<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 30, 1998
REGISTRATION NO. 333-68061
333-68061-01
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
POST-EFFECTIVE AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
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GOLD RESERVE INC. GOLD RESERVE CORPORATION
(Exact name of registrant as specified in its charter)
CANADA MONTANA
(State or Other Jurisdiction of Incorporation or Organization)
NONE 81-0266636
(I.R.S. Employer Identification Number)
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1041
(Primary Standard Industrial Classification Code Number)
601 WEST RIVERSIDE AVENUE, SUITE 1940
SPOKANE, WASHINGTON 99201
(509) 623-1500
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
---------------------
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ROCKNE J. TIMM With a copy to:
GOLD RESERVE CORPORATION DANIEL W. RABUN
601 WEST RIVERSIDE AVENUE, SUITE 1940 ALAN G. HARVEY
SPOKANE, WASHINGTON 99201 JONATHAN B. NEWTON
(509) 623-1500 BAKER & MCKENZIE
(Name, address, including zip code, and telephone 2001 ROSS AVENUE, SUITE 4500
number, DALLAS, TEXAS 75201
including area code, of agent for service) (214) 978-3000
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
- ---------------
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
- ---------------
---------------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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<PAGE> 2
PROXY STATEMENT/JOINT PROSPECTUS NOVEMBER 30, 1998
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'[GOLD RESERVE CORP. LOGO]' '[GOLD RESERVE INC. LOGO]'
</TABLE>
25,321,209 CLASS A COMMON SHARES
AND UP TO 25,321,209 EQUITY UNITS
REORGANIZATION PROPOSED -- YOUR VOTE IS VERY IMPORTANT
The Board of Directors of Gold Reserve Corporation is calling a special
meeting to vote on a reorganization that would change the corporation's domicile
from the United States to Canada. When the reorganization takes place, you will
automatically own Class A common shares in a new Canadian corporation called
Gold Reserve Inc. (except in the limited circumstances described below). The new
Canadian corporation will carry on the business currently conducted by Gold
Reserve Corporation.
IN THE REORGANIZATION, IF YOU ARE A CANADIAN HOLDER:
- You will receive Class A common shares of the new Canadian corporation.
- You will recognize capital gain or loss as the case may be for Canadian
income tax purposes upon receipt of the Class A common shares of the
Canadian corporation.
IN THE REORGANIZATION, IF YOU ARE A U.S. HOLDER:
- You may elect to receive either Class A common shares of the Canadian
corporation or equity units. Equity units will consist of Class B common
shares of the Canadian corporation and Class B common stock of Gold
Reserve Corporation.
- You will recognize gain, if any, but not loss, for U.S. income tax
purposes when you receive Class A common shares of the Canadian
corporation.
- You should be able to defer a significant portion of any gain by electing
to receive equity units.
The Canadian Class A common shares will trade on the Toronto Stock Exchange
under the symbol GLR.A and, if application is approved, on the Nasdaq SmallCap
System under the symbol GLDR, the same symbol under which the Gold Reserve
Corporation common stock is currently listed.
The equity units will not be listed on any exchange or on Nasdaq. Subject
to compliance with applicable federal, provincial and state securities laws, the
equity units are transferable. We believe that an equity unit is substantially
equivalent to a Class A common share. The equity units are immediately
convertible into Class A common shares. Equity units are not available to
Canadian holders because Canadian tax law would require Canadian holders to
recognize gain or loss on receipt of equity units.
Both Canadian holders and U.S. holders have dissenters' rights. If you
properly demand dissenters' rights, you may obtain payment of the fair value of
your Gold Reserve Corporation common stock instead of receiving Class A common
shares of the Canadian corporation or equity units.
The Board of Directors recommends that you vote FOR the reorganization. We
are calling a special meeting of the shareholders to vote on the reorganization
and are soliciting proxies for use at the special meeting. The record date to
receive notice of and to vote at the special meeting is October 28, 1998. The
special meeting will be held:
December 30, 1998, 10:00 a.m.
Old Chamber of Commerce Building, Spokane Room
1020 West Riverside
Spokane, Washington 99201
SEE RISK FACTORS BEGINNING ON PAGE 21 FOR A DISCUSSION OF CERTAIN RISKS
RELATING TO THE REORGANIZATION. PLEASE NOTE THAT NEITHER THE SECURITIES AND
EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR
DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROXY STATEMENT/JOINT
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
This Proxy Statement/Joint Prospectus gives you detailed information about
the reorganization. You should read this entire document carefully. This Proxy
Statement/Joint Prospectus was first mailed to Gold Reserve Corporation
shareholders on or about November 30, 1998.
<PAGE> 3
TABLE OF CONTENTS
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SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS........ 5
QUESTIONS AND ANSWERS ABOUT THE REORGANIZATION.... 6
SUMMARY........................................... 8
Risk Factors.................................... 8
General Information About the Reorganization.... 8
The Special Meeting; Voting; Proxies............ 8
Special Meeting............................... 8
Voting........................................ 8
Proxies....................................... 9
The Companies................................... 9
GR-Montana.................................... 9
GR-Canada and Merger Sub...................... 9
More Details About the Reorganization........... 9
Board of Directors' Recommendation............ 9
Reasons for the Reorganization................ 10
Conditions to Consummation of the
Reorganization.............................. 10
Effective Time................................ 10
Equity Unit Election.......................... 10
Exchange of Share Certificates; Equity Unit
Election Procedure.......................... 11
Summary of Certain Rights Related to the
Securities to be Received in the
Reorganization................................ 12
General....................................... 12
Comparison of Rights of Shareholders............ 14
Tax Considerations.............................. 14
U.S. Tax Considerations....................... 14
Receipt of GR-Canada Class A Shares........... 15
Receipt of Equity Units....................... 15
Relative Values of Equity Unit Components..... 15
Potential Classification of GR-Canada as a
Passive Foreign Investment Company.......... 15
Canadian Tax Considerations................... 16
Dissenters' Rights.............................. 16
Interests of Certain Persons in Matters to Be
Acted Upon; Possible Conflicts of Interest.... 17
Accounting Treatment of the Reorganization...... 17
Transfer of Assets.............................. 17
Stock Compensation Plans........................ 17
Shareholder Rights Plans........................ 17
Market Price Information........................ 18
GOLD RESERVE CORPORATION SELECTED HISTORICAL
FINANCIAL DATA.................................. 19
GOLD RESERVE CORPORATION AND GOLD RESERVE INC.
SUMMARY PRO FORMA COMBINED FINANCIAL
INFORMATION..................................... 20
RISK FACTORS...................................... 21
Risk Factors Relating to the Transaction........ 21
Certain U.S. Tax Risks Associated with
Electing to Receive Equity Units............ 21
Potential Classification of GR-Canada as a
Passive Foreign Investment Company.......... 21
Tax Risks Relating to Transfer of Assets...... 22
Certain Canadian Tax Risks Associated with the
Receipt of GR-Canada Class A Shares......... 22
Absence of Prior Market; No Assurance as to
Trading Value............................... 22
Risks Associated with the Continuing Business of
GR-Montana.................................... 22
No Established Reserves....................... 22
Recurring Losses.............................. 23
Project Development........................... 23
Foreign Operations............................ 24
Risks Inherent in the Mining Industry
Generally................................... 24
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Environmental Matters......................... 24
Fluctuating Prices of Gold and Copper......... 25
Dependence on Financing Activities............ 25
Key Personnel................................. 26
THE SPECIAL MEETING............................... 27
Special Meeting................................. 27
Record Date; Voting Rights...................... 27
Quorum; Vote Required for Adoption.............. 27
Proxies......................................... 28
General....................................... 28
Revocation.................................... 28
Validity...................................... 28
Solicitation of Proxies....................... 28
Proposals of Shareholders for 1999 Annual
Meeting....................................... 29
THE REORGANIZATION................................ 30
General......................................... 30
Reasons for the Reorganization.................. 30
Board of Directors' Recommendation.............. 31
Financial Advisors.............................. 31
Effect of Reorganization........................ 33
Corporate Structure Prior to the
Reorganization.............................. 33
Corporate Structure Following the
Reorganization.............................. 33
The Merger Agreement............................ 33
General....................................... 33
Amendment or Termination...................... 34
Conditions to Consummation of the
Reorganization................................ 34
Effective Time.................................. 35
Equity Unit Election............................ 35
Equity Unit Election Procedure.................. 36
Exchange Rights................................. 37
Exchange of Share Certificates.................. 37
Stock Exchange Listing.......................... 38
Dissenters' Rights.............................. 38
Interests of Certain Persons in Matters to be
Acted Upon; Possible Conflicts of Interest.... 40
Accounting Treatment of the Reorganization...... 40
Transfer of Assets.............................. 40
Stock Compensation Plans........................ 40
Shareholder Rights Plans........................ 40
Exchange of GR-Montana Common Stock by
Subsidiaries.................................. 41
Exchange Agent and Transfer Agents.............. 41
CERTAIN UNITED STATES FEDERAL INCOME TAX
CONSEQUENCES.................................... 42
The Reorganization.............................. 42
Receipt of GR-Canada Class A Shares........... 42
Equity Unit Election.......................... 43
Reporting Requirements........................ 45
Ownership of GR-Canada Class A Shares and
GR-Canada Class B Shares...................... 45
United States Federal Income Taxation of
Dividends for U.S. Holders.................. 45
United States Taxation of Non-U.S. Holders.... 45
GR-Canada Shareholder Rights Plan............. 45
Ownership of GR-Montana Class B Stock........... 45
United States Federal Income Taxation of
Dividends for U.S. Holders.................. 45
Exchange of Equity Units for GR-Canada Class A
Shares........................................ 46
Classification of GR-Canada as a Controlled
Foreign Corporation........................... 47
Passive Foreign Investment Company Status....... 47
Backup Withholding and Information Reporting.... 48
Post-Reorganization Taxation of GR-Canada and
GR-Montana.................................... 49
</TABLE>
2
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CERTAIN CANADIAN FEDERAL INCOME TAX
CONSEQUENCES.................................... 50
The Reorganization.............................. 50
Receipt of GR-Canada Class A Shares........... 50
Equity Unit Election.......................... 51
Ownership of GR-Canada Class A Shares and
GR-Canada Class B Shares...................... 51
Taxation of Dividends......................... 51
Disposition of Shares (Other than Exchange of
Equity Units for GR-Canada Class A
Shares)..................................... 52
Withholding Requirement....................... 52
GR-Canada Shareholder Rights Plan............. 53
Ownership of GR-Montana Class B Stock........... 53
Taxation of Dividends......................... 53
Disposition of Shares (Other than Exchange of
Equity Units for GR-Canada Class A
Shares)..................................... 53
Exchange of Equity Units for GR-Canada Class A
Shares........................................ 53
Post Reorganization Taxation of GR-Canada....... 54
Qualification for Investment.................... 54
DESCRIPTION OF SECURITIES AND COMPARISON OF RIGHTS
OF SHAREHOLDERS................................. 54
Exchange Agent Agreement........................ 71
General....................................... 71
Deposit of Equity Units and Issuance of Unit
Shares...................................... 71
Transfer of Unit Shares; Securities........... 72
Record Dates.................................. 72
Inspection of Transfer Book................... 72
Changes Affecting Deposited Securities........ 72
Resignation and Removal of the Exchange
Agent....................................... 72
Amendment and Termination of the Exchange
Agent Agreement............................. 72
Charges of the Exchange Agent................. 73
Call of Equity Units by GR-Canada............. 73
GR-Canada Shareholder Rights Plan............... 73
General....................................... 73
Time.......................................... 73
Pressure to Tender............................ 74
Unequal Treatment............................. 74
Purpose of the GR-Canada Shareholder Rights
Plan........................................ 74
Summary of the GR-Canada Shareholder Rights
Plan........................................ 75
Adoption of GR-Canada Shareholder Rights Plan
and Issuance of Rights...................... 75
Term.......................................... 75
Rights Exercise Privilege..................... 75
Certificates and Transferability.............. 76
Permitted Bid Requirements.................... 76
Waiver and Redemption......................... 76
Exemption for "Grandfathered" Persons......... 76
Exemption for Investment Advisors............. 77
Supplements and Amendments.................... 77
Approval...................................... 77
INFORMATION CONCERNING GR-MONTANA................. 78
Business........................................ 78
General....................................... 78
Significant Developments........................ 79
Hardrock Mining Title......................... 79
Feasibility Study............................. 79
Independent Audit of Data Collection.......... 79
Increase in Mineralization.................... 79
Outlook......................................... 80
The Brisas Property............................. 80
Location...................................... 80
Ownership..................................... 80
</TABLE>
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Regional Infrastructure....................... 80
Geology....................................... 81
Exploration................................... 81
Planned Development........................... 82
Modified Pre-feasibility Study................ 84
Venezuelan Mining, Environment and Other
Matters....................................... 85
Current Venezuelan Mining Law................. 85
Proposed Mining Law........................... 86
Environmental Laws and Regulations............ 86
Taxes......................................... 87
Political and Economic Situation.............. 87
Gold Sales.................................... 87
Labor......................................... 87
Employees....................................... 88
MARKET FOR GR-MONTANA'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS............................. 89
Market Price Information........................ 89
Holders......................................... 89
Dividends....................................... 89
GOLD RESERVE CORPORATION HISTORICAL FINANCIAL
DATA............................................ 90
GOLD RESERVE CORPORATION AND GOLD RESERVE INC. PRO
FORMA COMBINED BALANCE SHEET.................... 91
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS............. 93
Summary......................................... 93
Liquidity and Capital Resources................. 93
Investing..................................... 93
Financing..................................... 94
Results of Operations........................... 94
September 30, 1998 compared to September 30,
1997........................................ 94
1997 Compared to 1996......................... 94
1996 Compared to 1995......................... 95
Year 2000 Readiness............................. 95
New Accounting Pronouncements................... 96
MANAGEMENT OF GR-MONTANA.......................... 97
COMPENSATION OF GR-MONTANA'S EXECUTIVE OFFICERS... 99
Summary Compensation Table...................... 99
Options Granted in Last Fiscal Year............. 100
Option Exchange Program......................... 100
Option Exercises and Option Values.............. 102
Employee Loans.................................. 102
Employment Contract and Termination
Agreements.................................... 102
COMMITTEES OF THE BOARD OF DIRECTORS OF
GR-MONTANA...................................... 103
Executive Committee............................. 103
Compensation Committee.......................... 103
Audit Committee................................. 103
COMPENSATION OF GR-MONTANA DIRECTORS.............. 103
COMPENSATION COMMITTEE REPORT ON EXECUTIVE
COMPENSATION ADMINISTRATION..................... 104
Compensation Philosophy and Goals............... 104
Compensation Vehicles........................... 104
Base Salary................................... 104
Bonuses....................................... 104
Equity........................................ 104
Chief Executive Officer's Compensation........ 104
</TABLE>
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COMPENSATION COMMITTEE INTERLOCKS AND INSIDER
PARTICIPATION................................... 106
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT.................................. 106
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.... 107
INFORMATION CONCERNING GR-CANADA.................. 108
General......................................... 108
Management...................................... 108
Committees of the Board of Directors............ 108
Executive Compensation.......................... 108
INFORMATION CONCERNING MERGER SUB................. 108
LEGAL MATTERS..................................... 109
EXPERTS........................................... 109
GLOSSARY OF TERMS................................. 110
GOLD RESERVE CORPORATION AND GOLD RESERVE INC.
INDEX TO FINANCIAL STATEMENTS................... F-1
GR-Montana Report of Independent Accountants.... F-2
GR-Canada Report of Independent Accountants..... F-17
</TABLE>
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WHERE YOU CAN FIND MORE INFORMATION... Inside Back Cover
ENFORCEABILITY OF CIVIL LIABILITIES
AGAINST FOREIGN PERSONS............. Inside Back Cover
ANNEX I............................... ANNEX I-1
ANNEX II.............................. ANNEX II-1
ANNEX III............................. ANNEX III-1
ANNEX IV.............................. ANNEX IV-1
</TABLE>
YOU SHOULD ONLY RELY ON THE INFORMATION CONTAINED IN, OR INCORPORATED BY
REFERENCE INTO, THIS PROXY STATEMENT/JOINT PROSPECTUS. GR-MONTANA AND GR-CANADA
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT
FROM WHAT IS CONTAINED IN THIS PROXY STATEMENT/JOINT PROSPECTUS.
4
<PAGE> 6
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS
The information presented in or incorporated by reference in this Proxy
Statement/Joint Prospectus includes "forward-looking statements" (within the
meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")), including statements relating to the future
results of Gold Reserve Corporation ("GR-Montana") and Gold Reserve, Inc.
("GR-Canada") (including projections and business trends), which involve risks
and uncertainties. Prospective investors are cautioned not to put undue reliance
on forward-looking statements, and should not infer that there has been no
change in, among other things, the affairs of GR-Montana and GR-Canada since the
date of this Proxy Statement/Joint Prospectus that would warrant any
modification of any forward-looking statement made in this document or other
documents filed periodically with the Securities and Exchange Commission
("SEC"). All subsequent written and oral forward-looking statements attributable
to GR-Montana and GR-Canada or persons acting on their behalf are expressly
qualified in their entirety by this notice.
GR-Montana and GR-Canada caution that numerous factors which are disclosed
under the headings "Risk Factors" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and elsewhere in this Proxy
Statement/Joint Prospectus could cause actual results to differ materially from
those in the forward-looking statements, including, without limitation, that the
U.S. Internal Revenue Service (the "IRS") may not agree with the conclusions
reached by tax counsel regarding the tax consequences of the reorganization to
the shareholders of GR-Montana. This could result in different tax consequences
than are discussed in this Proxy Statement/Joint Prospectus. Other factors
include:
- GR-Montana's Brisas property feasibility study may conclude that
development of the Brisas property would be uneconomic or actual ore
reserves, costs, recovery rates, construction schedules and metals
production levels may vary considerably from those used in the
feasibility study;
- continued low metals prices;
- production volatility;
- concentration of operations and assets in Venezuela, including
regulatory, environmental (including concerns with the Imataca Forest
Reserve), political and economic issues associated with investments in
Venezuela;
- anticipated or estimated future project development costs;
- need for additional funding;
- dependence upon the abilities and continued participation of certain key
employees of GR-Montana;
- the impact of year 2000 issues; and
- the uncertainty normally incident to the operation and development of
mining properties.
WHILE WE INCLUDE FORWARD-LOOKING STATEMENTS FOR GR-CANADA THAT YOU SHOULD
BE AWARE OF, PLEASE NOTE THAT THE SAFE HARBOR PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT SET FORTH IN SECTION 27A OF THE SECURITIES ACT
AND SECTION 21E OF THE EXCHANGE ACT ARE NOT AVAILABLE TO GR-CANADA AS A NEW
ISSUER.
5
<PAGE> 7
QUESTIONS AND ANSWERS ABOUT THE REORGANIZATION
This summary highlights selected information found in this Proxy
Statement/Joint Prospectus and provides general questions and answers about the
reorganization. This summary does not contain all of the information that is
important to you. To understand the reorganization more fully and for a more
complete description of the legal terms of the reorganization, we urge you to
read carefully the entire Proxy Statement/Joint Prospectus, including its
Annexes.
Q: WHAT IS GOLD RESERVE CORPORATION?
A: Gold Reserve Corporation is a publicly-traded mining company incorporated
under the laws of Montana. Gold Reserve Corporation is referred to as
"GR-Montana" in this Proxy Statement/Joint Prospectus.
Q: WHAT IS GOLD RESERVE INC.?
A: Gold Reserve Inc. is a new subsidiary of GR-Montana which was formed to
become the Canadian parent company of GR-Montana. Gold Reserve Inc. is
referred to as "GR-Canada" in this Proxy Statement/Joint Prospectus.
Q: WHY SHOULD GR-MONTANA BECOME A SUBSIDIARY OF GR-CANADA?
A: Management believes the reorganization will enhance the current and future
value of your investment in GR-Montana, including for the reasons set forth
under "The Reorganization -- Reasons for the Reorganization."
Q: WHO CAN VOTE ON THE REORGANIZATION?
A: Holders of GR-Montana Common Stock at the close of business on October 28,
1998, can vote at the special meeting.
Q: WHAT SHOULD I DO NOW TO VOTE ON THE REORGANIZATION?
A: Just indicate on your proxy card how you want to vote and mail your signed
proxy card in the enclosed return envelope as soon as possible or call
1-800-840-1208 (toll-free) and follow the instructions on your proxy card,
so that your shares can be voted at the special meeting.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A: You should instruct your broker to vote your shares, following the
directions your broker provides. You must instruct your broker to vote your
shares or else your broker will not vote your shares. Broker "non-votes"
will have the same effect as votes cast against the reorganization.
Q: ARE THERE RISKS THAT I SHOULD CONSIDER?
A: Yes. A number of important risks are discussed under the heading "Risk
Factors." You should read the risks, particularly the risks associated with
the tax consequences of the reorganization and the lack of a prior trading
market for GR-Canada Class A Shares.
Q: WHEN DO YOU EXPECT THE REORGANIZATION TO BE COMPLETED?
A: We are working towards completing the reorganization as quickly as possible
and expect to do so shortly after the special meeting. We expect the
reorganization to be completed on the day the Montana Secretary of State
accepts our filing of the articles of merger. We expect the reorganization
to be complete before the end of 1998.
6
<PAGE> 8
Q: WHO CAN ANSWER MY QUESTIONS?
A: You should contact:
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GR-Montana: Gold Reserve Corporation
601 West Riverside Avenue
Suite 1940
Spokane, Washington 99201
(509) 623-1500
Attn: Doug Belanger
the Exchange Agent: TranSecurities International, Inc.
2510 N. Pines
Suite 202
Spokane, Washington 99206
(509) 972-1255
Attn: Stock Transfer Department
the Proxy ChaseMellon Shareholder Services, L.L.C.
Solicitor: 450 West 33rd Street
New York, New York 10001
(877) 698-6865 (toll free)
Attn: Dan DeWeever
</TABLE>
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<PAGE> 9
SUMMARY
This summary highlights selected information from this Proxy
Statement/Joint Prospectus. It does not contain all of the information that is
important to you. To understand the reorganization more fully, and for a more
complete description of the legal terms of the reorganization, you should read
carefully the entire Proxy Statement/Joint Prospectus, including its Annexes.
The merger agreement is attached as Annex I to this Proxy Statement/Joint
Prospectus. We encourage you to read the merger agreement. It is the legal
document that governs the reorganization.
RISK FACTORS
SEE PAGE 21 FOR CERTAIN RISKS THAT SHOULD BE CONSIDERED RELATING TO THE
REORGANIZATION, ESPECIALLY AS THEY RELATE TO CERTAIN TAX CONSEQUENCES.
GENERAL INFORMATION ABOUT THE REORGANIZATION
GR-Montana proposes a reorganization that will result in a change of
domicile from the United States to Canada. The Board of Directors of GR-Montana
recommends that you vote FOR the reorganization. You should note the following
about the reorganization:
- As a result of the reorganization, GR-Canada will become the parent
company of GR-Montana. GR-Canada is a new Canadian company owned by
GR-Montana.
- After the reorganization, a holder of GR-Canada Class A Shares will
continue to own an interest in a parent company with subsidiaries that in
the aggregate are engaged in the same business that GR-Montana and its
subsidiaries were engaged in before the reorganization.
- As a shareholder in GR-Canada, your relative voting rights and ownership
interests will be substantially similar to the rights and interests
currently held by you as a GR-Montana shareholder.
See "-- More Details About the Reorganization," "The Reorganization" and
"Description of Securities and Comparison of Rights of Shareholders."
THE SPECIAL MEETING; VOTING; PROXIES
SPECIAL MEETING. A special meeting of the GR-Montana shareholders will be
held on December 30, 1998, at 10:00 a.m., at Old Chamber of Commerce Building,
Spokane Room, 1020 W. Riverside, Spokane, Washington 99201. At the special
meeting, GR-Montana is asking that you consider and vote on:
(1) the proposal to approve the reorganization (including the merger
agreement); and
(2) any other matters that may properly come before the meeting. See
"The Special Meeting."
VOTING. You can vote at the special meeting if you owned GR-Montana Common
Stock at the close of business on October 28, 1998, the record date. You will be
entitled to one vote for each share of GR-Montana Common Stock held by you on
the record date. You may vote your shares:
(1) in person by attending the special meeting;
(2) by mailing your proxy to the transfer agent; or
(3) voting your shares by telephone by following the instructions on
your proxy card.
Abstentions and broker "non-votes" will be counted as present for purposes of
obtaining a quorum but will be treated as votes against the proposal to approve
the reorganization. Approval of the reorganization requires the affirmative vote
of the holders of 66 2/3% (14,922,270 shares) of the outstanding shares of GR-
Montana Common Stock entitled to vote at the special meeting. See "The Special
Meeting -- Record Date; Voting Rights" and "-- Quorum; Vote Required for
Adoption."
8
<PAGE> 10
PROXIES. The accompanying proxy is being solicited on behalf of the Board
of Directors of GR-Montana. You may grant a proxy to vote for or against, or to
abstain from voting on, the proposal to approve the reorganization. To be
effective, a proxy must be received at or prior to the special meeting. Shares
of GR-Montana Common Stock represented by a properly executed proxy (whether
through the return of the enclosed proxy card or by telephonic voting) will be
voted in the manner specified by such proxy. You should be aware that if you
properly execute your proxy card without indicating how you want to vote, your
shares of GR-Montana Common Stock will be voted FOR the proposal to approve the
reorganization and related merger agreement.
A proxy may be revoked at any time prior to its exercise by following the
proxy revocation instructions described under "The Special
Meeting -- Proxies -- Revocation." If your GR-Montana Common Stock is held in
the name of a bank, broker or other nominee, you should follow the instructions
provided by it on voting your shares and in revoking your previously voted
shares. See "The Special Meeting -- Proxies."
THE COMPANIES
GR-MONTANA. GR-Montana is a mining company engaged in exploring and
acquiring mining properties with the intention of placing them into production.
Its principal operating asset is the Brisas property, which is located in
Venezuela. GR-Montana's growth strategy is to develop proven and probable
reserves as well as mining and process operations by successfully developing
mineable reserves at its Brisas property and making selective property or
corporate acquisitions. The day-to-day activities of GR-Montana's Venezuelan
operations are managed from its offices in Caracas, Venezuela and Puerto Ordaz,
Venezuela. Its principal executive offices are located at 601 West Riverside
Avenue, Suite 1940, Spokane, Washington 99201, and its telephone number is (509)
623-1500. See "Information Concerning GR-Montana."
GR-CANADA AND MERGER SUB. GR-Canada is a newly-formed Canadian company
incorporated under the laws of the Yukon Territory and a wholly owned subsidiary
of GR-Montana. GR-Canada was formed to become the parent company of GR-Montana.
All of the capital stock of GR-Canada is currently held by GR-Montana. After the
consummation of the reorganization, GR-Montana will become a subsidiary of
GR-Canada, and GR-Canada will carry on the business currently conducted by
GR-Montana. GR-Canada has formed a wholly owned subsidiary, GR Merger Corp.,
specifically to effect the reorganization. Neither GR-Canada nor GR Merger Corp.
has any significant assets or capitalization, and neither has engaged in any
business or prior activities other than in connection with the reorganization.
See "Information Concerning GR-Canada" and "Information Concerning Merger Sub."
MORE DETAILS ABOUT THE REORGANIZATION
BOARD OF DIRECTORS' RECOMMENDATION. THE BOARD OF DIRECTORS OF GR-MONTANA
HAS UNANIMOUSLY APPROVED THE REORGANIZATION AND THE RELATED MERGER AGREEMENT AND
RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO APPROVE THE REORGANIZATION,
INCLUDING THE MERGER AGREEMENT. See "The Reorganization -- Board of Directors'
Recommendation."
In determining to recommend the reorganization, the Board of Directors
consulted with GR-Montana's management, financial advisors (including before
determining to recommend the reorganization), and its tax advisors and
considered a number of factors. These factors included the "-- Reasons for the
Reorganization" described below. The Board of Directors also considered the
opinion of RBC Dominion Securities Inc. that, as of the date of this Proxy
Statement/Joint Prospectus, one GR-Canada Class A Share and one equity unit are
substantially equivalent from a financial point of view. The opinion is attached
to this Proxy Statement/Joint Prospectus as Annex II. The Board of Directors has
requested that RBC update its opinion as of the date of the reorganization.
Unless the opinion changes significantly, the Board of Directors expects that it
would not terminate the reorganization if RBC modified its opinion. See "The
Reorganization -- Financial Advisors," "Certain United States Federal Income Tax
Consequences" and "Certain Canadian Federal Income Tax Consequences."
9
<PAGE> 11
REASONS FOR THE REORGANIZATION. The Board of Directors believes the
reorganization will enhance the current and future value of your investment in
GR-Montana. For instance, we believe the reorganization will provide:
- expanded access to the Canadian capital markets and investors. Our
experience is that the Canadian capital markets have a greater interest
in mining and other natural resource companies. We expect this will
result in a more favorable financing environment than is currently
available to GR-Montana as a U.S. corporation;
- a corporate structure that will better promote the expansion of
GR-Montana's current business and enhance its future exploration,
development and acquisition opportunities;
- an improved profile among Canadian investors and within the Canadian
investment dealer community. We believe our profile will be improved, in
part, because we understand most of our shareholders are Canadian and we
will now be a Canadian company; and
- for the eligibility of GR-Canada Class A Shares to be held without
limitation by Canadian registered pension plans, registered retirement
savings plans and deferred profit sharing plans. At present, GR-Montana
Common Stock is considered "foreign property" under Canadian law and only
20% of pension investments can be comprised of foreign property.
GR-Montana believes the foreign property status of GR-Montana Common
Stock is viewed as a negative by Canadian investors. GR-Canada intends to
meet the criteria needed so that GR-Canada Class A Shares will not be
considered foreign property.
See "Risk Factors -- Risk Factors Relating to the Transaction -- Certain
Canadian Tax Risks Associated with the Receipt of GR-Canada Class A Shares,"
"The Reorganization -- Reasons for the Reorganization" and "Certain Canadian
Income Tax Consequences -- Qualification for Investment."
CONDITIONS TO CONSUMMATION OF THE REORGANIZATION. The reorganization will
not be consummated unless the reorganization is approved by holders of 66 2/3%
of the outstanding shares of GR-Montana Common Stock entitled to vote at the
special meeting. Additionally, the merger agreement may be terminated and the
reorganization canceled:
(1) If holders of more than 7.5% of the outstanding GR-Montana Common
Stock demand dissenters' rights;
(2) If U.S. Holders of more than 20% of the outstanding GR-Montana
Common Stock elect to receive equity units;
(3) By the Board of Directors of GR-Montana at any time prior to the
time the reorganization becomes effective;
(4) If tax counsel do not generally reaffirm as of the effective time
of the reorganization their opinions set forth in this Proxy
Statement/Joint Prospectus.
See "The Reorganization -- Conditions to Consummation of the Reorganization,"
"-- Equity Unit Election," "-- Dissenters' Rights" and "Description of
Securities and Comparison of Rights of Shareholders."
EFFECTIVE TIME. If GR-Montana's shareholders approve the reorganization and
it is not terminated by GR-Montana, the effective time of the reorganization
will be when appropriate articles of merger are accepted for filing by the
Montana Secretary of State. GR-Montana anticipates that the reorganization will
become effective promptly following the special meeting. See "The
Reorganization -- Conditions to Consummation of the Reorganization" and
"-- Effective Time."
EQUITY UNIT ELECTION. The Board of Directors is providing for U.S. Holders
(as defined under "-- Tax Considerations" below) of GR-Montana Common Stock who
may otherwise have a substantial taxable gain upon receipt of GR-Canada Class A
Shares the opportunity to defer a significant portion of such gain. If you are a
U.S. Holder, you may make an election to receive equity units instead of
receiving
10
<PAGE> 12
GR-Canada Class A Shares. The election to receive equity units is not available
to Canadian Holders (as defined in "Certain Canadian Federal Income Tax
Consequences") because Canadian tax law would require them to recognize gain or
loss upon receipt of equity units just as they would upon receipt of GR-Canada
Class A Shares. Each equity unit may be converted into one GR-Canada Class A
Share. See "The Reorganization -- Equity Unit Election," "-- Equity Unit
Election Procedure," "Certain United States Federal Income Tax Consequences" and
"Certain Canadian Federal Income Tax Consequences."
EXCHANGE OF SHARE CERTIFICATES; EQUITY UNIT ELECTION PROCEDURE. If you are
a U.S. Holder and make an equity unit election:
- You must properly complete and sign the form of election accompanying
this Proxy Statement/ Joint Prospectus.
- The properly completed form of election and certificates for shares of
GR-Montana Common Stock must be received by the Exchange Agent by 5:00
p.m., Spokane, Washington time, on the business day before the date of
the special meeting.
- If shares for which you complete a form of election are not received by
the Exchange Agent by 5:00 p.m., Spokane, Washington time, on the
business day before the date of the special meeting, you will lose your
equity unit election, and you shall be deemed to have elected to receive
GR-Canada Class A Shares in lieu of equity units.
- If a form of election is revoked or the reorganization does not take
place, your certificates will be promptly returned to you.
- If you have lost your certificates for shares of GR-Montana Common Stock,
you can request an affidavit of lost certificate from GR-Montana and
provide it to the Exchange Agent instead of the certificates.
Since your certificates will be returned to you if the reorganization does
not take place, you should still send in a form of election with your
certificates if you plan to vote against the reorganization but you want to make
sure that you receive equity units if the reorganization is approved. It is
important that you make your equity unit election and that we receive your
certificates before the special meeting for several reasons, including those
detailed under "The Reorganization -- Exchange of Share Certificates."
If you are receiving GR-Canada Class A Shares, you do not need to send in
your GR-Montana Common Stock certificates now. Those stock certificates will
automatically convert into and represent GR-Canada Class A Shares following the
time the reorganization becomes effective, and you will cease to be an owner of
GR-Montana Common Stock. Following the reorganization, certificates bearing the
name of GR-Canada will be issued in the normal course of business upon surrender
to GR-Canada of outstanding GR-Montana Common Stock certificates for transfer or
exchange. See "The Reorganization -- Exchange of Share Certificates."
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<PAGE> 13
SUMMARY OF CERTAIN RIGHTS RELATED TO THE SECURITIES TO BE RECEIVED IN THE
REORGANIZATION
GENERAL. Certain rights of GR-Canada Class A Shares and the GR-Canada Class
B Shares and GR-Montana Class B Stock are very complicated. You should carefully
review the detailed summaries of these and related rights under the headings
"Description of Securities and Comparison of Rights of Shareholders" at page 55
and elsewhere in this Proxy Statement/Joint Prospectus.
<TABLE>
<CAPTION>
RIGHTS AND PREFERENCES OF EQUITY UNITS,
RIGHTS AND PREFERENCES OF INCLUDING GR-CANADA CLASS B SHARES AND
GR-CANADA CLASS A SHARES GR-MONTANA CLASS B STOCK
------------------------- ---------------------------------------
<S> <C>
EQUITY UNITS
The GR-Canada Class A Shares are not part of Each GR-Canada Class B Share and each share
the equity units. of GR-Montana Class B Stock issued in the
reorganization will be paired as an equity
unit and may not be transferred separately.
Equity units will be represented by unit
share certificates to be issued by the
Exchange Agent and are immediately
convertible into GR-Canada Class A Shares.
VOTING RIGHTS
Holders of GR-Canada Class A Shares and GR Each holder of an equity unit will be
Canada Class B Shares will generally be entitled to one vote in each of GR-Canada and
entitled to one vote per share and to vote GR-Montana, except where a specific class or
together as a single class. series of shares is entitled to vote
separately. No separate class votes are
currently provided for. Holders of GR-Canada
Class A Shares and GR-Canada Class B Shares
will generally be entitled to one vote per
share and to vote together as a single class.
Holders of GR-Montana Class B Stock shall be
entitled to one vote per share and to vote
together with the GR-Montana Class A common
stock as a single class.
DIVIDENDS
The dividend provisions of the GR-Canada Class A Shares and the equity units are
designed so that upon issuance of a dividend by either GR-Canada or GR-Montana, the holders
of GR-Canada Class A Shares and equity units will simultaneously receive dividends of equal
value. The dividend rights of GR-Canada and GR-Montana are dependent on each other.
CALL RIGHTS
The GR-Canada Class A Shares are not subject Each equity unit is callable by GR-Canada in
to call. exchange for one GR-Canada Class A Share upon
the earlier of (1) the liquidation,
dissolution or winding up of GR-Montana or
GR-Canada and (2) the expiration of three
years from the date of the original issuance
of the equity units if 95% or more of such
equity units have been exchanged for
GR-Canada Class A Shares.
</TABLE>
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<PAGE> 14
<TABLE>
<CAPTION>
RIGHTS AND PREFERENCES OF EQUITY UNITS,
RIGHTS AND PREFERENCES OF INCLUDING GR-CANADA CLASS B SHARES AND
GR-CANADA CLASS A SHARES GR-MONTANA CLASS B STOCK
------------------------- ---------------------------------------
<S> <C>
LIQUIDATION, DISSOLUTION, OR WINDING UP
The liquidation provisions of the GR-Canada Class A Shares and the equity units are
designed so that holders of GR-Canada Class A Shares or equity units will have the
opportunity, together with the exchange rights and call rights, to receive essentially the
same value in the event of the liquidation, dissolution or winding up of the companies. The
liquidation provisions are quite complex.
EXCHANGE RIGHTS
The GR-Canada Class A Shares are not subject At any time following the reorganization,
to exchange rights. equity units are immediately convertible into
GR-Canada Class A Shares upon compliance with
certain procedures. Conversion requires the
simultaneous tendering of the underlying
GR-Canada Class B Share and GR-Montana Class
B Stock components of the equity units.
RESTRICTIONS ON TRANSFER
The GR-Canada Class A Shares are not subject Equity units are transferable, subject to
to restrictions on transfer. compliance with applicable federal,
provincial and state securities laws. The
underlying GR-Canada Class B Share and
GR-Montana Class B Stock components of an
equity unit are only transferable together. A
transfer means a transfer, sale, encumbrance
or other disposal of a component of an equity
unit. Transfers must also be made in
accordance with the provisions of the
Exchange Agent Agreement.
Unit shares evidencing equity units will be
issued and transferred subject to the terms
of the Exchange Agent Agreement. By electing
to receive equity units, you agree to be
bound by the provisions of the Exchange Agent
Agreement.
</TABLE>
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<PAGE> 15
<TABLE>
<CAPTION>
RIGHTS AND PREFERENCES OF EQUITY UNITS,
RIGHTS AND PREFERENCES OF INCLUDING GR-CANADA CLASS B SHARES AND
GR-CANADA CLASS A SHARES GR-MONTANA CLASS B STOCK
------------------------- ---------------------------------------
<S> <C>
GR-CANADA SHAREHOLDER RIGHTS PLAN
The GR-Canada Class A Shares are subject to While the equity units are not subject to the
the terms of the GR-Canada Shareholder Rights terms of a shareholder rights plan, the
Plan. The GR-Canada Shareholder Rights Plan underlying GR-Canada Class B Share component
is substantially similar to the GR-Montana of the equity units is subject to the terms
Shareholder Rights Plan. of the GR-Canada Shareholder Rights Plan.
STOCK EXCHANGE LISTING
There is currently no established public Equity units will not be listed for trading
trading market for the GR-Canada Class A on any stock exchange but, subject to
Shares. GR-Canada has applied for the compliance with applicable federal,
GR-Canada Class A Shares to be listed on the provincial and state securities laws, may be
Nasdaq SmallCap System under the symbol transferred. Transfers must also be made in
"GLDR," the same symbol under which the accordance with the provisions of the
GR-Montana Common Stock is currently listed. Exchange Agent Agreement.
The Toronto Stock Exchange has approved the
GR-Canada Class A Shares for listing under
the symbol "GLR.A" immediately following the
reorganization.
</TABLE>
COMPARISON OF RIGHTS OF SHAREHOLDERS
The principal attributes of the GR-Montana Common Stock and the GR-Canada
common shares will be similar; however, there are certain differences between
the rights of shareholders under Montana law and Yukon law. In addition, there
are differences between the articles of incorporation and bylaws of each of
GR-Montana and GR-Canada. See "Description of Securities and Comparison of
Rights of Shareholders."
TAX CONSIDERATIONS
U.S. TAX CONSIDERATIONS. The following is a brief summary of the United
States Federal Income Tax Consequences of the reorganization prepared by U.S.
tax counsel, Baker & McKenzie, Palo Alto. You should consult your own tax
advisors with respect to your particular circumstances. You should review the
more detailed summary of certain U.S. tax consequences of the reorganization set
out under "Certain United States Federal Income Tax Consequences." Please note
the following:
- The discussion contained in this Proxy Statement/Joint Prospectus is
based on the law in effect as of the date of this Proxy Statement/Joint
Prospectus.
- GR-Montana will receive opinions at the effective time of the
reorganization from tax counsel reaffirming as of such date the opinions
set forth in this Proxy Statement/Joint Prospectus.
- No regulations, published rulings or judicial decisions exist that are
directly on point with respect to certain aspects of the reorganization
and the securities to be issued thereto.
- Accordingly, tax counsel are unable to reach an unqualified conclusion on
certain matters as indicated below.
- Opinions of tax counsel are not binding upon either the IRS or the
courts.
- GR-Montana does not intend to request a ruling from the IRS with respect
to the reorganization.
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<PAGE> 16
- The reorganization will be terminated if tax counsel do not generally
reaffirm as of the effective time of the reorganization their opinions
set forth in this Proxy Statement/Joint Prospectus.
RECEIPT OF GR-CANADA CLASS A SHARES. If you are a GR-Montana shareholder
that is a citizen or resident of the United States, a corporation, partnership
or other entity created or organized in or under the laws of the United States
or any political subdivision thereof, or an estate or trust the income of which
is subject to U.S. federal income taxation regardless of its source ("U.S.
Holders"), the receipt of GR-Canada Class A Shares will be a taxable transaction
to you. You will recognize gain, if any, but not loss, in an amount equal to the
excess, if any, of the fair market value of the GR-Canada Class A Shares
received in the reorganization over your tax basis in the GR-Montana Common
Stock exchanged therefor.
RECEIPT OF EQUITY UNITS. Tax counsel are of the opinion that if you are a
U.S. Holder
- shares of GR-Montana Class B Stock received as part of an equity unit
should be treated as stock of GR-Montana and that the receipt of the
GR-Montana Class B Stock in exchange for GR-Montana Common Stock should
not be a taxable transaction to you. In such case, you should not
recognize gain or loss with respect to such GR-Montana Class B Stock, and
your tax basis in such shares should equal your tax basis in the
GR-Montana Common Stock treated as exchanged therefor. However, in view
of the absence of authority dealing with transactions similar to the
reorganization or securities similar to the equity units, there is
uncertainty with respect to such conclusion. We can not give you any
assurances that the IRS or the courts will agree.
- receipt of the GR-Canada Class B Shares (including your back-up exchange
right to cause GR-Canada to exchange the shares of GR-Montana Class B
Common Stock in an equity unit for GR-Canada Class A Shares if GR-Montana
does not make such exchange) will be a taxable transaction in which you
will recognize gain, if any, but not loss, equal to the excess of the
fair market value of such shares over your tax basis in the GR-Montana
Common Stock treated as exchanged therefor.
RELATIVE VALUES OF EQUITY UNIT COMPONENTS. GR-Montana believes that as of
the date of this Proxy Statement/Joint Prospectus, a GR-Canada Class B Share
would be approximately 5% of the value of an equity unit, and one share of
GR-Montana Class B Stock would be approximately 95% of the value of an equity
unit. If you make an equity unit election, GR-Montana will provide you with its
updated estimate of the relative values of one GR-Canada Class B Share and one
share of GR-Montana Class B Stock as of the date of the reorganization. However,
the IRS is not bound by such valuations, and the IRS could take the position
that a GR-Canada Class B Share has a higher value than that estimated by
GR-Montana.
The IRS could conceivably assert that the shares of GR-Montana Class B
Stock were received as taxable consideration in the reorganization. In that case
the entire fair market value of each equity unit received by you (rather than
the portion of such fair market value attributable to the GR-Canada Class B
Shares) would have to be taken into account in determining the amount of gain,
if any, required to be recognized on the reorganization by you if you are a U.S.
Holder making an equity unit election. In such a case, you would recognize gain
to the extent the fair market value of the equity units received exceeds your
basis in your GR-Montana Common Stock exchanged therefor. As a U.S. Holder you
will not recognize any losses as a result of the reorganization.
In general, the exchange of equity units for GR-Canada Class A Shares by
U.S. Holders will be treated as a partially taxable transaction. See "Certain
United States Federal Income Tax Consequences -- Exchange of Equity Units for
GR-Canada Class A Shares."
POTENTIAL CLASSIFICATION OF GR-CANADA AS A PASSIVE FOREIGN INVESTMENT
COMPANY. There is a substantial risk that GR-Canada will be a passive foreign
investment company or PFIC after the
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<PAGE> 17
reorganization. GR-Canada intends to monitor its status under the PFIC rules. In
the event that GR-Canada makes a determination that it is a PFIC for any taxable
year:
- GR-Canada will promptly notify its U.S. Holders of such determination and
will provide its U.S. Holders with the information needed to make a "QEF
election."
- a U.S. Holder who makes a QEF election for the year in which GR-Canada
becomes a PFIC (and complies with certain U.S. federal income tax
reporting requirements) should not have any material adverse U.S. federal
income tax consequences provided that GR-Canada, on a single entity
basis, has no ordinary earnings or net capital gains in the years in
which it is a PFIC. GR-Canada believes that it will not have any such
ordinary earnings or net capital gains in the years in which it may be a
PFIC. However, no assurance can be given as to this.
U.S. Holders are urged to consult their tax advisors concerning the application
of the U.S. federal income tax rules governing PFICs in their particular
circumstances. See "Certain United States Federal Income Tax
Consequences -- Passive Foreign Investment Company Status."
IF YOU ARE A U.S. HOLDER, WE ADVISE YOU TO READ THE MORE DETAILED SUMMARY
OF THE TAX CONSEQUENCES OF THE REORGANIZATION AS SET FORTH BELOW UNDER "CERTAIN
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES."
CANADIAN TAX CONSIDERATIONS. THE FOLLOWING IS A BRIEF SUMMARY OF THE
CANADIAN FEDERAL INCOME TAX CONSEQUENCES OF THE REORGANIZATION PREPARED BY
CANADIAN TAX COUNSEL, BAKER & MCKENZIE, TORONTO. YOU SHOULD CONSULT YOUR OWN TAX
ADVISORS WITH RESPECT TO YOUR PARTICULAR CIRCUMSTANCES. Generally, if you are a
resident in Canada who is a holder of GR-Montana Common Stock, you will realize
gain or loss under the Income Tax Act (Canada) at the effective time of the
merger. GR-Canada intends to use its best efforts to qualify the GR-Canada Class
A Shares as Canadian property for purposes of investment by employee pension
plans and registered retirement savings plans. See "Certain Canadian Federal
Income Tax Consequences."
If you are a Canadian Holder, Revenue Canada, Customs, Excise and Taxation
could conceivably attempt to disallow the capital loss realized by you on your
shares of GR-Montana Common Stock on the basis that you did not in substance
dispose of your GR-Montana Common Stock, since as a result of the merger, you
acquired stock which essentially has the same economic characteristics as the
GR-Montana Common Stock. Qualification of the GR-Canada Class A Shares as other
than "foreign property" for purposes of the Income Tax Act (Canada) in any
particular year is dependent upon meeting a factual test applied on an annual
basis. We can not assure you that such test will be met for any particular year.
GR-Canada intends to use its best efforts to qualify the GR-Canada Class A
Shares as Canadian property.
The GR-Canada Class A Shares may be considered "taxable preferred shares"
within the meaning of the Income Tax Act (Canada). If the GR-Canada Class A
Shares are taxable preferred shares at the time that any dividends are paid or
deemed paid on such shares, GR-Canada will be subject to a tax equal to 40% of
such dividends. GR-Canada has no current intention to pay dividends or cause
deemed dividends to be paid on the GR-Canada Class A shares. See "Certain
Canadian Federal Income Tax Consequences."
DISSENTERS' RIGHTS
As a GR-Montana shareholder, if you properly follow certain procedures in
accordance with applicable provisions of the Montana Business Corporation Act,
you have the right to demand dissenters' rights and obtain payment of the fair
value of your shares in cash in lieu of receiving GR-Canada Class A Shares or,
with respect to U.S. Holders, GR-Canada Class A Shares or equity units. To
exercise these rights, you must:
(1) deliver to GR-Montana, BEFORE THE VOTE to approve the
reorganization, written notice of intent to demand payment for your shares
if the merger is effected; and
16
<PAGE> 18
(2) NOT VOTE IN FAVOR OF THE REORGANIZATION. If you sign, date and
mail your proxy card without indicating how you want to vote, your proxy
will be counted as a vote in favor of the reorganization, since the Board
of Directors will vote properly executed proxy cards in favor of the
reorganization.
Following the reorganization, you must otherwise also comply with the
provisions of the Montana Business Corporation Act in order to receive the fair
value of your shares. YOUR FAILURE TO FOLLOW EXACTLY THE PROCEDURES SPECIFIED IN
THE MONTANA BUSINESS CORPORATION ACT WILL RESULT IN THE LOSS OF YOUR DISSENTERS'
RIGHTS. Accordingly, if you wish to demand dissenters' rights, you are urged to
carefully read "The Reorganization -- Dissenters' Rights," and the copy of
Sections 35-1-826 through 35-1-839 of the Montana Business Corporation Act set
forth in Annex III to this Proxy Statement/Joint Prospectus. See "The
Reorganization -- Conditions to Consummation of the Merger," "-- Dissenters'
Rights" and Annex III.
INTERESTS OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON; POSSIBLE CONFLICTS OF
INTEREST
Unless the price of GR-Montana Common Stock substantially increases by the
date of the special meeting, it is currently expected that only two executive
officers and directors of GR-Montana would elect to receive equity units in the
reorganization. See "The Reorganization -- Interests of Certain Persons in
Matters to Be Acted Upon; Possible Conflicts of Interest."
ACCOUNTING TREATMENT OF THE REORGANIZATION
The acquisition by GR-Canada of GR-Montana in connection with the
reorganization will be accounted for as a combination of entities under common
control as if a pooling of interests. See "The Reorganization -- Accounting
Treatment of the Reorganization."
TRANSFER OF ASSETS
Following the reorganization, GR-Montana may transfer, directly or
indirectly, to GR-Canada, or direct or indirect foreign subsidiaries of
GR-Canada, substantially all of its business and subsidiaries located outside of
the United States. See "The Reorganization -- Transfer of Assets."
STOCK COMPENSATION PLANS
GR-Montana maintains the 1985 Stock Option Plan, 1992 Stock Option Plan,
1994 Stock Option Plan and 1997 Equity Incentive Plan and the 401(k) Salary
Reduction and Employee Stock Ownership Plan. If the reorganization is
consummated, the plans will be amended to provide that GR-Canada Class A Shares
will thereafter be issued by GR-Canada thereunder. Other employee benefit plans
of GR-Montana will be similarly revised or amended, as necessary. In addition,
the 1997 Equity Incentive Plan will be assumed by GR-Canada, which assumption
and related amendments have been approved by GR-Montana as the sole shareholder
of GR-Canada. Shareholder approval of the reorganization will also constitute
shareholder approval of amendments to the plans and the other employee benefit
plans providing for future issuance of GR-Canada Class A Shares in lieu of
issuance of GR-Montana Common Stock thereunder and the assumption of the 1997
Equity Incentive Plan by GR-Canada. See "The Reorganization -- Stock
Compensation Plans."
SHAREHOLDER RIGHTS PLANS
GR-Montana enacted a Shareholder Rights Plan under which stock purchase
rights were issued to shareholders of GR-Montana at the rate of one right for
each share of GR-Montana Common Stock. In connection with the reorganization,
the GR-Montana Shareholder Rights Plan will be amended to provide that the
existing rights will expire immediately prior to the effective time of the
reorganization. The Board of Directors of GR-Canada has adopted a plan
substantially similar to the GR-Montana Shareholder Rights Plan, which plan has
been approved and adopted by GR-Montana as the sole shareholder of GR-Canada.
Shareholder approval of the reorganization will also constitute shareholder
approval of the
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<PAGE> 19
amendment to the GR-Montana Shareholder Rights Plan and adoption of the
GR-Canada Shareholder Rights Plan. A copy of the GR-Canada Shareholder Rights
Plan, marked to show changes from the GR-Montana Shareholder Rights Plan, is
attached as Annex IV to this Proxy Statement/Joint Prospectus and incorporated
herein by reference. See "The Reorganization -- Shareholder Rights Plans,"
"Description of Securities and Comparison of Rights of Shareholders -- GR-Canada
Shareholder Rights Plan" and Annex IV.
MARKET PRICE INFORMATION
The GR-Montana Common Stock is traded on the Nasdaq SmallCap System under
the symbol "GLDR" and on the Toronto Stock Exchange under the symbol "GLR." On
November 24, 1998, the GR-Montana Common Stock closed at $1.19 (U.S. dollars) on
the Nasdaq SmallCap System and at $1.75 (Canadian dollars) on the Toronto Stock
Exchange. We urge you to check current stock prices before you make any decision
about the reorganization.
The following table sets forth the high and low prices per share as
reported on the Nasdaq SmallCap System and the Toronto Stock Exchange for the
GR-Montana Common Stock for the past three years.
<TABLE>
<CAPTION>
NASDAQ SMALLCAP TORONTO STOCK
SYSTEM EXCHANGE
------------------ ------------------
HIGH LOW HIGH LOW
------ ------ ------ ------
(U.S. DOLLARS) (CANADIAN DOLLARS)
<S> <C> <C> <C> <C>
1996:
First Quarter................................... $10.25 $ 5.75 $14.25 $ 7.38
Second Quarter.................................. 10.38 7.00 14.50 9.50
Third Quarter................................... 15.75 7.38 21.70 10.00
Fourth Quarter.................................. 14.63 9.25 20.00 12.40
1997:
First Quarter................................... 11.50 7.38 15.60 9.65
Second Quarter.................................. 9.63 7.00 14.00 9.80
Third Quarter................................... 8.50 5.50 11.80 7.80
Fourth Quarter.................................. 8.00 1.75 11.15 2.35
1998:
First Quarter................................... 3.75 2.25 5.34 3.09
Second Quarter.................................. 3.75 1.75 5.41 2.50
Third Quarter................................... 2.00 0.88 3.19 1.40
Fourth Quarter (through November 24, 1998)...... 1.88 1.13 3.00 1.68
</TABLE>
GR-Montana has declared no cash or stock dividends on GR-Montana Common Stock
since 1984.
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<PAGE> 20
GOLD RESERVE CORPORATION
SELECTED HISTORICAL FINANCIAL DATA
The following selected historical financial data as of September 30, 1998
and 1997, and for the nine month periods ended September 30, 1998 and 1997, were
derived from unaudited historical consolidated financial statements of
GR-Montana which, in the opinion of management, reflect all adjustments
(consisting of normal recurring adjustments) necessary for a fair presentation
of the periods reported. The following selected historical financial data as of
December 31, 1997, 1996, 1995, 1994 and 1993, and for each of the five years in
the period ended December 31, 1997, were derived from the audited consolidated
financial statements of GR-Montana. The information contained in this table
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Gold Reserve Corporation
Historical Financial Data" and the consolidated financial statements and
accompanying notes thereto appearing elsewhere in this Proxy Statement/Joint
Prospectus. The consolidated financial statements of GR-Montana have been
prepared in accordance with U.S. GAAP and are presented in U.S. dollars. There
are no significant differences between U.S. GAAP and Canadian GAAP with respect
to the presentation of GR-Montana consolidated financial statements. Financial
information in such reports filed by GR-Canada will be prepared in accordance
with Canadian GAAP that are U.S. dollar-based and will include a reconciliation
of such information with U.S. GAAP.
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
----------------- ------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
------- ------- ------- ------- ------- -------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Other Income............. $ 852 $ 1,405 $ 1,737 $ 1,489 $ 1,407 $ 1,396 $ 516
Net Loss................. (1,426) (1,164) (1,533) (830) (337) (23,740) (2,844)
Loss Per Share of Common
Stock(1)............... (0.06) (0.05) (0.07) (0.04) (0.02) (1.68) (0.28)
Total Assets............. 67,530 73,936 73,293 73,772 52,262 43,263 13,907
Contract payable......... -- -- -- -- 187 124 825
Stockholders' equity..... 65,708 66,847 66,549 67,193 47,073 37,900 11,792
Common Stock:
Issued................. 23,177 22,897 22,918 22,704 20,477 18,930 11,723
Outstanding(2)......... 22,705 22,416 22,437 22,223 19,996 18,577 11,429
</TABLE>
- ---------------
(1) Basic and diluted.
(2) Great Basin and MegaGold, each consolidated subsidiaries of GR-Montana, own
shares of GR-Montana Common Stock, representing an indirect investment in
itself. GR-Montana's proportionate ownership interest in GR-Montana Common
Stock held by these entities represents the difference between issued and
outstanding shares.
19
<PAGE> 21
GOLD RESERVE CORPORATION AND GOLD RESERVE INC.
SUMMARY PRO FORMA COMBINED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
GR-CANADA
GR-MONTANA PRO FORMA PRO FORMA
SEPTEMBER 30, 1998 ADJUSTMENT(A) COMBINED
------------------ ------------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Other Income........................................ $ 852 -- $ 852
Net Loss............................................ (1,426) -- (1,426)
Net Loss Per Share of Common Stock(1)............... (0.06) -- (0.06)
Total Assets........................................ 67,530 -- 67,530
Shareholders' Equity................................ 65,708 -- 65,708
Common Stock:
GR-Montana Common Stock........................... 23,177 (23,177) --
GR-Canada Class A Shares.......................... -- 18,542 18,542
Equity Units(A)..................................... -- 4,635 4,635
</TABLE>
- ---------------
(1) Basic and diluted.
(A) Assumed conversion of 20% of the outstanding shares of GR-Montana Common
Stock into equity units which consist of one share of GR-Montana Class B
Stock and one GR-Canada Class B Share and the conversion of 80% of the
outstanding shares of GR-Montana Common Stock into GR-Canada Class A
Shares.
20
<PAGE> 22
RISK FACTORS
You should carefully evaluate all of the information contained and
incorporated by reference in this Proxy Statement/Joint Prospectus and, in
particular, the following risk factors. Except as the context otherwise
requires, references to GR-Montana and GR-Canada below include their respective
subsidiaries.
RISK FACTORS RELATING TO THE TRANSACTION
CERTAIN U.S. TAX RISKS ASSOCIATED WITH ELECTING TO RECEIVE EQUITY
UNITS. Each equity unit consists of one GR-Canada Class B Share and one share of
GR-Montana Class B Stock. If you are a U.S. Holder, you should consider the
following tax risks before deciding whether to elect to receive equity units:
- GR-Montana will receive opinions of tax counsel to the effect that the
receipt of GR-Montana Class B Stock should not be a taxable transaction.
However, in view of the absence of authority dealing with transactions
similar to the reorganization or securities of a type similar to the
equity units, tax counsel believes uncertainty exists with respect to
such conclusion, and no assurances can be given that the IRS or the
courts will agree.
- Receipt of the GR-Canada Class B Shares (including your back-up exchange
right to cause GR-Canada to exchange the shares of GR-Montana Class B
Common Stock in an equity unit for GR-Canada Class A Shares if GR-Montana
does not make such exchange) will be a taxable transaction in which you,
as a U.S. Holder, will recognize gain, if any, but not loss, equal to the
excess of the fair market value of the GR-Canada Class B Shares
(including your back-up exchange right) received by you over your tax
basis in the GR-Montana Common Stock treated as exchanged therefor.
- GR-Montana believes that as of the date of this Proxy Statement/Joint
Prospectus, a GR-Canada Class B Share would be approximately 5% of the
value of an equity unit, and one share of GR-Montana Class B Stock would
be approximately 95% of the value of an equity unit. If you are a U.S.
Holder making an equity unit election, GR-Montana will provide you with
its updated estimate of the relative values of one GR-Canada Class B
Share and one share of GR-Montana Class B Stock as of the date of the
reorganization. However, the IRS is not bound by such valuations, and the
IRS could take the position that a GR-Canada Class B Share has a higher
fair market value than that estimated by GR-Montana. Moreover, the IRS
may argue that the entire fair market value of the equity units should be
treated as taxable consideration received in the reorganization.
See "Certain United States Federal Income Tax Consequences -- The
Reorganization -- Equity Unit Election."
POTENTIAL CLASSIFICATION OF GR-CANADA AS A PASSIVE FOREIGN INVESTMENT
COMPANY. There is a substantial risk that GR-Canada will be a passive foreign
investment company, or PFIC, after the reorganization. GR-Canada intends to
monitor its status under the PFIC rules. In the event that GR-Canada makes a
determination that it is a PFIC for any taxable year:
- GR-Canada will promptly notify its U.S. Holders of such determination and
will provide its U.S. Holders with the information needed to make a "QEF
election."
- A U.S. Holder who makes a QEF election for the year in which GR-Canada
becomes a PFIC (and complies with certain U.S. federal income tax
reporting requirements) should not have any material adverse U.S. federal
income tax consequences provided that GR-Canada, on a single entity
basis, has no ordinary earnings or net capital gains in the years in
which it is a PFIC. GR-Canada believes that it will not have any such
ordinary earnings or net capital gains in the years in which it may be a
PFIC. However, no assurance can be given as to this.
21
<PAGE> 23
U.S. Holders are urged to consult their tax advisors concerning the application
of the U.S. federal income tax rules governing PFICs in their particular
circumstances. See "Certain United States Federal Income Tax
Consequences -- Passive Foreign Investment Company Status."
TAX RISKS RELATING TO TRANSFER OF ASSETS. Following the reorganization,
GR-Montana may transfer, directly or indirectly, to GR-Canada, substantially all
of its business and its subsidiaries located outside of the United States. Such
action will not require the approval of the shareholders of GR-Canada and would
require the approval of the shareholders of GR-Montana. Any such transfer is
currently not expected to result in significant taxable gain for U.S. federal
income tax purposes. The purchase price for these assets would be determined by
GR-Montana based on an appraisal on the date of the transfer. The appraisal
would not be binding on the IRS, which may argue that the taxable gain on the
transfer is larger.
CERTAIN CANADIAN TAX RISKS ASSOCIATED WITH THE RECEIPT OF GR-CANADA CLASS A
SHARES. If you are a Canadian Holder, Revenue Canada, Customs, Excise and
Taxation could conceivably attempt to disallow the capital loss realized by you
on your shares of GR-Montana Common Stock. Revenue Canada, Customs, Excise and
Taxation could assert this on the basis that you did not in substance dispose of
your GR-Montana Common Stock, since as a result of the merger, you acquired
stock which essentially has the same economic characteristics as the GR-Montana
Common Stock.
Qualification of the GR-Canada Class A Shares as other than "foreign
property" for purposes of the Income Tax Act (Canada) in any particular year is
dependent upon meeting a factual test applied on an annual basis. We can not
assure you that such test will be met for any particular year. GR-Canada intends
to use its best efforts to qualify the GR-Canada Class A Shares as Canadian
property.
The GR-Canada Class A Shares may be considered "taxable preferred shares"
within the meaning of the Income Tax Act (Canada). If the GR-Canada Class A
Shares are taxable preferred shares at the time that any dividends are paid or
deemed paid on such shares, GR-Canada will be subject to a tax equal to 40% of
such dividends. GR-Canada has no current intention to pay dividends or cause
deemed dividends to be paid on the GR-Canada Class A shares. See "Certain
Canadian Federal Income Tax Consequences."
ABSENCE OF PRIOR MARKET; NO ASSURANCE AS TO TRADING VALUE. The GR-Montana
Common Stock is presently traded on the Nasdaq Small Cap System and the Toronto
Stock Exchange. Currently, there is no established trading market for the
GR-Canada Class A Shares. Application has been made to trade the GR-Canada Class
A Shares on the Nasdaq Small Cap System. The Toronto Stock Exchange has approved
the GR-Canada Class A Shares for listing. Application will not be made to trade
the equity units on any stock exchange. GR-Montana believes that the inherent
value of one GR-Canada Class A Share will be substantially equivalent to the
current value of one share of GR-Montana Common Stock. We can not assure you,
however, that the market price of one GR-Canada Class A Share will equal the
current market price of one share of GR-Montana Common Stock.
RISKS ASSOCIATED WITH THE CONTINUING BUSINESS OF GR-MONTANA
NO ESTABLISHED RESERVES. Extensive exploration work has been ongoing on the
Brisas property since 1992 and has identified a mineralized deposit estimated at
7.3 million ounces of gold and approximately 950 million pounds of copper.
GR-Montana has commenced but not yet completed a feasibility study for the
Brisas property and, as a result, has not yet established proven and probable
ore reserves or determined whether the deposit represents a commercially
mineable ore body. Such mineralization will not qualify as a commercially
mineable ore body under standards promulgated by the SEC until the economic
viability of the project is established by the completion of a final,
comprehensive, economic, technical and legal feasibility study based upon unit
cost, grade, recoveries and other factors, currently expected to be completed by
the end of 1999.
GR-Montana completed a pre-feasibility study in March 1998 and supplements
thereto in August 1998. References to estimates contained in the pre-feasibility
report do not represent an assertion by GR-Montana, or GR-Canada following the
reorganization, of the existence of commercially mineable
22
<PAGE> 24
ore reserves on the Brisas property. If the feasibility study does not conclude
that the deposit on the Brisas property is economically mineable, it would have
a material adverse effect on GR-Montana, and GR-Canada following the
reorganization. Reserve estimation is an interpretive process based on drilling
results and experience, as well as estimates of ore characteristics and mining
dilution, metal prices, costs of mining and processing, capital expenditures and
many other factors. Actual quality and characteristics of ore deposits cannot be
fully assessed until ore is actually mined. Reserves change over time to reflect
actual experience. Grades of ore processed at any time also may vary from
reserve estimates due to geologic variations within areas mined. Production may
vary from estimates because of changes in reserves, variations in ore mined from
estimated grade and metallurgical characteristics, unexpected ground conditions,
mining dilution, labor actions and government restrictions. Cash costs may
differ due to variations in reserves and production estimates, unexpected mining
conditions and changes in estimated costs of equipment, supplies, utilities and
labor and exchange rates. Noncash estimates, based on total capital costs and
reserve estimates, change based on actual amounts of capital incurred.
RECURRING LOSSES. GR-Montana has no revenue from mining operations and has
experienced losses from operations for each of the last five years. The
aggregate loss for the five years ended December 31, 1997 was $29.3 million
including a 1994 litigation settlement of $22.5 million, related to an ownership
dispute of the Brisas property. See "Information Concerning GR-Montana" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." GR-Montana, and GR-Canada following the reorganization, expects to
continue to incur losses from operations for the next several years as the
result of, among other factors, increased expenditures associated with the
management of exploration and development activities on the Brisas property as
well as other exploration expenses not associated with the Brisas property.
Management expects this trend to reverse if and when the Brisas property is
developed and gold and copper are produced in commercial quantities. We cannot
assure you such production will occur or that the trend will reverse.
PROJECT DEVELOPMENT. GR-Montana's current estimate of capital expenditures
for the project on the Brisas property is, and GR-Canada's following the
reorganization will be, based on currently available information as outlined in
the pre-feasibility report. As it is not unusual in new mining operations to
experience unexpected problems during development, costs could increase
depending upon a number of factors within and beyond GR-Montana's, and
GR-Canada's following the reorganization, control. The capital cost estimates
contained in the pre-feasibility report are based on operating experience,
expected production, estimates by and contract terms with third-party suppliers,
expected legal requirements, feasibility reports by GR-Montana personnel and
independent contractors, and other factors. Factors involved in estimated time
for completion of projects include:
- management's experience in completing capital projects;
- estimates by and contract terms with contractors, engineers, suppliers
and others involved in design and construction of projects;
- estimated time for government entities to process applications, issue
permits and take other actions. Changes in any of these factors may cause
costs and time for completion to vary significantly from estimates.
Management could determine that it is in the best interest of GR-Montana,
and GR-Canada following the reorganization, and their and its shareholders to
sell the Brisas property to another mining company for development, or to enter
into a joint development or similar arrangement with another company to develop
the Brisas property and thereby reduce the economic risk to GR-Montana, or
GR-Canada following the reorganization, were it to proceed with development on
its own. Neither GR-Montana nor GR-Canada has entered into discussions with any
other mining company in this regard, or shared any of its exploration data.
Whether GR-Montana, or GR-Canada following the reorganization, would pursue any
of these alternatives to commercial development of the Brisas property cannot
presently be determined.
23
<PAGE> 25
FOREIGN OPERATIONS. GR-Montana's mining operations are, and GR-Canada's
will be following the reorganization, concentrated in Venezuela. At September
30, 1998, approximately 62% of GR-Montana's identifiable assets (99% of its
noncash and investment assets) were located in Venezuela. In the past, inflation
and other economic conditions in Venezuela have, on occasion, resulted in
political and social turmoil, but to date, such conditions have not adversely
affected GR-Montana's operations, but such conditions could adversely affect
GR-Montana or GR-Canada following the reorganization. Nonetheless, GR-Montana's,
and GR-Canada's following the reorganization, future operations and investments
could be adversely affected by exchange controls, currency fluctuations,
taxation, judicial decisions and laws or policies of Venezuela, the United
States and Venezuela affecting trade, investment, taxation and other factors.
GR-Montana's and, following the reorganization, GR-Canada's, development time
schedule and future reclamation and remediation cost estimates are based on
existing and expected legal requirements, past experience, cost estimates by
GR-Montana and others, and expectations regarding government action and time for
government agencies to act, all of which change over time and require periodic
re-evaluation. Whether and to what extent current or future economic, regulatory
or political conditions may affect GR-Montana, or GR-Canada following the
reorganization, cannot be predicted. See "Information Concerning
GR-Montana -- Venezuelan Mining, Environment and Other Matters -- Political and
Economic Situation."
RISKS INHERENT IN THE MINING INDUSTRY GENERALLY. GR-Montana is, and
following the reorganization, GR-Canada will be, subject to all of the risks
inherent in the mining industry, including environmental hazards, industrial
accidents, labor disputes, unusual or unexpected geologic formations, cave-ins,
flooding and periodic interruptions due to inclement weather. Such risks could
result in damage to, or destruction of, mineral properties and production
facilities, personal injury, environmental damage, delays, monetary losses and
legal liability. GR-Montana does not presently, and immediately following the
reorganization GR-Canada will not, maintain insurance covering environmental or
other catastrophic liabilities, and neither is expected to do so unless it is
economically feasible. Insurance against environmental risks (including
pollution or other hazards resulting from the disposal of waste products
generated from exploration and production activities) is not generally
available, on an economic basis, to GR-Montana, GR-Canada or other companies in
the mining industry at present. Were GR-Montana, or GR-Canada following the
reorganization, subjected to environmental or other liabilities, the payment of
such liabilities would reduce the funds available to GR-Montana, or GR-Canada
following the reorganization. Were GR-Montana, or GR-Canada following the
reorganization, unable to fund fully the cost of remedying an environmental
problem, it might be required to suspend operations or enter interim compliance
measures pending completion of remedial activities.
ENVIRONMENTAL MATTERS. Venezuela maintains environmental laws and
regulations for the mining industry which impose significant obligations on
companies doing business in the country. Venezuela's environmental laws and
regulations are administered through the Ministry of the Environment and
Renewable Natural Resources. Concession holders who seek to develop a mineral
property must first obtain a permit granting them the right to occupy the
territory for mining purposes and then submit a report outlining the
environmental impact of the development and the rehabilitative or reconditioning
work to be undertaken once development activities are concluded. GR-Montana has
been issued permits to occupy the Brisas property for both the alluvial and
hardrock concessions and has presented a number of environmental studies and
information to the Ministry of the Environment and Renewable Natural Resources
relating to the Brisas alluvial concession. GR-Montana also expects to submit an
environmental impact statement to the Ministry of the Environment and Renewable
Natural Resources and MEM addressing development and reclamation of the entire
Brisas property. We cannot assure you, however, that the Ministry of the
Environment and Renewable Natural Resources will grant the necessary permits to
GR-Montana in a timely manner, if at all. See "Information Concerning
GR-Montana -- Venezuelan Mining, Environment and Other Matters."
GR-Montana's development time schedule and future reclamation and
remediation cost estimates are based on existing and expected legal
requirements, past experience, costs estimates by GR-Montana and
24
<PAGE> 26
others, and expectations regarding government action and time for government
agencies to act, all of which change over time and require periodic
re-evaluation.
The Brisas property is located within the Imataca Forest Reserve, which is
comprised of 3.6 million hectares in the State of Bolivar. In 1986, Presidential
Decree No. 1046 authorized an area (in which the Brisas property is located) in
the southwestern part of the Imataca Forest Reserve for mining exploration and
exploitation activities. In May 1997, Presidential Decree No. 1850 was issued to
identify the uses and activities allowed in the Imataca Forest Reserve. Prior to
the issuance of Decree No. 1850, mining activity outside of the area authorized
by Decree No. 1046 had been denied environmental authorization. Since Decree No.
1850 was issued, several motions were submitted to the Venezuelan Supreme Court
by different parties challenging Decree No. 1850 as unconstitutional and in
violation of certain international agreements and other regulations and
requesting a preliminary injunction to make Decree No. 1850 unenforceable until
the motions are definitively decided by the Venezuelan Supreme Court. In
addition, the Venezuelan Supreme Court was also petitioned to declare null and
void all other regulations allowing mining activities within the Imataca Forest
Reserve, including activities pursuant to Decrees No. 1046 and No. 845.
On November 13, 1997, the Venezuelan Supreme Court granted temporary
injunctive relief to the original plaintiff challenging Decree No. 1850,
prohibiting the MEM from granting new concessions pursuant to Decree No. 1850.
The Venezuelan Supreme Court's rulings specifically related to Decree No. 1850
and excluded other challenges to Decrees No. 1046 and No. 845. The November 13,
1997 ruling by the Venezuelan Supreme Court did not affect the previously issued
Brisas alluvial concession and did not prohibit the MEM from granting the Brisas
hardrock concession to GR-Montana under current decrees and/or regulations
different from Decree No. 1850. Although GR-Montana was granted the Brisas
hardrock concession in March 1998, there can be no assurance that the ongoing
challenges to mining activities in the Imataca Forest Reserve will not adversely
affect the Brisas hardrock concession or the Brisas alluvial concession. If
either concession is rescinded or limited, GR-Montana's, and GR-Canada's
following the reorganization, planned operations would be materially adversely
affected. GR-Montana has been advised by its Venezuelan attorneys that it is
unlikely that future rulings by the Venezuelan Supreme Court related to this
issue will impact GR-Montana, or GR-Canada following the reorganization, but
there can be no assurance that an adverse ruling that affects GR-Montana, or
GR-Canada following the reorganization, will not occur.
FLUCTUATING PRICES OF GOLD AND COPPER. GR-Montana, the price of GR-Montana
Common Stock and GR-Montana's business plan are, and, following the
reorganization, GR-Canada, the price of GR-Canada's Class A Shares and
GR-Canada's business plan will be, significantly influenced by the price of gold
and copper. Gold prices often vary widely and are affected by numerous factors
beyond GR-Montana's and, following the reorganization, GR-Canada's control, such
as inflation or lack thereof, fluctuation of the United States dollar and
foreign currencies, global and regional demand, and the political and economic
conditions of major gold producing countries throughout the world. Copper prices
also fluctuate and are generally affected by global and regional demand and
existing inventories. The volatility of gold and copper prices is illustrated in
the following table which sets forth the average of the daily closing price for
gold and copper for the periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS YEAR ENDED DECEMBER 31,
ENDED -------------------------------------------------------
U.S. $(1) SEPTEMBER 30, 1998 5 YR. AVG. 1997 1996 1995 1994 1993
- --------- ------------------ ---------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Gold ($ per ounce)........................... 294.00 371.00 340.00 388.00 384.00 384.00 360.00
Copper ($ per pound)......................... .77 1.05 1.03 1.04 1.33 1.05 0.81
</TABLE>
- ---------------
(1) On the London Bullion Market, as of November 24, 1998, the closing price for
the metals described above were: Gold: $296 per ounce, Copper: $.72 per
pound.
DEPENDENCE ON FINANCING ACTIVITIES. GR-Montana has no, and, following the
reorganization, GR-Canada will not have any, revenue from operations, and
GR-Montana has financed its mining activities in
25
<PAGE> 27
Venezuela since 1992 primarily from the sale of GR-Montana Common Stock.
Management anticipates that GR-Montana's cash and investment position of
approximately $25 million (U.S. dollars) at October 31, 1998 will be sufficient
to cover estimated operating and capital expenditures of GR-Montana, and
GR-Canada following the reorganization, primarily those associated with the
completion of the feasibility study of the Brisas property through 1999. We
cannot assure you, however, that actual operating and capital expenditures will
not exceed levels currently estimated by GR-Montana. In addition, GR-Montana,
and GR-Canada following the reorganization, will need to obtain significant
additional financing if and when construction on the property commences and the
Brisas property is placed into production. We cannot assure you that GR-Montana,
or GR-Canada following the reorganization, will be able to obtain such financing
on commercially reasonable terms, if at all. See "-- Recurring Losses" and
"Information Concerning GR-Montana -- The Brisas Property -- Planned
Development."
KEY PERSONNEL. GR-Montana is dependent upon the abilities and continued
participation of certain key management personnel, and GR-Canada will continue
to be so dependent following the reorganization. If GR-Montana, or GR-Canada
following the reorganization, were to lose the services of such employees, it
could have a material adverse effect on GR-Montana and on GR-Canada following
the reorganization.
26
<PAGE> 28
THE SPECIAL MEETING
This Proxy Statement/Joint Prospectus constitutes a U.S. joint prospectus
of GR-Montana and GR-Canada relating to the issuance of GR-Canada Class A Shares
and equity units consisting of GR-Canada Class B Shares and GR-Montana Class B
Stock and evidenced by unit share certificates. It also constitutes a proxy
statement for GR-Montana in connection with the solicitation of proxies for use
at the special meeting of GR-Montana shareholders. The issuance of GR-Canada
securities also includes the associated stock purchase rights issued pursuant to
GR-Canada's shareholder rights plan. Unless otherwise indicated or the context
otherwise requires, "GR-Montana" means Gold Reserve Corporation and its
subsidiaries, "GR-Canada" means Gold Reserve Inc. and "Merger Sub" means GR
Merger Corp.
SPECIAL MEETING
A special meeting of the GR-Montana shareholders will be held on December
30, 1998, at 10:00 a.m., local time, at Old Chamber of Commerce Building,
Spokane Room, 1020 W. Riverside, Spokane, Washington 99201 (or any adjournments
or postponements thereof) to consider and vote on
(1) the proposal to approve the reorganization (including the
Agreement and Plan of Merger dated October 5, 1998, among GR-Canada,
GR-Montana and Merger Sub); and
(2) any other matters that may properly come before such meeting.
Management of GR-Montana knows of no matters other than as described on the
cover page of this Proxy Statement/Joint Prospectus which are likely to be
brought before the special meeting. However, if any other matters, not now
known, properly come before such meeting, the persons named in the enclosed
proxy will vote the proxy in accordance with their best judgment on such
matters.
The Board of Directors of GR-Montana has unanimously approved the proposed
reorganization and the merger agreement and recommends that shareholders vote
FOR the proposal to approve the reorganization, including the merger agreement.
RECORD DATE; VOTING RIGHTS
Only GR-Montana shareholders of record at the close of business on October
28, 1998, as shown on GR-Montana's records, will be entitled to notice of and to
vote, or to grant proxies to vote, at the special meeting. Each shareholder of
record on the record date will be entitled to one vote for each share of GR-
Montana Common Stock held by such holder on the record date.
The vote of any GR-Montana shareholder who is represented at the special
meeting by proxy will be cast as specified by the proxy or, if no vote is
specified, such vote will be cast FOR the proposal to approve the
reorganization. Any GR-Montana shareholder of record who is present at the
special meeting in person will be entitled to vote at the meeting regardless of
whether such shareholder has previously granted a proxy with respect thereto.
QUORUM; VOTE REQUIRED FOR ADOPTION
Although a quorum will be constituted by only the presence, in person or by
proxy, of shareholders holding a majority of the outstanding shares of
GR-Montana Common Stock entitled to vote at the special meeting, approval of the
reorganization requires the affirmative vote of the holders of 66 2/3%
(14,922,270 shares) of the outstanding GR-Montana Common Stock entitled to vote
at the special meeting. Abstentions and broker "non-votes" will be counted as
present for purposes of obtaining a quorum but will be treated as votes against
the proposal to approve the reorganization. As of the record date, there were
22,383,405 shares of GR-Montana Common Stock outstanding and entitled to vote at
the special meeting. In addition, as of the record date, the directors and
executive officers of GR-Montana beneficially owned, in the aggregate,
approximately 2,760,312 shares of GR-Montana Common Stock (approximately 12.3%
of the outstanding GR-Montana Common Stock entitled to vote at the special
27
<PAGE> 29
meeting), and they have indicated their intention to vote those shares in favor
of the proposal to approve the reorganization.
PROXIES
GENERAL. Each holder of GR-Montana Common Stock as of the record date will
receive the accompanying proxy. A holder of GR-Montana Common Stock may grant a
proxy to vote for or against, or to abstain from voting on, the proposal to
approve the reorganization by (1) appropriately marking the proxy card,
executing the proxy card in the space provided, and returning it to the transfer
agent or (2) voting your shares in the same manner as if you marked, signed and
returned your proxy card by following the telephone voting instructions on your
proxy card. GR-Montana shareholders who hold their GR-Montana Common Stock in
the name of a bank, broker or other nominee should follow the instructions
provided by their bank, broker or nominee on voting their shares. You must
instruct your broker to vote your shares or the broker will not vote your
shares. Broker "non-votes" will have the same effect as votes cast against the
reorganization.
To be effective, a proxy must be received at or prior to the special
meeting. Shares of GR-Montana Common Stock represented by a properly executed
proxy (whether through the return of the enclosed proxy card or by telephone)
will be voted in the manner specified by such proxy. Such shares will be voted
in accordance with the specification indicated by your proxy. You should be
aware that if you properly execute your proxy without indicating how you want to
vote, you will be voted FOR the proposal to approve the reorganization and
related merger agreement.
If any other matters are properly presented at the special meeting for
consideration, including consideration of a motion to adjourn the meeting to
another time and/or place (including adjournments for the purpose of soliciting
additional proxies), the persons named in the proxy card and acting thereunder
will have the discretion to vote on such matters in accordance with their best
judgment.
REVOCATION. In the case of holders of GR-Montana Common Stock appearing on
the stock records of GR-Montana, a proxy may be revoked at any time prior to its
exercise by:
(1) giving written notice of such revocation to the transfer agent;
(2) appearing and voting in person at the special meeting; or
(3) properly completing and executing a later-dated proxy and
delivering it to the transfer agent at or before the special meeting.
Presence without voting at the special meeting will not automatically revoke a
proxy, and any revocation during the meeting will not affect votes previously
taken. GR-Montana shareholders who hold their GR-Montana Common Stock in the
name of a bank, broker or other nominee should follow the instructions provided
by their bank, broker or nominee in revoking their previously voted shares.
VALIDITY. All questions as to the validity, form, eligibility (including
time of receipt) and acceptance of proxies will be determined by the inspectors
of election. Any such determination will be final and binding. The Board of
Directors of GR-Montana will have the right to waive any irregularities or
conditions as to the manner of voting. GR-Montana may accept proxies by any
reasonable form of communication so long as it can reasonably be assured that
the communication is authorized by the holder of the GR-Montana Common Stock.
SOLICITATION OF PROXIES. The accompanying proxy is being solicited on
behalf of the Board of Directors of GR-Montana. The expenses of preparing,
printing and mailing the proxy and the materials used in the solicitation
thereof will be borne by GR-Montana.
ChaseMellon Shareholder Services, L.L.C. has been retained by GR-Montana to
aid in the solicitation of proxies, for a fee of approximately $20,000 and the
reimbursement of out-of-pocket expenses. Proxies may also be solicited by
personal interview, telephone and telegram by directors, executive officers and
employees of GR-Montana who will not receive additional compensation for such
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services. Arrangements also may be made with brokerage houses and other
custodians, nominees and fiduciaries for the forwarding of solicitation
materials to the beneficial owners of GR-Montana Common Stock held by such
persons, and GR-Montana will reimburse them for reasonable expenses incurred by
them in connection therewith.
PROPOSALS OF SHAREHOLDERS FOR 1999 ANNUAL MEETING
GR-Montana failed to obtain a quorum at its originally scheduled 1998
Annual Meeting of Shareholders on June 16, 1998, and, after four postponements
on July 14, August 13, September 15 and October 13, 1998, GR-Montana still had
not obtained a quorum of shareholders. Under the MBCA and GR-Montana's bylaws,
the current directors of GR-Montana remain in office until the next annual
meeting or until their successors are duly elected and qualified, whichever is
later.
Any shareholder desiring to present a proposal to the shareholders at
GR-Montana's (or, if the reorganization is consummated, GR-Canada's) 1999 Annual
Meeting of Shareholders, which currently is expected to be scheduled for May
1999, must transmit such proposal to GR-Montana so that it is received by
GR-Montana at its principal executive offices on or before December 28, 1998.
All such proposals should be in compliance with applicable SEC regulations and,
if the reorganization is consummated, Yukon law. See "Description of Securities
and Comparison of Rights of Shareholders -- Shareholder Proposals."
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THE REORGANIZATION
GENERAL
The Board of Directors of GR-Montana has unanimously approved, and
recommends that the shareholders of GR-Montana approve, the reorganization. You
should note the following about the reorganization:
- The reorganization will take place by GR-Canada, a newly-formed Canadian
company and a wholly owned subsidiary of GR-Montana, becoming the parent
company of GR-Montana.
- The Board of Directors proposes that the reorganization be effected
pursuant to the merger agreement, a copy of which is attached hereto as
Annex I and the terms of which are incorporated herein by reference.
- After the consummation of the reorganization, GR-Montana will become a
subsidiary of GR-Canada, and GR-Canada (through direct or indirect
subsidiaries, including GR-Montana) will carry on the business currently
conducted by GR-Montana.
- Substantially all of the business and subsidiaries of GR-Montana will
continue to be located outside of the United States. Following the
reorganization, GR-Montana may transfer, directly or indirectly, to
GR-Canada, or direct or indirect foreign subsidiaries of GR-Canada,
substantially all of its business and subsidiaries located outside of the
United States.
- After the reorganization, a holder of GR-Montana Common Stock will
continue to own an interest in a parent company with subsidiaries that in
the aggregate are engaged in the same business in which GR-Montana and
its subsidiaries were engaged before the reorganization, as more fully
described in this Proxy Statement/Joint Prospectus.
- The relative voting rights and ownership interests of GR-Montana
shareholders as shareholders of GR-Canada will be substantially similar
after the reorganization to the rights and interests currently held by
them as GR-Montana shareholders.
See "-- Transfer of Assets," "Description of Securities and Comparison of Rights
of Shareholders -- Voting Rights" and the Pro Forma Combined Financial
Information included elsewhere herein.
REASONS FOR THE REORGANIZATION
The Board of Directors believes the reorganization will enhance the current
and future value of your investment in GR-Montana. For instance, we believe the
reorganization will provide:
- expanded access to the Canadian capital markets and investors. Our
experience is that the Canadian capital markets have a greater interest
in mining and other natural resource companies. We expect this will
result in a more favorable financing environment than is currently
available to GR-Montana as a U.S. corporation;
- a corporate structure that will better promote the expansion of
GR-Montana's current business and enhance its future exploration,
development and acquisition opportunities;
- an improved profile among Canadian investors and within the Canadian
investment dealer community. We believe our profile will be improved, in
part, because we understand most of our shareholders are Canadian and we
will now be a Canadian company; and
- for the eligibility of GR-Canada Class A Shares to be held without
limitation by Canadian registered pension plans, registered retirement
savings plans and deferred profit sharing plans. At present, GR-Montana
Common Stock is considered "foreign property" under Canadian law and only
20% of pension investments can be comprised of foreign property.
GR-Montana believes the foreign property status of GR-Montana Common
Stock is viewed as a negative by Canadian
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investors. GR-Canada intends to meet the criteria needed so that
GR-Canada Class A Shares will not be considered foreign property.
See "Risk Factors -- Risk Factors Relating to the Transaction -- Certain
Canadian Tax Risks Associated with the Receipt of GR-Canada Class A Shares" and
"Certain Canadian Income Tax Consequences -- Qualification for Investment."
BOARD OF DIRECTORS' RECOMMENDATION
The Board of Directors of GR-Montana has unanimously approved the
reorganization and the related merger agreement and recommends that shareholders
vote FOR the proposal to approve the reorganization, including the merger
agreement.
In determining to recommend the reorganization, the Board of Directors
consulted with GR-Montana's management, financial advisors (including before
determining to recommend the reorganization), and its tax advisors and
considered a number of factors. These factors included the opinion of RBC
Dominion Securities Inc. ("RBC") that, as of the date of this Proxy
Statement/Joint Prospectus, one GR-Canada Class A Share and one equity unit are
substantially equivalent from a financial point of view. See "-- Financial
Advisors." The Board also believes the reorganization will enhance the current
and future value of your investment in GR-Montana as discussed in "-- Reasons
for the Reorganization." As a result of these perceived benefits of the
reorganization, the Board of Directors decided to and has incurred significant
expenditures to implement the reorganization.
To the extent possible, the Board of Directors also desired to limit the
adverse tax effects of the reorganization on GR-Montana's shareholders. As a
result, U.S. Holders may elect to receive equity units instead of GR-Canada
Class A Shares. This alternative is being provided for U.S. Holders who may
otherwise have a substantial taxable gain upon receipt of GR-Canada Class A
Shares so that they might defer a significant portion of such gain. The equity
unit election is not available to Canadian Holders because the Canadian Income
Tax Act would require them to recognize gain or loss upon receipt of equity
units just as they would upon the receipt of GR-Canada Class A Shares. In
addition, if you are a U.S. Holder, we recommend that you elect to receive
equity units if you would otherwise have a substantial taxable gain upon receipt
of GR-Canada Class A Shares since receipt of equity units should allow you to
defer a significant portion of that gain. Each person's tax position varies,
however, and you should read the sections entitled "Risk Factors" and "Certain
United States Federal Income Tax Consequences" and consult with your tax
advisors prior to deciding whether to elect to receive equity units.
While the receipt of GR-Canada Class A Shares is a taxable transaction, the
Board of Directors considered and believes, based on a preliminary review of
GR-Montana's list of shareholders and price and volume activity on the Nasdaq
SmallCap System and the Toronto Stock Exchange the last two years, that a large
majority of GR-Montana's shareholders will not pay tax in connection with the
reorganization because they may have a tax basis in their GR-Montana Common
Stock that exceeds the fair market value of the GR-Canada Class A Shares
received in the reorganization. We can not assure you, however, of this
analysis.
The Board of Directors has thus concluded that the reorganization would be
in the best interests of the GR-Montana shareholders, notwithstanding any
potential adverse tax consequences.
FINANCIAL ADVISORS
In determining to recommend the reorganization, the Board of Directors
considered a number of factors. These factors included the opinion of RBC that,
as of the date of this Proxy Statement/Joint Prospectus, one GR-Canada Class A
Share and one equity unit are substantially equivalent from a financial point of
view. The opinion is attached to this Proxy Statement/Joint Prospectus as Annex
II. The Board of Directors has requested that RBC update its opinion as of the
date of the reorganization. Unless the opinion changed significantly, the Board
of Directors expects that it would not terminate the reorganization if RBC
modified its opinion.
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In determining that one equity unit is substantially equivalent to one
GR-Canada Class A Share, RBC focused on the provisions of the GR-Canada Class A
Shares, GR-Canada Class B Shares and the shares of GR-Montana Class B Stock.
Specifically, RBC examined whether such provisions gave the holders of GR-Canada
Class A Shares and equity units substantially equivalent interests in the
underlying assets and liabilities and substantially similar rights and
protections. The fundamental attributes RBC examined included:
- Rights to dividends;
- Rights to distributions upon liquidation, dissolution or winding up;
- Voting rights and dissenters' rights;
- Liquidity;
- Exchange rights; and
- Call rights.
Based on these factors, RBC is of the opinion that, as of the date of this
Proxy Statement/Joint Prospectus and after giving effect to the reorganization,
one equity unit is substantially equivalent to one GR-Canada Class A Share from
a financial point of view. If you are a U.S. Holder and plan to elect to receive
equity units, you should read RBC's opinion in its entirety. See "Certain United
States Federal Income Tax Consequences," "Certain Canadian Federal Income Tax
Consequences" and "Description of Securities and Comparison of Rights of
Shareholders."
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EFFECT OF REORGANIZATION
CORPORATE STRUCTURE PRIOR TO THE REORGANIZATION. The following diagram
shows the current corporate structure of GR-Montana.
Corporate Structure Graph I
[In this graph, GR-Montana is shown as the parent of GR-Canada, and GR-Canada is
shown as the parent of Merger Sub. In addition, GR-Montana is shown as the
parent of subsidiaries that together own 100% of the Brisas property.]
CORPORATE STRUCTURE FOLLOWING THE REORGANIZATION. This diagram shows the
corporate structure following the reorganization, including the effect of making
an equity unit election. In the reorganization, GR-Canada will become the new
parent company of GR-Montana. A former holder of GR-Montana Common Stock will
continue to own an interest in a parent company with subsidiaries that in the
aggregate are engaged in the same business that GR-Montana and its subsidiaries
were engaged in before the reorganization.
Corporate Structure Graph II
[This graph shows GR-Canada as the parent of GR-Montana and Merger Sub no longer
existing. In addition, GR-Canada (as parent of GR-Montana is shown as the parent
of subsidiaries that together own 100% of the Brisas property.]
THE MERGER AGREEMENT
GENERAL. It is proposed that the reorganization be accomplished pursuant to
the merger agreement, a copy of which is attached hereto as Annex I and
incorporated herein by reference. Pursuant to the merger agreement:
(1) Merger Sub will be merged with and into GR-Montana, with
GR-Montana being the surviving corporation;
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(2) Each outstanding share of GR-Montana Common Stock will
automatically convert into one GR-Canada Class A Share, other than (a)
those shares with respect to which an equity unit election has been
properly made and not revoked or lost, which shares shall automatically
convert into the stock components of an equity unit and (b) shares with
respect to which dissenters' rights have been properly demanded and not
lost, which shares shall not be converted in any respect;
(3) The outstanding shares of common stock of Merger Sub will be
converted into that number of shares of GR-Montana Class A common stock
equal to the sum of (i) the number of shares of GR-Montana Common Stock
outstanding immediately prior to the effective time that are converted into
GR-Canada Class A Shares, and (ii) the number of shares of GR-Montana
Common Stock that are transferred to GR-Canada as consideration for the
issuance by GR-Canada of the GR-Canada Class B Shares;
(4) The outstanding shares of GR-Canada held directly by GR-Montana
prior to the effective time will be canceled; and
(5) The outstanding shares of GR-Montana directly owned by GR-Montana
prior to the effective time (including treasury shares) will be canceled.
As a result of the foregoing, at the effective time, GR-Montana, as the
surviving corporation in the merger, will become a subsidiary of GR-Canada, and
all of the GR-Canada Class A Shares outstanding immediately after the merger
will be owned by former holders of GR-Montana Common Stock.
The articles of incorporation of GR-Montana shall be the articles of
incorporation of the surviving corporation of the merger and will be amended and
restated as set forth in Exhibit A to the merger agreement. The bylaws of Merger
Sub shall be the bylaws of the surviving corporation.
AMENDMENT OR TERMINATION. GR-Montana, GR-Canada and Merger Sub, by action
of their respective Boards of Directors, may amend, modify or supplement the
merger agreement at any time before or after its adoption by the shareholders of
GR-Montana; provided, however, that after such approval, no amendment,
modification or supplement may be made or effected that by law requires further
approval by such shareholders without the further approval of such shareholders.
The merger agreement provides that it may be terminated, and the
reorganization abandoned, at any time, whether before or after shareholder
approval of the reorganization is obtained, by action of the Board of Directors
of GR-Montana and for the reasons set forth below under "-- Conditions to
Consummation of the Reorganization."
CONDITIONS TO CONSUMMATION OF THE REORGANIZATION
The reorganization will not be consummated unless the reorganization is
approved by holders of 66 2/3% of the outstanding shares of GR-Montana Common
Stock entitled to vote at the special meeting. Additionally, the merger
agreement may be terminated and the reorganization canceled:
(1) If holders of more than 7.5% of the outstanding GR-Montana Common
Stock demand dissenters' rights;
(2) If U.S. Holders of more than 20% of the outstanding GR-Montana
Common Stock elect to receive equity units;
(3) By the Board of Directors of GR-Montana at any time prior to the
time the reorganization becomes effective; or
(4) If tax counsel do not generally reaffirm as of the effective time
of the reorganization their opinions set forth in this Proxy
Statement/Joint Prospectus.
GR-Montana may waive the conditions to the merger relating to dissenters' rights
and the election to receive equity units. It is doubtful that GR-Montana would
waive the condition regarding dissenters' rights
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and it would only be expected to waive the condition relating to equity units if
no more than a small percentage of shareholders exceeded the 20% threshold.
GR-Montana may terminate the reorganization if U.S. Holders of more than
20% of the outstanding GR-Montana Common Stock elect to receive equity units for
several reasons, including the following:
(1) Liquidity. Following the reorganization, we expect the market for
GR-Canada Class A Shares to be similar to that of the current market for
GR-Montana Common Stock. We believe that the liquidity of the market for
GR-Canada Class A Shares, compared to the current market for GR-Montana
Common Stock, may be adversely affected if much less than 80% of the
current number of shares of GR-Montana Common Stock are listed for trading.
(2) Exchange Act Reporting. GR-Montana estimates that for at least one
year following the reorganization, GR-Montana will continue to be a
"reporting issuer" for purposes of Section 15(d) of the Exchange Act. This
will require that GR-Montana continue to file annual, quarterly and special
reports, proxy statements and other information with the SEC at the same
time that GR-Canada is also a reporting issuer. The Board of Directors does
not intend that GR-Montana continue to be a "public company" or a reporting
issuer since GR-Canada will now be the publicly traded company. GR-Montana
believes that the 20% threshold makes it unlikely that more than 300
persons will elect equity units and continue to be shareholders of record
of GR-Montana. Therefore, GR-Montana will be able to cease being a
reporting issuer for purposes of Section 15(d) of the Exchange Act within
about one year of the reorganization becoming effective.
(3) Administration. Administration of the equity unit arrangement will
require time and expense on the part of GR-Montana, GR-Canada and the
Exchange Agent. GR-Montana believes that by limiting the equity unit
election, it will be able to provide the available tax benefits of
receiving equity units to persons who may otherwise have a substantial gain
upon receipt of GR-Canada Class A Shares without creating an administrative
burden.
EFFECTIVE TIME
If the reorganization is approved by the shareholders of GR-Montana and not
terminated by the Board of Directors of GR-Montana, the effective time of the
reorganization will be when appropriate articles of merger are accepted for
filing by the Montana Secretary of State as required by the MBCA or at such
later time as is specified in such articles of merger. GR-Montana anticipates
that the reorganization will become effective promptly following the special
meeting.
Immediately following the effective time of the reorganization, GR-Canada
will have the same subsidiaries and affiliates and the same directors and
executive officers as GR-Montana had immediately prior to such date. See
"Information Concerning GR-Montana," "Management of GR-Montana" and the Summary
Pro Forma Combined Financial Information, included elsewhere herein.
EQUITY UNIT ELECTION
The Board of Directors is providing U.S. Holders of GR-Montana Common Stock
who would otherwise have a substantial taxable gain upon receipt of GR-Canada
Class A Shares the opportunity to defer a significant portion of such gain. U.S.
Holders of record of GR-Montana Common Stock will be entitled to make an equity
unit election on or prior to 5:00 p.m., Spokane, Washington time, on the
business day before the date of the special meeting. Each share of GR-Montana
Common Stock with respect to which an equity unit election has been properly
made and not revoked or lost will be exchanged for one equity unit in lieu of
such shares being automatically converted into GR-Canada Class A Shares upon
consummation of the reorganization. Each equity unit will be represented by a
unit share certificate to be issued by the Exchange Agent. To be a proper
election, the properly completed form of election and certificates for shares of
GR-Montana Common Stock must be received by the Exchange Agent by 5:00 p.m.,
Spokane, Washington time, on the business day before the date of the special
meeting. The election to receive equity units is not available to Canadian
Holders because the Canadian Tax Act would
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require them to recognize gain or loss upon receipt of equity units just as they
would upon receipt of GR-Canada Class A Shares. Following the reorganization,
each equity unit may be converted into one GR-Canada Class A Share. If holders
of more than 20% of the GR-Montana Common Stock outstanding immediately prior to
the special meeting elect to receive equity units, the Board of Directors may
terminate the merger, thereby canceling the reorganization. However, the Board
of Directors may waive this condition to the merger and allow the reorganization
to proceed.
A fraction of each shareholder's GR-Montana Common Stock exchanged for
equity units in the reorganization will be transferred to GR-Montana as
consideration for the issuance of the GR-Montana Class B Stock, and the
remaining fraction of such GR-Montana Common Stock will be transferred to
GR-Canada as consideration for GR-Canada's issuance of the GR-Canada Class B
Shares. Allocation of the value of the exchanged GR-Montana Common Stock between
the GR-Montana Class B Stock and GR-Canada Class B Shares issued in exchange for
such GR-Montana Common Stock shall be determined based on the respective
relative values of the GR-Montana Class B Stock and the GR-Canada Class B.
EQUITY UNIT ELECTION PROCEDURE
The form of election is being mailed to holders of GR-Montana Common Stock
with this Proxy Statement/Joint Prospectus. FOR A FORM OF ELECTION TO BE
EFFECTIVE, HOLDERS OF GR-MONTANA COMMON STOCK MUST BE U.S. HOLDERS AND MUST
PROPERLY COMPLETE AND SIGN SUCH FORM OF ELECTION. CERTIFICATES FOR THE SHARES OF
GR-MONTANA COMMON STOCK TO WHICH SUCH FORM OF ELECTION RELATES, DULY ENDORSED IN
BLANK OR OTHERWISE IN FORM ACCEPTABLE FOR TRANSFER ON THE BOOKS OF GR-MONTANA
MUST BE RECEIVED BY THE EXCHANGE AGENT NO LATER THAN 5:00 P.M., SPOKANE,
WASHINGTON TIME, ON THE BUSINESS DAY BEFORE THE DATE OF THE SPECIAL MEETING. IF
SHARES FOR WHICH A FORM OF ELECTION WAS COMPLETED ARE NOT RECEIVED BY THE
EXCHANGE AGENT BY 5:00 P.M., SPOKANE, WASHINGTON TIME, ON THE BUSINESS DAY
BEFORE THE DATE OF THE SPECIAL MEETING, THE ELECTION AS TO SUCH SHARES SHALL BE
LOST AND THE SHAREHOLDER SHALL BE DEEMED TO HAVE ELECTED TO RECEIVE GR-CANADA
CLASS A SHARES IN LIEU OF EQUITY UNITS. If you have lost your certificates for
shares of GR-Montana Common Stock, you can request an affidavit of lost
certificate from GR-Montana and provide it to the Exchange Agent instead of the
certificates. Since your certificates will be returned to you if the
reorganization does not take place, you should still send in a form of election
with your certificates if you plan to vote against the reorganization but you
want to make sure that you receive equity units if the reorganization is
approved.
It is important that you make the equity unit election and we receive your
certificates before the special meeting for several reasons, including the
following:
(1) We must be able to determine as of the effective time of the
reorganization which shares of GR-Montana Common Stock are converted into
GR-Canada Class A Shares and equity units and for which shares dissenters'
rights have been demanded. It is especially important for us to know
exactly how many U.S. Holders will actually receive equity units so that we
can determine, if necessary, whether to waive the condition to consummation
of the reorganization that holders of no more than 20% of the outstanding
shares of GR-Montana Common Stock elect to receive equity units. If
uncertainty as to that number exists because people may lose their equity
unit election in the future by failing to tender certificates, we could not
make an informed decision.
(2) As part of the reorganization, we do not want to burden all of our
shareholders by requiring that persons receiving GR-Canada Class A Shares
immediately tender their GR-Montana Common Stock certificates. After the
reorganization takes place, therefore, all outstanding certificates
formerly representing GR-Montana Common Stock will represent GR-Canada
Class A Shares. If we do not receive shares of GR-Montana Common Stock
convertible into equity units with the form of election, shares that are
actually equity units will be outstanding and might be transferred after
the reorganization as GR-Canada Class A Shares.
A shareholder may revoke a form of election by giving written notice to the
transfer agent (1) prior to 5:00 p.m., Spokane, Washington time, on the business
day before the date of the special meeting or
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(2) such later date as required by law if the effective time has not occurred
prior to such date. In addition, all forms of election shall automatically be
revoked if the Exchange Agent is notified in writing by GR-Montana that the
merger has been abandoned. If a form of election is revoked or the
reorganization does not take place, the certificate or certificates representing
the shares to which such form of election relates shall be promptly returned to
the shareholder.
The determinations of the Exchange Agent as to whether equity unit
elections have been properly made, lost or revoked and when such elections or
revocations were received will be binding.
For a description of the GR-Canada Class B Shares and the GR-Montana Class
B Stock contained in an equity unit, see "Description of Securities and
Comparison of Rights of Shareholders."
EXCHANGE RIGHTS
At any time following the reorganization, equity units may be converted
into GR-Canada Class A Shares. To convert equity units into GR-Canada Class A
Shares, unit share certificates must be surrendered to the Exchange Agent for
conversion. For each equity unit represented by a unit share certificate, the
Exchange Agent will present each share of GR-Montana Class B Stock underlying
the equity units to GR-Montana for conversion into a 99% fractional GR-Canada
Class A Share and simultaneously present each GR-Canada Class B Share underlying
the equity units to GR-Canada for conversion into a 1% fractional GR-Canada
Class A Share. The sum of the fractional GR-Canada Class A Shares received for
the equity unit will equal one GR-Canada Class A Share.
In order for a holder of unit share certificates to convert the equity unit
into GR-Canada Class A Shares, such holder shall surrender the unit share
certificates to the Exchange Agent, duly endorsed, accompanied by a notice
stating the number of GR-Canada Class B Shares and shares of GR-Montana Class B
Stock which such holder desires to convert into GR-Canada Class A Shares.
Thereupon, GR-Canada shall promptly issue and deliver, and GR-Montana may
promptly deliver to such holder a certificate or certificates for the number of
GR-Canada Class A Shares to which such holder is entitled, registered in the
name of such holder or designee of such holder. The person entitled to receive
the GR-Canada Class A Shares issuable upon such conversion shall be treated for
all purposes as the record holder of such GR-Canada Class A Shares on the date
of conversion. If, for any reason, GR-Montana does not deliver GR-Canada Class A
Shares in the exchange, the holders of GR-Montana Class B Stock may present the
GR-Montana Class B Stock to GR-Canada and GR-Canada will exchange the shares of
GR-Montana Class B Stock.
EXCHANGE OF SHARE CERTIFICATES
As of the effective time, the holders of GR-Montana Common Stock prior to
the effective time (other than those shareholders who properly demand
dissenters' rights or elect to receive equity units) will automatically become
the owners of GR-Canada Class A Shares and will cease to be owners of GR-
Montana Common Stock. Holders of GR-Montana Common Stock receiving GR-Canada
Class A Shares will not be required to exchange their stock certificates as a
result of the reorganization. Should a shareholder desire to sell some or all of
his or her GR-Canada Class A Shares after the effective time, a shareholder can
do so by delivery of the stock certificate or certificates which previously
represented shares of GR-Montana Common Stock to the transfer agent.
Certificates representing shares of GR-Montana Common Stock for which an equity
unit election has been made must be surrendered for exchange and must be
received by the Exchange Agent no later than 5:00 p.m., Spokane, Washington
time, on the business day before the date of the special meeting in order to
receive unit share certificates representing the equity units. If shares for
which a form of election was completed are not received by the Exchange Agent by
such date, the election as to such shares shall be lost and the shareholder
shall be deemed to have elected to receive GR-Canada Class A Shares in lieu of
equity units. See "-- Equity Unit Election Procedure."
Following the reorganization, certificates bearing the name of GR-Canada
will be issued in the normal course of business upon surrender to GR-Canada of
outstanding GR-Montana Common Stock certificates
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for transfer or exchange. If any shareholder surrenders a certificate
representing shares of GR-Montana Common Stock for exchange or transfer and the
new certificate to be issued is to be issued in a name other than that appearing
on the surrendered certificate theretofore representing the GR-Montana Common
Stock, it will be a condition to such exchange or transfer that the surrendered
certificate be properly endorsed and otherwise be in proper form for transfer
and that the person requesting such exchange or transfer either (1) pay
GR-Canada or GR-Montana, as appropriate, or its agents, any taxes or other
governmental charges required by reason of the issuance of a certificate
registered in a name other than that appearing on the surrendered certificate or
(2) establish to the satisfaction of GR-Canada or GR-Montana, as appropriate, or
its agents, that such taxes or other governmental charges have been paid.
STOCK EXCHANGE LISTING
There is currently no established public trading market for the GR-Canada
Class A Shares. GR-Canada has applied for the GR-Canada Class A Shares to be
listed on the Nasdaq SmallCap System under the symbol "GLDR," the same symbol
under which the GR-Montana Common Stock is currently listed. The Toronto Stock
Exchange has approved the GR-Canada Class A Shares for listing under the symbol
"GLR.A" immediately following the reorganization. Equity units will not be
listed for trading on any stock exchange, but, subject to compliance with
applicable federal, provincial and state securities laws, may be transferred.
DISSENTERS' RIGHTS
AS A GR-MONTANA SHAREHOLDER, IF YOU PROPERLY FOLLOW CERTAIN PROCEDURES IN
ACCORDANCE WITH APPLICABLE PROVISIONS OF THE MONTANA BUSINESS CORPORATION ACT
(SECTIONS 35-1-826 THROUGH 35-1-839), YOU MAY DEMAND "DISSENTERS' RIGHTS" AND
RECEIVE THE FAIR VALUE OF YOUR SHARES IN CASH. YOU WILL RECEIVE SUCH CASH IN
LIEU OF RECEIVING GR-CANADA CLASS A SHARES OR, WITH RESPECT TO U.S. HOLDERS,
GR-CANADA CLASS A SHARES OR EQUITY UNITS.
To exercise these rights, you must:
(1) deliver to GR-Montana, BEFORE THE VOTE to approve the
reorganization, written notice of intent to demand payment for your shares
if the merger is effected; and
(2) NOT VOTE IN FAVOR OF THE REORGANIZATION. If you sign, date and
mail your proxy card without indicating how you want to vote, your proxy
will be counted as a vote in favor of the reorganization, since the Board
of Directors will vote properly executed blank proxy cards in favor of the
reorganization.
If the merger is approved, then GR-Montana will deliver a written
dissenters' notice ("Dissenters' Notice") to all shareholders who have
previously satisfied the statutory requirements listed above for exercising
dissenters' rights. The Dissenters' Notice must be sent within ten days after
the GR-Montana shareholders approve the reorganization, including the merger
agreement. The Dissenters' Notice must:
(1) state where the payment demand must be sent and where and when
certificates for certified shares of holders demanding dissenters' rights
must be deposited,
(2) inform shareholders of uncertificated shares for which dissenters'
rights have been demanded to what extent transfer of the shares will be
restricted after the payment is received,
(3) supply a form for demanding payment which includes the date of the
first announcement to the news media or to shareholders of the terms of the
reorganization and the merger agreement and requires the person asserting
dissenters' rights to certify whether he or she acquired beneficial
ownership of the shares for which dissenters' rights are demanded before
that date,
(4) set a date (not fewer than 30 or more than 60 days after the date
the Dissenters' Notice is delivered) by which GR-Montana must receive the
dissenting GR-Montana shareholder's payment demand, and
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(5) be accompanied by a copy of the Montana Business Corporation Act
Sections 35-1-826 through 35-1-839.
If you exercise dissenters' rights, once you receive a Dissenters' Notice
as described above, you must within the time set forth in the Dissenters'
Notice:
(1) demand payment;
(2) certify whether you acquired beneficial ownership of your shares
for which dissenters' rights are demanded before the date set forth in the
Dissenter's Notice; and
(3) deposit your certificates in accordance with the terms of the
Dissenters' Notice.
A GR-Montana shareholder who demands payment and deposits his or her
certificates in accordance with the Dissenters' Notice and the Montana Business
Corporation Act will retain all other rights of a GR-Montana shareholder until
these rights are canceled or modified by the consummation of the merger as
provided in the merger agreement. A SHAREHOLDER WHO DOES NOT DEMAND PAYMENT OR
DEPOSIT HIS OR HER CERTIFICATES WHEN AND WHERE REQUIRED, EACH BY THE DATE SET IN
THE DISSENTERS' NOTICE, IS NOT ENTITLED TO PAYMENT UNDER THE MONTANA BUSINESS
CORPORATION ACT DISSENTERS' RIGHTS PROVISIONS FOR HIS OR HER SHARES FOR WHICH
DISSENTERS' RIGHTS ARE DEMANDED. In that event, you will receive GR-Canada Class
A Shares in lieu of cash for your GR-Montana Common Stock.
Except in the case of after-acquired shares, if the GR-Montana shareholders
approve the reorganization, and upon receipt of a payment demand as described
above, GR-Montana will pay to each dissenter who has satisfied the statutory
requirements, the amount that GR-Montana estimates to be the fair value of his
or her shares for which dissenters' rights are demanded, plus accrued interest.
GR-Montana's payment to each dissenting GR-Montana shareholder will be
accompanied by the following:
(1) GR-Montana's balance sheet as of the end of a fiscal year ending
not more than 16 months before the date the payment will be made, an income
statement for that year, a statement of changes in shareholder equity for
that year and GR-Montana's latest available interim financial statements,
if any;
(2) a statement of GR-Montana's estimate of the fair value of the
shares for which dissenters' rights are demanded;
(3) an explanation of how the interest paid to the dissenter was
calculated;
(4) a statement of the dissenters' right to demand payment if the
dissenter disagrees with GR-Montana's assessment of the fair value of his
or her shares for which dissenters' rights are demanded under the
appropriate Montana statutes; and
(5) a copy of the Montana Business Corporation Act Sections 35-1-826
through 35-1-839.
THE FAILURE OF A GR-MONTANA SHAREHOLDER TO COMPLY STRICTLY WITH THE MONTANA
BUSINESS CORPORATION ACT STATUTORY REQUIREMENTS WILL RESULT IN A LOSS OF
DISSENTERS' RIGHTS. A COPY OF THE RELEVANT STATUTORY PROVISIONS IS ATTACHED AS
ANNEX III. GR-MONTANA SHAREHOLDERS SHOULD REFER TO ANNEX III FOR A COMPLETE
STATEMENT CONCERNING DISSENTERS' RIGHTS, AND THE FOREGOING SUMMARY OF SUCH
RIGHTS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH ANNEX III.
If a shareholder exercises dissenters' rights, the dissenting shareholder
is entitled to receive the fair value of his or her shares for which dissenters'
rights are demanded in cash. Such value may be higher or lower than the value of
the GR-Canada Class A Shares issuable under the merger agreement.
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INTERESTS OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON; POSSIBLE CONFLICTS OF
INTEREST
All but two of GR-Montana's executive officers and directors are U.S.
Holders, and two executive officers and directors who are U.S. Holders would
incur substantial taxable gain upon consummation of the reorganization if they
received GR-Canada Class A Shares. In general, to the extent that they would
recognize taxable gain on receipt of GR-Canada Class A Shares, GR-Montana
executive officers and directors that are U.S. Holders plan to elect to receive
equity units, since this should allow them to defer a significant portion of
that gain. Unless the price of GR-Montana Common Stock substantially increased
by the date of the special meeting, it is currently expected that only two
executive officers and directors would elect to receive equity units.
ACCOUNTING TREATMENT OF THE REORGANIZATION
The acquisition by GR-Canada of GR-Montana in connection with the
reorganization will be accounted for as a combination of entities under common
control as if a pooling of interests.
TRANSFER OF ASSETS
Following the reorganization, GR-Montana may transfer, directly or
indirectly, to GR-Canada, or direct or indirect foreign subsidiaries of
GR-Canada, substantially all of its business and subsidiaries located outside of
the United States. Such action would require the approval of the shareholders of
GR-Montana, and may require the approval of the shareholders of GR-Canada. Any
such transfer is currently not expected to result in significant gain for U.S.
federal income tax purposes. GR-Canada or a subsidiary of GR-Canada would pay to
GR-Montana (or its subsidiaries) in cash and/or notes an amount equal to the
fair market value of the business and subsidiaries to be transferred. GR-Canada
has undertaken that following the reorganization it will not permit GR-Montana
to proceed with any transaction that gives rise to dissenters' rights if more
than 10% of the shareholders of GR-Montana demand dissenters' rights in such
transaction.
STOCK COMPENSATION PLANS
If the reorganization is consummated, GR-Montana's 1985 Stock Option Plan,
1992 Stock Option Plan, 1994 Stock Option Plan, 1997 Equity Incentive Plan and
401(k) Salary Reduction and Employee Stock Ownership Plan will be amended to
provide that GR-Canada Class A Shares will thereafter be issued by GR-Canada
thereunder, including upon the exercise of any options issued thereunder. Other
employee benefit plans of GR-Montana will be similarly revised or amended, as
necessary. In addition, the 1997 Equity Incentive Plan will be assumed by
GR-Canada, which assumption and related amendments have been approved by
GR-Montana as the sole shareholder of GR-Canada. Shareholder approval of the
reorganization will also constitute shareholder approval of the amendments to
the plans and the other employee benefit plans providing for future issuance of
GR-Canada Class A Shares in lieu of issuance of GR-Montana Common Stock
thereunder, and the assumption of the 1997 Equity Incentive Plan by GR-Canada.
SHAREHOLDER RIGHTS PLANS
GR-Montana enacted the GR-Montana Shareholder Rights Plan under which stock
purchase rights were issued to shareholders of GR-Montana at the rate of one
right for each share of GR-Montana Common Stock. In connection with the
reorganization, the GR-Montana Shareholder Rights Plan will be amended to
provide that the existing rights will expire immediately prior to the effective
time of the reorganization. The Board of Directors of GR-Canada has adopted a
substantially similar plan, the GR-Canada Shareholder Rights Plan. The GR-Canada
Shareholder Rights Plan has been approved and adopted by GR-Montana as the sole
shareholder of GR-Canada. Shareholder approval of the reorganization will also
constitute shareholder approval of the amendment to the GR-Montana Shareholder
Rights Plan and adoption of the GR-Canada Shareholder Rights Plan. A copy of the
GR-Canada Shareholder Rights Plan, marked to show changes from the GR-Montana
Shareholder Rights Plan, is
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attached to this Proxy Statement/Joint Prospectus and incorporated herein by
reference. See "Comparison of Rights of Shareholders," "Description of
Securities and Comparison of Rights of Shareholders -- GR-Canada Shareholder
Rights Plan" and Annex IV.
EXCHANGE OF GR-MONTANA COMMON STOCK BY SUBSIDIARIES
Two majority owned, but publicly traded, subsidiaries of GR-Montana hold
793,362 shares in GR-Montana, representing approximately 3.4% of the outstanding
GR-Montana Common Stock. Yukon law prohibits a subsidiary from acquiring shares
in its Yukon parent. Under Yukon law, those subsidiaries would be prohibited
from acquiring shares in GR-Canada at the effective time. As a result,
immediately following the approval of the reorganization by GR-Montana's
shareholders, but prior to the effective time, GR-Canada and GR-Montana will
privately place with the two subsidiaries 793,362 GR-Canada Class B Shares and
the right to receive, immediately following the effective time 793,362 shares of
GR-Montana Class B Stock. The GR-Canada Class B Shares and GR-Montana Class B
Stock will be paired after the effective time as an equity unit. Since this
private placement will take place prior to GR-Canada becoming the parent of
GR-Montana and its subsidiaries, the subsidiaries must under Yukon law dispose
of the shares held in GR-Canada within five years from the date they acquired
the shares of GR-Canada.
EXCHANGE AGENT AND TRANSFER AGENTS
TranSecurities International, Inc. will act as depositary and exchange
agent for the unit share certificates and, along with Montreal Trust Company of
Canada, as transfer agent in connection with the reorganization. GR-Canada,
GR-Montana and TranSecurities International, Inc. have entered into the Exchange
Agent Agreement. See "The Reorganization -- Equity Unit Election Procedure" and
"Description of Securities to be Received in Connection with the
Reorganization."
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material U.S. federal income tax
consequences generally applicable to holders of GR-Montana Common Stock as a
result of the reorganization, and of the ownership of GR-Canada Class A Shares,
GR-Canada Class B Shares and GR-Montana Class B Stock. You should note the
following:
- The discussion contained in this Proxy Statement/Joint Prospectus is
based on the law in effect as of the date of this Proxy Statement/Joint
Prospectus and is the opinion of U.S. tax counsel, Baker & McKenzie, Palo
Alto. GR-Montana will receive at the effective time of the reorganization
from tax counsel opinions reaffirming as of such date certain opinions
set forth in this Proxy Statement/ Joint Prospectus. In delivering their
opinions, tax counsel will receive and rely upon certain representations
from GR-Montana, and certain other information, data, documentation and
other materials as tax counsel deem necessary.
- There are no regulations, published rulings or judicial decisions
directly on point with respect to certain aspects of the reorganization
and the securities to be issued pursuant thereto. Accordingly, tax
counsel are unable to reach an unqualified conclusion on certain matters
as indicated below. Opinions of counsel are not binding upon either the
IRS or the courts. GR-Montana does not intend to request a ruling from
the IRS with respect to the reorganization.
- The reorganization will be terminated if tax counsel do not generally
reaffirm as of the effective time of the reorganization their opinions
set forth in this Proxy Statement/Joint Prospectus.
- This summary does not address the tax treatment of the reorganization
under applicable state, local, foreign or other tax laws and generally
does not take account of rules that may apply to shareholders of
GR-Montana Common Stock that are subject to special treatment, including,
without limitation:
(1) insurance companies, dealers in securities, certain retirement
plans, financial institutions, tax exempt organizations or holders
of securities held as part of a "straddle," "hedge" or "conversion
transaction" with other investments and taxpayers whose functional
currency is not the United States dollar;
(2) shareholders owning directly, indirectly or by attribution, 10% or
more of GR-Montana Common Stock or GR-Canada's outstanding voting
shares;
(3) shareholders who acquired GR-Montana Common Stock pursuant to the
exercise of an employee stock option or otherwise as compensation;
or
(4) certain expatriates or former long-term residents of the United
States.
Shareholders are urged to consult their own tax advisors as to the particular
tax consequences to them of the reorganization. For purposes of this discussion,
a "U.S. Holder" is any GR-Montana Common Stock shareholder that is a citizen or
resident of the United States, a corporation, partnership or other entity
created or organized in or under the laws of the United States or any political
subdivision thereof, or an estate or trust the income of which is subject to
U.S. federal income taxation regardless of its source. A "Non-U.S. Holder" is
any shareholder other than a U.S. Holder. The discussion below assumes that the
GR-Montana Common Stock exchanged in the reorganization is held as a capital
asset.
THE REORGANIZATION
RECEIPT OF GR-CANADA CLASS A SHARES. Pursuant to Section 367(a) of the
Internal Revenue Code of 1986, as amended (the "Code"), and Treasury Regulations
promulgated thereunder, U.S. Holders exchanging their GR-Montana Common Stock
for GR-Canada Class A Shares will recognize gain, if any (but not loss), on the
transaction. In general, for U.S. federal income tax purposes, a U.S. Holder
will recognize gain equal to the excess of the fair market value of the
GR-Canada Class A Shares received by the holder pursuant to the reorganization
over the holder's aggregate adjusted basis in the GR-Montana
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Common Stock exchanged therefor. Any such gain will be capital gain. Recently
enacted legislation revised the holding period and tax rates applicable to
certain capital gains. Capital gain of non-corporate taxpayers from the exchange
of GR-Montana Common Stock held more than one year is eligible for reduced rates
of taxation depending upon the U.S. Holder's holding period for the GR-Montana
Common Stock. U.S. Holders are advised to consult their own tax advisers about
the capital gain provisions that may be relevant to their particular
circumstances. The basis of the GR-Canada Class A Shares will be equal to their
fair market value on the date of the reorganization (except in the case of
holders realizing a loss on the exchange whose basis will be the same as the
basis of their GR-Montana Common Stock exchanged therefor) and the holding
period of the GR-Canada Class A Shares will commence on the day after the date
of the reorganization (except in the case of holders realizing a loss on the
exchange whose holding period will include the period such holders held their
GR-Montana Common Stock).
Pursuant to the income tax treaty between the United States and Canada,
Non-U.S. Holders that are residents of Canada will generally be subject to U.S.
federal income tax on gain realized, if any, on the exchange of GR-Montana
Common Stock for GR-Canada Class A Shares only if such gain is attributable to a
permanent establishment or a fixed place of business which the Non-U.S. Holder
had in the United States within the twelve month period preceding the
reorganization. Non-U.S. Holders that are residents of countries other than
Canada which have an income tax treaty with the United States should consult
their own tax advisors concerning the provisions of income tax treaties that may
apply to them.
Non-U.S. Holders that are residents of a country which does not have a
treaty with the United States will generally be subject to U.S. federal income
tax on gain realized, if any, on the exchange of GR-Montana Common Stock for
GR-Canada Class A Shares only if such gain is effectively connected with the
conduct of a trade or business in the United States or, in the case of a
Non-U.S. Holder that is an individual who holds the GR-Montana Common Stock as a
capital asset, such holder is present in the United States for 183 or more days
in the taxable year and certain other conditions apply.
EQUITY UNIT ELECTION. Only U.S. Holders may make an equity unit election.
The tax consequences of the reorganization to U.S. Holders who make an equity
unit election will depend in part upon whether the GR-Montana Class B Stock
received from GR-Montana in the reorganization is treated as stock of GR-
Montana for U.S. tax purposes. Tax counsel are of the opinion that the
GR-Montana Class B Stock should be treated as stock of GR-Montana. However, in
view of the absence of any authority dealing with transactions similar to the
reorganization or securities of a type similar to the equity units, there is
uncertainty regarding this conclusion and no assurance can be given that the IRS
or the courts will agree. Tax counsel reached this conclusion based, among other
things, on the liquidation rights, the right to share in dividends and the
voting rights attached to the GR-Montana Class B Stock. Assuming the GR-Montana
Class B Stock is treated as stock of GR-Montana issued by GR-Montana in exchange
for GR-Montana Common Stock then:
(1) no gain or loss would be recognized by exchanging shareholders
with respect to the receipt of the GR-Montana Class B Stock;
(2) the basis of the GR-Montana Class B Stock will be the same as the
basis of the GR-Montana Common Stock treated as exchanged therefor;
(3) the holding period of the GR-Montana Class B Stock will include
the holding period of the shares of GR-Montana Common Stock treated as
exchanged therefor; and
(4) U.S. Holders will recognize gain, if any (but not loss), in an
amount equal to the excess of the fair market value of the GR-Canada Class
B Shares (including your back-up exchange right to cause GR-Canada to
exchange the shares of GR-Montana Class B Common Stock in an equity unit
for GR-Canada Class A Shares if GR-Montana does not make such exchange (the
"Back-Up Exchange Right")) received by the holder pursuant to the
reorganization, over the holder's aggregate adjusted tax basis in the
GR-Montana Common Stock treated as exchanged therefor. Any such gain will
be capital gain and for non-corporate taxpayers such gain may be eligible
for reduced rates of taxation depending upon the U.S. Holder's holding
period for the GR-Montana Common Stock. U.S.
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Holders are advised to consult their own tax advisers about the capital gain
provisions that may be relevant to their particular circumstances. In such
event, (1) the basis of such GR-Canada Class B Shares will be equal to their
fair market value on the date of the reorganization (except in the case of
holders realizing a loss on the exchange whose basis will be the same as the
basis of their GR-Montana Common Stock treated as exchanged therefor) and (2)
the holding period of the GR-Canada Class B Shares will commence on the day
after the date of the reorganization (except in the case of holders realizing a
loss on the exchange whose holding period will include the period such holders
held their GR-Montana Common Stock).
GR-Montana believes that, as of the date of this Proxy Statement/Joint
Prospectus, a GR-Canada Class B Share would be approximately 5% of the value of
an equity unit and one share of GR-Montana Class B Stock would be approximately
95% of the value of an equity unit. GR-Montana will provide shareholders making
an equity unit election with its updated estimate of the relative values of one
GR-Canada Class B Share and one share of GR-Montana Class B Stock as of the date
of the reorganization. However, the IRS is not bound by such valuations and we
cannot assure you that the IRS will agree with them. If the IRS successfully
asserts, for example, that the relative value of the GR-Canada Class B Shares
was greater than the updated valuation, shareholders making the equity unit
election and filing their tax return on the basis of such valuation would be
subject to tax based on the higher valuation of the GR-Canada Class B Shares.
The merger agreement provides (and by making an equity unit election such
shareholders will agree with GR-Montana and GR-Canada) that, with respect to
shareholders exchanging GR-Montana Common Stock for equity units, a portion of
each such shareholder's GR-Montana Common Stock so exchanged in the
reorganization will be transferred to GR-Montana as consideration for the
issuance of the GR-Montana Class B Stock and the remaining portion of the
GR-Montana Common Stock so exchanged by each such shareholder in the
reorganization will be transferred to GR-Canada as consideration for the
issuance by GR-Canada of the GR-Canada Class B Shares. Such allocation shall be
determined based on the relative values of the GR-Montana Class B Stock and the
GR-Canada Class B Shares as estimated by GR-Montana as described above on the
date of the reorganization. We cannot assure you that such allocation will be
respected by the IRS.
The IRS could conceivably assert that the GR-Montana Class B Stock should
be treated as stock of GR-Canada and was received as taxable consideration in
the reorganization. In that case:
(1) the entire fair market value of the equity units would be taken
into account in determining the gain recognized (rather than just the
portion of such value attributable to the Class B common share), if any, in
the reorganization;
(2) the basis of the equity units would equal their fair market value
on the date of the reorganization (except in the case of holders realizing
a loss on the exchange whose basis would be the same as their basis in the
GR-Montana Common Stock treated as exchanged therefor); and
(3) the holding period of the equity units would commence on the day
after the date of the reorganization (except in the case of holders
realizing a loss in the reorganization whose holding period would include
the period such holders held their GR-Montana Common Stock).
As discussed above, tax counsel are of the opinion that the GR-Montana Class B
Stock should be treated as stock of GR-Montana. Nonetheless, there is
uncertainty concerning this conclusion and in view of the lack of authority on
transactions of this nature we cannot assure you that the IRS will not seek to
treat the GR-Montana Class B Stock as stock of GR-Canada or to recharacterize
the transaction in some other manner which would result in additional income or
gain being realized by U.S. Holders making the equity unit election. U.S.
Holders are encouraged to consult with their own tax advisors concerning the
consequences of making an equity unit election.
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REPORTING REQUIREMENTS. Shareholders should consult their own tax advisors
concerning the U.S. reporting required arising from the reorganization. A U.S.
Holder's failure to properly report the reorganization may result in penalties.
OWNERSHIP OF GR-CANADA CLASS A SHARES AND GR-CANADA CLASS B SHARES
UNITED STATES FEDERAL INCOME TAXATION OF DIVIDENDS FOR U.S. HOLDERS. For
U.S. federal income tax purposes, the gross amount of dividends paid by
GR-Canada to U.S. Holders will be treated as foreign source dividend income to
the extent paid out of GR-Canada's current or accumulated earnings and profits.
These dividends will not be eligible for the dividends received deduction
generally allowed to U.S. corporate shareholders on dividends from U.S. domestic
corporations. To the extent that an amount received by a U.S. Holder exceeds the
allocable share of GR-Canada's current and accumulated earnings and profits,
such excess will be applied first to reduce such U.S. Holder's tax basis in its
shares and then, to the extent in excess of such U.S. Holder's tax basis, such
excess will constitute gain from a deemed sale or exchange of such shares. For
U.S. foreign tax credit purposes, dividends on the shares will generally
constitute "passive income," or, in the case of certain U.S. Holders, "financial
services income." U.S. Holders may elect annually to either deduct Canadian
withholding tax (see "Certain Canadian Federal Income Tax
Consequences -- Ownership of the GR-Canada Class A Shares and Class B common
shares" and "-- Ownership of GR-Montana Class B Stock") against their income or
to credit the withholding taxes against their U.S. tax liability, subject to
U.S. foreign tax credit limitation rules.
UNITED STATES TAXATION OF NON-U.S. HOLDERS. Non-U.S. Holders that are
residents of a country which does not have a treaty with the United States will
generally be subject to U.S. federal income tax on dividend distributions with
respect to, and gain realized from the sale or exchange of, GR-Canada Class A
Shares or GR-Canada Class B Shares only if such dividends or gains are
effectively connected with the conduct of a trade or business within the United
States or, in the case of gains realized by Non-U.S. Holders that are
individuals, such holders are present in the United States for 183 days or more
during the taxable year of the sale and certain other conditions exist. Except
as discussed below with respect to backup withholding, dividends paid by
GR-Canada will not be subject to U.S. withholding tax. Nonresident alien
individuals will not be subject to U.S. estate tax with respect to shares of
GR-Canada. Non-U.S. Holders that are residents of countries other than Canada
which have an income tax treaty with the United States should consult their own
tax advisors concerning the provisions of income tax treaties that may apply to
them.
Pursuant to the income tax treaty between the United States and Canada,
Non-U.S. Holders that are residents of Canada will generally be subject to U.S.
federal income tax on dividend distributions with respect to, and gain realized
from the sale or exchange of, GR-Canada Class A Shares or GR-Canada Class B
Shares only if such gain is attributable to a permanent establishment or a fixed
place of business which the Non-U.S. Holder had in the United States within the
twelve month period preceding the reorganization.
GR-CANADA SHAREHOLDER RIGHTS PLAN. The adoption of the GR-Canada
Shareholders Rights Plan will not have U.S. federal income tax consequences to
GR-Canada shareholders. Further action, such as the exercise or redemption of
the rights, could give rise to dividend treatment.
OWNERSHIP OF GR-MONTANA CLASS B STOCK
UNITED STATES FEDERAL INCOME TAXATION OF DIVIDENDS FOR U.S.
HOLDERS. Assuming the GR-Montana Class B Stock is treated as stock of
GR-Montana, dividends paid on the GR-Montana Class B Stock should be taxable as
ordinary income for U.S. federal income tax purposes to the extent of
GR-Montana's earnings and profits for the year in which the dividends are paid
or GR-Montana's earnings and profits accumulated in prior years. To the extent
amounts paid as dividends to a holder of shares of GR-Montana Class B Stock are
not paid out of GR-Montana's current or accumulated earnings and profits, such
amounts will first be applied to reduce the holder's tax basis in the shares of
GR-Montana Class B Stock,
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and any amount in excess of tax basis will be treated as gain from the sale or
exchange of the shares of GR-Montana Class B Stock.
In the case of corporate holders of shares of GR-Montana Class B Stock the
portion of the dividends paid from current or accumulated earnings and profits
should qualify, subject to the limitations under Sections 246(c) and 246A of the
Code, for the 70% dividends received deduction. In addition, under Section 1059
of the Code, a corporate holder of GR-Montana Class B Stock may be required to
reduce its tax basis in its shares of GR-Montana Class B Stock by the portion of
any dividend paid on the GR-Montana Class B Stock that was not taxed because of
the dividends received deduction if such dividend constitutes an "extraordinary
dividend."
EXCHANGE OF EQUITY UNITS FOR GR-CANADA CLASS A SHARES
U.S. Holders exchanging equity units for GR-Canada Class A Shares will be
treated as though they had received such GR-Canada Class A Shares in exchange
for an allocable portion of the GR-Montana Class B Stock and GR-Canada Class B
common shares. Except possibly as described below, the part of the exchange
attributable to the GR-Montana Class B Stock will be treated as a taxable
transaction. U.S. Holders will recognize gain or loss equal to the difference
between the fair market value of the GR-Canada Class A Shares treated as
received in exchange for the GR-Montana Class B Stock and the basis of such
GR-Montana Class B Stock. In such event (1) the basis of such GR-Canada Class A
Shares will be equal to their fair market value and (2) the holding period for
such GR-Canada Class A Shares will commence on the day after the date of the
exchange.
No gain or loss will be recognized by U.S. Holders with respect to
GR-Canada Class A Shares treated as exchanged for GR-Canada Class B Shares. As a
result, U.S. Holders will have (1) a basis in such GR-Canada Class A Shares
equal to the basis of the GR-Canada Class B Shares treated as exchanged therefor
and (2) the holding period of such GR-Canada Class A Shares will include the
holding period of such GR-Canada Class B Shares.
It is possible that the part of the exchange attributable to the GR-Montana
Class B Stock may qualify as a "reorganization" for U.S. federal income tax
purposes if GR-Canada acquires the GR-Montana Class B Stock pursuant to the
exercise of its call right or pursuant to the Back-Up Exchange Right and,
immediately after the transaction, GR-Canada owns at least 80% of the total
outstanding voting stock of GR-Montana and at least 80% of the total number of
shares of all other classes of stock of GR-Montana. If the exchange qualifies as
a "reorganization" for U.S. federal income tax purposes, and the exchange occurs
within three years after the reorganization, U.S. Holders will generally be
required to recognize gain, if any (but not loss), on the transaction pursuant
to Section 367(a) of the Code and applicable Treasury Regulations. In such case,
the basis of the GR-Canada Class A Shares will be equal to their fair market
value (except in the case of holders realizing a loss on the exchange whose
basis will be the same as the basis of GR-Montana Class B Stock exchanged
therefor) and the holding period of the GR-Canada Class A Shares will commence
on the day after the date of the exchange (except in the case of holders
realizing a loss on the exchange whose holding period will include the period
such holders held their GR-Montana Class B Stock).
If the part of the exchange attributable to the GR-Montana Class B Stock
exchange qualifies as a "reorganization" for U.S. federal income tax purposes,
and the exchange occurs more than three years after the reorganization and
certain other requirements are satisfied, the exchange of equity units for GR-
Canada Class A Shares may qualify as a tax-free reorganization (in whole, rather
than in part) notwithstanding the provisions of Section 367(a) of the Code and
applicable Treasury Regulations. In such case, (1) no gain or loss would be
recognized by U.S. Holders exchanging equity units solely for GR-Canada Class A
Shares, (2) the tax basis of GR-Canada Class A Shares received in the exchange
will be the same as the equity units exchanged therefor and (3) the holding
period of the GR-Canada Class A Shares received in the exchange will include the
holding period of the equity units exchanged therefor.
The foregoing discussion describes the tax consequences relating to an
exchange of all of a U.S. Holder's equity units. In the event that some (but not
all) of a U.S. Holder's equity units are exchanged
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for GR-Canada Class A Shares, a portion of the consideration received may,
depending on the particular circumstances, be treated as a dividend for U.S.
federal income tax purposes. U.S. Holders are advised to consult their own tax
advisors concerning the tax consequences to them of a transfer of some but not
all of their equity units to GR-Montana or GR-Canada.
CLASSIFICATION OF GR-CANADA AS A CONTROLLED FOREIGN CORPORATION
Under Section 951(a) of the Code, each "United States shareholder" of a
"controlled foreign corporation" ("CFC") must include in its gross income for
U.S. federal income tax purposes its pro rata share of the CFC's "subpart F
income," even if the subpart F income is not distributed. In addition, gain on
the sale of stock in a CFC realized by a United States shareholder is treated as
ordinary income to the extent of such shareholder's proportionate share of the
CFC's undistributed earnings and profits accumulated during such shareholder's
holding period for the stock. Section 951(b) of the Code defines a United States
shareholder ("U.S. Shareholder") as any U.S. corporation, citizen, resident or
other U.S. person who owns (directly or through certain deemed ownership rules)
10% or more of the total combined voting power of all classes of stock of a
foreign corporation. In general, a foreign corporation is treated as a CFC only
if such U.S. Shareholders collectively own more than 50% of the total combined
voting power or total value of the corporation's stock. Under these rules
GR-Canada does not expect to be a CFC. If GR-Canada is treated as a CFC,
GR-Canada's status as a CFC should have no adverse effect on any shareholder of
GR-Canada that is not a U.S. Shareholder.
PASSIVE FOREIGN INVESTMENT COMPANY STATUS
Sections 1291 through 1298 of the Code contain special rules applicable
with respect to foreign corporations that are "passive foreign investment
companies" ("PFICs"). GR-Canada will be a PFIC if 75% or more of its gross
income (including a pro rata share of the gross income of any company (United
States or foreign) in which GR-Canada is considered to own 25% or more of the
shares by value) in a taxable year is passive income. Alternatively, GR-Canada
will be considered to be a PFIC if at least 50% of the assets (averaged over the
four quarter ends for the year) of GR-Canada (including a pro rata share of the
assets of any company of which GR-Canada is considered to own 25% or more of the
shares by value) in a taxable year are held for the production of, or produce,
passive income. If GR-Canada becomes a PFIC, each shareholder who is a U.S.
person, in the absence of an election by such shareholder to treat GR-Canada as
a "qualified electing fund" (a "QEF" election), as discussed below, would, upon
certain distributions by GR-Canada or upon disposition of the GR-Canada shares
at a gain, be liable to pay tax at the highest tax rate on ordinary income in
effect for each period to which the income is allocated plus interest on the
tax, as if the distribution or gain had been recognized ratably over the
taxpayer's holding period for the GR-Canada Class A Shares while GR-Canada was a
PFIC. Additionally, were GR-Canada to become a PFIC, U.S. Holders who acquire
GR-Canada Class A Shares from decedents would be denied the normally available
step-up of the income tax basis for such GR-Canada Class A Shares to fair market
value at the date of death and, instead, would have a tax basis equal to the
decedent's basis, if lower.
If GR-Canada is a PFIC and a U.S. Holder has made a QEF election for all
taxable years that such holder holds the GR-Canada Class A Shares, distributions
and gain will not be taxed as if recognized ratably over the taxpayer's holding
period or subject to an interest charge, gain on the sales of GR-Canada Class A
Shares will be characterized as capital gain and the denial of basis step-up at
death described above would not apply. Instead, a shareholder of such a QEF is
required for each taxable year the company qualifies as a PFIC to include in
income a pro rata share of the ordinary earnings of the QEF as ordinary income
and a pro rata share of the net capital gain of the QEF as long-term capital
gain, subject to a separate election to defer payment of taxes, which deferral
is subject to an interest charge. GR-Canada, at the request of a shareholder
electing to have GR-Canada treated as a QEF, will comply with the applicable
information reporting requirements.
For taxable years beginning after 1997, a U.S. Holder of certain publicly
traded PFIC stock can elect to mark the stock to market annually, recognizing as
ordinary income or loss each year an amount equal to
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the difference as of the close of the taxable year between the holder's fair
market value of the PFIC stock and the adjusted basis in the PFIC stock. Losses
would be allowed only to the extent of net mark-to-market gain previously
included by the U.S. Holder under the election for prior taxable years. If the
mark-to-market election were made, then the rules set forth above would not
apply for periods covered by the election.
Following the reorganization, there is a substantial risk that GR-Canada
will be a PFIC. U.S. Holders who hold GR-Canada Class A Shares during a period
when GR-Canada is a PFIC will be subject to the foregoing rules, even if
GR-Canada ceases to be a PFIC, subject to certain exceptions for U.S. Holders
who made a QEF election. GR-Canada intends to monitor its status under the PFIC
rules and, in the event that GR-Canada makes a determination that it is a PFIC
for any taxable year, it will promptly notify its U.S. Holders of such
determination and will provide its U.S. Holders with the information needed to
make a QEF election. If GR-Canada becomes a PFIC, a U.S. Holder who makes a QEF
election for the year in which GR-Canada becomes a PFIC (and complies with
certain U.S. federal income tax reporting requirements) should not have any
material adverse U.S. federal income tax consequences provided that GR-Canada,
on a single entity basis, has no ordinary earnings or net capital gains in the
years in which it is a PFIC. GR-Canada believes that it will not have any such
ordinary earnings or net capital gains in the years in which it may be a PFIC.
However, no assurance can be given as to this. U.S. Holders are urged to consult
their tax advisors concerning the application of the U.S. federal income tax
rules governing PFICs in their particular circumstances.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Information reporting requirements may apply to payments made with respect
to, or cash proceeds of a sale or exchange of, the GR-Montana Class B Stock and
GR-Canada Class A Shares and GR-Canada Class B Shares. In addition, a holder may
be subject to backup withholding under Section 3406 of the Code at a rate of 31%
on such payments. Backup withholding will apply only if the holder:
(1) fails to furnish its Taxpayer Identification Number ("TIN"), which
for an individual would be his or her social security number;
(2) furnishes an incorrect TIN;
(3) is notified by the IRS that it has failed to properly report
payments of interest and dividends; or
(4) under certain circumstances, fails to certify, under penalties of
perjury, that it has furnished a correct TIN and has not been notified by
the IRS that it is subject to backup withholding for failure to report
interest and dividend payments. A holder that does not provide its TIN may
also be subject to penalties imposed by the IRS. Backup withholding will
not apply with respect to payments made to certain exempt recipients, such
as corporations, tax-exempt organizations and foreign persons receiving
payments that are subject to withholding under Section 1441 or Section 1442
of the Code or that would be subject to such withholding but for the
provisions of a treaty or certain other exceptions.
The amount of any backup withholding from a payment to a holder are allowed
as a credit against such holder's federal income tax liability and may entitle
such holder to a refund, provided that the required information is furnished to
the IRS.
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POST-REORGANIZATION TAXATION OF GR-CANADA AND GR-MONTANA
All of GR-Montana's foreign subsidiaries are presently CFCs. As discussed
above, under subpart F of the Code, a CFC is a foreign corporation that is owned
(directly, indirectly or by attribution) more than fifty percent (50%), by vote
or by value, by U.S. Shareholders. In the event that a foreign corporation is a
CFC, a U.S. Shareholder of the CFC must include in income in its taxable year in
which or with which the taxable year of the CFC ends, the total of, among other
things, (1) its pro rata share of the CFC's subpart F income for such taxable
year, and (2) its pro rata share of the CFC's increase in earnings invested in
United States property for such year. Thus, immediately prior to the
reorganization, GR-Montana is, and has been, subject to the deemed income
inclusion provisions described above as the only United States shareholder of
GR-Montana's foreign subsidiaries. After the reorganization, GR-Montana will
continue to be subject to the deemed inclusion provisions with respect to any
foreign subsidiaries that continue to be owned by GR-Montana, GR-Canada will not
be subject to any deemed income inclusion with respect to its other direct or
indirect subsidiaries, and provided that GR-Canada is not a CFC, shareholders
other than U.S. Shareholders of GR-Canada will not be subject to any deemed
income inclusion under the provisions described above with respect to their
interest in GR-Canada and its subsidiaries.
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CERTAIN CANADIAN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the principal Canadian federal income tax
consequences generally applicable to holders of GR-Montana Common Stock and
holders of GR-Canada Class A Shares, GR-Canada Class B Shares and GR-Montana
Class B Stock:
(1) who hold such shares as capital property, for purposes of the
Canadian Tax Act;
(2) in respect of whom GR-Montana is not a foreign affiliate for
purposes of the Canadian Tax Act; and
(3) if a holder is a corporation resident in Canada, is not connected
to GR-Canada for purposes of the Canadian Tax Act.
This summary is based on the current provisions of the Income Tax Act
(Canada) (the "Canadian Tax Act"), the Regulations thereunder, the current
provisions of the Canada-U.S. Income Tax Convention, 1980 (the "Tax Treaty"),
and tax counsel's understanding of the current administrative practices of
Revenue Canada, Customs, Excise and Taxation ("Revenue Canada") and is the
opinion of Canadian tax counsel, Baker & McKenzie, Toronto. This summary takes
into account the amendments to the Canadian Tax Act and Regulations publicly
announced by the Minister of Finance prior to the date hereof (the "Proposed
Amendments") and assumes that all such Proposed Amendments will be enacted in
their present form, subject to tax counsel's understanding of certain
modifications thereto confirmed by the Department of Finance. However, no
assurances can be given that the Proposed Amendments will be enacted in the form
proposed, or at all. The reorganization will be terminated if tax counsel do not
generally reaffirm as of the effective time of the reorganization their opinions
set forth in this Proxy Statement/Joint Prospectus.
GR-Montana will receive at the effective time of the reorganization from
tax counsel opinions reaffirming as of such date certain opinions set forth in
this Proxy Statement/Joint Prospectus. In delivering their opinions, tax counsel
will receive and rely upon certain representations from GR-Montana, and certain
other information, data, documentation and other materials as tax counsel deem
necessary. There are no statutory provisions, regulations, or judicial decisions
directly on point with respect to certain aspects of the reorganization and the
securities to be issued pursuant thereto. Accordingly, tax counsel are unable to
reach an unqualified conclusion on certain matters as indicated below. Opinions
of counsel are not binding upon either Revenue Canada or the courts. GR-Montana
does not intend to request a ruling from Revenue Canada with respect to the
reorganization. The reorganization will be terminated if tax counsel do not
reaffirm as of the effective time certain opinions set forth in this Proxy
Statement/Joint Prospectus. This summary generally does not take account of
rules that may apply to shareholders of GR-Montana Common Stock that are subject
to special treatment under the Canadian Tax Act, such as persons subject to the
"mark-to-market" or "foreign affiliate" rules, and certain financial
institutions. This summary also does not take into account or anticipate any
changes in law, whether by legislative, administrative or judicial decision or
action, nor does it take into account provincial, territorial or foreign income
tax legislation or considerations, which may differ from the Canadian federal
income tax consequences described herein.
As used in this discussion, a "Canadian Holder" is any shareholder who is
resident in Canada for purposes of the Canadian Tax Act or is subject to income
tax by virtue of carrying on business in Canada with respect to his/her
GR-Canada Shares. A "Non-Canadian Holder" is any shareholder other than a
Canadian Holder.
Prospective investors should consult their own tax advisors with respect to
their particular circumstances.
THE REORGANIZATION
RECEIPT OF GR-CANADA CLASS A SHARES. Canadian Holders who exchange their
GR-Montana Common Stock for GR-Canada Class A Shares on the reorganization will
recognize a capital gain or loss,
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as the case may be, for purposes of the Canadian Tax Act. The amount of the
capital gain or loss will be the difference between the fair market value of the
GR-Canada Class A Shares at the time of the exchange and the aggregate of the
adjusted cost base and costs of disposition of the holder's GR-Montana Common
Stock. Three-quarters of any capital gain ("taxable capital gain") must be
included in income and three-quarters of any capital loss will be an allowable
capital loss. Taxable capital gains and allowable capital losses in the year of
disposition must be netted against each other and the resulting net capital
loss, if any, can generally be carried back three years or forward indefinitely
to offset taxable capital gains in such years. Canadian Holders will have a tax
cost in the GR-Canada Class A Shares for Canadian tax purposes that is equal to
the fair market value, at the time of the reorganization, of the GR-Montana
Common Stock that was exchanged for the GR-Canada Class A Shares.
Revenue Canada could conceivably attempt to disallow the capital loss
realized by the Canadian Holders on their shares of GR-Montana Common Stock
since, as a result of the merger, such holders acquired stock which essentially
has the same economic characteristics as the GR-Montana Common Stock.
Non-Canadian Holders who exchange their GR-Montana Common Stock for
GR-Canada Class A Shares on the reorganization will not be subject to tax in
respect of any gain realized under the Canadian Tax Act. Non-Canadian Holders
will have a tax cost in the GR-Canada Class A Shares for Canadian tax purposes
that is equal to the fair market value, at the time of the exchange, of the
GR-Montana Common Stock that was exchanged to acquire the GR-Canada Class A
Shares.
EQUITY UNIT ELECTION. Only U.S. Holders may make an equity unit election.
However, a U.S. Holder may also be a Canadian Holder if, for example, the holder
is a citizen of the United States and a resident of Canada.
Canadian Holders who exchange their GR-Montana Common Stock for equity
units on the reorganization will recognize a capital gain or loss, as the case
may be, for purposes of the Canadian Tax Act. The amount of the capital gain or
loss will be the difference between the fair market value of the equity units at
the time of the exchange and the aggregate of the adjusted cost base and costs
of disposition of the GR-Montana Common Stock. Taxable capital gain must be
included in income and three-quarters of any capital loss will be an allowable
capital loss. Taxable capital gains and allowable capital losses in the year of
disposition must be netted against each other and the resulting net capital
loss, if any, can generally be carried back three years or forward indefinitely
to offset taxable capital gains in such years. Canadian Holders will have an
aggregate tax cost in the GR-Canada Class A Shares and the GR-Montana Class B
Stock that is equal to the fair market value, at the time of the exchange, of
the GR-Montana Common Stock that was exchanged to acquire the GR-Canada Class A
Shares and the GR-Montana Class B Stock.
Revenue Canada could conceivably attempt to disallow the capital loss
realized by the Canadian Holders on their shares of GR-Montana Common Stock
since, as a result of the merger, such holders acquired stock which essentially
has the same economic characteristics as the GR-Montana Common Stock.
Non-Canadian Holders who exchange their GR-Montana Common Stock for equity
units on the reorganization will not be subject to tax in respect of any gain
realized under the Canadian Tax Act. Non-Canadian Holders will have an aggregate
tax cost in the GR-Canada Class B Shares that is equal to the fair market value,
at the time of the exchange, of the GR-Montana Common Stock that was exchanged
to acquire the GR-Canada Class B Shares.
OWNERSHIP OF GR-CANADA CLASS A SHARES AND GR-CANADA CLASS B SHARES
TAXATION OF DIVIDENDS. Canadian Holders must include the Canadian dollar
equivalent of dividends received on GR-Canada Class A Shares and GR-Canada Class
B common shares in their income for Canadian tax purposes, but Canadian Holders
that are corporations may generally deduct such dividends in computing taxable
income. Canadian Holders who are individuals will generally follow the normal
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dividend gross-up and tax credit rules in the Canadian Tax Act, which will
reduce the effective rate of tax on such dividend income.
Non-Canadian Holders will be subject to non-resident withholding tax on the
gross amount of dividends received on the GR-Canada Class A Shares and GR-Canada
Class B common shares. The rate of withholding tax will be 25% under the
Canadian Tax Act, but this rate may be reduced under the provisions of an
applicable income tax treaty. Under the Tax Treaty, the rate is generally
reduced to 15% in respect of dividends paid to a person who is resident in the
United States, is the beneficial owner of the Shares, and owns less than 10% of
GR-Canada's voting stock. Under the Tax Treaty, dividends paid to certain
religious, scientific, charitable and other tax exempt organizations and certain
pension organizations that are resident in, and exempt from tax in the United
States are exempt from Canadian withholding tax. Provided that certain
administrative procedures are observed by the Non-Canadian Holder, GR-Canada
will not be required to withhold tax on dividend payments to such organizations.
The GR-Canada Class A Shares may in some circumstances be considered
"taxable preferred shares" within the meaning of the Canadian Tax Act on the
basis that they have a liquidation entitlement that is "established to be not
less than a minimum." The GR-Canada Class A Shares could be considered to have a
liquidation entitlement that is established to be not less than a minimum if at
the time of dissolution of GR-Montana there is any GR-Montana Class B Stock
outstanding. Although not free from doubt, the GR-Canada Class A Shares should
not be considered taxable preferred shares at a particular time where, at that
time, there is no reasonable certainty that any GR-Montana Class B Stock will be
outstanding at the time that GR-Montana is dissolved.
If the GR-Canada Class A Shares are taxable preferred shares at the time
that any dividends are paid or deemed paid on such shares, GR-Canada will be
subject to a tax equal to 40% of such dividends. GR-Canada has advised that it
has no current intention to pay dividends or cause deemed dividends to be paid
on GR-Canada Class A Shares, or to dissolve GR-Montana, and that it is not
reasonably certain that GR-Montana Class B Stock will be outstanding at the time
of any such dissolution of GR-Montana.
DISPOSITION OF SHARES (OTHER THAN EXCHANGE OF EQUITY UNITS FOR GR-CANADA
CLASS A SHARES). Canadian Holders who dispose of GR-Canada Class A Shares or
GR-Canada Class B Shares will generally recognize a capital gain or loss, as the
case may be, three-quarters of which will be a taxable capital gain or an
allowable capital loss.
Non-Canadian Holders of GR-Canada shares will only be subject to tax in
Canada on a disposition of the shares if the shares are "taxable Canadian
property" at the time of the disposition. Generally, the GR-Canada Class A
Shares will not be taxable Canadian property provided that (i) they are listed
on a prescribed stock exchange such as the Toronto Stock Exchange or the Nasdaq
SmallCap System, and (ii) the holder, and/or persons with whom the holder is not
dealing at arm's length, has not owned (or had under option) 25% or more of the
issued shares of any class or series of the capital stock of GR-Canada at any
time within five years preceding the disposition. However, GR-Canada Class B
Shares will be taxable Canadian property, and GR-Canada Class A Shares that are
received by equity unit holders in exchange for their GR-Canada Class B Shares
when they exchange their equity units (see below) will also be taxable Canadian
property. Non-Canadian Holders who dispose of GR-Canada Class A Shares that are
taxable Canadian property, or who dispose of GR-Canada Class B Shares, will be
subject to tax in Canada on any gain realized unless a tax treaty exempts the
disposition from tax. The Tax Treaty will generally exempt a Non-Canadian Holder
from tax on a disposition GR-Canada shares if the holder is resident in the
United States and the value of the shares is not derived principally from real
property situated in Canada. GR-Montana has advised tax counsel that the value
of GR-Canada shares is not currently derived principally from real property
situated in Canada.
WITHHOLDING REQUIREMENT. A purchaser of (i) a Non-Canadian Holder's
GR-Canada Class A Shares that are not listed on a prescribed stock exchange such
as the Toronto Stock Exchange or the Nasdaq SmallCap System, or (ii) a
Non-Canadian Holder's GR-Canada Class B Shares will be required to withhold
one-third of the purchase price of the shares and remit such amount to Revenue
Canada on account of the Non-Canadian Holder's potential tax unless the holder
provides the purchaser with a
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certificate issued by Revenue Canada pursuant to section 116 of the Canadian Tax
Act ("section 116 certificate") with a certificate limit equal to the purchase
price. The purchaser is required to withhold the amount even where a tax treaty
exempts the holder from tax on the disposition, and will be liable to pay the
amount if it is not withheld. Revenue Canada will issue a section 116
certificate to the holder if the holder pays the tax owing on the disposition.
If a tax treaty exempts the gain from tax, Revenue Canada will issue the section
116 certificate without any payment by the holder if it receives proof that the
holder is resident in the relevant treaty country. A holder may apply for a
refund of the amount withheld less any tax owing, if any, by filing an income
tax return for the year of disposition.
GR-CANADA SHAREHOLDER RIGHTS PLAN. GR-Canada is of the view that having
regard to the remoteness of the possibility that the Rights (as defined under
Description of Authorized Shares of GR-Canada) will ever become exercisable, the
Rights will have no value at the time of their acquisition. Holders of Rights
may be subject to income tax if the Rights were to become exercised on the basis
that GR-Canada had conferred a benefit on a holder who exercised such Rights.
OWNERSHIP OF GR-MONTANA CLASS B STOCK
Only U.S. Holders may make an equity unit election. However, a U.S. Holder
may also be a Canadian Holder if, for example, the holder is a citizen of the
United States and a resident of Canada.
TAXATION OF DIVIDENDS. Canadian Holders must include the Canadian dollar
equivalent of dividends received on GR-Montana Class B Stock in computing their
taxable income but will be entitled to a credit for United States withholding
tax against his or her Canadian tax liability, subject to foreign tax credit
limitations in the Canadian Tax Act.
Non-Canadian Holders will not be subject to tax on dividends received on
GR-Montana Class B Stock.
DISPOSITION OF SHARES (OTHER THAN EXCHANGE OF EQUITY UNITS FOR GR-CANADA
CLASS A SHARES). Canadian Holders who dispose of GR-Montana Class B Stock will
generally recognize a capital gain or loss, as the case may be, three-quarters
of which will be a taxable capital gain or an allowable capital loss.
Non-Canadian Holders will not be subject to tax on the disposition of
GR-Montana Class B Stock.
EXCHANGE OF EQUITY UNITS FOR GR-CANADA CLASS A SHARES
Only U.S. Holders may make an equity unit election. However, a U.S. Holder
may also be a Canadian Holder if, for example, the holder is a citizen of the
United States and a resident of Canada.
Canadian Holders who dispose of GR-Canada Class B Shares to GR-Canada in
exchange for GR-Canada Class A Shares will not recognize a gain or loss on the
exchange, and will carry over the tax cost of the GR-Canada Class B Shares to
the GR-Canada Class A Shares. Canadian Holders who exchange GR-Montana Class B
Stock for GR-Canada Class A Shares will generally realize a gain or equal to the
difference between the fair market value of GR-Canada Class A Shares and the tax
cost of the GR-Montana Class B Stock, three-quarters of which will be a taxable
capital gain or an allowable capital loss, as the case may be. The holder's tax
cost of the GR-Canada Class A Shares will equal the fair market value of the
GR-Montana Class B Stock at the time of the exchange. If, pursuant to the
GR-Canada call right and the Back-up Exchange Right, the holder disposes of
GR-Montana Class B Stock to GR-Canada in exchange for GR-Canada Class A Shares,
the holder and GR-Canada could jointly elect under the Canadian Tax Act that the
holder will not recognize a gain on the exchange. If such an election is jointly
made, the holder's tax cost of the GR-Montana Class B Stock will carry over to
the holder's GR-Canada Class A Shares, and such amount will also equal
GR-Canada's tax cost of the GR-Montana Class B Stock. GR-Canada will make the
joint election at the holder's request.
Non-Canadian Holders who dispose of GR-Canada Class B Shares to GR-Canada
in exchange for GR-Canada Class A Shares will not recognize a gain or loss on
the exchange, and will carry over the tax cost of the GR-Canada Class B Shares
to the GR-Canada Class A Shares. Non-Canadian Holders who
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exchange GR-Montana Class B Stock for GR-Canada Class A Shares will not be
subject to tax in Canada on the exchange, and will have a tax cost in the
GR-Canada Class A Shares equal to the fair market value of the GR-Montana Class
B Stock at the time of the exchange.
POST REORGANIZATION TAXATION OF GR-CANADA
GR-Canada will be subject to Canadian income tax on its worldwide income,
including dividends received from GR-Montana and any other corporation not
resident in Canada. The inclusion is subject to a credit or deduction in
computing taxable income as provided in the Canadian Tax Act for foreign income
taxes paid in respect of such income.
The corporations that will become GR-Canada's directly or indirectly held
and controlled subsidiaries as a result of the merger will become "controlled
foreign affiliates" ("CFAs") of GR-Canada. If a CFA is resident in a "designated
treaty country" (i.e., a country with which Canada has concluded a tax treaty)
within the meaning of both the Canadian Tax Act and the relevant treaty, the
CFA's profits from carrying on its active business in a designated treaty
country will be included in the CFA's "exempt surplus". Dividends received by
GR-Canada from the exempt surplus of its CFAs will be exempt from tax in Canada
even when repatriated to GR-Canada. Canada and Venezuela have begun negotiations
on a tax treaty but no such treaty has been signed and no assurance can be given
that one will be entered into in the future.
QUALIFICATION FOR INVESTMENT
Part XI of the Canadian Tax Act imposes a tax of 1% per month on the cost
of "foreign property" of employee pension plans, registered retirement savings
plans and deferred profit sharing plans which, in general terms, exceed 10% of
the cost of their assets. Foreign property includes any share of the capital
stock of a corporation other than a Canadian corporation and, therefore, would
include the shares of GR-Montana and any other non-Canadian corporation. There
are several exceptions to the definition of "foreign property." In particular,
provided GR-Canada maintains an office in Canada and the total amount incurred
by GR-Canada for the services (other than services relating to an investment
activity of GR-Canada or another corporation with which GR-Canada does not deal
at arm's length) of employees and other individuals rendered in Canada in any
calendar year that ends in any of the last 15 months that ends before the
particular time exceeds Canadian $250,000, the shares of GR-Canada would not be
considered to be foreign property. GR-Canada intends to comply with the
aforesaid requirements so that the GR-Canada Class A Shares do not constitute
foreign property; however, no assurance can be given that such requirements will
be met at any particular time or times.
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DESCRIPTION OF SECURITIES AND
COMPARISON OF RIGHTS OF SHAREHOLDERS
The following details information about (1) the GR-Montana Common Stock and
(2) the securities to be received in the reorganization by (a) holders of
GR-Montana Common Stock who receive GR-Canada Class A Shares and (b) U.S.
Holders who make an equity unit election.
GOVERNING DOCUMENTS. The rights of GR-Montana shareholders are currently
governed by the Montana Business Corporation Act (the "MBCA") and GR-Montana's
Articles of Incorporation (the "GR-Montana Articles") and the Bylaws of
GR-Montana (the "GR-Montana Bylaws"). After the reorganization, the GR-Montana
shareholders will become shareholders of GR-Canada. The rights of holders of
GR-Canada Class A Shares and the GR-Canada Class B Share component of the equity
units are governed by GR-Canada's Amended and Restated Articles of Incorporation
(the "GR-Canada Articles"), its bylaws ("GR-Canada Bylaws"), the Yukon Business
Corporations Act (the "Yukon Act"), the GR-Canada Shareholder Rights Plan and
the Exchange Agent Agreement.
In connection with the merger, GR-Montana's Articles of Incorporation will
be the articles of incorporation of the surviving corporation and will be
amended and restated as set forth in the Restated Articles of Incorporation of
GR-Montana (the "GR-Montana Restated Articles") attached as Exhibit A to the
merger agreement found at Annex I. The bylaws of Merger Sub will be the bylaws
of the surviving corporation (the "GR-Montana Amended Bylaws"). The rights of
holders of the GR-Montana Class B Stock component of the equity units will be
governed by the GR-Montana Restated Articles, the GR-Montana Amended Bylaws, the
MBCA and the Exchange Agent Agreement. Unless otherwise noted, the rights under
the GR-Montana Articles and the GR-Montana Bylaws are similar to the rights
under the GR-Montana Restated Articles and the GR-Montana Amended Bylaws.
THE YUKON ACT. GR-Montana chose the Yukon Territory as the jurisdiction of
incorporation for GR-Canada, in part, because unlike the corporate statutes of
many other foreign jurisdictions:
(1) the Yukon Act is a modern corporate statute; and
(2) many provisions of the Yukon Act are similar to the provisions of the
MBCA, specifically, and U.S. corporate law, generally.
DESCRIPTION OF SECURITIES AND COMPARISON OF RIGHTS OF SHAREHOLDERS. The
following discussion contains a description of the material provisions of the
documents governing the rights of GR-Canada shareholders and GR-Montana
shareholders and describes the material changes in the rights of GR-Montana
shareholders resulting from the reorganization described in this Proxy
Statement/Joint Prospectus. We believe the descriptions are accurate statements
with respect to such material provisions, but this discussion does not purport
to be complete or to cover all of the respects in which Yukon law may differ
from laws generally applicable to Montana corporations and their shareholders.
While GR-Montana and GR-Canada believe that this summary is accurate, this
discussion is subject to the complete text of the relevant provisions of the
Yukon Act, the MBCA, the GR-Montana Articles and GR-Montana Bylaws, the
GR-Montana Restated Articles and GR-Montana Amended Bylaws, the GR-Canada
Articles and GR-Canada Bylaws, the GR-Montana Shareholder Rights Plan, the
GR-Canada Shareholder Rights Plan and the Exchange Agent Agreement.
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<PAGE> 57
MAJOR DIFFERENCES. Below we highlight the most significant differences
between the shareholder rights associated with holding GR-Montana Common Stock
and holding GR-Canada common shares. This summary should be read in conjunction
with the additional information regarding the securities to be received in the
reorganization and shareholders' rights provided in the more detailed
descriptions below. The detailed descriptions describe in greater depth the
provisions relating to the GR-Montana Common Stock, the GR-Canada Class A Shares
and the equity units, including the underlying GR-Canada Class B Shares and
GR-Montana Class B Stock.
<TABLE>
<CAPTION>
GR-MONTANA
(PRIOR TO THE REORGANIZATION) GR-CANADA
----------------------------- ---------
<S> <C> <C>
(1) Shareholder Approval of Business - approval by at least 2/3 of all - approval by at least 2/3 of votes
Combinations outstanding shares entitled to vote cast by shareholders who vote in
person or by proxy at a general
meeting
(2) Quorum - majority of outstanding shares - 1/3 of outstanding shares,
entitled to vote, represented in represented in person or by proxy;
person or by proxy for matters voted on by common
shares, no less than 1/3 of
outstanding common voting shares
(3) Special Meeting of Shareholders - must be held upon written demand of - must be held upon written demand of
holders of at least 10% of all holders of at least 5% of the
votes entitled to vote on any issue shares that carry the right to vote
to be considered at the proposed
special meeting
(4) Amendment of Charter; Amendment - amendment of the GR-Montana - amendment of the GR-Canada Articles
of Bylaws Articles requires affirmative requires approval of at least 2/3
majority vote of shares entitled to of votes cast by shareholders who
vote; the GR-Montana Bylaws may be vote in person or by proxy; the
amended by the Board of Directors GR-Canada Bylaws may be amended by
or shareholders of GR-Montana the Board of Directors of
GR-Canada, but any bylaw altered,
amended or repealed, or new bylaw
adopted, by the Board of Directors
of GR-Canada must be confirmed by
the GR-Canada shareholders at the
next shareholders meeting
(5) Cumulative Voting - cumulative voting in the election - cumulative voting in the election
of directors is permitted of directors is not permitted
(6) Restrictions on Transfer and - GR-Montana Common Stock is not - GR-Canada Class A Shares are not
Exchange Rights subject to restrictions on transfer subject to restrictions on transfer
or exchange rights or exchange rights; each GR-Canada
Class B Share, together with the
GR-Montana Class B Stock component
of an equity unit, may be
transferred or exchanged only upon
compliance with certain procedures
and are convertible into GR-Canada
Class A Shares
(7) Call Rights - GR-Montana Common Stock is not - GR-Canada Class A Shares are not
subject to call subject to call; each GR-Canada
Class B Share, together with the
GR-Montana Class B Stock component
of an equity unit, is subject to
call upon the occurrence of certain
events
</TABLE>
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<PAGE> 58
DETAILED DESCRIPTIONS OF SECURITIES. The following is a more detailed
description of (1) the GR-Montana Common Stock and (2) the securities to be
received in the reorganization by (a) holders of GR-Montana Common Stock who
receive GR-Canada Class A Shares and (b) U.S. Holders who make an equity unit
election.
<TABLE>
<CAPTION>
RIGHTS AND PREFERENCES OF
EQUITY UNITS, INCLUDING
RIGHTS AND PREFERENCES OF RIGHTS AND PREFERENCES OF GR-CANADA CLASS B SHARES AND
GR-MONTANA COMMON STOCK GR-CANADA CLASS A SHARES GR-MONTANA CLASS B STOCK
------------------------- ------------------------- ----------------------------
<S> <C> <C>
GENERAL
The authorized share capital of The authorized share capital of The authorized share capital of
GR-Montana prior to the GR-Canada consists of (1) common GR-Canada consists of (1) common
reorganization consisted of (1) shares, which are divided into two shares, which are divided into two
common stock, no par value per share classes: the GR-Canada Class A classes, the GR-Canada Class A
and (2) preferred stock, no par Shares and the GR-Canada Class B Shares and the GR-Canada Class B
value per share. Prior to the Shares and (2) Class C preferred Shares and (2) Class C preferred
reorganization, no shares of shares, no par value per share. shares, no par value per share.
preferred stock were outstanding. Immediately following the Immediately following the
reorganization, no preferred shares reorganization, no preferred shares
will be outstanding. will be outstanding.
At the effective time of the
reorganization, the authorized share
capital of GR-Montana will consist
of (1) common stock which is divided
into two classes, the GR-Montana
Class A common stock, no par value
per share, and the GR-Montana Class
B Stock and (2) preferred stock, no
par value per share. Immediately
following the reorganization, no
shares of preferred stock will be
outstanding.
EQUITY UNITS
At the effective time of the The GR-Canada Class A Shares are not Each GR-Canada Class B Share and
reorganization, the GR-Montana part of the equity unit. each share of GR-Montana Class B
Common Stock will automatically be Stock issued in the reorganization
converted into GR-Canada Class A will be paired as an equity unit and
Shares except for (1) U.S. Holders may not be transferred separately.
who make an equity unit election and Equity units will be represented by
(2) shareholders who properly unit share certificates to be issued
exercise dissenters' rights. by the Exchange Agent and are
immediately convertible into
GR-Canada Class A Shares.
VOTING RIGHTS
Under the GR-Montana Articles, all Each GR-Canada Class A Share will be Each holder of an equity unit will
voting rights are currently vested entitled to vote at any meeting of be entitled to one vote in each of
in the holders of GR-Montana Common the shareholders of GR-Canada, GR-Canada and GR-Montana.
Stock, with each share being except at meetings at which only
entitled to one vote with all shares holders of another specific class or Each GR-Canada Class B Share will be
of GR-Montana Common Stock entitled series of shares of GR-Canada are entitled to vote at any meeting of
to vote as a class. entitled to vote separately as a the shareholders of GR-Canada,
class or series. Holders of except at meetings at which only
The GR-Montana Articles provide that GR-Canada Class A Shares will have holders of another specific class or
GR-Montana shareholders are entitled one vote per share held and shall be series of shares of GR-Canada are
to cumulate their shares in the entitled to vote together with the entitled to vote separately as a
voting for directors by multiplying GR-Canada Class B Shares as a single class or series. No separate class
the number of shares held by the class. Under the Yukon Act, votes are currently provided for.
number of directors to cumulative voting is permitted, if Holders of GR-Canada
so provided in the
</TABLE>
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<PAGE> 59
<TABLE>
<CAPTION>
RIGHTS AND PREFERENCES OF
EQUITY UNITS, INCLUDING
RIGHTS AND PREFERENCES OF RIGHTS AND PREFERENCES OF GR-CANADA CLASS B SHARES AND
GR-MONTANA COMMON STOCK GR-CANADA CLASS A SHARES GR-MONTANA CLASS B STOCK
------------------------- ------------------------- ----------------------------
<S> <C> <C>
be elected and distributing the articles of incorporation. The Class A Shares and GR-Canada Class B
votes among the candidates. GR-Canada Articles do not provide Shares will have one vote per share
for cumulative voting rights in the held and shall be entitled to vote
election of directors. together as a single class. Under
the Yukon Act, cumulative voting is
permitted, if so provided in the
articles of incorporation. The
GR-Canada Articles do not provide
for cumulative voting rights in the
election of directors.
Each share of GR-Montana Class B
Stock will be entitled to vote at
any meeting of the shareholders of
GR-Montana, except at meetings at
which only holders of another
specific class or series of shares
of GR-Montana are entitled to vote
separately as a class or series. No
separate class votes are currently
provided for. Holders of GR-Montana
Class B Stock shall be entitled to
one vote per share of GR-Montana
Class B Stock and shall vote as a
class with the other class of common
stock of GR-Montana. Holders of
GR-Montana Class B Stock do not have
cumulative voting rights in the
election of directors.
DIVIDENDS
The dividend provisions of the GR-Canada Class A Shares and the equity units
are designed so that upon issuance of a dividend by either GR-Canada or
GR-Montana, the holders of GR-Canada Class A Shares and equity units will
simultaneously receive dividends of equal value.
Subject to any restrictions The holders of GR-Canada common The holders of equity units shall be
contained in a corporation's shares shall be entitled to receive entitled to receive such dividends
charter, the MBCA generally provides such dividends (payable in cash, (payable in cash, stock or
that the directors of a corporation stock or otherwise) as may be otherwise) as may be declared on the
may declare and pay dividends out of declared thereon by the Board of GR-Canada Class B Shares and the
surplus (defined as the excess, if Directors of GR-Canada at any time GR-Montana Class B Stock by the
any, of net assets over stated and from time to time out of any Boards of Directors of GR-Canada and
capital) or, when no surplus exists, funds of GR-Canada legally available GR-Montana, respectively, at any
out of net profits for the fiscal therefor; provided, however, that time and from time to time out of
year in which the dividend is any dividend upon the GR-Canada any funds of GR-Canada and
declared and/or the preceding fiscal Class A Shares that is payable in GR-Montana, respectively, legally
year. Dividends may not be paid out GR-Canada Class A Shares shall be available therefor; provided,
of net profits if the stated capital paid only in GR-Canada Class A however, that any dividend upon the
of the corporation is less than the Shares to holders of GR-Canada Class GR-Canada Class B Shares that is
aggregate amount of stated capital A Shares. payable in GR-Canada Class B Shares
represented by the issued and shall be paid only in GR-Canada
outstanding stock of all classes Class B Shares to holders of
having a preference upon the GR-Canada Class B Shares and any
distribution of assets. dividend upon the GR-Montana Class B
Stock that is payable in GR-Montana
Class B Stock shall be paid only in
GR-Montana Class B Stock to holders
of GR-Montana Class B Stock.
</TABLE>
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<PAGE> 60
<TABLE>
<CAPTION>
RIGHTS AND PREFERENCES OF
EQUITY UNITS, INCLUDING
RIGHTS AND PREFERENCES OF RIGHTS AND PREFERENCES OF GR-CANADA CLASS B SHARES AND
GR-MONTANA COMMON STOCK GR-CANADA CLASS A SHARES GR-MONTANA CLASS B STOCK
------------------------- ------------------------- ----------------------------
<S> <C> <C>
Because the dividend rights of GR-Canada and GR-Montana are dependent on
each other, a summary of the interdependent dividend rights is more helpful
than a side by side comparison.
As long as equity units remain outstanding:
(1) dividends may not be declared with respect to GR-Canada Class A Shares,
GR-Canada Class B Shares or shares of GR-Montana Class B Stock unless a
simultaneous dividend is declared for all three classes of stock;
(2) other than dividends in shares, the sum of the dividends payable per
GR-Canada Class B Share and per share of GR-Montana Class B Stock must
equal the dividends payable per GR-Canada Class A Share;
(3) if a dividend is declared in the form of GR-Canada Class A Shares,
GR-Canada Class B Shares or shares of GR-Montana Class B Stock, a
simultaneous dividend for a proportionate number of shares must be
declared for all three classes of stock based on an original ratio of
one-to-one-to-one, as may be adjusted to give effect to any stock
splits, stock combinations or other changes in capitalization; and
(4) other than dividends in shares, dividends payable per GR-Canada Class B
Share shall equal 1% of the dividends payable per GR-Canada Class A
Share and dividends payable per share of GR-Montana Class B Stock shall
equal 99% of the dividends payable per GR-Canada Class A Share.
The restrictions on dividends shall cease to be effective if GR-Canada
and/or GR-Montana owns all outstanding shares of GR-Montana Class B Stock
originally included in an equity unit or if all equity units have been
converted into GR-Canada Class A Shares.
The dividend rights described above are subject to the prior rights and
preferences applicable to preferred stock, if any, of GR-Canada and
GR-Montana, respectively. Immediately following the reorganization, no
shares of preferred stock of either company will be outstanding.
Under the Yukon Act, a corporation shall not declare or pay a dividend if
there are reasonable grounds for believing that the corporation is, or would
after the payment be, unable to pay its liabilities as they become due or
the realizable value of the corporation's assets would thereby be less than
the aggregate of its liabilities and stated capital of all classes.
CALL RIGHTS
Not applicable. The GR-Canada Class A Shares are not Each equity unit is callable by
subject to call. GR-Canada in exchange for one
GR-Canada Class A Share upon the
earlier of (1) the liquidation,
dissolution or winding up of
GR-Montana or GR-Canada and (2) the
expiration of three years from the
date of the original issuance of the
equity units if 95% or more of such
equity units have been exchanged for
GR-Canada Class A Shares. Upon call
of the equity units, a 99%
fractional GR-Canada Class A Share
shall be issued for each share of
GR-Montana Class B Stock underlying
an equity unit and a 1% fractional
GR-Canada Class A Share shall be
issued for each GR-Canada Class B
Share underlying an equity unit.
</TABLE>
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<PAGE> 61
<TABLE>
<CAPTION>
RIGHTS AND PREFERENCES OF
EQUITY UNITS, INCLUDING
RIGHTS AND PREFERENCES OF RIGHTS AND PREFERENCES OF GR-CANADA CLASS B SHARES AND
GR-MONTANA COMMON STOCK GR-CANADA CLASS A SHARES GR-MONTANA CLASS B STOCK
------------------------- ------------------------- ----------------------------
<S> <C> <C>
LIQUIDATION, DISSOLUTION OR WINDING UP
The liquidation provisions of the GR-Canada Class A Shares and the equity
units are designed so that holders of GR-Canada Class A Shares or equity
units will have the opportunity, together with the exchange rights and call
rights, to receive essentially the same value in the event of the
liquidation, dissolution or winding up of the companies. Because these
provisions are quite complex, we set forth their entire formulas here. For
purposes of this description, the following letters have the definitions set
forth next to them.
a = the amount of GR-Canada's liquidation proceeds remaining after
The MBCA contains procedures and distribution of the preferential amounts, if any, to holders of preferred
requirements for voluntary and
involuntary liquidations and shares of GR-Canada
dissolutions. In the case of a
voluntary liquidation and b = the aggregate GR-Montana Class B Stock liquidation proceeds at the time
dissolution, an affirmative vote of of any voluntary or involuntary liquidation, dissolution or winding up of
two-thirds ( 2/3) of all of the
votes entitled to be cast on the
proposal is required. GR-Montana
Under the GR-Montana Articles, upon c = the total number of shares of GR-Montana Class B Stock outstanding at
the merger or consolidation of the time of any voluntary or involuntary liquidation, dissolution or winding
GR-Montana (in a merger or up of GR-Montana
consolidation in which GR-Montana
shareholders receive cash or d = the total number of GR-Canada Class A Shares outstanding at the time of
securities of any other person or the voluntary or involuntary liquidation, dissolution or winding up of
entity upon such merger or
consolidation), or upon the sale or
other disposition of all or
substantially all of the properties GR-Canada
and assets of GR-Montana as an
entirety to any person or entity, e = the total number of GR-Canada Class B Shares outstanding at the time of
the aggregate consideration payable the liquidation, dissolution or winding up of GR-Canada
to the GR-Montana shareholders, if
any, shall be distributed as if such
merger, consolidation, sale or other
disposition were a distribution in
liquidation, dissolution or winding
up of the affairs of GR-Montana.
In the event of any liquidation, In the event of any liquidation,
dissolution or winding up of dissolution or winding up of
GR-Canada, after distribution in GR-Canada, after distribution in
full of the preferential amounts, if full of the preferential amounts, if
any, to be distributed to the any, to be distributed to the
holders of GR-Canada preferred holders of GR-Canada preferred
shares, or any series thereof, the shares, or any series thereof, the
holders of GR-Canada Class A Shares holders of GR-Canada Class B Shares
shall be entitled to receive, out of shall be entitled to receive, out of
the assets of GR-Canada available the assets of GR-Canada available
for distribution to shareholders, for distribution to shareholders,
liquidation proceeds in an amount liquidation proceeds in an amount
per GR-Canada Class A Share equal to per GR-Canada Class B Share
the sum of the following: determined according to the
following formula:
(1) the lesser of:
a - (b/c)(d)
(i) b/c or ----------------
99(d) + e
(ii) a/d
In the event of any voluntary or
and involuntary liquidation, dissolution
or winding up of GR-Montana, after
(2) the greater of: distribution in full of the
preferential amounts, if any, to be
(i) 0 or distributed to the holders of shares
of preferred stock, or any series
(ii) a - (b/c)(d) thereof, the holders of shares of
-------------------- GR-Montana common stock shall be
d + e/99 entitled to receive all of the
remaining assets of GR-Montana
available for distribution to its
shareholders, ratably in proportion
to the number of shares of
</TABLE>
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<PAGE> 62
<TABLE>
<CAPTION>
RIGHTS AND PREFERENCES OF
EQUITY UNITS, INCLUDING
RIGHTS AND PREFERENCES OF RIGHTS AND PREFERENCES OF GR-CANADA CLASS B SHARES AND
GR-MONTANA COMMON STOCK GR-CANADA CLASS A SHARES GR-MONTANA CLASS B STOCK
------------------------- ------------------------- ----------------------------
<S> <C> <C>
The Yukon Act contains procedures GR-Montana common stock held by
and requirements for voluntary and them, regardless of whether such
involuntary liquidations and shares are GR-Montana Class A common
dissolutions. In the case of a stock or GR-Montana Class B Stock.
voluntary liquidation and
dissolution, a special resolution is The MBCA contains procedures and
required. requirements for voluntary and
involuntary liquidations and
dissolutions. In the case of a
voluntary liquidation and
dissolution, an affirmative vote of
two-thirds ( 2/3) of all of the
votes entitled to be cast on the
proposal is required.
The Yukon Act contains procedures
and requirements for voluntary and
involuntary liquidations and
dissolutions. In the case of a
voluntary liquidation and
dissolution, a special resolution is
required.
EXCHANGE RIGHTS
Not applicable. The GR-Canada Class A Shares are not At any time following the
subject to exchange rights. reorganization, equity units are
immediately convertible into
GR-Canada Class A Shares in
accordance with the procedures set
forth in the Exchange Agent
Agreement. By electing to receive
equity units, you agree to be bound
by the provisions of the Exchange
Agent Agreement. See "The
Reorganization -- Exchange Rights."
In order for a holder of unit shares
to convert equity units into
GR-Canada Class A Shares, such
holder shall surrender the
certificate(s) representing the unit
shares, duly endorsed, to the
Exchange Agent, accompanied by a
notice stating the number of
GR-Canada Class B Shares and shares
of GR-Montana Class B Stock which
such holder desires to convert into
GR-Canada Class A Shares. For equity
units represented by a unit share
certificate, the Exchange Agent will
present each share of GR-Montana
Class B Stock to GR-Montana for
conversion into a 99% fractional
GR-Canada Class A Share and
simultaneously present each
GR-Canada Class B Share to GR-Canada
for conversion into a 1% fractional
GR-Canada Class A Share. The sum of
the fractional GR-Canada Class A
Shares received for the equity unit
will equal one GR-Canada Class A
Share.
</TABLE>
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<PAGE> 63
<TABLE>
<CAPTION>
RIGHTS AND PREFERENCES OF
EQUITY UNITS, INCLUDING
RIGHTS AND PREFERENCES OF RIGHTS AND PREFERENCES OF GR-CANADA CLASS B SHARES AND
GR-MONTANA COMMON STOCK GR-CANADA CLASS A SHARES GR-MONTANA CLASS B STOCK
------------------------- ------------------------- ----------------------------
<S> <C> <C>
Thereupon, GR-Canada shall promptly
issue and deliver and GR-Montana may
promptly deliver to such holder a
certificate or certificates for the
number of GR-Canada Class A Shares
to which such holder is entitled,
registered in the name of such
holder or designee of such holder.
The person entitled to receive the
GR-Canada Class A Shares issuable
upon such conversion shall be
treated for all purposes as the
record holder of such GR-Canada
Class A Shares on the date of
conversion. If, for any reason,
GR-Montana does not deliver
GR-Canada Class A Shares in the
exchange, the holders of GR-Montana
Class B Stock may exercise the
Back-Up Exchange Right and GR-Canada
will exchange the shares of
GR-Montana Class B Stock. See "The
Reorganization -- Exchange Rights."
RESTRICTIONS ON TRANSFER
Not applicable. The GR-Canada Class A Shares are not Equity units are transferable,
subject to restrictions on transfer. subject to compliance with
applicable federal, provincial and
state securities laws. The
underlying GR-Canada Class B Share
and GR-Montana Class B Stock
components of an equity unit are
only transferable together. A
transfer means a transfer, sale,
encumbrance or other disposal of a
component of an equity unit.
Transfers must also be made in
accordance with the provisions of
the Exchange Agent Agreement.
TranSecurities International, Inc.
is acting as Exchange Agent in the
reorganization. Unit share
certificates evidencing equity units
will be issued and transferred
subject to the terms of the Exchange
Agent Agreement. By electing to
receive equity units, you agree to
be bound by the provisions of the
Exchange Agent Agreement. See
"-- Exchange Agent Agreement."
More particularly, the GR-Canada
Class B Shares are transferable with
the GR-Montana Class B Stock
component of the equity units;
provided, however, GR-Canada or its
transfer agent, if any, may not
register the transfer of any
GR-Canada Class B Shares (or
fractions of shares) comprising a
part of any equity unit, unless
there is produced to GR-Canada or
its transfer agent, if any,
</TABLE>
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<TABLE>
<CAPTION>
RIGHTS AND PREFERENCES OF
EQUITY UNITS, INCLUDING
RIGHTS AND PREFERENCES OF RIGHTS AND PREFERENCES OF GR-CANADA CLASS B SHARES AND
GR-MONTANA COMMON STOCK GR-CANADA CLASS A SHARES GR-MONTANA CLASS B STOCK
------------------------- ------------------------- ----------------------------
<S> <C> <C>
such evidence as it may in its
discretion require to ensure that on
the same occasion there is also
being transferred to the same person
the GR-Montana Class B Stock
comprising part of the equity unit.
In addition, the shares of
GR-Montana Class B Stock are
transferable with the GR-Canada
Class B Share component of the
equity units; provided, however,
GR-Montana or its transfer agent, if
any, may not register the transfer
of any shares of GR-Montana Class B
Stock (or fractions of shares)
comprising a part of any equity
unit, unless there is produced to
GR-Montana or its transfer agent, if
any, such evidence as it may in its
discretion require to ensure that on
the same occasion there is also
being transferred to the same person
the GR-Canada Class B Share
comprising part of the equity unit.
A transfer means a transfer, sale,
encumbrance or other disposal of a
component of an equity unit.
CHANGES IN CAPITALIZATION
Not applicable. Subject to any required action by Subject to any required action by
the shareholders of GR-Canada, the the shareholders of GR-Canada, the
number of GR-Canada Class A Shares, number of GR-Canada Class A Shares,
or GR-Canada Class B Shares included or GR-Canada Class B Shares included
in an equity unit, shall be in an equity unit, shall be
proportionately adjusted for any proportionately adjusted for any
increase or decrease in the number increase or decrease in the number
of issued shares of GR-Canada of issued shares of GR-Canada
resulting from a stock split, resulting from a stock split,
payment of a stock dividend or any payment of a stock dividend or any
other increase or decrease in the other increase or decrease in the
number of issued shares or other number of issued shares or other
change in capitalization effected change in capitalization effected
without receipt of consideration by without receipt of consideration by
GR-Canada. Provided, however, that, GR-Canada. Provided, however, that,
for as long as GR-Canada's share for as long as GR-Canada's share
capital is divided into GR-Canada capital is divided into GR-Canada
Class A Shares and GR-Canada Class B Class A Shares and GR-Canada Class B
Shares, no such change in Shares, no such change in
capitalization may be effected by capitalization may be effected by
GR-Canada unless (1) immediately GR-Canada unless (1) immediately
following any such change in following any such change in
capitalization, the ratio of the capitalization, the ratio of the
number of GR-Canada Class A Shares number of GR-Canada Class A Shares
then outstanding to the number of then outstanding to the number of
GR-Canada Class B Shares then GR-Canada Class B Shares then
outstanding is equal to such ratio outstanding is equal to such ratio
immediately preceding such change in immediately preceding such change in
capitalization and (2) the effect capitalization and (2) the effect
thereof will result in an equity thereof will result in an equity
unit comprising a whole number of unit comprising a whole number of
GR-Canada Class B GR-Canada Class B
</TABLE>
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<TABLE>
<CAPTION>
RIGHTS AND PREFERENCES OF
EQUITY UNITS, INCLUDING
RIGHTS AND PREFERENCES OF RIGHTS AND PREFERENCES OF GR-CANADA CLASS B SHARES AND
GR-MONTANA COMMON STOCK GR-CANADA CLASS A SHARES GR-MONTANA CLASS B STOCK
------------------------- ------------------------- ----------------------------
<S> <C> <C>
Shares and a whole number of shares Shares and a whole number of shares
of GR-Montana Class B Stock. All of GR-Montana Class B Stock. All
GR-Canada Class B Shares resulting GR-Canada Class B Shares resulting
from such change in capitalization from such change in capitalization
will thereafter be included in will thereafter be included in
equity units, resulting in an equity units, resulting in an
adjustment to the equity unit adjustment to the equity unit
pairing ratio pairing ratio.
Subject to any required action by
the shareholders of GR-Montana, the
number of shares of GR-Montana Class
B Stock included in an equity unit
shall be adjusted for any increase
or decrease in the number of issued
shares of GR-Montana Class B Stock
resulting from a stock split,
payment of a stock dividend or any
other increase or decrease in the
number of issued shares or other
change in capitalization effected
without receipt of consideration by
GR-Montana. Provided, however, that,
for as long as GR-Montana's share
capital includes GR-Montana Class B
Stock, no such change in
capitalization may be effected by
GR-Montana unless the effect thereof
will result in an equity unit
comprising a whole number of shares
of GR-Montana Class B Stock and a
whole number of GR-Canada Class B
Shares. All shares of GR-Montana
Class B Stock resulting from such
change in capitalization will
thereafter be included in equity
units, resulting in an adjustment to
the equity unit pairing ratio.
REDUCTION OF STATED CAPITAL
Not applicable. Subject to the provisions of the Subject to the provisions of the
Yukon Act and the GR-Canada Yukon Act and the GR-Canada
Articles, GR-Canada may reduce its Articles, GR-Canada may reduce its
stated capital in any way, provided stated capital in any way, provided
that no such reduction may be made that no such reduction may be made
if, as a result, all of the if, as a result, all of the
GR-Canada Class B Shares contained GR-Canada Class B Shares contained
in equity units will be canceled, in equity units will be canceled,
unless prior to such reduction unless prior to such reduction
becoming effective the Board of becoming effective the Board of
Directors of GR-Canada is satisfied Directors of GR-Canada is satisfied
that the shares of GR-Montana Class that the shares of GR-Montana Class
B Stock contained in such equity B Stock contained in such equity
units will be canceled. units will be canceled.
Subject to the provisions of the
MBCA and the GR-Montana Restated
Articles, GR-Montana may reduce its
stated capital in any way, provided
that no such reduction may be made
if, as a result, all of the shares
of GR-Montana Class B
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<TABLE>
<CAPTION>
RIGHTS AND PREFERENCES OF
EQUITY UNITS, INCLUDING
RIGHTS AND PREFERENCES OF RIGHTS AND PREFERENCES OF GR-CANADA CLASS B SHARES AND
GR-MONTANA COMMON STOCK GR-CANADA CLASS A SHARES GR-MONTANA CLASS B STOCK
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<S> <C> <C>
Stock contained in equity units will
be canceled unless, prior to such
reduction becoming effective, the
Board of Directors of GR-Montana is
satisfied that the GR-Canada Class B
Shares contained in such equity
units will be canceled.
CANCELLATION
Not applicable. The GR-Canada Class A Shares are not In the event that all of the
subject to cancellation. GR-Montana Class B Stock originally
issued as part of an equity unit
ceases to be outstanding, the
GR-Montana Class B Stock shall,
without any further action of
GR-Montana, automatically expire and
be canceled, and no longer be
authorized. In the event that all of
the GR-Canada Class B Shares
originally issued as part of an
equity unit cease to be outstanding,
the GR-Canada Class B Shares shall,
without any further action of
GR-Canada, be canceled.
SHAREHOLDER RIGHTS PLANS
In April 1997, the Board of GR-Canada has adopted the GR-Canada GR-Canada has adopted the GR-Canada
Directors of GR-Montana adopted the Shareholder Rights Plan, which Shareholder Rights Plan, which
GR-Montana Shareholder Rights Plan differs from the GR-Montana differs from the GR-Montana
pursuant to which stock purchase Shareholder Rights Plan in mostly Shareholder Rights Plan in mostly
rights were distributed for each non-substantive respects to comply non-substantive respects to comply
outstanding share of GR-Montana with Canadian law. The GR-Canada with Canadian law. While the equity
Common Stock. The GR-Montana Class A Shares are subject to the units are not subject to the terms
Shareholder Rights Plan was designed terms of the GR-Canada Shareholder of a shareholder rights plan, the
to (1) protect against attempts to Rights Plan. The GR-Canada underlying GR-Canada Class B Share
acquire GR-Montana for an inadequate Shareholder Rights Plan is component of the equity units is
or unfair price, (2) deter abusive substantially similar to the subject to the terms of the
tactics which induce GR-Montana GR-Montana Shareholder Rights Plan. GR-Canada Shareholder Rights Plan.
shareholders to tender shares prior See "-- GR-Canada Shareholder Rights See "-- GR-Canada Shareholder Rights
to realizing the full value or total Plan." Plan."
potential of their investment in
GR-Montana and (3) create an
incentive for a potential acquirer
to negotiate the price and terms of
an acquisition transaction in good
faith with the Board of Directors of
GR-Montana so that GR-Montana
shareholders are treated equally.
The GR-Montana Shareholder Rights
Plan may have certain anti-takeover
effects.
In connection with the
Reorganization, the GR-Montana
Shareholder Rights Plan will be
amended by the Board of Directors of
GR-Montana to provide that the
existing stock purchase rights will
expire immediately prior to the
effective time of the
reorganization.
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<TABLE>
<CAPTION>
RIGHTS AND PREFERENCES OF
EQUITY UNITS, INCLUDING
RIGHTS AND PREFERENCES OF RIGHTS AND PREFERENCES OF GR-CANADA CLASS B SHARES AND
GR-MONTANA COMMON STOCK GR-CANADA CLASS A SHARES GR-MONTANA CLASS B STOCK
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STOCK EXCHANGE LISTING
The GR-Montana Common Stock is There is currently no established Equity units will not be listed for
currently listed on Nasdaq under the public trading market for the trading on any stock exchange, but
symbol "GLDR" and on the TSE under GR-Canada Class A Shares. GR-Canada subject to compliance with
the symbol "GLR." has applied for the GR-Canada Class applicable federal, provincial and
A Shares to be listed on Nasdaq state securities laws may be
under the symbol "GLDR," the same transferred. Transfers must also be
symbol under which the GR-Montana made in accordance with the
Common Stock is currently listed. provisions of the Exchange Agent
The TSE has approved the GR-Canada Agreement. See "-- Restrictions on
Class A Shares for listing under the Transfer."
symbol "GLR.A" immediately following
the reorganization.
</TABLE>
DETAILED DESCRIPTIONS OF CERTAIN RIGHTS OF SHAREHOLDERS. The following is a
more detailed description of certain rights of shareholders under the GR-Montana
Articles and GR-Montana Bylaws, the GR-Montana Restated Articles and GR-Montana
Amended Bylaws and the GR-Canada Articles and GR-Canada Bylaws.
<TABLE>
<CAPTION>
GR-MONTANA ARTICLES AND GR-MONTANA RESTATED ARTICLES AND GR-CANADA ARTICLES AND
GR-MONTANA BYLAWS GR-MONTANA AMENDED BYLAWS GR-CANADA BYLAWS
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SHAREHOLDER APPROVAL OF BUSINESS COMBINATIONS
Under the MBCA, unless a Under the MBCA, unless a Under the Yukon Act, the sale, lease
corporation's articles of corporation's articles of or exchange of all or substantially
incorporation provide for a lesser incorporation provide for a lesser all of the property of a corporation
vote (but not less than a majority), vote (but not less than a majority), requires approval by not less than
approval by at least two-thirds of approval by at least two-thirds of two-thirds of the votes cast by
the outstanding shares entitled to the outstanding shares entitled to shareholders who vote in person or by
vote or two-thirds of each voting vote or two-thirds of each voting proxy at a general meeting. In the
group is required to approve mergers, group is required to approve mergers, event holders of shares of a class or
asset sales and dissolutions. asset sales and dissolutions. series of shares are affected by the
Separate voting by voting groups is Separate voting by voting groups is sale, lease or exchange in a manner
required (1) on a plan of share required (1) on a plan of share different from the shares of another
exchange, and (2) on a plan of merger exchange, and (2) on a plan of merger class or series, such holders are
if it contains provisions that would if it contains provisions that would entitled to vote separately as a
require separate voting if contained require separate voting if contained class or series.
in an amendment to the articles of in an amendment to the articles of
incorporation. The GR-Montana incorporation. The GR-Montana In addition, under the Yukon Act, a
Articles do not contain provisions Restated Articles will not contain special resolution to approve an
regarding shareholder approval of provisions regarding shareholder amalgamation or plan of arrangement
mergers and share exchanges. approval of mergers and share or other fundamental changes must be
Accordingly, the foregoing provisions exchanges. Accordingly, the foregoing passed by not less than two-thirds of
of the MBCA are applicable to provisions of the MBCA will be the votes cast by the shareholders
GR-Montana. applicable to GR-Montana. who vote in person or by proxy at a
general meeting of the corporation.
In limited circumstances, where a
certain class or series of shares is
affected in a manner different from
another class or series of shares,
separate resolutions or class votes
by the holders of shares of any class
or series must be passed by not less
than two-thirds of the votes cast by
the holders of shares of that class
or series.
QUORUM
Under the GR-Montana Bylaws, Under the GR-Montana Amended Bylaws, Under the GR-Canada Bylaws, a quorum
GR-Montana's quorum requirement is a GR-Montana's quorum requirement is for the transaction of business at
majority of the outstanding shares of one-third of the outstanding shares any meeting of shareholders will be
GR-Montana Common Stock entitled to of GR-Montana Common Stock entitled holders of at least one-third of the
vote, represented in person or by to vote, represented in person or by outstanding shares of GR-Canada,
proxy. proxy. present in person or represented by
proxy. With respect to matters to be
voted upon by the holders of common
shares of GR-Canada, in no case will
such quorum be less than one-third of
the outstanding common voting shares
of GR-Canada.
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<TABLE>
<CAPTION>
GR-MONTANA ARTICLES AND GR-MONTANA RESTATED ARTICLES AND GR-CANADA ARTICLES AND
GR-MONTANA BYLAWS GR-MONTANA AMENDED BYLAWS GR-CANADA BYLAWS
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SPECIAL MEETINGS OF SHAREHOLDERS
Under the GR-Montana Bylaws, special Same as GR-Montana Articles and Under the GR-Canada Bylaws, meetings
meetings of GR-Montana shareholders GR-Montana Bylaws. of shareholders of GR-Canada may be
for any purpose may be called at any called at any time by the chairman of
time by the president, the Board of the board, the president, the
Directors of GR-Montana or the managing director or the Board of
holders of not less than ten percent Directors of GR-Canada. In addition,
of the shares entitled to vote at the under, and subject to, the Yukon Act,
meeting. In addition, under the MBCA, the holders of not less than five
special meetings of shareholders must percent of the shares of GR-Canada
be held if the holders of at least that carry the right to vote may
ten percent of all of the votes requisition the directors to call a
entitled to be cast on any issue meeting of shareholders for the
proposed to be considered at the purposes stated in the requisition.
proposed special meeting sign, date
and deliver to the corporation's
secretary one or more written demands
for the meeting that describe the
purpose for which it is to be held.
AMENDMENT OF CHARTER; AMENDMENT OF BYLAWS
Under the MBCA, GR-Montana Same as GR-Montana Articles and Under the Yukon Act, a special
shareholders may amend the GR-Montana GR-Montana Bylaws. resolution to approve a change of
Articles by an affirmative majority name, a change in authorized capital
vote of the shares entitled to vote or other fundamental changes,
on the matter following including amendment of the
recommendation (unless special corporation's articles, must be
circumstances exist, in which case no passed by not less than two-thirds of
recommendation of the Board of the votes cast by the shareholders
Directors of GR-Montana is required) who vote in person or by proxy at a
of the amendment by the Board of general meeting of the corporation.
Directors of GR-Montana. The Board of In limited circumstances, where a
Directors of GR-Montana, or certain class or series of shares is
GR-Montana shareholders, may amend affected in a manner different from
the GR-Montana Bylaws. another class or series of shares,
separate resolutions or class votes
by the holders of shares of any class
or series must be passed by not less
than two-thirds of the votes cast by
the holders of shares of that class
or series.
The GR-Canada Bylaws may be altered,
amended or repealed or new bylaws may
be adopted by the Board of Directors
of GR-Canada; provided, however, that
any bylaw altered, amended or
repealed or new bylaw adopted by the
Board of Directors of GR-Canada must
be confirmed by the GR-Canada
shareholders at the shareholders
meeting next following such
alteration, amendment, repeal or
adoption.
OPPRESSION REMEDIES
The MBCA does not provide a statutory Same as GR-Montana Articles and Unlike the MBCA, the Yukon Act
oppression remedy. However, the MBCA GR-Montana Bylaws. contains a statutory oppression
provides a variety of legal and remedy that enables a court to make
equitable remedies to a corporation's any order, both interim and final, to
shareholders for improper acts or rectify the matters complained of if
omissions of a corporation or its the court is satisfied upon
officers or directors. Under the application by a complainant that, in
MBCA, only shareholders can bring an respect of a corporation or any of
action alleging a breach of fiduciary its affiliates, any act or omission
duty by the directors of a of the corporation or its affiliates
corporation. See "-- Shareholder effects a result, or the business or
Derivative Actions." affairs of the corporation or its
affiliates are or have been exercised
in a manner, that is oppressive or
unfairly prejudicial to, or that
unfairly disregards the interest of,
any security holder, creditor,
director or officer. The oppression
remedy may be sought by a
shareholder, former shareholder,
director, former director, officer or
former officer of a corporation or
any of its affiliates, or any
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<CAPTION>
GR-MONTANA ARTICLES AND GR-MONTANA RESTATED ARTICLES AND GR-CANADA ARTICLES AND
GR-MONTANA BYLAWS GR-MONTANA AMENDED BYLAWS GR-CANADA BYLAWS
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other person who, in the discretion
of a court, is a proper person to
seek an oppression remedy. Because of
the breadth of the conduct which can
be complained of and the scope of the
court's remedial powers, the
oppression remedy is very flexible
and is frequently relied upon to
safeguard the interests of
shareholders and other complainants
with a substantial interest in the
corporation.
SHAREHOLDER PROPOSALS
GR-Montana shareholders are entitled Following the reorganization, we As holders of shares in the new
under the Exchange Act proxy rules to expect that GR-Montana will continue public company ("reporting issuer"),
submit proposals to be considered at to be subject to the reporting GR-Canada shareholders will continue
annual meetings of GR-Montana requirements of the Exchange Act for to be entitled under the Exchange Act
shareholders. about one year. During that time, proxy rules to submit proposals to be
GR-Montana shareholders will be considered at annual meetings of
entitled under the Exchange Act proxy GR-Canada shareholders. In addition,
rules to submit proposals to be the Yukon Act allows a shareholder to
considered at annual meetings of make a proposal for consideration at
GR-Montana shareholders. an annual general meeting of
shareholders and requires that the
directors of the corporation
facilitate the communication of that
proposal to the shareholders in
advance of the meeting, provided that
the requirements of the Yukon Act in
this regard are followed by any
shareholder wishing to make such a
proposal.
VACANCIES ON BOARD OF DIRECTORS
Under the GR-Montana Bylaws, all Same as GR-Montana Articles and Under the Yukon Act and the GR-Canada
vacancies on the Board of Directors GR-Montana Bylaws. Bylaws, a quorum of directors of
of GR-Montana, whether caused by GR-Canada may fill any vacancy among
resignation, death or otherwise, may the directors, except a vacancy
be filled by the affirmative vote of resulting from an increase in the
a majority of the remaining directors number or minimum number of directors
though less than a quorum of the or from a failure to elect the number
Board of Directors of GR-Montana. A or minimum number of directors
director elected to fill any vacancy required by the GR-Canada Articles.
shall hold office for the unexpired If there is no quorum of directors,
term of his or her predecessor and or if there is an increase in the
until his or her successor is elected number or minimum number of
and qualified. Any directorship to be directors, or if there has been a
filled by reason of an increase in failure to elect the number or
the number of directors may be filled minimum number of directors required
by the Board of Directors of by the GR-Canada Articles, the
GR-Montana for a term of office vacancy or vacancies must be filled
continuing only until the next by way of a special meeting of the
election of directors by the shareholders. A director appointed or
GR-Montana shareholders. elected to fill a vacancy will hold
office for the unexpired term of his
or her predecessor.
DISSENTERS' RIGHTS
Under the MBCA, a shareholder is Same as GR-Montana Articles and The Yukon Act provides that a holder
entitled to dissent from, and, upon GR-Montana Bylaws. of shares of any class of a
completion of various notice and corporation may dissent if the
demand requirements prescribed in corporation resolves to do any of the
Sections 35-1-826 through 35-1-839 of following: (1) amend its articles to
the MBCA, to obtain the fair value of add, change or remove any provisions
his or her shares in the event of restricting or constraining the issue
certain corporate actions, including or transfer of shares of that class;
certain mergers, share exchanges, (2) amend its articles to add, change
sales of substantially all assets of or remove any restrictions on the
the corporation, and certain business or businesses that the
amendments to the corporation's corporation may carry on; (3)
articles of incorporation. See "The amalgamate with another corporation;
Reorganization -- Dissenters' (4) be continued under the laws of
Rights." another jurisdiction; or (5) sell,
lease or exchange all or
substantially all of its property.
Under the Yukon Act, a shareholder
may dissent only with respect to all
of the shares held by the shareholder
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<CAPTION>
GR-MONTANA ARTICLES AND GR-MONTANA RESTATED ARTICLES AND GR-CANADA ARTICLES AND
GR-MONTANA BYLAWS GR-MONTANA AMENDED BYLAWS GR-CANADA BYLAWS
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or on behalf of any one beneficial
owner and registered in the
shareholder's name.
SHAREHOLDER DERIVATIVE ACTIONS
Under the MBCA, a shareholder may Same as GR-Montana Articles and The Yukon Act also permits derivative
bring a derivative action on behalf GR-Montana Bylaws. actions. Under the Yukon Act,
of, and for the benefit of, the officers, former shareholders, former
corporation. However, the shareholder directors and former officers of a
must first allege that demand was corporation or its affiliates, and
made on the Board of Directors for any person who, in the discretion of
relief from the grievance for which the court, is a proper person to make
he or she seeks redress or that such an application to court to bring a
demand was refused. derivative action, may, with judicial
leave, bring an action in the name
and on behalf of the corporation to
enforce an obligation owed to the
corporation that could be enforced by
the corporation itself or to obtain
damages for any breach of such an
obligation. In addition, the Yukon
Act permits derivative actions to be
commenced in the name and on behalf
of a corporation or any of its
subsidiaries.
PLACE OF MEETINGS OF SHAREHOLDERS
Under the GR-Montana Bylaws, meetings Same as GR-Montana Articles and The Yukon Act provides that meetings
of GR-Montana shareholders may be GR-Montana Bylaws. of shareholders may be held outside
held at such place, within or without the Yukon where the corporation's
the State of Montana, as determined articles so provide, and the
from time to time by the Board of GR-Canada Articles provide that
Directors of GR-Montana and stated in meetings may be held outside the
the notice of the meeting. Yukon in Spokane, Washington,
Toronto, Ontario or Dallas, Texas.
SHAREHOLDER CONSENT TO ACTION WITHOUT A MEETING
Under the GR-Montana Bylaws, any Same as GR-Montana Articles and Under the Yukon Act, the shareholders
action required or which may be taken GR-Montana Bylaws. of a corporation may act in lieu of a
at a GR-Montana shareholders meeting meeting by unanimous written consent.
may be taken without a meeting if a
written consent setting forth the
action taken is signed by all
GR-Montana shareholders entitled to
vote on the subject matter of the
consent.
REPURCHASE AND REDEMPTIONS
Under the MBCA, a corporation may Same as GR-Montana Articles and Under the Yukon Act, a corporation
acquire shares of its own stock. GR-Montana Bylaws. may repurchase or otherwise acquire
Therefore, GR-Montana may repurchase shares of its own stock subject to
shares of its own capital stock. certain restrictions. Therefore,
subject to the restrictions contained
in the Yukon Act and applicable
securities laws, GR-Canada may
repurchase or otherwise acquire
shares of its own capital stock.
NUMBER AND RESIDENCY OF DIRECTORS
Under the GR-Montana Bylaws, the Under the GR-Montana Amended Bylaws, Under the GR-Canada Bylaws, the Board
Board of Directors of GR-Montana is the Board of Directors of GR-Montana of Directors of GR-Canada is elected
elected at the annual meeting of is elected at the annual meeting of at the annual meeting of
GR-Montana shareholders, with each GR-Montana shareholders, with each shareholders, with each director
director serving a one-year term or director serving a one-year term or serving a term not expiring later
until a successor is elected, until a successor is elected, than the close of the next annual
whichever is later. The Board of whichever is later. The Board of meeting of shareholders following the
Directors of GR-Montana must consist Directors of GR-Montana must consist election. Under the GR-Canada
of not less than three or more than of not less than one director. The Articles, the Board of Directors of
seven directors. Under the GR-Montana Board of Directors of GR-Montana sets GR-Canada must consist of not less
Bylaws, the Board of Directors of the exact number of directors by than 3 or more than 15 directors.
GR-Montana sets the exact number of resolution. GR-Montana will have two Currently, GR-Canada has seven
directors by resolution. Currently, directors following the directors, which are the same
GR-Montana has seven directors. The reorganization. The Board of directors that comprise the current
Board of Directors of GR-Montana is Directors of GR-Montana is neither Board of Directors of GR-Montana. The
neither divided into classes nor are divided into classes nor are the Board of Directors of GR-Canada is
the terms of the directors staggered. terms of the directors staggered. neither divided into classes nor are
There is no requirement that the There is no requirement that the the terms of the directors staggered.
directors directors be residents of the State The Yukon Act does not have any
of Montana. residency requirements,
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<CAPTION>
GR-MONTANA ARTICLES AND GR-MONTANA RESTATED ARTICLES AND GR-CANADA ARTICLES AND
GR-MONTANA BYLAWS GR-MONTANA AMENDED BYLAWS GR-CANADA BYLAWS
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be residents of the State of Montana. but it does require that at least two
of the directors not be officers or
employees of GR-Canada or its
affiliates.
REMOVAL OF DIRECTORS
Under the GR-Montana Bylaws, a GR- Same as GR-Montana Articles and Under the GR-Canada Bylaws and the
Montana director may be removed with GR-Montana Bylaws. Yukon Act, shareholders may remove
or without cause by GR-Montana directors between annual general
shareholders if a majority of meetings by ordinary resolution,
GR-Montana shareholders entitled to which requires the approval of a
vote on the matter vote in favor of simple majority of the votes cast in
removal at a meeting expressly called person or by proxy at a special
for that purpose. meeting.
INSPECTION OF BOOKS AND RECORDS
Under the GR-Montana Bylaws, Same as GR-Montana Articles and The Yukon Act requires that certain
GR-Montana is required to maintain GR-Montana Bylaws. records be maintained at the
books and records of accounts and corporation's records office and open
minutes of proceedings of the Board to examination at all reasonable
of Directors of GR-Montana and times by the directors of GR-Canada.
GR-Montana shareholders. Under the In addition, the financial statements
MBCA, a shareholder is entitled to and the auditor's report of GR-Canada
inspect and copy, during regular must be made available before each
business hours at the corporation's annual meeting of shareholders.
principal office, records of the
corporation if the shareholder
provides the corporation with written
notice of the demand at least five
business prior to the date on which
the shareholder wishes to inspect and
copy.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
The GR-Montana Bylaws provide that Same as GR-Montana Articles and The GR-Canada Bylaws provide that
GR-Montana will indemnify any present GR-Montana Bylaws. GR-Canada will indemnify directors
or former director or officer of and officers to the fullest extent
GR-Montana, or of a subsidiary of permitted by law. Under the Yukon
GR-Montana, from any threatened, Act, GR-Canada may indemnify any
pending or completed action, suit or director, officer, former director or
proceeding against expenses officer, or any person who, at
(including attorney's fees), to the GR-Canada's request, is a director or
fullest extent permitted under the officer of a corporation of which
MBCA. The GR-Montana Bylaws provide GR-Canada is a shareholder or
that GR-Montana has the power to creditor, if that person: (1) is
indemnify its employees and other added as a party to a court or
agents as set forth in the MBCA. administrative proceeding by reason
Reasonable expenses (including of his or her being or having been a
attorney's fees) will be advanced to director or officer; (2) acted
any person claiming indemnification honestly in good faith with a view to
if that person undertakes in writing the best interest of GR-Canada; and
to repay GR-Montana if it is (3) in the case of criminal or
ultimately determined that the person administrative proceedings enforced
is not entitled to indemnification. by monetary penalty, he or she
GR-Montana's obligation to indemnify reasonably believed his or her
and advance expenses to persons conduct was lawful.
covered by GR-Montana's bylaw
indemnification provisions will If a derivative action brought
continue despite the subsequent against a director is a derivative
amendment or repeal of GR-Montana's action brought on behalf of GR-Canada
bylaw indemnification provisions. or other corporation of which
Indemnification rights and procedures GR-Canada was a shareholder or
are set forth in more detail in the creditor, indemnification of the
GR-Montana Bylaws. director or officer must first be
approved by the Yukon Supreme Court.
The MBCA provides for mandatory A director or officer will be
indemnification of a director or entitled to indemnification if: (1)
officer who has been wholly he or she was substantially
successful, on the merits or successful on the merits of his or
otherwise, in the defense of any her defense; (2) he or she acted in
proceeding to which the director was good faith and believed his or her
made a party because he is or was a conduct was lawful; and (3) he or she
director or officer of the is fairly and reasonably entitled to
corporation. The MBCA also provides indemnity.
for discretionary indemnification by
a corporation of a director, officer Under the GR-Canada Bylaws, GR-Canada
or employee subject to certain may purchase and maintain director
statutory requirements. and officer liability insurance for
the benefit of any director or
officer against any liability
incurred by him or her in his or her
capacity as a director or officer of
or for GR-Canada, except where
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<CAPTION>
GR-MONTANA ARTICLES AND GR-MONTANA RESTATED ARTICLES AND GR-CANADA ARTICLES AND
GR-MONTANA BYLAWS GR-MONTANA AMENDED BYLAWS GR-CANADA BYLAWS
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Under the GR-Montana Bylaws, to the liability relates to the director's
fullest extent permitted by the MBCA, or officer's failure to act honestly
GR-Montana, upon approval of the and in good faith with a view to the
Board of Directors of GR-Montana, may best interest of GR-Canada.
purchase insurance on behalf of any
person required or permitted to be
indemnified pursuant to the
GR-Montana Bylaws.
PREEMPTIVE RIGHTS
GR-Montana shareholders do not have GR-Montana shareholders do not have GR-Canada shareholders do not have
preemptive rights to subscribe to any preemptive rights to subscribe to any preemptive rights to subscribe to any
additional securities that may be additional securities that may be additional securities that may be
issued by GR-Montana. issued by GR-Montana. issued by GR-Canada.
NONASSESSABLE SHARES
All outstanding shares of GR-Montana All outstanding shares of common All outstanding GR-Canada Class A
Common Stock are fully paid and stock of GR-Montana will be fully Shares and GR-Canada Class B Shares
nonassessable. paid and nonassessable. will be fully paid and nonassessable.
PREFERRED SHARES
The Board of Directors of GR-Montana The Board of Directors of GR-Montana The Board of Directors of GR-Canada
may, without action of the GR-Montana may, without action of the GR-Montana may, without action of the GR-Canada
shareholders, issue shares of shareholders, issue shares of shareholders, issue preferred shares
preferred stock from time to time in preferred stock from time to time in from time to time in one or more
one or more series with chosen one or more series with chosen series with chosen designations,
designations, preferences, designations, preferences, preferences, limitations and other
limitations and other rights. No limitations and other rights. rights. Immediately following the
shares of preferred stock of Immediately following the reorganization, no preferred shares
GR-Montana are outstanding. Reorganization, no shares of of GR-Canada will be outstanding.
preferred stock of GR-Montana will be
outstanding.
</TABLE>
EXCHANGE AGENT AGREEMENT
GENERAL. GR-Canada and GR-Montana have entered into an Exchange Agent
Agreement with TranSecurities International, Inc. as Exchange Agent. The
Exchange Agent Agreement provides, in part, for:
(1) the deposit of the equity units with the Exchange Agent following
the reorganization;
(2) the issuance of unit share certificates evidencing the equity
units;
(3) the transfer of the unit shares and the components of the equity
units; and
(4) the issuance of certificates for Canada Class A Shares upon
conversion of the equity units. By electing to receive equity units, you
agree to be bound by the provisions of the Exchange Agent Agreement. The
following is a summary of certain provisions of the Exchange Agent
Agreement. While GR-Montana and GR-Canada believe the description of the
material provisions of the Exchange Agent Agreement are accurate,
statements with respect to such material provisions are qualified in their
entirety by reference to the Registration Statement on Form S-4 (the
"Registration Statement") of which this Proxy Statement/Joint Prospectus is
a part and the GR-Canada Articles and GR-Montana Restated Articles.
DEPOSIT OF EQUITY UNITS AND ISSUANCE OF UNIT SHARES. Upon receipt of
GR-Montana Common Stock from an electing shareholder prior to 5:00 p.m.,
Spokane, Washington time, on the business day before the date of the Special
Meeting along with an appropriately completed form of election, the Exchange
Agent will, following the effective time of the reorganization, cancel the
GR-Montana common stock certificates and issue one GR-Canada Class B common
share and one share of GR-Montana Class B common stock, which will be paired as
an equity unit, for each share surrendered with the form of election. At that
time, the equity units will be deemed to have been deposited with the Exchange
Agent (including the shares of GR-Montana Class B common stock, the GR-Canada
Class B common shares and dividends and cash received in respect thereof,
"Deposited Securities"). In exchange for the GR-Montana Common Stock
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converted into an equity unit, the Exchange Agent shall deliver a unit share in
lieu of the Deposited Securities to the holder thereof.
TRANSFER OF UNIT SHARES; SECURITIES. The unit shares are transferable on
the register maintained by the Exchange Agent; provided, however, that the
Exchange Agent may close the register at any time or from time to time when
deemed expedient by it in connection with the performance of its duties or at
the request of GR-Canada or GR-Montana. As a condition precedent to the
execution and delivery, registration, registration of transfer, split-up or
combination of any equity unit, the delivery of any distribution thereon
(including any distributions on GR-Canada Class B common shares or GR-Montana
Class B common stock) or the withdrawal of Deposited Securities, the Exchange
Agent, GR-Canada or GR-Montana may require (1) payment of any stock transfer or
other tax or other governmental charge with respect to GR-Canada Class B common
shares or GR-Montana Class B common stock and any stock transfer or registration
fee with respect thereto; (2) the production of proof satisfactory to it of the
identity and genuineness of any signature and of such other information as it
may deem necessary or proper or as GR-Canada or GR-Montana may require; and (3)
compliance with such additional regulations as the Exchange Agent may establish.
RECORD DATES. Whenever any distribution shall be made upon GR-Canada Class
B common shares or GR-Montana Class B common stock, or whenever the Exchange
Agent shall receive notice of any meeting of holders of GR-Canada Class B common
shares or GR-Montana Class B common stock, or whenever the Exchange Agent shall
find it necessary or convenient in connection with the giving of any notice,
solicitation or any consent or any other matter, the record date for the
determination of the holders of unit shares who are entitled to receive such
distribution or net proceeds of the sale thereof, to give instructions for the
exercise of voting rights at any such meeting, to receive such notice or
solicitation, or to act in respect of such other matter shall be identical to
that fixed by GR-Canada or GR-Montana with respect to GR-Canada Class B common
shares or GR-Montana Class B common stock, unless otherwise agreed by GR-Canada
or GR-Montana, as the case may be.
INSPECTION OF TRANSFER BOOK. The Exchange Agent will keep, at its transfer
office in Spokane, Washington, a register for the registration of unit shares
and their transfer that at all reasonable times will be open for inspection by
the holders of unit shares, GR-Canada and GR-Montana, provided that such
inspection shall not be for the purpose of communicating with holders of unit
shares in the interest of a business or object other than the business of
GR-Canada and GR-Montana or a matter related to the Exchange Agent Agreement or
the unit shares.
CHANGES AFFECTING DEPOSITED SECURITIES. Upon any split-up, division,
subdivision, consolidation, cancellation or any other reclassification of the
Deposited Securities, or upon any recapitalization, reorganization, merger or
consolidation or sale of assets affecting GR-Canada or GR-Montana or to which
either is a party, any securities that shall be received by the Exchange Agent
in exchange for, or in conversion, replacement, or otherwise in respect of, the
Deposited Securities shall be treated as Deposited Securities under the Exchange
Agent Agreement, and the unit shares shall thenceforth represent the right to
receive the Deposited Securities, including the securities so received. In any
such case, the Exchange Agent may with GR-Canada's and/or GR-Montana's approval,
and shall if GR-Canada and/or GR-Montana shall so request, subject to the
Exchange Agent Agreement, call for the surrender of outstanding equity units to
be exchanged for new equity units specifically describing such newly received
Deposited Securities.
RESIGNATION AND REMOVAL OF THE EXCHANGE AGENT. The Exchange Agent may at
any time resign as Exchange Agent by written notice of its election to do so
delivered to GR-Canada and GR-Montana or be removed as Exchange Agent by the
joint action of GR-Canada and GR-Montana by written notice of such removal
delivered to the Exchange Agent, such resignation or removal to take effect upon
the appointment of, and acceptance by, a successor Exchange Agent.
AMENDMENT AND TERMINATION OF THE EXCHANGE AGENT AGREEMENT. The unit shares
and the Exchange Agent Agreement may at any time be amended by agreement among
GR-Canada, GR-Montana and the Exchange Agent. Any amendment that imposes or
increases any fees, taxes or charges (other than charges
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referred to in clauses (1) and (2) under "Charges of the Exchange Agent" below),
or that otherwise prejudices any substantial existing right of holders of unit
shares, will not take effect as to outstanding unit shares until the expiration
of 30 days after notice of such amendment has been given to the record holders
of outstanding unit shares. Every holder of a unit share at the expiration of
such 30 day period will be deemed by continuing to hold such unit share to
consent and agree to such amendment and to be bound by the Exchange Agent
Agreement or the unit share as amended thereby.
Whenever so directed by GR-Canada and GR-Montana, the Exchange Agent will
terminate the Exchange Agent agreement by mailing notice of such termination to
the record holders of all unit shares then outstanding at least 30 days prior to
the date fixed in such notice for such termination.
CHARGES OF THE EXCHANGE AGENT. GR-Canada and GR-Montana will pay all
charges and expenses of the Exchange Agent and those of any registrar or
co-registrar under the Exchange Agent Agreement in accordance with agreements
between the Exchange Agent, GR-Canada and GR-Montana from time to time, but will
not pay (1) stock transfer or other taxes and other governmental charges (which
are payable by holders of unit shares or persons depositing unit shares) or (2)
any applicable share transfer or registration fees on deposits or withdrawals of
unit shares.
CALL OF EQUITY UNITS BY GR-CANADA. As soon as practicable after receipt of
notice that GR-Canada is exercising its right to call all or part of the equity
units, the Exchange Agent shall surrender the equity units pursuant to the terms
as found in such notice and mail to the holders of unit shares a notice
containing (1) such information as is contained in such notice of call and (2) a
statement that, on and after a date specified by the Exchange Agent in such
notice, each holder shall be entitled to receive, upon presentation of the unit
shares held by such holder at the Exchange Agent's office, one GR-Canada Class A
Share for each equity unit being called less any amount required to be withheld
by GR-Canada or the Exchange Agent from any such exercise of call rights in
respect of taxes.
GR-CANADA SHAREHOLDER RIGHTS PLAN
GENERAL. GR-Montana enacted the GR-Montana Shareholder Rights Plan under
which stock purchase rights were issued to shareholders of GR-Montana at the
rate of one right for each share of GR-Montana Common Stock. In connection with
the reorganization, the GR-Montana Shareholder Rights Plan will be amended to
provide that the existing rights will expire immediately prior to the effective
time of the reorganization. The Board of Directors of GR-Canada has adopted a
substantially similar plan, the GR-Canada Shareholder Rights Plan, which plan
has been approved and adopted by GR-Montana as sole shareholder of GR-Canada.
Shareholder approval of the reorganization will also constitute shareholder
approval of the amendments to the GR-Montana Shareholder Rights Plan and the
adoption of the GR-Canada Shareholder Rights Plan. The full text of the
GR-Canada Shareholder Rights Plan, marked to show changes from the GR-Montana
Shareholder Rights Plan, is attached as Annex IV to this Proxy Statement/Joint
Prospectus and is incorporated by reference herein. The following information
concerning the GR-Canada Shareholder Rights Plan is intended as a summary only
and is subject to the detailed provisions of the GR-Canada Shareholder Rights
Plan to which reference is hereby made for a full description of the GR-Canada
Shareholder Rights Plan.
The Boards of Directors of each of GR-Montana and GR-Canada (the "Boards")
have determined that the reorganization and the GR-Canada Shareholder Rights
Plan are in the best interests of GR-Canada and GR-Montana and recommend that
the shareholders vote in favor of the reorganization.
In considering whether to adopt the GR-Canada Shareholder Rights Plan, the
Board of Directors considered the current legislative framework in Canada and
the United States governing take-over bids and tender offers.
TIME. Current Canadian legislation permits a take-over bid to expire 21
days after it is initiated. A take-over bid in the U.S. must remain open for at
least 20 business days after it is initiated. The Boards are of the view that
this is not sufficient time to permit shareholders to consider a take-over bid
and make
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a reasoned and unhurried decision and also does not allow the Board of Directors
of GR-Canada sufficient time to seek alternatives to maximize shareholder value.
PRESSURE TO TENDER. A shareholder may feel compelled to tender to a
take-over bid which the shareholder considers to be inadequate, out of a concern
that in failing to do so, the shareholder may be left with illiquid or minority
discounted shares. The Boards believe that the GR-Canada Shareholder Rights Plan
provides a shareholder with an approval mechanism which is intended to ensure
that a shareholder can separate the decision to tender from the approval or
disapproval of a particular take-over bid.
UNEQUAL TREATMENT. The Boards were concerned that a person seeking such
control might attempt, among other things, a gradual accumulation of shares in
the open market or the accumulation of a large block of shares in a highly
compressed period of time from institutional shareholders and professional
speculators or arbitrageurs. The GR-Canada Shareholder Rights Plan effectively
prohibits the acquisition of more than 20% of GR-Canada's outstanding voting
shares in such a manner. Because the GR-Canada Class A Shares will be listed and
posted on the Toronto Stock Exchange and are expected to be quoted on the Nasdaq
SmallCap System and therefore trade in the United States, as well as Canada,
there is a possibility that the differences between United States and Canadian
securities regulations could result in unequal treatment of shareholders in the
two jurisdictions. The GR-Canada Shareholder Rights Plan is designed to
encourage any bidder to provide shareholders with equal treatment in a take-over
bid.
PURPOSE OF THE GR-CANADA SHAREHOLDER RIGHTS PLAN. The purpose of the
GR-Canada Shareholder Rights Plan is to give adequate time for shareholders of
GR-Canada to properly assess the merits of a bid without pressure and to allow
competing bids to emerge. The GR-Canada Shareholder Rights Plan is designed to
give the Board of Directors of GR-Canada time to consider alternatives to allow
shareholders to receive full and fair value for their GR-Canada Shares. The
GR-Canada Shareholder Rights Plan is not being recommended for adoption by the
Boards in response to, or anticipation of, any acquisition proposal and is not
intended to prevent a take-over of GR-Canada or to secure continuance in office
of management or the directors. The Ontario Securities Commission has concluded
in two recent decisions relating to shareholder rights plans that a target
company's board will not be permitted to maintain a shareholder rights plan
solely to prevent a successful bid, but only so long as the board is actively
seeking alternatives to a take-over bid and there is a real and substantial
possibility that it can increase shareholder choice and maximize shareholder
value. The GR-Canada Shareholder Rights Plan may, however, increase the price to
be paid by a potential offeror to obtain control of GR-Canada and may discourage
certain transactions.
The issuance of the Rights will not in any way alter the financial
condition of GR-Canada. The issuance is not of itself dilutive, will not affect
reported earnings per share and will not change the way in which shareholders
would otherwise trade GR-Canada Class A Shares. By permitting holders of Rights
other than an "Acquiring-Person" (as defined below) to acquire GR-Canada Class A
Shares at a discount to market value, the Rights may cause substantial dilution
to a person or group that acquires 20% or more of the voting securities of
GR-Canada other than by way of a Permitted Bid (as defined below) or other than
in circumstances where the Rights are redeemed or the application of the
GR-Canada Shareholder Rights Plan is waived.
The GR-Canada Shareholder Rights Plan is intended to provide adequate time
for shareholders to assess a bid and to permit competing bids to emerge. It also
gives the Board of Directors of GR-Canada sufficient time to explore other
options. A potential bidder can avoid the dilutive features of the GR-Canada
Shareholder Rights Plan by making a bid that conforms to the requirements of a
Permitted Bid or approach the Board with a view to negotiation of a transaction
acceptable to the Board.
To qualify as a Permitted Bid, a take-over bid must be made by way of a
take-over bid circular to all holders of GR-Canada Shares and must be open for
60 days after the bid is made and provide that any shares tendered may be
withdrawn until they are taken up and paid for. If at least 50% of the Common
Shares of GR-Canada held by persons independent of the bidder are deposited or
tendered pursuant to the bid and not withdrawn, the bidder may take up and pay
for such shares. A public announcement that the
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50% condition has been met must be made and the bid must then remain open for a
further period of 10 clear business days on the same terms. The GR-Canada
Shareholder Rights Plan allows a partial bid to be a Permitted Bid.
The requirements of a Permitted Bid enable each shareholder to make two
separate decisions. First, a shareholder will decide whether the bid or any
competing bid is adequate on its own merits. In making this decision the
shareholder need not be influenced by the likelihood that the bid will succeed.
If there is sufficient support such that at least 50% of the GR-Canada Shares
have been tendered, a shareholder who has not already tendered to that bid or to
a competing bid will have a further 10 business days to decide whether to
withdraw his or her GR-Canada Shares from a competing bid, if any, and whether
to tender to the bid.
SUMMARY OF THE GR-CANADA SHAREHOLDER RIGHTS PLAN. The following is a
summary of the principal terms of the GR-Canada Shareholder Rights Plan which is
qualified in its entirety by reference to the text of the GR-Canada Shareholder
Rights Plan attached hereto as Annex IV.
ADOPTION OF GR-CANADA SHAREHOLDER RIGHTS PLAN AND ISSUANCE OF RIGHTS. The
GR-Canada Shareholder Rights Plan was adopted by the Board of Directors of
GR-Canada on October 5, 1998 (the "Agreement Date") and applies to take-over
bids made on or after the effective time. Immediately following the effective
time, one right (a "Right") will be issued in respect to each outstanding GR-
Canada Class A Share and Class B common share. If the Separation Time (as
defined below) occurs subsequent to and not concurrently with the effective
time, then each such Right will, when issued, attach to the associated
outstanding GR-Canada Share and one Right will also attach to any GR-Canada
Shares issued after the effective time and prior to the earlier of the
Separation Time and the Expiration Time (as defined in the GR-Canada Shareholder
Rights Plan). If the Separation Time occurs concurrently with the effective
time, the Rights will not attach to the GR-Canada Shares but will be evidenced
separately by Rights certificates. See "-- Rights Exercise Privilege" and
"-- Certificates and Transferability."
TERM. The GR-Canada Shareholder Rights Plan comes into effect at the
effective time (and the Rights will not be issued until immediately following
the effective time) and will remain in effect until April 2, 2000, subject to
approval of the reorganization by shareholders at the Meeting and subject to
confirmation of the GR-Canada Shareholder Rights Plan by shareholders at the
third annual meeting of shareholders of GR-Canada following the special meeting.
RIGHTS EXERCISE PRIVILEGE. The Rights will become exercisable at the time
(the "Separation Time") that is the later of: (1) the effective time; and (2)
the tenth trading day after the earlier of a person having acquired, or the
commencement, announcement or other date determined by the Board of Directors of
GR-Canada in respect of a take-over bid to acquire, 20% or more of the GR-Canada
Shares, other than by an acquisition pursuant to a take-over permitted by the
GR-Canada Shareholder Rights Plan (a "Permitted Bid"). In addition, if the
Separation Time occurs following and not concurrently with the effective time
(such that the Rights, when issued, are attached to outstanding GR-Canada
Shares), the Rights will, at the Separation Time, separate from the shares to
which they are attached. If the Separation Time occurs concurrently with the
effective time, the Rights issued at the effective time will not attach to the
GR-Canada Shares and will be separate from the GR-Canada Shares from and after
the time of issuance of the Rights.
The acquisition by a person (an "Acquiring Person"), including associates
and affiliates and others acting in concert, of Beneficial Ownership (as defined
in the GR-Canada Shareholder Rights Plan) of 20% or more of the GR-Canada
Shares, other than by way of a Permitted Bid, is referred to as a "Flip-in
Event". Any Rights held by an Acquiring Person on or after the earlier of the
Separation Time or the first date of public announcement by GR-Canada or an
Acquiring Person that an Acquiring Person has become such, will become void upon
the occurrence of a Flip-in Event. The later of the effective time or the tenth
trading day after the occurrence of the Flip-in Event, the Rights (other than
those held by the Acquiring Person) will permit the holder to purchase GR-Canada
Class A Shares having a market value of twice the exercise price of the Rights,
for example, GR-Canada Class A Shares with a total market value of $140
(Canadian) on payment of $70 (Canadian) (50% discount).
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The issuance of the Rights will not be initially dilutive unless a Flip-in
Event occurs prior to such issuance. Upon a Flip-in Event occurring, reported
earnings per GR-Canada Shares on a fully diluted or non-diluted basis may be
affected. Holders of Rights who do not exercise their Rights upon the occurrence
of a Flip-in Event may suffer substantial dilution.
CERTIFICATES AND TRANSFERABILITY. Provided that the Separation Time does
not occur concurrently with the effective time, then from and after the
effective time and prior to the Separation Time, the Rights will be evidenced by
a legend imprinted on certificates for GR-Canada Shares issued from and after
the effective time, and Rights will also be attached to GR-Canada Shares
outstanding on the effective time, although share certificates issued prior to
that date will not bear such a legend. Prior to the Separation Time, Rights will
not be transferable separately from the attached shares. From and after the
Separation Time (which, if the Separation Time occurs concurrently with the
effective time, will be the time of issuance of the Rights), the Rights will be
evidenced by Rights certificates which will be transferable and traded
separately from the shares.
PERMITTED BID REQUIREMENTS. The requirements of a Permitted Bid include the
following:
1. The take-over bid must be made by way of a take-over bid circular.
2. The take-over bid must be made to all holders of GR-Canada Shares.
The GR-Canada Shareholder Rights Plan allows a partial bid to be a
Permitted Bid.
3. The take-over bid must not permit GR-Canada Shares tendered
pursuant to the take-over bid to be taken up prior to the expiry of a
period of not less than 60 days and then only if at such time more than 50%
of the GR-Canada Shares held by shareholders other than the bidder, its
affiliates and persons acting jointly or in concert with the bidder (the
"Independent Shareholders") have been tendered pursuant to the take-over
bid and not withdrawn. The take-over bid must also provide that any
GR-Canada Shares deposited pursuant to the bid may be withdrawn until taken
up and paid for.
4. If more than 50% of the GR-Canada Shares held by Independent
Shareholders are tendered to the take-over bid within the 60 day period,
the bidder must make a public announcement of the fact and the take-over
bid must remain open for deposits of GR-Canada Shares for an additional 10
business days from the date of such public announcement.
The GR-Canada Shareholder Rights Plan allows a competing Permitted Bid (a
"Competing Permitted Bid") to be made while a Permitted Bid is in existence. A
Competing Permitted Bid must satisfy all the requirements of a Permitted Bid
except that provided such offer is outstanding for a minimum period of 21 days,
it may expire on the same date as the Permitted Bid.
WAIVER AND REDEMPTION. If a potential offeror does not wish to make a
Permitted Bid, it can negotiate with, and obtain the prior approval of the Board
of Directors to make a bid by take-over bid circular to all shareholders on
terms which the Board of Directors of GR-Canada considers fair to all
shareholders. In such circumstances, the Board may, prior to a Flip-in Event,
waive the dilutive effects of the GR-Canada Shareholder Rights Plan in respect
of such transaction, thereby allowing such bid to proceed without dilution. In
such event, such waiver would be deemed also to be a waiver in respect of all
other contemporaneous bids made by way of a take-over bid proxy statement. The
Board of Directors of GR-Canada may also waive the GR-Canada Shareholder Rights
Plan in respect of a particular Flip-in Event that has occurred through
inadvertence provided that the Acquiring Person that inadvertently triggered
such Flip-in Event has reduced its beneficial holdings to less than 20% of the
outstanding voting shares of GR-Canada. Other waivers of the GR-Canada
Shareholder Rights Plan require approval of the holders of GR-Canada Shares or
Rights. At any time prior to the occurrence of a Flip-in Event, the Board of
Directors of GR-Canada may, with the prior consent of the holders of GR-Canada
Shares or Rights redeem all, but not less than all, of the outstanding Rights,
as the case may be, at a price of $0.00001 each.
EXEMPTION FOR "GRANDFATHERED" PERSONS. Any person (a "Grandfathered
Person") who owns beneficially 20% or more of the GR-Canada Shares determined as
of the effective time, is exempted from
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triggering a Flip-in Event provided that such Grandfathered Person does not
increase its ownership of GR-Canada Shares by more than one percent of the
number of GR-Canada Shares outstanding as of the Agreement Date. To the
knowledge of GR-Canada, no persons are Grandfathered Persons.
EXEMPTION FOR INVESTMENT ADVISORS. Investment advisors (for client accounts
and trust companies (acting in their capacity as trustees and administrators))
acquiring more than 20% of the GR-Canada Shares are exempted from triggering a
Flip-in Event, provided that they are not making, or are not part of a group
making, a take-over bid.
SUPPLEMENTS AND AMENDMENTS. GR-Canada is authorized to make amendments to
the GR-Canada Shareholder Rights Plan to correct any clerical or typographical
error or, subject to subsequent ratification by shareholders or Rights holders
to maintain the validity of the GR-Canada Shareholder Rights Plan as a result of
changes in law or regulation. Prior to the special meeting, GR-Canada is
authorized to amend or supplement the GR-Canada Shareholder Rights Plan as the
Board of Directors of GR-Canada may in good faith deem necessary or desirable.
No such amendments have been made to date. GR-Canada will issue a press release
with respect to any significant amendment made to the GR-Canada Shareholder
Rights Plan prior to the special meeting and will advise the shareholders of any
such amendment at the special meeting. Other amendments or supplements to the
Rights Plan may be made with the prior approval of shareholders or Rights
holders.
APPROVAL. Shareholder approval of the reorganization will also constitute
shareholder approval of the amendments to the GR-Montana Shareholder Rights Plan
and the adoption of the GR-Canada Shareholder Rights Plan by GR-Canada.
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INFORMATION CONCERNING GR-MONTANA
Prior to reading this section you should review the technical definitions
relating to the business of GR-Montana found under the heading "Glossary of
Terms."
BUSINESS
GENERAL. GR-Montana is a mining company engaged in exploring and acquiring
mining properties with the intention of placing them into production.
GR-Montana's growth strategy is to develop proven and probable reserves as well
as mining and process operations by the development of mineable reserves at its
Brisas property and through selective property or corporate acquisitions. After
the consummation of the reorganization, GR-Montana will become a subsidiary of
GR-Canada and GR-Canada will carry on the business currently conducted by
GR-Montana. Substantially all of the business and subsidiaries of GR-Montana
will continue to be located outside of the United States.
GR-Montana's principal operating asset, the Brisas property, is a late
exploration-stage gold and copper mineralized deposit located in the KM 88
mining district of the State of Bolivar in the southeastern part of Venezuela.
GR-Montana acquired its initial interest in the Brisas property in 1992.
GR-Montana has no revenue-producing mining operations at this time, and
exploration and development of the Brisas property is currently GR-Montana's
sole business. Unless the context indicates otherwise, the term "Brisas
property" includes the Brisas alluvial concession, the Brisas hardrock
concession and applications for other mineralization in the alluvial material
and areas contiguous to the alluvial and hardrock concessions.
GR-Montana believes, based on its exploration work, that the Brisas
property contains a mineralized deposit estimated at 7.3 million ounces of gold
and approximately 950 million pounds of copper. GR-Montana has commenced but not
yet completed a feasibility study for the Brisas property and, as a result, has
not yet established proven and probable ore reserves or determined whether the
deposit represents a commercially mineable ore body. Such mineralization will
not qualify as a commercially mineable ore body under standards promulgated by
the SEC until the economic viability of the project is established by the
completion of a final and comprehensive economic, technical and legal
feasibility study based upon unit cost, grade, recoveries and other factors. A
feasibility study is an economic-based analysis of a mineralized deposit that
serves as the basis for a mine plan for the extraction of gold and copper from
that ore body on an economically viable basis.
The first stage of the feasibility study, the pre-feasibility report, was
originally completed in February 1998 and subsequently modified in August 1998.
The report, including the subsequent modifications, includes estimates of
potential mineralization assuming various long-term gold and copper prices,
capital costs, operating assumptions and the procurement of various permits and
regulatory authorizations. References in this Proxy Statement/Joint Prospectus
to estimates contained in the pre-feasibility report as modified do not
represent an assertion by GR-Montana of the existence of commercially mineable
ore reserves on the Brisas property. There can be no assurance that the
feasibility study, once complete, will prove that the mineral deposits can be
economically mined at the Brisas property. See "Risk Factors -- Risks Associated
with the Continuing Business of GR-Montana -- No Established Reserves."
Throughout the remainder of 1998, the ongoing feasibility study, and
further exploration and development, as well as general corporate activities,
will be funded from existing cash reserves and short and long-term investments.
Management anticipates that GR-Montana's cash and investment position of
approximately $25 million at October 31, 1998 will be sufficient to cover
estimated operating and capital expenditures, primarily those associated with
the completion of the feasibility study of the Brisas property, through the end
of 1999.
GR-Montana's operations in Venezuela are conducted through subsidiary
corporations. Unless the context indicates otherwise, references to GR-Montana
in this Proxy Statement/Joint Prospectus refer to Gold Reserve Corporation and
the following subsidiaries: Compania Aurifera Brisas del Cuyuni, C.A.; Gold
Reserve de Venezuela, C.A.; Compania Minera Unicornio, C.A.; Great Basin
Energies, Inc.; MegaGold Corporation; Gold Reserve de Aruba A.V.V.; G.L.D.R.V.
Aruba A.V.V.; Glandon Company
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A.V.V.; Stanco Investments A.V.V.; GoldenLake A.V.V.; Mont Ventoux A.V.V. and
Gold Reserve Holdings A.V.V. GR-Montana wholly owns all of these subsidiaries
except Great Basin and MegaGold, of which it owns 58% and 63%, respectively.
GR-Montana's Venezuelan mining operations are subject to laws of title that
differ substantially from those of the United States, and to various mining and
environmental rules and regulations that are similar in purpose, and equally
bureaucratically complex, to those in the United States. See "Risk Factors" and
"-- Venezuelan Mining, Environment and Other Matters."
GR-Montana was incorporated in the State of Montana in 1956. GR-Montana's
principal executive offices are located at 601 West Riverside Avenue, Suite
1940, Spokane, Washington 99201, and its telephone number is (509) 623-1500.
SIGNIFICANT DEVELOPMENTS
Below we describe several significant developments affecting GR-Montana
that occurred in the last year.
HARDROCK MINING TITLE. The Brisas hardrock concession was published in the
Official Gazette of the Republic of Venezuela on March 3, 1998. As a result of
the issuance of the Brisas hardrock mining title or concession, GR-Montana
released $4.5 million held in escrow and payable by GR-Montana in connection
with the 1994 litigation settlement related to an ownership dispute of the
Brisas property. See "-- The Brisas Property -- Ownership."
FEASIBILITY STUDY. In July 1997, GR-Montana engaged JE MinCorp, a Denver,
Colorado-based division of Jacobs Engineering Group Inc. of Pasadena,
California, and a number of other independent consultants, to assist GR-Montana
in the preparation of a feasibility study for the Brisas property. The initial
stage of the study, a pre-feasibility report, was completed in February 1998 and
modified in August 1998 and included tradeoff studies for plant throughput
rates, as well as an analysis of the optimum processing facilities, site and
ancillary facilities and tailings impoundment. The February 1998 report includes
a "Base Case" analysis of the proposed project assuming $375 per ounce gold and
$1 per pound copper as well as further sensitivity analyses using $350 and $300
per ounce gold and $.90 and $.80 per pound of copper, respectively. Such
estimates of mineralization will not qualify as a commercially mineable ore body
under standards promulgated by the SEC until the economic viability of the
project is established by the completion of a final and comprehensive economic,
technical and legal feasibility study.
In August 1998 certain modifications to the Brisas pre-feasibility report
were completed which include (1) a revised mine operating plan, resulting in a
7% reduction in cash operating cost to $206 per ounce of gold, net of copper
credit and, (2) an on-site copper production process coupled with the revised
mine operating plan, resulting in a 24% reduction in cash operating cost to $169
per ounce of gold, net of copper credit. The supplement to the pre-feasibility
report, more limited in scope than the original pre-feasibility report, was
prepared by the company and JE MinCorp, a Denver, Colorado-based division of
Jacobs Engineering Group Inc of Pasadena, California. See "-- The Brisas
Property -- Modified Pre-feasibility Study."
INDEPENDENT AUDIT OF DATA COLLECTION. In August 1997, Behre Dolbear &
Company, Inc. of Denver, Colorado, completed an audit of the data collection
procedures used by GR-Montana at its Brisas property. The audit concluded that
GR-Montana's technical data collection procedures meet or exceed accepted
industry standards, assay laboratories provided reliable and acceptable results
and the drill results database compiled by GR-Montana at the Brisas property is
of a quality appropriate for utilization in a mineral deposit or reserve
calculation for inclusion in a feasibility study suitable for obtaining
financing from financial entities. Despite the results of this audit, there can
be no assurance that GR-Montana will be able to develop or maintain profitable
operations at the Brisas property. See "-- The Brisas Property -- Exploration."
INCREASE IN MINERALIZATION. In June 1997, GR-Montana announced that
additional drilling at the Brisas property increased the mineralized deposit by
900,000 ounces of gold and 150 million pounds of
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copper to 7.3 million ounces of gold and 950 million pounds of copper. The
Brisas mineralized deposit is over 1,900 meters long and 500 to 900 meters wide
and is defined by 737 drill holes, primarily on a 50 by 50 meter grid, amounting
to over 155,000 meters of drilling. The future establishment of proven and
probable mineral reserves is subject to the successful completion of a positive
feasibility study. Despite the initial findings contained in the pre-feasibility
report, there can be no assurance that the feasibility study, once complete,
will prove that the mineral deposits can be economically mined at the Brisas
property. See "Risk Factors -- Risks Associated with the Continuing Business of
GR-Montana -- No Established Reserves" and "-- The Brisas Property -- Planned
Development."
OUTLOOK
The primary focus of GR-Montana in the upcoming 12 to 18 months, while
considering the current depressed price of gold and copper, continues to be
activities related to securing permits, acquiring additional sites for process
facility infrastructure, completing of the final feasibility study and
investigating possible funding sources needed to finance the construction of the
proposed Brisas mining facility. In any event, from the date of this Proxy
Statement/Joint Prospectus, a period of 18 to 24 months is anticipated in the
overall project schedule for securing permits as well as completing the final
feasibility study. In addition, continuation or completion of metallurgical
testing, geotechnical and hydrological investigations, electrical power supply
and concentrate sales agreements, and development and condemnation drilling must
occur prior to completion of the final feasibility study. It is estimated that
an additional $5 million will be spent for completion of the final feasibility
study.
THE BRISAS PROPERTY
LOCATION. The Brisas property is located in the KM 88 mining district of
southeastern Venezuela in the State of Bolivar, approximately 373 kilometers
(229 miles), by paved highway, southeast of Puerto Ordaz. The property, 3.5
kilometers (2.2 miles) west of the KM 88 marker on Highway 10, occupies a
rectangular area of 2,500 meters (1.5 miles) north-south by 2,000 meters (1.25
miles) east-west or approximately 500 hectares (1,235 acres) and is accessible
by an all-weather road.
OWNERSHIP. The Brisas property consists of the Brisas alluvial concession,
the Brisas hardrock concession beneath the alluvial concession, other
applications for mineralization (primarily nominal values of copper and silver)
in the material contained in the alluvial concession and other mineralization
(primarily gold, copper and molybdenum) on small land parcels contiguous to the
existing alluvial and hardrock concessions.
GR-Montana acquired Brisas in 1992 (which has held the Brisas alluvial
concession since 1988) and submitted an application for the Brisas hardrock
concession in February 1993. On December 3, 1997, the Venezuela Ministry of
Energy and Mines ("MEM") issued a resolution ordering the issuance of the mining
title for the Brisas hardrock concession. The resolution, which was subsequently
published in the Official Gazette of the Republic of Venezuela (the official
government publication), approved the map of the area under application,
instructed GR-Montana to pay nominal taxes to the government and ordered the
issuance of the hardrock concession to Brisas. Pursuant to the terms of the
resolution, GR-Montana completed all stipulated requirements for issuance of the
concession. The Brisas hardrock concession was published in the Official Gazette
of the Republic of Venezuela on March 3, 1998. The Brisas alluvial concession is
a production concession granted in 1988, with an original term of 20 years, with
two renewal periods of 10 years each, at the discretion of MEM, and a 3% tax on
sales of gold production outside of Venezuela. The Brisas hardrock concession is
a production concession with a term of 20 years with two subsequent renewal
periods of 10 years each, at the discretion of the MEM. The hardrock concession
provides for a 4% tax on sales of gold production outside of Venezuela and a 7%
mine mouth tax on copper production. Gold sold directly to the Central Bank of
Venezuela (the "Central Bank") is taxed at 1%. See "-- Venezuelan Mining,
Environment and other Matters."
REGIONAL INFRASTRUCTURE. The project site is located in the Guayana region,
which makes up approximately one-third of Venezuela's national territory. The
nearest main city is Puerto Ordaz, with
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600,000 inhabitants, situated on the bank of the Orinoco River near its
confluence with the Caroni River. Puerto Ordaz has major port facilities,
accessible to ocean-going vessels from the Atlantic Ocean, via the Orinoco, a
distance of about 200 km. Puerto Ordaz is the center of major industrial
developments in the area, including iron and steel mills, aluminum smelters,
iron and bauxite mining and forestry. These industries are supported by major
dams and hydroelectric generating plants on the Caroni River, which provide
12,900 MW of electricity. The CVG power authority, Electrificacion del Caroni
C.A. ("EDELCA"), is planning the construction of a 400 kV power line south from
Puerto Ordaz into Brazil. The route runs through the community of Las Claritas,
nearby the project, and is expected to supply sufficient power for both Placer
Dome Inc.'s Las Cristinas and GR-Montana's Brisas property. GR-Montana
understands that the project is expected to be completed before the end of 1999.
There can be no assurance, however, that the power line will be completed as
planned, if ever. If the power line is not completed as planned, GR-Montana will
be required to obtain alternative sources of electrical power, which may
significantly increase the capital costs to GR-Montana and have a material
adverse effect on GR-Montana.
Puerto Ordaz is a modern urban center with good road and air connections to
the rest of Venezuela. There are regularly scheduled flights to Caracas and
other major cities several times daily. There are also port facilities 428 km
northwest of Puerto Ordaz on the Caribbean coast. Guanta, near Barcelona, would
likely be the port of entry for most construction, mining and milling equipment.
The port facilities at Puerto Ordaz are generally dedicated to serving the bulk
handling requirements of the area's basic industries. However, Puerto Ordaz has
potential for the development of facilities for the export of copper
concentrates in bulk. The highway system within Venezuela is generally good,
with paved roads in good condition providing access to within 3.5 km of the
Brisas property. Four-lane highways run from Puerto Ordaz both northwest to
Barcelona and Guanta, and for 55 km south to Upata.
GEOLOGY. The Brisas property occurs within a Proterozoic granite-greenstone
terrain of the Guayana Shield. The shield covers eastern Colombia, southeastern
Venezuela, Guyana, Suriname, French Guiana and northeastern Brazil. The terrain
is a thick section of andesite to dacite volcanics that are intruded by numerous
granitic stocks and batholiths. Several periods of deformation, metamorphism and
mineralization can be documented within the terrain. The rocks at the Brisas
property are a thick series of andesite tuffs that have been intruded by a
monzonite stock. The tuffs strike northerly and dip uniformly to the west at
about 35 degrees. The mineralization is stratabound within a 200-meter thick
series of tuffs. The local mineralization has characteristics similar to those
of other large deposits in Precambrian rocks of volcanogenic sulfide and
structurally controlled deposits. Three styles of mineralization are seen: (1)
massive pyrite-chalcopyrite-gold mineralization and pyrite-chalcopyrite-gold
cemented breccias in the Blue Whale, (2) stratabound, disseminated
pyrite-gold+/-copper mineralization and (3) calcite-epidote-
pyrite+/-gold+/-copper veins and veinlets, often high grade and found both
within and above the stratabound mineralization. There are two major types of
material on the property: a saprolite clay hosted alluvial material occurring in
the top 30 to 50 meters of the property and hard rock dacitic tuffs, basalts and
andesite porphyry of the Lower Proterozoic age. Gold, copper, silver and
molybdenum mineralization are found in both zones. There are two general
categories of rock units: weathered and unweathered rock. Weathered rock is
further defined by degree of oxidation and mineral replacement due to surficial
weathering. Unweathered rock is further defined by lithology into various
subdivisions of volcanic tuffaceous units or intrusive units. The mineralization
in the northern half of the deposit is copper-gold with copper decreasing to the
south until, in the southern portion of the deposit, the copper is a minor
constituent of the mineralization. Deep drilling along the western edge of the
property has confirmed the downward extension of the stratabound mineralization.
EXPLORATION. Historically, surface and alluvial mining by local miners
helped identify gold mineralization on the property. Exploration by GR-Montana
at the Brisas property commenced in late 1992. Initial work by GR-Montana
included regional geophysical surveys that identified an anomaly covering part
of the Brisas property. Exploration and development activities on the Brisas
property prior to commencement of the pre-feasibility study in 1997 included
surface mapping and geochemical sampling, exploration and development drilling,
assaying, petrology and mineral studies, and metallurgical sampling.
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Prior exploration and development drilling also included 92,591 meters of
drilling in 538 core and auger holes. These activities confirmed the presence of
a large deposit of stratabound gold-copper mineralization. The mineralization
defined is approximately 1.9 km (approx. 1.2 mile) along strike and 500 to 900
meters wide. Scattered drill holes to the west of the main body of the deposit
demonstrate that mineralization continues for an unknown distance down dip to
the west. This gold-copper mineralization does not currently constitute proven
or probable reserves under standards promulgated by the SEC. See "Risk
Factors -- Risks Associated with the Continuing Business of GR-Montana -- No
Established Reserves" and "-- Planned Development."
Activities that began in 1997 included significant exploration and
development drilling, sampling and assaying, third party audit of data
collection procedures, metallurgical sampling and testing, and various
engineering studies in anticipation of the final feasibility study. These
engineering studies included pit stability studies, surface and ground water
hydrological studies, a third party ore reserve methodology audit, environmental
studies and site topographical studies. Drilling in 1997 included approximately
66,000 meters of core from 218 holes bringing the total drilling to-date to
166,000 meters in 756 core and auger holes. The drilling increased the size of
the deposit by defining mineralization down dip and southwest from the 1996
mineralization. GR-Montana intends to continue exploration in the future on the
Brisas property by surface mapping and sampling, and by drilling. Some
mineralized areas have been intersected below the current mineralized deposit.
Behre, Dolbear & Company, Inc. of Denver, Colorado, conducted the
independent audit of data collection procedures. The purpose of the study was to
review and confirm the adequacy and acceptability of the data collection
procedures used by GR-Montana to establish the database for completing future
ore reserve estimates at the Brisas property, if any. Behre Dolbear & Company,
Inc. concluded that technical data collection procedures meet or exceed accepted
industry standards; assay laboratories provide reliable and acceptable results;
and the database being compiled by GR-Montana at the Brisas property is of a
quality appropriate for utilization in a mineral deposit or ore reserve study
suitable for obtaining financing.
PLANNED DEVELOPMENT. In July 1997, GR-Montana engaged JE MinCorp and a
number of other independent consultants to assist GR-Montana in the preparation
of a feasibility study on the Brisas mineralized deposit. The initial stage of
the study, a pre-feasibility report, was completed in February 1998 and
subsequently modified in August 1998. The original report included a "Base Case"
analysis of the proposed project assuming $375 per ounce gold and $1 per pound
copper as well as additional whittle-pit designs using $350 and $300 per ounce
gold and $.90 and $.80 per pound of copper, respectively.
In August 1998 certain modifications to the Brisas pre-feasibility report
were completed which include (1) a revised mine operating plan, resulting in a
7% reduction in cash operating cost to $206 per ounce of gold, net of copper
credit and, (2) an on-site copper production process coupled with the revised
mine operating plan, resulting in a 24% reduction in cash operating cost to $169
per ounce of gold, net of copper credit. The supplement to the pre-feasibility
report, more limited in scope than the original pre-feasibility report, was
prepared by the company and JE MinCorp, a Denver, Colorado-based division of
Jacobs Engineering Group Inc of Pasadena, California.
The original pre-feasibility report with modifications is preliminary and
based on a number of assumptions which are subject to change. Since GR-Montana
has not completed its final feasibility study on the property, proven and
probable reserves have not been established under standards promulgated by the
SEC.
The original pre-feasibility study concluded that, assuming a gold price of
$375 per ounce, copper price of $1.00 per pound and assuming open pit mining
methods, the Brisas property is estimated to contain a mineralized deposit
consisting of approximately 249.2 million tonnes with an average grade of 0.70
grams of gold per tonne and 0.14% copper. The estimate of mineralization uses an
internal cutoff grade of 0.40 grams per tonne gold equivalent and assumed waste
rock material of 419.2 million tonnes, resulting in a strip ratio of 1.68:1
(waste to mineralization). Total material expected to be moved, under the
original pre-feasibility report, is estimated to be 668 million tonnes.
Alternatively, assuming a gold price of $350 and $300 per ounce and copper price
of $0.90 and $0.80 per pound, the Brisas property is
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estimated to contain (based on a preliminary Whittle pit design) approximately
239.3 and 177.1 million tonnes with an average grade of 0.71 and 0.80 grams per
tonne gold and 0.14% and 0.12% copper, respectively. The pre-feasibility report
estimates that GR-Montana may achieve gold recovery at 83% and copper recovery
at 73% at the Brisas property, but there can be no assurance that such rates can
be achieved or, if achieved, maintained.
The following charts represent, as determined by the original
pre-feasibility report, an estimation of mineralized material assuming certain
gold and copper prices and open pit mining methods. GR-Montana has not completed
its final feasibility study. Therefore, the Brisas mineralized deposit does not
yet qualify as a commercially mineable ore body under standards promulgated by
the SEC and may so qualify only after a positive comprehensive economic,
technical and legal feasibility study has been completed. Once the final
feasibility study is completed, a continued low gold price (currently
approximately $296 per ounce) would have a material adverse effect on
GR-Montana's current plans for the Brisas property.
<TABLE>
<CAPTION>
AVERAGE GRADE
--------------
TONNES GOLD COPPER
(MILLIONS) GPT PERCENT
---------- ---- -------
<S> <C> <C> <C>
Pre-Feasibility Estimated Mineralized Deposit assuming:
$375 per ounce gold and $1.00 per pound copper............ 249.2 0.70 0.14
$350 per ounce gold and $0.90 per pound copper............ 239.3 0.71 0.14
$300 per ounce gold and $0.80 per pound copper............ 177.1 0.80 0.12
Average Recovery.......................................... 83% 73%
</TABLE>
Based on the original pre-feasibility report, and contingent on positive
completion of the final feasibility study, GR-Montana currently plans to develop
on the Brisas property a large scale open pit mining operation consisting of
drilling, blasting, loading, and truck haulage to carry ore to the crusher and
waste to the waste repository. GR-Montana currently estimates that the plant
would process 55,000 tonnes per day, yielding an estimated average annual
production of as much as 335,000 ounces of gold and 38.3 million pounds of
copper, over a mine life of 14.2 years. These are initial estimates based on the
pre-feasibility report and there can be no assurance, however, that such
production will occur at such levels, if at all.
The processing flowsheet contained in the original pre-feasibility report
and developed from metallurgical testwork completed by three independent
laboratories includes conventional crushing with a primary gyratory crusher and
grinding with SAG mill and ball mills followed by gravity separation to recover
coarse gold, flotation and cyanidation of cleaner flotation tailings. Based upon
the results of the pre-feasibility report, GR-Montana currently expects the
final products of the operation on the Brisas property to be a gold copper
concentrate and gold dore. GR-Montana expects to transport the concentrates to
Puerto Ordaz and then ship them to a smelter for final processing.
GR-Montana expects most operating supplies to be imported, probably from
North America. Electrical power is expected to be available from a major new
transmission line which is planned to run south from Puerto Ordaz into Brazil,
passing within a few kilometers of the Brisas property. There can be no
assurance, however, that the power line will be completed as planned, if ever.
If the power line is not completed as planned, GR-Montana will be required to
obtain alternative sources of electrical power, which may significantly increase
the capital and operating costs to GR-Montana and have a material adverse affect
on GR-Montana. A sufficient supply of water is available in the area, and
GR-Montana expects project requirements to be met by water pumped from the pit
de-watering system, and by rainfall stored in the tailings water pond. On-site
accommodations will be provided for employees, who will be drawn from both the
local area and from the industrialized area around Puerto Ordaz. See
"-- Venezuelan Mining, Environment and Other Matters" and "-- Venezuelan Mining,
Environment and Other Matters -- Labor."
In April 1998, Behre Dolbear & Company, Inc. completed an independent
review of GR-Montana's mineralized deposit modeling and ore reserve methodology
utilized for the pre-feasibility report. They
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concluded that estimating techniques used were an accurate representation for
the reserves; drill hole spacing was sufficient to generate future estimates of
proven and probable reserves; and the database was correct and reliable. This
recent study compliments Behre Dolbear & Company, Inc.'s audit of sampling and
assaying procedures at the Brisas property completed in August 1997.
The pre-feasibility report estimates that base case initial capital
required to bring the Brisas property into commercial production at the planned
55,000 tonnes per day will be approximately $293 million. Ongoing life of mine
capital requirements are estimated at $53 million, and working capital needs are
estimated at $15 million. The ultimate design of the plant is subject to the
results of the final feasibility study, and there can be no assurance that the
final feasibility study will conclude that the planned operation will be
economically feasible. Construction of the planned facility is expected to take
approximately 18 to 24 months, with commissioning and achievement of commercial
production expected shortly thereafter. Under the timetable presently
contemplated by GR-Montana, initial production would commence no earlier than
early 2000, with full production expected to commence no earlier than mid-2001.
There can be no assurance, however, that GR-Montana will begin or complete such
construction according to this schedule, or that, if completed, the facility
will begin commercial production as planned.
Base case pre-feasibility report estimates of pre-tax operating cash costs,
including mining, processing, concentrate transportation, smelting and refining
expenses, total $222 per ounce of gold net of copper revenues. Total pre-tax
costs per ounce of gold produced, including life of mine capital, are estimated
at $295, excluding previously incurred sunk costs of approximately $38 million
or approximately $8 per ounce. Exploitation taxes and royalties add
approximately $9 per ounce of gold to the total cost per ounce. The base case
pre-tax net present value of the project (assuming $375 per ounce of gold and
$1.00 per pound of copper) at 0% is $354.9 million, with an internal rate of
return of 11.8%.
MODIFIED PRE-FEASIBILITY STUDY. GR-Montana and its consultants continue to
develop alternatives to the assumptions utilized in the initial pre-feasibility
report. In August 1998 certain modifications to the Brisas pre-feasibility
report were completed which include (1) a revised mine operating plan, resulting
in a 7% reduction in cash operating cost to $206 per ounce of gold, net of
copper credit and, (2) an on-site copper production process coupled with the
revised mine operating plan, resulting in a 24% reduction in cash operating cost
to $169 per ounce of gold, net of copper credit. The supplement to the
pre-feasibility report, more limited in scope than the original pre-feasibility
report, was prepared by the company and JE MinCorp, a Denver, Colorado-based
division of Jacobs Engineering Group Inc of Pasadena, California.
<TABLE>
<CAPTION>
ON-SITE COPPER
PRE-FEASIBILITY PRODUCTION AND
STUDY REVISED REVISED MINE
(MARCH 1998) MINE PLAN PLAN
--------------- --------- --------------
(U.S. DOLLARS)
<S> <C> <C> <C>
Pit design gold price ($/oz.)*.......................... $ 375 $ 335 $ 335
Pit design copper price ($/lb.)*........................ $ 1.00 $ .90 $ .90
Mine cut-off grade (grams of gold per tonne)............ 0.40 0.50 0.50
Mineralized deposit (mm tonnes)......................... 249 200 200
Mineralized deposit (mm gold ozs.)...................... 5.6 5.0 5.0
Gold grade (grams/tonne)................................ 0.70 0.77 0.77
Copper grade %.......................................... 0.14 0.14 0.14
Throughput (tonnes/day)................................. 55,000 55,000 55,000
Average annual gold production (oz.).................... 335,000 362,000 362,000
Average annual copper production (mm lbs.).............. 38 39 39
Strip ratio (waste to ore).............................. 1.68:1 1.97:1 1.97:1
Mine life (Years)....................................... 14.2 11.5 11.5
</TABLE>
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<TABLE>
<CAPTION>
ON-SITE COPPER
PRE-FEASIBILITY PRODUCTION AND
STUDY REVISED REVISED MINE
(MARCH 1998) MINE PLAN PLAN
--------------- --------- --------------
(U.S. DOLLARS)
<S> <C> <C> <C>
Initial capital cost (mm)............................... $ 293 $ 299 $ 344
Working capital (mm).................................... $ 15 $ 20 $ 20
Ongoing capital (mm).................................... $ 53 $ 42 $ 42
Total cost (per tonne).................................. $ 6.28 $ 6.40 $ 5.78
Operating cash cost (per oz.)*.......................... $ 222 $ 206 $ 169
Total cash and operating costs (per oz.)**.............. $ 295 $ 288 $ 262
</TABLE>
- ---------------
* Net of copper credit
** Pre tax and independent of costs incurred to-date
In addition to the modifications to the pre-feasibility report, GR-Montana
is currently proceeding with metallurgical testing and ore reserve modeling,
both of which are an ongoing process. An update to the mine model, which will be
verified by an independent engineering firm, is expected later this year.
GR-Montana is proceeding with the completion of the final feasibility study
which is expected next year.
VENEZUELAN MINING, ENVIRONMENT AND OTHER MATTERS
GR-Montana's Venezuelan mining operations are subject to laws of title that
differ substantially from those of the United States, and to various mining and
environmental rules and regulations that are similar in purpose to those in the
United States, but equally bureaucratically complex. The complexity of the
Venezuelan mining laws is due to the numerous changes in and interpretations of
mining statutes, some of which are generally considered outdated, and is further
complicated by the necessity to acquire a number of concessions and/or contracts
to secure all of the necessary rights to explore and mine a particular parcel of
land. The following is a summary of the more significant Venezuelan mining and
environmental laws and other laws and regulations that may affect GR-Montana's
operations on the Brisas property, but does not purport to be a comprehensive
review of all laws or a complete analysis of all potential regulatory
considerations related to the Brisas property.
CURRENT VENEZUELAN MINING LAW. The principal legislation governing the
exploration and development of mineral resources in Venezuela is the Mining Law
of 1945, which has been supplemented through the years by various presidential,
governmental and ministerial decrees, resolutions and interpretations (in its
current form, the "Mining Law"). The Mining Law defines mining rights and
concessions, and establishes standards for obtaining, exploring, evaluating,
producing and extinguishing a concession. The Mining Law also requires that each
concession be specific as to the minerals covered (gold, copper, silver,
molybdenum, etc.) and area (near surface mineralization ("alluvial") or
subsurface mineralization ("hardrock or veta")).
Originally, the Mining Law provided for staked concessions as well as
concessions issued at the discretion of the MEM. However, in 1977, the
claim-staking provisions of the law were effectively eliminated by a
presidential decree that reserved all minerals exclusively for Venezuela. Also,
from January 1991 until July 1996, certain legislation granted CVG and its
various subsidiaries the exclusive right in the State of Bolivar to explore,
evaluate and mine diamonds and gold not previously awarded as MEM concessions.
Consistent with this exclusive right, CVG attempted to exploit the potential
resources of the region through mining contracts granted to private investors or
joint venture arrangements with foreign and local companies. Most of those
contracts or joint venture arrangements have been recognized as valid by the MEM
and are still in force.
The Mining Law creates three types of concessions, but only two types of
concessions are common. The first, an exploration and production concession,
grants the holder up to two years to explore a property, and an additional year
(three years total) to start production on an alluvial concession and three
additional years (five years total) to start production on a hardrock
concession. The second, a production
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concession, does not provide for an exploration period, but it does have the
same three and five year production requirements as stated above. A technical
and economic feasibility study must be submitted to the MEM for approval within
18 months for alluvial concessionaires and within 36 months for hardrock
concessionaires. Holders of concessions are required to report their activities
to the MEM and must submit to routine inspections by MEM representatives to
confirm compliance with the Mining Law.
Although the Mining Law specifies a term of 40 years for concessions, an
annual surface tax for alluvial concessions of .05 bolivar per hectare, an
annual surface tax for hardrock of one bolivar per hectare and an exploitation
tax, which ranges from 1% to 3% of the extracted mineral value depending on the
type of mineral, the MEM has enhanced the benefit to Venezuela through
Resolution 115. As outlined in this resolution, certain "special advantages"
must be offered to Venezuela for an applicant to be granted a concession. These
special advantages require that the concession applicant agree to certain
additional terms, which might include a reduction in the life of the concession,
an increase in the amount of royalties or mining taxes to be paid and the extent
to which bonds or sureties must be posted to guarantee performance of the
applicant's obligations. In addition, applicants may also be required to make
certain improvements for the benefit of the concession property and the
surrounding area, such as constructing and maintaining access roads, airstrips,
schools and medical dispensaries, and must agree to train local employees in
modern mining exploration and production techniques.
PROPOSED MINING LAW. The Venezuelan Mining Committees in the Senate and
House of Representatives have, for a number of years, been debating separate
proposals that would either amend the existing Mining Law or create a new mining
law. Throughout most of 1997, as in prior years, there was considerable debate
regarding, but little progress toward, passing a law that is acceptable to
industry, the MEM and Congressional Mining Committees. The mining industry is
lobbying for its own draft of a new mining law, which would return the
provisions for claim-staking as provided in the original Mining Law. Other
important changes would include all minerals in one concession, include both
alluvial and veta mineralization in one concession, provide longer exploration
periods and require competitive mining tax rates and royalty rates, as compared
to other countries that have an active mining industry. Because 1998 is an
election year and interested parties have not yet agreed on terms of a possible
new law, GR-Montana believes, and has been advised, that it is unlikely that a
new mining law will be passed in 1998.
ENVIRONMENTAL LAWS AND REGULATIONS. Venezuela's environmental laws and
regulations are administered through the Ministry of the Environment and
Renewable Natural Resources. The Ministry of the Environment and Renewable
Natural Resources proscribes certain mining recovery methods deemed harmful to
the environment and monitors concessionaires' activities to ensure compliance.
Before GR-Montana can begin construction and production at the Brisas property,
it must obtain three different permits from the Ministry of the Environment and
Renewable Natural Resources: (1) Permit to Occupy the Territory ("Occupation
Permit"), (2) Permit to Affect for Exploration ("Exploration Permit") and (3)
Permit to Affect for Construction and Exploitation ("Exploitation Permit").
Although not consistently applied in the past, regulations state that the MEM
will apply for and obtain the Occupation Permit on behalf of those persons or
entities applying for concessions before granting the concession title.
Applicants submit an environmental questionnaire to MEM, which they in turn
submit to the Ministry of the Environment and Renewable Natural Resources. The
exploration permit that Brisas applies for annually is an authorization to
perform only those activities relating to exploration, such as drilling,
building of camps, cutting lines and trenching. The production permitting
process is initiated by filing the proposed terms of reference, which when
approved, will serve as the basis for an Environmental Impact Study ("EIS"). The
format for the EIS is stipulated in a 1996 law (decree #1257) and conforms to an
international standard. See "Risk Factors -- Risks Associated with the
Continuing Business of GR-Montana -- Environmental Matters."
GR-Montana holds the Occupation Permits for the Brisas alluvial and
hardrock concessions and plans to continue to apply for additional permits as
further development dictates. GR-Montana believes that the alluvial and hardrock
concessions should be exploited as one project. Because the law treats each
concession separately, GR-Montana plans to initiate discussions with the MEM and
Ministry of the Environment and Renewable Natural Resources to seek alternatives
to the duplication of environmental
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studies and permitting. There can be no assurance, however, that GR-Montana's
efforts to reduce such duplication will be successful.
TAXES. The Venezuelan tax law provides for a maximum corporate income tax
rate on mining companies of 34%. This rate applies to net income over
approximately $32,000 (U.S. dollars) depending on exchange rates. Other
Venezuelan taxes that apply or may eventually apply to GR-Montana's subsidiaries
include a 1% tax on paid-in-capital (equity), 16.5% luxury goods and wholesale
tax, which applies to goods and services, municipal taxes, which vary from .1%
to 10%, import duties on mining equipment, which range from 5% to 20%, surface
taxes, which are currently set at less than $1 per hectare per concession, and
exploitation taxes, which range from 1% to 7% depending on the metal and whether
it is sold domestically or exported. GR-Montana's Brisas subsidiary currently
pays luxury goods and wholesale taxes on certain purchases within Venezuela and
expects that taxes on revenue generated from the future sale, if any, of gold to
the Central Bank will result in a refund of these taxes. To date, GR-Montana has
paid approximately $1 million of luxury goods and wholesale taxes. Venezuela
offers certain exemptions from the luxury goods and wholesale taxes and import
duties to mining companies. GR-Montana is in the process of applying for these
exemptions. Certain local municipalities including the Municipality of Sifontes,
in which the Brisas property is located, have proposed plans to impose certain
taxes on mining activities. The mining industry has challenged the
municipalities' right to impose such taxes on the basis that the nation has
reserved the exclusive right to tax mining activities. In an action favorable to
the mining industry, the Venezuelan Supreme Court has granted an injunction
prohibiting the collection of such taxes by the municipalities.
POLITICAL AND ECONOMIC SITUATION. Venezuela has been a democracy for the
past 40 years and in December 1998 will hold a presidential election. Based on
the public political platforms of the leading candidate, the outcome of the
election may have broad implications for the country's democratic system, as
well as the future of the much needed free-market reforms and foreign
investment.
The government's primary source of revenue is derived from its state-owned
oil company. As a result, the economy of Venezuela is dependant upon the oil
industry. During the last several years, low oil prices have led to a
substantially weakened economy, resulting in decreased economic growth,
unemployment and, to a certain extent, social unrest. During the last decade,
Venezuela has also experienced high levels of inflation. This has led the
Central Bank to impose a currency exchange policy whereby the bolivar is traded
within a certain band based upon its estimated monthly devaluation. The Central
Bank has not strictly followed this policy, however, and some Venezuelan
economists believe the bolivar is overvalued by 30% or more. The government has
indicated that it is not planning to devalue the bolivar prior to the December
1998 election. The government estimates the inflation rate for 1998 to be 32%
compared to 38% and 103% for 1997 and 1996, respectively.
In addition to the eventual outcome of the elections and the near and
long-term policies of the new government, a number of challenges remain,
including judicial reform, approval by the Venezuelan Congress and the United
States Congress of the tax and bilateral investment treaties and full
implementation of the government's plan to meet IMF criteria for loan approval.
GOLD SALES. The Central Bank allows gold mining companies to sell up to 85%
of their production on the international market. The remaining 15% must be sold
to the Central Bank at the current market price, which is paid in Venezuelan
currency. Gold sold on the international market is typically levied a minimum
mining tax of 4% of the market price unless GR-Montana agrees to a higher tax by
special advantages established in the concession agreement. The mining tax for
gold sold to the Central Bank is 1% of the market price. Gold sales to the
Central Bank will be paid in bolivares that can be converted to US dollars at
the prevailing exchange rate. The US dollars can be then transferred outside of
Venezuela. Gold sales to the Central Bank will result in a recovery of some, if
not all, of the 16.5% luxury goods and wholesale tax paid as incurred. Gold
contained in the concentrate shipped outside of Venezuela for further processing
does not need to be considered for the required minimum gold sales to the
Central Bank.
LABOR. Venezuela has enacted extensive labor laws and regulations. During
1997 Venezuela entered into major agreements with the public and private sectors
on new social security laws, which are expected
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to improve benefit plans for employees. GR-Montana plans to fill as many
positions as possible with Venezuelan nationals. It is anticipated that, in the
initial stages of the Brisas project, approximately 95% of the workforce will be
Venezuelan. In order to maintain or exceed this level, GR-Montana will implement
an extensive training program over the life of the project on the Brisas
property. GR-Montana plans to draw on Venezuela's large industrial base to staff
many of its positions, but the experience base for large-scale mining and
milling operations in Venezuela is limited. The Brisas project will draw on the
Puerto Ordaz area to fill a significant portion of its staffing requirements.
GR-Montana plans to staff all management and engineering positions out of Puerto
Ordaz, and GR-Montana believes that, of the remaining lower level positions,
only one-third will be filled from the local (Las Claritas) area.
EMPLOYEES
As of October 31, 1998, GR-Montana employed 10 people in its Spokane,
Washington office and approximately 50 people in Venezuela, of which
approximately 30 are located at the Brisas property. The day-to-day activities
of GR-Montana's Venezuelan operations are managed from its offices in Caracas
and Puerto Ordaz.
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MARKET FOR GR-MONTANA'S COMMON EQUITY
AND RELATED SHAREHOLDER MATTERS
MARKET PRICE INFORMATION
The GR-Montana Common Stock is traded on the Nasdaq SmallCap System under
the symbol "GLDR" and on the Toronto Stock Exchange under the symbol "GLR." On
November 24, 1998, the GR-Montana Common Stock closed at $1.19 (U.S. dollars) on
the Nasdaq SmallCap System and at $1.75(Canadian dollars) on the Toronto Stock
Exchange. We urge you to check current stock prices before you make any decision
about the reorganization.
The following table sets forth the high and low prices per share as
reported on the Nasdaq SmallCap System and the Toronto Stock Exchange for the
GR-Montana Common Stock for the past three years.
<TABLE>
<CAPTION>
THE NASDAQ SMALLCAP TORONTO STOCK
SYSTEM EXCHANGE
------------------- ------------------
HIGH LOW HIGH LOW
------- ------ ------- ------
(U.S. DOLLARS) (CANADIAN DOLLARS)
<S> <C> <C> <C> <C>
1996:
First Quarter.............................. $10.25 $5.75 $14.25 $7.38
Second Quarter............................. 10.38 7.00 14.50 9.50
Third Quarter.............................. 15.75 7.38 21.70 10.00
Fourth Quarter............................. 14.63 9.25 20.00 12.40
1997:
First Quarter.............................. 11.50 7.38 15.60 9.65
Second Quarter............................. 9.63 7.00 14.00 9.80
Third Quarter.............................. 8.50 5.50 11.80 7.80
Fourth Quarter............................. 8.00 1.75 11.15 2.35
1998:
First Quarter.............................. 3.75 2.25 5.34 3.09
Second Quarter............................. 3.75 1.75 5.41 2.50
Third Quarter.............................. 2.00 0.88 3.19 1.40
Fourth Quarter (through November 24,
1998)................................... 1.88 1.13 3.00 1.68
</TABLE>
HOLDERS
The number of holders of GR-Montana Common Stock of record on October 28,
1998, was approximately 1,300. Based on recent mailings to its shareholders,
GR-Montana believes its Common Stock is owned beneficially by approximately
11,000 persons.
DIVIDENDS
GR-Montana has declared no cash or stock dividends on GR-Montana Common
Stock since 1984. GR-Montana has no present plans to pay any cash dividends on
GR-Montana Common Stock, and GR-Montana will declare cash dividends in the
future only if the earnings and capital of GR-Montana are sufficient to justify
the payment of such dividends.
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GOLD RESERVE CORPORATION
HISTORICAL FINANCIAL DATA
The following selected historical financial data as of September 30, 1998
and 1997 and for the nine month periods ended September 30, 1998 and 1997 were
derived from unaudited historical consolidated financial statements of
GR-Montana which, in the opinion of management, reflect all adjustments
(consisting of normal recurring adjustments) necessary for a fair presentation
of the periods reported. The following selected historical financial data as of
December 31, 1997, 1996, 1995, 1994 and 1993 and for each of the five years in
the period ended December 31, 1997 were derived from the audited consolidated
financial statements of GR-Montana. The information contained in this table
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the consolidated financial
statements and accompanying notes thereto appearing elsewhere in this Proxy
Statement/Joint Prospectus. The consolidated financial statements of GR-Montana
have been prepared in accordance with U.S. GAAP and are presented in U.S.
dollars. There are no significant differences between U.S. GAAP and Canadian
GAAP with respect to the presentation of GR-Montana consolidated financial
statements. Financial information in such reports filed by GR-Canada will be
prepared in accordance with Canadian GAAP that are U.S. dollar-based and will
include a reconciliation of such information with U.S. GAAP.
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
----------------- ------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
------- ------- ------- ------- ------- -------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Other Income.................................... $ 852 $ 1,405 $ 1,737 $ 1,489 $ 1,407 $ 1,396 $ 516
Net Loss........................................ (1,426) (1,164) (1,533) (830) (337) (23,740) (2,844)
Loss Per Share of Common Stock(1)............... (0.06) (0.05) (0.07) (0.04) (0.02) (1.68) (0.28)
Total Assets.................................... 67,530 73,936 73,293 73,772 52,262 43,263 13,907
Contract payable................................ -- -- -- -- 187 124 825
Shareholders' equity............................ 65,708 66,847 66,549 67,193 47,073 37,900 11,792
Common Stock:
Issued........................................ 23,177 22,897 22,918 22,704 20,477 18,930 11,723
Outstanding (2)............................... 22,705 22,416 22,437 22,223 19,996 18,577 11,429
</TABLE>
- ---------------
(1) Basic and diluted.
(2) Great Basin and MegaGold, each consolidated subsidiaries of GR-Montana, own
shares of GR-Montana Common Stock, representing an indirect investment in
itself. GR-Montana's proportionate ownership interest in GR-Montana Common
Stock held by these entities represents the difference between issued and
outstanding shares.
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GOLD RESERVE CORPORATION AND GOLD RESERVE INC.
PRO FORMA COMBINED BALANCE SHEET
The following pro forma combined balance sheet was prepared by GR-Montana
to illustrate the effects of the reorganization. The reorganization will not
have any effect on the historical statement of operations of GR-Montana for the
nine-months ended September 30, 1998 or the year ended December 31, 1997.
Therefore, the pro forma statements of operations for the nine-months ended
September 30, 1998 and the year ended December 31, 1997 have not been presented.
The pro forma financial statements should be read in conjunction with the
historical consolidated financial statements, "Gold Reserve Corporation
Historical Financial Data" and the Financial Statements and Notes thereto, of
GR-Montana and GR-Canada which are included elsewhere in this Proxy
Statement/Joint Prospectus.
Due to GR-Montana and GR-Canada being related entities, the reorganization
has been accounted for as if a pooling of interests.
<TABLE>
<CAPTION>
GR-MONTANA GR-CANADA
SEPTEMBER 30, PRO FORMA PRO FORMA
1998 ADJUSTMENT (A) COMBINED
------------- -------------- -----------
<S> <C> <C> <C>
ASSETS:
Cash and cash equivalents................................. $ 5,383,471 $ 5,383,471
Investments:
Held-to-maturity securities............................. 15,048,887 15,048,887
Accrued interest on investments......................... 207,283 207,283
Deposits, advances and other.............................. 477,183 477,183
----------- ------------ -----------
Total Current Assets............................... 21,116,824 21,116,824
Property, plant and equipment, net........................ 40,286,995 40,286,995
Investments:
Available-for-sale securities........................... 1,283,767 1,283,767
Held-to-maturity securities............................. 3,498,842 3,498,842
Other..................................................... 1,343,440 1,343,440
----------- ------------ -----------
Total Assets....................................... $67,529,868 $67,529,868
=========== ============ ===========
LIABILITIES:
Accounts payable and accrued expenses..................... $ 411,713 $ 411,713
Note payable -- KSOP, current portion..................... 414,771 414,771
----------- ------------ -----------
Total Current Liabilities.......................... 826,484 826,484
Minority interest in consolidated subsidiaries.............. 995,121 995,121
----------- ------------ -----------
Total Liabilities.................................. 1,821,605 1,821,605
----------- ------------ -----------
Commitments and contingencies............................... -- -- --
SHAREHOLDERS' EQUITY:
Serial preferred stock, without par value
Authorized shares: 20,000,000; issued: none............. --
Common stock, without par value
Authorized shares: 480,000,000; issued: 23,176,767;
outstanding: 22,705,329............................... 101,644,509 (101,644,509) --
Class A Stock, without par value
Authorized shares: unlimited; issued and outstanding
shares: 18,541,414.................................... -- 81,315,607 81,315,607
Equity Units.............................................. -- 20,328,902 20,328,902
Less, common stock held by affiliates..................... (403,331) (403,331)
Accumulated other comprehensive (loss)
Unrealized (loss) on available-for-sale securities...... (12,500) (12,500)
Accumulated deficit....................................... (35,105,644) (35,105,644)
KSOP debt guarantee....................................... (414,771) (414,771)
----------- ------------ -----------
Total Shareholders' Equity......................... 65,708,263 65,708,263
----------- ------------ -----------
Total Liabilities and Shareholders' Equity......... $67,529,868 $67,529,868
=========== ============ ===========
</TABLE>
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- ---------------
(A) Adjustment reflects the assumed conversion of 20% of the outstanding shares
of GR-Montana Common Stock into equity units which consist of one share of
GR-Montana Class B Stock and one GR-Canada Class B Share and the conversion
of 80% of the outstanding GR-Montana Common Stock into GR-Canada Class A
Shares.
Note to Pro Forma Combined Balance Sheet:
No pro forma statement of operations for the nine-months ended September
30, 1998, and the year ended December 31, 1997, has been presented because the
reorganization does not result in any pro forma differences.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following should be read in conjunction with GR-Montana's Selected
Financial Data, Historical Financial Data, Summary Pro Forma Combined Financial
Information and GR-Montana's Financial Statements and Notes thereto included
elsewhere in this Proxy Statement/Joint Prospectus.
SUMMARY
Since 1992, GR-Montana's primary focus has been the exploration of its
Brisas property in Venezuela. GR-Montana has no revenue from mining operations
and has experienced losses from operations for each of the last five fiscal
years. GR-Montana expects to continue to incur losses from operations for the
next several years as the result of, among other factors, increased expenditures
associated with the corporate management of exploration and development
activities on the Brisas property as well as other exploration expenses not
associated with the Brisas property. Management expects this trend to reverse if
and when the Brisas property is developed and gold and copper are produced in
commercial quantities, but there can be no assurances such production will
occur. Other significant events must occur before commercial production on the
Brisas property can begin. These include the completion of the final feasibility
study, the establishment of proven and probable reserves, the procurement of all
necessary regulatory permits and approvals, an increase in the market price of
gold and the procurement of adequate funding. See "Information Concerning
GR-Montana." All expenditures relating to exploration and development activities
on the Brisas property have been capitalized and recorded on GR-Montana's
balance sheet as property, plant and equipment (capitalized exploration and
development costs). As a consequence, the consolidated results of operations for
the years presented consist of expenses related to activities other than the
exploration and development of the Brisas property partially offset by interest
income from invested funds.
LIQUIDITY AND CAPITAL RESOURCES
INVESTING. On a cumulative basis, as of September 30, 1998 GR-Montana has
drilled 756 holes consisting of approximately 166,000 meters and has expended
approximately $63 million on the Brisas property. These costs include property
acquisition costs of $2 million, capitalized exploration and development costs
and equipment expenditures of $38.5 million and prior litigation settlement
costs of $22.5 million (which were expensed in 1994). Amounts recorded as
property, plant and equipment (capitalized exploration and development costs)
include all costs associated with the Brisas property, including personnel and
related administrative expenditures incurred in Venezuela, drilling and related
exploration costs, capitalized interest expenses, legal costs associated with
the Brisas ownership dispute settled in 1994 and general support costs related
to the Brisas property.
The Brisas property recovery plant, as presently proposed in the
pre-feasibility report, is expected to consist of a conventional 55,000 tonne
per day, gravity/flotation/cyanidation process and cost an estimated $293
million. Ongoing life of mine capital requirements are estimated at $53 million
and working capital needs are estimated at $15 million. The ultimate design of
the plant is subject to the results of the final feasibility study. There can be
no assurance that the final study will conclude that the planned operation will
be economically feasible. Various permitting required for the Brisas property
(primarily the EIS) is ongoing and approvals from the MEM and the Ministry of
the Environment and Renewable National Resources are expected during 1998 and
1999, although there can be no assurances such permits will be issued. Detailed
engineering work will commence after the receipt of the necessary operating and
environmental permits and as gold and copper prices warrant. Under the timetable
presently contemplated by GR-Montana, initial production would commence no
earlier than January 2000, with full production expected to commence no earlier
than mid-2001. Final development of the Brisas property is dependent upon the
future price of gold and copper, completion of a bankable feasibility study
including the establishment of proven and probable reserves, obtaining adequate
financing, and obtaining the appropriate environmental and operating permits.
There can be no assurance, however, that GR-Montana will begin or complete such
construction according to this schedule or that, if completed, the facility will
begin
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commercial production as planned. See "Information Concerning GR-Montana -- The
Brisas Property -- Planned Development."
FINANCING. GR-Montana has financed its general business and exploration and
development activities in Venezuela principally from the sale of GR-Montana
Common Stock and has raised, since 1992, approximately $68 million in equity
financing to support its overall business activities. These transactions
consisted of the sale of additional shares of GR-Montana Common Stock, or
warrants to purchase GR-Montana Common Stock, and the exercise of previously
issued warrants and options to purchase GR-Montana Common Stock. GR-Montana will
require additional financing in order to place the Brisas property into
production, which is estimated to be as much as $293 million for the
construction of the Brisas property recovery plant, ancillary facilities and
equipment, related development costs and $15 million for working capital. Future
construction costs and development expenses, and the cost of placing the Brisas
property or additional future properties into production, if warranted, are
expected to be financed by a combination of the sale of additional GR-Montana
Common Stock, bank borrowings or other means. Whether and to what extent
additional or alternative financing options are pursued by GR-Montana depends on
a number of important factors, including if and when mine development activities
are commenced on the Brisas property, management's assessment of the financial
markets, the current price of gold, the acquisition of additional properties or
projects and the overall capital requirements of the consolidated corporate
group. There can be no assurances financing will be available on commercially
reasonable terms, if at all.
Management could determine that it is in the best interest of GR-Montana
and its shareholders to sell the Brisas property to another mining company for
development, or to enter into a joint development or similar arrangement with
another company to develop the Brisas property and thereby reduce the economic
risk to GR-Montana were it to proceed with development on its own. GR-Montana
has not entered into discussions with any other mining company in this regard,
nor has it shared any of its exploration data. Whether GR-Montana would pursue
any of these alternatives to commercial development of the Brisas property
cannot presently be determined.
As of October 31, 1998, GR-Montana held approximately $25 million in cash
and current and long-term held-to-maturity securities. The 1998 and 1999
budgets, which exclude future construction costs related to the proposed mining
facilities, are each estimated to be approximately $4 million and $6 million,
respectively, with approximately $2 million and $4 million, respectively,
designated for further development of the Brisas property. Management
anticipates that its current cash and investment positions are adequate to cover
estimated operational and capital expenditures through 1999.
RESULTS OF OPERATIONS
SEPTEMBER 30, 1998 COMPARED TO SEPTEMBER 30, 1997. Consolidated net loss
for the nine months ended September 30, 1998 amounted to $1,425,984 or $0.06 per
share, compared to consolidated net loss of $1,164,339 or $0.05 per share for
the same period in 1997. These changes resulted from other income for the
current nine month period decreasing over the comparable period in 1997 due to
decreased interest income from lower average levels of invested cash and
increased foreign exchange loss due to the depreciation of the Venezuelan
currency. Operating expenses during the nine months ended September 30, 1998
stayed substantially the same as the comparable period in 1997.
1997 COMPARED TO 1996. The consolidated net loss for the year ended
December 31, 1997 was $1,532,801, or $0.07 per share, an increase of
approximately $703,000 from the prior year. Other income for 1997 amounted to
$1,737,916, which is an increase of approximately $249,000 over the previous
year. The increase in other income is principally due to higher returns on
invested cash. Operating expenses for the year amounted to $3,270,717, which is
an increase from the prior year of approximately $952,000. The major components
of the increase in operating expenses are increases in general and
administrative expenses of approximately $317,000 and directors' and executive
officers' compensation of approximately $511,000. The increase in general and
administrative expense was primarily related to costs associated with
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the addition of new employees. Directors' and officers' compensation increased
as a result of increases in compensation and the addition of several new
executives during the first quarter of 1997.
1996 COMPARED TO 1995. The consolidated net loss for the year ended
December 31, 1996 was $829,938, or $0.04 per share, an increase of approximately
$493,000 from the prior year. Other income for 1996 amounted to $1,488,857,
which was an increase of approximately $82,000 over the previous year and
principally due to gains on the sale of investments, partially offset by a
decrease in interest income due to lower returns on invested cash. Operating
expenses for the year amounted to $2,318,795, which is an increase from the
prior year of approximately $575,000. The major components of the increase in
operating expenses were increases in general and administrative expenses of
approximately $209,000, legal and accounting expenses of approximately $211,000
and directors' and executive officers' compensation of approximately $172,000.
The increase in general and administrative expenses was primarily due to
increases in compensation and related expenses. Legal and accounting expense
increased due to GR-Montana's ongoing securities compliance and reporting in the
United States and Canada and compliance and permitting activities in Venezuela.
Directors' and executive officers' compensation increased as a result of salary
increases for executive officers and first time compensation paid to the
directors.
YEAR 2000 READINESS
GR-Montana has made a preliminary assessment of its requirements regarding
Year 2000 issues, which generally refers to the inability of hardware, software
and control systems to correctly identify two-digit references to specific
years, beginning with the Year 2000. This assessment focused on the impact of
the lack of Year 2000 compliance upon GR-Montana in three major areas;
(1) internal systems under the control of GR-Montana;
(2) systems of third party suppliers or contractors; and
(3) systems maintained by governmental agencies and major public and
private service providers located in Venezuela.
GR-Montana's evaluation of Year 2000 readiness is expected to cost less
than $10,000.
Internally, GR-Montana's present business operations are not dependent upon
sophisticated information systems. Management has concluded that GR-Montana's
operations as they relate to its internal systems will not be materially
impacted by Year 2000 issues and no contingency plans have been developed.
GR-Montana does not at this time have any material relationships with third
party suppliers which, if such suppliers had significant Year 2000 problems,
would have a material impact upon GR-Montana. To that end, the ongoing Brisas
feasibility study is expected to include an evaluation of Year 2000 readiness as
it relates to the proposed future development of the Brisas property. Although
GR-Montana believes that the feasibility study will address such issues and
provide for contingency plans, the study is not yet complete and subsequent
analysis may lead to discovery of material issues or costs.
GR-Montana's primary asset, the Brisas property, is located in Venezuela
and as a result Year 2000 readiness of governmental agencies and public and
private service providers within Venezuela may have a significant impact upon
GR-Montana. To management's knowledge, there are no published reports
documenting the Year 2000 compliance efforts and progress of such governmental
agencies and major public and private service providers located in Venezuela.
Compliance-related failures of future material third-party suppliers and
contractors providing services directly to GR-Montana or failures related to
governmental agencies and public and private service providers within Venezuela
could be significant and could cause an interruption of business that would be
material to GR-Montana. The impact of such interruptions could, among other
things, include a significant
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delay in construction or material increase in costs related to the development
of the Brisas property, assuming development of the project is deemed to be
economically feasible.
Based on the current information available to GR-Montana, the significance
of Year 2000 difficulties which might be experienced by others outside
GR-Montana's control, the magnitude of future business disruption upon
GR-Montana and the costs of such disruption cannot be estimated at this time.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, SFAS No. 130, "Reporting Comprehensive Income," was issued.
This Statement requires that comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements. This Statement does not require a specific format for the financial
statement, but requires that an enterprise display net income as a component of
comprehensive income in the financial statement. Comprehensive income is defined
as the change in equity of a business enterprise arising from non-owner sources.
The classifications of comprehensive income under current accounting standards
include foreign currency items, minimum pension liability adjustments and
unrealized gains and losses on certain investments in debt and equity
securities. This Statement is effective for fiscal years beginning after
December 15, 1997. Management does not believe that the implementation of SFAS
No. 130 will have a material impact on the presentation of its consolidated
financial statements.
Also in June 1997, the FASB issued SFAS No. 131, "Disclosures about
Segments for an Enterprise and Related Information." This Statement will change
the way public companies report information about segments of their business in
their annual financial statements and requires them to report selected segment
information in their quarterly reports issued to shareholders commencing with
the first quarter of 1999. It also requires entity-wide disclosures about the
products and services an entity provides, the material countries in which it
holds assets and reports revenues, and its major customers. The Statement is
effective for fiscal years beginning after December 15, 1997. GR-Montana does
not believe the application of this standard will have a material impact on the
presentation of its financial statements.
GR-Montana adopted the provisions of SFAS No. 128, "Earnings Per Share," in
1997. Due to the net losses incurred in all periods presented, stock options
were not included in the calculations as they are anti-dilutive. As a result,
the adoption of SFAS No. 128 had no impact on prior year net loss per share
disclosure.
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MANAGEMENT OF GR-MONTANA
The directors and executive officers of GR-Montana as of September 30,
1998, are as follows:
Rockne J. Timm, President and Chief Executive Officer and Director. Mr.
Timm, age 53, became Treasurer and a director in March 1984, and became
President and Chief Executive Officer in August 1988. He was a director of
Neptune Resources Inc. and its successor, Northwest Gold Corp., from 1987 to
1993 and Vice President of Finance, Treasurer and Chief Financial Officer of
Pegasus Gold Inc. from 1981 to 1987. Mr. Timm is also President and a director
of Great Basin and MegaGold, and a director and an executive officer of each of
GR-Montana's foreign subsidiaries. Mr. Timm is a certified public accountant and
resides in Spokane, Washington.
A. Douglas Belanger, Executive Vice President and Director. Mr. Belanger,
age 45, became Executive Vice President in August 1988 and was Secretary from
June 1993 through December 1996. He also serves as Vice President and a director
of Great Basin and MegaGold, and a director and an executive officer of each of
GR-Montana's foreign subsidiaries. Mr. Belanger served as Vice President for
corporate affairs of Pegasus Gold Inc. from April 1982 to June 1987. Mr.
Belanger resides in Spokane, Washington.
James P. Geyer, Senior Vice President and Director. Mr. Geyer, age 46,
became Senior Vice President in January 1997 and a director in June 1997. He has
also been a director of Wheaton River Minerals, a Canadian company, since 1998.
During the previous 10 years, Mr. Geyer was employed by Pegasus Gold
Corporation, most recently as Vice President of Operations. Mr. Geyer has 24
years experience in underground and open pit mining and has held various
engineering and operations positions with AMAX and ASARCO. Mr. Geyer has a
Bachelor of Science degree in mining engineering from the Colorado School of
Mines. Mr. Geyer resides in Spokane, Washington.
Patrick D. McChesney, Director. Mr. McChesney, age 48, was Vice President
of Finance until March 1993 and was Chief Financial Officer from August 1988
until June 1993. Since July 1987, Mr. McChesney's principal occupation has been
as President of Logue-McDonald Automation, Inc., a company engaged in building
equipment for microchip testing, and, since March 1996, Mr. McChesney has served
as President of LMO Test Systems, Inc., a company engaged in building equipment
for microchip testing. He is also a director of MegaGold. From 1983 through June
1987, Mr. McChesney was Controller of Pegasus Gold Inc. Mr. McChesney is a
certified public accountant and resides in Spokane, Washington.
Jean Charles Potvin, Director. Mr. Potvin, age 45, became a director in
November 1993 and since 1993 has also been a director and Chairman and Chief
Executive Officer of Tiomin Resources Inc., a Canadian company, and a director,
President and Chief Executive Officer of Pangea Goldfields, Inc., a Canadian
company. Prior to becoming a director, Mr. Potvin was Senior Gold Mining
Analyst, Vice President and a director of Nesbitt Burns Inc. (formerly Burns Fry
Ltd.), a major Canadian investment dealer. Mr. Potvin resides in Toronto,
Ontario.
James H. Coleman, Director. Mr. Coleman, age 48, became a director in
February 1994 and is a senior partner and Chairman of the Executive Committee of
the law firm of Macleod Dixon of Calgary, Alberta, counsel to GR-Montana. Mr.
Coleman has been with his law firm since 1974. He is also a director of Total
Resources (Canada) Limited, McCarthy Corporation plc, Minven Inc., Energold
Mining Ltd., Parys Mountain Mines Ltd., ENVIROX, Net Shepherd Inc., Pangea
Goldfields, Inc. and Anadime Corp. From 1989 to 1993 he was a director of
Northwest Gold Corp. and from 1988 to 1995 was a director of Ranchmen's
Resources Ltd. Mr. Coleman is also a director of Great Basin and MegaGold. Mr.
Coleman resides in Calgary, Alberta.
Chris D. Mikkelsen, Director. Mr. Mikkelsen, age 47, became a director in
June 1997 and has been a principal in the accounting firm of McDirmid, Mikkelsen
& Secrest, P.S., since 1976. He is a certified public accountant with an
extensive background in providing operational and tax advice to a wide variety
of clients and businesses. Mr. Mikkelsen is also a director of Great Basin and
MegaGold. Mr. Mikkelsen resides in Spokane, Washington.
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<PAGE> 99
Robert A. McGuinness, Vice President of Finance and Chief Financial
Officer. Mr. McGuinness, age 42, became Vice President of Finance in March 1993
and Chief Financial Officer in June 1993. Mr. McGuinness is also Vice President
of Finance and Chief Financial Officer of Great Basin and MegaGold. During the
previous three years, Mr. McGuinness was Vice President of Finance for Millisat
Holdings Incorporated. Prior to 1990, Mr. McGuinness served as the financial
officer for several domestic and internationally-based companies specializing in
electronics and biotechnology. Mr. McGuinness is a certified public accountant
and resides in Spokane, Washington.
Richard J. Kehmeier, Vice President of Exploration. Mr. Kehmeier, age 50,
became Vice President of Exploration in November 1996. During the previous three
years, Mr. Kehmeier was a geological consultant to the mining industry. Mr.
Kehmeier was Vice President of Exploration for Atlas Corporation from 1990 to
1993. Prior to that time, Mr. Kehmeier worked for Atlas in various field and
management positions. Mr. Kehmeier has a Bachelor of Science and a Master of
Science in geological engineering and geology from the Colorado School of Mines.
He has over 28 years of experience in mining and exploration. He resides in
Spokane, Washington.
Mary E. Smith, Vice President of Administration and Secretary. Ms. Smith,
age 45, became Vice President of Administration and Secretary in January 1997.
During the previous 16 years, she was employed by Pegasus Gold Corporation in
several administrative positions and most recently as Manager of Compensation
and Benefits for Pegasus Gold Corporation. Ms. Smith is also the Vice President
of Administration and Secretary for Great Basin and MegaGold. She resides in
Colbert, Washington.
Douglas E. Stewart, Vice President Project Development. Mr. Stewart, age
47, became Vice President of Project Development in April 1997. During the
previous six years, Mr. Stewart was employed by Pegasus Gold Corporation, most
recently as General Manager of the Florida Canyon Mine. Mr. Stewart has over 23
years experience in the mining industry that includes various management
positions with FMC Corporation, Getty Oil Minerals Division, Consolidated Coal
Company and AMAX Coal Company. Mr. Stewart has a Bachelor of Science degree in
mining engineering from South Dakota School of Mines and Technology. Mr. Stewart
resides in Lone Tree, Colorado.
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<PAGE> 100
COMPENSATION OF GR-MONTANA'S EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE
The following table sets forth the summary of compensation paid or accrued
during fiscal years 1995-1997 to GR-Montana's Chief Executive Officer and each
of the other executive officers of GR-Montana who earned in excess of $100,000
in fiscal year 1997 (the "Named Executive Officers").
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
-------------------- ---------------
SECURITIES
FISCAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS/SARS(1) COMPENSATION(2)
--------------------------- ------ --------- -------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
ROCKNE J. TIMM, 1997 $195,000 $60,000(3) 535,500 $30,000
President and Chief 1996 165,000 56,700 390,500 30,000
Executive Officer 1995 150,000 45,000 185,000 30,000
A. DOUGLAS BELANGER, 1997 175,000 50,000(3) 473,955 30,000
Executive Vice President 1996 132,000 43,200 353,500 30,000
1995 120,000 38,000 160,000 30,000
JAMES P. GEYER(4), 1997 168,509 44,063 190,000 --
Senior Vice President 1996 -- -- -- --
1995 -- -- -- --
ROBERT A. McGUINNESS, 1997 120,000 25,000 208,205 30,000
Vice President of Finance 1996 93,000 28,925 120,985 25,160
and Chief Financial Officer 1995 74,938 25,313 150,985 21,658
</TABLE>
- ---------------
(1) Consists of the number of shares of GR-Montana Common Stock issuable to the
Named Executive Officers pursuant to options held at the end of each
reported period. For information concerning the value of the unexercised
portion of such options at December 31, 1997, see "Option Exercises and
Option Values." As a result of the Option Exchange Program discussed below,
the option grants reflected in this table with an option price in excess of
$3.75 per share were exchanged for the same number of options, vesting
ratably over two years beginning March 23, 1998, at an exercise price of
$3.75 per share, and expiring on March 23, 2003. See "-- Option Exchange
Program."
(2) Consists of the dollar value of GR-Montana Common Stock purchased under the
KSOP Plan and allocated to the account of each Named Executive Officer
during 1997, 1996 and 1995, respectively, as follows: Mr. Timm, 5,960
shares, 5,581 shares, 4,880 shares; Mr. Belanger, 5,960 shares, 5,581
shares, 4,880 shares; and Mr. McGuinness, 5,960 shares, 4,681 shares, 3,523
shares.
(3) Includes $20,000 compensation earned pursuant to the Named Executive
Officer's duties as a director.
(4) Mr. Geyer became an executive officer of GR-Montana in February 1997.
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<PAGE> 101
OPTIONS GRANTED IN LAST FISCAL YEAR
The following table provides information on options granted during the year
ended December 31, 1997, to the Named Executive Officers of GR-Montana. In March
1998, GR-Montana carried out an option exchange program. As a result, the
information provided in the table below should be read in conjunction with the
information set forth under "-- Option Exchange Program."
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------ POTENTIAL REALIZABLE
PERCENT OF VALUE AT ASSUMED
TOTAL ANNUAL RATES OF
NUMBER OF OPTIONS STOCK PRICE
SECURITIES GRANTED OPTION APPRECIATION FOR
UNDERLYING TO EXERCISE OPTION TERM(3)
OPTIONS EMPLOYEES PRICE PER EXPIRATION ---------------------
EXECUTIVE OFFICER GRANTED(1)(2) IN 1997 SHARE(2)(4) DATE AT 5% AT 10%
----------------- ------------- ---------- ----------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
ROCKNE J. TIMM......................... 100,000 6.5% $7.56 1/31/07 $475,444 $1,204,869
55,000 3.6% 6.00 8/1/07 207,535 525,935
A. DOUGLAS BELANGER.................... 80,000 5.2% 7.56 1/31/07 380,355 963,895
45,000 2.9% 6.00 8/1/07 169,802 430,310
JAMES P. GEYER......................... 160,000 10.4% 8.81 1/16/07 886,741 2,247,177
30,000 2.0% 6.00 8/1/07 113,201 286,874
5,000 0.3% 2.88 12/17/07 9,040 22,910
ROBERT A. McGUINNESS................... 60,000 3.9% 7.56 1/31/07 285,267 722,922
30,000 2.0% 6.00 8/1/07 113,201 286,874
</TABLE>
- ---------------
(1) Options granted during the year ended December 31, 1997, for the purchase of
1,535,000 shares of GR-Montana Common Stock were authorized pursuant to the
1997 Plan and are intended to qualify under Section 422 of the Code. In the
case of Mr. Timm and Mr. Belanger, all such options were fully vested at the
date of grant. In the case of Mr. Geyer and Mr. McGuinness, shares vested
ratably over two years. Options were exercisable for shares of GR-Montana
Common Stock, at the exercise prices set forth in the table, for a period of
10 years, measured from the respective grant dates.
(2) As a result of the Option Exchange Program discussed below, the option
grants reflected in this table with an option price in excess of $3.75 per
share were exchanged for the same number of options, vesting ratably over
two years beginning March 23, 1998, at an exercise price of $3.75 per share,
and expiring on March 23, 2003. See "-- Option Exchange Program."
(3) The potential realizable value of the options has been calculated according
to prescribed regulations and assumes the market price of the underlying
GR-Montana Common Stock appreciates in value from the date such options were
granted until the expiration date of the options, at the specified annual
compounded rates. As a result, the foregoing table does not set forth the
value of the unexercised portion of such options at December 31, 1997. The
value of such options at December 31, 1997, measured as the difference
between the closing sales price of GR-Montana Common Stock at such date,
which was $3.625, and the exercise price of the options, is set forth in the
right hand column of the table titled "Option Exercises and Option Values"
below.
(4) Fair market value at date of grant.
OPTION EXCHANGE PROGRAM
In November 1997, the Board of Directors initiated a review to determine
the need for a stock option exchange program. The review included an evaluation
of the motivation and retention value of GR-Montana's current equity incentive
plans as it related to outstanding stock option grants held by option plan
participants which includes directors, executive officers, employees and
advisors. As of March 31, 1998, approximately 75% (2,661,223 stock options out
of a total 3,552,075 stock options) of outstanding stock options to purchase
GR-Montana Common Stock were "underwater," with exercise prices in excess of the
current market value per share.
The Board of Directors' evaluation was prompted by the substantial decline
in GR-Montana's stock price from a 52-week high of approximately $9.50 (U.S.
dollars) on the Nasdaq SmallCap System
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<PAGE> 102
(May 1997) to a low of approximately $1.80 (U.S. dollars) on the Nasdaq SmallCap
System (December 1997) and approximately $2.59 (U.S. dollars) on the Nasdaq
SmallCap System per share on March 23, 1998. Concurrent with GR-Montana's share
price decline, the Toronto Stock Exchange Gold Index comprised of 31 gold
companies representing a cross section of gold companies traded on the exchange
experienced a 40% decline. The Board of Directors concluded that, based on a
number of factors, a long-term and pervasive, industry-wide correction outside
the control of management had occurred in the market valuation of gold stocks.
As a result, options granted under GR-Montana's equity incentive plans were no
longer achieving GR-Montana's original objectives, which is to advance the
interests of GR-Montana and its subsidiaries and promote continuity of
management by encouraging and providing key employees, directors and consultants
with the opportunity to acquire an equity interest in GR-Montana and to
participate in the increase in shareholder value as reflected in the growth in
the price of GR-Montana Common Stock. In addition, the plan objectives are to
enable GR-Montana to attract and retain the services of key employees,
directors, and consultants upon whose judgment, interest, skills and special
effort the successful conduct of its operations is largely dependent.
The Board of Directors further concluded that it was in the best interest
of GR-Montana to implement the stock option exchange program by recalibrating
the risk-reward mechanism inherent in GR-Montana's incentive plans, thereby
creating an incentive where, in the case of "underwater" options, little or none
existed. On March 23, 1998, the Board of Directors, after five months of
evaluation and review, approved the stock option exchange program. Under the
program, current directors, executive officers, employees and advisors were
permitted to exchange all of their "underwater" options for new options on a
one-for-one basis. The exchange program affected approximately 2.6 million
options (with an average original exercise price of $6.60 per share) out of a
total of 3.5 million options which could be exchanged for new options with
exercise prices of between $3.00 and $4.50. Approximately 88% of the total
outstanding options exchanged were exchanged for new options priced at $3.75 per
share.
Pursuant to the exchange program, approximately 2.3 million options held by
directors, executive officers and key employees with an average original
exercise price of $6.65 per share were canceled and re-issued at a 40% premium
over the fair market value per share as of the date the Board of Directors
approved the stock option exchange program, or $3.75 per share. In addition, the
vesting schedule of all exchanged stock options held by directors, executive
officers and key employees and advisors were modified as follows: no stock
options issued pursuant to the exchange program vest or are exercisable prior to
May 23, 1998; 25% of all exchanged options which were vested prior to the
exchange are no longer vested or immediately exercisable, but will re-vest over
two years at 50% per year; and the term of all exchanged options will be reduced
from ten years to five years. Tabular disclosure pursuant to the required
ten-year option repricing schedule will be included in the 1999 proxy statement,
as the exchange program was implemented in 1998. See "-- Summary Compensation
Table," "Options Granted in Last Fiscal Year" and "Option Exercises and Option
Values."
101
<PAGE> 103
OPTION EXERCISES AND OPTION VALUES
The following table provides information on options exercised during the
year ended December 31, 1997, by the Named Executive Officers of GR-Montana and
the value of such executive officers' unexercised options at December 31, 1997.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED IN-
SHARES UNDERLYING UNEXERCISED THE-MONEY OPTIONS AT
ACQUIRED OPTIONS AT DECEMBER 31, 1997 DECEMBER 31, 1997(2)
ON VALUE ---------------------------- ---------------------------
EXECUTIVE OFFICER EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------- -------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
ROCKNE J. TIMM................... 10,000 --(3) 535,500 -- $203,060 --
A. DOUGLAS BELANGER.............. 4,545 --(3) 473,955 -- 178,060 --
JAMES P. GEYER................... 5,000 $3,438 42,500 147,500 3,750 --
ROBERT A. MCGUINNESS............. 2,780 --(3) 141,955 66,250 -- --
</TABLE>
- ---------------
(1) The value realized is measured by the difference between the closing sales
price of GR-Montana Common Stock at the date of exercise and the exercise
price of such options.
(2) At December 31, 1997, the closing sales price of GR-Montana Common Stock, as
reported by the Nasdaq SmallCap System, was $3.625. The potential realizable
value of such unexercised options at December 31, 1997, was measured by the
difference between the closing sales price of the Common Stock at such date
and the exercise price of such in-the-money options, but see "-- Option
Exchange Program."
(3) Options exercised at prices at or below closing sales prices at the date of
exercise.
EMPLOYEE LOANS
GR-Montana from time to time makes loans to employees, including
executives. The loans do not exceed $50,000 and bear interest at the minimum
required by tax regulations. At December 31, 1997, the Vice President-Finance
had an outstanding loan of $50,000, bearing interest at 5.2% and secured by a
second mortgage on his home.
EMPLOYMENT CONTRACT AND TERMINATION AGREEMENTS
GR-Montana has an employment agreement with James P. Geyer, its Senior Vice
President. Subject to certain exceptions, the term of the agreement is for two
years commencing February 4, 1997 and continues under the provisions of the
agreement until terminated. The agreement provides for an immediate benefit to
Mr. Geyer (the "employee") upon termination by GR-Montana without "Cause" (as
that term is defined in the agreement), or for termination by Mr. Geyer of his
employment for "Good Reason" (as that term is defined in the contract which can
include events occurring following a change-in-control) or upon the death or
disability of the employee. The agreement provides that the employee will
receive a lump sum amount equal to 24 months' salary upon termination for other
than cause including termination for Good Reason. If the employee dies or is
disabled, compensation equal to three months' salary will be paid. The agreement
also provides that following termination other than for cause, including
termination for Good Reason, other benefits, such as life and health insurance,
will be continued for a period of 12 months or until replaced by benefits of a
similar nature by a new employer.
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<PAGE> 104
COMMITTEES OF THE BOARD OF DIRECTORS OF GR-MONTANA
The Board of Directors of GR-Montana has delegated some of its authority to
three committees of the Board of Directors. These are the Executive Committee,
the Compensation Committee and the Audit Committee. The Board of Directors does
not maintain a nominating committee.
EXECUTIVE COMMITTEE
The Executive Committee, which is comprised of Rockne Timm (Chair), A.
Douglas Belanger and James Coleman, meets in person or by phone on a monthly
basis. The Executive Committee manages and directs the business affairs of
GR-Montana between meetings of the Board of Directors, except for those matters
assigned to the Compensation and Audit Committees.
COMPENSATION COMMITTEE
The Compensation Committee, which consists of Chris Mikkelsen (Chair) and
J. C. Potvin, has responsibility with respect to approving and advising the full
Board of Directors on compensation matters involving executive officers of
GR-Montana.
AUDIT COMMITTEE
The Audit Committee, which consists of James Coleman (Chair), Patrick
McChesney and Chris Mikkelsen, recommends to the Board of Directors a firm of
independent certified public accountants to audit the annual financial
statements, discusses with the auditors and approves in advance the scope of the
audit, reviews with the independent auditors the financial statements and their
audit report, reviews management's administration of the system of internal
accounting controls, and reviews GR-Montana's procedures relating to business
ethics.
COMPENSATION OF GR-MONTANA DIRECTORS
GR-Montana has not developed specific criteria for determining the
compensation of its directors, primarily because it does not yet have a
producing mine or other operations from which such quantitative data can be
derived. The determination of director compensation in 1997 was largely
subjective, and was based on GR-Montana's progress in addressing its more
immediate business concerns and the need to reasonably remunerate directors for
time spent addressing such issues. Individuals who served as a director of
GR-Montana prior to June 5, 1997, each received compensation in the amount of
$20,000 in 1997 for services rendered as a director, with the exception of Mr.
Coleman who received $40,000. Mr. Coleman is a member of the Executive and Audit
Committees. Mr. Coleman's more active involvement in the affairs of GR-Montana
is reflected in the higher compensation he received. Non-employee directors, Mr.
McChesney, Mr. Potvin, Mr. Mikkelsen and Mr. Coleman were granted options during
the year to purchase 32,500, 32,500, 25,000 and 65,000 shares of GR-Montana
Common Stock, respectively, under GR-Montana's Equity Incentive Plan. Consistent
with the Board of Directors' intent to have both directors and management hold
shares of GR-Montana, the compensation paid to the Directors pursuant to their
duties as directors was utilized by each director to exercise previously granted
stock options to purchase GR-Montana Common Stock.
Directors of GR-Montana received no additional compensation for serving on
the Board of Directors committees or for attendance at Board of Directors or
Board of Directors committee meetings.
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<PAGE> 105
COMPENSATION COMMITTEE REPORT ON EXECUTIVE
COMPENSATION ADMINISTRATION
GR-Montana's compensation program was administered during 1997 by the
Compensation Committee of the Board of Directors of GR-Montana (the
"Compensation Committee"), composed of Mr. Mikkelsen and Mr. Potvin. The
function of the Compensation Committee of the Board of Directors in respect of
such compensation matters during the year was to evaluate GR-Montana's
performance and the performance of its executive officers, approve cash and
equity-based compensation of such executive officers and submit such approvals
to the full Board of Directors for ratification. Compensation matters relating
to the directors were administered by the full Board of Directors.
COMPENSATION PHILOSOPHY AND GOALS
The goal of the compensation program is to attract, retain and reward
employees and other key individuals who contribute to both the immediate and the
long-term success of GR-Montana. Contributions are largely measured
subjectively, and are rewarded through cash and equity-based compensation
vehicles.
GR-Montana believes that employees and executive officers should be fairly
rewarded for sustained performance. Accordingly, GR-Montana evaluates the extent
to which strategic and business goals are met, and measures individual
performance, albeit subjectively, against development objectives and the degree
to which teamwork and GR-Montana objectives are promoted. GR-Montana strives to
achieve a balance between the compensation paid to a particular individual and
the compensation paid to other employees and executives having similar
responsibilities within GR-Montana. GR-Montana also strives to ensure that each
employee understands the components of his or her salary, and the basis upon
which it is determined and adjusted.
COMPENSATION VEHICLES
The components of executive compensation are as follows:
BASE SALARY. The administration of the program requires the Compensation
Committee to review annually the base salary of each executive officer of
GR-Montana and consider various factors, including individual performance;
experience; time in position; future potential; responsibility; and the
executive's current salary in relation to the executive salary range at other
mining companies. These factors are considered subjectively and none are
accorded a specific weight.
BONUSES. In addition to base salary, the Compensation Committee from time
to time recommends to the Board of Directors payments of discretionary bonuses
to executives and selected employees. Such bonuses are based on the same
criteria and determined in a similar fashion as described above. Bonuses paid to
executives in 1997 are included in the Summary Compensation Table and were used
by such executives to exercise options to purchase GR-Montana Common Stock.
EQUITY. GR-Montana maintains the 1997 Plan that provides for the periodic
awards of qualified and non-qualified options, stock appreciation rights and
restricted stock to eligible participants. GR-Montana also allows all eligible
employees to participate in stock ownership through the KSOP Plan. The
Compensation Committee of the Board of Directors from time to time recommends to
the Board of Directors grants of options to executives and selected employees.
In addition, the Compensation Committee of the Board of Directors annually
determines the contribution by GR-Montana to the KSOP Plan for allocation to
individual participants. Participation in the KSOP Plan by individual employees,
including executive officers, is governed by the terms of the KSOP Plan.
CHIEF EXECUTIVE OFFICER'S COMPENSATION. Mr. Timm's salary base was
$195,000. He also received a cash bonus of $40,000 pursuant to his duties as
President and Chief Executive Officer of GR-Montana and received compensation of
$20,000 pursuant to his duties as a director during 1997. Consistent with all
other directors and executive officers, Mr. Timm utilized the amounts paid as
bonus, as well as
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<PAGE> 106
compensation received pursuant to his duties as a director, to exercise options
to purchase GR-Montana Common Stock.
GR-Montana has not developed specific quantitative or qualitative
performance measures or other specific criteria for determining the compensation
of its chief executive officer, primarily because it does not yet have a
producing mine or other operations from which such quantitative data can be
derived. As a consequence, the determination of the chief executive officer's
compensation in 1997 was largely subjective and was based on GR-Montana's
progress in addressing its more immediate concerns, procurement of the veta
concession on the Brisas property, continued exploration of the Brisas
concession, financing of GR-Montana's exploration and development activities,
and identifying and analyzing new corporate opportunities.
GR-Montana may develop quantitative, performance-oriented compensation
measures for its chief executive officer and all other executive officers if its
Venezuelan mining concessions are placed into production. GR-Montana expects
that such measures will take into account standard means of evaluating executive
officer performance, such as revenues and earnings, the market price of the
GR-Montana Common Stock, and GR-Montana's relative success in bringing its
concessions into production and in acquiring additional mining properties or
concessions. GR-Montana expects its equity-based compensation vehicles will be
continued in future years, supplemented by cash compensation to GR-Montana's
employees and executive officers. It is the Compensation Committee's belief
that, in light of current compensation levels of GR-Montana's executive
officers, GR-Montana will not be affected by the provisions of Section 162(m) of
the Code, which limits the deductibility of certain executive compensation.
Therefore, the Compensation Committee has not adopted a policy as to compliance
with the requirements of Section 162(m) of the Code.
Compensation Committee of the Board of
Directors
/s/ CHRIS D. MIKKELSEN
/s/ JEAN CHARLES POTVIN
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<PAGE> 107
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee currently consists of Messrs. Mikkelsen and
Potvin. During fiscal 1997, no member of the Compensation Committee had any
relationship requiring disclosure under the applicable rules and regulations of
the SEC.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of November 18, 1998, (1) the names of,
and number of shares of GR-Montana Common Stock beneficially owned by, persons
known to GR-Montana to own more than five percent (5%) of the GR-Montana Common
Stock; (2) the names of, and number of shares of GR-Montana Common Stock
beneficially owned by, each director and Named Executive Officer of GR-Montana;
and (3) the number of shares beneficially owned by all directors and executive
officers as a group.
<TABLE>
<CAPTION>
SECURITY OWNERSHIP OF MANAGEMENT
- -------------------------------------------------------------------------------------------------------
BENEFICIAL PERCENT
NAME OF OWNER(2), (3), (4) TITLE OWNERSHIP(1) OF CLASS
-------------------------- ----- ------------ --------
<S> <C> <C> <C>
Rockne J. Timm................. President and Chief Executive Officer 957,239 4.1%
A. Douglas Belanger............ Executive Vice President and Director 752,656 3.2%
James P. Geyer................. Senior Vice President and Director 145,625 *
Robert A. McGuinness........... Vice President of Finance and Chief
Financial Officer 212,259 *
James H. Coleman............... Director 166,084 *
Patrick D. McChesney........... Director 137,355 *
Chris D. Mikkelsen............. Director 141,924 *
Jean Charles Potvin............ Director 115,416 *
All directors and executive officers as a group (11 persons) 2,760,312 11.9%
- -------------------------------------------------------------------------------------------------------
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
- -------------------------------------------------------------------------------------------------------
Blue Grotto Trading Ltd.(5).... 1,198,400 5.2%
</TABLE>
- ---------------
* Less than 1%
(1) Includes for each individual shares issuable pursuant to presently
exercisable options for GR-Montana Common Stock as of the record date or
options exercisable within 60 days of the record date as follows: Named
Executive Officers -- Mr. Timm, 426,407; Mr. Belanger, 366,548; Mr. Geyer,
129,834; Mr. McGuinness, 163,424; Directors -- Mr. Coleman, 151,250; Mr.
McChesney, 89,978; Mr. Mikkelsen, 56,860; Mr. Potvin, 104,361; Unnamed
Executive Officers -- Ms. Smith, 27,574; Mr. Stewart, 24,457; and Mr.
Kehmeier, 56,735.
(2) Mr. Timm, Mr. Belanger, Mr. Coleman, Mr. McGuinness, Mr. Mikkelsen and Ms.
Smith are directors and/or executive officers of Great Basin, which owns
516,720 shares of GR-Montana Common Stock or 2.2% of the outstanding shares
of GR-Montana Common Stock. The foregoing individuals own 6.6%, 4.0%, 1.7%,
0.6%, 0.9% and 0%, respectively, of the outstanding common stock of Great
Basin and may be deemed indirectly to have an interest in GR-Montana through
their respective management positions and/or ownership interests in Great
Basin. Robert E. Kistler, independent director of Great Basin, has
dispositive voting power over shares of GR-Montana Common Stock held by
Great Basin. Each of the foregoing individuals disclaims any beneficial
ownership of GR-Montana Common Stock owned by Great Basin, and shares of
GR-Montana Common Stock held by Great Basin are not reflected in their
beneficial ownership. Under Montana law, the shares of GR-Montana Common
Stock owned by Great Basin are not entitled to vote at the special meeting,
and may not be counted as outstanding for purposes of obtaining a quorum for
the special meeting.
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<PAGE> 108
(3) Mr. Timm, Mr. Belanger, Mr. McChesney, Mr. Coleman, Mr. McGuinness, Mr.
Mikkelsen and Ms. Smith are directors and/or executive officers of MegaGold,
which owns 276,642 shares of GR-Montana Common Stock or 1.2% of the
outstanding GR-Montana Common Stock. The foregoing individuals own 6.5%,
6.3%, 2.1%, 2.8%, 0.8%, 1.4% and 0%, respectively, of the outstanding common
stock of MegaGold and may be deemed indirectly to have an interest in
GR-Montana through their respective management positions and/or ownership
interests in MegaGold. Mark Bantz, independent directors of MegaGold, has
dispositive voting power over shares of GR-Montana Common Stock held by
MegaGold. Each of the foregoing individuals disclaims any beneficial
ownership of the GR-Montana Common Stock owned by MegaGold, and shares of
GR-Montana Common Stock held by MegaGold are not reflected in their
beneficial ownership. Under Montana law, the shares of GR-Montana Common
Stock owned by MegaGold are not entitled to vote at the special meeting, and
may not be counted as outstanding for purposes of obtaining a quorum for the
special meeting.
(4) Excludes for each Named Executive Officer or director shares held by
independent trustees for the benefit of minor children as follows: Mr. Timm,
59,341 shares of GR-Montana Common Stock held under the Uniform Gift to
Minors Act; Mr. Belanger, 184,863 shares of GR-Montana Common Stock for the
Belanger Family Trust; Mr. McChesney, 24,921 shares of GR-Montana Common
Stock for the McChesney Family Trust; and Mr. McGuinness, 1,318 shares of
GR-Montana Common Stock for the Anne Morgan McGuinness Trust. Each of the
foregoing individuals disclaims any beneficial ownership of GR-Montana
Common Stock held by trustees for his minor children. The trustee holding
the shares for Mr. Timm's minor child is Chris Mikkelsen, who is also a
director of GR-Montana. Such shares are reflected in Mr. Mikkelsen's
beneficial ownership, but he disclaims beneficial ownership of such shares
of GR-Montana Common Stock.
(5) Shares held by Carlson & Co SA (BVI) located at 2121 Ponce de Leon Blvd.
#950, Coral Gables, Florida.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. James H. Coleman, a director of GR-Montana, also serves as Canadian
legal counsel for GR-Montana. During 1997, GR-Montana incurred expenses, in
addition to Mr. Coleman's compensation as a director, of approximately $292,000
for legal services performed by the director and his firm Mcleod Dixon, in which
he is chairman and a partner. At December 31, 1997, approximately $112,000 of
these fees are included in accounts payable and accrued expenses in GR-Montana's
consolidated financial statements.
107
<PAGE> 109
INFORMATION CONCERNING GR-CANADA
GENERAL
GR-Canada is a newly-formed Canadian company incorporated under the laws of
the Yukon Territory on October 5, 1998, and a wholly owned subsidiary of
GR-Montana. GR-Canada was formed to become the parent company of GR-Montana. All
of the capital stock of GR-Canada is currently held by GR-Montana. At the
effective time, GR-Montana will become a subsidiary of GR-Canada. GR-Canada will
continue to conduct the business (through direct or indirect subsidiaries,
including GR-Montana) in which GR-Montana is now engaged, and substantially all
of the business and subsidiaries of GR-Montana will be located outside of the
United States, but continued to be carried on by GR-Montana. GR-Canada's
principal executive offices are located at 601 West Riverside, Spokane,
Washington 99201, and its telephone number is (509) 623-1500. GR-Canada has
formed a wholly-owned Montana subsidiary, Merger Sub, organized specifically to
effect the reorganization. GR-Canada has no significant assets or capitalization
nor has it engaged in any business or prior activities other than in connection
with the reorganization.
MANAGEMENT
The Board of Directors of GR-Canada, upon the effectiveness of the
reorganization, will consist of those persons who, immediately prior to the
effective time, were serving as directors of GR-Montana, each to have the term
of office for which he was elected or appointed. GR-Canada's executive officers
are now, and upon the effectiveness of the reorganization will be, the same as
those persons who are presently employed as executive officers of GR-Montana.
See "Management of GR-Montana."
COMMITTEES OF THE BOARD OF DIRECTORS
GR-Canada has established committees of the Board of Directors that have
identical members and substantially similar functions as the committees of the
Board of Directors of GR-Montana existing immediately prior to the merger. See
"Committees of the Board of Directors of GR-Montana."
EXECUTIVE COMPENSATION
GR-Canada has not paid compensation to any person before the date of this
Proxy Statement/Joint Prospectus and is not expected to do so prior to the
effective time.
INFORMATION CONCERNING MERGER SUB
Merger Sub, a subsidiary of GR-Canada, was incorporated under the laws of
the State of Montana on September 30, 1998, by GR-Montana for the purpose of
effecting the merger. It has no material assets or capitalization and has not
engaged in any activities except in connection with the merger. All of its
outstanding capital stock is owned by GR-Canada. At the effective time, Merger
Sub will merge with and into GR-Montana with GR-Montana being the surviving
corporation in the merger.
108
<PAGE> 110
LEGAL MATTERS
The legality of the shares to be issued by GR-Montana being offered hereby
will be passed upon by Church, Harris, Johnson & Williams, P.C., Great Falls,
Montana, and the legality of the shares to be issued by GR-Canada being offered
hereby will be passed upon by Veale, Kilpatrick, Austring, Fendrick & Fairman,
Whitehorse, Yukon. The U.S. and Canadian federal income tax consequences in
connection with the reorganization will be passed upon for GR-Montana and
GR-Canada by Baker & McKenzie.
EXPERTS
The consolidated balance sheets of Gold Reserve Corporation ("GR-Montana")
as of December 31, 1997 and 1996, and the consolidated statements of operations,
changes in shareholders' equity and cash flows for each of the three years in
the period ended December 31, 1997, included in this Proxy Statement/Joint
Prospectus, have been included herein in reliance on the report which includes
an explanatory paragraph related to a change in accounting for the impairment of
long-lived assets in 1996, of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of that firm as experts in accounting and
auditing.
The balance sheet of Gold Reserve Inc. ("GR-Canada") as of November 9, 1998
and the statement of changes in shareholder's equity and cash flows for the
period from October 5, 1998 (date of formation) to November 9, 1998, included in
this Proxy Statement/Joint Prospectus, have been included herein in reliance on
the report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of that firm as experts in accounting and auditing.
109
<PAGE> 111
GLOSSARY OF TERMS
alluvial................... (1) Used to identify minerals deposited over time
by moving water, which are unconsolidated or
claylike. (2) Used to describe a strata of material
that constitutes a concession, i.e. relating to the
Brisas alluvial concession.
andesite................... A volcanic or igneous rock of intermediate
composition. It is fine grained and contains 55 to
60 percent silica.
archean.................... An era in geologic time 3.4 billion years ago.
assay...................... The test performed on a rock sample to determine
its mineral content.
auger hole................. Drilling with a bit that breaks rock into chips
rather than core. The rock chips are forced to the
surface for examination using water or compressed
air. Typically faster and cheaper than core
drilling.
ball mill.................. A steel cylinder partially filled with steel balls
into which crushed ore is fed. The ball mill is
rotated, causing the balls to cascade and grind the
ore.
batholith.................. A large intrusion of igneous rock with a surface
area greater than 100 square kilometers.
bench scale................ Laboratory scale study for testing and analysis.
bolivar.................... The basic monetary unit of the Republic of
Venezuela. As of October 31, 1998, 572 bolivares
equaled approximately one U.S. Dollar.
breccia.................... A rock in which angular fragments are surrounded by
a mass of fine-grained minerals.
Brisas..................... Compania Aurifera Brisas del Cuyuni, C.A., a
Venezuelan corporation and the subsidiary of
GR-Montana that owns the Brisas property.
Brisas alluvial
concession................. The mining title granted to Brisas in 1988 by the
MEM to explore and commercially develop gold
contained in alluvial material on property.
Brisas hardrock
concession................. The mining title granted to Brisas in 1998 by the
MEM to explore and commercially develop and mine
gold, copper and molybdenum contained in the veta
or vein material on GR-Montana's Brisas property.
Brisas property............ The Brisas alluvial concession, the Brisas hardrock
concession, other applications for mineralization
in the material contained in the alluvial
concession (primarily nominal values of copper and
silver) and other mineralization (primarily gold,
copper and molybdenum) on small land parcels
contiguous to the existing alluvial and hardrock
concessions.
commercially mineable ore
body..................... A mineral deposit that contains ore reserves (see
reserve) that can be economically mined at current
metal prices.
concentrate................ A finely ground product of the milling process,
containing a high percentage of valuable metal,
which is sent to a smelter for further processing.
110
<PAGE> 112
concession................. A privilege, license or mining title granted, in
the case of GR-Montana, by the MEM, to explore and,
if warranted, produce minerals from a specified
property.
copper cathode............. Copper which is approximately 95 to 99% pure metal
form often recovered by electrowinning.
copper concentrate......... A product containing the valuable metal and from
which most of the waste material in the ore has
been eliminated.
core....................... The long cylindrical piece of rock, in varying
diameters, brought to surface by core or diamond
drilling.
core drilling.............. Drilling (also referred to as diamond drilling)
with a hollow bit which has a diamond-cutting rim
and produces a cylindrical core used for geologic
study and assays. Such drilling is used in
exploration and development activities to determine
the location, orientation and magnitude of a
mineral deposit.
cut-off grade.............. The lowest grade of mineralized material considered
economic, used in calculation of ore reserves in a
given deposit.
cyanidation................ A method of extracting gold or silver from a
crushed or ground ore by dissolving it in a cyanide
solution.
development................ Work carried out for the purpose of opening up a
mineral deposit and making the actual ore
extraction possible.
development drilling....... Drilling done to more accurately measure the
quantity of minerals contained in a deposit after
exploration drilling.
diamond drill.............. A rotary type of rock drill that cuts a core of
rock that is recovered in long cylindrical
sections, two centimeters or more in diameter.
dilution................... Rock that is, by necessity, removed along with the
ore in the mining process, subsequently lowering
the grade of the ore.
dip........................ The angle at which a vein, structure or rock bed is
inclined from the horizontal as measured at right
angles to the strike.
dore....................... Unparted gold and silver poured into molds when
molten to form buttons or bars. Further refining is
necessary to separate the gold and silver.
drift...................... A horizontal underground opening that follows along
the length of a vein or rock formation as opposed
to a cross-cut which crosses the rock formation.
electrowinning............. Recovery of a metal from an ore by means of
electro-chemical processes.
environmental impact
statement................ A report, compiled prior to a production decision
that examines the effects of proposed mining
activities on the natural surroundings.
exploration................ Work involved in searching for ore, usually by
drilling or driving a drift.
exploration drilling....... Drilling performed in searching for ore, usually by
drilling or driving a drift.
111
<PAGE> 113
feasibility study.......... An analysis and compilation of technical and
economic data with the objective of proving the
economic and technical feasibility of the project.
Prepared to support a production decision on a
proposed mining and milling operation.
flotation.................. A process for concentrating minerals based on the
selective adhesion of certain minerals to air
bubbles in a mixture of water and ground up ore.
When the right chemicals are added to a frothy
water bath of ore that has been ground to the
consistency of talcum powder, the minerals will
float to the surface. The metal rich flotation
concentrate is then skimmed off the surface.
geologic modeling.......... The integration of geologic information in the
mathematical model to calculate ore reserves.
geophysical survey......... Methods of investigating the subsurface at or near
the surface of the earth or airborne using the
applications of physics including electric,
gravimetric, magnetic, electromagnetic, seismic,
and radiometric.
gold equivalent............ Gross value of copper at a stated value per pound
divided by the gross price of gold at a stated
value per ounce.
Gold Reserve de Venezuela
C.A. ("GLDRV")............. A Venezuelan corporation and an indirect foreign
subsidiary of GR-Montana. GLDRV was organized in
September 1992 to conduct exploration and any
future development operations on the Brisas
property.
grade...................... The relative quantity or the percentage of
ore-mineral content in an ore body, i.e. grams of
gold per tonne or percent of copper per tonne.
gravity separation......... Recovery of gold from crushed rock or gravel using
gold's high specific gravity to separate it from
the lighter material.
Guayana Shield............. A large area of exposed basement rocks in central
and eastern Venezuela comprised of Archean rocks.
In the area of the Brisas property, these rocks are
schists and deeply weathered and kaolinized rocks.
hardrock................... Solid rock underlying an alluvial deposit. Also
referred to as bedrock.
hectare.................... A metric measurement of area equivalent to 10,000
square meters.
high grade................. Rich ore. As an adverb, it refers to selective
mining of the best ore in a deposit.
hydrometallurgical......... The treatment of ores, concentrates and other metal
bearing materials by wet processes.
igneous.................... Rocks formed by the cooling and solidifying of
magma or lava.
Imataca Forest Reserve..... A 3.6 million hectare area of tropical forest
located in the State of Bolivar in southeastern
Venezuela that was set aside as an environmentally
protected region by the Venezuelan government in
the 1960s. GR-Montana's Brisas property is located
in an area within the reserve which was previously
designated for mining activities.
intrusive.................. Rock which while molten penetrated into or between
other rocks, but solidified before reaching the
surface.
112
<PAGE> 114
KM 88 mining district...... An area in the State of Bolivar in southeastern
Venezuela containing significant alluvial and
hardrock mineralized deposits. GR-Montana's Brisas
property is located in this district.
Las Cristinas.............. Gold and copper properties which are north of and
contiguous to the Brisas property and are held by
MINCA, a Venezuelan company 30% owned by CVG and
70% owned by Placer Dome, Inc.
leaching................... The extraction of soluble metallic compound from
ore by dissolving the metals with a solvent.
metamorphism............... A type of rock that has been altered by high
temperature and/or pressure.
mill....................... A processing plant where ore is crushed and ground,
usually to fine powder, and the metals are
extracted by physical and/or chemical means.
mineral.................... A naturally occurring homogeneous substance having
definite physical properties and chemical
composition and, if formed under favorable
conditions, a definite crystal form.
mineralization............. The presence of minerals in a specific area or
geological formation.
mineralized deposit........ Material in an area which has been intersected by
sufficient closely-spaced drill holes or
underground sampling to support tonnage and average
grade(s) of metal(s) to warrant further exploration
or development activities. A mineralized deposit
does not qualify as a commercially mineable ore
body (reserves) under standards promulgated by the
SEC until a final, comprehensive, economic,
technical and legal feasibility study based upon
unit cost, grade, recoveries and other factors has
been concluded.
Ministry of Energy and
Mines ("MEM").............. Venezuelan governmental entity, which exercises
supervisory jurisdiction over the Brisas property
and GR-Montana's exploration and development
efforts thereon.
molybdenum................. An element (Mo), usually in the form of
molybdenite, primarily used in alloys and
lubricants.
monzonite.................. A medium to coarse-ground intrusive rock containing
less than 20% quartz.
open pit................... A mind that is currently on surface. Also referred
to as open-cut or open-cast mine.
oxidation.................. The chemical process of changing the form of the
metals from sulfide to oxide.
Precambrian................ A period in geologic time dating more than 570
million years ago.
pre-feasibility study...... A preliminary analysis and compilation of technical
and economic data conducted to determine whether
GR-Montana should proceed with the feasibility
study.
proterozoic................ That part of the Precambrian time represented by
rocks in which traces of life appear or the younger
part of Precambrian time.
reclamation................ The restoration of a site after mining or
exploration activity is completed.
113
<PAGE> 115
recovery................... The percentage of valuable metal in the ore that is
recovered by metallurgical treatment.
reserves................... That part of a mineral deposit which could be
economically and legally extracted or produced at
the time of determination. Reserves are
subcategorized as either PROVEN (MEASURED)
reserves, for which (1) quantity is computed from
dimensions revealed in outcrops, trenches, workings
or drill holes, and grade and/or quality are
computed from the results of detailed sampling, and
(2) the sites for inspection, sampling and
measurement are spaced so closely and geologic
character is so well defined that size, shape,
depth and mineral content are well-established; or
PROBABLE (INDICATED) reserves, for which quantity
and grade and/or quality are computed from
information similar to that used for proven
(measured) reserves, but the sites for inspection,
sampling and measurement are farther apart or are
otherwise less adequately spaced, the degree of
assurance, although lower than that for proven
(measured) reserves, is high enough to assume
continuity between points of observation.
resource................... The calculated amount of material in a mineral
deposit, based on limited drill information.
sample..................... A small portion of rock or a mineral deposit, taken
so that the metal content can be determined by
assaying.
schists.................... A strongly foliated crystalline rock which readily
splits into sheets or slabs as a result of the
planar alignment of the constituent crystals.
solvent extraction......... Recovery of a metal from an ore by means of acid
leaching and organic extraction.
stock...................... An igneous body smaller than a batholith with a
subcircular section.
stratabound................ Used to describe mineral deposits that are
restricted to a small stratigraphic range in a
group of strata.
strike..................... The direction, or bearing from true north, of a
vein or rock formation measured along a horizontal
line on the surface of the vein or rock.
strip ratio................ The tonnage of non-mineralized waste material
removed to allow the mining of one tonne of ore in
an open pit.
tailings................... The material removed from the milling circuit after
separation of the valuable metals.
troy ounce................. Unit of weight measurement used for all precious
metals. The familiar 16-ounce avoirdupois pound
equals 14.583 Troy ounces.
vein....................... A sheet-like or tabular discordant mineralized body
formed by complete or partial infilling of a
fracture or fault within a rock.
veta....................... (1) Used to describe veins of mineralization and/or
deeper, hardrock mineralization, (2) used to
describe a strata of material that constitutes a
concession, i.e. relating to the Brisas hardrock
concession.
Whittle Pit................ Mathematical method for determining the optimal
shape for an open pit in three dimensions utilizing
a block model of an ore body. A Whittle Pit only
approximates certain aspects of open pit design and
does not include final detailed design parameters.
114
<PAGE> 116
CONVERSION FACTORS:........
<TABLE>
<S> <C> <C>
1 Tonne = 1.1023 Short tons
1 Tonne = 2204.6 Pounds
1 Hectare = 2.4711 Acres
1 Kilometer = 0.6214 Miles
1 Meter = 3.28084 Feet
1 Troy Ounce = 31.1034 Grams
</TABLE>
SYMBOLS:...................
<TABLE>
<S> <C> <C>
Au = Gold
Cu = Copper
gpt = Grams per tonne
</TABLE>
115
<PAGE> 117
GOLD RESERVE CORPORATION AND GOLD RESERVE INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Gold Reserve Corporation
Report of Independent Accountants................................................................................... F-2
Consolidated Balance Sheets as of September 30, 1998 (unaudited) and December 31, 1997 and 1996..................... F-3
Consolidated Statements of Operations and Comprehensive Loss for the Nine
Months Ended September 30, 1998 and 1997 (unaudited) and the Years
Ended December 31, 1997, 1996
and 1995...................................................................................................... F-4
Consolidated Statements of Changes in Shareholders' Equity for the Nine Months Ended
September 30, 1998 (unaudited) and the Years Ended December 31, 1997, 1996 and 1995........................... F-5
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 1998 and 1997
(unaudited) and the Years Ended December 31, 1997, 1996 and 1995.............................................. F-6
Notes to Financial Statements....................................................................................... F-7
Gold Reserve Inc.
Report of Independent Accountants................................................................................... F-17
Balance Sheet as of November 9, 1998................................................................................ F-18
Statement of Changes in Shareholder's Equity for the period ended November 9, 1998.................................. F-19
Statement of Cash Flows for the period ended November 9, 1998....................................................... F-20
Notes to Financial Statements....................................................................................... F-21
</TABLE>
F-1
<PAGE> 118
[LETTERHEAD OF PRICEWATERHOUSECOOPERS LLP, SPOKANE, WASHINGTON]
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Shareholders
Gold Reserve Corporation
We have audited the accompanying consolidated balance sheets of Gold
Reserve Corporation ("GR-Montana") and subsidiaries as of December 31, 1997 and
1996, and the related consolidated statements of operations, changes in
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1997. These financial statements are the responsibility of
GR-Montana's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
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, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
GR-Montana and subsidiaries as of December 31, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.
As discussed in Note 1, GR-Montana changed its method of accounting
for the impairment of long-lived assets in 1996.
/s/ PricewaterhouseCoopers LLP
Spokane, Washington
February 23, 1998 except
for Note 9 as to which the
date is March 3, 1998
F-2
<PAGE> 119
GR-Montana and Subsidiaries
CONSOLIDATED BALANCE SHEETS
September 30, 1998 and December 31, 1997 and 1996
<TABLE>
<CAPTION>
(unaudited) December 31,
September 30, ------------------------------
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 5,383,471 $ 12,524,125 $ 30,329,024
Investments:
Held-to-maturity securities 15,048,887 4,054,494 8,442,492
Accrued interest on investments 207,283 240,757 143,580
Deposits, advances and other 477,183 411,725 528,458
Litigation settlement held in escrow -- 4,500,000 4,500,000
------------- ------------- -------------
Total current assets 21,116,824 21,731,101 43,943,554
Property, plant and equipment, net 40,286,995 38,446,169 29,097,305
Investments:
Available-for-sale securities 1,283,767 127,754 119,504
Held-to-maturity securities 3,498,842 11,521,973 --
Other 1,343,440 1,465,997 611,204
------------- ------------- -------------
Total assets $ 67,529,868 $ 73,292,994 $ 73,771,567
============= ============= =============
LIABILITIES
Accounts payable and accrued expenses $ 411,713 $ 646,203 $ 938,892
Note payable-KSOP, current portion 414,771 188,470 186,708
Litigation settlement payable -- 4,500,000 4,500,000
------------- ------------- -------------
Total current liabilities 826,484 5,334,673 5,625,600
Note payable-KSOP, non-current portion -- 434,390 --
Minority interest in consolidated subsidiaries 995,121 974,522 952,571
------------- ------------- -------------
Total liabilities 1,821,605 6,743,585 6,578,171
------------- ------------- -------------
Commitments and contingencies -- -- --
SHAREHOLDERS' EQUITY
Serial preferred stock, without par value
Authorized Shares: 1998.. 20,000,000; 1997.. 20,000,000; 1996..10,000,000
Issued: None
Common stock, without par value
Authorized Shares: 1998..480,000,000; 1997..480,000,000; 1996..40,000,000
Issued Shares: 1998..23,176,767; 1997..22,918,143; 1996..22,703,811
Outstanding Shares: 1998..22,705,329; 1997..22,437,099; 1996..22,222,767 101,644,509 102,269,494 100,952,778
Less, common stock held by affiliates (403,331) (1,428,565) (1,428,565)
Accumulated other comprehensive (loss) income-
Unrealized (loss) gain on
available-for-sale securities (12,500) 11,000 2,750
Accumulated deficit (35,105,644) (33,679,660) (32,146,859)
KSOP debt guarantee (414,771) (622,860) (186,708)
------------- ------------- -------------
Total shareholders' equity 65,708,263 66,549,409 67,193,396
------------- ------------- -------------
Total liabilities and shareholders' equity $ 67,529,868 $ 73,292,994 $ 73,771,567
============= ============= =============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE> 120
GR-Montana and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
For the Nine Months Ended September 30, 1998 and 1997 and the Years
Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
September 30, December 31,
---------------------------- --------------------------------------------
1998 1997 1997 1996 1995
------------ ------------ ------------ ------------ ------------
(unaudited)
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OTHER INCOME:
Interest income $ 1,008,775 $ 1,451,646 $ 1,806,309 $ 1,477,955 $ 1,548,998
Foreign currency loss (156,772) (46,875) (68,393) (135,509) (130,244)
Net gain (loss) on investments -- -- -- 111,286 (11,770)
Miscellaneous -- -- -- 35,125 --
------------ ------------ ------------ ------------ ------------
852,003 1,404,771 1,737,916 1,488,857 1,406,984
------------ ------------ ------------ ------------ ------------
EXPENSES:
General and administrative 1,009,296 1,236,224 1,486,948 1,170,329 961,829
Directors' and officers' compensation 993,740 1,008,829 1,148,621 637,825 465,684
Legal and accounting 198,842 259,751 540,464 499,700 288,371
Depreciation 29,602 35,189 47,042 38,831 28,549
Interest, net of amount capitalized 25,908 15,451 25,691 11,841 8,214
Minority interest in net income (loss)
of consolidated subsidiaries 20,599 13,666 21,951 (39,731) (8,360)
------------ ------------ ------------ ------------ ------------
2,277,987 2,569,110 3,270,717 2,318,795 1,744,287
------------ ------------ ------------ ------------ ------------
Net loss (1,425,984) (1,164,339) (1,532,801) (829,938) (337,303)
Other comprehensive
(loss) income (23,500) 18,000 8,250 2,750 6,943
------------ ------------ ------------ ------------ ------------
Comprehensive loss $ (1,449,484) $ (1,146,339) $ (1,524,551) $ (827,188) $ (330,360)
============ ============ ============ ============ ============
Net loss per share-basic and diluted $ (0.06) $ (0.05) $ (0.07) $ (0.04) $ (0.02)
============ ============ ============ ============ ============
Weighted average common
shares outstanding 22,547,581 22,321,181 22,347,163 20,841,025 19,415,805
============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE> 121
GR-Montana and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the Nine Months Ended September 30, 1998
(unaudited) and the Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Common Unrealized
Common Stock Issued Stock Gain on
---------------------------- Accumulated Issued to Available-for-
Shares Amount Deficit Affiliates Sale Securities
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1994 18,929,668 $ 69,453,393 $(30,979,618) $ (504,276) $ 79,017
Net loss (337,303)
Common stock issued:
Cash 50,000 280,195
Options 167,835 460,162
Exchange for minority
interest of subsidiaries 1,329,185 9,882,028
Increase in common stock held by
consolidated subsidiaries (924,289)
Increase in unrealized gain on
available-for-sale securities 6,943
Reduction of shareholders' equity
associated with change in subsidiaries'
minority interest (6,924)
------------ ------------ ------------ ------------ ------------
Balance, December 31, 1995 20,476,688 80,068,854 (31,316,921) (1,428,565) 85,960
Net loss (829,938)
Common stock issued:
Cash 1,729,500 18,202,500
Options 497,623 2,673,988
Decrease in unrealized gain on
available-for-sale securities (83,210)
Addition to shareholders' equity
associated with change in subsidiaries'
minority interest 7,436
------------ ------------ ------------ ------------ ------------
Balance, December 31, 1996 22,703,811 100,952,778 (32,146,859) (1,428,565) 2,750
Net loss (1,532,801)
Common stock issued:
Cash 89,683 600,000
Options 124,649 716,716
Increase in unrealized gain on
available-for-sale securities 8,250
------------ ------------ ------------ ------------ ------------
Balance, December 31, 1997 22,918,143 102,269,494 (33,679,660) (1,428,565) 11,000
Net loss (1,425,984)
Common stock issued:
Options 258,624 409,938
Decrease in common stock held by
consolidated subsidiaries (1,034,923) 1,025,234
Decrease in unrealized gain on
available-for-sale securities (23,500)
------------ ------------ ------------ ------------ ------------
Balance, September 30, 1998 (unaudited) 23,176,767 $101,644,509 $(35,105,644) $ (403,331) $ (12,500)
============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE> 122
GR-Montana and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 1998 and 1997 and
the Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
September 30, December 31,
---------------------------- --------------------------------------------
1998 1997 1997 1996 1995
(unaudited)
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net loss $ (1,425,984) $ (1,164,339) $ (1,532,801) $ (829,938) $ (337,303)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation 29,602 35,189 47,042 38,831 28,549
Amortization of premium (discount)
on held-to-maturity securities 70,519 (158,672) (170,199) (339,581) (765,451)
Foreign currency loss 156,772 46,875 68,393 135,509 130,244
Minority interest in net income (loss)
of consolidated subsidiaries 20,599 13,666 21,951 (39,731) (8,360)
Net loss (gain) on disposition and revaluation
of equity securities -- -- -- (111,286) 11,770
Changes in current assets and liabilities:
Decrease (increase) in litigation settlement
held in escrow 4,500,000 -- -- -- (4,500,000)
(Increase) decrease in other current assets (31,984) 96,846 19,556 (49,646) 131,344
Decrease in litigation settlement payable (4,500,000) -- -- -- --
(Decrease) increase in accounts payable (235,090) 60,502 (292,689) 676,673 (310,494)
------------ ------------ ------------ ------------ ------------
Net cash used by operating activities (1,415,566) (1,069,933) (1,838,747) (519,169) (5,619,701)
------------ ------------ ------------ ------------ ------------
CASH FLOW FROM INVESTING ACTIVITIES:
Proceeds from maturities of
held-to-maturity securities 13,056,187 12,550,000 16,639,926 23,925,000 32,824,000
Purchase of held-to-maturity securities (16,097,968) (20,551,746) (23,603,702) (17,396,948) (20,609,690)
Purchase of property, plant and equipment (2,027,200) (7,597,418) (9,464,299) (7,205,777) (3,807,683)
Purchase of available-for-sale securities (1,188,602) -- -- -- --
Proceeds from sale of available-for-sale securities -- -- -- 123,936 --
Net cash acquired from increased investment in
majority owned, consolidated subsidiaries -- -- -- 909,578 --
Other 122,557 (691,567) (854,793) (479,700) (107,438)
------------ ------------ ------------ ------------ ------------
Net cash provided (used) by investing activities (6,135,626) (16,290,731) (17,282,868) (123,911) 8,299,189
------------ ------------ ------------ ------------ ------------
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from issuance of common shares 409,938 1,236,301 1,316,716 20,876,488 740,357
------------ ------------ ------------ ------------ ------------
Net cash provided by financing activities 409,938 1,236,301 1,316,716 20,876,488 740,357
------------ ------------ ------------ ------------ ------------
CHANGE IN CASH AND CASH EQUIVALENTS:
Net increase (decrease) in cash
and cash equivalents (7,140,654) (16,124,363) (17,804,899) 20,233,408 3,419,845
Cash and cash equivalents - beginning of period 12,524,125 30,329,024 30,329,024 10,095,616 6,675,771
------------ ------------ ------------ ------------ ------------
Cash and cash equivalents - end of period $ 5,383,471 $ 14,204,661 $ 12,524,125 $ 30,329,024 $ 10,095,616
============ ============ ============ ============ ============
Supplemental Cash Flow Information
------------ ------------ ------------ ------------ ------------
CASH PAID DURING THE PERIOD FOR:
Interest, net of amount capitalized $ 25,908 $ 13,666 $ 25,691 $ 11,841 $ 10,202
------------ ------------ ------------ ------------ ------------
OTHER NON-CASH ACTIVITIES:
Issuance of common shares for minority -- -- -- -- $ 9,882,028
interest in subsidiaries
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE> 123
1. THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES:
UNAUDITED INFORMATION. All information as of and for the nine-months ended
September 30, 1998 and 1997 is unaudited. The financial information given in the
accompanying unaudited financial statements reflects all normal, recurring
adjustments which, in the opinion of management, are necessary for a fair
presentation for the periods reported.
THE COMPANY. The Company was incorporated in Montana in 1956 for the purpose of
acquiring, exploring and developing mining properties and placing these
properties into production. The Company's principal activity is the exploration
and development of the Brisas property in Venezuela.
CONSOLIDATION. The consolidated financial statements include the accounts of the
Company, three Venezuelan subsidiaries, Gold Reserve de Venezuela, C.A. (GLDRV),
Compania Aurifera Brisas del Cuyuni, C.A. (Brisas), Compania Minera Unicornio,
C.A. (Unicorn), two domestic majority-owned subsidiaries, Great Basin Energies,
Inc. (Great Basin) and MegaGold Corporation (MegaGold) and seven Aruban
subsidiaries which were formed to hold the Company's interest in its foreign
subsidiaries or for future transactions. All significant intercompany accounts
and transactions have been eliminated in consolidation. The Company's policy is
to consolidate those subsidiaries where majority control exists and control is
other than temporary.
CASH AND CASH EQUIVALENTS. The Company considers short-term, highly liquid
investments purchased with an original maturity of three months or less to be
cash equivalents for purposes of reporting cash equivalents and cash flows. At
September 30, 1998 and December 31, 1997, the Company had certificates of
deposits totaling $414,771 and $662,860, respectively, pledged as security for
bank loans related to the Gold Reserve KSOP Plan. At September 30, 1998 and
December 31, 1997, the Company had approximately $313,000 and $220,000,
respectively, in U.S. banks in excess of federally insured limits and had
approximately $226,000 and $148,000, respectively in Venezuelan and Aruban
banks.
INVESTMENTS. Investments classified as available-for-sale are carried at quoted
market value. Unrealized gains and losses are recorded as a component of
shareholders' equity. Investments classified as held-to-maturity are carried at
amortized cost. Realized gains and losses on the sale of investments are
recorded based upon specific identification.
EXPLORATION AND DEVELOPMENT COSTS. Exploration costs incurred in locating areas
of potential mineralization are expensed as incurred. Exploration costs of
properties or working interests with specific areas of potential mineralization
are capitalized pending the determination of a property's economic viability.
Development costs of proven mining properties not yet producing are capitalized
and classified as property, plant and equipment. Upon commencement of
production, capitalized exploration and development costs will be amortized
based on the estimated proven and probable ore reserves benefited. Deferred
exploration and development costs of unsuccessful projects are expensed.
PROPERTY, PLANT AND EQUIPMENt. Property, plant and equipment are recorded at the
lower of cost or estimated net realizable value. Replacements and major
improvements are capitalized. Maintenance and repairs are charged to expense as
incurred. The cost and accumulated depreciation of assets retired or sold are
removed from the accounts and any resulting gain or loss is reflected in
operations. Depreciation is provided using straight-line and accelerated methods
over the lesser of the useful life or lease term of the related asset. During
the exploration and development phase, depreciation of mining assets is
capitalized. Interest costs incurred during the construction and development of
qualifying assets are capitalized.
In March 1995, Statement of Financial Accounting Standards No. 121 (SFAS No.
121), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of" was issued. The Statement prescribes the accounting
treatment for the recognition and measurement of impaired long-lived assets. The
Statement requires a review for impairment of long-lived assets whenever events
or changes in circumstances indicate that the carrying amount of the assets may
not be recoverable. If the sum of the expected future net cash flows to be
generated from the use or disposition of a long-lived asset (undiscounted and
without interest charges) is less than the carrying amount of the asset, an
impairment loss should be recognized. There was no financial statement impact as
a result of adopting the provisions of SFAS No. 121 as required on January 1,
1996.
FOREIGN CURRENCY. The Company's Venezuelan subsidiaries operate in a highly
inflationary economy. As a result, non-monetary assets and liabilities are
translated at historical rates, while monetary assets and liabilities are
translated at current rates, with the resulting foreign currency translation
gains and losses included in operations. Gains and losses from foreign currency
transactions are also included in the results of operations.
F-7
<PAGE> 124
1. THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
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,
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Substantially all of the Company's investment in property, plant and equipment
represents amounts invested in the Brisas property. Management's capitalization
of exploration and development costs and assumptions regarding the future
recoverability of such costs is subject to the risks and uncertainties of
developing a mineable ore reserve on the Brisas property which is based on
engineering and geological estimates, future gold and copper prices, estimated
plant construction and operating costs and the procurement of all necessary
regulatory permits and approvals. These estimates could change in the future and
this could affect the carrying value and the ultimate recoverability of the
amounts recorded as property, mineral rights and capitalized exploration and
development costs.
Inflation and other economic conditions in Venezuela have resulted in political
and social turmoil on occasion, which can be expected to continue. Such
conditions have not materially adversely affected the Company's operations in
Venezuela to date. Whether and to what extent current or future economic,
regulatory or political conditions may materially adversely affect the Company's
financial position, results of operations or cash flows in the future cannot be
predicted.
COMPREHENSIVE INCOME. Effective for fiscal years beginning after December 15,
1997, the preparation of financial statements in conformity with generally
accepted accounting principles requires management to report net income as a
component of comprehensive income in the financial statements. Comprehensive
income is defined as the change in equity of a business enterprise arising from
non-owner sources. The classifications of comprehensive income under current
accounting standards include foreign currency items, minimum pension liability
adjustments, and unrealized gains and losses on certain investments in debt and
equity securities. The implementation of this new reporting standard did not
have a material impact on the presentation of the Company's consolidated
financial statements.
DISCLOSURES ABOUT SEGMENTS FOR AN ENTERPRISE AND RELATED INFORMATION. Commencing
with the first quarter of 1998, the preparation of financial statements in
conformity with generally accepted accounting principles requires management to
report selected segment information in the Company's quarterly report issued to
shareholders. It also requires Company-wide disclosures about the products and
services provided by the Company, the countries in which it holds material
assets and reports revenues, and its major customers. The application of this
reporting standard did not have a material impact on the presentation of the
Company's consolidated financial statements.
NET LOSS PER SHARE. The Company adopted the provisions of SFAS No. 128 "Earnings
Per Share" in 1997. Net loss per share (basic and diluted) is based on the
weighted average number of common shares outstanding during each year, which has
been reduced by the Company's proportionate ownership of common shares owned by
Great Basin, MegaGold and Stanco Investments, A.V.V. (Stanco). As of September
30, 1998 and 1997 and December 31, 1997, 1996 and 1995, there were 3,510,484,
2,911,410, 2,908,075, 1,962,092 and 1,636,793 shares available for issuance
pursuant to the exercise of previously granted stock options, respectively.
These options were not included in the computation of diluted loss per share as
a loss was incurred in each of these periods, and their inclusion would be
anti-dilutive. As a result, the adoption of SFAS No. 128 had no impact on prior
year net loss per share disclosure.
RECLASSIFICATIONS. Certain reclassifications of the prior years' consolidated
financial statement balances have been made to conform with the 1998
presentation. These reclassifications had no effect on the net loss or
accumulated deficit as previously reported.
F-8
<PAGE> 125
2. INVESTMENTS:
The Company accounts for its investments in equity securities as
available-for-sale securities, and its investments in government-backed bonds as
held-to-maturity securities according to the provisions of Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." Held-to-maturity securities consist primarily of
U.S. Treasury bonds which are recorded at amortized cost. The bonds outstanding
at September 30, 1998 mature as follows: $15,048,887 in 1999, $2,003,842 in
2000, $1,000,000 in 2005, and $495,000 in 2007. The bonds outstanding at
December 31, 1997 mature as follows: $4,054,494 in 1998, $7,001,366 in 1999,
$2,013,174 in 2001, $1,003,078 in 2004 and $1,504,355 in 2007. All of the bonds
mature or are callable in or before the year 2000.
<TABLE>
<CAPTION>
HELD-TO-MATURITY SECURITIES
------------------------------------------------------
Amortized Cost/ Unrealized Unrealized Quoted Market
SEPTEMBER 30, 1998: Carrying Value Gain Loss Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Government backed bonds $18,547,729 $ 115,644 $ (834) $18,662,539
=========== =========== =========== ===========
DECEMBER 31, 1997:
Government backed bonds $15,576,467 $ 8,606 $ (15,814) $15,569,259
----------- ----------- ----------- -----------
DECEMBER 31, 1996:
Government backed bonds $ 8,442,492 $ 2,629 $ (5,686) $ 8,439,435
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE SECURITIES
--------------------------------------------------------
Unrealized Unrealized Carrying/Quoted
SEPTEMBER 30, 1998: Cost Gain Loss Market Value
----------- ----------- ----------- -----------
<S> <C> <C> <C>
Gold Reserve Corporation $ 674,598 $ 713,786 -- $ 1,388,384
Less, ownership by the Company (1) (403,331) (713,786) -- (1,117,117)
----------- ----------- ----------- -----------
271,267 -- -- 271,267
Other equity securities 1,025,000 5,000 $ (17,500) 1,012,500
----------- ----------- ----------- -----------
$ 1,296,267 5,000 $ (17,500) $ 1,283,767
=========== =========== =========== ===========
DECEMBER 31, 1997:
----------- ----------- ----------- -----------
Gold Reserve Corporation $ 220,318 $ 2,293,119 -- $ 2,513,437
Less, ownership by the Company (1) (128,564) (2,293,119) -- (2,421,683)
----------- ----------- ----------- -----------
91,754 -- -- 91,754
Other equity securities 25,000 11,000 -- 36,000
----------- ----------- ----------- -----------
$ 116,754 $ 11,000 -- $ 127,754
=========== =========== =========== ===========
DECEMBER 31, 1996:
----------- ----------- ----------- -----------
Gold Reserve Corporation $ 220,318 $ 6,409,956 -- $ 6,630,274
Less, ownership by the Company (1) (128,564) (6,409,956) -- (6,538,520)
91,754 -- -- 91,754
Other equity securities 25,000 2,750 -- 27,750
$ 116,754 $ 2,750 -- $ 119,504
=========== =========== =========== ===========
</TABLE>
(1) The Gold Reserve Corporation shares above are owned by the Company's
subsidiaries, Great Basin and MegaGold. The Company's effective ownership
of its own stock through its subsidiaries is deducted from the above number
of shares held and recorded as a reduction of common stock outstanding on
the balance sheets. These shares are carried at cost.
F-9
<PAGE> 126
3. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment as of September 30, 1998 and December 31, 1997 and
1996 consisted of the following:
<TABLE>
<CAPTION>
December 31,
September 30, ----------------------------
1998 1997 1996
------------ ------------ ------------
DOMESTIC
<S> <C> <C> <C>
Furniture and office equipment $ 295,188 $ 289,633 $ 217,860
Transportation equipment -- -- 162,000
Leasehold improvements 11,174 11,174 11,174
------------ ------------ ------------
306,362 300,807 391,034
Less accumulated depreciation (181,883) (155,024) (137,719)
------------ ------------ ------------
124,479 145,783 253,315
------------ ------------ ------------
FOREIGN
Property and mineral rights 11,002,335 11,002,335 11,002,335
Capitalized exploration and development costs 28,714,009 26,712,061 17,326,751
Buildings 262,208 262,208 86,989
Furniture and fixtures 390,478 384,409 346,996
Transportation equipment 288,231 288,231 255,119
Machinery and equipment 310,177 308,552 289,874
------------ ------------ ------------
40,967,438 38,957,796 29,308,064
Less accumulated depreciation (804,922) (657,410) (464,074)
40,162,516 38,300,386 28,843,990
------------ ------------ ------------
Total $ 40,286,995 $ 38,446,169 $ 29,097,305
============ ============ ============
</TABLE>
In June 1995, the Company issued 1,329,185 common shares valued at $9.8 million
in exchange for all outstanding shares, other than shares already held by the
Company, of Gold Reserve Aruba and Glandon Company which hold the Company's
interest in its Venezuelan subsidiaries. The fair value of the common shares
issued to acquire the minority interests was recorded as additional property and
mineral rights costs associated with the Brisas property.
4. EMPLOYEE BENEFIT KSOP PLAN:
The Company's KSOP Plan, adopted in 1990 for the benefit of its employees, is
comprised of two parts, (1) a salary reduction component, or 401(k), and (2) an
employee stock ownership component, or ESOP. The salary reduction component has
not, to date, been utilized by any participant. Common stock purchases by the
KSOP Plan are financed by bank loans at between 7 and 8 percent interest and
presently due in 1998. The loans are guaranteed by the Company and accordingly
are recorded as a reduction to shareholders' equity. Allocation of common shares
to participants' accounts is based on contributions by the Company, up to a
maximum of 25 percent of the participants' annual compensation or $30,000,
whichever is less, divided by the original purchase price of the common shares.
The Company recorded expense related to KSOP plan contributions of $208,089,
$167,473, $167,473, $150,000, and $92,247 for the nine months ended September
30, 1998 and 1997 and the years ended December 31, 1997, 1996, and 1995,
respectively. As of September 30, 1998 and December 31, 1997, 99,596 and 93,937
common shares respectively, remain unallocated to plan participants.
F-10
<PAGE> 127
5. STOCK OPTION PLANS:
The Company adopted the disclosure provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation" (SFAS No. 123) on January 1, 1996. Pursuant to the
provisions of SFAS No. 123, the Company continues to measure compensation cost
for stock-based employee compensation plans using the intrinsic value method of
accounting prescribed by APB Opinion No. 25, "Accounting for Stock Issued to
Employees" and provides pro forma disclosure of compensation expense related to
stock-based plans using the fair value based method of accounting as shown
below.
The Company's Equity Incentive Plan allows for the granting of up to 2,000,000
common share purchase options, in addition to any options issued pursuant to
previous plans, to officers, directors, and key individuals for terms of up to
ten years. The vesting period of options ranges from immediately to up to three
years. Stock option transactions for the last three years are as follows:
<TABLE>
<CAPTION>
December 31,
------------------------------------------------------------------------------------------------
1997 1996 1995
------------------------------ ------------------------------ ------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding,
beginning of year 1,962,092 $ 6.62 1,636,793 $ 5.31 964,628 $ 3.91
Options exercised (124,649) 5.72 (496,623) 5.44 (167,835) 2.78
Options canceled (209,368) 7.92 (136,178) 7.51 (118,334) 7.07
Options granted 1,280,000 6.67 958,100 8.41 958,334 6.50
Options outstanding, end of year 2,908,075 $ 6.60 1,962,092 $ 6.64 1,636,793 $ 5.31
------------- ------------- ------------- ------------- ------------- -------------
Options exercisable
at end of year 2,185,392 1,460,406 1,044,053
============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
Price Price Price
Range Range Range
---------------- ---------------- ---------------
<S> <C> <C> <C>
Option exercise price at end of year $ 1.09 - $ 14.69 $ 1.09 - $ 14.69 $ 1.09 - $ 8.19
Option exercise price for exercisable shares $ 1.09 - $ 14.69 $ 1.09 - $ 13.51 $ 1.09 - $ 7.06
Weighted-average fair value of $ 4.40 $ 3.45 $ 2.61
options granted during the year
</TABLE>
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------------------- ----------------------------------
Weighted
Average Weighted Weighted
Number Remaining Average Number Average
Range of Outstanding Contractual Exercise Price Exercisable Exercise Price
Exercise Prices at 12/31/97 Life at 12/31/97 at 12/31/97 at 12/31/97
-------------------- ------------- --------------- --------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
$ 1.09 to 1.24 222,852 4.66 years $ 1.14 222,852 $ 1.14
1.97 to 5.50 262,316 7.84 years 5.01 253,982 5.06
5.63 to 5.63 435,000 8.01 years 5.63 435,000 5.63
6.00 to 6.00 522,400 8.68 years 6.00 298,400 6.00
7.06 to 7.38 470,540 7.35 years 7.10 418,873 7.07
7.56 to 7.56 490,000 9.08 years 7.56 328,371 7.56
7.75 to 9.88 291,167 8.99 years 8.71 107,831 8.79
10.00 to 14.69 213,800 8.76 years 11.44 120,083 12.39
----------------- ---------- ----------- ------- --------- -------
$ 1.09 to 14.69 2,908,075 8.09 years $ 6.60 2,185,392 $ 6.25
================= ========== =========== ======= ========= =======
</TABLE>
F-11
<PAGE> 128
5. STOCK OPTION PLANS, CONTINUED:
As of December 31, 1997, the average exercise price of outstanding options was
$6.60, the Company's closing share price on NASDAQ was $3.63 and 92% of the
outstanding options were exercisable at prices above current market value. Had
compensation cost for the Company's option plan been determined based on the
fair value at the grant date for awards in 1997, 1996 and 1995 consistent with
the provisions of SFAS No. 123, the Company's net loss and loss per share would
have been increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------
1997 1996 1995
---------------- ---------------- --------------
<S> <C> <C> <C>
Net loss - as reported $ (1,532,801) $ (829,938) $ (337,303)
Net loss - pro forma $ (6,146,126) $ (3,421,234) $ (1,766,405)
Net loss per share - as reported $ (0.07) $ (0.04) $ (0.02)
Net loss per share - pro forma $ (0.28) $ (0.16) $ (0.09)
</TABLE>
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1997, 1996 and 1995: expected volatility of 90%
for 1997 and 40% for 1996 and 1995; risk-free interest rates of 5.92% to 6.16%;
no dividends, and expected option lives of 2.5 to 7 years.
6. RELATED PARTY TRANSACTIONS:
MEGAGOLD. The President, Executive Vice President, Vice President-Finance and
Vice President-Administration of the Company are also officers, directors and/or
shareholders of MegaGold. At September 30, 1998, December 31, 1997 and 1996, the
Company owned 23,304,174 common shares of MegaGold which represented 63% of the
outstanding shares. MegaGold owned 276,642 common shares of the Company at
September 30, 1998 and owned 125,083 shares at December 31, 1997 and 1996. In
addition, MegaGold owned 280,000 common shares of Great Basin. The Company
performs various administrative functions and sublets a portion of its office
space to MegaGold for $1,200 per year.
GREAT BASIN. The President, Executive Vice President, Vice President-Finance and
Vice President-Administration of the Company are also officers, directors and/or
shareholders of Great Basin. At September 30, 1998, December 31, 1997 and 1996,
the Company owned 24,210,636 common shares of Great Basin which represented 58%
of the outstanding shares. Great Basin owned 516,720 common shares of the
Company at September 30, 1998 and owned 391,161 shares at December 31, 1997 and
1996. Great Basin also owned 170,800 common shares of MegaGold. The Company
performs various administrative functions and sublets a portion of its office
space to Great Basin for $1,200 per year.
LEGAL FEES PAID TO DIRECTOR. One of the Company's directors also serves as
Canadian legal counsel for the Company. During the nine months ended September
30, 1998 and 1997 and the years ended December 31, 1997, 1996 and 1995, the
Company incurred expenses of approximately $19,000, $35,000, $292,000, $149,000,
and $60,000 respectively, for services performed by the director and his firm,
in which he is Chairman and a partner. At September 30, 1998 and December 31,
1997 approximately $0 and $112,000, respectively of these fees are included in
accounts payable and accrued expenses.
NOTE RECEIVABLE FROM AN OFFICER. As of September 30, 1998, December 31, 1997 and
1996, the Company had a $50,000 note receivable due from an officer. The note
bears interest at 5.2% and is renewable annually.
F-12
<PAGE> 129
7. INCOME TAX:
The Company accounts for income taxes according to the provisions of SFAS No.
109, "Accounting for Income Taxes." No income tax benefit has been recorded for
the nine months ended September 30, 1998 and 1997 and the three years ended
December 31, 1997, 1996 and 1995 due to the uncertainty of recoverability of the
benefit associated with the net operating loss carryforwards.
The Company's Venezuelan subsidiaries are subject to Venezuelan income tax. All
costs related to the Company's Brisas property have been recorded as capitalized
exploration and development costs for tax purposes, and therefore the Company
has not recorded any foreign tax attributes. No income tax has been paid or
accrued by the Company's subsidiaries during the nine months ended September 30,
1998 and 1997 or the years ended December 31, 1997, 1996 and 1995. The Company
has recorded a valuation allowance to reflect the estimated amount of the
deferred tax asset which may not be realized, principally due to the uncertainty
of utilization of net operating losses and other carryforwards prior to
expiration. The valuation allowance for deferred tax assets may be reduced in
the near term if the Company's estimate of future taxable income changes.
The components of the deferred tax assets and liabilities as of September 30,
1998, December 31, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
Deferred Tax Asset (Liability)
--------------------------------------------------
September 30, December 31,
1998 1997 1996
<S> <C> <C> <C>
Accounts payable and accrued expenses $ 112 $ 66,910 $ 34,736
Investment income (79,206) (165,533) (105,037)
Property, plant and equipment 8,496,000 8,497,773 8,497,728
------------ ------------ ------------
Total temporary differences 8,416,906 8,399,150 8,427,427
Net operating loss carryforward 2,873,598 2,383,006 1,797,395
Investment tax credit 5,967 5,967 5,967
Alternative minimum tax credit 19,871 19,871 19,871
------------ ------------ ------------
Total temporary differences, operating losses
and tax credit carryforwards 11,316,342 10,807,994 10,250,660
Valuation allowance (11,316,342) (10,807,994) (10,250,660)
------------ ------------ ------------
Net deferred tax asset $ -- $ -- $ --
============ ============ ============
</TABLE>
The changes in the valuation allowance for the nine months ended September 30,
1998 and the years ended December 31, 1997, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
December 31,
September 30, -----------------------------------------------
1998 1997 1996 1995
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Balance, beginning of period $ 10,807,994 $ 10,250,660 $ 10,217,583 $ 10,348,600
Change in valuation allowance due to change
in deferred tax asset subject to uncertainty
of recovery 508,348 557,334 33,077 (131,017)
------------ ------------ ------------ ------------
Balance, end of period $ 11,316,342 $ 10,807,994 $ 10,250,660 $ 10,217,583
============ ============ ============ ============
</TABLE>
F-13
<PAGE> 130
7. INCOME TAX, CONTINUED:
At December 31, 1997, the Company had the following U.S. federal tax basis loss
carryforwards and tax credits:
<TABLE>
<CAPTION>
Amount Expires
-------------------------------------------
<S> <C> <C>
Regular tax net operating loss: $ 272,248 2006
1,650,395 2007
1,244,312 2008
700,536 2009
609,833 2010
808,573 2011
1,671,604 2012
--------------- ----
$ 6,957,501
===============
Alternative minimum tax net operating loss: $ 289,523 2006
1,624,454 2007
1,218,023 2008
671,999 2009
572,555 2010
781,796 2011
1,646,989 2012
--------------- ----
$ 6,805,339
===============
Investment tax credit $ 5,967 2001
Alternative minimum tax credit $ 19,871 -
</TABLE>
F-14
<PAGE> 131
8. GEOGRAPHIC SEGMENTS:
<TABLE>
<CAPTION>
United States Venezuela Combined
----------- ----------- -----------
<S> <C> <C> <C>
SEPTEMBER 30, 1998
Depreciation $ 29,602 -- $ 29,602
Net loss $ 1,270,351 $ 155,633 $ 1,425,984
=========== =========== ===========
IDENTIFIABLE ASSETS: (1)
Property, plant and equipment, net $ 124,479 $40,162,516 $40,286,995
General corporate assets 25,388,438 1,854,435 27,242,873
----------- ----------- -----------
Identifiable assets at September 30, 1998 $25,512,917 $42,016,951 $67,529,868
=========== =========== ===========
DECEMBER 31, 1997 ----------- ----------- -----------
Depreciation $ 47,042 -- $ 47,042
Net loss $ 1,455,169 $ 77,632 $ 1,532,801
=========== =========== ===========
IDENTIFIABLE ASSETS: (1)
Property, plant and equipment, net $ 145,783 $38,300,386 $38,446,169
General corporate assets 32,996,934 1,849,891 34,846,825
----------- ----------- -----------
Identifiable assets at December 31, 1997 $33,142,717 $40,150,277 $73,292,994
=========== =========== ===========
DECEMBER 31, 1996 ----------- ----------- -----------
Depreciation $ 38,831 -- $ 38,831
Net loss $ 656,435 $ 173,503 $ 829,938
=========== =========== ===========
IDENTIFIABLE ASSETS: (1)
Property, plant and equipment, net $ 253,315 $28,843,990 $29,097,305
General corporate assets 43,479,713 1,194,549 44,674,262
----------- ----------- -----------
Identifiable assets at December 31, 1996 $43,733,028 $30,038,539 $73,771,567
=========== =========== ===========
</TABLE>
(1) Identifiable assets of each segment are those that are directly identified
with those operations. General corporate assets consist primarily of cash,
cash equivalents and investment securities.
9. LITIGATION SETTLEMENT:
Pursuant to a December 1994 litigation settlement agreement related to an
ownership dispute of the Brisas property, the Company placed $4.5 million in
escrow to be released to one of the defendants at such time as the Company
receives the mining title to the hardrock concession for the Brisas property on
or before January 1, 2000. The Company paid $22,512,500 in common shares and
cash, including funds held in escrow and recorded the litigation settlement as
an expense in 1994. The Brisas hardrock concession was published in the Official
Gazette of the Republic of Venezuela on March 3, 1998 and the funds in escrow
were released to the defendant in the litigation on or around March 20, 1998.
F-15
<PAGE> 132
10. SHAREHOLDER RIGHTS PLAN:
At the 1997 annual meeting of shareholders a "Shareholder Rights Plan" was voted
upon and approved. The Rights Plan is intended to give adequate time for
shareholders of the Company to properly assess the merits of a take-over bid
without pressure and to allow competing bids to emerge. The Rights Plan is
designed to give the board of directors time to consider alternatives to allow
shareholders to receive full and fair value for their common shares. One right
is issued in respect to each outstanding share. The rights become exercisable
only when a person, including any party related to it or acting jointly with it,
acquires or announces its intention to acquire 20 percent or more of the
Company's outstanding shares without complying with the "permitted bid"
provisions of the Rights Plan. Each right would, on exercise, entitle the
holder, other than the acquiring person and related persons, to purchase common
shares of the Company at a 50% discount to the market price at the time.
11. DIFFERENCES BETWEEN U.S. AND CANADIAN GAAP:
The Company prepares its consolidated financial statements in accordance with
generally accepted accounting principles (GAAP) in the United States. The
differences between U.S. GAAP and Canadian GAAP had no effect on total
shareholders' equity as of September 30, 1998, December 31, 1997 and 1996 nor
net loss for the nine months ended September 30, 1998 and 1997 and the years
ended December 31, 1997, 1996 and 1995.
Under Canadian GAAP, the other non-cash activities noted in the supplemental
cash flow information would be included in the Statement of Cash Flows.
Accordingly, under Canadian GAAP, net cash used by investing activities would
have been $1,582,839 and net cash provided by financing activities would have
been $10,622,385 in the 1995 Statement of Cash Flows.
F-16
<PAGE> 133
[LETTERHEAD OF PRICEWATERHOUSECOOPERS LLP, SPOKANE, WASHINGTON]
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Shareholder
Gold Reserve Inc.
In our opinion, the accompanying balance sheet and related statements of changes
in shareholder's equity and cash flows present fairly, in all material respects,
the financial position of Gold Reserve Inc. ("GR-Canada") as of November 9, 1998
and the cash flows for the period from October 5, 1998 (date of formation) to
November 9, 1998, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of GR-Canada's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.
/s/ PricewaterhouseCoopers LLP
Spokane, Washington
November 9, 1998
F-17
<PAGE> 134
GOLD RESERVE INC.
BALANCE SHEET
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Cash $ 1,000
-----------
TOTAL ASSETS $ 1,000
===========
LIABILITIES AND SHAREHOLDER'S EQUITY:
Class C preferred stock, no par value --
Authorized shares: unlimited; issued: none
Class A Stock, no par value $ 1,000
Authorized shares: unlimited; issued: 100
Class B common stock, no par value --
Authorized shares: unlimited; issued: none
-----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,000
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-18
<PAGE> 135
GOLD RESERVE INC.
STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY
for the period from October 5, 1998 (date of formation)to November 9, 1998)
<TABLE>
<CAPTION>
CLASS A COMMON STOCK
------------------------------
SHARES AMOUNT
-------------- -------------
<S> <C> <C>
Balance, October 5, 1998 $ --- $ ---
Shares issued for cash 100 1,000
-------------- -------------
Balance, November 9, 1998 $ 100 $ 1,000
============== =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-19
<PAGE> 136
GOLD RESERVE INC.
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM OCTOBER 5, 1998 (DATE OF FORMATION) TO NOVEMBER 9, 1998
<TABLE>
<CAPTION>
<S> <C>
Operating activities $ --
Investing activities --
Financing activities:
Common stock issued 1,000
--------
1,000
Cash at beginning of period --
--------
Cash at end of period $ 1,000
--------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-20
<PAGE> 137
GOLD RESERVE INC.
NOTES TO FINANCIAL STATEMENTS
1. GR-CANADA AND SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION
GR-Canada was incorporated in the Yukon Territory, Canada on October 5,
1998, for the purpose of exploring, developing and acquiring mining properties
with the intention of placing these properties into production. At November 9,
1998, it is a wholly-owned subsidiary of Gold Reserve Corporation
("GR-Montana"). GR-Canada has not had any operations or activities other than
the initial formation. Therefore, no statement of operation is presented.
GR-Canada's financial statements are presented in accordance with
generally accepted accounting principles ("GAAP") applied in Canada and in U.S.
dollars. There are no differences between GAAP as applied in Canada and the
United States.
CASH AND CASH EQUIVALENTS
GR-Canada considers short-term, highly liquid investments purchased with
an original maturity of three months or less to be cash equivalents for purposes
of reporting cash equivalents and cash flows.
2. SHAREHOLDER'S EQUITY:
At November 9, 1998, GR-Montana owns all of the outstanding shares of
GR-Canada. Pending GR-Montana shareholder approval, pursuant to a reverse
triangular merger with an inactive special-purpose subsidiary, GR-Canada will
become the parent company of GR-Montana. The merger will result in the
reincorporation of GR-Montana in Canada.
GR-Canada Class A Shares and GR-Canada Class B Shares are voting shares.
GR-Canada's Articles of Incorporation authorize Class C preferred stock. The
Board of Directors can establish dividends, liquidation and other preferences
for the Class C preferred stock. However, as of November 9, 1998, no shares had
been issued and no such preferences have been determined.
F-21
<PAGE> 138
ANNEX I
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (this "Agreement") dated as of October
5, 1998, is among Gold Reserve Corporation, a Montana corporation
("GR-Montana"), Gold Reserve Inc., a Yukon corporation ("GR-Canada"), and GR
Merger Corp., a Montana corporation and a wholly-owned subsidiary of GR-Canada
("Merger Sub").
R E C I T A L S
A. The respective Boards of Directors of GR-Montana, GR-Canada and Merger
Sub have determined that it is advisable and in the best interests of their
respective shareholders to reorganize (the "Reorganization") so that GR-Canada
becomes the parent company of GR-Montana.
B. In order to accomplish the Reorganization, the respective Boards of
Directors of GR-Montana, GR-Canada and Merger Sub have approved the merger of
Merger Sub with and into GR-Montana (the "Merger"), with GR-Montana being the
surviving corporation in the Merger, upon the terms and subject to the
conditions set forth in this Agreement.
C. At the Effective Time (as defined in Section 1.2), each outstanding
share of GR-Montana common stock, no par value per share ("GR-Montana Common
Stock"), will automatically convert into one GR-Canada Class A Share, no par
value per share ("GR-Canada Class A Share"); provided, however, that (i) each
share of GR-Montana Common Stock with respect to which an election to receive an
Equity Unit (as defined below) has been properly made by the holder thereof and
not revoked or lost (an "Electing Share") will not convert into one GR-Canada
Class A Share and will instead be converted into one Equity Unit, and (ii)
shares of GR-Montana Common Stock issued and outstanding immediately prior to
the special meeting (as defined in Section 3.2) with respect to which the
holders thereof properly demand and do not revoke or lose dissenters' rights
(the "Dissenting Shares") in accordance with Sections 35-1-826 through 35-1-839
(or any successor provision) of the Montana Business Corporation Act (the
"MBCA") will not convert into GR-Canada Class A Shares or Equity Units.
D. At the Effective Time, as part of the Reorganization and in partial
consideration of the issuance by GR-Canada of the GR-Canada Class A Shares, the
issued and outstanding common stock of Merger Sub held by GR-Canada immediately
prior to the effective time will convert into and become that number of shares
of fully paid and non-assessable post-Reorganization shares of GR-Montana Class
A Stock, no par value per share ("GR-Montana Class A Stock"), which is equal to
the number of shares of GR-Montana Common Stock converted into GR-Canada Class A
Shares at the Effective Time.
E. The Board of Directors of GR-Montana has determined that U.S. Holders
(as defined below) of outstanding GR-Montana Common Stock may make an election
(the "Equity Unit Election") to receive an equity unit (an "Equity Unit")
consisting of (i) one GR-Canada Class B common share, no par value per share
("GR-Canada Class B Share"), and (ii) one share of GR-Montana Class B common
stock, no par value per share ("GR-Montana Class B Stock"), for each share of
GR-Montana Common Stock owned by such shareholder in lieu of such share being
automatically converted into one GR-Canada Class A Share. Each such GR-Montana
Class B Share and share of GR-Montana Class B Stock will be paired as an Equity
Unit, and after such pairing, such securities may only be transferred together
as a unit and will not be separately transferable. As used herein, "U.S. Holder"
shall mean any shareholder of GR-Montana that is a citizen or resident of the
United States, a corporation, partnership or other entity created or organized
in or under the laws of the United States or any political subdivision thereof,
or an estate or trust the income of which is subject to U.S. federal income
taxation regardless of its source.
F. The Merger has been approved by the sole shareholders of GR-Canada and
Merger Sub, and the Merger requires the affirmative vote of the holders of
662/3% of the outstanding shares of GR-Montana Common Stock (the "GR-Montana
Shareholder Approval").
NOW, THEREFORE, the parties agree as follows:
ANNEX I-1
<PAGE> 139
ARTICLE I
MERGER
1.1 MERGER
Upon the terms and subject to the conditions set forth in this Agreement,
and in accordance with the MBCA, Merger Sub shall be merged with and into
GR-Montana at the Effective Time of the Merger. Following the Effective Time,
the separate corporate existence of Merger Sub shall cease, and GR-Montana shall
continue as the surviving corporation (the "Surviving Corporation") in the
Merger and shall succeed to and assume all of the rights and obligations of
Merger Sub in accordance with the MBCA.
1.2 EFFECTIVE TIME
Subject to the provisions of this Agreement, as soon as practicable
following the satisfaction or waiver of the conditions set forth in Section 5.1,
the parties shall file articles of merger or other appropriate documents (the
"Articles of Merger") prepared and executed in accordance with the relevant
provisions of the MBCA and shall make all other filings or recordings required
under the MBCA. The Merger shall become effective upon the acceptance of the
filing of the Articles of Merger by the Secretary of State of the State of
Montana, or at such later time as Merger Sub and GR-Montana shall agree should
be specified in the Articles of Merger (the time the Merger becomes effective is
the "Effective Time").
1.3 EFFECTS OF THE MERGER
The Merger shall have the effects set forth in Section 35-1-817 of the
MBCA.
ARTICLE II
THE SURVIVING CORPORATION
2.1 NAME OF SURVIVING CORPORATION
The name of the surviving corporation shall be "Gold Reserve Corporation."
2.2 ARTICLES OF INCORPORATION
The Articles of Incorporation of GR-Montana shall be the Articles of
Incorporation of the Surviving Corporation after the Effective Time, except that
the Articles of Incorporation of GR-Montana shall be amended and restated in
their entirety by virtue of the Merger to read in full as set forth in Exhibit A
hereto (the "Amended Articles") until such time thereafter as they are amended
as provided in the Amended Articles or by applicable law.
2.3 BYLAWS
The Bylaws of Merger Sub as in effect at the Effective Time shall be the
Bylaws of the Surviving Corporation until thereafter changed or amended as
provided therein or by applicable law.
ANNEX I-2
<PAGE> 140
2.4 DIRECTORS
The directors of GR-Montana at the Effective Time shall be the directors
of the Surviving Corporation, until the earlier of their death, resignation or
removal or until their respective successors are duly elected and qualified, as
the case may be.
2.5 OFFICERS
The officers of GR-Montana at the Effective Time shall be the officers of
the Surviving Corporation, until the earlier of their death, resignation or
removal or until their respective successors are duly elected and qualified, as
the case may be.
ARTICLE III
CONVERSION, ELECTION AND EXCHANGE OF STOCK
3.1 CONVERSION
At the Effective Time, by virtue of the Merger and without any action on
the part of the holder of any shares:
(a) Common Stock of Merger Sub. The issued and outstanding shares of
common stock of Merger Sub shall be converted into and become that number of
fully paid and nonassessable shares of GR-Montana Class A Stock (as provided in
the Amended Articles) equal to the sum of (i) the number of shares of GR-Montana
Common Stock outstanding immediately prior to the Effective Time that are
converted into GR-Canada Class A Shares, and (ii) the number of shares of
GR-Montana Common Stock that are transferred to GR-Canada as consideration for
the issuance by GR-Canada of the GR-Canada Class B Shares.
(b) Conversion of GR-Montana Common Stock. (i) Each issued and outstanding
share of GR-Montana Common Stock (other than Electing Shares, which shall be
converted as described in (b)(ii) below, and Dissenting Shares) shall be
automatically converted into and shall become one validly issued, fully paid and
non-assessable GR-Canada Class A Share and (ii) each share of GR-Montana Common
Stock with respect to which an Equity Unit Election has been effectively made
and not revoked or lost, pursuant to Sections 3.2(c), (d) and (e), shall be
automatically converted into an Equity Unit. Each Equity Unit shall consist of
one GR-Canada Class B Share and one share of GR-Montana Class B Stock which may
only be transferred together as an Equity Unit and will not be separately
transferrable. Notwithstanding anything in this Agreement to the contrary,
Dissenting Shares shall not be converted into GR-Canada Class A Shares unless
such holder fails to properly demand or otherwise loses such holder's right to
exercise such dissenters' rights. If, after the Effective Time, such holder
fails to perfect or loses any such right to exercise dissenters' rights, each
such share of such holder shall be treated as a share that had been converted as
of the Effective Time into one GR-Canada Class A Share in accordance with the
first sentence of this Section 3.1(b).
(c) Cancellation of GR-Canada Shares Owned by GR-Montana. Each issued and
outstanding share of GR-Canada that is owned by GR-Montana prior to the
Effective Time shall automatically be canceled and retired.
ANNEX I-3
<PAGE> 141
(d) Cancellation of GR-Montana Shares Owned by GR-Montana. Each issued and
outstanding share of GR-Montana directly owned by GR-Montana immediately prior
to the Effective Time (including treasury shares) shall automatically be
canceled and retired.
3.2 EQUITY UNIT ELECTION
(a) Each person who, on or prior to the Election Date referred to in
Section 3.2(c) below, is a U.S. Holder of shares of GR-Montana Common Stock
(other than holders of Dissenting Shares) shall be entitled to make an Equity
Unit Election with respect to any or all of such person's shares (such shares,
assuming that the Equity Unit Election is properly made and not lost, thereby
becoming Electing Shares, subject to the provisions of this Section 3.2) on or
prior to such Election Date and to receive one Equity Unit for each Electing
Share in lieu of such share being automatically converted into a GR-Canada Class
A Share.
(b) Prior to the mailing to the record holders of GR-Montana Common Stock
as of the record date for the special meeting of shareholders of GR-Montana (the
"Special Meeting") of the Proxy Statement /Joint Prospectus relating to the
Special Meeting (the "Proxy Statement"), GR-Montana shall appoint an exchange
agent (the "Exchange Agent") for the Equity Units.
(c) GR-Montana shall prepare and mail a form of election (the "Form of
Election") with the Proxy Statement to the record holders of GR-Montana Common
Stock as of the record date for the Special Meeting, which Form of Election
shall be used by U.S. Holders who wish to make an Equity Unit Election.
GR-Montana will use reasonable efforts to make the Form of Election and the
Proxy Statement available to all U.S. Holders who become holders of GR-Montana
Common Stock during the period between such record date and the Election Date
referred to below. Any such holder's election to receive Equity Units shall have
been properly made only if the Exchange Agent shall have received a Form of
Election properly completed and signed at its designated office, by 5:00 p.m.,
Spokane, Washington time, on the business day (the "Election Date") before the
date of the Special Meeting. Certificates representing such Electing Shares to
which such Form of Election relates, duly endorsed in blank or otherwise in a
form acceptable for transfer on the books of GR-Montana (or by an appropriate
guarantee of delivery of such certificates as set forth in such Form of Election
from a firm which is a member of a registered national securities exchange or
the National Association of Securities Dealers, Inc. ("NASD") or a commercial
bank (not a savings bank or a savings and loan association) or trust company
having an office or correspondent in the United States, provided such
certificates are in fact delivered to the Exchange Agent within three NASD
trading days after the date of execution of such guarantee of delivery) must be
received by the Exchange Agent by 5:00 p.m., Spokane, Washington time, on the
Election Date, otherwise the Equity Unit Election will be lost and thereby
voided.
(d) Any Form of Election may be revoked by the shareholder submitting it
to the Exchange Agent only by written notice received by the Exchange Agent (i)
prior to 5:00 p.m., Spokane, Washington time, on the Election Date or (ii) such
later date as required by law if the Effective Time shall not have occurred
prior to such date. In addition, all Forms of Election shall automatically be
revoked if the Exchange Agent is notified in writing by GR-Montana that the
Merger has been abandoned. If a Form of Election is revoked, the certificate or
certificates (or guarantees of delivery, as appropriate) representing the
Electing Shares to which such Form of Election relates shall be promptly
returned to the shareholder submitting the same to the Exchange Agent.
ANNEX I-4
<PAGE> 142
(e) The determination of the Exchange Agent as to whether the Equity Unit
Election has been properly made, lost or revoked pursuant to this Section 3.2
with respect to Electing Shares and when elections and revocations were received
by it shall be binding. If the Exchange Agent determines that any Equity Unit
Election was not properly made or is lost with respect to shares of GR-Montana
Common Stock, such shares shall be treated by the Exchange Agent as shares which
were not Electing Shares at the Effective Time, and such shares will be
automatically converted into GR-Canada Class A Shares. The Exchange Agent shall
also make all computations as to the allocation contemplated by Section 3.2(f),
and any such computation shall be conclusive and binding on the holders of
Electing Shares. The Exchange Agent may, with the agreement of GR-Montana, make
such rules as are consistent with this Section 3.2 for the implementation of the
elections provided for herein as shall be necessary or desirable fully to effect
such elections.
(f) A fraction of each shareholder's GR-Montana Common Stock exchanged for
Equity Units in the Reorganization will be transferred to GR-Montana as
consideration for the issuance of the GR-Montana Class B Stock, and the
remaining fraction of such GR-Montana Common Stock so exchanged will be
transferred to GR-Canada as consideration for the issuance by GR-Canada of the
GR-Canada Class B Shares. Allocation of the value of the exchanged GR-Montana
Common Stock between the GR-Montana Class B Stock and GR-Canada Class B Shares
issued in exchange for such GR-Montana Common Stock shall be determined based on
the respective fair market values of the GR-Montana Class B Stock and the
GR-Canada Class B Shares on the date of the Reorganization.
3.3 EXCHANGE OF STOCK
(a) Exchange Procedures for GR-Montana Common Stock. (i) Following the
Effective Time, each holder of an outstanding certificate or certificates
theretofore representing shares of GR-Montana Common Stock may, but shall not be
required to, surrender the same to GR-Canada for cancellation or transfer (other
than holders of Electing Shares, who shall be required to tender their shares of
GR-Montana Common Stock in exchange for Equity Units as described below, and
holders of Dissenting Shares), and each such holder or transferee will be
entitled to receive certificates representing the same number of GR-Canada Class
A Shares as the shares of GR-Montana Common Stock previously represented by the
stock certificates surrendered.
(ii) Each holder of Electing Shares shall be required to surrender the
certificate or certificates representing his Electing Shares in exchange for the
issuance of "Unit Shares" representing the Equity Units, subject to Section 3.2.
If a properly completed Form of Election, duly endorsed in blank or otherwise in
form acceptable for transfer on the books of GR-Montana and shares for which a
Form of Election was completed are not received by the Exchange Agent by 5:00
p.m., Spokane, Washington time, on the Election Date, the election as to such
shares shall be lost and the shareholder shall be deemed to have elected to
receive GR-Canada Class A Shares in lieu of Equity Units.
(iii) If any certificate representing GR-Canada Class A Shares or Equity
Units is to be issued in a name other than that in which the certificate
theretofore representing GR-Montana Common Stock surrendered is registered, it
shall be a condition to such issuance that the certificate surrendered shall be
properly endorsed and otherwise in proper form for transfer and that the person
requesting such issuance shall either: (A) pay GR-Canada or GR-Montana, as
appropriate, or its agents any taxes or other governmental charges required by
reason of the issuance of certificates representing GR-Canada Class A Shares or
Equity Units in a name other than that of the registered holder of the
certificate so surrendered;
ANNEX I-5
<PAGE> 143
or (B) establish to the satisfaction of GR-Canada or GR-Montana, as appropriate,
or its agents that such taxes or governmental charges have been paid. With
respect to GR-Montana Common Stock that is not subject to an Equity Unit
Election, until so surrendered or presented for transfer, each outstanding
certificate which, prior to the Effective Time, represented GR-Montana Common
Stock shall be deemed and treated for all corporate purposes to represent the
ownership of the same number of GR-Canada Class A Shares as though such
surrender or transfer and exchange had taken place.
(b) No Further Ownership Rights in GR-Montana Common Stock. All GR-Canada
Class A Shares or Equity Units issued upon the surrender for exchange of
certificates in accordance with the terms of this Article III shall be deemed to
have been issued (and paid) in full satisfaction of all rights pertaining to the
shares of GR-Montana Common Stock theretofore represented by such certificates,
subject, however, to the Surviving Corporation's obligation to pay any dividends
or make any other distributions with a record date prior to the Effective Time
which may have been declared or made by GR-Montana on such shares of GR-Montana
Common Stock in accordance with the terms of this Agreement or prior to the date
of this Agreement and which remain unpaid at the Effective Time, and there shall
be no further registration of transfers on the stock transfer books of the
Surviving Corporation of the shares of GR-Montana Common Stock which were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, certificates are presented to the Surviving Corporation, they shall be
canceled and exchanged as provided in this Article III, except as otherwise
provided by law.
ARTICLE IV
EMPLOYEE BENEFIT AND COMPENSATION PLANS
To the extent any employee benefit or incentive compensation plan of
GR-Montana (including the 1997 Equity Incentive Plan of GR-Montana (the "1997
Plan")) provides for the issuance or purchase of, or otherwise relates to,
GR-Montana Common Stock, such plans, after the Effective Time, shall be deemed
to provide for the issuance or purchase of, or otherwise relate to, GR-Canada
Class A Shares. Such amendments deemed necessary by the Board of Directors of
GR-Montana and GR-Canada shall be adopted with respect to such plans and
GR-Canada shall assume the 1997 Plan as of the Effective Time.
ARTICLE V
CONDITIONS PRECEDENT
5.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER
The respective obligation of each party to effect the Merger is subject to
the satisfaction or waiver of the following conditions:
(a) Shareholder Approval. The GR-Montana Shareholder Approval shall have
been obtained.
(b) Form S-4. The registration statement on Form S-4 filed with the
Securities and Exchange Commission by GR-Montana and GR-Canada in connection
with the issuance of the GR-Canada Class A Shares and Equity Units consisting of
the GR-Canada Class B Shares and GR-Montana Class B Stock and "Unit Shares" in
the Merger shall have become effective under the Securities Act of 1933, as
amended, and shall not be the subject of any stop order or proceedings seeking a
stop order.
ANNEX I-6
<PAGE> 144
(c) Dissenting Shares. The holders of no more than 7.5% of the shares of
GR-Montana Common Stock outstanding immediately prior to the Special Meeting
shall have elected dissenters' rights.
(d) Equity Unit Election. The holders of no more than 20% of the shares of
GR-Montana Common Stock outstanding immediately prior to the Special Meeting
shall have made an Equity Unit Election.
ARTICLE VI
TERMINATION, AMENDMENT AND WAIVER
6.1 TERMINATION
This Agreement may be terminated at any time prior to the Effective Time,
whether before or after approval by the shareholders of GR-Montana of matters
presented in connection with the Merger, by action of the Board of Directors of
GR-Montana.
6.2 EFFECT OF TERMINATION
In the event of termination of this Agreement as provided in Section 6.1,
this Agreement shall forthwith become void and have no effect, without any
liability or obligation on the part of GR-Montana, GR-Canada or Merger Sub,
other than the provisions of this Section 6.2 and Article VII.
6.3 AMENDMENT
This Agreement may be amended by the parties at any time before or after
any required approval of matters presented in connection with the Merger by the
shareholders of GR-Montana; provided, however, that after any such approval,
there shall be made no amendment that by law requires further approval by such
shareholders without the further approval of such shareholders. This Agreement
may not be amended except by an instrument in writing signed on behalf of each
of the parties.
6.4 WAIVER
At any time prior to the Effective Time, the parties may waive compliance
by the other parties with any of the agreements or conditions contained in this
Agreement. Any agreement on the part of a party to any such waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party. The failure of any party of this Agreement to assert any of its rights
under this Agreement or otherwise shall not constitute a waiver of such rights.
6.5 PROCEDURE FOR TERMINATION, AMENDMENT, EXTENSION OR WAIVER
A termination of this Agreement pursuant to Section 6.1, an amendment of
this Agreement pursuant to Section 6.3 or a waiver pursuant to Section 6.4
shall, in order to be effective, require in the case of GR-Montana, GR-Canada or
Merger Sub, action by its Board of Directors or the duly authorized designee of
its Board of Directors.
ANNEX I-7
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ARTICLE VII
GENERAL PROVISIONS
7.1 NOTICES
All notices, requests, claims, demands and other communications under this
Agreement shall be in writing and shall be deemed given if delivered personally,
via facsimile (which is confirmed) or sent by overnight courier (providing proof
of delivery) to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice):
(a) if to GR-Montana,
Gold Reserve Corporation
601 West Riverside Avenue, Suite 1940
Spokane, Washington 99201
Attn: Rockne J. Timm
Telephone No: (509) 623-1500
Facsimile No: (509) 623-1634
(b) if to GR-Canada,
3081 - 3rd Avenue
Whitehorse, Yukon
Y1A 4Z7
Attn: Rockne J. Timm
Telephone No: (867) 668-4405
Facsimile No: (867) 668-3710
(c) if to Merger Sub,
c/o Gold Reserve Corporation
601 West Riverside Avenue, Suite 1940
Spokane, Washington 99201
Attn: Rockne J. Timm
Telephone No: (509) 623-1500
Facsimile No: (509) 623-1634
7.2 ENTIRE AGREEMENT; NO THIRD-PARTY BENEFICIARIES
This Agreement (including the documents and instruments referred to
herein) (a) constitutes the entire agreement, and supersedes all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter of this Agreement and (b) except for the
provisions of Article III, are not intended to confer upon any person other than
the parties any rights or remedies.
ANNEX I-8
<PAGE> 146
7.3 GOVERNING LAW
This Agreement shall be governed by, and construed in accordance with, the
laws of the State of Montana, regardless of the laws that might otherwise govern
under applicable principles of conflict of laws thereof.
IN WITNESS WHEREOF, GR-Montana, GR-Canada and Merger Sub have caused this
Agreement to be signed by their respective officers thereunto duly authorized,
all as of the date first written above.
GOLD RESERVE CORPORATION
By: /s/ Rockne J. Timm
Name: Rockne J. Timm
Title: President and Chief Executive Officer
GOLD RESERVE INC.
By: /s/ Rockne J. Timm
Name: Rockne J. Timm
Title: President and Chief Executive Officer
GR MERGER CORP.
By: /s/ Rockne J. Timm
Name: Rockne J. Timm
Title: President and Chief Executive Officer
ANNEX I-9
<PAGE> 147
EXHIBIT A
RESTATED ARTICLES OF INCORPORATION
OF GOLD RESERVE CORPORATION
ANNEX I-10
<PAGE> 148
RESTATED
ARTICLES OF INCORPORATION
OF
GOLD RESERVE CORPORATION
ARTICLE I.
The name of the Corporation is GOLD RESERVE CORPORATION.
ARTICLE II.
The registered office of the Corporation in the State of Montana is
located at 40 West Lawrence, Helena, Montana 59601. The name of the registered
agent of the Corporation at such address is CT Corporation System.
ARTICLE III.
The purpose for which the Corporation is organized is to engage in any and
all lawful acts and activities for which corporations may be organized under the
Montana Business Corporation Act. The Corporation will have perpetual existence.
ARTICLE IV.
The total number of shares of stock which the Corporation shall have
authority to issue is one hundred million (100,000,000) shares consisting of (i)
fifty million (50,000,000) shares of preferred stock, no par value per share
(the "Preferred Stock"), and (ii) fifty million (50,000,000) shares of common
stock (the "Common Stock"), classified as follows: twenty-five million
(25,000,000) shares of Class A Stock, no par value per share (the "Class A
Stock"), and twenty-five million (25,000,000) shares of Class B Common Stock, no
par value per share (the "Class B Stock").
The designations, relative rights, preferences and limitations of the
Preferred Stock and the Common Stock are as follows:
A. Provisions Relating to the Preferred Stock.
1. Board Determination of Certain Characteristics. The board of
directors of the Corporation is hereby authorized, subject to the limitations
prescribed by law and the provisions hereof, at its option, from time to time to
divide all or any part of the Preferred Stock into series thereof; to establish
from time to time the number of shares to be included in any such series; to fix
the designations, powers, preferences and rights of the shares of each such
series and the qualifications, limitations or restrictions thereof; and to
determine variations, if any, between any series so established as to all
matters, including, but not limited to, the determination of the following:
(a) the number of shares constituting each such series and the
distinctive designation of such series;
(b) the rate of dividend, if any, and whether dividends shall be
cumulative or noncumulative;
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(c) the voting power of holders of such series, if any, including,
without limitation, the vote or fraction of vote to which such holder may be
entitled, the events upon the occurrence of which such holder may be entitled to
vote, and any restrictions or limitations upon the right of such holder to vote,
except on such matters as may be required by law;
(d) whether such series shall be redeemable and, if so, the terms
and conditions of such redemption, including the date or dates after which the
shares constituting such series shall be redeemable and the amount per share
payable in case of redemption, which amount may vary under different conditions
and at different redemption dates;
(e) the extent, if any, to which such series shall have the benefit
of any sinking fund provisions for redemption or repurchase of shares;
(f) the rights, if any, of such series in the event of the
dissolution of the Corporation or upon any distribution of the assets of the
Corporation, including, with respect to the voluntary or involuntary
liquidation, dissolution or winding up of the Corporation, the relative rights
or priority, if any, of payment of shares of such series;
(g) whether the shares of such series shall be convertible and, if
so, the terms and conditions on which shares of such series shall be so
convertible; and
(h) such other powers, designations, preferences and relative
participating, optional or other special rights, and such qualifications,
limitations or restrictions thereon as are permitted by law.
2. Preemptive Rights. Unless otherwise authorized by the board of
directors, a holder of Preferred Stock shall not be entitled to preemptive
rights to acquire additional shares of capital stock of the Corporation.
B. Provisions Relating to the Common Stock.
1. Relative Rights. Shares of Common Stock shall have identical
rights and privileges in every respect, except as set forth herein.
2. Voting. Each share of Class A Stock and Class B Stock entitles
the holder thereof to vote at any meeting of the shareholders of the
Corporation, except at meetings at which only holders of another specific class
or series of shares of the Corporation are entitled to vote separately as a
class or series. Holders of Class A Stock and Class B Stock shall have one vote
per share of stock and shall be entitled to vote together as a single class. A
holder of shares of Common Stock shall not be permitted to cumulate his votes.
3. Dividends. Subject to the prior rights and preferences, if any,
applicable to the shares of the Preferred Stock or any series thereof, the
holders of shares of Common Stock shall be entitled to receive such dividends
(payable in cash, stock or otherwise) as may be declared thereon by the board of
directors at any time and from time to time out of any funds of the Corporation
legally available therefor; provided, however, that any dividend upon the Common
Stock that is payable in Common Stock shall be paid only in Class A Stock to the
holders of Class A Stock and only in Class B Stock to the holders of Class B
Stock. Dividends may not be declared with respect to the Class B Stock unless
dividends are simultaneously
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declared on the Class A Stock and the Class B Stock. The dividend per share of
Class B Stock cannot exceed the dividend per share of Class A Stock. As long as
any of the Class B common shares, no par value per share ("GR-Canada Class B
Shares"), of Gold Reserve Inc., a Yukon corporation ("GR-Canada"), remain
outstanding:
(a) dividends may not be declared with respect to the Class B
Stock unless dividends are declared simultaneously therewith
by GR-Canada, with respect to GR-Canada's Class A Shares, no
par value per share (the "GR-Canada Class A Shares"), and
the GR-Canada Class B Shares;
(b) other than dividends in shares, the sum of the dividend
payable per share of Class B Stock and GR-Canada Class B
share shall equal the dividend payable per GR-Canada Class A
Share;
(c) if a dividend is made in shares of Class B Stock, a
simultaneous dividend for a proportionate number of shares
is made for each of the GR-Canada Class A Shares and the
GR-Canada Class B Shares based on an original ratio of
one-to-one-to-one, as may be adjusted to give effect to any
stock splits, stock combinations or other changes in
capitalization. For example, if a dividend of one share of
Class B Stock is made, a simultaneous dividend for one
GR-Canada Class A Share and one GR-Canada Class B Share must
be made; and
(d) dividends payable per share of Class B Stock (other than
dividends in Class B Stock) shall equal 99% of the dividends
payable per GR-Canada Class A Share.
These restrictions on dividends shall not apply if GR-Canada and/or the
Corporation owns all of the outstanding shares of Class B Stock originally
included in an Equity Unit (as defined below) or if all Equity Units have been
converted into GR-Canada Class A Shares.
4. Liquidation, Dissolution or Winding Up. In the event of any
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation, after distribution in full of the preferential amounts, if any, to
be distributed to the holders of shares of Preferred Stock, or any series
thereof, the holders of shares of Common Stock shall be entitled to receive all
of the remaining assets of the Corporation available for distribution to its
shareholders, ratably in proportion to the number of shares of Common Stock held
by them, regardless of whether such shares are Class A Stock or Class B Stock. A
liquidation, dissolution or winding up of the Corporation, as such terms are
used in this Section IV.B.4., shall not be deemed to be occasioned by or to
include any consolidation or merger of the Corporation with or into any other
corporation or corporations or other entity or a sale, lease, exchange or
conveyance of all or part of the assets of the Corporation.
5. Restriction on Transfer; Exchange Rights. (a) Each share of Class
B Stock shall be paired with one GR-Canada Class B Share as an equity unit (an
"Equity Unit"), and shall be transferred together as an Equity Unit with such
GR-Canada Class B Share, and the Class B Stock may not be transferred except as
set forth herein. The Equity Units shall be evidenced by a Unit Share
certificate. The Corporation or its transfer agent, if any, shall refuse to
register the transfer of any shares (or fractions of shares) of Class B Stock
comprised in any Equity Unit, unless there is produced to the Corporation or its
transfer agent, if any, such evidence as it may in its discretion require to
ensure that on the same occasion
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there is being transferred to the same person the GR-Canada Class B Share
comprising part of the Equity Unit. For purposes of these Articles of
Incorporation, a "transfer" includes a transfer, sale, encumbrance or other
disposition of a component of an Equity Unit. If all of the GR-Canada Class B
Shares cease to be outstanding for any reason or all outstanding shares of Class
B Stock originally included in Equity Units are owned by GR-Canada and/or the
Corporation, the restriction on transfer under this section 5(a) shall no longer
apply, and the restriction on conversion under section 5(b) below shall no
longer apply.
(b) Each holder of record of Class B Stock may, at any time, at such
holder's option, convert any or all of the shares of Class B Stock held by such
holder into GR-Canada Class A Shares, and each share of Class B Stock so
converted shall be exchanged for a 99% fractional GR-Canada Class A Share;
provided, however, that no share of Class B Stock may be so converted without
the simultaneous surrender to GR-Canada of the GR-Canada Class B Share paired
therewith to form an Equity Unit for conversion into a 1% fractional GR-Canada
Class A Share.
(c) In order to convert Class B Stock into GR-Canada Class A Shares
in accordance with this Section IV.B.5., the Unit Share certificate(s) shall be
surrendered, duly endorsed, at the office of the Corporation where the stock
transfer books are maintained or to the Corporation's exchange agent, if any,
accompanied by a notice stating the number of shares of Class B Stock to be
converted into GR-Canada Class A Shares. Thereupon, the Corporation or its
exchange agent, if any, may deliver to the holder a certificate or certificates
for the number of GR-Canada Class A Shares to which such holder is entitled,
registered in the name of such holder or designee of such holder. The person
entitled to receive the GR-Canada Class A Shares issuable upon such conversion
shall be treated for all purposes as the record holder of such GR-Canada Class A
Shares on the date of conversion. If, for any reason, the Corporation does not
issue GR-Canada Class A Shares in the exchange, the holders of Class B Stock may
present to GR-Canada for exchange the shares of Class B Stock.
(d) Subject to any required action by the shareholders of the
Corporation, the number of shares of Class B Stock included in an Equity Unit
shall be adjusted for any increase or decrease in the number of issued shares of
Class B Stock resulting from a stock split, payment of a stock dividend or any
other increase or decrease in the number of issued shares or other change in
capitalization effected without receipt of consideration by the Corporation.
Subject to the Montana Business Corporation Act and these Articles of
Incorporation, such adjustment shall be made by the Corporation in its sole
discretion, which adjustment shall be final, binding and conclusive; provided,
however, that, for as long as the Corporation's share capital includes Class B
Stock, no such change in capitalization may be effected by the Corporation
unless the effect thereof will result in an Equity Unit comprising a whole
number of shares of Class B Stock and a whole number of GR-Canada Class B
Shares. All shares of Class B Stock resulting from such change in capitalization
will thereafter be included in Equity Units, resulting in an adjustment to the
Equity Unit pairing ratio.
(e) Subject to the provisions of the Montana Business Corporation
Act and these Articles of Incorporation, the Corporation may reduce its stated
capital in any way; provided, however, that no such reduction may be made if, as
a result, all of the shares of Class B Stock contained in Equity Units will be
canceled unless, prior to such reduction becoming effective, the board of
directors of the Corporation is satisfied that the GR-Canada Class B Shares
contained in such Equity Units will be canceled. Any determination by the board
of directors of the Corporation that it is so satisfied shall be conclusive and
binding.
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6. Fractional Shares. The Corporation shall not be required to issue
any fractional shares, other than upon conversion of the Class B Stock in
accordance with Section IV.B.5. above, but in lieu thereof, the Corporation may
make such equitable provisions as the board of directors may determine. In the
event of the conversion of less than all of the Class B Stock evidenced by the
Unit Shares certificate(s) surrendered in accordance with Section IV.B.5. above,
the Corporation shall execute and deliver, without charge to the holder thereof,
or at such holder's written direction, to his designee, a new Unit Shares
certificate evidencing the Class B Stock not converted. All costs of issuing
certificates for GR-Canada Class A Shares upon conversion of the Class B Stock
in accordance with Section IV.B.5. above incurred by the Corporation, including
any issuance tax, shall be paid by the Corporation.
7. Cancellation of Class B Shares. In the event that all of the
Class B Stock originally issued as part of an Equity Unit ceases to be
outstanding, the Class B Stock shall, without any further action of the
Corporation, automatically expire and be canceled, and no longer be authorized.
8. Call Rights. Each share of Class B Stock is callable by GR-Canada
in exchange for one GR-Canada Class A Share in accordance with the exchange
rights set forth above upon the earlier of (i) the liquidation, dissolution or
winding up of the Corporation or GR-Canada and (ii) the expiration of three (3)
years from the date of the original issuance of shares of Equity Units if 95% or
more of such Equity Units have been exchanged for GR-Canada Class A Shares. Any
such call may be effected in such manner as may be prescribed by the board of
directors of the Corporation in its discretion, subject to the Montana Business
Corporation Act and these Articles of Incorporation.
9. Preemptive Rights. A holder of Class A Stock or Class B Stock
shall not be entitled to preemptive rights to acquire additional shares of
capital stock of this Corporation.
C. General.
1. Issuance of Shares. Subject to the foregoing provisions of these
Articles of Incorporation, the Corporation may issue shares of its Preferred
Stock and Common Stock from time to time for such consideration as may be fixed
by the board of directors of the Corporation, which is expressly authorized to
fix the same in its absolute and uncontrolled discretion subject to the
foregoing conditions. Shares so issued for which the consideration shall have
been paid or delivered to the Corporation shall be deemed fully paid stock and
shall not be liable to any further call or assessment thereon, and the holders
of such shares shall not be liable for any further payments in respect of such
shares.
2. Issuance of Rights and Options. The Corporation shall have
authority to create and issue rights and options entitling their holders to
purchase shares of the Corporation's capital stock of any class or series or
other securities of the Corporation, and such rights and options shall be
evidenced by instrument(s) approved by the board of directors of the
Corporation. The board of directors of the Corporation shall be empowered to set
the exercise price, duration, times for exercise and other terms of such options
or rights.
ARTICLE V.
In furtherance and not in limitation of the powers conferred by the laws
of the State of Montana, the board of directors is expressly authorized and
empowered to adopt, amend and repeal the bylaws of the
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Corporation, subject to the power of the shareholders of the Corporation to
adopt, amend or repeal any bylaw made by the board of directors.
ARTICLE VI.
A director or officer (or former director or officer) of the Corporation
shall not be personally liable to the Corporation or its shareholders for
monetary damages for any actions taken or any failure to take any action, as a
director or officer, except liability for (i) the amount of the financial
benefit received by a director or officer to which the director or officer is
not entitled, (ii) an intentional infliction of harm on the Corporation or the
shareholders, (iii) a violation of Section 35-1-713 of the Montana Business
Corporation Act (regarding illegal distributions), or (iv) an intentional
violation of criminal law. Any repeal or modification of the foregoing
provisions of this Article VI shall not adversely affect any limitation on the
personal liability of a director or officer of the Corporation arising from an
act or omission occurring prior to the time of such repeal or amendment. In
addition to the circumstances in which a director or officer of the Corporation
is not personally liable as set forth in the foregoing provisions of this
Article VI, a director or officer shall not be liable to the Corporation or its
shareholders to such further extent as permitted by any law hereafter enacted,
including without limitation any subsequent amendment to the Montana Business
Corporation Act.
ARTICLE VII.
Directors of the Corporation need not be elected by written ballot unless
the bylaws of the Corporation otherwise provide.
ARTICLE VIII.
The Corporation shall indemnify any person who was, is, or is threatened
to be made a party to a proceeding (as hereinafter defined) because he or she
(i) is or was a director or officer of the Corporation or (ii) while a director
or officer of the Corporation, is or was serving at the request of the
Corporation as a director, officer, partner, venturer, proprietor, trustee,
employee, agent, or similar functionary of another foreign or domestic
corporation, partnership, joint venture, sole proprietorship, trust, employee
benefit plan, or other enterprise, to the fullest extent permitted under the
Montana Business Corporation Act, as the same exists or may hereafter be
amended. Such right shall be a contract right and as such shall run to the
benefit of any director or officer who is elected and accepts the position of
director or officer of the Corporation or elects to continue to serve as a
director or officer of the Corporation while this Article VIII is in effect. Any
repeal or amendment of this Article VIII shall be prospective only and shall not
limit the rights of any such director or officer or the obligations of the
Corporation with respect to any claim arising from or related to the services of
such director or officer in any of the foregoing capacities prior to any such
repeal or amendment to this Article VIII. Such right shall include the right to
be paid by the Corporation or reimbursed for expenses incurred in defending any
such proceeding in advance of its final disposition to the maximum extent
permitted under the Montana Business Corporation Act, as the same exists or may
hereafter be amended. If a claim for indemnification or advancement of expenses
hereunder is not paid in full by the Corporation within sixty (60) days after a
written claim has been received by the Corporation, the claimant may at any time
thereafter bring suit against the Corporation to recover the unpaid amount of
the claim, and if successful in whole or in part, the claimant shall also be
entitled to be paid the expenses of prosecuting such claim. It shall be a
defense to any such action that such indemnification or advancement of costs of
defense are not permitted under the Montana Business Corporation Act, but the
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burden of proving such defense shall be on the Corporation. Neither the failure
of the Corporation (including its board of directors or any committee thereof,
independent legal counsel, or shareholders) to have made its determination prior
to the commencement of such action that indemnification of, or advancement of
costs of defense to, the claimant is permissible in the circumstances nor an
actual determination by the Corporation (including its board of directors or any
committee thereof, independent legal counsel, or shareholders) that such
indemnification or advancement is not permissible shall be a defense to the
action or create a presumption that such indemnification or advancement is not
permissible. In the event of the death of any person having a right of
indemnification under the foregoing provisions, such right shall inure to the
benefit of his or her heirs, executors, administrators, and personal
representatives. The rights conferred above shall not be exclusive of any other
right which any person may have or hereafter acquire under any statute, bylaw,
resolution of shareholders or directors, agreement, or otherwise.
The Corporation may indemnify any employee or agent of the Corporation to
the fullest extent permitted by law.
As used herein, the term "proceeding" means any threatened, pending, or
completed action, suit, or proceeding, whether civil, criminal, administrative,
arbitrative, or investigative, any appeal in such an action, suit, or
proceeding, and any inquiry or investigation that could lead to such an action,
suit, or proceeding.
IN WITNESS WHEREOF, the undersigned, Rockne J. Timm, President and Chief
Executive Officer of the Corporation, does hereby make and file these Restated
Articles of Incorporation, hereby declaring and certifying that the facts herein
stated are true, and accordingly has hereunto set his hand this ___ day of
__________, 1998.
Attest:
- ------------- -------------
Mary E. Smith Rockne J. Timm
Secretary President and Chief Executive Officer
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ANNEX II
OPINION OF RBC DOMINION SECURITIES INC.
[RBC DOMINION SECURITIES INC. LETTERHEAD]
November 30, 1998
The Boards of Directors
Gold Reserve Corporation
Gold Reserve Inc.
601 West Riverside Avenue
Suite 1940
Spokane, Washington 99201
U.S.A.
RBC Dominion Securities Inc. ("RBC DS") understands that Gold Reserve
Corporation (the "Company" or "GR-Montana") is contemplating a reorganization
(the "Reorganization") pursuant to which Gold Reserve Inc. ("GR-Canada"), a new
Canadian company owned by the Company, will become the parent of the Company. In
general, in order to accomplish the Reorganization, each outstanding share of
GR-Montana Common Stock will be converted into one GR-Canada Class A Share. RBC
DS further understands that the Board of Directors of the Company is providing
an alternative for U.S. holders of GR-Montana Common Stock who may otherwise
have a substantial taxable gain upon receipt of GR-Canada Class A Shares so that
they might defer a substantial portion of such gain. U.S. holders of record of
GR-Montana Common Stock will be entitled to make an election to receive one
Equity Unit in exchange for each share of GR-Montana Common Stock held by such
holders in lieu of such shares being converted into GR-Canada Class A Shares
upon consummation of the Reorganization. Each Equity Unit will consist of one
share of GR-Montana Class B Stock and one GR-Canada Class B Share and each
Equity Unit ("Equity Unit") will be immediately convertible into one GR-Canada
Class A Share. The Equity Unit election is not available to Canadian holders
since the Canadian Income Tax Act would require them to recognize a gain or loss
upon receipt of Equity Units just as they would upon receipt of Class A Shares.
The terms of the Reorganization are more fully described in the Proxy
Statement/Joint Prospectus which will be mailed to holders of GR-Montana Common
Stock in connection with the Reorganization.
The Company has retained RBC DS to undertake an analysis to determine if one
Equity Unit is substantially equivalent to one GR-Canada Class A Share from a
financial point of view (the "Comparison Analysis").
CREDENTIALS OF RBC DOMINION SECURITIES
RBC DS is one of Canada's largest investment banking firms, with operations in
all facets of corporate and government finance, mergers and acquisitions, equity
and fixed income sales and trading and investment research. The opinion
expressed herein represents the opinion of RBC DS and the form and content
herein have been approved for release by a committee of its directors, each of
whom is experienced in merger, acquisition, divestiture and valuation matters.
ANNEX II-1
<PAGE> 156
ASSUMPTIONS AND LIMITATIONS
We have relied upon, and have assumed the completeness, accuracy and fair
representation of, all information, data and representations provided to us by
the Company and its advisors pursuant to our engagement. The Comparison Analysis
is conditional on such completeness, accuracy and fair representation. We have
not attempted to verify independently the accuracy or completeness of any such
information, data and representations. Senior management has represented to us,
in a certificate delivered as at the date hereof, amongst other things, that the
information, data and other material (financial and otherwise) (the
"Information") provided orally by, or in the presence of, an authorized officer
or employee of the Company or in writing by the Company or any of its
subsidiaries (as such term is defined in the Securities Act (Ontario)) or their
respective agents to RBC DS relating to the Reorganization, the Company or any
of its subsidiaries for the purpose of providing services to or on behalf of the
Company with respect to the Reorganization was, as of the date it was provided,
and is complete, true and correct in all material respects and did not and does
not contain an untrue statement of a material fact in respect of the Company,
its subsidiaries or the Reorganization and did not and does not omit to state a
material fact in respect of the Company, its subsidiaries or the Reorganization
necessary to make the Information not misleading in light of the circumstances
under which the Information was made or provided. This opinion is conditional
upon the completeness, accuracy and fair representation of the Information.
The Comparison Analysis has been provided for the use of the Company and may not
be used by any other person or relied upon by any person other than the Company
without the express prior written consent of RBC DS. The Comparison Analysis is
not to be construed as a recommendation to any holder of shares of GR-Montana
Common Stock as to whether to vote in favour of or against the Reorganization.
SCOPE OF WORK AND METHODOLOGY
In arriving at its opinion, RBC DS has, among other things:
(i) reviewed a draft of the Proxy Statement/Joint Prospectus dated
November 20, 1998 for a Special Meeting of Shareholders, setting out
the provisions of the GR-Canada Class A Shares, of the GR-Canada
Class B Common Shares and the GR-Montana Class B Stock comprising
the Equity Units and of the Equity Units; and
(ii) held discussions with the management, advisors and auditors of the
Company to discuss the provisions of the GR-Canada Class A Shares,
of the shares comprising the Equity Units and of the Equity Units.
We have no opinion as to the fair market value of a GR-Canada Class A Share or
of an Equity Unit, and the Comparison Analysis should not be construed as such.
Our work was limited to examining the provisions of the GR-Canada Class A Shares
and of the GR-Canada Class B Shares and GR-Montana Class B Stock comprising the
Equity Units with a view to determining whether such provisions gave their
holders substantially equivalent interests in the underlying assets and
liabilities and substantially similar rights and protections. The fundamental
attributes of equity investments we examined included:
(i) rights to dividends,
(ii) rights to distributions upon liquidation, dissolution or winding up,
ANNEX II-2
<PAGE> 157
(iii) voting rights and dissent rights,
(iv) liquidity,
(v) call rights, and
(vi) exchange rights.
OPINION
Based upon and subject to the foregoing, RBC DS is of the opinion that, as of
the date hereof, after giving effect to the Reorganization one Equity Unit is
substantially equivalent to one GR-Canada Class A Share, from a financial point
of view.
Yours very truly,
/s/ RBC Dominion Securities Inc.
ANNEX II-3
<PAGE> 158
ANNEX III
"DISSENTERS RIGHTS"
35-1-826. Definitions. As used in 35-1-826 through 35-1-839, the following
definitions apply:
(1) "Beneficial shareholder" means the person who is a beneficial owner of
shares held in a voting trust or by a nominee as the record shareholder.
(2) "Corporation" includes the issuer of the shares held by a dissenter
before the corporate action, or the surviving or acquiring corporation by merger
or share exchange of that issuer.
(3) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under 35-1-827 and who exercises that right when and in the
manner required by 35-1-829 through 35-1-837.
(4) "Fair value", with respect to a dissenter's shares, means the value of
the shares immediately before the effectuation of the corporate action to which
the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action unless exclusion would be inequitable.
(5) "Interest" means interest from the effective date of the corporate
action until the date of payment at the average rate currently paid by the
corporation on its principal bank loans or, if the corporation has no loans, at
a rate that is fair and equitable under all the circumstances.
(6) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial shareholder to the
extent of the rights granted by a nominee certificate on file with a
corporation.
(7) "Shareholder" means the record shareholder or the beneficial
shareholder.
35-1-827. Right to dissent. (1) A shareholder is entitled to dissent from
and obtain payment of the fair value of the shareholder's shares in the event of
any of the following corporate actions:
(a) consummation of a plan of merger to which the corporation is a party
if:
(1) shareholder approval is required for the merger by 35-1-815 or the
articles of incorporation and the shareholder is entitled to vote on the merger;
or
(2) the corporation is a subsidiary that is merged with its parent
corporation under 35-1-818;
(b) consummation of a plan of share exchange to which the corporation is a
party as the corporation whose shares will be acquired if the shareholder is
entitled to vote on the plan;
(c) consummation of a sale or exchange of all or substantially all of the
property of the corporation other than in the usual and regular course of
business if the shareholder is entitled to vote on the sale or exchange,
including a sale in dissolution but not including a sale pursuant to court order
or a sale for cash pursuant to a plan by which all or substantially all of the
net proceeds of the sale will be distributed to the shareholders within 1 year
after the date of sale;
(d) an amendment of the articles of incorporation that materially and
adversely affects rights in respect of a dissenter's shares because it:
(1) alters or abolishes a preferential right of the shares;
(2) creates, alters, or abolishes a right in respect of redemption,
including a provision with respect to a sinking fund for the redemption or
repurchase of the shares;
(3) alters or abolishes a preemptive right of the holder of the shares to
acquire shares or other securities;
ANNEX III-1
<PAGE> 159
(4) excludes or limits the right of the shares to be voted on any matter
or to cumulate votes, other than a limitation by dilution through issuance of
shares or other securities with similar voting rights; or
(5) reduces the number of shares owned by the shareholder to a fraction of
a share if the fractional share created is to be acquired for cash under
35-1-621; or
(e) any corporate action taken pursuant to a shareholder vote to the
extent the articles of incorporation, bylaws, or a resolution of the Board of
Directors provides that voting or nonvoting shareholders are entitled to dissent
and to obtain payment for their shares.
(2) A shareholder entitled to dissent and to obtain payment for shares
under 35-1-826 through 35-1-839 may not challenge the corporate action creating
the shareholder's entitlement unless the action is unlawful or fraudulent with
respect to the shareholder or the corporation.
35-1-828. Dissent by nominees and beneficial owners. (1) A record
shareholder may assert dissenters' rights as to fewer than all the shares
registered in his name only if he dissents with respect to all shares
beneficially owned by any one person and notifies the corporation in writing of
the name and address of each person on whose behalf he asserts dissenters'
rights. The rights of a partial dissenter under this subsection are determined
as if the shares as to which he dissents and his other shares were registered in
the names of different shareholders.
(2) A beneficial shareholder may assert dissenters' rights as to shares
held on his behalf only if:
(a) he submits to the corporation the record shareholder's written consent
to the dissent not later than the time the beneficial shareholder asserts
dissenters' rights; and
(b) he does so with respect to all shares of which he is the beneficial
shareholder or over which he has power to direct the vote.
35-1-829. Notice of dissenters' rights. (1) If a proposed corporate action
creating dissenters' rights under 35-1-827 is submitted to a vote at a
shareholders' meeting, the meeting notice must state that shareholders are or
may be entitled to assert dissenters' rights under 35-1-826 through 35-1-839 and
must be accompanied by a copy of 35-1-826 through 35-1-839.
(2) If a corporate action creating dissenters' rights under 35-1-827 is
taken without a vote of shareholders, the corporation shall give written
notification to all shareholders entitled to assert dissenters' rights that the
action was taken and shall send them the dissenters' notice described in
35-1-831.
35-1-830. Notice of intent to demand payment. (1) If proposed corporate
action creating dissenters' rights under 35-1-827 is submitted to a vote at a
shareholders' meeting, a shareholder who wishes to assert dissenters' rights:
(a) shall deliver to the corporation before the vote is taken written
notice of his intent to demand payment for his shares if the proposed action is
effectuated; and
(b) may not vote his shares in favor of the proposed action.
(2) A shareholder who does not satisfy the requirements of subsection
(1)(a) is not entitled to payment for his shares under 35-1-826 through
35-1-839.
35-1-831. Dissenters' notice. (1) If proposed corporate action creating
dissenters' rights under 35-1-827 is authorized at a shareholders' meeting, the
corporation shall deliver a written dissenters' notice to all shareholders who
satisfied the requirements of 35-1-830.
(2) The dissenters' notice must be sent no later than 10 days after the
corporate action was taken and must:
(a) state where the payment demand must be sent and where and when
certificates for certified shares must be deposited;
(b) inform shareholders of uncertificated shares to what extent transfer
of the shares will be restricted after the payment is received;
ANNEX III-2
<PAGE> 160
(c) supply a form for demanding payment that includes the date of the
first announcement to news media or to shareholders of the terms of the proposed
corporate action and that requires the person asserting dissenters' rights to
certify whether or not he acquired beneficial ownership of the shares before
that date;
(d) set a date by which the corporation must receive the payment demand,
which may not be fewer than 30 nor more than 60 days after the date the required
notice under subsection (1) is delivered; and
(e) be accompanied by a copy of 35-1-826 through 35-1-839.
35-1-832. Duty to demand payment. (1) A shareholder sent a dissenters'
notice described in 35-1-831 shall demand payment, certify whether the
shareholder acquired beneficial ownership of the shares before the date required
to be set forth in the dissenters' notice pursuant to 35-1-831(2)(c), and
deposit his certificates in accordance with the terms of the notice.
(2) The shareholder who demands payment and deposits his certificates
under subsection (1) retains all other rights of a shareholder until these
rights are canceled or modified by taking of the proposed corporate action.
(3) A shareholder who does not demand payment or deposit his certificates
where required, each by the date set in the dissenters' notice, is not entitled
to payment for his shares under 35-1-826 through 35-1-839.
35-1-833. Share restrictions. (1) The corporation may restrict the
transfer of uncertificated shares from the date the demand for their payment is
received until the proposed corporate action is taken or the restrictions are
released under 35-1-835.
(2) The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder until these
rights are canceled or modified by the taking of the proposed corporate action.
35-1-834. Payment. (1) Except as provided in 35-1-836, as soon as the
proposed corporate action is taken or upon receipt of a payment demand, the
corporation shall pay each dissenter who complied with 35-1-832 the amount the
corporation estimates to be the fair value of the dissenter's shares plus
accrued interest.
(2) The payment must be accompanied by:
(a) the corporation's balance sheet as of the end of a fiscal year ending
not more than 16 months before the date of payment, an income statement for that
year, a statement of changes in shareholders' equity for that year, and the
latest available interim financial statements, if any;
(b) a statement of the corporation's estimate of the fair value of the
shares;
(c) an explanation of how the interest was calculated;
(d) a statement of the dissenter's right to demand payment under 35-1-837;
and
(e) a copy of 35-1-826 through 35-1-839.
35-1-835. Failure to take action. (1) If the corporation does not take the
proposed action within 60 days after the date set for demanding payment and
depositing certificates, the corporation shall return the deposited certificates
and release the transfer restrictions imposed on uncertificated shares.
(2) If after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it shall send a new
dissenters' notice under 35-1-831 and repeat the payment demand procedure.
35-1-836. After-acquired shares. (1) A corporation may elect to withhold
payment required by 35-1-834 from a dissenter unless the dissenter was the
beneficial owner of the shares before the date set forth in the dissenters'
notice as the date of the first announcement to news media or to shareholders of
the terms of the proposed corporate action.
(2) To the extent the corporation elects to withhold payment under
subsection (1), after taking the proposed corporate action, the corporation
shall estimate the fair value of the shares plus accrued interest and shall pay
this amount to each dissenter who agrees to accept it in full satisfaction of
his demand. The corporation shall send with its offer a statement of its
estimate
ANNEX III-3
<PAGE> 161
of the fair value of the shares, an explanation of how the interest was
calculated, and a statement of the dissenter's right to demand payment under
35-1-837.
35-1-837. Procedure if shareholder dissatisfied with payment or offer. (1)
A dissenter may notify the corporation in writing of the dissenter's own
estimate of the fair value of the dissenter's shares and the amount of interest
due and may demand payment of the dissenter's estimate, less any payment under
35-1-834, or reject the corporation's offer under 35-1-836 and demand payment of
the fair value of the dissenter's shares and the interest due if:
(a) the dissenter believes that the amount paid under 35-1-834 or offered
under 35-1-836 is less than the fair value of the dissenter's shares or that the
interest due is incorrectly calculated;
(b) the corporation fails to make payment under 35-1-834 within 60 days
after the date set for demanding payment; or
(c) the corporation, having failed to take the proposed action, does not
return the deposited certificates or release the transfer restrictions imposed
on uncertificated shares within 60 days after the date set for demanding
payment.
(2) A dissenter waives the right to demand payment under this section
unless he notifies the corporation of his demand in writing under subsection (1)
within 30 days after the corporation made or offered payment for his shares.
35-1-838. Court action. (1) If a demand for payment under 35-1-837 remains
unsettled, the corporation shall commence a proceeding within 60 days after
receiving the payment demand and shall petition the court to determine the fair
value of the shares and accrued interest. If the corporation does not commence
the proceeding within the 60-day period, it shall pay each dissenter whose
demand remains unsettled the amount demanded.
(2) The corporation shall commence the proceeding in the district court of
the county where a corporation's principal office or, if its principal office is
not located in this state, where its registered office is located. If the
corporation is a foreign corporation without a registered office in this state,
it shall commence the proceeding in the county in this state where the
registered office of the domestic corporation merged with or whose shares were
acquired by the foreign corporation was located.
(3) The corporation shall make all dissenters whose demands remain
unsettled, whether or not residents of this state, parties to the proceeding as
in an action against their shares, and all parties must be served with a copy of
the petition.
Nonresidents may be served by certified mail or by publication as provided by
law.
(4) The jurisdiction of the district court in which the proceeding is
commenced under subsection (2) is plenary and exclusive. The court may appoint
one or more persons as appraisers to receive evidence and recommend decision on
the question of fair value. The appraisers have the powers described in the
order appointing them or in any amendment to it. The dissenters are entitled to
the same discovery rights as parties in other civil proceedings.
(5) Each dissenter made a party to the proceeding is entitled to judgment:
(a) for the amount, if any, by which the court finds the fair value of the
dissenter's shares plus interest exceeds the amount paid by the corporation; or
(b) for the fair value plus accrued interest of his after-acquired shares
for which the corporation elected to withhold payment under 35-1-836.
35-1-839. Court costs and attorney fees. (1) The court in an appraisal
proceeding commenced under 35-1-838 shall determine all costs of the proceeding,
including the reasonable compensation and expenses of appraisers appointed by
the court. The court shall assess the costs against the corporation, except that
the court may assess costs against all or some of the dissenters, in amounts the
court finds equitable, to the extent the court finds dissenters acted
arbitrarily, vexatiously, or not in good faith in demanding payment under
35-1-837.
(2) The court may also assess the fees and expenses of counsel and experts
for the respective parties, in amounts the court finds equitable:
(a) against the corporation and in favor of any or all dissenters if the
court finds the corporation did not substantially comply with the requirements
of 35-1-829 through 35-1-837; or
ANNEX III-4
<PAGE> 162
(b) against either the corporation or a dissenter, in favor of any other
party, if the court finds that the party against whom the fees and expenses are
assessed acted arbitrarily, vexatiously, or not in good faith with respect to
the rights provided by 35-1- 826 through 35-1-839.
(3) If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated and that the fees
for those services should not be assessed against the corporation, the court may
award the counsel reasonable attorney fees to be paid out of the amounts awarded
the dissenters who were benefited.
ANNEX III-5
<PAGE> 163
ANNEX IV
SHAREHOLDER RIGHTS PLAN AGREEMENT
MEMORANDUM OF AGREEMENT, dated as of OCTOBER 5, 1998 between Gold Reserve
INC. (THE "Corporation"), a corporation incorporated under the laws of THE YUKON
TERRITORY, and Montreal Trust Company of Canada, a trust company incorporated
under the laws of Canada (the "Rights Agent");
WHEREAS in order to maximize shareholder value the Board of Directors of
the Corporation has determined that it is advisable for the Corporation to adopt
a shareholder rights plan (the "Rights Plan")
WHEREAS in order to implement the adoption of a shareholder rights plan as
established by this Agreement, the board of directors of the Corporation has:
(a) authorized the issuance, effective IMMEDIATELY FOLLOWING the Effective
TIME (as hereinafter defined), of one Right (as hereinafter defined) in respect
of each Common Share (as hereinafter defined) outstanding IMMEDIATELY FOLLOWING
the Effective TIME (the "Record Time"); and
(b) provided that the Separation Time occurs after the Record Time,
authorized the issuance of one Right in respect of each Common Share of the
Corporation issued after the Record Time and prior to the earlier of the
Separation Time (as hereinafter defined) and the Expiration Time (as hereinafter
defined).
AND WHEREAS each Right, when issued, will entitle the holder thereof,
after the Separation Time, to purchase securities of the Corporation pursuant to
the terms and subject to the conditions set forth herein;
AND WHEREAS the Corporation desires to appoint the Rights Agent to act on
behalf of the Corporation and the holders of Rights, and the Rights Agent is
willing to so act, in connection with the issuance, transfer, exchange and
replacement of Rights Certificates (as hereinafter defined), the exercise of
Rights and other matters referred to herein;
NOW THEREFORE, in consideration of the premises and the respective
covenants and agreements set forth herein, and subject to such covenants and
agreements, the parties hereby agree as follows:
ARTICLE 1
INTERPRETATION
1.1 Certain Definitions
For purposes of this Agreement, the following terms have the meanings
indicated:
(a) "ACQUIRING PERSON" shall mean any Person who is the Beneficial Owner
of 20 per cent or more of the outstanding Voting Shares; provided,
however, that the term "Acquiring Person" shall not include:
(i) the Corporation or any Subsidiary of the Corporation;
(ii) any Person who becomes the Beneficial Owner of 20 per cent or
more of the outstanding Voting Shares as a result of one or
any combination of (A) a Voting Share Reduction, (B) Permitted
Bid Acquisitions, (C) an Exempt Acquisition or (D) Pro Rata
Acquisitions; provided, however, that if a Person becomes the
Beneficial Owner of 20 per cent or more of the outstanding
Voting Shares by reason of one or any combination of the
operation of Paragraphs (A), (B), (C) or (D) above and such
Person's Beneficial Ownership of Voting Shares thereafter
increases by more than 1 per cent of the number of Voting
Shares outstanding (other than pursuant to one or any
combination of a Voting Share Reduction, a Permitted Bid
Acquisition, an Exempt Acquisition or a Pro Rata Acquisition),
then as of the date such Person becomes the Beneficial Owner
of such additional Voting Shares, such Person shall become an
"Acquiring Person";
(iii) for a period of ten days after the Disqualification Date (as
defined below), any Person who becomes the Beneficial Owner of
20 per cent or more of the outstanding Voting Shares as a
result of such Person becoming disqualified from relying on
Clause 1.1(g)(B) because such Person makes or announces a
current intention to make a Take-over
ANNEX IV-1
<PAGE> 164
Bid, either alone or by acting jointly or in concert with any
other Person. For the purposes of this definition,
"Disqualification Date" means the first date of public
announcement that any Person is making or intends to make a
Take-over Bid;
(iv) an underwriter or member of a banking or selling group that
becomes the Beneficial Owner of 20 per cent or more of the
Voting Shares in connection with a distribution to the public
of securities of the Corporation; or
(v) a Person (a "Grandfathered Person") who is the Beneficial
Owner of 20 per cent or more of the outstanding Voting Shares
of the Corporation determined as of 12:01 am (Toronto time) on
the Agreement Date, provided, however, that this exception
shall not be, and shall cease to be, applicable to a
Grandfathered Person in the event that such Grandfathered
Person shall, after 12:01 am (Toronto time) on the Agreement
Date, become the Beneficial Owner of any additional Voting
Shares of the Corporation that increases its Beneficial
Ownership of Voting Shares by more than 1 per cent of the
number of Voting Shares outstanding, other than through one or
any combination of a Permitted Bid Acquisition, an Exempt
Acquisition, a Voting Share Reduction, or a Pro Rata
Acquisition;
(b) "AFFILIATE": when used to indicate a relationship with a specified
Person, shall mean a Person that directly, or indirectly through one
or more intermediaries, controls, or is controlled by, or is under
common control with, such specified Person;
(c) "AGREEMENT" shall mean this shareholder rights plan agreement dated
as of OCTOBER 5, 1998 between the Corporation and the Rights Agent,
as amended or supplemented from time to time; "hereof", "herein",
"hereto" and similar expressions mean and refer to this Agreement as
a whole and not to any particular part of this Agreement;
(d) "AGREEMENT DATE" means OCTOBER 5, 1998;
(e) "ANNUAL CASH DIVIDEND" shall mean cash dividends paid in any fiscal
year of the Corporation to the extent that such cash dividends do
not exceed, in the aggregate, the greatest of:
(i) 200 per cent of the aggregate amount of cash dividends
declared payable by the Corporation on its Common Shares in
its immediately preceding fiscal year;
(ii) 300 per cent of the arithmetic mean of the aggregate amounts
of the annual cash dividends declared payable by the
Corporation on its Common Shares in its three immediately
preceding fiscal years; and
(iii) 100 per cent of the aggregate consolidated net income of the
Corporation, before extraordinary items, for its immediately
preceding fiscal year;
(f) "ASSOCIATE" means, when used to indicate a relationship with a
specified Person, a spouse of that Person, any Person of the same or
opposite sex with whom that Person is living in a conjugal
relationship outside marriage, a child of that Person or a relative
of that Person if that relative has the same residence as that
Person;
(g) A Person shall be deemed the "BENEFICIAL OWNER" of, and to have
"BENEFICIAL OWNERSHIP" of, and to "BENEFICIALLY OWN",
(i) any securities as to which such Person or any of such Person's
Affiliates or Associates is the owner at law or in equity;
(ii) any securities as to which such Person or any of such Person's
Affiliates or Associates has the right to acquire (whether
such right is exercisable immediately or within a period of 60
days thereafter and whether or not on condition or the
happening of any contingency) pursuant to any agreement,
arrangement, pledge or understanding, whether or not in
writing (other than (x) customary agreements with and between
underwriters and/or banking group members and/or selling group
members with respect to a distribution of securities by the
Corporation, and (y) pledges of securities in the ordinary
course of business), or upon the exercise of any conversion
right, exchange right, share purchase right (other than the
Rights), warrant or option;
(iii) ANY SECURITIES OWNED THROUGH A TRUSTEE, LEGAL REPRESENTATIVE,
AGENT OR OTHER INTERMEDIARY;
ANNEX IV-2
<PAGE> 165
(iv) any securities which are Beneficially Owned within the meaning
of Clauses 1.1(g)(i), (ii) OR (III) by any other Person with
which such Person is acting jointly or in concert; provided,
however, that a Person shall not be deemed the "BENEFICIAL
OWNER" of, or to have "BENEFICIAL OWNERSHIP" of, or to
"BENEFICIALLY OWN", any security:
(A) where such security has been deposited or tendered
pursuant to any Take-over Bid made by such Person, made
by any of such Person's Affiliates or Associates or made
by any other Person acting jointly or in concert with
such Person, until such deposited or tendered security
has been taken up or paid for, whichever shall first
occur;
(B) where such Person, any of such Person's Affiliates or
Associates or any other Person referred to in Clause
1.1(G)(IV), holds such security provided that (1) the
ordinary business of any such Person (the "Investment
Manager") includes the management of investment funds
for others (which others, for greater certainty, may
include or be limited to one or more employee benefit
plans or pension plans) and such security is held by the
Investment Manager in the ordinary course of such
business in the performance of such Investment Manager's
duties for the account of any other Person or Persons (a
"Client"); or (2) such Person (the "Trust Company") is
licensed to carry on the business of a trust company
under applicable laws and, as such, acts as trustee or
administrator or in a similar capacity in relation to
the estates of deceased or incompetent Persons (each an
"Estate Account") or in relation to other accounts (each
an "Other Account") and holds such security in the
ordinary course of such duties for the estate of any
such deceased or incompetent Person or for such Other
Accounts, (3) such Person is a pension plan or fund (a
"Plan") or is a Person established by statute for
purposes that include, and the ordinary business or
activity of such Person (the "Statutory Body") includes,
the management of investment funds for employee benefit
plans, pension plans, insurance plans of various public
bodies; or (4) such Person (the "Administrator") is the
administrator or trustee of one or more Plans; provided,
in any of the above cases, that the Investment Manager,
the Trust Company, the Statutory Body, the Administrator
or the Plan, as the case may be, is not then making or
has not then announced an intention to make a Take-over
Bid, (other than an Offer to Acquire Voting Shares or
other securities by means of a distribution by the
Corporation or by means of ordinary market transactions
(including prearranged trades) executed through the
facilities of a stock exchange or organized
over-the-counter market) alone or by acting jointly or
in concert with any other Person;
(C) where such Person or any of such Person's Affiliates or
Associates is (1) a Client of the same Investment
Manager as another Person on whose account the
Investment Manager holds such security, (2) an Estate
Account or an Other Account of the same Trust Company as
another Person on whose account the Trust Company holds
or exercises voting or dispositive power over such
security, or (3) a Plan with the same Administrators as
another Plan on whose account the Administrator holds
such security;
(D) where such Person is (1) a Client of an Investment
Manager and such security is owned at law or in equity
by the Investment Manager, (2) an Estate Account or an
Other Account of a Trust Company and such security is
owned at law or in equity by the Trust Company or (3) a
Plan and such security is owned at law or in equity by
the Administrator of the Plan; or
(E) where such person is the registered holder of securities
as a result of carrying on the business of or acting as
a nominee of a securities depository.
(h) "BOARD OF DIRECTORS" shall mean the board of directors of the
Corporation or any duly constituted and empowered committee thereof;
(i) "BUSINESS DAY" shall mean any day other than a Saturday, Sunday or a
day on which banking institutions in Toronto, Ontario are authorized
or obligated by law to close;
(j) "CANADIAN DOLLAR EQUIVALENT" of any amount which is expressed in
United States Dollars means, on any date, the Canadian dollar
equivalent of such amount determined by multiplying such amount by
the U.S. - Canadian Exchange Rate in effect on such date;
(k) "CANADIAN - U.S. EXCHANGE RATE" means, on any date, the inverse of
the U.S. - Canadian Exchange Rate in effect on such date;
ANNEX IV-3
<PAGE> 166
(l) "CLASS A SHARES" MEANS THE CLASS A COMMON SHARES IN THE CAPITAL OF
THE CORPORATION;
(m) "CLASS B SHARES" MEANS THE CLASS B COMMON SHARES IN THE CAPITAL OF
THE CORPORATION;
(n) "CLOSE OF BUSINESS" on any given date shall mean the time on such
date (or, if such date is not a Business Day, the time on the next
succeeding Business Day) at which the transfer office of the
transfer agent (or co-transfer agent) for the Common Shares in the
City of Toronto (or, after the Separation Time, the office of the
Rights Agent in the City of Toronto) is closed to the public;
(o) "COMMON SHARES" shall mean the CLASS A SHARES AND THE CLASS B SHARES
in the capital of the Corporation AND, FOR THE PURPOSES OF THIS
AGREEMENT, EXCEPT AS SPECIFICALLY OTHERWISE PROVIDED HEREIN, THE
CLASS A SHARES AND THE CLASS B SHARES SHALL BE TREATED AS A SINGLE
CLASS OF COMMON SHARES;
(p) "COMPETING PERMITTED BID" means a Take-over Bid that
(i) is made after a Permitted Bid has been made and prior to the
expiry of the Permitted Bid;
(ii) satisfies all of the provisions of a Permitted Bid other than
the condition set forth in Clause (ii) of the definition of a
Permitted Bid; and
(iii) contains, and the take-up and payment for securities tendered
or deposited is subject to, an irrevocable and unqualified
provision that no Voting Shares will be taken up or paid for
pursuant to the Take-over Bid prior to the close of business
on the date that is no earlier than the later of (A) 21 days
after the date of the Take-over Bid constituting the Competing
Permitted Bid; and (B) 60 days following the date on which the
earliest Permitted Bid which preceded the Competing Permitting
Bid was made; and only if at the date that the Voting Shares
are to be taken up more than 50% of the Voting Shares held by
Independent Shareholders shall have been deposited or tendered
pursuant to the Competing Permitted Bid and not withdrawn;
(q) "CONTROLLED": a corporation shall be deemed to be "controlled" by
another Person if:
(i) securities entitled to vote in the election of directors
carrying more than 50 per cent of the votes for the election
of directors are held, directly or indirectly, by or for the
benefit of the other Person; and
(ii) the votes carried by such securities are entitled, if
exercised, to elect a majority of the board of directors of
such corporation;
and "controls", "controlling" and "under common control with" shall be
interpreted accordingly;
(r) "CO-RIGHTS AGENTS" shall have the meaning ascribed thereto in
Subsection 4.1(a);
(s) "DIVIDEND REINVESTMENT ACQUISITION" shall mean an acquisition of
Voting Shares of any class pursuant to a Dividend Reinvestment Plan;
(t) "DIVIDEND REINVESTMENT PLAN" means a regular dividend reinvestment
or other plan of the Corporation made available by the Corporation
to holders of its securities where such plan permits the holder to
direct that some or all of:
(i) dividends paid in respect of shares of any class of the
Corporation;
(ii) proceeds of redemption of shares of the Corporation;
(iii) interest paid on evidences of indebtedness of the Corporation;
or
(iv) optional cash payments;
be applied to the purchase from the Corporation of Common
Shares;
ANNEX IV-4
<PAGE> 167
(u) "EFFECTIVE TIME" means the TIME AT which articles of MERGER ARE
ACCEPTED FOR FILING BY THE SECRETARY OF STATE OF THE STATE OF
MONTANA WITH RESPECT TO THE MERGER OF GOLD RESERVE CORPORATION AND
GR MERGER CORP, A WHOLLY-OWNED SUBSIDIARY of the Corporation OR AT
SUCH LATER TIME AS IS SPECIFIED IN SUCH ARTICLES OF MERGER;
(v) "ELECTION TO EXERCISE" shall have the meaning ascribed thereto in
Clause 2.2(d)(ii);
(w) "EXEMPT ACQUISITION" means a share acquisition in respect of which
the Board of Directors has waived the application of Section 3.1
pursuant to the provisions of Subsection 5.1(b), (c) or (d);
(x) "EXERCISE PRICE" shall mean, as of any date, the price at which a
holder may purchase the securities issuable upon exercise of one
whole Right which, until adjustment thereof in accordance with the
terms hereof, shall be $70.00;
(y) "EXPANSION FACTOR" shall have the meaning ascribed thereto in Clause
2.3(a)(x);
(z) "EXPIRATION TIME" shall mean the close of business on that date
which is the earliest of the date of termination of this Agreement
pursuant to Section 5.15 or, if this Agreement is confirmed pursuant
to Section 5.15 and the REORGANIZATION IS APPROVED as contemplated
by Section 5.15, the date of termination of this Agreement pursuant
to Section 5.16 or, if this Agreement is reconfirmed pursuant to
Section 5.16, JUNE 17, 2002;
(aa) "FLIP-IN EVENT" shall mean a transaction in or pursuant to which
any Person becomes an Acquiring Person;
(bb) "HOLDER" shall have the meaning ascribed thereto in Section 2.8;
(cc) "INDEPENDENT SHAREHOLDERS" shall mean holders of Voting Shares,
other than:
(i) any Acquiring Person;
(ii) any Offeror, other than a Person referred to in Clause
1.1(g)(B);
(iii) any Affiliate or Associate of any Acquiring Person or Offeror;
(iv) any Person acting jointly or in concert with any Acquiring
Person or Offeror; and
(v) any employee benefit plan, deferred profit sharing plan, stock
participation plan and any other similar plan or trust for the
benefit of employees of the Corporation or a Subsidiary of the
Corporation, unless the beneficiaries of the plan or trust
direct the manner in which the Voting Shares are to be voted
or direct whether the Voting Shares are to be tendered to a
Take-over Bid;
(dd) "MARKET PRICE" per share of any securities on any date of
determination shall mean the average of the daily closing prices per
share of such securities (determined as described below) on each of
the 20 consecutive Trading Days through and including the Trading
Day immediately preceding such date; provided, however, that if an
event of a type analogous to any of the events described in Section
2.3 hereof shall have caused the closing prices used to determine
the Market Price on any Trading Days not to be fully comparable with
the closing price on such date of determination or, if the date of
determination is not a Trading Day, on the immediately preceding
Trading Day, each such closing price so used shall be appropriately
adjusted in a manner analogous to the applicable adjustment provided
for in Section 2.3 hereof in order to make it fully comparable with
the closing price on such date of determination or, if the date of
determination is not a Trading Day, on the immediately preceding
Trading Day. The closing price per share of any securities on any
date shall be:
ANNEX IV-5
<PAGE> 168
(i) the closing board lot sale price or, in case no such sale
takes place on such date, the average of the closing bid and
asked prices for each of such securities as reported by the
principal Canadian stock exchange on which such securities are
listed or admitted to trading;
(ii) if for any reason none of such prices is available on such day
or the securities are not listed or posted for trading on a
Canadian stock exchange, the last sale price or, in case no
such sale takes place on such date, the average of the closing
bid and asked prices for each of such securities as reported
by the principal national United States securities exchange or
market on which such securities are listed or admitted to
trading;
(iii) if for any reason none of such prices is available on such day
or the securities are not listed or admitted to trading on a
Canadian stock exchange or a national United States securities
exchange or market, the last sale price or, in case no sale
takes place on such date, the average of the high bid and low
asked prices for each of such securities in the
over-the-counter market, as quoted by any reporting system
then in use; or
(iv) if for any reason none of such prices is available on such day
or the securities are not listed or admitted to trading on a
Canadian stock exchange or a national United States securities
exchange or market or quoted by any such reporting system, the
average of the closing bid and asked prices as furnished by a
professional market maker making a market in the securities;
provided, however, that if for any reason none of such prices is
available on such day, the closing price per share of such
securities on such date means the fair value per share of such
securities on such date as determined by a nationally or
internationally recognized investment dealer or investment banker
with respect to the fair value per share of such securities. The
Market Price shall be expressed in Canadian dollars and, if
initially determined in respect of any day forming part of the 20
consecutive Trading Day period in question in United States dollars,
such amount shall be translated into Canadian dollars on such date
at the Canadian Dollar Equivalent thereof.
(ee) "1933 SECURITIES ACT" means the Securities Act of 1933 of the United
States, as amended, and the rules and regulations thereunder as now
in effect or as the same may from time to time be amended,
re-enacted or replaced;
(ff) "1934 EXCHANGE ACT" means the Securities Exchange Act of 1934 of the
United States, as amended, and the rules and regulations thereunder
as now in effect or as the same may from time to time be amended,
re-enacted or replaced;
(gg) "NOMINEE" shall have the meaning ascribed thereto in Subsection
2.2(c);
(hh) "OFFER TO ACQUIRE" shall include:
(i) an offer to purchase or a solicitation of an offer to sell;
and
(ii) an acceptance of an offer to sell, whether or not such offer
to sell has been solicited;
or any combination thereof, and the Person accepting an offer to
sell shall be deemed to be making an Offer to Acquire to the Person
that made the offer to sell;
(ii) "OFFEROR" shall mean a Person who has announced an intention to make
or who is making a Take-over Bid;
(jj) "PERMITTED BID" means a Take-over Bid made by an Offeror by way of
take-over bid circular which also complies with the following
additional provisions:
(i) the Take-over Bid is made to all holders of Voting Shares as
registered on the books of the Corporation, other than the
Offeror;
ANNEX IV-6
<PAGE> 169
(ii) the Take-over Bid contains, and the take-up and payment for
securities tendered or deposited is subject to, an irrevocable
and unqualified provision that no Voting Shares will be taken
up or paid for pursuant to the Take-over Bid prior to the
close of business on the date which is not less than 60 days
following the date of the Take-over Bid and only if at such
date more than 50 per cent of the Voting Shares held by
Independent Shareholders shall have been deposited or tendered
pursuant to the Take-over Bid and not withdrawn;
(iii) the Take-over Bid contains an irrevocable and unqualified
provision that unless the Take-over Bid is withdrawn, Voting
Shares may be deposited pursuant to such Take-over Bid at any
time during the period of time between the date of the
Take-over Bid and the date on which Voting Shares may be taken
up and paid for and that any Voting Shares deposited pursuant
to the Take-over Bid may be withdrawn until taken up and paid
for; and
(iv) the Take-over Bid contains an irrevocable and unqualified
provision that if, on the date on which Voting Shares may be
taken up and paid for, more than 50% of the Voting Shares held
by Independent Shareholders shall have been deposited pursuant
to the Take-over Bid and not withdrawn, the Offeror will make
a public announcement of that fact and the Take-over Bid will
remain open for deposits and tenders of Voting Shares for not
less than ten Business Days from the date of such public
announcement;
(kk) "PERMITTED BID ACQUISITION" shall mean an acquisition of Voting
Shares made pursuant to a Permitted Bid or a Competing Permitted
Bid;
(ll) "PERSON" shall include an individual, body corporate, firm,
partnership, limited partnership, limited liability company,
syndicate or other form of unincorporated association, trust,
trustee, executor, administrator, legal personal representative,
group, unincorporated organization, a government and its agencies or
instrumentalities, any entity or group whether or not having legal
personality;
(mm) "PRO RATA ACQUISITION" shall mean an acquisition by a Person of
Voting Shares pursuant to:
(i) a Dividend Reinvestment Acquisition;
(ii) a stock dividend, stock split or other event in respect of
securities of the Corporation of one or more particular
classes or series pursuant to which such Person becomes the
Beneficial Owner of Voting Shares on the same pro rata basis
as all other holders of securities of the particular class,
classes or series;
(iii) the acquisition or the exercise by the Person of rights to
purchase Voting Shares issued by the Corporation to all
holders of securities of the Corporation of one or more
particular classes or series pursuant to a rights offering or
pursuant to a prospectus, provided that such rights are
acquired directly from the Corporation and not from any other
Person; or
(iv) a distribution of Voting Shares, or securities convertible
into or exchangeable for Voting Shares (and the conversion or
exchange of such convertible or exchangeable securities), made
pursuant to a prospectus or by way of a private placement by
the Corporation provided that the Person does not thereby
acquire beneficial ownership of a greater percentage of such
Voting Shares or securities convertible into or exchangeable
for Voting Shares so offered than the Person's percentage of
Voting Shares beneficially owned immediately prior to such
acquisition ;
(nn) "RECORD TIME" has the meaning set forth in the recitals hereto;
(oo) "REORGANIZATION" SHALL MEAN THE MERGER OF GR MERGER CORP. WITH AND
INTO GOLD RESERVE CORPORATION, PURSUANT TO WHICH THE COMPANY WILL
BECOME THE PARENT OF GOLD RESERVE CORPORATION;
(pp) "RIGHT" means a right to purchase a CLASS A Share of the
Corporation, upon the terms and subject to the conditions set forth
in this Agreement;
(qq) "RIGHTS CERTIFICATE" means the certificates representing the Rights
after the Separation Time, which shall be substantially in the form
attached hereto as Attachment 1;
(rr) "RIGHTS REGISTER" shall have the meaning ascribed thereto in
Subsection 2.6(a);
ANNEX IV-7
<PAGE> 170
(ss) "SECURITIES ACT (ONTARIO)" shall mean the Securities Act, R.S.O.
1990, c.S.5, as amended, and the regulations thereunder, and any
comparable or successor laws or regulations thereto;
(tt) "SEPARATION TIME" shall mean, subject to Sub-section 5.1(d), the
later of
(i) the close of business on the tenth Trading Day after the
earlier of:
(ii) the Stock Acquisition Date; and
(iii) the date of the commencement of or first public announcement
of the intent of any Person (other than the Corporation or any
Subsidiary of the Corporation) to commence a Take-over Bid
(other than a Permitted Bid or a Competing Permitted Bid),
(iv) or such later time as may be determined by the Board of
Directors, provided that, if any Take-over Bid referred to in
clause (B) above expires, is not made, is canceled, terminated
or otherwise withdrawn prior to the Separation Time, such
Take-over Bid shall be deemed, for the purposes of this
definition, never to have been commenced, made or announced;
and
(v) the Record Time;
(uu) "SHARE CAPITAL INCREASE APPROVAL" shall have the meaning ascribed
thereto in Section 5.15;
(vv) "STOCK ACQUISITION DATE" shall mean the first date of public
announcement (which, for purposes of this definition, shall include,
without limitation, a report filed pursuant to Section 101 of the
Securities Act (Ontario) or Section 13(d) of the 1934 Exchange Act)
by the Corporation or an Acquiring Person of facts indicating that a
Person has become an Acquiring Person;
(ww) "SUBSIDIARY": a corporation shall be deemed to be a Subsidiary of
another corporation if:
(i) it is controlled by:
(ii) that other; or
(iii) that other and one or more corporations each of which is
controlled by that other; or
(iv) two or more corporations each of which is controlled by that
other; or
(v) it is a Subsidiary of a corporation that is that other's
Subsidiary;
(xx) "TAKE-OVER BID" shall mean an Offer to Acquire Voting Shares or
other securities of the Corporation, if, assuming that the Voting
Shares or other securities subject to the Offer to Acquire are
acquired at the date of such Offer to Acquire by the Person making
such Offer to Acquire, the Voting Shares Beneficially Owned by the
Person making the Offer to Acquire would constitute in the aggregate
20 per cent or more of the outstanding Voting Shares at the date of
the Offer to Acquire;
(yy) "TRADING DAY", when used with respect to any securities, shall mean
a day on which the principal Canadian stock exchange on which such
securities are listed or admitted to trading is open for the
transaction of business or, if the securities are not listed or
admitted to trading on any Canadian stock exchange, a Business Day;
(zz) "U.S.-CANADIAN EXCHANGE RATE" means, on any date:
(i) if on such date the Bank of Canada sets an average noon spot
rate of exchange for the conversion of one United States
dollar into Canadian dollars, such rate; and
(ii) in any other case, the rate for such date for the conversion
of one United States dollar into Canadian dollars calculated
in such manner as may be determined by the Board of Directors
from time to time acting in good faith;
ANNEX IV-8
<PAGE> 171
(aaa) "U.S. DOLLAR EQUIVALENT" of any amount which is expressed in
Canadian dollars means, on any date, the United States dollar
equivalent of such amount determined by multiplying such amount by
the Canadian-U.S. Exchange Rate in effect on such date;
(bbb) "VOTING SHARE REDUCTION" shall mean an acquisition or redemption by
the Corporation of Voting Shares which, by reducing the number of
Voting Shares outstanding, increases the percentage of outstanding
Voting Shares Beneficially Owned by any person to 20 per cent or
more of the Voting Shares then outstanding; and
(ccc) "VOTING SHARES" shall mean the Common Shares of the Corporation and
any other shares in the capital of the Corporation entitled to vote
generally in the election of all directors.
(ddd) "YUKON BUSINESS CORPORATIONS ACT" MEANS THE YUKON BUSINESS
CORPORATIONS ACT (YUKON), AS AMENDED, AND THE REGULATIONS MADE
THEREUNDER AND ANY COMPARABLE OR SUCCESSOR LAWS OR REGULATIONS
THERETO.
1.2 Currency
All sums of money which are referred to in this Agreement are expressed in
lawful money of Canada, unless otherwise specified.
1.3 Headings
The division of this Agreement into Articles, Sections, Subsections,
Clauses, Paragraphs, Subparagraphs or other portions hereof and the insertion of
headings, subheadings and a table of contents are for convenience of reference
only and shall not affect the construction or interpretation of this Agreement.
1.4 Calculation of Number and Percentage of Beneficial Ownership of
Outstanding Voting Shares
(a) For purposes of this Agreement, in determining the percentage of
outstanding Voting Shares of the Corporation with respect to which a
Person is or is deemed to be the Beneficial Owner, all unissued
Voting Shares of the Corporation of which such person is deemed to
be the Beneficial Owner shall be deemed to be outstanding.
(b) For purposes of this Agreement, the percentage of Voting Shares
Beneficially Owned by any Person shall be and be deemed to be the
product (expressed as a percentage) determined by the formula:
100 x A/B
where:
A= the number of votes for the election of all directors
generally attaching to the Voting Shares Beneficially
Owned by such Person; and
B= the number of votes for the election of all directors
generally attaching to all outstanding Voting Shares.
The percentage of outstanding Voting Shares represented by any
particular group of Voting Shares acquired or held by any Person
shall be determined in like manner mutatis mutandis.
1.5 Acting Jointly or in Concert
For purposes of this Agreement a Person is acting jointly or in concert
with another Person, if such Person has any agreement, commitment, arrangement
or understanding, whether formal or informal and whether or not in writing, with
such other Person for the purpose of acquiring or Offering to Acquire any Voting
Shares (other than (x) customary agreements with and between underwriters and/or
banking group members and/or selling group members with respect to a
distribution of securities by the Corporation, and (y) pledges of securities in
the ordinary course of business).
ANNEX IV-9
<PAGE> 172
1.6 Generally Accepted Accounting Principles
Wherever in this Agreement reference is made to generally accepted
accounting principles, such reference shall be deemed to be generally accepted
accounting principles followed in CANADA applicable on a consolidated basis
(unless otherwise specifically provided herein to be applicable on an
unconsolidated basis) as at the date on which a calculation is made or required
to be made in accordance with generally accepted accounting principles. Where
the character or amount of any asset or liability or item of revenue or expense
is required to be determined, or any consolidation or other accounting
computation is required to be made for the purpose of this Agreement or any
document, such determination or calculation shall, to the extent applicable and
except as otherwise specified herein or as otherwise agreed in writing by the
parties, be made in accordance with generally accepted accounting principles
applied on a consistent basis.
ARTICLE 2
THE RIGHTS
2.1 Legend on Share Certificates
Certificates representing Common Shares which are issued after the Record
Time but prior to the earlier of the Separation Time and the Expiration Time,
shall also evidence one Right for each Common Share represented thereby until
the earlier of the Separation Time or the Expiration Time and the Corporation
shall cause such certificates to have impressed thereon, printed thereon,
written thereon or otherwise affixed to them the following legend:
Until the close of business on the earlier of the Separation Time or the
Expiration Time (as both terms are defined in the Shareholder Rights
Agreement referred to below), this certificate also evidences rights of
the holder described in a Shareholder Rights Plan Agreement dated as of
OCTOBER 5, 1998 (the "Shareholder Rights Agreement") between Gold Reserve
INC. (the "Corporation") and Montreal Trust Company of Canada, as
supplemented and amended, the terms of which are incorporated herein by
reference and a copy of which is on file at the principal executive
offices of the Corporation. Under certain circumstances set out in the
Shareholder Rights Agreement, the rights may be terminated, may expire,
may become null and void (if, in certain cases they are "Beneficially
Owned" by an "Acquiring Person" as such terms are defined in the
Shareholder Rights Agreement, whether currently held by or on behalf of
such Person or a subsequent holder) or may be evidenced by separate
certificates and no longer evidenced by this certificate. The Corporation
will mail or arrange for the mailing of a copy of the Shareholder Rights
Agreement to the holder of this certificate without charge as soon as
practicable after the receipt of a written request therefor.
Provided that the Record Time occurs prior to the Separation Time,
certificates representing Common Shares that are issued and outstanding at the
Record Time shall also evidence one Right for each Common Share represented
thereby notwithstanding the absence of the foregoing legend, until the close of
business on the earlier of the Separation Time and the Expiration Time.
2.2 Initial Exercise Price; Exercise of Rights; Detachment of Rights
(a) Subject to adjustment as herein set forth, each Right will entitle
the holder thereof, from and after the Separation Time and prior to
the Expiration Time, to purchase one CLASS A Share for the Exercise
Price or the U.S. Dollar Equivalent as at the Business Day
immediately preceding the day of exercise of the Right (and the
Exercise Price and number of CLASS A Shares are subject to
adjustment as set forth below).
(b) Until the Separation Time,
(i) the Rights shall not be exercisable and no Right may be
exercised; and
(ii) provided the Record Time occurs prior to the Separation Time,
each Right, when issued, will be evidenced by the certificate
for the associated Common Share of the Corporation registered
in the name of the holder thereof (which certificate shall
also be deemed to represent a Rights Certificate) and will be
transferable only together with, and will be transferred by a
transfer of, such associated Common Share of the Corporation.
(c) From and after the Separation Time and prior to the Expiration Time:
(i) the Rights shall be exercisable; and
ANNEX IV-10
<PAGE> 173
(ii) the registration and transfer of Rights shall be separate from
and independent of Common Shares. Promptly following the
Separation Time, the Corporation will prepare and the Rights
Agent will mail to each holder of record of Common Shares as
of the Separation Time (other than an Acquiring Person and, in
respect of any Rights Beneficially Owned by such Acquiring
Person which are not held of record by such Acquiring Person,
the holder of record of such Rights (a "Nominee")), at such
holder's address as shown by the records of the Corporation
(the Corporation hereby agreeing to furnish copies of such
records to the Rights Agent for this purpose):
(x) a Rights Certificate appropriately completed,
representing the number of Rights held by such holder at
the Separation Time and having such marks of
identification or designation and such legends,
summaries or endorsements printed thereon as the
Corporation may deem appropriate and as are not
inconsistent with the provisions of this Agreement, or
as may be required to comply with any law, rule or
regulation or with any rule or regulation of any
self-regulatory organization, stock exchange or
quotation system on which the Rights may from time to
time be listed or traded, or to conform to usage; and
(y) a disclosure statement describing the Rights, provided
that a Nominee shall be sent the materials provided for
in (x) and (y) only in respect of all Common Shares held
of record by it which are not Beneficially Owned by an
Acquiring Person.
(d) Rights may be exercised, in whole or in part, on any Business Day
after the Separation Time and prior to the Expiration Time by
submitting to the Rights Agent at its office in Toronto, Ontario or
any other office of the Rights Agent (or any Co-Rights Agent) in
cities designated from time to time for that purpose by the
Corporation:
(i) the Rights Certificate evidencing such Rights;
(ii) an election to exercise such Rights (an "Election to
Exercise") substantially in the form attached to the Rights
Certificate appropriately completed and executed by the holder
or his executors or administrators or other personal
representatives or his or their legal attorney duly appointed
by an instrument in writing in form and executed in a manner
satisfactory to the Rights Agent; and
(iii) payment by certified cheque, banker's draft or money order
payable to the order of the Corporation, of a sum equal to the
Exercise Price multiplied by the number of Rights being
exercised and a sum sufficient to cover any transfer tax or
charge which may be payable in respect of any transfer
involved in the transfer or delivery of Rights Certificates or
the issuance or delivery of certificates for CLASS A Shares in
a name other than that of the holder of the Rights being
exercised.
(e) Upon receipt of a Rights Certificate, together with a completed
Election to Exercise executed in accordance with Clause 2.2(d)(ii),
which does not indicate that such Right is null and void as provided
by Subsection 3.1(b), and payment as set forth in Clause
2.2(d)(iii), the Rights Agent (unless otherwise instructed by the
Corporation in the event that the Corporation is of the opinion that
the Rights cannot be exercised in accordance with this Agreement)
will thereupon promptly:
(i) requisition from the transfer agent certificates representing
the number of such CLASS A Shares to be purchased (the
Corporation hereby irrevocably authorizing its transfer agent
to comply with all such requisitions);
(ii) when appropriate, requisition from the Corporation the amount
of cash to be paid in lieu of issuing fractional CLASS A
Shares;
(iii) after receipt of the certificates referred to in Clause
2.2(e)(i), deliver the same to or upon the order of the
registered holder of such Rights Certificates, registered in
such name or names as may be designated by such holder;
(iv) when appropriate, after receipt, deliver the cash referred to
in Clause 2.2(e)(ii) to or to the order of the registered
holder of such Rights Certificate; and
(v) remit to the Corporation all payments received on the exercise
of Rights.
ANNEX IV-11
<PAGE> 174
(f) In case the holder of any Rights shall exercise less than all the
Rights evidenced by such holder's Rights Certificate, a new Rights
Certificate evidencing the Rights remaining unexercised (subject to
the provisions of Subsection 5.5(a)) will be issued by the Rights
Agent to such holder or to such holder's duly authorized assigns.
(g) The Corporation covenants and agrees that it will:
(i) take all such action as may be necessary and within its power
to ensure that all CLASS A Shares delivered upon exercise of
Rights shall, at the time of delivery of the certificates for
such CLASS A Shares (subject to payment of the Exercise
Price), be duly and validly authorized, executed, issued and
delivered as fully paid and non-assessable;
(ii) take all such action as may be necessary and within its power
to comply with the requirements of the YUKON BUSINESS
CORPORATIONS ACT, the SECURITIES ACT (ONTARIO) and the
securities laws or comparable legislation of each of the
provinces of Canada, the 1993 SECURITIES ACT and the 1934
EXCHANGE ACT and any other applicable law, rule or regulation,
in connection with the issuance and delivery of the Rights
Certificates and the issuance of any CLASS A Shares upon
exercise of Rights;
(iii) use reasonable efforts to cause all CLASS A Shares issued upon
exercise of Rights to be listed on the stock exchanges and
markets on which such CLASS A Shares were traded immediately
prior to the Stock Acquisition Date;
(iv) pay when due and payable, if applicable, any and all federal,
provincial and municipal transfer taxes and charges (not
including any income or capital taxes of the holder or
exercising holder or any liability of the Corporation to
withhold tax) which may be payable in respect of the original
issuance or delivery of the Rights Certificates, or
certificates for CLASS A Shares to be issued upon exercise of
any Rights, provided that the Corporation shall not be
required to pay any transfer tax or charge which may be
payable in respect of any transfer involved in the transfer or
delivery of Rights Certificates or the issuance or delivery of
certificates for CLASS A Shares in a name other than that of
the holder of the Rights being transferred or exercised; and
(v) after the Separation Time, except as permitted by Sections 5.1
and 5.4, not take (or permit any Subsidiary to take) any
action if at the time such action is taken it is reasonably
foreseeable that such action will diminish substantially or
otherwise eliminate the benefits intended to be afforded by
the Rights.
2.3 Adjustments to Exercise Price; Number of Rights
The Exercise Price, the number and kind of securities subject to purchase
upon exercise of each Right and the number of Rights outstanding are subject to
adjustment from time to time as provided in this Section 2.3.
(a) In the event the Corporation shall at any time after the Agreement
Date:
(i) declare or pay a dividend on Common Shares payable in Common
Shares (or other securities exchangeable for or convertible
into or giving a right to acquire Common Shares or other
securities of the Corporation) other than pursuant to any
Dividend Reinvestment Plan;
(ii) subdivide or change the then outstanding Common Shares into a
greater number of Common Shares;
(iii) consolidate or change the then outstanding Common Shares into
a smaller number of Common Shares; or
(iv) issue any Common Shares (or other securities exchangeable for
or convertible into or giving a right to acquire Common Shares
or other securities of the Corporation) in respect of, in lieu
of or in exchange for existing Common Shares except as
otherwise provided in this Section 2.3, the Exercise Price and
the number of Rights outstanding, or, if the payment or
effective date therefor shall occur after the Separation Time,
the securities purchasable upon exercise of Rights shall be
adjusted as of the payment or effective date in the manner set
forth below. If the Exercise Price and number of Rights
outstanding are to be adjusted:
(x) the Exercise Price in effect after such adjustment will
be equal to the Exercise Price in effect immediately
prior to such adjustment divided by the number of Common
Shares (or other capital stock) (the "Expansion
ANNEX IV-12
<PAGE> 175
Factor") that a holder of one Common Share immediately
prior to such dividend, subdivision, change,
consolidation or issuance would hold thereafter as a
result thereof; and
(y) each Right held prior to such adjustment will become
that number of Rights equal to the Expansion Factor,
and the adjusted number of Rights will be deemed to be
distributed among the Common Shares with respect to which
the original Rights were associated (if they remain
outstanding) and the shares issued in respect of such
dividend, subdivision, change, consolidation or issuance,
so that each such Common Share (or other capital stock)
will have exactly one Right associated with it.
For greater certainty, if the securities purchasable upon
exercise of Rights are to be adjusted, the securities
purchasable upon exercise of each Right after such
adjustment will be the securities that a holder of the
securities purchasable upon exercise of one Right
immediately prior to such dividend, subdivision, change,
consolidation or issuance would hold thereafter as a
result of such dividend, subdivision, change,
consolidation or issuance.
If, after the Record Time and prior to the Expiration
Time, the Corporation shall issue any shares of capital
stock other than Common Shares in a transaction of a type
described in Clause 2.3(a)(i) or (iv), shares of such
capital stock shall be treated herein as nearly
equivalent to Common Shares as may be practicable and
appropriate under the circumstances and the Corporation
and the Rights Agent agree to amend this Agreement in
order to effect such treatment. In the event the
Corporation shall at any time after the Record Time and
prior to the Separation Time issue any Common Shares
otherwise than in a transaction referred to in this
Subsection 2.3(a), each such Common Share so issued shall
automatically have one new Right associated with it,
which Right shall be evidenced by the certificate
representing such associated Common Share.
(b) In the event the Corporation shall at any time after the Record Time
and prior to the Separation Time fix a record date for the issuance
of rights, options or warrants to all holders of Common Shares
entitling them (for a period expiring within 45 calendar days after
such record date) to subscribe for or purchase Common Shares (or
securities convertible into or exchangeable for or carrying a right
to purchase Common Shares) at a price per Common Share (or, if a
security convertible into or exchangeable for or carrying a right to
purchase or subscribe for Common Shares, having a conversion,
exchange or exercise price, including the price required to be paid
to purchase such convertible or exchangeable security or right per
share) less than the Market Price per Common Share on such record
date, the Exercise Price to be in effect after such record date
shall be determined by multiplying the Exercise Price in effect
immediately prior to such record date by a fraction:
(i) the numerator of which shall be the number of Common Shares
outstanding on such record date plus the number of Common
Shares that the aggregate offering price of the total number
of Common Shares so to be offered (and/or the aggregate
initial conversion, exchange or exercise price of the
convertible or exchangeable securities or rights so to be
offered, including the price required to be paid to purchase
such convertible or exchangeable securities or rights) would
purchase at such Market Price per Common Share; and
(ii) the denominator of which shall be the number of Common Shares
outstanding on such record date plus the number of additional
Common Shares to be offered for subscription or purchase (or
into which the convertible or exchangeable securities or
rights so to be offered are initially convertible,
exchangeable or exercisable).
In case such subscription price may be paid by delivery of
consideration, part or all of which may be in a form other than
cash, the value of such consideration shall be as determined in good
faith by the Board of Directors, whose determination shall be
described in a statement filed with the Rights Agent and shall be
binding on the Rights Agent and the holders of Rights. Such
adjustment shall be made successively whenever such a record date is
fixed, and in the event that such rights, options or warrants are
not so issued, or if issued, are not exercised prior to the
expiration thereof, the Exercise Price shall be readjusted to the
Exercise Price which would then be in effect if such record date had
not been fixed, or to the Exercise Price which would be in effect
based upon the number of Common Shares (or securities convertible
into, or exchangeable or exercisable for Common Shares) actually
issued upon the exercise of such rights, options or warrants, as the
case may be.
For purposes of this Agreement, the granting of the right to
purchase Common Shares from treasury pursuant to the Dividend
Reinvestment Plan or any employee benefit, stock option or similar
plans shall be deemed not to constitute
ANNEX IV-13
<PAGE> 176
an issue of rights, options or warrants by the Corporation;
provided, however, that, in all such cases, the right to purchase
Common Shares is at a price per share of not less than 90 per cent
of the current market price per share (determined as provided in
such plans) of the Common Shares.
(c) In the event the Corporation shall at any time after the Record Time
and prior to the Separation Time fix a record date for the making of
a distribution to all holders of Common Shares (including any such
distribution made in connection with a merger or amalgamation) of
evidences of indebtedness, cash (other than an annual cash dividend
or a dividend paid in Common Shares, but including any dividend
payable in securities other than Common Shares), assets or rights,
options or warrants (excluding those referred to in Subsection
2.3(b)) to purchase Common Shares at a price per Common Share that
is less than the Market Price per Common Share on such record date,
the Exercise Price to be in effect after such record date shall be
determined by multiplying the Exercise Price in effect immediately
prior to such record date by a fraction:
(i) the numerator of which shall be the Market Price per Common
Share on such record date, less the fair market value (the
determination of which shall be described in a statement filed
with the Rights Agent and shall be binding on the Rights Agent
and the holders of Rights), on a per share basis, of the
portion of the cash, assets, evidences of indebtedness,
rights, options or warrants so to be distributed; and
(ii) the denominator of which shall be such Market Price per Common
Share.
Such adjustments shall be made successively whenever such a record date is
fixed, and in the event that such a distribution is not so made, the
Exercise Price shall be adjusted to be the Exercise Price which would have
been in effect if such record date had not been fixed.
(d) Notwithstanding anything herein to the contrary, no adjustment in
the Exercise Price shall be required unless such adjustment would
require an increase or decrease of at least one per cent in the
Exercise Price; provided, however, that any adjustments which by
reason of this Subsection 2.3(d) are not required to be made shall
be carried forward and taken into account in any subsequent
adjustment. All calculations under Section 2.3 shall be made to the
nearest cent or to the nearest ten-thousandth of a share.
Notwithstanding the first sentence of this Subsection 2.3(d), any
adjustment required by Section 2.3 shall be made no later than the
earlier of:
(i) three years from the date of the transaction which gives rise
to such adjustment; or
(ii) the Expiration Time.
(e) In the event the Corporation shall at any time after the Record Time
and prior to the Separation Time issue any shares of capital stock
(other than Common Shares), or rights, options or warrants to
subscribe for or purchase any such capital stock, or securities
convertible into or exchangeable for any such capital stock, in a
transaction referred to in Clause 2.3(a)(i) or (iv), if the Board of
Directors acting in good faith determines that the adjustments
contemplated by Subsections 2.3(a), (b) and (c) in connection with
such transaction will not appropriately protect the interests of the
holders of Rights, the Board of Directors may determine what other
adjustments to the Exercise Price, number of Rights and/or
securities purchasable upon exercise of Rights would be appropriate
and, notwithstanding Subsections 2.3(a), (b) and (c), such
adjustments, rather than the adjustments contemplated by Subsections
2.3(a), (b) and (c), shall be made. Subject to Subsection 5.4(b) and
(c), the Corporation and the Rights Agent shall have authority
without the approval of the holders of the Common Shares or the
holders of Rights to amend this Agreement as appropriate to provide
for such adjustments.
(f) Each Right originally issued by the Corporation subsequent to any
adjustment made to the Exercise Price hereunder shall evidence the
right to purchase, at the adjusted Exercise Price, the number of
CLASS A Shares purchasable from time to time hereunder upon exercise
of a Right immediately prior to such issue, all subject to further
adjustment as provided herein.
(g) Irrespective of any adjustment or change in the Exercise Price or
the number of CLASS A Shares issuable upon the exercise of the
Rights, the Rights Certificates theretofore and thereafter issued
may continue to express the Exercise Price per CLASS A Share and the
number of CLASS A Shares which were expressed in the initial Rights
Certificates issued hereunder.
ANNEX IV-14
<PAGE> 177
(h) In any case in which this Section 2.3 shall require that an
adjustment in the Exercise Price be made effective as of a record
date for a specified event, the Corporation may elect to defer until
the occurrence of such event the issuance to the holder of any Right
exercised after such record date the number of CLASS A Shares and
other securities of the Corporation, if any, issuable upon such
exercise over and above the number of CLASS A Shares and other
securities of the Corporation, if any, issuable upon such exercise
on the basis of the Exercise Price in effect prior to such
adjustment; provided, however, that the Corporation shall deliver to
such holder an appropriate instrument evidencing such holder's right
to receive such additional shares (fractional or otherwise) or other
securities upon the occurrence of the event requiring such
adjustment.
(i) Notwithstanding anything contained in this Section 2.3 to the
contrary, the Corporation shall be entitled to make such reductions
in the Exercise Price, in addition to those adjustments expressly
required by this Section 2.3, as and to the extent that in their
good faith judgment the Board of Directors shall determine to be
advisable, in order that any:
(i) consolidation or subdivision of Common Shares;
(ii) issuance (wholly or in part for cash) of Common Shares or
securities that by their terms are convertible into or
exchangeable for Common Shares;
(iii) stock dividends; or
(iv) issuance of rights, options or warrants referred to in this
Section 2.3,
hereafter made by the Corporation to holders of its Common Shares,
subject to applicable taxation laws, shall not be taxable to such
shareholders or shall subject such shareholders to a lesser amount
of tax.
(j) The Rights Agent shall be entitled to rely on any certificate
received from the Corporation stating that any of the events giving
rise to an adjustment required by this section 2.3 has occurred.
2.4 Date on Which Exercise Is Effective
Each Person in whose name any certificate for CLASS A Shares or other
securities, if applicable, is issued upon the exercise of Rights shall for all
purposes be deemed to have become the holder of record of the CLASS A Shares or
other securities, if applicable, represented thereon, and such certificate shall
be dated the date upon which the Rights Certificate evidencing such Rights was
duly surrendered in accordance with Subsection 2.2(d) (together with a duly
completed Election to Exercise) and payment of the Exercise Price for such
Rights (and any applicable transfer taxes and other governmental charges payable
by the exercising holder hereunder) was made; provided, however, that if the
date of such surrender and payment is a date upon which the CLASS A Share
transfer books of the Corporation are closed, such Person shall be deemed to
have become the record holder of such shares on, and such certificate shall be
dated, the next succeeding Business Day on which the CLASS A Share transfer
books of the Corporation are open.
2.5 Execution, Authentication, Delivery and Dating of Rights Certificates
(a) The Rights Certificates shall be executed on behalf of the
Corporation by its Chairman of the Board, President or any
Vice-President and by its Corporate Secretary or any Assistant
Secretary under the corporate seal of the Corporation reproduced
thereon. The signature of any of these officers on the Rights
Certificates may be manual or facsimile. Rights Certificates bearing
the manual or facsimile signatures of individuals who were at any
time the proper officers
of the Corporation shall bind the Corporation, notwithstanding that
such individuals or any of them have ceased to hold such offices
either before or after the countersignature and delivery of such
Rights Certificates.
(b) Promptly after the Corporation learns of the Separation Time, the
Corporation will notify the Rights Agent of such Separation Time and
will deliver Rights Certificates executed by the Corporation to the
Rights Agent for countersignature, and the Rights Agent shall
manually countersign (in a manner satisfactory to the Corporation)
and send such Rights Certificates to the holders of the Rights
pursuant to Subsection 2.2(c) hereof. No Rights Certificate shall be
valid for any purpose until countersigned by the Rights Agent as
aforesaid.
(c) Each Rights Certificate shall be dated the date of countersignature
thereof.
ANNEX IV-15
<PAGE> 178
2.6 Registration, Transfer and Exchange
(a) The Corporation will cause to be kept a register (the "Rights
Register") in which, subject to such reasonable regulations as it
may prescribe, the Corporation will provide for the registration and
transfer of Rights. The Rights Agent is hereby appointed, effective
from and after the Separation Time, registrar for the Rights (the
"Rights Registrar") for the purpose of maintaining the Rights
Register for the Corporation and registering Rights and transfers of
Rights as herein provided and the Rights Agent hereby accepts such
appointment. In the event that the Rights Agent shall cease to be
the Rights Registrar, the Rights Agent will have the right to
examine the Rights Register at all reasonable times.
After the Separation Time and prior to the Expiration Time, upon
surrender for registration of transfer or exchange of any Rights
Certificate, and subject to the provisions of Subsection 2.6(c), the
Corporation will execute, and the Rights Agent will manually
countersign and deliver, in the name of the holder or the designated
transferee or transferees, as required pursuant to the holder's
instructions, one or more new Rights Certificates evidencing the
same aggregate number of Rights as did the Rights Certificates so
surrendered.
(b) All Rights issued upon any registration of transfer or exchange of
Rights Certificates shall be the valid obligations of the
Corporation, and such Rights shall be entitled to the same benefits
under this Agreement as the Rights surrendered upon such
registration of transfer or exchange.
(c) Every Rights Certificate surrendered for registration of transfer or
exchange shall be duly endorsed, or be accompanied by a written
instrument of transfer in form satisfactory to the Corporation or
the Rights Agent, as the case may be, duly executed by the holder
thereof or such holder's attorney duly authorized in writing. As a
condition to the issuance of any new Rights Certificate under this
Section 2.6, the Corporation may require the payment of a sum
sufficient to cover any tax or other governmental charge that may be
imposed in relation thereto and any other expenses (including the
reasonable fees and expenses of the Rights Agent) connected
therewith.
2.7 Mutilated, Destroyed, Lost and Stolen Rights Certificates
(a) If any mutilated Rights Certificate is surrendered to the Rights
Agent prior to the Expiration Time, the Corporation shall execute
and the Rights Agent shall countersign and deliver in exchange
therefor a new Rights Certificate evidencing the same number of
Rights as did the Rights Certificate so surrendered.
(b) If there shall be delivered to the Corporation and the Rights Agent
prior to the Expiration Time:
(i) evidence to their reasonable satisfaction of the destruction,
loss or theft of any Rights Certificate; and
(ii) such security or indemnity as may be reasonably required by
them to save each of them and any of their agents harmless,
then, in the absence of notice to the Corporation or the
Rights Agent that such Rights Certificate has been acquired by
a bona fide purchaser, the Corporation shall execute and upon
the Corporation's request the Rights Agent shall countersign
and deliver, in lieu of any such destroyed, lost or stolen
Rights Certificate, a new Rights Certificate evidencing the
same number of Rights as did the Rights Certificate so
destroyed, lost or stolen.
(c) As a condition to the issuance of any new Rights Certificate under
this Section 2.7, the Corporation may require the payment of a sum
sufficient to cover any tax or other governmental charge that may be
imposed in relation thereto and any other expenses (including the
reasonable fees and expenses of the Rights Agent) connected
therewith.
(d) Every new Rights Certificate issued pursuant to this Section 2.7 in
lieu of any destroyed, lost or stolen Rights Certificate shall
evidence the contractual obligation of the Corporation, whether or
not the destroyed, lost or stolen Rights Certificate shall be at any
time enforceable by anyone, and shall be entitled to all the
benefits of this Agreement equally and proportionately with any and
all other Rights duly issued hereunder.
2.8 Persons Deemed Owners of Rights
The Corporation, the Rights Agent and any agent of the Corporation or the
Rights Agent may deem and treat the Person in whose name a Rights Certificate
(or, prior to the Separation Time, the associated Common Share certificate) is
registered as the absolute owner thereof and of the Rights evidenced thereby for
all purposes whatsoever. As used in this Agreement, unless
ANNEX IV-16
<PAGE> 179
the context otherwise requires, the term "holder" of any Right shall mean the
registered holder of such Right (or, from and after the Record Time and prior to
the Separation Time, the registered holder of the associated Common Share).
2.9 Delivery and Cancellation of Certificates
All Rights Certificates surrendered upon exercise or for redemption,
registration of transfer or exchange shall, if surrendered to any Person other
than the Rights Agent, be delivered to the Rights Agent and, in any case, shall
be promptly canceled by the Rights Agent. The Corporation may at any time
deliver to the Rights Agent for cancellation any Rights Certificates previously
countersigned and delivered hereunder which the Corporation may have acquired in
any manner whatsoever, and all Rights Certificates so delivered shall be
promptly canceled by the Rights Agent. No Rights Certificate shall be
countersigned in lieu of or in exchange for any Rights Certificates canceled as
provided in this Section 2.9, except as expressly permitted by this Agreement.
The Rights Agent shall, subject to applicable laws, destroy all canceled Rights
Certificates and deliver a certificate of destruction to the Corporation.
2.10 Agreement of Rights Holders
Every holder of Rights, by accepting the same, consents and agrees with
the Corporation and the Rights Agent and with every other holder of Rights:
(a) to be bound by and subject to the provisions of this Agreement, as
amended from time to time in accordance with the terms hereof, in
respect of all Rights held;
(b) that, provided the Separation Time follows the Record Time, from and
after the Record Time and prior to the Separation Time, each Right
will be transferable only together with, and will be transferred by
a transfer of, the associated Common Share certificate representing
such Right;
(c) that after the Separation Time, the Rights Certificates will be
transferable only on the Rights Register as provided herein;
(d) that prior to due presentment of a Rights Certificate (or, from and
after the Record Time and prior to the Separation Time, the
associated Common Share certificate) for registration of transfer,
the Corporation, the Rights Agent and any agent of the Corporation
or the Rights Agent may deem and treat the Person in whose name the
Rights Certificate (or, prior to the Separation Time, the associated
Common Share certificate) is registered as the absolute owner
thereof and of the Rights evidenced thereby (notwithstanding any
notations of ownership or writing on such Rights Certificate or the
associated Common Share certificate made by anyone other than the
Corporation or the Rights Agent) for all purposes whatsoever, and
neither the Corporation nor the Rights Agent shall be affected by
any notice to the contrary;
(e) that such holder of Rights has waived his right to receive any
fractional Rights or any fractional shares or other securities upon
exercise of a Right (except as provided herein); and
(f) that, without the approval of any holder of Rights or Voting Shares
and upon the sole authority of the Board of Directors, acting in
good faith, this Agreement may be supplemented or amended from time
to time pursuant to and as provided herein.
2.11 Rights Certificate Holder Not Deemed a Shareholder
No holder, as such, of any Rights or Rights Certificate shall be entitled
to vote, receive dividends or be deemed for any purpose whatsoever the holder of
any CLASS A Share or any other share or security of the Corporation which may at
any time be issuable on the exercise of the Rights represented thereby, nor
shall anything contained herein or in any Rights Certificate be construed or
deemed or confer upon the holder of any Right or Rights Certificate, as such,
any right, title, benefit or privilege of a holder of CLASS A Shares or any
other shares or securities of the Corporation or any right to vote at any
meeting of shareholders of the Corporation whether for the election of directors
or otherwise or upon any matter submitted to holders of CLASS A Shares or any
other shares of the Corporation at any meeting thereof, or to give or withhold
consent to any action of the Corporation, or to receive notice of any meeting or
other action affecting any holder of CLASS A Shares or any other shares of the
Corporation except as expressly provided herein, or to receive dividends,
distributions or subscription rights, or otherwise, until the Right or Rights
evidenced by Rights Certificates shall have been duly exercised in accordance
with the terms and provisions hereof.
ANNEX IV-17
<PAGE> 180
ARTICLE 3
ADJUSTMENTS TO THE RIGHTS
3.1 Flip-in Event
(a) Subject to Subsection 3.1(b) and Section 5.1, in the event that
prior to the Expiration Time a Flip-in Event shall occur, each Right
shall constitute, effective at the close of business on the later of
the Effective TIME or the tenth Trading Day after the Stock
Acquisition Date, the right to purchase from the Corporation, upon
exercise thereof in accordance with the terms hereof, that number of
CLASS A Shares having an aggregate Market Price on the date of
consummation or occurrence of such Flip-in Event equal to twice the
Exercise Price for an amount in cash equal to the Exercise Price
(such right to be appropriately adjusted in a manner analogous to
the applicable adjustment provided for in Section 2.3 in the event
that after such consummation or occurrence, an event of a type
analogous to any of the events described in Section 2.3 shall have
occurred).
(b) Notwithstanding anything in this Agreement to the contrary, upon the
occurrence of any Flip-in Event, any Rights that are or were
Beneficially Owned on or after the earlier of the Separation Time or
the Stock Acquisition Date by:
(i) an Acquiring Person (or any Affiliate or Associate of an
Acquiring Person or any Person acting jointly or in concert
with an Acquiring Person or any Affiliate or Associate of an
Acquiring Person); or
(ii) a transferee or other successor in title, directly or
indirectly, (a "Transferee") of Rights or Common Shares held
by an Acquiring Person (or any Affiliate or Associate of an
Acquiring Person or any Person acting jointly or in concert
with an Acquiring Person or any Affiliate or Associate of an
Acquiring Person), where such Transferee becomes a transferee
concurrently with or subsequent to the Acquiring Person
becoming such in a transfer that the Board of Directors has
determined is part of a plan, arrangement or scheme of an
Acquiring Person (or any Affiliate or Associate of an
Acquiring Person or any Person acting jointly or in concert
with an Acquiring Person or any Affiliate or Associate of an
Acquiring Person), that has the purpose or effect of avoiding
Clause 3.1(b)(i),
shall become null and void without any further action, and any
holder of such Rights (including any Transferee) shall thereafter
have no right to exercise such Rights under any provision of this
Agreement and further shall thereafter not have any other rights
whatsoever with respect to such Rights, whether under any provision
of this Agreement or otherwise.
(c) From and after the Separation Time, the Corporation shall do all
such acts and things as shall be necessary and within its power to
ensure compliance with the provisions of this Section 3.1, including
without limitation, all such acts and things as may be required to
satisfy the requirements of the YUKON Business Corporations Act, the
Securities Act (Ontario) and the securities laws or comparable
legislation of each of the provinces of Canada and of the United
States and each of the applicable states thereof in respect of the
issue of CLASS A Shares upon the exercise of Rights in accordance
with this Agreement.
(d) Any Rights Certificate that represents Rights Beneficially Owned by
a Person described in either Clause 3.1(b)(i) or (ii) or transferred
to any nominee of any such Person, and any Rights Certificate issued
upon transfer, exchange, replacement or adjustment of any other
Rights Certificate referred to in this sentence, shall contain the
following legend:
The Rights represented by this Rights Certificate were issued
to a Person who was an Acquiring Person or an Affiliate or an
Associate of an Acquiring Person (as such terms are defined in
the Shareholder Rights Agreement) or a Person who was acting
jointly or in concert with an Acquiring Person or an Affiliate
or Associate of an Acquiring Person. This Rights Certificate
and the Rights represented hereby are void or shall become
void in the circumstances specified in Subsection 3.1(b) of
the Shareholder Rights Agreement.
provided, however, that the Rights Agent shall not be under any
responsibility to ascertain the existence of facts that would
require the imposition of such legend but shall impose such legend
only if instructed to do so by the Corporation in writing or if a
holder fails to certify upon transfer or exchange in the space
provided on the Rights Certificate that such holder is not a Person
described in such legend and provided further that the fact that
such legend does not appear on a certificate is not determinative of
whether any Rights represented thereby are void under this Section.
ANNEX IV-18
<PAGE> 181
ARTICLE 4
THE RIGHTS AGENT
4.1 General
(a) The Corporation hereby appoints the Rights Agent to act as agent for
the Corporation and the holders of the Rights in accordance with the
terms and conditions hereof, and the Rights Agent hereby accepts
such appointment. The Corporation may from time to time appoint such
Co-Rights Agents ("Co-Rights Agents") as it may deem necessary or
desirable. In the event the Corporation appoints one or more
Co-Rights Agents, the respective duties of the Rights Agent and
Co-Rights Agents shall be as the Corporation may determine. The
Corporation agrees to pay all reasonable fees and expenses of the
Rights Agent in respect of the performance of its duties under this
Agreement. The Corporation also agrees to indemnify the Rights Agent
for, and to hold it harmless against, any loss, liability or
expense, incurred without negligence, bad faith or wilful misconduct
on the part of the Rights Agent, for anything done or omitted by the
Rights Agent in connection with the acceptance and administration of
this Agreement, including the costs and expenses of defending
against any claim of liability, which right to indemnification will
survive the termination of this Agreement.
(b) The Rights Agent shall be protected and shall incur no liability for
or in respect of any action taken, suffered or omitted by it in
connection with its administration of this Agreement in reliance
upon any certificate for Common Shares, Rights Certificate,
certificate for other securities of the Corporation, instrument of
assignment or transfer, power of attorney, endorsement, affidavit,
letter, notice, direction, consent, certificate, statement, or other
paper or document believed by it to be genuine and to be signed,
executed and, where necessary, verified or acknowledged, by the
proper Person or Persons.
(c) The Rights Agent shall not be responsible for any inaccuracies in
the shareholder information provided by the Corporation to the
Rights Agent pursuant to subsection 2.2(c).
4.2 Merger, Amalgamation or Consolidation or Change of Name of Rights Agent
(a) Any corporation into which the Rights Agent may be merged or
amalgamated or with which it may be consolidated, or any corporation
resulting from any merger, amalgamation, statutory arrangement or
consolidation to which the Rights Agent is a party, or any
corporation succeeding to the shareholder or stockholder services
business of the Rights Agent, will be the successor to the Rights
Agent under this Agreement without the execution or filing of any
paper or any further act on the part of any of the parties hereto,
provided that such corporation would be eligible for appointment as
a successor Rights Agent under the provisions of Section 4.4 hereof.
In case at the time such successor Rights Agent succeeds to the
agency created by this Agreement any of the Rights Certificates have
been countersigned but not delivered, any successor Rights Agent may
adopt the countersignature of the predecessor Rights Agent and
deliver such Rights Certificates so countersigned; and in case at
that time any of the Rights have not been countersigned, any
successor Rights Agent may countersign such Rights Certificates in
the name of the predecessor Rights Agent or in the name of the
successor Rights Agent; and in all such cases such Rights
Certificates will have the full force provided in the Rights
Certificates and in this Agreement.
(b) In case at any time the name of the Rights Agent is changed and at
such time any of the Rights Certificates shall have been
countersigned but not delivered, the Rights Agent may adopt the
countersignature under its prior name and deliver Rights
Certificates so countersigned; and in case at that time any of the
Rights Certificates shall not have been countersigned, the Rights
Agent may countersign such Rights Certificates either in its prior
name or in its changed name; and in all such cases such Rights
Certificates shall have the full force provided in the Rights
Certificates and in this Agreement.
4.3 Duties of Rights Agent
The Rights Agent undertakes the duties and obligations imposed by this
Agreement upon the following terms and conditions, all of which the Corporation
and the holders of certificates for Common Shares and the holders of Rights
Certificates, by their acceptance thereof, shall be bound:
ANNEX IV-19
<PAGE> 182
(a) the Rights Agent may consult with legal counsel (who may be legal
counsel for the Corporation), at the Corporation's expense, and the
opinion of such counsel will be full and complete authorization and
protection to the Rights Agent as to any action taken or omitted by
it in good faith and in accordance with such opinion;
(b) whenever in the performance of its duties under this Agreement, the
Rights Agent deems it necessary or desirable that any fact or matter
be proved or established by the Corporation prior to taking or
suffering any action hereunder, such fact or matter (unless other
evidence in respect thereof be herein specifically prescribed) may
be deemed to be conclusively proved and established by a certificate
signed by a Person believed by the Rights Agent to be the Chairman
of the Board, President, any Vice-President, Treasurer, Corporate
Secretary or any Assistant Secretary of the Corporation and
delivered to the Rights Agent; and such certificate will be full
authorization to the Rights Agent for any action taken or suffered
in good faith by it under the provisions of this Agreement in
reliance upon such certificate;
(c) the Rights Agent will be liable hereunder for its own negligence,
bad faith or wilful misconduct;
(d) the Rights Agent will not be liable for or by reason of any of the
statements of fact or recitals contained in this Agreement or in the
certificates for Common Shares, or the Rights Certificates (except
its countersignature thereof) or be required to verify the same, but
all such statements and recitals are and will be deemed to have been
made by the Corporation only;
(e) the Rights Agent will not be under any responsibility in respect of
the validity of this Agreement or the execution and delivery hereof
(except the due authorization, execution and delivery hereof by the
Rights Agent) or in respect of the validity or execution of any
certificate for a Common Share or Rights Certificate (except its
countersignature thereof); nor will it be responsible for any breach
by the Corporation of any covenant or condition contained in this
Agreement or in any Rights Certificate; nor will it be responsible
for any change in the exercisability of the Rights (including the
Rights becoming void pursuant to Subsection 3.1(b) hereof) or any
adjustment required under the provisions of Section 2.3 hereof or
responsible for the manner, method or amount of any such adjustment
or the ascertaining of the existence of facts that would require any
such adjustment (except with respect to the exercise of Rights after
receipt of the certificate contemplated by Section 2.3 describing
any such adjustment); nor will it by any act hereunder be deemed to
make any representation or warranty as to the authorization of any
CLASS A Shares to be issued pursuant to this Agreement or any Rights
or as to whether any CLASS A Shares will, when issued, be duly and
validly authorized, executed, issued and delivered and fully paid
and non-assessable;
(f) the Corporation agrees that it will perform, execute, acknowledge
and deliver or cause to be performed, executed, acknowledged and
delivered all such further and other acts, instruments and
assurances as may reasonably be required by the Rights Agent for the
carrying out or performing by the Rights Agent of the provisions of
this Agreement;
(g) the Rights Agent is hereby authorized and directed to accept
instructions in writing with respect to the performance of its
duties hereunder from any individual believed by the Rights Agent to
be the Chairman of the Board, President, any Vice-President,
Treasurer, Corporate Secretary or any Assistant Secretary of the
Corporation, and to apply to such individuals for advice or
instructions in connection with its duties, and it shall not be
liable for any action taken or suffered by it in good faith in
accordance with instructions of any such individual;
(h) the Rights Agent and any shareholder or stockholder, director,
officer or employee of the Rights Agent may buy, sell or deal in
Common Shares, Rights or other securities of the Corporation or
become pecuniarily interested in any transaction in which the
Corporation may be interested, or contract with or lend money to the
Corporation or otherwise act as fully and freely as though it were
not Rights Agent under this Agreement. Nothing herein shall preclude
the Rights Agent from acting in any other capacity for the
Corporation or for any other legal entity; and
(i) the Rights Agent may execute and exercise any of the rights or
powers hereby vested in it or perform any duty hereunder either
itself or by or through its attorneys or agents, and the Rights
Agent will not be answerable or accountable for any act, default,
neglect or misconduct of any such attorneys or agents or for any
loss to the Corporation resulting from any such act, default,
neglect or misconduct, provided reasonable care was exercised in the
selection and continued employment thereof.
ANNEX IV-20
<PAGE> 183
4.4 Change of Rights Agent
The Rights Agent may resign and be discharged from its duties under this
Agreement upon 90 days' notice (or such lesser notice as is acceptable to the
Corporation) in writing mailed to the Corporation and to each transfer agent of
Common Shares by registered or certified mail. The Corporation may remove the
Rights Agent upon 30 days' notice in writing, mailed to the Rights Agent and to
each transfer agent of the Common Shares by registered or certified mail. If the
Rights Agent should resign or be removed or otherwise become incapable of
acting, the Corporation will appoint a successor to the Rights Agent. If the
Corporation fails to make such appointment within a period of 30 days after such
removal or after it has been notified in writing of such resignation or
incapacity by the resigning or incapacitated Rights Agent, then by prior written
notice to the Corporation the resigning Rights Agent or the holder of any Rights
(which holder shall, with such notice, submit such holder's Rights Certificate,
if any, for inspection by the Corporation), may apply to any court of competent
jurisdiction for the appointment of a new Rights Agent. Any successor Rights
Agent, whether appointed by the Corporation or by such a court, shall be a
corporation incorporated under the laws of Canada or a province thereof
authorized to carry on the business of a trust company in the Province of
Ontario. After appointment, the successor Rights Agent will be vested with the
same powers, rights, duties and responsibilities as if it had been originally
named as Rights Agent without further act or deed; but the predecessor Rights
Agent shall, subject to its right to first require payment of all outstanding
fees and other amounts owed to it hereunder, deliver and transfer to the
successor Rights Agent any property at the time held by it hereunder, and
execute and deliver any further assurance, conveyance, act or deed necessary for
the purpose. Not later than the effective date of any such appointment, the
Corporation will file notice thereof in writing with the predecessor Rights
Agent and each transfer agent of the Common Shares, and mail a notice thereof in
writing to the holders of the Rights in accordance with Section 5.9. Failure to
give any notice provided for in this Section 4.4, however, or any defect
therein, shall not affect the legality or validly of the resignation or removal
of the Rights Agent or the appointment of any successor Rights Agent, as the
case may be.
ARTICLE 5
MISCELLANEOUS
5.1 Redemption and Waiver
(a) The Board of Directors may, with the prior consent of the holders of
Voting Shares or of the holders of Rights given in accordance with
Section 5.1(i) or (j), as the case may be, at any time prior to the
occurrence of a Flip-in Event as to which the application of Section
3.1 has not been waived pursuant to the provisions of this Section
5.1, elect to redeem all but not less than all of the then
outstanding Rights at a redemption price of $0.00001 per Right
appropriately adjusted in a manner analogous to the applicable
adjustment provided for in Section 2.3 in the event that an event of
the type analogous to any of the events described in Section 2.3
shall have occurred (such redemption price being herein referred to
as the "Redemption Price"). The Board of Directors may, prior to the
date of the shareholders' meeting referred to in Section 5.15, elect
to terminate this Agreement. If the Board of Directors elects to
terminate this Agreement pursuant to this Section 5.1(a), this
Agreement will thereupon terminate and be void and of no further
force or effect.
(b) The Board of Directors may, with the prior consent of the holders of
Voting Shares given in accordance with Section 5.1(i), determine, at
any time prior to the occurrence of a Flip-in Event as to which the
application of Section 3.1 has not been waived pursuant to this
Section 5.1, if such Flip-in Event would occur by reason of an
acquisition of Voting Shares otherwise than pursuant to a Take-over
Bid made by means of a take-over bid circular to all holders of
record of Voting Shares and otherwise than in the circumstances set
forth in Section 5.1(d), to waive the application of Section 3.1 to
such Flip-in Event. In the event that the Board of Directors
proposes such a waiver, the Board of Directors shall extend the
Separation Time to a date subsequent to and not more than ten
Business Days following the meeting of shareholders called to
approve such waiver.
(c) The Board of Directors may, until the occurrence of a Flip-in Event
upon prior written notice delivered to the Rights Agent, determine
to waive the application of Section 3.1 to such particular Flip-in
Event provided that the Flip-in Event would occur by reason of a
Take-over Bid made by way of take-over bid circular sent to all
holders of Voting Shares (which for greater certainty shall not
include the circumstances described in Subsection 5.1(d)); provided
that if the Board of Directors waives the application of Section 3.1
to a particular Flip-in Event pursuant to this Subsection 5.1(c),
the Board of Directors shall be deemed to have waived the
application of Section 3.1 to any other Flip-in Event occurring by
reason of any Take-over Bid which is made by means of a take-over
bid circular to all holders of Voting Shares (i) prior to the
granting of such waiver, (ii) thereafter and prior to the expiry of
any Take-over Bid (as the same may be extended from time to time)
outstanding at the time of the granting of such waiver or (iii)
thereafter and prior
ANNEX IV-21
<PAGE> 184
to the expiry of any Take-over Bid in respect of which a waiver is,
or is deemed to have been, granted under this Subsection 5.1(c).
(d) Notwithstanding the provisions of Subsections 5.1(b) and (c) hereof,
the Board of Directors may waive the application of Section 3.1 in
respect of the occurrence of any Flip-in Event, provided that both
of the following conditions are satisfied:
(i) the Board of Directors has determined within ten Trading Days
following a Stock Acquisition Date that a Person became an
Acquiring Person by inadvertence and without any intention to
become, or knowledge that it would become, an Acquiring Person
under this Agreement, and
(ii) such Person has reduced its Beneficial Ownership of Voting
Shares such that at the time of granting the waiver pursuant
to this Subsection 5.1(d), such Person is no longer an
Acquiring Person and in the event that such a waiver is
granted by the Board of Directors, such Stock Acquisition Date
and Flip- in Event shall be deemed not to have occurred and
the Separation Time shall be deemed not to have occurred as a
result of such Person having inadvertently become an Acquiring
Person.
(e) The Board of Directors, shall, without further formality, be deemed
to have elected to redeem the Rights at the Redemption Price on the
date that a Person which has made a Permitted Bid, a Competing
Permitted Bid, a Take-Over Bid in respect of which the Board of
Directors has waived, or is deemed to have waived, pursuant to
Section 5.1(c) the application of Section 3.1, takes up and pays for
Voting Shares pursuant to the terms and conditions of such Permitted
Bid, Competing Permitted Bid or Take-over bid, as the case may be.
(f) Where a Take-over Bid that is not a Permitted Bid Acquisition is
withdrawn or otherwise terminated after the Separation Time has
occurred and prior to the occurrence of a Flip-in Event, the Board
of Directors may elect to redeem all the outstanding Rights at the
Redemption Price. Upon the Rights being redeemed pursuant to this
Subsection 5.1(f), all the provisions of this Agreement shall
continue to apply as if the Separation Time had not occurred and
Rights Certificates representing the number of Rights held by each
holder of record of Common Shares as of the Separation Time had not
been mailed to each such holder and for all purposes of this
Agreement the Separation Time shall be deemed not to have occurred.
(g) If the Board of Directors elects or is deemed to have elected to
redeem the Rights, and, in circumstances in which Subsection 5.1(a)
is applicable, such redemption is approved by the holders of Voting
Shares or the holders of Rights in accordance with Subsection 5.1(i)
or (j), as the case may be, the right to exercise the Rights, will
thereupon, without further action and without notice, terminate and
the only right thereafter of the holders of Rights shall be to
receive the Redemption Price.
(h) Within 10 Business Days after the Board of Directors elects or is
deemed to elect, to redeem the Rights or if Subsection 5.1(a) is
applicable within 10 Business Days after the holders of Common
Shares of the holders of Rights have approved a redemption of Rights
in accordance with Section 5.1(i) or (j), as the case may be, the
Corporation shall give notice of redemption to the holders of the
then outstanding Rights by mailing such notice to each such holder
at his last address as it appears upon the registry books of the
Rights Agent or, prior to the Separation Time, on the registry books
of the transfer agent for the Voting Shares. Any notice which is
mailed in the manner herein provided shall be deemed given, whether
or not the holder receives the notice. Each such notice of
redemption will state the method by which the payment of the
Redemption Price will be made. The Corporation may not redeem,
acquire or purchase for value any Rights at any time in any manner
other than specifically set forth in this Section 5.1 or in
connection with the purchase of Common Shares prior to the
Separation Time.
(i) If a redemption of Rights pursuant to Section 5.1(a) or a waiver of
a Flip-in Event pursuant to Section 5.1(b) is proposed at any time
prior to the Separation Time, such redemption or waiver shall be
submitted for approval to the holders of Voting Shares. Such
approval shall be deemed to have been given if the redemption or
waiver is approved by the affirmative vote of a majority of the
votes cast by Independent Shareholders represented in person or by
proxy at a meeting of such holders duly held in accordance with
applicable laws and the Corporation's by-laws.
(j) If a redemption of Rights pursuant to Section 5.1(a) is proposed at
any time after the Separation Time, such redemption shall be
submitted for approval to the holders of Rights. Such approval shall
be deemed to have been given if the redemption is approved by
holders of Rights by a majority of the votes cast by the holders of
Rights represented in
ANNEX IV-22
<PAGE> 185
person or by proxy at and entitled to vote at a meeting of such
holders. For the purposes hereof, each outstanding Right (other than
Rights which are Beneficially Owned by any Person referred to in
clauses (i) to (v) inclusive of the definition of Independent
Shareholders) shall be entitled to one vote, and the procedures for
the calling, holding and conduct of the meeting shall be those, as
nearly as may be, which are provided in the Corporation's by-laws
and the YUKON Business Corporations Act with respect to meetings of
shareholders of the Corporation.
5.2 Expiration
No Person shall have any rights whatsoever pursuant to this Agreement or
in respect of any Right after the Expiration Time, except the Rights Agent as
specified in Subsection 4.1 of this Agreement.
5.3 Issuance of New Rights Certificates
Notwithstanding any of the provisions of this Agreement or the Rights to
the contrary, the Corporation may, at its option, issue new Rights Certificates
evidencing Rights in such form as may be approved by the Board of Directors to
reflect any adjustment or change in the number or kind or class of securities
purchasable upon exercise of Rights made in accordance with the provisions of
this Agreement.
5.4 Supplements and Amendments
(a) The Corporation may make amendments to this Agreement to correct any
clerical or typographical error or which are required to maintain
the validity of this Agreement as a result of any change in any
applicable legislation or regulations thereunder. The Corporation
may, prior to the date of the shareholders' meeting referred to in
Section 5.15, supplement, amend, vary, rescind or delete any of the
provisions of this Agreement and the Rights (whether or not such
action would materially adversely affect the interests of the
holders of the Rights generally) without the approval of any holders
of Rights or Voting Shares in order to make any changes which the
Board of Directors acting in good faith may deem necessary or
desirable. Notwithstanding anything in this Section 5.4 to the
contrary, no such supplement or amendment shall be made to the
provisions of Article 4 or to the rights, duties, obligations or
indemnities of the Rights Agent, except with the written concurrence
of the Rights Agent to such supplement or amendment.
(b) Subject to Subsection 5.4(a), the Corporation may, with the prior
consent of the holders of Voting Shares obtained as set forth below,
at any time before the Separation Time, supplement, amend, vary,
rescind or delete any of the provisions of this Agreement and the
Rights (whether or not such action would materially adversely affect
the interests of the holders of Rights generally). Such consent
shall be deemed to have been given if the action requiring such
approval is authorized by the affirmative vote of a majority of the
votes cast by Independent Shareholders present or represented at and
entitled to be voted at a meeting of the holders of Voting Shares
duly called and held in compliance with applicable laws and the
articles and by-laws of the Corporation.
(c) Subject to subsection 5.4(a), the Corporation may, with the prior
consent of the holders of Rights, at any time on or after the
Separation Time, supplement, amend, vary, rescind or delete any of
the provisions of this Agreement and the Rights (whether or not such
action would materially adversely affect the interests of the
holders of Rights generally), provided that no such amendment,
variation or deletion shall be made to the provisions of Article 4
or to the rights, duties, obligations or indemnities of the Rights
Agent, except with the written concurrence of the Rights Agent
thereto.
(d) Any approval of the holders of Rights shall be deemed to have been
given if the action requiring such approval is authorized by the
affirmative votes of the holders of Rights present or represented at
and entitled to be voted at a meeting of the holders of Rights and
representing a majority of the votes cast in respect thereof. For
the purposes hereof, each outstanding Right (other than Rights which
are void pursuant to the provisions hereof) shall be entitled to one
vote, and the procedures for the calling, holding and conduct of the
meeting shall be those, as nearly as may be, which are provided in
the Corporation's by-laws and the YUKON Business Corporations Act
with respect to meetings of shareholders of the Corporation.
(e) Any amendments made by the Corporation to this Agreement pursuant to
Subsection 5.4(a) which are required to maintain the validity of
this Agreement as a result of any change in any applicable
legislation or regulation thereunder shall:
ANNEX IV-23
<PAGE> 186
(i) if made before the Separation Time, be submitted to the
shareholders of the Corporation at the next meeting of
shareholders and the shareholders may, by the majority
referred to in Subsection 5.4(b), confirm or reject such
amendment;
(ii) if made after the Separation Time, be submitted to the holders
of Rights at a meeting to be called for on a date not later
than immediately following the next meeting of shareholders of
the Corporation and the holders of Rights may, by resolution
passed by the majority referred to in Subsection 5.4(d),
confirm or reject such amendment.
Any such amendment shall be effective from the date of the
resolution of the Board of Directors adopting such amendment, until
it is confirmed or rejected or until it ceases to be effective (as
described in the next sentence) and, where such amendment is
confirmed, it continues in effect in the form so confirmed. If such
amendment is rejected by the shareholders or the holders of Rights
or is not submitted to the shareholders or holders of Rights as
required, then such amendment shall cease to be effective from and
after the termination of the meeting (or any adjournment of such
meeting) at which it was rejected or to which it should have been
but was not submitted or from and after the date of the meeting of
holders of Rights that should have been but was not held, and no
subsequent resolution of the Board of Directors to amend this
Agreement to substantially the same effect shall be effective until
confirmed by the shareholders or holders of Rights as the case may
be.
5.5 Fractional Rights and Fractional Shares
(a) The Corporation shall not be required to issue fractions of Rights
or to distribute Rights Certificates which evidence fractional
Rights. After the Separation Time, in lieu of issuing fractional
Rights, the Corporation shall pay to the holders of record of the
Rights Certificates (provided the Rights represented by such Rights
Certificates are not void pursuant to the provisions of Subsection
3.1(b), at the time such fractional Rights would otherwise be
issuable), an amount in cash equal to the fraction of the Market
Price of one whole Right that the fraction of a Right that would
otherwise be issuable is of one whole Right.
(b) The Corporation shall not be required to issue fractions of CLASS A
Shares upon exercise of Rights or to distribute certificates which
evidence fractional CLASS A Shares. In lieu of issuing fractional
CLASS A Shares, the Corporation shall pay to the registered holders
of Rights Certificates, at the time such Rights are exercised as
herein provided, an amount in cash equal to the fraction of the
Market Price of one CLASS A Share that the fraction of a CLASS A
Share that would otherwise be issuable upon the exercise of such
Right is of one whole CLASS A Share at the date of such exercise.
5.6 Rights of Action
Subject to the terms of this Agreement, all rights of action in respect of
this Agreement, other than rights of action vested solely in the Rights Agent,
are vested in the respective holders of the Rights. Any holder of Rights,
without the consent of the Rights Agent or of the holder of any other Rights,
may, on such holder's own behalf and for such holder's own benefit and the
benefit of other holders of Rights, as the case may be, enforce, and may
institute and maintain any suit, action or proceeding against the Corporation to
enforce such holder's right to exercise such holder's Rights, or Rights to which
he is entitled, in the manner provided in such holder's Rights Certificate and
in this Agreement. Without limiting the foregoing or any remedies available to
the holders of Rights, as the case may be, it is specifically acknowledged that
the holders of Rights would not have an adequate remedy at law for any breach of
this Agreement and will be entitled to specific performance of the obligations
under, and injunctive relief against actual or threatened violations of the
obligations of any Person subject to, this Agreement.
5.7 Regulatory Approvals
Any obligation of the Corporation or action or event contemplated by this
Agreement shall be subject to the receipt of any requisite approval or consent
from any governmental or regulatory authority, including without limiting the
generality of the foregoing, any necessary approvals of The Toronto Stock
Exchange and the NASDAQ Small-Cap Market or any other applicable stock exchange
or market.
5.8 Notice of Proposed Actions
In case the Corporation shall propose after the Separation Time and prior
to the Expiration Time:
ANNEX IV-24
<PAGE> 187
(a) to effect or permit (in cases where the Corporation's permission is
required) any Flip-in Event; or
(b) to effect the liquidation, dissolution or winding up of the
Corporation or the sale of all or substantially all of the
Corporation's assets, then, in each such case, the Corporation shall
give to each holder of a Right, in accordance with Section 5.9
hereof, a notice of such proposed action, which shall specify the
date on which such Flip-in Event, liquidation, dissolution, winding
up or sale is to take place, and such notice shall be so given at
least 10 Business Days prior to the date of taking of such proposed
action by the Corporation.
5.9 Notices
(a) Notices or demands authorized or required by this Agreement to be
given or made by the Rights Agent or by the holder of any Rights to
or on the Corporation shall be sufficiently given or made if
delivered, sent by registered or certified mail, postage prepaid
(until another address is filed in writing with the Rights Agent),
or sent by facsimile or other form of recorded electronic
communication, charges prepaid and confirmed in writing, as follows:
Gold Reserve INC.
1940 Seafirst Financial Center
West 601 Riverside
Spokane, Washington 99201
Attention: President
Telecopy No.: (509) 623-1634
(b) Notices or demands authorized or required by this Agreement to be
given or made by the Corporation or by the holder of any Rights to
or on the Rights Agent shall be sufficiently given or made if
delivered, sent by registered or certified mail, postage prepaid
(until another address is filed in writing with the Corporation), or
sent by facsimile or other form of recorded electronic
communication, charges prepaid and confirmed in writing, as follows:
Montreal Trust Company of Canada
151 Front Street
8th Floor
Toronto, Ontario M5J 2N1
Attention: Manager, Client Services
Telecopy No.: (416) 981-9800
(c) Notices or demands authorized or required by this Agreement to be
given or made by the Corporation or the Rights Agent to or on the
holder of any Rights shall be sufficiently given or made if
delivered or sent by first class mail, postage prepaid, addressed to
such holder at the address of such holder as it appears upon the
register of the Rights Agent or, prior to the Separation Time, on
the register of the Corporation for its Common Shares. Any notice
which is mailed or sent in the manner herein provided shall be
deemed given, whether or not the holder receives the notice.
(d) Any notice given or made in accordance with this Section 5.9 shall
be deemed to have been given and to have been received on the day of
delivery, if so delivered, on the third Business Day (excluding each
day during which there exists any general interruption of postal
service due to strike, lockout or other cause) following the mailing
thereof, if so mailed, and on the day of telegraphing, telecopying
or sending of the same by other means of recorded electronic
communication (provided such sending is during the normal business
hours of the addressee on a Business Day and if not, on the first
Business Day thereafter). Each of the Corporation and the Rights
Agent may from time to time change its address for notice by notice
to the other given in the manner aforesaid.
5.10 Costs of Enforcement
The Corporation agrees that if the Corporation fails to fulfil any of its
obligations pursuant to this Agreement, then the Corporation will reimburse the
holder of any Rights for the costs and expenses (including legal fees) incurred
by such holder to enforce his rights pursuant to any Rights or this Agreement.
ANNEX IV-25
<PAGE> 188
5.11 Successors
All the covenants and provisions of this Agreement by or for the benefit
of the Corporation or the Rights Agent shall bind and enure to the benefit of
their respective successors and assigns hereunder.
5.12 Benefits of this Agreement
Nothing in this Agreement shall be construed to give to any Person other
than the Corporation, the Rights Agent and the holders of the Rights any legal
or equitable right, remedy or claim under this Agreement; further, this
Agreement shall be for the sole and exclusive benefit of the Corporation, the
Rights Agent and the holders of the Rights.
5.13 Governing Law
This Agreement and each Right issued hereunder shall be deemed to be a
contract made under the laws of the Province of Ontario and for all purposes
shall be governed by and construed in accordance with the laws of such Province
applicable to contracts to be made and performed entirely within such Province.
5.14 Severability
If any term or provision hereof or the application thereof to any
circumstance shall, in any jurisdiction and to any extent, be invalid or
unenforceable, such term or provision shall be ineffective only as to such
jurisdiction and to the extent of such invalidity or unenforceability in such
jurisdiction without invalidating or rendering unenforceable or ineffective the
remaining terms and provisions hereof in such jurisdiction or the application of
such term or provision in any other jurisdiction or to circumstances other than
those as to which it is specifically held invalid or unenforceable.
5.15 Date Agreement Becomes Effective
This Agreement is effective and in full force and effect in accordance
with its terms from and after the EFFECTIVE TIME. At the first meeting FOLLOWING
THE AGREEMENT DATE of holders of VOTING SHARES of GOLD RESERVE Corporation HELD
TO APPROVE THE MERGER OF GOLD RESERVE Corporation WITH GR MERGER CORP., A
WHOLLY-OWNED SUBSIDIARY of the Corporation, AND TO APPROVE THE REORGANIZATION,
THE GOLD RESERVE CORPORATION SHAREHOLDERS SHALL BE REQUESTED TO CONFIRM THIS
AGREEMENT.
If, at such meeting (which meeting shall include, if the meeting is
adjourned one or more times, each reconvened meeting resulting from such
adjournment(s)), this Agreement is not confirmed by a majority of the votes cast
by holders of VOTING SHARES OF GOLD RESERVE CORPORATION held by Independent
Shareholders OF GOLD RESERVE CORPORATION who vote in respect of confirmation of
the Agreement at such meeting or the MERGER AND REORGANIZATION IS NOT APPROVED
in accordance with the applicable requirements of the Montana Business
Corporations Act, then this Agreement shall terminate and be void and of no
further force and effect on and from the close of business on the date of
termination of such meeting (which, in the case such meeting is adjourned one or
more times, means the termination of the last reconvened meeting resulting from
such adjournment(s)).
5.16 Reconfirmation
Notwithstanding the confirmation of this Agreement pursuant to Section
5.15 and the APPROVAL OF THE MERGER AND REORGANIZATION as contemplated by
Section 5.15, this Agreement must be reconfirmed by a resolution passed by a
majority of greater than 50 per cent of the votes cast by holders of Voting
Shares held by Independent Shareholders who vote in respect of such
reconfirmation at a meeting of holders of Voting Shares to be held not earlier
than April 2, 2000 and not later than the date on which the 2000 annual meeting
of holders of Voting Shares terminates. If the Agreement is not so reconfirmed,
the Agreement and all outstanding Rights shall terminate and be void and of no
further force and effect on and from the close of business on that date which is
the earlier of the date of termination of the meeting called to consider the
reconfirmation of this Agreement and the date of termination of the [2000]
annual meeting of holders of Voting Shares; provided, that termination shall not
occur if a Flip-in Event has occurred (other than a Flip-in Event which has been
ANNEX IV-26
<PAGE> 189
waived pursuant to Subsection 5.1(c) or (d) hereof), prior to the date upon
which this Agreement would otherwise terminate pursuant to this Section 5.16.
5.17 Determinations and Actions by the Board of Directors
The Board of Directors shall have the exclusive power and authority to
administer this Agreement and to exercise all rights and powers specifically
granted to the Board of Directors or the Corporation, or as may be necessary or
advisable in the administration of this Agreement. All such actions,
calculations and determinations (including all omissions with respect to the
foregoing) which are done or made by the Board of Directors, in good faith,
shall not subject the Board of Directors or any director of the Corporation to
any liability to the holders of the Rights.
5.18 Declaration as to Non-Canadian Holders
If in the opinion of the Board of Directors (who may rely upon the advice
of counsel) any action or event contemplated by this Agreement would require
compliance by the Corporation with the securities laws or comparable legislation
of a jurisdiction outside Canada, the Board of Directors acting in good faith
shall take such actions as it may deem appropriate to ensure such compliance. In
no event shall the Corporation or the Rights Agent be required to issue or
deliver Rights or securities issuable on exercise of Rights to persons who are
citizens, residents or nationals of any jurisdiction other than Canada or the
United States, in which such issue or delivery would be unlawful without
registration of the relevant Persons or securities for such purposes.
5.19 Time of the Essence
Time shall be of the essence in this Agreement.
5.20 Execution in Counterparts
This Agreement may be executed in any number of counterparts and each of
such counterparts shall for all purposes be deemed to be an original, and all
such counterparts shall together constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
GOLD RESERVE INC.
By: /s/ ROBERT A. MCGUINNESS
MONTREAL TRUST COMPANY OF CANADA
By: /s/ LEE WADDINGTON
By: /s/ DAN DISHY
ANNEX IV-27
<PAGE> 190
ATTACHMENT 1
GOLD RESERVE INC.
SHAREHOLDER RIGHTS PLAN AGREEMENT
[Form of Rights Certificate]
Certificate No. ______________________________________________________________
Rights ____________________________________________________________
THE RIGHTS ARE SUBJECT TO TERMINATION ON THE TERMS SET FORTH IN THE
SHAREHOLDER RIGHTS PLAN AGREEMENT. UNDER CERTAIN CIRCUMSTANCES (SPECIFIED IN
SUBSECTION 3.1(b) OF THE SHAREHOLDER RIGHTS PLAN AGREEMENT), RIGHTS BENEFICIALLY
OWNED BY AN ACQUIRING PERSON OR CERTAIN RELATED PARTIES, OR TRANSFEREES OF AN
ACQUIRING PERSON OR CERTAIN RELATED PARTIES, MAY BECOME VOID.
Rights Certificate
This certifies that_____________________________________________________
_______or registered assigns, is the registered holder of the number of Rights
set forth above, each of which entitles the registered holder thereof, subject
to the terms, provisions and conditions of the Shareholder Rights Plan
Agreement, dated as of OCTOBER 5, 1998, as the same may be amended or
supplemented from time to time (the "Shareholder Rights Agreement"), between
Gold Reserve INC., a corporation duly incorporated under the laws of THE YUKON
TERRITORY (the "Corporation") and Montreal Trust Company of Canada, a trust
company incorporated under the laws of Canada (the "Rights Agent") (which term
shall include any successor Rights Agent under the Shareholder Rights
Agreement), to purchase from the Corporation at any time after the Separation
Time (as such term is defined in the Shareholder Rights Agreement) and prior to
the Expiration Time (as such term is defined in the Shareholder Rights
Agreement), one fully paid CLASS A SHARE of the Corporation (a "CLASS A Share")
at the Exercise Price referred to below, upon presentation and surrender of this
Rights Certificate with the Form of Election to Exercise (in the form provided
hereinafter) duly executed and submitted to the Rights Agent at its principal
office in the City of Toronto [insert other cities, if applicable]. The Exercise
Price shall initially be $70.00 (Cdn.) or the U.S. Dollar Equivalent per Right
and shall be subject to adjustment in certain events as provided in the
Shareholder Rights Agreement.
This Rights Certificate is subject to all of the terms and provisions of
the Shareholder Rights Agreement, which terms and provisions are incorporated
herein by reference and made a part hereof and to which Shareholder Rights
Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities thereunder of the
Rights Agent, the Corporation and the holders of the Rights Certificates. Copies
of the Shareholder Rights Agreement are on file at the registered office of the
Corporation.
This Rights Certificate, with or without other Rights Certificates, upon
surrender at any of the offices of the Rights Agent designated for such purpose,
may be exchanged for another Rights Certificate or Rights Certificates of like
tenor and date evidencing an aggregate number of Rights equal to the aggregate
number of Rights evidenced by the Rights Certificate or Rights Certificates
surrendered. If this Rights Certificate shall be exercised in part, the
registered holder shall be entitled to receive, upon surrender hereof, another
Rights Certificate or Rights Certificates for the number of whole Rights not
exercised.
Subject to the provisions of the Shareholder Rights Agreement, the Rights
evidenced by this Rights Certificate may be, and under certain circumstances are
required to be, redeemed by the Corporation at a redemption price of $0.00001
per Right.
No fractional CLASS A Shares will be issued upon the exercise of any Right
or Rights evidenced hereby, but in lieu thereof a cash payment will be made, as
provided in the Shareholder Rights Agreement. No holder of this Rights
Certificate, as such, shall be entitled to vote or receive dividends or be
deemed for any purpose the holder of CLASS A Shares or of any other securities
which may at any time be issuable upon the exercise hereof, nor shall anything
contained in the Shareholder Rights Agreement or herein be construed to confer
upon the holder hereof, as such, any of the RIGHTS of a shareholder of the
Corporation or any right to vote for the election of directors or upon any
matter submitted to shareholders at any meeting thereof, or to give or withhold
consent to any corporate action, or to receive notice of meetings or other
actions
ANNEX IV-28
<PAGE> 191
affecting shareholders (except as provided in the Shareholder Rights Agreement),
or to receive dividends or subscription rights, or otherwise, until the Rights
evidenced by this Rights Certificate shall have been exercised as provided in
the Shareholder Rights Agreement.
This Rights Certificate shall not be valid or obligatory for any purpose
until it shall have been countersigned by the Rights Agent.
WITNESS the facsimile signature of the proper officers of the Corporation
and its corporate seal.
Date:
-----------------------------
GOLD RESERVE INC.
By: By:
-------------------------------- ---------------------------------
[President] [Corporate Secretary]
Countersigned:
MONTREAL TRUST COMPANY OF CANADA
By:
--------------------------------
Authorized Signature
ANNEX IV-29
<PAGE> 192
=======================================
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder desires to transfer the
Rights Certificate.)
FOR VALUE RECEIVED hereby sells, assigns and transfers unto
---------------------
(Please print name and address of transferee.)
the Rights represented by this Rights Certificate, together with all right,
title and interest therein, and does hereby irrevocably constitute and appoint
_______________________, as attorney, to transfer the within Rights on the books
of the Corporation, with full power of substitution.
Dated:
Signature
Signature Guaranteed:
(Signature must correspond to name as
written upon the face of this Rights Certificate in every particular, without
alteration or enlargement or any change whatsoever.)
Signature must be guaranteed by a member firm of a recognized stock exchange in
Canada, a registered national securities exchange in the United States, a member
of the Investment Dealers Association of Canada or National Association of
Securities Dealers, Inc. or a commercial bank or trust company having an office
or correspondent in Canada or the United States or a member of the Securities
Transfer Agent Medallion Program (STAMP).
- --------------------------------------------------------------------------------
CERTIFICATE
(To be completed if true.)
The undersigned party transferring Rights hereunder, hereby represents, for the
benefit of all holders of Rights and Class A Shares, that the Rights evidenced
by this Rights Certificate are not, and, to the knowledge of the undersigned,
have never been, Beneficially Owned by an Acquiring Person or an Affiliate or
Associate thereof or a Person acting jointly or in concert with any of the
foregoing. Capitalized terms shall have the meaning ascribed thereto in the
Shareholder Rights Agreement.
Signature
- --------------------------------------------------------------------------------
(To be attached to each Rights Certificate.)
ANNEX IV-30
<PAGE> 193
=======================================
FORM OF ELECTION TO EXERCISE
(To be executed by the registered holder if such holder desires to exercise the
Rights Certificate.)
TO:
The undersigned hereby irrevocably elects to exercise _____________ whole Rights
represented by the attached Rights Certificate to purchase the Class A Shares or
other securities, if applicable, issuable upon the exercise of such Rights and
requests that certificates for such securities be issued in the name of:
(Name)
(Address)
(City and Province)
Social Insurance Number or other taxpayer
identification number.
If such number of Rights shall not be all the Rights evidenced by this Rights
Certificate, a new Rights Certificate for the balance of such Rights shall be
registered in the name of and delivered to:
(Name)
(Address)
(City and Province)
Social Insurance Number or other taxpayer
identification number.
Dated:
Signature
Signature Guaranteed: (Signature must correspond to name as
written upon the face of this Rights Certificate in every particular, without
alteration or enlargement or any change whatsoever.)
Signature must be guaranteed by a member firm of a recognized stock exchange in
Canada, a registered national securities exchange in the United States, a member
of the Investment Dealers Association of Canada or National Association of
Securities Dealers, Inc. or a commercial bank or trust company having an office
or correspondent in Canada or the United States or a member of the Securities
Transfer Agent Medallion Program (STAMP).
Signature
- --------------------------------------------------------------------------------
(To be attached to each Rights Certificate.)
ANNEX IV-31
<PAGE> 194
=======================================
CERTIFICATE
(To be completed if true.)
The undersigned party exercising Rights hereunder, hereby represents, for the
benefit of all holders of Rights and Class A Shares, that the Rights evidenced
by this Rights Certificate are not, and, to the knowledge of the undersigned,
have never been, Beneficially Owned by an Acquiring Person or an Affiliate or
Associate thereof or a Person acting jointly or in concert with any of the
foregoing. Capitalized terms shall have the meaning ascribed thereto in the
Shareholder Rights Agreement.
Signature
- --------------------------------------------------------------------------------
(To be attached to each Rights Certificate.)
=======================================
NOTICE
In the event the certification set forth above in the Forms of Assignment and
Election is not completed, the Corporation will deem the Beneficial Owner of the
Rights evidenced by this Rights Certificate to be an Acquiring Person or an
Affiliate or Associate thereof. No Rights Certificates shall be issued in
exchange for a Rights Certificate owned or deemed to have been owned by an
Acquiring Person or an Affiliate or Associate thereof, or by a Person acting
jointly or in concert with an Acquiring Person or an Affiliate or Associate
thereof.
ANNEX IV-32
<PAGE> 195
WHERE YOU CAN FIND MORE INFORMATION
GR-Montana and GR-Canada have filed with the SEC a Registration Statement
to register the GR-Canada Class A Shares, the GR-Canada Class B common shares,
the GR-Montana Class B common stock and the unit shares offered hereby. This
Proxy Statement/Joint Prospectus is a part of that Registration Statement and
constitutes a U.S. prospectus for each of GR-Montana and GR-Canada in addition
to being a proxy statement of GR-Montana for the special meeting. As allowed by
SEC rules, this Proxy Statement/Joint Prospectus does not contain all of the
information that you can find in the Registration Statement and the exhibits to
the Registration Statement. In this regard, this Proxy Statement/Joint
Prospectus incorporates important business and financial information that we are
not including or delivering with the document. This information is available
upon written or oral request without charge to the shareholders of GR-Montana.
Please direct requests to Gold Reserve Corporation, 601 West Riverside Avenue,
Suite 1940, Spokane, Washington 99201, Attn: Secretary (telephone number (509)
623-1500). In order to ensure timely delivery of the documents in advance of the
special meeting, you should make your request no later than December 23, 1998,
five business days before the meeting.
GR-Montana files annual, quarterly and special reports, proxy statements
and other information with the SEC. You may read and copy any reports,
statements or other information filed by GR-Montana at the SEC's public
reference rooms in Washington, D.C. at 450 5th Street, Mail Stop 1-2, NW,
Washington, D.C. 20549, in New York, New York at 7 World Trade Center, Suite
1300, New York, New York 10048 and in Chicago, Illinois at Citicorp Center, 500
W. Madison Street, Suite 1400, Chicago, Illinois 60661. Please call the SEC at
1-800-SEC-0330 for further information on the public reference rooms. SEC
filings of GR-Montana are also available to the public from commercial document
retrieval services and on the website maintained by the SEC, which is found at
www.sec.gov. GR-Montana also maintains a website at www.goldrescorp.com.
Following the reorganization, GR-Montana and GR-Canada will file such reports
and other information as required by the SEC. Financial information in such
reports filed by GR-Canada will be prepared in accordance with Canadian
generally accepted accounting principles that are U.S. dollar-based and will
include a reconciliation of such information with U.S. generally accepted
accounting principles.
THIS PROXY STATEMENT/JOINT PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL,
OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES, OR THE SOLICITATION OF A
PROXY, IN ANY JURISDICTION TO OR FROM ANY PERSON TO WHOM IT IS NOT LAWFUL TO
MAKE ANY SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY
OF THIS PROXY STATEMENT/JOINT PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF GR-MONTANA OR GR-CANADA SINCE THE DATE HEREOF
OR THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
ENFORCEABILITY OF CIVIL LIABILITIES AGAINST FOREIGN PERSONS
GR-Canada is a Canadian company incorporated under the laws of the Yukon
Territory. Certain of its directors may be residents of jurisdictions outside of
the United States. All or a substantial portion of the assets of GR-Canada and
of such persons may be located outside of the Unites States. As a result, it may
be difficult for investors to effect service of process within the Unites States
upon such persons or to enforce in United States courts judgments obtained
against such persons and predicated upon the civil liability provisions of the
United States federal securities laws. GR-Canada has irrevocably agreed that it
may be served with process with respect to actions based on offers and sales of
securities made hereby in the United States by serving Rockne Timm, c/o Gold
Reserve Corporation, 601 West Riverside Avenue, Suite 1940, Spokane, Washington
99201, its United States agent appointed for that purpose. GR-Canada has been
advised by its Canadian counsel, Baker & McKenzie, that there is doubt as to
whether Canadian courts would (1) enforce judgments of Unites States courts
obtained in actions against such persons or GR-Canada that are predicated upon
the civil liability provisions of the Securities Act or (2) exercise
jurisdiction to hear original actions brought in Canada against such persons or
GR-Canada predicated upon the Securities Act. There is no treaty in effect
between the United States and Canada providing for such enforcement, and there
are grounds upon which Canadian courts may not enforce judgments of United
States courts. Certain remedies available under the United States federal
securities laws may not be allowed in Canadian courts as contrary public policy.
<PAGE> 196
PART II. INFORMATION NOT REQUIRED IN PROXY STATEMENT/JOINT PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
YUKON LAW
The only statutes, charter provisions, bylaws, contracts or other
arrangements under which a director or officer of GR-Canada is insured or
indemnified in any manner against liability which such officer or director may
incur in such capacity are Section 126 of the Yukon Business Corporations Act
and Sections 7.02 through 7.04 of the GR-Canada Bylaws. Taken together, the
statutory and bylaw provisions generally allow GR-Canada to indemnify its
directors or officers against liability and expenses provided the officer or
director seeking indemnity (1) was substantially successful on the merits in the
defense of the action or proceeding, (2) (a) acted honestly and in good faith
with a view to the best interest of GR-Canada and (b) in the case of a criminal
or administrative action or proceeding that is enforced by a monetary penalty,
the officer or director had reasonable grounds for believing the conduct was
lawful, and (3) is fairly and reasonably entitled to indemnity.
Section 126 of the Yukon Business Corporation Act is set forth in its
entirety as follows:
126.(1) Except in respect of an action by or on behalf of the
corporation or body corporate to procure a judgment in its favour, a
corporation may indemnify a director or officer of the corporation, a
former director or officer of the corporation or a person who acts or
acted at the corporation's request as a director or officer of a body
corporate of which the corporation is or was a shareholder or creditor,
and his heirs and legal representatives, against all costs, charges and
expenses, including an amount paid to settle an action or satisfy a
judgment, reasonably incurred by him in respect of any civil, criminal or
administrative action or proceeding to which he is made a party by reason
of being or having been a director or officer of that corporation or body
corporate, if
(a) he acted honestly and in good faith with a view to the
best interests of the corporation, and
(b) in the case of a criminal or administrative action or
proceeding that is enforced by a monetary penalty, he had
reasonable grounds for believing that his conduct was
lawful.
(2) A corporation may with the approval of the Supreme Court
indemnify a person referred to in subsection (1) in respect of an action
by or on behalf of the corporation or body corporate to procure a judgment
in its favour, to which he is made a party by reason of being or having
been a director or an officer of the corporation or body corporate,
against all costs, charges and expenses reasonably incurred by him in
connection with the action if he fulfils the conditions set out in
paragraphs (1)(a) and (b).
(3) Notwithstanding anything in this section, a person referred to
in subsection (1) is entitled to indemnity from the corporation in respect
of all costs, charges and expenses reasonably incurred by him in
connection with the defence of any civil, criminal or administrative
action or proceeding to which he is made a party by reason of being or
having been a director or officer of the corporation or body corporate, if
the person seeking indemnity
(a) was substantially successful on the merits in his defence
of the action or proceeding,
(b) fulfils the conditions set out in paragraphs (1)(a) and
(b), and
(c) is fairly and reasonably entitled to indemnity.
(4) A corporation may purchase and maintain insurance for the
benefit of any person referred to in subsection (1) against any liability
incurred by him
(a) in his capacity as a director or officer of the
corporation, except when the liability relates to his
failure to act honestly and in good faith with a view to
the best interests of the corporation, or
(b) in his capacity as a director or officer of another body
corporate if he acts or acted in that capacity at the
corporation's request, except when the liability relates
to his failure to act honestly and in good faith with a
view to the best interests of the body corporate.
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<PAGE> 197
(5) A corporation or a person referred to in subsection (1) may
apply to the Supreme Court for an order approving an indemnity under this
section and the Supreme Court may so order and make any further order it
thinks fit.
(6) On an application under subsection (5), the Supreme Court may
order notice to be given to any interested person and that person is
entitled to appear and be heard in person or by counsel.
Sections 7.02 through 7.04 of the GR-Canada Bylaws are set forth in their
entirety as follows:
7.02 Limitation of Liability
Subject to the [Yukon Business Corporations] Act, no director or
officer, or former director or officer, of the Corporation shall be liable
for the acts, receipts, neglects or defaults of any other director or
officer or employee, or for the joining in any receipt or act for
conformity, or for any loss or damage or expense happening to the
Corporation through the insufficiency or deficiency of title to any
property acquired by the Corporation or for or on behalf of the
Corporation or for the insufficiency or deficiency of any security in or
upon which any of the money of or belonging to the Corporation shall be
placed or invested, or for any loss or damage arising from the bankruptcy,
insolvency or tortious act of any person, firm or corporation including
any person, firm or corporation with whom or with which any moneys,
securities or effects shall be lodged or deposited, or for any loss,
conversion, misapplication or misappropriation of or any damage resulting
from any dealing with any moneys, securities or other assets of or
belonging to the Corporation or for any other loss, damage or misfortune
whatsoever which may happen in the execution of the duties of his
respective office or trust or in relation thereto unless the same shall
happen by or through his failure to exercise the powers and to discharge
the duties of his office honestly and in good faith with a view to the
best interest of the Corporation and to exercise the care, diligence and
skill that a reasonably prudent person would exercise in comparable
circumstances. Any repeal or modification of the foregoing provisions of
this paragraph 7.02 shall not adversely affect any limitation on the
personal liability of a director or officer of the Corporation arising
from an act or omission occurring prior to the time of such repeal or
amendment. In addition to the circumstances in which a director or officer
of the Corporation is not personally liable as set forth in the foregoing
provisions of this paragraph 7.02, a director or officer shall not be
liable to the Corporation or its shareholders to such further extent as
permitted by any law hereafter enacted, including, without limitation, any
subsequent amendment to the Act.
7.03 Indemnity
Subject to the [Yukon Business Corporations] Act, the Corporation
shall indemnify a director or officer, a former director or officer, and a
person who acts or acted at the Corporation's request as a director or
officer of a body corporate of which the Corporation is or was a
shareholder or creditor, and his heirs and legal representatives, against
all costs, charges and expenses, including any amount paid to settle an
action or satisfy a judgement, reasonably incurred by him in respect of
any civil, criminal or administrative action or proceeding to which he is
made a party by reason of being or having been a director or officer of
the Corporation or such body corporate, if:
(a) he acted honestly and in good faith with a view to the
best interests of the Corporation; and
(b) in the case of a criminal or administrative action or
proceeding that is enforced by a monetary penalty, he had
reasonable grounds for believing his conduct was lawful.
The Corporation shall indemnify the directors and officers of the
Corporation to the fullest extent permitted by law. The Corporation may
indemnify any employee or agent of the Corporation to the fullest extent
permitted by law. In addition to the circumstances in which a director or
officer of the Corporation is indemnified as set forth in the foregoing
provisions of this paragraph 7.03, a director or officer shall be
indemnified by the Corporation to such further extent as permitted by any
law hereafter enacted, including, without limitation, any subsequent
amendment to the Act.
7.04 Insurance
The Corporation may, subject to and in accordance with the [Yukon
Business Corporations] Act, purchase and maintain insurance for the
benefit of any director or officer, or former director or officer,
of the Corporation as such against any liability incurred by him. The
Corporation may provide such insurance
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<PAGE> 198
to directors and officers regardless of whether such directors and
officers are indemnified pursuant to paragraph 7.03 above.
MONTANA LAW
The only statutes, charter provisions, bylaws, contracts or other
arrangements under which a controlling person, director or officer of GR-Montana
is insured or indemnified in any manner against liability which he may incur in
his capacity as such are Sections 35-1-451 through 31-1-459 of the Montana
Business Corporation Act and Article 7 of GR-Montana's Bylaws. Taken together,
these statutory and bylaw provisions generally allow GR-Montana to indemnify its
directors and officers against liability, and to advance the costs of defending
any such person against liability, provided (1) such indemnification or
advancement of expenses is authorized by the vote of those directors who are not
parties to the proceeding upon which such liability is predicated (or, in
certain instances, by alternate disinterested means), (2) the director or
officer was acting, on behalf of GR-Montana in his official capacity as a
director or officer and (3) such director or officer conducted himself in good
faith and believed his conduct was in, or not opposed to, the best interests of
GR-Montana (or in the case of any criminal proceeding, that he had no reasonable
cause to believe his conduct was unlawful. GR-Montana may not indemnify a
director or officer, however, if such director or officer is adjudged liable to
GR-Montana, or if the director or officer is adjudged to have derived an
improper personal benefit.
Indemnification permitted by these provisions is limited to reasonable
expenses incurred in connection with the proceeding upon which liability is
predicated, which includes the amount of any such liability actually imposed.
Sections 35-1-451 through 35-1-459 of the Montana Business Corporation Act
are set forth in their entirety as follows:
35-1-451. Definitions. As used in 35-1-451 through 35-1-459, the following
definitions apply:
(1) "Corporation" includes any domestic or foreign predecessor entity of
a corporation in a merger or other transaction in which the
predecessor's existence ceased upon consummation of the transaction.
(2)(a) "Director" means an individual who is or was a director of a
corporation or an individual who, while a director of a
corporation, is or was serving at the corporation's request as
a director, officer, partner, trustee, employee, or agent of
another foreign or domestic corporation, partnership, joint
venture, trust, employee benefit plan, or other enterprise. A
director is considered to be serving an employee benefit plan
at the corporation's request if the director's duties to the
corporation include duties or services by him to the plan or
to participants in or beneficiaries of the plan.
(2)(b) Director includes, unless the context requires otherwise, the
estate or personal representative of a director.
(3) "Expenses" include attorney fees.
(4) "Liability" means the obligation to pay a judgment, settlement,
penalty, or fine, including an excise tax assessed with respect to
an employee benefit plan, or to pay reasonable expenses incurred
with respect to a proceeding.
(5)(a) "Official capacity" means: (i) when used with respect to a
director, the office of director in a corporation; or (ii)
when used with respect to an individual other than a director,
as contemplated in 35-1-457, the office in a corporation held
by the officer or the employment or agency relationship
undertaken by the employee or agent on behalf of the
corporation.
(5)(b) Official capacity does not include service for any other
foreign or domestic corporation or any partnership, joint
venture, trust, employee benefit plan, or other enterprise.
(6) "Party" includes an individual who was, is, or is threatened to be
made a named defendant or respondent in a proceeding.
(7) "Proceeding" means any threatened, pending, or completed action,
suit, or proceeding, whether civil, criminal, administrative, or
investigative and whether formal or informal.
35-1-452. Authority to indemnify.
(1) Except as provided in subsection (4), an individual made a party to
a proceeding because he is or was a director may be indemnified
against liability incurred in the proceeding if: (a) he conducted
himself in good faith; (b) he reasonably
II-3
<PAGE> 199
believed: (i) in the case of conduct in his official capacity with
the corporation, that his conduct was in the corporation's best
interests; and (ii) in all other cases, that his conduct was at
least not opposed to the corporation's best interests; and (c) in
the case of any criminal proceeding, he had no reasonable cause to
believe his conduct was unlawful.
(2) A director's conduct with respect to an employee benefit plan for a
purpose the director reasonably believed to be in the interests of
the participants in and beneficiaries of the plan is conduct that
satisfies the requirement of subsection (1)(b)(ii).
(3) The termination of a proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contenders or its equivalent is
not, of itself, determination that the director did not meet the
standard of conduct described in this section.
(4) A corporation may not indemnify a director under this section: (a)
in connection with a proceeding by or in the right of the
corporation in which the director was adjudged liable to the
corporation; or (b) in connection with any other proceeding charging
improper personal benefit to the director, whether or not involving
action in the director's official capacity, in which the director
was adjudged liable on the basis that personal benefit was
improperly received by the director.
(5) Indemnification permitted under this section in connection with a
proceeding by or in the right of the corporation is limited to
reasonable expenses incurred in connection with the proceeding.
35-1-453. Mandatory indemnification. Unless limited by its articles of
incorporation, a corporation shall indemnify a director who was
wholly successful, on the merits or otherwise, in the defense of
any proceeding to which the director was a party because he is or
was a director of the corporation, against reasonable expenses
incurred by the director in connection with the proceeding.
35-1-454. Advance for expenses.
(1) A corporation may pay for or reimburse the reasonable expenses
incurred by a director who is a party to a proceeding in advance of
final disposition of the proceeding if: (a) the director furnishes
the corporation a written affirmation of the director's good faith
belief that the director has met the standard of conduct described
in 35-1-452; (b) the director furnishes the corporation a written
undertaking, executed personally or on the director's behalf, to
repay the advance if it is ultimately determined that the director
did not meet the standard of conduct described in 35-1-452; and (c)
a determination is made that the facts then known to those making
the determination would not preclude indemnification under 35-1-451
through 35-1-459.
(2) The undertaking required by subsection (1)(b) must be an unlimited
general obligation of the director but need not be secured and may
be accepted without reference to financial ability to make
repayment.
(3) Determinations and authorizations of payments under this section
must be made in the manner specified in 35-1-456.
35-1-455. Court-ordered indemnification. Unless a corporation's articles of
incorporation provide otherwise, a director of the corporation
who is a party to a proceeding may apply for indemnification to
the court conducting the proceeding or to another court of
competent jurisdiction. On receipt of an application, the court,
after giving any notice the court considers necessary, may order
indemnification if it determines that the director: (1) is
entitled to mandatory indemnification under 35-1-453, in which
case the court shall also order the corporation to pay the
director's reasonable expenses incurred in obtaining
court-ordered indemnification; or (2) is fairly and reasonably
entitled to indemnification in view of all the relevant
circumstances, whether or not the director met the standard of
conduct set forth in 35-1-452 or was adjudged liable as described
in 35-1-454(2). If the director %vas adjudged liable as described
in 35-1-452(4), the director's indemnification is limited to
reasonable expenses incurred.
35-1-456. Determination and authorization of indemnification.
(1) A corporation may not indemnify a director under 35-1-452 unless
authorized in the specific case after a determination has been made
that indemnification of the director is permissible in the
circumstances because the director has met the standard of conduct
set forth in 35-1-452.
(2) The determination must be made: (a) by the board of directors by
majority vote of a quorum consisting of directors not at the time
parties to the proceeding; (b) if a quorum cannot be obtained under
subsection (2)(a), by majority vote of a committee designated by the
board of directors, in which designated directors who are parties
may participate, consisting solely of two or more directors not at
the time parties to the proceeding; (c) by special legal counsel:
(i)
II-4
<PAGE> 200
selected by the board of directors or its committee in the manner
prescribed in subsection (2)(a) or (2)(b); or (ii) if a quorum of
the board of directors cannot be obtained under subsection (2)(a)
and a committee cannot be designated under subsection (2)(b),
selected by a majority vote of the full board of directors in which
selected directors who are parties may participate; or (d) by the
shareholders, but shares owned by or voted under the control of
directors who are at the time parties to the proceeding may not be
voted on the determination.
(3) Authorization of indemnification and evaluation as to reasonableness
of expenses must be made in the same manner as the determination
that indemnification is permissible, except that if the
determination is made by special legal counsel, authorization of
indemnification and evaluation as to reasonableness of expenses must
be made by those entitled under subsection (2)(c) to select counsel.
35-1-457. Indemnification of officers, employees, and agents. Unless a
corporation's articles of incorporation provide otherwise:
(1) an officer of the corporation who is not a director is entitled to
mandatory indemnification under 35-1-453 and is entitled to apply
for court-ordered indemnification under 35-1-455 to the same extent
as a director;
(2) the corporation may indemnify and advance expenses under 35-1-451
through 35-1-459 to an officer, employee or agent of the corporation
who is not a director to the same extent as to a director; and
(3) a corporation may also indemnify and advance expenses to an officer,
employee, or agent who is not a director to the extent, consistent
with public policy, that may be provided by its articles of
incorporation, bylaws, general or specific action of its board of
directors, or contract.
35-1-458. Insurance. A corporation may purchase and maintain insurance on
behalf of an individual who is or was a director, officer,
employee, or agent of the corporation or who, while a director,
officer, employee, or agent of the corporation, is or was serving
at the request of the corporation as a director, officer,
partner, trustee, employee, or agent of another foreign or
domestic corporation, partnership, joint venture, trust, employee
benefit plan, or other enterprise, against liability asserted
against or incurred by him in that capacity or arising from his
status as a director, officer, employee, or agent, whether not
the corporation would have power to indemnify him against the
same liability under 35-1-452 or 35-1-453.
35-1-459. Application
(1) A provision treating a corporation's indemnification of or advance
for expenses to directors that is contained in its articles of
incorporation, its bylaws, a resolution of its shareholders or board
of directors, a contract, or other instrument is valid only if and
to the extent the provision is consistent with 35-1-451 through
35-1-459. It articles of incorporation limit indemnification or
advance for expenses, indemnification and advance for expenses are
valid only to the extent consistent with the articles of
incorporation.
(2) Sections 35-1-451 through 45-1-459 do not limit a corporation's
power to pay or reimburse expenses incurred by a director in
connection with the director's appearance as a witness in a
proceeding at a time when the director has not been made a named
defendant or respondent to the proceeding.
Article 7 of GR-Montana's Bylaws is set forth in its entirety as follows:
INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES, AND OTHER AGENTS
7.1 Directors and Officers. The corporation shall indemnify its directors and
officers to the fullest extent permitted by the Montana Business
Corporation Act, as the same exists or may hereafter be amended (but, in
the case of alleged occurrences of actions or omissions preceding any such
amendment, only to the extent that such amendment permits the corporation
to provide broader indemnification rights than the Montana Business
Corporation Act permitted the corporation to provide prior to such
amendment).
7.2 Employees and Other Agents. The corporation shall have power to indemnify
its employees and other agents as set forth in the Montana Business
Corporation Act.
7.3 No Presumption of Bad Faith. The termination of any proceeding by
judgment, order, settlement, conviction or upon a plea of nolo contenders
or its equivalent shall not, of itself, create a presumption that the
person did not act in good faith and in a manner which the person
reasonably believed, in the case of conduct in the person's official
capacity, the person's
II-5
<PAGE> 201
conduct was in the corporation's best interests and in all other cases,
the person's conduct was at least not opposed to the corporation's best
interests, and with respect to any criminal proceeding, that the person
had reasonable cause to believe that the conduct was lawful.
7.4 Advances of Expenses. The expenses incurred by a director or officer in
any proceeding shall be paid by the corporation iii advance at the written
request of the director or officer, if the director or officer:
A. furnishes the corporation a written affirmation of such person's
good faith belief that such person is entitled to be indemnified by
the corporation; and
B. furnishes the corporation a written undertaking to repay such
advance to the extent that it is ultimately determined by a court
that such person is not entitled to be indemnified by the expenses
and without regard to the person's ultimate entitlement to
indemnification under this bylaw or otherwise.
7.5 Enforcement. Without the necessity of entering into an express contract,
all rights to indemnification and advances under this bylaw shall be
deemed to be contractual rights and be effective to the same extent and as
if provided for in a contract between the corporation and the director or
officer who serves in such capacity at any time while this bylaw and
relevant provisions of the Montana Business Corporation Act and other
applicable law, if any, are in effect. Any right to indemnification or
advances granted by this bylaw to a director or officer shall be
enforceable by or on behalf of the person holding such right in any court
of competent jurisdiction if (a) the claim for indemnification or advances
is denied, in whole or in part, or (b) no disposition of such claim is
made within ninety days of request therefor. The claimant in such
enforcement action, if successful in whole or in part, shall be entitled
to be paid also the expense of prosecuting a claim. It shall be a defense
to any such action (other than an action brought to enforce a claim for
expenses incurred in connection with any proceeding in advance of its
final disposition when the required affirmation and undertaking have been
tendered to the corporation) that the claimant has not met the standards
of conduct which make it permissible under the Montana Business
Corporation Act for the corporation to indemnify the claimant for the
amount claimed, but the burden of proving such defense shall be on the
corporation. Neither the failure of the corporation (including its board
of directors, independent legal counsel or its shareholders) to have made
a determination prior to the commencement of such action that
indemnification of the claimant is proper in the circumstances because the
claimant has met the applicable standard of conduct set forth in the
Montana Business Corporation Act, nor an actual determination by the
corporation (including its board of directors, independent legal counsel
or its shareholders) that the claimant has not met such applicable
standard of conduct, shall be a defense to the action or create a
presumption that the claimant has not met the applicable standard of
conduct.
7.6 Non-Exclusivity of Rights. The rights conferred on any person by this
bylaw shall not be exclusive of any other right which such person may have
or hereafter acquire under any statute, provision of the articles of
incorporation, bylaws, agreement, vote of shareholders or disinterested
directors or otherwise, both as to action in the person's official
capacity and as to action in another capacity while holding office. The
corporation is specifically authorized to enter into individual contracts
with any or all of its directors, officers, employees or agents respecting
indemnification and advances, to the fullest extent permitted by the law.
7.7 Survival of Rights. The rights conferred on any person by this bylaw shall
continue as to a person who has ceased to be a director, officer, employee
or other agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
7.8 Insurance. To the fullest extent permitted by the Montana Business
Corporation Act, the corporation, upon approval by the board of directors,
may purchase insurance on behalf of any person required or permitted to be
indemnified pursuant to this bylaw.
7.9 Amendments. Any repeal of this bylaw shall only be prospective and no
repeal or modification hereof shall adversely affect the rights under this
bylaw in effect at the time of the alleged occurrence of any action or
omission to act that is the cause of any proceeding against any agent of
the corporation.
7.10 Savings Clause. If this bylaw or any portion hereof shall be invalidated
on any ground by any court of competent jurisdiction, the corporation
shall indemnify each director, officer or other agent to the fullest
extent permitted by any applicable portion of this bylaw that shall not
have been invalidated, or by any other applicable law.
7.11 Certain Definitions. For the purposes of this bylaw, the following
definitions shall apply:
A. "corporation" shall include any domestic or foreign predecessor
entity of a corporation in a merger or other transaction in which
the predecessor's existence ceased upon consummation of the
transaction, and any domestic or foreign subsidiary corporation.
II-6
<PAGE> 202
B. "director" shall mean an individual who is or was a director of a
corporation or an individual who, while a director of a corporation,
is or was serving at the corporation's request as a director,
officer, partner, trustee, employee, or agent of another foreign or
domestic corporation, partnership, joint venture, trust, employee
benefit plan, or other enterprise. A director is considered to be
serving an employee benefit plan at the corporation's request if the
director's duties to the corporation also impose duties on, or
otherwise involve services by, the director to the plan or to
participants in or beneficiaries of the plan. "Director" includes,
unless the context requires otherwise, the estate or personal
representative of a director.
C. "expenses" shall include counsel fees.
D. "official capacity" shall mean: when used in regard to a director,
the office of director in a corporation or to an individual other
than a director, as contemplated in the Montana Business Corporation
Act, the office in a corporation held by the officer or the
employment or agency relationship undertaken by the employee or
agent on behalf of the corporation. "Official capacity" does not
include service for any other foreign or domestic corporation or any
partnership, joint venture, trust, employee benefit plan, or other
enterprise.
E. "proceeding" shall mean any threatened, pending, or completed
action, suit or proceeding, whether civil, criminal, administrative,
or investigative and whether formal or informal.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
2 -- Agreement and Plan of Merger, dated as of October 5, 1998, by and
among GR-Montana, GR-Canada and Merger Sub (incorporated by
reference to Annex I to the Proxy Statement/Joint Prospectus
included as a part of this Registration Statement)
3.1* -- Restated Articles of Incorporation of GR-Canada, filed November 20,
1998
3.2* -- Bylaws of GR-Canada
3.3* -- Articles of Incorporation of GR-Montana, filed November 13, 1956
3.4* -- Certificate of Amendment to Articles of Incorporation of
GR-Montana, filed March 26, 1959
3.5* -- Certificate of Proceedings to Amend Articles of Incorporation of
GR-Montana, dated November 16, 1959
3.6* -- Articles of Amendment to Articles of Incorporation of GR-Montana,
dated September 4, 1973
3.7* -- Articles of Amendment to Articles of Incorporation of GR-Montana,
dated October 14, 1988
3.8* -- Articles of Amendment to Articles of Incorporation of GR-Montana,
dated June 21, 1993
3.9* -- Articles of Amendment to Articles of Incorporation of GR-Montana,
filed August 11, 1994
3.10* -- Articles of Amendment to Articles of Incorporation of GR-Montana,
filed June 16, 1997
3.11 -- Bylaws of GR-Montana, as amended March 4, 1993 (incorporated by
reference to Exhibit 3.2 to GR-Montana's Annual Report on Form 10-K
for the year ended December 31, 1992)
4.1* -- Exchange Agent Agreement by and among GR-Montana, GR-Canada,
TranSecurities International, Inc. and Holders of Unit Shares,
dated November 17, 1998
4.2 -- Rights Agreement, dated as of April 2, 1997, between GR-Montana and
Montreal Trust Company of Canada (incorporated by reference to
Schedule B to GR-Montana's Definitive Proxy Statement for
GR-Montana's Annual Meeting of Shareholders on June 5, 1997)
4.3* -- Rights Agreement, dated as of October 5, 1998, between GR-Canada
and Montreal Trust Company of Canada
4.4* -- Form of Certificate for the GR-Canada Class A Shares
4.5* -- Form of Certificate for the Unit Share (included in Exhibit 4.1)
5.1* -- Form of Opinion of Veale, Kilpatrick, Austring, Fendrick & Fairman
as to the validity of the GR-Canada Class A Shares and Class B
Shares
5.2* -- Form of Opinion of Church, Harris, Johnson & Williams, P.C. as to
the validity of the GR-Montana Class A and Class B Common Stock
8.1* -- Form of Opinion of Baker & McKenzie, Palo Alto, as to certain
United States tax matters
8.2* -- Form of Opinion of Baker & McKenzie, Toronto, as to certain
Canadian tax matters
10.1 -- Mining Operations Agreement, dated July 1, 1992, between Compania
Minera Bajo Caroni - Caromin, C.A. and Compania Minera Unicornio,
C.A. (incorporated by reference to Exhibit 10.29 to GR-Montana's
Annual Report on Form 10-K for the year ended December 31, 1992)
II-7
<PAGE> 203
<TABLE>
<S> <C>
10.2 -- Stock Purchase Agreement, dated August 1992, between Antonio Sosa
Aviles and Servicios Escriber S.R.L., and Stock Purchase Agreement,
dated November 26, 1992, between Servicios Escriber S.R.L. and Gold
Reserve de Venezuela (incorporated by reference to Exhibit 10.30 to
GR-Montana's Annual Report on Form 10-K for the year ended December
31, 1992)
10.3 -- License and Technical Assistance Agreement, dated September 1,
1992, between GR-Montana and Compania Minera Unicornio, C.A.
(incorporated by reference to Exhibit 10.31 to GR-Montana's Annual
Report on Form 10-K for the year ended December 31, 1992)
10.4 -- Credit Agreement, dated October 13, 1992, between GR-Montana and
Compania Aurifera Brisas del Cuyuni, C.A. (incorporated by
reference to Exhibit 10.32 to GR-Montana's Annual Report on Form
10-K for the year ended December 31, 1992)
10.5 -- Services Agreement, dated November 6, 1992, between GR-Montana and
A. Douglas Belanger (incorporated by reference to Exhibit 10.33 to
GR-Montana's Annual Report on Form 10-K for the year ended December
31, 1992)
10.6 -- Settlement Agreement, dated December 21, 1994, among GR-Montana,
Brisas, GLDR, Marwood International Ltd., TVX Gold, Inc.,
BlueGrotto Trading Limited and Inversiones 871010, C.A.
(incorporated by reference to GR- Montana's Current Report on Form
8-K, SEC File No. 011-08372) 21 -- Subsidiaries of GR-Montana
21* -- Subsidiaries of GR-Montana
23.1* -- Consent of Veale, Kilpatrick, Austring, Fendrick & Fairman
(included in Exhibit 5.1)
23.2* -- Consent of Church, Harris, Johnson & Williams, P.C. (included
in Exhibit 5.2)
23.3* -- Consent of Baker & McKenzie, Palo Alto (included in Exhibit 8.1)
23.4* -- Consent of Baker & McKenzie, Toronto (included in Exhibit 8.2)
23.5* -- Consent of PricewaterhouseCoopers LLP regarding GR-Montana
23.6* -- Consent of PricewaterhouseCoopers LLP regarding GR-Canada
23.7* -- Consent of RBC Dominion Securities Inc.
23.8* -- Consent of Behre Dolbear & Company, Inc.
23.9* -- Consent of Jacobs Engineering Group Inc.
24.1 -- Powers of Attorney (incorporated by reference to the signature
pages of the originally filed Registration Statement on Form S-4)
99.1 -- Form of Opinion of RBC Dominion Securities Inc. (incorporated by
reference to Annex II to the Proxy Statement/Joint Prospectus
included as part of this Registration Statement)
99.2* -- Equity Unit Election Form (included in Exhibit 4.1)
99.3* -- Proxy Solicitation Materials
99.4* -- Proxy Solicitation Materials
- ------------------------
* Previously filed
</TABLE>
(b) Financial Statements.
An index to the financial statements included in this Registration
Statement appears at page F-1. The financial statements themselves appear at
pages F-2 through F-21 of this Registration Statement.
ITEM 22. UNDERTAKINGS.
"The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended (the "Securities Act");
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the SEC pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and price
represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective registration statement.
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
II-8
<PAGE> 204
provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if the
registration statement is on Form S-3, Form S-8 or Form F-3, and the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
SEC by the registrant pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, that are incorporated by reference in
the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
The undersigned registrant hereby undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
The registrant undertakes that every prospectus: (i) that is filed
pursuant to the immediately preceding paragraph or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Securities Act and is used in
connection with an offering of securities subject to Rule 415 of the Securities
Act, will be filed as a part of an amendment to the registration statement and
will not be used until such amendment is effective, and that, for purposes of
determining any liability under the Securities Act, each such post-effective
amendment shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that, in the opinion of the SEC, such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by a controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through the date
of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective."
II-9
<PAGE> 205
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Post-Effective Amendment No. 1 to Registration Statement on
Form S-4 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Spokane, State of Washington, on November 30, 1998.
GOLD RESERVE CORPORATION
By: /s/ ROBERT A. MCGUINNESS
--------------------------
Name: Robert A. McGuinness
Title: Vice President of Finance and
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Chairman of the Board, President, Chief November 30, 1998
- ------------------------------- Executive Officer and Director (Principal
ROCKNE J. TIMM Executive Officer)
/s/ ROBERT A. MCGUINNESS Vice President of Finance and Chief Financial November 30, 1998
- ------------------------------- Officer (Principal Financial and Accounting
ROBERT A. McGUINNESS Officer)
* Executive Vice President and Director November 30, 1998
- -------------------------------
A. DOUGLAS BELANGER
* Senior Vice President and Director November 30, 1998
- -------------------------------
JAMES P. GEYER
* Director November 30, 1998
- -------------------------------
JAMES H. COLEMAN
* Director November 30, 1998
- -------------------------------
PATRICK D. McCHESNEY
* Director November 30, 1998
- -------------------------------
CHRIS D. MIKKELSEN
* Director November 30, 1998
- -------------------------------
JEAN CHARLES POTVIN
</TABLE>
*By: /s/ ROBERT A. MCGUINNESS
--------------------------
Robert A. McGuinness
Attorney-in-fact
II-10
<PAGE> 206
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Post-Effective Amendment No. 1 to Registration Statement on
Form S-4 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Spokane, State of Washington, on November 30, 1998.
GOLD RESERVE INC.
By: /s/ ROBERT A. MCGUINNESS
--------------------------
Name: Robert A. McGuinness
Title: Vice President of Finance and
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Chairman of the Board, President, Chief November 30, 1998
- ------------------------------- Executive Officer and Director (Principal
ROCKNE J. TIMM Executive Officer)
/s/ ROBERT A. MCGUINNESS Vice President of Finance and Chief Financial November 30, 1998
- ------------------------------- Officer (Principal Financial and Accounting
ROBERT A. McGUINNESS Officer)
* Executive Vice President and Director November 30, 1998
- -------------------------------
A. DOUGLAS BELANGER
* Senior Vice President and Director November 30, 1998
- -------------------------------
JAMES P. GEYER
* Director November 30, 1998
- -------------------------------
JAMES H. COLEMAN
* Director November 30, 1998
- -------------------------------
PATRICK D. McCHESNEY
* Director November 30, 1998
- -------------------------------
CHRIS D. MIKKELSEN
* Director November 30, 1998
- -------------------------------
JEAN CHARLES POTVIN
</TABLE>
*By: /s/ ROBERT A. MCGUINNESS
--------------------------
Robert A. McGuinness
Attorney-in-fact
II-11
<PAGE> 207
<TABLE>
<S> <C> <C>
Please mark
your votes as [X]
indicated in
this example
THE BOARD OF DIRECTORS RECOMMENDS A VOTE
FOR ITEM 1.
FOR AGAINST ABSTAIN
1. To approve the proposed reorganization
pursuant to which Gold Reserve Inc. [ ] [ ] [ ]
("GR-Canada"), a newly-formed Canadian
company and wholly owned subsidiary of
Gold Reserve Corporation ("GR-Montana"),
will become the parent company of
GR-Montana through the merger of a
newly-formed Montana subsidiary of
GR-Canada with and into GR-Montana,
such approval being deemed to include
approval of the Agreement and Plan of
Merger to effectuate such merger.
THIS PROXY WILL BE VOTED AS SPECIFIED. IF NO SPECIFICATION
IS INDICATED, THIS PROXY WILL BE VOTED FOR THE ADOPTION
AND APPROVAL OF PROPOSAL 1 AND ON ANY OTHER BUSINESS,
IN THE DISCRETION OF THE PROXIES.
IMPORTANT: Please date this proxy and sign exactly as
your name or names appear thereon. If stock is held
jointly, signature should include both names. Executors,
administrators, trustees, guardians and others signing in
the representative capacity, please so indicate when
signing.
Dated: , 1998
---------------------------------------------
---------------------------------------------------
Signature
---------------------------------------------------
Signature if held jointly
PLEASE SIGN, DATE AND RETURN THIS PROXY PROMPTLY IN
THE ACCOMPANYING ENVELOPE.
* * * IF YOU WISH TO VOTE BY TELEPHONE, PLEASE READ THE INSTRUCTIONS BELOW * * *
- -----------------------------------------------------------------------------------------------------------------------------------
- FOLD AND DETACH HERE -
</TABLE>
HELP US SAVE MONEY
VOTE BY TELEPHONE
QUICK * * * EASY * * * IMMEDIATE
YOUR TELEPHONE VOTE AUTHORIZES THE NAMED PROXIES TO VOTE YOUR SHARES IN THE
SAME MANNER AS IF YOU MARKED, SIGNED AND RETURNED YOUR PROXY CARD.
o You will be asked to enter a Control Number which is located in the box in
the lower right hand corner of this form.
o You will hear these instructions:
To vote FOR approval of the proposed reorganization, including the Agreement and
Plan of Merger, press 1;
To vote AGAINST approval of the proposed reorganization, including the Agreement
and Plan of Merger, press 9;
To ABSTAIN, press 0 and listen to the instructions.
WHEN ASKED, PLEASE CONFIRM YOUR VOTE BY PRESSING 1
CALL * * TOLL-FREE * * ON A TOUCH-TONE TELEPHONE
1-800-840-1208 - ANYTIME
There is NO CHARGE to you for this call.
PLEASE DO NOT RETURN THE ABOVE PROXY CARD IF VOTED BY PHONE
<PAGE> 208
PROXY
GOLD RESERVE CORPORATION
SPECIAL MEETING OF SHAREHOLDERS TO BE HELD DECEMBER 30, 1998
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby (a) acknowledges receipt of the Notice of Special
Meeting of Shareholders of Gold Reserve Corporation ("GR-Montana") contained on
the cover page of the Proxy Statement/Joint Prospectus for the special meeting
of shareholders of GR-Montana to be held on December 30, 1998, and the Proxy
Statement/Joint Prospectus in connection therewith, each dated November 30,
1998, (b) appoints Rockne J. Timm, A. Douglas Belanger, Robert A. McGuinness, or
any of them, as Proxies, each with the power to appoint a substitute, (c)
authorizes the Proxies to represent and vote, as designated on the reverse
hereof, all the shares of GR-Montana Common Stock held of record by the
undersigned on October 28, 1998, at such special meeting and at any
adjournment(s) thereof and (d) revokes any proxies heretofore given.
(Continued and to be signed on reverse)
- --------------------------------------------------------------------------------
o FOLD AND DETACH HERE o
VOTE BY TELEPHONE
QUICK o EASY o IMMEDIATE
IF YOU VOTED BY TELEPHONE DO NOT MAIL YOUR PROXY CARD
<PAGE> 209
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C> <C>
2 -- Agreement and Plan of Merger, dated as of October 5, 1998, by and
among GR-Montana, GR-Canada and Merger Sub (incorporated by
reference to Annex I to the Proxy Statement/Joint Prospectus
included as a part of this Registration Statement)
3.1* -- Restated Articles of Incorporation of GR-Canada, filed November 20, 1998
3.2* -- Bylaws of GR-Canada
3.3* -- Articles of Incorporation of GR-Montana, filed November 13, 1956
3.4* -- Certificate of Amendment to Articles of Incorporation of
GR-Montana, filed March 26, 1959
3.5* -- Certificate of Proceedings to Amend Articles of Incorporation of
GR-Montana, dated November 16, 1959
3.6* -- Articles of Amendment to Articles of Incorporation of GR-Montana,
dated September 4, 1973
3.7* -- Articles of Amendment to Articles of Incorporation of GR-Montana,
dated October 14, 1988
3.8* -- Articles of Amendment to Articles of Incorporation of GR-Montana,
dated June 21, 1993
3.9* -- Articles of Amendment to Articles of Incorporation of GR-Montana,
filed August 11, 1994
3.10* -- Articles of Amendment to Articles of Incorporation of GR-Montana,
filed June 16, 1997
3.11 -- Bylaws of GR-Montana, as amended March 4, 1993 (incorporated by
reference to Exhibit 3.2 to GR-Montana's Annual Report on Form 10-K
for the year ended December 31, 1992)
4.1* -- Exchange Agent Agreement by and among GR-Montana, GR-Canada,
TranSecurities International, Inc. and Holders of Unit Shares, dated
November 17, 1998
4.2 -- Rights Agreement, dated as of April 2, 1997, between GR-Montana and
Montreal Trust Company of Canada (incorporated by reference to
Schedule B to GR-Montana's Definitive Proxy Statement for
GR-Montana's Annual Meeting of Shareholders on June 5, 1997)
4.3* -- Rights Agreement, dated as of October 5, 1998, between GR-Canada
and Montreal Trust Company of Canada
4.4* -- Form of Certificate for the GR-Canada Class A Shares
4.5* -- Form of Certificate for the Unit Share (included in Exhibit 4.1)
5.1* -- Form of Opinion of Veale, Kilpatrick, Austring, Fendrick & Fairman
as to the validity of the GR-Canada Class A Shares and Class B
Shares
5.2* -- Form of Opinion of Church, Harris, Johnson & Williams, P.C. as to
the validity of the GR-Montana Class A and Class B Common Stock
8.1* -- Form of Opinion of Baker & McKenzie, Palo Alto, as to certain
United States tax matters
8.2* -- Form of Opinion of Baker & McKenzie, Toronto, as to certain
Canadian tax matters
10.1 -- Mining Operations Agreement, dated July 1, 1992, between Compania
Minera Bajo Caroni - Caromin, C.A. and Compania Minera Unicornio,
C.A. (incorporated by reference to Exhibit 10.29 to GR-Montana's
Annual Report on Form 10-K for the year ended December 31, 1992)
10.2 -- Stock Purchase Agreement, dated August 1992, between Antonio Sosa
Aviles and Servicios Escriber S.R.L., and Stock Purchase Agreement,
dated November 26, 1992, between Servicios Escriber S.R.L. and Gold
Reserve de Venezuela (incorporated by reference to Exhibit 10.30 to
GR-Montana's Annual Report on Form 10-K for the year ended December
31, 1992)
10.3 -- License and Technical Assistance Agreement, dated September 1,
1992, between GR-Montana and Compania Minera Unicornio, C.A.
(incorporated by reference to Exhibit 10.31 to GR-Montana's Annual
Report on Form 10-K for the year ended December 31, 1992)
10.4 -- Credit Agreement, dated October 13, 1992, between GR-Montana and
Compania Aurifera Brisas del Cuyuni, C.A. (incorporated by
reference to Exhibit 10.32 to GR-Montana's Annual Report on Form
10-K for the year ended December 31, 1992)
10.5 -- Services Agreement, dated November 6, 1992, between GR-Montana and
A. Douglas Belanger (incorporated by reference to Exhibit 10.33 to
GR-Montana's Annual Report on Form 10-K for the year ended December
31, 1992)
10.6 -- Settlement Agreement, dated December 21, 1994, among GR-Montana,
Brisas, GLDR, Marwood International Ltd., TVX Gold, Inc.,
BlueGrotto Trading Limited and Inversiones 871010, C.A.
(incorporated by reference to GR- Montana's Current Report on Form
8-K, SEC File No. 011-08372) 21 -- Subsidiaries of GR-Montana
21* -- Subsidiaries of GR-Montana
23.1* -- Consent of Veale, Kilpatrick, Austring, Fendrick & Fairman
(included in Exhibit 5.1)
23.2* -- Consent of Church, Harris, Johnson & Williams, P.C. (included
in Exhibit 5.2)
23.3* -- Consent of Baker & McKenzie, Palo Alto (included in Exhibit 8.1)
23.4* -- Consent of Baker & McKenzie, Toronto (included in Exhibit 8.2)
23.5* -- Consent of PricewaterhouseCoopers LLP regarding GR-Montana
23.6* -- Consent of PricewaterhouseCoopers LLP regarding GR-Canada
23.7* -- Consent of RBC Dominion Securities Inc.
23.8* -- Consent of Behre Dolbear & Company, Inc.
23.9* -- Consent of Jacobs Engineering Group Inc.
</TABLE>
<PAGE> 210
<TABLE>
<S> <C> <C>
24.1 -- Powers of Attorney (incorporated by reference to the signature
pages of the originally filed Registration Statement on Form S-4)
99.1 -- Form of Opinion of RBC Dominion Securities Inc. (incorporated by
reference to Annex II to the Proxy Statement/Joint Prospectus
included as part of this Registration Statement)
99.2* -- Equity Unit Election Form (included in Exhibit 4.1)
99.3* -- Proxy Solicitation Materials
99.4* -- Proxy Solicitation Materials
</TABLE>
- -------------------
* Previously filed.
