March 26, 1997
Securities and Exchange Commission
Branch of Edgar Operations-Filers Support
6432 General Green Way
Alexandria, VA 22312
Re: U.S. Gold Corporation Form 10-KSB
Cover Letter
File No. 0-9137
Gentlemen and Ladies:
U.S. Gold Corporation (the Company) hereby confirm its filing of
its Form 10-KSB for the year ended December 31, 1996, by Edgar
submission on March 26, 1997.
In addition, enclosed please find executed copies of i) report of
independent certified public accountants, BDO Seidman, LLP, dated
March 19, 1997, ii) Consent of BDO Siedman, LLP to the
incorporation by reference of their report in the Company's Form S-
8, dated March 26, 1997, iii) Consent of Behre Dolbear and Company
dated March 24, 1997, and iv) consent of Ore Reserve Engineering
dated March 20, 1997.
Please acknowledge receipt of these materials by date stamping the
enclosed extra copy of this letter and returning it to me in the
envelope supplied.
Very truly yours,
/s/ William F. Pass
William F. Pass
Vice President and Chief Financial Officer
enclosures
U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] Annual Report under Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended December 31, 1996
[ ] Transition report under Section 13 or 15(d) of the
Securities Exchange Act of 1934 [No Fee Required]
For the transition period from ________ to __________
Commission file number 0-9137
U.S. GOLD CORPORATION
(Name of small business issuer in its charter)
Colorado 84-0796160
(State or other jurisdiction (I.R.S. Employer Identification No.)
incorporation or organization)
55 Madison, Suite 700, Denver, Colorado 80206
(Address of principal executive office) (Zip Code)
Issuer's telephone number (303) 322-8002
Securities registered pursuant to Section 12(b) of the Exchange
Act:
Title of each class Name of each exchange on which registered
None N/A
Securities registered pursuant to Section 12(g) of the Exchange
Act:
Common Stock, $0.10 par value
(Title of class)
Check whether the issuer (1) has filed all reports required to be
filed by Sections 13 or 15(d) of the Exchange Act during the past
12 months (or for, such shorter period that the registrant was
required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Check if there is no disclosure of delinquent filers pursuant to
Item 405 of Regulation S-B contained in this form, and no
disclosure will be contained, to the best of registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB [X].
State issuer's revenues for its most recent fiscal year.
$1,311,349 in revenues for year ended December 31, 1996.
The aggregate market value (at the last trade price of $1.16 per
share) of the Common Stock of U.S. Gold Corporation held by
nonaffiliates as of March 19, 1997 was approximately $8,655,700.
As of March 19, 1997, there were 13,854,119 shares of Common Stock,
par value $0.10, outstanding.
Transitional Small Business Disclosure Format (check one):yes no x
PART I.
ITEM 1. DESCRIPTION OF BUSINESS.
Business Development
U.S. Gold Corporation (the "Company") was organized under the laws
of the State of Colorado on July 24, 1979 under the name Silver
State Mining Corporation. On June 21, 1988, the Company, pursuant
to a vote of its shareholders, changed its name from Silver State
Mining Corporation to U.S. Gold Corporation. Since its inception,
the Company has been engaged in the exploration for, development
of, and the production and sale of gold and silver.
The Company's principal property is Tonkin Springs ("Tonkin
Springs") located in Eureka County Nevada, which interest is held
by Tonkin Springs Venture Limited Partnership ("TSVLP"), a Nevada
limited partnership owned 100% by wholly-owned subsidiaries of the
Company. On December 31, 1993, TSVLP sold a 60 percent undivided
interest in Tonkin Springs to Gold Capital Corporation ("Gold
Capital"), a Colorado corporation. TSVLP retained a 40 percent
undivided interest in Tonkin Springs.
During 1990, the Company completed construction of its milling
facility at Tonkin Springs and operated the integrated mill
facility in a start-up mode commencing March, 1990. However,
because of severe liquidity problems the Company put the operation
on stand-by status beginning in June, 1990, while the Company
concluded a transaction on February 13, 1991 with wholly-owned
subsidiaries of Homestake Mining Company of California (hereinafter
"Denay"). In that transaction, the Company sold 51% undivided
interest in the Tonkin Springs project to Denay and the parties
contributed their respective interests in the Tonkin Springs
project into the TSVLP. Denay conducted and funded exploration and
other activities at Tonkin Springs until its withdrawal from TSVLP
effective October 9, 1992. Upon Denay's withdrawal, the Company,
through its wholly-owned subsidiaries, became the 100% owner of
TSVLP and assumed responsibility for Tonkin Springs until the
transaction with Gold Capital effective December 31, 1993.
Except for the historical information contained herein, the
statements in this report which relate to the Company's plans,
objectives or future performance may be deemed to be forward-
looking statements. Such statements are based on current
expectations of management. Actual strategies and results may
differ materially from those currently expected because of factors
including gold price, ore grades, metallurgical recovery, operating
costs, market valuation, and project operator's performance under
the Project Joint Venture, as well as other risks and
uncertainties.
Business
General
The Company is primarily engaged in the precious metal mining
business in the continental United States, however, it may also
evaluate and develop properties outside the United States. The
Company, through its wholly-owned subsidiaries, owns an interest in
the Tonkin Springs gold mine located in Eureka County, Nevada.
As a gold mining company, the Company's activities include, at
various times and to various degrees, exploration, land
acquisition, geological evaluation and feasibility studies of
properties and, where warranted, development and construction of
mining and processing facilities, mining and processing and the
sale of gold and other metal by-products. The Company also may
enter into joint ventures or partnerships to accomplish these
activities. All refined bullion is either sold to outside
companies, delivered in satisfaction of forward sale delivery
contracts, or held in inventory for later disposition. The Company
also may enter into joint undertakings with other companies to
accomplish the same purposes.
Sale of 60% Interest in Tonkin Springs Properties to Gold Capital
On December 31, 1993 (the "Closing"), TSVLP sold a 60 percent
undivided interest in the Tonkin Springs properties and obligations
(the "Properties") to Gold Capital. TSVLP retained a 40 percent
undivided interest in the Properties. Immediately after the
conveyance to Gold Capital, TSVLP and Gold Capital made their
respective interest in Tonkin Springs subject to the Tonkin Springs
Project Joint Venture ("Project Joint Venture") with Gold Capital
designated manager. Gold Capital is responsible for funding of all
costs related to Tonkin Springs until defined commercial
production, if any, is achieved.
Gold Capital purchased its 60 percent undivided interest in the
Properties from TSVLP for a purchase price and other consideration
of approximately $7,830,000 representing the estimated fair market
value of the assets purchased. The purchase price included
$200,000 in cash at Closing; delivery of a mortgage note in the
amount of $3.8 million (the "Promissory Note"); 300,000 shares of
Gold Capital's Series A Convertible Preferred Stock ("Gold Capital
Preferred Stock") having an assigned value of $3 million, and the
assumption of 60 percent of a reclamation obligation recorded at
$960,000. Since December 31, 1993, TSVLP has received $2,298,924
in principal payments on the Promissory Note with a balance of
$1,501,076 remaining due to TSVLP at December 31, 1996. The
Promissory Note is collateralized by Gold Capital's 60% interest in
the Properties and the Project Joint Venture and accrues interest
at a fixed rate of 7.5% on the unpaid principal balance.
Effective December 31, 1996, TSVLP converted its Gold Capital
Preferred Stock into 1,750,000 shares of Gold Capital common stock,
as provided under the Commitment and Agreement to Convert dated
June 22, 1995. The Gold Capital Preferred Stock, as amended June
22, 1995, required Gold Capital to pay a 9% annualized rate
dividend through November 30, 1995 (based on the $10 per share
stated value which totals $3 million aggregate valuation) payable
at the option of Gold Capital in cash or its common stock. Gold
Capital elected to pay dividends with common shares with the 1994
dividend of $270,000 satisfied with 127,702 unregistered common
shares of Gold Capital and the 1995 dividend, through November 30,
1995, of $247,500 satisfied in February, 1996 with 147,816
unregistered common shares. Pursuant to the Registration Rights
Agreement dated March 27, 1995, Gold Capital has agreed to use its
best efforts to register all common stock received by TSVLP and
U.S. Gold. William W. Reid, president of the Company, was
appointed a member of the board of directors of Gold Capital
subsequent to the Closing pursuant to the Gold Capital Preferred
Stock covenants. As of December 31, 1996, the Company and TSVLP
collectively own 2,287,547 shares of common stock of Gold Capital
representing approximately 25 percent of the outstanding common
stock.
Gold Capital is required to fund 100% of the holding,
development and administrative costs relating to the Properties
until commencement of commercial production. Gold Capital shall be
reimbursed for expenditures, up to $6 million ("Reimbursable
Costs"), from a preferential portion of cash flows from the
operations of the Properties, if any, with Gold Capital entitled to
receive 84% of net cash flow and TSVLP entitled to receive 16%,
until the Reimbursable Costs are recovered. After recovery of
Reimbursable Costs, cash flows will be distributed to TSVLP and
Gold Capital in proportion to their interests in the Venture. Gold
Capital expenditures in excess of $6 million will be considered
contributions to the Project Joint Venture by Gold Capital and will
not be subject to preferential distributions. Through December 31,
1996, Gold Capital has reported that it has incurred approximately
$3,725,000 in Reimbursable Costs.
Gold Capital has been evaluating alternatives to raise the
necessary funding to put the Tonkin Springs Project into production
and meet other Gold Capital obligations. In that regard, effective
March 13, 1997, Gold Capital and Globex Mining Enterprises, Inc.
("Globex"), a Canadian corporation with shares traded on the
Toronto and Montreal stock exchanges (symbol: "GMX") entered into
an Agreement and Plan of Merger (the "Gold Capital Merger").
Subject to the completion of the Gold Capital Merger, the Company
has conditionally agreed to amend the Project Joint Venture
Agreement. Under the terms of the proposed amendment, Gold Capital
would commit to immediately pay off the balance of the Secured Note
to TSVLP, finance capital requirements of the Company after
Commencement of Commercial Production, and pay TSVLP $60,000 per
month as minimum distributions of cash flow during a 24 month
period commencing 12 months after the effective date of the
amendment. The amendment would give Gold Capital the right to
borrow up to 100% of TSVLP's cash flow from the Project to support
Gold Capital debt service for third party project financing with
any net borrowings from TSVLP's cash flow due and payable upon
payoff of any third party project financing, increase the amount of
Reimbursable Costs from $6 million to $8.05 million, and provide
expanded definitions of Commencement of Commercial Production to
include additional potential operating concepts involving bio-heap
pre-conditioning of sulfide ore followed by conventional heap leach
recovery at minimum operating levels, or alternatively, heap leach
operations of oxide ores at minimum operating levels. These are in
addition to the amended bio-heap pre-conditioning of sulfide ore
followed by milling operations to extract gold at minimum operating
levels. For the Gold Capital Merger to be completed, among other
conditions, Globex must have a minimum of $4 million for the Tonkin
Springs Project.
On January 16, 1997, Gold Capital and Globex entered into a loan
agreement (the "Globex Loan".) As provided under the Globex Loan,
Gold Capital paid $141,000 in accrued interest and principle
against the Secured Note to TSVLP in January, 1997. In addition,
Globex agreed, as long as it is progressing satisfactory towards
the potential merger of Globex and Gold Capital, or until August
30, 1997, to make advances under the Globex Loan to Gold Capital to
be used, among other things, to reasonably maintain, preserve and
protect the Tonkin Springs property, and service the Secured Note
to TSVLP at the rate of $50,000 per month commencing February 1,
1997. In turn, the Company agreed to share its security interest
in the assets of Gold Capital as provided under the Secured Note,
pari passu, with Globex as provided in an Intercreditor Agreement,
and in addition, the Company and Globex entered into the Stock
Purchase Option Agreement, Agreement Not To Sell Shares, And
Agreement To Vote Shares For Merger with Globex, each dated January
16, 1997.
As provided in the Intercreditor Agreement, the Company agreed to
share, pari passu with Globex, the security interest held by the
Company under the Security Agreement dated December 31, 1993, by
and between the Company, TSVLP and Gold Capital. The Company
agreed not to give Gold Capital notice of payment default under the
Promissory Note so long as the $50,000 per month payments are made.
If a foreclosure action is jointly undertaken, Company and Globex
agree to jointly bid not less than the lesser of the fair market
value of the collateral or the combined balance then owing under
the applicable loan agreements. Upon any foreclosure action which
results in the Company and Globex acquiring the collateral from
Gold Capital, the Company has the right, for 90 days thereafter, to
pay to Globex the amount owed to Globex by Gold Capital, and thus
to acquire all the rights to the collateral from Globex.
Under the Stock Purchase Option Agreement, Agreement Not To Sell
Shares, And Agreement To Vote Shares For Merger, the Company agreed
to support the proposed merger of Gold Capital and Globex, to vote
its shares owned by the Company in Gold Capital in favor of the
proposed merger, and agreed, subject to the completion of that
merger, to exchange its 2,287,547 shares of Gold Capital for
632,094 free trading shares of Globex, being the same exchange
ratio for Gold Capital shares under the Merger Agreement between
Gold Capital and Globex.
The various agreements between the Company, Gold Capital and Globex
generally terminate August 30, 1997, unless extended thereafter by
the parties, but may be terminated earlier, under certain
conditions. If the merger of Gold Capital and Globex is completed,
there will be a change of control within Gold Capital and new
management for the manager of the Tonkin Springs Project Joint
Venture. This new management will be responsible for establishing
the plan and schedule for commencement of production, if any, at
the Properties.
The Company is recognizing the gain from the sale of the 60%
interest in the Tonkin Springs Properties to Gold Capital using the
installment method of accounting. For 1996 and 1995, 24.5%
($1,165,418) and 14.8% ($702,828), respectively, of the gain was
recognized. As of December 31, 1996, $1,789,100 of the gain
(37.7%) is deferred, representing the purchase price consideration
related to the Preferred Stock, and is anticipated to be recognized
as income as provided under the installment method of accounting.
Loan Settlement Agreement with FABC, Royalty Restructuring with
Nerco
Effective February 21, 1993, the Company entered into a Loan
Settlement Agreement with its former senior secured lender, French
American Banking Corporation ("FABC"). As partial consideration to
FABC under that agreement, the Company assigned a Residual Royalty
from Nerco Minerals Company ("NERCO") under a Royalty Restructuring
Agreement covering certain mineral interests in the Cripple
Creek/Victor mining district of Colorado to FABC, and entered into
an agreement between Tonkin Springs Gold Mining Company ("TSGMC"),
a wholly owned subsidiary of the Company, and FABC entitled
"Agreement To Pay Distributions," which requires TSGMC to pay a
limited portion of certain distributions, if any, from TSVLP to
FABC. TSVLP has complete control of such distributions, if any, to
TSGMC. Under the terms of the Agreement To Pay Distributions,
TSGMC is required to pay to FABC (i) the first $30,000 of retained
distributions, as defined in such agreement, received from the
TSVLP, plus (ii) an amount equal to 50% of such retained
distributions after TSGMC has first received and retained $500,000
of such retained distributions. This obligation to FABC shall
terminate after FABC has been paid a total of $2,030,000
thereunder.
Competitive Business Conditions
The exploration for, and the acquisition and development of gold
properties are subject to intense competition. Companies with
greater financial resources, larger staffs, more experience, and
more equipment for exploration and development may be in a better
position than the Company to compete for such mineral properties.
The Company's present limited cash flow means that its ability to
compete for properties to be explored and developed is more limited
than in the past. The Company believes that competition for
acquiring mineral prospects will continue to be intense in the
future. The Company may have to undertake greater risks than more
established companies in order to compete. The market price for
gold depends on numerous factors beyond the Company's control,
including production or sales by other gold producing nations.
Major Customers
Sales of refined gold and silver bullion derived from operating
properties in the past have been made to unaffiliated companies.
The Company believes that the loss of these customers would not
affect its business.
Patents, Trademarks, Licenses, Franchises, Concessions
The Company co-owns with Denay three United States patents
(expiring in 2008) and two Republic of South Africa patents
covering various aspects of its bio-oxidation technology. If
feasible, the Company intends to exploit its bio-oxidation
expertise, technology and patents derived from activities at Tonkin
Springs to help create business opportunities in the gold mining
business. The Company owns by itself two Chilean patents related
to its bio-oxidation technology. No research and development
expenditures have been incurred by the Company during the last two
years.
The Company does not own any trademarks, licenses, franchises or
concessions, except mining interests granted by governmental
authorities and private landowners. No portion of its business is
subject to renegotiation of profits or termination of contracts or
subcontracts at the election of the government.
Government Regulations
In connection with mining, milling and exploration activities, the
Company is subject to extensive Federal, state and local laws and
regulations governing the protection of the environment, including
laws and regulations relating to air and water quality, mining
reclamation, waste disposal, and the protection of endangered or
threatened species.
Numerous and in some regards conflicting bills have been introduced
during the last several sessions in the U.S. Congress, some of
which are currently pending, which would supplant or radically
alter the provisions of the Mining Law of 1872. If enacted, such
legislation could substantially increase the cost of holding
unpatented mining claims and could impair the ability of companies
to develop mineral resources on unpatented mining claims. Under
the terms of these bills, the ability of companies to a obtain
patent on unpatented mining claims would be nullified or
substantially impaired, and most contain provisions for the payment
of royalties to the federal government in respect of production
from unpatented mining claims, which could adversely affect the
potential for development of such claims and the economics of
operating new or even existing mines on federal unpatented mining
claims. The Company's financial performance could therefore be
affected adversely by passage of such legislation. Pending
possible reform of the Mining Law of 1872, Congress has put in
place a moratorium which prohibits acceptance or processing of most
mineral patent applications. It is not possible to predict whether
any change in the Mining Law of 1872 will, in fact, be enacted or,
if enacted, the form the changes may take.
Costs and Effects of Compliance with Environmental Laws
In connection with its mining, milling and exploration activities,
the Company is required to comply with various federal, state and
local laws and regulations pertaining to the discharge of materials
into the environment or otherwise relating to the protection of the
environment. The Company or joint venture participants have
obtained, or are in the process of obtaining, environmental
permits, licenses or approvals required for its operations.
Management of the Company is not aware of any material violations
of environmental permits, licenses or approvals issued with respect
to the Company's operations.
The Company through TSVLP, owns of a 40% interest in the Tonkin
Springs Properties, and is jointly responsible for the reclamation
obligations related to disturbances at the Properties. A
reclamation plan and projected cost estimate for the Properties was
prepared by TSVLP in 1993 and estimated the reclamation costs
associated with current disturbances at the Properties at
approximately $1.4 million. The plan was filed with appropriate
governmental agencies (the Nevada Department of Environmental
Protection and the Federal Bureau of Land Management). The
reclamation bond for the Properties is not yet in place. Bonding
is the responsibility of Gold Capital under the terms of the
Project Joint Venture.
The Company has transferred its interest in several mining
properties over the past years. The Company could remain
potentially liable for environmental enforcement actions related to
its prior ownership interest of such properties. However, the
Company has no reasonable belief that any violation of relevant
environmental laws or regulations has occurred regarding these
transferred properties. The Company is not currently subject to
any material pending administrative or judicial enforcement
proceedings arising under environmental laws or regulations.
Environmental laws and regulations may be adopted and enacted in
the future which may have an impact on the Company's operations.
The Secretary of the Interior has announced his intent to undertake
rule making procedures to impose more comprehensive surface
management regulations on mineral operations of Federal lands. The
Company cannot now accurately predict or estimate the impact of any
such future laws or regulations on its operations.
Other
Except for the historical information contained herein, the
statements in this report which relate to the Company's plans,
objectives or future performance may be deemed to be forward-
looking statements. Such statements are based on current
expectations of management. Actual strategies and results may
differ materially from those currently expected because of factors
including gold price, ore grades, metallurgical recovery, operating
costs, market valuation, and project operator's performance under
the Project Joint Venture, as well as other risks and
uncertainties.
Employees
At December 31, 1996, the Company had 5 employees, each of which
were employed on a full-time basis.
ITEM 2. DESCRIPTION OF PROPERTIES.
Tonkin Springs Properties
General
The Company through TSVLP (which is wholly-owned by subsidiaries of
the Company) holds a 40% undivided ownership interest in the Tonkin
Springs Properties, Eureka County, Nevada ("Properties" or
"Project"), subject to the Project Joint Venture. Gold Capital
owns the remaining 60% undivided interest in the Properties, and is
Project Joint Venture manager. The Properties are located on the
Battle Mountain-Cortez Trend, approximately 45 miles northwest of
Eureka, Nevada. The transaction with Gold Capital was effective
December 31, 1993, all as discussed further in "Item 1. Description
of Business, Sale of 60% Interest in Tonkin Springs Property to
Gold Capital," and below.
Sale of 60% Interest to Gold Capital
On December 31, 1993, TSVLP sold a 60 percent undivided interest in
the Properties to Gold Capital for total consideration of $7.8
million, as further discussed in "Item 1. Description of Business-
Sale of 60% Interest in Tonkin Springs Properties to Gold Capital".
TSVLP retained a 40 percent undivided interest in the Properties.
General
Tonkin Springs is an open-pit gold mining and processing project
consisting of unpatented mining claims, an integrated milling
facility, and support facilities on approximately 14,980 acres of
Federal land located along the Battle Mountain - Cortez Trend
approximately 45 miles northwest of the town of Eureka in Eureka
County, Nevada. In April, 1996, Gold Capital obtained an audit and
updated feasibility study entitled "Technical Audit Of The Tonkin
Springs Gold Property", from the independent consulting firm of
Behre Dolbear and Company, Inc. This audit represents an estimate
for an initial 5 year plan of the economic viability of producing
gold from a milling and heap leach operation at Tonkin Springs,
with expanded development to include biooxidation followed by
milling, bio-oxidation followed by conventional heap leach recovery
for lower grade ores, and an oxide heap leach. The Behre Dolbear
report concluded that "The Tonkin Springs Project, on a 100 percent
basis and pre-tax, has strong economics and a quick payback of
capital (two years)" and further concluded "the project economics
and technical factors indicate the project should proceed to
commercial production."
Gold Capital has been evaluating alternatives to raise the
necessary funding to put the Tonkin Springs Project into production
and meet other Gold Capital obligations. In that regard, effective
March 13, 1997, Gold Capital and Globex entered into an Agreement
and Plan of Merger (the "Gold Capital Merger Agreement" (See Item
1. "Description of Business - Business - Sale of 60% Interest in
Tonkin Springs Project to Gold Capital" for a detailed description
of the Gold Capital Merger Agreement).
In order to commence production at the Tonkin Springs Project, Gold
Capital must re-establish or amend the permits that are required to
operate the Project, complete the construction of an "on-off"
impermeable leach pad started in 1996 to accommodate crushed ore
reserves, reconfigure the existing crushing arrangement and
commence mining operations. Sufficient overburden removal and
development work has been accomplished to date to allow the mining
of mineralized material to commence quickly.
Part of the ore reserves at the Project is contained in sulfides
and will require pre-treatment prior to the conventional mill
processing. For this reason, Gold Capital has commenced
construction of a leach pad to be utilized to pre-oxidize the ore
reserves through bio-oxidation prior to conventional carbon-in-
leach processing. Mining is proposed to commence initially at the
TSP-1 pit of the Project. An important part of the ore reserves at
the Project is in the oxide form (the "Tonkin North deposit") and
is amenable to conventional heap leach extraction methods.
An additional component of the ore reserves at the Project is
contained in lower grade sulfides which can be mined in conjunction
with both the milling and Tonkin North operations. Gold Capital
has indicated that it proposes to pre-oxidize this material in a
similar fashion to that used prior to conventional milling. After
oxidation however, Gold Capital intends to convey the lower grade
ore to the new oxide leach pad constructed in conjunction with the
Tonkin North operations where Gold Capital intends to utilize
conventional heap leach extraction methods.
At various times, the Project has engaged the consulting firm Ore
Reserves Engineering ("ORE") to provide estimates of the open pit
minable reserves from the Project. The open-pit reserve estimate
done by ORE and completed in October, 1996, is summarized in the
table below:
Tons Grade Ounces
above above Contained Strip
Deposit Cutoff Cutoff Cutoff Gold Ratio
(opt Au) (1,000's) (opt Au) (1,000's) (W:O)
TSP-1
Milling 0.055 1,470 0.099 146 3.4
Bioheap 0.025 1,159 0.040 46 2.0
2,629 192
Rooster
Oxide Heap 0.015 3,692 0.037 136 1.3
Bioheap 0.027 1,805 0.051 92 1.3
5,497 228
O-15
Milling 0.055 969 0.107 103 11
Bioheap 0.025 601 0.040 24 3
1,570 127
TSP-6
Milling 0.055 90 0.117 11 2.4
Bioheap 0.025 86 0.039 3 2.4
176 14
TSP-8
Milling 0.055 48 0.081 4 8.2
Bioheap 0.025 61 0.041 2 8.2
109 6
F-Grid
Milling 0.055 247 0.094 23 7.0
Bioheap 0.025 407 0.037 15 7.0
654 38
Total 10,635 0.057 605 3.1
Definitions. As used herein, the term "reserves" means those
estimated quantities of a mineral deposit that, under present
anticipated conditions, may be economically and legally mined and
sold or processed for the extraction of their constituent values.
Estimated quantities of a mineral deposit involve quantity computed
from dimensions revealed in outcrops, trenches, workings or drill
holes, grade and/or quantity computed from the results of detailed
sampling and the sites for inspection, sampling and measurement
spaced so closely and the geologic character so well defined that
size, shape, depth and mineral content of reserves are well
established.
The 1996 ORE reserve estimates utilized certain data and
assumptions provided by Gold Capital including digitized
topographical files, drill-hole data base, pit slope, tonnage
factors, process recoveries and gold price assumptions. Estimates
of operating costs were provided by an independent engineering
firm. ORE did not make independent review of those data. In the
opinion of the Company, the data and assumptions used by ORE are
reasonable.
Proposed Operations
Mining at the Tonkin Springs Project is anticipated to be
accomplished by conventional open pit methods utilizing a
contractor. Gold Capital has indicated that after mining, the ore
will be crushed and then placed on an impervious asphalt pad where
it will be treated with acid, other chemicals and certain bacteria
acting as catalysts to oxidize the sulfides present. This
oxidation process is estimated to take approximately 30 to 60 days
per batch of mined ore. When this process is complete, the crushed
and oxidized ore will be washed on the heap with water and a
neutralizing agent to remove acid accumulated during the oxidation
process. Ore will then be transported to the existing mill storage
facility for further processing.
The pre-treated oxidized ore will then be processed in the existing
milling facility utilizing a conventional carbon-in-leach process.
In this milling process, the ore is ground and then treated with
cyanide in solution with activated carbon. This activated carbon
adsorbs any gold present. The gold bearing carbon is separated
from the slurry, processed for gold recovery and reactivated for
use. The barren slurry is then discharged to the tailing facility.
Gold is removed from the carbon using a hot, caustic cyanide
solution and extracted from the solution by electrowining and
further processed and melted with fluxes to produce dore bullion.
The dore would then be shipped by armored carrier to a refinery for
final processing.
The current mining plan developed by Gold Capital calls for mining
to commence initially at TSP-1, the first of several pits.
Scheduled production anticipates mining from TSP-1 for 12 full
calendar quarters. It is anticipated that mining of the second pit
area, known as TSP-6, will be initiated at the beginning of year
two and completed in approximately five fiscal quarters. Mining at
the third pit, known as O-15, is expected to be commenced during
the second year of mining operations.
The Tonkin North oxide pit development plan is envisioned as a
separate heap leach operation to be initiated subsequent to
commencement of milling operations as discussed above.
Approximately $4 million in additional capital expense is estimated
for placing the Tonkin North ore reserves into production. Such
estimate includes additional necessary permits, design and
construction of the heap leach pad, design and construction of the
solution pond and related support facilities. Gold Capital
anticipates, although there is no assurance, that such capital
expenditures will be funded from future production.
The low grade sulfide ore reserves will be pretreated and bio-
oxidized in the same manner as the high grade sulfide, but instead
of final processing through the conventional mill, this material
will then be processed in a conventional heap leach operation.
Access to the Project is provided by a county maintained road.
Electrical power is provided through a substation located near the
mill and operated by Sierra Pacific Power Company. Water is
available through production wells which have been established on
the site. The Project also contains an assay laboratory and
metallurgical pilot plant testing lab. In addition to the heavy
equipment shop for repair and maintenance of mining equipment, a
repair shop and warehouse building is situated adjacent to the mill
building. The site also contains facilities to store and
distribute propane, diesel fuel and gasoline. An administrative
building is available to office management and administrative
personnel. Potable water will be brought in from outside the
Project.
Geology
Host rocks for gold mineralization at Tonkin Springs consist of a
sequence of Paleozoic rocks that were subsequently faulted,
intruded and mineralized. Gold-bearing solutions originated at
depth and migrated up along fracture systems until reaching
fractured rock or chemically favorable rock suitable for deposition
of mineralized material. Later volcanism, faulting, erosion and
sedimentation affected the mineralized material.
Claims
The Tonkin Springs Project consists of a total of 1,059 claims. Of
that amount, an aggregate of 207 of the unpatented mining claims
covered by the Project are leased from unaffiliated third parties
pursuant to two mining leases. The Campbell/Simpson Lease, which
covers 197 claims, has an initial term which expires December 31,
2006 and may be extended from year to year, up to a maximum term of
99 years, by production from the leased claims. The Buffington
Lease, which covers 10 claims, has an initial term which expires
August 9, 1996, and may be extended from year to year by production
from the leased claims or by continued payment of advance
royalties. Each lease contains certain conditions and other
requirements for annual payments, as well as expenditures or work
to be performed in order to retain the leased claims.
The Campbell/Simpson lease requires an annual advance royalty in
the amount of $150,000, or the value of 450 ounces of gold,
whichever is greater, which royalty is payable in January of each
year. The lease also requires production royalties of 5% of the
gross sales price of gold or silver but provides for recapture of
annual advance royalties previously paid. The Project Joint
Venture is required to perform an annual work commitment and the
lease includes a defined area of interest extending from the
boundaries of certain claims. Certain of the claims which are
included in the Campbell/Simpson lease are also subject to a 1% net
smelter return royalty (defined as gross revenues from sales of
minerals, less refining costs, transportation costs, severance,
production and sales taxes, and sales commissions) payable to
Precambrian Exploration, Inc. after $15,000,000 in gross revenues
are realized from the claims.
The Buffington lease requires nominal payment of an initial advance
royalty and 5% of all net returns following commencement of
production.
An aggregate of 848 of the unpatented mining claims covered by the
Project, as well as 4 millsites, are owned jointly by the TSVLP and
Gold Capital. A total of 317 of these claims are subject to a
royalty of 2% of net smelter returns, which becomes payable to
Precambrian Exploration, Inc. after $50 million in gross revenues
is realized from the claims. Precambrian Exploration, Inc. is an
unaffiliated third party and predecessor in interest to the claims.
Precambrian may elect to receive such royalty "in kind," upon
proper notice to the Project Joint Venture. The remaining 531
claims and the millsites are not subject to any royalties. The
Project Joint Venture is required to perform all assessment work
required under state and Federal law to hold the claims.
In March, 1994, the Project Joint Venture acquired 215 claims
covering approximately 4,400 acres in the vicinity of the Tonkin
Springs Project from an unaffiliated third party. The claims are
subject to a royalty of 1% of net smelter returns for gold when the
indexed price of gold is $350 per ounce or more, and a royalty of
1% of net smelter returns for silver when the indexed price of
silver is $3.50 per ounce or more. No royalties are payable at
lower indexed prices. The indexed prices shall reflect adjustments
based on the Producer's Price Index, sub-index Finished Goods
Excluding Foods, as published by the United States Department of
Commerce. During 1995, TSVLP assigned its interest in
approximately 247 mineral claims to the Project Joint Venture. The
Company and TSVLP believes that the carrying value of the foregoing
mineral claims is inconsequential.
History of Property
In late 1989, the Company substantially completed construction of
a 1,500 ton-per-day milling facility at Tonkin Springs designed to
utilize stirred-tank bioleaching technology in the pre-oxidation
step for sulfide gold ores to allow subsequent extraction of the
gold through the conventional carbon-in-leach mill process. The
construction cost of the mill was approximately $31 million. The
Company operated the integrated mill facility in a start-up mode
commencing in March, 1990. However, the mill facility did not
reach commercial operation by June, 1990, and because of severe
liquidity problems the Company put the operation on stand-by status
beginning in June, 1990, while the Company concluded a transaction
with Denay on February 13, 1991 discussed further below. During
1990, in anticipation of results of the 1991 Closing, the Company
reduced its carrying value in the Properties and charged operations
for $29.6 million. In the February 13, 1991 Denay transaction,
TSGMC sold a 51 percent undivided interest in the Properties to
Denay and the parties contributed their respective interests in the
Properties into the TSVLP. Ownership in the TSVLP was initially:
TSGMC- 49 percent, Denay- 51 percent, with Denay and TSGMC general
partners and Homestake Nevada a limited Partner. Denay was
initially designated manager of the Properties.
Denay purchased its 51 percent undivided interest in the Properties
in exchange for forgiveness by Denay of an aggregate of $4.5
million in short term debt of the Company purchased by Denay from
certain creditors for an aggregate cash price of $3.5 million.
Denay also committed to make certain expenditures through TSVLP for
the benefit of the Properties. In particular, Denay was required
to expend a minimum aggregate $2 million on exploration of the
Properties and to fund other property costs. Effective October 9,
1992, Denay withdrew from TSVLP. Such withdrawal was provided for
and governed by the Limited Partnership Agreement between the
parties dated February 11, 1991, and as provided thereunder the
partnership interest of the withdrawing parties reverted to TSGMC
and U.S. Environmental Corporation ("USEC"), both wholly-owned
subsidiaries of the Company. The Company's interest in TSVLP is
held 99.5% by TSGMC and 0.5% by USEC. During the period of Denay
involvement, Denay expended approximately $2.49 million on
exploration and approximately $1.84 million on other property
costs.
Upon the withdrawal by Denay from the TSVLP, the Company
effectively acquired Denay's 51% ownership of the partnership and
assumed responsibility for the reclamation of the properties,
establishing a $1.6 million estimated reclamation cost for the
Properties as an obligation and, reflected this amount as an
acquisition cost of Denay's 51% partnership interest thereby
increasing its investment in the TSVLP. As noted above, effective
December 31, 1993, the Company sold a 60 percent undivided interest
in the Properties to Gold Capital.
ITEM 3. LEGAL PROCEEDINGS.
Canyon Construction Company:
An action entitled "Canyon Construction Company ("Canyon") v.
Tonkin Springs Gold Mining Company, and Does I-V," was filed in the
Nevada State Court, Case No. 28416 on December 19, 1996. Tonkin
Springs Gold Mining Company is a wholly-owned subsidiary of the
Company. The complaint alleges that Tonkin Springs Gold Mining
Company and Does I-V had failed and refused to pay to Canyon
amounts due for performance under a construction contract dated
August 9, 1996, and Canyon has filed a Notice of Claim of Lien
dated March 7, 1997, on the Tonkin Springs Project Joint Venture.
The Canyon action was amended to include Gold Capital as a named
defendant. Canyon claimed that they are owned approximately
$191,956.72 plus interest and damages.
The Canyon contract was entered into by Gold Capital Corporation on
behalf of the Tonkin Springs Project Joint Venture. Gold Capital
is Project manager and under the Purchase and Sale Agreement as
well as the Joint Venture Agreement, each dated December 31, 1993,
Gold Capital is responsible for funding of all costs of the Project
until Commencement of Commercial Production. In addition, Gold
Capital is obligated to keep the Tonkin Springs Project and assets
free and clear of any liens. The Canyon action is the sole
obligation of Gold Capital. The Company has given written notice
to Gold Capital specifically requesting Gold Capital to address and
resolve the Canyon litigation and the claim of lien in an
appropriate manner.
The Company does not believe the Canyon litigation and the claim of
lien will result in any material adverse effect on the Companys financial
position, operations or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS.
The Company's common stock trades on The Nasdaq SmallCap Market
tier of The Nasdaq Stock Market under the symbol "USGL." The
tables below set forth the high and low sales prices for the
Company's common stock as quoted by Nasdaq for the fiscal years
ended December 31, 1996 and 1995. Quotations represent prices
between dealers, do not include retail markups, markdowns or
commissions, and do not necessarily represent prices at which
actual transactions were effected.
Fiscal Year Ended
December 31, 1996 High Low
First Quarter $ 1.531 $0.766
Second Quarter $ 1.250 $0.906
Third Quarter $ 1.188 $0.906
Fourth Quarter $ 1.500 $1.000
Fiscal Year Ended
December 31, 1995 High Low
First Quarter $ 0.688 $ 0.375
Second Quarter $ 0.813 $ 0.656
Third Quarter $ 1.250 $ 0.712
Fourth Quarter $ 1.563 $ 0.712
As of March 10, 1997, there were approximately 8,022 record holders
for the Company's common stock.
No dividends have ever been paid with respect to the Company's
common stock and the Company does not anticipate the payment of
dividends in the foreseeable future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF PLAN OF OPERATIONS
Changes in Financial Condition
On December 31, 1993 (the "Closing"), TSVLP, a partnership
owned by subsidiaries of U.S. Gold Corporation (the "Company"),
sold a 60 percent undivided interest in the Tonkin Springs
Properties and Obligations (the "Properties") to Gold Capital.
TSVLP retained a 40 percent undivided interest in the Properties.
Immediately thereafter, TSVLP and Gold Capital each made their
respective interest in the Properties subject to the Tonkin Springs
Project Joint Venture ("Project Joint Venture") to operate and
manage the Properties. Ownership in the Project Joint Venture is:
TSVLP- 40 percent, Gold Capital- 60 percent. Gold Capital is
manager of the Properties under the Project Joint Venture.
Gold Capital purchased its 60 percent undivided interest in the
Properties from TSVLP for a purchase price and other consideration
of approximately $7,830,000 representing the estimated fair market
value of the assets purchased. The purchase price included
$200,000 in cash at Closing; delivery of a mortgage note in the
amount of $3.8 million (the "Promissory Note"); 300,000 shares of
unregistered Gold Capital's Series A Preferred Stock ("Gold Capital
Preferred Stock") having an assigned value of $3 million, and the
assumption of 60 percent of a reclamation obligation recorded at
$960,000.
Through 1996, the Company has received $2,298,924 in principal
payments on the Promissory Note with $1,501,076 remaining due at
December 31, 1996. The Promissory Note, as amended June 22, 1995,
requires monthly payments by Gold Capital of $50,000 until Gold
Capital has raised an aggregate of $4,000,000 in new financing, and
$75,000 per month subsequent to Gold Capital raising an aggregate
of $4,000,000 in new financing, until the note is paid in full.
The Promissory Note, as amended June 22, 1995, is collateralized by
Gold Capital's 60% interest in the Properties and the Project Joint
Venture and accrues interest at a fixed rate of 7.5% on the unpaid
principal balance. Interest on the Promissory Note for 1996
amounted to $129,569 and was received in January, 1997. Payment of
subsequent years interest is due at the end of each respective
calendar year.
TSVLP converted its 300,000 shares of Gold Capital Preferred Stock
into 1,750,000 unregistered shares of Gold Capital common stock,
effective December 31, 1996. The Preferred Stock accrued a
mandatory annual 9% dividend (based on the $10 per share stated
value which totals $3 million aggregate valuation) through November
30, 1995. Gold Capital elected to pay such dividends by issuance
of Gold Capital common stock to TSVLP with the 1994 dividend in the
amount of $270,000 satisfied with the issuance of 127,702
unregistered shares of Gold Capital common stock, and the 1995
dividend through November 30, 1995 of $247,500 with 147,816
unregistered shares of common stock of Gold Capital. In addition,
during 1996, the Company elected to convert an accounts receivable
from Gold Capital in the amount of $242,029 representing consulting
services, overhead support and expense charged to Gold Capital
under an Office Management and Support Agreement dated April 1,
1994, into unregistered 242,029 shares of common stock of Gold
Capital. The aggregate carrying value of the total 2,287,547 common
shares of Gold Capital owned by the Company is $3,779,529
($1.65/share) and the market price of such shares as of March 19,
1997 was bid $0.75 and ask $0.94. At December 31, 1996, there
remains $1,789,100 in deferred gain associated with the sale of
interest in Tonkin Springs to Gold Capital which is anticipated to
be realized in the future as provided under installment sale
accounting. Excluding the deferred gain balance which is included
in the aggregate carrying value of the Gold Capital common shares,
the average carrying value is reduced to $0.87 per share. Pursuant
to the Registration Rights Agreement dated March 27, 1995, Gold
Capital has agreed to use its best efforts to register all common
stock of the Company and TSVLP.
Gold Capital is required to fund 100% of the holding, development
and administrative costs relating to the Properties until
commencement of commercial production, and shall be reimbursed for
expenditures, up to $6 million ("Reimbursable Costs"), from a
preferential portion of cash flows from the operations of the
Properties, if any, with Gold Capital entitled to receive 84% of
net cash flow and TSVLP entitled to receive 16% until Reimbursable
Costs are recovered. After recovery of Reimbursable Costs, cash
flows will be distributed to TSVLP and Gold Capital in proportion
to their interest in the Venture. Expenditures in excess of
Reimbursable Costs will be considered contributions to the Project
Joint Venture by Gold Capital. Through December 31, 1996, Gold
Capital has reported it has incurred approximately $3,725,000 in
Reimbursable Costs for the Project Joint Venture.
Gold Capital has been evaluating alternatives to raise the
necessary funding to put the Tonkin Springs Project into production
and meet other Gold Capital obligations. In that regard, effective
March 13, 1997, Gold Capital and Globex Mining Enterprises, Inc.
("Globex"), a Canadian corporation with shares traded on the
Toronto and Montreal stock exchanges (symbol: "GMX") entered into
an Agreement and Plan of Merger (the "Gold Capital Merger").
Subject to the completion of the Gold Capital Merger, the Company
has conditionally agreed to amend the Project Joint Venture
Agreement. Under the terms of the proposed amendment, Gold Capital
would commit to immediately pay off the balance of the Secured Note
to TSVLP, finance capital requirements of the Company after
Commencement of Commercial Production, and pay TSVLP $60,000 per
month as minimum distributions of cash flow during a 24 month
period commencing 12 months after the effective date of the
amendment. The amendment would give Gold Capital the right to
borrow up to 100% of TSVLP's cash flow from the Project to support
Gold Capital debt service for third party project financing with
any net borrowings from TSVLP's cash flow due and payable upon
payoff of any third party project financing, increase the amount of
Reimbursable Costs from $6 million to $8.05 million, and provide
expanded definitions of Commencement of Commercial Production to
include additional potential operating concepts involving bio-heap
pre-conditioning of sulfide ore followed by conventional heap leach
recovery at minimum operating levels, or alternatively, heap leach
operations of oxide ores at minimum operating levels. These are in
addition to the amended bio-heap pre-conditioning of sulfide ore
followed by milling operations to extract gold at minimum operating
levels. For the Gold Capital Merger to be completed, among other
conditions, Globex must have a minimum of $4 million for the Tonkin
Springs Project.
On January 16, 1997, Gold Capital and Globex entered into a loan
agreement (the "Globex Loan".) As provided under the Globex Loan,
Gold Capital paid $141,000 in accrued interest and principle
against the Secured Note to TSVLP in January, 1997. In addition,
Globex agreed, as long as it is progressing satisfactory towards
the potential merger of Globex and Gold Capital, or until August
30, 1997, to make advances under the Globex Loan to Gold Capital to
be used, among other things, to reasonably maintain, preserve and
protect the Tonkin Springs property, and service the Secured Note
to TSVLP at the rate of $50,000 per month commencing February 1,
1997. In turn, the Company agreed to share its security interest
in the assets of Gold Capital as provided under the Secured Note,
pari passu, with Globex as provided in an Intercreditor Agreement,
and in addition, the Company and Globex entered into the Stock
Purchase Option Agreement, Agreement Not To Sell Shares, And
Agreement To Vote Shares For Merger with Globex, each dated January
16, 1997.
As provided in the Intercreditor Agreement, the Company agreed to
share, pari passu with Globex, the security interest held by the
Company under the Security Agreement dated December 31, 1993, by
and between the Company, TSVLP and Gold Capital. The Company
agreed not to give Gold Capital notice of payment default under the
Promissory Note so long as the $50,000 per month payments are made.
If a foreclosure action is jointly undertaken, Company and Globex
agree to jointly bid not less than the lesser of the fair market
value of the collateral or the combined balance then owing under
the applicable loan agreements. Upon any foreclosure action which
results in the Company and Globex acquiring the collateral from
Gold Capital, the Company has the right, for 90 days thereafter, to
pay to Globex the amount owed to Globex by Gold Capital, and thus
to acquire all the rights to the collateral from Globex.
Under the Stock Purchase Option Agreement, Agreement Not To Sell
Shares, And Agreement To Vote Shares For Merger, the Company agreed
to support the proposed merger of Gold Capital and Globex, to vote
its shares owned by the Company in Gold Capital in favor of the
proposed merger, and agreed, subject to the completion of that
merger, to exchange its 2,287,547 shares of Gold Capital for
632,094 free trading shares of Globex, being the same exchange
ratio for Gold Capital shares under the Merger Agreement between
Gold Capital and Globex.
The various agreements between the Company, Gold Capital and Globex
generally terminate August 30, 1997, unless extended thereafter by
the parties, but may be terminated earlier, under certain
conditions. If the merger of Gold Capital and Globex is completed,
there will be a change of control within Gold Capital and new
management for the manager of the Tonkin Springs Project Joint
Venture. This new management will be responsible for establishing
the plan and schedule for commencement of production, if any, at
the Properties.
In April, 1996, Gold Capital obtained an audit of the project
feasibility study from an outside engineering firm, which study
confirms the economic viability and recommends development of the
project to produce gold from a milling and heap leach operation at
Tonkin Springs. Subject to certain conditions and assumptions set
forth therein, the feasibility study concludes that gold can be
successfully mined over the estimated five-year initial phase of
the Project.
Liquidity and Capital Resources
During 1997, TSVLP anticipates receipt of a minimum of $561,431 in
principal payments from Gold Capital plus accrued interest under
the Promissory Note. These payments are the only source of working
capital presently anticipated during 1997 unless the Tonkin Springs
Project commences commercial production with cash flow, if any,
distributed to TSVLP. As discussed below, if the merger of Gold
Capital and Globex is completed, the remaining balance of the
Promissory Note is required to be paid within 5 business days. The
Company anticipates pursuing alternatives to augment working
capital which could include, but is not limited to, private
placement of equity.
Net cash used in operations decreased to $837,512 for 1996 from
$1,236,869 for 1995, reflecting the decrease in 1996 of the net
amounts related to tax obligations of $534,152 reduced by tax
refunds of $145,741, offset in part, by increases in 1996 in cash
paid to suppliers and employees of $108,236. Cash flow from
investing activities decreased from $1,772,349 for 1995 to $608,645
in 1996, primarily reflecting a large principal payment during 1995
received under the Promissory Note from Gold Capital and TSVLP's
share of the net proceeds in 1995 of sale of surplus assets from
the Properties, discussed further below. No cash flows from
financing activities occured in 1996 while $319,411 were used in
1995, reflecting the full repayment of an unsecured loan during
1995 from Placer Dome U.S. Inc. ("PDUS") of $330,016. PDUS is
beneficial owner of approximately 7% of the outstanding shares of
common stock of the Company.
Results of Operations - 1996 Compared to 1995
The Company is recognizing the gain from the sale of the 60%
interest in the Properties to Gold Capital using the installment
method of accounting. For 1996, 24.5% ($1,165,418) of the gain was
recognized, representing the balance of the gain related to the
Promissory Note, while in 1995, 14.8% ($702,828) of the gain was
recognized reflecting payments received under the Promissory Note.
As of December 31, 1996, $1,789,100 of the gain (37.7%) is
deferred, representing the purchase price consideration related to
the Preferred Stock which was converted effective December 31, 1996
into 1,750,000 shares of common stock of Gold Capital, and is
anticipated to be recognized as income as provided under the
installment method of accounting. Interest income decreased
approximately $57,000 during 1996 as compared to 1995, reflecting
the reduced average balance of the Gold Capital Promissory Note.
The Preferred Stock of Gold Capital required a mandatory dividend
of 9%, which dividend requirement terminated November 30, 1995, for
a total during 1995 of $247,000. Also during 1995, the Tonkin
Springs Project Joint Venture, of which the Company holds a 40%
interest through TSVLP, sold a surplus sag mill from the project
distributing $252,000 to TSVLP representing it's share of the net
proceeds from the sale. The Company, through TSVLP recognized a
gain on its share of this sale of $196,375 during 1995.
General and Administrative expenses increased approximately $44,882
in 1996 compared to 1995. The small increase in expenses for 1996
compared to 1995 generally reflect higher employee compensation
expense and costs associated with an expanded investor relations
program, offset in part by greater costs allocated and charged to
Gold Capital for office and staff support.
Upon finalization of the Company's 1993 Federal income tax return,
a liability of $451,474 for 1993 alternate minimum tax was
computed. During 1996, the Company recieved a federal tax refund
in the amount of $79,324, as 1995 tax losses were carried back and
applied against the 1993 alternative minimum tax payment. As of
December 31, 1996, the Company has approximately $70,800 in
alternative minimum tax credits which can be carried forward and
utilized against future tax income of the Company. The Company has
recorded a net deferred tax asset of $595,989 and a valuation
allowance of $509,469 as of December 31, 1996. The Company
believes that it is more likely than not that the net deferred
asset will be realized and the Company believes that it will
generate future tax income to be able to utilize its alternative
minimum tax credits. Therefore, no valuation allowance was
provided for the $86,520 net deferred tax asset.
Results of Operations - 1995 Compared to 1994
In 1995, 14.8% ($702,828) of the gain from the sale of the
Properties to Gold Capital was recognized reflecting principal
payments received on the Promissory Note while in 1994, 7.2%
($339,702) of the gain was recognized also reflecting Promissory
Note payments. During 1995, $195,572 in interest income related
to the Promissory Note as well as $247,500 of dividend income
related to the Gold Capital Preferred Stock, was accrued, compared
to interest income of $234,214 and dividend income of $270,000
recognized during 1994.
During 1994, the Company received the final $100,000 in royalty
payments related to the Nerco Royalty Purchase and Restructuring
Agreement dated February 21, 1992, and thereafter the Company has
no further interest in the Cripple Creek-Victor mining district.
In addition, during 1995, the Tonkin Springs Project Joint Venture,
of which the Company holds a 40% interest through TSVLP, sold a
surplus sag mill from the project distributing $252,000 to TSVLP
representing it's share of the net proceeds from the sale. The
Company, through TSVLP recognized a gain on its share of this sale
of $196,375.
General and Administrative expenses increased approximately $44,451
in 1995 compared to 1994. The small increase in expenses for 1995
compared to 1994 generally reflect higher employee compensation
expense and costs associated with an expanded investor relations
program, offset in part by greater costs allocated and charged to
Gold Capital Corporation for office and staff support.
Interest expense during 1995 was $27,369, and related primarily to
the Federal tax liability, and interest on the unsecured note in
favor of PDUS paid in full in July, 1995.
Upon finalization of the Company's 1993 Federal income tax return,
a liability of $451,474 for 1993 alternative minimum tax was
computed. During 1995, the Company completed payments including
penalty and interest to the IRS related to this liability in the
amount of $534,152. During 1995, the Company received a federal
tax refund in the amount of $145,741 including interest and
refunded penalties, as 1994 tax losses were carried back and
applied against the 1993 alternative minimum tax payment. The
Company has recorded a net deferred tax asset of $837,322 and a
valuation allowance of $613,700 as of December 31, 1995. The
Company believed that it was more likely than not that the net
deferred asset will be realized. Therefore, no valuation allowance
was provided for the $223,622 net deferred asset.
Other
Except for the historical information contained herein, the
statements in this report which relate to the Company's plans,
objectives or future performance may be deemed to be forward-
looking statements. Such statements are based on current
expectations of management. Actual strategies and results may
differ materially from those currently expected because of factors
including gold price, ore grades, metallurgical recovery, operating
costs, market valuation, and project operator's performance under
the Project Joint Venture, as well as other risks and
uncertainties.
Numerous and in some regards conflicting bills have been introduced
during the last several sessions in the U.S. Congress, some of
which are currently pending, which would supplant or radically
alter the provisions of the Mining Law of 1872. If enacted, such
legislation could substantially increase the cost of holding
unpatented mining claims and could impair the ability of companies
to develop mineral resources on unpatented mining claims. Under
the terms of these bills, the ability of companies to a obtain
patent on unpatented mining claims would be nullified or
substantially impaired, and most contain provisions for the payment
of royalties to the federal government in respect of production
from unpatented mining claims, which could adversely affect the
potential for development of such claims and the economics of
operating new or even existing mines on federal unpatented mining
claims. The Company's financial performance could therefore be
affected adversely by passage of such legislation. Pending
possible reform of the Mining Law of 1872, Congress has put in
place a moratorium which prohibits acceptance or processing of most
mineral patent applications. It is not possible to predict whether
any change in the Mining Law of 1872 will, in fact, be enacted or,
if enacted, the form the changes may take.
ITEM 7. FINANCIAL STATEMENTS
Index to Financial Statements Page
Report of Independent Certified Public Accountants -
Consolidated Statements of Operations for the years
ended December 31, 1996 and 1995 -
Consolidated Balance Sheet at December 31, 1996 -
Consolidated Statements of Changes in Shareholders'
Equity for the years ended December 31, 1996 and 1995 -
Consolidated Statements of Cash Flows for the
years ended December 31, 1996 and 1995 -
Notes to Consolidated Financial Statements -
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Shareholders
U.S. Gold Corporation
We have audited the accompanying consolidated balance sheet of U.S.
Gold Corporation (the "Company") as of December 31, 1996 and the
related consolidated statements of operations, changes in
shareholders equity and cash flows for the two years ended
December 31, 1996. These consolidated financial statements are the
responsibility of the Companys management. Our responsibility is
to express an opinion on these consolidated financial statements
based upon our audits.
We conducted our audits in accordance with generally accepted
auditing standards. These standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of the Company as of December 31, 1996, and the results of
their operations and their cash flows for the two years ended
December 31, 1996, in conformity with generally accepted accounting
principles.
BDO Seidman, LLP
Certified Public Accountants
March 19, 1997
Denver, Colorado
U.S. GOLD CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended December 31, 1996 1995
Installment gain on sale of
Tonkin Springs interest (Note 2) $1,165,418 $702,828
Interest income 144,716 201,723
Dividend income (Note 2) 0 247,500
Gain on sale of assets 1,215 215,506
Total revenues 1,311,349 1,367,557
Costs and expenses:
General and administrative 807,711 762,829
Interest 1,695 27,369
Depreciation, depletion and amortization 11,516 5,725
Total costs and expenses 820,922 795,923
Income before income taxes 490,427 571,634
Provision for income taxes (Note 7) 0 0
NET INCOME $490,427 $571,634
Per share data:
Net income $0.03 $0.04
Weighted average shares and share
equivalents outstanding 14,678,096 14,591,970
The accompanying notes are an integral part of these consolidated
financial statements.
U.S. GOLD CORPORATION
CONSOLIDATED BALANCE SHEET
ASSETS December 31, 1996
Current assets:
Cash and cash equivalents $5,459
Interest receivable (Note 2) 129,569
Note receivable, current portion (Note 2) 561,431
Federal tax refund (Note 7) 153,000
Other current assets 27,669
Total current assets 877,128
Investment in Tonkin Springs Project
Joint Venture (Note 2) 2,262,578
Note receivable, non-current portion (Note 2) 939,645
Investment in Gold Capital Common Stock (Note 2) 3,779,529
Deferred tax assets, net (Note 7) 86,520
Other assets (Note 6) 89,212
TOTAL ASSETS $8,034,612
LIABILITIES, DEFERRED CREDITS AND
SHAREHOLDERS' EQUITY
Total current liabilities - accounts payable $127,035
Reserve for reclamation (Note 3) 640,000
Deferred gain on sale of Tonkin
Springs interest (Note 2) 1,789,100
Commitments and contingencies (Note 10)
Shareholders' equity (Note 8):
Common stock, $.10 par value, 15,000,000
shares authorized; 13,854,119 shares
issued and outstanding 1,385,447
Additional paid-in capital 31,977,224
Accumulated deficit (27,884,194)
Total shareholders' equity 5,478,477
TOTAL LIABILITIES, DEFFERED CREDITS
ANE SHAREHOLDERS' EQUITY $8,034,612
The accompanying notes are an integral part of these consolidated
financial statements.
U.S.GOLD CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
Common Stock Additional Accumulated
Par Paid-in Earnings
Shares Value Capital (Deficit)
Balance,
January 1, 1994 13,768,800 $1,376,880 $31,975,331 $(28,946,255)
Exercise of
stock options 37,705 3,771 6,834 0
Net income - - - 571,634
Balance,
December 31, 1995 13,806,505 1,380,651 31,982,165 (28,374,621)
Exercise of
stock options 48,000 4,800 (4,800) -
Treasury shares
canceled (386) (4) (141) -
Net income - - - 490,427
Balance,
December 31, 1996 13,854,119 $1,385,447 $31,977,224 $(27,884,194)
The accompanying notes are an integral part of these consolidated
financial statements.
U.S. GOLD CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1996 1995
Cash flows from operating activities:)
Cash paid to suppliers and employees $(930,288) $(822,052)
Interest received 15,147 963
Interest paid (1,695) (27,369)
Payment of income tax obligation 0 (534,152)
Receipt of refund from IRS 79,324 145,741
Cash used in operating activities (837,512) (1,236,869)
Cash flows from investing activities:
Cash received from sale of Tonkin
Springs interest 450,844 1,298,080
Cash received for prior years
accrued interest 195,572 234,158
Cash paid for other assets (38,986) 0
Capital expenditures 0 (31,129)
Sale of assets 1,215 271,240
Cash provided by investing activities 608,645 1,772,349
Cash flows from financing activities:
Repay borrowings under note payable 0 (330,016)
Exercise of stock options for cash 0 10,605
Cash used in financing activities 0 (319,411)
Increase (decrease) in cash
and cash equivalents (228,867) 216,069
Cash and cash equivalents,
beginning of year 234,326 18,257
Cash and cash equivalents,
end of year $5,459 $234,326
Reconciliation of net income to cash used in operating activities:
Net income $490,427 $571,634
Items not requiring (providing) cash:
Interest income (129,569) (195,572)
Dividend income 0 (247,500)
Depreciation, depletion and amortization 11,516 5,725
Investment gain on sale of Tonkin
Springs interest (1,165,418) (702,828)
Gain on sale of assets (1,215) (215,506)
(Increase) decrease in current assets
related to operations (124,117) (83,042)
Increase (decrease) in current
liabilities related to operations 80,864 (369,780)
Cash used in operating activities $ (837,512) $(1,236,869)
The accompanying notes are an integral part of these consolidated
financial statements.
U.S. GOLD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Basis of presentation: U.S. Gold Corporation (the "Company") was
organized under the laws of the State of Colorado on July 14, 1979.
Since its inception, the Company has been engaged in the exploration
for, development of, and the production and sale of gold and silver.
Basis of consolidation: The consolidated financial statements include
the accounts of the Company and its wholly-owned subsidiaries, as well
as the accounts of the wholly-owned Tonkin Springs Venture Limited
Partnership ("TSVLP"). Significant intercompany accounts and
transactions have been eliminated.
Statements of cash flows: The Company considers cash in banks, deposits
in transit, and highly liquid debt instruments purchased with original
maturities of three months or less to be cash and cash equivalents.
Investments: Investment in Gold Capital Corporation ("Gold Capital")
common stock is accounted for under the cost method of accounting.
These investments are evaluated periodically and carried at the lower
of cost or estimated net realizable value.
Investment in Tonkin Springs Project Joint Venture is accounted for under
the equity method of accounting. Under the equity method of accounting,
the original investment is recorded at cost and adjusted by the Company's
share of undistributed earnings, losses and distributions. This investment
is evaluated periodically and carried at its estimated realizable value.
Property and equipment: Property and equipment are carried at cost not in
excess of their estimated net realizable value. Normal maintenance and
repairs are charged to earnings while expenditures for major betterments
are capitalized. Gains or losses on disposition are recognized in operations.
Exploration and development costs: General exploration costs are expensed as
incurred while exploration and acquisition costs related to projects are
deferred until the properties are put into commercial production, sold, or
abandoned. Mine development costs incurred either to develop new ore deposits,
expand the capacity of operating mines, or to develop mine areas substantially
in advance of current production are also deferred. Costs incurred to maintain
current production or to maintain properties on a standby basis are charged to
operations. Costs of abandoned projects are charged to operations upon
abandonment. The Company evaluates, at least quarterly, the carrying value of
capitalized mining costs and related property, plant and equipment costs to
determine if these costs are in excess of their net realizable value and if an
impairment needs to be recorded. Permanent impairments are evaluated
periodically based upon expected future cash flows in accordance with Statement
of Financial Accounting Standards No. 121, "Accounting for Impairment of
Long-Lived Assets." The adoption of this standard did not have an effect on the
financial statements for the year ended December 31, 1996.
Depreciation, depletion and amortization: Depreciation of property and
equipment is computed using the units-of-production and straight-line methods,
depending upon which method more accurately reflects the related assets' use.
Mine development costs are charged to operations using the units-of-production
method based on estimated ounces of gold to be recovered.
Property reclamation costs: The estimated reclamation cost obligation related
to present disturbances at the Tonkin Springs Properties is carried as a
liability. Changes to these estimates, or the estimated reclamation costs
associated with other mineral properties, are accrued and charged over the
expected life of each property using the units of production method. Ongoing
environmental and reclamation expenditures are expensed as incurred.
Stock Option Plans: The Company applies APB Opinion 25, "Accounting for Stock
Issued to Employees", and related Interpretations in accounting for all stock
option plans. Under APB Opinion 25, no compensation cost has been recognized
for stock options issued to employees as the exercise price of the Company's
stock options granted equals or exceeds the market price of the underlying
common stock on the date of grant.
SFAS No. 123, "Accounting for Stock-Based Compensation", requires the Company
to provide pro forma information regarding net income as if compensation costs
for the Company's stock option plans had been determined in accordance with the
fair value based method prescribed in SFAS No. 123. To provide the required
pro forma information, the Company estimates the fair value of each stock
option at the grant date by using the Black-Scholes option-pricing
model.
Per share amounts: Per share amounts are computed by dividing net income by
the weighted average of shares outstanding during the year plus share
equivalents. Share equivalents include the effects of outstanding stock
options.
Income Taxes: The Company accounts for income taxes under Statement of
Financial Accounting Standards No. 109 ("SFAS No. 109.") Temporary differences
are differences between the tax basis of assets and liabilities and their
reported amounts in the financial statements that will result in taxable or
deductible amounts in future years.
Concentration of risks: The Company's financial instruments that are exposed
to concentration of credit risk consists primarily of cash equivalent balances
in excess of the insurance provided by federal insurance authorities. The
Company's investment in Gold Capital common stock is exposed to concentration
of credit risk primarily because this investment is dependent upon the
successful operation of Gold Capital.
Use of estimates: The preparation of the Company's consolidated financial
statements in conformity with generally accepted accounting principles requires
the Company's management to make estimates and assumptions that affect the
amounts of assets and liabilities, the disclosure of contingent assets and
liabilities at the date of the financial statements, and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates.
Fair Value of Financial Instruments: Statement of Financial Accounting
Standards No. 107, "Disclosures About Fair Value of Financial Instruments,"
requires disclosure of fair value information about financial instruments. Fair
value estimates discussed herein are based upon certain market assumptions
and pertinent information available to management as of December 31, 1996.
The respective carrying value of certain on-balance-sheet financial instruments
approximate their fair values. These financial instruments include cash and
cash equivalents, interest receivable, and accounts payable. Fair values were
assumed to approximate carrying values for these financial instruments since
they are short term in nature and their carrying amounts approximate fair value
or they are receivable or payable on demand. The note receivable bears interest
at an amount that approximates a fair market value rate. Accordingly, the
fair value approximates its reported carrying amounts ar December 31, 1996.
2. Sale of 60% Interest in Tonkin Springs Project
On December 31, 1993 (the "Closing"), TSVLP, a partnership owned by subsidiaries
of U.S. Gold Corporation (the "Company"), sold a 60 percent undivided interest
in the Tonkin Springs Properties and Obligations (the "Properties") to Gold
Capital. TSVLP retained a 40 percent undivided interest in the Properties.
Immediately after the conveyance to Gold Capital and effective December 31,
1993, TSVLP and Gold Capital each made their respective interest in the
Properties subject to a mining joint venture, the Tonkin Springs Project Joint
Venture ("Project Joint Venture"), to operate and manage the Properties.
Ownership in the Project Joint Venture is: TSVLP- 40 percent, Gold Capital- 60
percent. Gold Capital is manager of the Properties under the Project Joint
Venture.
Gold Capital purchased its 60 percent undivided interest in the Properties from
TSVLP for a purchase price and other consideration of approximately $7,830,000
representing the estimated fair market value of the assets. The purchase price
included $200,000 in cash at Closing; delivery of a mortgage note in the amount
of $3.8 million (the "Promissory Note"); 300,000 shares of unregistered Gold
Capitals Series A Preferred Stock ("Gold Capital Preferred Stock") having an
assigned value of $3 million, and the assumption of 60 percent of a reclamation
obligation recorded at $960,000.
Through December 31, 1996, TSVLP has received $2,298,924 in principal payments
on the Promissory Note with a balance of $1,501,076 remaining due at December
31, 1996. The Promissory Note, as amended June 22, 1995, is collateralized
by Gold Capital's 60% interest in the Properties and the Project Joint Venture
and accrues interest at a fixed rate of 7.5% on the unpaid principal balance.
Interest on the Promissory Note for fiscal year 1996 amounted to $129,569 which
was received in full in January, 1997. Payment of subsequent years interest is
due at the end of each respective calendar year.
Remaining principal balance is due generally in monthly installments of $50,000
until Gold Capital has raised an aggregate of $4,000,000 in new financing, or
until paid in full, increasing to $75,000 per month subsequent to Gold Capital
raising $4,000,000 in new financing until the note is paid in full.
The future annual minimum principal payments (at the $50,000 per month level)
are as follows:
1997 $561,431
1998 600,000
1999 339,645
$1,501,076
With the conversion by TSVLP effective December 31, 1996 of its 300,000 shares
of Preferred Stock of Gold Capital into 1,750,000 common shares, and conversion
by the Company effective December 19, 1996 of a receivable from Gold Capital of
$242,029 into 242,029 common shares, the Company effectively owns 2,287,547
common shares of Gold Capital, representing approximately 25.2 percent of the
issued and outstanding common stock as of December 31, 1996. Pursuant to the
Registration Rights Agreement dated March 27, 1995, Gold Capital has agreed to
use its best efforts to register all common stock owned by the Company and
TSVLP. As noted below, the Gold Capital Preferred Stock, as amended June 22,
1995, required Gold Capital to pay a mandatory annual 9% dividend through
November 30, 1995 (based on the $10 per share stated value, or $3 million
aggregate valuation). Such dividends were payable at the option of Gold Capital
in cash or its unregistered common stock. The 1994 dividend ($270,000) was
satisfied with the issuance of 127,702 shares of common shares of Gold Capital
and the 1995 dividend ($247,500 through November 30, 1995) was satisfied by the
issuance of 147,816 shares issued to the Company in February, 1996. William W.
Reid, president of the Company, is a member of the board of directors of Gold
Capital.
On December 20, 1996, Gold Capital and Globex Mining Enterprises, Inc. (a
Canadian corporation with shares traded on the Toronto and Montreal stock
exchanges, "Globex"), reached a non-binding agreement in principal (the
"Letter of Intent") regarding a conditional offer to i) finance Gold Capital
under a loan agreement dated January 16, 1997 (the "Globex Loan"), and ii) merge
Gold Capital and Globex as provided under the Agreement and Plan of Merger dated
March 13, 1997 (the "Merger Agreement").
Under the Globex Loan, Gold Capital paid $141,000 to the Company in January,
1997, which was applied to the accrued interest on the Promissory Note as of
December 31, 1996 ($129,569) with the remainder applied to outstanding principal
under the Promissory Note. In addition, Globex agreed, as long as it is
progressing satisfactory towards the potential merger of Globex and Gold
Capital, or until August 30, 1997, to make advances under the Globex Loan to
Gold Capital to be used, among other things, to reasonably maintain, preserve
and protect the Tonkin Springs property, and service the Promissory Note to
TSVLP at the rate of $50,000 per month commencing February 1, 1997. In turn,
the Company agreed to share its security interest in the assets of Gold Capital
as provided under the Promissory Note, pari passu, with Globex as provided in an
Intercreditor Agreement, and in addition, entered into the Stock Purchase Option
Agreement, Agreement Not To Sell Shares, And Agreement To Vote Shares For Merger
with Globex, each dated January 16, 1997.
As provided in the Intercreditor Agreement, the Company agreed to share, pari
passu with Globex, the security interest held by the Company under the Security
Agreement dated December 31, 1993, by and between the Company, TSVLP and Gold
Capital. The Company agreed not to give Gold Capital notice of payment default
under the Promissory Note so long as the $50,000 per month payments are made.
If a foreclosure action is jointly undertaken, Company and Globex agree to
jointly bid not less than the lesser of the fair market value of the collateral
or the combined balance then owing under the applicable loan agreements. Upon
foreclosure action which results in the Company and Globex acquiring the
collateral from Gold Capital, the Company has the right, for 90 days thereafter,
to pay to Globex the amount owed to Globex by Gold Capital, and thus to acquire
all the rights to the collateral from Globex.
Under the Stock Purchase Option Agreement, Agreement Not To Sell Shares, And
Agreement To Vote Shares For Merger, the Company agreed to support the proposed
merger of Gold Capital and Globex, to vote its shares owned by the Company in
Gold Capital in favor of the proposed merger, and agreed, subject to the
completion of that merger, to exchange its 2,287,547 shares of Gold Capital for
632,094 free trading shares of Globex, being the same exchange ratio for Gold
Capital shares under the Merger Agreement between Gold Capital and Globex.
The various agreements between the Company, Gold Capital and Globex generally
terminate August 30, 1997, unless extended thereafter by the parties, but may be
terminated earlier, under certain conditions.
Effective June 22, 1995, and related to the cumulative sale by Gold Capital of
2,500,000 shares of its common stock in a private placement to Royalstar
Resources Ltd.("Royalstar"), a company organized and existing under the laws of
Canada with shares traded on the Vancouver Stock Exchange, TSVLP and the
Company i) amended the Promissory Note, as discussed above, ii) entered into the
Commitment and Agreement to Convert, and, iii) entered into the Shareholders'
Agreement by and between TSVLP, the Company. Under the Commitment and Agreement
to Convert, TSVLP agreed to convert its 300,000 shares of Gold Capital Preferred
Stock into common stock of Gold Capital, but not before November 30, 1995. As
noted above, TSVLP converted its Preferred Stock into 1,750,000 shares effective
December 31, 1996. The Shareholders' Agreement was terminated as provided in
the agreement, effective December 4, 1996, upon the resignation of Mr. John
Young as president, board member, and chairman of the board of directors of
Gold Capital.
Effective June 1, 1995, the Company granted to its officers and outside director
options to purchase an aggregate of 450,000 shares of common stock of Gold
Capital from the Company at an exercise price of $1.25 per share (the market
price of the shares as of the date of the grant). These option agreements
expire June 1, 2000, and cannot be exercised prior to April 1, 1996.
Gold Capital is required to fund 100% of the holding, development and
administrative costs relating to the Properties until commencement of commercial
production. Gold Capital shall be reimbursed for expenditures, up to $6 million
("Reimbursable Costs"), from a preferential portion of cash flows from
the operations of the Properties, if any. Expenditures in excess of $6 million
will be considered contributions to the Project Joint Venture by Gold Capital.
Through December 31, 1996, Gold Capital has reported that it has incurred
approximately $3,725,000 in Reimbursable Costs. If the Gold Capital merger
with Globex is consummated, the Company has agreed to make certain amendments to
the Joint Venture Agreement, including the obligation by Gold Capital to provide
any financing required by TSVLP after Commencement of Commercial Production, and
increasing the amount of Recoupable Costs from $6 to $8 million.
The Company is recognizing the gain from the sale of the 60% interest in the
Tonkin Springs Properties to Gold Capital using the installment method of
accounting. For 1996, 24.5% ($1,165,418) of the gain was recognized,
representing the balance of the gain related to the Promissory Note, while in
1995, 14.8% ($702,828) of the gain was recognized reflecting payments received
under the Promissory Note. As of December 31, 1996, $1,789,100 of the gain
(37.7%) is deferred, representing the purchase price consideration related to
the Preferred Stock, and is anticipated to be recognized as income as provided
under the installment method of accounting.
3. Tonkin Springs Venture Limited Partnership
The Company holds its 40% interest in the Tonkin Springs properties and its
interest in the Tonkin Springs Joint Venture with Gold Capital, under the Tonkin
Springs Venture Limited Partnership ("TSVLP"). The following is the condensed
statement of operations and condensed balance sheet for TSVLP as of and
for the year ended December 31, 1996.
STATEMENT OF OPERATIONS Year Ended
December 31, 1996
Revenues:
Installment gain on sale of
Tonkin Springs interest $722,342
Interest income 133,208
855,550
Costs and expenses:
General, administrative and other 239,665
NET INCOME $615,885
BALANCE SHEET December 31, 1996
Assets:
Current assets
Cash $4,834
Interest receivable 129,569
Note receivable, current portion 561,431
695,834
Investment in Project Joint Venture 3,283,875
Note receivable, non-current portion 939,645
Investment in Gold Capital Common Stock 3,537,500
Intercompany account 733,293
Other assets 2,528
TOTAL ASSETS $9,192,675
Reserves, deferred gain and Partners' Interest:
Reserve for reclamation $640,000
Deferred gain on sale of
Tonkin Springs interest 1,108,901
Partners' interest:
Subsidiaries of U.S. Gold-
Initial and allocation of
withdrawn interests 6,825,286
Accumulated income 618,488
Partners' Interest 7,443,774
TOTAL LIABILITIES AND PARTNERS' INTEREST $9,192,675
Note A. The partnership agreement was amended in 1991 to, among other things,
eliminate the requirement that the general partner fund TSVLP activities by
contributions and provides at the option of the general partner, the ability
to make secured loans to TSVLP to fund activities.
Note B. TSVLP and Gold Capital are jointly responsible for reclamation of
disturbance of the Properties, proportionate to their respective interest in
the Project Joint Venture. The current estimate of reclamation cost, on a 100%
basis, totals approximately $1.47 million of which TSVLP and the Company
reflects $640,000 on its balance sheet related to its 40% share. Actual
reclamation, generally, will be commenced upon the completion of operations at
the Properties. Bonding of reclamation under various Nevada and Federal Bureau
of Land Management agencies, currently set at $1.3 million, is the
responsibility of Gold Capital under the terms of the Project Joint Venture.
Note C. During 1995, TSVLP contributed into the Project Joint Venture 247
mineral claims located in Eureka County, Nevada. TSVLP and the Company believes
that the carrying value of the forgoing mineral claims to be diminutive.
Note D. During 1995, the Tonkin Springs Project made payments to the
participants of $640,000 representing the net proceeds from the sale of a
surplus sag mill at the Project with TSVLP receiving $256,000. A gain of
$196,375 was recognized by TSVLP related to this sale.
Note E. As more fully discussed in Footnote 2, effective December 31, 1993
TSVLP sold a 60 percent undivided interest in the Properties to Gold Capital.
TSVLP will recognize the gain from this sale using the installment method of
accounting. In 1996, 24.5% ($722,342) of the gain was recognized while in 1995,
14.8% ($435,610) was recognized.
4. Condensed Financial Information of Tonkin Springs Project Joint Venture,
unaudited
As noted in Footnote 2 above, effective December 31, 1993, TSVLP sold a 60
percent undivided interest in the Properties to Gold Capital and the parties
each made their respective interest in the Properties subject to the Project
Joint Venture. Gold Capital is manager of the Properties under the Project
Joint Venture. The following is the condensed balance sheet of the Project
Joint Venture as of December 31, 1996, and statement of operations for the
year then ended. All costs associated with the Properties have been funded
by Gold Capital and development and exploration costs capitalized:
STATEMENT OF OPERATIONS Year Ended
December 31, 1996
Revenues $0
Property maintenance costs 839,205
NET LOSS $(839,205)
BALANCE SHEET December 31, 1996
Assets:
Property, plant, equipment &
development costs $12,789,388
Prepaid royalties 527,823
Deposits and other assets 10,499
TOTAL ASSETS $13,327,710
Liabilities, Reserves and Project Joint
Venturers' Interest:
Current liabilities $536,806
Reserve for reclamation 1,469,900
Venturers' Interest-
Gold Capital's interest 8,885,826
TSVLP's interest 2,435,178
Total venturers' interest 11,321,004
TOTAL RESERVES AND
VENTURERS' INTEREST $13,327,710
5. Loan Settlement Agreement with FABC
On February 21, 1992, the Company, among other related things, entered
into a Loan Settlement Agreement with its senior secured lender, The
French American Banking Corporation ("FABC"). The Company discharged
its debt to FABC in the approximate amount of $19,136,000 and terminated
all prior security interests related thereto. As part of the consideration
to FABC under the Loan Settlement Agreement, the Company entered into an
agreement between Tonkin Springs Gold Mining Company, a wholly-owned
subsidiary of the Company ("TSGMC") and FABC entitled "Agreement To Pay
Distributions," which requires TSGMC to pay a limited portion of certain
distributions from TSVLP to FABC. TSVLP has complete control of such
distributions, if any, to TSGMC. Under the terms of the Agreement To Pay
Distributions, TSGMC is required to pay to FABC (i) the first $30,000 in
cash or value of asset distributions, as defined in such agreement, received
from TSVLP, plus (ii) an amount equal to 50% of such retained distributions
in cash or value of asset distributions after TSGMC has first received and
retained $500,000 of such retained distributions. This obligation to FABC
shall terminate after FABC has been paid a total of $2,030,000 thereunder.
6. Property and Equipment
At December 31, 1996 property and equipment, net of accumulated depreciation of
$111,834 totalled $49,853, and represented office leasehold improvements, office
furniture and equipment, vehicles and trailers.
The Company has transferred its interest in several mining properties over the
past years. The Company could remain potentially liable for environmental
enforcement actions related to its prior ownership interest of such properties.
However, the Company has no reasonable belief that any violation of relevant
environmental laws or regulations has occurred regarding these transferred
properties.
7. Income Taxes
In the various transactions entered into February 21, 1992 (see footnote 5),
the Company had an ownership change, as that term is defined under Section
382 (g), IRC. As a result, the tax net operating loss carry forwards and the
investment tax credit carry forwards will be subject to annual limitations under
Section 382 IRC, following the date of such ownership change. Except as noted
below, the Company will receive no future benefits from net operating loss
carryforwards or investment tax credit carryforwards existing as of the date
of the ownership change. At December 31 1996, the Company estimates that tax
loss carry forwards related to operations subsequent to 1992 and therefore not
subject to any limitations, totals approximately $2,342,400, expiring in year
2011.
The Company adopted Statement No. 109 as of January 1, 1993. Prior years'
financial statements were not restated. The tax effects of temporary differences
that give rise to significant portions of the deferred tax assets and deferred
tax liabilities at December 31, 1996 are presented below:
Deferred tax assets:
Alternative minimum tax credit carryfoward $70,844
Deferred gain on sale of TSVLP interest 294,700
Reclamation obligation 140,800
Net operating loss carryforward 508,545
Total gross deferred tax assets 1,014,889
Less valuation allowance (509,469)
Net deferred tax assets 505,420
Deferred tax liabilities:
Investment in common stock 113,900
Basis in TSVLP 305,000
Total gross deferred tax liabilities 418,900
Total net deferred tax asset $86,520
The Company believes that it is more likely than not that the net deferred tax
asset will be realized. Therefore, no valuation allowance has been provided
for the $86,520 net deferred tax asset.
A reconciliation of the tax provision for 1996 and 1995 at statutory rates is
comprised of the following components:
1996 1995
Statutory rate tax provision on book income $167,000 $194,400
Book to tax adjustments:
Installment gain on sale of Tonkin Springs
not taxable (398,000) (110,900)
Preferred Stock Dividend 0 (78,600)
Valuation allowance 230,000 0
Other, net 1,000 (4,900)
Tax provision 0 0
8.Shareholders' Equity
Stock options were granted to key employees, directors and others under the
Non-Qualified Amended and Restated Stock Option and Stock Plan (the "Plan")
during 1995, 1993 and 1992.
Options to purchase shares and stock grants under the Plan were granted at
market value as of the date of the grant. Options to purchase a total of
1,250,000 at an exercise price of $.28125 per share were issued to officers,
directors and others on February 3, 1992 of which 1,145,495 remain outstanding
and unexercised as of December 31, 1996. Effective December 8, 1993, the Board
of Directors amended the Plan and increased the number of shares thereunder
from 1,250,000 to 2,300,000. At that date, options to purchase a total of
1,000,000 shares at an exercise price of $.50 per share, were granted to
executives and directors of the Company. These options cannot be exercised
until sufficient reserved shares of common stock are available for option
exercise by the Board of Directors. Effective February 22, 1995, an option
was granted to an employee to purchase 50,000 shares at an exercise price of
$.47 per share and exercisable 15,000 shares after the first anniversary
of the grant, and an additional 15,000 shares on the second anniversary and
an additional 20,000 shares on the third anniversary of the grant. During 1996,
executive management of the Company exercised stock options to purchase 64,000
shares of the Company's common stock at an exercise price of $.28125 with 16,000
shares retained by the Company as payment of the exercise price of the option
with cancellation and returned to the status of authorized but unissued for
those shares retained. During 1995, options to purchase an aggregate of 37,705
shares of stock at exercise price of $.28125 were exercised by cash payment by
officers of the Company.
SFAS No. 123, "Accounting for Stock-Based Compensation," requires the Company to
provide pro forma information regarding net income as if compensation cost for
the Company's stock option plans had been determined in accordance with the fair
value based method prescribed in SFAS No. 123. The Company estimates the fair
value of each stock option at the grant date by using the Black-Scholes
option-pricing model with the following weighted-average assumptions used for
the 1995 grant: dividend yield of 0%; expected volatility of 17% risk free
interest rate of 7.1%; and expected life of 7.5 years.
Under the accounting provisions of SFAS No. 123, the Company's net income and
net income per share would have been adjusted to the following pro forma
amounts:
1996 1995
Net income
As reported $490,427 $571,634
Pro forma $487,393 $571,634
Net income per share
As reported $0.03 $0.04
Pro forma $0.03 $0.04
1996 1995
Weighted Weighted
Average Average
Range of Exercise Range of Exercise
Shares Prices Shares Prices
Outstanding, beginning
of year 1,262,295 $.28-$.47 1,250,000 $.28
Granted 0 - 50,000 $.47
Exercised 64,000 $.28 37,705 $.28
Canceled 0 - 0 -
Expired 0 - 0 -
Outstanding, end of year 1,198,295 $.28-$.47 1,262,295 $.28-
$.47
Options exercisable,
end of year 1,145,495 $.28-$.47 1,262,295 $.28-
$.47
Weighted average fair
value of option
granted during year $ 0 $ 0.20
The following table summarizes information about stock options
outstanding at December 31, 1996:
Options Outstanding Options Exercisable
Weighted
Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices at 12/31/96 life Price at 12/31/96 Price
$.28 1,145,495 5.1 years $.28 1,130,495 $.28
$.47 50,000 7.2 years $.47 15,000 $.47
1,195,495 1,145,495
9. Employee Benefit Plans
On December 10, 1985, the Company's Board of Directors adopted a Simplified
Employee Pension Plan ("SEP"). The Company intends to make a determination of
contributions under the SEP on an annual basis, based upon review by the Board
of Directors of the Company's financial statements as of its fiscal year end.
The Company has not yet determined any contributions to the SEP for the year
ended December 31, 1996. While no contribution was made for the year 1995, the
Company did make a contribution of 15% during 1995 for calendar year 1994 in the
aggregate amount of $53,807. Under the SEP, the Company has the option of
contributing a certain amount directly to its employees' Individual Retirement
Accounts. The Plan covers all employees of the Company with certain
participation requirements, however the Company is not required to make any
contributions in a given year. If contributions are made, they must be
made to all eligible employees. Contributions made under the SEP in any one
calendar year for any one employee may not be more than the smaller of $22,500
or 15% of that employee's total compensation.
10. Lease Commitments and Contingencies
The Company has leased office space and vehicles under noncancelable operating
leases which expire through October, 2000. Future minimum lease payments as of
December 31, 1996 are as follows:
1997 $64,200
1998 60,000
1999 56,700
2000 47,300
$228,200
Rent expense during the years ended December 31, 1996 and 1995 on all operating
leases was approximately $14,600 and $31,100, respectively.
An action entitled "Canyon Construction Company ("Canyon") v. Tonkin Springs
Gold Mining Company, and Does I-V," was filed in the Nevada State Court, Case
No. 28416 on December 19, 1996. Tonkin Springs Gold Mining Company ("TSGMC") is
a wholly-owned subsidiary of the Company. The complaint alleges that TSGMC and
Does I-V had failed and refused to pay to Canyon amounts due for performance
under a construction contract dated August 9, 1996, and Canyon has filed a
Notice of Claim of Lien dated March 7, 1997, on the Tonkin Springs Project Joint
Venture. The Canyon action was amended to include Gold Capital as a named
defendant. Canyon claimed that they are owned approximately $191,956.72 plus
interest and damages. The Canyon contract was entered into by Gold Capital on
behalf of the Tonkin Springs Project Joint Venture. Gold Capital is Project
manager and under the Purchase and Sale Agreement as well as the Joint Venture
Agreement, each dated December 31, 1993, Gold Capital is responsible for funding
of all costs of the Project until Commencement of Commercial Production. In
addition, Gold Capital is obligated to keep the Tonkin Springs Project and
assets free and clear of any liens. The Canyon action is the sole obligation
of Gold Capital. The Company has given written notice to Gold Capital
specifically requesting Gold Capital to address and resolve the Canyon
litigation and the claim of lien in an appropriate manner. The Company does
not believe the Canyon litigation and the claim of lien will result in any
material adverse effect on the Companys financial postion, operations or
cash flows.
12. Statements of Cash Flows
The Company's statement of cash flows for the two year periods ended December
31, 1996 excludes the following non-cash investing and financing activities:
1996 1995
Satisfaction of dividend
receivable by investment in
Gold Capital common stock. $247,500 $270,00
Exercise of stock options with
shares representing exercise
price retained and canceled $18,000 $0
Investment in Gold Capital
Preferred Stock converted into
investment in Gold Capital
Common Stock $3,000,000 $0
Satisfaction of accounts
receivable into Gold Capital
Common Stock $262,029 $0
13. Selected Quarterly Financial Information (unaudited)
Per share data-
Net Income Income (Loss)
(Loss) Per Share
1996
First Quarter $(248,870) $(0.02)
Second Quarter $ (61,344) $(0.00)
Third Quarter $ 24,794 $ 0.00
Fourth Quarter $ 775,847 $ 0.05
1995
First Quarter $ (14,711) $(0.00)
Second Quarter $(310,214) $(0.02)
Third Quarter $ 195,958 $ 0.01
Fourth Quarter $ 700,601 $ 0.05
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS on ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS OF THE
ISSUER
The following table sets forth certain information as to each officer and
director of the Company:
Position with
Name Age the Company Term Expires
William W. Reid 48 President and Director Upon Successor's
Election
William F. Pass 50 Vice President, Upon Successor's
Chief Financial Officer Election
and Secretary
David C. Reid 47 Vice President Upon Successor's
and Director Election
John W. Goth 69 Director Upon Successor's
Election
WILLIAM W. REID-PRESIDENT AND DIRECTOR
Mr. Reid, a founder of the Company, has served as a Director and the President
of the Company since its inception in 1979. Mr. Reid devotes substantially all
of his time to the business and affairs of the Company. Effective January 1,
1994, Mr. Reid and the Company entered into an employment contract as discussed
below. Mr. Reid also serves on the board of directors of Gold Capital
Corporation, a publicly traded company, as provided by the Gold Capital
Series A Preferred Stock Agreement between TSVLP and Gold Capital.
WILLIAM F. PASS-VICE PRESIDENT ADMINISTRATION, SECRETARY
Mr. Pass joined the Company in June, 1988 and was appointed Corporate Secretary
on September 1, 1991 and effective January 1, 1994, was made Vice President
Administration. Effective February 1, 1996, Mr. Pass was appointed Vice
President, Chief Financial Officer and Corporate Secretary. Mr. Pass devotes
substantially all of his time to the business and affairs of the Company.
Effective January 1, 1994, Mr. Pass and the Company entered into an employment
contract as discussed below.
DAVID C. REID-VICE PRESIDENT EXPLORATION AND DIRECTOR
Effective October 19, 1993, Mr. David Reid was appointed a member of the Board
of Directors of the Company. On January 1, 1994, Mr. Reid became an employee
and officer of the Company with the title Vice President Exploration and entered
into an employment contract with the Company as discussed below. Mr. David Reid
devotes substantially all of his time to the business and affairs of the
Company. From January 1, 1993 through December 31, 1993, Mr. Reid was an
employee of TSVLP and sole director and president of U.S. Environmental
Corporation, a wholly-owned subsidiary of the Company and 0.5 percent owner and
limited partner in TSVLP. From September 1, 1991 through December 31, 1992, Mr.
Reid was a consultant to the Company. Prior to September, 1991, Mr. Reid was an
employee and officer (secretary) of the Company and served as a director.
JOHN W. GOTH-DIRECTOR
Mr. Goth has been a director of the Company since 1987. Mr. Goth also serves on
the board of directors of Royal Gold, Inc., and Banro Resource Corporation,
both publicly traded companies. For the past nine years, Mr. Goth has been a
self-employed mining consultant.
There are no family relationships between officers and directors of the Company
except that David C. Reid, an officer and director of the Company, is brother to
William W. Reid, president of the Company and director.
ITEM 10. EXECUTIVE COMPENSATION
The following table summarizes the total compensation of the Executive Officers
of the Company for the Company's last three fiscal years:
Summary Compensation Table
Annual Compensation Other
Name and Principal Annual
Position Year Salary Bonus Compensation
William W. Reid 1996 $205,048 $80,000 $0
President and CEO 1995 $200,000 $53,750 $0
1994 $157,150 $16,250 $22,500 (1)
William F. Pass 1996 $93,966 $36,000 $0
Vice President, CFO 1995 $90,000 $23,000 $0
and Secretary 1994 $75,000 $12,000 $13,307 (1)
David C. Reid 1996 $103,534 $40,000 $0
Vice President 1995 $100,000 $23,000 $0
1994 $75,000 $12,000 $13,050 (1)
Long Term Comensation All
Awards Other
Securities Underlying Compensation
Options
Name and Principal
Position Year
William W. Reid 1996 0 $54,000
President and CEO 1995 0 $0 (2)
1994 500,000 $0
William F. Pass 1996 0 $0
Vice President, CFO 1995 0 $0 (2)
and Secretary 1994 100,000 $0
David C. Reid 1996 0 $0
Vice President 1995 0 $ (2)
1994 300,000 $0
(1) On December 10, 1985, the Company's Board of Directors adopted a Simplified
Employee Pension Plan ("SEP"). The Company intends to make a determination
of contributions under the SEP on an annual basis, based upon review by the
Board of Directors of the Company's financial statements as of its fiscal year
end. The Company has not yet determined any contributions to the SEP for the
year ended December 31, 1996. No contribution was made for the year 1995. The
Company made a contribution of 15% during 1995 for calendar year 1994. Under
the SEP, the Company has the option of contributing a certain amount directly
to its employees' Individual Retirement Accounts. The Plan covers all
employees of the Company with certain participation requirements, however
the Company is not required to make any contributions in a given year.
If contributions are made, they must be made to all eligible employees.
Contributions made under the SEP in any one calendar year for any one employee
may not be more than the smaller of $22,500 or 15% of that employee's total
compensation.
(2) Effective June 1, 1995, the Company granted to its executive officers and
outside director options to purchase shares of common stock of Gold Capital
Corporation from TSVLP or the Company at an exercise price of $1.25 per share
(the market price of the shares as of the date of the grant). Mr. William Reid
received options to purchase 200,000 shares of Gold Capital common stock, and
Mr. Pass and Mr. David Reid each received options to purchase 100,000 shares.
These option agreements expire June 1, 2000. The options were not in the
money at December 31, 1996 based upon the average of the reported bid and ask
price of Gold Capital's common stock of $1.19 per share and therefor had no
reportable value.
Option Grants in Last Fiscal Year
There were no grants of stock options made pursuant to the Non-Qualified Stock
Option and Stock Grant Plan during 1996 to Executive Officers.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Table
Value Shown below is information at December 31, 1996 with respect to the
exercised and unexercised options to purchase the Company's common stock to
Executive Officers under the Non-Qualified Stock Option and Stock Grant Plan.
Shares Acquired Value December 31, December 31,
Name on Exercise Realized 1996 1996 (3)
William W. Reid 64,000 $54,000 388,295 (1) $405,668
500,000 (2) $0
William F. Pass 0 $0 195,000 (1) $203,727
100,000 (2) $0
David C. Reid 0 $0 365,000 (1) $382,334
300,000 (2) $0
(1) These options were exercisable at December 31, 1996.
(2) These options are currently unexercisable but will become exercisable at
such time as additional authorized and unissued shares of the Company's common
stock become available and are reserved for option exercise by the Board of
Directors. If they had been exercisable, their value would be $413,000 for
William W. Reid, $82,600 for William F. Pass, and $247,800 for David C. Reid,
based upon the price as noted in (3) below.
(3) Based upon the mean of the high and low price as reported by Nasdaq on that
date ($1.326).
Compensation of Directors
The Company reimburses its outside director for reasonable expenses incurred by
him in attending meetings of the Board of Directors or of Committees of the
Board. No such expenses were incurred nor paid for 1996. Additionally, the
outside director is normally paid $3,000 per quarter for his services. During
1996, Mr. Goth received total compensation of $6,000 for his service as outside
director plus $10,000 in additional compensation as a bonus. At December 31,
1996, the Company has a liability to Mr. Goth in the amount of $6,000 for
unpaid 1996 services. Directors who are also officers or employees of the
Company or its affiliates do not receive compensation for their director
responsibilities over their normal compensation as employees.
Employment Contracts
The Company entered into Employment Agreements effective January 1, 1994, as
amended June 1, 1995 with William W. Reid, William F. Pass, and David C. Reid
(the "Employment Contracts") each of which is for a five year term commencing
January 1, 1994. The Employment Contracts shall be extended automatically by
one year upon each anniversary date unless either the Company or employee
provides the other party written notice prior to 120 days before such
anniversary, that the Employment Contract will not be so extended.
William W. Reid's Employment Contract provides for a base salary of $157,500 per
year for the first year, $200,000 per year for the second year, and annual
upward adjustments thereafter based upon increases in the Consumer Price
Index (All Items-Urban) (the "CPI-U"). William F. Pass' Employment Contract
provides for a base salary of $75,000 per year for the first year, $90,000 per
year for the second year, and annual upward adjustments thereafter based upon
increases in the CPI-U. David C. Reid's Employment Contract provides
for a base salary of $75,000 per year for the first year, $100,000 per year for
the second year, and annual upward adjustments thereafter based upon increases
in the CPI-U.
Each of the Employment Agreements provides that the employee would be entitled
to receive a termination payment from the Company in a lump sum equal to 2.9
times the employee's average annual compensation for the five taxable years
immediately preceding the date of termination by the employee under certain
circumstances, summarized as follows: i) the sale by the Company of
substantially all of its assets to a single purchaser or to a group of
affiliated purchasers; ii) the sale, exchange or other disposition, in one
transaction or a series of related transactions, of at least 30 percent of the
outstanding voting shares of the Company; iii) a decision by the Company to
terminate its business and liquidate its assets; iv) the merger or
consolidation of the Company with another entity or an agreement to such a
merger or consolidation or any other type of reorganization; v) the Company
makes a general assignment for the benefit of its creditors, files a voluntary
bankruptcy, or certain similar events or circumstances, vi) there is a material
change in employee's authority, duties or responsibilities; or, vi) the Company
acquires any stock or other investment in any business enterprise which
acquisition or investment exceeds 40 percent of the net book value of the
Company. Upon the death of an employee, the Company shall pay the employee's
estate an amount equal to one year's salary; and upon termination by the Company
following permanent disability of the employee, the Company shall pay
the employee an amount equal to two years salary.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the number of shares of the Company's common
stock owned beneficially as of March 15, 1997, by each person known by the
Company to have owned beneficially more than five percent of such shares then
outstanding, by each person serving as a director of the Company, the Executive
Officers, and all of the Company's officers and directors as a group.
Percentage
Name and Address of Class
of Beneficial Type of Benefically
Owner Ownership Number of Shares Owned
William W. Reid Record and 452,292(1) 3.2%
338 Clayton #1 Benefical
Denver, CO 80206
David C. Reid Record and 384,970(2) 2.7%
9070 E. Beneficial
Jewell Circle
Denver, CO 80231
William F. Pass Record and 200,000(3) 1.4%
14820 W. 58th Pl Benficial
Golden, CO 80403
John W. Goth Record and 100,000(4) 0.7%
15140 Benefical
Foothill Road
Golden, CO 80401
Placer Dome U.S.
Inc. Record and 975,000 7.0%
One California Benefical
Street, Suite 2500
San Francisco, CA
94111-5472 (5)
The Travelers Record 3,162,374 22.8%
Corporation
One Tower Square
Hartford, CT
06183 (6)
French American Record 2,142,171 15.5%
Banking Corporation
499 Park Avenue
New York, NY 10022
All officers and 1,137,262 7.6%
directors as a group
(4 persons)
(1) This number includes an option to purchase 388,295 shares at $.28125 per
share.
(2) This number includes an option to purchase 365,000 shares at $.28125 per
share.
(3) This number includes an option to purchase 195,000 shares at $.28125 per
share.
(4) This number consists of an option to purchase 100,000 shares at $.28125 per
share.
(5) Placer Dome U.S. Inc. is a wholly owned subsidiary of Placer Dome Inc., a
Canadian public company.
(6) The securities are owned by The Travelers Corporation and its subsidiaries,
The Travelers Insurance Co., and The Prospect Company.
ITEM 12. Certain Relationships and Related Transactions
Transaction with Gold Capital
On December 31, 1993, TSVLP sold a 60 percent undivided interest in the Tonkin
Springs properties and obligations to Gold Capital, a publicly traded
corporation, and the parties immediately made their respective interests
therein subject to the Project Joint Venture, with Gold Capital as manager.
Ownership in the Project Joint Venture is: TSVLP- 40 percent, Gold Capital-
60 percent. As partial consideration for the purchase by Gold Capital, TSVLP
took a $3.8 million secured promissory note, recourse only to the properties and
joint venture of which principal payments of $1,848,080 have been received as of
December 31, 1995. As further partial consideration TSVLP received 300,000
shares of convertible Preferred Stock of Gold Capital with a deemed aggregate
value of $3 million.
The Gold Capital Preferred Stock, as amended June 22, 1995, required Gold
Capital to pay a mandatory annual 9% dividend through November 30, 1995
(based on the $10 per share stated value, or $3 million aggregate valuation).
Such dividends were paid at the option of Gold Capital in unregistered common
shares with the 1994 dividend ($270,000) satisfied with 127,702 shares of common
shares of Gold Capital and the 1995 dividend ($247,500 through November 30,
1995) satisfied with 147,816 shares. TSVLP converted its 300,000 shares of
Gold Capital Preferred Stock into 1,750,000 shares of Gold Capital common stock,
effective December 31, 1996. In addition, during 1996, the Company elected to
convert an accounts receivable from Gold Capital in the amount of $242,029
representing consulting services, overhead support and expense charged to Gold
Capital under an Office Management and Support Agreement dated April 1, 1994,
into 242,029 shares of common stock of Gold Capital. Therefore, as of December
31, 1996, the Company owns 2,287,547 shares of Gold Capital representing
approximately 25.2% of the issued and outstanding common shares. Pursuant to
the Registration Rights Agreement dated March 27, 1995, Gold Capital has agreed
to use its best efforts to register all common stock received by TSVLP.
William W. Reid, president of the Company, was made a member of the board of
directors of Gold Capital as provided by the Gold Capital Preferred Stock
agreement upon Closing.
On December 20, 1996, Gold Capital and Globex reached a non-binding agreement in
principal (the "Letter of Intent") which resulted in i) an agreement by Globex
to provide certain limited funding for Gold Capital under a loan agreement dated
January 16, 1997 (the "Globex Loan"), and ii) a plan to merge Gold Capital and
Globex as provided under the Agreement and Plan of Merger dated March 13, 1997
(the "Merger Agreement"). Under the Globex Loan, Gold Capital paid $141,000 in
accrued interest and principle under the Secured Note to TSVLP in January, 1997.
In addition, Globex agreed, as long as it is progressing satisfactory towards
the potential merger of Globex and Gold Capital, or until August 30, 1997, to
make advances under the Globex Loan to Gold Capital to be used, among other
things, to reasonably maintain, preserve and protect the Tonkin Springs
property, and service the Secured Note to TSVLP at the rate of $50,000 per month
commencing February 1, 1997. In turn, the Company agreed to share its security
interest in the assets of Gold Capital as provided under the Secured Note, pari
passu, with Globex as provided in an Intercreditor Agreement, and in addition,
entered into the Stock Purchase Option Agreement, Agreement Not To Sell Shares,
And Agreement To Vote Shares For Merger with Globex, each dated January 16,
1997. In addition, the Company has agreed, contingent upon the successful
merger of Gold Capital and Globex to amend the Joint Venture Agreement.
See "Item 1. Description of Business - Business - Sale of 60% Interest in
Tonkin Springs Properties to Gold Capital" for a more detail discussion of these
agreements.
Subsequent to the December 31, 1993 transaction with Gold Capital, certain
executives of the Company and certain of their immediate family members, made
personal investments in securities of Gold Capital under the same terms and
conditions as those offered by Gold Capital to other investors in a private
placement offering completed February 28, 1994. Under the terms of the
investments, investors purchased units for $2.00 per unit. Each unit consisted
of 2 shares of common stock in Gold Capital plus the right, through a warrant,
to purchase one additional share of common stock for an additional $1.00, which
rights were all exercised during 1994. Mr. William W. Reid, president of the
Company, and members of his immediate family purchased 40,500 shares of Gold
Capital common stock at a cost of $40,500. The investments by Mr. William Reid
and his immediate family constituted approximately 2% of the then issued and
outstanding common shares of Gold Capital. Mr. William F. Pass, vice president
and secretary of the Company along with his immediate family, purchased 15,900
shares at cost a of $15,900. The investments by Mr. Pass and his immediate
family constituted approximately 1% of the then issued and outstanding common
shares of Gold Capital. Mr. David C. Reid, vice president exploration of the
Company, purchased 35,100 shares at a cost of $35,100, which constituted
approximately 2% of the then issued and outstanding common shares of Gold
Capital.
Effective June 22, 1995, Gold Capital completed the sale of 2,200,000 shares of
its common stock in a private placement to Royalstar Resources Ltd.
("Royalstar"), a company organized and existing under the laws of Canada with
shares traded on the Vancouver Stock Exchange. TSVLP and the Company, in order
to facilitate the Royalstar private placement investment into Gold Capital i)
amended the Secured Promissory Note, ii) entered into the Commitment and
Agreement to Convert, and iii) entered into the Shareholders' Agreement by and
between TSVLP, the Company, Gold Capital, Royalstar and certain directors of
Gold Capital, as further discussed below. From a portion of the proceeds from
the sale of stock by Gold Capital to Royalstar, Gold Capital paid approximately
$1 million to TSVLP as principal payments under the Promissory Note and
accounts payable to TSVLP.
Under the Commitment and Agreement to Convert, TSVLP agreed to convert its
300,000 shares of Gold Capital Preferred Stock into shares of Gold Capital
common stock, which conversion was effective December 31, 1996, with 1,750,000
unregistered shares of common stock issued to TSVLP. In addition, the mandatory
9% annualized stock dividend requirement under the Gold Capital Preferred Stock
terminated November 30, 1995.
Under the Shareholders' Agreement dated June 22, 1995: i) Royalstar, as majority
owner of Gold Capital, agreed for a period of five years to support the
nomination and election of certain individuals to Gold Capital's board of
directors, including a member recommended by TSVLP, ii) TSVLP granted a proxy to
John Young, the President and Chief Executive Officer of both Royalstar and Gold
Capital, which proxy terminated if Mr. Young was no longer either the chief
executive officer of Royalstar or the chairman, chief executive and president
of Gold Capital or no later than June, 2000 and provided that Mr. Young could
vote all common shares of Gold Capital standing in the name of TSVLP or the
Company in all matters submitted to shareholders of Gold Capital, and iii)
TSVLP and the Company gave to Royalstar a first right of refusal as
relates to sales by TSVLP or the Company of shares of Gold Capital common stock
to third parties. The Shareholders' Agreement dated June 22, 1995, terminated
effective December 4, 1996, as provided under its terms, with the resignation
of Mr. John Young, as present of Gold Capital.
The Company has a month-to-month office support agreement with Gold Capital,
whereby it provides Gold Capital office space in Denver, Colorado, along with
secretarial and administrative assistance, reception services, and conference
facilities, for $1,850 per month totalling $22,200 during both 1996 and 1995.
Gold Capital also contracts for consulting services from certain employees of
the Company on an as-needed basis. The Company has received an aggregate of
$177,744 and $107,426 pursuant to this arrangement in years 1996 and 1995,
respectively. As noted above, in December, 1996, the Company converted $242,029
owed by Gold Capital under these arrangements into 242,029 common shares.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
3.0 Company's Articles of Incorporation, as Amended June 22, 1988, July 5,
1988, and December 20, 1991 (incorporated by reference from the Report on Form
10-KSB dated December 31, 1995, Exhibit 3.0).
3.1 Company's Bylaws, as Amended June 22, 1988 (incorporated by reference
from the Report on Form 10-KSB dated December 31, 1995, Exhibit 3.1).
10.1 Royalty Purchase and Restructuring Agreement dated February 21, 1992,
by and between U.S. Gold Corporation and NERCO Minerals Company (incorporated by
reference from the Report on Form 8-K dated February 21, 1992, Exhibit 1).
10.2 Agreement To Pay Distributions dated February 21, 1992, by and between
Tonkin Springs Gold Mining Company and French American Banking Corporation
(incorporated by reference from the Report on Form 8-K dated February 21, 1992,
Exhibit 4).
10.3 Promissory Note dated December 31, 1993, by and between Tonkin Springs
Venture Limited Partnership and Gold Capital Corporation (incorporated by
reference from the Report on Form 8-K dated December 31, 1993, Exhibit 10.3).
10.4 Security Agreement dated December 31, 1993, by and between Tonkin Springs
Venture Limited Partnership and Gold Capital Corporation (incorporated by
reference from the Report on Form 8-K dated December 31, 1993, Exhibit 10.4).
10.5 Form of Amended Promissory Note from Gold Capital Corporation (debtor)
to Tonkin Springs Venture Limited Partnership dated June 22, 1995, (incorporated
by reference from the Report on Form 10-KSB dated December 31, 1995, Exhibit
10.5).
10.6 Loan Agreement dated August 18, 1993, by and between U.S. Gold
Corporation and Placer Dome U.S. Inc. (incorporated by reference from the Report
on Form 8-K dated August 23, 1993, Exhibit 10.1).
10.7 Promissory Note dated effective August 23, 1993, by and between U.S.
Gold Corporation and Placer Dome U.S. Inc. (incorporated by reference from the
Report on Form 8-K dated August 23, 1993, Exhibit 10.2).
10.8 Grant, Bargain and Sale Deed dated effective August 23, 1993, by and
between U.S. Gold Corporation and Placer Dome U.S. Inc. (incorporated
by reference from the Report on Form 8-K dated August 23, 1993, Exhibit 10.3).
10.9 Amended and Restated Non-Qualified Stock Option and Stock Grant Plan,
as amended effective December 8, 1993 (incorporated by reference from the Report
on Form 10-KSB for the year ended December 31, 1993, Exhibit 10.14).
10.10 Purchase and Sales Agreement dated December 31, 1993, by and between
Tonkin Springs Venture Limited Partnership and Gold Capital Corporation
(incorporated by reference from the Report on Form 8-K dated December 31,
1993, Exhibit 10.1).
10.11 Certificate of Designations, Preferences and Rights of the Series A
Convertible Preferred Stock of Gold Capital Corporation dated December 31, 1993
(incorporated by reference from the Report on Form 8-K dated December 31, 1993,
Exhibit 10.2).
10.12 Mining Venture Agreement dated December 31, 1993, by and between Tonkin
Springs Venture Limited Partnership and Gold Capital Corporation (incorporated
by reference from the Report on Form 8-K dated December 31, 1993, Exhibit 10.5).
10.13 Amended Employment Agreement with William W. Reid dated June 1, 1995
(Incorporated by reference from the Report on Form 10-QSB for the period ended
September 30, 1995, Exhibit 10.1).
10.14 Amended Employment Agreement with William F. Pass dated June 1, 1995
(Incorporated by reference from the Report on Form 10-QSB for the period ended
September 30, 1995, Exhibit 10.2).
10.15 Amended Employment Agreement with David C. Reid dated June 1, 1995
(Incorporated by reference from the Report on Form 10-QSB for the period ended
September 30, 1995, Exhibit 10.3).
10.16 Stock Option Agreement dated June 1, 1995 with William W. Reid related
to option to purchase shares of common stock of Gold Capital Corporation from
the Company (Incorporated by reference from the Report on Form 10-QSB for the
period ended September 30, 1995, Exhibit 10.4).
10.17 Stock Option Agreement dated June 1, 1995 with William F. Pass related
to option to purchase shares of common stock of Gold Capital Corporation from
the Company (Incorporated by reference from the Report on Form 10-QSB for the
period ended September 30, 1995, Exhibit 10.5).
10.18 Stock Option Agreement dated June 1, 1995 with David C. Reid related to
option to purchase shares of common stock of Gold Capital Corporation from the
Company (Incorporated by reference from the Report on Form 10-QSB for the period
ended September 30, 1995, Exhibit 10.6).
10.19 Stock Option Agreement dated June 1, 1995 with John W. Goth related to
option to purchase shares of common stock of Gold Capital Corporation from the
Company (Incorporated by reference from the Report on Form 10-QSB for the period
ended September 30, 1995, Exhibit 10.7).
10.20 Registration Rights Agreement dated March 27, 1995, by and between
Tonkin Springs Venture Limited Partnership and Gold Capital Corporation
(incorporated by reference from the Report on Form 10-KSB dated December 31,
1995, Exhibit 10.20).
10.21 Shareholders Agreement dated June 22, 1995, by and between U.S. Gold
Corporation, Tonkin Springs Venture Limited Partnership, Tonkin Springs Gold
Mining Company, Royalstar Resources Ltd. and John M. Young, and Gold Capital
Corporation (incorporated by reference from the Report on Form 10-KSB dated
December 31, 1995, Exhibit 10.21).
10.22 Commitment and Agreement to Convert dated June 22, 1995, by and between
Tonkin Springs Venture Limited Partnership and Royalstar Resources Ltd.
(incorporated by reference from the Report on Form 10-KSB dated December 31,
1995, Exhibit 10.22)
10.23 Executive Summary of Technical Audit of the Tonkin Springs Gold
Property, Eureka County, Nevada, dated April, 1996, by Behre Dolbear & Company,
Inc., Denver, Colorado (incorporated by reference from the Report on Form 10-QSB
dated March 31, 1996, Exhibit 10.1).
*10.24 Loan Agreement dated January 16, 1997, by and between Gold Capital
Corporation (debtor), Globex Mining Enterprises Inc. (creditor), and the Company
(as secured creditor of Gold Capital.)
*10.25 Intercreditor Agreement dated January 16, 1997, by and between the
Company and Tonkin Springs Venture Limited Partnership, Globex Mining
Enterprises Inc., and Gold Capital Corporation.
*10.26 Stock Purchase Option Agreement, Agreement Not To Sell Shares, And
Agreement To Vote Shares For Merger dated January 16, 1997, by and between the
Company and Globex Mining Enterprises Inc.
*11. Statement regarding computation of per share earnings.
21. Subsidiaries of the Company (incorporated by reference from the Report on
Form 10-KSB for the year ended December 31, 1993, Exhibit 21).
*23.1 Consent of BDO Siedman, LLP, to the incorporation by reference of their
audit report dated March 26, 1997, in the Company's Form S-8.
*23.2 Consent of Behre Dolbear and Company, Inc., dated March 24, 1997.
*23.3 Consent of Ore Reserves Engineering, dated March 20, 1997.
*27 Financial Data Schedule
*Filed herewith.
(b) Reports on Form 8-K during the 4th quarter of 1996.
None.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act of 1934, the Company
caused this Report to be signed on its behalf by the undersigned, thereunto duly
authorized.
U.S. GOLD CORPORATION
March 24, 1997 By/s/ William W. Reid
William W. Reid, President and Chief Executive Officer
March 24, 1997 By/s/ William F. Pass
William F. Pass, Vice President, Chief Financial Officer and Secretary
In accordance with the Exchange Act, this Report has been signed below by the
following persons on behalf of the Company and in the capacities and on the
dates indicated.
March 24, 1997 By/s/ William W. Reid
William W. Reid, Chairman of the Board of Directors
March 24, 1997 By/s/ David C. Reid
David C. Reid, Exploration Vice President and Director
March 24, 1997 By/s/ John W. Goth
John W. Goth, Director
Exhibit 10.23
U.S. Gold Corporation
Form 10 KSB, December 31, 1996
LOAN AGREEMENT
THIS LOAN AGREEMENT, dated as of January 16, 1997 (this Agreement),
is by and among GLOBEX MINING ENTERPRISES INC., a Quebec
corporation, whose address is 146 14th Street, Rouyn Noranda,
Quebec, Canada, J9X 2J3 (the Lender), GOLD CAPITAL CORPORATION, a
Colorado corporation, whose address is 5525 Erindale Drive, Suite
201, Colorado Springs, Colorado, USA 80918 (the Borrower), TONKIN
SPRINGS VENTURE LIMITED PARTNERSHIP, a Nevada limited partnership,
whose address is 55 Madison, Suite 700, Denver, Colorado 80206
(TSVLP), TONKIN SPRINGS GOLD MINING COMPANY a Colorado
corporation, general partner of TSVLP, whose address is 55 Madison,
Suite 700, Denver, Colorado 80206 (TSGMC) and U.S. GOLD
CORPORATION, a Colorado corporation (U.S. Gold) of which TSGMC is
a wholly owned subsidiary, whose address is 55 Madison, Suite 700,
Denver, Colorado 80206.
RECITALS
A. Borrower is the owner of an undivided sixty percent (60%)
interest in the Tonkin Springs Project, consisting of unpatented
mining claims, unpatented millsites leases, improvements, permits,
water rights, mines, fixtures and equipment, all located in Eureka
County, Nevada (collectively, the Project).
B. Borrower and TSVLP are parties to a Purchase and Sale
Agreement dated December 31, 1993 (the Purchase and Sale
Agreement), pursuant to which the Borrower acquired its sixty
percent (60%) interest in the Project. Borrower and TSVLP are also
parties to a Mining Venture Agreement dated effective as of
December 31, 1993 (the Mining Venture Agreement), pursuant to which
operations are conducted at the Project and under which the
Borrower is the Manager (as defined in the Mining Venture
Agreement) of the Project. In addition, TSVLP is the owner and
holder of an Amended and Restated Secured Promissory Note, as
amended (the TSVLP Note), executed by Borrower on or about June 21,
1995, in the original principal amount of $3,800,000, which is
secured by a Security Agreement by and between Borrower and TSVLP
dated December 31, 1993 (the TSVLP Security Agreement). The
remaining amount of principal and interest outstanding under the
TSVLP Note, and the schedule for repayment of those amounts, is set
forth in the TSVLP Note.
C. In accordance with the terms of a Letter of Intent dated
December 20, 1996, among the Lender, the Borrower, TSGMC and U.S.
Gold (the Letter of Intent), the Borrower and the Lender are
contemplating a series of transactions (the Acquisition
Transactions) pursuant to which the Lender acquires all of the
issued and outstanding shares of common stock of the Borrower, and
in connection therewith, the Lender has agreed to make certain
advances of funds on Borrowers behalf, for the payment of
operating and other indebtedness of Borrower incurred in connection
with the Project.
D. TSVLP has agreed to execute the Intercreditor Agreement (as
defined below) to provide the Lender a security interest in the
Project pari passu with the security interest in the Project held
by TSVLP pursuant to the TSVLP Security Agreement, for the amount
of funding provided by the Lender under this Agreement.
E. Borrower, TSVLP and Lender desire to memorialize the terms
and conditions upon which such financing will be completed.
NOW, THEREFORE, in consideration of the foregoing recitals,
the covenants and conditions hereinafter set forth, and other good
and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereby agree as follows:
SECTION I
Definitions
As used in this Agreement:
Accounts Payable shall mean outstanding amounts currently owed by
the Borrower to third party vendors, a complete list of which (to
the actual knowledge of the Borrower) is set forth on Schedule 1
attached hereto.
Collateral shall mean all of the right, title and interest of
Borrower in and to the property defined as Collateral or Debtor's
Collateral in the TSVLP Security Agreement, as more particularly
described in Section 2(a)(i)(ix) thereof, and all of the right,
title and interest of Borrower in and to any additional real or
personal property, ores, minerals or mineral resources, machinery,
fixtures or equipment of any kind at the Project, and general
intangibles and income, products and proceeds associated with the
foregoing and any additional unpatented mining claims or millsites,
as more particularly described on Exhibit A attached hereto and
incorporated herein by reference.
Deed of Trust shall mean that Deed of Trust, Security Agreement,
Financing Statement and Assignment of Production and Proceeds,
pursuant to which the Lender is granted a first priority security
interest in and to that portion of the Collateral constituting real
property, in the form of Exhibit B attached hereto and incorporated
herein by reference, subject only to Permitted Liens and the Lien
created by the TSVLP Note and the TSVLP Security Agreement.
Distribution means any dividend payable in cash or property with
respect to any shares of capital stock of Borrower (including,
without limitation, dividends payable in shares of common,
preferred, or other capital stock) or any purchase, redemption or
retirement of, or other payment with respect to any shares of
capital stock of Borrower.
Environmental Laws means any and all federal, state and local
statutes, laws, regulations, ordinances, rules, judgments, orders,
decrees, permits, concessions, grants, franchises, licenses,
agreements or other governmental restrictions relating to the
protection of human health, safety or the environment or to
emissions, discharges, releases or threatened releases of
pollutants, contaminants, chemicals, or industrial, toxic or
hazardous substances or wastes into the environment including,
without limitation, ambient air, surface water, ground water or
land, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or
handling or pollutants, contaminants, chemicals, or industrial,
toxic or hazardous substances or wastes, which statutes and
regulations shall include, without limitation, the Comprehensive
Environmental Response Compensation and Liability Act, as amended,
42 U.S.C. 9601 et seq., the Resource Conservation and Recovery Act,
as amended, 42 U.S.C. 6901 et seq., the Federal Water and Pollution
Control Act, as amended, 33 U.S.C. 1251 et seq., the Federal Clean
Air Act, as amended, 42 U.S.C. 7401 et seq., the Emergency
Planning and Community Right to Know Act, as amended, 42 U.S.C.
110101 et seq., the Toxic Substances Control Act, as amended, 154
U.S.C. 2601 2629, the Safe Drinking Water Act, as amended, 42
U.S.C. 300f 300j, and any and all Nevada state law counterparts,
and the regulations issued under each of such federal or state
statutes.
Equity Proceeds means the net proceeds of sale by Borrower of any
and all common stock, preferred stock, notes, debentures or other
securities (including without limitation any stock sold pursuant to
the exercise of stock options) issued by Borrower and sold
subsequent to the date of this Agreement.
Event of Default shall mean the occurrence of any one or more of
the events which constitute an Event of Default under Section VII
of this Agreement.
Intercreditor Agreement means that certain Intercreditor Agreement
among the Lender, TSVLP, TSGMC and U.S. Gold of even date herewith,
in the form of Exhibit C attached hereto.
Lands means all of the unpatented mining claims and millsites or
other mineral rights owned or leased by the Borrower or TSVLP and
subject to the Mining Venture Agreement.
Lien means any lien, mortgage, deed of trust, security interest,
pledge, deposit, production payment, right of a vendor under any
title retention or conditional sale agreement or lease
substantially equivalent thereto or any other charge or encumbrance
for security purposes, whether arising or by law or agreement or
otherwise, but excluding any right of offset which arises without
agreement in the ordinary course of business.
Loan shall mean the aggregate amount of the advances provided for
in Section II hereof, as evidenced by the Note to be delivered by
the Borrower to the Lender on the Loan Date.
Loan Date shall mean the date on which the Lender makes the initial
installment of the Loan available to the Borrower pursuant to
Section II of this Agreement.
Material Project Agreements means those agreements to which the
Borrower is a party which are material to the conduct of operations
at the Project or the maintenance of any portion of the Collateral.
Maturity Date means the earlier of the date of full execution and
delivery of definitive documents by which the Lender acquires all
of the issued and outstanding shares of common stock of the
Borrower, or August 30, 1997.
Mining Leases shall mean those Mining Leases described in Schedule
2 attached hereto.
Note shall mean the promissory note of the Borrower, evidencing the
Loan, which shall be automatically amended from time to time as
Lender makes additional advances to Borrower pursuant to Section
2.1, in the form attached to this Agreement as Exhibit D and
incorporated herein by reference.
Permitted Liens shall mean existing indebtedness of the Borrower
(including Accounts Payable) as listed in Schedule 3 attached
hereto.
Person shall mean any natural person, company, trust, corporation,
joint venture or business organization.
Security Documents shall mean the filings, recordations, approvals,
certificates, title insurance and other documentation, including
without limitation the Deed of Trust, necessary, in the Lender's
sole discretion, to perfect and evidence the Lender's lien and
security interest in the Collateral.
SECTION II
The Loan
Subject to the terms and conditions of this Agreement, the Lender
agrees to make the Loan to the Borrower as follows:
2.1 Amount; Maturity. Subject to the terms and conditions
hereof, Lender agrees to make advances to Borrower under this Loan
Agreement, from time to time, in the initial amount of $415,000
(the Initial Advance, which shall be disbursed in accordance with
the procedures described below) and in such additional amounts as
requested in writing (in the form of request set forth on the
attached on Schedule 2.1) by the Borrower and agreed to by the
Lender (in each case not later than three business days following
the receipt of such request, unless the Lender has asked the
Borrower for additional information as to the nature of the advance
or the specific uses to which the funds advanced will be put, which
such requests by Lender Borrower agrees to respond to promptly, in
which case, assuming it receives the additional information, Lender
will respond not later than seven business following the receipt of
such request) in its sole discretion (so long as the Lender,
subject to its rights to approve or disapprove specific requests
for advances and to elect not to make any further advances
hereunder, agrees to make such advances as are necessary to enable
Borrower to achieve the objectives set forth in clauses (a), (b)
and (c) below), all such amounts to be disbursed and utilized
strictly in accordance with this Section 2.1 and the schedule
attached hereto as Exhibit E and incorporated herein by reference,
to enable Borrower to (a)take such actions as are reasonably
necessary to maintain, preserve and protect the assets and
properties of the Tonkin Springs Project, (b) service the TSVLP
Note (which the parties agree shall not be subject to the Lenders
discretion), and (c) pay other necessary and proper obligations and
commitments of Borrower, including such obligations and commitments
of Borrower as are required under the Letter of Intent and all
agreements contemplated thereby. The Borrower and the Lender
hereby agree and the Borrower hereby covenants and agrees that the
proceeds of the Initial Advance shall be disbursed and used as
follows:
(i) $20,000, previously advanced by Lender to Borrower;
(ii) $166,780 to be paid by wire transfers to the Lessors
under the Campbell/Simpson Lease (as defined in Schedule 2),
pursuant to written instructions from the Borrower;
(iii) $141,000 to be paid immediately to TSVLP, $91,000 of
which will be applied to payments, including interest, past due
under the TSVLP Note, and $50,000 of which will cover the January
1997 payment due under the TSVLP Note;
(iv) $30,306.37 to be paid immediately to the Eureka County,
Nevada, Assessor to cover past due personal property taxes for the
Collateral;
(v) $25,000 to cover the Borrowers working capital needs (as
directed by Lender in accordance with the provisions of this
Section 2.1) for January 1997, as set forth on Exhibit E; and
(vi) the balance of $31,913.63 to be used for the payment of
Accounts Payable, as directed by Lender in accordance with the
provisions of this Section 2.1, during January 1997, as set forth
on Exhibit E.
Except for the Initial Advance, as to which no election is
permitted, the parties hereby acknowledge and agree that in
addition to responding affirmatively or negatively to specific
written requests for advances of funds as set forth above, Lender,
by written notice to the Borrower at any time, may elect to
terminate its obligation to make any further advances to the
Borrower pursuant to this Agreement. In that event, the Lender
shall have no obligation or liability to the Borrower, any other
party hereto, or any third party for the foreseeable or
unforeseeable consequences of an election by the Lender not to make
any further advances.
2.2 Note. The Obligation of Borrower to repay the Loan, with
interest thereon, shall be evidenced by the Note, which shall be
deemed automatically amended to reflect all amounts advanced by
Lender to Borrower pursuant to Section 2.1, at the time each such
advance is made. The Note shall be payable on the Maturity Date or
upon acceleration as hereinafter set forth. The Note shall bear
interest at a rate equal to two percent 2% over the existing prime
rate, as published in the Wall Street Journal, Western Edition, on
the day the initial portion of the Loan is funded. Interest shall
accrue at the annual rate of fifteen percent 15% the Default Rate
on any past due payment of principal and, to the fullest extent
permitted by law, of any interest or other amount payable under
this Agreement. Interest shall be calculated on the basis of a
three hundred sixty 360 day year of twelve 12 thirty 30 day months.
2.3 Acceleration. The Maturity Date of the Note shall be
accelerated (the Acceleration Date) (a) as provided under Section
8.1, (b) in the event the Borrower shall receive Equity Proceeds in
an aggregate amount of not less than $2,000,000 at any date
subsequent to the Loan Date, (c) in the event the TSVLP Note
shall be declared in default and action to foreclose the underlying
security (pursuant to the TSVLP Security Agreement) is taken in
connection with such an Event of Default, or (d) in the event any
third party takes any foreclosure action or otherwise attempts to
collect against the Collateral.
2.4 Prepayments.
(a) Within five (5) business days after receipt by Borrower of
any Equity Proceeds in excess of $2,000,000, Borrower shall make
mandatory prepayment of the entire amount of the Loan.
(b) Borrower shall have the right to prepay the Note at any
time, either in whole or in part, with or without notice, without
penalty or premium.
2.5 Payment to Lender. Borrower will pay to the Lender on the
Maturity Date, or the Acceleration Date, whichever shall first
occur, the principal amount, together with accrued interest not
later than 12 noon, Denver, Colorado time in lawful money of the
United States of America in immediately available funds. Any
payment received after that time will be deemed to have been made
on the next following business day. Should the payment become due
and payable on a day other than a business day, the maturity of
that payment shall be extended to the next succeeding business day,
and in the case of a payment of principal, interest shall accrue
and be payable for the period of such extension. At the Lenders
election, which may be exercised by its giving written notice to
the Borrower not less than ten (10) business days prior to the
Maturity Date or the Acceleration Date, whichever is applicable,
the Lender may request the Borrower to issue to the Lender common
stock of the Borrower in lieu of payment of the amounts outstanding
under the Note, the number of common shares to be issued to be
determined by dividing $.80 into the amount outstanding under the
Note. The Borrower agrees, at its sole expense, that it will upon
the Lenders written request use its reasonable best efforts to
register the sale of such shares with the United States Securities
and Exchange Commission, in accordance with the provisions of
Exhibit F attached hereto. In connection therewith, the Borrower
shall have obtained all authorizations and approvals of, and all
other actions required to be taken by, any applicable governmental
authority or regulatory body or stock exchange and shall have given
all notices to, and made all filings with, any such governmental
authority or regulatory body or stock exchange, that may be
required in connection with such issuance and registration of the
Borrowers common stock. The Borrower may elect not to issue the
stock if it timely pays to Lender in immediately available funds
the full amount of principal and interest owed under the Note.
Upon the issuance of the stock, the amount due under the Loan shall
be deemed no longer due and payable, and this Agreement shall be
deemed terminated and the Note deemed canceled.
2.6 Continuation of Indebtedness. If at any time prior to August
30, 1997, Lender and Borrower and any necessary third parties have
executed and delivered definitive agreements pursuant to which
Lender has acquired all of the issued and outstanding shares of
Borrowers common stock (as contemplated under the Letter of
Intent), the amount due under the Loan shall remain due and payable
and the Note shall remain outstanding, but the security interest of
Lender under this Agreement shall be deemed terminated. In
connection therewith, U.S. Gold hereby agrees that it will vote
(and cause its officers and directors and TSVLP and TSGMC to vote)
all of the shares of common stock of the Borrower that it (or they)
own(s) in favor of the planned acquisition of all such stock by the
Lender (in exchange for common stock of Lender at the ratio and as
otherwise set forth in the Letter of Intent), and that it (and
they) will not sell any of its (their) shares of common stock of
the Borrower to any third party, all pursuant to the terms and
provisions of a Stock Purchase Option Agreement between U.S. Gold
and the Lender to be executed simultaneously herewith.
SECTION III
Security
3.1 The Security. The obligations of the Borrower hereunder will
be secured by the Security Documents and any additional Security
Documents hereinafter delivered by Borrower and accepted by Lender.
3.2 Priority of Security. The Lien of Lender created by the
Security Documents shall rank pari passu with the Lien of TSVLP
evidenced by the TSVLP Security Agreement and accompanying
financing statements, such ranking in an amount equal to the
principal amount of the Loan (plus applicable interest). Proceeds
from exercise of any rights granted by the Security Documents and
the TSVLP Security Agreement shall be split pari passu between
Lender and TSVLP, share and share alike until the Lender has
recovered the principal amount of the Loan (plus applicable
interest). TSVLP agrees to execute and file, as deemed necessary
by counsel for Lender, any documents necessary to evidence the
equal priority granted Lender hereunder.
3.3 Forbearance by Lender. Notwithstanding written notice by the
Lender of an election not to make any additional advances
hereunder, the Lender hereby agrees to forebear exercising any
rights under the Security Documents through and including the
Maturity Date, so long as no Events of Default have occurred
hereunder or thereunder, to allow the Borrower to perform its
duties as Manager at the Project and to seek additional financing
during that time. Notwithstanding such forbearance, however,
Lender shall be entitled to declare the Loan immediately due and
payable in accordance with the provisions of Section 8.1 and to
exercise all rights it has to the full extent of the Security
Documents in the event that (a) TSVLP shall undertake any action to
enforce its rights under the TSVLP Security Agreement or other
documents securing its existing Lien, or (b) any third party shall
exercise any rights of foreclosure or other collection action
against the Collateral.
SECTION IV
Conditions Precedent
The Lenders obligation to make the Initial Advance under the Loan
(or decision to make any further advance of additional amounts
thereunder following the Loan Date) shall be subject to the
satisfaction of each of the following conditions precedent:
4.1 Note. The Note shall have been executed by the Borrower and
delivered to the Lender.
4.2 Security Documents and Security. The Security Documents, duly
executed and delivered in form, substance and date satisfactory to
the Lender, shall have been delivered to the Lender, and the Lender
shall have a valid and perfected lien and security interest in the
Collateral in accordance with the terms of the Security Documents,
subject only to Permitted Liens and the Lien created by the TSVLP
Security Agreement.
4.3 Intercreditor Agreement. The Lender shall have received the
Intercreditor agreement, duly executed and delivered by TSVLP in
form, substance and date satisfactory to the Lender.
4.4 Approvals; Certificates. The Lender shall have received,
dated the date hereof, certificates of the Secretary or Assistant
Secretary of the Borrower certifying (a)the resolutions of the
Board of Directors of the Borrower approving this Agreement, the
Note and the Security Documents and (b)the names and true
signatures of the officers authorized to sign said agreement and
documents.
4.5 Representations and Warranties. Each and every
representation and warranty made by or on behalf of the Borrower
relating to this Agreement, the Note, the Security Documents or any
instruments or transactions contemplated hereby or thereby shall be
true and complete on and as of the Loan Date, and on the date of
each subsequent advance of funds hereunder by the Lender.
4.6 No Defaults. There shall exist no Event of Default (other
than the technical defaults under the Purchase and Sale Agreement
and the Mining Venture Agreement referred to in Section 5.6 below)
and no event which, with the giving of any notice or the passage of
any period of time, would constitute an Event of Default.
4.7 Counsel Opinion. The Borrower shall have delivered to the
Lender an opinion of the Borrower's counsel dated the date hereof
in form and substance satisfactory to the Lender and its counsel,
as to the matters referred to in Sections 5.1 and 5.2 of this
Agreement and with respect to such other matters as the Lender may
reasonably require.
4.8. Lockup Agreement. The Lender shall have received the Stock
Purchase Option Agreement referred to in Section 2.6, duly executed
and delivered by U.S. Gold in form, substance and date satisfactory
to the Lender.
SECTION V
Representations and Warranties
In order to induce the Lender to enter into this agreement, the
Borrower hereby represents and warrants to the Lender as follows:
5.1 Existence. The Borrower is a corporation duly organized,
validly existing and in good standing under the laws of the State
of Colorado, and is qualified to do business and in good standing
in the State of Nevada. The Borrower is qualified to do business
and is in good standing as a foreign corporation in each
jurisdiction in which the nature of the business transacted by it
or the nature of the property owned or leased by it makes such
qualification necessary and where failure to so qualify would have
a material adverse effect on the ability of the Borrower to perform
its obligations under this Agreement, the Security Documents or the
Note.
5.2 Authority. The Borrower has all necessary corporate power and
authority to execute, deliver, observe and perform the terms of
this Agreement, the Security Documents, and the Note. Neither the
Borrower's execution and delivery of this Agreement, the Security
Documents, or the Note, nor the performance or observance by the
Borrower of the provisions hereof or thereof, violates, or will
violate, any provisions in the Borrower's articles of
incorporation,.0 bylaws or other constitutive documents, or will
constitute a default or a violation under, or result in the
imposition of any lien under, or conflict with, or result in any
breach of any of the provisions of, any existing contract or other
obligation binding upon the Borrower or its property or the
Collateral. This Agreement, the Security Documents, and the Note
have been duly executed and delivered by the Borrower, and this
Agreement, the Security Documents, and the Note are legal, valid
and binding obligations of the Borrower, enforceable against the
Borrower in accordance with their respective terms (subject to
applicable bankruptcy, reorganization, insolvency or similar laws
affecting the enforcement of creditors' rights generally). The
Borrower's obligations hereunder under the Security Documents and
under the Note will rank not less than pari passu with all of the
Borrower's secured indebtedness to TSVLP, as evidenced by the TSVLP
Security Agreement.
5.3 Litigation; Taxes. Except for Permitted Liens, and as set
forth in Schedule 5.3, there are no legal or arbitral proceedings
or any proceedings by or before any judicial, governmental or
regulatory body, now pending, or (to the knowledge of the Borrower)
threatened, against the Borrower or pertaining to or which could
affect any of its property which, if adversely determined, could
have a material adverse effect on the ability of the Borrower to
perform its obligations under this Agreement, the Security
Documents, or the Note, or which could have a material adverse
impact on the Project. The Borrower has filed all United States
Federal income tax returns and all other material tax returns which
are required to be filed by it and has paid all taxes due pursuant
to such returns or pursuant to any assessment received by the
Borrower or any of its subsidiaries. The charges, accruals and
reserves on the books of the Borrower and its subsidiaries in
respect of taxes and other governmental charges are, in the opinion
of the Borrower, adequate therefor.
5.4 Financial Condition; No Material Adverse Effect. The Borrower
has delivered to the Lender audited consolidated financial
statements as of and for the year ended December 31, 1995 and
unaudited consolidated financial statements for the three quarters
ended September 30, 1996 (as set forth in Borrowers Annual Report
on form 10 K for the fiscal year ending December 31, 1995 and
Borrowers Quarterly Reports on form 10 Q for the periods ended
March 31, 1996, June 30, 1996 and September 30, 1996, copies of
each of which the Lender acknowledges receiving from the Borrower
prior to the Loan Date), which have been certified by the
principal financial officer of the Borrower. Such financial
statements are complete and correct in all material respects and
have been prepared in accordance with generally accepted accounting
principles consistently applied and fairly and accurately present
the financial position of the Borrower as of said dates and the
results of its operations for the periods then ended (subject, in
the case of unaudited quarterly financial statements, to normal and
customary year-end adjustments). Since September 30, 1996, except
as set forth on the Schedules attached to this Agreement, to the
best of the Borrowers knowledge, no event or condition has occurred
that reasonably could be expected to have a material adverse effect
on the ability of the Borrower to perform its obligations under
this Agreement, the Security Documents or the Note.
5.5 No Approvals or Consents. No authorization or approval or
other action by, and no notice to or filing with, any court,
governmental authority or regulatory body, or any consent or
approval of any other third party, is required for the due
execution, delivery and performance by the Borrower of this
Agreement, the Security Documents, the Note, or any other
agreements or instruments required of the Borrower by this
Agreement.
5.6 Title to Properties.
(a) The Borrower owns an undivided sixty percent (60%) interest in
and to the Project pursuant to the provisions of the Purchase and
Sale Agreement and the Mining Venture Agreement. The Purchase and
Sale Agreement and the Mining Venture Agreement are in full force
and effect; provided, however, that the parties acknowledge that
the Borrower is in technical default under the Purchase and Sale
Agreement and the Mining Venture Agreement as to the performance of
certain of Borrowers obligations as the Manager under the Mining
Venture Agreement.
(b)(i) The Borrower owns an undivided sixty percent (60%)
interest, and, to the best of Borrowers knowledge, TSVLP owns an
undivided forty percent (40%) interest in and to all of the
unpatented lode mining claims comprising a portion of the Project
and which are described in Schedule 5.6(b)(i) attached hereto and
Schedule A 1 to the Deed of Trust, which title is, subject to Liens
held by TSVLP, and the Royalties described in Section 5.7, superior
and paramount to any adverse claim or right of title which may be
asserted subject only to the paramount title of the United States
as to any unpatented mining claims and the rights of third parties
to such unpatented mining claims pursuant to the Multiple Mineral
Development Act of 1954 and the Surface Resources and Multiple Use
Act of 1955.
(ii) The Borrower and TSVLP are tenants in common and hold an
undivided one hundred percent (100%) leasehold interest in and to
each of the Mining Leases. Each of the Mining Leases is in full
force and effect, and the lessee has performed all of its
obligations thereunder (other than payment of the Advance Minimum
Royalty payment due thereunder between January 1 and 15, 1997), and
neither party is in default thereunder. To the best of Borrowers
knowledge, the title of the lessor under each of the Mining Leases
to the unpatented mining claims covered thereby is, subject to
Liens held by TSVLP, and the Royalties described in Section 5.7,
superior and paramount to any adverse claim or right of title which
may be asserted subject only to the paramount title of the United
States as to any unpatented mining claims and the rights of third
parties to such unpatented mining claims pursuant to the Multiple
Mineral Development Act of 1954 and the Surface Resources and
Multiple Use Act of 1955.
(c) With respect to the unpatented lode mining claims listed on
Schedule 5.6(b)(i) attached hereto and Schedule A 1 to the Deed of
Trust; (1) the Borrower is in exclusive possession thereof, free
and clear of all liens, claims, encumbrances or other burdens on
production (other than Permitted Liens, the Lien held by TSVLP
pursuant to the TSVLP Security Agreement, and the Royalties set
forth in Schedule 5.7); (2) the claims were located, staked, filed
and recorded on available public domain land in compliance with all
applicable state and federal laws and regulations; (3) assessment
work, intended in good faith to satisfy the requirements of state
and federal laws and regulations and generally regarded in the
mining industry as sufficient, for all assessment years up to and
including the assessment year ending September 1, 1992, was timely
performed on or for the benefit of the claims and affidavits
evidencing such work were timely recorded; (4) claim rental and
maintenance fees required to be paid under federal law in lieu of
the performance of assessment work, in order to maintain the claims
commencing with the assessment year ending on September 1, 1993 and
through the assessment year ending on September 1, 1997, have been
timely and properly paid, and affidavits or other notices
evidencing such payments and required under federal or state laws
or regulations have been timely and properly filed or recorded; (5)
all filings with the BLM with respect to the claims which are
required under the Federal Land Policy and Management Act of 1976
(FLPMA) have been timely and properly made, and (6) there are no
actions or administrative or other proceedings pending or to the
best of the Borrowers knowledge threatened against or affecting
the claims. With respect to the unpatented lode mining claims
listed on Schedule 5.6(b)(ii) attached hereto and Schedule A 2 to
the Deed of Trust: (1) the Borrower is in exclusive possession
thereof, free and clear of all liens, claims, encumbrances or other
burdens of production (except as set forth in the Mining Leases);
(2) to the best of Borrower's knowledge, the claims were located,
staked, filed and recorded on available public domain land in
compliance with all applicable state and federal laws and
regulations; (3) to the best of Borrower's knowledge, assessment
work, intended in good faith to satisfy the requirement of state
and federal laws and regulations and generally regarded in the
mining industry is sufficient, for all assessment years up to and
including the assessment year ending September 1, 1992, was timely
performed on or for the benefit of the claims and affidavits
evidencing such work were timely recorded; (4) claim rental and
maintenance fees required to be paid under federal law in lieu of
the performance of assessment work, in order to maintain the claims
commencing with the assessment year ending on September 1, 1993 and
through the assessment year ending on September 1, 1997, have been
timely and properly paid, and affidavits or other notices
evidencing such payment and required under federal or state laws or
regulations have been timely and properly filed and recorded; (5)
all filings with the BLM with respect to the claims which are
required under FLPMA have been timely and properly made; and (6)
there are no actions or administrative or other proceedings pending
or to the best of the Borrowers knowledge threatened against or
affecting the claims. Nothing herein shall be deemed a
representation that any unpatented claim listed on Schedule 5.6(b)
contains a discovery of valuable minerals. In addition, with
respect to each of the unpatented mining claims listed on Schedule
5.6(b) attached hereto and Schedule A to the Deed of Trust, the
Borrower represents that they have been remonumented as necessary,
and that evidence of such remonumentation has been timely and
properly recorded, all in compliance with the provisions of N.R.S.
517.030.
(d) The Borrower has good and marketable title to the equipment,
machinery, property and fixtures comprising a portion of the
Project, as described in Exhibit A and in Schedule B to the Deed of
Trust. The Lands that are described in Schedule 5.6(b) attached
hereto and Schedule A to the Deed of Trust and the equipment,
machinery, property and fixtures described in Exhibit A and in
Schedule B to the Deed of Trust constitute all of the properties
and assets, tangible or intangible, real or personal, which are
used in the conduct of the business of the Borrower, as such
business is presently being conducted and as pertains to the
Project. All such properties and assets are owned free and clear
of all clouds to title and of all Liens, except Permitted Liens and
Liens created under the TSVLP Security Agreement. All equipment,
machinery, property and fixtures owned by the Borrower and
described in Exhibit A attached hereto and Schedule B of the Deed
of Trust is in a state of repair adequate for normal operations and
is in all material respects in good working order
5.7 Leases and Royalties. The Lands described in Schedule 5.6(b)
attached hereto and Schedule A to the Deed of Trust are not subject
to any leases or other agreements other than the Mining Leases.
The Lands described in Schedule 5.6(b) attached hereto as Schedule
A of the Deed of Trust are not subject to any Royalties burdening
such Lands except as set forth in the Mining Leases and other
agreements listed on Schedule 5.7. For purposes hereof, Royalties
shall mean all amounts payable as a share of the product or profit
or profit from the Lands or any mineral products produced therefrom
and includes without limitation, production payments, net profits
interests, net smelter return royalties, landowners royalties,
minimum royalties, overriding royalties and royalty bonuses.
5.8 Agreements. Other than the Material Project Agreements (all
of which are listed on the attached Schedule 5.8), the Borrower is
not a party to any agreement or instrument or subject to any
charter or other corporate restriction adversely affecting its
business or the Project. Except for failure to make payments
required under certain of the Material Project Agreements, as set
forth on Schedule 3 or in Section 5.6(b)(ii), all such Material
Project Agreements are in full force and effect and the Borrower is
not (nor, to the Borrowers best knowledge, is any other party to
such agreements) in default in the performance, observance or
fulfillment of any of the obligations, covenants or conditions
contained in any Material Project Agreement or any other agreement
or instrument to which it is a party, the effect of which would
have a material adverse effect on the financial condition,
properties or operations of the Borrower or on the Collateral.
Copies of all such Material Project Agreements have been delivered
to the Lender and its counsel and are full, complete and current
copies of such agreements.
5.9 Compliance with Laws. With respect to the Project and
operations undertaken at the Project or in connection therewith,
the Borrower, except as set forth in Schedule 5.9 attached hereto,
has complied in all material respects with all applicable local,
state and federal laws, including Environmental Laws, and
regulations relating to the operation of the Project, and the
Borrower is not aware of any investigation (other than a routine
inspection) of the Borrower or the Project underway by any local,
state or federal agency with respect to enforcement of such laws
and regulations. The existing and planned use of the Project
complies with all legal requirements, including, but not limited
to, applicable zoning in ordinances, regulations and restrictive
covenants affecting the Lands as well as all environmental,
ecological, landmark and other applicable laws and regulations; and
all requirements for such use have been satisfied. No release,
emission or discharge into the environment of hazardous substances,
as defined under any Environmental Law, has occurred or is
presently occurring or will occur in operating the Project in its
intended form in excess of federal or state permitted release
levels or reportable quantities, or other concentrations, standards
or limitations under the foregoing laws or under any other federal,
state or local laws, regulations or governmental approvals in
connection with the construction, ore treatment fuel supply, power
generation and transmission or waste disposal, or any other
operations or processes relating to the Project. The Lands and the
Borrowers use and proposed use thereof are not and will not be in
violation of any environmental, occupational safety and health or
other applicable law now in effect, the effect of which violation,
in any case or in the aggregate, would materially adversely affect
the Lands or the Borrowers use thereof, or which, in any case or
in the aggregate, would impose a material liability on the Lender
or jeopardize the interest of the Lender in the Lands. Except as
set forth on Schedule 5.9, the Borrower has no knowledge of any
past or existing violations of any such laws, ordinances or
regulations issued by any governmental authority.
5.10 Permits Affecting Properties. The Borrower has obtained, as
set forth on Schedule 5.10 attached hereto, all licenses, operating
bonds (other than the reclamation bond required by the BLM),
permits and approvals from all governments, governmental
commissions, boards and other agencies required in respect to its
present operations at the Project, but the Borrower does not
warrant that those constitute all of the Material Project Permits
that will be required for the Project. The Borrower has listed on
Schedule 5.10 all Material Project Permits. Copies of all such
Material Project Permits have been made available to the Lender and
are full, complete and current copies of same.
5.11 Prior Security Interest. Except for the due and timely
filing or recording of any Security Document (and except for the
delivery to the Lender of any Collateral as to which possession is
the only method of perfecting a security interest in or Lien on
such Collateral), no further action is necessary to establish and
perfect the Lenders prior security interest in or shared first
Lien on all Collateral other than Collateral subject to Permitted
Liens and the Lien created by the TSVLP Security Agreement.
SECTION VI
Covenants
The Borrower agrees that, until the principal amount of the Loan
and all accrued interest thereon shall have been paid in full, the
Borrower shall perform, observe and comply with each of the
following:
6.1 Notice to the Lender. The Borrower will promptly give notice
to the Lender as soon as it becomes aware of:
(a) Any Event of Default or potential Event of Default;
(b) Any loss or damage to the Collateral in excess of $25,000;
(c) Every notice, and the contents thereof, received by the
Borrower in relation to any renewal of any rights with respect to,
or having a material adverse effect upon , the Lands, and any
circumstances which might result in a loss of or a failure to
obtain or a failure to be able to renew the Borrowers interest in
a material part of the Lands;
(d) Each new issuance or approval of a Material Project Permit and
each new change in operations that necessitates any amendment or
modification of any Material Project Agreement or Material Project
Permit; and
(e) The cessation of any Event of Default.
6.2 Dispositions of Assets or Dissolution. Except as otherwise
specifically permitted hereunder, the Borrower shall not:
(a) Sell, assign, convey, lease or otherwise dispose of any part
of its assets or properties, or grant the option or any other right
to purchase, or otherwise acquire such assets, whether now owned or
hereafter acquired, except in the ordinary course of business or
for the replacement of a capital asset with an asset of equal or
greater value (in accordance with the provisions of Section 6.12);
(b) Dissolve, liquidate or otherwise cease to do business;
(c) so long as Lender has not given written notice of its
intention not to make any further advances pursuant to Section 2.1,
without the prior written consent of the Lender, directly or
indirectly, (i) grant any proxies or enter into any voting trust or
other agreement or arrangement with respect to the voting of any of
its shares of common stock (the Shares), (ii) acquire or sell,
assign, transfer or otherwise dispose of any Shares, (iii) enter
into any contract, option or other arrangement or understanding
with respect to the direct or indirect acquisition or sale,
assignment, transfer or other disposition of any Shares, or (iv)
directly or indirectly, encourage, solicit, initiate or participate
in any way in discussions or negotiations with, or knowingly
provide any information to, any corporation, partnership, person or
other entity or group (other than the Borrower or any affiliate or
subsidiary of the Borrower) concerning any proposal or offer (a
Takeover Proposal) for a merger or other business combination
involving the Borrower or the acquisition in any manner, directly
or indirectly, of a material equity interest in any voting
securities of or a substantial portion of the assets of the
Borrower; provided, however, that to the extent required in the
exercise of the fiduciary duties of the Borrower's directors and
officers to the Borrower or its shareholders under applicable law
(after duly considering the written advice of outside counsel to
the Borrower), the Borrower may, in response to an unsolicited
request therefor, furnish information with respect to the Borrower
to any such corporation, partnership, person or other entity or
group who has made a bona fide offer for a Takeover Proposal that
the board of directors of the Borrower determines in its good faith
judgment to be more favorable to the Borrowers stockholders than
the Acquisition Transactions. The Borrower shall promptly notify
the Lender of, and communicate to the Lender the terms and status
of any inquiry or proposal with respect to any Takeover Proposal
and shall promptly provide the Lender with any such information
regarding such proposal as the Lender may request (including
delivering copies thereof).
6.3 No Liens. Neither the Borrower nor any subsidiary shall
create, assume or suffer to exist any Lien or other security
interest on any real or personal property or interest therein now
owned or hereafter acquired by it, except for Permitted Liens or
any such Liens or security interests created under the TSVLP
Security Agreement or the Security Documents. In addition, the
Borrower will use its best efforts to obtain and record in the
official records of Eureka County release documents for the liens
listed on the attached Schedule 6.3.
6.4 Taxes and Other Obligations. The Borrower shall pay and
discharge all taxes, assessments and governmental charges or levies
imposed upon it or upon its income or profits or upon any portion
of the Project prior to the date on which penalties attach thereto,
and all lawful claims which, if unpaid, might become a lien or
charge upon any such portion of the Project, except for any such
tax, assessment, charge, levy or claim, which constitutes a
Permitted Lien or the payment of which is being contested in good
faith and by proper proceedings and against which adequate reserves
are being maintained, or if the non-payment thereof would not have
a material adverse effect on the ability of the Borrower to perform
its obligations under this Agreement, the Security Documents or the
Note.
6.5 Use of Loan Proceeds. The Borrower agrees that all Loan
Proceeds shall be used only as set forth on Exhibit E.
6.6 Properties.
(a) Maintenance of Properties. The Borrower shall maintain and
preserve all of the properties comprising the Project in good
standing without default of any obligations with respect thereto,
including without limitation payment of claim maintenance fees, and
making federal filings and state recordings regarding the
unpatented claims comprising the Collateral.
(b) Compliance with Agreements. The Borrower shall comply with
all of the provisions of the Mining Leases, the Purchase and Sale
Agreement, the Mining Venture Agreement, the TSVLP Security
Agreement and all other agreements to which it is a party, except
where noncompliance therewith would not have a material adverse
effect on the ability of the Borrower to perform its obligations
under this Agreement, the Security Documents, or the Note.
(c) Insurance. The Borrower shall maintain such insurance
policies as are currently in place for activities at or undertaken
in correction with the Project.
6.7 Corporate Existence and Good Standing. The Borrower shall
preserve and maintain its corporate existence, and shall be and
remain qualified to do business as a foreign corporation and be in
good standing in each jurisdiction in which such qualification is
necessary or desirable in view of its business or operations or the
ownership of its properties; provided that nothing contained in
this Section 6.6 or otherwise in this Agreement shall prevent the
termination of the existence of any subsidiary of the Borrower or
of any rights, franchises or privileges of the Borrower or such a
subsidiary if the Borrower deems such termination thereof to be
advisable in its own discretion so long as such termination does
not have a material adverse effect on the financial condition of
the Borrower or its ability to comply with its obligations
hereunder.
6.8 Compliance with Law. The Borrower shall comply at all times
and in all material respects with all valid and applicable
statutes, rules and regulations of the United States of America, of
the states thereof and their counties, municipalities and other
subdivisions and of any other jurisdictions applicable to it
(including, without limitation, Environmental Laws), and the
provisions of permits, licenses and any other authorizations issued
to it or pertaining to the Project, except where noncompliance
would not have a material adverse effect on the ability of the
Borrower to perform its obligations under this Agreement, the
Security Documents or the Note, or where compliance shall be
currently contested in good faith by appropriate proceedings,
timely instituted, which shall operate to stay any order with
respect to noncompliance.
6.9 Additional Debt and Distributions. The Borrower shall not
(unless the Lender has given written notice of its intention not to
make any further advances pursuant to the provisions of Section
2.1), create, incur, assume or permit to exist any debt except the
Loan, the TSVLP Note, Permitted Liens, trade debt to suppliers and
contractors and debt of the types permitted by the Security
Documents. Further, the Borrower shall not (unless the Lender has
given written notice of its intention not to make any further
advances pursuant to the provisions of Section 2.1) make
Distributions of any kind or otherwise issue any additional shares
of its common stock or sell or otherwise transfer or grant options
for any shares of its common stock or enter into any agreements
with any third parties contemplating any of the foregoing.
6.10 Security Documents; Further Assurances. The Borrower at its
cost shall take all actions necessary or reasonably requested by
the Lender to maintain the Security Documents in full force and
effect and enforceable in accordance with their respective terms,
including (i) making filings and recordations, (ii) making payments
of fees and other charges, (iii) issuing supplemental
documentation, including continuation statements, and (iv) taking
all actions necessary or reasonably requested by the Lender to
ensure that the Collateral is and remains subject to a valid and
enforceable lien and security interest in favor of the Lender
(subject only to Permitted Liens and the TSVLP Security
Agreement).
6.11 Books and Records. The Borrower shall keep proper books of
record in accordance with generally accepted accounting principles
and permit representatives of the Lender to visit and inspect the
properties, to examine the books of record and accounts and to
discuss the affairs, finances and accounts of the Borrower with the
Borrowers principal officers, engineers and independent
accountants, all at such reasonable times during business hours and
at such intervals as the Lender may desire; provided, however, that
the Lender shall provide the Borrower with at least three Business
Days notice of any visit and shall use their best efforts not to
unreasonably disrupt the Borrowers business during such visits.
6.12 Alterations, Disposal of Assets, Etc. The Borrower will not
cause any building, structure or fixture or other improvement which
is part of the Collateral to be erected, removed, demolished, or
materially changed or altered, except in the ordinary course of
business. Except in the ordinary and normal course of business,
the Borrower shall not remove or permit the removal of any of the
personal property constituting part of the Collateral or any part
thereof (including renewal, replacement and other after acquired
property) from the Lands or the Project; provided, however, that
obsolete or worn out property may be removed concurrently with the
replacement or renewal thereof with property of at least equal
quality, usefulness, value and class to the original property, if
such replacement is in accordance with prudent industry practices;
provided, further, however, that the Borrower shall have the right,
but not the obligation, to amend or relocate any or all of the
unpatented lode mining claims included in the Lands (under any
applicable federal or state statute) and to locate any fractions
resulting from the amendment or relocation of such claims. Any
mining claims amended or relocated by the Borrower shall be
included in the Lands, and the Borrower agrees that the amendment
or relocation of such claims shall not result in any diminution of
the total acreage presently included within the lands. The
Borrower shall not commit or permit any waste in, on or about the
Lands or the Project that would have a material adverse effect on
the Collateral.
6.13 Leases and Other Agreements. The Borrower shall not enter
into, assume or otherwise become liable with respect to any non
cancelable operating leases or other agreements having terms in
excess of or renewable for more than one (1) month if the aggregate
minimum required payments under any such leases or other agreements
exceeds Ten Thousand Dollars ($10,000).
6.14 Change in Business. The Borrower shall not engage in any
business activities or operations substantially different form the
business of exploration, mining and production of Gold and other
precious metals or base metals associated with any Gold mine.
6.15 Capital Expenditures. The Borrower shall not make capital
expenditures in excess of the aggregate amount of Ten Thousand
Dollars ($10,000) without the Lenders prior written approval.
6.16 Loans; Intercompany Accounts. Other than as contemplated in
this Agreement, the Borrower shall not lend or advance money, gold,
or other assets to any entity or person.
6.17 Additional Covenants of TSVLP. TSVLP hereby confirms that
the Borrower is not in default under the provisions of the TSVLP
Note or the TSVLP Security Agreement, and that while technical
defaults by Borrower (as referred to in Section 5.6) exist under
the Purchase and Sale Agreement and the Mining Venture Agreement,
such events of default shall be deemed suspended, and TSVLP will
take no actions in connection therewith, for so long as (i) Lender
has not elected to terminate the advancement of funds to the
Borrower and has made advances of funds as required under Section
2.1 hereof, (ii) Lender continues good faith negotiations with the
Borrower and other necessary third parties for definitive
agreements by which Lender acquires all of the issued and
outstanding shares of Borrowers common stock and (iii) no third
party attempts to foreclose or otherwise take any collection action
against the Collateral.
SECTION VII
Events of Default
Each of the following shall constitute an Event of Default under
this Agreement:
7.1 Payments.
(a) The Borrower shall fail to make payment of any principal
amount of the Loan or accrued interest thereon under this Agreement
or the Note when the same shall become due and payable (whether
prior to its stated maturity or otherwise).
(b) TSVLP has declared an event of default based on the Borrowers
failure to make any payment of any amount due under the TSVLP Note
or the TSVLP Security Agreement or any other event of default
thereunder.
7.2 Representations and Covenants. Any representation or warranty
made by the Borrower under this Agreement or the Security Documents
proves to have been incorrect in any material respect when made
(unless such representation or warranty was incorrect as a result
of actions taken by the officers of the Borrower between October 1
and December 15, 1996), or the Borrower shall violate, fail or omit
to perform or observe any other covenant, agreement, condition or
provision contained in this Agreement, the Note or the Security
Documents and any such violation, failure or provision shall
continue without being corrected for five (5) days after the Lender
has given written notice thereof to the Borrower.
7.3 Insolvency. The Borrower shall not pay its debts as they
become due (unless such failure is caused by an election by the
Lender not to make any further advances of funds pursuant to
Section 2.1), shall file or consent by answer or otherwise to the
filing against it of a petition for relief, reorganization,
arrangement or any petition in bankruptcy, for liquidation or to
take advantage of any bankruptcy or insolvency law of any
jurisdiction, shall make an assignment for the benefit of its
creditors, shall be adjudicated insolvent or be liquidated, or
shall take corporate action for the purpose of any of the
foregoing.
7.4 Change in Control. There shall occur any change in the
effective control of the Borrower (other than by way of acquisition
by the Lender of all of the shares of common stock of the
Borrower).
SECTION VIII
Remedies Upon an Event of Default
Notwithstanding any contrary provisions or inference herein or
elsewhere:
8.1 Acceleration of Loan. If an Event of Default shall occur and
be continuing hereunder, and such Event of Default does not result
directly from a decision by the Lender not to make any further
advances pursuant to Section 2.1, then the Lender shall have the
right, but not the obligation, upon written notice to the Borrower,
to declare the entire unpaid principal balance of, and any accrued
interest on, the Loan to be immediately due and payable, whereupon
the Note, all such interest and any other amounts payable hereunder
shall become and be forthwith due and payable, without presentment,
demand or notice of any kind, all of which are hereby expressly
waived by the Borrower.
8.2 Exercise of Remedies. The aforementioned right to accelerate
is in addition to and not a substitute for any other remedies
available to Lender hereunder, under the Security Documents, under
the Note and under applicable laws.
SECTION IX
Miscellaneous
9.1 Amendments, Etc. No amendment or waiver of any provision of
this Agreement, the Security Documents or the Note, nor consent to
any departure by the Borrower therefrom, shall in any event be
effective unless by an agreement in writing signed by authorized
representatives of both parties.
9.2 Notices. All notices and other communications provided for
hereunder shall be in writing and shall be delivered by hand, by
reputable overnight courier or telecopied; if to the Borrower, at
its address as set forth above, Attention: Bill Conrad; if to the
Lender, at its address as set forth above, Attention: Jack Stoch;
if to TSVLP, at its address set forth above, Attention: William W.
Reid; or, as to any party, at such other address as shall be
designated by such party in a written notice to the other party.
9.3 No Waivers; Remedies. No failure on the part of the Lender to
exercise, and no delay in exercising, any right hereunder or under
the Note shall operate as a waiver thereof; nor shall any single or
partial exercise of any such right preclude any other or further
exercise thereof or the exercise of any other right. The remedies
herein provided are cumulative and not exclusive of any remedies
provided by law.
9.4 Costs and Expenses. The Borrower shall reimburse the Lender
in the event the Lender incurs any legal or other fees and expenses
in connection with the modification or amendment of this Agreement,
the Note or the Security Documents or in protecting or enforcing
its rights hereunder or thereunder whether or not any legal action
or suit is brought.
9.5 Entire Agreement. This Agreement, the Note, and the Security
Documents contain the entire agreement of the parties pertaining to
the subject matter hereof and supersede all prior written and oral
agreements pertaining hereto.
9.6 Successors and Assigns. This Agreement, the Note and the
Security Documents shall be binding on and inure to the benefit of
the Borrower and the Lender and their respective successors and
assigns; provided, however, that the Borrower may not assign any of
its rights or delegate any of its obligations hereunder without the
prior written consent of the Lender.
9.7 Survival. The obligations of the Borrower under Section 9.4
shall survive the repayment of the Loan and the termination of this
Agreement and the Note.
9.8 Counterparts. This Agreement may be executed in any number of
counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be
an original and all of which taken together constitute one and the
same instrument.
9.9 Governing Law. This Agreement, the Security Documents and the
Note shall be governed by and construed in accordance with the laws
of the State of Colorado, without regard to its principles
concerning conflicts of laws.
9.10 Further Assurances. At the request of any party hereto, the
parties shall execute and deliver any further instruments,
agreements, documents or other papers and take such other actions
as may be reasonably requested by any other party to effect the
purposes of this Agreement and the transactions contemplated
hereby.
9.11 Public Announcements. Each party shall obtain the prior
written consent of each of the other parties to this Agreement
before making any public announcement with respect to this
Agreement, any related agreement or the transactions contemplated
hereunder or thereunder, unless counsel for the disclosing party
advises it that such public announcement is required under
applicable laws or securities exchange regulations (in which case
such public announcement shall be made only after the text of such
announcement has been disclosed to the other parties with
reasonable advance notice).
9.12 Confidentiality. Except as otherwise set forth in Section
9.11, the parties hereto and their collective representatives shall
forever treat confidentially all information concerning the terms
and conditions of this Agreement, all related agreements, and of
the transactions contemplated hereunder or thereunder (collectively
"Confidential Information"); provided, however, that Confidential
Information shall not include information which concerns the Tonkin
Springs Project which is or becomes generally known to the public
other than as the result of a breach of the provisions of this
Section 9.12 by any party hereto or its representatives. The
obligation to treat the Confidential Information confidentially
shall not apply to the extent that any party or its representatives
shall be required to disclose such information in connection with
an investigation or legal proceeding where the failure to disclose
such information could result in liability for contempt or other
censure or penalty; provided, however, that such party and/or its
representatives shall notify the other parties as soon as possible
and in any event prior to such disclosure and shall cooperate with
the other party in the event that the other party elects to legally
contest such disclosure.
[THIS SPACE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first above written.
GOLD CAPITAL CORPORATION, a Colorado corporation
By: Bill M. Conrad
Bill M. Conrad(name)
President (title)
GLOBEX MINING ENTERPRISES INC., a Quebec corporation
By: Jack Stoch
Jack Stoch (name)
President (title)
TONKIN SPRINGS VENTURE LIMITED
PARTNERSHIP, a Nevada limited partnership
By: TONKIN SPRINGS GOLD MINING COMPANY,
a Colorado corporation
By: William W. Reid
William W. Reid (name)
President (title)
TONKIN SPRINGS GOLD MINING COMPANY,
a Colorado corporation
By: William W. Reid
William W. Reid (name)
President (title)
U.S. GOLD CORPORATION, a Colorado corporation
By: William W. Reid
William W. Reid (name)
President (title)
Exhibit 10.24
U.S. Gold Corporation
Form 10 KSB, December 31, 1996
INTERCREDITOR AGREEMENT
THIS INTERCREDITOR AGREEMENT, dated this 16th day of January, 1997,
is by and among TONKIN SPRINGS VENTURE LIMITED PARTNERSHIP, a
Nevada limited partnership (TSVLP), whose address is 55 Madison,
Suite 700, Denver, Colorado 80206, TONKIN SPRINGS GOLD MINING
COMPANY, a Colorado corporation and the general partner of TSVLP
(TSGMC), whose address is 55 Madison, Suite 700, Denver, Colorado
80206, U.S. GOLD CORPORATION, a Colorado corporation of which TSGMC
is a wholly owned subsidiary (U.S. Gold), whose address is 55
Madison, Suite 700, Denver, Colorado 80206, and GLOBEX MINING
ENTERPRISES INC., a Quebec corporation (Globex), whose address is
146 14th Street, Rouyn Noranda, Quebec, Canada, J9X 253 and GOLD
CAPITAL CORPORATION, a Colorado corporation (GCC), whose address is
5525 Erindale Drive, Suite 201, Colorado Springs, Colorado 80918,
who is a party hereto for certain purposes as indicated on the
signatory pages hereof.
RECITALS
A. Pursuant to a Secured Promissory Note dated December 31, 1993,
by GCC in favor of TSVLP (such Secured Promissory Note having been
amended and restated July 13, 1994, October 18, 1994, March 27,
1995, June 21, 1995 and, as amended, referred to hereinafter as the
TSVLP Note), GCC issued to TSVLP a Secured Promissory Note and
currently owes principal and interest to TSVLP in the aggregate
amount of $1,630,644.46, after taking into account the adding of
1996 accrued interest on the TSVLP Note to the unpaid principal
balance thereof.
B. The indebtedness and obligations of GCC under the TSVLP Note
are secured by certain real and personal property of GCC,
constituting (i) a sixty percent (60%) interest in certain owned or
leased unpatented mining claims comprising the Tonkin Springs
Project in Eureka County, Nevada, and related surface facilities
and machinery and equipment (collectively the Tonkin Springs
Project), and (ii) GCCs interest in that Mining Venture Agreement
between GCC and TSVLP dated December 31, 1993, which governs
operations at the Tonkin Springs Project (the Mining Venture
Agreement), all as more particularly described in that Security
Agreement dated December 31, 1993 (the TSVLP Security Agreement)
and a related UCC 1 Financing Statement between GCC and TSVLP
(collectively referred to hereinafter as the TSVLP Collateral
Agreements).
C. Pursuant to a Loan Agreement and Promissory Note (the Globex
Agreements) dated of even date herewith among GCC, TSVLP, TSGMC,
U.S. Gold and Globex, Globex has agreed to provide a loan to GCC,
consisting of an initial advance of $395,000 and such additional
advances as may be made pursuant to the provisions of the Globex
Agreements (the Globex Loan). The indebtedness and obligations of
GCC under the Globex Agreements with respect to the Globex Loan and
the Promissory Note issued by GCC to Globex in connection therewith
are also secured by the collateral that is covered by the TSVLP
Collateral Agreements, pursuant to a Deed of Trust, Security
Agreement, Financing Statement and Assignment of Production and
Proceeds of even date herewith, together with related UCC 1
Financing Statements (the Globex Collateral Agreements).
D. TSVLP and Globex are sometimes referred to collectively herein
as the Lenders or individually as a Lender. The TSVLP Collateral
Agreements and the Globex Collateral Agreements are collectively
referred to hereafter as the Collateral Documents. All of the
collateral pertaining to the Tonkin Springs Project and the Mining
Venture Agreement covered and encumbered by any of the Collateral
Documents is collectively referred to hereinafter as the
Collateral. The TSVLP Note and the Globex Agreements are
collectively referred to hereinafter as the Loan Agreements.
E. The Lenders desire by this Agreement to establish their
relative rights and priorities with respect to their liens relating
to the Collateral, and to agree to enforcement procedures of rights
under the Collateral Agreements.
AGREEMENT
In consideration of the foregoing and other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
1. Ratable Sharing of Collateral. Each Lender acknowledges (and
each has irrevocably advised and instructed GCC to recognize) that
the Collateral in which it has or acquires a security interest is
identical and is intended to be coextensive with the Collateral
covered by the security interest of the other Lender and, with
respect to gold and other precious metals contained in and
recoverable from the ore concentrates, that such security interests
remain through the stockpiling, shipping and smelting processes.
It is the intent of the Lenders, and it is hereby agreed between
the Lenders, that as between the Lenders each Lender shall
participate in fifty percent (50%) of the total amount of
Collateral and proceeds of the Collateral (including commingled
contained gold in a given stockpile, shipment or batch) up to the
aggregate amount of principal and interest owed to each of them
pursuant to the TSVLP Note and the Globex Loan, respectively.
Subject to the terms of this Agreement, the Lenders hereby agree
jointly to pursue any rights and remedies that each may have and
either may elect to initiate under their respective Collateral
Documents in a manner that recognizes and respects the other
Lenders prorata share of the Collateral in accordance with the
terms of this Agreement and any proceeds from the disposition of
the Collateral in the event either Lender exercises or enforces its
rights to foreclosure or takes other remedial action as a secured
party shall, subject to the terms hereof, be shared between them
pari passu in equal proportions.
2. Priority. Notwithstanding the date, manner or order of
recording of the Collateral Documents or the taking of any other
steps necessary to perfect or any steps to enforce the respective
security interests in the Collateral and notwithstanding any
provision of the Uniform Commercial Code as adopted in Nevada or
any other applicable law, or any provision in the Loan Agreements
or the Collateral Documents, the liens and encumbrances created by
the Collateral Documents shall be equal and on a parity, and TSVLP
and Globex, subject to the terms of Section 1, shall have equal
priority with respect to their security interests in the Collateral
as to the amounts owing to them under the Loan Agreements. Each
Lender assigns to the other Lender, for the term of this Agreement,
an undivided interest in the Collateral Documents of the assigning
Lender, and in any proceeds collected by virtue of enforcement
thereof or otherwise, to the extent of the assignees undivided
interest and right to participate in the Collateral pursuant to
Section 1 hereof. Each Lender agrees to take all action necessary
or appropriate to evidence and give effect to the foregoing
assignment.
3. Foreclosure. If a Default or Event of Default, as such terms
are defined in the Loan Agreements (collectively, a Default), shall
have occurred and is continuing, the Lender who is alleging such
Default (the Foreclosing Lender) may notify the other Lender (the
Participating Lender) in accordance with Section 10 hereof. If
after thirty (30) days from the date of the notice the Default
continues, the Participating Lender shall be entitled to pursue the
remedies and exercise any further rights and remedies granted under
the relevant Loan Agreement or Collateral Document. TSVLP and
Globex recognize that a trustee foreclosure under a deed of trust
may be less expensive and more expedited than a judicial
foreclosure. Therefore, the Lenders covenant and agree that if
there is a Default under either or both of the TSVLP Collateral
Agreements (and/or the TSVLP Security Agreement) and the Globex
Collateral Agreements (and/or the Globex Agreements), foreclosure
proceedings shall be commenced upon the expiration of the thirty
(30) day notice period, and the Foreclosing Lender shall proceed to
foreclose under the applicable Collateral Documents. The
foreclosure shall be conducted as a unified sale of real and
personal property conducted in accordance with the Nevada Uniform
Commercial Code and Nevada real property law governing a trustees
sale of real property encumbered by a deed of trust, unless
otherwise agreed by the Foreclosing and Participating Lender. At
the trustees sale, the Foreclosing Lender and the Participating
Lender shall jointly bid not less than the lesser of the fair
market value of the Collateral or the combined balances then owing
under the applicable Loan Agreement, unless otherwise agreed by the
Lenders. If the Collateral is not purchased by a third party at
the trustees sale, the Foreclosing Lender shall cause title to vest
in the names of both Lenders, as tenants in common, with equal
undivided interests therein. The Foreclosing Lender shall obtain
a Trustees Sale Guaranty from a title company reasonably
acceptable to the Participating Lender insuring title in the real
property portion of the Collateral vested as required herein. The
Foreclosing Lender or Participating Lender may also exercise any
further rights or remedies under the applicable Collateral
Documents or Loan Agreements; provided, that any interest in or
amounts recorded with respect to the Collateral shall be vested in
the names of both Lenders in accordance herewith. Any proceeds
received from any such foreclosure, remedial action, redemption or
receivership proceeding related to the Collateral shall be shared
between the Lenders pari passu in equal proportions; provided, that
such proceeds shall be allocated between the Lenders in the manner
provided in Section 4 below. Upon issuance of the Trustees Deeds
to TSVLP and Globex, as tenants in common in accordance herewith,
each Lender agrees to promptly release the lien of its respective
Collateral Documents as an encumbrance against the Collateral. For
a period of ninety (90) days thereafter, TSVLP shall have the
option to pay to Globex in immediately available funds an amount
equal to the amount of principal and interest owed to Globex under
the Globex Agreements at the time of foreclosure, and thereby
acquire all of the right, title and interest of Globex in and to
the Collateral, by documents of conveyance reasonably acceptable in
form and substance to TSVLP and Globex and their respective
counsel. If TSVLP fails to timely exercise that option, the
parties shall remain tenants in common as to the Collateral. Any
foreclosure or sale of the Collateral constituting personal
property not conducted simultaneously with the trustees sale shall
be made by the Foreclosing Lender in accordance with the provisions
of the Nevada Uniform Commercial Code, and any proceeds received
therefrom shall be shared between the Lenders pari passu in equal
proportions; provided, that such proceeds shall be allocated
between the Lenders in the manner provided in Section 4 below.
4. Application of Payments with Respect to the Collateral. In
the event of any foreclosure, sale or other disposition of or
realization in any manner upon any of the Collateral, all monies or
other property collected or received by either Lender with respect
to the Collateral, in excess of the amount paid to discharge liens
upon the Collateral prior to the Collateral Documents (if any),
shall be distributed by the collecting Lender as follows:
(a) First: to the Foreclosing Lender and Participating Lender in
the amount of, and to apply to, the payment of reasonable costs and
expenses incurred by the Foreclosing Lender and Participating
Lender in connection with the administration and enforcement of the
foreclosed upon deed of trust or other Collateral Document, as the
case may be, and any of the other Loan Agreements relating to such
foreclosure, including the reasonable fees and outofpocket expenses
of counsel employed by the foreclosing Lender to the extent that
such fees, advances, costs and expenses, shall not previously have
been paid or reimbursed to the Foreclosing Lender and Participating
Lender;
(b) Second: to the pari passu payment and prepayment of so much of
the outstanding amounts of the Loan Agreements as constitute unpaid
principal amounts, and of so much of such unpaid indebtedness as
constitute accrued and unpaid interest to and including the date of
such application, in equal proportions, all in accordance with
Section 1; and
(c) Third: to the Lenders pari passu in equal proportions, until
all indebtedness and other obligations owed by GCC under the Loan
Agreements have been satisfied in full, then any excess amount to
GCC.
5. Notice of an Event of Default. If either Lender intends to
declare a Default under any of the Loan Agreements to which such
Lender is a party, such Lender shall give prompt notice of such
intention to the other Lender, which notice shall set forth in
reasonable detail the circumstances known to the sender with
respect to such Event of Default. TSVLP hereby agrees that it will
not send notice to GCC of an Event of Default under the TSVLP
Security Agreement so long as GCC timely makes the monthly debt
service payments required under the TSVLP Note, Globex has not
provided written notice to GCC of an election not to make further
advances of funds to GCC set forth in the Globex Agreements, and no
third party creditor(s) attempts to foreclose or otherwise collect
on the Collateral or to force GCC into any involuntary bankruptcy,
insolvency or similar proceedings. Globex hereby agrees to
forebear exercising any foreclosure rights under the Globex
Collateral Agreements through and including the Maturity Date (as
defined in the Globex Agreements), so long as no Events of Default
have occurred hereunder or thereunder; provided, however, that
Globex shall be entitled to participate and to exercise all rights
it has to the full extent of the Globex Collateral Agreements in
the event that (a) TSVLP shall undertake any action to enforce its
rights under the TSVLP Collateral Agreements, or (b) any third
party shall exercise any rights of foreclosure or other collection
action against the Collateral.
6. Security Interests. Notwithstanding anything to the contrary
herein, each Lender is responsible for the creation, perfection and
validity of any security or other interest in and to the Collateral
pursuant to its own financing facility (i.e., the TSVLP Note or the
Globex Loan, as appropriate) and pursuant to the Nevada Uniform
Commercial Code (the UCC), Nevada real property laws and other
applicable law. In prescribing their relative rights and
privileges, this Agreement assumes that each Lender has complied
with the UCC and other applicable law and holds a valid security
interest or ownership interest in and to its share of Collateral.
Each Lender is responsible for perfecting its respective security
interest in and to the Collateral, whether by filing of record the
Deed of Trust or otherwise reflecting its interest as further
security for the obligations and indebtedness under their
respective Loan Agreements.
7. Compromise of Claims; Effect of Bankruptcy, Fraud, etc.
Neither Lender shall compromise or settle any claim with respect to
the Collateral without the prior written consent of the other.
Should GCC become subject to a bankruptcy or similar proceeding
prior to the repayment to a Lender of all amounts owed to such
Lender by GCC either Lender who files a proof of claim and is shown
to have a valid, perfected secured claim in or title to its
respective prorata share of the Collateral shall have a secured
claim up to its own prorata share therein, and shall share ratably
in any deficiency or other claim against GCC, and any proceeds
received therefrom shall be shared between the Lenders pari passu
in equal proportions; provided, that such proceeds shall be
allocated between the Lenders in the manner provided in Section 4.
8. Termination. The provisions contained in the foregoing
Sections 1 through 7 of this Agreement shall terminate when the
indebtedness and obligations under either of the respective Loan
Agreements have been paid and performed in full.
9. Representations, Warranties and Covenants. The parties make
the following representations, warranties and covenants:
(a)(i) TSVLP is a limited partnership duly organized, validly
existing and in good standing under the laws of the State of
Nevada, and is qualified to do business and in good standing in
each jurisdiction in which the nature of the business transacted by
it or the nature of the property owned or leased by it makes such
qualification necessary and where failure to so qualify would have
a material adverse effect on the ability of TSVLP to perform its
obligations under this Agreement.
(ii) Globex is a corporation duly organized, validly existing and
in good standing under the laws of the Province of Quebec, and is
qualified to do business and in good standing in each jurisdiction
in which the nature of the business transacted by it or the nature
of the property owned or leased by it makes such qualification
necessary and where failure to so qualify would have a material
adverse effect on the ability of Globex to perform its obligations
under this Agreement.
(b)(i) TSVLP has all necessary limited partnership power and
authority to own and operate its properties and to carry on its
business as now conducted and to execute, deliver, observe and
perform the terms of this Agreement. TSVLP has taken all necessary
limited partnership action to duly authorize the execution and
delivery of this Agreement. Neither TSVLP's execution and delivery
of this Agreement, nor the performance or observance by TSVLP of
the provisions hereof, violates, or will violate, any provisions in
TSVLP's articles of incorporation, bylaws or other constitutive
documents, or will constitute a default or a violation under, or
result in the imposition of any lien under, or conflict with, or
result in any breach of any of the provisions of, any existing
contract or other obligation binding upon TSVLP or its property or
the Collateral. This Agreement has been duly executed and
delivered by TSVLP and is the legal, valid and binding obligation
of TSVLP, enforceable against TSVLP in accordance with its terms
(subject to applicable bankruptcy, reorganization, insolvency or
similar laws affecting the enforcement of creditors rights
generally).
(ii) Globex has all necessary corporate power and authority to
execute, deliver, observe and perform the terms of this Agreement.
Neither Globex's execution and delivery of this Agreement, nor the
performance or observance by Globex of the provisions hereof,
violates, or will violate, any provisions in Globex's articles of
incorporation, bylaws or other constitutive documents, or will
constitute a default or a violation under, or result in the
imposition of any lien under, or conflict with, or result in any
breach of any of the provisions of, any existing contract or other
obligation binding upon Globex or its property or the Collateral.
This Agreement has been duly executed and delivered by Globex and
is the legal, valid and binding obligation of Globex, enforceable
against Globex in accordance with its terms (subject to applicable
bankruptcy, reorganization, insolvency or similar laws affecting
the enforcement of creditors rights generally).
(c) No suit, arbitration, action or other proceeding is pending
or, to the best of TSVLPs knowledge, threatened before any court,
governmental authority or regulatory body against TSVLP.
(d) Each of TSVLP and Globex agree that prior to the termination
of this Agreement they will in no way amend the terms and
provisions of any Collateral Documents to which they are a party.
10. No Representation or Guaranty; No Intention to Create Cross
Interests; No Fiduciary Duty. Neither TSVLP nor Globex makes to
the other Lender any representation or assumes any responsibility
in respect of the execution, construction or enforcement of this
Agreement or any Loan Agreement or Collateral Document, note or
other instrument or agreement executed by either Lender. Neither
Lender shall be deemed as a result of this Agreement to have
indirectly or directly guaranteed any debts, obligations or
liabilities of the other Lender or of GCC. The purpose of the
foregoing provisions of this Agreement is to establish certain
rights and obligations as among the Lenders which are necessary
because of their shared interest in the Collateral. Each Lender is
the sole lender under and in respect of its own Loan Agreement with
GCC, and nothing herein shall be construed as an assignment,
participation or other disposition by one Lender with respect to
the other Lenders Loan Agreement or in any indebtedness or
liability thereunder. Further, except as to funds received or
controlled by either Lender as to which the other Lender is
entitled to participate hereunder, nothing in this Agreement shall
be deemed or construed to expressly create a fiduciary relationship
among or duty between the Lenders, who disavow the existence of any
other such fiduciary relationship or duty to each other or to GCC.
11. Notices. All notices, requests and consent, demands and other
communications which are required or permitted to be given or made
hereunder, shall be given in writing and will be served by personal
delivery, by reputable overnight courier or by postage prepaid or
by U.S. certified mail, return receipt requested, addressed to the
respective parties at the addresses set forth in the preamble of
this Agreement. All notices, requests, consents, demands and other
communications hereunder shall be deemed given and effective three
days following the date on which such notice is deposited in the
U.S. mail or one business day after deposit with a reputable
overnight courier, addressed as provided above, or on the date
personally delivered to and received by the specified parties.
12. Governing Law. This Agreement shall be governed by the laws
of the State of Nevada, without regard to its rules concerning
conflicts of law.
13. Counterparts. This Agreement may be signed in any number of
counterparts, each of which shall constitute an original but all of
which when taken together shall constitute but one contract, and
shall become effective when copies hereof, taken together, bear the
signatures of each of the parties.
14. Agreement by GCC. GCC agrees that it will cooperate with the
Lenders to the full extent necessary to effect the purposes of this
Agreement, and that it will not take any action in contravention of
the provisions of this Agreement.
15. Conflicts. In the event any provision of any agreement,
including either the TSVLP Security Agreement, the TSVLP Note, or
the Globex Agreements or Globex Collateral Agreements, to which a
Lender and GCC are parties is inconsistent with the terms hereof,
the provisions of this Agreement shall prevail as to the subject
matter hereof.
16. Survival of Representations. All representations, warranties,
covenants, and agreements of the parties contained in this
Agreement, or in any instrument, certificate, opinion, or other
writing provided for in it, shall survive the recording of any
Collateral Documents.
17. Waiver. Any of the terms or conditions of this Agreement may
be waived at any time by the party entitled to the benefit thereof,
but no such waiver shall affect or impair the right of the waiving
party to require observance, performance or satisfaction either of
that term or condition as it applies on a subsequent occasion or of
any other term or condition thereof.
18. Succession. Subject to the provisions otherwise contained in
this Agreement, this Agreement shall inure to the benefit of and be
binding on the successors and assigns of the respective parties
hereto. This Agreement may not be assigned by either Lender
without the prior written consent of the other Lender, and may not
be assigned by any other party.
19. Parties in Interest. Nothing in this Agreement, whether
express or implied, is intended to confer any rights or remedies
under or by reason of this Agreement on any persons other than the
parties to it and their respective successors and assigns, nor is
anything in this Agreement intended to relieve or discharge the
obligation or liability of any third persons to any party to this
Agreement, nor shall any provision give any third persons any right
of subrogation or action over against any party to this Agreement.
20. Specific Performance. Each partys obligations under this
Agreement are unique. The parties each acknowledge that, if any
party should default in performance of the duties and obligations
imposed by this Agreement, it would be extremely impracticable to
measure the resulting damages. Accordingly, the nondefaulting
party, in addition to any other available rights or remedies, may
sue in equity for specific performance and the parties each
expressly waive the defense that a remedy in damages will be
adequate.
21. Attorneys Fees. If the services of any attorney are required
by any party to secure the performance hereof or otherwise upon the
breach or default of another party to this agreement, or if any
judicial remedy or arbitration is necessary to enforce or interpret
any provision of this Agreement or the rights and duties of any
person in relation thereto, the prevailing party shall be entitled
to recover its reasonable attorneys fees, costs and other
expenses, in addition to any other relief to which such party may
be entitled.
22. Further Assurances. At the request of any party hereto, the
other parties shall execute and deliver any further instruments,
agreements, documents or other papers and take such other actions
as may be reasonably requested by any party to effect the purposes
of this Agreement and the transactions contemplated hereby.
23. Public Announcements. Each party shall obtain the prior
written consent of the other parties to this Agreement before
making any public announcement with respect to this Agreement, any
related agreement or the transactions contemplated hereunder or
thereunder, unless counsel for the disclosing party advises it that
such public announcement is required under applicable laws or
securities exchange regulations.
24. Confidentiality. Except as otherwise set forth in Section 23,
the parties hereto and their collective representatives shall
forever treat confidentially all information concerning the terms
and conditions of this Agreement, all related agreements, and of
the transactions contemplated hereunder or thereunder (collectively
Confidential Information); provided, however, that Confidential
Information shall not include information which concerns the Tonkin
Springs Project which is or becomes generally known to the public
other than as the result of a breach of the provisions of this
Section 24 by any party hereto or its representatives. The
obligation to treat the Confidential Information confidentially
shall not apply to the extent that any party or its representatives
shall be required to disclose such information in connection with
an investigation or legal proceeding where the failure to disclose
such information could result in liability for contempt or other
censure or penalty; provided, however, that such party and/or its
representatives shall notify the other parties as soon as possible
and in any event prior to such disclosure and shall cooperate with
the other party in the event that the other party elects to legally
contest such disclosure.
IN WITNESS WHEREOF, the parties have executed this Intercreditor
Agreement as of the date first written above.
TONKIN SPRINGS VENTURE LIMITED PARTNERSHIP, a Nevada limited
partnership
By: William W. Reid
William W. Reid (name)
President, Tonkin Springs Gold Mining Company, General Partner
(title)
TONKIN SPRINGS GOLD MINING COMPANY, a Colorado corporation
By: William W. Reid
William W. Reid (name)
President (title)
U.S. GOLD CORPORATION, a Colorado
corporation
By: William W. Reid
William W. Reid (name)
President (title)
GLOBEX MINING ENTERPRISES INC., a Quebec corporation
By: Jack Stoch
Jack Stoch (name)
President (title)
GCC is executing this Agreement for purposes of the agreements
contained in Sections 1, 3, 4(c), 13 and 14.
GOLD CAPITAL CORPORATION, a Colorado corporation
By: Bill M. Conrad
Bill M. Conrad (name)
President (title)
Exhibit 10.25
U.S. Gold Corporation
Form 10 KSB, December 31, 1996
STOCK PURCHASE OPTION AGREEMENT, AGREEMENT NOT TO SELL SHARES, AND
AGREEMENT TO VOTE SHARES FOR MERGER
THIS STOCK PURCHASE OPTION AGREEMENT, AGREEMENT NOT TO SELL SHARES,
AND AGREEMENT TO VOTE SHARES FOR MERGER (this Agreement) dated as
of January 16, 1997, is by and between U.S. Gold Corporation, a
Colorado corporation (Stockholder), and Globex Mining Enterprises
Inc., a Quebec corporation (Globex).
Recitals
A. Globex and Gold Capital Corporation, a Colorado corporation
(Company), are parties to a Letter of Intent dated December 20,
1996, which contemplates a series of transactions by which Globex
will acquire all of the issued and outstanding shares of common
stock of the Company (the Common Stock) pursuant to a series of
transactions (sometimes referred to hereinafter as the Acquisition
Transactions) which will include (i) a Loan Agreement (the Loan
Agreement) between Globex and the Company by which Globex will loan
certain amounts to the Company; (ii) a Stock Purchase Agreement
(the Stock Purchase Agreement) between Globex and Royalstar
Resources Ltd. (Royalstar), regarding the sale to Globex of
approximately 47% of the Common Stock, which is owned by Royalstar;
and (iii) an Agreement and Plan of Merger (the Merger Agreement),
pursuant to which, and subject to the terms and conditions
contained therein, Globex would purchase the remaining outstanding
shares of the Company's Common Stock, for and in consideration of
1,285,607 shares of Globex Common Stock (the Globex Stock) for
every share of common stock, pursuant to a merger (the Merger) of
the Company with a wholly owned U.S. subsidiary of Globex (the
Sub).
B. As of the date hereof, Stockholder owns 2,287,547 shares, or
approximately 25% of the outstanding Common Stock of the Company
(the Shares), and Stockholder desires to (i) grant to Globex (or
Sub) an irrevocable option to purchase the Shares; (ii) agree to
vote in favor of the Merger (subject to the proxy described in
clause (iii)) all the Shares held by Stockholder; (iii) grant to
Globex (or Sub) an irrevocable proxy covering the shares held by
Stockholder to vote in favor of the Merger; and (iv) enter into an
agreement whereby the Stockholder agrees not to sell any of its
Shares during the Option Period (as defined below).
Agreement
NOW, THEREFORE, in consideration of the mutual covenants and
agreements contained in this Agreement and other good and valuable
consideration, and intending to be legally bound hereby, the
parties hereby agree as follows:
1. Grant of Option. Stockholder hereby grants to Globex (or Sub)
an irrevocable option (the Option) to purchase the Shares in return
for 632,094 shares of Globex Stock (the Purchase Price).
2. Exercise of Option. (a) Globex (or Sub) may exercise the
Option, in whole but not in part, at any time on or prior to the
Termination Date (as defined herein), which period of time shall be
referred to hereinafter as the Option Period. In the event Globex
wishes to exercise the Option, Globex will send a written notice to
Stockholder (the Closing Notice) specifying a place and date no
later than five business days following the date of Closing Notice,
for the closing of such purchase (the Closing).
(b) Notwithstanding the provisions of clause (a) above, if any
waiting period under the Hart Scott Rodino Antitrust Improvements
Act of 1976, as amended, or the rules and regulations promulgated
thereunder (collectively, the HSR Act), applicable to the exercise
of the Option shall not have expired or been terminated, or if any
preliminary or permanent injunction or other order by any court of
competent jurisdiction prohibiting or otherwise restraining
exercise of the Option shall be in effect, in any case, as of the
date specified for the Closing in the Closing Notice, the period of
time during which the Option may be exercised shall be extended
until five business days following the later to occur of the
expiration or termination of such waiting period or the removal of
any such Order.
3. Sale and Purchase. (a) If Globex exercises the Option, at any
Closing hereunder, subject to the terms and conditions hereof,
Stockholders will sell, transfer and deliver to Globex (or Sub) a
certificate or certificates representing the Shares duly endorsed
(or accompanied by duly executed stock powers) to Globex (or Sub)
and otherwise in proper form for transfer, and Globex (or Sub) will
purchase the Shares and will sell, transfer and deliver to
Stockholder a certificate or certificates representing the number
of shares of Globex stock constituting the Purchase Price, duly
endorsed (or accompanied by duly executed stock powers) to
Stockholder and otherwise in proper form for transfer. All such
Shares shall be subject only to those restrictions on transfer, if
any, as are placed on the shares of Globex shares exchanged for
shares of stock of the Company pursuant to the Merger Agreement.
(b) In the event of any change in the number of issued and
outstanding Shares by reason of any stock dividend, split up,
merger, recapitalization, combination, conversion, exchange of
shares, outstanding options, obligations of the Company to issue
additional Shares or the like, or any other change in the corporate
or capital structure of the Company that would have the effect of
diluting Globex's rights and privileges hereunder, the number and
kind of Shares subject to the Option and the consideration payable
in respect of such Shares shall be appropriately adjusted to
restore to Globex its rights and privileges hereunder.
(c) In the event of any change in the number of issued and
outstanding shares of Globex common stock by reason of any stock
dividend, split up, merger, recapitalization, combination,
conversion, exchange of shares or the like (except in relation to
the Acquisition Transactions hereunder or financing undertaken by
Globex in connection therewith), or any other change in the
corporate or capital structure of Globex that would have the effect
of diluting the consideration which Stockholder is to receive for
the Shares if Globex exercises the Option, the Purchase Price
payable in respect of such Shares shall be appropriately adjusted
to provide to Stockholder substantially the same consideration for
its Shares.
4. Dividends and Distributions. Until the sale of Stockholder's
Shares at any Closing hereunder, Stockholder will remain the record
and beneficial owner of such Shares and will be entitled to receive
and retain all cash dividends with respect to such Shares declared
prior to the date of Closing and payable to shareholders of record
as of a date prior to the date of the Closing.
5. Agreement to Support Merger. Stockholder agrees, subject to
the terms of Section 7, to vote the Shares held by it in favor of
the Merger pursuant to the terms of the Merger Agreement.
6. Proxy With Respect to the Shares. Stockholder hereby
irrevocably appoints Globex (or Sub) as its attorney and proxy,
with full power of substitution, to vote or to express written
consent or dissent in such manner as such attorney and proxy or its
substitute shall, in its sole discretion, deem proper, and
otherwise act (including pursuant to any corporate action in
writing without a meeting) with respect to all of the Shares which
it is entitled to vote at any meeting of stockholders (whether
annual or special and whether or not an adjourned meeting) of the
Company, or pursuant to written action taken in lieu of any such
meeting or otherwise; provided, however, that Stockholder grants a
proxy hereunder only with respect to the following matters (the
Designated Matters): (i) votes or consents with respect to the
Merger; (ii) votes or consents with respect to any action or
agreement that would result in a breach of any covenant,
representation or warranty or any other obligation or agreement of
the Company under the Merger Agreement; (iii) votes or consents
with respect to any action or agreement that would impede,
interfere with, delay, postpone or attempt to discourage the
Merger, including, but not limited to, (a) any extraordinary
corporate transaction (other than the Merger), such as a merger,
other business combination, reorganization or liquidation involving
Company, (b) any option, sale, mortgage, transfer or other material
transaction regarding the Tonkin Springs Project in Eureka County,
Nevada or any other material asset of the Company or any of its
subsidiaries, (c) any change in the management or board of
directors of the Company, except as otherwise agreed to in writing
by Globex, or (d) any material change in the present capitalization
of the Company; and (iv) votes or consents relating to any other
material change in the corporate structure or business of the
Company. This proxy is irrevocable, is coupled with an interest
sufficient in law to support an irrevocable proxy and is granted in
consideration of and as an inducement to cause Globex to enter into
the transactions contemplated by this Agreement and the Merger
Agreement. This proxy shall revoke any other proxy granted by
Stockholder at any time with respect to the Shares and no
subsequent proxies will be given with respect thereto by
Stockholder. In addition, if subsequent to the date hereof
Stockholder is entitled to vote the Shares for any purpose
unrelated to the Designated Matters, it shall provide notice
thereof to Globex.
7. Condition to Stockholder's Obligations. The obligations of the
parties to close the transactions contemplated by this Agreement
upon its execution and thereafter shall be subject to the
additional condition that all representations and warranties of
Stockholder (in the case of the obligations of Globex) and Globex
(in the case of the obligations of Stockholder) shall be true and
correct in all material respects as of the date hereof and at and
as of the date of the exercise of the Option and the closing of (i)
the Stock Purchase Agreement and (ii) the Merger Agreement, all
with the same force and effect as though made on and as of the date
of this Agreement.
8. Representations and Warranties of Stockholder. Stockholder
represents and warrants to Globex as follows:
8.1 Ownership of Shares. On the date hereof, the Shares are all
of the shares of the Company's Common Stock currently beneficially
owned by the Stockholder. Stockholder has no rights to acquire
additional shares of the Company's Common Stock, and has converted
all shares of preferred stock of the Company owned by it into
Common Stock. Stockholder currently has, and at the Closing
described in Section 3 will have, good, valid and marketable title
to the Shares, free and clear of all liens, encumbrances,
restrictions, options, warrants, rights to purchase and claims of
every kind (other than the encumbrances created by this Agreement
and other than restrictions on transfer under applicable U.S.
Federal and State securities laws). As set forth on the form 8 K
filed by the Company with the Securities and Exchange Commission on
December 19, 1996, and notwithstanding assertions to the contrary
made by Royalstar in a letter to Company dated January 10, 1997,
Stockholder is of the opinion, based on the advice of its outside
counsel, that the Shareholders Agreement among John Young,
Royalstar, the Company, Stockholder, Tonkin Springs Venture Limited
Partnership and Tonkin Springs Gold Mining Company terminated
effective as of the date John Young resigned as an officer and
director of the Company.
8.2 Power: Binding Agreement. Stockholder has the full legal
right, power and authority to enter into and perform all of
Stockholder's obligations under this Agreement. The execution and
delivery of this Agreement by Stockholder has been authorized by
all necessary corporate action on the part of Stockholder and will
not violate any other agreement to which Stockholder is a party
including, without limitation, any voting agreement, stockholders
agreement, voting trust or proxy. This Agreement has been duly
executed and delivered by Stockholder and constitutes a legal,
valid and binding agreement of Stockholder, enforceable in
accordance with its terms, except as the enforcement thereof may be
limited by bankruptcy, insolvency, reorganization, moratorium and
similar laws, now or hereafter in effect affecting creditors'
rights and remedies generally or general principles of equity.
Neither the execution or delivery of this Agreement nor the
consummation by Stockholder of the transactions contemplated hereby
will (i) require any consent or approval of or filing with any
governmental or other regulatory body except for (x) the filings
required under the H-S-R Act and (y) filings on Schedule 13D under
the Securities Exchange Act of 1934, as amended, or (ii) constitute
a violation of, conflict with or constitute a default under, any
contract, commitment, agreement, understanding, arrangement or
other restriction of any kind to which Stockholder is a party or by
which Stockholder is bound.
8.3 Continuity of Interest. There is no current plan or intention
by Stockholder to sell, exchange or otherwise dispose of the shares
of Globex's common stock received by the Stockholder.
8.4 Finder's Fees. No person is, or will be, entitled to any
commission or finder's fees from Stockholder in connection with
this Agreement or the transactions contemplated hereby.
9. Representations and Warranties of Globex. Globex represents
and warrants to Stockholder as follows:
9.1 Ownership of Shares. At the Closing described in Section 3,
Globex will have good, valid and marketable title to the shares of
Globex common stock constituting the Purchase Price, free and clear
of all liens, encumbrances, restrictions, options, warranties,
rights to purchase and claims of every kind (other than
restrictions on transfer under applicable Canadian provincial and
U.S. Federal and State securities laws).
9.2 Powers: Binding Agreement. Globex has full legal right,
power and authority to enter into and perform all of its
obligations under this Agreement. The execution and delivery of
this Agreement by Globex has been authorized by all necessary
corporate action on the part of Globex and will not violate any
other agreement to which Globex is a party. This Agreement has
been duly executed and delivered by Globex and constitutes a legal,
valid and binding agreement of Globex, enforceable in accordance
with its terms, except as the enforcement thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium and similar
laws, now or hereafter in effect, affecting creditors'
reorganization, moratorium and similar laws, now or hereafter in
effect, affecting creditors' rights and remedies generally or
general principles of equity. Neither the execution of this
Agreement nor the consummation by Globex of the transactions
contemplated hereby will (i) require any consent or approval of or
filing with any governmental or regulatory body except for (x) for
the filings required under the H-S-R Act and (y) filings on
Schedule 13D under the Securities Exchange Act of 1934, as amended,
or (ii) constitute a violation of, conflict with or constitute a
default under, any contract, commitment, agreement, understanding,
arrangement or other restriction of any kind to which Globex is a
party or by which it is bound.
9.3 Finders Fees. No person is, or will be, entitled to any
commission or finders fees from Globex in connection with this
Agreement or the transactions contemplated hereby.
9.4 No Intention to Sell Shares. If it exercises the Option,
Globex (or Sub) will be acquiring the Shares for investment
purposes and has no intention of selling such Shares in a public
distribution in violation of applicable securities laws.
10. Covenants of Stockholder. (a) So long as the Option remains
exercisable, Stockholder hereby covenants and agrees with Globex
that, except pursuant to the terms of this Agreement, Stockholder
will not, without the prior written consent of Globex, directly or
indirectly, (i) grant any proxies or enter into any voting trust or
other agreement or arrangement with respect to the voting of any
Shares, (ii) acquire or sell, assign, transfer or otherwise dispose
of any Shares, (iii) enter into any contract, option or other
arrangement or understanding with respect to the direct or indirect
acquisition or sale, assignment, transfer or other disposition of
any Shares, or (iv) directly or indirectly, encourage, solicit,
initiate or, participate in any way in discussions or negotiations
with, or knowingly provide any information to, any corporation,
partnership, person or other entity or group (other than Globex or
any affiliate or associate of Globex) concerning any proposal or
offer (a Takeover Proposal) for a merger or other business
combination involving the Company or the acquisition in any manner,
directly or indirectly, of a material equity interest in any voting
securities of or a substantial portion of the assets of the
Company. Stockholder shall promptly notify Globex of, and
communicate to Globex the terms and status of any inquiry or
proposal with respect to any Takeover Proposal and shall promptly
provide Globex with any such information regarding such proposal as
Globex may request (including delivering copies thereof).
(b) In the event that Globex exercises the Option, Stockholder
hereby agrees, for a period of two (2) years from the date of
Globexs exercise of the Option to vote all shares of Globex Stock
which constitute the Purchase Price under Section 1 of this
Agreement (the Globex Shares) in the exact manner specified by
Globex, or, at the sole election of Globex, to grant to Globex a
duly executed irrevocable proxy with respect to the Globex Shares
in accordance with C.R.S. 7-107-203(5).
(c) In the event that Globex exercises the Option, Stockholder
hereby grants to Globex a first right of refusal as related to
sales of the Globex Shares by Stockholder to third party non
affiliates, for a period of two (2) years from the date of Globexs
exercise of the Option, as provided herein (First Right of
Refusal).
(i) Stockholder will give Globex written notice of Stockholders
intention to sell (or deliver in satisfaction of debt) any of the
Globex Shares beneficially owned directly or indirectly by
Stockholder to any person, except for an Affiliate, as hereinafter
defined, such written notice to provide in reasonable detail, the
terms, conditions and timing of such intended sale (or delivery)
provided that a written notice from Stockholder to the effect that
a prescribed number of shares will be sold at the prevailing market
price shall constitute a valid Sales Notice (Sales Notice). An
Affiliate of Stockholder is defined as any entity in which
Stockholder directly or indirectly owns a greater than 50%
interest.
(ii) Globex will have 5 business days from receipt of the Sales
Notice to give Stockholder written notice of Globexs irrevocable
election to exercise its rights to purchase the shares covered by
the Sales Notice under terms and conditions no less favorable to
Stockholder than those included in the Sales Notice.
(iii) If Globex has not given notice to Stockholder of its
irrevocable intent to exercise its rights as provided in (ii) and
within the required time frame specified above, Globex shall
relinquish any First Right of Refusal related specifically to those
shares included in the Sales Notice, unless such sale(s) are not
consummated by Stockholder within 30 days of the date of the Sales
Notice.
(iv) Any election by Globex not to exercise its First Right of
Refusal as related to any Sales Notice shall not change or diminish
Globexs rights under this Agreement as related to subsequent Sales
Notices.
(vi) Stockholder may sell or transfer any of the Globex Shares
which it beneficially owns directly or indirectly to an Affiliate
provided that such Affiliate agrees in writing to be bound by the
terms of this Agreement.
11. Remedies. The parties hereto agree that if for any reason
Globex or Stockholder shall have failed to perform its obligations
under this Agreement, then any party hereto seeking to enforce this
Agreement against such non performing party shall be entitled to
seek specific performance and injunctive and other equitable
relief, and the parties hereto further agree to waive any
requirement for the securing or posting of any bond in connection
with the obtaining of any such injunctive or other equitable
relief. This provision is without prejudice to any other rights
that either party hereto may have against the other party hereto
for any failure to perform its obligation under this Agreement.
12. Termination. This Agreement (other than the provisions
relating to expenses (Section 13), and confidentiality (Section
14)) shall terminate (the Termination Date) on the earliest of:
(a) the date on which Globex and Stockholder mutually consent to
terminate this Agreement in writing;
(b) the date of successful consummation of the Stock Purchase
Agreement and successful consummation of the Merger;
(c) the date on which Globex provides written notice to Stockholder
of Globexs intention not to exercise the Option;
(d) the date upon which Globex gives written notice to the Company
under the Loan Agreement of its intention not to make any further
advances of funds thereunder; or
(e) August 30, 1997.
13. Expenses. Each party hereto will pay all of its expenses in
connection with the transactions contemplated by this Agreement,
including, without limitation, the fees and expenses of its counsel
and other advisers.
14. Confidentiality. Stockholder recognizes that successful
consummation of the transactions contemplated by this Agreement may
be dependent upon confidentiality with respect to these matters. In
this connection, Stockholder agrees that it will not disclose or
discuss these matters with anyone (other than its legal counsel and
advisors) not a party to this Agreement, without prior written
consent of Globex, except to the extent necessary for filings
required pursuant to the Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder or disclosures
Stockholder's legal counsel advises in writing are necessary in
order to fulfill Stockholder's obligations imposed by law, in which
events Stockholder shall give prompt prior notice of such
disclosure to Globex.
15. Certain Covenants of Globex
15.1 Stock Purchase and Merger. Globex agrees to use its
reasonable best efforts to negotiate the terms of the Stock
Purchase Agreement and the Merger Agreement in good faith, and to
consummate the closing of the Acquisition Transactions contemplated
thereby.
15.2 H-S-R Act Filings. Globex agrees to make in a timely manner
any filings required to be made by it under the H-S-R Act in
connection with the transactions contemplated by this Agreement,
the Stock Purchase Agreement and the Merger Agreement.
16. Notices. All notices or other communications required or
permitted hereunder shall be in writing (except as otherwise
provided here) and shall be deemed duly given when received by
delivery in person, by telecopy, telex or telegram or by certified
mail, postage prepaid, or by an overnight courier service,
addressed as follows:
If to Globex:
146 14th Street
Rouyn Noranda, Quebec, Canada
Attn: Jack Stoch
Chief Executive Officer
with copies to:
Davis, Graham & Stubbs LLP
370 Seventeenth Street, Suite 4700
Denver, Colorado 80202
Attn: Paul Hilton, Esq.
If to Stockholder:
U.S. Gold Corporation
55 Madison, Suite 700
Denver, Colorado 80206
Attn: William W. Reid
17. Entire Agreement: Amendment. This Agreement, together with
the documents expressly referred to herein, constitute the entire
agreement among the parties hereto with respect to the subject
matter contained herein and supersede all prior agreements and
understandings among the parties with respect to such subject
matter. This Agreement may not be modified, amended, altered or
supplemented except by an agreement in writing executed by the
party against whom such modification, amendment, alteration or
supplement is sought to be enforced.
18. Assigns. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors
and assigns, but neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the
parties hereto without the prior written consent of the other
parties, except that Globex may assign any or all of its rights and
obligations hereunder to Sub without the consent of Stockholder or
the Company, but no such transfer shall relieve Globex of its
obligations under this Agreement.
19. Governing Law. This Agreement, and all matters relating
hereto, shall be governed by, and construed in accordance with the
laws of the State of Colorado without giving effect to the
principles of conflicts of laws thereof.
20. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original and
all of which together shall constitute one and the same document.
21. Severability. Any term or provision of this Agreement which
is invalid or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the
remaining terms and provisions of this Agreement or affecting the
validity or enforceability of any of the terms or provisions of
this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable such provision shall
be interpreted to be only so broad as is enforceable.
22. Further Assurances. Each party hereto shall execute and
deliver such additional documents as may be necessary or desirable
to consummate the transactions contemplated by this Agreement.
23. Third Party Beneficiaries. Nothing in this Agreement,
expressed or implied, shall be construed to give any person other
than the parties hereto any legal or equitable right, remedy or
claim under or by reason of this Agreement or any provision
contained herein.
THIS SPACE INTENTIONALLY LEFT BLANK
IN WITNESS WHEREOF, Globex and Stockholder have each caused this
Agreement to be executed by their duly authorized officers as of
the date and year first above written.
GLOBEX MINING ENTERPRISES, INC.,
a Quebec corporation
By: Jack Stoch
Name: Jack Stoch
Title: President
U.S. GOLD CORPORATION,
a Colorado corporation
By: William W. Reid
Name: William W. Reid
Title: President
Exhibit 11. U.S. GOLD CORPORATION EXHIBIT TO FORM 10-KSB
Computation of Weighted Average Shares Outstanding
Used in Earnings Per Share Calculations
for the two years ended December 31, 1996
1996 1995
Shares issued, beginning of period 13,806,505 13,768,800
Weighted average shares issued:
Exercise of stock options 17,442 25,454
Weighted average of common
stock equivalents:
Unexercised stock options 1,145,495 1,193,495
Less: Buy back of common shares
under treasury stock method
using average price (291,346) (395,779)
Total weighted average shares and
share equivalent outstanding 14,678,096 14,591,970
(1) Fully diluted computations are not made as total shares and
share equivalent outstanding would be effected by less than 3%.
Exhibit 23.1 Consent of BDO Siedman, LLP, to the incorporation by
reference of their report dated March 26, 1997, in the Companys
Form S-8.
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement of U.S. Gold Corporation on Form S-8, File No. 33-47460
of our report dated March 19, 1997, on our audit of the
consolidated financial statements of U.S. Gold Corporation as of
December 31, 1996 and for the two years ended December 31, 1996, which report
is included in the Annual Report on Form 10-KSB for the year ended December 31,
1996
BDO Siedman, LLP
Denver, Colorado
March 26, 1997
Exhibit 23.2 Consent of Behre Dolbear and Company, Inc., dated
March 24, 1997.
CONSENT OF INDEPENDENT ENGINEERS
As independent engineers, Behre Dolbear and Company, Inc. (Behre
Dolbear) has rendered its report entitled TECHNICAL AUDIT OF THE
TONKIN SPRINGS GOLD PROPERTY, EUREKA COUNTY, NEVADA, dated April,
1996. Behre Dolbear hereby consents to all references to Behre
Dolbear in the Form 10 KSB for the period ended December 31, 1996,
of U.S. Gold Corporation.
BEHRE DOLBEAR AND COMPANY, INC.
by: Bernard J. Guarnera
President, Chief Executive Officer,
and Chief Operating Officer
Denver, Colorado
March 24, 1997
Exhibit 23.3 Consent of Ore Reserve Engineering, date March 20,
1997.
CONSENT OF INDEPENDENT ENGINEERS
As independent engineers, Ore Reserve Engineering (ORE) has
rendered its estimate of open pit ore reserves for the Tonkin
Springs Project, dated October, 1996. ORE hereby consents to all
references to ORE in the Form 10 KSB for the period ended December
31, 1996, of U.S. Gold Corporation.
ORE RESERVE ENGINEERING
By: Alan C. Noble, P.E.
Lakewood, Colorado
March 20, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the 1996
Form 10-KSB and is qualified in its entirety by reference to such Form 10-KSB.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 5,459
<SECURITIES> 0
<RECEIVABLES> 282,569
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 877,128
<PP&E> 89,212
<DEPRECIATION> 0
<TOTAL-ASSETS> 8,034,612
<CURRENT-LIABILITIES> 127,035
<BONDS> 0
0
0
<COMMON> 33,362,671
<OTHER-SE> (27,884,194)
<TOTAL-LIABILITY-AND-EQUITY> 8,034,612
<SALES> 1,165,418
<TOTAL-REVENUES> 1,311,349
<CGS> 0
<TOTAL-COSTS> 807,711
<OTHER-EXPENSES> 11,516
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,516
<INCOME-PRETAX> 490,427
<INCOME-TAX> 0
<INCOME-CONTINUING> 490,427
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 490,427
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
