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FORM 10-KSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
[ x ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended - December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
Commission file number 333-03074
WINDSTAR RESOURCES, INC.
(formerly Turtleback Mountain Gold Co., Inc.)
(Exact name of registrant as specified in its charter)
Arizona 86-0790266
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
528 Fon du Lac Drive
East Peoria, Illinois 61611
(Address of principal executive offices, including zip code.)
(309) 699-8725
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock
Check whether the Issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past
12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
(1) YES [ x ] NO [ ] (2) YES [ X ] NO [ ]
Check if no disclosure of delinquent filers pursuant to Item
405 of Regulation S-B is contained herein, and no disclosure will
be contained, to the best of Registrant's knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
State Issuer's revenues for its most recent fiscal year.
December 31, 1997 - $180.
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State the aggregate market value of the voting stock held by
non-affiliates computed by reference to the price at which the
stock was sold, or the average bid and ask prices of such stock,
as of a specified date within the past 60 days. Dec 31, 1997 - $
- - -0-. There are approximately 238,914,344 shares of common voting
stock of the Registrant held by non-affiliates. During the past
five years, there has been no "public market" for the shares of
Common Stock of the Registrant, so the Registrant has arbitrarily
valued these shares on the basis of par value per share or
$1,161.65.
Issuers involved in Bankruptcy Proceedings during the past
Five Years. Not Applicable.
State the number of shares outstanding of each of the Issuer's
classes of common equity, as of the latest practicable date:
December 31, 1997 - 1,033,000,000 shares of Common Stock
Documents Incorporated by Reference
1. Form S-1 Registration Statement and all amendments thereto,
which was declared effective by the Securities and Exchange
Commission on August 16, 1996 and all exhibits thereto.
2. Form 10-KSB for the period ending December 31, 1996 and any
amendments thereto.
3. Form 10-Q for the period ending March 31, 1997 and any
amendments thereto.
4. Form 10-Q for the period ending June 30, 1997 and any
amendments thereto.
5. Form 10-Q for the period ending September 30, 1997 and any
attachments thereto.
Transitional Small Business Issuer Format
YES [ x ] NO [ ]
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TABLE OF CONTENTS
Item 1. Description of Business
Item 2. Description of Property
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Market for Common Equity and Related Stockholder
Matters
Item 6. Management's Discussion and Analysis or Plan of
Operation
Item 7. Financial Statements
Item 8. Changes in and Disagreements with Accounting and
Financial Disclosure
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange
Act
Item 10. Executive Compensation
Item 11. Security Ownership of Certain Beneficial Owners and
Management
Item 12. Certain Relationships and Related Transactions
Item 13. Exhibits and Reports on Form 8-K
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PART I
ITEM 1. BUSINESS.
Background and Business Strategy.
Background.
WindStar Resources, Inc., formerly Turtleback Mountain Gold
Co., Inc., (the "Company") has had no significant operating
history and must be considered an exploration stage company. The
Company was formed on March 22, 1995, to engage in the business
of identification, acquisition, exploration and, if warranted,
development of mineral properties and the production of minerals
therefrom. The Company does not own an operating mine and has no
other revenue-producing mining activities. Moreover, it is not
expected to commence mining activities, at least with respect to
its southwestern Arizona properties, until the following events
have occurred; initial operating capital has been secured;
significant exploration activities on the Company's mining claims
have been completed; a determination has been made that the
properties contain a commercially minable ore body; all required
mining and environmental permitting applications have been
approved; a comprehensive feasibility study or proposed mine plan
has been prepared; and adequate financing of a mine has been
obtained. There is no assurance that the Company will be
successful in any of these activities. The mineralization of main
exploratory interest is gold. No reserves have been delineated
on the property, and to date the Company has not identified a
commercially mineable ore body.
Business Strategy.
Since incorporation in 1995, the Company's operations have
been centered around its (i) organization; (ii) evaluation of the
mining industry; (iii) start-up financing of its operations; (iv)
acquiring mining claims and interests in southwestern Arizona;
(v) formulation and implementation of its business plan.
The Company acquired the mining rights to 136 unpatented
claims as a result of several transactions involving affiliated
parties, who previously staked and maintained the properties by
paying an annual maintenance fee of $100 per claim payable to the
United States Government by August 31 each year. Due to such
relationships none of these transactions can be deemed to have
resulted from arms-length negotiations. The terms of these
transactions may not be as favorable to the Company as they might
have been had the Company dealt with unaffiliated parties.
Eight claims were transferred to the Company on June 30, 1995
in exchange for 310,000,000 "restricted" shares of Common Stock
and were valued at the transferors' cost of $13,000. On November
16, 1996, the Company issued 400,000,000 Units in
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exchange for 128 unpatented claims. Each Unit consisted of one
share of Common Stock; one warrant to purchase one share of
Common Stock at an exercised price of $0.01 per warrant ("Class A
Warrant"); and, one warrant to purchase one share of Common Stock
at an exercise price of $0.02 per warrant ("Class B Warrant").
The Warrants may be redeemed by the Company at any time upon
thirty (30) days written notice to the holders thereof at a
redemption price of $0.00001 per warrant. The Warrants are
exercisable up to August 16, 2001 (five years from the effective
date) unless called sooner. The number of shares issued was
based on the amount of acreage owned by a claimant. The Company
issued approximately 22,422 Units for each acre it acquired and
arbitrarily assigned a value of $50.00 to each claim exchanged
for Units. The foregoing number of Units was arbitrarily
determined by the Company and bore no relationship to the value
of the claims and no fairness opinion was obtained from an
independent party.
The four Red Raven II Claims acquired under a January 7, 1994
agreement from Maxam Gold Corporation have a royalty fee clause
attached to them. The royalty fee is five percent (5%) of the net
income from operations on the Claims or $50,000.00 annually
(which ever is greater) starting July 1, 1997. As of the date of
this report, the Company is in default on the minimum annual
payment. The Company is in the process of trying to cure the
default in order to hold the mining rights to these four Claims.
This transaction involves entities which are affiliated and
either principally owned or controlled, directly or beneficially,
by Dale L. Runyon and Robert M. Brown, Chairman and member on the
Company's Board of Directors, respectively. They receive part of
the annual royalty fee payment made by the Company as a result of
their approximately 27.89 and 34.49 percent interest,
respectively, in the Red Raven Claims prior to the time the
Company acquired the mining rights to the Claims. All of the
claims will be reviewed annually by management for continued
valuation or impairment. Management will consider the estimated
undiscounted future cash flows and write off claims abandoned or
impaired. Management intends to adopt Financial Account
Standards No. 121 effective January 1, 1996.
The Company's management believes that exploration is
warranted on eight claims currently held by the Company as
indicated by recent geology information. Management's belief is
predicated upon a report dated October 1986 prepared by William
T. Marston, P.E., deceased, which indicates that there are
economically recoverable quantities of gold in the mineralized
material. Reports written on May 7 and September 4, 1996 by
Hewlett Mineral Management indicated a mineral resource on the
Lost Horse Peak Claim of approximately 10.9 million tons
averaging a gold grade of 0.036 troy ounces per ton (see
Exploration and Development Section). However, there can be no
assurance the occurrence, grade, and quantity of gold or other
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precious metal mineralization will satisfy the cost of recovery.
Currently, there are no known mineral deposits of commercial
minable significance on any of the Company's properties.
Nevertheless, according to preliminary geological information,
eight of the claims demonstrate mineralization features related
to possible deposits of gold or other precious metals sufficient
to merit further exploration. If sufficient funds are available,
management plans to complete the exploration stage of operations
on these eight claims and others to substantiate the presence of
sufficient commercial gold bearing deposits and to prepare a
feasibility report based upon such information, if indicated. To
date, the Company has not established any marketing plans or
concluded any commercial mineral reserves which may be located on
the Company's claims.
The Company anticipates funding the cost of exploration by the
sale of common stock, loans, or possible joint venture projects
with third parties. The Company has not identified any
purchasers of common stock, lenders or joint venture partners as
of the date of this report and there is no assurance that any
sales of common stock, loans or joint ventures will ever occur.
There has only been a very limited public market for the Units
and Common Stock of the Company.
Property Location, Description and Access.
The claims are located in La Paz, Maricopa and Yuma counties,
Arizona. Parker is the county seat for La Paz County, Phoenix is
the county seat for Maricopa County and Yuma is the county seat
for Yuma County. The claims are accessible from state, county
roads or ranch roads on BLM land and lie in flat desert areas
with minimum vegetation as is common in arid areas.
Title - Unpatented Claims.
The Company owns or holds the mining rights on Unpatented
mining claims. The Unpatented mining claims are possessory only
and are held by right of location. Management believes that all
of its Unpatented claims are properly staked and recorded, and
that it has the right to possession of them, and the right to
remove minerals therefrom. Unpatented mining claims require a
maintenance fee of $100 to be paid to the United States
Government by August 31 each year. All maintenance fees have
been paid to date. The claims have been properly recorded at the
Bureau of Land Management, and with the various county recorders,
in compliance with federal and state filing requirements.
Presently, the Company's total cost to maintain its mining rights
on the Unpatented mining claims is $13,600.00 per year.
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History.
There has been no significant operating history and the
Company must be considered an exploration stage company. The
Company does not own an operating mine and has no other revenue-
producing mining activities. To date there has been limited
exploration work on a small portion of the claims held by the
Company.
Geology.
The sites lie within the Basin and Range province of Southwest
Arizona. Each site is in the flat lying, gently sloping and
relatively uncut area between and along the adjacent mountains.
The sites are covered (or filled) by basin fill that is recent to
Pleistocene in age. The source areas for the basin fill are the
surrounding ranges of hills and mountains. The basin fill is
composed of unconsolidated gravel, sand, silt, clays, and
possibly some glacial till and debris. The silt and clays are
water deposited although there is evidence that some of the silty
sand may be air-borne and deposited. The gravel may or may not be
water worn-usually the top or upper layers of coarser material
are angular indicating that this material has not traveled far
from its in-situ location.
Other Properties.
Management may enter into new mining ventures with joint
venturers, partners or other third parties. Such arrangements
may be multi-party ventures to which the Company will contribute
stock, cash and/or mineral interests. In such arrangements, the
Company's participation in revenues and profits, if any, will be
reduced. At this time, the Company has no agreement or
understanding with any third parties for the formation of a joint
mining operation. As of the date hereof, the Company has not
entered into any mining ventures with third parties and there is
no assurance that the Company will ever enter into such ventures.
In determining the suitability of any property as a
prospective acquisition, factors to be considered by the Company
will include, but not be limited to, the following: (a) whether
the asking price is competitive and permits possible appreciation
in value; (b) condition of title; (c) whether the geological
features of the property indicate the probable likelihood of gold
mineralization of a commercial grade that is of sufficient
quantity to justify further exploration and development; (d) time
and expenses which will be involved in the exploration and
development of the property; (e) a fairness opinion on the
economic considerations of the transaction from independent
parties, if warranted; and, (f) procedure for exploration and
development (individually or joint venture).
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Management, together with such professional advisors which the
Company deems appropriate, will investigate prospective
properties through on-site examination, reviewing available
geologic reports or publications relating to the property, and a
general field reconnaissance to secure preliminary information
regarding characteristics of the property. If, from such
preliminary reviews, management deems it advisable to further
investigate the property, the Company may determine the condition
of title and ownership by using abstractors or title companies,
and may obtain a preliminary feasibility study by one or more
geologists, mining engineers, or accountants. If, after the
foregoing preliminary investigation, management determines that
the property does not meet the Company's acquisition criteria,
efforts to acquire the property would be abandoned, in which case
costs incurred in conducting the investigation would not be
recoverable. In the event the property is abandoned, the Company
intends to reallocate the unexpended proceeds for the acquisition
and/or exploration of other prospects.
Exploration and Development Activities.
Since the claims are without known commercially mineable
proven or probable reserves the Company proposes to investigate
and explore the possibility of commercial grade of minerals
contained in the claims through exploration work on the
properties. In order to determine if such minerals are present,
the Company must raise the necessary capital to undertake an
initial exploration program. Approximately $1.0 million is
budgeted for inital trenching, drilling, sampling, assaying,
metallurgical testing, permitting, engineering, geological and
administrative supervision of the program. Multiple claims will
be investigated with primary focus directed toward Lost Horse
Peak, Vekol Valley and Red Raven claims, since preliminary
information has previously been reported on these claims by
independent sources. On September 4, 1996, Hewlett Mineral
Management issued a report on Lost Horse Peak based on two series
of back-hoe trenches and two periods of auger drill-hole sampling
to compute a mineralized resource of approximately 10.9 million
tons averaging a gold grade of 0.036 troy ounces per ton. This
information was based upon standard methods of ore computation on
500-foot square blocks through interpolation into a 500-foot
square grid. However, additional work must be completed to
establish and confirm that the mineralized values are consistent
throughout the tested area through in-fill drilling, trenching,
sampling, assaying, metallurgical testing and additional work
before proven reserves can be reported. There is no assurance
that reserves will be established or that the estimated
exploration costs will be sufficient to prove the existence of
commercial grade minerals. Costs may vary depending upon unknown
events which may impact the exploration and mining of claims
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The Company expects to pay the costs of such exploration work
from funds to be realized through the exercise of the outstanding
"A" and "B" Warrants held by shareholders of the Company, which
are exercisable into shares of the Company's Common Stock at
$0.01 and $0.02 respectively. Management is also considering
raising funds through loans. On August 1, 1997, the Company
established a line of credit for $1,000,000 with Phoenix
International Mining, Inc. (a principal shareholder), however, at
the time of this report this source of funding has been delayed
due to unforeseen circumstances beyond Phoenix's control. The
Company therefore is considering the exercise of the outstanding
Warrants as its best source of raising capital for funding the
inital phase of exploration work. There are 400,000,000 A
Warrants and 400,000,000 B Warrants outstanding, which if all
Warrants were exercised could provide the Company with $12
million. Should the necessary capital for initial exploration
work not be realized through the exercise of the Warrants, the
Company may be compelled to call the Warrants upon thirty (30)
days written notice of redemption. Warrantholders may exercise
any Warrants called for redemption during the 30-day notice
period. Such right will terminate on the redemption date if not
exercised during such 30-day period and will render the Warrants
valueless, except for the right to receive the nominal redemption
price. Management may also seek to raise capital through a
public offering of its securities or joint venture participation
from third parties. There is no assurance, however, that the
Company will be successful in its efforts to raise capital or how
long it may take to raise adequate funds to complete the
exploration of the claims. In the event adequate capital is not
available to complete the exploration of the claims or if
adequate capital is raised but commercial grade of minerals are
not established on any of the claims a shareholder/warrantholder
could lose his/her entire investment.
Mining, Environmental and Other Matters Pertaining to Properties.
Overview. The Company, like other mining companies doing
business in the United States, is subject to a variety of
federal, state and local statutes, rules and regulations designed
to protect the quality of the air and water in the vicinity of
its mining operations and the preservation of certain
archeological sites. These include "permitting"or pre-operating
approval requirements designed to ensure the environmental
integrity of a proposed mining facility, operating requirements
designed to mitigate the effects of discharges into the
environment during mining operations, and reclamation or post-
operation requirements designed to remediate the lands affected
by a mining facility once commercial mining operations have
ceased. These laws also set forth limitations on the generation,
transportation, storage and disposal of solid and hazardous
waste.
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Federal legislation and implementing regulations adopted and
administered by the Environmental Protection Agency, the Forest
Service, the Bureau of Land Management, the Fish and Wildlife
Service, the Army Corps of Engineers and other agencies in
particular, legislation such as the federal Clean Water Act, the
Clean Air Act, the National Environmental Policy Act and the
Comprehensive Environmental Response, Compensation and Liability
Act, have a direct bearing on domestic mining operations. These
federal initiatives are often administered and enforced through
state agencies operating under parallel state statutes and
regulations. Although mines continue to be approved for
development in the United States, the cost and uncertainty
associated with the permitting process could have a material
affect on mining the properties.
The Clean Water Act. The federal Clean Water Act is the
principal federal environmental protection law regulating mining
operations. The Act imposes limitations on waste water
discharges into waters of the United states, including discharges
from point sources such as mine facilities. In order to comply
with the Clean Water act, the Company will be required to obtain
one or more permits which will control the level of effluent
discharges from future proposed mining and processing operations.
The Clean Air Act. The federal Clean Air Act limits the
ambient air discharge of certain materials deemed to be hazardous
and establishes a federal air quality permitting program for such
discharges. Hazardous materials are defined in enabling
regulations adopted under the Act to include metals and toxic
solvents such as cyanide which is used in heap leach recovery
processes. The Act also imposes limitations on the level of
particulate matter generated from mining operations, and the
Company may be required to adopt dust control techniques in all
phases of mining in order to comply with these limitations.
The National Environmental Policy Act. The National
Environmental Policy Act ("NEPA") requires all governmental
agencies to consider the impact on the human environment of major
federal actions as therein defined. Because the Company's mining
properties are located on federal lands, mining operations on
those lands could be conditioned on the preparation, review and
approval of an environmental impact statement outlining in detail
the environmental effects of such operations and the Company's
efforts to ameliorate such effects.
The Comprehensive Environmental Response, Compensation and
Liability Act. The federal Comprehensive Environmental, Response,
Compensation and Liability Act ("CERCLA") imposes clean-up and
reclamation responsibilities with respect to unlawful discharges
into the environment, and establishes significant criminal and
civil penalties against those persons who are primarily
responsible for such discharges.
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Arizona Environmental Laws and Regulations. Arizona has
adopted counterparts to NEPA and CERCLA, being the Environmental
Policy Act and the Metal Mine Reclamation Act, both of which are
administered by the Department of Lands. The state has also
adopted the Air Quality Act and Water Quality Act, which parallel
to a large extent the provisions of the Clean Air Act and Clean
Water Act; these statutes are administered through various
bureaus of the Department of Environmental Quality.
Compliance with statutory environmental quality requirements
may: necessitate significant capital outlays; materially affect
the earning power of the Company; or may cause material changes
in the Company's intended activities. No assurance can be given
that environmental standards imposed by either federal, state or
local governments will not be changed or become more stringent,
thereby possibly materially adversely affecting the proposed
activities of the Company.
Competition and Markets.
The Company faces extensive competition in the acquisition of
properties suitable for the exploration and development of gold
and other precious metals. Many of the Company competitors have
greater financial resources and more extensive operating
histories that the Company. There is no assurance the Company
will be able to begin exploration work which results in the
discovery of commercially producible quantities of gold or other
previous metals. In addition, there is no assurance that the
Company's property interests can be economically maintained.
The exploration and development of mineral properties, and the
marketing of minerals, are affected by a number of facts which
are beyond the Company's control. These factors include
fluctuations in the market price of gold and previous minerals,
availability of adequate transportation and equipment, marketing
of competitive minerals, prices of fuels and fluctuating supply
and demand for minerals.
Offices.
The Company's headquarters and executive offices are located
at 528 Fon du Lac Drive, East Peoria, Illinois 61611 and the
telephone number is (309) 699-8725. The Company uses
approximately 100 square feet of space at the aforementioned
address rent free.
Management Remuneration.
From March 22, 1995 through November 11, 1997, no compensation
has been paid or accrued to any Officer or Director to date. The
Company entered into a three (3) year employment agreement with
Fred R. Schmid as its President/CEO effective November 11, 1997
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that requires him to devote at least 80% of his time to the
affairs of the Company. Between November 11 through December 31,
1997, Schmid was paid as a consultant to the Company. Under the
agreement, Schmid shall be compensated at a base salary of
$95,000 for the first year, a base salary of $115,000 for the
second year and a base salary of $140,000 for the third year,
such salary to be payable in equal monthly installments with an
annual cost of living adjustment based upon the percentage of
increase in the consumer price index for New York City-Northern
New Jersey. As additional consideration for his commitment to
render future services to the Company, the Company shall pay
Schmid a cash bonus equal to 3% of the Company's Net Pre-Tax
Operating Profit, as determined by the Company's independent
certified public accountants. For each joint venture arranged by
Schmid on behalf of the Company, Schmid shall receive, subject to
applicable securities and other laws, an equity ownership of 3%
of the Company's equity ownership therein or in such other entity
formed by the Company for the purposes of entering into a joint
venture. Upon completion of raising the initial $1,000,000 equity
(excluding the equity raised through the exercise of the
Company's outstanding A and B Warrants) for the Company, the
Company will pay the premium necessary (but not to exceed
$25,000) per year to (a) purchase a $1,000,000 one-year term life
insurance policy on Schmid's life renewable each year thereafter;
or (b) apply an amount equal to such premium each year to
purchase mutual fund shares or a tax-deferred annuity in Schmid's
name, whichever Schmid may elect. If the agreement is terminated
for any reason except cause or the death of Schmid, he will be
entitled to receive a lump sum payment equal to the greater of
(i) $5,000,000 or (ii) one percent (1%) of the Company's net
worth as of the preceding year's end, plus the balance of any
salary and bonus owed to Schmid pursuant to the agreement. The
Company has no other employment agreements and it has no
retirement, pension or profit sharing plan. Along with the
retention of its Officers, the Company anticipates adding
employees as needed in the future.
Safe Harbor Statement
Some of the statements contained in this report relate to
future events and are considered to be "forward-looking
statements" under the Private Securities Litigation Reform Act of
1995. These statements do not involve historical facts and pose
special risks and uncertainties. In evaluating these forward-
looking statements, you should be mindful of these potential
risks and uncertainties, including: the likelihood that the
Company will continue to incur losses from operations pending
development of its mining properties, and the uncertainly that it
will be able to continue as a going concern; the likelihood that
the Company will need to obtain significant additional financing
in order to develop its properties; the effect of extensive
regulatory controls over mining operations; the environmental and
<PAGE> 13
other risks associated with mining; the absence of established
proven and probable reserves on the Company's mining properties;
fluctuations in the price of gold; and other factors that may
affect future results. These risks and uncertainties, which may
not be complete, are described in greater detail below.
Risk Factors.
1. Exploration Stage Mining Company with No History of
Operation. The Company is in its exploration stage, has no
operating history and is subject to all the risks inherent in a
new business enterprise. The Company does not own an operating
mine and has no other revenue-producing mining activities. The
likelihood of success of the Company must be considered in light
of the problems, expenses, difficulties, complications and delays
frequently encountered in connection with a new business, and the
competitive and regulatory environment in which the Company will
operate.
2. Huge Number of Shares Outstanding. There could be
outstanding over 1.8 billion shares of common stock, assuming the
exercise of all of the Class A and Class B Redeemable Warrants.
Because of the huge number of shares that could be outstanding,
it is likely that the market price, in the event a market for the
shares develops, which there is no assurance, will be low and it
is anticipated that the price of the shares will remain low. In
addition it is anticipated that earnings per share will be
minuscule. The Company believes offering a large number of
shares, regardless of the price per share, will be more
attractive to potential investors in light of the fact that there
is no market for the Company's common stock. There is no
assurance, however, that the foregoing belief is in fact correct.
3. Securities are Subject to Penny Stock Rules. The
Company's shares are "penny stocks" consequently they are subject
to Securities and Exchange Commission regulations which impose
sales practice requirements upon brokers and dealers to make risk
disclosures to customers before effecting any transactions
therein.
4. No Commercially Mineable Ore Body. No commercially
mineable ore body has been delineated on the properties, nor have
any reserves been identified.
5. Risks Inherent in the Mining Industry. The Company is
subject to all of the risks inherent in the mining industry
including, without limitation, the following: competition from a
large number of companies, many of which are significantly larger
than the Company, in the acquisition, exploration, and
development of mining properties; in order to maintain possessory
title to Unpatented mining claims after discovery of valuable
mineral deposits, the claim holder must pay fees; exploration for
<PAGE> 14
minerals is highly speculative and involves substantial risks,
even when conducted on properties known to contain significant
quantities of mineralization, and most exploration projects do
not result in the discovery of commercially Mineable deposits of
ore; operations are subject to a variety of existing laws and
regulations relating to exploration and development, permitting
procedures, safety precautions, property reclamation, employee
health and safety, air quality standards, pollution and other
environmental protection controls; a large number of factors
beyond the control of the Company, including fluctuations in
gold, silver, or other mineral prices, inflation, and other
economic conditions, will affect the economic feasibility of
mining of precious metals, particularly gold and silver; mining
activities are subject to substantial operating hazards some of
which are not insurable or may not be insured due to economic
considerations; the availability of water, which is essential to
milling operations; and, interruptions caused by adverse weather
conditions.
6. Need for Additional Capital. The ability of the Company
to ultimately conclude the exploration of its properties will
depend upon its ability to raise additional capital or to enter
into arrangements for such purposes with third parties. There
can be no assurance that additional financing will not be
required sooner than presently projected. There also can be no
assurance that additional capital or other types of financing
will be available when needed or that, if available, the terms of
such financing will be commercially acceptable to the Company.
7. Nature of the Industry. Exploration, development and
mining of mineral properties is highly speculative and involves
unique and greater risks than are generally associated with other
businesses. The Company's operations will be subject to all the
operating hazards and risks normally incident to the exploration,
development and mining of mineral properties, including risks
enumerated above and below.
8. Fluctuating price for gold. The Company's operations will
be greatly influenced by the price of gold. Gold prices
fluctuate widely and are affected by numerous factors beyond the
Company's control, including expectations for inflation, the
strength of the United States dollar, global and regional demand
and political and economic conditions and production costs in
major gold producing regions of the world.
9. Unpatented Claims. The Company holds unpatented mining
claims, which are possessory only and are held by right of
location. These claims are subject to inherent hazards of non-
recorded risks. Unpatented mining claims are subject to title
hazards, and require payment of fees.
<PAGE> 15
10. Environmental Controls. Compliance with statutory
environmental quality requirements may necessitate significant
capital outlays, may materially affect the earning power of the
Company, or may cause material changes in the Company's intended
activities. No assurance can be given that environmental
standards imposed by either federal or state governments will not
be changed or become more stringent, thereby possibly materially
adversely affecting the proposed activities of the Company.
11. Governmental Regulation and Environmental Controls. The
Company's activities are subject to extensive federal, state,
county and local laws and regulations controlling not only the
exploration for and development of mineral properties, but also
the possible effect of such activities upon the environment. In
its mining operations, the Company will use certain equipment
which will subject the Company to federal and state safety and
health regulations. While the Company intends to act in
compliance with all such regulations, any adverse ruling under
any regulations, any imposition of a fine, or any imposition of
more stringent regulations could require the Company to make
additional capital expenditures that could impair its operations.
The United State Congress is currently considering changes to the
General Mining Laws of 1872. The exact nature and extent of any
changes are unknown at this time, but it is anticipated that
there may be changes affecting the cost of acquiring patented
mining claims and the assessment work required to hold Unpatented
claims.
12. No Dividends. The Company has paid no dividends since
its inception and does not intend to pay any dividends in the
foreseeable future. Instead, the Company intends to retain all
earnings, if any, for use in its business operations.
13. Preferred Shares Authorized. Although the Company does
not presently intend to issue preferred shares, the holders of
preferred shares, if and when issued, would more than likely have
rights superior to those of common shareholders. Any issuance of
preferred shares would dilute the interest of the common
shareholders.
14. Reliance Upon Directors and Officers. The Company is
wholly dependent, at the present, upon the personal efforts and
abilities of its Officers who will exercise control over the day
to day affairs of the Company and upon its Directors, most of
whom are engaged in other activities, and will devote limited
time to the Company's activities, upon completion of this
offering. The President will devote 80% of his time to the
operation of the day to day affairs of the Company and the
Secretary/Treasurer will devote 25% his time to the operation of
the day to day affairs to the Company. There can be no assurance
as to the volume of business, if any, which the Company may
succeed in obtaining, nor that its proposed operations will prove
to be profitable.
<PAGE> 16
15. Issuance of Additional Shares. 1,167,000,000 shares of
Common Stock or 38.9% of the 3,000,000,000 authorized shares of
Common Stock of the Company remain unissued even if all of the
Redeemable Warrants are exercised. The Board of Directors has
the power to issue such shares, subject to shareholder approval,
in some instances. Although the Company presently has no
commitments, contracts or intentions to issue any additional
shares to other persons, the Company may in the future attempt to
issue shares to acquire equipment or services, or for other
corporate purposes. Any additional issuance by the Company
following the offering, from its authorized but unissued shares,
would have the effect of further diluting the interest of
investors in this offering.
16. Non-Arms's Length Transaction. The number of shares of
Common Stock issued to present shareholders of the Company for
cash and property was arbitrarily determined and may not be
considered the product of arm's length transactions.
17. Indemnification of Officers and Directors for Securities
Liabilities. The Articles of Incorporation of the Company
provide that the Company may indemnify any Director, Officer,
agent and/or employee as to those liabilities and on those terms
and conditions as are specified in the Arizona Business
Corporation Act. Further, the Company may purchase and maintain
insurance on behalf of any such persons whether or not the
corporation would have the power to indemnify such person against
the liability insured against. The foregoing could result in
substantial expenditures by the Company and prevent any recovery
from such Officers, Directors, agents and employees for losses
incurred by the Company as a result of their actions. Further,
the Company has been advised that in the opinion of the
Securities and Exchange Commission, indemnification is against
public policy as expressed in the Securities Act of 1933, as
amended, and is, therefore, unenforceable.
18. Competition. The Company has competitors and potential
competitors, many of whom may have considerably greater financial
and other resources than the Company.
19. Lack of Public Market for Securities. At present, no
market exists for the Company's securities and there is no
assurance that a regular trading market will ever develop or, if
developed, that it will be sustained. A purchaser of shares may,
therefore, be unable to resell the securities offered herein
should he or she desire to do so. Furthermore, it is unlikely
that a lending institution will accept the Company's securities
as pledged collateral for loans unless a regular trading market
develops.
<PAGE> 17
20. Cumulative Voting, Preemptive Rights and Control. There
are no preemptive rights in connection with the Company's Common
Stock. The shareholders purchasing in this offering may be
further diluted in their percentage ownership of the Company in
the event additional shares are issued by the Company in the
future. Cumulative voting in the election of Directors is not
provided for. Accordingly, the holders of a majority of the
shares of Common Stock, present in person or by proxy, will be
able to elect all of the Company's Board of Directors.
21. No Marketmaker. There is no assurance the Company's
securities will be traded in the OTC Bulletin Board ("OTCBB")
operated by the National Association of Securities Dealers, Inc.
(the "NASD"). The Company has no agreement with any member of
the NASD to act as a Marketmaker for the Company's securities.
Olsen Payne, a broker/dealer firm, has filed a Securities and
Exchange Commission Form under Rule 15c2-11, seeking the right to
initiate quotations of the Company's securities in the OTCBB
Service. Although management intends to contact several
broker/dealers concerning their possible participation as
Marketmakers, there is no assurance management will be successful
in obtaining a Marketmaker. If a Marketmaker is obtained, there
can be no assurance that a trading market will develop or
continue following the listing of the Company's securities on the
OTCBB, or even if such a trading market should develop that the
securities may be resold at or near their original cost. If the
Company is unsuccessful in obtaining one or more Marketmaker, the
trading level and/or price of the Company's securities will be
materially adversely affected. The exercise price of all
Classes of Warrants, including those originally offered as part
of the Units, has been determined arbitrarily by the Company and
bears no relationship whatsoever to assets, earnings, book value,
or any other objective standard of worth.
22. Possibility of Defective Title. The Company's interests
in the properties are and will be in the form of unpatented
mining claims acquired from third parties. The validity of all
unpatented mining claims is dependent upon inherent uncertainties
and conditions. These uncertainties related to such non-recorded
facts as the sufficiency of the discovery of minerals, proper
posting and marking of boundaries, whether the minerals
discovered were properly locatable as a lode claim or a placer
claim as appropriate, whether sufficient annual assessment work
has been performed since location as required by law, and
possible conflicts with other claims not determinable from
description of record. In the absence of a discovery of valuable
minerals, a mining claims is open to location by others unless
the owner is in actual possession of and diligently working the
claim.
<PAGE> 18
23. Availability of Water Shortages of Supplies and
Materials. Water is essential in all phases of the exploration
for and development of mineral properties. It is used in such
processes as exploration, drilling, leaching, placer mining,
dredging, testing, and hydraulic mining. Water is known to be in
short supply throughout the area where the Company intends to
concentrate its mining activities. Furthermore, any water that
may be found will be subject to acquisition pursuant to local,
state and federal water quality standards. The Company has not
determined the availability of water, and has not determined the
cost of compliance with any water quality restrictions. Both the
lack of available water and the cost of complying with water
quality regulations may make an otherwise viable project
economically impossible to complete. The mineral industry has
experienced from time to time shortages of certain supplies and
materials necessary in the exploration for an evaluation of
mineral deposits. The prices at which such supplies and
materials are available have also greatly increased. There is a
possibility that planned operations may be subject to delays due
to such shortages and that further price escalations will
increase the costs of the Company.
ITEM 2. DESCRIPTION OF PROPERTIES.
The claims are located in La Paz, Maricopa and Yuma counties,
Arizona. Parker is the county seat for La Paz County, Phoenix is
the county seat for Maricopa County and Yuma is the county seat
for Yuma County.
Title - Unpatented Claims.
The Company owns or holds unpatented mining claims. The
unpatented mining claims are possessory only and are held by
right of location. Management believes that all of its
unpatented claims are properly staked and recorded, and that it
has the right to possession of them, and the right to remove
minerals therefrom. Unpatented mining claims require the
expenditure of $100 each per year to their benefit. All of the
required expenditures and assessment work on the Company's
property has been accomplished. The claims have been properly
recorded at the Bureau of Land Management, and with the various
county recorders, in compliance with federal and state filing
requirements.
<PAGE> 19
The claims are as follows:
<TABLE>
<CAPTION>
Title of BLM Claim Section
Claim County Location AMC Number Number
<S> <C> <C> <C> <C> <C>
Lost Horse Peak Maricopa Township 7 South 317628 11-1 11
Range 1 West 317629 11-2
317630 11-4
317631 12-1 12
Vekol Valley Maricopa Township 8 South 330955 27-1 27
Range 1 East 330956 27-2
330957 27-3
330958 27-4
Red Raven II Yuma Township 4 South 315314 3-1 3
Range 12 West 315315 3-2
315316 3-3
315317 3-4
Salome Lapaz Township 6 North 332066 14-1 14
Range 13 West 332071 15-2 15
332072 15-3
332073 15-4
Winchester Lapaz Township 6 North 332112 6-3 6
Range 12 West 332113 6-4
332114 7-1 7
332115 7-2
Low Mountain Lapaz Township 7 North 332043 28-1 28
Range 12 West 332044 28-2
332045 28-3
332046 28-4
Socorro Peak Lapaz Township 6 North 332098 30-1 30
Range 11 West 332099 30-2
332100 30-3
332101 30-4
Happy Camp Lapaz Township 7 North 332030 8-1 8
Range 11 West 332031 8-2
332032 8-3
332033 8-4
Sacaton Flats Maricopa Township 3 South 329259 5-3 5
Range 10 West 329260 7-2 7
329261 7-4
329262 8-1 8
Red Raven II Yuma Township 4 South 329263 4-1 4
Range 12 West 329969 4-2
329264 4-3
329265 4-4
329266 9-1 9
329971 9-2
329973 10-1 10
329974 10-2
Meltop Maricopa Township 2 South 331076 34-2 34
Range 3 West 331077 35-1 35
331078 35-2
331079 35-3
Tricia Maricopa Township 2 South 323305 31-3 31
Sheri- Ect Range 2 West 323308 31-4
Township 2 South 323332 26-2 26
Range 3 West 323331 26-4
<PAGE> 20
Title of BLM Claim Section
Claim County Location AMC Number Number
<S> <C> <C> <C> <C> <C>
Meltop Maricopa Township 2 South 331049 20-3 20
Range 3 West 331050 20-4
331065 29-1 29
331066 29-2
Rainbow Maricopa Township 3 South 331090 7-3 7
Range 1 West 331091 18-1 18
331092 18-3
331093 19-1 19
Mobile Maricopa Township 3 South 331080 19-4 19
Range 1 East 331081 20-3 20
331082 29-1 29
331083 30-2 30
Rainbow Valley Maricopa Township 3 South 331106 11-1 11
Range 2 West 331107 11-2
331108 11-3
331109 11-4
Bosque Maricopa Township 6 South 329591 1-3 1
Range 3 West 328317 11-2 11
328319 11-4
329600 12-1 12
329601 12-3
329602 13-1 13
328320 14-1 14
328321 14-2
Township 5 South 329605 29-3 29
Range 3 West 330030 29-4
329606 30-3 30
329607 30-4
Coyote Peak Lapaz Township 2 North 329373 3-1 3
Range 13 West 329374 3-2
330478 3-3
330479 3-4
330490 8-1 8
330491 8-2
330492 8-3
330493 8-4
330554 28-1 28
330555 28-2
330556 28-3
330557 28-4
Coyote Well Lapaz Township 2 North 329573 12-3 12
Range 14 West 329572 12-4
329574 13-1 13
329575 13-2
Little Horn Lapaz Township 1 North 330333 2-1 2
Range 13 West 330334 2-2
330335 2-3
330336 2-4
330367 11-1 11
330368 11-2
330369 11-3
330370 11-4
330373 13-1 13
330374 14-1 14
330375 14-2
330376 14-3
<PAGE> 21
Title of BLM Claim Section
Claim County Location AMC Number Number
<S> <C> <C> <C> <C> <C>
Red Raven Yuma Township 3 South 329944 2-1 2
Range 12 West 329934 2-2
329946 2-3
329947 2-4
329964 34-2 34
329965 34-3
329966 34-4
329967 35-1 35
Charco Tank Lapaz Township 3 North 329485 17-3 17
Range 14 West 329486 17-4
329487 18-3 18
329488 18-4
Mike Lapaz Township 2 North 330295 6-1 6
Range 12 West 330296 6-2
330297 6-3
330298 6-4
Getzwell Maricopa Township 7 South 338174 34-1 34
Range 2 West 339175 34-2
338176 34-3
338201 34-4
Palomas Yuma Township 2 South 339721 1-1 1
Range 13 West 339722 1-2
337241 1-3
339723 1-4
337302 36-1 36
339796 36-2
339797 36-3
339798 36-4
</TABLE>
ITEM 3. LEGAL PROCEEDINGS.
The Company is not the subject of any pending legal
proceedings; and to the knowledge of management, no proceedings
are presently contemplated against the Company by any federal,
state or local governmental agency.
Further, to the knowledge of management, no director or
executive officer is party to any action in which any has an
interest adverse to the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company held a shareholders meeting on November 14, 1997.
The matters voted upon was:
1. The election of directors.
2. The appointment of independent public accountants.
3. The establishment of a line of credit with Phoenix
International Mining, Inc.
<PAGE> 22
4. The Appointment of Fred R. Schmid as President/CEO.
5. The approval of the Stock Purchase Plan for the
President/CEO.
The Company held a shareholders meeting on December 31, 1997.
The matter voted on was: To change the name of the corporation
to WindStar Resources, Inc.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDERS MATTERS.
(a) Market Information.
At present, no market exists for the Company's securities and
there is no assurance that a regular trading market will ever
develop or, if developed, that it will be sustained.
Furthermore, it is unlikely that a lending institution will
accept the Company's securities as pledged collateral for loans
unless a regular trading market develops.
(b) Holders.
As of December 31, 1997, there were approximately 133 holders
of the Registrant's Common Stock. This number does not include
those beneficial owners whose securities are held in street name.
(c) Dividends.
The Registrant has never paid a cash dividend on its Common
Stock and has no present intention to declare or pay cash
dividends on the Common Stock in the foreseeable future. The
Registrant intends to retain any earnings which it may realize in
the foreseeable future to finance its operations. Future
dividends, if any, will depend on earnings, financing
requirements and other factors.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULT OF OPERATIONS.
The Company is considered to be in the development stage as
defined in the Statement of Financial Accounting Standards No. 7.
There have been no operations since incorporation.
Liquidity and Capital Resources.
The Company sold 498,000,000 shares of its Common Stock to
nineteen persons and two corporations for $44,450 in cash and
property. The cash has been used for organizational matters and
initial start-up.
<PAGE> 23
Included in the foregoing were eight mining claims transferred
to the Company on June 30, 1995 by "Quitclaim Deed" in exchange
for 310,000,000 shares of common stock. The mining claims are
reflected in the balance sheet at the transferor's costs of
$13,000.
One hundred twenty-eight mining claims were transferred to the
Company on November 16, 1996 by "Quitclaim Deed" in exchange for
400,000,000 shares of common stock. The mining claims are
reflected in the balance sheet at the transferor cost of $66,076.
As part of the employment agreement dated November 11, 1997
the Company sold Fred R. Schmid, pursuant to a Stock Purchase
Agreement, 135,000,000 shares of Common Stock at a purchase price
of $10,000, which has been paid to the Company. The agreement
also provides an option for the purchase of 40,000,000 shares at
a $0.01 per share and 40,000,000 shares at $0.02 per share for a
period of ten years.
The Company must obtain additional capital in order to fully
develop its claims. The Company intends to raise additional
capital in the future through loans or the sale of common stock.
There is no assurance that the Company will be able to raise such
additional capital. The Company has no operating history.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
WINDSTAR RESOURCES, INC.
FINANCIAL INFORMATION
PAGE
INDEX NUMBER
Accountants' Report F-1
Balance Sheet as December 31, 1997 and 1996 F-2
Statement of Loss and accumulated deficit
for the period from inception (March 22, 1995)
through December 31, 1997 F-3
Statement of Changes in Stockholders' Equity
for the period from inception (March 22, 1995)
through December 31, 1997 F-4
Statement of Cash Flows for the period from
inception (March 22, 1995) through
December 31, 1997 F-5
Notes to Financial Statements F6-F9
<PAGE> 24
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
WindStar Resources, Inc.
We have audited the accompanying balance sheet of WindStar
Resources, Inc. (A Development Stage Company) as of
December 31, 1997 and 1996, and the related statements of
operations, changes in stockholders' equity and cash flows for
the period from inception (3/22/95) through December 31, 1997.
These financial statements are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit 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 financial statements referred to above
present fairly, in all material respects, the financial position
of WindStar Resources, Inc. (A Development Stage Company) at
December 31, 1997 and 1996, and the results of its
operations, changes in stockholders' equity and its cash flows
for the period from inception (3/22/95) through December
31, 1997, in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming
that the company will continue as a going concern. As discussed
in the footnotes, the company is in the development stage and
there have been no operations since incorporation, which raises
substantial doubt about its ability o continue as a going concern.
Management's plans in regard to these matters are also described
in the footnotes. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ Robert Moe & Associates
Robert Moe & Associates, PS
Certified Public Accountants
Spokane, Washington
February 27, 1998
F-1
<PAGE> 25 WINDSTAR RESOURCES, INC.
(A Development Stage Company)
BALANCE SHEET
December 31, 1997 and 1996
<TABLE>
<CAPTION>
ASSETS 1997 1996
<S> <C> <C>
CURRENT ASSETS
Cash $ 387 $ 3,536
Accounts receivable - -
Total Current Assets 387 3,536
--------- --------
OTHER ASSETS
Organization costs (net of $274
amortization) 411 548
Mining claims 79,076 79,076
--------- --------
$ 79,874 $ 83,160
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 8,355 $ 11,000
Accrued interest 5,943
Accrued royalty fee 50,000
Notes payable 22,800
--------- --------
Total Current Liabilities 87,098 11,000
--------- --------
LONG TERM DEBT
Note Payable 27,600 -
--------- --------
STOCKHOLDERS' EQUITY
Common stock - $.00001 par value,
3,000,000,000 shares authorized,
1,033,000,000 shares issued in
1997 and 898,000,000 shares
issued in 1996 10,330 8,980
Preferred Stock - $.00001 par value,
400,000,000 shares authorized, 0
shares issued - -
Additional paid in capital 86,358 77,708
--------- --------
96,688 86,688
Deficit accumulated during the
development stage (131,512) (14,528)
--------- --------
Total Stockholders'
Equity (deficit) (34,824) 72,160
--------- --------
$ 79,874 $ 83,160
========= ========
</TABLE>
See accompanying notes to financial statements
F-2
<PAGE> 26
WINDSTAR RESOURCES, INC.
(A Development Stage Company)
STATEMENT OF LOSS AND ACCUMULATED DEFICIT
for the period from inception (March 22, 1995)
through December 31, 1997 and
years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
Cumulative
during
development
stage from
inception
(03-22-95)
through
1997 1996 12/31/97
<S> <C> <C> <C>
INCOME $ - $ 383 $ 383
OPERATING EXPENSES 116,984 14,911 131,895
---------- --------- ----------
NET INCOME (LOSS) $ (116,984) $ (14,528) $ (131,512)
========== ========= ==========
NET INCOME
PER SHARE $ NIL $ NIL $ NIL
========== ========= ==========
</TABLE>
The company is in the development stage and has not commenced
operations.
See accompanying notes to financial statements
F-3
<PAGE> 27
WINDSTAR RESOURCES, INC.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
March 22, 1995 (Inception) through December 31, 1997
<TABLE>
<CAPTION>
Additional Retained
Common Stock Paid-in Earnings
Shares Amount Capital (Deficit)
<S> <C> <C> <C> <C>
BALANCE
Inception March 22, 1995 - $ - $ - $ -
ADD:
Sale of 188,000,000 shares
of common stock for
$44,450 cash 188,000,000 1,880 42,570
Sale of 310,000,000 shares
of common stock for mining
claims at a value of
$13,000 310,000,000 3,100 9,900
Net loss for the period (10,094)
----------- ------- --------- ---------
BALANCE,
December 31, 1995 498,000,000 4,980 52,470 (10,094)
ADD:
Sale of 400,000,000
shares of common stock
for mining claims at a
value of $66,076 400,000,000 4,000 62,076
Deferred registration costs
charged to paid-in-capital (36,838)
Net loss for 1996 (4,434)
----------- ------- --------- ----------
Balance,
December 31, 1996 898,000,000 8,980 77,708 (14,528)
ADD:
Sale of 135,000,000
shares of common stock
for $10,000 cash 135,000,000 1,350 8,650
Net loss for 1997 (116,984)
----------- -------- --------- ----------
BALANCE,
December 31, 1997 1,033,000,000 $ 10,330 $ 86,358 $ (131,512)
============= ======== ========= ==========
</TABLE>
See accompanying notes to financial statements
F-4
<PAGE> 28 WINDSTAR RESOURCES, INC.
(A Development Stage Company)
STATEMENT OF CASH FLOWS
for the period from inception (March 22, 1995)
through December 31, 1997 and
years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
Cumulative
during
development
stage from
Inception
(03-22-95)
through
1997 1996 12/31/97
<S> <C> <C> <C>
CASH FLOWS PROVIDED (USED) IN OPERATIONS
Net loss for the period $ (116,984) $ (14,528) $(131,512)
Noncash expense included:
Amortization of
organization costs 137 137 274
(Increase) decrease in
accounts receivable - - -
Increase in current
liabilities 76,098 11,000 87,098
---------- --------- ---------
(40,749) (3,391) (44,140)
---------- --------- ---------
CASH FLOWS PROVIDED (USED) IN
INVESTING ACTIVITIES - - -
---------- --------- ---------
CASH FLOWS PROVIDED (USED) IN FINANCING ACTIVITIES
Proceeds from sale of stock 10,000 44,450 54,450
Payment of deferred registration
and organization costs - (37,523) (37,523)
Increase in long term debt 27,600 - 27,600
---------- --------- ---------
37,600 6,927 44,527
---------- --------- ---------
NET INCREASE (DECREASE) IN CASH (3,149) 3,536 387
CASH BEGINNING OF PERIOD 3,536 - -
---------- --------- ---------
CASH END OF PERIOD $ 387 $ 3,536 $ 387
========== ========= =========
</TABLE>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ - $ - $ -
Income taxes $ - $ - $ -
SUPPLEMENTAL SCHEDULE OF NONCASH ACTIVITIES
Mining claims were transferred to the Company during 1995, in exchange for
310,000,000 shares of common stock and is reflected in the balance sheet
at the transferor cost of $13,000. The mining claims were appraised in
October 1986 for an amount that exceeds the value reflected in the balance
sheet by Marston & Marston, Inc. (engineers to the mining industry).
Mining claims were transferred to the Company during 1996 in exchange for
400,000,000 shares of common stock and is reflected in the balance sheet at
the transferor cost of $66,076.
See accompanying notes to financial statements
F-5
<PAGE> 29
WINDSTAR RESOURCES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization:
WindStar Resources, Inc. was incorporated on March 22, 1995,
under the laws of the State of Arizona under the name of
Turtleback Mountain Gold Co. Inc. On December 31, 1997, the board
of directors authorized amending the Articles of Incorporation to
change the name of the Company from Turtleback Mountain Gold Co.,
Inc. to WindStar Resources, Inc. The Company has adopted a year
ending on December 31.
The Company was organized to use the limited funding it obtained
from its original shareholders for organizational matters and
preparation of an offering. The Company exchanged stock for
mining claims.
Because of the speculative nature of the Company, there are
significant risks which are summarized as follows:
Newly formed company with no operating history and minimal
assets.
Limited funds available for acquisition or development.
The Company is considered to be in the development stage as
defined in Statement of Financial Accounting Standards No. 7.
There have been no operations since incorporation.
Summary of Significant Accounting Principles:
Organization costs will be amortized over sixty (60) months
beginning January 1, 1996.
Mining claims transferred to the Company were recorded at the
transferor cost basis.
Mining claims are reviewed annually by management for continued
valuation or impairment. Management will consider the estimated
undiscounted future cash flows and write off claims abandoned or
impaired. Management elected to adopt Financial Accounting
Standards No. 121 effective January 1, 1996. The adoption did
not impact the financial statements at December 31, 1995.
F-6
<PAGE> 30
WINDSTAR RESOURCES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
2. STOCKHOLDERS' EQUITY
Incorporation shares:
Upon incorporation, the Company had a total of 498,000,000 shares
subscribed.
Public stock offering:
On November 16, 1996, the Company issued four hundred million
(400,000,000) units in exchange for one hundred twenty eight
(128) mining claims located in La Paz, Maricopa, and Yuma
counties, Arizona. Each Unit consists of one share of Common
Stock; one warrant to purchase one share of Common Stock at an
exercised price of $0.01 per warrant ( Class A Warrants ); and,
one warrant to purchase one share of Common Stock at an exercise
price of $0.02 per warrant ( Class B Warrants ). The Warrants
may be redeemed by the Company at any time upon thirty (30) days
written notice to the holders thereof at redemption price of
$0.00001 per warrant. The Warrants are immediately detachable
and separately tradable. The Warrants are exercisable up to five
(5) years from the effective date of the offering unless called
sooner.
3. EMPLOYMENT AGREEMENT
On November 11, 1997 the Company entered into an employment
agreement with Mr. Fred R. Schmid to be employed as President and
Chief Executive Officer. The agreement shall expire on November
10, 2000.
4. MINING CLAIMS
Eight mining claims were transferred to the company on June 30,
1995 by Quitclaim Deed in exchange for 310,000,000 shares of
common stock. The mining claims are reflected in the balance
sheet at the transferor cost of $13,000.
One hundred twenty-eight mining claims were transferred to the
Company on November 16, 1996 by Quitclaim Deed in exchange for
400,000,000 units (see note 2 above). The mining claims are
reflected in the balance sheet at the transferor cost of $66,076.
The Four (4) Red Raven II claims purchased from Maxam Gold
Corporation has a Royalty Fee clause attached to them. The
royalty fee is Five (5) percent of the net income from operations
F-7
<PAGE> 31
WINDSTAR RESOURCES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
4. MINING CLAIMS - continued
on the claims or $50,000.00 annually (which ever is greater)
starting July 14, 1996. As of the date of this report, the
Company is in default on the $50,000 annual payment which was due
July 14, 1997 and has been accrued. In addition, the accrued
interest on such indebtedness is due from the end of such period
until such $50,000 royalty fee is paid which now totals $2,490
based on the average prime interest rate for the period.
5. GOING CONCERN MATTERS
The accompanying financial statements have been prepared on a
going concern basis, which contemplates the realization of assets
and the satisfaction of liabilities in the normal course of
business. The company is in the development stage and there have
been no operations since incorporation.
The company hired a person to be the President and Chief
Executive Officer and to assume the normal duties of that
position. The President will be responsible for all reporting,
budgeting, planning and operations of the Company following the
Board of Directors' guidance and approval of the Plan of
Operations and annual budget.
The Company plans on developing a program to evaluate the mineral
content of certain claims to determine the economic value of the
claims. This will be done by a controlled plan of drilling and
trenching for samples along with laboratory testing and assaying
the samples for content.
The Company must obtain additional capital in order to fully
develop its claims. The Company intends to raise additional
capital in the future through loans or the sale of common stock.
On August 1, 1997, the Company established a line of credit for
one million ($1,000,000) dollars with Phoenix International
Mining, Inc. (a principle stockholder), with interest to be at
one percent (1%) per month of the outstanding balance. As of the
date of this report the $1,000,000 line of credit established by
the Company with Phoenix International Mining, Inc. has been
suspended due to lack of funds available at the present time.
The company must seek alternative capital funding sources if it
is to undertake the exploration of its claims. There is no
guarantee that the Company will be successful in its efforts to
raise the necessary capital and, if not, it may not be able to
continue as a going concern.
F-8
<PAGE> 32
WINDSTAR RESOURCES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
6. SALE OF STOCK & GRANT OF OPTIONS
The company sold 135,000,000 shares of common stock to its
President and Chief Executive Officer for $10,000 cash and
granted purchase options during November, 1997. Certain shares
of the common stock are held in escrow until May 31, 1999. If
the Purchaser has permanently terminated his association with the
Corporation prior to May 31, 1999 any shares of Stock of the
Corporation still to be delivered to the Purchaser on the next or
forthcoming due dates shall be returned to the Corporation for
cancellation and any unused portion of the purchase price shall
be remitted to the Purchaser at the rate of $.000074 for each
share returned to the Corporation. The Company granted to the
Purchaser options ( Stock Options ) to purchase (I) up to
40,000,000 shares of the Stock during the ten year period
commencing on the second anniversary of the date of this
Agreement for the exercise price of one cent ($0.01) per share,
and (ii) up to 40,000,000 additional shares of Stock during the
ten year period commencing on the third anniversary of the date
of this Agreement for the exercise price of two ($0.02) per
share. This agreement was dated November 11, 1997.
7. NOTES PAYABLE
The long term debt is an unsecured note with Phoenix
International Mining, Inc. dated August 1, 1997 with interest due
at 1% per month and the principal is payable at the discretion of
WindStar Resources, Inc. with the full amount due not later than
five years from date of the note. Under terms of the note, the
Company may barrow from time to time in varying amounts up to the
sum of one million dollars within the two years from date of the
note (see note 5 above). The balance due at December 31, 1997
was $27,600.00.
All other notes are unsecured demand notes with an interest rate
of 12% per annum.
Maturities of the notes payable are as follows:
1998 $22,800
1999 0
2000 0
2001 0
2002 $27,600
F-9
<PAGE> 33
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None; not applicable.
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE
ACT.
Identification of Directors and Executive Officers.
The following table sets forth the names and nature of all
positions and offices held by all directors and executive
officers of the Company for the calendar year ending December 31,
1996, and to the date hereof, and the period or periods during
which each such director or executive officer served in his or
her respective positions.
Date of Date of
Position Election of Termination
Name Held Designation or Resignation
Dale L. Runyon Chairman of the 1995
Board of Directors
Former Secretary/ 1995 1997
Treasurer Chief
Financial Officer
Fred R. Schmid President/Chief 1997
Executive Officer
and Member of the
Board of Directors
Richard G. Steeves Secretary/Treasurer 1996
Chief Financial Officer
and a member of the
Board of Directors
Alan E. Hubbard Member of the 1997
Board of Directors
Former President 1996 1997
Robert M. Brown Member of the 1995
Board of Directors
Former President 1995 1996
Term of Office
The terms of office of the current directors continue until
the annual meeting of stockholders, which the Bylaws provide
shall be held on the third Friday of November of each year;
officers are elected at the annual meeting of the board of
directors, which immediately follows the annual meeting of
stockholders.
<PAGE> 34
Dale L. Runyon - Chairman of the Board of Directors of the
Company.
Mr. Runyon is a founder of the Company. Since the Company's
inception, he has been the Secretary/Treasurer, Chief Financial
Officer and a member of the Board of Directors. Since 1978, Mr.
Runyon has been a business consultant in the mining industry. As
a consultant, he assists companies with economic analysis of
potential mining properties and, in general, supervises "turnkey
projects" from start to finish. Since 1986, Mr. Runyon has been
the Chairman of the Board and Chief Executive Officer of Phoenix
International Mining, Inc., a Nevada corporation. Since 1987,
Mr. Runyon has been the Chairman of the Board and Chief Executive
Officer of Maxam Gold Corporation, an Utah corporation, involved
in the business of mining. Mr. Runyon received a B.A. from Knox
College and is a retired Colonel in the United States Army.
Fred R. Schmid - President and Chief Executive Officer and a
Member of the Board of Directors of the Company.
Since November 1997, Mr. Schmid has been President and Chief
Executive Officer and a member of the Board of Directors of the
Company. Mr. Schmid was Chairman of the Board of Directors of
Hanover Gold Company. Inc., a publicly traded NASDAQ company he
founded, from September 1990 to April 1996, and President and
Chief Executive Officer from September 1990 to March 1996, and a
Director from September 1990 to June 1997. Mr. Schmid was
Chairman of the Board, President and Chief executive Officer of
Hanover resources, Inc. and Group S Limited, both privately-held
gold resource companies he founded in April 1990 and September
1991, respectively, both of which were merged into Hanover Gold
in September 1996. From 1972 to December 1995, he was Chairman,
President and Chief executive Officer of The Hanover Group, Inc.,
a privately-held natural resource investment company he founded,
which was merged into Group S Limited in December 1995.
Richard G. Steeves - Secretary/Treasurer, Chief Financial Officer
and a member of the Board of Directors
Mr. Steeves has been the Secretary/Treasurer, Chief Financial
Officer and a member of the Board of Directors, since November
1996. Since August 1994, Mr. Steeves has been the President and
a member of the Board of Directors of JOHSTE, Inc., an Illinois
corporation. JOHSTE, Inc. consults with companies on business
management. From July 1978 to August 1993, Mr. Steeves was the
controller and division manager of Southland Corporation.
Southland Corporation, a Texas corporation, is an operator of a
convenience store chain ("Seven-Eleven"). Since April 1993, Mr.
Steeves has been the President and a member of the Board of
Directors of Sandaz Corporation, a Nevada corporation. Sandaz
Corporation is a natural resources company. Since April 1993,
Mr. Steeves has been the President and a member of the Board of
<PAGE> 35
Directors of RGS Services, Inc., an Illinois corporation. RGS
Services, Inc. consults with companies on business management,
transportation and taxes. Mr. Steeves received a B.A. from
Hampton Institute, Hampton, Virginia.
Alan E. Hubbard - Member of the Board of Directors of the
Company.
Mr. Hubbard was elected to the Board of Directors on November
19, 1996. From May 1988 to the present, Mr. Hubbard has been the
President and Chief Executive of Al Hubbard Associates, Inc., a
Texas corporation. Since July 1995, Mr. Hubbard has been the
President and a member of the Board of Directors of Maxam Gold
Corporation, a Utah corporation. Maxam Gold Corporation is a
natural resource company. Since May 1996, Mr. Hubbard has been
the President and a member of the Board of Directors of Phoenix
International Mining, Inc., a Nevada corporation. Phoenix
International Mining, Inc. is a natural resource company. Mr.
Hubbard received a B.A. from Bradley University.
Robert M. Brown - Member of the Board of Directors
Mr. Brown is a founder of the Company. Since the Company's
inception, he has been a member of the Board of Directors. From
the Company's inception until October 31, 1996, Mr. Brown served
as President of the Company. Since 1985, Mr. Brown has been a
member of the Board of Directors of H.W.W. Foundation, a Colorado
corporation, involved in the business of family investments. Mr.
Brown received a B.A. from DePauw University, Greencastle,
Indiana.
Family Relationships
The only known relationship between any directors is Alan E.
Hubbard is first cousin to Dale L. Runyon.
Involvement in Certain Legal Proceedings
During the past five years, no present or former director,
executive officer or person nominated to become a director or an
executive officer of the Company has been the subject matter of
any legal proceedings, including bankruptcy, criminal
proceedings, or civil proceedings. Further, no legal proceedings
are known to be contemplated by governmental authorities against
any director, executive officer and person nominated to become a
director.
<PAGE> 36
Compliance with Section 16(a) of the Exchange Act.
No securities of the Company are registered pursuant to
Section 12(g) of the Securities Exchange Act of 1934, and the
Company files reports under Section 15(d) of the Securities
Exchange Act of 1934; accordingly, directors, executive officers
and ten percent stockholders are not required to make filings
under Section 16 of the Securities Exchange Act of 1934.
ITEM 10. EXECUTIVE COMPENSATION.
The following table sets forth the aggregate compensation paid
by the Company for services rendered during the period indicated:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION> Long Term Compensation Compensation
Annual Compensation Awards Payouts
(a) (b) (c) (d) (e) (f) (g) (h) (I)
Name Other Restricted LTIP All
and Annual Stock Pay- Other
Principal $ $ Compen Awards Options/ Outs Compen
Position Year Salary Bonus sation($) $ SAR's(#) ($) sation$
<S> <C> <C> <C> <C> <C> <C> <C> <C>
December 31
Dale R. Runyon
Director 1997 $ -0- $0 $0 $0 0 $0 $0
1996 $ -0- $0 $0 $0 0 $0 $0
1995 $ -0- $0 $0 $0 0 $0 $0
Fred R. Schmid
President -
CEO 1997 $ 7,916 $0 $0 $0 80,000,000 $0 $0
1996 $ -0- $0 $0 $0 0 $0 $0
1995 $ -0- $0 $0 $0 0 $0 $0
Richard G. Steeves
Secretary/Treasurer
Director 1997 $ -0- $0 $0 $0 0 $0 $0
1996 $ -0- $0 $0 $0 0 $0 $0
1995 $ -0- $0 $0 $0 0 $0 $0
Alan Hubbard
Director 1997 $ -0- $0 $0 $0 O $0 $0
1996 $ -0- $0 $0 $0 0 $0 $0
1995 $ -0- $0 $0 $0 0 $0 $0
Robert M. Brown
Director 1997 $ -0- $0 $0 $0 0 $0 $0
1996 $ -0- $0 $0 $0 0 $0 $0
1995 $ -0- $0 $0 $0 0 $0 $0
</TABLE>
<PAGE> 37
Employment Agreement.
On November 17, 1997, the Company and Fred Schmid, the
Company's President entered into a three year employment
agreement wherein the Company agreed to pay Mr. Schmid a base
salary of $95,000 the first year; $115,000 the second year; and,
$140,000 the third year. The foregoing base salary is also
entitled to a cost of living increase using the Consumer Price
Index for New York City - Northern New Jersey. In addition to
the foregoing, the Company shall pay Schmid a cash bonus of 3% of
the Company's Net Pre-Tax Operating Profit. Further, the Company
will pay Schmit 3% of the Company's equity ownership in any joint
venture arranged by Schmid. As of December 31, 1997, the Company
paid Schmit the sum of $7,916.66.
Compensation of Directors.
The Company's Board of Directors unanimously resolved that
directors receive no compensation for their services; however,
they are reimbursed for travel expenses incurred in serving on
the Board of Directors.
No additional amounts are payable to the Company's directors
for committee participation or special assignments.
Termination of Employment and Change of Control Arrangements.
Other than as contained in this Item, there are no compensatory
plans or arrangements, including payments to be received from the
Company, with respect to any rson named in the Summary Compensation
Table set out above which would in any way result in payments to
any such person because of his or her resignation, retirement or other
termination of such person's employment with the Company or its
subsidiaries, or any change in control of the Company, or a
change in the person's responsibilities following a change in
control of the Company.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
Security Ownership of Certain Beneficial Owners
The following table sets forth the shareholdings of those
persons who own more than five percent of the Company's Common
Stock as of December 31, 1997:
<PAGE> 38
Name and address 12/31/97
of owner Shares Percent
Maxam Gold Corporation[1] 76,000,000 7.35%
528 Fon du Lac Drive
East Peoria, IL 61611
Dale L. Runyon[2][3] 662,236,767 64.10%
528 Fon du Lac Drive
East Peoria, Illinois
Fred R. Schmid [4] 135,000,000 13.06%
P.O. Box B
Roslyn, NY 11576
TOTAL 873,236,787 84.45%
[1] Dale Runyon and Alan Hubbard are officers and/or directors
of Maxam Gold Corporation.
[2] Includes shares owned by Charco Tank Mining, LLC; Coyote
Peak Mining, LLC; DLR Trust #3; Getzwell Mining, LLC; Little
Horn Mining, LLC; Maxam Gold Corporation; Meltop Mining,
LLC; Phoenix International Mining, Inc.; Rainbow Valley
Mining, LLC.; Lost Horse Peak Trust; Uranco Trust #1; Uranco
Trust #5; Tank Mountain Gold Co., Inc.; and, Uranco Mining,
LLC., which Mr. Runyon is affiliated with.
[3] Does not include 305,330,164 Class A Warrants and
305,330,164 Class B Warrants to purchase up to 610,660,328
shares of Common Stock.
[4] Does not include up to 80,000,000 shares of common stock for
purchase under a Stock Option Agreement.
<PAGE> 39
Security Ownership of Management
The following table sets forth the shareholdings of the
Company's directors and executive officer as of December 31,
1997:
<TABLE>
<CAPTION>
Shares Beneficially Owned
Number Percent
Name & address 12/31/97
<S> <C> <C>
Dale L. Runyon[2][4] 662,236,767 64.10%
528 Fon du Lac Drive
East Peoria, IL 61611
Fred R. Schmid 135,000,000 13.06%
P.O. Box B
Roslyn, NY 11576
Richard G. Steeves 1,000,000 0.09%
1911 E. Meadowlake Drive
Mahomet, Illinois 61853
Alan E. Hubbard[5] 20,000,000 1.93%
3140 Hampshire Court
Frisco, Texas 75034
Robert M. Brown[1][3] 12,000,000 1.16%
528 Fon du Lac Drive
East Peoria, IL 61611
ALL OFFICERS AND
DIRECTORS (as a group
five persons) 830,236,767 80.37%
[1] Includes shares owned by the Estate of Teddi N. Brown; R. D.
Brown; Brown Family Investments and the HWW Foundation.
[2] Includes shares owned by Charco Tank Mining, LLC; Coyote
Peak Mining, LLC; DLR Trust #3; Getzwell Mining, LLC; Little
Horn Mining, LLC; Maxam Gold Corporation; Meltop Mining,
LLC; Phoenix International Mining, Inc.; Rainbow Valley
Mining, LLC.; Lost Horse Peak Trust; Uranco Trust #1; Uranco
Trust #5; Tank Mountain Gold Co., Inc.; and, Uranco Mining,
LLC., which Mr. Runyon is affiliated with.
[3] Does not include 10,973,668 Class A Warrants and 10,973,668
Class B Warrants to purchase up to 21,957,336.
[4] Does not include 305,330,164 Class A Warrants and
305,330,164 Class B Warrants to purchase up to 610,660,328
shares of Common Stock.
[5] Does not include 20,000,000 Class A Warrants and 20,000,000
Class B Warrants to purchase up to 40,000,000 shares of
Common Stock.
<PAGE> 40
[6] Does not include 80,000,000 shares of common stock for
purchase under a Stock Option Agreement.
Changes in Control
To the knowledge of management, there are no present
arrangements or pledges of securities of the Company which may
result in a change in control of the Company.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Registrant has engaged in no transactions with management or
others in which the amount involved exceeds $60,000 other than
the following:
On March 31, 1995, the Company issued 498,000,000 shares of
Common Stock to nineteen persons in exchange for $44,450 in cash
and property. The foregoing includes shares issued to its
officers and directors or affiliates thereof.
The following table reflects the name of each officer and
director and their affiliates, the amount of cash contributed by
each and in the case of the 8-160 acre claims contributed by the
Lost Horse Peak A Trust and the Phoenix International Mining,
Inc., the dollar value assigned to the claims. The dollar value
assigned to each claim was arbitrarily determined by the Company
and claimant, and bears no relationship to the value of the
claim.
</TABLE>
<TABLE>
<CAPTION> Amount of
Shares Consideration Date of
Name of Owner Acquired Cash/Other Sale
- - ----------------------------------------------------------------
<S> <C> <C> <C>
William Brown 3,000,000 $ 3,000.00 2/13/95
H. W. W. Foundation 1,000,000 $ 1,000.00 3/25/95
Lost Horse Peak,
A Trust 210,000,000 4-160 acre 02/21/95
mining claims
Phoenix International
Mining, Inc. 100,000,000 4 - 160 acre 02/21/95
mining claims
Uranco Trust #5 145,000,000 $ 1,450.00 01/06/95
</TABLE>
<PAGE> 41
Dale Runyon, a member of the Board of Directors, is the
Trustee of the Uranco Trust #5; and affiliate and a Director of
Phoenix International Mining, Inc.; and a Trustee of Lost Horse
Peak A Trust. Further, Robert M. Brown, a member of the Board of
Directors, is a member of the Board of Directors of H.W.W.
Foundation, a foundation which holds title to investments made by
the Brown family.
The transactions with the Lost Horse Peak A Trust and Phoenix
International Mining, Inc. were arbitrarily decided by the
Company and the respective party and were not at arms-length and
were more favorable to the Company and less favorable to those
entities than in an arm's length transaction with unaffiliated
third parties. The basis for the foregoing statement is that
Lost Horse Peak A Trust and Phoenix International Mining, Inc.
would not have transferred the claims to the Company for
310,000,000 restricted shares of common stock in a start-up
venture, but for the affiliation of Dale L. Runyon with the
Company.
The following table reflects the name of each officer and
director and their affiliates that were issued stock in exchange
for claims:
Name Number of Units
Estate of Teddi N. Brown 5,174,334
R. M. Brown & R. D. Brown 125,000
Robert M. Brown 5,299,334
Brown Family Investments 375,000
Charco Tank Mining LLC 10,000,000
Coyote Peak Mining LLC 40,000,000
DLR Trust #3 1,691,397
Getzwell Mining LLC 10,000,000
Alan E. Hubbard 20,000,000
Little Horn Mining LLC 30,000,000
Maxam Gold Corporation 76,000,000
Meltop Mining LLC 10,000,000
Mike Mining LLC 10,000,000
Rainbow Valley Mining LLC 40,000,000
Tank Mountain Gold Co., Inc. 20,000,000
Uranco Mining LLC 34,375,000
Uranco Trust #5 6,675,545
Uranco Trust #1 2,123,923
Dale L. Runyon 4,463,299
Stock Purchase Agreement.
On the 11th day of November, 1997, the Company and Fred
Schmid, the Company's President entered into a Stock Purchase
Agreement wherein Schmid purchased 135,000,000 "restricted"
shares which are deliverable as follows: 33,750,000 shares on
<PAGE> 42
payment of the $10,000. The $10,000 has been paid and the
33,750,000 shares have been delivered; 33,750,000 shares on
or efore May 31, 1998; 33,750,000 shares on or before December
1, 1998; and, 33,750,000 shares on or before May 31, 1999.
Further, the Company granted Schmid an option to purchase
up to 40,000,000 shares of Common Stock at a purchase price
of $0.01 per share. The option period commences on the
second anniversay of the date of this Agreement and ends
ten years after the second anniversay date. Further, the
Company granted Schmid a second option to purchase up to
40,000,000 share of Common Stock at a purchase price of
$0.01 per share. The option period commences on the third
anniversay date of this Agreement and ends ten years after
the third anniversay date. The stock options will be protected
from dilution.
To date, there have not been any transactions between the
Company and its Officers, Directors, principal shareholders or
affiliates other than as set forth above. If such transactions
occur in the future, they will be on terms no less favorable to
the Company than could be obtained from unaffiliated parties.
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
Reports on Form 8-K
No reports on Form 8-K have been filed during the last quarter
of the period covered by this report.
Exhibits
The following documents are incorporated herein by reference
from the Registrant's Form S-1 Registration Statement and all
amendments thereto, which was declared effected by the Securities
and Exchange Commission on August 16, 1996, and all exhibits
thereto, as filed with the Commission:
Exhibit
No. Description
3.1 Articles of Incorporation.
3.2 Amended Articles of Incorporation.
3.3 Bylaws of the Company.
4.1 Specimen certificate for Common Stock.
4.2 Specimen certificate for Class A Redeemable Warrants.
4.3 Specimen certificate for Class B Redeemable Warrants.
<PAGE> 43
The following documents are incorporated herein:
27 Financial Data Schedule
99.1 Stock Purchase Agreement.
99.2 Employment Agreement.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities and Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized, on this 30th day of March, 1998.
WINDSTAR RESOURCES, INC. (formerly
TURTLEBACK MOUNTAIN GOLD CO., INC.)
(Registrant)
BY: /s/ Fred R. Schmid, President
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following person
on behalf of the Registrant and in the capacities and on this
30th day of March, 1998.
SIGNATURES TITLE DATE
/s/ Dale L. Runyon Chairman of the March 30, 1998
Dale L. Runyon Board of Directors
/s/ Fred R. Schmid President and a March 30, 1998
Fred R. Schmid member of the Board
of Directors
/s/ Richard G. Steeves Secretary/Treasurer March 30, 1998
Richard G. Steeves Chief Financial Officer,
and member of the Board
of Directors
/s/ Alan Hubbard Member of the March 30, 1998
Alan Hubbard Board of Directors
/s/ Robert M. Brown Member of the March 30, 1998
Robert M. Brown Board of Directors
<PAGE> 44
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED
PURSUANT TO SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH HAVE
NOT REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE ACT.
No annual report material has been forwarded to securities
holders of the Registrant during the period covered by this
report or for the previous five calendar years ended December 31;
however, if any annual report or proxy material is furnished to
security holders in connection with the annual meeting
stockholders to be held in 1997, a copy of any such annual report
or proxy materials shall be forwarded to the Commission when it
is forwarded to security holders.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Statement of Financial Condition at December 31, 1997 and the
Consolidated Statement of Income for the year ended December 31, 1997 and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 387
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 387
<PP&E> 79,487
<DEPRECIATION> 0
<TOTAL-ASSETS> 79,487
<CURRENT-LIABILITIES> 87,098
<BONDS> 7,600
0
0
<COMMON> 10,330
<OTHER-SE> (45,154)
<TOTAL-LIABILITY-AND-EQUITY> 79,874
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 116,984
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (116,984)
<INCOME-TAX> 0
<INCOME-CONTINUING> (116,984)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (116,984)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<PAGE> 50
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT ("Agreement") is made and entered
into as of November 11, 1997, by and between FRED R. SCHMID (the
"Purchaser") and TURTLEBACK MOUNTAIN GOLD CO., INC., an Arizona
corporation (the "Corporation").
1. Purchase and Sale of Stock; Grant of Stock Options.
(a) Upon the terms and conditions herein contained, on the
date hereof, the Corporation hereby agrees to sell to the Purchaser,
and the Purchaser hereby agrees to purchase from the Corporation,
135,000,000 shares of Common Stock (the "Stock") of the Corporation
for a total purchase price of Ten Thousand Dollars ($10,000), payable
on or before December 1, 1997. 33,750,000 shares of Stock of the
Corporation are to be delivered to the Purchaser by the Escrow Agent
upon payment of the full purchase price; 33,750,000 shares of Stock
of the Corporation are to be delivered to the Purchaser by the Escrow
Agent on or before May 31, 1998; 33,750,000 shares of Stock of the
Corporation are to be delivered to the Purchaser by the Escrow Agent
on or before December 1, 1998; and 33,750,000 shares of Stock of the
Corporation are to be delivered to the Purchaser by the Escrow Agent
on or before May 31, 1999. If the Purchaser has permanently
terminated his association with the Corporation prior to May 31, 1999
any shares of Stock of the Corporation still to be delivered to the
Purchaser on the next or forthcoming due dates shall be returned to
the Corporation for cancellation and any unused portion of the
purchase price shall be remitted to the Purchaser at the rate of
$.000074 for each share returned to the Corporation under this
paragraph 1(a).
(b) The Corporation hereby grants to the Purchaser options
(the "Stock Options") to purchase (i) up to 40,000,000 shares of the
Stock during the ten year period commencing on the second anniversary
of the date of this Agreement for the exercise price of one cent
($0.01) per share, and (ii) up to 40,000,000 additional shares of the
Stock during the ten year period commencing on the third anniversary
of the date of this Agreement for the exercise price of two cents
($0.02) per share.
(c) The Stock Option shall be protected against dilution
in the case of stock splits.
2. Closing.
The closing of the purchase of Stock contemplated by
paragraph 1(a) hereof shall be held at the offices of the
Corporation, 528 Fon du Lac Drive, East Peoria, Illinois 62611, at
10:00 a.m. on the date hereof (the "Closing Date"). On the Closing
Date. the Corporation shall execute, issue and deliver to the
Purchaser a fully signed copy of this Agreement and a stock
certificate registered in the name of the Purchaser for 135,000,000
shares of the Stock and legend to reflect the Purchaser's
representation in Section 4. The Purchaser shall execute and deliver
to the Corporation a signed copy of this Agreement and his check for
<PAGE> 51
$10,000 dated on or before December 1, 1997. The stock certificate
shall be placed in escrow with Berlack, Israels and Liberman, LLP,
("Escrow Agent"),120 West 45th Street, New York, New York 10036,
Attention Jesse Meer, Esq. with instructions to release the shares of
Stock as noted in paragraph 1(a) herein.
3. Representations, Warranties, Covenants of Corporation.
The Corporation represents and warrants to and Covenants
with the Purchaser as follows:
(a) The Corporation is a corporation duly organized,
validly existing, and in good standing under the laws of Arizona and
has all necessary corporate power to own its properties and to carry
on its business as now owned and operated by it. The Corporation's
principal office is at its address set forth in Section 6 hereof.
The Corporation has 3,000,000,000 shares of Stock authorized under
its certificate of incorporation, of which 898,000,000 shares are
currently issued and outstanding, and 800,000,000 shares are reserved
for issuance upon the exercise of common stock purchase warrants that
are currently issued and outstanding.
(b) Attached to this Agreement are (i) the audited
financial statements of the Corporation as of December 31, 1996 and
for the twelve month period then ended, and (ii) the unaudited
financial statements of the corporation as of September 30, 1997 and
for the nine month period then ended. Such financial statements
fairly present the Corporation's financial condition as of the dates
specified, and its operating results for the periods ending on such
dates, all in accordance with generally accepted accounting
principles consistently applied.
(c) The execution, delivery and performance of this
Agreement and the issuance and sale of 135,000,000 shares of the
Stock hereunder and the grant of the Stock Options to purchase up to
80,000,000 additional shares of the Stock hereunder have been duly
authorized by the Corporation's board of directors, and will not
violate (i) the Corporation's certificate of incorporation, bylaws
and the proceedings (minutes and consents) of its board of directors
and stockholders, (ii) any agreement to which the Corporation is a
party or by which it or its properties are bound, or (iii) any
administrative or judicial order binding on the Corporation. This
Agreement is the valid and binding obligation of the Corporation and
is enforceable against it in accordance with its terms.
(d) The Stock (including the Stock underlying the Stock
Options hereby granted), when issued and paid for in accordance with
this Agreement, will be, in all respects, duly authorized and validly
issued, full paid and non-assessable. The 80,000,000 shares of the
Stock underlying the Stock Options have been duly reserved for
issuance upon the exercise of such options and are not available for
any other purpose.
<PAGE> 52
(e) The Corporation shall submit the Stock Options granted
to the Purchaser hereunder to the stockholders of the Corporation for
their approval before the end of 1997, and the Corporation shall use
its best efforts to obtain the requisite stockholder approval of the
Stock Options.
4. Investment Representation.
The Purchaser represents and warrants to the Corporation
that the Purchaser is purchasing the Stock (including any Stock he
may elect to purchase upon exercising his Stock Options granted
hereunder) for investment and not with a view to reselling or
otherwise distributing the Stock and acknowledges that the
Corporation has relied on such representation and warranty for the
purpose of issuing the Stock without registration under federal law
or qualification under state law.
5. Buy-back; Right of First Refusal.
The Corporation shall cause the Purchaser to be elected an
executive officer or a director of the Corporation as of the date of
this Agreement. If the Purchaser ceases to be affiliated with the
Corporation in such capacity at any time during the term of this
Agreement, then, in such event, the Purchaser shall be subject to no
further restrictions regarding the sale or other disposition of his
shares of Stock of the Corporation, other than restrictions that
may be imposed upon him under the Securities Act; provided, however,
that, for a period of twelve months following the date Purchaser
ceases to be affiliated with the Corporation, he shall offer any
shares he proposes to sell, in writing, at such price and on such
terms as the Purchaser reasonably believes a willing buyer would buy
such shares, to the Corporation which shall be deemed to have a right
of first refusal with respect to such shares of Stock of the
Corporation, and shall consider and either accept or reject any such
offer within ten calendar days of the date he gives notice to the
Corporation. If such offer is rejected by the Corporation then the
Purchaser shall be free to sell or otherwise dispose of his shares.
The Purchaser shall offer any Stock Options he proposes to
sell, in writing, at such price and on such terms as the Purchaser
reasonably believes a willing buyer would buy such options, to the
Corporation which shall be deemed to have a right of first refusal
with respect to such options, and shall consider and either accept
or reject any such offer within ten calendar days of the date he
gives notice to the Corporation. If such offer is rejected by the
Corporation then the Purchaser shall be free to sell or otherwise
dispose of his Stock Options.
6. Notices.
Any notice, request, demand, or other communication given
pursuant hereto by any of the parties hereto to any other party
hereto shall be in writing and shall be delivered personally,
certified mail return receipt requested, or by telex/facsimile
transmission with all charges prepaid, to the address set forth
below:
<PAGE> 53
If to the Purchaser: Fred R. Schmid
14 Hewlett Drive
East Williston, New York 11596
With a copy to: Jesse R. Meer, Esq.
Berlack, Israels & Liberman LLP
120 West 45th Street, 29th Fl.
New York, New York 10036
If to the Corporation: Turtleback Mountain Gold Co., Inc.
528 Fon du Lac Drive
East Peoria, Illinois 61611
Attention: Dale L. Runyon, Chairman
With a copy to: David N. Heap, Esq.
Fennemore Craig
3303 North Central Avenue, Suite 2606
Phoenix, AZ 85012
or to such other address as hereafter shall be furnished as provided
herein by any of the parties hereto to the other parties hereto. All
notices, requests, demands, and other communications under this
Agreement shall be deemed to have been given on the date of service
if personally served on the party to whom notice is to be given, or
within five calendar days after mailing, if mailed to the party to
whom notice is to be given, by certified mail, return receipt
requested, postage prepaid, properly addressed to the party at its
address set forth above, or within 24 hours after transmission by
telex/facsimile transmission to the address set forth above, with all
charges prepaid.
7. Miscellaneous.
(a) Each of the parties hereto agrees to perform any
further acts and execute and deliver any documents that may be
reasonably necessary to carry out the provisions of this agreement.
(b) The provisions of this Agreement may not be waived,
altered, amended or repealed, in whole or in part, except with the
written consent of all parties to this Agreement.
(c) This Agreement shall be binding on, and shall inure to
the benefit of, the Corporation and the Purchaser and their
respective successors and, subject to paragraph (f) below, assigns.
(d) This Agreement shall be construed in accordance with
the laws of the State of Arizona. To the extent permitted by
applicable law, each party hereby irrevocably submits generally and
unconditionally to the non-exclusive jurisdiction of any Arizona
state court or any United States federal court sitting in the State
of Arizona.
(e) This Agreement, including the attachment(s) hereto,
contain all of the terms and conditions agreed on by the parties
hereto with reference to the subject matter hereof. No other
<PAGE> 54
agreements not specifically referred to herein, oral or otherwise,
shall be deemed to exist or bind any of the parties hereto. No
officer, employee or partner of any party has any authority to make
any representation or promise not contained in this Agreement, and
each of the parties hereto agrees that it has not executed this
Agreement in reliance upon any such representation or promise.
(f) This Agreement shall not be assignable or assigned by
the Corporation without the prior written consent of the Purchaser or
by the Purchaser without the prior written consent of the
Corporation.
IN WITNESS WHEREOF, this Stock Purchase Agreement has been
signed and delivered by the parties hereto as of the date first above
written.
TURTLEBACK MOUNTAIN GOLD CO., INC.
By: /s/ Dale L. Runyon
Name: Dale L. Runyon
Title: Chairman of the Board
/s/ Fred R. Schmid
FRED R. SCHMID
Witnessed:
_____________________________
<PAGE> 1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, made this 11th day of November, 1997,
by and between Turtleback Mountain Gold Co., Inc., an Arizona
corporation, hereinafter called "Company," and
Fred R. Schmid of East Williston, New York, hereinafter called
"Schmid."
W I T N E S S E T H :
That in consideration of the mutual promises of the parties
hereinafter set forth and the mutual benefits they will gain by the
performance thereof, the Company and Schmid, intending to be legally
bound hereby, agree as follows:
1. Authority; Duties. The Company hereby employs Schmid, and
Schmid hereby agrees to employment by the Company, as its President
and Chief Executive Officer, to serve at the pleasure of the Board of
Directors of the Company. Schmid shall have complete control and
sole authority of the management of the Company, its business and
financing programs, all acquisitions, mergers, joint ventures, and
sales of assets, subject to the authority of the Company's Board of
Directors. Schmid shall be primarily responsible for directing and
managing the day-to-day business of the Company, its mining
operations and such other business opportunities directly related to
the mining and gold industries as Schmid may determine to be
beneficial to the Company, subject to the authority of the Company's
Board of Directors and, to the extent required by applicable law, its
shareholders. Schmid shall also perform such other services from
time to time, consistent with his position as President and Chief
Executive Officer, as determined by the Board of Directors of the
Company. Schmid shall be authorized, in the name and on behalf of
the Company:
(a) to hire, direct and discharge all officers of the
Company, management and supervisory personnel, and all labor and
employees for the Company's operations and, within the business plan
budget, to engage, direct and terminate the services of engineers,
consultants and professional personnel;
(b) to conduct the Company's operations in a good and
efficient manner, in accordance with sound mining practices and in
accordance with the terms and provisions of any leases, licenses, or
other agreements pertaining to the Company's properties, except for
work which in Schmid's judgment can best be conducted by third
parties. In such cases, Schmid shall arrange for the performance of
such work, within the business plan budget, under a contract or
contracts; and
(c) to review, make recommendations for and, if they are
acceptable to Schmid, approve all operating budgets prepared by
management and to make any expenditures within such budgets as Schmid
deems necessary to carry on the business of the Company following the
Board of Director's approval of the annual budget.
<PAGE> 2
2. Other Commitments; Corporate Opportunities. So long as
this Agreement continues in effect, Schmid shall devote at least
eighty percent (80%) of his business time and energies to the
business and affairs of the Company and use his best efforts, skills
and abilities to, promote its interest, it being understood by the
parties hereto that Schmid has other business interests including
majority control either directly or indirectly of other companies,
including companies that own precious metals claims and other mineral
deposits which could be deemed conflict-of-interests, that will
require his attention. Subject to the foregoing, Schmid shall offer
the Company all opportunities to acquire and develop gold mining
claims and precious metal deposits before acquiring them for himself
or for other companies unless: (a)(i) in the reasonable opinion of
Schmid, the Company is unable to make the required investments or
other commitments for such an opportunity, (ii) Schmid prepares and
circulates to each member of the to be formed Board's Advisory
Committee a written memorandum describing the opportunity and the
reasons that the Company is unable to make the required investments
or other commitments, and (iii) within 10 days after receipt by the
Board's Advisory Committee of such memorandum, no member of the
Committee requests a meeting to vote with respect to Schmid's
recommendations; or (b) such opportunities are specific claims and
properties as described under Exhibit I hereof.
3. Effective Date; Term. This Agreement, and each of the
provisions contained herein shall become effective as of November
11, 1997, (the "Effective Date"), and shall expire November 10,
2000;
provided, however, the precious metals claims and properties, in
which Schmid has an interest at the effective date of this Agreement
and which are scheduled on Exhibit 1 to this Agreement, are excluded
from the corporate opportunity obligation imposed by paragraph 2, and
the non-compete obligation imposed by paragraph 16, of this
Employment Agreement.
4. Salary. For the services and duties described herein,
Schmid shall be compensated at a base salary of $95,000 for the first
year, a base salary of $115,000 for the second year and a base salary
of $140,000 for the third year, such salary to be payable in equal
monthly installments. In addition to the base salary, Schmid shall
be entitled to receive a cost of living increase using as a guide the
percentage of increase in the consumer price index ("CPI") for New
York City-Northern New Jersey, as published by the Department of
Labor's Bureau of Labor Statistics as of each anniversary of the
Effective Date of this Agreement as compared to the CPI as of the
Effective Date; the percentage of increase to be and applied to the
base salary prospectively for the next twelve (12) months of the term
of this Agreement. Schmid's base salary rate may be increased upon
review and decision by the Board of Directors of the Company.
5. Cash Bonus. As additional consideration for his
commitment to render future services to the Company, the Company
shall pay Schmid a cash bonus equal to 3% of the Company's Net Pre-
Tax Operating Profit as referred to in paragraph 7. Such payment
<PAGE> 3
shall be made annually within ten days after the issuance of the
Company's annual financial statements, as certified by its
independent certified public accountants.
6. Joint Ventures. For each joint venture arranged by Schmid
on behalf of the Company or affiliated companies, Schmid or his
Assignee(s) shall receive, subject to applicable securities and other
laws, an equity ownership equal to 3% of the Company's equity
ownership therein or in such other entity formed by the Company for
the purposes of entering into a joint venture. Schmid's equity
ownership interest in the joint venture will not require Schmid to
provide any exploration, development or operational capital to the
joint venture; provided, however, Schmid's equity ownership in each
such joint venture will entitle him to participate in and receive his
share of any stock, capital, or other financial consideration derived
from a sale, merger, or other corporate transaction involving the
joint venture or the joint venture's properties, assets and
partnership at the time a transaction is consummated. Schmid shall
also receive from the Company a bonus payment equal to 3% of what
would be the Company's Net Pre-Tax Operating Profit (less any income
distribution received by Schmid during that period as a result of
his 3% equity ownership) from the joint venture, paid once each
quarter in cash or in kind whichever Schmid may elect, based upon the
preceding quarter's financial statement within ten (10) days after
the issuance of the quarterly financial statements to the partners of
the joint venture. Schmid's or his Assignee(s)' equity ownership in
the joint venture and entitlement to payments from the Company under
this paragraph 6 shall continue for the life of the joint venture and
beyond the life of this Agreement and beyond the life of Schmid.
7. Net Pre-Tax Operating Profit. (a) For purposes of
calculating Schmid's cash bonus pursuant to paragraph 5 of this
Agreement, the Company shall instruct its independent certified
public accountants to determine and report in writing to the Company
and to Schmid (within ten days after such determination) the
Company's Net Pre-Tax Operating Profit for each year in accordance
with generally accepted accounting principles and by adding back to
the Company's net income all amounts charged as amortization,
depreciation, management fees (unless the management services are
engaged by Schmid and not by the Board), consulting fees (as agreed
by Schmid and the Board), and taxes (federal, state and local), and
licensing fees (as agreed by Schmid and the Board). For purposes of
calculating any bonus payable pursuant to paragraph 5, Net Pre-Tax
Operating Profit from joint ventures shall be excluded from the
Company's Net Pre-Tax Operating Profit; (b) For purposes of
calculating Schmid's bonus (payable in cash or in kind, as Schmid
elects) from joint ventures pursuant to paragraph 6 of this
Agreement, such bonus will be based on what would be the Company's
Net Pre-Tax Operating Profit from the joint venture.
8. Vacations; Life Insurance. Schmid shall receive paid
vacations and other fringe benefits as are granted to executives of
Maxam Gold Corporation, (a Utah corporation). Upon completion of
raising the initial $1,000,000 equity (excluding the equity raised
<PAGE> 4
through the exercise of the Company's outstanding A and B Warrants)
for the Company, the Company will pay the premium necessary (but not
in excess of $25,000) per year to (a) purchase a $1,000,000 one-year
term life insurance policy on Schmid's life, renewable each year
thereafter, with Schmid having the right to designate the
beneficiaries thereunder; or, (b) apply an amount equal to such
premium each year to purchase mutual fund shares or a tax-deferred
annuity in Schmid's name, whichever Schmid may elect.
9. Expenses. Schmid is authorized to incur ordinary and
necessary expenses for promoting the business of the Company
commensurate with his executive position as President and Chief
Executive Officer of the Company. The Company will pay or reimburse
Schmid upon his presentation of receipts for or other reliable
evidence of such expenses under an accountable plan, as described in
section 62 of the Internal Revenue Code and the regulations
thereunder.
10. Renewal. This Agreement shall continue after the
expiration of its initial term for periods of three (3) years each,
unless not later than three (3) months prior to the beginning of each
new period either party shall give the other party written notice by
certified mail, return receipt requested, that he or it does not wish
to renew this Agreement beyond the then current expiration date.
Schmid's annual base salary rate for each renewal period shall be the
annual base salary rate in effect for the immediately preceding
period, plus the applicable CPI cost of living increase as provided
in paragraph 4. All other provisions in this Agreement, including
provisions for compensation, bonuses and fringe benefits hereunder
shall continue in effect. Schmid's salary may be increased beyond
this annual amount subject to review and decision by the Board of
Directors of the Company for discretionary merit increases.
11. Termination.
(a) Subject to the Americans with
Disabilities Act and other applicable laws, if during the term of
this Agreement, Schmid is prevented from performing his duties of
employment by reason of illness or any other incapacity for a
consecutive period of more than six (6) months, Schmid may request a
temporary leave of absence from his duties as President of the
Company, for a period not to exceed an additional nine (9) months,
during which he is entitled to receive full compensation and all of
his fringe benefits. Schmid may also select his temporary
replacement during such leave of absence to serve as acting President
and acting Chief Executive Officer, subject to approval by the Board
of Directors of the Company, which approval shall not be unreasonably
withheld. Subject to the Family and Medical Leave Act and other
applicable law, Schmid may request reinstatement to his position as
President and Chief Executive Officer of the Company when he is able
to resume his duties, thereby relieving the person who was his
temporary replacement of his authority and duties.
<PAGE> 5
(b) Upon Schmid's death, this Agreement
shall terminate; however, the Company shall continue to compensate
Schmid's estate through the end of the Company's fiscal year in which
his death occurs but for not less than six (6) months following his
death, even if such payments continue beyond the fiscal year-end, the
first payment to begin thirty (30) days following such death and to
continue thereafter in equal monthly payments at the monthly
equivalent rate of Schmid's annual base salary at the time of his
death. The Company shall continue to pay Schmid's family medical and
hospital insurance benefits to his spouse, if she is living, for the
same period as it compensates Schmid's estate. Schmid's estate shall
also be entitled to receive the cash and bonuses payable under
paragraph 5 for the full year in which he died.
(c) If this Agreement is terminated by the Company for
reasons other than "cause" (as defined in paragraph 13 hereof),
Schmid will be entitled to receive a lump sum payment equal to the
greater of (i) $5,000,000 or (ii) one percent (1% ) of the Company's
net worth as of the preceding year's end, plus the balance of any
salary and bonus owed to Schmid pursuant to this Agreement, without
rendering any additional service to the Company and without any
reduction for amounts that may be received by Schmid from any other
employer. For this purpose "Net Worth" means book value of the
Company as determined by the Company's independent certified public
accountants in accordance with generally accepted accounting
principles applied consistently with previous years.
(d) Anything herein to the contrary notwithstanding, the
payments made to Schmid hereunder, if he elects to terminate this
Agreement for "good reason" as described in paragraph 13 hereof,
shall not exceed an amount equal to 300% of the "base amount" of his
compensation as determined in accordance with Section 280G of the
Internal Revenue Code of 1986, as amended, less $1.00.
12. Mergers, Acquisitions, Changes in Control. If the
Company is acquired by another company, through a merger, exchange of
stock, sale of assets or otherwise, Schmid shall continue to be
compensated by the Company or by the acquiring company under the
terms and conditions set forth in this Agreement. If, however, as a
result of such acquisition there is a change in control of the
Company to which Schmid objects, the provisions of paragraph 11(d)
shall apply. As used herein, change in control shall include a
change in the majority of the Company's Board of Directors, the
election of additional directors rendering the incumbent directors a
minority, or a change in the ownership of a majority of the
outstanding Shares.
13. Termination for Cause or for Good Reason. Anything herein
contained to the contrary notwithstanding, the Company may terminate
this Agreement and all of its obligations hereunder for cause. As
used herein, for "cause" shall mean Schmid's conviction of a felony
or actions by Schmid constituting willful misconduct, gross
negligence or gross insubordination, bad faith or dishonesty
adversely affecting the Company or its business or assets, taken as a
whole or any intentional breach of any material provisions of this
<PAGE> 6
Agreement. Schmid may terminate this Agreement and all of his
obligations hereunder for "good reason." As used herein, "good
reason" shall mean any intentional breach by the Company of any of
the material provisions of this Agreement or a change in control of
the Company to which Schmid objects, as provided in paragraph 12
hereof.
14. Representation and Warranty by Schmid. Schmid hereby
represents and warrants that the execution, delivery and performance
of this Agreement by Schmid does not and will not conflict with or
result in a breach of any of the terms or provisions of, or
constitute a default under, any agreement or instrument to which
Schmid is a party or by which he is bound.
15. Confidentiality. Schmid shall maintain the
confidentiality of all trade secrets and material
non-public information of the Company.
16. Non-Compete. During the term of this Agreement and not
more than one year (or if a court of competent jurisdiction
determines that a one year period is unenforceable, than six months)
after this Agreement is terminated or it expires, Schmid shall not,
directly or indirectly, own, manage, operate, join, control,
participate in or finance the ownership, management, operation or
control of, or be connected in any manner with any person, firm,
association, partnership, corporation or other entity that competes
in any manner with the Company in acquiring and developing precious
metals in Maricopa, Yuma and La Paz Counties in the State of Arizona
(except to the extent permitted by paragraph 3 hereof) and shall not
recruit, hire or employ any individual who within six (6) months of
such termination or expiration was an employee of the Company.
Schmid acknowledges that the foregoing prohibitions are fair and
reasonable, are of the essence of this Agreement and that if
violated, the Company would suffer irreparable injury for which money
damages would be insufficient. Accordingly, the Company may enforce
such prohibitions by injunctive or other equitable relief without
being required to post a bond or other undertaking. Should any court
of competent jurisdiction determine that any covenants in this
paragraph are unreasonable as to scope, duration, or territory, the
covenants shall be enforceable with respect to such scope, duration,
and territory as the court determines to be reasonable, but in any
case not to exceed one year.
17. Binding Agreement. This Agreement shall extend to and be
binding upon Schmid, his heirs, and distributees, and upon the
Company, its successors and assigns, and the term "Company" as used
herein shall include such successors and assigns.
18. Governing Law. The terms and conditions of this
Agreement shall be governed by the appropriate laws of the State of
Arizona, without giving effect to such state's statutes or decisions
relating to conflicts of law.
<PAGE> 7
19. Notices. All notices shall be in writing and sent by
certified mail return receipt requested, addressed to the address of
the respective parties shown below, or to such changed address as
such party may have fixed by notice:
If to the Company: If to Schmid:
Turtleback Mountain Gold Co., Inc. Mr. Fred R. Schmid
528 Fon du Lac Dr. 14 Hewlett Drive
East Peoria, IL 61611 E. Williston, NY 11596
20. Invalidity. The invalidity or unenforceability of any
provision hereof or part thereof shall in no way affect the validity
or enforceability of any other provision.
21. Entire Agreement. This instrument contains the entire
agreement of the parties relating to the subject matter hereof, and
the parties hereto have made no agreements, representations or
warranties relating to the subject matter of this instrument which
are not set forth herein.
22. Amendments; Changes. This Agreement may not on behalf of
or in respect to the Company or Schmid be changed, modified,
released, discharged, or otherwise terminated in whole or in part
except by an instrument in writing signed by a duly authorized
representative of the Company and by Schmid.
WHEREFORE, the parties hereto have signed this Employment
Agreement as of the date first above written.
TURTLEBACK MOUNTAIN GOLD CO., INC.
By: /s/ Dale L. Runyon,
Chairman of the Board of Directors
By: /s/ Fred R. Schmid,
President and Chief Executive Officer
Witnessed:
________________________________
________________________________
