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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF
SMALL BUSINESS ISSUERS
UNDER SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
GLOBAL DIAMOND RESOURCES, INC.
(Name of Small Business Issuer in its charter)
Nevada 33-0213535
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(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
836 Prospect Street, Suite 2B
La Jolla, California 92037
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE (619) 459-1928
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SECURITIES TO BE REGISTERED UNDER SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH
TO BE SO REGISTERED EACH CLASS IS TO BE REGISTERED
None N/A
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SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, $.001 par value
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(TITLE OF CLASS)
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
Business Development
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Global Diamond Resources, Inc., a Nevada corporation ("Company"), was
formed under the laws of the State of Nevada on January 7, 1987 under the name
Lohengrin, Inc. for the purpose of conducting an unspecified offering of its
securities and then applying the net proceeds towards the acquisition of one or
more businesses. In March and April 1987, the Company conducted a public
offering of 34,667 shares of its Common Stock pursuant to an offering statement
on Form 1-A filed with the Securities and Exchange Commission. In that public
offering, the Company sold 24,267 shares at an offering price of $2.88 per
share. From April 1987 to March 1988, the Company's operations consisted solely
of the investigation of acquisition candidates.
In March 1988, the Company entered into an Agreement of Merger and Plan of
Reorganization ("Western Capital Agreement") pursuant to which it acquired all
of the outstanding common shares of capital stock of Western Capital Leasing
Corporation, a California corporation engaged in the business of equipment
financing. At that time, the Company changed its corporate name to Western
Capital Financial Corporation. Pursuant to the Western Capital Agreement, the
Company issued to the stockholders of Western Capital Leasing Corporation 91,313
shares of the Common Stock of the Company. Between March 1988 and March 1992,
the Company acted as a holding corporation for its wholly-owned subsidiary,
Western Capital Leasing Corporation. However, as a result of declining interest
rates and an economic recession, Western Capital Leasing Corporation's business
became less profitable to the point that in 1992 Western Capital Leasing
Corporation discontinued active business operations. Between March 1992 and
July 1995, the Company and Western Capital Leasing Corporation were both
inactive.
In July 1995, the Company acquired all of the outstanding shares of common
stock of Global Diamond Resources Inc. ("Global Diamond-BC"), a British Columbia
corporation. At the time, Global Diamond-BC served as a holding company for its
South African operations. Pursuant to a Securities Purchase Agreement and Plan
of Reorganization dated July 17, 1995, the Company acquired from the
shareholders of Global Diamond-BC all of the issued and outstanding capital
shares of that corporation in exchange for the Company's issuance of 4,415,000
shares of Common Stock of the Company and a warrant to purchase 550,000 shares
of Common Stock, at Canadian $.75 per share, expiring on December 31, 1997.
Prior to the consummation of the reorganization, the Company divested itself of
its interest in Western Capital Leasing Corporation. Subsequent to the
reorganization, the Company changed its corporate name to Global Diamond
Resources, Inc.
In September 1995, the Company sold in a nonpublic offering 100,000 shares
of Common Stock at $2.50 per share. The purchaser was unaffiliated with the
Company and the proceeds of the offering were applied towards working capital.
In August and September of 1996, the Company conducted a public offering of
400,000 shares of its Common Stock at $2.50 per share. In that offering, the
Company sold 320,000 shares of Common Stock for the gross proceeds of $800,000.
Proceeds from the sale of the shares were applied towards the bulk sampling at
the Caerwinning Deposit and working capital.
In September 1996, the Company entered into an investment banking agreement
with Lion Mining Corporation ("Lion Mining"), a mining financial and consulting
firm located in London, England. Pursuant to the Agreement, Lion Mining has
agreed to provide general investment banking services to
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the Company, including the provision of its best efforts to provide or arrange
for the Company's receipt of $3 million in additional capital. In exchange for
its services, the Company has agreed to provide Lion Mining (i) common stock
purchase warrants to purchase 100,000 shares of Common Stock at $2.50
exercisable through December 31, 2000; (ii) subject to the Company's receipt of
$3 million in additional funds through the efforts of Lion Mining, 1,000,000
shares of Common Stock and common stock purchase warrants to purchase 900,000
shares of Common Stock exercisable through December 31, 2000 at exercise prices
of $.75 per share (for 300,000 shares) and $3.00 per share (for 600,000 shares).
The Company has also agreed to pay Lion Mining a monthly fee of $6,000 for 24
months commencing October 1, 1996 and appoint to its board of directors one
person designated by Lion Mining.
Unless the context otherwise requires, all references to the Company
include its wholly-owned subsidiaries, Global Diamond Resources Inc., a British
Columbia corporation, Global Diamond Resources (SA) (Pty) Limited, a South
African corporation, and P.D.J. Mining (Pty) Limited, a South African
corporation. The Company's executive offices are located at 836 Prospect
Street, Suite 2B, La Jolla, California 92037; Telephone (619) 459-1928.
Business of the Issuer
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GENERAL
The Company was recently organized to engage in diamond exploration and
mining and has exercised an option to acquire one mining property, acquired an
option to purchase a second mining property and has acquired a 50% partnership
interest in a third property, all of which are located in the Republic of South
Africa. The Company's current mine projects include:
The Caerwinning Deposit. The property is an alluvial deposit downstream of
the confluence of the Vaal and Harts Rivers in the Griqualand West area of the
Northern Cape Province. The property is estimated to include 38.3 million
tonnes of in situ diamondiferous gravel. During the period February 1989 to
October 1994, 3,685 carats of high quality large gemstones with an average value
of $488 per carat were recovered from this property. The Company has exercised
an option to acquire the Caerwinning Deposit in June 1996 and completed a bulk
sample in September 1996 in which it recovered 60 diamonds with a combined
weight of 111.05 carats and a value of $642 per carat. The Company intends to
commence full scale mining operations at the Caerwinning Deposit in the first
quarter of 1997 subject to the receipt of additional capital. See "Item 2.
Management's Discussion and Analysis or Plan of Operations."
The Montrose Kimberlite Pipe. The property is located 30 kilometers east
of Pretoria in the Gauteng Province, and is part of the Pretoria Group
geological formation which includes the Premier Diamond Mine. Geological
testing and drilling evidences a diamondiferous kimberlite pipe with a surface
dimension of 4.25 hectares and a depth of 400 meters, which indicates a
geological resource in excess of 9 million tonnes. The Company has acquired an
option to purchase the Montrose Pipe which expires on October 10, 1997 and
intends to commence bulk sampling at the site in the first quarter of 1997
subject to the receipt of additional capital. See "Item 2. Management's
Discussion and Analysis or Plan of Operations."
The Grasdrif Deposit. The property is an alluvial deposit on the inner
bank of the Orange River in the Northern Cape Province. Based on previous
exploration, the deposit is estimated to contain 54 million tonnes of in situ
diamondiferous gravel. Between 1973 and 1984, a previous producer recovered in
excess of 700,000 carats of high quality large gemstones from some 19 million
tonnes of gravel from properties in the area. The Company owns the rights to
this property in partnership with the local surface
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right holders. The Company intends to commence site establishment, including
the development of roads, power, housing and water at the Grasdrif Deposit, in
the first quarter of 1997 subject to the receipt of additional capital. See
"Item 2. Management's Discussion and Analysis or Plan of Operations." Mining
operations are expected to commence in the second half of 1997.
The Company believes that historical mining data and the results of past
prospecting at its three mining properties to date suggest significant reserves
exist throughout the mine properties. However, drilling at any of the three
mines has not been conducted for the purpose of establishing proven reserves.
Any estimate of reserves is necessarily imprecise and would depend on
statistical inferences drawn from limited drilling which can prove unreliable.
Consequently, the Company is unable to estimate with any degree of assurance the
amount of reserves at any of its mine properties.
The Company intends to conduct exploration and acquisitions of additional
diamond pipes and alluvial deposits and is continuously evaluating potential
property acquisitions.
Certain mining and geological terms used below are defined in the section
"Glossary," below. The Company has entered into certain financial commitments
payable in Rand, the unit of currency of the Republic of South Africa. All Rand
based amounts are designated by the symbol R. As of October 22, 1996, the Rand-
Dollar exchange rate was 4.57 Rand to 1 U.S. Dollar.
DIAMOND MINING - GENERALLY
Diamonds are chemically inert crystals formed by the subjection of carbon
to extraordinary heat and pressure. Diamonds are believed to have been formed
more than 90 million years ago at a depth of 400 km below the surface of the
earth and then transported to the earth's surface by the movement of molten
rock. The solidified rock is known as kimberlite pipes or fissures, and it is
from these kimberlite pipes or fissures that diamonds are generally mined. Some
of the pipes and fissures have eroded over time, and the diamonds once contained
in such formations have been transported and deposited in ancient or existing
river beds, seas and beaches. The Company's present projects include the mining
of kimberlite pipes and alluvial deposits.
Diamond exploration typically begins with surface sampling and magnetic
surveys for purposes of locating kimberlite or geographical anomalies which may
indicate the presence of kimberlite. In the event a pipe is located, follow-up
prospecting, trenching or drilling is conducted to determine if it is
diamondiferous. If the pipe is determined to be diamondiferous, bulk sampling
is conducted to evaluate the grade of the prospect and, thereby, establish
proven or probable reserves. The exploration and evaluation of an alluvial
diamond deposit is typically more complex and less conclusive because of scarce
and irregular distribution of diamonds.
Kimberlite pipes are mined through a combination of open pit excavation and
underground mining. The mining of a kimberlite pipe typically commences with an
open pit mine to a shallow depth, generally 30 meters. Initially, a mining zone
is designed and then dozers are used to remove the topsoil which is set aside
for reclamation. Dozers are then employed to excavate an open pit. As the
mining operations expand, the open pit is enlarged by digging benches into the
pit wall. Since kimberlite pipes are relatively narrow bodies, it becomes
impractical at a certain depth, approximately 30 to 50 meters, to continue
mining operations through open pit excavation. At this point, shafts are sunk
away from and parallel to the ore body, and from these shafts adits to the ore
body are developed at various levels. The kimberlite ore is hoisted to the
surface and hauled to a recovery plant by front-end loaders and trucks.
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MINING OPERATIONS
The Company intends to construct at each mining prospect a state-of-the-art
recovery plant for purposes of processing ore. Each recovery plant will consist
of a wash plant and associated screens, tables and separators that will employ
water, agitation, gravity and centrifugal force to separate the heavier
diamondiferous material from the lighter gravel. In the case of ore from a
kimberlite pipe, the ore will be delivered to the plant in large chunks and
those chunks will initially be subjected to a primary crusher that will mill the
ore into smaller blocks five inches thick. In the case of ore from an alluvial
deposit, the ore is initially passed over a grizzly that catches and rejects
all rocks six inches or greater in size. From this point, the recovery process
is virtually the same in the case of pipe or alluvial ore. The ore passes on a
covered conveyor belt through a Sortex machine. The Sortex machine beams an X-
Ray over the ore, which will cause any freed diamonds to fluoresce. When a
light detector identifies the fluorescent diamonds, the Sortex machine sends a
blast of air to knock the diamond off the conveyor belt and into a secured
recovery chamber.
The ore is then sent to a crusher that will mill the ore to a size of one
and one-half inches in diameter. At this point water will be introduced,
turning the ore into a slurry. The slurry passes through a dense medium
separation process through which gravity and centrifugal force are used to
separate the heavier diamondiferous ore from the lighter gravel. The
diamondiferous ore is sent through a second Sortex machine and the lighter
gravels are sent to a tailing pile. From the second Sortex machine, the slurry
is run over a grease table. Because water does not adhere to or "wet" diamonds,
any freed diamonds will stick to the grease table whereas the remainder of the
slurry will slide over the grease. The ore from the grease table is sent
through a ball mill and the ore is reduced to pulp. The ore from the ball mill
is sifted through small mesh screens to recover any remaining diamonds, and the
residue is sent to the tailing pile.
The Company intends to sell its diamonds directly to private diamond
dealers and manufacturers. There are no formal rules by which the price of
diamonds are determined. Sale prices are usually set by the diamond's weight,
color and clarity, and the evaluation process is generally subjective. The
Company expects that its sale of diamonds will be transacted in U.S. dollars on
a cash basis. The Company has engaged Weir International Limited ("Weir") to
market the Company's diamond production. In exchange for Weir's services, the
Company shall pay Weir five percent (5%) of the gross amount of all diamond
sales. Weir is a stockholder of the Company and certain members of management,
including the Company's Chief Executive Officer, have a beneficial interest in
Weir. See "Item 7. Certain Relationships and Related Transactions."
THE CAERWINNING DEPOSIT
Property Rights. The Company has acquired the exclusive rights to conduct
mining operations at the Caerwinning Deposit, a 2,333 hectare alluvial deposit
located in the Northern Cape Province. The Caerwinning Deposit lies on
"alienated State land" pursuant to the Precious Stones Act of 1964 and,
therefore, the Republic of South Africa owns all rights to the precious stones
on the property. In 1978, Lama Minerals CC acquired from the Minister of Mines
the necessary approvals to mine the surface and subsurface of the deposit. In
June 1996, the Company exercised its option to acquire the mineral lease to the
alluvial deposit from Lama Minerals CC for R1.14 million. The Company's
acquisition of the mineral lease is subject to government approval which is
expected by January 1997. The Company believes that as a condition to the
governmental approval it will be required to pay the government between 2.5% to
5% of the gross selling price of the monthly production from the deposit.
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Geography. The Caerwinning Deposit is situated in the Griqualand area of
the Northern Cape province, approximately 70 kilometers west of Kimberley. It
borders to the east along the Vaal River, approximately 20 kilometers downstream
of the confluence of the Vaal and Hart Rivers.
Geology. The gravels of the Caerwinning Deposit are underlain by quartzite
and shale of the Schmidtsdrift formation of the Transvaal Sequence, as well as
carboniferous shale and tillite of the Dwyka Formation of the Karoo Sequence.
Rock types of both sequences found on the deposit are horizontally or near
horizontally bedded, and are not conducive to pothole formation. Outcrops of
rocks of the Transvaal Sequence occur along the western and southern boundaries
of the deposit. Rock types belonging to the Dwyka formation do not outcrop and
were only found in boreholes and excavations.
The gravels occur in three distinct terraces of which the oldest is the
furthest removed from the present river bed. Secondary calcification is rather
extensive in the oldest terraces but negligible in the later and recent
deposits. The gravels mainly consist of cobble and pebble sized casts in a
sandy matrix. Boulder sized particles are extremely rare except where local
tributaries have introduced large more or less angular boulders into the
mainstream deposits.
Reserves. Based on past exploration drilling and bulk sampling and recent
mining activities, the Company believes that the Caerwinning Deposit has 38.3
million tonnes of in situ diamondiferous gravel.
Historical Production. The Caerwinning Deposit has been mined sporadically
since 1969. Over the years, various producers have recovered 4,539 carats.
Over the last six years, the most recent contractor, Mr. Pieter van Wyk,
recovered 3,685 carats from 344,400 tonnes of ore, for an average grade of 1.07
carats per 100 tonnes. A review of available production records indicates that
90 to 95% of the diamonds recovered were of gem quality, and that the overall
price during the last six years of production was $488 per carat. Mr. van Wyk
has served as Chief Consulting Geologist for the Company since July 1994.
Mining Plan. The Company intends to commence production at the Caerwinning
Deposit in the first quarter of 1997 subject to the receipt of additional
capital. See "Item 2. Management's Discussion and Analysis or Plan of
Operations." The Company intends to conduct directly all mining and recovery
activities at the Caerwinning Deposit. However, in the event the Company
encounters calcified deposits that require blasting, it intends to engage
contractors for this purpose.
THE MONTROSE KIMBERLITE PIPE
Property Rights. The Company has acquired exclusive prospecting rights and
an option to purchase a farm in the Gauteng Province, which includes a mining
prospect known as the Montrose No. 3 (referred to herein as the "Montrose
Pipe"). Pursuant to a Notarial Prospecting Contract between Maria Anna Gobey
and Global Diamond Resources (SA) (Pty) Limited, the Company has acquired the
exclusive rights to prospect on the property until October 11, 1997 in
consideration of the Company's payment of R54,000 and 10% of the value of all
minerals recovered by the Company during the prospecting period. The Company
also has the exclusive option until October 10, 1997 to purchase the farm for
R2.5 million.
Geography. The Montrose Pipe lies 500 meters north of Rayton and 30 km
east of Pretoria in the Gauteng Province. The area forms part of the temperate
eastern plateau and has an average elevation of 1,500 meters, with warm summers
and cool winters. Annual rainfall during the summer months averages 785
millimeters and year-round mining is undertaken in the vicinity.
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The region is accessible by the N4 Freeway and the Transnet Railway.
Ingress to and egress from the Montrose property is available by way of public
paved and gravel roads. The property is serviced by the state electric utility
and water for mining purposes is available by pipeline from the Bronkhorstspruit
Dam, 20 kilometers to the east.
Geology. The area of the Montrose Pipe is part of the Rayton Formation,
Pretoria Group. The area is underlain by a north-east succession of quartzite,
shale and subgraywacke of Precambrian time, and overlain by sandstone and
sandstone-shale The Pretoria Group has been intruded by a number of kimberlite
pipes and to a lesser extent by kimberlite fissures, the latter striking mainly
east-west. A total of ten kimberlite bodies are known to exist around Rayton,
six of which, the Montrose No.1, Montrose No.2, Montrose No. 3, Schuller-
Kaalfontein, National and Annex, have been prospected and exploited to a limited
extent.
In November 1994, Geo Hydro Technologies ("Geo Hydro"), an independent
geological engineering firm located in Pretoria, was commissioned by the
Company to conduct a geophysical survey of the Montrose Pipe for purposes of
detecting and delineating the kimberlite pipe. Geo Hydro's written report
stated that it was able to map the position of the kimberlite through
electromagnetic profiling. Geo Hydro estimated that the kimberlite had a
surface dimension of 4.25 hectares based on electromagnetic profiling; however,
the magnetic profiling suggested the presence of a fissure on the southeastern
boundary of the kimberlite, which, if present, would reduce the surface area of
the pipe to a minimum size of 1.25 hectares with the remaining area comprising
fissure material.
Reserves. Drilling to date together with surface sampling and geological
mapping indicate a kimberlite resource with a surface area of 4.25 hectares and
a depth of at least 50 meters. For purpose of estimating the total ore body,
the Company has assumed the pipe has a depth of at least 400 meters based on the
results of the drilling program interpreted by Steffen, Robertson & Kirsten.
Based on a depth of 400 meters and a surface area of 4.25 hectares, the Company
estimates that the pipe contains in excess of 9 million tonnes of ore.
Historical Production. In the early part of this century a prospecting
shaft was sunk alongside the Montrose Pipe to a depth of 30 meters and two
exploratory adits excavated, one at nine meters and the other at 30 meters.
While production records are incomplete, it is known that surface and shallow
underground mining of the Montrose Pipe produced 6,952 carats between 1910 and
1925. During this period average recovery grades varied from 3.19 carats per
100 tonnes from surface material to 15.08 carats per 100 tonnes from underground
ore. In 1989, an unaffiliated mining company acquired prospecting rights to the
Montrose Pipe and between April and July 1990 the company recovered 24.52 carats
from 367 tonnes of surface ore, which were sold for $123 per carat.
Mining Plan. The Company intends to commence a bulk sampling program at
the Montrose Pipe in the first quarter of 1997 subject to the receipt of
additional capital. See "Item 2. Management's Discussion and Analysis or Plan
of Operations." Following successful results from the proposed bulk sampling
program, the Company will conduct open pit mining to a depth of 30 meters.
While final pit design will depend on exploration results, the Company presently
plans to excavate 10 meter benches at a pit slope angle of 55 degrees. Based on
a surface area of 4.25 hectares, the Company estimates that open pit mining will
result in the recovery of 1.06 million tonnes of ore and an estimated life of
the open pit of 1.77 years. Based on the high estimated capital cost of open
pit mining at the Montrose Pipe, the Company intends to engage mine operators on
a contract basis in order to take advantage of the economies offered by a larger
mine operator.
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The Company will commence underground mining activity upon the completion
of open-pit mining. During the initial phase of underground mining, the
existing shaft will be refurbished and enlarged to a depth of 100 meters. A
second shaft for ventilation purposes will be developed to a depth of 100
meters. Next, the Company intends to excavate adits at the 33 meter level in
order to carry out bulk sampling. The Company presently estimates that R13
million in capital expenditures and two years of development will be required in
order to commence underground mining operations.
THE GRASDRIF DEPOSIT
Property Rights. The Company has entered into a joint venture for purposes
of mining the Grasdrif Deposit, an alluvial diamond deposit located on the inner
bank of the Orange River in the Northern Cape Province. The deposit is
currently held by promoters of a South African corporation to be formed under
the name Nabas Holdings (Pty) Limited ("Nabas Holdings"). The promoters of
Nabas Holdings have acquired exclusive rights to prospect the deposit from
appropriate governmental agencies.
Pursuant to a Shareholder Agreement, dated March 24, 1995, between Global
Diamond Resources (SA) (Pty) Limited and the promoters of Nabas Holdings, the
parties have formed a South African corporation, Nabas Diamonds (Pty) Limited
("Nabas Diamonds"), owned 50/50 by the parties. The Company will contribute R3
million to Nabas Diamonds and Nabas Holdings will assign the mining rights to
the Grasdrif Deposit. Thereafter, each party will contribute additional capital
to Nabas Diamonds in equal amounts as required by the Company. In the event
either party fails to make a required capital contribution, the other party may
make the contribution in return for a proportional interest in its percentage
ownership of Nabas Diamonds. The Company and Nabas Holdings will appoint three
directors and two directors, respectively, to the board of Nabas Diamonds. The
parties have granted each other the right of first refusal to purchase each
other's interest in Nabas Diamonds.
Geology. The Grasdrif Deposit is an alluvial gravel deposit situated on a
bedrock of Dwyka Tillites. The gravels of the Grasdrif Deposit have been
preserved in three distinct elevations, all of which seem to have been deposited
on the inner bank of the paleo and present Orange River. The upper terrace
(elevation 215 meters above sea level) seems to have been deposited as a point
bar of a channel incising to the west, while all other terraces are associated
with a gradual migration of channels towards its present situation in the east.
Reserves. Based on previous exploration activity by Namex (Pty) Limited
("Namex"), a South African mining company, the Company estimates that the
deposit contains approximately 54 million tonnes of in situ diamondiferous
gravel. The management of Namex at the time of such production included several
individuals who presently serve as senior management of the Company, including
Johann de Villiers.
Historical Production. The Grasdrif Deposit was prospected for the first
time by Namex. Between 1973 and 1984, Namex produced 706,607 carats from
19,613,759 tonnes of ore, for an average grade of 3.6 carats per 100 tonnes from
properties in the area.
Mining Plan. The Company intends to commence site establishment, including
the development of roads, power, housing and water at the Grasdrif Deposit, in
the first quarter of 1997 subject to the receipt of additional capital. See
"Item 2. Management's Discussion and Analysis or Plan of Operations." Mining
operations are expected to commence in the second half of 1997. The Company
intends to conduct all mining and recovery activities directly. However, in the
event the Company encounters calcified deposits that require blasting, it
intends to engage contractors for this purpose. The Company estimates that
Nabas Diamonds will incur up to R9.5 million in expenses in developing and
mining the
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Grasdrif Deposit before it will commence the recovery of diamonds. While Nabas
Holdings has the right to contribute fifty percent (50%) of the required capital
in excess of the Company's initial R3 million capital contribution, the Company
assumes that Nabas Holdings will be unable to meet additional capital
contributions and the Company will be required to fund all costs until the
commencement of diamond recovery.
REGULATION
The Company's mining and milling operations in the Republic of South Africa
and elsewhere are subject to various government regulations governing the
protection of the environment, prospecting, production, labor standards and mine
safety. Failure to comply with applicable laws and regulations may result in
orders being issued that may cause operations to cease or be curtailed, require
the installation of additional equipment and possibly the loss of mining rights.
Existing and future legislation and regulations could also cause restrictions
and delays in the development of the Company's properties and additional expense
and capital expenditures. The Company believes it is in substantial compliance
with all material laws and regulations applicable to it and its operations.
The Company's mining operations are also subject to governmental
regulations regarding environmental considerations, including regulations
relating to air quality standards, pollution of stream and fresh water sources
and reclamation. The Company may be required to prepare and present to
governmental authorities data pertaining to the effect or impact that any
proposed exploration or mining may have upon the environment. As well, the
Company will be responsible for reclamation costs. Reclamation requirements may
vary depending on the location and the nature of the mining operations, however,
they are similar in that they aim to minimize long term effects of exploration
and mining disturbance by requiring the operating company to control possible
deleterioius effluents and to re-establish to some degree predisturbance
landforms and vegetation. The environmental regulations of the Republic of
South Africa are not considered by the Company to be as stringent as the
environmental laws adopted in the U.S., and the Company does not consider the
existing environmental regulations in the Republic of South Africa to represent
a material cost or burden on the Company's proposed mining operations. However,
future legislation may significantly emphasize the protection of the environment
and, as a consequence, more closely regulate the Company's mining operations.
Any such legislation, as well as future interpretation of existing laws, may
require substantial increases in equipment and operating costs to the Company
and delays, interruptions, or a termination of operations, the extent of which
cannot be predicted.
Mining rights in the Republic of South Africa are governed by the Minerals
Act No. 50 of 1991. Pursuant to the Minerals Act, the right to prospect or mine
is dealt with in terms of the common law, which entitles the holder of the right
to the minerals on his land to prospect and mine. This common law right is,
however, made subject to the provisions of the Minerals Act, which state that no
common law right to prospect or mine minerals may be exercised unless the
prescribed statutory authorization has been obtained in the form of a permit to
prospect or an authorization to mine. A prerequisite for the granting of the
authorization is that the applicant must be the holder of the common law right
to the minerals. Pursuant to assignments from the holders of the common law
mineral rights, the Company has obtained government authorization to prospect
the Grasdrif Deposit and the Montrose Kimberlite Pipe and government
authorization to prospect and mine the Caerwinning Deposit. The Company expects
to acquire the common law mineral rights and direct government authorization to
prospect and mine the Caerwinning Deposit by January 1997. The Company believes
it will be granted the necessary authorization to mine the Grasdrif Deposit and
the Montrose Kimberlite Pipe in a timely manner.
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EMPLOYEES
The Company employs 37 persons, including three management level employees
in the U.S. and four managers and 30 laborers in the Republic of South Africa.
GLOSSARY
Set forth below are definitions of certain mining and geological terms used
in this Registration Statement.
Adit A horizontal tunnel from a shaft to a
- ---- kimberlite pipe through which the pipe is
mined and the ore is excavated.
Alluvial Deposit A deposit of alluvium (deposits made by
- ---------------- water) made by a stream where it runs out onto
a level plain or meets a slower stream.
Bedrock The solid rock underlying mineral-bearing
- ------- gravel, sand, clay, etc. and upon which
alluvial diamond rests.
Bench Cuts The excavation of a flat bench or dirt on a
- ---------- slope to stabilize the slope or to remove
material of value in open pit mining.
Bulk Sampling Acquiring a large (often several thousand
- ------------- tons) sample of rock obtained by mining,
excavation, digging or drilling large diameter
holes. Bulk sampling is necessary to determine
the grade and value of diamonds contained in a
property.
Carat A small unit of weight for precious stones
- ----- equal to 200 milligrams or 0.2 grams.
Diamondiferous Containing diamonds.
- --------------
Geophysical Surveys Measuring and recording any geophysical
- ------------------- properties over a specific area, e.g.,
gravity, magnetics, electrical conductivity,
acoustical velocities, etc., utilizing
instruments on land, water or airborne.
Grade The number of carats (weight) in a physical
- ----- unit of ore, normally in carats per 100
tonnes.
Gravel A comprehensive term applied to the water-worn
- ------ mass of broken down rocks making up an
alluvial. Alluvial gravels are sometimes
arbitrarily described in terms of size as
"pebble" gravel, "cobble" gravel or "boulder"
gravel.
Hectare Unit of measurement of surface area. One
- ------- hectare approximates 2.47 acres.
Kimberlite One of two primary types of diamond-bearing
- ---------- rock and the most common, often characterized
by a carrot-shaped structure referred to as a
kimberlite "pipe."
-9-
<PAGE>
Magnetic Surveys Measuring the magnetic variations in the
- ---------------- Earth's crustal rocks over a specified area by
installing a magnetometer within, or by towing
a magnetometer behind an aircraft and
recording the variation in the Earth's
magnetic field. Useful in detecting kimberlite
and ilmenite bodies due to the presence of
magnetite in kimberlite.
Minerology The science dealing with inorganic, solid,
- ---------- homogeneous crystalline, chemical elements or
compounds (minerals), their crystallography,
physical and chemical properties,
classifications and distinguishing
characteristics.
Mining The making of any excavation for the purpose
- ------ of recovering diamonds in commercial
quantities. Of primary importance in the
Republic of South Africa where mining laws
draw a distinction between "mining" and
"prospecting." See "Prospecting."
Ore A mineral deposit containing one or more
- --- metals that can be mined or treated
commercially. See"Reserves."
Petrology The science that deals with the origin,
- --------- history, occurrence, structure, chemical and
mineralogical composition and classification
of rocks.
Probable Reserves Reserves for which quantity and grade and/or
- ----------------- quality are computed from information similar
to that used for proven reserves, but the
sites for inspection, sampling, and
measurement are farther apart or are otherwise
less adequately spaced. The degree of
assurance, although lower than that for proven
reserves, is high enough to assume continuity
between points of observation. See "Reserves"
and "Proven Reserves."
Prospecting Searching for diamonds by any means and the
- ----------- recovery of diamonds through searching, but
does not include "mining" (i.e., excavation
for purposes of recovering diamonds in
commercial amounts). See "Mining."
Proven Reserves Reserves for which (a) quantity is computed
- --------------- from dimensions revealed in outcrops,
trenches, workings or drill holes, grades
and/or quality are computed from the results
of detailed sampling, and (b) the sites for
inspection, sampling and measurement are
spaced so closely and the geologic character
is so well defined that size, shape, depth and
mineral content of reserves are well-
established. See "Reserves" and "Probable
Reserves."
Reserves That part of a mineral deposit that can be
- -------- economically and legally extracted or produced
at the time of the reserve determination.
Reserves are customarily stated in terms of
"ore" when dealing with diamonds and other
metalliferous minerals.
Tailings The washed material that issues from a
- -------- recovery plant after the concentrate has been
removed.
-10-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
The Company is engaged in diamond exploration and mining. The Company has
exercised an option to acquire one mining property (the Caerwinning Deposit),
acquired an option to purchase a second mining property (the Montrose Kimberlite
Pipe) and has acquired a 50% partnership interest in the third property (the
Grasdrif Deposit), all of which are located in the Republic of South Africa.
The Company intends to conduct exploration and acquisitions of additional
diamond pipes and alluvial deposits and is continuously evaluating potential
property acquisitions. See "Item 2. Description of Business" for a further
description of the Company's mining properties.
The Company has entered into certain financial commitments payable in Rand,
the unit of currency of the Republic of South Africa. All Rand based amounts
are designated by the symbol R. As of October 22, 1996, the Rand-Dollar
exchange rate was 4.57 Rand to 1 U.S. Dollar.
To date, the Company's activities have included the investigation and
acquisition of mining property interests and limited exploratory work. The
Company has financed its activities to date through the sale of shares of its
Common Stock. See "Item 4, Part II - Recent Sales of Unregistered Securities"
for a description of the Company's sale of shares of its Common Stock over the
last three years. The Company believes that it requires a minimum of $2.5
million of additional capital in order to achieve a meaningful level of revenue
producing operations. In September 1996, the Company entered into an investment
banking agreement with Lion Mining Corporation ("Lion Mining"), a mining
financial and consulting firm located in London, England. Pursuant to the
agreement, Lion Mining has agreed to provide general investment banking services
to the Company, including the provision of its best efforts to provide or
arrange for the Company's receipt of additional capital. Please see "Item 1.
Description of Business - Business Development" for a complete description of
the terms of the Company's agreement with Lion Mining. As of the date of this
registration statement, the Company is engaged in the pursuit of an additional
$4.5 million of capital, the proceeds of which will be used to complete
exploration activities and commence production, as described below. However,
there are no firm commitments or agreements on the part of any party at this
time to provide any additional capital to the Company and there can be no
assurance that the Company will be able to obtain sufficient additional capital
in order to attain a meaningful level of operations. If the Company is unable
to raise additional capital, the Company may not be able to commence revenue
producing operations or finance the exercise of certain options to acquire
mining properties prior to their termination. See "Item 1. Description of
Business - Business of the Issuer."
The Company's plan of operations for the next 12 months include the
completion of exploratory work and the commencement of production at all three
of its present mining properties, subject to the receipt of additional
financing. The Company intends to undertake the following activities at each of
its three properties, in the following order of priority. The Company intends
to commence production at the Caerwinning Deposit, subject to its receipt of an
additional $2.5 million of capital to be applied towards this purpose. The
Company intends to commence a bulk sampling program at the Montrose Pipe subject
to its receipt of an additional $500,000 in capital to be applied towards this
purpose. Following successful results from the proposed bulk sampling program,
the Company intends to conduct open pit mining to a depth of 30 meters which
would be followed by underground mining activity. The Company estimates that it
will require R13 million ($2,844,639 as of October 22, 1996) in capital
expenditures and 2 years of development in order to commence underground mining
operations at the Montrose Pipe. Subject to the Company's receipt of an
additional $1 million in capital to be applied towards such purpose, the Company
intends to conduct site establishment at the Grasdrif Deposit, including the
development of roads, power, housing and water. The Company believes that site
establishment will take approximately 6 months, after which the Company would
propose to commence production at the
-11-
<PAGE>
Grasdrif Deposit. The Company expects to incur R9.5 million ($2,078,775 as of
October 22, 1996) in expenses for the development and mining of Grasdrif Deposit
before it will commence the recovery of diamonds.
In addition to the foregoing requirements, the Company will require
additional capital to finance the cost of development of its three mining
properties from banks and others or from the sale of equity securities. Because
the likelihood of discovery of an economically recoverable deposit and the
amount of funds required to finance the development of any particular project
cannot be predicted, it is impracticable to estimate the Company's requirements
for additional financing for development purposes at this time. Any such
additional financing might involve a pledge or mortgage of the Company's
properties and of any production therefrom. There is, of course, no assurance
that satisfactory financing could be obtained therefor. In addition to
borrowings to finance individual development projects, the Company may also
borrow funds from time to time for working capital and other general corporate
purposes.
ITEM 3. DESCRIPTION OF PROPERTY.
The Company's executive offices are located in La Jolla, California and
consist of approximately 485 square feet of leased premises. The Company's
lease for these premises expires on March 31, 1999 and provides for monthly rent
of $1,050. See "Item 2. Business and Properties - The Caerwinning Deposit; The
Montrose Kimberlite Pipe; and The Grasdrif Deposit" for a description of the
Company's mining properties.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information regarding the beneficial
ownership of the shares of Common Stock as of October 22, 1996 by (i) each
person who is known by the Company to be the beneficial owner of more than five
percent (5%) of the issued and outstanding shares of Common Stock, (ii) each of
the Company's directors and executive officers and (iii) all directors and
executive officers as a group.
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER OF SHARES PERCENTAGE OWNED
----------------- ----------------
<S> <C> <C>
Johann de Villiers Family 1,200,000 18.4%
Trust(1)(2)
Mervyn McCulloch(1)(3) 250,000 4.4%
Kenneth MacLeod(1) -0- -
John Tyson(1) 46,960 (4)
Hans Smith(1) 25,000 (4)
Charles MacDonald(1) -0- -
Colin Bird(1)(5) -0- -
</TABLE>
-12-
<PAGE>
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER OF SHARES PERCENTAGE OWNED
----------------- ----------------
<S> <C> <C>
Goddard Trustees (Jersey) Limited 467,000 8.6%
P.O. Box 344, Osprey House
5 Old Street, St. Helier
Jersey, JE4 8U2 Channel Islands
Weir International Limited(6) 723,323 12.3%
Pasca Estates, Road Town
Tortola, British Virgin Islands
All officers and directors 1,521,960 22.5%
as a group(2)(3)
</TABLE>
- ------------------------------------------
(1) Address is 836 Prospect, Suite 2B, La Jolla, California 92037.
(2) Includes 1,100,000 shares of Common Stock underlying immediately
exercisable options held by Mr. de Villiers. See "Item 6. Management
Compensation." Does not include Mr. de Villiers beneficial interest in any
shares of Common Stock held by Weir International Limited, a British Virgin
Islands corporation wholly-owned by a discretionary trust established for
the benefit of Mr. de Villiers and his family. Pursuant to the terms of the
trust agreement, Mr. de Villiers has no legal voting or dispositive control
over the shares of Common Stock held by Weir International Limited.
(3) Represents 250,000 shares of Common Stock underlying immediately
exercisable options held by Mr. McCulloch. See "Item 6. Management
Compensation."
(4) Less than one percent.
(5) Does not include securities of the Company held by Lion Mining Corp., of
which Mr. Bird is an officer and a director.
(6) Includes 449,000 shares of Common Stock underlying immediately exercisable
warrants held by Weir International Limited. Certain members of management
of the Company, including Mr. de Villiers, have a beneficial interest in
Weir.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
Directors and Executive Officers
- --------------------------------
Set forth below are the directors and officers of the Company and its South
African subsidiaries, Global Diamond Resources (SA)(Pty) Limited and P.D.J.
Mining (Pty) Limited (collectively "SA-Group"). Unless otherwise indicated,
each person holds the stated positions with all companies.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Johann de Villiers 43 Chairman of the Board and Chief
Executive Officer
</TABLE>
-13-
<PAGE>
<TABLE>
<S> <C> <C>
Mervyn McCulloch 52 Chief Financial Officer
Secretary of the Company
Kenneth MacLeod 45 Director
John Tyson 49 Director of the Company
Hans Smith 55 Director of the Company
Charles MacDonald 42 Director of the Company
Andries Janzen 53 Managing Director of SA-Group
Colin Bird 52 Director of the Company
Pierre de Jager 50 Financial Director of SA-Group
Pieter van Wyk 46 Chief Consulting Geologist of SA-Group
Anthony de la Harpe 51 Director of SA-Group
</TABLE>
Mr. de Villiers founded the business of the Company in 1993 and has served
as Chairman and Chief Executive Officer since inception. From 1984 to 1990, Mr.
de Villiers served as Chief Executive Officer of Kensington Finance Corp., an
options trading firm and member of the American Stock Exchange. From 1990 to
1994, Mr. de Villiers acted as investment advisor to the Monitrend Gold Mutual
Fund. From 1976 to 1984, Mr. de Villiers was the managing director of the Octha
Group, a South Africa based international diamond mining, polishing and trading
company.
Mr. McCulloch has served as Chief Financial Officer and Secretary of the
Company since March 1995. Mr. McCulloch is a Certified Public Accountant and
was a partner of Deloitte, Haskins & Sells in South Africa from 1972 to 1984 and
a partner in Deloitte & Touche in the United States from 1985 to 1990. From
1990 to 1995, Mr. McCulloch was Executive Vice President and Chief Financial
Officer of Armor All Products Corporation, a NASDAQ/NMS public corporation
located in California.
Mr. MacLeod has served as a director of the Company since its inception in
1993 and has served as a director of Global Diamond-SA since January 1995. In
September 1995, Mr. MacLeod was appointed President of International Panorama
Resource Corp., a British Columbia mining corporation that has its shares listed
on the Vancouver Stock Exchange. Mr. MacLeod served as Vice President of
International Panorama Resource Corp. from 1994 to September 1995. From 1983 to
1993, Mr. MacLeod served as President of Canadian & Overseas Management Corp., a
financial and management consulting firm.
Mr. Tyson has served as director of the Company since 1994. Since 1990,
Mr. Tyson has served as President of Tyson & Associates, an international
consulting firm headquartered in Washington, D.C. specializing in providing
investment, business development and promotional services to African countries.
Mr. Smith has served as a director of the Company since July 1995. Mr.
Smith holds degrees in metallurgy and in mining and was employed by Gold Fields
of South Africa and Gencor before joining
-14-
<PAGE>
the Octha Group as technical mining director. Since 1985, he has held the
positions of Senior Manager Marketing and Managing Director of Trans Natal, the
Coal Division of Gencor, the Managing Director of Samancor Limited; a Director
of Genmin and is currently the Chief Executive & Managing Director of Iscor Ltd.
Mr. MacDonald has served as a director of the Company since July 1995.
Since 1990, Mr. MacDonald has been engaged in the practice of law in Cape Town,
South Africa. Mr. MacDonald represents the interests of the Company's joint
venture partners involved in the Grasdrif Deposit.
Mr. Bird has served as director of the Company since October 1996. Mr.
Bird has served as Chief Operating Officer and a director of Lion Mining
Corporation since October 1995 and September 1996, respectively. Mr. Bird has
spent 14 years in South Africa in the management of base metal and coal mines,
including five years as Manager of the Selebi Phikwe Nickel Copper Mine.
Mr. Janzen has served as Managing Director of SA-Group since July 1994.
Mr. Janzen is a qualified engineer with a degree in commerce, and a shareholder
and general manager of Elite Diamond Cutting Works (Pty) Ltd., a South African
based diamond cutting and trading company. He was the general manager of the
Octha Group, having established the Johannesburg and Taiwan diamond cutting
factories. In this position he was responsible for the operations of five
producing diamond mines, an active mine exploration program, two diamond
polishing factories, as well as the marketing organization of the group that
extended to Belgium, Switzerland and the United States.
Mr. de Jager has served as Financial Director of SA-Group since July 1994.
Mr. de Jager is a qualified chartered accountant with more than ten years
experience as financial director and general manager of a number of Johannesburg
Stock Exchange listed public companies. In addition he is a director and
shareholder of companies involved in the transport, property development, time
share development and travel industries.
Mr. van Wyk has served as Chief Consulting Geologist of SA-Group since July
1994. Mr. van Wyk holds a M.Sc. (Geology) and has lectured in Sedimentology at
the University of Pretoria and in Economic Geology at the Rand Afrikaans
University. He was the Senior Field Geologist for Rand Mines before operating
his own diamond mining and exploration concern with interests in southern
Namibia (alluvials), south of Kimberley (kimberlite fissures), and west of
Kimberley along the Vaal River (alluvials) at Caerwinning. He is the published
author of a number of articles.
Mr. de la Harpe has served as a director of SA-Group since September 1995.
Mr. de la Harpe is a former teacher in the Richtersveld, South Africa. He is
also a representative of Nabas Holdings (Pty) Limited, the Company's joint
venture partner in the Grasdrif Deposit. Since retiring as a teacher, Mr. De La
Harpe has served as member of the African National Congress Land Commission for
the Western Cape Region.
ITEM 6. EXECUTIVE COMPENSATION.
Cash Compensation of Executive Officers. The following table sets forth
the cash compensation paid by the Company to its executive officers for services
rendered during the fiscal years ended December 31, 1995, 1994 and 1993.
-15-
<PAGE>
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------------- ------------------------------------------
COMMON
SHARES
RESTRICTED UNDERLYING
OTHER STOCK OPTIONS
ANNUAL AWARDS GRANTED ALL OTHER
NAME AND POSITION YEAR SALARY BONUS COMPENSATION ($) (# SHARES) COMPENSATION
- -------------------------- ---- ------ ----- ------------ ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Johann de Villiers, CEO(1) 1995 $40,000 -0- -0- -0- 1,100,000(2) -0-
1994 17,500 -0- -0- -0- -0- -0-
1993 -0- -0- -0- -0- -0- -0-
Mervyn McCulloch, CFO(3) 1995 -0- -0- -0- -0- -0- -0-
1994 -0- -0- -0- -0- -0- -0-
1993 -0- -0- -0- -0- -0- -0-
</TABLE>
- -------------------------
(1) From June 1994 through August 1995, Mr. de Villiers was paid a salary of
$2,500 per month. Commencing September 1, 1995, Mr. de Villiers has been
paid a salary of $5,000 per month.
(2) On July 25, 1995, the Company granted its Chief Executive Officer, Johann
de Villiers, a Nonqualified Stock Option which, as amended, allows Mr. de
Villiers to purchase up to 1,000,000 shares of Common Stock at $3.00 per
share. The option is fully vested and may be exercised at any time, or
from time to time, until July 25, 2000. On September 7, 1995, the Company
granted to Mr. de Villiers a Nonqualified Stock Option to purchase 100,000
shares of Common Stock at an exercise price of $3.00 per share. The option
is fully vested, and immediately exercisable and expires on September 7,
1998.
(3) Commencing July 1, 1996, Mr. McCulloch has been paid a salary of $7,000 per
month. On October 2, 1996, the Company granted to Mr. McCulloch, a
Nonqualified Stock Option to purchase 250,000 shares of Common Stock at an
exercise price of $2.50 per share. The option is fully vested and
immediately exercisable and expires on October 2, 2001.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
- ------------------------------------------------------------------------------------------------------------------
NUMBER OF SECURITIES
UNDERLYING % OF TOTAL OPTIONS/SARS
OPTIONS/SARS GRANTED GRANTED TO EMPLOYEES IN EXERCISE OR BASE
NAME (#) FISCAL YEAR PRICE ($/SH) EXPIRATION DATE
- ------------------------ -------------------- ------------------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Johann de Villiers, CEO 1,000,000 91% $3.00 07/25/00
Johann de Villiers, CEO 100,000 9% $3.00 09/07/98
</TABLE>
Compensation of Directors. All non-officer directors receive an attendance
fee of $1,000 per meeting of the Board of Directors. All directors receive
reimbursement for out-of-pocket expenses in attending Board of Directors
meetings. From time to time the Company may engage certain members of the Board
of Directors to perform services on behalf of the Company. The Company will
compensate the members for their services at rates no more favorable than could
be obtained from unaffiliated parties.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Company has engaged Weir International Limited ("Weir") to market and
sell the Company's diamond production. The Company shall be responsible for all
direct costs relating to the sale of the diamonds, such as insurance, freight,
import and export duties, and all applicable taxes and levies. Weir shall be
responsible for all sales and marketing expenses. In consideration of its
services, the Company shall pay Weir a commission of five
-16-
<PAGE>
percent (5%) of the gross sale amount. Weir is a stockholder of the Company and
certain members of the Company's management, including the Company's Chief
Executive Officer, Johann de Villiers, have a beneficial interest in Weir. See
Item 4. Securities Ownership of Certain Beneficial Owners and Management. The
Company believes that the terms of its agreement with Weir are no less favorable
than could be obtained from an unaffiliated party.
In 1994, the Company granted warrants entitling the holders to purchase
550,000 shares of Common Stock at C$.75. Of those warrants, Weir presently
holds warrants to purchase 349,000 shares of Common Stock and the balance of the
warrants are held by an unaffiliated party. The warrants are fully vested,
immediately exercisable and expire on December 31, 1997. In December 1995, the
Company granted to Weir additional warrants entitling the holder to purchase
100,000 shares of Common Stock at $3.00 per share. The warrants are fully
vested, immediately exercisable and expire on December 30, 1998.
ITEM 8. DESCRIPTION OF SECURITIES.
COMMON STOCK
The Company is authorized to issue 25,000,000 shares of Common Stock, $.001
par value, of which, as of October 22, 1996, 5,420,054 shares were issued and
outstanding and held by 128 stockholders of record. As of October 22, 1996,
there are no outstanding options, warrants or other securities which upon
exercise or conversion entitle their holder to acquire shares of Common Stock,
other than (i) as described in "Item 6. Executive Compensation" and "Item 7.
Certain Relationships and Related Transactions," and (ii) an additional option
to purchase 100,000 shares of Common Stock at $2.50 per share granted to a
Company employee.
Holders of shares of Common Stock are entitled to one vote per share on all
matters to be voted upon by the stockholders generally. The approval of
proposals submitted to stockholders at a meeting other than for the election of
directors requires the favorable vote of a majority of the shares voting, except
in the case of certain fundamental matters (such as certain amendments to the
Articles of Incorporation, and certain mergers and reorganizations), in which
case Nevada law and the Company's Bylaws require the favorable vote of at least
a majority of all outstanding shares. Stockholders are entitled to receive such
dividends as may be declared from time to time by the Board of Directors out of
funds legally available therefor, and in the event of liquidation, dissolution
or winding up of the Company to share ratably in all assets remaining after
payment of liabilities. The holders of shares of Common Stock have no
preemptive, conversion, subscription or cumulative voting rights. All Shares of
Common Stock sold in this offering will be, when issued, fully paid and
nonassessable.
PREFERRED STOCK
The Company is authorized to issue 10,000,000 shares of preferred stock,
$.001 par value ("Preferred Stock"), none of which has been issued as of the
date of this Registration Statement. The Company's Board of Directors is
authorized to issue from time to time, without shareholder authorization, in one
or more designated series or classes, any or all of the authorized but unissued
shares of Preferred Stock with such dividend, redemption, conversion and
exchange provisions as may be provided in the particular series. Any series of
Preferred Stock may possess voting, dividend, liquidation and redemption rights
superior to that of the Common Stock. The rights of the holders of Common Stock
will be subject to and may be adversely affected by the rights of the holders of
any Preferred Stock that may be issued in the future. Issuance of a new series
of Preferred Stock, while providing desirable flexibility in connection with
possible acquisition and other corporate purposes, could make it more difficult
for a third party to acquire, or discourage a third party from acquiring, a
majority of the outstanding voting stock of the Company. The Company has no
present plans to issue any series of Preferred Stock.
TRANSFER AGENT
The Transfer Agent for the Company's Common Stock is American Securities
Transfer & Trust, Incorporated, 1825 Lawrence Street, Suite 444, Denver,
Colorado 80202.
-17-
<PAGE>
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS.
The Company's Common Stock has been listed on the OTC Bulletin Board
under the symbol "GDRS" since August 12, 1996. During the period August 12, 1996
to October 22, 1996, the high and low last sale prices were $3.00 and $1.88,
respectively. The Company considers its Common Stock to be thinly traded and
that any reported bid or sale prices may not be a true market-based valuation of
the Common Stock.
As of October 22, 1996, there were approximately 128 record holders of
the Company's Common Stock.
The Company has not paid any cash dividends since its inception and
does not contemplate paying dividends in the foreseeable future. It is
anticipated that earnings, if any, will be retained for the operation of the
Company's business.
ITEM 2. LEGAL PROCEEDINGS.
There are no pending legal proceedings to which the Company or the
property of the Company are subject. In addition, no proceedings are known to be
contemplated by a governmental authority against the Company or any officer or
director of the Company.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
Inapplicable.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
During the last three years the Company sold unregistered shares of
its Common Stock in the following transactions:
A. In July 1995, the Company issued 4,415,000 shares of its Common
Stock to 17 persons in connection with the Company's reorganization with Global
Diamond-BC. The shares were issued pursuant to Section 4(2) and Regulation S of
the Securities Act of 1933 ("Securities Act"). See "Item 1, Part I -Description
of Business - Business Development." There were no underwriters involved in the
transaction.
B. In September 1995, the Company sold 100,000 shares of Common
Stock at $2.50 to one person pursuant to Section 4(2) of the Securities Act.
There were no underwriters involved in the transaction.
C. In August and September of 1996, the Company sold 320,000 shares
of Common Stock, at $2.50 per share, to institutional investors pursuant to Rule
504 under the Securities Act. There were no underwriters involved in the
transaction.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Nevada Statutes
- ---------------
Section 78.751 of the Nevada General Corporation Law provides for the
indemnification of the Company's officers, directors and corporate agents under
certain circumstances as follows:
1. A corporation may indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative,
except an action by or in the right of the corporation, by reason of the fact
that he is or was a director, officer, employee or agent of the corporation, or
is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise,
-18-
<PAGE>
against expenses, including attorneys' fees, judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with the
action, suit or proceeding if he acted in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, has no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, does not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and that, with respect to any criminal action or proceeding, he had
reasonable cause to believe that his conduct was unlawful.
2. A corporation may indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action
or suit by or in the right of the corporation to procure a judgment in its favor
by reason of the fact that he is or was a director, officer, employee or agent
of the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses, including amounts paid in
settlement and attorneys' fees actually paid and reasonably incurred by him in
connection with the defense or settlement of the action or suit if he acted in
good faith and in a manner which he reasonably believed to be in or not opposed
to the best interests of the corporation. Indemnification may not be made for
any claim, issue or matter as to which such a person has been adjudged by a
court of competent jurisdiction, after exhaustion of all appeals therefrom, to
be liable to the corporation or for amounts paid in settlement to the
corporation, unless and only to the extent that the court in which the action or
suit was brought or other court of competent jurisdiction determines upon
application that in view of all the circumstances of the case, the person is
fairly and reasonably entitled to indemnity for such expenses as the court deems
proper.
3. To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections 1 and 2, or in defense of
any claim, issue or matter therein, he must be indemnified by the corporation
against expenses, including attorneys' fees, actually and reasonably incurred by
him in connection with the defense.
4. Any indemnification under subsections 1 and 2, unless ordered by
a court or advanced pursuant to subsection 5, must be made by the corporation
only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in the
circumstances. The determination must be made:
(a) By the stockholders;
(b) By the board of directors by majority vote of a quorum
consisting of directors who were not parties to the act, suit or proceeding;
(c) If a majority vote of a quorum consisting of directors
who were not parties to the act, suit or proceeding so orders, by independent
legal counsel in a written opinion; or
(d) If a quorum consisting of directors who were not
parties to the act, suit or proceeding cannot be obtained, by independent legal
counsel in a written opinion.
5. The certificate or articles of incorporation, the bylaws or an
agreement made by the corporation may provide that the expenses of officers and
directors incurred in defending a civil or criminal action, suit or proceeding
must be paid by the corporation as they are incurred and in advance of the final
disposition of the action, suit or proceeding, upon receipt of an undertaking by
or on behalf of the director or officer to repay the amount if it is ultimately
determined by a court of competent jurisdiction that he is not entitled to be
indemnified by the corporation. The provisions of this subsection do not affect
any rights to advancement of expenses to which corporate personnel other than
directors or officers may be entitled under any contract or otherwise by law.
6. The indemnification and advancement of expenses authorized in or
ordered by a court pursuant to this section:
-19-
<PAGE>
(a) Does not exclude any other rights to which a person seeking
indemnification or advancement of expenses may be entitled under the certificate
or articles of incorporation or any bylaw, agreement, vote of stockholders or
disinterested directors or otherwise, for either an action in his official
capacity or an action in another capacity while holding his office, except that
indemnification, unless ordered by a court pursuant to subsection 2 or for the
advancement of expenses made pursuant to subsection 5, may not be made to or on
behalf of any director or officer if a final adjudication establishes that his
acts or omissions involved intentional misconduct, fraud or a knowing violation
of the law and was material to the cause of action.
(b) Continues for a person who has ceased to be a director,
officer, employee or agent and inures to the benefit of the heirs, executors and
administrators of such a person.
Articles of Incorporation
- -------------------------
The Company's Articles of Incorporation provide for the limitation of the
personal liability of the Company's officers and directors under certain
circumstances as follows:
The personal liability of a director or officer to the corporation or its
stockholders for damages for breach of fiduciary duty as a director or officer
shall be eliminated to the fullest extent permissible under Nevada law except
for: (a) acts or omissions which involve intentional misconduct, fraud or a
knowing violation of law; or (b) the payment of distributions in violation of
Section 78.300 of the Nevada Revised Statutes.
If the Nevada Revised Statutes are hereinafter amended to authorize the
further elimination or limitation of the liability of a director or officer,
then the liability of a director or officer of the corporation shall be
eliminated or limited to the fullest extent permitted by the Nevada Revised
Statutes, so as amended.
Any repeal or modification of the foregoing provisions of Article IX by the
stockholders of the corporation shall not adversely affect any right or
protection of a director or officer of the corporation existing prior to the
date when such repeal or modification becomes effective.
Bylaws
- ------
The Company's Bylaws provide for the permissive indemnification of the
Company's officers and directors under certain circumstances as follows:
Section 1. ACTIONS OTHER THAN BY THE CORPORATION. The corporation may
-------------------------------------
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, except an action by or in the
right of the corporation, by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses, including attorneys' fees, judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with the
action, suit or proceeding if he acted in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, has no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, does not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and that, with respect to any criminal action or proceeding, he had
reasonable cause to believe that his conduct was unlawful.
Section 2. ACTIONS BY THE CORPORATION. The corporation may indemnify
--------------------------
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that he is
or was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against
-20-
<PAGE>
expenses, including amounts paid in settlement and attorneys' fees, actually and
reasonably incurred by him in connection with the defense or settlement of the
action or suit if he acted in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the corporation.
Indemnification may not be made for any claim, issue or matter as to which such
a person has been adjudged by a court of competent jurisdiction, after
exhaustion of all appeals therefrom, to be liable to the corporation or for
amounts paid in settlement to the corporation, unless and only to the extent
that the court in which the action or suit was brought or other court of
competent jurisdiction determines upon application that in view of all the
circumstances of the case, the person is fairly and reasonably entitled to
indemnity for such expenses as the court deems proper.
Section 3. SUCCESSFUL DEFENSE. To the extent that a director, officer,
------------------
employee or agent of the corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in Sections 1
and 2, or in defense of any claim, issue or matter therein, he must be
indemnified by the corporation against expenses, including attorneys' fees,
actually and reasonably incurred by him in connection with the defense.
Section 4. REQUIRED APPROVAL. Any indemnification under Sections 1
-----------------
and 2, unless ordered by a court or advanced pursuant to Section 5, must be made
by the corporation only as authorized in the specific case upon a determination
that indemnification of the director, officer, employee or agent is proper in
the circumstances. The determination must be made:
(a) By the stockholders;
(b) By the board of directors by majority vote of a quorum
consisting of directors who were not parties to the act, suit or proceeding;
(c) If a majority vote of a quorum consisting of directors
who were not parties to the act, suit or proceeding so orders, by independent
legal counsel in a written opinion; or
(d) If a quorum consisting of directors who were not
parties to the act, suit or proceeding cannot be obtained, by independent legal
counsel in a written opinion.
Section 5. ADVANCE OF EXPENSES. The articles of incorporation, the
-------------------
bylaws or an agreement made by the corporation may provide that the expenses of
officers and directors incurred in defending a civil or criminal action, suit or
proceeding must be paid by the corporation as they are incurred and in advance
of the final disposition of the action, suit or proceeding upon receipt of an
undertaking by or on behalf of the director or officer to repay the amount if it
is ultimately determined by a court of competent jurisdiction that he is not
entitled to be indemnified by the corporation. The provisions of this section
do not affect any rights to advancement of expenses to which corporate personnel
other than directors or officers may be entitled under any contract or otherwise
by law.
Section 6. OTHER RIGHTS. The indemnification and advancement of
------------
expenses authorized in or ordered by a court pursuant to this Article VI:
(a) Does not exclude any other rights to which a person
seeking indemnification or advancement of expenses may be entitled under the
articles of incorporation or any bylaw, agreement, vote of stockholders or
disinterested directors or otherwise, for either an action in his official
capacity or an action in another capacity while holding his office, except that
indemnification, unless ordered by a court pursuant to Section 2 or for the
advancement of expenses made pursuant to Section 5, may not be made to or on
behalf of any director or officer if a final adjudication establishes that his
acts or omissions involved intentional misconduct, fraud or a knowing violation
of the law and was material to the cause of action.
(b) Continues for a person who has ceased to be a director,
officer, employee or agent and inures to the benefit of the heirs, executors and
administrators of such a person.
-21-
<PAGE>
Section 7. INSURANCE. The corporation may purchase and maintain
---------
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise for any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the corporation would have the power to indemnify him against
such liability under the provisions of this Article VI.
Section 8. RELIANCE ON PROVISIONS. Each person who shall act as an
----------------------
authorized representative of the corporation shall be deemed to be doing so in
reliance upon the rights of indemnification provided by this Article.
Section 9. SEVERABILITY. If any of the provisions of this Article are
------------
held to be invalid or unenforceable, this Article shall be construed as if it
did not contain such invalid or unenforceable provision and the remaining
provisions of this Article shall remain in full force and effect.
Section 10. RETROACTIVE EFFECT. To the extent permitted by applicable
------------------
law, the rights and powers granted pursuant to this Article VI shall apply to
acts and actions occurring or in progress prior to its adoption by the board of
directors.
-22-
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Report.............................................. F-1
Consolidated Balance Sheets at December 31, 1994 and 1995................. F-2
Consolidated Statements of Operations for the years
ended December 31, 1994 and 1995......................................... F-3
Consolidated Statements of Stockholders' Equity (Deficit)
for the years ended December 31, 1994 and 1995........................... F-4
Consolidated Statements of Cash Flows for the years ended
December 31, 1994 and 1995............................................... F-5
Notes to Consolidated Financial Statements................................ F-6
Unaudited Consolidated Balance Sheet at September 30, 1996................ F-12
Unaudited Consolidated Statements of Operations for the nine-
month periods ended September 30, 1995 and 1996.......................... F-13
Unaudited Consolidated Statement of Stockholders' Equity
for the nine-month period ended September 30, 1996....................... F-14
Unaudited Consolidated Statements of Cash Flows for the nine-month
periods ended September 30, 1995 and 1996................................ F-15
Notes to Unaudited Consolidated Financial Statements...................... F-16
</TABLE>
-23-
<PAGE>
Independent Auditors' Report
The Board of Directors and Stockholders
Global Diamond Resources, Inc.:
We have audited the accompanying consolidated balance sheets of Global Diamond
Resources, Inc. and subsidiaries as of December 31, 1994 and 1995, and the
related consolidated statements of operations, stockholders' equity (deficit),
and cash flows for the years then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Global Diamond
Resources, Inc. and subsidiaries as of December 31, 1994 and 1995, and the
results of their operations and their cash flows for the years then ended, in
conformity with generally accepted accounting principles.
San Diego, California KPMG Peat Marwick LLP
June 28, 1996
F-1
<PAGE>
GLOBAL DIAMOND RESOURCES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1994 and 1995
<TABLE>
<CAPTION>
ASSETS 1994 1995
-------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 309,508 390,439
Accounts receivable:
Trade 1,877 3,041
Officer (note 3) -- 25,000
Prepaid expenses -- 6,877
--------- ---------
311,385 425,357
Equipment, net (note 4) 8,592 9,828
--------- ---------
$ 319,977 435,185
========= =========
LIABILITIES
Current liabilities:
Accounts payable and accrued liabilities $ 9,004 20,517
Subscription to be refunded -- 83,333
--------- ---------
9,004 103,850
--------- ---------
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock, $0.001 par value, 10,000,000 shares authorized,
no shares issued -- --
Common stock, $0.001 par value, 25,000,000 shares authorized,
4,415,000 and 5,100,054 shares issued and outstanding, respectively 4,415 5,100
Additional paid-in capital 869,758 1,199,073
Accumulated deficit (246,488) (871,460)
Receivable from stock sales (299,401) --
Cumulative translation adjustment (17,311) (1,378)
--------- ---------
310,973 331,335
--------- ---------
$ 319,977 435,185
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
GLOBAL DIAMOND RESOURCES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
For the years ended December 31, 1994 and 1995
<TABLE>
<CAPTION>
1994 1995
------- --------
<S> <C> <C>
Revenue - interest income $ 4,650 15,242
--------- --------
Expenses:
Business development 112,893 82,758
Site investigation, option costs and project 46,883 117,218
costs written off
Consulting fees 13,377 15,504
Depreciation -- 4,913
Foreign exchange transaction (gain) loss (871) 2,228
Interest and bank charges 557 1,510
Legal and accounting 24,209 181,165
Management fees 17,500 38,855
Office and miscellaneous 8,240 34,948
Office rent 5,576 20,062
Printing and graphics 10,835 16,384
Salaries and benefits -- 27,881
Telephone 4,581 16,716
Travel 7,358 80,072
--------- --------
251,138 640,214
Operating loss (246,488) (624,972)
Income taxes (note 5) -- --
--------- --------
Net loss $(246,488) (624,972)
========= ========
Net loss per share $ (.12) (.13)
========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
GLOBAL DIAMOND RESOURCES, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity (Deficit)
For the years ended December 31, 1994 and 1995
<TABLE>
<CAPTION>
Preferred stock Common Stock Additional
------------------------ --------------------- paid-in
capital
Shares Amount Shares Amount
------ ------- ------ ------ -----------
<S> <C> <C> <C> <C> <C>
Balance at
January 1, 1994 -- $ -- 1 $ 1 --
Translation Adjustment -- -- -- -- --
Issuance of common stock:
June 1994 -- -- 3,350,000 3,350 658,433
October 1994 -- -- 1,065,000 1,065 211,325
Cancellation of share -- -- (1) (1) --
Net loss -- -- -- -- --
--- ----
Balance at
December 31, 1994 -- -- 4,415,000 4,415 869,758
Receipt of payment for
receivable from stock
sales -- -- -- -- --
Net effect of issuance of
common stock to account
for reverse acquisition
(note 1) -- -- 250,054 250 (250)
Issue of shares for cash:
July 1995 -- -- 335,000 335 79,665
September 1995 -- -- 100,000 100 249,900
Translation adjustment -- -- -- -- --
Net loss -- -- -- -- --
--- ----
Balance at
December 31, 1995 -- $ -- 5,100,054 $5,100 1,199,073
=== ==== ========= ====== =========
<CAPTION>
Total
Cumu- stock-
Receivable lative holders'
Accumulated from stock translation equity
deficit sales adjustment (deficit)
----------- ---------- ------------ ---------
<S> <C> <C> <C> <C>
Balance at
January 1, 1994 -- -- -- 1
Translation Adjustment -- -- (17,311) (17,311)
Issuance of common stock:
June 1994 -- (299,401) -- 362,382
October 1994 -- -- -- 212,390
Cancellation of share -- -- -- (1)
Net loss (246,488) -- -- (246,488)
-------- -------- ------- --------
Balance at
December 31, 1994 (246,488) (299,401) (17.311) 310,973
Receipt of payment for
receivable from stock
sales -- 299,401 -- 299,401
Net effect of issuance of
common stock to account
for reverse acquisition
(note 1) -- -- -- --
Issue of shares for cash:
July 1995 -- -- -- 80,000
September 1995 -- -- -- 250,000
Translation adjustment -- -- 15,933 15,933
Net loss (624,972) -- -- (624,972)
-------- -------- ------- --------
Balance at
December 31, 1995 (871,460) -- (1,378) 331,335
======== ======== ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
GLOBAL DIAMOND RESOURCES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the years ended December 31, 1994 and 1995
<TABLE>
<CAPTION>
1994 1995
-------- -------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(246,488) (624,972)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation -- 4,913
Increase in receivables (1,877) (26,164)
Increase in prepaid expenses -- (6,877)
Increase in accounts payable and accrued liabilities 9,004 11,513
--------- --------
Net cash used in operating activities (239,361) (641,587)
--------- --------
Cash flows provided by financing activities -
proceeds from issuance of common shares 574,771 330,000
--------- --------
Cash flows from investing activities:
Receipt of payment for receivable from -- 299,401
stock sales
Subscriptions received -- 83,333
Purchase of equipment (8,592) (6,149)
--------- --------
Net cash provided by (used in)
investing activities (8,592) 376,585
--------- --------
Effects of exchange rates on cash (17,311) 15,933
--------- --------
Net increase in cash and cash equivalents 309,507 80,931
Cash and cash equivalents, beginning of year 1 309,508
--------- --------
Cash and cash equivalents, end of year
$ 309,508 390,439
========= ========
</TABLE>
Supplemental disclosure of noncash financing transactions:
During the year ended December 31, 1994, the Company sold 4,415,000
shares of stock for gross proceeds of $874,173. Of these proceeds, cash,
of $574,772 was received and a receivable of $299,401 was carried until
repayment of the receivable in cash during 1995.
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
GLOBAL DIAMOND RESOURCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1994 and 1995
(1) NATURE OF OPERATIONS
Western Capital Financial Corporation ("Western") was incorporated on
January 7, 1987 pursuant to the laws of the State of Nevada. Western was
inactive from December 31, 1991 until July 1995 when it merged with Global
Diamond Resources Inc. ("Global BC"), a diamond exploration and mining
company in an exchange of stock accounted for as a reverse acquisition.
Under the terms of the merger, each share of Global BC's common stock was
exchanged for one share of Western's common stock. The merger constituted
a reverse acquisition of Western by Global BC in that Western survived the
merger, but is owned approximately 95% by the former stockholders of Global
BC. At the date of the merger, Western had no assets. In conjunction with
the merger, the combined company changed its name to Global Diamond
Resources, Inc. (the "Company").
The Company's operations have been directed primarily towards raising
capital, developing business strategies, developing diamond mining
opportunities, carrying out mining surveys, initial drilling and sampling,
and recruiting personnel. The Company was incorporated on January 22, 1993
and commenced operations during 1994. Operations prior to January 1, 1994
were not significant.
(2) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
Global Diamond Resources, Inc. and its wholly-owned subsidiary, Global BC,
a Canadian corporation and Global BC's wholly-owned subsidiary, Global
Diamond Resources (SA) (Pty) Limited ("Global SA"), a South African
corporation. Prior to the merger in July 1995, the accompanying
consolidated financial statements reflect the accounts of Global BC and
Global SA. All amounts are in U.S. dollars unless otherwise indicated.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include all highly liquid investments with an
original maturity of three months or less.
FOREIGN EXCHANGE TRANSLATION
The financial position and results of operations of the Company's foreign
subsidiaries are measured using local currency as the functional currency.
Assets and liabilities of the subsidiaries are translated at the exchange
rate in effect at each year-end. Income statement accounts are translated
at the average rate of exchange prevailing during the year. Translation
adjustments arising from differences in exchange rates from period to
period are included in the cumulative translation adjustment account in
stockholders' equity (deficit).
EQUIPMENT
Equipment (primarily computers) is recorded at cost with depreciation
provided using the straight-line method over the estimated useful lives
(3 years) of such assets.
F-6
<PAGE>
GLOBAL DIAMOND RESOURCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
MINING OPERATIONS
Initial exploration and evaluation costs are expensed as incurred. Initial
option payments and costs of acquiring options or other mineral or mining
rights to properties, when not expected to be significant, are also
expensed as incurred.
The decision to develop or mine a property is based on an assessment of the
viability of the property and the availability of financing. Once the
decision to proceed with development is made, development and other
expenditures relating to such property will be deferred and carried at cost
with the intention of depleting such costs over the related reserves from
such mining operations.
STOCK OPTIONS
The Company accounts for stock options under the intrinsic value based
method whereby compensation expense is recognized on the difference between
the fair value of the Company stock at the date of grant and the option
price.
INCOME TAXES
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases and operating losses. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes the enactment
date.
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid approximates the amounts expensed in all years presented.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures About
Fair Value of Financial Instruments," requires that fair values be
disclosed for the Company's financial instruments. The carrying amounts of
cash and cash equivalents, accounts receivable - trade, accounts receivable
- officer, accounts payable and accrued liabilities, and subscription to be
refunded approximate fair values due to the short-term nature of these
instruments.
NET LOSS PER SHARE
Net loss per share for each year is computed based on the average number of
common and common equivalent shares outstanding. When dilutive, stock
options are included as share equivalents using the treasury stock method.
The weighted average shares outstanding for the years ended December 31,
1994 and 1995 were 2,036,458 and 4,712,316, respectively. For 1994 and
1995 the loss per share, assuming full dilution, is considered to be the
same as primary since the effect of the common stock equivalents would be
antidilutive.
F-7
<PAGE>
GLOBAL DIAMOND RESOURCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
USE OF ESTIMATES
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenue and expenses to prepare
these consolidated financial statements in conformity with generally
accepted accounting principles. Actual results could differ from those
estimates.
(3) ACCOUNTS RECEIVABLE - OFFICER
As of December 31, 1995, the Company had a $25,000 account receivable from
the Chairman and Chief Executive Officer of the Company. The receivable is
unsecured, is due on demand and bears no interest.
(4) EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31, 1994 DECEMBER 31, 1995
---------------------------- --------------------------
ACCUMULATED ACCUMULATED
COST DEPRECIATION NET COST DEPRECIATION NET
---- ------------ --- ---- ------------- ---
<S> <C> <C> <C> <C> <C> <C>
Equipment $8,592 -- 8,592 14,741 4,913 9,828
====== === ===== ====== ===== =====
</TABLE>
(5) INCOME TAXES
The Company has historically generated operating losses which might be
available to reduce future years' income. The potential income tax
benefits of carrying forward these losses have not been recorded in the
accounts since recoverability of such carryforwards and the ability to
generate future income is not assured. In addition, changes in ownership
structure further limit the Company's ability to utilize such operating
losses for tax purposes in the event future income is generated.
(6) FOREIGN OPERATIONS
The Company's wholly-owned subsidiary, Global SA, operates in the Republic
of South Africa. During the year ended December 31, 1995, Global SA's
revenue represented 1% of consolidated revenue, while Global SA's expenses
represented 8% of consolidated expenses. At December 31, 1995, Global SA's
total assets (primarily cash) represented 6% of consolidated total assets.
The Republic of South Africa has experienced and continues to experience
political and economic instability. While current indications are such
that instability appears to be diminishing, there can be no assurance that
the Company's business or interests in mining properties and related
options will not be materially adversely affected by local political or
economic developments.
(7) OPTIONS AND WARRANTS
In July 1995, the Company granted its Chairman and Chief Executive Officer
performance based options to purchase up to 1,000,000 shares of common
stock at $4.80 per share. In June 1996, the Company
F-8
<PAGE>
GLOBAL DIAMOND RESOURCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
adjusted the exercise price to $3 per share and deleted the performance
based vesting conditions. The options expire on July 25, 2000 and are
exercisable at any time.
In conjunction with the merger with Global BC in July 1995, the Company
issued 550,000 common stock purchase warrants to the majority stockholder
of Global BC. The warrants were issued in connection with the securities
exchange agreement and plan of reorganization in consideration of the
recipient's cancellation of warrants of like number and terms previously
granted to it by Global BC. The warrants are exercisable at Canadian $.75
per share and expire on December 31, 1997.
In September 1995, the Company sold 100,000 common shares at $2.50 per
share. The Company granted the Chairman and Chief Executive Officer
100,000 common stock purchase warrants exercisable at $3.00, which expire
on September 7, 1998. In December 1995, the Company granted certain
shareholders 100,000 common stock purchase warrants at $3.00 per share,
exercisable at any time until they expire on December 30, 1998.
(8) PROPERTIES, PARTNERSHIP AND OTHER INVESTMENTS
PROPERTIES
The Company, through its wholly-owned subsidiary, Global SA, owns options
to acquire two mining properties (the Caerwinning Deposit and the Montrose
- Kimberlite Pipe) in South Africa and a 50% partnership interest in a
third South African property (the Grasdrif Deposit, see Joint Venture
below). The Caerwinning option allows for the transfer of the mineral
lease to Global SA with governmental consent and includes the right to mine
alluvial deposits for 1,140,000 Rand (U.S. $312,457 at December 31, 1995)
and the right to mine the pipes and fissures that may be discovered for
8,000,000 Rand (U.S. $2,192,682 at December 31, 1995). The right to mine
pipes or fissures discovered on the property could be granted to a third
party if the option is not exercised. The Company must pay the owner ten
percent of the recovery value of any minerals prospected and recovered
during the option period. The Company exercised the alluvial deposit
option for the Caerwinning Deposit in June 1996. The option for the
Montrose - Kimberlite Pipe expires on October 10, 1996, however, the
Montrose - Kimberlite Pipe contract contains a provision to extend the
option for another year. The mineral lease and mining authorization for
the Caerwinning Deposit also requires that the government receive
approximately five percent of gross proceeds from mining. The mineral
lease for the Caerwinning Deposit will continue until the profitable,
productive life of the related property is exhausted. It may be terminated
by the Company with thirty days notice. The Company is required to meet
certain requirements to maintain good standing with the lessor. The
contract for the Montrose - Kimberlite Pipe provides that the Company must
pay the owner ten percent of the recovery value of any minerals prospected
and recorded during the option period. The option on the Montrose -
Kimberlite Pipe property also includes the exclusive option to purchase the
related land and mineral rights for 2,500,000 Rand (U.S. $685,213 at
December 31, 1995). A prospecting permit is required for the Montrose -
Kimberlite Pipe from the local government and is renewable annually subject
to government approval. The Company presently holds such a permit for the
Montrose - Kimberlite Pipe, which expires on June 7, 1997. The Company has
expensed all option payments and the cost of acquiring the 50% interest in
the third property because of uncertainty regarding recoverability or
future benefit.
JOINT VENTURE
The Company has entered into a joint venture for purposes of mining the
Grasdrif Deposit. Under the agreement, a new corporation will be formed
and ownership will be split evenly between the entities. The
F-9
<PAGE>
GLOBAL DIAMOND RESOURCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Company will contribute 3,000,000 Rand (U.S. $822,256 at December 31, 1995)
and the other company will assign the exclusive mining rights of the
Grasdrif Deposit to the new corporation. Each party will then be required
to contribute equal amounts of capital to the new corporation as required.
In the event either party fails to make the required capital contribution,
the other party may make the contribution in return for a proportional
interest in its percentage ownership of the new corporation. The Company
will appoint three directors and the other company will appoint two
directors. The parties have also granted each other first right of refusal
to purchase each other's interest in the new corporation.
OTHER INVESTMENTS
In April 1995, Global BC acquired a 50% interest in Zaire Diamond Partners,
LLC ("Zaire Partners") for the purpose of exploring, investing in and
exploiting diamond mining concessions in Zaire. In addition, Global BC
advanced $25,000 to an independent investigating party for preliminary site
investigation costs. These advances were written off by Global BC, before
the Acquisition, because of uncertainty regarding recoverability or future
benefit. The remainder of Zaire Partners is owned 25% by the majority
stockholder of the Company and 25% by a group of unaffiliated parties.
Certain members of management of the Company, including the Chief Executive
Officer of the Company, have a beneficial interest in the majority
stockholder. Zaire Partners has an agreement with the Company's majority
stockholder that, in the event significant mining operations commence, the
majority stockholder will act as agent for Zaire Partners in their diamond
production in return for a 5% commission.
F-10
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
F-11
<PAGE>
GLOBAL DIAMOND RESOURCES, INC. AND SUBSIDIARIES
Consolidated Balance Sheet
(Unaudited)
September 30, 1996
<TABLE>
ASSETS
<S> <C>
Current Assets:
Cash and cash equivalents $ 552,529
Accounts receivable:
Trade and other 12,498
Officer (note 3) 25,000
Inventory 67,699
Prepaid expenses 1,602
-----------
659,328
Fixed Assets (note 4) 138,358
-----------
$ 797,686
===========
LIABILITIES
Current Liabilities:
Accounts payable and accrued liabilities $ 41,065
-----------
STOCKHOLDERS' EQUITY
Preferred stock, $0.001 par value, 10,000,000 shares
authorized, no shares issued or outstanding
Common stock, $0.001 par value, 25,000,000 shares
authorized, 5,420,054 shares issued and
outstanding 5,420
Additional paid-in capital 1,959,845
Accumulated deficit (1,199,774)
Cumulative translation adjustment (8,870)
-----------
756,621
-----------
$ 797,686
===========
See accompanying notes to unaudited consolidated financial statements.
</TABLE>
F-12
<PAGE>
GLOBAL DIAMOND RESOURCES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
For the nine-month periods ended September 30, 1995 and 1996
<TABLE>
<CAPTION>
NINE-MONTH PERIOD ENDED NINE-MONTH PERIOD ENDED
SEPTEMBER 30, 1995 SEPTEMBER 30, 1996
------------------ ------------------
<S> <C> <C>
Revenue - interest and in
1996 includes fee income of
$35,950 $ 10,997 42,309
------------- --------
Expenses
Business development 106,576 6,893
Site investigation, option
costs and project costs
written off 100,037 49,713
Consulting fees 10,000 10,038
Depreciation 3,429 3,866
Interest and bank charges 974 1,497
Legal and accounting 149,123 66,088
Management fees 33,138 13,113
Office and miscellaneous 19,566 22,575
Office rent 14,719 10,061
Printing and graphics 12,829 4,551
Salaries and benefits 8,250 88,638
Telephone 10,594 13,428
Travel 28,972 78,538
------------- --------
498,207 368,999
Operating loss (487,210) (326,690)
Income taxes (note 5) -- 1,624
--------
$ (487,210) (328,314)
============= ========
Net (loss) per share
$(0.11) (0.06)
============= ========
See accompanying notes to unaudited consolidated financial statements.
</TABLE>
F-13
<PAGE>
GLOBAL DIAMOND RESOURCES, INC. AND SUBSIDIARIES
-----------------------------------------------
Consolidated Statement of Stockholders' Equity
(Unaudited)
For the nine-month period ended September 30, 1996
<TABLE>
<CAPTION>
TOTAL
COMMON COMMON ADDITIONAL CUMULATIVE STOCK-
STOCK STOCK PAID-IN ACCUMULATED TRANSLATION HOLDERS'
SHARES AMOUNT CAPITAL DEFICIT ADJUSTMENT EQUITY
--------- ------- ---------- ------------ ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at
December 31,
1995 5,100,054 $5,100 1,199,073 (871,460) (1,378) 331,335
Issue of shares for
cash:
August 1996 150,000 150 357,314 -- -- 357,464
September 1996 170,000 170 403,458 -- -- 403,628
Translation
adjustment -- -- -- -- (7,492) (7,492)
Net loss -- -- -- (328,314) -- (328,314)
--------- ------ --------- ---------- ------ --------
Balance at
September 30,
1996 5,420,054 $5,420 1,959,845 (1,199,774) (8,870) 756,621
========= ====== ========= ========== ====== ========
See accompanying notes to unaudited consolidated financial statements.
</TABLE>
F-14
<PAGE>
GLOBAL DIAMOND RESOURCES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
For the nine-month periods ended September 30, 1995 and 1996
<TABLE>
<CAPTION>
NINE-MONTH PERIOD NINE-MONTH PERIOD ENDED
ENDED SEPTEMBER 30, SEPTEMBER 30,
1995 1996
---- -----
<S> <C> <C>
Cash flows from operating activities:
Net loss $(487,210) (328,314)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation 3,429 3,866
(Increase) in receivables (25,141) (9,457)
(Increase) in inventory -- (67,699)
(Increase) decrease in prepaid expenses (10,000) 5,275
Increase in accounts payable
and accrued liabilities 123,126 20,548
--------- --------
Net cash used in operating activities (395,796) (375,781)
--------- --------
Cash flows provided by financing activities -
proceeds from issuance of common shares 629,401 761,092
--------- --------
Cash flows from investing activities:
Subscriptions (repaid) -- (83,333)
Mining property and equipment (6,149) (132,396)
--------- --------
Net cash used in investing activities
(6,149) (215,729)
--------- --------
Effects of exchange rates on cash 15,376 (7,492)
--------- --------
Net increase in cash and cash equivalents 242,832 162,090
Cash and cash equivalents, beginning of
period 309,508 390,439
--------- --------
Cash and cash equivalents, end of period $ 552,340 552,529
========= ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
F-15
<PAGE>
GLOBAL DIAMOND RESOURCES, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
September 30, 1995 and 1996
(1) NATURE OF OPERATIONS
The Company's operations have been directed primarily towards raising
capital, developing business strategies, developing diamond mining
opportunities, carrying out mining surveys, initial drilling and sampling,
and recruiting personnel. The Company was incorporated on January 22, 1993
and commenced operations during 1994. Operations prior to January 1, 1994
were not significant.
(2) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
Global Diamond Resources, Inc., and its wholly-owned subsidiaries, Global
Diamond Resources Inc., a Canadian corporation ("Global BC"), and Global
Diamond Resources (SA) (Pty) Limited ("Global SA"), a South African
corporation, and Global BC's wholly-owned subsidiary, P.D.J. Mining (Pty)
Limited ("PDJ"), a South African corporation. Prior to a reorganization in
July 1995, the accompanying consolidated financial statements reflect the
accounts of Global BC and PDJ. All amounts are in U.S. dollars unless
otherwise indicated.
The unaudited operating results have been prepared on the same basis as the
audited financial statements and, in the opinion of management, include all
adjustments (consisting only of normal recurring accruals) necessary for a
fair presentation for the periods. The results of operations for interim
periods are not necessarily indicative of results to be achieved for full
fiscal years.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include all highly liquid investments with an
original maturity of three months or less.
FOREIGN EXCHANGE TRANSLATION
The financial position and results of operations of the Company's foreign
subsidiaries are measured using local currency as the functional currency.
Assets and liabilities of the subsidiaries are translated at the exchange
rate in effect at each period-end. Income statement accounts are translated
at the average rate of exchange prevailing during the period. Translation
adjustments arising from differences in exchange rates from period to
period are included in the cumulative translation adjustment account in
stockholders' equity.
INVENTORY
Inventory consists of diamonds ready for sale and are valued at the lower
of cost or estimated net realizable value. Diamonds are ready for sale when
they have been separated from the alluvials or broken ore, processed and
are in a deliverable form. No value is ascribed to diamonds in the
alluvials or in the broken ore.
EQUIPMENT
Equipment (primarily computers) is recorded at cost with depreciation
provided using the straight-line method over the estimated useful lives (3
years) of such assets.
F-16
<PAGE>
GLOBAL DIAMOND RESOURCES, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements, Continued
MINING OPERATIONS
Initial exploration and evaluation costs are expensed as incurred. Initial
option payments and costs of acquiring options or other mineral or mining
rights to properties, when not expected to be significant, are also
expensed as incurred.
The decision to develop or mine a property is based on an assessment of the
viability of the property and the availability of financing. Once the
decision to proceed with development is made, development and other
expenditures relating to such property will be deferred and carried at cost
with the intention of depleting such costs over the related reserves from
such mining operations.
STOCK OPTIONS
The Company accounts for stock options under the intrinsic value based
method whereby compensation expense is recognized on the difference between
the fair value of the Company stock at the date of grant and the option
price.
INCOME TAXES
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases and operating losses. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes the enactment
date.
SUPPLEMENTAL CASH FLOW INFORMATION
Interest and income taxes paid approximates the amounts expensed in all
years presented.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No 107, "Disclosures About Fair
Value of Financial Instruments," requires that fair values be disclosed for
the Company's financial instruments. The carrying amounts of cash and cash
equivalents, accounts receivable - trade and other, accounts receivable -
officer, accounts payable and accrued liabilities approximate fair values
due to the short-term nature of these instruments.
NET LOSS PER SHARE
Net loss per share for each period is computed based on the average number
of common and common equivalent shares outstanding. When dilutive, stock
options are included as share equivalents using the treasury stock method.
The weighted average shares outstanding for the periods ended September 30,
1995 and 1996 were 4,583,071 and 5,134,498, respectively. For 1995 and
1996 the loss per share, assuming full dilution, is considered to be the
same as primary since the effect of the common stock equivalents would be
antidilutive.
F-17
<PAGE>
GLOBAL DIAMOND RESOURCES, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements, Continued
USE OF ESTIMATES
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and disclosure of
contingent assets and liabilities at date of the consolidated financial
statements and the reported amounts of revenue and expenses to prepare
these consolidated financial statements in conformity with generally
accepted accounting principles. Actual results could differ from those
estimates.
(3) ACCOUNTS RECEIVABLE - OFFICER
As of September 30, 1996, the Company had a $25,000 account receivable from
the Chairman and Chief Executive Officer of the Company. The receivable is
unsecured, is due on demand and bears no interest.
(4) FIXED ASSETS
<TABLE>
<CAPTION>
September 30,
1996
----
<S> <C>
Mining Properties
Under Development
Caerwinning Deposit 123,985
-------
Equipment, at cost 22,753
Less accumulated depreciation 8,380
-------
14,373
-------
138,358
=======
</TABLE>
The Caerwinning Deposit costs include the bulk sample carried out in 1996
and option costs incurred since July 1, 1996 less the net realizable value
of the diamonds recovered in the bulk sample.
5) INCOME TAXES
The Company has historically generated operating losses which might be
available to reduce future years' income. The potential income tax benefits
of carrying forward these losses have not been recorded in the accounts
since recoverability of such carry forwards and the ability to generate
future income is not assured. In addition, changes in ownership structure
further limit the Company's ability to utilize such operating losses for
tax purposes in the event future income is generated.
(6) FOREIGN OPERATIONS
The Company's subsidiaries, Global SA and PDJ ("SA Group") operate in the
Republic of South Africa. During the nine-month period ended September 30,
1996, SA Group's revenue represented 1% of consolidated revenue, while SA
Group's expenses represented 19% of consolidated expenses. At September 30,
1996 SA Group's total assets (primarily cash and mining properties)
represented 19% of consolidated total assets. The Republic of South Africa
has experienced and continues to experience political and economic
instability. While current indications are such that instability appears to
be diminishing, there can be no assurance that the Company's business or
interests in mining properties and related options will not be materially
adversely affected by local political or economic developments.
F-18
<PAGE>
GLOBAL DIAMOND RESOURCES, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statement, Continued
(7) OPTIONS AND WARRANTS
In July 1995, the Company granted its Chairman and Chief Executive Officer
performance based options to purchase up to 1,000,000 shares of common
stock at $4.80 per share. In June 1996, the Company adjusted the exercise
price to $3 per share and deleted the performance based vesting conditions.
The options expire on July 25, 2000 and are exercisable at any time.
In conjunction with the merger with Global BC in July 1995, the Company
issued 550,000 common stock purchase warrants to certain stockholders of
Global BC. The warrants were issued as part of the securities exchange
under the securities exchange agreement and plan of reorganization in
consideration of the recipient's cancellation of warrants of like number
and terms previously granted to it by Global BC. The warrants are
exercisable at Canadian $.75 per share and expire on December 31, 1997.
In September 1995, the Company sold 100,000 common shares at $2.50 per
share. The Company granted the Chairman and Chief Executive Officer 100,000
common stock purchase warrants exercisable at $3.00, which expire on
September 7, 1998.
In December 1995, the Company granted certain shareholders 100,000 common
stock purchase warrants at $3.00 per share, exercisable at any time until
they expire on December 30, 1998. In October 1996, the Company granted
250,000 common stock options to the Chief Financial Officer of the Company
and 100,000 common stock options to another employee of the Company. The
exercise price of the options is $2.50 per share and the options are
exercisable at any time until they expire on October 2, 2001.
(8) PROPERTIES, PARTNERSHIP AND OTHER INVESTMENTS
PROPERTIES
The Company through its subsidiaries, SA Group owns options to acquire two
mining properties (the Caerwinning Deposit and the Montrose-Kimberlite
Pipe) in South Africa and a 50% partnership interest in a third South
African property (the Grasdrif Deposit, see Joint Venture below). The
Caerwinning option allows for the transfer of the mineral lease to SA Group
with governmental consent and includes the right to mine alluvial deposits
for 1,140,000 Rand (U.S. $253,000 at September 30, 1996) and the right to
mine pipes or fissures that may be discovered for 8,000,000 Rand (U.S.
$1,778,000 at September 30, 1996). This amount is payable only, if and
when, such pipes or fissures are discovered and if management deems this
deposit to be economically exploitable. The right to mine pipes or fissures
discovered on the property could be granted to a third party if not
exercised. The Company exercised its alluvial deposit option for the
Caerwinning Deposit in June 1996 and is awaiting governmental consent for
transfer of the mineral lease. Approval is expected by early 1997. (See
Caerwinning Option below). The mineral lease and mining authorization for
the Caerwinning Deposit also requires that the government receive
approximately five percent of gross proceeds from mining. The mineral lease
for the Caerwinning Deposit will continue until the profitable, productive
life of the related property is exhausted. It may be terminated by the
Company with thirty days notice. The Company is required to meet certain
requirements to maintain good standing with the lessor. The option for the
Montrose-Kimberlite Pipe expires on October 10, 1997. The contract for the
Montrose-Kimberlite Piper provides that the Company must pay the owner ten
percent of the recovery value of any minerals prospected and recorded
during the option period. The option on the Montrose-Kimberlite Pipe
property also includes the exclusive option to purchase the related land
and mineral rights for 2,500,000 Rand (U.S. $556,000 September 30, 1996). A
prospecting permit is required or the Montrose-Kimberlite Pipe from the
local government and is renewable annually subject to government approval.
The Company presently holds such a permit for the Montrose-Kimberlite Pipe
which expires on June 7, 1997. The Company has expensed all option
payments, with the exception of the
F-19
<PAGE>
GLOBAL DIAMOND RESOURCES, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statement, Continued
Caerwinning Deposit from July 1, 1996 and the cost of acquiring the 50%
interest in the third property because of uncertainty regarding
recoverability or future benefit.
JOINT VENTURE
The Company has entered into a joint venture for purposes of mining the
Grasdrif Deposit. Under the agreement, a new corporation was formed and
ownership will be split evenly between the entities. The Company will
contribute 3,000,000 Rand (U.S. $667,000 at September 30, 1996) and the
other company will assign the exclusive mining rights of the Grasdrif
Deposit to the new corporation. Each party will then be required to
contribute equal amounts of capital to the new corporation as required. In
the event either party fails to make the required capital contribution, the
other party may make the contribution in return for a proportional interest
in its percentage ownership of the new corporation. The Company will
appoint three directors and the other company will appoint two directors.
The parties have also granted each other first right of refusal to purchase
each other's interest in the new corporation.
CAERWINNING OPTION
In June 1996, the Company exercised the option for the mineral lease for
the alluvial deposits for 1,140,000 Rand (U.S. $253,000 at September 30,
1996). The mineral lease is issued upon governmental approval which is
expected early in 1997. The cost of the option and the related liability
will be reported in the balance sheet upon receipt of the governmental
approval.
F-20
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
GLOBAL DIAMOND RESOURCES, INC.
Date: October 28, 1996 By: /s/ Johann de Villiers
-------------------------------------------
Johann de Villiers, Chief Executive Officer
II-1
<PAGE>
PART III
<TABLE>
<CAPTION>
ITEM 1. INDEX TO EXHIBITS. Page
----
<S> <C>
2.1 Securities Purchase Agreement and Plan of
Reorganization dated July 17, 1995 between
Western Capital Financial Corporation and
Global Diamond Resources Inc.
3.1 Articles of Incorporation of the Company
3.2 Bylaws of the Company
4.1 Specimen of Common Stock Certificate
10.1 Notarial Prospecting Contract dated March 22,
1995 between Global Diamond Resources (SA)(Pty)
Limited and Maria Anna Gobey (Montrose Kimberlite
Pipe).
10.2 Deed of Assignment between Lama Minerals CC and
Global Diamond Resources (SA)(Pty) Limited
(Caerwinning Deposit).
10.3 Shareholder Agreement dated March 25, 1995 between
Global Diamond Resources (SA)(Pty) Limited and
Nabas Holdings (Pty) Limited (Grasdrif Deposit).
21.1 The Company's subsidiaries are Global Diamond
Resources Inc., a British Columbia corporation,
Global Diamond Resources (SA) (Pty) Limited, a
South African corporation, and P.D.J. Mining (Pty)
Ltd., a South African corporation.
27.1 Financial Data Schedule.
</TABLE>
III-1
<PAGE>
EXHIBIT 2.1
SECURITIES PURCHASE AGREEMENT
-----------------------------
AND PLAN OF REORGANIZATION
--------------------------
THIS SECURITIES PURCHASE AGREEMENT AND PLAN OF REORGANIZATION
("Agreement") is entered into on July 17, 1995 by and among GLOBAL DIAMOND
RESOURCES INC., a British Columbia corporation ("Global Diamond"); WESTERN
CAPITAL FINANCIAL CORPORATION, a Nevada corporation ("Western Capital"); and the
stockholders of Global Diamond listed on the list of selling stockholders ("List
of Selling Stockholders") attached as Exhibit "A" hereto and who have executed
this Agreement ("Selling Stockholders").
R E C I T A L S
- - - - - - - -
A. Western Capital has authorized capital stock consisting of
25,000,000 shares of common stock, $.001 par value ("Western Capital Common
Stock"), and 10,000,000 shares of preferred stock, $.001 par value ("Western
Capital Preferred Stock"). Western Capital has issued and outstanding 7,211,500
shares of Western Capital Common Stock and no shares of Western Capital
Preferred Stock.
B. Global Diamond has an authorized capitalization consisting of
50,000,000 shares no par value common stock ("Global Diamond Common Stock").
Global Diamond has issued and outstanding 4,415,000 shares of Global Diamond
Common Stock. Global Diamond and Western Capital intend to solicit the persons
on the list of Selling Stockholders such that this Agreement shall be executed
by Selling Stockholders who own at least 90% of the issued and outstanding
shares of Global Diamond Common Stock as of the Closing Date (as defined in
Section 1.3), as set forth on the List of Selling Stockholders as it may be
further amended on or before the Closing Date ("Offered Global Diamond Shares").
C. Prior to the Closing Date, Western Capital shall effect a 1 for
28.846 reverse split ("Reverse Split") of the issued and outstanding shares of
Western Capital common stock.
D. The Selling Stockholders wish to sell the Offered Global Diamond
Shares and Western Capital wishes to acquire the Offered Global Diamond Shares,
on the Closing Date, in exchange for the transfer to the Selling Stockholders of
an aggregate of 4,750,000 shares (post-split) of Western Capital Common Stock
("Western Capital Shares"), subject to and upon the terms and conditions
hereinafter set forth.
<PAGE>
A G R E E M E N T
- - - - - - - - -
It is agreed as follows:
1. SECURITIES PURCHASE AND REORGANIZATION.
--------------------------------------
1.1 Agreement to Exchange Securities. Subject to and upon the terms
--------------------------------
and conditions set forth herein, each Selling Stockholder agrees to sell,
assign, transfer and deliver to Western Capital, and Western Capital agrees to
purchase from each Selling Stockholder, on the Closing Date, the Offered Global
Diamond Shares owned by the respective Selling Stockholder as set forth on the
List of Selling Stockholders, in exchange for the transfer, on the Closing Date,
by Western Capital to each Selling Stockholder a pro rata share of Western
Capital Shares (i.e., an aggregate of 4,750,000 shares (post-split) of Western
----
Capital Common Stock). A Selling Stockholder's pro rata share of Western
Capital Shares ("Pro Rata Share") shall be determined by multiplying the total
number of Western Capital Shares (i.e., 4,750,000 shares (post-split) of Western
----
Capital Common Stock) by a fraction, the numerator of which is the total number
of shares of Global Diamond Common Stock owned by the Selling Stockholder on the
Closing Date and the denominator of which is the total number of shares of
Global Diamond Common Stock issued and outstanding on the Closing Date.
1.2 Instruments of Transfer.
-----------------------
(a) Offered Global Diamond Shares. The Selling Stockholders
-----------------------------
shall each deliver to Western Capital on the Closing Date the original
certificate(s) evidencing the Offered Global Diamond Shares with such
endorsements, assignments and other instruments of transfer, in form
satisfactory to Western Capital and its counsel, in order to effectively vest in
Western Capital all of the Selling Stockholders' right, title and interest in
and to the Offered Global Diamond Shares. From time to time after the Closing
Date, and without further consideration, the Selling Stockholders will execute
and deliver such other instruments of transfer and take such other actions as
Western Capital may reasonably request in order to more effectively transfer to
Western Capital the securities intended to be transferred hereunder.
(b) Western Capital Shares. Western Capital shall deliver to
----------------------
the Selling Stockholders on the Closing Date original certificates evidencing
Western Capital Shares, in form and substance satisfactory to Global Diamond and
its counsel, in order to effectively vest in the Selling Stockholders all right,
title and interest in and to the Western Capital Shares. From time to time
after the Closing Date, and without further consideration, Western Capital will
execute and deliver such other instruments and take such other actions as the
Selling Stockholders may reasonably request in order to more effectively issue
to them Western Capital Shares.
1.3 Closing. The closing ("Closing") of the exchange of the Offered
-------
Global Diamond Shares and Western Capital Shares shall take place at the offices
of Bruck & Perry, A Professional Corporation, One Newport Place, Newport Beach,
California 92660, at
-2-
<PAGE>
10:00 a.m., local time, on July 17, 1995, or at such other time and place as may
be agreed to by Global Diamond and Western Capital ("Closing Date"). Additional
closings, upon substantially identical terms and conditions to those contained
herein, may be held until all of the shares of Global Diamond Common Stock
issued and outstanding as of the date of this Agreement have been exchanged for
the Western Capital Shares. Unless otherwise stated, the initial closing and
any additional closings shall be referred to herein as the "Closing;" however,
the term "Closing Date" shall only refer to the initial Closing Date presently
scheduled for July 17, 1995.
2. REPRESENTATIONS AND WARRANTIES OF THE SELLING STOCKHOLDERS. Each
----------------------------------------------------------
Selling Stockholder severally represents, warrants and covenants to and with
Western Capital with respect to itself, as follows:
2.1 Corporate Organization, Etc. The Selling Stockholder, if a
---------------------------
corporation or partnership, is a corporation or partnership duly organized,
validly existing and in good standing under the laws of its jurisdiction of
organization.
2.2 Power and Authority. The Selling Stockholder has all requisite
-------------------
corporate, partnership or individual power and authority to enter into and to
carry out all of the terms of this Agreement and all other documents executed
and delivered in connection herewith (collectively, the "Documents"). All
corporate, partnership or individual action on the part of the Selling
Stockholder necessary for the authorization, execution, delivery and performance
of the Documents by the Selling Stockholder has been taken and no further
corporate, partnership or other authorization on the part of the Selling
Stockholder is required to consummate the transactions provided for in the
Documents. When executed and delivered by the Selling Stockholder, the
Documents shall constitute the valid and legally binding obligation of the
Selling Stockholder enforceable in accordance with their respective terms,
subject to the qualification and limitation that the procedural and remedial
rights of the other parties to this Agreement may be limited or rendered
unenforceable by (i) bankruptcy, insolvency, reorganization, moratorium or other
similar laws, (ii) legal or equitable principles now or hereafter in effect
relating to or affecting the enforcement of rights or remedies generally, or
(iii) the availability of equitable remedies. The Selling Stockholder, if a
corporation or partnership, represents that neither the execution, delivery nor
performance of the Documents by the Selling Stockholder shall violate or result
in a breach of any provisions of its articles of incorporation or bylaws,
certificates of partnership or partnership agreements nor any statute, civil or
criminal, of its jurisdiction of organization.
2.3 Ownership of and Title to Securities. The Selling Stockholder
------------------------------------
represents that the List of Selling Stockholders accurately sets forth the name,
residence address and number of Global Diamond Common Stock owned by the Selling
Stockholder. The Selling Stockholder represents that, except for the Global
Diamond Common Stock, the Global Diamond Warrants (as defined in Section 3.2) or
as disclosed on the Global Diamond Disclosure Schedule attached as Schedule 1
hereto ("Global Diamond Disclosure Schedule"), there are no warrants, options,
subscriptions, calls, or other similar rights of any kind for the issuance or
purchase of any securities of Global Diamond held by the Selling
-3-
<PAGE>
Stockholder. The Selling Stockholder represents that the Selling Stockholder
has and will transfer to Western Capital good and marketable title to the
Offered Global Diamond Shares which it owns as set forth on the List of Selling
Stockholders, free and clear of all pledges, security interests, mortgages,
liens, claims, charges, restrictions or encumbrances, except for restrictions
under applicable U.S. federal or state securities laws.
2.4 No Governmental or Other Proceeding or Litigation. The Selling
-------------------------------------------------
Stockholder represents that, to his or her best knowledge, no order of any court
or administrative agency is in effect which restrains or prohibits the Selling
Stockholder from consummating the transactions contemplated hereby, and no suit,
action, investigation, inquiry or proceeding by any governmental body or other
person or legal or administrative proceeding has been instituted or threatened
which questions the validity or legality of the Selling Stockholder's
consummation of the transactions contemplated hereby.
2.5 Approvals and Consents. The Selling Stockholder represents that,
----------------------
to his or her best knowledge, there are no permits, consents, mandates or
approvals of public authorities, either U.S. or foreign, federal, state or
local, or of any third party necessary for the Selling Stockholder's
consummation of the transactions contemplated hereby, except such consents,
mandates or approvals as may be required under applicable U.S. federal and state
securities laws which shall be obtained by the Selling Stockholder prior to the
Closing Date.
2.6 Brokerage. The Selling Stockholder represents that no broker or
---------
finder has acted directly or indirectly for the Selling Stockholder in
connection with this Agreement or the transactions contemplated hereby, and no
broker or finder is entitled to any brokerage or finder's fee or other
commission in respect thereof based in any way on agreements, arrangements or
understandings made by or on behalf of the Selling Stockholder.
2.7 Global Diamond as Representative on Behalf of the Selling
---------------------------------------------------------
Stockholders. The Selling Stockholder hereby appoints Global Diamond as the
- ------------
Selling Stockholder's representative and attorney-in-fact to execute, in the
name and on behalf of the Selling Stockholder, and deliver to Western Capital
appropriate stock powers in order to transfer to Western Capital the Selling
Stockholder's ownership in the Offered Global Diamond Shares in accordance with
Section 1.2(a).
2.8 Investment and Related Representations.
--------------------------------------
(a) Western Capital Shares as Regulation S or "Restricted"
------------------------------------------------------
Securities. The Selling Stockholder is aware that neither the Western Capital
Shares nor the offer or sale thereof to the Selling Stockholder has been
registered under the U.S. Securities Act of 1933, as amended ("Securities Act"),
or under any foreign or state securities law. The Selling Stockholder further
understands that no registration statement has been filed with the Securities
and Exchange Commission ("SEC"), nor with any other U.S. or foreign regulatory
authority and that, as a result, any benefit which might normally accrue to an
investor such as the Selling Stockholder by an impartial review of such a
registration
-4-
<PAGE>
statement by the SEC or other regulatory commission will not be forthcoming.
The Selling Stockholder acknowledges that the Western Capital Shares are being
offered alternatively pursuant to Regulation S under the Securities Act and
certain exemptions from Section 5 of the Securities Act. The Selling
Stockholder acknowledges that, except as otherwise disclosed on the Global
Diamond Disclosure Schedule, it is not a "U.S. person" as defined by Rule 902(o)
under the Securities Act, a copy of which has been provided to each Selling
Stockholder, and that it is not acquiring the Western Capital Shares for the
account or benefit of any "U.S. person." The Selling Stockholder understands
that to the extent Regulation S does not apply to Western Capital's issuance of
Western Capital Shares to the Selling Stockholder, the Western Capital Shares
will be characterized as "restricted" securities under U.S. federal securities
laws inasmuch as they are being acquired in a transaction not involving a public
offering and that under such laws and applicable regulations such securities may
be resold without registration under the Securities Act only in certain limited
circumstances. The Selling Stockholder represents that the Selling Stockholder
is familiar in general with Rule 144 under the Securities Act (which provides
generally for a two year holding period and limitations on the amount of
"restricted" securities that can be sold in compliance with the rule upon
completion of the holding period), and understands the resale limitations
imposed thereby and by the Securities Act. The Selling Stockholder agrees that
the Selling Stockholder will not sell all or any portion of Western Capital
Shares except in accordance with Regulation S, pursuant to registration under
the Securities Act or pursuant to an available exemption from registration under
the Securities Act. The Selling Stockholder understands that each certificate
for Western Capital Shares issued to the Selling Stockholder or to any
subsequent transferee shall be stamped or otherwise imprinted with an
appropriate legend summarizing the restrictions described in this Section 2.8(a)
and that Western Capital shall refuse to transfer the Western Capital Shares
except in accordance with such restrictions.
(b) Investment Representation. This Agreement is made with the
-------------------------
Selling Stockholder in reliance upon the Selling Stockholder's representation to
the other parties to this Agreement, which by the Selling Stockholder's
execution of this Agreement the Selling Stockholder hereby confirms, that the
Western Capital Shares to be received by the Selling Stockholder are being
acquired pursuant to this Agreement for investment and not with a view to the
public resale or distribution thereof unless in accordance with Regulation S,
pursuant to an effective registration statement or exemption under the
Securities Act.
(c) No Public Solicitation. The Selling Stockholder is
----------------------
acquiring the Western Capital Shares after private negotiation and has not been
attracted to the acquisition of the Western Capital Shares by any press release,
advertising or publication.
(d) Access to Information. The Selling Stockholder believes it
---------------------
has received all of the information it considers necessary or appropriate for
deciding whether to acquire the Western Capital Shares, including, but not
limited to the copies of the following materials: (i) Western Capital Financial
Statements (as defined in Section 4.4) and (ii) the Global Diamond Financial
Statements (as defined in Section 3.4). The Selling Stockholder further
represents that it has had an opportunity to ask questions of, and to
-5-
<PAGE>
receive answers from, Western Capital and Global Diamond regarding Western
Capital and Global Diamond, their businesses and prospects, and the Western
Capital Shares.
(e) Investor Sophistication and Ability to Bear Risk of Loss.
--------------------------------------------------------
The Selling Stockholder, if a corporation or a partnership, has not been
organized for the purpose of acquiring the Western Capital Shares. The Selling
Stockholder acknowledges that it is able to protect its interests in connection
with the acquisition of the Western Capital Shares and can bear the economic
risk of investment in such securities without producing a material adverse
change in the Selling Stockholder's financial condition. The Selling Stockholder
otherwise has such knowledge and experience in financial or business matters
that the Selling Stockholder is capable of evaluating the merits and risks of
the investment in the Western Capital Shares.
3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF GLOBAL DIAMOND.
-----------------------------------------------------------
Global Diamond represents, warrants and covenants to and with
Western Capital as follows:
3.1 Corporate Organization, Etc. Global Diamond is a British
---------------------------
Columbia corporation duly organized, validly existing and in good standing under
the laws of British Columbia and is duly qualified to do business and is in good
standing as a foreign corporation under the laws of each jurisdiction in which
the character or location of the assets owned or leased by it require
qualification, except where the failure to so qualify would not materially
adversely affect the business or condition, financial or otherwise, of Global
Diamond. Global Diamond has delivered or prior to the Closing Date will deliver
to Western Capital complete and correct copies of its Certificate of
Incorporation or Articles, as amended, certified by the Secretary of Global
Diamond to be complete and correct. Global Diamond owns all of the issued and
outstanding securities of Global Diamond (Pty), Ltd., a South African
corporation ("Global-SA"), and 50% of the outstanding securities of Zaire
Diamond Partners, LLC, a California limited liability company ("Zaire
Partners"). Other than Global-SA and Zaire Partners, Global Diamond has no
subsidiaries or equity ownership in any other entities.
3.2 Capitalization. The authorized, issued, outstanding and reserved
--------------
capitalization of Global Diamond is as recited in the recitals to this
Agreement, except for the issued and outstanding warrants ("Global Diamond
Warrants") to purchase up to 550,000 shares of Global Diamond Common Stock,
copies of which have been provided to Western Capital. All issued and
outstanding shares of Global Diamond Common Stock have been duly authorized and
validly issued and are fully paid and non-assessable and none of such issued and
outstanding shares of Global Diamond Common Stock have been issued in violation
of the preemptive rights of any past or present stockholders. Except as set
forth in the recitals to this Agreement, in this Section 3.2, or in the Global
Diamond Disclosure Schedule, no warrants, options, subscriptions, calls,
commitments or other rights or agreements of any kind issued, granted or entered
into by Global Diamond for the purchase, issuance or sale of, or security
exchangeable for or convertible into, any authorized shares of Global Diamond
Common Stock is outstanding or otherwise exists and
-6-
<PAGE>
no authorized unissued shares of Global Diamond Common Stock are reserved for
any purpose. The Selling Stockholders are the only holders of Global Diamond
Common Stock and, to the best knowledge of Global Diamond, the List of Selling
Stockholders accurately sets forth the names and residence addresses and number
of Global Diamond Common Stock owned by the Selling Stockholders.
3.3 Corporate Power and Authority. Global Diamond has all requisite
-----------------------------
corporate power and authority to own or lease all of its properties and assets,
to operate its properties and assets and to carry on its businesses as now
conducted. Global Diamond has all requisite corporate power and authority to
enter into and to carry out all of the terms of the Documents. The execution,
delivery and performance of the Documents has been duly authorized and approved
by vote of the Board of Directors of Global Diamond. All corporate action on
the part of Global Diamond and its shareholders necessary for the authorization,
execution, delivery and performance of the Documents by Global Diamond has been
taken and no further corporate authorization on the part of Global Diamond is
required to consummate the transactions provided for in the Documents. Global
Diamond has furnished or on or before the Closing Date will furnish Western
Capital with certified copies of all corporate resolutions or consents relating
to the execution, delivery and performance of the Documents. When executed and
delivered by Global Diamond, the Documents shall constitute the valid and
legally binding obligation of Global Diamond enforceable in accordance with
their respective terms subject to the qualification and limitation that
procedural and remedial rights of the other parties may be limited or rendered
unenforceable by (i) bankruptcy, insolvency, reorganization, moratorium or other
similar laws, (ii) equitable principles now or hereafter in effect relating to
or affecting the enforcement of rights or remedies generally, or (iii) the
availability of equitable remedies. Neither the execution, delivery nor
performance of the Documents by Global Diamond shall violate or result in a
breach of any provisions of Articles of Incorporation or Bylaws, as amended.
Except where such violation or breach would not adversely affect the performance
by Global Diamond of its obligations hereunder and would not have a material
adverse effect on the business or condition, financial or otherwise, of Global
Diamond, neither the execution, delivery nor performance of the Documents by
Global Diamond shall constitute a default or result in a breach of or accelerate
the performance required under any mortgage, deed of trust, lien, lease,
restriction or other contract or agreement to which Global Diamond or any of its
properties or assets are bound or affected, or violate any order, writ,
injunction, decree, judgment or other restriction of any court, administrative
agency or governmental body.
3.4 Financial Statements. Global Diamond has delivered to Western
--------------------
Capital its unaudited consolidated balance sheets as of May 31, 1995 (the
"Global Diamond Balance Sheet"). The Global Diamond Balance Sheet has been
prepared in accordance with the books of account and records of Global Diamond,
is complete and correct and fairly and accurately presents the financial
position of Global Diamond as of the date indicated, contains and reflects
adequate reserves for all accrued and contingent liabilities and for all
anticipated losses, and has been prepared in accordance with good accounting
practices.
-7-
<PAGE>
3.5 Absence of Undisclosed Liabilities. Global Diamond has no
----------------------------------
material liabilities or material obligations of any nature, whether accrued,
absolute, contingent or otherwise, and whether due or to become due, which were
not reflected in the Global Diamond Balance Sheet as of the relevant date as a
liability or by adequate reserves therefor (or, in the case of contingent
liabilities, reflected in the notes thereto) or in the Global Diamond Disclosure
Schedule.
3.6 Absence of Adverse Changes. Except as disclosed in the Global
--------------------------
Diamond Disclosure Schedule or Global Diamond Balance Sheet, since May 31, 1995,
there has not been any material adverse change in the assets, properties,
financial condition, or business or operations of Global Diamond.
3.7 Tax Matters. All foreign, federal, state, county, local and
-----------
other taxes, including without limitation, income taxes, corporate franchise
taxes, property and ad valorem taxes, sales and use taxes, license and payroll
taxes, which are now due and payable by Global Diamond have been paid or are
provided for on the Global Diamond Balance Sheet and Global Diamond has timely
filed all tax returns and reports required to be filed by it with all foreign or
federal taxing authorities and with all state, county and local taxing
authorities in those states in which Global Diamond has qualified to do
business. No unpaid assessments or deficiencies have been made or threatened
against Global Diamond and no examination is pending by the Internal Revenue
Service or any other taxing authority with respect to any of the tax returns or
reports mentioned above in this Section 3.7.
3.8 Personal Property. Except as set forth on the Global Diamond
-----------------
Disclosure Schedule or in the Global Diamond Balance Sheet, Global Diamond has
good, marketable and indefeasible title to all its personal property and assets
(tangible and intangible), free and clear of all mortgages, pledges, security
interests, liens, claims, charges, restrictions and encumbrances.
3.9 Real Property. Global Diamond owns no real property and there is
-------------
no contract under which Global Diamond is obligated or has an option to acquire,
dispose of or lease any such interest.
3.10 Accounts and Notes Receivable. Except as set forth on the
-----------------------------
Global Diamond Disclosure Schedule, all accounts and notes receivable of Global
Diamond as reflected in the Global Diamond Balance Sheet represent bona fide
claims against debtors and are current and collectible except for those accounts
receivable which are uncollectible and for which adequate and sufficient
reserves have been made.
3.11 Permits and Other Operating Rights. Except as disclosed in the
----------------------------------
Global Diamond Disclosure Schedule, Global Diamond currently possesses all
permits, licenses, certificates and other authorizations from third parties,
including, without limitation, foreign, federal, state and local governmental
authorities, necessary or required by applicable provisions of law and judicial
decisions, and by the property and contract rights of third
-8-
<PAGE>
parties, for it to own or lease its properties and assets and to operate its
business in the manner in which it is intended.
3.12 Contracts and Commitments. The Global Diamond Disclosure
-------------------------
Schedule contains an accurate and complete list and identification of all
contracts, agreements or other commitments of Global Diamond involving in excess
of $5,000.
3.13 Defaults. Except as set forth on the Global Diamond Disclosure
--------
Schedule or in the Global Diamond Balance Sheet, there is no default in any
obligation to be performed by Global Diamond under any contract, lease,
agreement, commitment or undertaking to which it is a party or by which it or
its assets or properties are bound or affected. Except where such default would
not and can not reasonably be expected to have a material adverse affect on the
business or condition, financial or otherwise, of Global Diamond, Global Diamond
has not received notice of and is not in default in any respect with respect to
any order of any court, regulatory agency or other governmental agency.
3.14 Employee Benefit Plans. Global Diamond has no "employee benefit
----------------------
plans" (as defined in Section 3(3) of ERISA) or any other deferred compensation
plans and/or bonus plans.
3.15 Labor Matters. The relations of Global Diamond with its
-------------
employees are good in all material respects.
3.16 Litigation. The Global Diamond Disclosure Schedule sets forth
----------
an accurate and complete list and description of all actions, proceedings or
investigations, threatened or pending, by or against Global Diamond before any
court, governmental agency, regulatory authority or arbitrator. Except as set
forth on the Global Diamond Disclosure Schedule or in the Global Diamond Balance
Sheet, there is no litigation at law or in equity, and no proceeding before any
governmental agency pending against Global Diamond or to which Global Diamond is
a party, or threatened against Global Diamond, or affecting any business,
property or assets of Global Diamond or the right of Global Diamond to carry on
its businesses as now conducted or as intended to be conducted by Global
Diamond. Except as set forth on the Global Diamond Disclosure Schedule or in
the Global Diamond Financial Information, Global Diamond has not received notice
of, nor to the knowledge of Global Diamond is Global Diamond in violation of any
law or order, writ, injunction or decree of any court or federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality materially affecting the business operations of Global Diamond.
3.17 Approvals and Consents. Except for (i) such consents or
----------------------
approvals as may be required under applicable U.S. federal and state securities
laws which shall be obtained prior to the Closing Date as provided in Section
5.1 or (ii) as set forth on the Global Diamond Disclosure Schedule, and provided
Selling Stockholders holding at least 90% of the outstanding Global Diamond
Common Stock execute this Agreement, no consent, approval or authorization of,
or declaration, filing or registration with, any
-9-
<PAGE>
governmental or regulatory authority or third party is required in connection
with the execution, delivery and performance of this Agreement by Global
Diamond.
3.18 Other Information. No portion of this Agreement as it relates
-----------------
to Global Diamond is false or misleading in any material respect or omits to
state a fact required to be stated therein or necessary in order to make any of
the statements therein not misleading in any material respect in light of the
circumstances under which they were made.
4. REPRESENTATIONS, WARRANTIES AND COVENANTS OF WESTERN CAPITAL.
------------------------------------------------------------
Western Capital represents, warrants and covenants to and with Global Diamond
and the Selling Stockholders as follows:
4.1 Corporate Organization, Etc. Western Capital is a corporation
---------------------------
duly organized, validly existing and in good standing under the laws of the
State of Nevada, and is duly qualified to do business and is in good standing as
a foreign corporation under the laws of each jurisdiction in which the character
or location of the assets owned or leased by it require qualification, except
where the failure to so qualify would not materially adversely affect the
business or condition, financial or otherwise, of Western Capital. Western
Capital has delivered or prior to the Closing Date will deliver to Global
Diamond complete and correct copies of the articles of incorporation, as
amended, bylaws, as amended, and minutes of Western Capital since incorporation,
certified by the secretary thereof to be complete and correct. As of the date
of this Agreement, Western Capital is the owner of all issued and outstanding
shares of the common stock of Western Capital Leasing Corporation, a California
corporation ("Western Leasing"). Other than Western Leasing, Western Capital
has no other subsidiaries or equity ownership in any other entity.
4.2 Capitalization. The authorized, issued, outstanding and reserved
--------------
capital stock of Western Capital is as recited in the recitals to this
Agreement. All issued and outstanding shares of capital stock of Western
Capital have been duly authorized and validly issued and are fully paid and non-
assessable and none of such issued and outstanding shares have been issued in
violation of the preemptive rights of any past or present shareholder. Except
as set forth in the Western Capital Disclosure Schedule attached hereto as
Schedule 2 ("Western Capital Disclosure Schedule"), no warrants, options,
subscriptions, calls, commitments or other rights or agreements of any kind
issued, granted or entered into by Western Capital for the purchase, issuance or
sale of, or security exchangeable for or convertible into, any shares of such
authorized capital stock is outstanding or otherwise exists and no authorized
unissued shares of Western Capital are reserved for any purpose.
4.3 Corporate Power and Authority. Western Capital has all requisite
-----------------------------
corporate power and authority to own or lease all of its properties and assets,
to operate its properties and assets and to carry on its businesses as now
conducted. Western Capital has all requisite corporate power and authority to
enter into and to carry out all of the terms of the Documents. The execution,
delivery and performance of the Documents has been duly authorized and approved
by vote of Western Capital board of directors without dissent. All corporate
action on the part of Western Capital, its officers, directors and shareholders
-10-
<PAGE>
necessary for the authorization, execution, delivery and performance of the
Documents by Western Capital will have been taken and no further corporate
authorization on the part of Western Capital will be required to consummate the
transactions provided for in the Documents. Western Capital has furnished or on
or before the Closing Date will furnish Global Diamond with certified copies of
all corporate resolutions or consents relating to the execution, delivery and
performance of the Documents. When executed and delivered by Western Capital,
the Documents shall constitute the valid and legally binding obligation of
Western Capital enforceable in accordance with their respective terms subject to
the qualification and limitation that the other parties procedural and remedial
rights may be limited or rendered unenforceable by (i) bankruptcy, insolvency,
reorganization, moratorium or other similar laws, (ii) equitable principles now
or hereafter in effect relating to or affecting the enforcement of rights or
remedies generally, or (iii) the availability of equitable remedies. Neither
the execution, delivery nor performance of the Documents by Western Capital
shall violate or result in a breach of any provisions of Western Capital's
articles of incorporation or bylaws. Except where such violation or breach
would not adversely affect the performance by Western Capital of its obligations
hereunder and would not have a material adverse effect on the business or
condition, financial or otherwise, of Western Capital, neither the execution,
delivery nor performance of the Documents by Western Capital shall constitute a
default or result in a breach of or accelerate the performance required under
any mortgage, deed of trust, lien, lease, restriction or other contract or
agreement to which Western Capital or any of its properties or assets are bound
or affected, or violate any order, writ, injunction, decree, judgment or other
restriction of any court, administrative agency or governmental body.
4.4 Financial Statements. Western Capital has furnished to Global
--------------------
Diamond and the Selling Stockholders an unaudited balance sheet of Western
Capital only as of May 31, 1995 (the "Western Capital Balance Sheet"). The
Western Capital Balance Sheet has been prepared in accordance with the books of
account and records of Western Capital, is complete and correct and fairly and
accurately presents the financial position of Western Capital as of the date
indicated, contains and reflects adequate reserves for all accrued and
contingent liabilities and for all anticipated losses, and has been prepared in
accordance with good accounting practices and on a basis consistent with prior
periods.
4.5 Absence of Undisclosed Liabilities. Western Capital has no
----------------------------------
material liabilities or material obligations of any nature, whether accrued,
absolute, contingent or otherwise, and whether due or to become due, and whether
or not the primary obligation of Western Leasing, which are not reflected in the
balance sheets included in the Western Capital Balance Sheet as of the relevant
date as a liability or by adequate reserves therefor (or, in the case of
contingent liabilities, reflected in the notes thereto) or in the Western
Capital Disclosure Schedule.
4.6 Absence of Adverse Changes. Except as disclosed in the Western
--------------------------
Capital Disclosure Schedule or the Western Capital Balance Sheet, since May 31,
1995 there has not been any material adverse change in the assets, properties,
financial condition, or business or operations of Western Capital.
-11-
<PAGE>
4.7 Tax Matters. All foreign, federal, state, county, local and
-----------
other taxes, including without limitation, income taxes, corporate franchise
taxes, property and ad valorem taxes, sales and use taxes, license and payroll
taxes, which are now due and payable by Western Capital have been paid or are
provided for on the Western Capital Balance Sheet and Western Capital has timely
filed all tax returns and reports required to be filed by it with all foreign or
federal taxing authorities and with all state, county and local taxing
authorities in those states in which Western Capital has qualified to do
business. No unpaid assessments or deficiencies have been made or threatened
against Western Capital and no examination is pending by the Internal Revenue
Service or any other taxing authority with respect to any of the tax returns or
reports mentioned above in this Section 4.7.
4.8 Personal Property. Except for its ownership of the issued and
-----------------
outstanding common shares of Western Leasing, Western Capital has no personal
property and there is no contract under which Western Capital is obligated or
has an option to acquire, dispose of legal personal property.
4.9 Real Property. Western Capital owns no real property and there
-------------
is no contract under which Western Capital is obligated or has an option to
acquire, dispose of or lease real property.
4.10 Accounts and Notes Receivable. All accounts and notes
-----------------------------
receivable of Western Capital as reflected on the Western Capital Balance Sheet
represent bona fide claims against debtors for sales or other charges actually
made in the ordinary course of business and are current and collectible except
for those accounts receivable which are uncollectible and for which adequate and
sufficient reserves have been made on the Western Capital Balance Sheet.
4.11 Permits and Other Operating Rights. Western Capital currently
----------------------------------
possesses all permits, licenses, certificates and other authorizations from
third parties, including, without limitation, foreign, federal, state and local
governmental authorities, necessary or required by applicable provisions of law
and judicial decisions, and by the property and contract rights of third
parties, for it to operate its businesses in the manner in which they presently
are being conducted, except where the absence thereof would not have a material
adverse effect on the business or condition, financial or otherwise, of Western
Capital.
4.12 Contracts and Commitments. Western Capital has no contracts,
-------------------------
agreements, instruments, indentures or other commitments of Western Capital
involving in excess of $500. There are no persons holding powers of attorney
from Western Capital.
4.13 Employee Benefit Plans; ERISA. Western Capital has no plans
-----------------------------
which are "employee benefit plans" (as defined in Section 3(3) of ERISA) or any
other deferred compensation plans or bonus plans.
-12-
<PAGE>
4.14 Labor Matters. Western Capital has no employees, other
-------------
than Weston J. Coolidge and Gerald E. Fox.
4.15 Insurance. Western Capital has no insurance policies.
---------
4.16 Litigation. The Western Capital Disclosure Schedule sets forth
----------
an accurate and complete list and description of all actions, proceedings or
investigations, threatened or pending, by or against Western Capital or Western
Leasing before any court, governmental agency, regulatory authority or
arbitrator. Except as set forth on the Western Capital Disclosure Schedule,
there is no litigation at law or in equity, and no proceeding before any
governmental agency pending against Western Capital or Western Leasing or to
which Western Capital or Western Leasing is a party, or threatened against
Western Capital or Western Leasing, or affecting any business, property or
assets of Western Capital or Western Leasing or the right of Western Capital or
Western Leasing to carry on its businesses as now conducted or as intended to be
conducted by Western Capital or Western Leasing. Neither Western Capital nor
Western Leasing has received notice of, nor to their knowledge in violation of
any law or order, writ, injunction or decree of any court or federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality materially affecting the business operations of Western Capital
or Western Leasing (including, without limitation, applicable environmental
protection legislation and regulations, equal employment and civil rights
legislation and occupational health and safety legislation).
4.17 Issuance of Western Capital Securities. All of the Western
--------------------------------------
Capital Shares to be issued to the Selling Stockholders pursuant to this
Agreement when delivered to the Selling Stockholders in accordance with the
terms of this Agreement will be duly authorized and issued, free and clear of
all pledges, security interests, mortgages, liens or other encumbrances, except
for restrictions under applicable federal and state securities laws.
4.18 Approvals and Consents. There are no permits, consents or
----------------------
approvals of public authorities, federal, state or local, or of any third party
necessary for the consummation of the transactions contemplated hereby, except
such consents or approvals as may be required under applicable federal and state
securities laws which shall be obtained by Western Capital prior to the Closing
Date as provided in Section 5.1.
4.19 Other Information. No portion of the Documents (which includes
-----------------
all schedules and exhibits) furnished or to be furnished by Western Capital or
any of its authorized representatives to Global Diamond or the Selling
Stockholders or any of their representatives is false or misleading or omits to
state a fact required to be stated therein or necessary in order to make any of
the statements therein not misleading in light of the circumstances under which
they were made.
-13-
<PAGE>
5. CERTAIN ADDITIONAL UNDERSTANDINGS AND AGREEMENTS.
------------------------------------------------
5.1 Approvals and Consents.
----------------------
(a) In General. The parties hereto shall each use all reasonable
----------
best efforts to obtain, and shall not take any action which jeopardizes
obtaining, the necessary approvals and consents of other persons and
governmental authorities required to be obtained to consummate the transactions
contemplated by this Agreement.
(b) Selling Stockholders Compliance With Securities Laws. Each
----------------------------------------------------
Selling Stockholder shall take such actions as shall be required in order to
exempt the offer and sale of the Offered Global Diamond Shares to Western
Capital from the registration and prospectus delivery requirements under the
Securities Act and to register or qualify or exempt from registration and
qualification requirements the offer and sale of the Offered Global Diamond
Shares to Western Capital under applicable foreign and state securities laws.
(c) Global Diamond and Western Capital Compliance With Securities
-------------------------------------------------------------
Laws. Western Capital shall cooperate with Global Diamond in taking such
- ----
actions as shall be required in order to comply with Regulation S under the
Securities Act or exempt the offer and sale of the Western Capital Shares to the
Selling Stockholders from the registration and prospectus delivery requirements
under the Securities Act and to register or qualify or exempt from registration
and qualification requirements the offer and sale of the Western Capital Shares
to the Selling Stockholders under applicable foreign and state securities laws.
5.2 Survival of Representations and Warranties.
------------------------------------------
(a) Global Diamond and Selling Stockholders. The
---------------------------------------
representations and warranties of Global Diamond and the Selling Stockholders
made herein shall not be affected by any information furnished to, or
investigations made by Western Capital or any of its employees or
representatives in connection with the subject matter of this Agreement and
shall survive the execution and delivery of this Agreement and the consummation
of the transactions contemplated thereby for a period of four (4) years after
the Closing Date.
(b) Western Capital. The representations and warranties of
---------------
Western Capital made herein shall not be affected by any information furnished
to, or investigations made by, Global Diamond or the Selling Stockholders, or
any of their employees or representatives, in connection with the subject matter
of this Agreement and shall survive the execution and delivery of this Agreement
and the consummation of the transactions contemplated thereby for period of four
(4) years after the Closing Date.
5.3 Conduct of Business Prior to the Closing Date. From the date
---------------------------------------------
hereof until the Closing Date, Global Diamond and Western Capital shall each act
as follows, except as otherwise expressly consented to by the other in writing,
which consent shall not be unreasonably withheld, except such actions taken to
consummate the transactions in accordance with this Agreement as contemplated
thereby:
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<PAGE>
(a) Notification. Global Diamond and Western Capital shall each
------------
immediately notify the other of any material breaches of the representations and
warranties or any material nonfulfillment of the covenants, agreements or
obligations of it or, in the case of Global Diamond, the Selling Stockholders
contained herein or of any developments which could materially or adversely
affect the value of the Offered Global Diamond Shares or Western Capital Shares.
Without limiting the foregoing, Global Diamond and Western Capital shall each
immediately notify the other of (1) any unexpected emergency or other material
change in the normal course of business or in the operation of its properties,
(2) the instigation of or any material development in any litigation or
regulatory proceedings, governmental complaints, investigations or hearings (or
communications indicating that the same may be contemplated) in which Global
Diamond is named as a party, and (3) budgets, capital expenditures and material
decisions involving its material properties or assets. Global Diamond and
Western Capital shall each keep the other fully informed of such events and
permit its representatives access to all materials prepared in connection
therewith.
(b) Forbearance. From the effective date hereof to the Closing
-----------
Date, Global Diamond and Western Capital shall not, without the prior written
consent of the other, which consent shall not be unreasonably withheld, except
for such actions taken to consummate the transactions in accordance with this
Agreement as contemplated thereby: (1) amend its articles of incorporation or
bylaws; (2) issue any shares of capital stock or securities convertible into any
such securities or enter into any agreement or commitment with respect to the
issuance or purchase of any such securities; (3) declare, pay or set aside for
payment any dividend or distribution in respect to any securities, or redeem,
purchase or otherwise acquire any securities any options, warrants or other
rights to purchase or subscribe to any securities; (4) make or contract for any
capital investment, capital expenditure, capital addition or capital
improvement; (5) negotiate with any person other than the other concerning any
merger, disposition of all or substantially all of its business, properties, or
assets, any tender offer, acquisition or other business combination, other than
the transactions provided for in this Agreement; (6) organize any new
subsidiary, acquire any capital stock or other debt or equity securities of any
corporation, enter into any partnership or joint venture or acquire any equity
or ownership interest in any business; or (7) take any action which would cause
or constitute a material breach, or would, if it had been taken prior to the
date hereof, have caused a material breach of the representations and warranties
of it set forth herein.
5.4 Access. Each of the parties hereto may, prior to the Closing
------
Date, through its respective representatives, make such reasonable investigation
as is permitted by the laws of its respective jurisdiction of organization of
the property, records and the financial condition of the other parties hereto as
it reasonably deems necessary or advisable to assure itself of the accuracy of
the representations and warranties of the other parties hereto and compliance by
the other parties hereto with all agreements and conditions to be satisfied by
them. Such investigation shall be done at reasonable times and under reasonable
circumstances. Each party shall each keep confidential in the same manner in
which it preserves its own confidential information any information so obtained
which is not otherwise publicly available or ascertainable and to which it has
been given access by
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<PAGE>
another party, subject to applicable reporting and disclosure requirements under
applicable foreign, federal and state laws, including without limitation
securities laws. Nothing in this Section 5.4 shall be deemed to constitute a
waiver by any party, or an agreement of any party to waive, with respect to any
document, any claim of attorney-client privilege or legal or contractual
privilege or requirement of confidentiality; provided, however, that the party
claiming such privilege or requirement shall identify to the extent it is
legally permitted the subject matter thereof to the party seeking such document.
5.5 Indemnification.
---------------
(a) Indemnification by Western Capital. Western Capital
----------------------------------
agrees to indemnify, defend and hold harmless Global Diamond and the Selling
Stockholders against and in respect of any and all claims, demands, losses,
costs, expenses, liabilities and damages, including interest, penalties, and
reasonable attorneys' fees, that Global Diamond or the Selling Stockholders
shall incur or suffer which arise, result from or relate to any material
inaccuracy in or material breach or nonfulfillment of any of the
representations, warranties, covenants or agreements made by Western Capital in
this Agreement, the schedules or exhibits hereto or in any other Document
furnished by Western Capital under this Agreement.
(b) Indemnification by Global Diamond. Global Diamond agrees to
---------------------------------
indemnify, defend and hold harmless Western Capital against and in respect of
any and all claims, demands, losses, costs, expenses, liabilities and damages,
including interest, penalties, and reasonable attorneys' fees, that Western
Capital shall incur or suffer which arise, result from or relate to any material
inaccuracy in or material breach of nonfulfillment of any of the
representations, warranties, covenants or agreements made by Global Diamond in
this Agreement, the schedules or exhibits hereto or in any other Document
furnished by Global Diamond under this Agreement.
(c) Procedures; Rights to Separate Counsel. In the event any
--------------------------------------
party receives a complaint, claim or other notice of any loss, claim or damage,
liability or action, giving rise to a claim for indemnification under this
Section 5.5, the party claiming indemnification shall promptly notify the
indemnifying part of such complaint, notice, claim or action, and such
indemnifying party shall have the right to investigate and defend any such loss,
claim, damage, liability or action. The party claiming indemnification shall
have the right to employ separate counsel in any such action and to participate
in the defense thereof but the fees and expenses of such counsel shall not be at
the expense of the indemnifying party, unless the indemnifying party fails to
promptly defend, in which case the fees and expenses of such separate counsel
shall be borne by the indemnifying party. In no event shall an indemnifying
party be obligated to indemnify another party for any settlement of any claim or
action effected without the indemnifying party's prior written consent.
5.6 Recapitalization and Charter Amendments. Prior to the initial
---------------------------------------
Closing, Western Capital will obtain director and stockholder approval of: (a)
this Agreement and the transactions contemplated hereby; (b) the Reverse Split;
(c) the change in the corporate
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<PAGE>
name of Western Capital to "Global Diamond Resources, Inc.;" (d) such amendments
to the Bylaws and Articles of Incorporation of Western Capital as may be
reasonably requested by Global Diamond; and (e) the election of a new board of
directors of Western Capital, namely Johann de Villiers, Kenneth MacLeod and
John Tyson to the Board of Directors of Western Capital effective upon and
subject to the initial Closing.
5.7 Sale of Western Leasing. Prior to the initial Closing, Western
-----------------------
Capital shall obtain all necessary director and stockholder approval of, and
shall carry out and effect, the sale of all outstanding shares of the common
stock of Western Leasing presently owned by Western Capital to Weston J.
Coolidge. The sale of Western Leasing to Mr. Coolidge shall be approved by a
majority of the shares entitled to vote on the matter excluding those shares
held or controlled by Mr. Coolidge.
5.8 Replacement of Global Diamond Warrants. At the Closing, Western
--------------------------------------
Capital shall deliver to the holders of the Global Diamond Warrants, in
consideration of their cancellation of the Global Diamond Warrants, warrants
(the "Western Capital Warrants") to purchase an aggregate of 550,000 shares of
Western Capital Common Stock on the terms and subject to the conditions set
forth in the Global Diamond Warrants.
6. REGISTRATION RIGHTS.
-------------------
6.1 Definitions. As used in this Section 6, the following terms have
-----------
the meanings indicated:
"Designated Holder" means each of the Selling Stockholders and any
transferee of any of them to whom Registrable Securities have been transferred,
other than a transferee to whom such securities have been transferred pursuant
to a registration statement under the Act or Rule 144 under the Act.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Selling Stockholders" shall include any Person to whom Registrable
Securities are transferred by any of them.
"Person" shall mean any individual, firm, corporation, partnership,
trust, incorporated or unincorporated association, joint venture, joint stock
company, limited liability company, government (or an agency or political
subdivision thereof) or other entity of any kind, and shall include any
successor (by merger or otherwise) of such entity.
"Registrable Securities" mean each of the following: (a) the Western
Capital Shares, or (b) any shares of Western Capital Common Stock issued or
issuable by Western Capital with respect to the Western Capital Shares by way of
stock dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization or otherwise and
shares of Western Capital Common Stock issuable upon conversion, exercise or
exchange thereof.
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<PAGE>
6.2 Securities Subject to this Agreement.
------------------------------------
(a) Registrable Securities. For the purposes of this Section 6,
----------------------
Registrable Securities will cease to be Registrable Securities when a
registration statement covering such Registrable Securities has been declared
effective under the Securities Act by the SEC and such Registrable Securities
have been disposed of pursuant to such effective registration statement.
(b) Holders of Registrable Securities. A Person is deemed to be a
---------------------------------
holder of Registrable Securities whenever such Person owns of record Registrable
Securities, or holds an option to purchase, or a security convertible into or
exercisable or exchangeable for, Registrable Securities whether or not such
acquisition or conversion has actually been effected and disregarding any legal
restrictions upon the exercise of such rights. If Western Capital receives
conflicting instructions, notices or elections from two or more persons with
respect to the same Registrable Securities, then Western Capital may act upon
the basis of the instructions, notice or election received from the registered
owner of such Registrable Securities. Registrable Securities issuable upon
exercise of an option or upon conversion of another security shall be deemed
outstanding for the purposes of this Section 6.
6.3 Demand Registration.
-------------------
(a) Request for Demand Registration. At any time after the
-------------------------------
Closing Date and expiring two (2) years from the Closing Date, the Selling
Stockholders holding more than 50% of the Registrable Securities then held by
all of the Selling Stockholders may make a written request for registration
(such Designated Holders making such request being deemed to be "Initiating
Holders") of Registrable Securities under the Securities Act, and under the
securities or blue sky laws of any jurisdiction reasonably designated by such
holder or holders (a "Demand Registration"); provided, Western Capital will not
be required to effect more than one Demand Registration at the request of the
Selling Stockholders pursuant to this Section 6.3. For purposes of the preceding
sentence, two or more registration statements filed in response to one demand
shall be counted as one registration statement. Such request for a Demand
Registration shall specify the amount of the Registrable Securities proposed to
be sold, the intended method of disposition thereof and the jurisdictions in
which registration is desired. Upon a request for a Demand Registration, Western
Capital shall promptly take such steps as are necessary or appropriate to
prepare for the registration of the Registrable Securities to be registered.
Within 15 days after the receipt of such request, Western Capital shall give
written notice thereof to all other Designated Holders holding Registrable
Securities (the "Non-Initiating Holders") and include in such registration all
Registrable Securities held by a Designated Holder with respect to which Western
Capital has received written requests for inclusion therein within 15 days of
the receipt by such Designated Holder of such written notice. Each such request
shall specify the number of Registrable Securities to be registered, the
intended method of disposition thereof and the jurisdictions in which
registration is desired. Unless Designated Holders holding the majority of the
Registrable Securities to be included in the Demand Registration consent in
writing, no other party, including Western Capital (but not including any other
Designated Holder), shall be permitted to offer securities under any such Demand
Registration.
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<PAGE>
(b) Effective Demand Registration. A registration shall not constitute
-----------------------------
a Demand Registration until it has become effective and remains continuously
effective until the earlier of (i) the date of sale of all Registrable
Securities registered thereunder or (ii) 90 days from the effective date.
Western Capital shall use its best efforts to cause any such Demand Registration
to become effective not later than 60 days after it receives a request under
Section 6.3(a) hereof.
(c) Expenses. Western Capital shall pay all Registration Expenses (as
--------
defined in Section 6.4(d)), other than underwriting discounts and commissions in
connection therewith, whether or not such Demand Registration becomes effective;
provided, however, that each Designated Holder participating in such Demand
Registration shall bear the costs of its own legal counsel.
(d) Underwriting Procedures. If Initiating Holders holding a majority
-----------------------
of the Registrable Securities held by all such Initiating Holders so elect, the
offering of such Registrable Securities pursuant to such Demand Registration
shall be in the form of a firm commitment underwritten offering and the managing
underwriter or underwriters selected for such offering shall be the Underwriter
selected in accordance with Section 6.3(e). In such event, if the Underwriter
advises Western Capital in writing that in its opinion the aggregate amount of
such Registrable Securities requested to be included in such offering is
sufficiently large to have a material adverse affect on the success of such
offering, Western Capital shall include in such registration only the aggregate
amount of Registrable Securities that in the opinion of the Underwriter may be
sold without any such material adverse affect and shall reduce, first as to any
stockholders who are the Non-Initiating Holders as a group and then as to the
Initiating Holders as a group, pro rata within each group based on the number of
Registrable Securities included in the request for Demand Registration, the
amount of Registrable Securities to be included by each Designated Holder in
such registration.
(e) Selection of Underwriters. If any Demand Registration of
-------------------------
Registrable Securities is in the form of an underwritten offering, the
Initiating Holders holding a majority of the Registrable Securities held by all
such Initiating Holders shall, in their discretion, select and obtain an
investment banking firm to act as the managing underwriter of the offering (the
"Underwriter").
6.4 Registration Procedures.
-----------------------
(a) Obligations of Western Capital. Whenever registration of
------------------------------
Registrable Securities has been requested pursuant to Section 6.3, Western
Capital shall use its best efforts to effect the registration and sale of such
Registrable Securities in accordance with the intended method of distribution
thereof as quickly as practicable, and in connection with any such request,
Western Capital shall, as expeditiously as possible:
(i) diligently use its best efforts to prepare and file with the
SEC a registration statement on any form for which Western Capital then
qualifies of which counsel for Western Capital shall deem appropriate and which
form shall be available for
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<PAGE>
the sale of such Registrable Securities in accordance with the intended method
of distribution thereof, and use its best efforts to cause such registration
statement to become effective; provided, however, that before filing a
registration statement or prospectus or any amendments or supplements thereto,
Western Capital shall (A) provide counsel selected by the Designated Holders
holding a majority of the Registrable Securities being registered in such
registration ("Holders' Counsel") and any other Inspector (as hereinafter
defined) with an adequate and appropriate opportunity to participate in the
preparation of such registration statement and each prospectus included therein
(and each amendment or supplement thereto) to be filed with the SEC, which
documents shall be subject to the review of Holders' Counsel, and (B) notify the
Holders' Counsel and each seller of Registrable Securities of any stop order
issued or threatened by the SEC and take all reasonable action required to
prevent the entry of such stop order or to remove it if entered;
(ii) prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection therewith as
may be necessary to keep such registration statement effective for a period of
not less than 90 days, or such shorter period which will terminate when all
Registrable Securities covered by such registration statement have been sold,
and comply with the provisions of the Securities Act with respect to the
disposition of all securities covered by such registration statement during such
period in accordance with the intended methods of disposition by the sellers
thereof set forth in such registration statement;
(iii) as soon as reasonably possible, furnish to each seller of
Registrable Securities, prior to filing a registration statement, copies of such
registration statement as is proposed to be filed, and thereafter such number of
copies of such registration statement, each amendment and supplement thereto (in
each case including all exhibits thereto), the prospectus included in such
registration statement (including each preliminary prospectus) and such other
documents as each such seller may reasonably request in order to facilitate the
disposition of the Registrable Securities owned by such seller:
(iv) use its best efforts to register or qualify such Registrable
Securities under such other securities or blue sky laws of such jurisdictions as
any seller of Registrable Securities reasonably requests, and to continue such
qualification in effect in such jurisdiction for as long as is permissible
pursuant to the laws of such jurisdiction, or for as long as any such seller
requests or until all of such Registrable Securities are sold, whichever is
shortest, and do any and all other acts and things which may be reasonably
necessary or advisable to enable any such seller to consummate the disposition
in such jurisdictions of the Registrable Securities owned by such seller;
provided, however, that Western Capital shall not be required to (A) qualify
generally to do business in any jurisdiction where it would not otherwise be
required to qualify but for this Section 6.4, (B) subject itself to taxation in
any such jurisdiction or (C) consent to general service of process in any such
jurisdiction;
(v) use its best efforts to cause the Registrable Securities covered
by such registration statement to be registered with or approved by such other
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<PAGE>
governmental agencies or authorities as may be necessary by virtue of the
business and operations of Western Capital to enable the seller or sellers of
Registrable Securities to consummate the disposition of such Registrable
Securities;
(vi) notify each seller of Registrable Securities at any time when a
prospectus relating thereto is required to be delivered under the Securities
Act, upon discovery that, or upon the happening of any event as a result of
which, the prospectus included in such registration statement contains an untrue
statement of a material fact or omits to state any material fact required to be
stated therein or necessary to make the statements therein not misleading in
light of the circumstances under which they were made, and Western Capital shall
promptly prepare a supplement or amendment to such prospectus and furnish to
each seller a reasonable number of copies of a supplement to or an amendment of
such prospectus as may be necessary so that, after delivery to the purchasers of
such Registrable Securities, such prospectus shall not contain an untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading in
light of the circumstances under which they were made;
(vii) enter into and perform customary agreements (including an
underwriting agreement in customary form with the Underwriter or Western Capital
Underwriter, if any, selected as provided in Sections 6.3) and take such other
actions as are prudent and reasonably required in order to expedite or
facilitate the disposition of such Registrable Securities;
(viii) make available for inspection by any seller of Registrable
Securities, any managing underwriter participating in any disposition pursuant
to such registration statement, Holders' Counsel and any attorney, accountant or
other agent retained by any such seller or any managing underwriter (each, an
"Inspector" and collectively, the "Inspectors"), all financial and other
records, pertinent corporate documents and properties of Western Capital and its
subsidiaries (collectively, the "Records") as shall be reasonably necessary to
enable them to exercise their due diligence responsibility, and cause Western
Capital's and its subsidiaries, officers, directors and employees, and the
independent public accountants of Western Capital, to supply all information
reasonably requested by any such Inspector in connection with such registration
statement. Records that Western Capital determines, in good faith, to be
confidential and which it notifies the Inspectors are confidential shall not be
disclosed by the Inspectors unless (A) the disclosure of such Records is
necessary to avoid or correct a misstatement or omission in the registration
statement, (B) the release of such Records is ordered pursuant to a subpoena or
other order from a court of competent jurisdiction, or (C) the information in
such records has been made generally available to the public other than through
a breach of the confidentiality requirement set forth above. Each Seller of
Registrable Securities agrees that it shall, upon learning that disclosure of
such Records is required by any court of competent jurisdiction, give notice to
Western Capital and allow Western Capital, at Western Capital's expense, to
undertake appropriate action to prevent disclosure of the Records deemed
confidential;
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<PAGE>
(ix) if such sale is pursuant to an underwritten offering, use its
best efforts to obtain a "cold comfort" letter from Western Capital's
independent public accountants in customary form and covering such matters of
the type customarily covered by "cold comfort" letters as Holders' Counsel or
the managing underwriter reasonably request;
(x) use its best efforts to furnish, at the request of any seller of
Registrable Securities on the date such securities are delivered to the
underwriters for sale pursuant to such registration or, if such securities are
not being sold through underwriters, on the date the registration statement with
respect to such securities becomes effective, an opinion, dated such date, of
counsel representing Western Capital for the purposes of such registration,
addressed to the underwriters, if any, and to the seller making such request,
covering such legal matters with respect to the registration in respect of which
such opinion is being given as such seller may reasonably request and are
customarily included in such opinions;
(xi) otherwise use its best efforts to comply with all applicable
rules and regulations of the SEC, and make available to its security holders, as
soon as reasonably practicable but no later than 15 months after the effective
date of the registration statement, an earnings statement covering a period of
12 months beginning after the effective date of the registration statement, in a
manner which satisfies the provisions of Section 11(a) of the Securities Act:
(xii) cause all such Registrable Securities to be listed on each
securities exchange on which similar securities issued by Western Capital are
then listed, provided, that the applicable listing requirements are satisfied;
(xiii) keep each seller of Registrable Securities advised in writing
as to the initiation and progress of any registration under Section 6.3
hereunder;
(xiv) cooperate with each seller of Registrable Securities and each
underwriter participating in the disposition of such Registrable Securities and
their respective counsel in connection with any filings required to be made with
the National Association of Securities Dealers, Inc. (the "NASD"); and
(xv) use best efforts to take all other steps necessary to effect the
registration of the Registrable Securities contemplated hereby.
(b) Seller Information. Western Capital may require each seller of
------------------
Registrable Securities as to which any registration is being effected to furnish
to Western Capital such information regarding the seller and the distribution of
such securities as Western Capital may from time to time reasonably request in
writing.
(c) Notice to Discontinue. Each Designated Holder of Registrable
---------------------
Securities agrees that, upon receipt of any notice from Western Capital of the
happening of any event of the kind described in Section 6.4(a)(vi), such
Designated Holder shall
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<PAGE>
forthwith discontinue disposition of Registrable Securities pursuant to the
registration statement covering such Registrable Securities until such
Designated Holder's receipt of the copies of the supplemented or amended
prospectus contemplated by Section 6.4(a)(vi) and, if so directed by Western
Capital, such Designated Holder shall deliver to Western Capital (at Western
Capital's expense) all copies, other than permanent file copies then in such
Designated Holder's possession, of the prospectus covering such Registrable
Securities which is current at the time of receipt of such notice. If Western
Capital shall give any such notice, Western Capital shall extend the period
during which such registration statement shall be maintained effective pursuant
to this Section 6.4 (including without limitation the period referred to in
Section 6.4(a)(ii)) by the number of days during the period from and including
the date of the giving of such notice pursuant to Section 6.4(a)(vi) to and
including the date when the Designated Holder shall have received the copies of
the supplemented or amended prospectus contemplated by and meeting the
requirements of Section 6.4(a)(vi).
(d) Registration Expenses. Western Capital shall pay all expenses
---------------------
(other than as set forth in Section 6.5(c)) arising from or incident to the
performance of, or compliance with, this Section 6, including without
limitation, (i) SEC, stock exchange and NASD registration and filing fees, (ii)
all fees and expenses incurred in complying with securities or blue sky laws
(including reasonable fees, charges and disbursements of counsel in connection
with blue sky qualifications of the Registrable Securities), (iii) all printing,
messenger and delivery expenses, (iv) the fees, charges and disbursements of
counsel to Western Capital and of its independent public accountants and any
other accounting and legal fees, charges and expenses incurred by Western
Capital (including without limitation any expenses arising from any special
audits incident to or required by any registration or qualification), and (v)
any liability insurance or other premiums for insurance obtained (which
insurance Western Capital agrees to use its best efforts to obtain upon the
reasonable request of any seller of Registrable Securities) retained in
connection with any Demand Registration pursuant to the terms of this Section 6,
regardless of whether such registration statement is declared effective. All of
the expenses described in this Section 6 are referred to herein as "Registration
Expenses."
6.5 Indemnification; Contribution
-----------------------------
(a) Indemnification by Western Capital. Western Capital agrees to
----------------------------------
indemnify, to the fullest extent permitted by law, each Designated Holder, its
officers, directors, partners, employees, advisors and agents and each Person
who controls (within the meaning of the Securities Act or the Exchange Act) such
Designated Holder from and against any and all losses, claims, damages,
liabilities and expenses (including reasonable costs of investigation) arising
out of or based upon any untrue, or allegedly untrue, statement of a material
fact contained in any registration statement, prospectus or preliminary
prospectus or notification or offering circular (as amended or supplemented if
Western Capital shall have furnished any amendments or supplements thereto) or
arising out of or based upon any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, except insofar as the same are caused by or contained in
any information furnished in
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<PAGE>
writing to Western Capital by such Designated Holder expressly for use therein.
Western Capital shall also indemnify any underwriters of the Registrable
Securities, their officers, directors and employees and each Person who controls
such underwriters (within the meaning of the Securities Act and the Exchange
Act) to the same extent as provided above with respect to the indemnification of
the Designated Holders of Registrable Securities.
(b) Indemnification by Designated Holders. In connection with any
-------------------------------------
registration statement in which a Designated Holder is participating pursuant to
Section 6.3 hereof, each such Designated Holder shall furnish to Western Capital
in writing such information with respect to such Designated Holder as Western
Capital may reasonably request or as may be required by law for use in
connection with any such registration statement or prospectus and each
Designated Holder agrees to indemnify, to the fullest extent permitted by law,
Western Capital, any underwriter retained by Western Capital and their
respective directors, officers, employees and each Person who controls Western
Capital or such underwriter (within the meaning of the Securities Act and the
Exchange Act) to the same extent as the foregoing indemnity from Western Capital
to the Designated Holders, but only with respect to any such information
furnished in writing by such Designated Holder; provided, however, that the
total amount to be indemnified by such Designated Holder pursuant to this
Section 6.5(b) shall be limited to the net proceeds received by such Designated
Holder in the offering to which the registration statement or prospectus
relates.
(c) Conduct of Indemnification Proceedings. Any Person entitled to
--------------------------------------
indemnification hereunder (the "Indemnification Party") agrees to give prompt
written notice to the indemnifying party (the "Indemnifying Party") after the
receipt by the Indemnified Party of any written notice of the commencement of
any action, suit, proceeding or investigation or threat thereof made in writing
for which the Indemnified Party intends to claim indemnification or contribution
pursuant to this Section 6; provided, that the failure to notify the
Indemnifying Party shall not relieve the Indemnifying Party of any liability
that it may have to the Indemnified Party hereunder. If notice of commencement
of any such action is given to the Indemnifying Party as above provided, the
Indemnifying Party shall be entitled to participate in and, to the extent it may
wish, jointly with any other Indemnifying Party similarly notified, to assume
the defense of such action at its own expense, with counsel chosen by it and
satisfactory to such Indemnified Party. The Indemnified Party shall have the
right to employ separate counsel in any such action and participate in the
defense thereof, but the fees and expenses of such counsel (other than
reasonable costs of investigation) shall be paid by the Indemnified Party unless
(i) the Indemnifying Party agrees to pay the same, (ii) the Indemnifying Party
fails to assume the defense of such action with counsel satisfactory to the
Indemnified Party in its reasonable judgment, (iii) the named parties to any
such action (including any impleaded parties) have been advised by such counsel
that either (A) representation of such Indemnified Party and the Indemnifying
Party by the same counsel would be inappropriate under applicable standards of
professional conduct or (B) there may be one or more legal defenses available to
it which are different from or additional to those available to the Indemnifying
Party. In either of such cases the Indemnifying Party shall not have the right
to assume the defense of such action on behalf of such Indemnified Party. No
Indemnifying Party shall be liable
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<PAGE>
for any settlement entered into without its written consent, which consent shall
not be unreasonably withheld.
(d) Contribution. If the indemnification provided for in this
------------
Section 6 from the Indemnifying Party is unavailable to an Indemnified Party
hereunder in respect of any losses, claims, damages, liabilities or expenses
referred to therein, then the Indemnifying Party, in lieu of indemnifying such
Indemnified Party, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such losses, claims, damages, liabilities or
expenses in such proportion as is appropriate to reflect the relative fault of
the Indemnifying Party and Indemnified Party in connection with the actions
which resulted in such losses, claims, damages, liabilities or expenses, as well
as any other relevant equitable considerations. The relative faults of such
Indemnifying Party and Indemnified Party shall be determined by reference to,
among other things, whether any action in question, including any untrue or
alleged untrue statement of a material fact or omission or alleged omission to
state a material fact, has been made by, or relates to information supplied by,
such Indemnifying Party or Indemnified Party, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
action. The amount paid or payable by a party as a result of the losses, claims,
damages, liabilities and expenses referred to above shall be deemed to include,
subject to the limitations set forth in this Section 6.5, any legal or other
fees, charges or expenses reasonably incurred by such party in connection with
any investigation or proceeding. The parties hereto agree that it would not be
just and equitable if contribution pursuant to this Section 6.5(d) were
determined by pro rata allocation or by any other method of allocation which
does not take account of the equitable considerations referred to in the
immediately preceding paragraph. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person.
6.6 Rule 144. Western Capital covenants that, from and after the
--------
date that Western Capital has a class of equity securities registered under the
Exchange Act, it shall (i) file any reports required to be filed by it under the
Exchange Act and the rules and regulations adopted by the SEC thereunder; and
(ii) take such further action as each Designated Holder of Registrable
Securities may reasonably request (including providing any information necessary
to comply with Rules 144 and 144A under the Securities Act), all to the extent
required from time to time to enable such Designated Holder to sell Registrable
Securities without registration under the Securities Act within the limitation
of the exemptions provided by (a) Rule 144 or Rule 144A under the Securities
Act, as such rules may be amended from time to time, or (b) any similar rules or
regulations hereafter adopted by the SEC. Western Capital shall, upon the
request of any Designated Holder of Registrable Securities, deliver to such
Designated Holder a written statement as to whether it has complied with such
requirements.
7. CONDITIONS TO GLOBAL DIAMOND AND SELLING STOCKHOLDERS. The
-----------------------------------------------------
obligations of Global Diamond and the Selling Stockholders, hereunder are
subject to the fulfillment on or before the Closing Date, of the following
conditions (any of which may be waived in writing by Global Diamond as
representative on behalf of the Selling Stockholders):
-25-
<PAGE>
7.1 Representations and Warranties, Etc. The representations and
-----------------------------------
warranties of Western Capital contained herein shall have been true and correct
in all material respects when made and as of the Closing Date, except as
affected by actions taken after the date hereof with the prior written consent
of Global Diamond as representative on behalf of the Selling Stockholders.
7.2 Performance of Covenants. Western Capital shall have performed
------------------------
and complied in all material respects with all covenants, agreements, terms and
conditions and executed all documents required by this Agreement to be
performed, complied with, or executed by it prior to or on the Closing Date,
including, but not limited to, those matters set forth in Sections 5.6 and 5.7.
7.3 No Governmental or Other Proceeding or Litigation. No order of
-------------------------------------------------
any court or administrative agency shall be in effect which restrains or
prohibits the transactions contemplated hereby, and no suit, action,
investigation, inquiry or proceeding by any governmental body or other person or
legal or administrative proceeding shall have been instituted or threatened
which questions the validity or legality of the transactions contemplated
hereby.
7.4 Approvals and Consents. All permits, consents or approvals of
----------------------
applications to public authorities, federal, state or local, and all approvals
of any third persons, including without limitation all approvals or consents
under applicable federal or state securities laws, the granting of which are
necessary for the consummation of the transactions contemplated hereby shall
have been obtained.
7.5 Selling Stockholder Approval. The holders of at least ninety
----------------------------
percent (90%) of the shares of Global Diamond Common Stock issued and
outstanding as of the Closing Date shall have approved this Agreement and the
transactions contemplated hereby, and shall have delivered to Western Capital
instruments of transfer for such shares of Global Diamond Common Stock in form
and substance reasonably satisfactory to both Western Capital and its counsel
and Global Diamond and its counsel as shall be necessary to effectively transfer
all of the Selling Stockholders' right, title and interest in such shares of
Global Diamond Common Stock to Western Capital.
7.6 Western Capital Stockholder Approval. The holders of the
------------------------------------
outstanding shares of the Western Capital Common Stock shall have approval, in
accordance with Nevada General Corporation Law (i) Western Capital's issuance of
Western Capital Shares in exchange for the Offered Global Diamond Shares, (ii)
the Reverse Split; (iii) the Amendment to Western Capital's Articles of
Incorporation; (iv) the election of the Global Diamond Nominees to Western
Capital's board of directors; and (v) the sale of Western Leasing to Weston J.
Coolidge in accordance with Section 5.7.
7.7 Delivery of Instruments of Transfer. Western Capital shall have
-----------------------------------
delivered to Global Diamond as representative on behalf of the Selling
Stockholders certificates evidencing Western Capital Shares and agreements
representing the Western Capital Warrants.
-26-
<PAGE>
7.8 Certificate. The chief executive officer, chief financial
-----------
officer and secretary of Western Capital shall have delivered to Global Diamond
as representative on behalf of the Selling Stockholders a certificate certifying
as of the Closing Date the matters set forth in Section 7.1 and 7.2.
8. CONDITIONS TO THE OBLIGATIONS OF WESTERN CAPITAL. The obligations
------------------------------------------------
of Western Capital hereunder are subject to the fulfillment on or before the
Closing Date, of the following conditions (any of which may be waived in writing
by Western Capital):
8.1 Representations and Warranties. The representations and
------------------------------
warranties of Global Diamond and the Selling Stockholders contained herein shall
have been true and correct in all material respects when made and shall be true
and correct in all material respects as of the Closing Date.
8.2 Performance of Covenants. Global Diamond and the Selling
------------------------
Stockholders shall have performed and complied in all material respects with all
covenants, agreements, terms and conditions and executed all documents required
by this Agreement to be performed, complied with or executed by them prior to or
on the Closing Date.
8.3 Instruments of Transfer. The Selling Stockholders shall have
-----------------------
delivered to Western Capital instruments of transfer for at least 90% of the
then outstanding shares of Global Diamond Common Stock of Global Diamond in form
and substance reasonably satisfactory to Western Capital and its counsel as
shall be necessary to effectively transfer all of the Selling Stockholders'
right, title and interest in such shares of Global Diamond Common Stock to
Western Capital.
8.4 No Governmental or Other Proceeding or Litigation. No order of
-------------------------------------------------
any court or administrative agency shall be in effect which restrains or
prohibits the transactions contemplated hereby, and no suit, action,
investigation, inquiry or proceeding by any governmental body or other person or
legal or administrative proceeding shall have been instituted or threatened
which questions the validity or legality of the transactions contemplated
hereby.
8.5 Approvals and Consents. All permits, consents or approvals of
----------------------
applications to public authorities, federal, state or local, and all approvals
of any third persons, including without limitation all approvals or consents
under applicable federal or state securities laws, the granting of which are
necessary for the consummation of the transactions contemplated hereby shall
have been obtained.
8.6 Certificate. The Chief Executive Officer, Chief Financial
-----------
Officer and Secretary of Global Diamond shall have delivered to Western Capital
a certificate certifying as of the Closing Date the matters set forth in
Sections 8.1 and 8.2.
-27-
<PAGE>
9. MISCELLANEOUS.
-------------
9.1 Cumulative Remedies. Any Person having any rights under any
-------------------
provision of this Agreement will be entitled to enforce such rights
specifically, to recover damages by reason of any breach of any provision of
this Agreement, and to exercise all other rights granted by law, which rights
may be exercised cumulative and not alternatively.
9.2 Successors and Assigns. The rights and obligations of the
----------------------
parties under this Agreement shall not be assignable without the written consent
of Global Diamond and Western Capital and any such purported assignment with
their written consent shall be void ab initio. Except as otherwise expressly
-- ------
provided herein, all covenants and agreements contained in this Agreement by or
on behalf of any of the parties hereto will bind and inure to the benefit of the
respective successors and assigns of the parties hereto whether so expressed or
not.
9.3 Severability. Whenever possible, each provision of this
------------
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision will be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement or the other documents.
9.4 Counterparts. This Agreement may be executed in two or more
------------
counterparts, any one of which need not contain the signatures of more than one
party, but all such counterparts when taken together will constitute one and the
same agreement.
9.5 Notices. Any approvals, consents or notices required or
-------
permitted to be sent or given shall be delivered in writing personally or
mailed, certified mail, return receipt requested, to the following addresses and
shall be deemed to have been received within five days after such mailing:
<TABLE>
<CAPTION>
<S> <C>
If to Global Diamond or the Global Diamond Resources, Inc.
Selling Stockholders ((Global 836 Prospect Street, Suite 2B
Diamond being designated for La Jolla, California 92037
such purpose as representative Attn: Johann de Villiers
on behalf of the Selling Chief Executive Officer
Stockholder):
with a copy to: Bruck & Perry
A Professional Corporation
One Newport Place, Tenth Floor
Newport Beach, California 92660
Attn: Daniel K. Donahue, Esq.
</TABLE>
-28-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
If to Western Capital: Western Capital Financial Corporation
39899 Balentine Drive, Suite 145
Newark, California 94560
Attn: Weston J. Coolidge
President
with a copy to: Law Offices of Richard K.
Dickson, II, Esq.
1100 Quail Street, Suite 114
Newport Beach, California 92660
Attn: Richard K. Dickson, II, Esq.
</TABLE>
9.6 Governing Law. The validity, meaning and effect of this
-------------
Agreement and the other Documents shall be determined in accordance with the
laws of California applicable to contracts made and to be performed in that
state.
9.7 Schedules and Exhibits. All schedules and exhibits are an
----------------------
integral part of this Agreement.
9.8 Litigation Costs. If any legal action or any arbitration or
----------------
other proceeding is brought for the enforcement of this Agreement or the other
Documents, or because of an alleged dispute, breach, default, or
misrepresentation in connection with any of the provisions thereof, the
successful or prevailing party or parties shall be entitled to recover
reasonable attorneys' fees and other costs incurred in that action or
proceeding, in addition to any other relief to which it or they may be entitled.
9.9 Specific Performance. Each party's obligation under this
--------------------
Agreement is unique. If any party should default in its obligations under this
Agreement, the parties each acknowledge that it would be extremely impracticable
to measure the resulting damages. Accordingly, the nondefaulting party, in
addition to any other available rights or remedies, may sue in equity for
specific performance and the parties each expressly waive the defense that a
remedy in damages will be adequate.
-29-
<PAGE>
9.10 Entire Agreement. This Agreement constitutes the entire
----------------
agreement and understanding of the parties with respect to the subject matter
thereof, and supersedes all prior and contemporaneous agreements and
understandings.
IN WITNESS WHEREOF, each of the parties to this Agreement has executed or
caused this Agreement to be executed as of the date first above written.
"Western Capital"
WESTERN CAPITAL FINANCIAL CORPORATION
a Nevada corporation
By:
-----------------------------------
Weston J. Coolidge, President
"Global Diamond"
GLOBAL DIAMOND RESOURCES INC.,
a British Columbia corporation
By:
-----------------------------------
Johann de Villiers, Chief Executive Officer
[Signatures of Selling Stockholders Appear on Exhibit A]
-30-
<PAGE>
EXHIBIT A
LIST OF SELLING STOCKHOLDERS
----------------------------
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
GLOBAL DIAMOND
COMMON STOCK
NAME AND ADDRESS OF OWNED BY
SELLING STOCKHOLDER SIGNATURE SELLING STOCKHOLDER
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Banque Von Ernst & Cie SA By:_______________________ 150,000
40, Rue du Rhone Isabelle Cuonat
1204 Geneva Switzerland
C.M.F. Campbell-Birkett 33,000
Rockbank, Mugdock Rd. __________________________
Milngavie, Glasgow C.M.F. Campbell-Birkett
G62 8PB, Scotland
J.A. de Villiers Family Trust 100,000
836 Prospect, Suite 2B __________________________
La Jolla, California 92037 Johann de Villiers
Esperanto Investment Group 100,000
2937 Palmerston Avenue By:_______________________
West Vancouver, B.C. Ray Saadien
V7V 2X2
Euroswiss Securities Limited 200,000
8 Queensway House By:_______________________
Queen Street, St. Helier Graeme A. Witts
Jersey, JE2 4WD Channel Islands
Goddard Trustees (Jersey) Limited 467,000
P.O. Box 344, Osprey House By:______________________
5 Old Street, St. Helier Robert Clifford
Jersey, JE4 8UZ Channel Islands
Nikolee Pauline de Villiers 25,000
836 Prospect, Suite 2B ___________________________
La Jolla, California 92037 Nikolee Pauline de Villiers
Hedy Hartmann 50,000
3194 Mathers Avenue ___________________________
West Vancouver, BC Hedy Hartmann
V7V 2K5
India Minerals, Inc. 300,000
P.O. Box 48800 ___________________________
2100-1111 West Georgia Street H. Visons
Vancouver, BC V7X 1K9
J & D Holdings, Ltd. 50,000
3488 King George Highway By:________________________
Surrey, BC V4P 1A8 James Taylor
</TABLE>
A-1
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Simon Lawrence 25,000
39 The Sunny Road ___________________________
Enfield, Middlesex Simon Lawrence
EN3 5EF, England
Lawrence E. Miklossy 25,000
301-1263 Barclay Street ___________________________
Vancouver, BC Lawrence E. Miklossy
V6E 1H5
Pyrox Holdings S.A. 120,000
Im Glockenacker 50 By:_______________________
8053 Zurich Switzerland G. Rutschmann
Royal Bank of Scotland 120,000
Talstrasse 82 By:______________________
8001 Zurich Switzerland Ernst Pernet
Clare Saadien 200,000
2937 Palmerston Avenue _________________________
West Vancouver, BC Clare Saadien
V7V 2X2
Barr Saunders 100,000
4 Villa Rosa, 1223 West 7th Ave. __________________________
Vancouver, BC Barr Saunders
V6H 1B7
Weir International Limited 2,350,000
Pasca Estate, Road Town _________________________
Tortola, British Virgin Islands Richard Tucker
</TABLE>
A-1
<PAGE>
SCHEDULE 1
GLOBAL DIAMOND DISCLOSURE SCHEDULE
----------------------------------
Section 2.8(a)
- --------------
The J.A. de Villiers Family Trust and Nikolee Pauline de Villiers are "U.S.
persons" as defined by Rule 902(o) under the Securities Act of 1933.
<PAGE>
SCHEDULE 2
WESTERN CAPITAL DISCLOSURE SCHEDULE
-----------------------------------
<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
WESTERN CAPITAL FINANCIAL CORPORATION
A Nevada Corporation
JOHANN DE VILLIERS and KENNETH MACLEOD certify that:
1. They are the President and Secretary, respectively, of WESTERN CAPITAL
FINANCIAL CORPORATION, a Nevada corporation.
2. The Articles of Incorporation of the corporation are amended and restated
to read in its entirety as follows:
"ARTICLE I
---------
The name of this corporation is Global Diamond Resources, Inc.
ARTICLE II
----------
This corporation shall have perpetual existence.
ARTICLE III
-----------
The purpose of this corporation is to engage in any lawful activity
permitted under the laws of the State of Nevada.
ARTICLE IV
----------
The total number of shares that may be issued by the corporation is Thirty-
Five Million (35,000,000) shares, of which Twenty-Five Million (25,000,000)
shares with a par value of $.001 per share, amounting in the aggregate to
Twenty-Five Thousand Dollars ($25,000) shall be designated "Common Stock," and
of which Ten Million (10,000,000) shares with a par value of $.001 per share,
amounting in the aggregate to Ten Thousand Dollars ($10,000) shall be designated
"Preferred Stock." The Preferred Stock may be issued from time to time in one
or more series. The board of directors is authorized to fix the number of
shares of any series of Preferred Stock, to determine the designation of any
such series and to determine or alter the rights, preferences, privileges,
qualifications, limitations and restrictions granted to or imposed upon any
wholly unissued series of Preferred Stock and, within the limits and
restrictions stated in any resolution or resolutions of the board of directors
originally fixing the number of shares constituting any series, to increase or
decrease (but not below the number of shares of such series then outstanding)
the number of shares of any such series subsequent to the issue of shares of
that series.
-1-
<PAGE>
ARTICLE V
---------
The authorized and treasury stock of this corporation may be issued at
such time, upon such terms and conditions and for such consideration as the
Board of Directors shall determine. Shareholders shall not have pre-emptive
rights to acquire unissued shares of the stock of this corporation and
cumulative voting is denied.
ARTICLE VI
----------
The principal place of business of this corporation in the State of
Nevada is One East First Street, Reno, Nevada 89501.
ARTICLE VII
-----------
The governing board of this corporation shall be known as directors,
and the number of directors may from time to time be increased or decreased in
such manner as shall be provided by the bylaws of this corporation, provided
that the number of directors shall not be reduced to less than three (3), except
that in cases where all the shares of the corporation are owned beneficially and
of record by either one or two stockholders, the number of directors may be less
than three (3), but not less than the number of stockholders.
The names and post office box or street addresses of the directors of
the first board of directors are as follows:
<TABLE>
<CAPTION>
NAME ADDRESS
---- -------
<S> <C>
Mark Kallenberger 3 Civic Plaza
Suite 163
Newport Beach, California 92660
James R. Lewis 14772 Plaza Drive
Tustin, California 92681
Jerry R. Berglund 1945 West 3rd Avenue
Denver, Colorado 80223
</TABLE>
ARTICLE VIII
------------
The name and address of the initial Incorporator is as follows: Mark
Kallenberger, 3 Civic Plaza, Suite 163, Newport Beach, California 92660.
-2-
<PAGE>
ARTICLE IX
----------
The personal liability of a director or officer to the corporation or
its stockholders for damages for breach of fiduciary duty as a director or
officer shall be eliminated to the fullest extent permissible under Nevada law
except for: (a) acts or omissions which involve intentional misconduct, fraud
or a knowing violation of law; or (b) the payment of distributions in violation
of Section 78.300 of the Nevada Revised Statutes.
If the Nevada Revised Statutes are hereinafter amended to authorize
the further elimination or limitation of the liability of a director or officer,
then the liability of a director or officer of the corporation shall be
eliminated or limited to the fullest extent permitted by the Nevada Revised
Statutes, so as amended.
Any repeal or modification of the foregoing provisions of Article IX
by the stockholders of the corporation shall not adversely affect any right or
protection of a director or officer of the corporation existing prior to the
date when such repeal or modification becomes effective.
ARTICLE X
---------
This corporation reserves the right to amend, alter, change or repeal
any provision contained in the articles of incorporation, in the manner now or
hereafter prescribed by statute, or by the articles of incorporation, and all
rights conferred upon stockholders herein are granted subject to this
reservation."
3. The foregoing Amended and Restated Articles of Incorporation have been duly
approved by all members of the corporation's board of directors by
resolutions duly adopted by Unanimous Written Consent dated June 21, 1995.
4. The foregoing Amended and Restated Articles of Incorporation have been duly
approved by at least a majority of the stockholders of the corporation
entitled to vote by resolutions duly adopted at a special meeting held on
July 7, 1995.
Each of the undersigned hereby declares and certifies that the matters set forth
in the foregoing Amended and Restated Articles of Incorporation are true and
correct to his or her knowledge and that this certificate was executed on July
___, 1995, at Newport Beach, California.4.
______________________________________
JOHANN DE VILLIERS
______________________________________
KENNETH MACLEOD
-3-
<PAGE>
STATE OF CALIFORNIA )
) ss.
COUNTY OF )
On July ___, 1995 before me, ______________________________________
personally appeared JOHANN DE VILLIERS, personally known to me (or proved to me
on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are
subscribed to the within instrument and acknowledged to me that he/she/they
executed the same in his/her/their authorized capacity(ies), and that by
his/her/their signature(s) on the instrument the person(s) or the entity upon
behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and office seal.
______________________________________
Notary Public
(Seal)
STATE OF CALIFORNIA )
) ss.
COUNTY OF )
On July ___, 1995 before me, ______________________________________
personally appeared KENNETH MACLEOD, personally known to me (or proved to me on
the basis of satisfactory evidence) to be the person(s) whose name(s) is/are
subscribed to the within instrument and acknowledged to me that he/she/they
executed the same in his/her/their authorized capacity(ies), and that by
his/her/their signature(s) on the instrument the person(s) or the entity upon
behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and office seal.
______________________________________
Notary Public
(Seal)
-4-
<PAGE>
EXHIBIT 3.2
AMENDED AND RESTATED
BYLAWS
OF
GLOBAL DIAMOND RESOURCES, INC.
A Nevada Corporation
ARTICLE I
OFFICES
Section 1. PRINCIPAL OFFICES. The principal office shall be in the
-----------------
City of La Jolla, County of San Diego, State of California.
Section 2. OTHER OFFICES. The board of directors may at any time
-------------
establish branch or subordinate offices at any place or places where the
corporation is qualified to do business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. PLACE OF MEETINGS. Meetings of stockholders shall be held
-----------------
at any place within or without the State of Nevada designated by the board of
directors. In the absence of any such designation, stockholders' meetings shall
be held at the principal executive office of the corporation.
Section 2. ANNUAL MEETINGS. The annual meetings of stockholders
---------------
shall be held at a date and time designated by the board of directors. (At such
meetings, directors shall be elected and any other proper business may be
transacted by a plurality vote of stockholders.)
Section 3. SPECIAL MEETINGS. A special meeting of the stockholders,
----------------
for any purpose or purposes whatsoever, unless prescribed by statute or by the
articles of incorporation, may be called at any time by the president and shall
be called by the president or secretary at the request in writing of a majority
of the board of directors, or at the request in writing of stockholders holding
shares in the aggregate entitled to cast not less than a majority of the votes
at any such meeting.
The request shall be in writing, specifying the time of such meeting,
the place where it is to be held and the general nature of the business proposed
to be transacted, and shall be delivered personally or sent by registered mail
or by telegraphic or other facsimile
-1-
<PAGE>
transmission to the chairman of the board, the president, any vice president or
the secretary of the corporation. The officer receiving such request forthwith
shall cause notice to be given to the stockholders entitled to vote, in
accordance with the provisions of Sections 4 and 5 of this Article II, that a
meeting will be held at the time requested by the person or persons calling the
meeting, not less than thirty-five (35) nor more than sixty (60) days after the
receipt of the request. If the notice is not given within twenty (20) days
after receipt of the request, the person or persons requesting the meeting may
give the notice. Nothing contained in this paragraph of this Section 3 shall be
construed as limiting, fixing or affecting the time when a meeting of
stockholders called by action of the board of directors may be held.
Section 4. NOTICE OF STOCKHOLDERS' MEETINGS. All notices of meetings
--------------------------------
of stockholders shall be sent or otherwise given in accordance with Section 5 of
this Article II not less than ten (10) nor more than sixty (60) days before the
date of the meeting being noticed. The notice shall specify the place, date and
hour of the meeting and (i) in the case of a special meeting the general nature
of the business to be transacted, or (ii) in the case of the annual meeting
those matters which the board of directors, at the time of giving the notice,
intends to present for action by the stockholders. The notice of any meeting at
which directors are to be elected shall include the name of any nominee or
nominees which, at the time of the notice, management intends to present for
election.
If action is proposed to be taken at any meeting for approval of (i)
contracts or transactions in which a director has a direct or indirect financial
interest, (ii) an amendment to the articles of incorporation, (iii) a
reorganization of the corporation, (iv) dissolution of the corporation, or (v) a
distribution to preferred stockholders, the notice shall also state the general
nature of such proposal.
Section 5. MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE. Notice of
--------------------------------------------
any meeting of stockholders shall be given either personally or by first-class
mail or telegraphic or other written communication, charges prepaid, addressed
to the stockholder at the address of such stockholder appearing on the books of
the corporation or given by the stockholder to the corporation for the purpose
of notice. If no such address appears on the corporation's books or is given,
notice shall be deemed to have been given if sent by mail or telegram to the
corporation's principal executive office, or if published at least once in a
newspaper of general circulation in the county where this office is located.
Personal delivery of any such notice to any officer of a corporation or
association or to any member of a partnership shall constitute delivery of such
notice to such corporation, association or partnership. Notice shall be deemed
to have been given at the time when delivered personally or deposited in the
mail or sent by telegram or other means of written communication. In the event
of the transfer of stock after delivery or mailing of the notice of and prior to
the holding of the meeting, it shall not be necessary to deliver or mail notice
of the meeting to the transferee.
If any notice addressed to a stockholder at the address of such
stockholder appearing on the books of the corporation is returned to the
corporation by the United
-2-
<PAGE>
States Postal Service marked to indicate that the United States Postal Service
is unable to deliver the notice to the stockholder at such address, all future
notices or reports shall be deemed to have been duly given without further
mailing if the same shall be available to the stockholder upon written demand of
the stockholder at the principal executive office of the corporation for a
period of one year from the date of the giving of such notice.
An affidavit of the mailing or other means of giving any notice of any
stockholders' meeting shall be executed by the secretary, assistant secretary or
any transfer agent of the corporation giving such notice, and shall be filed and
maintained in the minute book of the corporation.
Business transacted at any special meeting of stockholders shall be
limited to the purposes stated in the notice.
Section 6. QUORUM. The presence in person or by proxy of the holders
------
of a majority of the shares entitled to vote at any meeting of stockholders
shall constitute a quorum for the transaction of business, except as otherwise
provided by statute or the articles of incorporation. The stockholders present
at a duly called or held meeting at which a quorum is present may continue to do
business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum, if any action taken (other than
adjournment) is approved by at least a majority of the shares required to
constitute a quorum.
Section 7. ADJOURNED MEETING AND NOTICE THEREOF. Any stockholders'
------------------------------------
meeting, annual or special, whether or not a quorum is present, may be adjourned
from time to time by the vote of the majority of the shares represented at such
meeting, either in person or by proxy, but in the absence of a quorum, no other
business may be transacted at such meeting.
When any meeting of stockholders, either annual or special, is
adjourned to another time or place, notice need not be given of the adjourned
meeting if the time and place thereof are announced at a meeting at which the
adjournment is taken. At any adjourned meeting the corporation may transact any
business which might have been transacted at the original meeting.
Section 8. VOTING. Unless a record date set for voting purposes be
------
fixed as provided in Section 1 of Article VII of these bylaws, only persons in
whose names shares entitled to vote stand on the stock records of the
corporation at the close of business on the business day next preceding the day
on which notice is given (or, if notice is waived, at the close of business on
the business day next preceding the day on which the meeting is held) shall be
entitled to vote at such meeting. Any stockholder entitled to vote on any
matter other than elections of directors or officers, may vote part of the
shares in favor of the proposal and refrain from voting the remaining shares or
vote them against the proposal, but, if the stockholder fails to specify the
number of shares such stockholder is voting affirmatively, it will be
conclusively presumed that the stockholder's approving vote is with
-3-
<PAGE>
respect to all shares such stockholder is entitled to vote. Such vote may be by
voice vote or by ballot; provided, however, that all elections for directors
must be by ballot upon demand by a stockholder at any election and before the
voting begins.
When a quorum is present or represented at any meeting, the vote of
the holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express provision of the statutes or of
the articles of incorporation a different vote is required in which case such
express provision shall govern and control the decision of such question. Every
stockholder of record of the corporation shall be entitled at each meeting of
stockholders to one vote for each share of stock standing in his name on the
books of the corporation.
Section 9. WAIVER OF NOTICE OR CONSENT BY ABSENT STOCKHOLDERS. The
--------------------------------------------------
transactions at any meeting of stockholders, either annual or special, however
called and noticed, and wherever held, shall be as valid as though had at a
meeting duly held after regular call and notice, if a quorum be present either
in person or by proxy, and if, either before or after the meeting, each person
entitled to vote, not present in person or by proxy, signs a written waiver of
notice or a consent to a holding of the meeting, or an approval of the minutes
thereof. The waiver of notice or consent need not specify either the business
to be transacted or the purpose of any regular or special meeting of
stockholders, except that if action is taken or proposed to be taken for
approval of any of those matters specified in the second paragraph of Section 4
of this Article II, the waiver of notice or consent shall state the general
nature of such proposal. All such waivers, consents or approvals shall be filed
with the corporate records or made a part of the minutes of the meeting.
Attendance of a person at a meeting shall also constitute a waiver of
notice of such meeting, except when the person objects, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened, and except that attendance at a meeting is not a waiver of
any right to object to the consideration of matters not included in the notice
if such objection is expressly made at the meeting.
Section 10. STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING.
-------------------------------------------------------
Any action which may be taken at any annual or special meeting of stockholders
may be taken without a meeting and without prior notice, if a consent in
writing, setting forth the action so taken, is signed by the holders of
outstanding shares having not less than the minimum number of votes that would
be necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. All such consents shall be
filed with the secretary of the corporation and shall be maintained in the
corporate records. Any stockholder giving a written consent, or the
stockholder's proxy holders, or a transferee of the shares of a personal
representative of the stockholder of their respective proxy holders, may revoke
the consent by a writing received
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by the secretary of the corporation prior to the time that written consents of
the number of shares required to authorize the proposed action have been filed
with the secretary.
Section 11. PROXIES. Every person entitled to vote for directors or
-------
on any other matter shall have the right to do so either in person or by one or
more agents authorized by a written proxy signed by the person and filed with
the secretary of the corporation. A proxy shall be deemed signed if the
stockholder's name is placed on the proxy (whether by manual signature,
typewriting, telegraphic transmission or otherwise) by the stockholder or the
stockholder's attorney in fact. A validly executed proxy which does not state
that it is irrevocable shall continue in full force and effect unless revoked by
the person executing it, prior to the vote pursuant thereto, by a writing
delivered to the corporation stating that the proxy is revoked or by a
subsequent proxy executed by, or attendance at the meeting and voting in person
by the person executing the proxy; provided, however, that no such proxy shall
be valid after the expiration of six (6) months from the date of such proxy,
unless coupled with an interest, or unless the person executing it specifies
therein the length of time for which it is to continue in force, which in no
case shall exceed seven (7) years from the date of its execution. Subject to
the above and the provisions of Section 78.355 of the Nevada General Corporation
Law, any proxy duly executed is not revoked and continues in full force and
effect until an instrument revoking it or a duly executed proxy bearing a later
date is filed with the secretary of the corporation.
Section 12. INSPECTORS OF ELECTION. Before any meeting of
----------------------
stockholders, the board of directors may appoint any persons other than nominees
for office to act as inspectors of election at the meeting or its adjournment.
If no inspectors of election are appointed, the chairman of the meeting may, and
on the request of any stockholder or his proxy shall, appoint inspectors of
election at the meeting. The number of inspectors shall be either one (1) or
three (3). If inspectors are appointed at a meeting on the request of one or
more stockholders or proxies, the holders of a majority of shares or their
proxies present at the meeting shall determine whether one (1) or three (3)
inspectors are to be appointed. If any person appointed as inspector fails to
appear or fails or refuses to act, the vacancy may be filled by appointment by
the board of directors before the meeting, or by the chairman at the meeting.
The duties of these inspectors shall be as follows:
(a) Determine the number of shares outstanding and the voting
power of each, the shares represented at the meeting, the existence of a quorum,
and the authenticity, validity, and effect of proxies;
(b) Receive votes, ballots, or consents;
(c) Hear and determine all challenges and questions in any way
arising in connection with the right to vote;
(d) Count and tabulate all votes or consents;
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(e) Determine the election result; and
(f) Do any other acts that may be proper to conduct the election
or vote with fairness to all stockholders.
ARTICLE III
DIRECTORS
Section 1. POWERS. Subject to the provisions of the Nevada General
------
Corporation Law and any limitations in the articles of incorporation and these
bylaws relating to action required to be approved by the stockholders or by the
outstanding shares, the business and affairs of the corporation shall be managed
and all corporate powers shall be exercised by or under the direction of the
board of directors.
Without prejudice to such general powers, but subject to the same
limitations, it is hereby expressly declared that the directors shall have the
power and authority to:
(a) Select and remove all officers, agents, and employees of the
corporation, prescribe such powers and duties for them as may not be
inconsistent with law, with the articles of incorporation or these bylaws, fix
their compensation, and require from them security for faithful service.
(b) Change the principal executive office or the principal
business office from one location to another; cause the corporation to be
qualified to do business in any other state, territory, dependency, or foreign
country and conduct business within or without the State; designate any place
within or without the State for the holding of any stockholders' meeting, or
meetings, including annual meetings; adopt, make and use a corporate seal, and
prescribe the forms of certificates of stock, and alter the form of such seal
and of such certificates from time to time as in their judgment they may deem
best, provided that such forms shall at all times comply with the provisions of
law.
(c) Authorize the issuance of shares of stock of the corporation
from time to time, upon such terms as may be lawful, in consideration of money
paid, labor done or services actually rendered, debts or securities cancelled,
tangible or intangible property actually received.
(d) Borrow money and incur indebtedness for the purpose of the
corporation, and cause to be executed and delivered therefor, in the corporate
name, promissory notes, bonds, debentures, deeds of trust, mortgages, pledges,
hypothecations, or other evidences of debt and securities therefor.
Section 2. NUMBER OF DIRECTORS. The authorized number of directors
-------------------
shall be no fewer than three (3) nor more than nine (9). The exact number of
authorized
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directors shall be set by resolution of the board of directors, within the
limits specified above. The maximum or minimum number of directors cannot be
changed, nor can a fixed number be substituted for the maximum and minimum
numbers, except by a duly adopted amendment to this bylaw duly approved by a
majority of the outstanding shares entitled to vote.
Section 3. QUALIFICATION, ELECTION AND TERM OF OFFICE OF DIRECTORS.
-------------------------------------------------------
Directors shall be elected at each annual meeting of the stockholders to hold
office until the next annual meeting, but if any such annual meeting is not held
or the directors are not elected at any annual meeting, the directors may be
elected at any special meeting of stockholders held for that purpose, or at the
next annual meeting of stockholders held thereafter. Each director, including a
director elected to fill a vacancy, shall hold office until the expiration of
the term for which elected and until a successor has been elected and qualified
or until his earlier resignation or removal or his office has been declared
vacant in the manner provided in these bylaws. Directors need not be
stockholders.
Section 4. RESIGNATION AND REMOVAL OF DIRECTORS. Any director may
------------------------------------
resign effective upon giving written notice to the chairman of the board, the
president, the secretary or the board of directors of the corporation, unless
the notice specifies a later time for the effectiveness of such resignation, in
which case such resignation shall be effective at the time specified. Unless
such resignation specifies otherwise, its acceptance by the corporation shall
not be necessary to make it effective. The board of directors may declare
vacant the office of a director who has been declared of unsound mind by an
order of a court or convicted of a felony. Any or all of the directors may be
removed without cause of such removal is approved by the affirmative vote of a
majority of the outstanding shares entitled to vote. No reduction of the
authorized number of directors shall have the effect of removing any director
before his term of office expires.
Section 5. VACANCIES. Vacancies in the board of directors, may be
---------
filled by a majority of the remaining directors, though less than a quorum, or
by a sole remaining director. Each director so elected shall hold office until
the next annual meeting of the stockholders and until a successor has been
elected and qualified.
A vacancy in the board of directors exists as to any authorized
position of directors which is not then filled by a duly elected director,
whether caused by death, resignation, removal, increase in the authorized number
of directors or otherwise.
The stockholders may elect a director or directors at any time to fill
any vacancy or vacancies not filled by the directors, but any such election by
written consent shall require the consent of a majority of the outstanding
shares entitled to vote. If the resignation of a director is effective at a
future time, the board of directors may elect a successor to take office when
the resignation becomes effective.
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If after the filling of any vacancy by the directors, the directors
then in office who have been elected by the stockholders shall constitute less
than a majority of the directors then in office, any holder or holders of an
aggregate of five percent or more of the total number of shares at the time
outstanding having the right to vote for such directors may call a special
meeting of the stockholders to elect the entire board. The term of office of
any director not elected by the stockholders shall terminate upon the election
of a successor.
Section 6. PLACE OF MEETINGS. Regular meetings of the board of
-----------------
directors shall be held at any place within or without the State of Nevada that
has been designated from time to time by resolution of the board. In the
absence of such designation, regular meetings shall be held at the principal
executive office of the corporation. Special meetings of the board shall be
held at any place within or without the State of Nevada that has been designated
in the notice of the meeting or, if not stated in the notice or there is not
notice, at the principal executive office of the corporation. Any meeting,
regular or special, may be held by conference telephone or similar communication
equipment, so long as all directors participating in such meeting can hear one
another, and all such directors shall be deemed to be present in person at such
meeting.
Section 7. ANNUAL MEETINGS. Immediately following each annual
---------------
meeting of stockholders, the board of directors shall hold a regular meeting for
the purpose of transaction of other business. Notice of this meeting shall not
be required.
Section 8. OTHER REGULAR MEETINGS. Other regular meetings of the
----------------------
board of directors shall be held without call at such time as shall from time to
time be fixed by the board of directors. Such regular meetings may be held
without notice, provided the notice of any change in the time of any such
meetings shall be given to all of the directors. Notice of a change in the
determination of the time shall be given to each director in the same manner as
notice for special meetings of the board of directors.
Section 9. SPECIAL MEETINGS. Special meetings of the board of
----------------
directors for any purpose or purposes may be called at any time by the chairman
of the board or the president or any vice president or the secretary or any two
directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
telegram, charges prepaid, addressed to each director at his or her address as
it is shown upon the records of the corporation. In case such notice is mailed,
it shall be deposited in the United States mail at least four (4) days prior to
the time of the holding of the meeting. In case such notice is delivered
personally, or by telephone or telegram, it shall be delivered personally or by
telephone or to the telegraph company at least forty-eight (48) hours prior to
the time of the holding of the meeting. Any oral notice given personally or by
telephone may be communicated to either the director or to a person at the
office of the director who the person giving the notice has reason to believe
will promptly communicate it to the director.
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The notice need not specify the purpose of the meeting nor the place if the
meeting is to be held at the principal executive office of the corporation.
Section 10. QUORUM. A majority of the authorized number of directors
------
shall constitute a quorum for the transaction of business, except to adjourn as
hereinafter provided. Every act or decision done or made by a majority of the
directors present at a meeting duly held at which a quorum is present shall be
regarded as the act of the board of directors, subject to the provisions of
Section 78.140 of the Nevada General Corporation Law (approval of contracts or
transactions in which a director has a direct or indirect material financial
interest), Section 78.125 (appointment of committees), and Section 78.751
(indemnification of directors). A meeting at which a quorum is initially
present may continue to transact business notwithstanding the withdrawal of
directors, if any action taken is approved by at least a majority of the
required quorum for such meeting.
Section 11. WAIVER OF NOTICE. The transactions of any meeting of the
----------------
board of directors, however called and noticed or wherever held, shall be as
valid as though had at a meeting duly held after regular call and notice if a
quorum be present and if, either before or after the meeting, each of the
directors not present signs a written waiver of notice, a consent to holding the
meeting or an approval of the minutes thereof. The waiver of notice of consent
need not specify the purpose of the meeting. All such waivers, consents and
approvals shall be filed with the corporate records or made a part of the
minutes of the meeting. Notice of a meeting shall also be deemed given to any
director who attends the meeting without protesting, prior thereto or at its
commencement, the lack of notice to such director.
Section 12. ADJOURNMENT. A majority of the directors present,
-----------
whether or not constituting a quorum, may adjourn any meeting to another time
and place.
Section 13. NOTICE OF ADJOURNMENT. Notice of the time and place of
---------------------
holding an adjourned meeting need not be given, unless the meeting is adjourned
for more than twenty-four (24) hours, in which case notice of such time and
place shall be given prior to the time of the adjourned meeting, in the manner
specified in Section 8 of this Article III, to the directors who were not
present at the time of the adjournment.
Section 14. ACTION WITHOUT MEETING. Any action required or permitted
----------------------
to be taken by the board of directors may be taken without a meeting, if all
members of the board shall individually or collectively consent in writing to
such action. Such action by written consent shall have the same force and
effect as a unanimous vote of the board of directors. Such written consent or
consents shall be filed with the minutes of the proceedings of the board.
Section 15. FEES AND COMPENSATION OF DIRECTORS. Directors and
----------------------------------
members of committees may receive such compensation, if any, for their services,
and such reimbursement of expenses, as may be fixed or determined by resolution
of the board of directors. Nothing herein contained shall be construed to
preclude any director from
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serving the corporation in any other capacity as an officer, agent, employee, or
otherwise, and receiving compensation for such services. Members of special or
standing committees may be allowed like compensation for attending committee
meetings.
Section 16. DETERMINATION OF MAJORITY OF AUTHORIZED NUMBER OF
-------------------------------------------------
DIRECTORS. Two (2) directors shall constitute a majority of the authorized
- ---------
number of directors when the whole board of directors consists of two (2)
directors pursuant to Article III, Section 2.
ARTICLE IV
COMMITTEES
Section 1. COMMITTEES OF DIRECTORS. The board of directors may, by
-----------------------
resolution adopted by a majority of the authorized number of directors,
designate one or more committees, each consisting of one or more directors, to
serve at the pleasure of the board. The board may designate one or more
directors as alternate members of any committees, who may replace any absent
member at any meeting of the committee. Any such committee, to the extent
provided in the resolution of the board, shall have all the authority of the
board, except with regard to:
(a) the approval of any action which, under the Nevada General
Corporation Law, also requires stockholders' approval or approval of the
outstanding shares;
(b) the filing of vacancies on the board of directors or in any
committees;
(c) the fixing of compensation of the directors for serving on
the board or on any committee;
(d) the amendment or repeal of bylaws or the adoption of new
bylaws;
(e) the amendment or repeal of any resolution of the board of
directors which by its express terms is not so amendable or repealable;
(f) a distribution to the stockholders of the corporation, except
at a rate or in a periodic amount or within a price range determined by the
board of directors; or
(g) the appointment of any other committees of the board of
directors or the members thereof.
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Section 2. MEETINGS AND ACTION BY COMMITTEES. Meetings and action of
---------------------------------
committees shall be governed by, and held and taken in accordance with, the
provisions of Article III, Sections 6 (place of meetings), 8 (regular meetings),
9 (special meetings and notice), 10 (quorum), 11 (waiver of notice), 12
(adjournment), 13 (notice of adjournment) and 14 (action without meeting), with
such changes in the context of those bylaws as are necessary to substitute the
committee and its members for the board of directors and its members, except
that the time or regular meetings of committees may be determined by resolutions
of the board of directors and notice of special meetings of committees shall
also be given to all alternate members, who shall have the right to attend all
meetings of the committee. The board of directors may adopt rules for the
government of any committee not inconsistent with the provisions of these
bylaws. The committees shall keep regular minutes of their proceedings and
report the same to the board when required.
ARTICLE V
OFFICERS
Section 1. OFFICERS. The officers of the corporation shall be a
--------
president, a secretary and a treasurer. The corporation may also have, at the
discretion of the board of directors, a chairman of the board, one or more vice
presidents, one or more assistant secretaries, one or more assistant treasurers,
and such other officers as may be appointed in accordance with the provisions of
Section 3 of this Article V. Any two or more offices may be held by the same
person.
Section 2. ELECTION OF OFFICERS. The officers of the corporation,
--------------------
except such officers as may be appointed in accordance with the provisions of
Section 3 or Section 5 of this Article V, shall be chosen by the board of
directors, and each shall serve at the pleasure of the board, subject to the
rights, if any, of an officer under any contract of employment. The board of
directors at its first meeting after each annual meeting of stockholders shall
choose a president, a vice president, a secretary and a treasurer, none of whom
need be a member of the board. The salaries of all officers and agents of the
corporation shall be fixed by the board of directors.
Section 3. SUBORDINATE OFFICERS, ETC. The board of directors may
-------------------------
appoint, and may empower the president to appoint, such other officers as the
business of the corporation may require, each of whom shall hold office for such
period, have such authority and perform such duties as are provided in the
bylaws or as the board of directors may from time to time determine.
Section 4. REMOVAL AND RESIGNATION OF OFFICERS. The officers of the
-----------------------------------
corporation shall hold office until their successors are chosen and qualify.
Subject to the rights, if any, of an officer under any contract of employment,
any officer may be removed, either with or without cause, by the board of
directors, at any regular or special
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meeting thereof, or, except in case of an officer chosen by the board of
directors, by any officer upon whom such power or removal may be conferred by
the board of directors.
Any officer may resign at any time by giving written notice to the
corporation. Any such resignation shall take effect at the date of the receipt
of such notice or at any later time specified therein; and, unless otherwise
specified therein, the acceptance of such resignation shall not be necessary to
make it effective. Any such resignation is without prejudice to the rights, if
any, of the corporation under any contract to which the officer is a party.
Section 5. VACANCIES IN OFFICES. A vacancy in any office because of
--------------------
death, resignation, removal, disqualification or any other cause shall be filled
in the manner prescribed in these bylaws for regular appointments to such
office.
Section 6. CHAIRMAN OF THE BOARD. The chairman of the board, if such
---------------------
an officer be elected, shall, if present, preside at all meetings of the board
of directors and exercise and perform such other powers and duties as may be
from time to time assigned to him by the board of directors or prescribed by the
bylaws. If there is no president, the chairman of the board shall in addition
be the chief executive officer of the corporation and shall have the powers and
duties prescribed in Section 7 of this Article V.
Section 7. PRESIDENT. Subject to such supervisory powers, if any, as
---------
may be given by the board of directors to the chairman of the board, if there be
such an officer, the president shall be the chief executive officer of the
corporation and shall, subject to the control of the board of directors, have
general supervision, direction and control of the business and the officers of
the corporation. He shall preside at all meetings of the stockholders and, in
the absence of the chairman of the board, of if there be none, at all meetings
of the board of directors. He shall have the general powers and duties of
management usually vested in the office of president of a corporation, and shall
have such other powers and duties as may be prescribed by the board of directors
or the bylaws. He shall execute bonds, mortgages and other contracts requiring
a seal, under the seal of the corporation, except where required or permitted by
law to be otherwise signed and executed and except where the signing and
execution thereof shall be expressly delegated by the board of directors to some
other officer or agent of the corporation.
Section 8. VICE PRESIDENTS. In the absence or disability of the
---------------
president, the vice presidents, if any, in order of their rank as fixed by the
board of directors or, if not ranked, a vice president designated by the board
of directors, shall perform all the duties of the president, and when so acting
shall have all the powers of, and be subject to all the restrictions upon, the
president. The vice presidents shall have such other powers and perform such
other duties as from time to time may be prescribed for them respectively by the
board of directors or the bylaws, the president or the chairman of the board.
Section 9. SECRETARY. The secretary shall attend all meetings of the
---------
board of directors and all meetings of the stockholders and shall record, keep
or cause to
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be kept, at the principal executive office or such other place as the board of
directors may order, a book of minutes of all meetings of directors, committees
of directors and stockholders, with the time and place of holding, whether
regular or special, and, if special, how authorized, the notice thereof given,
the names of those present at directors' and committee meetings, the number of
shares present or represented at stockholders' meetings, and the proceedings
thereof.
The secretary shall keep, or cause to be kept, at the principal
executive office or at the office of the corporation's transfer agent or
registrar, as determined by resolution of the board of directors, a share
register, or a duplicate share register, showing the names of all stockholders
and their addresses, the number and classes of shares held by each, the number
and date of certificates issued for the same, and the number and date of
cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all meetings
of stockholders and of the board of directors required by the bylaws or by law
to be given, and he shall keep the seal of the corporation in safe custody, as
may be prescribed by the board of directors or by the bylaws.
Section 10. TREASURER. The treasurer shall keep and maintain, or
---------
cause to be kept and maintained, adequate and correct books and records of
accounts of the properties and business transactions of the corporation,
including accounts of its assets, liabilities, receipts, disbursements, gains,
losses, capital, retained earnings and shares. The books of account shall at
all reasonable times be open to inspection by any director.
The treasurer shall deposit all moneys and other valuables in the name
and to the credit of the corporation with such depositaries as may be designated
by the board of directors. He shall disburse the funds of the corporation as
may be ordered by the board of directors, shall render to the president and
directors, whenever they request it, an account of all of his transactions as
treasurer and of the financial condition of the corporation, and shall have
other powers and perform such other duties as may be prescribed by the board of
directors or the bylaws.
If required by the board of directors, the treasurer shall give the
corporation a bond in such sum and with such surety or sureties as shall be
satisfactory to the board of directors for the faithful performance of the
duties of his office and for the restoration to the corporation, in case of his
death, resignation, retirement or removal from office, of all books, papers,
vouchers, money and other property of whatever kind in his possession or under
his control belonging to the corporation.
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ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES,
AND OTHER AGENTS
Section 1. ACTIONS OTHER THAN BY THE CORPORATION. The corporation
-------------------------------------
may indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, except an action by or
in the right of the corporation, by reason of the fact that he is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses, including attorneys' fees, judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with the
action, suit or proceeding if he acted in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, has no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, does not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and that, with respect to any criminal action or proceeding, he had
reasonable cause to believe that his conduct was unlawful.
Section 2. ACTIONS BY THE CORPORATION. The corporation may indemnify
--------------------------
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that he is
or was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against expenses, including amounts paid in settlement and attorneys'
fees, actually and reasonably incurred by him in connection with the defense or
settlement of the action or suit if he acted in good faith and in a manner which
he reasonably believed to be in or not opposed to the best interests of the
corporation. Indemnification may not be made for any claim, issue or matter as
to which such a person has been adjudged by a court of competent jurisdiction,
after exhaustion of all appeals therefrom, to be liable to the corporation or
for amounts paid in settlement to the corporation, unless and only to the extent
that the court in which the action or suit was brought or other court of
competent jurisdiction determines upon application that in view of all the
circumstances of the case, the person is fairly and reasonably entitled to
indemnity for such expenses as the court deems proper.
Section 3. SUCCESSFUL DEFENSE. To the extent that a director,
------------------
officer, employee or agent of the corporation has been successful on the merits
or otherwise in defense of any action, suit or proceeding referred to in
Sections 1 and 2, or in defense of
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any claim, issue or matter therein, he must be indemnified by the corporation
against expenses, including attorneys' fees, actually and reasonably incurred by
him in connection with the defense.
Section 4. REQUIRED APPROVAL. Any indemnification under Sections 1
-----------------
and 2, unless ordered by a court or advanced pursuant to Section 5, must be made
by the corporation only as authorized in the specific case upon a determination
that indemnification of the director, officer, employee or agent is proper in
the circumstances. The determination must be made:
(a) By the stockholders;
(b) By the board of directors by majority vote of a quorum
consisting of directors who were not parties to the act, suit or proceeding;
(c) If a majority vote of a quorum consisting of directors who
were not parties to the act, suit or proceeding so orders, by independent legal
counsel in a written opinion; or
(d) If a quorum consisting of directors who were not parties to
the act, suit or proceeding cannot be obtained, by independent legal counsel in
a written opinion.
Section 5. ADVANCE OF EXPENSES. The articles of incorporation, the
-------------------
bylaws or an agreement made by the corporation may provide that the expenses of
officers and directors incurred in defending a civil or criminal action, suit or
proceeding must be paid by the corporation as they are incurred and in advance
of the final disposition of the action, suit or proceeding upon receipt of an
undertaking by or on behalf of the director or officer to repay the amount if it
is ultimately determined by a court of competent jurisdiction that he is not
entitled to be indemnified by the corporation. The provisions of this section
do not affect any rights to advancement of expenses to which corporate personnel
other than directors or officers may be entitled under any contract or otherwise
by law.
Section 6. OTHER RIGHTS. The indemnification and advancement of
------------
expenses authorized in or ordered by a court pursuant to this Article VI:
(a) Does not exclude any other rights to which a person seeking
indemnification or advancement of expenses may be entitled under the articles of
incorporation or any bylaw, agreement, vote of stockholders or disinterested
directors or otherwise, for either an action in his official capacity or an
action in another capacity while holding his office, except that
indemnification, unless ordered by a court pursuant to Section 2 or for the
advancement of expenses made pursuant to Section 5, may not be made to or on
behalf of any director or officer if a final adjudication establishes that his
acts
-15-
<PAGE>
or omissions involved intentional misconduct, fraud or a knowing violation of
the law and was material to the cause of action.
(b) Continues for a person who has ceased to be a director,
officer, employee or agent and inures to the benefit of the heirs, executors and
administrators of such a person.
Section 7. INSURANCE. The corporation may purchase and maintain
---------
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise for any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the corporation would have the power to indemnify him against
such liability under the provisions of this Article VI.
Section 8. RELIANCE ON PROVISIONS. Each person who shall act as an
----------------------
authorized representative of the corporation shall be deemed to be doing so in
reliance upon the rights of indemnification provided by this Article.
Section 9. SEVERABILITY. If any of the provisions of this Article
------------
are held to be invalid or unenforceable, this Article shall be construed as if
it did not contain such invalid or unenforceable provision and the remaining
provisions of this Article shall remain in full force and effect.
Section 10. RETROACTIVE EFFECT. To the extent permitted by
------------------
applicable law, the rights and powers granted pursuant to this Article VI shall
apply to acts and actions occurring or in progress prior to its adoption by the
board of directors.
ARTICLE VII
RECORDS AND BOOKS
Section 1. MAINTENANCE OF SHARE REGISTER. The corporation shall keep
-----------------------------
at its principal executive office, or at the office of its transfer agent or
registrar, if either be appointed and as determined by resolution of the board
of directors, a record of its stockholders, giving the names and addresses of
all stockholders and the number and class of shares held by each stockholder.
Section 2. MAINTENANCE OF BYLAWS. The corporation shall keep at its
---------------------
principal executive office, or if its principal executive office is not in this
State at its principal business office in this State, the original or a copy of
the bylaws as amended to date, which shall be open to inspection by the
stockholders at all reasonable times during office hours. If the principal
executive office of the corporation is outside this state and the corporation
has no principal business office in this state, the secretary shall, upon the
-16-
<PAGE>
written request of any stockholder, furnish to such stockholder a copy of the
bylaws as amended to date.
Section 3. MAINTENANCE OF OTHER CORPORATE RECORDS. The accounting
--------------------------------------
books and records and minutes of proceedings of the stockholders and the board
of directors and any committee or committees of the board of directors shall be
kept at such place or places designated by the board of directors, or, in the
absence of such designation, at the principal executive office of the
corporation. The minutes shall be kept in written form and the accounting books
and records shall be kept either in written form or in any other form capable of
being converted into written form.
Every director shall have the absolute right at any reasonable time to
inspect and copy all books, records and documents of every kind and to inspect
the physical properties of this corporation and any subsidiary of this
corporation. Such inspection by a director may be made in person or by agent or
attorney and the right of inspection includes the right to copy and make
extracts. The foregoing rights of inspection shall extend to the records of
each subsidiary of the corporation.
Section 4. ANNUAL REPORT TO STOCKHOLDERS. Nothing herein shall be
-----------------------------
interpreted as prohibiting the board of directors from issuing annual or other
periodic reports to the stockholders of the corporation as they deem
appropriate.
Section 5. FINANCIAL STATEMENTS. A copy of any annual financial
--------------------
statement and any income statement of the corporation for each quarterly period
of each fiscal year, and any accompanying balance sheet of the corporation as of
the end of each such period, that has been prepared by the corporation shall be
kept on file in the principal executive office of the corporation for twelve
(12) months.
Section 6. ANNUAL LIST OF DIRECTORS, OFFICERS AND RESIDENT AGENT.
-----------------------------------------------------
The corporation shall, on or before January 31st of each year, file with the
Secretary of State of the State of Nevada, on the prescribed form, a list of its
officers and directors and a designation of its resident agent in Nevada.
ARTICLE VIII
GENERAL CORPORATE MATTERS
Section 1. RECORD DATE. For purposes of determining the stockholders
-----------
entitled to notice of any meeting or to vote or entitled to receive payment of
any dividend or other distribution or allotment of any rights or entitled to
exercise any rights in respect of any other lawful action, the board of
directors may fix, in advance, a record date, which shall not be more than sixty
(60) days nor less than ten (10) days prior to the date of any such meeting nor
more than sixty (60) days prior to any other action, and in such case only
stockholders of record on the date so fixed are entitled to notice and to vote
or to receive
-17-
<PAGE>
the dividend, distribution or allotment of rights or to exercise the rights, as
the case may be, notwithstanding any transfer of any shares on the books of the
corporation after the record date fixed as aforesaid, except as otherwise
provided in the Nevada General Corporation Law.
If the board of directors does not so fix a record date:
(a) The record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given or, if
notice is waived, at the close of business on the business day next preceding
the day on which the meeting is held.
(b) The record date for determining stockholders entitled to give
consent to corporate action in writing without a meeting, when no prior action
by the board has been taken, shall be the day on which the first written consent
is given.
(c) The record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the board adopts
the resolution relating thereto, or the sixtieth (60th) day prior to the date of
such other action, whichever is later.
Section 2. CLOSING OF TRANSFER BOOKS. The directors may prescribe a
-------------------------
period not exceeding sixty (60) days prior to any meeting of the stockholders
during which no transfer of stock on the books of the corporation may be made,
or may fix a date not more than sixty (60) days prior to the holding of any such
meeting as the day as of which stockholders entitled to notice of and to vote at
such meeting shall be determined; and only stockholders of record on such day
shall be entitled to notice or to vote at such meeting.
Section 3. REGISTERED STOCKHOLDERS. The corporation shall be
-----------------------
entitled to recognize the exclusive right of a person registered on its books as
the owner of shares to receive dividends, and to vote as such owner, and to hold
liable for calls and assessments a person registered on its books as the owner
of shares, and shall not be bound to recognize any equitable or other claim to
or interest in such share or shares on the part of any other person, whether or
not it shall have express or other notice thereof, except as otherwise provided
by the laws of Nevada.
Section 4. CHECKS, DRAFTS, EVIDENCES OF INDEBTEDNESS. All checks,
-----------------------------------------
drafts or other orders for payment of money, notes or other evidences of
indebtedness, issued in the name of or payable to the corporation, shall be
signed or endorsed by such person or persons and in such manner as, from time to
time, shall be determined by resolution of the board of directors.
Section 5. CORPORATE CONTRACTS AND INSTRUMENTS; HOW EXECUTED. The
-------------------------------------------------
board of directors, except as in the bylaws otherwise provided, may
-18-
<PAGE>
authorize any officer or officers, agent or agents, to enter into any contract
or execute any instrument in the name of and on behalf of the corporation, and
such authority may be general or confined to specific instances; and, unless so
authorized or ratified by the board of directors or within the agency power or
authority to bind the corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or to any amount.
Section 6. STOCK CERTIFICATES. A certificate or certificates for
------------------
shares of the capital stock of the corporation shall be issued to each
stockholder when any such shares are fully paid, and the board of directors may
authorize the issuance of certificates or shares as partly paid provided that
such certificates shall state the amount of the consideration to be paid
therefor and the amount paid thereon. All certificates shall be signed in the
name of the corporation by the president or vice president and by the treasurer
or an assistant treasurer or the secretary or any assistant secretary,
certifying the number of shares and the class or series of shares owned by the
stockholder. When the corporation is authorized to issue shares of more than
one class or more than one series of any class, there shall be set forth upon
the face or back of the certificate, or the certificate shall have a statement
that the corporation will furnish to any stockholders upon request and without
charge, a full or summary statement of the designations, preferences and
relatives, participating, optional or other special rights of the various
classes of stock or series thereof and the qualifications, limitations or
restrictions of such rights, and, if the corporation shall be authorized to
issue only special stock, such certificate must set forth in full or summarize
the rights of the holders of such stock. Any or all of the signatures on the
certificate may be facsimile. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the corporation with the same effect
as if such person were an officer, transfer agent or registrar at the date of
issue.
No new certificate for shares shall be issued in place of any
certificate theretofore issued unless the latter is surrendered and cancelled at
the same time; provided, however, that a new certificate may be issued without
the surrender and cancellation of the old certificate if the certificate thereto
fore issued is alleged to have been lost, stolen or destroyed. In case of any
such allegedly lost, stolen or destroyed certificate, the corporation may
require the owner thereof or the legal representative of such owner to give the
corporation a bond (or other adequate security) sufficient to indemnify it
against any claim that may be made against it (including any expense or
liability) on account of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate.
Section 7. DIVIDENDS. Dividends upon the capital stock of the
---------
corporation, subject to the provisions of the articles of incorporation, if any,
may be declared by the board of directors at any regular or special meeting
pursuant to law. Dividends may be paid in cash, in property, or in shares of
the capital stock, subject to the provisions of the articles of incorporation.
-19-
<PAGE>
Before payment of any dividend, there may be set aside out of any
funds of the corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or for such other
purpose as the directors shall think conducive to the interest of the
corporation, and the directors may modify or abolish any such reserves in the
manner in which it was created.
Section 8. FISCAL YEAR. The fiscal year of the corporation shall be
-----------
fixed by resolution of the board of directors.
Section 9. SEAL. The corporate seal shall have inscribed thereon the
----
name of the corporation, the year of its incorporation and the words "Corporate
Seal, Nevada."
Section 10. REPRESENTATION OF SHARES OF OTHER CORPORATIONS. The
----------------------------------------------
chairman of the board, the president, or any vice president, or any other person
authorized by resolution of the board of directors by any of the foregoing
designated officers, is authorized to vote on behalf of the corporation any and
all shares of any other corporation or corporations, foreign or domestic,
standing in the name of the corporation. The authority herein granted to said
officers to vote or represent on behalf of the corporation any and all shares
held by the corporation in any other corporation or corporations may be
exercised by any such officer in person or by any person authorized to do so by
proxy duly executed by said officer.
Section 11. CONSTRUCTION AND DEFINITIONS. Unless the context
----------------------------
requires otherwise, the general provisions, rules of construction, and
definitions in the Nevada General Corporation Law shall govern the construction
of the bylaws. Without limiting the generality of the foregoing, the singular
number includes the plural, the plural number includes the singular, and the
term "person" includes both a corporation and a natural person.
ARTICLE IX
AMENDMENTS
Section 1. AMENDMENT BY STOCKHOLDERS. New bylaws may be adopted or
-------------------------
these bylaws may be amended or repealed by the affirmative vote of a majority of
the outstanding shares entitled to vote, or by the written assent of
stockholders entitled to vote such shares, except as otherwise provided by law
or by the articles of incorporation.
Section 2. AMENDMENT BY DIRECTORS. Subject to the rights of the
----------------------
stockholders as provided in Section 1 of this Article, bylaws may be adopted,
amended or repealed by the board of directors.
-20-
<PAGE>
C E R T I F I C A T E O F S E C R E T A R Y
- - - - - - - - - - - - - - - - - - - - - -
I, the undersigned, do hereby certify:
1. That I am the duly elected and acting secretary of Global Diamond
Resources, Inc., a Nevada corporation; and
2. That the foregoing Amended and Restated Bylaws, comprising twenty
(20) pages, constitute the Bylaws of said corporation as duly adopted and
approved by the board of directors of said corporation by a Unanimous Written
Consent dated as of June 21, 1995 and duly adopted and approved by the
stockholders of said corporation at a special meeting held on July 7, 1995.
IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed the
seal of said corporation this 17th day of July, 1995.
----------------------------------------------
Mervyn McCulloch, Secretary
-21-
<PAGE>
<TABLE>
EXHIBIT 4.1
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
SEE RESTRICTIVE LEGEND ON REVERSE SIDE
[LOGO]
-------------------
GLOBAL CUSIP 379320 10 4
DIAMOND -------------------
RESOURCES, INC. SEE REVERSE
INCORPORATED UNDER THE LAWS OF AUTHORIZED CAPITAL 35,000,000 SHARES FOR CERTAIN DEFINITIONS
THE STATE OF NEVADA 25,000,000 COMMON SHARES, PAR VALUE $0.001 PER SHARE
10,000,000 PREFERRED SHARES, PAR VALUE $0.001 PER SHARE
THIS CERTIFIES THAT
Is The Owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE $0.001 PAR VALUE COMMON STOCK OF
GLOBAL DIAMOND RESOURCES, INC.
transferable only on the books of the Corporation by the holder hereof in person or by attorney upon surrender of this certificate
properly endorsed. This certificate is not valid unless countersigned by the Transfer Agent and Registrar.
In Witness Whereof, the Corporation has caused this certificate to be signed by the facsimile signatures of its duly authorized
officers and to be sealed with the facsimile seal of the Corporation.
Dated:
/s/ JOHANN DE VILLIERS /s/ MERVYN MCCULLOCH
JOHANN DE VILLIERS, CEO MERVYN MCCULLOCH, SECRETARY
[GLOBAL DIAMOND CORPORATE SEAL]
- -----------------------------------------------------------------------------------------------------------------------------------
COUNTERSIGNED:
American Securities Transfer, Inc.
P.O. Box 1596
Denver, Colorado 80201
By /s/ Signature Illegible
________________________________________________
Transfer Agent & Registrar Authorized Signature
</TABLE>
<PAGE>
GLOBAL DIAMOND RESOURCES, INC.
TRANSFER FEE: $15.00 PER NEW CERTIFICATE ISSUED
The Company is authorized to issue share of more than one class, namely
25,000,000 Common Shares and 10,000,000 Preferred Shares. The Company will
furnish to any shareholder upon request (addressed to the attention of the
Secretary of the Company) and without charge a full statement of the
designations, preferences, limitations and relative rights of the shares of
each class authorized to be issued by the Company and of variations in the
relative rights and preferences between the shares of each series of the
Preferred Shares of the Company insofar as any such series has been fixed and
determined, and a statement of the authority of the Board of Directors of the
Company to fix and determine the relative rights and preferences of subsequent
series of the Preferred Shares.
The following abbreviations when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM -as tenants in common UNIF GIFT MIN ACT-.......Custodian.......
TEN ENT -as tenants by the entireties (Cust) (Minor)
JT TEN -as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act.....................
in common (State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
- --------------------------------------------------------------------------------
For Value Received, _____________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- --------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
_____________________________________________________________________ Shares
of the Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
____________________________________________________________ attorney-in-fact
to transfer the said stock on the books of the within-named Corporation, with
full power of substitution in the premises.
Dated ____________________
________________________________________________________
________________________________________________________
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME(S) AS WRITTEN UPON THE
FACE OF THE CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE
WHATSOEVER
Signature(s) Guaranteed:
_____________________________
The signature(s) should be guaranteed by an eligible guarantor institution
(Banks, Stockbrokers, Savings and Loan Associations and Credit Unions with
membership in an approved signature guarantee Medallion Program), pursuant to
S.E.C. Rule 17Ad-15.
<PAGE>
EXHIBIT 10.1
I hereby certify that revenue
stamps to the value of R2,00
have been affixed to the
original hereof which remains
filed in my Protocol. ----------------------
|SEELREC...............|
|STAMP DUTY |
/s/ ^^??? | |
- ------------------------------- | F001 R75,00 |
NOTARY PUBLIC | ...............|
| FEES |
----------------------
---------------------------------------------
|GEREGISTREER HIERDIE |
|REGISTERED THIS......................06/04/95|
| | Protocol No. 333
| |
| Aktakantoos /s/ ^^?? |
|Deeds Office ............................|
| Pretoria Asst. Registrateur ven Aktes|
| Asst. Registrar of Deeds |
---------------------------------------------
NOTARIAL PROSPECTING CONTRACT
----------------------
|K 1911/95 PC|
----------------------
BE IT HEREBY MADE KNOWN:
THAT on the 22 day of the month of March 1995
before me,
ABRAHAM PIETER MATHYS DE VILLIERS
---------------------------------
Notary Public by lawful authority, duly admitted and sworn and practicing at
Sandton in the Province of the Transvaal, and in the presence of the subscribing
witnesses, personally came and appeared -
ARLETTE FARIEDA WILHIAMS
------------------------
in her capacity as the duly authorised agent of -
PETRUS JOHANNES DE JAGER
by virtue of a Power of Attorney signed at Sandton on the 14th day of February
1995 in his capacity as director of
A & P MINING PROPRIETARY LIMITED
Registration Number: 83/05418/07
Authorised thereto in terms of a resolution
(Hereinafter referred to as "the Prospector")
AND also appeared before me, the Notary,
ARLETTE FARIEDA.../2
--------------------
<PAGE>
Page -2-
ARLETTE FARIEDA WILHIAMS
-------------------------
in her capacity as the duly authorised agent
by virtue of a Power of Attorney signed at on the 23RD day of JANUARY 1995 of -
MARIA ANNA GOBEY
Identity Number: 310820 0029 00 5
Widow
(Hereinafter referred to as "the Owner")
which Powers of Attorney and resolution have this day been exhibited to me and
now remain filed in my Protocol
AND THE APPEARERS DECLARED THAT WHEREAS:
(a) The Owner is the registered Owner of
1. PORTION 129 (a Portion of Portion 1) of the Farm ELANDSHOEK 337,
Registration Division J.R. Transvaal;
MEASURING: 8,5668 (Eight Comma Five Six Six Eight) Hectares;
2. PORTION 130 (a Portion of Portion 1) of the Farm ELANDSHOEK 337,
Registration Division J.R. Transvaal;
MEASURING: 8,5654 (Eight Comma Five Six Five Four) Hectares
3. PORTION 132 (a Portion of Portion 1) of the Farm ELANDSHOEK 337,
Registration Division J.R. Transvaal;
MEASURING: 8,5857 (Eight Comma Five Eight Five Seven) Hectares
4. PORTION 133 (a Portion of Portion 1) of the Farm ELANDSHOEK 337,
Registration Division J.R. Transvaal;
MEASURING: 8,5757 (Eight Comma Five Seven Five Seven) Hectares
5. PORTION 134 (a Portion of Portion 1) of the Farm ELANDSHOEK 337,
Registration Division J.R. Transvaal;
MEASURING: 8,9005 (Eight Comma Nine Nought Nought Five) Hectares
6. PORTION 135.../3
<PAGE>
Page -3-
6. PORTION 135 (a Portion of Portion 1) of the Farm ELANDSHOEK 337,
Registration Division J.R. Transvaal;
MEASURING: 8,5808 (Eight Comma Five Eight Nought Eight)
All held by virtue of Deed of Transfer T80345/1994
(Hereinafter referred to as "the said Farm")
(b) The mineral rights have not been separated from the abovementioned
Properties
(c) The owner has agreed to grant the Prospector the sole and exclusive right
to prospect and search for in on and under the whole (or portion to be
defined) of the said Farm and for precious stones, precious metals and
minerals ("Minerals") together with the Option to purchase the said Farm,
and a further option to extend this prospecting agreement for a further
year after expiry thereof.
NOW THEREFORE these presents witness that the parties have contracted and
agreed, as they do hereby contract and agree with each other as follows:
1. Subject to the terms and conditions herein contained, the Owner does hereby
give and grant to the Prospector, the sole and exclusive right to prospect
and search for in, Minerals in and under the said Farm.
2. The rights hereby granted shall endure for a period of 2 (Two) years
("prospecting period") which, notwithstanding the date hereof, shall be
deemed to have commenced on the 11th day of October 1994 ("commencement
date"), provided, however that:
2.1 the Owner shall be entitled to terminate this agreement forthwith at
any time without notice to the Prospector, should the Prospector fail
to make payment of the cost referred to in clause 15 on demand.
2.2 Should the Owner terminate the agreement in terms of the provisions of
this clause 2 the Prospector shall have no claim for damages against
the owner, provided however that the Prospector shall remain liable
for the cost of the Owner's attorney Moss Morris Incorporated
("attorney") referred to in clause 15.
3. In consideration of the rights hereby granted the Prospector shall pay the
Owner during the Prospecting Period:
3.1 the sum of R84 000.00 (Eighty Four Thousand Rand), ("trust amount")
which amount shall be paid by the Prospector into the trust account
of the attorney (it is recorded that the Prospector already made
payment of this amount), who is hereby irrevocably authorised and
instructed (subject however to the provisions of clause 2) to deal
therewith as follows:
3.1.1 The attorney.../4
<PAGE>
Page - 4 -
3.1.1 The attorney shall invest the trust amount in a interest bearing
account, the interest to accrue for the benefit of the Owner.
3.1.2 The attorney shall from the commencement date pay from the
amount invested in terms of this clause an amount of R3 500,00
(Three Thousand Five Hundred Rand) per month to the Owner for
the duration of the prospecting period, the first payment to be
made on the commencement date and each and every payment
thereafter on the first day of each and every month following
thereafter. The interest accrued on the invested trust amount
shall be paid to the owner on the expiry date of this agreement.
3.2 Subject to the other provisions on this agreement, the Prospector shall
pay to the Owner an amount equal to ten percent of the recovery value
of any Minerals prospect and recovered in terms of this agreement.
4. The Prospector shall pay into the trust account of the attorney an amount of
R5 000,00 (Five Thousand Rand) (It is recorded that the Prospector already
made payment of this amount) as security for compliance of the Prospector's
obligation in terms of this agreement to rehabilitate disturbed surfaces on
the said farm, when this agreement expires or prospecting operations on the
said farm are otherwise discontinued beforehand, whichever date occurs
first.
5. The Prospector shall:
5.1 be obliged to disclose the finding of any Minerals in on and under
the said farm, to the Owner, and shall be entitled, subject to the
other terms of this agreement, to sell the Minerals for its own
account, provided, however that it shall at all times be obliged to
submit tenders as described hereunder, to the Owner.
5.2 for purposes of the determination of the value of Minerals
recovered on the said farm ("Recovery Value"), as well as payment to
the Owner of the ten percent of the recovery value as anticipated in
Clause 3.2, the following provisions shall apply:
5.2.1 The Prospector shall during the periods before each and
every report as described hereunder is issued, obtain
three independent closed tenders for the sale of the
recovered Minerals, and which can be sold from time to
time. The recovered Minerals shall be sold for the
amount offered in the highest tender obtained from the
aforesaid three independent tenders, from period to
period shall be accepted by the Prospector, and the
amount of such accepted tender from period to period
shall respectively be deemed as the recovery value for
purposes of this agreement.
5.2.2 the recovery ... /5
<PAGE>
Page -5-
5.2.2 the recovery value of recovered Minerals shall be proved by the
Prospector by delivery to the Owner of the highest tender as anticipated
in Clause 5.2.1, together with such other tenders as were not accepted.
5.2.3 Each payment of ten percent of the recovery value shall be made on the
delivery date of each issue of the report as determined in Clause 5.2.4
of this agreement, and payment to the Owner as aforesaid shall in each
case concur with the delivery to the Owner of the tenders referred to in
Clause 5.2.2, together with a report reporting on the following:
5.2.3.1 recovered Minerals recovered during the period which
discovered by the report, setting out the amount, weight in
karat, and estimated value of such recovered Minerals.
5.2.3.2 the quality and a complete description of each of the
recovered Minerals.
5.2.3.3 the period within which the recovered Minerals were recovered.
5.2.3.4 the location where each and every of the recovered Minerals
were found.
5.2.3.5 a complete record of the recovered Minerals which were during
the period covered by the report, sold in accordance with the
provisions of Clause 5.2.1.
5.2.4 The Prospector shall issue and deliver the first issue of the report
covering the first month of prospecting operations on the said farms
within 6 weeks after prospecting operations on the said farms are
commenced with and each and every issue of the report thereafter shall
be delivered within 30 days after the previous issue thereof. Unless
otherwise indicated in this agreement every issue of the report will
cover a one month period. The last issue of the report will be delivered
to the Owner within 14 days after termination of the prospecting
agreement and will cover a period which covers the period up to and
including the termination of the prospecting agreement.
5.2.5 each of the recovered Minerals will be sold within one month from the
time it was recovered, and with regard to the other provisions of this
agreement, all recovered Minerals will be sold in accordance with the
provisions of all laws which may apply to the prospecting activities of
the Prospector in terms of this agreement.
6. Should the.../6
<PAGE>
Page -6-
6. Should the Prospector fail to comply with any of the terms and conditions
of this agreement, (all terms and conditions of this agreement shall be
deemed to be terms and conditions going to the root of this agreement) and
remain in default for a period of seven (7) days after receipt of written
request by the Owner for such payment, the Owner shall have the right,
without prejudice of any other remedies the Owner might have in law, to
forthwith to cancel this agreement and to retain all amounts paid by the
Prospector in terms of this agreement whether into the trust account of the
attorney or otherwise, as rouwkoop or alternatively as agreed damages, or
alternatively as predetermined liquidated damages and the Prospector shall
be obliged to remove from the said Farm all equipment or other assets which
he may have brought thereon, and comply with its obligations to
rehabilitate any disturbed surfaces on the said Farm, caused by the
prospecting activities of the Prospector.
7. This contract shall serve as the Owner's written consent to the Prospector
to in terms of Section 6 of the Minerals Act (Act 50 of 1991) to obtain in
his own name or the name of a nominee such prospecting permit or other
authority as may by law be required to enable him or his nominee to
prospect and search for Minerals in, on and under the said Farm.
8. The Owner shall from time to time as, and when required by the Prospector
so to do, make, sign and execute all necessary deeds and documents which
may be required in terms of any relevant laws for the time being in force
to enable the Prospector to exercise and enjoy all or any of the rights
hereby granted to him.
9. Subject to the special condition that the Prospector shall negotiate the
prospecting area on the said Farm before any prospecting activities on the
said Farm are initiated and that the Prospector's operations shall be
conducted in such a manner as cause the least possible obstruction to the
farming operations of the Owner, the Prospector shall during the
Prospecting Period:
9.1 Have access to, egress from and way over the said Farm for itself,
its employees, contractors and all persons connected or having
business with it both on foot and by means of any vehicles or animals
whatsoever, along such routes as the Owner and the Prospector may
agree to beforehand. The Prospector shall further be entitled to make
and sink boreholes, pits, shafts, drive tunnels, waterholes and other
works and installations, and to lay down, build, erect, alter,
maintain, use and repair, all such machinery, dumps, buildings and
other erections as he may require in and about the carrying of the
bona fide prospecting operations, and generally to do all such acts,
matters or things, by means presently known or which may be
discovered hereafter, which may be necessary or convenient to enable
the Prospector to enjoy to the fullest extent all prospecting rights
in respect of the said Farm, or any portion or portions thereof.
9.2 Not be entitled to use such existing water on the said Farm, except
for such borehole water as the Prospector may drill for. The
Prospector shall.../7
<PAGE>
Page -7-
Prospector shall apply to the local authority for water and electrical
supplies, and shall for this purpose be entitled to use connection points
on the said Farm available pointed out by the Owner.
9.3 Be entitled to use clay, lime, sand and stone found on the said Farm for
erection of buildings or other purposes.
9.4 Be entitled to occupy so much of the surface of the said Farm as the
Prospector and the Owner may agree to beforehand in writing, for purposes
of the Prospector's prospecting activities.
9.5 Not be entitled to carry on any trading on the said Farm the right to
which is hereby reserved to the Owner.
9.6 Not be entitled to the use of dry wood on the said Farm and no growing
trees shall be removed unless absolutely necessary for the purpose of his
prospecting operations.
9.7 Not unnecessarily damage or interfere with any cultivated lands or fencing
existing at the date of this agreement, and on termination of the
Prospecting Period shall, if so requested by the Owner, fill in or fence
in and make safe, at his own cost and expense, any boreholes made by him;
provided that the Owner shall be entitled to require the Prospector
without compensation to leave intact any water bores made by him on the
Farm. In the event of the Prospector causing any damage to existing
cultivated lands or fences he shall pay to the Owner such compensation as
may be agreed upon, or failing agreement, as shall be determined by
arbitration.
9.8 Be entitled to remove so much of the Minerals which may be discovered on
the said Farm as may necessary for assay and analytical purposes.
9.9 Not be entitled to allow its employees to loiter on the said Farm.
9.10 Be entitled to execute its prospecting activities on the said Farm 24
hours per day except on Sundays, on which day no prospecting activities
shall be conducted on the said Farm.
9.11 Fence off the prospecting area as negotiated between the Owner and the
Prospector, which prospecting area shall be depicted on the plan
containing the following information:
9.11.1 the area within which Minerals are to be removed;
9.11.2 the area wherein the Minerals will be recovered;
9.11.3 the routes to be followed by the Prospector in the prospecting
area.
9.11.4 the position of the slime dam (if any) to be erected in the
prospecting area;
9.12 After termination ... /8
<PAGE>
Page -8-
9.12 After termination of this agreement, or expiry of the prospecting
period, rehabilitate all disturbances caused to the surfaces on the
said Farm, and to restore same in the same condition as it was prior
to the prospecting activities. In this regard the Prospector shall
comply with all relevant laws, as well as the directions of the
State Mining Engineer, and/or any other official or authority having
jurisdiction in law.
10. The Prospector shall during the prospecting period have the sole and
exclusive right and option to purchase the said Farm at the purchase price
of R2,5 million, and subject to such other conditions as are set out in
Annexure "A" annexed to the original hereof, which remains filed in my
protocol, the content of which are incorporated herein as if specifically
mentioned herein. Should the Prospector exercise the option granted hereby
he shall do same by delivering a written notice to that effect to the
Owner.
11. The Prospector shall at all times comply with all relevant laws and
regulations relating to its prospecting and rehabilitation of surfaces on
the said Farm.
12. The Prospector shall not without the consent of the Owner, (which consent
shall not unreasonably be withheld), be entitled to cede, assign, transfer,
dispose of, and encumber the whole or any part of his rights under this
agreement, subject to the obligations therein set out.
13. The terms "Owner" and "Prospector" shall include their respective heirs,
executors, administrators or assigns.
14. The parties hereto respectively choose domicilium citandi et executandi for
all purposes of and in connection with this agreement as follows:
THE OWNER: at Plot 130 Elandshoek, P O Box 2, Rayton, 1001.
THE PROSPECTOR:232 SA Diamond Centre, 210 Commissioner Street,
Johannesburg.
The parties hereto shall be entitled to change their domicilium from time
to time, provided that any new domicilium selected by them shall be
situated in the Republic of South Africa, and any such change shall only be
effective upon receipt of notice in writing by the other party of such
change.
All payments to be made to the Owner pursuant to this agreement, and all
notices or communications intended for either party, shall be made by
cheque or otherwise or given at such party's domicilium for the time being,
and, if forwarded by prepaid registered post, shall be deemed to have been
made or given on the date of posting.
15. The costs of Moss Morris Inc. pertaining to and incidental to the drafting,
negotiation, execution and registration of this agreement shall be borne
and paid by the Prospector.
16. The Prospector.../9
<PAGE>
Page -9-
16. The Prospector shall deliver all reports, information and documents
pertaining to the prospecting activities on the said Farm, to the Owner
after expiry of the prospecting period.
17. Notwithstanding anything to the contrary contained in this agreement or
Annexure "A" annexed to the original hereof, which remains filed in my
protocol, the Owner shall in event that the Prospector exercises its option
to purchase the said Farm, be entitled to stay on the said Farm and to
occupy same and farm thereon for a period of three (3) months after
registration of the said farm into the name of the Prospector.
18. None of the provisions of this agreement shall be construed as authority
for the Prospector to mine on the said Farm.
19. The Prospector shall during the prospecting period have the right and
option to extend this prospecting agreement for a further period of 1 (One)
year commencing on the date following the expiry of the 2 (Two) year
prospecting period referred to in clause 2 hereof. Should the Prospector
exercise the option granted hereby he shall do same by delivering a written
notice to that effect to the Owner, at least 3 (Three) months prior to the
expiry of the 2 (Two) year prospecting period referred to in clause 2
hereof. Should the Prospector exercise its option to extend this prospect
for a further year as aforesaid the following conditions shall apply:
19.1 the Prospector shall pay the Owner during the Prospecting Period:
a sum of calculated in accordance with the following formula:
S= P X (1+C)
Where:
S represents the sum to be paid
P represents an amount of R42 000,00 (Forty Two Thousand
Rand)
C represents the sum total of the inflation rate for the 2
(Two) year prospecting period referred to in clause 2, which
inflation rate shall be determined by the consumer index as
calculated and announced by the Department of Census and
Statistics provided that the sum total of the inflation rate
for the 2 (Two) year prospecting period aforesaid shall be
deemed to be not less than 30% (percentum). The inflation
aforesaid shall for purposes of the aforesaid formula be
expressed as a fraction to two decimal places of one hundred.
For example where the sum total of the inflation rate equals
33% (per centum) same shall be expressed as 0.33.
which amount shall be paid by the Prospector to the Owner on the
expiry date of (Two) year prospecting period referred to in clause
2.
19.2 The rest.../10
<PAGE>
Page -10-
19.2 The rest of the provisions of this agreement and without derogating
from the generality of the aforegoing, the provisions clause 3.2 shall
apply mutatis mutandis in respect of the extended prospect period of 1
(One) year
THUS DONE and SIGNED at the Place and on the day, month and year first
aforewritten in the presence of the subscribing witness in triplicate original.
AS WITNESSES
- ------------
1. /s/ L. D. Cummings
2. /s/ Signature Illegible /s/ Signature Illegible
------------------------------
QUOD ATTESTOR
NOTARY PUBLIC
[SEAL APPEARS HERE]
<PAGE>
EXHIBIT 10.2
DEED OF ASSIGNMENT
entered into between
LAMA MINERALS CC
Registration Number CK92/17258/23
("Lama")
represented by PAMELA ALWENE FORD in her capacity as a member of Lama and duly
authorised thereto by a Resolution of the members of Lama passed at Johannesburg
------------
on 3rd August 1995
- ------------------
and
JACOB PIETER VAN WYK
Identity Number 500719 5079 08 2
("van Wyk")
and
A & P MINING (PROPRIETARY) LIMITED
Registration Number 83/05418/07
a private company in the process of changing its name to GLOBAL DIAMOND
RESOURCES S A (PROPRIETARY) LIMITED
("Global")
represented by Petrus Johannes De Jager and Andries Pieter Janzen
--------------------------------------------------------
in his capacity as a Director of Global and duly authorised thereto by a
Resolution of the Board of Directors of Global passed at Johannesburg
------------
on 3rd August, 1995
<PAGE>
PAGE 2
IN TERMS OF WHICH THE PARTIES AGREE AS FOLLOWS:
1. INTRODUCTION
The parties record the following:
1.1 On 4 November 1988 and at Kimberley, van Wyk concluded a written
agreement with Pamela Paton ("the Owner") in terms of which van
Wyk was appointed as the Owner's contractor to prospect and dig
for precious stones in alluvial on the following immovable
property ("the farm"):
Certain remaining extent of the farm no 293
Situate in the division of Barkly West, Province of
the Northern Cape
Measuring 2285,8912 (Two Thousand Two Hundred and
Eighty Five Comma Eight Nine One Two)
hectares
Held by the Owner under Deed of Transfer No
T843/1989
1.2 In terms of an addendum to the abovementioned agreement concluded during
June 1989, the commencement date of van Wyk's contract period was fixed
at 1 February 1989 and, for the sake of convenience, the abovementioned
agreement and this addendum are together hereafter called "the first
agreement".
1.3 In terms of a further agreement concluded between the Owner, van Wyk and
Lama at Kimberley on 9 December 1992 ("the second addendum") the
relevant parties agreed:
1.3.1 to amend certain material terms and conditions of the first
agreement; and
1.3.2 to assign all the rights and obligations of the Owner under
the first agreement to Lama.
1.4 On 11 April 1995 and at Kimberley Lama concluded a Notarial Mineral
Lease with the Government of the Republic of South Africa in terms of
which the State's rights to precious stones (being diamonds, emeralds,
rubies and sapphires) in the farm were leased to Lama on certain terms
and conditions ("the Precious Stones Lease").
<PAGE>
Page 3
1.5 A true copy of the Precious Stones Lease is attached to this agreement
marked DA1.
1.6 Unless the context clearly indicates the contrary intention, words and
phrases to which special meanings were assigned in the first agreement
and the second addendum shall bear the same meanings when used in this
agreement.
1.7 Van Wyk wishes to assign his rights and obligations under the first
agreement and the second addendum to Global and this agreement records
the terms and conditions upon which Lama is prepared to agree such
assignment.
2. Assignment
Subject to the further terms and conditions of this agreement, van Wyk and
Global and Lama hereby agree that all van Wyk's rights and obligations
under the first agreement and the second addendum are hereby assigned and
transferred to Global.
3. Effective date of assignment
Notwithstanding the date of signature of this agreement by the parties, the
assignment of van Wyk's rights and obligations to Global shall for all
purposes be deemed to have been effected on 1 May 1995 ("the effective
date").
4. Warranties in favour of Global
Lama and van Wyk warrant to Global that:
4.1 The first agreement and second addendum are of full force and effect
as at the date of signature of this agreement.
4.2 Van Wyk has fully compiled with all van Wyk's obligations under the
first agreement and the second addendum up to and including 30 April
1995.
4.3 Lama has fully complied with all Lama's obligations under the first
agreement and the second addendum.
<PAGE>
Page 4
4.4 Lama is the holder of the Precious Stones Lease.
4.5 Lama is also the holder of a temporary authorisation to mine for
precious stones on the property, a true copy of which is attached
to this agreement marked DA2.
5. FINAL SETTLEMENT BETWEEN LAMA AND VAN WYK
In signing this agreement Lama and van Wyk acknowledge in favour of each
other that all contractual bonds between them shall be terminated in
every respect on the date upon which this agreement is concluded and that
neither Lama nor van Wyk shall hereafter have any claims of whatsoever
nature against each other arising out of the first agreement, the second
addendum or this agreement.
6. THE OPERATIONS
6.1 Lama acknowledges having been advised that Global, pursuant to the
assignment of van Wyk's rights and obligations under the first
agreement and the second addendum, wishes to conduct prospecting
operations only during the remainder of the contract period (which,
if not terminated earlier, shall expire on 31 December 1995) with
the view to enabling Global to assess whether or not to exercise
the option to acquire the Precious Stones Lease as more fully dealt
with in clause 9 below.
6.2 Lama accordingly acknowledges that full-scale digging operations
will not take place during the remainder of the contract period and
Lama hereby waives the required minimum working rate referred to in
clauses 4.2 and 4.3 of the first agreement.
6.3 Global indemnifies Lama against and undertakes to compensate Lama
for all claims of whatsoever nature which might be brought against
Lama by any person as a result of any act or omission on the part
of Global or any of Global's employees, subcontractors,
consultants, representatives or invitees.
6.4 Global warrants that Global shall not under any circumstances do or
omit to do anything which might prejudice Lama's relationship with
the State under the Precious Stones Lease.
<PAGE>
Page 5
7. MONTHLY PAYMENTS TO LAMA
With reference to clause 8 of the first agreement, clause 6 of the
second addendum and to the provisions of clause 4 of the Precious Stones
Lease (which require a five percent royalty on the gross proceeds of all
precious stones recovered from the farm to be paid to the State), Lama
and Global agree that the following financial arrangements shall apply
until the contract period terminates.
7.1 Global shall pay to Lama monthly in advance on or before the first
day of each calendar month during the balance of the contract
period a sum of R5 000,00 (Five Thousand Rands), exclusive of
Value Added Tax, per month.
7.2 The payments owing in respect of May and June 1995 shall be
effected immediately after this agreement is concluded.
7.3 The procedures relating to the handling and sale of precious
stones as recorded in clause 7 of the first agreement shall
continue to apply to all precious stones recovered from the
property by Global, subject to the following:
7.3.1 Van Wyk shall continue to remain the authorised
representative of Lama in terms of Section 54(2) of the
Diamonds Act 1986 during the remainder of the contract
period;
7.3.2 Provided that van Wyk shall give Lama and Global at lease 7
(Seven) clear days prior notice of the intended sale of any
parcel of precious stones and that Lama and Global shall be
entitled to nominate representatives to be present at the
sale of any parcel of precious stones, van Wyk shall conduct
all sales of precious stones to the best advantage of Lama
and Global; and
7.3.3 Van Wyk's costs incurred in connection with the sales of
precious stones shall be borne by Global.
7.4 The gross selling price of all precious stones recovered by Global
from the property during the remaining portion of the contract
period shall be dealt with as follows:
7.4.1 an amount equivalent to 5% (Five per centum) of the gross
selling price of the sale of such precious stones shall be
paid to the State in accordance with
<PAGE>
Page 6
the provisions of clause 4 of the Precious Stones Lease, one-half
of which amount shall be deducted from the amount to be paid to
Lama in terms of clause 7.4.2 and one-half of which shall be
deducted from the amount to be retained by Global in terms of
clause 7.4.3 below;
7.4.2 to the extent to which the following amount exceeds R5 000,00,
there shall be paid to Lama an amount equivalent to the total of
the following percentages of the gross selling price of all
precious stones recovered from the property by Global during each
calender month of the contract period, namely:
- 10% (Ten per centum), where such gross selling price amounts
to R100 000,00 (One Hundred Thousand Rands) or less,
exclusive of VAT
plus
- 12.5% (Twelve comma Five per centum) of that portion of the
gross selling price which exceeds R100 000,00 (One Hundred
Thousand Rands) but does not exceed R150 000,00 (One Hundred
and Fifty Thousand Rands)
plus
- 15% (Fifteen per centum) of that portion of the gross selling
price which exceeds R150 000,00 (One Hundred and Fifty
Thousand Rands).
7.4.3 After effecting the abovementioned payments, the balance of the
gross selling price of the precious stones sold shall be retained
by Global as remuneration for Global's services as contractor.
7.5 It is the intention of the parties that the monthly amount of R5 000,00
(Five Thousand Rands) to be paid by Global to Lama shall be regarded as
a minimum monthly consideration and that this amount shall be set-off
against the monthly amounts to be paid to the Owner in terms of clause
7.4.2.
<PAGE>
Page 7
8. Security Deposit
In order to guarantee that Global shall fully and punctually comply with
all Global's obligations under the first agreement, the second addendum,
this agreement and the Precious Stones Lease, including in particular all
Global's obligations regarding the proper environmental management and
rehabilitation of surface disturbances on the farm, the following
provisions shall apply during the remainder of the contract period and, if
the option referred to in clause 9 is exercised, until mining operations on
the farm by Global or any third party have finally ceased:
8.1 Before any bulk sampling or mining activities on the farm are
commenced, Global shall pay into the trust account of Lama's
attorneys a sum of R50 000,00 (Fifty Thousand Rands), which amount
together with all interest accrued on the capital is hereafter called
"the security deposit" and which amount shall be retained in trust by
Lama's attorneys until Global shall have duly fulfilled all its
abovementioned obligations pursuant to whichever of the following
dates first occurs, namely:
8.1.1 Termination of the contract period without exercise of the option
referred to in clause 9; or
8.1.2 If the option referred to in clause 9 is exercised, the date upon
which Lama again becomes the holder of the Precious Stones Lease
(as may happen under the circumstances contemplated in clause 13)
or the date upon which the Precious Stones Lease is finally
cancelled, as the case may be.
8.2 This agreement shall serve as the mandate of the parties to Lama's
attorneys to deal with the security deposit and interest earned on the
investment thereof as follows:
8.2.1 The capital shall be invested in accordance with Section 78(2A)
of the Attorneys Act No 53 of 1979 with a registered bank or
other financial institution in such interest bearing account as
may be communicated in writing to the attorneys by Global or,
failing such written instruction, in such account and with such
institution as may from time to time be determined by the
attorneys;
<PAGE>
Page 8
8.2.2 All interest and on the investment of the capital shall accrue to
Global but shall not be paid out to Global but shall from time to
time be re-invested with the capital until Global has fulfilled
all its obligations in respect of which the capital and interest
are held as security;
8.2.3 In the event of Global failing to perform its obligations, the
capital and interest shall continue to be held in trust until the
damages suffered by Lama and by the surface owner of the farm
have been finally established, after which the money is held in
trust will be set-off against such damages and the balance of the
capital and interest (if any) shall be paid to Global; and
8.2.4 Upon receipt by Lama's attorneys of Lama's written notification
that Global has fulfilled all its obligations in respect of which
the security deposit is held (which notification shall not
unreasonably be withheld by Lama), Lama's attorneys shall pay the
capital and all interest accrued to Global.
8.3 The fact that the security deposit is applied to set-off damages
suffered by Lama or the surface owner of the farm shall under no
circumstances relieve Global from any of Global's contractual or
statutory obligations and, if the security deposit is insufficient to
cover such damages and the costs of recovering same, the full balance of
the costs and damages shall be paid by Global on demand.
9. OPTION ON PRECIOUS STONES LEASE
Subject always to the prior written consent of the Minister of Mineral and
Energy Affairs ("the Minister") to such assignment, Lama and Global hereby
agree that Global shall have the sole and exclusive option during the
remainder of the contract period to require Lama to assign to Global,
against payment of the sum of R1 140 000,00 (One Million One Hundred and
Forty Thousand Rands) exclusive of Value Added Tax, all Lama's rights and
obligations under the Precious Stones Lease, which option shall be
exercised by written notice given by Global to Lama prior to termination of
the contract period.
If such option is timeously exercised by Global, the following provisions
shall apply:
<PAGE>
PAGE 9
9.1 The parties shall immediately take all such steps and sign all such
documents as may be required to secure the consent of the Minister to
the assignment of all Lama's rights and obligations under the Precious
Stones Lease to Global.
9.2 All such steps as may be necessary to obtain the Minister's consent to
the cession of the Precious Stones Lease and to procure execution of
the Notarial Deed of Cession of the Precious Stones Lease in favour of
Global if such consent is forthcoming, shall be attended to by Lama's
attorneys and all the reasonable and proper professional charges of
Lama's attorneys shall be borne by Global.
9.3 If the Minister refuses to grant his written consent to the assignment
of the Precious Stones Lease to Global, then the rights and
obligations of the parties under this clause 9 shall lapse in every
respect on the date upon which the fact of such refusal is
communicated to Lama in writing by the Minister or his delegate.
9.4 If this Minister grants his written consent to the assignment of the
Precious Stones Lease to Global, then Lama and Global shall punctually
and strictly comply with the remaining provisions of this clause 9.
9.5 The parties record that assignment of the rights and obligations of
Lama under the Precious Stones Lease shall be by way of a Notarial
Deed of Cession of the Precious Stones Lease and, for the sake of
convenience, the cession, assignment and transfer to Global of Lama's
rights and obligations under the Precious Stones Lease is hereafter
referred to as "cession" of the Precious Stones Lease.
9.6 If required to do so by Global, Lama shall furnish to Global the
nomination referred to in clause 9.3 of the Precious Stones Lease in
order to enable Global to lodge an application for a mining
authorisation in respect of the farm with the Department of Mineral
and Energy Affairs.
9.7 Notwithstanding the provisions of clause 9.6, Global shall under no
circumstances carry out any prospecting, digging or mining operations
on the farm after the date of expiry of the contract period until the
written consent of the Minister to the cession of the Precious Stones
Lease to Global has been lodged with Lama's attorneys and until the
sum or R1 140 000,00 (One Million One Hundred and Forty Thousand
Rands) has been paid by Global into the trust account of Lama's
attorneys in accordance with the provisions of clause 9.8.
<PAGE>
Page 10
9.8 In the event of the option being exercised and in the event of the
Minister granting his written consent to the cession of the Precious
Stones Lease to Global, Global shall within 30 (Thirty) days of having
been requested to do so in writing by Lama's attorneys:
9.8.1 deposit the sum of R1 140 000,00 (One Million One Hundred and
Forty Thousand Rands) into the trust account of Lama's
attorneys (being Duncan & Rothman, Third Floor, Permanent
Building, Jones Street, Kimberly) to be held under the
provisions of Section 78(2A) of Act 56 of 1979 and to be dealt
with in accordance with the further provisions of this clause
9; and
9.8.2 pay to Lama's attorneys a deposit in respect of all such costs
and charges as may be attendant upon procuring the consent of
the Minister to the cession of the Precious Stones Lease from
Lama to Global and for attending on the cession of the Precious
Stones Lease to and in favour of Global (in the event of the
Minister granting his written consent referred to above).
9.9 For the sake of convenience the sum of R1 140 000,00 (One Million One
Hundred and Forty Thousand Rands) referred to above is hereafter
called "the initial consideration".
9.10 The parties shall when requested to do so take all such steps and sign
all such documents as may be required to execute a Notarial Deed of
cession in order to transfer Lama's rights and obligations under the
Precious Stones Lease to Global so soon as may reasonably be possible
after payment of the initial consideration into the trust account of
Lama's attorneys.
9.11 It is specifically agreed that the relevant provisions of clauses 9,
10, 11, 12, 13, 15 and 16 shall be incorporated in such Notarial Deed
of Cession.
9.12 This agreement shall serve as the mandate of the parties to Duncan &
Rothman to deal with the initial consideration and interest earned on
the investment thereof as follows:
9.12.1 The capital shall be invested with a registered
Bank or other financial institution in such interest
bearing call account as may be determined by the
mutual written instruction of Lama and Global to
the attorneys or, failing
<PAGE>
Page 11
such mutual written instruction, in such account and with such
institution as may be determined by the attorneys.
9.12.2 All interest arising from such investment shall accrue to Lama and
shall be paid to Lama in lieu of any further consideration which might
still be payable by Global to Lama as from the date upon which the
initial consideration is paid in trust to Duncan & Rothman.
9.12.3 Immediately after execution of the Notarial Deed in terms of which
Lama's rights and obligations under the Precious Stones Lease are
transferred to Global, Duncan & Rothman shall pay the capital amount
of the initial consideration and all interest earned on the investment
of the initial consideration to Lama.
9.13 All the risk and benefits of the Precious Stones Lease shall pass to
Global on the date upon which the Notarial Deed of Cession of the
Precious Stones Lease is executed.
9.14 Global acknowledges that no representations or warranties of any kind as
to the mineralisation of the property or the precious stones potential
of the property or with regard to any other matter which may in any way
have affected Global's decision to enter into this agreement have been
made or given by or on behalf of Lama.
10. Additional consideration if kimberlite mined
If cession of the Precious Stones Lease in favour of Global is effected,
the following provisions shall apply:
10.1 The parties record that the Precious Stones Lease covers precious stones
found in alluvial as well as precious stones found in kimberlite pipes
and fissures, whereas it is the intention of the parties that Global
shall, in return for payment of the sum of R1 140 000,00 (One Million
One Hundred and Forty Thousand Rands) to Lama, secure only the right to
exploit precious stones in alluvial.
10.2 For the sake of practical convenience, the parties agree that Lama's
rights and obligations under the Precious Stones Lease shall be
transferred in their entirety
<PAGE>
Page 12
to Global against payment of initial consideration but that Global
shall under no circumstances mine any kimberlite pipes or fissures on
the farm before paying to Lama the additional consideration referred
to in this clause 10.
10.3 Global accordingly hereby irrevocably undertakes that Global shall
under no circumstances before the date upon which Global effects
payment to Lama of the additional consideration referred to below mine
any kimberlite pipes or fissures on the farm.
10.4 For the purposes of this clause 10, the expression "mine" when used as
a verb shall not include prospecting or the bulk sampling during the
course of prospecting of any kimberlite pipes or fissures on the farm.
10.5 If any dispute arises between Global and Lama as to whether or not
Global is in fact mining any kimberlite pipes or fissures (as opposed
to prospecting or bulk sampling these formations), then such dispute
shall be referred for determination to arbitration under the then
prevailing arbitration laws of South Africa.
10.6 If Global wishes to mine any kimberlite pipes or fissures, Global
shall first pay to Lama a sum of R8 000 000,00 (Eight Million Rands)
exclusive of VAT, which amount shall escalate as from the first
anniversary of the date of execution of the Notarial Deed of Cession
of the Precious Stones Lease in favour of Global by an amount to be
calculated at a percentage equivalent to the percentage increase in
the CPI figure (as defined in clause 10.7) measured from the month
during which the first anniversary of the payment of the initial
consideration to Lama occurred until and including the fourth calendar
month preceding the date upon which the additional consideration is
paid to Lama.
10.7 The expression "the CPI figure" in clause 10.6 shall mean the figure
representing the weighted average (for all items) of the Urban Areas
index for the Principal Urban Areas as reflected in the official
Consumer Price Index published for the relevant month by the
Government's Central Statistical Service, or, in the event of such
official Consumer Price Index being discontinued at any time, the
weighted average of such other similar statistical index published
from time to time by the Government (or other recognised body
processing statistical information) and which may be of assistance in
indicating changes in the purchasing power of South African Currency.
<PAGE>
Page 13
10.8 If Global wishes at any time to mine any kimberlite pipes or
fissures on the farm, Global shall give written notice to Lama of
Global's intentions in this regard.
10.9 If Global should proceed to mine any kimberlite pipes or fissures
on the farm without first paying the additional consideration to
Lama, Lama shall acquire the right (subject always to the consent
of the Minister) to require Global immediately to transfer to Lama
all Global's rights and obligations under the Precious Stones
Lease in consideration for the payment by Lama to Global of the
sum of R100,00 (One Hundred Rands).
10.10 The parties shall so soon as may reasonably be possible after
delivery of such notice, meet with the view to determining the
precise amount of the additional consideration to be paid to Lama
and the parties shall, having determined such amount by mutual
agreement, sign a document reflecting their concurrence on the
amount of the additional consideration.
10.11 In the event of any dispute between the parties as to the precise
calculation of the amount of the additional consideration, such
dispute shall be referred for determination to Deloitte & Touche,
Chartered Accountants of Kimberley, whose determination of the
amount of the additional consideration shall be final and binding
on the parties.
10.12 The additional consideration shall be paid to Lama within 14
(Fourteen) days following the date upon which the precise amount
thereof has been determined by mutual agreement or, as the case
may be, the date upon which written determination of the amount of
the additional consideration made by Deloitte & Touche is
communicated to Global.
10.13 In the event of Global wishing to mine kimberlite pipes or
fissures on the farm, Global shall be entitled after having
effected payment of the additional consideration to Lama, to
require Lama to execute a further Notarial Deed between the
parties in terms of which is recorded that Global has effected
payment of the additional consideration and in terms of which Lama
agrees that no further amounts shall be payable by Global to Lama
in respect of transfer of the Precious Stones Lease from Lama to
Global.
<PAGE>
Page 14
11. Compensation to Surface Owner
During the remainder of the contract period and, if the option referred to
in clause 9 is exercised, during the period that any party other than Lama
holds the Precious Stones Lease, Global undertakes that there will be
strict compliance with all the terms and conditions of the Precious Stones
Lease and that, in the event of any cultivated lands on the farm being
disturbed during the course of any bulk sampling or mining operations, the
surface owner of the farm shall be compensated for loss of profit through
deprivation of use of the relevant portion of the cultivated lands in
accordance with the following provisions:
11.1 Global will meet with the surface owner with a view to determining by
agreement an amount representing fair compensation for loss of profit
over the period in question taking into account average returns for
various crops during the period concerned (so that neither the crop
with the highest healed nor the crop with the lowest healed is used as
a benchmark); and
11.2 In the event of the parties failing agreement on the amount of
compensation, and in the absence of any agreed method for resolving
their dispute in any other way, the dispute between the surface owner
and Global shall be referred for determination to arbitration under
the then prevailing Arbitration Laws of South Africa.
12. Security
As security for the due and proper performance by Global of its obligations
under clause 10, but subject always to the requisite consent of the
Minister, Global shall pass a mortgage bond in favour of Lama over the
Precious Stones Lease, which mortgage bond shall be framed in such terms as
may be determined by Lama (subject to the condition that no additional
obligations not specifically referred to in this agreement or naturally
flowing from a mortgage of the Precious Stones Lease shall be incorporated
in such mortgage bond).
13. Pre-emptive rights
13.1 With effect from the date upon which Lama's rights and obligations
under the Precious Stones Lease are assigned to Global, Global hereby
grants to Lama an exclusive right of pre-emption in respect of the
Precious Stones Lease, in terms
<PAGE>
Page 15
of which Global undertakes that it shall not cede or transfer or
otherwise alienate any of Global's rights or obligations under the
Precious Stones Lease without first offering to cede or assign or
alienate such rights or obligations to Lama strictly in accordance
with the following provisions:
13.1.1 Global shall submit to Lama a written offer setting out the
consideration and conditions upon which Global is prepared to
assign the Precious Stones Lease to Lama (subject always to the
written consent of the Minister to such assignment).
13.1.2 The offer shall reflect the entire consideration as being a sum
of money payable in South African Currency and shall be duly
signed on behalf of Global.
13.1.3 The offer shall remain open for acceptance by Lama for a period
of 60 (Sixty) days following the date upon which such offer is
received by Lama.
13.1.4 If the offer to Lama is made pursuant to receipt by Global of a
similar offer from any bona fide third party which Global
intends accepting if Lama does not exercise its rights of pre-
emption, then the offer shall be accompanied by a true copy of
the written offer made to Global by such bona fide third party.
13.1.5 If Lama wishes to accept Global's offer, Lama shall do so by
signing Global's written offer and returning same to Global at
Global's domicilium citandi et executandi referred to in clause
17.
13.1.6 Any attempt by Lama to amend the terms of the offer or to
qualify the terms of the offer or to accept the offer in part
only shall be deemed to be a rejection of Global's offer.
13.1.7 If Lama does not accept Global's offer within the period of 60
(Sixty) days referred to above, then Global shall be entitled
within a further period of 30 (Thirty) days following expiry of
the period of 60 (Sixty) days referred to above to assign the
Precious Stones Lease to any third party on precisely the same
terms and conditions and at precisely the same consideration as
were reflected in Global's offer to Lama.
<PAGE>
PAGE 16
13.1.8 If Global does not conclude a valid written agreement with a
third party for the cession of the Precious Stones Lease before
expiry of the period of 30 (Thirty) days referred to above, or if
such agreement is concluded but subsequently materially amended
or cancelled, then the pre-emptive rights of Lama shall again
revive and Global shall once again be obliged to offer cession of
the Precious Stones Lease to Lama in accordance of the provisions
of this clause 13 before the Precious Stones Lease is assigned to
any third party.
13.2 If Global or any other assignee of the Precious Stones Lease should at
any time give consideration to the termination of the Precious Stones
Lease because it is of the opinion that precious stones in payable
quantities cannot be found on the farm (or for any other reason),
Global undertakes that it shall not under any circumstances proceed to
terminate or abandon the Precious Stones Lease before it has offered
to assign the Precious Stones Lease to Lama in consideration for the
payment by Lama to Global of the sum of R100,00 (One Hundred Rands)
payable in cash on the date of conclusion of the relevant Notarial
Deed of Cession in terms of which the Precious Stones Lease is
assigned to Lama.
13.3 Global warrants that, should the Precious Stones Lease be assigned to
any third party after Lama has declined or failed to exercise the pre-
emptive rights referred to in this clause 13, the assignment of the
Precious Stones Lease shall be rendered subject to the provisions of
this clause 13 and the provisions of clauses 9, 10, 11, 12, 15 and 16
of this agreement.
14. Cession and Assignment by Lama
Lama shall be entitled at any time on written notice to Global to cede
and assign to any third party all Lama's rights and obligations under
this agreement, which cession and assignment shall become effective
against delivery to Global of such written notice which shall
incorporate the name, physical address and postal address of the
assignee.
15. Acknowledgement
Global acknowledges that Global shall be solely liable for the
consequences of the exercise or non-exercise of the rights acquired by
Global under this agreement and for all
<PAGE>
Page 17
the activities to be carried out by Global pursuant to this agreement, which
liability shall include, but shall not be limited to:
15.1 contractual, delictual and statutory liability and claims; and
15.2 all liability arising from the observance or non-observance (as the
case may be) of all statutory and non-statutory requirements and
conditions which might govern any activity of Global on the farm.
16. Breach of contract
In the event of Global committing any breach of the provisions of this
agreement and persisting in such breach for more than 14 (Fourteen) days
following delivery of a notice requiring Global properly to perform
Global's obligations, Lama shall be entitled to cancel this agreement and,
in the event of the Notarial Mineral Lease having been transferred to
Global, Lama shall be entitled (subject to obtaining the requisite
Ministerial consent) to have the Precious Stones Lease re-transferred to
Lama and Global shall, pursuant to such cancellation, take all such steps
and sign all such documents as may be required in order to secure
execution and registration of the relevant Notarial Deed of Cession of the
Precious Stones Lease to and in favour of Lama.
17. Domicilia and notices
17.1 The provisions of clause 25 of the first agreement and clause 11 of
the second addendum are hereby cancelled.
17.2 The parties hereby appoint the following addresses as their respective
domicilia citandi et executandi for all purposes arising from the
contract reflected in the first agreement as amended by the second
addendum and, more particularly, by this agreement:
<PAGE>
Page 18
17.2.1 Lama: The Offices of Duncan & Rothman
Third Floor
Permanent Building
Jones Street
Kimberly 8301
Van Wyk: 1 Scholtz Street
Delportshoop 8377
Global: 1 Scholtz Street
Delportshoop 8377
17.3 All notices and process of any kind given by a party under this
agreement to any other party shall be deemed to have been received
by the addressee on the date upon which such notice of process is
delivered at the domicilium citandi et executandi of the addressee
as reflected in clause 17.2.
17.4 The domicilium of Lama or Global may be changed by them to any
other physical address within the Republic of South Africa
provided that not less than 21 (Twenty One) days prior written
notice of such change is given by Lama to Global or vice versa.
18. Ratification
18.1 To the extent to which the terms and provisions of the first
agreement and the second addendum are not modified by the
provisions of this agreement, Lama and Global ratify the terms
and conditions of such prior agreements.
18.2 It is agreed however that, in the event of any conflict
between the provisions of this agreement and any of the
provisions of the first agreement or the second addendum, the
provisions of this agreement, both express and implied, shall
prevail.
19. Miscellaneous
19.1 This document records the entire agreement between the parties
and replaces all prior understandings or arrangements or
agreements between them relating to the matters dealt with in
this agreement.
<PAGE>
Page 19
19.2 No further agreement purporting to amend or cancel this agreement
or any of its terms and no waiver by a party of any rights under
this agreement shall be valid unless reduced to writing and signed
by both parties.
19.3 No indulgence, concession or extension of time may be granted or
allowed by a party in a manner which does not constitute a formal
amendment to this agreement shall be capable of prejudicing the
rights of such party under this agreement.
19.4 The parties acknowledge in favour of each other than no warranties
or representations material to be provisions of this agreement
which are not expressly recorded in this document have been made or
given by or on behalf of any of the parties.
19.5 Clause headings are inserted for the sake of convenience only and
shall be ignored in the interpretation of this agreement.
20. Costs
All terms and charges incurred by Lama in connections with negotiation
and finalisation of the terms of this agreement shall be borne by Global.
THUS DONE and SIGNED by Lama Minerals CC at Johannesburg on 3rd August 1995
AS WITNESSES:
for LAMA MINERALS CC
1. ^^^^^^^^^^^^^^^^^^^^
2. ^^^^^^^^^^^^^^^^^^^^ /s/ P A Ford
--------------------------------
P A FORD - MEMBER
<PAGE>
PAGE 20
THUS DONE and SIGNED by van Wyk at JOHANNESBURG
on 3rd August 1995
AS WITNESSES:
1. /s/ illegible signature^^
2. /s/ illegible signature^^ /s/ J. P. Van Wyk
--------------------------
J P VAN WYK
THUS DONE and SIGNED by A & P Mining (Proprietary) Limited at JOHANNESBURG
on 3rd August 1995
AS WITNESSES:
for A & P MINING (PROPRIETARY)
LIMITED
1. /s/ illegible signature^^
2. /s/ illegible signature^^
---------------------------
DIRECTOR
<PAGE>
NOTARIAL MINERAL LEASE
between
THE REPUBLIC OF SOUTH AFRICA
and
LAMA MINERALS CC
in respect of
Remaining extent of the Farm No 293
Division of Barkly West
<PAGE>
PROTOCOL NO. 236
NOTARIAL MINERAL LEASE
of Rights to Precious Stones
BE IT HEREBY MADE KNOWN
that on this Eleventh day of April in the year one thousand nine hundred
and ninety five before me
IZAK CORNELIUS POTGIETER
Notary, by lawful authority duly sworn and admitted and residing and
practising at Kimberley in the Northern Cape Province, Republic of South
Africa, and in the presence of the undersigned witnesses,
<PAGE>
Page 2
personally came and appeared DONALD HENRY KLOPPER in his capacity as the
Regional Director of the Northern Cape Region of the Department of Mineral and
Energy Affairs of the Republic of South Africa, he being duly authorised thereto
by
THE REPUBLIC OF SOUTH AFRICA
(hereafter together with its successors in title and assigns called "the
State")
under a Special Power of Attorney granted to him by ROELOF FREDERIK BOTHA in
his capacity as Minister of Minerals and Energy Affairs of the Republic of South
Africa (hereafter together with his successors in office and assigns called "the
Minister")
and also personally came and appeared PAMELA ALWENE FORD and ANNE MARY
DAUBERMANN in their capacities as a members of
LAMA MINERALS CC
Registration No CK92117258/23
(hereafter together with its successors in title and assigns called "the
Lessee")
they being duly authorised thereto by a resolution of the members of the Lessee,
which Special Power of Attorney and a certified extract from the minutes of the
meeting of the members of the Lessee evidencing the above mentioned resolution
have this day been examined by me the Notary and now remain filed in protocol,
<PAGE>
Page 3
AND THE APPEASERS DECLARED THAT
WHEREAS the Lessee is the holder of a Prospecting and Digging Agreement
No P&D XLIV concluded under the provisions of Section 20 of the
now repealed Precious Stones Act 1964 in respect of the lease
area referred to below ("P&D "),
AND WHEREAS the P&D was originally registered in the office of the Mining
Commissioner for the mining district of Barkly West on 26
November 1978,
AND WHEREAS the P&D was subsequently ceded to the Lessee with effect from 1
January 1993 in terms of a Notarial Deed of Cession, a true copy
of which has been filed for record purposes in the office of the
Regional Director: Northern Cape Region of the Department of
Mineral and Energy Affairs.
AND WHEREAS the Lessee was in terms of the P&D entitled to exploit precious
stones within the entire area comprising the following immovable
property (in this agreement called "the lease area") and more
fully described as:
CERTAIN remaining extent of the Farm No 293
SITUATE in the division of Barkly West, Province of the Northern
MEASURING Cape 2 285,8912 (Two Thousand Two Hundred and Eighty Five Comma
Eight Nine One Two) hectares
HELD by Pamela Paton under Deed of Transfer No T843/1989
AND WHEREAS the rights to all precious stones, gold or silver found on or
under the lease area vest in the State by virtue of a reservation
recorded in the original Deed of Grant (Barkly West Quitrents,
Volume 2, Folio 32) registered in respect of the lease area,
<PAGE>
Page 4
AND WHEREAS the Lessee wishes to lease the State's right to precious stones
in the lease area in accordance with the provisions of this
agreement,
AND WHEREAS a Certificate of Rights to Minerals is to be registered over the
lease area in favour of the State,
NOW THEREFORE THE PARTIES HEREBY AGREE WITH EACH OTHER AS FOLLOWS:
1. LEASE OF RIGHTS TO PRECIOUS STONES
1.1 The Minister hereby leases to the Lessee which hereby hires all the
State's rights to precious stones within the lease area.
1.2 For the purposes of this agreement "precious stones" shall mean
diamonds, emeralds, rubies and sapphires.
1.3 The rights granted to the Lessee in terms of this agreement include all
such rights which are reasonably necessary or ancillary to the
exploitation of precious stones within the lease area.
2. STATUTORY CONSENTS
In order to enable the Lessee to exercise the Lessee's rights under this
agreement, the Minister hereby grants to the Lessee:
2.1 The consent referred to in Section 6(3) of the Minerals Act No 50 of
1991 ("the Act") to prospect the lease area for precious stones on the
Lessee's own account; and
2.2 The consent referred to in Section 9(2) of the Act to mine the lease
area for precious stones on Lessee's own account and to dispose thereof.
<PAGE>
Page 5
3. DURATION
3.1 Unless terminated at an earlier date by the Minister or by the Lessee in
terms of the further provisions of this agreement, the lease of the
State's rights to precious stones within the lease area shall endure
until all such precious stones which may be found within the lease area
and which may be profitably won from the lease area have been exhausted
("the lease period").
3.2 The Lessee shall be entitled at any time to terminate the lease period
after having given the Minister not less than 30 (Thirty) days prior
written notice of such termination.
3.3 Unilateral termination of the lease period by the Lessee shall not
relieve the Lessee of any unfulfilled obligations towards the State.
3.4 Notwithstanding any of the other provisions of this agreement, the lease
period shall continue despite the fact that the Lessee may from time to
time be temporarily prevented from conducting prospecting or mining
operations within the lease area as a result of market forces, force
majeure, floods, interruptions in the supply of power, water or other
resources or assets, by labour or other unrest or as a result of any
other circumstances.
4. CONSIDERATION
4.1 As consideration for the rights granted to the Lessee under this
agreement, the Lessee shall pay to the State a royalty equivalent to 5%
(Five percent) of the gross proceeds of all precious stones recovered
from the lease area during the lease period.
4.2 The Lessee shall sell all precious stones recovered from the lease area
within 21 (Twenty One) days following the end of each calendar month
during the lease period and shall pay such royalty to the State at the
office of the Regional Director of the Northern Cape Region of the
Department of Mineral and Energy Affairs ("the Regional Director") at
Kimberley (or at such other place in Kimberley as the State may from
time to time in writing determine).
<PAGE>
Page 6
4.3 Each royalty payment shall be accompanied by an affidavit confirming the
number and weight in carats of precious stones recovered during the
calendar month concerned as well as the price at which such precious
stones were sold.
4.4 In addition to such royalty the Lessee shall also pay to the State all
such amounts as may from time to time become owing by the Lessee to the
State in terms of any tax imposed on the profits realised by the Lessee
on the exploitation of precious stones within the lease area, and in
this regard the royalty referred to in clause 4.1 shall for the purposes
of calculating the income tax liability of the Lessee constitute
expenditure actually incurred in the production of the Lessee's income
and profits.
5. LESSEE'S OBLIGATIONS
5.1 The Lessee shall at all times during the lease period punctually comply
with the requirements of all applicable legislation as well as all
conditions to which any prospecting permit or mining authorisation held
by the Lessee may be subject.
5.2 The Lessee shall in particular carry out all prospecting work and all
mining operations within the lease area in accordance with such
programmes as may from time to time form the basis upon which any mining
authorisation may be granted to the Lessee.
5.3 The Minister and/or any official authorized thereto by him shall be
entitled at all times to enter the lease area in order to ascertain
whether or not the provisions of this agreement are being complied with
by the Lessee.
5.4 The Lessee shall at all times exercise the Lessee's rights under this
agreement in a manner which shall ensure:
5.4.1 That the precious stones potential within the lease area shall be
investigated in a reasonably systematic manner and that any viable
deposits of precious stones shall be included in the Lessee's (or, as
the case may be, the Lessee's contractor's) mining plan, unless it is
not reasonably possible to do so;
<PAGE>
Page 7
5.4.2 That the optimal exploitation, processing and utilisation of precious
stones within the lease area is achieved;
5.4.3 That sufficient provision is made for the safety and health of persons
involved in the Lessee's operations or who may otherwise lawfully enter
or be upon the lease area; and
5.4.4 That the utilisation and rehabilitation of the surface of the lease area
during and after prospecting and mining operations is conducted in an
orderly manner.
6. RECORDS AND RETURNS
6.1 The Lessee shall at all times during the lease period keep all such
books, plans and records as may reasonably be required by the Minister
in order to enable a proper record of the Lessee's activities within the
lease area to be kept.
6.2 All such books, plans and records shall be kept available for inspection
by the Minister at all reasonable times.
6.3 At the end of each financial year of the Lessee, the Lessee shall
promptly submit to the Regional Director an annual report and a complete
audited financial and production return in respect of prospecting and
mining operations within the lease area, together with such other
reports as may from time to time be required by the Minister.
7. INDEMNITY
The Lessee hereby indemnifies the State against all claims against the
State arising out of the damage or loss of any assets or the injury or
death of any person as a result of the prospecting or mining operations of
the Lessee within the lease area during the lease period.
<PAGE>
Page 8
8. CANCELLATION BY THE STATE
8.1 If the Lessee fails punctually to comply with any provisions of this
agreement, in particular the Lessee's obligations relating to optimal
exploitation of precious stones within the lease area, and if the Lessee
falls to remedy such breach of contract within 30 (Thirty) days after
receipt of a written demand for proper performance (or within such
longer period following such demand as the Lessee may under the
circumstances prove to be reasonable and which may be acceptable to the
Minister), the Minister shall be entitled to cancel the lease of the
State's rights to precious stones within the lease area by means of
written notice to the Lessee.
8.2 Notwithstanding such cancellation by the Minister, the Lessee shall
remain liable to comply with all the unfulfilled obligations of the
Lessee in terms of this agreement and in terms of any prospecting permit
or mining authorisation which the Lessee may hold in respect of the
lease area, in particular the Lessee's obligations regarding safety and
rehabilitation.
9. PROHIBITION ON CESSION
9.1 The Lessee shall not under any circumstances be entitled without the
prior written consent of the Minister to cede any of the Lessee's rights
under this agreement.
9.2 The Lessee shall however be entitled to appoint such independent
contractors to carry out such work within the lease area as the Lessee
may from time to time in the Lessee's sole discretion determine.
9.3 Without derogating in any way from any of the rights granted to the
Lessee under this agreement, the Minister hereby grants to every
contractor nominated in writing by the Lessee for such purposes and
subject always to the provisions of clause 9.4;
9.3.1 The consent referred to in section 6(3) of the Act to prospect the lease
area for precious stones on the contractor s own account; and
9.3.2 The consent referred to in section 9(2) of the Act within the lease area
on such contractor's own account and to dispose thereof.
<PAGE>
Page 9
9.4 The parties record and agree that:
9.4.1 The consent of the Minister reflected in clause 9.3 has been furnished
in order to enable the Lessee to appoint independent contractors to
conduct prospecting and mining operations within the lease area;
9.4.2 Such contractors' shall conduct such operations at their sole risk and
expense;
9.4.3 All such contractors' shall bear full responsibility for due compliance
with the requirements of the Act;
9.4.4 All such contractors' shall accordingly for the duration of their
contracts with the Lessee be required to hold such prospecting permits
or mining authorisations which may be issued from time to time in their
own names; and
9.4.5 The consent of the Minister furnished in terms of clause 9.3 above in
respect of a contractor shall lapse in so far as such contractor is
concerned on the date upon which the appointment of such contractor is
terminated by the Lessee.
10. PRE-EMPTIVE RIGHTS
10.1 The Minister undertakes that the following conditions shall be met
before the State during the currency of the lease period sells or
otherwise alienates any of the State's rights to minerals including
precious stones within the lease area to any person other than the
Lessee:
10.1.1 The Minister shall deliver to the Lessee a written offer in terms of
which the State offers to sell or otherwise alienate the minerals
concerned on the conditions and at the price (expressed in South African
currency) reflected in the written offer;
10.1.2 The offer shall be duly signed on behalf of the State;
10.1.3 The Lessee shall be afforded a period of 90 (Ninety) days after receipt
of such written offer to accept the offer by means of written notice to
this effect given to the Minister;
<PAGE>
Page 10
10.1.4 If the Lessee rejects the State's offer or fails to accept the State's
offer within the period of 90 (Ninety) days referred to above, then the
State shall be entitled within a further period of 60 (Sixty) days to
sell or alienate such mineral rights to any third party on precisely the
same conditions and at the same price as were reflected in the State's
offer to the Lessee; and
10.1.5 If the State does not conclude a valid written agreement with a third
party for the sale or the alienation of the mineral rights concerned
within the period of 60 (Sixty) days referred to above, or if such
agreement is concluded but subsequently materially amended or canceled,
then the pre-emptive rights of the Lessee shall revive and the State
shall once again be obliged to comply with the above conditions before
any of the said mineral rights are sold or otherwise alienated to any
third party.
10.2 The State guarantees that, should any of the State's mineral rights
within the lease area be sold or alienated to any third party after the
Lessee has been afforded an opportunity to acquire such mineral rights
on the same conditions, the alienation of such mineral rights shall be
rendered subject to all the terms and conditions of this agreement and
in particular subject to the pre-emptive rights of the Lessee as set out
above.
11. FORMALITIES
The State undertakes from time to time and whenever requested to do so by
the Lessee to take all such steps and sign all such documents as may be
required by the Lessee in order to enable the Lessee to exercise the
Lessee's rights under this agreement during the lease period.
12. DOMICILIA AND NOTICES
The parties appoint the following addresses as their respective domicilia
citandi et executandi for all purposes under this agreement:
<PAGE>
Page 11
The Minister: The office of the Regional Director
Department of Mineraland Energy Affairs
Northern Cape Region
Public Offices
Knight Street
KIMBERLEY
8301
The Lessee: The offices of Deloitte & Touche
First Floor
Permanent Building
Jones Street
KIMBERLEY
8301
12.2 The domicilium of a party may be changed by such party to any other
physical address within the Republic of South Africa provided that not
less than 21 (twenty one) days prior written notice of such change is
given to the other party.
12.3 Any written notice or communication between the parties which is
addressed to the following postal address of the addressee shall be
deemed to have been received by the addressee on the seventh business
day following the date upon which such notice was tendered to the postal
authorities for posting by prepaid registered post to:
The Minister: The Regional Director
Department of Mineral and Energy Affairs
Northern Cape Region
Private Bag X6093
KIMBERLEY
8300
The Lessee: c/o Deloitte & Touche
P O Box 338
KIMBERLEY 9301
8300
<PAGE>
Page 12
12.4 The postal address of a party may be changed by such party to any other
postal address in South Africa (excluding a poste restante) provided
that not less than 21 (twenty one) days prior written notice of such
change is given to the other party.
12.5 For the purposes of the above provisions relating to changes of address,
the expression "business day" shall mean all days excluding Saturdays,
Sundays and public holidays only.
13. MISCELLANEOUS
13.1 This document records the entire agreement between the parties and
replaces all prior agreements or arrangements between them relating to
the matters dealt with in this agreement.
13.2 No further agreement purporting to amend or cancel this agreement and no
waiver by a party of any rights under this agreement shall be valid
unless reduced to writing and signed by both parties.
13.3 No indulgence, concession or extension of time which may be permitted by
a party shall be capable of prejudicing the rights of such party under
this agreement.
13.4 The parties acknowledge in favour of each other that no warranties or
representations material to the provisions of this agreement which are
not expressly recorded in this document have been made or given by or on
behalf of either party.
13.5 Clause headings are inserted for the sake of convenience only and shall
be ignored in the interpretation of this agreement.
14. COSTS
All costs incurred by the Lessee in connection with the negotiation and
finalisation of this agreement shall be borne by the Lessee.
<PAGE>
Page 13
THUS DONE AND EXECUTED at KIMBERLEY aforesaid, on the day, month and year first
aforewritten in the presence of the undersigned Witnesses, and of me, the
Notary.
AS WITNESSES:
1. ^^ /s/^^
-------------------------------------
qq The Minister
2. ^^
/s/ ^^
-------------------------------------
qq The Lessee
/s/ ^^
-------------------------------------
qq The Lessee
QUOD ATTESTOR,
NOTARY
<PAGE>
DA2
REPUBLIC OF SOUTH-AFRICA
DEPARTMENT OF MINERAL AND ENERGY AFFAIRS
TEMPORARY AUTHORISATION TO CONTINUE [DATE
MINING OPERATIONS STAMP
APPEARS
(Minerals Act, 1991 : section 10 HERE]
Office datestamp
------------------------
Permit No. | T 98/93 |
------------------------
Office reference | NC 5/3/2/275 |
------------------------
Temporary Authorization is hereby granted in terms of and subject to the
provisions of the Minerals Act, 1991, to (full name)
------------------------------------------------------------------------------
| Lama Minerals CC
------------------------------------------------------------------------------
Identity or registration number | | | | | | | | | | | | |
--------------------------------------
(hereinafter referred to as "the holder")
-----------------------------------------------------------------
of (address) | Pa Duncan & Rothman
-----------------------------------------------------------------
| P O Box 64
-----------------------------------------------------------------
| KIMBERLEY
-----------------------------------------------------------------
| 8300
-----------------------------------------------------------------
to continue with mining operation for (name of mineral) | Diamonds
------------------------------------------------------------------------------
| | on (full name of farm and
------------------------------------------------------------------------------
subdivision) | Remaining Extent of the farm
------------------------------------------------------------------------------
|
------------------------------------------------------------------------------
No. | 293 | Magisterial District | Barkly-West | Region | Northern Cape
--------- ---------------------------------------
This temporary permission may at any time and without disclosure of reasons be
withdrawn.
The holder will not be entitled to any compensation from this Department for
costs incurred to temporarily continue his workings.
This temporary authorization is valid until a mining authorisation is issued or
refused.
SIGNED AT KIMBERLEY ON THIS 6TH DAY OF JANUARY 1994
Regional Director /s/ ^^??
......................
<PAGE>
EXHIBIT 10.3
SHAREHOLDERS AGREEMENT
entered into between :-
GLOBAL DIAMONDS (SA) (PROPRIETARY) LIMITED
("Global")
and
MR. PIERRE DE JAGER
in his capacity as trustee for a private company to be formed with the name
NABAS DIAMANTE (PROPRIETARY) LIMITED
or another name approved by the Registrar of Companies
and
MR. CHARLES EDWARD MACDONALD
in his capacity as trustee for a private company to be formed with the name
NABAS HOLDINGS DIAMANTE (PROPRIETARY) LIMITED
or another name approved by the Registrar of Companies
<PAGE>
Page 2
1. DEFINITIONS
-----------
For the purposes of this agreement, unless the context indicates
otherwise:
1.1 "shareholders" shall mean all the shareholders of Nabas, namely
Global and Holdings;
1.2 "shares" shall mean the share capital of Nabas;
1.3 "commencement date" shall mean the date on which the mining
licence is granted to Nabas;
1.4 "Cloete Group" shall mean Gerrith Cloete, Gysbert Charles Cloete,
Andries Josef van Wyk, Elizabeth Frederika Joseph and William
Jeremia Cloete;
1.5 "the Grasdrif Property" shall mean the portion call Grasdrif
coloured in red on the attached annexure "A" over which the
Cloete Group has obtained the right to prospect from the Northern
Richtersveld Management Committee which rights shall be ceded to
Nabas;
<PAGE>
Page 3
1.6 "the Act" shall mean the Minerals Act of 1991;
2. SUSPENSIVE CONDITIONS
---------------------
2.1 This agreement is subject to the following suspensive
conditions namely :-
2.1.1 Global shall acquire the necessary permission to
obtain overseas funding in order to undertake
mining activities and in order to fulfil its
obligations to Nabas;
2.1.2 the shareholders will ensure the registration of
Nabas and Holdings in accordance with the terms
and conditions as set out in this agreement;
2.1.3 Nabas will obtain all the licenses necessary in
terms of the Act in order to undertake mining
activities.
<PAGE>
Page 4
3. FORMATION OF THE COMPANY
------------------------
3.1 After the signature of the agreement the shareholders
undertake to register two companies with limited liability
within a reasonable time period.
3.2 The names of the companies shall be Nabas Diamante
(Proprietary) Limited (which company is represented in this
agreement by Mr. Pierre De Jager in his capacity as trustee
of Nabas Diamante (Pty) Ltd, a company to be formed) and
Nabas Holdings (Pty) Ltd (which company is represented in
this agreement by Mr. Charles Edward MacDonald in his
capacity as trustee of Nabas Holdings (Pty) Ltd, a company
to be formed) or such other names as will meet the approval
of the shareholders and the Registrar of Companies.
3.3 The primary purpose of Nabas and the general nature of its
business shall be to undertake mining activities. Holdings
shall be an investment company with an exclusive interest in
Nabas
<PAGE>
Page 7
3.5.6 a quorum for the directors meetings shall consist of a minimum
of 5 (five) directors provided that the proper notice of such
a meeting is received by all the directors of Nabas;
3.5.7 the chairman of Nabas shall alternate yearly between a
representative of Global and Holdings. The chairman shall not
have a second or a casting vote during the directors or the
shareholders meetings;
3.5.8 Holdings shall also be entitled to appoint a director on the
instructions of Global and Global Diamond Resources
Incorporated, which appointment shall be subject to the
approval of shareholders of Global and Global Diamond
Resources Incorporate.
3.6 The registered office of Nabas shall be Suite 232, SA Diamond Centre,
240 Commissioner Street, Johannesburg.
<PAGE>
Page 8
3.7 Should there be any conflict between the terms of this
agreement and the articles and memorandum of association of
Nabas, then the terms of this agreement shall take precedence
and the shareholders shall immediately amend the articles and
memorandum of association in order to remedy the conflict.
4. SHARE CAPITAL AND THE ISSUE OF SHARES
-------------------------------------
4.1 The authorised share capital of Nabas shall be valued at
R10 000 000 (ten million rand) and shall consist of 10 000 000
(ten million) ordinary shares of R1.00 (one rand) each.
4.2 The issued share capital of Nabas shall be valued at R2.00
(two rand) consisting of 1 (one) share held by each of Global
and Holdings.
4.3 Global undertakes to contribute an amount of R3 000 000 (three
million rand) within a period of 2 (two) years from the date
of acquisition of the mining licence ("the period") which will
enable Nabas to undertake exploratory work.
<PAGE>
Page 9
4.4 The period shall be subject to review at 6 (six) monthly
intervals as mutually agreed to by the parties.
4.5 Should diamonds be discovered during the period, then the
proceeds thereof shall be used to discharge the operating costs
and the remainder shall be placed in a reserve fund which will
primarily be used to increase capital before additional capital
is acquired through further issuance.
5. THE ISSUE OF FURTHER SHARES
---------------------------
No shares in the capital of the company shall be issued other than by
means of pro rata issue of shares to the holders of existing shares
within the period. Once the original R3 000 000 (three million rand)
contributed by Global and the remainder in the reserve funds have been
exhausted, Nabas shall acquire further capital through the issue of
shares to its shareholders. Should any shareholder not wish to accept
the shares which have been issued to him, he shall be obliged to cede
his rights to those shares to the other shareholders. Should a
shareholder not, due to financial reasons, be able to accept the
shares which have been issued to him, then this
<PAGE>
Page 10
inability shall not be used to prejudice him unfairly or unreasonably.
6. THE TRANSFER OF SHARES
----------------------
The following conditions shall apply to the transfer of shares in the
share capital of Nabas or in relation to any claims against Nabas. For
the purposes of this clause, "claims" shall mean the sum total of all
claims of a Nabas shareholder in a loan account against Nabas.
6.1 Shares may only be transferred on the basis of a written
agreement between the shareholders.
6.2 No transfer of shares shall be approved or registered unless
the tranferor's claims are also sold as is set out in clause
6.7.
6.3 Whenever a shareholder intends to alienate his shares or
claims to a bona fida seller, then the transferor shall be
obliged to make an offer to the other shareholders wherein the
following details shall be contained:
6.3.1 the number of shares and the amount of the claims;
<PAGE>
Page 11
6.3.2 the price (valued in rands) and the terms on which the
transferor intends to sell those shares and claims;
6.3.3 the transferee's identity.
6.4 The written notice mentioned in clause 6.3 is an irrevocable offer to
the other shareholders of Nabas, but should such an offer not be
accepted within 60 (sixty) days after the date on which such notice is
given, the other shareholders shall be obliged to reject that offer.
The transferor shall be entitled to dispose of those shares and claims
within a further period of 30 (thirty) days to the transferor referred
to in clause 6.3 on a price and terms neither less nor more favourable
than those set out in the offer.
6.5 Unless the transferor has disposed of all of his shares and claims
within a further period of 30 (thirty) days, he shall not be entitled
after the expiry of that period to depose of his shares and claims
without adhering to the procedure as set out in this clause.
6.6 Except as is expressly indicated in this agreement, shares or claims
may not be sold or
<PAGE>
Page 12
otherwise encumbered. The transfer or registration of shares shall
not be permitted by the directors of Nabas where that proposed
transfer is contrary to this clause 6. Share certificates issued by
Nabas may be endorsed within the discretion of the directors with
the limitations set out within this agreement.
6.7 Save as is agreed to in writing to the contrary by all of the
shareholders, a shareholder may only depose of his shares if he, in
that same transaction, also deposes of that part of his loan
account against Nabas.
7. ADMISSION OF NEW SHAREHOLDERS
-----------------------------
The shareholders may from time to time agree to admit third shareholders as
additional shareholders in Nabas, provided that no person shall be entitled
to be a shareholder in Nabas, unless and until that person has signed this
agreement and has so bound himself to all the terms and conditions set out
within this agreement.
8. TRANSFER OF THIS AGREEMENT
--------------------------
<PAGE>
Page 13
Neither this agreement nor any part thereof, or any share or interest
herein shall be transferred or ceded without the prior written consent
of the other shareholders.
9. MINERAL RIGHTS
--------------
9.1 Holdings undertakes to transfer the licence which has been
issued in favour of the Cloete Group by the management
committee of the Northern Richtersveld into the name of Nabas.
9.2 Holdings further undertakes to immediately apply for mining
licences and mineral leases relating to the Grasdrif Property
in favour of Nabas.
9.3 Should the rights as set out above be acquired, they shall be
valued at R3 000 000 (three million rand).
10. WHOLE AGREEMENT
---------------
10.1 This is the entire agreement between the parties. No variation
of or consensual cancellation of this agreement shall be of any
force or effect unless reduced to writing and signed by the
parties.
<PAGE>
Page 14
10.2 The shareholders confirm that no other terms or conditions,
whether written or oral, whether express or implied, are
applicable to this agreement.
11. WAIVER OF RIGHTS
----------------
11.1 No waiver of any term or condition of this agreement shall be
of binding effect unless it has been committed to writing and
signed by the shareholder making that waiver. Any such waiver
shall only be effective in respect of the specific instance and
purpose for which it has been granted.
11.2 Neither party shall be regarded as having waived or be
precluded in any way from exercising any right under or arising
from this agreement by reason of such party having at any time
granted an extension of time for, or having shown any
indulgence to the other party with reference to, any payment or
performance hereunder, or having failed to enforce or delayed
in the enforcement of, any right of action against the other
party.
<PAGE>
Page 15
12. NOTICES AND DOMICILIA
---------------------
12.1 Each Party chooses the address set out below as
the address at which all notices, legal
processes and other communications must be
delivered for the purposes of this agreement:
12.1.1 Global
12.1.2 Nabas
12.1.3 Holdings
12.2 Any notice or communication required or
permitted to be given in terms of this agreement
shall be valid and effective only if in writing
but it shall be competent to give notice by
telex or telefax.
12.3 Any notice to a Party contained in a correctly
addressed envelope and:
12.3.1 sent by prepaid registered post to it
at its chosen address; and
12.3.2 delivered by hand to a responsible
person during ordinary business hours
at its chosen address,
<PAGE>
Page 16
shall be deemed to have been received, (unless the contrary is
proved) in the case of clause 12.3.1 on the 3rd business day
after posting and, in the case of clause 12.3.2, on the day of
delivery.
13. COSTS
-----
All costs incurred in respect of this agreement, including the
negotiations thereto shall be born by NABAS.
SIGNED at JOHANNESBURG on this the 13 day of OCTOBER 1995
FOR GLOBAL DIAMONDS (SA) (PTY) LTD
SIGNED at JOHANNESBURG on this the 13 day of OCTOBER 1995
FOR NABAS DIAMANTE (PTY) LIMITED
PIERRE DE JAGER
in his capacity as trustee of NABAS DIAMANTE
(PTY) LIMITED, a company to be formed.
<PAGE>
Page 17
SIGNED at ATLANTAS on this the 14 day of OCTOBER 1995
FOR NABAS HOLDINGS DIAMANTE (PTY)
LIMITED
CHARLES EDWARD MACDONALD
in his capacity as trustee of NABAS HOLDINGS
DIAMANTE (PTY) LTD a company to be formed
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<PAGE>
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0 0
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