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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 4 TO
FORM 10-SB
Under the Securities Exchange Act of 1934
GOLDEN QUEEN MINING CO. LTD.
(Exact name of registrant as specified in its charter)
Province of British Columbia Not Applicable
(State or other jurisdiction (IRS Employer
of incorporation) Identification No.)
Green Flag Building, Suite 211-A
104 South Freya
Spokane, Washington 99202
(Address of principal executive offices)
Registrant's telephone number, including area code: (509) 535-4022
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
without par value
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SAFE HARBOR STATEMENT
Except for the historical information contained herein, certain of the matters
discussed in this registration statement are "forward-looking statements" as
defined in the Private Securities Litigation Reform Act of 1995, which involve
risks and uncertainties. Potential risks and uncertainties include, without
limitation, the likelihood of continued losses from operations pending
development of the Company's Soledad Mountain Project in Kern County,
California, the need to obtain significant additional financing in order to
develop the project, risks associated with the mining industry generally,
environmental risks associated with mining, fluctuating gold prices, and other
factors that may affect future results as described below.
The Company has no revenue from mining operations and has incurred losses from
inception through December 31, 1996 of approximately $2,164,000. This trend is
expected to continue for at least the next two years and is expected to reverse
only if, as and when gold is produced from the Soledad Mountain Project.
No assurance can be given that the Soledad Mountain Project will be placed into
production. Based upon currently available information, the Company estimates
that it will need approximately $47,800,000 to begin production, which is
expected to come from additional sales of common stock, and from bank borrowings
or other means. Alternatively, the Company may determine that it is in the best
interests of its shareholders to enter into a joint development or similar
arrangement with another mining company to develop the Soledad Mountain Project.
The Company does not have a commitment for bank financing or for the
underwriting of additional shares of its common stock, and is not a party to any
agreement or arrangement providing for the joint development of the Soledad
Mountain Project. Whether and to what extent such financing can be obtained
will depend on a number of factors, not the least of which is the price of gold.
Gold prices fluctuate widely and are affected by numerous factors beyond the
Company's control, such as inflation, the strength of the United States dollar
and foreign currencies, global and regional demand, and the political and
economic conditions of major gold producing countries throughout the world. As
of March 1, 1997, world gold prices were approximately $365 per ounce, a
reduction of approximately 10% from prices a year ago. If gold prices do not
strengthen, it may not be economical for the Company to place the Soledad
Mountain Project into production.
The Company is subject to all of the risks inherent in the mining industry,
including environmental hazards, industrial accidents, labor disputes, unusual
or unexpected geologic formations, cave-ins, flooding and periodic interruptions
due to inclement weather. These risks could result in damage to, or destruction
of, mineral properties and production facilities, personal injury, environmental
damage, delays, monetary losses and legal liability. Although the Company
maintains or can be expected to maintain insurance within ranges of coverage
consistent with industry practice, no assurance can be given that such insurance
will be available at economically feasible premiums. Insurance against
environmental risks (including pollution or other hazards resulting from the
disposal of waste products generated from exploration and production activities)
is not generally available to the Company or other companies in the mining
industry. Were the Company subjected to environmental liabilities, the payment
of such liabilities would reduce the funds available to the Company. Were the
Company unable to fund fully the cost of remedying an environmental problem, it
might be required to suspend operations or enter into interim compliance
measures pending completion of remedial activities.
(i)
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GLOSSARY
Certain terms used throughout this registration statement are defined below.
AG. silver.
AU. gold.
AUEQ. Gold equivalent, being a measurement of gold and silver on a
combined basis calculated to reflect the price and recovery differentials
between the two metals.
ALLUVIAL. Adjectivally used to identify minerals deposited over time by
moving water.
BASEMENT or BEDROCK. Solid rock underlying an alluvial deposit.
CRETACEOUS PERIOD. A period in geologic time approximately 65 to 141
million years ago.
DEPOSIT. A mineral deposit or mineralized material is a mineralized
underground body which has been intersected by sufficient closely-spaced drill
holes or underground sampling to support sufficient tonnage and average grade(s)
of metal(s) to warrant further exploration or development activities. A deposit
does not qualify as a commercially minable ore body (reserves) under standards
promulgated by the Securities and Exchange Commission until a final,
comprehensive economic, technical and legal feasibility study based upon test
results has been concluded.
DEVELOPMENT STAGE. Activities related to the preparation of a commercially
minable deposit for extraction.
EXPLORATION STAGE. Activities such as drilling, bulk sampling, assaying
and surveying related to the search for minable deposits.
FAULT or FAULTING. A fracture in the earth's crust accompanied by a
displacement of one side of the fracture with respect to the other and in a
direction parallel to the fracture.
FLOATING CONE and INVERTED CONE. A computerized methodology used to
approximate the shape of a near-optimal economic open pit mine plan based on
applied cutoff grade criteria and pit slopes.
GRADE. A term used to assign value to reserves, such as ounces per ton or
carats per ton.
HDPE. High density polyethylene, which is a plastic used to create an
impervious membrane.
HEAP LEACHING. A gold extraction process involving the percolation of
cyanide solution through crushed ore heaped on an impervious pad or base.
HECTARE. A metric measurement of area equivalent to 10,000 square meters.
IGNEOUS. Rocks formed by the cooling and solidifying of magna or lava.
INTRUSIVE. Rock which while molten penetrated into or between other rocks,
but solidified before reaching the surface.
LODE MINING. The extraction of ore from a deposit occurring in place
within definite boundaries separating it from the adjoining rocks
LINEAR KRIGING. A geostatistical method of resource analysis.
MAGNETIC SURVEYING. A mineral exploration technique which employs a
magnetometer to measure the magnetic intensity of an area to determine possible
mineralization.
(ii)
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MERRILL-CROWE PROCESS. A process used to recover soluble gold and silver
from a leaching solution by precipitating with zinc dust after the solution has
been clarified and deoxygenated by vacuum treatment.
MIDDLE MIOCENE EPOCH. A period in geologic time approximately 6 to 22
million years ago.
MILL SITE CLAIMS. A plot of ground suitable for the erection of a mill or
reduction works to be used in connection with mining operations.
MINERALIZATION. The presence of minerals in a specific area or geological
formation.
MOLYBDENITE. A mineral containing molybdenum disulfide, a source of
molybdenum.
ORE. A natural aggregate of one or more minerals which, at a specified
time and place, may be mined and sold at a profit or from which some part may be
profitably separated.
OVERBURDEN. Waste rock and other materials which must be removed from the
surface in order to mine underlying mineralization.
PIT PHASING ANALYSIS. A method used to optimize the mining sequence in an
open pit mine design.
PLACER MINING. The extraction of ore from sediment rich in concentrated
mineralization due to the high specific gravity of the mineralization.
POLYMETALLIC. Adjectivally used to describe a deposit or formation
containing many minerals.
PRODUCTION STAGE. Activities related to the actual exploitation or
extraction of a mineral deposit.
RESERVES. That part of a mineral deposit which could be economically and
legally extracted or produced at the time of determination. Reserves are
subcategorized as either PROVEN (MEASURED) RESERVES, for which (a) quantity is
computed from dimensions revealed in outcrops, trenches, workings or drill
holes, and grade and/or quality are computed from the results of detailed
sampling, and (b) the sites for inspection, sampling and measurement are spaced
so closely and geologic character is so well defined that size, shape, depth and
mineral content are well-established; or PROBABLE (INDICATED) RESERVES, for
which quantity and grade and/or quality are computed from information similar to
that used for proven (measured) reserves, yet the sites for inspection, sampling
and measurement are farther apart.
SHEAR ZONE. A tabular zone of rock which has been crushed and fragmented
by parallel fractures due to "shearing" along a fault or zone of weakness.
Shear zones can be mineralized with ore-forming solutions.
SCHISTS. A strongly foliated crystalline rock which readily splits into
sheets or slabs as a result of the planar alignment of the constituent crystals.
STRIPPING RATIO. The tonnage of waste material removed to allow the mining
of one ton of ore in an open pit.
SULFIDES or SULFIDE BODIES. Compounds of sulphur with other metallic
elements.
TREND. The directional line of a rock bed or formation.
VOLCANIC, VOLCANICLASTIC or VOLCANOGENIC ROCK. Rock composed of clasts or
pieces that are of volcanic composition.
(iii)
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL DEVELOPMENT OF BUSINESS. Golden Queen Mining Co. Ltd. (the "Company")
is engaged in the development of certain mineral properties located in the
Mojave Mining District of Kern County, California known as the Soledad Mountain
Project. The Company was incorporated under the laws of the Province of British
Columbia on November 21, 1985. It acquired its initial interest in the Soledad
Mountain Project in 1986 through the acquisition of all of the outstanding
shares of Golden Queen Mining Company, Inc. (the "Subsidiary"), a California
corporation through which the Company conducts all of its business. Since 1986
the Company has been engaged in acquiring additional interests in the project
area, and in exploring for gold and other minerals.
A gold deposit was first outlined by the Company at the Soledad Mountain Project
in 1988, although the size of the deposit was insufficient to justify further
development; consequently, the project remained dormant for several years.
Beginning in 1994, the Company renewed its exploration activities on the project
using funds obtained in a 1993 private placement of its common stock. This
exploration program was completed in October 1994 and outlined 562,000 ounces of
gold equivalent. By October 1996, following further exploration, the Company
concluded that proven and probable ore reserves had increased to 24.8 million
tonnes (27.3 million tons) at an average grade of 0.84 grams per tonne (0.024
ounces per ton) of gold and 14.70 grams per tonne (0.428 ounces per ton) of
silver. Total contained ounces are estimated at 666,400 ounces of gold and
11,695,000 ounces of silver, or approximately 791,500 ounces of gold equivalent.
Substantially all exploration activities at the project have been completed.
The Company now intends to develop the project as an open pit gold and silver
mining and cyanide heap leach recovery operation; the Company's plans include
the construction of facilities, mining by open pit methods and processing
precious metals ores at a rate of up to 3.6 million tonnes (4 million tons) per
year for at least seven years. This will be followed by heap detoxification and
reclamation of the project site. The Company expects to begin producing gold
and silver from the project in the second half of 1998.
The registered office of the Company is located at 1600 - 925 West Georgia
Street, Vancouver, British Columbia V6C 3L2; the executive offices of the
Company are located at Suite 211-A, Green Flag Building, 104 South Freya,
Spokane, Washington 99202. Unless otherwise indicated, all references to
"Golden Queen" mean Golden Queen Mining Co. Ltd. and all references to the
"Company" include Golden Queen and the Subsidiary.
PROJECT BACKGROUND. The Soledad Mountain Project is located within the Mojave
Mining District, along with the nearby Cactus Gold Mine, Standard Hill Mine and
Tropico Mine. Mining in the area dates back into the late 19th century, but the
most significant production occurred from the 1930s to 1942, when Gold Fields
Mining Company of South Africa operated a 272-ton per day cyanide mill,
evidenced by the large piled tailings on the north slope of Soledad Mountain.
No historical operators attempted open pit mining in the project area.
The Company was introduced to the Soledad Mountain deposit in the mid-1980s by
George Phelps, who held an interest in certain mining properties in the area
through the Subsidiary. On reviewing old maps of the underground mining,
management of the Company was impressed with the horizontal extent to which the
significant precious metals extended into the foot and hanging walls of the
major veins. Golden Queen acquired Mr. Phelps' property interests in 1986 by
acquiring all of the outstanding shares of the Subsidiary. Shortly thereafter,
land consolidation began in earnest and the Company commenced an initial program
of 12 diamond drill holes and limited underground check sampling. The next
phases of exploration, lasting through 1990, consisted of reverse circulation
drilling and more extensive underground check sampling.
By the end of 1995, a total of 587 surface drill holes had probed the numerous
structures of the project area for ore reserves. In addition, 7,994 meters
(26,220 feet) of underground drilling and cross-cuts were sampled to bolster the
understanding of surface drilling results and provide assay data in deeper
portions of ore-bearing structures.
1
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EXPLORATION.
GENERAL. Several major drilling campaigns and a program to resample the
underground workings have been completed, along with metallurgical testing for
process amenability. Aerial survey topographic mapping and collection of
baseline data for environmental permitting have also been conducted.
High grade precious metal mineralization is associated with steeply-dipping
epithermal fissure veins occupying faults and fracture zones that cross-cut the
rock units in a general north-west trend. This is the ore that was mined and
processed by the previous mining operation of Gold Fields Mining Company in the
1930s and early 1940s, but a considerable amount of this material remains and is
incorporated into the present reserves. Surrounding the veins are siliceous
envelopes that contain lower grade, but still ore-grade, material that forms the
major portion of the reserve tonnage.
SAMPLING AND BLOCK MODEL CONSTRUCTION. Sampling and block model computer
modeling are analytical tools used by the mining industry to test the economic
validity of an ore deposit. Gold and silver content data derived from drill
hole samples is introduced into a three-dimensional computer model of the
project area. Different variables, such as mining costs, ore processing costs
and metals prices, are then introduced into the model to determine the economic
viability of mining all or a portion of the deposit.
To facilitate the testing of the Soledad Mountain deposit, a block model was
constructed and values were ascribed to each 25-foot by 25-foot by 20-foot block
of material within the deposit. These values were derived from the gold and
silver content of ore samples taken from diamond and reverse circulation drill
holes, surface trenches and underground cross-cuts in the vicinity of each
block. The data used in the block model analysis comprises 64,081.7 meters
(210,188 feet) of assayed material, taken from fourteen different vein systems
in the district. This data is summarized as follows:
Diamond drilling 2,169.4 meters (7,116 feet)
Reverse circulation drilling 53,918.2 meters (176,851 feet)
Old cross-cuts (1930s) 3,290.2 meters (10,792 feet)
Underground drilling (1930s) 3,235.8 meters (10,614 feet)
Recent cross-cuts (1980s) 1,468.1 METERS ( 4,815 FEET)
--------------- --------------
64,081.7 meters (210,188 feet)
--------------- --------------
--------------- --------------
There are 587 drill holes currently stored in the Company's data files. Of
these, 564 were completed by the reverse circulation method, 15 are diamond core
and eight are open hole rotary. Also stored in the database are 279 underground
cross-cut channels and drill holes, which include a mix of values from Gold
Fields Mining Company's production records and those collected more recently by
the Company.
The computer model constructed for the Soledad Mountain Project was based on a
geological interpretation developed by the Company. Rock types, veins,
low-grade disseminated surrounding envelopes, mined-out stopes and zones of
internal waste were delineated on cross-sections, transferred to bench plans,
digitized and loaded into the model. Plan block maps were plotted from the
model to check the block code assignments and corrections were made where
necessary. For this study, veins were defined as outlined areas containing
grades greater than 3.43 grams per tonne (0.100 ounces per ton) of gold
equivalent and lower grade disseminated envelopes enclosed material that ranged
from 3.43 to 0.34 grams per tonne (0.100 to 0.010 ounces per ton) of gold
equivalent. All the remaining blocks in the model that did not fall into one of
the described ore categories were considered waste. Since ore and waste zones
were defined in the model blocks but not in the drill hole composites, the code
of the block penetrated by the drill hole was assigned back to the composite to
ensure a consistent one-to-one match during the grade assignment process.
Linear kriging was used to estimate gold block grades in the model. Grades were
estimated for the veins and disseminated areas independently to maintain the
integrity of each zone. The separation of vein, disseminated and waste zones
was maintained by allowing only composites coded as vein to be used to estimate
a block designated as vein and, similarly, only disseminated composites
influenced disseminated blocks. Each structural zone was kriged separately. A
gold equivalent grade was then calculated based on assumed prices for gold and
silver and an expected silver recovery rate. The calculation was done for all
blocks containing estimated gold and silver grades and the resulting value was
stored back into the block. Minable reserves and all subsequent mine planning
work were based on this value.
2
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The geological resource includes all blocks within the model limits, but with no
assumptions as to economic viability. The geological resource, based on a
cut-off grade of 0.342 grams per tonne (0.010 ounces per ton) of gold
equivalent, is comprised of 73,703,000 tonnes (81,261,000 tons) averaging 0.82
grams per tonne (0.024 ounces per ton) of gold and 13.06 grams per tonne (0.381
ounces per ton) of silver, or 0.99 grams per tonne (0.029 ounces per ton) of
gold equivalent.
FLOATING CONE RESOURCES. The calculation of the ore reserve portion of the
mineralized deposit was made by the application of the following economic
cut-off criteria in floating cone analyses for preliminary pit design: gold
prices of $375 and $400 per ounce; a development rock mining cost per tonne of
waste and ore of $0.77 ($0.70 per ton); internal costs of $3.64 per tonne ($3.30
per ton), comprised of processing and general/administrative costs of $2.98 and
$0.66 per tonne, ($2.70 and $0.60 per ton), respectively; a design cost of $4.41
per tonne ($4.00 per ton), comprised of processing, mining and
general/administrative costs of $2.98, $0.77 and $0.66 per tonne ($2.70, $0.70
and $0.60 per ton), respectively; a design cut-off grade of 0.404 grams per
tonne (0.012 ounces per ton) of gold and an internal cut-off grade of 0.342
grams per tonne (0.010 ounces per ton) of gold; a refining recovery rate of
100%; and process recovery rates of 80% for gold and 70% for silver.
A floating cone represents an inverted cone designed without regard to practical
considerations that make ore extraction economically effective. The pit
outlines require optimization procedures to adjust pit outlines for mining and
final calculation of minable ore reserves. Such optimization procedures include
the smoothing of abrupt changes in pit wall configuration for slope stability,
the smoothing of intermediate benches and pit floors for efficient equipment
utilization and the addition of haul roads.
Once floating cone pits are modified to represent minable pits, pit phasing
analyses investigate the sequencing of individual pits and portions of pits in
an effort to maximize profitability. Maximizing profitability implies
minimizing costs through efficient haul profiles and associated cost-effective
load-haul match up of mining equipment and maximizing the ore grade delivered to
the crusher. Pit phasing analyses involve an iterative process of comparing one
scenario to another.
The result of this optimization process is a report summarizing practical pit
shapes, minable reserves and an associated production schedule that reflects pit
phasing. The haul profiles developed for the production schedule provide the
basis for estimating mine capital and operating costs.
Floating cone reserves for gold prices of $375 per ounce ($12.06 per gram) and
$400 per ounce ($12.86 per gram) are as follows:
$375 OPT AU $400 OPT AU
------------------------- ------------------------------
Tonnes 25,220,000 Tonnes 40,824,000
Tons 27,800,000 Tons 45,000,000
AuEq g/t 1.029 AuEq g/t 1.097
AuEq oz/ton .030 AuEq oz/ton .032
Au g/t 0.857 Au g/t 0.926
Au oz/ton .025 Au oz/ton .027
Ag g/t 14.572 Ag g/t 13.646
Ag oz/ton .427 Ag oz/ton .400
In the $375 per ounce of gold floating cone reserve, material classified as vein
represents 2.5% of the tons and 12% of the contained gold equivalent.
ORE RESERVES. The Soledad Mountain Project contains a current minable ore
reserve, classified as proven and probable, totaling 24.8 million tonnes (27.3
million tons) averaging 0.84 grams per tonne (0.024 ounces per ton) of gold and
14.70 grams per tonne (0.428 ounces per ton) of silver. Total contained ounces
are 666,400 ounces of gold and 11,695,000 ounces of silver, or approximately
791,500 ounces of gold equivalent.
In addition, the project contains a mineralized deposit is estimated to contain
68,000 tonnes (61,773 tons) averaging 0.71 grams per tonne (0.021 ounces per
ton) of gold and 13.15 grams per tonne (0.376 ounces per ton) of silver. This
mineralized deposit does not qualify as a commercially minable ore body and will
not so qualify unless and until additional exploration is undertaken and a final
study based on test results is concluded.
3
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The following table sets forth information concerning proven and probable
minable ore reserves, based on a cutoff grade of 0.37 grams per tonne (0.011
ounces per ton) of gold equivalent.
PROVEN AND PROBABLE RESERVES
<TABLE>
<CAPTION>
ORE AUEQ AUEQ AU AU AG AG
CATEGORY TONNES G/MT OZ G/MT OZ G/MT OZ
<S> <C> <C> <C> <C> <C> <C> <C>
Proven 22,002,000 1.01 716,500 0.85 604,400 14.82 10,486,200
Probable 2,753,000 0.85 75,000 0.70 62,000 13.66 1,208,600
</TABLE>
The Company estimates that the current minable ore reserve will support ore
production at a rate of up to 3.6 million tonnes (4.0 million tons) per year for
at least seven years. Considering a possible three-year period of heap
detoxification, gold production could extend the life of the project to ten
years. Further extension is a possibility if additional drilling provides
better definition of minable reserves in those areas that currently have limited
drilling intercepts and/or limited underground sampling. The average stripping
ratio is projected to be approximately 2.4 to 1. The projected mine life,
stripping ratios and ore production rates at the Soledad Mountain Project are
believed by the Company to be well within industry standards.
METALLURGY. There are three principal types of ore represented in the Soledad
Mountain reserves: quartz latite, rhyolites and pyroclastics. Metallurgical
testing has been performed on more than 200 samples of these ore types from the
Project Area over a period of eight years.
The following ore processing methods were evaluated in the assessment of the
Soledad Mountain Project: slurry cyanide leaching, gravity separation,
flotation and heap leaching. The tests confirmed heap leaching as the best
processing method for the Project, largely as a result of the relatively low
grade of the ore to be processed. The location of the Project and the climate
in the Project Area are well adapted to heap leaching and the process has been
successfully applied by other mining companies to nearby orebodies.
Based on the high ratio of silver to gold in the deposits, the Merrill-Crowe
process is considered to be the most appropriate process for the recovery of
gold and silver from the leaching solution. As a consequence of the presence of
trace elements of mercury in the ore, the recovery plant for the project will be
required to incorporate a mercury retort to remove mercury from the precipitate.
The test data indicate that crush size is the most important factor affecting
metal recovery and that crushing the ore to a size of 10 mesh, about the finest
size possible using crushers without milling, will be required to realize
optimal recoveries. It is anticipated that the ore will be agglomerated with
cement as a binding agent at the rate of 4.5 kilograms of cement per tonne (10
lbs. per ton) of ore. The average cyanide consumption rate for the project is
expected to be 0.23 kilograms of cyanide per tonne (0.5 lbs. per ton) of ore
processed. The tests indicate average expected ultimate gold and silver
recoveries of 75% to 80% and 65% to 75%, respectively.
MINING AND ORE RECOVERY PLAN.
MINING. Mining at the Soledad Mountain Project is proposed to be conducted by
conventional open pit techniques. It is anticipated that operations will be
carried out by the Company's own employees.
Open pit mining is generally associated with a spiral haulage ramp that is
extended as the pit deepens. At Soledad Mountain, the majority of the ore will
be excavated by cutting back into canyons or along hillsides. As well, the ore
is not in a single pit, but in a network of smaller pits with pit walls
frequently overlapping. The current mining plan involves initial low elevation
mining for the first two years of production, followed by mining at the higher
levels in subsequent years. The road extending from the ore stockpile area at
the process plant site up to the highest elevations on Soledad Mountain must be
built before any excavation can begin on the highest benches in each pit area.
A total of about 6,400 meters (20,992 feet) of road will be required: 2,500
meters (8,200 feet) to facilitate the first two years of mining at low
elevations and then further extensions to the highest benches of Soledad
Mountain for the remaining mine life.
4
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The Company is planning to mine at a rate of up to 3.6 million tonnes (4.0
million tons) of ore per year on the basis of two 10-hour shifts per day, 355
days per year. This schedule would provide ore to the crusher at a rate of
10,250 tonnes (11,299 tons) per day and an average of 24,490 tonnes (26,995
tons) of waste per day. All waste will be deposited on a series of dump sites
east, south and west of the pit areas.
Ground water has been reported only in the deepest gold mine workings below 823
meters (2,699 feet) in elevation. All open pit mining is expected to be dry,
except for occasional rains and very occasional winter snow. Old workings from
historical underground mining will be encountered. However, based on the
experience of other operations, it is not expected that the old mine workings
will significantly interfere with mining operations.
CRUSHING, CONVEYING AND STACKING. An 726-tonne (800 tons) per hour, four-stage
crushing circuit will be installed at the Soledad Mountain Project. The primary
crushing system will be comprised of a vibrating grizzly feeder with
12.7-centimeter (5.0-in.) apertures and a 1.2-meter (48-inch) by 1.5-meter
(60-inch) jaw crusher with a closed side setting of 12.7 centimeters (5.0 in.).
The grizzly undersize and the jaw crusher product will be combined and conveyed
to the secondary crushing circuit. Secondary crushing will be done in a
2.13-meter (7-foot) standard cone crusher. Third and fourth stage crushing will
be done in two identical circuits. Abrasion index tests indicate that the ore
is fairly abrasive and can be expected to result in higher than average wear
rates for crushing equipment.
Crushed ore will be combined on a single belt conveyor for sampling and
agglomeration. Cement will be added to the belt conveyor at the rate of five
kilograms per tonne of ore by a variable speed screw conveyor. The belt
conveyor will discharge directly into an agglomeration drum. Water and barren
solution will be added in increments in the agglomerator to bring the ore to an
11% moisture content. A totalizing belt scale on the final product belt will
control the cement and water additions and record daily tonnages. The
agglomeration drum will discharge onto a conveyor that feeds the heap conveying
and stacking system.
In the primary crushing circuit, dust will be controlled by high pressure water
sprays. In the secondary, tertiary and quarternary crushing circuits, dust will
be controlled by central dry bag dust collectors. Individual dry dust
collectors will be used on the cement silo and at outlying conveyor transfers.
The agglomerated ores will be conveyed to a radial stacking system by a series
of portable and semi portable conveyors. The conveying system will consist of a
series of 0.914-meter (3-foot) wide semi-portable and portable conveyors. The
semi-portable conveyors will transport the crushed ore to the central area of
the leach pad and the portable conveyors will transport crushed ore to the
stacker. The stacking system will consist of a self-propelled bin conveyor and
a 39.6-meter (130-foot) long radial stacker with a 6.1-meter (20-foot) long
slinger. The radial stacker will be equipped for lifting and hydraulic wheel
positioning. The hydraulic drive will be sized for the slopes of the leach pad.
LEACHING. The heap leach pad will be located on the north slope of Soledad
Mountain. It will be a side hill pad with a perimeter dike to support the toe
of the heap and to create solution storage capacity. The leach pad is designed
to minimize impacts on the surrounding environment, wildlife and waters. It is
designed as a dedicated pad; that is, ore is stacked, leached, rinsed and left
in place for reclamation. The pad will be located downslope of the proposed
mine pit along the base of Soledad Mountain and will be divided into four cells
to correspond with ore production and pad capacity requirements. The capacity
of the pool in each cell is designed to have sufficient storage for up to eight
hours of solution application and 12 hours of drain down in the event of a pump
or power failure and to store the estimated precipitation from a 100-year
24-hour storm event. Additional storage is currently required for three of the
four cells, as presently designed, and is expected to be obtained by
subexcavating the leach pad foundation within the solution storage area.
Leach solution will be distributed over the heap by a system of pipes and
emitters. Once the solution is applied to the ore and percolates throughout the
heap, it will drain along the base of the heap. The solution flow will be
intercepted and collected by 10-centimeter (4.0 in.) diameter perforated pipes
installed on top of the liner system and routed into one of three solid manifold
pipes. The manifold pipe will then route the solution to the solution
collection sump. This drainage system is designed to minimize the hydraulic
head applied over the composite liner system and increase the rate of solution
recovery.
Solution will be recovered from the heap by a submerged sump pump in the low
area of the cell. The sump pump will be used to recover solutions to a tank and
booster pump station that will then pump solution to the solution storage tanks
at the Merrill-Crowe plant. The pipelines will be located within the lined cell
for containment in the event of a pipe leak. The pad for the pump will be
designed to drain into the leach pad to control leaks from the pump.
5
<PAGE>
The pad liner system will consist of four components: the prepared subgrade,
the liner material, a solution collection system on top of the liner and a
protective overliner material. The prepared subgrade will be a well-graded
material prepared and compacted to a surface for placement of the appropriate
liner material. The pad liner will be constructed as a double-liner system with
two different sections. The liner within the solution storage area will be
double-lined with HDPE material and a leak collection and recovery system,
including leak detection monitors and a pipe collection system, between the two
liners. The lower liner placed on the subgrade will be 40-mil thick HDPE and
the upper liner will be 60-mil thick HDPE. Pad liner placed upslope of the
solution storage area will be a composite liner that will consist of
low-permeability soil liner directly overlain by a 60-mil thick HDPE liner. The
60-mil thick HDPE liner will be continuous with the 60-mil thick liner in the
solution storage area. Protective overliner material will be crushed ore placed
in a 0.5 to 1.0-meter (1.6 feet to 3.3 feet) thick lift over the lined area.
This protective overliner will serve to secure the solution collection piping
and provide direct access in the pad area for lightweight vehicles and the
conveyor system. Initial placement of the material will be integrated with pad
construction to create a working area of sufficient size for production.
Thereafter, laying of the pipes and spreading of the overliner will be done in
conjunction with the pad loading plans.
The leach recovery schedule is based on three parameters: the metallurgical
characteristics of the ore, physical delays in the handling of ore and solutions
and the retention of values in solution within the heap. Once the heap has been
under leach for a complete leach cycle and a constant daily tonnage is being
stacked, estimated recoveries are as follows:
PERCENTAGE OF 80% GOLD, 75% SILVER
----------------------------------------
DAYS AU AG
---- -- --
90 60 40
180 15 25
270 10 15
360 7.5 10
450 5.0 5
540 2.5 5
--- ---
100 100
--- ---
--- ---
Additional recovery on a 100% recovery basis is expected to be as follows:
DAYS AU AG
---- -- --
960 2.0 3.0
1320 1.0 2.0
The modification for the first year's production schedule must take into account
the load-to-leach delays, delays from the additional lifts and, most
importantly, the values retained in heap solutions. The heaps will be
detoxified prior to closure by a rinse of a combination of fresh water and
peroxide-treated recycled water. The heap will be rinsed by cells. Each cell
is estimated to require a two-year period to detoxify to required cyanide
levels. The amount of fresh water available is limited by the well source and
the other demands of production: agglomeration and dust suppression. During the
production years, 18.9 liters (5 gallons) per second will be available. After
mining has ceased, 37.9 liters (10 gallons) per second will be available. The
addition of fresh water must be matched by the loss of water to evaporation.
Production during the detoxification period will come from two sources. Gold
and silver will be recovered as a result of extending the leach cycle and from
the solutions entrained in the heap that are rinsed during the period.
RECOVERY. The Soledad Mountain Project gold recovery plant will be a
conventional Merrill-Crowe circuit because of the high silver content in the
ore. The ore body average silver content is 14.78 grams per tonne (.43 oz. per
ton) but the silver content of the feed will occasionally exceed 34.3 grams per
tonne (1.0 oz. per ton). During heap detoxification, when cyanide levels drop
below levels suitable for Merrill-Crowe processing, a small carbon plant will be
used.
CLOSURE, RECLAMATION AND BONDING. The reclamation requirement for the Soledad
Mountain Project includes removal of all structures, shaping and seeding of the
heaps, seeding of portions of the waste dumps and the ripping up or removal of
all roads. The mine pits will require little or no reclamation. Reclamation
requirements are influenced by the fact that the Soledad Mountain Project is
located in a desert climate, with less than 14.5 centimeters (5.7 in.) of annual
rainfall. Reclaimed slopes may be as steep as 1:1 and there is no requirement
for demonstration of re-vegetation. Growth media (generally, the top 5.0
6
<PAGE>
centimeters [2 in.] of cover) will be removed from the waste dump and heap leach
sites and stockpiled for final reclamation. It is expected that the growth
media will contain most of the seeds necessary for the reclamation. The waste
dumps and heaps will be benched by bulldozer upon the completion of mining and
roadways will be ripped up. The growth media will be distributed along the
benches and in the roadways.
Several bonds will be required for the Soledad Mountain Project: a Surface
Mining and Reclamation Act bond, to be held by Kern County, to cover the general
reclamation of the site, including the waste dumps, roads, mine pits and
building removal; a detoxification and closure bond, to be held by the Lahontan
Regional Water Quality Control Board (the "LRWQCB"), relating to the heap back
process areas; and an "unforeseen event bond", to be held by the LRWQCB, which
is intended to bond for a catastrophe that would contaminate surface or ground
water with processed water. As there are no surface streams at Soledad
Mountain, the bond would apply to ground water only. The amounts of these bonds
will be determined by the regulatory authorities when permits are granted for
the Soledad Mountain Project. The Company expects to meet these bonding
requirements by purchasing surety bonds from one or more insurers.
Alternatively, the Company may post money market securities, such as
certificates of deposit, or bank letters of credit in lieu of, or in addition
to, such surety bonds.
Based on currently available information, the Company estimates that the costs
of complying with environmental requirements pertaining to the Soledad Mountain
Project, including land reclamation, will be approximately $3,000,000 once
production at the mine commences, increasing to $5,000,000 by the end of the
life of the mine.
PERMITTING PROCESS. A number of permits and approvals are required with respect
to all aspects of construction, operations and closure of a mine at the Soledad
Mountain Project. While approvals do not constitute a permit as such, they are
an integral part of the permit process and have significant importance. The
Company expects the permitting process for the Soledad Mountain Project to be
relatively straightforward. There is a long mining tradition in the area of the
project and the surrounding area and Kern County has designated mining as one of
the best uses for land in the area of the project. Two similar projects are
located nearby, one in the final phases of operation and the other in closure.
The Company is not aware of any sensitive plants or animals in or near the
project area.
The Kern County Planning and Development Department has the lead role in the
development and review of the environmental documents in accordance with the
Memorandum of Understanding between Kern County and the United States Department
of the Interior's Bureau of Land Management (the "BLM"). An environmental
impact report ("EIR") is required by the California Environmental Quality Act
wherever cyanide is used to process precious metal ores and the United States
National Environmental Policy Act requires some form of environmental review,
with an environmental impact statement ("EIS") being the most comprehensive of
these.
In February 1996, the Company submitted a draft combined EIR/EIS report,
prepared by an independent contractor, to Kern County and the BLM. The
permitting process provides for public comments and two public meetings were
held by the BLM in April 1996. There is also opportunity for the public to
provide written comments.
The public comment period ended June 30, 1996; the Company received comments
directed toward the project's effect on ground water quality and quantity, air
quality, the effect of development on native species of plants and animals, the
visual impact of the project and the potential hazards associated with
transporting supplies and chemicals to the project site. These comments and the
results of specific studies undertaken partially in response to the comments
will be incorporated in the combined EIR/EIS report, and this document will then
be released to the public for three months, after which time the BLM will give
its "Record of Decision" and Kern County will provide its decision. The Company
expects that it will receive the final decisions on its permitting application
by late 1997.
The Company believes that an unfavorable decision by either the BLM or Kern
County would become known before the EIR/EIS is complete, since both agencies
are expected to express their preferred alternative in the draft EIR/EIS. If
the project is viewed disfavorably, the Company will either continue to mitigate
the BLM's and Kern County's concerns until approval is granted, or redesign the
plan of operation to an acceptable standard. Were the plan of operation to be
redesigned, the permitting process could begin anew.
7
<PAGE>
ENVIRONMENTAL ISSUES.
ACID GENERATION. A number of samples representing different rock types from the
Project site were tested for acid generation/neutralization potential. Two
methods for evaluating acid generation/neutralization potential were used in the
review of each of the samples. Under one method, none of the samples were found
to be acid generating or acid toxic as indicated by pH level. Using a second
technique, one sample was found to be marginally acid generating. Because the
rock type represented by this one sample would constitute approximately 10% of
the waste and will be disbursed throughout the several dumps with overwhelming
volumes of rock that have an excess of buffering capacity, the Company is of the
view that this waste is unlikely to create an acid generation problem.
To meet closure requirements, all of the processed material will remain on the
lined pad following rinsing. The Company believes that this, along with large
amounts of cement and other basic compounds used in solution to be used in
acidity control, will mean that there will be no material risk of acid
generation in the heaps.
HYDROLOGIC DATA. The Soledad Mountain Project is in the northern portion of the
Antelope Valley ground water basin and experiences an average annual rainfall of
less than 14.5 centimeters (5.7 in.). There are no surface waters of any kind,
other than the periodic runoff that follows the rare heavy rains that typically
occur during the winter months. Drainage in the area of the project is
controlled by a series of deeply incised gullies and channels that ultimately
drain to the north-west into the Chaffee hydrologic area. The water that does
not evaporate typically percolates into the Antelope Valley ground water. No
water quality data are available for surface runoff. Ground water in the
bedrock underlying the area is almost certainly very modest in quantity and is
restricted to fractures. The alluvial cover on the valley fill are known
sources of important amounts of ground water. Water in these cases is typically
at 55 to 61 meters (180 to 200 feet) in depth.
Wells in the shallow alluvium are historically low yield in nature, while those
in areas with a substantial amount of alluvial fill can be important producers.
Water quality data are limited; however, sufficient data are available to
confirm that the water is acceptable for the process applications proposed.
WATER QUALITY ISSUES. Once mining at the project has commenced, control of
surface water in the area will be achieved through the construction of intercept
trenches to preclude the uncontrolled runoff from coming into contact with the
leach heaps or other materials that might degrade water quality. Also, the heap
leach process that the Company intends to employ does not include direct or
indirect waste water discharges.
Ground water protection from leaching solutions will be achieved through the use
of a double liner system augmented by a leachate collection and recovery system.
A monitoring system below the liner will also be incorporated for leak
detection. Additional monitoring wells will be placed down gradient in the
direction of probable flow as an additional protective feature.
AIR QUALITY ISSUES. The project lies within the Southeast Desert Air Basin,
which is under the jurisdiction of the Kern County Air Pollution Control
District. The area is designated as unclassified for PM(10) emissions (that
portion of the total suspended particulates less than 10 microns in size) and
as a non-attainment area for ozone. The typically windy conditions and very
dry nature of the area are probably responsible for the high PM(10)
background levels recorded at several nearby monitoring stations. On-site
air sampling was conducted for approximately one year with high background
PM(10) levels found.
Fugitive dust, when combined with the background dust, may cause unacceptable
levels of PM(10) emissions off-site, and may represent the greatest potential
environmental issue. A PM(10) level of 44 micrograms per cubic meter is
projected by computer modelling utilizing a mining rate of 30 million tons
per year of ore and waste. This level is below the California attainment
standard of 50 micrograms per cubic meter and the Federal standard of 150
micrograms per cubic meter. However, the Company believes that it will
achieve compliance with applicable standards by a greater margin, as a result
of the fact that the modelling methodology assumes worst likely case
conditions which are considered unlikely to be encountered in actual
operations and based on the use by the Company of commonly-accepted dust
control techniques in all phases of mining and crushing.
FACILITIES AND EMPLOYEES. The Company's principal executive offices are
located in a 1,200-square foot facility at 104 South Freya Street in Spokane,
Washington. The Company also leased facilities at Rosamond, California until
December, 1996. At March 1, 1997, the Company employed three full-time and
zero part-time management, finance and administrative employees at its
Spokane office, and 12 full-time and zero part-time employees at its Mojave
office.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
INTRODUCTION. The following is a discussion of the operating results of the
Company for the fiscal years ended May 31, 1996 and 1995 and for the period
from inception (November 21, 1985) through May 31, 1996, and for the
six-month periods ended November 30, 1996 and 1995. Effective May 21, 1996,
the Company changed the currency in which it reports its financial results
from the Canadian dollar to the U.S. dollar. All comparative figures in the
Company's consolidated financial statements included in this Form 10-SB and
the discussion which follows have been restated to U.S. dollars, as set out
in Note 2(c) to the consolidated financial statements. The selected
consolidated financial information set out below and certain of the comments
which follow have been derived from the consolidated financial statements of
the Company included elsewhere in this Form 10-SB and should be read in
conjunction with such financial statements and the notes thereto.
On May 21, 1996, the board of directors of the Company approved the adoption
of a change in the fiscal year-end of the Company, from May 31st to December
31st. This change took effect with the year ending December 31, 1996.
STATEMENTS OF OPERATIONS AND DEFICIT AND CHANGES IN FINANCIAL POSITION DATA.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
NOVEMBER 30, YEARS ENDED MAY 31,
1996 1995 1996 1995 1994
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Deferred exploration and
development expenditures
for the period $ 2,049,569 $ 906,571 $ 1,848,009 $ 519,370 $ 493,647
Loss (earnings) for the
period 236,631 53,420 426,380 219,576 158,193
Deficit at the end of the
period 2,051,518 1,217,291 1,690,977 1,163,871 944,295
Cash provided by (used in)
financing activities 951,910 1,886,187 12,537,475 273,018 1,432,285
BALANCE SHEET DATA.
SIX MONTHS ENDED
NOVEMBER 30, YEARS ENDED MAY 31,
1996 1995 1996 1995 1994
---- ---- ---- ---- ----
(UNAUDITED)
Current assets $ 6,486,649 $ 968,642 $ 9,877,992 $ 165,023 $ 768,119
Mineral properties 3,885,847 2,125,070 2,401,023 1,978,320 1,873,683
Deferred exploration and
development expenditures 10,051,930 7,060,923 8,002,361 6,154,352 5,634,982
Total assets 21,264,995 10,295,906 20,711,808 8,423,014 8,320,424
Current liabilities 521,219 262,397 481,586 780,759 623,167
Long-term notes payable 1,909,265 72,955 1,045,230 78,144 87,436
Total liabilities 2,430,484 335,352 1,526,816 858,903 710,603
Shareholder's equity 18,834,511 9,960,554 19,184,992 7,573,111 7,609,821
</TABLE>
9
<PAGE>
RESULTS OF OPERATIONS.
OVERVIEW. During the periods indicated in the discussion which follows, the
Company has been in the exploration stage of its business and therefore has
earned no revenue from its operations. Variations in the level of expenses
between periods have been as a result of the nature, timing and cost of the
activities undertaken in the various periods. Financing of the continued
exploration of the Soledad Mountain Project during such periods has been
obtained through the sale of shares of common stock of the Company in
predominantly offshore transactions, and through borrowings.
SIX MONTHS ENDED NOVEMBER 30, 1996 COMPARED TO SIX MONTHS ENDED NOVEMBER 30,
1995. Exploration and development expenditures of $2,049,569 for the six-month
period ending November 30, 1996 exceeded exploration and development
expenditures for the six-month period ended November 30, 1995 by $1,142,998.
The increase in expenditures resulted from an extensive drilling program
conducted to verify reserves at the Soledad Mountain Project, permitting
expenses and increased personnel at the project site. The loss of $236,631 for
the six-month period ending November 30, 1996 exceeded the loss for the
corresponding period in the previous year by $183,211. This was due to an
increase in administrative expenditures resulting from the hiring of management
personnel in December 1995 and February and May 1996. Cash provided by
financing activities decreased from $1,886,187 for the six months ended November
30, 1995 to $951,932 for the six months ended November 30, 1996. During the
period ended November 30, 1995, the Company issued shares of its common stock
for cash in a private placement; no comparable transaction occurred during the
period ended November 30, 1996.
YEAR ENDED MAY 31, 1996 COMPARED TO YEAR ENDED MAY 31, 1995. Exploration and
development expenditures of $1,848,009 for the year ended May 31, 1996 exceeded
exploration and development expenditures for the year ended May 31, 1995 by
$891,073 (before a recovery of cost in the amount of $437,566 for the year ended
May 31, 1995). The increase in expenditures resulted from an extensive drilling
program conducted to verify reserves at the Soledad Mountain Project. The loss
of $426,380 for the year ended May 31, 1996 exceeded the loss for the previous
year by $206,804. This was due to an increase in administrative expenditures
resulting from the hiring of additional management personnel in December 1995.
Cash provided by financing activities increased from $273,018 during the year
ended May 31, 1995 to $12,537,475 during the year ended May 31, 1996. This
increase is attributable to the Company's issuance and sale of special warrants
during the year.
YEAR ENDED MAY 31, 1995 COMPARED TO YEAR ENDED MAY 31, 1994. Exploration and
development expenditures of $956,936 (before a recovery of cost received in the
amount of $437,566) for the year ended May 31, 1995 increased by $463,289 over
exploration and development expenditures for the year ended May 31, 1994. This
increase was largely due to an increase in expenditures for drilling and
consultants. The loss of $219,576 for fiscal 1995 increased by $61,383 over the
loss for fiscal 1994. This was due primarily to professional fees, which
increased by $75,000 between these periods. Cash provided by financing
activities decreased from $1,432,285 for the year ended May 31, 1994 to $273,018
for the year ended May 31, 1995. The cash provided by financing activities
during the year ended May 31, 1994 resulted largely from the issuance by Golden
Queen of Common Shares as described under the heading "Certain Relationships and
Related Transactions".
LIQUIDITY AND CAPITAL RESOURCES.
INVESTING ACTIVITIES. The Company acquired the Soledad Mountain Project in 1986
and since then has been engaged in solidifying its land position and conducting
several drilling and sampling programs in order to delineate ore reserves on the
project. The Company continues to focus its attention on exploring and
developing the project, with a view toward commencing production in the second
half of 1998.
During the six months ended November 30, 1996, the Company expended
approximately $3,960,000 on the Soledad Mountain Project. On a cumulative basis
since inception, the Company has expended approximately $14,750,000 on the
project. These cumulative costs consist of acquisition costs of approximately
$4,235,000, capitalized development and exploration costs of $10,050,000 and
capital assets of $465,000.
FINANCING ACTIVITIES. Since inception, the Company has raised approximately
$19,940,000 from the sale of equity securities to support its business
activities. These transactions consisted of: the issuance in fiscal 1986 of
1,425,001 shares of common stock for cash, at the price of approximately $0.10
per share, resulting in proceeds to the Company of $141,313; the issuance in
fiscal 1987 of 550,000 shares of common stock for cash, at the price of
approximately $0.47 per share, resulting in proceeds to the Company of $256,971,
and the issuance in such year of an additional 25,000 shares of common stock for
property valued at $13,742; the issuance in fiscal 1988 of 1,858,748 shares of
common stock for cash, at the price of approximately $0.94 per share, resulting
in proceeds to the Company of $1,753,413; the issuance in fiscal 1989 of
1,328,750 shares of common stock
10
<PAGE>
for cash, at the price of approximately $1.36 per share, resulting in proceeds
to the Company of $1,814,133, and the issuance in such year of an additional
100,000 shares of common stock for property valued at $227,819; the issuance in
fiscal 1990 of 1,769,767 shares of common stock for cash, at the price of
approximately $1.57 per share, resulting in proceeds to the Company of
$2,771,815, and the issuance in such year of an additional 8,875 shares of
common stock for property valued at $14,855; the issuance in fiscal 1994 of
5,834,491 shares of common stock for cash, at the price of approximately $0.26
per share, resulting in proceeds to the Company of $1,536,260, and the issuance
in such year of an additional 128,493 shares of common stock for property valued
at $23,795; the issuance in fiscal 1995 of 648,900 shares of common stock for
cash, at the price of approximately $0.28 per share, resulting in proceeds to
the Company of $182,866; the issuance in fiscal 1996 of 2,349,160 shares of
common stock for cash, at the price of approximately $0.86 per share, resulting
in proceeds to the Company of $2,023,268; the issuance in fiscal 1996 of an
additional 506,215 shares of common stock in exchange for indebtedness of
$662,282; and the issuance in fiscal 1996 of 5,500,000 special warrants
(resulting in proceeds to the Company of $9,453,437), which special warrants
were subsequently exchanged for 5,500,000 common shares and warrants to purchase
an additional 2,750,000 shares of common stock.
PLAN OF OPERATIONS.
PROPOSED ACTIVITIES AND ESTIMATED COSTS. As is more specifically disclosed in
Item 1 of this registration statement, in the subsection entitled "Mining Ore
and Recovery Plan," the Company has substantially completed its exploration of
the Soledad Mountain Project and intends to develop the project as an open pit
gold and silver mining and cyanide heap leach recovery operation. The Company's
plans include the construction of facilities, mining by open pit methods and
processing precious metals ores at a rate of up to 3.6 million tonnes (4 million
tons) per year for at least seven years. This will be followed by heap
detoxification and reclamation of the project site. The Company expects to
begin producing gold and silver from the project in the second half of 1998.
The total capital cost of the Soledad Mountain Project is estimated to be
$59,500,000, consisting of an initial capital component and a future component
covering deferred and replacement capital, including reclamation. Initial
capital costs required to put the project into production are estimated to be
$47,800,000. This estimate is based on a 12-month construction period starting
immediately after permits are received. The estimate includes purchases of all
equipment and facilities, including mobile equipment. Deferred and replacement
capital costs required to complete all facilities to accommodate life-of-mine
ore production are estimated to be $11,700,000, including continuation of land
acquisition payments, leach pad additions, equipment replacement and/or major
overhauls and heap rinse down. Reclamation occurring during mine operation will
be carried as an operating expense.
Based on a stripping ratio of 2.49 to 1, the Company estimates total operating
costs of $5.92 per tonne ($5.36 per ton) of ore processed, comprised of mining
costs of $2.79 per tonne ($2.53 per ton), processing costs of $2.59 per tonne
($2.34 per ton) and general and administrative costs of $0.55 per tonne ($0.50
per ton). The feasibility report prepared for the Company by Pincock, Allen &
Holt described below concludes that these proposed operating costs have been
estimated in accordance with industry practice. The Company estimates that
94,300 ounces per year of gold equivalent can be produced at a direct cash cost
of $223 per ounce and a total operating cost, including royalties and local
taxes, of $245 per ounce. Total production cost, including capital but
excluding sunk cost, is estimated at $334 per ounce of gold equivalent.
In addition, the Company had budgeted $5,400,000 for additional on-going
drilling to further delineate ore at the Soledad Mountain Project. These
proposed drilling activities include: a $2,200,000 deep drilling program to
determine whether substantial minable reserves, estimated on the basis of
underground cross-cut assays from the 1930s and 1940s to be approximately 13.6
million tonnes (15.0 million tons), exist at 152 to 366 meters (500 to 1,200
feet) below the surface of the project; a $300,000 drilling program to further
delineate ore at the stockworks area of the proposed mine; a $1,400,000 in-fill
drilling program to be conducted during the first two years of mine production
to facilitate detailed mine planning; and a $1,500,000 program to explore the
south-east extension of one identified ore vein to determine whether there is a
continuation of the structure.
11
<PAGE>
The following table summarizes the activities proposed to be undertaken by the
Company during the twelve-month period commencing January 1, 1997, and the
estimated costs of such activities.
Underground drilling 2,000,000
Surface drilling 1,000,000
Engineering design 2,400,000
Permitting and feasibility study 1,000,000
---------
Total 6,400,000
The Company has expended approximately $2,000,000 to complete a final bankable
feasibility study prepared by Pincock, Allen & Holt of Lakewood, Colorado in
December 1996. This expenditure was necessary to complete the design of the
crushing plant, or heap, solution handling systems, haul roads and associated
surface infrastructure at the Soledad Mountain Project. The bankable
feasibility study is now at a level of accuracy deemed appropriate for project
financing purposes. An internal preliminary feasibility study was prepared by
the Company and reviewed by Pincock, Allen & Holt in early 1996; that report,
however, was a study of the project generated solely for internal purposes, to
ascertain the economic viability of the project. It was not prepared for
purposes of obtaining bankable feasibility.
SOURCES OF FINANCING. As of December 31, 1996, the Company held approximately
$5,400,000 in unrestricted cash and held-to-maturity securities. As is disclosed
in the foregoing table, based upon currently available information the Company
estimates that it will need approximately $47,800,000 to begin production at the
Soledad Mountain Project. This financing is expected to be derived from
additional sales of common stock, and from bank borrowings or other means.
Alternatively, the Company may determine that it is in the best interests of its
shareholders to enter into a joint development or similar arrangement with
another mining company to develop the Soledad Mountain Project.
The Company does not have a commitment for bank financing or for the
underwriting of additional shares of its common stock, and is not a party to any
agreement or arrangement providing for the joint development of the Soledad
Mountain Project. Whether and to what extent additional or alternative
financing options are pursued by the Company will depend on a number of
important factors, including: the results of further development activities at
the Soledad Mountain Project, management's assessment of the financial markets,
the overall capital requirements for development of the project, and the price
of gold. Gold prices fluctuate widely and are affected by numerous factors
beyond the Company's control, such as inflation, the strength of the United
States dollar and foreign currencies, global and regional demand, and the
political and economic conditions of major gold producing countries throughout
the world. As of March 1, 1997, world gold prices were approximately $365 per
ounce, a reduction of approximately 8% from prices a year ago. If gold prices
do not strengthen, it may not be economical for the Company to place the Soledad
Mountain Project into production.
ITEM 3. DESCRIPTION OF PROPERTY.
LOCATION AND ACCESS. The Soledad Mountain Project is located in the Mojave
Mining District in Kern County in southern California, approximately
2.4 kilometers (1.5 miles) from Highway 14, a paved, four-lane highway. Los
Angeles, California is about 145 kilometers (90 miles) south of the project and
the metropolitan area of Lancaster/Palmdale, California is less than 48
kilometers (30 miles) to the south by Highway 14. Secondary paved access roads
extend from Highway 14 and encircle Soledad Mountain, providing access to the
project site. Major power lines come to within a few hundred meters of the
plant electrical substation on the north-east corner of the project.
While there is no source of water naturally occurring on the site in quantities
sufficient for the expected needs of the project, an area controlled by the
Company to the north of Soledad Mountain is recommended for well development at
an estimated depth of 61 to 122 meters (200 to 400 feet). An alternate site,
also controlled by the Company, to the west of Soledad Mountain is estimated to
require drilling to a depth of 213 meters (699 feet).
The population centers of Mojave, Lancaster, Bakersfield and Los Angeles, all
located within a 161-kilometer (100-mile) radius of the project, are sources for
the labor, supplies, material and equipment needed for the project. The Santa
Fe Railway line runs parallel to, and just east of, Highway 14. The town of
Mojave, California provides a convenient railhead for delivery of large pieces
of equipment. Other aspects of regional infrastructure already in place and
available to support the Soledad Mountain Project include hospitals, ambulance
service, fire fighting service, garbage disposal, schools, living
accommodations, shopping, airline services and recreational areas.
12
<PAGE>
Local climatic conditions reflect the high desert environment of the Mojave
Desert in southern California. Conditions are variable, with temperatures
ranging from below freezing in the winter to more than 40.6DEG. Celsius (105DEG.
F) in the summer. Wind is a factor with respect to structural stability, as
gusts frequently reach 100 to 130 kilometers (62 to 81 miles) per hour. Flora
and fauna are sparse in the project area, reflective of the Mojave Desert
environment. No perennial streams or springs exist in the project area and the
only surface run-off occurs during the heavy rainstorms that are most prevalent
from December through March of each year.
The Soledad Mountain Project is more particularly identified on the map
appearing on the following page of this report.
[Map to be added]
13
<PAGE>
LAND OWNERSHIP AND MINING RIGHTS. The legal description of the Soledad Mountain
Project area includes portions of Sections 5, 6, 7 and 8 in Township 10 North,
Range 12 West and Sections 1 and 12 in Township 10 North, Range 13 West, San
Bernardino Baseline and Meridian. Most of the mining and processing facilities
will be located in Section 6 in Township 10 North, Range 12 West. The project
area is a 497-hectare (1,228 acres) contiguous block within an area of
approximately 1,012 hectares (2,501 acres) held by the Company. The project
property is comprised of 33 patented lode mining claims, 123 unpatented lode
mining claims, one unpatented placer mining claim, one patented mill site claim,
six unpatented mill site claims and 379 hectares (937 acres) of fee land. One
hectare is approximately equal to 2.471 acres.
The project property is held by the Company through the Subsidiary under a
variety of agreements with 79 property owners. These agreements include 64
mining leases, two exploration agreements with options to purchase and five
purchase agreements that are in various stages of completion. The Company
believes that all of the land necessary for the development of the project has
either been secured under one of these agreements or is controlled by the
Company through ownership of the land in fee or where the Company is the holder
of unpatented claims.
The Company commissioned a formal title opinion covering the project property
which was rendered in August and September 1996. With such a complicated
ownership history as is common in historic mining districts, it is typical for
title problems to exist with respect to properties in the area in which the
project is located. The title opinion reveals that the few title questions
which exist with respect to title to the property do not present a material
threat to the project. The Company is attempting to resolve the title issues of
which it is currently aware with the assistance of its California counsel, a law
firm with experience in title matters relating to properties in the Mojave
Mining District.
A comprehensive land survey of the project area has not yet been undertaken.
Since 1993, the whole of the project area and much of the immediate surrounding
area has been segregated from appropriation under the United States General
Mining Law of 1872. The segregation terminates May 8, 2000 and is additional
protection to the Company in the event open ground exists in the project area.
The various property purchase agreements to which the Company is a party
typically require payment by the Company of the purchase price over an extended
period of time. In most cases, a somewhat larger advance payment was made at
the time the agreement was entered into and, in some instances, a larger payment
is due at the time the purchase is completed. Certain of the property purchase
agreements require the payment by the Company of royalties upon the commencement
of commercial production from the project. As of the date of this registration
statement, approximately $2,800,000 remained to be paid by the Company under
these various property purchase agreements. Approximately $1,100,000 of this
amount is due within the ensuing twelve months.
The leases to which the Company is a party typically require payment in the form
of advance minimum royalties. With one exception, these payments are subject to
a credit when production from the project starts. In both the leases and the
purchase agreements, applicable royalties are restricted to the property covered
by the lease or agreement, as the case may be. Most of the royalties are of the
net smelter return ("NSR") type and are based on a sliding scale, with the
percentage amount of the royalty being a function of the ore grade on the
property to which the royalty relates. Typically, the royalties are 5% NSR or
less, with an expected average of 3.1% NSR based on the sliding scale royalty
percentage and the modest grade of the deposit. Many of the leases provide that
the royalty payable to the lessor is subject to adjustment in the event that the
interest of such lessor in the property leased to the Company is greater or less
than represented by the lessor in such lease. A number of the agreements have
an additional modest royalty consideration which applies in the event that
non-mineral commodities, such as aggregates, from the property are sold.
PROPERTY ACQUISITIONS. In the three years preceding the date of this
registration statement, the Subsidiary acquired a number of property interests
in the Soledad Mountain Project area, at a total cost of approximately
$2,700,000, in the following transactions.
In March 1995, the Subsidiary acquired 1.2 hectares (3 acres) of fee land from
William and Dorothy Meier of Valley County, Idaho. In April 1995, the
Subsidiary acquired an option to purchase all of the outstanding shares of Karma
Wegmann Corp., a California corporation, from Grace W. Meehl, Madge W. Wolff,
Stephen G. Wegmann, Michael L. Wegmann, John G. Hodgson, Virginia L. Sigl,
Patrick L. Wolff and George P. Wolff, most of whom reside in California. Karma
Wegmann Corp. owns an aggregate of six patented lode mining claims, seven
unpatented lode mining claims and one patented mill site claim in the project
area. In January 1996, the Subsidiary exercised its option to purchase such
shares. Pursuant to the terms of the Subsidiary's agreement with the owners of
the shares of Karma Wegmann Corp., such shares will be held in escrow and will
14
<PAGE>
remain registered in the names of the vendors until the vendors have received
the final instalment of the purchase price, which is payable on the earlier of
July 1, 1999 or whenever the Soledad Mountain Project is brought into sustained
production. In September 1995, the Subsidiary entered into an agreement to
acquire 16.2 hectares (40 acres) of fee land from the Paveen Gupta Medical
Corporate Defined Benefit Pension Plan of Culver City, California. This
acquisition was completed in November 1996. In March 1996, the Subsidiary
acquired three unpatented mining claims from Eric W. Godfrey, James P. Sigl, the
Joseph Meehl Estate, John G. Meehl and the Meehl Family Trust of Venice,
California. In June 1996, the Subsidiary acquired two parcels of property
aggregating approximately four hectares (10 acres) from the Federal Home Loan
Mortgage Corporation of Texas and Rolando and Delia Cruz of Texas. One of such
parcels is adjacent to the project area and the other is within the project
area. In August 1996, the Subsidiary entered into a purchase agreement with
Southwestern Refining Corporation of California to acquire approximately twelve
hectares (30 acres) of property within the project area. This transaction
closed in September 1996.
The Subsidiary has purchased the following parcels outside of the mine site
area. In June, 1996, a home and two hectares (5.0 acres) from Federal Home Loan
Mortgage Corporation. In September 1996, the Subsidiary purchased approximately
two hectares (4.9 acres) of property outside the project area from James and
Diane Prentice of California. In September, 1996, a home and two hectares (5.0
acres) from James and Diane Prentice of California. In December, 1996, a home
and two hectares (5.0 acres) from Richard and Kimberly Smith of California. In
January, 1997, a home and two hectares (5.0 acres) from Guadalupe and Enriqueta
Munoz of California. In January, 1997, one hectare (2.5 acres) from Larry
Mettert of California.
The Company does not require additional properties to place the Soledad Mountain
Project into production, and has no present plans to acquire any properties
within the mine area. The Company continually evaluates other precious metals
mining opportunities for possible acquisition or joint venture, and from
time-to-time engages in exploratory discussions regarding such opportunities.
As of the date of this registration statement, the Company has no agreement,
undertaking or other arrangement with any person regarding the acquisition of
mining properties outside the Soledad Mountain Project area.
GEOLOGY.
REGIONAL GEOLOGY. The structural history of the western United States is
complex, with orogenic events occurring from the Late Cretaceous Period to the
Middle Miocene Epoch (approximately 74.5 million to 16 million years ago). The
Sierra Nevada Range and the San Bernardino Mountains, the principal arcs
surrounding the Soledad Mountain area, are relatively narrow, with well-defined
zones of calc-alkaline volcanic and plutonic activity. Deposits of copper,
iron, molybdenum, tungsten, gold and silver are associated with these orogenic
events. Miocene volcanic units rest unconformably on Late Cretaceous quartz
monzonite (Sierra Nevada Batholith) basement. This suggests that the volcanic
center at Soledad Mountain may lie in a domed or tectonically-elevated area,
perhaps the topographic margin of a caldera with the central collapsed area
represented by the accumulation of tuffaceous sediments south of Soledad
Mountain in the Rosamond Hills area.
SITE GEOLOGY. Soledad Mountain is a moderately-eroded silicic volcanic center
of Middle-to-Late Miocene Epoch (approximately 21.5 million to 16.9 million
years ago) and is interpreted as part of a large caldera. Volcanics consist of
felsic flows, tuffs and breccias with rock types ranging from quartz latite to
rhyolite. Faults have disrupted all major rock types with the major faults
trending N10DEG.E to N40DEG.W. The faults dip from 70DEG. to 90DEG. near the
surface and 45DEG. to 60DEG. at depth. On the north-east side of the project
area, the faults tend to dip toward the north-east, while the faults on the
south-west side tend to dip towards the south-west. From east to west, the
principal veins crop out within a north-west-trending belt about 1,219 meters
(3,998 feet) wide and about 1,981 meters (6,498 feet) long.
The mountain consists of coalescing and interpenetrating volcanic domes, along
with lava flows and pyroclastic ash-fall tuffs and flows. Volcanic compositions
range from quartz latite to rhyolites with ages ranging from 21.5 to
16.9 million years. Other past gold producing structures in the district show
similar characteristics to Soledad Mountain. Common features are an epithermal
hot spring style of mineralization, host rocks consisting of calc-alkaline
volcanics and structurally controlled mineralization. The gold mines within the
Mojave Mining District appear to line the rim of a collapsed caldera. The
center of the caldera is south-east of Soledad Mountain, north of the Tropico
Mine and south-east of the Cactus Gold Mine.
The Standard Hill Mine, north-east of Soledad Mountain, consists of faults
filled with quartz veins that cross-cut quartz monzonite and quartz latite
volcanics. The veins strike north to north-west with shallow dips towards the
east and north-east, respectively. This deposit represents a mineralization
lower in the system than Soledad Mountain. The Tropico Mine, seven miles to the
south, consists of Cretaceous quartz monzonite overlain by volcanics of quartz
latite flow-banded rhyolite and rhyolite porphyry similar to those of Soledad
Mountain. The veins strike east to west and dip 65 to 70 degrees to the south.
15
<PAGE>
Quartz veins fill pre-mineral faults, with movement continuing during and after
mineralization. The Cactus Gold Mine, five miles to the west, consists of
quartz latite to rhyolite flows, resting unconformably on quartz monzonite. The
strikes of the veins vary from north-east to north-west, with the dips varying
from the south-east to north-east. Mineralization is associated with
quartz-filled faults, fault breccia and zones of silicification and
argillization of the wall rock.
The mineralized faults at Soledad Mountain show two distinct dip directions.
The faults on the north-east portion of Soledad Mountain dip 60 to 85 degrees to
the north-east. Faults on the south-west portion of Soledad Mountain dip 60 to
85 degrees to the south-west. The area between these sets of faults represents
a vent axis trending north-west, forming an elevated crest with an underlying
competent root system. Upon the collapse of the caldera, block faulting along
the slopes was deflected away from the vent axis and its competent root system.
Mineralization occurs in a series of epithermal veins, faults and shear zones.
Vein widths vary up to fifteen meters and are consistent along strike and down
dip. Some of them have been mined to a vertical depth of 305 meters (1,000
feet). Testing has shown that the principal ore minerals are native gold,
electrum and a suite of silver minerals consisting of acanthite, native silver,
pyrargyrite and polybasite in a gangue of oxidized, brecciated, quartz with
minor pyrite. Traces of sphalerite, chalcopyrite and galena are also present.
The lateral extent of mineralization in the different volcanic units at Soledad
Mountain varies. Mineralization of the volcanic flow units of quartz latite,
flow-banded rhyolite and porphryitic rhyolite is generally confined to faults
and fault breccias and shows a weak lateral potential for mineralization into
the wall rock. Where mineralized faults and veins cross-cut the middle and
upper pyroclastic units, a wider halo of mineralization into the host rock
occurs. This indicates penetration of hydrothermal solutions into the more
permeable and porous tuffaceous units of the Soledad Mountain complex.
The Company believes the geology of the Soledad Mountain Project area is
conducive to its intended operations.
[The balance of this page has been intentionally left blank.]
16
<PAGE>
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth as of March 31, 1997, the names of, and number of
shares of common stock of the Company beneficially owned by, persons known to
the Company to own more than five percent (5%) of the Company's common stock;
the names of, and number of shares beneficially owned by each director and
executive officer of the Company; and the number of shares beneficially owned
by, of all directors and executive officers as a group. At such date, the
number of shares of common stock of the Company outstanding or deemed
outstanding pursuant to presently exercisable options and warrants was
27,874,500 shares.
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP
(ALL DIRECT UNLESS PERCENT
NAME OF OWNER OTHERWISE NOTED) OF CLASS
- ------------- -------------------- --------
Paul A. Bailly(1) 306,176 1.10%
Steven W. Banning(2), (3) 1,000,000 3.58%
Bernard Goodson(4) 100,000 0.36%
Richard W. Graeme(5) 200,000 0.72%
Gordon C. Gutrath(2), (6) 195,000 0.70%
Jerrold W. Schramm(2), (7) 90,000 0.32%
Chester Shynkaryk(2), (8) 389,508 1.40%
Edward G. Thompson(2), (9) 183,200 0.66%
Christopher M.T. Thompson(10) 462,866 1.66%
All directors and executive officers
as a group (9 persons)(11) 2,926,750 10.50%
VenturesTrident II, L.P.(12) 4,758,061 17.07%
Landon T. Clay(13) 6,269,094 22.49%
Minven, Inc.(14) 4,758,061 17.07%
____________________
(1) Mr. Bailey's tenure as a director of the Company ended on December 31,
1996.
(2) Currently a director of the Company.
(3) Includes presently exercisable options for the purchase of 580,000
shares of common stock.
(4) Includes presently exercisable options for the purchase of 33,333
shares of common stock.
(5) Includes presently exercisable options for the purchase of 133,333
shares of common stock.
(6) Includes presently exercisable options for the purchase of 90,000
shares of common stock.
(7) Includes presently exercisable options for the purchase of 90,000
shares of common stock.
(8) Includes presently exercisable options for the purchase of 175,000
shares of common stock.
(9) Includes presently exercisable options for the purchase of 130,000
shares of common stock.
(10) Mr. Thompson's tenure as a director of the Company commenced January
29, 1997. Includes presently exercisable options for the purchase of
130,000 shares of common stock.
(11) Excluding Mr. Bailey, who ceased being a director December 31, 1996,
the number of shares of common stock held by all directors and
executive officers of the Company as a group was 2,620,574 shares or
approximately 9.40% of the outstanding common stock. Included in such
amount are presently exercisable options for the purchase of 1,361,666
shares.
[Footnotes continued on following page.]
17
<PAGE>
(12) VenturesTrident II, L.P. is an investment limited partnership
comprised of forty limited partners and one general partner, Fulcrum
Management Partners II, L.P., a limited partnership. The general
partners of Fulcrum Management II, L.P. are Landon T. Clay and Minven,
Inc. Minven, Inc. is a wholly-owned subsidiary of Eaton-Vance, Inc.,
25% of whose outstanding common stock is owned by Mr. Clay.
(13) Consists of shares of common stock of the Company held in five trusts
to which Mr. Clay is related. As noted in footnote 12, Mr. Clay is
also one of two general partners of Fulcrum Management Partners II,
L.P., the general partner of VenturesTrident II, L.P. The shares of
common stock of the Company held beneficially and of record by
VenturesTrident II, L.P. have been attributed to Mr. Clay in the
foregoing table. Also, includes presently exercisable options for the
purchase of 686,100 shares of common stock.
(14) As is noted in footnote 12, Minven, Inc. is one of two general
partners of Fulcrum Management II, L.P., the general partner of
VenturesTrident II, L.P. The shares of common stock of the Company
held beneficially and of record by VenturesTrident II, L.P. have been
attributed to Minven, Inc. in the foregoing table.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
The names, ages, business experience for at least the past five years and
positions of the directors and executive officers of the Company as of March 1,
1997, are as follows. The Company's board of directors consists of six
directors. All directors serve until the next annual meeting of the Company's
stockholders or until their successors are elected and qualified. Executive
officers of the Company are appointed by the board of directors.
<TABLE>
<CAPTION>
NAME AND AGE OF POSITION WITH
DIRECTOR OR EXECUTIVE OFFICER THE COMPANY PRINCIPAL OCCUPATION
- ----------------------------- ------------- --------------------
<S> <C> <C>
Paul A. Bailly(1) Director and Chairman of the Chairman of Castle
Age: 70 Board until December 31, 1996 Group,Inc. (a gold
mining investment
company)
Steven W. Banning(2) President, Chief Executive Officer of the
Age: 45 Officer and Director Company
Bernard F. Goodson Vice-President - Administration Officer of the
Age: 59 and Controller Company
Richard W. Graeme Vice-President - Operations Officer of the
Age: 55 Company
Gordon C. Gutrath(2) Director Chairman of
Age: 59 Queenstake Resources
Ltd. (a mineral
exploration company)
Jerrold W. Schramm(1) Director Partner, Lawson
Age: 36 Lundell Lawson &
McIntosh (barristers
and solicitors)
Chester Shynkaryk(1) Secretary and Director President of
Age: 52 Visionary Mining
Corporation (a
mineral exploration
company)
Edward G. Thompson(2) Director and Chairman of the President of E.G.
Age: 60 Board as of January 29, 1997 Thompson Mining
Consultants Inc.
Christopher M.T. Thompson Director as of January 29, 1997 President of Castle
Age: 49 Group, Inc.
- --------------------
</TABLE>
(1) Member of the compensation committee of the board of directors.
(2) Member of the audit committee of the board of directors.
18
<PAGE>
BIOGRAPHICAL INFORMATION CONCERNING DIRECTORS AND EXECUTIVE OFFICERS.
PAUL A. BAILLY was a director of the Company from 1987 through December 31,
1996, last serving as Chairman. He is also chairman of Castle Group, Inc., a
position he has held since 1992. From 1984 to 1992, Mr. Bailly served as
president of Fulcrum Management, Inc. He graduated from the University of Nance
in France in 1948 with a master of sciences degree in geology and mineralogy,
and later received a degree in geological engineering from the same institution.
STEVEN W. BANNING has been president and chief executive officer of the Company
since 1995. From 1984 through 1995, he was employed by Pegasus Gold Inc., last
serving as its vice president of operations. Mr. Banning graduated from Montana
College of Mineral Science and Technology in 1974 with a degree in mineral
dressing engineering.
BERNARD F. GOODSON has been vice president of administration and controller of
the Company since April 1996. From May 1991 to January 1996, he was vice
president of finance of Pintlar Corporation, a mining company headquartered in
Kellogg, Idaho. Mr. Goodson graduated from Lewis and Clark State College in
1981 with a degree in management technology.
RICHARD W. GRAEME has been executive vice president of operations of the Company
since November 1996, and for ten month prior to that was vice president of
operations. From January 1994 to February 1996, he was principal mine engineer
for Mine Development Associates, and from January 1991 to January 1994, he
served as chief executive officer of Mining Remedial Recovery Corp. Mr. Graeme
graduated from the University of Arizona in 1972 with a degree in Geological
Engineering.
GORDON C. GUTRATH has been a director of the Company since 1987. Since November
of 1995, he has also served as chairman of Queenstake Resources, which he
founded in 1977; he served as its president from 1977 until November 1995. Mr.
Gutrath is a professional geologist and a registered professional engineer in
British Columbia. He graduated from the University of British Columbia in 1960
with a degree in Geology.
JERROLD W. SCHRAMM has been a director of the Company since 1996. He is also a
partner in the law firm Lawson Lundell Lawson & McIntosh, a position he has held
since February 1994, and for approximately six and one-half years prior to that
was an associate of the firm. He obtained an undergraduate degree in commerce
from the University of British Columbia in 1983 and a law degree from the
University of Toronto in 1986.
CHESTER SHYNKARYK has been a director of the Company since 1985, and from 1985
to 1995, served as its president. Since 1996, he has also served as president
of Visionary Mining Corporation, a mineral exploration company.
EDWARD G. THOMPSON has been a director of the Company since 1994, and was
elected its chairman effective January 29, 1997. Since 1990 he has also served
as president of E. G. Thompson Mining Consultants, Inc., which he owns. Mr.
Thompson graduated from the University of Toronto in 1959 with a degree in
mining geology and in 1960 earned a degree in economic geology.
CHRISTOPHER M. T. THOMPSON has been a director of the Company since January
1997. Since 1992 he has also served as president of Castle Group, Inc., and
from January 1984 to October 1992, he was employed by Fulcrum Management, Inc.,
last serving as its chief financial officer. Mr. Thompson received a degree in
law and economics from Rhodes University in South Africa in 1969 and a Master of
Science degree from Bradford University in the United Kingdom in 1971.
[The balance of this page has been intentionally left blank.]
19
<PAGE>
ITEM 6. EXECUTIVE COMPENSATION.
SUMMARY COMPENSATION TABLE.
The following table discloses compensation received by the Company's former
chief executive officer, its president and current chief executive officer, its
vice president of administration and controller, and its vice president of
operations for the years ended May 31, 1996, 1995 and 1994.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
- --------------------------------------------------------------- ----------------------------------------------------------------
OTHER DOLLAR VALUE SECURITIES ALL OTHER
EXECUTIVE ANNUAL OF RESTRICTED UNDERLYING LTIP COMPEN-
OFFICER YEAR SALARY BONUS COMPENSATION STOCK AWARDS OPTIONS/SARS PAYOUTS SATION
-------- ---- ------ ----- ------------ ------------ ------------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PAUL A. BAILLY(1) 1996 - - - - 120,000 - -
Chief Executive Officer 1995 - - - - 50,000 - -
(former) 1994 - - - - 40,000 - -
STEVEN W. BANNING(2) 1996 $100,000 - $1,800(3) - 810,000(4) - -
President and Chief 1995 - - - - - - -
Executive Officer 1994 - - - - - - -
BERNARD F. GOODSON(5) 1996 $ 6,667 - $ 300(3) - 100,000 - -
Vice President of 1995 - - - - - - -
Administration and 1994 - - - - - - -
Controller
RICHARD W. GRAEME(6) 1996 $ 36,667 - - - 200,000 - -
Vice President of 1995 - - - - - - -
Operations 1994 - - - - - - -
</TABLE>
- --------------------
(1) Mr. Bailly was chief executive officer of the Company until December
1, 1995.
(2) Mr. Banning was not employed by the Company until December 1, 1995
and, accordingly, was employed by the Company for six months during
the fiscal year ended May 31, 1996.
(3) Represents automobile allowances paid to Mr. Banning and Mr. Goodson.
(4) Pursuant to Mr. Banning's employment agreement, the Company is
obligated to grant Mr. Banning options to purchase an aggregate of
1,000,000 shares of common stock, exercisable at the closing price of
the common stock on the Toronto Stock Exchange as of the date of
grant. Pursuant to this agreement, Mr. Banning was granted options
for the purchase of 680,000 shares on December 1, 1995, which options
are exercisable at C$1.35 ($0.99) per share, and was granted options
for the purchase of an additional 130,000 shares on February 21, 1996,
which options are exercisable at C$1.51 ($1.11) per share. Options to
purchase the remaining 190,000 shares were granted to Mr. Banning in
November 1996, following shareholder approval of certain amendments to
the Company's stock option plan. These options are exercisable at
C$2.43 ($1.79) per share.
(5) Mr. Goodson was not employed by the Company until May 1, 1996 and,
accordingly, was employed by the Company for one month during the
fiscal year ended May 31, 1996.
(6) Mr. Graeme was not employed by the Company until February 1, 1996 and,
accordingly, was employed by the Company for four months during the
fiscal year ended May 31, 1996.
20
<PAGE>
TABLE OF AGGREGATED OPTIONS EXERCISED DURING THE FISCAL YEAR ENDED MAY 31, 1996
AND FISCAL YEAR-END OPTION VALUES. The following table sets out certain
information with respect to options to purchase shares of the common stock of
the Company exercised during the fiscal year ended May 31, 1996 by the Company's
former chief executive officer, its president and current chief executive
officer, its vice president of administration and controller, and its vice
president of operations, and options held by such persons at the end of such
year. Information with respect the value of such options is set forth in
Canadian dollars, being the currency in which such options are denominated. At
March 1, 1997, each Canadian dollar was approximately equal to $1.3679.
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED IN-THE-
UNEXERCISED OPTIONS AT MONEY OPTIONS AT
SECURITIES ACQUIRED AGGREGATE VALUE MAY 31, 1996 MAY 31, 1996
ON EXERCISE REALIZED (#) (C$)
NAME (#) (C$) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE(1)
---- ------------------- ----------------------- ------------------------- ----------------------------
<S> <C> <C> <C> <C>
Paul A. Bailly 90,000 65,820 120,000 / 0 184,800 / 0
Steven W. Banning 0 0 269,999 /540,001 452,065 /904,135
Bernard F. Goodson 0 0 33,333 / 66,667 101,666 /203,334
Richard W. Graeme 0 0 66,666 /133,334 203,331 /406,667
</TABLE>
- --------------------
(1) The closing price of the common stock of the Company on The Toronto
Stock Exchange on May 31, 1996 was C$3.05.
(2) Of such options, options to purchase an aggregate of 40,000 shares of
common stock were exercisable at C$0.592 ($0.44) per share and options
to purchase an aggregate of 50,000 shares of common stock were
exercisable at C$0.55 ($0.40) per share. All of these options were
exercised on July 19, 1995.
[The balance of this page has been intentionally left blank.]
21
<PAGE>
TABLE OF OPTIONS GRANTED DURING THE FISCAL YEAR ENDED MAY 31, 1996. The
following table sets out certain information with respect to options to purchase
shares of common stock of the Company granted to the Company's then chief
executive officer, its president and current chief executive officer, its vice
president of administration and controller, and its vice president of operations
during the fiscal year ended May 31, 1996. None of the other named executive
officers of the Company were granted options during such year.
<TABLE>
<CAPTION>
SECURITIES UNDER % OF TOTAL OPTIONS MARKET VALUE OF SHARES
OPTIONS GRANTED TO EXERCISE OR UNDERLYING OPTIONS ON
GRANTED EMPLOYEES IN THE BASE PRICE THE DATE OF GRANT
NAME (#) FINANCIAL YEAR (C$-US$/SHARE) (C$-US$/SHARE) EXPIRATION DATE
---- ------- ------------------ -------------- ---------------------- ---------------
<S> <C> <C> <C> <C> <C>
Paul A. Bailly 120,000(1) 8.36% 1.51 (1.11) 1.51 (1.11) August 24, 1999
Steven W. Banning(1) 680,000 47.39 1.35 (0.99) 1.35 (0.99) December 1, 2000
130,000 9.06 1.51 (1.11) 1.51 (1.11) February 21, 2001
Bernard F. Goodson 100,000 6.97 3.00 (2.18) 3.00 (2.18) May 21, 2001
Richard W. Graeme 200,000 13.94 1.51 (1.11) 1.51 (1.11) February 21, 2001
</TABLE>
- ----------------------
(1) Pursuant to Mr. Banning's employment agreement, the Company agreed to
grant Mr. Banning options to purchase an aggregate of 1,000,000 shares
of common stock of the Company. Options to purchase 810,000 of these
shares had been granted to Mr. Banning as of May 31, 1996. Options to
purchase the remaining 190,000 shares were granted to Mr. Banning in
November 1996, following shareholder approval of certain amendments to
the Company's stock option plan. The Company has also agreed to pay
to Mr. Banning certain amounts upon the exercise by him of certain of
these options, which amounts are equal to the difference between the
exercise price of the options as of the date they were granted to Mr.
Banning and the market price of the stock on the date the Company
agreed to grant him such options. With respect to options to purchase
130,000 shares of common stock expiring on February 21, 2001, such
amount is equal to the difference between C$1.51 ($1.11) per share
(the exercise price of such options on the date of grant) and C$1.35
($0.99) per share (the market price of the common stock on the date
the Company agreed to grant such options), and with respect to options
to purchase 190,000 shares of common stock expiring on October 4,
2001, such amount is equal to the difference between C$2.43 ($1.79)
per share (the exercise price of such options on the date of grant)
and C$1.35 ($0.99) per share (the market price of the common stock on
the date the Company agreed to grant such options).
TERMINATION OF EMPLOYMENT, CHANGE IN RESPONSIBILITIES AND EMPLOYMENT CONTRACTS.
EMPLOYMENT AGREEMENTS WITH STEVEN W. BANNING, BERNARD F. GOODSON AND RICHARD W.
GRAEME. During the fiscal year ended May 31, 1996, the Company entered into
employment agreements with Mr. Banning, its president and chief executive
officer; Mr. Goodson, its vice president of administration and controller; and
Mr. Graeme, its vice president of operations. Each of such agreements provides
for the payment of salary and bonuses, the granting of certain options to
purchase shares of common stock to the employee and the provision of certain
benefits, including those offered to employees generally. Mr. Banning receives
an annual salary of $200,000 pursuant to his employment agreement with the
Company. Mr. Goodson and Mr. Graeme receive annual salaries of $80,000 and
$110,000, respectively, pursuant to their agreements.
The employment agreements with Mr. Banning, Mr. Goodson and Mr. Graeme also
contain provisions relating to their compensation in the event of termination of
employment other than for cause. If the Company terminates Mr. Banning's or Mr.
Graeme's employment for any reason other than for cause, the Company is required
to pay the terminated employee an amount equal to 24 months' salary. In the
event Mr. Goodson's employment is terminated for any reason other than for
cause, the Company is obligated to pay him an amount equal to 12 months' salary.
Finally, the agreements provide that if there is a "change in control" (as
defined in the agreements) of the Company and the employee's employment is
subsequently terminated (unless such termination is for cause or by the employee
for other than "good reason" as defined in the agreements), the employee is
entitled to receive a lump sum severance payment equal to two times the
employee's then current annual base salary in the case of Mr. Banning and Mr.
Graeme, and one times the employee's then current annual base salary in the case
of Mr. Goodson. The agreements provide for the continuation of benefits then
22
<PAGE>
provided to the employee for a period of 24 months after termination in the case
of Mr. Banning and Mr. Graeme, and 12 months after termination in the case of
Mr. Goodson. Any existing stock options then held by the employee will vest
immediately and may be exercised by the employee at any time within three months
following the date of his termination.
The employment agreements with Mr. Banning and Mr. Graeme are each for a term of
two years. The employment agreement with Mr. Goodson is for a term of one year.
Each provides, however, that the employee may terminate his employment upon six
months' prior written notice to the Company.
CONSULTING AGREEMENT WITH ERIC W. KINNEBERG. Pursuant to the terms of a
consulting agreement dated February 1, 1996 between the Subsidiary and Mr.
Kinneberg, Mr. Kinneberg has agreed to serve as a consultant to the Subsidiary
with respect to financial and related matters, and to perform such other
consulting services to the Subsidiary, as the Subsidiary may propose. As
consideration for such services, the Subsidiary has agreed to pay Mr. Kinneberg
at the rate of $1,000 per day for services rendered and has further agreed to
reimburse him for out-of-pocket expenses incurred in the performance of his
services. The consulting agreement obligates Mr. Kinneberg to submit invoices
to the Subsidiary no less often than monthly, specifying the services rendered
during the month, and allows the Company to deduct $325 per month from amounts
otherwise payable to Mr. Kinneberg for use of the Company's offices.
The consulting agreement with Mr. Kinneberg was for a term of one month and is
thereafter renewable, unless terminated either by the Company or Mr. Kinneberg,
on a month-to-month basis. Since February 1, 1996, the Company has paid Mr.
Kinneberg approximately $72,000 pursuant to the agreement.
COMPENSATION OF DIRECTORS. The Company does not pay directors' fees. While the
Company has no written policy or standard arrangements in this regard, it is
currently the policy of the Company to grant options to purchase shares of its
common stock to its directors under the stock option plan described below under
the heading "Stock Option Plan". Generally, each director is granted options to
purchase an aggregate of 90,000 shares of common stock and such additional
number of shares of common stock as may be appropriate in particular
circumstances given other responsibilities assumed by the director in the
Company's affairs and contributions made by such director to the Company.
The following table sets out certain information with respect to options to
purchase shares of common stock of the Company granted to the directors of the
Company, other than directors who are also executive officers, during the fiscal
year ended May 31, 1996.
<TABLE>
<CAPTION>
% OF TOTAL MARKET VALUE
OPTIONS OF SECURITIES
SECURITIES GRANTED TO UNDERLYING
UNDER ALL EXERCISE OR OPTIONS ON THE
NAME OF DIRECTOR OPTIONS EMPLOYEES IN BASE PRICE DATE OF GRANT
AS AT FINANCIAL GRANTED THE FINANCIAL (C$- (C$- DATE OF EXPIRATION
YEAR-END (#) YEAR US$/SHARE) US$/SHARE) GRANT DATE
---------------- ---------- ------------- ---------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Edward G. Thompson 20,000 1.39% 1.51 (1.11) 1.51 (1.11) February February
21, 1996 21, 2001
</TABLE>
There are no other arrangements under which directors of the Company were
compensated by the Company during the year ended May 31, 1996 for their services
in their capacity as directors and, without limiting the generality of the
foregoing, no additional amounts are payable under any standard arrangements for
committee participation or special assignments, except that the articles of
incorporation of the Company provide that the directors are entitled to be paid
reasonable travelling, hotel and other expenses incurred by them in the
performance of their duties as directors. The Company's articles of
incorporation also provide that if a director is called upon to perform any
professional or other services for the Company that, in the opinion of
the directors, is outside of the ordinary duties of a director, such director
may be paid a remuneration to be fixed by the directors and such remuneration
may be either in addition to or in substitution for any other remuneration that
such director may be entitled to receive.
23
<PAGE>
STOCK OPTION PLAN. On November 27, 1992, the shareholders of the Company
approved the establishment of a stock option plan (the "Stock Option Plan") for
directors, officers and employees of the Company and its subsidiaries. The
Stock Option Plan is administered by the Compensation Committee of the board of
directors of the Company. The Stock Option Plan provides that a maximum of 10%
of the number of shares of common stock issued and outstanding from time to time
will be reserved, set aside and made available for issuance pursuant to options
granted from time to time under such plan, provided that, under the terms of the
Stock Option Plan, no person is entitled to be granted options to purchase
shares of common stock constituting more than 5% of the number of outstanding
shares of common stock.
The Stock Option Plan provides that the exercise price of each option granted
shall not be less than the market price of the common stock on the Toronto Stock
Exchange as of the date the option is granted. The Stock Option Plan provides
that all options granted under such plan will expire not later than five years
after the date of grant.
Options granted under the Stock Option Plan are not transferable, other than by
will or other testamentary instrument or the laws of succession. In the event
that an optionee is dismissed, removed or otherwise ceases to be a director,
officer or employee of the Company or its subsidiaries (other than for cause or
as a result of his or her death), all unexercised options held by such person
terminate on the earlier of 30 days after the optionee ceases to be a director,
officer or employee of the Company or its subsidiaries or the normal expiration
date of such unexercised options. In the event that an optionee is dismissed as
a director, officer or employee of the Company or one of its subsidiaries for
cause, all unexercised options held by such person immediately terminate.
On February 21, 1996, the board of directors authorized the amendment of the
Stock Option Plan to replace the current "rolling maximum" limitation on the
number of shares of common stock issuable pursuant to the exercise of options
granted under such plan with a fixed maximum of 3,300,000 shares of common
stock. The directors also approved amendments to, among other things, provide
that options granted to officers of the Company and its subsidiaries vest as to
one-third of the number of shares of common stock issuable upon the exercise of
the options granted on the date of grant and as to an additional one-third of
such number of shares on each of the next two anniversaries of such date.
The amendments to the Stock Option Plan were approved by the stockholders of the
Company at the annual general meeting of stockholders held on November 13, 1996,
and were subsequently also approved by the Toronto Stock Exchange.
[The balance of this page has been intentionally left blank.]
24
<PAGE>
OPTIONS TO PURCHASE SECURITIES. As at May 31, 1996, options to acquire an
aggregate of 1,950,000 shares of common stock were outstanding under the Stock
Option Plan as follows:
<TABLE>
<CAPTION>
NUMBER OF
COMMON EXERCISE PRICE PER
SHARES UNDER COMMON
CLASS OF OPTIONEES DATE OF GRANT EXPIRY DATE OPTION(1) SHARE (C$-US$)
------------------ ------------- ----------- ------------ ------------------
<S> <C> <C> <C> <C>
Executive officers of Golden Queen December 1, 1995 December 1, 2000 680,000(2) C$1.35 (0.99)
(four persons) February 21, 1996 February 21, 2001 450,000(2) 1.51 (1.11)
May 21, 1996 May 21, 2001 100,000 3.00 (2.18)
Directors of Golden Queen who are December 21, 1993 December 21, 1998 75,000 C$0.592 (0.44)
not also executive officers of August 24, 1994 August 24, 1999 100,000 0.55 (0.40)
Golden Queen September 21, 1994 September 21, 1999 90,000 1.50 (1.10)
(three persons) December 2, 1994 December 2, 1999 70,000 1.45 (1.07)
February 21, 1996 February 21, 2001 20,000 1.51 (1.11)
Executive officers of the Subsidiary September 21, 1994 September 21, 1999 130,000 C$1.50 (1.10)
who are not also executive officers February 21, 1996 February 21, 2001 90,000 1.51 (1.11)
or directors of Golden Queen
(two persons)
All other employees of the Subsidiary March 4, 1994 March 4, 1999 30,000 C$0.76 (0.56)
(five persons) August 24, 1994 August 24, 1999 45,000 0.55 (0.40)
July 20, 1995 July 20, 2000 70,000 1.35 (0.99)
</TABLE>
- --------------------
(1) Includes all shares of common stock issuable upon the exercise of
options granted as at May 31, 1996, including those that had not
vested at such date and those that were subject to approval of the
Company's stockholders and the Toronto Stock Exchange. As noted
above, such approvals were obtained in November 1996.
(2) Certain of these options are held by Steven W. Banning. As noted
above in the section of this registration statement entitled
"-Termination of Employment, Change in Responsibilities and Employment
Contracts," the Company granted Mr. Banning options to acquire an
additional 190,000 shares of common stock in November 1996 pursuant to
the terms of his employment agreement with the Company.
At the annual general meeting of stockholders of the Company held on November
13, 1996, the shareholders of the Company approved, among other things, the
grant to officers and directors of the Company and the Subsidiary of options to
purchase an aggregate of 1,340,000 shares of common stock, as follows:
NUMBER OF COMMON
OPTIONEE SHARES UNDER OPTION
-------- -------------------
Paul A. Bailly 120,000
Steven W. Banning 810,000
Richard W. Graeme 200,000
Raymond E. Grant 90,000
Bernard Goodson 100,000
Edward G. Thompson 20,000
Such options were granted pursuant to the Stock Option Plan, as amended at the
annual general meeting of stockholders. See the section of this registration
statement entitled "-Stock Option Plan" above.
25
<PAGE>
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
TRANSACTIONS WITH VENTURESTRIDENT II, L.P. VenturesTrident II, L.P. ("VT II")
is a Massachusetts limited partnership which as of March 1, 1997 owns 4,758,061
shares of common stock of the Company, or approximately 19.6% of the outstanding
common stock at such date. VT II acquired its shares as follows:
During December 1993, the Company issued an aggregate of 5,748,491 shares
of common stock to various purchasers at the price of C$0.35 ($0.26) per
share; 1,500,000 of these shares were issued to VT II.
During the fiscal year ended May 31, 1994, the Subsidiary entered into a
short-term borrowing arrangement with VT II. The Subsidiary borrowed
$200,000 from VT II pursuant to this arrangement and agreed to pay VT II
interest at the rate of 8% per annum. The loan was repaid during the year
through the issuance of 759,714 shares of common stock of the Company to VT
II, at the price of C$0.35 ($0.26) per share. Such issuance was as part of
a private placement by the Company of 5,748,491 shares of common stock to
various purchasers.
During the fiscal year ended May 31, 1993, the Company entered into two
short-term borrowing arrangements with VT II L.P. The Company borrowed
$130,000 from VT II and $70,000 from VT I LP pursuant to these arrangements
and agreed to pay VT II interest at the rate of 11% per annum. The loans
were repaid in October 1995 through the issuance of 137,179 shares of
common stock of the Company to VT II and 73,495 shares to VT I LP, at the
price of C$1.78 ($1.31) per share.
During the fiscal year ended May 31, 1994, the Company entered into
borrowing arrangements with VenturesTrident I, L.P. ("VT I"), which is
affiliated with VT II, and with Tamarack Mining Inc., a corporation related
to VT I. The Company borrowed $75,000 from VT II and $25,000 from Tamarack
pursuant to these arrangements, and agreed to pay the lenders interest at
the rates of 11% and 12% per annum, respectively. The Tamarack note was
assigned to VT I in June, 1995. The loans were repaid in October 1995
through the issuance of 73,977 shares and 24,659 shares of common stock of
the Company to VT II and VT I respectively, at the price of C$1.78 ($1.31)
per share.
During the fiscal year ended May 31, 1995, the Company entered into a
short-term borrowing arrangement with VT II. The Company borrowed $250,000
from VT II pursuant to this arrangement and agreed to pay VT II interest at
the rate of 12% per annum. The loan became due on November 1, 1995 and was
repaid in October 1995 through the issuance of 196,905 shares of common
stock of the Company to VT II, at the price of C$1.78 ($1.31).
On October 13, 1995, the Company issued 408,061 shares of common stock to
VT II and 98,154 shares of common stock to VT I at the price of C$1.78
($1.31) per share.
TRANSACTIONS WITH LANDON T. CLAY AND AFFILIATED ENTITIES. Landon T. Clay is one
of the two general partners of Fulcrum Management Partners II, L.P. ("Fulcrum
Management"), a limited partnership which is the general partner of VT II.
Accordingly, Mr. Clay may be considered to be affiliated with VT II. The second
general partner of Fulcrum Management Partners II, L.P. is Minven, Inc., a
wholly-owned subsidiary of Eaton-Vance, Inc., 25% of whose outstanding shares of
common stock are owned by Mr. Clay. In addition, Mr. Clay is related to five
trusts which hold an aggregate of 824,933 shares of common stock of the Company,
or approximately 3.7% of the common stock outstanding as of March 1, 1997.
The transactions between the Company or the Subsidiary and VT II described in
the preceding subsection may be attributable to Mr. Clay by virtue of his
affiliation with Fulcrum Management and VT II. In addition, the Company, Golden
Queen and the Subsidiary entered into the following additional transactions with
Mr. Clay or his affiliates:
In December 1993, the Company issued an aggregate of 5,748,491 shares of
common stock to various purchasers at the price of C$0.35 ($0.26) per
share; 375,939 of such shares were issued to the Landon T. Clay Lead Trust.
In August 1995, Golden Queen completed a private placement of 1,929,160
shares of common stock at a price of C$1.25 ($0.92) per share. 272,600 of
these shares were issued to the Landon T. Clay Charitable Lead Trust and
163,560 shares were issued to the Landon T. Clay Charitable Lead Trust II.
On March 19, 1996, the Subsidiary issued two debentures in the aggregate
principal amount of $1,000,000 to the Landon T. Clay Charitable Lead Trust
II and the Landon T. Clay Charitable Lead Trust dated 11/30/83. The
principal amounts of the debentures are convertible at the option of their
holders into shares of common stock of the Company at a conversion
26
<PAGE>
price of C$2.00 ($1.46) per share, subject to customary "anti-dilution"
provisions set out in the debenture instruments. The debentures have a
two-year term and bear interest at a rate of 9.5% per annum. If the
principal amounts of the debentures were converted into shares of common
stock, an aggregate of 686,100 shares of common stock would be issued to
the holders of the debentures. As of March 1, 1997, the debentures had not
been converted.
TRANSACTIONS WITH CHESTER SHYNKARYK AND AFFILIATED ENTITIES. In December 1993,
the Company issued an aggregate of 5,748,491 shares of common stock to various
purchasers at the price of C$0.35 ($0.26) per share; 375,939 of such shares were
issued to Chester Shynkaryk, who at the time was the president and a director of
the Company.
During the fiscal years ended May 31, 1996, 1995 and 1994, the Company paid
consulting fees of C$50,000, C$30,000 and C$24,000 to Mr. Shynkaryk for services
rendered by him as the Company's president, pursuant to the terms of a
management agreement dated June 30, 1986, as amended January 30, 1990. The
agreement obligated Mr. Shynkaryk to perform services for the Company consistent
with his title as president, including investigating opportunities for the
Company to participate in the exploration and development of resource
properties, procuring financing for the Company, when required, and, in general,
assisting in the general administration of the Company. These fees were payable
to Mr. Shynkaryk at the rate of C$3,500 per month. The agreement was terminated
in December 1995, when Mr. Banning replaced Mr. Shynkaryk as president.
TRANSACTIONS WITH CASTLE GROUP, INC. During the year ended May 31, 1996, the
Company paid $102,500 to Castle Group, Inc. as reimbursement of amounts paid by
Castle Group, Inc. under the terms of Mr. Banning's employment agreement with
the Company. Castle Group, Inc. manages VT II, which is affiliated with the
Company. In addition, Paul A. Bailly, who was a director and chairman of the
Company until December 31, 1996, was also chairman of Castle Group, Inc. It is
not expected that Castle Group, Inc. will provide future services to the
Company.
TRANSACTIONS WITH LAWSON LUNDELL LAWSON & MCINTOSH. Jerrold W. Schramm, a
director of Golden Queen, is a partner of the law firm of Lawson Lundell Lawson
& McIntosh, which was retained as counsel to the Company during the fiscal year
ended May 31, 1996. During such year, the Company paid Lawson Lundell Lawson &
McIntosh $19,384 for legal services rendered on the Company's and the
Subsidiary's behalf. No members of the firm of Lawson Lundell Lawson &
McIntosh, inclusive of Mr. Schramm, owned any shares of common stock of the
Company at March 1, 1997.
ITEM 8. DESCRIPTION OF SECURITIES.
AUTHORIZED CAPITAL. The authorized capital of the Company consists of
100,000,000 shares of common stock and 3,000,000 shares of preferred stock,
without par value, of which 22,208,400 shares of common stock and no shares of
preferred stock were outstanding at March 1, 1997.
COMMON STOCK. Each share of common stock entitles the holder thereof to receive
notice of and to attend all meetings of shareholders of the Company, other than
meetings at which only the holders of a specified class or series of shares
other than the common stock are entitled to vote, and to one vote at each such
meeting. The holders of shares of common stock are entitled to receive, out of
the funds of the Company legally available for the payment of dividends, any
dividends declared by the board of directors of the Company. Subject to the
prior rights of the holders of shares of preferred stock, the holders of shares
of common stock are entitled to participate in the distribution of the remaining
property of the Company upon the liquidation, dissolution or winding-up of the
Company or other distribution of its assets among its shareholders for the
purpose of winding up its affairs.
The holders of shares of preferred stock are not entitled to receive dividends
other than dividends payable upon liquidation. As a class, shares of preferred
stock are entitled to priority over shares of common stock and all other shares
ranking junior to the preferred stock with respect to the distribution of the
assets of the Company in the event of any liquidation, dissolution or winding-up
of the Company.
WARRANTS. At March 1, 1997, warrants (the "Warrants") for the purchase of
2,750,000 shares of common stock of the Company were issued and outstanding.
Such Warrants were issued pursuant to the terms of an underwriting agreement
dated May 23, 1996 between the Company and Goepel Shields & Partners Inc. and
Midland Walwyn Capital Inc. (collectively, the "Underwriters") governing the
offering by the Company of 5,500,000 special warrants (the "Special Warrants"),
each of which entitled its holder to receive upon exercise one share of common
stock and one-half of one transferable Warrant.
27
<PAGE>
The Warrants were issued under a warrant indenture dated as of May 23, 1996 (the
"Warrant Indenture") between the Company and Montreal Trust Company of Canada,
as trustee. The following is a summary of the material attributes of the
Warrants and the Warrant Indenture and is subject to the detailed provisions of
the Warrant Indenture.
Each whole Warrant will entitle its holder to purchase one share of common stock
of the Company upon payment of the exercise price of C$2.90 prior to 4:00 p.m.
(Vancouver time) on November 28, 1997. The Warrant Indenture provides that the
number and kind of shares issuable on the exercise of a Warrant will be subject
to adjustment in certain events, including:
a subdivision, consolidation, change or reclassification of the common stock,
any amalgamation or merger of the Company that results in the reclassification
of, or change in, the common stock or a transaction under which all or
substantially all of the Company's undertaking and assets become the property of
another corporation; the issue by the Company of common stock to all or
substantially all of the holders of shares of common stock by way of a stock
dividend, other than dividends paid in the ordinary course (as defined in the
Warrant Indenture); and the issue by the Company of rights, options or warrants
to all or substantially all of the holders of shares of common stock entitling
them to acquire common stock or securities convertible into common stock (other
than rights, options or warrants entitling such persons, during a period ending
not more than 45 days after the date of issue thereof, to acquire common stock
at a price, or securities convertible into common stock at a conversion price,
of not less than 95% of the current market price of the common stock, as
determined pursuant to the Warrant Indenture).
No adjustment to the number of shares of common stock that may be purchased on
the exercise of a Warrant will be required to be made in any such event: unless
the cumulative effect of such adjustment would change the number of shares of
common stock that may be purchased on the exercise of a Warrant by at least 1%;
if the holders of the Warrants are entitled to participate in such event on
effectively the same basis as holders of shares of common stock; or in respect
of the issue of common stock pursuant to the exercise of Special Warrants or
Warrants, or pursuant to any stock option or purchase plan for officers or
employees of the Company or a subsidiary of the Company.
The Company is required under the Warrant Indenture to provide notice to the
trustee and the holders of the Warrants of any event that requires or might
require an adjustment to the number of shares of common stock that may be
acquired on the exercise of Warrants. Any such notice must be given at least
fourteen days before the effective date of, or record date for, the event. Such
notice need set out only those particulars of the event as have been determined
at the date the notice is given.
The Warrant Indenture contains certain provisions permitting the Company and the
trustee to amend the Warrant Indenture or any indenture supplemental thereto or
the rights of the holders of the Warrants, but, if any such amendment or
supplemental indenture would be prejudicial to the holders of the Warrants as a
group, only with the approval of the holders of the Warrants given by resolution
passed by the affirmative votes of the holders of two-thirds of the Warrants
voted at a meeting at which a quorum of holders of Warrants is present or signed
by the holders of two-thirds of the Warrants then outstanding.
No fractional shares of common stock will be issued upon the exercise of any
Warrant.
The common stock issuable upon the exercise of the Warrants has not been and is
not intended to be registered under the Securities Act of 1933, as amended, (the
"Securities Act") or the securities laws of any state of the United States, and
the Warrants may not be exercised in the United States by or for the account or
benefit of a U.S. person or a person in the United States, nor will certificates
representing shares of common stock issuable upon the exercise of the Warrants
be delivered to an address in the United States, unless the common stock has
been registered under the Securities Act and all applicable state securities
law, or unless exemptions from such registration are available and an opinion to
such effect is delivered to the Company and the trustee. Original U.S.
purchasers of the Special Warrants are not required to furnish a legal opinion
in connection with the exercise of the Warrants issued to them on the exercise
of the Special Warrants. Certificates representing shares of common stock
issuable upon the exercise of Warrants exercised by or for the account or
benefit of U.S. persons or persons in the United States bear legends restricting
transfer.
28
<PAGE>
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS.
PRICE RANGE OF COMMON SHARES. The common stock of the Company is listed and
traded on the Toronto Stock Exchange. The following table sets out the price
range and trading volume of the common stock as reported by the Toronto Stock
Exchange for the calendar periods indicated.
1994 HIGH LOW VOLUME
---- ---- --- ------
Second Quarter C$0.92 C$0.50 232,750
Third Quarter 1.65 0.50 1,233,820
Fourth Quarter 2.00 1.25 1,319,111
1995
----
First Quarter C$1.90 C$1.30 394,354
Second Quarter 1.95 1.00 519,212
Third Quarter 1.84 1.26 523,681
Fourth Quarter 1.65 1.20 337,824
1996
----
First Quarter C$2.55 C$1.29 1,680,721
Second Quarter 3.20 2.09 2,225,114
Third Quarter 2.55 1.87 733,706
Fourth Quarter 2.90 2.27 1,419,050
DIVIDEND POLICY AND RECORD. The Company has never paid dividends on its Common
Stock. The Company's present policy is to retain any earnings for use in its
business and it does not intend to pay dividends on the common stock in the
foreseeable future. Payment of any cash dividends in the future will depend
upon the earnings and financial condition of the Company, any covenants in loan
documents and other factors the board of directors of the Company may consider
to be appropriate.
ITEM 2. LEGAL PROCEEDINGS.
Neither the Company nor the Subsidiary is presently a party to, nor are they
threatened by, any material legal proceeding.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
On October 4, 1996, audit committee of the board of directors of the Company and
the board of directors itself, each acting in accordance with the prior
determination of the Company's management, determined to replace Chambers,
Phillips & Co., the Company's current accountants, with BDO Dunwoody. Such
change was approved by the Company's shareholders at the annual general meeting
of shareholders held on November 13, 1996.
This change was recommended by management based upon the fact that BDO
Dunwoody's United States affiliated firm, BDO Seidman, maintains offices in
Spokane, Washington, where the Company's executive offices are located.
During the fiscal years ended May 31, 1996 and 1995, Chambers, Phillips & Co.'s
reports on the financial statements of the Company contained no adverse opinion
or disclaimer of opinion, or were qualified or modified as to uncertainty, audit
scope or accounting principles. During such periods, there were no
disagreements with Chambers, Phillips & Co. on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure which, if not resolved to the satisfaction of such firm, would have
caused them to make reference to the subject matter of such disagreement in
their reports on such financial statements.
29
<PAGE>
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
Information concerning the issuance by Golden Queen of shares of its common
stock during the last three years in transactions which were not registered
under the Securities Act is set forth below.
(a) On July 19, 1995, the Company issued 50,000 shares of common stock to
certain directors, officers and employees of the Company at the price of C$0.55
($0.40) per share pursuant to presently exercisable stock options.
(b) On July 19, 1995, the Company issued an additional 40,000 shares of common
stock to certain directors, officers and employees of the Company at the price
of C$0.592 ($0.39) per share pursuant to presently exercisable stock options.
(c) On August 3, 1995, the Company issued 1,929,160 shares of common stock to
various purchasers at the price of C$1.25 ($0.92) per share.
(d) On October 13, 1995, the Company issued 506,215 shares of common stock to
VenturesTrident I L.P. and VenturesTrident II L.P. at the price of C$1.78
($1.31) per share.
(e) On January 16, 1996, the Company issued 20,000 shares of common stock to
certain directors, officers and employees of the Company at the price of C$1.45
($1.07) per share pursuant to presently exercisable stock options.
(f) On January 30, 1996, the Company issued 125,000 shares of common stock to
certain directors, officers and employees of the Company at the price of C$0.53
($0.39) per share pursuant to presently exercisable stock options.
(g) On January 30, 1996, the Company also issued an additional 120,000 shares
of common stock to certain directors, officers and employees of the Company
at the price of C$1.50 ($1.10) per share pursuant to presently exercisable
stock options.
(h) On February 6, 1996, the Company issued 30,000 shares of common stock to
certain directors, officers and employees of the Company at the price of C$0.592
($0.44) per share pursuant to presently exercisable stock options.
(i) On April 12, 1996, the Company issued 25,000 shares of common stock to
certain directors, officers and employees of the Company at the price of C$1.35
($0.99) per share pursuant to presently exercisable stock options.
(j) On April 12, 1996, the Company also issued an additional 10,000 shares of
common stock to certain directors, officers and employees of the Company at
the price of C$0.76 ($0.56) per share pursuant to presently exercisable stock
options.
(k) On August 31, 1996, the Company issued 13,000 shares of common stock to
certain directors, officers and employees of the Company at the price of
C$0.76 ($0.56) per share pursuant to presently exercisable stock options.
(l) On September 10, 1996, the Company issued 5,500,000 shares of common stock
and warrants to purchase an additional 2,750,000 shares of common stock to
certain offshore investors and four investors resident in the United States
pursuant to the exercise of special warrants previously issued on May 13, 1996.
(m) On November 20, 1996, the Company issued 5,000 shares of common stock to
certain directors, officers and employees of the Company at the price of C$0.76
($0.56) per share pursuant to presently exercisable stock options.
(n) On January 7, 1997, the Company issued 100,000 shares of common stock to
certain directors, officers and employees of the Company at the price of C$1.51
($1.11) per share pursuant to presently exercisable stock options.
(o) On January 10, 1997, the Company issued 15,000 shares of common stock to
certain directors, officers and employees of the Company at the price of C$0.55
($0.40) per share pursuant to presently exercisable stock options.
(p) On January 10, 1997, the Company issued 10,000 shares of common stock to
certain directors, officers and employees of the Company at the price of C$1.35
($0.99) per share pursuant to presently exercisable stock options.
(q) On January 28, 1997, the Company issued 12,000 shares of common stock to
certain directors, officers and employees of the Company at the price of C$0.76
($0.56) per share pursuant to presently exercisable stock options.
30
<PAGE>
(r) On January 28, 1997, the Company issued 20,000 shares of common stock to
certain directors, officers and employees of the Company at the price of C$1.51
($1.11) per share pursuant to presently exercisable stock options. The Company
also issued additional stock options for the purchase of up to 130,000 shares of
common stock on such date at C$2.70 ($2.01) per share, which options are
exercisable on or before January 29, 2002.
The transactions identified in subparagraphs (a), (b), (d), (f), (g), (h),
(i), (j), (k), (m), (n), (o), (p), (q) and (r) above wer made in reliance on
the exemption from the registration requirements of Section 5 of the
Securities Act afforded by Sections 4(2) and 4(6) thereof. Such purchasers
were either directors or executive officers of the Company or the Subsidiary,
or institutional investors who were also accredited and sophisticated
investors within the meaning of Rules 501(a) and 506(b)(ii), respectively,
under the Securities Act.
The transaction identified in subparagraph (e) above was made in reliance on
Regulation S of the Securities Act of 1933, as amended. No offers and sales of
the Company's common stock in such transactions were made to a person in the
United States, no directed selling efforts were made in the United States, and
no substantial market interest for the common stock existed in the United
States. Further, the Company undertook reasonable precautions to ensure that
the common stock issued in such transactions would not be resold into the United
States for a period of one year following the transaction.
The transactions identified in subparagraphs (c) and (l) above were made to
purchasers residing in the United States and in Canada. Those transactions
involving purchasers residing in the United States, of which there were four,
were made in reliance on the exemption from the registration requirements of
Section 5 of the Securities Act afforded by Sections 4(2) and 4(6) thereof.
Such purchasers were either directors or executive officers of the Company or
the Subsidiary, or otherwise affiliated with the Company, or were institutional
investors who were also accredited and sophisticated investors within the
meaning of Rules 501(a) and 506(b)(ii), respectively, under the Securities Act.
Those transactions involving purchasers in Canada were made in reliance on
Regulation S of the Securities Act of 1933, as amended.
Each of the transactions identified above, with the exception of the offer and
sale of special warrants of the Company on May 13, 1996 (the transaction
identified in subparagraph (l) above) was self-underwritten by the Company. The
offer and sale of the special warrants by the Company were underwritten by
Goepel Shields & Partners Inc. and Midland Walwyn Capital Inc. Such firms
received aggregate underwriting commissions of C$752,250 ($550,200) and were
reimbursed by the Company for out-of-pocket expenses incurred in the
transaction. All of the purchasers of such special warrants were either
qualified institutional buyers within the meaning of Rule 144A adopted under the
Securities Act or accredited and sophisticated investors within the meaning of
Rules 501(a)(1), (2), (3) and (7) and Rule 506(b)(ii), respectively, under the
Securities Act
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The only statutes, charter provisions, by-laws, contracts or other arrangements
under which a controlling person, director or officer of the Company is insured
or indemnified in any manner against liability which he may incur in his
capacity as such are Section 152 of the Company Act of British Columbia and Part
15 of the Company's articles of incorporation. Taken together, these statutory
and charter provisions generally allow the Company to indemnify its directors
(including former directors) and their heirs and personal representatives
against liability, provided (i) the director or officer was acting on behalf of
the Company in his or her official capacity as a director or officer and
(ii) such director or officer conducted himself in good faith and believed his
conduct was in, or not opposed to, the best interests of the Company (or in the
case of any criminal proceeding), that he had no reasonable cause to believe his
conduct was unlawful. These statutory and charter provisions also generally
allow the Company to indemnify its officers, employees and agents against
liability unless the liability for which indemnification is sought arose from a
failure to comply with instructions, was the result of a willful act or default,
or was the result of fraud, in which events such persons shall be indemnified
only if the directors of the Company by resolution so direct.
Indemnification permitted by these provisions is limited to reasonable expenses
incurred in connection with the proceeding upon which liability is predicated,
which includes the amount of any such liability actually imposed. The Company
maintains a policy of insurance insuring its directors and officers against such
liabilities.
31
<PAGE>
PART F/S
The unaduited consolidated financial statements of the Company for the six month
periods ended November 30, 1996 and 1995, and as of November 30, 1996 and 1995,
and the audited consolidated financial statements of the Company for the year
ended May 31, 1996 and for the period from inception (November 21, 1985) through
November 30, 1996, and as of May 31, 1996 are set forth in the following pages
to this registration statement. The audited year-end consolidated financial
statements have been audited by MacKay & Partners (formerly Chambers, Phillips &
Co.), Vancouver, British Columbia, and are included herein in reliance upon the
report of such firm as experts in accounting and auditing.
[The balance of this page has been intentionally left blank.]
32
<PAGE>
GOLDEN QUEEN MINING CO. LTD.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
(U.S. DOLLARS)
November 30, 1996 May 31, 1996
(unaudited) (audited)
Assets
Current
Cash and term deposits $ 6,326,222 $ 9,818,003
Accounts receivable 98,680 7,215
Prepaid expenses and deposits 61,747 62,774
----------- -----------
$ 6,486,649 $ 9,887,992
Capital assets 490,569 70,432
Mineral properties 3,885,847 3,397,182
Deferred exploration and development
expenditures 10,051,930 10,403,384
Other assets 350,000 350,000
----------- -----------
$21,264,995 $20,711,808
----------- -----------
----------- -----------
Liabilities
Current
Accounts payable $ 176,150 $ 347,121
Accrued liabilities 45,573 42,694
Current portion of notes payable 299,496 91,771
----------- -----------
$521,219 $481,586
Long term notes payable 1,909,265 1,045,230
----------- -----------
2,430,484 1,516,818
----------- -----------
Shareholders' Equity
Share capital $20,886,029 $20,875,969
Deficit (2,051,518) (1,690,977)
----------- -----------
18,834,511 19,184,992
----------- -----------
$21,264,995 $20,711,808
----------- -----------
----------- -----------
Subsequent events (Note 3)
See Accompanying Notes to Consolidated Financial Statements
33
<PAGE>
GOLDEN QUEEN MINING CO. LTD.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF LOSS
(UNAUDITED)
(U.S. DOLLARS)
<TABLE>
<CAPTION>
Cumulative Amounts
From Date of Inception
Six Month Period Ended November 21, 1985)
---------------------- through
November 30, 1996 November 30, 1995 November 30, 1996
---------------------------------------- ----------------------
<S> <C> <C> <C>
Revenues
Interest $ 235,040 $ 22,024 $ 707,771
Other 3,805 750 3,805
------------- --------------- ------------
Expenses
General and administrative expenses 426,970 62,082 2,033,696
Interest 48,292 14,112 198,402
Write-off of mineral properties - - 277,251
Loss on disposition of capital assets 214 - 10,949
------------- --------------- ------------
Net loss $ 236,631 $ 53,420 $ 1,808,722
------------- --------------- ------------
------------- --------------- ------------
Net loss per common share $ 0.01 less than $0.01 N/A
Weighted average shares outstanding 19,005,149 15,282,243 N/A
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
34
<PAGE>
GOLDEN QUEEN MINING CO. LTD.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(U.S. DOLLARS)
<TABLE>
<CAPTION>
Cumulative Amounts
From Date of Inception
Six Month Period Ended November 21, 1985)
---------------------- through
November 30, 1996 November 30, 1995 November 30, 1996
-------------------------------------- -----------------
<S> <C> <C> <C>
Operating Activities
Net loss $ (236,631) $ (53,420) $(1,808,722)
Adjustments to reconcile net loss
to cash used in operating activities
Write-off of mineral properties - - 277,251
Amortization and depreciation 13,243 3,748 35,917
Loss on disposition of captial assets - - 10,735
Changes in operating working capital
Accounts and interest receivable (91,477) 15,764 (98,692)
Prepaid expenses, deposits and other 1,039 (9,525) (61,735)
Accounts payable and accrued
liabilities (162,092) 31,125 227,723
-------------- ----------- -----------
Cash used in operating activities $ (475,918) $ (12,308) (1,417,523)
-------------- ----------- -----------
Financing Activities
Borrowing under long term debt 1,084,833 - 3,766,502
Payment of long term debt (19,073) 107,606 (741,459)
Issuance of shares for cash 10,060 1,778,581 10,490,099
Share issue costs (123,910) - (242,796)
Issuance of special warrants - - 9,453,437
-------------- ----------- -----------
Cash provided by financing activities 951,910 1,886,187 22,715,783
-------------- ----------- -----------
Investment Activities
Deferred exploration and development
expenditures (2,049,569) (906,571) (10,214,959)
Nonrefundable deposits on mineral
properties - - (350,000)
Purchase of mineral properties (1,484,824) (146,750) (3,869,858)
Purchase of capital assets (433,380) (10,700) (545,713)
Proceeds from sale of assets - - 8,492
-------------- ----------- -----------
Cash used in investment activities (3,967,773) (1,064,021) 14,972,038
-------------- ----------- -----------
Net Change in Cash and Cash Equivalents (3,491,781) 809,858 6,326,222
Cash and Cash Equivalents,
Beginning balance June 1 9,818,003 140,974 -
-------------- ----------- -----------
Cash and Cash Equivalents,
Ending balance November 30 $ 6,326,222 $ 950,832 $ 6,326,222
-------------- ----------- -----------
-------------- ----------- -----------
Non Cash Activities
Exchange of notes for common shares $ - $ 662,282 $ 662,282
Exchange of note for future royalty
payments $ - $ - $ 150,000
Shares for mineral property $ - $ - $ 280,211
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
35
<PAGE>
GOLDEN QUEEN MINING CO. LTD.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
AS OF NOVEMBER 30, 1996
(U.S. DOLLARS)
<TABLE>
<CAPTION>
COMMON SHARES ACCUMULATED
SHARES AMOUNT DEFICIT TOTAL
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
November 21, 1985
Issuance of shares for cash 1,425,001 $ 141,313 $ $ 141,313
Loss for the year (15,032) (15,032)
--------------------------------------------------------------------------
Balance, May 31, 1986 1,425,001 141,313 (15,032) 126,281
Issuance of shares
for cash 550,000 256,971 256,971
for property 25,000 13,742 13,742
Loss for the year (58,907) (58,907)
--------------------------------------------------------------------------
Balance, May 31, 1987 2,000,00 1412,026 (73,939) 338,087
Issuance of shares - for cash 1,858,748 1,753,413 1,753,413
Earnings for the year 38,739 38,739
--------------------------------------------------------------------------
Balance, May 31, 1988 3,858,749 2,165,439 (35,200) 2,130,239
Issuance of shares
for cash 1,328,750 1,814,133 1,814,133
for property 100,000 227,819 227,819
Loss for the year (202,160) (202,160)
--------------------------------------------------------------------------
Balance, May 31, 1989 5,287,499 4,207,391 (237,360) 3,970,031
Issuance of shares
for cash 1,769,767 2,771,815 2,771,815
for property 8,875 14,855 14,855
Loss for the year (115,966) (115,966)
--------------------------------------------------------------------------
Balance, May 31, 1990 7,066,141 6,994,061 (353,326) 6,640,735
Earnings for the year (28,706) ( 28,706)
--------------------------------------------------------------------------
Balance, May 31, 1991 7,066,141 6,994,061 (324,620) 6,994,441
Loss for the year (157,931) (157,931)
--------------------------------------------------------------------------
Balance, May 31, 1992 7,066,141 6,994,061 (482,551) 6,511,510
Loss for the year (285,391) (285,391)
--------------------------------------------------------------------------
Balance, May 31, 1993 7,066,141 6,994,061 (767,942) 6,226,119
Issuance of shares
for cash 5,834,491 1,536,260 1,536,260
for property 128,493 23,795 23,795
Loss for the year (158,193) (158,193)
Share issue costs (18,160) ( 18,160)
--------------------------------------------------------------------------
Balance, May 31, 1994 13,029,125 8,554,116 (944,295) 7,609,821
</TABLE>
36
<PAGE>
GOLDEN QUEEN MINING CO. LTD.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(U.S. DOLLARS)
(Continued)
<TABLE>
<CAPTION>
COMMON SHARES ACCUMULATED
SHARES AMOUNT DEFICIT TOTAL
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Issuance of shares
for cash 648,900 182,866 182,866
Loss for the year (219,576) (219,576)
--------------------------------------------------------------------------
Balance, May 31, 1995 13,678,025 $ 8,736,982 $ (1,163,871) $ 7,573,111
Issuance of common shares
for cash 2,349,160 2,023,268 0 2,023,268
Issuance of common shares
for debt 506,215 662,282 0 662,282
Issuance of 5,500,000
special warrants 0 9,453,437 0 9,453,437
Special warrants issue cost 0 0 (100,726) (100,726)
Net loss for the year 0 0 (426,380) (426,380)
--------------------------------------------------------------------------
Balance, May 31, 1996 16,533,400 20,875,969 (1,690,977) 19,184,992
Issuance of common shares
for cash 18,000 10,060 0 10,060
Issuance of common shares
for special warrants 5,500,000 0 0 0
Special warrants issue cost 0 0 (123,806) (123,806)
Net loss for six months 0 0 (236,631) (236,631)
--------------------------------------------------------------------------
Balance, November 30, 1996 22,051,400 20,886,029 (2,051,518) 18,834,511
</TABLE>
37
<PAGE>
GOLDEN QUEEN MINING CO. LTD.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF NOVEMBER 30, 1996
(UNAUDITED)
Note 1: Significant Accounting Policies
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instruction to Form 10-SB. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. These
consolidated financial statements should be read in conjunction with the
consolidated financial statements and related notes thereto included in the
Company's 1996 annual report on Form 10-KSB. In the opinion of management, all
adjustments, consisting only of normal recurring accruals, considered necessary
for a fair presentation have been included. Operating results for the six month
period ending November 30, 1996 are not necessarily indicative of the results
that may be expected for the year ending December 31, 1996.
During 1996, the Company elected to change its fiscal year end from May 31 to
December 31. Financial information presented in this Form 10-SB for the
preceding fiscal year is for the six month period ended November 30, 1995.
Management of the Company believes there are no seasonal or other factors which
would affect the comparability of this information.
Note 2: Share Capital
On May 23, 1996, the Company issued 5,500,000 special warrants under a special
warrant indenture in exchange for $9,543,473. All of the special warrants were
exercised on September 10, 1996, without additional payment, for one common
share and one-half of one warrant. Each full warrant issued upon exercise of
the special warrants entitles its holder to purchase one common share at a price
of $2.13 at any time through November 28, 1997. All of such warrants were
outstanding at December 31, 1996.
Note 3: Subsequent Events
Directors and Employee Stock Options. During January 1997, 197,000 options were
exercised, at prices ranging from $0.40 to $1.11, as follows: 15,000 options
expiring on August 24, 1999 were exercised at the price of $0.40; 12,000 options
expiring on March 4, 1999 were exercised at the price of $0.56; 10,000 options
expiring on July 20, 2000 were exercised at the price of $0.99; and 120,000
options expiring on February 21, 2001 were exercised at the price of $1.11.
On January 29, 1997, options for the purchase of 130,000 common shares were
granted. These options are exercisable on or before January 29, 2002, at the
price of $2.01.
Property Purchases. During the period from December 10, 1996 through January
23, 1997, the Company purchased land and buildings at an aggregate price of
$241,587.
38
<PAGE>
AUDITORS' REPORT
To the Shareholders of
Golden Queen Mining Co. Ltd.
We have audited the consolidated balance sheets of Golden Queen Mining Co.
Ltd. as at May 31, 1996 and 1995 and the consolidated statements of loss and
deficit, cash flows, and changes in shareholders' equity for the years then
ended and for the period from inception (November 21, 1985) through May 31,
1996. These consolidated financial statements are the responsibility of the
company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform an audit to obtain reasonable
assurance whether the consolidated financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the consolidated financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall consolidated financial
statements presentation.
In our opinion, these consolidated financial statements present fairly in all
material respects, the financial position of the company as at May 31, 1996
and 1995 and the results of its operations and its cash flow for the years
then ended and the period from inception (November 21, 1985) to May 31, 1996
in accordance with Canadian generally accepted accounting principles. As
required by the Company Act of the Province of British Columbia, we report
that, in our opinion, these principles have been applied on a consistent
basis. Management has subsequently added additional information to the
consolidated financial statements and amended certain note disclosures.
These amendments include the addition of loss per share and weighted average
number of shares outstanding to the statements of loss and deficit, amendment
to Note 2(c), 2(f) and 8(c) and the addition of Note 2(h). These amendments
were made for clarification purposes only and have no effect on previously
reported financial position or results of operations.
MacKay & Partners
Chartered Accountants
Vancouver, B.C.
July 12, 1996, except for amendments
described above, which are as of
March 2, 1997.
39
<PAGE>
GOLDEN QUEEN MINING CO. LTD.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
(U.S. DOLLARS)
MAY 31, MAY 31,
1996 1995
Assets
Current:
Cash and term deposits $9,818,003 $140,974
Accounts receivable 7,215 18,656
Prepaid expenses and deposits 62,774 5,393
----------- -----------
9,887,992 165,023
Property and equipment net (Note 3) 70,432 34,319
Mineral properties (Note 4) 2,401,023 1,978,320
Deferred exploration and development
expenditures - (Note 5) 8,002,361 6,154,352
Other assets (Note 6) 350,000 100,000
$20,711,808 $8,432,014
----------- -----------
----------- -----------
Liabilities
Current:
Accounts payable $347,121 $67,875
Accrued liabilities 42,694 153,241
Current maturities of long term debt 91,771 559,643
----------- -----------
481,586 780,759
Long-term debt less current maturities 1,045,230 78,144
----------- -----------
1,526,816 858,903
----------- -----------
Shareholders' Equity
Share capital (Note 8) $20,875,969 $ 8,736,982
Deficit (1,690,977) (1,163,871)
----------- -----------
19,184,992 7,573,111
----------- -----------
$20,711,808 $ 8,432,014
----------- -----------
----------- -----------
Subsequent Events (Note 10)
See Accompanying Notes to Consolidated Financial Statements
40
<PAGE>
GOLDEN QUEEN MINING CO. LTD.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF LOSS AND DEFICIT ACCUMULATED DURING THE DEVELOPMENT
STAGE
(U.S. DOLLARS)
<TABLE>
<CAPTION>
From November 21, 1985
(inception) through
May 31, May 31, May 31,
1996 1995 1996
----- ----- -----
<S> <C> <C> <C>
Revenues
Interest $50,539 $8,845 $ 472,731
Other - - -
----------- ---------- ----------
$50,539 $8,845 $ 472,731
Expenses
General and administrative 437,131 184,719 1,606,726
Interest 35,167 40,249 150,110
Exploration and development 1,848,009 519,370 8,002,361
Less: deferred exploration and
development 1,848,009 519,370 8,002,361
----------- ---------- ----------
Write-off of mineral properties - 2,693 277,251
Loss on disposition of capital
assets 4,621 760 10,735
----------- ---------- ----------
476,919 228,421 2,044,822
----------- ---------- ----------
Net Loss 426,380 219,576 1,572,091
Deficit, Beginning 1,163,871 944,295 -
Share issue costs 100,726 - 118,886
----------- ---------- ----------
Deficit, Ending $ 1,690,977 $ 1,163,871 $1,690,977
----------- ----------- ----------
----------- ----------- ----------
Net loss per common share $ 0.03 $ 0.02 $ N/A
----------- ----------- ----------
----------- ----------- ----------
Weighted average number of
shares outstanding 15,832,203 13,443,748 N/A
----------- ----------- ----------
----------- ----------- ----------
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
41
<PAGE>
GOLDEN QUEEN MINING CO. LTD.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(U.S. DOLLARS)
<TABLE>
<CAPTION>
From November 21, 1985
(inception) through
May 31, May 31, May 31,
1996 1995 1996
-------- -------- ------------
<S> <C> <C> <C>
Operating Activities
Net loss $ (426,380) $(219,576) $ (1,572,091)
Adjustments to reconcile net loss to
cash used in operating activities
Write-off of mineral properties - 2,693 277,251
Amortization and depreciation 20,982 69 22,674
Loss on disposition of capital assets 4,621 760 10,735
Changes in assets and liabilities
Accounts and interest receivable 11,441 (15,617) (7,215)
Prepaid expenses, deposits
and other (57,381) (2,302) (62,774)
Accounts payable and accrued
liabilities 168,699 58,148 398,815
----------- --------- ------------
Cash used in operating activities (278,018) 175,825) (941,605)
----------- --------- ------------
Financing Activities
Borrowing under long term debt 1,173,281 250,000 2,681,669
Payment of long term debt (11,785) (9,848) (732,386)
Issuance of shares for cash 2,023,268 182,866 10,480,039
Share issue costs (100,726) - (118,886)
Issuance of special warrants 9,453,437 - 9,453,437
----------- --------- ------------
Cash provided by financing
activities 12,537,475 423,018 21,763,873
----------- --------- ------------
Investment Activities
Deferred exploration and develop-
ment expenditures (1,848,009) (519,370) (8,165,390)
Nonrefundable deposits on mineral
properties (250,000) (100,000) (350,000)
Purchase of mineral properties (422,703) (257,330) (2,385,034)
Purchase of capital assets (61,716) (112,333)
Proceeds from sale of assets - 8,492 8,492
----------- --------- ------------
Cash used in investment
activities (2,582,428 (868,208) (11,004,265
----------- --------- ------------
Net Change in Cash and
Cash Equivalents 9,677,029 (621,015) 9,818,003
Cash and cash equivalents,
beginning balance 140,974 761,989 -
----------- --------- ------------
Cash and cash equivalents,
ending balance $ 9,818,003 $ 140,974 $ 9,818,003
----------- --------- ------------
----------- --------- ------------
Non-Cash Activities:
Exchange of notes for common stock $ 662,282 $662,282
Exchange of note for future royalty
payments $ 150,000 $150,000
Shares for mineral property $280,211
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
42
<PAGE>
GOLDEN QUEEN MINING CO. LTD.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(U.S. DOLLARS)
COMMON ACCUMULATED
SHARES AMOUNT DEFICIT
---------------------------------------------------
Issuance of shares - for 1,425,001 $ 141,313 $ (15,032)
Loss for the year ---------- ---------- ---------
Balance, May 31, 1986 1,425,001 141,313 (15,032)
Issuance of shares
- for cash 550,000 256,971
- for property 25,000 13,742
Loss for the year (58,907)
---------- ---------- ---------
Balance, May 31, 1987 2,000,001 412,026 (73,939)
Issuance of shares - for cash 1,858,748 1,753,413
Earnings for the year 38,739
---------- ---------- ---------
Balance, May 31, 1988 3,858,749 2,165,439 (35,200)
Issuance of shares
- for cash 1,328,750 1,814,133
- for property 100,000 227,819
Loss for the year (202,160)
---------- ---------- ---------
Balance, May 31, 1989 5,287,499 4,207,391 (237,360)
Issuance of shares
- for cash 1,769,767 2,771,815
- for property 8,875 14,855
Loss for the year (115,966)
---------- ---------- ---------
Balance, May 31, 1990 7,066,141 6,994,061 (353,326)
Earnings for the year 28,706
---------- ---------- ---------
Balance, May 31, 1991 7,066,141 6,994,061 (324,620)
Loss for the (157,931)
---------- ---------- ---------
Balance, May 31, 1992 7,066,141 6,994,061 (482,551)
Loss for the year (285,391)
---------- ---------- ---------
Balance, May 31, 1993 7,066,141 6,994,061 (767,942)
Issuance of shares
- for cash 5,834,491 1,536,260
- for property 128,493 23,795
Loss for the year (158,193)
Share issue costs (18,160)
---------- ---------- ---------
Balance, May 31, 1994 13,029,125 $8,554,116 $(944,295)
43
<PAGE>
GOLDEN QUEEN MINING CO. LTD.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(U.S. DOLLARS)
COMMON ACCUMULATED
SHARES AMOUNT DEFICIT
------------------------------------------
Issuance of shares
- for cash 648,900 $ 182,866
- for property
Loss for the year $ (219,576)
---------- ----------- -----------
Balance, May 31, 1995 13,678,025 8,736,982 (1,163,871)
Issuance of shares
- for cash 2,349,160 2,023,268
- for debt 506,215 662,282
Issuance of special warrants - 9,453,437
Loss for the year (426,380)
Special warrants issue cost (100,726)
---------- ----------- -----------
Balance, May 31, 1996 16,533,400 $20,875,969 $(1,690,977)
---------- ----------- -----------
---------- ----------- -----------
44
<PAGE>
GOLDEN QUEEN MINING CO. LTD.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MAY 31, 1996 AND 1995
1. NATURE OF OPERATIONS
The company is in the development stage with respect to its interest in
certain mineral properties. The underlying value of the mineral properties
and related deferred exploration and development expenditures is dependent
on the existence and anticipated economic recovery of ore reserves,
confirmation and retention of the Company's interest in the underlying
mineral claims, the ability to obtain necessary financing to complete the
development, and future profitable production or proceeds from the
disposition thereof.
2. SIGNIFICANT ACCOUNTING POLICIES
(a) Generally Accepted Accounting Principles
The consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in Canada, which differ
in some respects from those in the United States. No differences have
been disclosed, they are not considered significant.
(b) Principles of Consolidation
These consolidated financial statements include the accounts of Golden
Queen Mining Co. Ltd. ("Golden Queen") and its wholly-owned
subsidiary, Golden Queen Mining Company, Inc. (the "Subsidiary").
(c) Mineral Properties and Related Deferred Exploration and Development
Expenditures
The company follows the method of accounting for its mineral
properties whereby all costs related to acquisition, exploration and
development are capitalized by property. These costs will be written
off against subsequent revenues, or to operations at such time that
the properties are determined to have no recoverable value.
Recorded costs of mineral properties and related deferred exploration
and development expenditures are not intended to reflect present or
future values of mineral properties.
(d) Reporting Currency and Translation of Foreign Currency
Golden Queen has adopted the United States dollar as its reporting
currency for its financial statements prepared after May 21, 1996 as
the United States dollar is the currency of the primary economic
environment in which Golden Queen and the Subsidiary conduct business
and is considered the appropriate functional currency for the
Company's operations. Accordingly, the financial statements of the
Company have been translated by the temporal method with translation
gains and losses included in earnings. Under this method, the
operations of the company have been converted into U.S. dollars at the
following rates of exchange:
45
<PAGE>
GOLDEN QUEEN MINING CO. LTD.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MAY 31, 1996 AND 1995
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
(i) Monetary assets and monetary liabilities = at a rate of
exchange prevailing at the balance sheet date;
(ii) All other assets - at a rate of exchange prevailing at the
time of the acquisition;
(iii) Revenue and expenses - at the average rate of exchange
prevailing during the period
(e) Amortization
Amortization was changed from the diminishing balance method at 20%
per annum, to the straight-line method over five (5) years on capital
assets. One-half of the normal rate was used in the year of
acquisition. The change resulted in additional amortization of $7,494
which was charged to deferred development amortization for the year
ended May 31, 1996.
(f) Net Loss Per Share
Net loss per share is computed on the basis of weighted average common
shares and common stock equivalent shares outstanding, if dilutive.
(g) Comparative Figures
Certain figures have been reclassified to conform to the presentation
adopted in the current year. These changes have no effect on the
earnings.
(h) Accounting for Stock-Based Compensation
In October 1995, the FASB issued SFAS No. 123 "Accounting for
Stock-Based Compensation". The statement encourages all entities to
adopt a new method of accounting to measure compensation cost of all
employee stock compensation plans based on the estimated fair value of
the award at the date it is granted. Companies are, however, allowed
to continue to measure compensation cost for those plans using the
intrinsic value based method of accounting, which generally does not
result in compensation expense recognition for most plans. Companies
that elect to remain with the existing accounting are required to
disclose in a footnote to the financial statements pro forma net
income and, if presented, earnings per share, as if SFAS No. 123 had
been adopted. The accounting requirements of SFAS No. 123 are
effective for transactions entered into in fiscal years that begin
after December 15, 1995; however, companies are required to disclose
information for awards granted in their first fiscal year beginning
after December 15, 1994. Currently, the Company's stock-based
compensation plans are accounted for using Canadian generally accepted
accounting principles similar to the intrinsic value method prescribed
by APB No. 25. The Company is in the process of computing the effect
of adopting SFAS No. 123 and has not yet made a decision on whether to
adopt the U.S. accounting policy for the fiscal period ended December
31, 1996. Management believes the financial impact adopting SFAS No.
123 would be immaterial.
46
<PAGE>
GOLDEN QUEEN MINING CO. LTD.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MAY 31, 1996 AND 1995
3. PROPERTY AND EQUIPMENT
MAY 31, MAY 31,
----------- ------------
1996 1995
---- ----
Furniture and fixtures $ 35,058 $ 45,518
Office Equipment 51,686 14,862
Automobiles 21,134 21,134
Capital leased equipment 13,281 0
--------- ---------
121,169 81,514
Less accumulated depreciation 50,727 47,195
--------- ---------
Net property and equipment $ 70,432 $ 34,319
--------- ---------
--------- ---------
4. MINERAL PROPERTIES
(a) By an agreement dated April 22, 1986, the Subsidiary has acquired an
exclusive lease to explore, develop and mine certain mining claims
known as the Soledad-Starlight Property, Mojave Mining District, Kern
County, California.
The lease is for a twenty year period and for so long thereafter as
the property remains in production, subject to processing a minimum of
12,000 tons of ore per year. The lease is subject to production
royalties of 3% to 7.5% of net smelter returns depending on the
quality of ore. All advance minimum royalties paid will be applied
against any future production royalties.
Cash and share consideration payments for acquiring the lease are as
follows:
MAY 31, MAY 31,
---------- ---------
1996 1995
---- ----
Advance minimum royalties
(i) Payments of $50,000 are required on
May 1 & November 1 of each year. $ 751,456 $ 651,456
Cash and share payments
(i) $100,000 (paid) 100,000 100,000
(ii) 25,000 shares at a deemed value of
C$0.75 and 100,000 shares at a
deemed value of C$2.75 231,139 231,139
(b) The subsidiary has entered into various
exploration right, lease option and
property acquisition agreements on
mining claims noted earlier. The lease
agreements have various terms and require
annual payments of approximately $275,000.
All are subject to a sliding scale royalty
on net smelter returns beginning at 3%. 1,175,928 965,725
47
<PAGE>
GOLDEN QUEEN MINING CO. LTD.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MAY 31, 1996 AND 1995
4. MINERAL PROPERTIES (continued)
MAY 31, MAY 31,
---------- ---------
1996 1995
---- ----
(c) The Subsidiary purchased adjacent
property for consideration of $150,000,
$45,000 was paid in cash and a note
payable was given for the balance of
$105,000 payable in monthly install-
ments of $1,500, including interest at
10% per annum until December 22,
1996, or when development financing
is in place, whichever occurs first. A
balloon payment of $77,305 will be due
on December 22, 1996. $150,000 $150,000
(d) On September 19, 1994 the Subsidiary
entered into a mining lease agreement
granting exclusive exploration and
development rights on property adjacent
to claims previously described. The
term of the agreement is for 20 years
and consideration included a cash
payment of $30,000 and annual minimum
lease payment of $10,000. 40,000 30,000
(e) On September 22, 1995, the Subsidiary
entered into an agreement to purchase
approximately 40 acres; a deposit of
$37,500 was placed in escrow and an
additional $150,000 will be paid at closing,
on August 30, 1996. The seller will
finance a note for $187,500 at 12%
interest for one (1) year. 37,500 -
(f) On November 8, 1995, the Subsidiary
signed a letter agreement option to
purchase certain mining claims and
millsites for a total purchase price of
$65,000. $13,000 has been paid and
a note payable for $52,000 at 10%
interest with monthly payments of $1,500
is outstanding. All principal will be
due in three years or at the start of
production, whichever occurs first. The
Subsidiary will pay a 3% net smelter
return royalty not to exceed $500,000. 65,000 -
48
<PAGE>
GOLDEN QUEEN MINING CO. LTD.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MAY 31, 1996 AND 1995
4. MINERAL PROPERTIES (continued)
MAY 31, MAY 31,
------------ -----------
1996 1995
---- ----
(g) On December 30, 1994, the Subsidiary
signed an amendment to a September
25, 1989 agreement of purchase for
certain leasehold interests and un-
patented claims. Under the terms of
the amendment, the outstanding
balance on the $150,000 note was
canceled and production royalty
granted on all products produced from
the property up to a maximum payment
of $300,000 plus simple interest. The
outstanding balance on the cancelled
note has been credited to mineral
properties. $ (150,000) $ (150,000)
---------- -----------
$ 2,401,023 $ 1,978,320
----------- -----------
----------- -----------
5. DEFERRED EXPLORATION AND DEVELOPMENT EXPENDITURES
<TABLE>
<CAPTION>
From November 21, 1985
(inception) through
May 31, May 31, May 31,
1996 1995 1996
------------ ------------ -------------
<S> <C> <C> <C>
Exploration and Development
Administration $ 314,800 $ 260,115 $ 2,318,143
Engineering 335,284 107,224 976,366
Geology/drilling 718,895 377,472 4,385,248
Permitting/environmental 276,080 166,790 585,743
Metallurgical testing 202,950 45,335 337,456
----------- ----------- ------------
Total expenditures 1,848,009 956,936 8,602,956
Less: recovery - (437,566) (437,566)
1,848,009 519,370 8,165,390
----------- ----------- ------------
BALANCE, BEGINNING JUNE 1 6,154,352 5,634,982 0
WRITE-OFFS - - (163,029)
----------- ----------- ------------
BALANCE, ENDING MAY 31 $ 8,002,361 $ 6,154,352 $ 8,002,361
----------- ----------- ------------
----------- ----------- ------------
</TABLE>
49
<PAGE>
GOLDEN QUEEN MINING CO. LTD.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MAY 31, 1996 AND 1995
6. OTHER ASSETS
On April 1, 1995, the Subsidiary acquired an option to purchase all of the
issued and outstanding shares of a privately held California corporation
with an interest in a previously uncontracted tract of land surrounded by
the Subsidiary's land holdings and contiguous to the known reserves. The
terms of the agreement stipulate that upon an initial non-refundable
payment of $100,000 (paid), the Subsidiary may access the property for a
period of nine months to evaluate the presence of mineral reserves. At the
end of the nine month period (January 1996), the Subsidiary may choose to
exercise its option to purchase the shares of the corporation by making the
initial purchase payment of $250,000 (paid). Total consideration for the
purchase is $1,600,000 with the balance to be paid in installments as
follows:
$500,000 - upon commencement of construction
$750,000 - upon reaching sustained production
Upon commencement of commercial production, the Subsidiary will pay a
royalty of 1% of gross smelter returns for a period of up to 60 years, but
total payments are not to exceed US $60 million.
This agreement has been guaranteed by Golden Queen Mining Co. Ltd.
7. LONG TERM DEBT
MAY 31, MAY 31,
----------- ----------
1996 1995
---- ----
(a) Interest at a rate of 10% per annum, pay-
able in monthly installments of principal
and interest over the period ending Dec-
ember 22, 1996. The notes are secured
by deeds of trust held by a third party. $ 78,143 $ 87,787
(b) Interest at a rate of 11% per annum
payable on November 1, 1995,
secured by a deed of trust. Principal
and accrued interest paid by the
issue of shares. - 130,000
(c) Interest at a rate of 12% per annum
payable on November 1, 1995, secured
by a deed of trust. Principal and accrued
interest paid by the issue of shares. - 100,000
(d) Interest at a rate of 11% per annum
payable on November 1, 1995, secured
by a deed of trust. Principal and accrued
interest paid by the issue of shares. - 70,000
50
<PAGE>
GOLDEN QUEEN MINING CO. LTD.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MAY 31, 1996 AND 1995
7. LONG TERM DEBT (continued)
MAY 31, MAY 31,
---------- --------
1996 1995
---- ----
(e) Interest at a rate of 12% per annum
payable on November 1, 1995. Principal
and accrued interest paid by the issue of
shares. - 250,000
(f) Non-interest bearing note repayable in
two installments: $5,000 on July 1, 1997
and $4,000 July 1, 1999, secured by a
grant deed. 9,000 -
(g) Debenture convertible at the option of
the holder into common shares at a
conversion price of C$2.00 ($1.46) per
common share. The debenture bears
interest at 9.5% per annum and is due
March 18, 1998. 400,000 -
(h) Debenture convertible at the option of
the holder into common shares at a
conversion price of C$2.00 ($1.46) per
common share. The debenture bears
interest at 9.5% per annum and is due
March 18, 1998. 600,000 -
(i) Payable in monthly installments of
$1,500 including interest at 10% per
annum, balance due in three years
from the date of note or start of
mineral production whichever comes
first. 49,858 -
---------- --------
Total 1,137,001 637,787
Current Maturities 91,771 559,643
---------- --------
$1,045,230 $ 78,144
---------- --------
---------- --------
8. SHARE CAPITAL
(a) Authorized Capitalization
100,000,000 common shares without par value
3,000,000 preferred shares without par value
51
<PAGE>
GOLDEN QUEEN MINING CO. LTD.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MAY 31, 1996 AND 1995
8. SHARE CAPITAL (continued)
(b) Common Shares Issued and Special Warrants
May 31, 1996 May 31, 1995
SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------
Balance,
beginning 13,678,025 $ 8,736,982 13,029,125 $8,554,116
Issued for
cash:
Private
placement 1,929,160 1,741,475 - -
Exercise of
options 420,000 281,793 648,900 182,866
Issued for
debt 506,215 662,282 - -
---------- ----------- ---------- ----------
Common
Shares
issued 16,533,400 $11,422,532 13,678,025 $8,736,982
Special
Warrants - 9,453,437 - -
---------- ----------- ---------- ----------
Total
capitalization 16,533,400 $20,875,969 13,678,025 $8,736,982
---------- ----------- ---------- ----------
---------- ----------- ---------- ----------
Golden Queen issued 5,500,000 Special Warrants and filed a preliminary
prospectus on July 2, 1996. The Special Warrants were issuable under a
Special Warrant indenture dated as of May 23, 1996. Each Special Warrant
is exercisable, without additional payment, for one Common Share and
one-half of one warrant, provided that if a receipt for the prospectus has
not been issued by the securities regulatory authority of each of the
Provinces of British Columbia, Ontario and Quebec by September 20, 1996,
each Special Warrant will be exercisable for 1.1 Common Shares and 0.55
warrants, except that each Special Warrant held by an "insider" of Golden
Queen will be exercisable for 1.06 Common Shares and 0.55 warrants. The
Special Warrants may be exercised at any time prior to the earlier of the
sixth business day after receipts have been issued for the prospectus and
May 22, 1997. Any Special Warrants that have not been exercised
immediately prior to the time of expiry will be deemed to be exercised.
Each warrant will entitle its holder to purchase one Common Share at a
price of C$2.90 ($2.13) and are exercisable at any time prior to 4:00 p.m.
(Vancouver time) on November 28,1997.
52
<PAGE>
GOLDEN QUEEN MINING CO. LTD.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MAY 31, 1996 AND 1995
8. SHARE CAPITAL (continued)
(c) Stock Options
Activity during years ended May 31, 1996 and 1995.
YEAR ENDED MAY 31,1996 YEAR ENDED MAY 31, 1995
Number of Price Range Number of Price Range
Shares per Share Shares per Share
- --------------------------------------------------------------------------------
Beginning of Year 935,000 $0.39 - 1.10 958,900 $0.18 - 0.56
Options Granted ,435,000 0.99 - 2.18 625,000 0.40 - 1.40
Options Exercised (420,000) 0.39 - 1.07 (648,900) 0.18 - 0.44
Options Canceled 0 - 0 -
End of Year 1,950,000 0.44 - 2.18 935,000 0.39 - 1.10
Exercisable 1,210,000 0.44 - 2.18 935,000 0.39 - 1.10
Option prices represent the market price at the date of grant. Shares issued
under options are recorded in the common stock account at the option price.
9. RELATED PARTY TRANSACTIONS
(a) During the period, transactions were incurred with related parties as
follows:
Year Ended Year Ended
MAY 31, 1996 MAY 31, 1995
------------ ------------
Consulting fees $138,996 $21,741
-------- -------
Office and administration $ 3,745 $ 5,602
-------- -------
(b) Until March 1996, office space and secretarial services were provided
to the Subsidiary for nil consideration by a company with directors in
common.
(c) Notes payable and accrued interest, which were paid during the year
end May 31, 1996 by the issue of common shares (see Notes 6 and 7),
were previously granted by related parties.
10. SUBSEQUENT EVENTS
(a) Subsequent to May 31, 1996, additional stock options were granted for
the purchase of up to 50,000 common shares at C$2.30 ($1.69) per share
exercisable to June 27, 2001.
(b) On June 18, 1996 a property was purchased adjacent to the proposed
mine site area for $79,900 by the Subsidiary.
(c) On June 27, 1996 the Subsidiary acquired the property within the
proposed mine site area pursuant to the Cruz purchase agreement dated
February 7, 1996 for a purchase price of $65,000. A payment was made
and a note in the amount of $47,333 was given for the balance of the
purchase price.
53
<PAGE>
PART III
ITEMS 1 AND 2. EXHIBITS.
The following exhibits filed as part of this registration statement.
EXHIBIT
-------
3.1 Certificates and Articles of Incorporation of the
Registrant under the Company Act of British Columbia,
as amended. Previously filed.
10.1 Warrant Indenture dated May 23, 1996 between the
Registrant and Montreal Trust Company of Canada, as
trustee. Previously filed.
10-.2 Employment agreement dated April 2, 1996 among the
Company, Castle Group, Inc. and Steven W. Banning.
Previously filed.
10.3 Employment agreement dated May 8, 1996 between the
Company and Richard W. Graeme. Previously filed.
10.4 Employment agreement dated May 24, 1996 between the
Company and Bernard F. Goodson. Previously filed.
10.5 Lease dated October 20, 1994 between the Subsidiary and
William J. Warner with respect to certain property
within the project area. Previously filed.
10.6 Lease dated September 19, 1994 between the Subsidiary
and Western Centennials, Inc. with respect to certain
property within the project area. Previously filed.
10.7 Purchase agreement dated March 8, 1995 between the
Subsidiary and William and Dorothy Meier with respect
to the acquisition by the Subsidiary of certain
property within the project area. Previously filed.
10.8 Stock option purchase agreement dated April 1, 1995
between the Subsidiary and Grace W. Meehl, Madge W.
Wolff, Stephen G. Wegmann, Michael L. Wegmann, John G.
Hodgson, Virginia L. Sigl, Patrick L. Wolff and
George P. Wolff with respect to the acquisition by the
Subsidiary of an option to purchase all of the
outstanding shares of KWC. Previously filed.
10.9 Purchase agreement dated September 22, 1995 between the
Subsidiary and the Paveen Gupta Medical Corporate
Defined Benefit Pension Plan with respect to the
acquisition by the Subsidiary of certain property
within the project area. Previously filed.
10.10 Purchase agreement dated March 29, 1996 between the
Subsidiary and the Meehl Family Trust and others with
respect to the acquisition by the Subsidiary of certain
property within the project area. Previously filed.
54
<PAGE>
10.11 Mineral exploration agreement and option to lease or
purchase dated January 25, 1996 between the Soledad-
Mojave Mining Syndicate and the Subsidiary with respect
to the potential acquisition by the Subsidiary of 129.5
hectares of fee land within the project area.
Previously filed.
10.12 Purchase agreement dated August 1, 1996 between the
Subsidiary and Southwestern Refining Corporation with
respect to the acquisition by the Subsidiary of certain
property and mill tailings within the project area.
Previously filed.
10.13 Stock option plan of the registrant, as amended.
Previously filed.
10.14 Management agreement dated June 30, 1986, as amended
January 30, 1990, between the registrant and Chester
Shynkaryk. Previously filed.
10.15 Forms of debentures issued by the registrant to Landon
T. Clay Charitable Lead Trust II and Landon T. Clay
Charitable Lead Trust dated November 30, 1983.
Previously filed.
10.16 Consulting agreement dated February 1, 1996 between the
registrant and Eric E. Kinneberg. Previously filed.
21.0 Subsidiaries of the Registrant. Previously filed.
24.0 Power of attorney and consent on Form F-X. Previously
filed.
27.0 Financial Data Schedule. Previously filed.
55
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
Registrant caused this amendment to registration statement to be signed on this
behalf by the undersigned, thereunto duly authorized.
GOLDEN QUEEN MINING CO. LTD.
By: /s/ Bernard F. Goodson
------------------------------------------
Bernard F. Goodson, its Vice President
of Administration and Controller
Dated: July 25, 1997
56
<PAGE>
Exhibit No. 10.13 to
Form 10-SB Registration Statement
GOLDEN QUEEN MINING CO. LTD.
1996 STOCK OPTION PLAN
1. NAME AND PURPOSE OF PLAN
1.1 The stock option plan constituted hereby shall be known as the 1996
Stock Option Plan.
1.2 The purpose of the Plan is to assist the Company in attracting,
retaining and motivating directors, officers and employees of the Company and
its Subsidiaries by providing such persons with the opportunity to acquire
common shares of the Company.
2. INTERPRETATION
2.1 In this plan, unless the context otherwise requires:
2.1.1 BOARD OF DIRECTORS means the Board of Directors of the
Company;
2.1.2 COMMITTEE means any committee of the Board of Directors to
which the authority to administer the Plan may be delegated by the Board of
Directors as contemplated in subsection 4.2;
2.1.3 COMPANY means Golden Queen Mining Co. Ltd. and any successor
or continuing company resulting from the amalgamation of the Company and any
other company or resulting from any other form of corporate reorganization of
the Company;
2.1.4 DIRECTOR means an individual who is a director of the
Company or any of its Subsidiaries;
2.1.5 EMPLOYEE means an individual who is a bona fide full-time
salaried employee of the Company or any of its Subsidiaries;
2.1.6 MARKET PRICE means, as at any day, the closing market price
of the shares (which shall be deemed to be the average of the closing bid and
asked prices of the Shares on any day on which the Shares have not been traded)
on The Toronto Stock Exchange on such day (or the most recent trading day
preceding such day, if such day is not a trading day);
2.1.7 OFFICER means an individual who has been designated as an
officer of the Company or any of its Subsidiaries;
2.1.8 OPTION means any option granted pursuant to the Plan and
evidenced by an agreement in substantially the form attached as the Schedule
hereto or such other form as may be approved by the Board of Directors from time
to time;
2.1.9 OPTIONEE means a Director, Officer or Employee who has been
granted an Option;
2.1.10 OPTION PRICE means the price at which Optioned Shares may be
subscribed for pursuant to an Option as determined pursuant to section 6 (Option
Price);
2.1.11 PLAN means the 1996 Stock Option Plan as embodied herein and
as from time to time amended in accordance with the provisions hereof, along
with any guidelines, rules and regulations in effect from time to time
hereunder;
57
<PAGE>
2.1.12 SHARES means common shares without par value in the capital
of the Company, as constituted at the effective date hereof; and
2.1.13 SUBSIDIARY means any corporation or company of which
outstanding securities to which are attached more than 50% of the votes that may
be cast to elect directors thereof are held (provided that such votes are
sufficient to elect a majority of such director), other than by way of security
only, by or for the benefit of the Company and/or by or for the benefit of any
other corporation or company in like relation to the Company, and include any
corporation or company in like relation to a Subsidiary.
2.2 The terms of this Plan apply to all Options granted after
November 27, 1996
2.3 The masculine gender shall include the feminine gender and the
singular shall include the plural and vice versa.
2.4 A reference to a section in this Plan includes all subsections in that
section.
3. SHARES SUBJECT TO THE PLAN
Subject to adjustment in accordance with the provisions of section 14
(Changes in Capitalization or Number of Outstanding Shares), the maximum number
of Shares which may be reserved for issuance under the Plan is 3,200,000. The
maximum number of Shares which may be reserved for issuance to any one person
under the Plan shall be 5% of the outstanding Shares (on a non-diluted basis)
less the aggregate number of Shares reserved for issuance to such person under
any other outstanding options.
4. GRANT OF OPTIONS AND ADMINISTRATION OF THE PLAN
4.1 Persons eligible to receive grants of Options under the Plan shall be
limited to Directors, Officers and Employees.
4.2 This Plan will be administered by the Board of Directors or the
Compensation Committee or any other committee of the Board of Directors to which
the authority to administer the Plan may be delegated by the Board of Directors
from time to time, provided that such committee consists of not less than three
directors, a majority of whom are not Employees. All references to the term
"Board of Directors," other than in this subsection 4.2 and subsection 4.3.5,
will be deemed to be references to the Board of Directors or such committee, as
the case may be.
4.3 Subject only to the express provisions of the Plan, the Board of
Directors shall have, and hereby is specifically granted, the sole authority:
4.3.1 to grant Options to Directors, Officers and Employees and to
determine the terms of, and the limitations, restrictions and conditions upon,
such grants;
4.3.2 to authorize any officer or officers to execute and deliver
any agreement, or other document or notice, in respect of Options and to do any
other act as contemplated by the terms of the Plan for and on behalf of the
Company;
4.3.3 to interpret the Plan and to adopt, amend and rescind such
administrative guidelines and other rules and regulations relating to the Plan
as it may from time to time deem advisable;
4.3.4 to make all other determinations and perform all such other
actions as the Board of Directors deems necessary or advisable to implement and
administer the Plan; and
4.3.5 to delegate to the Committee, on such terms as the Board of
Directors in its discretion determines, all or any part of the authority of the
Board of Directors hereunder to implement and administer the Plan.
4.4 The determinations of the Board of Directors under the Plan
(including, without limitation, determinations of the Directors, Officers and
Employees who are to receive grants of Options and the amount and timing of such
grants) need not be uniform and may be made by it selectively among Directors,
Officers and Employees who receive, or are
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eligible to receive, grants of Options under the Plan, whether or not such
Directors, Officers and Employees are similarly situated as to office, length of
service, salary or any other factor. The Board of Directors may, in its
discretion, authorize the granting of additional Options to an Optionee before
an existing Option has terminated.
4.5 All guidelines, rules, regulations, decisions and interpretations of
the Board of Directors respecting the Plan or Options shall be binding and
conclusive on the Company and its Directors, Officers and Employees and on all
Optionees and their respective legal personnel, representatives, heirs and
legatees.
5. TERM OF OPTIONS
5.1 Each Option shall be for the term determined by the Board of
Directors, but in no case shall an Option be granted by the Board of Directors
for a term of longer than five years from the date of the granting of the
Option. Unless otherwise determined by the Board of Directors with respect to
the grant of any particular Options under this Plan, all Options shall expire 39
months after their issuance.
6. OPTION PRICE
The Option Price in respect of any Option shall be determined from time to
time by the Board of Directors but shall not be less than the Market Price on
the date on which such Option is granted.
7. EXERCISE OF OPTIONS
7.1 Subject to the provisions of subsection 7.5 and sections 10 (No
Fractional Shares), 11 (Death or Retirement of Optionee), 12 (Termination of
Options), 14 (Changes in Capitalization or Number of Outstanding Shares) and 16
(General Requirements), each Option shall be exercisable as follows:
7.1.1 in the case of Options granted to Directors, the Optionee
may exercise his rights as to all of the Optioned Shares or any part thereof at
any time after the date of grant of the Option; and
7.1.2 in the case of Options granted to Officers and Employees:
7.1.2.1 within the first year after the date of grant of the
Option, the Optionee may exercise his rights as to one-third of the Optioned
Shares or any part thereof; and
7.1.2.2 during the year commencing on the anniversary of the
date of grant of the Option, the Optionee may exercise his rights as to a
further one-third of the Optioned Shares or any part thereof, and may also
exercise his rights to all or any part of that number of Shares which he could
have but did not purchase upon exercise of his Option in the preceding year,
and, from and after the second anniversary of the date of grant of the Option,
the Optionee may exercise his rights as to all of the Optioned Shares.
7.2 An Option may be exercised by the Optionee or his personal
representatives, heirs or legatees at the applicable times and in the applicable
amounts by giving to the Company at its principal executive office written
notice of such exercise specifying the number of Shares to be subscribed for.
Such notice must be accompanied by full payment (by cash or a certified check
payable to the Company) of the Option Price for the Shares to be subscribed for.
Upon any such exercise of an Option, the Company shall forthwith cause the
transfer agent and the registrar of the Company for the time being to deliver to
the Optionee or his personal representatives, heirs or legatees (or as the
Optionee or his personal representatives, heirs or legatees may otherwise direct
in the written notice of exercise) a certificate or certificates in the name of
the Optionee or his personal representatives, heirs or legatees (or as otherwise
directed in the written notice of exercise) representing in the aggregate such
number of Shares as the Optionee or his personal representatives, heirs or
legatees shall have then paid for and bearing such legends, if any, as may be
required by applicable law or stock exchange requirements.
7.3 All Shares subscribed for under an Option shall be paid for in full at
the time of subscription.
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7.4 Except as provided in sections 9 (Non-transferability of Options), 11
(Death or Retirement of Optionee and 12 (Termination of Options), no Option may
be exercised in whole or in part at any time unless at the time of such exercise
the Optionee is a Director, Officer or Employee.
7.5 Notwithstanding any other provision of the Plan, the Board of
Directors may at any time, by notice in writing to all Optionees under the Plan,
in connection with (i) any proposed sale or conveyance of all or substantially
all of the property and assets of the Company (ii) any proposed consolidation,
amalgamation or other form of corporate reorganization of the Company, or (iii)
any proposed offer by any person to acquire or redeem all of the outstanding
voting or equity securities of any class of the Company (in each case, a
"Proposed Transaction"), require each Optionee to elect, within such period as
the Board of Directors shall prescribe, either to:
7.5.1 subscribe and pay for a part or all of the Optioned Shares
then remaining unsubscribed for under this Option (whether or not such Option
would otherwise then be exercisable), or to accept termination of his Option in
the event of his failing within such period to either subscribe and pay for all
such remaining Optioned Shares or elect to accept payment under subsection 7.5.2
or subsection 7.5.3, as the case may be;
7.5.2 subject to subsection 7.6, accept payment in cash in respect
of a part or all of the Optioned Shares then remaining unsubscribed for under
his Option (whether or not such Option would otherwise then be exercisable) of
an amount equal to the result obtained by multiplying the excess if any, of the
greater of (i) the Market Price on the day notice is given under this subsection
7.5 or (ii) the Market Price on the date of completion of the Proposed
Transaction, over the Option Price, by the number of Optioned Shares then
remaining unsubscribed for under such Option (whether or not such Option would
otherwise then be exercisable) in respect of and in consideration for the
termination of all of his rights in respect of such Optioned Shares; or
7.5.3 subject to subsection 7.6, if the Option Price for a part or
all of the Optioned Shares exceeds the Market Price on both the day notice is
given under this subsection 7.5 and on the date of completion of the Proposed
Transaction, accept payment of a total of $1 in respect of an d in consideration
for the termination of all of his rights in respect of such Optioned Shares;
provided that if a Proposed Transaction in respect of which a notice has been
given under this subsection 7.5 has not been completed (in the case of an offer,
by the offeror taking up and paying for the securities tendered) within six
months after the date of such notice, any rights in respect of Optioned Shares
under such Options which have not been exercised as contemplated in subsection
7.5.1 and in respect of which payment has not been made as contemplated in
subsections 7.5.2 or 7.5.3 shall continue in effect, exercisable in accordance
with the terms thereof as at the time immediately preceding the giving of such
notice.
For the purposes of this subsection 7.5, the term "date of completion"
means the date on which the sale, conveyance, corporate reorganization,
acquisition or redemption contemplated by the subsection takes effect with
respect to the Shares. In the event that the Market Price is not for any reason
available at the date of completion, the Board of Directors shall, in good faith
and in such manner as it considers appropriate, determine the current market
value of the Shares at that date, which shall be deemed to be the Market Price
for the purpose of part (ii) of subsection 7.5.2 and subsection 7.5.3. If a
Proposed Transaction is completed, the Market Price for the purpose of part (ii)
of subsection 7.5.2 and subsection 7.5.3 shall be the same as the value of the
consideration paid for Shares under the Proposed Transaction.
7.6 The Board of Directors may require that an Optionee who has elected to
accept payment in cash in accordance with subsection 7.5.2 or subsection 7.5.3
in respect of an in consideration for the termination of the Optionee's rights
in respect of the Optioned Shares remaining unsubscribed for under his Option
(whether or not such Option would otherwise then be exercisable) shall accept
such payment on a date prior to the date of completion of the Proposed
Transaction and based on the Market Price on the date notice is given under
subsection 7.5, provided that the Company shall forthwith after completion of
the Proposed Transaction pay to each such Optionee an amount equal to the result
obtained by multiplying the excess, if any, between (i) the Market Price at the
date of completion of the Proposed Transaction over (ii) the Market Price of the
Shares on the day notice is given under subsection 7.5, by the number of
Optioned Shares in respect of which that Optionee previously received payment
under subsection 7.5.2 or subsection 7.5.3.
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7.7 The provisions of subsection 7.5 requiring Optionees to make an
election to exercise an Option or to accept payment in consideration for the
termination of an Option shall only be invoked with respect to Optionees
generally and not with respect to one Optionee and not other Optionees.
8. RELATED RIGHTS AND OTHER BENEFIT PLANS
8.1 No Optionee shall have any of the right of a shareholder of the
Company with respect to any Optioned Shares until such Optioned Shares have been
issued to him upon exercise of the Option and full payment therefor has been
made by him to the Company.
8.2 Participation in the Plan shall not affect a Director's Officer's or
Employee's eligibility to participate in any other benefit or incentive plan of
the Company or any of its Subsidiaries.
8.3 Any Option granted pursuant to this Plan shall not oblige the Company
to make any benefit available to a Director, Officer or Employee under any other
plan of the Company unless otherwise specifically provided therein.
8.4 Nothing contained in this Plan will prevent the Company or any of its
Subsidiaries from adopting other or additional compensation arrangements for the
benefit of any Director, Officer or Employee, subject to any required
shareholder and regulatory approval.
9. NON-TRANSFERABILITY OF OPTIONS
No Option shall be assignable or transferable by the Optionee and any
purported assignment or transfer of an Option shall be void and shall render the
Option void; provided, however, that in the event of the death of an Optionee,
the Optionee's legal personal representative or representatives may exercise the
Option in accordance with the provisions of section 11 (Death or Retirement of
Optionee).
10. NO FRACTIONAL SHARES
Under no circumstances shall the Company be obliged to issue any fractional
Shares upon the exercise of an Option. To the extent that an Optionee would
otherwise have been entitled to receive on the exercise or partial exercise of
an Option a fraction of a Share in any year, that fraction of a Share shall be
added to and become available to the Optionee upon exercise of the Option in the
next succeeding year following the anniversary of the date of grant of the
Option. To the extent that an Optionee would otherwise have been entitled to
receive on an exercise or partial exercise of an Option a fraction of a Share of
any other kind of share or obligation as a result of a change in capitalization
or number of outstanding Shares as described in section 14 (Change in
Capitalization or Number of Outstanding Shares), the Company shall pay to the
Optionee the current market value of such fraction computed in a manner which
the Board of Directors considers appropriate.
11. DEATH OR RETIREMENT OF OPTIONEE
11.1 In the event of the death of an Optionee at any time during the term
of an Option held by him, the Option may be exercised within one year after the
date of death of the Optionee by the Optionee's legal personal representative or
representatives up to such maximum number of Optioned Shares which the Optionee
was entitled to exercise at the date of his death, but in no event shall the
Option be exercisable beyond the expiration date set forth in the Option at the
time of its grant.
11.2 In the event of the termination of employment of an Optionee who is an
Employee at any time during the term of an Option by reason of retirement at or
after the age of 60 or after 20 years of employment by the Company or any of its
subsidiaries, the rights to purchase Shares under the Option which have accrued
to the Optionee and remain unexercised at, or which accrue subsequent to, the
date of his retirement shall remain exercisable by the Optionee (or by the
Optionee's legal personal representative or representatives if the Optionee dies
before the last date of exercise of the Option) beyond that date in accordance
with the terms of the Option s if the Optionee had not retired.
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12. TERMINATION OF OPTIONS
12.1 In the event that an Optionee ceases to be a Director, Officer or
Employee for any reason other than as specified in section 11 (Death or
Retirement of Optionee) or subsection 12.2, the rights to purchase Shares under
the Option which have accrued to the Optionee and remain unexercised at the date
on which he ceases to be a Director, Officer or Employee shall be exercisable by
the Optionee within a period of 60 days from the date thereof as to all or any
part of such Shares, but in no event later than the expiration date set forth in
the Option at the time of its grant, and thereafter all such right shall
terminate.
12.2 In the event that an Optionee ceases to be a Director, Officer or
Employee for "cause" (as hereinafter defined), the rights to purchase Shares
under the Option which have accrued to the Optionee and remain unexercised when
he ceases to be a Director, Officer or Employee shall terminate immediately at
such time. For the purpose of this subsection 12.2, a person ceases to be a
Director, Officer or Employee for "cause" if, in the case of a Director or
Officer, he is removed or, in the case of an Employee, his employment is
terminated, by reason of (i) any act or omission which constitutes a breach by
him of his duties or obligations to the Company or a Subsidiary; (ii) the
commission by him of a dishonest act or fraud against the Company or a
Subsidiary; or (iii) another act or omission on his part which is materially
injurious to the financial condition or business reputation of the Company or a
Subsidiary.
12.3 Nothing contained in the Plan or any Option shall confer on any
Optionee who is an Employee any right to, or guarantee of, employment by the
Company or any Subsidiary or in any way limit the right of the Company or
Subsidiary to terminate the employment of the Optionee who is an Employee at any
time.
13. SHARES RELEASED FROM OPTIONS
Any Optioned Shares in respect of which Options have terminated pursuant to
the provisions of section 11 (Death or Retirement of Optionee) or 12
(Termination of Options) or expired without having been exercised may be made
the subject of a further Option or Options.
14. CHANGE IN CAPITALIZATION OR NUMBER OF OUTSTANDING SHARES
14.1 If, and whenever, prior to the issuance by the Company of all the
Optioned Shares under an Option, the Shares are from time to time consolidated
into a lesser number of Shares or subdivided into a greater number of Shares,
the number of Optioned Shares remaining unissued under the Option shall be
decreased or increased proportionately, as the case may be, and the subscription
price to be paid by the Optionee for each such Share shall be adjusted
accordingly.
14.2 Subject to subsection 7.5, if the Company enters into, and is
continued or survives as a result of, any amalgamation or merger with one or
more other companies or corporations, whether by way of arrangement, the sale of
its assets and undertaking or otherwise, then and in each such case each Option
shall extend to and cover the number, class and kind of shares or other
obligations to which the Optionee would have been entitled had the Option been
fully exercised immediately prior to the date such amalgamation or merger
becomes effective (whether or not such Option would otherwise then have been
fully exercisable) and the then prevailing subscription price of the shares or
other obligations so covered shall be correspondingly adjusted if and to the
extent that the Board of Directors considers it to be equitable and appropriate.
14.3 Except as expressly provided in this section 14, the grant of any
Option shall not in any way limit or affect the rights or powers of the Company,
the Board of Directors or the shareholders of the Company to make any changes or
deal in any manner with the authorized, issue or unissued shares or any other
securities of the Company and no such change or dealing shall give any right or
entitlement to the holder of any Option in respect or as a result thereof.
15. AMENDMENT AND TERMINATION OF THE PLAN
15.1 Subject to applicable legislation, any required regulatory or
shareholder approval and the rules of any stock exchange on which shares in the
capital of the Company are listed, the Board of Directors may at any time
terminate the Plan or make such amendments to the Plan as it shall deem
advisable; provided, however, that, except as otherwise specifically provided by
section 14 and subsection 7.5, no such termination or amendment shall adversely
affect the rights of any Optionee under any Option previously granted except
with the consent of such Optionee.
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15.2 If the Plan is terminated, the provisions of the Plan and any
administrative guidelines and other rules and regulations adopted by the Board
of Directors and in force on the date of termination will continue in effect as
long as any Option or any rights pursuant thereto remain outstanding and,
notwithstanding the termination of the Plan, the Board of Directors shall remain
able to make such amendments to the Plan or the Options as they would have been
entitled to make if the Plan were still in effect.
16. GENERAL REQUIREMENTS
16.1 In the event that any grant of an Option under the Plan and/or any
exercise of an Option granted under the Plan is, pursuant to applicable stock
exchange or regulatory requirements, subject to the approval of any stock
exchange, regulatory body or the shareholders of the Company, then such grant
shall not be or be considered to be effective and/or such Option shall not be
exercisable, as the case may be, until all such required approvals have been
obtained.
16.2 Each grant of an Option under the Plan shall be subject to the
requirement that if at any time the Board of Directors shall determine that any
agreement, undertaking or other action or cooperation on the part of an
Optionee, including with respect to a disposition of the Shares, is necessary or
desirable as a condition of, or in connection with (i) the listing,
registration or qualification of the Shares subject to the Plan upon any stock
exchange or under the laws of any applicable jurisdiction, or (ii) obtaining a
consent or approval of any governmental or other regulatory body, the exercise
of such Option and the issue of Shares thereunder may be deferred in whole or in
part by the Board of Directors until such time as the agreement, undertaking or
other action or cooperation shall have been obtained in a form and on terms
acceptable to the Board of Directors.
17. RIGHT TO OPTIONS
Nothing contained herein or in any resolution previously or hereafter
adopted by the Board of Directors shall vest the right in any person to receive
any Option. No person shall acquire any of the rights of any Optionee unless
and until a written Option agreement, in form satisfactory to the Board of
Directs, has been duly executed and delivered by the Company and the Optionee.
18. WITHHOLDING
Whenever the Company proposes or is required to issue or transfer Shares
pursuant to an Option, the Company shall have the right to withhold from salary
payments to be made to Optionees who are Employees or to require the recipient
of such Shares to remit to the Company an amount sufficient to satisfy any
federal, provincial, state and/or local withholding tax requirements prior to
the delivery of any certificate or certificates for such Shares. Whenever under
the Plan payments are to be made in cash, such payments shall be net of an
amount sufficient to satisfy any federal, provincial, state and/or local
withholding tax requirements.
19. DURATION OF THE PLAN
Subject to the provisions of section 15 (Amendment and Termination of the
Plan), the Plan shall remain in effect until all grants of Options under the
Plan have been terminated pursuant to the provisions of the Plan or satisfied by
the issuance of Shares or the payment of cash.
20. INTERPRETATION
Any question relating to interpretation of the Plan or any Option shall be
determined by the Board of Directors and such determination shall be final and
binding upon all persons.
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Exhibit 10.14 to
Form 10-SB Registration Statement
This Agreement is made the 30th day of June, 1986, as amended as of the 30th of
January, 1990 by and between:
Golden Queen Mining Co. Ltd., a company duly incorporated under the laws of the
Province of British Columbia and having its registered office at 2800 Park
Place, 666 Burrard Street, Vancouver, British Columbia (the "Company"); and
Chester Shynkaryk of 9391 Lasko Drive, Richmond, British Columbian V7E 5W6 (the
"Employee").
A. The Employee has expertise in obtaining resource properties, obtaining
financing and managing the affairs of resource companies.
B. The Company recognizes the expertise of the Employee and is desirous of
securing the services of the Employee to perform such services on behalf of the
Company.
C. The Employee has agreed t provide certain services to the Company on the
terms and conditions as hereinafter set forth.
NOW, THEREFORE, THIS AGREEMENT WITNESSETH that in consideration of the
representations, covenants and agreements herein contained, the parties hereto
have agreed and do hereby agree as follows:
1. The Company agrees to engage the services of the Employee commencing July
1, 1986 to:
(a) provide the Company with opportunities to participate in the
exploration and development of resource properties;
(b) use his best efforts to obtain financing for the Company when
required;
(c) manage the general administration of the Company, including its
internal corporate affairs, daily accounting, office and
personnel management, and other matters of daily administration; and
(d) carry out such other duties as the board of directors of the Company
shall decide from time to time.
2. In consideration of the Employee providing the services referred to in
clause 1 hereof, the Company agrees to pay the Employee a management fee of
$1,000 per month [$3,500 pursuant to amendment adopted January 30, 1990],
payable on the first day of each month commencing July 1, 1986.
3. It is understood between the parties that the Employee shall be required to
exert such efforts and expend such time as required to perform the duties
referred to in clause 1 hereof, and that the Employee shall not be required to
devote his full time and attention to the affairs of the Company, and the
Employee may engage in other activities and businesses as he seem fits, provided
the Employee performs the duties referred to in clause 1 hereof as required.
4.1 This Agreement shall continue indefinitely until terminated by the Company
or the Employee.
4.2 The Company or the Employee may terminate this Agreement by giving one
months' notice to the other party. In the event the Company does not provide
the required one month's notice, the Company shall forthwith pay the Employee a
sum equal to one month's management fee payable hereunder.
5. The Employee shall not during or after the term of this Agreement, for his
own benefit or to the detriment of the Company, disclose to any person, firm or
corporation any information concerning the business or affairs of the Company
that the Employee acquired during the course of, or incidental to, providing
services to the Company.
6. This Agreement may not be assigned by either party.
7. Any notice under this Agreement shall be given in writing and delivered to
the party to receive such notice at the address of the party indicated on page 1
hereof, or at such other address as any party may hereafter designate by notice
in writing. Such notice shall be effective forthwith from the date of delivery.
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8. This Agreement is subject to the approval of the Vancouver Stock Exchange
and the Superintendent of Brokers for British Columbia, as required. The
Employee will comply will all conditions and requirements which may be imposed
by the Vancouver Stock Exchange and the Superintendent of Brokers for British
Columbia.
9. This Agreement represents the entire agreement between the parties and
supersedes any and all prior agreements and understandings, whether written or
oral, between the parties, and may not be amended or otherwise modified except
by an instrument in writing signed by both parties.
10. This Agreement shall be construed under and governed by the laws of British
Columbia.
11. This Agreement shall inure to the benefit of and be binding upon the
parties hereto and their respective heirs, executors, administrators and
assigns.
IN WITNESS WHEREOF the parties have executed this Agreement as of the day and
year first above written.
/s/ Golden Queen Mining Co. Ltd.
/s/ Chester Shynkaryk
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Exhibit 10.15 to
Form 10-SB Registration Statement
CONVERTIBLE LOAN AGREEMENT
THIS LOAN AGREEMENT is dated the 19th day of March, 1996.
BETWEEN:
GOLDEN QUEEN MINING CO. LTD., a company incorporated under the laws of
British Columbia, having its principal executive office at Suite 211A,
104 South Freya Street, Spokane, Washington 99202.
(hereinafter called the "Company")
AND:
GOLDEN QUEEN MINING COMPANY, INC. a corporation incorporated under the
laws of California, having its principal executive office at Suite
211A, 104 South Freya Street, Spokane, Washington 99202.
(hereinafter called the "Borrower")
AND:
THE LANDON T. CLAY CHARITABLE LEAD TRUST II, a charitable trust
organized under the laws of the State of Massachusetts and having an
office c/o Investors Bank and Trust, Box 1537, Boston, MA 02205 (Att:
Amy Fahey), Account No. 4505422.
(hereinafter called the "Lender")
WHEREAS the Lender has agreed to provide a loan to the Borrower on the
terms and conditions set forth hereunder;
NOW THEREFORE THIS AGREEMENT WITNESSES THAT, in consideration of the
agreements herein contained and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby covenant and agree as follows:
1. INTERPRETATION
DEFINED TERMS. As used in this Agreement, the following terms shall
have the respective meanings specified in this section unless the context
requires otherwise:
1.1 CURRENCY. Unless otherwise specified herein, all statements of
or references to dollar amounts herein are references to U.S. Dollars.
1.2 INCLUDED WORDS. In this Agreement, words importing the singular
number only shall include the plural and vice versa, words importing the
masculine gender shall include the feminine and neuter genders and vice versa
and words importing persons shall include individuals, corporations,
partnerships, associations, trusts and unincorporated organizations and vice
versa.
1.3 HEADINGS. The division of this Agreement into articles and
sections and the insertion of headings are for convenience of reference only and
shall not affect the interpretation of this Agreement.
1.4 REFERENCES. Unless otherwise stated, a reference herein to an
article or section refers to the appropriate article or section in this
Agreement. A reference to "herein", "hereof", "hereto" or "hereunder" is a
reference to this Agreement, including the Schedule hereto, together with any
amendments hereof or modifications hereto.
1.5 SCHEDULES. Schedule A is hereby incorporated in and forms a part
of this Agreement.
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2. LOAN, CONVERSION TO COMMON SHARES AND RELATED MATTERS
2.1 LOAN ADVANCE. On and subject to the terms and conditions hereof,
the Lender hereby agrees to lend to the Borrower the amount of $600,000 (the
"Advance") to be advanced against receipt of a Promissory Note in form attached
hereto as Schedule A from the Borrower in respect of such advance upon
satisfaction of the conditions set out in section 5 below.
2.2 CONVERSION OF LOAN. Upon and subject to the provisions and
conditions herein, the Lender shall have the right (the "Share Conversion
Right"), at its option, to deliver to the Borrower from time to time a written
notice (the "Conversion Notice") and the delivery of a Conversion Notice shall
constitute an irrevocable election by the Lender to exercise its right (the
"Share Conversion Right") to convert the whole or such portion of the Advance as
is set forth in the Conversion Notice into Shares at the price of C$2.00 per
Share (the "Conversion Price"). The Share Conversion Right shall extend only to
the maximum number of whole Shares into which the Advance set forth in the
Conversion Notice can be divided. In the case of a fractional interest an
adjustment will be made to the next lowest whole number of Shares.
2.3 ISSUE OF CERTIFICATES REPRESENTING SHARES. In the event of the
exercise by the Lender of the Share Conversion Right, the Borrower shall deliver
to the Lender, on the day that is two business days after the date of delivery
of the Conversion Notice (the "Conversion Date"), a certificate or certificates
registered in the name of the Lender representing the Shares to which the Lender
is entitled to hereunder along with a cheque payable to the Lender in an amount
equal to all accrued but unpaid interest on the portion of the Advance converted
as of the Conversion Date. The Borrower represents and warrants, which
representation and warranty shall survive any conversion, that such Shares
delivered to the Lender will be duly authorized and validly allotted and issued
as fully paid and non-assessable Common Shares without par value in the capital
of the Company.
2.4 DELIVERY OF PROMISSORY NOTE FOR CANCELLATION. Concurrently with
the delivery of the certificates by the Borrower pursuant to Section 2.3 the
Lender shall deliver the Note to the Borrower for cancellation and the Borrower
shall issue a new convertible promissory note in the form attached hereto as
Schedule A in the principal amount of the balance of the outstanding Principal
Amount, if any, remaining following the exercise of the Conversion Right.
2.5 ADJUSTMENT TO CONVERSION PRICE. If and whenever at any time
prior to the Maturity Date (as defined below) (and so long as there is any
principal amount of the Advance outstanding) the Company shall (i) subdivide the
outstanding Shares into a greater number of Shares, (ii) consolidate the
outstanding Shares into a smaller number of Shares, or (iii) issue to all or
substantially all the holders of Shares by way of a stock dividend or otherwise
Shares or securities convertible into Shares, the Conversion Price shall, on the
effective date of such subdivision or consolidation or on the record date of
such stock dividend, as the case may be, be adjusted to that amount which is the
same proportion to the Conversion Price in effect immediately prior to such
subdivision or consolidation or stock dividend as the number of outstanding
Shares before giving effect to such subdivision or consolidation or stock
dividend bears to the number of outstanding Shares after giving effect to such
subdivision or consolidation or stock dividend. Such adjustment shall be made
successively whenever any event referred to in this section 2.5 shall occur; and
any such issue of Shares by way of stock dividend shall be deemed to have been
made on the record date for the stock dividend for the purposes of calculating
the number of Shares under sections 2.6.
2.6 ADJUSTMENT TO CONVERSION PRICE UPON OTHER DISTRIBUTIONS BY
COMPANY. If and whenever prior to the Maturity Date the Company shall fix a
record date for the making of a distribution to all or substantially all the
holders of Shares, (i) shares of any class other than Shares, whether of the
Company or any other company, (ii) rights, options or warrants (other than those
referred to in section 2.5 hereof), (iii) evidences of indebtedness, or (iv)
any other assets, then, in each case, the Conversion Price shall be adjusted
immediately after such record date so that it shall equal the price determined
by multiplying the Conversion Price in effect on such record date by a fraction,
of which the numerator shall be (a) the total number of Shares outstanding on
such record date multiplied by the fair market value of such Shares (as
determined by the Directors of the Company, acting in good faith, and subject to
the prior written consent of The Toronto Stock Exchange), less (b) the aggregate
fair market value (as determined by the Directors of the Company, acting in good
faith, and subject to the prior written consent of The Toronto Stock Exchange)
of such shares, rights, options, warrants, evidences of indebtedness or other
assets issued or so distributed, and of which the denominator shall be the
amount determined in (a) of this subsection; and any Shares owned or held by or
for the account of the Company shall be deemed not to be outstanding for the
purpose of any such computation. Such adjustment shall be made successively
whenever such a record date is fixed. To the extent that any such distribution
is not so made, the Conversion Price shall be readjusted to
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the Conversion Price in effect immediately prior to the record date or to the
Conversion Price that would be then in effect based upon such shares, rights,
options, warrants, evidences of indebtedness or other assets actually issued or
distributed, as the case may be.
2.7 PROVISO. No adjustment to the Conversion Price shall be made in
respect of any event described in subsection 2.6 if the Lender is allowed to
participate as if it had converted the Note prior to the applicable record date
or effective date. The Lender acknowledges that its participation in such an
event described in subsection 2.6 shall be subject to the prior written consent
of The Toronto Stock Exchange.
2.8 AMENDMENTS TO BE DELIVERED TO BORROWER. The Company shall not
enter into a consolidation, merger or amalgamation with or into any other body
corporate until the Company, the Borrower and the Lender execute and deliver all
such amendments to the Share Conversion Right as are required by the Lender,
acting reasonably, to ensure that the rights of the Lender under the Share
Conversion Right are not adversely affected by such consolidation, merger or
amalgamation.
2.9 EXCHANGES RATES; CONVERSION BETWEEN US AND CANADIAN DOLLARS. For
the purpose of determining the number of Common Shares to be issued to the
Lender upon exercise of the Share Conversion Right, the rate of exchange between
Canadian dollars and U.S. dollars (the "Rate of Exchange") shall be 1.3722
Canadian dollars per U.S. dollar, being the noon spot rate quoted by the Bank of
Canada for purchases of U.S. dollars with Canadian dollars on February 29, 1996,
the date notice to The Toronto Stock Exchange of the transaction contemplated
hereby was given by the Company.
3. INTEREST
3.1 RATES OF INTEREST. The Borrower shall pay interest ("Interest")
to the Lender (c/o Account No. 4505422, as set forth on the first page of this
Agreement) on the aggregate amount of the Advance outstanding at a rate per
annum computed in all cases on the basis of a year of 360 days and determined
for the actual days the Advance is outstanding from the date of the Advance at
a rate equal to 9.5%. For the purposes of the INTEREST ACT (Canada), the annual
rate to which the foregoing rate is applicable is the foregoing rate multiplied
by the number of days in the year (being 365 or 366, as the case may be) divided
by 360.
3.2 CALCULATION AND PAYMENT OF INTEREST. Interest on the Advance and
all other amounts owing to the Lender under the terms of this Agreement will be
calculated and compounded semi-annually in arrears and in respect of any six
month period during which any amounts are outstanding hereunder and shall be
paid by the Borrower to the Lender on the third Business Day after the end of
each six month period.
3.3 OVERDUE PAYMENTS. Any amount not paid when due hereunder will
bear interest from the due date until paid in full at the rate of interest
determined pursuant to section 3.1.
4. PAYMENT
4.1 REPAYMENT. Subject to other provisions hereof requiring earlier
repayment, the Borrower shall pay to the Lender (c/o Account No. 4505422, as set
forth on the first page of this Agreement) the balance outstanding of the
Advance and Interest and all other Indebtedness in full on March 19, 1998 (the
"Maturity Date").
4.2 OPTIONAL PREPAYMENT. The Borrower may not prepay the Advance in
whole or in part at any time without the prior written consent of the Lender.
4.3 ACCELERATION BY LENDER. If the Company, within six months of the
date of this Agreement, completes an offering of Shares or securities
convertible into Shares pursuant to which net proceeds to the Company (after
deduction of all expenses associated with such offering) are at least
$5,000,000, the Lender may, within 30 days of completion of such offering,
provide written notice to the Borrower that the Lender has elected to accelerate
the term of the Advance and the Borrower shall within 10 Business Days of
receipt of such notice repay the principal amount of the Advance then
outstanding against delivery of the Promissory Note by the Lender.
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4.4 PAYMENTS IN IMMEDIATELY AVAILABLE FUNDS. All payments required
to be made hereunder shall be made in immediately available funds to such
accounts as the Lender may from time to time designate, free and clear of and
without any withholding or deduction for present or future Taxes. If, for the
purposes of obtaining judgment in any court in any country, it becomes necessary
to convert into any other currency (the "Judgment Currency") an amount due in
U.S. Dollars, the conversion shall be made at the Rate of Exchange.
4.5 PAYMENT WITHHOLDINGS. In the event that any applicable law
requires that any Tax be withheld from any amount paid or payable hereunder, the
Borrower shall pay on demand to the Lender such additional amounts (including
any Tax payable in respect of such additional amounts) as may be necessary in
order that every net dollar received by the Lender with respect to principal,
interest and other amounts required hereunder will not be less than the full
amount provided for herein.
5. CONDITIONS TO ADVANCES
5.1 CONDITIONS PRECEDENT TO THE ADVANCE. The obligation of the
Lender to make the Advance is subject to the fulfillment of the following
conditions precedent on or prior to the date hereof:
5.2 WAIVER OF CONDITIONS PRECEDENT. The Lender may, at its option,
waive compliance by the Company or the Borrower with any condition precedent to
its obligations to make the Advance. No waiver of any such condition precedent
will constitute a waiver with respect to any other condition precedent.
6. REPRESENTATIONS AND WARRANTIES OF THE BORROWER
6.1 GENERAL. The Company and the Borrower represents and warrants to
the Lender as follows (and acknowledges that the Lender is relying upon the
representations and warranties set out herein and that no investigation at any
time made by or on behalf of the Lender or any information which has or may
hereafter come to the Lender's attention will diminish in any respect whatsoever
its rights to rely thereon):
6.2 EXISTENCE.
6.3 AUTHORIZED CAPITAL.
6.4 CORPORATE POWER.
6.5 AUTHORITY. The execution and delivery by the Company of this
Agreement and the performance by the Company of its obligations hereunder and
thereunder have been duly authorized by all necessary corporate actions of the
Company and, upon its execution and delivery, this Agreement will constitute
legal, valid and binding agreements enforceable against the Company in
accordance with its terms.Material Adverse Change. There has been no material
adverse change in the business, assets, financial condition or prospects of the
Company or any of its Subsidiaries since May 31, 1995.
6.6 ISSUANCE OF SHARES. The Shares will, upon their issuance, be
duly authorized and validly allotted and issued as fully paid and non-assessable
shares in the capital of the Company, free and clear of any and all mortgages,
liens and encumbrances and listed and posted for trading on the Toronto Stock
Exchange.
6.7 NO RESALE RESTRICTIONS. The Shares issuable upon conversion of
the principal amount of the Promissory Note issued in respect of the Advance
will be subject to a 12-month hold period under the SECURITIES ACT (British
Columbia) commencing on the date of issuance of the Promissory Note upon the
conversion of which they were issued and may also be subject to other
restrictions on resale under applicable laws and regulatory requirements, and
any sale by the Lender of such Shares must be made in compliance with or on the
basis of an exemption from the registration and prospectus requirements of
applicable securities legislation.
6.8 REPORTING ISSUER STATUS. The Company is a reporting issuer under
the securities legislation of British Columbia and Ontario and is in compliance
with the requirements of the securities legislation of British Columbia and is,
other than with respect to omissions which do not have and could not reasonably
be expected to have a material adverse effect on the Borrower, in compliance
with the requirements of the securities legislation of, Ontario and British
Columbia.
6.9 REPRESENTATIONS AND WARRANTIES OF THE LENDER. The Lender
represents and warrants to the Borrower and the Company (and acknowledges that
the Borrower and the Company are relying upon the representations and warranties
set out herein and that no investigation at any time made by or on behalf of the
Borrower or the Company or any information which has or may hereafter come to
the their attention will diminish in any respect whatsoever their rights to rely
thereon) that the Lender has all necessary capacity to enter into and carry out
its obligations under this Agreement
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and this Agreement has been duly executed and delivered by the Lender and will
constitute legal, valid and binding agreements enforceable against the Lender in
accordance with its terms. The Lender agrees to execute all necessary
undertakings and acknowledgements prescribed by regulatory authorities and the
Vancouver and Toronto Stock Exchanges in connection with the transaction
contemplated in this Agreement.
7. COVENANTS OF THE COMPANY
COVENANTS OF THE BORROWER. The Borrower covenants and agrees with the
Company that upon delivery of a Conversion Notice by the Lender to the Borrower
from time to time pursuant to section 2.2 of this Agreement, the Borrower shall
forthwith cause the number of common shares of the Borrower that is the next
highest whole number of common shares equal one-tenth the number of Shares
issuable by the Company pursuant to such Conversion Notice to be issued to the
Company as fully paid and non-assessable common shares in the capital of the
Borrower and shall cause a certificate or certificates representing such shares
to be delivered to the Company.
8. EVENTS OF DEFAULT AND REMEDIES
8.1 EVENTS OF DEFAULT. Subject to the expiry of the applicable grace
period, if any, set out below, the occurrence of any of the following events
(herein called an "Event of Default") will, at the option of the Lender,
terminate all obligations of the Lender hereunder and in addition to and not in
limitation of all rights of the Lender to demand the repayment of all
Indebtedness will, at the option of the Lender, make the principal amount of the
Advance, Interest and all other Indebtedness immediately due and payable, all
without demand, presentment, notice or further notice, as the case may be, all
of which are hereby expressly waived:
8.1.1 FAILURE TO REPAY PRINCIPAL. Failure to repay the
principal amount of the Advance due hereunder within three Business Days of the
due date thereof.
8.1.2 FAILURE TO PAY INTEREST AND OTHER AMOUNTS. Failure to
pay Interest or any other amount due hereunder within three Business Days of the
due date thereof.
8.1.3 BREACH OF COVENANT. Failure by the Borrower to perform
or observe any term, covenant or condition of this Agreement, other than the
payment of the principal amount of the Advance, Interest or other amounts owing
hereunder, and any such failure continues unremedied for a period of five days
after the receipt of written notice thereof from the Lender, provided that if
the failure can not, in the reasonable opinion of the Lender, by its nature be
cured within such five day period, the Borrower will not be considered to be in
default if and for so long as the failure has not had a material adverse effect
on the Borrower or the Project and the Borrower proceeds with all reasonable
dispatch to take the necessary remedial action.
8.1.4 INSOLVENCY, RECEIVER OR TRUSTEE. The Borrower or the
Company becomes insolvent, admits in writing its inability to pay its debts as
they mature or become due, makes any assignment for the benefit of its creditors
seeks relief under any moratorium or reorganization statute, or applies for or
consents to the appointment of or the taking of possession by a liquidator,
custodian, receiver, receiver-manager, assignee, sequestrator, trustee or
similar official for it or for a substantial part of its properties, assets or
businesses, or such a liquidator, custodian, receiver, receiver-manager,
assignee, sequestrator or trustee or similar official otherwise is appointed and
is not discharged within 20 days after such appointment unless the relevant
company is in good faith contesting such appointment.
8.1.5 BANKRUPTCY OR DISSOLUTION. Any bankruptcy, insolvency,
reorganization, liquidation or winding-up proceeding in respect of the Borrower
or the Company other proceeding for relief by the Borrower or the Company under
any bankruptcy, insolvency, relief of debtors or other similar legislation,
whether now or hereafter in effect, is instituted by or against the Borrower or
the Company, unless such proceeding is terminated within 20 days after its
institution, or any order, judgment or decree is entered in respect of the
Borrower or the Company decreeing its liquidation, dissolution, division or
winding-up or other similar action, or a meeting is called of or a proposal is
made to a substantial portion of the creditors of the Borrower or the Company
for the purpose of effecting a composition, moratorium or extension of debt.
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8.1.6 BREACH OF REPRESENTATION OR WARRANTY. Any representation
or warranty made or deemed to be made herein or in any agreement or other
document contemplated hereby or in any statement or certificate at any time
given in writing pursuant hereto or in connection herewith is, at the time
given, made or deemed to be made, inaccurate, false or misleading.
8.1.7 REMEDIES. Upon the occurrence of any Event of Default
and at any time thereafter, provided that the Borrower or the Company has not at
that time remedied all outstanding Events of Default, the Lender may, in its
sole discretion, by written notice of default given to the Borrower, declare
this Agreement to be in default. If the Borrower or the Company fails to cure
all outstanding Events of Default within 10 days from the receipt by it of the
notice of default, then at any time thereafter, or concurrently with the receipt
by the Borrower of the notice of default in the case of the Event of Default for
which there is no grace period, the Lender in its sole discretion and subject to
compliance with any mandatory requirements of applicable law then in effect, may
exercise any or all of the following rights and take any or all of the following
actions (each without prejudice to the Lender's right to convert into common
shares of the Company the principal amount of the Promissory Notes issued in
respect of the Advance outstanding at such time):
8.1.8 REMEDIES CUMULATIVE. No remedy herein conferred on the
Lender is intended to be exclusive. Each remedy is cumulative and is in
addition to every other remedy given hereunder or now or hereafter existing at
law or in equity or by statute or otherwise. The exercise or commencement of
exercise by the Lender of any of such remedies will not preclude the
simultaneous or subsequent exercise by the Lender of any other such remedies.
8.1.9 WAIVER. The Lender may, in its sole discretion, by
written instrument at any time and from time to time, waive any breach by the
Borrower or the Company of any of the covenants herein. No course of dealing
between the parties hereto nor any delay in exercising any rights hereunder or
under any other security will operate as a waiver of any rights of the Lender.
8.1.10 FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on
the part of the Lender in the exercise of any power, right or privilege
hereunder will operate as a waiver thereof and no single or partial exercise of
any such power, right or privilege will preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. All rights and
remedies existing under this Agreement, the Promissory Notes to be issued in
respect of the Advance are cumulative to and not exclusive of any rights or
remedies otherwise available.
9. MISCELLANEOUS
9.1 NOTICES. Any notice, direction or other instrument required or
permitted to be given under this Agreement shall be in writing and may be given
by delivering the same to the appropriate address set out below or by sending
the same by telecopier to the appropriate address set out below:
9.2 SET-OFF OR COUNTERCLAIM. The obligation of the Borrower to pay
or perform the Indebtedness is absolute and unconditional and will not be
limited or affected by any circumstance including, without limitation:
AMENDMENTS. This Agreement and any provision hereof may be
amended, waived, discharged or terminated only by an instrument in writing
signed by the party against whom enforcement of the amendment, waiver, discharge
or termination is sought. Any such amendment shall be subject to and
conditional upon the written approval of The Toronto Stock Exchange.
9.3 TIME OF ESSENCE. Time is of the essence of this Agreement in
respect of all payments to be made hereunder and all covenants and agreements to
be performed and fulfilled. Any extension of time hereunder will not be deemed
to be or to operate at law as a waiver on the part of the Lender of this
provision that time is of the essence of this Agreement.
9.4 ASSIGNMENT. No party may assign any of its rights or obligations
hereunder without the prior written consent of the other parties.
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9.5 SEVERABILITY. If any one or more of the provisions contained in
this Agreement should be invalid, illegal or unenforceable in any respect in any
jurisdiction, the validity, legality and enforceability of such provision will
not in any way be affected or impaired thereby in any other jurisdiction and the
validity, legality and enforceability of the remaining provisions contained
herein will not in any way be affected or impaired thereby.
9.6 PARTIES IN INTEREST. This Agreement will enure to the benefit of
and be binding on the parties hereto and their respective successors and
permitted assigns.
9.7 APPLICABLE LAW. This Agreement and the rights and obligations of
the parties hereto will be governed by the laws of British Columbia and the laws
of Canada applicable therein, except as may otherwise be expressly provided
herein or therein. The parties hereby attorn to the non-exclusive jurisdiction
of the courts of British Columbia.
9.8 ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement and understanding between the parties hereto and supersedes all prior
agreements and undertakings, whether oral or written, relative to the subject
matter hereof except as otherwise provided herein.
9.9 EXECUTION IN COUNTERPARTS. This Agreement may be executed in
counterparts, each of which when so executed shall be deemed to be an original
and both of which together shall constitute one and the same document.
9.10 PAYMENT DATES. Unless otherwise provided herein, if the date
upon which any act or payment hereunder is required to be done or made falls on
a day which is not a Business Day, then such act or payment will be performed or
made on the next following Business Day.
9.11 LENDER RECORDS. The records of the Lender as to the state of
accounts between the parties shall constitute prima facie proof of the relevant
fact.
9.12 NO MERGER OF JUDGMENT. The taking of a judgment on any covenant
contained herein or in the Escrow Agreement or the Pledge Agreement or any other
agreement or document in respect of the Charge or the Share Pledge or any
evidence of or security for payment of the Indebtedness or performance of the
obligations herein contained does not operate as a merger of any such covenant,
affect the Lender's right to interest at the rate and times provided in this
Agreement on any money owing to the Lender under any covenant set out herein or
affect any of the rights or remedies of the Lender. Any such judgment will
provide that interest thereon will be calculated at the same rate and in the
same manner as herein provided at the date of default until such judgment is
fully paid and satisfied.
9.13 SURVIVAL. The representations, warranties, covenants and
agreements herein contained shall survive the making by the Lender of the
Advance and the conversion of the principal amount of the Promissory Notes to be
issued in respect thereof into common shares of the Borrower and continue in
full force and effect thereafter.
GOLDEN QUEEN MINING CO. LTD.
By:
---------------------------------
GOLDEN QUEEN MINING COMPANY, INC.
By:
---------------------------------
THE LANDON T. CLAY CHARITABLE LEAD TRUST II
By:
---------------------------------
(Authorized Signatory)
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Schedule "A"
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A HOLD PERIOD THAT
EXPIRES ON MARCH L, 1997 AND MAY NOT BE TRADED IN BRITISH COLUMBIA UNTIL THE
EXPIRY OF THE HOLD PERIOD, EXCEPT AS PERMITTED BY THE SECURITIES ACT (BRITISH
COLUMBIA) AND REGULATIONS MADE UNDER THAT ACT.
PROMISSORY NOTE AND CONVERSION RIGHT
FOR VALUE RECEIVED, the undersigned promises to pay on demand to the order
of The Landon T. Clay Charitable Lead Trust II the sum of Six Hundred Thousand
Dollars ($600,000) of lawful money of the United States of America, together
with Interest (as defined in the convertible loan agreement dated the 19th day
of March, 1996 among Golden Queen Mining Co. Ltd., Golden Queen Mining Company,
Inc. and Landon Clay (the "Agreement")) thereon from the date hereof.
This Promissory Note and Conversion Right is issued pursuant to and is
subject to the terms and conditions of the Agreement and evidences the right of
The Landon T. Clay Charitable Lead Trust II to acquire securities of Golden
Queen Mining Co. Ltd. pursuant to the terms of the Agreement. This Promissory
Note and Conversion Right is not a negotiable instrument.
IN WITNESS WHEREOF the undersigned have hereunto affixed their common seals
in the presence of their proper officers duly authorized in that behalf this
19th day of March, 1996
GOLDEN QUEEN MINING COMPANY, INC. was hereunto affixed in the presence of:
GOLDEN QUEEN MINING CO. LTD. was hereunto affixed in the presence of:
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CONVERTIBLE LOAN AGREEMENT
THIS LOAN AGREEMENT is dated the 19th day of March, 1996.
BETWEEN:
GOLDEN QUEEN MINING CO. LTD., a company incorporated under the laws of
British Columbia, having its principal executive office at Suite 211A,
104 South Freya Street, Spokane, Washington 99202.
(hereinafter called the "Company")
AND:
GOLDEN QUEEN MINING COMPANY, INC. a corporation incorporated under the
laws of California, having its principal executive office at Suite
211A, 104 South Freya Street, Spokane, Washington 99202.
(hereinafter called the "Borrower")
AND:
THE LANDON T. CLAY CHARITABLE LEAD TRUST DATED 11/30/83, a charitable
trust organized under the laws of the State of Massachusetts and
having an office c/o Investors Bank and Trust, Box 1537, Boston, MA
02205 (Att: Amy Fahey), Account No. 2111300.
(hereinafter called the "Lender")
WHEREAS the Lender has agreed to provide a loan to the Borrower on the
terms and conditions set forth hereunder;
NOW THEREFORE THIS AGREEMENT WITNESSES THAT, in consideration of the
agreements herein contained and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby covenant and agree as follows:
1. INTERPRETATION
DEFINED TERMS. As used in this Agreement, the following terms shall
have the respective meanings specified in this section unless the context
requires otherwise:
1.1 CURRENCY. Unless otherwise specified herein, all statements of
or references to dollar amounts herein are references to U.S. Dollars.
1.2 INCLUDED WORDS. In this Agreement, words importing the singular
number only shall include the plural and vice versa, words importing the
masculine gender shall include the feminine and neuter genders and vice versa
and words importing persons shall include individuals, corporations,
partnerships, associations, trusts and unincorporated organizations and vice
versa.
1.3 HEADINGS. The division of this Agreement into articles and
sections and the insertion of headings are for convenience of reference only and
shall not affect the interpretation of this Agreement.
1.4 REFERENCES. Unless otherwise stated, a reference herein to an
article or section refers to the appropriate article or section in this
Agreement. A reference to "herein", "hereof", "hereto" or "hereunder" is a
reference to this Agreement, including the Schedule hereto, together with any
amendments hereof or modifications hereto.
1.5 SCHEDULES. Schedule A is hereby incorporated in and forms a part
of this Agreement.
2. LOAN, CONVERSION TO COMMON SHARES AND RELATED MATTERS
2.1 LOAN ADVANCE. On and subject to the terms and conditions hereof,
the Lender hereby agrees to lend to the Borrower the amount of $400,000 (the
"Advance") to be advanced against receipt of a Promissory Note in form attached
hereto as Schedule A from the Borrower in respect of such advance upon
satisfaction of the conditions set out in section 5 below.
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2.2 CONVERSION OF LOAN. Upon and subject to the provisions and
conditions herein, the Lender shall have the right (the "Share Conversion
Right"), at its option, to deliver to the Borrower from time to time a written
notice (the "Conversion Notice") and the delivery of a Conversion Notice shall
constitute an irrevocable election by the Lender to exercise its right (the
"Share Conversion Right") to convert the whole or such portion of the Advance as
is set forth in the Conversion Notice into Shares at the price of C$2.00 per
Share (the "Conversion Price"). The Share Conversion Right shall extend only to
the maximum number of whole Shares into which the Advance set forth in the
Conversion Notice can be divided. In the case of a fractional interest an
adjustment will be made to the next lowest whole number of Shares.
2.3 ISSUE OF CERTIFICATES REPRESENTING SHARES. In the event of the
exercise by the Lender of the Share Conversion Right, the Borrower shall deliver
to the Lender, on the day that is two business days after the date of delivery
of the Conversion Notice (the "Conversion Date"), a certificate or certificates
registered in the name of the Lender representing the Shares to which the Lender
is entitled to hereunder along with a cheque payable to the Lender in an amount
equal to all accrued but unpaid interest on the portion of the Advance converted
as of the Conversion Date. The Borrower represents and warrants, which
representation and warranty shall survive any conversion, that such Shares
delivered to the Lender will be duly authorized and validly allotted and issued
as fully paid and non-assessable Common Shares without par value in the capital
of the Company.
2.4 DELIVERY OF PROMISSORY NOTE FOR CANCELLATION. Concurrently with
the delivery of the certificates by the Borrower pursuant to Section 2.3 the
Lender shall deliver the Note to the Borrower for cancellation and the Borrower
shall issue a new convertible promissory note in the form attached hereto as
Schedule A in the principal amount of the balance of the outstanding Principal
Amount, if any, remaining following the exercise of the Conversion Right.
2.5 ADJUSTMENT TO CONVERSION PRICE. If and whenever at any time
prior to the Maturity Date (as defined below) (and so long as there is any
principal amount of the Advance outstanding) the Company shall (i) subdivide the
outstanding Shares into a greater number of Shares, (ii) consolidate the
outstanding Shares into a smaller number of Shares, or (iii) issue to all or
substantially all the holders of Shares by way of a stock dividend or otherwise
Shares or securities convertible into Shares, the Conversion Price shall, on the
effective date of such subdivision or consolidation or on the record date of
such stock dividend, as the case may be, be adjusted to that amount which is the
same proportion to the Conversion Price in effect immediately prior to such
subdivision or consolidation or stock dividend as the number of outstanding
Shares before giving effect to such subdivision or consolidation or stock
dividend bears to the number of outstanding Shares after giving effect to such
subdivision or consolidation or stock dividend. Such adjustment shall be made
successively whenever any event referred to in this section 2.5 shall occur; and
any such issue of Shares by way of stock dividend shall be deemed to have been
made on the record date for the stock dividend for the purposes of calculating
the number of Shares under sections 2.6.
2.6 ADJUSTMENT TO CONVERSION PRICE UPON OTHER DISTRIBUTIONS BY
COMPANY. If and whenever prior to the Maturity Date the Company shall fix a
record date for the making of a distribution to all or substantially all the
holders of Shares, (i) shares of any class other than Shares, whether of the
Company or any other company, (ii) rights, options or warrants (other than those
referred to in section 2.5 hereof), (iii) evidences of indebtedness, or (iv)
any other assets, then, in each case, the Conversion Price shall be adjusted
immediately after such record date so that it shall equal the price determined
by multiplying the Conversion Price in effect on such record date by a fraction,
of which the numerator shall be (a) the total number of Shares outstanding on
such record date multiplied by the fair market value of such Shares (as
determined by the Directors of the Company, acting in good faith, and subject to
the prior written consent of The Toronto Stock Exchange), less (b) the aggregate
fair market value (as determined by the Directors of the Company, acting in good
faith, and subject to the prior written consent of The Toronto Stock Exchange)
of such shares, rights, options, warrants, evidences of indebtedness or other
assets issued or so distributed, and of which the denominator shall be the
amount determined in (a) of this subsection; and any Shares owned or held by or
for the account of the Company shall be deemed not to be outstanding for the
purpose of any such computation. Such adjustment shall be made successively
whenever such a record date is fixed. To the extent that any such distribution
is not so made, the Conversion Price shall be readjusted to the Conversion Price
in effect immediately prior to the record date or to the Conversion Price that
would be then in effect based upon such shares, rights, options, warrants,
evidences of indebtedness or other assets actually issued or distributed, as
the case may be.
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2.7 PROVISO. No adjustment to the Conversion Price shall be made in
respect of any event described in subsection 2.6 if the Lender is allowed to
participate as if it had converted the Note prior to the applicable record date
or effective date. The Lender acknowledges that its participation in such an
event described in subsection 2.6 shall be subject to the prior written consent
of The Toronto Stock Exchange.
2.8 AMENDMENTS TO BE DELIVERED TO BORROWER. The Company shall not
enter into a consolidation, merger or amalgamation with or into any other body
corporate until the Company, the Borrower and the Lender execute and deliver all
such amendments to the Share Conversion Right as are required by the Lender,
acting reasonably, to ensure that the rights of the Lender under the Share
Conversion Right are not adversely affected by such consolidation, merger or
amalgamation.
2.9 EXCHANGES RATES; CONVERSION BETWEEN US AND CANADIAN DOLLARS. For
the purpose of determining the number of Common Shares to be issued to the
Lender upon exercise of the Share Conversion Right, the rate of exchange between
Canadian dollars and U.S. dollars (the "Rate of Exchange") shall be 1.3722
Canadian dollars per U.S. dollar, being the noon spot rate quoted by the Bank of
Canada for purchases of U.S. dollars with Canadian dollars on February 29, 1996,
the date notice to The Toronto Stock Exchange of the transaction contemplated
hereby was given by the Company.
3. INTEREST
3.1 RATES OF INTEREST. The Borrower shall pay interest ("Interest")
to the Lender (c/o Account No. 2111300, as set forth on the first page of this
Agreement) on the aggregate amount of the Advance outstanding at a rate per
annum computed in all cases on the basis of a year of 360 days and determined
for the actual days the Advance is outstanding from the date of the Advance at
a rate equal to 9.5%. For the purposes of the INTEREST ACT (Canada), the annual
rate to which the foregoing rate is applicable is the foregoing rate multiplied
by the number of days in the year (being 365 or 366, as the case may be) divided
by 360.
3.2 CALCULATION AND PAYMENT OF INTEREST. Interest on the Advance and
all other amounts owing to the Lender under the terms of this Agreement will be
calculated and compounded semi-annually in arrears and in respect of any six
month period during which any amounts are outstanding hereunder and shall be
paid by the Borrower to the Lender on the third Business Day after the end of
each six month period.
3.3 OVERDUE PAYMENTS. Any amount not paid when due hereunder will
bear interest from the due date until paid in full at the rate of interest
determined pursuant to section 3.1.
4. PAYMENT
4.1 REPAYMENT. Subject to other provisions hereof requiring earlier
repayment, the Borrower shall pay to the Lender (c/o Account No. 2111300, as set
forth on the first page of this Agreement) the balance outstanding of the
Advance and Interest and all other Indebtedness in full on March 19, 1998 (the
"Maturity Date").
4.2 OPTIONAL PREPAYMENT. The Borrower may not prepay the Advance in
whole or in part at any time without the prior written consent of the Lender.
4.3 ACCELERATION BY LENDER. If the Company, within six months of the
date of this Agreement, completes an offering of Shares or securities
convertible into Shares pursuant to which net proceeds to the Company (after
deduction of all expenses associated with such offering) are at least
$5,000,000, the Lender may, within 30 days of completion of such offering,
provide written notice to the Borrower that the Lender has elected to accelerate
the term of the Advance and the Borrower shall within 10 Business Days of
receipt of such notice repay the principal amount of the Advance then
outstanding against delivery of the Promissory Note by the Lender.
4.4 PAYMENTS IN IMMEDIATELY AVAILABLE FUNDS. All payments required
to be made hereunder shall be made in immediately available funds to such
accounts as the Lender may from time to time designate, free and clear of and
without any withholding or deduction for present or future Taxes. If, for the
purposes of obtaining judgment in any court in any country, it becomes necessary
to convert into any other currency (the "Judgment Currency") an amount due in
U.S. Dollars, the conversion shall be made at the Rate of Exchange.
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4.5 PAYMENT WITHHOLDINGS. In the event that any applicable law
requires that any Tax be withheld from any amount paid or payable hereunder, the
Borrower shall pay on demand to the Lender such additional amounts (including
any Tax payable in respect of such additional amounts) as may be necessary in
order that every net dollar received by the Lender with respect to principal,
interest and other amounts required hereunder will not be less than the full
amount provided for herein.
5. CONDITIONS TO ADVANCES
5.1 CONDITIONS PRECEDENT TO THE ADVANCE. The obligation of the
Lender to make the Advance is subject to the fulfillment of the following
conditions precedent on or prior to the date hereof:
5.2 WAIVER OF CONDITIONS PRECEDENT. The Lender may, at its option,
waive compliance by the Company or the Borrower with any condition precedent to
its obligations to make the Advance. No waiver of any such condition precedent
will constitute a waiver with respect to any other condition precedent.
6. REPRESENTATIONS AND WARRANTIES OF THE BORROWER
6.1 GENERAL. The Company and the Borrower represents and warrants to
the Lender as follows (and acknowledges that the Lender is relying upon the
representations and warranties set out herein and that no investigation at any
time made by or on behalf of the Lender or any information which has or may
hereafter come to the Lender's attention will diminish in any respect whatsoever
its rights to rely thereon):
6.2 AUTHORITY. The execution and delivery by the Company of this
Agreement and the performance by the Company of its obligations hereunder and
thereunder have been duly authorized by all necessary corporate actions of the
Company and, upon its execution and delivery, this Agreement will constitute
legal, valid and binding agreements enforceable against the Company in
accordance with its terms.Material Adverse Change. There has been no material
adverse change in the business, assets, financial condition or prospects of the
Company or any of its Subsidiaries since May 31, 1995.
6.3 ISSUANCE OF SHARES. The Shares will, upon their issuance, be
duly authorized and validly allotted and issued as fully paid and non-assessable
shares in the capital of the Company, free and clear of any and all mortgages,
liens and encumbrances and listed and posted for trading on the Toronto Stock
Exchange.
6.4 NO RESALE RESTRICTIONS. The Shares issuable upon conversion of
the principal amount of the Promissory Note issued in respect of the Advance
will be subject to a 12-month hold period under the SECURITIES ACT (British
Columbia) commencing on the date of issuance of the Promissory Note upon the
conversion of which they were issued and may also be subject to other
restrictions on resale under applicable laws and regulatory requirements, and
any sale by the Lender of such Shares must be made in compliance with or on the
basis of an exemption from the registration and prospectus requirements of
applicable securities legislation.
6.5 REPORTING ISSUER STATUS. The Company is a reporting issuer under
the securities legislation of British Columbia and Ontario and is in compliance
with the requirements of the securities legislation of British Columbia and is,
other than with respect to omissions which do not have and could not reasonably
be expected to have a material adverse effect on the Borrower, in compliance
with the requirements of the securities legislation of, Ontario and British
Columbia.
6.6 REPRESENTATIONS AND WARRANTIES OF THE LENDER. The Lender
represents and warrants to the Borrower and the Company (and acknowledges that
the Borrower and the Company are relying upon the representations and warranties
set out herein and that no investigation at any time made by or on behalf of the
Borrower or the Company or any information which has or may hereafter come to
the their attention will diminish in any respect whatsoever their rights to rely
thereon) that the Lender has all necessary capacity to enter into and carry out
its obligations under this Agreement and this Agreement has been duly executed
and delivered by the Lender and will constitute legal, valid and binding
agreements enforceable against the Lender in accordance with its terms. The
Lender agrees to execute all necessary undertakings and acknowledgements
prescribed by regulatory authorities and the Vancouver and Toronto Stock
Exchanges in connection with the transaction contemplated in this Agreement.
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7. COVENANTS OF THE BORROWER. The Borrower covenants and agrees with the
Company that upon delivery of a Conversion Notice by the Lender to the Borrower
from time to time pursuant to section 2.2 of this Agreement, the Borrower shall
forthwith cause the number of common shares of the Borrower that is the next
highest whole number of common shares equal one-tenth the number of Shares
issuable by the Company pursuant to such Conversion Notice to be issued to the
Company as fully paid and non-assessable common shares in the capital of the
Borrower and shall cause a certificate or certificates representing such shares
to be delivered to the Company.
8. EVENTS OF DEFAULT AND REMEDIES
8.1 EVENTS OF DEFAULT. Subject to the expiry of the applicable grace
period, if any, set out below, the occurrence of any of the following events
(herein called an "Event of Default") will, at the option of the Lender,
terminate all obligations of the Lender hereunder and in addition to and not in
limitation of all rights of the Lender to demand the repayment of all
Indebtedness will, at the option of the Lender, make the principal amount of the
Advance, Interest and all other Indebtedness immediately due and payable, all
without demand, presentment, notice or further notice, as the case may be, all
of which are hereby expressly waived:
8.1.1 FAILURE TO REPAY PRINCIPAL. Failure to repay the
principal amount of the Advance due hereunder within three Business Days of
the due date thereof.
8.1.2 FAILURE TO PAY INTEREST AND OTHER AMOUNTS. Failure to
pay Interest or any other amount due hereunder within three Business Days
of the due date thereof.
8.1.3 BREACH OF COVENANT. Failure by the Borrower to perform
or observe any term, covenant or condition of this Agreement, other than
the payment of the principal amount of the Advance, Interest or other
amounts owing hereunder, and any such failure continues unremedied for a
period of five days after the receipt of written notice thereof from the
Lender, provided that if the failure can not, in the reasonable opinion of
the Lender, by its nature be cured within such five day period, the
Borrower will not be considered to be in default if and for so long as the
failure has not had a material adverse effect on the Borrower or the
Project and the Borrower proceeds with all reasonable dispatch to take the
necessary remedial action.
8.1.4 INSOLVENCY, RECEIVER OR TRUSTEE. The Borrower or the
Company becomes insolvent, admits in writing its inability to pay its debts
as they mature or become due, makes any assignment for the benefit of its
creditors seeks relief under any moratorium or reorganization statute, or
applies for or consents to the appointment of or the taking of possession
by a liquidator, custodian, receiver, receiver-manager, assignee,
sequestrator, trustee or similar official for it or for a substantial part
of its properties, assets or businesses, or such a liquidator, custodian,
receiver, receiver-manager, assignee, sequestrator or trustee or similar
official otherwise is appointed and is not discharged within 20 days after
such appointment unless the relevant company is in good faith contesting
such appointment.
8.1.5 BANKRUPTCY OR DISSOLUTION. Any bankruptcy, insolvency,
reorganization, liquidation or winding-up proceeding in respect of the
Borrower or the Company other proceeding for relief by the Borrower or the
Company under any bankruptcy, insolvency, relief of debtors or other
similar legislation, whether now or hereafter in effect, is instituted by
or against the Borrower or the Company, unless such proceeding is
terminated within 20 days after its institution, or any order, judgment or
decree is entered in respect of the Borrower or the Company decreeing its
liquidation, dissolution, division or winding-up or other similar action,
or a meeting is called of or a proposal is made to a substantial portion of
the creditors of the Borrower or the Company for the purpose of effecting a
composition, moratorium or extension of debt.
8.1.6 BREACH OF REPRESENTATION OR WARRANTY. Any representation
or warranty made or deemed to be made herein or in any agreement or other
document contemplated hereby or in any statement or certificate at any time
given in writing pursuant hereto or in connection herewith is, at the time
given, made or deemed to be made, inaccurate, false or misleading.
8.1.7 REMEDIES. Upon the occurrence of any Event of Default
and at any time thereafter, provided that the Borrower or the Company has
not at that time remedied all outstanding Events of Default, the Lender
may, in its sole discretion, by written notice of default given to the
Borrower, declare this Agreement to be in default.
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If the Borrower or the Company fails to cure all outstanding Events of
Default within 10 days from the receipt by it of the notice of default,
then at any time thereafter, or concurrently with the receipt by the
Borrower of the notice of default in the case of the Event of Default for
which there is no grace period, the Lender in its sole discretion and
subject to compliance with any mandatory requirements of applicable law
then in effect, may exercise any or all of the following rights and take
any or all of the following actions (each without prejudice to the Lender's
right to convert into common shares of the Company the principal amount of
the Promissory Notes issued in respect of the Advance outstanding at such
time):
8.1.8 REMEDIES CUMULATIVE. No remedy herein conferred on the
Lender is intended to be exclusive. Each remedy is cumulative and is in
addition to every other remedy given hereunder or now or hereafter existing
at law or in equity or by statute or otherwise. The exercise or
commencement of exercise by the Lender of any of such remedies will not
preclude the simultaneous or subsequent exercise by the Lender of any other
such remedies.
8.1.9 WAIVER. The Lender may, in its sole discretion, by
written instrument at any time and from time to time, waive any breach by
the Borrower or the Company of any of the covenants herein. No course of
dealing between the parties hereto nor any delay in exercising any rights
hereunder or under any other security will operate as a waiver of any
rights of the Lender.
8.1.10 FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on
the part of the Lender in the exercise of any power, right or privilege
hereunder will operate as a waiver thereof and no single or partial
exercise of any such power, right or privilege will preclude any other or
further exercise thereof or the exercise of any other right, power or
privilege. All rights and remedies existing under this Agreement, the
Promissory Notes to be issued in respect of the Advance are cumulative to
and not exclusive of any rights or remedies otherwise available.
9. MISCELLANEOUS
9.1 NOTICES. Any notice, direction or other instrument required or
permitted to be given under this Agreement shall be in writing and may be given
by delivering the same to the appropriate address set out below or by sending
the same by telecopier to the appropriate address set out below:
9.2 SET-OFF OR COUNTERCLAIM. The obligation of the Borrower to pay
or perform the Indebtedness is absolute and unconditional and will not be
limited or affected by any circumstance including, without limitation:
9.3 AMENDMENTS. This Agreement and any provision hereof may be
amended, waived, discharged or terminated only by an instrument in writing
signed by the party against whom enforcement of the amendment, waiver, discharge
or termination is sought. Any such amendment shall be subject to and
conditional upon the written approval of The Toronto Stock Exchange.
9.4 TIME OF ESSENCE. Time is of the essence of this Agreement in
respect of all payments to be made hereunder and all covenants and agreements to
be performed and fulfilled. Any extension of time hereunder will not be deemed
to be or to operate at law as a waiver on the part of the Lender of this
provision that time is of the essence of this Agreement.
9.5 ASSIGNMENT. No party may assign any of its rights or obligations
hereunder without the prior written consent of the other parties.
9.6 SEVERABILITY. If any one or more of the provisions contained in
this Agreement should be invalid, illegal or unenforceable in any respect in any
jurisdiction, the validity, legality and enforceability of such provision will
not in any way be affected or impaired thereby in any other jurisdiction and the
validity, legality and enforceability of the remaining provisions contained
herein will not in any way be affected or impaired thereby.
9.7 PARTIES IN INTEREST. This Agreement will enure to the benefit of
and be binding on the parties hereto and their respective successors and
permitted assigns.
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9.8 APPLICABLE LAW. This Agreement and the rights and obligations of
the parties hereto will be governed by the laws of British Columbia and the laws
of Canada applicable therein, except as may otherwise be expressly provided
herein or therein. The parties hereby attorn to the non-exclusive jurisdiction
of the courts of British Columbia.
9.9 ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement and understanding between the parties hereto and supersedes all prior
agreements and undertakings, whether oral or written, relative to the subject
matter hereof except as otherwise provided herein.
9.10 EXECUTION IN COUNTERPARTS. This Agreement may be executed in
counterparts, each of which when so executed shall be deemed to be an original
and both of which together shall constitute one and the same document.
9.11 PAYMENT DATES. Unless otherwise provided herein, if the date
upon which any act or payment hereunder is required to be done or made falls on
a day which is not a Business Day, then such act or payment will be performed or
made on the next following Business Day.
9.12 LENDER RECORDS. The records of the Lender as to the state of
accounts between the parties shall constitute prima facie proof of the relevant
fact.
9.13 NO MERGER OF JUDGMENT. The taking of a judgment on any covenant
contained herein or in the Escrow Agreement or the Pledge Agreement or any other
agreement or document in respect of the Charge or the Share Pledge or any
evidence of or security for payment of the Indebtedness or performance of the
obligations herein contained does not operate as a merger of any such covenant,
affect the Lender's right to interest at the rate and times provided in this
Agreement on any money owing to the Lender under any covenant set out herein or
affect any of the rights or remedies of the Lender. Any such judgment will
provide that interest thereon will be calculated at the same rate and in the
same manner as herein provided at the date of default until such judgment is
fully paid and satisfied.
9.14 SURVIVAL. The representations, warranties, covenants and
agreements herein contained shall survive the making by the Lender of the
Advance and the conversion of the principal amount of the Promissory Notes to be
issued in respect thereof into common shares of the Borrower and continue in
full force and effect thereafter.
GOLDEN QUEEN MINING CO. LTD.
By: /s/ its duly authorized officer
GOLDEN QUEEN MINING COMPANY, INC.
By: /s/ its duly authorized officer
THE LANDON T. CLAY CHARITABLE LEAD TRUST DATED 11/30/83
By: /s/ its trustee
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Schedule "A"
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A HOLD PERIOD THAT
EXPIRES ON MARCH 1, 1997 AND MAY NOT BE TRADED IN BRITISH COLUMBIA UNTIL THE
EXPIRY OF THE HOLD PERIOD, EXCEPT AS PERMITTED BY THE SECURITIES ACT (BRITISH
COLUMBIA) AND REGULATIONS MADE UNDER THAT ACT.
PROMISSORY NOTE AND CONVERSION RIGHT
FOR VALUE RECEIVED, the undersigned promises to pay on demand to the order
of The Landon T. Clay Charitable Lead Trust Dated 11/30/83 the sum of Four
Hundred Thousand Dollars ($400,000) of lawful money of the United States of
America, together with Interest (as defined in the convertible loan agreement
dated the 19th day of March, 1996 among Golden Queen Mining Co. Ltd., Golden
Queen Mining Company, Inc. and Landon Clay (the "Agreement")) thereon from the
date hereof.
This Promissory Note and Conversion Right is issued pursuant to and is
subject to the terms and conditions of the Agreement and evidences the right of
The Landon T. Clay Charitable Lead Trust Dated 11/30/83 to acquire securities of
Golden Queen Mining Co. Ltd. pursuant to the terms of the Agreement. This
Promissory Note and Conversion Right is not a negotiable instrument.
IN WITNESS WHEREOF the undersigned have hereunto affixed their common seals
in the presence of their proper officers duly authorized in that behalf this
19th day of March, 1996
GOLDEN QUEEN MINING COMPANY, INC. was hereunto affixed in the presence of:
GOLDEN QUEEN MINING CO. LTD. was hereunto affixed in the presence of:
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Exhibit 10.16 to
Form 10-SB Registration Statement
CONSULTING AGREEMENT
This Consulting Agreement, made and entered into as of the 1st day of February,
1996, is by and between Golden Queen Mining Co. Ltd. ("Company"), whose address
is Tapio Office Center, Green Flag Building, 104 South Freya, Suite 211-A,
Spokane, Washington 99202, and Eric E. Kinneberg ("Consultant").
WITNESSETH:
WHEREAS, Company is in need of services as hereinafter described; and
WHEREAS, Consultant has the necessary knowledge, experience and expertise to
provide such services.
NOW, THEREFORE, in consideration of the promises, covenants and agreements
contained herein, the sufficiency of which is acknowledged by each of the
parties, it is agreed as follows:
1. Retention. Company hereby retains Consultant as a financial consultant
for the Company, upon the terms and conditions contained herein, and
Consultant hereby accepts such retention and agrees to perform the duties as
requested by the Company and accepted by Consultant to the best of
Consultant's ability. The authority and duties of Consultant may be more
specifically defined from time to time, without having any effect upon the
other terms of this Consulting Agreement. It is anticipated that the
Consultant will perform such duties for the Company one to two days per week.
2. Other Employment. It is the intention of the parties that Consultant will
devote his work effort towards the fulfillment of the Consultant's obligations
under this Consulting Agreement. To the extent that it does not conflict with
that intention, Consultant may act in any other work capacity or employment
during the term of this Agreement.
3. Term. The term of this Consulting Agreement shall commence as of February
1, 1996 and shall continue until February 29, 1996, and shall be extended
thereafter from month-to-month unless notice is given by either party to
terminate pursuant to Paragraph 4.
4. Termination. This Consulting Agreement may be terminated by either party
on thirty days prior written notice.
5. Regular Compensation. For all services rendered by Consultant under this
Consulting Agreement, Company shall compensate Consultant at a daily rate of One
Thousand Dollars ($1,000) per day. Consultant shall submit invoices for the
days worked on a monthly basis and Company shall pay such invoices within ten
(10) days of receipt.
6. Duties. The duties of Consultant shall include, but not be limited to the
following: assist the Company with its financial matters and such other similar
duties as may be requested by Company's representative and accepted by
Consultant. Such duties shall be performed in accordance with instructions as
may be from time to time given by Company's representative. Consultant shall
communicate promptly to Company all information that Consultant acquires in the
performance of Consultant's duties hereunder.
7. Confidential Data. Consultant agrees that any data or other information
relating to the work performed pursuant to the provisions hereof shall at all
times belong to Company and that Consultant will not at any time use, or permit
others to use, said data or other information, or copies thereof, without first
receiving the written consent of the Company. However, this restriction shall
not apply to data or information which is available to the public or which is
made public by the Company. Upon termination of this Consulting Agreement, or
sooner if requested by the Company, Consultant shall forthwith deliver to the
Company, all documents, data, information and correspondence acquired or coming
to the knowledge and custody of Consultant in connection with Consultant's
activities as a consultant to the Company, and all equipment and other materials
received by Consultant from the Company, except that Consultant shall not be
required to return work papers which were generated in connection with the
performance of the duties hereunder.
8. Office and Equipment. Company shall provide Consultant with an office,
desk and telephone for his full-time use. Consultant shall pay Company Three
Hundred Twenty-Five Dollars ($325) per month for the use of the office, which
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amount shall be deducted from Consultant's monthly invoices; provided that
Consultant shall pay Company One Hundred Sixty-Two Dollars and Fifty Cents
($162.50) for February 1996. Consultant shall provide his own computer and
other equipment but shall have the right to use the Company's long distance
carrier and fax machine. Consultant shall reimburse Company for such costs
which are not incurred by Consultant in connection with his duties hereunder.
9. Expenses. The Company will reimburse Consultant for all reasonable
expenses incurred in connection with the performance of Consultant's duties on
behalf of the Company, including, but not limited to, expenses for travel,
lodging, meals, and other expenses that are included in the normal execution of
Consultant's duties. Consultant shall keep an accurate account of all expenses
incurred by Consultant and shall furnish with Consultant's monthly invoices a
detailed expense report, as appropriate, to the Company's representative for
approval. Expenses shall be supported by proper vouchers and receipts.
10. Insurance. Consultant will comply with all applicable Workers'
Compensation Laws; Consultant understands and agrees that, since he is not an
employee of the Company, Company will not provide Workers' Compensation
Insurance for him and he will not seek Workers' Compensation benefits from
Company. Consultant shall indemnify and hold the Company harmless from
liability for Consultant's failure to comply with this Paragraph 10. Consultant
understands that Consultant is not covered by Company's insurance.
11. Indemnity. Consultant shall not be liable for any act or omission
whatsoever for the Consultant's negligence or error in judgment, except his
willful malfeasance or bad faith in the conduct of his duties. Company shall
indemnify and save harmless Consultant from and against any and all liabilities,
claims, damages, costs and expenses (including reasonable counsel fees) to which
Consultant may become subject by reason of or arising our of the performance or
nonperformance of his duties. No such right of indemnity shall exist, however,
with respect to any liabilities, claims, damages, costs, or expenses which
Consultant may incur by reason of his wilful malfeasance or bad faith in the
conduct of his duties. The foregoing provisions of this Paragraph 11 shall
survive the termination of this Agreement, but shall not be construed to mean
the Company's liabilities or obligations hereunder do not survive as to the
other provisions of this Agreement.
12. Relationship. Consultant is an independent contractor to the Company and
is not an employee of the Company.
13. Benefits. No employee benefits are available to Consultant under the terms
of this Agreement.
14. Company's Representative. Company's representative hereunder is Steven W.
Banning, President and Chief Executive Officer.
15. Modification. No changes or modifications of this Consulting Agreement
shall be valid unless in writing and signed by the Company and the Consultant.
16. Applicable Law. This Consulting Agreement shall be subject to and governed
by the laws of the State of Washington.
17. Binding Effect. This Consulting Agreement shall be binding upon and inure
to the benefit of the Company and Consultant and their respective legal
representatives, executors, administrators and permitted successors and assigns.
18. Assignment. This Consulting Agreement may not be assigned by either party.
19. Entire Agreement. The entire agreement between the parties is written
herein and this Consulting Agreement contains the entire agreement between the
parties.
IN WITNESS WHEREOF, the parties have executed this Consulting Agreement as of
the day and year first above written.
GOLDEN QUEEN MINING CO. LTD. CONSULTANT
By /s/ Steven W. Banning, /s/ Eric Kinneberg
its president
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