to explore other options. A
potential bidder can avoid the dilutive features of the Rights Plan by
making a bid that conforms to the requirements of a Permitted Bid or
approach the board with a view to negotiation of a transaction
acceptable to the board.
To qualify as a Permitted Bid, a take-over bid must be made by way of
a take-over bid circular to all holders of common shares and must be
open for 60 days after the bid is made and provide that any shares
tendered may be withdrawn until they are taken up and paid for. If at
least 50% of the common shares held by persons independent of the
bidder are deposited or tendered pursuant to the bid and not
withdrawn, the bidder may take up and pay for such shares. A public
<PAGE>
announcement that the 50% condition has been met must be made and the
bid must then remain open for a further period of 10 clear business
days on the same terms. The Rights Plan allows a partial bid to be a
Permitted Bid.
The requirements of a Permitted Bid enable each shareholder to make
two separate decisions. First, a shareholder will decide whether the
bid or any competing bid is adequate on its own merits, in making this
decision the shareholder need not be influenced by the likelihood that
the bid will succeed. If there is sufficient support such that at
least 50% of the common shares have been tendered, a shareholder who
has not already tendered to that bid or to a competing bid will have a
further 10 business days to decide whether to withdraw his or her
common shares from a competing bid, if any, and whether to tender to
the bid.
In reaching the decision to implement the Rights Plan, the board of
directors considered their duties and responsibilities to the Company
in consultation with legal counsel. In addition, the board of
directors reviewed the recent experiences of other public companies in
adopting rights plans.
Summary of the Rights Plan.
---------------------------
The following is a summary of the principal terms of the Rights Plan
which is qualified in its entirety by reference to the text of the
Rights Plan attached as Schedule "B" to this proxy statement:
Adoption of Rights Plan and Issuance of Rights.
-----------------------------------------------
The Rights Plan was adopted by the board of directors on March 31,
1997 (the "Agreement Date") and applies to take-over bids made on or
after the Agreement Date. On the business day immediately following
the date on which the proposed amendment to the Company's Articles of
Incorporation (as described in Schedule A to this Proxy Statement)
becomes effective (the "Effective Date"), one right (a "Right") will
be issued in respect to each outstanding common share. If the
Separation Time (as defined in the Rights Plan and discussed below)
occurs subsequent to and not concurrently with the Effective Date,
then each such Right will, when issued, attach to the associated
outstanding common share and one Right will also attach to any common
shares issued after the Effective Date and prior to the earlier of the
Separation Time and the Expiration Time (as defined in the Rights
Plan). If the Separation Time occurs concurrently with the Effective
Date, the Rights will not attach to the common shares but will be
evidenced separately by Rights certificates. See "Rights Exercise
Privilege" and "Certificate and Transferability" below.
Term.
-----
The Rights Plan came into effect on the Agreement Date (although
Rights will not be issued until the Effective Date) and will remain in
effect until the fifth anniversary of the Effective Date, subject to
confirmation of the Rights Plan by shareholders at the Meeting and
approval at the Meeting of the proposed amendment to the Articles
<PAGE>
of Incorporation (as described in Schedule A to this proxy statement),
and subject to confirmation of the Rights Plan by shareholders at the
third annual meeting of shareholders of the Company following the
Meeting.
Rights Exercise Privilege.
--------------------------
The Rights will become exercisable at the time (the "Separation Time")
that is the later of (i) the Effective Date, and (ii) the tenth
trading day after the earlier of a person having acquired, or the
commencement, announcement or other date determined by the board of
directors in respect of a take-over bid to acquire, 20% or more of the
common shares, other than by an acquisition pursuant to a take-over
permitted by the Rights Plan (a "Permitted Bid"). In addition, if the
Separation Time occurs following and not concurrently with the
Effective Date (such that the Rights, when issued, are attached to
outstanding common shares), the Rights will, at the Separation Time,
separate from the shares to which they are attached. If the
Separation Time occurs concurrently with the Effective Date, the
Rights issued on the Effective Date will not attach to the common
shares and will be separate from the common shares from and after the
time of issuance of the Rights.
The acquisition by a person (an "Acquiring Person"), including
associates and affiliates and others acting in concert, of Beneficial
Ownership (as defined in the Rights Plan) of 20% or more of the common
shares, other than by way of a Permitted Bid, is referred to as a
"Flip-in Event." Any Rights held by an Acquiring Person on or after
the earlier of the Separation Time or the first date of public
announcement by the Company or an Acquiring Person that an Acquiring
Person has become such, will become void upon the occurrence of a
Flip-in Event. The later of the Effective Date or the tenth trading
day after the occurrence of the Flip-in Event, the Rights (other than
those held by the Acquiring Person), will permit the holder to
purchase common stock of the Company having a market value of twice
the exercise price of the Rights, for example, common shares with a
total market value of $140 (Canadian), on payment of $70 (Canadian)
(50% discount).
The issue of the Rights will not be initially dilutive unless a
Flip-in Event occurs prior to such issuance. Upon a Flip-in Event
occurring, reported earnings per common share on a fully diluted or
non-diluted basis may be affected. Holders of Rights who do not
exercise their Rights upon the occurrence of a Flip-in Event may
suffer substantial dilution.
Certificates and Transferability.
---------------------------------
Provided that the Separation Time does not occur concurrently with the
Effective Date, then from and after the Effective Date and prior to
the Separation Time, the Rights will be evidenced by a legend
imprinted on certificates for common shares issued from and after the
Effective Date, and Rights will also be attached to common shares
outstanding on the Effective Date, although share certificates issued
prior to that date will not bear such a legend. Prior to the
Separation Time, Rights will NOT be transferable separately from the
attached shares.
<PAGE>
From and after the Separation Time (which, if the Separation Time
occurs concurrently with the Effective Date, will be the time of
issuance of the Rights), the Rights will be evidenced by Rights
certificates which will be transferable and traded separately from the
shares.
Permitted Bid Requirements.
---------------------------
The requirements of a Permitted Bid include the following:
1. The take-over bid must be made by way of a take-over bid circular.
2. The take-over bid must be made to all holders of common shares.
The Rights Plan allows a partial bid to be a Permitted Bid.
3. The take-over bid must not permit common shares tendered pursuant
to the take-over bid to be taken up prior to the expiry of a
period of not less than 60 days and then only if at such time more
than 50% of the common shares held by shareholders other than the
bidder, its affiliates and persons acting jointly or in concert
with the bidder (the "Independent Shareholders") have been
tendered pursuant to the take-over bid and not withdrawn. The
take-over bid must also provide that any common shares deposited
pursuant to the bid may be withdrawn until taken up and paid for.
4. If more than 50% of the common shares held by Independent
Shareholders are tendered to the take-over bid within the 60 day
period, the bidder must make a public announcement of that fact
and the take-over bid must remain open for deposits of common
shares for an additional 10 business days from the date of such
public announcement.
The Rights Plan allows a competing Permitted Bid (a "Competing
Permitted Bid") to be made while a Permitted Bid is in existence. A
Competing Permitted Bid must satisfy all the requirements of a
Permitted Bid except that provided such offer is outstanding for a
minimum period of 21 days, it may expire on the same date as the
Permitted Bid.
Waiver and Redemption.
----------------------
If a potential offeror does not wish to make a Permitted Bid, it can
negotiate with, and obtain the prior approval of the board of
directors to make a bid by take-over bid circular to all shareholders
on terms which the board of directors considers fair to all
shareholders. In such circumstances, the board may, prior to a
Flip-in Event, waive the dilutive effects of the Rights Plan in
respect of such transaction, thereby allowing such bid to proceed
without dilution. In such event, such waiver would be deemed also to
be a waiver in respect of all other contemporaneous bids made by way
of a take-over bid proxy statement. The board of directors may also
waive the Rights Plan in respect of a particular Flip-in Event that
has occurred through inadvertence, provided that the Acquiring Person
that inadvertently triggered such Flip-in Event has reduced its
beneficial holdings to less than 20% of the outstanding voting shares
of the Company. Other waivers of the Rights Plan require approval of
<PAGE>
the holders of common shares or Rights. At any time prior to the
occurrence of a Flip-in Event, the board of directors may, with the
prior consent of the holders of common shares or Rights redeem all,
but not less than all, of the outstanding Rights, as the case may be,
at a price of $0.00001 each.
Exemption for "Grandfathered" Persons.
--------------------------------------
Any person (a "Grandfathered Person") who owns beneficially 20% or
more of the common shares of the Company determined as of the
Agreement Date, is exempted from triggering a Flip-in Event provided
that such Grandfathered Person does not increase its ownership of
common shares by more than one percent of the number of common shares
outstanding as of the Agreement Date. To the knowledge of the
Corporation, no persons are Grandfathered Persons.
Exemption for Investment Advisors.
----------------------------------
Investment advisors (for client accounts) and trust companies (acting
in their capacity as trustees and administrators) acquiring more than
20% of the common shares are exempted from triggering a Flip-in Event,
provided that they are not making, or are not part of a group making,
a take-over bid.
Supplements and Amendments.
---------------------------
The Company is authorized to make amendments to the Rights Plan to
correct any clerical or typographical error or, subject to subsequent
ratification by shareholders or Rights holders, to maintain the
validity of the Rights Plan as a result of changes in law or
regulation. Prior to the Meeting, the Company is authorized to amend
or supplement the Rights Plan as the board of directors may in good
faith deem necessary or desirable. No such amendments have been made
to date. The Company will issue a press release to any significant
amendment made to the Plan prior to the Meeting and will advise the
shareholders of any such amendment at the Meeting. Other amendments
or supplements to the Rights Plan may be made with the prior approval
of shareholders or Rights holders.
Canadian Federal Income Tax Consequences of the Rights Plan.
------------------------------------------------------------
Under the Income Tax Act (Canada) (the "Tax Act"), while the matter is
being reviewed not free from doubt, the issue of the Rights under the
Rights Plan may be a taxable benefit which must be included in the
income of a recipient. However, no amount must be included in income
if the Rights do not have a monetary value at the date of issue. The
Company expects that the Rights, when issued, will have negligible
monetary value, there being only a remote possibility that the Rights
will ever be exercised. The holder of Rights may have income or be
subject to withholding tax under the Tax Act if the Rights become
exercisable, or are exercised or are otherwise disposed of.
<PAGE>
This statement is of a general nature only and is not intended to
constitute nor should it be construed as legal or tax advice to any
particular holder of common shares. Such holders are advised to
consult their own tax advisors regarding the consequences of
acquiring, holding, exercising or otherwise disposing of their Rights,
taking into account their own particular circumstances and applicable
federal, provincial, territorial, state or foreign legislation.
Requisite Approval.
-------------------
Approval of Item No. 5 requires the affirmative vote of the holders of
the majority of the shares present and voting at the annual meeting,
in person or by proxy, excluding votes cast by shareholders who are
not Independent Shareholders (as defined in the Rights Plan).
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE
SHAREHOLDER RIGHTS PLAN.
ITEM NO. 6 -- ADOPTION OF THE 1997 EQUITY INCENTIVE PLAN
--------------------------------------------------------
At the annual meeting, the stockholders will be asked to consider and
approve the Company's 1997 Equity Incentive Plan (the "1997 Plan")
which was adopted by the Company's Board on January 30, 1997. The
text of the 1997 Plan is attached hereto as "Schedule C."
THE PLAN - GENERAL. Under the 1997 Plan, the Company may grant both
"incentive stock options" and other options that may not be treated as
"incentive stock options" under the Federal Internal Revenue Code, as
amended ("the Code"), stock appreciation rights ("SARs") and shares of
restricted stock (except as otherwise noted hereinafter collectively
referred to as "options"). Key individuals of the Company and its
subsidiaries (including directors and executive officers, and advisers
who are consultants to the Company) are eligible to receive grants of
options, provided that no option may be granted to directors or
executive officers of the Company under the 1997 Plan without the
approval of the Stock Option Committee of the Board or the full Board
where applicable. The Company expects that most or all of its
employees may be eligible to participate in the 1997 Plan. The total
number of shares of common stock which may be issued and on which
options may be granted under the 1997 Plan from time to time is
2,000,000. In addition, shares subject to outstanding options which
become subject to forfeiture and re-issuance under the terms of the
1985, 1992 and 1994 plans may become available for reissuance under
and subject to the terms and conditions of the 1997 Plan. See section
entitled "Description of Incentive Stock Option and Employee Stock
Ownership Plans."
The Board has terminated the 1985, 1992 and 1994 plans as to future
grants conditioned upon and effective immediately upon stockholder
approval of the 1997 Plan at the annual meeting. The board of
directors believes that the 1997 Plan is necessary because no shares
remain available for grant under the prior plans. Adoption of the
1997 Plan will also allow the Company to comply with recent changes in
Securities and Exchange Commission rule 16b-3 which governs the
<PAGE>
administration of equity incentive plans. On January 30, 1997, the
board approved the granting of 462,554 options under the 1997 Plan, at
an exercise price of $7.56 per share, subject to shareholder approval
of the 1997 Plan. Of the foregoing, 207,554 options were granted to
executive officers and directors. (See New Plan Benefits Table.)
ADMINISTRATION. The plan provides that it shall be administered by
the board of directors or a committee of directors appointed by the
Board. The plan will primarily be administered by a Stock Option
Committee of the Board (the "Committee"). The Committee will consist
of two Board members who are not officers of the Company (or if no
Committee, then by the Board.) No member of the Committee shall be
personally liable for any action, determination or interpretation made
or taken in good faith with respect to the Plan, and all members of
the Committee shall be fully indemnified by the Company with respect
to any such action, determination or interpretation. Options may be
issued to Committee members by vote of the board of directors.
ELIGIBILITY. Eligible participants and eligible directors in the plan
shall be selected by the Committee from among those officers,
directors, employees, and consultants of the Company and its
subsidiaries who, in the opinion of the Committee, are in a position
to contribute materially to the Company's continued growth and
development and to its long-term financial success. Options may be
granted to the members of the Committee by the board of directors.
The Committee or the Board, as the case may be, shall have complete
discretion consistent with the terms of the Plan in determining
whether to grant options, the number of options to be granted, and
whether an option is to be an incentive stock option within the
meaning of Section 422 of the Code or a nonstatutory stock option.
The maximum number of shares which may be the subject of options
granted to any one individual in any calendar year is 300,000.
LIMITATIONS AND VOTING REQUIREMENTS IMPOSED BY THE TORONTO STOCK
EXCHANGE. Pursuant to TSE policy, as it applies to the Company and
the Plan, shareholder approval is required to be obtained if (i) a
majority of the shares to be allocated under the plan will or may be
issuable to "insiders" of the Company (defined generally to mean
directors and senior officers of the Company or of other companies
owning or controlling more than 10% of the outstanding capital stock
of the Company) or (ii) the Plan, together with other share
compensation plans (being the 1985, 1992 and 1994 stock option plans
and the employee stock ownership component of the Gold Reserve KSOP
plan) could result, at any time in the number of shares reserved for
stock options exceeding 10% of the outstanding capital stock of the
Company or the issuance within a one year period of a number of shares
exceeding 10% of the outstanding capital stock. For the purposes of
such rules (and the rules described below relating to disinterested
shareholder approval), "outstanding capital stock of the Company" is
calculated on a non-diluted basis and, with respect to the calculation
of a number of shares which may be issued in a one year period, shares
issued pursuant to share compensation arrangements over the preceding
one-year period are excluded for the purpose of calculating
outstanding stock.
<PAGE>
In addition, disinterested shareholder approval is required to be
obtained under TSE policy if a proposed share compensation arrangement
such as the Plan, together with all of the Company's other previously
established or proposed stock compensation arrangements, could result,
at any time, in (i) the number of shares reserved for issuance
pursuant to stock options granted to insiders exceeding 10% of the
outstanding capital stock of the Company, (ii) the issuance to
insiders, within a one-year period, of a number of shares exceeding
10% of the outstanding capital stock of the Company on a non-diluted
basis, but excluding shares issued pursuant to a share compensation
arrangement over the preceding one-year period, or (iii) the issuance
to any one insider and such insider's "associates" (defined generally
to mean relatives, a spouse, certain similarly related persons,
partners, and companies in respect of which the insider owns or
controls more than 10% of the voting shares), within a one-year
period, of a number of shares exceeding 5% of the outstanding capital
stock of the Company on a non-diluted basis.
In the opinion of the Company and its counsel, the proposed 1997 Plan,
when viewed in conjunction with previous grants of options under the
Company's 1985, 1992 and 1994 stock option plans, and previous and
prospective allocations under the Gold Reserve KSOP Plan, could result
in the issuance to directors, executive officers and other insiders of
the Company of shares of common stock in excess of a TSEs policy
limitations. Approval of the Plan for the purpose of complying with
the TSEs policies will require the affirmative vote of a majority of
the shares of common stock of the Company present at the annual
meeting, in person or by proxy, held by persons who are not directors,
executive offices or other insiders (or associates of insiders) of the
Company. In the event the Plan is otherwise approved by the holders
of at least a majority of the shares of common stock of the Company
present at the annual meeting, though less than a majority of its
disinterested holders, it will be deemed approved, subject to the
policy limitations of the TSE with respect to grants of options to
directors, executive officers and other insiders. Management of the
Company does not presently anticipate that grants of options to such
persons, together with grants or awards under any of the Company's
other share compensation arrangements, will exceed such limitations.
EXERCISE OF OPTIONS. Except for options to purchase up to 250,000
shares, all options granted under the 1997 Plan will be exercisable at
a price equal to the fair market value of the shares at the time the
options are granted. The exercise price of an incentive stock option
granted under the 1997 Plan may not be less than 100% of the fair
market value of the Company's common stock on the date the option is
granted (110% of Fair Market Value in the case of an incentive stock
option granted to any person who owns Stock possessing more than 10%
of the total combined voting power of all classes of Stock of the
Company or any Subsidiary.) "Fair Market Value" is defined by the
1997 Plan to be the closing sales price or the United States Dollar
equivalent of the closing sales price at which a share of the stock is
reported to have traded on the day immediately preceding the grant
date as reported on the principal market for the stock; and if there
is no trade on such date, the Fair Market Value means the closing
sales price or the United States Dollar equivalent of the closing
sales price on the most recent date previous to such grant date as
<PAGE>
reported on the principal market for the stock. If no Fair Market
Value has been established in accordance with the foregoing, Fair
Market Value shall be the value established by the board in good faith
and, in the case of an incentive stock option, in accordance with
Section 422 of the Code.
Section 162(m) of the Code places limits on deductibility for income
tax purposes of compensation paid to certain executive officers of the
Company. The Company is only allowed to deduct up to a maximum of one
million dollars annually for non-performance-based compensation paid
to each of five highest paid executives whose annual compensation
during the year (including gains upon the exercise of incentive stock
options) exceeded $1,000,000 (the "named executive officers").
Options granted below market value, and Restricted Stock will not be
considered performance based under Section 162(m).
DURATION OF OPTIONS. The Plan provides that the Committee or Board
may, in its discretion, provide that an option may not be exercised in
whole or in part for a specified period or periods of time.
Generally, options vest 50% per year beginning one year after the
grant date. Each option has a duration of up to ten (10) years from
the time that it is granted, except that an incentive stock option
granted to a 10% stockholder (defined as any person who owns stock
possessing more than 10% of the total combined voting power of all
classes of stock of the Company or any subsidiary) shall have a
duration of up to five (5) years from the time it is granted. Each
option granted shall be exercisable at such times and be subject to
such restrictions and conditions as the Committee or the Board, as the
case may be, shall in each instance approve. Such restrictions and
conditions need not be the same for each participant. For example, an
option may be exercised in whole or in part and, in the discretion of
the Committee or Board, an option may be immediately exercisable upon
the occurrence of certain events, including upon the death or
permanent disability of the optionee or upon a change in control (as
defined in the Plan) of the Company. In the event of the optionee's
termination of employment with the Company for cause, the option shall
also be terminated. The Committee may extend the options for up to
twelve months following termination due to death or permanent
disability, or following retirement at or after normal retirement age.
In the event of a change in control, the 1997 Plan authorizes the
Committee, in its discretion, to accelerate the vesting of outstanding
options and/or to accelerate the period of restriction relating to
restricted stock grants.
PAYMENT FOR OPTIONS. The option price is payable to the Company in
full upon exercise of an option either (i) in cash or its equivalent,
(ii) at the discretion of the Committee or the Board, as the case may
be, by tendering shares of stock held by the optionee for more than
six months having a fair market value at the time of exercise equal to
the option price, (iii) by a combination of (i), (ii) or (iv)
cash-less exercise methods which are generally permitted by law,
whereby a broker sells the shares to which the option relates or holds
such shares as collateral as may be the case. The proceeds of any
such payments will be added to the general funds of the Company and
used for general corporate purposes. The Company may also advance
funds from time to time to holders of options on a short term basis,
<PAGE>
solely for the purpose of enabling the holders to exercise their
options. All such advances will be evidenced in writing and require
interest at prevailing rates and be secured by pledges of the stock
for the proceeds therefrom which is the subject of the option. Where
tender is made as provided for in (ii) above, only the net shares
issued upon exercise of the option will be deemed utilized in the
Plan.
TRANSFERABILITY OF OPTIONS. Options which are deemed incentive stock
options are not transferable by the optionee during the optionee's
lifetime. Nonstatutory options may be transferred to the extent
provided by the Committee or the Board, as the case may be. All
options are transferable by the optionee's will or by the laws of
descent and distribution.
STOCK APPRECIATION RIGHTS. Stock Appreciation Rights (SARs) grant to
the holder the right to receive the increase in the value of Stock
subject to an option in lieu of purchasing such stock. The SAR
entitles the holder of a related option to receive payment in an
amount equal to the difference between Fair Market Value (as defined
by the Plan) on the date of exercise of the SAR, less the option price
under the related option, times the number of shares as to which the
SAR has been exercised. Notwithstanding the foregoing, the agreement
evidencing the SAR may limit in any manner, the amount payable with
respect to any SAR. Payment for the SAR may be made by the Company in
the discretion of the Committee or the Board, as the case may be, in
cash or in shares of stock (in an amount determined at their Fair
Market Value on the date immediately preceding the date of the
exercise of the SAR) or a combination of cash and stock. To the
extent payment is made in cash, the shares of stock allocable to the
portion of the option surrendered may again be the subject of options
or restricted shares of stock under the 1997 Plan. Whenever an SAR is
exercised and payment is made in shares of stock, only the net shares
issued upon exercise of the SAR will be deemed utilized in the Plan.
Subject to the terms of the 1997 Plan, the Committee or the Board, as
the case may be, may modify outstanding awards of SARs. There have
been no SARs granted under the 1997 Plan.
RESTRICTED STOCK. The Committee or the Board, as the case may be, may
grant Restricted Stock under the 1997 Plan to eligible participants in
such amounts in its discretion and consistent with the limitations of
the 1997 Plan, which it deems appropriate. Each grant of Restricted
Stock shall be made pursuant to a written agreement which shall
contain such restrictions, terms and conditions as the Committee or
the Board may determine in its discretion. The shares of Restricted
Stock may not be sold, transferred, pledged assigned or otherwise
alienated or hypothecated for such period of time and under such terms
and conditions as the Committee or the Board, as the case may be,
shall in its discretion establish. During the period of restriction,
the holders of such Restricted Shares shall be entitled to vote the
Restricted Shares and to receive dividends and other distributions if
any are paid.
<PAGE>
ADJUSTMENTS FOR CHANGES IN CONTROL. In the event of a change in
control of the Company (as defined in the 1997 Plan), the Committee
may take such action and make such adjustments with respect to the
options, SARs and restricted stock grants as it deems appropriate
including, but not limited to, the right to accelerate in whole or in
part the exercisability of options and/or to reduce the "Period of
Restriction" (as defined by the 1997 Plan).
ADJUSTMENTS FOR CHANGE IN CAPITALIZATION. In the event of a change in
capitalization (as defined in the 1997 Plan), the Committee shall
conclusively determine the appropriate adjustments, if any, to (i) the
maximum number and class of shares of stock or other securities with
respect to which options or restricted stock may be granted under the
1997 Plan; (ii) the number and class of shares of stock or other
securities which are subject to outstanding options or restricted
stock granted under the 1997 Plan, and the purchase price therefor, if
applicable, and (iii) the maximum number of shares of stock or other
securities with respect to which options or SARs may be granted during
the term of the 1997 Plan. Any such adjustment made shall be in a
manner not inconsistent with modifications allowed by Section
424(h)(3) of the Code and only to the extent permitted by Sections 422
and 424 of the Code.
AMENDMENTS. The 1997 Plan may be amended at any time and from time to
time by the board of directors, provided, however, that no such action
of the Board, without approval of the stockholders, may increase the
total amount of stock which may be issued under the 1997 Plan, except
in the case of a change in capitalization as set forth above. No
amendment may alter or impair any of the rights or obligations of any
person under any option or restricted stock granted under the 1997
Plan without the participant's consent.
DURATION OF PLAN. The 1997 Plan shall remain in effect, subject to
the Board's right to earlier terminate the 1997 Plan until all of the
stock subject to the 1997 Plan has been purchased or acquired or until
January 30, 2007. Termination of the Plan will not effect outstanding
grants.
FEDERAL INCOME TAX ASPECTS. The following summary is intended to
reflect the current provisions of the Code and the Income Tax
regulations thereunder applicable to the 1997 Plan. It is not
intended to be a complete description of the federal income tax
aspects of the 1997 Plan. The exact federal income tax treatment of
awards will depend on the specific nature of any such award This
summary does not address state and local tax considerations.
(a) INCENTIVE STOCK OPTIONS. Neither the grant nor the exercise of
an incentive stock option is taxable to the employee receiving
the option. If the employee holds the stock purchased upon
exercise of an incentive stock option for at least one year after
the purchase of the stock and until at least two years after the
option was granted, his or her sale of the shares will produce
long-term capital gain or loss, and the Company will not be
entitled to any tax deduction. However, if the employee sells or
otherwise transfers the stock before these holding periods have
elapsed, he or she will generally be taxed at ordinary income
<PAGE>
rates on the sale on the amount of the excess of the fair market
value of the stock when the option was exercised over the option
exercise price, and the Company will be entitled to a tax
deduction in the same amount. Any remaining gain or loss will be
a short-term or long-term capital gain or loss as the case may
be.
(b) NONSTATUTORY STOCK OPTIONS. The 1997 Plan permits the granting
of nonstatutory stock options, which do not qualify for the same
tax treatment accorded incentive stock options. Under the Code,
a person granted a nonstatutory stock option will not recognize
taxable income at the time the option is granted. Except as
otherwise described below, such a person will recognize ordinary
income at the time common stock is acquired upon the exercise of
the option, in an amount equal to the excess of the then fair
market value of the shares over the exercise price. Upon
disposition of the common stock so acquired, any amount received
in excess of the fair market value of the common stock on the
date of exercise will be treated as long-term or short-term
capital gain, depending on the optionee's holding period. If the
amount received upon disposition of the common stock is less than
its fair market value on the date of exercise, the difference
will be treated as long-term or short-term capital loss,
depending upon the optionee's holding period. The Company will
generally be entitled to a deduction for federal income tax
purposes at the time and in the amount that the optionee
recognizes as ordinary income.
(c) PAYMENT OF OPTION PRICE IN SHARES. If an option is exercised and
payment is made by means of previously held shares or shares and
cash, there is no gain or loss recognized to the optionee on the
previously held shares. The optionee's basis and holding period
of the previously held shares will be carried over to an
equivalent number of shares received under the option. Any
additional shares received under the option will have a basis
equal to the compensation realized by the optionee for federal
income tax purposes plus the amount of any additional cash paid.
The Company will generally receive a federal income tax deduction
at the same time, and in the same amount, as compensation is
realized by the participant.
(d) RESTRICTED STOCK. The acquisition of Restricted Stock is not a
taxable event. When restrictions imposed upon the Restricted
Stock expire, the holder will recognize ordinary income in an
amount equal to the excess, if any, of the fair market value of
the Restricted Stock on the date of such expiration over the
purchase price, if any, for the shares. The holder may, however,
elect within 30 days after the date of acquisition to recognize
ordinary income on the date of purchase in an amount equal to the
excess of the fair market value of the Restricted Stock on the
date of the grant, determined without regard to the restrictions
imposed on such shares, over the purchase price, if any, for the
shares. If and when the holder recognizes ordinary income
attributable to the Restricted Stock, the Company will be
entitled to a deduction for the same amount.
<PAGE>
(e) SHARE APPRECIATION RIGHTS. The grant of an SAR is generally not
a taxable event for the grantee. Upon exercise of the SAR, the
grantee will recognize ordinary income in an amount equal to the
amount of cash or stock received upon such exercise, and the
Company will be entitled to a deduction for the same amount. If
SARs are granted with respect to an option, the existence of the
SARs will require charges to income for compensation expense
based on the amount if any, by which the market price of the
shares of common stock, subject to SARs, exceeds the option price
over the period of the option.
ACCOUNTING. The Company has elected to be governed by Accounting
Principles Board Opinion No. 25, so that there is no earnings charge
in connection with the grant or exercise of at-market stock options
granted under the 1997 Plan. Effective for 1996, the financial
Accounting Standards Board Statement No. 123 requires companies to
show in a footnote to their annual financial statements, the pro-forma
affect that option grants would have had on earnings if the "value" of
the stock options granted that year were treated as compensation
expense. See note 5 of the "Notes to Financial Statements" in the
Company's 1996 annual report to the shareholders. Restricted stock
grants under the 1997 Plan would, however, involve an earnings charge,
as would SARs as discussed above. In addition, the options for
462,554 shares at $7.56 per share granted on January 30, 1997,
including all of such options for 207,554 shares granted to executive
officers and directors, are subject to shareholder approval of the
1997 Plan and, if approved by the shareholders, will be subject to an
earnings charge to the extent the market price of the common stock on
June 5, 1997 exceeds $7.56 per share.
EFFECT ON PRIOR PLANS. The 1997 Plan will become effective upon
approval by the shareholders at the annual meeting. The Board has
terminated the 1985, 1992 and 1994 plans as to future grants
conditioned upon and effective immediately upon stockholder approval
of the 1997 Plan at the annual meeting. Options previously granted
pursuant to the Company's 1985, 1992 and 1994 plans will continue to
be governed by the respective provisions of such plans except as noted
above, to the extent of any forfeited and re-issued shares.
NEW PLAN BENEFITS. The following table provides information on
options granted to executive officers and directors under the 1997
Plan subject to shareholder approval:
Number of Option
Executive Officer/ Options Exercise Price Dollar Value
Directors Granted Per Share(1) of Options (2)
------------------------ --------- -------------- --------------
Rockne J. Timm 65,100 $7.56 69,332
A. Douglas Belanger 52,000 $7.56 55,380
Robert A. McGuinness 38,500 $7.56 41,003
James H. Coleman 26,000 $7.56 27,690
Jean C. Potvin 12,977 $7.56 13,821
Patrick D. McChesney 12,977 $7.56 13,821
<PAGE>
(1) Equal to the fair market value for the common stock on the date
of grant.
(2) Equal to the market value on April 7, 1997, less the exercise
price, multiplied by the number of shares. The closing market
price of the common stock on April 7, 1997, as reported on the
NASDAQ Small-Cap Market was $8.625 per share.
REQUISITE APPROVAL. Approval of the 1997 Plan for the purpose of
complying with TSE policy limitations requires the affirmative vote of
a majority of the shares of common stock of the Company present at the
annual meeting in person or by proxy, held by persons who are neither
directors, executive officers or other insiders (or associates of
insiders) of the Company. Based on information available to the
Company, as of the record date, 1,622,758 shares of common stock were
held by persons who are ineligible to vote for such purpose.
Accordingly, approval of the 1997 Plan will require the affirmative
vote of the holders of at least a majority of the remaining 21,190,263
shares of common stock.
The foregoing notwithstanding, in the event the 1997 Plan is otherwise
approved by the holders of at least a majority of the issued shares of
common stock of the Company present at the annual meeting, in person
or by proxy, though less than a majority of its disinterested holders,
it will be deemed approved but will remain subject to the policy
limitations of the TSE with respect to the number of options that may
be granted to directors, executive officers and other insiders.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ADOPTION OF THE 1997
STOCK OPTION PLAN. ---
ITEM NO. 7 -- APPROVAL OF THE PURCHASE OF COMMON STOCK BY
THE COMBINED 401(k) SALARY REDUCTION PLAN AND EMPLOYEE
STOCK OWNERSHIP PLAN
----------------------------------------------------------
At the annual meeting, the shareholders will be asked to approve for
the purposes of TSE policy limitations, the purchase of 39,683 common
shares by the Company's combined 401(k) Salary Reduction Plan and
Employee Stock Ownership Plan (the "Gold Reserve KSOP Plan").
Important information concerning the limited purpose and effect of the
proposal is set forth below.
The board of directors, on January 30, 1997, authorized the purchase
of an additional 39,683 common shares by the Gold Reserve KSOP Plan at
a price of $7.56 (US) per share which represents the average of the
closing bid and ask prices as reported by the NASDAQ Stock Market on
January 30, 1997. Qualification of the foregoing purchase of
additional common shares by the Gold Reserve KSOP Plan pursuant to the
policies of the TSE will enable the company to allocate them, pursuant
to the Employee Stock Ownership component of the Plan, to directors,
executives, officers and other insiders (and other eligible
participants) in compliance with the TSE's limitations on awards to
such persons pursuant to share compensation arrangements. In 1991,
1992, 1994 and 1995 shareholders previously approved the purchase of
up to 323,571 shares of common stock by the Gold Reserve KSOP Plan.
<PAGE>
At the present time, 4,254 of the previously approved shares remain
available for allocation by the Gold Reserve KSOP Plan. (See the
Section of the Proxy Statement entitled, "Item No. 6--Adoption of the
1997 Performance and Equity Plan" for more specific information
concerning the TSE policy limitations.)
Requisite Approval.
-------------------
Approval of Item No. 7 for the purpose of qualifying the stock
purchase by the Gold Reserve KSOP Plan in compliance with TSE policy
limitations, will require the affirmative vote of the holders of a
majority of the shares present at the annual meeting held by persons
who are not directors, executive officers, or other insiders (or
associates of insiders) of the Company. Based on information
available to the Company, as of the record date 1,622,758 shares of
common stock were held by persons who were ineligible to vote for such
purpose. Accordingly, approval of the Gold Reserve KSOP purchase for
such purpose will require the affirmative vote of the holders of at
least a majority of the remaining 21,190,263 shares of common stock
outstanding at such date held by persons who were eligible to vote for
such purpose.
The foregoing notwithstanding, in the event the purchase of the shares
by the Gold Reserve KSOP Plan is otherwise approved by the holders of
at least a majority of the issued shares of common stock of the
Company present at the annual meeting, in person or by proxy, but less
than a majority of its disinterested shareholders, it will be deemed
approved but will remain subject to the policy limitations of the TSE
with respect to the number of shares of common stock that may be
allocated to directors and executive officers.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
APPROVAL OF THE PURCHASE OF COMMON ---
STOCK FOR THE COMBINED 401(k) SALARY
REDUCTION PLAN AND EMPLOYEE STOCK OWNERSHIP PLAN.
ITEM NO. 8 -- RATIFICATION OF INDEPENDENT AUDITOR
-------------------------------------------------
The firm of Coopers & Lybrand L.L.P., independent certified public
accountants, has been selected by the Board of Directors to serve as
the independent auditor of the Company for the year ended December 31,
1997 and any interim period. The firm is experienced in auditing and
advising public companies engaged in mining and related activities,
and has served as auditor of the Company since 1992. Representatives
of the firm of Coopers & Lybrand L.L.P. will be present at the annual
meeting to respond to questions of the shareholders.
Ratification by the shareholders of the Company's independent auditor
is not required under the Montana Business Corporation Act. The board
of directors believes, however, that the selection of an auditor is an
important matter and that the shareholders of the Company are entitled
to approve or disapprove the Board's choice of auditor through
ratification. The affirmative vote of a majority of the issued and
outstanding shares of common stock present at the annual meeting, in
person or by proxy, is required to ratify the selection of an auditor.
If the board of directors' selection is not ratified, the Board will
determine whether the auditor should be replaced.
<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
THE RATIFICATION OF COOPERS & ---
LYBRAND L.L.P. AS THE COMPANY'S
INDEPENDENT AUDITOR.
CONCLUSION
----------
It is important that proxies be returned promptly. Shareholders are
requested to vote, sign, date and promptly return the proxy in the
enclosed self-addressed envelope. The board of directors knows of no
other matters which may be presented for shareholder action at the
annual meeting. If other matters do properly come before the meeting,
it is intended that the persons named in the proxies will vote on such
proposals according to their best judgment.
A COPY OF THE COMPANY'S ANNUAL REPORT TO SHAREHOLDERS IS ENCLOSED WITH
THIS PROXY STATEMENT. COPIES OF THE COMPANY'S FORM 10-K WHICH HAS BEEN
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION CAN BE OBTAINED FREE
OF CHARGE FROM THE COMPANY BY REQUESTING SUCH REPORT IN WRITING TO:
MS. JENNIFER SEMM, GOLD RESERVE CORPORATION, 1940 SEAFIRST FINANCIAL
CENTER, SPOKANE, WASHINGTON 99201.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Mary E. Smith
----------------------------------
Mary E. Smith, Secretary
<PAGE>
SCHEDULE "A" TO PROXY STATEMENT
PROPOSED AMENDMENT TO THE ARTICLES OF INCORPORATION
TO REDUCE QUORUM AND VOTING REQUIREMENTS AND TO INCREASE AUTHORIZED
CAPITAL STOCK
Article V of the Company's Articles of Incorporation, as heretofore
amended and restated, is amended to read in its entirety as follows:
ARTICLE V
Authorized Shares
-----------------
The total number of shares of all classes of stock which this
corporation shall have authority to issue is 500,000,000 shares
consisting of (a) 480,000,000 shares of common stock, no par value per
share (the "Common Stock"), and (b) 20,000,000 shares of preferred
stock, no par value per share, (the "Preferred Stock").
The designations, relative rights, preferences and limitations of the
shares of Common Stock and Preferred Stock are as follows:
A. Common Stock.
-------------
VOTING. The holders of Common Stock shall at all times vote as
one class, with each holder of record entitled to one vote for
each share held. A holder of shares of Common Stock shall have
the right to cumulate his votes.
DIVIDENDS. Each issued and outstanding share of Common Stock
shall entitle the holder thereof to receive dividends (whether
payable in cash, stock or otherwise), when, as and if declared by
the board of directors of this corporation out of funds legally
available therefore, subject, however, to the right of preferred
shareholders to first receive dividends payable with respect to
the Preferred Stock.
LIQUIDATION, DISSOLUTION OR WINDING UP. In the event of any
liquidation, dissolution or winding up of the affairs of this
corporation, whether voluntary or involuntary, each issued and
outstanding share of Common Stock shall entitle the holder of
record thereof to receive ratably and equally all the assets and
funds of this corporation available for distribution to its
shareholders, whether from capital or surplus, subject, however,
to the rights of preferred shareholders to first receive such
assets and funds with respect to the Preferred Stock.
MERGER, CONSOLIDATION. ETC. Upon the merger or consolidation of
this corporation (in a merger or consolidation in which
shareholders of this corporation receive cash or securities of
any other person or entity upon such merger or consolidation), or
upon the sale or other disposition of all or substantially all of
the properties and assets of this corporation as an entirety to
any person or entity, the aggregate consideration therefore
payable to the shareholders of this corporation, if any, shall be
distributed as if such merger, consolidation, sale or other
disposition were a distribution in liquidation, dissolution or
winding up of the affairs of this corporation.
<PAGE>
PREEMPTIVE RIGHTS. A holder of shares of Common Stock shall not
be entitled to preemptive rights to acquire additional shares of
capital stock of this corporation.
B. Preferred Stock.
----------------
BOARD DETERMINATION OF CERTAIN CHARACTERISTICS. The board of
directors of this corporation is hereby authorized, subject to
the limitations prescribed by law and the provisions hereof, at
its option, from time to time to divide all or any part of the
Preferred Stock into series thereof; to establish from time to
time the number of shares to be included in any such series; to
fix the designations, powers, preferences and rights of the
shares of each such series and the qualifications, limitations or
restrictions thereof; and to determine variations, if any,
between any series so established as to all matters, including,
but not limited to, the determination of the following:
(a) the number of shares constituting each such series and the
distinctive designation of such series;
(b) the rate of dividend, if any, and whether dividends shall be
cumulative or noncumulative;
(c) the voting power of holders of such series, if any,
including, without limitation, the vote or fraction of vote
to which such holder may be entitled, the events upon the
occurrence of which such holder may be entitled to vote, and
any restrictions or limitations upon the right of such
holder to vote, except on such matters as may be required by
law;
(d) whether or not such series shall be redeemable and, if so,
the terms and conditions of such redemption, including the
date or dates after which the shares constituting such
series shall be redeemable and the amount per share payable
in case of redemption, which amount may vary under different
conditions and at different redemption dates;
(e) the extent, if any, to which such series shall have the
benefit of any sinking fund provisions for redemption or
repurchase of shares;
(f) the rights, if any, of such series in the event of the
dissolution of this corporation or upon any distribution of
the assets of this corporation, including, with respect to
the voluntary or involuntary liquidation, dissolution or
winding up of this corporation, the relative rights of
priority, if any, of payment of shares of such series;
(g) whether or not the shares of such series shall be
convertible and, if so, the terms and conditions on which
shares of such series shall be so convertible; and
(h) such other powers, designations, preferences and relative
participating, optional or other special rights, and such
qualifications, limitations or restrictions thereon as are
permitted by law."
<PAGE>
C. Quorum and Voting Requirements.
-------------------------------
QUORUM REQUIREMENTS. Unless otherwise provided by Montana
general corporation law or these Articles, the quorum required at
any meeting of the shareholders, shall be one-third of the
outstanding shares represented in person or by proxy. A majority
of such quorum shall decide any question that may come before the
meeting.
VOTING REQUIREMENTS FOR APPROVAL OF A MERGER, SHARE EXCHANGE,
SALE OF ASSETS NOT IN THE ORDINARY COURSE OF BUSINESS, AND
DISSOLUTION OF THE COMPANY - Unless otherwise required by Montana
general corporation law or these Articles, a plan of merger,
share exchange, dissolution or the sale, lease, exchange, or
other disposition of all or substantially all of the
corporation's property other than in the usual and regular course
of business shall require approval by an affirmative vote of a
majority of the outstanding shares of each voting group entitled
to be cast on the transaction by that voting group.
<PAGE>
SCHEDULE "B" TO PROXY STATEMENT
SHAREHOLDER RIGHTS PLAN AGREEMENT
---------------------------------
DATED AS OF
April 2, 1997
BETWEEN
GOLD RESERVE CORPORATION
AND
MONTREAL TRUST COMPANY OF CANADA
AS RIGHTS AGENT
<PAGE>
TABLE OF CONTENTS
ARTICLE 1 INTERPRETATION
1.1 Certain Definitions
1.2 Currency
1.3 Headings
1.4 Calculation of Number and Percentage of Beneficial Ownership
of Outstanding Voting Shares
1.5 Acting Jointly or in Concert
1.6 Generally Accepted Accounting Principles
ARTICLE 2 THE RIGHTS
2.1 Legend on Share Certificate
2.2 Initial Exercise Price; Exercise of Rights; Detachment of
Rights
2.3 Adjustments to Exerciser Price; Number of Rights
2.4 Date on Which Exercise Is Effective
2.5 Execution, Authentication, Delivery and Dating of Rights
Certificates
2.6 Registration, Transfer and Exchange
2.7 Mutilated, Destroyed, Lost and Stolen Rights Certificates
2.8 Persons Deemed Owners of Rights
2.9 Delivery and cancellations of Certificates
2.10 Agreement of Rights Holders
2.11 Rights Certificate Holder Not Deemed a Shareholder
ARTICLE 3 ADJUSTMENT TO THE RIGHTS
3.1 Flip-in Event
ARTICLE 4 THE RIGHTS AGENt
4.1 General
4.2 Merger, Amalgamation or Consolidation or Change of Name of
Rights Agent
4.3 Duties of Rights Agent
4.4 Change of Rights Agent
ARTICLE 5 MISCELLANEOUS
5.1 Redemption and Waiver
5.2 Expiration
5.3 Issuance of New Rights Certificates
5.4 Supplements and Amendments
5.5 Fractional Rights and Fractional Shares
5.6 Rights of Action
5.7 Regulatory Approval
5.8 Notice of Proposed Actions
5.9 Notices
5.10 Costs of Enforcement
5.11 Successors
5.12 Benefits of this Agreement
<PAGE>
ARTICLE 5 MISCELLANEOUS, CONTINUED
5.13 Governing Law
5.14 Severability
5.15 Date Agreement Becomes Effective
5.16 Reconfirmation
5.17 Determinations and Actions by the Board of Directors
5.18 Declaration as to Non-Canadian Holders
5.19 Time of the Essence
5.20 Execution in Counterparts
ATTACHMENT 1
FORM OF ASSIGNMENT
FORM OF ELECTION TO EXERCISE
CERTIFICATE
NOTICE
<PAGE>
SHAREHOLDER RIGHTS PLAN AGREEMENT
MEMORANDUM OF AGREEMENT, dated as of April 2, 1997 between Gold
Reserve Corporation (the "Corporation"), a corporation incorporated
under the laws of Montana, and Montreal Trust Company of Canada, a
trust company incorporated under the laws of Canada (the "Rights
Agent");
WHEREAS in order to maximize shareholder value the Board of Directors
of the Corporation has determined that it is advisable for the
Corporation to adopt a shareholder rights plan (the "Rights Plan")
WHEREAS in order to implement the adoption of a shareholder rights
plan as established by this Agreement, the board of directors of the
Corporation has:
(a) authorized the issuance, effective at 12:01 a.m. (Toronto time)
on the Effective Date (as hereinafter defined), of one Right (as
hereinafter defined) in respect of each Common Share (as
hereinafter defined) outstanding at 12:01 a.m. (Toronto time) on
the Effective Date (the "Record Time"); and
(b) provided that the Separation Time occurs after the Record Time,
authorized the issuance of one Right in respect of each Common
Share of the Corporation issued after the Record Time and prior
to the earlier of the Separation Time (as hereinafter defined)
and the Expiration Time (as hereinafter defined).
AND WHEREAS each Right, when issued, will entitle the holder thereof,
after the Separation Time, to purchase securities of the Corporation
pursuant to the terms and subject to the conditions set forth herein;
AND WHEREAS the Corporation desires to appoint the Rights Agent to act
on behalf of the Corporation and the holders of Rights, and the Rights
Agent is willing to so act, in connection with the issuance, transfer,
exchange and replacement of Rights Certificates (as hereinafter
defined), the exercise of Rights and other matters referred to herein;
NOW THEREFORE, in consideration of the premises and the respective
covenants and agreements set forth herein, and subject to such
covenants and agreements, the parties hereby agree as follows:
<PAGE>
ARTICLE 1
INTERPRETATION
1.1 Certain Definitions
-------------------
For purposes of this Agreement, the following terms have the
meanings indicated:
(a) "ACQUIRING PERSON" shall mean any Person who is the
Beneficial Owner of 20 per cent or more of the outstanding
Voting Shares; provided, however, that the term "Acquiring
Person" shall not include:
(i) the Corporation or any Subsidiary of the
Corporation;
(ii) any Person who becomes the Beneficial Owner of 20
per cent or more of the outstanding Voting Shares
as a result of one or any combination of (A) a
Voting Share Reduction, (B) Permitted Bid
Acquisitions, (C) an Exempt Acquisition or (D) Pro
Rata Acquisitions; provided, however, that if a
Person becomes the Beneficial Owner of 20 per cent
or more of the outstanding Voting Shares by reason
of one or any combination of the operation of
Paragraphs (A), (B), (C) or (D) above and such
Person's Beneficial Ownership of Voting Shares
thereafter increases by more than 1 per cent of the
number of Voting Shares outstanding (other than
pursuant to one or any combination of a Voting
Share Reduction, a Permitted Bid Acquisition, an
Exempt Acquisition or a Pro Rata Acquisition), then
as of the date such Person becomes the Beneficial
Owner of such additional Voting Shares, such Person
shall become an "Acquiring Person";
(iii) for a period of ten days after the Disqualification
Date (as defined below), any Person who becomes the
Beneficial Owner of 20 per cent or more of the
outstanding Voting Shares as a result of such
Person becoming disqualified from relying on Clause
1.1(g)(B) because such Person makes or announces a
current intention to make a Take-over Bid, either
alone or by acting jointly or in concert with any
other Person. For the purposes of this definition,
"Disqualification Date" means the first date of
public announcement that any Person is making or
intends to make a Take-over Bid;
(iv) an underwriter or member of a banking or selling
group that becomes the Beneficial Owner of
20 per cent or more of the Voting Shares in
connection with a distribution to the public of
securities of the Corporation; or
<PAGE>
(v) a Person (a "Grandfathered Person") who is the
Beneficial Owner of 20 per cent or more of the
outstanding Voting Shares of the Corporation
determined as of 12:01 am (Toronto time) on the
Agreement Date, provided, however, that this
exception shall not be, and shall cease to be,
applicable to a Grandfathered Person in the event
that such Grandfathered Person shall, after 12:01
am (Toronto time) on the Agreement Date, become the
Beneficial Owner of any additional Voting Shares of
the Corporation that increases its Beneficial
Ownership of Voting Shares by more than 1 per cent
of the number of Voting Shares outstanding, other
than through one or any combination of a Permitted
Bid Acquisition, an Exempt Acquisition, a Voting
Share Reduction, or a Pro Rata Acquisition;
(b) "AFFILIATE": when used to indicate a relationship with a
specified Person, shall mean a Person that directly, or
indirectly through one or more intermediaries, controls,
or is controlled by, or is under common control with, such
specified Person;
(c) "AGREEMENT" shall mean this shareholder rights plan
agreement dated as of April 2, 1997 between the
Corporation and the Rights Agent, as amended or
supplemented from time to time; "hereof", "herein",
"hereto" and similar expressions mean and refer to this
Agreement as a whole and not to any particular part of
this Agreement;
(d) "AGREEMENT DATE" means April 2, 1997;
(e) "ANNUAL CASH DIVIDEND" shall mean cash dividends paid in
any fiscal year of the Corporation to the extent that such
cash dividends do not exceed, in the aggregate, the
greatest of:
(i) 200 per cent of the aggregate amount of cash
dividends declared payable by the Corporation on
its Common Shares in its immediately preceding
fiscal year;
(ii) 300 per cent of the arithmetic mean of the
aggregate amounts of the annual cash dividends
declared payable by the Corporation on its Common
Shares in its three immediately preceding fiscal
years; and
(iii) 100 per cent of the aggregate consolidated net
income of the Corporation, before extraordinary
items, for its immediately preceding fiscal year;
<PAGE>
(f) "ASSOCIATE" means, when used to indicate a relationship
with a specified Person, a spouse of that Person, any
Person of the same or opposite sex with whom that Person
is living in a conjugal relationship outside marriage, a
child of that Person or a relative of that Person if that
relative has the same residence as that Person;
(g) A Person shall be deemed the "BENEFICIAL OWNER" of, and to
have "BENEFICIAL OWNERSHIP" of, and to "BENEFICIALLY OWN",
(i) any securities as to which such Person or any of
such Person's Affiliates or Associates is the owner
at law or in equity;
(ii) any securities as to which such Person or any of
such Person's Affiliates or Associates has the
right to acquire (whether such right is exercisable
immediately or within a period of 60 days
thereafter and whether or not on condition or the
happening of any contingency) pursuant to any
agreement, arrangement, pledge or understanding,
whether or not in writing (other than (x) customary
agreements with and between underwriters and/or
banking group members and/or selling group members
with respect to a distribution of securities by the
Corporation, and (y) pledges of securities in the
ordinary course of business), or upon the exercise
of any conversion right, exchange right, share
purchase right (other than the Rights), warrant or
option;
(iii) any securities which are Beneficially Owned within
the meaning of Clauses 1.1(g)(i) or (ii) by any
other Person with which such Person is acting
jointly or in concert; provided, however, that a
Person shall not be deemed the "BENEFICIAL OWNER"
of, or to have "BENEFICIAL OWNERSHIP" of, or to
"BENEFICIALLY OWN", any security:
(A) where such security has been deposited or
tendered pursuant to any Take-over Bid made
by such Person, made by any of such Person's
Affiliates or Associates or made by any other
Person acting jointly or in concert with such
Person, until such deposited or tendered
security has been taken up or paid for,
whichever shall first occur;
(B) where such Person, any of such Person's
Affiliates or Associates or any other Person
referred to in Clause 1.1(g)(iii), holds such
security provided that (1) the ordinary
business of any such Person (the "Investment
Manager") includes the management of
investment funds for others (which others,
<PAGE>
for greater certainty, may include or be
limited to one or more employee benefit plans
or pension plans) and such security is held
by the Investment Manager in the ordinary
course of such business in the performance of
such Investment Manager's duties for the
account of any other Person or Persons (a
"Client"); or (2) such Person (the "Trust
Company") is licensed to carry on the
business of a trust company under applicable
laws and, as such, acts as trustee or
administrator or in a similar capacity in
relation to the estates of deceased or
incompetent Persons (each an "Estate
Account") or in relation to other accounts
(each an "Other Account") and holds such
security in the ordinary course of such
duties for the estate of any such deceased or
incompetent Person or for such Other
Accounts, (3) such Person is a pension plan
or fund (a "Plan") or is a Person established
by statute for purposes that include, and the
ordinary business or activity of such Person
(the "Statutory Body") includes, the
management of investment funds for employee
benefit plans, pension plans, insurance plans
of various public bodies; or (4) such Person
(the "Administrator") is the administrator or
trustee of one or more Plans; provided, in
any of the above cases, that the Investment
Manager, the Trust Company, the Statutory
Body, the Administrator or the Plan, as the
case may be, is not then making or has not
then announced an intention to make a
Take-over Bid, (other than an Offer to
Acquire Voting Shares or other securities by
means of a distribution by the Corporation or
by means of ordinary market transactions
(including prearranged trades) executed
through the facilities of a stock exchange or
organized over-the-counter market) alone or
by acting jointly or in concert with any
other Person;
(C) where such Person or any of such Person's
Affiliates or Associates is (1) a Client of
the same Investment Manager as another Person
on whose account the Investment Manager holds
such security, (2) an Estate Account or an
Other Account of the same Trust Company as
another Person on whose account the Trust
Company holds or exercises voting or
dispositive power over such security, or
(3) a Plan with the same Administrators as
another Plan on whose account the
Administrator holds such security;
<PAGE>
(D) where such Person is (1) a Client of an
Investment Manager and such security is owned
at law or in equity by the Investment
Manager, (2) an Estate Account or an Other
Account of a Trust Company and such security
is owned at law or in equity by the Trust
Company or (3) a Plan and such security is
owned at law or in equity by the
Administrator of the Plan; or
(E) where such person is the registered holder of
securities as a result of carrying on the
business of or acting as a nominee of a
securities depository.
(h) "BOARD OF DIRECTORS" shall mean the board of directors of
the Corporation or any duly constituted and empowered
committee thereof;
(i) "BUSINESS DAY" shall mean any day other than a Saturday,
Sunday or a day on which banking institutions in Toronto,
Ontario are authorized or obligated by law to close;
(j) "CANADIAN DOLLAR EQUIVALENT" of any amount which is
expressed in United States Dollars means, on any date, the
Canadian dollar equivalent of such amount determined by
multiplying such amount by the U.S. - Canadian Exchange
Rate in effect on such date;
(k) "CANADIAN - U.S. EXCHANGE RATE" means, on any date, the
inverse of the U.S. - Canadian Exchange Rate in effect on
such date;
(l) "CLOSE OF BUSINESS" on any given date shall mean the time
on such date (or, if such date is not a Business Day, the
time on the next succeeding Business Day) at which the
transfer office of the transfer agent (or co-transfer
agent) for the Common Shares in the City of Toronto (or,
after the Separation Time, the office of the Rights Agent
in the City of Toronto) is closed to the public;
(m) "COMMON SHARES" shall mean the shares of common stock in
the capital of the Corporation;
(n) "COMPETING PERMITTED BID" means a Take-over Bid that
(i) is made after a Permitted Bid has been made and
prior to the expiry of the Permitted Bid;
(ii) satisfies all of the provisions of a Permitted Bid
other than the condition set forth in Clause (ii)
of the definition of a Permitted Bid; and
<PAGE>
(iii) contains, and the take-up and payment for
securities tendered or deposited is subject to, an
irrevocable and unqualified provision that no
Voting Shares will be taken up or paid for pursuant
to the Take-over Bid prior to the close of business
on the date that is no earlier than the later of
(A) 21 days after the date of the Take-over Bid
constituting the Competing Permitted Bid; and
(B) 60 days following the date on which the
earliest Permitted Bid which preceded the Competing
Permitting Bid was made; and only if at the date
that the Voting Shares are to be taken up more than
50% of the Voting Shares held by Independent
Shareholders shall have been deposited or tendered
pursuant to the Competing Permitted Bid and not
withdrawn;
(o) "CONTROLLED": a corporation shall be deemed to be
"controlled" by another Person if:
(i) securities entitled to vote in the election of
directors carrying more than 50 per cent of the
votes for the election of directors are held,
directly or indirectly, by or for the benefit of
the other Person; and
(ii) the votes carried by such securities are entitled,
if exercised, to elect a majority of the board of
directors of such corporation;
and "controls", "controlling" and "under common control
with" shall be interpreted accordingly;
(p) "CO-RIGHTS AGENTS" shall have the meaning ascribed thereto
in Subsection 4.1(a);
(q) "DIVIDEND REINVESTMENT ACQUISITION" shall mean an
acquisition of Voting Shares of any class pursuant to a
Dividend Reinvestment Plan;
(r) "DIVIDEND REINVESTMENT PLAN" means a regular dividend
reinvestment or other plan of the Corporation made
available by the Corporation to holders of its securities
where such plan permits the holder to direct that some or
all of:
(i) dividends paid in respect of shares of any class of
the Corporation;
(ii) proceeds of redemption of shares of the
Corporation;
(iii) interest paid on evidences of indebtedness of the
Corporation; or
(iv) optional cash payments;
<PAGE>
be applied to the purchase from the Corporation of Common
Shares;
(s) "EFFECTIVE DATE" means the Business Day immediately
following the day on which the articles of incorporation
of the Corporation are amended to increase the number of
Common Shares that the Corporation is authorized to issue
from 40,000,000 to 480,000,000;
(t) "ELECTION TO EXERCISE" shall have the meaning ascribed
thereto in Clause 2.2(d)(ii);
(u) "EXEMPT ACQUISITION" means a share acquisition in respect
of which the Board of Directors has waived the application
of Section 3.1 pursuant to the provisions of
Subsection 5.1(b), (c) or (d);
(v) "EXERCISE PRICE" shall mean, as of any date, the price at
which a holder may purchase the securities issuable upon
exercise of one whole Right which, until adjustment
thereof in accordance with the terms hereof, shall be
$70.00;
(w) "EXPANSION FACTOR" shall have the meaning ascribed thereto
in Clause 2.3(a)(x);
(x) "EXPIRATION TIME" shall mean the close of business on that
date which is the earliest of the date of termination of
this Agreement pursuant to Section 5.15 or, if this
Agreement is confirmed pursuant to Section 5.15 and the
Share Capital Increase Approval is obtained as
contemplated by Section 5.15, the date of termination of
this Agreement pursuant to Section 5.16 or, if this
Agreement is reconfirmed pursuant to Section 5.16, the
fifth anniversary of the Effective Date;
(y) "FLIP-IN EVENT" shall mean a transaction in or pursuant to
which any Person becomes an Acquiring Person;
(z) "HOLDER" shall have the meaning ascribed thereto in
Section 2.8;
(aa) "INDEPENDENT SHAREHOLDERS" shall mean holders of Voting
Shares, other than:
(i) any Acquiring Person;
(ii) any Offeror, other than a Person referred to in
Clause 1.1(g)(B);
(iii) any Affiliate or Associate of any Acquiring Person
or Offeror;
(iv) any Person acting jointly or in concert with any
Acquiring Person or Offeror; and
<PAGE>
(v) any employee benefit plan, deferred profit sharing
plan, stock participation plan and any other
similar plan or trust for the benefit of employees
of the Corporation or a Subsidiary of the
Corporation, unless the beneficiaries of the plan
or trust direct the manner in which the Voting
Shares are to be voted or direct whether the Voting
Shares are to be tendered to a Take-over Bid;
(bb) "MARKET PRICE" per share of any securities on any date of
determination shall mean the average of the daily closing
prices per share of such securities (determined as
described below) on each of the 20 consecutive Trading
Days through and including the Trading Day immediately
preceding such date; provided, however, that if an event
of a type analogous to any of the events described in
Section 2.3 hereof shall have caused the closing prices
used to determine the Market Price on any Trading Days not
to be fully comparable with the closing price on such date
of determination or, if the date of determination is not a
Trading Day, on the immediately preceding Trading Day,
each such closing price so used shall be appropriately
adjusted in a manner analogous to the applicable
adjustment provided for in Section 2.3 hereof in order to
make it fully comparable with the closing price on such
date of determination or, if the date of determination is
not a Trading Day, on the immediately preceding Trading
Day. The closing price per share of any securities on any
date shall be:
(i) the closing board lot sale price or, in case no
such sale takes place on such date, the average of
the closing bid and asked prices for each of such
securities as reported by the principal Canadian
stock exchange on which such securities are listed
or admitted to trading;
(ii) if for any reason none of such prices is available
on such day or the securities are not listed or
posted for trading on a Canadian stock exchange,
the last sale price or, in case no such sale takes
place on such date, the average of the closing bid
and asked prices for each of such securities as
reported by the principal national United States
securities exchange or market on which such
securities are listed or admitted to trading;
(iii) if for any reason none of such prices is available
on such day or the securities are not listed or
admitted to trading on a Canadian stock exchange or
a national United States securities exchange or
market, the last sale price or, in case no sale
takes place on such date, the average of the high
bid and low asked prices for each of such
securities in the over-the-counter market, as
quoted by any reporting system then in use; or
<PAGE>
(iv) if for any reason none of such prices is available
on such day or the securities are not listed or
admitted to trading on a Canadian stock exchange or
a national United States securities exchange or
market or quoted by any such reporting system, the
average of the closing bid and asked prices as
furnished by a professional market maker making a
market in the securities;
provided, however, that if for any reason none of such
prices is available on such day, the closing price per
share of such securities on such date means the fair value
per share of such securities on such date as determined by
a nationally or internationally recognized investment
dealer or investment banker with respect to the fair value
per share of such securities. The Market Price shall be
expressed in Canadian dollars and, if initially determined
in respect of any day forming part of the 20 consecutive
Trading Day period in question in United States dollars,
such amount shall be translated into Canadian dollars on
such date at the Canadian Dollar Equivalent thereof.
(cc) "MONTANA BUSINESS CORPORATIONS ACT" means the Montana
Business Corporations Act, as amended, and the regulations
made thereunder and any comparable or successor laws or
regulations thereto;
(dd) "1933 SECURITIES ACT" means the Securities Act of 1933 of
the United States, as amended, and the rules and
regulations thereunder as now in effect or as the same may
from time to time be amended, re-enacted or replaced;
(ee) "1934 EXCHANGE ACT" means the Securities Exchange Act of
1934 of the United States, as amended, and the rules and
regulations thereunder as now in effect or as the same may
from time to time be amended, re-enacted or replaced;
(ff) "NOMINEE" shall have the meaning ascribed thereto in
Subsection 2.2(c);
(gg) "OFFER TO ACQUIRE" shall include:
(i) an offer to purchase or a solicitation of an offer
to sell; and
(ii) an acceptance of an offer to sell, whether or not
such offer to sell has been solicited;
or any combination thereof, and the Person accepting an
offer to sell shall be deemed to be making an Offer to
Acquire to the Person that made the offer to sell;
(hh) "OFFEROR" shall mean a Person who has announced an
intention to make or who is making a Take-over Bid;
<PAGE>
(ii) "PERMITTED BID" means a Take-over Bid made by an Offeror
by way of take-over bid circular which also complies with
the following additional provisions:
(i) the Take-over Bid is made to all holders of Voting
Shares as registered on the books of the
Corporation, other than the Offeror;
(ii) the Take-over Bid contains, and the take-up and
payment for securities tendered or deposited is
subject to, an irrevocable and unqualified
provision that no Voting Shares will be taken up or
paid for pursuant to the Take-over Bid prior to the
close of business on the date which is not less
than 60 days following the date of the Take-over
Bid and only if at such date more than 50 per cent
of the Voting Shares held by Independent
Shareholders shall have been deposited or tendered
pursuant to the Take-over Bid and not withdrawn;
(iii) the Take-over Bid contains an irrevocable and
unqualified provision that unless the Take-over Bid
is withdrawn, Voting Shares may be deposited
pursuant to such Take-over Bid at any time during
the period of time between the date of the Take-
over Bid and the date on which Voting Shares may be
taken up and paid for and that any Voting Shares
deposited pursuant to the Take-over Bid may be
withdrawn until taken up and paid for; and
(iv) the Take-over Bid contains an irrevocable and
unqualified provision that if, on the date on which
Voting Shares may be taken up and paid for, more
than 50% of the Voting Shares held by Independent
Shareholders shall have been deposited pursuant to
the Take-over Bid and not withdrawn, the Offeror
will make a public announcement of that fact and
the Take-over Bid will remain open for deposits and
tenders of Voting Shares for not less than ten
Business Days from the date of such public
announcement;
(jj) "PERMITTED BID ACQUISITION" shall mean an acquisition of
Voting Shares made pursuant to a Permitted Bid or a
Competing Permitted Bid;
(kk) "PERSON" shall include an individual, body corporate,
firm, partnership, limited partnership, limited liability
company, syndicate or other form of unincorporated
association, trust, trustee, executor, administrator,
legal personal representative, group, unincorporated
organization, a government and its agencies or
instrumentalities, any entity or group whether or not
having legal personality;
<PAGE>
(ll) "PRO RATA ACQUISITION" shall mean an acquisition by a
Person of Voting Shares pursuant to:
(i) a Dividend Reinvestment Acquisition;
(ii) a stock dividend, stock split or other event in
respect of securities of the Corporation of one or
more particular classes or series pursuant to which
such Person becomes the Beneficial Owner of Voting
Shares on the same pro rata basis as all other
holders of securities of the particular class,
classes or series;
(iii) the acquisition or the exercise by the Person of
rights to purchase Voting Shares issued by the
Corporation to all holders of securities of the
Corporation of one or more particular classes or
series pursuant to a rights offering or pursuant to
a prospectus, provided that such rights are
acquired directly from the Corporation and not from
any other Person; or
(iv) a distribution of Voting Shares, or securities
convertible into or exchangeable for Voting Shares
(and the conversion or exchange of such convertible
or exchangeable securities), made pursuant to a
prospectus or by way of a private placement by the
Corporation provided that the Person does not
thereby acquire beneficial ownership of a greater
percentage of such Voting Shares or securities
convertible into or exchangeable for Voting Shares
so offered than the Person's percentage of Voting
Shares beneficially owned immediately prior to such
acquisition ;
(mm) "RECORD TIME" has the meaning set forth in the recitals
hereto;
(nn) "RIGHT" means a right to purchase a Common Share of the
Corporation, upon the terms and subject to the conditions
set forth in this Agreement;
(oo) "RIGHTS CERTIFICATE" means the certificates representing
the Rights after the Separation Time, which shall be
substantially in the form attached hereto as Attachment 1;
(pp) "RIGHTS REGISTER" shall have the meaning ascribed thereto
in Subsection 2.6(a);
(qq) "SECURITIES ACT (ONTARIO)" shall mean the Securities Act,
R.S.O. 1990, c.S.5, as amended, and the regulations
thereunder, and any comparable or successor laws or
regulations thereto;
<PAGE>
(rr) "SEPARATION TIME" shall mean, subject to Sub-
section 5.1(d), the later of
(i) the close of business on the tenth Trading Day
after the earlier of:
(ii) the Stock Acquisition Date; and
(iii) the date of the commencement of or first public
announcement of the intent of any Person (other
than the Corporation or any Subsidiary of the
Corporation) to commence a Take-over Bid (other
than a Permitted Bid or a Competing Permitted Bid),
(iv) or such later time as may be determined by the
Board of Directors, provided that, if any Take-over
Bid referred to in clause (B) above expires, is not
made, is cancelled, terminated or otherwise
withdrawn prior to the Separation Time, such
Take-over Bid shall be deemed, for the purposes of
this definition, never to have been commenced, made
or announced; and
(v) the Record Time;
(ss) "SHARE CAPITAL INCREASE APPROVAL" shall have the meaning
ascribed thereto in Section 5.15;
(tt) "STOCK ACQUISITION DATE" shall mean the first date of
public announcement (which, for purposes of this
definition, shall include, without limitation, a report
filed pursuant to Section 101 of the Securities Act
(Ontario) or Section 13(d) of the 1934 Exchange Act) by
the Corporation or an Acquiring Person of facts indicating
that a Person has become an Acquiring Person;
(uu) "SUBSIDIARY": a corporation shall be deemed to be a
Subsidiary of another corporation if:
(i) it is controlled by:
(ii) that other; or
(iii) that other and one or more corporations each of
which is controlled by that other; or
(iv) two or more corporations each of which is
controlled by that other; or
(v) it is a Subsidiary of a corporation that is that
other's Subsidiary;
<PAGE>
(vv) "TAKE-OVER BID" shall mean an Offer to Acquire Voting
Shares or other securities of the Corporation, if,
assuming that the Voting Shares or other securities
subject to the Offer to Acquire are acquired at the date
of such Offer to Acquire by the Person making such Offer
to Acquire, the Voting Shares Beneficially Owned by the
Person making the Offer to Acquire would constitute in the
aggregate 20 per cent or more of the outstanding Voting
Shares at the date of the Offer to Acquire;
(ww) "TRADING DAY", when used with respect to any securities,
shall mean a day on which the principal Canadian stock
exchange on which such securities are listed or admitted
to trading is open for the transaction of business or, if
the securities are not listed or admitted to trading on
any Canadian stock exchange, a Business Day;
(xx) "U.S.-CANADIAN EXCHANGE RATE" means, on any date:
(i) if on such date the Bank of Canada sets an average
noon spot rate of exchange for the conversion of
one United States dollar into Canadian dollars,
such rate; and
(ii) in any other case, the rate for such date for the
conversion of one United States dollar into
Canadian dollars calculated in such manner as may
be determined by the Board of Directors from time
to time acting in good faith;
(yy) "U.S. DOLLAR EQUIVALENT" of any amount which is expressed
in Canadian dollars means, on any date, the United States
dollar equivalent of such amount determined by multiplying
such amount by the Canadian-U.S. Exchange Rate in effect
on such date;
(zz) "VOTING SHARE REDUCTION" shall mean an acquisition or
redemption by the Corporation of Voting Shares which, by
reducing the number of Voting Shares outstanding,
increases the percentage of outstanding Voting Shares
Beneficially Owned by any person to 20 per cent or more of
the Voting Shares then outstanding; and
(aaa) "VOTING SHARES" shall mean the Common Shares of the
Corporation and any other shares in the capital of the
Corporation entitled to vote generally in the election of
all directors.
1.2 Currency
--------
All sums of money which are referred to in this Agreement are
expressed in lawful money of Canada, unless otherwise specified.
<PAGE>
1.3 Headings
--------
The division of this Agreement into Articles, Sections,
Subsections, Clauses, Paragraphs, Subparagraphs or other
portions hereof and the insertion of headings, subheadings and a
table of contents are for convenience of reference only and
shall not affect the construction or interpretation of this
Agreement.
1.4 Calculation of Number and Percentage of Beneficial Ownership of
Outstanding Voting Shares
---------------------------------------------------------------
(a) For purposes of this Agreement, in determining the
percentage of outstanding Voting Shares of the Corporation
with respect to which a Person is or is deemed to be the
Beneficial Owner, all unissued Voting Shares of the
Corporation of which such person is deemed to be the
Beneficial Owner shall be deemed to be outstanding.
(b) For purposes of this Agreement, the percentage of Voting
Shares Beneficially Owned by any Person shall be and be
deemed to be the product (expressed as a percentage)
determined by the formula:
100 x A/B
where:
A= the number of votes for the election of all
directors generally attaching to the Voting
Shares Beneficially Owned by such Person; and
B= the number of votes for the election of all
directors generally attaching to all
outstanding Voting Shares.
The percentage of outstanding Voting Shares represented by
any particular group of Voting Shares acquired or held by
any Person shall be determined in like manner mutatis
mutandis.
1.5 Acting Jointly or in Concert
----------------------------
For purposes of this Agreement a Person is acting jointly or in
concert with another Person, if such Person has any agreement,
commitment, arrangement or understanding, whether formal or
informal and whether or not in writing, with such other Person
for the purpose of acquiring or Offering to Acquire any Voting
Shares (other than (x) customary agreements with and between
underwriters and/or banking group members and/or selling group
members with respect to a distribution of securities by the
Corporation, and (y) pledges of securities in the ordinary
course of business).
<PAGE>
1.6 Generally Accepted Accounting Principles
----------------------------------------
Wherever in this Agreement reference is made to generally
accepted accounting principles, such reference shall be deemed
to be generally accepted accounting principles followed in the
United States of America applicable on a consolidated basis
(unless otherwise specifically provided herein to be applicable
on an unconsolidated basis) as at the date on which a
calculation is made or required to be made in accordance with
generally accepted accounting principles. Where the character
or amount of any asset or liability or item of revenue or
expense is required to be determined, or any consolidation or
other accounting computation is required to be made for the
purpose of this Agreement or any document, such determination or
calculation shall, to the extent applicable and except as
otherwise specified herein or as otherwise agreed in writing by
the parties, be made in accordance with generally accepted
accounting principles applied on a consistent basis.
<PAGE>
ARTICLE 2
THE RIGHTS
2.1 Legend on Share Certificates
----------------------------
Certificates representing Common Shares which are issued after
the Record Time but prior to the earlier of the Separation Time
and the Expiration Time, shall also evidence one Right for each
Common Share represented thereby until the earlier of the
Separation Time or the Expiration Time and the Corporation shall
cause such certificates to have impressed thereon, printed
thereon, written thereon or otherwise affixed to them the
following legend:
Until the close of business on the earlier of the
Separation Time or the Expiration Time (as both terms are
defined in the Shareholder Rights Agreement referred to
below), this certificate also evidences rights of the
holder described in a Shareholder Rights Plan Agreement
dated as of April 2, 1997 (the "Shareholder Rights
Agreement") between Gold Reserve Corporation (the
"Corporation") and Montreal Trust Company of Canada, as
supplemented and amended, the terms of which are
incorporated herein by reference and a copy of which is on
file at the principal executive offices of the
Corporation. Under certain circumstances set out in the
Shareholder Rights Agreement, the rights may be
terminated, may expire, may become null and void (if, in
certain cases they are "Beneficially Owned" by an
"Acquiring Person" as such terms are defined in the
Shareholder Rights Agreement, whether currently held by or
on behalf of such Person or a subsequent holder) or may be
evidenced by separate certificates and no longer evidenced
by this certificate. The Corporation will mail or arrange
for the mailing of a copy of the Shareholder Rights
Agreement to the holder of this certificate without charge
as soon as practicable after the receipt of a written
request therefor.
Provided that the Record Time occurs prior to the Separation
Time, certificates representing Common Shares that are issued
and outstanding at the Record Time shall also evidence one Right
for each Common Share represented thereby notwithstanding the
absence of the foregoing legend, until the close of business on
the earlier of the Separation Time and the Expiration Time.
2.2 Initial Exercise Price; Exercise of Rights; Detachment of Rights
----------------------------------------------------------------
(a) Subject to adjustment as herein set forth, each Right will
entitle the holder thereof, from and after the Separation
Time and prior to the Expiration Time, to purchase one
Common Share for the Exercise Price or the U.S. Dollar
Equivalent as at the Business Day immediately preceding
the day of exercise of the Right (and the Exercise Price
and number of Common Shares are subject to adjustment as
set forth below).
<PAGE>
(b) Until the Separation Time,
(i) the Rights shall not be exercisable and no Right
may be exercised; and
(ii) provided the Record Time occurs prior to the
Separation Time, each Right, when issued, will be
evidenced by the certificate for the associated
Common Share of the Corporation registered in the
name of the holder thereof (which certificate shall
also be deemed to represent a Rights Certificate)
and will be transferable only together with, and
will be transferred by a transfer of, such
associated Common Share of the Corporation.
(c) From and after the Separation Time and prior to the
Expiration Time:
(i) the Rights shall be exercisable; and
(ii) the registration and transfer of Rights shall be
separate from and independent of Common Shares.
Promptly following the Separation Time, the Corporation
will prepare and the Rights Agent will mail to each holder
of record of Common Shares as of the Separation Time
(other than an Acquiring Person and, in respect of any
Rights Beneficially Owned by such Acquiring Person which
are not held of record by such Acquiring Person, the
holder of record of such Rights (a "Nominee")), at such
holder's address as shown by the records of the
Corporation (the Corporation hereby agreeing to furnish
copies of such records to the Rights Agent for this
purpose):
(x) a Rights Certificate appropriately completed,
representing the number of Rights held by such
holder at the Separation Time and having such marks
of identification or designation and such legends,
summaries or endorsements printed thereon as the
Corporation may deem appropriate and as are not
inconsistent with the provisions of this Agreement,
or as may be required to comply with any law, rule
or regulation or with any rule or regulation of any
self-regulatory organization, stock exchange or
quotation system on which the Rights may from time
to time be listed or traded, or to conform to
usage; and
(y) a disclosure statement describing the Rights,
provided that a Nominee shall be sent the materials
provided for in (x) and (y) only in respect of all Common
Shares held of record by it which are not Beneficially
Owned by an Acquiring Person.
<PAGE>
(d) Rights may be exercised, in whole or in part, on any
Business Day after the Separation Time and prior to the
Expiration Time by submitting to the Rights Agent at its
office in Toronto, Ontario or any other office of the
Rights Agent (or any Co-Rights Agent) in cities designated
from time to time for that purpose by the Corporation:
(i) the Rights Certificate evidencing such Rights;
(ii) an election to exercise such Rights (an "Election
to Exercise") substantially in the form attached to
the Rights Certificate appropriately completed and
executed by the holder or his executors or
administrators or other personal representatives or
his or their legal attorney duly appointed by an
instrument in writing in form and executed in a
manner satisfactory to the Rights Agent; and
(iii) payment by certified cheque, banker's draft or
money order payable to the order of the
Corporation, of a sum equal to the Exercise Price
multiplied by the number of Rights being exercised
and a sum sufficient to cover any transfer tax or
charge which may be payable in respect of any
transfer involved in the transfer or delivery of
Rights Certificates or the issuance or delivery of
certificates for Common Shares in a name other than
that of the holder of the Rights being exercised.
(e) Upon receipt of a Rights Certificate, together with a
completed Election to Exercise executed in accordance with
Clause 2.2(d)(ii), which does not indicate that such Right
is null and void as provided by Subsection 3.1(b), and
payment as set forth in Clause 2.2(d)(iii), the Rights
Agent (unless otherwise instructed by the Corporation in
the event that the Corporation is of the opinion that the
Rights cannot be exercised in accordance with this
Agreement) will thereupon promptly:
(i) requisition from the transfer agent certificates
representing the number of such Common Shares to be
purchased (the Corporation hereby irrevocably
authorizing its transfer agent to comply with all
such requisitions);
(ii) when appropriate, requisition from the Corporation
the amount of cash to be paid in lieu of issuing
fractional Common Shares;
(iii) after receipt of the certificates referred to in
Clause 2.2(e)(i), deliver the same to or upon the
order of the registered holder of such Rights
Certificates, registered in such name or names as
may be designated by such holder;
<PAGE>
(iv) when appropriate, after receipt, deliver the cash
referred to in Clause 2.2(e)(ii) to or to the order
of the registered holder of such Rights
Certificate; and
(v) remit to the Corporation all payments received on
the exercise of Rights.
(f) In case the holder of any Rights shall exercise less than
all the Rights evidenced by such holder's Rights
Certificate, a new Rights Certificate evidencing the
Rights remaining unexercised (subject to the provisions of
Subsection 5.5(a)) will be issued by the Rights Agent to
such holder or to such holder's duly authorized assigns.
(g) The Corporation covenants and agrees that it will:
(i) take all such action as may be necessary and within
its power to ensure that all Common Shares
delivered upon exercise of Rights shall, at the
time of delivery of the certificates for such
Common Shares (subject to payment of the Exercise
Price), be duly and validly authorized, executed,
issued and delivered as fully paid and
non-assessable;
(ii) take all such action as may be necessary and within
its power to comply with the requirements of the
MONTANA BUSINESS CORPORATIONS ACT, the SECURITIES
ACT (ONTARIO) and the securities laws or comparable
legislation of each of the provinces of Canada, the
1993 SECURITIES ACT and the 1934 EXCHANGE ACT and
any other applicable law, rule or regulation, in
connection with the issuance and delivery of the
Rights Certificates and the issuance of any Common
Shares upon exercise of Rights;
(iii) use reasonable efforts to cause all Common Shares
issued upon exercise of Rights to be listed on the
stock exchanges and markets on which such Common
Shares were traded immediately prior to the Stock
Acquisition Date;
(iv) pay when due and payable, if applicable, any and
all federal, provincial and municipal transfer
taxes and charges (not including any income or
capital taxes of the holder or exercising holder or
any liability of the Corporation to withhold tax)
which may be payable in respect of the original
issuance or delivery of the Rights Certificates, or
certificates for Common Shares to be issued upon
exercise of any Rights, provided that the
Corporation shall not be required to pay any
transfer tax or charge which may be payable in
<PAGE>
respect of any transfer involved in the transfer or
delivery of Rights Certificates or the issuance or
delivery of certificates for Common Shares in a
name other than that of the holder of the Rights
being transferred or exercised; and
(v) after the Separation Time, except as permitted by
Sections 5.1 and 5.4, not take (or permit any
Subsidiary to take) any action if at the time such
action is taken it is reasonably foreseeable that
such action will diminish substantially or
otherwise eliminate the benefits intended to be
afforded by the Rights.
2.3 Adjustments to Exercise Price; Number of Rights
-----------------------------------------------
The Exercise Price, the number and kind of securities subject to
purchase upon exercise of each Right and the number of Rights
outstanding are subject to adjustment from time to time as
provided in this Section 2.3.
(a) In the event the Corporation shall at any time after the
Agreement Date:
(i) declare or pay a dividend on Common Shares payable
in Common Shares (or other securities exchangeable
for or convertible into or giving a right to
acquire Common Shares or other securities of the
Corporation) other than pursuant to any Dividend
Reinvestment Plan;
(ii) subdivide or change the then outstanding Common
Shares into a greater number of Common Shares;
(iii) consolidate or change the then outstanding Common
Shares into a smaller number of Common Shares; or
(iv) issue any Common Shares (or other securities
exchangeable for or convertible into or giving a
right to acquire Common Shares or other securities
of the Corporation) in respect of, in lieu of or in
exchange for existing Common Shares except as
otherwise provided in this Section 2.3,
the Exercise Price and the number of Rights outstanding,
or, if the payment or effective date therefor shall occur
after the Separation Time, the securities purchasable upon
exercise of Rights shall be adjusted as of the payment or
effective date in the manner set forth below.
If the Exercise Price and number of Rights outstanding are
to be adjusted:
<PAGE>
(x) the Exercise Price in effect after such adjustment
will be equal to the Exercise Price in effect
immediately prior to such adjustment divided by the
number of Common Shares (or other capital stock)
(the "Expansion Factor") that a holder of one
Common Share immediately prior to such dividend,
subdivision, change, consolidation or issuance
would hold thereafter as a result thereof; and
(y) each Right held prior to such adjustment will
become that number of Rights equal to the Expansion
Factor,
and the adjusted number of Rights will be deemed to
be distributed among the Common Shares with respect
to which the original Rights were associated (if
they remain outstanding) and the shares issued in
respect of such dividend, subdivision, change,
consolidation or issuance, so that each such Common
Share (or other capital stock) will have exactly
one Right associated with it.
For greater certainty, if the securities
purchasable upon exercise of Rights are to be
adjusted, the securities purchasable upon exercise
of each Right after such adjustment will be the
securities that a holder of the securities
purchasable upon exercise of one Right immediately
prior to such dividend, subdivision, change,
consolidation or issuance would hold thereafter as
a result of such dividend, subdivision, change,
consolidation or issuance.
If, after the Record Time and prior to the
Expiration Time, the Corporation shall issue any
shares of capital stock other than Common Shares in
a transaction of a type described in
Clause 2.3(a)(i) or (iv), shares of such capital
stock shall be treated herein as nearly equivalent
to Common Shares as may be practicable and
appropriate under the circumstances and the
Corporation and the Rights Agent agree to amend
this Agreement in order to effect such treatment.
In the event the Corporation shall at any time
after the Record Time and prior to the Separation
Time issue any Common Shares otherwise than in a
transaction referred to in this Subsection 2.3(a),
each such Common Share so issued shall
automatically have one new Right associated with
it, which Right shall be evidenced by the
certificate representing such associated Common
Share.
<PAGE>
(b) In the event the Corporation shall at any time after the
Record Time and prior to the Separation Time fix a record
date for the issuance of rights, options or warrants to
all holders of Common Shares entitling them (for a period
expiring within 45 calendar days after such record date)
to subscribe for or purchase Common Shares (or securities
convertible into or exchangeable for or carrying a right
to purchase Common Shares) at a price per Common Share
(or, if a security convertible into or exchangeable for or
carrying a right to purchase or subscribe for Common
Shares, having a conversion, exchange or exercise price,
including the price required to be paid to purchase such
convertible or exchangeable security or right per share)
less than the Market Price per Common Share on such record
date, the Exercise Price to be in effect after such record
date shall be determined by multiplying the Exercise Price
in effect immediately prior to such record date by a
fraction:
(i) the numerator of which shall be the number of
Common Shares outstanding on such record date plus
the number of Common Shares that the aggregate
offering price of the total number of Common Shares
so to be offered (and/or the aggregate initial
conversion, exchange or exercise price of the
convertible or exchangeable securities or rights so
to be offered, including the price required to be
paid to purchase such convertible or exchangeable
securities or rights) would purchase at such Market
Price per Common Share; and
(ii) the denominator of which shall be the number of
Common Shares outstanding on such record date plus
the number of additional Common Shares to be
offered for subscription or purchase (or into which
the convertible or exchangeable securities or
rights so to be offered are initially convertible,
exchangeable or exercisable).
In case such subscription price may be paid by delivery of
consideration, part or all of which may be in a form other
than cash, the value of such consideration shall be as
determined in good faith by the Board of Directors, whose
determination shall be described in a statement filed with
the Rights Agent and shall be binding on the Rights Agent
and the holders of Rights. Such adjustment shall be made
successively whenever such a record date is fixed, and in
the event that such rights, options or warrants are not so
issued, or if issued, are not exercised prior to the
expiration thereof, the Exercise Price shall be readjusted
to the Exercise Price which would then be in effect if
such record date had not been fixed, or to the Exercise
Price which would be in effect based upon the number of
Common Shares (or securities convertible into, or
exchangeable or exercisable for Common Shares) actually
issued upon the exercise of such rights, options or
warrants, as the case may be.
<PAGE>
For purposes of this Agreement, the granting of the right
to purchase Common Shares from treasury pursuant to the
Dividend Reinvestment Plan or any employee benefit, stock
option or similar plans shall be deemed not to constitute
an issue of rights, options or warrants by the
Corporation; provided, however, that, in all such cases,
the right to purchase Common Shares is at a price per
share of not less than 90 per cent of the current market
price per share (determined as provided in such plans) of
the Common Shares.
(c) In the event the Corporation shall at any time after the
Record Time and prior to the Separation Time fix a record
date for the making of a distribution to all holders of
Common Shares (including any such distribution made in
connection with a merger or amalgamation) of evidences of
indebtedness, cash (other than an annual cash dividend or
a dividend paid in Common Shares, but including any
dividend payable in securities other than Common Shares),
assets or rights, options or warrants (excluding those
referred to in Subsection 2.3(b)) to purchase Common
Shares at a price per Common Share that is less than the
Market Price per Common Share on such record date, the
Exercise Price to be in effect after such record date
shall be determined by multiplying the Exercise Price in
effect immediately prior to such record date by a
fraction:
(i) the numerator of which shall be the Market Price
per Common Share on such record date, less the fair
market value (the determination of which shall be
described in a statement filed with the Rights
Agent and shall be binding on the Rights Agent and
the holders of Rights), on a per share basis, of
the portion of the cash, assets, evidences of
indebtedness, rights, options or warrants so to be
distributed; and
(ii) the denominator of which shall be such Market Price
per Common Share.
Such adjustments shall be made successively whenever such
a record date is fixed, and in the event that such a
distribution is not so made, the Exercise Price shall be
adjusted to be the Exercise Price which would have been in
effect if such record date had not been fixed.
(d) Notwithstanding anything herein to the contrary, no
adjustment in the Exercise Price shall be required unless
such adjustment would require an increase or decrease of
at least one per cent in the Exercise Price; provided,
however, that any adjustments which by reason of this
Subsection 2.3(d) are not required to be made shall be
carried forward and taken into account in any subsequent
adjustment. All calculations under Section 2.3 shall be
<PAGE>
made to the nearest cent or to the nearest ten-thousandth
of a share. Notwithstanding the first sentence of this
Subsection 2.3(d), any adjustment required by Section 2.3
shall be made no later than the earlier of:
(i) three years from the date of the transaction which
gives rise to such adjustment; or
(ii) the Expiration Time.
(e) In the event the Corporation shall at any time after the
Record Time and prior to the Separation Time issue any
shares of capital stock (other than Common Shares), or
rights, options or warrants to subscribe for or purchase
any such capital stock, or securities convertible into or
exchangeable for any such capital stock, in a transaction
referred to in Clause 2.3(a)(i) or (iv), if the Board of
Directors acting in good faith determines that the
adjustments contemplated by Subsections 2.3(a), (b) and
(c) in connection with such transaction will not
appropriately protect the interests of the holders of
Rights, the Board of Directors may determine what other
adjustments to the Exercise Price, number of Rights and/or
securities purchasable upon exercise of Rights would be
appropriate and, notwithstanding Subsections 2.3(a), (b)
and (c), such adjustments, rather than the adjustments
contemplated by Subsections 2.3(a), (b) and (c), shall be
made. Subject to Subsection 5.4(b) and (c), the
Corporation and the Rights Agent shall have authority
without the approval of the holders of the Common Shares
or the holders of Rights to amend this Agreement as
appropriate to provide for such adjustments.
(f) Each Right originally issued by the Corporation subsequent
to any adjustment made to the Exercise Price hereunder
shall evidence the right to purchase, at the adjusted
Exercise Price, the number of Common Shares purchasable
from time to time hereunder upon exercise of a Right
immediately prior to such issue, all subject to further
adjustment as provided herein.
(g) Irrespective of any adjustment or change in the Exercise
Price or the number of Common Shares issuable upon the
exercise of the Rights, the Rights Certificates
theretofore and thereafter issued may continue to express
the Exercise Price per Common Share and the number of
Common Shares which were expressed in the initial Rights
Certificates issued hereunder.
(h) In any case in which this Section 2.3 shall require that
an adjustment in the Exercise Price be made effective as
of a record date for a specified event, the Corporation
may elect to defer until the occurrence of such event the
issuance to the holder of any Right exercised after such
record date the number of Common Shares and other
<PAGE>
securities of the Corporation, if any, issuable upon such
exercise over and above the number of Common Shares and
other securities of the Corporation, if any, issuable upon
such exercise on the basis of the Exercise Price in effect
prior to such adjustment; provided, however, that the
Corporation shall deliver to such holder an appropriate
instrument evidencing such holder's right to receive such
additional shares (fractional or otherwise) or other
securities upon the occurrence of the event requiring such
adjustment.
(i) Notwithstanding anything contained in this Section 2.3 to
the contrary, the Corporation shall be entitled to make
such reductions in the Exercise Price, in addition to
those adjustments expressly required by this Section 2.3,
as and to the extent that in their good faith judgment the
Board of Directors shall determine to be advisable, in
order that any:
(i) consolidation or subdivision of Common Shares;
(ii) issuance (wholly or in part for cash) of Common
Shares or securities that by their terms are
convertible into or exchangeable for Common Shares;
(iii) stock dividends; or
(iv) issuance of rights, options or warrants referred to
in this Section 2.3,
hereafter made by the Corporation to holders of its Common
Shares, subject to applicable taxation laws, shall not be
taxable to such shareholders or shall subject such
shareholders to a lesser amount of tax.
(j) The Rights Agent shall be entitled to rely on any
certificate received from the Corporation stating that any
of the events giving rise to an adjustment required by
this section 2.3 has occurred.
2.4 Date on Which Exercise Is Effective
-----------------------------------
Each Person in whose name any certificate for Common Shares or
other securities, if applicable, is issued upon the exercise of
Rights shall for all purposes be deemed to have become the
holder of record of the Common Shares or other securities, if
applicable, represented thereon, and such certificate shall be
dated the date upon which the Rights Certificate evidencing such
Rights was duly surrendered in accordance with Subsection 2.2(d)
(together with a duly completed Election to Exercise) and
payment of the Exercise Price for such Rights (and any
applicable transfer taxes and other governmental charges payable
by the exercising holder hereunder) was made; provided, however,
that if the date of such surrender and payment is a date upon
which the Common Share transfer books of the Corporation are
closed, such Person shall be deemed to have become the record
holder of such shares on, and such certificate shall be dated,
the next succeeding Business Day on which the Common Share
transfer books of the Corporation are open.
<PAGE>
2.5 Execution, Authentication, Delivery and Dating of Rights
Certificates
--------------------------------------------------------
(a) The Rights Certificates shall be executed on behalf of the
Corporation by its Chairman of the Board, President or any
Vice-President and by its Corporate Secretary or any
Assistant Secretary under the corporate seal of the
Corporation reproduced thereon. The signature of any of
these officers on the Rights Certificates may be manual or
facsimile. Rights Certificates bearing the manual or
facsimile signatures of individuals who were at any time
the proper officers of the Corporation shall bind the
Corporation, notwithstanding that such individuals or any
of them have ceased to hold such offices either before or
after the countersignature and delivery of such Rights
Certificates.
(b) Promptly after the Corporation learns of the Separation
Time, the Corporation will notify the Rights Agent of such
Separation Time and will deliver Rights Certificates
executed by the Corporation to the Rights Agent for
countersignature, and the Rights Agent shall manually
countersign (in a manner satisfactory to the Corporation)
and send such Rights Certificates to the holders of the
Rights pursuant to Subsection 2.2(c) hereof. No Rights
Certificate shall be valid for any purpose until
countersigned by the Rights Agent as aforesaid.
(c) Each Rights Certificate shall be dated the date of
countersignature thereof.
2.6 Registration, Transfer and Exchange
-----------------------------------
(a) The Corporation will cause to be kept a register (the
"Rights Register") in which, subject to such reasonable
regulations as it may prescribe, the Corporation will
provide for the registration and transfer of Rights. The
Rights Agent is hereby appointed, effective from and after
the Separation Time, registrar for the Rights (the "Rights
Registrar") for the purpose of maintaining the Rights
Register for the Corporation and registering Rights and
transfers of Rights as herein provided and the Rights
Agent hereby accepts such appointment. In the event that
the Rights Agent shall cease to be the Rights Registrar,
the Rights Agent will have the right to examine the Rights
Register at all reasonable times.
After the Separation Time and prior to the Expiration
Time, upon surrender for registration of transfer or
exchange of any Rights Certificate, and subject to the
provisions of Subsection 2.6(c), the Corporation will
execute, and the Rights Agent will manually countersign
and deliver, in the name of the holder or the designated
transferee or transferees, as required pursuant to the
holder's instructions, one or more new Rights Certificates
evidencing the same aggregate number of Rights as did the
Rights Certificates so surrendered.
<PAGE>
(b) All Rights issued upon any registration of transfer or
exchange of Rights Certificates shall be the valid
obligations of the Corporation, and such Rights shall be
entitled to the same benefits under this Agreement as the
Rights surrendered upon such registration of transfer or
exchange.
(c) Every Rights Certificate surrendered for registration of
transfer or exchange shall be duly endorsed, or be
accompanied by a written instrument of transfer in form
satisfactory to the Corporation or the Rights Agent, as
the case may be, duly executed by the holder thereof or
such holder's attorney duly authorized in writing. As a
condition to the issuance of any new Rights Certificate
under this Section 2.6, the Corporation may require the
payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation
thereto and any other expenses (including the reasonable
fees and expenses of the Rights Agent) connected
therewith.
2.7 Mutilated, Destroyed, Lost and Stolen Rights Certificates
---------------------------------------------------------
(a) If any mutilated Rights Certificate is surrendered to the
Rights Agent prior to the Expiration Time, the Corporation
shall execute and the Rights Agent shall countersign and
deliver in exchange therefor a new Rights Certificate
evidencing the same number of Rights as did the Rights
Certificate so surrendered.
(b) If there shall be delivered to the Corporation and the
Rights Agent prior to the Expiration Time:
(i) evidence to their reasonable satisfaction of the
destruction, loss or theft of any Rights
Certificate; and
(ii) such security or indemnity as may be reasonably
required by them to save each of them and any of
their agents harmless, then, in the absence of
notice to the Corporation or the Rights Agent that
such Rights Certificate has been acquired by a bona
fide purchaser, the Corporation shall execute and
upon the Corporation's request the Rights Agent
shall countersign and deliver, in lieu of any such
destroyed, lost or stolen Rights Certificate, a new
Rights Certificate evidencing the same number of
Rights as did the Rights Certificate so destroyed,
lost or stolen.
(c) As a condition to the issuance of any new Rights
Certificate under this Section 2.7, the Corporation may
require the payment of a sum sufficient to cover any tax
or other governmental charge that may be imposed in
relation thereto and any other expenses (including the
reasonable fees and expenses of the Rights Agent)
connected therewith.
<PAGE>
(d) Every new Rights Certificate issued pursuant to this
Section 2.7 in lieu of any destroyed, lost or stolen
Rights Certificate shall evidence the contractual
obligation of the Corporation, whether or not the
destroyed, lost or stolen Rights Certificate shall be at
any time enforceable by anyone, and shall be entitled to
all the benefits of this Agreement equally and
proportionately with any and all other Rights duly issued
hereunder.
2.8 Persons Deemed Owners of Rights
-------------------------------
The Corporation, the Rights Agent and any agent of the
Corporation or the Rights Agent may deem and treat the Person in
whose name a Rights Certificate (or, prior to the Separation
Time, the associated Common Share certificate) is registered as
the absolute owner thereof and of the Rights evidenced thereby
for all purposes whatsoever. As used in this Agreement, unless
the context otherwise requires, the term "holder" of any Right
shall mean the registered holder of such Right (or, from and
after the Record Time and prior to the Separation Time, the
registered holder of the associated Common Share).
2.9 Delivery and Cancellation of Certificates
-----------------------------------------
All Rights Certificates surrendered upon exercise or for
redemption, registration of transfer or exchange shall, if
surrendered to any Person other than the Rights Agent, be
delivered to the Rights Agent and, in any case, shall be
promptly cancelled by the Rights Agent. The Corporation may at
any time deliver to the Rights Agent for cancellation any Rights
Certificates previously countersigned and delivered hereunder
which the Corporation may have acquired in any manner
whatsoever, and all Rights Certificates so delivered shall be
promptly cancelled by the Rights Agent. No Rights Certificate
shall be countersigned in lieu of or in exchange for any Rights
Certificates cancelled as provided in this Section 2.9, except
as expressly permitted by this Agreement. The Rights Agent
shall, subject to applicable laws, destroy all cancelled Rights
Certificates and deliver a certificate of destruction to the
Corporation.
2.10 Agreement of Rights Holders
---------------------------
Every holder of Rights, by accepting the same, consents and
agrees with the Corporation and the Rights Agent and with every
other holder of Rights:
(a) to be bound by and subject to the provisions of this
Agreement, as amended from time to time in accordance with
the terms hereof, in respect of all Rights held;
(b) that, provided the Separation Time follows the Record
Time, from and after the Record Time and prior to the
Separation Time, each Right will be transferable only
together with, and will be transferred by a transfer of,
the associated Common Share certificate representing such
Right;
<PAGE>
(c) that after the Separation Time, the Rights Certificates
will be transferable only on the Rights Register as
provided herein;
(d) that prior to due presentment of a Rights Certificate (or,
from and after the Record Time and prior to the Separation
Time, the associated Common Share certificate) for
registration of transfer, the Corporation, the Rights
Agent and any agent of the Corporation or the Rights Agent
may deem and treat the Person in whose name the Rights
Certificate (or, prior to the Separation Time, the
associated Common Share certificate) is registered as the
absolute owner thereof and of the Rights evidenced thereby
(notwithstanding any notations of ownership or writing on
such Rights Certificate or the associated Common Share
certificate made by anyone other than the Corporation or
the Rights Agent) for all purposes whatsoever, and neither
the Corporation nor the Rights Agent shall be affected by
any notice to the contrary;
(e) that such holder of Rights has waived his right to receive
any fractional Rights or any fractional shares or other
securities upon exercise of a Right (except as provided
herein); and
(f) that, without the approval of any holder of Rights or
Voting Shares and upon the sole authority of the Board of
Directors, acting in good faith, this Agreement may be
supplemented or amended from time to time pursuant to and
as provided herein.
2.11 Rights Certificate Holder Not Deemed a Shareholder
--------------------------------------------------
No holder, as such, of any Rights or Rights Certificate shall be
entitled to vote, receive dividends or be deemed for any purpose
whatsoever the holder of any Common Share or any other share or
security of the Corporation which may at any time be issuable on
the exercise of the Rights represented thereby, nor shall
anything contained herein or in any Rights Certificate be
construed or deemed or confer upon the holder of any Right or
Rights Certificate, as such, any right, title, benefit or
privilege of a holder of Common Shares or any other shares or
securities of the Corporation or any right to vote at any
meeting of shareholders of the Corporation whether for the
election of directors or otherwise or upon any matter submitted
to holders of Common Shares or any other shares of the
Corporation at any meeting thereof, or to give or withhold
consent to any action of the Corporation, or to receive notice
of any meeting or other action affecting any holder of Common
Shares or any other shares of the Corporation except as
expressly provided herein, or to receive dividends,
distributions or subscription rights, or otherwise, until the
Right or Rights evidenced by Rights Certificates shall have been
duly exercised in accordance with the terms and provisions
hereof.
<PAGE>
ARTICLE 3
ADJUSTMENTS TO THE RIGHTS
3.1 Flip-in Event
-------------
(a) Subject to Subsection 3.1(b) and Section 5.1, in the event
that prior to the Expiration Time a Flip-in Event shall
occur, each Right shall constitute, effective at the close
of business on the later of the Effective Date or the
tenth Trading Day after the Stock Acquisition Date, the
right to purchase from the Corporation, upon exercise
thereof in accordance with the terms hereof, that number
of Common Shares having an aggregate Market Price on the
date of consummation or occurrence of such Flip-in Event
equal to twice the Exercise Price for an amount in cash
equal to the Exercise Price (such right to be
appropriately adjusted in a manner analogous to the
applicable adjustment provided for in Section 2.3 in the
event that after such consummation or occurrence, an event
of a type analogous to any of the events described in
Section 2.3 shall have occurred).
(b) Notwithstanding anything in this Agreement to the
contrary, upon the occurrence of any Flip-in Event, any
Rights that are or were Beneficially Owned on or after the
earlier of the Separation Time or the Stock Acquisition
Date by:
(i) an Acquiring Person (or any Affiliate or Associate
of an Acquiring Person or any Person acting jointly
or in concert with an Acquiring Person or any
Affiliate or Associate of an Acquiring Person); or
(ii) a transferee or other successor in title, directly
or indirectly, (a "Transferee") of Rights or Common
Shares held by an Acquiring Person (or any
Affiliate or Associate of an Acquiring Person or
any Person acting jointly or in concert with an
Acquiring Person or any Affiliate or Associate of
an Acquiring Person), where such Transferee becomes
a transferee concurrently with or subsequent to the
Acquiring Person becoming such in a transfer that
the Board of Directors has determined is part of a
plan, arrangement or scheme of an Acquiring Person
(or any Affiliate or Associate of an Acquiring
Person or any Person acting jointly or in concert
with an Acquiring Person or any Affiliate or
Associate of an Acquiring Person), that has the
purpose or effect of avoiding Clause 3.1(b)(i),
shall become null and void without any further action, and
any holder of such Rights (including any Transferee) shall
thereafter have no right to exercise such Rights under any
provision of this Agreement and further shall thereafter
not have any other rights whatsoever with respect to such
Rights, whether under any provision of this Agreement or
otherwise.
<PAGE>
(c) From and after the Separation Time, the Corporation shall
do all such acts and things as shall be necessary and
within its power to ensure compliance with the provisions
of this Section 3.1, including without limitation, all
such acts and things as may be required to satisfy the
requirements of the Montana Business Corporations Act, the
Securities Act (Ontario) and the securities laws or
comparable legislation of each of the provinces of Canada
and of the United States and each of the applicable states
thereof in respect of the issue of Common Shares upon the
exercise of Rights in accordance with this Agreement.
(d) Any Rights Certificate that represents Rights Beneficially
Owned by a Person described in either Clause 3.1(b)(i) or
(ii) or transferred to any nominee of any such Person, and
any Rights Certificate issued upon transfer, exchange,
replacement or adjustment of any other Rights Certificate
referred to in this sentence, shall contain the following
legend:
The Rights represented by this Rights Certificate
were issued to a Person who was an Acquiring Person
or an Affiliate or an Associate of an Acquiring
Person (as such terms are defined in the
Shareholder Rights Agreement) or a Person who was
acting jointly or in concert with an Acquiring
Person or an Affiliate or Associate of an Acquiring
Person. This Rights Certificate and the Rights
represented hereby are void or shall become void in
the circumstances specified in Subsection 3.1(b) of
the Shareholder Rights Agreement.
provided, however, that the Rights Agent shall not be
under any responsibility to ascertain the existence of
facts that would require the imposition of such legend but
shall impose such legend only if instructed to do so by
the Corporation in writing or if a holder fails to certify
upon transfer or exchange in the space provided on the
Rights Certificate that such holder is not a Person
described in such legend and provided further that the
fact that such legend does not appear on a certificate is
not determinative of whether any Rights represented
thereby are void under this Section.
<PAGE>
ARTICLE 4
THE RIGHTS AGENT
4.1 General
-------
(a) The Corporation hereby appoints the Rights Agent to act as
agent for the Corporation and the holders of the Rights in
accordance with the terms and conditions hereof, and the
Rights Agent hereby accepts such appointment. The
Corporation may from time to time appoint such Co-Rights
Agents ("Co-Rights Agents") as it may deem necessary or
desirable. In the event the Corporation appoints one or
more Co-Rights Agents, the respective duties of the Rights
Agent and Co-Rights Agents shall be as the Corporation may
determine. The Corporation agrees to pay all reasonable
fees and expenses of the Rights Agent in respect of the
performance of its duties under this Agreement. The
Corporation also agrees to indemnify the Rights Agent for,
and to hold it harmless against, any loss, liability or
expense, incurred without negligence, bad faith or wilful
misconduct on the part of the Rights Agent, for anything
done or omitted by the Rights Agent in connection with the
acceptance and administration of this Agreement, including
the costs and expenses of defending against any claim of
liability, which right to indemnification will survive the
termination of this Agreement.
(b) The Rights Agent shall be protected and shall incur no
liability for or in respect of any action taken, suffered
or omitted by it in connection with its administration of
this Agreement in reliance upon any certificate for Common
Shares, Rights Certificate, certificate for other
securities of the Corporation, instrument of assignment or
transfer, power of attorney, endorsement, affidavit,
letter, notice, direction, consent, certificate,
statement, or other paper or document believed by it to be
genuine and to be signed, executed and, where necessary,
verified or acknowledged, by the proper Person or Persons.
(c) The Rights Agent shall not be responsible for any
inaccuracies in the shareholder information provided by
the Corporation to the Rights Agent pursuant to subsection
2.2(c).
4.2 Merger, Amalgamation or Consolidation or Change of Name of
Rights Agent
----------------------------------------------------------
(a) Any corporation into which the Rights Agent may be merged
or amalgamated or with which it may be consolidated, or
any corporation resulting from any merger, amalgamation,
statutory arrangement or consolidation to which the Rights
Agent is a party, or any corporation succeeding to the
shareholder or stockholder services business of the Rights
Agent, will be the successor to the Rights Agent under
this Agreement without the execution or filing of any
paper or any further act on the part of any of the parties
hereto, provided that such corporation would be eligible
for appointment as a successor Rights Agent under the
<PAGE>
provisions of Section 4.4 hereof. In case at the time
such successor Rights Agent succeeds to the agency created
by this Agreement any of the Rights Certificates have been
countersigned but not delivered, any successor Rights
Agent may adopt the countersignature of the predecessor
Rights Agent and deliver such Rights Certificates so
countersigned; and in case at that time any of the Rights
have not been countersigned, any successor Rights Agent
may countersign such Rights Certificates in the name of
the predecessor Rights Agent or in the name of the
successor Rights Agent; and in all such cases such Rights
Certificates will have the full force provided in the
Rights Certificates and in this Agreement.
(b) In case at any time the name of the Rights Agent is
changed and at such time any of the Rights Certificates
shall have been countersigned but not delivered, the
Rights Agent may adopt the countersignature under its
prior name and deliver Rights Certificates so
countersigned; and in case at that time any of the Rights
Certificates shall not have been countersigned, the Rights
Agent may countersign such Rights Certificates either in
its prior name or in its changed name; and in all such
cases such Rights Certificates shall have the full force
provided in the Rights Certificates and in this Agreement.
4.3 Duties of Rights Agent
----------------------
The Rights Agent undertakes the duties and obligations imposed
by this Agreement upon the following terms and conditions, all
of which the Corporation and the holders of certificates for
Common Shares and the holders of Rights Certificates, by their
acceptance thereof, shall be bound:
(a) the Rights Agent may consult with legal counsel (who may
be legal counsel for the Corporation), at the
Corporation's expense, and the opinion of such counsel
will be full and complete authorization and protection to
the Rights Agent as to any action taken or omitted by it
in good faith and in accordance with such opinion;
(b) whenever in the performance of its duties under this
Agreement, the Rights Agent deems it necessary or
desirable that any fact or matter be proved or established
by the Corporation prior to taking or suffering any action
hereunder, such fact or matter (unless other evidence in
respect thereof be herein specifically prescribed) may be
deemed to be conclusively proved and established by a
certificate signed by a Person believed by the Rights
Agent to be the Chairman of the Board, President, any
Vice-President, Treasurer, Corporate Secretary or any
Assistant Secretary of the Corporation and delivered to
the Rights Agent; and such certificate will be full
authorization to the Rights Agent for any action taken or
suffered in good faith by it under the provisions of this
Agreement in reliance upon such certificate;
<PAGE>
(c) the Rights Agent will be liable hereunder for its own
negligence, bad faith or wilful misconduct;
(d) the Rights Agent will not be liable for or by reason of
any of the statements of fact or recitals contained in
this Agreement or in the certificates for Common Shares,
or the Rights Certificates (except its countersignature
thereof) or be required to verify the same, but all such
statements and recitals are and will be deemed to have
been made by the Corporation only;
(e) the Rights Agent will not be under any responsibility in
respect of the validity of this Agreement or the execution
and delivery hereof (except the due authorization,
execution and delivery hereof by the Rights Agent) or in
respect of the validity or execution of any certificate
for a Common Share or Rights Certificate (except its
countersignature thereof); nor will it be responsible for
any breach by the Corporation of any covenant or condition
contained in this Agreement or in any Rights Certificate;
nor will it be responsible for any change in the
exercisability of the Rights (including the Rights
becoming void pursuant to Subsection 3.1(b) hereof) or any
adjustment required under the provisions of Section 2.3
hereof or responsible for the manner, method or amount of
any such adjustment or the ascertaining of the existence
of facts that would require any such adjustment (except
with respect to the exercise of Rights after receipt of
the certificate contemplated by Section 2.3 describing any
such adjustment); nor will it by any act hereunder be
deemed to make any representation or warranty as to the
authorization of any Common Shares to be issued pursuant
to this Agreement or any Rights or as to whether any
Common Shares will, when issued, be duly and validly
authorized, executed, issued and delivered and fully paid
and non-assessable;
(f) the Corporation agrees that it will perform, execute,
acknowledge and deliver or cause to be performed,
executed, acknowledged and delivered all such further and
other acts, instruments and assurances as may reasonably
be required by the Rights Agent for the carrying out or
performing by the Rights Agent of the provisions of this
Agreement;
(g) the Rights Agent is hereby authorized and directed to
accept instructions in writing with respect to the
performance of its duties hereunder from any individual
believed by the Rights Agent to be the Chairman of the
Board, President, any Vice-President, Treasurer, Corporate
Secretary or any Assistant Secretary of the Corporation,
and to apply to such individuals for advice or
instructions in connection with its duties, and it shall
not be liable for any action taken or suffered by it in
good faith in accordance with instructions of any such
individual;
<PAGE>
(h) the Rights Agent and any shareholder or stockholder,
director, officer or employee of the Rights Agent may buy,
sell or deal in Common Shares, Rights or other securities
of the Corporation or become pecuniarily interested in any
transaction in which the Corporation may be interested, or
contract with or lend money to the Corporation or
otherwise act as fully and freely as though it were not
Rights Agent under this Agreement. Nothing herein shall
preclude the Rights Agent from acting in any other
capacity for the Corporation or for any other legal
entity; and
(i) the Rights Agent may execute and exercise any of the
rights or powers hereby vested in it or perform any duty
hereunder either itself or by or through its attorneys or
agents, and the Rights Agent will not be answerable or
accountable for any act, default, neglect or misconduct of
any such attorneys or agents or for any loss to the
Corporation resulting from any such act, default, neglect
or misconduct, provided reasonable care was exercised in
the selection and continued employment thereof.
4.4 Change of Rights Agent
----------------------
The Rights Agent may resign and be discharged from its duties
under this Agreement upon 90 days' notice (or such lesser notice
as is acceptable to the Corporation) in writing mailed to the
Corporation and to each transfer agent of Common Shares by
registered or certified mail. The Corporation may remove the
Rights Agent upon 30 days' notice in writing, mailed to the
Rights Agent and to each transfer agent of the Common Shares by
registered or certified mail. If the Rights Agent should resign
or be removed or otherwise become incapable of acting, the
Corporation will appoint a successor to the Rights Agent. If
the Corporation fails to make such appointment within a period
of 30 days after such removal or after it has been notified in
writing of such resignation or incapacity by the resigning or
incapacitated Rights Agent, then by prior written notice to the
Corporation the resigning Rights Agent or the holder of any
Rights (which holder shall, with such notice, submit such
holder's Rights Certificate, if any, for inspection by the
Corporation), may apply to any court of competent jurisdiction
for the appointment of a new Rights Agent. Any successor Rights
Agent, whether appointed by the Corporation or by such a court,
shall be a corporation incorporated under the laws of Canada or
a province thereof authorized to carry on the business of a
trust company in the Province of Ontario. After appointment,
the successor Rights Agent will be vested with the same powers,
rights, duties and responsibilities as if it had been originally
named as Rights Agent without further act or deed; but the
predecessor Rights Agent shall, subject to its right to first
require payment of all outstanding fees and other amounts owed
to it hereunder, deliver and transfer to the successor Rights
Agent any property at the time held by it hereunder, and execute
<PAGE>
and deliver any further assurance, conveyance, act or deed
necessary for the purpose. Not later than the effective date of
any such appointment, the Corporation will file notice thereof
in writing with the predecessor Rights Agent and each transfer
agent of the Common Shares, and mail a notice thereof in writing
to the holders of the Rights in accordance with Section 5.9.
Failure to give any notice provided for in this Section 4.4,
however, or any defect therein, shall not affect the legality or
validly of the resignation or removal of the Rights Agent or the
appointment of any successor Rights Agent, as the case may be.
<PAGE>
ARTICLE 5
MISCELLANEOUS
5.1 Redemption and Waiver
---------------------
(a) The Board of Directors may, with the prior consent of the
holders of Voting Shares or of the holders of Rights given
in accordance with Section 5.1(i) or (j), as the case may
be, at any time prior to the occurrence of a Flip-in Event
as to which the application of Section 3.1 has not been
waived pursuant to the provisions of this Section 5.1,
elect to redeem all but not less than all of the then
outstanding Rights at a redemption price of $0.00001 per
Right appropriately adjusted in a manner analogous to the
applicable adjustment provided for in Section 2.3 in the
event that an event of the type analogous to any of the
events described in Section 2.3 shall have occurred (such
redemption price being herein referred to as the
"Redemption Price"). The Board of Directors may, prior to
the date of the shareholders' meeting referred to in
Section 5.15, elect to terminate this Agreement. If the
Board of Directors elects to terminate this Agreement
pursuant to this Section 5.1(a), this Agreement will
thereupon terminate and be void and of no further force or
effect.
(b) The Board of Directors may, with the prior consent of the
holders of Voting Shares given in accordance with
Section 5.1(i), determine, at any time prior to the
occurrence of a Flip-in Event as to which the application
of Section 3.1 has not been waived pursuant to this
Section 5.1, if such Flip-in Event would occur by reason
of an acquisition of Voting Shares otherwise than pursuant
to a Take-over Bid made by means of a take-over bid
circular to all holders of record of Voting Shares and
otherwise than in the circumstances set forth in
Section 5.1(d), to waive the application of Section 3.1 to
such Flip-in Event. In the event that the Board of
Directors proposes such a waiver, the Board of Directors
shall extend the Separation Time to a date subsequent to
and not more than ten Business Days following the meeting
of shareholders called to approve such waiver.
(c) The Board of Directors may, until the occurrence of a
Flip-in Event upon prior written notice delivered to the
Rights Agent, determine to waive the application of
Section 3.1 to such particular Flip-in Event provided that
the Flip-in Event would occur by reason of a Take-over Bid
made by way of take-over bid circular sent to all holders
of Voting Shares (which for greater certainty shall not
include the circumstances described in Subsection 5.1(d));
provided that if the Board of Directors waives the
application of Section 3.1 to a particular Flip-in Event
pursuant to this Subsection 5.1(c), the Board of Directors
<PAGE>
shall be deemed to have waived the application of
Section 3.1 to any other Flip-in Event occurring by reason
of any Take-over Bid which is made by means of a take-over
bid circular to all holders of Voting Shares (i) prior to
the granting of such waiver, (ii) thereafter and prior to
the expiry of any Take-over Bid (as the same may be
extended from time to time) outstanding at the time of the
granting of such waiver or (iii) thereafter and prior to
the expiry of any Take-over Bid in respect of which a
waiver is, or is deemed to have been, granted under this
Subsection 5.1(c).
(d) Notwithstanding the provisions of Subsections 5.1(b) and
(c) hereof, the Board of Directors may waive the
application of Section 3.1 in respect of the occurrence of
any Flip-in Event, provided that both of the following
conditions are satisfied:
(i) the Board of Directors has determined within ten
Trading Days following a Stock Acquisition Date
that a Person became an Acquiring Person by
inadvertence and without any intention to become,
or knowledge that it would become, an Acquiring
Person under this Agreement, and
(ii) such Person has reduced its Beneficial Ownership of
Voting Shares such that at the time of granting the
waiver pursuant to this Subsection 5.1(d), such
Person is no longer an Acquiring Person
and in the event that such a waiver is granted by the
Board of Directors, such Stock Acquisition Date and Flip-
in Event shall be deemed not to have occurred and the
Separation Time shall be deemed not to have occurred as a
result of such Person having inadvertently become an
Acquiring Person.
(e) The Board of Directors, shall, without further formality,
be deemed to have elected to redeem the Rights at the
Redemption Price on the date that a Person which has made
a Permitted Bid, a Competing Permitted Bid, a Take-Over
Bid in respect of which the Board of Directors has waived,
or is deemed to have waived, pursuant to Section 5.1(c)
the application of Section 3.1, takes up and pays for
Voting Shares pursuant to the terms and conditions of such
Permitted Bid, Competing Permitted Bid or Take-over bid,
as the case may be.
(f) Where a Take-over Bid that is not a Permitted Bid
Acquisition is withdrawn or otherwise terminated after the
Separation Time has occurred and prior to the occurrence
of a Flip-in Event, the Board of Directors may elect to
redeem all the outstanding Rights at the Redemption Price.
Upon the Rights being redeemed pursuant to this
Subsection 5.1(f), all the provisions of this Agreement
shall continue to apply as if the Separation Time had not
<PAGE>
occurred and Rights Certificates representing the number
of Rights held by each holder of record of Common Shares
as of the Separation Time had not been mailed to each such
holder and for all purposes of this Agreement the
Separation Time shall be deemed not to have occurred.
(g) If the Board of Directors elects or is deemed to have
elected to redeem the Rights, and, in circumstances in
which Subsection 5.1(a) is applicable, such redemption is
approved by the holders of Voting Shares or the holders of
Rights in accordance with Subsection 5.1(i) or (j), as the
case may be, the right to exercise the Rights, will
thereupon, without further action and without notice,
terminate and the only right thereafter of the holders of
Rights shall be to receive the Redemption Price.
(h) Within 10 Business Days after the Board of Directors
elects or is deemed to elect, to redeem the Rights or if
Subsection 5.1(a) is applicable within 10 Business Days
after the holders of Common Shares of the holders of
Rights have approved a redemption of Rights in accordance
with Section 5.1(i) or (j), as the case may be, the
Corporation shall give notice of redemption to the holders
of the then outstanding Rights by mailing such notice to
each such holder at his last address as it appears upon
the registry books of the Rights Agent or, prior to the
Separation Time, on the registry books of the transfer
agent for the Voting Shares. Any notice which is mailed
in the manner herein provided shall be deemed given,
whether or not the holder receives the notice. Each such
notice of redemption will state the method by which the
payment of the Redemption Price will be made. The
Corporation may not redeem, acquire or purchase for value
any Rights at any time in any manner other than
specifically set forth in this Section 5.1 or in
connection with the purchase of Common Shares prior to the
Separation Time.
(i) If a redemption of Rights pursuant to Section 5.1(a) or a
waiver of a Flip-in Event pursuant to Section 5.1(b) is
proposed at any time prior to the Separation Time, such
redemption or waiver shall be submitted for approval to
the holders of Voting Shares. Such approval shall be
deemed to have been given if the redemption or waiver is
approved by the affirmative vote of a majority of the
votes cast by Independent Shareholders represented in
person or by proxy at a meeting of such holders duly held
in accordance with applicable laws and the Corporation's
by-laws.
(j) If a redemption of Rights pursuant to Section 5.1(a) is
proposed at any time after the Separation Time, such
redemption shall be submitted for approval to the holders
of Rights. Such approval shall be deemed to have been
given if the redemption is approved by holders of Rights
by a majority of the votes cast by the holders of Rights
<PAGE>
represented in person or by proxy at and entitled to vote
at a meeting of such holders. For the purposes hereof,
each outstanding Right (other than Rights which are
Beneficially Owned by any Person referred to in
clauses (i) to (v) inclusive of the definition of
Independent Shareholders) shall be entitled to one vote,
and the procedures for the calling, holding and conduct of
the meeting shall be those, as nearly as may be, which are
provided in the Corporation's by-laws and the Montana
Business Corporations Act with respect to meetings of
shareholders of the Corporation.
5.2 Expiration
----------
No Person shall have any rights whatsoever pursuant to this
Agreement or in respect of any Right after the Expiration Time,
except the Rights Agent as specified in Subsection 4.1 of this
Agreement.
5.3 Issuance of New Rights Certificates
-----------------------------------
Notwithstanding any of the provisions of this Agreement or the
Rights to the contrary, the Corporation may, at its option,
issue new Rights Certificates evidencing Rights in such form as
may be approved by the Board of Directors to reflect any
adjustment or change in the number or kind or class of
securities purchasable upon exercise of Rights made in
accordance with the provisions of this Agreement.
5.4 Supplements and Amendments
--------------------------
(a) The Corporation may make amendments to this Agreement to
correct any clerical or typographical error or which are
required to maintain the validity of this Agreement as a
result of any change in any applicable legislation or
regulations thereunder. The Corporation may, prior to the
date of the shareholders' meeting referred to in
Section 5.15, supplement, amend, vary, rescind or delete
any of the provisions of this Agreement and the Rights
(whether or not such action would materially adversely
affect the interests of the holders of the Rights
generally) without the approval of any holders of Rights
or Voting Shares in order to make any changes which the
Board of Directors acting in good faith may deem necessary
or desirable. Notwithstanding anything in this
Section 5.4 to the contrary, no such supplement or
amendment shall be made to the provisions of Article 4 or
to the rights, duties, obligations or indemnities of the
Rights Agent, except with the written concurrence of the
Rights Agent to such supplement or amendment.
(b) Subject to Subsection 5.4(a), the Corporation may, with
the prior consent of the holders of Voting Shares obtained
as set forth below, at any time before the Separation
Time, supplement, amend, vary, rescind or delete any of
the provisions of this Agreement and the Rights (whether
<PAGE>
or not such action would materially adversely affect the
interests of the holders of Rights generally). Such
consent shall be deemed to have been given if the action
requiring such approval is authorized by the affirmative
vote of a majority of the votes cast by Independent
Shareholders present or represented at and entitled to be
voted at a meeting of the holders of Voting Shares duly
called and held in compliance with applicable laws and the
articles and by-laws of the Corporation.
(c) Subject to subsection 5.4(a), the Corporation may, with
the prior consent of the holders of Rights, at any time on
or after the Separation Time, supplement, amend, vary,
rescind or delete any of the provisions of this Agreement
and the Rights (whether or not such action would
materially adversely affect the interests of the holders
of Rights generally), provided that no such amendment,
variation or deletion shall be made to the provisions of
Article 4 or to the rights, duties, obligations or
indemnities of the Rights Agent, except with the written
concurrence of the Rights Agent thereto.
(d) Any approval of the holders of Rights shall be deemed to
have been given if the action requiring such approval is
authorized by the affirmative votes of the holders of
Rights present or represented at and entitled to be voted
at a meeting of the holders of Rights and representing a
majority of the votes cast in respect thereof. For the
purposes hereof, each outstanding Right (other than Rights
which are void pursuant to the provisions hereof) shall be
entitled to one vote, and the procedures for the calling,
holding and conduct of the meeting shall be those, as
nearly as may be, which are provided in the Corporation's
by-laws and the Montana Business Corporations Act with
respect to meetings of shareholders of the Corporation.
(e) Any amendments made by the Corporation to this Agreement
pursuant to Subsection 5.4(a) which are required to
maintain the validity of this Agreement as a result of any
change in any applicable legislation or regulation
thereunder shall:
(i) if made before the Separation Time, be submitted to
the shareholders of the Corporation at the next
meeting of shareholders and the shareholders may,
by the majority referred to in Subsection 5.4(b),
confirm or reject such amendment;
(ii) if made after the Separation Time, be submitted to
the holders of Rights at a meeting to be called for
on a date not later than immediately following the
next meeting of shareholders of the Corporation and
the holders of Rights may, by resolution passed by
the majority referred to in Subsection 5.4(d),
confirm or reject such amendment.
<PAGE>
Any such amendment shall be effective from the date of the
resolution of the Board of Directors adopting such
amendment, until it is confirmed or rejected or until it
ceases to be effective (as described in the next sentence)
and, where such amendment is confirmed, it continues in
effect in the form so confirmed. If such amendment is
rejected by the shareholders or the holders of Rights or
is not submitted to the shareholders or holders of Rights
as required, then such amendment shall cease to be
effective from and after the termination of the meeting
(or any adjournment of such meeting) at which it was
rejected or to which it should have been but was not
submitted or from and after the date of the meeting of
holders of Rights that should have been but was not held,
and no subsequent resolution of the Board of Directors to
amend this Agreement to substantially the same effect
shall be effective until confirmed by the shareholders or
holders of Rights as the case may be.
5.5 Fractional Rights and Fractional Shares
---------------------------------------
(a) The Corporation shall not be required to issue fractions
of Rights or to distribute Rights Certificates which
evidence fractional Rights. After the Separation Time, in
lieu of issuing fractional Rights, the Corporation shall
pay to the holders of record of the Rights Certificates
(provided the Rights represented by such Rights
Certificates are not void pursuant to the provisions of
Subsection 3.1(b), at the time such fractional Rights
would otherwise be issuable), an amount in cash equal to
the fraction of the Market Price of one whole Right that
the fraction of a Right that would otherwise be issuable
is of one whole Right.
(b) The Corporation shall not be required to issue fractions
of Common Shares upon exercise of Rights or to distribute
certificates which evidence fractional Common Shares. In
lieu of issuing fractional Common Shares, the Corporation
shall pay to the registered holders of Rights
Certificates, at the time such Rights are exercised as
herein provided, an amount in cash equal to the fraction
of the Market Price of one Common Share that the fraction
of a Common Share that would otherwise be issuable upon
the exercise of such Right is of one whole Common Share at
the date of such exercise.
5.6 Rights of Action
----------------
Subject to the terms of this Agreement, all rights of action in
respect of this Agreement, other than rights of action vested
solely in the Rights Agent, are vested in the respective holders
of the Rights. Any holder of Rights, without the consent of the
Rights Agent or of the holder of any other Rights, may, on such
holder's own behalf and for such holder's own benefit and the
benefit of other holders of Rights, as the case may be, enforce,
and may institute and maintain any suit, action or proceeding
<PAGE>
against the Corporation to enforce such holder's right to
exercise such holder's Rights, or Rights to which he is
entitled, in the manner provided in such holder's Rights
Certificate and in this Agreement. Without limiting the
foregoing or any remedies available to the holders of Rights, as
the case may be, it is specifically acknowledged that the
holders of Rights would not have an adequate remedy at law for
any breach of this Agreement and will be entitled to specific
performance of the obligations under, and injunctive relief
against actual or threatened violations of the obligations of
any Person subject to, this Agreement.
5.7 Regulatory Approvals
--------------------
Any obligation of the Corporation or action or event
contemplated by this Agreement shall be subject to the receipt
of any requisite approval or consent from any governmental or
regulatory authority, including without limiting the generality
of the foregoing, any necessary approvals of The Toronto Stock
Exchange and the NASDAQ Small-Cap Market or any other applicable
stock exchange or market.
5.8 Notice of Proposed Actions
--------------------------
In case the Corporation shall propose after the Separation Time
and prior to the Expiration Time:
(a) to effect or permit (in cases where the Corporation's
permission is required) any Flip-in Event; or
(b) to effect the liquidation, dissolution or winding up of
the Corporation or the sale of all or substantially all of
the Corporation's assets, then, in each such case, the
Corporation shall give to each holder of a Right, in
accordance with Section 5.9 hereof, a notice of such
proposed action, which shall specify the date on which
such Flip-in Event, liquidation, dissolution, winding up
or sale is to take place, and such notice shall be so
given at least 10 Business Days prior to the date of
taking of such proposed action by the Corporation.
5.9 Notices
-------
(a) Notices or demands authorized or required by this
Agreement to be given or made by the Rights Agent or by
the holder of any Rights to or on the Corporation shall be
sufficiently given or made if delivered, sent by
registered or certified mail, postage prepaid (until
another address is filed in writing with the Rights
Agent), or sent by facsimile or other form of recorded
electronic communication, charges prepaid and confirmed in
writing, as follows:
<PAGE>
Gold Reserve Corporation
1940 Seafirst Financial Center
West 601 Riverside
Spokane, Washington
99201
Attention: President
Telecopy No.: (509) 623-1634
(b) Notices or demands authorized or required by this
Agreement to be given or made by the Corporation or by the
holder of any Rights to or on the Rights Agent shall be
sufficiently given or made if delivered, sent by
registered or certified mail, postage prepaid (until
another address is filed in writing with the Corporation),
or sent by facsimile or other form of recorded electronic
communication, charges prepaid and confirmed in writing,
as follows:
Montreal Trust Company of Canada
151 Front Street
8th Floor
Toronto, Ontario M5J 2N1
Attention: Manager, Client Services
Telecopy No.: (416) 981-9800
(c) Notices or demands authorized or required by this
Agreement to be given or made by the Corporation or the
Rights Agent to or on the holder of any Rights shall be
sufficiently given or made if delivered or sent by first
class mail, postage prepaid, addressed to such holder at
the address of such holder as it appears upon the register
of the Rights Agent or, prior to the Separation Time, on
the register of the Corporation for its Common Shares.
Any notice which is mailed or sent in the manner herein
provided shall be deemed given, whether or not the holder
receives the notice.
(d) Any notice given or made in accordance with this Section
5.9 shall be deemed to have been given and to have been
received on the day of delivery, if so delivered, on the
third Business Day (excluding each day during which there
exists any general interruption of postal service due to
strike, lockout or other cause) following the mailing
thereof, if so mailed, and on the day of telegraphing,
telecopying or sending of the same by other means of
recorded electronic communication (provided such sending
is during the normal business hours of the addressee on a
Business Day and if not, on the first Business Day
thereafter). Each of the Corporation and the Rights Agent
may from time to time change its address for notice by
notice to the other given in the manner aforesaid.
<PAGE>
5.10 Costs of Enforcement
--------------------
The Corporation agrees that if the Corporation fails to fulfil
any of its obligations pursuant to this Agreement, then the
Corporation will reimburse the holder of any Rights for the
costs and expenses (including legal fees) incurred by such
holder to enforce his rights pursuant to any Rights or this
Agreement.
5.11 Successors
----------
All the covenants and provisions of this Agreement by or for the
benefit of the Corporation or the Rights Agent shall bind and
enure to the benefit of their respective successors and assigns
hereunder.
5.12 Benefits of this Agreement
--------------------------
Nothing in this Agreement shall be construed to give to any
Person other than the Corporation, the Rights Agent and the
holders of the Rights any legal or equitable right, remedy or
claim under this Agreement; further, this Agreement shall be for
the sole and exclusive benefit of the Corporation, the Rights
Agent and the holders of the Rights.
5.13 Governing Law
-------------
This Agreement and each Right issued hereunder shall be deemed
to be a contract made under the laws of the Province of Ontario
and for all purposes shall be governed by and construed in
accordance with the laws of such Province applicable to
contracts to be made and performed entirely within such
Province.
5.14 Severability
------------
If any term or provision hereof or the application thereof to
any circumstance shall, in any jurisdiction and to any extent,
be invalid or unenforceable, such term or provision shall be
ineffective only as to such jurisdiction and to the extent of
such invalidity or unenforceability in such jurisdiction without
invalidating or rendering unenforceable or ineffective the
remaining terms and provisions hereof in such jurisdiction or
the application of such term or provision in any other
jurisdiction or to circumstances other than those as to which it
is specifically held invalid or unenforceable.
5.15 Date Agreement Becomes Effective
--------------------------------
This Agreement is effective and in full force and effect in
accordance with its terms from and after the Agreement Date. At
the first meeting of holders of Voting Shares of the Corporation
following the Agreement Date, the Corporation shall request:
(a) confirmation of this Agreement by the holders of its
Voting Shares; and
<PAGE>
(b) approval from the holders of its Voting Shares to amend
the articles of incorporation of the Corporation to
increase the number of Common Shares the Corporation is
authorized to issue from 40,000,000 to 480,000,000 (the
"Share Capital Increase Approval").
If, at such meeting (which meeting shall include, if the meeting
is adjourned one or more times, each reconvened meeting
resulting from such adjournment(s)), this Agreement is not
confirmed by a majority of the votes cast by holders of Voting
Shares held by Independent Shareholders who vote in respect of
confirmation of the Agreement at such meeting or the Share
Capital Increase Approval is not obtained in accordance with the
applicable requirements of the Montana Business Corporations
Act, then this Agreement shall terminate and be void and of no
further force and effect on and from the close of business on
the date of termination of such meeting (which, in the case such
meeting is adjourned one or more times, means the termination of
the last reconvened meeting resulting from such adjournment(s)).
Provided that this Agreement is so confirmed and the Share
Capital Increase Approval is obtained at such meeting, the
Corporation shall as soon as reasonably practicable thereafter
take all steps necessary to amend the articles of incorporation
of the Corporation in the manner contemplated by the Share
Capital Increase Approval.
5.16 Reconfirmation
--------------
Notwithstanding the confirmation of this Agreement pursuant to
Section 5.15 and the receipt of Share Capital Increase Approval
as contemplated by Section 5.15, this Agreement must be
reconfirmed by a resolution passed by a majority of greater than
50 per cent of the votes cast by holders of Voting Shares held
by Independent Shareholders who vote in respect of such
reconfirmation at a meeting of holders of Voting Shares to be
held not earlier than April 2, 2000 and not later than the date
on which the 2000 annual meeting of holders of Voting Shares
terminates. If the Agreement is not so reconfirmed, the
Agreement and all outstanding Rights shall terminate and be void
and of no further force and effect on and from the close of
business on that date which is the earlier of the date of
termination of the meeting called to consider the reconfirmation
of this Agreement and the date of termination of the 2000 annual
meeting of holders of Voting Shares; provided, that termination
shall not occur if a Flip-in Event has occurred (other than a
Flip-in Event which has been waived pursuant to
Subsection 5.1(c) or (d) hereof), prior to the date upon which
this Agreement would otherwise terminate pursuant to this
Section 5.16.
<PAGE>
5.17 Determinations and Actions by the Board of Directors
----------------------------------------------------
The Board of Directors shall have the exclusive power and
authority to administer this Agreement and to exercise all
rights and powers specifically granted to the Board of Directors
or the Corporation, or as may be necessary or advisable in the
administration of this Agreement. All such actions, calculations
and determinations (including all omissions with respect to the
foregoing) which are done or made by the Board of Directors, in
good faith, shall not subject the Board of Directors or any
director of the Corporation to any liability to the holders of
the Rights.
5.18 Declaration as to Non-Canadian Holders
--------------------------------------
If in the opinion of the Board of Directors (who may rely upon
the advice of counsel) any action or event contemplated by this
Agreement would require compliance by the Corporation with the
securities laws or comparable legislation of a jurisdiction
outside Canada, the Board of Directors acting in good faith
shall take such actions as it may deem appropriate to ensure
such compliance. In no event shall the Corporation or the
Rights Agent be required to issue or deliver Rights or
securities issuable on exercise of Rights to persons who are
citizens, residents or nationals of any jurisdiction other than
Canada or the United States, in which such issue or delivery
would be unlawful without registration of the relevant Persons
or securities for such purposes.
5.19 Time of the Essence
-------------------
Time shall be of the essence in this Agreement.
5.20 Execution in Counterparts
-------------------------
This Agreement may be executed in any number of counterparts and
each of such counterparts shall for all purposes be deemed to be
an original, and all such counterparts shall together constitute
one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the date first above
written.
GOLD RESERVE CORPORATION
By: /s/ James H. Coleman
---------------------------------
MONTREAL TRUST COMPANY OF CANADA
By: /s/ L. Waddington
---------------------------------
<PAGE>
ATTACHMENT 1
GOLD RESERVE CORPORATION
SHAREHOLDER RIGHTS PLAN AGREEMENT
[Form of Rights Certificate]
Certificate No.
-----------
Rights
-----------
THE RIGHTS ARE SUBJECT TO TERMINATION ON THE TERMS SET FORTH IN THE
SHAREHOLDER RIGHTS PLAN AGREEMENT. UNDER CERTAIN CIRCUMSTANCES
(SPECIFIED IN SUBSECTION 3.1(b) OF THE SHAREHOLDER RIGHTS PLAN
AGREEMENT), RIGHTS BENEFICIALLY OWNED BY AN ACQUIRING PERSON OR
CERTAIN RELATED PARTIES, OR TRANSFEREES OF AN ACQUIRING PERSON OR
CERTAIN RELATED PARTIES, MAY BECOME VOID.
Rights Certificate
This certifies that ,
-------------------------------------------------
or registered assigns, is the registered holder of the number of
Rights set forth above, each of which entitles the registered holder
thereof, subject to the terms, provisions and conditions of the
Shareholder Rights Plan Agreement, dated as of April 2, 1997, as the
same may be amended or supplemented from time to time (the
"Shareholder Rights Agreement"), between Gold Reserve Corporation, a
corporation duly incorporated under the laws of Montana (the
"Corporation") and Montreal Trust Company of Canada, a trust company
incorporated under the laws of Canada (the "Rights Agent") (which term
shall include any successor Rights Agent under the Shareholder Rights
Agreement), to purchase from the Corporation at any time after the
Separation Time (as such term is defined in the Shareholder Rights
Agreement) and prior to the Expiration Time (as such term is defined
in the Shareholder Rights Agreement), one fully paid share of common
stock of the Corporation (a "Common Share") at the Exercise Price
referred to below, upon presentation and surrender of this Rights
Certificate with the Form of Election to Exercise (in the form
provided hereinafter) duly executed and submitted to the Rights Agent
at its principal office in the City of Toronto [insert other cities,
if applicable]. The Exercise Price shall initially be $70.00 (Cdn.)
or the U.S. Dollar Equivalent per Right and shall be subject to
adjustment in certain events as provided in the Shareholder Rights
Agreement.
This Rights Certificate is subject to all of the terms and provisions
of the Shareholder Rights Agreement, which terms and provisions are
incorporated herein by reference and made a part hereof and to which
Shareholder Rights Agreement reference is hereby made for a full
description of the rights, limitations of rights, obligations, duties
and immunities thereunder of the Rights Agent, the Corporation and the
holders of the Rights Certificates. Copies of the Shareholder Rights
Agreement are on file at the registered office of the Corporation.
<PAGE>
This Rights Certificate, with or without other Rights Certificates,
upon surrender at any of the offices of the Rights Agent designated
for such purpose, may be exchanged for another Rights Certificate or
Rights Certificates of like tenor and date evidencing an aggregate
number of Rights equal to the aggregate number of Rights evidenced by
the Rights Certificate or Rights Certificates surrendered. If this
Rights Certificate shall be exercised in part, the registered holder
shall be entitled to receive, upon surrender hereof, another Rights
Certificate or Rights Certificates for the number of whole Rights not
exercised.
Subject to the provisions of the Shareholder Rights Agreement, the
Rights evidenced by this Rights Certificate may be, and under certain
circumstances are required to be, redeemed by the Corporation at a
redemption price of $0.00001 per Right.
No fractional Common Shares will be issued upon the exercise of any
Right or Rights evidenced hereby, but in lieu thereof a cash payment
will be made, as provided in the Shareholder Rights Agreement.
No holder of this Rights Certificate, as such, shall be entitled to
vote or receive dividends or be deemed for any purpose the holder of
Common Shares or of any other securities which may at any time be
issuable upon the exercise hereof, nor shall anything contained in the
Shareholder Rights Agreement or herein be construed to confer upon the
holder hereof, as such, any of the Rights of a shareholder of the
Corporation or any right to vote for the election of directors or upon
any matter submitted to shareholders at any meeting thereof, or to
give or withhold consent to any corporate action, or to receive notice
of meetings or other actions affecting shareholders (except as
provided in the Shareholder Rights Agreement), or to receive dividends
or subscription rights, or otherwise, until the Rights evidenced by
this Rights Certificate shall have been exercised as provided in the
Shareholder Rights Agreement.
This Rights Certificate shall not be valid or obligatory for any
purpose until it shall have been countersigned by the Rights Agent.
WITNESS the facsimile signature of the proper officers of the
Corporation and its corporate seal.
Date:
---------------------------
GOLD RESERVE CORPORATION
By: By:
----------------------------- ----------------------------
[President] [Corporate Secretary]
Countersigned:
MONTREAL TRUST COMPANY OF CANADA
By:
-----------------------------
Authorized Signature
<PAGE>
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder desires to
transfer the Rights Certificate.)
FOR VALUE RECEIVED
------------------------------------------------
hereby sells, assigns and transfers unto
(Please print name and address of transferee.)
the Rights represented by this Rights Certificate, together with all
right, title and interest therein, and does hereby irrevocably
constitute and appoint ,
--------------------------------------------
as attorney, to transfer the within Rights on the books of the
Corporation, with full power of substitution.
Dated:
---------------------------
Signature
Signature Guaranteed: (Signature must correspond to
name as written upon the face of this Rights Certificate in every
particular, without alteration or enlargement or any change
whatsoever.)
Signature must be guaranteed by a member firm of a recognized stock
exchange in Canada, a registered national securities exchange in the
United States, a member of the Investment Dealers Association of
Canada or National Association of Securities Dealers, Inc. or a
commercial bank or trust company having an office or correspondent in
Canada or the United States or a member of the Securities Transfer
Agent Medallion Program (STAMP).
CERTIFICATE
(To be completed if true.)
The undersigned party transferring Rights hereunder, hereby
represents, for the benefit of all holders of Rights and Common
Shares, that the Rights evidenced by this Rights Certificate are not,
and, to the knowledge of the undersigned, have never been,
Beneficially Owned by an Acquiring Person or an Affiliate or Associate
thereof or a Person acting jointly or in concert with any of the
foregoing. Capitalized terms shall have the meaning ascribed thereto
in the Shareholder Rights Agreement.
-----------------------------------
Signature
(To be attached to each Rights Certificate.)
<PAGE>
FORM OF ELECTION TO EXERCISE
(To be executed by the registered holder if such holder desires to
exercise the Rights Certificate.)
TO:
--------------------------------------
The undersigned hereby irrevocably elects to exercise
---------------
whole Rights represented by the attached Rights Certificate to
purchase the Common Shares or other securities, if applicable,
issuable upon the exercise of such Rights and requests that
certificates for such securities be issued in the name of:
-------------------------------------------------
(Name)
-------------------------------------------------
(Address)
-------------------------------------------------
(City and Province)
-------------------------------------------------
Social Insurance Number or other taxpayer
identification number.
If such number of Rights shall not be all the Rights evidenced by this
Rights Certificate, a new Rights Certificate for the balance of such
Rights shall be registered in the name of and delivered to:
-------------------------------------------------
(Name)
-------------------------------------------------
(Address)
-------------------------------------------------
(City and Province)
-------------------------------------------------
Social Insurance Number or other taxpayer
identification number.
Dated:
---------------------------
Signature
Signature Guaranteed: (Signature must correspond to
name as written upon the face of this Rights Certificate in every
particular, without alteration or enlargement or any change
whatsoever.)
<PAGE>
Signature must be guaranteed by a member firm of a recognized stock
exchange in Canada, a registered national securities exchange in the
United States, a member of the Investment Dealers Association of
Canada or National Association of Securities Dealers, Inc. or a
commercial bank or trust company having an office or correspondent in
Canada or the United States or a member of the Securities Transfer
Agent Medallion Program (STAMP).
-----------------------------------
Signature
(To be attached to each Rights Certificate.)
CERTIFICATE
(To be completed if true.)
The undersigned party exercising Rights hereunder, hereby represents,
for the benefit of all holders of Rights and Common Shares, that the
Rights evidenced by this Rights Certificate are not, and, to the
knowledge of the undersigned, have never been, Beneficially Owned by
an Acquiring Person or an Affiliate or Associate thereof or a Person
acting jointly or in concert with any of the foregoing. Capitalized
terms shall have the meaning ascribed thereto in the Shareholder
Rights Agreement.
-----------------------------------
Signature
(To be attached to each Rights Certificate.)
<PAGE>
NOTICE
In the event the certification set forth above in the Forms of
Assignment and Election is not completed, the Corporation will deem
the Beneficial Owner of the Rights evidenced by this Rights
Certificate to be an Acquiring Person or an Affiliate or Associate
thereof. No Rights Certificates shall be issued in exchange for a
Rights Certificate owned or deemed to have been owned by an Acquiring
Person or an Affiliate or Associate thereof, or by a Person acting
jointly or in concert with an Acquiring Person or an Affiliate or
Associate thereof.
<PAGE>
Schedule "C" to Proxy Statement
Gold Reserve Corporation
1997 Equity Incentive Plan
SECTION 1. ESTABLISHMENT, PURPOSE, AND EFFECTIVE DATE OF PLAN
ESTABLISHMENT. Gold Reserve Corporation, a Montana (state)
corporation (the "Company") hereby establishes the "1997 PERFORMANCE
AND EQUITY INCENTIVE PLAN" (the "Plan") for its key employees,
directors and consultants. The Plan permits the grant of Stock
Options, Stock Appreciation Rights and Restricted Stock.
PURPOSE. The Purpose of the Plan is to advance the interests of the
Company and its Subsidiaries and promote continuity of management by
encouraging and providing key employees, directors and consultants
with the opportunity to acquire an equity interest in the Company and
to participate in the increase in shareholder value as reflected in
the growth in the price of the shares of the Company's Stock and by
enabling the Company to attract and retain the services of key
employees, directors, and consultants upon whose judgment, interest,
skills, and special effort the successful conduct of its operations is
largely dependent.
EFFECTIVE DATE. The Plan shall become effective on the date it is
adopted by the Board of the Company, subject to the approval by the
affirmative vote of the majority of shareholders present and voting at
a duly held meeting of shareholders or by written consent of the
majority of outstanding shareholders.
SECTION 2. DEFINITIONS, CONSTRUCTION
DEFINITIONS. Whenever used herein, the following terms shall have
their respective meanings set forth below:
(a) "Act" means the Securities Exchange Act of 1934, as amended.
(b) "Board" means the Board of Directors of the Company, which shall
determine all matters concerning Options, Restricted Stock and
Stock Appreciation Rights granted to Eligible Directors.
(c) "Change in Capitalization" means any increase or reduction in the
number of shares of Stock, or any change (including, but not
limited to, a change in value) in the shares of Stock or exchange
of shares of Stock for a different number or kind of shares or
other securities of the Company or any other corporation or other
entity, by reason of a reclassification, recapitalization,
merger, consolidation, reorganization, spin-off, split-up,
issuance of warrants, rights or debentures, change in the
exercise price or conversion price under any warrants, rights or
debenture as a result of any event, stock dividend, stock split
or reverse stock split, extraordinary dividend, property
dividend, combination or exchange of shares or otherwise.
<PAGE>
(d) A "Change in Control" means an event or series of events after
the Effective Date by which (i) any "person" or "group" (as such
terms are used in Section 13(d) and 14(d) of the Act) becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Act),
directly or indirectly, of more than 50% of the aggregate voting
power of all the capital Stock of the Company normally entitled
to vote in the election of directors or (ii) during any period of
two consecutive calendar years, individuals who at the beginning
of such period constituted the Board (together with any new
directors whose election by the Board or whose nomination for
election by the Company's stockholders was approved by a vote of
at least a majority of the directors then still in office who
either were directors at the beginning of such period or whose
election or nomination was previously so approved) cease for any
reason to constitute a majority of the directors then in office.
(e) "Code" means the Internal Revenue Code of 1986, as amended.
(f) "Committee" means a committee of the Board designated to
administer the Plan. If no Committee is designated or is
administering the Plan, all references to the Committee herein
shall refer to the Board.
(g) "Company" means GOLD RESERVE CORPORATION, a Montana corporation,
and any successors thereto.
(h) "Disability" means the inability to engage in any substantial
activity by reason of any medically determinable, physical or
mental impairment that can be expected to result in death or that
has lasted or can be expected to last for a continuous period of
not less than 12 months.
(i) "Eligible Participant" means any key employee, director or
consultant designated by the Committee as eligible to participate
in the Plan pursuant to Section 3.
(j) "Fair Market Value" means the closing sales price or the United
States Dollar equivalent of the closing sales price at which a
share of the Stock is reported to have traded on the day
immediately preceding the grant date as reported on the Principal
Market for the Stock; and if there is no trade on such date, the
Fair Market Value means the closing sales price or the United
States Dollar equivalent of the closing sales price on the most
recent date previous to such grant date as reported on the
Principal Market for the Stock. If no Fair Market Value has been
established in accordance with the foregoing, Fair Market Value
shall be the value established by the Board in good faith and, in
the case of an incentive stock option, in accordance with Section
422 of the Code.
(k) "Option" means the right to purchase Stock at a stated price for
a specified period of time. For purposes of the Plan an Option
may be either (i) an "incentive stock option" within the meaning
of Section 422 of the Code or (ii) a "nonstatutory stock option."
<PAGE>
(l) "Option Agreement" means the agreement evidencing the grant of an
Option as described in Section 6.
(m) "Option price" means the price at which Stock may be purchased
pursuant to an Option.
(n) "Optionee" means a person to whom an Option has been granted
under the Plan.
(o) "Participant" means an Eligible Employee, Director or a
Consultant who has been granted and, at the time of reference,
holds an Option, Restricted Stock or Stock Appreciation Right.
(p) "Period of Restriction" means the period during which shares of
Restricted Stock are subject to restrictions pursuant to Section
9 of the Plan.
(q) "Principal Market for the Stock" means the exchange on which the
majority of the Stock was traded over the last twelve months.
This includes The Toronto Stock Exchange ("TSE"), the NASDAQ
Electronic Interdealer Quotation System ("NASDAQ System") or, in
the event the Company lists its shares in the future, a national
U.S. securities exchange.
(r) "Restricted Stock" means Stock granted pursuant to Section 9 of
the Plan.
(s) "Stock" means the Common Stock of the Company, par value of
$.0001 per share.
(t) "Stock Appreciation Right" means the right to receive the
increase in the value of Stock subject to an Option in lieu of
purchasing such Stock.
(u) "Subsidiary" means any present or future subsidiary of the
Company, as defined in Section 424(f) of the Code.
(v) All numbers, except when otherwise indicated by the context, the
singular shall include the plural, and the plural shall include
the singular.
SECTION 3. ELIGIBILITY AND PARTICIPATION
ELIGIBILITY AND PARTICIPATION. Eligible Participants in the Plan shall
be selected by the Committee from among those officers, directors,
employees, and consultants of the Company and its Subsidiaries who, in
the opinion of the Committee, are in a position to contribute
materially to the Company's continued growth and development and to
its long-term financial success. The maximum number of shares for
which Options may be granted to any one person in any year is 300,000
shares. In addition, the total number of shares reserved for issuance
to any one person pursuant to options cannot exceed 5% of shares
outstanding.
<PAGE>
SECTION 4. STOCK SUBJECT TO PLAN
NUMBER. The total number of new shares of Stock subject to issuance
under the Plan is 2,000,000. In addition, any shares subject to
options previously issued under existing plans that as a result of
forfeiture to the Company become subject to reissuance shall be
reissued and administered pursuant to the Plan. The shares to be
delivered under the Plan will consist of authorized but unissued
Stock.
UNUSED STOCK; UNEXERCISED RIGHTS. If any shares of Stock are subject
to an Option, which for any reason expires or is terminated
unexercised as to such shares, or any shares of Stock subject to a
Restricted Stock grant made under the Plan are re-acquired by the
Company pursuant to Section 9 of the Plan, such shares shall again
become available for issuance under the Plan.
EXERCISE OF STOCK APPRECIATION RIGHT. Whenever a Stock Appreciation
Right is exercised and payment of the amount determined in Section 8
is made in cash, the shares of Stock allocable to the portion of the
Option surrendered may again be the subject of Options or Restricted
Stock hereunder. Whenever a Stock Appreciation Right is exercised and
payment of the amount determined in Section 8 is made in shares of
Stock, only the net shares issued upon exercise of the Stock
Appreciation Right will be deemed utilized in the Plan.
ADJUSTMENT IN CAPITALIZATION.
(a) In the event of a Change in Capitalization, the Committee shall
conclusively determine the appropriate adjustments, if any, to
(i) the maximum number and class of shares of Stock or other
securities with respect to which Options or Restricted Stock may
be granted under the Plan; (ii) the number and class of shares of
Stock or other securities which are subject to outstanding
Options or Restricted Stock granted under the Plan, and the
purchase price therefor, if applicable, and (iii) the maximum
number of shares of Stock or other securities with respect to
which Options or Stock Appreciation Rights may be granted during
the term of the Plan.
(b) Any such adjustment in the shares of Stock or other securities
subject to outstanding incentive stock options (including any
adjustments in the purchase price) shall be made in such a manner
as not to constitute a modification as defined by Section
424(h)(3) of the Code and only to the extent otherwise permitted
by Sections 422 and 424 of the Code.
(c) If, by reason of a Change in Capitalization, a grantee of
Restricted Stock shall be entitled to, or an Optionee shall be
entitled to exercise an Option with respect to new, additional or
different shares of Stock or securities, such new, additional or
different shares shall thereupon be subject to all of the
conditions, restrictions and performance criteria which were
applicable to the Restricted Stock or Stock subject to the
Option, as the case may be, prior to such Change in
capitalization.
<PAGE>
SECTION 5. DURATION OF PLAN
DURATION OF PLAN. The Plan shall remain in effect, subject to the
Board's right to earlier terminate the Plan pursuant to Section 12
hereof, until all Stock subject to the Plan shall have been purchased
or acquired pursuant to the provisions hereof. Notwithstanding the
foregoing, no Option, Stock Appreciation Right or Restricted Stock may
be granted under the Plan on or after the tenth anniversary of the
Effective Date.
SECTION 6. OPTION GRANTS
GRANT OF OPTIONS. Subject to Section 4 and 5, Options may be granted
to Eligible Participants and Eligible Directors at any time and from
time to time as determined by the Committee, as the case may be. The
Committee shall have complete discretion consistent with the terms of
the Plan in determining whether to grant Options, the number of
Options to be granted, and whether an Option is to be an incentive
stock option within the meaning of Section 422 of the Code or a
nonstatutory stock option. Nothing in this Section 6 of the Plan shall
be deemed to prevent the grant of nonstatutory stock options in excess
of the maximum established by Section 422 of the Code.
OPTION AGREEMENT. Each Option shall be evidenced by an Option
Agreement that shall specify the type of Option granted, the Option
Price, the duration of the Option, the number of shares of Stock to
which the Option pertains and such other provisions as the Committee
or the Board, as the case may be, shall determine.
OPTION PRICE. The Option Price for each Option shall be determined by,
or in the manner specified by, the Committee or the Board provided
that (i) subject to Section 4, Options with respect to no more than
250,000 shares of Stock may have an Option Price that is less than the
Fair Market Value of the Stock on the date the Option is granted and
(ii) in the case of an incentive stock option, no Option shall have an
Option Price that is less than the Fair Market Value of the Stock on
the date the Option is granted (110% of Fair Market Value in the case
of an incentive stock option granted to any person who owns Stock
possessing more than 10% of the total combined voting power of all
classes of Stock of the Company or any Subsidiary, known as a "Ten
Percent Stockholder").
DURATION OF OPTIONS. Each Option shall have a maximum duration of ten
years from the time it is granted, except that an incentive stock
option granted to a Ten Percent Stockholder shall have a maximum
duration of five years from the time it is granted.
EXERCISE OF OPTIONS. Each Option granted under the Plan shall be
exercisable at such times and be subject to such restrictions and
conditions as the Committee or the Board, as the case may be, shall in
each instance approve. Such restrictions and conditions need not be
the same for each Participant.
<PAGE>
SECTION 7. TERMS AND CONDITIONS APPLICABLE TO ALL OPTIONS
PAYMENT. The Option Price shall be payable to the Company in full upon
exercise of an Option either (i) in cash or its equivalent, (ii) at
the discretion of the Committee or the Board, as the case may be, by
tendering shares of Stock held by the Optionee for more than six
months having a Fair Market Value at the time of exercise equal to the
Option Price, (iii) by a combination of (i) and (ii), or (iv) cash-
less exercise methods which are generally permitted by law, whereby a
broker sells the shares to which the Option relates or holds such
shares as collateral as may be the case. The proceeds from any such
payments shall be added to the general funds of the Company and shall
be used for general corporate purposes. Where payment for the exercise
of an Option is made as provided in (ii) above, only the net shares
issued upon exercise of the Option will be deemed utilized in the
Plan.
The Company may from time to time or at any time advance funds to
holders of Options granted under the Plan on a short-term basis solely
for the purpose of enabling such holders to exercise their Options.
All such advances will be evidenced in writing, will provide for the
payment of interest on terms then prevailing and will be secured by
pledges of the common Stock issuable upon the exercise of the Options
and if such common stock is to be resold, the proceeds of such sale.
It is presently anticipated that no such advance will remain
outstanding for more than a period of thirty days.
RESTRICTIONS ON STOCK TRANSFERABILITY. The Committee or the Board, as
the case may be, may impose such restrictions on any shares of Stock
acquired pursuant to the exercise of an Option under the Plan as it
may deem advisable, including, without limitation, restrictions under
applicable federal securities law, under requirements of any stock
exchange upon which such shares of Stock are then listed and under any
blue sky or state securities laws applicable to such shares.
TERMINATION DUE TO RETIREMENT. The Option Agreement may provide that
if the employment of the Optionee is terminated, or if the
directorship of the Optionee expires, for a reason other than for
Cause or following a Change in Control, any outstanding Options
granted to the Optionee which are then exercisable shall continue to
be exercisable at any time prior to the earlier of the expiration date
of the Options and one year after the date of termination, and any
Options not then exercisable shall terminate immediately, subject to
such exceptions (which shall be set forth in the Option Agreement) as
the Committee or the Board may, in its sole discretion, approve.
TERMINATION DUE TO DEATH OR DISABILITY. The Option Agreement may
provide that the rights of an Optionee under any then outstanding
Option granted to the Optionee pursuant to the Plan if the employment
or directorship of the Optionee is terminated by reason of death or
Disability shall survive for up to the earlier of the expiration date
of the Options or one year after such death or Disability.
<PAGE>
TERMINATION OF EMPLOYMENT FOR CAUSE. Anything contained herein to the
contrary notwithstanding, if the termination of an Optionee's
employment with the Company is as a result of or caused by the
Optionee's theft or embezzlement from the Company, the violation of a
material term or condition of his or her employment, the disclosure by
the Optionee of confidential information of the Company, conviction of
the Optionee of a crime of moral turpitude, the Optionee's stealing
trade secrets or intellectual property owned by the Company, any act
by the Optionee in competition with the Company, or any other act,
activity or conduct of the Optionee which in the opinion of the
Committee is adverse to the best interests of the Company, then any
Options and any and all rights granted to such Optionee thereunder, to
the extent not yet effectively exercised, shall become null and void
effective as of the date of the occurrence the event which results in
the Optionee ceasing to be an employee or director of the Company, and
any purported exercise of an Option by or on behalf of said Optionee
shall following such date shall be of no effect.
TRANSFERABILITY AND EXERCISABLITY OF OPTIONS. Neither the whole nor
any part of any incentive option shall be transferable by the Optionee
or by operation of law during such Optionee's lifetime. An incentive
option may be exercised during the lifetime of the Optionee only by
the Optionee. At such Optionee's death an Option or any part thereof
shall only be transferable by such Optionee's will or by the laws of
descent and distribution. Any incentive option, and any and all rights
granted to an Optionee thereunder, to the extent not theretofore
effectively exercised, shall automatically terminate and expire upon
any sale, transfer or hypothecation, or any attempted sale, transfer
or hypothecation of such Option or rights, or upon the bankruptcy or
insolvency of the Optionee. Any nonstatutory option granted hereunder
may be transferred to the extent provided by the Committee in the
nonstatutory option agreement or duly executed amended nonstatutory
option agreement. Transfer of a nonstatutory option shall not effect
the applicability of the original terms of the Option Agreement,
including the termination of employment provisions included herein.
SECTION 8. STOCK APPRECIATION RIGHTS
STOCK APPRECIATION RIGHTS. The Committee or the Board, as the case may
be, may, in its discretion, in connection with the grant of an Option,
grant to the Optionee Stock Appreciation Rights, the terms and
conditions of which shall be set forth in an agreement. A Stock
Appreciation Right shall cover the same shares of Stock covered by the
Option (or such lesser number of shares of Stock as the Committee or
the Board may determine) and shall, except as provided in this Section
8, be subject to the same terms and conditions as the related Option.
Stock Appreciation Rights shall be subject to the following terms and
provisions:
(a) A Stock Appreciation Right may be granted either at the time of
grant, or at any time thereafter during the term of the Option if
related to a nonstatutory stock option; or only at the time of
grant if related to an incentive stock option.
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(b) A Stock Appreciation Right will entitle the holder of the related
Option upon exercise of the Stock Appreciation Right, to
surrender such Option or any portion thereof to the extent
unexercised, and to receive payment of an amount determined by
multiplying (i) the excess of the weighted average trading price
on the Principal Market for the Stock for the five (5) trading
days immediately preceeding the date of exercise of such Stock
Appreciation Right over the Option Price under the related
Option, by (ii) the number of shares as to which such Stock
Appreciation Right has been exercised. Notwithstanding the
foregoing, the agreement evidencing the Stock Appreciation Right
may limit in any manner the amount payable with respect to any
Stock Appreciation Right.
(c) A Stock Appreciation Right will be exercisable at such time or
times and only to the extent that a related Option is
exercisable, and will not be transferable except to the extent
that such related Option may be transferable. A Stock
Appreciation Right granted in connection with an incentive stock
option shall be exercisable only if the Fair Market Value of the
Stock on the date of exercise exceeds the Option Price in the
related Option.
(d) Upon the exercise of a Stock Appreciation Right, the related
Option shall be canceled to the extent of the number of shares of
Stock as to which the Stock Appreciation Right is exercised, and
upon the exercise of an Option granted in connection with a Stock
Appreciation Right, the Stock Appreciation Right shall be
canceled to the extent of the number of shares of Stock as to
which the Option is exercised or surrendered.
(e) A Stock Appreciation Right may be exercised by an Optionee only
by a written notice delivered in person or by mail to the
Secretary of the Company at the Company's principal executive
office, specifying the number of shares of Stock with respect to
which the Stock Appreciation Right is being exercised. The
Optionee shall deliver the agreement evidencing the Stock
Appreciation Right being exercised and the agreement evidencing
any related Option to the Secretary of the Company who shall
endorse thereon a notation of such exercise and return such
agreement to the Optionee.
(f) Payment of the amount determined under Subsection (b) may be made
by the Company in the discretion of the Committee or the Board,
as the case may be, solely in whole shares of Stock in a number
determined at their Fair Market Value on the date preceding the
date of exercise of the Stock Appreciation Right or solely in
cash, or in a combination of cash and Stock. If payment is made
in Stock and the amount payable results in a fractional share,
payment for the fraction share will be made in cash.
(g) No Stock Appreciation Right may be exercised within three months
after it is granted.
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(h) Subject to the terms of the Plan, the Committee or the Board, as
the case may be, may modify outstanding awards of Stock
Appreciation Rights or accept the surrender of outstanding awards
of Stock Appreciation Rights (to the extent not exercised) and
grant new awards in substitution for them. Notwithstanding the
foregoing, no modification of an award of Stock Appreciation
Rights shall adversely alter or impair any rights or obligations
under the agreement granting such Stock Appreciation Rights
without the Optionee's consent.
SECTION 9. RESTRICTED STOCK
GRANT OF RESTRICTED STOCK. Subject to Sections 4 and 5, the Committee
or the Board, as the case may be, at any time and from time to time,
may grant Restricted Stock under the Plan to such Eligible
Participants and in such amounts as it determines in its sole
discretion, but not in excess of 500,000 shares. Each grant of
Restricted Stock shall be made pursuant to a written agreement which
shall contain such restrictions, terms and conditions as the Committee
or the Board may determine in its discretion. Restrictions upon
Restricted Stock shall be for such period or periods (herein called
"Period(s) of Restriction") and on such terms and conditions as the
Committee or the Board may, in its discretion, determine.
TRANSFERABILITY. Except as provided in this Section 9, the shares of
Restricted Stock granted hereunder may not be sold, transferred,
pledged, assigned or otherwise alienated or hypothecated for such
period of time as shall be determined by the Committee or the Board,
as the case may be, and shall be specified in the Restricted Stock
grant, or upon earlier satisfaction of other conditions set forth in
the Restricted Stock grant.
OTHER RESTRICTIONS. The Committee or the Board, as the case may be,
may impose such other restrictions on any shares of Restricted Stock
granted to any Participant pursuant to the Plan as it may deem
advisable including, without limitation, restrictions under applicable
federal or state securities laws, and shall legend the certificates
representing Restricted Stock to give appropriate notice of such
restrictions.
CERTIFICATE LEGEND. In addition to any legends placed on certificates
pursuant to Section 9 hereof, each certificate representing shares of
Restricted Stock granted pursuant to the Plan shall bear the following
legend:
"The sale or other transfer of the shares of Stock represented by
this certificate, whether voluntary, involuntary or by operation
of law, is subject to certain restrictions on transfer set forth
in GOLD RESERVE CORPORATION'S 1997 Performance and Equity
Incentive Plan and Restricted Stock agreement dated
------------.
[TO BE COMPLETED WITH THE DATE OF GRANT]. A copy of the Plan and
such Restricted Stock agreement may be obtained from the
Secretary of GOLD RESERVE CORPORATION"
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REMOVAL OF RESTRICTIONS. Except as otherwise provided in this Section
9, shares of Restricted Stock covered by each Restricted Stock grant
made under the Plan shall become freely transferable by the
Participant after the last day of the Period of Restriction. Once the
shares are released from the restrictions, the Participant shall be
entitled to have the legend required by Section 9 removed from his
Stock certificate.
VOTING RIGHTS. During the Period of Restriction, Participants holding
shares of Restricted Stock granted hereunder may exercise full voting
rights with respect to those shares.
DIVIDENDS AND OTHER DISTRIBUTIONS. During the period of restriction,
Participants holding shares of Restricted Stock granted hereunder
shall be entitled to receive all dividends and other distributions
paid with respect to those shares while they are so held. If any such
dividends or distributions are paid in shares of Stock, such shares
shall be subject to the same restrictions as the shares of Restricted
Stock with respect to which they were paid.
SECTION 10. BENEFICIARY DESIGNATION
BENEFICIARY DESIGNATION. Subject to Sections 7 and 9, each Participant
may, from time to time, name any beneficiary or beneficiaries (who may
be named contingently or successively) to whom any benefit under the
Plan is to be paid in case of the Participant's death before he or she
receives any or all of such benefit. Each designation will revoke all
prior designations by the same Participant, shall be in a form
prescribed by the Committee and will be effective only when filed by
the Participant in writing with the Committee during the life time of
the Participant. In the absence of any such designation, benefits
remaining unpaid at the Participant's death shall be paid to the
estate of the Participant.
SECTION 11. RIGHTS OF PARTICIPANTS
EMPLOYMENT. Nothing in the Plan shall interfere with or limit in any
way the right of the Company to terminate any Participant's
employment, directorship or service at any time nor confer upon any
Participant any right to continue in the employ or service or as a
director of the Company. No person shall have a right to be selected
as an Eligible Participant or, having been so selected, to be selected
again as an Optionee or recipient of Restricted Stock. The preceding
sentence shall not be construed or applied so as to deny a person any
participation in the Plan solely because he or she was a Participant
in connection with a prior grant of benefits under the Plan.
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SECTION 12. ADMINISTRATION; POWERS AND DUTIES OF THE COMMITTEE AND
THE BOARD
ADMINISTRATION. The Committee shall be responsible for the
administration of the Plan as it applies to Eligible Participants
other than directors, and the Board shall be responsible for the
administration of the Plan as it applies to Eligible Directors,
subject to Section 2. The Committee, by majority action thereof, is
authorized to interpret the Plan, to prescribe, amend, and rescind
rules and regulations relating to the Plan, to provide for conditions
and assurances deemed necessary or advisable to protect the interests
of the Company, and to make all other determinations necessary or
advisable for the administration of the Plan, but only to the extent
not contrary to the express provision of the Plan. Determinations,
interpretations, or other actions made or taken by the Committee
pursuant to the provisions of the Plan shall be final and binding and
conclusive for all purposes and upon all persons whomsoever. No member
of the Committee shall be personally liable for any action,
determination or interpretation made or taken in good faith with
respect to the Plan, and all members of the Committee shall be fully
indemnified by the Company with respect to any such action,
determination or interpretation.
CHANGE IN CONTROL. Without limiting the authority of the Committee as
provided herein, the Committee, either at the time Options or shares
of Restricted Stock are granted, or, if so provided in the applicable
Option Agreement or Restricted Stock grant, at any time hereafter,
shall have the authority to take such actions as it deems advisable,
including the right to accelerate in whole or in part the
exercisability of Options and/or to reduce the Period of Restriction
upon a Change in Control. The Option Agreement and Restricted Stock
grants approved by the Committee may contain provisions which, if
there is a Change in Control, accelerate the exercisability of Options
and/or the Period of Restriction automatically or at the discretion of
the Committee or if the Change in Control is approved by a majority of
the members of the Board or depending such other criteria as the
Committee may specify. Nothing herein shall obligate the Committee to
take any action upon a Change in Control.
AMENDMENT, MODIFICATION AND TERMINATION OF PLAN. The Board may, at any
time and from time to time, modify, amend, suspend or terminate the
Plan in any respect. Amendments to the Plan shall be subject to
stockholder approval to the extent required to comply with any
exemption to the short swing-profit provisions of Section 16 (b) of
the Exchange Act pursuant to rules and regulations promulgated
thereunder, with the exclusion for performance-based compensation
under Code Section 162 (m), or with the rules and regulations of any
securities exchange on which the Shares are listed. The Board may also
modify or amend the terms and conditions of any outstanding Award,
subject to the consent of the holder and consistent with the
provisions of the Plan. No amendment, modification or termination of
the Plan shall in any manner adversely affect any Option, Stock
Appreciation Right or Restricted Stock theretofore granted to any
Participant under the Plan, without the consent of that Participant.
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INTERPRETATION. Unless otherwise expressly stated in the relevant
Agreement, any grant of Options, Stock Appreciation Rights or
performance-vesting Restricted Stock is intended to be performance-
based compensation and therefore not subject to the deduction
limitation set forth in Section 162(m)(4)(C) of the Code .
SECTION 13. TAX WITHHOLDING
TAX WITHHOLDING. At such times as a Participant recognizes taxable
income in connection with the receipt of shares, securities, cash or
property hereunder (a "Taxable Event"), the Participant shall pay to
the Company an amount equal to the federal, state and local income
taxes and other amounts as may be required by law to be withheld by
the Company in connection with the Taxable Event (the "Withholding
Taxes"). Prior to the issuance, or release from escrow, of such shares
or the payment of such cash Company shall have the right to deduct
from any payment of cash to a Participant an amount equal to the
Withholding Taxes in satisfaction of the obligation to pay Withholding
Taxes. In satisfaction of his obligation to pay Withholding Taxes to
the Company, the Participant may make a written election (the "Tax
Election"), which may be accepted or rejected in the discretion of the
Committee, to have withheld a portion of the shares of Stock then
issuable having an aggregate Fair Market Value, on the date preceding
the date of such issuance, equal to the Withholding Taxes.
SECTION 14. REQUIREMENTS OF LAW
REQUIREMENTS OF LAW. The granting of Options or Restricted Stock, and
the issuance of shares of Stock upon the exercise of an Option shall
be subject to all applicable laws, rules and regulations, and to such
approvals by any governmental agencies or national securities
exchanges as may be required.
GOVERNING LAW. The Plan, and all agreements hereunder, shall be
construed in accordance with and governed by the laws of the State of
Washington without giving effect to the choice of law principles
thereof, except to the extent that such law is preempted by federal
law.
LISTING, ETC. Each Option or share of Restricted Stock is subject to
the requirement that, if at any time the Committee or the Board, as
the case may be, determines, in its discretion, that the listing,
registration or qualification of Stock issuable pursuant to the Plan
is required by any securities exchange or under any state or federal
law, or the consent or approval of any governmental regulatory body is
necessary or desirable as a condition of, or in connection with, the
grant of an Option or the issuance of Stock, no Options or Restricted
Stock shall be granted or payment made or shares of Stock issued, in
whole or in part, unless such listing, registration, qualification,
consent or approval has been effected or obtained free of any
conditions which are unacceptable to the Committee or the Board,
acting in good faith.
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RESTRICTION ON TRANSFER. Notwithstanding anything contained in the
Plan or any Agreement to the contrary, if the disposition of Stock
acquired pursuant to the Plan is not covered by a then current
registration statement under the Securities Act of 1933, as amended,
and is not otherwise exempt from such registration, such Stock shall
be restricted against transfer to the extent required by said Act, and
Rule 144 or other regulations thereunder. The Committee or the Board,
as the case may be, may require anyone receiving Stock pursuant to an
Option or Restricted Stock granted under the Plan, as a condition
precedent to receiving such Stock, to represent and warrant to the
Company in writing that such Stock is being acquired without a view to
any distribution thereof and will not be sold or transferred other
than pursuant to an effective registration thereof under said Act or
pursuant to an exemption applicable under said Act, or the rules and
regulations promulgated thereunder. The certificates evidencing any
shares of such Stock shall be appropriately legend to reflect their
status as restricted securities.
<PAGE>
