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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
[X] 15, ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [No Fee Required]
For the fiscal year ended December 31, 1997
[ ] 15, 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 02-69494
GLOBAL GOLD CORPORATION
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(Name of small business issuer in its charter)
Delaware 13-3025550
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
438 West 37th Street, Suite 5-G, New York, New York 10018
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number (212) 563-5933
Securities registered under Section 12(b) of the Exchange Act:
Title of each class (Name of each exchange on which registered)
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None
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Securities registered under Section 12(g) of the Exchange Act:
None
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(Title of Class)
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(Title of Class)
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Check whether the issuer (1) filed all reports required to be filed by
Section 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 in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to be 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]
The issuer's revenues for its most recent fiscal year ending December 31,
1997 were $-0-.
The aggregate market value of the voting stock held by non-affiliates of
the Company computed by reference to the price at which the stock was sold, or
the average bid and asked prices of such stock, as of a specified date within
the past 60 days was $123,966(1)
As of December 31, 1997 there were 4,348,114 Shares of the registrant's
Common Stock outstanding.(2)
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(1) The Company's Common Stock is not publicly traded. However, the Board
of Directors of the Company determined that fair market value of the Common
Stock was $0.10 per share.
(2) This number is computed after taking into account the 1 for 10 reverse
split of the shares of Common Stock of the Company, effective as of December 31,
1996 (the "Reverse Split").
ITEM 1. DESCRIPTION OF BUSINESS
(A) General Overview
The Company is presently engaged in the development of a gold mining
project in Armenia, a member of the Commonwealth of Independent States. The
Company is currently in the pre-development stage and has not received any
revenues from mining activities as of December 31, 1997. Prior thereto, the
Company did not engage in any substantial business activities, except as
described in the section 1(D) entitled "Prior History of the Company."
(B) Armenian Mining Project
(a) Armenian Joint Venture Agreement
The Company, the Ministry of Industry of Armenia and Armgold, S.E., the
Armenian state gold enterprise ("Armgold"), executed and delivered the Armenian
Joint Venture Agreement, dated as of May 1, 1996. The Company thereafter
assigned its rights and obligations thereunder to Global Gold Armenia Limited,
its wholly-owned Cayman Islands subsidiary ("GGA"). The Armenian Joint Venture
Agreement formed the Armenian Gold Recovery Joint Venture Co., LLC, a limited
liability company under Armenian law ("AGRC"), which will construct, operate and
market the gold production and provide capital and financing in a multistage
development of the Armenian gold industry. Stage 1 of the Armenian Joint Venture
Agreement involves the processing of an estimated 12 million tonnes of tailings
from the Ararat processing plant, which the Company believes average 1 gram of
gold per tonne (based on the independent metallurgical study obtained by the
Company) (the "Tailings Project") and the completion of a comprehensive
feasibility study and business plans for the development of the Zod mine. Based
on the business plans to be approved by all parties, Stage 2 calls for the
rehabilitation of the Ararat Gold Processing Plant and for mine development and
operation as well as engineering and building a gold processing plant at the Zod
mine, and Stage 3 calls for mine development and operation at the Meghradzor
mine, a feasibility study for a gold refinery, and exploration activity.
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The Company, the Ministry of Armenia and Armgold executed and delivered the
Second Armenian Gold Recovery Company Joint Venture Agreement, dated as of
September 30, 1997, (sometimes referred to as the "Amended Armenian Joint
Venture Agreement") which, among other things, provides for the right of new
joint venture companies to mine and process gold at the Zod and Meghradzor mines
and which also eliminated certain specific exploration sites from the original
agreement, while still recognizing AGRC's right to participate in exploration
activity at a future date. However, such amendatory agreement does not become
operative until passage of an Armenian government decree approving such
agreement.
The parties originally anticipated that such decree would be issued within
the next several months after September 30, 1997, but currently there is no
assurance whether such decree will be passed, or, if so, when it will be passed.
While the Company is hopeful that such impasse will be resolved, there can be no
assurance that such governmental decree will be passed. If such decree is not
passed, the joint venture companies will not have the right to mine and process
gold at the Zod and Meghradzor mines.
(b) Tailings Project
The parties have begun to implement the Tailings Project. As of February
1, 1997, GGA had a definitive agreement authorized by an Armenian government
decree granting it fixed rights to process tailings from the Ararat site as well
as a license and environmental approval for construction.
Pursuant to the Armenian Joint Venture Agreement, AGRC completed the
construction of the Tailings Project. AGRC entered into a Tailings Dam
Construction Contract with Armhydro for $640,000 on January 31, 1997. AGRC also
retained a Canadian engineering firm, under a contract for Engineering,
Procurement and Construction Management Services Agreement dated January 31,
1997, under which the compensation payable to the contractor under Phase I of
the project was $4,500,000, which was later increased to up to $10,000,000
Operation of the tailings processing plant commenced in February, 1998 and the
first gold bars therefrom were poured at such time. Production at the tailings
plant is continuing despite the impasse existing by virtue of the Armenian
Government's above-mentioned position with respect to the Amended Armenian Joint
Venture Agreement.
In addition, an independent engineering firm had been engaged in preparing
a definitive feasibility report with respect to the reserves at the Zod and
Meghradzor mines which the Company anticipated would be completed in the Spring
of 1998. There can be no assurance that such feasibility report will be
completed within then the next several months, although the Company is
hopeful of such result.
While the Company has been advised that proven reserves exist in the
Tailings Project (see (B)(d) Mining Plans) and that the mining thereof can be
done on a profitable basis, there can be no assurance of such result.
(c) Financing of the Armenian Mining Project - First Dynasty Mines Ltd.
Throughout 1996 and into January, 1997, the Company had discussions with
many unrelated parties in connection with arranging for the financing of the
Tailings Project. As of January 31, 1997, the Company and GGA reached an
agreement with First Dynasty Mines Ltd. ("First Dynasty"), a Canadian public
company whose shares are traded on the Toronto Stock Exchange and on NASDAQ.
Under such preliminary agreement, First Dynasty acquired the right, subject to
certain conditions, to advance funds in stages necessary for the implementation
of the Tailings Project and the preparation of engineering and business plan
materials for the remaining Armenian mining projects.
The Company, GGA and First Dynasty entered into a definitive agreement
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dated May 13, 1997 reflecting the final agreement of the parties with respect to
the above projects (the "FDM Agreement"). The principal terms of the FDM
Agreement are set forth below:
1. First Dynasty agreed to advance a maximum of $24,510,000 to GGA under
the FDM Agreement, which amounts will be advanced as debt, which is convertible
into stock of GGA, at First Dynasty's option, or is automatically converted into
such stock under certain circumstances, as described below:
(a) Upon First Dynasty's making advances of $6,490,000, such amount
will then be automatically converted into 25% of the capital stock of GGA
(which occurred in October, 1997).
(b) The next $3,520,000 of debt, together with the advance described
in 1(a) above, is convertible into 51% of the capital stock of GGA, at
First Dynasty's option.
(c) For every additional $.5 million invested for expenditures
advanced in respect of the development of the Zod and Meghradzor mines
(excluding the $10 million Tailings Project expenditure) as a loan to GGA,
such debt is convertible, at First Dynasty's option, into an additional 1%
of the capital stock of GGA, up to a maximum of 80% of the issued and
outstanding shares of capital stock of GGA. Thus, upon advancing a total
of $24,510,000 in the Armenian mining projects, First Dynasty would be
entitled to acquire 80% of the shares of GGA, if First Dynasty elects to
convert all of its debt into equity.
2. (a) Upon obtaining 80% of the capital stock of GGA or upon making
aggregate advances of $24,510,000, First Dynasty would be required to acquire
the remaining 20% of the outstanding of capital stock of GGA, within 18 months
after making such total of advances, by issuance of 4,000,000 shares of its
common stock except that such number of shares will be increased proportionately
to the extent that the mineable reserves at the Zod and Meghradzor mines (which
are established at the end of such 18-month period) exceed 5,000,000 ounces.
(b) First Dynasty further agreed to use its best efforts to issue
freely tradeable FDM shares to GGA if it is feasible to do so in connection with
a contemporaneous public offering of shares of FDM stock or, alternatively,
special warrants to acquire shares of common stock of First Dynasty without
payment therefor (each of which would be exercisable into one share of First
Dynasty common stock) in a form and substance satisfactory to all parties,
pursuant to a prospectus filed with the applicable Canadian securities
regulatory authorities.
(c) In the event of a violation of First Dynasty's obligations to pay
the Company 4,000,000 shares of its Common Stock or greater amount or to arrange
for the issuance of freely tradeable shares pursuant to the mechanisms
contemplated in the FDM Agreement, the Company would be able to require First
Dynasty to specifically perform its obligations pursuant to the grant of an
injunction or other appropriate decree of specific performance by any court
having equity jurisdiction over the parties.
3. (a) First Dynasty's agreement to continue funding under the FDM
Agreement is subject to the following conditions:
(i) all of the representations and warranties of GGA were
true as of the date of the execution and the delivery of the FDM
Agreement;
(ii) neither the Company nor GGA (prior to the actual
implementation of the appointment of First Dynasty's designees as
three directors of GGA) will have breached in any material respects
any of its covenants under the FDM Agreement, and
(iii) with respect to any advances in excess of $10,000,000 or
the issuance of any shares of First Dynasty stock, First Dynasty will
have obtained the approval of The Toronto Stock Exchange.
(b) First Dynasty right's under the FDM Agreement remain exclusive
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for so long as First Dynasty continues to fulfill its obligations under the FDM
Agreement and GGA continues to fulfill its obligations under any joint venture
agreement in Armenia, except that FDM's rights will cease to be exclusive if (i)
the Company notifies First Dynasty in writing that First Dynasty is in default
under the FDM Agreement or that GGA is in default under any Armenian joint
venture agreement and (ii) First Dynasty fails to cure such default within 45
days thereafter, but, in any event, prior to the expiration of any cure period
to which GGA is subject if First Dynasty's default results in a default by GGA
under any joint venture agreement.
4. (a) First Dynasty agreed to pay the Company $400,000 for use, at its
option, to defray its expenses in participating in the negotiation of the second
Armenian joint venture agreement, of which $200,000 was paid upon the execution
and the delivery of the FDM Agreement and the balance of $200,000 will be paid
on June 30, 1998.
(b) Although not reflected in the FDM Agreement, First Dynasty also
agreed to pay up to $150,000 to defray the expenses incurred by GGA during the
three-month period ending March 31, 1997. Such reimbursement in the amount of
$141,155 occurred in June, 1997.
5. Upon the formation of AGRC Exploration, a limited liability company to
be formed under the laws of Armenia, and ending on December 31, 2009, the
Company will be entitled to elect to participate with GGA in any exploration
projects undertaken by AGRC Exploration up to a level of 20% of GGA's rights in
any exploration project. GGA and the Company also agreed to enter into a
mutually acceptable participation agreement in respect of any exploration
project.
6. GGA agreed to retain Robert A. Garrison as a consultant for a
three-year period commencing February 1, 1997 pursuant to the terms of the
consulting agreement entered into between such parties. Under such agreement,
Mr. Garrison will serve as a Senior Vice President of GGA, will assist it in
furtherance of its business interests under the supervision of the board of
directors of GGA and provide ongoing management as the board of directors of GGA
reasonably requests of him from time to time. Mr. Garrison agreed to devote 50%
of his time and attention to the performance of his services under such
agreement, in his capacity as an independent contractor. Such agreement is
terminable by the consultant upon 90 days prior written notice to GGA (or lesser
notice if GGA agrees to such shorter period) or for cause (as defined therein)
or without cause, which, in such latter case, would require GGA to pay Mr.
Garrison the amount of his consulting fees remaining unpaid under such
agreement.
7. The parties also entered into a shareholders agreement providing for,
among other things, the following:
(a) From the inception of the agreement and until First Dynasty shall
acquire 80% of the issued and outstanding common stock of GGA, First
Dynasty's designees serve as three of the five directors of GGA, including
Marcus Randolph, the President of First Dynasty, and Drury J. Gallagher and
Robert A. Garrison, the Company's Chairman and Chief Executive Officer and
the President and Chief Operating Officer, respectively, serve as the
Company's designees. If the size of the board is increased thereafter,
each party will have the right to designate such number of its designees as
members as the board of directors as shall be proportionate to the number
of designees established under such agreement. As a result of this
provision, First Dynasty now controls the board of directors of GGA.
(b) The board of directors of GGA will act by the vote of majority of
its members, except that the unanimous vote of the board is required to
take action on the following matters:
(i) the sale, lease or any disposition of substantially all
of the assets of GGA;
(ii) the sale or assignment of any interest of GGA in any
joint venture company in which GGA is a shareholder or equity
participant or has provided financing in excess of $250,000 or
(iii) the financing of any of the projects contemplated under
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the FDM Agreement other than when such financing is provided solely by
FDM.
(c) In the event that the FDM Agreement becomes non-exclusive
pursuant to the provisions thereof, then First Dynasty shall have the right
to designate only one director of GGA, the Company shall have right to
designate one director of GGA and the party or parties who provide
financing required under the then applicable provisions of the contemplated
second Armenian joint venture agreement will have the right to appoint
three designees to the board of directors of GGA, simultaneously with the
execution and delivery of any financing agreement relating thereto or upon
the payment of the first funding thereunder (and the Company will have the
right to participate in the financing described in such provision).
(d) Each party cannot sell, transfer or pledge its shares of
ordinary shares of GGA, except that each party may transfer its interest to
a corporation, partnership or limited liability company which is wholly
owned by the transferring party. During the period that First Dynasty
rights under the FDM Agreement remain exclusive, neither shareholder has
any right to sell or transfer the shares of GGA stock owned by it.
Furthermore, if a stockholder receives a bona fide offer to sell its GGA's
shares, GGA and thereafter the non-selling stockholder has the right to
purchase the stock in question at the offered price, each for successive
30-day periods. If such right of first refusal is exercised, the purchaser
is required to pay the full purchase price in immediately available funds
or by wire transfer. Alternatively, the non-selling shareholder may
exercise so-called tag along rights and participate on a pro rata basis in
the sale of shares of GGA of both the recipient of the offer and the
non-selling shareholder to the offeror. If such right of first refusal or
tag along right is not exercised, than the seller may sell its shares of
GGA to the offeror on the terms described in the offer within 120 days
after receipt of such offer and provided further that such third party
signs an instrument in writing agreeing to be bound by all of the terms and
conditions of the stockholders agreement.
The Company, GGA and FDM amended the shareholders agreement, as of May 13,
1997, to provide, among other things, that it will be governed by the New York
(instead of Cayman Islands) law.
8. Each party is entitled to engage in any other activities or business
or mining or other investments outside of Armenia and will not be required to
account to any other party for any profits derived from such permitted
activities, businesses or investments.
Pursuant to the First Dynasty Agreement, First Dynasty carried out certain
initial commitments described below:
a. First Dynasty loaned $1,350,000 to GGA in two installments of
$675,000 each to repay such amount of payables attributable to GGA and such
amounts were disbursed according to the agreement.
b. Upon the signing of the $640,000 Tailings Dams construction
contract with Armhydro, First Dynasty funded $96,000, and, thereafter,
First Dynasty has agreed to fund the balance.
c. First Dynasty agreed to guarantee or co-sign for up to $3,500,000
of the equipment purchase contract and up to $1,000,000 of the engineering,
procurement, construction management agreement between AGRC and a Canadian
engineering firm. Also, First Dynasty agreed to advance funding for
expenditures thereunder as jointly agreed by the Company and First Dynasty
from time to time, subject to certain cancellation provisions agreed to by
First Dynasty.
As of December 31, 1997, First Dynasty had advanced at least $17,510,000 in
total project costs, of which approximately $12,800,000 related to the
construction and start-up of the tailings plant, approximately $3,700,000
related to the Zod and Meghradzor feasibility report and $1,000,000 consisted of
a loan to Armgold for operating costs, and became the owner of 66 2/3s of the
issued and outstanding stock of GGA as of such date.
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(d) MINING PLANS
GGA, in conjunction with First Dynasty, negotiated with the Armenian
Government to obtain for AGRC the rights to mine and process gold at the Zod and
Meghradzor mines on a schedule which is faster than anticipated by the May 1,
1996 Joint Venture Agreement, which culminated in the execution and the delivery
of the Amended Armenian Joint Venture Agreement, subject to the prior approval
thereof by an Armenian parliamentary decree. In addition, GGA engaged an
independent engineering firm to conduct a feasibility report with respect to the
reserves at such mines, and production is continuing at the tailings plant.
The gold mine in Zod, one of the world's larger gold mines, has been in
operation since about 1975. The mine has a structure of over 5 kilometers in
length; only 2 kilometers of the gold structure has been explored and tested,
and reserves have been established by Armenia and Russian geologists. Zod is
located in eastern Armenia within fifteen kilometers of the Soviet border
between Armenia and Azerbaijan according to various maps. The de facto border is
substantially farther away and the Armenian Government has represented that it
has good title to the mine. The Azerbaijan Government has recently stated that
it had sent notes of protest to the U.S. Embassy in Armenia questioning the
appropriateness of an American company carrying on activities so close to
occupied territories at the Zod mine. The U.S. Embassy has no record of receipt
of such protests. Engineering studies undertaken by the Government of Armenia
state that there are proven gold reserves of approximately 5,000,000 ounces of
gold. In addition, a pre-feasibility report recently undertaken on behalf of
AGRC confirmed that there are at least a total of 3,000,000 ounces of gold
(based on a specified grade per ton of ore) at the Zod and Meghradzor mines
which can be economically mined at current gold prices and mining costs
(although such prices and costs may change). However, there can be no assurance
that reserves in such amount will finally be determined to exist, or, if they
exist, can be mined on a profitable basis.
The ore at Zod has been mined historically by open pit and underground
methods. The ore from the mine site has been shipped to the Ararat processing
plant located approximately 275 kilometers from the mine site. Mining had been
conducted at the Zod mine site at an average annual rate before 1996 of
approximately 60,000 tonnes of ore per year by both underground and open-cut
operations, but such mining operations ceased in November, 1996 due to lack of
funding. The Company believes that such average tonnage constitutes less than
the mine's capacity.
The Meghradzor mine is situated in Central Armenia some 75 kilometers
north of Yerevan. The mine has produced approximately 300,000 tonnes of ore
since commencing production in 1987. The ore produced by the mine is hauled by
railroad approximately 100 kilometers to the Ararat treatment plant. Like Zod,
Meghradzor has the benefit of excellent regional infrastructure including sealed
road and railroad access to the site and connection to the Armenian power grid.
The mine is closed due to many similar issues which face the Zod mine including
low re-investment, poor equipment availability, lack of consumables and the high
costs associated with railing of crude ore to Ararat.
As with Zod, underground exploration has been accomplished by extensive
underground mine development in addition to drilling, with the result that over
60 kilometers of underground workings exist.
Engineering studies undertaken by the Government of Armenia state that
there are proven gold reserves of approximately 700,000 ounces of gold. However,
no final feasibility report has been prepared. Accordingly, there can be no
assurance that reserves in such amount exist will finally be determined to
exist, or, if they exist, can be mined on a profitable basis.
Based on projections furnished by independent engineering firms, the
Company believed that approximately $10,000,000 is needed in the first phase of
the project, $80,000,000 in the second phase of the project and $100,000,000 in
the third phase of the project. The funds for the first phase (which exceeded
the original estimate) were used primarily to construct a new tailings
processing plant. The funds for the second phase would be used to
construct a new processing plant at the Zod mine site
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with a capacity of processing 1,000,000 metric tonnes per year and to redesign
the mine. Of the sum of $100,000,000 for the third phase, $60,000,000 would be
used to increase the capacity of the Zod processing plant to 2,500,000 metric
tonnes per year. The additional $35,000,000 in phase three is proposed to be
used to construct a processing plant at the Meghradzor mine with a capacity of
processing 200,000 metric tonnes per year. Also, an additional $5,000,000 on
phase three is proposed to be used to build a gold refinery in Armenia with a
capacity of refining 300,000 ounces of gold annually. However, since the Company
has not conducted any final feasibility study with respect to these projects,
the ultimate financing needs for these projects might vary substantially from
that set forth above.
(C) Georgia Mining Project
(a) Current Status
As of December 31, 1997, the Company abandoned its pursuit of any
mining project in Georgia. The material set forth herein describes the prior
background with respect to the development of a gold and mining project in such
country.
(b) Prior Background
Pursuant to the Asset Purchase Agreement between Eyre Resources N.L.
("Eyre") and the Company dated as of June 30, 1995 (the "Agreement"), the
Company, through its wholly-owned subsidiary, Global Gold Georgia Limited,
succeeded by an assignment dated December 1, 1995 to all of Eyre's rights in the
Georgian Project (as defined therein, as further described in Item 12 hereof).
Eyre signed a Foundation Agreement(3), dated April 22, 1995, together with
the charter of the
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(3) The Foundation Agreement provided that:
1. Eyre was to have a 50% interest in the GJV Co.
2. RCPA was to contribute buildings and equipment and certain rights
under its license for development of the Madneuli deposit and pay the expenses
of formation of the GJV Co. and provide and guarantee access to ore material and
relevant information.
3. The Company or its wholly-owned subsidiary, upon the assignment
of Eyre's interest in the Foundation Agreement, was to provide capital
investments, management, control, engineering, construction and other technical,
marketing and other services.
4. Contributions to the Charter Fund were to be $10,000, to be made
by the Company or its wholly-owned subsidiary upon the assignment by Eyre of its
joint venture interest to it and be deemed to be a contribution of 50% by the
parties to the Foundation Agreement.
5. The Foundation Agreement provided for management of the GJV Co.
pursuant to a Board of Directors of four individuals, two of which were to be
designated by each party, with the Chairman to be appointed by the majority
shareholder.
6. Prior to recovery of capital by the non-Georgian party, net
profits of the GJV Co. after expenses were to be distributed as follows:
(i) RCPA - 9.75%
(ii) The Company - 9.75%
(iii) Panquest - .25%
(iv) Sinking Fund - .25%, and
(v) Capital Repayments - 80%.
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7. After recovery of capital, the net profits were to be distributed
as follows:
(i) RCPA - according to shareholdings (i.e. share of the
Foundation Fund, which shares could be changed only by unanimous vote of the
participants), less 2.5% to the Sinking Fund, and
(ii) The Company (or its wholly-owned subsidiary) - according
to shareholdings less 2.5% to Panquest.
8. The GJV Co. was to be entitled to certain tax concessions
provided to certain foreign investments. The limited liability company to be
formed (the "Foundation Agreement"), with Research-Cum-Production Amalgamation
"Madneuli" ("RCPA"), a legal entity formed under Georgian legislation, pursuant
to which the parties agreed to the formation of a joint venture limited
liability company called "Madneuli Copper Gold J.V." (the "GJV Co.") under
Georgian law to carry out the mining of the Madneuli deposits(4) and apply
modern mining techniques in Georgia, including carrying out prospecting
activities, together with certain unrelated activities that the Company
currently has no plans to implement.
9. Disputes arising under the Foundation Agreement were to be
subject to arbitration at the Arbitration Court in Stockholm, Sweden.
Legislation enacted by the Government of Georgia in 1995 required that the
license under which certain rights will be granted to the GJV Co. pursuant to
the Foundation Agreement to be re-registered with a newly-created licensing
bureau of the Ministry of Environmental Protection. The bureau in question
reviews the prior license and determines whether it was legally issued. If the
license holder fails to re-register, the license will be suspended until
re-registration occurs, which may result in the permanent suspension of the
license. However, no application for the re-registration of the license in
question was filed by Eyre. The director of RCPA who signed the Foundation
Agreement was removed from his position. Moreover, under newly enacted law, in
connection with re-registration of licenses, concessions may have to be obtained
from the Government of Georgia. Such concessions would be the subject of a
concessional contract requiring certain terms required under the new law.
As of the date hereof, neither the Company or Global Gold Georgia Limited
has any rights to the Madneuli mining project. The Company learned in early 1997
that the Georgian Government planned to privatize the development of the
Madneuli mine through a public bidding process which was slated to end on April
15, 1997. Since the structure of the Madneuli mining project under the public
tender differs markedly from that contemplated under the Asset Purchase
Agreement between the Company and Eyre dated as of June 30, 1995, the Company
decided not to submit a bid for the development of the Madneuli mining project.
As a result of these and other unfavorable developments, the Company
abandoned the Georgian mining project as of December 31, 1997.
(D) Recent Activities
(a) Investment in Jet-Line Environmental Services, Inc.; Restructuring of
Investment
Jet-Line Environmental Services, Inc. ("Jet-Line") is a privately-held
Delaware corporation organized in 1970, and is engaged in providing various
environmental clean-up services for a variety of customers, including fuel
service, laboratory services, disposable services, transportation and safety and
compliance services. A copy of Jet-Line's compiled and unaudited financial
statement for the calendar year ended December 31, 1996 showed a loss of
approximately $377,000 for such year. The Company further believes that
Jet-Line incurred an operating loss for the year ended December 31, 1997 but has
not received a financial statement to such effect.
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(4) The Madneuli deposit has been in operation since about 1975, and is
located approximately 75 kilometers to the southwest of Tiblisi, the capital of
Georgia. The ore body at Madneuli was discovered in 1952 and exploration
continued until production commenced in 1975.
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On April 21, 1993, the Company loaned $300,000 to Jet-Line, which is
evidenced by Jet-Line's promissory note that is convertible into 20% of
Jet-Line's common stock, and 25% of its common stock upon the payment (upon
conversion) to Jet-Line of $37,500, at the option of the Company, and 30% of its
common stock upon the payment (upon conversion) to Jet-Line of $100,000, at the
Company's option, as provided therein (the "Jet-Line Note"). The Jet-Line Note,
which matured on April 21, 1996 and which was restructured on May 13, 1996, had
initially been secured by a pledge of transportation equipment and machinery and
equipment used in Jet-Line's business and a purported Jet-Line owned warehouse
and office laboratory building totaling 22,500 square feet located on one acre
of land. The total appraisal value of the assets when made in part in December,
1992 and in part in early 1993 was in excess of a total of $1,500,000, but the
Company believes that the fair market value of such collateral at present is
negligible. Prior to such transaction, Jet-Line had no affiliation of any kind
with the Company or its stockholders.
Since Jet-Line experienced operating losses, and lacked adequate liquid
resources, Jet-Line defaulted under the May 13, 1996 loan extension agreement
between the parties. In addition, Jet-Line advised the Company in early March,
1997 that it received a notice of the revocation of its license to operate its
business in Massachusetts, and of a $100,000 fine, from the Massachusetts
environmental authorities, and Jet-Line contested such revocation and fine in
the Massachusetts state courts unsuccessfully. Jet-Line then attempted to sell
its facility in Massachusetts but could not do so. As a result, the
Massachusetts environmental authorities ordered the waste treatment facility in
Stoughton, Massachusetts to be closed and assumed the environmental clean-up
responsibility at the plant.
In addition, the Business Loan Center, another creditor of Jet Line, is now
attempting to sell certain trailer and other automotive assets of Jet-Line in
which it holds a security interest, and anticipates realizing between $30,000
and $40,000 from such sale. Such creditor advised the Company that it believes
that such creditor has senior rights to the assets being sold. The Business
Loan Center made a U.S. Small Business Administration guaranteed loan of
approximately $550,000 to Jet-Line in 1994 and obtained a first lien on certain
enumerated assets of Jet-Line, and the Company at such time subordinated its
lien thereto, except with respect to certain machinery and equipment assets as
to which the Company retained its first security interest. The Company is
currently disputing the Business Loan Center's position that such creditor has a
senior security interest in the assets being sold, but there can be no assurance
as to the outcome thereof. Moreover, the Company believes that the value of the
assets held by it as collateral is negligible.
Thus, there can be no assurance that the Company will ultimately be paid
any amount of principal, or accrued interest on, the Jet-Line Note.
Consequently, the Company treated such loan as worthless as of December 31,
1997.
(b) Offering of Convertible Notes of the Company
Pursuant to the Confidential Private Offering Memorandum dated May 17,
1995, as amended, the Company sold the maximum of $500,000 principal amount of
its 10% Convertible Notes, which had a maturity date of September 30, 1996 (the
"Offering"). The Offering of Convertible Notes, Warrants and Common Stock was
offered pursuant to the Memorandum solely to persons who are "accredited
investors" as defined in Regulation D promulgated under the Securities Act of
1933, as amended (the "Securities Act"), in a transaction exempt from
registration thereunder. The final date of the closing of the Offering was
December 31, 1995.
The Company undertook the Offering in order to raise additional funds for
the Company to enable it to engage in the development and commercial
exploitation of the Armenian and Georgian mining projects, in an attempt to
generate a potential and substantial asset base and potential future
profitability for the Company as part of the Company's long-term strategy to
develop profitable mining operations abroad.
All of the $500,000 principal amount of Convertible Notes was
automatically converted pursuant to their terms into an aggregate of 2,000,000
shares of Common Stock (prior to the Reverse Split) and warrants to purchase
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4,000,000 shares of the Company's Common Stock (prior to the Reverse Split), at
an exercise price of $0.50 per share (the "Warrants"). As of December 31, 1997,
there were Warrants to purchase 400,000 shares of the Company's Common Stock
issued and outstanding. As to the Warrants, each Warrant now has an exercise
price of $.125 per share and expires on December 31, 1998 pursuant to several
amendments made thereto, including the one made on December 1, 1997 extending
the expiration date as shown above and reducing the exercise price thereof to
$.125 per share.
Since all of the automatic conversion conditions were satisfied in 1995,
there were no Convertible Notes of the Company outstanding as of December 31,
1995 or thereafter.
(c) Reverse Split
Various prospective investment banking firms and potential investors who
expressed an interest in providing funding for the Company's projects in 1996
requested that the Company undertake a reverse split of its Common Stock to
decrease the number of shares outstanding and thereby facilitate possible future
financings. Accordingly, the Company effected a 1 for 10 reverse split of its
common stock effective as of December 31, 1996. Such step was taken by the
written consent of the holders of a majority of the Company's issued and
outstanding shares of Common Stock. By virtue of the Reverse Split, each
stockholder's number of shares of Common Stock became 1/10th of the number
previously held. The Company filed its Certificate of Amendment to the
Certificate of Corporation with respect to the reverse split with the Delaware
Secretary of State on December 31, 1996.
(d) Employees.
As of December 31, 1997, the Company had two employees, one employee
who is in charge of the overall business of the Company on a part-time basis,
and one consultant who is principally involved in overseeing the Company's
proposed mining activities on a part-time basis, and one employee who
provide administrative and clerical services on a part-time basis.
(E) Special Considerations
The following risk factors should be considered in connection with an
evaluation of the business of the Company:
No Prior Operating History; Failure to File Reports with the SEC
The Company was incorporated on February 21, 1980, and closed a public
offering of the Common Stock in January, 1981. Several months after the closing
of such offering, the Company withdrew the listing of the Common Stock for
trading on NASDAQ because of the theft of substantially all of the cash funds of
the Company derived from the proceeds of the public offering by its then
president, Samuel McNell in July, 1981. After the consummation of the public
offering, the Company failed to file any further annual or periodic reports
required under the Exchange Act. While the Company filed its Form 10-KSB for the
calendar years 1994 and 1995 and its Form 10-QSB commencing with the quarter
ended March 31, 1995 and each quarter thereafter through and including
September 30, 1997 and filed audited financial statements with the Form 10-KSB
for calendar year 1994 covering calendar years 1987, 1988, 1989, 1990, 1992,
1993 and 1994, and covering calendar years 1995 and 1996 with the Form 10-KSB
filed for each such year, there can be no assurance that the SEC might not
assert claims against the Company and its present and former directors and
officers, which actions might adversely affect the future conduct of the
Company's business or prevent the future trading of the Company's stock on
public markets. Furthermore, the Company's past failure to file reports with the
SEC may have an adverse impact on the Company's ability to have the shares of
Common Stock listed for trading on NASDAQ in the event that the Company is
otherwise able to meet the NASDAQ Stock Market listing standards in the future.
Development Stage Company
Since the Company never engaged in the active of conduct of a trade or
business, it has not generated any revenues to date, with the exception of
interest income on the funds recovered by the Company it in the lawsuits
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prosecuted by it as a result of the theft of the Company's funds. The Company
may encounter problems, delays, expenses and difficulties typically encountered
in the development stage, many of which may be outside of the Company's control.
These include, without limitation, unanticipated problems and additional cost
relating to the development, production, marketing, and competition. The Company
expects to incur operating losses for the near term future and, in any event,
until such time as it derives substantial revenues from the sale of concentrates
containing gold, if any. There can be no assurance that the Company
will develop successful operations.
Although the Company, GGA and First Dynasty have a definitive agreement
covering the development of the contemplated Armenian mining projects, there can
be no assurance that such parties will be able to obtain the requisite full
financing needed for the projects, or, if so, on terms acceptable to them.
Need for Additional Cash
The Company needs substantial additional funds to develop the mining
projects in Armenia and to fund the operations thereof. If the Company raises no
additional financing either through First Dynasty or otherwise, the Company
still may be able to exploit certain opportunities to develop gold projects in
Armenia through the sale thereof. Although the Company believes that such an
opportunity is a valuable asset, there can be no assurance of such result. If
the Amended Armenian Joint Venture Agreement is not implemented by the Armenian
Government, the Company and First Dynasty may be forced to sell its interest in
such project in Armenia to other potentially interested parties. Moreover, there
can be no assurance that any financing for the Armenian projects will be
available for such purposes or that such financing, if available, would be on
terms favorable or acceptable to the Company.
Lack of Definitive Nature of the Company's Contracts for the Armenian Mining
Projects and Cessation of Pursuit of any Georgian Mining Project
At present, the Company and GGA, in conjunction with First Dynasty,
negotiated for AGRC to develop the Zod and Meghradzor mines and concluded the
Amended Armenian Joint Venture Agreement, subject to the passage of a
parliamentary decree approving it. However, the Armenian government has not
passed any such parliamentary decree. Moreover, there can be no assurance that
any Armenian parliamentary decree approving the Amended Armenian Joint Venture
Agreement will be passed, or, if so, when such decree will be passed. While the
Company is hopeful of achieving such result, there can be no assurance of such
result.
As of December 31, 1997, the Company ceased pursuing the development of any
Georgian mining project.
Lack of Adequate Insurance Protection of the Company's Potential
Investments in Armenia
The Company plans to obtain insurance from Multilateral Investment
Guarantee Agency ("MIGA") or other like organization to insure any ownership it
may have in the Armenian mining projects against three risks: expropriation,
inconvertibility of currency and acts of war, unrest or riots in the country.
MIGA typically issues insurance commitments equal to the amount representing the
original investment, debt on the project and retained earnings with respect
thereto. If obtained, such insurance will not provide complete and adequate
protection for any investment the Company may make in such countries. Moreover,
there can be no assurance that such insurance will be available, or, if so, will
be available on terms and conditions satisfactory to the Company.
Prices of Materials
Since the Company's future projected revenues will be derived almost
entirely from the sale of concentrates containing gold, the Company's future
earnings, if any, will be directly related to market prices for gold. The prices
for such commodity has historically fluctuated widely and are affected by
numerous factors beyond the Company's control. There can be no assurance that
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the Company can enter into any price protection program adequate to prevent any
potential loss from such fluctuation.
Reserves
While the Company believes that, based on geology reports and mine
engineering data made available by Armenian state enterprises, there are
substantial proved reserves in the Armenian mining projects, it should be noted
that any such quantities may not actually be realized by the Company. Moreover,
except in the case of the provable reserves verified in the case of the Tailings
Project, any reserves pertaining to the other contemplated Armenian mining
projects have only been independently verified by the Company through a
pre-feasibility report, although an engineering firm had been engaged to prepare
a definitive feasibility report with respect to the Zod and Meghradzor mines.
The deposits from which such reserves are presently being or are expected to be
produced or developed may not conform to geological or other expectations, with
the result that the volume and grade of reserves recovered and the rates of
production may be more or less than anticipated.
Further, market price fluctuations in gold and changes in operating and capital
costs may render certain ore reserves uneconomical to develop. No assurance can
be given that any reserves proved or estimated will actually be produced.
Location and Industry Risks
The Company's proposed mining operations will be subject to a variety of
potential engineering, seismic and other risks, some of which can not be
predicted. Such factors may cause personal injury to personnel at the projects
or critical property damage or significant interruptions to production, and may
not be covered by insurance. The mines may also be subject to the usual risks
encountered in the mining industry, including unexpected geological conditions
resulting in cave-ins, flooding and rock-bursts and unexpected changes in rock
stability conditions. While it is contemplated that customary insurance will be
obtained, there can be no assurance that such insurance will provide adequate
protection against any or all of the risks in question. Also, the Company's
proposed mining operations may encounter problems in transporting any
concentrates to potential markets (including obtaining requisite governmental
approvals and licenses) and conducting mining activities as a result of lack of
fuel, electricity, water, equipment, spare parts or other necessary items.
Environmental Matters
While the Company intends to conduct its foreign mining operations in
compliance with all relevant environmental laws, rules and regulations of the
host countries, there can be no assurance that such laws, rules and regulations
will not be violated. Moreover, such operations are subject to the risk of any
future environmental laws, rules and regulations that the foreign countries or
subdivisions therein might impose, which could involve potentially onerous
restrictions on mining operations and significant increased operating and
engineering costs. The impact of any such possible changes cannot be predicted.
Holding Company Structure
The Company is a holding company which will conduct its business through
subsidiaries. As a result, the Company's cash flow and consequent ability to
make dividend payments and meet its debt obligations are primarily dependent
upon the earnings of its subsidiaries and on dividends and other payments
therefrom. Any right of the Company to participate in any distribution of the
assets of its subsidiaries upon the liquidation, reorganization or insolvency of
such subsidiaries would, with certain exceptions, be subject to the claims of
the creditors (including trade creditors) and preferred stockholders, if any, of
such subsidiaries, or may otherwise be restricted by virtue of a stockholder
agreement with respect thereto.
Competition
There is intense competition in the mining industry. If the Company does
engage in its proposed mining activities, it will be competing with larger
mining companies, many of which have substantially greater financial strength,
capital, marketing and personnel resources than those possessed by the Company.
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Need for Key Personnel
The Company presently only has one officer intimately familiar with the
operation of mining projects or the development of such projects. While the
Company originally intended to rely on the management services to be provided by
a newly-formed mining management corporation, which had no history of
operations, Autosport (Asia) Pte. Ltd., a Singapore corporation controlled by
Eyre Resources, N.L.("Eyre") to supervise the mining development services on
behalf of the Company pursuant to a mining supervision contract signed at the
Eyre Closing, such agreement was canceled pursuant to the terms of the Initial
Restructuring Agreement. Accordingly, the Company planned to rely on the
services of independent mining enterprises which will have a future interest in
the development of any mining project, and, through the FDM Agreement, is
relying on First Dynasty for such purpose. However, there can be no assurance
that First Dynasty or any other any mining management corporation will have
adequate resources or personnel to perform such function. Although the Company
believes that such management services which may be provided by such independent
mining company will be adequate to protect the Company's interest in, and
oversee the day-to-day operation of, the mining projects, there can be no
assurance of such result. While the Company does not believe the loss of its
president or any other director or officer of the Company will materially and
adversely affect its long-term business prospects, the loss of any of the
Company's senior personnel might potentially adversely affect the Company until
a suitable replacement could be found. While the Company has an employment
agreement with one of its officers, Drury J. Gallagher, such agreement is only
for a three-year term which expires on June 30, 2000. There can be no
assurance that such agreements will be renewed or, if renewed, will be on
terms mutually acceptable to all parties.
Failure to Satisfy Nasdaq Listing Rules
Effective in August, 1991, the SEC approved the adoption by the NASDAQ
Stock Market of new maintenance standards for companies whose securities are
traded on NASDAQ. Under these new standards, among other things, a corporation
must have $4 million in total assets and $2 million in capital and surplus and a
minimum bid price of $3.00 per share in order to be eligible for a Nasdaq
listing. At December 31, 1997, the Company had total assets of approximately
$266,345 and stockholders' equity of $105,856. Without increases in assets and
capital surplus, the Company may not be able to be eligible to have its
securities traded on NASDAQ. Moreover, recent regulations issued by NASDAQ have
increased the thresholds that have to be met in order for a security to be
traded initially on the NASDAQ Small Cap and National Markets, which may
adversely the Company's ability to have its common stock traded on the NASDAQ
Small Cap or National Markets. Furthermore, the Company could experience
difficulties in commencing the trading of its securities on NASDAQ. If the
Company is unable to have its securities traded on NASDAQ, its securities will
continue to be eligible for trading on the NASDAQ bulletin board, although the
market for shares of the Company's Common Stock may be reduced and, hence, the
liquidity of the shares of Common Stock and/or the Warrants may be reduced.
Restrictions on Transfer
Pursuant to the Stockholders Agreement, the then current five principal
holders of the Company's Common Stock, Messrs. Gallagher, Hayman, Hayman, and
Ryan and the Seitz Family Limited Partnership agreed not to sell the shares of
Common Stock owned by them for a period of 24 months following the date of the
final closing of the Offering (i.e., until December 31, 1997), except they each
have the right to pledge a portion of their shares and to make transfers within
their family or to certain family-controlled entities. In addition, Eyre and the
Parry-Beaumont Trust also agreed not to sell, pursuant to the Stockholders
Agreements, the 600,000 and 400,000 shares of the Company's Common Stock owned
by them (after implementation of the Initial Restructuring Agreement) for a
period of 24 months from the date of the final closing of the Offering (i.e.,
until December 31, 1997), except that they each have the right to sell 150,000
shares to non-United States persons (as defined under the Act) (all of which
numbers have been computed after the Reverse Split). Moreover, each purchaser of
Convertible Notes pursuant to the Offering also agreed not to sell the Common
Stock issuable upon the conversion of the Convertible Notes or upon the exercise
of the Warrants issued pursuant to such conversion for a period of 24 months
from the date of the final closing of the Offering (i.e., until December 31,
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1997). Upon the expiration of such restrictions, which occurred, up to 367,048
shares of Common Stock held by the five major existing shareholders, 600,000
shares of Common Stock held by the purchasers of the Convertible Notes (assuming
all the Warrants issued upon the prior automatic conversion thereof are
exercised in full) and 1,000,000 shares issued to Eyre and the Parry-Beaumont
Trust or a total of 1,967,048 (all computed after the Reverse Split), may
potentially be available for sale under Rule 144, subject in some cases to a
certain volume limitation. No prediction can be made as to the effect, if any,
that future sales of Common Stock or the availability of such shares for sale
will have on the market price of the Common Stock or the Warrants prevailing
from time to time. Sales of substantial shares of the Common Stock or the
Warrants, or the perception that such sales might occur, could adversely affect
the prevailing market price of the Common Stock or the Warrants.
No Dividends
The Company currently anticipates that it will retain all of its future
earnings, if any, for use in the expansion and operation of its proposed mining
business, and does not anticipate paying any cash dividends for the near term
future. There can be no assurance that the Company will pay cash dividends at
any time, or that the failure to pay dividends for period of time will not
adversely affect the market price for the Company's Common Stock.
Control of the Company
Drury J. Gallagher, the Chairman and Chief Executive Officer, and Robert
A. Garrison, the President and Chief Operating Officer, currently own 1,108,451
and 1,000,000 shares, respectively, or a total of 2,108,451 shares of the
Company's Common Stock issued and outstanding as of December 31, 1997. In
addition, Eyre and the Parry-Beaumont Trust own 600,000 and 400,000 shares of
Common Stock, respectively, as of such date. If Messrs. Gallagher and Garrison
act in concert they only control 49% of the issued and outstanding Common Stock
of the Company. However, if they act in concert together with the owner or
owners holding slightly more than 1% in total of the Company's Common Stock
issued and outstanding, they will be able to effectively determine the vote on
any matter being voted on by the Company's stockholders, including the election
of directors and any merger, sale of assets or other change in control of the
Company. In such case, such group would own more than 2,174,057 of the
4,348,114 shares of Common Stock outstanding as of December 31, 1997, or more
than 50% of the issued and outstanding shares of the Company's Common Stock. The
same result wold follow if Messrs. Gallagher and Garrison acted in concert with
Eyre and the Parry-Beaumont Trust.
Disagreement Among Significant Shareholders - Litigation
In February, March and April, 1997, Eyre and the Parry-Beaumont Trust
questioned the validity of the issuance by the Company of 1,000,000 shares of
its Common Stock to each of Messrs. Drury J. Gallagher and Robert A. Garrison.
In addition, in February, March and April, 1997, Eyre and the Parry-Beaumont
Trust questioned the validity of the Second Restructuring Agreement (as defined
in Item 12(B)), including, without limitation, the waiver of their Acquisition
Warrants to purchase 400,000 shares of the Company's Common Stock (computed
after the Reverse Split). For a further description of the Second Restructuring
Agreement and such transfers, see Item 12(B) hereof.
In January, 1998, the Company brought an action against Eyre, the
Parry-Beaumont Trust and Kevin Parry, individually, in the United States
District Court for the Southern District of New York, bearing Docket No. 98 Civ.
0009, seeking damages in excess of $81,000,000 arising out of the alleged fraud
committed by the defendants.
The defendants denied such claims and asserted counterclaims against the
Company seeking damages in an underdetermined amount against the Company and
seeking a declaratory judgment voiding the Second Restructuring Agreement (as
defined herein in Section 12(A)). In addition, Eyre and the Parry-Beaumont
Trust brought a third-party complaint against Drury J. Gallagher and Robert A.,
Garrison, individually, seeking, among other things, damages in excess of
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$75,000 and directing Mr. and Mrs. Garrison to return the 2,000,000 shares of
the Company's Common Stock issued to them by the Company in January, 1997.
The Company believes that the Company properly issued the shares
of its Common Stock to Messrs. Gallagher and Garrison in exchange for valuable
consideration and that the claim of invalidity of such action has no merit.
Furthermore, the Company believes that the Second Restructuring Agreement is
valid, that Eyre and the Parry-Beaumont Trust waived their rights covered
thereby and that any claim of invalidity with respect thereto has no merit. The
Company intends to prosecute such litigation to completion. However, there can
be no assurance as to the outcome of the above litigation between the parties.
Political, Economic and Other Factors
(a) General.
The value of the Company's assets may be adversely affected by political,
economic, social factors and changes in law or regulations of Armenia or other
nearby countries and the status of foreign relations of those countries.
Developments in the respective regions of operations may also affect the value
of the Company's assets. Despite privatization programs that have been
implemented in Armenia, the Government of Armenia has exercised and continues to
exercise significant influence over many aspects of the local economy, and the
number of public sector enterprises in that country is substantial.
Governments and their economic policies may have an unpredictable impact on the
economies of these countries and the mining projects proposed to be undertaken
there. Future actions by the Government of Armenia could have a significant
effect on the market conditions, the mining projects proposed to be undertaken
by the Company and the local economies.
The economy of Armenia was tightly controlled by a Communist government
and composed almost exclusively of state-owned enterprises until 1991. Since
then, the Government of Armenia implemented economic structural reform programs
with the objective of liberalizing their exchange and trade policies,
privatizing state-owned companies, controlling inflation, promoting sound
monetary and fiscal policy, reforming the financial sector, and placing greater
reliance on market mechanisms to direct economic activity. A significant
component of the program is the promotion of foreign investment in key areas of
the economy and the further development of the private sector. There can be no
assurance that the economic reforms will persist, and any reversal thereof by
the current or any future Government of Armenia could adversely affect the
Company's proposed mining projects there.
Adverse developments in one major sector of the economy of Armenia could
adversely affect the economy as a whole. In addition, the Armenian economy
generally is dependent upon international trade and have been and may continue
to be adversely affected by trade barriers and other protectionist measures,
exchange controls and relative currency values. These economies may also be
adversely affected by economic or political developments in or controversies
with neighboring countries and major trading partners. The economy of Armenia is
heavily dependent on Russia and other neighboring members of the Commonwealth of
Independent States. Political or economic difficulties in these states continue
to result in difficulties in Armenia, which adversely affect the economic
stability of that country and, consequently, the Company's proposed mining
projects there.
(b) Political Instability, Civil Unrest, Expropriation and
Inconvertibility of Currency
At present, Armenia and Georgia are experiencing civil unrest in regions,
which could adversely affect the mining projects proposed to be undertaken by
the Company in Armenia. The continuing armed conflicts in the regions
may hinder, delay or make commercially impractical or impossible the development
and production of mining in those countries. Conflicts in the region exist,
particularly over the disputed territory of Nagorno-Karabakh for more than eight
years, over Abkhazia in Georgia more than three years, and over Chechnya more
than two years, and have occasionally resulted in attacks on and damage to
transportation corridors and gas and oil pipelines. Due to the significant risks
surrounding the volatile political situation and the shipment of goods to both
countries, investors bear the risk of project delays, including the commencement
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of the further development of potential commercial operations.
In addition, there can be no assurance that Armenia will not adopt
policies adversely affecting the Company's proposed mining projects.
Lastly, there can be no assurance that the Company's proposed investments would
not be expropriated, nationalized or otherwise confiscated or that the
currency of Armenia would not become inconvertible or that unanticipated taxes
or other export duties would not be imposed, such as those investors experienced
by foreign-owned oil and gas projects in Russia.
(c) Exchange Controls; Export Restrictions
The ability of the Company to repatriate investment income, capital and
proceeds of sales realized from gold concentrates or from its investments in
Armenia is subject to regulation by government authorities of that country.
There can be no assurance that the Armenian Government will not, whether for
purposes of managing their respective balance of payments or for other reasons,
impose additional restrictions in the future on foreign capital remittances
abroad or otherwise modify the exchange control regime applicable to foreign
investors in such a way that may adversely affect the ability of the Company to
repatriate its income and capital or to sell and/or refine the mined materials
outside of that country. The Company could be adversely affected by delays in
obtaining or the failure to obtain any required government or central bank
approval for repatriation of capital, or proceeds from the sale of concentrates,
as well as by the application to the Company of any restrictions on investments.
(d) Financial Information and Standards; Regulatory Matters
Disclosure and regulatory standards in Armenia are substantially
less stringent than United States standards. Issuers there are subject to
accounting, auditing and financial standards and requirements that differ
significantly from those applicable to United States issuers. Moreover, by
virtue of significant differences between the accounting practice in those
countries and those in the United States, the assets and profits appearing on a
company's financial statements in such countries may not reflect their financial
position or results of operations in the way they would be reflected had such
financial statements been prepared in accordance with United States generally
accepted accounting principles. Accordingly, the Company may experience delay
and significant costs in having financial statements prepared covering its
proposed operations in these countries.
(e) Governmental Concessions, Licenses and Permits Not Yet Received
While the Government of Armenia has granted various approvals and
licenses, and issued a decree, with respect to the Tailings Project, such
Government has not yet taken such action with respect to the Zod, Meghradzor and
exploration projects contemplated to be undertaken by the Company. Moreover, the
Armenian Government, the Company and First Dynasty have reached an impasse with
respect to the implementation of the Amended Armenian Joint Venture Agreement,
and there can be no assurance that such impasse will be resolved, or, if so, on
terms acceptable to First Dynasty and the Company. The Company cannot assure
that the Government of Armenia will grant various approvals, licenses, permits
or concessions on a timely basis, and failure of the Government of Armenia to do
so could materially and adversely affect the Company's investments. Moreover,
the operations in such country may encounter other regulatory problems that
could materially and adversely affect the Company's operations there.
Withholding and Other Taxes
The Company's proposed mining operations in Armenia are subject to the
income taxes of those countries. Upon the repatriation of earnings from such
operations, if any, such income is subject to United States income tax. In
addition, dividends distributions of earnings from those countries may also be
subject to withholding taxes. The imposition of such taxes and the rates imposed
are subject to change. The income tax treaty with Russia may potentially reduce
the possible risks of double taxation in each of those countries and the United
States. Armenia is currently negotiating a separate income tax treaty with the
United States. While foreign income taxes paid or incurred by the Company may be
eligible for credit or deduction against the Company's United States income tax,
such benefits are subject to certain limitations and restrictions. Although the
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Company expects that such foreign income taxes will be available for credit for
United States income tax purposes, there can be no assurance of such result.
United States Income Tax Consequences Arising Out of the Agreement
The Company neither received a tax opinion nor sought a private letter
ruling from the Internal Revenue Service (the "Service") regarding the United
States income tax consequences arising out of the closing under the Asset
Purchase Agreement between the Company and Eyre on December 1, 1995 (see Item
12(B)). It is possible that the Service may contend that the Company and/or its
subsidiaries recognized substantial gain in such transaction, and there can be
no assurance of the outcome of such challenge. If the Service successfully
asserted such result, the amount due could have a material adverse impact on the
Company's business, assets and financial position.
While the Company had a net operating loss carry forward as of December
31, 1994 of approximately $2,500,000 expiring in 1996, the closing of the
transaction under the Agreement and the Offering eliminated almost the entire
amount thereof as of December 31, 1995. Thus, if a substantial amount of gain
arose upon the closing under the Agreement, the Company's net operating loss
carry forward would not be available, in all likelihood, to offset such gain in
a material way.
ITEM 2. DESCRIPTION OF PROPERTIES
The Company occupies office space of approximately 1,000 square feet, on a
month-to-month at-will tenancy basis, without the payment of any rent, on
premises owned by Penn-Med Consultants, Inc., whose sole stockholders are the
three largest stockholders of the Company, other than Eyre, the Parry-Beaumont
Trust and Robert A. Garrison. The Company has accrued rental payments of $3,000
a month, commencing as of January 1, 1996, for lease of space at the premises
and the provision of various administrative services, including telephone, fax
and xerox. There is no written agreement covering such arrangement.
ITEM 3. LEGAL PROCEEDINGS
In January, 1998, the Company brought an action against Eyre, the
Parry-Beaumont Trust and Kevin Parry, individually, in the United States
District Court for the Southern District of New York, bearing Docket No. 98 Civ.
0009, seeking damages in excess of $81,000,000 arising out of the alleged fraud
committed by the defendants.
The defendants denied such claims and asserted counterclaims against the
Company seeking damages in an underdetermined amount against the Company and
seeking a declaratory judgment voiding the Second Restructuring Agreement (as
defined herein in Section 12(A)). In addition, Eyre and the Parry-Beaumont
Trust brought a third-party complaint against Drury J. Gallagher and Robert A.,
Garrison, individually, seeking, among other things, damages in excess of
$75,000 and directing Mr. and Mrs. Garrison to return the 2,000,000 shares of
the Company's Common Stock issued to them by the Company in January, 1997.
The respective parties have served notices to take the deposition of the
other parties in the action and made requests for the production of documents.
A meeting is scheduled with the District Court on April 21, 1998 to discuss a
scheduling order.
The Company intends to prosecute the litigation to completion and believes
that the defendants' claims asserted against the Company and Messrs. Gallagher
and Garrison are without merit, although there can be no assurance as to the
outcome thereof.
The Company has also received requests from Panquest Lte. and from Eyre
relating to amounts alleged to be due to Panquest Lte. relating to the Company's
acquisition of rights from Eyre relating to the Armenian and Georgian projects.
No evidence has yet been supplied to the Company in this regard.
18
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The holders of a majority of the issued and outstanding Common Stock of the
Company approved the Company's entry into the financing agreement with First
Dynasty in January, 1997.
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTER
(a) The Company's Common Stock is not publicly traded on any market.
(b) As of December 31, 1997, there were approximately 1,100 holders of
record of the Company's Common Stock.
(c) The Company did not pay or declare any cash dividends on its Common
Stock during its last two fiscal years ended December 31, 1996 and December 31,
1997.
(d) As of December 31, 1997, the Company was not prohibited from paying
any dividends on its Common Stock.
(e) The Company's transfer agent is American Registrar and Transfer
Company, with offices at 10 Exchange Place, Salt Lake City, Utah 84111.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
As at December 31, 1997, the Company's had net assets of $266,345, of
which $66,344 consisted of cash or cash equivalents, and had current liabilities
of $160,489. Thus, the Company's current liabilities exceeded its current
liabilities as of such date.
The Company's plan of operation for calendar year 1998 is:
(a) To continue the mining of gold pursuant to the Tailings Project;
(b) To conclude the transfer of the right to mine production and
process gold at the Zod and Meghradzor mines in Armenia in accordance with the
terms of the Amended Armenian Joint Venture Agreement; and
(c) To attempt to collect payments of accrued interest and principal
the $300,000 convertible note issued by Jet-Line to the Company.
As of December 31, 1997, the Company had liquid assets consisting of cash
of approximately $66,344. With respect to the Company's mining projects in
Armenia, the Company initially contemplated that First Dynasty would provide or
arrange for all of the financing needed in connection with the continued
operation of the Tailings Project and such additional financing as is needed in
connection with the development of the Zod and Meghradzor mines. However, there
can be no assurance that First Dynasty will carry out such financial support by
virtue of the Armenian Government's failure to abide by the terms of the Amended
Armenian Joint Venture Agreement and to pass a parliamentary degree approving
the transfer of the rights to the Zod and Meghradzor mines to the joint venture
companies. If First Dynasty does not finance such operations, there can be no
assurance that the Company will be able to find alternative financing for such
operation and development, or, if available, on terms and conditions acceptable
to the Company.
In addition, the Company needs financing to meet its anticipated
monthly administrative expenses of $5,000 (exclusive of accrued officers'
compensation), plus additional amounts for legal and accounting costs. Prior to
the commencement of the litigation described in Item 3 hereof, the Company
anticipated that it might additional financing in 1998 from several sources to
cover the latter types of costs (and for general corporate purposes) and its
contemplated financing sources were and are as follows:
(i) Pursuant to the Offering of $500,000 principal amount of
the Convertible Notes of the Company, the Company issued Warrants to
19
<PAGE>
purchase 4,000,000 shares of its Common Stock at an exercise price of $0.50
per share. By virtue of the Reverse Split, the Warrants were converted into
Warrants to purchase 400,000 shares of the Company's Common Stock at an
exercise price of $5 per share. On January 23, 1997, the Company amended
the Warrants to reduce the exercise price to $1 per share and to extend the
expiration date until December 31, 1997. Again, on December 1, 1997, the
Company again amended the Warrants to reduce the exercise price to $0.125
per share and to extend the expiration date until December 31, 1998. If
the Warrants were exercised in full, the Company would receive $50,000 in
gross proceeds. However, the Company does not believe that the Warrants
will be exercised under existing circumstances, and thus does not
anticipate that any amount thereof will be exercised, although there can be
no assurance of such result.
(ii) The Company had anticipated receiving some payments of the
principal or on the Jet-Line Note, but the Company now believes it will not
receive any recovery from Jet-Line based on the existing circumstances
described in Item 1(D) above, or merely a negligible amount, if any.
Except as described below, in the event that no contemplated financing is
consummated from the above sources, the Company does not have sufficient
financial resources to meet its obligations as of April 30, 1998.
Accordingly, based on the Company's needs for additional financing of its
operations, Messrs. Gallagher and Garrison agreed to continue to advance funds
to the Company for such purpose through July 31, 1998 if they were paid in full
by such date or earlier out of the $200,000 amount receivable from First Dynasty
due on June 30, 1998 and provided that the Company also agreed not to encumber
such receivable in any way, which the Company agreed to do.
The Company does not intend to engage in any project research and
development during 1998 and does not expect to purchase or sell any plant or
significant equipment, except as contemplated in connection with the Tailings
Project and as additionally provided in the Amended Armenian Joint Venture
Agreement.
The Company does not expect to hire any additional full-time employees in
1998.
ITEM 7. FINANCIAL STATEMENTS
The audited financial statements, notes thereto and reports of independent
certified public accountants thereon for the fiscal years of the Company ended
December 31, 1997 and December 31, 1996 (by Marks Shron & Company, LLP) are
attached hereto as part of, and at the end of, this report.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNT AND FINANCIAL
DISCLOSURE
Not applicable.
PART III.
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT
The directors and executive officers of the Company are as follows:
Name Age Officer
---- --- -------
Drury J. Gallagher 59 Chairman, Chief Executive Officer,
Treasurer and Director
Robert A. Garrison 57 President, Chief Operating Officer,
Secretary and Director
Each Director is elected for a period of one year at the Company's annual
meeting of stockholders and serves until his successor is duly elected and
20
<PAGE>
qualified. Each director who is not a full time employee of the Company receives
no remuneration for his services as a director. Officers are appointed by the
Board of Directors.
The Board of Directors has not appointed any audit, compensation or any
other committee. Instead, the Board acts as a whole in all matters.
Mr. Gallagher has served as a director since 1981 and as Chairman,
President and Treasurer of the Company from 1982 until February 1, 1997 and as
Chairman, Chief Executive Officer and Treasurer since that date. Mr. Gallagher
is the general partner, owner and operator of 20 nursing homes in Pennsylvania,
and has served as Executive Vice President and Treasurer of Penn-Med
Consultants, Inc., which is engaged in the business of providing long-term
health care management, since 1992. From 1986 to 1991, he served as Vice
President of Pennsylvania Health and Nursing Care Corporation. He also served as
a member of the Board of Directors of Power Spectra, Inc., a public company
specializing in commercial and defense electronics from April, 1990 through
July, 1996.
Mr. Garrison has served as a director and Vice President of the Company
from June 26, 1995 until February 1, 1997, and became the President and Chief
Operating Officer on February 1, 1997 and was appointed its Secretary on
February 1, 1996. Mr. Garrison is co-founder, owner and President of INFISCO,
Inc., a financial advisory corporation that structures financings, including
project financing principally in foreign countries, since 1992. He was also the
President of AEGIS Commodities Corporation, a packager of commodity export
supported financing programs, serving as such from 1990 to 1992. He also served
as a Director and President and Chief Executive Officer of Sogam Holdings Inc.,
one of the world's largest mining corporations, and a business of Societe
General de Belgique, since 1985. Prior thereto, Mr. Garrison was the Vice
President and Treasurer of Pechiney Trading International Division of Pechiney
Engine Khulman, in Paris, France, and had been employed by AMAX, Inc., a major
mining enterprise, in various financial capacities. Mr. Garrison has also
written articles on financing in the mining industry and has structured foreign
asset-based financings.
ITEM 10. EXECUTIVE COMPENSATION
(a) The summary compensation table below indicates the cash or accrued
compensation by the Company as well as other compensation paid or accrued to the
Chairman and Chief Executive Officer (the Company's chief executive officer) and
the next highest compensated executive officer at December 31, 1997 for services
rendered in all capacities during calendar years 1997, 1996 and 1995:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation Awards
- ----------------------------------------------------- -----------------------------------------------------------------
Name and Other Annual Restricted Underlying LTIP All Other
Principal Position Year Salary Bonus Compensation Stock Awards Options/SARs(#) Payout Compensation
- ------------------ ---- ------ ----- ------------ ------------ -------------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Drury J. Gallagher, 1997 $125,000(1) -0- -0-(2) -0- -0- -0- -0-
Chairman, Chief 1996 $100,000(1) -0- -0-(2) -0- 250,000 shares -0- -0-
Executive Officer 1995 $ 50,000(1) -0- -0-(2) -0- 1,500,000/500,000
and Treasurer shares units
(the Company's Chief
Executive Officer)
Robert A. Garrison, 1997 $ 13,333(1) -0- -0-(2) -0- -0- -0- -0-
President, Chief 1996 $100,000(1) -0- -0-(2) -0- 250,000 shares -0- -0-
Operating Officer 1995 $ 50,000(1) -0- -0-(2) -0- 500,000/500,000 -0-
and Secretary shares units
</TABLE>
- ----------
(1) Under the Company's employment agreements with Mr. Gallagher dated
as of July 1, 1995, and with Mr. Garrison dated as of July 1, 1995 (as
amended as of April 12, 1996), such officers were to be paid an annual salary
of $100,000, in equal monthly installments, commencing as of July 1, 1995.
However, since the Company was unable to pay any of such salaries in 1995 and
1996, all such amounts
21
<PAGE>
accrued, which totalled $150,000 per person, or an aggregate of $300,000 as of
December 31, 1996. Initially, the Company and the officers orally agreed in
July, 1995 to postpone the payment of such accrued salaries and any additional
amounts due under the employment agreements until the Company received
additional funding of at least $2,000,000. As reflected in Item 12(A) hereof,
the Company cancelled $100,000 of such accrued compensation and all of the stock
options and stock appreciation rights of each officer as of January 3, 1997, in
exchange for 1,000,000 shares of the Company's Common Stock which were
transferred to each of them. In addition, Mr. Gallagher's compensation for 1997,
totalling $125,000, accrued in full, as was Mr. Garrison's compensation of
$13,333. All compensation numbers reflect the compensation payable for the
period from July 1, 1995 to December 31, 1997.
Mr. Gallagher entered into a three-year employment agreement with the
Company as of July 1, 1995. Under such agreement, Mr. Gallagher agreed to spend
up to one-half of his business time as President and be in charge of the
Company's day-to-day operations at an annual salary of $100,000. The agreement
also provided for the reimbursement of expenses incurred by him in the
performance of his duties. Such agreement was amended and restated as of July
1, 1997 to increase Mr. Gallagher's base compensation to $150,000 as of such
date and to extend the term thereof until June 30, 2000.
The Company entered into a three-year employment agreement with Mr.
Garrison dated as July 1, 1995 under which he was to receive a salary from the
Company totalling $85,000 and be entitled to the stock options and stock
appreciation rights as described in Item 12(A). Under the agreement, Mr.
Garrison agreed to spend up to one-half of his business time as Vice President
and be in charge of the Company's day-to-day mining and Project financing
operations. The agreement also provided for the reimbursement of expenses
incurred by him in connection with the performance of his duties thereunder.
Mr. Garrison also entered into a substantially identical employment
agreement with Autosport under which he was to be paid an annual salary of
$15,000. However, since Autosport (as defined in Item 12(B)) terminated its
Mining Management Agreement with the Company pursuant to the Initial
Restructuring Agreement (as defined in Item 12(B)), Mr. Garrison's employment
with Autosport was also terminated. Thereafter, on April 12, 1996 the Board of
Directors decided to amend Mr. Garrison's employment agreement with the Company
to increase his annual salary thereunder from $85,000 to $100,000. Pursuant to
such Board action, the parties executed and delivered an amendment to Mr.
Garrison's employment agreement with the Company to such effect.
Mr. Garrison's employment agreement with the Company, as amended,
terminated as of January 31, 1997 when he became entitled to receive consulting
fees from First Dynasty for services rendered on behalf of the Company pursuant
to the consulting agreement dated as of May 13, 1997.
(2) Perquisites and other personal benefits paid or accrued to each of the
above-named officers were less than 10% of the total of their respective annual
salaries in 1997, and the same was true in 1995 in the case of Mr. Gallagher.
Mr. Garrison first joined the Company as of July 1, 1995.
(b) Stock Options and Awards
The Company has no options or awards outstanding under the 1995 Stock
Option Plan, and the Company made no grants or awards thereunder during the year
ended December 31, 1997.(1)
(c) 1995 Stock Option Plan
The description of the Stock Option Plan is set forth herein and is
qualified in its entirety by reference thereto.
Terms of the Stock Option Plan
A maximum of 500,000 shares of Common Stock (computed after the Reverse
Split and subject to adjustment as described below) has been reserved for
issuance by the Company pursuant to options to be granted under the Stock Option
Plan.
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<PAGE>
The Stock Option Plan will be administered by the Company's Board of
Directors unless and until the Board of Directors shall appoint the members of
the Stock Option Committee (the "Committee") who may also be the members of the
Compensation Committee. The composition of such Committee at present does not
satisfy the requirements of Section 162(m) of the Internal Revenue Code of 1986,
as amended, and the regulations promulgated thereunder. During the 10- year
period ending in 2005, the Committee will have authority, subject to the terms
of the Stock Option Plan, to determine when and to whom to make grants under the
plan, the number of shares to be covered by the grants, the types and terms of
options and stock appreciation rights ("SARs") to be granted and the exercise
prices of options and SARs, to interpret and implement the Plan, and to
prescribe, amend and rescind rules and regulations relating to the Stock Option
Plan. The Committee's determinations under the Stock Option Plan need not be
uniform and may be made by it selectively among persons who receive, or are
eligible to receive, awards under the Stock Option Plan (whether or not such
persons are similarly
situated).
The Company's Board of Directors may amend, suspend or discontinue the
Stock Option Plan at any time except that, unless an amendment is approved (at a
meeting held within 12 months before or after the date of such amendment) by the
holders of a majority of the issued and outstanding shares of Common Stock
entitled to vote, no such amendment may (i) materially increase the maximum
number of shares as to which awards may be granted under the Stock Option Plan,
except for adjustments to reflect stock dividends or other recapitalization
affecting the number or kind of outstanding shares, (ii) materially increase the
benefits accruing to Stock Option Plan participants, or (iii) materially change
the requirements as to eligibility for participation in the Stock Option Plan.
- -------
(1) As stated under Item 12(A) hereof, all stock options held by Messrs.
Gallagher and Garrison were cancelled as of January 3, 1997.
Under the terms of the Stock Option Plan, "incentive stock options"
("ISOs") within the meaning of section 422 of the Internal Revenue Code of 1986,
as amended (the "Code"), "non-qualified stock options" ("NQSOs") and SARs may be
granted to officers, key employees, consultants, employees of consultants, and
advisors of the Company and any of its subsidiaries (as defined in the Stock
Option Plan), except that ISOs may be granted only to employees of the Company
and its subsidiaries. The Stock Option Plan limits the number of shares with
respect to which options or SARs may be granted to an individual over the term
of the Stock Option Plan to 100,000 (computed after the Reverse Split), but
permits exceptions thereto in the case of the option to be granted to Autosport
and the options and SARs granted to Messrs. Gallagher and Garrison.
To the extent that the aggregate fair market value (as defined in the
Stock Option Plan), determined as of the date of grant of an ISO, of Common
Stock with respect to which ISOs granted under the Stock Option Plan and all
other option plans of the Company or its subsidiaries exercisable for the first
time by an individual during any calendar year exceeds $100,000, such options
shall be treated as options which are not ISOs. The foregoing limitation does
not apply to NQSOs.
Initially, each ISO will be exercisable over a period, determined by the
Committee in its discretion, but not to exceed 10 years from the date of grant,
as required by the Code. In addition, in the case of an ISO granted to an
individual who, at the time such ISO is granted, owns shares possessing 10% or
more of the total combined voting power of all classes of stock of the Company
or its subsidiary corporations (a "10% Stockholder"), the exercise period for an
ISO may not exceed five years from the date of grant. In the case of NQSOs, the
exercise period, not to exceed 10 years from the date of grant, shall in all
cases be determined by the Committee. Options may be exercisable during the
option period at such times, in such amounts, in accordance with such terms and
conditions, and subject to such restrictions, as are set forth in the option
agreement evidencing the grant of such options. The Committee may, in its
discretion, with the grantee's consent, cancel any award of options or SARs and
issue a new award in substitution therefor or accelerate the exercisability of
any award granted under the Stock Option Plan or extend the scheduled expiration
of an award.
23
<PAGE>
The exercise price of an ISO or an NQSO (the "Option Price') may not be
less than the fair market value of the shares of Common Stock on the date of
grant, except that, in the case of an ISO granted to a 10% Stockholder, the
Option Price may not be less than 110% of such fair market value. The Option
Price of, and the number of shares covered by, each option will not change
during the life of the option, except for adjustments to reflect stock
dividends, splits, other recapitalization or reclassifications or changes
affecting the number or kind of outstanding shares.
The shares purchased upon the exercise of an option are to be paid for in
cash or, with the Committee's consent, in its discretion, by delivery of the
optionee's promissory note, upon such terms and conditions as the Committee may
prescribe, or, if so provided in the applicable option agreement, by delivery of
previously acquired shares of Common Stock with a fair market value equal to the
total Option Price, or in a combination of such methods.
Options and SARs may be transferred by an optionee or grantee only by will
or by the laws of descent and distribution and may be exercised only by the
optionee or grantee during his lifetime. Except as otherwise provided in the
applicable plan agreement, all of an optionee's or a grantee's outstanding
awards shall terminate upon his termination of employment or service for any
reason.
The Committee may grant SARs in conjunction with all or part of an option
or independently thereof. Upon the exercise of a SAR, a holder will generally be
entitled, without payment to the Company, to receive cash, shares of Common
Stock or any combination thereof, as determined by the Committee, in an amount
equal to the excess of the fair market value of one share of Common Stock on the
exercise date over the exercise price of the related option, multiplied by the
number of shares in respect of which the SAR is exercised, except in the case of
the SARs granted to Messrs. Gallagher and Garrison.
(ii) Tax Aspects of the Stock Option Plan.
The following are the principal Federal income tax consequences generally
applicable to awards granted under the Stock Option Plan. The grant of an option
or SAR will create no Federal income tax consequences for the recipient or the
Company or a subsidiary employing the recipient (the "employer") at the time of
grant. The holder of an ISO will have no taxable income upon exercising an ISO
(except that the holder may have income for alternative minimum tax purposes),
and the employer generally will receive no deduction when an ISO is exercised.
In general, upon exercising a stock option other than an ISO, the optionee must
recognize ordinary income equal to the excess of the fair market value of the
stock acquired on the date of exercise over the option price, and the employer
generally will then be entitled to a deduction for the same amount. In general,
upon exercising an SAR, the amount of any cash received and the fair market
value on the exercise date of any shares or other property received are taxable
to the recipient as ordinary income and deductible by the employer. The tax
treatment to an optionee of a disposition of shares acquired through the
exercise of an option will depend on how long the shares have been held and on
whether such shares were acquired by exercising an ISO, an SAR or an option
other than an ISO. Generally, there will be no Federal income tax consequences
to the employer in connection with a disposition of shares acquired under an
option except that the employer may be entitled to a deduction in the case of a
disposition of shares acquired under an ISO if the applicable ISO two-year
holding period has not been satisfied.
With respect to awards granted under the Stock Option Plan that are
settled either in cash or in stock or other property that is either transferable
or not subject to substantial risk of forfeiture, the participant must recognize
ordinary income equal to the excess of (a) the cash or the fair market value of
the shares received (determined as of the date of settlement) over (b) any
amount paid for such shares by the holder of the award; and the employer
generally will be entitled to a deduction at the same time and for the same
amount. With respect to awards that are settled in stock or other property that
is restricted as to transferability and subject to substantial risk of
forfeiture, the participant must recognize ordinary income equal to the excess
of (a) the fair market value of the shares or other property received determined
at the first time the shares or other property becomes transferable or not
subject to substantial risk of forfeiture, whichever occurs earlier over (b) any
24
<PAGE>
amount paid for such shares or other property by the participant; and the
employer generally will be entitled to a deduction for the same amount at the
time that the employee recognizes the income. Different tax rules may apply with
respect to participants who are subject to Section 16 of the Securities Exchange
Act of 1934, as amended.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Set forth below is information as of December 31, 1997 pertaining to
ownership of the Company's Common Stock, determined in accordance with Rule
13(d)(3) under the Securities and Exchange Act of 1934, by persons known to the
Company who own more than 5% of the Company's Common Stock:
Name and Address of Number of
Title of Class Beneficial Owner Shares(1) Percent of Class
Common
------
Common Stock Drury J. Gallagher 1,132,451(2) 26.0
c/o Global Gold Corporation
438 West 37th Street
New York, NY 10018
Common Stock Robert A. Garrison 1,000,000(3) 23.0
44 Lords Highway East
Weston, Connecticut 06883
Common Stock Eyre Resource N.L. 600,000(4) 13.8
Crest House - Suite 5
7 Havelock Street
West Perth WA 6005
Australia
Common Stock Jeffrey Beaumont, Trustee
of the Parry-Beaumont Trust 400,000(4) 9.2
18, Pioneer Sector 1
Jurong, Singapore 2262
- ----------
(1) For purposes of this table, a person or group is deemed to have
beneficial ownership of any shares which such person has the right to acquire
within 60 days after December 31, 1997. For purposes of calculating the
percentage of outstanding shares held by each person named herein, any shares
which such person has the right to acquire within 60 days after December 31,
1997 are deemed to be outstanding, but not for the purpose of calculating the
percentage ownership of any other person.
(2) This amount includes 24,000 shares of Common Stock issuable upon the
exercise of the Warrants acquired by Mr. Gallagher pursuant to the Offering.
See Item 12(A) hereof for a description pertaining to the acquisition of
1,000,000 shares of the Company's Common Stock by Mr. Gallagher. The validity
of such acquisition is being contested by Eyre and the Parry-Beaumont Trust in
the lawsuit described in Item 3 hereof.
Mr. Gallagher disclaims any beneficial interest in the 20,000 shares of
the Company's Common Stock and 40,000 shares of Common Stock issuable upon the
exercise of the Warrants acquired by Francis L. Gallagher, Jr. (Mr. Gallagher's
brother), as trustee of the Drury J. Gallagher Trust F/B/O Children dated March
1, 1985.
(3) See Item 12(A) hereof for a description pertaining to the acquisition
of 1,000,000 shares of the Company's Common Stock by Mr. Garrison. The validity
of such acquisition is being contested by Eyre and the Parry-Beaumont Trust in
the lawsuit described in Item 3 hereof.
(4) The shares owned by each of Eyre and the Parry-Beaumont reflects the
surrender of 6,000,000 and 4,000,000 shares of the Company's Common Stock,
respectively (prior to the 1 for 10 reverse split of such common stock effective
as of December 31, 1996), and the surrender of Acquisition
25
<PAGE>
Warrants to purchase 3,600,000 (prior to the Reverse Split) and 2,400,000 (prior
to the Reverse Split) shares of Common Stock, respectively, as well as the
surrender by Autosport of its options to purchase 2,000,000 shares of the
Company's Common Stock (prior to the Reverse Split), all pursuant to the Initial
Restructuring Agreement. Under the Second Restructuring Agreement, Eyre and the
Parry-Beaumont surrendered their Acquisition Warrants to acquire 2,400,000
(prior to the Reverse Split) and 1,600,000 shares (prior to the Reverse Split)
of the Company's Common Stock, respectively. The validity of such surrender of
Acquisition Warrants, among other things, is being contested by Eyre and the
Parry-Beaumont Trust in the lawsuit described in Item 3 hereof.
(b) Set forth below is information as of December 31, 1997 pertaining to
ownership of the Company's Common Stock by all directors and executive officers
of the Company:
Name and Address of Number of
Title of Class Beneficial Owner Shares(1) Percent of Class
Common Drury J. Gallagher 1,132,451(2) 26.0(2)
c/o Global Gold Corporation
438 West 37th Street
New York, New York 10018
Common Robert A. Garrison 1,000,000(3) 23.0(3)
44 Lords Highway East
Weston, Connecticut 06883 --------- ------
Total 2,132,451 49.0
(c) As of December 31, 1996, except as described in Item 12 hereof, there
were no arrangements in effect which may result in a change of control of the
Company, after taking into account the effects of the Restructuring Agreements
discussed above.
- ----------
(1) For purposes of this table, a person or group is deemed to have
beneficial ownership of any shares which such person has the right to acquire
within 60 days after December 31, 1997. For purposes of calculating the
percentage of outstanding shares held by each person named herein, any shares
which such person has the right to acquire within 60 days after December 31,
1996 are deemed to be outstanding, but not for the purpose of calculating the
percentage ownership of any other person.
(2) This amount includes 24,000 shares of Common Stock issuable upon the
exercise of the Warrants acquired by Mr. Gallagher pursuant to the Offering.
See Item 12(A) hereof for a description pertaining to the acquisition of
1,000,000 shares of the Company's Common Stock by Mr. Gallagher. The validity
of such acquisition is being contested by Eyre and the Parry-Beaumont Trust in
the lawsuit described in Item 3 hereof.
Mr. Gallagher disclaims any beneficial interest in the 20,000 shares of
the Company's Common Stock and 40,000 shares of Common Stock issuable upon the
exercise of the Warrants acquired by Francis L. Gallagher, Jr. (Mr. Gallagher's
brother) as trustee of the Drury J. Gallagher Trust F/B/O Children dated March
1, 1985.
(3) See Item 12(A) hereof for a description pertaining to the acquisition
of 1,000,000 shares of the Company's Common Stock by Mr. Garrison. The validity
of such acquisition is being contested by Eyre and the Parry-Beaumont Trust in
the lawsuit described in Item 3 hereof.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(A) Transactions with Officers
As described in Item 1(D)4(c) hereof, the Company made a loan of $25,000
to Envirotherm Heating and Cooling Systems, Inc. on October 17, 1994. Mr.
Gallagher owned 4% of the common stock of Envirotherm, which he received for
consulting services rendered by him subsequent to and independent of the loan
transaction described above. The Company treated such loan as worthless as of
December 31, 1996.
26
<PAGE>
As described in Item 6 hereof in the Form 10-KSB filed by the Company for
the period ended January, 1998, Mr. Gallagher agreed to advance funds to
the Company to cover its administrative expenses and legal and accounting
expenses through June 30, 1997, if he was paid in full by such date or earlier
out of the proceeds of any financing received by the Company in excess of
$500,000 and provided that the Company also secured his loan with the Jet-Line
Note, which the Company agreed to do.
Pursuant to such agreement, Mr. Gallagher loaned $192,000 to the Company,
which loan was evidenced by a new consolidated note which the Company issued to
him as of such date and cancelled the earlier consolidated note dated November
12, 1996. The Company discharged its loan Mr. Gallagher in full on May 19, 1997
by paying him such amount plus interest thereon of $14,058.49 on such date.
On January 3, 1997, the Board of Directors of the Company approved the
transfer of 1,000,000 shares of its Common Stock (computed after the Reverse
Split) to each of Messrs. Gallagher and Garrison in exchange for, (a) in Mr.
Gallagher's case, the cancellation of $100,000 of accrued salary, and the
cancellations of his options to acquire 175,000 shares of the Common Stock of
the Company (computed after the Reverse Split) and the cancellation of his stock
appreciation rights (the "SARs") which, under certain circumstances, could have
resulted in the issuance to him of up to 37,500 shares of the Company's Common
Stock (computed after the Reverse Split)1 and (b)
- ----------
(1) The Board of Directors granted each of Messrs. Gallagher and Garrison a
SAR for 500,000 units of the Company's Common Stock, with the base price thereof
of $0.20 per share (the "Base Price") on the date of grant, July 21, 1995 (based
on the Board's determination of the fair market value of the Company's Common
Stock on that date). If the value of the units increases over the Base Price
during the period of six years after the grant, and if the market capitalization
of the Company (determined by multiplying the number of shares of Common Stock
outstanding over the mean of the publicly-traded fair market value of the Common
Stock in the over-the-counter market, Nasdaq or elsewhere) exceeds the formula
price as set forth below for a consecutive period of three months, the holder of
the SAR shall be entitled to be paid such excess by the Company in cash, or
shares of Common Stock, or a combination thereof, in one or more annual
installments over a period not in excess of three years, as the Board of
Directors determines in its sole discretion, but such payment shall cause the
holder of the SAR to forfeit options to purchase 12,500 shares of the Company's
Common Stock under the option described in (1)(iii) and (2)(ii) above.
The formula price is set forth below:
- ----------
Percentage of Excess of Value of Award
Market Capitalization over Base Price to which Recipient is Entitled
- --------------------- ----------------------------------------------
$100,000,000 50%
$200,000,000 66 2/3%
$300,000,000 75%
Thus, each holder became potentially entitled to receive a maximum of 375,000
shares of the Company's Common Stock payable under the SARs awarded to him
(computed prior to the Reverse Split).
in Mr. Garrison's case, the cancellation of $100,000 of accrued salary, the
cancellation of his options to buy 75,000 shares of the Company's Common Stock
and the cancellation of his SARs. The Company made such transfer to reward each
of them for their efforts to secure financing for the Company and/or the
Armenian mining project, for maintaining the Company's existence in the face of
the Company's potential insolvency, and to increase their proprietary stake as
the day-to-day management of the Company at the request of prospective
investment banking firms and potential investors with whom the Company was then
seeking to obtain funding.
Since July, 1995, Messrs. Gallagher and Garrison had deferred the payment
of their salaries due them under their employment agreements and continued such
deferral from July 1, 1996 through December 31, 1996. Since July, 1996, they
undertook to keep the Company alive financially, by Mr. Gallagher's further
advances to the Company of $192,000, by Mr. Garrison's payment of his own travel
and travel-related expenses totally over $50,000, by their undertaking joint and
several guarantees of $500,000 to London and International Mercantile Limited, a
27
<PAGE>
financial institution organized under the laws of England and Wales, and their
constant fund-raising activities including frequent trips to London, Toronto,
Vancouver and various places in the United States for such purpose. Without such
efforts, the Company's activities would have ceased in substantially all
respects. No financial assistance of this type, or any guaranty, was provided by
Eyre or its officers, directors or shareholders or by the Parry-Beaumont Trust
(except for $100), despite the Company's written requests to them for such
assistance. Furthermore, when the holders of the Warrants acquired in the
Offering were asked to exercise them at the reduced exercise price of $0.25 per
share during the 30-day period ended December 15, 1996, none of the holders
exercised them (except for one holder, Mr. Ian Darragh, an Eyre director, who
purchased 400 shares for a total of $100, computed prior to the Reverse Split).
As a result of such transfers of Common Stock to Messrs. Gallagher and
Garrison, Mr. Gallagher increased his beneficial ownership of Common Stock to
26.4% and Mr. Garrison became the beneficial owner of 23.8% of the Common Stock,
at such time and, taken together as a group, they now own 49% of the issued and
outstanding shares of the Company's Common Stock (excluding the Warrants owned
by Mr. Gallagher). Consequently, if Messrs. Gallagher and Garrison act in
concert, they, together with any one or more stockholders owning in total
slightly more than 1% of the shares of the Company's Common Stock issued and
outstanding, will be able to effectively determine the vote on any matter voted
by the Company's stockholders, including the election of directors and any
merger, sale of assets or other significant corporate action.
(B) Relationship with Eyre Resources N.L. and the Parry-Beaumont Trust
(1) Asset Purchase Agreement with Eyre Resources N.L.
In January, 1995 the Company entered into a letter of intent with
Eyre Resources N.L., an Australian corporation ("Eyre"), with respect to certain
foreign mining projects. Thereafter, the Company entered into a definitive Asset
Purchase Agreement with Eyre, dated as of June 30, 1995 (the "Agreement"), with
respect to the Armenian, Georgian and Australian Mining projects described
herein, and closed the transactions contemplated thereunder on December 1, 1995.
The Agreement between the Company and Eyre provided as follows:
1. (a) The Company caused to be delivered to Eyre (i) 12,000,000 shares of
its Common Stock, (ii) warrants (the "Acquisition Warrants") to purchase
6,000,000 shares of Common Stock, at an exercise price of $0.50 per share
(subject to adjustment as provided therein), which expire three years after the
closing of the Eyre transaction (the "Closing") and (iii) $300,000, of which
$100,000 was deemed paid at the Closing (by offsetting the $100,000 amount
loaned by the Company to Eyre prior thereto) and an additional $100,000 was
evidenced by an interest-bearing note of the Company payable in six equal
monthly installments) and an additional note of the Company for $100,000 payable
to Eyre if and when the Company consummated a future financing of at least
$2,000,000. The notes bore interest at the lowest rate to avoid the imputation
of interest at a higher rate under the Internal Revenue Code of 1986, as amended
(the "Code"). In addition, the Company agreed to assume and discharge all
liabilities of Eyre (other than Armenian, Georgian or Australian income or local
taxes or other than specified amounts currently due under certain Australian
licenses described below) existing at the Closing with respect to the assets
transferred, and to assume and perform all obligations with respect to its share
of the assets after the Closing.
(b) In exchange therefor, Eyre sold (i) an undivided 20% interest in
Eyre's interest in two Australian exploration licenses in an Australian
lead/zinc mining prospect known as Ediacara described herein to Global Gold
Australia Limited, the Company's wholly-owned Cayman Islands subsidiary; (ii)
all of Eyre's potential interest in the Armenian gold mining project described
herein to Global Gold Armenia Limited, the Company's wholly-owned Cayman Islands
subsidiary; and (iii) all of Eyre's potential interest in the Georgian gold and
copper mining project described herein to Global Gold Georgia Limited, the
Company's wholly-owned Cayman Islands subsidiary (individually, a "Project" and
collectively, the "Projects").
28
<PAGE>
(c) The Company caused to be delivered to the Parry-Beaumont Trust
8,000,000 shares of its Common Stock and Acquisition Warrants to acquire
4,000,000 shares of Common Stock for consulting services rendered by the
Parry-Beaumont Trust in connection with the Projects and for arranging for the
sale of the above-mentioned assets in question to the Company's subsidiaries.
- ----------
1 All of the share numbers reflected in Item 12(B) do not reflect the
Reverse Split.
(d) The Company issued to Autosport (Asia) Pte. Ltd. options under
the Company's 1995 Stock Option Plan to acquire 2,000,000 shares of Common
Stock, at an exercise price of $0.20 per share.
(e) The loan made by the Company to Eyre of $100,000 (described in
"Loan Transaction" below) was applied at the Closing against the $200,000 amount
due to Eyre at the Closing under the Agreement.
2. Pursuant to the Agreement, the Company designated, prior to the
Closing, that each of its newly-formed subsidiaries would be a direct transferee
of the interests in the Projects so that each Project was owned initially and
directly by a separate subsidiary of the Company. However, by virtue thereof and
pursuant to the Agreement, the Company agreed to guarantee the full performance
of all of the obligations undertaken by any such subsidiary designated for such
purposes by the Company. Under such guaranty, Eyre is first required to give
notice to the subsidiary in question of any default and the opportunity to cure
such default within a 10 day period. In the event that such subsidiary does not
cure such default within such period, then Eyre may proceed directly against the
Company for any violation thereof.
3. Autosport (Asia) Pte. Ltd., a Singapore corporation controlled by Eyre
("Autosport"), entered into a mining supervision contract with the Company at
the Closing under which it was to provide mining supervisory services for all of
the Projects (the "Mining Supervision Contract") and consult regularly with the
Company thereunder. Under the Mining Supervision Contract, Autosport was
entitled to be paid, solely out of Project revenues or financings relating
thereto, (a) all of its direct and indirect costs in providing services in
connection with the Projects plus 10% thereof, and (b) all of the costs of
acquiring equipment in connection with the Projects plus 10% thereof. The
Company agreed to indemnify Autosport against certain claims arising out of its
performances of services, but the Company's liability thereunder was limited
solely to Project revenues and financings related to the Projects. Autosport had
the right to assign its rights under the Agreement, with the Company's prior
written consent, which was not to be unreasonably withheld or delayed. The
Company had the right to approve the construction and operating budgets for each
Project.
4. Pursuant to the Agreement, Eyre, the Parry-Beaumont Trust and the then
current five principal stockholders of the Company (Messrs. Gallagher, John J.
Hayman, Francis A. Hayman, Jr., George L. Ryan and the Seitz Family Limited
Partnership) entered into a stockholders agreement (the "Stockholders
Agreement") at the Closing providing for, among other things, the following:
(a) Eyre had the right to designate three of the five directors of
the Company, including Stephen Parry (one of Mr. Kevin Parry's sons), Jaap Poll
and one other person, and the parties agreed to elect Messrs. Gallagher and
Garrison as directors. If the size of the Board was changed thereafter, Eyre had
the right to designate such additional persons as comprise 60% of the members of
the Board of Directors, and Messrs. Gallagher and Garrison (or their successors)
had the right to designate such additional persons as comprise 40% thereof. As a
result of this provision, Eyre controlled the Board of Directors of the Company
after the Closing.
(b) The parties agreed to use their best efforts to vote to cause
the election of Mr. Gallagher as President, Mr. Garrison as Vice President, and
Stephen Parry as Vice President.
(c) (i) Each party cannot sell, transfer or pledge his shares of
Common Stock, except to family members, or a trust or estate for their benefit,
29
<PAGE>
or a charitable organization qualified under Section 501(c)(3) of the Code, or a
corporation, partnership or limited liability company, controlled by the
stockholder or members of his family and except as provided in (ii) below.
Furthermore, if a stockholder receives a bona fide offer to buy his or its
shares of Common Stock (other than pursuant to a public offering), the Company,
and thereafter the non-selling stockholders (on a pro-rata basis), have the
right to purchase the stock in question at the offered price. If such right of
first refusal is exercised, the purchaser is required to pay (A) the lesser of
(i) the full purchase price or (ii) the greater of 20% of the purchase price or
$100,000 and (B) the balance in 24 equal consecutive monthly installments after
the closing thereof (including interest at the lowest rate to avoid the
imputation of interest at a higher rate under the Code). If such right of first
refusal is not exercised, then the seller may sell his or its shares of Common
Stock to the offeror on the terms described in the offer, but such offeror must
then become a party to the Stockholders Agreement.
(ii) All of the seven stockholders, including Eyre and the
Parry-Beaumont Trust, agreed not to sell any of the shares of the Company's
Common Stock owned by them for a period of 24 months from the date of the final
closing of the Offering (as defined herein) (i.e., two years from December 31,
1995), except that (A) each of Eyre and the Parry-Beaumont Trust has the right
to transfer 2,000,000 shares of Common Stock to one or more any persons or
persons who is not a United States person within the meaning of the Securities
Act, or to any other person in the United States and (B) the other five
shareholders (other than Eyre and the Parry-Beaumont Trust) each has the right
to pledge up to 60% of the shares of the Company's Common Stock owned by them to
one pledgee only each, subject to applicable restrictions under the Act.
(d) In the event that the Company's undertakes an offering of its
securities (exclusive of any registrations on Form S-8 for shares issuable under
the 1995 Stock Option Plan), the stockholders who are parties to the
Stockholders Agreement will have piggyback registration rights which would
enable them to sell a portion of their shares of Common Stock, together with
those offered by the Company, subject to the approval thereof by the underwriter
undertaking the offering in question. Commencing on or after the date which is
18 months after the final closing date of the Offering (which closing date was
December 31, 1995), Eyre, the Parry-Beaumont Trust or any other three of the
other stockholders acting jointly, who desire to sell their shares of Common
Stock, but at least 1,000,000 shares of Common Stock collectively, can cause the
Company, two times only, to file a registration statement which shall be
effective on and after the expiration of the 24-month lock-up period specified
above.
5. At the Closing, there were a number of items that required future
action. The assignment made by Eyre to Global Gold Australia Limited of its
undivided 20% interest in the Ediacara project required the written consent of
the Ministry of Mines of South Australia. Although such documents were submitted
for approval shortly after the closing, no such consent was ever obtained, since
the Company, prior thereto, caused Global Gold Australia Limited to surrender
its interest in the Australian Project under the Initial Restructuring
Agreement. Moreover, Global did not receive certain legal opinions from Eyre's
Australian and New York counsel which were required to be delivered at the
closing under the Agreement, although such opinions were ultimately delivered.
(2) Restructuring Agreements
(a) Initial Restructuring Agreement
After the closing of the transaction under the Agreement, the
Company, Eyre and the Parry-Beaumont Trust decided to restructure the
transaction pursuant to the Restructuring Agreement by and among such parties
dated as of December 1, 1995 (the "Initial Restructuring Agreement"). Such a
step was undertaken in order to facilitate the Company's proposed financing of
the contemplated gold mining projects in Armenia and Georgia by enabling the
Company to qualify for political risk insurance from the Overseas Private
Investment Corporation ("OPIC") as a credit enhancement by and possible
financing from OPIC. Under the rules applicable to such insurance, OPIC provides
insurance for U.S. entities which are at least 50% beneficially owned by United
States persons, determined on a fully diluted basis. By virtue of the stock
ownership of the Company arising under the Agreement, the Company would not
30
<PAGE>
qualify for such insurance. Moreover, such restructuring was undertaken at the
recommendation of a major United States accounting firm (which has not been
retained by the Company).
The Initial Restructuring Agreement provided as follows:
1. (a) Eyre and the Parry-Beaumont Trust agreed to surrender to the
Company 6,000,000 and 4,000,000 shares of Common Stock, respectively, and to
surrender Acquisition Warrants to purchase 3,600,000 and 2,400,000 shares of
Common Stock, respectively. Thus, after the Restructuring Agreement, Eyre and
the Parry-Beaumont Trust continued to own 6,000,000 and 4,000,000 shares of
Common Stock, respectively, and Acquisition Warrants to purchase 2,400,000
shares of Common Stock and 1,600,000 shares of Common Stock, respectively.
(b) Autosport agreed to surrender the option to purchase 2,000,000
shares of the Common Stock of the Company.
2. In consideration for the above surrender of securities, the
Company
(a) caused Global Gold Australia Limited to surrender its undivided
20% interest in the Australian Project,
(b) released to Eyre any rights with respect to the agreement
between the Company and the Armenian Ministry of Environment and Natural
Resources dated December 1, 1995 ( which was not executed), provided that such
agreement does not provide for any rights in Eyre inconsistent with, or in
contravention of, the Company's rights in the Armenian Project, and
(c) granted Eyre a 2% overriding production royalty (subject to
adjustment) from the Company's or its subsidiary's interest in the joint venture
or ventures to be created pursuant to the Armenian Project (excluding the
Tailings Project as defined herein) and the Georgian Project and a 1% overriding
production royalty (subject to adjustment) in the Company's or its subsidiary's
interest in each joint venture for other projects undertaken in Armenia and
Georgia by the Company or its subsidiaries.
3. In addition, the parties agreed to cancel the Operating Agreement
between Eyre and the Company dated as of December 1, 1995 and the Mining
Supervision Agreement, between the Company and Autosport dated as of December 1,
1995.
4. (a) The Acquisition Warrants were amended to provide that they
could not be exercised unless, concurrently with the exercise thereof, the
Company issued a number of shares of Common Stock to persons or entities other
than Eyre, the Parry-Beaumont Trust or their affiliates equal to the number of
shares of Common Stock issued upon the exercise of the Acquisition Warrants.
(b) Furthermore, in the event that the Company sells or otherwise
transfers additional shares of its Common Stock or securities convertible into
shares of its Common Stock to entities or persons not deemed United States
persons under the applicable rules of OPIC, the Company is required to give Eyre
and the Parry-Beaumont Trust at least 15 days notice prior to the closing of
such sale or transfer. During such period, Eyre and the Parry-Beaumont Trust
shall have the right to sell the Acquisition Warrants in a transaction exempt
under the applicable securities laws of the United States or other applicable
jurisdictions. However, if Eyre and the Parry-Beaumont Trust do not sell such
number of Acquisition Warrants as aforesaid, then Eyre and the Parry-Beaumont
Trust are required to surrender to the Company a number of Acquisition Warrants
equal to the number of shares of Common Stock to be sold or transferred or
issuable upon such conversion by the Company, at the time of the closing of such
sale or transfer by the Company.
(c) In the event that Eyre and the Parry-Beaumont Trust are required
to surrender a portion of their Acquisition Warrants as described immediately
above, then the 2% and 1% overriding production royalties specified above shall
be adjusted upward, but not in excess of 1 percentage point, by multiplying 1%
times a fraction the numerator of which is the number of Acquisition Warrants
surrendered and the denominator of which is 4,000,000.
31
<PAGE>
5. (a) The Stockholders Agreement was changed to eliminate the
control thereof by Eyre and the Parry-Beaumont Trust. As a result, the Company
five-person Board of Directors was to consist of (a) Drury J. Gallagher, (b)
Robert A. Garrison, (c) Jaap Poll, (d) Stephen Parry and (e) a fifth member
selected by Mr. Gallagher. The amendment to the Stockholders Agreement further
provided that (i) in the event of the death of Robert A. Garrison, Drury J.
Gallagher would designate his designee or (ii) in the case of an enlargement of
the Board, Mr. Gallagher would have the right to designate additional persons to
constitute 60% of the members of the Board, provided that such designee has
demonstrable experience and expertise in the extractive or financial industry or
in a region in which the Company or a subsidiary intends to operate or is
operating.
(b) Furthermore, the Stockholders Agreement was changed to reduce
the amount of shares of Common Stock that Eyre and the Parry-Beaumont Trust
could transfer to non-United States persons in transactions not subject to the
Act from 2,000,000 each to 1,500,000 each.
6. In addition, Eyre, the Parry-Beaumont Trust, Autosport and Kevin
Parry agreed to restrictions, for the purpose of obtaining independent
accountants as auditors for the Company, which prevent Eyre, the Parry-Beaumont
Trust and their affiliates from holding or controlling 50% or more of total
stockholder votes or 50% or more of the votes of the members of the Board of
Directors of the Company and precluding Kevin Parry's direct role with the
Company. The Company agreed to review the above mentioned restrictions on or
after January 1, 2001 and to consider, without obligation, eliminating them.
7. In connection with the Agreement and the Initial Restructuring
Agreement, Global Gold Armenia Limited and Global Gold Georgia Limited issued
promissory notes dated as of December 1, 1995 to the Company in the amounts of
$802,740(1) and $47,260, respectively, which bear interest at the rate of 6.36%
per annum and mature on November 30, 1998, for the purchase of the Company's
Common Stock issued to Eyre and the Parry-Beaumont Trust pursuant to such
Agreements.
(b) Second Restructuring Agreement
- ------------
(1) In connection with the FDM Agreement, the Company contributed this note to
the capital of Global Gold Armenia Limited.
Various prospective investment banking firms and potential investors who
expressed an interest in providing funding for the Company's projects in the
Fall of 1996 requested that the Company undertake a reverse split of its Common
Stock to decrease the number of shares outstanding and to reduce the equity
stake of certain shareholders who received shares pursuant to the Agreement
essentially in their capacity as finders in order to facilitate possible future
financings. In response thereto, by letter dated December 4, 1996, Eyre and the
Parry-Beaumont Trust (i) surrendered their Acquisition Warrants to purchase
2,400,000 and 1,600,000 shares of the Company's Common Stock (a total of
4,000,000 shares) (prior to the Reverse Split), (ii) surrendered their right to
designate two members of the Board of Directors of the Company and, in addition,
Eyre agreed, (iii) to waive its overriding royalties in the Armenian mining
projects and (iv) to waive the approximately $146,000 due it under the
promissory notes received at the Closing (the "Second Restructuring Agreement").
While Eyre had 2% overriding royalty on the Armenian mining projects (other than
the Tailings Project), the Second Restructuring Agreement referred to the waiver
of a overriding royalty of 1.5% on the Armenian mining projects in reliance on
Eyre's earlier agreement to reduce such royalty to 1.5% by virtue of its failure
to secure financing from a designated mining company in November, 1996.
Accordingly, the Company believes that all overriding royalties on the Armenian
mining projects have been validly waived.
(c) Effect of the Agreement and the Restructuring Agreements
As a result of the Agreement, Eyre, together with the Parry-Beaumont
Trust, became the controlling stockholders of the Company and, as such, they
were able to determine effectively the vote on any matter being voted on by the
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<PAGE>
Company's stockholders, including the election of directors, and any merger,
sale of assets or other change or control of the Company. Furthermore, pursuant
to the Stockholders Agreement, Eyre had the right to designate 60% of the
members of the Board of Directors, thereby gaining control thereof.
However, by virtue of the Initial Restructuring Agreement, Eyre and the
Parry-Beaumont Trust reduced their ownership to only 47.66% of the Company's
issued and outstanding shares of Common Stock as of December 31 1995, and agreed
not to control the votes of 50% or more of the stock of the Company or 50% or
more of the members of the Board of Directors of the Company.
Moreover, under the Initial Restructuring Agreement, the Company retained
its rights with respect to both the Armenian Project and the Georgian Project,
but relinquished all of its interest in the Australian Project.
Also, by virtue of the Second Restructuring Agreement, Eyre and the
Parry-Beaumont Trust surrendered Acquisition Warrants to acquire 4,000,000
shares of the Company's Common Stock (computed prior to the Reverse Split),
thereby eliminating any Acquisition Warrants held by them, and their right to
designate two members of the Board of Directors of the Company. Such action,
together with the transfer of 2,000,000 shares of the Common Stock (after the
Reverse Split) to Messrs. Gallagher and Garrison, described in detail above,
diminished substantially the combined equity position formerly held by Eyre and
the Parry-Beaumont Trust.
(3) Eyre
Eyre, which was organized in 1993, is an Australian public company
registered with the Australian Securities Commission in Canberra, Australia.
Eyre has not applied for listing on the Australian Stock Exchange.
Eyre is engaged in the development of mining projects in Australia
with a view toward the commercial exploitation thereof. Eyre currently owns a
100% interest in the lead/zinc mining prospect licenses in Ediacara, real estate
and several additional assets.
Eyre had 21 holders of all of its common stock as of May 1, 1995.
Jeffrey Beaumont owns approximately 17.5% thereof, separate trusts for two other
officers own about 11.75% thereof each; a trust for the benefit of Kevin Parry
and the members of his family owns about 35% thereof, and the balance is owned
by 17 other stockholders.
Eyre's operating office is its own office building, Crest House,
located at 7 Havelock Street, West Perth 6005, Western Australia. Its telephone
number is 011619322-3988.
The Australian Securities Commission brought a court action against
Mr. Kevin Parry for the alleged criminal violation of Australian securities law
arising out of his alleged breach of fiduciary duties while serving as a
director of two corporations. Mr. Parry was found guilty of such violation in
late 1994, paid a fine of $15,000 and was barred from serving as a director of a
corporation for five years. In addition, the Company learned for the first time
in February, 1996 that a criminal action had been initiated against Mr. Parry in
late 1994 for the alleged misappropriation of property from an entity, but such
action was subsequently dismissed by the court in question.
(4) Parry-Beaumont Trust
The Parry-Beaumont Trust is a trust primarily for the benefit of
Kevin Parry and the members of his respective family, and Cameron Parry, one of
Mr. Parry's sons, and Jeffrey Beaumont are the co-trustees thereof. The Trust's
office is c/o Jeffrey Beaumont, Polymer Composites (Asia) Pte. Ltd., 18, Pioneer
Sector 1, Jurong, Singapore 2262. Mr. Beaumont's telephone number is 01165862-
4824, and Mr. Parry's telephone number is the same as that of Eyre.
(5) Loan Transaction between the Company and Eyre
Prior to the signing of the definitive agreement between the Company
and Eyre, but before the closing thereof, the Company loaned Eyre the sum of
$100,000 on an unsecured basis, which amount was offset against the $200,000
33
<PAGE>
purchase price owed to Eyre under the Agreement. Pursuant to the Second
Restructuring Agreement, the balance of approximately $146,000 owed by the
Company to Eyre under its promissory notes delivered at the Closing was
cancelled.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
1. The following documents are filed as part of this report: Financial
Statements of the Company, including reports of independent certified public
accountants, Balance Sheets, Statements of Income, Statements of Stockholders
Equity, Statements of Cash Flow and Notes to Financial Statements: as at and for
the periods ended December 31, 1997 and December 31, 1996.
2. The Exhibits which are listed on the Exhibit Index attached hereto.
3. No reports on Form 8-K were filed by the registrant during the last
quarter of the period covered by this report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned thereunto duly authorized.
GLOBAL GOLD CORPORATION
(Registrant)
By: /s/ Drury J. Gallagher
----------------------------------
Drury J. Gallagher, Chairman, Chief
Executive Officer and Treasurer
Dated: April 13, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Name Title Date
---- ----- ----
/s/ Drury J. Gallagher Chairman, Chief Executive Officer, April 13, 1998
---------------------- Treasurer and Director (Principal
Drury J. Gallagher Executive and Financial Officer)
/s/ Robert A. Garrison President, Chief Operating
---------------------- Officer, Secretary and Director April 13, 1998
Robert A. Garrison
34
<PAGE>
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Financial Statements
December 31, 1997
<PAGE>
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Financial Statements
December 31, 1997
<TABLE>
<CAPTION>
Exhibit Page
- ------- -----
<S> <C>
Independent Auditors' Report 1
A Balance Sheet - as of December 31, 1997 2
B Statement of Income and (Loss) - for the years 3
ended December 31, 1997 and 1996, and the
development stage period January 1, 1995
through December 31, 1997
C Statement of Changes in Stockholders' Equity - for the 4a/4b
years ended December 31, 1997 and 1996, and the development
stage period January 1, 1995 through December 31, 1997
D Statement of Cash Flow - for the years ended 5
December 31, 1997 and 1996, and the
development stage period January 1, 1995
through December 31, 1997
Notes to Financial Statements 6-19
</TABLE>
<PAGE>
Marks Shron
& Company, L.L.P.
Certified Public Accountants
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of Global Gold Corporation:
We have audited the accompanying balance sheet of Global Gold Corporation (a
development stage company) as of December 31, 1997, and the related statements
of income and (loss), stockholders' equity, and cash flow for the two years
ended December 31, 1997, and the development stage period January 1, 1995
through December 31, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits. We did not audit the 1997 financial
statements of the Armenian Gold Recovery Company, the investment in which is
reflected in the accompanying financial statements using the equity method of
accounting. Those statements were audited by other auditors whose report has
been furnished to us, and our opinion, insofar as it relates to the amounts
included in Note 19 to the financial statements for the Armenian Gold Recovery
Company is based solely on the report of other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of Global Gold Corporation as of December 31, 1997, and
the results of its operations and its cash flow for the two years ended December
31, 1997 and the development stage period January 1, 1995 through December 31,
1997, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 4 to the
financial statements, management must secure significant additional investor
and/or lender financing and ultimately must commence profitable operations.
These matters raise substantial doubt about the Company's ability to continue as
a going concern. The financial statements do not include any adjustments that
might result from the outcome of these uncertainties.
MARKS SHRON & COMPANY, LLP
Great Neck, New York
March 26, 1998
<PAGE>
Page 2
Exhibit A
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Balance Sheet
December 31, 1997
<TABLE>
CURRENT ASSETS
<S> <C>
Cash $ 13,067.
Money Market Investment 53,277.
-------
66,344.
-------
OTHER ASSETS
Notes receivable - First Dynasty Mines 200,000.
Investment in Global Gold Armenia Limited 1.
-------
200,001.
-------
TOTAL ASSETS $ 266,345.
==========
CURRENT LIABILITIES
Officers' compensation payable $ 60,734.
Accounts payable and accrued expenses 99,755.
-------
160,489.
--------
STOCKHOLDERS' EQUITY - Exhibit C
Common stock $0.001 par, 100,000,000 shares authorized
4,348,114 shares issued and outstanding 4,348.
Paid-in capital - dormant period 3,236,602.
Paid-in capital - development stage 1,493,223.
Retained earnings - dormant period (2,907,648.)
Retained earnings - development stage (1,720,669.)
----------
105,856.
--------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 266,345.
==========
</TABLE>
See Independent Auditors' Report and Notes to the Financial Statements.
<PAGE>
Page 3
Exhibit B
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Statement of Income and (Loss)
<TABLE>
<CAPTION>
For the For the January 1, 1995
Year Ended Year Ended (development stage
December 31, December 31, through
1997 1996 December 31, 1997)
<S> <C> <C> <C>
REVENUE $ - - - - $ - - - - $ - - - -
-------- -------- --------
EXPENSES
Officers' compensation 138,334. 200,000. 438,334.
Legal 145,020. 282,316. 468,349.
Accounting and auditing 30,100. 41,246. 100,948.
Transfer agent and securities fees 1,534. 2,381. 12,446.
Proxy costs - - - - - - - - 26,555.
Rent 36,000. 36,000. 72,000.
Office expense 62,621. 16,963. 93,232.
Travel 193. 23,864. 43,142.
-------- -------- --------
OPERATING (LOSS) (413,802.) (602,770.) (1,255,006.)
OTHER INCOME (EXPENSES)
Interest and royalty income 3,693. 389. 4,562.
Organization costs - - - - (3,200.) (4,800.)
Interest expense (7,090.) (6,968.) (14,821.)
Provision for bad debts (150,000.) (55,000.) (325,000.)
Write-off investment in Georgia mining interests (135,723.) - - - - (135,723.)
Gain on sale of interest in Global Gold Armenia 12,875. - - - - 12,875.
-------- -------- --------
(LOSS) BEFORE INCOME TAXES (690,047.) (667,549.) (1,717,913.)
Income taxes (700.) (1,028.) (2,756.)
-------- -------- --------
NET (LOSS) $(690,747.) $(668,577.) $(1,720,669.)
========== ========== ============
NET (LOSS) PER SHARE $( .1589) $( .1538)
============= =============
</TABLE>
See Independent Auditors' Report and Notes to the Financial statements.
<PAGE>
Page 4a
Exhibit C
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Statements of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
Paid-in Retained Retained Paid-in
Issued and Capital Earnings Earnings Capital
Outstanding Common (Dormant (Dormant (Development (Development
Shares Stock Period) Period) Stage) Stage) Total
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Stockholders' equity
December 31, 1994 898,074. $ 89,807. $3,147,693. $(2,907,648.) $ - - - - $ - - - - $ 329,852.
Net Loss January 1 -
December 31, 1995 - - - - - - - - (361,345.) (361,345.)
Adjustment re: restatement of
par value (88,909.) 88,909. - - - - - - - - - - - - - - - -
Eyre acquisition 1,000,000. 1,000. 849,000. 850,000.
Proceeds through private
offering 200,000. 200. - - - - - - - - - - - - 421,373. 421,573.
Stockholders' equity
December 31, 1995 2,098,074. 2,098. 3,236,602. (2,907,648.) (361,345.) 1,270,373. 1,240,080.
Net Loss January 1 -
December 31, 1996 - - - - - - - - - - - - - - - - (668,577.) - - - - (668,577.)
Warrants exercised 40. - - - - - - - - - - - - - - - - 100. 100.
----------- ---------- ----------- ------------- ------------- ----------- ----------
Stockholders' Equity
December 31, 1996 2,098,114. $ 2,098. $3,236,602. $(2,907,648.) $(1,029,922.) $1,270,473. $ 571,603.
----------- ---------- ----------- ------------- ------------- ----------- ----------
----------- ---------- ----------- ------------- ------------- ----------- ----------
</TABLE>
See Independent Auditors' Report and Notes to the Financial Statements.
<PAGE>
Page 4b
Exhibit C
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Statements of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
Paid-in Retained Retained Paid-in
Issued and Capital Earnings Earnings Capital
Oustanding Common (Dormant (Dormant (Development (Development
Shares Stock Period) Period) Stage) Stage) Total
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Stockholders' equity
December 31, 1996 2,098,114. $ 2,098. $3,236,602. $(2,907,648.) $(1,029,922.) $1,270,473. 571,603.
Net Loss January 1 -
December 31, 1997 - - - - - - - - - - - - - - - - (690,747.) - - - - (690,747.)
Issuance of Common Stock 2,250,000 2,250. - - - - - - - - -222,750. 225,000.
--------- -------- ---------- ---------- ----------- ----------- ----------
Shareholders' Equity
December 31, 1997 4,348,114. $ 4,348. $3,236,602. $(2,907,648.) $(1,720,669.) $1,493,223. $105,856.
--------- -------- ---------- ---------- ----------- ----------- ----------
--------- -------- ---------- ---------- ----------- ----------- ----------
</TABLE>
In 1997 the Company issued 2,000,000 common shares in exchange for $200,000 in
accrued salaries. Also, 250,000 common shares were issued as a Finders Fee in
connection with the First Dynasty financing.
See Independent Auditors' Report and Notes to the Financial Statements.
<PAGE>
Page 5
Exhibit D
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Statement of Cash Flow
<TABLE>
<CAPTION>
For the For the
Year Ended Year Ended January 1, 1995
December 31, December 31, Through
1997 1996 December 31, 1997
------------------ ------------- -----------------
CASH FLOW FROM DEVELOPMENT
STAGE ACTIVITIES:
<S> <C> <C> <C>
Net loss $ (690,747.) $ (668,577.) $(1,720,669.)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Increase (decrease) in:
Provision for bad debt 150,000. 55,000. 325,000.
Write-off of mining investment in Georgia 135,723. - - - - 135,723.
Organization costs - - - - (6,401.) (9,601.)
Gain on sale of Armenia mining interests (12,875.) - - - - (12,875.)
Accounts payable, accrued expenses
and miscellaneous (1,016,281.) 984,105. 256,938.
----------- -------- --------
Net cash provided (used) by
Development Stage Activities (1,434,180.) 364,127. (1,025,484.)
----------- -------- -----------
CASH FLOW FROM INVESTING ACTIVITIES:
Proceeds from sale of Armenia mining
interests (net of Note Receivable) 1,691,155. - - - - 1,691,155.
Investment in certain mining interests
- net of financing - - - - - - - - (153,494.)
Deferred costs - mining interests - - - - (618,157.) (878,858.)
--------- ---------
Net cash (used) by Investing Activities 1,691,155. (618,157.) 658,803.
---------- --------- --------
CASH FLOW FROM FINANCING ACTIVITIES
Net proceeds from private placement offering - - - - - - - - 421,573.
Note payable - officer (net) (191,000.) 191,000. - - - -
Warrants exercised - - - - 100. 100.
Net cash (used) provided by Financing Activities (191,000.) 191,100. 421,673.
----------- --------- ---------
NET INCREASE (DECREASE) IN CASH 65,975. (62,930.) 54,992.
CASH - beginning 369. 63,299. 11,352.
----------- --------- ---------
CASH - end $ 66,344. $ 369. $ 66,344.
=========== ========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION
Income taxes paid $ 700. $ 324. $ 1,348.
=========== ========== ==========
Interest paid $ 14,058. - - - - $ 14,821.
=========== ========== ==========
</TABLE>
NON-CASH INVESTING AND FINANCING ACTIVITIES
In 1995 the Company issued one million shares of common stock for certain mining
interests, with an estimated value of $850,000 (Note 5). In 1997 the Company
issued 2,000,000 common shares in exchange for $200,000 in accrued salaries.
Also, 250,000 common shares were issued as a Finders Fee in connection with the
First Dynasty financing.
See Independent Auditors' Report and Notes to the Financial Statements.
<PAGE>
Page 6
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Notes to Financial Statements
December 31, 1997
NOTE 1: ORGANIZATION (AS A DEVELOPMENT STAGE COMPANY) AND ACCOUNTING POLICIES
Global Gold Corporation (the "Company") was incorporated in the
State of Delaware and, as further described hereafter, had no
operating or development stage history from its inception until
January 1, 1995. Accordingly, the Company has been dormant until
1995. During 1995 the Company changed its name from Triad Energy
Corporation to Global Gold Corporation. An Australian
corporation, Eyre Resources N.L. and an affiliate (hereafter
"Eyre"), presented to management an opportunity to develop
certain gold and copper mining rights in the former Soviet
Republics of Armenia and Georgia. As part of the plan to acquire
the mining interests and raise venture capital, the Company
increased the number of shares authorized to be issued from ten
million to one hundred million. These Republics, which recently
won their independence, may be prone to political and economic
turmoil which may result in various adverse ramifications.
The Company has offices in New York City which it leases from
Penn-Med Consultants, Inc., which is charging rent in the amount
of $3,000 per month to the Company for use of the premises,
office equipment, facilities, etc., commencing January 1, 1996.
The Company has three employees.
During 1995 the Company formed certain wholly-owned foreign
subsidiaries. Any reference in these statements to the Company
may also include one, some or all of the subsidiaries. All
intercompany transactions were eliminated.
As a result of ownership changes, the Company will not be able
to benefit from all of its net operating loss carryforwards.
(Income Tax Matters - see Note 16.)
NOTE 2: USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of
contingent assets and liabilities at the balance sheet date,
and also the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those
estimates.
<PAGE>
Page 7
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Notes to Financial Statements
December 31, 1997
NOTE 3: COMPANY HISTORY AND REPORTS WITH THE SECURITIES AND EXCHANGE
COMMISSION
The Company was incorporated on February 21, 1980, and closed a
Public Offering of the common stock in January 1981. Several
months after the closing of such Offering, the Company withdrew
the listing of the common stock for trading on NASDAQ because of
the theft of substantially all of the cash funds of the Company
derived from the proceeds of a Public Offering by its then
president, Samual McNell, in July 1981. The case has long since
gone through the judicial system and Mr. McNell is no longer an
officer, director, employee or in any other fashion doing
business with the Company. After the consummation of the Public
Offering, the Company failed to file any further annual or
periodic reports required under the Exchange Act. The Company
filed its Form 10-KSB for the calendar years 1994, 1995 and
1996, its Form 10-Q for all quarters in 1995 and thereafter, and
also filed audited financial statements covering the calendar
years 1987, 1988, 1989, 1990, 1992-1995 and 1996. There can be
no assurance that the SEC might not assert claims against the
Company and its present and former directors and officers, which
actions might adversely affect the future conduct of the
Company's business or be detrimental to future trading of the
Company's stock in the public markets.
NOTE 4: DEVELOPMENT STAGE COMPANY
The Company may encounter problems, delays, expenses and
difficulties typically encountered in the development stage,
many of which may be outside of the Company's control. These
include, without limitation, unanticipated problems and
additional costs relating to development, production, marketing
and competition. Management must also be successful in securing
significant additional investor and/or lender financing and
political risk insurance. The Company expects to incur operating
losses for the near term and, in any event, until such time as
it derives substantial revenues from the sale of concentrates
containing gold and silver. Pursuant to the documents as
hereafter summarized, different mining, processing, purifying,
reprocessing and exploration endeavors are contemplated. Where
appropriate, an endeavor will commence only after successful
results of a feasibility study are rendered.
<PAGE>
Page 8
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Notes to Financial Statements
December 31, 1997
NOTE 5: ACQUISITION OF ARMENIAN MINING INTEREST FROM EYRE
Pursuant to the Asset Purchase Agreement dated June 1995 (the
"Agreement"), the Company acquired from Eyre, an Australian
corporation, all of its potential interest in its Armenian gold
mining project and all of Eyre's potential interest in its
Georgia gold and copper mining project (Note 8). The Agreement
closed April 1996.
The Company paid Eyre for the Armenian and Georgian interests as
follows:
<TABLE>
<S> <C>
Cash $ 153,494
Note payable 100,000
Note payable 46,506
---------
$ 300,000
---------
---------
</TABLE>
The Agreement also provided for the Company to cause the
delivery to Eyre and the Parry Beaumont Trust, a Singapore
Trust, two million shares of stock, with an estimated value of
$850,000, and warrants to acquire an additional one million
shares. The Agreement left Eyre and the Parry Beaumont Trust
with two out of five seats on the Board of Directors.
As of December 1, 1995, the Company and Eyre and the Parry
Beaumont Trust entered into a Restructuring Agreement pursuant
to which Eyre surrendered 600,000 shares of common stock and
acquisition warrants to purchase 360,000 shares of common stock,
the Parry Beaumont Trust surrendered 400,000 shares of common
stock and warrants to purchase 240,000 shares of common stock,
and Eyre acquired a 2% overriding production royalty subject to
adjustment in the event the ownership of the Company were to
become less than 50% owned by United States residents. If such
were about to occur, Eyre would have the right to sell warrants
to purchase the Company's common stock by U.S. residents and, if
that did not occur as prescribed, Eyre would surrender certain
of their warrants in return for an increased royalty potentially
totalling another 1%. The initial Armenian tailing project (Note
7) is excluded from the royalty arrangement. In the event the
Company did undertake any additional mineral extraction projects
in the Republics of Armenia or Georgia, Eyre would have received
a 1% overriding production royalty from the Company's revenues,
also subject to a similar adjustment which may total up to
another 1/2%. The Company was to have paid to Eyre $8,333 per
month to be applied against the royalty arrangement commencing
with the closing of the funding of the Tailings Project at
Ararat in the Republic of Armenia (Note 7).
The Restructuring Agreement provided that Eyre may submit to the
Company additional projects, and that the Company shall in good
faith consider acquiring such projects by issuing additional
shares of common stock; provided in no event shall Eyre own or
control 50% or more of the outstanding common stock of the
Company.
<PAGE>
Page 9
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Notes to Financial Statements
December 31, 1997
NOTE 5: ACQUISITION OF ARMENIAN MINING INTEREST FROM EYRE (continued)
Various prospective investment banking firms and potential
investors who expressed an interest in providing funding for the
Company's projects in the Fall of 1996, requested that the
Company undertake a reverse split of its common stock (Note 18)
to decrease the number of shares outstanding and to reduce the
equity stake of certain shareholders who received shares
pursuant to the Agreement essentially in their capacity as
finders in order to facilitate possible future financings. In
response thereto, by letter dated December 4, 1996, Eyre and the
Parry-Beaumont Trust surrendered their Acquisition Warrants to
purchase 240,000 and 160,000 shares, respectively, of the
Company's common stock (a total of 400,000 shares), and
surrendered their right to designate two members of the Board of
Directors of the Company. In addition, Eyre agreed to waive its
overriding royalties in the Armenian projects and to waive the
approximately $146,000 due it under the promissory notes
received at the closing (the "Second Restructuring Agreement").
While Eyre had a 2% overriding royalty on the Armenian mining
projects (other than the Tailings Project), the Second
Restructuring Agreement referred to the waiver of an overriding
royalty of 1.5% on the Armenian projects in reliance on Eyre's
earlier agreement to reduce such royalty to 1.5% by virtue of
its failure to secure financing from a designated mining company
in November 1996. Accordingly, the Company believes that all
overriding royalties on the Armenian mining projects have been
validly waived.
NOTE 6: PATTERSON, BELKNAP, WEBB & TYLER, L.L.P.
The Company retained the law firm of Patterson, Belknap, Webb &
Tyler, L.L.P. (PBW&T) to represent the Company in its dealings
with the Armenian and Georgian Republics. PBW&T has an
international law practice involving commerical, nonprofit and
humanitarian issues, and has offices in Moscow. Mr. Van Z.
Krikorian (VZK), of counsel to PBW&T, has been designated to
conduct the negotiations with the Republics. VZK was formerly
Armenia's Deputy Permanent Representative to the United Nations.
In connection with preparation and negotiation of the Armenian
Joint Venture Agreement and associated documents, as well as
corporate, tax, strategic, regulatory, financing, political risk
insurance and other miscellaneous matters, PBW&T shall be
compensated $930,000 plus expenses ratably over the period May
1, 1995 through May 1, 1999, with minimum quarterly payments of
$25,000. The retainer arrangement is predicated on the total
value of the deal reaching $93 million (1%), and is subject to
adjustment if it falls short or exceeds that goal. In the event
the contemplated financing is not consummated, PBW&T will reduce
its hourly charges by 50%. The PBW&T arrangement was terminated
on March 1, 1998 when Mr. Krikorian left to join the law firm of
Vedder, Price, Kaufman & Kammholz.
<PAGE>
Page 10
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Notes to Financial Statements
December 31, 1997
NOTE 6: PATTERSON, BELKNAP, WEBB & TYLER (continued)
PBW&T also represented the Company in preparation and
negotiation with the Georgian government of a revised Joint
Venture Agreement and associated documents, and other related
matters similar to the aforementioned Armenian retainer
agreement. The contemplated Georgian fee was $180,000 for the
period July 1, 1995 to July 1, 1999, and the minimum quarterly
payment was $10,000. The quarterly billing was discontinued as
of June 30, 1997, and the accumulated investment written-off as
of December 1997.
As of December 31, 1997, unbilled contingent project charges in
excess of the minimum $25,000 per quarter were assumed by First
Dynasty Mines Ltd., payable upon receipt of an executed
agreement assigning the rights to the Zod Mine to the Armenian
Gold Recovery Company ("AGRC"). Global Gold reversed fees
accrued of $76,000 as of that date. Unbilled fees and expenses
through December 31, 1997 total approximately $300,000, which
will be finalized with First Dynasty Mines Ltd.
In addition, PBW&T performs additional legal service for the
Company as requested. Current payables and accruals are
approximately $29,000.
NOTE 7: THE ARMENIAN JOINT VENTURE AGREEMENT
On February 2, 1996, the Company and Armgold, a division of the
Ministry of Industry of the Government of the Republic of
Armenia, initialed a Joint Venture Agreement entitled the
Armenian Gold Recovery Company (the "Venture"). The Agreement
was modified May 1, 1996. On June 29, 1996, the Republic of
Armenia issued a decree authorizing Armgold's joint venture with
the Company.
The Venture may at times be required to obtain various
approvals, licenses, permits, etc., on a timely basis. Failure
to obtain such from the Government may materially and adversely
affect the Company. Pursuant to the May 1, 1996 Agreement,
Armenia, in general, has agreed to have the cost of the approval
process be borne against its share of joint venture profits.
The initial stage calls for processing tailings at the Ararat
site and for various studies for gold mining operations at the
Zod and Meghradzor sites. Management believes capacities at Zod
will be significant. At each site, the Agreement calls for the
Armenian Government to transfer to the Venture free and clear
title in the mining rights. The Company wil be required to
provide administration, training, management, feasibility
studies, technology and business plans, as appropriate.
<PAGE>
Page 11
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Notes to Financial Statements
December 31, 1997
NOTE 7: THE ARMENIAN JOINT VENTURE AGREEMENT (continued)
On October 7, 1996, the Armenian Government issued a license for
a five-year period of implementation of the development plan at
Ararat, effective after the registration of the Venture with the
appropriate Armenian governmental authorities, in accordance
with the applicable Armenian law. The registration of the
Venture occurred on November 8, 1996. In addition, the mining
engineering firm retained in connection with the Armenian
Project obtained bulk ore samples from the tailings site for
testing in Canada. An independent laboratory which analyzed such
samples advised the Company in its written report in February
1997 that the test results showed that approximately one and
one-tenth gram of gold could be obtained from each metric tonne
of ore, with a 50% recovery at the site covered by the Tailings
Project, although there can be no assurance thereof.
Pursuant to the decree issued in connection with the Armenian
Joint Venture Agreement, GGA was required to invest $5,000,000
in the Tailings Project on or before February 1, 1997. Such
requirement was deemed satisfied by the parties.
Pursuant to the Armenian Joint Venture Agreement, the Venture
now engaged in the final engineering and initial construction
for the Tailings Project. The Venture entered into a Tailings
Dam Construction Contract with Armhydro for $640,000 on January
31, 1997. AGRC also retained a Canadian engineering firm under a
contract for Engineering, Procurement and Construction
Management Services dated January 31, 1997, under which the
compensation payable to the contractor under Phase I of the
project is $4,500,000.
While the Company has been advised that proven reserves exist in
the Tailings Project, and that the mining thereof can be done on
a profitable basis, there can be no assurance of such result.
It is not contemplated that the Armenian Government will be
assigned a value for their contribution of the mine properties
and rights to the Venture. International or other accounting
standards have not been adopted in the Agreement. For the Ararat
Tailings Project, once profits are determined they shall be
split 50/50 so long as the percentage of recovery of metals per
gram per tonne is 70% or more. Based upon a sliding scale,
Global's profit share will increase to 66.67% if the recovery
rate declines to 50% or less.
Armenia has permitted a tax holiday for the contemplated Venture
as follows: for the first two years there shall be a complete
exemption from profits tax. For the third through the tenth
year, only 50% of the taxable income shall be taxable.
The Tailings Project began operations at an official dedication
ceremony on February 25, 1998.
<PAGE>
Page 12
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Notes to Financial Statements
December 31, 1997
NOTE 8: THE GEORGIAN AGREEMENT
The Company also acquired from Eyre rights under a Foundation
Agreement dated April 22, 1995 (including a Charter for a Joint
Venture Company) with R.C.P.A. Madneuli, a Georgian state
enterprise, in connection with carrying out certain mining of
the Madneuli deposit. The Company was subsequently advised that
the application for the license required to be filed with the
Georgian government has not been filed, and it has no definitive
agreement granting it fixed rights to mining production or
processing in Georgia.
The original Agreement called for each partner to advance
capital in a 50/50 ratio. Neither international nor any other
body of accounting standards have been adapted in the joint
venture agreement.
The Company recently learned that the Georgian Government is
planning to privatize the development of the Madneuli mine
through a public bidding process which was slated to end on
April 15, 1997. Since the structure of the Madneuli mining
project under the public tender differs markedly from that
contemplated under the Asset Purchase Agreement between the
Company and Eyre dated as of June 30, 1995, the Company has
decided not to submit a bid for the development of the Madneuli
mining project. As of December 31, 1997, the Company wrote-off
its investment in the Georgian mining property resulting in a
loss of $135,723.
NOTE 9: NOTES RECEIVABLE
The Company holds a Note receivable as follows:
<TABLE>
<CAPTION>
Amount Interest Rate Debtor
----------- ------------- -------
<S> <C> <C>
$ 300,000 Prime + 2% Jet-Line Environmental Services, Inc. (Jet-Line)
( 300,000) Allowance for doubtful accounts
----------
- 0 -
----------
----------
</TABLE>
The Jet-Line Note, as more fully described in the documents, is
convertible into at least 20% of Jet-Line's common stock.
Jet-Line has defaulted on prior balloon payment obligations and
is in default of its current interest requirements. The Note was
understood to be secured by U.C.C.'s on certain equipment,
however, there were no filings located. Jet-Line owns certain
valuable assets.
<PAGE>
Page 13
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Notes to Financial Statements
December 31, 1997
NOTE 9: NOTES RECEIVABLE (continued)
Jet-Line advised the Company in early March 1997 that it
received a notice of the
<PAGE>
revocation of its license to do business in Massachusetts and a
fine of $100,000 from the Massachusetts environmental
authorities. Jet-Line contested such revocation and fine in the
Massachusetts state courts unsuccessfully. As a result, Jet-Line
has been requested by such authorities to sell its facility in
Massachusetts, and Jet-Line is now engaged in negotiations with
a potential buyer with respect to such sale. The Company sent
Jet-Line a written notice of default and demand for payment on
March 14, 1997, and further demand letters on April 2, 1997 and
November 10, 1997. The Company believes that the value of the
assets held as collateral is negligible. The Company has also
requested Jet-Line to seek additional financing and to use part
of the proceeds therefrom to satisfy the Jet-Line Note in full.
However, the Company has been notified by the Business Loan
Center who made a U.S. Small Business Administration Guaranteed
Loan of $550,000 in 1994, that it would liquidate the Jet-Line
assets.
Thus, there can be no assurance that the Company will ultimately
be paid any of the full principal amount and accrued interest on
the Jet-Line Note. Management has not accrued interest on the
Note and has revised its allowance for doubtful accounts to
$300,000.
NOTE 10: OFFICERS' COMPENSATION PAYABLE
Officers' compensation payable consists of the following:
December 31, 1997
-----------------
<TABLE>
<CAPTION>
<S> <C> <C>
Drury J. Gallagher $ 54,982.
Robert A. Garrison 5,752.
------
$ 60,734.
=========
</TABLE>
(see Note 15)
<PAGE>
Page 14
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Notes to Financial Statements
December 31, 1997
NOTE 11: ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses include the following:
December 31, 1997
<TABLE>
<CAPTION>
<S> <C> <C>
Legal - General Counsel $ 26,403.
Legal - PBW&T (see Note 6) 29,110.
Rent 18,000.
Other Miscellaneous 26,242.
---------
$ 99,755.
=========
</TABLE>
NOTE 12: NOTES PAYABLE
Drury Gallagher loaned the Company $192,000. The Note evidencing
the loan bears interest at 10% per annum and was due on or
before June 30, 1997, together with accrued and unpaid interest.
The Note was repaid in full together with interest thereon.
NOTE 13: CONFIDENTIAL PRIVATE PLACEMENT MEMORANDUM
Pursuant to a Private Placement Offering dated May 17, 1995, as
amended, the Company issued $500,000 of 10% Convertible Senior
Notes due December 31, 1996. Expenses in connection with the
Offering were $78,427.
Each $1,000 Convertible Note entitled the holder to 400 shares
of common stock and warrants to purchase 800 shares of common
stock at an adjusted exercise price of $.50 per share at any
time before December 31, 1998. The exercise price was
subsequently reduced to $.125 per share to reflect the current
market valuation as determined by management.
In accordance with the Offering, interest was not payable on the
Notes so long as they were converted to equity within a
specified time frame. After the December 1, 1995 Eyre closing,
the entire $500,000 of Convertible Notes were exchanged for
200,000 shares of common stock.
<PAGE>
Page 15
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Notes to Financial Statements
December 31, 1997
NOTE 14: WARRANTS OUTSTANDING
The Company had warrants outstanding as follows:
<TABLE>
<CAPTION>
# Shares Right Price/Share Expiration
Warrant Holder(s) to Purchase Exercisable at Date
<S> <C> <C> <C>
Stockholders through Note
Conversion (Note 5) 400,000 $ .125 12/31/98
Other 4,000 $5.00 11/30/98
---------
404,000
---------
---------
</TABLE>
NOTE 15: OFFICERS' COMPENSATION, INCENTIVE STOCK OPTIONS AND STOCK
APPRECIATION RIGHTS
Management presently consists of Mr. Drury J. Gallagher and Mr.
Robert A. Garrison. Mr. Gallagher had been President of the
Company and a stockholder since 1981; he is currently Chairman
of the Company. Mr. Garrison was subsequently hired to oversee
mining and related financing activities, and is currently
President. Messrs. Gallagher and Garrison entered into
employment agreements with the Company effective July 1, 1995.
Each is entitled to receive a base salary of $100,000 per year
for 50% of their time for a three-year term. The agreements call
for automatic annual increases as defined. The Board may award
bonuses up to 50% of base compensation.
On January 3, 1997, the Board of Directors of the Company
approved the issuance of 1,000,000 shares of its common stock to
each of Messrs. Gallagher and Garrison in exchange for (a)in Mr.
Gallagher's case, the cancellation of $100,000 of accrued
salary, the cancellations of his options to acquire 175,000
shares of the common stock of the Company and the cancellation
of his stock appreciation rights (the "SARs") which, under
certain circumstances, could have resulted in the issuance to
him of up to 37,500 shares of the Company's common stock; and
(b)in Mr. Garrison's case, the cancellation of $100,000 of
accrued salary, the cancellation of his options to buy 75,000
shares of the Company's common stock and the cancellation of his
SARs. The Company made such transfer to reward each of them for
their efforts to secure financing for the Company and/or the
Armenian mining project, for maintaining the Company's existence
in the face of the Company's potential insolvency through
personal guarantees up to $500,000, and to increase their
proprietary stake in the day-to-day management of the Company.
In 1997, Eyre questioned the validity of the issuance by the
Company of 1,000,000 shares of its common stock to each of
Messrs. Gallagher and Garrison.
<PAGE>
Page 16
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Notes to Financial Statements
December 31, 1997
NOTE 15: OFFICERS' COMPENSATION, INCENTIVE STOCK OPTIONS AND STOCK
APPRECIATION RIGHTS (continued)
Global Gold Armenia Limited ("GGA") agreed to retain Robert A.
Garrison as a consultant for a three-year period commencing
February 1, 1997 for $150,000 per annum pursuant to the terms of
the consulting agreement entered into between such parties.
Under such agreement, Mr. Garrison will serve as a Senior Vice
President and Director of GGA, will assist it in furtherance of
its business interests under the supervision of the Board of
Directors of GGA and provide ongoing management as the Board of
Directors of GGA reasonably requests of him from time to time.
Mr. Garrison agreed to devote 50% of his time and attention to
the performance of his services under such agreement in his
capacity as an independent contractor. Such agreement is
terminable by the consultant upon 90 days prior written notice
to GGA (or lesser notice if GGA agrees to such shorter period),
or for cause (as defined therein) or without cause which, in
such latter case, would require GGA to pay Mr. Garrison the
amount of his consulting fees remaining unpaid under such
agreement. Such agreement is in lieu of the above-mentioned
salary.
NOTE 16: NON-UNITED STATES WHOLLY-OWNED SUBSIDIARIES / INCOME TAX
MATTERS
On November 29, 1995, the Company formed Global Gold Armenia
Limited and Global Gold Georgia Limited, which were respectively
assigned the Armenian and Georgian mining rights from Eyre at
the closing on December 1, 1995 (Note 5). The two subsidiaries
are Cayman Island entities which were granted a twenty- year tax
exemption from any law of that jurisdiction which hereafter
imposes any tax to be levied on profits, income, gains or
appreciation, commencing December 19, 1995.
The Company experienced net operating losses for each of the
years ended December 31, 1996 and 1997. The Company has elected
to carryforward such losses for federal income tax purposes and
offset future taxable earnings. However, since the Company is a
development stage company and its ability to obtain future
earnings is uncertain, no deferred tax asset has been recorded.
The offshore companies were formed in part as a result of the
concerns of Eyre, the previous Australian owner of the mining
rights and presently a substantial non-controlling stockholder
group of the Company, that they not be exposed to two layers of
corporate taxation: United States and Australia. The Company
will obtain a tax opinion on the transaction, which will also
seek to give greater comfort to current and future U.S. and
non-U.S. shareholders, that the structure will in fact satisfy
realistic income tax goals of all concerned parties.
<PAGE>
Page 17
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Notes to Financial Statements
December 31, 1997
NOTE 16: NON-UNITED STATES WHOLLY-OWNED SUBSIDIARIES / INCOME TAX MATTERS
(continued)
Inasmuch as management valued the shares of stock distributed to
Eyre in exchange for acquiring the aforementioned mining
interests at $.085 per share (such interests, described herein,
were not substantially perfected at the time of the
transaction), it is management's position that even if the
Internal Revenue Service deemed the transaction to be a taxable
event, there would nevertheless be insignificant income tax
consequences. However, there can be no such assurance
Furthermore, the Company will determine that the structure
will not in any way be a deterrant from obtaining future
financing or political risk insurance. Management will
consider future structural changes, if necessary.
NOTE 17: NET LOSS PER SHARE
Net loss per share is computed using the weighted average number
of shares outstanding during the period. Common stock
equivalents have not been included since the effect would be
antidilutive.
NOTE 18: REVERSE STOCK SPLIT
Various prospective investment banking firms and potential
investors who expressed an interest in providing funding for the
Company's projects in 1996 requested that the Company undertake
a reverse split of its common stock to decrease the number of
shares outstanding and thereby facilitate possible future
financings. Accordingly, the Company effected a 1 for 10 reverse
split of its common stock effective as of December 31, 1996.
Such step was taken by the written consent of the holders of a
majority of the Company's issued and outstanding shares of
common stock. By virtue of the reverse split, each stockholder's
number of shares of common stock became one-tenth of the number
previously held. The Company filed its Certificate of Amendment
to the Certificate of Incorporation with respect to the reverse
split with the Delaware Secretary of State on December 31, 1996.
All share and per share data in this report have been restated
to reflect the reverse stock split, unless otherwise noted.
<PAGE>
Page 18
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Notes to Financial Statements
December 31, 1997
NOTE 19: FIRST DYNASTY MINES LTD.
The Company, GGA and First Dynasty Mines Ltd. ("First Dynasty"),
a Canadian public company, entered into a preliminary agreement
dated January 27, 1997, whereby First Dynasty agreed to advance
funds in stages necessary for the development of the Armenian
mining projects.
The Company and First Dynasty entered into a definitive
agreement dated May 13, 1997, reflecting the final agreement of
the parties with respect to the Armenian mining projects (the
"FDM Agreement"). The principal terms of the FDM Agreement are
outlined as follows:
First Dynasty agreed to advance a maximum of $24,510,000 under
the FDM Agreement. All funds advanced by First Dynasty will be
advanced to GGA as debt, which is convertible into stock of GGA
at First Dynasty's option, or is automatically converted into
such stock under certain circumstances, as follows:
a. The first $6,490,000 of debt is convertible into 25% of the
capital stock of GGA.
b. The next $3,520,000 of debt together with the advance
described above is convertible into 51% of the capital stock
of GGA.
c. For every additional $.5 million advanced in respect of the
development of the Zod and Meghradzor mines (excluding the
$10,010,000 Tailings Project expenditure) as a loan to GGA,
such debt is convertible into an additional 1% of the
capital stock of GGA, up to a maximum of 80% of the issued
and outstanding shares of capital stock of GGA.
Upon obtaining 80% of the capital stock of GGA, or upon making
aggregate advances of $24,510,000, First Dynasty would be
entitled to acquire the remaining 20% of the outstanding capital
stock of GGA within 18 months after making such total advances,
by issuance of 4,000,000 shares of its common stock, except that
such number of shares would be increased proportionately to the
extent that the mineable reserves at the Zod and Meghradzor
mines (which are established at the end of such 18 month period)
exceed five million ounces.
First Dynasty carried out certain initial commitments in
February 1997. They loaned GGA $675,000 to pay outstanding
payables, agreed to fund the $640,000 Tailings Dam Construction
Contract and agreed to guarantee or co-sign up to $3,500,000 of
the equipment purchase contract and up to $1,000,000 of the
engineering, procurement, construction management agreement
between the Venture and a Canadian engineering firm. First
Dynasty further agreed to loan the Company an additional
$675,000 to cover the balance of the oustanding payables.
<PAGE>
Page 19
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Notes to Financial Statements
December 31, 1997
NOTE 19: FIRST DYNASTY MINES LTD. (continued)
In addition, First Dynasty agreed to pay the Company $400,000 to
defray its expenses in participating in the negotiation of the
second Armenian Joint Venture Agreement, of which $200,000 was
paid upon the execution and the delivery of the FDM Agreement,
and the balance of $200,000 will be paid on June 30, 1998. This
amount is recorded as a Note Receivable as of December 31, 1997.
Although not reflected in the FDM Agreement, First Dynasty also
paid the Company $141,155 on May 15, 1997 to defray the expenses
incurred by GGA during the three-month period ending March 31,
1997. The total cash and notes received of $1,891,155 from First
Dynasty was offset against the investment in Armenia mining
interests of $944,465, deferred costs of January 1, 1997 as
adjusted of $929,015 and organization costs of $4,800, resulting
in a profit of $12,875.
As of December 31, 1997, First Dynasty had advanced $18,270,874,
of which $17,510,000 of the loans were converted into 66% of the
capital per the Agreement. All such funds were paid into the
AGRC Joint Venture (Note 7).
Financial information for the 34% owned unconsolidated affiliate
accounted for by the equity method is as follows:
Balance Sheet
<TABLE>
<S> <C>
Deferred mine costs $16,840,758.
Other assets 3,265,202.
------------
$20,105,960.
------------
------------
Liabilities $ 2,595,960.
Equity 17,510,000.
------------
$20,105,960.
------------
------------
</TABLE>
The Company is a development stage company and, as such, has no
revenues or expenses.
At present, the Company and GGA, in conjunction with First
Dynasty, negotiated for AGRC to develop the Zod and Meghradzor
mines and concluded the Amended Armenian Joint Venture Agreement
on September 30, 1997, subject to the passage of a parliamentary
decree approving it. However, the Armenian government has not
passed the parliamentary decree as of this date. However, there
can be no assurance that any Armenian parliamentary decree
approving the Amended Armenian Joint Venture Agreement will be
passed or, if so, when such decree will be passed. While the
Company is hopeful of achieving such result, there can be no
assurance of such result.
In connection with the First Dynasty financing, the Company paid
a Finders Fee of 125,000 shares of its common stock to each of
Walker Investments Ltd. and Alpine Holdings Ltd. at $.10 per
share which approximated fair market value as determined by
management.
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------
1 Certificate of Incorporation, as amended.(1)
2 By-laws(1)
3 Certificate of Merger between the Registrant
and Everest Petroleum Inc.(1)
4 Agreement of Merger between the
Registrant and Everest Petroleum Inc.(1)
5 Asset Purchase Agreement between the
Registrant and Eyre Resources N.L. dated as
of June 30, 1995(1)
6 Form of 1995 Stock Option Plan+(1)
7 Letter Agreement between Registrant, Eyre
Resources N.L. and Robert A. Garrison+(1)
8 Employment Agreement between the
Registrant and Drury J. Gallagher dated as of
July 1, 1995+(2)
9 Employment Agreement between the
Registrant and Robert A. Garrison dated as
of July 1, 1995+(2)
10 Employment Agreement between Autosport
(Asia) Pte. Ltd. and Robert A. Garrison
dated as of July 1, 1996+(2)
- ----------
* Filed herewith.
+ Management contract or compensatory plan or arrangement.
(1) Filed with 10-KSB for period ended December 31, 1994.
(2) Filed with 10-KSB for period ended December 31, 1995.
(3) Filed with 10-KSB for period ended December 31, 1996.
35
<PAGE>
11 Stock Option Agreement between the
Registrant and Drury J. Gallagher dated as of
July 1, 1995 with respect to the grant of
1,000,000 shares of the Company's Common
Stock+(2)
12 Stock Option Agreement between the
Registrant and Drury J. Gallagher dated as of
July 1, 1995 with respect to the grant of
487,500 shares of the Company's Common
Stock+(2)
13 Stock Option Agreement between the
Registrant and Drury J. Gallagher dated as of
July 1, 1995 with respect to the grant of
12,500 shares of the Company's Common
Stock+(2)
14 Stock Option Agreement between the
Registrant and Robert A. Garrison dated as
of July 1, 1995 with respect to the grant of
487,500 shares of the Company's Common
Stock+(2)
15 Stock Option Agreement between the
Registrant and Robert A. Garrison dated as
of July 1, 1995 with respect to the grant of
12,500 shares of the Company's Common
Stock+(2)
16 Stock Appreciation Rights Agreement
between the Registrant and Drury J.
Gallagher dated July 21, 1995+(2)
17 Stock Appreciation Rights Agreement
between the Registrant and Robert A.
Garrison dated July 21, 1995+(2)
18 Assignment and Assumption Agreement
between Eyre Resources N.L. and Global
Gold Armenia Limited dated December 1,
1995(2)
36
<PAGE>
19 Assignment and Assumption Agreement
between Eyre Resources N.L. and Global
Gold Georgia Limited dated December 1,
1995(2)
20 Assignment and Assumption Agreement
between Eyre Resources N.L. and Global
Gold Australia Limited dated December 1,
1995(2)
21 Promissory Note of the Registrant dated
December 1, 1995 in the principal amount of
$100,000(2)
22 Promissory Note of the Registrant dated as
of December 1, 1995 in the principal amount
of $100,000(2)
23 Stockholders Agreement by and among the
Registrant, Eyre Resources N.L., the Parry-
Beaumont Trust, Drury J. Gallagher, Francis
A. Hayman, John Hayman. Howard G. Seitz
and George L. Ryan dated December 1,
1995(2)
24 Guarantee and Indemnification Agreement of
the Registrant dated December 1, 1995(2)
25 Warrant Agreement to purchase 20,000
shares of the Registrant's Common Stock
dated December 1, 1995 issued to David
Steadly(2)
26 Warrant Agreement to purchase 20,000
shares of the Registrant's Common Stock
dated December 1, 1995 issued to Karekin
Arzoomanian(2)
27 Form of Warrant Agreement issued to 20
purchasers of the Registrant's 10%
Convertible Notes pursuant to the
Confidential Private Placement Memorandum
dated May 17, 1995, as amended(2)
37
<PAGE>
28 Restructuring Agreement dated as of
December 1, 1995 by and among the
Registrant, Global Gold Armenia Ltd.,
Global Gold Georgia Ltd., Global Gold
Australia Ltd., Eyre Resources N.L., and the
Parry-Beaumont Trust (2)
29 Promissory Note of Global Gold Armenia
Limited dated as of December 1, 1995 in the
principal amount of $802,740(2)
30 Promissory Note of Global Gold Georgia
Limited dated as of December 1, 1995 in the
principal amount of $47,260(2)
31 Amended Employment Agreement between
the Registrant and Robert A. Garrison dated
as of April 11, 1996+(2)
32 Agreement No. 1 by and between the
Registrant, London & International
Mercantile Limited and HCL
Communications Ltd.(3)
33 Agreement No. 2 by and between the
Registrant, London & International
Mercantile Limited and HCL
Communications Ltd.(3)
34 Warrant Agreements to purchase 2,000,000
shares of the Registrant's Common Stock
issued to London & International Mercantile
Limited and HCL Communications Ltd.
under Agreement No. 1 with such party. (3)
35 Warrant Agreements to purchase 2,000,000
shares of the Registrant's Common Stock
issued to London & International Mercantile
Limited and HCL Communications Ltd.
under Agreement No. 2 with such party. (3)
36 Assignment and Assumption Agreement
between the Registrant and Global Gold
Armenia Limited dated as of July 30, 1996. (3)
37 Stock Option Agreement between the
Registrant and Drury J. Gallagher dated as
of July 19, 1996, as amended on
November 4, 1996+ (3)
38
<PAGE>
38 Stock Option Agreement between the
Registrant and Robert A. Garrison dated as
of July 19, 1996, as amended on
November 4, 1996+ (3)
39 Restructuring Agreement dated December
4, 1996 by and among the Registrant,
Eyre Resources N.L. and the
Parry-Beaumont Trust (3)
40 Certificate of Amendment to the Certificate
of Incorporation of the Registrant filed
with the Delaware Secretary of State on
December 31, 1996 (3)
41 Unanimous Written Consent of the Board
of Directors of the Registrant dated as of
January 3, 1997, approving the transfer of
1,000,000 shares of the Registrant's
Common Stock to each of Drury J.
Gallagher and Robert A. Garrison.+ (3)
42 Letter Agreement by and among the
Registrant, Global Gold Armenia Limited
and First Dynasty Mines Ltd. (3)
43 Debenture of Global Gold Armenia Limited
issued to First Dynasty Mines Ltd. dated
February 3, 1997, including Guarantee
thereof by the Registrant (3)
44 Global Gold Armenia Limited Charge Over
Shares issued to First Dynasty Mines Ltd.
dated February 3, 1997 (3)
45 Form of Amendments No. 2, 3 and 4 to Warrant
Agreement issued to the purchasers of the
Registrant's 10% Convertible Notes pursuant to the
Confidential Private Placement Memorandum dated
May 17, 1995, as amended (3)
46 Definitive Agreement by and among the Registrant,
Global Gold Armenia Limited and First Dynasty
Mines Ltd. dated as of May 13, 1997*
47 First Amendment to the Definitive Agreement by and
among the Registrant, Global Gold Armenia Limited
and First Dynasty Mines Ltd. dated as of October
10, 1997*
48 Restated Employment Agreement between the
Registrant and Drury J. Gallagher dated as of July
1, 1997+*
49 Restated Debenture of Global Gold Armenia Limited
issued to First Dynasty Mines Ltd. dated October
3, 1997, including Guarantee thereof issued by the
Registrant*
50 Form of Amendment No. 5 to Warrant Agreement
issued to the purchasers of the Registrant's 10%
Convertible Notes pursuant to the Confidential
Private Placement Memorandum dated May 17, 1995,
as amended*
39
<PAGE>
PRIVILEGED AND CONFIDENTIAL DRAFT TO BE CIRCULATED FOR
COMMENTS SOLELY AS TO FORM
Opinion of Financial Advisor to Walsh International
Pursuant to an engagement letter dated October 15, 1997 (the "NMS
Engagement Letter"), the Board of Directors of Walsh International Inc. (the
"Walsh Board") retained NationsBanc Montgomery Securities LLC ("NMS") to act
as a financial advisor in connection with its consideration of the Merger.
NMS is an internationally recognized firm and, as part of its investment
banking activities, is regularly engaged in the valuation of businesses and
their securities in connection with merger transactions and other types of
acquisitions, negotiated underwritings, secondary distributions of listed and
unlisted securities, private placements and valuations for corporate and
other purposes. Pursuant to the NMS Engagement Letter, the Walsh Board
engaged NMS to act as its financial advisor in connection with a possible
sale of the Company. Walsh has also agreed to pay NMS 1.30% of the equity
value of the Company upon sale of the Company that includes rendering its
opinion to the Walsh Board. Walsh has also agreed to reimburse NMS for
reasonable out-of-pocket expenses. Pursuant to a separate letter agreement,
the Company has agreed to indemnify NMS, its affiliates, and their directors,
officers, agents, consultants, employees and controlling persons against
certain liabilities, including liabilities under federal securities laws.
In the ordinary course of business, NMS actively trades equity
securities of Walsh for its own account and for the account of customers and
holds a long position in such securities. NMS has also performed investment
banking services for Walsh. In April 1993, NMS acted as a lead manager of a
private placement for Walsh Preferred Stock. In April 1996, NMS acted as
co-manager of an underwritten initial public offering of Walsh Common Stock.
Walsh selected NMS as its financial advisor on the basis of its
experience and expertise in transactions similar to the Merger, its
reputation in the healthcare information services sector, healthcare services
sector and investment communities and its knowledge of and familiarity with
Walsh resulting from the investment banking services it has previously
provided to Walsh. NMS was not retained to, nor did it, advise the Walsh
Board with respect to alternatives to the Merger or Walsh's underlying
decision to proceed with or effect the Merger.
On March 23, 1998 NMS rendered its opinion to the Walsh Board that
pursuant to the terms of the Merger, as set forth in the Merger Agreement,
the Parent Exchange Ratio and the IMS Adjustment factor are fair to the
stockholders of Walsh from a financial point of view, as of the date thereof.
No limitations were imposed by the Walsh Board on the scope of NMS's
investigation or the procedures to be followed by NMS in rendering its
opinion. NMS did not determine the form of
<PAGE>
consideration to be received by Walsh in connection with the Merger, which
was agreed to as a result of negotiations between Walsh and Cognizant.
The full text of NMS's written opinion to the Walsh Board is attached
hereto as Annex B and is incorporated herein by reference. The following
summary of NMS's opinion is qualified in its entirety by reference to the
full text of such opinion. NMS's opinion is directed only to the fairness of
the Parent Exchange Ratio and the IMS Adjustment Factor, from a financial
point of view, being received by Walsh in connection with the Merger, as set
forth in the Merger Agreement. NMS's opinion has been provided for the use of
the Walsh Board in its evaluation of the Merger, and does not address any
other aspect of the Merger. NMS's opinion is addressed to the Walsh Board and
does not constitute a recommendation to any stockholder of Walsh as to how
such stockholder should vote with respect to the Merger.
In connection with our opinion, we have, among other things: (i)
reviewed certain publicly available financial and other data and respect to
Seller and Buyer, including the consolidated financial statements for recent
years and interim periods to December 31, 1997 and certain other relevant
financial and operating data relating to Seller and Buyer made available to
us from published sources and from the internal records of Seller and Buyer;
(iii) reviewed the financial terms and conditions of the Merger Agreement;
(iv) reviewed certain publicly available information concerning the trading
of, and the trading market for, Seller Common Stock and Buyer Common Stock;
(v) compared Seller and Buyer from a financial point of view with certain
other companies in the health care information services and marketing
information systems industries which we deemed to be relevant; (vi)
considered the financial terms, to the extent publicly available, of selected
recent business combinations of companies in the health care services and
software industries which we deemed to be comparable, in whole or in part,
to the Merger; (vii) reviewed and discussed with representatives of the
management of Seller and Buyer certain information of a business and
financial nature regarding Seller and Buyer, including financial forecasts
and related assumptions of Seller furnished to us by Seller and financial
forecasts and related assumptions for Buyer prepared by us in consultation
with management of Buyer; (viii) made inquiries regarding and discussed the
Merger and the Merger Agreement and other matters related thereto with
Seller's management and Seller's counsel; and (ix) performed such other
analyses and examinations as we have deemed appropriate.
In connection with our review, we have not assumed any obligation
independently to verify the foregoing information and have relied on its
being accurate and complete in all material respects. With respect to the
financial forecast for Seller provided to us by their management and the
financial forecast for Buyer prepared by us in consultation with management
of Buyer, upon the advice of
<PAGE>
management of Seller and Buyer and with your consent we have assumed for
purposes of our opinion that the forecasts (including the assumptions
regarding expected revenue enhancements and cost savings, the amount of
goodwill that can be attributed to the write-down of research and development
costs, and other merger related costs) have been reasonably prepared on bases
reflecting the best available estimates and judgments of their respective
managements at the time of preparation as to the future financial performance
of Seller and Buyer and that they provide a reasonable basis upon which we
can form our opinion. We have also assumed that there have been no material
changes in Seller's or Buyer's assets, financial condition, results of
operations, business or prospects since the respective dates of their last
financial statements made available to us. In our review of the proposed Merger
and its financial terms and conditions, we were not asked to, nor did we, make
any assessment of the proposed structure or likelihood of the Parent
Transaction, nor did we make any evaluation of the likely trading prices for
the IMS Common Stock following the completion of the Parent Transaction. We
have relied on advice of counsel and independent accountants to Seller as to
all legal, tax and financial reporting matters with respect to Seller, the
Merger and the Merger Agreement. We have assumed that the Merger will be
consummated in a manner that complies in all respects with the applicable
provisions of the Securities Act of 1933, as amended (the "Securities Act"),
the Securities Exchange Act of 1934 and all other applicable federal and
state statutes, rules and regulations. In addition, we have not assumed
responsibility for making an independent evaluation, appraisal or physical
inspection of any of the assets or liabilities (contingent or otherwise) of
Seller or Buyer, nor have we been furnished with any such appraisals. You
have informed us, and we have assumed, that the Merger will be recorded as a
purchase under generally accepted accounting principles. Finally, our opinion
is based on economic, monetary and market and other conditions as in effect
on, and the information made available to us as of, the date hereof.
Accordingly, although subsequent developments may affect this opinion, we
have not assumed any obligation to update, revise or reaffirm this opinion.
The following is a brief summary of the report presented to Walsh's Board
by NMS on March 23, 1998, in connection with its opinion.
Comparable Public Company Analysis: NMS compared the historical financial,
operating and stock market performances of certain publicly traded companies
that it considered relevant in evaluating the historical financial and
operating performance of Walsh. In particular, these companies were analyzed
with respect to their price/earnings ("P/E") multiples (defined as most
recent stock price divided by the 1998 expected earnings per share) and
secular growth rates.
NMS examined the P/E of healthcare database companies, pharmaceutical
specific healthcare information management companies and other marketing
information services companies. The healthcare database companies that NMS
used
<PAGE>
for its analysis included APACHE Medical Systems, Inc., Mecon, Inc., MedQuist
Inc., Summit Medical Systems, HCIA, Inc., HBO & Company and Cerner Corp. As
of March 20, 1998, the average and median P/E multiples were 38.8x and 40.5x,
respectively. The pharmaceutical specific healthcare information companies
included Dendrite International, Inc., Walsh International Inc. and Cognizant
Corporation. As of March 20, 1998, the average and median P/E multiples of
these companies were 27.0x and 24.8x, respectively. The other marketing
information services companies included Abacus Direct Corporation, Acxiom
Corp., American Business Information Inc., May & Speh, Inc., LCS Industries
Inc., Information Resources, Inc. and Snyder Communications, Inc. As of
March 20, 1998, the average and median P/E multiples of these companies were
29.5x and 25.4x, respectively. Based on the businesses and growth rates of
the companies used in our analysis, NMS deemed certain companies to be more
relevant for this analysis. The relevant companies included HBO & Company,
Cerner Corp., Cognizant Corporation, Dendrite International, Inc., May &
Speh, Inc. and Information Resources, Inc. As of March 20, 1998, the average
and median P/E multiples of the relevant companies were 30.8x and 29.6x,
respectively. As of March 20, 1998 the average and median of the all the
companies used in this analysis were 31.6x and 33.0x, respectively.
NMS also examined the implied P/E multiples based on the P/E to secular
growth ratio of the comparable companies. As of March 20, 1998 the implied
P/E multiples based on the P/E to secular growth ration of the relevant
companies were 31.1x and 31.4x, respectively, and the average and median
implied P/E multiples based on the P/E to secular growth ratio of all the
companies used in this analysis were 30.2x and 31.0x, respectively.
Based on the low liquidity and trading volume of Walsh's Stock, NMS
deemed the comparable public companies based valuation methodology to have
limited relevance to Walsh stand-alone valuation.
Comparable Transaction Analysis: NMS examined 75 pending and completed
business combinations in the healthcare information services sector with a
special emphasis on 14 healthcare database and software business
combinations, that were deemed more relevant, with regards to the last twelve
months ("LTM") revenue, LTM EBIT and LTM net income multiples paid in these
transactions. The relevant transactions include (target / acquiror) Medicus
Systems Corp. / QuadraMed Corp., National Health Enhancement Systems, Inc. /
HBO & Company, HPR Inc. / HBO & Company, Enterprise Systems, Inc. / HBO &
Company, GMIS Inc. / HBO & Company, Management Software Inc. / HBO & Company,
CyCare Systems, Inc. / HBO & Company, Versyss Incorporated / Physician
Computer Network, Inc., Clinicom Incorporated / HBO & Company, GTE Health
Systems Incorporated / Shared Medical Systems Corporation, Serving Software,
Inc. / HBO & Company, Health Economics Corp. / Equifax Inc., Allcare
Medication Services Inc. / Synetic,
<PAGE>
Inc., IMS International/Dun & Bradstreet Corp. The average and median LTM
revenue multiples paid in the relevant business combinations were 3.5x and
3.6x, respectively. The average and median LTM EBIT multiples paid in the
relevant business combinations were 33.5x and 34.3x. The average and median
LTM net income multiples paid in the relevant business combinations were
41.0x and 39.9x, respectively. The average and median LTM revenue multiples
paid in all transactions were 3.2x and 2.6x, respectively. The average and
median LTM EBIT multiples paid in all transactions were 22.6x and 18.8x,
respectively. The average and median LTM net income multiples paid in all
transactions were 31.7x and 29.1x, respectively.
Based on the transaction structures, and the financial condition of the
targets and acquirors at the time of theses transactions, NMS deemed the
comparable transactions based on valuation methodology to be moderately
relevant.
PREMIUM PAID ANALYSIS: NMS reviewed the premiums paid in 16 transactions in
the healthcare services industry and 25 transactions in the technology and
software industries that are deemed to be comparable to the Merger with
transaction values between $100 million and $250 million since 1993. In each
of the transactions analyzed, NMS calculated the premiums of the price paid
by acquirors over the target company's stock price one day, one week and one
month prior to public announcement of the transaction. These calculations
yielded median premiums based on the target company's stock price one day,
one week and one month prior to public announcement of the transaction of
21.2%, 34.0% and 35.4%, respectively. NMS then applied these premiums to
Walsh's stock price one day, one week and one month prior to public
announcement of the transaction as of March 20, 1998. These calculations
yielded implied value per share based on premiums paid one day, one week and
one month prior to the announcement of this transaction of $16.51, $15.41 and
$13.88 respectively. NMS deemed the historical premiums based valuation
methodology to be most relevant.
DISCOUNTED CASH FLOW ANALYSIS: NMS performed discounted cash flow analysis on
certain projected financial statements that were provided to NMS by the
management of Walsh. In performing this analysis, NMS calculated the
projected stand-alone unlevered after-tax cash flow of Walsh for the calendar
year 1998 through 2007. NMS calculated Walsh's terminal values in calendar
year 2007 based on the aggregate value/EBIT multiples ranging from 16.0x to
20.0x. The unlevered after-tax cash flows and the terminal values were
discounted to the present using discount rates ranging from 13.0% to 17.0%.
This analysis yielded an equity value range for Walsh of $11.83 and $17.53
per fully diluted share. NMS deemed the discounted cash flow based valuation
methodology to be relevant.
CONTRIBUTION ANALYSIS: NMS analyzed and compared the respective contributions
of Walsh and Cognizant to the pro forma combined company's net income for
calendar
<PAGE>
years 1997 and 1998 and to the pro forma ownership of the respective
stockholders in the combined company upon consummation of the Merger. Based
on the historical financials for 1997 for Walsh and Cognizant, Walsh
contributed 1.8% of the net income in 1997. Based on management projections
for Walsh and NMS projections for Cognizant for 1998, Walsh would contribute
2.2% of the net income in 1998 of the pro forma combined company. Based on
the Parent Exchange Ratio, Walsh's existing shareholders would own
approximately 2.0% of the pro forma combined company, on a fully diluted
basis, upon consummation of the Merger. NMS deemed the contributions
valuation methodology to be relevant.
Pro Forma Merger Analysis: NMS analyzed the impact of the Merger on Cognizant
stockholders on a pro forma fully diluted EPS basis for calendar year 1998
and 1999. NMS used management estimates for calendar year 1998 for Walsh and
used NMS estimates for 1999 for Walsh and 1998 and 1999 for Cognizant. NMS
performed the analysis with giving effect to the synergies anticipated by the
managements of Walsh and Cognizant to result from the Merger (excluding
non-recurring costs resulting from the Merger) in each year. The analysis
indicated that, for Cognizant stockholders, the Merger would be EPS neutral
in 1998 and EPS accretive in 1999. The actual results achieved by the pro
forma combined company may vary from projected results and the variations may
be material.
The summary set forth above does not purport to be a complete description
of the presentation by NMS to the Walsh Board or the analyses performed by
NMS. The preparation of a fairness opinion is not necessarily susceptible to
partial analysis or summary description. NMS believes that its analyses and
the summary set forth above must be considered as a whole and that selecting
portions of its analyses and of the factors considered, without considering
all the analyses and factors, would create an incomplete view of the process
underlying the analyses set forth in its presentation to the Walsh Board. In
addition, NMS may have given various analyses more or less weight than other
analyses, and may have deemed various assumptions more or less probable than
other assumptions so that the valuation figures resulting from any
particular analysis described above should not be taken to be NMS's view of
the actual value of Walsh. In arriving at its opinion, NMS did not ascribe a
specific range of values to Walsh, but rather made its determination as to
the fairness, from a financial point of view, of the Parent Exchange Ratio
and the IMS Adjustment Factor to be received by Walsh in connection with the
proposed Merger on the basis of the financial and comparative analyses
described above.
In performing its analyses, NMS made numerous assumptions with respect to
industry performance, general business and economic conditions and other
matters. The analyses performed by NMS are not necessarily indicative of
actual values or actual future results, which may be significantly more or
less favorable than suggested by such analyses. Such analyses were prepared
solely as part of
<PAGE>
NMS's analysis of the fairness of the Parent Exchange Ratio and the IMS
Adjustment Factor, from a financial point of view to the shareholders of
Walsh, as set forth in the Merger Agreement and were provided to Walsh's
Board in connection with the delivery of NMS's opinion. The analyses do not
purport to be appraisals or to reflect the prices at which a company might
actually be sold or the prices at which any securities may trade at the
present time or at any time in the future. NMS used in its analyses various
projections of future performance prepared by the management of Cognizant.
The projections are based on numerous variables and assumptions which are
inherently unpredictable and must be considered not certain of occurrence as
projected. Accordingly, actual results could vary significantly from those
set forth in such projections.
<PAGE>
Exhibit 46
DEFINITIVE AGREEMENT
THIS AGREEMENT made as of the 13th day of May, 1997.
AMONG:
FIRST DYNASTY MINES LTD., a corporation continued under the
laws of the Yukon and having its head office at No. 1
Temasek Avenue, 37th Floor, Millenia Tower, Singapore 039192
("FDM")
AND:
GLOBAL GOLD CORPORATION, a corporation incorporated under
the laws of Delaware and having an office at 438 West 37th
Street, Suite 5G, New York, New York 10018
("Global Gold")
AND:
GLOBAL GOLD ARMENIA LIMITED, a corporation incorporated
under the laws of the Cayman Islands and having an address
c/o W.S. Walker & Company, Caledonian House, P.O. Box 265
George Town, Grand Cayman
("Global Armenia")
WHEREAS:
(A) capitalized terms used in these recitals without definition have the
meanings assigned to them in Section 1.1 hereof; and
(B) on January 27, 1996, the parties hereto entered into the Term Sheet
Agreement, pursuant to which the parties agreed to enter into this Agreement to
replace the Term Sheet Agreement.
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NOW THEREFORE THIS AGREEMENT WITNESSES THAT in consideration of the premises and
the respective covenants and agreements herein contained, the parties hereto
covenant and agree as follows:
PART 1
DEFINITIONS AND INTERPRETATION
DEFINITIONS
1.1 In this Agreement and the recitals hereto, unless the context otherwise
requires, the following terms shall have the meanings hereinafter set forth:
"AGRC ARARAT" means Armenian Gold Recovery Ararat Company, a joint venture
limited liability company to be formed under the laws of the Republic of Armenia
pursuant to the Second Joint Venture Agreement and to be owned as agreed by the
Armenian Parties and Global Armenia;
"AGRC EXPLORATION" means Armenian Gold Recovery Exploration Company, a joint
venture limited liability company to be formed under the laws of the Republic of
Armenia pursuant to the Second Joint Venture Agreement and to be owned, as to
50%, by the Armenian Parties and, as to 50%, by Global Armenia;
"AGRC MEGHRADZOR" means Armenian Gold Recovery Meghradzor Company, a joint
venture limited liability company to be formed under the laws of the Republic of
Armenia pursuant to the Second Joint Venture Agreement and to be owned, as to
50%, by the Armenian Parties and, as to 50%, by Global Armenia;
"AGRC REFINERY" means Armenian Gold Recovery Refinery Company, a joint venture
limited liability company to be formed under the laws of the Republic of Armenia
pursuant to the Second Joint Venture Agreement and to be owned, as agreed by the
Armenian Parties and Global Armenia;
"AGRC TAILINGS" means Armenian Gold Recovery Tailings Company, a joint venture
limited liability company formed under the laws of the Republic of Armenia
pursuant to the First Joint Venture Agreement and owned, as to 50%, by the
Armenian Parties and, as to 50%, by Global Armenia;
"AGRC ZOD" means Armenian Gold Recovery Zod Company, a joint venture limited
liability company to be formed under the laws of the Republic of Armenia
pursuant to the
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Second Joint Venture Agreement and to be owned, as to 50%, by the Armenian
Parties and, as to 50%, by Global Armenia;
"ARMENIAN AUTHORITIES" means all relevant Governmental Authorities in the
Republic of Armenia including, without limitation, the Ministry of Industry of
the Republic of Armenia;
"ARMENIAN PARTIES" means the Ministry of Industry of the Republic of Armenia and
Armgold, a state enterprise of the Republic of Armenia, each in their respective
capacities as parties to the Joint Venture Agreements;
"BUSINESS DAY" means a day, other than a Saturday, a Sunday or a holiday, on
which banks in New York, Singapore, Vancouver and Yerevan are generally open for
the transaction of banking business;
"CONDITIONS" means the conditions precedent to FDM's obligations under this
Agreement as more particularly described in Part 7;
"CONSTATING DOCUMENTS" means the charter, the memorandum, the articles, the
articles of incorporation, the articles of continuance or the articles of
amalgamation pursuant to which a corporation is incorporated, continued or
amalgamated, as the case may be, together with any amendments thereto, and the
by-laws of such corporation and any shareholders' agreement which has been
executed by such corporation and/or which governs in whole or in part such
corporation's affairs;
"DEBENTURE" means a debenture of Global Armenia guaranteed by Global Gold in
favour of FDM dated January 3, 1997 in the principal amount of $5,480,000, and
secured by all of the issued and outstanding Global Armenia Shares;
"EARN-IN RIGHT" has the meaning assigned to it in Section 4.1;
"ENCUMBRANCE" means any mortgage, charge, pledge, hypothecation, security
interest, lien, easement, right-of-way, encroachment, covenant, condition, right
of re-entry, lease, license, assignment, option or claim or any other
encumbrance, charge or any title defect of whatever kind or nature, regardless
of form, whether or not registered or registrable and whether or not consensual
or arising by law (statutory or otherwise);
"EPCM CONTRACT" means the Contract for Engineering Procurement and Construction
Management Services dated January 31, 1997 between AGRC Tailings and Kilborn
Inc.;
"ENVIRONMENT" means the air immediately around, the water in and under, and the
land comprising, the areas subject to the Projects;
<PAGE>
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"FDM" means, as the context requires, either or both of First Dynasty Mines Ltd.
and FDM Subco;
"FDM SHARES" means common shares without par value in the capital stock of FDM
as presently constituted;
"FDM SPECIAL WARRANTS" has the meaning assigned to it in Section 4.6;
"FDM SUBCO" has the meaning assigned to it in Section 2.5;
"FIRST INSTALMENT SHARES" has the meaning assigned to it in Section 4.1(a);
"FIRST JOINT VENTURE AGREEMENT" means the joint venture agreement dated May 1,
1996 between the Armenian Parties and Global Armenia, as assignee of Global
Gold, respecting the formation of AGRC Tailings and the development and
operation of the Tailings Project as a joint venture and providing for
additional joint venture arrangements in respect of the Meghradzor Project and
the Zod Project;
"FOURTH INSTALMENT SHARES" has the meaning assigned to it in Section 4.1(d);
"GAAP" means generally accepted accounting principles applicable in the United
States of America applied on a basis consistent with prior periods unless
otherwise specifically stated;
"GARRISON CONSULTING AGREEMENT" means the agreement in the form attached hereto
as Schedule "B";
"GLOBAL" means Global Armenia and Global Gold, jointly and severally;
"GLOBAL ACCOUNTS PAYABLE" means the liabilities recorded and accrued as of
March 31, 1997 described in Schedule "E";
"GLOBAL ARMENIA FINANCIAL STATEMENTS" means the financial statements of Global
Armenia as at December 31, 1996 attached hereto as Schedule "D";
"GLOBAL ARMENIA SHARES" means ordinary shares having a par value of $0.01 per
share in the capital stock of Global Armenia;
"GOVERNMENTAL AUTHORITY" means any national, central, federal, provincial,
state, municipal, county or regional governmental or quasi-governmental
authority, domestic or foreign, and includes any ministry, department,
commission, bureau, board, administrative or other agency or regulatory body or
instrumentality thereof;
<PAGE>
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"HAZARDOUS SUBSTANCES" means any hazardous product, contaminant, pollutant,
toxic substance, deleterious substance, special waste, dangerous good or
reportable substance that is identified or described in or defined by any
Environmental Law and any other substance the storage, manufacture, disposal,
treatment, generation, use, transportation, remediation, release into or
concentration in the Environment of which is prohibited, controlled, regulated
or licensed by any Governmental Authority in the Republic of Armenia;
"INVESTMENTS" means monies advanced by FDM to Global Armenia or Global Gold
pursuant to the Debenture and converted into Global Armenia Shares in accordance
with the terms of this Agreement;
"ISSUED EARN-IN SHARES" means the Fourth Instalment Shares;
"JOINT VENTURE AGREEMENTS" means the First Joint Venture Agreement and, upon
execution and delivery thereof, the Second Joint Venture Agreement;
"JOINT VENTURE COMPANIES" means AGRC Ararat, AGRC Exploration, AGRC Meghradzor,
AGRC Refinery, AGRC Tailings, AGRC Zod and any other joint venture companies
formed pursuant to the Joint Venture Agreements;
"LOANS" means loans advanced by FDM pursuant to the Debenture;
"MATERIAL CONTRACT" means any oral or written contract, agreement, lease,
license permit, commitment, covenant, undertaking, instrument, judgment, order,
decree or award to which a party to this Agreement or any of the Joint Venture
Companies is a party or is otherwise bound which is currently in effect and
which,
(i) involves an obligation of such person to pay $100,000 or more,
(ii) relates, directly or indirectly, to the acquisition or to the
disposition, exploration, development, maintenance or
rehabilitation of a natural resource property, or to any interest
in a natural resource property,
(iii) cannot be terminated on 30 days' advance notice or less,
(iv) relates to the purchase, sale, issuance, redemption, conversion,
exchange or voting of any securities of such person or the
management, control or composition of the board of directors of
such person, or
<PAGE>
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(v) relates to the employment of an employee of such person or any
remuneration payable by such person or affiliate or to any
director, officer or shareholder of such person or affiliate for
acting in any capacity,
and includes this Agreement, the Debenture and the Joint Venture Agreements;
"MATERIAL INDEBTEDNESS" means
(i) any outstanding and unpaid indebtedness, obligation or liability,
for borrowed money, amounts unpaid for real or personal property or
services, taxes, fines, judgments, wages or employment benefits in
excess of $100,000,
(ii) any liability contingent or otherwise under any instrument of
guarantee or indemnity in favour of a third party in excess of
$100,000, or
(iii) any other indebtedness, liability or obligation involving the
payment of money in excess of $100,000, which, in accordance with
GAAP would be disclosed as a liability on the debtor's or obligor's
balance sheet,
and, in respect of Global Gold and Global Armenia, includes the Global Accounts
Payable and amounts advanced by FDM under the Debenture;
"MEGHRADZOR PROJECT" means the activities undertaken or to be undertaken by AGRC
Meghradzor, directly or indirectly for,
(i) owning and assessing the feasibility of developing the assets
comprising the Meghradzor gold mine, and
(ii) developing, financing, constructing and operating the assets
comprising the Meghradzor gold mine for the production of gold,
all as more particularly described in the Joint Venture Agreements;
"MINEABLE RESERVES" means
(i) proven reserves, and
(ii) probable reserves,
<PAGE>
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based upon estimates prepared by independent professional geologists acceptable
to FDM and Global Gold, acting reasonably, in compliance with generally accepted
mining reserve reporting standards in North America;
"PROJECTS" means the Meghradzor Project, the Tailings Project, the Zod Project,
the project to be undertaken by AGRC Ararat pursuant to the Second Joint Venture
Agreement and any other projects undertaken pursuant to the Joint Venture
Agreements;
"PROSPECTUS" has the meaning assigned to it in Section 4.6;
"SECOND INSTALMENT SHARES" has the meaning assigned to it in Section 4.1(b);
"SECOND JOINT VENTURE AGREEMENT" means the joint venture agreement to be entered
into between the Armenian Parties and Global Armenia, respecting, among other
things, the formation of AGRC Ararat, AGRC Exploration, AGRC Meghradzor, AGRC
Refinery and AGRC Zod and the development and operation of the Meghradzor
Project and the Zod Project;
"SHAREHOLDERS' AGREEMENT" means the agreement in the form attached hereto as
Schedule "A";
"TAILINGS CONTRACT" means the Tailings Dam Construction Contract dated January
31, 1997 between AGRC Tailings and Construction of Civil and Industry Objects,
Daughter Enterprise, ArmGidroEnergoStroy;
"TAILINGS PROJECT" means the activities undertaken or to be undertaken by AGRC
Tailings, directly or indirectly for,
(i) owning and assessing the feasibility of developing the assets
comprising the Ararat gold tailings pile site, and
(ii) developing, financing, constructing and operating the assets
comprising the Ararat gold tailings pile site for the production of
gold,
all as more particularly described in the Joint Venture Agreements;
"TERM SHEET AGREEMENT" means the letter agreement dated January 27, 1997 among
Global Gold, Global Armenia and FDM pursuant to which the parties hereto have
entered into this Agreement;
"THIRD INSTALMENT SHARES" has the meaning assigned to it in Section 4.1(c);
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"TREASURY EARN-IN SHARES" means the First Instalment Shares, the Second
Instalment Shares and the Third Instalment Shares;
"ZOD PROJECT" means the activities undertaken or to be undertaken by AGRC Zod,
directly or indirectly, for,
(i) owning and assessing the feasibility of developing the assets
comprising the Zod gold mine, and
(ii) developing, financing, constructing and operating the assets
comprising the Zod gold mine for the production of gold,
all as more particularly described in the Joint Venture Agreements.
INTERPRETATION
1.2 For the purposes of this Agreement, except as otherwise expressly provided:
(a) "this Agreement" means this Agreement, including the schedules
hereto, and not any particular part, section or other portion
hereof, and includes any agreement, document or instrument entered
into, made or delivered pursuant to the terms hereof, as the same
may, from time to time, be supplemented or amended and in effect;
(b) all references in this Agreement to a designated "part", "section",
"subsection" or other subdivision or to a schedule are references
to the designated part, section, subsection or other subdivision
of, or schedule to, this Agreement;
(c) the words "hereof", "herein", "hereto" and "hereunder" and other
words of similar import refer to this Agreement as a whole and not
to any particular part, section, subsection or other subdivision or
schedule unless the context or subject matter otherwise requires;
(d) the division of this Agreement into parts, sections and other
portions and the insertion of headings are for convenience of
reference only and are not intended to interpret, define or limit
the scope, extent or intent of this Agreement or any provision
hereof;
(e) unless otherwise provided herein, all references to currency in
this Agreement are to lawful money of the United States of America
and all amounts to be
<PAGE>
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calculated or paid pursuant to this Agreement are to be calculated
in lawful money of the United States of America;
(f) a reference to a statute in this Agreement includes all regulations
made thereunder, all amendments to the statute or regulations in
force from time to time, and any statute or regulation that
supplements or supersedes such statute or regulations;
(g) the singular of any term includes the plural, and vice versa, and
the use of any term is generally applicable to any gender and,
where applicable, a body corporate, firm or other entity, and the
word "or" is not exclusive and the word "including" is not limiting
whether or not non-limiting language (such as "without limitation"
or "but not limited to" or words of similar import) is used with
reference thereto;
(h) all accounting terms not otherwise defined herein have the meanings
assigned to them in accordance with GAAP;
(i) in the event that any date on which any action is required to be
taken hereunder by any of the parties hereto is not a Business Day,
such action shall be required to be taken on the next succeeding
day which is a Business Day; and
(j) all references to "approval", "authorization" or "consent" in this
Agreement means written approval, authorization or consent.
SCHEDULES
1.3 Attached to and forming part of this Agreement are the following Schedules:
Schedule "A" - Form of Shareholders' Agreement
Schedule "B" - Form of Consulting Agreement
Schedule "C" - Material Contracts
Schedule "D" - Global Armenia Financial Statements
Schedule "E" - Global Accounts Payable
<PAGE>
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PART 2
BACKGROUND AND PURPOSES
PURPOSES
2.1 The parties hereto acknowledge and agree that they are entering into this
Agreement to evidence their mutual agreements and understandings respecting:
(a) FDM's indirect participation in the Projects through its
Investments in Global Armenia on the terms more particularly
described in Parts 3 and 4 hereof; and
(b) the corporate governance of Global Armenia and the Joint Venture
Companies as more particularly described in Part 5 hereof.
EXISTING ARRANGEMENTS
2.2 The parties hereto represent, acknowledge and agree that, pursuant to the
Term Sheet Agreement, the following transactions have been completed as of the
date of this Agreement:
(a) FDM has made, or agreed to make, Investments in Global Armenia,
initially by way of Loans, in the aggregate amount of $6,490,000
(the "Term Sheet Commitments") consisting of,
(i) $1,350,000 for repayment of Global Accounts Payable,
(ii) $640,000 for payments required under the Tailings Contract,
(iii) $4,500,000 for payments required under the EPCM Contract;
(b) The Toronto Stock Exchange has approved Investments by FDM in
Global Armenia in the aggregate amount of $10,000,000, including
the Term Sheet Commitments;
(c) Global Armenia has issued to FDM the Debenture in the principal
amount of $5,480,000;
(d) Global Armenia has issued to Global Gold an additional 99,999
Global Armenia Shares which, together with the one Global Armenia
Share already
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owned by Global Gold, constitute all of the issued and outstanding
Global Armenia Shares;
(e) Global Gold has guaranteed to FDM the performance by Global Armenia
of its obligations under the Debenture and, as security therefor,
has pledged to FDM all of the issued and outstanding Global Armenia
Shares;
(f) AGRC Tailings has entered into the Tailings Contract and the EPCM
Contract;
(g) FDM and Global Armenia have received confirmation from the Armenian
Authorities that,
(i) Global Armenia has satisfied the $5 million investment
commitment and bond requirements stipulated in Decree No. 80
dated June 29, 1996 by the relevant Armenian Authorities,
(ii) AGRC Tailings has title to and owns the Tailings Project,
and
(iii) the Armenian Parties have consented to FDM's proposed
Investments in Global Armenia as evidenced by the minutes of
a meeting of the board of directors of AGRC Tailings held on
January 29, 1997.
DEFINITIVE AGREEMENT
2.3 This Agreement constitutes the definitive agreement referred to in
paragraph 7 of the Term Sheet Agreement and is intended to supersede and
entirely replace the Term Sheet Agreement. Notwithstanding the foregoing,
nothing in this Agreement will be construed as a release, discharge or
extinguishment of any obligation of Global Gold or Global Armenia respecting:
(a) Investments made by way of Loans advanced prior to the date of this
Agreement;
(b) security granted in respect of Loans advanced prior to the date of
this Agreement; or
(c) the truth and accuracy of the representations and warranties in the
Term Sheet Agreement, except as modified by this Agreement.
<PAGE>
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FDM SUBSIDIARY
2.4 FDM will make its Investments through a subsidiary company ("FDM Subco")
incorporated in the United States of America and, as soon as feasible and in any
event within 30 days of the date of this Agreement, FDM will assign its rights
under this Agreement to FDM Subco provided that FDM will remain liable for all
of FDM's obligations under this Agreement.
INVESTMENTS AS LOANS
2.5 Pending each exercise by FDM of the Earn-in Right, Investments will be made
as Loans advanced pursuant to the Debenture and the Debenture will be amended as
soon as practicable after the execution of this Agreement to provide that:
(a) FDM Subco is the lender under the Debenture in substitution for
FDM;
(b) Loan advances made from time to time under the Debenture will be
evidenced by proper notations on a grid attached to the Debenture;
(c) the principal amount of the Debenture, from time to time, will be
the aggregate of those unconverted Loan advances evidenced, from
time to time, by the grid, up to a maximum of $15,000,000;
(d) Loan advances under the Debenture will be converted into Global
Armenia Shares pursuant to the Earn-in Right in accordance with
Part 4 of this Agreement;
(e) upon conversion of Loans into the Third Instalment Shares, the
obligations of Global Armenia under the Debenture will cease to be
guaranteed by Global Gold and all security therefor will be
released.
EXCLUSIVITY
2.6 The rights of FDM hereunder to make Investments in Global Armenia, to
thereby acquire Global Armenia Shares and to otherwise invest in the Projects as
contemplated in this Agreement are exclusive to FDM and will remain exclusive to
FDM for so long as FDM continues to fulfil its obligations under this Agreement
and Global Armenia continues to fulfil its obligations under the Joint Venture
Agreements provided that FDM's rights hereunder will cease to be exclusive if:
(a) Global Gold notifies FDM in writing that FDM is in default of its
obligations
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under this Agreement or that Global Armenia is in default of its
obligations under the Joint Venture Agreements (which notice will
contain particulars of the alleged default); and
(b) FDM fails to cure such default within 45 days but, in any event
prior to the expiration of any cure period or grace period to which
Global Armenia is subject if FDM's default results in a default by
Global Armenia under the Joint Venture Agreements.
OTHER BUSINESS OPPORTUNITIES
2.7 Neither this Agreement nor any activity on behalf of any party hereto shall
prevent any other party from engaging in any other activities or businesses or
from making any mining or other investments outside of the Republic of Armenia.
In no event shall any of the parties hereto be obligated to account to any other
party hereto for any profits or other benefits derived from such permitted
activities, businesses or investments or be under any obligation to offer to any
other party hereto an interest in any such permitted activity business or
investment, and any income realized may therefrom be retained by such party for
its own account.
PART 3
INVESTMENTS
TERM SHEET COMMITMENTS
3.1 FDM will make the following Investments in Global Armenia pursuant to the
Term Sheet Commitments:
(a) Investments in the aggregate amount of $1,350,000 to be used
exclusively for payment of the Global Accounts Payable, of which,
(i) $675,000 was advanced pursuant to the Term Sheet Agreement,
and
(ii) $675,000 will be advanced upon the execution and delivery of
this Agreement;
(b) Investments in the aggregate amount of up to $640,000 to be used
exclusively for payments required under the Tailings Contract,
which will be advanced in instalments corresponding to the
incremental payment obligations of AGRC
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Tailings under the Tailings Contract but, in each case, no earlier
than the date for payment under the Tailings Contract;
(c) Investments in the aggregate amount of $4,500,000 to be used
exclusively for payments required under the EPCM Contract, which
will be advanced in instalments corresponding to the incremental
payment obligations of AGRC Tailings under the EPCM Contract but,
in each case, no earlier than the date for payment under the EPCM
Contract.
PAYMENT TO GLOBAL GOLD
3.2 FDM will pay to Global Gold the sum of $400,000 for use, at Global Gold's
discretion, to defray its expenses in participating in the negotiation of the
Second Joint Venture Agreement, of which:
(a) $200,000 will be paid upon the execution and delivery of this
Agreement; and
(b) $200,000 will be paid on June 30, 1998.
Such payments, when made will be deemed to be Investments for the purposes of
this Agreement.
CONSULTING EXPENSES
3.3 FDM will advance to Global Armenia, from time to time as and when due, the
funds necessary to enable Global Armenia to meet its payment obligations under
the Garrison Consulting Agreement.
JOINT VENTURE COMMITMENTS
3.4 FDM will make additional Investments in Global Armenia as and when
requested to do so by the board of directors of Global Armenia to enable Global
Armenia to meet its equity contribution obligations under the Joint Venture
Agreements as and when they fall due and will use all reasonable commercial
efforts to assist Global Armenia in procuring or arranging any project financing
necessary to fulfil its obligations under the Joint Venture Agreements to obtain
such financing provided nothing in this Agreement will oblige FDM to advance any
funds to Global Armenia pursuant to this Section 3.4 prior to the time that the
relevant payment obligation of Global Armenia falls due and if, and to the
extent that, any payment obligation of Global Armenia under the Joint Venture
Agreements or any related Material Contract is, by its terms or by subsequent
agreement between Global Armenia and the beneficiary of the obligation,
extended, suspended, terminated or subject to the
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fulfillment of conditions, FDM's obligation hereunder to advance funds in
respect thereof will be deemed to be extended, suspended, terminated or
conditional, as the case may be, to the same extent.
PART 4
GLOBAL ARMENIA EARN-IN
EARN-IN RIGHT
4.1 Global Armenia and Global Gold hereby grant to FDM an irrevocable right
(the "Earn-in Right") to acquire, on the terms provided in this Part 4:
(a) that number of Global Armenia Shares (the "First Instalment
Shares") which, upon acquisition by FDM, represent up to
twenty-five per cent (25%) of the issued and outstanding Global
Armenia Shares;
(b) that number of Global Armenia Shares (the "Second Instalment
Shares") which, upon acquisition by FDM, represent, together with
the First Instalment Shares, up to fifty-one per cent (51%) of the
issued and outstanding Global Armenia Shares;
(c) that number of Global Armenia Shares (the "Third Instalment
Shares") which, upon acquisition by FDM, represent, together with
the First Instalment Shares and the Second Instalment Shares, up to
eighty per cent (80%) of the issued and outstanding Global Armenia
Shares; and
(d) that number of Global Armenia Shares (the "Fourth Instalment
Shares") which, upon acquisition by FDM, represent, together with
the First Instalment Shares, the Second Instalment Shares and the
Third Instalment Shares, a total of one hundred per cent (100%) of
the issued and outstanding Global Armenia Shares.
The Earn-in Right will be exercisable, in whole or in part, by way of
Investments by FDM as contemplated in Part 3.
FIRST INSTALMENT SHARES
4.2 FDM will be deemed to have exercised the Earn-in Right in respect of the
First Instalment Shares upon advancing aggregate Investment funds of $6,490,000
and upon FDM making Investments in the aggregate amount of $6,490,000, Global
Armenia will forthwith
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issue to FDM the First Instalment Shares whereupon FDM will own not less than
twenty-five per cent (25%) of the issued and outstanding Global Armenia Shares.
SECOND INSTALMENT SHARES
4.3 Provided that FDM has exercised the Earn-in Right to the extent necessary
to acquire all of the First Instalment Shares, FDM will be deemed to have
further exercised the Earn-in Right, to acquire:
(a) all of the Second Instalment Shares by advancing additional
Investment funds in the aggregate amount of, $3,520,000; or
(b) a lesser number of Second Instalment Shares equal to the product
obtained by multiplying the total number of Second Instalment
Shares by a fraction, the numerator of which is the total amount of
Investments FDM has made on account of the Second Instalment Shares
and the denominator of which is $3,520,000, by making Investments
in an aggregate amount equal to the numerator amount.
FDM will be entitled to exercise the Earn-in Right in respect of the Second
Instalment Shares in whole or in part and may, at any time after making
Investments in any amount on account of the Second Instalment Shares elect, by
notice in writing to Global Armenia, to receive all of the Second Instalment
Shares to which it is then entitled whereupon Global Armenia will forthwith
issue to FDM the appropriate number of Global Armenia Shares. Any partial
exercise of the Earn-in Right in respect of the Second Instalment Shares will be
without prejudice to FDM's right to subsequently exercise the balance of the
Earn-in Right as it relates to any remaining Second Instalment Shares, in whole
or in part, and, upon full exercise of the Earn-in Right in respect of the
Second Instalment Shares, FDM will own not less than fifty-one per cent (51%) of
the issued and outstanding Global Armenia Shares.
THIRD INSTALMENT SHARES
4.4 Provided that FDM has exercised the Earn-in Right to the extent necessary
to acquire all of the Second Instalment Shares, FDM will be deemed to have
further exercised the Earn-in Right to acquire:
(a) all of the Third Instalment Shares by making additional Investments
in the aggregate amount of, $14,500,000; or
(b) a lesser number of Third Instalment Shares equal to the product
obtained by multiplying the total number of Third Instalment Shares
by a fraction, the
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numerator of which is the amount of Investments FDM has made on
account of the Third Instalment Shares and the denominator of which
is $14,500,000, by making Investments in an aggregate amount equal
to the numerator amount.
FDM will be entitled to exercise the Earn-in Right in respect of the Third
Instalment Shares in whole or in part and may, at any time after making
Investments in any amount on account of the Third Instalment Shares elect, by
notice in writing to Global Armenia, to receive all of the Third Instalment
Shares to which it is then entitled whereupon Global Armenia will forthwith
issue to FDM the appropriate number of Global Armenia Shares. Any partial
exercise of the Earn-in Right in respect of the Third Instalment Shares will be
without prejudice to FDM's right to subsequently exercise the balance of the
Earn-in Right as it relates to any remaining Third Instalment Shares, in whole
or in part, and, upon full exercise of the Option in respect of the Third
Instalment Shares, FDM will own not less than eighty per cent (80%) of the
issued and outstanding Global Armenia Shares.
FOURTH INSTALMENT SHARES
4.5 Provided that FDM has exercised, or is deemed to have exercised, the
Earn-in Right to the extent necessary to acquire all of the Third Instalment
Shares, FDM will, on or before that date (the "Final Buyout Date") which is
eighteen months after the date upon which FDM acquires all of the Third
Instalment Shares, exercise the balance of the Earn-in Right to acquire all, but
not less than all, of the Fourth Instalment Shares by issuing to Global Gold:
(a) 4,000,000 FDM Shares free and clear of Encumbrances; and
(b) if, as of the Final Buyout Date, aggregate Mineable Reserves in
respect of the Zod Project and the Meghradzor Project exceed
5,000,000 ounces of gold, that number of additional FDM Shares by
which the product obtained by multiplying 4,000,000 by a fraction,
the numerator of which is the number of ounces of gold comprising
the Mineable Reserves and the denominator of which is 5,000,000,
exceeds 4,000,000;
which number of FDM Shares will be subject to appropriate adjustment in the
event of any distribution, subdivision, consolidation, reorganization or
arrangement in respect of FDM Shares occurring prior to the date of issuance.
FDM may exercise the Earn-in Right in respect of the Fourth Instalment Shares by
notice in writing to Global Gold delivered any time after the date that FDM
acquires the Third Instalment Shares but, failing such exercise, prior to the
Final Buyout Date. FDM will be deemed to have exercised the Earn-in Right in
respect of the Fourth Instalment Shares as of the Final Buyout Date. Upon
exercise and against delivery by FDM of a certificate representing the number of
FDM Shares then issuable to Global Gold pursuant to FDM's exercise of the
Earn-in Right, Global Gold will transfer to FDM, free and clear of
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Encumbrances, all of the Fourth Instalment Shares whereupon FDM will own not
less than one hundred per cent (100%) of the issued and outstanding Global
Armenia Shares.
TRADEABILITY
4.6 The parties acknowledge and agree that, although FDM is under no obligation
to file a prospectus in Canada or a registration statement in the United States
solely for the purpose of issuing freely tradeable FDM Shares to Global Gold
pursuant to Section 4.5, FDM will use its best efforts to issue freely tradeable
FDM Shares to Global Gold if it is feasible to do so in connection with a
contemporaneous public offering of FDM Shares or special warrants of FDM in a
form and substance satisfactory to the parties, acting reasonably ("FDM Special
Warrants") pursuant to a prospectus filed with applicable Canadian securities
regulatory authorities (a "Prospectus"). If, during the six month period
preceding the Final Buyout Date, FDM:
(a) files a Prospectus, FDM will exercise the Earn-in Right in respect
of the Fourth Instalment Shares and use its best efforts to qualify
under the Prospectus, for resale on The Toronto Stock Exchange, the
4,000,000 FDM Shares issuable to Global Gold pursuant to Section
4.5(a); or
(b) does not file a Prospectus, FDM will fulfil its obligation to
Global Gold under Section 4.5(a) by issuing to Global Gold, as of
the Final Buyout Date, a total of 4,000,000 FDM Special Warrants on
the following terms:
(i) each FDM Special Warrant will be exercisable to acquire, for
no consideration, one FDM Share,
(ii) the FDM Special Warrants may be exercised by Global Gold
earlier than provided in subparagraph (iii) below at any
time for FDM Shares (which will be subject to resale
restrictions in Canada for a period of twelve months from
the date of issuance of the FDM Special Warrants), and
(iii) the FDM Special Warrants will be automatically exercised for
FDM Shares (free of any resale restrictions in Canada other
than overriding restrictions applicable to controlling
shareholders) upon the filing of a Prospectus or the first
anniversary of issuance whichever is earlier,
and if, during the period commencing on the Final Buyout Date and
ending on the first anniversary of the Final Buyout Date, FDM files
a Prospectus, FDM
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will use its best efforts to qualify under the same Prospectus the
FDM Shares issuable upon the exercise of Global Gold's FDM Special
Warrants.
Any additional FDM Shares which become issuable to Global Gold pursuant to
Section 4.5(b) on the Final Buyout Date will be represented by FDM Special
Warrants on the terms set out in subparagraph (b) above.
The certificates representing any FDM Shares or FDM Special Warrants issued to
Global Gold will bear such restrictive legends as may be required under
applicable law including the following:
"The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended (the "Act"), or any state
securities laws, and no sale or transfer thereof may be effected without an
effective registration statement or an opinion of counsel for the holder,
satisfactory to the company, that such registration is not required under
the Act and any applicable state securities laws."
SPECIFIC PERFORMANCE
4.7 FDM hereby acknowledges that irreparable damage will be caused to Global
Gold by a violation of FDM's obligations under Sections 4.5 and 4.6, and that it
is impossible to measure in money the damages which will accrue to Global Gold
by reason of the failure by FDM to perform such obligations, and if Global Gold
shall institute any action or proceeding to enforce FDM's obligations under
Sections 4.5 and 4.6, FDM hereby consents to a grant of an injunction
restraining any such violation thereof or any other appropriate decree of
specific performance by any court having equity jurisdiction and waives the
claim or defense therein that such party has an adequate remedy at law, and FDM
shall not allege in any such action or proceeding the claim or defense that such
remedy at law exists.
AGRC EXPLORATION
4.8 During the period commencing upon the formation of AGRC Exploration and
ending on December 31, 2009, Global Gold will be entitled to elect to
participate with Global Armenia in any exploration projects undertaken by AGRC
Exploration and, prior to the commencement of any such exploration project,
Global Armenia will provide Global Gold with all information in Global Armenia's
possession respecting such proposed exploration project whereupon Global Gold
will have the right upon notice, exercisable for a period of 60 days from the
date such notice is received, to elect to participate in the rights and
obligations of Global Armenia in respect of such exploration project to a level
of up to twenty per cent (20%) of such rights and obligations. Global Armenia
and Global Gold will enter into a mutually acceptable participation agreement in
respect of any exploration project
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in which Global Gold elects to participate, which will provide for, among other
things, mutual rights of first refusal and a dilution formula.
PART 5
CORPORATE GOVERNANCE
GOVERNANCE OF GLOBAL ARMENIA
5.1 Upon execution and delivery of this Agreement, the parties hereto will
enter into the Shareholders' Agreement which will govern the corporate affairs
of Global Armenia.
GOVERNANCE OF JOINT VENTURE COMPANIES
5.2 From and after the date of this Agreement until the date that FDM acquires
all of the Global Armenia Shares, the date that this Agreement is terminated or
the date that FDM's rights hereunder cease to be exclusive pursuant to Section
2.6, whichever earliest, Global Gold will be entitled to appoint one (1)
director to the board of directors of each of the Joint Venture Companies and
FDM will be entitled to appoint two (2) directors to the board of directors of
each of the Joint Venture Companies. Global Gold's representative on the board
of directors of each Joint Venture Company will vote, in respect of any matter
requiring board approval, in accordance with the instructions of Global Armenia.
CONSULTING AGREEMENT
5.3 Upon the execution and delivery of this Agreement, Global Armenia will
execute and deliver the Garrison Consulting Agreement.
PART 6
REPRESENTATIONS, WARRANTIES AND COVENANTS
REPRESENTATIONS AND WARRANTIES OF GLOBAL
6.1 Each of Global Gold and Global Armenia hereby jointly and severally
represents and warrants to and in favour of FDM as follows and acknowledges that
FDM is relying upon such representations and warranties in consummating the
transactions contemplated by this Agreement:
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(a) each of Global Gold and Global Armenia is a corporation duly
incorporated, organized, validly existing and current and
up-to-date with respect to all filings required under the laws of
its jurisdiction of incorporation and no proceedings have been
taken or authorized by or, to the best knowledge of Global, by any
other person, with respect to bankruptcy, insolvency, liquidation,
dissolution or winding up of Global Gold or Global Armenia;
(b) each of Global Gold and Global Armenia has all requisite corporate
power and authority to carry on its business as now being carried
on by it and to own or lease and operate its properties and assets
and is duly licensed or otherwise qualified to carry on business in
each jurisdiction in which a material amount of its business is
conducted or wherein the character of the properties and assets now
owned by it makes such qualification necessary;
(c) AGRC Tailings is a legal, valid and subsisting joint venture
company established in accordance with the laws of the Republic of
Armenia;
(d) as of the date hereof, the authorized capital of Global Armenia
consists of $50,000 divided into 5,000,000 shares having a par
value of $0.01 per share of which only the Issued Earn-in Shares
are validly issued as (i) in the case of 99,999 Issued Earn-in
Shares, non-paid and assessable shares, and (ii) in the case of one
(1) Issued Earn-in Share, a fully paid and non-assessable share, in
the capital of Global Armenia;
(e) Global Gold is the beneficial owner of the Issued Earn-in Shares
with good and marketable title thereto, free and clear of
Encumbrances (other than Encumbrances in favour of FDM) and, other
than FDM, no person has an option or similar right or right of
first refusal or any other right to acquire the Issued Earn-in
Shares;
(f) except for the Loans, there are no securities outstanding which are
convertible into Global Armenia Shares or into any other securities
of Global Armenia and no person has any oral or written agreement,
option, warrant, right, privilege or any other right capable of
becoming an agreement, option, warrant, right or privilege (whether
legal, equitable, contractual, or otherwise) for the purchase,
subscription, issuance or acquisition of any issued or unissued
shares or other securities of Global Armenia;
(g) Global Armenia is the beneficial owner of not less than fifty
percent (50%) of the outstanding equity of AGRC Tailings with good
and marketable title thereto, free and clear of Encumbrances
(except as provided in the Joint
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Venture Agreements) and, other than the Armenian Parties, no other
person owns any equity in AGRC Tailings or has any right to acquire
any equity in AGRC Tailings;
(h) AGRC Tailings owns all right, title and interest in and to the
Tailings Project free and clear of Encumbrances;
(i) each of Global Armenia and, to the best of Global's knowledge, AGRC
Tailings holds all requires permits, licenses, consents and
authorizations necessary or desirable for the conduct of its
business in a timely manner and, to the best knowledge of Global,
neither Global Armenia nor AGRC Tailings is in default with respect
to any existing license, permit, consent or authorization necessary
or desirable for the conduct of such business;
(j) to best knowledge of Global, the business of each of Global Armenia
and AGRC Tailings is being conducted in all material respects in
compliance with all applicable laws, regulations and ordinances of
all authorities having jurisdiction;
(k) Schedule "C" constitutes a complete and accurate list of all
Material Contracts to which Global Armenia or AGRC Tailings are
parties;
(l) each Material Contract is in full force and effect and is valid,
binding and enforceable against each of the parties thereto in
accordance with its terms and no material breach or default exists
in respect thereof on the part of any party thereto and no event
has occurred which, with the giving of notice or lapse of time or
both, would constitute such a breach or default;
(m) other than as specifically contemplated in the Term Sheet
Agreement, this Agreement and any agreements and documents
contemplated thereby, there are no Material Contracts to which
Global Gold, Global Armenia, AGRC Tailings is a party, from which
it derives benefit, to which it is bound or to which any of its
assets is subject:
(i) under which transactions contemplated in this Agreement
would have the effect of imposing restrictions or
obligations on Global Armenia or AGRC Tailings materially
greater than those imposed thereon at the date hereof, or
(ii) which would give a third party, as a result of the
transactions contemplated in this Agreement, a right to
terminate any such Material Contract or to purchase any
Global Armenia Shares or any assets of Global Armenia or
AGRC Tailings, or
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(iii) which would impose material restrictions on the ability of
Global Armenia or AGRC Tailings to carry on any business
which it might choose to carry on within any geographical
area, to acquire property or dispose of its property and
assets or to change its corporate status, other than area of
mutual interest clauses and similar clauses in existing
agreements, or
(iv) which would impose material restrictions on the ability of
Global Armenia or AGRC Tailings to pay any dividends or make
other distributions to its shareholders or to borrow money
and/or to mortgage and pledge its property as security
therefor;
(n) the Global Armenia Financial Statements present fairly the
financial condition and results of Global Armenia as at the dates
and for the periods indicated therein and have been prepared in
accordance with GAAP;
(o) after application of the $675,000 paid by FDM pursuant to Section
3.1(a)(ii) and other than unpaid accounts payable in the aggregate
amount of $150,000 and unbilled legal fees of Patterson, Belknap
Webb & Tyler, L.L.P., Global Armenia has no Material Indebtedness;
(p) all of Global Armenia's obligations under that certain promissory
note dated as of December 1, 1995 in favour of Global Gold in the
principal amount of $802,740 have been extinguished without any
liability whatsoever to Global Armenia;
(q) since the end of the periods covered in the Global Armenia
Financial Statements, there has been no material adverse change in
the business, operations, properties, assets or condition,
financial or otherwise, of Global Armenia from that shown in the
Global Armenia Financial Statements;
(r) no Taxes are owing by Global Armenia or, to the best of Global's
knowledge AGRC Tailings except current taxes not yet due and each
of them has paid all instalments of tax payable in respect of its
current fiscal year under any applicable legislation. Each of
Global Gold, Global Armenia and, to the best of Global's knowledge,
AGRC Tailings has properly withheld or collected and remitted to
the appropriate Governmental Authority all Taxes required to be
withheld or collected and remitted under any applicable
legislation. For purposes of this paragraph "Taxes" means all
taxes, charges, fees, levies or other assessments, including,
without limitation, all income, capital, sales, use, transfer,
franchise, withholding, payroll, employment, excise, business,
mining or other taxes, custom duties, surtaxes, anti-dumping, and
countervail duties, fees, assessments, charges or governmental
imposts of any kind whatsoever, together with any interest,
penalties or additions to such Taxes, imposed by
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any national, central federal, provincial, local, foreign or other
taxing authority;
(s) except as disclosed in Global Gold's Form 10-KSB for the year ended
December 31, 1996, there are no actions, suits, or proceedings
commenced, or, to the best knowledge of Global, contemplated or
threatened, against Global Gold, Global Armenia or AGRC Tailings at
law or in equity before or by any court, Governmental Authority or
arbitrator of any kind nor, to the best knowledge of Global, are
there any existing facts which may reasonably be expected to be a
proper basis for any actions, suits, or proceedings which in either
case would prevent or hinder the consummation of the transactions
contemplated by this Agreement or which would involve the
reasonable possibility of any judgment or liability which could
reasonably be expected to have an adverse effect on the business,
operations, properties, assets or affairs, financial or otherwise,
of Global Gold, Global Armenia or AGRC Tailings;
(t) Global Armenia has no direct or indirect obligations or liabilities
whatsoever, contingent or otherwise, in favour of Eyre Resources
N.L. or the Parry-Beaumont Trust and no reasonable basis exists for
any such obligation or liability to arise in the future;
(u) to the best knowledge of Global Gold and Global Armenia:
(i) AGRC Tailings is presently in compliance with all
environmental permits issued by the Armenian Authorities;
and
(ii) all Hazardous Substances disposed of, treated or stored by
or on behalf of AGRC Tailings have been disposed of, treated
and stored in compliance with all environmental permits
issued by the Armenian Authorities;
(v) each of Global Gold and Global Armenia has the corporate power and
authority to enter into this Agreement to perform its obligations
hereunder;
(w) the execution and delivery of this Agreement and the completion of
the transactions contemplated herein have been duly authorized by
the boards of directors of Global Gold and Global Armenia and this
Agreement constitutes a valid and binding obligation of Global Gold
and Global Armenia enforceable against each of them it in
accordance with its terms;
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(x) none of the execution and delivery of this Agreement, the
completion of the transactions contemplated herein or the
fulfilment of, or compliance with, the terms and provisions hereof
do or will, nor will they with the giving of notice or the lapse of
time or both,
(i) result in the breach or violate any term or provision of the
Constating Documents of Global Gold, Global Armenia or any
of the Joint Venture Companies,
(ii) conflict with, result in the breach of, constitute a default
under, or accelerate or permit the acceleration of the
performance required by, any Material Contract to which
Global Gold, or Global Armenia or any of the Joint Venture
Companies is a party, from which it derives benefit, by
which it is bound or to which any of its assets is subject,
(iii) result in the cancellation, suspension or alteration in the
terms of any licence, permit or authority held by Global
Gold, Global Armenia or any of the Joint Venture Companies,
(iv) result in the creation of any Encumbrance upon any of the
assets of Global Gold, Global Armenia or any of the Joint
Venture Companies,
(v) give to others any material interest or right, including
rights of purchase, termination, cancellation or
acceleration, under any such Material Contract, or
(vi) violate any provision of law or administrative regulation or
any judicial or administrative award, judgment or decree
applicable to, and known to Global Gold and Global Armenia,
the breach of which would have a material adverse effect on
Global Gold, Global Armenia or any of the Joint Venture
Companies;
(y) no exemption, consent, approval, order or authorization of, or
registration or filing with, any court, Governmental Authority or
any third party that has not been obtained is required by, or with
respect to, Global Gold, Global Armenia or any of the Joint Venture
Companies in connection with the execution and delivery of this
Agreement by Global Gold and Global Armenia or the consummation by
Global Gold and Global Armenia of the transactions contemplated
hereby;
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(z) the Treasury Earn-in Shares have been reserved for issuance to FDM
and will, upon issuance, be validly issued as fully paid and
non-assessable shares in the capital stock of Global Armenia;
(aa) all of Global Gold's interest in the Joint Venture Agreements and
the Joint Venture Companies has been validly transferred to Global
Armenia;
(bb) Global has made full disclosure to FDM of the material assets and
liabilities of Global Armenia; and
(cc) Global is unaware of any material facts or circumstances which have
not been disclosed to FDM, which should be disclosed to FDM in
order to prevent the foregoing representations from being
misleading.
REPRESENTATIONS AND WARRANTIES OF FDM
6.2 FDM represents and warrants to and in favour of Global Gold and Global
Armenia as follows and acknowledges that Global Gold and Global Armenia are
relying upon such representations and warranties in consummating the
transactions contemplated by this Agreement:
(a) FDM is a corporation duly incorporated, organized and validly
existing and current and up-to-date with respect to all filings
required under the laws of its jurisdiction of incorporation and no
proceedings have been taken or authorized by FDM or, to the best of
the knowledge of FDM, by any other person, with respect to the
bankruptcy, insolvency, liquidation, dissolution or winding up of
FDM;
(b) FDM has the corporate power and authority to enter into this
Agreement and to perform its obligations hereunder;
(c) FDM has all requisite corporate power and authority to carry on its
business as now being carried on by it and to own or lease and
operate its properties and assets and is duly licensed or otherwise
qualified to carry on its business in each jurisdiction in which a
material amount of its business is conducted or wherein the
character of the properties and assets now owned by it makes such
qualification necessary;
(d) no exemption, consent, approval, order or authorization of, or
registration or filing with, any court, Governmental Authority or
any third party is required by, or with respect to FDM in
connection with the execution and delivery of
<PAGE>
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this Agreement by FDM or the consummation by FDM of the
transactions contemplated hereby except for:
(i) the filing of notice by FDM and the acceptance of such
notice by The Toronto Stock Exchange with respect to:
(A) the issuance of any FDM Shares that FDM may become obliged
to issue under the terms of this Agreement, and
(B) Investments by FDM exceeding $10 million; and
(ii) any continuous disclosure filings that FDM is obliged, under
applicable corporate and securities laws, to make respecting
this Agreement; and
(e) the execution and delivery of this Agreement and the completion of
the transactions contemplated herein have been duly authorized by the board
of directors of FDM and this Agreement constitutes a valid and binding
obligation of FDM enforceable against it in accordance with its terms;
(f) the financial statements of FDM for the year ended December 31,
1996 present fairly the financial condition and results of FDM as at the
dates and for the periods indicated therein and have been prepared in
accordance with GAAP;
(g) there are no actions, suits, or proceedings commenced, or, to the
best knowledge of FDM, contemplated or threatened, against FDM at law or in
equity before or by any court, Governmental Authority or arbitrator of any
kind nor, to the best knowledge of FDM, are there are existing facts which
may reasonably be expected to be a proper basis for any actions, suits, or
proceedings which in either case would prevent or hinder the consummation
of the transactions contemplated by this Agreement or which would involve
the reasonable possibility of any judgment or liability which could
reasonably be expected to have an adverse effect on the business,
operations, properties, assets or affairs, financial or otherwise, of FDM;
(h) none of the execution and delivery of this Agreement, the
completion of the transactions contemplated herein or the fulfilment of, or
compliance with, the terms and provisions hereof do or will, nor will they
with the giving of notice or the lapse of time or both,
(i) result in the breach or violate any term or provision of the
Constating Documents of FDM,
<PAGE>
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(ii) conflict with, result in the breach of, constitute a default
under, or accelerate or permit the acceleration of the
performance required by, any Material Contract to which FDM
is a party, from which it derives benefit, by which it is
bound or to which any of its assets is subject,
(iii) result in the cancellation, suspension or alteration in the
terms of any licence, permit or authority held by FDM,
(iv) result in the creation of any Encumbrance upon any of the
assets of FDM,
(v) give to others any material interest or right, including
rights of purchase, termination, cancellation or
acceleration, under any such Material Contract, or
(vi) violate any provision of law or administrative regulation or
any judicial or administrative award, judgment or decree
applicable to, and known to FDM, the breach of which would
have a material adverse effect on FDM;
(i) FDM has made full disclosure to Global of the material assets and
liabilities of FDM;
(j) FDM is unaware of any material facts or circumstances which have
not been disclosed to Global, which should be disclosed to Global
in order to prevent the foregoing representations from being
misleading.
AFFIRMATIVE COVENANTS OF GLOBAL
6.3 Global Gold and Global Armenia hereby jointly and severally covenant and
agree that each of them will perform the following affirmative covenants:
(a) to promptly and duly execute and deliver to FDM such documents and
instruments (including, without limitation, consents and approvals
of third parties to this Agreement) and take such further actions
as FDM may, from time to time, reasonably request in order to carry
out more effectively the intent and purpose of this Agreement and
to establish and protect the rights created or intended to be
created hereunder in favour of FDM;
(b) to promptly discuss with FDM and keep FDM informed upon becoming
aware of:
<PAGE>
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(i) any significant developments in the business of Global Gold,
Global Armenia and the Joint Venture Companies,
(ii) any proposal for Global Armenia or any of the Joint Venture
Companies to enter into a new Material Contract, or
(iii) any breach or non-performance of any obligation pursuant to
an existing Material Contract to which Global Gold, Global
Armenia or any of the Joint Venture Companies is a party or
the occurrence of any event which would, upon lapse of time
or with the giving of notice, constitute such breach or
non-performance; and
(c) to afford to FDM and its accountants, counsel and other
representatives full access during normal business hours to the
management, properties, books, contracts, commitments and records
of Global Armenia and each of the Joint Venture Companies in its
possession or to which it has access;
NEGATIVE COVENANTS OF GLOBAL
6.4 Global Gold and Global Armenia hereby jointly and severally covenant and
agree that each of them will observe the following negative covenants:
(a) Global Gold and Global Armenia will not perform, any act or enter
into any transaction or negotiation which interferes or is
inconsistent with the transactions contemplated hereby. Without
limiting the generality of the foregoing, Global Armenia will not,
without the prior express written approval of FDM:
(i) issue any shares or other securities convertible into or
exchangeable for shares above the numbers of such shares and
securities issued and outstanding as at the date hereof,
(ii) increase or decrease its paid-up capital or purchase or
redeem any of its shares,
(iii) enter into any commitment or agreement to issue any shares
or other securities convertible into or exchangeable for
shares or grant options, warrants or rights to purchase
shares not in existence on the date hereof,
<PAGE>
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(iv) alter or amend its Constating Documents as the same exist at
the date of this Agreement, or
(v) amend any Material Contract to which Global Armenia or any
of the Joint Venture Companies is a party; and
(b) in recognition and consideration of the fact that FDM has invested
substantial time and effort in the investigation of Global Armenia
and the Projects and the preparation and negotiation of this
Agreement and will be investing substantial time, money and effort
in consummating the transactions contemplated by this Agreement,
and as a result will forego or delay the conduct of other
activities, neither Global Gold nor Global Armenia will, while
FDM's rights under this Agreement remain exclusive, (i) sell to,
offer to sell to, or solicit offers to purchase any interest in the
Projects (other than as specifically contemplated by this
Agreement) from or (ii) sell, offer to sell or exchange or solicit
offers to purchase or exchange any Global Armenia Shares from, any
party (other than FDM) or enter into any merger, consolidation,
share exchange, liquidation or other similar transaction involving
Global Armenia with any party (other than FDM), and neither Global
Gold nor Global Armenia nor any officer, director, employee, agent,
advisor or other representative of Global Gold or Global Armenia
will negotiate with or provide financial, technical, or other
information to any person (other than FDM) in connection with any
such proposed purchase or transaction except as required by
applicable law.
COVENANTS OF FDM
6.5 FDM covenants and agrees to use all reasonable commercial efforts to
obtain, in a timely manner, the approval of The Toronto Stock Exchange for all
of FDM's obligations under this Agreement for which such approval has not
already been obtained.
PART 7
CONDITIONS
CONDITIONS
7.1 FDM's obligations under this Agreement are subject to the continuing
satisfaction of each of the following Conditions:
<PAGE>
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(a) all of the representations and warranties of Global Gold and Global
Armenia in this Agreement will have been true in all material
respects as of the date of this Agreement;
(b) neither Global Gold nor (prior to the actual implementation of
Section 1.1(a) of the Shareholders' Agreement) Global Armenia will
have breached in any material respects any of its covenants under
this Agreement; and
(c) with respect to,
(i) Investments in excess of $10 million; or
(ii) the issuance of any FDM Shares;
FDM will have obtained the approval of The Toronto Stock Exchange.
PART 8
INDEMNITIES
INDEMNITIES BY GLOBAL
8.1 Each of Global Gold and Global Armenia covenants and agrees forthwith on
demand to indemnify and save harmless FDM from and against all claims, demands,
actions, causes of action, liabilities, obligations, losses, damages, costs and
expenses in excess of $250,000 suffered or incurred by FDM, directly or
indirectly, by reason of, arising out of, or in connection with:
(a) any representation or warranty of Global set forth in this
Agreement being untrue or incorrect; or
(b) a breach of any agreement, term or covenant on the part of Global
made or to be observed or performed pursuant to this Agreement.
<PAGE>
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INDEMNITIES BY FDM
8.2 FDM covenants and agrees forthwith on demand to indemnify and save harmless
Global from and against all claims, demands, actions, causes of action,
liabilities, obligations, losses, damages, costs and expenses in excess of
$250,000 suffered or incurred by Global, directly or indirectly, by reason of,
arising out of, or in connection with:
(a) any representation or warranty of FDM set forth in this Agreement
being untrue or incorrect; or
(b) a breach of any agreement, term or covenant on the part of FDM made
or to be observed or performed pursuant to this Agreement.
CLAIMS UNDER GLOBAL'S INDEMNITIES
8.3 If any claim is made by any person against FDM in respect of which FDM may
incur or suffer damages, losses, costs or expenses that might reasonably be
considered to be subject to the indemnity obligation of Global as provided in
Section 8.1, FDM will notify Global as soon as reasonably practicable of the
nature of such claim and Global shall be entitled (but not required) to assume
the defence of any suit brought to enforce such claim. The defence of any such
claim (whether assumed by Global or not) shall be through legal counsel and
shall be conducted in a manner acceptable to FDM and Global, acting reasonably,
and no settlement may be made by Global or FDM without the prior written consent
of the other. If Global assumes the defence of any claim, then FDM and FDM's
counsel shall cooperate with Global and its counsel in the course of the
defence, such cooperation to include using reasonable best efforts to provide or
make available to Global and its counsel documents and information and witnesses
for attendance at examinations for discovery and trials. The reasonable legal
fees and disbursements and other costs of such defence shall, from and after
such assumption, be borne by Global. If Global assumes the defence of any claim
and FDM retains additional counsel to act on its behalf, Global and its counsel
shall cooperate with FDM and its counsel, such cooperation to include using
reasonable best efforts to provide or make available to FDM and its counsel
documents and information and witnesses for attendance at examinations for
discovery and trials. All fees and disbursements of such additional counsel
shall be paid by FDM. If Global and FDM are or become parties to the same
action, and the representation of all parties by the same counsel would be
inappropriate due to a conflict of interest, then FDM and Global shall be
represented by separate counsel and, subject to the indemnity obligations of
Global as set out in Section 8.1, the costs associated with the action shall be
borne by the parties incurring such costs.
<PAGE>
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CLAIMS UNDER FDM'S INDEMNITIES
8.4 If any claim is made by any person against Global in respect of which
Global may incur or suffer damages, losses, costs or expenses that might
reasonably be considered to be subject to the indemnity obligation of FDM as
provided in Section 8.2, Global will notify FDM as soon as reasonably
practicable of the nature of such claim and FDM shall be entitled (but not
required) to assume the defence of any suit brought to enforce such claim. The
defence of any such claim (whether assumed by FDM or not) shall be through legal
counsel and shall be conducted in a manner acceptable to Global and FDM, acting
reasonably, and no settlement may be made by FDM or Global without the prior
written consent of the other. If FDM assumes the defence of any claim, then
Global and Global's counsel shall cooperate with FDM and its counsel in the
course of the defence, such cooperation to include using reasonable best efforts
to provide or make available to FDM and its counsel documents and information
and witnesses for attendance at examinations for discovery and trials. The
reasonable legal fees and disbursements and other costs of such defence shall,
from and after such assumption, be borne by FDM. If FDM assumes the defence of
any claim and Global retains additional counsel to act on its behalf, FDM and
its counsel shall cooperate with Global and its counsel, such cooperation to
include using reasonable best efforts to provide or make available to Global and
its counsel documents and information and witnesses for attendance at
examinations for discovery and trials. All fees and disbursements of such
additional counsel shall be paid by Global. If FDM and Global are or become
parties to the same action, and the representation of all parties by the same
counsel would be inappropriate due to a conflict of interest, then Global and
FDM shall be represented by separate counsel and, subject to the indemnity
obligations of FDM as set out in Section 8.2, the costs associated with the
action shall be borne by the parties incurring such costs.
CLARIFICATION OF INDEMNITIES
8.5 With respect to the indemnities provided in Sections 8.1 and 8.2, each of
Global and FDM (in either case the "Indemnitor") hereby:
(a) waives notice of demand for payment, performance or satisfaction of
all or any part of its obligations to the indemnified party (the
"Indemnified Party") under the indemnity given in Section 8.1 or
8.2, as the case may be, (the "Indemnity"), protest, notice of
protest and notice of default, any right to require that an action
be brought against the Indemnitor, or any other person and any and
all other notices and legal and equitable defences to which it may
be entitled;
(b) agrees to honour the obligations under the Indemnity forthwith upon
demand and acknowledges that such liability is not contingent or
conditional upon the
<PAGE>
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pursuit of any remedies against the Indemnitor or any other person
and that such liability shall not be diminished, relieved or
otherwise affected by any extension of time, credit or any other
indulgence which the Indemnified Party may from time to time grant
to the Indemnitor or to any other person, including the acceptance
of any partial payment, performance or satisfaction, or the
compromise or release of any claims or the Indemnitor being under
no obligation to pay the indebtedness under the Indemnity, or any
part thereof, or by the indebtedness under the Indemnity becoming
irrecoverable or unenforceable in whole or in part from or against
the Indemnitor by operation of law or otherwise, none of which
shall in any way modify or amend any of the Indemnitor's
obligations under the Indemnity, which shall be continuing,
irrevocable and binding on the Indemnitor as principal obligant
notwithstanding any investigations made by the Indemnified Party;
(c) agrees that nothing but payment, satisfaction and performance in
full of the obligations to the Indemnified Party under the
Indemnity shall release the Indemnitor from its obligations
hereunder;
(d) agrees that no document, proof or other action, other than as
herein set forth, is necessary as a condition of the Indemnitor
honouring its obligations hereunder;
(e) agrees that in the event of the bankruptcy, winding-up or
distribution of the assets of the Indemnitor, the rights of the
Indemnified Party shall not be affected or impaired by its omission
to prove its claim, or to prove its full claim, and it may prove
such claim as it sees fit and may refrain from proving any claim;
(f) agrees that no term, condition or provision hereof or any right
hereunder or in respect thereof shall be, or shall be deemed to
have been, waived by the Indemnified Party except by express
written waiver signed by the Indemnified Party, all such waivers to
extend only to the particular circumstances therein specified and
neither forbearance nor indulgence by the Indemnified Party shall
constitute a waiver of any term, condition or provision to be
performed or observed by the Indemnitor, or want of any performance
or observance thereof; and
(g) agrees that no action or omission on the part of the Indemnified
Party in exercising or failing to exercise its rights hereunder or
in connection with or arising from any of the Indemnitor's
obligations under the Indemnity or any
<PAGE>
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part thereof shall make the Indemnified Party liable to the
Indemnitor for any loss occasioned to the Indemnitor.
PART 9
GENERAL
9.1 All notices which may or are required to be given pursuant to any
provisions of this Agreement shall be given in writing and shall be delivered
personally or by telecopy, and in the case of FDM addressed to:
No. 1 Temasek Avenue
37th Floor, Millenia Tower
Singapore
039192
Fax No: 011-65-337-0616
Attention: President
with a copy to:
Goodman Phillips & Vineberg
1900 - 355 Burrard Street
Vancouver, British Columbia
V6C 2G8
Fax No: (604) 682-7131
Attention: Steven G. Robertson
in the case of Global Gold or Global Armenia addressed to:
438 West 37th Street, Suite 5G
New York, New York
10018
Fax No: (212) 967-3018
Attention: President
<PAGE>
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with a copy to:
Patterson, Belknap, Webb & Tyler
1133 Avenue of the Americas
New York, New York
10036-6710
Fax No: (212) 336-2222
Attention: Van Krikorian
and to:
Law Offices of Stephen R. Field
620 Fifth Avenue, Third Floor
New York, New York
Fax No: (212) 332-6055
or such other address or telecopier number of which a party may, from time to
time, advise the other parties hereto by notice in writing given in accordance
with the foregoing. Date of receipt of any such notice shall be deemed to be
the date of delivery thereof, if delivered, and on the day of telecopying, if
telecopied, provided such day is a Business Day and, if not, on the first
Business Day thereafter.
BINDING EFFECT
9.2 This Agreement shall be binding upon and shall enure to the benefit of the
parties hereto and their respective successors and permitted assigns.
WAIVER
9.3 Any waiver or release of any of the provisions of this Agreement, to be
effective, must be in writing executed by the party granting the same.
TIME OF ESSENCE
9.4 Time is of the essence of this Agreement.
<PAGE>
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SURVIVAL OF REPRESENTATIONS AND WARRANTIES
9.5 The representations and warranties of the parties to this Agreement shall
survive the execution hereof, and shall not merge with any deed, conveyance or
other transfer instrument or other agreement giving effect hereto and shall
survive for a period of two years.
ASSIGNMENT
9.6 Except as otherwise expressly provided in this Agreement, no party may
assign its rights or obligations under this Agreement without the prior written
consent of the other parties, such consent, in any case, not to be unreasonably
withheld or delayed.
FURTHER ASSURANCES
9.7 Each of the parties, upon the request of any other party, shall do,
execute, acknowledge and deliver or cause to be done, executed, acknowledged or
delivered all such further acts, deeds, documents, assignments, transfers,
conveyances and assurances as may be reasonably necessary or desirable to effect
complete consummation of the transactions contemplated by this Agreement.
COUNTERPARTS
9.8 This Agreement may be executed in one or more counterparts, each of which
shall be deemed to be an original but all of which together shall constitute one
and the same instrument.
ENTIRE AGREEMENT
9.9 This Agreement, together with the schedules herein referred to, constitutes
the entire agreement between the parties pertaining to the subject matter hereof
and supersedes the Term Sheet Agreement and any other prior agreements,
understandings, negotiations and discussions, whether oral or written, between
the parties with respect to the subject matter hereof.
SEVERABILITY
9.10 If any provision of this Agreement shall be held invalid or unenforceable,
such invalidity or unenforceability shall attach only to such provision and
shall not in any manner affect or render invalid or unenforceable any other
severable provision of this Agreement, and this Agreement shall be carried out
as if any such invalid or unenforceable provision were not contained herein.
<PAGE>
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GOVERNING LAW
9.11 This Agreement and the rights of the parties hereunder shall be governed by
and construed in accordance with the laws of the State of New York, determined
without regard to its conflicts of law principles. All parties hereto (i) agree
that any legal suit, action or proceeding arising out of or relating to this
Agreement shall be instituted only in a New York state court or federal court in
the City of New York, State of New York in the United States of America, (ii)
waive any objection which they may now or hereafter have to the laying of the
venue of any such suit, action or proceeding, and (iii) irrevocably submit to
the exclusive jurisdiction of the United States District Court for the Southern
District of New York, or any court of the State of New York, in any such suit,
action or proceeding, but such consent shall not constitute a general appearance
or be available to any other person who is not a party to this Agreement. All
parties hereto agree that the mailing of any process in any suit, action or
proceeding in accordance with the notice provisions of this Agreement shall
constitute personal service thereof.
IN WITNESS WHEREOF the parties hereto have executed this Agreement as of the
date first above written.
FIRST DYNASTY MINES LTD. GLOBAL GOLD CORPORATION
Per: /s/ Marcus Randolph Per: /s/ Robert A. Garrison
------------------------------ ------------------------------
Authorized Signatory Authorized Signatory
GLOBAL GOLD ARMENIA LIMITED
Per: /s/ Drury J. Gallagher
------------------------------
Authorized Signatory
<PAGE>
SCHEDULE A
SHAREHOLDERS AGREEMENT
OF
GLOBAL GOLD ARMENIA LIMITED
Agreement made as of this ______ day of May, 1997, by and among
First Dynasty Mines Ltd., a corporation organized under the laws of the Yukon,
Canada and having its head office at No. 1 Temasek Avenue, 37th Floor, Millenia
Tower, Singapore 39192 ("FDM"), Global Gold Corporation, a Delaware corporation
with offices at 438 West 37th Street, Suite 5G, New York, New York 10018
("Gold") (each such person or entity, together with such other persons or
entities subsequently becoming parties to this Agreement, hereinafter shall be
referred to individually as a "Shareholder" and collectively as the
"Shareholders") and Global Gold Armenia Limited, a Cayman Islands corporation
with an address c/o W.S. Walker & Company, Caledonian House, P.O. Box 265,
George Town, Grand Cayman (the "Corporation").
WHEREAS, upon the execution and the delivery of the Definitive
Agreement by and among the Corporation and the Shareholders dated as of the date
hereof (the "Definitive Agreement"), the Corporation and the Shareholders desire
to impose certain limitations and restrictions upon the sale, transfer, gift,
pledge, assignment or other disposition (each of such acts being hereinafter
referred to as a
<PAGE>
"Transfer") of the shares of the common stock of the Corporation (shares of such
common stock, together with shares of common subsequently acquired by the
parties, being referred to as the "Shares" and collectively as the "Stock") or
any interest therein now or hereafter owned by the Shareholders, and to grant
each other certain rights as described herein;
WHEREAS, the Corporation and the Shareholders desire to facilitate
the continuity of responsible ownership of the Corporation; and
WHEREAS, the Corporation and the Shareholders desire to provide for
certain rights of first refusal and obligations with respect to the Stock upon
the proposed Transfer of Stock to a third party;
NOW, THEREFORE, in consideration of the mutual covenants and
conditions herein contained, each of the parties hereby agrees as follows:
NOW, THEREFORE, it is agreed as follows:
1. VOTING OF STOCK; DIRECTORS.
1.1 (a) The Shareholders hereby agree with one another that
they will, at all times, vote their respective Shares, commencing on the date
hereof and continuing until FDM shall own 80% of the issued and outstanding
ordinary shares of the Corporation or Gold owns no Stock, so as to effectuate
the election of solely the following persons as directors of the Corporation:
2
<PAGE>
(i) Drury J. Gallagher,
(ii) Robert A. Garrison,
(iii) Marcus Randolph,
(iv) John Lewins, and
(v) Barry Aitken.
(b) In the event that FDM shall acquire 80% of the issued and
outstanding ordinary shares of the Corporation, then, upon the occurrence of
such event, the Shareholders hereby agree with one another that they will, at
all times, vote their respective Shares, commencing on the occurrence of such
event and continuing until all of the Shareholders own no Stock or Gold owns no
Stock, so as to effectuate the election of solely the following persons as
directors of the Corporation:
(i) Robert A. Garrison,
(ii) Marcus Randolph,
(iii) John Lewins,
(iv) Barry Aitken, and
(v) an individual designated by FDM by notice in writing to
the Corporation.
1.2 (a) In the event the size of the Board of Directors is
increased from time to time or such designees shall not be serving as directors,
Drury J.
3
<PAGE>
Gallagher and Robert A. Garrison acting on behalf of Gold, on the one hand, and
FDM, on the other hand, shall each have the right to designate additional
persons to serve as members of the Board of Directors, so that, in all events,
each party shall have such number of its designees as members of the Board of
Directors of the Corporation as shall be proportionate to the number of
designees established pursuant to Section 1.1(a) or Section 1.1(b), as the case
may be, computed as of the date of such increase in size.
(b) In the event of the death of any of a party's designees,
such party's remaining designees shall have the right to appoint a director to
replace the deceased director pursuant to Section 1.2(a) hereof. In any event,
each party will have the right to replace its own designees at any time upon
notice in writing to the other party.
2. NON-EXCLUSIVITY OF DEFINITIVE AGREEMENT
2.1 Notwithstanding anything contained in this Agreement to the
contrary, in the event that the Definitive Agreement becomes non-exclusive
pursuant to the provisions of Section 2.6 thereof, then (a) FDM shall have the
right to designate only one director, (b) Gold shall have the right to designate
one director, and (c) the party or parties who provide the financing required
under the then applicable provisions of the Second Joint Venture Agreement shall
have the right to appoint three
4
<PAGE>
designees to the Board of Directors of the Corporation, which appointment shall
be made simultaneously with the execution and delivery of the financing
agreement relating thereto or upon the payment of the first funding thereunder,
whichever is applicable, and provided that each party hereto receives a copy of
the definitive agreement relating to such financing or financings and Gold shall
have the right to participate in the financing described in this Section 2.1(c).
3. VOTING.
3.1 The Shareholders shall vote at all corporate meetings so as to
effectuate the terms and provisions of this Agreement.
3.2 The Shareholders agree to take appropriate action to amend the
By-Laws of the Corporation to provide that the vote of a majority of the members
of the Board of Directors of the Corporation shall be required to take any
action on behalf of the Board of Directors of the Corporation. Notwithstanding
anything contained in this Agreement to the contrary, the unanimous vote of the
Board of Directors shall be required in order to take any action on the
following matters:
(a) The sale, lease or any other disposition of all or
substantially all of the assets of the Corporation;
(b) the sale or assignment of any interest of the Corporation
in any joint venture company in which the Corporation is a shareholder or equity
5
<PAGE>
participant or to which the Corporation has provided financing of any kind in
excess of the sum of $250,000;
(c) the financing of any of the Projects (as defined in the
Definitive Agreement) other than when such financing is provided solely by FDM,
except that the parties acknowledge and agree that FDM will not be in default of
its obligations under the Definitive Agreement to assist the Corporation in the
procurement of Project financing as a result of a Project financing proposal
made in good faith not being unanimously approved pursuant to Section 3.2(c)
above.
4. OTHER ACTIVITIES .
4.1 Neither this Agreement nor any activity on behalf of the
Corporation shall prevent the Shareholders from engaging in any other activities
or businesses or from making any other investments. In no event shall any of
the Shareholders be obligated to account to the other Shareholders of the
Corporation for any profits or other benefits derived from such permitted
activities, businesses or investments or be under any obligation to offer to the
other Shareholders of the Corporation an interest in any such permitted activity
business or investment, and any income realized may therefrom be retained by
such Shareholder for his or her own account.
4.2 The fact that a Shareholder is directly or indirectly interested
in any
6
<PAGE>
person, firm or corporation employed or retained by the Corporation to render or
perform a service, or to or from whom the Corporation may purchase, sell,
license or lease property, shall not prohibit the Corporation from employing or
retaining such person or firm or Corporation or from otherwise dealing with him
or it, provided, however, that the same is approved by the Board of Directors of
the Corporation.
5. LOCK-UP RESTRICTIONS
5.1 (a) Subject to the provisions of this Agreement, each of the
Shareholders agrees not to Transfer any Stock except in accordance with and
subject to the terms of this Agreement. Any attempted or purported Transfer of
any Shareholder's Stock in violation of the terms of this Agreement shall be
null and void and the Corporation shall reject and refuse to record on its books
any attempted or purported Transfer in violation of the provisions of this
Agreement, and it shall not recognize any such transferee holding such Stock as
a shareholder of the Corporation, nor shall any such person acquire any rights
as a shareholder of the Corporation.
(b) Notwithstanding anything contained in this Agreement to the
contrary, any Shareholder may sell, assign, or transfer any of its Shares to any
corporation, partnership or limited liability company, which is owned solely by
the transferring Shareholder, provided that any such transfer is expressly
permitted under the Definitive Agreement, each such transferor provides written
notice of such transfer
7
<PAGE>
to all the other parties hereto and each such transferee under this Section
5.1(b) shall have signed and delivered to the Corporation an instrument in
writing pursuant to which such transferee agrees to be bound by all the terms
and provisions of this Agreement.
6. OTHER RESTRICTIONS ON DISPOSITION
6.1 (a) If a Shareholder ("Transferor") shall receive from an
unaffiliated person ("Third Party Transferee") a written bona fide offer to
purchase for cash (the "Bona Fide Offer") (other than pursuant to public
offering of the Corporation's securities) any or all of the Transferor's Shares
(the "Offered Shares"), which Bona Fide Offer the Transferor desires to accept,
such Transferor shall give the Corporation and the other Shareholder (the
"Non-Transferring Shareholder") written notice (the "First Notice") of such
desire. Such notice shall also contain the identity of the Third Party
Transferee, the price and other terms of the Bona Fide Offer. The First Notice
shall be accompanied by a copy of the Bona Fide Offer. The Corporation shall
have, for a period of 30 business days following the delivery of the First
Notice, an option to purchase any or all Offered Shares, and if the Corporation
(by vote of its Board of Directors) shall elect to exercise such option, in
whole or in part, the Corporation shall within such 30-day period give an
Election Notice (as defined below) of exercise to the Transferor and to the
Non-Transferring Shareholder. In the event that the Corporation fails to
exercise said option with respect to all or part of the
8
<PAGE>
Offered Shares (the shares of the Stock not purchased by the Corporation
pursuant to an option granted to it in this Agreement shall hereinafter be
referred to as the "Remaining Shares"), the Non-Transferring Shareholder shall
have an option to elect to purchase all or part of the Remaining Shares, which
option must be exercised by giving an Election Notice to the Corporation and to
the Transferor within 30 business days after the expiration of the Corporation's
option period. An "Election Notice" as used in this Agreement shall mean a
written notice from the Corporation or a Shareholder, as the case may be,
stating its or his, as the case may be, desire to purchase all or a specified
portion of the shares of Stock offered pursuant to an option granted in this
Agreement to it or him, as the case may be.
(b) The purchase price per share of Stock payable for the purchase of
any Stock sold to the Corporation and/or the Non-Transferring Shareholder
pursuant to the provisions of this Section 6.1 shall be the amount as stated in
the First Notice. The payment terms of such purchase shall be governed by
Section 7.
(c) The closing of any purchase and sale of the Offered Shares
pursuant to Section 6.1(a) shall take place at the principal office of the
Corporation on a mutually agreed date after 10 business days, but not more than
15 business days, from the date on which either (i) the Corporation elects to
exercise its option with respect to all of the Offered Shares or (ii) if the
Corporation does not elect to purchase
9
<PAGE>
all of the Transferor's Stock, the second option granted to the Non-Transferring
Shareholder in Section 6.1(a) expires.
(d) In the event that the Corporation and the Non-Transferring
Shareholder shall fail to exercise in the aggregate their right to purchase
under Section 6.1(a) all (but not less than all) of the Offered Shares within
the periods therein specified, the Transferor may, subject to Section 6.2,
thereafter Transfer all of the Offered Shares to the Third-Party Transferee on
the terms and at the price described in the Bona Fide Offer, provided such
Transfer is consummated within 120 days after the delivery of the First Notice
and, subject to Section 6.2, such Third Party Transferee shall have signed and
delivered to the Corporation an instrument in writing pursuant to which such
Third Party Transferee agrees to be bound by all of the terms and conditions of
this Agreement. If such Transfer is not consummated as provided in this Section
6.1(d), then the Shares owned by the Transferor shall again be subject to all of
the terms and conditions of this Agreement.
6.2 The Non-Transferring Shareholder may, instead of exercising its
right of purchase under Section 6.1(a), elect to participate with the Transferor
in the Bona Fide Offer by notifying the Transferor in writing prior to the
expiry of the Non-Transferring Shareholder's right of purchase. If the
Non-Transferring Shareholder exercises its right of sale as hereinbefore
described, the Transferor shall not transfer
10
<PAGE>
the Offered Shares to the Third Party Transferee unless the Third Party
Transferee enters into a binding agreement with the Non-Transferring Shareholder
to purchase that number of Shares from the Non-Transferring Shareholder on the
same terms and conditions as the Bona Fide Offer, as is equal to:
(a) if the Bona Fide Offer relates to all of the Transferor's Shares,
all of the Non-Transferring Shareholder's Shares; or
(b) if the Bona Fide Offer relates to less than all of the
Transferor's Shares, the product obtained by multiplying the total number of
Shares held by the Non-Transferring Shareholder by a fraction, the numerator of
which is the number of Shares of the Transferor to which the Bona Fide Offer
relates and the denominator of which is the total number of Shares held by the
Transferor.
6.3 Notwithstanding anything contained in this Agreement to the
contrary, the parties acknowledge and agree that:
(a) No Shareholder shall have the right to sell or otherwise Transfer
any of its Shares to any Third Party Transferee while FDM's rights under the
Definitive Agreement remain exclusive under Section 2.6 of the Definitive
Agreement; and
(b) no Shareholder has the right to sell or Transfer any of its
Shares to any Third Party Transferee if such sale or Transfer would constitute a
breach of the
11
<PAGE>
Joint Venture Agreements (as defined in the Definitive Agreement).
7. DELIVERY OF STOCK CERTIFICATE(S); PAYMENT OF PURCHASE PRICE
7.1 The stock certificate or certificates representing the shares of
Stock transferred hereunder shall be delivered at the closing, duly endorsed for
transfer, or accompanied by duly executed stock powers, signatures guaranteed,
with the necessary documentary and transfer stamps, if any, paid for and affixed
by the seller of the Stock. Appropriate assurance of the authority of any
attorney, executor, administrator, trustee, or guardian to sign shall also be
provided at such time.
7.2 The full purchase price of the Stock being purchased by the
Corporation or Shareholder pursuant to an exercise of the rights of first
refusal described in Section 6.1 hereof shall be paid, in immediately available
funds by certified or official bank check or wire transfer at the closing of
such purchase and sale.
8. RESTRICTIVE COVENANTS; INJUNCTIVE RELIEF
8.1 Each Shareholder agrees that it will not divulge to any person,
officer or corporation, other than to agents or representatives of the
Corporation, any knowledge or information of any type whatsoever of a
confidential nature relating to the business of the Corporation or any of its
subsidiaries or affiliates, including, without limitation, all types of trade
secrets (unless readily ascertainable from public
12
<PAGE>
or published information or trade sources). Each Shareholder further agrees not
to disclose, publish or make use of any such knowledge or information of a
confidential nature without the prior written consent of the Corporation.
8.2 The parties hereto agree that, in the event that a Shareholder
commits a breach, or threatens to commit a breach, of any of the foregoing
restrictions the Corporation shall have the following rights and remedies:
(a) each Shareholder hereby consents to a grant of an injunction
restraining any violation or threatened violation of the provisions of this
Section 8 or any other appropriate decree of specific performance by any court
having equity jurisdiction, it being acknowledged and agreed by the Shareholders
that the Stock has a special, unique and extraordinary character and that any
such breach or threatened breach will cause irreparable injury to the
Corporation and that money damages will not provide an adequate remedy to the
Corporation; and
(b) to require the Shareholder to account for and pay over to the
Corporation all compensation, profits, monies, accruals, increments or other
benefits (collectively "Benefits") derived or received by the Shareholder as the
result of any transactions constituting a breach of any of the provisions of
this Section 8, and the Shareholder hereby agrees to account for and pay over
such Benefits to the Corporation.
13
<PAGE>
Each of the rights and remedies enumerated in this Section 8.2 shall
be independent of the other, and shall be severally enforceable, and such rights
and remedies shall be in addition to, and not in lieu of, any other rights and
remedies available to the Corporation under law or equity.
9. MISCELLANEOUS COVENANTS.
9.1 Unless otherwise agreed by all Shareholders in writing to the
contrary, the Corporation shall declare a quarterly dividend payable to each
Shareholder, commencing on September 30, 1998 and on the end of each quarter
thereafter to and including the quarter ending December 31, 1999, which, in the
case of each payment, shall be payable in U.S. dollars on the 30th day after the
close of each such quarter in an amount equal to the sum of (a) the current or
accumulated profits of the Corporation for such year computed as of the date of
the declaration of such dividend in accordance with generally accepted
accounting principles, multiplied by (b) the percentage of the Stock of the
Corporation owned by such Shareholder as of the date 15 days prior to the
declaration of such dividend.
10. MISCELLANEOUS.
10.1 NOTICES. All notices or other communications required or
permitted to be given pursuant to this Agreement shall be in writing and shall
be considered as duly given on (a) the date of delivery, if delivered in person,
by nationally recognized
14
<PAGE>
overnight delivery service or by facsimile or (b) three days after mailing if
mailed from within the continental United States by registered or certified
mail, return receipt requested to the party entitled to receive the same, if to
Gold or the Corporation, at 438 West 37th Street, Suite 5G, New York, New York
10018, facsimile number (212) 967-3018, with a copy to Law Offices of Stephen R.
Field, 620 Fifth Avenue, New York, New York, Attn: Stephen R. Field, Esq.,
facsimile number (212) 332-6055, and to Patterson, Belknap, Webb & Tyler LLP,
1133 Avenue of the Americas, New York, New York 10036, Attn: Van Krikorian,
Esq., facsimile number (212) 336-2222 and if to FDM, at the address shown above,
facsimile number 011-65-337-0616, with a copy to Goodman Phillips & Vineberg,
1900-355 Burrard Street, Vancouver, British Columbia V6C 2G8, Attn: Steven G.
Robertson, Esq., facsimile number (604) 682-7131. Any party may change its
address by giving notice to the other party stating its new address. Commencing
on the 10th day after the giving of such notice, such newly designated address
shall be such party's address for the purpose of all notices or other
communications required or permitted to be given pursuant to this Agreement.
10.2 GOVERNING LAW. This Agreement and the rights of the parties
hereunder shall be governed by and construed in accordance with the laws of the
Cayman Islands, determined without regard to conflicts of law principles. All
parties hereto (i) agree that any legal suit, action or proceeding arising out
of or relating to this
15
<PAGE>
Agreement shall be instituted only in a New York state court or federal court in
the City of New York, State of New York in the United States of America, (ii)
waive any objection which they may now or hereafter have to the laying of the
venue of any such suit, action or proceeding, and (iii) irrevocably submit to
the exclusive jurisdiction of the United States District Court for the Southern
District of New York, or any court of the State of New York, in any such suit,
action or proceeding, but such consent shall not constitute a general appearance
or be available to any other person who is not a party to this Agreement. All
parties hereto agree that the mailing of any process in any suit, action or
proceeding in accordance with the notice provisions of this Agreement shall
constitute personal service thereof.
10.3 ENTIRE AGREEMENT; WAIVER OF BREACH. This Agreement, together
with the Definitive Agreement, constitutes the entire agreement among the
parties and supersedes any prior agreement or understanding among them with
respect to the subject matter hereof, and it may not be modified or amended in
any manner other than as provided herein; and no waiver of any breach or
condition of this Agreement shall be deemed to have occurred unless such waiver
is in writing, signed by the party against whom enforcement is sought, and no
waiver shall be claimed to be a waiver of any subsequent breach or condition of
a like or different nature.
16
<PAGE>
10.4 BINDING EFFECT; ASSIGNABILITY. This Agreement and all the terms
and provisions hereof shall be binding upon and shall inure to the benefit of
the parties and their respective successors and permitted assigns. This
Agreement and the rights of the parties hereunder shall not be assigned except
in conjunction with the relevant Shares in accordance with this Agreement.
10.5 SPECIFIC PERFORMANCE. The parties hereby acknowledge that
irreparable damage will be caused by a violation or threatened violation of this
Agreement and that it is impossible to measure in money the damages which will
accrue to a party hereto by reason of a failure to perform any of the
obligations under this Agreement. Therefore, if any party hereto shall institute
any action or proceeding to enforce any of the provisions hereof, any person
(including the Corporation) against whom such action or proceeding is brought
hereby consents to a grant of an injunction restraining any such violation or
threatened violation of this Agreement or any other appropriate decree of
specific performance by any court having equity jurisdiction and waives the
claim or defense therein that such party has an adequate remedy at law, and such
person shall not allege in any such action or proceeding the claim or defense
that such remedy at law exists.
10.6 RESTRICTIVE LEGEND. During the term of this Agreement, each
certificate representing shares of Stock shall bear the following legend in
addition to
17
<PAGE>
such other restrictive legends as may be required by law, by the Corporation or
its counsel or pursuant to any other agreement:
"The shares represented by this certificate have not been registered
under the Securities Act of 1933, as amended (the "Act"), or any state
securities laws, and no sale or transfer thereof may be effected without an
effective registration statement or an opinion of counsel for the holder,
satisfactory to the company, that such registration is not required under
the Act and any applicable state securities laws.
Also, the shares represented by this certificate are subject to the
limitations and restrictions upon their transfer, sale, gift, pledge,
assignment or other disposition that are set forth in the Shareholders
Agreement, dated as of May __, 1997, a copy of which is on file at the
principal office of the Corporation."
10.7 INSUFFICIENT SURPLUS. If the Corporation has insufficient
surplus to permit it lawfully to purchase any Stock as provided herein, the
Shareholders will promptly cause the Corporation to take all such action as is
legally permissible and necessary and appropriate to enable the Corporation
lawfully to purchase the Stock, including, without limitation, by reducing the
Corporation's capital or revaluing the Corporation's assets, provided that
nothing in this Section 10.7 will oblige any Shareholder to provide the
Corporation with any funds for that purpose.
10.8 CAPTIONS. Captions contained in this Agreement are inserted only
as a matter of convenience and in no way define, limit or extend the scope or
intent of this Agreement or any provision hereof.
18
<PAGE>
10.9 NUMBER AND GENDER. Wherever from the context it appears
appropriate, each term stated in either the singular or the plural shall include
the singular and the plural, and pronouns stated in either the masculine, the
feminine or the neuter gender shall include the masculine, feminine and neuter.
10.10 SEVERABILITY. If any provision of this Agreement shall be
held invalid or unenforceable, such invalidity or unenforceability shall attach
only to such provision and shall not in any manner affect or render invalid or
unenforceable any other severable provision of this Agreement, and this
Agreement shall be carried out as if any such invalid or unenforceable provision
were not contained herein.
10.11 AMENDMENTS. This Agreement may not be amended except in a
writing signed by all of the parties hereto.
10.12 COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same instrument. In addition, this Agreement may contain
more than one counterpart of the signature page and this Agreement may be
executed by the affixing of such signature pages executed by the parties to one
copy of the Agreement; all of such counterpart signature pages shall be read as
though one, and they shall have
19
<PAGE>
the same force and effect as though all of the signers had signed a single
signature page.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
FIRST DYNASTY MINES LTD.
By: /s/ Marcus Randolph
----------------------------------
Marcus Randolph, President
GLOBAL GOLD CORPORATION
By: /s/ Robert A. Garrison
----------------------------------
Robert A. Garrison, President and
Chief Operating Officer
GLOBAL GOLD ARMENIA LIMITED
By: /s/ Drury J. Gallagher
----------------------------------
Drury J. Gallagher, President
20
<PAGE>
SCHEDULE "B"
CONSULTING AGREEMENT
THIS AGREEMENT made as of the 13th day of May, 1997
BETWEEN:
GLOBAL GOLD ARMENIA LIMITED, a corporation incorporated
under the laws of the Cayman Islands with an address c/o
W.S. Walker & Company, Caledonian House, P.O. Box 265,
George Town, Grand Cayman
AND:
ROBERT A. GARRISON, of 44 Lords Highway East Weston,
Connecticut 06883
(the "Consultant")
WHEREAS:
(A) the Company wishes to retain the Consultant to perform certain
services for, and on behalf of, the Company;
(B) the Consultant and the Company wish to enter into this Agreement in
order to set the terms and conditions respecting the Consultant's engagement as
a consultant to the Company.
NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the premises and
the mutual covenants and agreements hereinafter set out, the parties hereto
agree as follows:
1. DUTIES OF CONSULTANT
The services to be provided to the Company by the Consultant (the
"Consulting Services") will consist of,
(a) acting as a senior vice-president of the Company;
(b) assisting the Company in the furtherance of its business interests in
the Republic of Armenia under the supervision of the board of
directors of the Company;
<PAGE>
-2-
(c) performing such other activities as are, in the opinion of the board
of directors of the Company, designed to maximize the value of the
Company and its business, assets and undertaking; and
(d) such duties relating to the ongoing corporate management of the
Company as the board of directors of the Company may reasonably
request from time to time.
The Consultant agrees to devote fifty per cent (50%) of his time and
attention to the faithful, diligent and proper performance of the Consulting
Services. The Consultant shall generally render his consulting services within
the metropolitan New York City area, and the Consultant shall not be required to
unduly travel outside of the United States and outside of the metropolitan New
York City and not in excess of ten (10) business days duration each trip during
each 12 month term of this Agreement, provided that Consultant shall be given
reasonable notice of each such scheduled travel, and any such travel shall be
subject to his availability, acting reasonably.
2. COMPENSATION
In consideration for the Consulting Services, the Company will pay to the
Consultant a cash fee of U.S.$150,000 per annum in equal monthly instalments.
The Consultant is authorized to incur reasonable expenses in connection with the
conduct of his consulting duties on behalf of the Company including, without
limitation, expenses for the Consultant's travel, lodging and business
entertainment. The Company will promptly reimburse the Consultant for such
expenses within 30 days after the submission by the Consultant to the Company of
an itemized account of such expenditures, together with vouchers or receipts in
substantiation thereof. The Consultant shall not be permitted to incur any
expenses in excess of $2,500 without the prior written consent of the Company,
which shall not be unreasonably withheld of delayed.
3. CONSULTING TERM
The term of this Agreement will commence as of February 1, 1997 (the
"Commencement Date") and will expire on the third anniversary of the
Commencement Date, subject to earlier termination:
(a) by the Consultant upon the giving of 90 days prior written notice to
the Company or such lesser notice as the Company agrees to accept; or
<PAGE>
-3-
(b) by the Company,
(i) for cause, immediately and without compensation to the
Consultant other than accrued and unpaid consulting fees, upon
written notice to the Consultant, or
(ii) without cause, at any time upon written notice to the
Consultant and payment to the Consultant of an amount equal to
the aggregate consulting fee that would have been payable
during the period commencing on the date of termination and
ending on the date of expiry of this Agreement, together with
any consulting fees accrued and unpaid in respect of the
period preceding the date of termination.
For the purposes of this Agreement, "cause" means: (i) the conviction of
the Consultant of a felony or misdemeanor against the Company or its property;
(ii) the commission of a willful act or acts on the part of the Consultant which
cause material damage to the Company in excess of $250,000; or (iii) the
continued refusal by the Consultant for at least 90 days after the receipt of
written notice from the Company with respect thereto, to perform his consulting
duties, as may reasonably be requested of him under this Agreement by the board
of directors of the Company.
4. INDEPENDENT CONTRACTOR
In performing the Consulting Services, the Consultant will act as an
independent contractor and will be responsible for the payment of all taxes,
business license fees or similar outlays arising therefrom.
5. CONFIDENTIALITY
Any information received by the Consultant while performing Consulting
Services concerning the Company and its business, assets and undertaking will be
deemed to be confidential information, will be treated by the Consultant in full
confidence and will not be revealed to any other person except as otherwise
authorized by the Company.
6. NOTICE
Any notice required or permitted to be given hereunder shall be given by
personal delivery or by telecopier to the party for whom it is intended,
addressed as follows:
<PAGE>
-4-
To the Company at:
c/o W.S. Walker & Company
Caledonian House
P.O. Box 265
George Town, Grand Cayman
Fax No: (345) 949-7886
Attention: Board of Directors
with a copy to:
Patterson, Belknap, Webb & Tyler
1133 Avenue of the Americas
New York, New York
10036-6710
Fax No: (212) 336-2222
Attention: Van Krikorian
and to:
Law Offices of Stephen R. Field
620 Fifth Avenue, Third Floor
New York, New York
Fax No: (212) 332-6055
and to:
First Dynasty Mines Ltd.
No. 1 Temasek Avenue
#37-02 Millenia Tower
Singapore
039192
Fax No: 011-65-337-0616
Attention: President
To the Consultant at:
<PAGE>
-5-
44 Lords Highway East
Weston, Connecticut
06883
Fax: (203) 222-9037
Attention: Robert A. Garrison
with a copy to:
Patterson, Belknap, Webb & Tyler
1133 Avenue of the Americas
New York, New York
10036-6710
Fax No: (212) 336-2222
Attention: Van Krikorian
and to:
Law Offices of Stephen R. Field
620 Fifth Avenue, Third Floor
New York, New York
Fax No: (212) 332-6055
Any notice given as aforesaid shall be deemed to have been given to the
parties hereto if delivered, when delivered, or if telecopied, on the date of
receipt of such telecopy. Any party may from time to time by notice in writing
change its address for the purpose of this subsection.
7. FURTHER ASSURANCES
The parties hereto undertake to do, sign, execute and deliver such other
things, deeds or documents accessory or useful for the purpose of giving full
effect to this Agreement.
8. GOVERNING LAW
This Agreement and the rights of the parties hereunder will be governed by
and construed in accordance with the laws of the State of New York, determined
without regard
<PAGE>
-6-
to its conflicts of law principles. The parties hereto (i) agree that any legal
suit, action or proceeding arising of or relating to this Agreement shall be
instituted only in a New York state court of federal court in the City of New
York, State of New York in the United States of America, (ii) waive any
objection which they may now or hereafter have to the laying of the venue of any
such suit, action or proceeding, and (iii) irrevocably submit to the exclusive
jurisdiction of the United States District Court of the Southern District of New
York, or any court of the State of New York in any suit, action or proceeding,
but such consent shall not constitute a general appearance or be available to
any other person who is not a party to this Agreement. All parties hereto agree
that the mailing of any process in any suit, action or proceeding in accordance
with the notice provisions of this Agreement shall constitute personal thereof.
9. ENUREMENT
This Agreement shall enure to the benefit of and be binding upon the heirs,
executors, administrators and legal personal representatives of the Consultant
and the successors and assigns of the Company.
10. ENTIRE AGREEMENT
This Agreement constitutes the entire agreement between the parties hereto
relating to the subject matter hereof and supersedes all prior discussions,
commitments and other agreements.
11. ILLEGALITY
Should any provision or provisions of this Agreement be illegal or not
enforceable, it or they shall be considered separate and severable from this
Agreement and its remaining provisions shall remain in force and be binding upon
the parties hereto as though the provision or provisions had never been
included.
12. TIME OF THE ESSENCE
Time is of the essence of this Agreement.
<PAGE>
-6-
13. COUNTERPART
This Agreement may be executed in one or more counterparts, each of which
shall be deemed to be an original but all of which together shall constitute one
and the same instrument.
IN WITNESS WHEREOF the parties hereto have duly executed this Agreement as of
the day and year first above written.
GLOBAL GOLD ARMENIA LIMITED
Per: /s/ Marcus Randolph /s/ Robert Garrison
------------------------------- -------------------------------
Authorized Signatory Robert Garrison
<PAGE>
Schedule "C"
1. Tailings Dam Construction Contract, by and between Armenian Gold Recovery
Company Tailing LLC, a Joint Venture Company organized and operating in the
Republic of Armenia, and Construction of Civil and Industry Objects,
Daughter Enterprise "ArmGidroEnergoStroy" with offices located at the city
of Yerevan, Armenia.
2. Contract for engineering, procurement and construction management services
between Armenian Gold Recovery Company LLC and Kilborn Inc. for the Gold
Recovery from Tailing System at the Ararat Mine, Yerevan, Republic of
Armenia.
3. Debenture, dated February 3, 1997, made between Global Gold Armenia Limited
and First Dynasty Mines Ltd., the Lender.
4. Charge Over Shares Agreement, by Deed dated February 3, 1997, by and
between Global Gold Corporation (the "Chargor") in favor of First Dynasty
Mines Ltd.
5. Any and all contracts executed pursuant to the contract for engineering,
procurement and construction management services between Armenian Gold
Recovery Company LLC and Kilborn Inc. for the Gold Recovery from Tailing
System at the Ararat Mine, Yerevan, Republic of Armenia.
<PAGE>
SCHEDULE "D"
GLOBAL GOLD ARMENIA LIMITED
(A Development Stage Company)
Balance Sheet
ASSETS
December 31, 1996
(Unaudited)
CURRENT ASSETS
Cash $ 50
-----------
OTHER ASSETS
Organization costs 3,200
Investment in certain mining interests 977,500
Deferred costs 1,164,641
-----------
$ 2,145,341
-----------
TOTAL ASSETS $ 2,145,391
-----------
-----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 1,350,000
-----------
Note Payable to Shareholder $ 802,740
-----------
$ 2,152,740
-----------
-----------
STOCKHOLDERS' EQUITY -
Ordinary shares $.01 par, 5,000,000 shares
authorized, 1 share issued and outstanding - Note 9 $ 1
Paid-in capital - Development stage 5,000
Retained earnings - Development stage (12,349)
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,145,391
-----------
-----------
See the accompanying notes.
<PAGE>
GLOBAL GOLD ARMENIA LIMITED
(A Development Stage Company)
Notes to Balance Sheet
December 31, 1996
NOTE 1 ORGANIZATION (AS A DEVELOPMENT STAGE
COMPANY) AND ACCOUNTING POLICIES
The Company was incorporated in the Cayman Islands on November 29, 1995 as
a development stage company. An Australian corporation, Eyre Resources N.L. and
an affiliate (hereafter Eyre) presented to management of the Company's parent,
Global Gold Corporation ("Global") an opportunity to develop certain gold and
copper mining rights in the former Soviet Republics of Armenia and Georgia.
These Republics, which recently won their independence, may be prone to
political and economic turmoil which may result in various adverse
ramifications.
The Company was formed as part of Global's plan to acquire the mining
interests and raise venture capital, and the Company acquired the Armenian
mining interests in December 1995 shortly after its formation.
The books and records are maintained on the accrual basis of accounting.
Management has made any necessary interim period accounting adjustments in
order for the statements not to be misleading.
NOTE 2: USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
balance sheet date, and also the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
2
<PAGE>
GLOBAL GOLD ARMENIA LIMITED
(A Development Stage Company)
Notes to Balance Sheet
December 31, 1996
NOTE 3: DEVELOPMENT STAGE COMPANY
The Company never engaged in the active conduct of a trade or
business, and it has not generated any revenues to date. The Company
may encounter problems, delays, expenses and difficulties typically
encountered in the development stage, many of which may be outside of
the Company's control. These include, without limitation,
unanticipated problems and additional costs relating to development,
production, marketing, and competition. Management must also be
successful in securing significant additional investor and/or lender
financing, political risk insurance, fully executed joint venture
agreements with the Republic, and obtaining the services of an actual
mining operator, which the Company is not. The Company expects to
incur operating losses for the near term future and, in any event,
until such time as it derives substantial revenues from the sale of
concentrates containing gold, if any. Pursuant to the documents as
hereafter summarized, differing mining, processing, purifying,
reprocessing and exploration endeavors are contemplated. Where
appropriate, an endeavor will commence only after successful results
of a feasibility study are rendered.
NOTE 4: PATTERSON, BELKNAP, WEBB & TYLER LLP
Global has retained the New York City law firm of Patterson, Belknap,
Webb & Tyler LLP (PBWT) to represent the Company in its dealings with
the Armenian Republic. PBWT has an international law practice
involving commercial, non-profit and humanitarian issues and has
offices in Moscow. Mr. Van Z. Krikorian (VZK), of counsel to PBWT,
has been designated to conduct the negotiations with the Republic. VZK
was formerly Armenia's Deputy Permanent Representative to the United
Nations.
In connection with preparation and negotiation of the Armenian Joint
Venture Agreement and associated documents, as well as corporate, tax,
strategic, regulatory, financing, political risk insurance and other
miscellaneous matters, PBWT shall be compensated $930,000 plus
expenses ratably over the period May 1, 1995 through May 1, 1999,
with minimum quarterly payments of $25,000. The retainer arrangement
is predicated on the total value of the deal reaching $100,000,000 and
is subject to adjustment if it falls short or exceeds that goal. In
the event the contemplated financing is not consummated, PBWT will
reduce its
3
<PAGE>
GLOBAL GOLD ARMENIA LIMITED
(A Development Stage Company)
Notes to Balance Sheet
December 31, 1996
NOTE 4: PATTERSON, BELKNAP, WEBB & TYLER LLP (CONTINUED)
hourly charges by 50%. Management is accruing the base quarterly fee
of $25,000 for financial reporting purposes herein, which is included
in deferred costs.
NOTE 5: THE ARMENIAN JOINT VENTURE AGREEMENT
On February 2, 1996, Global and Armgold, a division of the Ministry of
Industry of the Government of the Republic of Armenia, initialed a
Joint Venture Agreement entitled the Armenian Gold Recovery Company.
The Agreement was executed and delivered by the parties May 1, 1996.
On June 29, 1996, the Republic of Armenia issued a decree authorizing
Armgold's joint venture with the Company. Besides its full consent,
the decree provided that the operation could start only after a
guarantee of $250,000 was made to the Armenian Government from a
"first rate" bank, with a condition that the Company invest five
million dollars into the projects within eight months after the
decree's coming into power.
Management has obtained "unofficial" estimates through Eyre and
engineers of tonnage, ore grade, and ore recovery rates. Management
believes that a significant amount of gold has not been mined by the
Armenian Government because of inadequate capital and technologies at
their disposal. After engineering assessments are officially
completed, and if they prove successful, the Company, as a joint
venture partner, will be required to provide the capital and
technologies in accordance with the Agreement.
The Venture may at times be required to obtain various approvals,
licenses, permits, etc., on a timely basis. Failure to obtain such
from the Government may materially and adversely affect the Company.
Pursuant to the May 1, 1996 Agreement, Armenia, in general, has agreed
to have the cost of the approval process be borne against their share
of the joint venture's profits.
The Venture is divided into three stages (projects). The Agreement
contemplates that successive stages of the project will be commenced
in earnest after prior stages are running successfully. At each site,
the Agreement calls for the
4
<PAGE>
GLOBAL GOLD ARMENIA LIMITED
(A Development Stage Company)
Notes to Balance Sheet
December 31, 1996
NOTE 5: THE ARMENIAN JOINT VENTURE AGREEMENT (CONTINUED)
Armenian Government to transfer to the Venture free and clear title in
the mining rights. The Company will be required to provide
administration, training, management, feasibility studies, technology
and business plans, as appropriate.
The initial stage calls for processing of tailings at Ararat. After
completion of feasibility studies and Government approval, the Company
will within one year be required to provide at least $9.5 million for
the purpose of purchasing tailings processing equipment and providing
working capital to the project.
Thereafter, feasibility studies for a gold mining and tailing
operations at the Zod site will commence. Management believes
capacities at Zod will be significant. Mining at a third site,
Meghradzor, will commence once Zod is operational. Pursuant to the
Joint Venture Agreement, preliminary feasibility studies and planning
are scheduled to commence at the Zod and Megharadzar sites, one month
and six months respectively, after the Armenian Government issues its
decree of approval of the Joint Venture.
The Company itself is not a mining operator. Accordingly, it will
seek to employ the services of a professional mining operator. The
Company may issue stock to the mining company. In addition, Global
will seek adequate financing and political risk insurance.
The Agreement does not specify exactly how profits are to be
calculated. Presently, it is not contemplated that the Armenian
Government will be assigned a value for its contribution of the mine
properties and rights to the venture. VZK has advised that profit
computations are still to be resolved. International or other
accounting standards have not been adopted in the Joint Venture
Agreement. For the Ararat tailings project, once profits are
determined, they shall be split 50/50 so long as the Percentage of
Recovery of Metals Per Gram Per Ton is 70% or more. Based upon a
sliding scale, the Company's profit share will increase to 66.67% if
the recovery rate declines to 50% or less. Pursuant to the work
carried out on a number of tailings samples by a research laboratory,
on April 23, 1996 a consulting
5
<PAGE>
GLOBAL GOLD ARMENIA LIMITED
(A Development Stage Company)
Notes to Balance Sheet
December 31, 1996
NOTE 5: THE ARMENIAN JOINT VENTURE AGREEMENT (CONTINUED)
engineer has preliminarily suggested a separation process that he
believes will economically yield a 50% recovery rate. The Company has
reviewed the Armenian's production records, and believes that 12
million tons are a fair approximation of the tailings piles.
Management intends to have the piles surveyed shortly. The
preliminary recommendations are being reviewed by the Joint Venture.
Armenia has permitted a tax holiday for the contemplated venture as
follows: for the first two years there shall be a complete exemption
from profits tax. For the third through the tenth year, only 50% of
the taxable income shall be taxable.
NOTE 6: GUARANTEES- LONDON AND INTERNATIONAL MERCANTILE LTD. (L.I.M.) -
SUBSEQUENT EVENT
In order to further Global's and the Company's endeavors, HCL
Communication Ltd. (a non U.S. corporation) arranged two guarantees on
behalf of the Company with L.I.M. (also a non-U.S. corporation). Each
guarantee is collateralized by 1,000,000 shares of Global's stock, and
accompanied by warrants to purchase an equal number of common shares
of Global, as follows:
Number of Latest Possible
Warrants Price/Share Expiration Date
-------------- ------------- -------------------
666,667 $3 06/15/97
666,667 $3 12/15/97
666,666 $3 06/15/98
---------
2,000,000
Pursuant to the Agreements, all of the L.I.M. warrants may expire on
the sooner date of 60 days after the receipt by the Company of the
feasibility study from Kilborn, reflecting that the gold mine in Zod,
Armenia has proven reserves in excess of $1,000,000,000.
6
<PAGE>
GLOBAL GOLD ARMENIA LIMITED
(A Development Stage Company)
Notes to Balance Sheet
December 31, 1996
NOTE 6: GUARANTEES - LONDON AND INTERNATIONAL MERCANTILE, LTD. (L.I.M.) -
SUBSEQUENT EVENT (CONTINUED)
Accordingly, L.I.M. originally held 2,000,000 common shares and
4,000,000 warrants of Global as collateral. The Agreements do not
provide for any partial release of the collateral if L.I.M. must make
a partial payment on account of the obligation it took on, but such
would be governed by English law. Global paid L.I.M. $11,875 for
each guarantee. and as consideration for its services, HCL received an
option to acquire the above stock (accompanied by the unexercised
warrants) from L.I.M. at $1.50 per share. Management believes it can
cause L.I.M. to release to the Company any monies it receives from the
exercise of the options, which are in excess of any outstanding
guarantees. HCL's options have a term of 61 days, commencing July 18,
1996, which is the date the Agreements herein were executed. Drury
Gallagher and Robert Garrison have jointly and severally pledged to
indemnify L.I.M. to the extent of L.I.M.'s net out-of-pocket cost
after paying the guarantees and selling off its collateral stock and
warrants. In consideration of the personal pledges, Global granted
each of them options to purchase 250,000 shares of Global's common
stock at $1/share, until July 18, 1999.
L.I.M.'s guarantee to the engineering firm expired in error on
October 27, 1996. Pursuant to Global's request, L.I.M. returned the
1,000,000 shares of Global Common Stock and warrants to purchase
2,000,000 shares of such Common Stock held as collateral security for
cancellation by Global, which cancellation occurred. In addition,
H.C.L.'s options described above expired without being exercised. In
addition, Global modified the exercise price of the options granted to
Messrs. Gallagher and Garrison to $.50 a share.
In the event L.I.M. and/or HCL acquire a certain number of shares
pursuant to the arrangement, the Company may be temporarily owned by
more than 50% non-U.S. interests.
The first guarantee requires L.I.M. to remit $250,000 to the Republic
of Armenia in the event the Company fails to invest five million
dollars within eight months of the decree coming into power. At the
time of issuance of this report, VZK had
7
<PAGE>
GLOBAL GOLD ARMENIA LIMITED
(A Development Stage Company)
Notes to Balance Sheet
December 31, 1996
NOTE 6: GUARANTEES - LONDON AND INTERNATIONAL MERCANTILE, LTD.
(L.I.M.) - SUBSEQUENT EVENT (CONTINUED)
indicated that Armenia had accepted the L.I.M. guarantee, and that
written acceptance of such from Armenia should be forthcoming shortly.
Subsequently, the Armenian Ministry of Finance raised objections to
the L.I.M. guarantee which the Company and Global are attempting to
resolve. Global had, in turn, committed to L.I.M. that it will cause
five million dollars in tailings processing equipment to be delivered
to Armenia by December 31, 1996, and further that it will be in
operation six months after crossing the Armenian border. L.I.M. has
the first right to arrange a lease-purchase of such equipment at
competitive market rates. The guarantee is payable for a period of up
to twelve months. The Agreement contains certain default provisions.
In order for the Company to properly estimate the amount of gold and
silver reserves, determine optimal mining and processing methods, and
properly identify equipment, environmental, and infrastructural
concerns at the various Armenian locations, the Company has hired an
engineering firm headquartered in Canada to do certain studies of
these matters. Such firm estimates it will take three months to do the
study and remit a report. Accordingly, a second guarantee for
$250,000 was undertaken in order to guarantee the engineers payment
for their services. The guarantee lasts for 120 days or under certain
circumstances up to six months.
NOTE 7: NON-UNITED STATES WHOLLY OWNED SUBSIDIARIES/INCOME TAX MATTERS
On November 29, 1995, Global formed Global Gold Armenia Limited and
Global Gold Georgia Limited, which were respectively assigned the
Armenian and Georgian mining rights from Eyre at the closing on
December 1, 1995. The two subsidiaries are Cayman Island entities
which were granted a twenty year tax exemption from any law of that
jurisdiction which hereafter imposes any tax to be levied on profits,
income, gains or appreciation, commencing December 19, 1995.
The off shore companies were formed in part, as a result of the
concerns of Eyre, the previous Australian owner of the mining rights,
that it not be exposed to two layers of corporate taxation, United
States and Australia.
8
<PAGE>
NOTE 8: SUBSEQUENT EVENT
Global contributed to the capital of the Company the promissory note
in the principal amount of $802,740 payable to Global as of April 30,
1997, as an inducement for First Dynasty Mines Ltd. to enter into a
definitive agreement with the Company and Global with respect to
certain mining projects in Armenia.
9
<PAGE>
Schedule "E"
Global Gold Corporation and
Global Gold Armenia Limited
Accounts Payable and Accrued Expenses
<TABLE>
<CAPTION>
Balance
12/31/96 Payments New Charges 03/31/97
-------- -------- ----------- --------
<S> <C> <C> <C> <C>
American Registrar & Transfer Co. 0.00 0.00 962.27 962.27
Caledonian Bank & Trust 0.00 0.00 416.96 416.96
Cusip Services 0.00 0.00 100.00 100.00
Drury J. Gallagher (loan) 192,000.00 0.00 0.00 192,000.00
Drury J. Gallagher (out of pocket) 18,998.92 18,998.92 2,240.78 2,240.78
Drury J. Gallagher (accrued salary) 150,000.00 100,000.00 a 36,667.00 86,667.00
Robert A. Garrison (out of pocket) 28,481.48 28,481.48 13,642.16 13,642.16
Robert A. Garrison (accrued salary) 150,000.00 100,000.00 a 36,667.00 86,667.00
Infisco Inc. 25,000.00 0.00 0.00 25,000.00
Katz, Schneeberg & Co., P.C. 1,065.48 1,065.48 0.00 0.00
Kehoe, White, Savage & Company 1,589.12 1,589.12 0.00 0.00
Kilboru, Inc. 172,257.00 172,257.00 0.00 0.00
Lakefield Research 15,774.16 15,655.50 d 0.00 0.00
Levon Travel Bureau, Inc. 9,478.35 9,478.35 b 0.00 0.00
Marks Shron & Company, LLP 34,918.00 15,032.00 15,060.00 34,946.00
Matrix International Logistics, Inc. 10,040.00 10,040.00 0.00 0.00
Merrill Corporation 3,801.00 3,801.00 1,545.93 1,545.93
Night Rider 1,241.48 1,241.48 0.00 0.00
Patterson, Belknap, Webb & Tyler - Billed 394,267.17 300,000.00 164,939.49 259,206.66
Patterson, Belknap, Webb & Tyler - Unbilled
and Uncollected Fees and Recorded Costs 0.00 0.00 479,645.67 479,645.67
Penn Med Consultants, Inc. 36,000.00 0.00 30,000.00 66,000.00
Sloan Tech 5,675.00 5,675.00 0.00 0.00
Stephen R. Field, Esq. 118,892.53 60,000.00 32,896.29 91,788.82
NYC Corporation tax 300.00 300.00 0.00 0.00
NYS & MTA Corporation tax 404.00 388.00 d 0.00 0.00
Delaware Franchise Tax 325.00 325.00 0.00 0.00
Interest payable - Eyre 763.00 763.00 c 0.00 0.00
Interest payable - Officer 6,968.00 6,968.00 c 0.00 0.00
$1,378,239.69 $852,059.33 $814,783.55 $1,340,829.25
------------- ----------- ----------- -------------
------------- ----------- ----------- -------------
a Exchanged for Common Shares
b Billed to Patterson Belknap
c Interest forgiven
d Billing adjustment
</TABLE>
<PAGE>
AMENDMENT TO THE SHAREHOLDERS AGREEMENT OF
GLOBAL GOLD ARMENIA LIMITED
This Amendment to the Shareholders Agreement, dated as of May 13, 1997,
by and among First Dynasty Mines Limited, a corporation organized under the laws
of the Yukon, Canada ("FDM"), Global Gold Corporation, a Delaware corporation
("Gold") and Global Gold Armenia Limited, a Cayman Islands company (the
"Company").
WITNESSETH THAT
WHEREAS each of FDM, Gold and the Company are parties to the Shareholders
Agreement of Global Gold Armenia Limited, dated as of May 13, 1997 (the
"Agreement") and wish to amend the Agreement in accordance herewith;
NOW, THEREFORE, in consideration of the mutual covenants and conditions
herein contained, each of the parties agrees as follows:
1) The first paragraph of the Agreement is hereby amended as
follows:
(a) the word "corporation" following the phrase "Cayman
Islands" is changed to "company;"
(b) the phrases "W.S. Walker and Company," and "P.O. Box 265,"
are hereby deleted;
(c) the word "Corporation" is changed to the word "Company."
2) The defined term "Corporation" is changed to "Company"
throughout the remainder of the Agreement.
3) The second paragraph of the Agreement is hereby amended as
follows:
<PAGE>
(a) the phrase "common stock" in the sixth line is deleted and
the word "capital" is substituted;
(b) the parenthetical definition is hereby deleted and the
following is substituted therefor:
"(such shares, together with shares subsequently
acquired by the parties, being referred to as the
"Shares")
4) The defined term "Stock" is hereby changed to "Shares"
throughout the remainder of the Agreement.
5) Section 3.2 of the Agreement is hereby amended by the deletion
of the word "By-Laws" and substitution of the phrase "Articles of
Association."
6) Section 10.2 of the Agreement is hereby amended by deletion of
the phrase "Cayman Islands" and substitution thereof of the phrase
"State of New York."
7) Gold, by execution of this Amendment to the Shareholders
Agreement, hereby confirms that the same, together with the
Agreement, has been executed by Drury J. Gallagher, both in his
capacity as president of Gold and as a director and member of the
Board of Directors of Gold.
8) The parties agree that, except as expressly provided herein, the
Agreement is ratified and confirmed in all respects.
2
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Amendment to the
Shareholders Agreement as of the date first above written.
FIRST DYNASTY MINES LTD.
By: /s/ Marcus Randolph
------------------------------------------
Marcus Randolph, President
GLOBAL GOLD CORPORATION
By: /s/ Robert A. Garrison
------------------------------------------
Robert A. Garrison, President and
Chief Operation Officer
GLOBAL GOLD ARMENIA LIMITED
By: /s/ Drury J. Gallagher
------------------------------------------
Drury J. Gallagher, Director and President
3
<PAGE>
Exhibit 48
EMPLOYMENT AGREEMENT
--------------------
AGREEMENT dated as of the 1st day of July, 1997 between Global Gold
Corporation, a Delaware corporation (the "Corporation"), and Drury J. Gallagher
(the "Employee") (the "Agreement").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Corporation and Employee entered into a three-year
employment agreement effective as of July 1, 1995;
WHEREAS, the Corporation and the Employee desire to amend and restate
such employment agreement and extend it through June 30, 2000 on the terms and
conditions hereinafter set forth; and
NOW, THEREFORE, the parties hereto agree as follows:
1. DUTIES.
(a) The Corporation hereby employs the Employee, and the Employee
hereby accepts and agrees to such employment, as Chairman and Chief Executive
Officer and, in such capacity, to be responsible for the day-to-day activities
of the Corporation activities. The Employee shall, subject to the supervision
and control of the Board of Directors of the Corporation, perform such executive
duties and exercise such supervisory powers over and with regard to the business
of the Corporation and its present and future subsidiaries, consistent with such
position, and such additional duties as specified in the Corporation's By-Laws
or as may be assigned to him from time to time by the Board of Directors of the
Corporation.
<PAGE>
(b) The Employee agrees to devote 50% of his available business time
to the performance of his duties hereunder. The Employee may provide services
to other organizations, on a compensation or pro bono basis, provided that such
services do not constitute more than 50% of his available business time.
2. TERM. The term of this Agreement shall be for a period of three years
commencing on the date hereof and ending on the third anniversary date hereof,
and shall be automatically renewed for consecutive one-year periods thereafter
unless (a) terminated by the Employee on 120 days written notice prior to the
expiration of the initial term hereof, (b) terminated by either party on 120
days written notice prior to the expiration of the fourth year hereof or any
year thereafter or (c) sooner terminated as otherwise provided herein.
3. COMPENSATION.
(a) BASE COMPENSATION. In consideration for the services rendered by
the Employee under this Agreement, the Corporation shall pay the Employee as
base compensation a salary of $150,000 each year, payable in equal monthly
installments. Such then base salary shall be increased each year, on the first
day after the anniversary date of the date of this Agreement, (a) in an amount
equal to the percentage increase, if any, in the Federal Bureau of Labor
Statistics Consumer Price Index for Urban Consumers for the Northeastern Region
of the United States ("CPI") during the preceding 12-month period, or (b) in an
amount up to 10% in the sole discretion of the Board of Directors of the
Corporation, if it determines that such action would be in the best interests of
the Corporation.
(b) BONUS COMPENSATION. In addition to the foregoing compensation,
the Employee shall be entitled to receive annual bonus compensation in an amount
determined in
-2-
<PAGE>
accordance with any bonus plan approved by the Board of Directors, or any
committee thereof duly authorized by the Board to make such determination, based
upon qualitative and quantitative goals determined by the Board of Directors, or
such committee thereof, in its sole discretion, as the case may be; provided
that no amount paid to any employee of the Corporation shall exceed 50% of his
then base compensation for such year. Any bonus payment shall be subject to all
applicable tax withholdings.
(c) In the event that the Employee voluntarily elects not to work 50%
for the Corporation as contemplated hereunder, both his base compensation, and
bonus compensation, if any, to which he would otherwise have been entitled, set
forth in Section 3(a) and (b) shall be reduced to the amount computed by
multiplying such base compensation and bonus entitlement by the ratio of the
number of hours worked during such 12 month period to 1,000 hours.
(d) CHANGE OF CONTROL.
(i) If during the term of this Agreement, there shall occur a
Change of Control of the Corporation (as defined herein), the Employee may
terminate his employment hereunder at any time during the term of this Agreement
in which case he shall be entitled to receive a payment equal to one times the
Employee's average annual compensation paid by the Company (including bonuses,
if any) during the three year period (or, if he has worked less than three years
hereunder, such shorter period) immediately preceding the date of his
termination of employment (the "Severance Payment"), PROVIDED, HOWEVER, that
such Severance Payment shall be reduced if and only to the extent necessary to
avoid the imposition
-3-
<PAGE>
of an excise tax on such Severance Payment under Section 4999 of the Internal
Revenue Code of 1986, as amended. The Severance Payment shall be payable to
Employee as follows:
(A) on the date of his termination of employment, an amount
equal to three months base compensation at the rate prevailing on the date of
termination; and
(B) commencing with the fourth month after such
termination, the balance remaining after the payment set forth in Section
3(d)(i)(A) above shall be paid by the Corporation in nine equal installments in,
at the Corporation's sole discretion, cash or in unregistered shares of its
common stock, based on the fair market value of such stock at the time of each
such payment.
(ii) For purposes hereof, the term "Change of Control" shall mean
an event or series of events that would be required to be described as a change
in control of the Corporation in a proxy or information statement distributed by
the Corporation pursuant to Section 14 of the Securities Exchange Act of 1934 in
response to Item 6(e) of Schedule 14A promulgated thereunder, or any substitute
provision which may hereafter be promulgated thereunder or otherwise adopted.
The determination of whether and when a change in control has occurred or is
about to occur shall be made by the Board of Directors in office immediately
prior to the occurrence of the event or series of events constituting such
change in control.
4. WORKING FACILITIES. The Employee shall be furnished with an office,
and such other facilities and services commensurate with his position as
Chairman and Chief Executive Officer of the Corporation, as are reasonably
necessary for the performance of his duties hereunder.
-4-
<PAGE>
5. REIMBURSEMENT OF BUSINESS EXPENSES. The Employee is authorized to
incur reasonable expenses in connection with the conduct of the Corporation's
business, including, without limitation, expenses for the Employee's travel,
lodging and business entertainment in accordance with the Corporation's
customary practice and subject to the general limitations thereof set forth in
the annual or more frequent budgets adopted by the Corporation from time to
time. The Corporation will promptly reimburse the Employee for such expenses
upon the presentation by the Employee, from time to time, of an itemized account
of such expenditures together with vouchers or receipts in substantiation
thereof.
6. BENEFITS. During the term of this Agreement, any benefits made
available to officers or employees of the Corporation under any pension plan,
profit sharing plan, employee stock purchase plan, stock bonus plan, incentive
stock option plan, stock appreciation plan, deferred compensation plan,
insurance plan, health plan, welfare plan, long-term disability plan or
otherwise shall be made available to the Employee, taking into account the
Employee's level of compensation, past services, scope of responsibility and
such other factors as are customarily used to evaluate executive performance and
compensation under such plans.
7. VACATIONS. The Employee shall be entitled each year during the term
of this Agreement to a vacation period of four weeks during which period all
compensation, benefits, and other rights to which the Employee is entitled
hereunder shall be provided in full. Such vacation may be taken, in the
Employee's discretion, at such time or times as are not inconsistent with the
reasonable business needs of the Corporation. During the term of this
Agreement, the vacation time provided for herein shall not be cumulative to the
extent not
-5-
<PAGE>
taken by the Employee during a given year. In the event that the vacation time
provided hereunder has not been taken during the 12-month period prior to the
termination or expiration of this Agreement for any reason other than those set
forth in Section 8(a) hereof, the Corporation shall pay the Employee, in
addition to any other benefits due to the Employee hereunder, an amount equal to
the number of weeks (or fraction thereof) of vacation time not so taken during
such period multiplied by an amount equal to the result obtained by dividing (x)
the then base salary in effect on the Termination Date (as defined in Section
8(e) hereof) by (y) 52.
8. TERMINATION.
(a) EARLY TERMINATION BY CORPORATION FOR CAUSE. During the term of
this Agreement, the Employee's employment may be terminated by the Corporation
only by the affirmative vote of 80% of all of the members of the Board of
Directors of the Corporation then holding office (without counting any vote of
the Employee whose services are sought to be terminated, if the Employee is then
a member of the Board of Directors) on 30 days prior written notice by means of
a Notice of Termination, and an opportunity for the Employee, accompanied by
counsel of his choice, to address the full Board of Directors, that one of the
following conditions exists or one of the following events has occurred:
(i) Willful act or acts on the part of the Employee which
caused material damage to the Corporation;
(ii) The conviction of the Employee for a felony;
(iii) The refusal by the Employee, continued for at least 90
days, to perform such employment duties as may reasonably be delegated
or assigned to him under this Agreement, consistent with his executive
position, by the Board of Directors of the Corporation;
-6-
<PAGE>
(iv) Willful and unexcused neglect by the Employee of his
employment duties under this Agreement, continued for at least 90
days; or
(v) Any other material breach by the Employee of the
provisions of this Agreement.
Subject only to a final determination by an arbitrator made pursuant
to the provisions of Section 11 of this Agreement, the Board of Directors'
determination, in good faith, in writing that cause exists for termination of
the Employee's employment shall be binding and conclusive for all purposes under
this Agreement. Upon such determination by the Board of Directors, the
Employee's compensation pursuant to Section 3 hereof and all other benefits
provided hereunder shall terminate on the Termination Date, except that the
Employee shall be entitled to be paid severance pay equal to his then base
compensation for a period of three months thereafter. In the event that the
Employee desires to take any matter with respect to such determination to
arbitration, he must commence an arbitration proceeding within 30 days after
receipt of written notice of the Board of Directors' determination. If the
Employee fails to take such action within such period, he will be deemed
conclusively to have waived his right to arbitration of the termination of his
employment hereunder.
(b) TERMINATION BY EMPLOYEE. In the event that the Corporation shall
default in the performance of any of its obligations under this Agreement in any
material respect (other than by reason of its financial inability to make
payments as determined by the Board of Directors of the Corporation in writing),
and shall not cure such default within 10
-7-
<PAGE>
days of receipt by the Corporation of written notice of such default from the
Employee, the Employee may terminate this Agreement by delivery of a Notice of
Termination. Upon any termination pursuant to the provisions of this Section
8(b), the Employee shall be entitled to receive, as liquidated damages and not
as a penalty, one year's payments which would have been made to the Employee on
account of his base salary in effect at the date of the delivery of a Notice of
Termination. Upon fulfillment of the conditions set forth in Section 8(b)
hereof and subject to Section 8(f) hereof, all rights and obligations of the
parties under this Agreement shall thereupon be terminated. The Employee shall
have no obligation to mitigate damages, and amounts payable pursuant to the
provisions of this Section 8(b) shall not be reduced on account of any income
earned by the Employee from other employment or other sources.
(c) TERMINATION BY REASON OF DISABILITY. In the event that Employee
shall be prevented from rendering all of the services or performing all of his
duties hereunder by reason of illness, injury or incapacity (whether physical or
mental) for a period of six consecutive months, determined by an independent
physician selected by the Board of Directors of the Corporation, the Corporation
shall have the right to terminate this Agreement, by giving 10 days prior
written notice to the Employee, provided that the Corporation shall continue to
pay his then base compensation for a period of 12 months thereafter. Until
terminated in the manner set forth in this Section 8(c), the Employee shall be
entitled to receive his full compensation and benefits provided hereunder
through the Termination Date. Any payments to the Employee under any disability
insurance or plan maintained by the Corporation shall be applied against and
shall reduce the amount of the base compensation payable by the Corporation
under this Section 8(c).
-8-
<PAGE>
(d) TERMINATION BY REASON OF DEATH. In the event that the Employee
shall die during the term of this Agreement, this Agreement shall terminate upon
such death. The sole death benefit payable to the Employee shall be the life
insurance benefits provided to the Employee, if any.
(e) CERTAIN DEFINITIONS.
(i) Any termination of the Employee's employment by the
Corporation or by the Employee shall be communicated by a Notice of Termination
to the other party hereto. For purposes hereof, a "Notice of Termination" shall
mean a notice which shall state the specific reasons, and shall set forth in
reasonable detail the facts and circumstances, for such termination.
(ii) "Termination Date" shall mean the date specified in the
Notice of Termination as the last day of Employee's employment by the
Corporation.
(f) CONTINUED MAINTENANCE OF BENEFIT PLANS IN CERTAIN CASES.
Notwithstanding anything contained in this Agreement to the contrary, if the
Employee's employment is terminated pursuant to Sections 8(b) or 8(c) hereof,
the Corporation shall maintain in full force and effect, for the continued
benefit of the Employee for the number of years (including partial years)
remaining in the term of employment hereunder, all employee benefit plans and
programs in which the Employee was entitled to participate immediately prior to
the Termination Date, provided that the Employee's continued participation is
possible under the general terms and provisions of such plans and programs. In
the event that the Employee's participation in any such plan or program is
barred, the Corporation shall have no obligation to provide any substitute
benefits for the Employee.
-9-
<PAGE>
9. CONFIDENTIALITY.
(a) During the term of this Agreement, and for a period of two years
thereafter, the Employee shall not, without the prior written consent of the
Board of Directors of the Corporation, disclose to any person, other than an
employee of the Corporation or a person to whom disclosure is reasonably
necessary or appropriate in connection with the performance by the Employee of
his duties hereunder, any of the Corporation's confidential information obtained
by the Employee during the term of this Agreement, including, without
limitation, trade secrets, products, designs, customers or methods of
distribution.
(b) The obligations of confidentiality contained in this Section
shall not extend to any matter which is in or becomes part of the public domain
otherwise than by reason of a breach by the Employee of his obligations of
confidentiality hereunder or which is disclosed by the Employee pursuant to an
order of a governmental body or court of competent jurisdiction or as required
pursuant to a legal proceeding in which the Employee or the Corporation is a
party.
10. CERTAIN REMEDIES IN EVENT OF BREACH. In the event that the Employee
commits a breach, or threatens to commit a breach, of any of the restrictions on
confidentiality contained in Section 9 of this Agreement, the Corporation shall
have the following rights and remedies:
(a) to obtain an injunction restraining any violation or threatened
violation of the provisions of Section 9 or any other appropriate decree of
specific performance by any court having equity jurisdiction, it being
acknowledged and agreed by the Employee that the services rendered, and to be
rendered to the Corporation by him as an Employee, are of a
-10-
<PAGE>
special, unique and extraordinary character and that any such breach or
threatened breach will cause irreparable injury to the Corporation and that
money damages will not provide an adequate remedy to the Corporation; and
(b) to require the Employee to account for and pay over to the
Corporation all compensation, profits, monies, accruals, increments or other
benefits (collectively the "Benefits") derived or received by the Employee as
the result of any transactions constituting a breach of any of the provisions of
Section 9, and the Employee hereby agrees to account for and pay over the
Benefits to the Corporation.
Each of the rights and remedies enumerated in this Section 10 shall be
independent of the other, and shall be severally enforceable, and such rights
and remedies shall be in addition to, and not in lieu of, any other rights and
remedies available to the Corporation at law or in equity.
11. ARBITRATION.
(a) SELECTION OF ARBITRATORS. In the event of any disagreement or
controversy arising out of or relating to this Agreement, such controversy or
disagreement shall be settled by three arbitrators in the City of New York in
accordance with the rules of the American Arbitration Association (the "AAA") in
arbitrations administered by it (other than the AAA rules relating to the
appointment of arbitrators), and any award granted in such arbitration shall
finally determine such controversy or disagreement. The arbitrators for any of
the arbitral proceedings referred to in the preceding sentence shall be chosen
as follows: (x) one shall be chosen by the Employee, (y) one shall be chosen by
the Board of Directors of the Corporation, and (z) one shall be chosen by the
two arbitrators selected under Section 11(a)(x)
-11-
<PAGE>
and (y) hereof. The arbitrators to be chosen by the parties shall be chosen
within 30 days after the service of a demand for arbitration on any party
hereto. If the two arbitrators appointed above shall not agree to the
appointment of the third arbitrator to be appointed as provided in Section
11(a)(z), such arbitrator shall be chosen by the then President of the
Association of the Bar of the City of New York, subject to challenge by any
party only by reason of a conflict of interest.
(b) JURISDICTION. Any judicial proceeding brought against any of
the parties to this Agreement in connection with compelling or staying
arbitration or enforcing any arbitral decision shall be brought in the courts of
the State of New York or in the United States District Court for the Southern
District of New York, and by the execution and delivery of this Agreement, each
of the parties to this Agreement accepts for himself or itself the exclusive
jurisdiction of such courts, and irrevocably agrees to be bound by any judgment
rendered thereby in connection with this Agreement. Such consent shall not
constitute a general appearance or be available to any other person who is not a
party to this Agreement. The parties agree that service of process will be
deemed sufficient if made upon each party hereto at the address set forth
herein.
12. MISCELLANEOUS.
(a) NOTICES. All notices or other communications required or
permitted to be given pursuant to this Agreement shall be in writing and shall
be considered as duly given on (a) the date of delivery, if delivered in person,
by nationally recognized overnight delivery service or by facsimile or (b) three
days after mailing if mailed from within the continental United States by
registered or certified mail, return receipt requested to the party entitled to
-12-
<PAGE>
receive the same, if to the Corporation, Global Gold Corporation, 38 West 37th
Street, Suite 5H, New York, New York 10017, facsimile number (212) 967-3018,
with a copy to Law Offices of Stephen R. Field, 620 Fifth Avenue, New York, New
York, Attn: Stephen R. Field, Esq., facsimile number (212) 332-6050; and if to
the Employee, Mr. Drury J. Gallagher, 107 Eakins Road, Manhasset, New York
11030, facsimile number (516) 627-5067. Any party may change his or its address
by giving notice to the other party stating his or its new address. Commencing
on the 10th day after the giving of such notice, such newly designated address
shall be such party's address for the purpose of all notices or other
communications required or permitted to be given pursuant to this Agreement.
(b) GOVERNING LAW. This Agreement and the rights of the parties
hereunder shall be governed by and construed in accordance with the laws of the
State of New York.
(c) ENTIRE AGREEMENT; WAIVER OF BREACH. This Agreement constitutes
the entire agreement among the parties and supersedes any prior agreement or
understanding among them with respect to the subject matter hereof, and it may
not be modified or amended in any manner other than as provided herein; and no
waiver of any breach or condition of this Agreement shall be deemed to have
occurred unless such waiver is in writing, signed by the party against whom
enforcement is sought, and no waiver shall be claimed to be a waiver of any
subsequent breach or condition of a like or different nature.
(d) BINDING EFFECT; ASSIGNABILITY. This Agreement and all the terms
and provision hereof shall be binding upon and shall inure to the benefit of the
parties and their respective heirs, successors and permitted assigns. This
Agreement and the rights of the
-13-
<PAGE>
parties hereunder shall not be assigned except with the written consent of all
parties hereto, which consent shall not be unreasonably withheld.
(e) CAPTIONS. Captions contained in this Agreement are inserted only
as a matter of convenience and in no way define, limit or extend the scope or
intent of this Agreement or any provision hereof.
(f) NUMBER AND GENDER. Wherever from the context it appears
appropriate, each term stated in either the singular or the plural shall include
the singular and the plural, and pronouns stated in either the masculine, the
feminine or the neuter gender shall include the masculine, feminine and neuter.
(g) SEVERABILITY. If any provision of this Agreement shall be held
invalid or unenforceable, such invalidity or unenforceability shall attach only
to such provision and shall not in any manner affect or render invalid or
unenforceable any other severable provision of this Agreement, and this
Agreement shall be carried out as if any such invalid or unenforceable provision
were not contained herein.
(h) AMENDMENTS. This Agreement may not be amended except in a
writing signed by all of the parties hereto.
(i) COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same instrument. In addition, this Agreement may contain
more than one counterpart of the signature page and this Agreement may be
executed by the affixing of such signature pages executed by the parties to one
copy of the Agreement; all of such counterpart signature
-14-
<PAGE>
pages shall be read as though one, and they shall have the same force and effect
as though all of the signers had signed a single signature page.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
Global Gold Corporation
By: /s/ Robert A. Garrison
-------------------------------------
Robert A. Garrison, President
/s/ Drury J. Gallagher
----------------------------------------
Drury J. Gallagher, Chairman and
Chief Executive Officer
-15-
<PAGE>
Exhibit 49
THIS AMENDED AND RESTATED DEBENTURE is made the 3rd day of October, 1997 to have
effect as of and from the 15th day of May, 1997
BETWEEN:
(1) GLOBAL GOLD ARMENIA LIMITED, a company incorporated and existing under the
laws of the Cayman Islands (the "Company") which expression shall include
the permitted successors in title transferees and assigns of the Company
OF THE ONE PART
AND:
(2) FIRST DYNASTY MINES (USA) LLC, a Delaware limited liability company having
its registered office at 1209 Orange Street, Wilmington, Delaware (the
"Lender") which expression shall include the successors in title
transferees and assigns of the Lender
OF THE OTHER PART
W H E R E A S:
(A) the Company executed and delivered to First Dynasty Mines Ltd. ("FDM") a
debenture dated January 3, 1997 in the principal sum of U.S.$5,480,000 (the
"Original Debenture");
(B) the Company, FDM and Global Gold Corporation ("Global Gold") are parties to
an agreement dated May 13, 1997 (the "Definitive Agreement") pursuant to
which FDM was granted the right to earn an equity interest in the Company
by making convertible loans to the Company;
(C) pursuant to the terms of the Definitive Agreement, FDM has assigned its
rights under the Definitive Agreement and the Original Debenture to the
Lender, a wholly-owned subsidiary of FDM; and
(D) the Definitive Agreement provides for amendments to be made to the terms of
the Original Debenture and this Amended and Restated Debenture is being
entered into to amend and replace the Original Debenture.
NOW THIS AMENDED AND RESTATED DEBENTURE WITNESSETH as follows:
1. (a) Words importing the masculine gender shall include the feminine and
neuter genders and vice versa and words importing the singular number
only shall include the plural number and vice versa and words
importing persons and all reference to persons shall include
corporations and firms;
<PAGE>
-2-
(b) "the Principal Sum" shall mean the aggregate sum of all advances made,
from time to time, by the Lender to the Company pursuant to the
Definitive Agreement (including advances made by FDM under the
Original Debenture) which have not been repaid or converted into
ordinary shares of the Company pursuant to Clause 3 hereof, up to an
aggregate maximum of U.S.$15,000,000; and
(c) all terms denoted with initial capital letters and not otherwise
defined herein have the meanings assigned to them in the Definitive
Agreement.
2. The Principal Sum, from time to time outstanding, will bear simple interest
at the rate of ten per cent (10%) per annum calculated on a 360 day year.
Any part of the Principal Sum that has not been converted into ordinary
shares of the Company pursuant to Clause 3 by the earlier of:
(a) the date that the Lender's rights under the Definitive Agreement cease
to be exclusive pursuant to Section 2.6 of the Definitive Agreement
but not prior to March 31, 1998; or
(b) December 31, 1999,
will then become repayable, with interest as aforesaid, in twelve quarterly
instalments, each consisting of one-twelfth of the Principal Sum plus
interest. Each advance of the Principal Sum (including advances made under
the Original Debenture prior to date hereof) and each conversion thereof
into ordinary shares of the Company or repayment will be noted on the grid
attached hereto as Schedule "A".
3. The Principal Sum of this Amended and Restated Debenture outstanding from
time to time will be converted into ordinary shares of the Company on the
following basis:
(a) as of the first date after the date of this Amended and Restated
Debenture that the Principal Sum equals U.S.$6,490,000, such Principal
Sum and all accrued interest will be deemed converted into that number
of ordinary shares of the Company (the "First Instalment Shares")
which, upon issuance, represent twenty-five per cent (25%) of the
issued and outstanding ordinary shares of the Company;
(b) as of the first date after the date of issuance of the First
Instalment Shares that the Principal Sum equals U.S.$3,520,000, such
Principal Sum and all accrued interest will be deemed converted into
that number of ordinary shares of the Company (the "Second Instalment
Shares") which, upon issuance, represent, together with the First
Instalment Shares, fifty-one per cent (51%) of the
<PAGE>
-3-
issued and outstanding ordinary shares of the Company provided that
the Lender may, at any time and from time to time after the date of
issuance of the First Instalment Shares until the earlier of,
(i) the first date thereafter that the Principal Sum equals
$3,520,000, or
(ii) the date upon which the last of the Second Instalment Shares is
issued
elect, by notice in writing to the Company, to convert the Principal
Sum and all accrued interest then outstanding into that number of the
Second Instalment Shares which is equal to the product obtained by
multiplying the total number of Second Instalment Shares by a fraction
the numerator of which is the Principal Sum then outstanding and the
denominator of which is $3,520,000.
(c) as of the first date after the date of issuance of the last of the
Second Instalment Shares that the Principal Sum equals
U.S.$14,500,000, such Principal Sum and all accrued interest will be
deemed converted into that number of ordinary shares of the Company
(the "Third Instalment Shares") which, upon issuance, represent,
together with the First Instalment Shares and the Second Instalment
Shares, eighty per cent (80%) of the issued and outstanding ordinary
shares of the Company provided that the Lender may, at any time and
from time to time after the date of issuance of the last of the Second
Instalment Shares until the earlier of,
(i) the first date thereafter that the Principal Sum equals
$14,500,000, or
(ii) the date upon which the last of the Third Instalment Shares is
issued
elect, by notice in writing to the Company, to convert the Principal
Sum and all accrued interest then outstanding into that number of the
Third Instalment Shares which is equal to the product obtained by
multiplying the total number of Third Instalment Shares by a fraction
the numerator of which is the Principal Sum then outstanding and the
denominator of which is $14,500,000.
(d) The shares issued on conversion shall carry the right to participate
in full in all dividends and other distributions declared after the
date of conversion; in all other respects such share capital will rank
pari passu and form one class with the ordinary shares of the Company
in issue on the date of conversion.
(e) If any offer or invitation to subscribe for or purchase ordinary
shares is made to the shareholders of the Company, the Company shall
at the same time make, or so far as it is able, procure to be made,
the same offer or invitation
<PAGE>
-4-
to the Lender as if immediately before the record date of such offer
or invitation the Principal Sum had been converted into ordinary
shares at the conversion rates provided in subparagraphs (a), (b), (c)
and (d) above.
(f) The Company hereby covenants with the Lender that at all times until
the Principal Sum is converted or repaid in full it will maintain
sufficient ordinary shares in its authorized but unissued share
capital to allow it to immediately give effect to the conversion
rights hereby conferred.
(g) All amounts of principal and interest which are, from time to time,
converted or deemed converted into shares hereunder will, upon such
conversion, be deemed to be fully paid and satisfied.
4. Notwithstanding any other provisions of this Amended and Restated Debenture
any sums owing hereunder shall become payable immediately and all unpaid
interest and any other monies owing hereunder shall become immediately
owing and payable as follows:
(a) If the Company shall default in the payment of any monies due and
owing hereunder; or
(b) If any representation or warranty made in or in connection with this
Amended and Restated Debenture or the execution and delivery thereof
or in any document or certificate furnished pursuant hereto shall
prove at any time to have been incorrect in any material respect; or
(c) If the Company shall default in the performance or observance of any
agreement covenant stipulation or obligation contained or implied in
this Amended and Restated Debenture whether negative or otherwise
(other than obligations in respect of the payment of any monies
hereunder); or
(d) If by or under the authority of any Government the management of the
Company or its authority to conduct its business is curtailed to the
point of making it effectively inoperative by any seizure or
intervention or proceedings of any nature; or
(e) If a distress or execution shall be levied or enforced upon or against
any of the chattels or property of the Company and shall not be
satisfied within seven (7) days of the levy or enforcement of such
distress or execution or within any grace period to which the Company
is entitled in respect of such distress or execution whichever is
later; or
<PAGE>
-5-
(f) If the Company makes or attempts to make any alteration to the
provisions of its Memorandum or Articles of Association which might in
the opinion of the Lender affect its interests hereunder or shall fail
or neglect to comply with any or all of the provisions of the
Companies Law Cap. 22 or any statutory modification or re-enactment
thereof or any other of the laws of the Cayman Islands in so far as
the same way relate to it; or
(g) If an order is made or an effective resolution is passed for the
winding up of the Company except for the purpose of a reconstruction
or amalgamation the terms of which have been previously approved in
writing by the Lender; or
(h) If an encumbrancer takes possession or a receiver is appointed of any
part of the assets of the Company; or
(i) If the Company ceases or threatens to cease to carry on its business
or substantially the whole of its business; or
(j) If the Company shall have sold or agreed to sell the whole of its
undertaking or any substantial part thereof otherwise than with the
previous written consent of the Lender; or
(k) If the Company is unable to pay its debts within the meaning of
Section 92 of the Companies Law Cap. 22 or any statutory modification
or re-enactment thereof; or
5. The Company hereby represents and warrants to the Lender that it is a
corporation duly organized, validly existing and in good standing under the
Laws of the Cayman Islands and that it is duly qualified to do business
wherever necessary to carry on its present operations and that the making
and performance of this Amended and Restated Debenture is within its powers
having been duly authorized by all necessary governmental and corporate
approvals and does not contravene any law or any contractual restriction
binding on the Company and that this Amended and Restated Debenture is a
legal valid and binding obligation of the Company enforceable against the
Company in accordance with its terms and that there are no pending or
threatened actions or proceedings before any court or administrative agency
which may materially adversely affect the Company or its financial
conditions and operations.
6. The Company hereby further covenants with the Lender at all times during
the continuance of this Amended and Restated Debenture as follows:
<PAGE>
-6-
(a) At all times during the continuance of this Amended and Restated
Debenture to keep up and maintain and preserve all the property of the
Company in good and merchantable order and condition;
(b) To pay to the Lender on demand all costs, charges and expenses
incurred or to be incurred by the Lender in relation to these presents
or any default hereunder or the protection or enforcement of any of
the rights of the Lender hereunder together with the stamp duty and
recording fees hereon;
(c) To carry on its business in a proper and efficient manner; and
(d) To observe and perform all the covenants, agreements and provisions
contained in or implied hereby.
7. It shall be lawful for but not obligatory on the Lender to advance and pay
all sums of money necessary for the purpose of remedying any breach or
breaches of covenants or obligations whether imposed on the Company under
the provisions of this Amended and Restated Debenture or implied by law and
all monies so paid and shall bear interest at the applicable interest rate
computed from the time or respective times of paying or advancing the same.
8. No neglect omission or forbearance on the part of the Lender to take
advantage of or enforce any right or remedy arising out of any breach or
non-observance of any covenant or condition herein contained or implied
shall be deemed to be or operate as a general waiver of such covenant or
condition or the right to enforce or take advantage of the same in respect
of any breach or non-observance thereof either original or recurring.
9. All notices which may or are required to be given pursuant to any
provisions of this Amended and Restated Debenture shall be in writing and
shall be delivered personally or by telecopy, and in the case of the Lender
addressed to:
No. 1 Temasek Avenue
37th Floor, Millenia Tower
Singapore
039192
Fax No: 011-65-337-0616
Attention: Manager
<PAGE>
-7-
with a copy to:
Goodman Phillips & Vineberg
1900 - 355 Burrard Street
Vancouver, British Columbia
V6C 2G8
Fax No: (604) 682-7131
Attention: Steven G. Robertson
in the case of the Company addressed to:
438 West 37th Street, Suite 5G
New York, New York
10018
Fax No: (212) 967-3018
Attention: President
with a copy to:
Patterson, Belknap, Webb & Tyler
1133 Avenue of the Americas
New York, New York
10036-6710
Fax No: (212) 336-2222
Attention: Van Krikorian
or such other address or telecopier number of which a party may, from time
to time, advise the other parties hereto by notice in writing given in
accordance with the foregoing. Date of receipt of any such notice shall be
deemed to be the date of delivery thereof, if delivered, and on the day of
telecopying, if telecopied, provided such day is a Business Day and, if
not, on the first Business Day thereafter.
10. Concurrent with the execution and delivery of this Amended and Restated
Debenture, the Original Debenture and the Guarantee, dated February 3, 1997
by Global Gold Corporation have been marked "cancelled" and delivered to
the Company as fully satisfied by way of the substitution therefor of this
Amended and Restated Debenture and the Guarantee, dated as of the date
hereof, by Global Gold Corporation.
<PAGE>
-8-
11. Each of the Company and the Lender acknowledge and agree to the amendments
to the Charge over Shares described in the Guarantee of Global Gold
Corporation appended to this Amended and Restated Debenture.
12. This Amended and Restated Debenture shall be governed and construed solely
according to the Laws of the Cayman Islands.
IN WITNESS WHEREOF each of the Company and the Lender has executed this Amended
and Restated Debenture as a Deed by its duly authorized persons the day and year
first above written.
Signed for and on behalf of )
GLOBAL GOLD ARMENIA LIMITED )
by: /s/ Robert A. Garrison )
)
, Director ) Per:__________________________
) Director
in the presence of: )
)
)
)
- ----------------------------- )
witness, and thereby executed )
by GLOBAL GOLD ARMENIA LIMITED
as its Deed )
Signed for and on behalf of )
FIRST DYNASTY MINES (USA) LLC )
by: /s/ Marcus Randolph )
)
, Manager ) Per:___________________________
) Manager
in the presence of: )
)
)
- ----------------------------- )
witness, and thereby executed
by FIRST DYNASTY MINES (USA) LLC
as its Deed
<PAGE>
-9-
GUARANTEE
Payment by, and performance of the obligations of the Company, a wholly-owned
subsidiary of Global Gold Corporation ("Global Gold") under the foregoing
Amended and Restated Debenture is hereby unconditionally and irrevocably
guaranteed by Global Gold in favour of the Lender. Global Gold acknowledges and
agrees to the assignment by FDM to the Lender of all of FDM's rights under the
Original Debenture, as amended by the Amended and Restated Debenture, and the
Deed of Charge over Shares dated February 3, 1997 and made by Global Gold in
favour of FDM (the "Charge over Shares"). Global Gold further agrees that the
covenants of Global Gold made in the Charge over Shares are made by Global Gold
in favour of the Lender and that references in the Charge over Shares to the
"Debenture" will be construed as references to the Amended and Restated
Debenture. This guarantee and the Charge over Shares will be released as of the
date that the Lender has acquired not less than eighty per cent (80%) of the
ordinary shares of the Company pursuant to the conversion from time to time of
the Principal Sum in accordance with paragraph 3.
IN WITNESS WHEREOF Global Gold Corporation has executed this Guarantee as a Deed
on the 13th day of May, 1997.
Signed for and on behalf of )
GLOBAL GOLD CORPORATION )
by: /s/ Drury J. Gallagher )
)
, Director ) Per:________________________
) Director
in the presence of: )
)
)
- ----------------------------------- )
witness, and thereby executed
by GLOBAL GOLD CORPORATION
as its Deed
SCHEDULE "A"
LOANS ADVANCED BY FIRST DYNASTY MINES (USA) LLC TO
GLOBAL GOLD ARMENIA LIMITED
NOTE: ALL AMOUNTS ARE STATED IN UNITED STATES DOLLARS
AMOUNT OF
AMOUNT OF PRINCIPAL UNPAID
DATE LOAN CONVERTED OR PRINCIPAL NOTATION
(D/M/Y) ADVANCED REPAID BALANCE MADE BY
31/12/97 $17,510,000 $0 $17,510,000
- -------------- -------------- -------------- -------------- --------------
31/12/97 $0 $17,510,000 $0
- -------------- -------------- -------------- -------------- --------------
$ $ $
- -------------- -------------- -------------- -------------- --------------
$ $ $
- -------------- -------------- -------------- -------------- --------------
$ $ $
- -------------- -------------- -------------- -------------- --------------
$ $ $
- -------------- -------------- -------------- -------------- --------------
$ $ $
- -------------- -------------- -------------- -------------- --------------
<PAGE>
Exhibit 99.50
TO: Holders of Warrants (individually a "Warrant" and collectively the
"Warrants") issued pursuant to the Confidential Private Placement Memorandum
of Global Gold Corporation (formerly known as Triad Energy Corp.) dated May
17, 1995, as amended (each a "Holder" and collectively the "Holders").
Dear Holder:
We enclose for your information a copy of the excerpt concerning the Armenian
mining project as reflected in the Form 10-QSBA filed by Global Gold
Corporation (the "Corporation") for the quarter ended September 30, 1997
which is attached hereto as Exhibit A.
As the Form 10-QSBA excerpt reflects, the implementation of the Armenian gold
mining project has taken longer than initially anticipated. The contribution
to the Armenian joint venture company, in which the Corporation has an
interest, of the rights to mine and process gold at the Zod and Meghradzor
mines is subject to the approval of an Armenian governmental decree. While
the Corporation anticipates that such decree will be issued within the next
several months, there can be no assurance of such result. In addition, we do
not anticipate commencing the public trading of the Corporation's stock in
the near future.
As a result thereof, the Board of Directors of the Corporation believes that
the current exercise price of the Warrants of $1.00 per share of common stock
is, in its opinion, substantially in excess of the fair market value of such
stock and that the Holders need additional time to consider making a
potential additional investment in the Corporation through the exercise of
the Warrants.
Accordingly, the Board of Directors has decided (a) to reduce the exercise
price of each Warrant to purchase a share from $1.00 to $0.125 and (b) to
extend the expiration date of the Warrants from December 31, 1997 (the
current expiration date) to December 31, 1998. Attached hereto as Exhibit B
is the formal amendment to the first full paragraph of the Warrants.
Any Holder having any questions or desiring information should contact:
Drury J. Gallagher, Chairman & Chief Executive Officer
Global Gold Corporation
438 West 37th Street, Suite 5G
New York, NY 10018
Tel: (212) 563-5933
GLOBAL GOLD CORPORATION
By: /s/ Drury J. Gallagher
-----------------------------------------------
Drury J. Gallagher, Chairman & CEO
Dated: December 1, 1997
-----------------
<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(MARK ONE)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF
THE EXCHANGE ACT
FOR THE TRANSITION PERIOD FROM TO
------------ ----------------
COMMISSION FILE NUMBER 02-69494
-----
GLOBAL GOLD CORPORATION
-----------------------
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
DELAWARE 13-3025550
________________________________________________________________________________
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
438 WEST 37TH STREET, SUITE 5-G, NEW YORK, NEW YORK 10018
________________________________________________________________________________
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
ISSUER'S TELEPHONE NUMBER (212) 563-5933
--------------
Check whether the issuer (1) filed all reports required to be filed by
Section 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 whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by court. Yes No . Not Applicable
--- ---
As of September 30, 1997, there were 4,348,114 shares of the registrant's
Common Stock outstanding.
Transitional Small Business Disclosure Format (check one): Yes No X .
--- ---
1
<PAGE>
TABLE OF CONTENTS
PART I. Financial Information
Item 1. Financial Statement:
Balance Sheet - September 30, 1997 ...................................3
Statement of Income and (Loss) - for the period July 1, 1997
through September 30, 1997, July 1, 1996 through September 30, 1996...4
Statement of Income and (Loss) - for the period January 1, 1997
through September 30, 1997, January 1, 1996 through September
30, 1996 and for the development stage period January 1, 1995
through September 30, 1997 ...........................................5
Statement of Changes in Stockholders Equity - for the period
January 1, 1995 through September 30, 1997 and for the year
January 1, 1997 through December 31, 1997 ............................6
Statement of Cash Flow - for the period January 1, 1997
through September 30, 1997 and for the year January 1, 1996
through September 30, 1996 and for the development stage period
January 1, 1995 through September 30, 1997............................8
Notes to Financial Statement (unaudited) .............................9
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operation.........................................................26
2
<PAGE>
GLOBAL GOLD CORPORATION
(A Development Stage Company)
CONSOLIDATED FINANCIAL STATEMENTS
BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
September 30, December 31
1997 1996
(Unaudited) (Audited)
----------- -----------
CURRENT ASSETS
<S> <C> <C>
Cash $ 27,830 $ 369
MoneyMarket Investment 150,000 --
--------- ---------
Noncurrent Asset
Notes receivable - net of allowance for
bad debts of $150,000 Note 9 150,000 150,000
--------- ---------
OTHER ASSETS
Organization Costs 8,881 9,601
Investment in certain mining interests
- Notes 6 and 8 1,003,494 1,003,494
Deferred costs - Note 12 9,662,313 878,858
--------- ---------
$10,674,688 $ 1,891,953
----------- -----------
----------- -----------
TOTAL ASSETS $11,002,518 $ 2,042,322
----------- -----------
----------- -----------
CURRENT LIABILITIES
Note Payable - First Dynasty Mines, Ltd. - Note 20 $10,257,124 $ --
Note Payable - Officer -- 191,000
Officer's compensation payable - Notes 10 and 16 120,834 300,000
Accounts payable and accrued expenses - Note 11 136,883 979,719
----------- -----------
10,514,841 1,470,719
----------- -----------
STOCKHOLDERS EQUITY - EXHIBIT C
Common Stock $.001 par 100,000,000 shares
authorized 4,348,114 shares issued and outstanding 23,231 20,981
Paid-in capital - Dormant period 3,228,519 3,228,519
Paid-in capital - Development stage 1,482,423 1,259,673
Retained earnings - Dormant period (2,907,648) (2,907,648)
Retained earnings - Development stage (1,338,848) (1,029,922)
----------- -----------
487,677 571,603
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY $11,002,518 $ 2,042,322
----------- -----------
----------- -----------
</TABLE>
See the accompanying notes
3
<PAGE>
GLOBAL GOLD CORPORATION
(A Development Stage Company)
CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
January 1, January 1,
July 1, 1997 1997 1995
through through Development
September 30, 1997 September 30, 1997 Stage
------------------ ------------------ through
(UNAUDITED) (UNAUDITED) September 30, 1997
------------------ ------------------ ------------------
<S> <C> <C> <C>
Revenue $ -- $ -- $ --
Expenses
Officers Compensation 37,500 95,834 395,834
Administrative Fees 2,436 12,839 33,997
Legal 16,080 113,665 436,994
Accounting & Auditing 5,200 30,100 100,948
Transfer Agent 71 1,534 12,446
Proxy Costs -- -- 26,555
Office Expense 10,998 19,653 29,106
Travel 171 171 43,120
Rent - Note 7 9,000 27,000 63,000
-------- -------- ----------
OPERATING LOSS (81,456) (300,796) (1,142,000)
-------- -------- ----------
-------- -------- ----------
(OTHER INCOME (EXPENSES))
Interest and royalty income 208 208 1,077
Organization costs (240) (720) (5,520)
Interest expense -- (7,090) (14,821)
Provision for bad debts
- Note 9 -- -- (175,000)
-------- -------- ----------
(36) (7,602) (194,264)
-------- -------- ----------
(Loss) Before Income Taxes (81,488) (308,398) (1,336,264)
Income Taxes (176) (528) (2,584)
-------- -------- ----------
Net (Loss) $ (81,664) $ 308,926 $ (1,338,848)
---------- ---------- ------------
---------- ---------- ------------
NET (LOSS) PER SHARE
(Note 18) $ (.0188) $ (.0710) $ (.3079)
---------- ---------- ------------
---------- ---------- ------------
</TABLE>
4
<PAGE>
Exhibit C
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Consolidated Financial Statements
Statements of Changes in Stockholders' Equity - Note 19
(Unaudited)
<TABLE>
<CAPTION>
PAID-IN RETAINED RETAINED PAID-IN
ISSUED AND CAPITAL EARNINGS EARNINGS CAPITAL
OUTSTANDING COMMON (DORMANT (DORMANT (DEVELOPMENT (DEVELOPMENT
SHARES STOCK PERIOD) PERIOD) STAGE) STAGE) TOTAL
--------- ------- ---------- ----------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Stockholders' Equity
January 1, 1995 898,074 $89,807 $3,147,693 $(2,907,648) $ -- $ -- $329,852
Net Loss-January 1,-
December 31, 1995 -- -- -- -- (361,345) -- (361,345)
Adjustment re:restatement
of par value-Note 1 -- (80,826) 80,826 -- -- -- --
Eyre acquisition-
Note 5 1,000,000 10,000 -- -- -- 840,000 850,000
Proceeds through
private offering-Note 14 200,000 2,000 -- -- -- 419,573 421,573
--------- ------- ---------- ----------- --------- ---------- ----------
Stockholders' equity
December 31, 1995 2,098,074 $20,981 $3,228,519 $(2,907,648) $(361,345) $1,259,573 $1,240,080
========= ======= ========== =========== ========= ========== ==========
</TABLE>
See the accompanying notes and Accountants' Compilation Report.
5
<PAGE>
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Consolidated Financial Statements
Statements of Changes in Stockholders' Equity - Note 19
(Unaudited)
<TABLE>
<CAPTION>
PAID-IN RETAINED RETAINED PAID-IN
ISSUED AND CAPITAL EARNINGS EARNINGS CAPITAL
OUTSTANDING COMMON (DORMANT (DORMANT (DEVELOPMENT (DEVELOPMENT
SHARES STOCK PERIOD) PERIOD) STAGE) STAGE) TOTAL
------ ----- ------- ------- ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
Stockholders' Equity
December 31, 1995 2,098,074 $20,981 $3,228,519 $(2,907,648) $(361,345) $1,259,573 $1,240,080
Net Loss-January 1,-
December 31, 1996 -- -- -- -- (668,577) -- (668,577)
Warrants exercised 40 -- -- -- -- 100 100
Stockholders' equity
December 31, 1996 2,098,114 $20,981 $3,228,519 $(2,907,648) $(1,029,922) $1,259,573 571,603
Net Loss-January 1-September
30, 1997 (308,926) (308,926)
Issuance of Common
Stock-Note 16 2,000,000 2,000 198,000 200,000
Note 20 250,000 250 24,750 25,000
Shareholders' Equity
September 30, 1997 4,318,114 $23,231 $3,228,519 $(2,907,648) $(1,338,848) $1,482,423 $487,677
</TABLE>
In 1996, 200,000 shares were issued to collateralize two guarantees by London
International Merchantile Ltd. The guarantees were rescinded and, therefore,
such shares were returned to the Company in 1997 and have not been reflected on
this statement.
See the accompanying notes
6
<PAGE>
(GLOBAL GOLD CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS
STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
JANUARY 1, JANUARY 1,
1997 1996
THROUGH THROUGH
SEPTEMBER 30, 1997 DECEMBER 31, 1996
(UNAUDITED) (AUDITED)
------------------ -----------------
<S> <C> <C>
CASH FLOWS FROM DEVELOPMENT STAGE ACTIVITIES
NET LOSS - EXHIBIT B $ (308,926) $(668,577)
ADJUSTMENTS TO RECONCILE NET
LOSS TO NET CASH PROVIDED
BY OPERATING ACTIVITIES:
NON-CASH ITEMS INCLUDED IN LOSS
AMORTIZATION -- --
PROVISION FOR BAD DEBT -- 55,000
CHANGE IN ASSETS AND LIABILITIES:
ORGANIZATION COSTS 720 (6,401)
ACCOUNTS PAYABLE AND ACCRUED EXPENSES (1,022,002) 984,105
----------- --------
NET CASH PROVIDED (USED) BY DEVELOPMENT
STAGE ACTIVITIES (1,330,208) 364,127
CASH FLOWS FROM INVESTMENT ACTIVITIES
INVESTMENT IN SHORT TERM SECURITIES (150,000) --
INVESTMENT IN CERTAIN MINING INTERESTS -- --
DEFERRED COSTS - MINING INTERESTS (8,758,455) (618,157)
----------- ---------
NET CASH (USED) BY INVESTING ACTIVITIES (8,908,455) 618,157
CASH FLOWS FROM FINANCING ACTIVITIES
PROCEEDS FROM FIRST DYNASTY MINES LTD. 10,257,124 --
NET PROCEEDS FROM PRIVATE PLACEMENT 200,000 --
NOTES PAYABLE OFFICER (191,000) 191,000
WARRANTS EXERCISED -- 100
----------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 10,266,124 191,100
NET INCREASE (DECREASE) IN CASH 27,461 62,930
CASH - BEGINNING 369 63,299
CASH - END 27,830 369
SUPPLEMENTAL CASH FLOW INFORMATION
INCOME TAXES PAID $ 528 $ 324
7
</TABLE>
<PAGE>
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Consolidated Financial Statements
Notes to Financial Statements
September 30, 1997
NOTE 1: ORGANIZATION (AS A DEVELOPMENT STAGE COMPANY) AND ACCOUNTING POLICIES
The Company was incorporated in the State of Delaware and as further
described hereafter, had no operating or development stage history from
its inception until January 1, 1995. Accordingly, the Company has been
dormant until 1995. During 1995, the Company changed its name from Triad
Energy Corp. to Global Gold Corporation. An Australian corporation, Eyre
Resources N.L. and an affiliate (hereafter Eyre) presented to management
an opportunity to develop certain gold and copper mining rights in the
former Soviet Republics of Armenia and Georgia. As part of the plan to
acquire the mining interests and raise venture capital, the Company
increased the number of shares authorized to be issued from ten million
to one hundred million. These Republics, which recently won their
independence, may be prone to political and economic turmoil which may
result in various adverse ramifications.
The Company has offices in New York City which it leases from Penn Med
Consultants, Inc., which is charging rent in the amount of $3,000 per
month to the Company for use of the premises, office equipment,
facilities, etc. commencing January 1, 1996. The Company has not paid
any employees for services, except Mr. Gallagher and Mr. Garrison, as
hereafter discussed.
During 1995, the Company formed certain-wholly owned foreign
subsidiaries. Any reference in these statements to Global (the Company)
may also include one, some, or all of the subsidiaries. All intercompany
transactions were eliminated.
As a result of ownership changes, the Company will not be able to
benefit from all of its net operating loss carryforwards. (Income tax
matters -- Note 17)
Management has made any necessary interim period accounting adjustments
in order for the statements not to be misleading.
8
<PAGE>
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Consolidated Financial Statements
Notes to Financial Statements
September 30, 1997
NOTE 2: USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the balance sheet
date, and also the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NOTE 3: COMPANY HISTORY AND REPORTS WITH THE SECURITIES AND EXCHANGE COMMISSION
The Company was incorporated on February 21, 1980, and closed a public
offering of the common stock in January 1981. Several months after the
closing of such offering, the Company withdrew the listing of the Common
Stock for trading on Nasdaq because of the theft of substantially all of
the cash funds of the Company derived from the proceeds of a public
offering by its then president, Samuel McNeil in July, 1981. The case
has long since gone through the judicial system and Mr. McNeil is no
longer, an officer, director, employee or in any other fashion doing
business with the company. After the consummation of the public
offering, the Company failed to file any further annual or periodic
reports required under the Exchange Act. The Company filed its Form
10--KSB for the calendar years 1994, 1995 and 1996, its Form 10--Q for
all quarters in 1995 and thereafter, and also filed audited financial
statements covering the calendar years 1987, 1988, 1989, 1990, 1992,
1993, 1994, 1995 and 1996. There can be no assurance that the SEC
might not assert claims against the Company and its present and former
directors and officers, which actions might adversely affect the future
conduct of the Company's business or be detrimental to future trading
of the Company's stock in the public markets.
9
<PAGE>
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Consolidated Financial Statements
Notes to Financial Statements
September 30, 1997
NOTE 4: DEVELOPMENT STAGE COMPANY
The Company may encounter problems, delays, expenses and difficulties
typically encountered in the development stage, many of which may be
outside of the Company's control. These include, without limitation,
unanticipated problems and additional costs relating to development,
production, marketing, and competition. Management must also be
successful in securing significant additional investor and/or lender
financing and political risk insurance. The Company expects to incur
operating losses for the near term and, in any event, until such time as
it derives substantial revenues from the sale of concentrates containing
gold and copper. Pursuant to the documents as hereafter summarized,
different mining, processing, purifying, reprocessing and exploration
endeavors are contemplated. Where appropriate, an endeavor will commence
only after successful results of a feasibility study are rendered.
NOTE 5: ACQUISITION OF ARMENIAN MINING INTEREST FROM EYRE
Pursuant to the Asset Purchase Agreement dated June, 1995, (the
"Agreement"), the Company acquired from Eyre, an Australian corporation,
all of its potential interest in its Armenian gold mining project and
all of Eyre's potential interest in its Georgia gold and copper mining
project (Note 8) . The Agreement closed April, 1996.
The Company paid Eyre for the Armenian and Georgian interests as follows
Cash $ 153,494
Note payable (Note 13) 100,000
Note payable (Note 13) 46,506
---------
$ 300,000
=========
The Agreement also provided for the Company to cause the delivery to
Eyre of one million shares of stock, with an estimated value of
$850,000, and warrants to acquire an additional four hundred thousand
shares (Note 15) . The Agreement left Eyre with two out of five seats on
the Board of Directors.
10
<PAGE>
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Consolidated Financial Statements
Notes to Financial Statements
September 30, 1997
NOTE 5: ACQUISITION OF ARMENIAN MINING INTEREST FROM EYRE (continued)
As of December 1, 1995, the Company and Eyre entered into a
Restructuring Agreement pursuant to which Eyre surrendered 1,000,000
shares of common stock and acquisition warrants to purchase 600,000
shares of common stock and acquired a 2% overriding production royalty
subject to adjustment in the event the ownership of the Company were to
become owned by less than 50% United States residents. If such were
about to occur, Eyre would have the right to sell warrants to purchase
the Company's common stock by U.S. residents, and, if that did not occur
as prescribed, Eyre would surrender certain of their warrants in return
for an increased royalty potentially totaling another 1%. The initial
Armenian tailings project (Note 7) is excluded from the royalty
arrangement. In the event the Company undertakes any additional mineral
extraction projects in the Republics of Armenia or Georgia, Eyre will
receive a 1% overriding production royalty from the Company's revenues,
also subject to a similar adjustment which may total up to another 1/2%.
The Company shall pay to Eyre $8,333 per month to be applied against
the royalty arrangement commencing with the closing of the funding of
the tailings project at Ararat, Armenia (Note 7).
The Restructuring Agreement provided that Eyre may submit to the Company
additional projects, and that the Company shall in good faith consider
acquiring such projects by issuing additional shares of common stock;
provided in no event shall Eyre own or control 50% or more of the
outstanding common stock of the Company.
Various prospective investment banking firms and potential investors who
expressed an interest in providing funding for the Company's projects in
the fall of 1996 requested that the Company undertake a reverse split of
its Common Stock (see Note 19) to decrease the number of shares
outstanding and to reduce the equity stake of certain shareholders who
received shares pursuant to the Agreement essentially in their capacity
as finders in order to facilitate possible future financings. In
response thereto, by letter dated December 4, 1996, Eyre and the
Parry--Beaumont Trust surrendered their Acquisition Warrants to purchase
240,000 and 160,000 shares of the Company's Common Stock (a total of
400,000 shares), surrendered their right to designate two members of the
Board of Directors of the Company and in addition, Eyre agreed to waive
its overriding royalties in the Armenian projects and to waive the
approximately $146,000 due it under the promissory notes received at the
closing (the "Second Restructuring Agreement"). While Eyre had 2%
overriding royalty on the Armenian mining projects (other than the
Tailings Project), the Second Restructuring Agreement referred to the
waiver of a overriding royalty of 1.5% on the Armenian projects in
reliance on Eyre's earlier agreement to reduce such royalty to 1.5% by
virtue of its failure to secure financing from a designated mining
company in November, 1996. Accordingly, the Company believes that all
overriding royalties on the Armenian mining projects have been validly
waived.
11
<PAGE>
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Consolidated Financial Statements
Notes to Financial Statements
September 30, 1997
NOTE 6: PATTERSON, BELKNAP, WEBB & TYLER LLP
Global has retained the law firm of Patterson, Belknap, Webb & Tyler LLP
(PBWT) to represent the Company in its dealings with the Armenian and
Georgian Republics. PBWT has an international law practice involving
commercial, non-profit and humanitarian issues and has offices in
Moscow. Mr. Van Z. Krikorian (VZK), of counsel to PBWT, has been
designated to conduct the negotiations with the Republics. VZK was
formerly Armenia's Deputy Permanent Representative to the United
Nations.
In connection with preparation and negotiation of the Armenian Joint
Venture Agreement and associated documents, as well as corporate, tax,
strategic, regulatory, financing, political risk insurance and other
miscellaneous matters, PBWT shall be compensated $930,000 plus expenses
ratably over the period May 1, 1995 through May 1, 1999, with minimum
quarterly payments of $25,000. The retainer arrangement is predicated on
the total value of the deal reaching $93 million (1%), and is subject to
adjustment if it falls short or exceeds that goal. In the event the
contemplated financing is not consummated, PBWT will reduce its hourly
charges by 50%.
PBWT will also represent the Company in preparation and negotiation with
the Georgian Government of a revised Joint Venture Agreement and
associated documents, and other related matters similar to the
aforementioned Armenian retainer agreement. The contemplated Georgian
fee is $180,000 for the period July 1, 1995 to July 1, 1999, and the
minimum quarterly payment is $10,000. The quarterly billing was
discontinued as of June 30, 1997.
As of June 30, 1997 unbilled contingent project charges in excess of the
minimum $25,000 per quarter were assumed by First Dynasty Mines Ltd.
payable upon receipt of an executed agreement assigning the rights to
the Zod Mine to AGRC. Unbilled fees and expenses through September 30,
1997 total approximately $300,000,
In addition PBWT performs additional legal service for the Company as
requested. Current payables and accruals are $99,000.
NOTE 7: THE ARMENIAN JOINT VENTURE AGREEMENT
On February 2, 1996, the Company and Armgold, a division of the Ministry
of Industry of the Government of the Republic of Armenia, initialed a
Joint Venture Agreement entitled the Armenian Gold Recovery Company (the
"Venture"). The Agreement was modified May 1, 1996. On June 29, 1996,
the Republic of Armenia issued a decree authorizing Armgold's joint
venture with the Company.
12
<PAGE>
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Consolidated Financial Statements
Notes to Financial Statements
September 30, 1997
NOTE 7: THE ARMENIAN JOINT VENTURE AGREEMENT (continued)
The Venture may at times be required to obtain various approvals,
licenses, permits, etc., on a timely basis. Failure to obtain such from
the Government, may materially and adversely affect the Company.
Pursuant to the May 1, 1996 Agreement, Armenia, in general, has agreed
to have the cost of the approval process be borne against its share of
joint venture profits.
The initial stage calls for processing tailings at the Ararat site and
for various studies for a gold mining operations at the Zod site.
Management believes capacities at Zod will be significant. Mining at a
third site, Meghradzor, will commence once Zod is operational. At each
site, the Agreement calls for the Armenian Government to transfer to the
Venture free and clear title in the mining rights. The Company will be
required to provide administration, training, management, feasibility
studies, technology and business plans, as appropriate.
Pursuant to the Joint Venture Agreement, the Company has the following
obligations:
Investment
Endeavor Requirement
------------------------------- -----------
Delivery of tailings processing
Operation equipment to Ararat $5,000,000
Zod Complex prefeasibility study
and commencement of full
feasibility study on Zod Complex $ 500,000
Operation of Tailings processing $2,250,000
Complete full feasibility study
and business plan on Zod Complex $ 500,000
Tailings processing operations
at Ararat $2,250,000
13
<PAGE>
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Consolidated Financial Statements
Notes to Financial Statements
September 30, 1997
NOTE 7: THE ARMENIAN JOINT VENTURE AGREEMENT (continued)
The parties have begun to implement the Tailings Project. On October 7,
1996, the Armenian Government issued a license for a five-year period of
implementation of the development plan at Ararat, effective after the
registration of the Venture with the appropriate Armenian governmental
authorities, in accordance with applicable Armenian law. The
registration of the Venture occurred en November 8, 1996. In addition,
the mining engineering firm retained in connection with the Armenian
Project obtained bulk ore samples from the tailings site for testing in
Canada. An independent laboratory, which analyzed such samples, advised
the Company, in its written report in February, 1997, that the test
results showed that approximately one and one tenth gram of gold could
be obtained from each metric tonne of ore with a 50% recovery at the
site covered by the Tailings Project, although there can be no assurance
thereof.
Pursuant to the decree issued in connection with the Armenian Joint
Venture Agreement, GGA was required to invest $5,000,000 in the Tailings
Project on or before February 1, 1997. Such requirement was deemed
satisfied by the parties.
Pursuant to the Armenian Joint Venture Agreement, the Venture is now
engaged in the final engineering and initial construction for the
Tailings Project. The Venture entered into a Tailings Dam Construction
Contract with Armhydro for $640,000 on January 31, 1997. AGRC also
retained a Canadian engineering firm, under a contract for Engineering,
Procurement and Construction Management Services dated January 31, 1997,
under which the compensation payable to the contractor under Phase I of
the project is $4,500,000.
While the Company has been advised that proven reserves exist in the
Tailings Project and that the mining thereof can be done on a profitable
basis, there can be no assurance of such result.
14
<PAGE>
GLOBAL GOLD CORPORATION
(A Development stage Company)
Consolidated Financial Statements
Notes to Financial Statements
September 30, 1997
NOTE 7: THE ARMENIAN JOINT VENTURE AGREEMENT (continued)
Presently, it is not contemplated that the Armenian Government will be
assigned a value for their contribution of the mine properties and
rights to the venture. VZK has advised that profit computations are
still to be resolved. International or other accounting standards have
not been adopted in the Agreement. For the Ararat tailings project, once
profits are determined, they shall be split 50/50 50 long as the
Percentage of Recovery of Metals Per Gram Per Ton is 70% or more. Based
upon a sliding scale, Global's profit share will increase to 66.67% If
the recovery rate declines to 50% or less.
Armenia has permitted a tax holiday for the contemplated venture as
follows: for the first two years there shall be a complete exemption
from profits tax. For the third through the tenth year, only 50% of the
taxable income shall be taxable.
Deterred Project Costs Through September 30, 1997 Total $9,592,244
NOTE 8: THE GEORGIAN AGREEMENT
The Company also acquired from Eyre rights under a Foundation Agreement
dated April 22, 1995 (including a Charter for a Joint Venture Company)
with R.C.P.A. "Madneuli", a Georgian state enterprise, in connection
with carrying out certain mining of the Madneuli deposit. The Company
has been advised that the application for the license required to be
filed with the Georgian government has not been tiled, and it has no
definitive agreement granting it fixed rights to mining production or
processing in Georgia.
The current Agreement calls for each partner to advance capital in a
50/50 ratio. Neither international nor any other body of accounting
standards have been adapted in the joint venture agreement. Cash flow
initially is to be distributed as follows:
RCPA Madneuli 9.75%
Eyre (now the Company) 9.75%
Panquest .25% (Georgian resource broker)
Sinking Fund .25% (Georgia)
Capital Repayments 80.00%
15
<PAGE>
GLOBAL COLD CORPORATION
(A Development Stage Company)
Consolidated Financial Statements
Notes to Financial Statements
September 30, 1997
NOTE 8: THE GEORGIAN AGREEMENT (continued)
After recovery of capital, the net profit were to be distributed as
follows:
a) RCPA - according to shareholdings (i.e. share of the Foundation
Fund, which shares could be changed only by unanimous vote of the
participants), less 2.5% to the Sinking Fund, and
b) The Company (or its wholly-owned subsidiary) -- according to
shareholdings less 2.5% to Panquest.
The Agreement calls for the Board of the Joint Venture Company to
annually decide upon the amount of profit distributions.
The Joint Venture Company will not be required to pay Georgian income
tax on the profits obtained within the Company for the first two years
after all capital and capital costs have been repaid. In the following
two years, taxation shall be at 50% of the normal rate. Thereafter, the
Joint Venture Company may apply to the Ministry of Finance for
additional taxation privileges. Reinvested capital will be exempt from
taxation.
The Joint Venture Company may at times be required to obtain various
approvals, licenses, permits, etc., on a timely basis. Failure to obtain
such from the Government could materially and adversely affect the
Company.
The Company recently learned that the Georgian Government is planning to
privatize the development of the Madneuli mine through a public bidding
process which was slated to end on April 15, 1997. Since the structure
of the Madneuli mining project under the public tender differs markedly
from that contemplated under the Asset Purchase Agreement between the
Company and Eyre dated as of June 30, 1995, the Company has decided not
to submit a bid for the development of the Madneuli mining project.
Accordingly, there can be no assurance that the Company will be
successful in acquiring any rights or concluding any definitive
agreements with respect to the Madneuli mining project, or, if so, on
terms acceptable to it. Furthermore, if the Company does acquire any
rights to the Madneuli mining project, there can be no assurance that it
will be able to obtain financing for the acquisition or development
thereof, or, if so, on terms acceptable to the Company.
16
<PAGE>
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Consolidated Financial Statements
Notes to Financial Statements
September 30, 1997
NOTE 9: NOTES RECEIVABLE
The Company holds a note receivable as follows:
Amount Interest Rate Debtor
--------- ---------- ---------------------------------
$ 300,000 Prime + 2% Jet--Line Environmental Services,
Inc. (Jet-Line)
(150,000) Allowance for doubtful accounts
---------
$ 150,000
=========
The Jet-Line note as more fully described in the documents, is
convertible into at least 20% of Jet-Line's common stock and up to 30%
under certain circumstances. Jet--Line has defaulted on prior balloon
payment obligations and is in default of its current interest
requirements. The note is secured by U.C.C.'s on certain equipment.
Jet-Line owns certain valuable assets. The Company pledged the
Jet-Line notes as collateral for loans to the Company from
Drury Gallagher, which loan has now been repaid in full.
Jet-Line advised the Company in early March, 1997 that it received a
notice of the revocation of its license to do business in Massachusetts
and a fine of $100,000 from the Massachusetts environmental authorities.
Jet-Line contested such revocation and fine in the Massachusetts state
courts unsuccessfully. As a result, Jet--Line has been requested by such
authorities to sell its facility in Massachusetts, and Jet--Line is now
engaged in negotiations with a potential buyer with respect to such
sale. The Company sent Jet-Line a written notice of default and demand
for payment on March 14, 1997, and further demands letters on April 2,
1997, April 15, 1997 and November 11, 1997 and November 10, 1997 and is
now is attempting to sell the assets in which it holds a first security
interest. The Company has also requested Jet-Line to seek additional
financing and to use part of the proceeds therefrom to satisfy the
Jet--Line Note in full. However, there can be no assurance that
Jet-Line will be able to consummate such sale or obtain such financing.
Thus, there can be no assurance that the Company will ultimately be
paid the full principal amount of, and accrued interest on, the
Jet-Line note. Management has not accrued interest on the note and
revised its allowance for doubtful accounts to $150,000.
17
<PAGE>
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Consolidated Financial Statements
Notes to Financial Statements
September 30, 1997
NOTE 10: OFFICERS' COMPENSATION PAYABLE
Officers' compensation payable consists of the following:
September 30, 1997
------------------
Drury Gallagher $ 87,500
Robert Garrison 33,334
---------
$ 120,834
=========
(See Note 16)
NOTE 11: ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses include the following:
September 30, 1997
------------------
Legal-- General Counsel $ 2,009
Legal -- Patterson, Belkap, Webb
& Tyler LLP (Note 6) 99,110
Affiliates 9,000
Other Miscellaneous 26,764
---------
$ 136,883
=========
NOTE 12: DEFERRED COSTS
Deferred costs include the following:
September 30, 1997
------------------
Legal -- Patterson, Belknap, Webb
& Tyler LLP(Note 6) $ 709,260
Legal-- General Counsel 81,747
Engineering 5, 130,501
Research and Analysis 82,042
Overseas travel 73,897
Construction 556,504
Other 3,028,362
-----------
$ 9,662,313
===========
NOTE 13: NOTES PAYABLE
On December 1, 1995, the Company closed the Eyre agreement to purchase
certain mining rights (Note 5). Pursuant to the agreement, the
18
<PAGE>
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Consolidated Financial Statements
Notes to Financial Statements
September 30, 1997
NOTE 13: NOTES PAYABLE (continued)
The first note bears interest at 6.36% per annum, and is payable
contingent upon the Company obtaining financing of at least $2,000,000,
whether from equity, debt or a combination of both. After this condition
is met, the note is due within 10 business days.
The second, with interest at 5.65% per annum, is payable in full no
later than December 31, 1996. Pursuant to the Second Restructuring
Agreement (Note 5) dated December 4, 1996 both promissory notes were
cancelled.
Drury Gallagher loaned the Company $192,000. The note evidencing the
loan bears interest at 10% per annum and was due on or before June 30,
1997 together with accrued and unpaid interest. The Note was repaid in
full together with interest thereon.
NOTE 14: CONFIDENTIAL PRIVATE PLACEMENT MEMORANDUM
Pursuant to a Private Placement Offering dated May 17, 1995, as amended,
the Company issued $500,000 of 10% convertible senior notes due December
31, 1996. Expenses in connection with the offering were $78,427.
Each $1,000 convertible note entitled the holder to 400 shares of common
stock, and warrants to purchase 800 shares of common stock at an
exercise price of $.50 per share at any time before December 31, 1996.
The expiration date was subsequently extended to December 31, 1997.
In accordance with the Offering, interest was not payable on the notes
so long as they were converted to equity within a specified time frame.
After the December 1, 1995 Lyre closing, the entire $500,000 of
convertible notes were exchanged for 200,000 shares of common stock.
NOTE 15: WARRANTS OUTSTANDING
The Company had warrants outstanding as follows;
# Shares Right Price/Share Expiration
Warrant Holder(s) to Purchase Exercisable at Date
----------------- ----------- -------------- ----------
Stockholders through
Note Conversion --
Note 5 400,000 $1.00 12/31/97
Other 4,000 $5.00 11/30/98
-------
404,000
=======
19
<PAGE>
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Consolidated Financial Statements
Notes to Financial Statements
September 30, 1997
NOTE 16: OFFICERS' COMPENSATION, INCENTIVE STOCK OPTIONS AND STOCK APPRECIATION
RIGHTS
Management presently consists of Mr. Drury Gallagher and Mr. Robert
Garrison. Mr. Gallagher had been President of the Company and a
stockholder since 1981, he is currently Chairman of the Company. Mr.
Garrison was subsequently hired to oversee mining and related financing
activities and is currently President. Mr. Gallagher and Mr. Garrison
entered into employment agreements with the Company effective July 1,
1995. Each is entitled to receive a base salary of $100,000 per year,
for 50% of their time, for a three year term. The agreements call for
automatic annual increases as defined. The Board may award bonuses up to
50% of base compensation.
On January 3, 1997, the Board of Directors of the Company approved the
issuance of 1,000,030 shares of its Common Stock to each of Messrs.
Gallagher and Garrison in exchange for, (a) in Mr. Gallagher's case, the
cancellation of $100,003 of accrued salary, and the cancellations of his
options to acquire 175,000 shares of the Common Stock of the company and
the cancellation of his stock appreciation rights (the "SARs") which,
under certain circumstances, could have resulted in the issuance to him
of up to 371500 shares of the Company's Common Stock and (b) in Mr.
Garrison's case, the cancellation of $100,000 of accrued salary, the
cancellation of his options to buy 75,000 shares of the Company's Common
Stock and the cancellation of his SARs. The Company made such transfer
to reward each of them for their efforts to secure financing for the
Company and/or the Armenian mining project, for maintaining the
Company's existence in the face of the Company's potential insolvency,
and to increase their proprietary stake of the day-to-day management of
the Company. In 1997, Lyre questioned the validity of the issuance by
the Company of 1,000,000 shares of its common stock to each of Messrs.
Gallagher and Garrison.
Global Gold Armenia Limited ("GGA") agreed to retain Robert A. Garrison
as a consultant for a three-year period commencing February 1, 1997 for
$150,000 per annum pursuant to the terms of the consulting agreement
entered into between such parties. Under such agreement, Mr. Garrison
will serve as a Senior Vice President of GSA, will assist it in
furtherance of its business interests under the supervision of the board
of directors of GGA and provide ongoing management as the board of
directors of GSA reasonably requests of him from time to time. Mr.
Garrison agreed to devote 50% of his time and attention to the
performance of his services under such agreement, in his capacity as an
independent contractor. Such agreement is terminable by the consultant
upon 90 days prior written notice to GGA (or lesser notice if GGA agrees
to such shorter period) or for cause (as defined therein) or without
cause, which, in such latter case, would require GGA to pay Mr. Garrison
the amount of his consulting fees remaining unpaid under such agreement.
Such agreement is in lieu of the above mentioned salary.
20
<PAGE>
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Consolidated Financial Statements
Notes to Financial Statements
September 30, 1997
NOTE 17: NON--UNITED STATES WHOLLY OWNED SUBSIDIARIES/INCOME TAX MATTERS
On November 29, 1995, the Company formed global Gold Armenia Limited and
Global Gold Georgia Limited, which were respectively assigned the
Armenian and Georgian mining rights from Eyre at the closing on December
1, 1995 (Note 5) . The two subsidiaries are Cayman Island entities which
were granted a twenty year tax exemption from any law of that
jurisdiction which hereafter imposes any tax to be levied on profits,
income, gains or appreciation, commencing December 19, 1995.
The Company experienced net operating losses for each of the two years
ended December 31, 1996. The Company has elected to carryforward such
losses for Federal income tax purposes and offset future taxable
earnings. However, since the Company is a development stage company and
its ability to obtain future earnings is uncertain, no deferred tax
asset has been recorded.
The off shore companies were formed in part, as a result of the concerns
of Eyre, the previous Australian owner of the mining rights, and
presently a substantial non--controlling stockholder group of the
Company, that they not be exposed to two layers of corporate taxation,
United States and Australia. The Company will obtain a tax opinion on
the transaction, which will also seek to give greater comfort to current
and future U.S. and non--U.S. shareholders, that the structure will in
fact satisfy realistic income tax goals of all concerned parties.
Inasmuch as management valued the shares of stock distributed to Eyre in
exchange for acquiring the aforementioned mining interests at $.085 per
share (such interests, described herein, were not substantially
perfected at the time of the transaction), it is management's position
that even if the Internal Revenue Service deemed the transaction to be a
taxable event, there would nevertheless be insignificant income tax
consequences. However, there can be no such assurance. Furthermore, the
Company will determine that the structure will not in any way be a
deterrent from obtaining future financing or political risk insurance.
Management will consider future structural changes, if necessary.
21
<PAGE>
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Consolidated Financial Statements
Notes to Financial Statements
September 30, 1997
NOTE 18: NET LOSS PER SHARE
Net loss per share is computed using the weighted average number of
shares outstanding during the period. Common stock equivalents have not
been included since the effect would be antidilutive.
NOTE 19: REVERSE STOCK SPLIT
Various prospective investment banking firms and potential investors who
expressed an interest in providing funding for the Company's projects in
1996 requested that the Company undertake a reverse split of its Common
Stock to decrease the number of shares outstanding and thereby
facilitate possible future financings. Accordingly, the Company effected
a 1 for 10 reverse split of its common stock effective as of December
31, 1996. Such step was taken by the written consent of the holders of a
majority of the Company's issued and outstanding shares of Common Stock.
By virtue of the reverse split, each stockholder's number of shares of
Common Stock became 1/10th of the number previously held. The Company
filed its Certificate of Amendment to the Certificate of Corporation
with respect to the reverse split with the Delaware Secretary of State
on December 31, 1996.
All share and per share data in this report have been restated to
reflect the reverse stock split, unless otherwise noted.
NOTE 20: FIRST DYNASTY MINES LTD.
The Company, GGA and First Dynasty Mines Ltd. ("First Dynasty"), a
Canadian public company, entered into a preliminary agreement dated
January 27, 1997 whereby First Dynasty agreed to advance funds in stages
necessary for the development of the Armenian mining projects.
The Company and First Dynasty entered into a definitive agreement dated
May 13, 1997 reflecting the final agreement of the parties with respect
to the Armenian mining projects (the "FDM Agreement"). The principal
terms of the FDM Agreement are outlined as follows:
22
<PAGE>
GLOBAL GOLD CORPORATION
(A Development Stags Company)
Consolidated Financial Statements
Notes to Financial Statements
September 30, 1997
NOTE 20: FIRST DYNASTY MINES LTD. (continued)
First Dynasty agreed to advance a maximum of $24,510,000 under the FDM
agreement. All funds advanced by First Dynasty will be advanced to GSA
as debt, which is convertible into stock of GGA at First Dynasty's
option or is automatically converted into such stock under certain
circumstances, as follows:
A. The first $6,490,000 of debt is convertible into 25% of the capital
stock of GSA.
B. The next $3,520,000 of debt together with the advance described
above is convertible into 51% of the capital stock of GSA.
C. For every additional $.5 million advanced in respect of the
development of the Zod and Meghradzor mines (excluding the $10
million Tailings Project expenditure) as a loan to GSA, such debt is
convertible into an additional 1% of the capital stock of GGA, up to
a maximum of 80% of the issued and outstanding shares of capital
stock of GGA.
Upon obtaining 80% of the capital stock of GGA, or upon making aggregate
advances of $24,510,000, First Dynasty would be entitled to acquire the
remaining 20% of the outstanding of capital stock of GGA, within 18
months after raking such total advances, by issuance of 4,000,000 of its
common stock, except that such number of shares will be increased
proportionately to the extent that the mineable reserves at the Zod and
Meghradzor mines,(which are established at the end of such 18 month
period), exceed five million ounces.
First Dynasty will be entitled to appoint three of the five directors of
GGA until First Dynasty shall acquire 80% of the issued and outstanding
common stock of GSA.
First Dynasty carried out certain initial commitments in February, 1997.
They loaned GSA $675,000 to pay outstanding payables, agreed to fund the
$640,000 Tailings Dam Construction contract and agreed to guarantee or
co-sign up to $3,500,000 of the equipment purchase contract and up to
$1,000,000 of the engineering, procurement, construction management
agreement between the Venture and a Canadian engineering firm. First
Dynasty further agreed to loan the Company an additional $675,000 to
cover the balance of the outstanding payables. First Dynasty made direct
payments of $7,151,807 on the Tailings contact and engineering agreement
and an additional $1,414,162 in legal and administrative expenses in the
first nine months of 1997.
23
<PAGE>
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Consolidated Financial Statements
Notes to Financial Statements
September 30, 1997
NOTE 20: FIRST DYNASTY MINES LTD. (continued)
In addition, First Dynasty agreed to pay the Company $400,000 for use,
at its option, to defray its expenses in participating in the
negotiation of the second Armenian joint venture agreement, of which
$200,000 was paid upon the execution and the delivery of the FDM
Agreement and the balance of $200,000 will be paid on June 30, 1996.
Although not reflected in the FDM Agreement, First Dynasty also paid the
Company $141,155.02 on May 15, 1997 to defray the expenses incurred by
GGA during the three-month period ending March 31, 1997.
In connection with the First Dynasty financing the Company paid a
finders fee of 125,000 shares of its common stock to each of Walker
Investments Ltd. and Alpine Holdings Ltd.
24
<PAGE>
GLOBAL GOLD CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(A) GENERAL OVERVIEW
The Company is presently engaged in the development of a gold mining
project in Armenia, and is currently considering pursuing a gold and copper
mining project in Georgia (both of which countries are members of Commonwealth
of Independent States). The Company is currently in the pre-development stage
and has not received any revenues from mining activities. Prior thereto, the
Company did not engage in any substantial business activities, except as
described in the section 1(D) entitled "Prior History of the Company" reflected
in the Form 10-KSB filed by the Company for the period ended December 31, 1996.
(B) ARMENIAN MINING PROJECT
(a) ARMENIAN JOINT VENTURE AGREEMENT
The Company, the Ministry of Industry of Armenia and Armgold, S.E., the
Armenian state gold enterprise ("Armgold"), executed and delivered the Armenian
Joint Venture Agreement, dated as of May 1, 1996. The Company thereafter
assigned its rights and obligations thereunder to Global Gold Armenia Limited,
its wholly-owned Cayman Islands subsidiary ("GGA"). The Armenian Joint Venture
Agreement formed the Armenian Gold Recovery Joint Venture
Co., LLC, a limited liability company under Armenian law ("AGRC"), which will
construct, operate and market the gold production and provide capital and
financing in a multistage development of the Armenian gold industry. Stage 1 of
the Armenian Joint Venture Agreement involves the processing of an estimated 12
million tonnes of tailings from the Ararat processing plant, which the Company
believes average 1 gram of gold per tonne (based on the independent
metallurgical study obtained by the Company) (the "Tailings Project") and the
completion of a comprehensive feasibility study and business plans for the
development of the Zod mine. Based on the business plans to be approved by all
parties, Stage 2 calls for the rehabilitation of the Ararat Gold Processing
Plant and for mine development and operation as well as engineering and building
a gold processing plant at the Zod mine, and Stage 3 calls for mine development
and operation at the Meghradzor mine, a feasibility study for a gold refinery,
and exploration activity. GGA is currently negotiating a new agreement with the
Armenian authorities to expedite and modify stages 2 and 3.
The Company, the Ministry of Armenia and Armgold executed and delivered
the Second Armenian Gold Recovery Company Joint Venture Agreement, dated as
of September 30, 1997, which, among other things, provides for the right of
new joint venture companies to mine and process gold at Zod and Meghradzor
mines and which also eliminated certain specific exploration sites from the
original agreement, while still recognizing AGRC's right to participate in
exploration activity at a future date. However, such
25
<PAGE>
amendatory agreement does not become operative until passage of an Armenian
government decree approving such agreement. The parties anticipate that such
decree will be issued within the next several months, although there can be
no assurance of such result.
(b) TAILINGS PROJECT
The parties have begun to implement the Tailings Project. As of February
1, 1997, GGA had a definitive agreement authorized by an Armenian government
decree granting it fixed rights to process tailings from the Ararat site as well
as a license and environmental approval for construction.
Pursuant to the Armenian Joint Venture Agreement, AGRC is now engaged in
the construction of the Tailings Project. AGRC entered into a Tailings Dam
Construction Contract with Armhydro for $640,000 on January 31, 1997. AGRC
also retained a Canadian engineering firm, under a contract for Engineering,
Procurement and Construction Management Services Agreement dated January 31,
1997, under which the compensation payable to the contractor under Phase I of
the project is $4,500,000, which was later increased to up to $10,000,000
Operation of the tailings processing plant is now planned for December, 1997,
although construction and other contingencies exist which may delay meeting
such target date. In addition, independent engineering firms are now
engaged in preparing a feasibility report with respect to the reserves at the
Zod and Meghradzor, mines which the Company anticipates will be completed
within the next six months, although there can be no assurance of such
result.
While the Company has been advised that proven reserves exist in the
Tailings Project and that the mining thereof can be done on a profitable basis,
there can be no assurance of such result.
(c) FINANCING OF THE ARMENIAN MINING PROJECT - FIRST DYNASTY MINES LTD.
Throughout 1996 and into January, 1997, the Company had discussions with
many unrelated parties in connection with arranging for the financing of the
Tailings Project. As of January 31, 1997, the Company and GGA reached an
agreement with First Dynasty Mines Ltd. ("First Dynasty"), a Canadian public
company whose shares are traded on the Toronto Stock Exchange and on NASDAQ.
Under such preliminary agreement, First Dynasty acquired the right, subject to
certain conditions, to advance funds in stages necessary for the implementation
of the Tailings Project and the preparation of engineering and business plan
materials for the remaining Armenian mining projects.
The Company, GGA and First Dynasty entered into a definitive agreement
dated May 13, 1997 reflecting the final agreement of the parties with respect to
the above projects (the FDM Agreement"). The principal terms of the FDM
Agreement are set forth below:
1. First Dynasty agreed to advance a maximum of $24,510,000 to GGA under
the FDM Agreement, which amounts will be advanced as debt, which is convertible
into stock of GGA, at First Dynasty's option, or is automatically converted into
such stock under certain circumstances, as
26
<PAGE>
described below:
(a) Upon First Dynasty's making advances of $6,490,000, such amount
will then be automatically converted into 25% of the capital stock of GGA
(which occurred in October, 1997).
(b) The next $3,520,000 of debt, together with the advance described
in 1(a) above, is convertible into 51% of the capital stock of GGA, at
First Dynasty's option.
(c) For every additional $.5 million invested for expenditures
advanced in respect of the development of the Zod and Meghradzor mines
(excluding the $10 million Tailings Project expenditure) as a loan to GGA,
such debt is convertible, at First Dynasty's option, into an additional 1%
of the capital stock of GGA, up to a maximum of 80% of the issued and
outstanding shares of capital stock of GGA. Thus, upon advancing a total
of $24,510,000 in the Armenian mining projects, First Dynasty would be
entitled to acquire 80% of the shares of GGA, if First Dynasty elects to
convert all of its debt into equity.
2. (a) Upon obtaining 80% of the capital stock of GGA or upon making
aggregate advances of $24,510,000, First Dynasty would be required to acquire
the remaining 20% of the outstanding of capital stock of GGA, within 18 months
after making such total of advances, by issuance of 4,000,000 shares of its
common stock except that such number of shares will be increased proportionately
to the extent that the mineable reserves at the Zod and Meghradzor mines (which
are established at the end of such 18-month period) exceed five million ounces.
(b) First Dynasty further agreed to use its best efforts to issue
freely tradeable FDM shares to GGA if it is feasible to do so in connection with
a contemporaneous public offering of shares of FDM stock or, alternatively,
special warrants to acquire shares of common stock of First Dynasty without
payment therefor (each of which would be exercisable into one share of First
Dynasty common stock) in a form and substance satisfactory to all parties,
pursuant to a prospectus filed with the applicable Canadian securities
regulatory authorities.
(c) In the event of a violation of First Dynasty's obligations to pay
the Company 4,000,000 shares of its Common Stock or greater amount or to arrange
for the issuance of freely tradeable shares pursuant to the mechanisms
contemplated in the FDM Agreement, the Company would be able to require First
Dynasty to specifically perform its obligations pursuant to the grant of an
injunction or other appropriate decree of specific performance by any court
having equity jurisdiction over the parties.
3. (a) First Dynasty's agreement to continue funding under the FDM
Agreement is subject to the following conditions:
(i) all of the representations and warranties of GGA were true
as of the date of the execution and the delivery of the FDM Agreement;
27
<PAGE>
(ii) neither the Company nor GGA (prior to the actual
implementation of the appointment of First Dynasty's designees as
three directors of GGA) will have breached in any material respects
any of its covenants under the FDM Agreement, and
(iii) with respect to any advances in excess of $10,000,000
or the issuance of any shares of First Dynasty stock, First Dynasty
will have obtained the approval of The Toronto Stock Exchange.
(b) First Dynasty right's under the FDM Agreement remain exclusive
for so long as First Dynasty continues to fulfill its obligations under the FDM
Agreement and GGA continues to fulfill its obligations under any joint venture
agreement in Armenia, except that FDM's rights will cease to be exclusive if (I)
the Company notifies First Dynasty in writing that First Dynasty is in default
under the FDM Agreement or that GGA is in default under any Armenian joint
venture agreement and (ii) First Dynasty fails to cure such default within 45
days thereafter, but, in any event, prior to the expiration of any cure period
to which GGA is subject if First Dynasty's default results in a default by GGA
under any joint venture agreement.
4. (a) First Dynasty agreed to pay the Company $400,000 for use, at its
option, to defray its expenses in participating in the negotiation of the second
Armenian joint venture agreement, which is now occurring, of which $200,000 was
paid upon the execution and the delivery of the FDM Agreement and the balance of
$200,000 will be paid on June 30, 1998.
(b) Although not reflected in the FDM Agreement, First Dynasty also
agreed to pay up to $150,000 to defray the expenses incurred by GGA during the
three-month period ending March 31, 1997. Such reimbursement in the amount of
$141,155 occurred in June, 1997.
5. Upon the formation of AGRC Exploration, a limited liability company to
be formed under the laws of Armenia, and ending on December 31, 2009, the
Company will be entitled to elect to participate with GGA in any exploration
projects undertaken by AGRC Exploration up to a level of 20% of GGA's rights in
any exploration project. GGA and the Company also agreed to enter into a
mutually acceptable participation agreement in respect of any exploration
project.
6. GGA agreed to retain Robert A. Garrison as a consultant for a
three-year period commencing February 1, 1997 pursuant to the terms of the
consulting agreement entered into between such parties. Under such agreement,
Mr. Garrison will serve as a Senior Vice President of GGA, will assist it in
furtherance of its business interests under the supervision of the board of
directors of GGA and provide ongoing management as the board of directors of GGA
reasonably requests of him from time to time. Mr. Garrison agreed to devote 50%
of his time and attention to the performance of his services under such
agreement, in his capacity as an independent contractor. Such agreement is
terminable by the consultant upon 90 days prior written notice to GGA (or lesser
notice if GGA agrees to such shorter period) or for cause (as defined therein)
or without cause, which, in such latter case, would require GGA to pay Mr.
Garrison the amount of his consulting fees
28
<PAGE>
remaining unpaid under such agreement.
7. The parties also entered into a shareholders agreement providing for,
among other things, the following:
(a) From the inception of the agreement and until First Dynasty shall
acquire 80% of the issued and outstanding common stock of GGA, First
Dynasty's designees serve as three of the five directors of GGA, including
Marcus Randolph, the President of First Dynasty, and Drury J. Gallagher and
Robert A. Garrison, the Company's Chairman and Chief Executive Officer and
the President and Chief Operating Officer, respectively, serve as the
Company's designees. If the size of the board is increased thereafter,
each party will have the right to designate such number of its designees as
members as the board of directors as shall be proportionate to the number
of designees established under such agreement. As a result of this
provision, First Dynasty now controls the board of directors of GGA.
(b) The board of directors of GGA will act by the vote of majority of
its members, except that the unanimous vote of the board is required to
take action on the following matters:
(i) the sale, lease or any disposition of substantially all of
the assets of GGA;
(ii) the sale or assignment of any interest of GGA in any joint
venture company in which GGA is a shareholder or equity participant or
has provided financing in excess of $250,000 or
(iii) the financing of any of the projects contemplated under
the FDM Agreement other than when such financing is provided solely by
FDM.
(c) In the event that the FDM Agreement becomes non-exclusive
pursuant to the provisions thereof, then First Dynasty shall have the right
to designate only one director of GGA, the Company shall have right to
designate one director of GGA and the party or parties who provide
financing required under the then applicable provisions of the contemplated
second Armenian joint venture agreement will have the right to appoint
three designees to the board of directors of GGA, simultaneously with the
execution and delivery of any financing agreement relating thereto or upon
the payment of the first funding thereunder (and the Company will have the
right to participate in the financing described in such provision).
(d) Each party cannot sell, transfer or pledge its shares of
ordinary shares of GGA, except that each party may transfer its interest to
a corporation, partnership or limited liability which is wholly owned by
the transferring party. During the period that First Dynasty rights under
the FDM Agreement remain exclusive, neither shareholder has any right to
sell or transfer the shares of GGA stock owned by it. Furthermore, if a
stockholder
29
<PAGE>
receives a bona fide offer to sell its GGA's shares, GGA and thereafter the
non-selling stockholder has the right to purchase the stock in question at
the offered price, each for successive 30-day periods. If such right of
first refusal is exercised, the purchaser is required to pay the full
purchase price in immediately available funds or by wire transfer.
Alternatively, the non-selling shareholder may exercise so-called tag along
rights and participate on a pro rata basis in the sale of shares of GGA of
both the recipient of the offer and the non-selling shareholder to the
offeror. If such right of first refusal or tag along right is not
exercised, than the seller may sell its shares of GGA to the offeror on the
terms described in the offer within 120 days after receipt of such offer
and provided further that such third party signs an instrument in writing
agreeing to be bound by all of the terms and conditions of the stockholders
agreement.
The Company, GGA and First Dynasty amended the shareholders agreement, as
of May 13, 1997, to provide, among other things, that it will be governed by
the New York (instead of Cayman Islands) law.
8. Each party is entitled to engage in any other activities or business
or mining or other investments outside of Armenia and will not be required to
account to any other party for any profits derived from such permitted
activities, businesses or investments.
Pursuant to the First Dynasty Agreement, First Dynasty carried out certain
initial commitments described below:
a. First Dynasty loaned $1,350,000 to GGA in two installments of
$675,000 each to repay such amount of payables attributable to GGA and such
amounts were disbursed according to the agreement (or are being disbursed
in the case of the second installment).
b. Upon the signing of the $640,000 Tailings Dams construction
contract with Armhydro, First Dynasty funded $96,000, and, thereafter,
First Dynasty has agreed to fund the balance.
c. First Dynasty agreed to guarantee or co-sign for up to $3,500,000
of the equipment purchase contract and up to $1,000,000 of the engineering,
procurement, construction management agreement between AGRC and a Canadian
engineering firm. Also, First Dynasty agreed to advance funding for
expenditures thereunder as jointly agreed by the Company and First Dynasty
from time to time, subject to certain cancellation provisions agreed to by
First Dynasty.
d. First Dynasty created a credit facility of up to $1,000,000 for
Armgold.
As of September 30, 1997, First Dynasty claims it had advanced
$10,257,124 in total project costs.
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(d) MINING PLANS
GGA, in conjunction with First Dynasty, negotiated with the Armenian
Government to obtain for new joint venture companies the rights to mine and
process gold at the Zod and Meghradzor mines on a schedule which is faster
than anticipated by the May 1, 1996 Joint Venture Agreement, subject to the
prior approval thereof by an Armenian parliamentary decree. In addition,
GGA engaged independent engineering firms to conduct a feasibility report
with respect to the reserves at such mines.
(C) JET-LINE ENVIRONMENTAL SERVICES, INC.
Jet-Line Environmental Services, Inc. ("Jet-Line") is a privately-held
Delaware corporation organized in 1970, and is engaged in providing various
environmental clean-up services for a variety of customers, including fuel
service, laboratory services, disposable services, transportation and safety and
compliance services. A copy of Jet-Line's compiled and unaudited financial
statement for the calendar year ended December 31, 1996 showed a loss of
approximately $377,000 for such year.
On April 21, 1993, the Company loaned $300,000 to Jet-Line, which is
evidenced by Jet-Line's promissory note that is convertible into 20% of
Jet-Line's common stock, and 25% of its common stock upon the payment (upon
conversion) to Jet-Line of $37,500, at the option of the Company, and 30% of its
common stock upon the payment (upon conversion) to Jet-Line of $100,000, at the
Company's option, as provided therein (the "Jet-Line Note"). The Jet-Line Note,
which matured on April 21, 1996 and which was restructured on May 13, 1996, is
secured by a pledge of transportation equipment and machinery and equipment
used in Jet-Line's business and a Jet-Line owned warehouse and office laboratory
building totaling 22,500 square feet located on one acre of land. The total
appraisal value of the assets when made in part in December, 1992 and in part in
early 1993 was in excess of a total of $1,500,000, but the Company does not know
the appraised value of such collateral at present since no updated appraisal of
such assets has been made. Prior to such transaction, Jet-Line had no
affiliation of any kind with the Company or its stockholders.
Since Jet-Line has been experiencing operating losses, and lacks adequate
liquid resources, it is highly unlikely that Jet-Line will be able to pay the
full amount of the principal and accrued interest on the Jet-Line Note, and
defaulted under the May 13, 1996 loan extension agreement between the
parties. In addition, Jet-Line advised the Company in early March, 1997 that
it received a notice of the revocation of its license to operate its business
in Massachusetts, and of a $100,000 fine, from the Massachusetts
environmental authorities, and Jet-Line contested such revocation and fine in
the Massachusetts state courts unsuccessfully. As a result, Jet-Line has
been requested by such authorities to sell its facility in Massachusetts, and
Jet-Line is now engaged in negotiations with a potential buyer with respect
to such sale. The Company sent Jet-Line a written notice of default and
demand for payment on March 14, 1997, sent further demand letters on April 2,
1997, April 15, 1997 and November 11, 1997, had many telephonic discussions
with the President of Jet-Line with respect to the payment of the Jet-Line
Note, and is now attempting to sell the assets in which it holds
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a first security interest. The Company has also requested Jet-Line to seek an
additional financing and to use part of the proceeds therefrom to satisfy the
Jet-Line Note in full. However, there can be no assurance that Jet-Line will be
able to consummate such sale or obtain such financing, or that the Company will
be able to realize proceeds from any sale of Jet-Line' assets sufficient for the
payment of the principal and accrued interest on Jet-Line.
In addition, the Company also learned that the Business Loan Center,
another creditor of Jet Line, is also attempting to sell assets of Jet-Line
in which its hold a security interest. The Business Loan Center made a U.S.
Small Business Administration guaranteed loan of approximately $550,000 to
Jet-Line in 1994 and obtained a first lien on certain enumerated assets of
Jet-Line, and the Company at such time subordinated its loan thereto, except
with respect to certain automotive and trucks assets and other equipment as
to which the Company retained its first security interest.
Thus, there can be no assurance that the Company will ultimately be paid
the full principal amount of, and accrued interest on, the Jet-Line Note.
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1996
REVENUES: During the three month period ended September 30, 1997, the
Company's interest and royalty income was $208, which was approximately the
same amount for the same period last year.
ADMINISTRATIVE AND OTHER EXPENSES: The Company's administrative and
other expenses for the three-month period ended September 30, 1997 were
$81,872, which represented a decree from the amount paid or accrued of
$116,342 in the same period last year. Expenses were attributable to the
Company's (a) accrual of officers' compensation and (b) the accrual and/or
payment of legal and accounting fees and expenses in connection with its
retention of counsel to implement the Company's transaction with First
Dynasty pursuant to the agreement between such parties dated as of May 13,
1997 in connection with the financing of the Tailings Project and the
additional projects contemplated in Armenia (subject to miscellaneous
contingencies), and to file the Company's 10-QSB for the periods ended March
31, 1997 and June 30, 1997.
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1996
REVENUES: During the nine months ended September 30, 1997, the Company's
interest and royalty income was $208, which represented an increase from the
interest and royalty interest of $183 for the same period last year, since
more of the Company's assets were invested on an interest-paying basis.
ADMINISTRATIVE EXPENSES: The Company's administrative expenses for the
nine months ended September 30, 1997 were $309,109, which represented a
decrease from the amount paid of $338,308 in the same period last year.
Expenses were attributable to the Company's (a) accrual of officers'
compensation and (b) the accrual and/or payment of legal and accounting fees
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and expenses in connection with its retention of counsel to implement the
Company's transaction with First Dynasty pursuant to the agreement between
such parties dated as of May 13, 1997 in connection with the financing of the
Tailings Project and the additional projects contemplated in Armenia (subject
to miscellaneous contingencies), and to file the Company's 10-QSB for the
periods ended March 31, 1997 and June 30, 1997.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1997, the Company's total assets were $11,002,578,
of which $177,830 consisted of cash or cash equivalents.
The Company's plan of operation for calendar year 1997 is:
(a) To oversee the implementation of its definitive agreement with
First Dynasty with respect to all of the Armenian mining projects
contemplated under the Armenian Joint Venture Agreement, including, without
limitation, completing any financing needed for the Tailings Project.
(b) To commence the mining of gold pursuant to the Tailings Project;
(c) To earn the right to mine production and process gold at the Zod
mine in Armenia in accordance with the terms of the Armenian Joint Venture
Agreement or to negotiate obtaining such rights and, in preparation
therefor, conclude an engineering feasibility study on the Zod mine;
(d) To collect payments of accrued interest and principal on and/or
restructure the $300,000 convertible note issued by Jet-Line to the
Company; and
(e) To commence the public trading of the Company's Common Stock.
As of September 30, 1997, the Company had liquid assets consisting of
cash of approximately $177,830. It is anticipated that First Dynasty will
provide or arrange for all of the financing needed in connection with the
Tailings Project and such initial financing as is needed in connection with
the development of the Zod and Meghradzor mines, although there can be no
assurance of such result. In addition, if the Company earmarks a portion of
the $200,000 payment from First Dynasty under the FDM Agreement to cover
administrative and professional costs, the Company should be able to meet its
monthly administrative expenses during 1997 which average approximately
$10,000 per month (exclusive of accrued officers' compensation), plus
additional amounts for legal and accounting costs, although there can be no
assurance that the Company will use all of such funds for such purpose.
However, the Company may receive further additional financing in 1997 from
several sources to cover the latter types of costs (and for general corporate
purposes) and its contemplated financing sources are as follows:
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(i) Pursuant to the Offering of $500,000 principal amount of the
Convertible Notes of the Company, the Company issued Warrants to purchase
4,000,000 shares of its Common Stock at an exercise price of $0.50 per
share. By virtue of the one for 10 reverse split of the Company's Common
Stock effective as of December 31, 1996, the Warrants were converted into
Warrants to purchase 400,000 shares of the Company's Common Stock at an
exercise price of $5 per share. On January 23, 1997, the Company amended
the Warrants to reduce the exercise price to $1 per share and to extend the
expiration date until December 31, 1997. If the Warrants were exercised
in full, the Company would receive $400,000 in gross proceeds. The
Company does not know whether any of the Warrants will be exercised, and,
accordingly, there can be no assurance of such result.
(ii) The Company anticipates that it will receive some payments of
principal and interest on the Jet-Line Note, although there can be no
assurance of such result.
Nevertheless, there can be no assurance that any one or more of the above
financings will be provided, or, if so, on terms acceptable to the Company. In
the event that no contemplated financing is consummated, the Company believes
that it has sufficient financial resources to meet its obligations through April
30, 1998.
Based on the Company's needs for additional financing of its operations,
Mr. Gallagher agreed to continue to advance funds to the Company for such
purpose through June 30, 1997 if he was paid in full by such date or earlier out
of the proceeds of any financing received by the Company in excess of $500,000
and provided that the Company also secured his loan with the Jet-Line Note,
which the Company agreed to do. The Company discharged its loan of $192,000
from Mr. Gallagher in full on May 19, 1997 by paying him such sum plus interest
thereon of $14,058.49 on such date. The Company has no existing agreement with
Mr. Gallagher with respect to any financing of the Company's future operations.
The Company does not intend to engage in any project research and
development during 1997 and does not expect to purchase or sell any plant or
significant equipment, except as contemplated in connection with the Tailings
Project and as additionally provided in the Armenian Joint Venture Agreement.
The Company does not expect to hire any additional full-time employees in
1997.
PART II
Item 1. LEGAL PROCEEDINGS
Except as noted below, there is no material pending legal proceeding to
which the Company is a party or to which any of its properties is subject.
Eyre and the Parry-Beaumont Trust have questioned, in writing in February,
March and
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April, 1997, the validity of the Second Restructuring Agreement (as defined in
Item 12(B) of the Form 10-KSB filed by the Company for the year ended December
31, 1996) and the validity of the issuance by the Company of 1,000,000 shares of
its Common Stock to each of Messrs. Gallagher and Garrison. The Company
believes that the Second Restructuring Agreement is valid and that Eyre and the
Parry-Beaumont have waived the rights covered thereby. The Company further
believes that the Company properly issued the shares of its Common Stock to
Messrs. Gallagher and Garrison in exchange for valuable consideration and that
the claim of invalidity of such action has no merit. For a further description
of the Second Restructuring Agreement and such transfers, see Item 12(B) as
described above.
The Company has also received requests from Panquest Lte. and from Eyre
relating to amounts alleged to be due to Panquest Lte. relating to the Company's
acquisition of rights from Eyre relating to the Armenian and Georgian projects.
No evidence has yet been supplied to the Company in this regard.
In addition, the United States Attorney for the Eastern District of
Pennsylvania commenced an investigation of various nursing homes in
Pennsylvania managed by PennMed Consultants, Inc. ("PennMed"), a corporation
owned by Drury J. Gallagher, the Company's President, and John Hayman and
Frank Hayman, who are also major stockholders of the Company, as to whether
or not such nursing homes and their managers and affiliates engaged in
potential violations of Federal health laws. In the course of the execution
of a search warrant, all documents relating to PennMed were seized on August
6, 1997, as well as the books and records of other possible businesses
located at such address, including all of the Company's books and records
which were located at such address. In addition, the United States Attorney
served a subpoena on the Company on such date to obtain additional
information initially by August 29, 1997 and now on or before November 14,
1997. At this time, the Department of Justice has informed the Company that it
is not a target of such investigation.
The Company is attempting to have itself removed completely from such
proceeding. In addition, management is not aware of the basis of any potential
liability in such proceeding. Although the Company believes that any claim of
the nature described above will not be asserted against it, or, if made, will
not be asserted successfully, there can be no assurance of such result.
Item 2. CHANGES IN SECURITIES
Not applicable.
Item 3. DEFAULT UPON SENIOR SECURITIES
Not applicable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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Not applicable.
Item 5. OTHER INFORMATION
Not applicable.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
1. (a) The following documents are filed as part of this report:
Financial Statement of the Company (unaudited), including Balance Sheet,
Statement of Income and Loss, Statement of Changes in Stockholders Equity,
Statement of Cash Flow and Notes to Financial Statement as at and for the period
ended September 30, 1997.
(b) The Exhibits which are listed on the Exhibit Index attached
hereto: Not applicable.
2. No reports on Form 8-K were filed by the registrant during the period
covered by this report.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GLOBAL GOLD CORPORATION
Dated: November 13, 1997 By: /S/ DRURY J. GALLAGHER
----------------------------
Drury J. Gallagher, Chairman
and Chief Executive Officer
(Principal Executive and
Financial Officer)
<PAGE>
EXHIBIT B
AMENDMENT TO WARRANT NO. W-____
ISSUED BY
GLOBAL GOLD CORPORATION
Warrant No. ___ issued by Global Gold Corporation (formerly known as
Triad Energy Corp.) (the "Warrant") pursuant to the Confidential Private
Placement Memorandum dated May 17, 1995, as amended, is hereby amended as
follows:
1. The first paragraph of the Warrant is hereby amended to
substitute the following paragraph in lieu of the paragraph appearing therein:
"Global Gold Corporation (formerly known as Triad Energy Corp.), a
Delaware corporation (the "Company"), hereby certifies that, for value
received, ____________________ _________________________________, or
registered permitted assigns, is entitled, subject to the terms set forth
below, to purchase from the Company at any time or from time to time before
5:30 P.M., New York time, on December 31, 1998, _______ fully paid and
nonassessable shares of Common Stock, $.001 par value, of the Company, at a
purchase price per share of $.125 (such purchase price per share as adjusted
from time to time as herein provided is referred to herein as the "Purchase
Price"). The number and character of such shares of Common Stock and the
Purchase Price are subject to adjustment as provided herein."
2. Section 17 of the Warrant is hereby amended to read as follows:
"The right to exercise this Warrant shall expire at 5:30 p.m., New
York time, on December 31, 1998."
3. Except as otherwise set forth herein, all of the other terms and
conditions of the Warrant shall remain in full force and effect.
Dated: December 1, 1997 GLOBAL GOLD CORPORATION
By:
------------------------------------
Drury J. Gallagher, Chairman and
Chief Executive Officer
