Document:

EXHIBIT 4.1.2  

BRIAZZ, INC. 

AMENDMENT TO THE 1996
AMENDED

STOCK OPTION PLAN 

        This
amendment to the 1996 Amended Stock Option Plan (the “1996 Plan”) of BRIAZZ,
INC. (the “Company”) is effective as of the date set forth below: 

RECITALS 

WHEREAS, the Board of Directors of
the Company has approved, and recommended to the shareholders that they approve, the
amendment of the 1996 Plan to increase the number of shares of Common Stock that may be
subject to options granted under the 1996 Plan by 165,000 shares of Common Stock; and 

WHEREAS, the shareholders of the
Company have approved the amendment of the 1996 Plan as contemplated above. 

AMENDMENT 

Now, therefore, Section 4 of the 1996
Plan is hereby amended and restated in its entirety to read: 

	  	
“4.   STOCK.  

	  	
The
Plan Administrator is authorized to grant Options to acquire up to a total of one million
one hundred and sixty-five thousand (1,165,000) shares of the Company’s authorized
but unissued, or reacquired, Common Stock, after giving effect to the 6:1 reverse stock
split approved by the shareholders on April 2, 2001. The number of shares with respect to
which Options may be granted hereunder is subject to adjustment as set forth in Section
5(m) hereof. In the event that any outstanding Option expires or is terminated for any
reason, the shares of Common Stock allocable to the unexercised portion of such Option may
again be subject to an Option to the same Optionee or to a different person eligible under
Section 3 of this Plan.” 

Dated: June 5, 2002exv4w2

 

EXHIBIT 4.2

Notice of Annual Meeting of the Shareholders

and

Management Proxy Circular

of

IVANHOE ENERGY INC.

DATED: May 14, 2003

 

 

IVANHOE ENERGY INC.

Suite 654 – 999 Canada Place

Vancouver, British Columbia V6C 3E1

MANAGEMENT PROXY CIRCULAR

This Management Proxy Circular is furnished in connection with the solicitation
of proxies by the management of IVANHOE ENERGY INC. (the “Company”) for use at
the annual meeting (the “Meeting”) of its shareholders to be held on June 19,
2003, at the time and place and for the purposes set forth in the accompanying
Notice of Meeting. Unless otherwise stated, this Management Proxy Circular
contains information as at May 14, 2003.

SOLICITATION OF PROXIES

The solicitation of proxies by management will be primarily by mail, but
proxies may be solicited by directors, officers and regular employees of the
Company personally, by telephone, or by means of electronic communication.

All costs of this solicitation will be borne by the Company.

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 Company. 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 by hand, to Suite 1600,
Oceanic Plaza, 1066 Hastings Street, Vancouver, British Columbia, V6E 3K9 or by
hand or mail to 200 Queen’s Quay East, Unit 6, Toronto, Ontario, M5A 4K9 not
less than 48 hours (excluding Saturdays, Sundays and statutory holidays) before
the Meeting or any adjournment thereof at which the Proxy is to be used.

REVOCATION OF PROXIES

A shareholder who has given a Proxy may revoke it

	 	(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 an 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,

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	 	(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.

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 Management Proxy Circular as “Beneficial Holders”) should
note that only Proxies deposited by holders of common shares whose names appear
on the records of the Company as the registered holders of common shares can be
recognized and acted upon at the Meeting. If a shareholder’s common shares are
listed in an account statement provided to the shareholder by a broker, then in
almost all cases those shares will not be registered in the name of the
shareholder on the records of the Company. Such common shares will more likely
be registered under the name of the shareholder’s broker or an agent of that
broker.

In Canada, most equity securities 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). Under applicable corporate and
securities laws, common shares held by brokers or their agents or nominees can
only be voted (for or against resolutions) based on the instructions of the
Beneficial Holder of those common shares. Without specific instructions,
brokers and their agents and nominees are prohibited from voting those common
shares. Therefore, a Beneficial Holder of common shares should contact his or
her broker to ensure that instructions respecting the voting of those common
shares of which he or she is the Beneficial Holder are communicated to the
appropriate person.

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Applicable regulatory rules and policies require brokers and other shareholder
intermediaries 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 form of proxy supplied to a Beneficial Holder of common
shares by his or her broker (or agent of the broker) is limited to instructing
the registered holder (the broker or agent of the broker) how to vote those
common shares on behalf of the Beneficial Holder.

Most brokers now delegate the responsibility for obtaining instructions from
their clients to shareholder communications companies such as Independent
Investor Communications Corporation (“IICC”). IICC typically mails a special
proxy form to Beneficial Holders of common shares with a request to complete
and return such proxy forms to IICC. IICC then tabulates the results of all
voting instructions it receives in respect of common shares held by Beneficial
Holders and provides appropriate instructions to the Company respecting the
voting of those common shares at the Meeting. A Beneficial Holder of common
shares receiving a special proxy form from IICC cannot use that proxy form to
personally attend and vote his or her common shares directly at the Meeting.
The special proxy form must be returned to IICC well in advance of the Meeting
in order to have the common shares voted at the Meeting in accordance with the
Beneficial Holder’s instructions.

Insofar as the names of Beneficial Holders do not appear on the Company’s
shareholder records and their shares are registered in the name of a broker or
other intermediary, a Beneficial Holder of common shares is not entitled to
attend at the Meeting for the purposes of voting any common shares not
registered in his or her name. However, a Beneficial Holder of common shares
registered in the name of a broker or other intermediary may attend at the
Meeting as the proxy holder for the registered holder of those common shares
and vote those common shares in that capacity. A Beneficial Holder of common
shares who wishes to attend at the Meeting and vote his or her common shares as
the proxy holder for the registered holder of those common shares should enter
his or her own name in the blank space on the form of proxy he or she receives
and return the same to his or her broker (or other intermediary) in accordance
with the instructions provided by such broker (or other intermediary) well in
advance of the Meeting.

VOTES NECESSARY TO PASS RESOLUTIONS

The Company’s Bylaw No. 1 provides that the quorum for the transaction of
business at the Meeting is at least one individual present at the commencement
of the Meeting holding, or representing by proxy the holder or holders of,
common shares carrying, in the aggregate, not less than thirty-three and
one-third per cent (33 1/3%) of the votes eligible to be cast 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 (2/3) of the votes cast at the Meeting is required
to pass all special resolutions.

At the Meeting, shareholders will be asked to consider and, if deemed
warranted, to pass an ordinary resolution (the “Equity Incentive Plan
Resolution”), the full text of which is set out below under “Particulars of
Matters to be Acted Upon - Equity Incentive Plan Resolution”, approving
proposed amendments to the Company’s Employees’ and Directors’ Equity Incentive
Plan (the “Equity Incentive Plan”). Pursuant to these proposed amendments, the
total number of common shares reserved for issuance under the Equity Incentive
Plan would be increased to 20,000,000 common shares and the number of those
common shares allocated for future issuance pursuant to awards under the Share
Bonus Plan would be increased to a maximum of 2,000,000 common shares.

4

 

The Equity Incentive Plan Resolution is an ordinary resolution and as such,
requires approval by a majority of the votes cast by shareholders at the
Meeting. Pursuant to the applicable stock exchange rules and policies, the
Equity Incentive Plan Resolution must also receive “disinterested shareholder
approval”. See “Particulars of Matters to be Acted Upon -Proposed Amendments to
Equity Incentive Plan - Disinterested Shareholder Approval” below.

Shareholders will also be asked to elect directors and appoint an auditor for
the ensuing year. If there are more nominees for election as directors or
appointment as the Company’s auditor 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 Company 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 May 14, 2003, the Company had outstanding 144,995,527 fully paid and
non-assessable common shares without par value, each carrying the right to one
vote. As of such date, there were no preference shares issued and outstanding.

A holder of record of one or more common shares on the securities register of
the Company at the close of business on May 5, 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 common share or shares voted at the Meeting, except to the extent that

	 	(a)	 	the shareholder has transferred the ownership of any such common 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 common 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.

To the knowledge of the directors and officers of the Company, the only persons
who beneficially own, directly or indirectly, or exercise control or direction
over common shares carrying more than 10% of the voting rights attached to all
outstanding shares of the Company, the approximate number of common shares so
owned, controlled or directed, and the percentage of voting shares of the
Company represented by such shares and the share ownership by the current
directors and senior officers of the Company as a group are:

	 	 	 	 	 	 	 	 	 
	 	 	 	 	Percentage
	 	 	Number	 	of Shares
	Name and Address	 	of Shares	 	Outstanding
	
	 	
	 	

	Robert M. Friedland
	 	 	46,611,725	 	 	 	32.15	%
	Hong Kong
	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 
	Directors and Senior Officers as a Group
	 	 	54,931,170	(1)(2)	 	 	36.33	%

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	(1)	 	Includes 6,096,667 unissued common shares issuable to directors and
senior officers upon exercise of incentive stock options.
	 
	(2)	 	Includes 46,611,725 shares held directly and indirectly by Robert M.
Friedland.

ELECTION OF DIRECTORS

The Articles of the Company provide that the number of directors of the Company
will be a minimum of three and a maximum of nine. 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 Company 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 Company 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 Company and the number of shares of the Company beneficially
owned by each, directly or indirectly, or over which each exercised control or
direction, as at May 14, 2003.

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Shares
	 	 	 	 	 	 	Beneficially
	 	 	 	 	Period a	 	Owned,
	 	 	Principal Occupation,	 	Director	 	Controlled
	Name and Position	 	Business or Employment(1)	 	of the Company	 	or Directed (1)(2)
	
	 	
	 	
	 	

	David R. Martin

Chairman and

Director	 	
Chairman, Ivanhoe Energy
Inc.(August 1998 –
present); President,
Cathedral Mountain
Corporation
	 	Since

August 1998
	 	 	957,460	 
	 	 	 	 	 	 	 	 	 
	Robert M. Friedland

Deputy Chairman and

Director	 	
Deputy Chairman, Ivanhoe
Energy Inc.(June
1999-present); Chairman and
President of Ivanhoe
Capital Corporation
(venture capital firm)
	 	Since

February 1995
	 	 	46,611,725	 
	 	 	 	 	 	 	 	 	 
	E. Leon Daniel

President and Chief

Executive Officer
and Director	 	
President and Chief
Executive Officer, Ivanhoe
Energy Inc.
	 	Since

August 1998
	 	 	576,623	 
	 	 	 	 	 	 	 	 	 
	John A. Carver

Director	 	
Director Exploration,
Ivanhoe Energy Inc.
(January 2002 – present)
	 	Since

August 1998
	 	 	311,547	 
	 	 	 	 	 	 	 	 	 
	R. Edward Flood

Director	 	
Deputy Chairman, Ivanhoe
Mines Ltd.
	 	Since

June 1999
	 	 	25,029	 
	 	 	 	 	 	 	 	 	 
	Shun-ichi Shimizu

Director	 	
Managing Director C.U.E.
Management Consulting Ltd.
	 	Since

July 1999
	 	 	32,500	 
	 	 	 	 	 	 	 	 	 
	Howard Balloch

Director	 	
President, The Balloch Group
	 	Since

January 2002
	 	 	Nil	 

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	(1) 	 	The information as to principal occupation, business or employment of and
shares beneficially owned,
controlled or directed by a nominee is not within the knowledge of the
management of the Company 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”.

The current members of the Audit Committee of the Company are: Messrs. Flood,
Balloch and Shimizu. The Company does not have an Executive Committee.

APPOINTMENT OF AUDITORS

Deloitte & Touche LLP, Chartered Accountants, will be nominated at the Meeting
for re-appointment as auditors of the Company at a remuneration to be fixed by
the directors. Deloitte & Touche LLP have been auditors of the Company since
April 8, 1997.

PARTICULARS OF MATTERS TO BE ACTED UPON

Proposed Amendments to Equity Incentive Plan

Summary

The Company is seeking authorization from its shareholders at the Meeting to
amend the Equity Incentive Plan to increase the maximum number of common shares
of the Company which may be issued pursuant to the terms of the Equity
Incentive Plan (the “Maximum Overall Share Allocation”) from 15,000,000 to
20,000,000 common shares and to increase, from 1,000,000 to 2,000,000 common
shares, the maximum number of common shares within the Maximum Overall Share
Allocation that may be issued, from time to time, as discretionary awards
pursuant to the terms of the Share Bonus Plan component of the Equity Incentive
Plan (the “Maximum Bonus Share Allocation”). The Toronto Stock Exchange (“TSX”)
has conditionally approved these proposed amendments, subject to, among other
things, receipt of “disinterested shareholder approval” (as defined below) at
the Meeting.

Material Terms of Equity Incentive Plan

The Equity Incentive Plan consists of three component plans: a common share
option plan (the “Share Option Plan”), a common share bonus plan (the “Share
Bonus Plan”) and a common share purchase plan (the “Share Purchase Plan”). The
purpose of the Equity Incentive Plan is to advance the Company’s corporate
interests by encouraging equity participation in the Company by its directors,
officers, employees and service providers through the acquisition of common
shares. The following is a brief description of the material terms of each
component of the Equity Incentive Plan.

Share Option Plan

The Share Option Plan allows the board of directors to grant options to acquire
common shares to the Company’s directors, officers, employees and service
providers. Options are subject to adjustment in connection with certain
corporate events affecting the Company’s common shares. Participation in the
Share Option Plan is limited to directors, officers, employees and service
providers, who are, in the opinion of the Company’s board of directors, in a
position to contribute to the Company’s future growth and success.

Subject to the specific terms and conditions of the Equity Incentive Plan, the
board of directors determines the date of grant, the number of optioned common
shares, the exercise price per share, the vesting period and the exercise
period. The exercise price of any option granted under the Share Option Plan
cannot be less than the weighted average price of the Company’s common shares
on the principal stock exchange on which the Company’s common shares trade

7

 

during the five trading days prior to the date of grant. Unless earlier
terminated upon an optionee’s death or termination of employment or
appointment, options are exercisable for a period of up to ten years. The board
of directors may, in its discretion, accelerate the vesting of any unvested
options.

Share Bonus Plan

The Share Bonus Plan permits the board of directors to award fully paid common
shares to the Company’s directors, employees and service providers on a
discretionary basis having regard to such criteria as the board of directors
may determine. Under no circumstances may the number of common shares of the
Company issued under the Share Bonus Plan exceed the Maximum Bonus Share
Component.

Share Purchase Plan

Under the Share Purchase Plan, employees of the Company who are designated by
the board of directors as eligible to participate, may contribute up to 10% of
their annual basic salary to the Share Purchase Plan in semi-monthly
installments. The Company then makes contributions on a quarterly basis equal
to the employee’s contribution. At the end of each calendar quarter, the
eligible employee receives a number of common shares equal to the aggregate
amount contributed by the employee and the Company divided by the weighted
average trading price of the common shares on the Company’s principal stock
exchange during the previous three months. The Share Purchase Plan component of
the Equity Incentive Plan is not presently in effect but can be activated by
the board of directors at any time.

Maximum Share Allocations

The Maximum Overall Share Allocation under the Equity Incentive Plan is
currently 15,000,000 common shares, which is equal to approximately 10% of the
Company’s issued and outstanding common shares. The Maximum Overall Share
Allocation is the maximum number of common shares that may be issued under all
components of the Equity Incentive Plan. The Maximum Bonus Share Allocation is
currently 1,000,000 common shares. The Maximum Bonus Share Allocation forms
part of, and is not in addition to, the Maximum Overall Share Allocation. The
Maximum Bonus Share Allocation is the maximum number of common shares that may
be issued under the Share Bonus Plan component of the Equity Incentive Plan.

Amendment Procedure

The Company’s board of directors has the right to amend, modify or terminate
the Equity Incentive Plan at any time. However, any amendment to the Equity
Incentive Plan which would materially increase the benefits to participants in
the Equity Incentive Plan, materially modify the requirements as to eligibility
for participation in the Equity Incentive Plan or increase the Maximum Overall
Share Allocation or the Maximum Bonus Share Allocation is subject to TSX
approval and approval by the Company’s shareholders. Certain amendments,
including the amendments for which shareholder approval is sought at the
Meeting, require “disinterested shareholder approval” under the applicable
rules and policies of TSX. See “Disinterested Shareholder Approval” below.

8

 

Status of Equity Incentive Plan

As of the date of this Management Proxy Circular, the common shares currently
comprising the Maximum Overall Share Allocation under the Equity Incentive Plan
have been issued, reserved for issuance or remain unallocated as follows:

	 	 	 	 	 	 
	Common shares issued upon exercise of incentive stock options
	 	 	3,322,166	 
	Unissued common shares reserved for unexercised incentive stock options
	 	 	9,831,628	 
	Common shares issued as bonus awards
	 	 	700,130	 
	Unissued common shares remaining in Maximum Bonus Share Allocation
	 	 	299,870	 
	Unallocated common shares
	 	 	846,206	 
	 
	 	 	
	 
	 	TOTAL:
	 	 	15,000,000	 

The board of directors has the discretion to re-allocate any unissued common
shares in the Maximum Bonus Share Allocation to the Share Option Plan or the
Share Purchase Plan but not vice versa. Accordingly, unallocated common shares
comprising the Maximum Overall Share Allocation which do not form part of the
Maximum Bonus Share Allocation are not available for issuance under the Share
Bonus Plan.

Reasons for Proposed Amendments

The Equity Incentive Plan is a critical tool for the board of directors in
designing employee compensation mechanisms consistent with the Company’s
compensation philosophy. See “Executive Compensation - Report on Executive
Compensation” below. The Equity Incentive Plan provides an effective means of
stimulating employee performance in furtherance of overall corporate objectives
and rewarding individual performance that contributes to the achievement of
those objectives. Incentive stock options, which vest and become exercisable
through the passage of time, derive their value from shareholder returns,
measured by increases in the market price of the Company’s common shares.
Accordingly, options are a simple and straightforward way of aligning the
interests of the Company’s employees with the interests of the Company’s
shareholders.

Under certain circumstances, the achievement of critical corporate goals and
objectives is not necessarily reflected by an increase in the market price of
the Company’s common shares despite the importance of the achievement to the
furtherance of the Company’s interests. In these circumstances, incentive stock
options may not be as effective in stimulating the performance necessary to
achieve a particular goal or objective and may not adequately recognize the
individual efforts made in its achievement. The flexibility of the Share Bonus
Plan allows the board of directors to tailor the Company’s equity compensation
programs for its senior and intermediate management as necessary to address
specific corporate objectives and circumstances as they arise. Such goals and
objectives may include obtaining the rights to new development projects,
successfully re-negotiating existing contractual obligations and commitments on
a basis favourable to the Company, meeting or exceeding exploration,
development or production milestones or achieving cost-cutting targets and
budgetary objectives.

In order to maintain the flexibility of the Equity Incentive Plan so that it
remains useful to the Company in the formulation, pursuit and achievement of
the Company’s corporate goals and objectives, it is necessary to replenish the
Maximum Overall Share Allocation and the Maximum Bonus Share Allocation by
amending the Equity Incentive Plan. Accordingly, the Company is

9

 

seeking disinterested shareholder approval at the Meeting to amend the Equity
Incentive Plan by increasing the Maximum Overall Share Allocation to 20,000,000
common shares and the Maximum Bonus Share Allocation within the Maximum Overall
Share Allocation to 2,000,000 common shares. If implemented, the increased
Maximum Overall Share Allocation will be equal to approximately 14% of the
Company’s issued and outstanding common shares.

Disinterested Shareholder Approval

The Company’s common shares are listed on TSX and quoted on the Nasdaq Small
Cap Market (“Nasdaq”). TSX rules and policies provide that certain share
compensation arrangements in which insiders of the listed company (“Insider
Participants”) are eligible to participate must receive “disinterested
shareholder approval”. If a listed company’s proposed share compensation
arrangement, together with all of the listed company’s other previously
established or proposed share compensation arrangements, could result, at any
time, in:

	 	(a)	 	the number of common shares reserved for issuance pursuant
to stock options granted to Insider Participants exceeding 10% of
the listed company’s outstanding common shares;
	 
	 	(b)	 	the issuance to Insider Participants, within a one-year
period, of a number of common shares exceeding 10% of the listed
company’s outstanding common shares; or
	 
	 	(c)	 	the issuance to any one Insider Participant and such
Insider Participant ‘s associates, within a one-year period, of a
number of common shares exceeding 5% of the listed company’s
outstanding common shares,

the share compensation arrangement must receive “disinterested shareholder
approval” before the share compensation arrangement can be implemented.
“Disinterested shareholder approval” means approval by a majority of the votes
cast at a shareholders’ meeting, other than votes attaching to common shares
beneficially owned by Insider Participants and associates of Insider
Participants. The total number of shares beneficially owned by Insider
Participants and associates of Insider Participants that will be excluded from
the vote total 48,834,503 common shares.

Nasdaq has proposed amendments to its Marketplace Rules requiring, except in
limited circumstances, shareholder approval for new share compensation
arrangements in which directors, officers, employees or consultants are
eligible to participate or material amendments to existing share compensation
arrangements. These proposed amendments are subject to approval by the United
States Securities and Exchange Commission (the “SEC”). The Company believes
that TSX’s disinterested shareholder approval threshold would exceed Nasdaq’s
proposed amendments to its shareholder approval requirements.

In order to pass, the Equity Incentive Plan Resolution requires disinterested
shareholder approval.

Equity Incentive Plan Resolution

At the Meeting, the shareholders of the Company will be asked to approve the
Equity Incentive Plan Resolution, the text of which is as follows:

     “RESOLVED AS AN ORDINARY RESOLUTION THAT:

	 	1.	 	the amendment to Section 5.1 of the Equity Incentive Plan,
deleting the reference to “15,000,000 Shares” and replacing it with
a reference to “20,000,000 Shares” is hereby consented to and
approved;

10

 

	 	2.	 	the amendment to Section 3.2 of the Plan, deleting the
reference to “1,000,000 Shares” and replacing it with a reference to
“2,000,000 Shares” is hereby consented to and approved; and
	 
	 	3.	 	the board of directors of the Company is hereby authorized to
implement the Equity Incentive Plan as so amended.”

The Equity Incentive Plan Resolution is an ordinary resolution under the YBCA
and, in order to be considered approved as an ordinary resolution, requires the
affirmative vote of a majority of the votes cast at the Meeting. In order to
be effective under the rules and policies of TSX, the Equity Incentive Plan
Resolution also requires disinterested shareholder approval.

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 Company’s last financial year or in any proposed
transaction, which, in either case has materially affected or will materially
affect the Company other than as set out below.

The Company 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, the Company shares office space, furnishings,
equipment and communications facilities in Vancouver, Singapore and London and
an aircraft on a cost recovery basis. The Company also shares the costs of
employing administrative and non-executive management personnel in these
offices. During the year ended December 31, 2002, the Company’s share of these
costs was US$1,200,000. The companies with which the Company 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 Mines Ltd.
	 	 	44.63	%
	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 President and Chief Executive Officer as at December 31, 2002,
and each of the Company’s four most highly compensated executive officers
(“Named Executive Officers”) whose annual compensation exceeded Cdn$100,000 in
the year ended December 31, 2002. During the year ended December 31, 2002, the
aggregate compensation paid to all executive officers of the Company whose
annual compensation exceeded Cdn$40,000 was US$1,074,957.

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.

11

 

SUMMARY COMPENSATION TABLE

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Annual Compensation	 	Long Term Compensation	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	
	 	
	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	Awards	 	Payouts	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
	 	
	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	Securities	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	Under	 	Restricted	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	Options/	 	Shares or	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	Other	 	SARs	 	Restricted	 	 	 	 	 	 	 	 	 	 	 	 
	Name and	 	 	 	 	 	Salary	 	Bonus	 	Annual	 	Granted	 	Share	 	LTIP	 	All Other	 	 	 	 
	Principal Position	 	Year	 	$US	 	$US	 	Compensation	 	(#)	 	Units	 	Payouts	 	Compensation	 	 	 	 
	
	 	
	 	
	 	
	 	
	 	
	 	
	 	
	 	
	 	 	 	 
	E. Leon Daniel
	 	 	2002	 	 	 	266,500	 	 	 	—	 	 	 	243	(6)	 	 	—	 	 	 	—	 	 	 	—	 	 	 	5,415	(7)
	President & Chief
	 	 	2001	 	 	 	150,000	 	 	 	—	 	 	 	170	(6)	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 
	Executive Officer(1)
	 	 	2000	 	 	 	200,000	 	 	 	22,000	 	 	 	—	 	 	 	500,000	 	 	 	—	 	 	 	—	 	 	 	—	 
	 
	Patrick Chua
	 	 	2002	 	 	 	182,970	 	 	 	—	 	 	 	5,083	(6)	 	 	60,000	 	 	 	—	 	 	 	—	 	 	 	—	 
	Executive Vice
	 	 	2001	 	 	 	180,000	 	 	 	—	 	 	 	12,794	(6)	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 
	President(2)
	 	 	2000	 	 	 	180,000	 	 	 	—	 	 	 	4,711	(6)	 	 	—	 	 	 	—	 	 	 	—	 	 	 	1,530	 
	 
	John O’Keefe
	 	 	2002	 	 	 	219,845	 	 	 	—	 	 	 	4,537	(6)	 	 	75,000	 	 	 	—	 	 	 	—	 	 	 	7,200	(7)
	Executive Vice President
	 	 	2001	 	 	 	174,955	 	 	 	—	 	 	 	3,659	(6)	 	 	250,000	 	 	 	—	 	 	 	—	 	 	 	5,250	(7)
	Investor Relations & Chief
	 	 	2000	 	 	 	58,333	 	 	 	—	 	 	 	—	 	 	 	250,000	 	 	 	—	 	 	 	—	 	 	 	—	 
	Financial Officer(3)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	David R. Martin
	 	 	2002	 	 	 	253,167	 	 	 	—	 	 	 	1,077	(6)	 	 	—	 	 	 	—	 	 	 	—	 	 	 	7,200	(7)
	Chairman(4)
	 	 	2001	 	 	 	150,000	 	 	 	—	 	 	 	894	(6)	 	 	—	 	 	 	—	 	 	 	—	 	 	 	3,000	(7)
	 
	 	 	2000	 	 	 	50,000	 	 	 	110,000	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 
	 
	Gerald Moench
	 	 	2002	 	 	 	152,475	 	 	 	—	 	 	 	3,535	(6)	 	 	50,000	 	 	 	 	 	 	 	—	 	 	 	 	 
	Executive Vice
	 	 	2001	 	 	 	150,000	 	 	 	—	 	 	 	3,085	(6)	 	 	 	 	 	 	 	 	 	 	—	 	 	 	 	 
	President(5)
	 	 	2000	 	 	 	150,000	 	 	 	—	 	 	 	3,857	(6)	 	 	 	 	 	 	 	 	 	 	—	 	 	 	 	 

	(1)	 	Mr. Leon Daniel was appointed President and Chief Executive Officer on
June 22, 1999, and has been a director of the Company since August 25,
1998.
	 
	(2)	 	Mr. Chua was appointed as an Executive Vice President in June, 1999.
	 
	(3)	 	Mr. O’Keefe has been Executive Vice President Investor Relations and
Chief Financial Officer since September, 2000
	 
	(4)	 	
 Mr. Martin has been Chairman and one of the Company’s directors since
August, 1998.
	 
	(5)	 	Mr. Moench was appointed an Executive Vice President in June, 1999.
	 
	(6)	 	Includes premiums paid by us on behalf of the Named Executive Officer for
medical, dental and other health insurance coverage.
	 
	(7)	 	Company’s matching contribution to the 401(k) plan, a US defined
contribution retirement plan available to US employees.

Options and Stock Appreciation Rights (SARs)

The following Options/SARs were granted to Named Executive Officers in the
financial year ended December 31, 2002:

OPTIONS/SAR GRANTS DURING THE MOST RECENTLY COMPLETED FINANCIAL YEAR

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	Market Value of	 	 	 	 
	 	 	 	 	 	 	% Total	 	 	 	 	 	Securities	 	 	 	 
	 	 	 	 	 	 	Options/SAR	 	 	 	 	 	Underlying	 	 	 	 
	 	 	Securities	 	Granted to	 	 	 	 	 	Options/SARs	 	 	 	 
	 	 	Under	 	Employees in	 	(1)Exercise or	 	on the Date of	 	 	 	 
	 	 	Options/SAR	 	Financial	 	Base Price	 	Grant(1)	 	 	 	 
	Name	 	Granted (#)	 	Year	 	($/Security)	 	($/Security)	 	Expiration Date
	
	 	
	 	
	 	
	 	
	 	

	John O’Keefe
	 	 	75,000	 	 	 	3.58	%	 	Cdn $3.10	 	$	3.10	 	 	May 30, 2007
	Patrick Chua
	 	 	60,000	 	 	 	2.86	%	 	Cdn. $3.10	 	$	3.10	 	 	May 30, 2007
	Gerald Moench
	 	 	50,000	 	 	 	2.39	%	 	Cdn. $3.10	 	$	3.10	 	 	May 30, 2007

12

 

	(1)	 	Equal to or greater than the weighted average price of the Company’s common
shares on the TSX for the five trading days preceding the date of grant.

Aggregated Option Exercises

No options were exercised by any of the Named Executive Officers during the
financial year ended December 31, 2002.

Indebtedness of Directors, Executive Officers and Senior Officers

There was no indebtedness of any officers, directors, employees and former
officers, directors and employees of the Company in connection with the
purchase of securities of the Company as at May 5, 2003.

TABLE OF INDEBTEDNESS OF DIRECTORS, EXECUTIVE OFFICERS AND SENIOR OFFICERS

UNDER SECURITIES PURCHASE PROGRAMS

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Largest	 	 	 	 	 	Financially	 	 	 	 
	 	 	 	 	 	 	Amount	 	Amount	 	Assisted	 	 	 	 
	 	 	Involvement	 	Outstanding	 	Outstanding	 	Securities	 	 	 	 
	Name and Principal	 	of Issuer or	 	during 2001	 	as at	 	Purchased	 	Security for
	Position	 	Subsidiary	 	(Cdn$)	 	March 1, 2002	 	During 2001	 	Indebtedness
	
	 	
	 	
	 	
	 	
	 	

	David R. Martin –
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	Pledge of 50,000
	Chairman
	 	Loan Agreement	 	$	211,438	 	 	$	212,315	 	 	 	50,000	 	 	common shares of the Company
	 
	R. Edward Flood –
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	Pledge of 15,000
	Director
	 	Loan Agreement	 	$	63,431	 	 	$	63,695	 	 	 	15,000	 	 	common shares of the Company

Note: The Company loaned Messrs. Martin and Flood $200,000 and $60,000
respectively in January, 2001 to facilitate their exercise of warrants to
purchase 50,000 and 15,000 of the Company’s common shares respectively. The
loans are secured by a pledge of the 50,000 common shares owned by Mr. Martin
and the 15,000 common shares owned by Mr. Flood. In December 2002, the Company
determined the loans would not be renewed. Each of the borrowers authorized
the Company to acquire the common shares held as security in full payment of
their loan amounts and accrued interest whereon the Company cancelled the
common shares, effectively returning them to its treasury.

Defined Benefit and Actuarial Plan

The Company does not presently provide a pension plan for its employees.

During 2001 the Company adopted a defined contribution retirement or thrift
plan (401(k) Plan) to assist U.S. employees in providing for retirement or
other future financial needs. Employees
contributions (up to the maximum allowed by U.S. tax laws) are matched by the
Company at 60% in 2002 and will increase by 10% per year thereafter until the
Company’s matching contribution reaches 100%

Employment Agreements

As at December 31, 2002, the Company was party to employment agreements with
Messrs. Leon Daniel and John O’Keefe, two of its Named Executive Officers. The
agreement provides for current salary and benefit entitlements.
Both contracts allow us to terminate the employee for cause and if this were to
happen, the employee has no entitlement to claim any compensation

13

 

with respect to the termination. Neither contract contains a change of control
arrangement. With
respect to Mr. Daniel’s contract, the term of employment is for a period of
five years, commencing on April 30, 2002, unless terminated in accordance with
the provisions of the agreement. His salary for services performed is at a
rate of not less than $300,000 per year and he is eligible for a cash bonus and
stock bonus each year, as determined by the Compensation Committee. Mr.
Daniel’s benefit programs are the same as those applicable to all of the
Company’s employees. Either party may terminate the agreement with one year’s
notice to the other, however, the Company may terminate Mr. Daniel’s employment
at any time without notice by compensating him for the period after termination
equivalent to one year’s salary or until the expiration of the employment
agreement, whichever is the shorter period of time. With respect to Mr.
O’Keefe’s contract, his base salary is $200,000 per year, to be reviewed by the
board of directors at least annually. Mr. O’Keefe’s benefit programs are the
same as those applicable to all of the Company’s employees. Mr. O’Keefe was
granted an initial option to acquire 250,000 common shares of the Company,
which vest over 4 years and expire on the 5th anniversary of the date of grant.
The Company may terminate Mr. O’Keefe’s employment by delivering to him one
year’s written notice during which time the Company would continue to pay his
salary and benefits. His initial option of 250,000 common shares would fully
vest at the date of termination and he would be entitled to exercise the option
within the maximum time permitted by applicable TSX policies. If Mr. O’Keefe
terminates his employment he will be entitled to exercise the vested shares,
subject to the option, for the maximum time permitted by applicable TSX
policies. In the event of Mr. O’Keefe’s death or permanent disability while in
the employ of the Company, the remaining shares subject to his initial option
would vest and his estate would be entitled to exercise the option, with
respect to those shares, within the maximum time permitted by applicable TSX
policies.

Composition of Compensation Committee

During the year ended December 31, 2002, the Compensation Committee was
comprised of Messrs. Howard Balloch, Ed Flood and David Martin, who, in his
capacity as Chairman, is an officer and employee of the Company (refer to
“Indebtedness of Directors, Executive Officers and Senior Officers” with
respect to Messrs. Martin and Flood).

Directors who were officers or employees of the Company during the financial
year ended December 31, 2002, were: Mr. David Martin, Chairman, Mr. Leon
Daniel, President and Chief Executive Officer and Mr. John Carver, Director
Exploration.

Report on Executive Compensation

The Company’s executive compensation program is administered by the
Compensation Committee. The basic philosophy underlying the Company’s executive
compensation program is that the interests of the Company’s executive officers
should be aligned as closely as possible with the interests of the Company and
its shareholders as a whole. Compensation for the Company’s senior executive
officers is, accordingly, designed to reflect the following considerations: to
provide a strong incentive to management to achieve the Company’s corporate
goals each year; to ensure that the interests of management and of the
Company’s shareholders are aligned; and to enable us to attract, retain and
motivate the quality of people necessary to the Company’s business in the light
of competition for qualified personnel. The Company’s approach to compensation
for senior executives and other employees is designed to recognize both
corporate and individual performance, and the fact that competition for highly
skilled employees is intense.

The compensation that the Company pays to its executive officers generally
consists of cash, equity and equity incentives. The Company’s compensation
policy reflects a belief that an element of total compensation for the
Company’s executive officers should be “at risk” in the form of stock options,
so as to create a strong incentive to build shareholder value. The Compensation
Committee oversees and sets the general guidelines and principles for the
compensation

14

 

packages for senior management. As well, the
Compensation Committee assesses the individual
performance of the Company’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 Company’s senior executive officers over and
above their base salaries.

The specific relationship of corporate performance to executive compensation
under the Company’s executive compensation program is created through equity
compensation mechanisms. Incentive stock options, which vest and become
exercisable through the passage of time, link the bulk of the Company’s
equity-based executive compensation to shareholder return, measured by
increases in the market price of the Company’s common shares. The Board of
Directors may make discretionary bonus awards of common shares to the Company’s
employees, including the Company’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.

As part of a temporary program to reduce costs and preserve cash, the total
cash compensation paid to the Company’s senior management personnel during 2002
was reduced by a minimum of 10%. In lieu of the foregone cash compensation, the
Company issued to its senior management personnel common shares on the basis of
one common share for each dollar of foregone salary. The Compensation Committee
believes that this is consistent with the Company’s basic compensation
philosophy that the best interests of shareholders are served by having
executive compensation meaningfully tied to corporate performance. It also
reflects the Company’s stage of development, the Company’s limited history of
earnings and the priority allocation of the Company’s limited financial
resources to the development of the Company’s business.

The compensation paid to the Company’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. During 2002 the Company’s
Chief Executive Officer elected to voluntarily forego approximately 15% of the
cash compensation that would otherwise have been payable to him and to receive
common shares in lieu of the foregone salary on the basis of one share for each
dollar foregone. This increase in the ratio of cash compensation to
equity-based compensation reflects his and the Company’s expectation that the
contribution and efforts of the Chief Executive Officer will materially affect
the extent to which, and how quickly, the Company is successful in developing
its business, particularly as it relates to “gas-to-liquids”, and creating
shareholder value. The relative risks and rewards inherent in equity-based
compensation are intended to be commensurate with the Chief Executive Officer’s
contribution and efforts.

The cash compensation payable to the Company’s Chief Executive Officer reflects
the Compensation Committee’s views as to what constitutes 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 Company’s business and
the Company’s ability to pay. In assessing the cash compensation payable to the
Chief Executive Officer, the members of the Compensation Committee have drawn
upon their extensive resource industry experience but have not based the
assessment on rates of cash compensation payable to other chief executive
officers in the oil and gas industry. Ongoing consolidation in the Company’s
industry is rapidly diminishing the number of peer companies of similar size
and development, thereby making meaningful comparisons questionable in
assessing and determining either the cash component or the equity component of
the Company’s Chief Executive Officer’s compensation.

The Company did not pay a cash bonus to its Chief Executive Officer during
2002. Accordingly, there is no measurable relationship between the Company’s
performance, as reflected in the Company’s share price, the Company’s financial
results or the development of the Company’s business, and the cash component of
the Chief Executive Officer’s compensation insofar as the cash component for
2002 consists solely of base salary. The value of the equity component of the
Chief Executive Officer’s compensation is exclusively determined with reference
to the

15

 

Company’s performance as measured by the appreciation or decline in the market
price of the Company’s common shares.

Submitted on behalf of the Compensation Committee:

Mr. R. Edward Flood

Mr. David R. Martin

Mr. Howard R. Balloch

Performance Graph

The following graph compares the cumulative shareholder return on a $100
investment in common shares of the Company to a similar investment in companies
comprising the TSX Composite Total Return Index, including dividend
reinvestment, for the period from December 31, 1997 to December 31, 2002.

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	December 31,	 	1997	 	1998	 	1999	 	2000	 	2001	 	2002
	
	 	
	 	
	 	
	 	
	 	
	 	

	Ivanhoe Energy Inc.
	 	$	100	 	 	$	22	 	 	$	153	 	 	$	423	 	 	$	128	 	 	$	41	 
	TSX Composite Total
Return Index
	 	$	100	 	 	$	98	 	 	$	130	 	 	$	139	 	 	$	122	 	 	$	107	 

Director Compensation

All unrelated directors receive director fees of $2,000 per month. The Company
did not pay any other cash or fixed compensation to its directors for acting as
such. The Company reimburses its directors for expenses they reasonably incur
in the performance of their duties as directors and they are also eligible to
participate in the Company’s Employees’ and Directors’ Equity Incentive Plan.
One of the Company’s non-executive directors, John A. Carver, was engaged as a
full time employee effective January 1, 2002 and receives a salary in his
capacity as an employee.

CORPORATE GOVERNANCE

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 adopted by the TSX for effective corporate governance (the “TSX
Guidelines”).

16

 

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 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
“Sarbanes-Oxley Act”), 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 the current TSX Guidelines, although they may, at their
discretion, provide additional disclosure with 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 rule-making authority to the Ontario
Securities Commission with respect to the functioning and responsibilities of
audit committees and certain other corporate governance matters. The form of
such rules has not yet been released.

Although new TSX corporate governance listing standards (the “Proposed TSX
Listing Standards”) and certain amendments to the TSX Guidelines respecting
corporate governance (the “Proposed TSX Amendments”) have not yet advanced past
the proposal stage, the Company has begun the process of conforming its
governance standards to those being proposed.

The Company has recently undertaken a comprehensive review of its corporate
governance practices in light of the developing TSX standards as well as
evolving best practice standards for corporate governance in Canada and the
U.S. Consequently, the Board has recently:

	 	i.	 	approved and adopted a new mandate for the Board;
	 
	 	ii.	 	appointed a Nominating and Corporate Governance
Committee consisting exclusively of outside and unrelated
directors (as such terms are defined in the TSX Guidelines and
Proposed TSX Amendments);
	 
	 	iii.	 	determined to incrementally change the composition of
all committees of the Board of Directors, to consist solely of
outside unrelated directors, such change to be made as and when
additional outside unrelated directors are elected or appointed
to the Board;
	 
	 	iv.	 	commissioned each of the Company’s board committees,
being the Audit Committee, the Compensation Committee and the
Nominating and Corporate Governance Committee, to formalize
their mandates in charters for approval by the Board;
	 
	 	v.	 	formalized the Company’s existing management
committee responsible for disclosure matters as the Company’s
Disclosure Committee, with the mandate to oversee the Company’s
disclosure practices; and
	 
	 	vi.	 	determined to adopt a formal Code of Business Conduct
and Ethics and for the Company that governs the behavior of
directors, officers and employees.

The Company’s common shares are quoted on Nasdaq and the Company is subject to
applicable provisions of U.S. securities laws and regulations relating to
corporate governance, which have recently been the subject of sweeping changes.
The Sarbanes-Oxley Act was enacted on July 30, 2002 and, both as part of the
Sarbanes-Oxley Act and independently, the SEC has proposed or enacted a number
of new regulations relating to corporate governance standards for listed
companies. In addition, Nasdaq has proposed numerous reforms (the “Nasdaq
Proposals”) that revise the corporate governance standards for Nasdaq-listed
companies.

17

 

The majority of the new U.S. corporate governance requirements are not yet
effective but will come into effect in the near future. The Nasdaq Proposals
are subject to a public comment period before approval by the SEC and
implementation by Nasdaq. The SEC has indicated that the Nasdaq Proposals will
be approved by the SEC by December 1, 2003 and will come into effect for U.S.
issuers by October 31, 2004. The SEC has required that foreign private
issuers, such as the Company, comply with the new corporate governance
standards by July 31, 2005.

These standards include requirements that a listed company have:

	 	•	 	a board comprised of a majority of independent directors;
	 
	 	•	 	a minimum three-member audit committee comprised solely of independent directors;
	 
	 	•	 	an audit committee charter that specifies certain specific
audit committee responsibilities and authority, including, among
other things:

	 	•	 	the pre-approval of all audit services and
permissible non-audit services; and
	 
	 	•	 	the sole authority to appoint, determine funding for
and oversee the outside auditors;

	 	•	 	independent director approval of the compensation of the
chief executive officer and other officers, either by an independent
compensation committee or a majority of independent directors; and
	 
	 	•	 	independent director approval of the nomination of directors,
either by an independent nominating committee or a majority of
independent directors.

“Independence” for the purposes of the requirement that a board be comprised of
a majority of independent directors, as well as for the requirement that board
committees be comprised of independent directors, is defined under the
Sarbanes-Oxley Act and the Nasdaq Proposals differently from, and may be more
onerous than, the definition of “unrelated director” under the TSX Guidelines
and the Proposed TSX Amendments, described below. In addition, there is a
heightened independence requirement for members of the audit committee under
the Sarbanes-Oxley Act and the Nasdaq Proposals.

Under the Sarbanes-Oxley Act, the Company will be required to disclose whether
it has a “financial expert” serving on its audit committee in its annual report
for the fiscal year ending December 31, 2003. An audit committee member’s
status as a “financial expert” must be determined by the board according to
specified SEC guidelines. The Company must further disclose in its annual
report for the fiscal year ending December 31, 2003 whether it has adopted a
code of ethics for senior financial officers. The Nasdaq Proposals include a
requirement that the code of ethics extend to all officers, directors and
employees of a listed company.

The Company intends to fully comply with all of the corporate governance
requirements of the Sarbanes-Oxley Act and the Nasdaq Proposals, as well as any
new requirements that may be implemented by the Canadian Securities Regulators
or the TSX, by the date of their effectiveness or earlier.

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

18

 

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) who 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 corporation other than interests
and relationships arising solely from shareholdings in the corporation; 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 corporation 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 corporation.

A total of seven persons have been nominated for election as directors at the
Meeting. Applying the definitions in both the TSX Guidelines and the Proposed
TSX Amendments, the Board has determined that, if all such nominees are
elected, the Board will consist of two unrelated directors in Edward Flood and
Howard Balloch and five related directors in David Martin, Leon Daniel, John
Carver, Robert Friedland and Shun-ichi Shimizu.

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 Company or the significant shareholder and which fairly reflects the
investment in the Company by shareholders other than the significant
shareholder. The Company does not have a “significant shareholder”, as defined
in the TSX Guidelines.

The Board has directed the Nominating and Corporate Governance Committee to
examine the size and composition of the Board and to recommend adjustments to
ensure that the Board has a balanced representation among management, unrelated
directors and the Company’s major shareholder, and is of a size that
facilitates effective decision-making, given the Company’s stage of development
and the size and complexity of its business. The Board seeks to achieve a
greater representation of unrelated directors and has determined to continue to
seek, through its Nominating and Corporate Governance Committee, additional
qualified candidates to augment its experience and expertise and to enhance the
Company’s ability to effectively develop its business interests.

Mandate of the Board

Under the Business Corporations Act (Yukon), the directors of the Company are
required to manage the Company’s business and affairs, and in doing so to act
honestly and in good faith with a view to the best interests of the Company.
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
Company’s affairs and the management of its business. The Board’s mandate
includes setting long term goals and objectives for the Company, 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 Company to senior
management personnel, the Board retains a supervisory role in respect of, and
ultimate responsibility for, all matters relating to the Company and its
business.

The Board’s mandate requires that the Board be satisfied that the Company’s
senior management will manage the affairs of the Company in the best interest
of the shareholders, in accordance with the Company’s principles, and that the
arrangements made for the management
of the Company’s business and affairs are consistent with their duty described
above. The Board

19

 

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 Company.

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. At least one Board meeting per year is to be devoted to a
comprehensive review of strategic corporate plans proposed by management.

As part of its ongoing review of business operations, at each Board meeting the
Board reviews the principal risks inherent in the Company’s business, including
financial risks, through periodic reports from management of such risks, and
assesses the systems established to manage those risks. Directly and through
the Audit Committee, the Board also assesses the integrity of 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 Company’s business.

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 Company, 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
Company, 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 Company provided such director has obtained the approval of the
Nominating and Corporate Governance Committee to do so.

Meetings of the Board

The Board has mandated regular annual and quarterly meetings. In addition, the
Board meets on an ad hoc basis as required, generally by means of telephone
conferencing facilities. 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 Company has an Audit Committee, a Compensation Committee and a Nominating
and Corporate Governance Committee.

20

 

     Audit Committee

The mandate of the Audit Committee is to oversee the Company’s financial
reporting obligations, systems and disclosure, including monitoring the
integrity of the Company’s financial statements, monitoring the independence
and performance of the Company’s external auditors and acting as a liaison
between the Board and the Company’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 Company’s auditors. The Audit Committee communicates
directly with the Company’s external auditors in order to discuss audit and
related matters whenever appropriate.

The Audit Committee currently consists of Messrs. Flood, Balloch and Shimizu.
The TSX Guidelines provide for audit committees to consist solely of outside
directors. Both of Messrs. Flood and Balloch are outside directors. Based on
its analysis of Mr. Shimizu’s anticipated role in the implementation of the
Company’s “gas-to-liquids” project strategy, the Board has determined not to
treat Mr. Shimizu as an outside director. Therefore, pending the recruitment of
a new outside director to take Mr. Shimizu’s place on the Audit Committee, the
Audit Committee will not consist solely of outside directors. However, a
majority of the directors on the Audit Committee are unrelated outside
directors, as contemplated by the Proposed TSX Listing Standards and the
Proposed TSX Amendments.

     Compensation 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 Company’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 members of the Compensation Committee are Messrs. Balloch and Flood, both
of whom are unrelated directors. Effective May 14, 2003, Mr. Martin, a related
director, resigned from the committee to ensure that it consisted solely of
unrelated directors in order to align with the Proposed TSX Amendments. The
Board has determined to add an additional outside unrelated director to the
Compensation Committee at such time as he or she is elected or appointed to the
Board.

     Nominating and Corporate Governance Committee

The Nominating and 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 Company’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. Flood and Balloch. Mr. Balloch is chairman of the
committee. Both members of the committee are outside unrelated directors.

21

 

Alignment with the TSX Guidelines

The Company’s statement of corporate governance practices is set out in
Schedule “A” to this Management Proxy Circular. In addition to indicating how
the Company’s governance practices align with the existing 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 Company is not aware of any matter to come before the Meeting
other than the matters referred to in the Notice of Meeting.

DIRECTORS’ APPROVAL

The contents of this Management Proxy Circular and its distribution to
shareholders have been approved by the Board of Directors of the Company.

DATED at Vancouver, British Columbia as of the 14th day of May, 2003.

BY ORDER OF THE BOARD

BEVERLY A. BARTLETT

CORPORATE SECRETARY

22

 

SCHEDULE “A”

STATEMENT OF CORPORATE GOVERNANCE PRACTICES

The Company’s Statement of Corporate Governance Practices is set out below. In
addition to indicating how the Company’s governance practices align with the
TSX Guidelines, the statement describes those governance practices with
reference to the Proposed TSX Listing Standards and the Proposed TSX
Amendments.

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Does the	 	 
	 	 	 	 	 	 	Company	 	 
	TSX Corporate Governance Guideline	 	Align?	 	Comments
	
	 	
	 	

	1.	 	 	Mandate of the Board	 	 	 	 
	 
	 	 	The board of directors of every
corporation should explicitly assume
responsibility for stewardship of the
corporation.
	 	Yes
	 	The Board of Directors has
assumed responsibility for the
stewardship of the Company and
has adopted a 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 planning
process;
	 	Yes
	 	In May, 2003, the Board
adopted a strategic planning
process which involves, among
other things, the following:
	 
	 	 	 	 	 	 	 	 	(i) at least one meeting per
year will be devoted
substantially to review of
strategic plans that are
proposed by management;
	 
	 	 	 	 	 	 	 	 	(ii) meetings of the Board, at
least quarterly, to discuss
strategic planning issues;
	 
	 	 	 	 	 	 	 	 	(iii) the Board reviews and
assists management in forming
short and long term objectives
of the Company on an ongoing
basis;
	 
	 	 	 	 	 	 	 	 	(iv) the Board also maintains
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 risks of the corporation’s
business and ensuring the
implementation of appropriate systems
to
	 	Yes
	 	In order to ensure that the
principal business risks borne
by the Company are identified
and appropriately managed, the
Board receives periodic
reports from management of the
Company’s assessment and

 

 

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Does the	 	 
	 	 	 	 	 	 	Company	 	 
	TSX Corporate Governance Guideline	 	Align?	 	Comments
	
	 	
	 	

	 	 	 	 	manage these risks;
	 	 	 	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
Company’s business.
	 
	 	 	
(c)
	 	succession planning, including
appointing, training and monitoring
senior management;
	 	Yes
	 	The Board takes ultimate
responsibility for the
appointment and monitoring of
the Company’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
corporation;
	 	Yes
	 	The Company has a disclosure
policy addressing, among other
things, how the Company
interacts with analysts and
the public, and contains
measures for the Company to
avoid selective disclosure.
Effective May 14, 2003, the
Company has established a
Disclosure Committee
responsible for overseeing the
Company’s disclosure
practices. This committee
consists of the Chairman, the
Chief Executive Officer, the
Chief Financial Officer, the
Corporate Secretary and senior
Corporate Communications and
Investor Relations Department
personnel, and receives advice
from the Company’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
Company’s material disclosure
documents, including its
Annual Report on Form 10-K,
Quarterly Reports on Form 10-Q
and management proxy circular.
The Company’s annual and
quarterly financial reports,
(including 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 internal control and
management information systems
	 	Yes
	 	The Audit Committee has the
responsibility to monitor and
assess the integrity of the
Company’s internal controls
and management information
systems, review

24

 

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Does the	 	 
	 	 	 	 	 	 	Company	 	 
	TSX Corporate Governance Guideline	 	Align?	 	Comments
	
	 	
	 	

	 	 	 	 	 
	 	 	 	them with
management and the Company’s
external auditors, and report
to the Board with respect
thereto.
	 
	2.	 	 	 	Composition of the Board
	 	 	 	 
	 
	 	 	 	 	The board of directors of every
corporation should be constituted
with a majority of individuals who
qualify as unrelated directors.
	 	No
	 	At the date of this Circular,
two of the seven members of
the Board of Directors are
“unrelated”, both as that term
is defined in the existing TSX
Guidelines and as it is
defined in the Proposed TSX
Amendments. Accordingly, at
least two directors are
unrelated, as contemplated by
the Proposed TSX Listing
Standards. The Board is not,
however, presently constituted
with a majority of individuals
who qualify as unrelated
directors.
	 
	 
	 	 	 	 	 	 	 	 	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
	 
	 	 	 	 	 	 	 	 	(i) 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
	 
	 	 	 	 	 	 	 	 	(ii) is not an officer,
employee or controlling
shareholder of an entity that
has a material business
relationship with the issuer.
	 
	 	 	 	 	 	 	 	 	A “related director” is a
director who is not an
unrelated director or is a
member of management.

25

 

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Does the	 	 
	 	 	 	 	 	 	Company	 	 
	TSX Corporate Governance Guideline	 	Align?	 	Comments
	
	 	
	 	

	 	 	 	 	 	 	 	 	The Board seeks to achieve a
greater representation of
unrelated directors and has
determined to continue to
seek, through its Nominating
and Corporate Governance
Committee, additional
qualified candidates to
augment its experience and
expertise and to enhance the
Company’s ability to
effectively develop its
business interests. In so
doing, the Nominating and
Corporate Governance Committee
will seek candidates that meet
all Canadian, U.S. and other
standards of independence that
are applicable to the Company.
	 
	 	 	 	If the corporation has a significant
shareholder, 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.
	 	Not Applicable
	 	The TSX Guidelines define
“significant shareholder” to
mean a shareholder with the
ability to exercise a majority
of the votes for the election
of the board of directors.
The Company does not have a
“significant shareholder” as
so defined.
	 
	 	 	 	Disclose for each director whether he
or she is related, and how that
conclusion was reached.
	 	 	 	Messrs. Martin, Daniel,
Friedland, Shimizu and Carver
are considered to be related
directors. Messrs. Martin,
Carver and Daniel are related
directors in their capacity as
members of the Company’s
senior management. Mr.
Friedland, although not a
member of the Company’s
management team, works closely
with management personnel on
matters relating to the
implementation of the
Company’s corporate strategy,
financing, evaluation of
corporate opportunities and
investor relations. Mr.
Friedland does not participate
in the day to day management
of the Company’s affairs but
is consulted regularly by the
Company’s management personnel
in respect of key management
decisions. Insofar as Mr.
Friedland is not a member of
the Company’s senior
management, but is regularly
consulted by management
personnel as described above,
as such, the Company considers
Mr. Friedland to be a related
director. Mr. Shimizu,
although not currently an
active member of the Company’s
senior management team, is the
managing director of a
consulting company that
provides ongoing consulting
services to the Company

26

 

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Does the	 	 
	 	 	 	 	 	 	Company	 	 
	TSX Corporate Governance Guideline	 	Align?	 	Comments
	
	 	
	 	

	 	 	 	 	 	 	 	 	for
which the consulting company
receives a monthly retainer
from the Company. Mr. Shimizu
is also expected to take an
active role as managing
director of the Company’s new
Japanese subsidiary, as part
of the development and
implementation of the
Company’s “gas-to-liquids”
project strategy. As such, the
Company considers Mr. Shimizu
to be a related director.
	 
	 	 	 	 	 	 	 	 	Messrs. Flood and Balloch 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
from 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 Company, other than
interests and relationships
arising solely from
shareholdings in the Company,
and who are not currently and
have not been within the last
three years, officers,
employees or material service
providers to the Company or
any of its subsidiaries or
affiliates, or officers,
employees or controlling
shareholders of an entity that
has a material business
relationship with the Company.
In coming to such
determination, the Board
considered the following:
	 
	 	 	 	 	 	 	 	 	- with respect to Mr. Flood,
the Board has considered his
position as a director, senior
officer and member of
management of Ivanhoe Mines
Ltd. and other companies in
which Mr. Robert Friedland, a
related director and major
shareholder of the Company,
also acts as a director,
officer and major shareholder.
The Board has noted that, as
discussed under item 2 above,
Mr. Friedland does not
participate in the day to day
management of the Company’s
affairs (although he is
consulted regularly by
management personnel in
respect of key management
decisions). The Board also
noted, however, that Mr. Flood
has no business, family or
other relationship with senior
management of the Company.
Having regard to all of the
circumstances, the Board has
determined that Mr. Flood is
independent from management of
the Company and that his
business relationship with Mr.
Friedland is not of such a
nature as

27

 

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Does the	 	 
	 	 	 	 	 	 	Company	 	 
	TSX Corporate Governance Guideline	 	Align?	 	Comments
	
	 	
	 	

	 	 	 	 	 
	 	 	 	to materially
interfere with his ability to
act with a view to the best
interests of the Company.
	 
	4.	 	 	 	Nominating/Corporate Governance Committee
	 	 	 	
	 
	 	 	 	The board of directors of every
corporation should appoint a
committee of directors composed
exclusively of outside (i.e.
non-management) directors, with the
responsibility of proposing to the
full board new nominees to the board
and for assessing directors on an
ongoing basis.
	 	Yes
	 	The Board has appointed a
Nominating and Corporate
Governance Committee,
effective May 14 , 2003,
consisting of Messrs. Flood
and Balloch, both of whom are
outside unrelated directors,
both as defined in the TSX
Guidelines and in the proposed
TSX Amendments. Mr. Balloch
has been appointed as Chairman
of the committee. In keeping
with the Company’s plans to
reconstitute all committees of
the Board as described under
item 9 below, the Board has
determined to appoint an
additional outside unrelated
director to the Nominating and
Corporate Governance Committee
at such time as he or she is
elected or appointed to the
Board. The full Board will
determine, in light of the
opportunities and risks facing
the Company, what
competencies, skills and
personal qualities it should
seek in new Board members in
order to add value to the
Company. Based on this
framework, the Nominating and
Corporate Governance Committee
has responsibility for
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 process to be carried out
by the nominating committee or other
appropriate committee for assessing
the effectiveness of the board, as a
whole, the committees of the board
and the contribution of individual
directors.
	 	Yes
	 	The Nominating and Corporate
Governance Committee is
charged with the
responsibility for developing
and recommending to the Board,
and overseeing the execution
of, a process for assessing
the effectiveness of the Board
as a whole, the committees of
the Board and the 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.

28

 

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Does the	 	 
	 	 	 	 	 	 	Company	 	 
	TSX Corporate Governance Guideline	  	Align ?	 	Comments
	
	 	
	 	

	 
	6.	 	 	 	Orientation and Education	 	 	 	 
	 
	 	 	 	Every corporation, as an integral
element of the process of appointing
new directors, should provide an
orientation and education program for
new recruits to the board.
	 	Yes
	 	The Company takes steps to
ensure that prospective
directors fully understand the
role of the Board and its
committees and the
contribution individual
directors are expected to
make, including, in particular
the commitment of time and
energy that the Company
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 Company’s business.
Directors are provided with
the opportunity to make site
visits to the Company’s
properties.
	 
	 	 	 	 	 	 	 	 	Management and outside
advisors provide information
and education sessions to the
Board and its committees on a
continuing basis as necessary
to keep the directors
up-to-date with the Company,
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.

29

 

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Does the	 	 
	 	 	 	 	 	 	Company	 	 
	TSX Corporate Governance Guideline	 	Align?	 	Comments
	
	 	
	 	

	7.	 	 	 	Size and Composition of the Board	 	 	 	 
	 
	 	 	 	Every board of directors should
examine its size and undertake, where
appropriate, a program to establish a
board size which facilitates
effective decision-making.
	 	Yes
	 	The Board has directed the
Nominating and Corporate
Governance Committee to
examine the size and
composition of the Board and
to recommend adjustments to
ensure that the Board has a
balanced representation among
management, unrelated
directors and the Company’s
major shareholder, and is of a
size that facilitates
effective decision-making,
given the Company’s stage of
development and the size and
complexity of its business.
The Board seeks to achieve a
greater representation of
unrelated directors and has
determined to continue to
seek, through its Nominating
and Corporate Governance
Committee, additional
qualified candidates to
augment its experience and
expertise and to enhance the
Company’s ability to
effectively develop its
business interests.
	 
	8.	 	 	 	Compensation	 	 	 	 
	 
	 	 	 	The board of directors should review
the adequacy and form of compensation
of directors and ensure the
compensation realistically reflects
the responsibilities and risk
involved in being an effective
director.
	 	Yes
	 	The Company’s unrelated
directors receive director’s
fees of $2,000 per month but
the Company does not pay any
other cash or fixed
compensation to its directors
for acting in such capacity.
Directors of the Company are
compensated primarily through
the grant of stock options.
	 
	 	 	 	 	 	 	 	 	The Board acts through its
Compensation 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. Balloch
and Flood, both of whom are
unrelated directors.
Effective May 14, 2003, Mr.
Martin, a related director,
resigned from the committee to
ensure that it consisted

30

 

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Does the	 	 
	 	 	 	 	 	 	Company	 	 
	TSX Corporate Governance Guideline	 	Align?	 	Comments
	
	 	
	 	

	 	 	 	 	 
	 	 	 	solely of unrelated directors
in order to align with the
Proposed TSX Amendments. The
Board has determined to add an
additional outside unrelated
director to the Compensation
Committee at such time as he
or she is elected or appointed
to the Board.
	 
	9.	 	 	 	Composition of Committees
	 	 	 	 
	 
	 	 	 	Committees of the
board of directors
should generally be
composed of outside
(i.e.
non-management)
directors, the
majority of whom
are unrelated
directors, although
some board
committees may
include one or more
inside directors.
	 	Yes (except Audit
Committee. See
comments to TSX
Guideline 13.)
	 	The Board of Directors has
established three standing
committees of directors (the
Audit Committee, the
Compensation Committee and the
Nominating and Corporate
Governance Committee). Except
for the Audit Committee, each
committee is composed entirely
of outside unrelated
directors. The Audit Committee
is composed of a majority of
outside unrelated directors.
The Board has determined to
appoint a new outside
unrelated director in the
place of Mr. Shimizu on the
Audit Committee and to add an
additional outside independent
director to each of the
Compensation Committee and the
Nominating and Corporate
Governance Committee at such
time as he or she is elected
or appointed to the Board.
Once this occurs, all standing
committees of the Board will
be composed solely of outside
unrelated directors.
	 
	10.	 	 	 	Governance Committee	 	 	 	 
	 
	 	 	 	Every board of
directors should
assume
responsibility for,
or assign to a
committee of
directors, the
general
responsibility for,
developing the
corporation’s
approach to
governance issues.
This committee
would, among other
things, be
responsible for the
corporation’s
response to the TSX
Guidelines.
	 	Yes
	 	The Nominating and Corporate
Governance Committee is
responsible for making
recommendations to the Board
relating to the Company’s
approach to corporate
governance and the Company’s
response to the TSX
Guidelines.
	 
	11.	 	 	 	Position Descriptions	 	 	 	 
	 
	 	 	 	The board of
directors, together
with the CEO,
should develop
position
descriptions for
the Board and for
the CEO, including
the definition of
limits to
management’s
responsibilities.
	 	Yes
	 	The Board of Directors has
adopted a formal mandate for
the Board, as stated in Item
1, and is developing a formal
position description for the
CEO. As described under item
7 above, the Board of
Directors seeks to achieve a
greater representation of
unrelated directors and has
directed its Nominating and

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	 	 	 	 	 	 	Company	 	 
	TSX Corporate Governance Guideline	 	Align?	 	Comments
	
	 	
	 	

	 	 	 	 	 	 	 	 	Corporate Governance
Committee, as part of this
process, to develop
recommendations for structures
and procedures that will
clearly define the limits to
management’s responsibilities.
The Board of Directors
requires management to obtain
the Board of 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 Company’s performance and
events affecting the Company’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 or develop
the corporate
objectives, which
the CEO is
responsible for
meeting.
	 	Yes
	 	The Board of Directors is
developing specific financial
and business objectives for
the Company, which will be
used as a basis for measuring
the performance of the CEO.
	 
	12.	 	 	 	Procedures to Ensure Independence	 	 	 	 
	 
	 	 	 	Every board of
directors should
implement
structures and
procedures which
ensure that the
board can function
independently of
management. An
appropriate
structure would be
to (i) appoint a
chair of the board
who is not a member
of management with
responsibility to
ensure the board
discharges its
responsibilities or
(ii) assign this
responsibility to
an outside
director, sometimes
referred to as the
“lead director”.
The chair or lead
director should
ensure that the
board carries out
its
responsibilities
effectively which
will involve the
board meeting on a
regular basis
without management
present and may
involve assigning
the responsibility
for administering
the board’s
relationship to
management to a
committee of the
board.
	 	No
	 	Mr. Martin, a related
director, currently serves as
Chairman of the Board of
Directors.

The Board has determined to
implement structures and
procedures which ensure that
it can function independently
of management, through the
process described in item 11
above. To the extent that the
Nominating and Corporate
Governance Committee
determines that it would not
be in the Company’s best
interests at this time to
cease to have a Chairman of
the Board, who, as a member of
senior management, has
extensive experience and
knowledge of the Company’s
business, the Board has
directed the committee to
consider the creation of the
position of lead director with
specific responsibility for
maintaining the independence
of the Board and ensuring that
the Board carries out its
responsibilities as
contemplated by the Proposed
TSX Amendments.

The Board has also directed
the Nominating and Corporate
Governance Committee to

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	 	 	 	 	 	 	Company	 	 
	TSX Corporate Governance Guideline	 	Align?	 	Comments
	
	 	
	 	

	 	 	 	 	 	 	 	 	develop procedures to permit
it to serve as 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.
	 
	 	 	 	 	 	 	 	 	Upon the addition of
additional unrelated
directors, the Board has
determined to set aside a
portion of each regularly
scheduled meeting to discuss
any issues without management
directors being present. In
addition, all committees may
meet without management or
related directors being
present at the request of any
directors.
	 
	13.	 	 	 	Composition of the Audit Committee	 	 	 	 
	 
	 	 	 	The audit committee
of every board of
directors should be
composed only of
outside directors.
	 	No
	 	The Audit Committee is
composed of one inside
director in Mr. Shimizu and
two outside directors in
Messrs. Balloch and Flood. The
Company considers Mr. Shimizu
to be an inside director as
discussed under item 2 above.
The Board has determined to
appoint a new outside director
to the Audit Committee in the
place of Mr. Shimizu once an
additional outside unrelated
director is elected or
appointed to the Board. Once
this occurs, the Audit
Committee will be composed
only of outside 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.

33

 

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Does the	 	 
	 	 	 	 	 	 	Company	 	 
	TSX Corporate Governance Guideline	 	Align?	 	Comments
	
	 	
	 	

	 	 	 	The roles and
responsibilities of
the audit committee
should be
specifically
defined so as to
provide appropriate
guidance to audit
committee members
as to their duties
	 	Yes
	 	The mandate of the Audit
Committee includes the
overseeing of the Company’s
financial reporting
obligations, systems and
disclosure, including
monitoring the integrity of
the Company’s financial
statements, monitoring the
independence and performance
of the Company’s external
auditors and acting as a
liaison between the Board and
the Company’s auditors. The
activities of the Audit
Committee include reviewing
the Company’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 Company’s auditors.
	 
	 	 	 	 	 	 	 	 	An amended 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
communication
channels with the
internal and the
external auditors
to discuss and
review specific
issues as
appropriate
	 	Yes
	 	The Audit Committee has
regular access to the Chief
Financial Officer of the
Company. The external
auditors regularly attend all
meetings of the Audit
Committee. At each meeting of
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

34

 

	 	 	 	 	 	 	 	 	 
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	 	 	 	 	 	 	Company	 	 
	TSX Corporate Governance Guideline	 	Align?	 	Comments
	
	 	
	 	

	 	 	 	 	 	 	 	 	meeting with the external
auditors without management
being present, at the
committee’s discretion.
	 
	 	 	 	Audit Committee
duties should
include oversight
responsibility for
management
reporting on
internal control.
While it is
management’s
responsibility to
design and
implement an
effective system of
internal control,
it is the
responsibility of
the Audit Committee
to ensure that
management has done
so.
	 	Yes
	 	The Audit Committee oversees
management reporting on the
Company’s internal controls
and annually reviews
management’s system of
internal control to ensure
that it is effective.
	 
	15.	 	 	 	External Advisors	 	 	 	 
	 
	 	 	 	The board of
directors should
implement a system
which enables
individual
directors to engage
an outside advisor,
at the expense of
the company in
appropriate
circumstances. The
engagement of the
outside advisor
should be subject
to the approval of
an appropriate
committee of the
board.
	 	Yes
	 	Each committee is empowered to
engage external advisors as it
sees fit. Any individual
director is entitled to engage
an outside advisor at the
expense of the Company
provided that such director
has obtained the approval of
the Nominating and Corporate
Governance Committee to do so.

35

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