SCHEDULE 14C INFORMATION
INFORMATION STATEMENT PURSUANT TO SECTION 14(C) OF THE SECURITIES
EXCHANGE ACT OF 1934
Check the appropriate box:
[X] Preliminary Information Statement
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14c-5(d)(2))
[ ] Definitive Information Statement
DRAGON MINING CORPORATION
(Name of Registrant As Specified in Its Charter)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
1) Title of each class of securities to which transaction
applies:______________________________________________
2) Aggregate number of securities to which transaction
applies:______________________________________________
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the
amount on which the filing fee is calculated and state how it
was determined):
------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
------------------------------------------------------
5) Total fee paid:
------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
1) Amount Previously Paid:_______________________________
2) Form, Schedule or Registration Statement No.:_________
3) Filing Party:_________________________________________
4) Date Filed:___________________________________________
<PAGE>
DRAGON MINING CORPORATION
- --------------------------------------------------------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JULY 31, 1998
- --------------------------------------------------------------------------------
The Annual Meeting of the Shareholders of Dragon Mining Corporation (the
"Company") will be held on Friday, July 31, 1998 at 10:00 A.M. (local time) at
Suite 7, 107 West Wade Lane, Payson, Arizona 85547- 0009 for the following
purposes:
(1) To elect four members of the Board of Directors to hold office
until the next annual meeting of shareholders, or until their
successors are duly elected and qualify;
(2) To amend the article of incorporation to increase the number
of Authorized Common Shares from 25,000,000 to 50,000,000
shares;
(3) To ratify the issuance of 15,000,000 shares to Marbella
Capital Corp. at a deemed price of $0.001 per share for a
total of $15,000, which was approved by the Company's sole
acting director, Mr. Thomas Crom, on July 11, 1995;
(4) To approve the issuance of 21,000,000 shares to Marbella
Capital Corp. at a deemed price of $0.10 per share (prior to
the reverse-split) to retire debt of $2,100,000;
(5) To consider and act upon a Plan of Recapitalization to
reverse-split the outstanding Common Stock by changing each 10
issued and outstanding shares into one issued and outstanding
share of Common Stock;
(6) To amend the articles of incorporation to change the name of
the Corporation from "Dragon Mining Corporation" to "Dragon
Diamond Corporation";
(7) To approve and adopt the Company's 1998 Stock Option Plan;
(8) To approve and adopt the Company's 1998 Restricted Stock Plan;
and
(9) To transact such other business as properly may come before
the meeting.
Only shareholders of record at the close of business on June 30, 1998
will be entitled to vote at the meeting. The transfer books of the Company will
not be closed.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY.
By order of the Board of Directors:
Aubrey L. McGinnis, Secretary
Vancouver, Canada
July 21, 1998
<PAGE>
DRAGON MINING CORPORATION
107 West Wade Lane, Suite 7
Payson, Arizona 85547-0009
(520) 474-9151
INFORMATION STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
to be held July 31, 1998
INTRODUCTION
This Information Statement will be first sent or given to shareholders
of Dragon Mining Corporation (the "Company") on or about July 21, 1998, in
connection with the Annual Meeting of Shareholders to be held at 10:00 A.M.
(local time), July 31, 1998 at 107 West Wade Lane, Suite 7, Payson, Arizona (the
"Annual Meeting").
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF VOTING SECURITIES
The securities entitled to vote at the Annual Meeting consist of all of
the issued and outstanding shares of the Company's $.001 par value common stock
(the "Common Stock"). The close of business on June 30, 1998, has been fixed by
the Board of Directors of the Company as the record date. Only shareholders of
record as of the record date may vote at the Annual Meeting. As of the record
date, there were 23,143,826 shares of Common Stock issued and outstanding.
VOTING RIGHTS AND REQUIREMENTS
Each shareholder of record as of the record date will be entitled to
one vote for each share of Common Stock held as of the record date.
QUORUM AND VOTES REQUIRED FOR APPROVAL. The presence at the Annual
Meeting of the holders of an amount of shares of each class of stock entitled to
vote at the meeting, representing the right to vote shares of Common Stock of
not less than a majority of the number of shares of Common Stock outstanding as
of the record date will constitute a quorum for the transaction of business. The
affirmative vote of a majority of the outstanding shares is necessary to approve
the amendment to the articles of incorporation to increase the number of
authorized shares. The affirmative vote of the majority of shares represented at
the meeting and entitled to vote thereat is necessary to elect the Board of
Directors, to ratify the prior issuance of shares, to approve the issuance of
shares for debt, to approve the Plan of Recapitalization, to adopt the 1998
Stock Option Plan, to adopt the 1998 Restricted Stock Plan, and to approve all
other matters that may come before the Annual Meeting.
Page 1
<PAGE>
PRINCIPAL SECURITY HOLDERS. The following table sets forth information,
as of the record date, with respect to the beneficial ownership of the Company's
Common Stock by each person known by the Company to be the beneficial owner of
more than five percent (5%) of the outstanding Common Stock, and by directors,
nominees, and officers of the Company, and by officers and directors as a group.
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE OF
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT OF CLASS (1)<F1>
<S> <C> <C>
Marbella Capital Corp. (2) 19,541,877 (3)<F3>(4)<F4> 84.44%
1305-1090 West Georgia Street
Vancouver, BC V6E 3V7
Thomas J. Ian Wright 1,513,959 6.54%
128 Limmer Lane
Felpham, W. Bogner Regis
W. Sussex, United Kingdom
Thomas L. Crom -0- (5)<F5> 0%
P.O. Box 9
Payson, Arizona 85547
Larry N. Lorenz -0- (4)<F4> 0%
Suite 515, 625 Howe Street
Vancouver, B.C. Canada V6C 2T6
Aubrey L. McGinnis -0- (4)<F4> 0%
Suite 515, 625 Howe Steet
Vancouver, B.C. Canada V6C 2T6
Euro-Carib Consultants Ltd. -0- (4)<F4> 0%
P.O. Box N 10697
Kings Court Bay Street
Nassau, Bahamas
Middlegate Financial Limited -0- (4)<F4> 0%
3rd Floor Bahamas Financial Center
P.O. Box N 4584
Nassau Bahamas
Middlegate Financial Ltd. -0- (4)<F4> 0%
C/O Obelisk International Trust Company
Lynwood House
37 Hill Street
St. Helier, Jersey
Page 2
<PAGE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE OF
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT OF CLASS (1)<F1>
<S> <C> <C>
All officers and directors as a
group (4 persons) 21,055,836 90.98%
<FN>
<F1>
(1) Based on 23,143,826 shares outstanding. Where the persons listed on this
table have the right to obtain additional shares within 60 days from June 30,
1998, these additional shares are deemed to be outstanding for the purpose of
computing the percentage of each class owned by such persons, but are not deemed
to be outstanding for the purpose of computing the percentage of any other
person.
<F2>
(2) Marbella Capital Corp. ("Marbella") is a privately owned Canadian
corporation which is owned 40% by Anton Hendriksz, 30% by Nick DeMare and 30% by
Thomas L. Crom. Mr. Crom is a director of the Company. Messrs. Hendriksz and
DeMare are former directors. See "Voting Securities and Principal Holders
Thereof - Changes in Control."
<F3>
(3) Subject to shareholder approval, Marbella will receive an additional
21,000,000 shares (pre-split) in exchange for the cancellation of debt in the
amount of $2,100,000 owed by the Company to Marbella. See "Proposal 4: To
Approve The Issuance of 21,000,000 Shares to Marbella Capital Corp. At a Deemed
Price of $0.10 to Retire Debt of $2,100,000." After such issuance, Marbella
would own 40,541,877 shares, or 91.84% of the outstanding Common Stock of the
Company.
<F4>
(4) On July 6, 1998 Marbella arranged a sale of 36,649,860 shares (pre-split) of
the Company's Common Stock (the "Control Shares") to a group of 15 investors
(the "Investors"). The Control Shares include 21,000,000 shares to be issued to
Marbella as described in "Proposal 4: To Approve The Issuance of 21,000,000
Shares to Marbella Capital Corp. At a Deemed Price of $0.10 to Retire Debt of
$2,100,000." The consideration given to Marbella by the Investors consists of a
promissory note in the amount of $25,000 bearing interest at 8% per year. The
Investors will collectively own 83% of the Company's then outstanding shares.
The names, number of shares purchased and percentage owned by these eleven
investors are as follows:
PURCHASER NUMBER OF SHARES PERCENTAGE OF OUTSTANDING
Larry N. Lorenz(a) 6,250,000 14.16
Aubrey L. McGinnis(a) 2,145,360 4.86
Adana Investments Limited 2,150,000 4.87
c/o Obelisk International Trust Company
Lynwood House
37 Hill Street
St. Heiler, Jersey JE2 4UA
Page 3
<PAGE>
PURCHASER NUMBER OF SHARES PERCENTAGE OF OUTSTANDING
Lusaka Investments Limited 2,150,000 4.87
c/o Obelisk International Trust Company
Lynwood House
37 Hill Street
St. Heiler, Jersey JE2 4UA
Mabalane Investments Limited 2,200,000 4.98
c/o Obelisk International Trust Company
Lynwood House
37 Hill Street
St. Heiler, Jersey JE2 4UA
Perlogos Investments Limited 2,200,000 4.98
c/o Obelisk International Trust Company
Lynwood House
37 Hill Street
St. Heiler, Jersey JE2 4UA
Dresden Investments S.A. 2,150,000 4.87
Suite 61 Grosvenor Close
Box N 7521
Nassau, Bahamas
Euro-Carib Consultants Ltd. 2,150,000 4.87
P.O. Box N 10697
Kings Court Bay Street
Nassau, Bahamas
Middlegate Investments Limited 2,150,000 4.87
3rd Floor Bahamas Financial Center
P.O. Box N 4584
Nassau, Bahamas
Middlegate Investments Ltd. 2,150,000 4.87
c/o Obelisk International Trust Company
Lynwood House
37 Hill Street
St. Heiler, Jersey JE2 4UA
Millport Securities Inc. 2,150,000 4.87
Suite M2 Charlote House
P.O. Box N 4825
Nassau, Bahamas
Pacific Rim Capital Ltd. 2,201,150 4.99
7 Prince Street
Belize City, Belize
Page 4
<PAGE>
PURCHASER NUMBER OF SHARES PERCENTAGE OF OUTSTANDING
China Belle Financial Corp. 2,201,150 4.99
P.O. Box 192
Grande Turk, Turks & Caicos Islands
British West Indies
Lay Eng Sei 2,201,100 4.99
Blk 770,
Pasir Ris Street 71, #11-344
Singapore 510770
Tanya Beauchemin 2,201,100 4.99
3240 Chrome Crescent
Coquitlam, British Columbia V3E 1M5
TOTAL 36,649,860 83.02
(a) Messrs. Lorenz and McGinnis are officers and directors of the Company. See "Proposal 1: Election of
Directors."
<F5>
(5)Mr. Crom had unpaid but accrued compensation as follows: $4,800 for 1997 and
$4,800 for 1996. On July 7, 1998, Mr. Crom agreed to accept 96,000 shares of the
Company's Common Stock valued at $0.10 per share (prior to the reverse-split) in
payment for his services.
</FN>
</TABLE>
CHANGES IN CONTROL
See footnote 4 to the table of Principal Security Holders above.
As part of the sales agreements with Marbella it was agreed that two of
those investors, Larry Lorenz and Aubrey L. McGinnis would become directors.
Messrs. Lorenz and McGinnis became directors on July 6, 1998, replacing Anton
Hendriksz and Nick DeMare who resigned on the same date.
There are no other arrangements known to the Company, including any
pledge by any person of securities of the Company, the operation of which may,
at a subsequent date, result in a further change in control of the Company.
MATTERS TO ACTED UPON
PROPOSAL 1: ELECTION OF DIRECTORS
The directors of the Company are elected to serve until the next annual
shareholders' meeting or until their respective successors are elected and
qualify. Officers of the Company hold office until the meeting of the Board of
Directors immediately following the next annual shareholders' meeting or until
removal by the Board of Directors. Interim replacements for resigning directors
and officers are appointed by the Board of Directors.
Page 5
<PAGE>
The names of the nominees for directors and certain information about
them are set forth below:
<TABLE>
NAME AGE POSITION WITH THE BUSINESS EXPERIENCE
COMPANY
<S> <C> <C> <C>
Larry N. Lorenz 47 Director, Chief Since July 6, 1998 Mr. Lorenz has been the CEO
Executive Officer and a Director of the Company. Since 1985, Mr.
and Director Lorenz is a Director and Management
representative for IBIS International Group of
Companies, based in Vancouver, Canada that is
an international business consortium that
undertakes business and financial transactions,
investments, project development and merchant
banking. Mr. Lorenz acts as a "Diamond Industry
Consultant" for developing and operational
companies whose interests are in the emerging
nations.
Aubrey L. McGinnis 54 Director and Since July 6, 1998 Mr. McGinnis has been a
Corporate Director and Corporate Secretary of Dragon. Mr.
Secretary McGinnis is a Law School graduate with
experience in corporate and commercial law. A
member of the Alberta Bar since 1973, Mr.
McGinnis has a broad range of experience
including tax mitigation, commercial contract
design and litigation. From June 1996 to June
1997, Mr. McGinnis consulted with individuals
and companies regarding tax shelters in Canada.
From February 1995 to June 1996, Mr. McGinnis
was employed as Director of Operations of
Erickson College, a private post secondary
institution in British Columbia. From February
1994 to February 1995, Mr. McGinnis consulted
with individuals and companies regarding the
funding of projects. Mr. McGinnis was employed
as Director of Operations of BCNLP Institute,
Vancouver, Canada, from June 1993 to February
1994.
Page 6
<PAGE>
Thomas L. Crom 42 Director, Chief From February 1988 until May 30, 1998 Mr.
Financial Officer Crom was President of Dragon. From February
and Treasurer 1988 to the present Mr. Crom has been a
Director, Chief Financial Officer and
Treasurer. Mr. Crom is President and co-founder
of Eureka Ventures a private management
consulting firm located in Payson, Arizona,
which provides services to the mining industry.
Mr. Crom is also president of SADIA a private
diamond exploration company which has
properties in Venezuela. Mr. Crom is a
certified public accountant, a certified
management accountant and has a masters degree
in business. He has been involved in the mining
business for 15 years. Thomas J. Ian Wright 69
Chairman and Chairman of the Board since June
1994, Mr. Director Wright has also been the
director of European Operations for Barrington
Communications Group, located in New York, New
York, since 1992. Mr. Wright is also a director
of Butte Mining Ltd and Dunlap Resources, both
of which are mining companies located in the
United Kingdom. From 1977 through 1992 he was a
mining consultant for Laing & Cruickshank a
stock brokerage firm based in the United
Kingdom.
</TABLE>
The following table sets forth, as of the date of this Information
Statement, the names of the Company's executive officers, including all
positions and offices held by such person. These officers are elected to hold
office for one year or until their respective successors are duly elected and
qualified:
NAME POSITION WITH THE COMPANY
Larry N. Lorenz Director, Chief Executive Officer, President and Director
Aubrey L. McGinnis Director and Corporate Secretary
Thomas L. Crom Director, Treasurer and Chief Financial Officer
Thomas J. Ian Wright Chairman and Director
Except as otherwise indicated below, no organization by which any
officer or director previously has been employed in an affiliate, parent or
subsidiary of the Company.
Page 7
<PAGE>
On July 7, 1998 the Company formed separate audit, nominating, or
compensation committees of the Board of Directors. The committee members are:
Larry N. Lorenz, Aubrey L. McGinnis, Thomas L. Crom and Thomas J. Ian Wright.
Messrs. Crom and Wright were directors through 1997. There have been no
official meetings of the board during 1997.
COMPLIANCE WITH SECTION 16 (A) OF THE EXCHANGE ACT
During the fiscal year ended December 31, 1997, Marbella Capital Corp.
and Mr. Wright failed to timely file a Form 5 with the Securities and Exchange
Commission as required by Section 16(a) of the Securities Exchange Act of 1934,
as amended.
EXECUTIVE COMPENSATION
The following table sets forth in summary form the compensation
received during each of the Company's last three completed fiscal years by the
Chief Executive Officer of the Company. There was no executive officer of the
Company whose total salary and bonus exceeded $100,000 in the Company's fiscal
year ended December 31, 1997.
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
LONG TERM COMPENSATION
ANNUAL COMPENSATION AWARDS PAYOUTS
RESTRICTED
NAME AND STOCK LTIP ALL OTHER
PRINCIPAL OTHER ANNUAL AWARD(S) OPTIONS/SARS PAYOUTS COMPEN
POSITION YEAR SALARY BONUS COMPENSATION ($) ($) ($) ($) SATION ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Thomas L. 1997 $4,800(1)<F1> -0- -0- -0- -0- -0- -0-
Crom, 1996 $4,800(1)<F1> -0- -0- -0- -0- -0- -0-
former 1995 $-0- -0- -0- -0- -0- -0- -0-
President
and Chief
Executive
Officer (2)<F2>
<FN>
<F1>
(1) Mr. Crom had unpaid but accrued compensation as follows:$4,800 for 1997
and $4,800 for 1996. On July 7, 1998, Mr. Crom agreed to accept 96,000
shares of the Company's Common Stock valued at $0.10 per share (prior
to the reverse-split) in payment for his services. See "Proposal 1:
Election of Directors - Certain Transactions."
<F2>
(2) Mr. Crom resigned as President and Chief Executive Officer on May 30,
1998. On that date Mr. Lorenz became the Chief Executive Officer of the
Company.
</FN>
</TABLE>
Employment agreements with the Company's executive officers are
described below in "Employment Agreements."
Page 8
<PAGE>
The Company does not pay non-officer directors for their services nor
does it pay any director's fees for attendance at meetings. Directors are
reimbursed for any expenses incurred by them in their performance as directors.
The Company does not have a pension or retirement plan.
STOCK OPTION PLAN
The Company adopted an Incentive Stock Option plan on December 18,
1984, which expired on October 31, 1994. There are no outstanding stock options
from that plan. The Company is proposing to adopt a new Stock Option Plan and
Restricted Stock Plan. See "Proposal 7: Adoption of 1998 Stock Option Plan" and
"Proposal 8: Adoption of 1998 Restricted Stock Plan."
EMPLOYMENT AGREEMENTS
There are no employments agreements with any of the officers of the
Company.
CERTAIN TRANSACTIONS
During 1997 and 1996, the Company was charged management, consulting,
and office administration fees of $4,800 per year by Thomas L. Crom. On June 24,
1998 Mr. Crom agreed to accept 96,000 shares (pre-split) of Dragon common stock
valued at $0.10 per share as payment of those fees.
During 1997 and 1996 interest expense of $168,000 on the Note payable
to Marbella was canceled. See "Financial Statements."
PROPOSAL 2: AMEND ARTICLES OF INCORPORATION TO INCREASE THE
AUTHORIZED COMMON SHARES FROM 25,000,000 TO 50,000,000
The Board of Directors has proposed, subject to shareholder approval,
to amend the Articles of Incorporation to increase the authorized number of
shares of Common Stock from 25,000,000 to 50,000,000.
REASONS FOR THE INCREASE OF AUTHORIZED COMMON SHARES
This will allow the Company to pay the outstanding debt of $2,100,000
to Marbella Capital Corp (as indicated in "Proposal 3: to Approve The Issuance
of 21,000,000 Shares to Marbella Capital Corp. At a Deemed Price of $0.10 to
Retire Debt of $2,100,000"), purchase other business opportunities through the
issuance of additional shares, and allow incentives to management through stock
options plans. See "Proposal 7: Adoption of 1998 Stock Option Plan" and
"Proposal 8: Adoption of 1998 Restricted Stock Plan."
Management is presently negotiating a joint venture agreement with
Youssef Diamond Mining Company, a Liberian corporation ("Youssef"). Youssef is
the holder and operator of various diamond and valuable mineral concessions
located in the Republic of Liberia. Management believes the Company will be
required to issue a number of shares to Youssef, along with options to acquire
additional shares, as part of the joint venture agreement.
Page 9
<PAGE>
The terms of the joint venture agreement are not expected to result in
a change of control of the Company.
PROPOSAL 3: TO RATIFY THE ISSUANCE OF 15,000,000 SHARES TO MARBELLA
CAPITAL CORP. AT A DEEMED PRICE OF $0.001 FOR $15,000 CASH.
The Company's sole acting director on July 11, 1995, approved the
issuance of 15,000,000 shares to Marbella Capital Corp. ("Marbella") at a deemed
price of $0.001 per share for a total of $15,000. The Board of Directors is
seeking shareholder ratification of this transaction. As a result of the
transaction Marbella became the owner of 74.36% of the then outstanding shares
of Common Stock and Mr. Crom was the owner of 30% of Marbella's then outstanding
shares.
REASONS FOR THE SHARE ISSUANCE
At that time the Company had no cash and significant liabilities. Cash
was urgently needed to keep the Company in existence, renegotiate its debt and
pursue business opportunities. See "Proposal 2: Amend Articles of Incorporation
to Increase The Authorized Common Shares From 25,000,000 to 50,000,000."
PROPOSAL 4: TO APPROVE THE ISSUANCE OF 21,000,000 SHARES TO MARBELLA
CAPITAL CORP. AT A DEEMED PRICE OF $0.10 TO RETIRE DEBT OF $2,100,000.
The Board of Directors has proposed, subject to shareholder approval,
to pay the Company's outstanding debt to Marbella of $2,100,000 by issuing
21,000,000 shares (pre-split) of common stock. If this transaction is approved,
Marbella will own 91.84% of the shares then outstanding.
REASONS FOR THE SHARE ISSUANCE
As of December 31, 1997 the Company had a working capital deficit of
$2,095,764 and negative shareholders' equity of $2,095,764. Management believes
the Company must reduce its liabilities in order to pursue other business
opportunities which have been identified. "See Proposal 6: Name Change."
PROPOSAL 5: AUTHORIZATION TO IMPLEMENT REVERSE SPLIT
The Board of Directors has proposed, subject to shareholder approval,
to effect a 1-for-10 reverse stock split whereby every ten (10) shares of the
Company's currently outstanding shares of Common Stock will be exchanged for one
share of Common Stock. After issuing the 21,000,000 shares to Marbella (See
"Proposal 4: To Approve The Issuance of 21,000,000 Shares to Marbella Capital
Corp. At a Deemed Price of $0.10 to Retire Debt of $2,100,000") and 96,000 to
Thomas L. Crom, there will be 44,239,826 shares outstanding, and the reverse
split will reduce this number to approximately 4,423,983. The reverse split will
not alter the number of shares of Common Stock authorized for issuance, which
after approving Proposal 2 would be 50,000,000.
Page 10
<PAGE>
REASONS FOR THE PROPOSED REVERSE STOCK SPLIT
Management is proposing the reverse stock split for the following
reasons: management believes a reverse stock split will (1) reduce the number of
outstanding shares of Common Stock and thereby make available shares of Common
Stock with which to acquire assets into the Company; and (2) help raise the
trading price of the Company's Common Stock. In discussions by the Company's
executive officers with members of the brokerage and banking industries, the
Company has been advised that the brokerage firms might be more willing to
evaluate the Company's securities if the price range for the Company's Common
Stock were higher. Management believes that additional interest by the
investment community in the Company's stock, of which there can be no assurance,
is desirable.
Management of the Company also believes that existing low trading
prices of the Company's Common Stock may have an adverse impact upon the trading
level of the trading market for the Common Stock. In particular, brokerage firms
often charge higher commissions for transactions involving low-priced stocks
than they would for the same dollar amount of securities with a higher per share
price. Some brokerage firms will not recommend purchases of low-priced stock to
their clients or make a market in such stock, which tendencies may adversely
affect the liquidity for current shareholders and the Company's ability to
obtain additional equity financing.
EFFECTS OF APPROVAL OF THE REVERSE STOCK SPLIT
Theoretically, the market price of the Company's Common Stock should
increase approximately 10- fold following the proposed reverse stock split. It
is hoped that this will result in a price level which will overcome the
reluctance, policies, and practices of broker-dealers described above and
increase interest in the Company's Common Stock by investors. Shareholders
should note that the effect of the reverse stock split upon the market price for
the Company's Common Stock cannot be accurately predicted. Further, there can be
no assurance that the per share market price of the post-split Common Stock will
trade at a price 10 times the price of the pre-split Common Stock, or, if it
does, that the price can be maintained at that level for any period of time.
On June 30, 1998, the closing bid and asked prices of the Company's
Common Stock were $0.01 and $0.10 per share, respectively. The foregoing
quotation reflects management's queries to brokers which trade on the pink
sheets and reflect inter-dealer prices, without retail mark-up, mark-down, or
commission and may not represent actual transactions.
Management, by implementing a reverse stock split, does not intend to
"take the Company private" by decreasing the number of shareholders of the
Company. Management does not believe that a 1-for-10 reverse stock split would
result in any shareholders being eliminated or closed out as a result of holding
less than one share after the reverse stock split. There are 84 shareholders of
record as of June 30, 1998 who have a number of shares not evenly divisible by
10. As disclosed below, the Company will round up to the nearest whole share
instead of issuing fractional shares resulting from the reverse stock split.
PROCEDURE FOR IMPLEMENTING THE REVERSE SPLIT
If this proposal in adopted by the shareholders, ten (10) shares of
pre-split Common Stock will be exchanged for each share of post-split Common
Stock. Shares of post-split Common Stock may be obtained
Page 11
<PAGE>
by surrendering certificates representing shares of pre-split Common Stock to
the Company's transfer agent, American Securities Transfer, Inc., 938 Quail
Street, Suite 101, Lakewood, Colorado 80215 (the "Transfer Agent"). To determine
the number of shares of post-split Common Stock issued to any record holder, the
total number of shares represented by all of the certificates issued in the name
of that record holder held in each account, as set forth in the records of the
Transfer Agent on the date upon which the reverse split becomes effective, will
be divided by 10. Upon surrender to the Transfer Agent of the share certificates
(s) representing shares of pre-split Common Stock and the applicable transfer
fee, which presently is $20.00 per certificate payable by the holder, the holder
will receive a share certificate representing the appropriate number of shares
of post-split Common Stock. If the division described above results in a
quotient which contains a fraction, the Company will round up to the nearest
whole share instead of issuing a fractional share. Shareholders are not required
to exchange their certificates of pre-split Common Shares for post-split Common
Shares. It is anticipated that the reverse split will be effected immediately
following receipt of the necessary shareholder approval.
The Company has made arrangements with American Securities Transfer
Inc., the stock transfer agent. to pay the transfer fee for the first thirty
(30) days after the effective date of the reverse stock split. The effective
date will be August 1, 1998, which is the day after the shareholders meeting.
All shareholders of record will receive transfer instructions from the stock
transfer agent.
FEDERAL INCOME TAX EFFECTS OF THE PLAN
Holders of Common Stock will not be required to recognize any gain or
loss if the reverse stock split is effected. The tax basis of the aggregate
shares of post-split Common Stock received by present shareholders will be equal
to the basis of the aggregate shares of the pre-split Common Stock exchanged
therefor. The holding period for shares of post-split Common Stock will include
the holding period of the pre-split Common Stock when calculated for purposes of
taxation or sales under Rule 144 of the Rules and Regulations under the
Securities Act of 1933, as amended (the "Securities Act"). Rule 144 requires
that "restricted securities," as defined in Rule 144, be held at least one year
before routine sales be made in accordance with the provisions of the Rule. Rule
144 provides that shares issued in a reverse stock split are deemed to have been
held from the date of acquisition of the shares involved in the reverse stock
split.
PROPOSAL 6: NAME CHANGE
The Board of Directors has proposed, subject to shareholder approval,
to change the Company's name from "Dragon Mining Corporation" to "Dragon Diamond
Corporation".
REASONS FOR THE NAME CHANGE
Management will be pursing business opportunities primarily in the area
of diamonds. This includes buying and selling of rough and uncut diamonds,
exploration, development and producing diamonds. This name will better reflect
the Company's primary business. In the event the shareholders do not approve the
name change, the Company's name will remain "Dragon Mining Corporation."
Page 12
<PAGE>
PROPOSAL 7: ADOPTION OF 1998 STOCK OPTION PLAN
The Board is requesting that the shareholders of the Company adopt the
1998 Stock Option Plan (the "Plan") reserving an aggregate of 663,597 shares
(post-split and assuming the issuance of shares to Mr. Crom and the approval of
the issuance of shares to Marbella) of the Company's Common Stock (the
"Available Shares") for issuance pursuant to the exercise of stock options
("Options") which may be granted to employees, officers, and directors of the
Company and consultants to the Company. The Plan also provides an annual
adjustment in the number of Available Shares, commencing December 31, 1998, to a
number equal to 15% of the number of shares outstanding on December 31 of the
preceding year or 663,597 shares, whichever is greater. The Plan is designed to
(i) induce qualified persons to become employees, officers, and directors of the
Company; (ii) reward such persons for past services to the Company (iii)
encourage such persons to remain in the employ of the Company or associated with
the Company; and (iv) provide additional incentive for such persons to put forth
maximum efforts for the success of business of the Company. To the extent that
management personnel may be eligible to receive Options which may be granted
under the Plan, management has an interest in obtaining approval of the Plan by
the Company's shareholders.
As of June 30, 1998 four persons were eligible to participate in the
Plan. These consist of the current officers and directors of the Company.
Although the Company has no immediate plans to add additional employees,
officers, or directors, it does anticipate that additional persons will become
eligible as the Company expands.
The Plan will be administered by the Compensation Committee of the
Board of Directors (the "Committee"). Transactions under the Plan are intended
to comply with all applicable conditions of the Rule 16b-3 under the Securities
Exchange Act of 1934, as amended (the "1934 Act"). In addition to determining
who will be granted Options, the Committee has the authority and discretion to
determine when Options may be granted and the number of Options to be granted.
The Committee may determine which Options may be intended to qualify ("Incentive
Stock Option") for special treatment under the Internal Revenue Code of 1986, as
amended from time to time (the "Code") or Non-Qualified Options ("Non-Qualified
Stock Options") which are not intended to qualify. See "Federal Income Tax
Consequences" below. The Committee also may determine the time or times when
each Option becomes exercisable, the duration of the exercise period for Options
and the form or forms of the instructions evidencing Options granted under the
Plan. The Committee may adopt, amend, and rescind such rules and regulations as
in its opinion may be advisable for the administration of the Plan. The
Committee may amend the Plan without shareholder approval where such approval is
not required to satisfy any statutory or regulatory requirements.
The Plan provides that disinterested directors will receive automatic
options grants to purchase 5,000 (post-reverse split shares) of the Company's
Common Stock upon their initial appointment or election as directors, and on the
date of each subsequent annual shareholders' meeting, which vest in 33-1/3%
installments commencing on the first anniversary of the grant date. Grants to
employee directors and officer/directors can be either Non-Qualified Stock
Options or Incentive Stock Options, to the extent that they do not exceed the
Incentive Stock Option exercise limitations, and the portion of an option to an
employee director or officer/director that exceeds the dollar limitations of
Code Section 422 will be treated as a NonQualified Stock Option. All options
granted to disinterested directors will be Non-Qualified Options.
Page 13
<PAGE>
The Committee also may construe the Plan and the provisions in the
instruments evidencing options granted under the Plan to employee and officer
participants and is empowered to make all other determinations deemed necessary
or advisable for the administration of the Plan. Option grants to disinterested
directors are self-administering and not subject to the Committee's discretion.
The Committee may not adversely affect the rights of any participant under any
unexercised option or any portion thereof without the consent of such
participant. This Plan will remain in effect until it is terminated by the
Compensation Committee, except that no Incentive Stock Option will be granted
after May 30, 2008.
The Plan contains provisions for proportionate adjustment of the number
of shares for outstanding options and the option price per share in the event of
stock dividends, recapitalizations resulting in stock splits or combinations or
exchanges of shares.
Participants in the Plan may be selected by the Committee from
employees and officers of the Company and its subsidiaries and consultants to
the Company and its subsidiaries. Disinterested directors receive annual
automatic grants, as described above. In determining the persons to whom options
will be granted and the number of shares to be covered by each option, the
Committee will take into account the duties of the respective person, their
present and potential contributions to the success of the Company, and such
other factors as the Committee deems relevant to accomplish the purposes of the
Plan.
Only employees of the Company and its subsidiaries, as the term
"employees" is defined for the purposes of the Code will be entitle to receive
Incentive Stock Options. Incentive Stock Options granted under the Plan are
intended to satisfy all requirements for incentive stock options under Section
422 of the Code and the Treasury Regulations thereunder.
Each option granted under the Plan will be evidenced by a written
option agreement between the Company and the optionee. The option price of any
Incentive Stock Option may be not less than 100% of the Fair Market Value per
share on the date of grant of the options; provided, however, that any Incentive
Stock Option granted under the Plan to a person owning more than ten percent of
the total combined voting power of the Common Stock will have an option price of
not less than 110% of the Fair Market Value per share on the date of grant of
the Incentive Stock Option. Each Non-Qualified Stock Option granted under the
Plan will be at a price no less than 85% of the Fair Market Value per share on
the date of grant thereof, except that the automatic stock option grants to the
disinterested directors will be at a price equal to the Fair Market Value per
share on the date of grant. "Fair Market Value" per share as of a particular
date is defined in the Plan as the last sale price of the Common Stock as
reported on a national securities exchange or on the NASDAQ System or, if none,
the average of the closing bid and asked prices of the Company's Common Stock as
reported by NASDAQ or, if such quotations are unavailable, the value determined
by the Committee in its discretion in good faith.
The exercise period of options granted under the Plan may not exceed
ten years from the date of grant thereof. Incentive Stock Options granted to a
person owning more than ten percent of the total combined voting power of the
Common Stock of the Company will be for no more than five years. Except in the
case of options granted to disinterested directors, who comprise the
Compensation Committee, the Committee will have the authority to accelerate or
extend the exercisability of any outstanding option at such time and under such
circumstances as it, in its sole discretion, deems appropriate. However, no
exercise period may be extended to increase the term of the option beyond ten
years from the date of the grant.
Page 14
<PAGE>
To exercise an option, the optionee must pay the full exercise price in
cash, in shares of Common Stock having a Fair Market Value equal to the option
price or in property or in a combination of cash, shares, and property and,
subject to approval of the Committee. The Committee has the sole and absolute
discretion to determine whether or not property other than cash or Common Stock
may be used to purchase the shares of Common Stock thereunder and, if so, to
determine the value of the property received.
An option may not be exercised unless the optionee then is an employee,
officer, or director of the Company or its subsidiaries, and unless the optionee
has remained continuously as an employee, officer, or director of the Company
since the date of grant of the option. If the optionee ceases to be an employee,
officer, or director of the Company or its subsidiaries other than reason by
death, disability, or for cause, all options granted to such optionee, fully
vested to such optionee but not yet exercised, will terminate three months after
the date the optionee ceases to be an employee, officer or director of the
Company. All optionees which are not vested to an optionee, under the conditions
stated in the Plan for which employment ceases, will immediately terminate on
the date the optionee ceases employment or association.
If an optionee dies while an employee, officer or director of the
Company, or if the optionee's employment, officer or director status terminates
by reason of disability, all options theretofore granted to such optionee,
whether or not otherwise exercisable, unless earlier terminated in accordance
with their terms, may be exercised at any time within one year after the date of
death or disability of said optionee, by the optionee or by the optionee's
estate or by a person who acquired the right to exercise such options by bequest
or inheritance or otherwise by reason of death or disability of the optionee.
Options granted under the Plan are not transferable other than by will
or by the laws of descent and distribution or pursuant to a qualified domestic
relations order as defined by the Code or Title I of the Employee Retirement
Income Security Act of 1974, or the rule thereunder. Options may be exercised,
during the lifetime of the optionee, only by the optionee and thereafter only by
his legal representative. An optionee has no rights as a shareholder with
respect to any shares covered by an option until the option has been exercised.
As a condition to the issuance of share upon the exercise of an option,
the Company will require the optionee to pay to the Company the amount of the
Company's tax withholding liability required in connection with such exercise.
The Company, to the extent permitted or required by law, may deduct a sufficient
number of shares due to the optionee upon exercise of the option to allow the
Company to pay such withholding taxes. The Company is not obligated to advise
any optionee of the existence of any tax or the amount which the Company will be
so required to withhold.
FEDERAL INCOME TAX CONSEQUENCES
The federal income tax discussion set forth below is included for
general information only. Optionees are urged to consult their tax advisors to
determine the particular tax consequences applicable to them, including the
application and effect of foreign, state, and local income and other tax laws.
INCENTIVE STOCK OPTIONS. No income results to the holder of an
Incentive Stock Option upon the grant thereof or issuance of shares upon the
exercise thereof. The amount realized on the sale or taxable exchange of the
Option Shares in excess of the option exercise price will be considered a
capital gain, except that, if a sale, taxable exchange, or other disposition
occurs within one year after the exercise of the Incentive Stock
Page 15
<PAGE>
Option or two years after the grant of the Incentive Stock Option (generally
considered to be a "disqualifying disposition"), the optionee will realize
compensation, for federal income tax purposes, on the amount by which the lessor
of (i) the fair market value on the date of exercise or (ii) the amount realized
on the sale of the shares, exceeds the exercise price. Any appreciation on the
shares between the exercise date and the fair market value of the shares
acquired at the time of exercise is a tax preference item for the purposes of
calculating the alternative minimum tax on individuals under the Code. This
preference amount will not be included again in alternative minimum taxable
income in the year the taxpayer disposes of the stock.
NON-QUALIFIED STOCK OPTIONS. No compensation will be realized by the
optionee of a Non-Qualified Stock Option at the time of grant. Upon exercise of
a Non-Qualified Stock Option, an optionee will realize compensation for federal
income tax purposes on the difference between the exercise price and the fair
market value of the shares acquired at the time of exercise. If the optionee
exercises a Non-Qualified Stock Option by surrendering shares of the Company's
Common Stock, the optionee will not recognize income or gain at the time of
exercise.
CONSEQUENCES TO THE COMPANY. The Company recognizes no deduction at the
time of grant or exercise of an Incentive Stock Option and recognizes no
deduction at the time of grant of a Non-Qualified Stock Option. The Company will
recognize a deduction at the time of exercise of a Non-Qualified Stock Option on
the difference between the option price and the fair market value of the shares
on the date of grant. The Company will also recognize a deduction to the extent
the optionee recognizes income upon a disqualifying disposition of share
underlying an Incentive Stock Option.
NEW PLAN BENEFITS
No benefits or amounts can be determinable under this plan since the
plan has yet to be adopted, no meetings of the compensation committee have taken
place to implement this plan. There are no specific grants and thus none can be
attributable to a single person. Currently the Company only has four persons
eligible to receive a grant. All four person are members of the executive group.
As of the date of this Information Statement, the Company did not have
a stock option plan. Therefore, the proposed plan would represent a new benefit
to be offered to employees, officers and directors. As such, management cannot
determine what the benefits of the new plan would have been to the present
officers and directors. In addition, management cannot place a value on the
options that would be issued, given the Company's inactive status.
VESTING
Unless otherwise specified in an optionee's agreement, options granted
under the Plan to officers, officer/directors, disinterested directors who are
not on the Committee, and employees will become vested with the optionee under
the following schedule: 50% upon the first anniversary of the option grant and
12.5% upon each of the four three-month periods following the first anniversary.
Page 16
<PAGE>
PROPOSAL 8: ADOPTION OF 1998 RESTRICTED STOCK PLAN
The Board is requesting that the shareholders of the Company adopt the
1998 Restricted Stock Plan (the "Restricted Plan") reserving an aggregate of
663,597 shares (post-split and assuming the issuance of shares to Mr. Crom and
the approval of the issuance of shares to Marbella) of the Company's Common
Stock (the "Available Shares") for issuance to employees, consultants, officers,
and directors of the Company and consultants to the Company. The Plan also
provides an annual adjustment in the number of Available Shares, commencing
December 31, 1998, to a number equal to 15% of the number of shares outstanding
on December 31 of the preceding year or 663,597 shares, whichever is greater.
The Plan is designed to (i) induce qualified persons to become employees,
consultants, officers, directors of the Company; (ii) reward such persons for
past services to the Company' (iii) encourage such persons to remain in the
employ of the Company or associated with the Company; and (iv) provide
additional incentive for such persons to put forth maximum efforts for the
success of business of the Company. To the extent that management personnel may
be eligible to receive shares which may be granted under the Plan, management
has an interest in obtaining approval of the Plan by the Company's shareholders.
As of June 30, 1998 four persons were eligible to participate in the
Plan. These consist of the current officers and directors of the Company.
Although the Company has no immediate plans to add additional employees,
officers, or directors, it does anticipate that additional persons will become
eligible as the Company expands.
Shares issued under this Plan are "restricted" in the sense that they
are subject to repurchase by the Company at cost during the vesting period.
The Plan will be administered by the Compensation Committee of the
Board of Directors (the "Committee"). Transactions under the Plan are intended
to comply with all applicable conditions of the Rule 16b-3 under the Securities
Exchange Act of 1934, as amended (the "1934 Act"). In addition to determining
who will be issued shares, the Committee has the authority and discretion to
determine the purchase price of the shares issued under the Plan, the period of
months or periods of time during which the Company will have a right to
repurchase the shares and the terms and conditions of such repurchase, and the
form or forms of the instruments evidencing the issuance of shares pursuant to
the Plan. The Committee may adopt, amend, and rescind such rules and regulations
as in its opinion may be advisable for the administration of the Plan. The
Committee may amend the Plan without shareholder approval where such approval is
not required to satisfy any statutory or regulatory requirements.
The Plan provides that disinterested directors will receive an
automatic issuance of 5,000 (post-reverse split shares) of the Company's Common
Stock upon their initial appointment or election as directors, and on the date
of each subsequent annual shareholders' meeting, which vest in 33-1/3%
installments commencing on the first anniversary of the issue date.
The Committee also may construe the Plan and is empowered to make all
determinations deemed necessary or advisable for the administration of the Plan.
Issuances to disinterested directors are self-administering and not subject to
the Committee. The Committee may not adversely affect the rights of any
participant under any rights previously granted without the consent of such
participant. This Plan will remain in effect until it is terminated by the
Compensation Committee.
Page 17
<PAGE>
The Plan contains provisions for proportionate adjustment of the number
of shares for outstanding options and the option price per share in the event of
stock dividends, recapitalizations resulting in stock splits or combinations or
exchanges of shares.
Participants in the Plan may be selected by the Committee from
employees and officers of the Company and its subsidiaries and consultants to
the Company and its subsidiaries. Disinterested directors receive annual
automatic grants, as described above. In determining the persons to whom shares
will be granted and the number of shares to be issued, the Committee will take
into account the duties of the respective person, their present and potential
contributions to the success of the Company, and such other factors as the
Committee deems relevant to accomplish the purposes of the Plan.
Shares to be issue under the Plan will be evidenced by a written
restricted stock purchase agreement between the Company and the participant.
Shares issued under the Plan are transferable only if the transferee agrees to
be bound by all terms of the Plan, including the Company's right to repurchase
the shares, and only if such transfer is permitted under federal and state
securities laws. To facilitate the enforcement of the restrictions on transfer,
the Committee may require the holder of the shares to deliver the certificate
(s) to be held in escrow during the period of restriction.
FEDERAL INCOME TAX CONSEQUENCES
The federal income tax discussion set forth below is included only for
general information only. Participants are urged to consult their tax advisors
to determine the particular tax consequences applicable to them, including the
application and effect of foreign, state, and local income and other tax laws.
Section 83(a) of the Internal Revenue Code provides that the receipt of
stock subject to a substantial risk of forfeiture and which is nontransferable
does not result in taxable income until the restrictions lapse. At that time,
the employee recognizes compensation income (taxable at the rate applicable to
ordinary income) in the amount of the spread between the value of the stock and
the amount, if any, the employee paid for the stock. The Company must withhold
employment taxes on this income, and generally may deduct the amount the
employee includes in income as an ordinary business expense.
VESTING
Unless otherwise specified in an optionee's agreement, options granted
under the Plan to officers, officer/directors, disinterested directors who are
not on the Committee, and employees will become vested with the optionee under
the following schedule: 50% upon the first anniversary of the option grant and
12.5% upon each of the four three-month periods following the first anniversary.
NEW PLAN BENEFITS
No benefits or amounts can be determinable under this plan since the
plan has yet to be adopted, and no meetings of the compensation committee have
taken place to implement this plan. There are no specific grants and thus none
can be attributable to a single person. Currently the Company only has four
persons eligible to receive a grant. All four persons are members of the
executive group.
Page 18
<PAGE>
As of the date of this Information Statement, the Company did not have
a restricted stock plan. Therefore, the proposed plan would represent a new
benefit to be offered to employees, officers and directors. As such, management
cannot determine what the benefits of the new plan would have been to the
present officers and directors. Management estimates that if this plan had been
effective for 1997 and if the full amount of available shares were granted and
valued at a $1.00 it would have resulted in a benefit valued at $663,598 for the
executive group.
OTHER MATTERS
Except for the matters referred to in the accompanying Notice of Annual
Meeting, management does not intend to present any matter for action at the
Annual Meeting and knows of no matter to presented that is a proper subject for
action by the shareholders at the meeting.
INDEPENDENT PUBLIC ACCOUNTANTS
The Company has not selected a principal accountant for its current
fiscal year, and did not engage a principal accountant to audit its financial
statements during its two preceding fiscal years. The Company has been an
inactive registrant and, in reliance upon Rule 3-11 of Regulation S-X
promulgated by the Securities and Exchange Commission, did not prepare audited
financial statements for the fiscal years ended December 31, 1996, and 1997.
Management anticipates that the Company, at a later date, will engage a
principal accountant to audit the Company's financial statements for the current
fiscal year.
ANNUAL REPORT
The Company's Annual Report to Shareholders is being mailed with this
Proxy Statement. It consists of the information contained in the Company's Form
10-K for the year ended December 31, 1997, as filed with the Securities and
Exchange Commission under the Securities Exchange Act of 1934.
INCORPORATION BY REFERENCE
The Company hereby incorporates by reference the financial statements
and section entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contained in the Annual Report to
Shareholders which is being mailed with the Information Statement.
Page 19
<PAGE>
SHAREHOLDER PROPOSALS
Any shareholder proposing to have an appropriate matter brought before
the next annual meeting of shareholders must submit such proposals in accordance
with the proxy rules of the Securities and Exchange Commission. Such proposals
should be sent to the Company's mailing address: P.O. Box 9, Payson, Arizona
85547-0009 for receipt no later than December 31, 1998.
By order of the Board of Directors:
Larry N. Lorenz, President
Vancouver, Canada
July 21, 1998
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<PAGE>
DRAGON MINING CORPORATION 1998 STOCK OPTION PLAN
1. PURPOSE; EFFECTIVENESS OF THE PLAN.
(a) The purpose of this Plan is to advance the interests of the
Company and its stockholders by helping the Company obtain and
retain the services of employees, officers, consultants, and
directors, upon whose judgment, initiative and efforts the
Company is substantially dependent, and to provide those
persons with further incentives to advance the interests of
the Company.
(b) This Plan will become effective on the date of its adoption by
the Board, provided the Plan is approved by the stockholders
of the Company (excluding holders of shares of Stock issued by
the Company pursuant to the exercise of options granted under
this Plan) within twelve months before or after that date. If
the Plan is not so approved by the stockholders of the
Company, any options granted under this Plan will be rescinded
and will be void. This Plan will remain in effect until it is
terminated by the Board or the Committee (as defined
hereafter) under section 9 hereof, except that no ISO (as
defined herein) will be granted after the tenth anniversary of
the date of this Plan's adoption by the Board. This Plan will
be governed by, and construed in accordance with, the laws of
the State of Utah.
2. CERTAIN DEFINITIONS.
Unless the context otherwise requires, the following defined terms
(together with other capitalized terms defined elsewhere in this Plan)
will govern the construction of this Plan, and of any stock option
agreements entered into pursuant to this Plan:
(a) "10% Stockholder" means a person who owns, either directly or
indirectly by virtue of the ownership attribution provisions
set forth in Section 424(d) of the Code at the time he or she
is granted an Option, stock possessing more than ten percent
(10%) of the total combined voting power or value of all
classes of stock of the Company and/or of its subsidiaries;
(b) "1933 Act" means the federal Securities Act of 1933, as
amended;
(c) "Board" means the Board of Directors of the Company;
(d) "Called for under an Option," or words to similar effect,
means issuable pursuant to the exercise of an Option;
(e) "Code" means the Internal Revenue Code of 1986, as amended
(references herein to Sections of the Code are intended to
refer to Sections of the Code as enacted at the time of this
Plan's adoption by the Board and as subsequently amended, or
to any substantially similar successor provisions of the Code
resulting from recodification, renumbering or otherwise);
(f) "Committee" means a committee, known as the Compensation
Committee, of two or more Disinterested Directors, appointed
by the Board, to administer and interpret this Plan; provided
that the term "Committee" will refer to the Board during such
times as no Committee is appointed by the Board;
(g) "Company" means Dragon Mining Corporation, a Utah corporation;
<PAGE>
(h) "Disability" has the same meaning as "permanent and total
disability," as defined in Section 22(e)(3) of the Code;
(i) "Disinterested Director" means a member of the Board who is
not during the period of one year prior to his or her service
as an administrator of the Plan, or during the period of such
service, granted or awarded Stock, options to acquire Stock,
or similar equity securities of the Company under this Plan or
any similar plan of the Company, other than the grant of a
Formula Option pursuant to section 6(m) of this Plan;
(j) "Eligible Participants" means persons who, at a particular
time, are employees, officers, consultants, or directors of
the Company or its subsidiaries;
(k) "Fair Market Value" means, with respect to the Stock and as of
the date an ISO or a Formula Option is granted hereunder, the
market price per share of such Stock determined by the
Committee, consistent with the requirements of Section 422 of
the Code and to the extent consistent therewith, as follows:
(i) If the Stock was traded on a stock exchange on the
date in question, then the Fair Market Value will be
equal to the closing price reported by the applicable
composite-transactions report for such date;
(ii) If the Stock was traded over-the-counter on the date
in question and was classified as a national market
issue, then the Fair Market Value will be equal to
the last-transaction price quoted by the NASDAQ
system for such date;
(iii) If the Stock was traded over-the-counter on the date
in question but was not classified as a national
market issue, then the Fair Market Value will be
equal to the average of the last reported
representative bid and asked prices quoted by the
NASDAQ system for such date; and
(iv) If none of the foregoing provisions is applicable,
then the Fair Market Value will be determined by the
Committee in good faith on such basis as it deems
appropriate.
(l) "Formula Option" means an NSO granted to members of the
Committee pursuant to section 6(m) hereof;
(m) "ISO" has the same meaning as "incentive stock option," as
defined in Section 422 of the Code;
(n) "Just Cause Termination" means a termination by the Company of
an Optionee's employment by and/or service to the Company (or
if the Optionee is a director, removal of the Optionee from
the Board by action of the stockholders or, if permitted by
applicable law and the bylaws of the Company, the other
directors), in connection with the good faith determination of
the Company's board of directors (or of the Company's
stockholders if the Optionee is a director and the removal of
the Optionee from the Board is by action of the stockholders,
but in either case excluding the vote of the Optionee if he or
she is a director or a stockholder) that the Optionee has
engaged in any acts involving dishonesty or moral turpitude or
in any acts that materially and adversely affect the business,
affairs or reputation of the Company or its subsidiaries;
2
<PAGE>
(o) "NSO" means any option granted under this Plan whether
designated by the Committee as a "non-qualified stock option,"
a "non-statutory stock option" or otherwise, other than an
option designated by the Committee as an ISO, or any option so
designated but which, for any reason, fails to qualify as an
ISO pursuant to Section 422 of the Code and the rules and
regulations thereunder;
(p) "Option" means an option granted pursuant to this Plan
entitling the option holder to acquire shares of Stock issued
by the Company pursuant to the valid exercise of the option;
(q) "Option Agreement" means an agreement between the Company and
an Optionee, in form and substance satisfactory to the
Committee in its sole discretion, consistent with this Plan;
(r) "Option Price" with respect to any particular Option means the
exercise price at which the Optionee may acquire each share of
the Option Stock called for under such Option;
(s) "Option Stock" means Stock issued or issuable by the Company
pursuant to the valid exercise of an Option;
(t) "Optionee" means an Eligible Participant to whom Options are
granted hereunder, and any transferee thereof pursuant to a
Transfer authorized under this Plan;
(u) "Plan" means this 1998 Stock Option Plan of the Company;
(v) "QDRO" has the same meaning as "qualified domestic relations
order" as defined in Section 414(p) of the Code;
(w) "Stock" means shares of the Company's Common Stock, $.001 par
value;
(x) "Subsidiary" has the same meaning as "Subsidiary Corporation"
as defined in Section 424(f) of the Code;
(y) "Transfer," with respect to Option Stock, includes, without
limitation, a voluntary or involuntary sale, assignment,
transfer, conveyance, pledge, hypothecation, encumbrance,
disposal, loan, gift, attachment or levy of such Option Stock,
including without limitation an assignment for the benefit of
creditors of the Optionee, a transfer by operation of law,
such as a transfer by will or under the laws of descent and
distribution, an execution of judgment against the Option
Stock or the acquisition of record or beneficial ownership
thereof by a lender or creditor, a transfer pursuant to a
QDRO, or to any decree of divorce, dissolution or separate
maintenance, any property settlement, any separation agreement
or any other agreement with a spouse (except for estate
planning purposes) under which a part or all of the shares of
Option Stock are transferred or awarded to the spouse of the
Optionee or are required to be sold; or a transfer resulting
from the filing by the Optionee of a petition for relief, or
the filing of an involuntary petition against such Optionee,
under the bankruptcy laws of the United States or of any other
nation.
3
<PAGE>
3. ELIGIBILITY.
The Company may grant Options under this Plan only to persons who are
Eligible Participants as of the time of such grant. Subject to the
provisions of sections 4(d), 5 and 6 hereof, there is no limitation on
the number of Options that may be granted to an Eligible Participant.
4. ADMINISTRATION.
(a) COMMITTEE. The Committee, if appointed by the Board, will
administer this Plan. If the Board, in its discretion, does
not appoint such a Committee, the Board itself will administer
this Plan and take such other actions as the Committee is
authorized to take hereunder; provided that the Board may take
such actions hereunder in the same manner as the Board may
take other actions under the Company's Articles of
incorporation and bylaws generally.
(b) AUTHORITY AND DISCRETION OF COMMITTEE. The Committee will have
full and final authority in its discretion, at any time and
from time to time, subject only to the express terms,
conditions and other provisions of the Company's Articles of
incorporation, bylaws and this Plan, and the specific
limitations on such discretion set forth herein:
(i) to select and approve the persons who will be granted
Options under this Plan from among the Eligible
Participants, and to grant to any person so selected
one or more Options to purchase such number of shares
of Option Stock as the Committee may determine;
(ii) to determine the period or periods of time during
which Options may be exercised, the Option Price and
the duration of such Options, and other matters to be
determined by the Committee in connection with
specific Option grants and Options Agreements as
specified under this Plan;
(iii) to interpret this Plan, to prescribe, amend and
rescind rules and regulations relating to this Plan,
and to make all other determinations necessary or
advisable for the operation and administration of
this Plan; and
(iv) to delegate all or a portion of its authority under
subsections (i) and (ii) of this section 4(b) to one
or more directors of the Company who are executive
officers of the Company, but only in connection with
Options granted to Eligible Participants who are not
subject to the reporting and liability provisions of
Section 16 of the Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder,
and subject to such restrictions and limitations
(such as the aggregate number of shares of Option
Stock called for by such Options that may be granted)
as the Committee may decide to impose on such
delegate directors.
(c) LIMITATION ON AUTHORITY. Notwithstanding the foregoing, or any
other provision of this Plan, the Committee will have no
authority:
(i) to grant Options to any of its members, whether or
not approved by the Board; and
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(ii) to determine any matters, or exercise any discretion,
in connection with the Formula Options under section
6(m) hereof, to the extent that the power to make
such determinations or to exercise such discretion
would cause one or more members of the Committee no
longer to be "Disinterested Directors" within the
meaning of section 2(i) above.
(d) DESIGNATION OF OPTIONS. Except as otherwise provided herein,
the Committee will designate any Option granted hereunder
either as an ISO or as an NSO. To the extent that the Fair
Market Value (determined at the time the Option is granted) of
Stock with respect to which all ISOs are exercisable for the
first time by any individual during any calendar year
(pursuant to this Plan and all other plans of the Company
and/or its subsidiaries) exceeds $100,000, such option will be
treated as an NSO. Notwithstanding the general eligibility
provisions of section 3 hereof, the Committee may grant ISOs
only to persons who are employees of the Company and/or its
subsidiaries.
(e) OPTION AGREEMENTS. Options will be deemed granted hereunder
only upon the execution and delivery of an Option Agreement by
the Optionee and a duly authorized officer of the Company.
Options will not be deemed granted hereunder merely upon the
authorization of such grant by the Committee.
5. SHARES RESERVED FOR OPTIONS.
(a) OPTION POOL. As of June 30, 1998, there were 23,143,826 shares
outstanding. Assuming the implementation of a reverse stock
split and the issuance of additional shares, it is anticipated
that 4,423,983 shares will be outstanding. The aggregate
number of shares of Option Stock that may be issued pursuant
to the exercise of Options granted under this Plan initially
will not exceed six hundred sixty three thousand five hundred
ninety seven shares (663,597) (the "Option Pool"), provided
that such number automatically shall be adjusted annually on
January 1 to a number equal to 15% of the number of shares of
Stock of the Company outstanding on December 31 of the
immediately preceding year, or 663,597 shares, whichever is
greater, and provided further that such number will be
increased by the number of shares of Option Stock that the
Company subsequently may reacquire through repurchase or
otherwise. Shares of Option Stock that would have been
issuable pursuant to Options, but that are no longer issuable
because all or part of those Options have terminated or
expired, will be deemed not to have been issued for purposes
of computing the number of shares of Option Stock remaining in
the Option Pool and available for issuance.
(b) ADJUSTMENTS UPON CHANGES IN STOCK. In the event of any change
in the outstanding Stock of the Company as a result of a stock
split, reverse stock split, stock dividend, recapitalization,
combination or reclassification, appropriate proportionate
adjustments will be made in:
(i) the aggregate number of shares of Option Stock in the
Option Pool that may be issued pursuant to the
exercise of Options granted hereunder;
(ii) the Option Price and the number of shares of Option
Stock called for in each outstanding Option granted
hereunder; and
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<PAGE>
(iii) other rights and matters determined on a per share
basis under this Plan or any Option Agreement
hereunder. Any such adjustments will be made only by
the Board, and when so made will be effective,
conclusive and binding for all purposes with respect
to this Plan and all Options then outstanding. No
such adjustments will be required by reason of the
issuance or sale by the Company for cash or other
consideration of additional shares of its Stock or
securities convertible into or exchangeable for
shares of its Stock.
6. TERMS OF STOCK OPTION AGREEMENTS.
Each Option granted pursuant to this Plan will be evidenced by an
agreement (an "Option Agreement") between the Company and the person to
whom such Option is granted, in form and substance satisfactory to the
Committee in its sole discretion, consistent with this Plan. Without
limiting the foregoing, each Option Agreement (unless otherwise stated
therein) will be deemed to include the following terms and conditions:
(a) COVENANTS OF OPTIONEE. At the discretion of the Committee, the
person to whom an Option is granted hereunder, as a condition
to the granting of the Option, must execute and deliver to the
Company a confidential information agreement approved by the
Committee. Nothing contained in this Plan, any Option
Agreement or in any other agreement executed in connection
with the granting of an Option under this Plan will confer
upon any Optionee any right with respect to the continuation
of his or her status as an employee of, consultant or
independent contractor to, or director of, the Company or its
subsidiaries.
(b) VESTING PERIODS. Unless the Option Agreement executed by an
Optionee expressly otherwise provides and except as set forth
herein, the right to exercise an Option granted hereunder will
be subject to the following Vesting Periods, subject to the
Optionee continuing to be an Eligible Participant and the
occurrence of any other event (including the passage of time)
that would result in the cancellation or termination of the
Option:
(i) no portion of the Option will be exercisable prior to
the first anniversary of the date of grant set forth
in the Option Agreement;
(ii) upon and after such first anniversary of such date of
grant, the Optionee may purchase up to fifty percent
(50%) of the Total Award Option Stock; and
(iii) the Option will become exercisable on a cumulative
basis as to twelve and one-half (12.5%) of the Total
Award Option Stock, at the end of every period of
three (3) months that elapses after such first
anniversary, so that the Option will have become
fully exercisable, subject to the Optionee's
remaining an Eligible Participant, on the second
anniversary of such date of grant.
(c) EXERCISE OF THE OPTION.
(i) MECHANICS AND NOTICE. An Option may be exercised to
the extent exercisable (1) by giving written notice
of exercise to the Company, specifying the number of
full shares of Option Stock to be purchased and
accompanied by full payment of the Option Price
thereof and the amount of withholding taxes pursuant
to subsection 6(c)(ii) below; and (2) by giving
assurances satisfactory
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<PAGE>
to the Company that the shares of Option Stock to be
purchased upon such exercise are being purchased for
investment and not with a view to resale in
connection with any distribution of such shares in
violation of the 1933 Act; provided, however, that in
the event the Option Stock called for under the
Option is registered under the 1933 Act, or in the
event resale of such Option Stock without such
registration would otherwise be permissible, this
second condition will be inoperative if, in the
opinion of counsel for the Company, such condition is
not required under the 1933 Act, or any other
applicable law, regulation or rule of any
governmental agency.
(ii) WITHHOLDING TAXES. As a condition to the issuance of
the shares of Option Stock upon full or partial
exercise of an NSO granted under this Plan, the
Optionee will pay to the Company in cash, or in such
other form as the Committee may determine in its
discretion, the amount of the Company's tax
withholding liability required in connection with
such exercise. For purposes of this subsection
6(c)(ii), "tax withholding liability" will mean all
federal and state income taxes, social security tax,
and any other taxes applicable to the compensation
income arising from the transaction required by
applicable law to be withheld by the Company.
(d) PAYMENT OF OPTION PRICE. Each Option Agreement will specify
the Option Price with respect to the exercise of Option Stock
thereunder, to be fixed by the Committee in its discretion,
but in no event will the Option Price for an ISO granted
hereunder be less than the Fair Market Value (or, in case the
Optionee is a 10% Stockholder, one hundred ten percent (110%)
of such Fair Market Value) of the Option Stock at the time
such ISO is granted, and in no event will the Option Price for
an NSO granted hereunder be less than the 85% of Fair Market
Value. The Option Price will be payable to the Company in
United States dollars in cash or by check or, such other legal
consideration as may be approved by the Committee, in its
discretion.
(i) For example, the Committee, in its discretion, may
permit a particular Optionee to pay all or a portion
of the Option Price, and/or the tax withholding
liability set forth in subsection 6(c)(ii) above,
with respect to the exercise of an Option either by
surrendering shares of Stock already owned by such
Optionee or by withholding shares of Option Stock,
provided that the Committee determines that the fair
market value of such surrendered Stock or withheld
Option Stock is equal to the corresponding portion of
such Option Price and/or tax withholding liability,
as the case may be, to be paid for therewith.
(ii) If the Committee permits an Optionee to pay any
portion of the Option Price and/or tax withholding
liability with shares of Stock with respect to the
exercise of an Option (the "Underlying Option") as
provided in subsection 6(d)(i) above, then the
Committee, in its discretion, may grant to such
Optionee (but only if Optionee remains an Eligible
Participant at that time) additional NSOs, the number
of shares of Option Stock called for thereunder to be
equal to all or a portion of the Stock so surrendered
or withheld (a "Replacement Option"). Each
Replacement Option will be evidenced by an Option
Agreement. Unless otherwise set forth therein, each
Replacement Option will be immediately exercisable
upon such grant (without any Vesting Period) and will
be coterminous with the Underlying Option. The
Committee, in its sole
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<PAGE>
discretion, may establish such other terms and
conditions for Replacement Options as it deems
appropriate.
(e) TERMINATION OF THE OPTION. Except as otherwise provided
herein, each Option Agreement will specify the period of time,
to be fixed by the Committee in its discretion, during which
the Option granted therein will be exercisable, not to exceed
ten years from the date of grant (the "Option Period");
provided that the Option Period will not exceed five years
from the date of grant in the case of an ISO granted to a 10%
Stockholder. To the extent not previously exercised, each
Option will terminate upon the expiration of the Option Period
specified in the Option Agreement; provided, however, that
each such Option will terminate, if earlier:
(i) three months after the date that the Optionee ceases
to be an Eligible Participant for any reason, other
than by reason of death or disability or a Just Cause
Termination;
(ii) twelve months after the date that the Optionee ceases
to be an Eligible Participant by reason of such
person's death or disability; or
(iii) immediately as of the date that the Optionee ceases
to be an Eligible Participant by reason of a Just
Cause Termination.
In the event of a sale or all or substantially all of the
assets of the Company, or a merger or consolidation or other
reorganization in which the Company is not the surviving
corporation, or in which the Company becomes a subsidiary of
another corporation (any of the foregoing events, a "Corporate
Transaction"), then notwithstanding anything else herein, the
right to exercise all then outstanding Options will vest
immediately prior to such Corporate Transaction and will
terminate immediately after such Corporate Transaction;
provided, however, that if the Board, in its sole discretion,
determines that such immediate vesting of the right to
exercise outstanding Options is not in the best interests of
the Company, then the successor corporation must agree to
assume the outstanding Options or substitute therefor
comparable options of such successor corporation or a parent
or subsidiary of such successor corporation.
(f) OPTIONS NONTRANSFERABLE. No Option will be transferable by the
Optionee otherwise than by will or the laws of descent and
distribution, or in the case of an NSO, pursuant to a QDRO.
During the lifetime of the Optionee, the Option will be
exercisable only by him or her, or the transferee of an NSO if
it was transferred pursuant to a QDRO.
(g) QUALIFICATION OF STOCK. The right to exercise an Option will
be further subject to the requirement that if at any time the
Board determines, in its discretion, that the listing,
registration or qualification of the shares of Option Stock
called for thereunder upon any securities exchange or under
any state or federal law, or the consent or approval of any
governmental regulatory authority, is necessary or desirable
as a condition of or in connection with the granting of such
Option or the purchase of shares of Option Stock thereunder,
the Option may not be exercised, in whole or in part, unless
and until such listing, registration, qualification, consent
or approval is effected or obtained free of any conditions not
acceptable to the Board, in its discretion.
8
<PAGE>
(h) ADDITIONAL RESTRICTIONS ON TRANSFER. By accepting Options
and/or Option Stock under this Plan, the Optionee will be
deemed to represent, warrant and agree as follows:
(i) SECURITIES ACT OF 1933. The Optionee understands that
the shares of Option Stock have not been registered
under the 1933 Act, and that such shares are not
freely tradeable and must be held indefinitely unless
such shares are either registered under the 1933 Act
or an exemption from such registration is available.
The Optionee understands that the Company is under no
obligation to register the shares of Option Stock.
(ii) OTHER APPLICABLE LAWS. The Optionee further
understands that Transfer of the Option Stock
requires full compliance with the provisions of all
applicable laws.
(iii) INVESTMENT INTENT. Unless a registration statement is
in effect with respect to the sale of Option Stock
obtained through exercise of Options granted
hereunder: (1) Upon exercise of any Option, the
Optionee will purchase the Option Stock for his or
her own account and not with a view to distribution
within the meaning of the 1933 Act, other than as may
be effected in compliance with the 1933 Act and the
rules and regulations promulgated thereunder; (2) no
one else will have any beneficial interest in the
Option Stock; and (3) he or she has no present
intention of disposing of the Option Stock at any
particular time.
(i) COMPLIANCE WITH LAW. Notwithstanding any other provision of
this Plan, Options may be granted pursuant to this Plan, and
Option Stock may be issued pursuant to the exercise thereof by
an Optionee, only after there has been compliance with all
applicable federal and state securities laws, and all of the
same will be subject to this overriding condition. The Company
will not be required to register or qualify Option Stock with
the Securities and Exchange Commission or any State agency,
except that the Company will register with, or as required by
local law, file for and secure an exemption from such
registration requirements from, the applicable securities
administrator and other officials of each jurisdiction in
which an Eligible Participant would be granted an Option
hereunder prior to such grant.
(j) STOCK CERTIFICATES. Certificates representing the Option Stock
issued pursuant to the exercise of Options will bear all
legends required by law and necessary to effectuate this
Plan's provisions. The Company may place a "stop transfer"
order against shares of the Option Stock until all
restrictions and conditions set forth in this Plan and in the
legends referred to in this section 6(k) have been complied
with.
(k) NOTICES. Any notice to be given to the Company under the terms
of an Option Agreement will be addressed to the Company at its
principal executive office, Attention: Corporate Secretary, or
at such other address as the Company may designate in writing.
Any notice to be given to an Optionee will be addressed to the
Optionee at the address provided to the Company by the
Optionee. Any such notice will be deemed to have been duly
given if and when enclosed in a properly sealed envelope,
addressed as aforesaid, registered and deposited, postage and
registry fee prepaid, in a post office or branch post office
regularly maintained
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<PAGE>
(l) OTHER PROVISIONS. The Option Agreement may contain such other
terms, provisions and conditions, including such special
forfeiture conditions, rights of repurchase, rights of first
refusal and other restrictions on Transfer of Option Stock
issued upon exercise of any Options granted hereunder, not
inconsistent with this Plan, as may be determined by the
Committee in its sole discretion.
(m) FORMULA OPTIONS. On the date on which the Board appoints, or
the stockholders of the Company elect, a person who is not an
employee of the Company as a member of the Board for the first
time, such director will be granted a Formula Option to
purchase 5,000 shares of Stock. Immediately after the
completion of each annual meeting of the stockholders of the
Company, each member of the Board who is not an employee of
the Company will be awarded a Formula Option to purchase 5,000
shares of Stock. Formula Options will have an Option Price
equal to the Fair Market Value of the Stock as of the date of
such grant. Formula Options shall vest in 33-1/3% increments
on each one year anniversary of the date of grant, until a
Formula Option becomes exercisable in full on the third
anniversary of the date of grant. Except as otherwise
specifically provided in this section 6(m), all other terms of
this Plan will apply to all Formula Options granted pursuant
to this section 6(m).
7. PROCEEDS FROM SALE OF STOCK.
Cash proceeds from the sale of shares of Option Stock issued from time
to time upon the exercise of Options granted pursuant to this Plan will
be added to the general funds of the Company and as such will be used
from time to time for general corporate purposes.
8. MODIFICATION, EXTENSION AND RENEWAL OF OPTIONS.
Subject to the terms and conditions and within the limitations of this
Plan, and except with respect to Formula Options, the Committee may
modify, extend or renew outstanding Options granted under this Plan, or
accept the surrender of outstanding Options (to the extent not
theretofore exercised) and authorize the granting of new Options in
substitution therefor (to the extent not theretofore exercised).
Notwithstanding the foregoing, however, no modification of any Option
will, without the consent of the holder of the Option, alter or impair
any rights or obligations under any Option theretofore granted under
this Plan.
9. AMENDMENT AND DISCONTINUANCE.
The Board or the Committee may amend, suspend or discontinue this Plan
at any time or from time to time; provided that no action of the Board
or the Committee will cause ISOs granted under this Plan not to comply
with Section 422 of the Code unless the Board or the Committee
specifically declares such action to be made for that purpose and
provided further, that the provisions of section 6(m) hereof may not be
amended more often than once during any six (6) month period, other
than to comport with changes in the Code, the Employee Retirement
Income Security Act, or the rules and regulations thereunder. Moreover,
no such action may alter or impair any Option previously granted under
this Plan without the consent of the holder of such Option. The Board
or the Committee may amend the Plan without shareholder approval where
such approval is not required to satisfy any statutory or regulatory
requirements.
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<PAGE>
10. PLAN COMPLIANCE WITH RULE 16B-3.
With respect to persons subject to Section 16 of the Securities
Exchange Act of 1934, transactions under this plan are intended to
comply with all applicable conditions of Rule 16b-3 or its successors
under the 1934 Act. To the extent any provision of the plan or action
by the plan administrators fails so to comply, it shall be deemed null
and void, to the extent permitted by law and deemed advisable by the
plan administrators.
11. COPIES OF PLAN.
A copy of this Plan will be delivered to each Optionee at or before the
time he or she executes an Option Agreement.
***
Date Plan Adopted by Board of Directors: __________________, 1998
Date Plan Approved by Stockholders: __________________, 1998
11
<PAGE>
DRAGON MINING CORPORATION 1998 RESTRICTED STOCK PLAN
1. PURPOSE; EFFECTIVENESS OF THE PLAN.
(a) The purpose of this Plan is to advance the interests of the
Company and its stockholders by helping the Company obtain and
retain the services of employees, officers, consultants, and
directors, upon whose judgment, initiative and efforts the
Company is substantially dependent, and to provide those
persons with further incentives to advance the interests of
the Company.
(b) This Plan will become effective on the date of its adoption by
the Board, provided this Plan is approved by the stockholders
of the Company (excluding shares of Stock issued by the
Company pursuant to this Plan) within twelve (12) months
before or after that date. If this Plan is not so approved by
the stockholders of the Company within such period of time,
any agreements entered into under this Plan, and any issuances
of Stock thereunder, will be rescinded and will be void. This
Plan will remain in effect until it is terminated by the Board
or the Committee under section 8 hereof. This Plan will be
governed by, and construed in accordance with, the laws of the
State of Utah.
2. CERTAIN DEFINITIONS.
Unless the context otherwise requires, the following defined terms
(together with other capitalized terms defined elsewhere in this Plan)
will govern the construction of this Plan, and of any agreements
entered into pursuant to this Plan:
(a) "1933 Act" means the federal Securities Act of 1933, as
amended;
(b) "1934 Act" means the federal Securities Exchange Act of 1934,
as amended;
(c) "Board" means the Board of Directors of the Company;
(d) "Code" means the Internal Revenue Code of 1986, as amended
(references herein to Sections of the Code are intended to
refer to Sections of the Code as enacted at the time of this
Plan's adoption by the Board and as subsequently amended, or
to any substantially similar successor provisions of the Code
resulting from recodification, renumbering or otherwise);
(e) "Committee" means a committee, known as the Compensation
Committee, of two or more Disinterested Directors, appointed
by the Board, to administer and interpret this Plan; provided
that the term "Committee" will refer to the Board during such
times as no Committee is appointed by the Board;
(f) "Company" means Dragon Mining Corporation, a Utah corporation;
(g) "Disinterested Director" means a member of the Board who is
not during the period of one year prior to his or her service
as an administrator of the Plan, or during the period of such
service, granted or awarded Stock, options to acquire Stock,
or similar equity securities of the Company under this Plan or
any similar plan of the Company, other than a Formula Award
pursuant to section 6(j) of this Plan or as otherwise
permitted by Rule 16b-3(c)(ii) under the 1934 Act;
<PAGE>
(h) "Eligible Participants" means persons who, at a particular
time, are employees, officers, consultants or directors of the
Company or its subsidiaries;
(i) "Formula Award" means an issuance of Restricted Stock to
members of the Committee pursuant to section 6(j) hereof;
(j) "Holder" means an Eligible Participant to whom any Restricted
Stock is issued hereunder, and any transferee thereof pursuant
to a Transfer authorized under this Plan;
(k) "Plan" means this 1998 Restricted Stock Plan of the Company;
(l) "Purchase Price" means the price per share at which an
Eligible Participant may purchase Restricted Stock hereunder,
pursuant to an Restricted Stock Purchase Agreement.
(m) "Restricted Stock" means Stock issued or issuable by the
Company pursuant to this Plan;
(n) "Restricted Stock Purchase Agreement" means an agreement
between the Company and an Eligible Participant to evidence
the terms and conditions of the issuance of Restricted Stock
hereunder;
(o) "Stock" means shares of the Company's Common Stock, $.001 par
value;
(p) "subsidiary" has the same meaning as "Subsidiary Corporation"
as defined in Section 424(f) of the Code;
(q) "Termination Event" means, with respect to any Holder of
Restricted Stock, any event that results in such Holder no
longer being an Eligible Participant hereunder for any reason
whatsoever (whether by reason of such Holder's death,
disability, voluntary resignation, involuntary termination, or
any other reason).
(r) "Transfer," with respect to Restricted Stock, includes,
without limitation, a voluntary or involuntary sale,
assignment, transfer, conveyance, pledge, hypothecation,
encumbrance, disposal, loan, gift, attachment or levy of such
Restricted Stock, including without limitation an assignment
for the benefit of creditors of the Holder, a transfer by
operation of law, such as a transfer by will or under the laws
of descent and distribution, an execution of judgment against
the Restricted Stock or the acquisition of record or
beneficial ownership thereof by a lender or creditor, a
transfer pursuant to a qualified domestic relations order, or
to any decree of divorce, dissolution or separate maintenance,
any property settlement, any separation agreement or any other
agreement with a spouse (except for estate planning purposes)
under which a part or all of the shares of Restricted Stock
are transferred or awarded to the spouse of the Holder or are
required to be sold; or a transfer resulting from the filing
by the Holder of a petition for relief, or the filing of an
involuntary petition against such Holder, under the bankruptcy
laws of the United States or of any other nation.
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3. ELIGIBILITY.
The Company may issue Restricted Stock under this Plan only to persons
who are Eligible Participants as of the time of such issuance. Subject
to the provisions of section 5, there is no limitation on the amount of
Restricted Stock that may be issued to an Eligible Participant.
4. ADMINISTRATION.
(a) COMMITTEE. The Committee, if appointed by the Board, will
administer this Plan. If the Board, in its discretion, does
not appoint such a Committee, the Board itself will administer
this Plan and take such other actions as the Committee is
authorized to take hereunder; provided that the Board may take
such actions hereunder in the same manner as the Board may
take other actions under the Company's Articles of
incorporation and bylaws generally.
(b) AUTHORITY AND DISCRETION OF COMMITTEE. The Committee will have
full and final authority in its discretion, at any time and
from time to time, subject only to the express terms,
conditions and other provisions of the Company's Articles of
incorporation, bylaws and this Plan:
(i) to select and approve the persons to whom Restricted
Stock will be issued under this Plan from among the
Eligible Participants, including the number of shares
of Restricted Stock so issued to each such person;
(ii) to determine the Purchase Price of Restricted Stock
issued under this Plan, the period or periods of time
during which the Company will have a right to
repurchase such Restricted Stock and the terms and
conditions of such repurchase, and other matters to
be determined by the Committee in connection with
specific issuances of Restricted Stock and Restricted
Stock Purchase Agreements as provided in this Plan;
(iii) to interpret this Plan, to prescribe, amend and
rescind rules and regulations relating to this Plan,
and to make all other determinations necessary or
advisable for the operation and administration of
this Plan; and
(iv) to delegate all or a portion of its authority under
subsections (i) and (ii) of this section 4(b) to one
or more directors of the Company who are executive
officers of the Company, but only in connection with
the issuance of Restricted Stock to Eligible
Participants who are not subject to the reporting and
liability provisions of Section 16 of the 1934 Act
and the rules and regulations thereunder, and subject
to such restrictions and limitations (such as the
aggregate number of shares of Restricted Stock that
may be issued) as the Committee may decide to impose
on such delegate directors.
(c) LIMITATION ON AUTHORITY. Notwithstanding the foregoing, or any
other provision of this Plan, the Committee will have no
authority:
(i) to approve the issuance of Restricted Stock to any of
its members, whether or not approved by the Board;
and
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<PAGE>
(ii) to determine any matters, or exercise any discretion,
in connection with the Formula Awards under section
6(j) hereof, to the extent that the power to make
such determinations or to exercise such discretion
would cause one or more members of the Committee no
longer to be "Disinterested Directors".
(d) RESTRICTED STOCK PURCHASE AGREEMENTS. Restricted Stock will be
issued hereunder only upon the execution and delivery of an
Restricted Stock Purchase Agreement by the Holder and a duly
authorized officer of the Company. Restricted Stock will not
be deemed issued merely upon the authorization of such
issuance by the Committee.
5. SHARES RESERVED FOR RESTRICTED STOCK.
(a) RESTRICTED STOCK POOL. As of June 30, 1998, there were
23,143,826 shares outstanding. Assuming the implementation of
a reverse stock split and the issuance of additional shares,
it is anticipated that 4,423,983 shares will be outstanding.
The aggregate number of shares of Restricted Stock that may be
issued pursuant to this Plan initially will not exceed six
hundred sixty three thousand five hundred ninety seven shares
(663,597) (the "Restricted Stock Pool"), provided that such
number automatically shall be adjusted annually on January 1
to a number equal to 15% of the number of shares of Stock of
the Company outstanding on December 31 of the immediately
preceding year, or 663,597 shares, whichever is greater, and
provided further that such number will be increased by the
number of shares of Restricted Stock that the Company
subsequently may reacquire through repurchase or otherwise.
(b) ADJUSTMENTS UPON CHANGES IN STOCK. In the event of any change
in the outstanding Stock of the Company as a result of a stock
split, reverse stock split, stock dividend, recapitalization,
combination or reclassification, appropriate proportionate
adjustments will be made in:
(i) the aggregate number of shares of Restricted Stock in
the Restricted Stock Pool that may be issued pursuant
to this Plan;
(ii) the exercise price of any rights of repurchase or of
first refusal under this Plan; and
(iii) other rights and matters determined on a per share
basis under this Plan or any Restricted Stock
Purchase Agreement hereunder.
Any such adjustments will be made only by the Board, and when
so made will be effective, conclusive and binding for all
purposes with respect to this Plan. If there is any other
change in the number or kind of the outstanding shares of
Stock of the Company, or of any other security into which that
Stock has been changed or for which it has been exchanged, and
if the Board, in its sole discretion, determines that this
change requires any adjustment in the restrictions on
Transfer, rights of repurchase, or rights of first refusal in
Restricted Stock then subject to this Plan, such an adjustment
will be made in accordance with the determination of the
Board. No such adjustments will be required by reason of the
issuance or sale by the Company for cash or other
consideration of additional shares of its Stock or securities
convertible into or exchangeable for shares of its Stock.
4
<PAGE>
6. TERMS OF RESTRICTED STOCK PURCHASE AGREEMENTS.
Each issuance of Restricted Stock pursuant to this Plan will be
evidenced by an Restricted Stock Purchase Agreement between the Company
and the Eligible Participant to whom such Restricted Stock is to be
issued, in form and substance satisfactory to the Committee in its sole
discretion, consistent with this Plan. Each Restricted Stock Purchase
Agreement will specify the Purchase Price with respect to the
Restricted Stock to be sold to the Holder thereunder, to be fixed by
the Committee in its discretion. The Purchase Price will be payable to
the Company in United States dollars in cash or by check or, such other
legal consideration as may be approved by the Committee, in its
discretion. Without limiting the foregoing, each Restricted Stock
Purchase Agreement (unless otherwise stated therein) will be deemed to
include the following terms and conditions:
(a) COVENANTS OF HOLDER. At the discretion of the Committee, the
person to whom Restricted Stock is issued hereunder, as a
condition to such issuance, must execute and deliver to the
Company, a confidential information agreement approved by the
Committee. Nothing contained in this Plan, any Restricted
Stock Purchase Agreement or in any other agreement executed in
connection with the issuance of Restricted Stock under this
Plan will confer upon any Holder any right with respect to the
continuation of his or her status as an employee of,
consultant or independent contractor to, or director of the
Company, and its subsidiaries.
(b) VESTING PERIODS; COMPANY REPURCHASE RIGHT.
(i) Unless the Restricted Stock Purchase Agreement
executed by a Holder expressly otherwise provides and
except as set forth herein, as of the date issued,
all of the shares of Restricted Stock issued pursuant
to the agreement (the "Total Award Shares") will be
deemed "Unvested" and will become "Vested" for
purposes of subsection 6(b)(ii) according to the
following schedule:
(1) no portion of the Total Award Shares will be
deemed "Vested" prior to the first
anniversary of the date on which the
Restricted Stock was issued to the Holder
(the "Issue Date");
(2) upon and after such first anniversary of the
Issue Date, fifty percent (50%) of the Total
Award Shares will be have become fully
"Vested," subject to the Holder's remaining
an Eligible Participant; and
(3) the remaining Restricted Stock will become
"Vested" on a cumulative basis as to twelve
and one-half (12.5%) of the Total Award
Shares, at the end of every period of three
(3) months that elapses after such first
anniversary of the Issue Date, so that the
Total Award Shares will have become fully
"Vested," subject to the Holder's remaining
an Eligible Participant, on the second
anniversary of such Issue Date.
(ii) SCOPE OF REPURCHASE RIGHT. Upon the occurrence of any
Termination Event with respect to any Holder of
Restricted Stock, the Company will have an assignable
right (but not an obligation), to repurchase any
Unvested shares of Restricted Stock owned by such
Holder at the time of such Termination Event for a
repurchase price per share equal to the Holder's (or
in the case of
5
<PAGE>
Restricted Stock that has been Transferred, the
original Holder's) original cost per share, subject
to appropriate adjustment pursuant to section 5(b).
(iii) MECHANICS AND NOTICE. Within thirty (30) days after
any such Termination Event, the Holder of any
Unvested Restricted Stock will provide to the Company
a notice of the occurrence of such Termination Event.
Within ninety (90) days of the receipt of such
notice, the Company will exercise its right, if at
all, by informing the Holder in writing of the
Company's intention to do so, and specifying a
closing date within such ninety (90) day period. The
Unvested Stock will be repurchased at the Company's
principal executive offices on that date. The
repurchase price will be paid in cash or cancellation
of indebtedness (if any) at that time. If the Company
(or its assignee) fails to exercise its purchase
rights as provided under this section 6(b), then at
the end of the ninety (90) day period referred to
herein, all Unvested Restricted Stock of the Holder
immediately will become Vested Restricted Stock for
all purposes hereunder.
(c) RESTRICTIONS ON TRANSFER OF RESTRICTED STOCK.
(i) GENERAL RULE ON PERMISSIBLE TRANSFER OF RESTRICTED
STOCK. Restricted Stock may be Transferred only in
accordance with the specific limitations on the
Transfer of Restricted Stock imposed by applicable
state or federal securities laws and set forth below,
and subject to certain undertakings of the transferee
(subsection 6(c)(iii)). All Transfers of Restricted
Stock not meeting the conditions set forth in this
section 6(c) are expressly prohibited.
(ii) EFFECT OF PROHIBITED TRANSFER. Any prohibited
Transfer of Restricted Stock is void and of no
effect. Should such a Transfer purport to occur, the
Company may refuse to carry out the Transfer on its
books, attempt to set aside the Transfer, enforce any
undertaking or right under this subsection 6(c), or
exercise any other legal or equitable remedy.
(iii) REQUIRED UNDERTAKING. Any Transfer that would
otherwise be permitted under the terms of this Plan
is prohibited unless the transferee executes such
documents as the Company may reasonably require to
ensure that the Company's rights under an Restricted
Stock Purchase Agreement and this Plan are adequately
protected with respect to the Restricted Stock so
Transferred. Such documents may include, without
limitation, an agreement by the transferee to be
bound by all of the terms of this Plan, and of the
applicable Restricted Stock Purchase Agreement, as if
the transferee were the original Holder of such
Restricted Stock.
(iv) ESCROW. To facilitate the enforcement of the
restrictions on Transfer set forth in this Plan, the
Committee may, at its discretion, require the Holder
of shares of Restricted Stock to deliver the
certificate(s) for such shares with a stock power
executed in blank by Holder and Holder's spouse, to
the Secretary of the Company or his or her designee,
to hold said certificate(s) and stock power(s) in
escrow and to take all such actions and to effectuate
all such Transfers and/or releases as are in
accordance with the terms of this Plan. The
certificates may be held in escrow so long as the
shares of Restricted Stock whose ownership they
evidence are subject to any right of repurchase or of
6
<PAGE>
first refusal under this Plan or under an Restricted
Stock Purchase Agreement. Each Holder acknowledges
that the Secretary of the Company (or his or her
designee) is so appointed as the escrow holder with
the foregoing authorities as a material inducement to
the issuance of shares of Restricted Stock under this
Plan, that the appointment is coupled with an
interest, and that it accordingly will be
irrevocable. The escrow holder will not be liable to
any party to an Restricted Stock Purchase Agreement
(or to any other party) for any actions or omissions
unless the escrow holder is grossly negligent
relative thereto. The escrow holder may rely upon any
letter, notice or other document executed by any
signature purported to be genuine.
(d) ADDITIONAL RESTRICTIONS ON TRANSFER. By accepting Restricted
Stock under this Plan, the Holder will be deemed to represent,
warrant and agree as follows:
(i) SECURITIES ACT OF 1933. The Holder understands that
the shares of Restricted Stock have not been
registered under the 1933 Act, and that such shares
are not freely tradeable and must be held
indefinitely unless such shares are either registered
under the 1933 Act or an exemption from such
registration is available.
(ii) OTHER APPLICABLE LAWS. The Holder further understands
that each Transfer of the Restricted Stock requires
full compliance with the provisions of all applicable
laws.
(iii) INVESTMENT INTENT. Unless a registration statement is
in effect with respect to the sale and issuance of
the Restricted Stock to the Holder hereunder: (1) the
Holder is purchasing the Restricted Stock for his or
her own account and not with a view to distribution
within the meaning of the 1933 Act, other than as may
be effected in compliance with the 1933 Act and the
rules and regulations promulgated thereunder; (2) no
one else will have any beneficial interest in the
Restricted Stock; and (3) Holder has no present
intention of disposing of the Restricted Stock at any
particular time.
(e) COMPLIANCE WITH LAW. Notwithstanding any other provision of
this Plan, Restricted Stock may be issued pursuant to this
Plan only after there has been compliance with all applicable
federal and state securities laws, and such issuance will be
subject to this overriding condition. The Company will not be
required to register or qualify Restricted Stock with the
Securities and Exchange Commission or any State agency, except
that the Company will register with, or as required by local
law, file for and secure an exemption from such registration
requirements from, the applicable securities administrator and
other officials of each jurisdiction in which an Eligible
Participant would be issued Restricted Stock hereunder prior
to such issuance.
(f) STOCK CERTIFICATES. Certificates representing the Restricted
Stock issued pursuant to this Plan will bear all legends
required by law and necessary to effectuate this Plan's
provisions. The Company may place a "stop transfer" order
against shares of the Restricted Stock until all restrictions
and conditions set forth in this Plan and in the legends
referred to in this section 6(f) have been complied with.
7
<PAGE>
(g) MARKET STANDOFF. To the extent requested by the Company and
any underwriter of securities of the Company in connection
with a firm commitment underwriting, no Holder of any shares
of Restricted Stock will sell or otherwise Transfer any such
shares not included in such underwriting, or not previously
registered pursuant to a registration statement filed under
the 1933 Act, during the one hundred twenty (120) day period
following the effective date of the registration statement
filed with the Securities and Exchange Commission in
connection with such offering.
(h) NOTICES. Any notice to be given to the Company under the terms
of an Restricted Stock Purchase Agreement will be addressed to
the Company at its principal executive office, Attention:
Corporate Secretary, or at such other address as the Company
may designate in writing. Any notice to be given to a Holder
will be addressed to the Holder at the address provided to the
Company by the Holder. Any such notice will be deemed to have
been duly given if and when enclosed in a properly sealed
envelope, addressed as aforesaid, registered and deposited,
postage and registry fee prepaid, in a post office or branch
post office regularly maintained by the United States Postal
Service.
(i) OTHER PROVISIONS. The Restricted Stock Purchase Agreement may
contain such other terms, provisions and conditions, including
such special forfeiture conditions, rights of repurchase,
rights of first refusal and other restrictions on Transfer of
Restricted Stock issued hereunder, not inconsistent with this
Plan, as may be determined by the Committee in its sole
discretion.
(j) FORMULA AWARDS. On the date on which the Board appoints, or
the stockholders of the Company elect, a person who is not an
employee of the Company as a member of the Board for the first
time, such director will be issued 5,000 shares of Restricted
Stock. Immediately after the completion of each annual meeting
of the stockholders of the Company, each member of the Board
who is not an employee of the Company will be issued 5,000
shares of Restricted Stock. Such Restricted Stock (the
issuance of which will be referred to herein as a "Formula
Award") will have a Purchase Price equal to the Fair Market
Value of the Stock as of the date of such issuance. Formula
Awards shall vest in 33-1/3% increments on each one year
anniversary of the date of issue, until a Formula Award
becomes exercisable in full on the third anniversary of the
date of issue. Except as otherwise specifically provided in
this section 6(j), all other terms of this Plan will apply to
all Formula Awards made pursuant to this section 6(j). For
purposes of this section 6(j), "Fair Market Value" means, with
respect to the Restricted Stock issued under a Formula Award,
the market price per share of the Company's Stock as follows:
(i) if the Stock was traded on a stock exchange on the
date in question, then the Fair Market Value will be
equal to the closing price reported by the applicable
composite-transactions report for such date;
(ii) if the Stock was traded over-the-counter on the date
in question and was classified as a national market
issue, then the Fair Market Value will be equal to
the last-transaction price quoted by the NASDAQ
system for such date;
(iii) if the Stock was traded over-the-counter on the date
in question but was not classified as a national
market issue, then the Fair Market Value will be
equal to the average of the last reported
representative bid and asked prices quoted by the
NASDAQ system for such date; and
8
<PAGE>
(iv) if none of the foregoing provisions is applicable,
then the Fair Market Value will be determined by the
Committee in good faith on such basis as it deems
appropriate.
7. PROCEEDS FROM SALE OF STOCK.
Cash proceeds from the sale of shares of Restricted Stock issued from
time to time pursuant to this Plan will be added to the general funds
of the Company and as such will be used from time to time for general
corporate purposes.
8. AMENDMENT AND DISCONTINUANCE.
The Board or the Committee may amend, suspend or discontinue this Plan
at any time or from time to time; provided that no such action of the
Board or the Committee shall alter or impair any rights previously
granted to Holders under the Plan without the consent of such affected
Holders (or their successors or assignees); and provided further that
the provisions of section 6(j) hereof may not be amended more often
than once during any six (6) month period, other than to comport with
changes in the Code, the Employee Retirement Income Security Act, or
the rules and regulations thereunder. The Board or the Committee may
amend the Plan without shareholder approval where such approval is not
required to satisfy any statutory or regulatory requirements.
9. PLAN COMPLIANCE WITH RULE 16B-3.
With respect to persons subject to the liability and reporting
requirements of Section 16 of 1934 Act, transactions under this Plan
are intended to comply with all applicable conditions of Rule 16b-3 or
its successors under the 1934 Act. To the extent any provision of this
Plan or action by the Plan administrators fails so to comply, it shall
be deemed null and void, to the extent permitted by law and deemed
advisable by the Plan administrators.
10. COPIES OF PLAN.
A copy of this Plan will be delivered to each Holder at or before the
time he or she executes an Restricted Stock Purchase Agreement.
***
Date Plan Adopted by Board of Directors: ____________________, 1998
Date Plan Approved by Stockholders: ____________________, 1998
9
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Dragon Mining Corporation (the Company) was incorporated in 1911 and
operated as a mining exploration company until 1977. The Company has not
received any revenue from planned principal operations since 1977 and has
primarily been engaged in the development of plans and acquisitions of assets
for its proposed mining and explorations operations. Accordingly, the Company is
considered to be in the development stage.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1997, 1996 and 1995 the Company had working capital
deficiencies of $2,103,411, $2,095,764 and $2,087,075 respectively.
CORPORATE PLANS FOR 1998 AND BEYOND
The Company is attempting to acquire additional assets by issuing
additional stock. It is also continuing negotiations with its major creditor,
who is also its shareholder, to restructure its debt.
There is no assurance that these efforts will be successful.
During the year ended December 31, 1995 the Company issued 15,000,000
shares for $15,000 to Marbella Capital Corp. ("Marbella"). Marbella increased
its ownership from 55.7% to 84.4% as result of this placement.
RESULTS OF OPERATIONS
1997 COMPARED TO 1996
The Company activities were limited to maintaining its status as a public
company which generated a net loss of $(7,648) compared to a loss of $( 8,689)
in 1996.
7
<PAGE>
1996 COMPARED TO 1995
The Company activities were limited to maintaining its status as a public
company which generated a net loss of $(8,689) compared to $(399) in 1995
1995 COMPARED TO 1994
The Company had very little activity resulting in just $576 of general and
administrative expenses in 1995 compared to $1,246 in 1994. As a result of a
private placement the Company's cash increased which resulted in interest income
of $177.
IMPACT OF INFLATION
Dragon will be affected by inflation because market value of its potential
products (gold and silver) tends to fluctuate with inflation. Other major costs
should not increase at a rate in excess of inflation.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements are filed under this Item beginning
on page F-1 the financial statements schedules required under Regulation S-X are
filed pursuant to Item 14 of this report.
<PAGE>
DRAGON MINING CORPORATION
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED FINANCIAL STATEMENTS
of an inactive Registrant per SEC 50456 Rule 3-11
for the years ended December
31, 1997, 1996 and 1995 and
period from January 1, 1978
through December 31, 1997
<PAGE>
<TABLE>
DRAGON MINING CORPORATION
BALANCE SHEETS, DECEMBER 31, 1997 AND 1996
<CAPTION>
ASSETS 1997 1996
---- ----
<S> <C> <C>
Current Asset:
Cash and Cash equivalents $ 6,538 $ 9,869
---------- -------------
Total current assets $ 6,538 $ 9,869
Plant and equipment, net 0 0
Mineral properties, net 0 0
---------- -------------
Total asset $ 6,538 $ 9,869
========== =============
LIABILITIES AND SHAREHOLDERS EQUITY
Current liabilities:
Accounts payable $ 9,950 5,633
Due to Related Party 2,100,000 2,100,000
--------- ---------
Total current liabilities 2,109,950 2,105,633
--------- ---------
Total liabilities 2,109,950 2,105,633
--------- ---------
Shareholders' deficit:
Common stock, $001 par value; authorized 25,000,000; issued
23,143,826 shares as of December 31, 1997
and 1996 respectively 23,144 23,144
Additional paid-in Capital 3,103,889 3,103,889
Accumulated Deficit (5,230,445) (5,222,797)
----------- -----------
Total shareholders' equity (2,103,412) (2,095,764)
----------- -----------
Total liabilities and shareholder's equity $ 6,538 $ 9,869
=========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-2
<PAGE>
<TABLE>
DRAGON MINING CORPORATION
STATEMENTS OF OPERATION
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<CAPTION>
1997 1996 1995
------ ------ ----------
<S> <C> <C>
Revenue:
Interest income $ 151 $ 221 $ 177
------- ------- -----------
Total Revenue 151 221 177
Operating expense:
General and administrative expenses 7,799 8,910 576
----- ----------- ------------
Total operating expenses 7,799 8,910 576
Net Income (Loss) $(7,648) $(8,689) $ (399)
======== ======== ============
Income (Loss) per common share $ (.01) $ (.01) $ (.01)
========= ======== ============
Weighted average shares outstanding 23,143,826 23,143,826 13,768,826
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
<TABLE>
DRAGON MINING CORPORATION
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997 1996 AND 1995
<CAPTION>
Deficit
Accumulated
Additional during the
COMMON STOCK Paid-in Development
SHARES AMOUNT CAPITAL STAGE TOTAL
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1978 1,875,000 $1,875 $ 868,232 $ (338,814) $ 531,293
Dividends paid in 1982 ($.27 per share) -0 - -0- (167,436) -0- (167,436)
Common stock issued:
1982 418,000 418 149,582 -0- 150,000
1983 4,620,000 4,620 1,640,088 -0- 1,644,708
1984 1,230,826 1,231 437,173 -0- 438,404
Capital contribution in 1986 -0- -0- 176,250 -0- 176,250
Net loss ten years ended December 31, 1987 -0- -0- -0- (4,080,804) (4,080,804)
------------- ----------- --------- ----------- -----------
Balance, December 31, 1987 8,143,826 8,144 3,103,889 (4,419,618) (1,307,585)
Net (loss) year ended December 31, 1988 -0- -0- -0- (999,912) (999,912)
Net (loss) year ended December 31, 1989 -0- -0- -0- (681,585) (681,585)
Net (loss) year ended December 31, 1990 -0- -0- -0- (474,867) (474,867)
Net income year ended December 31, 1991 -0- -0- -0- 1,361,063 1,361,063
Net income year ended December 31, 1992 -0- -0- -0- 3,285 3,285
Net (loss) year ended December 31, 1993 -0- -0- -0- (829) (829)
Net (loss) year ended December 31, 1994 -0- -0- -0- (1,246) (1,246)
Net (loss) year ended December 31, 1995 -0- -0- -0- (399) (399)
Common stock issued in 1995 15,000,000 15,000 -0- -0 - 15,000
Net (loss) year ended December 31, 1996 -0- -0- -0- (8,689) (8,689)
Net (loss) year ended December 31, 1997 -0- -0- -0- (7,648) (7,648)
------- --- --- ----------- -------
Balance, December 31, 1996 23,143,826 23,144 3,103,889 (5,230,445) (2,103,412)
========== ====== ========= =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
<TABLE>
DRAGON MINING CORPORATION
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<CAPTION>
Cumulative
1997 1996 1995 PERIOD
---- ---- ---- ------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net (loss) (7,648) (8.689) (399) (4,891,631)
Adjustments to reconcile net (loss) to net cash provided by operating
activities:
Depreciation -0- -0- -0- 328,376
Loss on sale of equipment -0- -0- -0- 188,562
Realized loss on sale of securities -0- -0- -0- 40,515
Unrealized loss on securities -0- -0- -0- 32,620
Deferred income tax benefit -0- -0- -0- (75,000)
Write-down and abandonment of mineral properties -0- -0- -0- 1,834,127
Write-down and abandonment of equipment -0- -0- -0- 1,166,102
(Increase) decrease of receivables -0- -0- -0- 12,746
(Decrease) increase of liabilities 4,317 (3,733) 35 1,040,167
------ ------- --- ---------
Total adjustments 4,317 (3,733) 35 4,568,215
------ ------- --- ---------
Net cash provided by operating activities (3,331) (4,956) (434) (325,816)
------- ------- ----- ---------
Cash flows from investing activities:
Sale of marketable equity securities -0- -0- -0- 76,866
Sale of certificates of deposits -0- -0- -0- 828,024
Proceeds from sale of equipment -0- -0- -0- 77,500
Acquisition of office equipment -0- -0- -0- (20,335)
Construction of mill and equipment -0- -0- -0- (2,099,058)
Acquisition and exploration of mineral properties -0- -0- -0- (1,909,127)
----- --- --- -----------
Net cash used in investing activities -0- -0- -0- (3,046,130)
----- --- --- -----------
Cash flows from financing activities:
Proceeds from issuance of common stock -0- -0- 15,000 2,248,112
Payments of debt -0- -0- -0- (1,081,259)
Proceeds from issuance of debt -0- -0- -0- 2,705,123
Dividends paid -0- -0- -0- (506,250)
----- ----- --- -----------
Net cash provided by
financing activities -0- -0- 15,000 3,365,726
----- ------ ------- ----------
Net increase (decrease) in cash (3,331) (4,956) (14,566) (3,820)
Cash and cash equivalents at beginning of year 9,869 14,825 259 40,721
------ ------ --------- -------
Cash and cash equivalents at end of year 6,538 9.869 14,825 36,901
====== ====== ========= ======
Supplemental schedule of noncash investing and financing activities
Cash paid during the year for:
Interest -0- -0- -0- -0-
-0- -0- -0- -0-
==== ==== ==== ====
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
DRAGON MINING CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
OPERATIONS AND BASIS OF PRESENTATION:
Dragon Mining Corporation (the Company) was incorporated in Utah in
1911 and operated as a mining and mineral exploration company until
1977. The Company has not received any revenue from operations since
1977 and has been primarily engaged in the development of plans and
acquisition of assets for its proposed mining and exploration
operations. Accordingly, the Company is considered to be in the
development stage, and cumulative amounts required to be presented
by development stage enterprises have been presented since January
1, 1978 in the accompanying financial statements.
Due to a failure to file a 1992 Utah annual report the Company was
mistakenly dissolved by the State of Utah. Subsequently the Company
has been reincorporated in the State of Utah.
The Company's financial statements have been presented on the basis
that it is a going concern, which contemplates the realization of
assets and the satisfaction of liabilities in the normal course of
business. The Company has incurred substantial losses during the
last three years. The Company's current liabilities exceeded its
current assets by $2,103,411 at December 31, 1997. The Company is
continuing discussions with its major creditor and shareholder to
restructure the Company's debt. Continued existence of the Company
is dependent upon the Company's ability to perform the above is
uncertain and, therefore, the Company may be unable to continue in
existence.
CASH EQUIVALENTS:
The Company defines cash equivalents as all short-term, highly
liquid investments with original maturity dates less than 90 days.
MARKETABLE SECURITIES:
Current marketable equity securities are carried at the lower of
their aggregate cost or market value. Net realized gains and losses
on security transactions are determined on the specific
identification cost basis. Unrealized losses net of unrealized gains
are included in the determination of net income.
Continued
F-6
<PAGE>
DRAGON MINING CORPORATION
NOTES TO FINANCIAL STATEMENT, CONTINUED
PLANT AND EQUIPMENT:
Plant and equipment is carried is carried at cost. Mill and
equipment are depreciated using the straight-line method over their
estimated useful lives of 5 to 15 years or the units-of-production
method based on estimated tons of ore reserves if the equipment is
located at a producing property with a shorter economic life. Mining
equipment is being depreciated using the straight-line method over
their estimated useful life of 3 to 15 years or the
units-of-production method based on estimated tones of ore reserves
if the equipment is located at a producing property with a shorter
economic life. Office equipment and fixtures are being depreciated
using the straight-line method over their estimate useful lives of 3
to 10 years. When such assets are sold or otherwise disposed of, the
costs and accumulated depreciation are removed from the accounts,
and any resulting gains or losses are charged to operations.
MINERAL PROPERTIES:
Direct costs related to the acquisition, exploration and development
of mineral properties held or controlled by the Company are deferred
on an individual property basis until the viability of a property is
determined. General exploration costs are expensed as incurred. When
a property is placed in commercial production, such deferred costs
are depleted using the units-of-production method. Management of the
Company periodically reviews the recoverability of the capitalized
mineral properties and mining equipment. Management takes into
consideration various information including, but not limited to,
historical production records taken from previous mine operations,
results of exploration activities conducted to date, estimated
future metal prices and reports and opinions of outside geologists,
mine engineers, and consultants. When it is determined that a
project or property will be abandoned or its carrying value has been
impaired, a provision is made for any expected loss on the project
or property.
RECLAMATION COSTS:
Post-closure reclamation and site restoration costs are estimated
based upon environmental and regulatory requirements and accrued
over the life of the mine using the units-of-production method.
Current expenditures relating to ongoing environmental and
reclamation programs are expensed as incurred.
Continued
F-7
<PAGE>
DRAGON MINING CORPORATION
NOTES TO FINANCIAL STATEMENTS, CONTINUED
INCOME TAXES:
Certain expenses charged against income for financial reporting
purposes are deductible in other periods for income tax purposes.
Deferred taxes are provided for such timing differences and are
calculated by the net-change method.
LOSS PER COMMON SHARE:
Loss per common share for each of the three years presented do not
include the effect of outstanding stock options, as their effect is
antidilutive.
2. PLANT AND EQUIPMENT:
Plant and equipment consists of the following at December 31, 1997
and 1996:
<TABLE>
<CAPTION>
1997 1996
-------- -------
<S> <C> <C>
Mining equipment $ -0- $ -0-
Office equipment and fixtures -0- -0-
--------- ---------
-0- -0-
Less accumulated depreciation (0) (-0-)
---------- ---------
Mining equipment, net $ 0 $ 0
=========== =========
</TABLE>
3. MINERAL PROPERTIES:
The Company owned the Dragon Pit which consists of a total of 380
acres in Juab County, Utah. The original cost of this property of
$1,769,972 was fully amortized in prior years. This property was
sold in 1996.
The Company's investment in mineral properties as of December 31,
1997 and 1996 is as follows:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Mineral properties $ -0- $ -0-
Less accumulated amortization -0- (-0-)
------------ ------------
Mineral properties, net $ 0 $ 0
============ ============
</TABLE>
Continued
F-8
<PAGE>
DRAGON MINING CORPORATION
NOTES TO FINANCIAL STATEMENTS, CONTINUED
4. NOTES PAYABLE TO RELATED PARTY:
Notes payable to related party $2,100,000 bear interest at 8% as of
December 31, 1997 and 1996 and is due on demand (see also note 7).
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Demand note to related party $2,100,000 $2,100,000
---------- ----------
$2,100,000 $2,100,000
========== ==========
</TABLE>
5. INCOME TAXES:
For U.S. income tax reporting purposes, the Company has net
operating loss carry-forwards of approximately $5,097,584 expiring
from the year 2000 to the year 2016, as of the year ended December
31, 1997. Utilization of these net operating losses is restricted
under Internal Revenue Code Section 382.
6. STOCK OPTION AGREEMENTS:
On December 18, 1984 the shareholders adopted and approved an
incentive stock option plan. The plan provides for officers and key
employees of the Company to purchase up to 300,000 shares of the
Company's unregistered common stock. The options granted under the
plan are immediately exercisable at the fair market value of free
trading stock on the date of grant or 110% of such value if the
optionee owns more than 10% of the combined voting power of all
classes of the Common stock as of the grant date. The options are
exercisable over a period not longer than ten years from the date of
grant.
Under this plan, the Company granted options to purchase 150,000
shares of unregistered common stock at an exercise price of $0.02
per share to a member of the Board of Directors in 1988. As of
December 31, 1997 150,000 of the options were outstanding and
exercisable, and they expire on March 20, 1998, ten years from the
date of grant.
Continued
F-9
<PAGE>
DRAGON MINING CORPORATION
NOTES TO FINANCIAL STATEMENTS, CONTINUED
7. RELATED PARTY TRANSACTIONS:
During the year ended December 31, 1997:
-The Company was provided management, consulting and
office administration by its majority shareholder at a
cost of $4,800.
-Interest expense of $168,000 on the note payable to
related party was cancelled.
During the year ended December 31, 1996:
-The Company was provided management, consulting and
office administration by its majority shareholder at a
cost of $4,800..
-Interest expense of $168,000 on the note payable to
related party was cancelled.
During the year ended December 31, 1995:
-The Company was provided management, consulting and
office administration at no cost by its majority
shareholder.
-Interest expense of $168,000 on the note payable to
related party was cancelled.
Continued
F-10
<PAGE>
<TABLE>
DRAGON MINING CORPORATION
SCHEDULE VI
ACCUMULATED DEPRECIATION OF PROPERTY, PLANT AND EQUIPMENT
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<CAPTION>
Balance at
Beginning Other Balance at
CLASSIFICATION OF YEAR ADDITIONS RETIREMENT CHANGES END OF YEAR
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1997:
Office Equipment $ -0- -0- -0- -0- $ -0-
Mining and Milling Equipment $ -0- -0- -0- -0- $ -0-
-------- --- --- --- -----------
Total $ -0- -0- -0- -0- $ -0-
======== === === === ===========
Year ended December 31, 1996:
Office Equipment $ 20,535 -0- (20,535) -0- $ -0-
Mining and Milling Equipment $280,214 -0- (280,214) -0- $ -0-
-------- ---- ---------- ----- -----------
Total $300,549 -0- (300,549) -0- $ -0-
======== ==== ========== ===== ===========
Year ended December 31, 1995:
Office Equipment $ 20,535 -0- -0- -0- $ 20,535
Mining and Milling Equipment $280,214 -0- -0- -0- $ 280,214
-------- ----- ----- ----- -----------
Total $300,549 -0- -0- -0- $ 300,549
======== ===== ===== ===== ===========
</TABLE>
Continued
F-11
<PAGE>
<TABLE>
DRAGON MINING CORPORATION
SCHEDULE V
PROPERTY, PLANT AND EQUIPMENT
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<CAPTION>
Balance at
Beginning Other Balance at
CLASSIFICATION OF YEAR ADDITIONS RETIREMENT CHANGES END OF YEAR
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1997:
Office Equipment $ -0- -0- -0- -0- $ -0-
Mining and Millling Equipment $ -0- -0- -0- -0- $ -0-
---------- --- --- --- ---------
Total $ -0- -0- -0- -0- $ -0-
========== === === === =========
Year ended December 31, 1996:
Office Equipment $ 20,535 -0- ( 20,535) -0- $ -0-
Mining and Milling Equipment $ 280,214 -0- (280,214) -0- $ -0-
--------- --- --------- --- ---------
Total $ 300,549 -0- (300,549) -0- $ -0-
========= === ========= === =========
Year ended December 31, 1995:
Office Equipment $ 20,535 -0- -0- -0- $ 20,535
Mining and Milling Equipment $280,214 -0- -0- -0 - $ 280,214
-------- --- --- ---- ---------
Total $300,549 -0- -0- -0- $ 300,549
======== === === === =========
</TABLE>
Continued
F-12
<PAGE>
