As filed with the Securities and Exchange Commission on August __, 1998
Registration No. 333-41635
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
----------------------------------
SECOND AMENDMENT
FORM SB-2/A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------------------
GRIFFIN GOLD GROUP, INC.
- --------------------------------------------------------------------------------
(Exact name of Registrant specified in charter)
Delaware 1041 76-0528788
- --------------------------------------------------------------------------------
(State of (Primary Industrial (I.R.S. Employer
Incorporation) Classification) I.D.#)
15915 Katy Freeway, Suite 250
Houston, Texas 77094
Tel: (281) 398-5588
- --------------------------------------------------------------------------------
(Address, including zip code of principal place of
business and telephone number, including area code of
Registrant's principal executive offices.)
Richard W. Lancaster With a copy to:
President Randall W. Heinrich
15915 Katy Freeway, Suite 250 Gillis & Slogar, L.L.P.
Houston, Texas 77094 1000 Louisiana, Suite 6905
Tel: (281) 398-5588 Houston, Texas 77002
(Name, address, including zip code (713) 951-9100
and telephone number, including
area code of agent for service.)
Approximate date of commencement date or proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box [X].
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed
Title of each class Proposed maximum
of securities to be Amount to be maximum offering aggregate Amount of
registered registered price per share offering price registration fee
<S> <C> <C> <C> <C>
Common Stock 500,000(1) $.50 $ 138,525 $ 40.86
Class A Warrants 1,500,000(1) $.50 $ 195,900 $ 57.79
Common Stock 1,500,000 $.50 $ 750,000 $ 221.25
underlying Class
A Warrants
Class B Warrants 1,500,000(2) -0- -0- -0-
Common Stock 1,500,000 $1.00 $ 1,500,000 $ 442.50
underlying Class
B Warrants
Common Stock 250,000 $.50 $ 125,000 $ 36.88
underlying LS Capital
Corporation Warrant
Common Stock 5,000,000(3) $1.00 $ 5,000,000 $1,475.00
Total 11,750,000 ------ $ 7,709,425 $2,274.28(4)
</TABLE>
- --------------------
(1) Approximately 277,050 shares of Common Stock and approximately
1,108,200 Class A Warrants are to be distributed to the stockholders of
LS Capital Corporation for no consideration from such stockholders. The
remaining approximately 222,950 shares of Common Stock and
approximately 391,800 Class A Warrants may be sold by LS Capital
Corporation at prices that are estimated to be, for purposes of fee
calculation, $.50 per share and $.50 per warrant.
(2) To be issued to the holders of the Class A Warrants upon the exercise
thereof for no consideration from such holders.
(3) To be offered on a delayed or continuous basis pursuant to possible
business combination transactions in the future at prices equivalent to
the then current market price or a slight discount therefrom; for
purposes of fee calculation, determined to be $1.00 per share.
(4) $1,475.00 has previously been paid.
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
28
PROSPECTUS
GRIFFIN GOLD GROUP, INC.
8,750,000 Shares of Common Stock
1,500,000 Class A Warrants
1,500,000 Class B Warrants
This Prospectus relates to the distribution (the "Distribution") by LS
Capital Corporation, a Delaware corporation ("LS Capital"), to holders of record
of LS Capital common stock at the close of business on __________________ _____,
1998 (the "Record Date") of certain securities of Griffin Gold Group, Inc., a
Delaware corporation (the "Company"). The securities to be distributed include
approximately 277,050 shares of the Company's Common Stock, par value $.01 per
share (the "Common Stock"), and approximately 1,108,200 redeemable common stock
purchase warrants (the "Class A Warrants") entitling the holders thereof to
acquire an aggregate of 1,108,200 shares of Common Stock at a per-share price of
$.50. The Common Stock and Class A Warrants comprising the Distribution can be
traded separately immediately upon issuance. See "DESCRIPTION OF CAPITAL STOCK."
The Company is a newly-formed company engaged in efforts to extract (by means of
certain technologies) precious minerals believed to be located on certain tracts
of land controlled by the Company and located in the Amargosa Valley in the
upper Mohave Desert in California. See "BUSINESS."
In connection with the Distribution, each stockholder of LS Capital
will generally receive one share of Common Stock and four Class A Warrants for
each fifty shares of LS Capital common stock owned on the Record Date. However,
fractional shares will not be issued, but instead a LS Capital stockholder
otherwise entitled to a fractional share will receive a cash dividend in lieu
thereof. Certificates representing the number of shares of Common Stock and
number of Class A Warrants to which LS Capital stockholders are entitled are
being mailed with this Prospectus. Checks representing payment of cash dividends
in lieu of fractional shares may be obtained by LS Capital stockholders by
submitting a written request therefor to the corporate headquarters of LS
Capital. For more information about the Distribution, see "THE DISTRIBUTION."
Management believes that shares of Common Stock comprising the Distribution and
received by LS Capital's stockholders will be characterized as taxable dividends
to such stockholders upon receipt. See "THE DISTRIBUTION -- Certain Federal
Income Tax Consequences." FOR A DISCUSSION OF CERTAIN RISKS RELATING TO THE
ACQUISITION AND OWNERSHIP OF THE COMMON STOCK, SEE "RISK FACTORS."
No consideration will be paid by LS Capital's stockholders for the
approximately 277,050 shares of Common Stock and the approximately 1,108,200
Class A Warrants comprising the Distribution. The Company will not receive any
proceeds from the Distribution or from the sale of the other shares of Common
Stock and Class A Warrants being registered on behalf of LS Capital, as
discussed herein. The Company will receive all proceeds from the exercise of the
Class A Warrants as well as the other class of warrants discussed below. For
more information about the use of proceeds from the exercise of the warrants,
see "USE OF PROCEEDS."
There is no current public trading market for the shares of Common
Stock or the Class A Warrants. Subject to the sponsorship of a market maker,
shares of Common Stock and the Class A Warrants will be traded in the
over-the-counter market on the OTC Electronic Bulletin Board.
The Company currently has outstanding 2,000,000 shares of Common Stock.
The shares to be to be distributed will constitute approximately 13.97% of the
outstanding shares of Common Stock of the Company as of the date of the
Distribution. Management of the Company and LS Capital believed that the
distribution of 277,050 shares of Common Stock as described herein would be
adequate to create an orderly public trading market in the Common Stock. After
the Distribution, LS Capital will hold approximately 722,950 shares of Common
Stock and approximately 391,800 Class A Warrants, thus continuing its ownership
interest in the Company at a reduced level. Of the securities being registered,
the approximately 222,950 shares of Common Stock and approximately 391,800 Class
A Warrants not part of the Distribution may be sold by LS Capital Corporation in
the future to reimburse LS Capital for the efforts and expenses that it incurred
in connection with the Distribution.
In addition to the shares of Common Stock and Class A Warrants
discussed above, the Company is also registering 5,000,000 shares of Common
Stock to be offered on a continuous or delayed basis in the future (at prices
equivalent to the then current market price of the Common Stock or at slight
discounts therefrom) in connection with future business combination
transactions. Moreover, the Company is also registering 1,500,000 redeemable
common stock purchase warrants (the "Class B Warrants") entitling the holders
thereof to acquire an aggregate of 1,500,000 shares of Common Stock at a
per-share price of $1.00. The Class B Warrants will be issued to the holders of
the Class A Warrants upon exercise of the Class A Warrants at rate of one Class
B Warrants for each Class A Warrant exercised, without the payment of any
additional consideration. The Class A Warrants and the Class B Warrants are
hereinafter referred to as the "Warrants". The shares of Common Stock into which
the Warrants may be converted are also being registered. The Company is also
registering 250,000 shares of Common Stock that LS Capital may acquire at a
per-share price of $.50 pursuant to a warrant granted by the Company to LS
Capital (the "LS Capital Warrant"). Finally, of the 500,000 shares of Common
Stock and 1,500,000 Class A Warrants being registered, the approximately 222,950
shares of Common Stock and approximately 391,800 Class A Warrants not included
in the Distribution may be sold by LS Capital Corporation in the future to
reimburse LS Capital Corporation for the efforts and expenses that it incurred
in connection with the Distribution. See "OTHER SECURITIES BEING REGISTERED" and
"DESCRIPTION OF CAPITAL STOCK."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
UNTIL ___________________ _____, 1998, ALL DEALERS EFFECTING
TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
The date of this Prospectus is _________________
_____, 1998.
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form SB-2 and exhibits relating
thereto (the "Registration Statement") under the Securities Act of 1933, as
amended (the "Act"), of which this Prospectus is a part. This Prospectus does
not contain all the information set forth in the Registration Statement.
Reference is made to such Registration Statement for further information with
respect to the Company and the securities of the Company covered by this
Prospectus. Statements contained herein concerning the provisions of documents
are necessarily summaries of such documents, and each statement is qualified in
its entirety by reference to the copy of the related document filed with the
Commission. The Commission maintains a World Wide Web site that contains
reports, proxy statements and information statements and other information
(including the Registration Statement) regarding issuers that file
electronically with the Commission. The address of such site is
http://www.sec.gov. The Registration Statement and exhibits may also be
inspected, and copies thereof may be obtained at prescribed rates, at the
offices of the Commission, Judiciary Plaza Building, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the regional offices of the Commission located at
7 World Trade Center, Suite 1300, New York, New York 10048 and Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
In connection with the Distribution covered by this Prospectus, the
Company is registering as a reporting company under the Securities Exchange Act
of 1934 (the "Exchange Act"). As a consequence, the Company will file with the
Commission Annual Reports on Form 10-KSB, which will contain audited financial
statements. After they are filed, these Annual Reports and audited financial
statements can be inspected at, and copies downloaded from, the Commission's
World Wide Web site at the Internet address stated in the previous paragraph.
These Annual Reports and audited financial statements can also be inspected, and
copies thereof may be obtained at prescribed rates, at the offices of the
Commission at the addresses also stated in the previous paragraph.
No person is authorized to give any information or to make any
representation not contained in this Prospectus, and, if given or made, any
information or representation not contained herein must not be relied upon as
having been authorized. This Prospectus does not constitute an offer to sell, or
a solicitation of an offer to purchase, any of the securities covered by this
Prospectus in any jurisdiction to or from any person to or from whom it is
unlawful to make such offer or such solicitation of an offer in such
jurisdiction. Neither the delivery of this Prospectus nor the securities covered
by this Prospectus shall, under any circumstances, create an implication that
there has been no change in the information set forth herein since the date
hereof.
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS.
Company Griffin Gold Group, Inc. (the "Company") is a newly-forme
Delaware corporation engaged in efforts to extract
precious minerals believed to be located on certain
tracts of land controlled by the Company and located in
the Amargosa Valley in the upper Mohave Desert in
California. See "BUSINESS - Operations - Properties." The
Company's control over these tracts is provided by certain
options granted in the Company's favor to lease the claims
governing the mineral rights relating to these tracts.
Pending the exercise of these options, the Company has
certain rights to explore for minerals on these tracts.
There are no conditions to the Company's exercise of these
options other than the payment of a comparably minor
option exercise price. However, the options require the
Company to pay a relatively small annual option price and
to honor certain obligations. The failure to pay these
amounts or honor these obligations could result in the
forfeiture of the options. See "BUSINESS - Operations -
Mining Claims." The Company will conduct its extraction effort
by means of certain technologies, some of which are
currently undergoing refinement and others of which are
currently undergoing development. See "BUSINESS -
Operations - Extraction." All of the Company's technologies
operate in fundamentally the same way with certain variations.
Of the Company's technologies, LS Capital either owns the
technology outright, has received a license to use the
technology, or is currently having the technology developed
on a "for hire" basis. See "BUSINESS - Operations -
Intellectual Property." All of the Company's technologies
are new, and some of these technologies have been determined
to be capable of extracting precious minerals in a
laboratory setting. It has also determined that precious
minerals are contained in the ores mined from the Company's
mineral properties. However, the Company's technologies
must prove capable of producing precious minerals from ores
mined from the Company's mineral properties on a larger
scale at cost levels that will enable production to occur
profitably. The Company has processed ores only on an
experimental basis and has not yet processed any ores on a
commercial basis. Additional time will be necessary to
prove or disprove the capabilities of the Company's
technologies to extract precious minerals on a commercial
basis. The Company estimates that it will need until the
summer of 1999 to prove or disprove the capabilities of the
Company's technologies to extract precious minerals on a
commercial basis. The proof or disproof of the Company's
technologies will depend on the Company's receipt of an
adequate amount of funds to continue testing the
technologies appropriately, and there can be no assurance
that the Company will be successful in procuring these funds.
Through the end of the summer of 1999, the Company intends to
continue experimenting with various components of the most
Company's most developed technologies to maximize yields,
to continue to develop the technologies currently under
development and (subject to the Company's receipt of
funds therefor) to acquire equipment necessary to advance
the testing of the Company's technologies, to obtain third
party chain of custody verification of the performance of the
technologies and the level of mineral deposits on the
Company's mineral properties, and to obtain end-product
certification of the finished materials as to their value
and refining ability. Moreover, scaling up the use of the
Company's most developed technologies has thus far created
some unforeseen difficulties in the application of such
technologies. The Company is currently working to solve
these difficulties, and management is fairly confident that
these difficulties can be overcome. However, there can be n
assurance that these difficulties can be overcome at a cost
acceptable to and manageable by the Company or even at
all for that matter. Furthermore, there can be no assurance
that if these difficulties are overcome, the Company will
not encounter additional unforeseen difficulties in the
scaling up of the technologies, and that if additional
unforeseen difficulties are encountered, the Company will
be able to oercome them at a cost acceptable to and
manageable by the Company or even at all for that matter.
Consequently, there can be no assurance that the technologies
will prove capable of producing precious minerals at the
required scale and at the required cost levels. See "RISK
FACTORS - Potential Technological Failure." In addition to
the preceding, the Company intends to continue to work for
the next twelve months to add additional employees to
commence work on the financing and construction of a
commercial plant, provided that the Company's technologies
meet certain expectations. There can be no assurance that
the Company will be successful in achieving any of these
goals. See "BUSINESS - Operations - Plan of Operation."
The Company's offices are located at 15915 Katy Freeway,
Suite 250, Houston, Texas 77094. The Company's telephone
number is (281) 398-5588.
Distri- LS Capital Corporation, a Delaware corporation.
buting
Company
Primary To more firmly establish the identity of the Company separate
Purposes from LS Capitaland to create a public trading market for
of the Common Stock so that the Company can (i) be recognized
Distri- by by the financial community as a distinct business,
bution (ii) take advantage of the possibility of enhanced stockholder
value resulting from the public trading of the Common Stock,
(iii) better bution enable itself to make acquisitions
using its capital stock as consideration, (iv) better enable
itself to obtain financing with respect to its particular
business and projects without the involvement of LS Capital or
its subsidiaries, and possibly from lenders unwilling to lend
to companies in LS Capital's historical business, and (v)
implement more focused incentive compensation arrangements
that are tied more directly to results of its operations. See
"THE DISTRIBUTION - Reasons for the Distribution."
Securities The Company currently has outstanding 2,000,000 shares of
to be Common Stock, par value $.10 per share. The Distribution
Distri- consists of approximately 277,050 shares of Common Stock
buted and approximately 1,108,200 Class A Warrants. For more
information about the Distribution, see "THE DISTRIBUTION
- Manner of Effecting the Distribution." The shares to be
distributed will constitute approximately 13.9% of the
outstanding shares of Common Stock of the Company as of
the date of the Distribution. If all of the Warrants are
exercised (including the Class A Warrants being distributed
and the Class B Warrants that will be issued thereafter),
the total of shares of the Common Stock being distributed
(after taking into account the exercises of the
Warrants) would equal approximately 49.9% of Common Stock
outstanding after the exercises of the Warrants (assuming n
additional shares if Common Stock are hereafter issued).
Management of the Company and LS Capital believed that the
distribution of 277,050 shares of Common Stock as described
herein would be adequate to create an orderly public trading
market in the Common Stock. After the Distribution, LS
Capital will hold approximately 722,950 shares of Common
Stock and approximately 391,800 Class A Warrants, thus
continuing its ownership interest in the Company at a reduced
level. Of the securities being registered, the approximatel
222,950 shares of Common Stock and approximately 391,800 Class
A Warrants not part of the Distribution may be sold by LS
Capital Corporation in the future to reimburse LS Capital
for the efforts and expenses that it incurred in connection
with the Distribution.
Distribution Each stockholder of LS Capital owning at least 50 shares of LS
Ratio Capital common stock will receive, for each 50 shares of LS
Capital common stock owned on the Record Date, one share of
Common Stock and four Class A Warrants.
Fractional Fractional shares will not be issued. LS Capital stockholders
Shares owning fewer than 50 shares of LS Capital common stock on
the Record Date may receive, in lieu of any share of Common
Stock, a cash dividend of $.01 per share of LS Capital Stock
owned on the Record Date. In addition, any LS Capital
stockholder receiving Common Stock in connection with the
Distribution and otherwise entitled to a fractional share of
Common Stock may receive, in lieu of any fractional share of
Common Stock, a cash dividend of $.01 per share of LS Capita
common stock otherwise causing the fractional share, up
to an aggregate dividend of $.49. For more information
about treatment of fractional shares, see "THE DISTRIBUTION -
Manner of Effecting the Distribution."
Record Close of business on ____________________ _____, 1998.
Date
Delivery of Certificates representing the shares of Common Stock and
Certificates/ Class A Warrants to which LS Capital stockholders are
Checks entitled are being delivered to LS Capital stockholders
simultaneously with this Prospectus. Checks representing
payment for fractional shares may be obtained by sending a
written request to LS Capital Corporation, 15915 Katy Freeway,
Suite 250, Houston, Texas 77094, Attention: Corporate
Secretary.
Tax The Distribution is not being structured on a basis
Consequences tax-free to LS Capital stockholders, and management
believes that the Distribution could not be structured on
such a basis. Management believes that shares of Common Stock
comprising the Distribution and received by LS Capital's
stockholders will be characterized as taxable dividends to
such stockholders upon receipt. See "THE DISTRIBUTION --
Certain Federal Income Tax Consequences."
Other In addition to the shares of Common Stock and Class A Warrants
Securities comprising the Distribution, the Company is also registering
Being 5,000,000 shares of Common Stock to be offered on a continuou
Registered or delayed basis in the future (at prices equivalent to th
then current market price of the Common Stock or at slight
discounts therefrom) in connection with future business
combination transactions. The Company is also registering
1,500,000 Class B Warrants that will be issued to the holders
of the Class A Warrants upon exercise of the Class A Warrants
at rate of one Class B Warrant for each Class A Warrant
exercised (without the payment of any additional
consideration). The shares of Common Stock into which the
Warrants may be converted are also being registered. The
Company is also registering 250,000 shares of Common Stock
that LS Capital may pursuant to the LS Capital Warrant.
Finally, of the 500,000 shares of Common Stock and 1,500,000
Class A Warrants being registered, the approximately 222,950
shares of Common Stock and approximately 391,800 Class A
Warrants not included in the Distribution may be sold by LS
Capital Corporation in the future to reimburse LS Capital
Corporation for the efforts and expenses that it incurred in
connection with the Distribution. See "OTHER SECURITIES BEING
REGISTERED" and "DESCRIPTION OF CAPITAL STOCK."
Trading There is no current public trading market for the shares of
Market Common Stock or any of the Warrants. Subject to the
sponsorship of a market maker, shares of Common Stock and the
Class A Warrants will be traded in the over-the-counter market
on the OTC Electronic Bulletin Board. The Company expects
that the Class B Warrants will be traded in the over-the-
counter market on the OTC Electronic Bulletin Board at the
time that they are issued.
Transfer The transfer agent and registrar for the Common Stock is
Agent & Continental Stock & Transfer Company, 2 Broadway, 19th Floor,
Registrar New York, New York 10004.
Dividend The payment and amount of cash dividends on the Common Stock
Policy after the Distribution will be at the discretion of the
Company's Board of Directors. The Company has not
heretofore paid any dividends, and the Company does not
currently anticipate paying any dividends on its Common Stock.
The Company's dividend policy will be reviewed by the
Company's Board of Directors at such future times as may be
appropriate, and payment of dividends will depend upon the
Company's financial position, capital requirements and such
other factors as the Company's Board of Directors deems
relevant. See "DIVIDEND POLICY."
Risk Stockholders should carefully consider the matters discussed
Factors under the section captioned "RISK FACTORS" in this Prospectus.
The Company has only a limited operating history and is
subject to all of the inherent risks of a developing
business enterprise. The Company is in need of additional
capital and has no constant and continual flow of revenues.
Use of The Company will not receive any proceeds from the
Proceeds Common Stock comprising the Distribution or from the sale of
the other shares of Common Stock and Class A Warrants being
registered on behalf of LS Capital. Moreover, the Company
will not receive any proceeds when it issues any of the other
5,000,000 shares of Common Stock covered by this Prospectus.
However, such other shares are intended to be used for
business combination transactions pursuant to which the
Company will acquire direct or indirect ownership of assets
and properties. The Company will receive all proceeds from the
exercise of the Warrants. Such proceeds are expected to be
used for certain specific purposes. See "USE OF PROCEEDS."
Inquiries Stockholders of LS Capital with inquiries relating to the
Relating to Distribution should contact Keith J. McKenzie, by mail at LS
Distribution Capital's offices at 15915 Katy Freeway, Suite 250, Houston,
Texas to 77094, or by telephone at his telephone number
800/263-1880.
<PAGE>
RISK FACTORS
THE SECURITIES COVERED BY THIS PROSPECTUS INVOLVE A HIGH DEGREE OF RISK AND,
THEREFORE, SHOULD BE CONSIDERED EXTREMELY SPECULATIVE. PROSPECTIVE INVESTORS
SHOULD READ THE ENTIRE PROSPECTUS AND CAREFULLY CONSIDER, AMONG THE OTHER
FACTORS AND FINANCIAL DATA DESCRIBED HEREIN, THE FOLLOWING RISK FACTORS:
1. Limited Operating History. The Company was incorporated on October
30, 1996. Shortly after incorporation, the Company commenced its research and
development activities. The Company has not yet processed any ores on a
commercial basis, and there can be no assurance that the Company will be able
to. See RISK FACTORS - Potential Technological Failure." In view of the
foregoing, the Company has only a limited operating history and is subject to
all risks inherent in a developing business enterprise. The likelihood of
success of the Company must be considered in light of the problems, expenses,
difficulties, complications, and delays frequently encountered in connection
with a new business in general and those specific to the mineral exploration and
extraction businesses and the competitive and regulatory environment in which
the Company will operate.
2. Lack of Mineral Extraction Experience by Management. No members of
the Company's management have ever had any direct experience in the management
or operation of any business engaged in the mineral extraction or exploration
industry, although all members of the Company's board of directors have
extensive prior experience in the natural resource industry. This lack of
experience may make the Company more vulnerable than others to certain risks,
and it may also cause the Company to be more vulnerable to business risks
associated with errors in judgement that could have been prevented by more
experienced management. Management's lack of previous direct experience in the
mineral extraction and exploration industry could have a material adverse effect
on the future operations and prospects of the Company. For more information
pertaining to management's background, see "MANAGEMENT."
3. Lack of Revenue and Need for Additional Capital. The Company has
not yet earned any revenues from operations, and accordingly has no constant and
continual flow of revenues. While the Company's need for additional capital can
not now be precisely ascertained because of the indefiniteness of the ultimate
size and scope of the Company's mineral extraction activity, management believes
that the Company needs funds in the approximate amount of $1.0 million over the
next year, which amount exceeds the Company's current financial position. See
"MANAGEMENT'S PLAN OF OPERATION." In addition, between $2.5 and $5.0 million
dollars is expected to be eventually required for the construction of a larger
plant necessary in order for the Company's business plan to exceed, and there
can be no assurances that this amount can be procured. The Company expects to
finance its operations for fiscal 1997 and 1998 through the exercise prices of
the Warrants, cash flow from operations, the possible placement of the Company's
equity securities, joint venture arrangements (including project financing), the
use of certain shares of Common Stock to be registered pursuant to another
registration statement to encourage outside consultants to provide services to
the Company, and the use of certain of the shares of Common Stock covered by
this Prospectus for purposes of acquisitions. The Company is looking for sources
of additional capital, but there can be no assurance that such sources can be
found or that, if found, the terms of such capital will be commercially
acceptable to the Company. Neither LS Capital nor any other person is obligated
to provide any financing to the Company. Because of the Company's need for
additional capital, the lack of consistent revenues or the inability to obtain
necessary capital or both could prove to be detrimental factors in the
development of the Company's business.
4. Industry Risks. Mineral exploration and extraction (particularly for
gold) is highly speculative in nature, frequently is nonproductive, and involves
many risks, including, without limitation, unforeseen geological formations,
cave-ins, environmental concerns and personal injury. Such risks can be
considerable and may add unexpected expenditures or delays to the Company's
plans. Moreover, an extended period of time may be needed to develop the
Company's mineral properties. Because the market prices of any minerals produced
are subject to fluctuation, the economic feasibility of production may change
during this period of time of development. Another factor is that the Company
will use the evaluation work of professional geologists, geophysicists, and
engineers for estimates in determining whether to commence or continue
extraction work. These estimates generally rely on scientific estimates and
economic assumptions, which in some instances may not be correct, and could
result in the expenditure of substantial amounts of money on a property before
it can be determined whether or not the property contains economically
recoverable mineralization. The Company is not able to determine at present
whether or not, or the extent to which, such risks may adversely affect the
Company's strategy and business plans. There can be no assurance that the
Company's mineral extraction activities will be successful or profitable.
5. Lack of Proven or Probable Mineral Reserves. The economic viability
of a mineral property cannot be determined until extensive exploration and
development have been conducted and a comprehensive feasibility study performed.
Although the Company has conducted surface sampling on its mineral properties
indicating that precious minerals exist on these properties, the Company has not
confirmed the level of existing precious minerals, and the Company has not had
any independent testing undertaken to confirm the results of the Company's
internal sampling. As a result, the Company has not completed sufficient
geological testing to establish proven or probable mineral reserves for its
mineral properties. Consequently, the Company has been unable to ascertain with
certainty whether adequate minerals reserves sufficient for profitable
operations exist. Nonetheless, the Company is continuing with on-going internal
testing and is planning on obtaining independent third-party testing as soon as
funds are available therefor. Notwithstanding the preceding, management believes
that the Company's surface sampling indicates the existence of sufficient
mineralization to warrant continued development of the Company's mineral
properties. However, there can be no assurance that proven or probable ore
reserves will ultimately be established.
6. Limited Number of Mineral Properties. The Company is engaged only in
the mineral extraction business, and it currently has rights, and for the
foreseeable future will have rights, in only two mineral properties, although
the Company is registering additional shares so that it may engage in business
combination transactions in which additional mineral properties may be acquired.
At the present, the success of the Company depends entirely upon the Company's
ability to extract minerals from these two properties on a profitable basis.
This limited diversification may make the results of the Company's operations
more volatile than they would be if the Company operated in more than one
industry, or owned or controlled more mineral properties. For more information
about the Company's mineral properties, see "BUSINESS - Operations -
Properties."
7. Potential Technological Failure. The ultimate realization of the
Company's investment in its mineral properties depends upon the commercial
feasibility of the technologies that the Company intends to use in the Company's
mineral extraction process. Some of these technologies are currently undergoing
refinement while other of these technologies are currently undergoing
development. See "BUSINESS - Operations - Extraction." All of the Company's
technologies are new, and some of these technologies have been determined to be
capable of extracting precious minerals in a laboratory setting. It has also
determined that precious minerals are contained in the ores mined from the
Company's mineral properties. However, the Company's technologies must prove
capable of producing precious minerals from ores mined from the Company's
mineral properties on a larger scale at cost levels that will enable production
to occur profitably. The Company has processed ores only on an experimental
basis and has not yet processed any ores on a commercial basis. Additional time
will be necessary to prove or disprove the capability of the Company's
technologies to extract precious minerals on a commercial basis. The Company
estimates that it will need until the summer of 1999 to prove or disprove the
capability of the Company's technologies to extract precious minerals on a
commercial basis. Such proof or disproof will depend on the Company's receipt of
an adequate amount of funds to continue testing the technologies appropriately,
and there can be no assurance that the Company will be successful in procuring
these funds. Moreover, scaling up the use of certain of the technologies has
thus far created some unforeseen difficulties in the application of such
technologies. The Company is currently working to solve these difficulties, and
management is fairly confident that these difficulties can be overcome. However,
there can be no assurance that these difficulties can be overcome at a cost
acceptable to and manageable by the Company or even at all for that matter.
Furthermore, there can be no assurance that if these difficulties are overcome,
the Company will not encounter additional unforeseen difficulties in the scaling
up of the technologies, and that if additional unforeseen difficulties are
encountered, the Company will be able to overcome them at a cost acceptable to
and manageable by the Company or even at all for that matter. Consequently,
there can be no assurance that the technologies will prove capable of producing
precious minerals at the required scale and at the required cost levels. The
failure of the technologies to produce precious minerals at the foregoing scale
and cost levels would most likely materially and adversely affect the Company's
ability to pursue its business objectives. In addition to the preceding, other
companies competing with the Company are expected to have the right to use
certain of the technologies that the Company intends to use and will thus have
the same abilities as the Company in this regard.
8. Dependence on Third Parties. The Company does not have the
facilities to extract precious minerals from the ores mined from its mineral
properties. Instead, to extract the precious minerals, the Company will rely
upon Desert Minerals, Inc. ("DMI"), a partially-owned subsidiary of LS Capital.
DMI has entered into a two-year agreement with the Company to process the
Company's ore on a limited basis (the "Services Agreement"). The Services
Agreement will expire on February 28, 1999, unless it is mutually extended. DMI
currently has only a "pilot" plant, although it proposes to construct a larger
processing plant to produce gold on a larger scale at a commercially feasible
cost, provided that the Company's technology meets certain expectations. The
construction of the larger plant is contingent on proving the capability of the
Company's technology and procuring necessary financing. There can be no
assurance that both of these contingencies will be satisfied. The Company has
very limited control over DMI with regard to the Services Agreement. The limited
control that the Company does have assumes the form of a limited right to advise
DMI as to deficiencies in reports that DMI submits to the Company and to require
DMI to cure such deficiencies. Moreover, because the Services Agreement is on a
"cost-plus" basis, the Company and DMI have an inherent conflict of interest
inasmuch as DMI would benefit, while the Company would suffer, from greater
costs incurred in connection with the processing of the Company's ore.
Nonetheless, the Services Agreement imposes on DMI certain (though somewhat
subjective) standards of performance, and allows the Company to terminate the
Services Agreement if DMI fails to meet these standards. Accordingly, the
Company believes that it would be able to terminate the Services Agreement in
the event that DMI were to incur excessive expenses in connection with the
performance of its obligations under the Services Agreement. In addition to the
Services Agreement, the Company will also rely upon third parties for its
financing and for its technology and mineral testing. The Company has not
entered into any agreement with any third parties to provide any of these
services. The Company believes that adequate technology and mineral testing can
be obtained from suitable third parties as soon as funds are available therefor.
While there can be no assurance that the Company will be successful in obtaining
financing, the Company believes that suitable financing can be obtained if the
Company's technology appears to be viable. To insure the integrity of third
party technology and mineral testing, the Company will have no control over the
third parties performing the tests. In addition, the Company will have no
control over any third party lender, and in fact the Company expects that any
third party lender is likely to impose certain operating controls over the
Company. Moreover, the Company does not believe that it will have any apparent
or actual conflict of interest with any third party providing financing, or
technology or mineral testing.
9. Potential Title Problems. The Company currently holds interests in
two precious mineral properties located in the Amargosa Valley in the upper
Mohave Desert in California. One of these properties comprising 1,600 acres is
located near Tecopa, California about 60 miles west of Las Vegas, while the
other comprising 1,920 acres is located about 25 miles east of Barstow,
California. These two properties have a combined total of about 5.5 square miles
in surface land. The Company's rights in these properties includes the right to
enter onto the properties for purposes of exploring, investigating, sampling,
examining and testing for any precious metals and the right, at the option of
the Company and upon the payment of an exercise price of $5,000, to enter into a
lease of the mineral claims covering these properties. For more information
about the Company's mining claims, see "BUSINESS -Operations - Mining Claims."
Title to mining properties in the western United States involves certain
inherent risks due to the impossibility of determining the validity of
unpatented claims from real estate records, as well as the potential for
problems arising from the frequently ambiguous conveyancing history
characteristic of many mining properties. Although the Company believes it
conducted reasonable investigations (in accordance with standard mining industry
practice) of the validity of ownership of and the ability of certain holders of
certain mining claims to transfer to the Company certain rights and other
interests therein, there can be no assurance that it holds good and marketable
title to all of its properties. The Company has conducted limited reviews of
title and obtained representations regarding ownership from holders of mineral
rights. The Company's practice will be, if possible, to obtain title insurance
with respect to its major mineral properties when a decision is made to proceed
with large scale mining. This insurance however may not be sufficient to cover
loss of investment or of future profits.
10. No Obligated Purchaser. The Company has not entered into any
agreements with any purchasers of the Company's production. While management
believes that because of the nature of the market for precious metals, the
Company will not have significant trouble finding purchasers of the most
important portion of the Company's production, the failure to have an obligate
purchaser may the Company's business riskier than if the Company were to have a
substantial, credit-worthy purchaser obligated to purchase all or a substantial
portion of the Company's production.
11. Risk of Potential Dilution; Future Share Issuances. The Company is
registering an aggregate of 5,000,000 shares of Common Stock to be offered by
the Company on a continuous or delayed basis in the future in connection with
anticipated business combination transactions. See "OTHER SECURITIES BEING
REGISTERED." In addition, the Company is considering the registration of
1,000,000 additional shares of Common Stock to be issued to consultants in
exchange for services provided to the Company. The issuance of shares in
connection with acquisitions and to consultants in exchange for services
provided and the consideration to be received therefor will be entirely within
the discretion of the Company's Board of Directors. Although the Board of
Directors intends to utilize its reasonable business judgement to fulfill its
fiduciary obligations to the Company's then existing stockholders in connection
with any such issuance, it is possible that the future issuance of additional
shares could cause immediate and substantial dilution to the net tangible book
value of those shares of Common Stock that are issued and outstanding
immediately prior to such transaction. Any future decrease in the net tangible
book value of such issued and outstanding shares could have a material effect on
the market value of the shares.
12. Risks from Acquisitions. While the Company does not expect that
acquisitions will be a central part of the Company's business plan, the Company
may acquire complementary tracts of land, companies, products, services or
technologies as part of its business plan. The Company's success in its
acquisition activities depends on the Company's ability to identify suitable
acquisition candidates, acquire such companies on acceptable terms and integrate
their operations successfully with those of the Company. Any such transactions
would be accompanied by the risks commonly encountered in such transactions.
Such risks include, among other things, the difficulty of assimilating the
operations and personnel of the acquired companies; the potential disruption of
the Company's ongoing business; the inability of management to maximize the
financial and strategic position of the Company through the successful
incorporation of acquired businesses and technologies; additional expenses
associated with amortization of acquired intangible assets; the maintenance of
uniform standards, controls, procedures and policies; the impairment of
relationships with employees, customers, vendors and contractors as a result of
any integration of new management personnel; and the potential unknown
liabilities associated with acquired businesses. There can be no assurance that
the Company would be successful in overcoming these risks or any other problems
encountered in connection with such acquisitions. Due to all of the foregoing,
the Company's pursuit of any future acquisition may have a material adverse
effect on the Company's business, results of operations, financial condition and
cash flows. To the extent the Company chooses to use cash for acquisition
consideration in the future, the Company may be required to obtain additional
financing, and there can be no assurance that such financing will be available
on favorable terms, if at all.
13. Related Party Transactions. In connection with the transaction in
which the Company acquired control over its precious mineral properties, the
Company issued a large number of shares of Common Stock to persons who now each
separately own more than five percent of the outstanding shares of Common Stock.
For more detailed information on these issuances of shares, see "BUSINESS -
Introduction." There can be no assurance that these issuances were fair to the
Company. In addition, the Company has entered into an agreement with Desert
Minerals, Inc. ("DMI"), a partially-owned subsidiary of LS Capital whereby DMI
would process the Company's ore on a limited basis. For more detailed
information on this agreement, see "BUSINESS - Operations Extraction." The DMI
agreement was not the result of arms-length negotiations. Accordingly, there can
be no assurance that the terms and conditions of this agreement are as favorable
to the Company as those that could have been obtained from unaffiliated third
parties. There can be no assurance that the services to be provided under the
DMI agreement will be provided at the level of quality the Company expects or
will continue beyond the agreement's initial term, or that such agreement will
not be modified in the future. Also, see "CERTAIN TRANSACTIONS."
14. Transition to Independent Public Company. The Company does not have
an operating history as an independent company. One of the challenges facing the
Company will lie in the Company's ability to transform itself from a privately
held company to a publicly held company, independent of LS Capital. There can be
no assurance that the Company will be successful in this regard. Prior to the
Distribution, a number of services have been provided to the Company by LS
Capital. After the Distribution, the Company will need to develop its own
services and support systems independent of LS Capital. These systems will
consist primarily of accounting services, and reporting and other compliance
matter with respect to the Commission. The Company believes that the costs of
establishing these systems will be fairly manageable, and the Company may
satisfy such costs in a large part through the issuance of Common Stock. See
"RISK FACTORS - Risk of Potential Dilution; Future Share Issuances."
15. Retention and Attraction of Key Personnel. The Company's success
will depend, in large part, on its ability to retain and attract highly
qualified personnel. The Company's success in retaining its present staff and in
attracting additional qualified personnel will depend on many factors, including
its ability to provide them with competitive compensation arrangements, equity
participation and other benefits. There is no assurance that the Company will be
successful in retaining or attracting highly qualified individuals in key
management positions.
16. Reliance Upon Directors and Officers and Limited Management
Resources. The Company is wholly dependent, at the present, upon the personal
efforts and abilities of its officers and directors who exercise control over
the day-to-day affairs of the Company. The Company is substantially dependent
upon the efforts and skills of Richard W. Lancaster, a director and the
President of the Company, and Paul Montle, a director and the Vice President of
the Company. The loss of the services of either Mr. Lancaster or Mr. Montle, or
the inability of either of them to devote sufficient attention to the operations
of the Company, would have a materially adverse effect on the Company's
operations. The Company does not maintain key man life insurance on either of
Mr. Lancaster or Mr. Montle. In addition, there can be no assurance that the
current level of management is sufficient to perform all responsibilities
necessary or beneficial for management to perform, or that the Company would be
able to hire additional, qualified management personnel to perform such
responsibilities in view of tight employment market and financial constraints.
Mr. Lancaster has entered into an employment agreement. See "EXECUTIVE
COMPENSATION." Mr. Montle has not entered into an employment agreement. Neither
Mr. Lancaster nor Mr. Montle has entered into a covenant not to compete
agreement with the Company.
17. Control, Cumulative Voting, and Preemptive Rights. After completion
of the Distribution, LS Capital and Kent E. Lovelace, Jr. (a director of LS
Capital) will own approximately 47.9% of the outstanding shares of the Common
Stock. Moreover, after completion of the Distribution, LS Capital, Keith J.
McKenzie, Edwin Hemsted and Mr. Lovelace will own in the aggregate approximately
85.4% of the outstanding shares of the Common Stock. Cumulative voting in the
election of Directors is not provided for. Accordingly, the holders of a
majority of the shares of Common Stock, present in person or by proxy, will be
able to elect all of the Company's Board of Directors after completion of the
Distribution. There are no preemptive rights in connection with the Common
Stock. Thus, stockholders may be diluted in their percentage ownership of the
Company in the event additional shares are issued by the Company in the future.
18. Preferred Stock. The Company's Certificate of Incorporation
authorized the issuance of up to 10,000,000 shares of Preferred Stock, par value
$.01 per share, of which none were issued as of the date of this Prospectus. The
authorized Preferred Stock constitutes what is commonly referred to as "blank
check" preferred stock. This type of preferred stock allows the Board of
Directors from time to time to divide the Preferred Stock into series, to
designate each series, to fix and determine separately for each series any one
or more relative rights and preferences and to issue shares of any series
without further stockholder approval. See "DESCRIPTION OF CAPITAL STOCK." One of
the effects of the existence of authorized but unissued shares of preferred
stock authorized in series may be to enable the Company's Board of Directors to
render it more difficult, or to discourage an attempt, to gain control of the
Company by means of a merger, tender offer at a control premium price, proxy
contest or otherwise and protect the continuity of or entrench the Company's
management, which concomitantly may have a potentially adverse effect on the
market price of the Common Stock.
19. Indemnification of Officers and Directors for Securities
Liabilities. The Bylaws of the Company provide that the Company shall indemnify
any director, officer, agent and/or employee as to those liabilities and on
those terms and conditions as are specified in the General Corporation Law of
Delaware. Further, the Company may purchase and maintain insurance on behalf of
any such persons whether or not the Company would have the power to indemnify
such person against the liability insured against. The foregoing could result in
substantial expenditures by the Company and prevent any recovery from such
officers, directors, agents and employees for losses incurred by the Company as
a result of their actions. Further, the Commission takes the position that
indemnification is against the public policy as expressed in the Act, and is,
therefore, unenforceable.
20. Regulatory Concerns. The Company's mining facilities and operations
are subject to substantial government regulation, including federal, state and
local laws concerning mine safety, land use and environmental protection. The
Company must comply with local, state and federal requirements regarding
exploration operations, public safety, employee health and safety, use of
explosives, air quality, water pollution, noxious odor, noise and dust controls,
reclamation, solid waste, hazardous waste and wildlife as well as laws
protecting the rights of other property owners and the public. See "BUSINESS -
Government Regulation and Environmental Concerns." Although the Company believes
that it is in substantial compliance with such regulations, laws and
requirements with respect to its mineral properties, failure to comply could
have a material adverse effect on the Company, including substantial penalties,
fees and expenses, significant delays in the Company's operations and the
potential shutdown of the Company's operations. The Company must also obtain and
comply with local, state and federal permits, including waste discharge
requirements, other environmental permits, use permits, plans of operation and
other authorizations. Obtaining these permits can be very costly and take
significant amounts of time. Although the Company foresees no material problems
or delays, no assurances can be given that the Company can obtain the necessary
permits or commence mining operations, or that, if permits are obtained, there
will be no delay in the Company operations or the Company can maintain economic
production in compliance with the necessary permits.
21. Absence of Prior Trading Market for the Common Stock. There has not
been any established public market for the trading of the Common Stock or any of
the Warrants. Subject to the sponsorship of a market maker, shares of Common
Stock and the Class A Warrants will be traded in the over-the-counter market on
the OTC Electronic Bulletin Board. There can be no assurance as to the prices
and volumes at which the Common Stock and the Class A Warrants will trade after
the Distribution. Until the Common Stock and the Class A Warrants comprising the
Distribution are fully distributed and an orderly market develops and even
thereafter, the prices at which they trade may fluctuate significantly. Prices
for shares of Common Stock and the Class A Warrants will be determined in the
marketplace and may be influenced by many factors, including the depth and
liquidity of the market for the shares, investor perception of the Company and
the industry in which the Company participates and general economic and market
conditions.
22. Potential Future Sales Pursuant to Rule 144. Two million shares of
Common Stock are presently issued and outstanding, all of which are "restricted
securities" as that term is defined in Rule 144 promulgated under the Act. Five
hundred thousand (500,000) shares of Common Stock are being registered in
connection with the Distribution or on behalf of LS Capital, and these shares
should become generally freely tradeable as a result thereof, except for shares
of Common Stock received by persons who may be deemed to be "affiliates" of the
Company under the Act. As to the 1,500,000 remaining restricted shares, Rule 144
(as amended effective April 29, 1997) provides in general that a person (or
persons whose shares are aggregated) who has satisfied a one-year holding
period, may sell within any three month period, an amount which does not exceed
the greater of 1% of the then outstanding shares of Common Stock or the average
weekly trading volume during the four calendar weeks prior to such sale. All of
the 1,500,000 outstanding shares of Common Stock not part of the Distribution
have been outstanding for over one year and are thus eligible for sale under
Rule 144. Rule 144 (as amended effective April 29, 1997) also permits the sale
of shares, under certain circumstances, without any quantity limitation, by
persons who are not affiliates of the Company and who have beneficially owned
the shares for a minimum period of two years. All or nearly all of the 1,500,000
outstanding shares of Common Stock not part of the Distribution are held by
affiliates, and so long as they are held by affiliates they will not become
eligible for sale free from the restrictions of Rule 144. The possible sale of
these restricted shares, whether subject to or free from the restrictions of
Rule 144, may in the future dilute an investor's percentage of freely tradeable
shares and may have a depressive effect on the price of the Company's
securities, and such sales, if substantial, might also adversely effect the
Company's ability to raise additional equity capital. See "DESCRIPTION OF
CAPITAL STOCK Shares Eligible for Future Sale."
23. Risks Relating to Low-Priced Stocks. Management believes that the
trading prices of the Common Stock and the Class A Warrants are likely to start
below $5.00 per share. If the trading prices of the Common Stock or any of the
Warrants were to start and remain below $5.00 per share, trading in the Common
Stock and such Warrants would be subject to the requirements of certain rules
promulgated under the Exchange Act which require additional disclosure by
broker-dealers in connection with any trades generally involving any non-NASDAQ
equity security that has a market price of less than $5.00 per share, subject to
certain exceptions. Such rules require the delivery, prior to any penny stock
transaction, of a disclosure schedule explaining the penny stock market and the
risks associated therewith, and impose various sales practice requirements on
broker-dealers who sell penny stocks to persons other than established customers
and accredited investors (generally institutions). For these types of
transactions, the broker-dealer must make a special suitability determination
for the purchaser and have received the purchaser's written consent to the
transaction prior to sale. The additional burdens imposed upon broker-dealers by
such requirements may discourage broker-dealers from effecting transactions in
the Common Stock or the Warrants, which could severely limit the market
liquidity of the Common Stock and the Warrants.
24. No Dividends. The holders of the Common Stock are entitled to
receive dividends when, as and if declared by the Board of Directors out of
funds legally available therefore. To date, the Company has not paid any cash
dividends. The Board of Directors does not intend to declare any dividends in
the foreseeable future, but instead intends to retain all earnings, if any, for
use in the Company's business operations. If the Company obtains additional
financing, it is likely that there will be restrictions on the Company's ability
to declare any dividends. See "DIVIDEND POLICY" and "DESCRIPTION OF CAPITAL
STOCK."
25. Competition. The Company operates in an industry that is
characterized by intense competition for resources, equipment and personnel.
Most of the Company's principal competitors are substantially larger, have
substantially greater resources, and expend considerably larger sums of capital
than the Company for exploration, rehabilitation and development.
26. Insurance Coverage and Uninsured Losses. The Company has procured
insurance covering personal injury, workers' compensation and damage to property
and equipment. There can be no assurance that the Company will be successful in
maintaining such insurance at rates acceptable to the Company or that such
insurance will prove adequate. Moreover, in view of recent trends in damage
awards in personal injury lawsuits, insurance apparently adequate at the time of
its procurement may prove insufficient to satisfy large losses or judgments
against that may subsequently be obtained against the Company. Furthermore,
certain types of insurance coverage (generally against losses caused by natural
disasters and Acts of God) are either unattainable or prohibitively expensive.
Substantial damage awards against the Company or substantial damages not covered
by insurance could affect the Company's ability to continue as a going concern
and may force the Company to seek protection under the federal bankruptcy laws.
27. Volatile Market Prices for Gold. The price of gold will have a
material effect on the Company's financial operations. Following deregulation,
the market price for gold has been highly speculative and volatile. The price of
gold reached a short-lived high in 1980 of slightly over $800 per ounce. The
price of gold has declined to a price of approximately $301 per ounce in May
1998. Instability in the price of gold may affect the profitability of the
Company's operations. No assurances can be given that the Company has or will
discover gold mineralization in commercial quantities or, if such mineralization
in commercial quantities has been or is hereafter discovered, that gold could be
produced at a profit given the recent market price range for gold.
28. Proposed Changes to Mining Laws. The Company's unpatented mining
claims on federal lands are currently subject to procedures established by the
U.S. General Mining Law of 1872. Legislation has been introduced in prior and
current sessions of the U.S. Congress to make significant revisions to the U.S.
Mining Laws including strict new environmental protection standards and
conditions, additional reclamation requirements and extensive new procedural
steps which would likely result in delays in permitting and which could have a
material adverse effect on the Company's ability to develop minerals on federal
lands. The proposed revisions would also impose royalties on gold production
from unpatented mining claims. Although legislation has not been enacted,
attempts to amend these laws can be expected to continue. The extent of the
changes that actually will be enacted and their potential impact on the Company
cannot be predicted.
29. Dependence of Warrant Holders on Maintenance of Current
Registration Statement; Possible Loss of Value of Warrants. In order for warrant
holders to exercise the Warrants there must be a current registration statement
(or an exemption therefrom) in effect with the Commission and with the various
state securities authorities in the states where warrant holders reside. The
Company has undertaken to use its best efforts to keep (and intends to keep) the
registration statement effective with respect to the Warrants for as long as the
Warrants remain exercisable. However, maintenance of an effective registration
statement will subject the Company to substantial continuing expenses for legal
and accounting fees, and there can be no assurance that the Company will be able
to maintain a current registration statement through the period during which the
Warrants remain exercisable. The Warrants may not be exercisable and may be
deprived of value by the Company's inability to maintain an effective
registration statement (or an exemption therefrom) with respect to the
underlying shares or by the non-qualification of the underlying shares in the
jurisdiction of such holder's residence.
30. Potential Adverse Effect of Redemption of Warrants. Each Warrant
comprising a class of Warrants may be redeemed by the Company at a price of $.01
per Warrant after the Warrants comprising such class have traded above certain
stipulated levels for certain stipulated periods of time. Redemption of the
Warrants could force the warrant holders to exercise the Warrants at a time when
it may be disadvantageous for the holders to do so or to sell the Warrants at
their then current market price when the holders might otherwise wish to hold
the Warrants for possible appreciation. Any holders who do not exercise warrants
prior to their expiration or redemption, as the case may be, will forfeit the
right to purchase the shares of Common Stock underlying the Warrants. See
"DESCRIPTION OF CAPITAL STOCK--Warrants".
FOR ALL OF THE AFORESAID REASONS AND OTHERS SET FORTH HEREIN, THE SHARES COVERED
BY THIS PROSPECTUS INVOLVE A HIGH DEGREE OF RISK. STOCKHOLDERS SHOULD BE AWARE
OF THESE AND OTHER FACTORS SET FORTH IN THIS PROSPECTUS.
BUSINESS
Introduction
Griffin Gold Group, Inc. (the "Company") was incorporated on October
30, 1996 under the laws of the State of Delaware. The Company was formed for the
purpose of engaging in efforts to extract (by means of certain technologies)
precious minerals believed to be located on certain tracts of land controlled by
the Company and located in the Amargosa Valley in the upper Mohave Desert in
California. The Company's control over these tracts is provided by certain
options granted in the Company's favor to lease certain claims governing the
mineral rights relating to these tracts. Pending the exercise of these options,
the Company has certain rights to explore for minerals on these tracts. There
are no conditions to the Company's exercise of these options other than the
payment of a comparably minor option exercise price. However, the options
require the Company to pay a relatively small annual option price and to honor
certain obligations. The failure to pay these amounts or honor these obligations
could result in the forfeiture of the options.
The Company's proposed principal products are a condensate and dore
bars both containing precious minerals. Neither of these products is currently
being produced on a commercial basis. Once produced, both of these products will
be sold to third parties for further refining. The Company has only a limited
operating history and involves all the risks associated with a company with a
limited operating history.
In August 1998, the Company completed a one-for-five reverse stock
split of the Common Stock. All numbers contained herein pertaining to numbers of
shares of Common Stock have been adjusted to the extent necessary to take into
account the effects of such reverse stock split.
In connection with the formation of the Company, an agreement dated
October 30, 1996 governing certain matters respecting the formation of the
Company (the "Formation Agreement") was entered into. The parties to the
Formation Agreement were Edwin Hemsted ("Hemsted"); Zeotech Industries, Inc.
("Zeotech"), a company under Mr. Hemsted's control; Keith J. McKenzie
("McKenzie"); KJM Capital Corp. ("KJM"), a company under Mr. McKenzie's control;
W.D. Groves ("Groves"); Kent E. Lovelace, Jr. ("Lovelace"); LS Capital; and the
Company. In April 1997, the Formation Agreement was amended by means of a First
Amendment to Agreement (the "First Amendment"), and in July 1997, the Formation
Agreement was amended again by means of a Second Amendment to Agreement (the
"Second Amendment"). Unless the context indicates otherwise, the term "Formation
Agreement" hereafter means the Formation Agreement as amended by the First
Amendment and the Second Amendment.
Pursuant to the provisions of the Formation Agreement, Hemsted,
Zeotech, McKenzie, KJM, Groves and Lovelace (referred to collectively as the
"Contributors") were to contribute to the Company certain unpatented mining
claims that have now become the Company's mineral properties. For their
contribution, Hemsted, McKenzie, Groves and Lovelace were to receive (pursuant
to the Formation Agreement) 250,000, 275,000, 250,000 and 25,000 shares,
respectively, of the Common Stock, for a total of 1,000,000 shares. At the time
that the Formation Agreement was entered into, the Contributors did not control
these claims. However, the Company and the Contributors eventually agreed that,
in lieu of acquiring the claims and contributing them to the Company, the
Contributors could receive the 2,000,000 shares of Common Stock as provided in
the Formation Agreement if they could arrange and consummate a transaction
whereby the Company acquired control of the claims. Ultimately, the Contributors
were successful in arranging and consummating a transaction in which the holders
of the claims granted options in favor of the Company to lease the claims and
(pending exercise of the options) to explore for minerals on the tracts of land
underlying the claims. (For more details on these options and the amounts
received and to be received by the persons granting these options, see "BUSINESS
- - Operations - Mining Claims.") For their efforts, Hemsted, McKenzie, Groves and
Lovelace were issued shares of Common Stock as provided for in the Formation
Agreement and as agreed to by the Company. The Formation Agreement also provided
that Hemsted, McKenzie and Groves were to receive 166,666, 166,667 and 166,666
shares, respectively, of LS Capital common stock, for a total of 500,000 shares.
These 500,000 shares of LS Capital common stock had an aggregate market value of
approximately $125,000 at the time that they were issued. The issuance of these
shares by LS Capital for the benefit of the Company was accepted by the Company
as a capital contribution to the Company. In consideration of this capital
contribution, LS Capital was issued 1,000,000 shares of Common Stock.
Eventually, 1,500,000 Class A Warrants were issued to LS Capital as an
inducement to make certain loans to the Company. The number of shares of Common
Stock and LS Capital common stock issued separately to Hemsted, McKenzie, Groves
and Lovelace was agreed upon after arms-length negotiations among the relevant
parties. The Formation Agreement provided that Hemsted, McKenzie and Groves were
required to make, and Hemsted, McKenzie and Groves eventually did make, an
aggregate additional capital contribution to the Company in the amount of
$500,000.
During April 1997, Groves decided that he no longer wanted to
participate in the Company's business. In this connection, Groves and the other
parties to the Formation Agreement entered into a Release and Partial
Termination Agreement (the "Release") whereby Groves terminated his status as a
party to the Formation Agreement and released all claims he may have under the
Formation Agreement. Pursuant to the Release, Groves conveyed to Hemsted the
166,666 shares of LS Capital common stock that he was to receive pursuant to the
Formation Agreement, and Groves conveyed to Hemsted and Douglas Schmitt 225,000
and 25,000 shares, respectively, of the Common Stock that he also was to receive
pursuant to the Formation Agreement.
The controlling persons of LS Capital, both before and after the
Distribution, are Paul J. Montle (a director, the President and a 19.6%
stockholder of LS Capital), Kent E. Lovelace, Jr. (a director and an 18%
stockholder of LS Capital), and Roger W. Cope (a director and a 9.7% stockholder
of LS Capital).
Properties
The Company currently holds interests in two precious mineral
properties located in the Amargosa Valley in the upper Mohave Desert in
California. One of these properties comprising 1,600 acres is located near
Tecopa, California about 60 miles west of Las Vegas, while the other comprising
1,920 acres is located about 25 miles east of Barstow, California. These two
properties have a combined total of about 5.5 square miles in surface land.
Access to the general vicinity of the two mineral properties is by means of
state highways. Once in the general vicinity of the claims, easy access to the
claims is possible over dry, stable sands. The Company's interests in these
properties consists of certain options granted in the Company's favor to lease
certain claims governing the mineral rights relating to these properties.
Pending the exercise of these options, the Company has certain rights to explore
for minerals on these properties. There are no conditions to the Company's
exercise of these options other than the payment of a comparably minor option
exercise price. However, the options require the Company to pay a relatively
small annual option price and to honor certain obligations. The failure to pay
these amounts or honor these obligations could result in the forfeiture of the
options. See "BUSINESS - Operations Mining Claims."
Geological records indicate that about a million or so years ago, large
inland fresh water lakes were located in the Amargosa Valley during the Ice Age.
Then, as glaciers receded and the lakes drained, the lowest places became
collection basins for minerals and deposits which are spread throughout the
valley. It is believed that large inland lakes, which dried up over a million
years ago, left behind significant deposits of precious minerals, especially
gold.
The Company has conducted surface sampling on its two mineral
properties. The sampling indicates that land underlying these properties may
contain gold, platinum, iridium, palladium, rhodium and ruthenium. However, the
Company has not confirmed the level of existing precious minerals, and the
Company has not had any independent testing undertaken to confirm the results of
the Company's internal sampling. As a result, the Company has not completed
sufficient geological testing to establish proven or probable mineral reserves
for its mineral properties. Nonetheless, the Company is continuing with on-going
internal testing and is planning on obtaining independent third-party testing as
soon as funds are available therefor. Notwithstanding the preceding, management
believes that the Company's surface sampling indicates the existence of
sufficient mineralization to warrant continued development of the Company's
mineral properties. However, there can be no assurance that proven or probable
ore reserves will ultimately be established.
Operations
Extraction.
The base material for the Company's extraction process will consist of
ore procured from the Company's mineral properties through standard open-cast
mining operations. Open-cast mining resembles open-pit mining, except that in
the case of open-cast mining unused portions of the mined materials are not
transported to waste piles for disposal but instead are cast or hauled directly
into adjacent mined-out panel. Thus, reclamation immediately follows mining.
A large component of the mined ore will be zeolites. Zeolites are a
large family of complex hydrous sodium, calcium, and aluminum silicates whose
structures allow them to trap other ions and atoms. Because of the nature of
zeolites, microscopic precious metal particles can become ionically bound in
metal salt complexes trapped in the zeolite.
To extract the minerals believed to be contained in the zeolite, the
Company intends to use certain low-toxicity microfine precious metals extraction
technologies (the "Technologies"). (For a description of the Company's rights
with respect to the Technologies, see "BUSINESS Intellectual Property.") Using
the Technologies, ore mined from the Company's mineral properties will be
treated so that trapped precious minerals will be separated from the zeolite.
The result of the treatment will be a condensate. The Company can then either
sell the condensate or treat it further. If the Company elects to treat the
condensate further, the Company will electroplate the condensate to produce
dore. (Dore is a molten mixture containing unseparated precious metals.) The
dore is then further treated in an induction furnace. After this treatment, the
dore is poured to produced dore bars, which are then sold to metal refiners and
smelters for the ultimate production of precious metals.
The Company does not have the facilities to extract precious minerals
from the sands mined from its mineral properties. Instead, to extract the
precious minerals, the Company will rely upon Desert Minerals, Inc. ("DMI"), a
Delaware corporation and partially-owned subsidiary of LS Capital. DMI has
entered into a two-year agreement with the Company to process its ore on a
limited basis in connection with the testing of DMI's "pilot" plant and
Technologies, both discussed below. Such agreement expires on February 28, 1999,
unless it is mutually extended. In consideration of DMI's processing such ore,
the Company agreed to pay to DMI the amount of DMI's direct costs involved in
the processing plus an additional amount equal to 10% of such direct costs. In
the event that DMI's technology proves successful, DMI has agreed to negotiate
in good faith with the Company with a view to the execution and delivery of an
agreement pertaining to the proposed larger processing plant discussed below.
DMI currently has in operation only a "pilot" plant for testing the
extraction process described above. The pilot plant is a 50'x100' facility
consisting of a processing area, a laboratory building and two mobile homes to
serve as living quarters for personnel. The pilot plant is located in Amargosa
Valley, Nevada, near the Company's Tecopa mineral property. The following is a
brief summary of certain information pertaining to the equipment comprising
DMI's pilot plant:
<PAGE>
Description of Equipment
<TABLE>
<CAPTION>
Quant-
ity Equipment Size Age Use
<S> <C> <C> <C> <C>
1 Backhoe 680G 10 years Digs materials for processing and testing
1 Truck and Trailer 3/4 Ton 2 years Transports materials to plant and relocates
equipment
3 Various grinders To 150 mesh 10 years Prepares materials for processing
10 Various tanks 3,000 gallons 5 years Mixes, leeches, heats and effects other
chemical and physical processes at various stages
6 Primary and Secondary To 100 microns 2 years Preprocesses materials prior to laboratory work
Filters
10 Ion exchange columns Up to 50 2 years Extracts heavy metal ions
gallons per day
1 Electrowinning Up to 50 2 years Completes various orbital requirements of
Equipment gallons per day electrons of transmutational/transitional
metals
1 Hydroredux Oven 3 cubic feet 5 years Captures "sponge" materials without the
"flashing-off"of transmutational/transitional metals
1 Kiln 1/2 cubic feet 5 years Agglomerates materials
</TABLE>
The Company commenced, and for the foreseeable future will continue,
its extraction business by trucking ore from its Tecopa mineral property to the
pilot plant. Trucking will initially be done by outside trucking firms providing
service and rates that management believe will be adequate and acceptable.
Construction of DMI's pilot plant commenced in the summer of 1996 and
was completed in September 1997. The pilot plant is currently testing ore at a
rate of one to three tons per day ("TPD"). Thus far, the pilot plant has been
able to produce gold in a small-scale laboratory setting. The ultimate goal of
the pilot plant is to produce gold on a larger scale at a commercially feasible
cost. DMI has been conducting on-going tests to determine whether the pilot
plant will be able to product gold on this scale and at this cost level. While
such tests have heretofore been encouraging, such tests have not yet determined
that the pilot plant will be able or unable to product gold on a larger scale at
a commercially feasible cost.
Through March 31, 1998, the Company has invested $730,582 in start-up
expenses of the pilot plant, and another $80,134 in vehicles and equipment.
Prior to October 30, 1996, Zeotech Industries, Inc., one of the major minority
stockholders, had invested approximately $100,000. The pilot plant's facility
and equipment are new and are in good operating condition and repair. It has an
ample supply of on-site well water for undertaking its extraction processing.
Waste water is recycled on-site and will be used for irrigation. Electrical
power for the pilot plant comes from an on-site, 35-kilowatt three-phase
generator owned by DMI and three-phase power generated off-site by Edison Co.,
the local utility company.
If production and operations at the pilot plant satisfy the
expectations of management, the Company will then attempt to proceed with the
construction of a larger processing plant at a site to be selected in the
future. Management currently expects that the larger plant would be capable of
processing ore at a minimum rate of 1,000 TPD, and that this larger plant (if
undertaken) will be finished in 1999 at a cost of between $2.5 and $5.0 million
dollars. The Company will bear all of the costs of the construction and
operation of this plant. The construction of the larger plant will be contingent
on procuring necessary financing. This financing is expected to be procured
partly through the exercise of the Class B Warrants, which management believes
will occur if the Technology appear promising enough to undertake the larger
plant. The remainder of the financing is expected to be provided through cash
flow from operations, the possible placement of the Company's equity securities,
and joint venture arrangements (including project financing). There can be no
assurance that the Class B Warrants will be exercised or that any other form of
suitable financing will be obtained. Currently the Company has not entered into
any agreement in principle, much less any definitive agreement, with respect to
the necessary financing for the larger plant.
Mining Claims.
The Company has rights in certain mining claims. These claims include
Amanda claims nos. 7-13, 15, 19 and 20 located in Sections 4 through 9 of
Township 20 N./Range 7 E. in Inyo County, California, and Kurtise claims nos.
1-4 and 9-16 located in either Section 35 of Township 11 N./Range 4 E. in San
Bernardino County or Sections 2 or 11 of Township 10 N./Range 4 E. in San
Bernardino County, California (these claims are collectively referred to
hereinafter as the "Claims"). (For additional information about the land covered
by the Claims, see "BUSINESS - Properties.")
To acquire its rights to its Claims, the Company entered into an
Exploration Agreement and Option to Lease (the "Exploration/Option Agreement")
in June 1997 with a group of individuals who hold the Claims. For cash payments
of $500 per year, the Exploration/Option Agreement permits the Company to enter
onto the land covered by the Claims for purposes of exploring, investigating,
sampling, examining and testing for any precious metals located on such land.
The initial term of the Exploration/Option Agreement is for five years, and the
Company has the right to extend the Exploration/Option Agreement for two
additional five-year extension terms. Depending on the results of the Company's
exploration effort and for a cash payment of $5,000, the Company has the option
under the Exploration/Option Agreement to enter into a lease of the related
Claims pursuant to the terms, provisions and conditions of a mining lease
agreement attached as an exhibit to the Exploration/Option Agreement (a "Mining
Lease").
The Mining Lease will permit the Company to exploit the minerals
covered by the related Claims. The term of each Mining Lease will be for 20
years and for so long as the Company is processing ore on properties located
within a five-mile radius of any of the Claims covered by the Mining Lease. The
Mining Lease will obligate the Company to pay a production royalty for all
minerals mined, removed and sold from the Claims covered by the Mining Lease
equal to 2.5% of the Smelter Returns. The Mining Lease defines "Smelter Returns"
as the gross amount received from the sale of valuable minerals after recovery
of all exploration, development and capital costs and less all taxes levied,
incurred or imposed on the sale, severance or production of such minerals and
less costs of extraction, mining, milling, treating, transportation to the
smelter and/or refinery, smelting and refining charges and costs of sale. The
Mining Lease will obligate the Company to pay minimal advanced royalties, which
will be credited to the production royalty described immediately above. Once
executed, the Mining Lease can be terminated by the lessors thereunder upon the
occurrence of certain customary events of default, and by the Company upon
three-months notice. Under the Mining Lease, the Company will have a right of
first refusal to purchase the Claims covered by the Mining Lease if the lessors
under the Mining Lease propose to transfer such Claims.
Intellectual Property.
The technologies that the Company proposes to use in its
precious mineral extraction efforts (the "Technologies") are in the process of
either being refined or being developed. Certain of the Technologies in their
current states have been determined to be capable of extracting precious
minerals in a laboratory setting. Nonetheless, the Technologies must prove
capable of producing precious minerals on a larger scale at cost levels that
will enable production to occur profitably. Additional time will be necessary to
prove or disprove the Technologies' capabilities of extracting precious minerals
on a commercial basis. The Company believes that the extraction capabilities of
its most advanced Technologies will be proved or disproved during or about the
summer of 1999, although additional time may be needed. There can be no
assurance that the Technologies will prove capable of producing precious
minerals at the required scale and at the required cost levels. See "RISK
FACTORS - Potential Technological Failure."
One of the Technologies that the Company proposes to use (the "Hewlett
Technology") involves two non-toxic leaching systems developed by Richard F.
Hewlett ("Hewlett") specifically for LS Capital and its subsidiaries based on
technology Hewlett had already developed. One of the systems was customized for
the Tecopa/Shoshone/Barstow California areas, while the other system was
customized for the Cochise/Graham counties Arizona area. For his work in
developing these systems, Hewlett received a flat fee of $100,000 from LS
Capital. Because Hewlett developed these systems on a "for hire" basis, LS
Capital has outright ownership to the Hewlett Technology. LS Capital intends to
license to the Company the Hewlett Technology in the immediate future on a
non-exclusive, perpetual, royalty-free basis.
Another of the Technologies that the Company proposes to use (the
"Schmitt Technology") was developed primarily by Douglass Schmitt ("Schmitt").
Under their agreement governing the development of the Schmitt Technology, LS
Capital and DMI, on the one hand, are equal owners of the Technology with
Schmitt, on the other hand, and LS Capital and DMI have the right to assign and
license the Technology to their subsidiaries and affiliates. In addition, LS
Capital and DMI have a right of first refusal regarding all projects in which
Schmitt proposes to use the Schmitt Technology. In consideration of the creation
of the Company's and DMI's interests in the Schmitt Technology, Schmitt is
entitled to a five-percent royalty of gross proceeds from the related refiner
minus direct production costs (but not including any general overhead or
administrative costs) on all precious minerals extracted or produced in
marketable form utilizing the Schmitt Technology. The royalty can be paid in
cash or in kind. LS Capital and DMI have the right to discontinue the use of the
Schmitt Technology at any time (a) in favor of technology provided by another
source that LS Capital and DMI believe is more attractive or cost effective or
(b) upon the abandonment of DMI's desert sands project. In either case, all
royalty obligations to Schmitt cease so long as LS Capital and DMI are not using
the Schmitt Technology. LS Capital and DMI will forfeit their interests in the
Schmitt Technology if they fail to construct an operating plant capable of
processing sand at a rate of 1,000 TPD by March 27, 2000; provided, however,
that if negotiations or design work on such a plant are underway at the time
that LS Capital's and DMI's interests would otherwise be forfeited, LS Capital
and DMI may extend the forfeiture date for up to 12 months by the payment of
$25,000. In addition, Schmitt received weekly payments of $1,500 for on-going
consulting services for a period of time and a $10,000 sign-on bonus. Moreover,
Schmitt received 125,000 shares of Common Stock. LS Capital intends to
sublicense to the Company the Schmitt Technology in the immediate future. The
Company's sublicense will be co-terminus and co-extensive with LS Capital's
license. Under the sublicensing arrangement, the Company will not be obligated
to pay any amounts to LS Capital, but the Company will be obligated to pay
amounts that become due to Schmitt by virtue of the Company's use of the Schmitt
Technology.
A third Technology that the Company intends to use is currently being
developed for LS Capital on a "for hire" basis by Terry Christopher and Martin
Blake. Mr. Christopher spent the last four years working in both mineral and oil
and gas exploration. Until recently, he has been a director and head geologist
for a private oil and gas exploration company. While in this position, he
selected more than 450,000 acres of oil and gas permits in western Newfoundland,
Canada. Mr. Christopher has also worked in gold, nickel, and lead-zinc
exploration environments, detailed hard rock and alluvial mapping, and made
aggregate evaluations. He is expected to receive his PhD. from the Department of
Earth Sciences at Memorial University of Newfoundland in the near future. He
presently holds a BSc. (honors) in geology from this institution. Mr. Blake has
extensive experience in mineral exploration, much of which has been in
epithermal gold and MVT lead-zinc exploration. He also has additional experience
in PGM, nickel, and diamond exploration, as well as oil and gas exploration and
development in western Canada. Mr. Blake holds a BSc. in geology and an MSc. in
geochemistry, as well as substantial credits in pure chemistry. LS Capital has
indicated that it will license to the Company (on a non-exclusive, perpetual,
royalty-free basis) any Technology that Messrs. Christopher and Blake are
successful in developing. There can be no assurance that Messrs. Christopher and
Blake will be successful in developing a viable Technology for the Company's
business.
LS Capital is currently negotiating the acquisition of a fourth
Technology, which it has indicated that it will license to the Company on a
non-exclusive, perpetual, royalty-free basis upon acquisition. LS Capital has
not yet entered into any binding agreement with regard to the acquisition of
this fourth Technology. There can be no assurance that LS Capital will be
successful in acquiring this fourth Technology on terms and conditions
satisfactory to it or at all for that matter.
Market and Marketing.
Precious metals have two main categories of use -- product fabrication
and bullion investment. Fabricated precious metals have a wide variety of end
uses, including industrial and technology uses. Purchasers of official coins and
high-karat jewelry frequently are motivated by investment considerations, so
that net private bullion purchases alone do not necessarily represent the total
investment activity in precious metals.
The profitability of the Company's current and proposed operations are
significantly affected by changes in the market price of precious metals. The
market prices of precious metals can fluctuate widely and are affected by
numerous factors beyond the Company's control, including industrial and jewelry
demand, expectations with respect to the rate of inflation, the strength of the
U.S. dollar and of other currencies, interest rates, central bank sales, forward
sales by producers, global or regional political or economic events, and
production and cost levels in major mineral-producing regions such as South
Africa. In addition, the prices of precious metals sometimes are subject to
rapid short-term changes because of speculative activities. The current demand
for and supply of precious metals affect precious metals prices, but not
necessarily in the same manner as current supply and demand affect the prices of
other commodities. The supply of precious metals consists of a combination of
new mine production and existing stocks of bullion and fabricated precious
metals held by governments, public and private financial institutions,
industrial organizations and private individuals. As the amounts produced in any
single year constitute a very small portion of the total potential supply of
precious metals, normal variations in current production do not necessarily have
a significant impact on the supply of precious metals or on their prices. If the
Company's revenues from precious metals sales falls for a substantial period
below its cost of production at any or all of its operations, the Company could
determine that it is not economically feasible to continue commercial production
at any or all of its operations or to continue the development of some or all of
its projects. In summary, the markets for precious metals generally are
characterized by volatile prices.
Because of the availability of a sufficient number of refiners and
smelters and the competitive nature of the gold market, management believes that
the Company will be able to sell all gold produced by them separately at then
current market rates. Due to the more restrictive and less competitive nature of
the platinum market, management believes that the Company will be less able to
sell all platinum and related minerals produced by them separately. Management
does not foresee that other minerals that are likely to be produced on the
Company's mineral properties will be of any significant consequence. The
Company's current policies is to sell their separate production at current
prices and not enter into hedging or other arrangements which would establish a
price for the sale of their separate future production.
Competition.
The mining industry is very competitive. There is a high degree of
competition to obtain favorable mining properties and suitable mining prospects
for drilling, exploration, development and mining operations. The Company will
encounter significant competition from firms currently engaged in the mining
industry. In general, all of these companies are substantially larger than the
Company, and have substantially greater resources and operating histories.
Accordingly, there can be no assurance that the Company will be successful in
competing with existing and emerging companies in the mining industry.
Government Regulation and Environmental Concerns.
The mining and mineral extraction operations of the Company will be
subject to extensive federal, state and local laws and regulations governing
exploration development and production. In addition, such operations will be
subject to inspection and regulation by the Mining, Safety and Health
Administration of the Department of Labor under provisions of the Federal Mine
Safety and Health Act of 1977, which is designed to ensure operational safety
and employee health and safety. The United States government also regulates the
environmental impact of the mining industry through the Clean Air Act, the Clean
Water Act, the Toxic Substances Control Act, the Resource Conservation and
Recovery Act of 1976 and the Federal Land Policy and Management Act of 1976. In
addition to imposing air quality standards and other pollution controls, the
most significant provisions of the above legislation deal with mineral land
reclamation and waste discharges from mines, mills and further processing
operations. The Company is also subject to extensive health and safety
regulations at the state level, as well as legislation and regulation with
respect to the environmental impact of its mining operations in the State of
California. Due to the nature of the Company's mineral extraction process, the
Company believes that its processing operations will have a modest effect on the
environment.
The Company generally will be required to mitigate long-term
environmental impacts by stabilizing, contouring, reshaping and revegetating
various portions of a site once mining and processing are completed. Reclamation
efforts will be conducted in accordance with detailed plans which will have been
reviewed and approved by the appropriate regulatory agencies. The Company plans
for reclamation to be conducted concurrently with mining. Management believes
that reclamation expenditures will not be material, although there can be no
certainty in this regard. Compliance with the foregoing laws and regulations
increases the costs of planning, designing, drilling, developing, constructing,
operating and closing mining operations. It is possible that the costs and
delays associated with compliance with such laws and regulations could become
such that the Company would not proceed with the development of a project or
continue to operate a mine.
Though the Company believes that its mining operations will be
conducted in compliance with all present health, safety and environmental rules
and regulations, there is always some uncertainty associated with such due to
the complexity and application of such rules and regulations. The Company does
not anticipate that compliance with existing environmental laws and regulations
will have a material impact on its earnings in the foreseeable future; however,
possible future health, safety and environmental legislation, regulations and
actions could cause additional expense, capital expenditures, restrictions and
delays in the activities of the Company, the extent of which cannot be
predicted.
The Company's unpatented mining claims on federal lands are currently
subject to procedures established by the U.S. General Mining Law of 1872.
Legislation has been introduced in prior and current sessions of the U.S.
Congress to make significant revisions to the U.S. Mining Laws including strict
new environmental protection standards and conditions, additional reclamation
requirements and extensive new procedural steps which would likely result in
delays in permitting and which could have a material adverse effect on the
Company's ability to develop minerals on federal lands. The proposed revisions
would also impose royalties on gold production from unpatented mining claims.
Although legislation has not been enacted, attempts to amend these laws can be
expected to continue. The extent of the changes that actually will be enacted
and their potential impact on the Company cannot be predicted.
Seasonability.
The Company's business is not generally expected to be seasonal in
nature.
Employees.
The Company has six employees. None of these employees are covered by a
collective bargaining agreement and relations with them are considered to be
good. The Company expects that it may have as many as 20-30 employees within the
next year. The Company does not now foresee problems in hiring additional
qualified employees to meet its labor needs.
Legal Proceedings.
Since the date of its organization through the date of this Prospectus,
the Company has not been involved in any legal proceedings. There can be no
assurance, however, that the Company will not in the future be involved in
litigation incidental to the conduct of its business.
MANAGEMENT
Directors and Executive Officers.
The directors and executive officers of the Company are as
follows:
<TABLE>
<CAPTION>
Name Age Position(s)
<S> <C> <C> <C>
Richard W. Lancaster 55 Director/President
Paul J. Montle 48 Director/Vice President
C. Thomas Cutter 56 Director
</TABLE>
Richard W. Lancaster has served as a director and the President and
Chief Executive Officer of the Company (as well as of DMI and Shoshone Mining
Co., another subsidiary of LS Capital) since June 1, 1997. From 1992 to May 31,
1997, Mr. Lancaster served as President of Remediation Services of America,
Inc., which is engaged in environmental remediation of industrial waste. From
1988 to 1992, he served as Engineering Manager from Walk/Haydel's Satellite
Engineering for Shell Offshore, an offshore exploration and production company.
Paul J. Montle has served as a director and the Vice President of the
Company since inception. He has also served as the Chairman of the Board and
Chief Executive Officer of LS Capital since 1992 and has held the additional
title of President since October 1995. From 1991 to October 15, 1994, Mr. Montle
served as President and Chief Executive Officer of Viral Testing Systems
Corporation, a distributor of a FDA-licensed AIDS test and other medical
diagnostic products, and from 1991 to 1992, he also served as Chairman of the
Board of such company. VTS filed for protection under Chapter 11 of the
Bankruptcy Code on January 4, 1995. Eventually this bankruptcy proceeding was
converted to a proceeding under Chapter 7, and the remaining assets of VTS have
been liquidated.
C. Thomas Cutter has served as a director of the Company since
inception. He has also served as a Director of LS Capital since December 1992.
Since 1968, he has served as President, Director and sole shareholder of Cutter
Fire Brick Co., Inc., which is engaged in the repair and maintenance of
industrial heat enclosures. Since 1975, Mr. Cutter has served as President,
Director and sole shareholder of both Cutter Ceramics, Inc., a manufacturer and
distributor of art clay, and ADC Supply Corp., a distributor of industrial
insulation materials. Moreover since 1985, Mr. Cutter has served as President,
Director and sole shareholder of Cutter Northern Refractories, Inc., which is
engaged in the repair and maintenance of industrial heat enclosures.
EXECUTIVE COMPENSATION
The Company does not expect to pay any executive officer in the current
fiscal year total annual salary and bonus exceeding $100,000.
The Company has entered into an employment agreement (the "Employment
Agreement") with Richard W. Lancaster, the Company's President and Chief
Operating Officer. Pursuant to the Employment Agreement, Mr. Lancaster is to
receive an initial annual salary of $72,000. In April, 1998, Mr. Lancaster began
receiving a consulting fee of $1,000 per month in lieu of salary. Mr.
Lancaster's salary will be reviewed annually in January by the Company's
compensation committee. Pursuant to the Employment Agreement, LS Capital issued
to Mr. Lancaster 50,000 shares of its common stock, and LS Capital agreed to
grant to Mr. Lancaster options to acquire shares of LS Capital common stock.
These options cover 250,000 shares of LS Capital common stock, which may be
purchased at an option price of $1.00 per shares and which will vest in batches
of 50,000 shares every 90 days commencing June 24, 1997. These options also
cover an additional 250,000 shares of LS Capital common stock, which may be
purchased at an option price of $2.00 per shares and which will vest in batches
of 50,000 shares every 90 days commencing September 24, 1997. Notwithstanding
the preceding, all options will be vested upon the sale or merger of LS Capital.
Mr. Lancaster is also entitled to participate in all executive health,
disability, life insurance and pension plans created for the officers of LS
Capital. The Employment Agreement is terminable by both Mr. Lancaster or the
Company at any time; provided, however, that Mr. Lancaster has agreed to give to
the Company two-months prior written notice. In the Employment Agreement, the
Company has agreed (unless Mr. Lancaster's employment is terminated by the
Company for cause) to pay to Mr. Lancaster his salary under the Employment
Agreement for three months after termination or until the commencement of his
new employment, whichever occurs sooner. If the Company terminates Mr.
Lancaster's employment, one-half of the current period's unvested options will
vest, but if Mr. Lancaster terminates his employment, all unvested options will
be canceled as of the date of his termination notice. The Employment Agreement
does not contain a covenant not to compete.
The authorized number of directors of the Company is presently fixed at
three. Each director serves for a term of one year that expires at the following
annual shareholders' meeting. Each officer serves at the pleasure of the Board
of Directors and until a successor has been qualified and appointed. There are
no family relationships, or other arrangements or understandings between or
among any of the directors, executive officers or other person pursuant to which
such person was selected to serve as a director or officer.
GRIFFIN GOLD GROUP, INC. 1998 STOCK OPTION PLAN
On January 21, 1998, the stockholders of the Company approved the
Griffin Gold Group, Inc. 1998 Stock Option Plan (the "Plan"). The Plan provides
for the grant of incentive stock options qualifying under the Internal Revenue
Code to officers and other employees of the Company ("ISO's), the grant of
non-qualified options to directors, officers, employees and consultants of the
Company ("Non-Qualified Options"), awards of stock in the Company to directors,
officers, employees and consultants of the Company ("Awards"), and opportunities
for directors, officers, employees and consultants of the Company to make
purchases of stock in the Company ("Purchases"). The Plan is to be administered
by the Board of Directors of the Company or a committee appointed thereby.
The Board or committee has substantial discretion pursuant to the Plan
to determine the persons to whom ISO's, Non-Qualified Options, Awards and
authorizations to make Purchases may be granted or authorized and also to
determine the amounts, time, price, exercise terms and restrictions imposed in
connection therewith. ISO's may be granted to any employee (which may include
officers and directors who are also employees) of the Company or its
subsidiaries. Non-Qualified Options, Awards and authorizations to make Purchases
may be granted to any employee, officer or director. One million (1,000,000)
shares of stock are authorized to be issued pursuant to the Plan. Rights under
the Plan, including ISO'S, Non-Qualified Options, Awards and authorizations to
make Purchases, may be granted for the next ten years pursuant to the Plan.
Certain statutory requirements with respect to ISO's are set forth in
the Plan. These requirements provide that the exercise price per share in
connection with ISO's shall be not less than the fair market value of the stock
on the date of the grant, and with respect to an ISO's granted to an employee
owning stock possessing more than 10% of the total combined voting power of all
classes of stock in the Company and subsidiaries, shall be not less than 110% of
the fair market value per share of Common Stock on the date of grant. In
addition, an employee may be granted ISO's only to the extent that such ISO's do
not become exercisable for the first time by such employee during any calendar
year in a manner which would entitle the employee to purchase more than $100,000
in fair market value (determined at the time the ISO's were granted) of Common
Stock in that year.
Each Option, which term includes ISO's and Non-Qualified Options,
expires not more than ten years and one day from the date of grant in the case
of Non-Qualified Options, ten years from the date of grant in the case of most
ISO's, and five years from the date of grant in the case of ISO's granted to an
employee owning stock possessing more than 10% of the total combined voting
power of all combined classes of stock in the Company and its subsidiaries.
Options may expire earlier as determined by the Board or the committee. The
Board or the committee may determine vesting provisions in its discretion.
If an ISO optionee ceases to be an employee of the Company or a
subsidiary other than by reason of death or disability, his ISO's shall
terminate on the date of termination of his employment in the case of voluntary
termination, and shall terminate on the date 30 days after the termination if
his employment in the case of involuntary termination of employment (but not
later than their specified expiration dates). In the case of death, ISO's may be
exercised by an ISO optionee's estate, personal representative or beneficiary at
any time prior to the earlier of the specified expiration date of the ISO's or
180 days from the date of the optionee's death. If an ISO optionee's employment
is terminated by reason of disability, the optionee may exercise his ISO's at
any time prior to the earlier at the specified expiration date of the ISO's or
180 days from the date of the termination of employment.
Options are generally non-assignable. The Board or the committee may
place restrictions on Non-Qualified Options which are the same as those provided
with respect to ISO'S, in connection with any particular grant, in its
discretion. Options carry certain anti-dilution provisions concerning stock
dividends, stock splits, consolidations, mergers, recapitalizations and
reorganizations. The Board or the committee has the right, pursuant to the Plan,
to terminate Options in the event of dissolution or liquidation of the Company.
In addition, at any time, non-exercised ISO's may be converted into
Non-Qualified Options at the Board's or the committee's discretion.
CERTAIN TRANSACTIONS
In connection with the organization of the Company and the transactions
provided for in the Exploration/Option Agreement, LS Capital Corporation, Ed
Hemsted, Keith J. McKenzie and Kent E. Lovelace, Jr. (each now a beneficial
owner of more than 5% of the outstanding Common Stock) were issued 1,000,000,
475,000, 275,000 and 225,000 shares of Common Stock, respectively. For more
detailed information on these issuances of shares, see "BUSINESS -Introduction."
Paul J. Montle, a director of the Company, is Chairman of the Board and Chief
Executive Officer of LS Capital. Mr. Lovelace is also a director of LS Capital.
The Company has entered into an agreement with Desert Minerals, Inc.
("DMI"), a partially-owned subsidiary of LS Capital whereby DMI would process
the Company's ore on a limited basis. For more detailed information on this
agreement, see "BUSINESS - Operations - Extraction."
The Company has entered into verbal and written agreements with LS
Capital whereby LS Capital has agreed to license or sublicense certain of the
Technologies to the Company. For more detailed information on these agreements
to license and sublicense, see "BUSINESS - Intellectual Property."
In connection with the Distribution, Paul J. Montle (a director of the
Company) and Kent E. Lovelace, Jr. (a beneficial owner of more than 5% of the
outstanding Common Stock) are expected to receive, by virtue of their stock
ownership in LS Capital, approximately 10,862 and 9,974 respectively, of the
shares of Common Stock comprising the Distribution.
LS Capital has loaned amounts to the Company from time to time. As of
March 31, 1998, the total of these loans equaled approximately $597,763. The
outstanding balance of these loans accrues interest at a rate of 8% per annum.
The outstanding balance (as well as accrued interest) is due and payable on
demand. LS Capital has indicated that it has no present intention to demand
payment of these outstanding amounts.
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth as of May 18, 1998 information regarding
the beneficial ownership of Common Stock (i) by each person who is known by the
Company to own beneficially more than 5% of the outstanding Common Stock; (ii)
by each director; and (iii) by all directors and officers as a group.
<TABLE>
<CAPTION>
Beneficial Ownership Beneficial Ownership
Name and Address of Prior to Distribution(1) After Distribution(1)
Beneficial Owner Number Percent Number Percent
<S> <C> <C> <C> <C>
Kent E. Lovelace, Jr. 2,975,000 79.3%(2) 1,599,724 42.7%(3)
3300 West Beach Blvd., Suite 202
Gulfport, Mississippi 39502
LS Capital Corporation 2,750,000(4) 73.3% 1,364,750(5) 36.4%
15915 Katy Freeway, Suite 250
Houston, Texas 77094
Paul J. Montle 2,750,000 73.3%(6) 1,375,462 36.7%(7)
15915 Katy Freeway, Suite 250
Houston, Texas 77094
Edwin Hemsted 475,000 12.7% 475,000 12.7%
1155 Harwood St. #1003
Vancouver, British Columbia
CANADA V6E 1S1
Keith J. McKenzie 275,000 7.3% 275,000 7.3%
1400 355 Burrand St.
Vancouver, British Columbia
CANADA V6C 2G8
All directors and officers
as a group (four persons) 2,750,000 73.3%(6) 1,375,462 36.7%(7)
</TABLE>
(1) Includes shares of stock beneficially owned pursuant to options and
warrants exercisable within 60 days after the date of this Prospectus.
(2) Includes 225,000 shares owned directly; and includes 1,000,000 shares
owned directly, beneficially and of record by LS Capital Corporation, a
corporation of which Mr. Lovelace is a director, 1,750,000 shares
beneficially owned by LS Capital Corporation pursuant to warrants
currently exercisable.
(3) Includes 234,974 shares owned directly; and includes the 722,950 shares
that will be owned directly, beneficially and of record after the
Distribution by LS Capital Corporation, a corporation of which Mr.
Lovelace is a director, and 641,800 shares beneficially owned by LS
Capital pursuant to warrants currently exercisable.
(4) Includes 1,000,000 shares owned directly; and includes 1,750,000 shares
beneficially owned pursuant to warrants currently exercisable.
(5) Includes 722,950 shares that will be directly owned after the
Distribution; and includes 641,800 shares that will be beneficially
owned after the Distribution pursuant to warrants currently
exercisable.
(6) Includes 1,000,000 shares owned directly, beneficially and of record by
LS Capital Corporation, a corporation of which Mr. Montle is a director
and the Chief Executive Officer; and includes 1,750,000 shares
beneficially owned by LS Capital Corporation pursuant to warrants
currently exercisable.
(7) Includes 10,682 shares owned directly; and includes the 722,980 shares
that will be owned directly beneficially and of record after the
Distribution by LS Capital Corporation, a corporation of which Mr.
Montle is a director and the Chief Executive Officer, 641,800 shares
that will be beneficially owned by LS Capital after the Distribution
pursuant to warrants currently exercisable.
THE DISTRIBUTION
Reasons for the Distribution.
LS Capital's historical business has been the gaming industry, while
the Company has recently begun its business in the mineral exploration and
extraction industry. LS Capital's and the Company's respective industries are
considerably different. Moreover, LS Capital may in the future become involved
in industries other than the mineral exploration and extraction industry. The
respective Board of Directors of LS Capital and the Company have determined that
it is in the best interests of LS Capital and the Company to undertake the
Distribution, thereby more firmly establishing the identity of the Company
separate from LS Capital and creating a public trading market for the Common
Stock for the reasons described herein.
The Distribution is designed to establish the Company as a stand alone
independent company which can adopt strategies and pursue objectives appropriate
to its specific business. The Distribution will enable each management team at
LS Capital and the Company to better focus on the profitable growth
opportunities in their respective industries. Also, the Distribution will
enhance each of LS Capital's and the Company's respective abilities, as and when
appropriate, to engage in strategic acquisitions in their respective existing
and new lines of business through acquisitions using their own respective
capital stock. Moreover, the Distribution should better enable the Company's
ability, as and when appropriate, to procure project financing from lenders that
might otherwise be unwilling to provide financing because of the business in
which LS Capital is engaged. In addition, LS Capital and the Company believe
that the separation of LS Capital's gaming business from the Company's mineral
exploration and extraction business will cause the two entities to be recognized
by the financial community as distinct businesses with different investment risk
and return profiles. As a result of the Distribution, LS Capital should retain
its following in the financial community primarily as a gaming concern or
holding company while the Company should develop its following primarily as a
mineral exploration and extraction. In this regard, investors will be better
able to evaluate the merits and future prospects of the businesses of LS Capital
and the Company, enhancing the likelihood that each will achieve appropriate
market recognition for its performance and potential, and thereby enhance
stockholder value. Furthermore, current stockholders and potential investors
will be able to direct their investments to their specific areas of interest. In
addition, the value of the Common Stock may be increased through its publicly
trading as the number of potential investors increases substantially as the
Common Stock becomes publicly available. Finally, the Distribution is also
designed to allow the Company to establish its own employee stock ownership plan
and other equity-based compensation plans so that there will be a more direct
alignment between the performance of the Company and the compensation of
employees of the Company, which, among other things, is intended to strengthen
and support the Company's ability to achieve cost savings, greater efficiencies
and sales growth.
In addition, LS Capital has hired a consultant to evaluate the best
structure to manage LS Capital's proposed business activities and maximize value
for its stockholders. LS Capital has not received the report from the consultant
but LS Capital has been advised that such report may include a recommendation
that LS Capital convert to closed-end non-diversified investment holding company
status. If this recommendation is made and followed, LS Capital expects to make
additional distributions (similar to the Distribution) of stock in other of its
subsidiaries.
For the reasons stated above, the LS Capital Board of Directors
believes that the Distribution is in the best interest of LS Capital. In
reaching its conclusions, the LS Capital Board of Directors has determined that
the Distribution is fair, from a financial point of view, to the holders of
shares of LS Capital common stock, although the Board of Directors has not
sought the opinion of any financial advisor to such effect.
Manner of Effecting the Distribution.
The Distribution consists of an aggregate of approximately 277,050
shares of Common Stock and approximately 1,108,200 Class A Warrants. The exact
numbers will depend upon final information provided by LS Capital's transfer
agent, although exact numbers are not expected to differ significantly. In
connection with the Distribution, each stockholder of LS Capital owning at least
50 shares of LS Capital common stock will receive one share of Common Stock and
four Class A Warrants for each 50 shares of LS Capital common stock owned on the
Record Date. Fractional shares of Common Stock will not be issued. Instead, LS
Capital stockholders owning fewer than 50 shares of LS Capital common stock on
the Record Date will receive, in lieu of any share of Common Stock, a cash
dividend of $.01 per share of LS Capital common stock owned on the Record Date.
In addition, any LS Capital stockholder receiving Common Stock and otherwise
entitled to a fractional share of Common Stock shall receive, in lieu of any
fractional share of Common Stock, a cash dividend of $.01 per share of LS
Capital common stock otherwise causing the fractional share, up to an aggregate
dividend of $.49. Checks representing payment of cash dividends in lieu of
fractional shares may be obtained, by LS Capital stockholders owning a total
number of LS Capital common stock not a perfect multiple of 50, by sending a
written request to LS Capital Corporation, 12915 Katy Freeway, Suite 250,
Houston, Texas 77094, Attention: Corporate Secretary. Certificates representing
the number of shares of Common Stock and number of Class A Warrants to which LS
Capital stockholders are entitled are being delivered to LS Capital stockholders
simultaneously with this Prospectus. The shares of Common Stock will be fully
paid and nonassessable. The holders thereof will not be entitled to preemptive
rights nor cumulative voting rights. See "DESCRIPTION OF CAPITAL STOCK."
No holder of LS Capital common stock will be required to pay any cash
or other consideration for the shares of Common Stock or Class A Warrants
received in the Distribution or to surrender or exchange shares of LS Capital
common stock in order to receive shares of Common Stock or Class A Warrants.
Shares of Common Stock and the Class A Warrants distributed to LS
Capital stockholders in connection with the Distribution generally will be
freely transferable. Such shares and warrants are expected to be traded in the
over-the-counter market, and thus may be purchased and sold through the usual
investment channels, including securities broker/dealers. Subject to the
sponsorship of a market maker, shares of Common Stock and the Class A Warrants
are expected to be traded on the OTC Electronic Bulletin Board. Notwithstanding
the above, shares of Common Stock and the Class A Warrants received in
connection with the Distribution by persons who are deemed "affiliates" of the
Company under the Act will be subject to certain restrictions. Persons who may
be deemed to be affiliates of the Company after the Distribution generally
include individuals or entities that control, are controlled by, or are under
common control with the Company and may include the directors and principal
executive officers of the Company as well as any principal stockholder of the
Company. Persons who are affiliates of the Company will be permitted to sell
their shares of Common Stock only pursuant to an effective registration
statement under the Act or an exemption from the registration requirements of
the Act, such as the exemptions afforded by Section 4(2) of the Act and Rule 144
thereunder.
Non-Participating Shares.
Of the Company's two million outstanding shares of Common Stock,
1,500,000 are not being registered in connection herewith and will not be
participating in the Distribution or be subject to sale by LS Capital. These
shares were not included in the registration because management of the Company
and LS Capital believed that registering these shares would create too large a
supply of shares in the public's hand, with a potential downward pressure on the
price of the Common Stock as a consequence. Moreover, the Company wants certain
of the holders of the 1,500,000 shares not being registered to retain a vested
interest in the Company. Even though these 1,500,000 shares will not be
registered, they will benefit from the public trading market in the Common Stock
created by the Distribution when such shares can be sold pursuant to Rule 144
under the Act and any increase in the value of the Common Stock resulting from
the public market.
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Neither the Company nor LS Capital has obtained a private letter ruling
from the Internal Revenue Service nor an opinion of tax counsel with respect to
possible federal income tax consequences of the Distribution. However, the
Company and LS Capital are generally aware of the taxability of a corporate
distribution of property pro rata to its shareholders.
Distributions by corporations to their shareholders may be taxable. In
general, where the distribution is made out of the earnings and profits of the
corporation, the amount received is taxable as ordinary income. Where
distributions are made in excess of the corporation's earnings and profits, the
recipient is normally not taxed to the extent of its basis in the stock.
Distributions in excess of earnings and profits and basis are normally taxed as
if the shareholder had sold his stock.
As of June 30, 1997, LS Capital had no accumulated earnings and
profits. Therefore, distributions of shares of Common Stock to LS Capital
shareholders are not taxable as ordinary income. The amount of such distribution
is the fair market value of the Common Stock on the date of distribution. In
this case, valuation of Common Stock is not easily possible, given the unproven
nature of the mining claims and incomplete status of the ore extraction
technology development. There has been no attempt to place a value on the Common
Stock by the management of the Company or of LS Capital, and such valuation is
the responsibility of each LS Capital shareholder who receives Company stock,
and his or her own tax advisor. However, in the opinion of Company management,
such valuation might be reasonably placed at $.0124 per Company share, if the
Company's net investment in its mining claims and the extraction technology is
one-third of LS Capital's total net investment in mining claims and extraction
technology.
If an individual LS Capital shareholder agrees with this estimate, the
tax consequences to him are that if his adjusted tax basis of his LS Capital
shares are in excess of $.00124 per share (each share of Common Stock is
distributed for every fifty LS Capital shares), then such Common Stock
distribution to him should be considered a "non-taxable return of capital." Such
$.00124 per share should then be deducted from such shareholder's LS Capital per
share tax basis and $.0124 per share will be the new cost basis of his or her
Company stockholdings.
For domestic corporations which hold LS Capital common stock, the
amount of the Distribution for purposes of determining dividend income, return
of capital, or capital gain will be the lesser of (i) the fair market value of
the Common Stock at the date of the Distribution, or $.0124 per share if such
corporate shareholder accepts the Company's valuation methodology, or (ii) its
adjusted per share basis of its investment in LS Capital common stock. A
domestic corporation's basis in LS Capital common stock will also be the lesser
of the foregoing amounts.
STATE AND LOCAL INCOME TAX CONSEQUENCES OF THE DISTRIBUTION WILL VARY FROM
JURISDICTION TO JURISDICTION. SHAREHOLDERS SHOULD CONSULT WITH THEIR OWN TAX
ADVISORS TO DETERMINE APPLICABLE TAX CONSEQUENCES OF THE ISSUANCE AND
DISPOSITION OF THE SHARES BEING DISTRIBUTED.
Receipt of Shares.
The receipt of shares of Common Stock will result in a taxable capital
gain to LS Capital shareholders to the extent that such fair value of Company
Stock exceeds their tax basis in LS Capital common stock at the time of
issuance.
Sale of Shares.
A LS Capital stockholder whose shares of Common Stock are sold will
realize capital gain or loss measured by the difference between the amount
realized and the stockholder's tax basis in such shares.
Holding Period.
The holding period of the shares of Common Stock received in connection
with the Distribution is measured from the date that the shares are distributed
to LS Capital stockholders.
Other Tax Consequences.
There may be other federal, state, local or foreign tax considerations
(including potential withholding requirements) applicable to the circumstances
of particular LS Capital stockholders who should consult with their own tax
advisors to determine the applicable tax consequences of the issuance and
disposition of the shares of Common Stock being distributed.
OTHER SECURITIES BEING REGISTERED
In addition to the shares comprising the Distribution, the Company is
registering with the Commission, and this Prospectus covers, an additional
5,000,000 shares of Common Stock in order to facilitate the Company's ability to
pursue other mineral exploration and extraction opportunities. It is anticipated
that this will enable the Company to issue registered stock in connection with
any one or more acquisitions of assets or mergers with existing businesses. The
Company has not identified any acquisitions that it currently intends to pursue.
The Company is not now seeking to identify any acquisitions candidates, and the
Company does not now intend to pursue an active acquisition program, although
the Company will seriously consider any attractive acquisition candidate. There
is not now any agreements, arrangements or understandings in connection with any
business acquisition or combination. The Company has not developed, nor does it
currently intend to develop, an acquisition criterion, a valuation model or a
standardized transaction structure it will use on a consistent basis for
acquisitions. Instead, the Company anticipates considering each acquisition on a
case-by-case basis. However, the Company expects that the acquisitions will be
in the precious minerals exploration and extraction industries, and the purchase
price for acquisition candidate will be based on quantitative factors, including
historical revenues, profitability, financial condition and contract backlog, as
well as the Company's qualitative evaluation of the candidate's management team,
operational compatibility and customer base. Nonetheless, the Company expects
that if it acquires suitable candidates or assets it will issue in exchange for
such candidates and assets some of the 5,000,000 shares of Common Stock being
registered in this connection and for this purpose.
The issuance of such shares and the consideration to be received
therefor will be entirely within the discretion of the Company's Board of
Directors. Although the Board of Directors intends to utilize its reasonable
business judgement and to fulfill its fiduciary obligations to the Company's
then existing stockholders in connection with any issuance, it is possible that
the future issuance of additional shares could cause immediate and substantial
dilution to the net tangible book value of those shares of the Common Stock that
are issued and outstanding immediately prior to such transaction. Any future
decrease in the net tangible book value of the Company's issued and outstanding
shares could have a material adverse effect on the market value of the shares.
The Company is also registering 250,000 shares of Common Stock that LS
Capital may acquire at a per-share price of $.50 pursuant to the LS Capital
Warrant. LS Capital may exercise the LS Capital Warrant at any time or from time
to time during its five-year term, and LS Capital may, at its option, reduce the
amount of indebtedness owed by the Company to LS Capital by the amount of the
exercise price of the LS Capital Warrant as a means of paying the exercise price
of the LS Capital Warrant.
Moreover, the Company is also registering 1,500,000 Class B Warrants
entitling the holders thereof to acquire an aggregate of 1,500,000 shares of
Common Stock at a per-share price of $1.00. The Class B Warrants will be issued
to the holders of the Class A Warrants upon exercise of the Class A Warrants at
rate of one Class B Warrant for each Class A Warrant exercised, without the
payment of any additional consideration. The shares of Common Stock into which
the Warrants may be converted are also being registered. Finally, of the 500,000
shares of Common Stock and 1,500,000 Class A Warrants being registered, the
approximately 222,950 shares of Common Stock and approximately 391,800 Class A
Warrants not part of the Distribution may be sold by LS Capital Corporation in
the future to reimburse LS Capital Corporation for the efforts and expenses that
it incurred in connection with the Distribution.
OTHER MATTERS
The Distribution is not being made in any states or other jurisdictions
in which it in unlawful to do so. The Company may delay the commencement of the
Distribution in certain states or other jurisdictions in order to comply with
the securities law requirements of such states or other jurisdictions. It is not
anticipated that there will be any changes in the terms of the Distribution. The
Company may, if it so determines in its sole discretion, decline to make
modifications to the terms of the Distribution requested by certain states or
other jurisdictions, in which event LS Capital stockholders resident in such
states or other jurisdictions will not be eligible to participate in the
Distribution.
DESCRIPTION OF CAPITAL STOCK
The following description of certain terms of the capital stock of the
Company does not purport to be complete and is qualified in its entirety by
reference to the Company's Certificate of Incorporation incorporated herein by
reference.
Capital Stock.
The Company's authorized capital stock consists of 50,000,000 shares of
Common Stock, $.01 par value per share and 10,000,000 shares of Preferred Stock,
$.01 par value per share.
Securities Being Offered.
The securities offered hereby consist of units of one share of the
Company's Common Stock and four redeemable Class A Warrants. The Common Stock
and the Class A Warrants comprising the units are separately transferable
immediately following the date of this Prospectus. Prior to this offering, there
has been no public market for the Common Stock or Class A Warrants.
Common Stock.
The authorized Common Stock of the Company consists of 50,000,000
shares, par value $0.01 per share. As of the date of this Prospectus, 2,000,000
shares of Common Stock were outstanding. All of the shares of Common Stock are
validly issued, fully paid and nonassessable. Holders of record of Common Stock
will be entitled to receive dividends when and if declared by the Board of
Directors out of funds of the Company legally available therefor. In the event
of any liquidation, dissolution or winding up of the affairs of the Company,
whether voluntary or otherwise, after payment of provision for payment of the
debts and other liabilities of the Company, including the liquidation preference
of all classes of preferred stock of the Company, each holder of Common Stock
will be entitled to receive his pro rata portion of the remaining net assets of
the Company, if any. Each share of Common stock has one vote, and there are no
preemptive, subscription, conversion or redemption rights. Shares of Common
Stock do not have cumulative voting rights, which means that the holders of a
majority of the shares voting for the election of directors can elect all of the
directors.
Warrants.
The Warrants are comprised of Class A Warrants and Class B Warrants.
The Class A Warrants are being issued in connection with the Distribution, and
the Class B Warrants will be issued in connection with the exercise of the Class
A Warrants. The Class A Warrants and the Class B Warrants feature identical
rights other than as indicated herein. The Warrants will be issued in registered
form under a warrant agreement (the "Warrant Agreement") between the Company and
Continental Stock Transfer Company as warrant agent (the "Warrant Agent"). The
following summary of the provisions of the Warrants is qualified in its entirety
by reference to the Warrant Agreement, a copy of which is filed as an exhibit to
the registration statement of which this Prospectus is a part.
Each Warrant will be separately transferable and will entitle the
registered holder thereof to purchase one share of Common Stock, subject to
adjustment as described below. A Class A Warrant may be exercised for a period
of three years after the Registration Statement of which this Prospectus is a
part becomes effective. A Class B Warrant may be exercised for a period of three
years after the first Class B Warrant is issued. Subject to adjustment as
described below, the purchase price for shares of Common Stock acquired pursuant
to exercises of the Warrants shall be $.50 per share in the case of the Class A
Warrants, and $1.00 per share in the case of the Class B Warrants. The exercise
price and the number of shares of Common Stock issuable upon the exercise of
each Warrant are subject to adjustment in the event of a stock dividend,
recapitalization, merger, consolidation or certain other events.
Any or all of the Warrants may be redeemed by the Company at a price of
$.01 per Warrant, upon the giving of not less than 30 days' nor more than 60
days' written notice at any time after the date of this Prospectus, provided
that (depending on the market in which the Common Stock is traded) the closing
bid price, closing sales price or average of the closing bid and closing ask
prices has been at least $.75 (in the case of a Class A Warrant), and $1.25 (in
the case of a Class B Warrant), on each of the ten (10) consecutive trading days
ending on the third day prior to the day on which the redemption notice is
given. The right to purchase the Common Stock represented by the Warrants so
called for redemption will be forfeited unless the Warrants are exercised prior
to the date specified in the foregoing notice of redemption.
A holder may exercise Warrants by surrendering the certificate
evidencing the Warrants to the Warrant Agent, together with the form of election
to purchase on the reverse side of such certificate properly completed and
executed and the payment of the exercise price and any transfer tax. Upon
exercise of a Class A Warrant, the exercising holder shall be issued one Class B
Warrant without the payment of any additional consideration. Warrant holders
will not have any voting or other rights as stockholders of the Company unless
and until some Warrants are exercised and shares issued pursuant thereto. If
fewer than all of the Warrants evidenced by a warrant certificate are exercised,
a new certificate will be issued for the remaining number of warrants. Holders
of the Warrants may sell the Warrants if a market exists rather than exercise
them. However, there can be no assurance that a market will develop or continue
as to the Warrants.
For a holder to exercise a Warrant, there must be a current
registration statement on file with the Commission and various state securities
commissions. The Company will be required to file post-effective amendments to
the registration statement when events require such amendments. While it is the
Company's intention to file post-effective amendments when necessary, there is
no assurance that the registration statement will be kept effective. If the
registration statement is not kept current for any reason, the Warrants will not
be exercisable, and holders thereof may be deprived of value. Moreover, if the
shares of Common Stock underlying the Warrants are not registered or qualified
for sale in the state in which a Warrant holder resides, such holder might not
be permitted to exercise the Warrants. If the Company is unable to qualify the
Common Stock underlying the Warrants for sale in certain states, holders of the
Warrants in those states will have no choice but to either sell the Warrants or
allow them to expire.
For the life of the Warrants, the holders thereof are given the
opportunity, at nominal cost, to profit from a rise in the market price of the
Common Stock of the Company. The exercise of the Warrants will result in the
dilution of the then book value of the Common Stock of the Company held by the
public investors and would result in a dilution of their percentage ownership of
the Company. The terms upon which the Company may obtain additional capital may
be adversely affected through the period that the Warrants remain exercisable.
The holders of these Warrants may be expected to exercise them at a time when
the Company would, in all likelihood, be able to obtain equity capital on terms
more favorable than those provided for by the Warrants.
The Company has authorized and reserved for issuance a number of
underlying shares of Common Stock sufficient to provide for the exercise of the
Warrants. When issued, each share of Common Stock will be fully paid and
nonassessable.
<PAGE>
Preferred Stock.
The Company's Certificate of Incorporation authorizes the issuance of
up to 10,000,000 shares of the Company's $0.01 par value preferred stock (the
"Preferred Stock"). As of the date of this Prospectus, no shares of Preferred
Stock were outstanding. The Preferred Stock constitutes what is commonly
referred to as "blank check" preferred stock. "Blank check" preferred stock
allows the Board of Directors, from time to time, to divide the Preferred Stock
into series, to designate each series, to issue shares of any series, and to fix
and determine separately for each series any one or more of the following
relative rights and preferences: (i) the rate of dividends; (ii) the price at
and the terms and conditions on which shares may be redeemed; (iii) the amount
payable upon shares in the event of involuntary liquidation; (iv) the amount
payable upon shares in the event of voluntary liquidation; (v) sinking fund
provisions for the redemption or purchase of shares; (vi) the terms and
conditions pursuant to which shares may be converted if the shares of any series
are issued with the privilege of conversion; and (vii) voting rights. Dividends
on shares of Preferred Stock, when and as declared by the Board of Directors out
of any funds legally available therefor, may be cumulative and may have a
preference over Common Stock as to the payment of such dividends. The provisions
of a particular series, as designated by the Board of Directors, may include
restrictions on the ability of the Company to purchase shares of Common Stock or
to redeem a particular series of Preferred Stock. Depending upon the voting
rights granted to any series of Preferred Stock, issuance thereof could result
in a reduction in the power of the holders of Common Stock. In the event of any
dissolution, liquidation or winding up of the Company, whether voluntary or
involuntary, the holders of each series of the then outstanding Preferred Stock
may be entitled to receive, prior to the distribution of any assets or funds to
the holders of the Common Stock, a liquidation preference established by the
Board of Directors, together with all accumulated and unpaid dividends.
Depending upon the consideration paid for Preferred Stock, the liquidation
preference of Preferred Stock and other matters, the issuance of Preferred Stock
could result in a reduction in the assets available for distribution to the
holders of the Common Stock in the event of liquidation of the Company. Holders
of Preferred Stock will not have preemptive rights to acquire any additional
securities issued by the Company. Once a series has been designated and shares
of the series are outstanding, the rights of holders of that series may not be
modified adversely except by a vote of at lease a majority of the outstanding
shares constituting such series.
One of the effects of the existence of authorized but unissued shares
of Common Stock or Preferred Stock may be to enable the Board of Directors of
the Company to render it more difficult or to discourage an attempt to obtain
control of the Company by means of a merger, tender offer at a control premium
price, proxy contest or otherwise and thereby protect the continuity of or
entrench the Company's management, which concomitantly may have a potentially
adverse effect on the market price of the Common Stock. If in the due exercise
of its fiduciary obligations, for example, the Board of Directors were to
determine that a takeover proposal were not in the best interests of the
Company, such shares could be issued by he Board of Directors without
stockholder approval in one or more private placements or other transactions
that might prevent or render more difficult or make more costly the completion
of any attempted takeover transaction by diluting voting or other rights of the
proposed acquirer or insurgent stockholder group, by creating a substantial
voting block in institutional or other hands that might support the position of
the incumbent Board of Directors, by effecting an acquisition that might
complicate or preclude the takeover, or otherwise.
Delaware Legislation.
The Company is a Delaware corporation and consequently is subject to
certain anti-takeover provisions of the Delaware General Corporation Law (the
"Delaware Law"). The business combination provision contained in Section 203 of
the Delaware Law ("Section 203") defines an interested stockholder of a
corporation as any person that (i) owns, directly or indirectly, or has the
right to acquire, fifteen percent (15%) or more of the outstanding voting stock
of the corporation or (ii) is an affiliate or associate of the corporation and
was the owner of fifteen percent (15%) or more of the outstanding voting stock
of the corporation at any time within the three-year period immediately prior to
the date on which it is sought to be determined whether such person is an
interested stockholder; and the affiliates and the associates of such person.
Under Section 203, a Delaware corporation may not engage in any business
combination with any interested stockholder for a period of three years
following the date such stockholder became an interested stockholder, unless (i)
prior to such date the board of directors of the corporation approved either the
business combination or the transaction which resulted in the stockholder
becoming an interested stockholder, or (ii) upon consummation of the transaction
which resulted in the stockholder becoming an interested stockholder, the
interested stockholder owned at least eighty-five percent (85%) of the voting
stock of the corporation outstanding at the time the transaction commenced
(excluding, for determining the number of shares outstanding, (a) shares owned
by persons who are directors and officers and (b) employee stock plans, in
certain instances), or (iii) on or subsequent to such date the business
combination is approved by the board of directors and authorized at an annual or
special meeting of the stockholders by at least sixty-six and two-thirds percent
(66 2/3%) of the outstanding voting stock that is not owned by the interested
stockholder. The restrictions imposed by Section 203 will not apply to a
corporation if (i) the corporation's original certificate of incorporation
contains a provision expressly electing not be governed by this section or (ii)
the corporation, by the action of its stockholders holding a majority of
outstanding stock, adopts an amendment to its certificate of incorporation or
by-laws expressly electing not be governed by Section 203 (such amendment will
not be effective until 12 months after adoption and shall not apply to any
business combination between such corporation and any person who became an
interested stockholder of such corporation on or prior to such adoption). The
Company has not elected out of Section 203, and the restrictions imposed by
Section 203 apply to the Company. Section 203 could, under certain
circumstances, make it more difficult for a third party to gain control of the
Company.
Shares Eligible for Future Sale.
Prior to the Distribution, there has been no public market for the
Common Stock. Sales of a substantial amount of Common Stock in the public
market, or the perception that such sales may occur, could adversely affect the
market price of the Common Stock prevailing from time to time in the public
market and could impair the Company's ability to raise additional capital
through the sale of its equity securities in the future.
Upon completion of the Distribution, the Company will have issued and
outstanding 2,000,000 shares of Common Stock, approximately 1,510,682 of which
are believed to be "restricted" or "control" shares for purposes of the Act.
"Restricted" shares are those acquired from the Company or an "affiliate" other
than in a public offering, while "control" shares are those held by affiliates
of the Company regardless as to how they were acquired. All of the 1,500,000
outstanding shares of Common Stock not being registered have been outstanding
for over one year and are thus eligible for sale under Rule 144.
In general, under Rule 144 (as amended effective April 29, 1997), one
year must have elapsed since the later of the date of acquisition of restricted
shares from the Company or any affiliate of the Company. No time needs to have
lapsed in order to sell control shares. Once the restricted or control shares
may be sold under Rule 144, the holder is entitled to sell within any
three-month period such number of restricted or control shares that does not
exceed the greater of 1% of the then outstanding shares or the average weekly
trading volume of shares during the four calendar weeks preceding the date on
which notice of the sale is filed with the Commission. Sales under Rule 144 are
also subject to certain restrictions on the manner of selling, notice
requirements and the availability of current public information about the
Company. Under Rule 144 (as amended effective April 29, 1997), if two years have
elapsed since the holder acquired restricted shares from the Company or from any
affiliate of the Company, and the holder is deemed not to have been an affiliate
of the Company at any time during the 90 days preceding a sale, such person will
be entitled to sell such Common Stock in the public market under Rule 144(k)
without regard to the volume limitations, manner of sale provisions, public
information requirements or notice requirements. All or nearly all of the
2,500,000 outstanding shares of Common Stock not part of the Distribution are
held by affiliates, and so long as they are held by affiliates they will not
become eligible for sale free from the restrictions of Rule 144.
In addition to the preceding, this Prospectus covers an additional
5,000,000 shares of Common Stock, which the Company may use in connection with
future business combination transactions.
<PAGE>
DIVIDEND POLICY
The Company has paid no cash dividends on its Common Stock, and the
Company presently intents to retain earnings to finance the expansion of its
business. Payment of future dividends, if any, will be at the discretion of the
Board of Directors after taking into account various factors, including the
Company's financial condition, results of operations, current and anticipated
cash needs and plans for expansion.
USE OF PROCEEDS
The Company will not receive any proceeds from the Distribution or from
the sale of the Common Stock and Class A Warrants being registered on behalf of
LS Capital. Moreover, the Company will not receive any proceeds when it issues
any of the other 5,000,000 shares covered by this Prospectus. However, such
other shares are intended be used for business combination transactions pursuant
to which the Company will acquire direct or indirect ownership of assets and
properties. The Company will receive all proceeds from the exercise of the
Warrants and the LS Capital Warrant. The Company expects to use the proceeds
from the exercise of the Class A Warrants to fund operations over the next
twelve months in roughly the following manner (proceeds from the exercises of
the Class A Warrants not used for the purposes set forth below will be used for
general corporate purposes):
<TABLE>
<S> <C> <C> <C> <C>
PAYROLL - Two laboratory technicians $150,000
Two processing personnel $ 40,000
One plant manager $ 40,000
One part-time secretary $ 20,000
Subtotal $250,000
PLANT OPERATIONS (chemicals, electricity, insurance, $200,000
workers' compensation, and the like)
ADDITIONAL LABORATORY TESTING EQUIPMENT $100,000
ADDITIONAL PLANT PROCESSING EQUIPMENT $250,000
COMPLETION COSTS (chain of custody and laboratory
testing, and refiners fees) $200,000
TOTAL $1,000,000
</TABLE>
The Company expects to use the proceeds from the exercise of the Class
B Warrants and the LS Capital Warrant to fund partially the costs and expenses
of the construction of the larger processing plant discussed in "BUSINESS -
Operations - Extraction."
EXPERTS
The financial statements and schedules of Griffin Gold Group, Inc. as
of June 30, 1997 and for the period October 30, 1996 (inception) through June
30, 1997 have been included herein and in the registration statement in reliance
upon the report of Malone & Bailey, PLLC, independent certified public
accountants, included herein, and upon the authority of said firm as experts in
accounting and auditing.
MANAGEMENT'S PLAN OF OPERATION
Certain of the Technologies have been determined to be capable of
extracting precious minerals in a laboratory setting. It has also determined
that precious minerals are contained in the ores mined from the Company's
mineral properties. However, the Technology must prove capable of producing
precious minerals from ores mined from the Company's mineral properties on a
larger scale at cost levels that will enable production to occur profitably.
Currently, the Company's ore is being processed at DMI's "pilot" plant on a
limited basis in connection with the testing of the Technologies on a larger
scale. At the present, less than one ton per day (a "TPD") is being processed.
Certain of the Technologies have proven capable of producing precious minerals
from ores mined from the Company's mineral properties at this larger scale, but
the yields have been inconsistent and have had a large variance ranging from .05
to .50 troy ounces of gold equivalent (which includes silver, platinum,
palladium, iridium and small quantities of tantalum) per ton of ore. At the low
end of this range, the Company would operate at a slight loss, while at the high
end of this range, the Company would experience substantial profits.
Nonetheless, the Company can not operate at a profit unless it is able to
achieve yields within this range at a much larger commercial scale, and there
can be no assurance that the Company will be able to achieve such yields at the
larger commercial scale. Scaling up the use of the Technologies from the
laboratory setting to the pilot plant setting has created some unforeseen
difficulties in the application of the Technologies. The Company is currently
working to solve these difficulties, and management is fairly confident that
these difficulties can be overcome. However, there can be no assurance that
these difficulties can be overcome at a cost acceptable to and manageable by the
Company or even at all for that matter. Furthermore, there can be no assurance
that if these difficulties are overcome, the Company will not encounter
additional unforeseen difficulties in the scaling up of the Technologies, and
that if additional unforeseen difficulties are encountered, the Company will be
able to overcome them at a cost acceptable to and manageable by the Company or
even at all for that matter.
For the next twelve months, the Company's primary activities will be to
work to achieve higher yields from processed ores through experimentation with
alternative ways of handling certain components of the most advanced
Technologies' extraction process and varying the levels of various commodities
used in this process, to continue to develop the Technologies in the
developmental stage, and (subject to the Company's receipt of funds therefor) to
acquire equipment necessary to advance the testing of the Technologies, to
obtain third party chain of custody verification of the performance of the
Technologies and the level of mineral deposits on the Company's mineral
properties, and to obtain end-product certification of the finished materials as
to their value and refining ability. Certain of the foregoing activities depend
on the Company's receipt of an adequate amount of funds, and there can be no
assurance that the Company will be successful in procuring these funds. In the
event that yields achieve a satisfactory level, the Company will endeavor to
scale up the level of processing to five TPD. Once this scale is achieved with
satisfactory results, the Company and LS Capital intend to commission an
engineering and design feasibility study with regard to the larger plant
described above. In the interim, the Company and LS Capital expect to devote
efforts to procuring financing for the larger plant in the event a decision is
made to pursue construction.
The Company expects that it will need approximately $1.0 million to
pursue its plan of operation over the next twelve months. For a description as
to how such $1.0 million would be utilized, see "USE OF PROCEEDS." The Company
does not now have funds in this amount. Thus far, the Company has financed its
operations primarily through capital contributions made by certain of its
stockholders. These stockholders are no longer obligated to contribute any
additional amounts to the Company. In addition, no other person is obligated to
provide any additional funds to the Company. The Company expects to finance its
plan of operations over the next twelve months through exercises of the
Warrants, cash flow from operations, the possible placement of the Company's
equity securities, joint venture arrangements (including project financing), the
use of certain shares of Common Stock to be registered pursuant to another
registration statement to encourage outside consultants to provide services to
the Company, and the use of certain of the shares of Common Stock covered by
this Prospectus for purposes of acquisitions. See "RISK FACTORS - Lack of
Revenue and Need for Additional Capital." If the Company is unable to procure
sufficient funds, the Company would be constrained to scale back its operations
from the levels described herein, and (in an extreme case) curtail operations
entirely on a temporary or even permanent basis. The failure to procure
sufficient funds would have a material adverse effect on the Company. Moreover,
the procurement of funds or the use of the Company capital stock in lieu of
procuring funds could have certain material adverse effects on the Company and
its stockholders. See "RISK FACTORS - Risk of Potential to Dilution Future Share
Issuances" and "RISK FACTORS - Risks from Acquisitions." To the extent that
funds are available, the Company expects that it might spend in the next twelve
months approximately $100,000 in improvements to the pilot plant's laboratory
and approximately $250,000 in additional equipment used in connection with the
physical processing operations relating to the pilot plant. While the
contemplated improvements and equipment would greatly further the testing of the
Technology and the pilot plant, management believes that continued testing can
continue if funds are not available to procure these improvements and equipment,
though perhaps not a level to prove or disprove the capabilities of the
Technology.
In addition, the Company now has eight employees. It expects that it
will need to have as many as 10 employees if the Company's level of processing
increases to five TPD and more if processing exceeds this level. The Company
does not now foresee any problem in hiring a sufficient number of qualified
employees number of qualified employees.
<PAGE>
GRIFFIN GOLD GROUP, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Period ended June 30, 1997:
Independent Auditor's Report F-1
Balance Sheet as of June 30, 1997 F-2
Income Statement for the period from
October 30, 1996 (Inception) to June 30, 1997 F-3
Statement of Stockholder's Equity for the period from
October 30, 1996 (Inception) to June 30, 1997 F-4
Statement of Cash Flows for the period from
October 30, 1996 (Inception) to June 30, 1997 F-5
Notes to Financial Statements F-6
Nine Months ended March 31, 1998:
Balance Sheet as of March 31, 1998 (unaudited) G-1
Income Statement for the periods from
October 30, 1996 (Inception) to March 31, 1998 (unaudited) G-3
Statement of Stockholder's Equity for the periods from
October 30, 1996 (Inception) to March 31, 1998 (unaudited) G-4
Statement of Cash Flows for the periods from
October 30, 1996 (Inception) to March 31, 1998 (unaudited) G-5
Notes to Financial Statements G-6
</TABLE>
<PAGE>
October 20, 1997
Independent Auditor's Report
To the Board of Directors and Stockholders
Griffin Gold Group, Inc.
Houston, Texas
We have audited the accompanying balance sheet of Griffin Gold Group, Inc. as of
June 30, 1997, and the related statements of expenses , stockholders' equity,
and cash flows for the period from inception (October 30, 1996) to June 30,
1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Griffin Gold Group, Inc. as of
June 30, 1997, and the results of its operations and its cash flows for the
initial period then ended in conformity with generally accepted accounting
principles.
MALONE & BAILEY, PLLC
Houston, Texas
<PAGE>
GRIFFIN GOLD GROUP, INC.
(A Development Stage Company)
Balance Sheet
<TABLE>
<CAPTION>
June 30,
1997
<S> <C>
ASSETS
Current Assets
Cash $ 65
Marketable securities 50,000
Stock subscriptions receivable 56,407
Amounts receivable from affiliates 95,000
Prepaid services 10,010
------
Total Current Assets 211,482
Vehicles 24,071
Equipment 56,063
Mining claims 26,739
TOTAL ASSETS $318,355
LIABILITIES
Amounts payable to affiliates $209,973
Total Current Liabilities 209,973
Stockholder's Equity
Preferred stock, par value $.01, 10,000,000 shares
authorized, no shares issued or outstanding
Common stock, par value $.01, 50,000,000 shares
authorized, 10,000,000 shares issued and outstanding 100,000
Paid in capital 400,000
Deficit accumulated during the development stage (391,618)
---------
Total Stockholders' Equity 108,382
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $318,355
</TABLE>
See notes to financial statements.
F-2
<PAGE>
GRIFFIN GOLD GROUP, INC.
(A Development Stage Company)
Statement of Expenses
<TABLE>
<CAPTION>
October 30, 1996
(Date of
(Inception) to
June 30, 1997
<S> <C>
Joint venture sharing of
ore processing plant start up costs $310,840
General and administrative 78,699
Interest 2,079
----------
Net loss $391,618
Net loss per common share $.04
Weighted average common shares outstanding
10,000,000
</TABLE>
<PAGE>
See notes to financial statements.
F-3
<PAGE>
GRIFFIN GOLD GROUP, INC.
(A Development Stage Company)
Statement of Stockholders' Equity
<TABLE>
<CAPTION>
Common Stock Paid in Accumulated
Shares Amount Capital Deficit Totals
----------- ----------- ----------- ---------------- ----------
<S> <C> <C> <C> <C> <C>
Shares issued to
parent company at
inception 5,000,000 $ 50,000 $( 50,000)
Shares issued for
cash and mining claims 5,000,000 50,000 450,000 500,000
Net (deficit) $(391,618) (391,618)
------------- --------- ----------- ----------- ---------
Balances,
June 30, 1997 10,000,000 $100,000 $400,000 $(391,618) $108,382
========== ======== ======== ============ ========
</TABLE>
See notes to financial statements.
F-4
<PAGE>
GRIFFIN GOLD GROUP, INC.
(A Development Stage Company)
Statement of Cash Flows
<TABLE>
<CAPTION>
October 30, 1996
( Inception) to
June 30, 1997
<S> <C>
Cash Flows from Operating Activities
Net loss $(391,618)
Adjustments to reconcile net loss to net cash
used in operating activities
Expenses paid with issuance of S-8 stock
of affiliate 252,188
Increase in prepaid services (10,010)
Purchases of marketable securities (50,000)
(199,440)
Cash Flows from Investing Activities
Purchase of vehicle and field equipment (30,134)
Loans to affiliate to finance ore processing pilot
plant start up costs (95,000)
(125,134)
Cash Flows from Financing Activities
Sales of stock 436,854
Payments to an affiliate to reimburse compensation
expenses paid with affiliate stock (112,215)
324,639
Cash balance on June 30, 1997 $ 65
===========
Supplemental Cash flow information
Interest paid $ 2,079
Vehicle and equipment contributed by affiliate 50,000
Mining claim capitalized costs contributed by affiliates 26,739
Stock subscriptions receivable (cash collected July, 1997) 56,407
</TABLE>
See notes to financial statements.
F-5
<PAGE>
GRIFFIN GOLD GROUP, INC.
Notes to Financial Statements
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
Business. Griffin Gold Group, Inc. ("Company") is a Delaware corporation formed
October, 1996 to locate and extract gold and other precious minerals using an
affiliate's new and proprietary ore processing technology.
Use of estimates. The financial statements have been prepared in conformity with
generally accepted accounting principles and, as such, include amounts based on
informed estimates and judgments of management with consideration given to
materiality. Actual results could differ from those estimates.
Cash includes demand deposit bank accounts. Company policy includes any highly
liquid investments with original maturities of three months or less.
Marketable securities are shown at market value. The $50,000 in common stock of
MG Gold, Inc. was made in March, 1997 and rescinded in July, 1997 by a full
refund of the purchase price.
Stock subscriptions receivable were collected in full during the quarter ended
September 30, 1997.
Depreciation is calculated using the straight-line method over the useful lives
of property and equipment.
Mining claims include costs incurred to procure the exploration and mining
rights to 3,520 acres in southeastern California. Such costs are considered
exploration and development costs and are capitalized until the claims are
producing or are written off as unproductive.
Intangible assets are addressed by Accounting Principles Board Opinion 17.
Company policy is to capitalize and amortize such intangibles in accordance with
APB 17 as they are purchased. As of October 20, 1997, no such intangibles have
been purchased.
Start up costs are accounted for as prescribed by Statement of Financial
Accounting Standards No. 7. Company policy is to currently expense are start up
costs related to the development of the ore processing plant being built in
conjunction with Desert Minerals, Inc. (see Note 2). In accordance with APB 18,
the investment in the plant is being accounted for using the equity method,
under which the Company has recorded its investment at cost. No income from the
plant has occurred to date.
Income taxes are not due since the Company has losses in its first year.
Earnings (Loss) per share calculations do not include the dilutive effect of
common stock equivalents, if any, in years of losses.
Employee stock compensation plans are accounted for as prescribed by Statement
of Financial Accounting Standards No. 123. Currently, the Company has no such
plans.
F-6
<PAGE>
GRIFFIN GOLD GROUP, INC.
Notes to Financial Statements
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (continued)
NOTE 2 - TRANSACTIONS WITH AFFILIATES
The Company was formed in October, 1996 as a wholly-owned subsidiary of LS
Capital Corporation ("LS Capital") by exchanging 5,000,000 shares of Company
stock for 500,000 shares of LS Capital stock valued at the current market
trading price of $.42 per share, or $210,000 . At the same time, the Company
entered into agreements with LS Capital and three Canadian individuals to
acquire the mining interests they currently own plus $500,000 in exchange for
5,000,000 shares of the Company and these same 500,000 shares of LS Capital. The
mining interests were assigned a nominal carrying value for financial statement
purposes. The Company began receiving this cash in March, 1997 and as of October
20, 1997, the Company had received the $500,000 in net capital contributions
from these individuals. The Company entered into another agreement to acquire an
interest in these same claims from an LS Capital board member for reimbursement
of his acquisition costs, or $20,000.
On March 1, 1997, the Company entered into an agreement with Desert Minerals,
Inc. ("DMI"), a sister company owned 47% by LS Capital and 48% by three of the
four individual stockholders of the Company. This agreement provided for
open-ended cash loans and expense reimbursements incurred by DMI to build and
test a pilot ore testing and processing plant near the location of the mining
claims. This pilot plant is still uncompleted as of October 20, 1997 and results
of initial testing by this facility of Company mining claims are not yet
completed.
A summary of amounts advanced by LS Capital and other shareholders to the
Company and from the Company to DMI is as follows:
<TABLE>
<CAPTION>
March through July through
June 30, 1997 October 20, 1997
<S> <C> <C>
Cash received from sale of stock to 3 individuals $ 436,854 $ 56,407
Cash (advanced to) repayments by LS Capital (112,215) 134,490
LS Capital stock used to pay Company expenses 252,188
--------- ---------
Net receipts $ 576,827 $ 190,897
========== =========
Cash advanced to DMI, shown as to be repaid $ 95,000 $ 106,040
Payment of DMI ore proc. plant start up expenses 310,840 132,362
---------- ----------
Net disbursements $ 405,840 $ 238,402
</TABLE>
In addition to the above, in May, 1997 LS Capital contributed a truck and
certain ore testing equipment to the Company valued at its original cost of
$50,000. This equipment is being used on site at the DMI pilot plant facility.
F-7
<PAGE>
GRIFFIN GOLD GROUP, INC.
(A Development Stage Company)
Balance Sheet
UNAUDITED
<TABLE>
<CAPTION>
March 31,
1998
ASSETS
<S> <C>
Current Assets
Cash $ 3,970
Amounts receivable from affiliates 2,000
---------------
Total Current Assets 5,970
Property and Equipment
Vehicles 24,071
Equipment 56,063
Less: accumulated depreciation ( 12,020)
-------------
68,114
Other assets - mining claims 26,739
--------------
TOTAL ASSETS $ 100,823
============
LIABILITIES
Current Liabilities
Accrued liabilities $ 3,641
Amounts payable to affiliates 597,763
Total Current Liabilities 601,404
Stockholders' Equity
Preferred stock, par value $.01, 10,000,000 shares
authorized, no shares issued or outstanding
Common stock, par value $.01, 50,000,000 shares
authorized, 10,000,000 shares issued and outstanding 100,000
Paid in capital 400,000
Deficit accumulated during the development
stage (1,000,581)
Total Stockholders' Equity ( 500,581)
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $100,823
</TABLE>
See notes to financial statements.
G-1
<PAGE>
GRIFFIN GOLD GROUP, INC.
(A Development Stage Company)
Statements of Expense
UNAUDITED
<TABLE>
<CAPTION>
October 30, 1996
3 months ended 9 months ended (Date of Inception)
March 31, March 31, to March 31,
1998 1997 1998 1997 1998
------------------------ --------------------- --------------------
<S> <C> <C> <C> <C> <C>
Joint venture sharing of ore
processing plant start up costs $ 289,680 $ 438,502 $ 419,742 $ 438,502 $ 730,582
General and administrative 57,300 65,212 177,201 65,212 255,900
Interest 2,079
Depreciation 4,007 12.020 12,020 12,020
------------- ----------- ------------ ---------- -----------
Net (loss) $( 350,987) $( 503,714) $( 608,963) $( 503,714) $(1,000,581)
Net loss per common share $( .04) $( 0.05) $( 0.06) $( 0.05) $( 0.10)
Weighted average common
shares outstanding 10,000,000 10,000,000 10,000,000 10,000,000 10,000,000
</TABLE>
See notes to financial statements.
G-2
<PAGE>
GRIFFIN GOLD GROUP, INC.
(A Development Stage Company)
Statement of Stockholders' Equity
Period from October 30, 1996 (Date of Inception)
to March 31, 1998
UNAUDITED
<TABLE>
<CAPTION>
Common Stock Paid in Accumulated
Shares Amount Capital Deficit Totals
<S> <C> <C> <C> <C> <C>
Shares issued to
parent company at
inception 5,000,000 $ 50,000 $ 160,000 210,000
Shares issued for
cash and mining
claims 5,000,000 50,000 240,000 290,000
Net (deficit) $(1,000,581)
(1,000,581) (1,000,581)
Balances,
March 31, 1998 10,000,000 $ 100,000 $ 400,000 $(1,000,581) $( 500,581)
========== ========= ========= =========== ============
</TABLE>
See notes to financial statements.
G-3
<PAGE>
GRIFFIN GOLD GROUP, INC.
(A Development Stage Company)
Statements of Cash Flows
UNAUDITED
<TABLE>
<CAPTION>
October 30, 1996
9 Months Ended (Date of Inception)
March 31, to March 31,
1998 1997 1998
-------------------------------------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net loss $( 608,963) $( 503,714) $(1,000,581)
Depreciation 12,020 12,020
Adjustments to reconcile net loss to
net cash used in operating activities
Expenses paid with issuance of
S-8 stock of affiliate 48,500 200,983 300,688
Write-off uncollectible loan to affiliate 93,000
(Increase) decrease in prepaid services 10,010
Increase in accrued liabilities 3,641 3,641
Sales (purchases) of marketable securities 50,000 ( 50,000)
------------ -------------- -----------
Total Cash Flows from Operating Activities ( 391,792) ( 352,731) ( 684,232)
------------- ------------- -----------
Cash Flows from Investing Activities
Purchase of vehicle and field equipment ( 26,629) ( 30,134)
Loans to affiliate to finance ore processing
pilot plant start up costs ( 78,000) ( 2,000)
----------------- -------------- --------------
Total Cash Flows from Investing Activities ( 104,629) ( 32,134)
------------------ ------------- --------------
Cash Flows from Financing Activities
Sales of stock 441,794 493,261
Collection of (Increase in) stock subscriptions
receivable 56,407 ( 14,204)
Advances from (payments to) an affiliate 339,290 30,000 227,075
----------- --------------- ---------------
Total Cash Flows from Financing Activities 395,697 457,590 720,336
------------ -------------- ---------------
Net increase (decrease) in cash 3,905 230 3,970
Cash at Beginning of Period 65
------------ -------------- ---------------
Cash at End of Period $ 3,970 $ 230 $ 3,970
============== ============== ===============
Supplemental cash flow information
Interest paid $ 2,079
Vehicle and equipment contributed by affiliate 50,000 50,000
Mining claim capitalized costs contributed by
affiliates 26,739 26,739
</TABLE>
See notes to financial statements.
G-4
<PAGE>
GRIFFIN GOLD GROUP, INC.
Notes to Financial Statements
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
The unaudited condensed consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information. These interim statements include all adjustments which in the
opinion of management are necessary in order to make the financial statements
not misleading. The financial statements contained herein should be read in
conjunction with the audited financial statements of the Company. Accordingly,
footnote disclosure which would substantially duplicate the disclosure in those
statements has been omitted.
G-5
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
AVAILABLE INFORMATION 3
PROSPECTUS SUMMARY 4
RISK FACTORS 8
BUSINESS 16
MANAGEMENT 24
EXECUTIVE COMPENSATION 24
CERTAIN TRANSACTIONS 26
PRINCIPAL STOCKHOLDERS 28
THE DISTRIBUTION 29
CERTAIN FEDERAL INCOME TAX CONSEQUENCES 32
OTHER SHARES BEING REGISTERED 33
OTHER MATTERS 34
DESCRIPTION OF CAPITAL STOCK 34
DIVIDEND POLICY 40
USE OF PROCEEDS 40
EXPERTS 40
MANAGEMENT'S PLAN OF OPERATION 40
</TABLE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Certificate of Incorporation provides that, to the
fullest extent authorized by the Delaware Law, the Company shall indemnify each
person who was or is made a party or is threatened to be made a party to or is
involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative (a "Proceeding") because he is or was a director
or officer of the Company, or is or was serving at the request of the Company as
a director, officer, employee, trustee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against all expenses,
liabilities and loss (including attorneys' fees, judgments, fines, ERISA excise
taxes or penalties and amounts paid or to be paid in settlement) actually and
reasonably incurred or suffered by him in connection with such Proceeding.
Under Section 145 of the Delaware Law, a corporation may indemnify a
director, officer, employee or agent of the corporation against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with any threatened,
pending or completed Proceeding (other than an action by or in the right of the
corporation) if he acted in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the corporation and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful. In the case of an action brought by or in the
right of the corporation, the corporation may indemnify a director, officer,
employee or agent of the corporation against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection with the defense or
settlement of any threatened, pending or completed action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation, except that no indemnification shall be made
in respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the extent that a
court determines upon application that, in view of all the circumstances of the
case, such person is fairly and reasonably entitled to indemnity for such
expenses as the court deems proper.
The Company's Certificate of Incorporation also provides that expenses
incurred by a person in his capacity as director of the Company in defending a
Proceeding may be paid by the Company in advance of the final disposition of
such Proceeding as authorized by the Board of Directors of the Company in
advance of the final disposition of such Proceeding as authorized by the Board
of Directors of the Company upon receipt of an undertaking by or on behalf of
such person to repay such amounts unless it is ultimately determined that such
person is entitled to be indemnified by the Company pursuant to the Delaware
Law. Under Section 145 of the Delaware Law, a corporation must indemnify a
director, officer, employee or agent of the corporation against expenses
(including attorneys' fees) actually and reasonably incurred in by him in
connection with the defense of a Proceeding if he has been successful on the
merits or otherwise in the defense thereof.
The Company's Certificate of Incorporation provides that a director of
the Company shall not be personally liable to the Company of its stockholders
for monetary damages for breach of fiduciary duty as a director, except for
liability (i) for breach of a director's duty of loyalty to the Company or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174 of
the Delaware Law for the willful or negligent unlawful payment of dividends,
stock purchase or stock redemption or (iv) for any transaction from which a
director derived an improper personal benefit.
The Company intends to attempt to procure directors' and officers'
liability insurance which insures against liabilities that directors and
officers of the Company may incur in such capacities.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses set forth below, will be borne by the Company.
<TABLE>
<CAPTION>
Item Amount
<S> <C> <C>
SEC Registration Fee ............................................................................$2,983.85
Blue Sky Filing Fees and Expenses.................................................................5,000.00
Legal Fees and Expense...........................................................................30,000.00
Accounting Fees and Expenses ....................................................................15,000.00
Printing..........................................................................................3,700.00
Certificate Engraving.............................................................................2,125.00
Mailing...........................................................................................2,000.00
Total...........................................................................................$60,808.85
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
In connection with the formation of the Company, the Company issued to
Edwin Hemsted ("Hemsted"), Keith J. McKenzie ("McKenzie") and Kent E. Lovelace,
Jr.("Lovelace 475,000, 275,000 and 225,000 shares, respectively, of the
Company's common stock (the "Common Stock"), in consideration of the exertion of
their influence to cause certain other persons to enter into the Exploration
/Option Agreement with the Company by which the Company acquired its rights to
its Claims. In addition, LS Capital Corporation, a Delaware corporation ("LS
Capital"), issued to Hemsted and McKenzie 333,332 and 166,667 shares,
respectively, of LS Capital common stock. In consideration of the issuance of
these shares of LS Capital common stock, LS Capital was issued 1,000,000 shares
of Common Stock. Eventually, 1,500,000 Class A Warrants were issued to LS
Capital as an inducement to make certain loans to the Company. Originally, W.D.
Groves ("Groves") was to receive 1,250,000 shares of the Common Stock and
166,666 shares of LS Capital common stock in connection with the formation of
the Company and the transactions provided for in the Exploration/Option
Agreement. However, Groves decided not to participate in the Company. In this
connection, Groves conveyed to Hemsted the 166,666 shares of LS Capital common
stock that he was to receive, and Groves conveyed to Hemsted and Douglas Schmitt
225,000 and 25,000 shares, respectively, of the Common Stock that he also was to
receive. The figures for the number of shares set forth in the preceding
paragraph take into account Grove's conveyances of the shares he was to receive.
In further consideration of the issuance of their shares, Hemsted and McKenzie
and Groves agreed to make, and Hemsted and McKenzie and Groves eventually did
make, an aggregate additional capital contribution to the Company in the amount
of $500,000 by a specified date without the issuance of any additional shares,
the failure of which may result in the forfeiture of their unsold Common Stock
and LS Capital common stock.
Because Hemsted, McKenzie, Groves and Schmitt are Canadian nationals,
the issuances of Common Stock to them are claimed to be exempt pursuant to
Regulation S under the Act. Because the Company is a partially-owned subsidiary
of LS Capital and Lovelace is a director of LS Capital, the issuances of Common
Stock to them is claimed to be exempt pursuant Section 4(2) of the Act.
The number of shares of Common Stock stated above in this ITEM 26 do
not take into account the Company's one-for-five reverse stock split.
<PAGE>
ITEM 27. EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
<S> <C>
3.01 Certificate of Incorporation of the Company
3.02 Bylaws of the Company
4.01 Specimen Common Stock Certificate
4.02 Warrant Agreement dated May 29, 1998 between the Company and Continential Stock
Transfer & Trust Company.
4.03 Warrant executed by the Company in favor of LS Capital Corporation
5.01 Opinion and Consent of Randall W. Heinrich, Of Counsel to Gillis &
Slogar, as to the legality of securities being registered
10.01 Agreement dated October 30, 1996 among Zeotech Industries,
Inc., Ed Hemsted, W.D. Groves, KJM Capital Corp., Keith J. McKenzie, Kent E.
Lovelace, Jr., LS Capital Corporation and the Company.
10.02 Services Agreement dated March 1, 1997 between LS Capital Corporation and Desert Minerals,
Inc.
10.03 Release and Partial Termination Agreement among W.D. Groves,
Zeotech Industries, Inc., Ed Hemsted, KJM Capital Corp., Keith J. McKenzie,
Kent E. Lovelace, Jr., LS Capital Corporation and the Company.
10.04 First Amendment dated July 29, 1997 to Agreement dated October 30,
1996 among Zeotech Industries, Inc., Ed Hemsted, W.D. Groves, KJM Capital
Corp., Keith J. McKenzie, Kent E. Lovelace, Jr., LS Capital Corporation and
the Company.
10.05 Second Amendment dated April 22, 1997 to Agreement dated October 30,
1996 among Zeotech Industries, Inc., Ed Hemsted, W.D. Groves, KJM Capital
Corp., Keith J. McKenzie, Kent E. Lovelace, Jr., LS Capital Corporation and
the Company.
10.06 Letter Employment Agreement dated March 27, 1998 between the Company
and Richard W. Lancaster.
10.07 Letter Agreement dated March 27, 1997 among the Company, LS Capital
Corporation, Desert Minerals, Inc., Douglas Schmitt, Zeotech Industries, Inc.
and Ed Hemsted.
10.08 Exploration Agreement and Option to Lease dated June 5, 1997 among
Charles Jackson, Marie Unruh, James Hopkins, Sr., Tracy Hopkins, Rick Jackson,
Mara Jackson, Paul Jackson, Jared Jackson, and the Company
10.09 Agreement to Sublicense dated January 15, 1998 between the Company and LS Capital
Corporation
10.10 Griffin Gold Group, Inc. 1998 Stock Option Plan
10.11 First Supplement to License Agreement dated May 27, 1998 between the Company and Douglas Schmitt
21.01 Subsidiaries of the Registrant
23.01 Consent of Malone & Bailey, PLLC
23.02 Consent of Randall W. Heinrich, Of Counsel to Gillis & Slogar,
contained in Exhibit 5.01.
25.01 Power of Attorney (included on the signature page hereto).
27 Financial Data Schedule
</TABLE>
ITEM 28. UNDERTAKINGS
A. .....The undersigned Registrant will:
.........(1) File, during any period in which it offers or sells
securities, a post-effective amendment to this registration statement to include
any prospectus required by section 10(a)(3) of the Securities Act, reflect in
the prospectus any facts or events which, individually or together, represent a
fundamental change in the information in the registration statement, and include
any additional or changed material information on the plan of distribution.
.........(2) For the purpose of determining any liability
under the Securities Act, treat each post-effective amendment as a new
registration statement of the securities offered, and the offering of such
securities at that time to be the initial bona fide offering thereof.
.........(3) File a post-effective amendment to remove from
registration any of the securities that remain unsold at the end of the
offering.
B. .....(1) Insofar as indemnification for liabilities arising under
the Securities Act of 1933 (the "Act") may be permitted to directors, officers
and controlling persons of the small business issuer pursuant to the foregoing
provisions, or otherwise, the small business issuer has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
.........(2) In the event that a claim for indemnification against such
liabilities (other than the payment by the small business issuer of expenses
incurred or paid by a director, officer or controlling person of the small
business issuer in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the small business issuer will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirement for filing on Form SB-2 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Houston, State of Texas on August 21, 1998.
GRIFFIN GOLD GROUP, INC.
By: /s/ Richard W. Lancaster
Richard W. Lancaster, President
(Principal Executive Officer,
Principal Financial Officer and
. Principal Accounting Officer)
Pursuant to the requirements of the Securities and Exchange Act of 1933,
this registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
<S> <C> <C>
/s/ Richard W. Lancaster Director and President August 21, 1998
(Principal Executive Officer
and Principal Financial
Officer)
/s/ Paul J. Montle Director and Vice August 21, 1998
President
/s/ C. Thomas Cutter* Director August 21, 1998
</TABLE>
* Signed by power of attorney
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Page
<S> <C>
3.01 Certificate of Incorporation of the Company
3.02 Bylaws of the Company
4.01 Specimen Common Stock Certificate
4.02 Warrant Agreement dated May 29, 1998 between the
Company and Continential Stock Transfer & Trust
Company.
4.03 Warrant executed by the Company in favor of LS Capital Corporation
5.01 Opinion and Consent of Randall W. Heinrich, Of Counsel to Gillis &
Slogar, as to the legality of securities being registered
10.01 Agreement dated October 30, 1996 among Zeotech Industries,
Inc., Ed Hemsted, W.D. Groves, KJM Capital Corp., Keith J.
McKenzie, Kent E. Lovelace, Jr., LS Capital Corporation and
the Company.
10.02 Services Agreement dated March 1, 1997 between LS Capital
Corporation and Desert Minerals, Inc.
10.03 Release and Partial Termination Agreement among W.D. Groves,
Zeotech Industries, Inc., Ed Hemsted, KJM Capital Corp.,
Keith J. McKenzie, Kent E. Lovelace, Jr., LS Capital
Corporation and the Company.
10.04 First Amendment dated July 29, 1997 to Agreement dated October 30,
1996 among Zeotech Industries, Inc., Ed Hemsted, W.D.
Groves, KJM Capital Corp., Keith J. McKenzie, Kent E.
Lovelace, Jr., LS Capital Corporation and
the Company.
10.05 Second Amendment dated April 22, 1997 to Agreement dated October
30, 1996 among Zeotech Industries, Inc., Ed Hemsted, W.D.
Groves, KJM Capital Corp., Keith J. McKenzie, Kent E.
Lovelace, Jr., LS Capital Corporation and the Company.
10.06 Letter Employment Agreement dated March 27, 1998 between the
Company and Richard W. Lancaster.
10.07 Letter Agreement dated March 27, 1997 among the Company, LS
Capital Corporation, Desert Minerals, Inc., Douglas Schmitt,
Zeotech Industries, Inc. and Ed Hemsted.
10.08 Exploration Agreement and Option to Lease dated June 5, 1997 among
Charles Jackson, Marie Unruh, James Hopkins, Sr., Tracy
Hopkins, Rick Jackson, Mara Jackson, Paul Jackson, Jared
Jackson, and the Company
10.09 Agreement to Sublicense dated January 15, 1998 between the Company
and LS Capital Corporation
10.10 Griffin Gold Group, Inc. 1998 Stock Option Plan
10.11 First Supplement to License Agreement dated May 27, 1998 between
the Company and Douglas Schmitt
21.01 Subsidiaries of the Registrant
23.01 Consent of Malone & Bailey, PLLC
23.02 Consent of Randall W. Heinrich, Of Counsel to Gillis & Slogar,
contained in Exhibit 5.01.
25.01 Power of Attorney (included on the signature page hereto).
27 Financial Data Schedule
</TABLE>
EXHIBIT 4.02 WARRANT AGREEMENT
AGREEMENT
THIS AGREEMENT made as of this _____ day of May, 1998, between GRIFFIN
GOLD GROUP, INC., a Delaware corporation with offices at 15915 Katy Freeway,
Suite 250, Houston, Texas 77094 (the "Company"), and CONTINENTAL STOCK TRANSFER
& TRUST COMPANY, with offices at 2 Broadway, 19th Floor, New York, New York
10004 (the "Warrant Agent").
Introduction
The Company has determined to issue and deliver up to 1,500,000 common
stock purchase warrants (the "Class A Warrants") evidencing the right of the
holders thereof to purchase an aggregate of 1,500,000 shares of common stock,
$0.01 par value of the Company (the "Common Stock"), which Class A Warrants are
to be issued and delivered as part of units (the "Units") to be registered
pursuant to a registration statement No. 333-41635 (the "Registration
Statement") filed with the Securities and Exchange Commission. In connection
with the creation of the Class A Warrants, the Company has decide to create
1,500,000 common stock purchase warrants (the "Class B Warrants") evidencing the
right of the holders thereof to purchase an aggregate of 1,500,000 shares of
Common Stock, which Class B Warrants are to be registered pursuant to the
Registration Statement and which Class B Warrants are to be issued to the
holders of the Class A Warrants upon exercise of the Class A Warrants at rate of
one Class B Warrant for each Class A Warrant exercised. The Class A Warrants and
the Class B Warrants are hereinafter referred to as the "Warrants". The Company
desires the Warrant Agent to act on behalf of the Company, and the Warrant Agent
is willing to so act, in connection with the issuance, registration, transfer,
exchange, redemption and exercise of the Warrants. The Company desires to
provide for the form and provisions of the Warrants, the terms upon which they
shall be issued and exercised, and the respective rights, limitation of rights,
and immunities of the Company, the Warrant Agent, and the holders of the
Warrants.
All acts and things have been done and performed which are necessary to
make the Warrants, when executed on behalf of the Company and countersigned by
or on behalf of the Warrant Agent, as provided herein, the valid, binding and
legal obligation of the Company, and to authorize the execution and delivery of
this Agreement.
Agreement
NOW, THEREFORE, in consideration of the mutual agreements herein
contained, the parties hereto agree as follows:
ARTICLE I
Appointment of Warrant Agent
The Company hereby appoints the Warrant Agent to act as agent for the
Company for the Warrants, and the Warrant Agent hereby accepts such appointment
and agrees to perform the same in accordance with the terms and conditions set
forth in this Agreement.
ARTICLE II
Warrants, Form of Warrants, Execution,
Countersignature and Registration of Warrants
2.01. Form of Warrant. Each Warrant shall be issued in registered form
only, shall be in substantially the form of Exhibit A hereto (in the case of a
Class A Warrant) or Exhibit B hereto (in the case of a Class B Warrant), shall
be signed by, or bear the facsimile signature of, the President or any Vice
President and by the Secretary of the Company and shall bear a facsimile of the
Company's seal (a certificate representing a Warrant, whether in the form of
Exhibit A or Exhibit B, is referred to hereinafter as a "Warrant Certificate").
A Warrant Certificate may also bear such letters, marks of identification,
legends, designations, summaries and endorsements as the Company may believe
appropriate and as are not inconsistent with this Agreement, or in any
particular case as may be required in the opinion of counsel to the Company. In
the event the person whose facsimile signature has been placed upon any Warrant
Certificate shall have ceased to be President or Secretary of the Company before
such Warrant Certificate is issued, it may be issued with the same effect as if
she had not ceased to be such at the date of issuance. No Warrant Certificate
may be exercised until it has been countersigned by the Warrant Agent as
provided in Section 2.03 hereof.
2.02. Warrant Valid Only If Countersigned. Unless and until manually
countersigned by the Warrant Agent and dated the date of countersignature
pursuant to this Agreement, a Warrant Certificate shall be invalid and of no
effect.
2.03. Countersignature. The Warrant Agent shall countersign a Warrant
Certificate only (i) if the Warrant Certificate is to be issued in exchange or
substitution for one or more previously countersigned Warrant Certificates, as
hereinafter provided, (ii) upon the exercise of one or more Warrants, as
hereinafter provided, or (iii) if the Company instructs the Warrant Agent to do
so.
2.04. Registration.
2.04.1 The Warrant Agent shall maintain books (the "Warrant Register")
for the registration of original issuance and the registration of transfer of
the Warrant Certificates. Upon the initial issuance of any Warrant Certificates,
the Warrant Agent shall issue and register such Warrant Certificates in the
names of the respective holders thereof in such denominations and otherwise in
accordance with instructions delivered to the Warrant Agent by the Company (in
the case of the Class A Warrants), or in accordance with the terms hereof (in
the cases of the Class B Warrants).
2.04.2 Prior to due presentment for registration of transfer of any
Warrant Certificate, the Company and the Warrant Agent may deem and treat the
person in whose name such Warrant Certificate shall be registered upon the
Warrant Register (the "Holder" or the "registered holder") as the absolute owner
of such Warrant Certificate and of each Warrant represented thereby
(notwithstanding any notation of ownership or other writing on the Warrant
Certificate made by anyone other than the Company or the Warrant Agent) for the
purpose of any exercise thereof, and for all other purposes, and neither the
Company nor the Warrant Agent shall be affected by any notice to the contrary
and shall not be required to recognize any equitable or other claim to or
interest in such Warrant Certificate on the part of any other person, and shall
not be liable for any registration or transfer of Warrant Certificates which are
registered or to be registered in the name of a fiduciary or the nominee of a
fiduciary unless made with the actual knowledge that a fiduciary or nominee is
committing a breach of trust in requesting such registration or transfer, or
with such knowledge of such facts that its participation therein amounts to bad
faith.
2.05. Detachability of Warrants. The Warrant Agent understands that the
Class A Warrants are being issued as part of Units together with shares of the
Company's Common Stock and that the shares of Common Stock and the Class A
Warrants are immediately detachable and may be traded separately. The Warrant
Agent further understands that the Class B Warrants shall also in all cases be
traded separately.
ARTICLE III
Term and Exercise of Warrants
3.01. Warrant Price. Each Warrant Certificate shall, when signed by the
proper officers of the Company and countersigned and dated by the Warrant Agent,
entitle the registered holder thereof, subject to the provisions of such Warrant
Certificate and of this Warrant Agreement, to purchase from the Company up to
the number of shares (the "Warrant Shares") of Common Stock stated therein, at
the price of $1.00 per share in the case of the Class A Warrants, and at the
price of $1.50 per share in the case of the Class B Warrants, subject in all
cases to the adjustments provided in Article IV hereof. The term "Warrant Price"
as used in this Agreement refers to the price per share at which Common Stock
may be purchased at the time a Warrant is exercised, reflecting all appropriate
adjustments made in accordance with Article IV hereof.
3.02. Duration of Warrants. A Class A Warrant may be exercised only
during the period (the "Class A Warrant Exercise Period") commencing on the
effective date (the "Effective Date") of the Registration Statement, and ending
at 5:00 p.m. New York City time on the date which is the earlier of (i) the
third anniversary of the Effective Date, or (ii) the date fixed for redemption
of such Class A Warrant as provided in Article VI of this Agreement (in each
such case, the "Class A Warrant Expiration Date"). A Class B Warrant may be
exercised only during the period commencing on the date such Class B Warrant is
issued (the "Class B Warrant Issuance Date"), and ending at 5:00 p.m. New York
City time on the date which is the earlier of (i) the sixth anniversary of the
Class B Warrant Issuance Date, or (ii) the date fixed for redemption of such
Class B Warrant as provided in Article VI of this Agreement (in each such case,
the "Class B Warrant Expiration Date"). (The Class A Warrant Expiration Date and
the Class B Warrant Expiration Date are referred to hereinafter collectively as
the "Expiration Date"). Each Warrant not exercised on or before the applicable
Expiration Date shall become void, and all rights thereunder and all rights in
respect thereof under this Agreement shall cease at the close of business on the
Expiration Date. The Company in its sole discretion may extend the duration of
any Warrant by extending the applicable Expiration Date upon written notice to
the holder thereof.
3.03. Exercise of Warrants.
3.03.1 A Warrant Certificate, when countersigned by the Warrant Agent,
may be exercised by the registered holder thereof by surrendering it duly
executed, at the office of the Warrant Agent, or at the office of its successor
as Warrant Agent, in the Borough of Manhattan, City and State of New York, with
the subscription form, as set forth in the Warrant Certificate and in
substantially the form of Exhibit C hereto, and by paying in full, in lawful
money of the United States, in cash, certified check or bank draft payable to
the Company, the Warrant Price for each full share of Common Stock as to which
the Warrant is exercised and any and all applicable taxes due in connection with
the exercise of the Warrant, the exchange of the Warrant for the Common Stock,
and the issuance of the Common Stock.
3.03.2 As soon as practicable after the exercise of any Warrant, the
Company shall issue to the registered holder of such Warrant a certificate or
certificates for the number of full shares of Common Stock to which he is
entitled, registered in such name or names as may be directed by him, and if
such Warrant shall not have been exercised in full, a new countersigned Warrant
for the number of shares as to which such Warrant shall not have been exercised.
In addition, as soon as practicable after the exercise of any Class A Warrant,
the Company shall issue to the registered holder of such Warrant a Warrant
Certificate representing one B Warrant for each Class A Warrant exercised,
registered in such name or names as may be directed by him, and an appropriate
entry shall be made in the Warrant Register.
3.03.3 All shares of Common Stock issued upon the proper exercise of a
Warrant in conformity with this Warrant Agreement shall be validly issued.
3.03.4 Each person in whose name any such certificate for shares of
Common Stock is issued shall for all purposes be deemed to have become the
holder of record of such shares on the date on which the Warrant was surrendered
and payment of the Warrant Price was made, irrespective of the date of delivery
of such certificate, except that, if the date of such surrender and payment is a
date when the stock transfer books of the Company are closed, such person shall
be deemed to have become the holder of such shares at the close of business on
the next succeeding date on which the stock transfer books are open.
3.04. Disposition of Proceeds. Upon the exercise of any Warrant, the
Warrant Agent shall promptly forward all funds received by it for the purchase
of Warrant Shares to the Company.
<PAGE>
ARTICLE IV
Adjustments
4.01. Stock Dividends--Split-Ups. If after the date hereof the number
of outstanding shares of Common Stock is increased by a stock dividend payable
in shares of Common Stock or by a split-up of shares of Common Stock or other
similar event, or the number of outstanding shares of Common Stock is decreased
by a consolidation, combination or reclassification of shares of Common Stock,
reverse stock split or other similar event, then, on the date following the date
fixed for the determination of holders of Common Stock entitled to receive such
stock dividend, or whom are affected by such split-up, consolidation,
combination, reclassification or other similar event, the Warrant Price in
effect immediately after the record date of such dividend or distribution or the
effective date of any such subdivision, combination or reclassification shall be
proportionately adjusted so that the Holder of any Warrant exercised after such
time shall be entitled to receive the aggregate number of shares which, if such
Warrant had been exercised prior to any such event, the registered holder would
have owned upon such exercise and would have been entitled to receive by virtue
of such event. Such adjustment shall be made successively whenever any such
event specified above shall occur.
4.02. Adjustment to Number of Shares. Upon each adjustment of the
Warrant Price pursuant to Section 4.01, each Warrant shall thereupon evidence
the right to purchase that number of shares of Common Stock (calculated to the
nearest hundredth of a share) obtained by multiplying the number of shares of
Common Stock purchasable immediately prior to such adjustment upon exercise of
the Warrant by the Warrant Price in effect immediately prior to such adjustment
and dividing the product so obtained by the Warrant Price in effect immediately
after such adjustment.
4.03. Reorganization, etc. If after the date hereof any capital
reorganization or reclassification (other than pursuant to Section 4.01 hereof)
of the Common Stock of the Company, or consolidation or merger of the Company
with another corporation (other than a consolidation or merger in which the
Company is the continuing corporation and which does not result in any
reclassification of the outstanding shares of Common Stock or the conversion or
exchange of such outstanding shares into shares of other stock or other
securities or property), or the sale of all or substantially all of its assets
to another corporation or other similar event shall be effected, then, as a
condition of such reorganization, reclassification, consolidation, merger, or
sale, lawful and fair provision shall be made whereby the Warrant holders shall
thereafter have the right to purchase and receive upon the basis and upon the
terms and conditions specified in the Warrants and in lieu of the shares of
Common Stock of the Company immediately theretofore purchasable and receivable
upon the exercise of the rights represented thereby, such shares of stock,
securities, or assets as may be issuable or payable with respect to or in
exchange for the number of shares of Common Stock purchasable and receivable
upon the exercise of the Warrants had such exercise occurred in full prior to
such reorganization, reclassification, consolidation, merger, or sale. In such
event appropriate provision shall be made with respect to the rights and
interests of the Warrant Holders to the end that the provisions hereof
(including, without limitation, provisions for adjustments of the Warrant Price
and of the number of shares purchasable upon the exercise of the Warrants) shall
thereafter be applicable, as nearly as may be in relation to any share of stock,
securities, or assets thereafter deliverable upon the exercise hereof. The
Company shall not effect any such consolidation, merger, or sale unless prior to
the consummation thereof the successor corporation (if other than the Company)
resulting from such consolidation or merger, or the corporation purchasing such
assets, shall assume by written instrument executed and delivered to the Warrant
Agent the obligation to deliver to the Warrant Holders such shares of stock,
securities, or assets as, in accordance with the foregoing provision, such
Holders may be entitled to purchase. In the event of sale or conveyance or other
transfer of all or substantially all of the assets of the Company as a part of a
plan for total liquidation of the Company, all rights to exercise any Warrant
shall terminate 30 days after the Company gives notice to each Holder that such
sale or conveyance or other transfer has been consummated.
4.04. Notices of Changes in Warrant. Upon every adjustment of the
Warrant Price or the number of shares issuable on exercise of a Warrant, the
Company shall give notice thereof to the Warrant Agent, which notice shall state
the Warrant Price resulting from such adjustment and the increase or decrease,
if any, in the number of shares purchasable at such price upon the exercise of a
Warrant, setting forth in reasonable detail the method of calculation and the
facts upon which such calculation is based. The Company shall promptly cause a
similar notice to be mailed to each Holder of Warrants. Upon the occurrence of
any event above specified in this Article IV, the Company shall give notice to
the Warrant Agent and each Holder of the record date for such dividend,
distribution, or subscription rights, or the effective date of such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation, winding up or issuance. Such notice shall also specify the date as
of which the holders of Common Stock of record shall participate in such
dividend, distribution, or subscription rights, or shall be entitled to exchange
their Common Stock for stock, securities, or other assets deliverable upon such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation, winding up or issuance. Failure to give such notice, or any defect
therein shall not affect the legality or validity of such event.
4.05. No Fractional Shares. Notwithstanding any provision contained in
this Agreement to the contrary, the Company shall not issue fractional shares
upon exercise of Warrants. If, by reason of any adjustment made pursuant to this
Article IV, the holder of any Warrant would be entitled, upon the exercise of
such Warrant, to receive a fractional interest in a share, the Company shall,
upon such exercise, purchase such fractional interest for an amount in cash
equal to the current market value of such fractional interest, determined as
follows:
4.05.1. If the Common Stock is listed on a national securities exchange
or admitted to unlisted trading privileges on such exchange, the current value
shall be the last reported sale price regular way of the Common Stock on such
exchange. If the Common Stock is not listed on a national securities exchange or
admitted to unlisted trading privileges on such exchange but is listed for
trading on the NASDAQ Automated Quotation System, the current value shall be the
closing bid quotation on NASDAQ on the last business day prior to the date of
exercise of the Warrant.
4.05.2. If the Common Stock is not listed or admitted as above
described, the current value shall be the mean of the last reported bid and
asked prices reported by first, the OTC Bulletin Board, or if the Common Stock
is not listed or admitted for trading on the OTC Bulletin Board, second, the
National Quotation Bureau, Inc. on the last business day prior to the date of
the exercise of the Warrant.
4.05.3. If the Common Stock is not so listed or admitted as above
described and bid and asked prices are not so last reported, the current value
shall be an amount determined in such reasonable manner as may be prescribed by
the Board of Directors of the Company.
4.06. Form of Warrant. The form of Warrant need not be changed because
of any adjustment pursuant to this Article IV or Article IX hereof, and Warrants
issued after such adjustment may state the same Warrant Price and the same
number of shares as is stated in the Warrants initially issued pursuant to this
Agreement. However, the Company may at any time in its sole discretion make any
change in the form of Warrant that the Company may believe appropriate and that
does not affect the substance thereof, and any Warrant thereafter issued or
countersigned, whether in exchange or substitution for an outstanding Warrant or
otherwise, may be in the form as so changed.
4.07. Limitations. No adjustment of the Warrant Price shall be made as
a result of or in connection with (i) the issuance of Common Stock pursuant to
options, warrants, and stock purchase agreements outstanding or in effect on the
date hereof, (ii) the issuance of Common Stock in connection with the conversion
of any other securities of the Company currently issued and outstanding or
hereafter issued, or (iii) any other circumstances other than those set forth in
Section 4.01 hereof.
ARTICLE V
Transfer and Exchange of Warrants
5.01. Registration Procedure. The Warrant Certificates shall be
transferable only on the books of the Company maintained at the principal office
of the Warrant Agent in New York, New York upon delivery thereof duly endorsed
by the registered holder or to his order, or duly authorized attorney or
representative, accompanied by proper evidence of succession, assignment or
authority to transfer, which endorsement shall be guaranteed by an eligible
guarantor institution. These institutions (commercial banks, member firms of a
national securities exchange, savings and loans and thrifts) qualify as long as
the guarantor is a member of The Securities Transfer Association Medallion
Program or any other industry recognized program. In all cases of transfer by an
attorney-in-fact, the original power of attorney, duly approved, or a copy
thereof, duly certified, by such attorney-in-fact, shall be deposited and remain
with the Warrant Agent. In case of transfer of executors, administrators,
guardians or other legal representatives, duly authenticated evidence of their
authority shall be produced, and may be required to be deposited and remain with
the Warrant Agent in its discretion. Upon any such transfer, a new Warrant
Certificate representing an equal aggregate number of Warrants so transferred
shall be issued, a new Warrant Certificate representing the balance of the
Warrants not so transferred shall be issued, and the original Warrant
Certificate which is the subject of such transfers shall be canceled by the
Warrant Agent. The Warrant Certificate so canceled shall be delivered by the
Warrant Agent to the Company upon request.
5.02. Cancellation and Surrender. Warrant Certificates may be
surrendered to the Warrant Agent together with a request for exchange, and
thereupon the Warrant Agent shall issue in exchange therefor one or more new
Warrant Certificates as requested by the registered holder of the Warrants so
surrendered, representing an equal aggregate number of Warrants. In the event
that a Warrant Certificate surrendered for transfer bears a restrictive legend,
the Warrant Agent shall not cancel such Warrant Certificate and issue a new
Warrant Certificate in exchange therefor until the Warrant Agent has received an
opinion of counsel for the Company stating that such transfer may be made and
indicating whether the new Warrants must also bear a restrictive legend. The
Warrant Agent shall not be required to effect any registration of transfer or
exchange which will result in the issuance of a Warrant Certificate for a
fraction of a Warrant.
5.02.1. No service charge shall be made for any exchange or
registration of transfer of Warrants.
5.02.2. The Warrant Agent is hereby authorized to countersign and to
deliver, in accordance with the terms of this Agreement, the Warrant
Certificates required to be issued pursuant to the provisions hereof, and the
Company, whenever required by the Warrant Agent, will supply the Warrant Agent
with Warrant Certificates duly executed on behalf of the Company for such
purpose.
ARTICLE VI
Redemption
6.01. Redemption. Any Warrant may be redeemed prior to its Expiration
Date, at the option of the Company, as a whole at any time or in part from time
to time, by lot, in any proportion as the Company in its sole discretion shall
determine, at the office of the Warrant Agent, upon notice as below provided, at
the price of $.01 per Warrant (the "Warrant Redemption Price"), provided, (i)
the closing bid quotation of the Common Stock as quoted by the National
Association of Securities Dealers Automated Quotation System; (ii) the last
reported sale price, regular way, or if no such reported sale has occurred on
any such day, the average of the closing bid and asked prices, regular way, on
the principal national securities exchange on which the Common Stock is listed
or admitted to trading, or (iii) if not so quoted or reported, the average of
the bid and asked prices as furnished by two members of the NASD selected for
that purpose, in any such case, has been at least $1.25 (in the case of a Class
A Warrant) and $1.75 (in the case of a Class B Warrant), on each of the ten (10)
consecutive trading days ending on the third (3rd) day prior to the day on which
notice is given (the "Closing Price").
6.02. Date Fixed for, and Notice of, Redemption. In the event the
Company shall elect to redeem all or any part of the Warrants, the Company shall
fix a date for the redemption (the "Redemption Date") not more than sixty (60)
days and not less than thirty (30) days following the date upon which notice is
given to the registered holders of the Warrants to be redeemed, at their
respective addresses then appearing on the registration books. Nothing herein
shall limit the rights of registered holders to exercise the Warrants in
accordance with Article III of this Agreement at any time prior to the date
fixed for redemption. Written notice by first class mail shall be given by the
Company to all Holders of Warrant Certificates to be redeemed not more than
sixty (60) days and not less than thirty (30) days prior to the Redemption Date.
Each such notice of redemption will specify the Redemption Date and the
Redemption Price. The notice will state that payment of the Redemption Price
will be made by the Warrant Agent upon presentation and surrender of the Warrant
Certificates representing such Warrants to the Warrant Agent at its principal
office, and will also state that the right to exercise the Warrants will
terminate at 5:00 p.m., New York City time, on the Redemption Date. Failure to
mail the notice of redemption to any Holder or any defect therein, however,
shall not affect the validity of the redemption of the remaining Warrants. The
Company will also make prompt public announcement of such redemption by news
release.
6.03. Payment of Redemption Price. On or prior to the opening of
business on the Redemption Date (as defined in Section 6.01 hereof), the Company
shall deposit with the Warrant Agent funds in form satisfactory to the Warrant
Agent sufficient to purchase all the Warrants which are to be redeemed. Payment
of the Redemption Price shall be made by the Warrant Agent upon presentation and
surrender of the Warrant Certificates representing such Warrants to the Warrant
Agent at its principal office.
ARTICLE VII
Other Provisions Relating to
Rights of Holders of Warrants
7.01. No Rights as Stockholder Conferred by Warrants. A Warrant does
not entitle the registered holder thereof to any of the rights of a stockholder
of the Company, including, without limitation, the right to receive dividends or
other distributions, exercise any preemptive rights to vote or to consent or to
receive notice as shareholders in respect of the meetings of shareholders or the
election of directors of the Company or any other matter.
7.02. Lost, Stolen, Mutilated, or Destroyed Warrants. If any Warrant is
lost, stolen, mutilated, or destroyed, the Company and the Warrant Agent may on
such terms as to indemnity or otherwise as the Company may in its discretion
impose (which shall, in the case of a mutilated Warrant Certificate, include the
surrender thereof), issue a new Warrant Certificate of like denomination, tenor,
and date as the Warrant so lost, stolen, mutilated, or destroyed. Any such new
Warrant Certificate shall constitute an original contractual obligation of the
Company, whether or not the allegedly lost, stolen, mutilated, or destroyed
Warrant shall be at any time enforceable by anyone.
7.03. Reservation of Common Stock. The Company shall at all times
reserve and keep available a number of its authorized but unissued shares of
Common Stock that will be sufficient to permit the exercise in full of all
outstanding Warrants covered by this Agreement.
7.04 Registration of Common Stock. Prior to the commencement of the
Class A Warrant Exercise Period, the Company shall have the Registration
Statement on file with the Securities and Exchange Commission for the
registration of the Common Stock issuable upon exercise of the Warrants, and
shall use good faith efforts with due diligence to maintain such Registration
Statement current, until the expiration of the Warrants in accordance with the
provisions of this Agreement, whether by filing an appropriate post-effective
amendment thereto or otherwise.
ARTICLE VIII
Concerning the Warrant Agent and Other Matters
8.01. Payment of Taxes. The Company will from time to time pay on or
before the due date therefor, all taxes and charges that may be imposed upon the
Company or the Warrant Agent in respect of the issuance or delivery of shares of
Common Stock upon the exercise of Warrants, but the Company shall not be
obligated to pay any transfer taxes in respect of the Warrants or such shares.
8.02. Resignation, Consolidation, or Merger of Warrant Agent.
8.02.1. The Warrant Agent, or any successor to it hereafter appointed,
may resign its duties and be discharged from all further duties and liabilities
hereunder after giving sixty (60) days' notice to the Company. If the office of
the Warrant Agent becomes vacant by resignation or incapacity to act or
otherwise, the Company shall appoint in writing a successor Warrant Agent in
place of the Warrant Agent. If the Company shall fail to make such appointment
within a period of thirty (30) days after receiving notification of such
resignation or incapacity by the Warrant Agent or by the holder of a Warrant
(who shall, with such notice, submit his Warrant for inspection by the Company),
then the holder of any Warrant may apply to the Supreme Court of the State of
New York for the County of New York for the appointment of a successor Warrant
Agent.
8.02.2. Any successor Warrant Agent, whether appointed by the Company
or by such court, shall be a corporation organized and existing under the laws
of the State of New York, in good standing and having its principal office in
the Borough of Manhattan, City and State of New York, and authorized under such
laws to exercise corporate trust powers and subject to supervision or
examination by Federal or state authority. After appointment, any successor
Warrant Agent shall be vested with all the authority, powers, rights,
immunities, duties, and obligations of its predecessor Warrant Agent with like
effect as if originally named as Warrant Agent hereunder, without any further
act or deed. The predecessor Warrant Agent shall execute and deliver, at the
expense of the Company, an instrument transferring to such successor Warrant
Agent all the authority, powers, and rights of such predecessor Warrant Agent
hereunder and the successor Warrant Agent shall execute and deliver an
instrument accepting the same. Upon request of any successor Warrant Agent, the
Company and the predecessor Warrant Agent shall make, execute, acknowledge, and
deliver any and all instruments in writing in order to more fully and
effectually vest in and confirm to such successor Warrant Agent all such
authority, powers, rights, immunities, duties, and obligations.
8.02.3. In the event a successor Warrant Agent shall be appointed, the
Company shall give notice thereof to the predecessor Warrant Agent and the
Transfer Agent for the Common Stock not later than the effective date of any
such appointment.
8.02.4. Any corporation into which the Warrant Agent may be merged or
with which it may be consolidated or any corporation resulting from any merger
or consolidation to which the Warrant Agent shall be a party may be the
successor Warrant Agent under this Agreement upon delivery to the Company of an
agreement whereby such successor shall assume all obligations of the Warrant
Agent hereunder.
8.03. Fees and Expenses of Warrant Agent.
8.03.1 The Company shall pay the Warrant Agent reasonable remuneration
for its services as such Warrant Agent hereunder and will promptly reimburse the
Warrant Agent for all expenditures that the Warrant Agent may reasonably incur
in the execution of its duties hereunder.
8.03.2 The Company agrees to perform, execute, acknowledge, and deliver
or cause to be performed, executed, acknowledged, and delivered all such further
and other acts, instruments, and assurances as may reasonably be required by the
Warrant Agent for the carrying out or performing of the provisions of this
Agreement.
8.04. Liability of Warrant Agent.
8.04.1 Whenever in the performance of its duties under this Agreement
the Warrant Agent shall believe it necessary or desirable that any fact or
matter be proved or established by the Company prior to taking or suffering any
action hereunder, such fact or matter (unless other evidence in respect thereof
be herein specifically prescribed) may be deemed to be conclusively proved and
established by a statement signed by the President of the Company and delivered
to the Warrant Agent. The Warrant Agent may rely upon such statement for any
action taken or suffered in good faith by it pursuant to the provisions of this
Agreement.
8.04.2 The Warrant Agent shall be liable hereunder only for its own
gross negligence, bad faith or willful misconduct. The Company agrees to
indemnify the Warrant Agent and save it harmless against any and all
liabilities, including judgments, costs and reasonable counsel fees, for
anything done or omitted by the Warrant Agent in the execution of this Agreement
except as a result of the Warrant Agent's gross negligence, willful misconduct,
or bad faith.
8.04.3 The Warrant Agent shall have no responsibility with respect to
the validity of this Agreement or with respect to the validity or execution of
any Warrant (except its countersignature thereof), nor shall it be responsible
for any breach by the Company of any covenant or condition contained in this
Agreement or in any Warrant. The Warrant Agent shall not be responsible to make
any adjustments required under the provisions of Article IV or responsible for
the manner, method, or amount of any such adjustment or the ascertaining of the
existence of facts that would require any such adjustment, nor shall it by any
act hereunder be deemed to make any representation or warranty as to the
authorization or reservation of any shares of Common Stock to be issued pursuant
to this Agreement or any Warrant or as to whether any shares of Common Stock
will when issued be validly issued and fully paid and nonassessable.
8.05. Acceptance of Agency. The Warrant Agent hereby accepts the agency
established by this Agreement and agrees to perform the same upon the terms and
conditions herein set forth and among other things, shall account promptly to
the Company with respect to Warrants exercised and concurrently account for, and
remit to the Company, all moneys received by the Warrant Agent for the purchase
of shares of the Company's Common Stock through the exercise of Warrants.
8.06. Purchase of Warrants by the Company. The Company shall have the
right, except as limited by law, other agreement or herein, to purchase or
otherwise acquire Warrants at such times, in such manner and for such
consideration as it may believe appropriate.
ARTICLE IX
Miscellaneous Provisions
9.01. Successors. All the covenants and provisions of this Agreement by
or for the benefit of the Company or the Warrant Agent shall bind and inure to
the benefit of their respective successors and permitted assigns.
9.02. Notices. Any notice, statement or demand or other communication
authorized or permitted by this Agreement shall be in writing and signed and
shall be deemed given or made as and when sent by registered or certified mail,
postage prepaid addressed to the parties at their above addresses or such other
address as a party may hereafter specify in the manner for the giving of notice
herein.
9.03. Applicable Law: Amendment. The validity, interpretation, and
performance of this Agreement and of the Warrants shall be governed in all
respects by the laws of the State of New York, without regard to its conflicts
of laws principles. This Agreement and the Warrants may be amended only in
writing. The Warrant Agent may, without the consent or concurrence of any
Holder, by supplemental agreement or otherwise, join with the Company in making
any changes or corrections in this Agreement that they shall reasonably believe
(i) are required to cure any ambiguity or to correct any defective or
inconsistent provision or clerical omission or mistake or manifest error herein
contained; (ii) add to the covenants and agreements of the Company or the
Warrant Agent in this Agreement such further covenants and agreements thereafter
to be observed, or (iii) result in the surrender of any right or power reserved
to or conferred upon the Company or the Warrant Agent in this Agreement, but
which changes or corrections do not or will not adversely affect, alter or
change the rights, privileges or immunities of the Holders of Warrant
Certificates.
9.04. Persons having rights under this Agreement. Nothing in this
Agreement expressed and nothing that may be implied from any of the provisions
hereof is intended, or shall be construed, to confer upon, or give to, any
person or corporation other than the parties hereto and the registered holders
of the Warrants any right, remedy, or claim under or by reasons of this
Agreement or of any covenant, condition, stipulation, promise, or agreement
hereof. All covenants, conditions, stipulations, promises, and agreements
contained in this Agreement shall be for the sole and exclusive benefit of the
parties hereto and their successors and assigns and of the registered holder of
the Warrants.
9.05. Examination of Warrant Agreement. A copy of this Agreement shall
be available at all reasonable times at the office of the Warrant Agent in the
Borough of Manhattan, City and State of New York, for inspection by the
registered holder of any Warrant. The Warrant Agent may require any such holder
to submit his Warrant for inspection by it.
9.06. Counterparts. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and all such counterparts shall together constitute but one and
the same instrument.
9.07. Effect of Headings. The Article and Section headings herein are
for convenience only and are not part of this Agreement and shall not affect the
interpretation thereof.
IN WITNESS WHEREOF, this Agreement has been duly executed by the
parties hereto under their respective corporate seals as of the day and year
first above written.
GRIFFIN GOLD GROUP, INC.
By: ______________________________________
Richard W. Lancaster, President
CONTINENTAL STOCK TRANSFER
& TRUST COMPANY
By: ______________________________________
Name: ___________________________________
Title: ____________________________________
<PAGE>
Exhibit A
[FORM OF CLASS A WARRANT CERTIFICATE]
No.
CERTIFICATE FOR ____________ CLASS A WARRANTS
NOT EXERCISABLE BEFORE 9:30 A.M., NEW
YORK CITY TIME, ON _______________ _____, 1997 OR
AFTER 5:00 P.M., NEW YORK CITY TIME, ON
_______________ _____, 2001
GRIFFIN GOLD GROUP, INC.
COMMON STOCK PURCHASE WARRANT CERTIFICATE
THIS CERTIFIES that __________________________________________________
or registered assigns is the registered holder (the "Registered Holder") of the
number of Class A Warrants set forth above, each of which represents the right
to purchase one fully paid and nonassessable share of Common Stock, par value
$.01 per share (the "Common Stock"), of Griffin Gold Group, Inc., a Delaware
corporation (the "Company"), at the initial exercise price (the "Warrant Price")
of $1.00 at any time after the shares of Common Stock issuable upon exercise of
the Warrants evidenced hereby have been registered under the Securities Act of
1933, as amended, or such other action as may be required by Federal or state
law relating to the issuance or distribution of securities shall have been
taken, but not after the Expiration Date hereinafter referred to, by
surrendering this Warrant Certificate, with the form of election to purchase set
forth hereon duly executed with signatures guaranteed as provided below, at the
office maintained pursuant to the Warrant Agreement hereinafter referred to for
that purpose by Continental Stock and Transfer & Trust Company, or its successor
as warrant agent (any such warrant agent being herein called the "Warrant
Agent"), and by paying in full the Warrant Price, plus transfer taxes, if any.
Payment of the Warrant Price shall be made in United States currency, by
certified check or money order payable to the order of the Company.
Upon certain events provided for in the Warrant Agreement, the Warrant
Price and the number of shares of Common Stock issuable upon the exercise of
each Warrant are required to be adjusted.
The Warrants, or any portion thereof, are subject to call for
redemption by the Company at a call price of $0.01 per Warrant, upon no more
than sixty (60) days and no less than thirty (30) days notice to the Registered
Holders, provided that the "Closing Price" (as defined in the Warrant Agreement)
per share of the Common Stock shall have been greater than or equal to $1.25 for
a period of 10 consecutive trading days ending on the third day prior to the
date that the notice of such call (the "Call Notice") is given by the Company to
the Warrant Agent and subject to certain other conditions.
No Warrant may be exercised after 5:00 P.M., New York City time, on
the expiration date (the "Expiration Date") which will be the earlier of (i)
_______________ _____, 2001 or (ii) the close of business on the Redemption
Date. After the Expiration Date, all Warrants evidenced hereby shall thereafter
become void.
Prior to the Expiration Date, subject to any applicable laws, rules,
or regulations restricting transferability and to any restriction on
transferability that may appear on this Warrant Certificate in accordance with
the terms of the Warrant Agreement hereinafter referred to, the Registered
Holder shall be entitled to transfer this Warrant Certificate in whole or in
part upon surrender of this Warrant Certificate at the office of the Warrant
Agent maintained for that purpose with the form of assignment set forth hereon
duly executed, with signatures guaranteed by an eligible guarantor institution.
These institutions (commercial banks, member firms of a national securities
exchange, savings and loans and thrifts) qualify as long as the guarantor is a
member of The Securities Transfer Association Medallion Program or any other
industry recognized program. Upon any such transfer, a new Warrant Certificate
or Warrant Certificates representing the same aggregate number of Warrants will
be issued in accordance with instructions in the form of assignment.
Upon the exercise of less than all of the Warrants evidenced by this
Warrant Certificate, there shall be issued to the Registered Holder a new
Warrant Certificate in respect of the Warrants not exercised.
Prior to the Expiration Date, the Registered Holder shall be entitled
to exchange this Warrant Certificate, with or without other Warrant
Certificates, for another Warrant Certificate or Warrant Certificates for the
same aggregate number of Warrants, upon surrender of this Warrant Certificate at
the office maintained for such purpose by the Warrant Agent.
No fractional shares will be issued upon the exercise of Warrants. As
to any final fraction of a share which the registered holder of one or more
Warrant Certificates, the rights under which are exercised in the same
transaction, would otherwise be entitled to purchase upon such exercise, the
Company shall pay the cash value thereof determined as provided in the Warrant
Agreement.
This Warrant Certificate is issued under and in accordance with a
Warrant Agreement between the Company and the Warrant Agent (the "Warrant
Agreement") and is subject to the terms and provisions contained in said Warrant
Agreement, to all of which terms and provisions the Registered Holder consents
by acceptance hereof.
This Warrant Certificate shall not entitle the Registered Holder to
any of the rights of a stockholder of the Company, including, without
limitation, the right to vote, to receive dividends and other distributions, or
to attend or receive any notice of meetings of stockholders or any other
proceedings of the Company.
This Warrant Certificate shall not be valid for any purpose until it
shall have been countersigned by the Warrant Agent.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed under its facsimile corporate seal.
GRIFFIN GOLD GROUP, INC.
By: ______________________________________
Richard W. Lancaster, President
[SEAL] Attest:
---------------------------
Su J. Lee, Secretary
Countersigned: CONTINENTAL STOCK TRANSFER
& TRUST COMPANY, as Warrant Agent
Dated: By: _________________________________
Authorized Officer
<PAGE>
Exhibit B
[FORM OF CLASS B WARRANT CERTIFICATE]
No.
CERTIFICATE FOR _____________ CLASS B WARRANTS
DATED: _______________________ ______, __________
NOT EXERCISABLE AFTER 5:00 P.M.,
NEW YORK CITY TIME, ON
_________________________ _____, 2004
GRIFFIN GOLD GROUP, INC.
COMMON STOCK PURCHASE WARRANT CERTIFICATE
THIS CERTIFIES that __________________________________________________
or registered assigns is the registered holder (the "Registered Holder") of the
number of Class B Warrants set forth above, each of which represents the right
to purchase one fully paid and nonassessable share of Common Stock, par value
$.01 per share (the "Common Stock"), of Griffin Gold Group, Inc., a Delaware
corporation (the "Company"), at the initial exercise price (the "Warrant Price")
of $1.50 at any time after this Warrant Certificate has been issued, but not
after the Expiration Date hereinafter referred to, by surrendering this Warrant
Certificate, with the form of election to purchase set forth hereon duly
executed with signatures guaranteed as provided below, at the office maintained
pursuant to the Warrant Agreement hereinafter referred to for that purpose by
Continental Stock and Transfer & Trust Company, or its successor as warrant
agent (any such warrant agent being herein called the "Warrant Agent"), and by
paying in full the Warrant Price, plus transfer taxes, if any. Payment of the
Warrant Price shall be made in United States currency, by certified check or
money order payable to the order of the Company.
Upon certain events provided for in the Warrant Agreement, the Warrant
Price and the number of shares of Common Stock issuable upon the exercise of
each Warrant are required to be adjusted.
The Warrants, or any portion thereof, are subject to call for
redemption by the Company at a call price of $0.01 per Warrant, upon no more
than sixty (60) days and no less than thirty (30) days notice to the Registered
Holders, provided that the "Closing Price" (as defined in the Warrant Agreement)
per share of the Common Stock shall have been greater than or equal to $1.75 for
a period of 10 consecutive trading days ending on the third day prior to the
date that the notice of such call (the "Call Notice") is given by the Company to
the Warrant Agent and subject to certain other conditions.
No Warrant may be exercised after 5:00 P.M., New York City time, on
the expiration date (the "Expiration Date") which will be the earlier of (i)
__________________________ _____, 2004, or (ii) the close of business on the
Redemption Date. After the Expiration Date, all Warrants evidenced hereby shall
thereafter become void.
Prior to the Expiration Date, subject to any applicable laws, rules,
or regulations restricting transferability and to any restriction on
transferability that may appear on this Warrant Certificate in accordance with
the terms of the Warrant Agreement hereinafter referred to, the Registered
Holder shall be entitled to transfer this Warrant Certificate in whole or in
part upon surrender of this Warrant Certificate at the office of the Warrant
Agent maintained for that purpose with the form of assignment set forth hereon
duly executed, with signatures guaranteed by an eligible guarantor institution.
These institutions (commercial banks, member firms of a national securities
exchange, savings and loans and thrifts) qualify as long as the guarantor is a
member of The Securities Transfer Association Medallion Program or any other
industry recognized program. Upon any such transfer, a new Warrant Certificate
or Warrant Certificates representing the same aggregate number of Warrants will
be issued in accordance with instructions in the form of assignment.
Upon the exercise of less than all of the Warrants evidenced by this
Warrant Certificate, there shall be issued to the Registered Holder a new
Warrant Certificate in respect of the Warrants not exercised.
Prior to the Expiration Date, the Registered Holder shall be entitled
to exchange this Warrant Certificate, with or without other Warrant
Certificates, for another Warrant Certificate or Warrant Certificates for the
same aggregate number of Warrants, upon surrender of this Warrant Certificate at
the office maintained for such purpose by the Warrant Agent.
No fractional shares will be issued upon the exercise of Warrants. As
to any final fraction of a share which the registered holder of one or more
Warrant Certificates, the rights under which are exercised in the same
transaction, would otherwise be entitled to purchase upon such exercise, the
Company shall pay the cash value thereof determined as provided in the Warrant
Agreement.
This Warrant Certificate is issued under and in accordance with a
Warrant Agreement between the Company and the Warrant Agent (the "Warrant
Agreement") and is subject to the terms and provisions contained in said Warrant
Agreement, to all of which terms and provisions the Registered Holder consents
by acceptance hereof.
This Warrant Certificate shall not entitle the Registered Holder to
any of the rights of a stockholder of the Company, including, without
limitation, the right to vote, to receive dividends and other distributions, or
to attend or receive any notice of meetings of stockholders or any other
proceedings of the Company.
This Warrant Certificate shall not be valid for any purpose until it
shall have been countersigned by the Warrant Agent.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed under its facsimile corporate seal.
GRIFFIN GOLD GROUP, INC.
By: ______________________________________
Richard W. Lancaster, President
[SEAL] Attest:
------------------------------------------
Su J. Lee, Secretary
Countersigned: CONTINENTAL STOCK TRANSFER
& TRUST COMPANY, as Warrant Agent
Dated: By: ________________________________
Authorized Officer
<PAGE>
Exhibit C
[FORM OF]
ELECTION TO PURCHASE
The undersigned hereby irrevocably elects to exercise __________________
of the Warrants represented by this Warrant Certificate and to purchase the
shares of Common Stock issuable upon the exercise of said Warrants, and requests
that certificates for such shares be issued and delivered as follows:
ISSUE TO: ____________________________________________________________________
(NAME)
- ------------------------------------------------------------------------------
(ADDRESS, INCLUDING ZIP CODE)
- ------------------------------------------------------------------------------
(SOCIAL SECURITY OR OTHER TAX IDENTIFICATION NUMBER)
DELIVER TO: ________________________________________________________________
(NAME)
at ____________________________________________________________________________
(ADDRESS, INCLUDING ZIP CODE)
If the number of Warrants hereby exercised is less than all the Warrants
represented by this Warrant Certificate, the undersigned requests that a new
Warrant Certificate representing the number of full Warrants not exercised be
issued and delivered as set forth below.
In full payment of the purchase price with respect to the Warrants
exercised and transfer taxes, if any, the undersigned hereby tenders payment of
$__________________ by certified check or money order payable in United States
currency to the order of the Company.
Dated _________________________ ______, _____________
Name of Warrant Holder: ________________________________________________________
Address: ______________________________________________________________________
Signature: _____________________________________________________________________
<PAGE>
[FORM OF]
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers
unto the Assignee named below all of the rights of the undersigned represented
by the within Warrant Certificate, with respect to the number of Warrants set
forth below:
Name of Assignee: ______________________________________________________________
Address: ______________________________________________________________________
No. of Warrants: _______________________________________________________________
and does hereby irrevocably constitute and appoint
____________________________________ Attorney to make such transfer on the books
of Griffin Gold Group, Inc. maintained for that purpose, with full power of
substitution in the premises.
Dated: __________________________ _____, ____________.
Signature: ______________________________________________________________
SIGNATURE(S) GUARANTEED
By: _____________________________________________________________________
Signature:___________________
NOTICE: The signature(s) on this assignment must correspond with the name(s) as
written upon the face of the Certificate, in every particular, without
alteration or enlargement or any change whatever.
EXHIBIT 4.03 WARRANT ISSUED TO LS CAPITAL CORPORATION
THIS WARRANT AND THE SHARES OF COMMON STOCK THAT MAY BE PURCHASED ON THE
EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAWS (ACTS). THIS WARRANT AND THE SHARES OF
COMMON STOCK THAT MAY BE PURCHASED ON THE EXERCISE HEREOF ARE BEING OFFERED AND
SOLD FOR INVESTMENT. EXCEPT AS PROVIDED IN SECTION 7(b) HEREOF, THIS WARRANT MAY
NOT BE TRANSFERRED. THE SHARES OF COMMON STOCK ISSUED OR ISSUABLE UPON EXERCISE
OF THIS WARRANT ARE SUBJECT TO THE RESTRICTIONS ON TRANSFER SET FORTH IN SECTION
4 OF THIS WARRANT.
GRIFFIN GOLD GROUP, INC.
WARRANT FOR THE PURCHASE OF
SHARES OF COMMON STOCK OF
GRIFFIN GOLD GROUP, INC.
(A Delaware Corporation)
VOID AFTER 5:00 P.M., CENTRAL STANDARD TIME,
ON MAY 31, 2003
Griffin Gold Group, Inc., a Delaware corporation (the "Company") hereby
certifies that LS Capital Corporation, a Delaware corporation (together with its
permitted assigns, the "Registered Holder"), is entitled, subject to the terms
set forth below, to purchase from the Company, at any time or from time to time
on or after June 1, 1997 and on or before the earlier of May 31, 2003 at not
later than 5:00 p.m. (Central Standard Time), 750,000 shares of Common Stock,
$.01 par value, of the Company ("Common Stock"), at a purchase price of $1.00
per share. The number of shares purchasable upon exercise of this Warrant, and
the purchase price per share, each as adjusted from time to time pursuant to the
provisions of this Warrant, are hereinafter referred to as the "Warrant Stock"
and the "Purchase Price", respectively.
1. Exercise.
(a) This Warrant may be exercised by the Registered Holder, in whole or
in part, by surrendering this Warrant, with the purchase form appended hereto as
Exhibit A duly executed by such Registered Holder, at the principal office of
the Company, or at such other office or agency as the Company may designate,
accompanied by payment in full, by bank or certified check in lawful money of
the United States, of the Purchase Price payable in respect of the number of
shares of Warrant Stock purchased upon such exercise, or in lieu of such cash
payment, the Registered Holder may elect to reduce the amount of indebtedness
owed by the Company to the Registered Holder by the amount of such Purchase
Price.
(b) Each exercise of this Warrant shall be deemed to have been effected
immediately prior to the close of business on the day on which this Warrant
shall have been surrendered to the Company as provided in subsection 1(a) above.
At such time, the person or persons in whose name or names any certificates for
Warrant Stock shall be issuable upon such exercise as provided in subsection
1(c) below shall be deemed to have become the holder or holders of record of the
Warrant Stock represented by such certificates.
(c) As soon as practicable after the exercise of this Warrant in full
or in part, and in any event within ten (10) days thereafter, the Company at its
expense will cause to be issued in the name of, and delivered to, the Registered
Holder, or, subject to the terms and conditions hereof, as the Registered Holder
(upon payment by the Registered Holder of any applicable transfer taxes) may
direct:
(i) a certificate or certificates for the number of full
shares of Warrant Stock to which such Registered Holder shall be entitled upon
such exercise plus, in lieu of any fractional share to which such Registered
Holder would otherwise be entitled, cash in an amount determined pursuant to
Section 3 hereof, and
(ii) in case such exercise is in part only, a new warrant or
warrants (dated the date hereof) of like tenor, calling in the aggregate on the
face or faces thereof for the number of shares of Warrant Stock equal (without
giving effect to any adjustment therein) to the number of such shares called for
on the face of this Warrant minus the number of such shares purchased by the
Registered Holder upon such exercise as provided in subsection 1(a) above.
2. Adjustments.
(a) If the outstanding shares of the Company's Common Stock shall be
subdivided into a greater number of shares or a dividend in Common Stock shall
be paid in respect of Common Stock, the Purchase Price in effect immediately
prior to such subdivision or at the record date of such dividend shall
simultaneously with the effectiveness of such subdivision or immediately after
the record date of such dividend be proportionately reduced. If the outstanding
shares of Common Stock shall be combined into a smaller number of shares, the
Purchase Price in effect immediately prior to such combination shall,
simultaneously with the effectiveness of such combination, be proportionately
increased. When any adjustment is required to be made in the Purchase Price, the
number of shares of Warrant Stock purchasable upon the exercise of this Warrant
shall be changed to the number determined by dividing (i) an amount equal to the
number of shares issuable upon the exercise of this Warrant immediately prior to
such adjustment, multiplied by the Purchase Price in effect immediately prior to
such adjustment, by (ii) the Purchase Price in effect immediately after such
adjustment.
(b) If there shall occur any capital reorganization or reclassification
of the Company's Common Stock (other than a change in par value or a subdivision
or combination as provided for in subsection 2(a) above), or any consolidation
or merger of the Company with or into another corporation, or a transfer of all
or substantially all of the assets of the Company, or the payment of a
liquidating distribution then, as part of any such reorganization,
reclassification, consolidation, merger, sale or liquidating distribution,
lawful provision shall be made so that the Registered Holder of this Warrant
shall have the right thereafter to receive upon the exercise hereof (to the
extent, if any, still exercisable) the kind and amount of shares of stock or
other securities or property which such Registered Holder would have been
entitled to receive if, immediately prior to any such reorganization,
reclassification, consolidation, merger, sale or liquidating distribution, as
the case may be, such Registered Holder had held the number of shares of Common
Stock which were then purchasable upon the exercise of this Warrant. In any such
case, appropriate adjustment (as reasonably determined by the Board of Directors
of the Company) shall be made in the application of the provisions set forth
herein with respect to the rights and interests thereafter of the Registered
Holder of this Warrant such that the provisions set forth in this Section 2
(including provisions with respect to adjustment of the Purchase Price) shall
thereafter be applicable, as nearly as is reasonably practicable, in relation to
any shares of stock or other securities or property thereafter deliverable upon
the exercise of this Warrant.
(c) In any case in which this Section 2 shall require that any
adjustment in the number of shares of Warrant Stock or other property for which
this Warrant may be exercised be made effective as of a record date for a
specified event, the Company may elect to defer until the occurrence of such
event issuing to the Registered Holder the amount of Warrant Stock and other
property, if any, issuable upon exercise of this Warrant after such record date
that is over and above the Warrant Stock and other property, if any, issuable
upon exercise of this Warrant as in effect prior to such adjustment; provided
that upon request the Company shall deliver to the Registered Holder a due bill
or other appropriate instrument evidencing the Registered Holder's right to
receive such additional shares or property upon the occurrence of the event
requiring such adjustment.
(d) When any adjustment is required to be made in the Purchase Price,
the Company shall promptly mail to the Registered Holder a certificate setting
forth the Purchase Price after such adjustment and setting forth a brief
statement of the facts requiring such adjustment. Such certificate shall also
set forth the kind and amount of stock or other securities or property for which
this Warrant shall be exercisable following the occurrence of any of the events
specified in subsection 2(a) or 2(b) above.
3. Fractional Shares.
The Company shall not be required upon the exercise of this Warrant to
issue any fractional shares, but shall make an adjustment therefor in cash on
the basis of the mean between the low bid and high asked prices of the Warrant
Stock on the OTC Bulletin Board, or the mean between the low bid and high asked
prices of the Warrant Stock on the over-the-counter market as reported by the
National Association of Securities Dealers Automated Quotations ("NASDAQ")
System or the closing market price of the Warrant Stock on a national securities
exchange on the trading day immediately prior to the date of exercise, whichever
is applicable, or if none is applicable, then on the basis of the then market
value of the Warrant Stock as shall be reasonably determined by the Board of
Directors of the Company.
4. Limitation on Sales.
(a) The Registered Holder, and each subsequent holder of this Warrant,
if any, agrees not to sell, pledge, distribute, offer for sale, transfer or
otherwise dispose of this Warrant or any Warrant Stock issued upon its exercise
in the absence of (i) an effective registration statement under the Securities
Act of 1933, as now in force or hereafter amended, or any successor legislation
(the "Act"), as to this Warrant or such Warrant Stock, and registration or
qualification of this Warrant or such Warrant Stock under any applicable blue
sky or state securities law then in effect, or (ii) an opinion of counsel,
satisfactory to the Company, that such registration and qualification are not
required. In addition, without limiting the generality of the foregoing, the
Company may delay issuance of the Warrant Stock until completion of any action
or obtaining of any consent, which the Company believes necessary or advisable
under any applicable law (including without limitation state securities or "blue
sky" laws).
(b) The Registered Holder agrees, and each other holder of Warrant
Stock agrees, if requested by the Company and/or the representative of the
underwriters underwriting an offering of Common Stock (or other securities of
the Company) from time to time, not to sell or otherwise transfer or dispose of
any Warrant Stock then held by the Registered Holder and/or such other holder
during such period of time following the effective date of any registration
statement of the Company filed under the Act for the period of time with respect
to which a majority of the executive officers of the Company agree not to sell
shares of Common Stock (or other securities of the Company). Such agreement
shall be in writing in a form satisfactory to the Company and such
representative. The Company may impose stop-transfer instructions with respect
to the Warrant Stock subject to the foregoing restriction until the end of such
period.
5. Reservation of Stock.
The Company will at all times reserve and keep available, solely for
issuance and delivery upon the exercise of this Warrant, such shares of Warrant
Stock and other stock, securities and property, as from time to time shall be
issuable upon the exercise of this Warrant.
6. Replacement of Warrants.
Upon receipt of evidence reasonably satisfactory to the Company of the
loss, theft, destruction or mutilation of this Warrant and (in the case of loss,
theft or destruction) upon delivery of an indemnity agreement (with surety if
reasonably required) in an amount reasonably satisfactory to the Company, or (in
the case of mutilation) upon surrender and cancellation of this Warrant, the
Company will issue, in lieu thereof, a new Warrant of like tenor.
7. Transfers. etc.
Subject to Section 4 above:
(a) The Company will maintain a register containing the names and
addresses of the Registered Holders of this Warrant. The Registered Holder may
change its address as shown on the warrant register by written notice to the
Company requesting such change.
(b) This Warrant shall not be transferable by the Registered Holder and
shall be exercisable only by the Registered Holder; provided that this Warrant
may be transferred to, and may be exercisable by, any company that directly, or
indirectly through one or more intermediaries, is controlled by, or is under
common control with, the Registered Holder. Subject to the foregoing, this
Warrant shall not be assigned, pledged or hypothecated in any way (whether by
operation of law or otherwise) and shall not be subject to execution, attachment
or similar process without the prior written consent of the Company. Any
attempted transfer, assignment, pledge, hypothecation or other disposition of
this Warrant or of any rights granted hereunder contrary to the provisions of
this Section 7, or the levy of any attachment or similar process upon this
Warrant or such rights, shall be null and void.
(c) Until any transfer of this Warrant is made in the warrant
register, the Company may treat the Registered Holder of this Warrant as the
absolute owner hereof for all purposes; provided, however, that if and when this
Warrant is properly assigned in blank, the Company may (but shall not be
obligated to) treat the bearer hereof as the absolute owner hereof for all
purposes, notwithstanding any notice to the contrary.
8. Mailing of Notices, etc.
All notices and other communications from the Company to the Registered
Holder of this Warrant shall be mailed by first-class certified or registered
mail, postage prepaid, to the address furnished to the Company in writing by the
last Registered Holder of this Warrant who shall have furnished an address to
the Company in writing. All notices and other communications from the Registered
Holder of this Warrant or in connection herewith to the Company shall be mailed
by first-class certified or registered mail, postage prepaid, to the Company at
its offices at 15915 Katy Freeway, Suite 250, Houston, Texas 77094, or such
other address as the Company shall so notify the Registered Holder.
9. No Rights as Stockholder.
Until the exercise of this Warrant, the Registered Holder of this
Warrant shall not have or exercise any rights by virtue hereof as a stockholder
of the Company.
10. Change or Waiver.
Any term of this Warrant may be changed or waived only by an instrument
in writing signed by the party against which enforcement of the change or waiver
is sought.
11. Headings.
The headings in this Warrant are for purposes of reference only and
shall not limit or otherwise affect the meaning of any provision of this
Warrant.
12. Governing Law.
THIS WARRANT WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF DELAWARE.
IN WITNESS WHEREOF, the undersigned has set his hand hereunto as of 1st
day of June, 1998.
GRIFFIN GOLD GROUP, INC.
By: /s/ Richard W. Lancaster
Richard W. Lancaster,
President
<PAGE>
EXHIBIT A
PURCHASE FORM
To: Griffin Gold Group, Inc.
15915 Katy Freeway, Suite 250
Houston, Texas 77094
The undersigned pursuant to the provisions set forth in the attached
Warrant hereby irrevocably elects to purchase _________ shares of the Common
Stock (the "Common Stock") covered by such Warrant and herewith (please indicate
the appropriate form of payment opted for):
_____ (a) makes payment of $_____________, representing the
full purchase price for such shares at the price per
share provided for in such Warrant (the "Purchase
Price"); or
_____ (b) in lieu such cash payment, elects to reduce the
amount of indebtedness owed by the Company to the
undersigned by the amount of the Purchase Price.
The undersigned understands and acknowledges the terms and restrictions
on the right to transfer or dispose of the Common Stock set forth in Section 4
of the attached Warrant, which the undersigned has carefully reviewed. The
undersigned consents to the placing of a legend on its certificate for the
Common Stock referring to such restrictions and the placing of stop transfer
orders until the Common Stock may be transferred in accordance with the terms of
such restrictions.
By:_________________________________
Name:______________________________
Title:_______________________________
Dated:______________________________
EXHIBIT 10.11 FIRST SUPPLEMENT TO LICENSE AGREEMENT
FIRST SUPPLEMENT TO LICENSE AGREEMENT
THIS FIRST SUPPLEMENT TO LICENSE AGREEMENT (the "Supplement ") is
made and entered into effective as of the _____ day of May, 1998 by and among
Griffin Gold Group, Inc. ("Griffin"), LS Capital Corporation ("LS
Capital"), Desert Minerals, Inc. ("DMI"), Zeotech Industries, Inc. ("Zeotech")
and Ed Hemsted ("Hemsted"), on the one hand, and Douglas Schmitt ("Schmitt"), on
the other hand.
Recitals
WHEREAS, Griffin, LS Capital, DMI, Zeotech and Hemsted, on the one
hand, entered into a letter agreement (the "License Agreement") dated March 27,
1997 with Schmitt, on the other hand, whereby Schmitt agreed to continue
developing on behalf of LS Capital and its subsidiaries a technology for
recovering micro fine gold and other precious metals from desert sands (the
"Technology"); and
WHEREAS, pursuant to the License Agreement and upon the fulfillment of
certain conditions specified in the License Agreement (the "Conditions
Precedent"), the Technology and any enhancements subsequently developed will be
the joint property of Schmitt (50%), LS Capital and DMI (50%) and such
subsidiaries or affiliates as they may, from time to time, assign or license the
Technology to, and LS Capital will have the right to sublicense the Technology
to its subsidiaries and affiliates; and
WHEREAS, for and in consideration of the consideration recited herein,
all parties hereto (including, without limitation, Schmitt) wish to agree that
all Conditions Precedent have been fulfilled, and that LS Capital, DMI and their
respective subsidiaries and affiliates now have the rights in the Technology
that the License Agreement provides that they will have once all Conditions
Precedent have been fulfilled;
Agreement
NOW, THEREFORE, in consideration of the payment of $5,000 by LS Capital
to Schmitt and other good and valuable consideration (the receipt, adequacy and
sufficiency of which are hereby acknowledged by Schmitt), each of the parties to
the License Agreement and this Supplement hereby agrees as follows (all
undefined, capitalized terms used herein shall have the meanings assigned to
such terms in the License Agreement):
1. Supplements to the License Agreement. Each of the parties to the
License Agreement and this Supplement hereby agrees that all Conditions
Precedent have now been fulfilled and shall be deemed to be fulfilled, that the
Technology and any enhancements subsequently developed is now the joint property
of Schmitt (50%), LS Capital and DMI (50%) and such subsidiaries or affiliates
as they may, from time to time, assign or license the Technology to, and that LS
Capital has the right to sublicense the Technology to its subsidiaries and
affiliates. Without any limitation on the preceding, Schmitt hereby agrees that
LS Capital may grant and is hereby authorized to grant to Griffin a sublicense
of the Technology for all purposes permitted by the License Agreement; provided,
however, that nothing contained in this sentence shall abrogate any obligation
to Schmitt of LS Capital or any other party with regard to such sublicensing.
2. Miscellaneous. Except as otherwise expressly provided herein, the
License Agreement is not supplemented, amended, modified or affected by this
First Supplement. Except as expressly set forth herein, all of the terms,
conditions, covenants, representations, warranties and all other provisions of
the License Agreement are herein ratified and confirmed and shall remain in full
force and effect. On and after the date on which this First Supplement becomes
effective, the terms, "Agreement," "hereof," "herein," "hereunder" and terms of
like import, when used herein or in the License Agreement shall, except where
the context otherwise requires, refer to the License Agreement, as supplemented
and amended by this First Supplement. This First Supplement may be executed into
one or more counterparts, and it shall not be necessary that the signatures of
all parties hereto be contained on any one counterpart hereof; each counterpart
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
IN WITNESS WHEREOF, the undersigned have set their hands hereunto as of
the first date written above.
"LS CAPITAL" "GRIFFIN"
LS CAPITAL CORPORATION GRIFFIN GOLD GROUP, INC.
BY:_________________________________ BY:_________________________________
Paul J. Montle, President Richard W. Lancaster, President
"DMI" "ZEOTECH"
DESERT MINERALS, INC. Zeotech Industries, Inc.
BY:_________________________________ BY:_________________________________
Paul J. Montle, Vice President Ed Hemsted, President
- ------------------------------------ ------------------------------------
Ed Hemsted Douglas Schmitt
NONE
EXHIBIT 23.01 - CONSENT OF INDEPENDENT ACCOUNTANTS
CONSENT OF MALONE & BAILEY, PLLC, INDEPENDENT AUDITORS
We consent to the use in this Second Amendment of the Registration Statement of
Griffin Gold Group, Inc. on Form SB-2/A of our report dated October 20, 1997,
and to the reference to us under the heading "Experts" in such Registration
Statement.
MALONE & BAILEY, PLLC
Houston, Texas
August 20, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM
ITEM 22 OF FORM SB-2/A FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND IS
QUALIFIED BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001050795
<NAME> GRIFFIN GOLD GROUP, INC.
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JAN-1-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 3970
<SECURITIES> 0
<RECEIVABLES> 2000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5970
<PP&E> 80134
<DEPRECIATION> 12020
<TOTAL-ASSETS> 100823
<CURRENT-LIABILITIES> 601404
<BONDS> 0
0
0
<COMMON> 100000
<OTHER-SE> (600581)
<TOTAL-LIABILITY-AND-EQUITY> 100823
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 350987
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (350987)
<INCOME-TAX> 0
<INCOME-CONTINUING> (350987)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (350987)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> (.04)
</TABLE>
