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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ________to________
Commission file number: 0-12185
ALASKA APOLLO RESOURCES INC.
(Exact name of Registrant as specified in its charter)
Province of British Columbia Not Applicable
(State or other jurisdiction (I.R.S. Employer
incorporation or organization) Identification No.)
131 Prosperous Place
Suite 17-A
Lexington, Kentucky 40509-1844
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (606) 263-3948
------------------
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act: Common Stock, no par
value per share.
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
---
The aggregate market value of the voting stock held by non-affiliates
of the Registrant as of May 19, 1997: $3,380,320.42. The number of shares
outstanding of the Registrant's Common Stock as of the date of this report is:
9,035,287.
Documents incorporated by reference: None.
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TABLE OF CONTENTS
PART I ................................................................. 1
Item 1. Business ................................................ 1
Item 2. Properties .............................................. 9
Item 3. Legal Proceedings ....................................... 9
Item 4. Submission of Matters to a Vote of Security Holders ..... 9
PART II ................................................................ 9
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters ..................................... 9
Item 6. Selected Financial Data ................................. 11
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations ..................... 11
Item 8. Financial Statements and Supplementary Data ............. 14
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosures .................... 15
PART III ............................................................... 15
Item 10. Directors and Executive Officers of the Registrant ...... 15
Item 11. Executive Compensation .................................. 16
Item 12. Security Ownership of Certain Beneficial Owners and
Management ..............................................
Item 13. Certain Relationships and Related Transactions .......... 20
PART IV ................................................................ 21
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K ................................................ 21
ii
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PART I
ITEM 1. BUSINESS.
GENERAL
Alaska Apollo Resources Inc. (the Company or the Registrant) is a
diversified natural resources company. Originally formed in 1979 to develop gold
properties in Alaska, the Company, through its 1993 acquisition of Daugherty
Petroleum, Inc., has acquired substantial oil and gas interests in the
Appalachian and Illinois Basins. In 1996, Daugherty Petroleum, Inc. concluded
its acquisition of an 80 percent interest in Red River Hardwoods, Inc., a lumber
drying and dimensional hardwood manufacturing facility based in Kentucky.
The Company's strategy is to continue to expand its base in natural
resources in Kentucky and West Virginia, and to develop its gold properties in
Alaska. To implement this strategy, the Company emphasizes the following
elements:
- Diversification of the Company's assets to take advantage of
natural resources located in the vicinity of its operations.
- The development of a pool of projects that will position the
Company to address a diverse group of market segments with
significant growth prospects.
- Conversion of the non-income producing gold assets to income
producing assets.
- Reserve growth through high potential developmental drilling.
- Balance between development drilling and acquisitions of
proved oil and gas properties.
- A dedication to research and development in the energy field.
- Equity ownership and incentives to attract and retain
employees.
The Company has focused on its oil and gas drilling efforts through its
subsidiary Daugherty Petroleum, Inc. in the Appalachian and Illinois Basins.
Management has extensive experience in both basins, and the Company believes
that there are significant undiscovered reserve potential and opportunities in
the basins. The Company's concentration on these two basins helps keep
operational expenses to a minimum.
Although Daugherty Petroleum, Inc. intends to keep its attention on the
Appalachian and Illinois Basins in the near term, it may consider acquisitions
outside its geographical area of interest.
Oil and Gas Exploration and Production
The Company is engaged through Daugherty Petroleum, Inc., which was
incorporated in 1984, in the business of acquiring properties for the
exploration and development of oil and gas, including lease acquisitions,
participation in ventures involving other oil and gas companies and investors,
and in farmins from other producers. Daugherty Petroleum, Inc. performs these
services on behalf of the Company, investors in specific programs, and on a
turnkey basis for other oil and gas companies. Daugherty Petroleum, Inc. has
also acquired producing properties, both to operate and to resell. These
acquisitions often require workover attempts and the purchase of these
properties is usually based upon an assumed return on investment to the Company
of three years or less. During 1996, the Company acquired mineral leases in its
area of operations and expanded its reserve base through the drilling of five
wells. The Company also acquired two waterflood oil properties in the western
Kentucky portion of the Illinois Basin.
Daugherty Petroleum, Inc. continues to construct a natural gas pipeline
gathering system and in 1996 completed 15,000 feet in the area south of the
Gausdale Field located in Knox County, Kentucky. This system has allowed
Daugherty Petroleum, Inc. to extend its operations and will allow further
exploration into areas previously inaccessible to pipeline gathering systems.
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Daugherty Petroleum, Inc. is also active in oil and gas exploration,
development and production in the Appalachian and Illinois Basins. The western
edge of the Appalachian Basin in eastern and southeastern Kentucky is the
primary target for drilling and acquisitions by the Company. The Appalachian
Basin, which has relatively shallow production, is the oldest and,
geographically, one of the largest producing regions in the United States. In
the Appalachian Basin, Daugherty Petroleum, Inc. operates gas wells in Whitley
and Knox Counties, Kentucky. The wells range between 1,500 and 3,500 feet in
depth with daily production ranging between 20 and 200 Mcf per day. The gas
produced in the fields is of a good quality and dry. The proximity of the gas
fields to the northeastern United States market has generally resulted in higher
than average natural gas prices.
The majority of Daugherty Petroleum, Inc.'s oil is produced from leases
located in the western Kentucky portion of the Illinois Basin. The wells in
which Daugherty Petroleum, Inc. owns interests are less than 2,500 feet deep,
and each well typically produces one to five barrels daily. Daugherty Petroleum,
Inc. acquired most of its oil production through acquisitions. Most fields in
the Illinois Basin are eventually produced by waterflooding (secondary recovery
methods), and it is the intention of the Company to waterflood some of its
properties that have the characteristics to flood well. In addition to
waterflooding to enhance production, the Company intends to drill on proven
undeveloped leases that the Company owns.
Daugherty Petroleum, Inc. owns a net 14.5 Bcf or its equivalent of
proven natural gas reserves. The Company's natural gas reserves increased 39
percent in 1996. This increase was mostly attributable to the drilling of wells
through joint ventures and partnerships. The Company purchased no gas reserves
in 1996. For information relating to Daugherty Petroleum, Inc.'s proven reserves
and proven undeveloped reserves, see the Consolidated Financial Statements
incorporated by reference in Item 8 hereof.
Dominion Reserves, Inc. On June 16, 1995, Daugherty Petroleum, Inc.
signed a joint venture agreement with Dominion Reserves, Inc. to drill 15 wells
in Knox County, Kentucky. The agreement also gave Dominion Reserves, Inc. a
first option to drill additional wells in an area of mutual interest with the
Company. Nine wells were drilled in 1995, two wells were drilled in 1996, and
the remainder are expected to be drilled in 1997.
Los Alamos National Laboratory and University of Houston's Oil Recovery
Center Research Project. On September 5, 1995, the Company signed a Cooperative
Research and Development Contract with Los Alamos National Laboratory and the
Regents of the University of California. The scope of the new contract is to
investigate the design of a development drilling program for gas fields. The
Company is currently transmitting data on field geology and well production to
the Los Alamos Laboratory for digitization. After all the information is
obtained and digitized, analysis will be performed to study areas for potential
development and assist the Company in selecting drilling locations for greater
enhancement of natural gas reserves.
Equitable Resources Energy Corporation Farmout Agreement. On April 12,
1996, Daugherty Petroleum, Inc. entered into a Farmout Agreement with Equitable
Resources Energy Corporation to develop 5,400 acres in Knox and Bell Counties,
Kentucky. The agreement gives Daugherty Petroleum, Inc. a right of first refusal
on an additional block of 8,500 acres contiguous to the original farmout acreage
and its existing acreage. Under the terms of the agreement, Daugherty Petroleum,
Inc. was required to drill three wells prior to December 31, 1996. The wells
were successfully drilled and on December 11, 1996, Daugherty Petroleum, Inc.
entered into a loan agreement with Joint Energy Development Investments Limited
Partnership, a Delaware limited partnership managed by Enron Capital & Trade
Resources, Inc., to fund four additional wells to be drilled on the farmout
acreage during the first quarter of 1997. Daugherty Petroleum, Inc. is
negotiating with several companies regarding a 20 well drilling program on the
acreage.
Wentzloff Transaction. During 1996, Daugherty Petroleum, Inc. reached
agreements with both Wentzloff Energy, Inc. and Michigan Southern Energy, Inc.
to acquire legal title to the gas and oil leases upon which the wells owned by
the various partnerships managed by Wentzloff and Michigan Southern were
located. The consideration for these acquisitions was the assumption by
Daugherty Petroleum, Inc. of the plugging obligation for the wells previously
owned by the partnerships.
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Niagara Oil, Inc. During 1996, Daugherty Petroleum, Inc. entered into
an agreement to sell its subsidiary, Niagara Oil, Inc. and to perform certain
rework services on the wells and waterflood equipment. The agreement requires
Daugherty Petroleum, Inc. to conclude negotiations with the United States
Environmental Protection Agency relating to the terms of an Administrative
Order, necessitated by violations of the prior operator, while detailing future
operations of the wells. The EPA has tendered a draft Administrative Order and
Daugherty Petroleum, Inc. has delivered its response. It is anticipated that,
following public hearing, the Administrative Order will be issued and Daugherty
Petroleum, Inc.'s sale of Niagara Oil, Inc. will be consummated during mid 1997.
Flat Creek and Richland Waterfloods. In 1993, the Company and Daugherty
Petroleum, Inc. entered into an agreement with Summit Funding, Inc. regarding
the redevelopment of two waterflood projects located in Hopkins County,
Kentucky. Daugherty Petroleum, Inc. has operated the properties since the date
of the agreement. The waterfloods were the subject of a research project
conducted jointly by Daugherty Petroleum, Inc., Los Alamos National Laboratory
and University of Houston's Oil Recovery Center Research Project. The research
project was discontinued in 1995 due to insufficient data to conduct a reservoir
simulation study. During 1996, Daugherty Petroleum, Inc. purchased the two
waterfloods from Summit Funding, which consist of 28 producing wells and six
injection wells and currently produce 20 to 30 barrels of oil per day. The
waterfloods contain 78,000 barrels of recoverable reserves.
Production and Sales. During 1996, sixty-nine percent of the Company's
operating revenues were derived from its oil and gas related activities. The
Company's oil and gas gross revenues totaled $1,568,343 and were comprised of
turnkey contract revenues of $1,027,651 (65 percent); oil and gas production
revenues of $458,618 (29 percent); and operating revenues of $82,074 (five
percent). Gas sales are dependent on a variety of factors beyond the control of
the Company, including competition with other gas suppliers, seasonal demand for
gas and access to gas markets through transportation systems owned by third
parties. During the past several years there had been a worldwide surplus of oil
that placed downward pressure on prices; however, during 1996, oil prices
increased.
Productive Wells and Acreage. Daugherty Petroleum, Inc. owns fractional
working interests (cost bearing interests) in 104 gross (42 net) producing gas
wells and in 66 gross (21.6 net) producing oil wells. The majority of Daugherty
Petroleum, Inc.'s gas production is located in southeastern Kentucky, in Whitley
and Knox Counties. Oil production is primarily from Henderson and Hopkins
Counties located in the western Kentucky portion of the Illinois Basin.
A gross well is a well in which the Company owns a working interest. A
net well is deemed to exist when the sum of the fractional working interests
owned by the Company in gross wells equals one.
As of December 31, 1996, Daugherty Petroleum, Inc., owned natural gas
and oil mineral leases covering 35,000 gross (28,875 net) acres of land. In
1996, Daugherty Petroleum, Inc. had a budget of $100,000 for drilling
exploratory wells, and $250,000 for drilling developmental wells.
A gross acre is an acre in which a working interest is owned. The
number of gross acres represents the sum of acres in which a working interest is
owned. A net acre is deemed to exist when the sum of the fractional working
interests in gross acres equals one. The number of net acres is the sum of the
fractional working interests in gross acres expressed in whole numbers or
fractions thereof.
Drilling Activity. During 1996, Daugherty Petroleum, Inc., participated
in the drilling of five gross (1.22 net) gas wells. All five of these wells were
completed as wells capable of producing gas in commercial quantities.
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Natural Gas and Oil Reserves. The following table sets forth
information as to the Company's proved and proved developed reserves of natural
gas and oil and of December 31, 1996, 1995, 1994, 1993, and 1992:
<TABLE>
<CAPTION>
GAS LIQUIDS
TOTAL PROVED RESERVES AS OF: (MCF) (BBL)
---------------------------- ---------- --------
<S> <C> <C>
December 31, 1996 .............. 14,509,433 285,252
December 31, 1995 .............. 10,353,988 201,491
December 31, 1994 .............. 7,844,657 130,912
December 31, 1993 .............. 970,753 171,388
December 31, 1992 .............. 1,250,532 505
</TABLE>
As used herein, the term Mcf means thousand cubic feet, the term MMcf
means million cubic feet, the term Bcf means billion cubic feet, and the term
Bbl means barrel. Liquids include crude oil, condensate and natural gas liquids.
The reserve estimates presented herein were prepared by management. The
report was prepared March 8, 1997, for the period ending December 31, 1996. For
additional information regarding the Company's proved reserves, see Note 5 of
the Notes to the Consolidated Financial Statements incorporated by reference in
Item 8 hereof. No estimates of the Company's proved net oil and gas reserves
have been filed with or included in reports to any federal authority or agency.
Certain Factors Affecting Reserves. There are numerous uncertainties
inherent in estimating quantities of proved reserves, including many factors
beyond the control of the producer. The reserve data set forth herein represents
only estimates. Reserve engineering is a subjective process of estimating
underground accumulations of crude oil and natural gas that cannot be measured
in an exact manner, and the accuracy of any reserve estimate is a function of
the quality of available data and of engineering and geological interpretation
and judgment. As a result, estimates of different engineers often vary. In
addition, results of drilling, testing and production subsequent to the date of
an estimate may justify revision of such estimate. Accordingly, reserve
estimates are often different from the quantities of crude oil and natural gas
that are ultimately recovered. The meaningfulness of such estimates is highly
dependent upon the accuracy of the assumptions upon which they were based.
Marketing. The revenues generated by the Company's exploration and
production operations are highly dependent upon the prices of, and demand for,
natural gas, and to a lesser extent, crude oil. For the last several years,
prices of natural gas and crude oil have reflected a worldwide surplus of supply
over demand. From time to time the Company has curtailed its production in
response to low prices. The Company saw higher prices for its natural gas
beginning in 1996 and in December, signed a one year contract for up to 1.5 MMcf
per day. The Company's efforts to expand its gathering system has improved its
access to new markets where prices more closely reflect the Appalachian hub
prices received by other operators in the Appalachian Basin.
Market conditions for oil and gas are the result of a number of factors
outside the control of the Company, including changing economic conditions,
seasonal weather conditions, loss of markets to alternative fuels, increased
foreign production, and governmental regulation. Historically, demand for, and
prices of, natural gas are seasonal, generally peaking in the winter when
heating requirements are highest.
Most of the Company's natural gas production is sold to Southern Gas Company. A
gas market is available through other potential customers, including Wiser Oil
Company and Delta Natural Gas. The Company sells approximately 60 percent of
its crude oil production to Indiana Farm Bureau, Inc., with the balance being
sold to refineries such as Marathon Oil, South Kentucky Purchasing and Bear
Creek Oil. The Company believes that the loss of any purchaser of the Company's
oil and gas production would not have a materially adverse affect on the
Company.
Competition. The oil and gas industry is highly competitive. The
Company encounters competition from other oil and gas companies in all areas of
its operations, including the acquisition of producing properties. The
Company's competitors include major integrated oil and gas companies, numerous
independent oil and gas companies, individuals, and drilling an income
programs. Many of the Company's competitors are large, well-established
companies with substantially larger operating staffs and greater capital
resources than the Company. Such companies may be able to pay more for
productive oil and gas properties and exploratory prospects and to define,
evaluate, bid for, and purchase a greater number of properties and prospects
than the Company's financial or human resources permit. The Company's ability
to acquire additional properties and discover reserves in the future will
depend upon its ability to evaluate and select suitable properties and to
consummate transactions in a highly competitive environment.
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Government Regulation. The Company's oil and gas operations are subject
to extensive state and federal regulations which have increased the cost of
doing business by requiring additional equipment or methods to eliminate or
reduce pollution and have increased financial exposure as in the case of federal
laws and regulations which may result in absolute liability for cleanup or
removal of contamination. Consequently, governmental agencies may from time to
time suspend or curtail operations considered to be detrimental to the ecology
or which may jeopardize public safety. The Company does not anticipate any
material adverse effect on its financial or competitive position as a result of
compliance with such laws and regulations.
MINING OPERATIONS
The Company's mining properties are located on the southeastern end of
Unga Island in the Shumagin Islands group of the Aleutian Islands, approximately
579 miles southwest of Anchorage, Alaska. The mining properties cover over 381
acres, and are situated on 15 federal patented lode claims and one federal
patented millsite claim (the Apollo-Sitka Claims, which consist of approximately
280 acres) and six State of Alaska mining claims (the Shumagin Claims, which
consist of approximately 101 acres). A three mile road connects the two claim
groups.
The Aleutians East Borough (the AEB) made application to the State of
Alaska for surface rights on the Company's Shumagin Claims under the State
Municipal Entitlements Act of 1989. The stated purpose of the AEB's selection
was to obtain a land base which could support economic development. The Company
was notified of this selection and the state's proposed conveyance of the
surface land on December 1, 1994. The Company filed comments with the State of
Alaska. The Company simultaneously notified the Alaska Department of Natural
Resources, Division of Mining, of its intention to file an application to
convert the Shumagin Claims to a State Upland Mining Lease. The latter
application was subsequently submitted.
A Final Finding and Decision on the AEB's application, issued January
18, 1996, contained a provision making the application subject to valid existing
rights, easements, and reservations, including the Shumagin Claims. The grant
Decision became final after expiration of an appeal period February 7, 1996. The
Company retains the right to enter the land for drilling, developing, and
otherwise operating its mineral holding. No adverse impact on the Company's
Shumagin Claims or other exploration, development and mining activities on Unga
Island is anticipated as a result of the Shumagin Claims' surface rights being
transferred to the AEB. The Company's application for conversion of its Shumagin
Claims to a State Upland Mining Lease is pending.
Beginning in 1994, and continuing through 1996, the Company
aggressively pursued the development of its mining properties and expanded its
activities from those of simple maintenance of the physical property to
preparing for its future development. In 1996, an update of the engineering data
was completed to address reserve estimates as well as to review operational
considerations and issues which were addressed in a number of meetings held in
Anchorage, Alaska. Also during 1996, the Company expended $61,106 in performing
this work.
Certain Factors Affecting Reserves and the Indicated Resources. The
Company's Unga Island activities on the Apollo-Sitka and Shumagin Claims have
brought the project to the mid-exploration stage. The reserves and indicated
resources are estimates based on surface and underground sampling, drilling, and
geologic inference. Complete assurance cannot be given that all of the reserves
and indicated resources are recoverable. Metal price fluctuations, variations in
production costs and mine/mill recoveries, environmental considerations, the
results of exploration work and geologic interpretation, and other factors may
require restatement of the reserves and indicated resources. Neither the
reserves, indicated resources, nor projections of future operations should be
interpreted as assurances of the economic life or profitability of future
operations.
Gold Price Volatility. The Company's anticipated profitability with
respect to potential production mining activities, which could be initiated
after completion of further exploration work, would be significantly affected by
variations in the market price of gold. Gold prices can fluctuate widely and are
affected by factors such as inflation, interest rates, currency exchange rates,
central bank sales, forward selling by producers, supply and demand, global or
regional political and economic crises and production costs in major gold
producing regions such as South Africa
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and the republics of the former Soviet Union. The aggregate effect of these
factors, all of which are beyond the Company's control, is impossible for
management to predict.
The volatility of gold prices is illustrated by the following table of
the high, low and average afternoon fixing prices of gold per ounce in United
States dollars on the London Bullion Market:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
High $415 $396 $396 $409 $359
Low $368 $372 $371 $326 $330
Average $391 $384 $384 $360 $344
</TABLE>
Factors in Bringing a Mineral Project into Production. The Company's
decisions as to whether the mining properties contain mineable ore deposits and
whether any property should be placed in production will depend on the results
of phased exploration programs and feasibility studies, the recommendations of
management and technical support, and the willingness and capability of the
Company's co-venturers or other participants to proceed. This decision will
involve consideration and evaluation of several significant factors, including,
but not limited to (i) costs of bringing a property into production, including
exploration, preparation of feasibility studies, development work, and the
construction of exploration, development, and production mine/mill facilities;
(ii) availability and costs of financing; (iii) production costs; (iv) metal
market prices; (v) compliance requirements for environmental and mine safety and
health regulations; and (vi) political climate and governmental regulations.
Exploration and development of the properties may be expensive and take a number
of years. There is no assurance that the Company, its co-venturers, or other
participants will have the necessary funds for any of these activities.
THE MINING CLAIMS
The Apollo-Sitka Claims and Millsite. Development of the Apollo-Sitka
Claims started in 1887. The Claims were in production from 1891 through 1904.
During this period, 500,000 tons of ore were extracted with a recovery of
approximately 145,138 equivalent ounces of gold (0.29 ounces of equivalent gold
per ton). Approximately 17,000 feet of underground working were driven during
the mining of and search for oxide gold ore. A 60 stamp mill, located on the
property, recovered approximately 75 to 80 percent of the gold contained in the
oxide ore. Low recoveries of the lead, zinc, and copper sulfides contained in
the ore were made. Mining operations were shut down in 1904 after the
free-milling oxide reserve was depleted and exploratory work discovered only
precious metal-bearing copper-lead-zinc sulfide ores, which were uneconomical to
process with mill technology available at the time. The development of the
flotation mineral recovery process and improvements in that process over the
years may possibly have rendered the current Apollo-Sitka reserves and indicated
resources economical at current metal prices.
The Apollo-Sitka Claims contain attractive precious/base metal
exploration targets. Exploration would be conducted with a phased program
involving surface and underground diamond drilling, further rehabilitation and
equipping of the existing shafts, and level rehabilitation and geologic sampling
and mapping. The existing mine workings, including those rehabilitated by the
Company over 1980-1982, will be valuable during future underground exploration
and development work on the Apollo-Sitka Claims.
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Apollo-Sitka Reserves. The following table sets forth information as to
the Company's probable reserves of gold and silver as of December 31, 1996, with
respect to the Apollo-Sitka Claims:
APOLLO-SITKA INDICATED RESOURCES AND RESERVES
<TABLE>
<CAPTION>
BLOCK OUNCES PER TON GOLD SILVER CLASSIFICATION
----- -------------- ---- ------ --------------
<S> <C> <C> <C> <C> <C>
Apollo (1) 2,250,000 0.145 (2) 8.0 Indicated Resource
Sitka (3)
A 7,000 0.203 2.67 Proven
B 1,650 0.188 2.42 Proven
C 8,150 0.131 1.73 Proven
------ ----- ----
Total/Average 16,800 0.167 2.19
------
D 1,560 0.212 2.85 Probable
E 2,390 0.096 1.45 Probable
F 3,680 0.002 0.22 Probable
G 14,670 0.001 1.02 Probable
------ ----- ----
Total/Average 22,300 0.026 1.06
======
- ----------
<FN>
(1) Based solely on Frank R. Brown's report, APOLLO CONSOLIDATED GOLD MINING
COMPANY, 1935. Mr. Brown classified the reserve as Probable. The reserve is
re-classified as an INDICATED RESOURCE, which conforms to current guidelines for
reporting resources and reserves.
(2) Based on the assumption that Mr. Brown used a $20.67 per ounce gold price in
his 1935 report.
(3) Alaska Apollo Gold Mines, Ltd., internal report, December 1983.
</TABLE>
The Shumagin Claims. The Shumagin Claims are located approximately 2.5
miles north of the Apollo-Sitka Claims and consist of six State of Alaska mining
claims. They are connected to the Apollo-Sitka Claims by a three-mile road. Gold
and silver mineralization was encountered on the Shumagin Claims in 1983, when
the Company diamond drilled 3,190 feet. From its discovery in 1983 to December
31, 1995, management estimates that the Company has spent $5.5 million on
exploration of the Shumagin Claims. Funds for this exploration were provided by
a party interested in the exploration of the claims (approximately $350,000 in
1989) and the balance through the sale of the Company's Common Stock in 1983
($3,002,272), 1985 ($416,305) and 1987 ($1,613,382) and from corporate funds
during 1994 and 1995.
An independently prepared reserve estimate, incorporating the ore
intercept in a deep 1990 diamond drill hole as well as the previous Company's
raw drill hole and trench data, was completed by Edward O. Strandberg, Jr.,
P.E., Mining Engineer, on March 30, 1995. The ore reserves are defined by 17,963
feet of diamond drilling, 1,827 feet of percussion drilling, 1,017 feet of
trenching, 286 feet of crosscuts, and 641 feet of drift. The reserves appear to
be contained in six ore shoots ranging over 1,334 feet vertically and 1,782 feet
horizontally. Strong structural control of the ore deposit is evident. The
deposit is open in all quadrants and at depth.
Ore continuity determined by the exploration work allows classification
of a reserve as drill/trench-inferred and inferred ore. Drill/trench-inferred
reserves are determined based upon geologic inference and drilling and/or
trenching. The inferred reserve is estimated by projection from or between
drill/trench-inferred ore blocks. Reserves in both classifications are mineable
reserves, based on a current site specific operating cost estimate for
underground cut and fill mining of the ore with shaft access.
A break-even cutoff grade of 0.27 ounces of gold per ton was determined
at a 200 ton per day cut and fill ore production rate and a $375 gold price. The
break-even grade is sensitive to mining and milling costs, the gold price, and
mill recovery. Fixed costs, such as royalties and gold refining charges further
impact the break-even cutoff grade. A minimum mining width of four feet and a
tonnage factor of 12 cubic feet per ton were employed.
Additional exploration work is necessary in order to verify the
reserves as demonstrated mineable reserves in the proven and probable measured
reserve categories, and to expand reserves. It is anticipated that this work
will
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include surface exploration, diamond drilling, shaft sinking and exploration
drifting, crosscutting, raising, and diamond drilling from underground drill
stations. A decision to place the ore deposit in production is contingent upon
favorable completion of further exploration and preliminary and final
feasibility studies.
The Aleut Corporation controls approximately 10 percent of the
Company's drill/trench-inferred gold reserves and approximately 31 percent of
the Company's inferred gold reserves. This distribution is based on vertical
claim line boundaries on the Shumagin patented claim pattern. The Aleut
Corporation's share in current gold reserves is assumed to be in ore outside the
vertical downward projection of the patented claim pattern. The ore reserve
division assumes no assertion of extralateral rights by either the Company or
the State of Alaska.
The increase in reserves over 1993-1994 levels reflected in the March
30, 1995, estimate is the result of the incorporation of a deep 1990 diamond
drill hold drill log and assay data and additional geologic interpretation in
the reserve analysis. Classification of the reserve as drill/trench-inferred and
inferred ore in the 1995 reserve estimate is consistent with current industry
practice.
The Shumagin Gold and Silver Reserves. The following table sets forth
information as to the Company's reserves of gold and silver as of December 30,
1995, with respect to the Shumagin Claims.
SHUMAGIN RESERVES (UNCUT AND UNDILUTED)
<TABLE>
<CAPTION>
OUNCES PER TON OUNCES
-------------- ------
TONS GOLD SILVER GOLD SILVER
---- ---- ------ ---- ------
<S> <C> <C> <C> <C> <C>
Drill/Trench Inferred 149,283 0.891 4.24 133,005 633,081
Inferred 131,052 0.700 3.00 91,755 392,794
------- ----- ---- ------- ---------
Total/Average 280,335 0.802 3.66 224,760 1,025,875
======= ======= =========
</TABLE>
The Shumagin reserve estimate was prepared by Edward O. Strandberg,
Jr., P.E., independent consulting mining engineer and documented in a report
dated March 30, 1995. Since March 30, 1995, no major favorable or adverse event
has occurred which the Company believes significantly affects or changes
estimated reserve quantities as of that date.
Climate. The climate relating to the mining properties is relatively
mild due to the proximity of the Japanese Current. The temperature rarely falls
below zero degrees Fahrenheit and the ocean has a mean temperature of 53 degrees
Fahrenheit. The annual average rainfall on Unga Island is between 45 and 50
inches, one-third of this falling as snow. Unga Island is on the same latitude
as Ireland and Denmark.
Competition. The mining industry is intensely competitive. The Company
competes with numerous individuals and companies, including major mining
companies which have greater technical and financial resources than the Company.
The level of competition for desirable mining leases, suitable prospects for
drilling operations, and for project funds is high.
Permitting. Various permits are required from governmental bodies for
exploration, development, and mining operations to be conducted. No assurance
can be given that such permits will be received, or that environmental standards
imposed by federal, state, or local authorities will not be changed with
material adverse effects on the Company's activities. Compliance with such laws
may cause delays and require additional capital. The Company may be subject to
environmental damage liability which it may elect not to insure against due to
prohibitive premium costs and other reasons. The Company continues to respect
and make every effort to preserve the environment and terrain of Unga Island.
The Company is in material compliance with all federal, state and local laws
relating to current activities.
RED RIVER HARDWOODS, INC.
On November 18, 1996, pursuant to a plan of reorganization under
Chapter 11 of the U.S. Bankruptcy Code, Daugherty Petroleum, Inc. acquired an
80 percent interest in Red River Hardwoods, Inc., a lumber dimension production
facility located in Clay City, Kentucky. The acquisition was for $220,090. The
net assets acquired totaled $2,159,831, and the net liabilities totaled
$2,235,843.
Red River Hardwoods, Inc. produces rough semi-machined and
fully-machined wood component products for the construction and furniture
industries. These components include interior trim and mouldings, hardwood
flooring, and furniture parts. The Company purchases green lumber from local
saw mills and kiln dries the lumber and in its operations.
8
<PAGE> 11
For segmented financial information relating to the Company's oil and
gas exploration and production activities, mining operations, and wood products,
see Note 16 of the Notes to the Consolidated Financial Statements incorporated
by reference in Item 8 hereof.
EMPLOYEES
At December 31, 1996, the Company employed 63 persons.
ITEM 2. PROPERTIES.
In addition to the properties discussed above with respect to each
business segment, the Company leases office space in Lexington, Kentucky, for
its executive offices pursuant to a lease which will expire in July 1997. As of
the date of this Report, the Company has not yet determined whether or not it
will renew the lease. The Company also owns a field office, repair shop and
storage yard in Williamsburg, Kentucky. The property is near the gas fields in
southeast Kentucky and is used as storage for equipment owned by Daugherty
Petroleum, Inc. The Company maintains customary compensation, liability, and
property insurance for all of its operations, which also includes well coverage
for oil and gas exploration and production activities.
ITEM 3. LEGAL PROCEEDINGS.
From time to time, the Company is involved in litigation relating to
claims arising out of its operations in the normal course of its business. The
Company maintains insurance coverage against potential claims in an amount which
it believes to be adequate. The Company believes that it is not presently a
party to any litigation the outcome of which would have a material adverse
effect on its results of operations or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not Applicable.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock trades on the Nasdaq SmallCap Market in the
United States. There is no trading of the Common Stock in Canada. The range of
the high and low bid information for the Common Stock for each full quarterly
period within the two most recent fiscal years is shown on the following table.
As of December 31, 1996, the Company was authorized to issue 20,000,000 shares
of the Common Stock, of which there were issued and outstanding 8,504,954
shares. No dividends were declared or paid during 1996.
<TABLE>
<CAPTION>
Dec. 31, Sept. 30, June 30, March 31, Dec. 31, Sept. 30, June 30, March 31,
Quarter Ended 1996 1996 1996 1996 1995 1995 1995 1995
- ------------- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Low bid price 1/8 1/4 5/16 7/16 1/4 13/32 17/32 3/4
High bid price 5/16 7/16 9/16 17/32 1/2 1-3/4 3/4 1
</TABLE>
As of May 19, 1997, the high and low bids with respect to the price of
the Common Stock were $0.50 and $0.437, respectively. The Nasdaq SmallCap Market
quotations represent interdealer prices, without mark-ups, commissions, etc.,
and they may not necessarily be indicative of actual sales prices.
As of December 31, 1996, there were 2,979 holders of record of the
Common Stock, of whom 2,894 were United States shareholders holding a total of
7,073,682 shares or approximately 83 percent of the issued and outstanding
shares of the Common Stock.
9
<PAGE> 12
FOREIGN LAWS AFFECTING THE COMMON STOCK
Exchange Controls and Other Limitations. There are no governmental
laws, decrees or regulations in Canada relating to restrictions on the
import/export of capital or affecting the remittance of interest, dividends or
other payments to non-resident holders of the shares of the Common Stock. Any
such remittances to United States residents, however, are subject to a 15
percent withholding tax pursuant to Article X of the reciprocal tax treaty
between Canada and the United States. (See below).
Except as provided in the Investment Canada Act, there are no
limitations under the laws of Canada, the Province of British Columbia or in the
charter or any of the constituent documents of the Company on the right of
foreigners to hold and/or vote shares of the Common Stock.
The Investment Canada Act essentially requires a non-Canadian making an
investment to acquire control of a Canadian business, the investment in which
exceeds $150,000,000, to file an application for review with Investment Canada,
the Canadian federal agency created by the Investment Canada Act. Where the
acquisition of control is indirect and made by a non-Canadian (other than an
American, as defined) (for example by the purchase of shares in a controlling
parent corporation which has a Canadian business subsidiary) the threshold is
$500 million. For Americans, there is no review of such indirect acquisitions.
The proposed investment, if above the threshold, may not proceed unless the
Investment Canada agency and its responsible minister are satisfied that the
investment will be of benefit to Canada.
A Canadian business is defined in the Investment Canada Act as a
business carried on in Canada that has a place of business in Canada, an
individual or individuals in Canada who are employed or self-employed in
connection with the business, and assets in Canada used in carrying on the
business. An American, as defined in the Investment Canada Act, includes an
individual who is a United States citizen or a lawful permanent resident of the
United States, a government or governmental agency of the United States, an
American-controlled entity, corporation or limited partnership, and a
corporation, limited partnership or trust of which two-thirds of its directors,
general partners or trustees, as the case may be, are Americans.
The acquisitions of certain Canadian businesses are excluded from the
$150,000,000 threshold and remain subject to review in any event. These excluded
businesses are oil, gas, uranium, financial services (except insurance),
transportation services and cultural and broadcast media services (i.e., the
publication, distribution or sale of books, magazines, periodicals, other than
printing or typesetting businesses, television and radio services).
Taxation. Generally, dividends paid by Canadian corporations to
non-resident shareholders are subject to a withholding tax of 25 percent of the
gross amount of such dividends. However, Article X of the reciprocal tax treaty
between Canada and the United States reduces to 15 percent the withholding tax
on the gross amount of dividends paid to residents of the United States. A
further five percent reduction in the withholding rate on the gross amount of
dividends is applicable when a United States corporation owns at least 10
percent of the voting stock of the Canadian corporation paying the dividends.
A non-resident of Canada who holds shares of the Common Stock of the
Company as capital property will not be subject to tax on capital gains realized
on the disposition of such shares unless such shares are taxable Canadian
property within the meaning of the Canadian Income Tax Act and no relief is
afforded under any applicable tax treaty. The shares of the Common Stock would
be taxable Canadian property of a non-resident if at any time during the five
year period immediately preceding a disposition by the non-resident of such
shares not less than 25 percent of the issued shares of any class of the Company
belonged to the non-resident, the person with whom the non-resident did not deal
at arm's length, or to the non-resident and any person with whom the
non-resident did not deal at arm's length.
10
<PAGE> 13
ITEM 6. SELECTED FINANCIAL DATA.
The following table sets forth certain selected financial information
for the periods presented and should be read in conjunction with the
Consolidated Financial Statements of the Company and the related notes thereto
and with Managements Discussion and Analysis of Financial Condition and Results
of Operations included in this Report.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------
1996 1995 1994 1993 (1) 1992
---- ---- ---- -------- ----
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Gross Revenues ................................... $ 2,273,117 $ 2,052,222 $ 2,458,835 $ 71,838 $ -0-
Direct Expenses .................................. 1,437,958 1,660,043 1,156,648 -0- -0-
Operating income (loss) .......................... (563,971) (1,437,437) (173,335) (258,861) (121,073)
Income (loss) from continuing operations ......... (555,080) (1,440,003) (174,823) (251,026) (121,073)
Per share income (loss) from continuing operations ($0.07) ($0.19) ($0.02) ($0.06) ($0.09)
CASH FLOW DATA:
Capital expenditures ............................. 473,325 197,354 3,781,088 2,734,235 4,192
BALANCE SHEET DATA:
Working capital .................................. (349,172) (692,600) 226,174 228,212 94,744
Property and equipment, net ...................... 17,644,984 15,657,153 15,678,048 12,019,231 11,087,314
Total assets ..................................... 21,008,230 18,220,555 18,701,045 14,383,366 11,259,701
Current maturities of long-term debt ............. 399,889 218,458 86,304 66,052 24,000
Long-term debt ................................... 3,561,254 913,986 849,025 687,760 682,518
Stockholders investment .......................... 15,470,383 15,573,940 16,730,196 13,337,171 10,499,065
<FN>
(1) Financial data for 1993 reflects the acquisition of Daugherty Petroleum,
Inc. by the Company.
(2) Financial data for 1996 reflects the acquisition of Red River Hardwoods,
Inc. by the Company.
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following is a discussion of the Company's financial condition and
results of operations. This discussion should be read in conjunction with the
Consolidated Financial Statements incorporated by reference in Item 8 hereof.
RESULTS OF OPERATIONS
Fiscal 1996 - 1995
With the acquisition of Daugherty Petroleum, Inc. in the fourth quarter
of 1993, the Company began a strategy of aggressively acquiring natural gas and
oil properties in southeastern and western Kentucky. Daugherty Petroleum, Inc.
has provided the Company with a diversified asset base which includes natural
resources other than its prospective gold and silver mining properties and has
also increased the Company's asset base. During 1996, management continued to
invest in areas it deemed critical in developing an infrastructure suitable to
support its future growth. These areas included ongoing expenses in management,
professional and operational personnel and other expenses deemed necessary to
position the Company for future acquisitions and financing. Also, on November
17, 1996, Daugherty Petroleum, Inc. acquired an 80 percent interest in Red River
Hardwoods, Inc., a dimensional hardwood manufacturing company. Due to this
acquisition, the assets of the Company increased by $2,699,789 and short and
long term debts increased by $2,446,898.
Historically, the Company's revenues have been realized from two
primary sources. The first is from its interests in the producing natural gas
and oil wells it operates and in which it owns interests. The second source of
revenue for the Company has been derived from its activities as turnkey driller
and operator for various drilling programs in its geographic area. In 1996,
Daugherty Petroleum, Inc. reduced its dependence on activities as turnkey
driller for private investors and instead concentrated on joint ventures with
industry partners. In 1996, approximately 45.21
11
<PAGE> 14
percent of the Company's revenues were derived from joint venture and
partnership drilling. Natural gas and oil operations and revenues accounted for
20.18 percent of the revenues. Lumber sales and manufacturing sales related to
Red River Hardwoods, Inc. accounted for 31 percent. The remaining 3.61 percent
derived from miscellaneous items such as operational activities and lease sales.
For the year ending December 31, 1996, the Company's gross revenues
increased 10.76 percent to $2,273,117 from $2,052,222 for the same period in
1995. The Company's gross revenues were derived from turnkey contract revenues
of $1,027,651 (45.21 percent); natural gas and oil production revenues of
$458,618 (20.18 percent); operating revenues of $82,074 (3.61 percent); and
lumber sales of $704,774 (31.00 percent). The increase in gross revenues was
attributable primarily to an increase in lumber sales related to Red River
Hardwoods, Inc. Lumber sales increased by $476,581 from $228,303 in 1995 to
$704,774 in 1996. Contract revenues from turnkey drilling activities declined by
$252,464 from $1,280,115 in 1995 to $1,027,651 in 1996. The Company concentrated
on developing drilling prospects for its own drilling efforts in the last half
of 1996, therefore, reducing prospects available for drilling partnerships.
During 1996, total operating expenses were $1,399,130 compared to
$1,829,616, for a decrease of $430,486. Total operating expenses included Red
River Hardwoods, Inc.'s expenses from November 18, 1996, the date of the
acquisition, to year end 1996. Consulting and management fees decreased by
$114,872. Goodwill increased marginally by $3,152 to $182,108 due to the
acquisition of Red River Hardwoods, Inc. Legal fees and advertising and
promotion expenses decreased due to the Company's decision not to sponsor a year
end drilling program.
The Company experienced a net loss of $555,837 in 1996 compared to a
net loss of $1,440,003 in 1995. The decrease in net loss was primarily a result
of increased revenues as a result of lumber sales related to Red River
Hardwoods, Inc., and decreased expenses.
The Company believes there are three factors that will increase the
price it receives for its natural gas production. First, the acquisition of gas
reserves from the Wentzloff Energy and Michigan Southern Energy, Inc.,
partnerships is providing a much larger production base with which to negotiate
contracts previously unavailable to the Company. Second, the natural gas
gathering systems completed in 1996 and currently under construction will allow
the Company to diversify its customer base and access markets where prices are
higher. Third, natural gas prices in 1996 are up significantly over 1995, and
the Company has signed a one year gas contract for the majority of its gas
production that is substantially higher than the average gas price received by
the Company in 1996. The combined effect is expected to bring a higher overall
price for the Company's production. The Company intends to aggressively pursue
future contracts based on its increased reserves, increased production capacity
and improved distribution.
Fiscal 1995 - 1994
For the year ending December 31, 1995, the Company's gross revenues
declined 20 percent to $2,052,222 from $2,548,835 for the same period in 1994.
The Company experienced a net loss of $1,440,003 in 1995 compared to $174,823 in
1994.
The Company's gross revenues in 1995 were derived from turnkey contract
revenues of $1,280,115 (62.4 percent); natural gas and oil production revenues
of $484,237 (23.6 percent); operating revenues of $41,078 (2.0 percent); lease
sales of $15,000 (0.7 percent); lumber sales of $228,303 (11.1 percent); and
miscellaneous revenues of $3,489 (0.2 percent).
The reduction in gross revenues was attributable primarily to the level
of contract revenue from turnkey drilling activities which declined by $692,134
from $1,972,249 in 1994 to $1,280,115 in 1995. These revenues were derived from
partnerships sponsored by the Company or others who contract with the Company to
drill and operate wells on a contract basis. These partnerships are, to a large
extend, driven by investors' desire for the tax benefits associated with oil and
gas investments. Historically, the drilling activity generated from these
partnerships result in significant year end revenues and drilling activity
during the first three to six months of the following year. In 1995, the Company
sponsored a partnership that was intended to provide these revenues and that
partnership failed to reach the minimum aggregate investment necessary for it to
be completed. In addition, other customers of the Company,
12
<PAGE> 15
that is other partnerships who would typically use the Company as a turnkey
driller and operator, encountered similar problems in closing year end
investments which adversely impacted the Company's revenues.
During 1995, total operating expenses were $1,829,616 compared to
$1,475,522 in 1994, for an increase of $354,094. Total operating expenses in
1995 included non cash items such as amortization and depreciation of $395,205
and bad debt expense of $137,632. Non cash items included $178,956 for the
amortization of goodwill related to the Company's acquisition of Daugherty
Petroleum, Inc. Consulting and management fees increased due to the utilization
of outside contractors for services for accounting and financial management,
engineering of reserve studies and landman costs incurred as result of increased
leasing activities. Advertising, promotional, legal and consulting expenses
increased due to the Company's year end drilling program which failed to
generate any offsetting revenues.
LIQUIDITY AND CAPITAL RESOURCES
Working capital for the period ending December 31, 1996, was a negative
$349,172, compared to the same period in 1995, when working capital was a
negative $692,600.
During 1996, the major changes in the composition of the Company's
current assets were: cash balances increased $132,110 from $138,980 to $271,090;
accounts receivable balances increased $182,385 from $509,943 to $692,328;
inventories increased $499,425 from $80,890 to $580,315; and other current
assets such as prepaids and notes receivable decreased $250,065 from $301,325 to
$51,260. The increase in inventory balances was a result of the Company's
acquisition of Red River Hardwoods, Inc. during the period.
Current liabilities grew $220,427 from $1,723,738 to $1,944,165. The
major components of this growth were from the Company's increase in the current
portion of long term debt by $181,431 from $218,458 to $399,889, an increase in
accounts payable and accrued liabilities of $114,603 from $1,351,073 to
$1,465,676 and a decrease in short term bank loans of $75,607 from $154,207 to
$78,600.
During 1996, the Company held negotiations with several potential
financial institutions and investors with the intent of securing financing
necessary to provide credit facilities for the Company to support existing and
future capital requirements. In December, 1996, Daugherty Petroleum, Inc. signed
a loan agreement with a subsidiary of Enron Capital and Trade Resources, Inc.,
in the amount of $340,000 providing financing for one well to be acquired and 50
percent of the drilling and completion costs of four natural gas wells. As of
April 25, 1997, Daugherty Petroleum, Inc. had drawn $150,000 on the credit line.
It is expected that, in addition to this credit facility, Daugherty Petroleum,
Inc. will secure additional loans to develop its existing natural gas leasehold
interests. The Company will see increased natural gas revenue when pipeline
facilities are installed to allow gas flow from eleven wells drilled in 1996 and
the first quarter of 1997 that have not been connected to the gas gathering
system.
In 1996, operating capital was improved by the issuance of 626,998
shares of Common Stock valued at $265,642 in lieu of cash payments to various
consultants for services rendered. These shares reflected a total value of
$265,642 and were issued, without discount, at market bid prices ranging from $
0.38 to $0.50 per share under an S-8 registration statement filed by the
Company.
13
<PAGE> 16
The following table names the individuals to whom these shares were
issued and sets forth the total number of shares issued:
<TABLE>
<CAPTION>
RECIPIENT NUMBER OF SHARES RECEIVED
--------- -------------------------
<S> <C>
Robert L. McIntyre 100,775
Norman T. Reynolds 148,245
Fred Mercer & Associates 32,200
CFO Services, Inc 134,018
BCD Softech, Inc. 7,760
W. S. Daugherty, President/Chairman 50,000
Timothy F. Guthrie, former CFO 50,000
Other Employees (as a group) 104,000
-------
Total 626,998
=======
</TABLE>
While management believes that the cash flow resulting in its operating
revenues will contribute significantly to its short-term financial commitments
and operating costs, its has developed a plan in 1997 to meet its financial
obligations. The plan includes:
- Acquisition of revenue producing properties. In March, 1996,
Daugherty Petroleum, Inc. acquired working interests in 26 oil wells
and six water injection wells which contributes a net increase in
revenues of $85,768 during 1996. Daugherty Petroleum, Inc. has made
offers for two natural gas properties which include producing gas wells
with developmental acreage for drilling additional wells. The Company
has entered into negotiations with various lenders to finance these
acquisitions.
- Sale of nonrevenue producing oil properties. The Company has entered
negotiations for the sale of a group of oil wells. If successfully
completed, this transaction will result in a reduction of debt service.
In addition, negotiations indicate that the purchaser will contract
with Daugherty Petroleum, Inc. for the development, enhancement, and
operation of these wells.
- Sale of real estate. The Company owns a maintenance shop in
Williamsburg, Kentucky. Management feels that the Company can be better
served by selling this facility and leasing more suitable facilities
closer to the Company's gas field in Knox County, Kentucky. The sale of
this facility will result in the reduction of debt by $24,000, and debt
service of $5,400 per year.
- Installation of additional natural gas gathering system. The Company
plans to expand its natural gas pipeline by 45,000 feet in 1997. The
extension will allow for substantially more natural gas to be
transported to market from its farmout acquired form Equitable
Resources Corporation.
- Additional funding for Red River Hardwoods, Inc. The Company has
negotiated additional inventory loans for Red River Hardwoods, Inc.
that will allow it to increase its inventory, thereby, increasing its
revenues.
The Company plans to drill 15 wells during 1997 and will attempt to
earn interests ranging from 12.5 percent to 50 percent interest in each well it
drills. The Company's interest in these wells are expected to be financed by an
energy lender.
Due to losses experienced by the Company in 1996, it did not utilize
any of the net operating loss carryforwards available to it for U.S. and
Canadian tax purposes. As of December 31, 1996, the Company has $9,094,000 in
net loss carry-forwards in the U.S. that will expire from 1997 through 2011. In
addition, for Canadian federal tax purposes, these carry-forwards are
$1,301,300 and expire at periods through 2002.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by this Item 8 appears on pages I through
XXI of this Report, and is incorporated herein by reference.
14
<PAGE> 17
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Set forth below are the directors and executive officers of the
Company, together with their ages as of the date of this Report. Each director
is elected for a one year term and serves until his successor is elected and
qualified.
<TABLE>
<CAPTION>
NAME AGE POSITION DIRECTOR SINCE
---- --- -------- --------------
<S> <C> <C> <C>
William S. Daugherty................... 42 Chairman of the Board, President and September 1993
Chief Operating Officer
James K. Klyman-Mowczan............. 42 Director May 1992
Charles L. Cotterell................... 72 Director June 1994
</TABLE>
A description of the business experience during the past several years
for each of the directors and executive officers of the Company and certain
significant employees of the Company is set forth below.
William S. Daugherty, age 42, has been a director since September 1993.
Mr. Daugherty has served as President and Chief Operating Officer of the Company
since September 1993 when he acquired 1,250,000 shares of the Common Stock in
exchange for all of his common stock in Daugherty Petroleum, Inc. Mr. Daugherty
has served as President of Daugherty Petroleum, Inc. since 1984. In 1995, Mr.
Daugherty was elected as Chairman of the Board of the Company.
James K. Klyman-Mowczan, age 42, has been a director since May 1992.
For the past five years Mr. Klyman-Mowczan has been a computer software designer
and programmer specializing in applied information technology.
Charles L. Cotterell, age 72, has been a director since June 1994. Mr.
Cotterell has been involved in the resources industry and has participated in
the natural gas and oil industries in Western Canada and the United States,
particularly in Kentucky. He is a Vice President of Konal Engineering Co., Ltd.,
is a past director of Mariner Mines, Ltd., Nordustrial, Ltd., Goliath Boat Co.,
and Dominion Power Press Equipment Co., Ltd., and the past President of Smith
Press Automation Co., Ltd.
D. Michael Wallen joined Daugherty Petroleum, Inc. in March 1995 as
Vice President of Engineering and was elected a Vice President of the Company in
March 1997. Mr. Wallen received a Bachelor of Science in Physics in 1975 from
Morehead State University. From 1975 to 1982, Mr. Wallen worked for Kentucky
West Virginia Gas Company, a subsidiary of Equitable Resources, as a well
drilling and completion specialist. From 1982 to 1984, Mr. Wallen worked as a
production engineer for Sabine Corporation. From 1984 to 1986, he worked as a
production engineer for Scott Talbott, Jr., an independent operator in Kentucky.
From 1986 to 1988, he was Eastern Kentucky Production Superintendent for
Southeastern Gas Company. In December 1988, Mr. Wallen was appointed by the then
Governor of Kentucky, Wallace Wilkinson, as Director of the Kentucky Division of
Oil and Gas. Mr. Wallen also currently serves as the Kentucky Governor's
official representative to the Interstate Oil and Gas Compact Commission.
Effective December 6, 1996, Timothy F. Guthrie resigned as Chief
Financial Officer and Secretary of the Company in order to pursue other business
interests.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange of 1934 (the Exchange Act)
requires the Company's directors and executive officers, and persons who own
more than 10 percent of a registered class of the Company's equity securities,
15
<PAGE> 18
to file with the Securities and Exchange Commission (the "Commission") and The
Nasdaq Stock Market initial reports of ownership and reports of changes in
ownership of the Common Stock and other equity securities of the Company.
Directors, officers and greater than 10 percent shareholders are required by
the Commission's regulations to furnish the Company with copies of all Section
16(a) forms they file.
William S. Daugherty and James K. Klyman-Mowczan failed to file a Form
4 on a timely basis after the receipt of options granted by the Company in
January 1994. Additionally, Messrs. Daugherty and Klyman-Mowczan, failed to file
on a timely basis a Form 5 for fiscal 1996.
ITEM 11. EXECUTIVE COMPENSATION.
The following table sets forth information regarding annual and
long-term compensation with respect to the fiscal years ended December 31, 1996,
1995 and 1994 for services in all capacities rendered to the Company by William
S. Daugherty, the Chief Executive Officer of the Company. There was no other
person serving as an executive officer of the Company at December 31, 1996,
whose total annual salary and bonus exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------- ----------------------
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) OPTIONS #
--------------------------- ---- ---------- --------- ---------
<S> <C> <C> <C> <C>
William S. Daugherty, 1996 86,538 -0- 200,000
Chairman and President 1995 100,000 19,000 (1) 400,000
1994 100,000 -0- 200,000
- ---------------
<FN>
(1) The bonus was in the form of 50,000 shares of the Common Stock valued at
$0.38 per share. The shares represent bonuses approved by the Board of
Directors in February and December 1995 for the years 1994 and 1995. The
shares were issued July 18, 1996.
</TABLE>
While the officers of the Company receive benefits in the form of
certain perquisites, none of the individuals identified in the foregoing table
has received perquisites which exceed in value the lesser of $50,000 or 10
percent of such officer's salary and bonus.
16
<PAGE> 19
OPTION GRANTS IN 1996
The following table provides details regarding the stock options
indicated in the Summary Compensation Table as having been granted to the named
executive officers in 1996. In addition, in accordance with the rules of the
Commission, there are shown hypothetical gains or option spreads that could be
realized for the respective options, based on arbitrarily assumed rates of
annual compound stock price appreciation of five percent and 10 percent from
the date the options were granted over the full five-year term of the options.
No gain to the optionees is possible without an increase in the stock price
which will benefit all shareholders proportionately.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE VALUE AT ASSUMED
ANNUAL RATES OF STOCK PRICE
APPRECIATION FOR OPTION TERMS (1)
- ----------------------------------------------------------------- ---------------------------------------
NUMBER OF PERCENT OF
SHARES TOTAL EXERCISE
UNDERLYING OPTIONS OR BASE
OPTIONS GRANTED TO PRICE
GRANTED EMPLOYEES ($ PER EXPIRATION 5% 10%
NAME (#) IN 1996 SHARE) DATE ($) ($)
---- ------------ ------------- ----------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
W. S. Daugherty (2) 200,000 47.06% $1.00 6-28-2004 -0- -0-
- ------------
<FN>
(1) These amounts represent certain assumed rates of appreciation only. Actual
gains, if any, on stock option exercises or stock holdings are dependent on
the future performance of the shares of the Common Stock and overall stock
market conditions. There can be no assurance that the amounts reflected in
this table will be achieved.
(2) On June 28, 1996, the Board of Directors of the Company authorized the
granting of incentive stock options covering 200,000 shares of the Common
Stock for Mr. Daugherty vesting and exercisable in 50,000 share increments
on June 28, 1996, 1997, 1998, and 1999. All options authorized in favor of
Mr. Daugherty in 1996 are exercisable at $1.00 per share, expire five years
from the date of vesting and are contingent upon Mr. Daugherty's employment
at the time of vesting. As of March 31, 1997, these options have not been
issued; however, the Company is obligated to issue them to Mr. Daugherty.
</TABLE>
The following table shows the number of shares of the Common Stock
underlying all exercisable and non-exercisable stock options held by the named
executive officers as of December 31, 1996.
AGGREGATED FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED IN-THE-MONEY
OPTIONS AT FISCAL YEAR-END (#) OPTIONS AT FISCAL YEAR-END ($)
------------------------------ ------------------------------
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE (1)
---- ------------------------- -----------------------------
<S> <C> <C>
William S. Daugherty 400,000/400,000 -0-
- -------------
<FN>
(1) The market price for the shares of the Common Stock at December 31, 1996
was below the option price for each share of the Common Stock.
</TABLE>
Mr. Daugherty received options to purchase 200,000 shares of the Common
Stock in 1994 exercisable at $1.90 per share in increments of 50,000 shares each
on December 10, 1994, 1995, 1996, and 1997. These options expire December 10,
1998. In February 1995, the Board of Directors of the Company authorized the
granting of incentive stock options covering 200,000 shares of the Common Stock
for Mr. Daugherty vesting and exercisable in 50,000 share increments on February
27, 1995, 1996, 1997 and 1998. Additionally, on December 27, 1995, the Board of
Directors of the Company authorized the granting of incentive stock options
covering 200,000 shares of the Common Stock for Mr. Daugherty vesting and
exercisable in 50,000 share increments on December 27, 1995, 1996, 1997 and
1998. All options authorized in favor of Mr. Daugherty in 1995 are exercisable
at $1.00 per share, expire five years from the date of vesting and are
contingent upon Mr. Daugherty's employment at the time of vesting. As detailed
above, on June 28, 1996, the Board of Directors authorized the granting of
incentive stock options to Mr. Daugherty covering 200,000 shares of the Common
Stock. On March 7, 1997, pursuant to an Incentive Stock Option Agreement between
the
17
<PAGE> 20
Company and Mr. Daugherty, the Administrative Committee of the Alaska Apollo
Resources Inc. 1997 Stock Option Plan granted Mr. Daugherty options to purchase
2,000,000 shares of the Common Stock exercisable at $0.309375 per share.
Options for 355,555 shares vested on March 7, 1997, with 355,555 shares vesting
on January 1, 1998, 1999, 2000, and 2001, and the remaining 222,225 shares
vesting on January 1, 2002. These options are contingent upon Mr. Daugherty's
employment with the Company on the vesting dates. They expire on March 7, 2002.
COMPENSATION OF DIRECTORS
The Company does not compensate any of its directors for their services
to the Company as directors. However, the Company does reimburse its directors
for expenses incurred in attending board meetings. Further, the Company has
granted options to acquire shares of the Common Stock to the following current
directors of the Company, other than Mr. Daugherty.
AGGREGATED FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED IN-THE-MONEY
OPTIONS AT FISCAL YEAR-END (#) OPTIONS AT FISCAL YEAR-END ($)
------------------------------ ------------------------------
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE (1)
---- ------------------------- -----------------------------
<S> <C> <C>
James K. Klyman-Mowczan 30,000/0 -0-
Charles L. Cotterell 30,000/0 -0-
- ----------------
<FN>
(1) The market price for the shares of the Common Stock at December 31, 1996
was below the option price for each share of the Common Stock.
</TABLE>
In 1993, Mr. Klyman-Mowczan was granted options to purchase 10,000
shares of the Common Stock exercisable at $1.90 per share and expiring December
10, 1998. On June 15, 1994, the Board of Directors approved the reduction of the
exercise price of these options to $1.00. On June 15, 1994, Mr. Cotterell was
granted an option to purchase 10,000 shares of the Common Stock in 1994
exercisable at $1.00 per share expiring December 10, 1998. On February 27, 1995,
the Board of Directors approved the grant of options to Messrs. Klyman-Mowczan
and Cotterell to purchase 10,000 shares of the Common Stock each exercisable at
$1.00 per share and expiring February 27, 2000. On June 28, 1996, the Board of
Directors approved the grant of options to Messrs. Klyman-Mowczan and Cotterell
to purchase 10,000 shares of the Common Stock each exercisable at $1.00 per
share and expiring June 28, 2001.
SHAREHOLDER RETURN PERFORMANCE GRAPHS
The following graph compares the total shareholder returns of the
Company since December 31, 1992, to two indices: The Nasdaq Stock Market Total
Return Index (the "Nasdaq Index") prepared for Nasdaq by the Center of Research
in Security Prices, and a peer group (the "Peer Group") of publicly traded
companies with substantial similarities to the Company. The Peer Group consists
of three companies traded on The Nasdaq SmallCap Market and one company traded
on the American Stock Exchange. The Peer Group is composed of Parallel
Petroleum Co., XCL Ltd., Texoil, Inc., and Credo Petroleum Corporation which
are oil and gas exploration companies with operations and other similarities to
the Company's major business operation. While the total return for the Company,
the Peer Group, and the Nasdaq Index assumes the reinvestment of dividends,
none of the Peer Group companies or the Company have ever declared dividends on
their Common Stock. The Nasdaq Index comprises all domestic and foreign common
shares traded on The Nasdaq National Market and The Nasdaq SmallCap Market
for all Standard Industrial Classification codes. The following graph is
presented pursuant to the Commission's rules.
Comparison of Total Return Since December 31, 1992(1)
[Graphic]
- ------------
(1) This graph assumes that the value of the investment in the Common
Stock of the Company, the Peer Group, and the Nasdaq Index was $100 on
December 31, 1992, and that all dividends were reinvested. One member
of the Peer Group, Texoil, Inc., did not trade publicly until 1994,
and therefore, is not included in the Peer Group averages until
December 31, 1994. It should be noted that the Peer Group was
changed for the analysis for the year end December 31, 1996, due to
the fact that one member of the previous Peer Group, Haldor Petroleum
Co., is no longer publicly traded and a second member of the previous
Peer Group, Amerae Energy Corp, was determined by the Company to no
longer be an appropriate selection due to significant advances in it
market capitalization, revenue and other factors.
The following chart shows the value of a $100 investment in the Common
Stock of the Company, the Peer Group, and the Nasdaq Index as of a relevant
dates, assuming an initial investment of $100 in each on December 31, 1992.
<TABLE>
<CAPTION>
12-31-92 12-31-93 12-31-94 12-31-95 12-31-96
<S> <C> <C> <C> <C> <C>
Peer Group Average 100 150.45 167.89 116.29 177.53
The Nasdaq Index 100 115.74 112.26 157.66 193.05
Alaska Apollo Resources 100 122.72 63.63 34.09 9.09
</TABLE>
The forgoing graph and chart are not incorporated in any prior or
future filings of the Company under the Securities Act of 1933 or the Exchange
Act. Unless the Company specifically incorporates the graph and chart by
reference, the graph and chart shall not otherwise be deemed filed under such
Acts.
18
<PAGE> 21
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table indicates the number of shares of the Common Stock
owned beneficially as of March 31, 1997 by (i) each person known to the Company
to beneficially own more than five percent of the outstanding shares of the
Common Stock, (ii) each director, (iii) the officers of the Company, and (iv)
all directors and executive officers as a group. Except to the extent indicated
in the footnotes to the following table, each of the persons or entities listed
therein has sole voting and sole investment power with respect to the shares of
the Common Stock which are deemed beneficially owned by such person or entity.
<TABLE>
<CAPTION>
SHARES OWNED PERCENT
TITLE OF CLASS BENEFICIAL OWNER BENEFICIALLY OF CLASS
- -------------- ---------------- ------------ --------
<S> <C> <C> <C>
Common Stock.............. William S. Daugherty 2,174,555 (1) 21.79
131 Prosperous Place, Suite 17-A
Lexington, Kentucky 40509
Trio Growth Trust 1,500,000 (2) 14.28
18 York Valley Crescent
Willowdale, Ontario M2P 1A7
GraceChurch Securities Ltd. 1,103,000 12.25
21 Abbotsbury House, Abbotsbury Road
London W14 8EN, England
Alaska Investments Limited 1,013,334 11.25
Ospery House, 5 Old Street
St. Helier, Jersey, Channel Islands, U.K.
Exergon Capital S.A. 1,000,000 (3) 10.52
Dufourstrasse 101
Zurich 8008, Switzerland
Jayhead Investments Limited 500,000 (4) 5.26
18 York Valley Crescent
Willowdale, Ontario M2P 1A7
Charles L. Cotterell 74,200 (5) *
James K. Klyman-Mowczan 30,000 (6) *
Directors and executive officers as a group
(4 persons) 2,508,255 (7) 24.74
- ------------
<FN>
* Represents ownership of less than one percent.
(1) Includes warrants to purchase 119,000 shares of the Common Stock and
options to acquire 805,555 shares of the Common Stock which are currently
exercisable, and options to acquire 50,000 shares of the Common Stock which
will become exercisable on June 28, 1997.
(2) Consists of warrants to purchase 1,500,000 shares of the Common Stock which
are currently exercisable.
(3) Includes warrants to purchase 500,000 shares of the Common Stock which are
currently exercisable.
(4) Consists of warrants to purchase 500,000 shares of the Common Stock which
are currently exercisable.
(5) Includes options to purchase 30,000 shares of the Common Stock which are
currently exercisable.
(6) Consists of options to purchase 30,000 shares of the Common Stock which are
currently exercisable.
(7) Includes options to purchase 840,555 shares of the Common Stock which are
currently exercisable, options to purchase 75,000 shares of the Common
Stock which are exercisable within 60 days, and warrants to purchase
119,000 shares of the Common Stock which are currently exercisable.
</TABLE>
19
<PAGE> 22
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
INDEBTEDNESS OF DIRECTORS, OFFICERS AND EMPLOYEES
As of March 31, 1997, the aggregate indebtedness to the Company and to
any other person which is the subject of a guarantee, support agreement, letter
of credit or other similar arrangement or understanding provided by the Company
of all present and former directors, officers and employees of the Company was
$39,161.27.
<TABLE>
<CAPTION>
LARGEST AMOUNT
NAME AND INVOLVEMENT OF OUTSTANDING DURING AMOUNT OUTSTANDING
PRINCIPAL POSITION ISSUER OR SUBSIDIARY LAST COMPLETED FISCAL YEAR AS OF MARCH 31, 1997
- ------------------ -------------------- -------------------------- --------------------
<S> <C> <C> <C>
William S. Daugherty (1) Lender $51.710.22 $14,791.90
President and Chief
Operating Officer
Timothy F. Guthrie (2)(3) Lender $34,738.22 $24,369.37
Former Secretary and Chief
Financial Officer
- ---------------
<FN>
(1) Part of the indebtedness of Mr. Daugherty to the Company is evidenced by a
promissory note dated September 23, 1993 in the principal amount of
$50,000. The debt was incurred to assist Mr. Daugherty in the payment of
his legal expenses resulting from the acquisition by the Company of
Daugherty Petroleum, Inc. By the terms of the note, the unpaid principal
bears interest at the rate of six percent per annum and is repayable in
monthly instalments of not less than $1,000 per month. Repayment commenced
in November 1993. As of December 31, 1996, the unpaid principal balance due
on the note was $17,791.90. Any unpaid balance is payable in full on
December 31, 1997. The note is unsecured. As of March 31, 1997, the unpaid
principal balance of the note was $14,791.90. As of December 31, 1996, and
March 31, 1997, Renfro Valley Broadcasting, Inc., a company wholly-owned by
Mr. Daugherty was indebted to Daugherty Petroleum, Inc. in the amount of
$17,556.
(2) During 1996, the Company advanced CFO Services, Inc., a company owned by
Mr. Guthrie, $11,405.22, which amount, as of March 31, 1997, remains due
and payable.
(3) As of December 31, 1996, Mr. Guthrie was indebted to the Company in the
amount of $12,964.15. Said indebtedness represents the remaining balance on
a promissory note payable to the order of the Company dated December 21,
1994, and due May 10, 1998. Said note bears interest at the rate of 10
percent per annum. Payments are to be made from 100 percent of the proceeds
of the sale of natural gas from two wells the Company drilled prior to
December 31, 1994, for a joint venture in which Mr. Guthrie was a
participant. The note is secured by a pledge of a nine percent working
interest in the two well joint venture program.
</TABLE>
LEASE OBLIGATION OF THE COMPANY
The Company is the tenant in a building owned by a partnership in which
William S. Daugherty, a director and the Chief Executive Officer of the Company
and Timothy F. Guthrie, a former officer of the Company, each own a 50 percent
interest. The rent is $2,600 per month, and the lease expires in July 1997. The
Company has not made any decision as to whether or not it intends to seek
renewal of the lease.
CFO SERVICES, INC.
Since 1990, Timothy F. Guthrie, the former Chief Financial Officer and
Secretary of the Company, has served as director, Secretary and President of CFO
Services, Inc. (CFO), a consulting firm that provides temporary and interim
Chief Financial Officer and Controller services to companies and due diligence
and investment monitoring services for various investor groups. CFO was retained
by the Company to provide various accounting and financial management services.
As CFO's representative, Mr. Guthrie performed the agreed upon duties. CFO also
performed similar services for other companies. Mr. Guthrie became Secretary and
Chief Financial Officer of the Company in 1995. The agreement between the
Company and CFO was on a month to month basis and provided for the Company to
pay a minimum of $5,967 for services rendered by CFO. The Company also
reimbursed CFO for all out of pocket expenses it incurred rendering services to
the Company. On December 6, 1996, Mr. Guthrie resigned as Chief Financial
Officer and Secretary and the agreement with CFO was terminated as of that date.
During 1996, CFO invoiced the Company and its subsidiaries the sum of
$52,720.93. As of December 31, 1996, and March 31, 1997, the Company and its
subsidiaries were indebted to CFO in the amount of $24,586.42 and $9,586.42
respectively. During 1996, CFO was paid a total of $ 67,009.00. The payment was
in the form of 134,018 shares of the Common Stock at the price of $0.50 per
share, of which $42,007.42 was for services rendered and invoiced during 1995.
As of December 31, 1996, CFO and Mr. Guthrie held 199,223 and 65,881 shares,
respectively, of the Common Stock.
20
<PAGE> 23
GUTHRIE YORK & COMPANY, INC.
On February 1, 1995, the Company entered into an agreement with Guthrie
York & Company, Inc. (GYC), whereby GYC provided marketing, public relations and
investor relations services to the Company. Timothy F. Guthrie, the former
Secretary and Chief Financial Officer of the Company, is a principal in GYC. As
of December 31, 1996, GYC held 5,000 shares of the Common Stock.
INDEBTEDNESS OF THE COMPANY TO A SHAREHOLDER
The Company was indebted to Alaska Investments Limited in the amount of
$75,000 for expenditures made on behalf of the Company for public relations
services. Alaska Investments Limited assigned the obligation to Jayhead
Investments Limited on January 6, 1997. The obligation was fully paid by the
Company in consideration for the issuance to Jayhead Investments Limited of
immediately exercisable warrants to purchase 500,000 shares of the Common Stock,
such warrants having an exercise price of $0.125 per share, pursuant to a
Warrant Agreement dated March 7, 1997 between the Company and Jayhead
Investments Limited. Alaska Investments Limited is the beneficial owner of 11.25
percent of the Common Stock of the Company, and Jayhead Investments Limited is
the beneficial owner of 5.26 percent of the Common Stock of the Company.
Niagara Oil, Inc., a subsidiary of Daugherty Petroleum, Inc., is
indebted to Jayhead Investments Limited., an affiliate of Alaska Investments
Limited. The remaining balance of the indebtedness is $64,779.00 and bears
interest at a rate of 10 percent beginning April 1, 1995. Payment terms are
based on quarterly payments of interest only with the total principal and
interest, if any, due in full June 1, 1997. This indebtedness is secured by the
assets of Niagara Oil, Inc., as well as the corporate guarantee of Daugherty
Petroleum, Inc.
FINANCING COMMITMENTS
On January 6, 1997, Trio Growth Trust agreed to act as the underwriter
in a private placement of up to $1,000,000 for the Company's wholly-owned
subsidiary, Red River Hardwoods, Inc. In consideration for such underwriting,
the Company agreed to issue to Trio Growth Trust immediately exercisable
warrants for the purchase of 1,500,000 shares of the Common Stock, such warrants
having an exercise price of $0.125 per share pursuant to a Warrant Agreement
dated March 7, 1997 between the Company and Trio Growth Trust. As a result of
the underwriting agreement, Trio Growth Trust acquired a beneficial ownership of
14.28 percent of the Common Stock of the Company. In addition to the
underwriting commitment of Trio Growth Trust, Exergon Capital S.A. agreed to
participate in the underwriting of Red River Hardwoods, Inc., and in
consideration thereof received immediately exercisable warrants for the purchase
of 500,000 shares of the Common Stock, such warrants having an exercise price of
$0.125 per share, pursuant to a Warrant Agreement dated March 7, 1997 between
the Company and Exergon Capital S.A. As a result of said Warrant Agreement,
Exergon Capital S.A. is the beneficial owner of 10.52 percent of the Common
Stock of the Company.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
<TABLE>
<CAPTION>
(a) List of Documents Filed with this Report. Page
---------------------------------------- ----
<S> <C> <C>
(1) Financial statements, Alaska Apollo Resources Inc. and subsidiary companies
Report of Kraft, Rothman, Berger, Grill, Schwartz & Cohen,
independent chartered accountants, dated April 25, 1997 ............... I
Balance sheet-December 31, 1996.......................................... II
Statement of Deficit for the year ended December 31, 1996 ............... IV
Statement of Loss for the year ended December 31, 1996................... V
Statement of Cash Flow for the year ended December 31, 1996.............. VI
Notes to Financial Statements............................................ VII
</TABLE>
21
<PAGE> 24
All schedules have been omitted since the information required to be
submitted has been included in the financial statements or notes or has been
omitted as not applicable or not required.
(2) Exhibits--
The exhibits indicated by an asterisk (*) are incorporated by
reference.
Exhibit
Number Description of Exhibit
------ ----------------------
3(a)* Memorandum and Articles for Catalina Energy & Resources Ltd.,
a British Columbia corporation, dated January 31, 1979, filed
as an exhibit to Form 10 Registration Statement filed May 25,
1984. File No. 0-12185.
3(b)* Certificate for Catalina Energy & Resources Ltd., a British
Columbia corporation, dated November 27, 1981, changing the
name of Catalina Energy & Resources Ltd. to Alaska Apollo Gold
Mines Ltd., and further changing the authorized capital of the
Company from 5,000,000 shares of common stock, without par
value per share, to 20,000,000 shares of common stock, without
par value per share, filed as an exhibit to Form 10
Registration Statement filed May 25, 1984. File No. 0-12185.
3(c)* Certificate of Change of Name for Alaska Apollo Gold Mines
Ltd., a British Columbia corporation, dated October 14, 1992,
changing the name of Alaska Apollo Gold Mines Ltd. to Alaska
Apollo Resources Inc., and further changing the authorized
capital of the Company from 20,000,000 shares of common stock,
without par value per share, to 6,000,000 shares of common
stock, without par value per share, filed as Exhibit 3(c) to
Form 10-K/A, amendment No. 1, for the Company for the fiscal
year ended December 31, 1993. (File No. 0-12185).
3(d)* Altered Memorandum of Alaska Apollo Resources Inc., a British
Columbia corporation, dated September 9, 1994, changing the
authorized capital of the Company from 6,000,000 shares of
common stock, without par value per share, to 20,000,000
shares of common stock, without par value per share, filed as
Exhibit 3(d) to Form 10-K/A, Amendment No. 1, for the Company
for the fiscal year ended December 31, 1993. (File No.
0-12185).
4* See Exhibit No. 3(a).
10(a) Alaska Apollo Resources Inc. 1997 Stock Option Plan
10(b) Incentive Stock Option Agreement by and between Alaska Apollo
Resources Inc. and William S. Daugherty dated March 7, 1997.
10(c) Warrant Agreement by and between Alaska Apollo Resources Inc.
and Jayhead Investments Limited dated March 7, 1997.
10(d) Warrant Agreement by and between Alaska Apollo Resources Inc.
and Trio Growth Trust dated March 7, 1997.
10(e) Warrant Agreement by and between Alaska Apollo Resources Inc.
and Exergon Capital S.A. dated March 7, 1997.
21 Subsidiaries of the Company:
- Niagara Oil, Inc., a Kentucky corporation.
- Daugherty Petroleum, Inc., a Kentucky corporation.
- Red River Hardwoods, Inc., a Kentucky corporation.
22
<PAGE> 25
23(a)* Consent of Richard M. Russell & Associates, Inc. described in
Exhibit 23(a) to Form 10-K for the Company for the fiscal year
ended December 31, 1993. (File No. 0-12185).
23(b) Consent of Kraft, Rothman, Berger, Grill, Schwartz & Cohen.
23(c)* Consent of Edward O. Strandberg, Jr., P.E.
24 Powers of Attorney.
27 Financial Data Schedule.
(b) Reports on Form 8-K.
-------------------
None
(c) Financial Statement Schedules.
-----------------------------
No schedules are required as all information required has been
presented in the audited financial statements.
23
<PAGE> 26
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ALASKA APOLLO RESOURCES INC.
By /s/ William S. Daugherty
------------------------------------------
William S. Daugherty, Chairman of the Board
May 21, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ William S. Daugherty Chairman of the Board, President, May 21, 1997
- ------------------------- Director of the Registrant
WILLIAM S. DAUGHERTY
/s/ James K. Klyman-Mowczan* Director of the Registrant May 21, 1997
- -------------------------
JAMES K. KLYMAN-MOWCZAN
/s/ Charles L. Cotterell* Director of the Registrant May 21, 1997
- -------------------------
CHARLES L. COTTERELL
*By William S. Daugherty
- -------------------------
William S. Daugherty,
Attorney-in-Fact
</TABLE>
24
<PAGE> 27
ALASKA APOLLO RESOURCES INC.
CONSOLIDATED FINANCIAL STATEMENTS
(U.S. FUNDS)
DECEMBER 31, 1996
<PAGE> 28
ALASKA APOLLO RESOURCES INC.
DECEMBER 31, 1996
CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
AUDITORS' REPORT I
CONSOLIDATED FINANCIAL STATEMENTS
Balance Sheet II-III
Statement of Deficit IV
Statement of Loss V
Statement of Cash Flow VI
Notes to Financial Statements VII-XX
</TABLE>
<PAGE> 29
PAGE I
AUDITORS' REPORT
To The Shareholders Of
ALASKA APOLLO RESOURCES INC.
We have audited the consolidated balance sheets of ALASKA APOLLO RESOURCES INC.
as at December 31, 1996 and 1995 and the consolidated statements of deficit,
loss and cash flow for the three years ended December 31, 1996. These
consolidated financial statements are the responsibility of the company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards
in Canada. 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 evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the company as at December 31, 1996
and 1995 and the results of its operations and cash flow for the three years
ended December 31, 1996 in accordance with generally accepted accounting
principles in Canada.
/s/ Kraft, Rothman, Berger, Grill, Schwartz & Cohen
KRAFT, ROTHMAN, BERGER, GRILL, SCHWARTZ & COHEN
CHARTERED ACCOUNTANTS
Toronto, Ontario
April 25, 1997
COMMENTS BY AUDITORS FOR U.S. READERS ON
CANADA-UNITED STATES REPORTING DIFFERENCES
In the United States, reporting standards for auditors require the addition of
an explanatory paragraph (following the opinion paragraph) when the financial
statements are affected by significant uncertainties such as those described in
Note 1(c) to the consolidated financial statements relating to the company's
ability to recover mineral property costs incurred in connection with resource
property exploration activities. Our report to the shareholders dated April 25,
1997, is expressed in accordance with Canadian reporting standards which do not
permit a reference to such uncertainties in the auditor's report when the
uncertainties are adequately disclosed in the financial statements.
/s/ Kraft, Rothman, Berger, Grill, Schwartz & Cohen
KRAFT, ROTHMAN, BERGER, GRILL, SCHWARTZ & COHEN
CHARTERED ACCOUNTANTS
Toronto, Ontario
April 25, 1997
<PAGE> 30
PAGE II
ALASKA APOLLO RESOURCES INC.
(INCORPORATED UNDER THE COMPANY ACT OF BRITISH COLUMBIA)
CONSOLIDATED BALANCE SHEET
(U.S. FUNDS)
DECEMBER 31, 1996
ASSETS
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
CURRENT
Cash $ 271,090 $ 138,980
Accounts receivable 692,328 509,943
Inventories (Note 3) 580,315 80,890
Prepaid expense 4,248 11,421
Other receivable 33,597 75,904
Notes receivable (Note 7) 13,415 214,000
----------- -----------
1,594,993 1,031,138
BONDS AND DEPOSITS 57,643 43,419
MINING PROPERTY AND RELATED EXPENDITURES (Note 4) 11,231,247 11,211,462
OIL AND GAS PROPERTIES - net (Note 5) 4,270,907 4,057,908
CAPITAL (Note 6) 2,143,850 387,783
NOTES RECEIVABLE (Note 7) 4,377 84,376
LOANS TO RELATED PARTIES (Note 8) 40,512 17,556
INVESTMENTS (Note 9) 144,791 --
OTHER ASSET 19,003 --
GOODWILL (net of accumulated amortization $584,759; 1995 - $402,651) 1,500,907 1,386,913
----------- -----------
$21,008,230 $18,220,555
=========== ===========
</TABLE>
See accompanying notes to financial statements.
APPROVED ON BEHALF OF THE BOARD:
/s/ William S. Daugherty /s/ Charles L. Cotterell
---------------------------- ---------------------------
Director Director
<PAGE> 31
PAGE III
ALASKA APOLLO RESOURCES INC.
(INCORPORATED UNDER THE COMPANY ACT OF BRITISH COLUMBIA)
CONSOLIDATED BALANCE SHEET
(U.S. FUNDS)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
LIABILITIES
1996 1995
-- ------------ ------------
CURRENT
<S> <C> <C>
Bank loans (Note 10) $ 57,000 $ 154,207
Accounts payable 884,038 805,618
Accrued liabilities 581,638 545,455
Long-term debt (Note 11) 399,889 218,458
Loan payable (Note 12) 21,600 --
------------ ------------
1,944,165 1,723,738
LOAN PAYABLE (Note 12) 31,671 --
LONG-TERM DEBT (Note 11) 3,561,254 913,986
DEFERRED INCOME TAXES -- 8,891
NON-CONTROLLING INTEREST 757 --
------------ ------------
5,537,847 2,646,615
------------ ------------
SHAREHOLDERS' EQUITY
CAPITAL STOCK (Note 13)
AUTHORIZED
20,000,000 Common shares
ISSUED
8,504,954 Common shares (1995-7,742,710) 20,395,470 20,068,190
SUBSCRIBED AND TO BE ISSUED
500,000 Common shares 125,000 --
DEFICIT (5,050,087) (4,494,250)
------------ ------------
15,470,383 15,573,940
------------ ------------
$ 21,008,230 $ 18,220,555
============ ============
</TABLE>
See accompanying notes to financial statements.
<PAGE> 32
PAGE IV
ALASKA APOLLO RESOURCES INC.
CONSOLIDATED STATEMENT OF DEFICIT
(U.S. FUNDS)
FOR THE THREE YEARS ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
DEFICIT, beginning of year $(4,494,250) $(3,054,247) $(2,858,220)
Adjustment of prior years' income taxes -- -- (21,204)
----------- ----------- -----------
(4,494,250) (3,054,247) (2,879,424)
Net loss for the year (555,837) (1,440,003) (174,823)
----------- ----------- -----------
DEFICIT, end of year $(5,050,087) $(4,494,250) $(3,054,247)
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 33
PAGE V
ALASKA APOLLO RESOURCES INC.
CONSOLIDATED STATEMENT OF LOSS
(U.S. FUNDS)
FOR THE THREE YEARS ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
GROSS REVENUE $ 2,273,117 $ 2,052,222 $ 2,458,835
DIRECT EXPENSES 1,437,958 1,660,043 1,156,648
----------- ----------- -----------
835,159 392,179 1,302,187
----------- ----------- -----------
GENERAL AND ADMINISTRATIVE COSTS
Salaries 267,527 288,701 188,855
Interest on long-term debt 182,972 51,814 28,534
Amortization - goodwill 182,108 178,956 178,956
- capital assets 57,549 53,982 28,643
- oil and gas equipment 12,309 8,660 8,415
Depletion - oil and gas properties 132,425 155,607 85,208
Legal fees 129,215 188,411 176,924
Audit and accounting 118,087 128,737 124,044
Office and general 104,504 141,608 104,078
Bad debts 91,276 137,632 33,759
Shareholders' information 88,333 117,930 26,556
Consulting and management fees 81,691 196,563 237,917
Advertising and promotion 51,622 98,354 165,978
Insurance 46,195 41,716 25,560
Rent 33,012 33,716 --
Property and payroll taxes 21,002 37,230 46,951
Trust and stock exchange company fees 8,997 22,632 8,162
Engineering 2,523 18,241 23,590
Repairs and maintenance 5,648 11,344 19,166
----------- ----------- -----------
1,616,995 1,911,834 1,511,296
----------- ----------- -----------
Less: Gain on sale of subsidiary 117,896 -- --
Interest and other income 47,951 4,089 15,062
Gain on sale of capital assets 16,449 -- --
Miscellaneous 35,569 78,129 28,212
Litigation settlement -- -- (7,500)
----------- ----------- -----------
217,865 82,218 35,774
----------- ----------- -----------
1,399,130 1,829,616 1,475,522
----------- ----------- -----------
LOSS BEFORE INCOME TAXES (563,971) (1,437,437) (173,335)
----------- ----------- -----------
Current income taxes -- -- 111,310
Utilization of non-capital loss carry-forward -- -- (111,310)
Deferred income taxes (recovered) (8,891) 2,566 1,488
----------- ----------- -----------
(8,891) 2,566 1,488
----------- ----------- -----------
LOSS BEFORE THE UNDERNOTED (555,080) (1,440,003) (174,823)
Non-controlling interest (757) -- --
----------- ----------- -----------
NET LOSS FOR THE YEAR $ (555,837) $(1,440,003) $ (174,823)
=========== =========== ===========
NET LOSS PER SHARE (Note 14) $ (0.07) $ (0.19) $ (0.03)
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 34
PAGE VI
ALASKA APOLLO RESOURCES INC.
CONSOLIDATED STATEMENT OF CASH FLOW
(U.S. FUNDS)
FOR THE THREE YEARS ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
1996 1995 1994
--------- ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss for the year $(555,837) $(1,440,003) $ (174,823)
Amortization and depletion 384,391 397,205 301,197
Deferred income taxes (recovered) (8,891) 2,566 1,488
Gain on sale of assets (134,345) -- --
Non-controlling interest 757 -- --
Decrease in incorporation cost -- -- 1,525
Increase in unearned income -- -- (40,500)
(Increase) decrease in prepaid expenses 7,173 (259) 38,645
(Increase) decrease in accounts receivable 84,613 281,489 (679,295)
Increase in inventories (37,790) (80,890) --
Prior period adjustment -- -- (21,204)
(Increase) decrease in other receivable 42,307 (75,904) --
(Increase) decrease in bonds and deposits 500 (1,500) (41,919)
Increase in accounts payable (160,450) 379,550 403,976
Increase (decrease) in accrued liabilities (33,971) (42,636) 384,148
--------- ----------- -----------
(411,543) (580,382) 173,238
--------- ----------- -----------
FINANCING ACTIVITIES
Issue of capital stock 327,280 283,747 3,589,052
Increase of long-term debt 351,006 197,079 186,553
(Increase) decease in notes receivable 280,584 (72,744) (177,632)
Proceeds from capital stock subscribed 125,000 -- --
Increase (decrease) in loan payable 53,271 (5,000) (10,000)
(Increase) decrease in loans to related parties (22,956) (20) (17,536)
--------- ----------- -----------
1,114,185 403,062 3,570,437
--------- ----------- -----------
INVESTING ACTIVITIES
Proceeds from sale of assets 324,394 -- --
Net assets acquired 95,015 -- --
Purchase of capital assets (11,967) (144,473) (197,346)
Increase in mining property (19,785) (52,881) (61,111)
Investment (144,791) -- --
Goodwill acquired (315,105) -- --
Increase in oil and gas properties, net (401,086) -- (3,522,631)
--------- ----------- -----------
(473,325) (197,354) (3,781,088)
--------- ----------- -----------
CHANGE IN CASH AND BANK LOANS 229,317 (374,674) (37,413)
CASH AND BANK LOANS, beginning of year (15,227) 359,447 396,860
--------- ----------- -----------
CASH AND BANK LOANS, end of year $ 214,090 $ (15,227) $ 359,447
========= =========== ===========
SUPPLEMENTAL DISCLOSURE
Interest paid during the year $ 186,959 $ 50,123 $ 28,221
========= =========== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 35
PAGE VII
ALASKA APOLLO RESOURCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. FUNDS)
DECEMBER 31, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in Canada,
which, except as described in Note 17 conform in all material respects
with accounting principles generally accepted in the United States.
(A) BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of
the company and its wholly-owned subsidiary, Daugherty
Petroleum Inc. ("DPI") and its 80% owned subsidiary. All
material inter-company accounts and transactions have been
eliminated on consolidation.
(B) INVENTORIES
Inventories are carried at the lower of cost and net
realizable value. Cost has been determined by the first-in,
first-out method.
(C) MINING PROPERTY AND RELATED EXPENDITURES
The company defers all costs relating to mining properties by
project area until such time as the properties are put into
commercial production, sold or abandoned. Costs deferred
include acquisition costs, exploration and development
expenditures and cost of assets permanently dedicated to
exploration and development. Buildings, equipment and
machinery will not be amortized until the mine achieves
commercial production.
The ultimate realization of the deferred costs and
expenditures is dependent upon the discovery of commercially
exploitable ore bodies, at which time such costs and
expenditures will be charged against income using an
appropriate method and rate to be determined.
When evaluation of a project area discloses possible
impairment, the deferred costs and expenditures thereon are
written down to the recoverable amount. Unsuccessful projects
are written off when abandoned.
(D) OIL AND GAS PROPERTIES
(I) ACCOUNTING TREATMENT FOR COSTS INCURRED
The company uses the successful efforts method of
accounting for oil and gas producing activities.
Costs to acquire mineral interest in oil and gas
properties, to drill and equip exploratory wells that
find proved reserves, and to drill and equip
development wells are capitalized. Costs to drill
exploratory wells that do not find proved reserves,
geological and geophysical costs, and costs of
carrying and retaining unproved properties are
expensed.
<PAGE> 36
PAGE VIII
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(D) OIL AND GAS PROPERTIES (Continued)
(I) ACCOUNTING TREATMENT FOR COSTS INCURRED (continued)
Unproved oil and gas properties that are individually
significant are periodically assessed for impairment
of value and a loss is recognized at the time of
impairment by providing an impairment allowance.
Other unproved properties are amortized based on the
company's experience of successful drilling and
average holding period.
Capitalized costs of producing oil and gas
properties, after considering estimated dismantlement
and abandonment costs and estimated salvage values,
are depreciated and depleted by the
unit-of-production method. Support equipment and
other property and equipment are depreciated over
their estimated useful lives.
On the sale or retirement of a complete unit of a
proved property, the cost and related accumulated
depreciation, depletion and amortization are
eliminated from the property accounts and the
resultant gain or loss is recognized. On the
retirement or sale of a partial unit of proved
property, the cost is charged to accumulated
depreciation, depletion and amortization with a
resulting gain or loss recognized in income.
On the sale of an entire interest in an unproved
property for cash or cash equivalent, gain or loss on
the sale is recognized taking into consideration the
amount of any recorded impairment if the property had
been assessed individually. If a partial interest in
an unproved property is sold, the amount received is
treated as a reduction of the cost of the interest
retained.
(II) REVENUE AND EXPENSE RECOGNITION
Revenue on turnkey drilling contracts is recognized
upon securing binding contracts. Oil and gas revenue
is recognized when sold. All income and expense items
are recognized pursuant to the accrual method of
accounting.
(III) WELLS AND RELATED EQUIPMENT
Wells and related equipment are recorded at cost. All
items are amortized on the straight-line method over
the estimated useful life of the asset being seven
years.
(E) GOODWILL
Goodwill is recorded at cost and is being amortized over 10
years on a straight-line basis. The goodwill arose on the
acquisition of DPI and Red River Hardwoods Inc. (Note 2). The
management determines the potential permanent impairment in
value of goodwill and its estimated useful life, annually,
based on estimation of fair value.
<PAGE> 37
PAGE IX
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(F) CAPITAL ASSETS
Capital assets are stated at cost. Amortization is being
provided for on a straight-line basis over the useful life of
the asset ranging from five to thirty-one years.
(G) INVESTMENT
The investment in partnerships engaged in drilling and
completion of wells on a turnkey basis is accounted for based
on the equity method of accounting.
(H) CONCENTRATIONS OF CREDIT RISKS
In 1996, DPI contracted with two major industry partners to
drill five wells. The revenues from these two customers
included in the 1995 financial statements accounted for
$528,394 or 51% of the company's contract revenues. Funds are
usually received prior to the commencement of drilling
operations.
Red River Hardwoods Inc. sells products to furniture
manufacturers, cabinet manufacturers and wholesale
distribution companies both in the United States and overseas.
The company performs ongoing credit evaluations of its
customers' financial conditions and requires no collateral
from its customers. The company's four largest customers
account for approximately 54% of accounts receivable at
December 31, 1996.
(I) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of cash, accounts receivable, other
receivable, accounts payable and accrued liabilities
approximate fair value due to the short-term maturity of these
instruments. Other note receivable, bonds and deposits, loans
receivable and payable, other long-term debt payable
approximate fair value since they bear interest at variable
rates. At December 31, 1996, the financial instruments with a
carrying value different from their fair value include the
following.
<TABLE>
<CAPTION>
CARRYING FAIR
VALUE VALUE
-------- ---------
<S> <C> <C>
Loan receivable from a related party $ 17,556 $ 11,213
Advances to directors 23,194 14,814
Long-term debt 839,920 409,651
</TABLE>
The fair values of loan receivable, advances and long-term
debt are based upon discounted future cash flows using
discount rates that reflect current market conditions for
instruments having similar terms and conditions.
<PAGE> 38
PAGE X
2. ACQUISITION AND DISPOSITION
RED RIVER HARDWOODS INC. ("RRH")
On November 18, 1996, pursuant to a plan of reorganization under
chapter 11 of the U.S. Bankruptcy Code, DPI acquired an 80% interest in
RRH, a company engaged in selling lumber products to furniture and
cabinet manufacturers and wholesale distribution companies both in the
United States and overseas. The purchase has been accounted for by the
purchase method and, as such, results of operations for this business
have been included for the period beginning November 18, 1996. The
acquisition was paid for in cash as noted below.
<TABLE>
<CAPTION>
<S> <C>
Net assets (liabilities) acquired
Total identifiable assets $ 2,159,831
Total identifiable liabilities 2,235,843
-----------
(76,012)
Goodwill (amortized over 10 years) 296,102
-----------
Consideration given - cash $ 220,090
===========
</TABLE>
As part of this acquisition, DPI issued a guarantee to Powell County
Industrial Development Authority ("PCIDA") in the amount of $250,000 to
secure the liabilities owing by RRH to PCIDA. The guarantee will expire
when such liabilities have been fully paid.
NIAGARA OIL, INC. ("NOI")
During 1996, DPI entered into an agreement to sell its wholly-owned
subsidiary, NOI, and to perform certain rework services on the wells
and waterfloor equipment. The agreement required DPI to conclude
negotiations with the United States Environmental Protection Agency
relating to the terms of an Administrative Order, necessitated by
violations of the prior operator, which details future operations of
the wells. The EPA has tendered a draft Administrative Order and DPI
has delivered its response. In is anticipated that, following public
hearing, the Administrative Order will be issued and DPI's sale of NOI
will be consummated during mid 1997.
A summary of net assets, disposed of at assigned values, is as follows.
<TABLE>
<CAPTION>
<S> <C>
Cash $ 1,330
Oil and gas properties 43,351
Receivable from related parties 58,707
Accrued liabilities (8,577)
Long-term debt (115,000)
---------
(20,189)
Investment 72,293
Proceeds from sale 170,000
---------
Gain on sale of subsidiary $ 117,896
=========
</TABLE>
<PAGE> 39
PAGE XI
3. INVENTORIES
<TABLE>
<CAPTION>
1996 1995
-------- -------
<S> <C> <C>
Raw materials - Green Lumber $ 53,802 $ --
- Kiln Dried Lumber 255,128 80,890
Work in process 271,385 --
-------- -------
$580,315 $80,890
======== =======
</TABLE>
4. MINING PROPERTY AND RELATED EXPENDITURES
<TABLE>
<CAPTION>
UNGA ISLAND
ALASKA MINERAL DEFERRED BUILDING
PROPERTY EXPENDITURES EQUIPMENT
COSTS (SEE BELOW) AND MACHINERY TOTAL
---------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Balance, December 31, 1994 $1,010,000 $ 9,371,520 $ 777,061 $ 11,158,581
1995 additions - 52,881 - 52,881
---------- --------------- --------------- ---------------
Balance, December 31, 1995 $1,010,000 9,424,401 777,061 11,211,462
1996 additions - 19,785 - 19,785
---------- --------------- --------------- ---------------
Balance, December 31, 1996 $1,010,000 $ 9,444,186 $ 777,061 $ 11,231,247
========== =============== =============== ===============
</TABLE>
Deferred expenditures on the Unga Island resource property consist of
the following:
<TABLE>
<CAPTION>
1996 1995
-------- ---------
<S> <C> <C>
Legal $19,785 $ --
Geological consulting -- 50,755
Miscellaneous -- 27,126
-------- ---------
19,785 77,881
Proceeds on conveying mining rights -- (25,000)
-------- ---------
$ 19,785 $ 52,881
======== =========
</TABLE>
<PAGE> 40
PAGE XII
5. OIL AND GAS PROPERTIES
<TABLE>
<CAPTION>
1996 1995
------------------------------------------ ----------
ACCUMULATED
COST AMORTIZATION NET NET
---- ------------ --- ---
<S> <C> <C> <C> <C>
Proved properties $4,490,575 $ 306,185 $4,184,390 $4,007,282
Unproved properties 5,130 -- 5,130 5,130
Wells and related equipment 112,815 31,428 81,387 45,496
---------- ---------- ---------- ----------
$4,608,520 $ 337,613 $4,270,907 $4,057,908
========== ========== ========== ==========
</TABLE>
6. CAPITAL ASSETS
<TABLE>
<CAPTION>
1996 1995
------------------------------------------ ----------
ACCUMULATED
COST AMORTIZATION NET NET
---- ------------ --- ---
<S> <C> <C> <C> <C>
Land $ 113,801 $ -- $ 113,801 $ 12,908
Buildings 1,029,801 10,309 1,019,492 154,306
Machinery and equipment 853,711 30,613 823,098 64,705
Office furniture, fixtures and equipment 70,214 30,179 40,035 52,152
Vehicles 106,176 48,301 57,875 103,712
Equipment under capital lease 91,369 1,820 89,549 --
---------- ---------- ---------- --------
$2,265,072 $ 121,222 $2,143,850 $387,783
========== ========== ========== ========
</TABLE>
The company leases two pieces of equipment under a capital lease
expiring in 1999. The assets and liabilities under the capital lease
are recorded at fair value in the appropriate asset and liability
accounts. The assets are amortized over their estimated productive
lives. Amortization of assets under the capital lease is included in
amortization expense.
7. NOTES RECEIVABLE
Notes receivable are comprised as follows.
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Receivable from a director of the company, bears interest at 6% per
annum and is repayable at $1,000 per month Carried forward..... $17,792 $28,376
------- -------
</TABLE>
<PAGE> 41
PAGE XIII
7. NOTES RECEIVABLE (Continued)
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Brought forward $ 17,792 $ 28,376
Receivable from RRH, bearing interest at 8.75% per annum, payable on
demand, of the total $200,000 notes receivable, $130,000 is secured by
equipment and $70,000 is secured by a priority lien on land, buildings
and equipment. These loans were converted into
equity upon confirmation of the plan of reorganization -- 200,000
Receivable from a director and senior officers, bears interest at 10%
per annum, is secured by an assignment of title in certain oil and gas
working interests and is repayable over a three year period ending
May 10, 1998 -- 70,000
-------- --------
17,792 298,376
Less: Current portion 13,415 214,000
-------- --------
$ 4,377 $ 84,376
======== ========
</TABLE>
8. LOANS TO RELATED PARTIES
Included in the loans is a receivable from a company owned by a
director of this company in the amount of $17,556 which is non-interest
bearing with no specific terms of repayment. The company expects to be
paid by the debtor when financing for its operations is obtained.
9. INVESTMENTS
During 1996, DPI invested $254,250 in three drilling partnerships. DPI
also contracted with these partnerships for the drilling and completion
of the wells on a turnkey basis. Only one of the partnerships has
reached the operating stage and generated revenues of $30,874. These
investments are being accounted for based on the equity method of
accounting and the net investment amounted to $144,791 as of December
31, 1996.
10. BANK LOANS
The bank loans bear interest at 7.9% and 10.25% per annum, payable
semi-annually, and mature March 23, 1997 and February 10, 1997. One of
the loans is guaranteed by a director and secured by the common stock
owned by that director. Subsequent to the year-end, the loans were
renewed with similar terms and conditions.
<PAGE> 42
PAGE XIV
11. LONG-TERM DEBT
On July 8, 1986, the company purchased the mineral property on Unga
Island, Alaska for debt in the amount of $854,818. The debt is
non-interest bearing, payable at $2,000 per month, of which only
$14,000 was paid during the year, until fully paid, and is secured by
deeds of trust over the Unga Island mineral claims and certain
buildings and equipment located thereon.
The purchase agreement also provides for the payment of monthly
royalties at 4% of net smelter returns or net revenue, as defined in
the agreement. Any royalties paid reduce the amount of the purchase
price payable above.
The obligation is stated at its remaining face value of $580,818 and
has not been discounted.
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Note payable as outlined above $ 580,818 $ 594,818
Unsecured loans bearing interest at 10% per annum, principal and
interest due on May 18, 1998 450,000 --
Loans bearing interest at rates ranging from 9% to 11% per annum,
payable in monthly instalments of $9,583, maturing at various dates up
to and including December 22, 2001. The loans are collateralized
by specific assets of the company 386,295 352,581
Mortgages payable, secured by real estate, bearing interest at rates
ranging from 8% to 9.25% per annum, payable in monthly instalments of
varying amounts and mature on December 22, 2001 and in
in November 2002 189,580 70,045
Unsecured loan bearing interest at 6.27% per annum, payable in
monthly instalments of $1,771 and matures on August 9, 2000 79,688 -
Loan payable to a non-affiliated company, collateralized by the assets
and the corporate guarantee of a wholly-owned subsidiary, bearing
interest at 10% per annum with quarterly payments of interest only
beginning April 1, 1996. Principal and accrued interest, if any, due in
full July 1, 1997 64,779 115,000
---------- ----------
Carried forward $1,751,160 $1,132,444
---------- ----------
</TABLE>
<PAGE> 43
PAGE XV
11. LONG-TERM DEBT (Continued)
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Brought forward $1,751,160 $1,132,444
Mortgage note bearing interest at prime plus 1% per annum, secured by a
second mortgage on real estate, payable in monthly payments of $1,100
(interest only) through November 1997, thereafter, $3,355
monthly through November 2002 872,506 --
Line of credit in the amount of $251,230, bearing interest at prime
plus 1% per annum, secured by accounts receivable, work in process and
inventory. Interest payments shall commence in February 1997,
final payment due November 1999 248,460 --
Instalment note bearing interest at 5% per annum, secured by machinery
and equipment, payment of interest only through November 1997, monthly
payment of principal and interest of $8,147 due starting December 1997
with final payment due March 2004 528,276 --
Instalment note bearing interest at 9% per annum, secured by machinery,
payment of interest only in the amount of $2,513 through April 2002,
thereafter $2,196 through October 2002 and $1,879 through April 2003 124,235 --
RRH capital leases, payable monthly in amounts of $1,892 and $340
through April 1999 and August 1999, respectively 62,585 --
RRH payables to creditors under plan of bankruptcy
- to government entities bearing interest at 8% per annum,
payable $1,606 monthly through March 2002 88,058 --
- to a county bearing interest at 5% per annum, payable monthly
at differing amounts through December 2001 15,566 --
- to certain creditors bearing interest at 10% per annum, payable
$922 per month over a period of ten years 110,694 --
- to certain creditors, non-interest bearing, payable in 1997 10,388 --
Gas prepayment contract payable, collateralized by production
non-interest bearing, payable in monthly instalments of $10,416
out of production, matures April 1, 1998 149,215 --
---------- ----------
3,961,143 1,132,444
Less: Current portion 399,889 218,458
---------- ----------
$3,561,254 $ 913,986
========== ==========
</TABLE>
<PAGE> 44
PAGE XVI
11. LONG-TERM DEBT (Continued)
Principal repayments for the next five years are as follows:
<TABLE>
<CAPTION>
<S> <C>
1997 $ 399,889
1998 1,237,710
1999 598,657
2000 270,322
2001 211,047
Thereafter 1,243,518
----------
$3,961,143
==========
</TABLE>
Minimum future lease payments under the capital lease are as follows:
<TABLE>
<CAPTION>
<S> <C>
1997 $ 27,371
1998 26,775
1999 8,439
----------
$ 62,585
==========
</TABLE>
Interest expense for the year ended December 31, 1996 was $182,972
(1995 - $51,814). There was no interest capitalized during these years.
12. LOAN PAYABLE
This loan payable to a director of the company bears interest at 9.75%
per annum and is payable in monthly instalments of $1,800.
13. CAPITAL STOCK
(A) COMMON SHARES ISSUED
<TABLE>
<CAPTION>
SHARES AMOUNT
# $
--------- ----------
<S> <C> <C>
Balance, December 31, 1994 7,382,580 19,784,443
Issued for settlement of debt 360,130 283,747
--------- ----------
Balance, December 31, 1995 7,742,710 20,068,190
Issued to employees as incentive bonuses 204,000 77,500
Issued for settlement of debt 558,244 249,760
--------- ----------
Balance, December 31, 1996 8,504,954 20,395,450
========= ==========
</TABLE>
<PAGE> 45
PAGE XVII
13. CAPITAL STOCK (Continued)
(b) Stock options and warrants have been granted and approved by
the shareholders to purchase common shares of the company as
follows.
A. OPTIONS
<TABLE>
<CAPTION>
ISSUED EXERCISABLE PRICE EXPIRY
---------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Balance, December 31, 1994 363,000 138,000 $ 1.00-1.90 (i)
=======
1995 - granted 920,000 1.00 (ii)
- expired ( 33,000)
---------
Balance, December 31, 1995 1,250,000 425,000
=======
1996 - granted 620,000 1.00 (iii)
- expired (200,000)
---------
Balance, December 31, 1996 1,670,000 770,000
========= =======
</TABLE>
(i) 33,000 of these options expired in 1995. The
remaining options will expire on December 10, 1998.
(ii) 900,000 of these options are exercisable at the rate
of 225,000 shares per year. The first block of
225,000 shares is exercisable immediately and expires
five years after vesting. Vesting is subject to
continued employment of the various exercise dates.
The remaining options were vested and exercisable in
the year of issue and expire on February 28, 2000.
(iii) 600,000 of these options are exercisable at the rate
of 150,000 shares per year. The first block of
150,000 shares is exercisable immediately and
expires five years after vesting. Vesting is subject
to continued employment on the various exercise
dates. The remaining options were vested and
exercisable in the year of issue and expire on June
28, 2001.
B. WARRANTS
<TABLE>
<CAPTION>
ISSUED PRICE EXPIRY
------- ----- ---------
<S> <C> <C> <C>
Balance, December 31, 1994 26,667 $ 3.6 (i)
1995 - granted 500,000 0.5 (ii)
-------
Balance, December 31, 1995 526,667
1996 - granted 119,800 0.5 (iii)
-------
Balance, December 31, 1996 646,467
=======
</TABLE>
<PAGE> 46
PAGE XVIII
13. CAPITAL STOCK (Continued)
B. WARRANTS (Continued)
(i) The exercise price is effective on March 31, 1996
through March 30, 1998. The warrants expire on March
30, 1998.
(ii) These warrants expire on October 30, 2000.
(iii) These warrants expire on June 28, 2001.
14. LOSS PER SHARE
Loss per share is calculated using the weighted average number of
shares outstanding during the year. The weighted average of common
shares was 8,050,840 (1995 - 7,605,669; 1994 - 6,763,539). Outstanding
stock options and warrants have no dilutive effect on the loss per
share.
15. RELATED PARTY TRANSACTIONS
The company is party to certain agreements and transactions in the
normal course of business. Significant related party transactions not
disclosed elsewhere include the following.
(A) OFFICERS' REMUNERATION
The accounts of the company include consulting and management
fees paid or payable to officers and directors for the three
years ended December 31, 1996.
On April 7, 1989, the company entered into an agreement with
Arizona Desert Minerals (ADM), a company related to a director
of this company, whereby the company will pay ADM management
fees of $60,000 annually, $12,000 of which is to be deferred
until the company starts to generate revenue from its mining
operations. On May 8, 1992, the agreement was amended and
calls for an annual $30,000 deferral. This agreement was
terminated on November 15, 1996. As at December 31, 1996, the
total deferral amount is $128,250. The management fees
deferred have not been recorded on the books of the company.
(B) SHAREHOLDER INFORMATION
During 1993, a shareholder expended, on behalf of the company,
shareholder information expenses in the amount of $75,000. The
company has recorded a reserve provision against payment of
this amount until the company's mining operations commence
production.
(C) ACCOUNTS RECEIVABLE
Accounts receivable include nil (1995 - $21,000) due from a
company owned by one of the directors.
<PAGE> 47
PAGE XIX
15. RELATED PARTY TRANSACTIONS (Continued)
(D) ACCOUNTS PAYABLE
Accounts payable include nil (1995 - $50,689) payable to
companies owned by senior officers of the company.
(E) OCCUPANCY COSTS
Occupancy costs include rent of approximately $31,200 (1995 -
$31,200) paid to a company which is 50% owned by a director
and an officer of this company. The lease expires July 1,
1997.
(F) CONSULTING AND MANAGEMENT FEES
Consulting and management fees were paid to companies owned by
former senior officers of the company.
16. SEGMENTED INFORMATION
<TABLE>
<CAPTION>
MINING
EXPLORATION OIL AND
AND GAS WOOD 1996 1995
DEVELOPMENT DEVELOPMENT PRODUCTS CORPORATE TOTAL TOTAL
---------- ----------- --------- --------- ---------- ----------
$ $ $ $ $ $
<S> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1996
Revenue (net) -- 781,090 54,069 -- 835,159 392,179
---------- --------- --------- --------- ---------- ----------
General corporate expenses -- -- -- 832,937 832,937 1,380,597
Interest on long-term debt -- -- 10,837 170,965 181,802 51,814
Amortization - equipment -- 12,310 12,664 44,884 69,858 62,642
- goodwill -- 178,956 3,152 -- 182,108 178,956
Depletion -- 132,425 -- -- 132,425 155,607
---------- --------- --------- --------- ---------- ----------
-- 323,691 26,653 1,048,786 1,399,130 1,829,616
---------- --------- --------- --------- ---------- ----------
Income (loss) before income taxes -- 457,399 27,416 (1,048,786) (563,971) (1,437,437)
========== ========= ========= ========= ========== ==========
Identifiable assets 11,251,752 5,388,704 2,796,744 1,571,030 21,008,230 18,220,555
========== ========= ========= ========= ========== ==========
Capital expenditures 19,785 401,086 2,167 9,800 432,838 197,354
========== ========= ========= ========= ========== ==========
</TABLE>
<PAGE> 48
PAGE XX
17. RECONCILIATION OF DIFFERENCES BETWEEN GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES IN CANADA AND IN THE UNITED STATES
Financial Accounting Standards No. 109 "Accounting for Income Taxes"
requires the use of an asset and liability approach for accounting for
income taxes. There would be no effect from the adoption of the
statement, nor would the results of operations be different than those
reported under Canadian GAAP. Under FAS 109, the company would have
reported the following deferred income tax asset at December 31, 1996
and 1995.
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Total deferred tax assets $3,222,702 $3,378,713
Less: Valuation allowance 818,222 914,716
---------- ----------
2,404,480 2,463,997
Total deferred tax liabilities 2,404,480 2,413,570
---------- ----------
Net deferred tax assets $ -- $ 50,427
========== ==========
</TABLE>
18. INCOME TAXES
As at December 31, 1996, the company had net operating loss
carry-forwards in the U.S. for income tax purposes of approximately
$9,094,000 which expire from 1997 to 2011 and investment tax credits of
$25,624 which will expire in the years 1997 - 2000.
For Canadian federal income tax purposes, net operating loss
carry-forwards of approximately $1,301,300 expire at various dates
through 2002.
In addition, the company has approximately $75,000 of cumulative
Canadian exploration and development expenses and Canadian oil and gas
property expenses available to reduce future years' taxable income.
The potential benefit of the losses on earnings has not been reflected
in these consolidated financial statements.
19. COMMITMENT
The company is committed to issuing approximately 41,113 common shares
as additional consideration for the acquisition of natural gas from
Wentzloff Energy, Inc. (Note 4).
<PAGE> 49
PAGE XXI
20. SUBSEQUENT EVENTS
On December 11, 1996, DPI signed a loan commitment to borrow up to
$340,000 for drilling natural gas wells and acquisition of one gas
well. On March 21, 1997, DPI drew down $150,000 from the borrowing
facility.
On April 8, 1997, DPI signed a letter of intent with Southern Gas of
Delaware, Inc. to sell certain natural gas properties located on
Southern Gas' transportation system. As of this date, the final value
has not been determined, however, management expects the final sales
price to be approximately $550,000.
21. COMPARATIVE FIGURES
Certain of the comparative figures have been reclassified to conform
with the current year's presentation.
<PAGE> 1
EXHIBIT 10(a)
ALASKA APOLLO RESOURCES INC.
1997 STOCK OPTION PLAN
1. DEFINITIONS. As used herein, the following terms shall have
the meanings indicated below:
(a) "Committee" shall mean a Committee of two or more
directors who shall be appointed by and serve at the pleasure of the Board of
Directors. If the Company's securities are registered pursuant to Section 12 of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), then, to
the extent necessary for compliance with Rule 16b-3, or any successor provision,
each of the members of the Committee shall be a "Non-Employee Director." For
purposes of this Paragraph l(a), "Non-Employee Director" shall have the same
meaning as set forth in Rule 16b-3, or any successor provision, as then in
effect, of the General Rules and Regulations under the Exchange Act.
(b) The "Code" is the Internal Revenue Code of 1986, as
amended from time to time.
(c) The "Company" shall mean Alaska Apollo Resources Inc., a
Province of British Columbia corporation.
(d) "Fair Market Value" as of any day shall mean (i) if such
stock is reported by the Nasdaq National Market or Nasdaq SmallCap Market or is
listed upon an established stock exchange or exchanges, the reported closing
price of such stock by the Nasdaq National Market or Nasdaq SmallCap Market or
on such stock exchange or exchanges on such date or, if no sale of such stock
shall have occurred on such date, on the next preceding day on which there was a
sale of stock; (ii) if such stock is not so reported by the Nasdaq National
Market or Nasdaq SmallCap Market or listed upon an established stock exchange,
the average of the closing "bid" and "asked" prices quoted by the National
Quotation Bureau, Inc. (or any comparable reporting service) on such date or, if
there are no quoted "bid" and "asked" prices on such date, on the next preceding
date for which there are such quotes; or (iii) if such stock is not publicly
traded as of such date, the per share value as determined by the Board of
Directors, or the Committee, in its sole discretion by applying principles of
valuation with respect to the Company's Common Stock in accordance with Code
Section 422.
(e) "Non-Employee Director" shall mean members of the Board of
Directors who at the relevant time are "outside directors" within the meaning of
Code Section 162(m).
(f) "Option Stock" shall mean Common Stock of the Company
(subject to adjustments as described in Paragraph 12) reserved for options
pursuant to this Plan.
(g) The "Optionee" means an employee of the Company or any
Subsidiary to whom an incentive stock option has been granted pursuant to
Paragraph 9.
(h) The "Plan" means the Alaska Apollo Resources Inc. 1997
Stock Option Plan, as amended hereafter from time to time, including the form of
Option Agreements as they may be modified by the Board of Directors from time to
time.
(i) "Related Corporation" means a Parent Corporation or a
Subsidiary Corporation each as defined in Code Section 424.
2. PURPOSE. The purpose of this Plan is to promote the success of the
Company and its subsidiaries by facilitating the retention of competent
personnel and by furnishing incentives to officers, directors, employees,
consultants, and advisors upon whose efforts the success of the Company and its
subsidiaries will depend to a large degree.
1
<PAGE> 2
It is the intention of the Company to carry out this Plan through the
granting of stock options which will qualify as "incentive stock options" under
the provisions of Code Section 422 or any successor provision, pursuant to
Paragraph 9 of this Plan. Adoption of this Plan shall be and is expressly
subject to the condition of approval by the shareholders of the Company within
12 months before or after the adoption of this Plan by the Board of Directors.
Any incentive stock options granted after adoption of this Plan by the Board of
Directors shall be treated as nonqualified stock options if shareholder approval
is not obtain within such 12-month period.
3. EFFECTIVE DATE OF PLAN. This Plan shall be effective as of the date
of adoption by the Board of Directors, subject to approval by the shareholders
of the Company as required in Paragraph 2 hereof.
4. ADMINISTRATION. This Plan shall be administered by a Committee which
may be appointed by the Board of Directors from time to time (collectively
referred to as the "Administrator"). The Administrator shall have all of the
powers vested in it under the provisions of this Plan, including but not limited
to exclusive authority (where applicable and within the limitations described in
this Plan) to determine, in its sole discretion, whether an incentive stock
option shall be granted, the individuals to whom, and the time or times at
which, options shall be granted, the number of shares subject to each option and
the option price and terms and conditions of each option. The Administrator
shall have full power and authority to administer and interpret this Plan, to
make and amend rules, regulations and guidelines for administering this Plan, to
prescribe the form and conditions of the respective stock option agreements
(which may vary from Optionee to Optionee) evidencing each option and to make
all other determinations necessary or advisable for the administration of this
Plan. The Administrator's interpretation of this Plan, and all actions taken,
and determinations made by the Administrator pursuant to the power vested in it
hereunder, shall be conclusive and binding on all parties concerned.
No member of the Committee shall be liable for any action taken or
determination made in good faith in connection with the administration of this
Plan. Upon the appointment of a Committee by the Board of Directors as provided
hereunder, any action of the Committee with respect to the administration of
this Plan shall be taken pursuant to a majority vote of the Committee members or
pursuant to the written resolution of all Committee members.
5. PARTICIPANTS. The Administrator shall, from time to time, at its
discretion and without approval of the shareholders, designate those employees
of the Company or any subsidiary to whom incentive stock options shall be
granted pursuant to Paragraph 9 of this Plan. The Administrator may grant
additional incentive stock options under this Plan to some or all participants
then holding options or may grant options solely or partially to new
participants. In designating participants, the Administrator shall also
determine the number of shares to be optioned to each such participant. The
Administrator may from time to time designate individuals as being ineligible to
participate in this Plan.
6. STOCK. The Stock to be optioned under this Plan shall consist of
authorized but unissued shares of Option Stock. Three million Shares of Option
Stock shall be reserved and available for options under this Plan; provided,
however, that the total number of shares of Option Stock reserved for options
under this Plan shall be subject to adjustment as provided in Paragraph 11 of
this Plan. In the event that any outstanding option under this Plan for any
reason expires or is terminated prior to the exercise thereof, the shares of
Option Stock allocable to the unexercised portion of such option shall continue
to be reserved for options under this Plan and may be optioned hereunder.
7. DURATION OF PLAN. Incentive stock options may be granted pursuant to
this Plan from time to time during a period of 10 years from the effective date
as defined in Paragraph 3. Any incentive stock option granted during such
ten-year period shall remain in full force and effect until the expiration of
the option as specified in the written stock option agreement and shall remain
subject to the terms and conditions of this Plan.
8. PAYMENT. Optionees may pay for shares upon exercise of options
granted pursuant to this Plan with cash, personal check, certified check, Common
Stock of the Company valued at such Stock's then Fair Market Value, or such
other form of payment as may be authorized by the Administrator. The
Administrator may, in its sole discretion, limit the forms of payment available
to the Optionee and may exercise such discretion any time prior to the
termination of the option granted to the Optionee or upon any exercise of the
option by the Optionee.
2
<PAGE> 3
With respect to payment in the form of Common Stock of the Company, the
Administrator may require advance approval or adopt such rules as it deems
necessary to assure compliance with Rule 16b-3, or any successor provision, as
then in effect, of the General Rules and Regulations under the Exchange Act, if
applicable.
9. TERMS AND CONDITIONS OF INCENTIVE STOCK OPTIONS. Each incentive
stock option granted pursuant to this Paragraph 9 shall be evidenced by a
written stock option agreement (the "Option Agreement"). The Option Agreement
shall be in such form as may be approved from time to time by the Administrator
and may vary from Optionee to Optionee; provided, however, that each Optionee
and each Option Agreement shall comply with and be subject to the following
terms and conditions:
(a) NUMBER OF SHARES AND OPTION PRICE. The Option Agreement
shall state the total number of shares covered by the incentive stock option. To
the extent required to qualify the Option as an incentive stock option under
Code Section 422, or any successor provision, the option price per share shall
not be less than 100 percent of the Fair Market Value of the Common Stock per
share on the date the Administrator grants the option; provided, however, that
if an Optionee owns stock possessing more than 10 percent of the total combined
voting power of all classes of stock of the Company or of its Parent or any
Subsidiary, the option price per share of an incentive stock option granted to
such Optionee shall not be less than 110 percent of the Fair Market Value of the
Common Stock per share on the date of the grant of the option. The Administrator
shall have full authority and discretion in establishing the option price and
shall be fully protected in so doing.
(b) TERM AND EXERCISABILITY OF INCENTIVE STOCK OPTION. The
term during which any incentive stock option granted under this Plan may be
exercised shall be established in each case by the Administrator. To the extent
required to qualify the Option as an incentive stock option under Code Section
422, or any successor provision, in no event shall any incentive stock option be
exercisable during a term of more than 10 years after the date on which it is
granted; provided, however, that if an Optionee owns stock possessing more than
10 percent of the total combined voting power of all classes of stock of the
Company or of its parent or any Subsidiary, the incentive stock option granted
to such Optionee shall be exercisable during a term of not more than five years
after the date on which it is granted.
The Option Agreement shall state when the incentive stock option
becomes exercisable and shall also state the maximum term during which the
option may be exercised. In the event an incentive stock option is exercisable
immediately, the manner of exercise of the option in the event it is not
exercised in full immediately shall be specified in the Option Agreement. The
Administrator may accelerate the exercisability of any incentive stock option
granted hereunder which is not immediately exercisable as of the date of grant.
(c) MAXIMUM SIZE OF INCENTIVE STOCK OPTION AS SUCH. To the
extent that the aggregate Fair Market Value of Common Stock for which an
Incentive Stock Option becomes exercisable by the Optionee for the first time in
any calendar year exceeds $100,000, the portion of such incentive stock option
which exceeds such $100,000 limitation shall be treated as a Non-Statutory Stock
Option and not an incentive stock option under Code Section 422. For purposes of
this Paragraph 9, all incentive stock options granted to an Optionee by the
Company, as well as any options that may have been granted to the Optionee under
any other stock incentive plans of the Company or any Related Corporation which
are intended to comply with the provisions Code Section 422 shall be considered
in the order in which they were granted, and the Fair Market Value as of the
time they were granted.
(d) OTHER PROVISIONS. The Option Agreement authorized under
this Paragraph 9 shall contain such other provisions as the Administrator shall
deem advisable. Any such Option Agreement shall contain such limitations and
restrictions upon the exercise of the option as shall be necessary to ensure
that such option will be considered an "incentive stock option" as defined in
Code Section 422 or to conform to any change therein.
10. TRANSFER OF OPTION. No incentive stock option shall be
transferable, in whole or in part, by the Optionee other than by will or by the
laws of descent and distribution and, during the Optionee's lifetime, the option
may be exercised only by the Optionee. If the Optionee shall attempt any
transfer of any incentive stock option granted under this Plan during the
Optionee's lifetime, such transfer shall be void and the incentive stock option,
to the extent not fully exercised, shall terminate.
3
<PAGE> 4
11. ANTI-DILUTION ADJUSTMENTS. A pro rata adjustment for an increase or
decrease in the number of shares of Common Stock of the Company subject to this
Plan or that may be awarded to any individual in any year shall be made to give
effect to any consolidation of shares, the equivalent value in stock of cash
dividends, stock dividends, stock splits, stock combinations, recapitalization
and other similar changes in the capital structure of the Company. Pro rata
adjustments shall be made in the number, kind and price of shares of Common
Stock of the Company covered by any outstanding Option hereunder to give effect
to any consolidation of shares, stock dividends, stock splits, stock
combinations, recapitalization and similar changes in the capital structure in
the Company, or a merger or dissolution or reorganization of the Company, after
the date the Option is granted so that the Optionee is treated in a manner
equivalent to that of holders of the underlying Common Stock.
12. CHANGE IN CORPORATE CONTROL. Upon a change in Corporate Control,
each outstanding Incentive Stock Option shall immediately become fully
exercisable, and a registration statement under the Securities Act of 1933, as
amended (the "Securities Act"), with respect to the shares covered by all
outstanding Incentive Stock Options, whether to be issued by the Company or by
any successor corporation, shall be effective at all times during which the
Incentive Stock Options may be exercised and, to facilitate resale of the
shares, during the twelve months after the last exercise of the Options.
"Change in Corporate Control" means (a) the time of approval of the
Company of (i) any consolidation or merger of the Company in which the Company
is not the continuing or surviving corporation or pursuant to which shares of
Common Stock would be converted into cash, securities or other property, other
than a merger in which the holders of Common Stock immediately prior to the
merger will have the same proportionate ownership of Common Stock of the
surviving corporation immediately after the merger, (ii) any sale, lease,
exchange or other transfer (in one transaction or a series of related
transactions) of all or substantially all of the assets of the Company, or
(iii) adoption of any plan or proposal for the liquidation or dissolution of
the Company; or (b) the date on which any "person" (as defined in Section 13(d)
of the Exchange Act), other than the Company or a subsidiary or employee
benefit plan or trust maintained by the Company or any of its subsidiaries,
shall become (together with its "affiliates" and "associates," as defined in
Rule 12b-2 under the Exchange Act) the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of more than 25 percent
of the Common Stock outstanding at the time, without the prior approval of the
Board of Directors of the Company.
The Administrator may restrict the rights of or the applicability of
this Paragraph 12 to the extent necessary to comply with Section 16(b) of the
Exchange Act, the Code or any other applicable law or regulation. The grant of
an option pursuant to this Plan shall not limit in any way the right or power of
the Company to make adjustments, reclassification, reorganizations or changes of
its capital or business structure or to merge, exchange or consolidate or to
dissolve, liquidate, sell or transfer all or any part of its business or assets.
13. SECURITIES LAW COMPLIANCE. No shares of Common Stock shall be
issued pursuant to this Plan unless and until there has been compliance, in the
opinion of Company's counsel, with all applicable legal requirements, including
without limitation, those relating to securities laws and stock exchange listing
requirements. As a condition to the issuance of Option Stock to Optionee, the
Administrator may require Optionee to (a) represent that the shares of Option
Stock are being acquired for investment and not resale and to make such other
representations as the Administrator shall deem necessary or appropriate to
qualify the issuance of the shares as exempt from the Securities Act of 1933 and
any other applicable securities laws, and (b) represent that Optionee shall not
dispose of the shares of Option Stock in violation of the Securities Act or any
other applicable securities laws.
In the event of a transaction (as defined in Paragraph 12 of this Plan)
which is treated as a "pooling of interests" under generally accepted accounting
principles, Optionee will comply with Rule 145 of the Securities Act and any
other restrictions imposed under other applicable legal or accounting principles
if Optionee is an "affiliate" (as defined in such applicable legal and
accounting principles) at the time of the transaction, and Optionee will execute
any documents necessary to ensure compliance with such rules.
The Company reserves the right to place a legend on any stock
certificate issued upon exercise of an option granted pursuant to this Plan to
assure compliance with this Paragraph 13.
4
<PAGE> 5
14. RIGHTS AS A SHAREHOLDER. An Optionee (or the Optionee's successor
or successors) shall have no rights as a shareholder with respect to any shares
covered by an option until the date of the issuance of a stock certificate
evidencing such shares. No adjustment shall be made for dividends (ordinary or
extraordinary, whether in cash, securities or other property), distributions or
other rights for which the record date is prior to the date such stock
certificate is actually issued (except as otherwise provided in Paragraph 12 of
this Plan).
15. AMENDMENT OF THIS PLAN. The Board of Directors may from time to
time, insofar as permitted by law, suspend or discontinue this Plan or revise or
amend it in any respect; provided, however, that no such revision or amendment,
except as is authorized in Paragraph 12, shall impair the terms and conditions
of any option which is outstanding on the date of such revision or amendment to
the material detriment of the Optionee without the consent of the Optionee.
Notwithstanding the foregoing, no such revision or amendment shall (a)
materially increase the number of shares subject to this Plan except as provided
in Paragraph 12 hereof, (b) change the designation of the class of employees
eligible to receive options, (c) decrease the price at which options may be
granted, or (d) materially increase the benefits accruing to Optionees under
this Plan without the approval of the shareholders of the Company if such
approval is required for compliance with the requirements of any applicable law
or regulation. Furthermore, this Plan may not, without the approval of the
shareholders, be amended in any manner that will cause Incentive Stock Options
to fail to meet the requirements of Code Section 422.
16. NO OBLIGATION TO EXERCISE OPTION. The granting of an option shall
impose no obligation upon the Optionee to exercise such option. Further, the
granting of an option hereunder shall not impose upon the Company or any
Subsidiary any obligation to retain the Optionee in its employ for any period.
17. REGISTRATION RIGHTS. The Optionee shall have the registration
rights set forth in Exhibit A.
5
<PAGE> 6
EXHIBIT A TO THE
ALASKA APOLLO RESOURCES INC.
1997 STOCK OPTION PLAN
REGISTRATION RIGHTS
DEMAND REGISTRATION RIGHTS
--------------------------
(a) At any time, commencing one (1) year after the effective date of
the Plan, the Optionee or any other holders of options (collectively, "Option
Holders") granted under the Plan shall have the right, on one occasion, by
written notice to the Company, to have the Company prepare and file with the
Securities and Exchange Commission (the "Commission"), a registration statement
on Form S-8 or similar form, including a reoffer prospectus which is prepared in
accordance with the requirements of Part I of the Form S-8, and such other
documents, as may be necessary in the opinion of both counsel for the Company
and counsel for the Option Holders, in order to comply with the provisions of
the Securities Act of 1933 (the "Act" ), so as to permit a public offering and
sale of all of the options and securities underlying such options issued or to
be issued under the Plan by the holders thereof, subject to whatever
restrictions on the exercise of the options or the sale of the options as are
set forth in the Plan. The demand registration rights granted hereby shall
expire after all of the options and/or securities underlying the options have
been sold or have expired, but in no event later than ten (10) years after the
effective date of the Plan.
COVENANTS OF THE COMPANY WITH RESPECT TO REGISTRATION
-----------------------------------------------------
(b) In connection with any registration under paragraph(a) above, the
Company covenants and agrees as follows:
(1) The Company shall use its best efforts to file a
registration statement within sixty (60) days of receipt of any demand therefor,
or in the event the Company does not qualify for the use of Form S-8 or similar
form, as soon as practicable after the Company becomes qualified to use such
form, and to have any registration statement declared effective at the earliest
possible time and, to the extent applicable, shall furnish each Option Holder
desiring to sell securities registered thereby such number of prospectuses as
shall reasonably be requested.
(2) The Company shall pay all costs, fees and expenses in
connection with the registration statement filed pursuant to paragraph(a) above.
(3) The Company will take all necessary action which may be
required in qualifying or registering the securities included in the
registration statement for offer and sale under the securities or blue sky laws
of such states as reasonably are requested by the Option Holder(s), provided
that the Company shall not be obligated to execute or file any general consent
to service of process or to qualify as a foreign corporation to do business
under the laws of any such jurisdiction.
(4) Nothing contained in this Agreement shall be construed as
requiring the Option Holder(s) to exercise their options prior to the initial
filing of any registration statement or the effectiveness thereof, other than as
may be required by the terms of the Plan.
(5) The Company shall not permit the inclusion of any
securities other than the options and the securities underlying the options to
be included in any registration statement filed pursuant to paragraph(a) hereof.
6
<PAGE> 1
EXHIBIT 10(b)
INCENTIVE STOCK OPTION AGREEMENT
ALASKA APOLLO RESOURCES INC.
1997 STOCK OPTION PLAN
THIS AGREEMENT, made effective as of this 7th day of March 1997, by and
between Alaska Apollo Resources Inc., a Province of British Columbia corporation
(the "Company"), and William S. Daugherty ("Optionee").
WITNESSETH:
WHEREAS, Optionee on the date hereof is a key employee or officer of
the Company or one of its Subsidiaries; and
WHEREAS, the Company wishes to grant an incentive stock option to
Optionee to purchase shares of the Company's Common Stock pursuant to the
Company's 1997 Stock Option Plan (the "Plan"); and
WHEREAS, the Administrator of the Plan has authorized the grant of an
incentive stock option to Optionee and has determined that, as of the effective
date of this Agreement, the fair market value of the Company's Common Stock is
$0.28125 per share.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, the parties hereto agree as follows:
1. GRANT OF OPTION. The Company hereby grants to Optionee on the date
set forth above (the "Date of Grant"), the right and option (the "Option") to
purchase all or portions of an aggregate two million (2,000,000) shares of
Common Stock at a per share price of $0.309375 on the terms and conditions set
forth herein, and subject to adjustment pursuant to Section 11 of the Plan. This
Option is intended to be an incentive stock option within the meaning of Section
422, or any successor provision, of the Internal Revenue Code of 1986, as
amended (the "Code"), and the regulations thereunder.
2. DURATION AND EXERCISABILITY.
(a) TERM. The term during which this Option may be exercised
shall terminate on March 6, 2002 except as otherwise provided in Paragraphs 2(b)
through 2(d) below. This Option shall become exercisable according to the
following schedule:
<TABLE>
<CAPTION>
Exercise Date Number Of Shares
------------- ----------------
<S> <C>
March 7, 1997 355,555
January 1, 1998 355,555
January 1, 1999 355,555
January 1, 2000 355,555
January 1, 2001 355,555
January 1, 2002 222,225
</TABLE>
Once the Option becomes exercisable to the extent of 100 percent of the
aggregate number of shares specified in Paragraph 1, Optionee may continue to
exercise this Option under the terms and conditions of this Agreement until the
termination of the Option as provided herein. If Optionee does not purchase upon
an exercise of this Option the full number of shares which Optionee is then
entitled to purchase, Optionee may purchase upon any subsequent exercise prior
to this Option's termination such previously unpurchased shares in addition to
those Optionee is otherwise entitled to purchase.
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<PAGE> 2
(b) TERMINATION OF EMPLOYMENT (OTHER THAN CHANGE OF CONTROL OR
DEATH). If Optionee's employment with the Company or any Subsidiary is
terminated for any reason other than because of a "change of control
transaction" (as defined in Paragraph 2(c)) or because of death, this Option
shall be exercisable only to the extent the Option was exercisable on the
vesting date immediately preceding such termination of employment, but had not
previously been exercised, and shall expire on the earlier of (i) the close of
business on the three-month anniversary date of such termination of employment,
and (ii) the expiration date of this Option stated in Paragraph 2(a) above. To
the extent this Option was not exercisable upon such termination of employment,
or if Optionee does not exercise the Option within the time specified in this
Paragraph 2(b), all rights of Optionee under this Option shall be forfeited.
(c) CHANGE OF CONTROL. If Optionee's employment with the
Company or any Subsidiary is terminated within twelve months after a "change of
control transaction," this Option shall immediately become fully exercisable and
shall expire on the earlier of (i) the close of business on the three-month
anniversary date of the Optionee's termination of employment, and (ii) the
expiration date of this Option stated in Paragraph 2(a) above. If Optionee does
not exercise the Option within the time specified in this Paragraph 2(c), all
rights of Optionee under this Option shall be forfeited. For purposes of this
Paragraph 2(c), a "change of control transaction" has the same definition as
provided in the Plan.
(d) DEATH. In the event of Optionee's death, this Option shall
be exercisable by the person or persons to whom Optionee's rights under this
Option shall have passed by Optionee's will or by the laws of descent and
distribution only to the extent the Option was exercisable on the vesting date
immediately preceding the date of Optionee's death, but had not previously been
exercised, and shall expire on the earlier of (i) the close of business on the
six-month anniversary date of the date of Optionee's death, and (ii) the
expiration date of this Option stated in Paragraph 2(a) above. To the extent
this Option was not exercisable upon the date of Optionee's death, or if such
person or persons do not exercise this Option within the time specified in this
Paragraph 2(c), all rights under this Option shall be forfeited.
3. MANNER OF EXERCISE.
(a) GENERAL. The Option may be exercised only by Optionee (or
other proper party in the event of death or incapacity), subject to the
conditions of the Plan and subject to such other administrative rules as the
Administrator may deem advisable, by delivering within the Option Period written
notice of exercise to the Company at its principal office. The notice shall
state the number of shares as to which the Option is being exercised and shall
be accompanied by payment in full of the Option price for all shares designated
in the notice. The exercise of the Option shall be deemed effective upon receipt
of such notice by the Company and upon payment that complies with the terms of
the Plan and this Agreement. The Option may be exercised with respect to any
number or all of the shares as to which it can then be exercised and, if
partially exercised, may be so exercised as to the unexercised shares any number
of times during the Option period as provided herein.
(b) FORM OF PAYMENT. Subject to approval by the Administrator,
payment of the Option price by Optionee shall be in the form of cash, personal
check, certified check or previously acquired shares of Common Stock of the
Company, Appreciation Currency or any combination thereof.
As used herein "Appreciation Currency" shall mean: the consideration
given by the surrender of Options for Common Stock. The number of shares of
Common Stock to which the Optionee shall be entitled in exchange for such
Appreciation Currency shall be determined by multiplying the number of shares of
Common Stock that would be received if the Options were then exercised for cash,
by the fraction, the numerator of which shall be the difference between (i) the
Fair Market Value, as that term is used in the Plan, of one share of Common
Stock measured at the date of exercise, and (ii) the then exercise price of the
Option, and the denominator of which shall be the Fair Market Value (at the same
date) of one share of Common Stock. In the event the Options are adjusted so as
to become exercisable for securities other than the Company's Common Shares
("Other Securities"), the definition of Appreciation Currency shall apply to the
exercise of Options for such Other Securities by substituting in the place of
shares of Common Stock, each such Other Security.
(c) STOCK TRANSFER RECORDS. As soon as practicable after the
effective exercise of all or any part of the Option, Optionee shall be recorded
on the stock transfer books of the Company as the owner of the shares
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<PAGE> 3
purchased, and the Company shall deliver to Optionee one or more duly issued
stock certificates evidencing such ownership. All requisite original issue or
transfer documentary stamp taxes shall be paid by the Company.
4. MISCELLANEOUS.
(a) EMPLOYMENT RIGHTS AS SHAREHOLDER. This Agreement shall not
confer on Optionee any right with respect to continuance of employment by the
Company or any of its Subsidiaries, nor will it interfere in any way with the
right of the Company to terminate such employment. Optionee shall have no rights
as a shareholder with respect to shares subject to this Option until such shares
have been issued to Optionee upon exercise of this Option. No adjustment shall
be made for dividends (ordinary or extra-ordinary, whether in cash, securities
or other property), distributions or other rights for which the record date is
prior to the date such shares are issued, except as provided in Section 12 of
the Plan.
(b) SECURITIES LAW COMPLIANCE. The exercise of all or any
parts of this Option shall only be effective at such time as counsel to the
Company shall have determined that the issuance and delivery of Common Stock
pursuant to such exercise will not violate any state or federal securities or
other laws. Optionee may be required by the Company, as a condition of the
effectiveness of any exercise of this Option, to agree in writing that all
Common Stock to be acquired pursuant to such exercise shall be held, until such
time that such Common Stock is registered and freely tradable under applicable
state and federal securities laws, for Optionee's own account without a view to
any further distribution thereof, that the certificates for such shares shall
bear an appropriate legend to that effect and that such shares will be not
transferred or disposed of except in compliance with applicable state and
federal securities laws.
(c) MERGERS, RECAPITALIZATION, STOCK SPLITS, ETC. Pursuant and
subject to Section 11 of the Plan, certain changes in the number or character of
the Common Stock of the Company (through sale, merger, consolidation, exchange,
reorganization, divestiture (including a spin-off), liquidation,
recapitalization, stock split, stock dividend or otherwise) shall result in an
adjustment, reduction or enlargement, as appropriate, in Optionee's rights with
respect to any unexercised portion of the Option (Optionee shall have such
"anti-dilution" Rights under the Option with respect to such events, but shall
not have "preemptive" rights).
(d) SHARES RESERVED. The Company shall at all times during
the option period reserve and keep available such number of shares as will be
sufficient to satisfy the requirements of this Agreement.
(e) WITHHOLDING TAXES ON DISQUALIFYING DISPOSITION. In the
event of a disqualifying disposition of the shares acquired through the exercise
of this Option, Optionee hereby agrees to inform the Company of such
disposition. Upon notice of a disqualifying disposition, the Company may take
such action as it deems appropriate to insure that, if necessary to comply with
all applicable federal or state income tax laws or regulations, all applicable
federal and state payroll, income or other taxes are withheld from any amounts
payable by the Company to Optionee. If the Company is unable to withhold such
federal and state taxes, for whatever reason, Optionee hereby agrees to pay to
the Company an amount equal to the amount the Company would otherwise be
required to withhold under federal or state law. Optionee may, subject to the
approval and discretion of the Administrator or such administrative rules it may
deem advisable, elect to have all or a portion of such tax withholding
obligations satisfied by delivering shares of the Company's Common Stock having
a fair market value equal to such obligations.
(f) NONTRANSFERABILITY. During the lifetime of Optionee, the
accrued Option shall be exercisable only by Optionee or by the Optionee's
guardian or other legal representative, and shall not be assignable or
transferable by Optionee, in whole or in part, other than by will or by the laws
of descent and distribution.
(g) 1997 STOCK OPTION PLAN. The Option evidenced by this
Agreement is granted pursuant to the Plan, a copy of which Plan has been made
available to Optionee and is hereby incorporated into this Agreement. This
Agreement is subject to and in all respects limited and conditioned as provided
in the Plan. The Plan governs this Option and, in the event of any questions as
to the construction of this Agreement or in the event of a conflict between the
Plan and this Agreement, the Plan shall govern, except as the Plan otherwise
provides.
(h) ACCOUNTING COMPLIANCE. Optionee agrees that, in the
event of a "transaction" (as defined in Section 12 of the Plan) is treated as a
"pooling of interests" under generally accepted accounting principles and
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<PAGE> 4
Optionee is an "affiliate" of the Company or any Subsidiary (as defined in
applicable legal and accounting principles) at the time of such change of
control transaction, Optionee will comply with all requirements of Rule 145 of
the Securities Act of 1933, as amended, and the requirements of such other legal
or accounting principles, and will execute any documents necessary to ensure
such compliance.
(i) STOCK LEGEND. The Administrator may require that the
certificates for any shares of Common Stock purchased by Optionee (or, in the
case of death, Optionee's successors) bear an appropriate legend to reflect the
restrictions of Paragraphs 4(b) and 4(h), of this Agreement.
(j) SCOPE OF AGREEMENT. This Agreement shall bind and inure to
the benefit of the Company and its successors and assigns and Optionee and any
successor or successors of Optionee permitted by Paragraph 2 or Paragraph 4(f)
above.
(k) ARBITRATION. Any dispute arising out of or relating to
this Agreement or the alleged breach of it, or the making of this Agreement,
including claims of fraud in the inducement, shall be discussed between the
disputing parties in a good faith effort to arrive at a mutual settlement of any
such controversy. If, notwithstanding, such dispute cannot be resolved, such
dispute shall be settled by binding arbitration. Judgment upon the award
rendered by the arbitrator may be entered in any court having jurisdiction
thereof. The arbitrator shall be a retired state or federal judge or an attorney
who has practiced securities or business litigation for at least 10 years. If
the parties cannot agree on an arbitrator within 20 days, any party may request
that the chief judge of the District Court for Fayette County, Kentucky, select
an arbitrator. Arbitration will be conducted pursuant to the provisions of this
Agreement, and the commercial arbitration rules of the American Arbitration
Association, unless such rules are inconsistent with the provisions of this
Agreement. Limited civil discovery shall be permitted for the production of
documents and taking of depositions. Unresolved discovery disputes may be
brought to the attention of the arbitrator who may dispose of such dispute. The
arbitrator shall have the authority to award any remedy or relief that a court
of this state could order or grant; provided, however, that punitive or
exemplary damages shall not be awarded. The arbitrator may award to the
prevailing party, if any, as determined by the arbitrator, all of its costs and
fees, including the arbitrator's fees, administrative fees, travel expenses,
out-of pocket expenses and reasonable attorneys' fees.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the day and year first above written.
ALASKA APOLLO RESOURCES INC.
By
--------------------------------------
-------------,
OPTIONEE
----------------------------------------
WILLIAM S. DAUGHERTY
4
<PAGE> 1
EXHIBIT 10(c)
ALASKA APOLLO RESOURCES, INC.
AND
JAYHEAD INVESTMENTS, LTD.
WARRANT AGREEMENT
WARRANT AGREEMENT ("Agreement") dated as of March 7, 1997 between
Alaska Apollo Resources, Inc., a Province of British Columbia corporation (the
"Company") and Jayhead Investments, Ltd., ("Jayhead") (hereinafter referred to
as "Holders" or as a "Holder").
WITNESSTH:
WHEREAS, the Holders have previously contributed capital to the Company
and have been instrumental in supporting its development; and
WHEREAS, the Company has agreed to issue warrants ("Warrants") to the
Holders to purchase up to an aggregate of five hundred thousand (500,000) shares
of Common Stock (the "Shares") of the Company; and
WHEREAS, the Warrants to be issued pursuant to this Agreement will be
issued as of the date the Board of Directors of the Company approved such
issuance;
NOW, THEREFORE, in consideration of the premises, the forgiveness the
Holder of $75,000 owed by the Company to Holder, the agreements herein set forth
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
1. GRANT. The Holders are hereby granted the right to purchase, from
the Company, at anytime commencing on the date of issuance up to an aggregate of
five hundred thousand (500,000) Shares (subject to adjustment as provided in
Section 8 hereof) at an initial exercise price (subject to adjustment as
provided in Section 11 hereof) of twelve and one-half cents ($0.125) per Share
(the "Exercise Price"). Each Warrant will entitle the registered holder thereof
to purchase one Share at the Exercise Price. The Warrants will be issued on this
Agreement and each Warrant shall become exercisable commencing on the date of
issuance.
2. WARRANT CERTIFICATES. The warrant certificates (the "Warrant
Certificates") delivered and to be delivered pursuant to this Agreement shall be
in the form set forth in Exhibit A, attached hereto and made a part hereof, with
such appropriate insertions, omissions, substitutions, and other variations as
required or permitted by this Agreement.
3. REGISTRATION OF WARRANT. The Warrants shall be numbered and shall
be registered on the books of the Company when issued.
4. EXERCISE OF WARRANT - METHOD. The Warrants initially are exercisable
at the Exercise Price times the number of Shares (subject to adjustment as
provided in Section 11 hereof) set forth in Section 8 hereof payable by
certified or official bank check or wire transfer in New York Clearing House
funds or through the use of Appreciation Currency (as defined below), or any
combination thereof. The number of Shares underlying the Warrants exercised at
any one time times the Exercise Price shall sometimes hereinafter be
collectively referred to as the "Holders Securities Exercise Price". Upon
surrender of a Warrant Certificate with the annexed Form of Election to Purchase
duly executed, together with payment of the Holders Securities Exercise Price
for the Shares purchased at the Company's principal offices, presently located
at 131 Prosperous Place, Suite 17, Lexington, Kentucky 40509-1844, the
registered holder of a Warrant Certificate ("Holder" or "Holders") shall be
entitled to receive a certificate or other evidence of ownership for the Shares
so purchased. The purchase rights represented by each Warrant Certificate are
exercisable at the option of the Holder thereof, in whole or in part. In the
case of the purchase of less than all the Shares purchasable under any
Warrant Certificate, the Company shall cancel said Warrant Certificate upon the
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<PAGE> 2
surrender thereof and shall execute and deliver a new Warrant Certificate of
like tenor for the balance of the Shares purchasable thereunder.
As used herein "Appreciation Currency" shall mean: the consideration
given by the surrender of Warrants for Shares. The number of Shares to which the
Holder shall be entitled in exchange for such Appreciation Currency shall be
determined by multiplying the number of Shares that would be received if the
Warrants were then exercised for cash, by the fraction, the numerator of which
shall be the difference between (i) the Current Market Price of one Share and
(ii) the Warrant Price (as defined below), and the denominator of which shall be
the Current Market Price of one Share. In the event the Warrants are adjusted so
as to become exercisable for securities other than Shares ("Other Securities"),
the definition of Appreciation Currency shall apply to the exercise of Warrants
for such Other Securities by substituting in the place of "Shares" each such
Other Security.
For purposes of determining Appreciation Currency, the "Current Market
Price" of a Share shall mean: (i) if the Shares are traded in the
over-the-counter market and not in The Nasdaq National Market nor on any
national securities exchange, the average of the per Share closing bid price on
the 30 consecutive trading days immediately preceding the date in question, as
reported by The Nasdaq SmallCap Market (or an equivalent generally accepted
reporting service if quotations are not reported on The Nasdaq SmallCap Market),
or (ii) if the Shares are traded in The Nasdaq National Market or on a national
securities exchange, the average for the 30 consecutive trading days immediately
preceding the date in question of the daily per share closing prices in The
Nasdaq National Market or on the principal stock exchange on which it is listed,
as the case may be. For purposes of clause (i) above, if trading in the Shares
is not reported by The Nasdaq SmallCap Market, the applicable bid price referred
to in said clause shall be the average bid price as reported in The Nasdaq
Electronic Bulletin Board or, if not reported thereon, as reported in the "pink
sheets" published by National Quotation Bureau, Incorporated. The closing price
referred to in clause (ii) above shall be the last reported sale price or, in
case no such reported sale takes place on such day, the average of the reported
closing bid and asked prices, in either case in The Nasdaq National Market or on
the national securities exchange on which the Shares are then quoted or listed.
If the Shares are not traded in the over-the-counter market or The Nasdaq
National Market, or on a national securities exchange, the Shares will be
treated as nonmarketable securities and will be valued at a valuation based on
contemporaneous transactions in the private market (including any foreign
market, whether public or private ("Foreign Market")), and if there are no
contemporaneous transactions in the private market or the Foreign Market, then
based on the most recent transactions in the private market or Foreign Market.
In the absence of any transactions in the private market or Foreign Market, the
Shares will be valued at cost, unless there are objective criteria for revaluing
such securities, which objective criteria are agreed upon by the Company and the
Placement Agent. Objective criteria may include recent valuations, depending
upon the purpose of such valuations. For purposes of determining Appreciation
Currency, "Warrant Price" shall mean the Exercise Price defined in Section 1
hereof, as adjusted and readjusted as set forth in Section 11 hereof. In the
event the Warrants are adjusted so as to become exercisable for Other
Securities, the method for determining the Current Market Value for such
securities shall be the same as set forth above.
5. ISSUANCE OF CERTIFICATES. Upon the exercise of the Warrants, the
issuance of certificates for Shares or other securities, properties or rights
underlying such Warrants shall be made forthwith (and in any event within five
(5) business days thereafter) without charge to the Holder thereof including,
without limitation, any tax which may be payable in respect of the issuance
thereof, and such certificates shall (subject to the provisions of Sections 7
and 9 hereof) be issued in the name of, or in such names as may be directed by,
the Holder thereof; provided, however, that the Company shall not be required to
pay any tax which may be payable in respect of any transfer involved in the
issuance and delivery of any such certificates in a name other than that of the
Holder and the Company shall not be required to issue or deliver such
certificates unless or until the person or persons requesting the issuance
thereof shall have paid to the Company the amount of such tax or shall have
established to the satisfaction of the Company that such tax has been paid.
The Warrant Certificates and the certificates representing the Shares
or other securities, property or rights issued upon exercise of the Warrants
shall be executed on behalf of the Company by the manual or facsimile signature
of the then present President or Chief Executive Officer of the Company under
its corporate seal reproduced thereon, and attested to by the manual or
facsimile signature of the then present Secretary or any assistant Secretary of
the Company. Warrant Certificates shall be dated the date of execution by the
Company upon initial issuance, division, exchange, substitution or transfer.
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<PAGE> 3
6. TRANSFER OF WARRANT. The Warrants shall be transferable only on the
books of the Company maintained at its principal office, where its principal
office may then be located, upon delivery thereof duly endorsed by the Holder or
by its duly authorized attorney or representative accompanied by proper evidence
of succession, assignment or authority to transfer. Upon any registration
transfer, the Company shall execute and deliver new Warrants to the person
entitled thereto.
7. RESTRICTION ON TRANSFER OF WARRANTS. The Holder of a Warrant
Certificate, by its acceptance thereof, covenants and agrees that the Warrants
are being acquired as an investment and not with a view to the distribution
thereof, and that the Warrants may not be sold, transferred, assigned,
hypothecated or otherwise disposed of (a "Transfer"), in whole or in part,
except by will or operation of law, pursuant to an effective registration
statement under the Securities Act of 1933 (the "Act") or pursuant to an
exemption from registration under the Act.
8. EXERCISE PRICE AND NUMBER OF SECURITIES. Except as otherwise
provided in Section 10 hereof, each of the Warrants is exercisable to purchase
one Share at an initial exercise price equal to the Exercise Price. The Exercise
Price and the number of Shares for which the Warrant may be exercised shall be
the price and the number of Shares, which shall result from time to time from
any and all adjustments in accordance with the provisions of Section 11 hereof.
9. REGISTRATION RIGHTS.
9.1 REGISTRATION UNDER THE SECURITIES ACT OF 1933. Each
Warrant Certificate and each certificate representing the Shares and any of the
other securities issuable upon exercise of the Warrants and the securities
underlying the securities issuable upon exercise of the Warrants (collectively,
the "Warrant Securities") shall bear the following legend, unless (i) such
Warrants or Warrant Securities are distributed to the public or sold to the
Holders for distribution to the public pursuant to this Section 9 or otherwise
pursuant to a registration statement filed under the Act, (ii) such Warrants or
Warrant Securities are subject to a currently effective registration statement
under the Act, or (iii) the Company has received an opinion of counsel, in form
and substance reasonably satisfactory to counsel for the Company, that such
legend is unnecessary for any such certificate or other evidence of ownership:
THESE WARRANTS HAVE BEEN ISSUED PURSUANT TO THE TERMS OF A WARRANT
AGREEMENT BY AND AMONG ALASKA APOLLO RESOURCES, INC. AND TRIO GROWTH
TRUST, EXERGON CAPITAL S.A. AND JAYHEAD INVESTMENTS, LTD. THE WARRANTS
REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE UPON
EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (I) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, (II)
TO THE EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE
UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (III) AN
OPINION OF COUNSEL, IF SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO
COUNSEL FOR THE ISSUER, THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH
ACT IS AVAILABLE, OR (IV) BY WILL OR OPERATION OF LAW.
THE TRANSFER OR EXCHANGE OF THE WARRANTS OR OTHER SECURITIES
REPRESENTED BY THE CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH THE
WARRANT AGREEMENT REFERRED TO HEREIN.
9.2 PIGGYBACK REGISTRATION. If, at any time, the Company
proposes to register any of its securities under the Act (other than in
connection with a merger or pursuant to Form S-4 or Form S-8) it will give
written notice by registered mail, at least thirty (30) days prior to the filing
of each such registration statement, to the Holders of the Warrants and/or the
Warrant Securities of its intention to do so. If any of the Holders of the
Warrants and/or Warrant Securities notify the Company within twenty (20) days
after mailing of any such notice of its or their desire to include any such
securities in such proposed registration statement, the Company shall afford
such Holders of the Warrants and/or Warrant Securities the opportunity to have
any such Warrant Securities registered under such registration statement. In the
event that the managing underwriter for said offering advises the Company in
writing that in the underwriter's opinion the number of securities requested to
be included in such registration exceeds the
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<PAGE> 4
number which can be sold in such offering without causing a diminution in the
offering price or otherwise adversely affecting the offering, the Company will
include in such registration (a) first, the securities the Company proposes to
sell, (b) second, the securities held by the entities that made the demand for
registration, (c) third, the Warrants and/or Warrant Securities requested to be
included in such registration which in the opinion of such underwriter can be
sold, pro rata among the Holders of Warrants and/or Warrant Shares on the basis
of the number of Warrants and/or Warrant Shares requested to be registered by
such Holders, and (d) fourth, other securities requested to be included in such
registration.
Notwithstanding the provisions of this Section 9.2, the Company shall
have the right at any time after it shall have given written notice pursuant to
this Section 9.2 (irrespective of whether a written request for inclusion of any
such securities shall have been made) to elect not to file any such proposed
registration statement or to withdraw the same after the filing but prior to the
effective date thereof.
9.3 DEMAND REGISTRATION.
(a) At any time, after the effective date of the
registration statement for the initial public offering of the Company, the
Holders of the Warrants and/or Warrant Securities representing a "Majority" (as
hereinafter defined) of the Warrants and/or Warrant Securities shall have the
right on one occasion (which right is in addition to the registration rights
under Section 9.2 hereof), exercisable by written notice to the Company, to
have the Company prepare and file with the Securities and Exchange Commission
(the "Commission"), a registration statement on Form S-3 or similar form and
such other documents, including a prospectus, as may be necessary in the
opinion of both counsel for the Company and counsel for the Holders, in order
to comply with the provisions of the Act, so as to permit a public offering and
sale by such Holders and any other Holders of the Warrants and/or Warrant
Securities who notify the Company within fifteen (15) days after the Company
mails notice of such request pursuant to Section 9.3(b) hereof (collectively,
the "Requesting Holders") of their respective Warrant Securities so as to allow
the unrestricted sale of the Warrant Securities to the public from time to time
until all of the Warrant Shares requested to be registered by the Requesting
Holders have been sold (the "Registration Period").
(b) The Company covenants and agrees to give written
notice of any registration request under this Section 9.3 by any Holder or
Holders representing a Majority of the Warrants and/or Warrant Securities to all
other registered Holders of the Warrants and the Warrant Securities within ten
(10) days from the date of the receipt of any such registration request.
(c) In addition to the registration rights under
Section 9.2 and subsection (a) of this Section 9.3, at any time commencing one
year after the effective date of the registration statement for the initial
public offering of the Company, the Holders of Warrants and/or Warrant
Securities representing a "Majority" (as hereinafter defined) shall have the
right on one occasion, exercisable by written request to the Company, to have
the Company prepare and file with the Commission a registration statement so as
to permit a public offering and sale by such Holders of their respective Warrant
Securities from time to time during the Registration Period; provided, however,
that the provisions of Section 9.4(b) hereof shall not apply to any such
registration request and registration and all costs incident thereto shall be at
the expense of the Holder or Holders making such request.
9.4 COVENANTS OF THE COMPANY WITH RESPECT TO REGISTRATION.
In connection with any registration under Section 9.2 or 9.3 hereof, the
Company covenants and agrees as follows:
(a) The Company shall use its best efforts to file a
registration statement within ninety (90) days of receipt of any demand
therefor, and to have any registration statements declared effective at the
earliest possible time, and shall furnish each Holder desiring to sell Warrant
Securities such number of prospectuses as shall reasonably be requested.
(b) The Company shall pay all costs (excluding fees
and expenses of Holder(s)' counsel and any underwriting or selling commissions),
fees and expenses in connection with all registration statements filed pursuant
to Sections 9.2 and 9.3(a) hereof including, without limitation, the Company's
legal and accounting fees,
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<PAGE> 5
printing expenses, blue sky fees and expenses. The Holder(s) will pay all costs,
fees and expenses in connection with the registration statement filed pursuant
to Section 9.3(c).
(c) The Company will take all necessary action which
may be required in qualifying or registering the Warrant Securities included in
a registration statement for offering and sale under the securities or blue sky
laws of such states as reasonably are requested by the Holder(s), provided that
the Company shall not be obligated to execute or file any general consent to
service of process or to qualify as a foreign corporation to do business under
the laws of any such jurisdiction.
(d) The Company shall indemnify the Holder(s) of the
Warrant Securities to be sold pursuant to any registration statement and each
person, if any, who controls such Holders within the meaning of Section 15 of
the Act or Section 20(a) of the Securities Exchange Act of 1934, as amended
("Exchange Act"), against all loss, claim, damage, expense or liability
(including all expenses reasonably incurred in investigating, preparing or
defending against any claim whatsoever) to which any of them may become subject
under the Act, the Exchange Act or other federal or state law or regulation, at
common law or otherwise, arising from or relating to such registration statement
but only to the same extent and with the same effect as the provisions pursuant
to which the Company has agreed to indemnify each of the underwriters contained
in the underwriting agreement entered into by the Company with such underwriters
in connection with its initial public offering (the "Underwriting Agreement"),
including provisions regarding notice of claims and the right to defend claims
by a party obligated under any indemnity agreement.
(e) In order to provide for just and equitable
contribution under the Act in any case in which (i) any holder of the Warrant
Securities or controlling person thereof makes a claim for indemnification but
it is judicially determined (by the entry of a final judgment or decree by a
court of competent jurisdiction and the expiration of time to appeal or the
denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that the express provisions of
Section 9.4(d) hereof provide for indemnification in such case or (ii)
contribution under the Act may be required on the part of any holder of the
Warrant Securities, or controlling person thereof, then the Company, any such
holder of the Warrant Securities, or controlling person thereof shall contribute
to the aggregate losses, claims, damages or liabilities to which they may be
subject (which shall, for all purposes of this Agreement, include, but not be
limited to, all costs of defense and investigation and all attorneys fees), in
either such case (after contribution from others) on the basis of relative fault
as well as any other relevant equitable considerations. The relative fault shall
be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company on the one hand
or a holder of Warrant Securities, or controlling person thereof on the other
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Company and
such holders of such securities and such controlling persons agree that it would
not be just and equitable if contribution pursuant to this Section 9.4(e) were
determined by pro rata allocation or by any other method which does not take
account of the equitable considerations referred to in this Section 9.4(e). The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages or liabilities (or actions in respect thereof) referred to above
in this Section 9.4(e) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. No person guilty of fraudulent
misrepresentation (with the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation.
(f) The Holder(s) of the Warrant Securities to be
sold pursuant to a registration statement, and their successors and assigns,
shall severally, and not jointly, indemnify the Company, its officers and
directors and each person, if any, who controls the Company within the meaning
of Section 15 of the Act or Section 20(a) of the Exchange Act, against any loss,
claim, damage or expense or liability (including all expenses reasonably
incurred in investigating, preparing or defending against any claim whatsoever)
to which they may become subject under the Act, the Exchange Act or other
federal or state law or regulation, at common law or otherwise, to the extent
that such law, claim, damage or liability (or proceeding with respect thereof)
arises out of or is based on any untrue statement or alleged untrue statement of
a material fact contained in any registration statement under which the Warrant
Securities were registered under the Act, in any preliminary prospectus or final
prospectus contained therein or in any amendment or supplement thereto, or
arises out of or is based on the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make such statements
therein not misleading, which,
5
<PAGE> 6
in each case, has been made in or omitted from such registration statement, said
preliminary or final prospectus or said amendment or supplement in reliance upon
and in conformity with written information furnished to the Company by such
Holder for specific inclusion in such registration statement, to the same extent
and with the same effect as the indemnification provisions contained in the
Underwriting Agreement pursuant to which the underwriters of the Company's
initial public offering have agreed to indemnify the Company, including
provisions regarding notice of claims and the right to defend claims by a party
obligated under any indemnity agreement.
(g) Nothing contained in this Agreement shall be
construed as requiring the Holder(s) to exercise their Warrants prior to the
initial filing of any registration statement or the effectiveness thereof.
(h) The Company shall not permit the inclusion of any
securities other than the Warrant Securities to be included in any registration
statement filed pursuant to Section 9.3 hereof, or permit any other registration
statement (other than a registration statement on Form S-4 or S-8) to be or
remain effective during a one hundred and eighty (180) day period following the
effective date of a registration statement filed pursuant to Section 9.3 hereof,
without the prior written consent of the Holders of the Warrants and Warrant
Securities representing a Majority of such securities or as otherwise required
by the terms of any existing registration rights granted prior to the date of
this Agreement by the Company to the holders of any of the Company's securities.
(i) The Company shall furnish to each Holder
participating in the offering and to each underwriter participating in such
offering, if any, a signed counterpart, addressed to such Holder or underwriter,
of (i) an opinion of counsel to the Company, dated the effective date of such
registration statement (and, if such registration includes an underwritten
public offering, an opinion dated the date of the closing under the underwriting
agreement), and (ii) a "cold comfort" letter dated the effective date of such
registration statement (and, if such registration includes an underwritten
public offering, a "cold comfort" letter dated the date of the closing under the
underwriting agreement) signed by the independent public accountants who have
issued a report on the Company's financial statements included in such
registration statement, in each case covering substantially the same matters
with respect to such registration statement (and the prospectus included
therein) and, in the case of such accountants' letter, with respect to events
subsequent to the date of such financial statements, as are customarily covered
in opinions of issuer's counsel and in accountants' letters delivered to
underwriters in underwritten public offerings of securities.
(j) The Company shall as soon as practicable after
the effective date of the registration statement, and in any event within 15
months thereafter, make "generally available to its security holders" (within
the meaning of Rule 158 under the Act) an earnings statement (which need not be
audited) complying with Section 11(a) of the Act and covering a period of at
least 12 consecutive months beginning after the effective date of the
registration statement.
(k) The Company shall enter into an underwriting
agreement with the managing underwriter(s) selected for such underwriting by
Holders holding a Majority of the Warrant Securities requested to be included in
such underwriting. Such agreement shall be satisfactory in form and substance to
the Company, each Holder and such managing underwriter(s), and shall contain
such representations, warranties and covenants by the Company and such other
terms as are customarily contained in agreements of that type used by the
managing underwriter. The Holders shall be parties to any underwriting agreement
relating to an underwritten sale of their Warrant Securities and may, at their
option, require that any or all the representations, warranties and covenants of
the Company to or for the benefit of such underwriters shall also be made to and
for the benefit of such Holders. Such Holders shall not be required to make any
representations or warranties to or agreements with the Company or the
underwriters except as they may relate to such Holders and their intended
methods of distribution.
(l) For purposes of this Agreement, the term
"Majority" in reference to the Warrants or Warrant Securities, shall mean in
excess of fifty percent (50%) of the then outstanding Warrants or Warrant
Securities that (i) are not held by the Company, an affiliate, officer,
creditor, employee or agent thereof or any of their respective affiliates,
members of their family, persons acting as nominees or in conjunction therewith
or (ii) have not been resold to the public pursuant to a registration statement
filed with the Commission under the Act or Rule 144 promulgated under the Act.
6
<PAGE> 7
10. OBLIGATIONS OF HOLDERS. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to Section 9 hereof that
each of the selling Holders shall:
(a) Furnish to the Company such information regarding
themselves, the Warrant Securities held by them, the intended method of sale or
other disposition of such securities, the identity of and compensation to be
paid to any underwriters proposed to be employed in connection with such sale or
other disposition, and such other information as may reasonably be required to
effect the registration of their Warrant Securities.
(b) Notify the Company, at any time when a prospectus relating
to the Warrant Securities covered by a registration statement is required to be
delivered under the Act, of the happening of any event with respect to such
selling Holder as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the circumstances
then existing.
11. ADJUSTMENTS TO EXERCISE PRICE AND NUMBER OF SECURITIES. The
Exercise Price in effect at any time and the number and kind of securities
purchasable upon the exercise of the Warrants or the securities underlying the
Warrants shall be subject to adjustment from time to time upon the happening of
certain events as follows:
(a) SUBDIVISION AND COMBINATION. In case the Company shall (i)
declare a dividend or make a distribution on its outstanding Shares; (ii)
subdivide or reclassify its outstanding Shares into a greater number of Shares;
or (iii) combine or reclassify its outstanding Shares into a smaller number of
Shares, the Exercise Price in effect at the time of the record date for such
dividend or distribution or of the effective date of such subdivision,
combination or reclassification shall be adjusted so that it shall equal the
price determined by multiplying the Exercise Price, by a fraction, the
denominator of which shall be the number of Shares outstanding after giving
effect to such action, and the numerator of which shall be the number of Shares
outstanding immediately prior to such action. Such adjustment shall be made
successively whenever any event listed above shall occur. In addition, if the
Company shall issue by reclassification of its Shares, other securities of the
Company, then the number of Shares purchasable upon the exercise of each Warrant
shall be adjusted so that the Holder shall be entitled to receive the kind and
number of Shares and other securities of the Company which such Holder would
have owned or would have been entitled to receive immediately after the
happening of such event or any record date with respect thereto.
(b) ADJUSTMENT IN NUMBER OF SECURITIES. Upon each adjustment
of the Exercise Price pursuant to the provisions of this Section 11, the number
of Warrant Securities issuable upon the exercise at the adjusted Exercise Price,
of each Warrant, shall be adjusted up to the nearest whole number of Shares by
multiplying a number equal to the Exercise Price, in effect immediately prior to
such adjustment by the number of the applicable Warrant Securities issuable upon
exercise of the Warrants immediately prior to such adjustment and dividing the
product so obtained by the adjusted Exercise Price.
(c) DEFINITION OF SHARES. For the purpose of this Agreement,
the term "Shares" shall mean the (i) class of stock of the Company designated as
Ordinary Shares in the Company's Articles of Association as of the date hereof,
and (ii) any other class of stock resulting from successive changes or
reclassifications of such Shares consisting solely of changes in par value, or
from par value or from no par value to par value.
(d) MERGER OR CONSOLIDATION; SALE OR CONVEYANCE. In case of
any consolidation of the Company with, or merger of the Company into, another
corporation (other than a consolidation or merger, which does not result in any
reclassification or change of the outstanding Shares, or a sale of all or
substantially all of the Company's property, assets or business as an entirety,
the corporation formed by such consolidation or merger, or the purchaser in such
sale or conveyance, shall execute and deliver to each Holder a supplemental
warrant agreement providing that the Holder of each Warrant then outstanding
shall have the right thereafter (until the expiration of such Warrant) to
receive, upon exercise of such Warrant, the kind and amount of membership
interests, shares of stock and other securities and property receivable upon
such consolidation or merger, sale or conveyance to which the Holder would have
been entitled if the Holder had exercised such Warrant immediately prior to such
consolidation or merger, or sale or conveyance. Such supplemental warrant
agreement shall provide for adjustments which shall be identical to the
adjustments provided in this Section 11. The above provision of this subsection
shall similarly apply to successive consolidations and mergers, and sales and
conveyances.
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<PAGE> 8
(e) NO ADJUSTMENT OF THE EXERCISE PRICE IN CERTAIN CASES. No
adjustment of the Exercise Price shall be made:
(i) Upon the issuance or sale of the Warrants or
the Warrant Securities;
(ii) Upon the issuance or sale of Shares (or any
other security convertible, exercisable, or exchangeable into Shares or
securities with similar rights and terms as the Shares) upon the direct or
indirect conversion, exercise, or exchange of any options, rights, warrants, or
other securities or indebtedness of the Company outstanding as of the date of
this Agreement or granted pursuant to any stock option plan of the Company in
existence or approved by the Board of Directors of the Company as of the date of
this Agreement, pursuant to the terms thereof or issued pursuant to stock
purchase plan in existence as of the date of this Agreement, pursuant to the
terms thereof; or
(iii) If the amount of said adjustment shall be
less than fifty cents ($0.50) per Share provided, however, that in such case any
adjustment that would otherwise be required then to be made shall be carried
forward and shall be made at the time of and together with the next subsequent
adjustment which, together with any adjustment so carried forward, shall amount
to at least fifty cents ($0.50) per Share.
12. EXCHANGE AND REPLACEMENT OF WARRANT CERTIFICATES. Each Warrant
Certificate is exchangeable, without expense, upon the surrender thereof by the
registered Holder at the principal executive office of the Company for a new
Warrant Certificate of like tenor and date representing in the aggregate the
right to purchase the same number of Warrant Securities in such denominations as
shall be designated by the Holder thereof at the time of such surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it
of the loss, theft, destruction or mutilation of any Warrant Certificate, and,
in case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it and reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of the Warrants, if
mutilated, the Company will make and deliver a new Warrant Certificate of like
tenor, in lieu thereof.
13. FRACTIONAL INTERESTS. The Company shall not be required to issue
certificates or other evidence of ownership representing fractions of Shares or
Other Securities upon the exercise of the Warrants, nor shall it be required to
issue scrip or pay cash in lieu of such fractional interests, it being the
intent of the parties that all fractional interests shall be eliminated by
rounding any fraction up to the nearest whole number of Shares or other
securities, properties or rights.
14. RESERVATION AND LISTING OF SECURITIES. The Company shall at all
times reserve and solely for the purpose of issuance upon the exercise of the
Warrants, such number of Shares or other securities, properties or rights as
shall be issuable upon the exercise thereof and upon the exercise of any other
exercisable or convertible securities underlying the Warrants. Every transfer
agent and warrant agent (collectively "Transfer Agent") for the Shares and other
securities of the Company issuable upon the exercise of the Warrants will be
irrevocably authorized and directed at all times to reserve such number of
Shares and other securities as shall be requisite for such purpose. The Company
will keep a copy of this Agreement on file with every Transfer Agent for the
Shares and other securities of the Company issuable upon the exercise of the
Warrants. The Company will supply every such Transfer Agent with duly executed
stock and other certificates or evidence of ownership, as appropriate, for such
purpose. The Company covenants and agrees that, upon each exercise of the
Warrants and payment of the Holders Securities Exercise Price, all Shares and
other securities issuable upon such exercise shall be duly and validly issued,
fully paid, non-assessable and not subject to the preemptive or similar rights
of any member of the Company. As long as the Warrants shall be outstanding, the
Company shall use its best efforts to cause all and other securities issuable
upon the exercise of the Warrants and the securities underlying the securities
issuable upon exercise of the Warrants to be listed and/or quoted (subject to
official notice of issuance) on all securities exchanges or securities
associations on which the Shares or other securities issued to the public in
connection with the Company's initial public offering may then be listed and/or
quoted.
8
<PAGE> 9
15. NOTICES TO WARRANT HOLDERS. Nothing contained in this Agreement
shall be construed as conferring upon the Holders of the Warrants the right to
vote or to consent or to receive notice as a member in respect of any meetings
of members for the election of managers, officers or directors or any other
matter, or as having any rights whatsoever as a member of the Company. If,
however, at any time prior to the expiration of the Warrants and their exercise,
any of the following events shall occur:
(a) The Company shall take a record of its members or of the
holders of its for the purpose of entitling them to receive a dividend or
distribution payable otherwise than in cash, or a cash dividend or distribution
payable otherwise than out of current or retained earnings, as indicated by the
accounting treatment of such dividend or distribution on the books of the
Company; or
(b) The Company shall offer to all the holders of its any
additional membership interests of any class or other securities issued or to be
issued by the Company, or securities convertible into or exchangeable for
membership interests of any class or other securities issued or to be issued by
the Company, or any option, right or warrant to subscribe therefor; or
(c) A dissolution, liquidation or winding up of the Company
(other than in connection with a consolidation or merger) or a sale or
conveyance of all or substantially all of its property, assets and business as
an entirety shall be proposed; then in any one or more of said events, the
Company shall give written notice to the registered holders of the Warrants of
such event at least thirty (30) days prior to the date fixed as a record date or
the date of closing the transfer books for the determination of the members
entitled to such dividend, distribution, convertible or exchangeable securities
or subscription rights, or entitled to vote on such proposed dissolution,
liquidation, winding up or sale. Such notice shall specify such record date or
the date of closing the transfer books, as the case may be. Failure to give such
notice or any defect therein shall not affect the validity of any action taken
in connection with the declaration or payment of any such dividend, or the
issuance of any convertible or exchangeable securities, or subscription rights,
options or warrants, or any proposed dissolution, liquidation, winding up or
sale.
16. NOTICES. All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been duly made and
sent when delivered, or five (5) days after mailing by registered or certified
mail, return receipt requested:
(a) If to the registered Holder of the Warrants, to the
address of such Holder as shown on the books of the Company; or
(b) If to the Company, to the address set forth in Section 4
hereof or to such other address as the Company may designate by notice to the
Holders.
17. SUPPLEMENTS; AMENDMENTS; ENTIRE AGREEMENT. This Agreement contains
the entire understanding between the parties hereto with respect to the subject
matter hereof and may not be modified or amended except by a writing duly signed
by the party against whom enforcement of the modification or amendment is
sought. The Company and the Holders may from time to time supplement or amend
this Agreement without the approval of any holders of Warrant Certificates
(other than the Placement Agent) in order to cure any ambiguity, to correct or
supplement any provision contained herein which may be defective or inconsistent
with any provisions herein, or to make any other provisions in regard to matters
or questions arising hereunder which the Company and the Holders may deem
necessary or desirable and which the Company and the Holders deem shall not
adversely affect the interests of the holders of Warrant Certificates.
18. SUCCESSORS. All of the covenants and provisions of this Agreement
shall be binding upon and inure to the benefit of the Company, the Holders and
their respective successors and assigns hereunder.
19. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All statements in any
schedule, exhibit or certificate or other instrument delivered by or on behalf
of the parties hereto, or in connection with the transactions contemplated by
this Agreement, shall be deemed to be representations and warranties hereunder.
Notwithstanding any investigations made by or on behalf of the parties to this
Agreement, all representations, warranties and agreements made by the parties to
this Agreement or pursuant hereto shall survive.
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<PAGE> 10
20. GOVERNING LAW; SUBMISSION TO JURISDICTION. This Agreement and each
Warrant Certificate issued hereunder shall be deemed to be a contract made under
the laws of the State of Kentucky and for all purposes shall be construed in
accordance with the laws of said State without giving effect to the rules of
said State governing the conflicts of laws.
21. SEVERABILITY. If any provision of this Agreement shall be held to
be invalid or unenforceable, such invalidity or unenforceability shall not
affect any other provision of this Agreement.
22. CAPTIONS. The caption headings of the Sections of this Agreement
are for convenience of reference only and are not intended, nor should they be
construed as, a part of this Agreement and shall be given no substantive effect.
23. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement shall be
construed to give to any person or corporation other than the Company and the
Holders and any other registered holder(s) of the Warrant Certificates or
Warrant Securities any legal or equitable right, remedy or claim under this
Agreement; and this Agreement shall be for the sole and exclusive benefit of the
Company and the Holders and any other holder(s) of the Warrant Certificates or
Warrant Securities.
24. COUNTERPARTS. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and such counterparts shall together constitute but one and the
same instrument.
IN WITNESS OF, the parties hereto have caused this Agreement to be duly
executed, as of the day and year first above written.
ALASKA APOLLO RESOURCES, INC.
By
----------------------------------
William S. Daugherty, President
JAYHEAD INVESTMENTS, LTD.
By
----------------------------------
_________________, President
10
<PAGE> 11
EXHIBIT A
[FORM OF WARRANT CERTIFICATE]
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, (ii) TO THE
EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT
RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF
SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER, THAT AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE OR (IV) BY WILL OR
OPERATION OF LAW.
THE TRANSFER OR EXCHANGE OF THE WARRANTS OR OTHER SECURITIES REPRESENTED BY THIS
CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO
HEREIN.
EXERCISABLE AT ANY TIME AFTER
MARCH 7, 1997
Warrant No.
----------------
WARRANT CERTIFICATE
This Warrant Certificate certifies that , or
registered assigns, is the registered holder of Warrants to purchase initially,
at any time from after March 7, 1997, up to of fully
paid shares of common stock Shares (the "Shares") of Alaska Apollo Resources
Inc. a Province of British Columbia corporation (the "Company"), at the initial
exercise price, subject to adjustment in certain events of twelve and one-half
cents ($0.125) per Share (the "Exercise Price") upon surrender of this Warrant
Certificate and payment of the Exercise Price at the principal executive office
of the Company, but subject to the conditions set forth herein and in the
warrant agreement dated as of March 7, 1997, between the Company and Jayhead
Investments, Ltd. (the "Warrant Agreement"). Payment of the Exercise Price shall
be made by certified or official bank check or wire transfer in New York
Clearing House funds or through the use of Appreciation Currency (as defined in
the Warrant Agreement) or a combination thereof payable to the order of the
Company.
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants issued pursuant to the Warrant Agreement, which
Warrant Agreement is hereby incorporated by reference in and made a part of this
instrument and is hereby referred to for a description of the rights, limitation
of rights, obligations, duties and immunities thereunder of the Company and the
holders (the words "holders" or "holder" meaning the registered holders or
registered holder) of the Warrants.
The Warrant Agreement provides that upon the occurrence of certain
events the Exercise Price and the type and/or number of the Company's securities
issuable thereupon may, subject to certain conditions, be adjusted. In such
event, the Company will, at the request of the holder, issue a new Warrant
Certificate evidencing the adjustment in the Exercise Price and the number
and/or type of securities issuable upon the exercise of the Warrants; provided,
however, that the failure of the Company to issue such new Warrant Certificates
shall not in any way change, alter, or otherwise impair, the rights of the
holder as set forth in the Warrant Agreement.
Upon due presentment for registration of transfer of this Warrant
Certificate at the principal executive office of the Company, a new Warrant
Certificate or Warrant Certificates of like tenor and evidencing in the
aggregate a like number of Warrants shall be issued to the transferee(s) in
exchange for this Warrant Certificate, subject to the limitations provided
herein and in the Warrant Agreement, without any charge except for any tax or
other governmental charge imposed in connection with such transfer.
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<PAGE> 12
Upon the exercise of less than all of the Warrants evidenced by this
Certificate, the Company shall forthwith issue to the holder hereof a new
Warrant Certificate representing such numbered of unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof as the
absolute owner(s) of this Warrant Certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, and of any distribution to the holder(s) hereof, and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined in the
Warrant Agreement shall have the meanings assigned to them in the Warrant
Agreement.
This Warrant Certificate does not entitle any Warrant holder to any of
the rights of a shareholder of the Company.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed under its corporate seal.
Dated as of March 7, 1997.
ALASKA APOLLO RESOURCES INC.
By
------------------------------------
William S. Daugherty, President
2
<PAGE> 13
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 4.1 OF THE
WARRANT AGREEMENT]
The undersigned hereby irrevocably elects to exercise the right,
represented by Warrant Certificate No. ______ to purchase _____________ Shares
(as defined in the Warrant Agreement described below) and herewith tenders in
payment for such securities a certified or official bank check or wire transfer
payable in New York Clearing House Funds or through the use of Appreciation
Currency (as defined in the Warrant Agreement), or a combination thereof to the
order of Alaska Apollo Resources, Inc., a Province of British Columbia
corporation (the "Company") in the amount of $______________, all in accordance
with the terms of Section 4.1 of the Warrant Agreement dated as of March 7, 1997
between the Company and Jayhead Investments, Ltd. The undersigned requests that
a certificate for such securities be registered in the name of
________________________________________________, whose address is
____________________________________________________________ and that such
certificate be delivered to
______________________________________________________________________________,
whose address is ____________________________________________________________,
and if said number of Shares shall not be all the Shares purchasable hereunder,
that a new Warrant Certificate for the balance of the Shares purchasable under
the within Warrant Certificate be registered in the name of the undersigned
warrantholder or his assignee as below indicated and delivered to the address
stated below.
Dated:________________.
----------------------------------------
Signature (Signature must conform in all
respects to name of holder as specified
on the face of the Warrant Certificate.)
----------------------------------------
Address
----------------------------------------
(Insert Social Security or Other
Identifying Number of Holder)
Signature Guaranteed:
-----------------------------------------------------------
(Signature must be guaranteed by a bank, savings and loan association,
stockbroker, or credit union with membership in an approved signature guaranty
Medallion Program pursuant to Securities Exchange Act Rule 17Ad-15.)
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<PAGE> 14
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such holder
desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED __________________________________________ hereby
sells, assigns and transfers unto
_______________________________________________________ [NAME OF TRANSFEREE]
Warrant Certificate No. ___________, together with all right, title and interest
therein, and does hereby irrevocably constitute and appoint
_____________________________________________________ Attorney, to transfer the
within Warrant Certificate on the books of the within-named Company, with full
power of substitution.
Dated:_____________________.
----------------------------------------
Signature (Signature must conform in all
respects to name of holder as specified
on the face of the Warrant Certificate.)
----------------------------------------
Address
----------------------------------------
(Insert Social Security or Other
Identifying Number of Holder)
Signature Guaranteed:
-----------------------------------------------------------
(Signature must be guaranteed by a bank, savings and loan association,
stockbroker, or credit union with membership in an approved signature guaranty
Medallion Program pursuant to Securities Exchange Act Rule 17Ad-15.)
4
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EXHIBIT 10(d)
ALASKA APOLLO RESOURCES, INC.
AND
TRIO GROWTH TRUST
WARRANT AGREEMENT
WARRANT AGREEMENT ("Agreement") dated as of March 7, 1997 between
Alaska Apollo Resources, Inc., a Province of British Columbia corporation (the
"Company") and Trio Growth Trust, ("Trio") (hereinafter referred to as "Holders"
or as a "Holder").
WITNESSTH:
WHEREAS, the Holder has previously contributed capital to the Company
and has been instrumental in supporting its development and has committed to
further financial support; and
WHEREAS, the Company has agreed to issue warrants ("Warrants") to the
Holders to purchase up to an aggregate of one million (1,000,000) shares of
Common Stock (the "Shares") of the Company.; and
WHEREAS, the Warrants to be issued pursuant to this Agreement will be
issued as of the date the Board of Directors of the Company approved such
issuance;
NOW, THEREFORE, in consideration of the premises, the payment by the
Holder to the Company of an aggregate of ten dollars ($10.00), the agreements
herein set forth and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. GRANT. The Holders are hereby granted the right to purchase, from
the Company, at anytime commencing on the date of issuance up to an aggregate
of one million (1,000,000) Shares (subject to adjustment as provided in
Section 8 hereof) at an initial exercise price (subject to adjustment as
provided in Section 11 hereof) of twelve and one-half cents ($0.125) per Share
(the "Exercise Price"). Each Warrant will entitle the registered holder
thereof to purchase one Share at the Exercise Price. The Warrants will be
issued on this Agreement and each Warrant shall become exercisable commencing
on the date of issuance.
2. WARRANT CERTIFICATES. The warrant certificates (the "Warrant
Certificates") delivered and to be delivered pursuant to this Agreement shall
be in the form set forth in Exhibit A, attached hereto and made a part hereof,
with such appropriate insertions, omissions, substitutions, and other
variations as required or permitted by this Agreement.
3. REGISTRATION OF WARRANT. The Warrants shall be numbered and shall
be registered on the books of the Company when issued.
4. EXERCISE OF WARRANT - METHOD. The Warrants initially are
exercisable at the Exercise Price times the number of Shares (subject to
adjustment as provided in Section 11 hereof) set forth in Section 8 hereof
payable by certified or official bank check or wire transfer in New York
Clearing House funds or through the use of Appreciation Currency (as defined
below), or any combination thereof. The number of Shares underlying the
Warrants exercised at any one time times the Exercise Price shall sometimes
hereinafter be collectively referred to as the "Holders Securities Exercise
Price". Upon surrender of a Warrant Certificate with the annexed Form of
Election to Purchase duly executed, together with payment of the Holders
Securities Exercise Price for the Shares purchased at the Company's principal
offices, presently located at 131 Prosperous Place, Suite 17, Lexington,
Kentucky 40509-1844, the registered holder of a Warrant Certificate ("Holder"
or "Holders") shall be entitled to receive a certificate or other evidence of
ownership for the Shares so purchased. The purchase rights represented by each
Warrant Certificate are exercisable at the option of the Holder thereof, in
whole or in part. In the case of the purchase of less than all the Shares
purchasable under any Warrant Certificate, the Company shall cancel said
Warrant Certificate upon the
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surrender thereof and shall execute and deliver a new Warrant Certificate of
like tenor for the balance of the Shares purchasable thereunder.
As used herein "Appreciation Currency" shall mean: the consideration
given by the surrender of Warrants for Shares. The number of Shares to which the
Holder shall be entitled in exchange for such Appreciation Currency shall be
determined by multiplying the number of Shares that would be received if the
Warrants were then exercised for cash, by the fraction, the numerator of which
shall be the difference between (i) the Current Market Price of one Share and
(ii) the Warrant Price (as defined below), and the denominator of which shall be
the Current Market Price of one Share. In the event the Warrants are adjusted so
as to become exercisable for securities other than Shares ("Other Securities"),
the definition of Appreciation Currency shall apply to the exercise of Warrants
for such Other Securities by substituting in the place of "Shares" each such
Other Security.
For purposes of determining Appreciation Currency, the "Current Market
Price" of a Share shall mean: (i) if the Shares are traded in the
over-the-counter market and not in The Nasdaq National Market nor on any
national securities exchange, the average of the per Share closing bid price on
the 30 consecutive trading days immediately preceding the date in question, as
reported by The Nasdaq SmallCap Market (or an equivalent generally accepted
reporting service if quotations are not reported on The Nasdaq SmallCap Market),
or (ii) if the Shares are traded in The Nasdaq National Market or on a national
securities exchange, the average for the 30 consecutive trading days immediately
preceding the date in question of the daily per share closing prices in The
Nasdaq National Market or on the principal stock exchange on which it is listed,
as the case may be. For purposes of clause (i) above, if trading in the Shares
is not reported by The Nasdaq SmallCap Market, the applicable bid price referred
to in said clause shall be the average bid price as reported in The Nasdaq
Electronic Bulletin Board or, if not reported thereon, as reported in the "pink
sheets" published by National Quotation Bureau, Incorporated. The closing price
referred to in clause (ii) above shall be the last reported sale price or, in
case no such reported sale takes place on such day, the average of the reported
closing bid and asked prices, in either case in The Nasdaq National Market or on
the national securities exchange on which the Shares are then quoted or listed.
If the Shares are not traded in the over-the-counter market or The Nasdaq
National Market, or on a national securities exchange, the Shares will be
treated as nonmarketable securities and will be valued at a valuation based on
contemporaneous transactions in the private market (including any foreign
market, whether public or private ("Foreign Market")), and if there are no
contemporaneous transactions in the private market or the Foreign Market, then
based on the most recent transactions in the private market or Foreign Market.
In the absence of any transactions in the private market or Foreign Market, the
Shares will be valued at cost, unless there are objective criteria for revaluing
such securities, which objective criteria are agreed upon by the Company and the
Placement Agent. Objective criteria may include recent valuations, depending
upon the purpose of such valuations. For purposes of determining Appreciation
Currency, "Warrant Price" shall mean the Exercise Price defined in Section 1
hereof, as adjusted and readjusted as set forth in Section 11 hereof. In the
event the Warrants are adjusted so as to become exercisable for Other
Securities, the method for determining the Current Market Value for such
securities shall be the same as set forth above.
5. ISSUANCE OF CERTIFICATES. Upon the exercise of the Warrants, the
issuance of certificates for Shares or other securities, properties or rights
underlying such Warrants shall be made forthwith (and in any event within five
(5) business days thereafter) without charge to the Holder thereof including,
without limitation, any tax which may be payable in respect of the issuance
thereof, and such certificates shall (subject to the provisions of Sections 7
and 9 hereof) be issued in the name of, or in such names as may be directed
by, the Holder thereof; provided, however, that the Company shall not be
required to pay any tax which may be payable in respect of any transfer
involved in the issuance and delivery of any such certificates in a name other
than that of the Holder and the Company shall not be required to issue or
deliver such certificates unless or until the person or persons requesting the
issuance thereof shall have paid to the Company the amount of such tax or
shall have established to the satisfaction of the Company that such tax has
been paid.
The Warrant Certificates and the certificates representing the Shares
or other securities, property or rights issued upon exercise of the Warrants
shall be executed on behalf of the Company by the manual or facsimile signature
of the then present President or Chief Executive Officer of the Company under
its corporate seal reproduced thereon, and attested to by the manual or
facsimile signature of the then present Secretary or any assistant Secretary of
the Company. Warrant Certificates shall be dated the date of execution by the
Company upon initial issuance, division, exchange, substitution or transfer.
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6. TRANSFER OF WARRANT. The Warrants shall be transferable only on
the books of the Company maintained at its principal office, where its
principal office may then be located, upon delivery thereof duly endorsed by
the Holder or by its duly authorized attorney or representative accompanied by
proper evidence of succession, assignment or authority to transfer. Upon any
registration transfer, the Company shall execute and deliver new Warrants to
the person entitled thereto.
7. RESTRICTION ON TRANSFER OF WARRANTS. The Holder of a Warrant
Certificate, by its acceptance thereof, covenants and agrees that the Warrants
are being acquired as an investment and not with a view to the distribution
thereof, and that the Warrants may not be sold, transferred, assigned,
hypothecated or otherwise disposed of (a "Transfer"), in whole or in part,
except by will or operation of law, pursuant to an effective registration
statement under the Securities Act of 1933 (the "Act") or pursuant to an
exemption from registration under the Act.
8. EXERCISE PRICE AND NUMBER OF SECURITIES. Except as otherwise
provided in Section 10 hereof, each of the Warrants is exercisable to purchase
one Share at an initial exercise price equal to the Exercise Price. The
Exercise Price and the number of Shares for which the Warrant may be exercised
shall be the price and the number of Shares, which shall result from time to
time from any and all adjustments in accordance with the provisions of Section
11 hereof.
9. REGISTRATION RIGHTS.
9.1 REGISTRATION UNDER THE SECURITIES ACT OF 1933. Each
Warrant Certificate and each certificate representing the Shares and any of the
other securities issuable upon exercise of the Warrants and the securities
underlying the securities issuable upon exercise of the Warrants (collectively,
the "Warrant Securities") shall bear the following legend, unless (i) such
Warrants or Warrant Securities are distributed to the public or sold to the
Holders for distribution to the public pursuant to this Section 9 or otherwise
pursuant to a registration statement filed under the Act, (ii) such Warrants or
Warrant Securities are subject to a currently effective registration statement
under the Act, or (iii) the Company has received an opinion of counsel, in form
and substance reasonably satisfactory to counsel for the Company, that such
legend is unnecessary for any such certificate or other evidence of ownership:
THESE WARRANTS HAVE BEEN ISSUED PURSUANT TO THE TERMS OF A WARRANT
AGREEMENT BY AND AMONG ALASKA APOLLO RESOURCES INC. AND TRIO GROWTH
TRUST, EXERGON CAPITAL S.A. AND JAYHEAD INVESTMENTS, LTD. THE WARRANTS
REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE UPON
EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (I) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, (II)
TO THE EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE
UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (III) AN
OPINION OF COUNSEL, IF SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO
COUNSEL FOR THE ISSUER, THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH
ACT IS AVAILABLE, OR (IV) BY WILL OR OPERATION OF LAW.
THE TRANSFER OR EXCHANGE OF THE WARRANTS OR OTHER SECURITIES
REPRESENTED BY THE CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH THE
WARRANT AGREEMENT REFERRED TO HEREIN.
9.2 PIGGYBACK REGISTRATION. If, at any time, the Company
proposes to register any of its securities under the Act (other than in
connection with a merger or pursuant to Form S-4 or Form S-8) it will give
written notice by registered mail, at least thirty (30) days prior to the filing
of each such registration statement, to the Holders of the Warrants and/or the
Warrant Securities of its intention to do so. If any of the Holders of the
Warrants and/or Warrant Securities notify the Company within twenty (20) days
after mailing of any such notice of its or their desire to include any such
securities in such proposed registration statement, the Company shall afford
such Holders of the Warrants and/or Warrant Securities the opportunity to have
any such Warrant Securities registered under such registration statement. In the
event that the managing underwriter for said offering advises the Company in
writing that in the underwriter's opinion the number of securities requested to
be included in such registration exceeds the
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number which can be sold in such offering without causing a diminution in the
offering price or otherwise adversely affecting the offering, the Company will
include in such registration (a) first, the securities the Company proposes to
sell, (b) second, the securities held by the entities that made the demand for
registration, (c) third, the Warrants and/or Warrant Securities requested to be
included in such registration which in the opinion of such underwriter can be
sold, pro rata among the Holders of Warrants and/or Warrant Shares on the basis
of the number of Warrants and/or Warrant Shares requested to be registered by
such Holders, and (d) fourth, other securities requested to be included in such
registration.
Notwithstanding the provisions of this Section 9.2, the Company shall
have the right at any time after it shall have given written notice pursuant to
this Section 9.2 (irrespective of whether a written request for inclusion of any
such securities shall have been made) to elect not to file any such proposed
registration statement or to withdraw the same after the filing but prior to the
effective date thereof.
9.3 DEMAND REGISTRATION.
(a) At any time, commencing six (6) months after the
effective date of the registration statement for the initial public offering
of the Company, the Holders of the Warrants and/or Warrant Securities
representing a "Majority" (as hereinafter defined) of the Warrants and/or
Warrant Securities shall have the right on one occasion (which right is in
addition to the registration rights under Section 9.2 hereof), exercisable by
written notice to the Company, to have the Company prepare and file with the
Securities and Exchange Commission (the "Commission"), a registration
statement on Form S-3 or similar form and such other documents, including a
prospectus, as may be necessary in the opinion of both counsel for the Company
and counsel for the Holders, in order to comply with the provisions of the
Act, so as to permit a public offering and sale by such Holders and any other
Holders of the Warrants and/or Warrant Securities who notify the Company
within fifteen (15) days after the Company mails notice of such request
pursuant to Section 9.3(b) hereof (collectively, the "Requesting Holders") of
their respective Warrant Securities so as to allow the unrestricted sale of
the Warrant Securities to the public from time to time until all of the
Warrant Shares requested to be registered by the Requesting Holders have been
sold (the "Registration Period").
(b) The Company covenants and agrees to give written notice
of any registration request under this Section 9.3 by any Holder or Holders
representing a Majority of the Warrants and/or Warrant Securities to all other
registered Holders of the Warrants and the Warrant Securities within ten (10)
days from the date of the receipt of any such registration request.
(c) In addition to the registration rights under Section 9.2
and subsection (a) of this Section 9.3, at any time commencing one year after
the effective date of the registration statement for the initial public
offering of the Company, the Holders of Warrants and/or Warrant Securities
representing a "Majority" (as hereinafter defined) shall have the right on one
occasion, exercisable by written request to the Company, to have the Company
prepare and file with the Commission a registration statement so as to permit
a public offering and sale by such Holders of their respective Warrant
Securities from time to time during the Registration Period; provided,
however, that the provisions of Section 9.4(b) hereof shall not apply to any
such registration request and registration and all costs incident thereto
shall be at the expense of the Holder or Holders making such request.
9.4 COVENANTS OF THE COMPANY WITH RESPECT TO REGISTRATION.
In connection with any registration under Section 9.2 or 9.3 hereof, the Company
covenants and agrees as follows:
(a) The Company shall use its best efforts to file a
registration statement within ninety (90) days of receipt of any demand
therefor, and to have any registration statements declared effective at the
earliest possible time, and shall furnish each Holder desiring to sell Warrant
Securities such number of prospectuses as shall reasonably be requested.
(b) The Company shall pay all costs (excluding fees and
expenses of Holder(s)' counsel and any underwriting or selling commissions),
fees and expenses in connection with all registration statements filed
pursuant to Sections 9.2 and 9.3(a) hereof including, without limitation, the
Company's legal and accounting fees,
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printing expenses, blue sky fees and expenses. The Holder(s) will pay all costs,
fees and expenses in connection with the registration statement filed pursuant
to Section 9.3(c).
(c) The Company will take all necessary action which may be
required in qualifying or registering the Warrant Securities included in a
registration statement for offering and sale under the securities or blue sky
laws of such states as reasonably are requested by the Holder(s), provided
that the Company shall not be obligated to execute or file any general consent
to service of process or to qualify as a foreign corporation to do business
under the laws of any such jurisdiction.
(d) The Company shall indemnify the Holder(s) of the Warrant
Securities to be sold pursuant to any registration statement and each person,
if any, who controls such Holders within the meaning of Section 15 of the Act
or Section 20(a) of the Securities Exchange Act of 1934, as amended ("Exchange
Act"), against all loss, claim, damage, expense or liability (including all
expenses reasonably incurred in investigating, preparing or defending against
any claim whatsoever) to which any of them may become subject under the Act,
the Exchange Act or other federal or state law or regulation, at common law or
otherwise, arising from or relating to such registration statement but only to
the same extent and with the same effect as the provisions pursuant to which
the Company has agreed to indemnify each of the underwriters contained in the
underwriting agreement entered into by the Company with such underwriters in
connection with its initial public offering (the "Underwriting Agreement"),
including provisions regarding notice of claims and the right to defend claims
by a party obligated under any indemnity agreement.
(e) In order to provide for just and equitable contribution
under the Act in any case in which (i) any holder of the Warrant Securities or
controlling person thereof makes a claim for indemnification but it is
judicially determined (by the entry of a final judgment or decree by a court
of competent jurisdiction and the expiration of time to appeal or the denial
of the last right of appeal) that such indemnification may not be enforced in
such case notwithstanding the fact that the express provisions of Section
9.4(d) hereof provide for indemnification in such case or (ii) contribution
under the Act may be required on the part of any holder of the Warrant
Securities, or controlling person thereof, then the Company, any such holder
of the Warrant Securities, or controlling person thereof shall contribute to
the aggregate losses, claims, damages or liabilities to which they may be
subject (which shall, for all purposes of this Agreement, include, but not be
limited to, all costs of defense and investigation and all attorneys fees), in
either such case (after contribution from others) on the basis of relative
fault as well as any other relevant equitable considerations. The relative
fault shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by
the Company on the one hand or a holder of Warrant Securities, or controlling
person thereof on the other and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. The Company and such holders of such securities and such controlling
persons agree that it would not be just and equitable if contribution pursuant
to this Section 9.4(e) were determined by pro rata allocation or by any other
method which does not take account of the equitable considerations referred to
in this Section 9.4(e). The amount paid or payable by an indemnified party as
a result of the losses, claims, damages or liabilities (or actions in respect
thereof) referred to above in this Section 9.4(e) shall be deemed to include
any legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim. No person
guilty of fraudulent misrepresentation (with the meaning of Section 11(f) of
the Act) shall be entitled to contribution from any person who was not guilty
of such fraudulent misrepresentation.
(f) The Holder(s) of the Warrant Securities to be sold
pursuant to a registration statement, and their successors and assigns, shall
severally, and not jointly, indemnify the Company, its officers and directors
and each person, if any, who controls the Company within the meaning of
Section 15 of the Act or Section 20(a) of the Exchange Act, against any loss,
claim, damage or expense or liability (including all expenses reasonably
incurred in investigating, preparing or defending against any claim
whatsoever) to which they may become subject under the Act, the Exchange Act
or other federal or state law or regulation, at common law or otherwise, to
the extent that such law, claim, damage or liability (or proceeding with
respect thereof) arises out of or is based on any untrue statement or alleged
untrue statement of a material fact contained in any registration statement
under which the Warrant Securities were registered under the Act, in any
preliminary prospectus or final prospectus contained therein or in any
amendment or supplement thereto, or arises out of or is based on the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make such statements therein not misleading, which,
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in each case, has been made in or omitted from such registration statement, said
preliminary or final prospectus or said amendment or supplement in reliance upon
and in conformity with written information furnished to the Company by such
Holder for specific inclusion in such registration statement, to the same extent
and with the same effect as the indemnification provisions contained in the
Underwriting Agreement pursuant to which the underwriters of the Company's
initial public offering have agreed to indemnify the Company, including
provisions regarding notice of claims and the right to defend claims by a party
obligated under any indemnity agreement.
(g) Nothing contained in this Agreement shall be construed as
requiring the Holder(s) to exercise their Warrants prior to the initial filing
of any registration statement or the effectiveness thereof.
(h) The Company shall not permit the inclusion of any
securities other than the Warrant Securities to be included in any
registration statement filed pursuant to Section 9.3 hereof, or permit any
other registration statement (other than a registration statement on Form S-4
or S-8) to be or remain effective during a one hundred and eighty (180) day
period following the effective date of a registration statement filed pursuant
to Section 9.3 hereof, without the prior written consent of the Holders of the
Warrants and Warrant Securities representing a Majority of such securities or
as otherwise required by the terms of any existing registration rights granted
prior to the date of this Agreement by the Company to the holders of any of
the Company's securities.
(i) The Company shall furnish to each Holder participating in
the offering and to each underwriter participating in such offering, if any, a
signed counterpart, addressed to such Holder or underwriter, of (i) an opinion
of counsel to the Company, dated the effective date of such registration
statement (and, if such registration includes an underwritten public offering,
an opinion dated the date of the closing under the underwriting agreement),
and (ii) a "cold comfort" letter dated the effective date of such registration
statement (and, if such registration includes an underwritten public offering,
a "cold comfort" letter dated the date of the closing under the underwriting
agreement) signed by the independent public accountants who have issued a
report on the Company's financial statements included in such registration
statement, in each case covering substantially the same matters with respect
to such registration statement (and the prospectus included therein) and, in
the case of such accountants' letter, with respect to events subsequent to the
date of such financial statements, as are customarily covered in opinions of
issuer's counsel and in accountants' letters delivered to underwriters in
underwritten public offerings of securities.
(j) The Company shall as soon as practicable after the
effective date of the registration statement, and in any event within 15
months thereafter, make "generally available to its security holders" (within
the meaning of Rule 158 under the Act) an earnings statement (which need not
be audited) complying with Section 11(a) of the Act and covering a period of
at least 12 consecutive months beginning after the effective date of the
registration statement.
(k) The Company shall enter into an underwriting agreement
with the managing underwriter(s) selected for such underwriting by Holders
holding a Majority of the Warrant Securities requested to be included in such
underwriting. Such agreement shall be satisfactory in form and substance to
the Company, each Holder and such managing underwriter(s), and shall contain
such representations, warranties and covenants by the Company and such other
terms as are customarily contained in agreements of that type used by the
managing underwriter. The Holders shall be parties to any underwriting
agreement relating to an underwritten sale of their Warrant Securities and
may, at their option, require that any or all the representations, warranties
and covenants of the Company to or for the benefit of such underwriters shall
also be made to and for the benefit of such Holders. Such Holders shall not be
required to make any representations or warranties to or agreements with the
Company or the underwriters except as they may relate to such Holders and
their intended methods of distribution.
(l) For purposes of this Agreement, the term "Majority" in
reference to the Warrants or Warrant Securities, shall mean in excess of fifty
percent (50%) of the then outstanding Warrants or Warrant Securities that (i)
are not held by the Company, an affiliate, officer, creditor, employee or
agent thereof or any of their respective affiliates, members of their family,
persons acting as nominees or in conjunction therewith or (ii) have not been
resold to the public pursuant to a registration statement filed with the
Commission under the Act or Rule 144 promulgated under the Act.
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10. OBLIGATIONS OF HOLDERS. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to Section 9 hereof
that each of the selling Holders shall:
(a) Furnish to the Company such information regarding
themselves, the Warrant Securities held by them, the intended method of sale
or other disposition of such securities, the identity of and compensation to
be paid to any underwriters proposed to be employed in connection with such
sale or other disposition, and such other information as may reasonably be
required to effect the registration of their Warrant Securities.
(b) Notify the Company, at any time when a prospectus relating
to the Warrant Securities covered by a registration statement is required to
be delivered under the Act, of the happening of any event with respect to such
selling Holder as a result of which the prospectus included in such
registration statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein
or necessary to make the statements therein not misleading in the light of the
circumstances then existing.
11. ADJUSTMENTS TO EXERCISE PRICE AND NUMBER OF SECURITIES. The
Exercise Price in effect at any time and the number and kind of securities
purchasable upon the exercise of the Warrants or the securities underlying the
Warrants shall be subject to adjustment from time to time upon the happening
of certain events as follows:
(a) SUBDIVISION AND COMBINATION. In case the Company shall (i)
declare a dividend or make a distribution on its outstanding Shares; (ii)
subdivide or reclassify its outstanding Shares into a greater number of
Shares; or (iii) combine or reclassify its outstanding Shares into a smaller
number of Shares, the Exercise Price in effect at the time of the record date
for such dividend or distribution or of the effective date of such
subdivision, combination or reclassification shall be adjusted so that it
shall equal the price determined by multiplying the Exercise Price, by a
fraction, the denominator of which shall be the number of Shares outstanding
after giving effect to such action, and the numerator of which shall be the
number of Shares outstanding immediately prior to such action. Such adjustment
shall be made successively whenever any event listed above shall occur. In
addition, if the Company shall issue by reclassification of its Shares, other
securities of the Company, then the number of Shares purchasable upon the
exercise of each Warrant shall be adjusted so that the Holder shall be
entitled to receive the kind and number of Shares and other securities of the
Company which such Holder would have owned or would have been entitled to
receive immediately after the happening of such event or any record date with
respect thereto.
(b) ADJUSTMENT IN NUMBER OF SECURITIES. Upon each adjustment of
the Exercise Price pursuant to the provisions of this Section 11, the number
of Warrant Securities issuable upon the exercise at the adjusted Exercise
Price, of each Warrant, shall be adjusted up to the nearest whole number of
Shares by multiplying a number equal to the Exercise Price, in effect
immediately prior to such adjustment by the number of the applicable Warrant
Securities issuable upon exercise of the Warrants immediately prior to such
adjustment and dividing the product so obtained by the adjusted Exercise
Price.
(c) DEFINITION OF SHARES. For the purpose of this Agreement, the
term "Shares" shall mean the (i) class of stock of the Company designated as
Ordinary Shares in the Company's Articles of Association as of the date
hereof, and (ii) any other class of stock resulting from successive changes or
reclassifications of such Shares consisting solely of changes in par value, or
from par value or from no par value to par value.
(d) MERGER OR CONSOLIDATION; SALE OR CONVEYANCE. In case of any
consolidation of the Company with, or merger of the Company into, another
corporation (other than a consolidation or merger, which does not result in
any reclassification or change of the outstanding Shares, or a sale of all or
substantially all of the Company's property, assets or business as an
entirety, the corporation formed by such consolidation or merger, or the
purchaser in such sale or conveyance, shall execute and deliver to each Holder
a supplemental warrant agreement providing that the Holder of each Warrant
then outstanding shall have the right thereafter (until the expiration of such
Warrant) to receive, upon exercise of such Warrant, the kind and amount of
membership interests, shares of stock and other securities and property
receivable upon such consolidation or merger, sale or conveyance to which the
Holder would have been entitled if the Holder had exercised such Warrant
immediately prior to such consolidation or merger, or sale or conveyance. Such
supplemental warrant agreement shall provide for adjustments which shall be
identical to the adjustments provided in this Section 11. The above provision
of this subsection shall similarly apply to successive consolidations and
mergers, and sales and conveyances.
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(e) NO ADJUSTMENT OF THE EXERCISE PRICE IN CERTAIN CASES. No
adjustment of the Exercise Price shall be made:
(i) Upon the issuance or sale of the Warrants or the
Warrant Securities;
(ii) Upon the issuance or sale of Shares (or any other
security convertible, exercisable, or exchangeable into Shares or securities
with similar rights and terms as the Shares) upon the direct or indirect
conversion, exercise, or exchange of any options, rights, warrants, or other
securities or indebtedness of the Company outstanding as of the date of this
Agreement or granted pursuant to any stock option plan of the Company in
existence or approved by the Board of Directors of the Company as of the date
of this Agreement, pursuant to the terms thereof or issued pursuant to stock
purchase plan in existence as of the date of this Agreement, pursuant to the
terms thereof; or
(iii) If the amount of said adjustment shall be less than
fifty cents ($0.50) per Share provided, however, that in such case any
adjustment that would otherwise be required then to be made shall be carried
forward and shall be made at the time of and together with the next subsequent
adjustment which, together with any adjustment so carried forward, shall
amount to at least fifty cents ($0.50) per Share.
12. EXCHANGE AND REPLACEMENT OF WARRANT CERTIFICATES. Each Warrant
Certificate is exchangeable, without expense, upon the surrender thereof by
the registered Holder at the principal executive office of the Company for a
new Warrant Certificate of like tenor and date representing in the aggregate
the right to purchase the same number of Warrant Securities in such
denominations as shall be designated by the Holder thereof at the time of such
surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it
of the loss, theft, destruction or mutilation of any Warrant Certificate, and,
in case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it and reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of the Warrants, if
mutilated, the Company will make and deliver a new Warrant Certificate of like
tenor, in lieu thereof.
13. FRACTIONAL INTERESTS. The Company shall not be required to issue
certificates or other evidence of ownership representing fractions of Shares or
Other Securities upon the exercise of the Warrants, nor shall it be required to
issue scrip or pay cash in lieu of such fractional interests, it being the
intent of the parties that all fractional interests shall be eliminated by
rounding any fraction up to the nearest whole number of Shares or other
securities, properties or rights.
14. RESERVATION AND LISTING OF SECURITIES. The Company shall at all
times reserve and solely for the purpose of issuance upon the exercise of the
Warrants, such number of Shares or other securities, properties or rights as
shall be issuable upon the exercise thereof and upon the exercise of any other
exercisable or convertible securities underlying the Warrants. Every transfer
agent and warrant agent (collectively "Transfer Agent") for the Shares and other
securities of the Company issuable upon the exercise of the Warrants will be
irrevocably authorized and directed at all times to reserve such number of
Shares and other securities as shall be requisite for such purpose. The Company
will keep a copy of this Agreement on file with every Transfer Agent for the
Shares and other securities of the Company issuable upon the exercise of the
Warrants. The Company will supply every such Transfer Agent with duly executed
stock and other certificates or evidence of ownership, as appropriate, for such
purpose. The Company covenants and agrees that, upon each exercise of the
Warrants and payment of the Holders Securities Exercise Price, all Shares and
other securities issuable upon such exercise shall be duly and validly issued,
fully paid, non-assessable and not subject to the preemptive or similar rights
of any member of the Company. As long as the Warrants shall be outstanding, the
Company shall use its best efforts to cause all and other securities issuable
upon the exercise of the Warrants and the securities underlying the securities
issuable upon exercise of the Warrants to be listed and/or quoted (subject to
official notice of issuance) on all securities exchanges or securities
associations on which the Shares or other securities issued to the public in
connection with the Company's initial public offering may then be listed and/or
quoted.
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<PAGE> 9
15. NOTICES TO WARRANT HOLDERS. Nothing contained in this Agreement
shall be construed as conferring upon the Holders of the Warrants the right to
vote or to consent or to receive notice as a member in respect of any meetings
of members for the election of managers, officers or directors or any other
matter, or as having any rights whatsoever as a member of the Company. If,
however, at any time prior to the expiration of the Warrants and their exercise,
any of the following events shall occur:
(a) The Company shall take a record of its members or of the
holders of its for the purpose of entitling them to receive a dividend or
distribution payable otherwise than in cash, or a cash dividend or
distribution payable otherwise than out of current or retained earnings, as
indicated by the accounting treatment of such dividend or distribution on the
books of the Company; or
(b) The Company shall offer to all the holders of its any
additional membership interests of any class or other securities issued or to
be issued by the Company, or securities convertible into or exchangeable for
membership interests of any class or other securities issued or to be issued
by the Company, or any option, right or warrant to subscribe therefor; or
(c) A dissolution, liquidation or winding up of the Company
(other than in connection with a consolidation or merger) or a sale or
conveyance of all or substantially all of its property, assets and business as
an entirety shall be proposed; then in any one or more of said events, the
Company shall give written notice to the registered holders of the Warrants of
such event at least thirty (30) days prior to the date fixed as a record date
or the date of closing the transfer books for the determination of the members
entitled to such dividend, distribution, convertible or exchangeable
securities or subscription rights, or entitled to vote on such proposed
dissolution, liquidation, winding up or sale. Such notice shall specify such
record date or the date of closing the transfer books, as the case may be.
Failure to give such notice or any defect therein shall not affect the
validity of any action taken in connection with the declaration or payment of
any such dividend, or the issuance of any convertible or exchangeable
securities, or subscription rights, options or warrants, or any proposed
dissolution, liquidation, winding up or sale.
16. NOTICES. All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been duly made and
sent when delivered, or five (5) days after mailing by registered or certified
mail, return receipt requested:
(a) If to the registered Holder of the Warrants, to the address
of such Holder as shown on the books of the Company; or
(b) If to the Company, to the address set forth in Section 4
hereof or to such other address as the Company may designate by notice to the
Holders.
17. SUPPLEMENTS; AMENDMENTS; ENTIRE AGREEMENT. This Agreement contains
the entire understanding between the parties hereto with respect to the subject
matter hereof and may not be modified or amended except by a writing duly signed
by the party against whom enforcement of the modification or amendment is
sought. The Company and the Holders may from time to time supplement or amend
this Agreement without the approval of any holders of Warrant Certificates
(other than the Placement Agent) in order to cure any ambiguity, to correct or
supplement any provision contained herein which may be defective or inconsistent
with any provisions herein, or to make any other provisions in regard to matters
or questions arising hereunder which the Company and the Holders may deem
necessary or desirable and which the Company and the Holders deem shall not
adversely affect the interests of the holders of Warrant Certificates.
18. SUCCESSORS. All of the covenants and provisions of this Agreement
shall be binding upon and inure to the benefit of the Company, the Holders and
their respective successors and assigns hereunder.
19. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All statements in any
schedule, exhibit or certificate or other instrument delivered by or on behalf
of the parties hereto, or in connection with the transactions contemplated by
this Agreement, shall be deemed to be representations and warranties hereunder.
Notwithstanding any investigations made by or on behalf of the parties to this
Agreement, all representations, warranties and agreements made by the parties to
this Agreement or pursuant hereto shall survive.
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<PAGE> 10
20. GOVERNING LAW; SUBMISSION TO JURISDICTION. This Agreement and each
Warrant Certificate issued hereunder shall be deemed to be a contract made under
the laws of the State of Kentucky and for all purposes shall be construed in
accordance with the laws of said State without giving effect to the rules of
said State governing the conflicts of laws.
21. SEVERABILITY. If any provision of this Agreement shall be held to
be invalid or unenforceable, such invalidity or unenforceability shall not
affect any other provision of this Agreement.
22. CAPTIONS. The caption headings of the Sections of this Agreement
are for convenience of reference only and are not intended, nor should they be
construed as, a part of this Agreement and shall be given no substantive
effect.
23. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement shall be
construed to give to any person or corporation other than the Company and the
Holders and any other registered holder(s) of the Warrant Certificates or
Warrant Securities any legal or equitable right, remedy or claim under this
Agreement; and this Agreement shall be for the sole and exclusive benefit of the
Company and the Holders and any other holder(s) of the Warrant Certificates or
Warrant Securities.
24. COUNTERPARTS. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and such counterparts shall together constitute but one and
the same instrument.
IN WITNESS OF, the parties hereto have caused this Agreement to be duly
executed, as of the day and year first above written.
ALASKA APOLLO RESOURCES, INC.
By_________________________________
William S. Daugherty, President
TRIO GROWTH TRUST
By_________________________________
not individually, but solely as Co-Trustee
Name:______________________________
Title: Co-Trustee
----------
By_________________________________
not individually, but solely as Co-Trustee
Name:______________________________
Title: Co-Trustee
----------
10
<PAGE> 11
EXHIBIT A
[FORM OF WARRANT CERTIFICATE]
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, (ii) TO THE
EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT
RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF
SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER, THAT AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE OR (IV) BY WILL OR
OPERATION OF LAW.
THE TRANSFER OR EXCHANGE OF THE WARRANTS OR OTHER SECURITIES REPRESENTED BY THIS
CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO
HEREIN.
EXERCISABLE AT ANY TIME AFTER
MARCH 7, 1997
Warrant No.
WARRANT CERTIFICATE
This Warrant Certificate certifies that___________________________,
or registered assigns, is the registered holder of Warrants to purchase
initially, at any time from after March 7, 1997, up to
________________________ of fully paid shares of common stock Shares (the
"Shares") of Alaska Apollo Resources Inc. a Province of British Columbia
corporation (the "Company"), at the initial exercise price, subject to
adjustment in certain events of twelve and one-half cents ($0.125) per Share
(the "Exercise Price") upon surrender of this Warrant Certificate and payment
of the Exercise Price at the principal executive office of the Company, but
subject to the conditions set forth herein and in the warrant agreement dated
as of March 7, 1997, between the Company and Trio Growth Trust (the "Warrant
Agreement"). Payment of the Exercise Price shall be made by certified or
official bank check or wire transfer in New York Clearing House funds or
through the use of Appreciation Currency (as defined in the Warrant Agreement)
or a combination thereof payable to the order of the Company.
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants issued pursuant to the Warrant Agreement, which
Warrant Agreement is hereby incorporated by reference in and made a part of this
instrument and is hereby referred to for a description of the rights, limitation
of rights, obligations, duties and immunities thereunder of the Company and the
holders (the words "holders" or "holder" meaning the registered holders or
registered holder) of the Warrants.
The Warrant Agreement provides that upon the occurrence of certain
events the Exercise Price and the type and/or number of the Company's securities
issuable thereupon may, subject to certain conditions, be adjusted. In such
event, the Company will, at the request of the holder, issue a new Warrant
Certificate evidencing the adjustment in the Exercise Price and the number
and/or type of securities issuable upon the exercise of the Warrants; provided,
however, that the failure of the Company to issue such new Warrant Certificates
shall not in any way change, alter, or otherwise impair, the rights of the
holder as set forth in the Warrant Agreement.
Upon due presentment for registration of transfer of this Warrant
Certificate at the principal executive office of the Company, a new Warrant
Certificate or Warrant Certificates of like tenor and evidencing in the
aggregate a like number of Warrants shall be issued to the transferee(s) in
exchange for this Warrant Certificate, subject to the limitations provided
herein and in the Warrant Agreement, without any charge except for any tax or
other governmental charge imposed in connection with such transfer.
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<PAGE> 12
Upon the exercise of less than all of the Warrants evidenced by this
Certificate, the Company shall forthwith issue to the holder hereof a new
Warrant Certificate representing such numbered of unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof as the
absolute owner(s) of this Warrant Certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, and of any distribution to the holder(s) hereof, and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined in the
Warrant Agreement shall have the meanings assigned to them in the Warrant
Agreement.
This Warrant Certificate does not entitle any Warrant holder to any of
the rights of a shareholder of the Company.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed under its corporate seal.
Dated as of March 7, 1997.
ALASKA APOLLO RESOURCES INC.
By__________________________________
William S. Daugherty, President
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<PAGE> 13
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 4.1 OF THE
WARRANT AGREEMENT]
The undersigned hereby irrevocably elects to exercise the right,
represented by Warrant Certificate No. ______ to purchase _____________ Shares
(as defined in the Warrant Agreement described below) and herewith tenders in
payment for such securities a certified or official bank check or wire transfer
payable in New York Clearing House Funds or through the use of Appreciation
Currency (as defined in the Warrant Agreement), or a combination thereof to the
order of Alaska Apollo Resources, Inc., a Province of British Columbia
corporation (the "Company") in the amount of $______________, all in accordance
with the terms of Section 4.1 of the Warrant Agreement dated as of March 7, 1997
between the Company and Trio Growth Trust The undersigned requests that a
certificate for such securities be registered in the name of
________________________________________________, whose address is
____________________________________________________________ and that such
certificate be delivered to
______________________________________________________________________________,
whose address is ____________________________________________________________,
and if said number of Shares shall not be all the Shares purchasable hereunder,
that a new Warrant Certificate for the balance of the Shares purchasable under
the within Warrant Certificate be registered in the name of the undersigned
warrantholder or his assignee as below indicated and delivered to the address
stated below.
Dated:_____________________.
___________________________________
Signature (Signature must conform
in all respects to name of holder
as specified on the face of the
Warrant Certificate.)
___________________________________
Address
____________________________________
(Insert Social Security or Other
Identifying Number of Holder)
Signature Guaranteed:__________________________________________________________
(Signature must be guaranteed by a bank, savings and loan association,
stockbroker, or credit union with membership in an approved signature guaranty
Medallion Program pursuant to Securities Exchange Act Rule 17Ad-15.)
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<PAGE> 14
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such
holder desires to transfer the Warrant
Certificate.)
FOR VALUE RECEIVED __________________________________________ hereby
sells, assigns and transfers unto
_______________________________________________________ [NAME OF TRANSFEREE]
Warrant Certificate No. ___________, together with all right, title and interest
therein, and does hereby irrevocably constitute and appoint
_____________________________________________________ Attorney, to transfer the
within Warrant Certificate on the books of the within-named Company, with full
power of substitution.
Dated:_____________________.
___________________________________
Signature (Signature must conform
in all respects to name of holder
as specified on the face of the
Warrant Certificate.)
___________________________________
Address
___________________________________
(Insert Social Security or Other
Identifying Number of Holder)
Signature Guaranteed:__________________________________________________________
(Signature must be guaranteed by a bank, savings and loan association,
stockbroker, or credit union with membership in an approved signature guaranty
Medallion Program pursuant to Securities Exchange Act Rule 17Ad-15.)
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<PAGE> 1
EXHIBIT 10(e)
ALASKA APOLLO RESOURCES, INC.
AND
EXERGON CAPITAL S.A.
WARRANT AGREEMENT
WARRANT AGREEMENT ("Agreement") dated as of March 7, 1997 between
Alaska Apollo Resources, Inc., a Province of British Columbia corporation (the
"Company") and Exergon Capital S.A., ("Exergon") (hereinafter referred to as
"Holders" or as a "Holder").
WITNESSTH:
WHEREAS, the Holder has previously contributed capital to the Company
and has been instrumental in supporting its development and has committed to
further financial support; and
WHEREAS, the Company has agreed to issue warrants ("Warrants") to the
Holders to purchase up to an aggregate of five hundred thousand (500,000)
shares of Common Stock (the "Shares") of the Company; and
WHEREAS, the Warrants to be issued pursuant to this Agreement will be
issued as of the date the Board of Directors of the Company approved such
issuance; and
NOW, THEREFORE, in consideration of the premises, the payment by the
Holder to the Company of an aggregate of ten dollars ($10.00), the agreements
herein set forth and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. GRANT. The Holders are hereby granted the right to purchase, from
the Company, at anytime commencing on the date of issuance up to an aggregate
of five hundred thousand (500,000) Shares (subject to adjustment as provided
in Section 8 hereof) at an initial exercise price (subject to adjustment as
provided in Section 11 hereof) of twelve and one-half cents ($0.125) per Share
(the "Exercise Price"). Each Warrant will entitle the registered holder
thereof to purchase one Share at the Exercise Price. The Warrants will be
issued on this Agreement and each Warrant shall become exercisable commencing
on the date of issuance.
2. WARRANT CERTIFICATES. The warrant certificates (the "Warrant
Certificates") delivered and to be delivered pursuant to this Agreement shall
be in the form set forth in Exhibit A, attached hereto and made a part hereof,
with such appropriate insertions, omissions, substitutions, and other
variations as required or permitted by this Agreement.
3. REGISTRATION OF WARRANT. The Warrants shall be numbered and shall
be registered on the books of the Company when issued.
4. EXERCISE OF WARRANT - METHOD. The Warrants initially are
exercisable at the Exercise Price times the number of Shares (subject to
adjustment as provided in Section 11 hereof) set forth in Section 8 hereof
payable by certified or official bank check or wire transfer in New York
Clearing House funds or through the use of Appreciation Currency (as defined
below), or any combination thereof. The number of Shares underlying the
Warrants exercised at any one time times the Exercise Price shall sometimes
hereinafter be collectively referred to as the "Holders Securities Exercise
Price". Upon surrender of a Warrant Certificate with the annexed Form of
Election to Purchase duly executed, together with payment of the Holders
Securities Exercise Price for the Shares purchased at the Company's principal
offices, presently located at 131 Prosperous Place, Suite 17, Lexington,
Kentucky 40509-1844, the registered holder of a Warrant Certificate ("Holder"
or "Holders") shall be entitled to receive a certificate or other evidence of
ownership for the Shares so purchased. The purchase rights represented by each
Warrant Certificate are exercisable at the option of the Holder thereof, in
whole or in part. In the case of the purchase of less than all the Shares
purchasable under any Warrant Certificate, the Company shall cancel said
Warrant Certificate upon the
1
<PAGE> 2
surrender thereof and shall execute and deliver a new Warrant Certificate of
like tenor for the balance of the Shares purchasable thereunder.
As used herein "Appreciation Currency" shall mean: the consideration
given by the surrender of Warrants for Shares. The number of Shares to which
the Holder shall be entitled in exchange for such Appreciation Currency shall
be determined by multiplying the number of Shares that would be received if
the Warrants were then exercised for cash, by the fraction, the numerator of
which shall be the difference between (i) the Current Market Price of one
Share and (ii) the Warrant Price (as defined below), and the denominator of
which shall be the Current Market Price of one Share. In the event the
Warrants are adjusted so as to become exercisable for securities other than
Shares ("Other Securities"), the definition of Appreciation Currency shall
apply to the exercise of Warrants for such Other Securities by substituting in
the place of "Shares" each such Other Security.
For purposes of determining Appreciation Currency, the "Current
Market Price" of a Share shall mean: (i) if the Shares are traded in the
over-the-counter market and not in The Nasdaq National Market nor on any
national securities exchange, the average of the per Share closing bid price
on the 30 consecutive trading days immediately preceding the date in question,
as reported by The Nasdaq SmallCap Market (or an equivalent generally accepted
reporting service if quotations are not reported on The Nasdaq SmallCap
Market), or (ii) if the Shares are traded in The Nasdaq National Market or on
a national securities exchange, the average for the 30 consecutive trading
days immediately preceding the date in question of the daily per share closing
prices in The Nasdaq National Market or on the principal stock exchange on
which it is listed, as the case may be. For purposes of clause (i) above, if
trading in the Shares is not reported by The Nasdaq SmallCap Market, the
applicable bid price referred to in said clause shall be the average bid price
as reported in The Nasdaq Electronic Bulletin Board or, if not reported
thereon, as reported in the "pink sheets" published by National Quotation
Bureau, Incorporated. The closing price referred to in clause (ii) above shall
be the last reported sale price or, in case no such reported sale takes place
on such day, the average of the reported closing bid and asked prices, in
either case in The Nasdaq National Market or on the national securities
exchange on which the Shares are then quoted or listed. If the Shares are not
traded in the over-the-counter market or The Nasdaq National Market, or on a
national securities exchange, the Shares will be treated as nonmarketable
securities and will be valued at a valuation based on contemporaneous
transactions in the private market (including any foreign market, whether
public or private ("Foreign Market")), and if there are no contemporaneous
transactions in the private market or the Foreign Market, then based on the
most recent transactions in the private market or Foreign Market. In the
absence of any transactions in the private market or Foreign Market, the
Shares will be valued at cost, unless there are objective criteria for
revaluing such securities, which objective criteria are agreed upon by the
Company and the Placement Agent. Objective criteria may include recent
valuations, depending upon the purpose of such valuations. For purposes of
determining Appreciation Currency, "Warrant Price" shall mean the Exercise
Price defined in Section 1 hereof, as adjusted and readjusted as set forth in
Section 11 hereof. In the event the Warrants are adjusted so as to become
exercisable for Other Securities, the method for determining the Current
Market Value for such securities shall be the same as set forth above.
5. ISSUANCE OF CERTIFICATES. Upon the exercise of the Warrants, the
issuance of certificates for Shares or other securities, properties or rights
underlying such Warrants shall be made forthwith (and in any event within five
(5) business days thereafter) without charge to the Holder thereof including,
without limitation, any tax which may be payable in respect of the issuance
thereof, and such certificates shall (subject to the provisions of Sections 7
and 9 hereof) be issued in the name of, or in such names as may be directed
by, the Holder thereof; provided, however, that the Company shall not be
required to pay any tax which may be payable in respect of any transfer
involved in the issuance and delivery of any such certificates in a name other
than that of the Holder and the Company shall not be required to issue or
deliver such certificates unless or until the person or persons requesting the
issuance thereof shall have paid to the Company the amount of such tax or
shall have established to the satisfaction of the Company that such tax has
been paid.
The Warrant Certificates and the certificates representing the Shares
or other securities, property or rights issued upon exercise of the Warrants
shall be executed on behalf of the Company by the manual or facsimile
signature of the then present President or Chief Executive Officer of the
Company under its corporate seal reproduced thereon, and attested to by the
manual or facsimile signature of the then present Secretary or any assistant
Secretary of the Company. Warrant Certificates shall be dated the date of
execution by the Company upon initial issuance, division, exchange,
substitution or transfer.
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<PAGE> 3
6. TRANSFER OF WARRANT. The Warrants shall be transferable only on
the books of the Company maintained at its principal office, where its
principal office may then be located, upon delivery thereof duly endorsed by
the Holder or by its duly authorized attorney or representative accompanied by
proper evidence of succession, assignment or authority to transfer. Upon any
registration transfer, the Company shall execute and deliver new Warrants to
the person entitled thereto.
7. RESTRICTION ON TRANSFER OF WARRANTS. The Holder of a Warrant
Certificate, by its acceptance thereof, covenants and agrees that the Warrants
are being acquired as an investment and not with a view to the distribution
thereof, and that the Warrants may not be sold, transferred, assigned,
hypothecated or otherwise disposed of (a "Transfer"), in whole or in part,
except by will or operation of law, pursuant to an effective registration
statement under the Securities Act of 1933 (the "Act") or pursuant to an
exemption from registration under the Act.
8. EXERCISE PRICE AND NUMBER OF SECURITIES. Except as otherwise
provided in Section 10 hereof, each of the Warrants is exercisable to purchase
one Share at an initial exercise price equal to the Exercise Price. The
Exercise Price and the number of Shares for which the Warrant may be exercised
shall be the price and the number of Shares, which shall result from time to
time from any and all adjustments in accordance with the provisions of Section
11 hereof.
9. REGISTRATION RIGHTS.
9.1 REGISTRATION UNDER THE SECURITIES ACT OF 1933. Each Warrant
Certificate and each certificate representing the Shares and any of the other
securities issuable upon exercise of the Warrants and the securities
underlying the securities issuable upon exercise of the Warrants
(collectively, the "Warrant Securities") shall bear the following legend,
unless (i) such Warrants or Warrant Securities are distributed to the public
or sold to the Holders for distribution to the public pursuant to this Section
9 or otherwise pursuant to a registration statement filed under the Act, (ii)
such Warrants or Warrant Securities are subject to a currently effective
registration statement under the Act, or (iii) the Company has received an
opinion of counsel, in form and substance reasonably satisfactory to counsel
for the Company, that such legend is unnecessary for any such certificate or
other evidence of ownership:
THESE WARRANTS HAVE BEEN ISSUED PURSUANT TO THE TERMS OF A WARRANT
AGREEMENT BY AND AMONG ALASKA APOLLO RESOURCES, INC. AND TRIO GROWTH
TRUST, EXERGON CAPITAL S.A. AND JAYHEAD INVESTMENTS, LTD. THE
WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES
ISSUABLE UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT
PURSUANT TO (I) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933, (II) TO THE EXTENT APPLICABLE, RULE 144 UNDER
SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT RELATING TO THE
DISPOSITION OF SECURITIES), OR (III) AN OPINION OF COUNSEL, IF SUCH
OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER,
THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE, OR
(IV) BY WILL OR OPERATION OF LAW.
THE TRANSFER OR EXCHANGE OF THE WARRANTS OR OTHER SECURITIES
REPRESENTED BY THE CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH THE
WARRANT AGREEMENT REFERRED TO HEREIN.
9.2 PIGGYBACK REGISTRATION. If, at any time, the Company proposes
to register any of its securities under the Act (other than in connection with
a merger or pursuant to Form S-4 or Form S-8) it will give written notice by
registered mail, at least thirty (30) days prior to the filing of each such
registration statement, to the Holders of the Warrants and/or the Warrant
Securities of its intention to do so. If any of the Holders of the Warrants
and/or Warrant Securities notify the Company within twenty (20) days after
mailing of any such notice of its or their desire to include any such
securities in such proposed registration statement, the Company shall afford
such Holders of the Warrants and/or Warrant Securities the opportunity to have
any such Warrant Securities registered under such registration statement. In
the event that the managing underwriter for said offering advises the Company
in writing that in the underwriter's opinion the number of securities
requested to be included in such registration exceeds the
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<PAGE> 4
number which can be sold in such offering without causing a diminution in the
offering price or otherwise adversely affecting the offering, the Company will
include in such registration (a) first, the securities the Company proposes to
sell, (b) second, the securities held by the entities that made the demand for
registration, (c) third, the Warrants and/or Warrant Securities requested to
be included in such registration which in the opinion of such underwriter can
be sold, pro rata among the Holders of Warrants and/or Warrant Shares on the
basis of the number of Warrants and/or Warrant Shares requested to be
registered by such Holders, and (d) fourth, other securities requested to be
included in such registration.
Notwithstanding the provisions of this Section 9.2, the Company shall
have the right at any time after it shall have given written notice pursuant
to this Section 9.2 (irrespective of whether a written request for inclusion
of any such securities shall have been made) to elect not to file any such
proposed registration statement or to withdraw the same after the filing but
prior to the effective date thereof.
9.3 DEMAND REGISTRATION.
(a) At any time, commencing six (6) months after the effective
date of the registration statement for the initial public offering of the
Company, the Holders of the Warrants and/or Warrant Securities representing a
"Majority" (as hereinafter defined) of the Warrants and/or Warrant Securities
shall have the right on one occasion (which right is in addition to the
registration rights under Section 9.2 hereof), exercisable by written notice
to the Company, to have the Company prepare and file with the Securities and
Exchange Commission (the "Commission"), a registration statement on Form S-3
or similar form and such other documents, including a prospectus, as may be
necessary in the opinion of both counsel for the Company and counsel for the
Holders, in order to comply with the provisions of the Act, so as to permit a
public offering and sale by such Holders and any other Holders of the Warrants
and/or Warrant Securities who notify the Company within fifteen (15) days
after the Company mails notice of such request pursuant to Section 9.3(b)
hereof (collectively, the "Requesting Holders") of their respective Warrant
Securities so as to allow the unrestricted sale of the Warrant Securities to
the public from time to time until all of the Warrant Shares requested to be
registered by the Requesting Holders have been sold (the "Registration
Period").
(b) The Company covenants and agrees to give written notice of
any registration request under this Section 9.3 by any Holder or Holders
representing a Majority of the Warrants and/or Warrant Securities to all other
registered Holders of the Warrants and the Warrant Securities within ten (10)
days from the date of the receipt of any such registration request.
(c) In addition to the registration rights under Section 9.2
and subsection (a) of this Section 9.3, at any time commencing one year after
the effective date of the registration statement for the initial public
offering of the Company, the Holders of Warrants and/or Warrant Securities
representing a "Majority" (as hereinafter defined) shall have the right on one
occasion, exercisable by written request to the Company, to have the Company
prepare and file with the Commission a registration statement so as to permit
a public offering and sale by such Holders of their respective Warrant
Securities from time to time during the Registration Period; provided,
however, that the provisions of Section 9.4(b) hereof shall not apply to any
such registration request and registration and all costs incident thereto
shall be at the expense of the Holder or Holders making such request.
9.4 COVENANTS OF THE COMPANY WITH RESPECT TO REGISTRATION. In
connection with any registration under Section 9.2 or 9.3 hereof, the Company
covenants and agrees as follows:
(a) The Company shall use its best efforts to file a
registration statement within ninety (90) days of receipt of any demand
therefor, and to have any registration statements declared effective at the
earliest possible time, and shall furnish each Holder desiring to sell Warrant
Securities such number of prospectuses as shall reasonably be requested.
(b) The Company shall pay all costs (excluding fees and
expenses of Holder(s)' counsel and any underwriting or selling commissions),
fees and expenses in connection with all registration statements filed
pursuant to Sections 9.2 and 9.3(a) hereof including, without limitation, the
Company's legal and accounting fees,
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<PAGE> 5
printing expenses, blue sky fees and expenses. The Holder(s) will pay all
costs, fees and expenses in connection with the registration statement filed
pursuant to Section 9.3(c).
(c) The Company will take all necessary action which may be
required in qualifying or registering the Warrant Securities included in a
registration statement for offering and sale under the securities or blue sky
laws of such states as reasonably are requested by the Holder(s), provided
that the Company shall not be obligated to execute or file any general consent
to service of process or to qualify as a foreign corporation to do business
under the laws of any such jurisdiction.
(d) The Company shall indemnify the Holder(s) of the Warrant
Securities to be sold pursuant to any registration statement and each person,
if any, who controls such Holders within the meaning of Section 15 of the Act
or Section 20(a) of the Securities Exchange Act of 1934, as amended ("Exchange
Act"), against all loss, claim, damage, expense or liability (including all
expenses reasonably incurred in investigating, preparing or defending against
any claim whatsoever) to which any of them may become subject under the Act,
the Exchange Act or other federal or state law or regulation, at common law or
otherwise, arising from or relating to such registration statement but only to
the same extent and with the same effect as the provisions pursuant to which
the Company has agreed to indemnify each of the underwriters contained in the
underwriting agreement entered into by the Company with such underwriters in
connection with its initial public offering (the "Underwriting Agreement"),
including provisions regarding notice of claims and the right to defend claims
by a party obligated under any indemnity agreement.
(e) In order to provide for just and equitable contribution
under the Act in any case in which (i) any holder of the Warrant Securities or
controlling person thereof makes a claim for indemnification but it is
judicially determined (by the entry of a final judgment or decree by a court
of competent jurisdiction and the expiration of time to appeal or the denial
of the last right of appeal) that such indemnification may not be enforced in
such case notwithstanding the fact that the express provisions of Section
9.4(d) hereof provide for indemnification in such case or (ii) contribution
under the Act may be required on the part of any holder of the Warrant
Securities, or controlling person thereof, then the Company, any such holder
of the Warrant Securities, or controlling person thereof shall contribute to
the aggregate losses, claims, damages or liabilities to which they may be
subject (which shall, for all purposes of this Agreement, include, but not be
limited to, all costs of defense and investigation and all attorneys fees), in
either such case (after contribution from others) on the basis of relative
fault as well as any other relevant equitable considerations. The relative
fault shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by
the Company on the one hand or a holder of Warrant Securities, or controlling
person thereof on the other and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. The Company and such holders of such securities and such controlling
persons agree that it would not be just and equitable if contribution pursuant
to this Section 9.4(e) were determined by pro rata allocation or by any other
method which does not take account of the equitable considerations referred to
in this Section 9.4(e). The amount paid or payable by an indemnified party as
a result of the losses, claims, damages or liabilities (or actions in respect
thereof) referred to above in this Section 9.4(e) shall be deemed to include
any legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim. No person
guilty of fraudulent misrepresentation (with the meaning of Section 11(f) of
the Act) shall be entitled to contribution from any person who was not guilty
of such fraudulent misrepresentation.
(f) The Holder(s) of the Warrant Securities to be sold pursuant
to a registration statement, and their successors and assigns, shall
severally, and not jointly, indemnify the Company, its officers and directors
and each person, if any, who controls the Company within the meaning of
Section 15 of the Act or Section 20(a) of the Exchange Act, against any loss,
claim, damage or expense or liability (including all expenses reasonably
incurred in investigating, preparing or defending against any claim
whatsoever) to which they may become subject under the Act, the Exchange Act
or other federal or state law or regulation, at common law or otherwise, to
the extent that such law, claim, damage or liability (or proceeding with
respect thereof) arises out of or is based on any untrue statement or alleged
untrue statement of a material fact contained in any registration statement
under which the Warrant Securities were registered under the Act, in any
preliminary prospectus or final prospectus contained therein or in any
amendment or supplement thereto, or arises out of or is based on the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make such statements therein not misleading, which,
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<PAGE> 6
in each case, has been made in or omitted from such registration statement,
said preliminary or final prospectus or said amendment or supplement in
reliance upon and in conformity with written information furnished to the
Company by such Holder for specific inclusion in such registration statement,
to the same extent and with the same effect as the indemnification provisions
contained in the Underwriting Agreement pursuant to which the underwriters of
the Company's initial public offering have agreed to indemnify the Company,
including provisions regarding notice of claims and the right to defend claims
by a party obligated under any indemnity agreement.
(g) Nothing contained in this Agreement shall be construed as
requiring the Holder(s) to exercise their Warrants prior to the initial filing
of any registration statement or the effectiveness thereof.
(h) The Company shall not permit the inclusion of any
securities other than the Warrant Securities to be included in any
registration statement filed pursuant to Section 9.3 hereof, or permit any
other registration statement (other than a registration statement on Form S-4
or S-8) to be or remain effective during a one hundred and eighty (180) day
period following the effective date of a registration statement filed pursuant
to Section 9.3 hereof, without the prior written consent of the Holders of the
Warrants and Warrant Securities representing a Majority of such securities or
as otherwise required by the terms of any existing registration rights granted
prior to the date of this Agreement by the Company to the holders of any of
the Company's securities.
(i) The Company shall furnish to each Holder participating in
the offering and to each underwriter participating in such offering, if any, a
signed counterpart, addressed to such Holder or underwriter, of (i) an opinion
of counsel to the Company, dated the effective date of such registration
statement (and, if such registration includes an underwritten public offering,
an opinion dated the date of the closing under the underwriting agreement),
and (ii) a "cold comfort" letter dated the effective date of such registration
statement (and, if such registration includes an underwritten public offering,
a "cold comfort" letter dated the date of the closing under the underwriting
agreement) signed by the independent public accountants who have issued a
report on the Company's financial statements included in such registration
statement, in each case covering substantially the same matters with respect
to such registration statement (and the prospectus included therein) and, in
the case of such accountants' letter, with respect to events subsequent to the
date of such financial statements, as are customarily covered in opinions of
issuer's counsel and in accountants' letters delivered to underwriters in
underwritten public offerings of securities.
(j) The Company shall as soon as practicable after the
effective date of the registration statement, and in any event within 15
months thereafter, make "generally available to its security holders" (within
the meaning of Rule 158 under the Act) an earnings statement (which need not
be audited) complying with Section 11(a) of the Act and covering a period of
at least 12 consecutive months beginning after the effective date of the
registration statement.
(k) The Company shall enter into an underwriting agreement with
the managing underwriter(s) selected for such underwriting by Holders holding
a Majority of the Warrant Securities requested to be included in such
underwriting. Such agreement shall be satisfactory in form and substance to
the Company, each Holder and such managing underwriter(s), and shall contain
such representations, warranties and covenants by the Company and such other
terms as are customarily contained in agreements of that type used by the
managing underwriter. The Holders shall be parties to any underwriting
agreement relating to an underwritten sale of their Warrant Securities and
may, at their option, require that any or all the representations, warranties
and covenants of the Company to or for the benefit of such underwriters shall
also be made to and for the benefit of such Holders. Such Holders shall not be
required to make any representations or warranties to or agreements with the
Company or the underwriters except as they may relate to such Holders and
their intended methods of distribution.
(l) For purposes of this Agreement, the term "Majority" in
reference to the Warrants or Warrant Securities, shall mean in excess of fifty
percent (50%) of the then outstanding Warrants or Warrant Securities that (i)
are not held by the Company, an affiliate, officer, creditor, employee or
agent thereof or any of their respective affiliates, members of their family,
persons acting as nominees or in conjunction therewith or (ii) have not been
resold to the public pursuant to a registration statement filed with the
Commission under the Act or Rule 144 promulgated under the Act.
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10. OBLIGATIONS OF HOLDERS. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to Section 9 hereof
that each of the selling Holders shall:
(a) Furnish to the Company such information regarding
themselves, the Warrant Securities held by them, the intended method of sale
or other disposition of such securities, the identity of and compensation to
be paid to any underwriters proposed to be employed in connection with such
sale or other disposition, and such other information as may reasonably be
required to effect the registration of their Warrant Securities.
(b) Notify the Company, at any time when a prospectus relating
to the Warrant Securities covered by a registration statement is required to
be delivered under the Act, of the happening of any event with respect to such
selling Holder as a result of which the prospectus included in such
registration statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein
or necessary to make the statements therein not misleading in the light of the
circumstances then existing.
11. ADJUSTMENTS TO EXERCISE PRICE AND NUMBER OF SECURITIES. The
Exercise Price in effect at any time and the number and kind of securities
purchasable upon the exercise of the Warrants or the securities underlying the
Warrants shall be subject to adjustment from time to time upon the happening
of certain events as follows:
(a) SUBDIVISION AND COMBINATION. In case the Company shall (i)
declare a dividend or make a distribution on its outstanding Shares; (ii)
subdivide or reclassify its outstanding Shares into a greater number of
Shares; or (iii) combine or reclassify its outstanding Shares into a smaller
number of Shares, the Exercise Price in effect at the time of the record date
for such dividend or distribution or of the effective date of such
subdivision, combination or reclassification shall be adjusted so that it
shall equal the price determined by multiplying the Exercise Price, by a
fraction, the denominator of which shall be the number of Shares outstanding
after giving effect to such action, and the numerator of which shall be the
number of Shares outstanding immediately prior to such action. Such adjustment
shall be made successively whenever any event listed above shall occur. In
addition, if the Company shall issue by reclassification of its Shares, other
securities of the Company, then the number of Shares purchasable upon the
exercise of each Warrant shall be adjusted so that the Holder shall be
entitled to receive the kind and number of Shares and other securities of the
Company which such Holder would have owned or would have been entitled to
receive immediately after the happening of such event or any record date with
respect thereto.
(b) ADJUSTMENT IN NUMBER OF SECURITIES. Upon each adjustment of
the Exercise Price pursuant to the provisions of this Section 11, the number
of Warrant Securities issuable upon the exercise at the adjusted Exercise
Price, of each Warrant, shall be adjusted up to the nearest whole number of
Shares by multiplying a number equal to the Exercise Price, in effect
immediately prior to such adjustment by the number of the applicable Warrant
Securities issuable upon exercise of the Warrants immediately prior to such
adjustment and dividing the product so obtained by the adjusted Exercise
Price.
(c) DEFINITION OF SHARES. For the purpose of this Agreement, the
term "Shares" shall mean the (i) class of stock of the Company designated as
Ordinary Shares in the Company's Articles of Association as of the date
hereof, and (ii) any other class of stock resulting from successive changes or
reclassifications of such Shares consisting solely of changes in par value, or
from par value or from no par value to par value.
(d) MERGER OR CONSOLIDATION; SALE OR CONVEYANCE. In case of any
consolidation of the Company with, Ior merger of the Company into, another
corporation (other than a consolidation or merger, which does not result in
any reclassification or change of the outstanding Shares, or a sale of all or
substantially all of the Company's property, assets or business as an
entirety, the corporation formed by such consolidation or merger, or the
purchaser in such sale or conveyance, shall execute and deliver to each Holder
a supplemental warrant agreement providing that the Holder of each Warrant
then outstanding shall have the right thereafter (until the expiration of such
Warrant) to receive, upon exercise of such Warrant, the kind and amount of
membership interests, shares of stock and other securities and property
receivable upon such consolidation or merger, sale or conveyance to which the
Holder would have been entitled if the Holder had exercised such Warrant
immediately prior to such consolidation or merger, or sale or conveyance. Such
supplemental warrant agreement shall provide for adjustments which shall be
identical to the adjustments provided in this Section 11. The above provision
of this subsection shall similarly apply to successive consolidations and
mergers, and sales and conveyances.
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(e) NO ADJUSTMENT OF THE EXERCISE PRICE IN CERTAIN CASES. No
adjustment of the Exercise Price shall be made:
(i) Upon the issuance or sale of the Warrants or the
Warrant Securities;
(ii) Upon the issuance or sale of Shares (or any other
security convertible, exercisable, or exchangeable into Shares or securities
with similar rights and terms as the Shares) upon the direct or indirect
conversion, exercise, or exchange of any options, rights, warrants, or other
securities or indebtedness of the Company outstanding as of the date of this
Agreement or granted pursuant to any stock option plan of the Company in
existence or approved by the Board of Directors of the Company as of the date
of this Agreement, pursuant to the terms thereof or issued pursuant to stock
purchase plan in existence as of the date of this Agreement, pursuant to the
terms thereof; or
(iii) If the amount of said adjustment shall be less than
fifty cents ($0.50) per Share provided, however, that in such case any
adjustment that would otherwise be required then to be made shall be carried
forward and shall be made at the time of and together with the next subsequent
adjustment which, together with any adjustment so carried forward, shall
amount to at least fifty cents ($0.50) per Share.
12. EXCHANGE AND REPLACEMENT OF WARRANT CERTIFICATES. Each Warrant
Certificate is exchangeable, without expense, upon the surrender thereof by
the registered Holder at the principal executive office of the Company for a
new Warrant Certificate of like tenor and date representing in the aggregate
the right to purchase the same number of Warrant Securities in such
denominations as shall be designated by the Holder thereof at the time of such
surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it
of the loss, theft, destruction or mutilation of any Warrant Certificate, and,
in case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it and reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of the Warrants, if
mutilated, the Company will make and deliver a new Warrant Certificate of like
tenor, in lieu thereof.
13. FRACTIONAL INTERESTS. The Company shall not be required to issue
certificates or other evidence of ownership representing fractions of Shares
or Other Securities upon the exercise of the Warrants, nor shall it be
required to issue scrip or pay cash in lieu of such fractional interests, it
being the intent of the parties that all fractional interests shall be
eliminated by rounding any fraction up to the nearest whole number of Shares
or other securities, properties or rights.
14. RESERVATION AND LISTING OF SECURITIES. The Company shall at all
times reserve and solely for the purpose of issuance upon the exercise of the
Warrants, such number of Shares or other securities, properties or rights as
shall be issuable upon the exercise thereof and upon the exercise of any other
exercisable or convertible securities underlying the Warrants. Every transfer
agent and warrant agent (collectively "Transfer Agent") for the Shares and
other securities of the Company issuable upon the exercise of the Warrants
will be irrevocably authorized and directed at all times to reserve such
number of Shares and other securities as shall be requisite for such purpose.
The Company will keep a copy of this Agreement on file with every Transfer
Agent for the Shares and other securities of the Company issuable upon the
exercise of the Warrants. The Company will supply every such Transfer Agent
with duly executed stock and other certificates or evidence of ownership, as
appropriate, for such purpose. The Company covenants and agrees that, upon
each exercise of the Warrants and payment of the Holders Securities Exercise
Price, all Shares and other securities issuable upon such exercise shall be
duly and validly issued, fully paid, non-assessable and not subject to the
preemptive or similar rights of any member of the Company. As long as the
Warrants shall be outstanding, the Company shall use its best efforts to cause
all and other securities issuable upon the exercise of the Warrants and the
securities underlying the securities issuable upon exercise of the Warrants to
be listed and/or quoted (subject to official notice of issuance) on all
securities exchanges or securities associations on which the Shares or other
securities issued to the public in connection with the Company's initial
public offering may then be listed and/or quoted.
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15. NOTICES TO WARRANT HOLDERS. Nothing contained in this Agreement
shall be construed as conferring upon the Holders of the Warrants the right to
vote or to consent or to receive notice as a member in respect of any meetings
of members for the election of managers, officers or directors or any other
matter, or as having any rights whatsoever as a member of the Company. If,
however, at any time prior to the expiration of the Warrants and their
exercise, any of the following events shall occur:
(a) The Company shall take a record of its members or of the
holders of its for the purpose of entitling them to receive a dividend or
distribution payable otherwise than in cash, or a cash dividend or
distribution payable otherwise than out of current or retained earnings, as
indicated by the accounting treatment of such dividend or distribution on the
books of the Company; or
(b) The Company shall offer to all the holders of its any
additional membership interests of any class or other securities issued or to
be issued by the Company, or securities convertible into or exchangeable for
membership interests of any class or other securities issued or to be issued
by the Company, or any option, right or warrant to subscribe therefor; or
(c) A dissolution, liquidation or winding up of the Company
(other than in connection with a consolidation or merger) or a sale or
conveyance of all or substantially all of its property, assets and business as
an entirety shall be proposed; then in any one or more of said events, the
Company shall give written notice to the registered holders of the Warrants of
such event at least thirty (30) days prior to the date fixed as a record date
or the date of closing the transfer books for the determination of the members
entitled to such dividend, distribution, convertible or exchangeable
securities or subscription rights, or entitled to vote on such proposed
dissolution, liquidation, winding up or sale. Such notice shall specify such
record date or the date of closing the transfer books, as the case may be.
Failure to give such notice or any defect therein shall not affect the
validity of any action taken in connection with the declaration or payment of
any such dividend, or the issuance of any convertible or exchangeable
securities, or subscription rights, options or warrants, or any proposed
dissolution, liquidation, winding up or sale.
16. NOTICES. All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been duly made and
sent when delivered, or five (5) days after mailing by registered or certified
mail, return receipt requested:
(a) If to the registered Holder of the Warrants, to the address
of such Holder as shown on the books of the Company; or
(b) If to the Company, to the address set forth in Section 4
hereof or to such other address as the Company may designate by notice to the
Holders.
17. SUPPLEMENTS; AMENDMENTS; ENTIRE AGREEMENT. This Agreement
contains the entire understanding between the parties hereto with respect to
the subject matter hereof and may not be modified or amended except by a
writing duly signed by the party against whom enforcement of the modification
or amendment is sought. The Company and the Holders may from time to time
supplement or amend this Agreement without the approval of any holders of
Warrant Certificates (other than the Placement Agent) in order to cure any
ambiguity, to correct or supplement any provision contained herein which may
be defective or inconsistent with any provisions herein, or to make any other
provisions in regard to matters or questions arising hereunder which the
Company and the Holders may deem necessary or desirable and which the Company
and the Holders deem shall not adversely affect the interests of the holders
of Warrant Certificates.
18. SUCCESSORS. All of the covenants and provisions of this Agreement
shall be binding upon and inure to the benefit of the Company, the Holders and
their respective successors and assigns hereunder.
19. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All statements in any
schedule, exhibit or certificate or other instrument delivered by or on behalf
of the parties hereto, or in connection with the transactions contemplated by
this Agreement, shall be deemed to be representations and warranties
hereunder. Notwithstanding any investigations made by or on behalf of the
parties to this Agreement, all representations, warranties and agreements made
by the parties to this Agreement or pursuant hereto shall survive.
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20. GOVERNING LAW; SUBMISSION TO JURISDICTION. This Agreement and
each Warrant Certificate issued hereunder shall be deemed to be a contract
made under the laws of the State of Kentucky and for all purposes shall be
construed in accordance with the laws of said State without giving effect to
the rules of said State governing the conflicts of laws.
21. SEVERABILITY. If any provision of this Agreement shall be held to
be invalid or unenforceable, such invalidity or unenforceability shall not
affect any other provision of this Agreement.
22. CAPTIONS. The caption headings of the Sections of this Agreement
are for convenience of reference only and are not intended, nor should they be
construed as, a part of this Agreement and shall be given no substantive
effect.
23. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement shall be
construed to give to any person or corporation other than the Company and the
Holders and any other registered holder(s) of the Warrant Certificates or
Warrant Securities any legal or equitable right, remedy or claim under this
Agreement; and this Agreement shall be for the sole and exclusive benefit of
the Company and the Holders and any other holder(s) of the Warrant
Certificates or Warrant Securities.
24. COUNTERPARTS. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and such counterparts shall together constitute but one
and the same instrument.
IN WITNESS OF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
ALASKA APOLLO RESOURCES, INC.
By_________________________________
William S. Daugherty, President
EXERGON CAPITAL S.A.
By_________________________________
_________________, President
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EXHIBIT A
[FORM OF WARRANT CERTIFICATE]
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, (ii) TO THE
EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT
RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF
SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER, THAT
AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE OR (IV) BY WILL OR
OPERATION OF LAW.
THE TRANSFER OR EXCHANGE OF THE WARRANTS OR OTHER SECURITIES REPRESENTED BY THIS
CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO
HEREIN.
EXERCISABLE AT ANY TIME AFTER
MARCH 7, 1997
Warrant No.
WARRANT CERTIFICATE
This Warrant Certificate certifies that
___________________________________________________________, or registered
assigns, is the registered holder of Warrants to purchase initially, at any
time from after March 7, 1997, up to__________________________________________
of fully paid shares of common stock Shares (the "Shares") of Alaska Apollo
Resources Inc. a Province of British Columbia corporation (the "Company"), at
the initial exercise price, subject to adjustment in certain events of twelve
and one-half cents ($0.125) per Share (the "Exercise Price") upon surrender of
this Warrant Certificate and payment of the Exercise Price at the principal
executive office of the Company, but subject to the conditions set forth
herein and in the warrant agreement dated as of March 7, 1997, between the
Company and Exergon Capital S.A. (the "Warrant Agreement"). Payment of the
Exercise Price shall be made by certified or official bank check or wire
transfer in New York Clearing House funds or through the use of Appreciation
Currency (as defined in the Warrant Agreement) or a combination thereof
payable to the order of the Company.
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants issued pursuant to the Warrant Agreement, which
Warrant Agreement is hereby incorporated by reference in and made a part of
this instrument and is hereby referred to for a description of the rights,
limitation of rights, obligations, duties and immunities thereunder of the
Company and the holders (the words "holders" or "holder" meaning the
registered holders or registered holder) of the Warrants.
The Warrant Agreement provides that upon the occurrence of certain
events the Exercise Price and the type and/or number of the Company's
securities issuable thereupon may, subject to certain conditions, be adjusted.
In such event, the Company will, at the request of the holder, issue a new
Warrant Certificate evidencing the adjustment in the Exercise Price and the
number and/or type of securities issuable upon the exercise of the Warrants;
provided, however, that the failure of the Company to issue such new Warrant
Certificates shall not in any way change, alter, or otherwise impair, the
rights of the holder as set forth in the Warrant Agreement.
Upon due presentment for registration of transfer of this Warrant
Certificate at the principal executive office of the Company, a new Warrant
Certificate or Warrant Certificates of like tenor and evidencing in the
aggregate a like number of Warrants shall be issued to the transferee(s) in
exchange for this Warrant Certificate, subject to the limitations provided
herein and in the Warrant Agreement, without any charge except for any tax or
other governmental charge imposed in connection with such transfer.
1
<PAGE> 12
Upon the exercise of less than all of the Warrants evidenced by this
Certificate, the Company shall forthwith issue to the holder hereof a new
Warrant Certificate representing such numbered of unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof as the
absolute owner(s) of this Warrant Certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, and of any distribution to the holder(s) hereof, and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined in the
Warrant Agreement shall have the meanings assigned to them in the Warrant
Agreement.
This Warrant Certificate does not entitle any Warrant holder to any
of the rights of a shareholder of the Company.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate
to be duly executed under its corporate seal.
Dated as of March 7, 1997.
ALASKA APOLLO RESOURCES INC.
By____________________________________
William S. Daugherty, President
2
<PAGE> 13
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 4.1 OF THE
WARRANT AGREEMENT]
The undersigned hereby irrevocably elects to exercise the right,
represented by Warrant Certificate No. ______ to purchase _____________ Shares
(as defined in the Warrant Agreement described below) and herewith tenders in
payment for such securities a certified or official bank check or wire
transfer payable in New York Clearing House Funds or through the use of
Appreciation Currency (as defined in the Warrant Agreement), or a combination
thereof to the order of Alaska Apollo Resources, Inc., a Province of British
Columbia corporation (the "Company") in the amount of $______________, all in
accordance with the terms of Section 4.1 of the Warrant Agreement dated as of
March 7, 1997 between the Company and Exergon Capital S.A. The undersigned
requests that a certificate for such securities be registered in the name of
________________________________________________, whose address is
____________________________________________________________ and that such
certificate be delivered to
______________________________________________________________________________,
whose address is ____________________________________________________________,
and if said number of Shares shall not be all the Shares purchasable
hereunder, that a new Warrant Certificate for the balance of the Shares
purchasable under the within Warrant Certificate be registered in the name of
the undersigned warrantholder or his assignee as below indicated and delivered
to the address stated below.
Dated:_____________________.
____________________________________________
Signature (Signature must conform in all
respects to name of holder as specified on
the face of the Warrant Certificate.)
____________________________________________
Address
____________________________________________
(Insert Social Security or Other Identifying
Number of Holder)
Signature Guaranteed:__________________________________________________________
(Signature must be guaranteed by a bank, savings and loan association,
stockbroker, or credit union with membership in an approved signature guaranty
Medallion Program pursuant to Securities Exchange Act Rule 17Ad-15.)
3
<PAGE> 14
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if
such holder desires to transfer the Warrant
Certificate.)
FOR VALUE RECEIVED __________________________________________ hereby
sells, assigns and transfers unto
_______________________________________________________ [NAME OF TRANSFEREE]
Warrant Certificate No. ___________, together with all right, title and
interest therein, and does hereby irrevocably constitute and appoint
_____________________________________________________ Attorney, to transfer
the within Warrant Certificate on the books of the within-named Company, with
full power of substitution.
Dated:_____________________.
_______________________________________________
Signature (Signature must conform in all
respects to name of holder as specified on the
face of the Warrant Certificate.)
_______________________________________________
Address
_______________________________________________
(Insert Social Security or Other Identifying
Number of Holder)
Signature Guaranteed:__________________________________________________________
(Signature must be guaranteed by a bank, savings and loan association,
stockbroker, or credit union with membership in an approved signature guaranty
Medallion Program pursuant to Securities Exchange Act Rule 17Ad-15.)
4
<PAGE> 1
Exhibit 23 (b)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use in the
Form 10-K of Alaska Apollo Resources Inc. (File No. 0-12185) for the fiscal
year ended December 31, 1996, of our report dated April 25, 1997, on the
consolidated financial statements and schedules of Alaska Apollo Resources Inc.
and Subsidiary Companies at December 31, 1996. We also consent to all
references to us in such Form 10-K, including references to us as experts.
Kraft, Rothman, Berger, Grill
Schwartz & Cohen
By /s/ Bernard Kraft
----------------------------
Bernard Kraft, C.A.
Markham, Ontario
May 21, 1997
<PAGE> 1
Exhibit 24(a)
POWER OF ATTORNEY
WHEREAS, Alaska Apollo Resources Inc., A British Columbia corporation
(the "Company"), intends to file with the Securities and Exchange Commission
(the "Commission") under the Securities Exchange Act of 1934, as amended (the
"Act"), a Form 10-K for the fiscal year ended December 31, 1996, a draft of
which has been previously reviewed by the undersigned (the "Form 10-K"),
together with any and all exhibits and other documents having relation to the
Form 10-K;
NOW, THEREFORE, the undersigned in his capacity as a director or
officer or both, as the case may be, of the Company, does hereby constitute and
appoint William S. Daugherty as his true and lawful attorney-in-fact and agent,
with full power of substitution and resubstitution, to do any and all acts and
things in his name and on his behalf in his capacity as a director or officer
or both, as the case may be, of the Company, as fully and to all intents and
purposes as the undersigned might or could do in person, and to execute any and
all instruments for the undersigned and in his name in any and all capacities
which such person may deem necessary or advisable to enable the Company to
comply with the Act and any rules, regulations and requirements of the
Commission, in connection with the filing of the Form 10-K, including
specifically, but not limited to, power and authority to sign for the
undersigned, in his capacity as a director or officer or both, as the case may
be, of the Company, the Form 10-K and any and all other documents (including,
without limitation, any amendments to the Form 10-K or to such other documents)
which such person may deem necessary or advisable in connection therewith; and
the undersigned does hereby ratify and confirm all that such person shall do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed his Power of Attorney
as of the 21st day of May, 1997.
/s/ James K. Klyman-Mowczan
------------------------------
JAMES K. KLYMAN-MOWCZAN
<PAGE> 1
Exhibit 24(b)
POWER OF ATTORNEY
WHEREAS, Alaska Apollo Resources Inc., A British Columbia corporation
(the "Company"), intends to file with the Securities and Exchange Commission
(the "Commission") under the Securities Exchange Act of 1934, as amended (the
"Act"), a Form 10-K for the fiscal year ended December 31, 1996, a draft of
which has been previously reviewed by the undersigned (the "Form 10-K"),
together with any and all exhibits and other documents having relation to the
Form 10-K;
NOW, THEREFORE, the undersigned in his capacity as a director or
officer or both, as the case may be, of the Company, does hereby constitute and
appoint William S. Daugherty as his true and lawful attorney-in-fact and agent,
with full power of substitution and resubstitution, to do any and all acts and
things in his name and on his behalf in his capacity as a director or officer
or both, as the case may be, of the Company, as fully and to all intents and
purposes as the undersigned might or could do in person, and to execute any and
all instruments for the undersigned and in his name in any and all capacities
which such person may deem necessary or advisable to enable the Company to
comply with the Act and any rules, regulations and requirements of the
Commission, in connection with the filing of the Form 10-K, including
specifically, but not limited to, power and authority to sign for the
undersigned, in his capacity as a director or officer or both, as the case may
be, of the Company, the Form 10-K and any and all other documents (including,
without limitation, any amendments to the Form 10-K or to such other documents)
which such person may deem necessary or advisable in connection therewith; and
the undersigned does hereby ratify and confirm all that such person shall do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed his Power of Attorney
as of the 21st day of May, 1997.
/s/ Charles L. Cotterell
------------------------------
CHARLES L. COTTERELL
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 1996
AUDITED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 271,090
<SECURITIES> 0
<RECEIVABLES> 743,588
<ALLOWANCES> 0
<INVENTORY> 580,315
<CURRENT-ASSETS> 1,594,993
<PP&E> 19,413,237
<DEPRECIATION> 0
<TOTAL-ASSETS> 21,008,230
<CURRENT-LIABILITIES> 1,944,165
<BONDS> 3,593,682
<COMMON> 20,520,470
0
0
<OTHER-SE> (5,050,087)
<TOTAL-LIABILITY-AND-EQUITY> 21,008,230
<SALES> 2,273,117
<TOTAL-REVENUES> 2,273,117
<CGS> 1,437,958
<TOTAL-COSTS> 1,437,958
<OTHER-EXPENSES> 1,116,748
<LOSS-PROVISION> 91,276
<INTEREST-EXPENSE> 182,972
<INCOME-PRETAX> (555,837)
<INCOME-TAX> 0
<INCOME-CONTINUING> (555,837)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 555,837
<EPS-PRIMARY> (0.07)
<EPS-DILUTED> (0.07)
</TABLE>
