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Crystallex International Corporation is a Canadian-based gold company with a successful record of developing and operating gold mines in Venezuela and elsewhere in South America
Message: BUSINESS OF THE MEETING, need to read carefully/ VOTE NO
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BUSINESS OF THE MEETING
Approval of New Incentive Share Option Plan
Background of the New Incentive Share Option Plan
The Board of Directors of the Corporation has concluded that it would be in the Corporation’s best interest to adopt
a new incentive share option plan (the “New Share Option Plan” or “New SOP”), subject to approval of the
shareholders of the Corporation. At the Meeting, shareholders of the Corporation will be asked to approve the New
Share Option Plan.
The purpose of the New Share Option Plan is to provide certain directors, officers and key employees of the
Corporation and certain other persons who provide services to the Corporation (“eligible persons”) with an
opportunity to purchase Common Shares and benefit in any appreciation in the value of the Common Shares. This
is intended to provide an increased incentive for eligible persons to contribute to the future success and prosperity of
the Corporation, thus enhancing the value of the Common Shares for the benefit of all the shareholders and (me...say what, really)
increasing the ability of the Corporation to attract and retain skilled and motivated individuals in the service of the
Corporation. (me... was there before, many left) Approval of the New Share Option Plan is in the best interest of the Corporation for the following
additional reasons:
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• The issuance of share options for the above purposes is an accepted and customary compensation
arrangement in the mineral resource industry. Share option increase the alignment of interests between a
company and its management employees and service providers. (me.... at this share price thats opportunistic)• The inability to award share options would place the Corporation in a disadvantaged position relative to its
competitors to attract and retain top talent. (KRY is basically in care and maintenance mode right now or until permit is issued, not needed now)
• The inability to issue options would result in an increased drain on cash resources that would otherwise be
more efficiently deployed to further the economic interests of the business and all of its shareholders. (Financing at this level over dilutive on the cheap same as giving away options at this level, use cash wisely, cut cost, pink slip as many as you can, start with IR work your way down)
The Corporation believes its business depends on its ability to attract and keep talented employees. Share options
remain a key compensation element as a means of attracting, retaining and motivating directors, officers, consultants
and key employees necessary for its continued growth and success. The inability to award share options places the
Corporation at a disadvantage against other companies which can award share options and against which the
Corporation competes to secure highly skilled employees. Share options are an integral part of compensation
currency that reduce the need to compensate management employees and service providers using the Corporation’s
cash reserves. The Corporation also believes that share options are an incentive to tie the performance of its
management employees and service providers to its share price, thus increasing shareholder value. (after permit you will get all you need, higher share price, higher currency, thus increasing shareholder value)
The shareholders of the Corporation previously approved the Corporation’s inventive share option plan (the
“Former Incentive Share Option Plan” or “Former SOP”) in June 2002. Subsequently, shareholders of the
Corporation approved an amendment to the Former SOP to increase the maximum number of Common Shares
issued and issuable under the Former SOP in June 2005, and certain amendments to the Former SOP relating to
blackout periods, cashless exercise and the addition of detailed amendment provisions in June 2007. Effective June
24, 2008, the Corporation ceased to grant options under the Former SOP. The Former SOP provided that the
maximum number of Common Shares issuable under the Former SOP be equal to 10% of the issued and outstanding
Common Shares from time to time. As at October 9, 2008, options to purchase an additional 11,136,755 Common
Shares under the Former SOP were outstanding. No additional options to acquire Common Shares are available for
grant under the Former SOP. For additional information concerning the Former Incentive Share Option Plan please
see “Equity Compensation Plans - Former Incentive Share Option Plan”)
There will be no change to the terms of the above-described options issued and outstanding under the Former SOP
and no consolidation of the options already granted under the Former SOP will be made into the New SOP of the
Corporation.
Summary of Material Terms of the New Share Option Plan
There is a maximum of 15,000,000 Common Shares reserved for issuance under the New SOP, representing
approximately 5% of the issued and outstanding Common Shares as at the date of this Circular. The New SOP
provides that any one individual cannot receive options under the SOP which will entitle such individual to receive
more than 5% of the issued and outstanding Common Shares of the issuer. The New SOP limits insider
participation such that the number of Common Shares reserved for issuance at any point in time and issued to
insiders over any one year period, under the New SOP and any other security-based compensation arrangement,
does not exceed 10% of issued and outstanding Common Shares.
The Board will set the term of options granted under the New SOP and such term cannot exceed 10 years. The
Board fixes the vesting terms it deems appropriate when granting options. The exercise price and the exercise
periods of options granted under the New SOP are determined at the time of grant. The New SOP provides that
exercise price of options may not be lower than the closing price of the Common Shares on the TSX on the trading
day immediately preceding the date of grant. Previously granted options under the New SOP will be available for
re-allocation if they expire or are cancelled prior to their exercise. If the holder of an option ceases to be an eligible
person for any reason (including termination of their employment with the Corporation for cause), unless otherwise
determined or provided in an employment agreement between the holder and the Corporation, all unvested options
held by the holder expire and all vested options held by the holder must be exercised, in the case of death, within the
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lesser of the remainder of the exercise period and 12 months after the holder ceased to be an eligible person and, in
all other cases, during the remainder of the exercise period. Options may not be assigned or transferred with the
exception of an assignment made to a personal representative of a deceased participant.
The Corporation does not provide financial assistance to holders of options to facilitate the purchase of Common
Shares on the exercise of their options. Options granted under the New SOP may be transferred only on death and
are exercisable during the lifetime of the holder only by the holder and after the death of the holder only by the
holder’s legal representative.
The New SOP permits the exercise of certain options which would otherwise have expired during or within 10
business days following a period in which trading in the Common Shares is restricted by the policies of the
Corporation. The New SOP also provides the Board with the flexibility to permit eligible participants in the New
SOP to receive, without payment by the participant of any additional consideration, Common Shares equal to the
value of the option (or the portion thereof) being exercised by surrender of the option to the Corporation.
The Board may amend or terminate the New SOP at any time in accordance with its terms subject to any applicable
regulatory or other approvals. The Board has the discretion to make amendments which it may deem necessary,
without having to obtain shareholder approval. Such changes include, without limitation:
1. minor changes of a “house-keeping” nature;
2. amending options under the New SOP, including with respect to the option period (provided that the period
during which an option is exercisable does not exceed 10 years from the date the option is granted and that such
option is not held by an insider), vesting period, exercise method and frequency, exercise price or purchase
price, assignability and effect of termination of a participant’s employment or cessation of the participant’s
directorship;
3. changing the class of participants eligible to participate under the New SOP;
4. advancing the date on which any option may be exercised or extending the expiration date of any option,
provided that the period during which an option is exercisable does not exceed 10 years from the date the option
is granted;
5. changing the terms and conditions of any financial assistance which may be provided by the Corporation to
participants to facilitate the purchase of Common Shares under the New SOP; and
6. amending a cashless exercise feature, payable in cash or securities, whether or not providing for a full deduction
of the number of underlying Common Shares from the New SOP reserve.
Notwithstanding the amendment provisions contained in the New SOP, approval of the shareholders of the
Corporation will be required in the case of (i) any amendment to the amendment provisions of the New SOP, (ii) any
increase in the maximum number of Common Shares issuable under the New SOP, (iii) any reduction in the exercise
price or any extension of the term of outstanding options benefiting an insider, and (iv) any changes to the insider
participation limits which result in the security holder approval to be required on a disinterested basis, in addition to
such other matters that may require shareholder approval under the rules and policies of the TSX. No amendment or
termination of the New SOP may change any rights of a holder of options without the consent of the holder.
The full text of the New Share Option Plan will be available for review at the Meeting.
Shareholder Approval
The Board of Directors of the Corporation has determined that the adoption of the New Share Option Plan is in the
best interest of the Corporation and recommends that shareholders vote in favour of the following resolution:
“BE IT RESOLVED THAT:
1. the adoption of the Corporation’s New Share Option Plan be and is hereby ratified, confirmed and
approved; and
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2. any director or officer of the Corporation is hereby authorized and directed, for and on behalf of the
Corporation, to do all such acts and things and to execute, whether under the corporate seal of the
Corporation or otherwise, and deliver all such documents and instruments as may be considered necessary
or desirable to give effect to the foregoing.”
Unless otherwise directed, the persons named in the accompanying form of proxy intend to vote “For” the
resolution to approve the New Share Option Plan as set out above.
Ratification of Share Options Granted
On August 22, 2008, the Board of Directors of the Corporation granted share options to purchase an aggregate of
4,619,000 Common Shares of the Corporation to certain directors, officers, employees and consultants (collectively,
the “New Optionees”), subject to regulatory and shareholder approval, as set out below:
Name Number of Options Granted
Exercise
Price Expiry Date
Directorship(1) Bonus(2) Permit
Success(3) Promotion(4) Total
Robert Crombie,
President - 92,000 - 300,000 392,000 $1.10 August 21,
2013
Robert A. Fung,
Executive
Chairman & CEO
33,000 257,000 500,000 - 790,000 $1.10 August 21,
2018
Gordon M.
Thompson,
President & CEO,
Director
33,000 - - - 33,000 $1.10 August 21,
2018
Michael Brown,
Director 57,000 - 100,000 - 157,000 $1.10 August 21,
2018
C. William
Longden,
Director
39,000 - - - 39,000 $1.10 August 21,
2018
Harry J. Near,
Director 36,000 241,000 300,000 - 577,000 $1.10 August 21,
2018
Marc O.
Oppenheimer,
Director
33,000 245,000 - - 278,000 $1.10 August 21,
2018
Johan C. van’t
Hof, Director,
Chairman of
Audit Committee
45,000 - - - 45,000 $1.10 August 21,
2018
Armando F.
Zullo, Director 33,000 - - - 33,000 $1.10 August 21,
2018
A. Richard
Marshall, Vice
President,
Investor Relations
- 47,000 300,000 - 347,000 $1.10 August 21,
2013
Employees - 8,000 820,000 - 1,175,000 $1.10 August 21,
2013
Consultants - - 1,100,000 - 1,100,000 $1.10 August 21,
2013
Total 309,000 890,000 3,120,000 300,000 4, 619,000
Notes:
(1) Annual compensation for service on the Board of Directors and membership on Committees of the Board. These options vest
immediately upon shareholder approval.
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(2) Compensation for additional services. These options vest immediately upon shareholder approval.
(3) Compensation for services rendered in pursuit of the Permit to Impact Natural Resources at Las Cristinas (the “Permit”). These
options vest upon the grant of the Permit.
(4) Grant to Mr. Crombie who was appointed President on June 3, 2008. These options vest immediately upon approval.
It is the opinion of the Board of Directors that the ratification and approval of the options is in the best interest of the
Corporation as an incentive to retain current key employees, directors and consultants, and reduces the need to
compensate such individuals using the Corporation’s cash reserves that would otherwise be more efficiently
deployed to further the economic interests of the Corporation and all of its shareholders.
The grant of options to the New Optionees is subject to approval of disinterested shareholders of the Corporation. At
the time of grant, there were no Common Shares available for issuance pursuant to the exercise of options under the
Former SOP (see “Equity Compensation Plans - Former Incentive Share Option Plan – 2008 Cessation of Former
SOP”). Accordingly, the grant of options to the New Optionees as a group was in excess of the available Common
Shares issuable under the Corporation’s incentive share option plans. The grant of the 4,619,000 options must be
ratified by the disinterested shareholders of the Corporation at the Meeting and must be approved by the TSX to be
effective. None of the options granted to the New Optionees may be exercised until such shareholder ratification and
TSX approval has been obtained.
In the event that the New Incentive Share Option Plan discussed under “Business of the Meeting – Approval of new
Inventive Share Option Plan” above is approved at the Meeting, the 4,619,000 options granted to the New Optionees
will be consolidated into the New Share Option Plan and will be included as part of the aggregate number of
Common Shares issuable pursuant to the exercise of options granted under the New Incentive Share Option Plan. If
the New Incentive Share Option Plan is not approved by shareholders at the Meeting, and the 4,619,000 options
granted to the New Optionees are approved and ratified, the approved and ratified options will continue to be
standalone options.
The Board of Directors of the Corporation has determined that the grant of options to the New Optionees is in the
best interest of the Corporation and recommends that shareholders vote in favour of the following resolution. The
approval of this resolution will require the affirmative vote of at least a simple majority of votes cast by shareholders
present in person or represented by proxy at the Meeting, other than in respect of Common Shares held by the New
Optionees.
“BE IT RESOLVED THAT:
1. the grant of options to acquire an aggregate of 4,619,000 common shares of the Corporation to D. Robert
Crombie, Robert A. Fung, Gordon M. Thompson, Michael Brown, C. William Longden, Harry J. Near,
Marc O. Oppenheimer, Johan C. van’t Hof, Armando F. Zullo, A. Richard Marshall and certain employees
and consultants of the Corporation on August 22, 2008 be and is hereby ratified, approved and confirmed;
and
2. any director or officer of the Corporation is hereby authorized and directed, for and on behalf of the
Corporation, to do all such acts and things and to execute, whether under the corporate seal of the
Corporation or otherwise, and deliver all such documents and instruments as may be considered necessary
or desirable to give effect to the foregoing.”
Unless otherwise directed, the persons named in the accompanying form of proxy intend to vote “For” the
resolution to ratify the share options granted as set out above.
Approval of Amendment to Directors Remuneration Plan
Background of the DRP
The shareholders of the Corporation approved the Directors Remuneration Plan (the “DRP”) of the Corporation in
December 1998.
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The DRP is administered by the Corporation’s Nominating and Compensation Committee. The purpose of the DRP
is to provide for the issue of Common Shares to the directors of the Corporation and its associated and affiliated
companies in lieu of cash compensation payable to them in respect of their service as directors of the Corporation
and its associated and affiliated companies. The Board made a number of minor “housekeeping” amendments to the
DRP effective as of January 1, 2005. None of these amendments were material or required shareholder approval.
The Board of Directors has determined that it is in the best interest of the Corporation to continue to have the ability
to compensate directors for their services through the issuance of Common Shares, thus preserving cash. The
maximum number of Common Shares issued and issuable under the DRP is currently 600,000, representing 0.2% of
the issued and outstanding Common Shares as of the date of this Circular. The Corporation currently has a limited
number of Common Shares, being 4,110, available to be issued to directors under the DRP. Accordingly, at the
Meeting shareholders will be asked to approve an increase in the number of Common Shares issuable under the
DRP by a further 600,000, to a total of 1,200,000.
Summary of Material Terms
Upon shareholder approval to increase the number of Common Shares issuable under the DRP by a further 600,000,
the maximum number of Common Shares issued and issuable under the DRP will be 1,200,000, representing 0.4%
of the issued and outstanding Common Shares as of the date of this Circular. The maximum number of Common
Shares issued over any one year period or issuable at any one time to insiders under the DRP and any other share
compensation arrangement of the Corporation is 10% of the Common Shares outstanding at that time on a nondiluted
basis. The maximum number of Common Shares which may be issued to any one insider within a one-year
period under the DRP and any other shareholder compensation agreement, is 5% of the issued and outstanding
Common Shares of the Corporation.
The issue price per share of any Common Shares issued under the DRP may not be less than the closing price of the
Common Shares on the TSX on the trading day immediately preceding the date of issue.
The Board may amend or terminate the DRP at any time subject to any required regulatory or other approvals. The
maximum number of Common Shares issued and issuable under the DRP may not be increased without the approval
of the shareholders of the Corporation.
Shareholder Approval
The Board of Directors of the Corporation has determined that an increase in the number of Common Shares
issuable under the DRP is in the best interest of the Corporation and recommends that shareholders vote in favour of
the following resolution to amend the DRP of the Corporation. The approval of this resolution will require the
affirmative vote of at least a simple majority of votes cast by shareholders present in person or represented by proxy
at the Meeting, other than in respect of Common Shares held by directors of the Corporation or any corporation that
is an associate, affiliate or subsidiary of the Corporation.
“BE IT RESOLVED THAT:
1. the maximum number of Common Shares which may be reserved for issuance for all purposes under the
Directors Remuneration Plan shall be increased by 600,000 Common Shares to a maximum of 1,200,000
Common Shares or such greater number as may be approved from time to time by the shareholders of the
Corporation, and
2. any director or officer of the Corporation is hereby authorized and directed, for and on behalf of the
Corporation, to do all such acts and things and to execute, whether under the corporate seal of the
Corporation or otherwise, and deliver all such documents and instruments as may be considered necessary
or desirable to give effect to the foregoing.”
Unless otherwise directed, the persons named in the accompanying form of proxy intend to vote “For” the
resolution to amend the Directors Remuneration Plan as set out above.
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EXECUTIVE AND DIRECTOR COMPENSATION
Compensation of Officers
The following table sets out information concerning the compensation paid during the three most recently completed
financial years to (a) each of the individuals who served as the chief executive officer or the chief financial officer of
the Corporation during the most recently completed financial year; (b) each of the three most highly compensated
executive officers of the Corporation, other than the chief executive officer and the chief financial officer, who were
serving as executive officers at the end of the most recently completed financial year and whose total salary and
bonus exceeds $150,000; and (c) each of the individuals who would have been included in (b) if they had been
serving as an officer of the Corporation at the most recently completed financial year end (the “Named Executive
Officers”).
Summary Compensation Table
Annual Compensation Long Term Compensation Awards
Name and
Principal Position Year
Salary
($)
Bonus(1)
($)
Other Annual
Compensation
($)
Securities
Under Options
Granted(2)
(#)
All Other
Compensation
($)
Gordon M. Thompson(3)
President and Chief
Executive Officer
2007
2006
2005
$458,333
Nil
Nil
$150,000
Nil
Nil
$10,239
Nil
Nil
575,000
Nil
Nil
Nil
Nil
Nil
Hemdat Sawh(4)
Chief Financial
Officer
2007
2006
2005
$143,750
Nil
Nil
$57,500
Nil
Nil
$7,041
Nil
Nil
165,000
Nil
Nil
Nil
Nil
Nil
Robert Crombie(5)
Senior Vice-President
Corporate Development
2007
2006
2005
$220,000
$188,750
$175,000
$139,500
$95,000
$30,400
$7,041
$24,271
$13,952
50,000
101,900
26,400
Nil
Nil
Nil
Dr. Richard Spencer(6)
Vice-President
Exploration
2007
2006
2005
$221,667
$210,000
$210,000
$144,500
$105,000
$44,100
$11,335
$14,335
$12,794
50,000
103,700
40,100
Nil
Nil
Nil
Dr. Sadek El-Alfy(7)
Vice-President
Operations
2007
2006
2005
US$228,000
US$228,000
US$228,000
US$56,240
US$90,000
US$36,000
Nil
Nil
Nil
Nil
107,500
36,000
Nil
Nil
Nil
Todd Bruce(8)
Former President and
Chief Executive Officer
2007
2006
2005
$41,667
$500,000
$500,000
Nil
Nil
$90,000
$2,888
$44,457
$24,450
Nil
40,000
105,200
$1,500,000
$33,333
Nil
Daniel Hamilton(9)
Former Chief Financial
Officer
2007
2006
2005
$62,500
$246,167
$204,000
$62,500
$125,000
$30,400
$11,834
$11,798
$11,087
Nil
132,300
26,400
$9,896
Nil
Nil
Notes:
(1) Bonuses are reported in the year in which they were earned, not the year in which they were paid. The bonuses for 2006 consist of an
annual bonus and a special retention bonus.
(2) Options to purchase Common Shares granted during the year.
(3) Mr. Thompson was appointed President and Chief Executive Officer on February 1, 2007. His annual salary was $500,000 and the
amount noted above represents the salary paid to Mr. Thompson from February 1, 2007 to December 31, 2007. Mr. Thompson
resigned as President and CEO on June 3, 2008.
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(4) Mr. Sawh was appointed Chief Financial Officer on May 15, 2007. His annual salary is $244,000 and the amount noted above
represents the salary paid to Mr. Sawh from May 15, 2007 to December 31, 2007.
(5) Mr. Crombie was appointed Senior Vice-President, Corporate Development on April 1, 2007, prior to that he held the position of
Vice-President, Corporate Development and Planning. Mr. Crombie was appointed President on June 3, 2008.
(6) Dr. Spencer resigned as Vice-President, Explorations on January 15, 2008.
(7) Dr. El-Alfy resigned as Vice-President, Operations on February 20, 2008.
(8) Mr. Bruce resigned as President and Chief Executive Officer on January 31, 2007. His annual salary was $500,000 and the amount
noted above represents the salary paid to Mr. Bruce from January 1, 2007 to the date of his resignation. The amount noted under “All
Other Compensation” in 2007 represents severance payments of $1,500,000 over the period from January 31, 2007 to January 31,
2008; and in 2006 represents compensation paid on December 22, 2006 in respect of unused vacation time.
(9) Mr. Hamilton resigned as the Chief Financial Officer effective on March 31, 2007. His annual salary was $250,000 and the amount
noted above represents the salary paid to Mr. Hamilton from January 1, 2007 to the date of his resignation. The amount noted under
“All Other Compensation” in 2007 represents compensation paid in respect of unused vacation time.
Options Granted
The following table sets out information concerning options for Common Shares granted to the Named Executive
Officers during 2007.
Option Grants During the Most Recently Completed Financial Year
Name
Securities
Under
Options
Granted(1)
(#)
% of Total
Options
Granted to
Employees in
Year(2)
Exercise or
Base Price
($/Security)
Market Value
of Securities
Underlying
Options on the
Date of Grant
($/Security)
Expiration
Date
Gordon M. Thompson 400,000(3)
25,000
150,000
25.00%
2.00%
9.00%
$3.41
$4.46
$2.13
$3.41
$4.46
$2.13
February 1, 2012
June 28, 2017
December 24, 2012
Hemdat Sawh 150,000(4)
90,000(5)
25,000
9.00%
6.00%
2.00%
$4.79
$4.64
$2.30
$4.79
$4.64
$2.30
May 17, 2012
June 6, 2012
December 3, 2012
Dr. Richard Spencer 50,000 4.00% $2.30 $2.30 December 3, 2012
Robert Crombie 25,000
25,000
2.00%
2.00%
$4.23
$2.30
$4.23
$2.30
April 2, 2012
December 3, 2012
Notes:
(1) Unless otherwise indicated, all options are exercisable immediately upon issuance.
(2) Options granted to the Named Executive Officers and employees who are not directors.
(3) Options vest as to one third on each of the first, second and third anniversary of the date of grant which occurred on February 1, 2007.
Mr. Thompson resigned as President and CEO on June 3, 2008 which resulted in 266,667 of these options being unvested.
(4) Options vest as to one third on each of the first, second and third anniversary of the date of grant which occurred on May 17, 2007.
(5) Options vest as to one third on each of the first, second and third anniversary of the date of grant which occurred on June 6, 2007.
Options Exercised
The following table sets out information concerning options exercised by the Named Executive Officers during 2007
and the value of unexercised options held by the Named Executive Officers as at December 31, 2007. The closing
price of the Common Shares on the TSX on December 31, 2007 was $2.30.
- 12 -
Aggregated Option Exercises During the Most Recently Completed Financial Year
and Financial Year-End Option Values
Name
Securities
Acquired on
Exercise (#)
Aggregate
Value
Realized
Unexercised Options
at Year-End (#)
Value of Unexercised
in-the-Money Options
at Year-End
Exercisable Unexercisable Exercisable Unexercisable
Gordon M. Thompson Nil Nil 390,000 400,000 $36,100 Nil
Hemdat Sawh Nil Nil 25,000 240,000 Nil Nil
Robert Crombie Nil Nil 328,300 25,000 $3,200 Nil
Dr. Richard Spencer(1) 10,000 $5,034 273,800 25,000 Nil Nil
Dr. Sadek El-Alfy(2) Nil Nil 132,500 25,000 Nil Nil
Todd Bruce(3) Nil Nil 686,454 Nil Nil Nil
Daniel Hamilton(4) 10,000 $11,861 228,700 Nil Nil Nil
Notes:
(1) Dr. Spencer resigned as Vice-President, Exploration on January 15, 2008.
(2) Dr. El-Alfy resigned as Vice-President, Operations on February 20, 2008.
(3) Mr. Bruce resigned as President and Chief Executive Officer on January 31, 2007.
(4) Mr. Hamilton resigned as the Chief Financial Officer effective on March 31, 2007
Employment Contracts
The Corporation entered into employment agreements with each of the Named Executive Officers. Mr. Hamilton,
Dr. Spencer, Dr. El-Alfy and Mr. Thompson terminated their employment agreements with the Corporation on
March 31, 2007, January 15, 2008, February 20, 2008 and June 3, 2008, respectively, and such contracts are no
longer in force.
Mr. Bruce terminated his employment agreement with the Corporation on January 31, 2007 and this contract is no
longer in force. Pursuant to an agreement effective as of January 31, 2007 between the Corporation and Mr. Bruce in
connection with the termination of his employment agreement, Mr. Bruce received severance payments of: (i)
$250,000 on January 31, 2007; (ii) $500,000 payable in twelve equal monthly installments from January 31, 2007
until January 31, 2008; and (iii) $750,000 on January 31, 2008.
Dr. El-Alfy terminated his employment agreement with the Corporation on February 20, 2008 and this contract is no
longer in force. Pursuant to an agreement effective as of February 20, 2008 between the Corporation and Dr. El-Alfy
in connection with the termination of his employment agreement, Dr. El-Alfy received a one time payment of
US$225,000.
The Corporation entered into: (1) an employment agreement effective as of February 1, 2007 with Gordon M.
Thompson to serve as President and Chief Executive Officer of the Corporation; (2) an employment agreement
effective as of May 15, 2007 with Hemdat Sawh to serve as the Chief Financial Officer of the Corporation; (3) an
employment agreement effective as of March 15, 2007 with William A. Faust to serve as Senior Vice-President and
Chief Operating Officer of the Corporation; (4) an employment agreement effective as of April 1, 2007 with Robert
Crombie to serve as Senior Vice-President, Corporate Development of the Corporation.
Under Mr. Thompson’s employment agreement, he was entitled to receive an annual base salary of $500,000 and
participate in the Corporation’s benefit programs. He was also eligible to receive an annual bonus up to a maximum
target of 50% of his annual base salary based on satisfactory achievement of performance objectives established for
such year and to receive grants of stock options under and in accordance with the terms of the Share Option Plan.
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Mr. Thompson terminated his employment agreement with the Corporation on June 3, 2008 and this contract is no
longer in force.
Under Mr. Sawh’s employment agreement, he is entitled to receive an annual base salary of $244,000 and
participate in the Corporation’s benefit programs. He is also eligible to receive an annual bonus up to a maximum
target of 50% of his annual base salary based on satisfactory achievement of performance objectives established for
such year and to receive grants of stock options under and in accordance with the Share Option Plan equal in value,
as at the date of grant of such options, of up to a maximum target of 50% of his annual base salary. In the event that
his employment is terminated for disability, Mr. Sawh is entitled to continue to receive his annual base salary and
benefits for a period of one year. In the event that his employment is terminated for any reason other than disability
or cause, Mr. Sawh is entitled to receive a lump sum payment equal to two times his annual base salary and a
continuation of his benefits for a period of two years. In the event that his employment is terminated within six
months after a change of control of the Corporation (which includes the acquisition of ownership of or control or
direction over more than 50% by value of the assets of the Corporation), Mr. Sawh is entitled to receive: (a) a lump
sum payment equal to two times his annual base salary; (b) an amount equal to the aggregate of: (i) his maximum
target bonus for the year in which the termination occurred pro-rated to the date of termination; and (ii) his
maximum target bonus for a period of two years; and (c) a continuation of his benefits for a period of two years.
Under Mr. Faust’s employment agreement, he is entitled to receive an annual base salary of US$292,000 and
participate in the Corporation’s benefit programs. He is also eligible to receive an annual bonus up to a maximum
target of 50% of his annual base salary based on satisfactory achievement of performance objectives established for
such year and to receive grants of stock options under and in accordance with the Share Option Plan equal in value,
as at the date of grant of such options, of up to a maximum target of 50% of his annual base salary. In the event that
his employment is terminated for disability, Mr. Faust is entitled to continue to receive his annual base salary and
benefits for a period of one year. In the event that his employment is terminated for any reason other than disability
or cause, Mr. Faust is entitled to receive a lump sum payment equal to two times his annual base salary and a
continuation of his benefits for a period of two years. In the event that his employment is terminated within six
months after a change of control of the Corporation (which includes the acquisition of ownership of or control or
direction over more than 50% by value of the assets of the Corporation), Mr. Faust is entitled to receive: (a) a lump
sum payment equal to two times his annual base salary; (b) an amount equal to the aggregate of: (i) his maximum
target bonus for the year in which the termination occurred pro-rated to the date of termination; and (ii) his
maximum target bonus for a period of two years; and (c) a continuation of his benefits for a period of two years.
Under Mr. Crombie’s employment agreement, he is entitled to receive an annual base salary of $244,000 and
participate in the Corporation’s benefit programs. He is also eligible to receive an annual bonus up to a maximum
target of 50% of his annual base salary based on satisfactory achievement of performance objectives established for
such year and to receive grants of stock options under and in accordance with the Share Option Plan equal in value,
as at the date of grant of such options, of up to a maximum target of 50% of his annual base salary. In the event that
his employment is terminated for disability, Mr. Crombie is entitled to continue to receive his annual base salary and
benefits for a period of one year. In the event that his employment is terminated for any reason other than disability
or cause, Mr. Crombie is entitled to receive a lump sum payment equal to two times his annual base salary and a
continuation of his benefits for a period of two years. In the event that his employment is terminated within six
months after a change of control of the Corporation (which includes the acquisition of ownership of or control or
direction over more than 50% by value of the assets of the Corporation), Mr. Crombie is entitled to receive: (a) a
lump sum payment equal to two times his annual base salary; (b) an amount equal to the aggregate of: (i) his
maximum target bonus for the year in which the termination occurred pro-rated to the date of termination; and (ii)
his maximum target bonus for a period of two years; and (c) a continuation of his benefits for a period of two years.
Composition of the Nominating and Compensation Committee
The Nominating and Compensation Committee, which is composed of Messrs. Brown (Chair), Zullo and Harry
Near, reviews and makes recommendations to the Board with respect to the compensation of the executive officers
of the Corporation. This committee also recommends candidates for election to the Board, including the Chief
Executive Officer.
- 14 -
Directors who are also members of management absent themselves from a meeting, or portion of a meeting, of the
Board where such individual’s compensation is discussed and refrains from voting in respect of the approval of such
compensation.
Report on Executive Compensation
Executive compensation may be comprised of any combination of cash (in the form of salary and bonus), benefits
and stock options.
Executive compensation is based on an evaluation of individual qualifications and performance, a comparison of
compensation packages in peer group companies and the performance of the Corporation. A new executive
compensation system was unanimously approved by the Board in December, 2004 and became effective January 1,
2005. The new system is based on the findings of Enns and Company and Towers Perrin, whose services were
engaged to assist the Corporation in developing an executive compensation system appropriate for the Corporation’s
organizational structure. The objective of the exercise was to make executive compensation consistent with industry
standards and practices. Under the system, executive compensation has three principal components: a base salary
that is a function of industry norms and relevant experience; a cash bonus that is a function of achieving defined
performance goals determined by the Compensation Committee; and a long-term incentive share option plan that is
also a function of achieving such performance goals.
The performance of the President and Chief Executive Officer is evaluated annually by the Compensation
Committee. The Compensation Committee has determined that the compensation package remains consistent with
the industry compensation benchmarks reviewed by the Compensation Committee at the time of hiring. Mr.
Thompson was eligible to receive an annual bonus up to a maximum target of 50% of his annual base salary based
on achievement of satisfactory performance objectives and to receive grants of stock options in accordance with the
Share Option Plan. Mr. Thompson earned a bonus of 30% of his annual base salary and was granted stock options
to acquire 150,000 Common Shares relating to his performance in fiscal 2007.
Performance Graph
The following performance graph compares the cumulative return to shareholders of the Corporation of an
investment in Common Shares with the cumulative return to them of an investment in the Standard &
Poor’s/Toronto Stock Exchange Composite Index (“TSX Composite”) and the Standard & Poor’s/Toronto Stock
Exchange Global Gold Index (formerly, the S&P/TSX Capped Gold Index) (“TSX Gold”) assuming an investment
of $100 on December 31, 2002 and, where applicable, the reinvestment of dividends.
$0
$50
$100
$150
$200
$250
Dec
31/02
Dec
31/03
Dec
31/04
Dec
31/05
Dec
31/06
Dec
31/07
Corporation
TSX Composite
TSX Gold
- 15 -
Index Dec 31/02 Dec 31/03 Dec 31/04 Dec 31/05 Dec 31/06 Dec 31/07
Corporation $100 $150.21 $184.55 $107.30 $181.55 $98.71
TSX Composite $100 $124.29 $139.79 $170.42 $195.15 $209.13
TSX Gold(1) $100 $113.61 $103.39 $125.52 $160.05 $152.50
Notes:
(1) The index methodology change from S&P/TSX Capped Gold Index to S&P/TSX Global Gold Index was effective on December 18,
2006.
Compensation of Directors
Other than Messrs. Thompson (until June 3, 2008) and Fung, directors of the Corporation are compensated for their
services as directors through a combination of annual fees, stock options and, in the discretion of the Board in
certain circumstances, special payments. Mr. Fung receives no additional compensation for serving as a directors
other than an annual grant of stock options to acquire Common Shares. Mr. Thompson, in his role of director,
received an annual grant of stock options to acquire Common Shares and was eligible for all other director
compensation when he ceased to be Chief Executive Officer of the Corporation on June 3, 2008.
The Corporation has entered into an agreement dated January 1, 2004 with Robert Fung to serve as Chair of the
Board. Under the agreement, Mr. Fung receives annual compensation of $180,000 payable monthly in arrears. Mr.
Fung is also eligible to receive an annual performance bonus of not less than US$100,000 at the discretion of the
Board. In the event of a change of control of the Corporation which results in Mr. Fung’s termination as Chairman
of the Board, Mr. Fung is entitled to receive a lump sum payment equal to three times his annual compensation
including the performance bonus described above. On June 3, 2008, Mr. Fung was appointed interim CEO for
which he receives an additional annual compensation of US$100,000.
Independent directors (in 2007, Messrs. Brown, Longden, Near, Oppenheimer, van’t Hof and Zullo) receive an
annual fee of US$20,000 and US$2,000 meeting fee payable, at the option of the Corporation; in Common Shares
(see “Equity Compensation Plans - Directors Remuneration Plan (DRP)”). The Corporation has available only
51,601 Common Shares available for issue under the DRP. In 2007, Directors were paid in aggregate US$148,000
in annual and meeting fees which were settled by issuing 38,508 Common Shares. In 2008, Directors were paid in
aggregate US$220,000 in semi-annual retainer and meeting fees which were settled by issuing 125,040 Common
Shares. The Corporation would have to pay Directors’ fees in cash unless the current DRP is increased.
Accordingly, the Corporation is seeking shareholders’ approval of an additional 600,000 Common Shares under the
DRP.
Prior to June 25, 2008, all directors received an annual grant of options to acquire 25,000 Common Shares. The
options were granted immediately after the annual general meeting of shareholders of the Corporation in each year.
It is the Company’s intention to continue this practice in the event of shareholders’ approval of the New Share
Option Plan.
Prior to June 25, 2008, with the exception of the Audit Committee, the Chair of a Board committee received an
additional annual grant of options to acquire 20,000 Common Shares and a member of a Board committee (other
than the Chair) received an additional annual grant of options to acquire 15,000 Common Shares. The Chair of the
Audit Committee received an additional annual grant of options to acquire 30,000 Common Shares and a member of
the Audit Committee (other than the Chair) receives an additional annual grant of options to acquire 20,000
Common Shares. The options were granted immediately after the annual general meeting of shareholders of the
Corporation in each year. It is the Corporation’s intention to continue this practice in the vent of shareholders’
approval of the New Share Option Plan.
The Corporation would have granted a total of 515,000 stock options as annual compensation to directors for their
services on the Board and Committees of the Board as detailed above. On June 25, 2008, the Corporation did not
have any options available to be granted. Accordingly, the Corporation paid Director fees of $150,380 as partial
- 16 -
compensation for their services that would have been “settled” through the grant of 206,000 stock options. The
Corporation is seeking shareholder approval of 309,000 stock options to be granted to Directors under the New SOP,
otherwise the Corporation would have to pay cash for the remaining portion of their annual compensation normally
settled through stock option grants.
During 2007, Mr. van’t Hof received cash compensation of $80,000 for acting as the lead director of the Board. The
Corporation paid for health insurance costs for Mr. Oppenheimer in 2007 and included these fees as directors’
expenses.
Directors and Officers Insurance
The Corporation maintains directors and officers’ liability insurance for itself and its directors and officers. Under
the insurance policy, the Corporation is entitled to be reimbursed, subject to a deductible of US$150,000, for
indemnity payments made by it to its directors and officers for losses suffered by them and the directors and officers
are entitled to be reimbursed for losses suffered by them if they are not indemnified by the Corporation. The policy
has a limit of US$15,000,000 per occurrence. The annual premium payable by the Corporation under the policy is
US$295,000.
EQUITY COMPENSATION PLANS
As at the end of the Corporation’s most recently completed financial year, the Common Shares that were authorized
for issuance under the Corporation’s equity compensation plans are set out below.
Equity Compensation Plan Information
Number of securities
issuable upon exercise of
outstanding options,
warrants and rights
Weighted-average exercise
price of outstanding
options, warrants and
rights
Number of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in column (a))
Plan Category (a) (b) (c)
Equity Compensation plans
approved by securityholders
(Category 1)
12,527,422 $3.04 7,095,118
Equity Compensation plans
not approved by
securityholders
(Category 2)
Not Applicable Not Applicable Not Applicable
Total 12,527,422 $3.04 7,095,118
The numbers in Category 1 refer to the Former SOP and the Directors’ Remuneration Plan (the “DRP”) as at
December 31, 2007, details of which are contained below.
Former Incentive Share Option Plan
Background
The shareholders of the Corporation approved the Former SOP in June 2002. Shareholders approved an amendment
to the SOP in June 2005 to increase the maximum number of Common Shares issued and issuable under the Former
SOP. In June 2007, shareholders approved certain amendments to the Former SOP relating to blackout periods (the
“Blackout Period Amendment”), cashless exercise (the “Cashless Exercise Amendment”) and the addition of
detailed provisions that outline the types of amendments to the plan that require shareholder approval and those that
can be made without shareholder approval (the “Amendment Provisions”), together with certain other minor
amendments of a conforming and clerical nature adopted by the Board.
- 17 -
The purpose of the Former SOP was to provide additional economic incentive to the directors, officers, employees
and consultants of the Corporation and its associated and affiliated companies, to encourage stock ownership by
eligible persons, to increase the proprietary interest of eligible persons in the success of the Corporation and to assist
the Corporation and its subsidiaries in attracting talented new directors, officers and employees. The Board or the
Nominating and Compensation Committee administers the Former SOP.
2005 Amendment of Former SOP
On June 24, 2005, the shareholders approved an amendment to the Former SOP to change the maximum number of
Common Shares issued and issuable thereunder from 13,500,000 to 10% of the issued and outstanding Common
Shares from time to time (otherwise known as a “rolling plan”). The purpose of the change was to facilitate the use
of options to assist the Corporation in attracting and retaining experienced and skilled employees. In 2004, the
Corporation commenced a program of granting options to employees at its Venezuelan operations. This program
remains in place and the Corporation expects that this program will continue in the future.
Pursuant to TSX rules and regulations, the number of Common Shares available for future grant of options under the
Former SOP must be approved by the Board, including a majority of the unrelated directors, and the shareholders of
the Corporation every three years.
2007 Amendments of Former SOP
On June 28, 2007, the shareholders approved certain amendments to the Former SOP to reflect the introduction of
new rules affecting equity compensation plans introduced by the TSX in 2006, together with certain other minor
amendments of a conforming and clerical nature.
The Former SOP was amended to permit the exercise of certain options which would otherwise have expired during
or within 10 business days following a period in which trading in the Common Shares is restricted by the policies of
the Corporation. The Former SOP was also amended to provide the Board with the flexibility to permit participants
in the Former SOP to receive, without payment by the participant of any additional consideration, Common Shares
equal to the value of the option (or the portion thereof) being exercised by surrender of the option to the
Corporation. In addition, the Former SOP was amended to include certain amending provisions required by the TSX
and, in addition, to specify those amendments which require shareholder approval.
2008 Cessation of Former SOP
The rules of the TSX require that, if a listed issuer has a stock option plan that does not have a fixed maximum
number of shares issuable thereunder, the directors and shareholders of the issuer must approve and reaffirm the
unallocated options under the plan every three years. If shareholder approval is not obtained within three years of
either the institution of a rolling plan or subsequent approval, as the case may be, all unallocated entitlements will be
cancelled and the issuer will not be permitted to grant further entitlements under the rolling plan. However, all
allocated awards under the rolling plan, such as options that have been granted but not yet exercised, will continue
unaffected. Approval of the unallocated options under the Former SOP was not put forward for consideration by the
shareholders at the Corporation’s annual meeting convened on June 25, 2008. Accordingly, the Corporation ceased
to grant any further options under the Former SOP.
Former SOP Activity
The following table sets out Former SOP activity from December 31, 2006 to June 24, 2008.
Maximum Number of
Common Shares Issued
and Issuable under
the Former SOP
Common Shares
Issuable Under
Outstanding Options
Common Shares Available
for
Future Grant(1)
Balance – December 31, 2006 24,542,449 11,394,085 7,292,356
Increase in 2007 1,623,458 - 1,623,458
- 18 -
Options granted in 2007 - 2,067,004 (2,067,004)
Options exercised in 2007 - (864,000) -
Options cancelled in 2007 - (69,667) 69,667
Balance – December 31, 2007 26,165,907 12,527,422 6,918,477
Increase in 2008 3,301,178 - 3,301,178
Options granted in 2008 - - -
Options exercised in 2008 - (96,000) -
Options cancelled in 2008 - (1,294,667) 1,294,667
Request for triennial renewal
withheld
(11.514,322)
Balance – June 24, 2008 29,467,085 11,136,755 Nil
Notes:
(1) The maximum number of Common Shares issued and issuable under the Former SOP less all Common Shares issued under previously
exercised options and issuable under outstanding options.
(2) The Corporation ceased to grant any further options under the Former SOP after June 24, 2008.
Summary Information
The following table sets out summary information with respect to the Former SOP as at June 24, 2008.
Maximum Number of
Common Shares Issued
and Issuable Under
the Former SOP
Common Shares
Issued Under
Exercised Options
Common Shares
Issuable Under
Outstanding Options
Common Shares
Available for
Future Grant(1)
#
% of
Common
Share
Capital #
% of
Common
Share
Capital #
% of
Common
Share
Capital #
% of
Common
Share
Capital
29,467,085 10% 6,816,008 2.0% 11,136,755 4.0% Nil n/a
Notes:
(1) The maximum number of Common Shares issued and issuable under the Former SOP less all Common Shares issued under previously
exercised options and issuable under outstanding options.
(2) The Corporation ceased to grant any further options under the Former SOP after June 24, 2008.
Directors’ Remuneration Plan
For a description of DRP and a summary of its material terms, please see “Approval of Amendment to Directors
Remuneration Plan above.
Directors’ Remuneration Plan Activity
The following table sets out the DRP activity from December 31, 2006 to October 9, 2008.
Maximum Number of
Common Shares Issued
and Issuable Under
the DRP
Common Shares
Issued
Common Shares
Available for
Future Issue (1)
Balance – December 31, 2006 600,000 384,851 215,149
Common Shares issued in 2007 - 38,508 (38,508)
Balance – December 31, 2007 600,000 423,359 176,641
- 19 -
Common Shares issued in 2008 - 172,531 (172,531)
Balance – October 9, 2008 600,000 595,890 4,110
Notes:
(1) The maximum number of Common Shares issued and issuable under the DRP less all Common Shares previously issued.
Summary Information
The following table sets out summary information with respect to the DRP as at October 9, 2008.
Maximum Number of
Common Shares Issued
and Issuable Under
the DRP
Common Shares
Issued
Common Shares
Available for
Future Issue(1)
#
% of
Common
Share
Capital #
% of
Common
Share
Capital(1) #
% of
Common
Share
Capital
600,000 0.204% 595,890 0.203% 4,110 0.001%
Notes:
(1) The maximum number of Common Shares issued and issuable under the DRP less all Common Shares previously issued.
INTEREST OF INFORMED PERSONS IN MATERIAL TRANSACTIONS
Except as otherwise set out in this Circular, none of the informed persons of the Corporation or their respective
associates or affiliates has any material interest, direct or indirect, in any transaction since the commencement of
2007 or in any proposed transaction which has materially affected or would materially affect the Corporation or any
of its subsidiaries.
AUDIT COMMITTEE INFORMATION
The audit committee information required by Multilateral Instrument 52-110 is located in the Corporation’s Annual
Information Form for the period ended December 31, 2007 under the heading “Audit Committee.”
INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
Except as otherwise set out in this Circular, none of the individuals who are or were at any time since the beginning
of 2007 directors or executive officers of the Corporation or are proposed nominees for election as directors of the
Corporation and their respective associates and affiliates has any material interest, direct or indirect, by way of
beneficial ownership of securities or otherwise, in any matter to be acted on at the Meeting.
MANAGEMENT CONTRACTS
No management functions of the Corporation or any of its subsidiaries are to any substantial degree performed by
any person other than the directors and executive officers of the Corporation.
- 20 -
OTHER MATTERS
Shareholder Proposals
Shareholders must submit any shareholder proposal that they wish to be considered at the special meeting of
shareholders of the Corporation to be held in 2009 no later than 90 days before the anniversary date of the Notice of
Meeting accompanying this Circular.
Glossary
The terms “affiliate”, “associate”, “insider” and “senior officer” used in this Circular have the meanings given to
them in the Securities Act (Ontario). The terms “executive officer” and “informed person” used in this Circular have
the meanings given to them in National Instrument 51-102 issued by the Canadian Securities Administrators.
Additional Information
Additional information relating to the Corporation is available on SEDAR at www.sedar.com. Shareholders may
obtain copies of the annual report of the Corporation including the audited consolidated financial statements of the
Corporation and related MD&A for the year ended December 31, 2007 by contacting the Chief Financial Officer,
Crystallex International Corporation, Suite 1210, 18 King Street East, Toronto, Canada M5C 1C4.
BOARD APPROVAL
The contents and the sending of this Circular have been approved by the Board of Directors.
DATED: October 9, 2008.
BY ORDER OF THE BOARD OF DIRECTORS
“Robert A. Fung”
Robert A. Fung, Executive Chairman and Chief
Executive Officer
Approval of New Incentive Share Option Plan
Background of the New Incentive Share Option Plan
The Board of Directors of the Corporation has concluded that it would be in the Corporation’s best interest to adopt
a new incentive share option plan (the “New Share Option Plan” or “New SOP”), subject to approval of the
shareholders of the Corporation. At the Meeting, shareholders of the Corporation will be asked to approve the New
Share Option Plan.
The purpose of the New Share Option Plan is to provide certain directors, officers and key employees of the
Corporation and certain other persons who provide services to the Corporation (“eligible persons”) with an
opportunity to purchase Common Shares and benefit in any appreciation in the value of the Common Shares. This
is intended to provide an increased incentive for eligible persons to contribute to the future success and prosperity of
the Corporation, thus enhancing the value of the Common Shares for the benefit of all the shareholders and (me...say what, really)
increasing the ability of the Corporation to attract and retain skilled and motivated individuals in the service of the
Corporation. (me... was there before, many left) Approval of the New Share Option Plan is in the best interest of the Corporation for the following
additional reasons:
- 5 -
• The issuance of share options for the above purposes is an accepted and customary compensation
arrangement in the mineral resource industry. Share option increase the alignment of interests between a
company and its management employees and service providers. (me.... at this share price thats opportunistic)• The inability to award share options would place the Corporation in a disadvantaged position relative to its
competitors to attract and retain top talent. (KRY is basically in care and maintenance mode right now or until permit is issued, not needed now)
• The inability to issue options would result in an increased drain on cash resources that would otherwise be
more efficiently deployed to further the economic interests of the business and all of its shareholders. (Financing at this level over dilutive on the cheap same as giving away options at this level, use cash wisely, cut cost, pink slip as many as you can, start with IR work your way down)
The Corporation believes its business depends on its ability to attract and keep talented employees. Share options
remain a key compensation element as a means of attracting, retaining and motivating directors, officers, consultants
and key employees necessary for its continued growth and success. The inability to award share options places the
Corporation at a disadvantage against other companies which can award share options and against which the
Corporation competes to secure highly skilled employees. Share options are an integral part of compensation
currency that reduce the need to compensate management employees and service providers using the Corporation’s
cash reserves. The Corporation also believes that share options are an incentive to tie the performance of its
management employees and service providers to its share price, thus increasing shareholder value. (after permit you will get all you need, higher share price, higher currency, thus increasing shareholder value)
The shareholders of the Corporation previously approved the Corporation’s inventive share option plan (the
“Former Incentive Share Option Plan” or “Former SOP”) in June 2002. Subsequently, shareholders of the
Corporation approved an amendment to the Former SOP to increase the maximum number of Common Shares
issued and issuable under the Former SOP in June 2005, and certain amendments to the Former SOP relating to
blackout periods, cashless exercise and the addition of detailed amendment provisions in June 2007. Effective June
24, 2008, the Corporation ceased to grant options under the Former SOP. The Former SOP provided that the
maximum number of Common Shares issuable under the Former SOP be equal to 10% of the issued and outstanding
Common Shares from time to time. As at October 9, 2008, options to purchase an additional 11,136,755 Common
Shares under the Former SOP were outstanding. No additional options to acquire Common Shares are available for
grant under the Former SOP. For additional information concerning the Former Incentive Share Option Plan please
see “Equity Compensation Plans - Former Incentive Share Option Plan”)
There will be no change to the terms of the above-described options issued and outstanding under the Former SOP
and no consolidation of the options already granted under the Former SOP will be made into the New SOP of the
Corporation.
Summary of Material Terms of the New Share Option Plan
There is a maximum of 15,000,000 Common Shares reserved for issuance under the New SOP, representing
approximately 5% of the issued and outstanding Common Shares as at the date of this Circular. The New SOP
provides that any one individual cannot receive options under the SOP which will entitle such individual to receive
more than 5% of the issued and outstanding Common Shares of the issuer. The New SOP limits insider
participation such that the number of Common Shares reserved for issuance at any point in time and issued to
insiders over any one year period, under the New SOP and any other security-based compensation arrangement,
does not exceed 10% of issued and outstanding Common Shares.
The Board will set the term of options granted under the New SOP and such term cannot exceed 10 years. The
Board fixes the vesting terms it deems appropriate when granting options. The exercise price and the exercise
periods of options granted under the New SOP are determined at the time of grant. The New SOP provides that
exercise price of options may not be lower than the closing price of the Common Shares on the TSX on the trading
day immediately preceding the date of grant. Previously granted options under the New SOP will be available for
re-allocation if they expire or are cancelled prior to their exercise. If the holder of an option ceases to be an eligible
person for any reason (including termination of their employment with the Corporation for cause), unless otherwise
determined or provided in an employment agreement between the holder and the Corporation, all unvested options
held by the holder expire and all vested options held by the holder must be exercised, in the case of death, within the
- 6 -
lesser of the remainder of the exercise period and 12 months after the holder ceased to be an eligible person and, in
all other cases, during the remainder of the exercise period. Options may not be assigned or transferred with the
exception of an assignment made to a personal representative of a deceased participant.
The Corporation does not provide financial assistance to holders of options to facilitate the purchase of Common
Shares on the exercise of their options. Options granted under the New SOP may be transferred only on death and
are exercisable during the lifetime of the holder only by the holder and after the death of the holder only by the
holder’s legal representative.
The New SOP permits the exercise of certain options which would otherwise have expired during or within 10
business days following a period in which trading in the Common Shares is restricted by the policies of the
Corporation. The New SOP also provides the Board with the flexibility to permit eligible participants in the New
SOP to receive, without payment by the participant of any additional consideration, Common Shares equal to the
value of the option (or the portion thereof) being exercised by surrender of the option to the Corporation.
The Board may amend or terminate the New SOP at any time in accordance with its terms subject to any applicable
regulatory or other approvals. The Board has the discretion to make amendments which it may deem necessary,
without having to obtain shareholder approval. Such changes include, without limitation:
1. minor changes of a “house-keeping” nature;
2. amending options under the New SOP, including with respect to the option period (provided that the period
during which an option is exercisable does not exceed 10 years from the date the option is granted and that such
option is not held by an insider), vesting period, exercise method and frequency, exercise price or purchase
price, assignability and effect of termination of a participant’s employment or cessation of the participant’s
directorship;
3. changing the class of participants eligible to participate under the New SOP;
4. advancing the date on which any option may be exercised or extending the expiration date of any option,
provided that the period during which an option is exercisable does not exceed 10 years from the date the option
is granted;
5. changing the terms and conditions of any financial assistance which may be provided by the Corporation to
participants to facilitate the purchase of Common Shares under the New SOP; and
6. amending a cashless exercise feature, payable in cash or securities, whether or not providing for a full deduction
of the number of underlying Common Shares from the New SOP reserve.
Notwithstanding the amendment provisions contained in the New SOP, approval of the shareholders of the
Corporation will be required in the case of (i) any amendment to the amendment provisions of the New SOP, (ii) any
increase in the maximum number of Common Shares issuable under the New SOP, (iii) any reduction in the exercise
price or any extension of the term of outstanding options benefiting an insider, and (iv) any changes to the insider
participation limits which result in the security holder approval to be required on a disinterested basis, in addition to
such other matters that may require shareholder approval under the rules and policies of the TSX. No amendment or
termination of the New SOP may change any rights of a holder of options without the consent of the holder.
The full text of the New Share Option Plan will be available for review at the Meeting.
Shareholder Approval
The Board of Directors of the Corporation has determined that the adoption of the New Share Option Plan is in the
best interest of the Corporation and recommends that shareholders vote in favour of the following resolution:
“BE IT RESOLVED THAT:
1. the adoption of the Corporation’s New Share Option Plan be and is hereby ratified, confirmed and
approved; and
- 7 -
2. any director or officer of the Corporation is hereby authorized and directed, for and on behalf of the
Corporation, to do all such acts and things and to execute, whether under the corporate seal of the
Corporation or otherwise, and deliver all such documents and instruments as may be considered necessary
or desirable to give effect to the foregoing.”
Unless otherwise directed, the persons named in the accompanying form of proxy intend to vote “For” the
resolution to approve the New Share Option Plan as set out above.
Ratification of Share Options Granted
On August 22, 2008, the Board of Directors of the Corporation granted share options to purchase an aggregate of
4,619,000 Common Shares of the Corporation to certain directors, officers, employees and consultants (collectively,
the “New Optionees”), subject to regulatory and shareholder approval, as set out below:
Name Number of Options Granted
Exercise
Price Expiry Date
Directorship(1) Bonus(2) Permit
Success(3) Promotion(4) Total
Robert Crombie,
President - 92,000 - 300,000 392,000 $1.10 August 21,
2013
Robert A. Fung,
Executive
Chairman & CEO
33,000 257,000 500,000 - 790,000 $1.10 August 21,
2018
Gordon M.
Thompson,
President & CEO,
Director
33,000 - - - 33,000 $1.10 August 21,
2018
Michael Brown,
Director 57,000 - 100,000 - 157,000 $1.10 August 21,
2018
C. William
Longden,
Director
39,000 - - - 39,000 $1.10 August 21,
2018
Harry J. Near,
Director 36,000 241,000 300,000 - 577,000 $1.10 August 21,
2018
Marc O.
Oppenheimer,
Director
33,000 245,000 - - 278,000 $1.10 August 21,
2018
Johan C. van’t
Hof, Director,
Chairman of
Audit Committee
45,000 - - - 45,000 $1.10 August 21,
2018
Armando F.
Zullo, Director 33,000 - - - 33,000 $1.10 August 21,
2018
A. Richard
Marshall, Vice
President,
Investor Relations
- 47,000 300,000 - 347,000 $1.10 August 21,
2013
Employees - 8,000 820,000 - 1,175,000 $1.10 August 21,
2013
Consultants - - 1,100,000 - 1,100,000 $1.10 August 21,
2013
Total 309,000 890,000 3,120,000 300,000 4, 619,000
Notes:
(1) Annual compensation for service on the Board of Directors and membership on Committees of the Board. These options vest
immediately upon shareholder approval.
- 8 -
(2) Compensation for additional services. These options vest immediately upon shareholder approval.
(3) Compensation for services rendered in pursuit of the Permit to Impact Natural Resources at Las Cristinas (the “Permit”). These
options vest upon the grant of the Permit.
(4) Grant to Mr. Crombie who was appointed President on June 3, 2008. These options vest immediately upon approval.
It is the opinion of the Board of Directors that the ratification and approval of the options is in the best interest of the
Corporation as an incentive to retain current key employees, directors and consultants, and reduces the need to
compensate such individuals using the Corporation’s cash reserves that would otherwise be more efficiently
deployed to further the economic interests of the Corporation and all of its shareholders.
The grant of options to the New Optionees is subject to approval of disinterested shareholders of the Corporation. At
the time of grant, there were no Common Shares available for issuance pursuant to the exercise of options under the
Former SOP (see “Equity Compensation Plans - Former Incentive Share Option Plan – 2008 Cessation of Former
SOP”). Accordingly, the grant of options to the New Optionees as a group was in excess of the available Common
Shares issuable under the Corporation’s incentive share option plans. The grant of the 4,619,000 options must be
ratified by the disinterested shareholders of the Corporation at the Meeting and must be approved by the TSX to be
effective. None of the options granted to the New Optionees may be exercised until such shareholder ratification and
TSX approval has been obtained.
In the event that the New Incentive Share Option Plan discussed under “Business of the Meeting – Approval of new
Inventive Share Option Plan” above is approved at the Meeting, the 4,619,000 options granted to the New Optionees
will be consolidated into the New Share Option Plan and will be included as part of the aggregate number of
Common Shares issuable pursuant to the exercise of options granted under the New Incentive Share Option Plan. If
the New Incentive Share Option Plan is not approved by shareholders at the Meeting, and the 4,619,000 options
granted to the New Optionees are approved and ratified, the approved and ratified options will continue to be
standalone options.
The Board of Directors of the Corporation has determined that the grant of options to the New Optionees is in the
best interest of the Corporation and recommends that shareholders vote in favour of the following resolution. The
approval of this resolution will require the affirmative vote of at least a simple majority of votes cast by shareholders
present in person or represented by proxy at the Meeting, other than in respect of Common Shares held by the New
Optionees.
“BE IT RESOLVED THAT:
1. the grant of options to acquire an aggregate of 4,619,000 common shares of the Corporation to D. Robert
Crombie, Robert A. Fung, Gordon M. Thompson, Michael Brown, C. William Longden, Harry J. Near,
Marc O. Oppenheimer, Johan C. van’t Hof, Armando F. Zullo, A. Richard Marshall and certain employees
and consultants of the Corporation on August 22, 2008 be and is hereby ratified, approved and confirmed;
and
2. any director or officer of the Corporation is hereby authorized and directed, for and on behalf of the
Corporation, to do all such acts and things and to execute, whether under the corporate seal of the
Corporation or otherwise, and deliver all such documents and instruments as may be considered necessary
or desirable to give effect to the foregoing.”
Unless otherwise directed, the persons named in the accompanying form of proxy intend to vote “For” the
resolution to ratify the share options granted as set out above.
Approval of Amendment to Directors Remuneration Plan
Background of the DRP
The shareholders of the Corporation approved the Directors Remuneration Plan (the “DRP”) of the Corporation in
December 1998.
- 9 -
The DRP is administered by the Corporation’s Nominating and Compensation Committee. The purpose of the DRP
is to provide for the issue of Common Shares to the directors of the Corporation and its associated and affiliated
companies in lieu of cash compensation payable to them in respect of their service as directors of the Corporation
and its associated and affiliated companies. The Board made a number of minor “housekeeping” amendments to the
DRP effective as of January 1, 2005. None of these amendments were material or required shareholder approval.
The Board of Directors has determined that it is in the best interest of the Corporation to continue to have the ability
to compensate directors for their services through the issuance of Common Shares, thus preserving cash. The
maximum number of Common Shares issued and issuable under the DRP is currently 600,000, representing 0.2% of
the issued and outstanding Common Shares as of the date of this Circular. The Corporation currently has a limited
number of Common Shares, being 4,110, available to be issued to directors under the DRP. Accordingly, at the
Meeting shareholders will be asked to approve an increase in the number of Common Shares issuable under the
DRP by a further 600,000, to a total of 1,200,000.
Summary of Material Terms
Upon shareholder approval to increase the number of Common Shares issuable under the DRP by a further 600,000,
the maximum number of Common Shares issued and issuable under the DRP will be 1,200,000, representing 0.4%
of the issued and outstanding Common Shares as of the date of this Circular. The maximum number of Common
Shares issued over any one year period or issuable at any one time to insiders under the DRP and any other share
compensation arrangement of the Corporation is 10% of the Common Shares outstanding at that time on a nondiluted
basis. The maximum number of Common Shares which may be issued to any one insider within a one-year
period under the DRP and any other shareholder compensation agreement, is 5% of the issued and outstanding
Common Shares of the Corporation.
The issue price per share of any Common Shares issued under the DRP may not be less than the closing price of the
Common Shares on the TSX on the trading day immediately preceding the date of issue.
The Board may amend or terminate the DRP at any time subject to any required regulatory or other approvals. The
maximum number of Common Shares issued and issuable under the DRP may not be increased without the approval
of the shareholders of the Corporation.
Shareholder Approval
The Board of Directors of the Corporation has determined that an increase in the number of Common Shares
issuable under the DRP is in the best interest of the Corporation and recommends that shareholders vote in favour of
the following resolution to amend the DRP of the Corporation. The approval of this resolution will require the
affirmative vote of at least a simple majority of votes cast by shareholders present in person or represented by proxy
at the Meeting, other than in respect of Common Shares held by directors of the Corporation or any corporation that
is an associate, affiliate or subsidiary of the Corporation.
“BE IT RESOLVED THAT:
1. the maximum number of Common Shares which may be reserved for issuance for all purposes under the
Directors Remuneration Plan shall be increased by 600,000 Common Shares to a maximum of 1,200,000
Common Shares or such greater number as may be approved from time to time by the shareholders of the
Corporation, and
2. any director or officer of the Corporation is hereby authorized and directed, for and on behalf of the
Corporation, to do all such acts and things and to execute, whether under the corporate seal of the
Corporation or otherwise, and deliver all such documents and instruments as may be considered necessary
or desirable to give effect to the foregoing.”
Unless otherwise directed, the persons named in the accompanying form of proxy intend to vote “For” the
resolution to amend the Directors Remuneration Plan as set out above.
- 10 -
EXECUTIVE AND DIRECTOR COMPENSATION
Compensation of Officers
The following table sets out information concerning the compensation paid during the three most recently completed
financial years to (a) each of the individuals who served as the chief executive officer or the chief financial officer of
the Corporation during the most recently completed financial year; (b) each of the three most highly compensated
executive officers of the Corporation, other than the chief executive officer and the chief financial officer, who were
serving as executive officers at the end of the most recently completed financial year and whose total salary and
bonus exceeds $150,000; and (c) each of the individuals who would have been included in (b) if they had been
serving as an officer of the Corporation at the most recently completed financial year end (the “Named Executive
Officers”).
Summary Compensation Table
Annual Compensation Long Term Compensation Awards
Name and
Principal Position Year
Salary
($)
Bonus(1)
($)
Other Annual
Compensation
($)
Securities
Under Options
Granted(2)
(#)
All Other
Compensation
($)
Gordon M. Thompson(3)
President and Chief
Executive Officer
2007
2006
2005
$458,333
Nil
Nil
$150,000
Nil
Nil
$10,239
Nil
Nil
575,000
Nil
Nil
Nil
Nil
Nil
Hemdat Sawh(4)
Chief Financial
Officer
2007
2006
2005
$143,750
Nil
Nil
$57,500
Nil
Nil
$7,041
Nil
Nil
165,000
Nil
Nil
Nil
Nil
Nil
Robert Crombie(5)
Senior Vice-President
Corporate Development
2007
2006
2005
$220,000
$188,750
$175,000
$139,500
$95,000
$30,400
$7,041
$24,271
$13,952
50,000
101,900
26,400
Nil
Nil
Nil
Dr. Richard Spencer(6)
Vice-President
Exploration
2007
2006
2005
$221,667
$210,000
$210,000
$144,500
$105,000
$44,100
$11,335
$14,335
$12,794
50,000
103,700
40,100
Nil
Nil
Nil
Dr. Sadek El-Alfy(7)
Vice-President
Operations
2007
2006
2005
US$228,000
US$228,000
US$228,000
US$56,240
US$90,000
US$36,000
Nil
Nil
Nil
Nil
107,500
36,000
Nil
Nil
Nil
Todd Bruce(8)
Former President and
Chief Executive Officer
2007
2006
2005
$41,667
$500,000
$500,000
Nil
Nil
$90,000
$2,888
$44,457
$24,450
Nil
40,000
105,200
$1,500,000
$33,333
Nil
Daniel Hamilton(9)
Former Chief Financial
Officer
2007
2006
2005
$62,500
$246,167
$204,000
$62,500
$125,000
$30,400
$11,834
$11,798
$11,087
Nil
132,300
26,400
$9,896
Nil
Nil
Notes:
(1) Bonuses are reported in the year in which they were earned, not the year in which they were paid. The bonuses for 2006 consist of an
annual bonus and a special retention bonus.
(2) Options to purchase Common Shares granted during the year.
(3) Mr. Thompson was appointed President and Chief Executive Officer on February 1, 2007. His annual salary was $500,000 and the
amount noted above represents the salary paid to Mr. Thompson from February 1, 2007 to December 31, 2007. Mr. Thompson
resigned as President and CEO on June 3, 2008.
- 11 -
(4) Mr. Sawh was appointed Chief Financial Officer on May 15, 2007. His annual salary is $244,000 and the amount noted above
represents the salary paid to Mr. Sawh from May 15, 2007 to December 31, 2007.
(5) Mr. Crombie was appointed Senior Vice-President, Corporate Development on April 1, 2007, prior to that he held the position of
Vice-President, Corporate Development and Planning. Mr. Crombie was appointed President on June 3, 2008.
(6) Dr. Spencer resigned as Vice-President, Explorations on January 15, 2008.
(7) Dr. El-Alfy resigned as Vice-President, Operations on February 20, 2008.
(8) Mr. Bruce resigned as President and Chief Executive Officer on January 31, 2007. His annual salary was $500,000 and the amount
noted above represents the salary paid to Mr. Bruce from January 1, 2007 to the date of his resignation. The amount noted under “All
Other Compensation” in 2007 represents severance payments of $1,500,000 over the period from January 31, 2007 to January 31,
2008; and in 2006 represents compensation paid on December 22, 2006 in respect of unused vacation time.
(9) Mr. Hamilton resigned as the Chief Financial Officer effective on March 31, 2007. His annual salary was $250,000 and the amount
noted above represents the salary paid to Mr. Hamilton from January 1, 2007 to the date of his resignation. The amount noted under
“All Other Compensation” in 2007 represents compensation paid in respect of unused vacation time.
Options Granted
The following table sets out information concerning options for Common Shares granted to the Named Executive
Officers during 2007.
Option Grants During the Most Recently Completed Financial Year
Name
Securities
Under
Options
Granted(1)
(#)
% of Total
Options
Granted to
Employees in
Year(2)
Exercise or
Base Price
($/Security)
Market Value
of Securities
Underlying
Options on the
Date of Grant
($/Security)
Expiration
Date
Gordon M. Thompson 400,000(3)
25,000
150,000
25.00%
2.00%
9.00%
$3.41
$4.46
$2.13
$3.41
$4.46
$2.13
February 1, 2012
June 28, 2017
December 24, 2012
Hemdat Sawh 150,000(4)
90,000(5)
25,000
9.00%
6.00%
2.00%
$4.79
$4.64
$2.30
$4.79
$4.64
$2.30
May 17, 2012
June 6, 2012
December 3, 2012
Dr. Richard Spencer 50,000 4.00% $2.30 $2.30 December 3, 2012
Robert Crombie 25,000
25,000
2.00%
2.00%
$4.23
$2.30
$4.23
$2.30
April 2, 2012
December 3, 2012
Notes:
(1) Unless otherwise indicated, all options are exercisable immediately upon issuance.
(2) Options granted to the Named Executive Officers and employees who are not directors.
(3) Options vest as to one third on each of the first, second and third anniversary of the date of grant which occurred on February 1, 2007.
Mr. Thompson resigned as President and CEO on June 3, 2008 which resulted in 266,667 of these options being unvested.
(4) Options vest as to one third on each of the first, second and third anniversary of the date of grant which occurred on May 17, 2007.
(5) Options vest as to one third on each of the first, second and third anniversary of the date of grant which occurred on June 6, 2007.
Options Exercised
The following table sets out information concerning options exercised by the Named Executive Officers during 2007
and the value of unexercised options held by the Named Executive Officers as at December 31, 2007. The closing
price of the Common Shares on the TSX on December 31, 2007 was $2.30.
- 12 -
Aggregated Option Exercises During the Most Recently Completed Financial Year
and Financial Year-End Option Values
Name
Securities
Acquired on
Exercise (#)
Aggregate
Value
Realized
Unexercised Options
at Year-End (#)
Value of Unexercised
in-the-Money Options
at Year-End
Exercisable Unexercisable Exercisable Unexercisable
Gordon M. Thompson Nil Nil 390,000 400,000 $36,100 Nil
Hemdat Sawh Nil Nil 25,000 240,000 Nil Nil
Robert Crombie Nil Nil 328,300 25,000 $3,200 Nil
Dr. Richard Spencer(1) 10,000 $5,034 273,800 25,000 Nil Nil
Dr. Sadek El-Alfy(2) Nil Nil 132,500 25,000 Nil Nil
Todd Bruce(3) Nil Nil 686,454 Nil Nil Nil
Daniel Hamilton(4) 10,000 $11,861 228,700 Nil Nil Nil
Notes:
(1) Dr. Spencer resigned as Vice-President, Exploration on January 15, 2008.
(2) Dr. El-Alfy resigned as Vice-President, Operations on February 20, 2008.
(3) Mr. Bruce resigned as President and Chief Executive Officer on January 31, 2007.
(4) Mr. Hamilton resigned as the Chief Financial Officer effective on March 31, 2007
Employment Contracts
The Corporation entered into employment agreements with each of the Named Executive Officers. Mr. Hamilton,
Dr. Spencer, Dr. El-Alfy and Mr. Thompson terminated their employment agreements with the Corporation on
March 31, 2007, January 15, 2008, February 20, 2008 and June 3, 2008, respectively, and such contracts are no
longer in force.
Mr. Bruce terminated his employment agreement with the Corporation on January 31, 2007 and this contract is no
longer in force. Pursuant to an agreement effective as of January 31, 2007 between the Corporation and Mr. Bruce in
connection with the termination of his employment agreement, Mr. Bruce received severance payments of: (i)
$250,000 on January 31, 2007; (ii) $500,000 payable in twelve equal monthly installments from January 31, 2007
until January 31, 2008; and (iii) $750,000 on January 31, 2008.
Dr. El-Alfy terminated his employment agreement with the Corporation on February 20, 2008 and this contract is no
longer in force. Pursuant to an agreement effective as of February 20, 2008 between the Corporation and Dr. El-Alfy
in connection with the termination of his employment agreement, Dr. El-Alfy received a one time payment of
US$225,000.
The Corporation entered into: (1) an employment agreement effective as of February 1, 2007 with Gordon M.
Thompson to serve as President and Chief Executive Officer of the Corporation; (2) an employment agreement
effective as of May 15, 2007 with Hemdat Sawh to serve as the Chief Financial Officer of the Corporation; (3) an
employment agreement effective as of March 15, 2007 with William A. Faust to serve as Senior Vice-President and
Chief Operating Officer of the Corporation; (4) an employment agreement effective as of April 1, 2007 with Robert
Crombie to serve as Senior Vice-President, Corporate Development of the Corporation.
Under Mr. Thompson’s employment agreement, he was entitled to receive an annual base salary of $500,000 and
participate in the Corporation’s benefit programs. He was also eligible to receive an annual bonus up to a maximum
target of 50% of his annual base salary based on satisfactory achievement of performance objectives established for
such year and to receive grants of stock options under and in accordance with the terms of the Share Option Plan.
- 13 -
Mr. Thompson terminated his employment agreement with the Corporation on June 3, 2008 and this contract is no
longer in force.
Under Mr. Sawh’s employment agreement, he is entitled to receive an annual base salary of $244,000 and
participate in the Corporation’s benefit programs. He is also eligible to receive an annual bonus up to a maximum
target of 50% of his annual base salary based on satisfactory achievement of performance objectives established for
such year and to receive grants of stock options under and in accordance with the Share Option Plan equal in value,
as at the date of grant of such options, of up to a maximum target of 50% of his annual base salary. In the event that
his employment is terminated for disability, Mr. Sawh is entitled to continue to receive his annual base salary and
benefits for a period of one year. In the event that his employment is terminated for any reason other than disability
or cause, Mr. Sawh is entitled to receive a lump sum payment equal to two times his annual base salary and a
continuation of his benefits for a period of two years. In the event that his employment is terminated within six
months after a change of control of the Corporation (which includes the acquisition of ownership of or control or
direction over more than 50% by value of the assets of the Corporation), Mr. Sawh is entitled to receive: (a) a lump
sum payment equal to two times his annual base salary; (b) an amount equal to the aggregate of: (i) his maximum
target bonus for the year in which the termination occurred pro-rated to the date of termination; and (ii) his
maximum target bonus for a period of two years; and (c) a continuation of his benefits for a period of two years.
Under Mr. Faust’s employment agreement, he is entitled to receive an annual base salary of US$292,000 and
participate in the Corporation’s benefit programs. He is also eligible to receive an annual bonus up to a maximum
target of 50% of his annual base salary based on satisfactory achievement of performance objectives established for
such year and to receive grants of stock options under and in accordance with the Share Option Plan equal in value,
as at the date of grant of such options, of up to a maximum target of 50% of his annual base salary. In the event that
his employment is terminated for disability, Mr. Faust is entitled to continue to receive his annual base salary and
benefits for a period of one year. In the event that his employment is terminated for any reason other than disability
or cause, Mr. Faust is entitled to receive a lump sum payment equal to two times his annual base salary and a
continuation of his benefits for a period of two years. In the event that his employment is terminated within six
months after a change of control of the Corporation (which includes the acquisition of ownership of or control or
direction over more than 50% by value of the assets of the Corporation), Mr. Faust is entitled to receive: (a) a lump
sum payment equal to two times his annual base salary; (b) an amount equal to the aggregate of: (i) his maximum
target bonus for the year in which the termination occurred pro-rated to the date of termination; and (ii) his
maximum target bonus for a period of two years; and (c) a continuation of his benefits for a period of two years.
Under Mr. Crombie’s employment agreement, he is entitled to receive an annual base salary of $244,000 and
participate in the Corporation’s benefit programs. He is also eligible to receive an annual bonus up to a maximum
target of 50% of his annual base salary based on satisfactory achievement of performance objectives established for
such year and to receive grants of stock options under and in accordance with the Share Option Plan equal in value,
as at the date of grant of such options, of up to a maximum target of 50% of his annual base salary. In the event that
his employment is terminated for disability, Mr. Crombie is entitled to continue to receive his annual base salary and
benefits for a period of one year. In the event that his employment is terminated for any reason other than disability
or cause, Mr. Crombie is entitled to receive a lump sum payment equal to two times his annual base salary and a
continuation of his benefits for a period of two years. In the event that his employment is terminated within six
months after a change of control of the Corporation (which includes the acquisition of ownership of or control or
direction over more than 50% by value of the assets of the Corporation), Mr. Crombie is entitled to receive: (a) a
lump sum payment equal to two times his annual base salary; (b) an amount equal to the aggregate of: (i) his
maximum target bonus for the year in which the termination occurred pro-rated to the date of termination; and (ii)
his maximum target bonus for a period of two years; and (c) a continuation of his benefits for a period of two years.
Composition of the Nominating and Compensation Committee
The Nominating and Compensation Committee, which is composed of Messrs. Brown (Chair), Zullo and Harry
Near, reviews and makes recommendations to the Board with respect to the compensation of the executive officers
of the Corporation. This committee also recommends candidates for election to the Board, including the Chief
Executive Officer.
- 14 -
Directors who are also members of management absent themselves from a meeting, or portion of a meeting, of the
Board where such individual’s compensation is discussed and refrains from voting in respect of the approval of such
compensation.
Report on Executive Compensation
Executive compensation may be comprised of any combination of cash (in the form of salary and bonus), benefits
and stock options.
Executive compensation is based on an evaluation of individual qualifications and performance, a comparison of
compensation packages in peer group companies and the performance of the Corporation. A new executive
compensation system was unanimously approved by the Board in December, 2004 and became effective January 1,
2005. The new system is based on the findings of Enns and Company and Towers Perrin, whose services were
engaged to assist the Corporation in developing an executive compensation system appropriate for the Corporation’s
organizational structure. The objective of the exercise was to make executive compensation consistent with industry
standards and practices. Under the system, executive compensation has three principal components: a base salary
that is a function of industry norms and relevant experience; a cash bonus that is a function of achieving defined
performance goals determined by the Compensation Committee; and a long-term incentive share option plan that is
also a function of achieving such performance goals.
The performance of the President and Chief Executive Officer is evaluated annually by the Compensation
Committee. The Compensation Committee has determined that the compensation package remains consistent with
the industry compensation benchmarks reviewed by the Compensation Committee at the time of hiring. Mr.
Thompson was eligible to receive an annual bonus up to a maximum target of 50% of his annual base salary based
on achievement of satisfactory performance objectives and to receive grants of stock options in accordance with the
Share Option Plan. Mr. Thompson earned a bonus of 30% of his annual base salary and was granted stock options
to acquire 150,000 Common Shares relating to his performance in fiscal 2007.
Performance Graph
The following performance graph compares the cumulative return to shareholders of the Corporation of an
investment in Common Shares with the cumulative return to them of an investment in the Standard &
Poor’s/Toronto Stock Exchange Composite Index (“TSX Composite”) and the Standard & Poor’s/Toronto Stock
Exchange Global Gold Index (formerly, the S&P/TSX Capped Gold Index) (“TSX Gold”) assuming an investment
of $100 on December 31, 2002 and, where applicable, the reinvestment of dividends.
$0
$50
$100
$150
$200
$250
Dec
31/02
Dec
31/03
Dec
31/04
Dec
31/05
Dec
31/06
Dec
31/07
Corporation
TSX Composite
TSX Gold
- 15 -
Index Dec 31/02 Dec 31/03 Dec 31/04 Dec 31/05 Dec 31/06 Dec 31/07
Corporation $100 $150.21 $184.55 $107.30 $181.55 $98.71
TSX Composite $100 $124.29 $139.79 $170.42 $195.15 $209.13
TSX Gold(1) $100 $113.61 $103.39 $125.52 $160.05 $152.50
Notes:
(1) The index methodology change from S&P/TSX Capped Gold Index to S&P/TSX Global Gold Index was effective on December 18,
2006.
Compensation of Directors
Other than Messrs. Thompson (until June 3, 2008) and Fung, directors of the Corporation are compensated for their
services as directors through a combination of annual fees, stock options and, in the discretion of the Board in
certain circumstances, special payments. Mr. Fung receives no additional compensation for serving as a directors
other than an annual grant of stock options to acquire Common Shares. Mr. Thompson, in his role of director,
received an annual grant of stock options to acquire Common Shares and was eligible for all other director
compensation when he ceased to be Chief Executive Officer of the Corporation on June 3, 2008.
The Corporation has entered into an agreement dated January 1, 2004 with Robert Fung to serve as Chair of the
Board. Under the agreement, Mr. Fung receives annual compensation of $180,000 payable monthly in arrears. Mr.
Fung is also eligible to receive an annual performance bonus of not less than US$100,000 at the discretion of the
Board. In the event of a change of control of the Corporation which results in Mr. Fung’s termination as Chairman
of the Board, Mr. Fung is entitled to receive a lump sum payment equal to three times his annual compensation
including the performance bonus described above. On June 3, 2008, Mr. Fung was appointed interim CEO for
which he receives an additional annual compensation of US$100,000.
Independent directors (in 2007, Messrs. Brown, Longden, Near, Oppenheimer, van’t Hof and Zullo) receive an
annual fee of US$20,000 and US$2,000 meeting fee payable, at the option of the Corporation; in Common Shares
(see “Equity Compensation Plans - Directors Remuneration Plan (DRP)”). The Corporation has available only
51,601 Common Shares available for issue under the DRP. In 2007, Directors were paid in aggregate US$148,000
in annual and meeting fees which were settled by issuing 38,508 Common Shares. In 2008, Directors were paid in
aggregate US$220,000 in semi-annual retainer and meeting fees which were settled by issuing 125,040 Common
Shares. The Corporation would have to pay Directors’ fees in cash unless the current DRP is increased.
Accordingly, the Corporation is seeking shareholders’ approval of an additional 600,000 Common Shares under the
DRP.
Prior to June 25, 2008, all directors received an annual grant of options to acquire 25,000 Common Shares. The
options were granted immediately after the annual general meeting of shareholders of the Corporation in each year.
It is the Company’s intention to continue this practice in the event of shareholders’ approval of the New Share
Option Plan.
Prior to June 25, 2008, with the exception of the Audit Committee, the Chair of a Board committee received an
additional annual grant of options to acquire 20,000 Common Shares and a member of a Board committee (other
than the Chair) received an additional annual grant of options to acquire 15,000 Common Shares. The Chair of the
Audit Committee received an additional annual grant of options to acquire 30,000 Common Shares and a member of
the Audit Committee (other than the Chair) receives an additional annual grant of options to acquire 20,000
Common Shares. The options were granted immediately after the annual general meeting of shareholders of the
Corporation in each year. It is the Corporation’s intention to continue this practice in the vent of shareholders’
approval of the New Share Option Plan.
The Corporation would have granted a total of 515,000 stock options as annual compensation to directors for their
services on the Board and Committees of the Board as detailed above. On June 25, 2008, the Corporation did not
have any options available to be granted. Accordingly, the Corporation paid Director fees of $150,380 as partial
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compensation for their services that would have been “settled” through the grant of 206,000 stock options. The
Corporation is seeking shareholder approval of 309,000 stock options to be granted to Directors under the New SOP,
otherwise the Corporation would have to pay cash for the remaining portion of their annual compensation normally
settled through stock option grants.
During 2007, Mr. van’t Hof received cash compensation of $80,000 for acting as the lead director of the Board. The
Corporation paid for health insurance costs for Mr. Oppenheimer in 2007 and included these fees as directors’
expenses.
Directors and Officers Insurance
The Corporation maintains directors and officers’ liability insurance for itself and its directors and officers. Under
the insurance policy, the Corporation is entitled to be reimbursed, subject to a deductible of US$150,000, for
indemnity payments made by it to its directors and officers for losses suffered by them and the directors and officers
are entitled to be reimbursed for losses suffered by them if they are not indemnified by the Corporation. The policy
has a limit of US$15,000,000 per occurrence. The annual premium payable by the Corporation under the policy is
US$295,000.
EQUITY COMPENSATION PLANS
As at the end of the Corporation’s most recently completed financial year, the Common Shares that were authorized
for issuance under the Corporation’s equity compensation plans are set out below.
Equity Compensation Plan Information
Number of securities
issuable upon exercise of
outstanding options,
warrants and rights
Weighted-average exercise
price of outstanding
options, warrants and
rights
Number of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in column (a))
Plan Category (a) (b) (c)
Equity Compensation plans
approved by securityholders
(Category 1)
12,527,422 $3.04 7,095,118
Equity Compensation plans
not approved by
securityholders
(Category 2)
Not Applicable Not Applicable Not Applicable
Total 12,527,422 $3.04 7,095,118
The numbers in Category 1 refer to the Former SOP and the Directors’ Remuneration Plan (the “DRP”) as at
December 31, 2007, details of which are contained below.
Former Incentive Share Option Plan
Background
The shareholders of the Corporation approved the Former SOP in June 2002. Shareholders approved an amendment
to the SOP in June 2005 to increase the maximum number of Common Shares issued and issuable under the Former
SOP. In June 2007, shareholders approved certain amendments to the Former SOP relating to blackout periods (the
“Blackout Period Amendment”), cashless exercise (the “Cashless Exercise Amendment”) and the addition of
detailed provisions that outline the types of amendments to the plan that require shareholder approval and those that
can be made without shareholder approval (the “Amendment Provisions”), together with certain other minor
amendments of a conforming and clerical nature adopted by the Board.
- 17 -
The purpose of the Former SOP was to provide additional economic incentive to the directors, officers, employees
and consultants of the Corporation and its associated and affiliated companies, to encourage stock ownership by
eligible persons, to increase the proprietary interest of eligible persons in the success of the Corporation and to assist
the Corporation and its subsidiaries in attracting talented new directors, officers and employees. The Board or the
Nominating and Compensation Committee administers the Former SOP.
2005 Amendment of Former SOP
On June 24, 2005, the shareholders approved an amendment to the Former SOP to change the maximum number of
Common Shares issued and issuable thereunder from 13,500,000 to 10% of the issued and outstanding Common
Shares from time to time (otherwise known as a “rolling plan”). The purpose of the change was to facilitate the use
of options to assist the Corporation in attracting and retaining experienced and skilled employees. In 2004, the
Corporation commenced a program of granting options to employees at its Venezuelan operations. This program
remains in place and the Corporation expects that this program will continue in the future.
Pursuant to TSX rules and regulations, the number of Common Shares available for future grant of options under the
Former SOP must be approved by the Board, including a majority of the unrelated directors, and the shareholders of
the Corporation every three years.
2007 Amendments of Former SOP
On June 28, 2007, the shareholders approved certain amendments to the Former SOP to reflect the introduction of
new rules affecting equity compensation plans introduced by the TSX in 2006, together with certain other minor
amendments of a conforming and clerical nature.
The Former SOP was amended to permit the exercise of certain options which would otherwise have expired during
or within 10 business days following a period in which trading in the Common Shares is restricted by the policies of
the Corporation. The Former SOP was also amended to provide the Board with the flexibility to permit participants
in the Former SOP to receive, without payment by the participant of any additional consideration, Common Shares
equal to the value of the option (or the portion thereof) being exercised by surrender of the option to the
Corporation. In addition, the Former SOP was amended to include certain amending provisions required by the TSX
and, in addition, to specify those amendments which require shareholder approval.
2008 Cessation of Former SOP
The rules of the TSX require that, if a listed issuer has a stock option plan that does not have a fixed maximum
number of shares issuable thereunder, the directors and shareholders of the issuer must approve and reaffirm the
unallocated options under the plan every three years. If shareholder approval is not obtained within three years of
either the institution of a rolling plan or subsequent approval, as the case may be, all unallocated entitlements will be
cancelled and the issuer will not be permitted to grant further entitlements under the rolling plan. However, all
allocated awards under the rolling plan, such as options that have been granted but not yet exercised, will continue
unaffected. Approval of the unallocated options under the Former SOP was not put forward for consideration by the
shareholders at the Corporation’s annual meeting convened on June 25, 2008. Accordingly, the Corporation ceased
to grant any further options under the Former SOP.
Former SOP Activity
The following table sets out Former SOP activity from December 31, 2006 to June 24, 2008.
Maximum Number of
Common Shares Issued
and Issuable under
the Former SOP
Common Shares
Issuable Under
Outstanding Options
Common Shares Available
for
Future Grant(1)
Balance – December 31, 2006 24,542,449 11,394,085 7,292,356
Increase in 2007 1,623,458 - 1,623,458
- 18 -
Options granted in 2007 - 2,067,004 (2,067,004)
Options exercised in 2007 - (864,000) -
Options cancelled in 2007 - (69,667) 69,667
Balance – December 31, 2007 26,165,907 12,527,422 6,918,477
Increase in 2008 3,301,178 - 3,301,178
Options granted in 2008 - - -
Options exercised in 2008 - (96,000) -
Options cancelled in 2008 - (1,294,667) 1,294,667
Request for triennial renewal
withheld
(11.514,322)
Balance – June 24, 2008 29,467,085 11,136,755 Nil
Notes:
(1) The maximum number of Common Shares issued and issuable under the Former SOP less all Common Shares issued under previously
exercised options and issuable under outstanding options.
(2) The Corporation ceased to grant any further options under the Former SOP after June 24, 2008.
Summary Information
The following table sets out summary information with respect to the Former SOP as at June 24, 2008.
Maximum Number of
Common Shares Issued
and Issuable Under
the Former SOP
Common Shares
Issued Under
Exercised Options
Common Shares
Issuable Under
Outstanding Options
Common Shares
Available for
Future Grant(1)
#
% of
Common
Share
Capital #
% of
Common
Share
Capital #
% of
Common
Share
Capital #
% of
Common
Share
Capital
29,467,085 10% 6,816,008 2.0% 11,136,755 4.0% Nil n/a
Notes:
(1) The maximum number of Common Shares issued and issuable under the Former SOP less all Common Shares issued under previously
exercised options and issuable under outstanding options.
(2) The Corporation ceased to grant any further options under the Former SOP after June 24, 2008.
Directors’ Remuneration Plan
For a description of DRP and a summary of its material terms, please see “Approval of Amendment to Directors
Remuneration Plan above.
Directors’ Remuneration Plan Activity
The following table sets out the DRP activity from December 31, 2006 to October 9, 2008.
Maximum Number of
Common Shares Issued
and Issuable Under
the DRP
Common Shares
Issued
Common Shares
Available for
Future Issue (1)
Balance – December 31, 2006 600,000 384,851 215,149
Common Shares issued in 2007 - 38,508 (38,508)
Balance – December 31, 2007 600,000 423,359 176,641
- 19 -
Common Shares issued in 2008 - 172,531 (172,531)
Balance – October 9, 2008 600,000 595,890 4,110
Notes:
(1) The maximum number of Common Shares issued and issuable under the DRP less all Common Shares previously issued.
Summary Information
The following table sets out summary information with respect to the DRP as at October 9, 2008.
Maximum Number of
Common Shares Issued
and Issuable Under
the DRP
Common Shares
Issued
Common Shares
Available for
Future Issue(1)
#
% of
Common
Share
Capital #
% of
Common
Share
Capital(1) #
% of
Common
Share
Capital
600,000 0.204% 595,890 0.203% 4,110 0.001%
Notes:
(1) The maximum number of Common Shares issued and issuable under the DRP less all Common Shares previously issued.
INTEREST OF INFORMED PERSONS IN MATERIAL TRANSACTIONS
Except as otherwise set out in this Circular, none of the informed persons of the Corporation or their respective
associates or affiliates has any material interest, direct or indirect, in any transaction since the commencement of
2007 or in any proposed transaction which has materially affected or would materially affect the Corporation or any
of its subsidiaries.
AUDIT COMMITTEE INFORMATION
The audit committee information required by Multilateral Instrument 52-110 is located in the Corporation’s Annual
Information Form for the period ended December 31, 2007 under the heading “Audit Committee.”
INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
Except as otherwise set out in this Circular, none of the individuals who are or were at any time since the beginning
of 2007 directors or executive officers of the Corporation or are proposed nominees for election as directors of the
Corporation and their respective associates and affiliates has any material interest, direct or indirect, by way of
beneficial ownership of securities or otherwise, in any matter to be acted on at the Meeting.
MANAGEMENT CONTRACTS
No management functions of the Corporation or any of its subsidiaries are to any substantial degree performed by
any person other than the directors and executive officers of the Corporation.
- 20 -
OTHER MATTERS
Shareholder Proposals
Shareholders must submit any shareholder proposal that they wish to be considered at the special meeting of
shareholders of the Corporation to be held in 2009 no later than 90 days before the anniversary date of the Notice of
Meeting accompanying this Circular.
Glossary
The terms “affiliate”, “associate”, “insider” and “senior officer” used in this Circular have the meanings given to
them in the Securities Act (Ontario). The terms “executive officer” and “informed person” used in this Circular have
the meanings given to them in National Instrument 51-102 issued by the Canadian Securities Administrators.
Additional Information
Additional information relating to the Corporation is available on SEDAR at www.sedar.com. Shareholders may
obtain copies of the annual report of the Corporation including the audited consolidated financial statements of the
Corporation and related MD&A for the year ended December 31, 2007 by contacting the Chief Financial Officer,
Crystallex International Corporation, Suite 1210, 18 King Street East, Toronto, Canada M5C 1C4.
BOARD APPROVAL
The contents and the sending of this Circular have been approved by the Board of Directors.
DATED: October 9, 2008.
BY ORDER OF THE BOARD OF DIRECTORS
“Robert A. Fung”
Robert A. Fung, Executive Chairman and Chief
Executive Officer
4 Recommendations
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