<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[x] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
NORTH LILY MINING COMPANY
(Name of Registrant as Specified in its Charter)
Not Applicable
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A
[ ] $500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(i)(3)
[x] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11
1) Title of each class of securities to which transaction applies:
Common Stock
---------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
3,000,000 Shares
---------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
$.1875, the average of the bid and ask prices as of July 29, 1996
---------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
$562,500
---------------------------------------------------------------------
5) Total fee paid:
Fee is $112.50; $125 was paid previously
---------------------------------------------------------------------
[x] Fee paid previously with preliminary materials
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
---------------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
---------------------------------------------------------------------
3) Filing Party:
---------------------------------------------------------------------
4) Date Filed:
---------------------------------------------------------------------
<PAGE>
NORTH LILY MINING COMPANY
- --------------------------------------------------------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD _______________, 1996
- --------------------------------------------------------------------------------
The Annual Meeting of the Shareholders of North Lily Mining Company (the
"Company") will be held on ______, 1996, at ___ _.M. (local time) at
______________________, for the following purposes:
(1) To elect four members of the Board of Directors to hold office
until the next annual meeting of shareholders, or until their
successors are duly elected and qualify;
(2) To consider and act upon a Plan of Recapitalization to reverse
split the outstanding Common Stock by changing each 10 issued and
outstanding shares into one issued and outstanding share of
Common Stock;
(3) To authorize the acquisition of Tamarine Ventures Ltd.;
(4) To approve and adopt the Company's 1996 Stock Option Plan;
(5) To approve and adopt the Company's 1996 Restricted Stock Plan;
(6) To amend the Company's Articles of Incorporation to authorize
5,000,000 shares of Preferred Stock; and
(7) To transact such other business as properly may come before the
meeting.
Only shareholders of record at the close of business on __________, 1996
will be entitled to vote at the meeting. The transfer books of the Company will
not be closed.
YOU ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON. PLEASE
INDICATE ON THE ENCLOSED PROXY WHETHER YOU PLAN TO ATTEND THE MEETING. IN ANY
EVENT, PLEASE MARK, SIGN, DATE, AND RETURN THE ENCLOSED PROXY TO INSURE YOUR
SHARES ARE REPRESENTED AT THE MEETING. YOU MAY VOTE IN PERSON IF YOU ATTEND THE
MEETING EVEN THOUGH YOU HAVE EXECUTED AND RETURNED A PROXY.
By order of the Board of Directors:
W. Gene Webb, Secretary
Denver, Colorado
August __, 1996
<PAGE>
NORTH LILY MINING COMPANY
1800 Glenarm Place, Suite 210
Denver, Colorado 80202
(303) 294-0427
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
To be held ___________, 1996
INTRODUCTION
The Proxy enclosed with this Proxy Statement will be first sent or given to
shareholders on or about March __, 1996, in connection with the solicitation by
the directors of North Lily Mining Company (the "Company") of Proxies to be used
at an Annual Meeting of Shareholders to be held at __:__ _.m. (local time),
_________, 1996 at _______________________________________________________
___________________________________________________ (the "Annual Meeting").
PERSONS MAKING THE SOLICITATION
The Proxy is solicited on behalf of the directors of the Company. The
original solicitation will be by mail. Following the original solicitation,
management expects that certain individual shareholders will be further
solicited through telephonic or other oral communications from management.
Management may use specially engaged employees or paid solicitors for such
solicitation. Management intends to solicit Proxies which are held of record
by brokers, dealers, banks, or voting trustees, or their nominees, and may
pay the reasonable expenses of such record holders for completing the mailing
of solicitation materials to persons for whom they hold the shares. All
solicitation expenses will be borne by the Company.
TERMS OF THE PROXY
The enclosed Proxy indicates the matters to be acted upon at the Annual
Meeting and provides a box corresponding to each such matter. By appropriately
marking each box, a shareholder may specify whether to confer to or to withhold
from management the authority to vote the shares represented by the Proxy. The
Proxy also confers upon management discretionary voting authority with respect
to such other business as may properly come before the Annual Meeting.
If the Proxy is executed properly and is received by management prior to
the Annual Meeting, the shares represented by the Proxy will be voted. Where a
shareholder specifies a choice with respect to the matter to be acted upon, the
shares will be voted in accordance with such specification. Any Proxy which is
executed in such a manner as not to withhold authority shall be deemed to confer
such authority.
A Proxy may be revoked at any time prior to its exercise by (1) so notifying
the Company in writing, (2) filing with the Company a duly executed proxy
bearing a later date, or (3) voting in person at the Annual Meeting.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
VOTING SECURITIES
The securities entitled to vote at the Annual Meeting consist of all of the
issued and outstanding shares of the Company's $.10 par value common stock (the
"Common Stock"). The close
<PAGE>
of business on _____________ 1996, has been fixed by the Board of Directors of
the Company as the record date. Only shareholders of record as of the record
date may vote at the Annual Meeting. As of the record date, there were
29,707,403 shares of Common Stock issued and outstanding.
VOTING RIGHTS AND REQUIREMENTS
Each shareholder of record as of the record date will be entitled to one
vote for each share of Common Stock held as of the record date.
QUORUM AND VOTES REQUIRED FOR APPROVAL. The presence at the Annual
Meeting of the holders of an amount of shares of each class of stock entitled
to vote at the meeting, representing the right to vote shares of Common Stock
of not less than one-third of the number of shares of Common Stock
outstanding as of the record date will constitute a quorum for transacting
business. Directors will be elected by plurality vote. The affirmative vote
of the majority of outstanding shares is necessary to amend the Articles of
Incorporation. The affirmative vote of the majority of shares represented at
the meeting and entitled to vote thereat is necessary to approve the Plan of
Recapitalization, to approve the Agreement and Plan of Share Exchange with
Tamarine Ventures Ltd., to adopt the 1996 Stock Option Plan, to adopt the 1996
Restricted Stock Plan, and to approve all other matters that may come before
the Annual Meeting.
PRINCIPAL SECURITY HOLDERS. The following table sets forth information, as
of the record date, with respect to the beneficial ownership of the Company's
Common Stock by each person known by the Company to be the beneficial owner of
more than five percent (5%) of the outstanding Common Stock, and by directors,
nominees, and officers of the Company, and by officers and directors as a group.
AMOUNT AND NATURE OF
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP (1) PERCENT OF CLASS (2)
CEDE & Co. 12,797,377 45.61%
Box 20
Bowling Green Station
New York, NY 10004
Kray & Co. 3,240,829 11.55%
One Financial Place
440 South LaSalle Street
Chicago, IL 60605
Stephen E. Flechner 860,000 (3) 2.98%
W. Gene Webb 850,000 (3) 2.94%
Theodore E. Loud 70,000 0.25%
Nick DeMare 57,300 (4) 0.20%
John R. Twohig -0- --
All officers and directors 1,837,300 (5) 6.16%
as a group (5 persons)
- ---------------
(1) Information with respect to beneficial ownership is based upon information
furnished by each shareholder of contained in filings made with the
Securities and Exchange Commission. Unless otherwise indicated, the
beneficial owner has sole voting and investment power with respect to the
shares shown.
2
<PAGE>
(2) Based on 29,707,403 shares outstanding. Where the persons listed on this
table have the right to obtain additional shares of Common Stock within 60
days from _______, 1996, these additional shares are deemed to be
outstanding for the purpose of computing the percentage of class owned by
such persons, but are not deemed to be outstanding for the purpose of
computing the percentage of any other person.
(3) Includes 850,000 shares of Common Stock issuable upon exercise of presently
exercisable options.
(4) Includes 50,000 shares of Common Stock issuable upon exercise of presently
exercisable options.
(5) Includes 1,750,000 shares of Common Stock issuable upon exercise of
presently exercisable options.
CHANGES IN CONTROL
No arrangements are known to the Company, including any pledge by any
person of securities of the Company, the operation of which may, at a subsequent
date, result in a further change in control of the Company.
MATTERS TO BE ACTED UPON
PROPOSAL 1: ELECTION OF DIRECTORS
The directors of the Company are elected to serve until the next annual
shareholders' meeting or until their respective successors are elected and
qualify. Officers of the Company hold office until the meeting of the Board of
Directors immediately following the next annual shareholders' meeting or until
removal by the Board of Directors. Interim replacements for resigning directors
and officers are appointed by the Board of Directors.
The names of the nominees for directors and certain information about them
are set forth below:
- --------------------------------------------------------------------------------
NAME AGE POSITION WITH THE BUSINESS EXPERIENCE
COMPANY
- --------------------------------------------------------------------------------
Stephen E. Flechner 53 President and Chief May 1994 to present -
Executive Officer and President of the Company;
Director 1979 to 1993 - Vice President,
General Counsel & Secretary,
Gold Fields Mining Corp.,
Denver, Colorado; April 1993
to present - President of
Akiko Gold Resources Ltd.,
Vancouver, British Columbia
- --------------------------------------------------------------------------------
W. Gene Webb 57 Executive Vice May 1994 to present -
President, Corporate officer and director of
Secretary and Director the Company; September 1989 to
March 1994 - President and
director of Canadian
Industrial Minerals Corp.,
Denver, Colorado; May 1989 to
present - officer and director
of Tellis Gold Mining Company,
Vancouver, British Columbia;
March 1990 to June 1994 -
President and director of
Jerez Investment Corp.,
Denver, Colorado; September
1978 to present - President
and director of Ferret
Exploration Company, Inc.,
Denver, Colorado
- --------------------------------------------------------------------------------
3
<PAGE>
- --------------------------------------------------------------------------------
NAME AGE POSITION WITH THE BUSINESS EXPERIENCE
COMPANY
- --------------------------------------------------------------------------------
John R. Twohig 43 Vice President - January 1994 to present -
Corporate Development Chairman and Chief Executive
and Director Officer of Tamarine Ventures
Ltd., Vancouver, British
Columbia; January 1990 to
December 1994 - senior marine
consultant for international
clients, Vancouver, British
Columbia
- --------------------------------------------------------------------------------
Theodore E. Loud 60 Director 1986 to present - President of
Tel Advisors Inc. of Virginia,
Charlottesville, Virginia, a
registered investment adviser
and corporate financial
consulting company
- --------------------------------------------------------------------------------
The following table sets forth, as of the date of this Proxy Statement, the
names and ages of the Company's executive officers, including all positions and
offices held by each such person. These officers are elected to hold office for
one year or until their respective successors are duly elected and qualified:
- --------------------------------------------------------------------------------
NAME AGE POSITION WITH THE BUSINESS EXPERIENCE
COMPANY
- --------------------------------------------------------------------------------
Stephen E. Flechner 53 President and Chief See table above.
Executive Officer and
Director
- --------------------------------------------------------------------------------
W. Gene Webb 57 Executive Vice See table above.
President,Corporate
Secretary and
Director
- --------------------------------------------------------------------------------
Nick DeMare 40 Treasurer Chartered Accountant. May
1991 to present - President,
Chase Management Ltd.,
Vancouver, British Columbia;
February 1986 to April 1991 -
Vice President and Chief
Financial Officer, Ingot
Management Ltd., Vancouver,
British Columbia. Mr. DeMare
is a director and/or officer
of several publicly-traded
Canadian companies.
- --------------------------------------------------------------------------------
John R. Twohig 43 Vice President - See table above
Corporate Development
and Director
- --------------------------------------------------------------------------------
Except as otherwise indicated below, no organization by which any officer
or director previously has been employed is an affiliate, parent, or subsidiary
of the Company.
The Company does not have any standing audit, nominating, or compensation
committees of the Board of Directors.
4
<PAGE>
Messrs. Flechner and Webb have been directors since May 1994. They took
action seven times by unanimous written consent during the 1995 fiscal year.
Each director participated in the written consents that occurred during the
period he was a director. Messrs. Twohig, Loud, and Horsley became directors in
March 1996. There have been no official meetings of the board of directors
since August 20, 1992.
Compliance with Section 16(a) of the Exchange Act
During the fiscal year ended December 31, 1995, there were no known
failures to file on a timely basis Forms 3, 4, and/or 5 with the Securities and
Exchange Commission as required by Section 16(a) of the Securities Exchange Act
of 1934.
EXECUTIVE COMPENSATION
The following table sets forth in summary form the compensation received
during each of the Company's last three completed fiscal years by the Chief
Executive Officer of the Company and by each other executive officer of the
Company whose total salary and bonus exceeded $100,000 in the Company's fiscal
year ended December 31, 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
-------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
-------------------------------------------------------------
OTHER RESTRICTED
NAME AND ANNUAL STOCK OPTIONS/ LTIP ALL OTHER
PRINCIPAL COMPEN- AWARD(S) SARS PAYOUTS COMPEN-
POSITION YEAR SALARY BONUS SATION ($) ($) (#) ($) SATION ($)
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Stephen 1995 $110,000(1) -0- -0- -0- -0- -0- -0-
E. 1994 $82,500(2) -0- -0- -0- 850,000 -0- -0-
Flechner, 1993 -0- -0- -0- -0- -0- -0- -0-
President
and Chief
Executive
Officer (2)
- ------------------------------------------------------------------------------------------
W. Gene 1995 $110,000(1) -0- -0- -0- -0- -0- -0-
Webb, 1994 $ 82,500(2) -0- -0- -0- 850,000 -0- -0-
Executive 1993 -0- -0- -0- -0- -0- -0- -0-
Vice
President
and
Corporate
Secretary
- ------------------------------------------------------------------------------------------
William E. 1995 -0- -0- -0- -0- -0- -0- -0-
Grafham, 1994 -0- -0- -0- -0- 120,000 -0- -0-
former 1993 -0- -0- -0- -0- -0- -0-
Chairman
of the
Board,
President
and Chief
Executive
Officer(3)(4)
- ------------------------------------------------------------------------------------------
5
<PAGE>
LONG TERM COMPENSATION
-------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
-------------------------------------------------------------
OTHER RESTRICTED
NAME AND ANNUAL STOCK OPTIONS/ LTIP ALL OTHER
PRINCIPAL COMPEN- AWARD(S) SARS PAYOUTS COMPEN-
POSITION YEAR SALARY BONUS SATION ($) ($) (#) ($) SATION ($)
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Anton R. 1995 -0- -0- -0- -0- -0- -0- -0-
Hendriksz, 1994 -0- -0- -0- -0- -0- -0- -0-
former 1993 $132,505 -0- -0- -0- -0- -0- $62,500
Chairman
of the
Board
- ------------------------------------------------------------------------------------------
Thomas L. 1995 -0- -0- -0- -0- -0- -0- -0-
Crom, 1994 -0- -0- -0- -0- -0- -0- -0-
former 1993 $ 89,772 -0- -0- -0- -0- -0- $50,000
President,
Chief
Executive
Officer &
Treasurer (4)
- ------------------------------------------------------------------------------------------
George A. 1995 -0- -0- -0- -0- -0- -0- -0-
Holcomb, 1994 -0- -0- -0- -0- -0- -0- $20,834(5)
former 1993 $126,250 -0- -0- -0- -0- -0- -0-
Vice
President
of
Operations
</TABLE>
- ----------------
(1) Unpaid as at December 31, 1995. In addition, Messrs. Flechner and Webb
have each agreed to defer a portion of their salaries. See "Certain
Transactions" below.
(2) Unpaid as at December 31, 1994. Messrs. Flechner and Webb have each agreed
to accept shares of Common Stock of the Company in settlement of their
unpaid salaries. See also"Certain Transactions" below.
(3) Mr. Grafham resigned as an officer of the Company as of May 17, 1994. On
that date, Mr. Flechner became the Chief Executive Officer of the Company.
(4) Mr. Crom resigned as of October 25, 1993. On that date, Mr. Grafham became
the Chief Executive Officer of the Company.
(5) Vacation pay paid to Mr. Holcomb.
Employment agreements with the Company's executive officers are described
below in "Employment Agreements."
The Company does not pay non-officer directors for their services as such
nor does it pay any director's fees for attendance at meetings. Directors are
reimbursed for any expenses incurred by them in their performance as directors.
STOCK OPTION PLANS
The Company adopted an Incentive Stock Option Plan (the "Plan") in 1984
under which a total of 2,500,000 shares were available for grant to provide
incentive compensation to officers and key employees of the Company.
The Plan was administered by the Board of Directors. Options could be
granted for up to 10 years at not less than the fair market value at the time of
grant except that the term could not exceed
6
<PAGE>
five years and the price had to be 110% of fair market value for any person
who at the time of grant held more than 10% of the total voting power of the
Company. Unless otherwise specified by the Board of Directors, options were
exercisable as they vested at a rate of 2.77% per month, and terminated ten
years after the date of grant. The Plan expired October 31, 1994.
Options may be exercised by payment of the option price (i) in cash, (ii)
by tender of shares of Common Stock of the Company and which have a fair market
value equal to the option price, or (iii) by such other consideration as the
Board of Directors may approve at the time the option is granted.
At December 31, 1995, options to purchase 1,972,500 shares at $0.20 were
outstanding under the plan.
There were no individual grants of stock options or freestanding stock
appreciation rights made during the fiscal year ended December 31, 1995.
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
- ---------------------------------------------------------------------------------------------------------------
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
FISCAL YEAR END (#) FISCAL YEAR END ($)
SHARES ACQUIRED EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) VALUE REALIZED ($) UNEXERCISABLE UNEXERCISABLE
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Stephen E. Flechner -0- -0- 850,000/0 0/0
- ---------------------------------------------------------------------------------------------------------------
W. Gene Webb -0- -0- 850,000/0 0/0
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
The Company has no other long-term incentive plans.
There are no arrangements pursuant to which directors of the Company are
compensated in their capacities as such.
EMPLOYMENT AGREEMENTS
Effective May 16, 1994, Messrs. Flechner and Webb entered into employment
agreements with the Company. The agreements provide for compensation consisting
of annual salary of $120,000; benefits which shall include health and disability
insurance, key-man life insurance, and retirement plan; an annual cash bonus,
50% of which may be taken in the Company's common stock at the election of
Messrs. Flechner and Webb; and equity grants pursuant to the Company's incentive
stock option plan and restricted stock plan. The term of the employment
agreements is five years.
7
<PAGE>
TOTAL RETURN TO STOCKHOLDERS
[GRAPH]
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
TOTAL RETURN ANALYSIS
12/31/90 12/31/91 12/31/92 12/31/93 12/30/94 12/29/95
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NORTH LILY MINING CO. $100.00 $ 78.57 $ 64.29 $ 42.86 $ 14.29 $ 7.14
- --------------------------------------------------------------------------------------------------
S&P 500 GOLD $100.00 $ 81.24 $ 75.88 $138.70 $112.14 $126.15
- --------------------------------------------------------------------------------------------------
NASDAQ COMPOSITE (US) $100.00 $160.84 $187.19 $214.88 $210.05 $296.81
- --------------------------------------------------------------------------------------------------
</TABLE>
S&P 500 GOLD DATA PROVIDED BY BLOOMBERG FINANCIAL MARKETS
8
<PAGE>
CERTAIN TRANSACTIONS
During 1994, the Company was charged management, consulting, and office
administration fees of $183,786 by private companies owned or controlled by
William E. Grafham, a former officer and director of the Company. In addition,
during 1994 these companies made disbursements on behalf of the Company. As of
December 31, 1994, $265,000, which included an outstanding balance of $82,167 as
of December 31, 1993, remained unpaid. As indicated in the table below, the
indebtedness of $265,000 was paid in 1995 with the issuance of 883,334 shares of
the Company's Common Stock.
During 1994 and 1995, the Company was charged management, consulting, and
office administration fees of $65,264 (Cdn.$91,488) and $51,194 (Cdn.$70,400),
respectively, by private companies owned by Nick DeMare, an officer of the
Company. As of December 31, 1994, $68,448 (Cdn. $95,860), including amounts
unpaid from December 31, 1993, remained unpaid. As indicated in the table
below, indebtedness of $50,000 was paid in 1995 with the issuance of 166,667
shares of the Company's Common Stock. As of December 31, 1995, $31,079 remained
unpaid.
In order to reduce its cash requirements during 1995, the Company
negotiated with certain current and former directors and officers, related
companies, and creditors to settle $354,250 of indebtedness and unpaid amounts
through the issuance of Common Stock at an ascribed price of $0.30 per share to
the following parties:
- ---------------------------------------------------------------------------
Indebtedness to be Ascribed Price Number of
Creditor Settled by Shares per Share Shares
- ---------------------------------------------------------------------------
W.G. Ltd.(1) $265,000 $0.30 883,334
- ---------------------------------------------------------------------------
DNG Capital Corp.(2) $ 50,000 $0.30 166,667
- ---------------------------------------------------------------------------
Others $ 39,250 $0.30 130,834
- ---------------------------------------------------------------------------
Total $354,250 1,180,835
- ---------------------------------------------------------------------------
(1) A private company owned by William E. Grafham
(2) A private company owned by Nick DeMare.
All of the shares were issued in 1995.
During 1993, Mr. Anton R. Hendriksz and Mr. Thomas L. Crom, then Chairman
of the Board and President of the Company, respectively, agreed to terminate
their existing employment agreements with the Company and to provide consulting
services to International Mahogany Corp. ("Mahogany") and the Company for a
24-month period in consideration for cash payments of $125,000 and $100,000,
respectively, and quarterly cash payments of $12,500 each over a 24-month
period. The termination and consulting payments were to be shared equally by
Mahogany and the Company. Subsequent to an initial payment in 1993 of $31,250
to Mr. Hendriksz and $25,000 to Mr. Crom (being the Company's share of one-half
of their termination payments), the Company and Mahogany have not made further
payments to Messrs. Hendriksz and Crom. However, the Company has included
$156,250 (being the Company's share of the termination and consulting
obligations) as due to former officers and directors.
The Agreement also outlined that Company stock purchase options held by
Messrs. Hendriksz and Crom would, subject to regulatory approval, be extended
for a two-year period and that the exercise price would be adjusted to then
current market levels and be allowed to be granted to Canadian companies owned
by Messrs. Hendriksz and Crom. These stock purchase options have not been
amended.
9
<PAGE>
Pursuant to a Settlement Agreement dated June 20, 1995, assignees of
Messrs. Hendriksz and Crom agreed to accept 150,000 and 125,000 shares of the
Company's Common Stock, respectively, in full settlement of all claims against
the Company.
On August 25, 1995, Turks Ltd., a private company of which W. Gene Webb is
a director, borrowed $74,532 (Cdn.$100,000) and in turn loaned the money to the
Company. The Company pledged 90,000 shares of Baja Gold Inc. stock as
collateral to secure the loan. The loan was due November 30, 1995 and interest
was charged at the rate of 8.875% per annum. Neither Turks Ltd. nor Mr. Webb
received any compensation from this transaction.
On October 3, 1995, the Turks, Ltd. loan principal described above was
repaid with proceeds from a loan made to the Company by a non-affiliated third
party. The loan was in the amount of $97,167 (Cdn.$130,000), was originally due
December 31, 1995, and accrued interest at the rate of 8% per annum. The
Company pledged 90,000 shares of Baja Gold Inc. Stock as collateral to secure
the loan. The loan was extended to January 31, 1996 and paid as of that date.
During 1994, the Company recorded $165,000 as due to officers relating to
unpaid salaries to Messrs. Flechner and Webb. The officers originally agreed
not to demand payment of this amount until January 2, 1996, at which time the
indebtedness was to be either settled with cash, if available, or the issuance
of shares of the Company, at an ascribed price of $0.30 per share. The amount
remained outstanding at December 31, 1995. In addition, effective January 1,
1995, the officers agreed to reduce their salary compensation by 10% (the "1995
Compensation") and further agreed to receive only a 75% portion of the 1995
Compensation in cash and the remaining 25% portion as deferred compensation.
The cash portion will be paid only upon the Company completing a financing and
the deferred compensation will be paid only in the event that the Company
generates operating cash flow or completes a major financing. The deferred
compensation may be either settled with cash or the issuance of the Company's
Common Stock, at a predetermined price per share, at the officer's election.
During 1995, the Company recorded $220,000 of the 1995 Compensation as accounts
payable. As at December 31, 1995, a total of $385,000 was due to Messrs.
Flechner and Webb, who have agreed not to demand payment of amounts owed to them
until January 2, 1997.
PROPOSAL 2: AUTHORIZATION TO IMPLEMENT REVERSE SPLIT
The Board of Directors has proposed, subject to shareholder approval, to
effect a 1-for-10 reverse stock split whereby every ten (10) shares of the
Company's currently outstanding shares of Common Stock will be exchanged for one
share of Common Stock. There are presently 29,707,403 shares outstanding, and
the reverse split would reduce this number to approximately 2,970,740 shares.
The reverse split will not alter the number of shares of Common Stock authorized
for issuance, which will remain at 30,000,000 shares.
REASONS FOR THE PROPOSED REVERSE STOCK SPLIT
In addition to the reverse stock split being a condition precedent to the
consummation of the Share Exchange with Tamarine (see Proposal 3 below),
management of the Company is proposing the reverse stock split for the
following reasons: management believes a reverse stock split will (1) reduce
the number of outstanding shares of Common Stock and thereby make available
shares of Common Stock with which to acquire assets into the Company; and
(2) help raise the trading price of the Company's Common Stock. In discussions
by the Company's executive officers with members of the brokerage and banking
industries, the Company has been advised that the brokerage firms might be
more willing to evaluate the Company's securities as a possible investment
opportunity for their clients and may be more willing to act as a market maker
in the Company's securities if the price range for
10
<PAGE>
the Company's Common Stock were higher. Management believes that additional
interest by the investment community in the Company's stock, of which there
can be no assurance, is desirable.
Management of the Company also believes that existing low trading prices of
the Company's Common Stock may have an adverse impact upon the current level of
the trading market for the Common Stock. In particular, brokerage firms often
charge higher commissions for transactions involving low-priced stocks than they
would for the same dollar amount of securities with a higher per share price.
Some brokerage firms will not recommend purchases of low-priced stocks to their
clients or make a market in such stock, which tendencies may adversely affect
the liquidity for current shareholders and the Company's ability to obtain
additional equity financing.
EFFECTS OF APPROVAL OF THE REVERSE STOCK SPLIT
Theoretically, the market price of the Company's Common Stock should
increase approximately 10-fold following the proposed reverse stock split.
It is hoped that this will result in a price level which will overcome the
reluctance, policies, and practices of broker-dealers described above and
increase interest in the Company's Common Stock by investors. Shareholders
should note that the effect of the reverse stock split upon the market price for
the Company's Common Stock cannot be accurately predicted. Further, there can
be no assurance that the per share market price of the post-split Common Stock
will trade at a price 10 times the price of the pre-split Common Stock or, if it
does, that the price can be maintained at that level for any period of time.
On July 29, 1996, the closing bid and asked prices of the Company's
Common Stock were $.187 and $.156 per share, respectively, as reported by
NASDAQ. The foregoing quotation reflects inter-dealer prices, without retail
mark-up mark-down, or commission and may not represent actual transactions.
Management, by implementing a reverse stock split, does not intend to
"take the company private" by decreasing the number of shareholders of the
Company. Management does not believe that a 1-for-10 reverse stock split
would result in any shareholders being eliminated or closed out as a result
of holding less than one share after the reverse stock split. Approximately
3,300 shareholders as of March 11, 1996, have a number of shares not evenly
divisible by 10. As disclosed below, the Company will round up to the
nearest whole share instead of issuing fractional shares resulting from the
reverse stock split.
PROCEDURE FOR IMPLEMENTING THE REVERSE SPLIT
If this proposal is adopted by the shareholders, ten (10) shares of
pre-split Common Stock will be exchanged for each share of post-split Common
Stock. Shares of post-split Common Stock may be obtained by surrendering
certificates representing shares of pre-split Common Stock to the Company's
transfer agent, American Securities Transfer, Inc., 938 Quail Street, Suite 101,
Lakewood, Colorado 80215 (the "Transfer Agent"). To determine the number of
shares of post-split Common Stock issuable to any record holder, the total
number of shares represented by all of the certificates issued in the name of
that record holder held in each account as set forth on the records of the
Transfer Agent on the date upon which the reverse split becomes effective will
be divided by 10. Upon surrender to the Transfer Agent of the share
certificate(s) representing shares of pre-split Common Stock and the applicable
transfer fee, which presently is $15.00 per certificate payable by the holder,
the holder will receive a share certificate representing the appropriate number
of shares of post-split Common Stock. If the division described above results
in a quotient which contains a fraction, the Company will round up to the
nearest whole share instead of issuing a fractional share. Shareholders are not
required to exchange their certificates of pre-split Common Stock for post-split
Common Stock. It is anticipated that the reverse split will be effected
immediately following receipt of the necessary shareholder approval.
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<PAGE>
FEDERAL INCOME TAX EFFECTS OF THE PLAN
Holders of Common Stock will not be required to recognize any gain or loss
if the reverse stock split is effected. The tax basis of the aggregate shares
of post-split Common Stock received by present shareholders will be equal to the
basis of the aggregate shares of the pre-split Common Stock exchanged therefor.
The holding period for shares of post-split Common Stock will include the
holding period of the pre-split Common Stock when calculated for purposes of
taxation or sales under Rule 144 of the Rules and Regulations promulgated under
the Securities Act of 1933, as amended (the "Securities Act"). Rule 144
requires that "restricted securities," as defined in Rule 144, be held at least
two years before routine sales can be made in accordance with the provisions of
the Rule. Rule 144 provides that shares issued in a reverse stock split are
deemed to have been held from the date of acquisition of the shares involved in
the reverse stock split.
Interest of Certain Persons in this Proposal
Mr. John R. Twohig, an officer and director of the Company and of
Tamarine Ventures Ltd., has a substantial interest in this proposal, since
approval of the reverse split is one of the conditions precedent to
consummation of the proposed Share Exchange with Tamarine Ventures Ltd. See
Proposal 3 below.
Approval of the reverse split is required if the Company is to acquire
Tamarine Ventures Ltd. If the reverse split is approved but Proposal 3 (to
acquire Tamarine Ventures Ltd.) is NOT approved, the Company will not acquire
Tamarine Ventures Ltd.
RECOMMENDATION AND VOTE REQUIRED
The Board recommends that the shareholders vote "FOR" this proposal to
approve the reverse stock split. The affirmative vote of a majority of the
shares represented at the Meeting and entitled to vote is required for approval.
See "Voting Securities and Principal Holders Thereof" above.
PROPOSAL 3: AUTHORIZATION TO ACQUIRE TAMARINE VENTURES LTD.
Terms of the Share Exchange
On November 17, 1995, the Company executed an Agreement and
Plan of Share Exchange with Tamarine Ventures Ltd., a company
incorporated under the laws of British Columbia, Canada
("Tamarine"). The terms of that agreement have been abandoned, and
an amended and restated agreement is now in final negotiation
stages. All reference to the "Agreement" herein refer to the
proposed amended and restated Agreement. The Agreement provides
for the issuance of 300,000 post-reverse stock split shares of
Common Stock of the Company in exchange for at least 90% of the
issued and outstanding common shares of Tamarine, thereby making
Tamarine a subsidiary of the Company (the "Share Exchange"). It is
proposed that Tamarine will operate as the marine division and
subsidiary of the Company after the Share Exchange.
If certain revenues and net profits targets are achieved by
Tamarine after the Share Exchange during any four consecutive
calendar quarters, the shareholders of Tamarine may be issued up to
an additional 2,700,000 post-reverse split shares ("Additional
Consideration") as follows: Gross revenues of $8,000,000 not later
than December 31, 1997 - 700,000 shares; gross revenues of
$20,000,000 not later than December 31, 1999 - 1,000,000 shares;
and net after tax profits of $2,750,000 not later than December 31,
1999 - 1,000,000.
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<PAGE>
The exchange rate for the exchange of shares of the common stock of
Tamarine for shares of the Common Stock of the Company was determined by
arm's length negotiation among the parties. Among the factors considered
were the financial condition of each corporation, their future potential, and
the market price of the Company's Common Stock.
TAMARINE
Tamarine Ventures Ltd. was incorporated under the laws of Province of
British Columbia on January 7, 1994, for the purpose of acquiring,
developing, manufacturing, and marketing marine products. Its principal
executive offices are located at 402-938 Howe Street, Vancouver, British
Columbia, V6Z 1N9, Canada, where its telephone number is (604) 687-7593.
In September 1994, Tamarine purchased limited manufacturing, marketing,
and distribution rights (excluding such rights as applicable within the
European Union) to two products (vessels) produced by Port Isaac Workboats of
Cornwall, England, in consideration for Tamarine common stock with a deemed
issue price of $750,000 Cdn. Tamarine also entered into an option agreement
to acquire, for $250,000 Cdn., physical infrastructure consisting of the
manufacturing shop, offices, store room, entries, a launching trailer, office
fixtures, and other pieces of equipment and furnishings; the molds, drawings,
and templates for the production of two more vessels; and the marketing
rights to all four vessels within the European Union. Of the purchase price,
$25,000 Cdn. has been paid. Tamarine must identify financing to consummate
this option agreement as a condition precedent to closing the proposed Share
Exchange.
In June 1996, Tamarine entered into a Memorandum of Understanding with
PT Sinar Indra Makmur of Jakarta, Indonesia, and Yayasan "Hree Dharma Shanty"
of Jakarta, Indonesia, regarding the creation of a fast ferry company to
operate in the Republic of Indonesia. It is proposed that the new company
would be owned 42.5% by Tamarine. Tamarine would have responsibility for
obtaining preliminary information about ferry terminals and for locating
suitable roll-on roll-off ferries and fast ferries contemplated by this
venture.
REASONS FOR THE SHARE EXCHANGE
Management of the Company proposed the Share Exchange with Tamarine as a
means of diversifying and expanding the Company's business. The Company's
operations are limited to mining in North America and South America.
Tamarine's existing marine operations are in England, with negotiations in
Asia and the Pacific Rim.
The Share Exchange is attractive to Tamarine because it presents
Tamarine with an opportunity to become part of a publicly-traded entity.
Management of Tamarine believes that this status may facilitate obtaining
financing for the development of future marine operations and/or acquisitions.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE SHARE EXCHANGE
The Share Exchange is intended to constitute a tax-free "reorganization"
under Section 368(a)(1)(B) of the Internal Revenue Code of 1986.
ACCOUNTING TREATMENT
For accounting purposes, the Share Exchange will be recorded using the
"purchase" method of accounting. For pro forma effects of the Share Exchange
upon the results of operations and financial position of the Company, see the
North Lily Unaudited Pro Forma Condensed Consolidated Balance Sheet attached
hereto as Exhibit C.
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<PAGE>
CONDITIONS PRECEDENT TO THE SHARE EXCHANGE
The Share Exchange is subject to the prior satisfaction of various
conditions set forth in the Agreement, including approval of the Share
Exchange by the shareholders of each corporation, the receipt of certain
opinions of counsel to each corporation, and the continued accuracy of the
representations and warranties, and compliance with the covenants, of each
corporation set forth in the Agreement. These conditions, other than the
required approval of the Agreement, may be waived by either corporation, if,
in the reasonable opinion of the Board of Directors of such corporation, such
waiver shall not have a materially adverse effect on the shareholders of the
corporation, and the Share Exchange may proceed even if one or more of them
is not satisfied. If not waived, the Share Exchange may be terminated by the
nonwaiving party. No compliance or approvals in connection with federal or
state regulatory requirements must be obtained in connection with the Share
Exchange.
RESULTS OF THE SHARE EXCHANGE; MANAGEMENT OF THE COMPANY AFTER THE SHARE
EXCHANGE
If the Share Exchange occurs, current Company and Tamarine shareholders
will own approximately 90.8% and 9.2%, respectively, of the shares of Common
Stock of the Company to be outstanding. The rights of shareholders of the
Company will not otherwise be affected as a result of this transaction.
On a pro forma basis as of March 31, 1996, the net assets of the Company
and Tamarine would constitute approximately 85% and 15%, respectively, of
total shareholder equity of the resulting company. See the North Lily
Unaudited Pro Forma Condensed Consolidated Balance Sheet attached hereto as
Exhibit C.
After the Share Exchange, the Company will continue to be managed by the
Company's existing Board of Directors. The Board of Directors is expected to
elect the following persons as officers of the Company:
President and CEO. . . . . . . . . . . . . . Stephen E. Flechner
Executive Vice President and Secretary . . . W. Gene Webb
Vice President/Maritime Operations . . . . . John R. Twohig
Treasurer. . . . . . . . . . . . . . . . . . Nick DeMare
VOTING AGREEMENT
Upon the closing of the Share Exchange, it is agreed that the
parties/entities entitled to become holders of a majority of the shares
issuable as Additional Consideration shall enter into a voting agreement
whereby they shall agree that for a three-year period, their shares of the
Company's Common Stock shall be voted by voting trustees comprising a
representative of the Company and a Tamarine representative.
MARKET INFORMATION
Reference is made to the Company's Annual Report for market price
information on the Company's Common Stock. Tamarine is a private company and
its common stock is not traded.
On November 16, 1995, the closing bid and ask prices for the Company's
Common Stock were $.09 and $.16 per share, respectively, as quoted by NASDAQ.
November 16, 1995 was the day preceding the date of the original agreement
with Tamarine.
On July 29, 1996, there were 10,419 record holders of the Company's
Common Stock and as of July 29, 1996, there were 41 record holders of
Tamarine's common stock.
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<PAGE>
The Company has not paid or declared any cash dividends and does not
anticipate paying dividends for the foreseeable future. It is expected that
any net income will be retained by the Company for the development of its
business. Tamarine has no record of paying any cash dividends on its common
stock and its management has no intention of paying any such cash dividends
in the fore-seeable future. Neither the Company nor Tamarine is
contractually precluded or otherwise restricted from paying dividends.
SELECTED FINANCIAL INFORMATION OF TAMARINE
Reference is made to the Company's Annual Report for selected financial
information. The following table sets forth selected financial data for
Tamarine for its last fiscal year, and the nine-month period ended April 30,
1996. Such data should be read in conjunction with the financial statements
of Tamarine appearing elsewhere herein as Exhibit B. Results for the interim
period for Tamarine are not necessarily indicative of results for the full
year. Per share information for Tamarine assumes 8,000,000 shares
outstanding, since reduction of shares outstanding to 8,000,000 is a
condition precedent to consummation of the Share Exchange. All of the dollar
amounts shown have been converted to U.S. dollars.
Nine Months Ended Eleven Months Ended
April 30, 1996 July 31, 1995
Revenues. . . . . . . . . . . . . . . . . . $ -0- $ -0-
Net loss. . . . . . . . . . . . . . . . . . $ 184,957 $ 235,694
Net loss per common share . . . . . . . . . $ 0.02 $ 0.03
Total assets. . . . . . . . . . . . . . . . $ 753,151 $ 628,029
Long-term debt (less current maturities). . $ -0- $ -0-
Book value per common share . . . . . . . . $ 0.07 $ 0.07
Cash dividends declared . . . . . . . . . . $ -0- $ -0-
SELECTED UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following table presents selected unaudited pro forma financial
information giving effect to the proposed Share Exchange on the basis
described in the notes to the pro forma combined condensed financial
statements included elsewhere herein. The pro forma information is derived
from the pro forma financial statements and should be read in conjunction
with those statements. See the North Lily Unaudited Pro Forma Condensed
Consolidated Balance Sheet attached hereto as Exhibit C.
As explained in Note 3 of Notes to Pro Forma Condensed Consolidated
Balance Sheet, pro forma statements of operations are not presented, pursuant
to Rule 11-02(b)(1) of Regulation S-X, since no pro forma adjustments are
required. Tamarine has not yet generated any revenues. It has incurred
operating overhead types of expenses, resulting in losses of $184,957 and
$235,694 for the nine-month period ended April 30, 1996 and eleven-month
period ended July 31, 1995, respectively. Similarly, for the three months
ended March 31, 1996 and fiscal year ended December 31, 1995, the Company
generated no revenues from operations and incurred losses of $114,540 and
$922,032, respectively.
BALANCE SHEET DATA: MARCH 31, 1996
Current Assets. . . . . . . . . . . . . . . . . . . . . $ 234,013
Current Liabilities . . . . . . . . . . . . . . . . . . $ 686,133
Working Capital . . . . . . . . . . . . . . . . . . . . $ (452,120)
Total Assets. . . . . . . . . . . . . . . . . . . . . . $ 4,237,471
Shareholders' Equity. . . . . . . . . . . . . . . . . . $ 3,106,338
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<PAGE>
COMPARATIVE PER SHARE DATA
The following table presents historical data for the Company and Tamarine
and pro forma per share data giving effect to the Share Exchange on the basis
described in the notes to the pro forma combined condensed financial
statements included elsewhere herein. The table should be read in conjunction
with the historical financial statements of the Company and Tamarine and the
pro forma financial statements included elsewhere herein. Historical per
share information for North Lily gives effect to the proposed 1-for-10
reverse stock split, since approval of the reverse stock split is necessary
to effect the Share Exchange. Per share information for Tamarine assumes
8,000,000 shares outstanding, since reduction of shares outstanding to
8,000,000 is a condition precedent to consummation of the Share Exchange.
The "Tamarine Equivalent" data has been determined by multiplying the
"Tamarine Historical" data by 26.67, which is the number of shares of
Tamarine common stock to be exchanged for each post-reverse split share of
the Company's Common Stock received by the Tamarine shareholders. See the
North Lily Unaudited Pro Forma Condensed Consolidated Balance Sheet attached
hereto as Exhibit C.
<TABLE>
<CAPTION>
North Lily Tamarine
Historical Fiscal Tamarine Historical Equivalent Eleven
Year Ended Eleven Months Ended Months Ended Pro Forma
December 31, 1995 July 31, 1995 July 31, 1995 Combined
<S> <C> <C> <C> <C>
Net loss. . . . . . $ .39 $ .03 $ .79 not provided
Cash dividends. . . -- -- -- --
North Lily
Historical Three Tamarine Historical Tamarine Equivalent
Months Ended Nine Months Ended Nine Months Pro Forma
March 31, 1996 April 30, 1996 Ended April 30, 1996 Combined
Net loss. . . . . . $ .05 $ .02 $ .62 not provided
Cash dividends. . . -- -- -- --
North Lily Tamarine Tamarine Equivalent Pro Forma
March 31, 1996 April 30, 1996 April 30, 1996 Combined
Book value per
share . . . . . . . $1.03 $ .07 $1.80 $ .95
</TABLE>
RECOMMENDATION AND VOTE REQUIRED
The Board recommends that the shareholders vote "FOR" this proposal to
approve the acquisition of Tamarine. The affirmative vote of a majority of
the shares represented at the Meeting and entitled to vote is required for
approval. See "Voting Securities and Principal Holders Thereof" above.
PROPOSAL 4: ADOPTION OF 1996 STOCK OPTION PLAN
The Board is requesting that the shareholders of the Company adopt the 1996
Stock Option Plan (the "Plan") reserving an aggregate of 2,750,000 shares of the
Company's Common Stock (the "Available Shares") for issuance pursuant to the
exercise of stock options ("Options") which may be granted to employees,
officers, and directors of the Company and consultants to the Company. The Plan
also provides for annual adjustment in the number of Available Shares,
commencing December
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<PAGE>
31, 1996, to a number equal to 10% of the number of shares outstanding on
December 31 of the preceding year or 2,750,000 shares, whichever is greater.
The Plan was adopted by the Board of Directors on March 22, 1996. The Plan is
designed to (i) induce qualified persons to become employees, officers, or
directors of the Company; (ii) reward such persons for past services to the
Company; (iii) encourage such persons to remain in the employ of the Company
or associated with the Company; and (iv) provide additional incentive for
such persons to put forth maximum efforts for the success of business of the
Company. To the extent that management personnel may be eligible to receive
Options which may be granted under the Plan, management has an interest in
obtaining approval of the Plan by the Company's shareholders. As of December
31, 1995, eight persons were eligible to participate in the Plan.
The Plan will be administered by the Compensation Committee of the Board of
Directors (the "Committee"). Transactions under the Plan are intended to comply
with all applicable conditions of Rule 16b-3 under the Securities Exchange Act
of 1934, as amended (the "1934 Act"). In addition to determining who will be
granted Options, the Committee has the authority and discretion to determine
when Options will be granted and the number of Options to be granted. The
Committee may determine which Options may be intended to qualify ("Incentive
Stock Option") for special treatment under the Internal Revenue Code of 1986, as
amended from time to time (the "Code") or Non-Qualified Options ("Non-Qualified
Stock Options") which are not intended to so qualify. See "Federal Income Tax
Consequences" below. The Committee also may determine the time or times when
each Option becomes exercisable, the duration of the exercise period for Options
and the form or forms of the instruments evidencing Options granted under the
Plan. The Committee may adopt, amend, and rescind such rules and regulations as
in its opinion may be advisable for the administration of the Plan. The
Committee may amend the Plan without shareholder approval where such approval is
not required to satisfy any statutory or regulatory requirements.
The Plan provides that disinterested directors will receive automatic
options grants to purchase 100,000 shares (10,000 post-reverse split shares) of
the Company's Common Stock upon their initial appointment or election as
directors, and on the date of each subsequent annual shareholders' meeting,
which vest in 33-1/3% installments commencing on the first anniversary of the
grant date. Grants to employee directors and officer/directors can be either
Non-Qualified Stock Options or Incentive Stock Options, to the extent that they
do not exceed the Incentive Stock Option exercise limitations, and the portion
of an option to an employee director or officer/director that exceeds the dollar
limitations of Code Section 422 will be treated as a Non-Qualified Stock Option.
All options granted to disinterested directors will be Non-Qualified Options.
The Committee also may construe the Plan and the provisions in the
instruments evidencing options granted under the Plan to employee and officer
participants and is empowered to make all other determinations deemed necessary
or advisable for the administration of the Plan. Option grants to disinterested
directors are self-administering and not subject to the Committee's discretion.
The Committee may not adversely affect the rights of any participant under any
unexercised option or any potion thereof without the consent of such
participant. This Plan will remain in effect until it is terminated by the
Compensation Committee, except that no Incentive Stock Option will be granted
after March 22, 2006.
The Plan contains provisions for proportionate adjustment of the number of
shares for outstanding options and the option price per share in the event of
stock dividends, recapitalizations resulting in stock splits or combinations or
exchanges of shares.
Participants in the Plan may be selected by the Committee from employees
and officers of the Company and its subsidiaries and consultants to the Company
and its subsidiaries. Disinterested directors receive annual automatic option
grants, as described above. In determining the persons to whom options will be
granted and the number of shares to be covered by each option, the Committee
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<PAGE>
will take into account the duties of the respective persons, their present and
potential contributions to the success of the Company, and such other factors as
the Committee deems relevant to accomplish the purposes of the Plan.
Only employees of the Company and its subsidiaries, as the term "employee"
is defined for the purposes of the Code will be entitled to receive Incentive
Stock Options. Incentive Stock Options granted under the Plan are intended to
satisfy all requirements for incentive stock options under Section 422 of the
Code and the Treasury Regulations thereunder.
Each option granted under the Plan will be evidenced by a written option
agreement between the Company and the optionee. The option price of any
Incentive Stock Option may be not less than 100% of the Fair Market Value per
share on the date of grant of the option; provided, however, that any Incentive
Stock Option granted under the Plan to a person owning more than ten percent of
the total combined voting power of the Common Stock will have an option price of
not less than 110% of the Fair Market Value per share on the date of grant of
the Incentive Stock Option. Each Non-Qualified Stock Option granted under the
Plan will be at a price no less than 85% of the Fair Market Value per share on
the date of grant thereof, except that the automatic stock option grants to
disinterested directors will be at a price equal to the Fair Market Value per
share on the date of grant. "Fair Market Value" per share as of a particular
date is defined in the Plan as the last sale price of the Company's Common Stock
as reported on a national securities exchange or on the NASDAQ System or, if
none, the average of the closing bid and asked prices of the Company's Common
Stock as reported by NASDAQ or, if such quotations are unavailable, the value
determined by the Committee in its discretion in good faith.
The exercise period of options granted under the Plan may not exceed ten
years from the date of grant thereof. Incentive Stock Options granted to a
person owning more than ten percent of the total combined voting power of the
Common Stock of the Company will be for no more than five years. Except in the
case of options granted to disinterested directors, who comprise the
Compensation Committee, the Committee will have the authority to accelerate or
extend the exercisability of any outstanding option at such time and under such
circumstances as it, in its sole discretion, deems appropriate. However, no
exercise period may be extended to increase the term of the option beyond ten
years from the date of the grant.
To exercise an option, the optionee must pay the full exercise price in
cash, in shares of Common Stock having a Fair Market Value equal to the option
price or in property or in a combination of cash, shares, and property and,
subject to approval of the Committee. The Committee has the sole and absolute
discretion to determine whether or not property other than cash or Common Stock
may be used to purchase the shares of Common Stock thereunder and, if so, to
determine the value of the property received.
An option may not be exercised unless the optionee then is an employee,
officer, or director of the Company or its subsidiaries, and unless the optionee
has remained continuously as an employee, officer, or director of the Company
since the date of grant of the option. If the optionee ceases to be an
employee, officer, or director of the Company or its subsidiaries other than by
reason of death, disability, or for cause, all options granted to such optionee,
fully vested to such optionee but not yet exercised, will terminate three months
after the date the optionee ceases to be an employee, officer or director of the
Company. All options which are not vested to an optionee, under the conditions
stated in this paragraph for which employment ceases, will immediately terminate
on the date the optionee ceases employment or association.
If an optionee dies while an employee, officer or director of the Company,
or if the optionee's employment, officer, or director status terminates by
reason of disability, all options theretofore granted to such optionee, whether
or not otherwise exercisable, unless earlier terminated in accordance with
18
<PAGE>
their terms, may be exercised at any time within one year after the date of
death or disability of said optionee, by the optionee or by the optionee's
estate or by a person who acquired the right to exercise such options by
bequest or inheritance or otherwise by reason of the death or disability of
the optionee.
Options granted under the Plan are not transferable other than by will or
by the laws of descent and distribution or pursuant to a qualified domestic
relations order as defined by the Code or Title I of the Employee Retirement
Income Security Act of 1974, or the rules thereunder. Options may be exercised,
during the lifetime of the optionee, only by the optionee and thereafter only by
his legal representative. An optionee has no rights as a shareholder with
respect to any shares covered by an option until the option has been exercised.
As a condition to the issuance of shares upon the exercise of an option,
the Company will require the optionee to pay to the Company the amount of the
Company's tax withholding liability required in connection with such exercise.
The Company, to the extent permitted or required by law, may deduct a sufficient
number of shares due to the optionee upon exercise of the option to allow the
Company to pay such withholding taxes. The Company is not obligated to advise
any optionee of the existence of any tax or the amount which the Company will be
so required to withhold.
FEDERAL INCOME TAX CONSEQUENCES
The federal income tax discussion set forth below is included for general
information only. Optionees are urged to consult their tax advisors to
determine the particular tax consequences applicable to them, including the
application and effect of foreign, state, and local income and other tax laws.
INCENTIVE STOCK OPTIONS. No income results to the holder of an Incentive
Stock Option upon the grant thereof or issuance of shares upon exercise thereof.
The amount realized on the sale or taxable exchange of the Option Shares in
excess of the option exercise price will be considered a capital gain, except
that, if a sale, taxable exchange, or other disposition occurs within one year
after exercise of the Incentive Stock Option or two years after the grant of the
Incentive Stock Option (generally considered to be a "disqualifying
disposition"), the optionee will realize compensation, for federal income tax
purposes, on the amount by which the lesser of (I) the fair market value on the
date of exercise or (ii) the amount realized on the sale of the shares, exceeds
the exercise price. Any appreciation on the shares between the exercise date
and the disposition will be taxed to the optionee as capital gain. The
difference between the exercise price and the fair market value of the shares
acquired at the time of exercise is a tax preference item for the purpose of
calculating the alternative minimum tax on individuals under the Code. This
preference amount will not be included again in alternative minimum taxable
income in the year the taxpayer disposes of the stock.
NON-QUALIFIED STOCK OPTIONS. No compensation will be realized by the
optionee of a Non-Qualified Stock Option at the time it is granted. Upon the
exercise of a Non-Qualified Stock Option, an optionee will realize compensation
for federal income tax purposes on the difference between the exercise price and
the fair market value of the shares acquired at the time of exercise. If the
optionee exercises a Non-Qualified Stock Option by surrendering shares of the
Company's Common Stock, the optionee will not recognize income or gain at the
time of exercise.
CONSEQUENCES TO THE COMPANY. The Company recognizes no deduction at the
time of grant or exercise of an Incentive Stock Option and recognizes no
deduction at the time of grant of a Non-Qualified Stock Option. The Company
will recognize a deduction at the time of exercise of a Non-Qualified Stock
Option on the difference between the option price and the fair market value of
the shares on the date of grant. The Company also will recognize a deduction to
the extent the optionee recognizes income upon a disqualifying disposition of
shares underlying an Incentive Stock Option.
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<PAGE>
VESTING
Unless otherwise specified in an optionee's agreement, options granted
under the Plan to officers, officer/directors, disinterested directors who
are not on the Committee, and employees will become vested with the optionee
under the following schedule: 50% upon the first anniversary of the option
grant and 12.5% upon each of the four three-month periods following the first
anniversary.
RECOMMENDATION AND VOTE REQUIRED
The Board recommends that the shareholders vote "FOR" this proposal to
approve the 1996 Stock Option Plan. The affirmative vote of a majority of the
shares represented at the Meeting and entitled to vote is required for approval
of the 1996 Stock Option Plan. See "Voting Securities and Principal Holders
Thereof" above.
PROPOSAL 5: ADOPTION OF 1996 RESTRICTED STOCK PLAN
The Board is requesting that the shareholders of the Company adopt the 1996
Restricted Stock Plan (the "Plan") reserving an aggregate of 2,750,000 shares
(the "Available Shares") of the Company's Common Stock for issuance to
employees, officers, and directors of the Company and consultants to the
Company. The Plan also provides for annual adjustment in the number of
Available Shares, commencing December 31, 1996, to a number equal to 10% of the
number of shares outstanding on December 31 of the preceding year or 2,750,000
shares, whichever is greater. The Plan was adopted by the Board of Directors on
March 22, 1996. The Plan is designed to (i) induce qualified persons to become
employees, officers, or directors of the Company; (ii) reward such persons for
past services to the Company; (iii) encourage such persons to remain in the
employ of the Company or associated with the Company; and (iv) provide
additional incentive for such persons to put forth maximum efforts for the
success of business of the Company. To the extent that management personnel may
be eligible to receive shares which may be issued under the Plan, management has
an interest in obtaining approval of the Plan by the Company's shareholders. As
of December 31, 1995, eight persons were eligible to participate in the Plan.
Shares issued under this Plan are "restricted" in the sense that they are
subject to repurchase by the Company at cost during the vesting period.
The Plan will be administered by the Compensation Committee of the board of
Directors (the "Committee"). Transactions under the Plan are intended to comply
with all applicable conditions of Rule 16b-3 under the Securities Exchange Act
of 1934, as amended (the "1934 Act"). In addition to determining who will be
issued shares, the Committee has the authority and discretion to determine when
shares will be issued and the number of shares to be issued. The Committee also
may determine the purchase price of the shares issued under the Plan, the period
or periods of time during which the Company will have a right to repurchase the
shares and the terms and conditions of such repurchase, and the form or forms of
the instruments evidencing the issuance of shares pursuant to the Plan. The
Committee may adopt, amend, and rescind such rules and regulations as in its
opinion may be advisable for the administration of the Plan. The Committee may
amend the Plan without shareholder approval where such approval is not required
to satisfy any statutory or regulatory requirements.
The Plan provides that disinterested directors will receive automatic
issuances of 100,000 shares (10,000 post-reverse split shares) of the Company's
Common Stock upon their initial appointment or election as directors, and on the
date of each subsequent annual shareholders' meeting, which vest in 33-1/3%
installments commencing on the first anniversary of the issue date.
20
<PAGE>
The Committee also may construe the Plan and is empowered to make all
other determinations deemed necessary or advisable for the administration of
the Plan. Issuances to disinterested directors are self-administering and not
subject to the Committee's discretion. The Committee may not adversely
affect the rights of any participant under any rights previously granted
without the consent of such participant. This Plan will remain in effect
until it is terminated by the Compensation Committee.
The Plan contains provisions for proportionate adjustment of the number of
shares that may be issued under the Plan and the exercise price of any rights of
repurchase or of first refusal under this Plan in the event of stock dividends,
recapitalizations resulting in stock splits or combinations or exchanges of
shares.
Participants in the Plan may be selected by the Committee from employees
and officers of the Company and its subsidiaries and consultants to the Company
and its subsidiaries. Disinterested directors receive annual automatic
issuances, as described above. In determining the persons to whom shares will
be issued and the number of shares to be issued, the Committee will take into
account the duties of the respective persons, their present and potential
contributions to the success of the Company, and such other factors as the
Committee deems relevant to accomplish the purposes of the Plan.
Shares issued under the Plan will be evidenced by a written restricted
stock purchase agreement between the Company and the participant. Shares issued
under the Plan are transferable only if the transferee agrees to be bound by all
of the terms of the Plan, including the Company's right to repurchase the
shares, and only if such transfer is permissible under federal and state
securities laws. To facilitate the enforcement of the restrictions on transfer,
the Committee may require the holder of the shares to deliver the certificate(s)
for such shares to be held in escrow during the period of restriction.
FEDERAL INCOME TAX CONSEQUENCES
The federal income tax discussion set forth below is included for general
information only. Participants are urged to consult their tax advisors to
determine the particular tax consequences applicable to them, including the
application and effect of foreign, state, and local income and other tax laws.
Section 83(a) of the Internal Revenue Code provides that the receipt of
stock subject to a substantial risk of forfeiture and which is nontransferable
does not result in taxable income until the restrictions lapse. At that time,
the employee recognizes compensation income (taxable at the rate applicable to
ordinary income) in the amount of the spread between the value of the stock and
the amount, if any, the employee paid for the stock. The Company must withhold
employment taxes on this income, and generally may deduct the amount the
employee includes in income as an ordinary business expense.
VESTING
Unless otherwise specified in a participant's agreement, shares issued
under the Plan to officers, officer/directors, disinterested directors who are
not on the Committee, and employees will become vested with the participant
under the following schedule: 50% upon the first anniversary of the date of
issuance and 12.5% upon each of the four three-month periods following the first
anniversary.
21
<PAGE>
RECOMMENDATION AND VOTE REQUIRED
The Board recommends that the shareholders vote "FOR" this proposal to
approve the 1996 Restricted Stock Plan. The affirmative vote of a majority of
the shares represented at the Meeting and entitled to vote is required for
approval of the 1996 Restricted Stock Plan. See "Voting Securities and
Principal Holders Thereof" above.
PROPOSAL 6: AUTHORIZATION OF PREFERRED STOCK
The Company proposes to amend Article IV of its Articles of Incorporation
to authorize 5,000,000 shares of Preferred Stock, no par value per share. A copy
of Article IV as it would read following adoption of this proposal is included
as Exhibit A to this Proxy Statement. The board of directors would be given the
authority to determine the terms of the Preferred Stock, including dividend
rates, conversion prices, voting rights, redemption prices, maturity dates, and
other rights and preferences. No further authorization by holders of the Common
Stock for the issuance of the Preferred Stock is to be obtained.
Although no offering of Preferred Stock is contemplated in the proximate
future, the current Board of Directors believes that it is desirable to have
shares of Preferred Stock available for issuance. Current management has had
many discussions with other parties while attempting to acquire assets and/or
businesses into the Company. Shares of Preferred Stock would represent another
means to acquire assets and/or businesses. The terms of the Preferred Stock
could be negotiated on a transaction-by-transaction basis. It is unlikely that
further authorization for the issuance of the securities by a vote of holders of
the Common Stock will be solicited prior to such issuance. None of the
directors or executive officers of the Company has any substantial interest,
direct or indirect, in this proposal.
RECOMMENDATION AND VOTE REQUIRED
The Board recommends that the shareholders vote "FOR" this proposal to
approve the authorization of the Preferred Stock. The affirmative vote of a
majority of the outstanding shares entitled to vote is required for approval.
See "Voting Securities and Principal Holders Thereof" above.
RELATIONSHIP WITH INDEPENDENT ACCOUNTANTS
Coopers & Lybrand served as the independent accountants for the Company for
the year ended December 31, 1995. Management of the Company intends to select
such firm as the Company's independent accountants for the fiscal year ending
December 31, 1996.
A representative of Coopers & Lybrand is not expected to be present at the
Annual Meeting.
OTHER MATTERS
Except for the matters referred to in the accompanying Notice of Annual
Meeting, management does not intend to present any matter for action at the
Annual Meeting and knows of no matter to be presented that is a proper subject
for action by the shareholders at the meeting. However, if any other matters
should properly come before the meeting, it is intended that votes will be cast
pursuant to the authority granted by the enclosed Proxy in accordance with the
best judgment of the person or persons acting under the Proxy.
22
<PAGE>
ANNUAL REPORT
The Company's Annual Report to Shareholders is being mailed with this Proxy
Statement. It does not contain all the information contained in the Company's
Form 10-K for the year ended December 31, 1995, as filed with the Securities and
Exchange Commission under the Securities Exchange Act of 1934.
UPON WRITTEN REQUEST, THE COMPANY WILL PROVIDE, WITHOUT CHARGE, A COPY OF
ITS ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
AND ITS QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1996,
TO ANY OF THE COMPANY'S SHAREHOLDERS OF RECORD. ANY SUCH WRITTEN REQUEST MAY
BE ADDRESSED TO THE CORPORATE SECRETARY, NORTH LILY MINING COMPANY, 1800
GLENARM PLACE, SUITE 210, DENVER, COLORADO 80202. THE WRITTEN REQUEST SHALL
INCLUDE A GOOD FAITH REPRESENTATION THAT, AS OF _____________, 1996, THE
PERSON MAKING THE REQUEST WAS THE BENEFICIAL OWNER OF COMMON STOCK OF THE
COMPANY ENTITLED TO VOTE AT THE ANNUAL MEETING.
INCORPORATION BY REFERENCE
The Company hereby incorporates by reference the financial statements and
section entitled "Management's Discussion and Analysis of Financial Condition
and Results of Operations" contained in the Annual Report to Shareholders which
is being mailed with this Proxy Statement.
SHAREHOLDER PROPOSALS
Any shareholder proposing to have any appropriate matter brought before the
next annual meeting of shareholders must submit such proposal in accordance with
the proxy rules of the Securities and Exchange Commission. Such proposals
should be sent to the Corporate North Lily Mining Company, 1800 Glenarm Place,
Suite 210, Denver, Colorado 80202, for receipt no later than December 31, 1996.
By order of the Board of Directors:
Stephen E. Flechner, President
Denver, Colorado
August __, 1996
23
<PAGE>
EXHIBIT A
If the proposal to authorize Preferred Stock is approved by the
shareholders, Article IV of the Company's Articles of Incorporation would be
amended to state as follows:
ARTICLE IV
CAPITAL STOCK
SECTION 1. CLASSES AND SHARES AUTHORIZED. The authorized
capital stock of the corporation shall be 5,000,000 shares of
Preferred Stock, no par value, and 30,000,000 shares of Common
Stock, $.10 par value.
SECTION 2. PREFERRED STOCK.
Shares of Preferred Stock may be divided into such series as
may be established from time to time by the Board of Directors.
The Board of Directors from time to time may fix and determine the
relative rights and preferences of the shares of any series so
established.
SECTION 3. COMMON STOCK.
(a) After the corporation shall have complied with all the
requirements, if any, with respect to the setting aside of sums as
sinking funds or redemption or purchase accounts, then, and not
otherwise, the holders of the Common Stock shall be entitled to
receive such dividends as may be declared from time to time by the
Board of Directors of the corporation and paid out of funds legally
available therefor.
(b) In the event of voluntary or involuntary liquidation,
distribution, or sale of assets, dissolution, or winding-up of the
corporation, the holders of the Common Stock shall be entitled to
receive all of the remaining assets of the corporation, tangible
and intangible, of whatever kind available for distribution to
stockholders, ratably in proportion to the number of shares of the
Common Stock held by them respectively.
(c) Except as may otherwise be required by law, each holder
of the Common Stock shall have one vote in respect of each share of
the Common Stock held by him on all matters voted upon by the
stockholders.
SECTION 4. GENERAL PROVISIONS. The capital stock of the
corporation may be issued for money, property, services rendered,
labor done, cash advanced to or on behalf of the corporation, or
for any other assets of value in accordance with an action of the
Board of Directors, whose judgment as to the value of the assets
received in return for said stock shall be conclusive, and said
stock, when issued, shall be fully paid and nonassessable.
A-1
<PAGE>
EXHIBIT B
TAMARINE VENTURES LTD.
FINANCIAL STATEMENTS
JULY 31, 1995
I N D E X
Auditor's Report
Consolidated Balance Sheet
Consolidated Statement of Operations and Retained
Earnings (Deficit)
Consolidated Statement of Changes in Financial
Position
Notes to the Financial Statements
B-1
<PAGE>
[LETTERHEAD]
Auditor's Report
To the Members of
Tamarine Ventures Ltd.
We have examined the balance sheet of TAMARINE VENTURES LTD. as at
JULY 31, 1995 and the statements of operations and retained earnings, and
changes in financial position for the 11 months then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to
obtain reasonable assurance 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 evaluation of the
overall financial statement presentation.
In our opinion, these financial statements present fairly, in all
material respects, the financial position of the Company as at July 31, 1995
and the results of its operations and the changes in its cash resources for
the year then ended in accordance with generally accepted accounting
principles.
Chartered Accountants
August 29, 1995
B-2
<PAGE>
TAMARINE VENTURES LTD.
CONSOLIDATED BALANCE SHEET
FOR THE 11 MONTHS ENDED JULY 31, 1995
A S S E T S
1995
----------
Current
Cash $ 28,362
Accounts receivable 22,401
Prepaid expenses 12,000
----------
62,763
Option agreement - (Note 3) 45,578
Capital Assets - (Note 4) 745,138
Incorporation costs 2,838
----------
$ 856,317
----------
----------
L I A B I L I T I E S
Current
Bank overdraft $ 12,718
Accounts payable and accrued liabilities 126,792
----------
139,510
Contigencies note
Share capital - (Note 5) 1,038,176
Retained earnings (deficit) (321,369)
----------
716,807
----------
$ 856,317
----------
----------
Approved by the Directors:
Director
- ---------------------------
Director
- ---------------------------
B-3
<PAGE>
TAMARINE VENTURES LTD.
CONSOLIDATED STATEMENT OF OPERATIONS AND RETAINED EARNINGS (DEFICIT)
FOR THE 11 MONTHS ENDED JULY 31, 1995
1995
----------
Revenue $ -
----------
Operating expenses
Bank charges and interest 197
Consultants 116,370
Professional fees 48,086
Management fees 57,500
Office 19,241
Rent 16,502
Travel 62,165
Amortization 1,308
----------
321,369
----------
Income (loss) for the year (321,369)
Retained earnings (deficit) beginning of year -
----------
Retained earnings (deficit) end of year $ (321,369)
----------
----------
Loss per share $ .05
----------
----------
B-4
<PAGE>
TAMARINE VENTURES LTD.
CONSOLIDATED STATEMENT OF CHANGES IN FINANCIAL POSITION (CASH)
FOR THE 11 MONTHS ENDED JULY 31, 1995
1995
----------
Operating activities
Income (loss) for the year $ (321,369)
Amounts charged against income but requiring
an outlay of cash:
Amortization 1,308
----------
(320,061)
Changes in non-cash working capital items 92,391
----------
(227,670)
----------
Investing activities
Purchase of capital assets (746,446)
Purchase of option agreement (45,578)
Incorporation costs (2,838)
----------
(794,862)
----------
Financing activities
Share capital -issued for cash 288,176
-issued for capital assets 750,000
----------
1,038,176
----------
Increase in cash and equivalents 15,644
----------
Cash and equivelants, end of year $ 15,644
----------
----------
Cash $ 28,362
Bank overdraft (12,718)
----------
$ 15,644
----------
----------
B-5
<PAGE>
TAMARINE VENTURES LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE 11 MONTHS ENDED JULY 31, 1995
1. INCORPORATION
The Company was incorporated on January 7, 1994, under the BRITISH
COLUMBIA COMPANIES ACT for the purpose of acquiring, developing,
manufacturing and marketing of marine products.
2. SIGNIFICANT ACCOUNTING POLICIES
ACCOUNTING PRINCIPLES
The Company prepares its accounts in accordance with accounting
principles generally accepted in Canada which, as applied in these
financial statements conform in all material respects with the
accounting principles generally accepted in the United Kingdom. These
financial statements are, unless otherwise noted, presented in Canadian $.
CONSOLIDATION
These consolidated financial statements include the accounts of the
Company and its subsidiaries:
Port Isaac Workboats Limited
Tamarine Limited
AMORTIZATION
The Company amortizes its fixed assets using the following rates on a
straight line basis. Amortization commences upon the date the Company
begins usage of the asset:
Furniture and fixtures 20%
Computer equipment 33%
Molds 5%
FOREIGN CURRENCY TRANSLATION
Monetary assets and liabilities denominated in foreign currencies are
translated at the rates of exchange prevailing at the balance sheet
date. Non-monetary assets and liabilities are translated at rates in
effect at the dates the assets were acquired or obligations incurred.
Revenue and expense items are translated at the average rate for the year.
The resulting gains and losses are included in operations.
DEVELOPMENT COSTS
Development costs are expensed as occurred unless the development costs
meet the generally accepted accounting criteria for deferral and
amortization. The Company interprets these criteria on a stringent
basis under which interpretation few, if any, development costs would
qualify for deferral.
B-6
<PAGE>
TAMARINE VENTURES LTD.
NOTES TO THE FINANCIAL STATEMENTS .../cont'd
FOR THE 11 MONTHS ENDED JULY 31, 1995
2. SIGNIFICANT ACCOUNTING POLICIES ...CONT'D
CONTINUANCE OF OPERATIONS
These financial statements are prepared on the going concern basis which
implies that the Company will continue realizing its assets and
discharging its liabilities in the normal course of business. The
ability to continue as a going concern is dependent upon the Company
obtaining additional working capital and arranging adequate additional
financing.
LOSS PER SHARE
Loss per share is calculated on the basis of the weighted average number
of common shares outstanding and issued for the year.
3. AGREEMENTS
a) PORT ISAAC WORKBOATS
The Company, pursuant to an asset purchase agreement with a shareholder the
Company has:
i) purchased certain vessel molds, known as the Offshore 105 and
Offshore 125, plans and rights to use the designs outside of
the European Economic Community for 750,000 common shares
(after rollback) of the Company at a deemed value of $750,000.
ii) signed an option agreement giving it the right to purchase the
remaining business of the vendor known as Port Isaac
Workboats, including leasehold interests, vessel molds known
as the Offshore Dory, the Offshore 25, and upgrades to the
Offshore 125, and all design and product rights (including all
rights in the European Economic Community) for $250,000
Canadian of which $25,000 has been paid.
b) TAMARINE LIMITED
The Company purchased from shareholders and directors of the Company all
the issued and outstanding shares of Tamarine Limited for L2 Sterling and
a 1 1/2% Royalty on Contracts initiated prior to the purchase and the
assumption of certain liabilities of Tamarine Limited.
The net assets acquired were:
Accounts receiveable $ 22,401
-----------
-----------
Bank overdraft $ 12,718
Accounts payable 9,683
-----------
$ 22,401
-----------
-----------
B-7
<PAGE>
TAMARINE VENTURES LTD.
NOTES TO THE FINANCIAL STATEMENTS .../cont'd
FOR THE 11 MONTHS ENDED JULY 31, 1995
3. AGREEMENTS ...CONT'D
c) RHYS CAPITAL LIMITED
The Company has signed an agreement with Rhys Capital Limited (RHYS) for
Rhys to locate, initiate negotiations for, and arrange financing for the
acquisition of operating companies in Australia in exchange for fees of:
a) Australian $173,181 payable in advance;
b) expenses incurred by Rhys;
c) 5% of the total transaction payable in shares or cash,
upon completion of the acquisition;
d) 5% of the shares of Tamarine Ventures Ltd. upon successful
completion of the acquisition;
e) $17,500 support per month subsequent to completion, for
ongoing market support.
The company has agreed to issue 450,000 shares to Rhys in exchange for
the expenses to be incurred by Rhys.
The company has accrued 50,000 as payable under the contract being the
estimate of amounts completed at July 31, 1995.
4. CAPITAL ASSETS
Accumulated Net book
Cost Amortization Value
-------- ------------ --------
Furniture and fixtures $ 5,700 $ 189 $ 5,511
Computers 11,324 1,119 10,205
Molds 729,422 - 729,422
-------- ------ --------
$746,446 $1,308 $745,138
-------- ------ --------
-------- ------ --------
5. SHARE CAPITAL
Authorized: 100,000,000 common shares without par value.
Shares issued for cash at: Amount Shares
$ .000833 A, B, D $ 5,001 6,001,200
$ .0001 C, D 175 1,750,000
$ .25 C, E 253,000 1,012,000
$ .50 C, E 30,000 60,000
-------- ---------
288,176 8,823,200
Shares issued for assets A, B, D 750,000 750,000
-------- ---------
B-8
<PAGE>
TAMARINE VENTURES LTD.
NOTES TO THE FINANCIAL STATEMENTS .../cont'd
FOR THE 11 MONTHS ENDED JULY 31, 1995
$1,038,126 9,573,200
---------- ---------
---------- ---------
5. SHARE CAPITAL ...CONT'D
"A" denotes shares issued
"B" after giving effect to a 2 to 1 rollback
"C" shares allotted and un-issued
"D" subject to earnout escrow agreement
"E" subject to Pooling agreement.
6. RELATED PARTY TRANSACTIONS
The purchase and option agreement to acquire Port Isaac Workboats (see
Note 3 [a]).
Purchase of Tamarine Limited (see Note 3[b]).
Management fees of $57,500 were paid to two of the Company's directors
and shareholders.
Rent and office service fees of $8,477 were paid to a former director
and shareholder.
Rent and office service fees of $6,420 were paid to a company controlled
by a shareholder.
Consultation fees and disbursements of $32,956 were accrued to two
shareholders of the Company.
Consultation fees of $16,000 were paid to a shareholder of the Company
to manage Tamarine Limited.
Accounting fees of $2,313 were paid to a company owned by a director and
shareholder.
B-9
<PAGE>
TAMARINE VENTURES LTD.
INTERIM FINANCIAL STATEMENTS
APRIL 30, 1996
(UNAUDITED - SEE NOTICE TO READER)
INDEX
Notice to Reader
Balance Sheet
Statement of Loss and Deficit
Notes to the Financial Statements
B-10
<PAGE>
TAMARINE VENTURES LTD.
___________________________________________________________________________
STE 402 - 938 HOWE STREET, VANCOUVER, B.C. V6Z 1N9 TEL (604)687-7593
FAX (604)687-7278
NOTICE TO READER
We have compiled the interim balance sheet of Tamarine Ventures Ltd. as at
April 30, 1996 and interim statements of loss and deficit for the nine month
period then ended for management purposes only. We have not audited, reviewed
or otherwise attempted to verify the accuracy or completeness of such
information. Readers are cautioned these statements may not be appropriate for
their purposes.
May 25, 1996
Vancouver, B.C.
B-11
<PAGE>
TAMARINE VENTURES LTD.
INTERIM BALANCE SHEET
APRIL 30, 1996
(Unaudited - See Notice to Reader)
1996 1996
April 30 July 31
ASSETS
Current assets
Cash $ 1,835 $ 28,362
Accounts receivable 22,401
Prepaid expenses 12,000
----------- -----------
1,835 62,763
Option Agreement 45,578 45,578
Deferred acquisition costs 225,000
Capital Assets 749,611 745,138
Incorporation costs 2,261 2,838
----------- -----------
$1,024,285 856,317
----------- -----------
----------- -----------
LIABILITIES
Current liabilities
Bank overdraft $ $ 12,718
Accounts payable and accrued liabilities 291,217 126,792
----------- -----------
291,217 139,510
SHAREHOLDERS' EQUITY
Capital stock 1,305,978 1,038,176
Accumulated deficit (572,910) (321,369)
----------- -----------
733,068 716,807
----------- -----------
Approved stock 1,024,285 856,317
----------- -----------
----------- -----------
_________________________Director
_________________________Director
See Accompanying Notes
B-12
<PAGE>
TAMARINE VENTURES LTD.
INTERIM STATEMENT OF LOSS AND DEFICIT
FOR THE PERIOD AUGUST 1, 1995 TO APRIL 30, 1996
(Unaudited - See Notice to Reader)
<TABLE>
<CAPTION>
Period from Period from
August 1, 1995 August 31, 1994
to April 30, 1996 to July 31, 1995
<S> <C> <C>
Expenses
Consulting and filing fees $ 14,982 $ 116,370
Professional fees 39,979 48,086
Management fees 26,150 57,500
Office expense 53,070 19,438
Rent 4,105 16,502
Travel 113,255 62,165
Amortization 1,308
---------- -----------
251,541 321,369
Net loss for the period (251,541) (321,369)
---------- -----------
Accumulated deficit
Beginning of period (321,369) (321,369)
---------- -----------
End of period (572,910) (321,369)
---------- -----------
</TABLE>
See Accompanying Notes
B-13
<PAGE>
TAMARINE VENTURES LTD.
NOTES TO THE INTERIM FINANCIAL STATEMENTS
APRIL 30, 1996
(Unaudited - See Notice to Reader)
1. Going concern
These financial statements have been prepared based on the going concern
basis of accounting. This basis of accounting assumes the Company will be able
to realize its assets and settle its liabilities in the normal course of
business. Failure of the Company to continue as a going concern may result in
the realization of assets at amounts significantly different from net book
value.
2. Significant accounting policies
Reporting currency - All amounts reported are in Canadian funds.
B-14
<PAGE>
EXHIBIT C
NORTH LILY MINING COMPANY
PRO FORMA CONDENSED CONSOLIDATED
BALANCE SHEET AS AT MARCH 31, 1996
(Unaudited - Prepared by Management)
C-1
<PAGE>
NORTH LILY MINING COMPANY
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS AT MARCH 31, 1996
(UNAUDITED - PREPARED BY MANAGEMENT)
<TABLE>
NORTH LILY
MINING TAMARINE PRO FORMA
COMPANY VENTURES LTD. ADJUSTMENTS PRO FORMA
$ $ $ $
(NOTE 3)
<S> <C> <C> <C> <C>
A S S E T S
CURRENT ASSETS
Current assets:
Cash and cash equivalents 111,904 1,350 (11,171) (i) 102,083
Marketable securities 52,976 - - 52,976
Accounts receivable 35,747 - - 35,747
Inventory 43,207 - - 43,207
----------- -------- -------- -----------
243,834 1,350 (11,171) 234,013
Advances to Tamarine Ventures Ltd. 103,308 22,605 (i) -
(125,913) (iv) -
Plant and equipment, net 272,124 551,184 - 823,308
Mineral properties, net 3,072,693 - - 3,072,693
Other assets 107,457 200,617 (200,617) 107,457
----------- -------- -------- -----------
3,799,416 753,151 (315,096) 4,237,471
----------- -------- -------- -----------
----------- -------- -------- -----------
LIABILITIES
Current liabilities:
Accounts payable 362,996 214,130 11,434 (i)
(125,913) (iv) 462,647
Accrued and other liabilities 38,000 - - 38,000
Reclamation liabilities 185,486 - - 185,486
----------- -------- -------- -----------
586,482 214,130 (114,479) 686,133
Due to officers 445,000 - - 445,000
----------- -------- -------- -----------
1,031,482 214,130 (114,479) 1,131,133
----------- -------- -------- -----------
SHAREHOLDERS' EQUITY
Common stock 2,820,222 960,278 300,000 (iii)
(960,278) (iii) 3,120,222
Additional paid-in capital 49,143,994 - 38,404 49,182,398
Accumulated deficit (48,950,479) (421,257) 421,257 (iii) (48,950,479)
Treasury stock (267,395) - - (267,395)
Marketable securities valuation
adjustment 21,592 - - 21,592
----------- -------- -------- -----------
2,767,934 539,021 (200,617) 3,106,338
----------- -------- -------- -----------
3,799,416 753,151 (315,096) 4,237,471
----------- -------- -------- -----------
----------- -------- -------- -----------
</TABLE>
C-2
<PAGE>
NORTH LILY MINING COMPANY
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS AT MARCH 31, 1996
(UNAUDITED - PREPARED BY MANAGEMENT)
1. PROPOSED SHARE EXCHANGE WITH TAMARINE VENTURES LTD.
The Company is in the final stages of its negotiation of an Agreement and
Plan of Share Exchange (the "Agreement") with Tamarine Ventures Ltd., a
company incorporated under the laws of British Columbia, Canada
("Tamarine"). Under the terms of the Agreement the Company will be
required to effect a one new for ten old reverse stock split, whereby
every ten shares of the Company's issued and outstanding shares of Common
Stock will be exchanged for one share of Common Stock ("Post-Consolidated
Share"). On closing, the Company will issue 300,000 Post-Consolidated
Shares of the Company in exchange for all of the issued and outstanding
common shares of Tamarine, thereby making Tamarine a wholly-owned
subsidiary of the Company (the "Share Exchange"). The Company has also
agreed to issue up to 2,700,000 additional Post-Consolidated Shares (the
"Performance Shares") of its common stock to the shareholders of Tamarine,
if during any four consecutive calendar quarters, Tamarine achieves any of
the following:
i) 700,000 Post-Consolidated Shares upon generating gross
revenues of $8,000,000, not later than December 31, 1997;
ii) 1,000,000 Post-Consolidated Shares upon generating gross
revenues of $20,000,000, not later than December 31, 1999; and
iii) 1,000,000 Post-Consolidated Shares upon achieving $2,750,000
in net profits, after tax, not later than December 31, 1999.
Closing of the Share Exchange is subject to a number of conditions
including regulatory acceptance, approval by the shareholders of the
Company and satisfactory results of due diligence investigations conducted
by the Company and Tamarine.
2. BASIS OF PRESENTATION
The pro forma condensed balance sheet has been prepared for inclusion in
the Company's annual information circular and relating to the Agreement
and giving effect to the transactions described in Note 3.
The pro forma condensed balance sheet should be read in conjunction with
the audited consolidated financial statements of the Company and Tamarine
and other information referred to in the annual information circular. It
has been compiled from:
(a) the unaudited condensed consolidated balance sheet of the Company as
at March 31, 1996; and
(b) the unaudited condensed consolidated balance sheet of Tamarine as at
April 30, 1996, which is expressed in Canadian Dollars. The dollars
have been translated into United States Dollars. At March 31, 1996,
the value of the United States Dollar in terms of Canadian Dollars
was $1.36.
The acquisition of Tamarine will be accounted for as a purchase
transaction. The assets and liabilities of Tamarine acquired are adjusted
to their estimated fair values as described in Note 3 below.
In the opinion of management, this pro forma condensed consolidated
balance sheet includes all the adjustments necessary for fair presentation
of the proposed transaction in accordance with United States generally
accepted accounting principles. The pro forma condensed balance sheet is
not necessarily indicative of the results of operations or the financial
position that may be obtained in the future.
C-3
<PAGE>
NORTH LILY MINING COMPANY
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS AT MARCH 31, 1996
(UNAUDITED - PREPARED BY MANAGEMENT)
3. PRO FORMA TRANSACTIONS
To date, Tamarine has not generated revenues and has only incurred
corporate and administrative expenses. For the nine month period ended
April 30, 1996, Tamarine has reported total expenses of $184,957
(Cdn.$251,541). In the opinion of management, a pro forma condensed
income statement is not necessary for fair representation of the proposed
transaction.
The pro forma condensed consolidated balance sheet at March 31, 1996 has
been compiled assuming the transactions occurred on March 31, 1996 and
gives effect to the following:
PRIOR TO THE ACQUISITION
(i) the additional advances of $22,605 by the Company to Tamarine
subsequent to March 31, 1996 ($11,171 recorded by Tamarine to
April 30, 1996);
(ii) a consolidation of the issued and outstanding common stock of
the Company on a one new share (the "Post-Consolidated Share")
for ten old common shares;
ON ACQUISITION
(iii) the issuance of 300,000 Post-Consolidated Shares in exchange
for all of the issued and outstanding common shares of
Tamarine at a deemed value of $1.12 per Post-Consolidated
Share (the "Acquisition"). As indicated in Note 2, the
Acquisition will be accounted for using the purchase method.
Details of assets and liabilities acquired are as follows:
$
Net assets acquired at assigned values
Cash 1,350
Non-cash working capital defiency (214,130)
Capital assets 551,184
--------
Total consideration 337,054
--------
--------
(iv) advances of $125,913 by the Company to Tamarine are
eliminated.
4. PERFORMANCE SHARES
As described in Note 1, the Company may be required to issue up to
2,700,000 Performance Shares if Tamarine achieves certain performance
criteria. The issuance of the Performance Shares, if any, will be
recorded, when determinable, as an additional cost of the Acquisition.
C-4
<PAGE>
<TABLE>
<S><C>
PROXY
NORTH LILY MINING COMPANY
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF SHAREHOLDERS
To Be Held ____________________ 1996
The undersigned hereby constitutes and appoints Stephen E. Flechner and W. Gene Webb the true and
lawful attorneys and proxies of the undersigned each with full power of substitution and appointment,
for and in the name, place, and stead of the undersigned to act for and to vote all of the undersigned's
shares of common stock of North Lily Mining Company (the "Company") at the Annual Meeting of Shareholders
to be held on __________, 1996, at ____ _.m., _______ Standard Time, at _________________________________
___________________________________________________________________, and at any and all adjournments
thereof, for the purpose of considering and acting upon:
1. ELECTION OF DIRECTORS / /FOR all nominees listed below / /WITHHOLD AUTHORITY
(except as marked to the to vote for all nominees listed
contrary below) below
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE MARK THE BOX NEXT TO THE NOMINEE'S NAME BELOW.)
/ /S. Flechner / /T. Loud / /J. Twohig / /W. Webb
2. PROPOSAL TO APPROVE THE REVERSE STOCK SPLIT
/ /FOR / /AGAINST / /ABSTAIN
3. PROPOSAL TO ACQUIRE TAMARINE VENTURES LTD.
/ /FOR / /AGAINST / /ABSTAIN
4. PROPOSAL TO ADOPT 1996 STOCK OPTION PLAN
/ /FOR / /AGAINST / /ABSTAIN
5. PROPOSAL TO ADOPT 1996 RESTRICTED STOCK PLAN
/ /FOR / /AGAINST / /ABSTAIN
6. PROPOSAL TO AMEND ARTICLES OF INCORPORATION TO AUTHORIZE PREFERRED STOCK
/ /FOR / /AGAINST / /ABSTAIN
7. In their discretion, the Proxies are authorized to vote upon such other business as may properly
come before the meeting.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED BY THE UNDERSIGNED
SHAREHOLDER. IF NO DIRECTION IS GIVEN, THEN THE SHARES REPRESENTED BY THIS PROXY
WILL BE VOTED FOR PROPOSALS 1, 2, 3, 4, 5, AND 6.
The undersigned hereby acknowledges receipt of the Notice of Annual Meeting of Shareholders and
the Proxy Statement furnished therewith.
Dated and signed ________________, 1996.
---------------------------------------------
---------------------------------------------
SIGNATURE(S) OF SHAREHOLDER(S)
(Signature(s) should agree with the name(s)
stenciled hereon. Executors, administrators,
trustees, guardians, and attorneys should
indicate when signing. Attorneys should
submit powers of attorney.
PLEASE SIGN AND RETURN THIS PROXY IN THE ENVELOPE PROVIDED. THE GIVING OF A PROXY
WILL NOT AFFECT YOUR RIGHT TO VOTE IN PERSON IF YOU ATTEND THE MEETING.
PROXIES MUST BE SIGNED AND DATED IN ORDER TO BE VALID.
</TABLE>
<PAGE>
NORTH LILY MINING COMPANY
ANNUAL REPORT
<PAGE>
[president's letter]
2
<PAGE>
BUSINESS OVERVIEW
North Lily Mining Company ("NLMC") was incorporated in Utah in 1916. NLMC
produced gold, silver, lead, zinc, and copper from the North Lily Mine in the
Tintic Mining District of Utah from 1925 until 1949.
TUINA, CHILE - COPPER
The Tuina properties are held by Compania Minera Phoenix S.A., a Chilean
company that is owned 41% by the Company and 59% by International Mahogany
Corp. ("Mahogany") at December 31, 1995. During 1995, the Company, Mahogany
and Yuma Gold Mines Limited ("Yuma") entered into a number of agreements
which may result in Yuma acquiring Mahogany's interest in the Tuina
properties. Yuma may also increase its ownership in the Tuina property by a
further 15%. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Restructuring of Tuina Ownership."
The property is located approximately 60 kilometers (37 miles) east of
Calama, in Region II in the Country of Chile and consists of a total of 6,080
hectares (15,013 acres).
To date the Company has calculated a mineable tonnage of 3.5 million metric
tonnes of copper ore contained in the San Jose and San Martin pits at an
estimated soluble copper grade of 1.1%. The estimated stripping ratio to
mine this tonnage would be 2.3 to 1.
During 1995, Yuma commissioned UM Engineering ("UM") to prepare an
independent bankable feasibility study on the economics of a solvent
extraction / electrowinning ("SX/EW") plant for the Tuina Project. UM
delivered its report in July, 1995 (the "UM Report"). The UM Report
concluded that, based on current reserves of approximately 38,000 tons of
recoverable copper, a 6,000 ton per year plant could generate a rate of
return of 26% and achieve payout in approximately four years. In addition,
the economics of the SX/EW plant could be improved by: conducting a mining
survey to increase proven reserves; obtaining other ore sources from
surrounding properties; and/or decreasing the capital investment by using
second hand equipment or subcontracting parts of the operation.
Activities on the Tuina Project have been curtailed pending completion of
Yuma's proposed acquisition of Mahogany's 59% interest in Phoenix. Yuma is
currently funding ongoing costs relating to the Tuina Project. It is
expected that once this transaction closes Yuma will proceed with bringing
the Tuina copper project into production. Yuma, Mahogany and Company
management are reviewing and assessing alternatives to further improve the
economics of the Tuina Project.
TINTIC PROPERTIES, UTAH - UNDERLYING VALUES
The Tintic Properties, which are held 100% by the Company, are located in the
Tintic Mining District, Utah and Juab Counties in the State of Utah,
approximately 80 miles south of Salt Lake City. The properties comprise (1)
surface and mineral rights on approximately 8,115 acres of patented lode
mining claims and other patented land owned in fee simple; (2) 2,200 acres of
patented land with agricultural and mineral rights; (3) city lots in Eureka,
Utah, covering 21 acres; (4) 104 acres of unpatented mining claims; and (5)
20 acres without mineral rights. In addition, the Company owns 28 acres of
patented lode mining claims and two unpatented lode mining claims in the
Tintic Mining District, Juab County, Utah. There are currently no gold
reserves identified on the properties, however deep exploration targets are
renewing the interest of several companies.
On January 23, 1987, the Company entered into a ten-year mining lease with
Centurion Mines Corporation, a non-affiliated mining company, covering
approximately 6,000 acres. The lease, which specifically excludes the mine
dumps and tailings, Silver City mill, and existing grazing leases, requires a
production royalty equal to a 5% NSR. During 1991 North Lily renegotiated
its mining lease. The lessee is required to make advance royalty payments of
$27,500 in 1992, $27,500 in 1993, $27,500 in 1994 and $75,000 thereafter
(payments to 1996 have been received). The lessee is also required to fulfil
a work commitment with respect to the leased premises at a minimum cost to
lessee of $50,000 in 1992, $50,000 in 1993 and $150,000 during each
succeeding year.
The property remains subject to a lease agreement with Centurion Mines
Corporation who are operators of the property. Centurion Mines Corporation
has advised the Company that they will be spending at least $150,000 in
exploration work on the property in order to fulfil their work commitments.
3
<PAGE>
SILVER CITY JOINT VENTURE, UTAH - GOLD
The joint venture property, which is owned 50% by North Lily and 50% by
Mahogany, is located in Juab County, approximately 80 miles south of Salt
Lake City, Utah and consists of approximately 20 acres. The Silver City
Joint Venture was a project designed to extract gold and silver from a
previous mine's tailings using a heap leach process. The project is now
undergoing reclamation work, while considering leaching opportunities, and it
is not known if the project will produce any further gold or gold equivalent.
The remaining reclamation costs have been budgeted for $440,000 of which
$220,000 is the Company's share. Approximately $165,000 in state reclamation
bonds have been jointly posted. After reclamation work is completed, to the
satisfaction of regulatory authorities, the reclamation bonds are to be
returned. Funding of reclamation work in 1996 remains a substantial burden
to the Company.
SAN SIMON, BOLIVIA - GOLD
On April 1, 1995, the Company and Akiko Gold Resources Ltd. ("Akiko"),
entered into a letter of agreement (the "San Simon Agreement") with Robert S.
Friberg and Marcelo Claure Z. (jointly "Friberg/Claure") whereby
Friberg/Claure agreed to acquire mineral properties located in the San Simon
region of Bolivia on behalf of Akiko and the Company (collectively the
"Companies"). Friberg/Claure will retain an 8% carried interest, with the
Companies funding all costs and obligations on a 50/50 basis. To date
Friberg/Claure have acquired four concessions (the "San Simon Property") from
a third party. Friberg/Claure are to transfer the San Simon Property to a
Bolivian subsidiary to be established by the Company. The Companies do not
anticipate any further properties to be acquired under the San Simon
Agreement. Through December 31, 1995, the Company has paid $40,338 to
Friberg/Claure relating to costs incurred pursuant to the San Simon Agreement
and property payments made on the San Simon Property.
The San Simon Property consists of four concessions, known as "Pedro Ricardo
I" and "Pedro Ricardo II", "Machetero I" and "Machetero II" and is located in
northeastern Bolivia, adjacent to the Brazilian border within the Amazon
Basin, in the area of San Simon, Canton Mategua, Province of Itenez, State of
Beni and consists of approximately 5,300 hectares.
There are no known gold reserves on the San Simon Property at this time.
Minimal work was performed on the San Simon Property in 1995.
The Companies are seeking a joint venture partner to help exploit the San
Simon Property and have had discussion with several major mining companies.
If the Companies are unable to conclude any arrangements the Companies will
commence work on the San Simon Property pursuant to the terms of its
agreements.
4
<PAGE>
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
----------- ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues - - $ 1,409,836 $ 3,194,916 $ 13,134,403
Loss from continuing operations
before extraordinary item $ (995,782) $(2,071,147) $(6,286,733) $(4,697,928) $(11,929,642)
Loss before extraordinary item $ (995,782) $(2,071,147) $(6,271,619) $(5,210,307) $(11,934,592)
Net loss $ (922,032) $(2,071,147) $(6,271,619) $(5,210,307) $(11,934,592)
Loss per share from continuing
operations before extraordinary item $ (0.04) $ (0.09) $ (0.27) $ (0.25) $ (0.63)
Loss per share before extraordinary item $ (0.04) $ (0.09) $ (0.27) $ (0.25) $ (0.63)
Net loss per share $ (0.04) $ (0.09) $ (0.27) $ (0.28) $ (0.63)
Total assets from continuing
operations $4,201,720 $ 5,105,048 $ 6,354,791 $21,049,824 $ 27,975,190
Total assets $4,201,720 $ 5,105,048 $ 6,354,791 $22,467,197 $ 31,739,931
Non-current liabilities $ 385,000(2) $ 1,168,223(3) - - -
Book value per share(1) $ 0.12 $ 0.13 $ 0.22 $ 0.23 $ 0.58
Cash dividends declared - - - - -
</TABLE>
(1) Based on the outstanding number of shares less treasury stock.
(2) Comprises of $165,000 of unpaid 1994 salaries and $220,000 unpaid 1995
salaries to officers.
(3) Includes $354,250 of indebtedness to be settled by the issuance of
Company stock, at an ascribed price of $0.30 per share, and $165,000 of
unpaid salaries to officers of the Company in which the officers have the
option to accept common shares of the Company, at an ascribed price of
$0.30 per share.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
CORPORATE PROFILE AND HISTORY
North Lily was incorporated in Utah in 1916 and was a subsidiary of Anaconda
Company from 1925 until 1949. During this period, the Company produced gold,
silver, lead, zinc and copper from the North Lily Mine in the Tintic Mining
District, Utah. From 1949 to 1987, the Company was primarily engaged in the
acquisition, exploration, and development of mining properties. From 1988 to
1990, a Company subsidiary, International Mahogany Corp. ("Mahogany"), a
Canadian publicly-traded mining company listed on the Toronto Stock Exchange,
jointly with International Corona (Mahogany had a 70% working interest),
placed the Jolu Mine in Northern Saskatchewan, Canada, into production and
produced approximately 204,000 ounces of gold. In 1991, the Company and
Mahogany acquired the Tuina copper property in Chile, South America. Since
1991, the Company and Mahogany have jointly been developing the Tuina copper
project. The Company has also operated a small heap leach tailing recovery
operation in Utah ("Silver City") which has produced approximately 33,000
ounces of gold and gold equivalent since 1988. Silver City is currently in
the process of site reclamation work.
RESTRUCTURING OF TUINA OWNERSHIP
Effective April 12, 1995, the Company and Mahogany agreed to a restructuring
of the ownership interest of the Tuina Project. In settlement of the
Company's outstanding debt to Mahogany of $797,481, as at March 28, 1995, the
Company reduced its ownership interest in Compania Minera Phoenix S.A.
("Phoenix") from 50% to 41%. The Company also agreed to terms by which the
Company's remaining interest in the Tuina Project will be impacted.
Subsequently, Mahogany agreed to sell its 59% interest in Phoenix to Yuma
Gold Mines Limited ("Yuma"). The sale to Yuma was extended on several
occasions and the terms subsequently revised (the "Mahogany-Yuma Agreement").
By previous agreements entered into April 18, 1995 and August 22, 1995, on
December 4, 1995 Yuma entered into a revised agreement with the Company. In
summary, the Company's remaining interest in Phoenix will, subject to receipt
of regulatory approvals and completion of the Mahogany-Yuma Agreement, be
impacted as follows:
5
<PAGE>
i) Yuma will receive an additional 5% interest in Phoenix in
exchange for funded costs and the delivery of an independent
bankable feasibility study in respect of the Tuina Project;
ii) the Company would be required to sell a further 10% interest
in Phoenix to Yuma for an initial payment of $145,000, less
deductions for operating costs and the costs of securing the water
rights for the Tuina Project. In addition, Yuma is required to
make two further payments to the Company, due upon commencement of
Tuina commercial production and one year thereafter. These
payments are to be calculated in relation to the initial capital
costs of the Tuina Project, from a high of $609,000 where the
initial capital costs are less than $14,000,000 with graduating
payments decreasing as capital costs increase, and may be made, at
Yuma's election, in cash or shares of Yuma; and
iii) all participants will be responsible for contributing their
share of funding following completion and delivery of the
Feasibility Study. The failure of any participant to contribute
its share of funding will result in a dilution of that
participant's interest in accordance with a dilution formula.
Once a participant's interest has been diluted to 10%, then the
ownership interest will convert to a 10% net profits interest.
Since April 13, 1995, Yuma has assumed all indebtedness of Phoenix, provided
funding for the preparation of the feasibility study, the costs of securing
the water rights for the Tuina Project and the ongoing costs of Phoenix.
These costs are partially recoverable by Yuma (the "Yuma Payments") from the
Company from the proceeds to be received from the sale of the 10% interest in
Phoenix, as noted in item (ii) above. Closing of the Mahogany-Yuma Agreement
is subject to regulatory approval, securing the water rights for the Tuina
Project by April 30, 1996 (the "Water Rights Approval Date"), and the
completion by Yuma of a financing of at least U.S. $1,500,000 within 30 days
of the Water Rights Approval Date.
If the Water Rights Approval Date does not occur as contemplated, Yuma may
elect to terminate the Mahogany-Yuma Agreement and in such circumstances, the
Company must reimburse Yuma for the Yuma Payments. The reimbursement would
be payable by the Company from proceeds from the subsequent sale of its
interest in the Tuina Project, or commercial production commences on the
Tuina Project. If the Water Rights Approval Date occurs by May 31, 1996, and
Yuma is unable to close the Yuma Purchase Agreement and Mahogany agrees to an
extension of the closing, then Yuma shall lose the rights to reimbursement of
the Yuma Payments.
The Company and Mahogany have an agreement in principle to conduct the
activities of the Tuina Project on a joint venture basis. The Company expects
to enter into a definitive joint venture and operating agreement with Yuma
after closing of the Mahogany-Yuma Agreement.
The restructuring completed with Mahogany allows the Company to retain a
substantial interest in the Tuina Project while eliminating the most
significant debt of the Company.
DISPOSITION OF INTERNATIONAL MAHOGANY CORP.
By way of a letter agreement ("Letter Agreement") dated August 6, 1993, the
Company agreed to sell its equity investment in Mahogany, which comprised an
approximate 25% equity and 60% voting interest in Mahogany. Consideration
received from the sale included: cash of $500,000; a non-interest bearing
note in the amount of $500,000 ("Baja Note"); and 650,000 common shares of
Baja Gold, Inc. ("Baja"), a Canadian publicly-traded precious metals
exploration and development company listed on the Toronto Stock Exchange, and
valued, for financial statement purposes, at $680,000, based on the August 6,
1993 closing stock market price of Baja.
As a result of the Company selling its equity interest in Mahogany,
Mahogany's financial results were no longer consolidated with those of the
Company after the sale of Mahogany on August 6, 1993.
In addition, under the terms of the Letter Agreement, Mr. Anton R. Hendriksz
and Mr. Thomas L. Crom, previous Chairman of the Board and President of the
Company, respectively, agreed to terminate their existing employment
agreements and to provide consulting services to Mahogany and the Company for
a 24-month period in consideration for certain future cash payments. The
termination and consulting payments were to be shared equally by Mahogany and
the Company. During 1993, the Company incurred charges of $212,500 as its
share of the termination and consulting payments. As at December 31, 1994,
$156,250 remained unpaid. During 1995, the Company issued 275,000 shares, at
an ascribed
6
<PAGE>
value of $0.30 per share, in settlement of the $156,250 due to the former
officers, recording an extraordinary gain of $73,750 on settlement.
RESULTS OF OPERATIONS
The Company incurred a loss of $922,032 ($0.04 per share) for the year ended
December 31, 1995, compared to losses of $2,071,147 ($0.09 per share) for
1994 and $6,271,619 ($0.27 per share) for 1993. There were no revenue, no
depletion and depreciation charges and no cost of sales for 1995 or 1994.
The lack of revenue, depletion and depreciation charges and cost of sales
during 1995 and 1994 were due to the continuation of reclamation work at the
Silver City Joint Venture and the decision to suspend operations at the Tuina
copper property in Chile during 1993. The Company, for the year ended 1993,
had revenue of $1,409,836, depletion and depreciation costs of $504,415 and
cost of sales of $2,490,296.
On August 6, 1993, the Company sold its equity investment in Mahogany. The
results of Mahogany's operations are no longer included with those of the
Company's after its sale. There was a significant reduction in revenue in
1993, compared to prior years, due to the winding-down of operations at the
Silver City Joint Venture and the decision to suspend operations at the Tuina
mine. During 1993 the Silver City operation produced 737 ounces of gold and
gold equivalent at Silver City which was sold at an average price of $318 per
ounce. Prior to suspending operations at Tuina, 2.0 million pounds of copper
precipitate was produced and sold at an average price of $0.58 per pound of
precipitates during 1993. The Company does not anticipate any revenue during
1996 from its current properties.
During 1993, the Company incurred costs of $517,303 at the Silver City
property site. These costs included costs to produce the gold and gold
equivalents for the year as well as site reclamation costs. At the Tuina
property, the Company incurred costs of $1,972,993 to produce 2.0 million
pounds of copper precipitate.
General and administrative costs for 1995 was $842,547 compared to $862,735
in 1994 and $1,721,390 in 1993. During 1995 there was a reduction in the
Company's share of general and administrative costs relating to the Tuina
Project, primarily due to Yuma's funding of these costs; however, the reduced
costs were mainly offset by increased head office costs. As a result of the
Company selling its equity investment in Mahogany in 1993, general and
administrative costs for 1994 were reduced from prior years. With the change
of Company management in August 1993, new Company management took certain
steps to reduce ongoing Company general and administrative costs. Employment
of head office staff in San Francisco was terminated. The Company's head
office space in San Francisco was vacated and employment of staff in
Santiago, Chile was reduced. The above measures, including the agreement
with respect to the departure of the Company's previous Chairman and
President, resulted in an aggregate charge to Company earnings in 1993 of
$512,933 and is reflected as restructuring costs for in 1993.
The Company maintains a small exploration department which has assumed the
responsibility of reviewing and maintaining all Company properties. Costs
for maintaining the Company's title and rights to resource properties are
also included in exploration and property holding costs. During 1995, the
Company spent $60,390 on exploration and property holding costs compared with
$432,425 in 1994 and $430,089 in 1993.
During 1995, the Company recorded a gain of $49,500 from the disposition of
certain of its mineral properties. The Company also settled its indebtedness
to Mahogany by reducing its ownership interest in Phoenix from 50% to 41%.
The disposition of the 9% interest in Phoenix has resulted in the elimination
of the Company's indebtedness to Mahogany and a reduction of the Tuina asset
by $797,481.
During 1995, Company management reviewed the carrying values of its remaining
mineral properties and determined to write off the remaining $71,397 carrying
value and reverse an accrual of $23,000 for anticipated property costs of its
Nine Mile property, resulting in a net write off of $48,397. During 1994,
Company management decided to terminate the Ashdown joint venture agreement.
As a result of this decision, a write-down of $197,850 was charged against
earnings in 1994. During 1993, properties with book values of $52,912 were
abandoned, with a corresponding charge to earnings. In addition, in 1994 the
Company recognized a $300,000 provision for diminution in value of the Nine
Mile property. No provision was recognized in 1993.
7
<PAGE>
As a result of steadily declining cash balances and general reduction in
interest rates for funds on deposit, the Company has earned substantially
lower amounts of interest since 1993. Unless the Company sells for cash one
of its resource properties, the Company is not expected to earn any
significant amounts of interest in future years.
Although the Company has experienced a decline in its cash balances since
1993, the Company has not relied on debt financing of any significance.
Accordingly, the Company has not incurred any large interest charges for the
years ended 1995 to 1993.
During 1995, the Company realized $92,628 of gains from the sale of
marketable securities, proceeds from which have been utilized to meet the
Company's liquidity requirements. For the year ended 1994, the Company
disposed of marketable securities with a book value of $495,309 for proceeds
of $665,803, realizing a gain of $170,494. For the year ended 1993, the
Company disposed of marketable securities with a book value of $939,521 for
proceeds of $927,639 realizing a loss of $11,882.
During 1995, the Company received $25,000 from the partial sale of the
Company's mill equipment in Montana. The proceeds were credited towards the
remaining scrap value. During 1994, the Company wrote-down the mill and
equipment to its scrap value of $28,103, charging earnings by $371,897.
During 1993, Company management wrote down the value of this mill equipment
by $482,338.
On May 6, 1993, the Company sold all its shares in a subsidiary, Dragon
Mining Corp., realizing a gain of $729,547 on the sale.
On August 6, 1993, the Company agreed to sell its 25% equity-owned
subsidiary, Mahogany. Consideration received included cash of $500,000, a
note for $500,000 and 650,000 common shares of Baja, valued at $680,000. The
Company recognized a loss of $2,928,595 in 1993 on the sale of Mahogany.
During 1993, the Company's former subsidiary, Mahogany, decided to dispose of
its oil and gas interests. Generally accepted accounting principles required
that the Company's oil and gas interests be reported separately as
discontinued operations in the Consolidated Statements of Operations.
Effective June 3, 1993, Mahogany Minerals U.S. Inc., which held substantially
all of the oil and gas interests, was sold for $1,200,000 resulting in a loss
of $144,778. During 1993, prior to its disposal, the oil and gas operations
generated earnings of $205,234. As a result the Company recorded, net of
minority interest, total earnings of $15,114 related to discontinued
operations.
LIQUIDITY AND CAPITAL RESOURCES
For the past three years the Company has experienced substantial losses and
has continually sold non-essential Company assets to fund ongoing operations
and property commitments and development. Management, in its efforts to
ensure maximum fund availability, has reduced Company operating costs
substantially and has deferred payment of fees for their services. The
Company believes it holds properties with development potential. In order
for the Company to develop its properties or property interests, the Company
requires funds to pay Company overheads, pay property commitment costs and
fund property development work. Resource property development is both costly
and time consuming. Development of a property to a position of generating
cash flow from underlying mineral sales is normally measured in years, and
there is no guarantee of the property's ultimate financial success.
The Company requires funds for its future operations. Funding is
traditionally provided to corporations by way of funds from ongoing company
operations, funds from the issuance of company debt instruments, funds from
company equity issues and funds from the sale of Company assets.
With the suspension of operations at the Tuina mine, and continuing
reclamation work at Silver City, the Company does not have operations from
which funds from ongoing Company operations can be accumulated. With the
Company's present asset base, the Company is not able to generate funds from
operations within the next two years at a minimum, except to the extent that:
(a) Tuina may be brought into successful production in conjunction with the
restructuring of the Tuina Project; and (b) a new project and financing may
be acquired with Company stock.
8
<PAGE>
Throughout 1993, 1994 and a portion of 1995, the Company did not generate
sufficient funds to meet its proportionate share of costs and obligations on
its joint property activities with Mahogany, its ongoing property cost
commitments and its ongoing corporate expenses. During 1993, 1994 and 1995,
a significant portion of the Company's capital resources was funded by
advances from Mahogany. Approximately $1,215,000 and $358,258 was advanced
to the Company by Mahogany during 1993 and 1994 respectively, and a further
$163,546 was advanced during 1995. In December 1993, Mahogany stated that it
was reluctant to fund any further Company capital requirements and in March
1994, demanded repayment of amounts due. On April 12, 1995, the Company and
Mahogany agreed to the restructuring of the Tuina ownership to settle the
Company's outstanding debt to Mahogany. See Restructuring of Tuina Ownership.
During 1993, in response to its increasing financial pressures, the Company
sold its equity interest in Mahogany, receiving: cash of $500,000, which was
utilized to reduce some of the Company's liabilities and fund the Company's
joint operation costs; a promissory note in the amount of $500,000 issued by
Baja, which was subsequently sold to Mahogany at face value in order to
reduce the Company's obligation to Mahogany and 650,000 common shares of
Baja. During 1994, the Company sold 400,000 common shares of Baja for net
proceeds of $553,314. A further $112,489 net proceeds were raised from the
sale of other marketable securities. Sale proceeds were used to reduce
Company liabilities and help fund Company property cost commitments. During
1995, the Company sold a further 10,000 common shares of Baja and other
marketable securities for net proceeds of $153,649. The proceeds were used
to reduce company liabilities.
During 1994, pursuant to the issuance of promissory notes, the Company
borrowed a total of $201,337 ($283,820 Cdn.) from Baja, secured by 150,000
common shares of Baja. The notes bear interest at 7% per annum. These funds
were used to meet a portion of the Tuina operating costs. During 1995, the
Company was advanced $74,532 (Cdn. $100,000) from a private corporation
related to a director of the Company. The Company subsequently issued a
promissory note and borrowed $97,167 (Cdn. $130,000) from a third party,
secured by 90,000 common shares of Baja. The promissory note bears interest
at 8% per annum. The funds from the promissory note were used to repay the
advance from the related party and reduce Company liabilities. Subsequent to
December 31, 1995, the Company sold 210,000 common shares of Baja for net
proceeds of $338,576 (Cdn. $465,000). Substantially all of the funds were
then used to retire all of the promissory notes and outstanding accrued
interest, totalling $335,625.
In order to improve the Company's liquidity position during 1995 the Company
issued 1,455,835 shares, at an ascribed price of $0.30 per share, in
settlement of $510,500 of recorded indebtedness to former Company officers
and related companies, recording an extraordinary gain of $73,750. Current
officers of the Company have also agreed to defer repayment of indebtedness
of $385,000, comprising of $165,000 of unpaid 1994 salaries ("1994
Compensation") and $220,000 of unpaid 1995 salaries ("1995 Compensation"),
until January 2, 1997. The 1994 Compensation will be settled with cash, if
available, or the issuance of shares of the Company, at an ascribed price of
$0.30 per share. The officers have agreed to receive only a 75% portion of
the 1995 Compensation in cash and the remaining 25% portion as deferred
compensation. The cash portion will be paid only upon the Company completing
a financing and the deferred compensation will be paid only in the event that
the Company generates operating cash flow or completes a major financing.
The deferred compensation may be either settled with cash or the issuance of
the Company's common stock, at a predetermined price per share, at the
officer's election.
The Company has reviewed its asset base and has identified those assets that
are considered to be non-essential for the Company's future growth, including
small Company properties in Montana with little, if any, resource potential.
In order for the Company to meet its current operating obligations and
property commitments, the Company is required to sell all non-essential
Company assets. Company management is, therefore, reviewing all other
resource properties, and may be required to sell certain of them that do not
meet its investment criteria. Although the Company has received expressions
of interest in some of its resource properties, it is not currently
negotiating with any third party for the sale of any of its resource
properties.
At December 31, 1995 the Company had a working capital deficiency of
$288,906, a decrease of $201,976 from its working capital deficiency of
$490,882 at December 31, 1994.
The Company reports a use of funds of $742,073 from operating activities for
the year ended December 31, 1995. This compares to a use of funds of
$895,353 and $2,816,949 for 1994 and 1993, respectively.
During the year ended December 31, 1995, the Company generated cash of
$389,637 from its investing activities. The Company received $153,649 from
the net sale of its marketable securities, $62,822 and $93,403 from the sale
of mineral
9
<PAGE>
properties and equipment, respectively and $91,987 in net property payments.
During 1994, the Company was provided cash of $334,642 from investment
activities. The Company received net proceeds of $665,803 from the sale of
its marketable securities. The Company used $300,017 in the exploration of
its mineral properties. An additional $31,144 was used to purchase
equipment. During 1993, the Company was provided cash of $1,587,023 from
investment activities. The Company received cash of $500,000 from the sale of
its interest in Mahogany, $927,639 from the net sale of marketable securities
and investments, $400,000 from the sale of its oil and gas operations and
$199,178 in property payments and foreign tax recoveries. The Company used
$46,249 to acquire equipment, $300,091 to acquire marketable securities and
at the time of disposition of Mahogany, Mahogany had cash of $93,439 which
was no longer reflected in the consolidated results of the Company.
For the year ended December 31, 1995, the Company was provided funds of
$435,997 from financing activities compared to $559,595 provided in 1994 and
$195,146 provided in 1993. In 1995, the Company issued $200,000 common stock
pursuant to a private placement of 1,000,000 shares, received further
advances of $163,546 from Mahogany and increased its promissory notes by
$107,451. The Company advanced $35,000 in contemplation of its acquisition
of Tamarine Ventures Ltd. In 1994, financing activities comprised of
$358,258 in net advances by Mahogany and the issuance of $201,337 in
promissory notes to Baja. For the year ended December 31, 1993, subsequent
to the sale of Mahogany, the Company received funds of $195,146 in advances
from Mahogany.
The Company conducts its current mining and exploration activities in the
United States, Chile and Bolivia. As a result, the Company is subject to
certain risks, including expropriation, political instability, varying
degrees of inflation and other uncertainties.
FUTURE OPERATIONS
In order to meet its obligations for operations and property agreement
commitments, the Company is required to sell its non-essential assets.
Remaining marketable securities will be sold and properties with little or no
potential will be disposed. If the Company does not have the financial
ability to develop a project on its own, future development may be done in
conjunction with other parties.
Company management is currently reviewing all resource properties with the
view to identifying those properties that provide the most potential for
future growth of the Company. Resource properties that do not meet
management's investment criteria may be disposed. The Company owns various
patented mineral claims. The Company is reviewing its current ownership of
its various patent mining claims as to their real estate value both in the
Tintic District, Utah and the Boulder Mountains in Montana. Both of these
areas are located in expanding resort developments and in the Boulder
Mountain area the real estate value is approaching $200 - $300 an acre. The
Tintic properties are located on the west side of Utah Lake and this area has
significant potential for resort development as the east side of Utah Lake is
fully developed.
The Tuina Project will remain suspended pending completion of the
Mahogany-Yuma Agreement. It is expected that once this transaction closes
Yuma will proceed with bringing the Tuina Project into production with the
construction of an SX/EW plant facility. The Company is responsible for
contributing its share of funding, of which any failure will result in a
dilution of the Company's interest.
In addition, Company management is aggressively seeking joint ventures and/or
acquisitions and mergers and related financing to acquire gold and other
natural resource properties that fit the Company's criteria. These criteria
are technical/economic likelihood of success, sufficiently advanced
exploration or development status, and proximity of cash flow, if possible.
Management will review projects in North and South America, Africa and Asia
for attractive gold and other natural resource properties.
PROPOSED SHARE EXCHANGE WITH TAMARINE VENTURES LTD.
On November 17, 1995, the Company executed an Agreement and Plan of Share
Exchange (the "Agreement") with Tamarine Ventures Ltd., a company
incorporated under the laws of British Columbia, Canada ("Tamarine"). The
Agreement provides for the issuance, at closing, of one post-reverse stock
split share of Common Stock of the Company in exchange for each four common
shares of Tamarine, thereby making Tamarine a wholly-owned subsidiary of the
Company (the "Share Exchange"). At the closing of the Share Exchange, the
Company would issue 2,000,000 post-reverse split shares of its Common Stock
10
<PAGE>
to the shareholders of Tamarine. Closing of the Share Exchange is subject to
a number of conditions including regulatory acceptance, approval by the
shareholders of the Company and satisfactory results of due diligence
investigations conducted by the Company and Tamarine.
The Agreement contemplates that Tamarine will acquire other businesses and/or
companies using shares of the Company's Common Stock and asset based
financing. On November 24, 1995, Tamarine executed a Business Sale Agreement
(the "Cougar Acquisition") with Atlay Cat Sales and Services Pty. Ltd.
("Atlay") of Queensland, Australia, to acquire its business, known as Cougar
Catamarans. Cougar Catamarans manufactures and sells boats ranging in size
from 7.5 to 35 meters, which include passenger ferries, pleasure boats,
scenic tour boats, fishing boats, dive boats, and patrol boats. Sales are
made to countries in the Pacific Rim: Japan, Hong Kong, China, Singapore, New
Zealand, the United States, Papua New Guinea, Tahid, Noumea, and the
Maldives. The purchase price is $2,500,000 plus the value at closing of
inventory and work in process. Of the purchase price, $500,000 is to be made
in shares of the Company's Common Stock.
Subsequent to December 31, 1995, the Company issued 1,250,000 shares to Atlay
as partial consideration of the Cougar Acquisition. These shares are held in
escrow. Subsequent to the issuance of the shares, the Cougar Acquisition was
not completed pursuant to the agreement. Tamarine and Atlay are in
negotiations to revise and extend the Cougar Acquisition. There can be no
assurance that the companies will be able to reach an agreement in which case
these shares will be returned to the Company and held in treasury.
The Company is acquiring Tamarine in order to achieve near term operating
cash flow, long term growth and access to opportunities in South East Asia.
Tamarine management has expertise and relationships in the fast ferry
industry and in the emerging economies of South East Asia. Entrance into the
new industry of light weight aluminum fast ferries (for passengers and also
for cargo) positions the Company in an expanding multi-billion dollar
infrastructure industry with focus on the burgeoning economies of South East
Asia, which are also producing major new mineral discoveries for the mining
industry.
IMPACT OF SFAS NO. 115
Effective January 1, 1994, the Company adopted SFAS No. 115 "Accounting for
Certain Investments in Debt and Equity Securities", SFAS No. 115 required the
Company to account for its marketable securities at market value. Unrealized
gains and losses are included as a separate component of shareholders' equity
as a marketable securities valuation adjustment. Previously, marketable
securities were carried at the lower of their aggregate cost or market value
and the unrealized losses net of unrealized gains were included in the
determination of loss for the year.
IMPACT OF SFAS NO. 109
Effective January 1, 1993, the Company adopted SFAS No. 109 "Accounting for
Income Taxes". SFAS No. 109 requires a change from the deferred method to
the liability method of accounting for income taxes. Under the liability
method, deferred income taxes are recognized for the tax consequences of
"temporary differences" by applying enacted statutory tax laws and rates
applicable to future years to differences between the financial statement
carrying amounts and the tax bases of existing assets and liabilities. Under
this new standard, the effect on deferred taxes of a change in tax rates is
recognized in income in the period that includes the enactment date. Under
the deferred method, deferred taxes were recognized using the tax rate
applicable to the year of the calculation and were not adjusted for
subsequent changes in tax rates. The adoption of SFAS No. 109 did not have
any impact on the consolidated financial statements.
IMPACT OF INFLATION
North Lily will be affected by inflation because market value of its
potential products (gold and silver) tends to fluctuate with inflation.
Other major costs should not increase at a rate in excess of inflation.
11
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
North Lily Mining Company:
We have audited the consolidated financial statements and the financial
statement schedules of North Lily Mining Company and Subsidiaries listed in
Item 14(a) of this Form 1O-K. These financial statements and financial
statement schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedules 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 the
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 North Lily
Mining Company and Subsidiaries as of December 31, 1995 and 1994, and the
results of their operations and their cash flows for each of the three years
in the period ended December 31, 1995 in conformity with generally accepted
accounting principles. In addition, in our opinion, the financial statement
schedules referred to above, when considered in relation to the basic
financial statements taken as a whole, present fairly, in all material
respects, the information required to be included therein.
These financial statements have been prepared on the assumption that the
Company will be able to carry on as a going concern. As discussed in note 1
to the consolidated financial statements, the Company has a working capital
deficiency at December 31, 1995, losses from continuing operations for each
of the three years ended December 31, 1995, and no operating cash flow to
meet ongoing obligations. In addition there are certain potential
liabilities which may have an adverse effect on the Company (see note 13).
These factors raise substantial doubt about the Company's ability to continue
as a going concern. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty. Should
the Company be unable to realize on its assets and discharge its liabilities
in the normal course of business, the net realizable value of its assets may
be materially less than the amounts recorded on the balance sheet.
COOPERS & LYBRAND L.L.P.
Oakland, California
April 17, 1996
12
<PAGE>
NORTH LILY MINING COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, December 31, 1995 and 1994
--------------------
1995 1994
----------- ------------
ASSETS
Current assets:
Cash and cash equivalents $ 122,515 $ 38,954
Marketable securities 448,800 299,874
Accounts receivable 44,687 49,201
Inventory 43,207 101,750
----------- ------------
Total current assets 659,209 489,779
Note receivable 35,000 -
Plant and equipment, net 278,111 461,185
Mineral properties, net 3,121,943 4,048,059
Other assets 107,457 106,025
----------- ------------
Total assets $ 4,201,720 $ 5,105,048
----------- ------------
----------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 381,326 $ 402,955
Accrued and other liabilities 38,000 68,000
Reclamation liabilities 220,001 152,119
Notes payable 308,788 201,337
Due to former officers - 156,250
----------- ------------
Total current liabilities 948,115 980,661
Due to International Mahogany Corp. - 648,973
Indebtedness to be settled with shares - 354,250
Due to officers 385,000 165,000
----------- ------------
Total liabilities 1,333,115 2,148,884
----------- ------------
----------- ------------
Commitments and contingencies and going concern (Notes 1 and 13)
Shareholders' equity:
Common stock, $0.10 par value; authorized
30,000,000 shares; issued 25,946,677 and
23,420,842 shares as of December 31, 1995
and 1994, respectively 2,594,667 2,342,084
Additional paid-in capital 48,929,549 48,545,382
Accumulated deficit (48,835,939) (47,913,907)
Treasury stock, at cost, 144,830 shares
as of December 31, 1995 and 1994 (17,395) 17,395)
Marketable securities valuation adjustment 197,723 -
----------- ------------
Total shareholders' equity 2,868,605 2,956,164
----------- ------------
Total liabilities and shareholders' equity $ 4,201,720 $ 5,105,048
----------- ------------
----------- ------------
The accompanying notes are an integral part of these consolidated financial
statements.
13
<PAGE>
NORTH LILY MINING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
--------------------
<TABLE>
<CAPTION>
1995 1994 1993
----------- ------------ ------------
<S> <C> <C> <C>
Sales revenue $ - $ - $ 1,409,836
Cost of sales - - 2,490,296
Depletion and depreciation - - 504,415
----------- ------------ ------------
Gross loss - - (1,584,875)
Operating expenses:
General and administrative 842,547 862,735 1,721,390
Exploration and property carrying costs 60,390 432,425 430,089
Abandonment of mineral properties 48,397 197,850 52,912
Provision for diminution in value of mineral properties - 300,000 -
----------- ------------ ------------
Operating loss (951,334) (1,793,010) (3,789,266)
Other income (expenses):
Interest income 3,310 1,275 48,895
Interest expense (17,242) - (36,233)
Net realized gain (loss) on sale of marketable securities 92,628 170,494 (11,882)
Gain on disposition of mineral properties 49,500 - -
Write-down of mill equipment - (371,897) (664,515)
Gain on sale of Dragon Mining Corp. - - 729,547
Loss on sale of International Mahogany Corp. - - (2,928,595)
Restructuring costs - - (512,933)
Other, net (172,644) (78,009) 275,626
----------- ------------ ------------
Loss from continuing operations, before
minority interest in loss of subsidiaries
and extraordinary item (995,782) (2,071,147) (6,889,356)
Minority interest in loss of subsidiaries - - 602,623
----------- ------------ ------------
Loss from continuing operations before extraordinary item (995,782) (2,071,147) (6,286,733)
Earnings from discontinued operations - - 15,114
----------- ------------ ------------
Loss before extraordinary item (995,782) (2,071,147) (6,271,619)
Extraordinary item - Gain on settlement
of amounts due to former officers 73,750 - -
----------- ------------ ------------
Net loss $ (922,032) $ (2,071,147) $(6,271,619)
----------- ------------ ------------
----------- ------------ ------------
Net loss per common share:
Loss from continuing operations before extraordinary item $ (0.04) $ (0.09) $ (0.27)
----------- ------------ ------------
----------- ------------ ------------
Loss before extraordinary item $ (0.04) $ (0.09) $ (0.27)
----------- ------------ ------------
----------- ------------ ------------
Net loss $ (0.04) $ (0.09) $ (0.27)
----------- ------------ ------------
----------- ------------ ------------
Weighted average common shares outstanding 23,425,837 23,276,012 23,312,343
----------- ------------ ------------
----------- ------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
14
<PAGE>
NORTH LILY MINING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
--------------------
<TABLE>
<CAPTION>
Common Stock Additional
----------------------- Paid-In Accumulated Treasury
Shares Amount Capital Deficit Stock
---------- ----------- ----------- ------------- --------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1992 23,234,842 $2,323,484 $48,461,682 $(39,571,141) $(17,380)
Net loss, year ended December 31, 1993 - - - (6,271,619) -
Common stock issued for services rendered 186,000 18,600 83,700 - -
Common stock repurchased - - - - (15)
Company stock sold by subsidiary - - - - -
Accumulated foreign currency
translation adjustment - - - - -
---------- ---------- ----------- ------------ --------
Balance, December 31, 1993 23,420,842 2,342,084 48,545,382 (45,842,760) (17,395)
Net loss, year ended December 31, 1994 - - - (2,071,147) -
---------- ---------- ----------- ------------ --------
Balance, December 31, 1994 23,420,842 2,342,084 48,545,382 (47,913,907) (17,395)
Net loss, year ended December 31, 1995 - - - (922,032) -
Common stock issued for services rendered 70,000 7,000 7,000 - -
Common stock issued on settlement of debt 1,455,835 145,583 291,167 - -
Company stock issued by private placement 1,000,000 100,000 100,000 - -
Share issue costs - - (14,000) - -
Marketable securities valuation adjustment - - - - -
---------- ---------- ----------- ------------ --------
Balance, December 31, 1995 25,946,677 $2,594,667 $48,929,549 $(48,835,939) $(17,395)
---------- ---------- ----------- ------------ --------
---------- ---------- ----------- ------------ --------
<CAPTION>
Accumulated
Company Marketable Foreign
Stock Securities Currency
Held by Valuation Translation
Subsidiaries Adjustment Adjustment Total
------------ ---------- ----------- ------------
<S> <C> <C> <C> <C>
Balance, December 31, 1992 $(5,239,477 $ - $(747,479) 5,209,689
Net loss, year ended December 31, 1993 - - - (6,271,619)
Common stock issued for services rendered - - - 102,300
Common stock repurchased - - - (15)
Company stock sold by subsidiary 5,239,477 - - 5,239,477
Accumulated foreign currency
translation adjustment - - 747,479 747,479
----------- -------- --------- -----------
Balance, December 31, 1993 - - - 5,027,311
Net loss, year ended December 31, 1994 - - - (2,071,147)
----------- -------- --------- -----------
Balance, December 31, 1994 - - - 2,956,164
Net loss, year ended December 31, 1995 - - - (922,032)
Common stock issued for services rendered - - - 14,000
Common stock issued on settlement of debt - - - 436,750
Company stock issued by private placement - - - 200,000
Share issue costs - - - (14,000)
Marketable securities valuation adjustment - 197,723 - 197,723
----------- -------- --------- -----------
Balance, December 31, 1995 $ - $197,723 $ - $ 2,868,605
----------- -------- --------- -----------
----------- -------- --------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
15
<PAGE>
NORTH LILY MINING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
--------------------
<TABLE>
<CAPTION>
1995 1994 1993
--------- ----------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(922,032) $(2,071,147) $(6,271,619)
--------- ----------- -----------
Adjustments to reconcile net loss to net cash provided
from (used for) operating activities:
Depletion and depreciation 49,562 129,734 504,415
Provision for diminution in value of mineral properties - 300,000 -
Abandonment of mineral properties 48,397 197,850 52,912
Minority interest in loss of subsidiaries - - (557,281)
Net realized loss (gain) on sale of marketable
securities and investments (92,628) (170,494) 11,882
Gain on foreign currency transaction - - (534,727)
Gain on disposition of mineral properties (49,500) - -
Write-down of mill equipment - 371,897 664,515
Gain on sale of Dragon Mining Corp. - - (729,547)
Loss on sale of International Mahogany Corp. - - 2,928,595
Issuance of common stock for services rendered - - 102,300
Indebtedness to be settled with shares - 354,250 -
Decrease (increase) in accounts receivables 4,514 12,995 (38,914)
Decrease in inventory 58,543 49,994 73,315
Decrease (increase) in other assets (1,432) 22,009 144,668
Increase (decrease) in accounts payable (21,629) 128,879 405,405
Increase (decrease) in accrued and other liabilities (30,000) (288,439) 101,644
Increase (decrease) in reclamation liabilities 67,882 (97,881) 171,411
Increase in due to former officers - - 156,250
Increase in due to officers 220,000 165,000 -
Decrease in taxes payable - - (2,173)
Other items (73,750) - -
--------- ----------- -----------
Total adjustments 179,959 1,175,794 3,454,670
--------- ----------- -----------
Net cash used for operating activities (742,073) (895,353) (2,816,949)
--------- ----------- -----------
Cash flows from investing activities:
Acquisition and exploration of mineral properties,
net of option payments and foreign taxes received 91,987 (300,017) 199,178
Acquisition of equipment - (31,144) (46,249)
Proceeds received on sale of equipment 93,403 - -
Proceeds from sale of marketable securities and investments 153,649 665,803 927,639
Purchase of marketable securities and investments (12,224) - 300,091)
Proceeds from sale of mineral properties 62,822 - -
Proceeds from sale of Company's investment in subsidiary's stock - - 500,000
Less: Cash disposed on sale of subsidiary - - (93,439)
Proceeds from sale of discontinued operations - - 400,000
Purchase of treasury stock - - (15)
--------- ----------- -----------
Net cash provided from investing activities 389,637 334,642 1,587,023
--------- ----------- -----------
Cash flows from financing activities:
Notes payable 107,451 201,337 -
Advances from International Mahogany Corp. 163,546 358,258 195,146
Proceeds from issuance of common stock 200,000 - -
Note receivable (35,000) - -
--------- ----------- -----------
Net cash provided from financing activities 435,997 559,595 195,146
--------- ----------- -----------
Net increase (decrease) in cash and cash equivalents 83,561 (1,116) (1,034,780)
Cash and cash equivalents, beginning of year 38,954 40,070 1,074,850
--------- ----------- -----------
Cash and cash equivalents, end of year $ 122,515 $ 38,954 $ 40,070
--------- ----------- -----------
--------- ----------- -----------
Supplemental Disclosure of Cash Flows Information
Cash paid during the year for:
Interest $ - $ 2,611 $ 36,233
--------- ----------- -----------
--------- ----------- -----------
Income taxes $ - $ - $ -
--------- ----------- -----------
--------- ----------- -----------
Supplemental Schedule of Non-cash Investing and Financing Activities (see Note 14)
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
16
<PAGE>
NORTH LILY MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------
1. GOING CONCERN:
During 1995, 1994, and 1993 the Company incurred net losses of $922,032,
$2,071,147 and $6,271,619, respectively and at December 31, 1995 has a
working capital deficiency of $288,906. During 1995 and 1994 the Company
used cash in operating activities of $742,073 and $895,353, respectively.
During 1993 the Company ceased operations at its Silver City mine and
suspended mining operations at its Tuina mine (Note 8). As a result
the Company has no operating cash flow to meet ongoing obligations.
The Company has continually been selling non-essential Company assets
to fund ongoing operations and property commitments over the past
three years. The Company requires financing to fund its future
operations and will attempt to meet its ongoing liabilities as they
fall due through the sale of marketable securities or mineral
properties. There can be no assurance that the Company will be able
to raise the necessary financing to continue in operations or meet its
liabilities as they fall due or be successful in resolving its
contingent liabilities (note 13). Should the Company be unable to
realize on its assets and discharge its liabilities in the normal
course of business, the Company may not be able to continue in
operations and the net realizable value of its assets may be
materially less than the amounts recorded on the consolidated balance
sheets.
See also Notes 5(a), 6 and 16.
2. NATURE OF OPERATIONS:
The Company is engaged in mineral activities, including exploration,
extraction, processing and reclamation. The Company's principal assets are
its copper mine, located in Chile, and its mineral properties, located in
the United States.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of North Lily
Mining Company, a Utah corporation, and all of its subsidiaries (the
"Company"). The Company's significant subsidiary is Minera Northern
Resources, S.A. ("Minera") (a 100% owned Chilean corporation). All
significant intercompany transactions, accounts, and investments have been
eliminated. See also Note 5.
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amount of assets and
liabilities and disclosure of contingent liabilities at the date of
the financial statements and the reported amount of revenues and
expenses during the reporting period. Actual results could differ
from those estimated.
CASH EQUIVALENTS:
The Company defines cash equivalents as all short-term, highly liquid
investments with original maturity dates less than 90 days.
17
<PAGE>
NORTH LILY MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
--------------------
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
MARKETABLE SECURITIES:
Current marketable equity securities are carried at market value.
Unrealized losses and gains are included as a separate component of
shareholders' equity. Net realized gains and losses on security
transactions are determined on the specific identification cost basis
and are included in the determination of loss for the year.
INVENTORY:
Finished products are recorded at the lower of first-in, first-out cost
or market. In-process heap leach ore, which principally includes
unleached ore placed on heap leach pads, is valued at the lower of
moving average production cost or net realizable value. Costs are
removed from inventory on a first-in, first-out basis. Major mining and
milling supplies are stated at the lower of first-in, first-out cost or
market.
Plant and Equipment:
Plant and equipment is carried at cost net of write-downs. Mill and
equipment are depreciated using the straight-line method over their
estimated useful lives of 5 to 15 years or the units-of-production
method based on estimated tons of ore reserves if the equipment is
located at a producing property with a shorter economic life. Mining
equipment is being depreciated using the straight-line method over their
estimated useful lives of 3 to 15 years or the units-of-production
method based on estimated tons of ore reserves if the equipment is
located at a producing property with a shorter economic life. Office
equipment and fixtures are being depreciated using the straight-line
method over their estimated useful lives of 3 to 10 years. When such
assets are sold or otherwise disposed of, the costs and accumulated
depreciation are removed from the accounts, and any resulting gains or
losses are charged to operations. Carrying values of plant and
equipment are reviewed on a regular basis and, when necessary, are
written down to their estimated recoverable amount.
MINERAL PROPERTIES:
Direct costs related to the acquisition, exploration and development of
mineral properties held or controlled by the Company are deferred on an
individual property basis until viability of a property is determined.
General exploration costs are expensed as incurred. Management of the
Company periodically reviews the recoverability of the capitalized
mineral properties and mining equipment. Management's calculation of
proven and probable reserves is based on engineering and geological
estimates and financial estimates including mineral prices and operating
costs. The Company depreciates its assets and accrues for reclamation
on a units of production basis at each mine site over proven and
probable reserves. Changes in the geological and engineering
interpretation of the Company's ore bodies, mineral price and operating
costs may change the Company's estimate of proven and probable reserves.
It is reasonably possible that the Company's estimate of proven and
probable reserves will change in the near term resulting in additional
charges for depreciation and reclamation in future reporting periods.
When it is determined that a project or property will be abandoned or
its carrying value has been impaired, a provision is made for any
expected loss on the project or property.
Investments in joint ventures are proportionately consolidated.
18
<PAGE>
NORTH LILY MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
--------------------
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
FOREIGN CURRENCY TRANSLATION:
Results of operations for foreign subsidiaries, whose functional
currency is other than the U.S. dollar, are translated using the average
exchange rates during the period, while assets and liabilities are
translated into U.S. dollars using current rates. Resulting translation
adjustments are recorded in currency translation adjustments in
shareholders' equity. For foreign subsidiaries whose functional
currency is the U.S. dollar, currency gains and losses resulting from
translation and transactions are determined using a combination of
current and historical rates and are included in the results of
operations.
REVENUE FROM GOLD AND SILVER BULLION/COPPER PRECIPITATE SALES:
Revenue from gold and silver bullion sales is recorded at the time of
shipment to the refiner if sold within a normal trading cycle. The price
of each shipment is based generally on the closing London bullion price
on the date of shipment or at the price negotiated under forward sales
contracts. Subsequent adjustments for actual sales prices and for
quantity variances based on refiner weights and assays are recorded when
determined.
Revenue from copper precipitate sales is recognized at the point of
transferring the copper precipitate to the buyer's warehouse in
Antofagasta, Chile. The value of each shipment is based on the average
New York Commodity Exchange (Comex) High Grade first position price for
the month of shipment. Subsequent adjustments for actual sales prices
and for quantity variances based on refiner weights and assays are
recorded when determined.
RECLAMATION COSTS:
All of the Company's operations are subject to reclamation, site
restoration and closure requirements. Post-closure reclamation, site
restoration costs and closure costs for each producing mine are charged
to operations over the expected life of the mine using the units of
production method. Current expenditures relating to ongoing
environmental and reclamation programs are expensed as incurred. The
Company calculates its estimate of the ultimate reclamation liability
based on current laws and regulations and the expected future costs to
be incurred in reclaiming, restoring and closing its operating mine
sites. It is reasonably possible that the Company's estimate of its
ultimate reclamation liability will increase in the near term due to
possible changes in laws and regulations and changes in cost estimates.
INCOME TAXES:
Effective January 1, 1993, the Company adopted SFAS No. 109 "Accounting
for Income Taxes". SFAS No. 109 requires a change from the deferred
method to the liability method of accounting for income taxes. Under
the liability method, deferred income taxes are recognized for the tax
consequences of "temporary differences" by applying enacted statutory
tax laws and rates applicable to future years to differences between the
financial statement carrying amounts and the tax bases of existing
assets and liabilities. Under this standard, the effect on deferred
taxes of a change in tax rates is recognized in income in the period
that includes the enactment date. The adoption of SFAS No. 109 did not
have any impact on the consolidated financial statements.
19
<PAGE>
NORTH LILY MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
--------------------
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
CONCENTRATION OF CREDIT RISK:
Financial instruments which potentially subject the Company to
concentrations of credit risk consist of cash and cash equivalents,
investments in marketable securities and receivables. The Company
places its short-term cash investments with high credit quality
financial institutions and, by policy, limits the amount of credit
exposure to any one financial institution. Generally, these investments
mature within 90 days and therefore are subject to minimal risk. The
Company sells products on credit and generally does not require
collateral.
LOSS PER COMMON SHARE:
Loss per common share is calculated using the weighted average number of
shares outstanding during the year. Loss per common share computations
for each of the three years presented do not include the effect of
outstanding stock options, as their effect is antidilutive.
4. DISCONTINUED OPERATIONS:
Effective June 3, 1993, the Company's former subsidiary, International
Mahogany Corp. ("Mahogany"), sold its wholly owned subsidiary, Mahogany
Minerals U.S. Inc. ("Mahogany U.S."), for $1,200,000. Mahogany U.S.
held substantially all of Mahogany's oil and gas interests. The sale of
Mahogany U.S. resulted in a loss of $144,778 in 1993.
The results of the oil and gas interests for 1993 have been reported
separately as discontinued operations in the Consolidated Statements of
Operations. Summarized results of the oil and gas operations for 1993
are as follows:
Revenues $ 522,717
---------
Production costs 76,566
Depletion and amortization 169,118
Other expenses 56,214
Other items 15,585
---------
317,483
---------
Earnings from discontinued
operations before loss on sale of Mahogany U.S. 205,234
Loss on sale of Mahogany U.S. (144,778)
---------
Earnings from discontinued operations 60,456
Minority interest relating to discontinued operations (45,342)
---------
Total earnings related to discontinued operations $ 15,114
---------
---------
20
<PAGE>
NORTH LILY MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
--------------------
5. DISPOSITION OF INTERESTS IN SUBSIDIARY COMPANIES:
A) COMPANIA MINERA PHOENIX S.A.
On April 12, 1995, the Company and Mahogany agreed to a restructuring of
the ownership interest of the Tuina project. In settlement of the
Company's debt to Mahogany as at March 28, 1995, the Company's ownership
interest in Compania Minera Phoenix S.A. ("Phoenix") was reduced from
50% to 41%. The disposition of the 9% interest in Phoenix has resulted
in the elimination of the Company's indebtedness to Mahogany and a
reduction of the Tuina asset by $797,481.
On April 14, 1995, and extended and revised on several occasions,
Mahogany agreed to sell its 59% interest in Phoenix to Yuma Gold Mines
Limited ("Yuma") (the "Mahogany-Yuma Agreement").
On April 18, 1995, and extended and revised on several occasions, the
Company also entered into an agreement with respect to Phoenix.
Pursuant to the terms of the agreement, subject to regulatory approvals
and completion of the Mahogany-Yuma Agreement, the Company's remaining
interest in Phoenix will be impacted, as follows:
i) Yuma will receive an additional 5% interest in Phoenix in
exchange for funded costs and the delivery of an independent
bankable feasibility study in respect of the Tuina project;
ii) the Company will sell a further 10% interest in Phoenix to
Yuma for an initial payment of $145,000, less deductions for
operating costs and the costs of securing the water rights for the
Tuina project. In addition, Yuma is required to make two further
payments to the Company, due upon commencement of Tuina commercial
production and one year thereafter. These payments are to be
calculated in relation to the initial capital costs of the Tuina
project, from a high of $609,000 where the initial capital costs
are less than $14,000,000 with graduating payments decreasing as
capital costs increase, and may be made, at Yuma's election, in
cash or shares of Yuma; and
iii) all participants will be responsible for contributing
their share of funding following completion and delivery of the
Feasibility Study. The failure of any participant to contribute
its share of funding will result in a dilution of that
participant's interest in accordance with a dilution formula.
Once a participant's interest has been diluted to 10%, the
ownership interest will convert to a 10% net profits interest.
Closing of the Mahogany-Yuma Agreement is subject to regulatory
approval, securing the water rights for the Tuina Project by April 30,
1996 (the "Water Rights Approval Date"), and the completion by Yuma of a
financing of at least U.S. $1,500,000 within 30 days of the Water Rights
Approval Date.
If the Water Rights Approval Date does not occur as contemplated, Yuma
may elect to terminate the Mahogany-Yuma Agreement and in such
circumstances, the Company must reimburse Yuma for the Yuma Payments.
The reimbursement would be payable by the Company from proceeds from the
subsequent sale of its interest in the Tuina Project, or commercial
production commences on the Tuina Project. If the Water Rights Approval
Date occurs by April 30, 1996, and Yuma is unable to close the Yuma
Purchase Agreement and Mahogany agrees to an extension of the closing,
then Yuma shall lose the rights to reimbursement of the Yuma Payments.
The Company and Mahogany have an agreement in principle to conduct the
activities of the Tuina project on a joint venture basis. The Company
expects to enter into a definitive joint venture and operating agreement
with Yuma after closing of the Mahogany-Yuma Agreement.
21
<PAGE>
NORTH LILY MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
--------------------
5. DISPOSITION OF INTERESTS IN SUBSIDIARY COMPANIES, CONTINUED:
B) INTERNATIONAL MAHOGANY CORP.
During 1993, the Company sold to Baja Gold, Inc. ("Baja") the Company's
equity investment in Mahogany, consisting of 4,114,958 Class B
subordinate voting shares and 150,000 Class A common shares of Mahogany
(collectively the "Mahogany Shares"), representing a 25.2% equity and
60.1% voting control interest. Consideration received from Baja
included: cash of $500,000; a note, bearing interest at 8% per annum,
issued by Baja in the amount of $500,000; and 650,000 common shares of
Baja, having a fair market value of $680,000 at the date of sale of the
Mahogany Shares. See also Note 12.
As a result of the Company selling its equity interest in Mahogany, the
Company's consolidated financial statements include the results of
Mahogany's operations up to the date of disposition. During 1993, the
Company recognized a loss on the sale of Mahogany of $2,928,595.
The disposed net assets of Mahogany, and the computation of the loss on
sale in 1993 are as follows:
Net Assets of Mahogany
----------------------
Current assets $ 1,531,804
Long-term assets 12,857,716
Liabilities (1,158,485)
Minority interest (14,964,002)
Company stock held 5,239,477
Accumulated foreign currency translation adjustment 1,102,085
-----------
$ 4,608,595
-----------
-----------
The net asset value of Mahogany reflects the Company's original
investment in Mahogany which is adjusted by the Company's proportionate
share of Mahogany's operating results (increased for income and
decreased for losses).
Computation of Loss on Sale
---------------------------
Proceeds on sale $1,680,000
Net assets of Mahogany 4,608,595
----------
$2,928,595
C) DRAGON MINING CORP. ("DRAGON")
During 1993, the Company sold all its shares in Dragon to a third
party for consideration of $1. Dragon had no assets; however,
there was a liability, including accrued interest, on account of a
note payable to a former director, of $729,548. As the liabilities
of Dragon are no longer included in the consolidated financial
statements of the Company a gain of $729,547 was recognized in
1993 on the sale.
6. PROPOSED SHARE EXCHANGE WITH TAMARINE VENTURES LTD.:
On November 17, 1995, the Company executed an Agreement and Plan of
Share Exchange (the "Agreement") with Tamarine Ventures Ltd., a company
incorporated under the laws of British Columbia, Canada ("Tamarine").
Under the terms of the Agreement the Company is required to effect a one
new for ten old reverse stock split, whereby every ten shares of the
Company's issued and outstanding shares of Common Stock will be
exchanged for one share of Common Stock ("Post-Consolidated Share"), and
issue, on closing, one Post-Consolidated Share of the Company in
exchange for four common shares of Tamarine, thereby making Tamarine a
wholly owned subsidiary of the Company (the "Share Exchange").
22
<PAGE>
NORTH LILY MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
--------------------
6. PROPOSED SHARE EXCHANGE WITH TAMARINE VENTURES LTD., CONTINUED:
At the closing of the Share Exchange, the Company would issue 2,000,000
Post-Consolidated Shares of its Common Stock to the shareholders of
Tamarine. Closing of the Share Exchange is subject to a number of
conditions including regulatory acceptance, approval by the shareholders
of the Company and satisfactory results of due diligence investigations
conducted by the Company and Tamarine. The Agreement contemplates that
Tamarine will acquire other businesses and/or companies using shares of
the Company's Common Stock. On November 24, 1995, Tamarine executed a
Business Sale Agreement (the "Cougar Acquisition") with Atlay Cat Sales
and Services Pty. Ltd. ("Atlay") of Queensland, Australia, to acquire
its business, known as Cougar Catamarans. Cougar Catamarans
manufactures and sells boats, which include passenger ferries, pleasure
boats, scenic tour boats, fishing boats, dive boats and patrol boats.
The purchase price is $2,500,000 plus the value at closing of inventory
and work in process. Of the purchase price, $500,000 can be made in
shares of the Company's Common Stock.
Closing of the Share Exchange is subject to a number of conditions,
including Company shareholder and regulatory approvals. There can be no
assurance that the necessary approvals will be obtained, in which case
the Agreement may be amended.
During 1995, the Company loaned Tamarine $35,000 pursuant to the
issuance of a promissory note by Tamarine. The promissory note bears
interest at a rate of 10% compounded semi-annually, payable at maturity.
The principal and interest is payable in full on December 31, 1997.
100,000 common shares of Tamarine have been pledged as collateral.
See also Note 16(i).
7. PLANT AND EQUIPMENT:
Plant and equipment consist of the following at December 31, 1995 and 1994:
1995
------------------------------------------------
Accumulated
Cost Depreciation Write-down Net
---------- ------------ ---------- --------
Mill and equipment $2,132,481 $1,092,966 $1,036,412 $ 3,103
Mining equipment 586,478 354,577 - 231,901
Office equipment and fixtures 220,898 177,791 - 43,107
---------- ---------- ---------- --------
$2,939,857 $1,625,334 $1,036,412 $278,111
---------- ---------- ---------- --------
---------- ---------- ---------- --------
1994
------------------------------------------------
Accumulated
Cost Depreciation Write-down Net
---------- ------------ ---------- --------
Mill and equipment $2,157,481 $1,092,966 $1,036,412 $ 28,103
Mining equipment 713,510 396,467 - 317,043
Office equipment and fixtures 220,898 104,859 - 116,039
---------- ---------- ---------- --------
$3,091,889 $1,594,292 $1,036,412 $461,185
---------- ---------- ---------- --------
---------- ---------- ---------- --------
23
<PAGE>
NORTH LILY MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
--------------------
7. PLANT AND EQUIPMENT, CONTINUED:
Included in mill and equipment is an idle mill facility held for sale.
During 1995, the Company received $25,000 from the partial sale of the
mill facility. During 1994, the Company wrote down the carrying value
of the idle mill facility by $371,897.
8. MINERAL PROPERTIES:
The Company's investment in mineral properties at December 31, 1995 and
1994 is as follows:
1995 1994
---------- ----------
Mineral properties $5,328,528 $6,180,184
Less: Accumulated depletion 999,585 925,125
Provision for diminution in value 1,207,000 1,207,000
---------- ----------
$3,121,943 $4,048,059
---------- ----------
---------- ----------
Below is a breakdown of various Company properties with their respective
net carrying values at December 31, 1995 and 1994.
1995 1994
---------- ----------
U.S. PROPERTIES:
----------------
Nine Mile $ - $ 71,397
Tintic 1,404,593 1,479,593
Other 8,395 21,716
---------- ----------
1,412,988 1,572,706
CHILEAN PROPERTY:
-----------------
Tuina 1,668,617 2,475,353
BOLIVIAN PROPERTY:
------------------
San Simon 40,338 -
---------- ----------
$3,121,943 $4,048,059
---------- ----------
---------- ----------
During 1993 the Company's Silver City mining operation located in Utah
ceased operations and commenced reclamation work. As at December 31,
1995, the Company has accrued $220,000 (1994 - $152,119) as its share of
estimated net future costs to complete its share of the reclamation work.
The Company also suspended production at its Tuina mine in Chile during
1993 due to negative cash flows. This operation is not expected to
resume production until 1997 at the earliest, and requires the
successful financing of the construction of a solvent
extraction/electrowinning plant to produce cathode copper.
See also Note 5(a).
24
<PAGE>
NORTH LILY MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
--------------------
9. NOTES PAYABLE:
1995 1994
-------- --------
Baja Gold, Inc.
Promissory note (Cdn. $283,820),
bearing interest at 7% per annum.
150,000 shares of Baja has been
pledged as collateral for the promissory note $211,621 $201,337
Other
Promissory note (Cdn. $130,000),
bearing interest at 8% per annum.
90,000 shares of Baja has been pledged
as collateral for the promissory note 97,167 -
-------- --------
$308,788 $201,337
-------- --------
-------- --------
See also Note 16(iv).
10. TAXES:
Pretax loss from continuing operations consists of the following:
1995 1994 1993
---------- ------------ ------------
United States $(346,235) $(1,517,229) $(4,671,599)
Foreign (265,827) (553,918) (2,217,757)
--------- ----------- -----------
$(612,062) $(2,071,147) $(6,889,356)
--------- ----------- -----------
--------- ----------- -----------
The components of the foreign pretax loss from continuing operations are
as follows:
1995 1994 1993
---------- ------------ ------------
Mahogany $ - $ - $ (856,576)
Minera (265,827) (553,918) (1,361,181)
--------- ----------- -----------
$(265,827) $ (553,918) $(2,217,757)
--------- ----------- -----------
--------- ----------- -----------
The Company no longer has Canadian loss carryforwards due to the
disposition of Mahogany in 1993 (see Note 5(b)).
For U.S. income tax reporting purposes, the Company has net operating
loss carryforwards of approximately $14,500,000 expiring from 1997 to
2010. The Chilean loss carryforwards are approximately $3,215,000.
Approximately $4,452,000 of the United States losses were acquired in
the merger with Cumberland Gold, and utilization of these net operating
losses is restricted to a maximum of $2,900,000 annually under Internal
Revenue Code Section 382. In addition, the Company has U.S. capital
loss carry-forwards of approximately $27,400,000, expiring 1998. The
U.S. net operating loss and the capital loss carry-forwards are limited
in their availability for use in any given year. In addition, certain
other limitations are placed on the utilization of the net operating
losses generated by the Company's subsidiaries.
For U.S. income tax reporting purposes, the Company has not recorded
deferred tax assets as they are reduced by a valuation allowance in
accordance with SFAS No. 109.
25
<PAGE>
NORTH LILY MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
--------------------
11. STOCK OPTION AGREEMENTS:
1984 Incentive Stock Option Plan:
During 1984, the shareholders approved an incentive stock option plan
(the "Plan") for officers and key employees that provided for grants of
options to purchase up to 300,000 shares of unregistered common stock.
In 1990, the Board of Directors approved an amendment to the Plan to
increase the shares available for option grants to 2,500,000. The
options granted under the Plan are immediately exercisable at the fair
market value of the free trading common stock on the date of grant or
110% of such value if the optionee owned more than 10% of the combined
voting power of all classes of Company stock as of the grant date. The
ability of the Company to grant options, pursuant to the Plan,
terminated in 1995. The options expire a maximum of ten years from the
date of grant.
A summary of the Company's stock option activity is as follows:
Option
Number Price
of Shares per Share
--------- ---------
$
Outstanding at December 31, 1992 2,412,500 .75
Cancelled (2,352,500) .75
----------
Outstanding at December 31, 1993 60,000 .75
Granted 2,480,000 .20
Cancelled (60,000) .75
Cancelled (225,000) .20
----------
Outstanding at December 31, 1994 2,255,000 .20
Cancelled (282,500) .20
----------
Outstanding at December 31, 1995 1,972,500 .20
----------
----------
12. RELATED PARTY TRANSACTIONS:
During the year ended December 31, 1995:
- The Company was charged management, consulting, and office
administration fees and salaries of $272,494 by officers and
companies under significant influence of certain directors of the
Company. As at December 31, 1995, $416,079 remained unpaid of
which $385,000 and $31,079 have been included in due to officers
and accounts payable, respectively.
- The Company issued 1,180,835 shares of the Company in settlement
of $354,250 of indebtedness. Of the amount, $315,000 were amounts
owing to companies controlled by current and former officers and
directors of the Company.
- The Company was advanced $74,532 (Cdn. $100,000) by a corporation
with a director who is also a director of the Company. The
advance was repaid during the year. As at December 31, 1995, the
accrued interest of $643 remained outstanding and was included in
accounts payable.
26
<PAGE>
NORTH LILY MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
--------------------
12. RELATED PARTY TRANSACTIONS, CONTINUED:
During the year ended December 31, 1994:
- The Company was charged management, consulting and office
administration fees and salaries of $271,350 by officers and
companies under significant influence of certain current and
former officers of the Company. The companies also made
disbursements on behalf of the Company. As at December 31, 1994,
$338,905 remained unpaid. Of this amount $150,000, $165,000 and
$23,905 have been included in indebtedness to be settled with
shares, due to officers and accounts payable, respectively. See
also Note 13(d).
During the year ended December 31, 1993:
- The Company was charged management, consulting and office
administration fees of $106,167 by companies under significant
influence of certain current directors and officers of the
Company. As at December 31, 1993, $82,167 remained unpaid and has
been included in accrued and other liabilities.
- The Company was charged management, consulting and office
administration fees of $144,139 by companies under significant
influence of former directors and officers of the Company. As at
December 31, 1993, $39,000 remained unpaid and has been included
in accrued and other liabilities.
- The Company settled $500,000 of amounts due to Mahogany by way of
an assignment of a $500,000 promissory note issued by Baja (the
"Baja Note"). See also Note 5(b). The Company recorded interest
income of $11,778 on the Baja Note prior to the assignment.
- As a result of a change in management, the Company incurred
charges of $212,500 for a severance package negotiated with the
Company's former Chairman and President. In addition, $212,500
was incurred by the Company's former subsidiary, Mahogany. These
amounts have been included as part of the Company's restructuring
costs. Although Mahogany's portion of the termination charge has
been included in the Company's Consolidated Statements of
Operations, its liabilities are no longer included in the
Consolidated Balance Sheets (see Note 5(b)). As at December 31,
1994, $156,250 remained unpaid and was included in due to former
officers and directors. During 1995, the Company issued 275,000
shares of the Company, at an ascribed value of $0.30 per share, to
the former officers and directors in settlement of the $156,250,
recording an extraordinary gain of $73,750 on settlement.
13. COMMITMENTS AND CONTINGENCIES:
(a) The Company has future commitments, and advance royalties payable
for the base terms of certain agreements, assuming no extensions,
as follows:
Total
----------
1996 $ 206,400
1997 224,400
1998 236,400
1999 937,000
----------
$1,604,200
----------
----------
27
<PAGE>
NORTH LILY MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
--------------------
13. COMMITMENTS AND CONTINGENCIES, CONTINUED:
Rent expense for the years ended December 31, 1995, 1994 and 1993 was
$11,928, $12,769 and $92,873, respectively.
(b) The Tuina project is subject to a 5% in-kind royalty on gross
production, with a minimum of 16 tonnes of copper per month
commencing August 1, 1995. During 1994, Phoenix made a payment of
$200,000. The payment represented an advance payment against
which future lease payments could be offset. Since August 1995,
the minimum lease payments have been partially met through
application of this advance payment. Yuma has funded the
remaining portion of payments due.
(c) The Company and other third parties are subject to a multi-count
claim filed with the U.S. District Court in Butte, Montana
claiming that, as a result of exploration activity in the Southern
Cross area, local ground water supplies have been contaminated and
reduced. Despite studies prepared privately and by the Department
of State Lands (Montana) in 1992 which found no evidence of
earlier claims, the plaintiff continues to seek alternative legal
approaches against the defendants. Initial discovery proceedings
were completed in 1995. The Company believes the claims are
without merit and will continue to defend itself vigorously.
(d) As at December 31, 1995, the Company has recorded $385,000 as due
to officers. The officers have agreed not to demand repayment
until January 2, 1997, at which time the indebtedness may be
either settled with cash, if available, or the issuance of shares
of the Company.
(e) During 1994, a former officer of the Company filed a complaint in
the U.S. Superior Court in Maricopa, Arizona seeking unpaid
vacation pay, together with interest thereon, treble damages,
costs and attorney's fees. The Company subsequently paid the
former officer $20,834 representing the Company's calculation of
its share of amounts owed. However, the Company is disputing the
former officer's computation of the claim and also disputes any
award for treble damages. A trial date is scheduled on April 30,
1996.
14. SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
At December 31, 1995, 1994, and 1993, non-cash investing and
financing activities are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------- ---- --------
<S> <C> <C> <C>
Common stock issued on settlement of debt $436,750 $ - $ -
Exchange of mineral property interest on
settlement of amounts due to Mahogany 797,481 - -
Common stock issued for services rendered 14,000 - 102,300
Baja shares received on sale of Mahogany - - 680,000
Baja Note received on sale of Mahogany - - 500,000
Exchange of Baja Note on settlement of amounts due
to Mahogany - - 500,000
Note receivable received on sale of discontinued operations - - 800,000
</TABLE>
28
<PAGE>
NORTH LILY MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
--------------------
15. SEGMENT INFORMATION:
The following summary represents geographic information for the Company's
United States, Chilean and other operations as of and for the years ended
December 31, 1995, 1994 and 1993:
<TABLE>
<CAPTION>
United States Chile Other Total
------------- ---------- -------- -----------
<S> <C> <C> <C> <C>
1995
Sales revenue $ - $ - $ - $ -
Net loss (656,205) (265,827) - (922,032)
Identifiable assets 2,201,249 1,960,133 40,338 4,201,720
1994
Sales revenue $ - $ - $ - $ -
Net loss (1,517,229) (553,918) - (2,071,147)
Identifiable assets 2,249,173 2,855,875 - 5,105,048
1993
Sales revenue $ 261,881 $ 1,147,955 $ - $ 1,409,836
Net loss (4,766,881) (1,447,702) (57,036) (6,271,619)
Identifiable assets 3,538,807 2,815,984 - 6,354,791
</TABLE>
The following summary represents segmented information for the Company's
activities as of and for the years ended December 31, 1995, 1994 and 1993:
<TABLE>
<CAPTION>
Gold Discontinued
and Silver Copper Operations Total
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
1995:
Sales revenue $ - $ - $ - $ -
Net loss (656,205) (265,827) - (922,032)
Identifiable assets 1,931,617 2,270,103 - 4,201,720
Depletion and depreciation 4,932 44,630 - 49,562
Abandonment of mineral properties 48,397 - - 48,397
Mineral property recoveries (47,984) (44,791) - (92,775)
1994:
Sales revenue $ - $ - $ - $ -
Net loss (1,517,229) (553,918) - (2,071,147)
Identifiable assets 2,249,173 2,855,875 - 5,105,048
Depletion and depreciation 41,875 87,858 - 129,733
Abandonment of and provision for
mineral properties 497,850 - - 497,850
Mineral property expenditures 59,819 240,198 - 300,017
1993:
Sales revenue $ 261,881 $ 1,147,955 $ - $ 1,409,836
Net loss (4,884,373) (1,447,702) 60,456 (6,271,619)
Identifiable assets 3,538,807 2,815,984 - 6,354,791
Depletion and depreciation 225,414 279,001 - 504,415
Abandonment of mineral properties 52,912 - - 52,912
Mineral property recoveries (31,920) (167,258) - (199,178)
</TABLE>
29
<PAGE>
NORTH LILY MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
--------------------
15. SEGMENT INFORMATION, CONTINUED:
The Company did not generate any revenue during 1994 and 1995.
The Company's 1993 consolidated revenues for gold and silver were from
sales to one customer and for copper were from sales to one customer.
The Company believes that the loss of any of these customers would have
no material adverse impact on the Company because of the active
worldwide market for gold and silver and copper.
During 1992, the Company's gold and silver revenues were generated
solely from the Silver City Joint Venture. In February 1993, the Silver
City reserves were exhausted and the facility ceased operations.
Residual gold leaching continued in 1993.
16. SUBSEQUENT EVENTS
Subsequent to December 31, 1995, the Company:
i) issued 1,250,000 shares, at an ascribed price of $0.20 per share,
to Atlay as partial consideration of the Cougar Acquisition.
These shares are held in escrow. Subsequent to the issuance of
the shares, the Cougar Acquisition was not completed pursuant to
the agreement. Tamarine and Atlay are in negotiations to revise
and extend the Cougar Acquisition. There can be no assurance that
the companies will be able to reach an agreement in which case
these shares will be returned to the Company and held in treasury;
ii) issued 450,000 shares, at an ascribed price of $0.20 per share, to
a company and an individual pursuant to consulting agreements for
providing various consulting and financial public relations;
iii) completed a private placement and issued 555,556 shares, at a
price of $0.18 per share, to a corporation with a director who is
also a director of the Company; and
iv) sold 210,000 shares of Baja for net cash proceeds of $338,567.
The funds were then used to retire all of the notes payable and
outstanding accrued interest, totalling $335,625.
30
<PAGE>
ADDITIONAL SHAREHOLDER INFORMATION
CORPORATE HEADQUARTERS
North Lily Mining Company
1800 Glenarm Place, Suite 210
Denver, Colorado 80202
(303) 294-0427
OFFICERS AND DIRECTORS
Stephen E. Flechner - President, Chief Executive Officer
and Director
North Lily Mining Company
W. Gene Webb - Executive Vice President, Corporate
Secretary and Director
North Lily Mining Company
John R. Twohig - Vice President - Corporate Development
and Director
Chairman and Chief Executive Officer, Tamarine
Ventures, Ltd.
Nick DeMare - Treasurer
President, Chase Management Ltd.
Theodore E. Loud - Director
President, TEL Advisors Inc. of Virginia
AUDITORS
Coopers & Lybrand L.L.P.
Oakland, California
LEGAL COUNSEL
Law Offices of Fay M. Matsukage
Denver, Colorado
STOCK TRANSFER AGENT AND REGISTRAR
American Securities Transfer & Trust, Inc.
938 Quail Street, Suite 101
Lakewood, Colorado 80215
ANNUAL MEETING OF SHAREHOLDERS
The annual meeting of North Lily Mining Company's
shareholders will be held on ______________, 1996, at ____
_.m. at _______________________.
We encourage shareholders to participate in this meeting in
person or by proxy.
MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
North Lily's common stock has traded on the over-the-counter
market for approximately 60 years and was included in the
NASDAQ system beginning May of 1985 (symbol: NLMC).
The range of high and low bid prices for each fiscal quarter
during the two most recently completed fiscal years and the
current fiscal year as reported on NASDAQ is as follows:
Fiscal 1995 High Low
- ----------- ----- -----
First quarter $0.19 $0.12
Second quarter $0.25 $0.12
Third quarter $0.22 $0.12
Fourth quarter $0.16 $0.06
Fiscal 1994 High Low
- ----------- ----- -----
First quarter $0.53 $0.38
Second quarter $0.34 $0.19
Third quarter $0.38 $0.12
Fourth quarter $0.25 $0.09
On July 29, 1996, the closing bid price of the common stock
was $0.156 per share.
The above bid quotations reflect inter-dealer prices, without
retail mark-up, mark-down, or commission and may not
necessarily represent actual transactions.
As of July 29, 1996, there were 10,419 shareholders of record
of North Lily's common stock.
North Lily has not paid or declared any cash dividends and
does not anticipate paying dividends for the foreseeable future.
It is expected that any net income will be retained by North
Lily for the development of its business.
SEC FORM 10-K AND FORM 10-Q
Upon written request, the Company will provide, without
charge, a copy of its Annual Report on Form 10-K for the fiscal
year ended December 31, 1995 and Quarterly Report on Form
10-Q for the quarter ended March 31, 1996, to any of the
Company's shareholders of record. Any such written request
may be addressed to the Corporate Secretary, North Lily
Mining Company, 1800 Glenarm Place, Suite 210, Denver,
Colorado 80202. The written request shall include a good faith
representation that, as of _____________, 1996, the person
making the request was the beneficial owner of Common Stock
of the Company entitled to vote at the Annual Meeting.
<PAGE>
AMENDED AND RESTATED
AGREEMENT AND PLAN OF SHARE EXCHANGE
This Amended and Restated Agreement and Plan of Share Exchange is made
this __ day of ________, 1996, by and among NORTH LILY MINING COMPANY, a Utah
corporation ("NLMC"), TAMARINE VENTURES LTD., a company incorporated under
the laws of the Province of British Columbia ("TVL"), and the persons or
entities identified on Schedule 2.1 hereof (together, the "Sellers"), each a
shareholder of TVL, and provides for a process by which the TVL will become a
subsidiary of NLMC.
WHEREAS, NLMC is a mining company resident in the State of Colorado,
whose Common Stock is listed for trading on NASDAQ; and
WHEREAS, TVL has expertise in the marine and technology transfer
industries and is pursuing opportunities including but not limited to
business plans to acquire and/or develop marine assets and/or businesses in
the construction and ferry operation industries; and
WHEREAS, NLMC desires to acquire, on the terms and subject to the
conditions and in the manner reflected below, all TVL opportunities and the
outstanding shares of capital stock of TVL; and
WHEREAS, TVL believes that it is desirable and in the best interests of
TVL that its business be combined with that of NLMC, and desires that the
acquisition proposal of NLMC be made available to the shareholders of TVL; and
WHEREAS, NLMC is proceeding with the contemplated transaction in
reliance upon such support documentation agreements and representations
provided and contemplated in this Agreement; and
WHEREAS, the above-named parties executed an Agreement and Plan of Share
Exchange dated November 17, 1995 (the "Original Agreement"); and
WHEREAS, certain matters and events have transpired since the date of
the Original Agreement, making an amendment of the Original Agreement
necessary; and
WHEREAS, to avoid any confusion as to the intentions of the parties, the
agreement, as amended, is restated herein and is intended to supersede the
Original Agreement;
NOW, THEREFORE, the parties to this Amended and Restated Agreement and
Plan of Share Exchange do hereby agree as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement, the terms identified below in this Article I
shall have the meanings indicated, unless a different and common meaning of
the term is clearly indicated by the context, and variants and derivatives of
the following terms shall have correlative meanings. To the extent that
certain of the definitions set forth below suggest, indicate, or express
agreements between or among parties to this Agreement, or contain
representations or warranties or covenants of a party, the parties agree to
the same by execution of this Agreement. The parties to this Agreement agree
that agreements, representations, warranties, and covenants expressed in any
part or provision of this Agreement shall for all purposes of this Agreement
be treated in the same manner as other such agreements, representations,
warranties, and covenants contained elsewhere in this Agreement, and the
Article or Section of this Agreement within which such an agreement,
representation, warranty, or covenant appears shall have no separate meaning
or effect on the same.
<PAGE>
1.1 ACCUMULATED FUNDING DEFICIENCY. An "accumulated funding
deficiency," as defined in ERISA Section 302(a)(2) or the last two sentences
of Section 412(a)(2) of the Code, or, in either case, successor provisions to
such provisions adopted by amendments to ERISA or the Code, as the case may
be, and including, in each case, other provisions of ERISA or the Code or
such other law, modifying, amending, interpreting, or otherwise affecting the
application of such provisions, either in general or as applied to the nature
or circumstances of a particular Entity that is a party to, or is affected by
or in involved in the Share Exchange and with respect to which Entity the use
of the term in this Agreement, or in the particular location in this
Agreement, is relevant.
1.2 AFFILIATE. When used with respect to a person, an "affiliate" of
that person is a person Controlling, Controlled by, or under common Control
with that person.
1.3 AGREEMENT. This Amended and Restated Agreement and Plan of Share
Exchange including all of its schedules and exhibits and all other documents
specifically referred to in this Agreement that have been or are to be
delivered by a party to this Agreement to another such party in connection
with the Share Exchange or this Agreement, and including all duly adopted
amendments, modifications, and supplements to or of this Agreement and such
schedules, exhibits, and other documents.
1.4 AUDITED FINANCIAL STATEMENTS. The balance sheet, income statement,
statement of stockholders' equity, and statement of cash flows or, in each
instance, equivalent statements as commonly provided to shareholders, as at
December 31, 1995 and for the three years then ended, in the case of NLMC,
and as at July 31, 1995 and for the period then ended, in the case of TVL, in
each instance as reported on by Auditors.
1.5 AUDITORS. With respect to NLMC, Coopers & Lybrand, and with
respect to TVL, Casson & Shpak, Chartered Accountants, in each instance,
independent certified public accountants currently being retained for the
purpose of auditing financial statements of that party. With respect to any
report hereafter issued by Auditors, the term shall mean that firm of
independent certified public accountants of national reputation that the
Entity in question reasonably selects to serve as its auditors.
1.6 BALANCE SHEET. The most recent balance sheet included in the
Audited Financial Statements or Unaudited Financial Statements, as the case
may be.
1.7 CLOSING. The completion of the Share Exchange, to take place as
described in Article II.
1.8 CODE. The Internal Revenue Code of 1986, as amended and in effect
at the time of execution of the Agreement.
1.9 CONSIDERATION. A total of 300,000 Post-Reverse Split shares of
Common Stock of NLMC.
1.10 CONTROL. Generally, the power to direct the management or affairs
of an Entity.
1.11 DISCLOSURE DOCUMENT. The annual report on Form 10-K for the fiscal
year ended December 31, 1995 and the quarterly report on Form 10-Q for the
quarter ended March 31, 1996, delivered by NLMC to TVL and the document
delivered by TVL to NLMC containing certain disclosures as described in
Article IV hereof.
1.12 ENTITY. A corporation, partnership, sole proprietorship, joint
venture, or other form of organization formed for the conduct of a business
whether active or passive.
2
<PAGE>
1.13 ERISA. The Employee Retirement Income Security Act of 1974, as
amended and in effect at the time of execution of this Agreement.
1.14 GAAP. Generally Accepted Accounting Principles, as in effect on
the date of any statement, report, or determination that purports to be, or
is required to be, prepared or made in accordance with GAAP. GAAP shall mean
U.S. GAAP for NLMC and Canadian GAAP for TVL. All references herein to
financial statements prepared in accordance with GAAP shall mean in
accordance with GAAP consistently applied throughout the periods to which
reference is made.
1.15 INVENTORIES. The stock of raw materials, work-in-process, and
finished goods, including but not limited to finished goods purchased for
resale, held by NLMC or TVL, as the case may be, for manufacturing, assembly,
processing, finishing, sale, or resale to others (including other
Subsidiaries or divisions), from time to time in the ordinary course of
business in the form in which such inventories then are held or after
manufacturing, assembling, finishing, processing, incorporating with other
goods or items, refining, or the like.
1.16 LIABILITIES. At any point in time the obligations of a person or
Entity, whether known or unknown, contingent or absolute, recorded on its
books or not, arising or resulting in any way from facts, events, agreements,
obligations, or occurrences that existed or transpired at a prior point in
time.
1.17 LOCAL COUNSEL. Special counsel retained by either Counsel to NLMC
or Counsel to TVL, as the case may be, to advise as to certain matters of
state, provincial, or local law in states or localities in which Counsel to
NLMC, or Counsel to TVL, as the case may be, desires such Local Counsel. In
all instances, due care shall be exercised in the selection of Local Counsel.
1.18 MERGED COMPANY. NLMC and all of its subsidiaries after the Share
Exchange.
1.19 MULTIEMPLOYER PLAN. A "multiemployer plan," as defined in ERISA
Section 3(37) or Section 414(f) of the Code, or, in either case, successor
provisions to such provisions adopted by amendments to ERISA or the Code, as
the case may be, and including, in each case, other provisions of ERISA, of
the Code, or of other law, and regulations adopted under ERISA or the Code or
such other law, modifying, amending, interpreting, or otherwise affecting the
application of such provisions, either in general or as applied to the nature
or circumstances of a particular Entity that is a party to, or is affected by
or is involved in the Share Exchange, and with respect to which Entity the
use of the term in this Agreement, or in the particular location in this
Agreement, is relevant.
1.20 NLMC. North Lily Mining Company, a Utah corporation, which, under
the terms of this Agreement, is acquiring the outstanding capital stock of
TVL.
1.21 PENSION PLAN. A "pension plan" or "employee pension benefit plan,"
as defined in Section 3(2) of ERISA or successor provisions to such provision
adopted by amendments to ERISA and including other provisions of ERISA or of
other law, and regulations adopted under ERISA or such other law, modifying,
amending, interpreting, or otherwise affecting the application of such
provision, either in general or as applied to the nature or circumstances of
a particular Entity that is a party to, or is affected by or is involved in
the Share Exchange and with respect to which Entity the use of the term in
this Agreement, or in the particular location in this Agreement, is relevant.
1.22 PLAN TERMINATION. A termination of a Pension Plan, whether partial
or complete, within the meaning of Title IV of ERISA.
1.23 POST-REVERSE SPLIT. Subsequent to the proposed 1-for-10 reverse
stock split of NLMC.
3
<PAGE>
1.24 PROHIBITED TRANSACTION. A "prohibited transaction," as defined in
Section 406 of ERISA or Section 4975(c) of the Code, or, in either case,
successor provisions to such provisions adopted by amendments to ERISA or the
Code, as the case may be, and including, in each case, other provisions of
ERISA, of the Code or of other law, and regulations adopted under ERISA or
the Code or such other law, modifying, amending, interpreting, or otherwise
affecting the application of such provisions, either in general or as applied
to the nature or circumstances of a particular Entity that is a party to, or
is affected by or is involved in the Share Exchange and with respect to which
Entity the use of the term in this Agreement, or in the particular location
in this Agreement, is relevant.
1.25 PROPRIETARY RIGHT. Trade secrets, copyrights, patents, trademarks,
service marks, customer lists, corporate opportunities, and all similar types
of intangible property developed, created, or owned by NLMC or TVL, or used
by NLMC or TVL in connection with its business, whether or not the same are
entitled to legal protection.
1.26 RECEIVABLE. Accounts receivable, notes receivable, and other
obligations appearing as assets on the books of NLMC or TVL, and customarily
reflected as assets in balance sheets of entities prepared in accordance with
GAAP, indicating moneys owed to the entity.
1.27 REPORTABLE EVENT. A "reportable event," as defined in Section
4043(b) of ERISA or successor provisions to such provision adopted by
amendments to ERISA, and including other provisions of ERISA or of other law,
and regulations adopted under ERISA or such other law, modifying, amending,
interpreting, or otherwise affecting the application of such provision,
either in general or as applied to the nature or circumstances of a
particular Entity that is a party to, or is affected by or is involved in the
Share Exchange and with respect to which Entity the use of the term in this
Agreement, or in the particular location in this Agreement, is relevant.
1.28 SELLERS. The shareholders of TVL who are, pursuant to this
Agreement, agreeing to sell their common shares of TVL to NLMC, as identified
on Schedule 2.1 hereto. "Cash Sellers" are those holders of shares of TVL
who purchased such shares for cash. "Port Isaac Sellers" are those holders
of TVL shares who received such shares in exchange for assets of the Port
Isaac boat manufacturing company in Cornwall, England.
1.29 SHARE EXCHANGE. The exchange of common shares of TVL by NLMC from
the Sellers for shares of NLMC Common Stock, as provided in Article II of
this Agreement.
1.30 SUBSIDIARY. With respect to any Entity, another Entity of which
fifty percent (50%) or more of the effective voting power, or the effective
power to elect a majority of the board of directors or similar governing
body, or fifty percent (50%) or more of the true equity interest, is owned by
such first Entity, directly or indirectly.
1.31 TVL. Tamarine Ventures Ltd., a company incorporated under the laws
of the Province of British Columbia, which will, pursuant to the various
transactions described in this Agreement, become a subsidiary of NLMC. TVL
shall include Tamarine Ventures Ltd. And each of its Subsidiaries, both
separately and together as a consolidated whole, unless and except to the
extent expressly indicated otherwise.
1.32 UNAUDITED FINANCIAL STATEMENTS. The balance sheet, income
statement, statement of stockholders' equity, and statement of cash flows or,
in each instance, equivalent statements as commonly provided to shareholders,
as at March 31, 1996 and for the three months then ended, in the case of
NLMC, and as at April 30, 1996 and for the nine months then ended, in the
case of TVL, prepared in accordance with GAAP.
4
<PAGE>
1.33 WELFARE PLAN. A "welfare plan" or an "employee welfare benefit
plan," as defined in Section 3(1) of ERISA or successor provisions to such
provision adopted by amendments to ERISA and including other provisions of
ERISA or of other law, and regulations adopted under ERISA or such other law,
modifying, amending, interpreting, or otherwise affecting the application of
such provision, either in general or as applied to the nature or
circumstances of a particular Entity that is a party to, or is affected by or
is involved in the Share Exchange and with respect to which Entity the use of
the term in this Agreement, or in the particular location in this Agreement,
is relevant.
ARTICLE II
SHARE EXCHANGE
2.1 SHARE EXCHANGE. On the Closing Date, and at the Closing Time,
subject in all instances to each of the terms, conditions, provisions, and
limitations contained in this Agreement, the Sellers shall sell, transfer,
convey, and assign to NLMC, free and clear of any and all liens and charges,
and NLMC shall acquire from the Sellers, their common shares without par
value, of TVL, as identified in Schedule 2.1 hereto, comprising, as to each
such Seller, his, her, or its entire ownership of equity securities of TVL,
in exchange for the Consideration, as described herein, payable for each
common share of TVL held by the Sellers. The shares of TVL acquired by NLMC
shall comprise at least 90% of the issued and outstanding shares of TVL.
2.2 CONSIDERATION. The Cash Sellers shall be entitled to receive an
aggregate of Two Hundred Thousand (200,000), and the Port Isaac Sellers shall
be entitled to receive an aggregate of One Hundred Thousand (100,000),
Post-Reverse Split shares of NLMC Common Stock, for a total of Three Hundred
Thousand (300,000) Post-Reverse Split shares of NLMC Common Stock. This will
give the Cash Sellers one (1) Post-Reverse Split NLMC share for every
5.019915 TVL shares and will give the Port Isaac Sellers one (1) Post-Reverse
Split NLMC share for every 5.85526 TVL shares.
2.3 STOCK LEGENDS.
(1) Certificates representing shares of Common Stock of NLMC issued to
any person who shall be an officer, director, control entity, or
affiliate of NLMC following the Share Exchange shall bear a legend
restricting transfer of the shares of the Common Stock represented
by such stock certificates in substantially the form set forth below:
"The Shares represented by this certificate have not been
registered under the Securities Act of 1933 (the "Act") and
are "restricted securities" as that term is defined in Rule
144 under the Act. The shares may not be offered for sale,
sold, or otherwise transferred except pursuant to an
effective registration statement under the Act, or pursuant
to an exemption from registration under the Act, the
availability of which is to be established to the
satisfaction of the Company."
(2) Certificates representing shares of Common Stock of NLMC issued to
all other Sellers shall bear a legend restricting transfer of the
shares of the Common Stock represented by such stock certificates
in substantially the form set forth below:
"The Shares represented by this certificate have been offered
and sold in an "offshore transaction" in reliance upon
Regulation S as promulgated by the Securities and Exchange
Commission. Accordingly, the shares represented by this
certificate have not been registered under the Securities Act
of 1933 (the "Act") and may not be offered
5
<PAGE>
for sale, sold, or otherwise transferred in the United States
or to a "U.S. Person" (as defined under Regulation S) except
pursuant to an effective registration statement under the
Act, or pursuant to an exemption from registration under the
Act, the availability of which is to be established to the
satisfaction of the Company."
2.4 CLOSING. The Closing hereunder shall take place at the offices of
NLMC in Denver, Colorado or at such other place as NLMC and TVL may agree
upon, on the Closing Date.
2.5 PARTIES TO THE AGREEMENT. By executing this Agreement, each of the
Sellers agrees to be bound by it and by any amendment, modification, or
change in or to it or any of its provisions that is accepted by Sellers
holding a majority of all of the shares of Common Stock of TVL held by all of
the Sellers in the aggregate; provided, however, that no such amendment,
modification, or change shall treat any shareholder who does not consent
thereto less favorably than it treats any shareholder who does consent
thereto.
2.6 MANAGEMENT OF NLMC. Upon the Closing hereunder, the board of
directors of NLMC shall comprise Stephen E. Flechner, W. Gene Webb, Theodore
E. Loud, John R. Twohig, and another director to be nominated by Mr. Twohig
and approved by a majority of the other directors. The officers shall be as
follows: Stephen E. Flechner, President and Chief Executive Officer; John W.
Twohig, Vice-President/Maritime Operations; W. Gene Webb, Executive Vice
President and Secretary; Nick DeMare, Treasurer; and such other officers as
the board of directors may elect.
2.7 VOTING AGREEMENT. Upon the Closing hereunder, the parties/entities
entitled to become holders of a majority of the shares issuable pursuant to
Section 3.1 below shall enter into a voting agreement whereby they shall
agree that for a period of three (3) years their NLMC shares shall be voted
by voting trustees comprising an NLMC representative and a TVL representative.
ARTICLE III
ADDITIONAL CONSIDERATION
3.1 ADDITIONAL CONSIDERATION. If during any four (4) consecutive
calendar quarters ending on or before December 31, 1997 or 1999 as specified
below, the maritime operations within the Merged Company achieve any of the
following, then additional Post-Reverse Split shares of the Common Stock of
NLMC shall be issued to Cash Sellers, the Port Isaac Sellers, and then the
other Sellers as indicated below, pro rata in accordance with their former
share ownership of TVL:
(1) Upon generating gross revenues of Eight Million Dollars
($8,000,000) not later than December 31, 1997, then Seven Hundred
Thousand (700,000) shares shall be issued as follows: Three
Hundred One Thousand Nine Hundred Ninety-Two (301,992) shares to
the Cash Sellers in the proportion of one (1) share for every
3.324535 TVL shares; One Hundred Ninety-Two Thousand Seven Hundred
Sixty-Three (192,763) to the Port Isaac Sellers (giving it the
same aggregate pro rata as the Cash Sellers); and the balance of
Two Hundred Five Thousand Two Hundred Forty-Five (205,245) shares
to the other Sellers.
(2) Upon generating gross revenues of Twenty Million Dollars
($20,000,000) not later than December 31, 1999, then One Million
(1,000,000) shares shall be issued to the other Sellers.
6
<PAGE>
(3) Upon achieving Two Million Seven Hundred Fifty Thousand Dollars
($2,750,000) in net profits after tax not later than December 31,
1999, then One Million (1,000,000) shares shall be issued to the
other Sellers
3.2 ISSUANCE OF SHARES. The shares so issued shall have the same
restrictive legends set forth in Section 2.3 hereof.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
The following representations and warranties are hereby made (i) by NLMC
to the Sellers with respect to NLMC and (ii) by TVL to NLMC with respect to
TVL:
4.1 ORGANIZATION AND QUALIFICATION. It is, and each of its
Subsidiaries is, a corporation duly organized, validly existing, and in good
standing under the laws of its respective jurisdiction of incorporation and
each has the requisite corporate power and authority to carry on its business
as it is now being conducted. Each of it and its Subsidiaries is duly
qualified as a foreign corporation to do business, and is in good standing,
in each jurisdiction where the character of the properties owned or leased by
it, or the nature of its activities, is such that qualification as a foreign
corporation in that jurisdiction is required by law.
4.2 CAPITALIZATION.
(1) NLMC. The authorized capital stock of NLMC consists of 30,000,000
shares of common stock, $.10 par value. There is no other capital
stock authorized for issuance. As of the date of NLMC's Unaudited
Balance Sheet, 29,507,403 shares of common stock were validly
issued and outstanding, fully paid, and nonassessable, no shares
were reserved for issuance, nor were there outstanding any
options, warrants, convertible instruments, or other rights,
agreements, or commitments to acquired common stock of NLMC,
except as fully and completely described in NLMC's Disclosure
Document. Since the date of NLMC's Unaudited Balance Sheet, no
shares of NLMC's capital stock, or options, warrants, or other
rights, agreements, or commitments (contingent or otherwise)
obligating NLMC or any of its Subsidiaries to issue shares of
capital stock, have been executed or issued, except for the
issuance of 1,500,000 shares.
(2) TVL. The authorized capital stock of TVL consists of 100,000,000
common shares, without par value. There is no other capital stock
authorized for issuance. As of the date of TVL's Unaudited
Balance Sheet, 11,500,000 common shares were validly issued and
outstanding, fully paid, and nonassessable, no shares were
reserved for issuance, nor were there outstanding any options,
warrants, convertible instruments, or other rights, agreements, or
commitments to acquired common stock of TVL, except as fully and
completely described on Schedule 4.2(2) hereto. Since the date
of TVL's Unaudited Balance Sheet, no shares of TVL's capital
stock, or options, warrants, or other rights, agreements, or
commitments (contingent or otherwise) obligating TVL or any of its
Subsidiaries to issue shares of capital stock, have been executed
or issued.
4.3 AUTHORITY RELATIVE TO THIS AGREEMENT. This Agreement has been duly
and validly executed and delivered by it and constitutes a valid and binding
agreement of it and is enforceable in accordance with its terms. It has all
requisite corporate power and authority to enter into this Agreement and to
carry out the Share Exchange contemplated hereby, and its doing so has been
duly
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and sufficiently authorized, subject only to shareholder approval and
governmental regulatory approvals as and to the extent specifically set forth
elsewhere in this Agreement.
4.4 ABSENCE OF BREACH; NO CONSENTS. The execution, delivery, and
performance of this Agreement, and the performance by it of its obligations
hereunder, do not, except as disclosed in Schedule 4.4, (1) conflict with or
result in a breach of any of the provisions of its Articles of Incorporation
or Bylaws or of any of its Subsidiaries; (2) contravene any law, ordinance,
rule, or regulation of any State or Commonwealth or political subdivision of
either or of the United States or of any applicable foreign jurisdiction, or
contravene any order, writ, judgment, injunction, decree, determination, or
award of any court or other authority having jurisdiction, or cause the
suspension or revocation of any authorization, consent, approval, or license,
presently in effect, which affects or binds, it or any of its Subsidiaries or
any of its or their material properties, except in any such case where such
contravention will not have a material adverse effect on its or its
Subsidiaries' business, condition (financial or otherwise), operations, or
prospects, taken as a whole, and will not have a material adverse effect on
the validity of this Agreement or on the validity of the consummation of the
Share Exchange; (3) conflict with or result in a material breach of or
default under any material indenture or loan or credit agreement or any other
material agreement or instrument to which it or any of its Subsidiaries is a
party or by which it or they or any of its or their material properties may
be affected or bound; (4) other than consents disclosed in its Disclosure
Document, require the authorization, consent, approval, or license of any
third party; or (5) constitute grounds for the loss or suspension of any
permits, licenses, or other authorizations used in its business.
4.5 BROKERS. No broker, finder, or investment banker is entitled to
any brokerage, finder's, or other fee or commission in connection with this
Agreement or the Share Exchange or any related transaction based upon any
agreements, written or oral, made by or on behalf of it or any of its
Subsidiaries, except for the agreement of __________ 1996 which obligates
NLMC to pay such a fee to ________________________ in Post-Reverse Split
shares of NLMC in an amount equal to 3.5% of the shares actually issued to
the Sellers. It does not have any obligation to pay finder's or broker's
fees or commissions in connection with the exercise of options to renew or
extend real estate leases to which it is a party.
4.6 ABSENCE OF MATERIAL DIFFERENCES FROM DISCLOSURE DOCUMENT. Except
as specifically disclosed in its Disclosure Document:
(1) NO UNDISCLOSED LIABILITIES. Neither it nor any of its
Subsidiaries has any Liabilities which are not adequately
reflected or reserved against on the face of its Unaudited Balance
Sheet, except Liabilities incurred since the date of its Unaudited
Balance Sheet in the ordinary course of business and consistent
with past practice. Without limiting the foregoing, (a) there are
no unpaid leasehold improvements at any of its facilities or
locations for which it is or will be responsible, and (b) there
are no deferred rents due to lessors at or with respect to any of
such facilities or locations, and (c) its Disclosure Document sets
forth, as a part thereof, each of its Liabilities.
(2) NO MATERIAL ADVERSE CHANGE. Since the date of its Unaudited
Balance Sheet, other than as contemplated or caused by this
Agreement, there has not been (a) any material adverse change in
its business, condition (financial or otherwise), operations, or
prospects; (b) any damage, destruction, or loss, whether covered
by insurance or not, having a material adverse effect on its
business, condition (financial or otherwise), operations, or
prospects; (c) any entry into or termination of any material
commitment, contract, agreement, or transaction (including without
limitation, any material borrowing or capital expenditure or sale
or other disposition of any material asset or assets) by it, other
than this Agreement and agreements executed in the ordinary
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course of business; (d) any redemption, repurchase, or other
acquisition for value of its capital stock by it, or any issuance
of the capital stock of it or any of its Subsidiaries or of
securities convertible into or rights to acquire any such capital
stock or any dividend or distribution declared, set aside or paid
on its capital stock; (e) any transfer by it of, or right granted
by it under, any material lease, license, agreement, patent,
trademark, trade name, or copyright; (f) any sale or other
disposition of any asset of it or of any of its Subsidiaries, or
any mortgage, pledge, or imposition of any lien or other
encumbrance on any asset of it or of any of its Subsidiaries,
other than in the ordinary course of business, or any agreement
relating to any of the foregoing; or (g) any default or breach by
it or any of its Subsidiaries in any material respect under any
contract, license, or permit. Since the date of its Unaudited
Balance Sheet, it and its Subsidiaries have conducted their
businesses only in the ordinary and usual course, and, without
limiting the foregoing, no changes have been made in (a) executive
compensation levels; (b) the manner in which other employees of it
and its Subsidiaries are compensated; (c) supplemental benefits
provided to any such executives or other employees; or (d)
inventory levels in relation to sales levels, except, in any such
case, in the ordinary course of business and, in any event,
without material adverse effect on its business, condition
(financial or otherwise), operations, or prospects.
(3) TAXES. It and its Subsidiaries have properly filed or caused to
be filed all federal, state, local, and foreign income and other
tax returns, reports, and declarations that are required by
applicable law to be filed by them, and have paid, or made full
and adequate provision for the payment of, all federal, state,
local, and foreign income and other taxes properly for the periods
covered by such returns, reports, and declarations, except such
taxes, if any, as are adequately reserved against in its Unaudited
Balance Sheet.
(4) LITIGATION. (a) No material investigation or review by any
governmental entity with respect to it or any of its Subsidiaries
is pending or, to the best of its knowledge, threatened (other
than inspections and reviews customarily made of businesses such
as its business), nor has any governmental entity indicated to it
an intention to conduct the same; and (b) there is no action,
suit, or proceeding pending or, to the best of its knowledge,
threatened against or affecting it or its Subsidiaries at law or
in equity, or before any federal, state, municipal, or other
governmental department, commission, board, bureau, agency, or
instrumentality. Its Disclosure Document includes a brief
description of each litigation matter included therein, except
claims (including punitive damage claims, if any) for amounts of
less than $25,000.
(5) EMPLOYEES. There are, except as disclosed in its Disclosure
Document, no collective bargaining, bonus, profit sharing,
compensation, or other plans, agreements, trusts, funds, or
arrangements maintained by it or any of its Subsidiaries for the
benefit of their directors, officers, or employees, and there are
no employment, consulting, severance, or indemnification
arrangements, agreements, or understandings between it or any of
its Subsidiaries, on the one hand, and any current or former
directors, officers, or other employees (or Affiliates thereof) of
it or any of its Subsidiaries, on the other hand. Its Disclosure
Document identifies each person whose income from it in the fiscal
year ended on the date of its Audited Balance Sheet exceeded, or
whose income from it in the fiscal year begun immediately
thereafter is at a rate exceeding, $25,000 per annum, and
describes each contractual arrangement for the employment or
compensation of each such person. It is not, and following the
Closing will not be, bound by any express or implied contract or
agreement to employ, directly or as a consultant or otherwise, any
person for any specific period of time or until any specific
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age except as specified in agreements in writing identified in its
Disclosure Document or executed pursuant to the provisions hereof,
if any.
(6) COMPLIANCE WITH LAWS. Each of it and its Subsidiaries is in
substantial compliance with all, and has received no notice of any
violation of any, laws or regulations applicable to its
operations, including, without limitation, the use of premises
occupied by it, or with respect to which compliance is a condition
of engaging in any aspect of the business of it and its
Subsidiaries and each has all permits, licenses, zoning rights,
and other governmental authorizations necessary to conduct its
business as presently conducted.
(7) OWNERSHIP OF ASSETS. Each of it and its Subsidiaries has, except
as disclosed in its Disclosure Document, good, marketable, and
insurable title, or valid, effective, and continuing leasehold
rights in the case of leased property, to all real property (as to
which, in the case of owned property, such title is fee simple)
and all personal property owned or leased by it or used by it in
the conduct of its business in such a manner as to create the
appearance or reasonable expectation that the same is owned or
leased by it, free and clear of all liens, claims, encumbrances,
and charges, except liens for taxes not yet due and minor
imperfections of title and encumbrances, if any, which singly and
in the aggregate, are not substantial in amount and do not
materially detract from the value of the property subject thereto
or materially impair the use thereof. It does not know of any
potential action by any party, governmental or other, and no
proceedings with respect thereto have been instituted of which it
has notice, that would materially affect its ability to use and to
utilize each of such assets in its business or in the business of
its Subsidiaries. It has received no notices from any mortgagee
regarding properties leased by it. Its Disclosure Document
contains a detailed listing of all assets.
(8) PROPRIETARY RIGHTS. It and its Subsidiaries among them possess
full ownership of, or adequate and enforceable long-term licenses
or other rights to use (without payment), all Proprietary Rights
owned by or registered in the name of it or any of its
Subsidiaries or used in the business of it or any of its
Subsidiaries; it has not received any notice of conflict which
asserts the rights of others with respect thereto; and each of it
and its Subsidiaries has in all material respects performed all of
the obligations required to be performed by it, and is not in
default in any material respect, under any agreement relating to
any Proprietary Right.
(9) SUBSIDIARIES. All of its Subsidiaries (if any), direct or
indirect, are identified in its Disclosure Document, it has no
other Subsidiaries, and neither it nor any of its Subsidiaries
described in its Disclosure Document is a partner of or joint
venturer with any other person or Entity except as therein
described. All of the issued and outstanding shares of capital
stock of each Subsidiary are owned of record and beneficially by
it or another Subsidiary of it, are validly issued, fully paid and
nonassessable and are owned free and clear of all liens, charges,
claims, pledges, security interests, equities, encumbrances,
reservations, or contractual restrictions on transfer of any
nature whatsoever; and no Subsidiary has outstanding any
securities, warrants, options, or other rights convertible into or
exchangeable or exercisable for any shares of its capital stock,
and there are no contracts, commitments, understandings,
arrangements, or restrictions by which any Subsidiary is bound to
issue shares of its capital stock.
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(10) TRADE NAMES. Its Disclosure Document identifies each trade name,
fictitious business name, or other similar name under which it has
conducted any part of the its business or in which it has utilized
any of its assets during the ten (10) years preceding the date of
this Agreement.
(11) EMPLOYEE BENEFIT PLANS. Except as disclosed in its Disclosure
Document:
(a) Neither it nor any of its Subsidiaries maintains or
contributes to any Pension Plan or any Welfare Plan, nor is
it or any of its Subsidiaries presently, nor has it been
within the last six years, a participating employer in any
Multiemployer Plan.
(b) All Pension Plans and Welfare Plans of it or its Subsidiaries
have been administered in substantial compliance with their
terms, ERISA, and, where applicable, the Code. The IRS has
issued a favorable determination letter with respect to the
qualification of each such Pension Plan and the exemption of
any corresponding trust. A copy of the most recent
determination letter for each Pension Plan has been furnished
to the other party, and nothing has occurred since the date
of any such determination letter that could cause the
relevant Pension Plan or trust to lose such qualification or
exemption.
(c) With respect to each Pension Plan and each Welfare Plan:
(i) there is no fact, including, without limitation, any
Reportable Event, that exists that would constitute grounds
for termination of such Plan or for the appointment by the
appropriate United States District Court of a trustee to
administer such plan, in each case as contemplated by ERISA;
(ii) neither it nor any Subsidiary nor any fiduciary,
trustee, or administrator of any Pension Plan or Welfare
Plan, has engaged in a Prohibited Transaction that could
subject it or any Subsidiary to any material tax or any
material penalty imposed by ERISA or the Code; and (iii)
there is no material Accumulated Funding Deficiency with
respect to any Pension Plan, whether or not waived.
(d) There has been no Plan Termination that has occurred
during the five-year period ending on the date hereof.
(e) Neither it nor any Subsidiary has any knowledge of any
material liability being incurred under Title IV of ERISA by
it or any Subsidiary with respect to any Pension Plan
maintained by a trade or business (whether or not
incorporated) which is under common control with, or part of
a controlled group of corporations with, it, within the
meaning of Sections 414(b) or (c) of the Code.
(f) No Welfare Plan is funded with a trust or other funding
vehicle, other than insurance policies.
(12) FACILITIES. Its facilities are (as to physical plant and
structure) structurally sound and none of its facilities, nor any
of the vehicles or other equipment used by it in connection with
its business, has any material defects and all of them are in all
material respects in good operating condition and repair, and are
adequate for the uses to which they are being put; none of such
its facilities, vehicles, or other equipment is in need of
maintenance or repairs except for ordinary, routine maintenance
and repairs which are not material in nature or cost. It is not
in breach, violation, or default of any lease
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with respect to or as a result of which the other party (whether
lessor, lessee, sublessor or sublessee) thereto has the right to
terminate the same, and it has not received notice of any claim or
assertion that it is or may be in any such breach, violation, or
default.
(13) ACCOUNTS RECEIVABLE. All of its accounts receivable, whether or
not reflected in its Audited and Unaudited Balance Sheets,
represent transactions in the ordinary course of business, and are
current and collectible net of any reserves shown on such Balance
Sheets (which reserves are adequate and were calculated consistent
with past practice).
(14) INVENTORIES. All of its Inventories, whether or not reflected in
its Audited and Unaudited Balance Sheets, are of a quality and
quantity usable and salable in the ordinary course of business,
except for obsolete items and items of below standard quality, all
of which, in the aggregate, are immaterial in amount. Items
included in such Inventories are carried on its books, and are
valued on its Audited and Unaudited Balance Sheets, at the lower
of cost or market and, in any event, at not greater than their net
realizable value, on a item-by-item basis, after appropriate
deduction for costs of completion, marketing costs, transportation
expense, and allocation of overhead.
(15) CONTRACTS. Except as identified in its Disclosure Document, it
has no contracts, agreements, or understanding, whether express or
implied, written or verbal, provided, however, that it may have,
and its Disclosure Document need not identify, any such contracts,
agreements, or understanding that fall into one of the following
categories: (a) those that are terminable on notice of less than
thirty-two (32) days and do not involve payments or obligations of
more than ten percent (10%) of its current assets in any period or
(b) those that involve aggregate payments or obligations remaining
unpaid as of the date of the Agreement of less than ten percent
(10%) of its current assets. Its Disclosure Document shall,
however, identify the aggregate amount of payment obligations
remaining unpaid as of the date of the Agreement of all contracts
exempt from disclosure by (b) above. Its Disclosure Document
includes a brief summary of each such contract, agreement, or
understanding identified therein. Without in any respect limiting
the foregoing, its Disclosure Document contains a description of
all leases of properties by it, including all amendments,
supplements, extensions, and modifications thereof, identifying,
inter alia, the date each such document was executed and its
effective period. It is not a party to any executory contract to
sell or transfer any part of any of its leasehold interests. True
and accurate copies of all leases, and of all amendment,
supplements, extensions, and modifications thereof, have
heretofore been delivered to the other party by it.
(16) ACCOUNTS PAYABLE. The accounts payable reflected on its Audited
Balance Sheet do, and those reflected in the most recent balance
sheet included in the Unaudited Financial Statements do, and those
reflected on its books at the time of the Closing will, reflect
all amounts owed by it in respect of trade accounts due and other
Payable, and its actual Liability in respect of such obligations
was not, and will not be, on any of such dates, in excess of the
amounts so reflected on the Balance Sheets, or its books, as the
case may be.
(17) LABOR MATTERS. Except as set forth in its Disclosure
Document, there are not activities or controversies, including,
without limitation, any labor organizing activities, election
petitions or proceedings, proceedings preparatory thereto, unfair
labor practice complaints, labor strikes, disputes, slowdowns, or
work stoppages, pending or, to the
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best of its knowledge, threatened, between it or any of its
Subsidiaries and any of its or their employees.
(18) INSURANCE. It and its Subsidiaries have insurance policies
in full force and effect which provide for coverages which are
usual and customary in the business of it and its Subsidiaries as
to amount and scope, and are adequate to protect it against any
reasonably foreseeable risk of loss, including business
interruption. Its Disclosure Document identifies each of its
insurance policies, indicating the carrier, amount of coverage,
annual premium, risks covered, placing broker or agent, and other
relevant information as to each. It has not, within the past
three (3) years, received any notice of cancellation of any
insurance agreement.
(19) TITLE TO AND UTILIZATION OF REAL PROPERTIES. Except as
disclosed in its Disclosure Document, it owns fee, simple, insured
title to all real property identified herein or in any document
referred to herein as owned by it, and has the unbridled right to
use the same, and is not aware of any claim, notice, or threat to
the effect that its right to own and use such property is subject
in any way to any challenge, claim, assertion of rights,
proceedings toward condemnation, or confiscation, in whole or in
part, or is otherwise subject to challenge. Each parcel of real
property owned or leased by it is free of any and all hazardous
wastes, toxic substances, or other types of contamination or
matters of environmental concern, and it and its Subsidiaries are
not subject to any Liability resulting from or related to any such
wastes, substances, contaminants, or matters of environmental
concern in connection with any such property. It has, in
conjunction with acquiring ownership of, or any leasehold interest
in, any parcel of real property, (a) caused an audit and
examination to be made as to the existence of any hazardous
wastes, toxic substances, or other types of contamination or
matters of environmental concern affecting each such property,
which examination indicated that such property was free of any
such wastes, substances, contaminants, or other matters of
environmental concern, and it has delivered a copy of the report
of such audit and examination to the other party; and (b) obtained
an appropriate policy of title insurance insuring the interest of
it or its Subsidiaries (as the case may be) in such property,
which insurance policy was not subject to any exceptions not
reasonably acceptable in the ordinary course of business, and a
copy of which has been delivered to the other party.
4.7 FULL DISCLOSURE. The documents, certificates, and other writings
furnished or to be furnished by or on behalf of it to the other party
pursuant to the provisions of this Agreement, taken together in the
aggregate, do not and will not contain any untrue statement of a material
fact, or omit to state any material fact, or omit to state any material fact
necessary to make the statements made, in the light of the circumstances
under which they are made, not misleading.
4.8 ACTIONS SINCE BALANCE SHEET. Except as set forth on its Disclosure
Document, since the date of its Unaudited Balance Sheet, it has taken no
actions that would be prohibited under the provisions of this Agreement
(without the prior consent of the other party) after the date of this
Agreement.
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ARTICLE V
SPECIFIC REPRESENTATIONS AND WARRANTIES OF NLMC
NLMC hereby represents and warrants to the Sellers:
5.1 DISCLOSURE. NLMC has heretofore delivered to NLMC and to the
Sellers each of the following:
(1) Annual report of NLMC on Form 10-K as filed with the Securities
and Exchange Commission (the "Securities and Exchange Commission")
for NLMC's fiscal year ended December 31, 1995; and
(2) All other reports of NLMC filed with the SEC, to the extent that
such reports have been filed with the SEC after the filing of Form
10-K referred to in (1) above and prior to the execution hereof.
Each of such documents, at the time it was prepared, and all of such
documents taken together, did not and do not contain an untrue statement of a
material fact or omit to state any material fact necessary to make the
statements made therein, in the light of the circumstances under which they
were made, not misleading. All of the financial statements contained in the
foregoing documents were prepared from the books and records of NLMC. The
Audited and Unaudited Financial Statements were prepared in accordance with
GAAP, and fairly and accurately reflect the financial position and condition
of NLMC as at the dates and for the periods indicated.
5.2 STATUS OF NLMC. NLMC is an issuer which has a class of securities
registered pursuant to Section 12(b) or 12(g) of the Securities Exchange Act
of 1934 and has filed all the material required to be filed pursuant to
Section 13(a) or 15(d) of that Act for a period of at least 12 months
immediately preceding this proposed Share Exchange made in reliance upon
Regulation S.
5.3 NO DIRECTED SELLING EFFORTS. NLMC represents and warrants that no
directed selling efforts (as that term is defined Rule 901 of Regulation S
promulgated under the Act) are being or will be made in the United States by
NLMC, an Affiliate, or any person acting on his behalf.
ARTICLE VI
SPECIFIC REPRESENTATIONS AND WARRANTIES OF TVL
TVL represents and warrants to NLMC as follows:
6.1 FINANCIAL STATEMENTS. TVL has heretofore delivered to NLMC the
following:
(1) The Audited Financial Statements of TVL;
(2) The Unaudited Financial Statements of TVL; and
(3) Projections, pertaining to the acquisition of Port Isaac.
All of the historical financial statements contained in such documents
were prepared from the books and records of TVL. The Audited Financial
Statements were prepared in accordance with GAAP, and fairly and accurately
reflect the financial position and condition of TVL as at the dates and for
the periods indicated. Without limiting the foregoing, at the date of TVL's
Audited Balance Sheets, TVL owned each of the assets included in preparation
of TVL's Audited and Unaudited Balance Sheet, and the valuation of such
assets in TVL's Audited Balance Sheet is not more than their fair saleable
value
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(on an item by item basis) at that date; and TVL had no Liabilities other
than those included in TVL's Audited Balance Sheet, nor any Liabilities in
amounts in excess of the amounts included for them in TVL's Audited Balance
Sheet. The Unaudited Financial Statements included in the documents
described above in this Section were prepared in a manner consistent with the
basis of presentation used in the Audited Financial Statements, and fairly
present the financial position and condition of TVL as at and for the periods
indicated, subject to normal year-end adjustments, none of which will be
material. The Projections reasonably reflect the results of operations that
TVL expects it will achieve absent extraordinary events or unusual conditions
of which it is not presently on notice. From the date hereof through the
Closing Date, TVL will continue to prepare financial statements on the same
basis that it has done so in the past, will promptly deliver the same to NLMC,
and agrees that from and after such delivery the foregoing representations
will be applicable to each financial statement so prepared and delivered.
6.2 ACQUISITION OF PORT ISAAC - OFFSHORE 105 AND OFFSHORE 125. It has
performed fully the asset purchase agreement with Rod Baker, the proprietor
of an unincorporated business known as Port Isaac Workboats ("Port Isaac"),
thereby acquiring limited manufacturing, marketing, and distribution rights
to two products produced by Port Isaac (with the exception of such rights as
applicable within the European Union); related rights and interests to trade
and brand names, registered and unregistered trademarks, design, and other
intellectual property of Port Isaac; and certain molds, templates, drawings,
and related materials, all pertaining to the "Offshore 105" and "Offshore
125". All of the purchased assets have been duly and properly transferred to
TVL or one of its Subsidiaries.
6.3 ACQUISITION OF PORT ISAAC - OFFSHORE 25 AND OFFSHORE DORY. It has
executed an option agreement with Rod Baker (the "Port Isaac Option
Agreement"), pursuant to which TVL was granted an option exercisable until
December 31, 1996 to acquire physical infrastructure of Port Isaac,
consisting of the manufacturing shop, offices, store room, entries, a
launching trailer, office fixtures, and other pieces of equipment and
furnishings; molds, drawings, and templates for the "Offshore 25" and
"Offshore Dory"; and marketing rights and business within the European Union.
The Option Agreement has not been cancelled or terminated and TVL retains
all rights and privileges granted therein.
ARTICLE VII
MUTUAL COVENANTS
7.1 AFFIRMATIVE COVENANTS. From the date hereof through the Closing
Date, NLMC and TVL covenant and agree with each other that each will take
every action reasonably required of it in order to satisfy the conditions to
closing set forth in this Agreement and otherwise to ensure the prompt and
expedient consummation of the Share Exchange and the Subsequent Transactions
substantially as contemplated hereby, and will exert all reasonable efforts
to cause the Share Exchange and Subsequent Transactions promptly to be
consummated, provided in all instances that the representations and
warranties of the other parties in this Agreement are and remain true and
accurate and that the covenants and agreements of the other parties in this
Agreement are honored and that the conditions to its obligations set forth in
this Agreement are satisfied or appear capable of being satisfied.
Specifically, NLMC and TVL covenant and agree with each other that each will
complete all exhibits and schedules referenced in this Agreement no later
than 15 days from the execution of this Agreement.
7.2 ACCESS AND INFORMATION. NLMC and TVL shall each afford to the
other and to the other's accountants, counsel, and other representatives
reasonable access during normal business hours throughout the period prior to
the Closing, and thereafter through the completion or abandonment of the
Subsequent Transactions, to all of its and its Subsidiaries' properties,
books, contracts, commitments, records (including, but not limited to, tax
returns), and personnel and, during
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such period, NLMC and TVL shall each promptly furnish to the other (1) all
written communications to its directors or to its shareholders generally, (2)
internal monthly financial statements when and as available, and (3) all
other information concerning its or any of its Subsidiaries' business,
properties, and personnel as the other may reasonably request, but no
investigation pursuant to this Section 7.2 shall affect any representations
or warranties made herein, or the conditions to the obligations of NLMC or
TVL to consummate the Share Exchange contained in this Agreement. In the
event of the termination of this Agreement, NLMC and TVL will, and will cause
its representatives to, deliver to the other or destroy all documents, work
papers, and other material, and all copies thereof, obtained by it or on its
behalf from the other party (or any Subsidiary) as a result of this Agreement
or in connection herewith, whether so obtained before or after the execution
hereof, and will hold in confidence all confidential information that has
been designated as such by the other party in writing or by appropriate and
obvious notation, and will not use any such confidential information except
in connection with the Share Exchange or the Subsequent Transactions, until
such time as such information is otherwise publicly available. NLMC and TVL
and their respective representatives shall assert their rights hereunder in
such manner as to minimize interference with the business of NLMC and TVL.
7.3 EXPENSES. Whether or not the Share Exchange is consummated, all
costs and expenses incurred by each party in connection with this Agreement
and the transactions contemplated hereby shall be paid by the respective
party except as otherwise provided (directly or indirectly) herein.
7.4 PUBLICITY. Prior to the Closing, any written news release by NLMC
or TVL pertaining to this Agreement or the Share Exchange shall be submitted
to the other for review and approval prior to release, and shall be released
only in a form approved by the other party; provided, however, that (1) such
approval shall not be unreasonably withheld, and (2) such review and approval
shall not be required of releases if prior review and approval would prevent
the timely and accurate dissemination of such press release as required to
comply, in the judgment of counsel, with any applicable law, rule, or policy.
7.5 UPDATING OF EXHIBITS AND DISCLOSURE DOCUMENTS. NLMC and TVL
covenant and agree with each other that each shall notify the other and the
Sellers of any changes, additions, or events which may cause any change in or
addition to any Schedules or Exhibits delivered by it under this Agreement,
promptly after the occurrence of the same and at the Closing by the delivery
of updates of all Schedules and Exhibits. No notification made pursuant to
this Section shall be deemed to cure any breach of any representation or
warranty made in this Agreement unless the other party specifically agrees
thereto in writing, nor shall any such notification be considered to
constitute or give rise to a waiver by the other party of any condition set
forth in this Agreement.
7.6 EMPLOYMENT CONTRACTS. Pending the Closing, and effective upon the
consummation of the Share Exchange, NLMC and TVL covenant and agree and that
each will exert its best efforts to retain the employment of key management.
7.7 CONDUCT OF BUSINESS PENDING THE SHARE EXCHANGE. NLMC and TVL
covenant and agree with each other that, prior to the consummation of the
Share Exchange and the Subsequent Transactions, or the termination of this
Agreement pursuant to its terms, or the abandonment of the Subsequent
Transactions, unless the other shall otherwise consent in writing, which
consent shall not be unreasonably withheld or delayed, and except as
otherwise contemplated by this Agreement or disclosed in its Disclosure
Document, NLMC and TVL will each comply with each of the following:
(1) Its business and the business of its Subsidiaries shall be
conducted only in the ordinary and usual course, it shall use
reasonable efforts and shall cause each of its Subsidiaries to use
reasonable efforts to keep intact its and their business
organizations and good
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will, keep available the services of their respective officers and
employees and maintain good relationships with suppliers, lenders,
creditors, distributors, employees, customers, and others having
business or financial relationships with them, and it shall
immediately notify the other party of any event or occurrence or
emergency material to, and not in the ordinary and usual course of
business of, it or any of its Subsidiaries;
(2) It shall not (a) amend its Articles of Incorporation or
Bylaws or (b) split, combine, or reclassify any of its outstanding
securities, or declare, set aside, or pay any dividend or other
distribution on, or make or agree or commit to make any exchange
for or redemption of any such securities payable in cash, stock,
or property, except that NLMC shall be permitted to amend its
Articles of Incorporation to authorize 5,000,000 shares of
Preferred Stock and to effect a 1-for-10 reverse split of its
issued and outstanding shares of Common Stock;
(3) Neither it nor any of its Subsidiaries shall (a) issue or
agree to issue any additional shares of, or rights of any kind to
acquire any shares of, its capital stock of any class, or (b)
enter into any contract, agreement, commitment, or arrangement
with respect to any of the foregoing;
(4) Neither it nor any of its Subsidiaries shall create, incur,
or assume any long-term or short-term indebtedness for money
borrowed or make any capital expenditures or commitment for
capital expenditures, except in the ordinary course of business
and consistent with past practice;
(5) Neither it nor any of its Subsidiaries shall (a) adopt, enter
into, or amend any bonus, profit sharing, compensation, stock
option, warrant, pension, retirement, deferred compensation,
employment, severance, termination, or other employee benefit
plan, agreement, trust fund, or arrangement for the benefit or
welfare of any officer, director, or employee; or (b) agree to any
material (in relation to historical compensation) increase in the
compensation payable or to become payable to, or any increase in
the contractual term of employment of, any officer, director, or
employee except, with respect to employees who are not officers or
directors, in the ordinary course of business in accordance with
past practice, except that NLMC shall be permitted to adopt a 1996
Stock Option Plan and 1996 Restricted Stock Plan;
(6) Neither it nor any of its Subsidiaries shall sell, lease,
mortgage, encumber, or otherwise dispose of or grant any interest
in any of its assets or properties except for sales, encumbrances,
and other dispositions or grants in the ordinary course of
business and consistent with past practice, and, except for liens
for taxes not yet due or liens or encumbrances that are not
material in amount or effect and do not impair the use of the
property, or as specifically provided for or permitted in this
Agreement;
(7) Neither it nor any of its Subsidiaries shall enter into, or
terminate, any material contract, agreement, commitment, or
understanding;
(8) Neither it nor any of its Subsidiaries shall enter into any
agreement, commitment, or understanding, whether in writing or
otherwise, with respect to any of the matters referred to in
paragraphs (1) through (7) above;
(9) It will not hold any meetings of its board of directors, or
any committee thereof, or of its shareholders, without inviting a
representative selected by the other party to attend the same
(although NLMC or TVL, as the case may be, may request that such
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representative absent himself or herself during that portion of
any such meeting that pertains to issues arising under this
Agreement);
(10) It will continue properly and promptly to file when due all
federal, state, local, foreign, and other tax returns, reports,
and declarations required to be filed by it, and will pay, or make
full and adequate provision for the payment of, all taxes and
governmental charges due from or payable by it;
(11) It will comply with all laws and regulations applicable to it
and its operations;
(12) It will maintain in full force and effect insurance coverage
of a type and amount customary in its business, but not less than
that presently in effect.
7.8 NAME CHANGE. NLMC and TVL agree that TVL shall do business under
its own name, as the marine division and subsidiary of NLMC, and that a
parent company name change or D.B.A. or "Tamarine NLMC Inc." will be pursued
when TVL is producing Two Million Dollars ($2,000,000) in net profits after
taxes and such amount is at least twice what is being produced by the natural
resource business of NLMC.
ARTICLE VIII
COVENANTS OF TVL
8.1 NO SOLICITATION. TVL and its respective Subsidiaries and those
acting on behalf of any of them will not, and TVL will use its best efforts
to cause its officers, employees, agent, and representatives (including any
investment banker) not, directly or indirectly, to solicit, encourage, or
initiate any discussions with, or negotiate or otherwise deal with, or
provide any information to, any person or Entity other than NLMC and its
officers, employees, and agents, concerning any merger, sale of substantial
assets, or similar transaction involving TVL or any Subsidiary or division of
TVL, or any sale of any of its capital stock or of the capital stock or
assets of any Subsidiary or division of TVL. TVL will notify NLMC
immediately upon receipt of any inquiry, offer, or proposal relating to any
of the foregoing. None of the foregoing shall prohibit providing information
to others in a manner in keeping with the ordinary conduct of TVL's business,
or providing information to government authorities.
8.2 PERFORMANCE OF ACQUISITION AGREEMENTS. TVL will exert its best
efforts to perform fully the Port Isaac Option Agreement and further will not
knowingly take any actions that would cause a breach of such agreement, and
will similarly pursue its other marine opportunities for the mutual benefit
of TVL and NLMC.
ARTICLE IX
CONDITIONS TO CLOSING
9.1 CONDITIONS TO OBLIGATIONS OF NLMC. The obligation of NLMC to
effect the Share Exchange shall be subject to the fulfillment at or prior to
the Closing of the following conditions, unless NLMC shall waive such
fulfillment:
(1) This Agreement and the transactions contemplated hereby and
the 1-for-10 reverse stock split shall have received all
approvals, consents, authorizations, and waivers from NLMC's
shareholders;
(2) There shall not be in effect a preliminary or permanent
injunction or other order by any federal or state court which
prohibits the consummation of the Share Exchange;
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(3) TVL and the Sellers shall have performed in all material
respects each of their agreements and obligations contained in
this Agreement and required to be performed on or prior to the
Closing and shall have complied with all material requirements,
rules, and regulations of all regulatory authorities having
jurisdiction relating to the Share Exchange;
(4) No material adverse change shall, in the reasonable judgment
of NLMC, have taken place in the business, condition (financial or
otherwise), operations, or prospects of TVL since the date of
TVL's Unaudited Balance Sheet other than those, if any, that
result from the changes permitted by, and transactions
contemplated by, this Agreement;
(5) The representations and warranties of TVL set forth in this
Agreement shall be true in all material respects as of the date of
this Agreement and, except in such respects as, in the reasonable
judgment of NLMC, do not materially and adversely affect the
business, condition (financial or otherwise), operations, or
prospects of TVL, as of the Closing Time as if made as of such
time;
(6) NLMC shall have received from TVL an officer's certificate,
executed by the Chief Executive Officer and the Chief Financial
Officer of TVL (in their capacities as such) dated the Closing
Date, as to the satisfaction of the conditions in paragraphs (3),
(4), and (5) above;
(7) NLMC shall have received, on and as of the Closing Date, an
opinion of Counsel to TVL, substantially as to the matters set
forth in Sections 4.1, 4.2, 4.3, 4.4 (to the best of the knowledge
of such counsel as to parts (2), (3), (4), and (5)), and 4.6 (4
through 11, 14, 16, and 18) (to the best of the knowledge of such
counsel) of this Agreement, all subject to customary limitations
reasonably acceptable to Counsel to NLMC, and which may be based
on opinions of Local Counsel to the extent such Counsel is not
admitted to practice in a jurisdiction relevant to such opinion,
provided such opinion of Local Counsel is delivered to NLMC; a
customary comfort letter from TVL's Auditors; and such other
closing documents and instruments as NLMC shall reasonably
request, in each case reasonably satisfactory in form and
substance to NLMC and its counsel;
(8) TVL shall have reduced its issued and outstanding common
shares to Eight Million (8,000,000);
(9) There shall appear no material impediment to the due and
timely completion of the Subsequent Transactions; and
(10) Financing will have been identified to enable TVL to
consummate the Port Isaac Option Agreement.
(11) Sellers holding at least 90% of the issued and outstanding
shares of TVL shall have executed Schedule 2.1 of this Agreement.
9.2 CONDITIONS TO OBLIGATION OF THE SELLERS. The obligation of the
Sellers to effect the Share Exchange shall be subject to the fulfillment at
or prior to the Closing of the following conditions, unless the Sellers
shall, by a majority in interest of them as permitted under this Agreement,
waive such fulfillment:
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(1) This Agreement and the Share Exchange shall have received all
approvals, consents, authorizations, and waivers from governmental
and other regulatory agencies and other third parties (including
lenders, holders of debt securities, and lessors) required by law
to consummate the Share Exchange;
(2) There shall not be in effect a preliminary or permanent
injunction or other order by any federal or state authority which
prohibits the consummation of the Share Exchange;
(3) NLMC shall have performed in all material respects its
agreements and obligations contained in this Agreement required to
be performed on or prior to the Closing;
(4) The representations and warranties of NLMC set forth in this
Agreement shall be true in all material respects as of the date of
this Agreement and, except in such respects as do not materially
and adversely affect the business of NLMC and its Subsidiaries,
taken as a whole, as of the Closing Date as if made as of such
time; and
(5) The Sellers shall have received from NLMC an officers'
certificate, executed by the Chief Financial Officer and the Chief
Executive Officer of NLMC (in their capacities as such), dated the
Closing Date, as to the satisfaction of the conditions of
paragraphs (3) and (4) above (to the best of their knowledge where
appropriate);
(6) The Sellers shall have received, on and as of the Closing
Date, an opinion of Counsel to NLMC, substantially as to the
matters set forth in Sections 4.1, 4.2, 4.3, 4.4 (to the best of
the knowledge of such counsel as to parts (2), (3), (4), and (5)),
and 4.6 (4 through 11, 14, 16, and 18) (to the best of the
knowledge of such counsel) of this Agreement, all subject to
customary limitations, reasonably satisfactory in form and
substance to TVL, and its counsel, and which may be based on
opinions of Local Counsel to the extent such Counsel is not
admitted to practice in a jurisdiction relevant to such opinion,
provided such opinion of Local Counsel is delivered to TVL, and
such other closing documents and instruments as TVL shall
reasonably request, in each case reasonably satisfactory in form
and substance to TVL and its counsel; and
(7) There shall appear no material impediment to the due and
timely completion of the Subsequent Transactions.
ARTICLE X
SECURITIES AND SECURITY HOLDERS
10.1 SELLERS' OWNERSHIP REPRESENTATIONS. Each of the Sellers represents
and warrants to NLMC, severally and not jointly, that (1) he, she, or it owns
the common shares of TVL set forth opposite his, her, or its name on the
signature pages of this Agreement, to be sold to NLMC at the Closing pursuant
to the terms of this Agreement, free and clear of any and all liens, claims,
encumbrances, and rights of others; and (2) he, she, or its is fully and
freely authorized and entitled to sell, transfer, and convey free and clear
title to the same to NLMC, without any further approval or authorization
being required.
10.2 INVESTMENT REPRESENTATION. Each of the Sellers who shall be an
officer, director, control entity, or affiliate of NLMC following the Share
Exchange, severally and not jointly, represents and confirms to NLMC:
(1) Because of Seller's preexisting business or personal
relationship with NLMC or with the officers and directors of NLMC,
or by reason of the business or financial experience of
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Seller or his professional advisors who are unaffiliated with
and who are not compensated by NLMC, or any affiliate thereof,
Seller has the capacity to protect his own interests in connection
with the Share Exchange.
(2) Seller understands that:
(a) The shares of NLMC Common Stock to be issued in the
Share Exchange have not been registered under the Act or any
state securities laws.
(b) Such shares are "restricted securities" as that term is
defined in Rule 144 under the Act.
(c) Such shares cannot be sold or transferred for value
without registration under the Act and applicable state laws
or exemption therefrom.
(d) The certificates evidencing such shares shall include
provisions substantially in the form of the legend set forth
in Section 2.3(1) hereof, which Seller has read and
understands.
(e) Only NLMC can register the shares under the Act and
applicable state securities laws.
(f) Except as set forth herein, NLMC has not made any
representations to Seller that NLMC will register the shares
under the Act or any applicable state securities laws or with
respect to compliance with any exemption therefrom.
(g) There are stringent conditions for Seller obtaining an
exemption for the resale of the shares under the Act and any
applicable state securities laws.
(h) NLMC may, from time to time, make stop transfer
notations in its records to insure compliance with the Act
and any applicable state securities laws.
(3) Seller represents and warrants that:
(a) Seller is acquiring the shares of NLMC Common Stock to
be issued hereunder for the Seller's own account and not for
or on behalf of any other person.
(b) Seller is acquiring such shares for investment and not
for distribution or with the intent to divide Seller's
participation with others or of reselling or otherwise
distributing the shares.
(c) Neither Seller nor anyone acting on Seller's behalf has
paid any commission or other remuneration to any person in
connection with the Shares Exchange.
(d) Seller will not sell the shares without registration
under the Act and any applicable state securities laws or
exemption therefrom.
(4) Prior to any proposed sale or transfer for value of any or
all of Seller's shares of NLMC Common Stock acquired hereunder,
Seller shall give written notice to NLMC and will provide any
information which NLMC or its counsel may request to enable
counsel for NLMC to determine whether registration of the shares
is required in connection with such transfer.
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(5) Seller will execute and deliver to NLMC any document, or do
any other act or thing, which NLMC may reasonably request in
connection with the acquisition of the shares.
(6) Seller is able to bear the economic risk of an investment in
the shares of NLMC Common Stock and to maintain his investment in
the shares for an indefinite period of time, and, further, could
bear a total loss of the investment and not change his standard of
living which existed at the time of such investment.
10.3 INVESTMENT REPRESENTATION OF OFFSHORE TRANSACTION. Each of the
other Sellers, severally and not jointly, represents and confirms to NLMC:
(1) He, she, or it is aware of the following restrictions on the
shares of NLMC received as Consideration and as Additional
Consideration pursuant to Section 3.3 hereof (the "Shares"):
(a) The Shares have not been registered under the United
States Securities Act of 1933 (the "Act") or any applicable
state securities laws.
(b) For the 40-day period following the issuance of the
certificate evidencing the Shares, unless the Shares are
registered under the Act, or an exemption from the
registration requirements of the Act is available, the Shares
may not be offered or sold in the United States or to any of
the following (hereinafter referred to as a "U.S. Person"):
(i) any natural person resident in the United States;
(ii) any partnership or corporation organized or incorporated
under the laws of the United States;
(iii) any estate of which any executor or administrator
is a U.S. Person;
(iv) any trust of which any trustee is a U.S. person;
(v) any agency or branch of a foreign entity located in the
United States;
(vi) any non-discretionary account or similar account (other
than an estate or trust) held by a dealer or other
fiduciary for the benefit or account of a U.S. Person;
(vii) any discretionary account or similar account (other
than an estate or trust) held by a dealer or other
fiduciary organized, incorporated, or (if an individual)
resident in the United States; and
(viii) any partnership or corporation if: (A) organized
or incorporated under the laws of any foreign
jurisdiction; and (B) formed by a U.S. Person
principally for the purpose of investing in securities
not registered under the Act, unless it is organized or
incorporated, and owned, by accredited investors (as
defined in United States Securities and Exchange
Commission Rule 501(a) under the Act) who are not
natural persons, estates, or trusts.
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(2) This transaction has not taken place within the United
States. The offer and sale as between the Sellers and NLMC has
been made in an "offshore transaction," as that term in defined in
Rule 902(i). Each Seller is acquiring the Shares for Seller's own
account and not for or on behalf of any other person. This
transaction is not part of a plan or scheme to evade the
registration provisions of the Act. There is no prearranged
agreement to resell the Shares in the United States.
(3) Seller is not a citizen of the United States or a U.S.
Person, as defined in subsection (1)(b) above of this Section 10.2.
Seller was not formed for the purposes of engaging in this
transaction.
(4) The Shares shall not be sold to any citizen of the United
States or to a U.S. Person, as defined in subsection (1)(b) above
of this Section 10.2, until the 41st day following the issuance of
the certificate evidencing the Shares.
ARTICLE XI
TERMINATION, AMENDMENT, WAIVER
11.1 TERMINATION. This Agreement and the Share Exchange may be
terminated at any time prior to the Closing, and either or both of the
Subsequent Transactions may thereafter be terminated or abandoned after the
Closing under this Agreement:
(1) By mutual consent of NLMC and a majority in interest of the
Sellers prior to the Closing;
(2) By mutual consent of NLMC and TVL after the Closing; or
(3) By either NLMC or the Sellers, upon written notice to the
other, if the conditions to the obligations of such canceling
party or parties to consummate the Share Exchange, in the case of
NLMC, as provided in Section 9.1, or, in the case of Sellers, as
provided in Section 9.2, were not, or cannot reasonably be,
satisfied on or before October 31, 1996, unless the failure of
condition is the result of the material breach of this Agreement
by the party seeking to terminate.
11.2 AMENDMENT. This Agreement may be amended by the Sellers and NLMC
by action taken at any time, but no such amendment shall affect the
obligations of TVL without its consent, and the Sellers shall act, as
elsewhere in this Agreement provided, by a majority in interest of them.
11.3 WAIVER. At any time prior to the Closing Date, NLMC, by action
taken by its board of directors, and the Sellers, by action taken by a
majority in interest of them, may (1) extend the time for the performance of
any of the obligations or other acts of the other parties hereto, (2) waive
any inaccuracies in the representations and warranties contained herein or in
any document delivered pursuant hereto, or (3) waive compliance with any of
the agreements or conditions contained herein. Any agreement on the part of
a party hereto to any such extension or waiver shall be valid only if set
forth in an instrument in writing signed on behalf of such party.
11.4 RELIEF. In the event of liability on the part of the Sellers to
NLMC in accordance with the provisions of this Agreement prior to the Closing
hereunder, the parties recognize and acknowledge that monetary measures of
damages will not reasonably be calculable inasmuch as the acquisition of TVL
and its proposed acquisitions are difficult, if not impossible, to value, and
that specific performance and injunctive relief should therefore be available
to NLMC.
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11.5 OPTION. Each of the Sellers who have executed Schedule 2.1 of this
Agreement, severally, hereby grants to NLMC the right, upon twenty-four (24)
hours' written notice delivered to such Seller at the address set forth for
such purpose on Schedule 11.5 hereto, at any time until seventy-two (72)
hours after termination of this Agreement, to purchase from him, her, or it
the number of shares of stock of TVL owned by such Seller as specified on
Schedule 2.1 hereto, against delivery to such Seller of an amount equal to
the Consideration per share payable hereunder, times the number of such
shares of stock with respect to which such option is being exercised. Each
Seller, with respect to such shares identified on Schedule 2.1 (1) agrees not
to sell, transfer, pledge, hypothecate, or otherwise transfer such shares, or
enter into any agreement to do the same, prior to the date of expiration of
the option herein granted, and (2) grants to NLMC, for so long as the option
herein granted shall remain in effect, the sole and exclusive right and power
to vote the shares with respect to which the option is granted, with power
and right of substitution, and in all respects appoints NLMC, with power of
substitution, as the proxy and attorney-in-fact of such Seller to vote such
shares in the place of Seller and with respect to any such vote the power to
execute any and all documents and instruments in respect thereof in all
respects with all right, power, and authority that the Seller himself,
herself, or itself could exercise. The Seller agrees to provide any and all
documents, evidences of authority, resolutions, et cetera, necessary to
enable NLMC to exercise the power and authority herein granted. NLMC agrees
not to exercise any power herein granted in any manner inconsistent with the
operation of TVL in the future in the same manner that it has been operated
in the past, with the same directors, except that NLMC shall vote such shares
in favor of the Share Exchange unless there shall have been proposed a
similar or comparable transaction of greater value to the shareholders of
TVL, in which event, NLMC shall vote such shares as it may determine in its
discretion.
11.6 RESIGNATION OF OFFICERS AND DIRECTORS. NLMC has elected John R.
Twohig to the office of Vice President - Corporate Development. NLMC has
further increased its board of directors to five members and appointed John
R. Twohig and Nigel Horsley to fill the vacancies created by such increase.
Mr. Horsley has resigned and the board of directors now consists of four
directors with a fifth anticipated after Closing. Mr. Twohig agrees to
resign from all officer and director positions of NLMC if the Share Exchange
shall not be consummated.
11.7 REPAYMENT TO NLMC. NLMC has loaned, advanced, or paid for the
benefit of TVL the amount of Two Hundred Fifty Thousand Dollars ($250,000).
NLMC may furnish additional funds to TVL. TVL has already agreed, and upon
execution hereof will provide its promissory note and loan agreement to repay
such advances, and will simultaneously provide (in consideration for NLMC's
forbearance from collection) a security document in recordable form
collateralizing all such advances and any future advances with all of TVL's
assets and opportunities, including Port Isaac. TVL agrees that if the Share
Exchange is not consummated, it shall, within ninety (90) days after the
termination of this Agreement, repay all funds borrowed from NLMC by
liquidation of collateral or otherwise.
ARTICLE XII
GENERAL PROVISIONS
12.1 ARBITRATION. In the event that there shall be a dispute arising
out of or relating to this Agreement, the Share Exchange, any document
referred to herein or centrally related to the subject matter hereof, or the
subject matter of any of the same, the parties agree that such dispute shall
be submitted to binding arbitration in Denver, Colorado, under the auspices
of, and pursuant to the rules of, the American Arbitration Association as
then in effect, or such other procedures as the parties may agree to at the
time, before a tribunal of three arbitrators, one of which shall be selected
by each of the parties to the dispute and the third of which shall be
selected by the two arbitrators so selected. Any award issued as a result of
such arbitration shall be final and binding between the parties, and shall be
enforceable by any court having jurisdiction over the party against whom
enforcement is sought.
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12.2 NOTICES. All notices and other communications hereunder shall be
in writing and shall be deemed given if delivered personally or mailed by
registered or certified mail (return receipt requested) to the parties at the
following addresses (or at such other address for a party as shall be
specified by like notice given at least five (5) days prior thereto):
If to NLMC:
North Lily Mining Company
1800 Glenarm Place, Suite 210
Denver, Colorado 80202
Attention: Stephen E. Flechner
with a copy to:
Fay M. Matsukage, Esq.
4582 S. Ulster Street Parkway, Suite 201
Denver, Colorado 80237
If to TVL, the Sellers, any of them, or any Affiliate of any of them:
Tamarine Ventures Ltd.
Suite 402, 938 Howe Street
Vancouver, British Columbia
Canada V6Z 1N9
Attention: John R. Twohig
12.3 INTERPRETATION. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
12.4 SURVIVAL OF REPRESENTATIONS, WARRANTIES, ETC. The representations,
warranties, covenants, and agreements of the parties contained hereto shall
survive the Closing and any investigation of the other party made prior
thereto.
12.5 DE MINIMIS CLAIMS. No party shall bring any action against the
other party hereto with respect to the subject matter hereof unless the
aggregate amount of all claims so brought in relation to the subject matter
of this Agreement exceeds Twenty-Five Thousand Dollars ($50,000); provided,
however, that the foregoing shall not prevent or preclude actions seeking
injunctive or other equitable forms of relief.
12.6 MISCELLANEOUS. This Agreement (1) constitutes the entire agreement
and supersedes all other prior agreements and understandings, both written
and oral, between the parties, with respect to the subject matter hereof,
except as specifically provided otherwise or referred to herein, so that no
such external or separate agreements relating to the subject matter of this
Agreement shall have any effect or be binding, unless the same is referred to
specifically in this Agreement or is executed by the parties after the date
hereof; (2) is not intended to confer upon any other person (other than
shareholders of TVL) any rights or remedies hereunder; (3) shall not be
assigned by operation of law or otherwise except for assignment of all or any
part of the rights of NLMC hereunder, which may be freely assigned by NLMC so
long as the obligations of NLMC under this Agreement remain obligations of,
or their performance is guaranteed by, NLMC; and (4) shall be governed in all
respects, including validity, interpretation, and effect, by the internal
laws of the State of Colorado, without regard to the principles of conflict
of laws thereof. This Agreement may be executed in two or more counterparts
which together shall constitute a single agreement.
25
<PAGE>
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
signed on the date first written above by their respective officers
thereunder duly authorized.
"NLMC"
NORTH LILY MINING COMPANY
By:
--------------------------------
Stephen E. Flechner, President
"TVL"
TAMARINE VENTURES LTD.
By:
--------------------------------
John R. Twohig, President
Agreed as to Sections 2.7, 10.2, and any other applicable sections of this
Agreement:
CONFEDERATION CAPITAL
By:
--------------------------------
26
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SCHEDULE 2.1
LIST OF SELLERS
27
<PAGE>
SCHEDULE 4.2(2)
OPTIONS, WARRANTS, CONVERTIBLE INSTRUMENTS,
OR OTHER RIGHTS TO ACQUIRE COMMON STOCK OF TVL
28
<PAGE>
SCHEDULE 4.4
BREACH OF AGREEMENTS
29
