<PAGE>
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:
/ X / Preliminary Proxy Statement / / Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
/ / Definitive Information Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule14a.11(c) or Rule 14a-12
PEGASUS GOLD INC.
-----------------
(Name of Registrant as Specified in Charter)
N/A
---
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/ X / No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
N/A
---
(2) Aggregate number of securities to which transaction applies:
N/A
---
(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined):
N/A
---
(4) Proposed maximum aggregate value of transaction:
N/A
---
(5) Total fee paid:
N/A
---
/ / 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:
N/A
---
(2) Form, Schedule or Registration Statement No.:
N/A
---
(3) Filing Party:
N/A
---
(4) Date Filed:
N/A
---
<PAGE>
[LETTERHEAD]
March 24, 1997
DEAR SHAREHOLDER:
You are cordially invited to attend the 1997 Annual General Meeting of
Shareholders, which will be held in the Garden Room of the Pan Pacific Hotel,
300-999 Canada Place, Vancouver, British Columbia, Canada, on Wednesday, April
30, 1997, at 10:30 a.m.
You will be asked to vote on the election of three directors and the approval of
the selection of auditors for 1997. You will also be asked to approve the
adoption of the 1997 Stock Plan, a new stock-based incentive compensation plan
for directors and executive officers that will replace the current stock option
plans. In addition, reports on operations and other matters of interest will be
presented at the meeting. Please refer to the Notice of Meeting and the Proxy
Statement and Information Circular, which are enclosed.
Your Board of Directors respectfully recommends that you cast your vote in favor
of each proposal.
IT IS IMPORTANT THAT YOUR SHARES ARE REPRESENTED AT THE MEETING WHETHER OR NOT
YOU ARE PERSONALLY ABLE TO ATTEND. YOU ARE, THEREFORE, URGED TO SIGN, DATE, AND
MAIL THE ACCOMPANYING PROXY CARD IN THE ENCLOSED ENVELOPE AS PROMPTLY AS
POSSIBLE. A proxy solicitation effort is planned to help ensure maximum
shareholder representation at this important annual meeting. Thank you for your
cooperation and we look forward to your attendance at the meeting.
Sincerely,
Werner G. Nennecker,
President and Chief Executive Officer
<PAGE>
NOTICE OF ANNUAL GENERAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 30, 1997
NOTICE IS HEREBY GIVEN that the 1997 Annual General Meeting of Shareholders of
PEGASUS GOLD INC. (the "Company") will be held in the Garden Room of the Pan
Pacific Hotel, 300-999 Canada Place, Vancouver, British Columbia, Canada, on
Wednesday, April 30, 1997, at 10:30 a.m. (PDT), (the "Annual Meeting") for the
following purposes:
(1) To receive the report of the directors, the audited consolidated financial
statements of the Company, and the report of the auditors for the fiscal
year ended December 31, 1996.
(2) To elect three directors to hold office for a term of three years each or
until their respective successors are elected and qualified.
(3) To appoint auditors for the ensuing year and to authorize the directors to
fix the remuneration to be paid to the auditors.
(4) To approve the adoption of the 1997 Stock Plan.
(5) To consider and transact such other business as may properly be brought
before the meeting or any adjournment thereof.
The Company's Board of Directors has fixed the close of business on March 25,
1997, as the record date for determination of shareholders entitled to notice of
the Annual Meeting and to vote at the Annual Meeting.
Registered shareholders who are individuals may attend and vote at the meeting
in person or by proxy, and shareholders which are corporations may attend and
vote at the meeting by proxy or by a duly authorized representative.
BY ORDER OF THE BOARD,
Robert A. Lonergan
Secretary
Spokane, Washington, U.S.A.
March 24, 1997
PLEASE READ THE ATTACHED PROXY STATEMENT AND THEN PROMPTLY COMPLETE, EXECUTE AND
RETURN THE ENCLOSED PROXY CARD IN THE ACCOMPANYING ENVELOPE. YOU CAN SPARE YOUR
COMPANY THE EXPENSE OF FURTHER PROXY SOLICITATION BY RETURNING YOUR PROXY CARD
PROMPTLY.
<PAGE>
PROXY STATEMENT AND INFORMATION CIRCULAR
TABLE OF CONTENTS
Page
GENERAL........................................................................1
SOLICITATION OF PROXIES........................................................1
APPOINTMENT AND REVOCATION OF PROXIES..........................................1
VOTING SECURITIES..............................................................2
EXERCISE OF DISCRETION BY PROXIES..............................................2
ANNUAL REPORT..................................................................3
PRINCIPAL HOLDERS OF VOTING SECURITIES.........................................3
ELECTION OF DIRECTORS..........................................................4
COMPENSATION OF EXECUTIVE OFFICERS............................................10
FIVE-YEAR TOTAL RETURN GRAPH..................................................17
REMUNERATION OF DIRECTORS AND SENIOR OFFICERS.................................18
PROPOSAL TO APPROVE THE ADOPTION OF THE 1997 STOCK PLAN.......................19
CORPORATE GOVERNANCE..........................................................22
APPOINTMENT AND REMUNERATION OF AUDITORS......................................27
PROPOSALS BY SHAREHOLDERS FOR 1998 ANNUAL GENERAL MEETING.....................28
EXHIBIT 1 - 1997 STOCK PLAN
<PAGE>
PROXY STATEMENT AND INFORMATION CIRCULAR
GENERAL
Except as otherwise stated, the information contained herein is stated as of
March 10, 1997. The Proxy Statement and Information Circular and the
accompanying Instrument of Proxy are expected to be mailed to shareholders on or
before April 4, 1997.
Advance notice of the Annual General Meeting of Shareholders of Pegasus Gold
Inc. to be held April 30, 1997 (the "Annual Meeting") was published, pursuant
to Section 135 of the British Columbia Company Act, in the March 5, 1997
edition of THE PROVINCE newspaper and delivered to certain regulatory
authorities as required by the regulations under such Act.
All dollar amounts in this Proxy Statement and Information Circular, unless
otherwise indicated, are stated in U.S. dollars.
SOLICITATION OF PROXIES
THE ACCOMPANYING PROXY IS SOLICITED BY THE BOARD OF DIRECTORS AND MANAGEMENT OF
PEGASUS GOLD INC. (the "Company") for use at the Annual Meeting and any
adjournments thereof.
All costs of this solicitation will be borne by the Company. In addition to the
use of the mails, proxies may be solicited by officers, directors, and regular
employees of the Company personally or by telephone or by special mail, and such
persons will receive no compensation therefor other than their regular salaries.
The Company will also make arrangements with brokerage houses and other
custodians, nominees, and fiduciaries to send proxies and proxy materials to
their principals, and will reimburse them for their reasonable out-of-pocket
expenses. The Company also intends to use the services of D.F. King & Co., Inc.
to assist in the solicitation of proxies. The charge for proxy solicitation
services rendered to the Company is estimated to be $7,000 plus expenses.
APPOINTMENT AND REVOCATION OF PROXIES
The individuals named in the accompanying Instrument of Proxy are the President
and Secretary of the Company, respectively. A SHAREHOLDER HAS THE RIGHT TO
APPOINT SOME OTHER PERSON (WHO NEED NOT BE A SHAREHOLDER) TO REPRESENT THE
SHAREHOLDER AT THE ANNUAL MEETING, EITHER BY INSERTING SUCH PERSON'S
1
<PAGE>
NAME IN THE BLANK SPACE PROVIDED IN THE INSTRUMENT OF PROXY OR BY COMPLETING
ANOTHER INSTRUMENT OF PROXY.
IN ORDER TO BE VALID, AN INSTRUMENT OF PROXY MUST BE SIGNED, DATED, AND
DEPOSITED WITH EITHER MONTREAL TRUST COMPANY OF CANADA, 510 BURRARD STREET,
FOURTH FLOOR, VANCOUVER, BRITISH COLUMBIA, CANADA V6C 3B9 (CANADIAN RESIDENT
SHAREHOLDERS), OR THE COMPANY'S EXECUTIVE OFFICE AT SUITE 1500, 601 WEST FIRST
AVENUE, SPOKANE, WASHINGTON, U.S.A. 99204 (U.S. RESIDENT SHAREHOLDERS) NO LATER
THAN 48 HOURS BEFORE THE TIME OF THE ANNUAL MEETING (EXCLUDING SATURDAYS,
SUNDAYS, AND HOLIDAYS) OR ANY ADJOURNMENTS THEREOF, OR WITH THE CHAIRMAN OF THE
MEETING BEFORE THE MEETING OR THE ADJOURNED MEETING COMMENCES.
Any shareholder executing an Instrument of Proxy retains the right to revoke it
at any time prior to it being exercised. In addition to revocation in any other
manner provided by law, a proxy may be revoked by a subsequent instrument of
proxy in writing executed by the shareholder or by the shareholder's attorney
authorized in writing or, where the shareholder is a corporation, by a duly
authorized officer or attorney of the corporation, and delivered to the
registered office of the Company, 1600 - 925 West Georgia Street, Vancouver,
British Columbia, Canada V6C 3L2, at any time up to and including the last
business day preceding the day of the Annual Meeting, or any adjournment
thereof, or to the Chairman of the Annual Meeting on the day of such meeting, or
any adjournment thereof. A revocation of a proxy does not affect any matter on
which a vote has been taken before the revocation.
VOTING SECURITIES
As of the close of business on March 10, 1997, the Company had outstanding
41,173,774 Common Shares without par value (the "Common Shares"), with each
share carrying the right to one vote. Any shareholder of record at the close of
business on March 25, 1997, who either personally attends the Annual Meeting or
has completed and delivered an Instrument of Proxy in the manner and subject to
the provisions described above, will be entitled to vote or to have shares voted
at the meeting or any adjournment thereof.
EXERCISE OF DISCRETION BY PROXIES
If a poll is taken, the persons named in the enclosed Instrument of Proxy will
vote (or withhold from voting) the shares in respect of which they are appointed
in accordance with the direction of the shareholders appointing them, where the
instructions in such Instrument of Proxy are certain. IN THE ABSENCE OF SUCH
DIRECTION, SUCH SHARES WILL BE VOTED IN FAVOR OF EACH OF THE NOMINEES FOR
ELECTION AS A DIRECTOR AND IN FAVOR OF EACH OTHER MATTER SHOWN ON THE INSTRUMENT
OF PROXY.
The Instrument of Proxy enclosed, when properly signed, confers discretionary
authority with respect to amendments of the matters identified in the notice of
meeting and any other matters that may properly be brought before the Annual
Meeting. At the time of printing this Proxy Statement and Information Circular,
management and the Board of Directors of the Company are not aware that any such
amendments or other matters are to be presented for action at the meeting.
2
<PAGE>
ANNUAL REPORT
The Annual Report of the Company for the fiscal year ended December 31, 1996
accompanies this Proxy Statement and Information Circular. The consolidated
financial statements of the Company, the accompanying notes and report of the
independent auditors, the selected financial data for each of the last five
years, and management's discussion and analysis of financial condition and
results of operations are included in the Annual Report.
PRINCIPAL HOLDERS OF VOTING SECURITIES
The following table sets forth certain information regarding the beneficial
ownership of the outstanding Common Shares of the Company, as of February 28,
1997, by each person known to the Company to own beneficially more than 5
percent of such Common Shares, and by each director, each nominee for director,
and each officer named in the summary compensation table set out under the
heading "Compensation Summary" below. Except as otherwise indicated, each named
beneficial owner has voting and investment power with respect to the shares set
forth opposite the owner's name.
Number of Percent of
Common Common
Shares (1) Shares (2)
---------- ----------
Mercury Asset Management . . . . . . . . . . . . 2,876,700 6.8%
Ontario Teachers' Retirement System. . . . . . . 2,363,600 5.6%
Lawrence I. Bell . . . . . . . . . . . . . . . . 6,333 *
Peter M.D. Bradshaw. . . . . . . . . . . . . . . -- *
Douglas R. Cook. . . . . . . . . . . . . . . . . 26,333 *
Michael A. Grandin . . . . . . . . . . . . . . . 5,333 *
Peter R. Kutney. . . . . . . . . . . . . . . . . 43,000 *
Werner G. Nennecker. . . . . . . . . . . . . . . 376,108 *
Lindsay D. Norman. . . . . . . . . . . . . . . . 17,000 *
Anthony J. Petrina . . . . . . . . . . . . . . . 11,400 *
Fred C. Schulte. . . . . . . . . . . . . . . . . 16,500 *
Phillips S. Baker, Jr. . . . . . . . . . . . . . 184,845 *
Terry D. Bauer . . . . . . . . . . . . . . . . . 132,238 *
James P. Geyer . . . . . . . . . . . . . . . . . 81,800 *
Robert A. Lonergan . . . . . . . . . . . . . . . 66,825 *
Trevor S. Schultz. . . . . . . . . . . . . . . . -- *
Allan M. Park. . . . . . . . . . . . . . . . . . -- *
Directors and Executive Officers as a Group (3) 1,195,182 2.8%
- - ----------------
* Less than 1%
(1) Includes Common Shares subject to options exercisable within 60 days of
February 28, 1997 as follows: Mr. Bell: 5,333 shares; Mr. Cook: 24,333
shares; Mr. Grandin: 4,333 shares; Mr. Kutney: 42,000 shares; Mr.
Nennecker: 371,234 shares; Dr. Norman: 16,000 shares; Mr. Petrina: 10,400
shares; Mr. Schulte: 16,500 shares; Mr. Baker: 177,400
3
<PAGE>
shares; Mr. Bauer: 131,850 shares; Mr. Geyer 81,800 shares; and Mr.
Lonergan: 66,825 shares.
(2) Based on 41,167,674 Common Shares outstanding as of February 28, 1997.
(3) Includes the executive officers listed and three other executive officers.
ELECTION OF DIRECTORS
Under the Articles of the Company, as amended, the number of directors shall not
be less than five nor more than eleven. Presently, the Board of Directors (the
"Board") has nine members. It is proposed that Peter M.D. Bradshaw, Douglas R.
Cook, and Peter R. Kutney be elected at the Annual Meeting. Each director of
the Company elected at this meeting will have a three-year term that will expire
at the 2000 Annual General Meeting, unless the position is vacated earlier.
Pursuant to the Articles, the election of directors is on a rotational basis so
that, as nearly as possible, the terms of office of one-third of the directors
expire at each annual general meeting. Under the Company Act (British
Columbia), a majority of the directors must be Canadian residents.
The Articles provide that the Board of Directors may, between annual meetings,
increase the size of the Board to no more than eleven directors or decrease the
size of the Board to no less than five directors. On February 20, 1997, the
Board appointed Peter M.D. Bradshaw to fill the vacancy on the Board created by
the resignation of Paul H. Atkinson, who resigned as a director effective
October 22, 1996. Fred C. Schulte succeeded Lindsay D. Norman as Chairman of
the Board on August 1, 1996.
Each position on the Board is filled by the nominee receiving a plurality of the
votes cast with respect to such position. Abstentions from voting will have the
practical effect of voting against the nominee because it is one less vote for
approval. "Broker non-votes" will have no effect because they are not
considered "shares present" for voting purposes. Each nominee has consented in
writing to serve as a director if elected. However, if any nominee is unable to
serve, the persons named in the accompanying Instrument of Proxy will vote for a
substitute in their discretion. Proxies cannot be voted for more than three
persons. MANAGEMENT OF THE COMPANY RECOMMENDS A VOTE FOR PETER M.D. BRADSHAW,
DOUGLAS R. COOK, AND PETER R. KUTNEY.
4
<PAGE>
NOMINATED DIRECTORS
Name, Principal Occupation, Director Term
Recent Business Experience Age Since Expires
- - -------------------------- --- ----- -------
PETER M.D. BRADSHAW (1) 58 1997 1997
Resident of Vancouver, British Columbia, Canada.
Mr. Bradshaw has been Chairman, President and
Chief Executive Officer of First Point Minerals
Corporation, an international minerals exploration
company, since June 1996. He was Senior Vice
President from August 1995 to June 1996, and Vice
President from August 1986 until August 1995 of
Orvana Minerals Corp., a gold mining company.
From 1977 to August 1986, Mr. Bradshaw held various
management positions with Placer Dome Limited, an
international mining company. Prior to that he
held management positions at Barrington Research
Limited, a mineral exploration service company.
Mr. Bradshaw holds a Doctorate of Economic Geology
from Durham University in the United Kingdom.
DOUGLAS R. COOK (2) (3) (5) 71 1991 1997
Resident of Reno, Nevada, U.S.A. Since 1986, Mr.
Cook has been President of Cook Ventures, Inc., a
geological consulting company. From 1985 to 1986,
he was Senior Vice President and a director of
Freeport McMoRan Gold Company and from 1974 to 1986,
Mr. Cook was President of Freeport Exploration
Company. Mr. Cook is a director of Atlas Corporation,
Denver, Colorado, and Senior Associate Consultant with
Anderson and Schwab, Inc., management consultants.
Mr. Cook holds a Doctorate of Science in Mining
Geology from Colorado School of Mines and a Masters of
Applied Science degree from the University of Toronto.
PETER R. KUTNEY (2) (3) (4) 63 1984 1997
Resident of Calgary, Alberta, Canada. Mr. Kutney has
been self-employed as an oil and gas consultant since
March 1984. From April 1984 to December 1986, he was
Chairman of Canu Resources, Ltd., a precious metals
mining company. From January 1981 to November 1983,
Mr. Kutney was President, and from December 1983 until
March 1984, Chairman and Chief Executive Officer, of
Wharf Resources Ltd., a gold mining company. From 1978
to October 1983, he was Chairman and Chief Executive
Officer of Coseka Resources Ltd., an oil and gas
company. Mr. Kutney is a director of Vintage Resources
Inc. and Shamrock Resources Inc.
(footnotes on page 7)
5
<PAGE>
INCUMBENT DIRECTORS
The terms of office of the following directors do not expire at the Annual
Meeting and, accordingly, such directors are not being proposed at this time as
nominees for re-election:
Name, Principal Occupation, Director Term
Recent Business Experience Age Since Expires
- - -------------------------- --- ----- -------
LINDSAY D. NORMAN (1) (2) (4) 59 1987 1999
Resident of Butte, Montana, U.S.A. Dr. Norman has been
President of Montana Tech since July 1, 1986. Prior to
that, Dr. Norman was Vice President and Technical
Director of The Chase Manhattan Bank in New York City
(1984-1986), a Vice President of Jones & Laughlin (LTV)
Steel Corp. (1981-1984), and Director of the U.S. Bureau
of Mines (1979-1981). Prior to that, he held management,
planning and research positions with the Bureau of Mines
and E.I. duPont DeNemours & Co.
FRED C. SCHULTE (3) (4) (5) 50 1993 1999
Resident of Chicago, Illinois, U.S.A. Mr. Schulte has
been the President and Chief Executive Officer of Elgin
National Industries, Inc. since 1988. Prior to joining
Elgin, Mr. Schulte held a number of key management and
executive positions with Santa Fe Southern Pacific
Corporation, most recently as Vice-President, Executive
Department.
MICHAEL A. GRANDIN (1) (2) 52 1996 1999
Resident of Calgary, Alberta, Canada. Mr. Grandin has
been Vice Chairman and Director of Midland Walwyn
Capital Inc., an independent integrated investment firm,
since October 1996. Prior to that, Mr. Grandin was the
President and Chief Executive Officer of Sceptre
Resources Ltd. since 1994. Prior to that, Mr. Grandin
was Senior Vice President and Chief Financial Officer of
PanCanadian Petroleum Ltd. from 1990 to 1994 and a
Managing Director of ScotiaMcLeod Inc. from 1986 to 1990.
Prior to that, Mr. Grandin held a number of key
management and executive positions at Dome Petroleum Ltd.
and other companies.
(footnotes on page 7)
6
<PAGE>
Name, Principal Occupation, Director Term
Recent Business Experience Age Since Expires
- - -------------------------- --- ----- -------
LAWRENCE I. BELL (1) (5) 58 1995 1998
Resident of Vancouver, British Columbia, Canada. Since
1993, Mr. Bell has been the President and Chief
Executive Officer of Shato Holdings Ltd., a holding
company for food (manufacture and retail) and real
estate interests. Prior to joining Shato, Mr. Bell held
numerous key management and executive positions
including Chairman and President of the Westar Group
Ltd., a diversified holding company (1991 to 1992), and
Chairman and CEO of B.C. Hydro, a British Columbia
government-owned utility (1987 to 1991). Mr. Bell also
has held positions as Deputy Minister in various
departments of the British Columbia Government.
WERNER G. NENNECKER (4) 42 1992 1998
Resident of Veradale, Washington, U.S.A. Mr. Nennecker
joined the Company in September 1992, as Senior Vice
President and Chief Operating Officer. In November 1992,
Mr. Nennecker assumed the position of President and Chief
Executive Officer and became a Director of the Company.
Prior to joining the Company, Mr. Nennecker worked 18
years in the mining industry with Ranchers Exploration
and Santa Fe Pacific Gold Corporation. Most recently, he
held the positions of Executive Vice-President of Santa
Fe Pacific Minerals Corporation and President of Santa Fe
Pacific Gold Corporation. Mr. Nennecker is a director of
USMX, Inc.
ANTHONY J. PETRINA (3) (4) (5) 60 1994 1998
Resident of Vancouver, British Columbia, Canada. Mr.
Petrina is a Registered Professional Mining Engineer.
Mr. Petrina retired in October 1992 from Placer Dome,
Inc., an international mining company. Since 1974, Mr.
Petrina held various senior management positions with
Placer Dome, including President and Chief Executive
Officer, Executive Vice President, Vice President,
Operations and Assistant Vice President, Operations.
Mr. Petrina is a director of Metall Mining Corporation
and Miramar Mining Corporation.
- - ---------------
(1) Member of Audit Committee.
(2) Member of Compensation Committee.
(3) Member of Environmental Committee.
(4) Member of Executive Committee.
(5) Member of Nominating Committee.
7
<PAGE>
There are no family relationships between any of the nominees, directors or
officers of the Company.
SECTION 16(a) BENEFICIAL OWNERSHIP COMPLIANCE
Under the securities laws of the United States, the Company's directors and
executive officers, and any persons holding more than 10 percent of the
Company's Common Shares, are required to report their initial ownership of the
Company's Common Shares and any subsequent changes in that ownership to the
Securities and Exchange Commission (the "Commission") and the American Stock
Exchange. Specific due dates for these reports have been established and the
Company is required to disclose in this Proxy Statement and Information Circular
any failure to file by these dates. No Company officer or director has failed
to timely file any such reports in 1996. In making these disclosures, the
Company has relied solely on written representations of its directors and
executive officers and copies of the reports that they have filed with the
Commission.
During the fiscal year ended December 31, 1996, the Board of Directors met on a
total of eight occasions. Each director attended more than 75 percent of the
aggregate number of meetings of the Board and the committees of which he was a
member.
The Audit Committee reviews with the auditors the scope of the audit and the
financial statements. This committee is also responsible for recommending to
the Board a firm of independent auditors to act as the Company's independent
auditors. During the year ended December 31, 1996, the Audit Committee met four
times.
The Compensation Committee, which met five times during 1996, is responsible for
formulating the Company's compensation policies and for administering the 1987
Stock Option Plan and the 1989 Non-Employee Directors' Stock Option Plan, and
granting awards under the proposed 1997 Stock Plan. None of the members of the
Committee are current employees, former employees, or former officers of the
Company.
The Environmental Committee oversees the development and implementation of the
Company's environmental policies and periodically reviews operating procedures
to ensure compliance with applicable local, state, and federal environmental
law. The Committee met four times in 1996.
The Executive Committee, which met two times during 1996, has been delegated the
authority to act on behalf of the Board on matters which have been previously
introduced to the entire Board and for which the Board has given its approval in
principle. It also has plenary authority to act on behalf of the Board on
matters having a value of less than $10,000,000.
The Nominating Committee, which was established in February 1996 and met once
during the remainder of the year, is responsible for considering nominees for
appointment for election to the Board and making recommendations to the Board in
connection therewith. The Committee will consider proposals for nominations to
the Board from shareholders, provided such proposals are made in writing to the
Secretary or Assistant Secretary of the Company and contain sufficient
background information concerning the nominee to enable a proper judgment to be
made as to his or her qualifications. The Committee also will review the
contributions of each director prior to each annual general meeting and consider
each director's suitability for continuing in his position for the balance of
his term.
8
<PAGE>
DIRECTORS' FEES AND OPTIONS
Each director who is not an employee of the Company receives an annual
director's fee of $15,000 and an annual meeting fee of $20,000 regardless of the
number of board or committee meetings scheduled. Mr. Schulte, the Chairman of
the Board, receives an additional annual fee of $21,000. Committee chairmen of
the Audit, Compensation and Environmental Committees (other than Mr. Schulte)
are paid an additional $5,000 annually. Directors are reimbursed for their
travel and other expenses incurred in attending Board and committee meetings.
The 1989 Non-Employee Directors' Stock Option Plan (the "Directors' Plan")
provides for yearly grants of stock options to each member of the Board of
Directors who is not a full-time employee of the Company or its subsidiaries.
The exercise price of stock options granted is the closing price of the Common
Shares on the American Stock Exchange as reported on the date of grant. The
options vest on the date of grant and, subject to insider trading rules, are
immediately exercisable. The options expire ten years after the date granted or
at such earlier date as may be provided by the Directors' Plan. Payment to the
Company of the exercise price of the options may be in cash, Common Shares of
the Company, or a combination thereof. If a non-employee director terminates
service on the Board through voluntary resignation, retirement, or disability,
previously granted options will continue to be exercisable for a period of 60
days commencing on the termination date. In the event of the death of a
director, an unexercised option may be exercised by the option holder's legal
representatives within six months of the date of death. If a director is
removed from the Board for cause, as defined in the Directors' Plan, all
unexercised options terminate immediately.
The Directors' Plan is administered by the Compensation Committee, which is
authorized to interpret the Directors' Plan but has no authority or discretion
with respect to the selection of directors eligible to receive options, the
number of shares reserved under the Directors' Plan, the shares subject to each
grant, or the exercise price of options granted thereunder, which matters are
addressed in the Directors' Plan itself. The Board of Directors may suspend,
amend (with the approval of The Toronto Stock Exchange and the Montreal
Exchange), or terminate the Directors' Plan at any time. However, the
Directors' Plan provides that any amendments to increase the number of shares
subject to the Directors' Plan or the number of shares to be granted to
directors, change provisions related to exercise price, change the period during
which options may be granted, change the eligibility of directors to receive
options, or otherwise materially increase the benefits under the Directors' Plan
require shareholder approval.
On April 24, 1996, each eligible director was granted an option to acquire 4,000
Common Shares at a price of $13.50 per share. During the 30-day period
preceding the option grant dates, the closing price of the Common Shares on the
American Stock Exchange varied from a low of $13.50 per share to a high of
$15.50 per share.
The Directors' Plan terminates on June 1, 1997. The proposed 1997 Stock Plan,
if approved by the shareholders, will replace the Directors' Plan respecting
future stock-based awards to Company directors.
9
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
COMPENSATION SUMMARY
The following table provides certain summary information concerning compensation
paid or accrued by the Company and its subsidiaries for the fiscal year ended
December 31, 1996 to or on behalf of the Company's Chief Executive Officer and
each of the six other most highly compensated executive officers of the Company
(four of which remained executive officers at the end of the Company's last
fiscal year and all of which are hereafter referred to as the "Named Executive
Officers"). The table also discloses their compensation for the years 1994 and
1995 if they were executive officers during those years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation
-------------------------------------
Long-Term
Compensation
Awards
------------
Other Securities All Other
Annual Underlying Com-
Name and Salary Bonus Compensation Options pensation
Principal Position Year ($) (1) ($) (1) ($) (2) (#) ($) (3)
- - ------------------ ---- ------- ------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Werner G. Nennecker 1996 350,000 158,620 499 172,400 8,029
President, Chief 1995 353,719 300,000 -- 154,300 7,240
Executive Officer and 1994 323,632 160,000 8,852 63,400 7,298
Director
Phillips S. Baker, Jr. (4) 1996 175,233 45,873 -- 72,700 6,185
Vice President, Finance 1995 165,700 87,302 3,578 76,600 6,171
and Chief Financial 1994 153,942 102,994 9,440 22,800 4,858
Officer
Robert A. Lonergan (5) 1996 164,667 45,915 22,216 67,800 8,062
Vice President, General 1995 75,602 43,450 8,570 42,100 720
Counsel and Corporate
Secretary
James P. Geyer (6) 1996 163,800 39,017 -- 71,100 7,027
Vice President, 1995 137,323 87,895 -- 43,600 6,566
Operations
Terry D. Bauer (7) 1996 144,067 40,295 -- 61,600 7,427
Vice President, 1995 138,300 68,854 -- 53,100 6,376
Environmental 1994 100,733 66,041 -- 39,400 5,326
and Governmental Affairs
Trevor S. Schultz (8) 1996 283,852 -- 27,213 37,600 519,468
Vice President, Chief 1995 104,604 58,537 1,645 100,000 1,246
Operating Officer
Allan M. Park (9) 1996 172,302 38,412 -- 18,500 10,325
Vice President, 1995 181,225 78,946 -- 57,100 9,324
Exploration 1994 167,625 37,685 -- 23,400 9,300
</TABLE>
___________
(footnotes on following page)
10
<PAGE>
(1) Amounts shown include cash and non-cash compensation paid to or accrued on
behalf of the Named Executive Officers, as well as amounts earned but
deferred at the election of those officers.
(2) Amounts shown include tax reimbursement payments and perquisites and other
personal benefits or property received from the Company by any Named
Executive Officer for the last fiscal year to the extent such payments
exceeded the lesser of $50,000 or 10% of such Named Executive Officer's
total annual salary and bonus.
(3) Amounts shown in this column for the last fiscal year are derived from the
following: Mr. Nennecker: annual Company payment to defined contribution
plans ("DCP") of $6,365, and Company paid life insurance premiums of
$1,664; (ii) Mr. Baker: annual Company payment to the DCP of $5,788, and
Company paid life insurance premiums of $397; (iii) Mr. Lonergan: annual
Company payment to the DCP of $6,453 and Company paid life insurance
premiums of $1,609; (iv) Mr. Geyer: annual Company payments to the DCP of
$6,454, and Company paid life insurance premiums of $573; (v) Mr. Bauer:
annual Company payments to the DCP of $6,606 and Company paid life
insurance premiums of $821; (vi) Mr. Schultz: annual payments to the DCP
of $7,708, severance payment $510,000, and Company paid life insurance
premiums of $1,608; and (vii) Mr. Park: annual Company payments to the DCP
of $7,606 and Company paid life insurance premiums of $2,659.
(4) Mr. Baker first became an executive officer when he joined the Company in
January 1994 as Vice President, Finance and Chief Financial Officer.
(5) Mr. Lonergan first became an executive officer when he joined the Company
in June 1995 as Vice President, General Counsel and Corporate Secretary.
(6) Mr. Geyer first became an executive officer as Vice President, Operations
in October 1995. Mr. Geyer resigned in January 1997.
(7) Mr. Bauer first became an executive officer as Vice President,
Environmental and Governmental Affairs in April 1994.
(8) Mr. Schultz first became an executive officer when he joined the Company as
Chief Operating Officer in August 1995. Mr. Schultz resigned in August
1996.
(9) Mr. Park resigned as an officer October 31, 1996.
STOCK OPTIONS
The following table contains information concerning the grant of stock options
under the Company's 1987 Stock Option Plan to the Named Executive Officers:
11
<PAGE>
OPTION GRANTS IN 1996
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------------
Number of % of Total Potential Realizable Value
Securities Options at Assumed Annual Rates
Underlying Granted to of Stock Price Appreciation
Options Employees Exercise for Option Term
Granted in Fiscal price Expiration ---------------------------
Name (#) (1) Year ($/Sh) Date 5% ($) 10% ($)
---- ---------- ---------- -------- ---------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Werner G. Nennecker..... 73,200 6.2% 16.000 02/12/2003 $476,796 $1,111,137
99,200 8.4% 7.563 12/31/2003 305,427 711,775
Phillips S. Baker, Jr... 21,500 1.8% 16.000 02/13/2003 140,043 326,359
51,200 4.4% 7.563 12/31/2003 157,640 367,368
Robert A. Lonergan...... 23,000 2.0% 16.000 02/13/2003 149,813 349,128
44,800 3.8% 7.563 12/31/2003 137,935 321,447
James P. Geyer.......... 21,900 1.9% 16.000 02/13/2003 142,648 332,430
49,000 4.2% 7.563 12/31/2003 151,482 353,017
Terry D. Bauer.......... 16,400 1.4% 16.000 02/13/2003 106,823 248,943
45,200 3.8% 7.563 12/31/2003 139,166 324,317
Trevor S. Schultz....... 37,600 3.2% 16.000 02/13/2003 244,912 570,748
Allan M. Park........... 18,500 1.6% 16.000 02/13/2003 120,502 280,820
200 0.0% 14.250 04/30/2003 1,160 2,704
Total Grants in 1996.... 1,176,333
</TABLE>
- - ---------------
(1) The 1987 Stock Option Plan (the "1987 Plan") provides for the granting of
stock options to officers and key employees of the Company and its
subsidiaries. The 1987 Plan is administered by the Compensation Committee
of the Board, the members of which are not eligible to receive options
under the 1987 Plan. Under the terms of the 1987 Plan, stock options may
be granted in the form of incentive stock options (as defined in Section
422 of the of the Internal Revenue Code) or non-qualified stock options.
Options granted are generally exercisable for seven years following the
date of grant at exercise prices equal to the closing price of the
Company's Common Shares on the American Stock Exchange on the date of
grant.
Payment of the exercise price of an option may be made in cash or in Common
Shares or a combination thereof. Options generally vest at the rate of
one-quarter per year. Options may be subject to such additional or
different terms and conditions not inconsistent with the 1987 Plan as are
prescribed by the Compensation Committee. The Compensation Committee has
the power to permit an acceleration of the exercise terms of an option
granted pursuant to the 1987 Plan upon such circumstances, and subject to
such terms and conditions, as the Committee deems appropriate, including a
change in control of the Company.
12
<PAGE>
Options granted in February 1996 were granted for a term of seven years
with 25 percent of the option shares covered thereby becoming exercisable
on the grant date (subject to insider trading rules) and with an additional
25 percent of the option shares becoming exercisable on each anniversary
date, with full vesting occurring on the third anniversary date. Options
granted in December 1996 were granted for a term of seven years and fully
vested upon grant. Under the terms of the Company's 1987 Plan, the
Compensation Committee retains discretion, subject to plan limits (and with
the approval of The Toronto Stock Exchange and the Montreal Exchange), to
modify the terms of outstanding options, and to reprice the options.
The Plan terminates May 21, 1997. The proposed 1997 Stock Plan, if
approved by the shareholders, will replace the 1987 Plan respecting future
stock-based awards to Company officers and key employees.
OPTION EXERCISES AND YEAR END HOLDINGS
The following table provides information, with respect to the Named Executive
Officers, concerning the exercise of options during the year ended December 31,
1996, and unexercised options held as of the end of 1996:
AGGREGATED OPTION EXERCISES IN 1996
AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
SHARES OPTIONS AT OPTIONS AT
ACQUIRED FY-END (#) FY-END ($)
ON EXERCISE VALUE REALIZED EXERCISABLE/ EXERCISABLE/
NAME (#) ($) UNEXERCISABLE UNEXERCISABLE (1)
---- ----------- -------------- ------------- -----------------
<S> <C> <C> <C> <C>
Werner G. Nennecker 50,000 226,250 314,417/143,883 --/--
Phillips S. Baker, Jr. -- -- 158,475/53,625 --/--
Robert A. Lonergan -- -- 61,075/38,300 --/--
James P. Geyer -- -- 93,750/40,150 --/--
Terry D. Bauer -- -- 110,200/48,700 --/--
Trevor S. Schultz -- -- --/-- --/--
Allan M. Park -- -- --/-- --/--
</TABLE>
---------------
(1) Market value of underlying securities at December 31, 1996, minus the
exercise price of "in-the-money" options.
EMPLOYMENT CONTRACTS
The Company has entered into officer employment agreements with each of the
Named Executive Officers and certain other executive officers. The agreements,
except as discussed below, provide for an immediate benefit to the employee upon
termination by the Company
13
<PAGE>
without cause, by the employee for good reason, upon the death or disability of
the employee or upon termination after a Change of Control, as defined in the
agreements. The agreements provide that the employee will receive a lump sum
amount equal to twice his current salary and employment search assistance upon
termination for other than cause. The employee will receive a lump sum amount
equal to two and one-half times his current annual salary if termination other
than for cause occurs following a Change of Control, except for Mr. Nennecker,
who will receive a lump sum amount equal to three times his current annual
compensation, which includes bonus. If the employee dies or is disabled,
compensation equal to six months' salary will be paid. The agreements also
provide that after a Change in Control, all options will become immediately
vested and require that other benefits, such as life and health insurance, be
continued for a period of 12 months (24 months on termination other than for
cause following a Change of Control). In addition, upon termination following a
Change of Control, the Company will provide relocation benefits and price
protection equal to the original purchase price plus improvements on the sale of
the employee's residence. The term "Change of Control" is defined, for
purposes of the agreements, as an event whereby any person, corporation, or
other entity or group acquires, directly or indirectly, securities of the
Company representing 20 percent of the combined voting power of the Company's
then outstanding voting securities, or two incumbent directors are replaced by
individuals who are not supported by management.
REPORT ON EXECUTIVE COMPENSATION BY THE COMPENSATION COMMITTEE
OVERVIEW OF COMPENSATION POLICY AND COMPONENTS
The Company's compensation policy as established by its Board is intended to
provide competitive compensation to all employees, giving consideration to the
relative contribution and performance of each individual employee. It is the
Company's policy to compensate its executive officers at levels consistent with
industry norms, primarily in the form of base salary, together with incentive
compensation at targeted percentages of base salary. In addition, it is the
Company's policy to grant stock options annually to each of its executive
officers in amounts based upon the officer's responsibility and accountability
so as to align their interests with the creation of shareholder value and to
encourage their continuation with the Company. The precious metals mining
industry is competitive with respect to recruitment and retention of qualified
personnel; accordingly, the Company's management acts to ensure that the
Company's compensation practices are competitive with other producers of
precious metals, thereby enabling it to attract and retain key employees.
For 1996, executive compensation consisted of three components: base salary,
annual incentive opportunity, and long-term incentives (including stock
options). Determining the compensation levels of the Company's executive
officers is the responsibility of the Board, through its Compensation Committee
(the "Committee"), which has overall responsibility for the Company's
compensation policies to senior management. The Committee makes recommendations
to the Board as to the salaries, incentive opportunities, and stock options
awarded to the Company's Chief Executive Officer (the "CEO") and other executive
officers. The Committee has retained the services of an independent consultant
to assist the Committee in setting base salary and incentive awards for the CEO
and the executive officers by providing advice and survey information with
respect to compensation paid by 13 medium-to-large-sized mining companies, which
generally produce in excess of 200,000 ounces of gold annually (the "Comparison
Group"). The Committee believes that the Comparison Group provides a more
meaningful comparison than the broad-
14
<PAGE>
based peer group used in the performance graph because the Comparison Group
companies are similar in size to the Company and compete directly with the
Company for qualified personnel.
The Committee is comprised entirely of independent directors. No member of the
Committee is a current or former officer or employee of the Company or any of
its subsidiaries.
BASE SALARIES
Base salary ranges for the CEO and the other executive officers are established
based upon surveys of similar positions in the Comparison Group. Placement
within the range reflects the Committee's evaluation and assessment of the
individual performance of each executive officer, time in position, and the
overall financial condition of the Company. Base salaries are generally set at
a level which is approximately equal to the 50th percentile of the comparable
position in the Comparison Group. In 1996, all executives received salary
adjustments in order to place them near the 50th percentile of base salaries
paid to executives performing similar functions in companies included in the
Comparison Group.
INCENTIVE COMPENSATION
The Committee determined that the goals of the Company's compensation policies
would be achieved if the Company's executive officers were given the opportunity
to earn, (when performance warranted) cash compensation at levels that would
place them at or above the 75th percentile with respect to overall compensation
received by executive officers holding comparable positions with companies in
the Comparison Group. Accordingly, the Committee determined that the CEO should
be eligible for an incentive opportunity target of 80 percent of base salary,
each Vice President eligible for an incentive opportunity target of 44 percent
of base salary, and the other officers were eligible for an incentive
opportunity target of 30 percent of base salary.
In late 1995, the Committee adopted new annual and long-term incentive plans for
executives designed to motivate executives to focus on and successfully manage
those activities which have the greatest impact on the creation of shareholder
value. These plans, which were effective for 1996, are driven by three
fundamental performance measures ("value drivers") which the Committee believes
have a direct impact on the creation of shareholder value: increased
production, increased ore reserves, and increased cash available for growth.
The Annual Incentive Plan provides executives the opportunity to earn annual
performance units, which are redeemed at the end of each year. One-half of the
executives' target unit award is fixed at the beginning of the plan year, based
on predetermined Company performance levels associated with each value driver:
cash flow for growth, production, and net reserve increases. The Committee
determined that 17 percent of the value driver performance measures were
achieved.
In addition, variable units may be earned by an executive by meeting certain
individual objectives in support of the three value drivers. An executive may
earn up to two times his or her fixed unit award, depending on the level of
accomplishment of his or her individual objectives.
In 1996, the CEO's performance was evaluated by the Board of Directors. The
Committee determined that Mr. Nennecker accomplished 96 percent of his
individual objectives. This,
15
<PAGE>
combined with the achievement of 17 percent of the value driver performance
measures, earned Mr. Nennecker 57 percent of his annual incentive target (or 45
percent of his base salary).
The Committee determined that other Named Executive Officers earned incentive
awards of up to 61 percent of their incentive targets (or 64 percent of base
salary) based on the value driver performance measures and evaluation of the
individual executive's performance with respect to his individual objectives.
The Value Creation Incentive Plan provides a long-term award opportunity for
sustained performance by meeting three-year performance objectives tied to the
three value drivers. The Plan creates a weighted market capitalization value
for the Company based on its current levels of cash flow, production, and
reserves. Participants receive value units commensurate with their
accountability and responsibility for long-term value creation. The value units
will increase or decrease in value over the three-year term of the grant,
depending on whether cash flow, production, and reserves are increased or
eroded. Participants will receive any increase in value of the units in cash,
stock, stock options, or a combination of these. For 1996, the value creation
unit grants replaced 25 percent of the stock option grants based on the
Committee's historical grant practices.
The Committee believes that the Annual and Value Creation Incentive Plans
deliver competitive annual and long-term incentive opportunities which are well
aligned with business results and shareholder value created.
STOCK OPTIONS
Stock options are granted each year to the Company's employees, including the
CEO and the Named Executive Officers, to encourage management of the Company
from the perspective of an owner with an equity interest in the business, and to
encourage the employees to continue as employees of the Company. Stock options
granted to all employees eligible to receive awards, including the CEO and each
Named Executive Officer, are based on the employee's overall position of
responsibility and accountability, taking into account the participant's recent
performance and ability to effect long-term value creation. In addition, each
time an employee changes positions and assumes increased responsibilities, the
Committee awards the employee options based on the Committee's subjective
assessment of the nature and importance of the increased responsibilities
assumed.
On February 13, 1996, the Committee elected to award Mr. Nennecker options to
purchase 73,200 Common Shares. At this time, other Named Executive Officers
received annual grants to purchase from 16,400 to 37,600 Common Shares. The
exercise price of such options was $16.00 per share, the fair market value of
the underlying Common Shares on the date the options were granted, based on the
closing price of the Common Shares on the American Stock Exchange on such date.
On December 31, 1996, the Committee elected to award Mr. Nennecker additional
options to purchase 99,200 Common Shares. At this time, other Named Executive
Officers received additional grants to purchase from 44,800 to 51,200 Common
Shares. The exercise price of such options was $7.563 per share, the fair
market value of the underlying Common Shares on the date the options were
granted, based on the closing price of the Common Shares on the American Stock
Exchange on such date.
16
<PAGE>
POLICY WITH RESPECT TO THE DEDUCTIBILITY OF COMPENSATION
To qualify the deductibility of compensation for United States federal income
tax purposes, it is the Company's policy to meet the requirements for exclusion
from the limit on deductibility imposed by Section 162(m) of the Internal
Revenue Code by paying performance-based compensation if possible. With respect
to cases in which it is not possible to meet the requirements for exclusion from
Section 162(m) of the Code, the Company intends to minimize any award of
compensation in excess of the limit.
COMPENSATION COMMITTEE
Lindsay D. Norman, Chairman
Douglas R. Cook
Peter R. Kutney
Michael A. Grandin
[GRAPH]
FIVE-YEAR TOTAL RETURN GRAPH
Pegasus Gold Inc. 100 120 178 92 112 61
S&P 500 100 104 112 110 148 178
TSE Gold & Silver 100 106 216 194 211 229
Index
17
<PAGE>
REMUNERATION OF DIRECTORS AND SENIOR OFFICERS
The following disclosure is required under the British Columbia Company Act.
For these purposes, "senior officer" means the chairman or any vice chairman of
the board of directors, the president, any vice president, the secretary, the
treasurer or the general manager of the Company or any other individual who
performs functions of the Company similar to those normally performed by an
individual occupying any of those offices, and the five highest paid employees
of the Company.
The aggregate direct remuneration paid or payable by the Company and its
subsidiaries to the directors and senior officers of the Company during the
financial year ended December 31, 1996 was $3,069,013. The estimated aggregate
cost to the Company and its subsidiaries during the fiscal year ended December
31, 1996 of all pension benefits proposed to be paid under the Company's pension
plans in the event of retirement at normal retirement age to the directors and
senior officers of the Company, by the Company, or any of its subsidiaries,
directly or indirectly, was $63,418.
Since January 1, 1996, options to acquire an aggregate of 633,133 Common Shares
were issued to the directors and senior officers of the Company as a group. The
exercise price of such options ranged from $7.563 per share to $16.000 per
share. During the same period, an aggregate of 70,000 options to purchase
Common Shares was exercised at exercise prices ranging from $8.563 per share to
$15.625 per share. During the period from January 1, 1996 to March 10, 1997,
the closing price of the Common Shares on the American Stock Exchange ranged
from a low of $7.063 per share to a high of $17.375 per share.
During the fiscal year ended December 31, 1996, Mr. Nennecker was indebted to
the Company under a non-interest bearing loan made to him in connection with his
employment. The largest amount of debt outstanding in this regard during such
year, and the amount outstanding as of March 10, 1997, was $56,042.
18
<PAGE>
PROPOSAL TO APPROVE THE ADOPTION OF THE 1997 STOCK PLAN
At the Annual Meeting, the shareholders will be requested to approve the
adoption of the 1997 Stock Plan (the "Plan"), a new incentive stock-based
compensation plan for the Company's directors and executive officers.
DESCRIPTION OF THE PLAN
On February 19, 1997, the Board of Directors adopted, subject to shareholder
approval, the 1997 Stock Plan (the "Plan"). The purpose of the Plan is to
promote the long-term success of the Company by (i) encouraging directors and
employees of the Company and its subsidiaries to focus on long-range objectives,
(ii) attracting and retaining employees, and (iii) aligning the financial
interests of directors and employees with the interests of the shareholders.
The Plan will replace the Directors Plan and the 1987 Plan, which expire June
1, 1997 and May 21, 1997, respectively. If approved, the Plan is effective
January 8, 1997 and terminates on January 8, 2007 unless the Board of Directors
terminates the Plan earlier.
GENERAL TERMS
The Plan is administered by the Compensation Committee, which consists solely of
non-employee directors. The Committee designates the directors and employees of
the Company and its subsidiaries eligible to receive awards and determines the
terms and condition of the award subject to certain Plan limitations. The terms
and conditions of all awards must be evidenced by written agreement executed by
the Company and the participant.
The Plan authorizes for issuance, pursuant to Plan awards, an aggregate
4,000,000 Common Shares plus any shares that are available under the Directors'
Plan and 1987 Plan on the date of shareholder approval (estimated to be 85,100
shares and 45,700 shares, respectively), or that become available for grant due
to the expiration, termination, or cancellation of options awarded under such
plans. The Committee may grant any of the following awards: stock options,
stock appreciation rights, stock awards, and unit awards. Unissued Common Shares
subject to Plan awards that expire, terminate, or are canceled will be available
for future awards under the Plan.
STOCK OPTIONS
Under the terms of the Plan, the Committee may grant stock options in the form
of incentive stock options (as defined in Section 422 of the Internal Revenue
Code) or non-qualified stock options. The exercise price for all options may
not be less than the closing price on a recognized stock exchange (such as the
American Stock Exchange) on the date of grant. The term of a stock option may
not exceed ten (10) years. With respect to any optionee who owns stock
possessing more than 10% of the voting rights of the Company's outstanding stock
("10% Shareholder"), the exercise price of any incentive stock option must equal
at least 110% of the fair market value on the grant date and the maximum term of
the option must not exceed five (5) years. The aggregate fair market value
(determined at the time of grant of an incentive stock option) of Common Shares
with respect to which incentive stock options are exercisable for the first time
by any optionee during any calendar year may not exceed $100,000.
19
<PAGE>
STOCK APPRECIATION RIGHTS
The Committee also may grant stock appreciation rights in connection with stock
options. Under the terms of the Plan, stock appreciation rights authorize an
optionee to surrender all or part of an unexercised stock option in exchange for
cash or Common Shares equal to the difference between the option exercise price
and the fair market value of the Common Shares on the date of surrender. The
Committee may include other terms and conditions as it deems appropriate.
STOCK AWARDS
In addition, the Committee may grant stock awards to eligible persons. Stock
awards provide for the issuance of Common Shares on such terms and conditions
and subject to such performance requirements as the Committee determines.
UNIT AWARDS
The Committee may grant unit awards to eligible persons as compensation for past
or future services. In general, the value of unit awards is measured by
increases or decreases in the Corporation's value during the term of the unit
award. Prior to granting such award, the Committee must determine the method of
measuring such value, such as a formula based on operating cash flow, production
and reserves, or fair market value per Common Share.
RESTRICTIONS ON TRANSFER
In general, awards are not transferable or exercisable by any one other than the
participant. However, the Committee may permit awards to be exercised by and
paid to such persons or entities as the Committee may approve based on
satisfactory evidence that the transfer is being made for estate or tax planning
purposes. Incentive stock options may not be transferred except on the death of
the participant by will or the laws of descent and distribution. In addition,
if the participant has suffered a disability, an incentive stock option may be
exercised on behalf of the participant by his or her legal representative. The
Plan permits the transfer of other awards without further Committee approval as
follows: to the Company, in connection with the death or disability of a
participant, pursuant to a domestic relations order, or pursuant to the
authorization by the Committee of "cashless exercise" procedures. No award may
be transferred if applicable stock exchange rules would not permit such
transfer.
LIMITATIONS ON AWARDS TO CERTAIN INDIVIDUALS
The Company may not grant, issue or sell to any employee in any calendar year
stock options to purchase more than 250,000 Common Shares or stock appreciation
rights with respect to more than 250,000 Common Shares. In addition, as long as
the Common Shares are listed on The Toronto Stock Exchange or the Montreal
Exchange, the Company may not (i) grant stock options to insiders, in respect of
Common Shares exceeding an aggregate at any time of 10% of the outstanding
issue, (ii) issue to insiders within a one (1) year period a number of Common
Shares exceeding 10% of the Company's outstanding issue, (iii) issue to any one
insider and his associates within a one (1) year period a number of Common
Shares exceeding 5% of the Company's outstanding issue, or (iv) grant stock
options to any one person in respect of Common Shares exceeding 5% of the
outstanding issue except (in any such case) as may be permitted by the rules of
The Toronto Stock Exchange and the Montreal Exchange.
20
<PAGE>
AMENDMENTS
The Board of Directors may amend the Plan at any time, as it deems advisable,
subject to the approval of the Toronto and Montreal stock exchanges. However,
without the consent of the shareholders, the Board may not amend the Plan to
increase the maximum number of Common Shares authorized for issuance under the
Plan or to change the designation or class of persons eligible to receive Awards
under the Plan. Under the rules of the Toronto and Montreal stock exchanges,
certain other amendments of the Plan may require shareholder approval.
ADJUSTMENT TO AWARDS AND RELATED MATTERS
In the case of a merger, consolidation, amalgamation, arrangement,
reorganization, spin-off, recapitalization, reincorporation, stock split,
dividend issued in stock or other change in the corporate structure of the
Company, the Committee is authorized to make appropriate adjustments to awards
in order to preserve but not increase the benefits to the participants. The
Plan also authorizes the Committee to permit a participant to use Common Shares
already owned by the participant as payment of an exercise price for a stock
option or payment of any consideration required for a stock award granted under
the Plan. Consistent with applicable law, the Committee may authorize "cashless
exercise" procedures for third parties who provide financing for the purpose of
the exercise of awards and for the sale of Common Shares to cover withholding
taxes.
1997 OPTION GRANTS
Subject to the approval of the shareholders of the Plan, the Committee has
granted 200,000 options allocated among the directors and approximately 550,000
options allocated to officers and employees.
BOARD RECOMMENDATION
The Board believes it is in the best interests of the Company and its
shareholders to offer stock-based awards in accordance with the terms of the
Plan in order to continue to attract and retain the services of experienced
employees and to provide additional incentives for such employees to continue to
work for the best interests of the Company and its shareholders through an
investment interest in the future success of the Company. By their terms, the
Company's Directors' Plan and 1987 Plan will expire during the current fiscal
year. Without a new stock plan, the Company's ability to continue to attract
and retain such employees and provide such incentives would be compromised.
Pursuant to the terms of the Plan and the rules of the Toronto, Montreal and
American stock exchanges, the adoption of the Plan must be approved by a simple
majority of the votes cast at the Annual Meeting.
A full copy of the Plan is attached as Exhibit 1 to this Proxy Statement and
Information Circular.
21
<PAGE>
CORPORATE GOVERNANCE
The Toronto and Montreal stock exchanges require listed companies to provide
certain disclosure annually with respect to their corporate governance practices
with reference to the December 1994 report of The Toronto Stock Exchange
Committee on Corporate Governance in Canada. In its report, the Committee
established guidelines for corporate governance. However, in recognition of the
great diversity in the nature, size and ownership structure of corporations, the
guidelines do not constitute mandatory requirements and corporations are not
required to comply with the Committee's standards. The following disclosure is
included to illustrate and explain the differences which may exist between the
Company's system of corporate governance and the Committee's guidelines.
TSE Corporate Governance Does the
Committee Guideline Company Align? Comments
- - ------------------------ -------------- ------------------
1. Board should explicitly
assume responsibility for
stewardship of the
corporation, and
specifically for:
a. adoption of a Yes Board meetings from
strategic planning time to time focus
process on substantial strategic
planning matters
b. identification of Yes The Board has
principal risks, and specifically identified
implementing risk the Company's principal
management systems risks and implemented risk
management systems. For
example, the Company conducts
environmental audits of its
mine sites and has adopted a
hedging program to reduce the
effects of swings in the price
of gold and foreign
currencies.
c. succession planning Yes The Board discusses
and monitoring senior succession planning
management matters at least
annually, and reviews all
compensation matters
pertaining to senior
management.
d. communications policy Yes The Board has put
structures in place to
ensure effective
communication between the
Company, its shareholders
and the public, including
accommodating feedback
from shareholders.
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TSE Corporate Governance Does the
Committee Guideline Company Align? Comments
- - ------------------------ -------------- ------------------
e. integrity of internal Yes The Board has implemented
control and management internal control and
information systems management information
systems. The Board has also,
through the appointment of
various committees, put in
place an effective system for
monitoring the implementation
of corporate strategies. Each
of the following committees is
responsible to review and
advise the on implementation
of corporate strategy in the
noted areas:
--Compensation Committee:
employment and
remuneration
--Environmental Committee:
environmental
compliance
--Audit Committee:
compliance of
financial reporting
with accounting
principles and
oversight of all
financial plans
--Nominating Committee:
ensures appropriate
Board candidates
2. Majority of directors Yes Werner G. Nennecker
should be "unrelated" (President and CEO)
(independent of is the only Board
management and free member who is related.
from conflicting
interest)
3. Disclosure for each Yes Werner G. Nennecker
director, whether or Related -- as President
not he or she is and Chief Executive
related, and how Officer of the Company
that conclusion was
reached For the remainder of the
directors, none of them
has:
--worked for the Company
--material contracts with
the Company
--received remuneration
from the Company in
excess of directors'
fees, including stock
options.
23
<PAGE>
TSE Corporate Governance Does the
Committee Guideline Company Align? Comments
- - ------------------------ -------------- ------------------------------
Lawrence I. Bell Unrelated
Peter M.D. Bradshaw Unrelated
Douglas R. Cook Unrelated
Michael A. Grandin Unrelated
Peter R. Kutney Unrelated
Lindsay D. Norman Unrelated
Anthony J. Petrina Unrelated
Fred C. Schulte Unrelated
4. Appoint a committee of Yes The Nominating Committee has
non-management directors, the mandate to:
a majority of which are
"unrelated", responsible --recommend candidates for the
for appointment/assessment Board
of directors --annually review credentials
of nominees for
re-election
--recommend candidates for
filling vacancies on the
Board
--ensure qualifications are
maintained
5. Implement a process for Yes The Board meets in December
assessing the effectiveness each year to discuss the
of the board, its effectiveness of the Board
committees and individual as a whole, the committees
directors of the Board and the
contribution of individual
directors
6. Provide orientation and Yes Reports relating to the
education programs for new Company's business and affairs
directors are provided to new directors,
as is an informal orientation.
Presentations are from time to
time given to the Board on
legal and other matters
applicable to the Company and
directors' duties.
Board members visit mine sites
to give them additional
insight into the Company's
business.
24
<PAGE>
TSE Corporate Governance Does the
Committee Guideline Company Align? Comments
- - ------------------------ -------------- ------------------------------
7. Consider reducing size of Yes A board must have enough
board, with a view to directors to carry out its
improving effectiveness duties efficiently, while
presenting a diversity of views
and experience. In December
the Board reviews the
contributions of the directors,
and considers whether the
current size of the Board
promotes effectiveness and
efficiency. The Board believes
nine directors is the
appropriate number at this
time.
8. Review compensation of Yes The Compensation Committee is
directors in light of mandated to review and
risks and responsibilities recommend to the Board for
approval the remuneration of
directors. The Committee
considers time commitment,
comparative fees and
responsibilities in determining
remuneration. The Board has
received advice from an outside
consultant on the adequacy of
the compensation paid to
Directors.
9a. Committees should Yes Mr. Nennecker serves on the
generally be composed of Executive Committee. All
non-management directors other Board committees are
composed solely of non-
management directors.
9b. Majority of committee Yes
members should be
unrelated
10. Appoint a committee Yes The Executive Committee has
responsible for approach the responsibility to the full
to corporate governance Board regarding corporate
issues governance.
11a. Define limits to
management's
responsibilities by
developing mandates for:
(i) the board Yes The Board has the
responsibility to oversee the
conduct of the business of the
Corporation and to supervise
management. Its duties and
responsibilities are set forth
in more detail in the
Board's terms of reference.
25
<PAGE>
TSE Corporate Governance Does the
Committee Guideline Company Align? Comments
- - ------------------------ -------------- ------------------
(ii) the CEO Yes The CEO's written terms of
reference constitute a mandate
on a year-to-year basis.
These objectives include the
general mandate to optimize
the assets of the Corporation
in the best interests of all
shareholders.
11b. Board should approve CEO's Yes The CEO's objectives are
corporate objectives reviewed and approved by the
full Board on an annual basis.
12. Establish structures and Yes The Board has appointed a non-
procedures to enable the management Chairman.
board to function In addition, the Board meets
independently of management independently of management
when appropriate, and at least
one time per year.
13. Establish an audit Yes The Audit Committee is
committee, composed composed entirely of non-
solely of non-management management directors and is
directors, with a mandated to:
specifically defined
mandate
--ensure that the Company's
management has designed and
implemented an effective
system of internal
financial controls and to
review and report to the
Board on the integrity of
the consolidated financial
statements of the Company.
14. Implement a system to enable Yes The Board and its Committees
individual directors to have that power under their
engage outside advisers, at terms of reference, and use
corporation's expense it when, and if, necessary.
26
<PAGE>
APPOINTMENT AND REMUNERATION OF AUDITORS
The firm of Coopers & Lybrand, Chartered Accountants, 1111 West Hastings Street,
Vancouver, British Columbia, Canada, has served as the auditors of the Company
since 1981. No member of such firm, or any associate thereof, has any financial
or any other material interest in the Company or its subsidiaries. In the
absence of contrary direction, the proxies will be voted in favor of the
re-appointment of Coopers & Lybrand as auditors of the Company for the ensuing
year.
A representative of the firm of Coopers & Lybrand will be present at the Annual
Meeting and will be given the opportunity to make a statement and to answer any
questions shareholders may have with respect to the financial statements of the
Company for the fiscal year ended December 31, 1996.
The British Columbia Company Act requires that the remuneration of the auditors
of the Company be fixed by ordinary resolution of the shareholders. The
shareholders will be asked to vote for an ordinary resolution authorizing the
directors to fix the remuneration of the auditors, such authorization to expire
at the next annual general meeting of shareholders of the Company.
27
<PAGE>
PROPOSALS BY SHAREHOLDERS FOR THE 1998 ANNUAL GENERAL MEETING
Any shareholder of the Company who wishes to present a proposal to be considered
at the 1998 Annual General Meeting of Shareholders of the Company and who wishes
to have such proposal presented in the Company's Proxy Statement and Information
Circular, must deliver such proposal in writing to the Secretary or Assistant
Secretary of the Company at Suite 1500, 601 West First Avenue, Spokane,
Washington, U.S.A. 99204, no later than November 26, 1997.
THE COMPANY WILL FURNISH, WITHOUT CHARGE TO ANY SHAREHOLDER SUBMITTING A WRITTEN
REQUEST, A COPY OF THE COMPANY'S FORM 10-K ANNUAL REPORT FOR THE YEAR ENDED
DECEMBER 31, 1996, AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION,
INCLUDING THE FINANCIAL STATEMENTS AND SCHEDULES THERETO. THE COMPANY WILL ALSO
FURNISH A COPY OF CERTAIN DOCUMENTS, INCLUDING ITS CURRENT ANNUAL INFORMATION
FORM FILED WITH THE CANADIAN SECURITIES REGULATORY AUTHORITIES, TO ANY PERSON
UPON REQUEST. THE COMPANY MAY REQUIRE THE PAYMENT OF A REASONABLE CHARGE IN THE
CASE OF A REQUEST MADE BY A PERSON WHO DOES NOT HOLD SECURITIES OF THE COMPANY.
WRITTEN REQUESTS SHOULD BE DIRECTED TO THE DIRECTOR OF INVESTOR RELATIONS,
PEGASUS GOLD INC., SUITE 1500, 601 WEST FIRST AVENUE, SPOKANE, WASHINGTON,
U.S.A. 99204.
The contents and the sending of this Proxy Statement and Information Circular
have been approved by the Board of Directors of the Company.
BY ORDER OF THE BOARD,
Robert A. Lonergan
Secretary
Spokane, Washington, U.S.A.
March 24, 1997
28
<PAGE>
PEGASUS GOLD INC.
INSTRUMENT OF PROXY
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS AND MANAGEMENT OF PEGASUS
GOLD INC. (THE "COMPANY") FOR USE AT THE ANNUAL GENERAL MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL 30, 1997. The undersigned, revoking any previous proxies,
hereby appoints WERNER G. NENNECKER, President and Chief Executive Officer, and
ROBERT A. LONERGAN, Secretary, and each of them, or, instead of either of the
foregoing, , as nominee and proxy of the undersigned, with full
power of substitution, and hereby authorizes each of them to represent and to
vote all Common Shares of the undersigned of the Company at the Annual General
Meeting of Shareholders on April 30, 1997, and at any adjournments thereof, upon
all matters which may come before said meeting. Without limiting the general
powers conferred, the undersigned hereby directs the said nominee to vote the
shares represented by this Proxy in the following matters as indicated below:
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
1. ELECTION OF DIRECTORS
FOR ALL NOMINEES LISTED (EXCEPT AS PETER M.D. BRADSHAW
---- MARKED TO THE CONTRARY) DOUGLAS R. COOK
INSTRUCTION: To withhold authority PETER R. KUTNEY
to vote for any individual nominee
strike a line through the nominee's
name in the list.
WITHHOLD AUTHORITY TO VOTE FOR ALL
---- NOMINEES LISTED
2. APPOINTMENT OF COOPERS & LYBRAND AS AUDITORS For Withhold Vote
--- ---
3. AUTHORIZATION OF THE DIRECTORS TO FIX THE
REMUNERATION TO BE PAID TO THE AUDITORS For Against
--- ---
4. APPROVAL OF ADOPTION OF THE 1997 STOCK PLAN
OF THE COMPANY For Against
--- ---
PLEASE SIGN EXACTLY AS YOUR NAME OR NAMES APPEAR. PLEASE ADD YOUR TITLE IF
SIGNING AS AGENT, ADMINISTRATOR, EXECUTOR OR TRUSTEE, OR IN ANOTHER
REPRESENTATIVE CAPACITY.
Date , 1997
------------------------------------
Note: If not dated, this Proxy will be deemed to bear the date on
which it is mailed to the Company.
Signature
--------------------------------------------------------
--------------------------------------------------------
(Please Print Your Name & Title)
29
<PAGE>
Signature
-------------------------------------
----------------------------------------------
(Please Print Your Name & Title)
PLEASE MARK, SIGN, DATE, AND RETURN PROMPTLY
IN THE ACCOMPANYING ENVELOPE
30
<PAGE>
EXHIBIT 1
PEGASUS GOLD INC.
1997 STOCK PLAN
EFFECTIVE JANUARY 8, 1997
1. ESTABLISHMENT, DURATION AND PURPOSE.
(a) Pegasus Gold Inc., a British Columbia company, (the "Corporation"),
hereby adopts the Pegasus Gold Inc. 1997 Stock Plan (the "Plan"),
effective January 8, 1997 ("Effective Date").
(b) No Award granted to an employee or a director shall become exercisable
until the Plan is approved by shareholders at a shareholders' meeting
held within twelve months of the Effective Date. Any Awards granted
under the Plan prior to such approval shall be contingent upon such
approval.
(c) The purpose of the Plan is to promote the long-term success of the
Corporation by encouraging directors and employees of the Corporation
and its Subsidiaries to focus on long-range objectives, by attracting
and retaining employees and by aligning the financial interests of
directors and employees with the interests of shareholders. The Plan
provides a means whereby:
(1) employees of the Corporation and its Subsidiaries may be given an
opportunity to purchase Stock pursuant to options which may
qualify as incentive stock options under Section 422 of the Code
(referred to as "incentive stock options");
(2) directors and employees of the Corporation and its Subsidiaries
may be given an opportunity to purchase Stock pursuant to options
which do not qualify as incentive stock options (referred to as
"nonqualified stock options");
(3) directors and employees of the Corporation and its Subsidiaries
may acquire Stock for such consideration and subject to such
restrictions (if any) as the Committee determines appropriate,
provided, however, that prior to the issuance of such Stock, the
Corporation will have received from the director or employee the
consideration established for the Stock issued to him;
(4) directors and employees of the Corporation and its Subsidiaries
may be awarded Stock pursuant to the terms of incentive plans
1
<PAGE>
established from time to time by such entities, provided,
however, that prior to the issuance of such Stock, the
Corporation will have received from the director or employee the
consideration established for the Stock issued to him; and
(5) directors and employees of the Corporation and its Subsidiaries
may be granted rights or units the value of which is based on the
value of the Stock.
2. DEFINITIONS. The following terms when capitalized in this Plan have
the following meanings:
(a) "Awards" refers collectively to Stock Awards (see para. 8, INFRA),
stock appreciation rights (see para. 7, INFRA), Stock Options (see
para. 6, INFRA), and Unit Awards (see para. 9, INFRA) made pursuant
to this Plan.
(b) "Code" means the Internal Revenue Code of 1986, as amended from time
to time.
(c) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(d) "Non-Employee Director" means a director who (1) is not currently an
officer (as defined in 17 CFR 260.16a-1(f)) of the Corporation or a
Subsidiary, or otherwise currently employed by the Corporation or a
Subsidiary; (2) is not a former employee of the Corporation who
receives compensation during the taxable year for prior services, (3)
does not receive compensation, either directly or indirectly, from the
Corporation or a Subsidiary, for services rendered as a consultant or
in any other capacity except as a director, except for services that
do not require, or in such amount that does not require, disclosure
under Item 404(a) of Regulation S-K issued by the Securities and
Exchange Commission; (4) does not possess an interest in any other
transaction for which disclosure would be required pursuant to Item
404(a) of such Regulation; (5) is not engaged in a business
relationship for which disclosure would be required pursuant to Item
404(b) of such Regulation; and (6) is an outside director within the
meaning of Treasury Regulation 1.162-27(e)(3).
(e) "Participant" refers to the recipient of an Award.
(f) "Stock" means the Corporation's Common Shares without par value.
Shares under the Plan may be authorized and unissued shares or
reacquired shares.
(g) "Stock Award" means Stock issued to eligible persons pursuant to
2
<PAGE>
paragraph 8 of this Plan.
(h) "Stock Option" means options to purchase Stock granted to eligible
persons pursuant to paragraph 6 of this Plan.
(i) "Subsidiaries" refers to subsidiary corporations, as defined in
Section 424(f) of the Code (but substituting "the Corporation" for
"employer corporation") and as defined in the Securities Act (of
British Columbia), including entities which become Subsidiaries after
adoption of the Plan.
(j) "Unit Awards" means the units issued to eligible persons pursuant to
paragraph 9 of this Plan as compensation for services rendered or to
be rendered to the Corporation or its Subsidiaries.
3. ADMINISTRATION OF THE PLAN.
(a) The Plan shall be administered by the Compensation Committee (the
"Committee") of the Board of Directors of the Corporation (the
"Board").
(b) The Committee shall consist solely of two or more Non-Employee
Directors.
(c) The Committee shall determine which employees and directors of the
Corporation or its Subsidiaries shall be granted (subject to Board
approval for Awards to CEO) Awards under the Plan, the timing of such
Awards, the terms thereof, and the number of shares of Stock subject
to each Award.
(d) The Committee shall have the sole authority, in its absolute
discretion, to adopt, amend, and rescind such rules and regulations
as, in its opinion, may be advisable in the administration of the
Plan, to construe and interpret the Plan, the rules and regulations,
and the instruments evidencing Awards granted under the Plan and to
make all other determinations deemed necessary or advisable for the
administration of the Plan. All decisions, determinations, and
interpretations of the Committee shall be binding on all Participants.
(e) During periods of time and in amounts approved by the Committee,
eligible persons may elect to swap compensation for Stock, Stock
Options, stock appreciation rights or Unit Awards. Such elections,
once made, will be irrevocable.
(f) The Plan is intended to meet the requirements of Rule 16b-3
promulgated by the Securities and Exchange Commission under Section
16(b) of the Exchange Act and the requirements of Section 162(m)(4)(C)
of the Code
3
<PAGE>
and shall be administered and construed accordingly.
4. STOCK SUBJECT TO THE PLAN; LIMITATIONS ON AWARDS.
(a) Awards containing rights to acquire Stock may be granted under the
Plan to eligible persons (as set forth in para. 5, INFRA) for an
aggregate of not more than four (4) million (4,000,000) shares of
Stock, plus any shares that (i) are available for grant under the
Corporation's 1987 Stock Option Plan or 1989 Non-Employee Directors'
Stock Option Plan on the date the shareholders approve this Plan, or
(ii) may subsequently become available for grant under such plans
through the expiration, termination, forfeiture or cancellation of
awards under such plans. If an Award granted under this Plan expires,
terminates, or is forfeited or canceled, the unissued shares of Stock
subject to such Award shall again be available for Awards under this
Plan.
(b) If there is any change in the Stock subject to the Plan or the Stock
subject to any Award granted under the Plan (through merger,
amalgamation, arrangement, consolidation, reorganization, spin-off,
recapitalization, reincorporation, stock split, dividend issued in
stock or other change in the corporate structure of the Corporation),
appropriate adjustments may be made by the Committee in order to
preserve but not to increase the benefits to the Participants. These
adjustments may include adjustments to the aggregate number of shares
of Stock subject to the Plan, the number of shares of Stock and the
price per share subject to outstanding Awards and the limitations in
subparagraph (c) below.
(c) The Corporation shall not grant, issue or sell to any employee in any
calendar year:
(1) Stock Options pursuant to paragraph 6 to purchase more than two
hundred fifty thousand (250,000) shares of Stock, or
(2) stock appreciation rights pursuant to paragraph 7 with respect to
more than two hundred fifty thousand (250,000) shares of Stock.
(d) Notwithstanding anything to the contrary in this Plan, the Company
will not, at any time while the Stock is listed on The Toronto Stock
Exchange or the Montreal Exchange (i) grant Stock Options to insiders
in respect of Stock exceeding an aggregate at any time of 10 percent
of the outstanding issue, (ii) issue to insiders, within a one (1)
year period, a number of shares of Stock exceeding 10 percent of the
Company's outstanding issue, (iii) issue to any one insider and his
associates, within a one (1) year period, a number of shares of Stock
exceeding 5 percent of the Company's outstanding issue, or (iv) grant
Stock Options to any one
4
<PAGE>
person in respect of shares of Stock exceeding 5 percent of the
Company's outstanding issue, other than (in any such case) as may be
permitted by the rules of The Toronto Stock Exchange and/or the
Montreal Exchange, as the case may be. For the purposes of this
subsection (d), the terms "insiders," "outstanding issue" and
"associates" shall have the meanings ascribed to them under the rules
of The Toronto Stock Exchange.
5. ELIGIBILITY.
Persons who shall be eligible to have Awards granted to them shall be such
employees or directors of the Corporation or its Subsidiaries as the
Committee, in its discretion, shall designate from time to time.
6. TERMS AND CONDITIONS OF STOCK OPTIONS.
(a) The exercise price of the Stock covered by each Stock Option granted
under the Plan shall be not less than the per share fair market value,
as determined by reference to the closing share price on a recognized
stock exchange, of such Stock on the date the option is granted.
Notwithstanding the foregoing, in the case of an incentive stock
option granted to a person possessing more than ten percent (10%) of
the combined voting power of the Corporation or any Subsidiary, the
exercise price shall be not less than one hundred ten percent (110%)
of the fair market value of the Stock on the date the option is
granted. The exercise price of an outstanding Stock Option shall be
subject to adjustment to the extent provided in paragraph 4, above.
(b) Notwithstanding anything in the Plan to the contrary, the aggregate
fair market value (determined at the time of grant of an incentive
stock option) of Stock with respect to which incentive stock options
are exercisable for the first time by any Participant during any
calendar year (under all plans of the Corporation and its
Subsidiaries) shall not exceed $100,000.
(c) Each Stock Option granted pursuant to the Plan shall be evidenced by a
written stock option agreement executed by the Corporation and the
person to whom such option is granted.
(d) The Committee shall determine the term of each Stock Option granted
under the Plan, but the term of each Stock Option shall be for no more
than ten (10) years provided, however, that in the case of an
incentive stock option granted to a person possessing more than ten
percent (10%) of the combined voting power, of the Corporation or any
Subsidiary, the term shall be for no more than five (5) years.
5
<PAGE>
(e) The stock option agreement may contain such other terms, provisions,
and conditions as may be determined by the Committee (not inconsistent
with this Plan) including, without limitation, stock appreciation
rights with respect to Stock Options granted under this Plan. If a
Stock Option, or any part thereof, is intended to qualify as an
incentive stock option, the stock option agreement shall contain those
terms and conditions which are necessary to so qualify it.
7. STOCK APPRECIATION RIGHTS.
The Committee may, under such terms and conditions as it deems appropriate,
authorize the surrender by an optionee of all or part of an unexercised
Stock Option and authorize a payment in consideration therefor in an amount
equal to the difference obtained by subtracting the option price of the
shares then subject to exercise under such option from the fair market
value of the Stock represented by such shares on the date of surrender,
provided that the Committee determines that such settlement is consistent
with the purpose of the Plan. Such payment may be made in shares of Stock
valued at their fair market value on the date of surrender of such option
or in cash, or partly in shares and partly in cash. Acceptance of
surrender and the manner of payment shall be in the discretion of the
Committee. Any payments of cash under this paragraph shall be from the
general assets of the Corporation.
8. STOCK AWARDS
The Committee may, in its discretion, issue Stock to eligible persons on
whatever basis and subject to such performance requirements, terms and
conditions as the Committee determines, subject to compliance with the
applicable provisions of the Company Act (of British Columbia). The terms
and conditions of such Stock Award shall be evidenced by a written
agreement executed by the Corporation and the Participant.
9. UNIT AWARDS
The Committee may, in its discretion, issue units to eligible persons as
compensation for services rendered or to be rendered to the Corporation or
its Subsidiaries, the value of such units to be measured by increases or
decreases (during all or a portion of the term of the Unit Award) in the
Corporation's value, including, but not limited to, a formula based on
operating cash flow, production and reserves, fair market value per share
of Stock, or such other measure specified by the Committee prior to grant
of the applicable Unit Award. Unit Awards shall be subject to whatever
performance requirements, terms and conditions the Committee determines
appropriate. The terms of a Unit Award, shall be evidenced by a written
agreement executed by the Corporation and the Participant.
6
<PAGE>
10. (a) GENERAL PROHIBITION ON TRANSFERS. Unless otherwise expressly provided
in this paragraph 10 or by the Award Agreement, as either may be
amended, or by applicable law or the rules of the stock exchanges on
which the Stock is listed, (i) a Participant may not transfer
(including assign, pledge, or encumber) any of Participant's interest
in an Award; (ii) only a Participant may exercise an Award; and (iii)
the Corporation may deliver amounts payable or shares issuable
pursuant to Awards only to (or for the account of) the Participant.
(b) COMMITTEE-APPROVED TRANSFERS. Subject to applicable law, the
Committee may permit Awards to be exercised by and paid to such
persons or entities as The Committee may approve, pursuant to such
conditions and procedures as the Committee may establish, and subject
to the condition that the Committee receive evidence satisfactory to
it that the transfer is being made for estate and/or tax planning
purposes on a gratuitous or donative basis and without consideration
(other than nominal consideration). Notwithstanding the foregoing,
incentive stock options shall be subject to any additional transfer
restrictions as required for such options under the Internal Revenue
Code.
(c) PERMITTED TRANSFERS. The following transactions are permitted under
this Plan without the restrictions imposed by this paragraph 10,
subject to the rules of the stock exchanges on which the Stock is
listed:
For all Awards:
(1) transfers to the Corporation;
(2) the designation of a beneficiary to receive benefits in the event of
the Participant's death or, if the Participant has died, transfers to
or exercise by the Participant's beneficiary, or, in the absence of a
validly designated beneficiary, transfers by will or the laws of
decent and distribution; and
For all Awards except incentive stock options:
(3) transfers pursuant to a domestic relations order;
(4) if the Participant has suffered a disability, permitted transfers or
exercises on behalf of the Participant by his or her legal
representative; or
(5) the authorization by the Committee of "cashless exercise" procedures
with third parties who provide financing for the purpose
7
<PAGE>
of (or who otherwise facilitate) the exercise of Awards consistent
with applicable laws and stock exchange rules and the express
authorization of the Committee.
(d) Awards granted or Stock acquired under the Plan shall be subject to
such restrictions and agreements regarding performance, vesting, sale,
assignment, encumbrance, or other transfer as the Committee deems
appropriate at the time of making an Award.
11. USE OF PROCEEDS.
Any cash proceeds realized from the sale of Stock pursuant to the Plan or
from the exercise of options granted under the Plan shall constitute
general funds of the Corporation.
12. AMENDMENT, SUSPENSION OR TERMINATION OF THE PLAN
(a) The Board may at any time amend, suspend or terminate the Plan as it
deems advisable; provided, however, except as set forth in paragraph
4, above, the Board shall not amend the Plan in the following respects
without the consent of the shareholders of the Corporation then
sufficient to approve the Plan in the first instance and the approval
of all stock exchanges on which the Stock is then listed, if, and to
the extent required, by such exchanges:
(1) to increase the maximum number of shares of Stock subject to the
Plan; or
(2) to change the designation or class of persons eligible to receive
Awards under the Plan.
(b) No Award may be granted during any suspension or after the termination
of the Plan, and no amendment, suspension or termination of the Plan
shall, without the Participant's consent, alter or impair any rights
or obligations under any Award previously made under the Plan,
(c) This Plan shall terminate 10 years from the date of adoption of the
plan, unless previously terminated by the Board pursuant to this
paragraph 12.
13. CONSIDERATION.
Payment of the exercise price of a Stock Option or payment of any
consideration required for a Stock Award granted under this Plan shall be
made in cash or check; or with the consent of the Committee, in shares of
Stock already owned by the Participant; or with the Committee's consent
partly in cash and partly in
8
<PAGE>
Stock provided, however, that the Committee, in its sole discretion, may
establish procedures which permit a Participant to pay the exercise or
purchase price in whole or in part by delivery (on a form prescribed by the
Committee) of an irrevocable direction to a securities broker approved by
the Committee to sell shares and deliver all or a portion of the proceeds
to the Corporation for and on behalf of a participant in payment for the
Stock. The Committee may also establish procedures for the sale of shares
of Stock to cover withholding taxes or the withholding of shares of Stock
issuable upon exercise of an option to satisfy applicable withholding taxes
to the extent permitted by applicable law. Notwithstanding any provision
in this paragraph 13 to the contrary, no share of Stock shall be issued by
the Corporation until the Corporation has received the full consideration
for it as required by the Company Act (of British Columbia).
Date Adopted By Corporation:
Date Approved By Shareholders:
9
