<PAGE>
PEGASUS GOLD INC.
1600 - 925 WEST GEORGIA STREET
VANCOUVER, BRITISH COLUMBIA
CANADA V6C 3L2
May 25, 1998
DEAR SHAREHOLDER:
You are cordially invited to attend the 1998 Annual General Meeting of
Shareholders, which will be held in the International A Room, Delta Pacific
Conference Centre, 10251 St. Edwards Drive, Richmond, British Columbia, Canada,
on Tuesday, June 30, 1998, 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 1998. In addition, the Company's
current status, reports of operations, and other matters 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. 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>
PEGASUS GOLD INC.
1600 - 925 WEST GEORGIA STREET
VANCOUVER, BRITISH COLUMBIA
CANADA V6C 3L2
NOTICE OF ANNUAL GENERAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 30, 1998
NOTICE IS HEREBY GIVEN that the 1998 Annual General Meeting of Shareholders
of PEGASUS GOLD INC. (the "Company") will be held in the International A Room,
Delta Pacific Conference Centre, 10251 St. Edwards Drive, Richmond, British
Columbia, Canada, on Tuesday, June 30, 1998, 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, 1997.
(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 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 May 25,
1998, 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.
May 20, 1998
- --------------------------------------------------------------------------------
PLEASE READ THE ATTACHED PROXY STATEMENT AND THEN PROMPTLY COMPLETE,
EXECUTE AND RETURN THE ENCLOSED PROXY CARD IN THE ACCOMPANYING
ENVELOPE.
- --------------------------------------------------------------------------------
<PAGE>
PEGASUS GOLD INC.
1600 - 925 WEST GEORGIA STREET
VANCOUVER, BRITISH COLUMBIA
CANADA V6C 3L2
PROXY STATEMENT AND INFORMATION CIRCULAR
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
GENERAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
SOLICITATION OF PROXIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
APPOINTMENT AND REVOCATION OF PROXIES. . . . . . . . . . . . . . . . . . . . . . . .1
VOTING SECURITIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
EXERCISE OF DISCRETION BY PROXIES. . . . . . . . . . . . . . . . . . . . . . . . . .2
PRINCIPAL HOLDERS OF VOTING SECURITIES . . . . . . . . . . . . . . . . . . . . . . .2
ELECTION OF DIRECTORS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
COMPENSATION OF EXECUTIVE OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . .8
FIVE-YEAR TOTAL RETURN GRAPH . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
REMUNERATION OF DIRECTORS AND SENIOR OFFICERS. . . . . . . . . . . . . . . . . . . 17
CORPORATE GOVERNANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
APPOINTMENT AND REMUNERATION OF AUDITORS . . . . . . . . . . . . . . . . . . . . . 22
PROPOSALS BY SHAREHOLDERS FOR 1999 ANNUAL GENERAL MEETING. . . . . . . . . . . . . 22
</TABLE>
<PAGE>
PEGASUS GOLD INC.
1600 - 925 WEST GEORGIA STREET
VANCOUVER, BRITISH COLUMBIA
CANADA V6C 3L2
PROXY STATEMENT AND INFORMATION CIRCULAR
GENERAL
Except as otherwise stated, the information contained herein is stated as
of May 7, 1998. The Proxy Statement and Information Circular and the
accompanying Instrument of Proxy are expected to be mailed to shareholders on or
before May 28, 1998.
Advance notice of the Annual General Meeting of Shareholders of Pegasus
Gold Inc. to be held June 30, 1998 (the "Annual Meeting") was published,
pursuant to Section 111 of the British Columbia Company Act, in the May 4, 1998
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.
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 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. 99201 (U.S. RESIDENT SHAREHOLDERS) NO LATER
THAN 48 HOURS BEFORE THE TIME OF THE
1
<PAGE>
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 May 1, 1998, the Company had outstanding
41,834,086 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 May 25, 1998, 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.
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 May 1, 1998, by
each person known to the Company to own beneficially more than 5% 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.
2
<PAGE>
<TABLE>
<CAPTION>
Number of Percent of
Common Common
Shares (1) Shares (2)
---------- -----------
<S> <C> <C>
Alleghany Corporation (3) . . . . . . . . . . . . 3,000,000 7.17%
Lawrence I. Bell. . . . . . . . . . . . . . . . . 25,533 *
Peter M.D. Bradshaw . . . . . . . . . . . . . . . 20,278 *
Douglas R. Cook . . . . . . . . . . . . . . . . . 57,233 *
Michael A. Grandin. . . . . . . . . . . . . . . . 23,933 *
Peter R. Kutney . . . . . . . . . . . . . . . . . 101,900 *
Werner G. Nennecker . . . . . . . . . . . . . . . 516,275 1.23%
Lindsay D. Norman . . . . . . . . . . . . . . . . 57,800 *
Anthony J. Petrina. . . . . . . . . . . . . . . . 33,600 *
Fred C. Schulte . . . . . . . . . . . . . . . . . 43,300 *
Michael L. Clark. . . . . . . . . . . . . . . . . 20,000 *
Phillips S. Baker, Jr.. . . . . . . . . . . . . . 226,225
Terry D. Bauer. . . . . . . . . . . . . . . . . . - *
Robert A. Lonergan . . . . . . . . . . . . . . . 103,750 *
Thomas H. Burkhart. . . . . . . . . . . . . . . . 42,960 *
Eric B. Ovlen . . . . . . . . . . . . . . . . . . - -
Directors and Executive Officers as a
Group (4) . . . . . . . . . . . . . . . . . . . . 1,425,933 3.41%
</TABLE>
- ----------------
* Less than 1%
(1) Includes Common Shares subject to options exercisable within 60 days of May
1, 1998 as follows: Mr. Bell: 24,533 shares; Mr. Bradshaw: 17,278 shares;
Mr. Cook: 55,233 shares; Mr. Grandin: 22,933 shares; Mr. Kutney: 99,900
shares; Mr. Nennecker: 516,275 shares; Dr. Norman: 56,800 shares;
Mr. Petrina: 32,600 shares; Mr. Schulte: 42,300 shares; Mr. Clark: 18,750
shares; Mr. Baker: 224,825 shares; Mr. Bauer: -0- shares; Mr. Lonergan:
103,750 shares; Mr. Burkhart: 42,275 shares; Mr. Ovlen: -0- shares
(2) Based on 41,834,086 Common Shares outstanding as of May 1, 1998.
(3) The business address of Alleghany Corporation is 375 Park Avenue, New York,
NY 10152.
(4) Includes the Named Executive Officers and two other executive officers.
3
<PAGE>
ELECTION OF DIRECTORS
Under the Company's Articles, 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 Lawrence I. Bell, Werner G.
Nennecker and Anthony J. Petrina be elected at the Annual Meeting. Each
director of the Company elected at this meeting will serve a three-year term
that will expire at the 2001 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 British
Columbia Company Act, a majority of the directors must be Canadian residents.
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 LAWRENCE I. BELL,
WERNER G. NENNECKER AND ANTHONY J. PETRINA.
NOMINATED DIRECTORS
<TABLE>
<CAPTION>
Name, Principal Occupation, Director Term
Recent Business Experience Age Since Expires
- ---------------------------- ---- -------- -------
<S> <C> <C> <C>
LAWRENCE I. BELL (1) (5) 60 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) 44 1992 1998
Resident of Spokane, 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.
4
<PAGE>
<CAPTION>
Name, Principal Occupation, Director Term
Recent Business Experience Age Since Expires
-------------------------- --- -------- -------
<S> <C> <C> <C>
ANTHONY J. PETRINA (3) (4) (5) 63 1994 1998
Resident of Vancouver, British Columbia, Canada.
Mr. Petrina is a registered Professional Engineer,
and was CEO until October 1992 of Placer Dome Inc.,
an international gold mining company. Prior to
serving as CEO, Mr. Petrina was Executive Vice
President, and prior to that, Senior Vice President
and Chief Operating Officer of Placer Dome.
Mr. Petrina is also a director of Inmet Mining
Corporation, Miramar Mining Corporation, Pacific
Rim Mining Corporation, WAJAX Limited, and
TimberWest Timber Trust.
</TABLE>
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:
<TABLE>
<CAPTION>
Name, Principal Occupation, Director Term
Recent Business Experience Age Since Expires
- ------------------------- --- -------- -------
<S> <C> <C> <C>
PETER M.D. BRADSHAW (1) (3) 59 1997 2000
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 gold mining company. Prior to that,
he held management positions at Barringer 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) 72 1991 2000
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 Chairman of Atlas
Corporation, Denver, Colorado, and a director of
Archangel Diamond Corporation, Vancouver, British
Columbia, Canada. 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.
5
<PAGE>
<CAPTION>
Name, Principal Occupation, Director Term
Recent Business Experience Age Since Expires
- ------------------------- --- -------- -------
<S> <C> <C> <C>
PETER R. KUTNEY (2) (3) (4) 64 1984 2000
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.
LINDSAY D. NORMAN (1) (2) (4) 60 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 (4) (5) 51 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) 53 1996 1999
Resident of Calgary, Alberta, Canada. Mr. Grandin
has been Executive Vice President and Chief
Financial Officer of Canadian Pacific Limited, an
operating company concentrated in three core areas,
energy, transportation and hotels, since December
1997. Prior to that, Mr. Grandin was Vice Chairman
and Director of Midland Walwyn Capital Inc. since
1996. Prior to that, Mr. Grandin was a Director
and the President and Chief Executive Officer of
Sceptre Resources (1994 to 1996), Senior Vice
President and Chief Financial Officer of
PanCanadian Petroleum Ltd. (1990 to 1994), and a
Managing Director of ScotiaMcLeod Inc. (1986 to
1990). Prior to that, Mr. Grandin held a number of
key management and executive positions at Dome
Petroleum Ltd. and other companies.
</TABLE>
- ---------------
(1) Member of Audit Committee.
(2) Member of Compensation Committee.
(3) Member of Environmental Committee.
6
<PAGE>
(4) Member of Executive Committee.
(5) Member of Corporate Governance and Nominating Committee.
There are no family relationships between any of the nominees, directors or
officers of the Company.
During the fiscal year ended December 31, 1997, 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, 1997, the Audit Committee met five
times.
The Compensation Committee, which met seven times during 1997, is
responsible for formulating the Company's compensation policies and for
administering the 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 three times in 1997.
The Executive Committee, which met once during 1997, 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 Corporate Governance and Nominating Committee met once during 1997. It
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.
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, Environmental and Corporate Governance and Nominating
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.
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% 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 U.S. stock exchange upon which
the
7
<PAGE>
Company's Common Shares are listed for trading. Throughout 1997 and until they
were delisted on January 16, 1998, the Company's Common Shares traded in the
U.S. on 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 1997. 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.
INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
Under the Securities Exchange Act of 1934, as amended, and certain rules
promulgated thereunder, the Company is required to disclose in this Proxy
Statement and Information Circular the involvement of the Company's directors,
director nominees and executive officers in certain legal proceedings, including
bankruptcy proceedings under U.S. bankruptcy laws affecting the Company. On
January 16, 1998, the Company filed a Voluntary Petition for Relief under the
provisions of Chapter 11 of the U.S. Bankruptcy Code before the U.S. Bankruptcy
Court in Reno, Nevada.
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, 1997 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 1995 and 1996.
8
<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPEN-
SATION
ANNUAL COMPENSATION AWARDS
------------------------------------------- -----------
OTHER
ANNUAL SECURITIES ALL OTHER
COMPEN- UNDERLYING COMPEN-
NAME, AGE AND SALARY BONUS SATION OPTIONS SATION
PRINCIPAL POSITION YEAR ($) (1) ($) (1) ($) (2) (#) ($) (3)
- ------------------ ---- ------- ------- ------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Werner G. Nennecker, 44 (4) 1997 350,000 280,000 -- 136,600 11,613
President, Chief Executive 1996 350,000 158,620 499 172,400 8,029
Officer and Director 1995 353,719 300,000 -- 154,300 7,240
Michael L. Clark, 53 (6) 1997 163,125 -- -- 75,000 1,461
Senior Vice President and 1996 N/A N/A N/A N/A N/A
Chief Operating Officer 1995 N/A N/A N/A N/A N/A
Phillips S. Baker, Jr., 38 (5) 1997 180,000 -- -- 40,900 7,534
Vice President, Finance and 1996 175,233 45,873 -- 72,700 6,185
Chief Financial Officer 1995 165,700 87,302 3,578 76,600 6,171
Robert A. Lonergan, 53 (7) 1997 186,000 -- -- 41,300 8,818
Vice President, General Counsel 1996 164,667 45,915 22,216 67,800 8,062
and Corporate Secretary 1995 75,602 43,450 8,570 42,100 720
Terry D. Bauer, 49 (8) 1997 120,746 33,484 -- 36,200 418,901
Vice President, Environmental 1996 144,067 40,295 -- 61,600 7,427
and Governmental Affairs 1995 138,300 68,854 -- 53,100 6,376
Thomas H. Burkhart, 48 (9) 1997 122,800 -- -- 44,600 7,536
Vice President, Exploration 1996 98,233 28,849 -- 4,800 487
1995 101,397 23,933 -- 12,700 455
Eric B. Ovlen, 54 (10) 1997 112,663 31,548 -- 34,800 409,070
Vice President, 1996 132,200 37,649 -- 58,800 8,872
Administration 1995 139,667 71,422 1,343 49,800 8,270
</TABLE>
- -------------------------
(1) Amounts shown are U.S. dollars and 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, to the extent
such payments exceeded the lesser of $50,000 or 10% of such Named
Executive Officer's total annual salary and bonus, perquisites and
other personal benefits or property received from the Company by any
Named Executive Officer for the last fiscal year.
(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 $7,125 and Company paid life insurance
premiums of $4,488; (ii) Mr. Baker: annual Company payment to the DCP
of $7,125 and Company paid life insurance premiums of $409;
9
<PAGE>
(iii) Mr. Lonergan: annual Company payment to the DCP of $7,125 and
Company paid life insurance premiums of $1,693; (iv) Mr. Bauer:
annual Company payments to the DCP of $7,125, severance and
outplacement payment of $410,770, and Company paid life insurance
premiums of $1,006; (v) Mr. Clark: annual Company payments to the DCP
of $1,041 and Company paid life insurance premiums of $420; (vi) Mr.
Burkhart: annual payments to the DCP of $6,948 and Company paid life
insurance premiums of $588; (vii) Mr. Ovlen: annual Company payments
to the DCP of $7,125, severance and outplacement payment $399,030, and
Company paid life insurance premiums of $3,921.
(4) Mr. Nennecker first became an executive officer when he joined the
Company in 1992 as Senior Vice President and Chief Operating Officer.
In November 1992, he assumed the position of President and Chief
Executive Officer, and became a Director of the Company.
(5) Mr. Baker first became an executive officer when he joined the Company
in January 1994 as Vice President, Finance and Chief Financial
Officer. Mr. Baker is an attorney and a certified public accountant.
Prior to joining Pegasus, Mr. Baker worked seven years for Battle
Mountain Gold Company. Mr. Baker left the Company in March 1998.
(6) Mr. Clark became an executive officer when he rejoined the Company in
May 1997, as Senior Vice President and Chief Operating Officer. Mr.
Clark has over 30 years' experience in the mining industry, and
previously held the position of Executive Vice President and Chief
Operating Officer with the Company from August 1986 to April 1992.
Most recently, he was Chief Operating Officer and Senior Vice
President of Coeur d'Alene Mines.
(7) Mr. Lonergan first became an executive officer when he joined the
Company in June 1995 as Vice President, General Counsel and Corporate
Secretary. He was appointed Senior Vice President in November 1997.
Mr. Lonergan has over 22 years of experience in the legal field. From
1990 to 1993, Mr. Lonergan served was Vice President, General Counsel
and Secretary of Kennecott Corporation in Salt Lake City, Utah. From
1994 to 1995, Mr. Lonergan was an adjunct faculty member of the
University of Utah, and was affiliated with the firm of Woodbury and
Kesler.
(8) Mr. Bauer first became an executive officer as Vice President,
Environmental and Governmental Affairs in April 1994. He joined the
Company in October 1990. Prior to joining the Company, he served as
Manager of Reclamation Services for Morrison-Knudsen, Inc. and as Vice
President of Sunbelt Mining Company, a mineral resource subsidiary of
Public Service Company of New Mexico. Mr. Bauer left the Company in
October 1997.
(9) Mr. Burkhart first became an executive officer as Vice President,
Exploration in July 1997. Mr. Burkhart joined the Company in May 1983
as Project Manager at Florida Canyon Mine, and has held the positions
of Senior Geologist - West U.S., District Geologist - Pacific
Northwest, Regional Manager - Great Basin District, General Manager -
Argentina, and Director of Exploration - World Wide.
(10) Mr. Ovlen first became an executive officer in October 1994 when he
joined the Company as Vice President, Administration. Mr. Ovlen has
more than 20 years of general management, administration, and human
resources experience with multinational companies. Mr. Ovlen spent
the last five years before he joined the Company, as Vice President of
Administration at Oki Semiconductor of Sunnyvale, California. Mr.
Ovlen left the Company in October 1997.
STOCK OPTIONS, STOCK APPRECIATION RIGHTS, STOCK AWARDS AND UNIT AWARDS
The following table contains information concerning the grant of stock
options under the Company's 1997 Stock Plan to the Named Executive Officers.
During 1997, the Company did not grant any stock appreciation rights, or award
stock or units, to the Named Executive Officers.
10
<PAGE>
<TABLE>
<CAPTION>
OPTION GRANTS IN 1997
INDIVIDUAL GRANTS
-----------------------------
% OF TOTAL
NUMBER OF OPTIONS POTENTIAL REALIZABLE
SECURITIES GRANTED TO VALUE AT ASSUMED
UNDERLYING EMPLOYEES/ ANNUAL RATES
OPTIONS DIRECTORS EXERCISE OF STOCK PRICE
GRANTED IN FISCAL PRICE EXPIRATION APPRECIATION
NAME (#) (1) YEAR ($/SH) DATE FOR OPTION TERM
---- ---------- ----------- -------- ---------- --------------------
5% ($) 10% ($)
------ -------
<S> <C> <C> <C> <C> <C> <C>
Werner G. Nennecker . . . . . . 136,600 13.1% 8.375 4/30/2004 $465,733 $1,085,356
Michael L. Clark. . . . . . . . 75,000 7.2% 6.875 5/1/2004 $209,911 $489,182
Phillips S. Baker, Jr . . . . . 40,900 3.9% 8.375 4/30/2004 $139,447 $324,971
Robert A. Lonergan. . . . . . . 41,300 3.9% 8.375 4/30/2004 $140,811 $328,149
Terry D. Bauer. . . . . . . . . 36,200 3.5% 8.375 4/30/2004 $123,423 $287,627
Thomas H. Burkhart. . . . . . . 17,482 1.7% 8.375 2/24/2004 $59,604 $138,903
1,918 0.2% 8.375 2/24/2004 $6,539 $15,239
200 0.0% 6.875 5/1/2004 $560 $1,304
25,000 2.4% 4.813 7/29/2004 $48,984 $114,154
Eric B. Ovlen . . . . . . . . . 34,800 3.3% 8.375 4/30/2004 $118,649 $276,504
Total Grants in 1997. . . . . . 1,046,678
</TABLE>
- -------------------------
(1) The 1997 Stock Plan (the "1997 Plan"), which became effective on January 8,
1997, provides for the granting of stock options, stock awards, stock
appreciation rights and unit awards to officers and employees of the
Company and its subsidiaries. The 1997 Plan is administered by the
Compensation Committee of the Board.
Under the terms of the 1997 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 up to ten (10) years following the date of grant
at exercise prices equal to the fair market value of the Common Shares, as
determined by reference to the closing price on a recognized stock
exchange, on the date of the grant.
Payment of the exercise price of an option may be made in cash or, with the
consent of the Compensation Committee, in Common Shares or a combination
thereof. Options may be subject to such additional or different terms and
conditions not inconsistent with the 1997 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
1997 Plan upon such circumstances, and subject to such terms and
conditions, as the Committee deems appropriate, including a change in
control of the Company.
Options granted in 1997 were granted for a term of seven years with 25% of
the option shares covered thereby becoming exercisable on the grant date
(subject to insider trading rules) and with an additional 25% of the option
shares becoming exercisable on each anniversary date, with full vesting
occurring on the third anniversary date. Under the terms of the
11
<PAGE>
Company's 1997 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 1997 Stock Plan also permits the Compensation Committee to authorize
the issuance of stock appreciation rights, stock awards and unit awards.
No stock appreciation rights were granted, and no stock awards or unit
awards were made in 1997.
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, 1997, and unexercised options held as of the end of 1997:
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN 1997
AND YEAR-END OPTION VALUES
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
SHARES OPTIONS AT OPTIONS AT
ACQUIRED VALUE YEAR-END (#) YEAR-END ($)
ON EXERCISE REALIZED EXERCISABLE/ EXERCISABLE/
NAME (#) ($) UNEXERCISABLE UNEXERCISABLE (1)
---- ----------- -------- ------------- -----------------
<S> <C> <C> <C> <C>
Werner G. Nennecker. . . . . . . . . . . . . -- -- 516,275/78,625 --/--
Michael L. Clark . . . . . . . . . . . . . . -- -- 18,750/56,250 --/--
Phillips S. Baker, Jr... . . . . . . . . . . -- -- 224,825/28,175 --/--
Robert A. Lonergan . . . . . . . . . . . . . -- -- 103,750/36,925 --/--
Terry D. Bauer . . . . . . . . . . . . . . . -- -- --/-- --/--
Thomas H. Burkhart . . . . . . . . . . . . . -- -- 42,275/31,125 --/--
Eric B. Ovlen. . . . . . . . . . . . . . . . -- -- --/-- --/--
</TABLE>
- -------------------------
(1) Market value of underlying securities at December 31, 1997, minus the
exercise price of "in-the-money" options.
12
<PAGE>
REPRICING, REPLACEMENT OR CANCELLATION AND REGRANT OF OPTIONS
The Company did not adjust or amend the exercise price of stock options
previously awarded to any of the Named Executive Officers during 1997.
LONG-TERM INCENTIVE PLANS
The Company did not grant any long-term incentive compensation to any of
the Named Executive Officers during 1997.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee are Lindsay D. Norman (Chairman),
Douglas R. Cook, Peter R. Kutney and Michael A. Grandin. None of the
Compensation Committee members serve or have served as officers or employees of
the Company or its subsidiaries.
EMPLOYMENT CONTRACTS
The Company has entered into 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 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% 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. The employment
agreements are executory contracts, and under the Bankruptcy Laws may be
assumed, rejected or renegotiated. The contracts are currently being
renegotiated.
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
13
<PAGE>
personnel; accordingly, during 1997 the Company's management acted to ensure
that the Company's compensation practices were competitive with other producers
of precious metals, thereby enabling it to attract and retain key employees.
For 1997, 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.
In 1996, the Committee 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-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.
BASE SALARIES
For 1997, base salary ranges for the CEO and the other executive officers
were 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.
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% of base
salary, each Senior Vice President eligible for an incentive opportunity of 50%
of base salary, each Vice President eligible for an incentive opportunity target
of 44% of base salary, and the other officers were eligible for an incentive
opportunity target of 30% 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 1997, 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.
14
<PAGE>
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.
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.
Because of the financial condition of the Company, the Committee determined
that no incentive compensation would be paid to the executive officers employed
at year end. In the fourth quarter Mr. Nennecker received an amount equal to
his target bonus as a measure to secure his retention through the Company's
financial difficulties. Bonuses were paid to Messrs. Bauer and Ovlen as part of
their respective severance packages.
STOCK OPTIONS, STOCK APPRECIATION RIGHTS, STOCK GRANTS AND UNIT GRANTS
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 18, 1997, the Committee elected to award Mr. Nennecker options
to purchase 136,600 Common Shares, under the 1997 Stock Plan, providing that the
Plan was approved by the shareholders at the Company's Annual General Meeting on
April 30, 1997. At this time, other Named Executive Officers, except Mr. Clark,
received annual grants to purchase from 34,800 to 41,300 Common Shares, under
the 1997 Stock Plan, providing that the Plan was approved by the shareholders at
the Company's Annual General Meeting on April 30, 1997. The exercise price of
such options was $8.375 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 May 1,
1997, the Committee elected to award Mr. Clark options to purchase 75,000 Common
Shares. The exercise price of such options was $6.875 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.
15
<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
FIVE-YEAR TOTAL RETURN GRAPH
The following chart compares total cumulative shareholder return for $100
invested in Common Shares of the Company on December 31, 1992 with the
cumulative total return of the S&P 500 Index and the TSE Gold & Silver Index for
the five most recently completed fiscal years.
[GRAPH]
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Pegasus Gold, Inc. 100 148 76 93 51 4
S&P 500 Index 100 107 105 141 170 223
TSE Gold & Silver
Index 100 204 183 198 215 122
</TABLE>
16
<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, 1997 was $3,123,316.
Since January 1, 1997, options to acquire an aggregate of 698,578 Common
Shares were issued to the directors and senior officers of the Company as a
group. The exercise price of such options ranged from $8.375 per share to
$4.813 per share. During the same period, an aggregate of 41,100 options to
purchase Common Shares were exercised at an exercise price of $7.563 per share.
During the period from January 1, 1997 to January 16, 1998, the closing price of
the Common Shares on the American Stock Exchange ranged from a high of $8.563
per share to a low of $0.50 per share.
During the fiscal year ended December 31, 1997, 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 was $458,481, and the amount outstanding as of May 7, 1998, was
$30,126.
17
<PAGE>
CORPORATE GOVERNANCE
The Toronto Stock Exchange and the Montreal Exchange require listed
companies to provide certain disclosure annually with respect to their corporate
governance practices with reference to the guidelines set out in the policies of
such exchanges. 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 such guidelines.
The following disclosure is included to illustrate and explain the differences
which may exist between the Company's system of corporate governance and the
exchange guidelines.
<TABLE>
<CAPTION>
Corporate Governance Does the
Guideline Company Align? Comments
- ------------------------- -------------- ------------------------------
<S> <C> <C>
1. Board should explicitly assume
responsibility for stewardship of the
corporation, and specifically for:
a. adoption of a strategic Yes The Board reviews annually the strategic plan and from
planning process time to time focuses on substantial strategic planning
matters.
b. identification of principal Yes The Board has specifically identified the Company's
risks, and implementing risk principal risks and implemented risk management systems.
management systems For example, the Company conducts environmental audits
of mine sites and had adopted hedging policies to guide
the financial risk management programs.
c. succession planning and monitoring Yes The Board discusses succession planning matters at least
senior management 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.
e. integrity of internal control and Yes The Board through various committees has reviewed the
management information systems integrity of internal control and management systems.
The Board has also put in place a system for monitoring
the implementation of corporate strategies. Each of the
following committees is responsible to review and advise
the Board on implementation of corporate strategy in the
noted areas:
-- Compensation Committee:
employment and remuneration
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
Corporate Governance Does the
Guideline Company Align? Comments
- ------------------------- -------------- ------------------------------
<S> <C> <C>
-- Environmental Committee:
environmental compliance, closure planning,
and strategy
-- Audit Committee:
financial risks, reporting, disclosure,
and planning
-- Corporate Governance and Nominating Committee:
appropriate Board candidates, and corporate
governance
2. Majority of directors should be Yes Werner G. Nennecker (President and CEO) is the only
"unrelated" (independent of management Board member who is related.
and free from conflicting interest)
3. Disclosure for each director, whether Yes Werner G. Nennecker
or not he or she is related, and how Related -- as President and Chief Executive Officer
that conclusion was reached of the Company
For the remainder of the directors, none of them has:
-- worked for the Company
-- any material contracts with the Company
-- received remuneration from the Company in excess
of directors' fees, including stock options.
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
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
Corporate Governance Does the
Guideline Company Align? Comments
- ------------------------- -------------- ------------------------------
<S> <C> <C>
4. Appoint a committee of non-management Yes The Corporate Governance and Nominating Committee has
directors, a majority of which are the mandate to:
"unrelated", responsible for
appointment/assessment of directors -- recommend candidates for the Board
-- annually review credentials of nominees for
re-election
-- recommend candidates for filling vacancies on
the Board
-- ensure appropriate qualifications are met by
those joining the Board
5. Implement a process for assessing Yes The Board annually reviews the effectiveness of the
the effectiveness of the board, its Board as a whole, the committees of the Board and the
committees and individual directors contribution of individual directors
6. Provide orientation and education
programs for new directors Yes The Board provides informal orientation programs to new
directors and education programs to all directors,
including annual mine site visits.
The Board reviews the gold market and hedging, valuation
of gold companies, and legal and other matters applicable
to the Company and directors' duties.
7. Consider reducing size of board, with Yes A board must have enough directors to carry out its
a view to improving effectiveness duties efficiently, while presenting a diversity of views
and experience. Annually 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.
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
Corporate Governance Does the
Guideline Company Align? Comments
- ------------------------- -------------- ------------------------------
<S> <C> <C>
8. Review compensation of directors in Yes The Compensation Committee is mandated to review and
light of 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 generally be composed Yes Mr. Nennecker serves on the Executive Committee. All
of non-management directors other Board committees are composed solely of
non-management directors.
9b. Majority of committee members should Yes
be unrelated
10. Appoint a committee responsible for Yes The Corporate Governance and Nominating Committee has
approach to corporate governance issues the responsibility to the full Board regarding corporate
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.
(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 reviewed and approved by the
corporate objectives full Board on an annual basis.
12. Establish structures and procedures Yes The Board has appointed a non-management Chairman. In
to enable the board to function addition, the Board meets independently of the CEO and
independently of management other management when appropriate, and at least one time
per year.
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
Corporate Governance Does the
Guideline Company Align? Comments
- ------------------------- -------------- ------------------------------
<S> <C> <C>
13. Establish an audit committee, composed Yes The Audit Committee is composed entirely of
solely of non-management directors, non-management directors and is mandated to:
with a 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 have that power under their
individual directors to engage outside terms of reference, and use it when, and if, necessary.
advisers, at corporation's expense
</TABLE>
APPOINTMENT AND REMUNERATION OF AUDITORS
The firm of Coopers & Lybrand, Chartered Accountants, 1111 West Hastings
Street, Vancouver, British Columbia, Canada, has served as the Company's
auditors 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, 1997.
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.
PROPOSALS BY SHAREHOLDERS FOR THE 1999 ANNUAL GENERAL MEETING
Any shareholder of the Company who wishes to present a proposal to be
considered at the 1999 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 Company's
Secretary or Assistant Secretary at Suite 1500, 601 West First Avenue, Spokane,
Washington, U.S.A. 99201, no later than November 25, 1998.
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The contents and the sending of this Proxy Statement and Information
Circular have been approved by the Company's Board of Directors.
BY ORDER OF THE BOARD,
Robert A. Lonergan
Secretary
Spokane, Washington, U.S.A.
May 25, 1998
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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 JUNE 30, 1998. 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 June 30, 1998, 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:
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THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
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1. ELECTION OF DIRECTORS
FOR ALL NOMINEES LISTED (EXCEPT AS LAWRENCE I. BELL
------ MARKED TO THE CONTRARY) WERNER G. NENNECKER
INSTRUCTION: To withhold authority ANTHONY J. PETRINA
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
--- ---
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 , 1998
-------------------------------------
Note: If not dated, this Proxy will be deemed to
bear the date on which it is mailed to the
Company.
Signature
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(Please Print Your Name & Title)
Signature
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(Please Print Your Name & Title)
PLEASE MARK, SIGN, DATE, AND RETURN PROMPTLY
IN THE ACCOMPANYING ENVELOPE
