EX-20.3 40 o11180exv20w3.txt NOTICE & PROXY CIRCULAR DATED APRIL 15, 2003 Exhibit 20.3 IVANHOE MINES LTD. Suite 654 - World Trade Centre 999 Canada Place Vancouver, British Columbia, V6C 3E1 MANAGEMENT PROXY CIRCULAR THIS MANAGEMENT PROXY CIRCULAR IS FURNISHED TO THE COMMON SHAREHOLDERS ("SHAREHOLDERS") OF IVANHOE MINES LTD. (THE "CORPORATION") BY MANAGEMENT OF THE CORPORATION IN CONNECTION WITH THE SOLICITATION OF PROXIES TO BE VOTED AT THE ANNUAL GENERAL MEETING (THE "MEETING") OF THE SHAREHOLDERS TO BE HELD AT 10:00 A.M., LOCAL TIME, ON JUNE 12, 2003 IN THE TERMINAL CITY CLUB, FERGUSON/ATKINS ROOM, 837 WEST HASTINGS STREET, VANCOUVER, BRITISH COLUMBIA, AND AT ANY ADJOURNMENT THEREOF, FOR THE PURPOSES SET FORTH IN THE NOTICE OF MEETING. UNLESS OTHERWISE STATED, THIS MANAGEMENT PROXY CIRCULAR CONTAINS INFORMATION AS AT APRIL 15, 2003. SOLICITATION OF PROXIES The solicitation of proxies by management will be primarily by mail, but proxies may be solicited personally or by telephone by directors, officers and regular employees of the Corporation. All costs of this solicitation will be borne by the Corporation. APPOINTMENT OF PROXYHOLDERS A shareholder entitled to vote at the Meeting may, by means of proxy, appoint a proxyholder or one or more alternate proxyholders, who need not be shareholders, to attend and act at the Meeting for the shareholder and on the shareholder's behalf. The individuals named in the accompanying form of proxy are directors and/or officers of the Corporation. A SHAREHOLDER MAY APPOINT, AS PROXYHOLDER OR ALTERNATE PROXYHOLDER, A PERSON OR PERSONS OTHER THAN ANY OF THE PERSONS DESIGNATED IN THE ACCOMPANYING FORM OF PROXY, AND MAY DO SO EITHER BY INSERTING THE NAME OR NAMES OF SUCH PERSONS IN THE BLANK SPACE PROVIDED IN THE ACCOMPANYING FORM OF PROXY OR BY COMPLETING ANOTHER SUITABLE FORM OF PROXY. An appointment of a proxyholder or alternate proxyholders will not be valid unless a form of proxy making the appointment, signed by the shareholder or by an attorney of the shareholder authorized in writing, (a "Proxy") is deposited with CIBC Mellon Trust Company, by facsimile (604) 688-4301 or (416) 363 9524, by mail to P.O. Box 1900, Vancouver, B.C. V6E 3X1, or 200 Queens Quay East, Unit 6, Toronto, Ontario, M5A 4K9, or by hand, to Suite 1600, The Oceanic Plaza, 1066 Hastings Street, Vancouver, British Columbia, V6E 3K9 not less than 48 hours (excluding Saturdays, Sundays and statutory holidays) before the Meeting or the adjournment thereof at which the Proxy is to be used. REVOCATION OF PROXIES A shareholder who has given a Proxy may revoke the Proxy (a) by depositing an instrument in writing executed by the shareholder or by the shareholder's attorney authorized in writing (i) with CIBC Mellon Trust Company, not less than 48 hours (excluding Saturdays, Sundays and statutory holidays) before the Meeting or the adjournment thereof at which the Proxy is to be used, (ii) at the registered office of the Company at any time up to and including the last business day preceding the day of the Meeting, or an adjournment thereof, at which the Proxy is to be used, (iii) with the chairman of the Meeting on the day of the Meeting or an adjournment thereof, or (b) in any other manner provided by law. A revocation of a Proxy will not affect a matter on which a vote is taken before the revocation. EXERCISE OF DISCRETION On a poll, the nominees named in the accompanying form of Proxy will vote or withhold from voting the shares represented thereby in accordance with the instructions of the shareholder. The Proxy will confer discretionary authority on the nominees named therein with respect to (a) each matter or group of matters identified therein for which a choice is not specified, other than the appointment of an auditor and the election of directors, (b) any amendment to or variation of any matter identified therein, and (c) any other matter that properly comes before the Meeting. IN RESPECT OF A MATTER FOR WHICH A CHOICE IS NOT SPECIFIED IN THE PROXY, THE NOMINEES NAMED IN THE ACCOMPANYING FORM OF PROXY WILL VOTE SHARES REPRESENTED BY THE PROXY AT THEIR OWN DISCRETION FOR THE APPROVAL OF SUCH MATTER. As of the date of this Management Proxy Circular, management of the Company knows of no amendment, variation or other matter that may come before the Meeting, but if any amendment, variation or other matter properly comes before the meeting, each nominee named in the accompanying form of Proxy intends to vote thereon in accordance with the nominee's best judgment. VOTES NECESSARY TO PASS RESOLUTIONS The Corporation's by-laws provide that a quorum for the transaction of business at the Meeting consists of at least one individual present and holding, or representing by proxy the holder(s) of, shares carrying in the aggregate not less than five percent (5%) of the shares entitled to vote at the Meeting. Under the Yukon Business Corporations Act (the "YBCA") a majority of the votes cast by shareholders at the Meeting is required to pass an ordinary resolution and a majority of two-thirds of the votes cast at the Meeting is required to pass all special resolutions. 2 At the Meeting, shareholders will be asked to consider and, if deemed warranted, to pass an ordinary resolution, the full text of which is set out under "Particulars of Matters to be Acted Upon - Share Issue Resolution" in this Management Proxy Circular (the "Share Issue Resolution"), authorizing the Company to approve issues of equity securities in connection with Australian Stock Exchange listing rules for the period from December 9, 2003 until the date of the Corporation's Annual General Meeting in 2004. The Share Issue Resolution is an ordinary resolution and as such, requires approval by a majority of the votes cast by shareholders at the Meeting. Shareholders will also be asked to elect directors and appoint auditors for the ensuing year. If there are more nominees for election as directors or appointment as the Corporation's auditors than there are vacancies to fill, those nominees receiving the greatest number of votes will be elected or appointed, as the case may be, until all such vacancies have been filled. If the number of nominees for election or appointment is equal to the number of vacancies to be filled, all such nominees will be declared elected or appointed by acclamation. VOTING SHARES The Corporation has an authorized capital consisting of an unlimited number of Common Shares without par value and an unlimited number of Preference Shares without par value. As of April 15, 2003, the Corporation had issued 226,706,473 fully paid and non-assessable Common Shares without par value, each carrying the right to one vote. As of such date no Preference Shares were issued or outstanding. A holder of record of one or more common shares on the securities register of the Corporation at the close of business on April 23, 2003 (the "Record Date") who either attends the Meeting personally or deposits a proxy in the manner and subject to the provisions described above will be entitled to vote or to have such share or shares voted at the Meeting, except to the extent that (a) the shareholder has transferred the ownership of any such share after the Record Date, and (b) the transferee produces a properly endorsed share certificate for, or otherwise establishes ownership of, any of the transferred shares and makes a demand to CIBC Mellon Trust Company no later than 10 days before the Meeting that the transferee's name be included in the list of shareholders in respect thereof. NOTICE TO HOLDERS OF CHESS UNITS OF FOREIGN SECURITIES OVER COMMON SHARES TRADED ON THE AUSTRALIAN STOCK EXCHANGE In Australia the "holders" of the Company's common shares traded on the Australian Stock Exchange may not actually hold the shares but rather CHESS Units of Foreign Securities ('CUFS'), a form of depositary receipt. The shares are held by the Company's depositary nominee, CHESS Depositary Nominees Pty Ltd ('CDN'). If you are a holder of CUFS you cannot vote personally at the meeting. However, you may direct CDN on how it should vote on the resolutions described in the Notice of 3 Meeting and Management Proxy Circular. If you do so, CDN will cast proxy votes in accordance with your directions. You are also permitted to attend the Meeting. If you wish to direct CDN on how it should vote on the resolutions you should complete the attached 'Direction to CDN Form' and return it to Advanced Share Registry Services ("ASRS"), Level 7, 200 Adelaide Terrace, Perth, Western Australia, 6000, Australia (Telephone: +61 8 9221 7288, Facsimile: +61 8 9221 7869). You must complete the form and return it to ASRS by 5pm (Perth time) on 6 June 2003. Please note that as a CUFS holder you must complete the 'Direction to CDN Form' not the Proxy form. ADVICE TO BENEFICIAL HOLDERS OF COMMON SHARES The information set forth in this section is of significant importance to many holders of Common Shares as a substantial number of holders of Common Shares do not hold their Common Shares in their own name. Holders of Common Shares who do not hold their Common Shares in their own name (referred to in this Information Circular as "Beneficial Holders of Common Shares") should note that only proxies deposited by holders of Common Shares whose names appear on the records of the Corporation as the registered holders of Common Shares can be recognized and acted upon at the Meeting. If the Common Shares are listed in an account statement provided to a holder of common Shares by a broker, then in almost all cases those shares will not be registered in the name of the holder of the Common Shares on the records of the Corporation. Such Common Shares will more likely be registered under the names of the holders' of Common Shares broker or an agent of that broker. In Canada, the vast majority of shares are registered under the name of CDS & Co. (the registration name for The Canadian Depositary for Securities, which acts as nominee for many Canadian brokerage firms). Common Shares held by brokers or their agents or nominees can only be voted (for or against resolutions) upon the instructions of the Beneficial Holder of Common Shares. Without specific instructions, brokers and their agents and nominees are prohibited from voting shares for the broker's clients. Therefore, Beneficial Holders of Common Shares should ensure that instructions respecting the voting of their Common Shares are communicated to the appropriate person. Applicable regulatory policy requires intermediaries/brokers to seek voting instructions from Beneficial Holders of Common Shares in order to ensure that their Common Shares are voted at the Meeting. The purpose of the Instrument of Proxy or other form of proxy supplied to a Beneficial Holder of Common Shares by its broker (or agent of the broker) is limited to instructing the registered holder of common Shares (the broker or agent of the broker) how to vote on behalf of the Beneficial Holder of common Shares. The majority of brokers now delegate responsibility for obtaining instructions from clients to Independent Investor Communications Corporation ("IICC"). IICC typically mails a special proxy form to the Beneficial Holders of common Shares and asks Beneficial Holders of Common Shares to return such proxy forms to IICC. IICC then tabulates the results of all instructions received and provides appropriate instructions respecting the voting of Common Shares to be represented at the Meeting. A Beneficial Holder of Common Shares receiving a proxy form from IICC cannot use that proxy to vote Common Shares directly at the Meeting - the proxy must be returned to IICC well in advance of the Meeting in order to have the Common Shares voted at the meeting. 4 Although a Beneficial Holder of Common Shares may not be recognized directly at the Meeting for the purposes of voting Common Shares registered in the name of his or her broker (or agent of the broker), a Beneficial Holder of Common Shares may attend at the Meeting as proxy holder for the registered holder of Common shares and vote the common Shares in that capacity. Beneficial Holders of common shares who wish to attend at the Meeting and indirectly vote their Common Shares as proxy holder for the registered holder of Common Shares should enter their own names in the blank space on the Instrument of Proxy provided to them and return the same to their broker (or the broker's agent) in accordance with the instructions provided by such broker (or agent), well in advance of the Meeting. PRINCIPAL HOLDERS OF SECURITIES To the knowledge of the directors and senior officers of the Corporation, the only persons who beneficially own, directly or indirectly, or exercise control or direction over shares carrying more than 10% of the voting rights attached to the outstanding Common Shares of the Corporation, the approximate number of common shares so owned, controlled or directed and the percentage of voting shares of the Corporation represented by such shares and the share ownership by the current directors and senior officers of the Company as a group are:
NAME AND ADDRESS NUMBER OF SHARES OWNED, PERCENTAGE OF CONTROLLED OR DIRECTED SHARES OUTSTANDING -------------------------------- ------------------------------- --------------------- Robert M. Friedland Hong Kong 100,758,334 44.44% -------------------------------- ------------------------------- --------------------- Directors and Officers as a group(1) 101,671,406(2) 44.85% -------------------------------- ------------------------------- ---------------------
(1) The directors and senior officers, as a group, hold 5,408,500 common shares issuable upon exercise of incentive stock options. (2) Includes 100,758,334 shares held directly and indirectly by Robert M. Friedland. ELECTION OF DIRECTORS The Articles of the Corporation provide that the number of directors of the Corporation will be a minimum of 3 and a maximum of 9. The term of office of each of the current directors will end at the conclusion of the Meeting. Unless a director's office is earlier vacated in accordance with the provisions of the YBCA, each director elected will hold office until the conclusion of the next annual meeting of the corporation or, if no director is then elected, until a successor is elected. The following table sets out the names of management's nominees for election as directors, all major offices and positions with the Corporation and any of its significant affiliates each now holds, each nominee's principal occupation, business or employment, the period of time during which each has been a director of the Corporation and the number of shares of the Corporation beneficially owned by each, directly or indirectly, or over which each exercised control or direction, as at April 15, 2003. 5
Period as a Shares Beneficially Name and Position Principal Occupation, Business or Director of the owned, controlled Employment(1) Corporation or directed(1)(2) ------------------------------------------ -------------------------------------- ------------------ --------------------- ROBERT M. FRIEDLAND Chairman, Ivanhoe Mines Ltd. (March March, 1994 100,758,334 Chairman, Chief Executive Officer, 1994 - present); Chairman and President and Director President, Ivanhoe Capital Corporation ------------------------------------------ -------------------------------------- ------------------ --------------------- R. EDWARD FLOOD(4) Deputy Chairman of the Corporation March, 1994 147,450 Deputy Chairman and Director (May 1999 - present); Senior Analyst, Haywood Securities (May 2000 - November 2001) ------------------------------------------ -------------------------------------- ------------------ --------------------- GORDON L. TOLL Senior Vice-President, Ivanhoe March, 1996 322,500 Deputy Chairman and Director Capital Corporation (December 1995 - present) ------------------------------------------ -------------------------------------- ------------------ --------------------- JOHN WEATHERALL(3)(5) President, Scarthingmoor Assets June, 1996 50,500 Director Management Inc. (January, 1996-present) ------------------------------------------ -------------------------------------- ------------------ --------------------- KJELD THYGESEN(3)(4)(5) Managing Director of Lion Resource February, 2001 NIL Director Management (1989 - present) ------------------------------------------ -------------------------------------- ------------------ --------------------- ROBERT HANSON(4)(5) Chairman of Hanson Capital Limited February, 2001 NIL Director (February 1998 - present);Chairman of Hanson Transport Group (1996 to present); Chairman of Hanson Pacific Limited (March 1994 - 1997); Director, Hanson PLC (1990-1997) ------------------------------------------ -------------------------------------- ------------------ --------------------- MARKUS FABER(3) Managing Director, Marc Faber Ltd. February, 2002 NIL Director (1990 to present) ------------------------------------------ -------------------------------------- ------------------ ---------------------
(1) The information as to principal occupation, business or employment and shares beneficially owned, controlled or directed by a nominee is not within the knowledge of the management of the Corporation and has been furnished by the nominee. (2) Does not include unissued common shares issuable upon the exercise of incentive stock options. See "Voting Shares". (3) Indicates members of the Audit Committee. (4) Indicates members of the Compensation and Benefits Committee. (5) Indicates members of Nominating and Corporate Governance Committee. 6 EXECUTIVE COMMITTEE The Corporation does not have an Executive Committee of the Board of Directors. INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON No person who has been a director or officer of the Corporation at any time since the beginning of its last completed financial year, any proposed nominee for director of the Corporation or any associate or affiliate of the foregoing has any material interest, direct or indirect, in any matter to be acted upon at the Meeting, except as disclosed in this Information Circular. PARTICULARS OF MATTERS TO BE ACTED UPON SHARE ISSUE RESOLUTION At the Meeting, Shareholders will be asked to consider and, if deemed advisable, pass a resolution authorizing the issue by the Corporation of up to 50 million Equity Securities (in addition to any other securities issuable in compliance with the Australian Stock Exchange ("ASX") Listing Rules) to such allottees and at such issue price(s) determined by the directors as set out in this Management Proxy Circular, such issue(s) to take place, subject to any applicable ASX waiver, during the period between December 9, 2003 and the date of the Corporation's annual general meeting in 2004. This resolution is to be effective if the Corporation is not exempt from ASX listing rule 7.1 (or its successor provisions) during such period by virtue of the grant by the ASX of an extension of the ASX waiver of listing rule 7.1 dated December 9, 2002 (the "Waiver") or otherwise. For purposes of this resolution, an "Equity Security" is a Common Share or a security or other right convertible into or exchangeable for a Common Share including a Common Share Purchase Warrant or a Special Warrant. BACKGROUND TORONTO STOCK EXCHANGE REQUIREMENTS IN RESPECT OF SHARE ISSUANCES The Corporation's Common Shares have been listed on the TSX since June 1996, and, accordingly, the Corporation is subject to regulation under the rules and policies of the TSX Company Manual (the "TSX Code"), including TSX Code restrictions on the number of equity securities that may be issued pursuant to private placement transactions. The TSX Code provides that the aggregate number of listed securities which are issued (or made subject to issuance) pursuant to a "private placement" transaction during any six month period may not exceed 25% of the number of securities of the issuer which are outstanding (on a non-diluted basis) prior to giving effect to such transaction without both TSX and shareholder approval. A "private placement" transaction is the issuance of treasury securities of a listed class (or convertible into a listed class) without Canadian prospectus disclosure or reliance on the exempting provisions of Canadian provincial securities legislation. Public offerings of securities by prospectus are not limited by any percentage restriction under the TSX Code. The applicable provisions of the TSX Code referred to above are set out on Schedule A to this Management Proxy Circular. 7 AUSTRALIAN STOCK EXCHANGE REQUIREMENTS IN RESPECT OF SHARE ISSUANCES The Common Shares of the Corporation have been listed on the ASX since September 1996 as a Foreign Exempt Listing. On July 1, 2002, as the result of a change in the policy of the ASX in respect of the listing of foreign companies on the ASX, the Corporation changed its listing category from an exempt listing to a full listing in order for the Corporation's Common Shares to remain listed on the ASX. Accordingly since July 1, 2002, the Corporation has been subject to the ASX Listing Rules applicable to all non-exempt listed companies, including a specific limitation on the ability of listed companies to raise equity capital without ongoing shareholder approvals. ASX listing rule 7.1 restricts the ability of the Corporation to issue certain equity securities during any twelve month period to 15% of the outstanding Common Shares at the beginning of such period (subject to certain adjustments). This restriction will not apply to an issue of Equity Securities if the Corporation has received shareholder approval of the transaction or a specific exemption or waiver is applicable. Shareholder approval can be either prospective or, provided an issuance of shares is in compliance with the 15% limitation, in the form of a subsequent ratification. Unlike the TSX Code, the ASX listing rule restrictions include all issuances of "equity securities" of the Corporation, including public offerings by prospectus, unless a specific exemption is available under listing rule 7.2 or a waiver is received from the ASX. The principal exemption relevant to capital raising under the listing rule is a rights issue whereby new equity securities to be issued must first be offered pre-emptively to existing shareholders on a pro-rata basis. The text of listing rules 7.1 through 7.5 is set out in Schedule B to the Management Proxy Circular. WAIVER OF ASX LISTING RULE 7.1 Following July 1, 2002 the Corporation sought a number of waivers from the ASX in order to harmonise, as far as possible, the requirements of the ASX Listing Rules with the regulatory framework of the TSX and other Canadian regulators. One of the principal waivers sought by the Corporation was a conditional waiver from listing rule 7.1. It is the Corporation's position that strict compliance with listing rule 7.1 restricts the Corporation's ability to raise capital in North American and other markets. Because North American capital raising practices do not typically involve pre-emptive offers to existing shareholders, but rely instead on rapid financing techniques designed to accelerate the completion of offerings to third parties, the effect of listing rule 7.1 is to oblige the Corporation to obtain ongoing shareholder approvals of specifiable tranches or specific transactional exemptions or waivers from the ASX in order to take advantage of market windows to raise equity capital. Given North American capital market dynamics, the Corporation cannot rely on rights offerings to complete large equity offerings. This technique may be appropriate for companies based and principally operating in certain jurisdictions such as Australia, but North America capital raising practices rarely rely on this financing technique, the only significant capital raising exemption to the restrictions under ASX listing rule 7.1, absent a shareholders' meeting. 8 The Corporation is actively involved in ongoing exploration activities in Mongolia and elsewhere which require ongoing funding in order to continue development of such properties. Over the longer term, the Corporation will need to obtain additional funding for, or third party participation in, its undeveloped or partially developed properties to bring them into production. Accordingly the Corporation continually monitors the opportunity to raise additional equity capital as a method of funding its activities, provided market conditions are favourable. It is important for the Corporation and its shareholders for the Corporation to be in a position to respond to such market opportunities. On December 9, 2002 following application and appeal procedures, the ASX granted the Corporation the Waiver from listing rule 7.1 for the period ending December 9, 2003. As a result of this Waiver, the Corporation is not required to obtain shareholder approval for issues of Equity Securities exceeding the 15% limit in listing rule 7.1 during this period. The Corporation is not seeking shareholder approval at the Meeting for issues of Equity Securities during the period ending December 9, 2003. During the period from July 1, 2002 to the date of this Circular the Company has raised Cdn.$134,536,280 through the issue of 41,296,000 Common Shares issued directly or issued or issuable upon exercise of a right of conversion of Equity Securities. REASONS FOR SEEKING SHAREHOLDER APPROVAL AT THE MEETING When the Waiver expires on December 9, 2003, the Corporation will again be subject to the restriction under listing rule 7.1 on issuing Equity Securities unless the Corporation receives a grant from the ASX of a further extension of the Waiver or is otherwise exempted from the provisions of listing rule 7.1. Management of the Corporation believe that it is important for the Corporation to have flexibility in its ability to raise capital, particularly since the Corporation is currently and expects to continue to be, engaged in capital-intensive exploration and development projects in Mongolia and elsewhere. Accordingly, it is management's current intention to apply to the ASX for an extension of the Waiver prior to its expiry or a new waiver, to further exempt the Corporation from listing rule 7.1 during the period from December 9, 2003 until the date of the Corporation's annual general meeting in 2004 (expected to be in June 2004). The Corporation is proposing that at the Meeting the shareholders prospectively approve the issue of up to 50 million Equity Securities during the period from December 9, 2003 until the Corporation's annual general meeting in 2004. Such approval will not at this time satisfy the ASX listing rule requirements for shareholder approval of an issue of equity securities. Listing rule 7.3 requires the notice of the meeting at which approval will be sought to specify a date for issue of the securities, which must be a date within 3 months following the date of the shareholders meeting authorizing the issue of securities. Accordingly, even if the Share Issue Resolution is passed and effective in accordance with its terms, it will not at this time constitute effective prospective approval for the issue of specifiable tranches of securities for ASX listing rule purposes and a waiver from the requirements of listing rule 7.1 and/or 7.3 will be required. However management feels it is prudent to obtain shareholders approval for the Share Issue Resolution to support the Corporation's application for a waiver if this becomes necessary or advisable to avoid the necessity and expense of holding another shareholders meeting to authorize the issue of Equity Securities during the period between December 9, 2003 and the Corporation's annual general meeting in 2004. This proposed shareholder resolution is intended to be effective if the Corporation is not otherwise fully exempt from ASX listing rule 7.1 (or its successor provisions) during the period from December 9, 2003 until the Corporation's annual general meeting in 2004. 9 The Corporation will during such period continue to be subject to the TSX Code restrictions in respect of private placements of Equity Securities. The contents of this Management Proxy Circular have not been endorsed by ASX at this time. PARTICULARS IN RESPECT OF PROPOSED RESOLUTION The following particulars relate to the proposed resolutions: (i) The maximum number of Common Shares issuable either directly by the Corporation or upon exercise of a right of conversion of Equity Securities will be 50 million Common Shares; (ii) Any Equity Securities issued pursuant to this Resolution will be issued between December 9, 2003 and the date of the Corporation's annual general meeting in 2004, expected to be in June, 2004; (iii)The minimum issue price for each whole Common Share or underlying Common Share will be Cdn.$2 per Common Share or underlying Common Share. As a practical matter, Equity Securities issued by way of a private placement will not be issued for less than a 15% discount to market price in accordance with applicable TSX Code. Equity Securities issued by public offering would be determined by the Corporation based on prevailing market conditions and, if applicable, negotiation with underwriters; (iv) Equity Securities issued under a private placement will be issued primarily to institutional or sophisticated investors in accordance with applicable North American or other securities laws. Equity Securities may also be issued to investors under an underwritten or best efforts public offering. Equity Securities may also be issued in connection with an acquisition by the Corporation to a vendor of assets. The persons to whom securities will be issued will be determined by the Directors of the Corporation. The names of the allottees are not known, with the Directors of the Corporation to use their absolute discretion in respect of any allotment. It is not anticipated that any director or their associates would participate in any such allotment in the absence of appropriate approvals; (v) Equity Securities issuable with the specifiable tranche(s) if ASX grants either of the waivers contemplated by these resolutions would be Common Shares, or a security or other right convertible into, or exchangeable for, Common Shares including Common Share Purchase Warrants or Special Warrants. o Any Common Shares issued would be fully paid Common Shares ranking in parity to the other outstanding Common Shares of the Corporation. o A Common Share Purchase Warrant is a right exercisable by the holder to acquire a Common Share upon payment of minimum exercise price of Cdn.$2, and may be issued for no additional consideration at the time of issue. o Pursuant to applicable rules of the TSX, any Common Share Purchase Warrant issued in a private placement transaction will not be exercisable for an exercise price less than the closing market price of the underlying 10 Common Share on the trading day preceding the date of stock exchange notification of the issue and may only be exercisable for five years from the date of issuance. A purchaser of Common Share Purchase Warrants would be entitled upon exercise to no more than one Common Share per Common Share Purchase Warrant, subject to adjustment provisions which would entitle the purchaser to adjust the number of Common Shares issuable in order to account for the effect of a stock dividend, share split or consolidation or other capital structure change affecting the Common Shares of the Corporation; o Special Warrants would be issued by private placement and subject to a minimum Cdn. $2 issue price per underlying Common Share. Special Warrants grant the holder (of Special Warrants) Common Shares upon exercise or deemed exercise of the Special Warrants, upon clearance of a prospectus with respect to the distribution of securities, without payment of additional consideration by the holders of the Special Warrants; o The Equity Securities may be issued in one or more transactions. The Corporation may, at the request of a purchaser or as required by applicable securities laws, prepare and file in British Columbia and other applicable jurisdictions a prospectus in connection with an issuance of Equity Securities; o The Equity Securities, or some of them, may be sold through underwriters or licensed brokers and the Corporation may pay negotiated underwriting or brokers commissions or finder's fees in accordance with applicable laws; (vi) The intended use of proceeds raised is to fund drilling and exploration expenditures in respect of the Corporation's properties in Mongolia, to fund exploration activities in respect of the Corporation's other existing properties and properties acquired in the future, to fund the acquisition of additional properties or assets and for working capital and general corporate and administrative purposes. (vii) Allotments of Equity Securities would occur progressively. TEXT OF RESOLUTION At the Meeting, the Shareholders will be asked to approve the Share Issue Resolution, the text of which is as follows: "RESOLVED that the Corporation is authorized to issue up to 50 million Equity Securities (in addition to any other securities issuable in compliance with Australian Stock Exchange ("ASX") Listing Rules) to such allottees and at such issue price(s) determined by the directors as set out in this Management Proxy Circular, such issue(s) to take place, subject to any applicable ASX waiver, during the period between December 9, 2003 and the date of the Corporation's annual general meeting in 2004. This resolution is to be effective if the Corporation is not exempt from ASX listing rule 7.1 (or its successor provisions) during such period by virtue of the grant by the ASX of an extension of the ASX waiver of listing rule 7.1 dated December 9, 2002 or otherwise. For purposes of this resolution, an "Equity Security" is a Common Share or a security or other right convertible into 11 or exchangeable for a Common Share, including a Common Share Purchase Warrant or a Special Warrant". VOTING EXCLUSION - The Corporation will disregard any votes cast on this resolution by (i) persons who may participate in the proposed issue and (ii) persons who might obtain a benefit if this resolution is passed, except a benefit solely in the capacity of a holder of Common Shares, and (iii) any associates of those persons. However, the Corporation need not disregard a vote if: it is cast by the person as proxy for a person who is entitled to vote, in accordance with the directions on the proxy form; or it is cast by the person chairing the meeting as proxy for a person who is entitled to vote, in accordance with a direction on the proxy form to vote as the proxy decides. APPOINTMENT OF AUDITORS Deloitte & Touche, Chartered Accountants, will be nominated at the Meeting for re-appointment as auditors of the Corporation at a remuneration to be fixed by the directors. Deloitte & Touche have been auditors of the Corporation since January 1995. INTEREST OF INSIDERS IN MATERIAL TRANSACTIONS Other than as disclosed below or elsewhere in this Management Proxy Circular, no insider and no associate or affiliate of any such insider, has any material interest, direct or indirect, in any material transaction since the commencement of the Corporation's last financial year or in any proposed transaction, which, in either case, has materially affected or would materially affect the Corporation, other than as set out below. The Corporation is a party to cost sharing agreements with other companies in which Robert M. Friedland has a material direct or indirect beneficial interest. Through these agreements, we share office space, furnishings, equipment and communications facilities in Vancouver, Singapore and London and an aircraft on a cost recovery basis. The Corporation also shares the costs of employing administrative and non-executive management personnel in these offices. During the year ended December 31, 2002, our share of these costs was US$5,143,000. The companies with which the Corporation is a party to the cost sharing agreements, and Mr. Friedland's ownership interest in each of them, are as follows:
R.M. FRIEDLAND COMPANY NAME OWNERSHIP INTEREST ------------ ------------------ Ivanhoe Energy Inc. 32.17% Ivanhoe Capital Corporation 100.00% African Minerals Ltd. 54.58%
EXECUTIVE COMPENSATION In accordance with the requirements of applicable securities legislation in Canada, the following executive compensation disclosure is provided in respect of the Company's Chief Executive Officer as at December 31, 2002, and each of the four most highly compensated executive officers ("Named Executive Officers") whose annual compensation exceeded $100,000 in the year ended December 31, 2002. During the year ended December 31, 2002, the aggregate compensation paid to all officers of the Company who received more than $40,000 in aggregate compensation during such period was US$1,120,730. 12 SUMMARY COMPENSATION TABLE The following table sets forth a summary of all compensation paid during the years ending December 31, 2000, 2001 and 2002 to each of the Named Executive Officers of the Corporation.
Annual Compensation Long Term Compensation -------------------------------- -------------------------------- Awards Payouts ----------------------- ------- Securities Restricted Other Under Shares or Annual Options/ Restricted All Other Compen- SARs Share LTIP Compen- Name and Salary Bonus sation Granted Units Payout sation Principal Position Year (US$) (US$) (US$)(1) (#) (US$) (US$) (US$)(2) ------------------ ---- ------ ----- -------- ---------- ---------- ------ -------- DANIEL KUNZ 2002 200,000 - - - - - 9,740 President 2001 250,000 - - 1,578,000 - - 9,740(7) 2000 200,000 35,000 - - - - 9,740(7) ------------------------------------------------------------------------------------------------------------------------------------ GORDON TOLL 2002 201,267 - - - - - 3,330 Deputy Chairman 2001 202,593 - - - - - 3,330(7) 2000 N/A ------------------------------------------------------------------------------------------------------------------------------------ EDWARD C. ROCHETTE 2002 160,102 - 17,092(3) - - - 3,300 Senior Vice-President 2001 156,619 - 15,471(3)(7) 682,500 - - 3,300(7) Legal and Administration 2000 143,628 - 38,365(3)(7) - - - 3,300(7) ------------------------------------------------------------------------------------------------------------------------------------ DOUGLAS KIRWIN 2002 150,000 65,000(4) 44,877(5) - - - 6,718 Senior Vice-President 2001 150,000 - 39,773(5)(7) 182,500 - - 4,750(7) Exploration 2000 109,200 - 38,597(5)(7) - - - 4,750(7) ------------------------------------------------------------------------------------------------------------------------------------ JAIME TRONCOSO 2002 150,000 - 70,847(6) - - - - Vice-President, 2001 150,000 - 73,103(6)(7) 176,667 - - -(7) Kazakhstan 2000 150,000 - 89,580(6)(7) - - - - ------------------------------------------------------------------------------------------------------------------------------------
(1) Perquisites and benefits do not exceed the lesser of $50,000 and 10% of the total of the annual salary and bonus for any of the Named Executive Officers except where numbers are disclosed in this column. (2) Includes share purchase plan contributions and life insurance premiums. (3) Mr. Rochette's other annual compensation included medical and dental premiums of $13,096 (2002), $11,388 (2001) and $34,948 (2000). (4) Mr. Kirwin received a bonus in 2002 of $65,000 which was applied to repay a loan from the Company to pay the mortgage on his home. The loan was forgiven in 2002 although for accounting purposes the amount was booked in 2001. (5) Mr. Kirwin's other annual compensation includes a housing allowance of $36,000 in each of 2002, 2001 and 2000. (6) Mr. Troncoso's other annual compensation includes a housing allowance of $27,750 (2002), $27,375 (2001) and $27,450 (2000), and tax gross up allowance of $40,407 (2002), $42,328 (2001) and $60,173 (2000). (7) Reflects adjustment from previous disclosure. 13 LONG TERM INCENTIVE PLAN The Corporation does not presently have a long-term incentive plan for its executive officers. OPTIONS/SAR GRANTS DURING THE MOST RECENTLY COMPLETED FINANCIAL YEAR There were no options or stock appreciation rights granted to any of the Named Executive Officers in the financial year ended December 31, 2002. AGGREGATED OPTION EXERCISES Other than as described below, no options or stock appreciation rights were exercised during the year ended December 31, 2002 by the Named Executive Officers.
Value of Unexercised in the Securities Aggregate Unexercised Options at Money Options at Acquired on Value December 31, 2002 December 31, 2002 Name Exercise Realized (Exercisable/Unexercisable) (Exercisable/Unexercisable) ---- ----------- --------- --------------------------- ----------------------------- Daniel Kunz 872,000 $1,370,080 0/578,000 0/$1,173,340 Edward Rochette 100,000 $181,625 310,375/239,625 $605,061/$486,439
OPTION AND SAR REPRICING No options or stock appreciation rights were repriced during the year ended December 31, 2002. DEFINED BENEFIT AND PENSION PLANS The Corporation does not presently provide any defined benefit or pension plan for its directors, executive officers or employees. EMPLOYMENT CONTRACTS The Company does not have an employment contract with any of the Named Executive Officers. COMPENSATION COMMITTEE During the year ended December 31, 2002, the Compensation and Benefits Committee was comprised of Messrs R. Edward Flood, Kjeld Thygesen and Robert Hanson. Mr. Flood, as Deputy Chairman of the Company is an officer and employee of the Company. Messrs Thygesen and Hanson are both independent directors of the Company. Directors who were officers or employees of the Company during the financial year ended December 31, 2002, were: Mr. Robert Friedland - Chairman, Mr. R. Edward Flood - Deputy Chairman, Mr. Gordon L. Toll - Deputy Chairman, Mr. Daniel Kunz - President. REPORT ON EXECUTIVE COMPENSATION The Corporation's executive compensation program is administered by the Compensation and Benefits Committee. The basic philosophy underlying the Corporation's executive compensation program is that the interests of the Corporation's executive officers should be aligned as closely as possible with the interests of Ivanhoe 14 and its shareholders as a whole. Compensation for the Corporation's senior executive officers is, accordingly, designed to reflect the following considerations: to provide a strong incentive to management to achieve the Corporation's corporate goals each year; to ensure that the interests of management and of the Corporation's shareholders are aligned; and to enable the Corporation to attract, retain and motivate executives of the calibre necessary to successfully develop and operate the Corporation's business. The compensation that the Corporation's executive officers receive generally consists of cash, equity and equity incentives. Typically, base salary comprises the entire cash component of each senior executive officer's compensation. The Corporation does not maintain a pension plan or other long term compensation plan for its executive officers and, generally, does not pay cash bonuses. Compensation over and above base salary usually takes the form of incentive stock options but can also include bonus awards of fully paid common shares of the Corporation. The relative emphasis on the various compensation components is variable and tends not to be comparable year over year. Although the cash component of overall compensation tends to remain relatively consistent, the equity and equity incentive component, being entirely within the discretion of the board of directors, can fluctuate significantly from one year to another. Factors influencing the nature and scope of equity compensation and equity incentives awarded in a given year include: awards made in previous years and, particularly in the case of equity incentives, the number of stock options that remain outstanding and exercisable from grants in previous years and the exercise price and the remaining exercise term of those outstanding stock options. During 2002, the Corporation did not grant any incentive stock options to its executive officers. Accordingly, the relative emphasis in 2002 was entirely on cash compensation. The Corporation's compensation policy is based on the proposition that some element of the compensation for the Corporation's executive officers should be tied to the risks and rewards of owning the Corporation's common shares and that stock options can create a strong incentive to build shareholder value. The Compensation and Benefits Committee oversees and sets the general guidelines and principles for the compensation packages for senior management. As well, the Compensation and Benefits Committee assesses the individual performance of the Corporation's senior executive officers and makes recommendations to the board of directors. Based on these recommendations, the board of directors makes decisions concerning the nature and scope of the compensation to be paid to the Corporation's senior executive officers over and above their base salaries. Although the base salaries of executive officers may be reviewed from time to time on an ad hoc basis, the Compensation and Benefits Committee does not, as a matter of course, review base salaries on an annual basis. The specific relationship of corporate performance to executive compensation under the Corporation's executive compensation program is created exclusively through equity compensation mechanisms. Incentive stock options, which vest and become exercisable with the passage of time, link the bulk of the Corporation's equity-based executive compensation to shareholder return, measured by increases in the market price of the Corporation's common shares. From time to time, the Board of Directors also makes discretionary bonus awards of common shares to the Corporation's employees, including the Corporation's executive officers. Such awards are intended to recognize extraordinary contributions to the achievement of corporate objectives or the fulfillment of defined business development goals and milestones tied to pre-determined equity incentives. 15 The compensation paid to the Corporation's Chief Executive Officer for the fiscal year ended December 31, 2002 was based on the same basic factors and criteria used to determine executive compensation generally. The Corporation's former Chief Executive Officer left the Corporation in early 2003 to become the chief executive officer of an associated mining company in which the Corporation holds a significant interest. The cash compensation paid to the Corporation's former Chief Executive Officer reflected the Compensation and Benefits Committee's views as to what constituted a fair and reasonable base salary for an executive with his skills, expertise and experience having due regard to the nature and stage of development of the Corporation's business. In assessing the cash compensation paid to the Chief Executive Officer, the members of the Compensation Committee drew primarily upon their collective experience in the mining and mining finance industries industry experience. As a source of comparison, the Compensation and Benefits Committee reviewed the rates of publicly reported cash compensation paid to other chief executive officers of intermediate mining development and exploration companies considered by the Compensation and Benefits Committee to be the Corporation's industry peers. These companies included Bema Gold Corporation, Breakwater Resources Ltd., First Quantum Minerals Ltd. and Southernera Resources Limited. The cash compensation paid to our former Chief Executive Officer was in the median range of cash compensation paid to chief executive officers among the members of the Corporation's industry peer group. The Compensation and Benefits Committee did not use a peer comparison in assessing equity compensation. The Corporation's current Chief Executive Officer, who is also the Corporation's largest shareholder, does not receive a salary or any other cash compensation for acting as such. He is, however, eligible to receive equity compensation and equity incentives. The former Chief Executive Officer's compensation during 2002 consisted solely of base salary and standard employee benefits. He did not receive any cash or equity bonus nor any additional incentive stock options. Accordingly, there was no measurable relationship between the Corporation's performance, as reflected in the Corporation's share price, the Corporation's financial results or the development of the Corporation's business, and the former Chief Executive Officer's compensation. The value of the equity component of the Chief Executive Officer's compensation, consisting solely of incentive stock options granted before 2002, was exclusively determined with reference to the Corporation's performance as measured by the appreciation or decline in the market price of the Corporation's common shares. Submitted on behalf of the Compensation and Benefits Committee: R. Edward Flood Robert Hanson Kjeld Thygesen PERFORMANCE GRAPH The following graph compares the cumulative shareholder return on a $100 investment in Common Shares of the Corporation to a similar investment in companies comprising the S&P/TSX Total Return Index, including dividend reinvestment, for the period December 31, 1997 to December 31, 2002. 16 (LINE GRAPH) COMPENSATION OF DIRECTORS Currently no fixed compensation is paid to directors of the Corporation for acting as such, although all directors have been granted stock options. The directors may be reimbursed for actual expenses reasonably incurred in connection with the performance of their duties as directors. INDEBTEDNESS OF DIRECTORS AND OFFICERS Other than "routine indebtedness" as that term is defined in applicable securities legislation, no director or senior officer of the Corporation, or associate or affiliate of any such director or senior officer, is or has been indebted to the Corporation since the beginning of the last completed financial year of the Corporation. CORPORATE GOVERNANCE The Board considers good corporate governance practices as an important factor in the continued and long term success of the Corporation by helping to maximize shareholder value over time. The rules and policies of the TSX require corporations listed on the TSX to disclose their corporate governance practices with reference to a series of guidelines for effective corporate governance (the "TSX Guidelines") adopted by the TSX. 17 RECENT DEVELOPMENTS Canadian securities regulators and the TSX are currently engaged in a review of corporate governance standards applicable to Canadian public companies. In April of 2002, the TSX published for public comment proposed changes to its corporate governance standards. Following the enactment in the United States of the Sarbanes-Oxley Act of 2002, the TSX initiated a review of its proposed standards in light of new U.S. legislation. While the review continues, TSX-listed companies have been advised by the TSX to disclose their corporate governance practices against current TSX guidelines, although they may, at their discretion, provide additional disclosure in reference to the proposed amendments. The Canadian Securities Administrators have also undertaken a review of corporate governance requirements. The Ontario Securities Act has been amended effective April 7, 2003, granting the Ontario Securities Commission rule-making authority with respect to the functioning and responsibilities of audit committees and other certain corporate governance matters. The form of such rules has not yet been released. The ASX Corporate Governance Council has also recently released best practice recommendations for corporations listed on the ASX which will apply in respect of the Corporation's financial year commencing January 1, 2004. The Corporation has commenced reviewing its corporate governance practices against these recommendations. Although the introduction by the TSX of certain corporate governance listing standards (the "Proposed TSX Listing Standards") and certain amendments to its corporate governance guidelines (the "Proposed TSX Amendments") have not yet advanced past the proposal stage, the Corporation has begun the process of conforming its governance standards to those being proposed. The Corporation has recently undertaken a comprehensive review of its corporate governance practices in light of the developing TSX standards as well as the corporate governance and best practice standards in Canada, the U.S. and Australia. Consequently, the Board has recently; i. approved and adopted a new mandate for the Board; ii. created the position of "lead director" with specific responsibility for maintaining the independence of the Board and ensuring the Board carries out its responsibilities contemplated by the Proposed TSX Amendments; iii. appointed a Nominating and Corporate Governance Committee consisting solely of outside and unrelated directors (as such terms are defined in the TSX Guidelines and Proposed TSX Amendments); iv. determined to make a change to the directors appointed to the Compensation and Benefits Committee to consist solely of outside unrelated directors, such change to be made upon the election or appointment of an additional outside independent director to the Board; v. commissioned each of the Corporation's board committees, being the Audit Committee, the Compensation and Benefits Committee and the Nominating and Corporate Governance Committee, to formalize their mandates in charters for approval by the Board; vi. formalized the Company's existing management committee responsible for disclosure matters as the Corporation's Disclosure Committee, with the mandate to oversee the Corporation's disclosure practices; and 18 vii. determined to adopt a formal Code of Business Conduct and Ethics and for the Corporation that governs the behavior of directors, officers and employees. BOARD COMPOSITION The TSX Guidelines recommend that a majority of the directors of a corporation be "unrelated" directors. An "unrelated" director is a director who is independent of management and is free from any interest and any business or other relationship which could, or could reasonably be perceived to, materially interfere with the director's ability to act with a view to the best interests of the corporation, other than interests and relationships arising from shareholding. The Proposed TSX Amendments provide that an unrelated director is an outside director (being a director that is not a member of management) and is free from any interest and any business, family or other relationship which could reasonably be perceived to materially interfere with the director's ability to act with a view to the best interests of the issuer other than interests and relationships arising solely from holdings in the issuer; and who (a) is not currently, or has not been within the last three years, an officer, employee of or material service provider to the issuer or any of its material subsidiaries or affiliates; and (b) is not an officer, employee or controlling shareholder of an entity that has a material business relationship with the issuer. A total of seven persons have been nominated for election as directors at the Meeting. The Board has determined that if all such nominees are elected, the Board will consist of four unrelated directors in John Weatherall, Markus Faber, Robert Hanson and Kjeld Thygesen and three related directors in Robert Friedland, Ed Flood and Gordon Toll, applying the definitions in both the TSX Guidelines and the Proposed TSX Amendments. Each of Messrs. Friedland, Flood and Toll are related directors in their capacities as senior officers of the Corporation and/or one or more of its subsidiaries and members of management. The TSX Guidelines provide that if an issuer has a significant shareholder which the TSX Guidelines define as "a shareholder with the ability to exercise a majority of the votes for the election of the Board of Directors", in addition to a majority of unrelated directors, the Board should include a number of directors who do not have interests in or relationships with either the Corporation or the significant shareholder and which fairly reflects the investment in the Corporation by shareholders other than the significant shareholder. The Corporation does not have a "significant shareholder", as defined in the TSX Guidelines. However, the Chairman and Chief Executive Officer of the Corporation holds approximately 44.44% of the Corporation's voting securities as of the date of this Circular. The Board has determined that the Corporation currently has four of seven directors in John Weatherall, Markus Faber, Robert Hanson and Kjeld Thygesen, who are unrelated as such term is defined under the TSX Guidelines and the Proposed TSX Amendments to both the Corporation and its Chairman and Chief Executive Officer. Accordingly, if the shareholders elect the individuals proposed for election in the Circular, four of the seven members of the Board shall be unrelated. The directors of the Corporation are satisfied with the size and composition of the Board and believe that the current Board composition results in a balanced representation on the Board of Directors among management, unrelated directors, the Corporation's major shareholder. While the board functions effectively given the Corporation's stage of 19 development and the size and complexity of its business, the Board, through its Nominating and Corporate Governance Committee, will continue to seek qualified candidates to augment its experience and expertise and to enhance the Corporation's ability to effectively develop its business interests. MANDATE OF THE BOARD Under the Business Corporations Act (Yukon), the directors of the Corporation are required to manage the Corporation's business and affairs, and in doing so to act honestly and in good faith with a view to the best interests of the Corporation. In addition, each director must exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances. The Board of Directors is responsible for supervising the conduct of the Corporation's affairs and the management of its business. The Board's mandate includes setting long term goals and objectives for the Corporation, to formulate the plans and strategies necessary to achieve those objectives and to supervise senior management in their implementation. Although the Board delegates the responsibility for managing the day to day affairs of the Corporation to senior management personnel, the Board retains a supervisory role in respect of, and ultimate responsibility for, all matters relating to the Corporation and its business. The Board's mandate requires that the Board be satisfied that the Corporation's senior management will manage the affairs of the Corporation in the best interest of the shareholders, in accordance with the Corporation's principles, and that the arrangements made for the management of the Corporation's business and affairs are consistent with their duty described above. The Board is responsible for protecting shareholder interests and ensuring that the incentives of the shareholders and of management are aligned. The obligation of the Board must be performed continuously, and not merely from time to time, and in times of crisis or emergency the Board may have to assume a more direct role in managing the affairs of the Corporation. In discharging this responsibility, the Board's mandate provides that the Board oversees and monitors significant corporate plans and strategic initiatives. The Board's strategic planning process includes annual and quarterly budget reviews and approvals, and discussions with management relating to strategic and budgetary issues. The Board also devotes at least one meeting per year to be devoted substantially to review of strategic plans proposed by management. The Board reviews the principal risks inherent in the Corporation's business, including financial risks through periodic reports from management of such risks, in conjunction with its review of operations and risk issues at each Board meeting, at which time the Board assesses the systems established to manage those risks. Directly and through the Audit Committee, the Board also assesses the integrity of the internal financial control and management information systems. In addition to those matters that must, by law, be approved by the Board, the Board is required under its mandate to approve annual operating and capital budgets, any material dispositions, acquisitions and investments outside of the ordinary course of business or not provided for in the approved budgets, long-term strategy, organizational development plans and the appointment of senior executive officers. Management is authorized to act, without Board approval, on all ordinary course matters relating to the Corporation's business. 20 The mandate provides that the Board also expects management to provide the directors on a timely basis with information concerning the business and affairs of the Corporation, including financial and operating information and information concerning industry developments as they occur, all with a view to enabling the Board to discharge its stewardship obligations effectively. The Board expects management to efficiently implement its strategic plans for the Corporation, to keep the Board fully apprised of its progress in doing so and to be fully accountable to the Board in respect to all matters for which it has been assigned responsibility. The Board has instructed management to maintain procedures to monitor and promptly address shareholder concerns and has directed and will continue to direct management to apprise the Board of any major concerns expressed by shareholders. Each Committee of the Board is empowered to engage external advisors as it sees fit. Any individual director is entitled to engage an outsider advisor at the expense of the Corporation provided such director has obtained the approval of the Nominating and Corporate Governance Committee to do so. MEETINGS OF THE BOARD The Board holds regular annual and quarterly meetings. Between the quarterly meetings, the board meets as required, generally by means of telephone conferencing facilities. As part of the annual and quarterly meetings, the independent directors also have the opportunity to meet separate from management. Management also communicates informally with members of the Board on a regular basis, and solicits the advice of the Board members on matters falling within their special knowledge or experience. BOARD COMMITTEES The Corporation has an Audit Committee, a Compensation and Benefits Committee and a Nominating and Corporate Governance Committee. AUDIT COMMITTEE The mandate of the Audit Committee is to oversee the Corporation's financial reporting obligations, systems and disclosure, including monitoring the integrity of the Corporation's financial statements, monitoring the independence and performance of the Corporation's external auditors and acting as a liaison between the Board and the Corporation's auditors. The activities of the Audit Committee typically include reviewing interim financial statements and annual financial statements, ensuring that internal controls over accounting and financial systems are maintained and that accurate financial information is disseminated to shareholders, reviewing the results of internal and external audits and any change in accounting procedures or policies, and evaluating the performance of the Corporation's auditors. The Audit Committee communicates directly with the Corporation's external auditors in order to discuss audit and related matters whenever appropriate. The Audit Committee currently consists of Messrs. Faber, Weatherall and Thygesen, all of whom are outside directors, as required by the TSX Guidelines and unrelated directors, as contemplated by the Proposed TSX Listing Standards and the Proposed TSX Amendments. 21 COMPENSATION AND BENEFIT COMMITTEE The role of the Compensation Committee is primarily to review the adequacy and form of compensation of senior management and the directors with such compensation realistically reflecting the responsibilities and risks of such positions, to administer the Corporation's Employees' and Directors' Equity Incentive Plan, to determine the recipients of, and the nature and size of share compensation awards granted from time to time and to determine the remuneration of executive officers and to determine any bonuses to be awarded. The Compensation and Benefits Committee currently consists of Messrs. Thygesen, Hanson and Flood, of which Messrs. Thygesen and Hanson are unrelated directors, and Mr. Flood is a related director. The Board has determined to appoint a new unrelated director in the place of Mr. Flood on this committee, such change to be made once an additional outside independent director is elected or appointed to the Board. Once this occurs, the composition of the Compensation and Benefits Committee will align with the Proposed TSX Amendments. NOMINATING AND CORPORATE GOVERNANCE COMMITTEE The Corporate Governance Committee is responsible for making recommendations to the Board with respect to developments in the area of corporate governance and the practices of the Board. Consistent with the Proposed TSX Guidelines, the Nominating and Corporate Governance Committee has expressly assumed responsibility for developing the Corporation's approach to governance issues. The Committee is also responsible for reporting to the Board with respect to appropriate candidates for nominations to the Board, for overseeing the execution of an assessment process appropriate for the Board and its committees for evaluating the performance and effectiveness of the Board. The Nominating and Corporate Governance Committee of the Board currently consists of Messrs. Weatherall, Hanson, and Thygesen of which Messrs. Thygesen is chairman of the committee, in addition to being the Corporation's lead director. All of such directors are outside unrelated directors. ALIGNMENT WITH THE EXCHANGE GUIDELINES OF THE TSX The Corporation's statement of corporate governance practices is set out in Schedule "C" to this Circular. In addition to indicating how the Corporation's governance practices align with the TSX Corporate Governance Guidelines ("TSX Guidelines"), the statement describes those governance practices with reference to the Proposed TSX Listing Standards and the Proposed TSX Amendments. OTHER BUSINESS Management of the Corporation is not aware of any matter to come before the Meeting other than the matters referred to in the Notice of the Meeting. 22 DIRECTORS' APPROVAL The contents of this Management Proxy Circular and its distribution to shareholders have been approved by the Board of Directors of the Corporation. DATED at Vancouver, British Columbia, as of the 15th day of April, 2003. BY ORDER OF THE BOARD "BEVERLY A. BARTLETT" CORPORATE SECRETARY 23 SCHEDULE "A" TSX CODE PROVISIONS SCOPE OF THE PRIVATE PLACEMENT REQUIREMENTS SEC. 618. The Exchange defines the term "private placement" as an issuance of treasury securities without prospectus disclosure, in reliance on the exempting provisions of clause (b) of section 72(1) of the Ontario Securities Act, or section 2.3 of Ontario Securities Commission Rule 45-501, Exempt Distributions, or equivalent legislation of another jurisdiction. In certain circumstances, however, the Exchange may consider it appropriate to apply the rules set out in Sections 619 to 622 to other types of transactions. Sections 619 to 621 are not applicable to private placements of securities which are neither of a class listed on the Exchange nor convertible into securities of a class listed on the Exchange. Sections 619, 620 and 622 are not necessarily applicable to private placement transactions which, in the opinion of the Exchange, have not been negotiated at arm's length. Each non-arm's length transaction is considered on its own merits. SIZE OF TRANSACTION SEC. 620. (a) Subject to paragraphs (b) and (c), the aggregate number of securities of a listed issue which are issued or made subject to issuance pursuant to private placement transactions during any six-month period must not exceed 25% of the number of securities of the issue which are outstanding (on a non-diluted basis) prior to giving effect to such transactions. (b) The Exchange will give consideration to requests by listed companies to exceed the 25% limit referred to in paragraph (a), but only on condition that approval of the shareholders be obtained. (c) If the listed company has more than one outstanding class of participating securities, the Exchange may, in appropriate circumstances, regard the separate classes as a single class for the purposes of paragraph (a). (d) In the case of a private placement of convertible securities, or where warrants are issued to a private placement purchaser, the underlying securities will be regarded as being "subject to issuance", for the purposes of paragraph (a), at the time of the closing of the private placement transaction, regardless of when the right of conversion or exercise commences. (e) Where the number of securities of a listed issue which would be issued or made subject to issuance pursuant to a proposed private placement transaction (or series of related transactions) would exceed 100% of the number of securities of the issue which are outstanding (on a non-diluted basis) prior to giving effect to the transaction, reference should be made to Sections 699.10 to 699.15 respecting "backdoor listings". 24 SCHEDULE "B" SECTION 7.1 TO 7.5 OF ASX RULES ISSUES EXCEEDING 15% OF CAPITAL 7.1 Without the approval of holders of ordinary securities, an entity must not issue or agree to issue more equity securities than the number calculated according to the following formula. (A x B) - C A = The number of fully paid ordinary securities on issue 12 months before the date of issue or agreement, o plus the number of fully paid ordinary securities issued in the 12 months under an exception in rule 7.2, o plus the number of partly paid ordinary securities that became fully paid in 12 months, o plus the number of fully paid ordinary securities issued in the 12 months with approval of holders of ordinary securities under this rule, o less the number of fully paid ordinary securities cancelled in the 12 months. B = 15% C = The number of equity securities issued or agreed to be issued in the 12 months before the date of issue or agreement to issue but not under an exception in rule 7.2 or with approval under this rule. 7.1.1 - 7.1.3 [REPEALED] 7.1.4 In working out the number of equity securities that an entity may issue or agree to issue, and the number of equity securities in "C", the following rules apply. (a) If the equity securities are fully paid ordinary securities, each security is counted as one. (b) If the equity securities are convertible into ordinary securities or are partly paid securities, each security is counted as the maximum number of fully paid ordinary securities into which it can be converted or paid up. (c) In any other case, each security is counted as ASX decides. 7.1.5 The following rules apply regarding issues of equity securities or agreements to issue equity securities. (a) An agreement to issue equity securities that is conditional on holders of ordinary securities approving the issue before the issue is made is not 25 treated as an agreement. If an entity relies on this rule it must not issue the equity securities without approval. (b) In working out if there is an issue of equity securities the sale or reissue of forfeited equity securities is treated as an issue of equity securities. 7.1.6 In working out the number of fully paid ordinary securities on issue 12 months before the date of issue or agreement in "A", if first quotation of the entity's securities occurred less than 12 months before the date of issue or agreement, the number of securities is the number of fully paid ordinary securities on issue on the date of first quotation. EXCEPTIONS TO RULE 7.1 7.2 Rule 7.1 does not apply in any of the following cases. Exception 1 An issue to holders of ordinary securities made under a pro rata issue and to holders of other equity securities to the extent that the terms of issue of the equity securities permit participation in the pro rata issue. Exception 2 An issue under an underwriting agreement to an underwriter of a pro rata issue to holders of ordinary securities if the underwriter receives the securities within 15 business days after the close of the offer. Exception 3 An issue to make up the shortfall on a pro rata issue to holders of ordinary securities. The entity must make the issue within 3 months after the close of the offer, and the directors of the entity (in the case of a trust, the responsible entity or management company) must have stated as part of the offer that they reserve the right to issue the shortfall at their discretion. The issue price must not be less than the price at which the securities were offered under the pro rata issue. Exception 4 An issue on the conversion of convertible securities. The entity must have issued the convertible securities before it was listed or complied with the listing rules when it issued the convertible securities. Exception 5 An issue under an off-market bid that is required to comply with the Corporations Act or under a merger by way of scheme of arrangement under Part 5.1 of the Corporations Act. Exception 6 An issue to fund the cash consideration in any of the following circumstances if the terms of the issue are disclosed in the takeover or scheme documents. o An off-market bid that is required to comply with the Corporations Act, when the offer becomes unconditional. o A market bid that is required to comply with the Corporations Act, when the market bid is announced under section 635 of the Corporations Act. o A merger by way of scheme of arrangement under Part 5.1 of the Corporations Act, when the arrangement is approved by the court under section 411(4) of the Corporations Act. 26 Exception 7 An issue under a dividend or distribution plan, excluding an issue to the plan's underwriters. Exception 7 is only available in the following cases. (a) In the case of a plan that was established before the entity was listed - a summary of the plan's terms was set out in the prospectus or information memorandum. (b) In the case of a plan that was established after the entity was listed - the plan's terms were approved by holders of ordinary securities. Exception 8 [REPEALED] Exception 9 An issue under an employee incentive scheme if within 3 years before the date of issue one of the following occurred. (a) In the case of a scheme established before the entity was listed - a summary of the terms of the scheme were set out in the prospectus, Product Disclosure Statement or information memorandum. (b) Holders of ordinary securities have approved the issue of securities under the scheme as an exception to this rule. The notice of meeting must have included each of the following. o A summary of the terms of the scheme. o The number of securities issued under the scheme since the date of the last approval. o A voting exclusion statement. (c) The scheme was approved by holders or ordinary securities under rule 7.37 or 7.38. Exception 10 An issue of preference shares which do not have any rights of conversion into another class of equity security. The preference shares must comply with chapter 6. Exception 11 The reissue or sale of forfeited shares within 6 weeks after the day on which the call was due and payable. Exception 12 An issue on the exercise of options to an underwriter of the exercise. Exception 12 is only available if each of the following applies. (a) The entity complied with the listing rules when it issued the options. (b) The underwriter receives the underlying securities within 10 business days after expiry of the options. (c) The underwriting agreement was disclosed under rule 3.11.3. Exception 13 An issue under an agreement to issue securities. The entity must have complied with the listing rules when it entered into the agreement to issue the securities. 27 Exception 14 An issue made with the approval of holders of ordinary securities under listing rule 10.11. The notice of meeting must state that if approval is given under listing rule 10.11, approval is not required under listing rule 7.1. NOTICE REQUIREMENTS FOR APPROVAL UNDER RULE 7.1 AND 7.1.5(a) 7.3 For the holders of ordinary securities to approve an issue or agreement to issue, the notice of meeting must include each of the following. 7.3.1 The maximum number of securities the entity is to issue (if known) or the formula for calculating the number of securities the entity is to issue. 7.3.2 The date by which the entity will issue the securities. The date must be no later than 3 months after the date of the meeting. However, if court approval of a reorganization of capital (in the case of a trust, interests) is required before the issue, the date must be no later than 3 months after the date of court approval. 7.3.3 The issue price of the securities, which must be either: o A fixed price; or o A minimum price. The minimum price may be fixed or a stated percentage that is at least 80% of the average market price for securities in that class. The average is calculated over the last 5 days on which sales in the securities were recorded before the day on which the issue was made or, if there is a prospectus, Product Disclosure Statement or offer information statement relating to the issue, over the last 5 days on which sales in the securities were recorded before the date the prospectus, Product Disclosure Statement or offer information statement is signed. 7.3.4 The names of the allottees (if known) or the basis upon which allottees will be identified or selected. 7.3.5 The terms of the securities. 7.3.6 The intended use of the funds raised. 7.3.7 The dates of allotment or a statement that allotment will occur progressively. 7.3.8 A voting exclusion statement. This does not apply if the issue is part of a public offer of equity securities and the notice of meeting states each of the following. (a) The entity will offer securities to all holders of ordinary securities in priority to anyone else, and will issue them in a fair and equitable manner. (b) Apart from an agreement for the allotment of securities, the entity will limit the number of securities it issues to a holder of ordinary securities to the higher of 5% of all the securities being offered 28 and the number the holder would be entitled to under a pro rata issue of all those securities. 7.3.9 In the case of an agreement for the allotment of securities which is part of a public offer, a voting exclusion statement in relation to a party to the agreement, and an adequate summary of the agreement. SUBSEQUENT APPROVAL OF AN ISSUE OF SECURITIES 7.4 An issue of securities made without approval under rule 7.1 is treated as having been made with approval for the purpose of rule 7.1 if each of the following apply. 7.4.1 The issue did not breach rule 7.1. 7.4.2 Holders of ordinary securities subsequently approve it. 7.5 For the holders to approve the issue subsequently, the notice of meeting must include each of the following. 7.5.1 The number of securities allotted. 7.5.2 The price at which the securities were issued. 7.5.3 The terms of the securities. 7.5.4 The names of the allottees or the basis on which allottees were determined. 7.5.5 The use (or intended use) of the funds raised. 7.5.6 A voting exclusion statement. 29 SCHEDULE "C" STATEMENT OF CORPORATE GOVERNANCE PRACTICES The Corporation's Statement of Corporate Governance Practices is set out below. In addition to indicating how the Corporation's governance practices align with the TSX Corporate Governance Guidelines ("TSX Guidelines"), the statement describes those governance practices with reference to the Proposed TSX Listing Standards and the Proposed TSX Amendments.
DOES THE CORPORATION TSX CORPORATE GOVERNANCE GUIDELINE ALIGN? COMMENTS ----------------------------------- ------------ --------------------------------------- 1. Mandate of the Board The board of directors of every Yes The Board of Directors has assumed corporation should explicitly assume responsibility for the stewardship of responsibility for stewardship of the the Corporation and has adopted a corporation. formal mandate (as described above) setting out its stewardship responsibilities, as contemplated by the Proposed TSX Amendments. As part of the overall stewardship responsibility, the Board should assume responsibility for the following matters: (a) adoption of a strategic Yes In April 2003, the Board adopted a planning process; strategic planning process which involves, among other things, the following: (a) at least one meeting per year will be devoted substantially to review of strategic plans that are proposed by management; (b) meetings of the Board, at least quarterly, to discuss strategic planning issues, with and without members of management; (c) the Board reviews and assists management in forming short and long term objectives of the Corporation on an ongoing basis; (d) the Board also maintains
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DOES THE CORPORATION TSX CORPORATE GOVERNANCE GUIDELINE ALIGN? COMMENTS ----------------------------------- ------------ --------------------------------------- oversight of management's strategic planning initiatives through annual and quarterly budget reviews and approvals. The strategic planning process adopted by the Board takes into account, among other things, the opportunities and risks of the business. (b) the identification of the principal Yes In order to ensure that the principal risks of the Corporation's business business risks borne by the and ensuring the implementation of Corporation are identified and appropriate systems to manage these appropriately managed, the Board risks; receives periodic reports from management of the Corporation's assessment and management of such risks. In conjunction with its review of operations which takes place at each Board meeting, the Board considers risk issues and approves corporate policies addressing the management of the risk of the Corporation's business. (c) succession planning, including Yes The Board takes ultimate appointing, training and monitoring responsibility for the appointment and senior management; monitoring of the Corporation's senior management. The Board approves the appointment of senior management and reviews their performance on an ongoing basis. (d) a communication policy for the Yes The Corporation has a disclosure corporation; policy addressing, among other things, how the Corporation interacts with analysts and the public, and contains measures for the Corporation to avoid selective disclosure. Effective April 9, 2003, the Board has established a Disclosure Committee responsible for overseeing the Corporation's disclosure practices. This committee consists of the Chief
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DOES THE CORPORATION TSX CORPORATE GOVERNANCE GUIDELINE ALIGN? COMMENTS ----------------------------------- ------------ --------------------------------------- Executive Officer, the Chief Financial Officer, the Corporate Secretary and senior Corporate Communications and Investor Relations Department personnel, and receives advice from the Corporation's outside legal counsel. The Disclosure Committee will establish benchmarks for a preliminary assessment of materiality and determines when developments justify public disclosure. The committee will review the disclosure policy annually and as otherwise needed to ensure compliance with regulatory requirements. The Board reviews and approves the Corporation's material disclosure documents, including its annual report, annual information form and management proxy circular. The Corporation's annual and quarterly financial statements, Management's Discussion and Analysis and other financial disclosure is reviewed by the Audit Committee and recommended to the Board prior to its release. (e) the integrity of the corporation's Yes The Audit Committee has the internal control and management responsibility to monitor and assess information systems. the integrity of the Corporation's internal controls and management information systems, review them with management and the Corporation's external auditors, and report to the Board with respect thereto. 2/3. Composition of the Board The board of directors of every of Yes At the date of this Circular, four of corporation should be constituted the seven members of the Board
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DOES THE CORPORATION TSX CORPORATE GOVERNANCE GUIDELINE ALIGN? COMMENTS ----------------------------------- ------------ --------------------------------------- with a majority of individuals who of Directors are "unrelated", both as qualify as unrelated directors. that term is defined in the existing TSX Guidelines and as it is defined in the Proposed TSX Amendments, as more particularly described below. At least two directors are unrelated, as contemplated by the Proposed TSX Listing Standards. The definitions are as follows: (TSX Guidelines) - a director who is independent of management and is free from any interest and any business or other relationship which could, or reasonably be perceived to, materially interfere with the directors ability to act with a view to the best interest of the company, other than interests and relationships arising from shareholding. (Proposed TSX Amendments) - an outside director who is not a member of management and is free from any interest and any business, family or other relationship which could reasonably be perceived to materially interfere with the director's ability to act with a view to the best interests of the issuer, other than interests and relationships arising solely from holdings in the issuer; and who (a) is not currently, or has not been within the last three years, an officer, employee of or material service provider to the issuer or any of its subsidiaries or affiliates; and (b) is not an officer, employee or controlling shareholder of an entity that has a material business relationship with the issuer.
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DOES THE CORPORATION TSX CORPORATE GOVERNANCE GUIDELINE ALIGN? COMMENTS ----------------------------------- ------------ --------------------------------------- A "related director" is a director who is not an unrelated director or is a member of management. If the corporation has a significant Yes The TSX Guidelines define "significant shareholder, in addition to a majority of shareholder" to mean a shareholder unrelated directors, the board should with the ability to exercise a include a number of directors who do not majority of the votes for the election have interests in or relationships with of the board of directors. The either the corporation or the significant Corporation does not have a shareholder and which fairly reflects the "significant shareholder" as so investment in the corporation by defined. However, the Chairman and the shareholders other than the significant Chief Executive Officer of the shareholder. Corporation holds approximately 44.44% of the Corporation's voting securities as at the date of this Circular. The Corporation has four of seven directors who are "unrelated" (as defined under the existing TSX Guidelines under the Proposed TSX Amendments) to both the Corporation and its Chairman and Chief Executive Officer. Disclose for each director whether he or she Messrs. Friedland, Flood and Toll, as is related, and how that conclusion was senior officers of the Corporation reached. and/or one or more of its subsidiaries and members of management, are considered to be related directors. Messrs. Weatherall, Faber, Hanson and Thygesen are considered to be unrelated directors, both as defined in the TSX Guidelines and in the proposed TSX Amendments, as set forth above. The Board has determined that they are not members of and independent of management, and are free from any interest and any business, family or other relationship which could, or could reasonably be perceived to, materially interfere with their ability to act with a view to the best interests of the Corporation, other than interests
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DOES THE CORPORATION TSX CORPORATE GOVERNANCE GUIDELINE ALIGN? COMMENTS ----------------------------------- ------------ --------------------------------------- and relationships arising solely from shareholdings in the Corporation, and who are not currently and have not been within the last three years, officers, employees or material service providers to the Corporation or any of its subsidiaries or affiliates, or officers, employees or controlling shareholders of an entity that has a material business relationship with the Corporation. 4. Nominating/Corporate Governance Committee The board of directors of every corporation Yes The Board has appointed a Nominating should appoint a committee of directors and Corporate Governance Committee, composed exclusively of outside (i.e. effective April 9 2003, consisting of non-management) directors, with the Messrs. Hanson, Weatherall and responsibility of proposing to the full Thygesen, all of whom are outside board new nominees to the board and for unrelated directors. The full Board assessing directors on an ongoing basis. will determine, in light of the opportunities and risks facing the Corporation, what competencies, skills and personal qualities it should seek in new Board members in order to add value to the Corporation. Based on this framework, the Nominating and Corporate Governance Committee has responsibility for approaching and proposing to the full Board new nominees to the Board, and for assessing directors on an ongoing basis. 5. Board Assessment Every board of directors should implement a Yes The Nominating and Corporate process to be carried out by the nominating Governance Committee is charged with committee or other appropriate committee for the responsibility for developing and assessing the effectiveness of the board, as recommending to the Board, and a whole, the committees of the board and the overseeing the execution of, a process contribution of individual directors. for assessing the effectiveness of the Board as a whole, the committees of the Board and the
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DOES THE CORPORATION TSX CORPORATE GOVERNANCE GUIDELINE ALIGN? COMMENTS ----------------------------------- ------------ --------------------------------------- contribution of individual directors, on an annual basis. The Nominating and Corporate Governance Committee is currently developing an assessment process appropriate for the Board and each of its committees. 6. Orientation and Education Every corporation, as an integral element of Yes The Corporation takes steps to ensure the process of appointing new directors, that prospective directors fully should provide an orientation and education understand the role of the Board and program for new recruits to the board. its committees and the contribution individual directors are expected to make, including in particular the commitment of time and energy that the Corporation expects of its directors. New directors are provided with a comprehensive information package, including pertinent corporate documents and a director's manual containing information on the duties, responsibilities and liabilities of directors. New directors are also briefed by management as to the status of the Corporation's business. Directors are provided with the opportunity to make site visits to the Corporation's properties. Management and outside advisors provide information and education sessions to the Board and its committees on s continuing basis as necessary to keep the directors up-to-date with the Corporation, its business and the environment in which it operates as well as with developments in the responsibilities of directors, as contemplated by the Proposed TSX Amendments.
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DOES THE CORPORATION TSX CORPORATE GOVERNANCE GUIDELINE ALIGN? COMMENTS ----------------------------------- ------------ --------------------------------------- 7. Size and Composition of the Board Every board of directors should examine its Yes The directors of the Corporation have size and undertake, where appropriate, a reviewed the size of the Board and program to establish a board size which believe that the current Board facilitates effective decision-making. composition results in a balanced representation on the Board of Directors among management, unrelated directors and the Corporation's major shareholder. While the Board functions effectively, given the Corporation's stage of development and the size and complexity of its business, the Board, through its Nominating and Corporate Governance Committee, will continue to seek additional qualified candidates to augment its experience and expertise and to enhance the Corporation's ability to effectively develop its business interests. The Nominating and Corporate Governance Committee will continue to examine the size and composition of the Board and recommend adjustments from time to time to ensure that the Board continue to be of a size that facilitates effective decision-making. 8. Compensation The board of directors should review the Yes The Corporation's directors receive no adequacy and form of compensation of cash compensation for acting as directors and ensure the compensation directors. Directors of the realistically reflects the responsibilities Corporation are compensated primarily and risk involved in being an effective through the grant of stock options. director.
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DOES THE CORPORATION TSX CORPORATE GOVERNANCE GUIDELINE ALIGN? COMMENTS ----------------------------------- ------------ --------------------------------------- The Board acts through its Compensation and Benefits Committee to review the adequacy and form of compensation of the directors and ensure that such compensation realistically reflects the responsibilities and risk involved in being an effective director. The members of the Compensation Committee are Messrs. Flood, Thygesen and Hanson. Messrs. Thygesen and Hanson are unrelated directors and Mr. Flood is an inside director. At the date of this Circular, the Compensation and Benefits Committee does not consist solely of unrelated directors and accordingly, does not align with the Proposed TSX Amendments. However, the Board has determined to appoint a new unrelated director in the place of Mr. Flood on this committee, such change to be made once an additional outside independent director is elected or appointed to the Board. Once this occurs, the composition of the Compensation and Benefits Committee will align with the Proposed TSX Amendments. 9. Composition of Committees Committees of the board of directors Yes The Board of Directors has established should generally be composed of outside three standing committees of directors (i.e. non-management) directors, the (the Audit Committee, the Compensation majority of whom are unrelated and Benefits Committee and the directors, although some board Nominating and Corporate Governance committees may include one or more Committee), each of which is comprised inside directors. entirely of outside unrelated directors, with the exception of the Compensation and Benefits Committee, which currently has one inside director as described under Item 8 above.
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DOES THE CORPORATION TSX CORPORATE GOVERNANCE GUIDELINE ALIGN? COMMENTS ----------------------------------- ------------ --------------------------------------- 10. Governance Committee Every board of directors should assume Yes The Nominating and Corporate responsibility for, or assign to a Governance Committee is responsible committee of directors, the general for making recommendations to the responsibility for, developing the Board relating to the Corporation's corporation's approach to governance approach to corporate governance and issues. This committee would, among the Corporation's response to the TSX other things, be responsible for the Guidelines. corporation's response to the TSX Guidelines. 11. Position Descriptions Yes The Board of Directors has adopted a formal mandate for the Board, as The board of directors, together with stated in Item 1, and is developing a the CEO, should develop position formal position description for the descriptions for the Board and for the CEO. The Board of Directors requires CEO, including the definition of limits management to obtain the Board of to management's responsibilities. Directors' approval for all significant decisions, including major financings, acquisitions, dispositions, budgets and capital expenditures. The Board of Directors expects management to keep it aware of the Corporation's performance and events affecting the Corporation's business, including opportunities in the marketplace and adverse or positive developments. The Board of Directors retains responsibility for any matter that has not been delegated to senior management or to a committee of directors. In addition, the board should approve Yes The Board of Directors is developing or develop the corporate objectives, specific financial and business which the CEO is responsible for objectives for the Corporation, which meeting. will be used as a basis for measuring the performance of the CEO. 12. Procedures to Ensure Independence Every board of directors should Yes Mr. Friedland, the Corporation's implement structures and procedures President and Chief Executive Officer, which ensure that the currently serves as
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DOES THE CORPORATION TSX CORPORATE GOVERNANCE GUIDELINE ALIGN? COMMENTS ----------------------------------- ------------ --------------------------------------- Chairman of the Board of board can function independently of Directors. The Board of management. An appropriate structure would Directors is of the view that be to (i) appoint a chair of the board who appropriate structures and procedures is not a member of management with are in place to allow the Board to responsibility to ensure the board function independently of management discharges its responsibilities or (ii) while continuing to provide the assign this responsibility to an Corporation with the benefit of having outside director, sometimes referred to a Chairman of the Board with extensive as the "lead director". The chair or experience and knowledge of the lead director should ensure that the Corporation's business. board carries out its responsibilities effectively which will involve the The Board has created the position of board meeting on a regular basis lead director effective April 9, 2003 without management present and may with specific responsibility for involve assigning the responsibility maintaining the independence of the for administering the board's Board and ensuring that the Board relationship to management to a carries out its responsibilities as committee of the board. contemplated by the Proposed TSX Amendments. Mr. Thygesen, who also serves as chair of the Nominating and Corporate Governance Committee, has been appointed as lead director. The Nominating and Corporate Governance Committee also provides a forum without management being present to receive any expression of concern from a director, including a concern regarding the independence of the Board from management. The Board sets aside a portion of each regularly scheduled meeting to discuss any issues without management directors being present. In addition, all committees meet without management or related directors being present at the request of any directors.
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DOES THE CORPORATION TSX CORPORATE GOVERNANCE GUIDELINE ALIGN? COMMENTS ----------------------------------- ------------ --------------------------------------- 13. Composition of the Audit Committee The audit committee of every board of Yes The Audit Committee is composed only directors should be composed only of of outside directors (as required by outside directors. the TSX Guidelines), all of whom are also unrelated directors, as contemplated by the Proposed TSX Listing Standards and the Proposed TSX Amendments. The Board has determined that all members of the Audit Committee are financially literate, as contemplated by the Proposed TSX Amendments, since each member has the ability to read and understand a balance sheet, an income statement, a cash flow statement and the notes attached thereto. The Board has determined that at least one member of the Audit Committee has accounting or related financial expertise, as contemplated by the Proposed TSX Amendments, being the ability to analyse and interpret a full set of financial statements, including the notes thereto, in accordance with Canadian generally accepted accounting principles. The roles and responsibilities of the audit Yes The mandate of the Audit Committee committee should be specifically defined includes the overseeing of the so as to provide appropriate guidance to Corporation's financial reporting audit members as to their duties. obligations, systems and disclosure, including monitoring the integrity of the Corporation's financial statements, monitoring the independence and performance of the Corporation's external auditors and acting as a liaison between the Board and the Corporation's auditors. The activities of the Audit Committee
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DOES THE CORPORATION TSX CORPORATE GOVERNANCE GUIDELINE ALIGN? COMMENTS ----------------------------------- ------------ --------------------------------------- include reviewing the Corporation's interim financial statements and annual financial statements and Management's Discussion and Analysis, ensuring that internal controls over accounting and financial systems are maintained and that accurate financial information is disseminated to shareholders, reviewing the results of audits and any change in accounting procedures or policies, and evaluating the performance of the Corporation's auditors. An Audit Committee charter is in the process of preparation for the approval of the Board which will codify the existing mandate of the Audit Committee to, and specifically define its relationship with, and expectations of, the external auditors, including the establishment of the independence of the external auditor and the approval of any non-audit mandates of the external auditor; the engagement, evaluation, remuneration and termination of the external auditor; its relationship with, and expectations of, the internal auditor function and its oversight of internal control; and the disclosure of financial and related information. The Board will review and reassess the adequacy of the Audit Committee charter on an annual basis, all as contemplated by the Proposed TSX Listing Standards and the Proposed TSX Amendments. The audit committee should have direct Yes The Audit Committee has regular access communication channels with the to the Chief Financial Officer of the internal and the external auditors to Corporation. The external auditors discuss and review specific issues as regularly attend all meetings of the appropriate. Audit Committee. At each meeting of
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DOES THE CORPORATION TSX CORPORATE GOVERNANCE GUIDELINE ALIGN? COMMENTS ----------------------------------- ------------ --------------------------------------- the Audit Committee, a portion of the meeting is set aside to discuss matters with the external auditors without management being present. In addition, the Audit Committee has the authority to call a meeting with the external auditors without management being present, at the Committee's discretion. Audit Committee duties should include Yes The Audit Committee oversees oversight responsibility for management management reporting on the reporting on internal control. While it Corporation's internal controls and is management's responsibility to annually reviews management's system design and implement an effective of internal control to ensure that it system of internal control, it is the is effective. responsibility of the Audit Committee to ensure that management has done so. 15. External Advisors The board of directors should implement Yes Each committee is empowered to engage a system which enables individual external advisors as it sees fit. Any directors to engage an outside advisor, individual director is entitled to at the expense of the company in engage an outside advisor at the appropriate circumstances. The expense of the Corporation provided engagement of the outside advisor that such director has obtained the should be subject to the approval of an approval of the Nominating and appropriate committee of the board. Corporate Governance Committee to do so.
43 NOTICE OF ANNUAL MEETING OF THE SHAREHOLDERS AND MANAGEMENT PROXY CIRCULAR OF IVANHOE MINES LTD. DATED: APRIL 15, 2003