As filed with the Securities and Exchange Commission on January _____, 1998
Registration No. 333-41635
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
----------------------------------
FIRST 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
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(State of (Primary Industrial (I.R.S. Employer
Incorporation) Classification) I.D.#)
15915 Katy Freeway, Suite 250
Houston, Texas 77094
Tel: (281) 398-5588
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(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 1,000,000(1) -0- -0- -0-
Common Stock 5,000,000(2) $1.00(2) $5,000,000(2) $1,475.00
</TABLE>
(1)To be distributed to the stockholders of LS Capital Corporation, on a pro
rata basis, for no consideration from such stockholders. (2)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.
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>
PROSPECTUS
6,000,000 Shares
GRIFFIN GOLD GROUP, INC.
Common Stock
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 1,000,000 shares of Common Stock, par value $.01 per
share (the "Common Stock"), of Griffin Gold Group, Inc., a Delaware corporation
(the "Company"). The Company is a newly-formed company engaged in efforts to
extract (by means of proprietary technology) 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 for each ten 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 cash in lieu thereof. Certificates representing the number of
shares of Common Stock to which LS Capital stockholders are entitled, and checks
representing payment for any fractional shares that otherwise would be issued,
are being delivered to LS Capital stockholders simultaneously with this
Prospectus. 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 OWNERSHIP OF THE COMMON STOCK, SEE "RISK FACTORS."
No consideration will be paid by LS Capital's stockholders for the shares
of Common Stock comprising the Distribution. The Company will not receive any
proceeds from the Distribution. There is no current public trading market for
the shares of Common Stock. Subject to the sponsorship of a market maker, shares
of Common Stock will be traded in the over-the-counter market on the OTC
Electronic Bulletin Board.
The Company currently has outstanding 10,000,000 shares of Common Stock.
The shares to be to be distributed will constitute approximately 10% 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 1,000,000 shares of Common Stock as described herein would be
adequate to create an orderly public trading market in the Common Stock. LS
Capital will retain 4,000,000 shares of Common Stock after the Distribution. LS
Capital presently intends to hold these shares for investment purposes.
In addition to the shares of Common Stock comprising the Distribution, 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.
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.
The Company is not currently a reporting company under the Securities
Exchange Act of 1934 (the "Exchange Act"). However, the Company currently
intends to register and become a reporting company under the Exchange Act as
soon as possible after the Registration Statement is declared effective. Until
such registration, the Company intends to deliver voluntarily annual reports
with audited financial statements to the Company's stockholders and to 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 address 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-formed 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." 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. See "BUSINESS - Operations Mining Claims." The
Company will conduct its extraction effort by means of a proprietary
technology currently undergoing refinement. After certain objectives
are met pertaining to this technology, LS Capital will receive
a license of this technology, and LS Capital will in turn
sublicense this technology to the Company. This technology is
new and has been determined to be capable of extracting precious
minerals in a laboratory setting. However, the technology must prove
capable of producing precious minerals 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 technology's capability of
extracting precious minerals on a commercial basis. There can be no
assurance that the technology will prove capable of producing
precious minerals at the required scale and at the required cost
levels. See "BUSINESS - Operations - Intellectual Property" and "RIS
FACTORS - Technological Risk Factor." For the next twelve months,
the Company intends to continue to work to achieve consistent yields
from processed ores and confirm the capabilities of the technology
used by the Company; to scale up the level of processing; to add
additional employees; and to commence work on the financing
and construction of a commercial plant, provided that the Company's
technology meets 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 from
Purposes LS Capital and to create a public trading market for the Common Stock
of so that the Company can (i) be recognized by the financial
Distri- community as a distinct business, (ii) take advantage of the
bution possibility of enhanced stockholder value resulting from the
public trading of the Common Stock, (iii) better 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.
Shares The Company currently has outstanding 10,000,000 shares of Common
to be Stock, par value $.10 per share. The Distribution consists of
Distri- 1,000,000 shares of Common Stock. The shares to be to be distributed
buted will constitute approximately 10% 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 1,000,000
shares of Common Stock as described herein would be adequate to
create an orderly public trading market in the Common Stock. LS
Capital will retain 4,000,000 shares of Common Stock after the
Distribution. LS Capital presently intends to hold these shares for
investment purposes.
Distri- Each LS Capital stockholder will generally receive one share of
bution Common Stock for each ten shares of LS Capital common stock held on
Ratio the Record Date.
Fract- Fractional shares will not be issued, but instead a LS Capital
ional stockholder otherwise entitled to a fractional share will receive cash
Shares in lieu thereof based on the average closing price of the Common Stock
for its first 10 days of trading.
Record Close of business on ____________________ _____, 1998.
Date
Delivery Certificates representing the shares of Common Stock to which LS
of Capital stockholders are entitled, and checks representing payment for
Stock any fractional shares that otherwise would be issued, are being
Certifi- delivered to LS Capital stockholders simultaneously with this
and Prospectus.
Checks
Tax The Distribution is not being structured on a basis tax-free to LS
Conse- Capital stockholders, and management believes that the Distribution
quences 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 comprising the Distribution,
Shares the Company is also registering 5,000,000 shares of Common Stock
Being to be offered on a continuous or delayed basis in the future
Regis- (at prices equivalent to the then current market price of the Common
tered Stock or at slight discounts therefrom) in connection with future
business combination transactions.
Trading There is no current public trading market for the shares of Common
Market Stock. Subject to the sponsorship of a market maker, shares of
Common Stock will be traded in the over-the- counter market on the
OTC Electronic Bulletin Board.
Transfer The transfer agent and registrar for the Common Stock is Continental
Agent & Stock & Trust Company, 2 Broadway, 19th Floor, New York, New York
Regis- 10004.
trar
Dividend The payment and amount of cash dividends on the Common Stock after the
Policy 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.
Risk Stockholders should carefully consider the matters discussed under
Factors the section entitled "RISK FACTORS" in this Prospectus. The Company has
only a limited operating history and is subject to all of the inheren
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 Common Stock
Proceeds comprising the Distribution. 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.
Inqui- Stockholders of LS Capital with inquiries relating to the Distribution
ries should contact Keith Keith J. McKenzie, by mail at LS Capital's
Relating offices at 15915 Katy Freeway, Suite 250, Houston, Texas 77094, or
to by telephone at his telephone number 800/263-1880.
Distri-
bution
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. 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.
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's future capital needs will exceed the Company's current
financial position. The Company expects to finance its operations for fiscal
1997 and 1998 through 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. 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.
7. Technological Risk Factor and Dependence on Third Party. The
ultimate realization of the Company's investment in its mineral properties
depends upon the commercial feasibility of the proprietary technology that the
Company intends to use in the Company's mineral extraction process. This
technology is new and has been determined to be capable of extracting precious
minerals in a laboratory setting. However, the technology must prove capable of
producing precious minerals on a larger scale at cost levels that will enable
production to occur profitably. There can be no assurance that the technology
will prove capable of producing precious minerals at this scale and at these
cost levels. The failure of the technology 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 the Company's proprietary technology and will thus have the
same abilities as the Company in this regard. Moreover, 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. 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.
8. Title. 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.
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.
9. 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.
10. 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. 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.
11. 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.
12. 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." While these issuances of shares were the result of arms-length
negotiations, 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.
13. 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."
14. 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.
15. 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. Mr. Montle has not.
Neither Mr. Lancaster nor Mr. Montle has entered into a covenant not to compete
agreement with the Company.
16. 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 51.3% 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 88.8% 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.
17. 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. 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.
18. 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.
19. 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. 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.
20. Absence of Prior Trading Market for the Common Stock. There has
not been any established public market for the trading of the Common Stock.
Subject to the sponsorship of a market maker, shares of Common Stock will be
traded in the over-the-counter market on the OTC Electronic Bulletin Board.
There can be no assurance as to the prices at which the Common Stock will trade
after the Distribution. Until the Common Stock comprising the Distribution is
fully distributed and an orderly market develops and even thereafter, the prices
at which shares trade may fluctuate significantly. Prices for shares of Common
Stock 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.
21. Potential Future Sales Pursuant to Rule 144. Ten 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. One million shares of Common Stock are being registered in connection
with the Distribution and 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 nine million
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. Four million of the 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. On June 5, 1998, the remaining 5,000,000
of the outstanding shares of Common Stock not part of the Distribution will have
been outstanding for over one year and will then become 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 9,000,000
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."
22. Risks Relating to Low-Priced Stocks. Management believes that the
trading price of the Common Stock is likely to start below $5.00 per share. If
the trading price of the Common Stock were to start and remain below $5.00 per
share, trading in the Common Stock 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, which could severely limit the market
liquidity of the Common Stock.
23. 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."
24. Competition. The Company operates in an industry that is
characterized by intense competition for resources, equipment and personnel.
Some 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.
25. 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.
26. 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 $320 per ounce in
September 1997. 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.
27. 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.
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.
<PAGE>
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 proprietary technology)
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 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) 1,250,000, 1,375,000, 1,250,000 and 1,125,000
shares, respectively, of the Common Stock, for a total of 5,000,000 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 5,000,000 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 5,000,000
shares of Common Stock. 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.
As it was originally entered into, the Formation Agreement provided
that Hemsted, McKenzie and Groves were required to make by April 30, 1997 an
aggregate additional capital contribution to the Company in the amount of
$500,000. By means of the First Amendment and the Second Amendment, the
Formation Agreement was amended to postpone the date for the additional capital
contribution first until July 31, 1997 and eventually until November 30, 1997.
In the Formation Agreement, Hemsted, McKenzie and Groves pledged to LS Capital
the shares of the Common Stock that they were to receive pursuant to the
Formation Agreement to secure their additional capital contribution obligations.
The Formation Agreement provides that if Hemsted, McKenzie and Groves do not
timely fulfill their additional capital contribution obligations, they will
forfeit their unsold Common Stock and LS Capital common stock, LS Capital may
exercise the rights of a secured creditor with respect to the pledged shares of
the Common Stock, and the Company will reconvey to Hemsted, McKenzie and Groves
each mining claim contributed by them to the Company. (The Formation Agreement
has not been amended to provide for the forfeiture any rights to claims granted
by third parties to the Company.) As of October 20, 1997, Hemsted, McKenzie and
Groves had contributed an aggregate of $493,261 to the Company in partial
fulfillment of their additional capital contribution obligations.
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
1,125,000 and 125,000 shares, respectively, of the Common Stock that he also was
to receive pursuant to the Formation Agreement.
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 a certain proprietary, low-toxicity microfine precious
metals extraction technology (the "Technology"). (For a description of the
Company's rights with respect to the Technology, see "BUSINESS Intellectual
Property.") Using the Technology, 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
Technology, both discussed below. 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 Company intends
to commence 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.
The Company has invested approximately $250,000 in the pilot plant,
and previous thereto 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 LS Capital management, LS Capital expects to exercise its right
to receive a sublicense on the Technology. LS Capital will then attempt to
proceed with the construction of a larger processing plant at a site to be
selected in the future and to be owned by one of the LS Capital's subsidiaries.
LS Capital intends to cause the subsidiary ultimately owning the plant to enter
into an agreement with the Company to process the Company's ore on terms
generally made available to other customers of such subsidiary, if not on
somewhat more favorable terms. LS Capital currently expects that the larger
plant would be capable of processing ore at a minimum rate of 1,000 TPD. LS
Capital currently expects that this larger plant (if undertaken) will be
finished in 1998 at a cost of between $2.5 and $5.0 million dollars. The
construction of the larger plant will be contingent on procuring necessary
financing.
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 minimal cash
payments, 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 minimal cash payment, 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 technology that the Company propose to use in its precious
mineral extraction efforts (the "Technology") has been developed and is in the
process of being refined by Douglas Schmitt ("Schmitt"), an independent
consultant to the Company. The Technology in its current state has been
determined to be capable of extracting precious minerals in a laboratory
setting. However, the Technology 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
technology's capability of extracting precious minerals on a commercial basis.
The Company believes that this capability will be proved or disproved during or
about the summer of 1998, although additional time may be needed. There can be
no assurance that the technology will prove capable of producing precious
minerals at the required scale and at the required cost levels. See "RISK
FACTORS - Technological Risk Factor."
DMI and Schmitt entered into a letter agreement dated March 27, 1997
(the "Technology Agreement") regarding the Technology. The Technology Agreement
stipulated certain criteria that Schmitt must meet to perform satisfactorily
under the Technology Agreement. First, Schmitt must deliver to DMI all formulae,
process designs and systems engineering necessary to implement and repeat the
recovery process comprising the Technology on a consistent, large-scale basis.
Second, either (a) the Technology must be demonstrated to and audited by an
independent third party mining engineering firm of international repute that is
willing (after the demonstration) to allow its name to used publicly to verify
that the Technology can consistently extract gold and other precious metals from
desert sands on a large-scale commercial basis, or (b) commercially salable
quantities of precious metals must be produced from the Company's Tecopa mineral
property in a form acceptable to a reputable refiner and at production costs not
greater than 75% of sale proceeds. Once Schmitt is determined to have
satisfactorily performed, DMI is obligated to pay to him the amount of $90,000,
and LS Capital and DMI, on the one hand, will be equal owners of the Technology
with Schmitt, on the other hand. LS Capital and DMI will then 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 Technology, and if the Company and
DMI decline to pursue any proposed project, Schmitt is obligated to take
appropriate measures to maintain the integrity and security of the Technology.
In consideration of the creation of the Company's and DMI's
interests in the Technology, the Technology Agreement provides in favor of
Schmitt 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 Technology. The royalty can be paid in cash or in
kind. LS Capital and DMI have the right to discontinue the use of the Technology
at any time (a) in favor of either 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
Technology. LS Capital and DMI will forfeit their interests in the Technology if
they fail to construct an operating plant capable of processing sand at a rate
of 1,000 TPD within three years from the date of the Technology Agreement;
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 to the preceding, the Technology Agreement provides that
Schmitt will receive weekly payments of $1,500 for on-going consulting services
and a $10,000 sign-on bonus, which has already been paid. Moreover, Schmitt
received 125,000 shares of Common Stock in connection with the execution and
delivery of the Technology Agreement.
The Company has entered into an agreement with LS Capital whereby LS
Capital has agreed to sublicense the Technology to the Company as soon as LS
Capital's license of the Technology becomes effective. The Company's sublicense
will be co-terminus and co-extensive with LS Capital's license. Under this
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 under the Technology Agreement by virtue of the Company's use of the
Technology.
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.
<PAGE>
MANAGEMENT
Directors and Executive Officers.
The directors and executive officers of the Company are as follows:
Name Age Position(s)
Richard W. Lancaster 55 Director/President
Paul J. Montle 48 Director/Vice President
C. Thomas Cutter 56 Director
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 $72,000.00. 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 _____, 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
5,000,000, 2,375,000, 1,375,000 and 1,125,000 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 an agreement with LS Capital whereby LS
Capital has agreed to sublicense the Technology to the Company. The Company will
not be obligated to pay any amounts to LS Capital in connection with this
sublicense, but the Company will be obligated to pay amounts that become due to
Douglas Schmitt under the Technology Agreement by virtue of the Company's use of
the Technology. For more detailed information on the agreement to sublicense and
the Technology Agreement, 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 163,300 and 175,400, respectively, of the
shares of Common Stock comprising the Distribution.
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth as of December 3, 1997 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. 6,125,000 61.3%(2) 5,125,000 51.3%(3)
3300 West Beach Blvd., Suite 202
Gulfport, Mississippi 39502
LS Capital Corporation 5,000,000 50.0% 4,000,000 40.0%
15915 Katy Freeway, Suite 250
Houston, Texas 77094
Paul J. Montle 5,000,000 50.0%(4) 4,000,000 40.0%(5)
15915 Katy Freeway, Suite 250
Houston, Texas 77094
Edwin Hemsted 2,375,000 24.0% 2,375,000 24.0%
1155 Harwood St. #1003
Vancouver, British Columbia
CANADA V6E 1S1
Keith J. McKenzie 1,375,000 14.0% 1,375,000 14.0%
1400 355 Burrand St.
Vancouver, British Columbia
CANADA V6C 2G8
All directors and officers
as a group (four persons) 5,000,000 50.0%(4) 4,000,000 90.0%(5)
</TABLE>
(1) Includes shares Stock beneficially owned pursuant to options and warrants
exercisable within 60 days after the date of this Prospectus.
(2) Includes 1,125,000 shares owned directly; and includes 5,000,000 shares
owned beneficially and of record by LS Capital Corporation, a corporation of
which Mr. Lovelace is a director.
(3) Includes 1,125,000 shares owned directly; and includes the 4,000,000 shares
that will owned beneficially and of record after the Distribution by LS Capital
Corporation, a corporation of which Mr. Lovelace is a director. (4) Includes
5,000,000 shares owned beneficially and of record by LS Capital Corporation, a
corporation of which Mr. Montle is a director and the Chief Executive Officer.
(5) Includes the 4,000,000 shares that will be owned 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.
<PAGE>
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 1,000,000 shares of Common
Stock. These shares of Common Stock shall be distributed to persons who are
stockholders of record of LS Capital at the close of business on Record Date.
Each stockholder of LS Capital on the Record Date will generally receive one
share of Common Stock for each ten shares of LS Capital common stock owned on
the Record Date. However, fractional shares will not be issued, and LS Capital
stockholders who would otherwise be entitled to receive a fractional share of
Common Stock will receive cash in lieu thereof. The amount of cash to which such
a LS Capital stockholder will be entitled will be the average closing sale price
of the Common Stock on the OTC Bulletin Board on the first 10 days that the
Common Stock is traded, multiplied by the percentage represented by the
fractional share that the stockholder would otherwise be entitled to receive.
The Distribution will result in approximately 10% of the outstanding shares of
Common Stock being distributed to holders of LS Capital common stock on a pro
rata basis. Certificates representing the shares of Common Stock to which LS
Capital stockholders are entitled, and checks representing payment for any
fractional shares that otherwise would be issued, are being delivered 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 received in the Distribution
or to surrender or exchange shares of LS Capital common stock in order to
receive shares of Common Stock.
Shares of Common Stock distributed to LS Capital stockholders in connection
with the Distribution generally will be freely transferable. Such shares 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 are expected to be traded on the OTC Electronic Bulletin Board.
Notwithstanding the above, shares of Common Stock 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 ten million outstanding shares of
Common Stock, nine million will not be participating in the Distribution. These
shares were not included in the Distribution because management of the Company
and LS Capital believed that including these shares in the Distribution 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 nine million shares not
participating in the Distribution to retain a vested interest in the Company.
Even though these nine million shares will not participate in the Distribution,
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.
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 $.0248 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, and such claims and technology investment represents 12% of LS
Capital's total assets (at cost) as of June 30, 1997.
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 $.00248 per share (each share of Common Stock is distributed
for every ten LS Capital shares), then such Common Stock distribution to him
should be considered a "non-taxable return of capital." Such $.00248 per share
should then be deducted from such shareholder's LS Capital per share tax basis
and $.0248 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 $.0248 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 SHARES 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.
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.
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, 10,000,000 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.
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 10,000,000 shares of Common Stock, approximately 9,526,600 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. Four million of the
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. On
June 5, 1998, the remaining 5,000,000 of the outstanding shares of Common Stock
not part of the Distribution will have been outstanding for over one year and
will then become 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
9,000,000 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.
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. 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.
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
The Technology has been determined to be capable of extracting precious
minerals in a laboratory setting. However, the Technology must prove capable of
producing precious minerals 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
Technology on a larger scale. At the present, less than one TPD is being
processed. The Technology has proved capable of producing precious minerals at
this larger scale, but the yields have been inconsistent and have had a large
variance. The Company has not yet determined whether the inconsistencies are the
result of differences in the precious mineral content of ores sampled or the
result of differences in the efficiency and output of the Technology as various
samples of ore are processed through the Technology's extraction process. The
Company's ores are taken from dried up lake beds. As a result, the mineral
content from the ores is expected to be fairly uniform. Accordingly, management
suspects that the inconsistencies of yields are the result of inconsistencies in
the operation of the efficiency and output of the Technology, although there can
be no certainty in this regard until further testing is undertaken and
improvements to the Technology occur. Scaling up the use of the Technology from
the laboratory setting to the pilot plant setting has created some unforeseen
difficulties in the application of the Technology. 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 Technology, 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 activity will be to work
to achieve consistent yields from processed ores. The Company intends to do this
primarily by experimenting with alternative ways of handling certain components
of the Technology's extraction process and varying the levels of various
commodities used in this process. There can be no assurance that the Company
will be successful in achieving consistent yields. In the event that yields
become consistent to 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 between
$350,000 to $1.0 million to pursue its plan of operation over the next twelve
months. The Company does not now have funds sufficient to satisfy even the lower
portion of this range. 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 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 and approximately $250,000 in
additional equipment used in connection with the 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. 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
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
Three Months ended September 30, 1997:
Independent Accountant's Report G-1
Balance Sheet as of September 30, 1997 (unaudited) G-2
Income Statement for the periods from October 30, 1996
(Inception) to September 30, 1997 (unaudited) G-3
Statement of Stockholder's Equity for the periods
from October 30, 1996 (Inception) to September 30,
1997 (unaudited) G-4
Statement of Cash Flows for the periods from October 30,
1996 (Inception) to September 30, 1997 (unaudited) G-5
Notes to Financial Statements G-6
<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 income , 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
<PAGE>
GRIFFIN GOLD GROUP, INC.
(A Development Stage Company)
Balance Sheet
June 30,
1997
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
========
See notes to financial statements.
F-2
<PAGE>
GRIFFIN GOLD GROUP, INC.
(A Development Stage Company)
Income Statement
October 30, 1996
(Inception) to
June 30, 1997
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
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 $160,000 $210,000
Shares issued for
cash and mining
claims 5,000,000 50,000 240,000 290,000
Net (deficit) $(391,618) (391,618)
---------- --------- ----------- ------------ ------------
Balances,
June 30, 1997 10,000,000 $100,000 $400,000 $(391,618) $108,382
========== ======== ======== ========= ========
</TABLE>
<PAGE>
GRIFFIN GOLD GROUP, INC.
(A Development Stage Company)
Statement of Cash Flows
October 30, 1996
( Inception) to
June 30, 1997
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
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, 997.
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).
Income taxes are not due since the Company has losses in its first year.
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)
Earnings (Loss) per share calculations do not include the dilutive effect of
common stock equivalents, if any, in years of losses.
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>
January 13, 1998
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors and Stockholders of
Griffin Gold Group, Inc.
Houston, Texas
We have reviewed the accompanying balance sheet of Griffin Gold Group, Inc. as
of September 30, 1997, and the related statements of income, stockholders'
equity and cash flows for the three-month period then ended and the period from
October 20, 1996 (date of inception) through September 30, 1997. These financial
statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and of making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to such financial statements for them to be in conformity with generally
accepted accounting principles.
The statements of income, stockholders' equity and cash flows for the period
from October 20, 1996 (date of inception) through June 30, 1997 (not separately
presented herein, but are included in these statements for the period from
October 20, 1996 [date of inception] through September 30, 1997) were audited by
us, and we expressed an unqualified opinion on them in our report dated October
20, 1997, but we have not performed any auditing procedures since that date.
MALONE & BAILEY, PLLC
<PAGE>
GRIFFIN GOLD GROUP, INC.
(A Development Stage Company)
Balance Sheet
UNAUDITED
September 30,
1997
ASSETS
Current Assets
Cash $ 0
Amounts receivable from affiliates 190,530
Prepaid services 10,010
------
Total Current Assets 200,540
Property and Equipment
Vehicles 24,071
Equipment 56,063
Less: accumulated depreciation (8,013)
------
72,121
Other assets - mining claims 26,739
------
TOTAL ASSETS $ 299,400
=========
LIABILITIES
Current Liabilities
Accounts payable $ 12,172
Amounts payable to affiliates 328,463
-------
Total Current Liabilities 340,635
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 (541,235)
--------
Total Stockholders' Equity ( 41,235)
--------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 299,400
=========
See accountants' report and notes to financial statements.
G-2
<PAGE>
GRIFFIN GOLD GROUP, INC.
(A Development Stage Company)
Statements of Income
UNAUDITED
<TABLE>
<CAPTION>
October 30, 1996
3 Months Ended (Inception) to
September 30, September 30,
1997 1997
<S> <C> <C>
Joint venture sharing of
ore processing plant start up costs $ 97,927 $ 408,767
General and administrative 43,677 122,376
Interest - 2,079
Depreciation 8,013 8,013
----- -----
Net (loss) $ (149,617) $(541,235)
Net loss per common share $.01 $.05
Weighted average common shares
outstanding 10,000,000 10,000,000
</TABLE>
See accountants' report and notes to financial statements.
G-3
<PAGE>
GRIFFIN GOLD GROUP, INC.
(A Development Stage Company)
Statement of Stockholders' Equity
Period from October 30, 1996 (Date of Inception)
to September 30, 1997
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) $(541,235) (541,235)
--------- ------- -------- --------- --------
Balances,
September 30, 1997 10,000,000 $100,000 $400,000 $(541,235) $( 41,235)
========== ======== ======== ========= ==========
</TABLE>
See accountants' report and notes to financial statements.
G-4
<PAGE>
GRIFFIN GOLD GROUP, INC.
(A Development Stage Company)
Statements of Cash Flows
UNAUDITED
<TABLE>
<CAPTION>
October 30, 1996
3 Months Ended (Inception) to
September 30, September 30,
1997 1997
<S> <C> <C>
Cash Flows from Operating Activities
Net loss $(149,617) $(541,235)
Depreciation 8,013 8,013
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)
Increase in accounts payable 12,172 12,171
Purchases (sales) of marketable securities 50,000
------ --------
Total Cash Flows from Operating Activities ( 79,432) (278,873)
-------- --------
Cash Flows from Investing Activities
Purchase of vehicle and field equipment ( 30,133)
Loans to affiliate to finance ore processing pilot
plant start up costs ( 95,530) (190,530)
--------- --------
Total Cash Flows from Investing Activities ( 95,530) (220,663)
--------- --------
Cash Flows from Financing Activities
Sales of stock 493,261
Collection of stock subscriptions receivable 56,407
Advances from (payments to) an affiliate 118,490 6,275
------- -------
Total Cash Flows from Financing Activities 174,897 499,536
------- -------
Net increase (decrease) in cash ( 65) 0
Cash at Beginning of Period 65 -
--------- -------
Cash Balance on September 30, 1997 $ 0 $ 0
========= ========
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
</TABLE>
See accountants' report and notes to financial statements.
G-5
<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. 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-6
<PAGE>
TABLE OF CONTENTS
AVAILABLE INFORMATION 3
PROSPECTUS SUMMARY 4
RISK FACTORS 6
BUSINESS 11
MANAGEMENT 17
EXECUTIVE COMPENSATION 17
CERTAIN TRANSACTIONS 18
PRINCIPAL STOCKHOLDERS 19
THE DISTRIBUTION 20
CERTAIN FEDERAL INCOME TAX CONSEQUENCES 21
OTHER SHARES BEING REGISTERED 22
OTHER MATTERS 22
DESCRIPTION OF CAPITAL STOCK 23
DIVIDEND POLICY 25
USE OF PROCEEDS 25
EXPERTS 25
<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.
<PAGE>
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses set forth below, will be borne by the Company.
Item Amount
SEC Registration Fee $ 1,475.00
Blue Sky Filing Fees and Expenses $ 5,000.00
Legal Fees and Expenses *
Accounting Fees and Expenses *
Miscellaneous *
Total *
* This figure will be supplied in an amendment to the registration
statement.
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") 2,375,000, 1,375,000 and 1,125,000 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 5,000,000
shares of Common Stock. 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 1,125,000 and 125,000 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
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. As of October 20, 1997, Hemsted, McKenzie
and Groves had contributed an aggregate of $493,261 to the Company in partial
fulfillment of their additional capital contribution obligations.
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.
<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
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 ___, 1998 between the Company and LS Capital Corporation
10.10 Griffin Gold Group, Inc. 1998 Stock Option Plan
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>
<PAGE>
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.
<PAGE>
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 January 23, 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.
Name Title Date
/s/ Richard W. Lancaster Director and President January 23, 1998
(Principal Executive Officer
and Principal Financial
Officer)
/s/ Paul J. Montle Director and Vice January 23, 1998
President
/s/ C. Thomas Cutter* Director January 23, 1998
* Signed by power of attorney
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Page
<S> <C> <C>
3.01 Certificate of Incorporation of the Company
3.02 Bylaws of the Company
4.01 Specimen Common Stock Certificate
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 ___, 1998 between the Company and LS Capital Corporation
10.10 Griffin Gold Group, Inc. 1998 Stock Option Plan
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 5.01
Securities and Exchange Commission
450 Fifth Avenue, N.W.
Washington, D.C. 20549
RE: Registration Statement on Form SB-2
Under the Securities Act of 1933
File No. 333-41635 (the "Registration Statement")
Gentlemen:
I have acted as counsel for Griffin Gold Group, Inc., a Delaware
corporation (the "Company"), in connection with the proposed distribution
(the "Distribution") to the stockholders of LS Capital Corporation, a Delaware
corporation ("LS Capital"), of 1,000,000 shares of the common stock, par value
$.01 per share of the Company (the "Common Stock"), currently held by LS
Capital, pursuant to the terms and conditions set forth in the Registration
Statement.
In such capacity, I have examined originals, or copies certified or
otherwise identified to my satisfaction, of the following documents:
1. Certificate of Incorporation of the Company, as amended to
date;
2. Bylaws of the Company, as amended to date;
3. The Registration Statement, together with all exhibits
attached thereto;
4. The records of corporate proceedings relating to the
Distribution and the issuance of the Common Stock; and
5. Such other instruments and documents as I have believed
necessary for the purpose of rendering the following
opinion.
In such examination, I have assumed the authenticity and completeness
of all documents, certificates and records submitted to me as originals, the
conformity to the original instruments of all documents, certificates and
records submitted to me as copies, and the authenticity and completeness of the
originals of such instruments. As to certain matters of fact relating to this
opinion, I have relied on the accuracy and truthfulness of certificates of
officers of the Company and on certificates of public officials, and have made
such investigations of law as I have believed necessary and relevant.
Based on the foregoing, and having due regard for such legal
considerations as I believe relevant, I am of the opinion that the Common
Stock was duly authorized and validly issued, and is fully paid and
non-assessable.
I hereby consent to the filing of this opinion with the Commission as
Exhibit 5.1 to the Registration Statement.
Very truly yours,
Randall W. Heinrich
EXHIBIT 10.09 AGREEMENT TO SUBLICENSE
AGREEMENT TO SUBLICENSE
THIS AGREEMENT TO SUBLICENSE (the "Agreement") is made and entered into
effective as of the _____ day of January, 1998 by and between Griffin Gold
Group, Inc., a Delaware corporation ("Griffin"), and LS Capital Corporation, a
Delaware corporation ("LS Capital").
RECITALS:
WHEREAS, LS Capital and other parties entered into a letter agreement (the
"License Agreement") dated March 27, 1997 with Douglas Schmitt ("Schmitt")
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, LS Capital has the right to
sublicense the Technology to its subsidiaries and affiliates upon the
fulfillment of certain conditions (the "Conditions Precedent"); and
WHEREAS, Griffin Gold desires a sublicense of the Technology from LS
Capital, and LS Capital is willing to sublicense the Technology to Griffin Gold
upon the fulfillment of the Conditions Precedent, upon the terms, provisions and
conditions contained hereinafter and in the License Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
hereinafter set forth, $10.00 and other good and valuable consideration, the
receipt, adequacy and sufficiency of which are hereby acknowledged, the parties
hereto agree as follows:
1. Grant of Sublicense. In consideration of the premises and the mutual
covenants hereinafter set forth, $10.00 and other good and valuable
consideration, the receipt, adequacy and sufficiency of which are hereby
acknowledged by LS Capital, LS Capital hereby agrees to grant to Griffin Gold,
upon fulfillment of all Conditions Precedent, a non-exclusive worldwide right
and sublicense to the Technology, royalty-free with respect to LS Capital. The
grant shall be co-terminus with the license granted in the License Agreement. In
this connection and upon fulfillment of the Conditions Precedent, LS Capital
agrees to deliver to Griffin Gold an agreement (the "Definitive Agreement") in
form satisfactory to LS Capital and Griffin Gold containing customary terms,
conditions and provisions with regarding to grants of sublicenses.
2. Assumption of Obligations. Griffin Gold hereby agrees to assume in the
Definitive Agreement all obligations that it owes to Schmitt or that LS Capital
would owe to Schmitt by virtue of Griffin Gold's use of the Technology,
including, without limitation, all payments of royalties and other amounts that
become due to Schmitt under the License Agreement solely by virtue of Griffin
Gold's use of the Technology.
<PAGE>
IN WITNESS WHEREOF, the undersigned have set their hands hereunto as of
the first date written above.
"GRIFFIN"
GRIFFIN GOLD GROUP, INC.
BY:_________________________________
Richard W. Lancaster, President
ADDRESS:__________________________
------------------------------------
"LS CAPITAL"
LS CAPITAL CORPORATION
BY:_________________________________
Paul J. Montle, President
ADDRESS: 15915 Katy Freeway,
Suite 250
Houston, Texas 77094
EXHIBIT 10.10 GRIFFIN GOLD GROUP, INC. 1998 STOCK OPTION PLAN
GRIFFIN GOLD GROUP, INC.
1998 STOCK OPTION PLAN
1. Purpose. This 1998 Stock Option Plan (the "Plan") is intended to provide
incentives: (a) to the officers and other employees of Griffin Gold Group, Inc.
(the "Company") and any present or future subsidiaries of the Company
(collectively "Related Corporations") by providing them with opportunities to
purchase stock in the Company pursuant to options granted hereunder which
qualify as "incentive stock options" under section 422(b) of the Internal
Revenue Code of 1986, as amended (the "Code") ("ISO" or "ISO's"); (b) to
directors, officers, employees and consultants of the Company and Related
Corporations by providing them with opportunities to purchase stock in the
Company pursuant to options granted hereunder which do not qualify as ISO's
("Non-Qualified Option" or "Non-Qualified Options"); (c) to directors, officers,
employees and consultants of the Company and Related Corporations by providing
then with awards of stock in the Company ("Awards"); and (d) to directors,
officers, employees and consultants of the Company and Related Corporations by
providing them with opportunities to make direct purchases of stock in the
Company ("Purchases"). Both ISO's and Non-Qualified Options are referred to
hereafter individually as an "Option" and collectively as "Options". Options,
Awards and authorizations to make Purchases are referred to hereafter
collectively as "Stock Rights". As used herein, the terms "parent" and
"subsidiary" mean "parent corporation" and "subsidiary corporation",
respectively, as those terms are defined In Section 424 of the Code.
2. Administration of the Plan.
A. Board or Committee Administration. The Plan shall be administered
by the Board of Directors of the Company (the "Board") or by a committee
appointed by the Board (the "Committee"); provided, that, to the extant required
by Rule 16b-3, or any successor provision ("Rule 16b-3"), of the Securities
Exchange Act of 1934, with respect to specific grants of Stock Rights, the Plan
shall be administered by a disinterested administrator or administrators within
the meaning of Rule 16b-3. Hereinafter, all references in this Plan to the
"Committee" shall mean the Board if no Committee has been appointed. Subject to
ratification of the grant or authorization of each Stock Right by the Board (if
so required by applicable state law), and subject to the terms of the Plan, the
Committee shall have the authority to (i) determine the employees of the Company
and Related Corporations (from among the class of employees eligible under
paragraph 3 to receive ISO's) to whom ISO's may be granted, and to determine
(from among the class of individuals and entities eligible under paragraph 3 to
receive Non-Qualified Options and Awards and to make Purchases) to whom
Non-Qualified Options, Awards and authorizations to make Purchases may be
granted; (ii) determine the time or times at which Options or Awards may be
granted or Purchases made; (iii) determine the option price of shares subject to
each Option, which price shall not be less than the minimum price specified in
paragraph 6, and the purchase price of shares subject to each Purchase; (iv)
determine whether each option granted shall be an ISO or a Non-Qualified Option;
(v) determine (subject to paragraph 7) the time or times when each Option shall
become exercisable, and the conditions which must be met prior to exercise, and
the duration of the exercise period; (vi) determine whether restrictions such as
repurchase options are to be imposed on shares subject to Options, Awards and
Purchases and the nature of such restrictions, if any; and (vii) interpret the
Plan and prescribe and rescind rules and regulations relating to it. If the
Committee determines to issue a Non-Qualified Option, it shall take whatever
actions it deems necessary, under Section 422 of the Code and the regulations
promulgated thereunder, to ensure that such option is not treated as an ISO. The
interpretation and construction by the Committee of any provisions of the Plan
or of any Stock Right granted under it shall be final unless otherwise
determined by the Board. The Committee may from time to time adopt such rules
and regulations for carrying out the Plan as it may deem best. No member of the
Board or the Committee shall be liable for any action or determination made in
good faith with respect to the Plan or any Stock Right granted under it.
B. Committee Actions. The Committee may select one of its member as
its chairman, and shall hold meetings at such time and places as it may
determine. Acts by a majority of the Committee, or acts reduced to or approved
in writing by a majority of the members of the Committee (if consistent with
applicable state law), shall be the valid acts of the Committee. From time to
time the Board may increase the size of the Committee and appoint additional
members thereof, remove members (with or without cause) and appoint new members
in substitution therefor, fill vacancies however caused, or remove all members
of the Committee and thereafter directly administer the Plan.
C. Grant of Stock Rights to Board Members. Stock Rights may be granted
to members of the Board consistent with the provisions of the first sentence of
paragraph 2 (A) above, if applicable. All grants of Stock Rights to members of
the Board shall in all other respects be made in accordance with the provisions
of this Plan applicable to other eligible persons. Members of the Board who
either (i) are eligible for Stock Rights pursuant to the Plan or (ii) have been
granted Stock Rights may vote on any matters affecting the administration of the
Plan or the grant of any Stock Rights pursuant to the Plan, except that no such
member shall act upon the granting to himself of Stock Rights but any such
member may be counted in determining the existence of a quorum at any meeting of
the Board during which action is taken with respect to the granting to him of
Stock Rights.
3. Eligible Employees and Others. ISO's may be granted to any employee of
the Company or any Related Corporation. Those officers and directors of the
Company who are not employees may not be granted ISO's under the Plan.
Non-Qualified Options, Awards and authorizations to make Purchases may be
granted to any employee, officer or director (whether or not also an employee)
or consultant of the Company or any Related Corporation. The Committee may take
into consideration a recipient's individual circumstances in determining whether
to grant an ISO, a Non-Qualified Option, an Award or an authorization to make a
Purchase. Granting of any Stock Right to any individual or entity shall neither
entitle that individual or entity to, nor disqualify him from, participation in
any other grant of Stock Rights.
4. Stock. The stock subject to Options, Awards and Purchases shall be
authorized but unissued shares of common stock of the Company, par value $.01
par share (the "Common Stock"), or shares of Common Stock reacquired by the
Company in any manner. The aggregate number of shares which may be issued
pursuant to the Plan in one million (1,000,000), subject to adjustment as
provided in paragraph 13. Any such shares may be issued as ISO's, Non-Qualified
Options or Awards, or to persons or entities making Purchases, so long as the
number of shares so issued does not exceed such number, an adjusted. If any
Option granted under the Plan shall expire or cease for any reason to be
exercisable in whole or in part, or if the Company shall reacquire any unvested
shares issued pursuant to Awards or Purchases, the unpurchased shares subject to
such Options and any unvested shares so reacquired by the Company shall again be
available for grants of Stock Rights under the Plan.
5. Granting of Stock Rights. Stock Rights may be granted under the Plan at
any time after January _____, 1998 and prior to January _____, 2008. The date of
grant of a Stock Right under the Plan will be the date specified by the
Committee at the time it grants the Stock Right; provided, however, that such
date shall not be prior to the date on which the Committee acts to approve the
grant. The Committee shall have the right, with the consent of the optionee, to
convert an ISO granted under the Plan to a Non-Qualified option pursuant to
paragraph 16.
6. Minimum Option Price; ISO Limitations.
A. Price for Non-Qualified Options. The exercise price par share
specified in the agreement relating to each Non-Qualified Option granted under
the Plan shall in no event be less than the minimum legal consideration required
therefor under the laws of Delaware or the laws of any jurisdiction in which the
Company or its Successors in interest may be organized.
B. Price for ISO's. The exercise price per share specified in the
agreement relating to each ISO granted under the Plan shall not be less than the
fair market value per share of Common Stock on the date of such grant. In the
case of an ISO to be granted to an employee owning stock possessing more than
ten percent (10%) of the total combined voting power of all classes of stock of
the Company or any Related Corporation, the price per share specified in the
agreement relating to such ISO shall not be less than one hundred ten percent
(110%) of the fair market value per share of Common Stock on the date of grant.
C. $100,000 Annual Limitation on ISO'S. Each eligible employee may be
granted ISO's only to the extent that, in the aggregate under this Plan and all
incentive stock option plans of the Company and any Related Corporation, 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. Any options granted to an employee in excess of such
amount will be granted as Non-Qualified Options.
D. Determination of Fair Market Value. If, at the time an option in
granted under the Plan, the Company's Common Stock is publicly traded, "fair
market value" shall be determined as of the last business day for which the
prices or quotas discussed in this sentence are available prior to the date such
option is granted and shall mean (i) the average (on that date) of the high and
low prices of the Common Stock on the principal national securities exchange on
which the Common Stock is traded, if the Common Stock is then traded on a
national securities exchange; or (ii) the last reported sale price (on that
date) of the Common Stock on the NASDAQ National Market List, if the Common
Stock is not then traded on a national securities exchange, or (iii) the closing
bid price (or average of bid prices) last quoted (on that date) by an
established quotation service for over-the-counter securities, if the Common
Stock is not reported on the NASDAQ National Market List. However, if the Common
Stock is not publicly traded at the time an Option is granted under this Plan,
"fair market value" shall be deemed to be the fair value of the Common Stock as
determined by the Committee after taking into consideration all factors which it
deems appropriate, including, without limitation, recent sale and offer prices
of the Common Stock in private transactions negotiated at arm's length.
7 Option Duration. Subject to earlier termination as provided In paragraphs
9 and 10, each Option shall expire on the date specified by the Committee, but
not more than (i) ten years and one day from the date of grant in the case of
Non-Qualified Options, (ii) ten years from the date of grant in the case of
ISO's generally, and (iii) five years from the date of grant in the case of
ISO's granted to an employee owning stock possessing more than ten percent (10%)
of the total combined voting power of all classes of stock of the Company or any
Related Corporation. Subject to earlier termination as provided in paragraphs 9
and 10, the term of each ISO shall be the term set forth in the original
instrument granting such ISO, except with respect to any part of such ISO that
is converted into a Non-Qualified option pursuant to paragraph 16.
8. Exercise of Option. Subject to the provisions of paragraphs 9 through
12, each Option granted under the Plan shall be exercisable as follows:
A. Vesting. The Option shall either be fully exercisable on the
date of grant or shall become exercisable thereafter in such installments as
the Committee may specified.
B. Full Vesting of Installments. Once an installment becomes
exercisable it shall remain exercisable until expiration termination of the
option, unless otherwise specified by the Committee.
C. Partial Exercise. Each option or installment may be exercised at
any time or from time to time, in whole or in part, for up to the total number
of shares with respect to which it in then exercisable.
D. Acceleration of Vesting. The Committee shall have the right to
accelerate the date of exercise of any installment of any Option; provided that
the Committee shall not, without the consent of an optionee, accelerate the
exercise date of any installment of any Option granted to any employee as an ISO
(and not previously converted into a Non-Qualified Option pursuant to paragraph
16) if such acceleration would violate the annual vesting limitation contained
in Section 422(d) of the Code, as described in paragraph 6(C).
9. Termination of Employment. If an ISO optionee ceases to be employed by
the Company and all Related Corporation other than by reason of death or
disability as defined in paragraph 10, no further installments of his ISO's
shall become exercisable, and his ISO's shall terminate on the date of
termination of his employment in the event of his voluntary termination of
employment, and on the date thirty (30) days after the termination of his
employment in the event of involuntary termination of employment, but in no
event later than on their specified expiration dates. Employment shall be
considered as continuing uninterrupted during any bona fide leave of absence
(such as those attributable to illness, military obligations or governmental
service) provided that the period during which such optionee's right to
reemployment is guaranteed by statute. A bona fide leave of absence with the
written approval of the Committee shall not be considered an interruption of
employment under the Plan, provided that such written approval contractually
obligates the Company or any Related Corporation to continue the employment of
the optionee after the approved period of absence. ISO's granted under the Plan
shall not be affected by any change of employment within or among the Company
and Related Corporation, so long as the optionee continues to be an employee of
the Company or any Related Corporation. Nothing in the Plan shall be deemed to
give any grantee of any Stock Right the right to be retained in employment or
other service by the Company or any Related Corporation for any period of time.
10. Death; Disability.
A. Death. If an ISO optionee ceases to be employed by the Company and
all Related Corporation by reason of his death, any ISO of his may be exercised,
to the extent of the number of shares with respect to which he could have
exercised it on the date of his death, by his estate, personal representative or
beneficiary who has acquired the ISO by will or by the laws of descent and
distribution, at any time prior to the earlier of the specified expiration date
of the ISO or 180 days from the date of the optionee's death.
B. Disability. If an ISO optionee ceases to be employed by the Company
and all Related Corporations by reason of his disability, he shall have the
right to exercise any ISO held by him on the date of termination of employment,
to the extent of the number of shares with respect to which he could have
exercised it on that date, at any time prior to the earlier of the specified
expiration date of the ISO or 180 days from the date of the termination of the
optionee's employment. For the purposes of the Plan, the term "disability" shall
mean "permanent and total disability" as defined in Section 22(e)(3) of the Code
or successor statute.
11. Assignability. No option shall be assignable or transferrable by the
optionee except by will or by the laws of descent and distribution or, with
respect to Non-Qualified Options, pursuant to a qualified domestic relations
order as defined in the code or Title I of the Employee Retirement Income
Security Act, or the rules thereunder. During the lifetime of the optionee each
Option shall be exercisable only by him.
12. Terms and Conditions of Options. Options shall be evidenced by
instruments (which need not be identical) in such forms as the Committee may
from time to time approve. Such instruments shall conform to the terms and
conditions set forth in paragraphs 6 through 11 hereof and may contain such
other provisions as the Committee deems advisable which are not inconsistent
with the Plan, including restrictions applicable to shares of Common Stock
issuable upon exercise of Options. In granting any Non-Qualified Option, the
Committee may specify that such Non-Qualified Option shall be subject to the
restrictions set forth herein with respect to ISO's, or to such other
termination and cancellation provisions as the Committee may determine. The
Committee may from time to time confer authority and responsibility on one or
more of its own members and/or one or more officers of the Company to execute
and deliver such instruments. The proper officers of the Company are authorized
and directed to take any and all action necessary or advisable from time to time
to carry out the terms of such instruments.
13. Adjustments. Upon the occurrence of any of the following events, an
optionee's rights with respect to Options granted to him hereunder shall be
adjusted as hereinafter provided, unless otherwise specifically provided in the
written agreement between the optionee and the Company relating to such Option:
A. Stock Dividends and Stock Splits. If the shares of Common Stock
shall be subdivided or combined into a greater or smaller number of shares or if
the Company shall issue any shares of Common Stock as a stock dividend on its
outstanding Common Stock, the number of shares of Common Stock deliverable upon
the exercise of Options shall be appropriately increased or decreased
proportionately, and appropriate adjustments shall be made in the purchase price
per share to reflect such subdivision, combination or stock dividend.
B. Consolidation or Mergers. If the Company is to be consolidated with
or acquired by another entity in a merger, sale of all or substantially all of
the Company's assets or otherwise (an "Acquisition"), the Committee or the board
of directors of any entity assuming the obligations of the Company hereunder
(the "Successor Board"), shall, as to outstanding Options, either (i) make
appropriate provision for the continuation of such Options by substituting on an
equitable basis for the shares then subject to such Options the consideration
payable with respect to the outstanding shares of Common Stock in connection
with the Acquisition; or (ii) upon written notice to the optionees, provide that
all Options must be exercised, to the extent then exercisable, within a
specified number of days of the date of such notice, at the end of which period
the Options shall terminate; or (iii) terminate all Options in exchange for a
cash payment equal to the excess of the fair market value of the shares subject
to such Options (to the extent then exercisable) over the exercise price
thereof.
C. Recapitalization or Reorganization. In the event of a
recapitalization or reorganization of the Company (other than a transaction
described in subparagraph B above) pursuant to which securities of the Company
or of another corporation are issued with respect to the outstanding shares of
Common Stock, an optionee upon exercising an Option shall be entitled to receive
for the purchase price paid upon such exercise the securities he would have
received if he had exercised his option prior to such recapitalization or
reorganization.
D. Modification of ISO'S. Notwithstanding the foregoing, any
adjustments made pursuant to subparagraphs A, B or C with respect to ISO's shall
be made only after the Committee, after consulting with counsel for the Company,
determines whether such adjustments would constitute a "modification" of such
ISO's (as that term is defined in Section 424 of the Code) or would cause any
adverse tax consequences for the holders of such ISO's. If the Committee
determines that such adjustments made with respect to ISO's would constitute a
modification of such ISO's, it may refrain from making such adjustments.
E. Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, each Option will terminate
immediately prior to the consummation of such proposed action or at such other
time and subject to such other conditions as shall be determined by the
Committee.
F. Issuances of Securities. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
subject to Options. No adjustments shall be made for dividends paid in cash or
in property other than securities of the Company.
G. Fractional Shares. No fractional shares shall be issued
under the Plan and the optionee shall receive from the Company cash in lieu of
such fractional shares.
H. Adjustments. Upon the happening of any of the events described
subparagraphs A, B or C above, the class and aggregate number of shares set
forth in paragraph 4 hereof that are subject to Stock Rights which previously
have been or subsequently may be granted under the Plan shall also be
appropriately adjusted to reflect the events described in such subparagraphs.
The Committee or the Successor Board shall determine the specific adjustments to
be made under this paragraph 13 and, subject to paragraph 2, its determination
shall be conclusive.
If any person or entity owning restricted Common Stock obtained by exercise
of a Stock Right made hereunder receives shares or securities or cash in
connection with a corporate transaction described in subparagraphs A, B or C
above as a result of owning such restricted Common Stock, such shares or
securities or cash shall be subject to all of the conditions and restrictions
applicable to the restricted Common Stock with respect to which such Shares or
securities or cash were issued, unless otherwise determined by the Committee or
the Successor Board.
14. Means of Exercising Stock Rights. A Stock Right (or any part or
installment thereof) shall be exercised by giving written notice to the Company
at its principal office address. Such notice shall identify the Stock Right
being exercised and specify the number of shares as to which such Stock Right is
being exercised, accompanied by full payment of the purchase price therefor
either (a) in United States dollars in cash or by check; (b) at the discretion
of the Committee, through delivery of shares of Common Stock having a fair
market value equal as of the date of the exercise to the cash exercise price of
the Stock Right; (c) at the discretion of the Committee, by delivery of the
grantee's personal recourse note bearing interest payable not less than annually
at no less than 100% of the lowest applicable Federal rate, as defined in
Section 1274 (d) of the Code; (d) at the discretion of the Committee and
consistent with applicable law, through the delivery of an assignment to the
Company of a sufficient amount of the proceeds from the sale of the Common Stock
acquired upon exercise of the Stock Right and an authorization to the broker or
selling agent to pay that amount to the Company, which sale shall be at the
participants direction at the time of exercise; or (e) at the discretion of the
Committee, by any combination of (a), (b), (c) and (d) above. If the Committee
exercises its discretion to permit payment of the exercise price of an ISO by
means of the methods set forth in clauses (b), (c), (d) or (e) of the preceding
sentence, such discretion shall be exercised in writing at the time of the grant
of the ISO in question. The holder of a Stock Right shall not have the rights of
a shareholder with respect to the shares covered by his Stock Right until the
date of issuance of a stock certificate to him for such shares. Except as
expressly provided above in paragraph 13 with respect to changes in
capitalization and stock dividends, no adjustment shall be made for dividends or
similar right for which the record date is before the date such stock
certificate is issued.
15. Term and Amendment of Plan. This Plan was adopted by the Board on
January ____, 1998, subject (with respect to the validation of ISO's granted
under the Plan) to approval of the Plan by the stockholders of the Company at
the next meeting of Stockholders or, in lieu thereof, by written consent. If the
approval of stockholders in not obtained prior to January _____, 1999, any
grants of ISO's under the Plan made prior to that date will be rescinded. The
Plan shall expire at the end of the day on January _____, 2008 (except as to
Options outstanding on that date). Subject to the provisions of paragraph 5
above, Stock Rights may be granted under the Plan prior to the date of
stockholder approval of the Plan. The Board may terminate or amend the Plan in
any respect at any time, except that, without the approval of the stockholders
obtained within 12 months before or after the Board adopts a resolution
authorizing any of the following actions: (a) the total number of shares that my
be issued under the Plan may not be increased (except by adjustment pursuant to
paragraph 13); (b) the provisions of paragraph 3 regarding eligibility for
grants of ISO's may not be modified; (c) the provisions of paragraph 6(B)
regarding the exercise price at which shares may be offered pursuant to ISO's
may not be modified (except by adjustment to paragraph 13); and (d) the
expiration date of the Plan may not be extended. Except as otherwise provided in
this paragraph 15, in no event may action of the Board or stockholders alter or
impair the rights of a grantee, without his consent, under any Stock Right
previously granted to him.
16. Conversion of ISO's into Non-Qualified Options; Termination of ISO's.
The Committee, at the written request of any optionee, may in its discretion
take such actions as may be necessary to convert such optionee's ISO's (or any
installments or portions of installments thereof) that have not been exercised
on the date of conversion into Non-Qualified Options at any time prior to the
expiration of such ISO's, regardless of whether the optionee in an employee of
the Company or a Related Corporation at the time of such conversion. Such
actions may include, but not be limited to, extending the exercise period or
reducing the exercise price of the appropriate installments of such ISO'S. At
the time of such conversion, the Committee (with the consent of the optionee)
may impose such conditions on the exercise of the resulting Non-Qualified
Options as the Committee in its discretion may determine, provided that such
conditions shall not be inconsistent with this Plan. Nothing in the Plan shall
be deemed to give any optionee the right to have such optionee's ISO's converted
into Non-Qualified Options, and no such conversion shall occur until and unless
the Committee takes appropriate action. The Committee, with the consent of the
optionee, may also terminate any portion of any ISO that has not been exercised
at the time of such termination.
17. Application of Funds. The proceeds received by the Company from the
sale of shares pursuant to Options granted and Purchases authorized under the
Plan shall be used for general corporate purposes.
18. Governmental Regulation. The Company's obligation to sell and deliver
shares of the Common Stock under this Plan is subject to the approval of any
governmental authority required in connection with the authorization, issuance
or sale of such shares.
19. Withholding of Additional Income Taxes. Upon the exercise of a
Non-Qualified Option, the grant of an Award, the making of a Purchase of Common
Stock for less than its fair market value, the making of a Disqualifying
Disposition (as defined in paragraph 20) or the vesting of restricted Common
Stock acquired on the exercise of a Stock Right hereunder, the Company, in
accordance with Section 3402(a) of the Code, may require the optionee, Award
recipient or purchaser to pay additional withholding taxes in respect of the
amount that is considered compensation includible in such person's gross income.
The Committee in its discretion may condition (i) the exercise of an Option,
(ii) the grant of an Award, (iii) the making of a Purchase of Common Stock for
less than its fair market value, or (iv) the vesting of restricted Common Stock
acquired by exercising a Stock Right, on the grantee's payment of such
additional withholding taxes.
20. Notice to Company of Disqualifying Disposition. Each employee who
receives an ISO must agree to notify the Company in writing immediately after
the employee makes a Disqualifying Disposition of any Common Stock acquired
pursuant to the exercise of an ISO. A Disqualifying Disposition is any
disposition (including any sale) of such Common Stock before the later of (a)
two years after the date the employee was granted the ISO, or (b) one year after
the date the employee acquired Common Stock by exercising the ISO. If the
employee has died before such stock is sold, those holding period requirements
do not apply and no Disqualifying Disposition can occur thereafter.
21. Governing Law; Construction. The validity and construction of the Plan
and the instruments evidencing Stock Rights shall be governed by the laws of the
State of Delaware, or the laws of any jurisdiction in which the Company or its
successors in interest may be organized. In construing this Plan, the singular
shall include the plural and the masculine gender shall include the feminine and
neuter, unless the context otherwise requires.
EXHIBIT 23.01
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this amended Registration Statement of Griffin Gold
Group, Inc. on Form SB-2 of our reports dated January 13, 1998 and October 20,
1997, appearing in the Prospectus, which is part of this Registration Statement,
and of our report dated October 20, 1997 relating to the financial statement
schedules appearing elsewhere in this Registration Statement, and to the
reference to us under the heading "Experts" in such Prospectus.
MALONE & BAILEY
Houston, Texas
January 21, 1998
<PAGE>
January 20, 1998
Griffin Gold Group, Inc.
15915 Katy Freeway, Suite 250
Houston, TX 77094
We have reviewed, in accordance with standards established by the American Insti
tute of Certified Public Accountants, the unaudited interim financial
information of Griffin Gold Group, Inc. for the three months ended September 30,
1997, as indicated in our report dated January 13, 1998; because we did not
perform an audit, we expressed no opinion on that information.
We are aware that our report referred to above is being used in this
Registration Statement.
We also are aware that the aforementioned report, pursuant to Rule 436(c) under
the Securities Act of 1933, is not considered a part of the Registration
Statement prepared or certified by an accountant or a report prepared or
certified by an accountant within the meaning of Sections 7 and 11 of that Act.
MALONE & BAILEY, PLLC
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<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM ITEM 22
OF FORM SB-S/A FOR THREE MONTHS ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
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