Registration No. 33-______
===========================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
HANOVER GOLD COMPANY, INC.
(Exact name of registrant as specified in its charter)
Delaware 1041 11-2740461
(State or other jurisdic- (Primary Standard (IRS Employer
tion of incorporation or Industrial Classifica- Identification
organization) tion Code Number) Number)
1000 Northwest Boulevard, Suite 100
Coeur d'Alene, Idaho 83814
(208) 664-4653
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
James A. Fish
Chairman, President and Chief Executive Officer
Hanover Gold Company, Inc.
1000 Northwest Boulevard, Suite 100
Coeur d'Alene, Idaho 83814
(208) 664-4653
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copy to:
Douglas J. Siddoway, Esq.
Randall & Danskin, P.S.
1500 Seafirst Financial Center
601 West Riverside Avenue
Spokane, Washington 99201
(509) 747-2052
Approximate date of commencement of the proposed sale of the securities to
the public: As soon as practicable following the effective date of this
registration statement.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1993, other than securities offered only in connection
with dividend or interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of
the earlier effective registration statement for the same offering.
[ ].
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed
Title of each class Proposed maximum
of securities to be Amount to be maximum offering aggregate offering Amount of
registered registered price per unit price registration fee
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value
$.0001 per share 15,561,248 shares - - $ 4,715.53
</TABLE>
The prospectus included herein relates to shares of the Common Stock of the
registrant registered hereby and shares of Common Stock of the registrant
registered pursuant to a registration statement on Form S-1 dated September
3, 1996 (Commission File No. 33-3882). Such prospectus is included herein
in reliance on Rule 429.
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this
registration statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the registration
statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
<PAGE>
CALCULATION OF REGISTRATION FEE
The fee for registering 9,000,000 of the shares of Common Stock
offered pursuant to this registration statement ($2,727.27) was calculated
in accordance with Section 6(c) of the Securities Act and Rule 457(c)
adopted thereunder, using the average bid and asked prices of the
registrant's Common Stock, as reported by the Nasdaq SmallCap Market on
June 5, 1997, which was $1.00 per share. The fee for registering the
remaining 6,561,248 shares of Common Stock offered pursuant to this
registration statement was similarly calculated, and was paid by the
registrant on January 18, 1996, July 22, 1996 and July 30, 1996 in
connection with the filing of a previous registration statement on Form S-1
and pre-effective amendments to that registration statement (Commission
File No. 33-3882). That earlier registration statement was declared
effective by the SEC on September 3, 1996.
CROSS REFERENCE SHEET PURSUANT TO ITEM 501(b)
Item Caption or
No. Form S-1 Caption Location in Prospectus
- --------------------------------------------------------------------------
1. Forepart of the Registration Forepart of Registration
Statement and Outside Front Cover Statement; Outside Front
Page of Prospectus Cover Page of Prospectus
2. Inside Front and Outside Back Inside Front and Outside
Cover Pages of Prospectus Back Cover Pages of Prospectus
3. Summary Information, Risk Prospectus Summary; Risk
Factors and Ratio of Earnings Factors
to Fixed Charges
4. Use of Proceeds Plan of Distribution
5. Determination of Offering Price Plan of Distribution
6. Dilution Plan of Distribution
7. Selling Security Holders Selling Stockholders;
Plan of Distribution
8. Plan of Distribution Plan of Distribution
9. Description of Securities Description of Capital
to be Registered Stock
10. Interests of Named Experts Legal Matters; Experts
and Counsel
11. Information with Respect Prospectus Summary; Risk
to the Registrant Factors; The Company;
Market for Capital Stock;
Dividends; Capitalization;
Selected Financial
Information; Management's
Discussion and Analysis of
Financial Condition and
Results of Operation;
Business; Management;
Principal Shareholders;
Certain Transactions
12. Disclosure of Commission Plan of Distribution
Position on Indemnification
for Securities Act Liabilities
(i)
<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c)
or Section 240.14a-12
HANOVER GOLD COMPANY, INC.
(Exact name of registrant as specified in its charter)
Hanover Gold Company, Inc.
1000 Northwest Boulevard, Suite 100
Coeur d'Alene, Idaho 83814
(208) 664-4653
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a6(i) and 0-11.
1) Title of each class of securities to which transaction
applies: common stock, par value $.0001 per share
2) Aggregate number of securities to which transaction
applies: 7,000,000 shares
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11: $1.00
4) Proposed maximum aggregate value of transaction:
$7,000,000
5) Total fee paid: None
[ ] Fee paid previously with preliminary materials
[X] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount previously paid: $2,727.27, of which $2,121.21
relates to the 7,000,000 shares of Common Stock that
are the subject of these proxy materials.
2) Form, Schedule or Registration Statement No.: The
preliminary proxy materials of the registrant are
included as part of a registration statement on Form
S-1 filed herewith by the registrant.
(ii)
<PAGE>
HANOVER GOLD COMPANY, INC.
1000 Northwest Boulevard, Suite 100
Coeur d'Alene, Idaho 83814
June __, 1997
To the Shareholders of Hanover Gold Company, Inc.
and Easton-Pacific and Riverside Mining Company:
As most of you are aware, Hanover Gold Company, Inc. ("Hanover") and
Easton-Pacific and Riverside Mining Company ("Easton-Pacific") have entered
into an agreement to merge Easton-Pacific into Hanover. Hanover's
shareholders will be asked to consider and approve the reorganization
agreement relating to the merger at a annual meeting of shareholders to be
held at 3303 North Sullivan Road, Spokane, Washington, on August 20, 1997,
at 10:00 local time. Easton-Pacific's shareholders will be asked to
consider and approve the agreement and the related merger at a special
meeting of shareholders to be held at ________________________________,
on July __, 1997, at 10:00 local time.
Approval of this important matter will require the affirmative vote of
the holders of a majority of the Hanover common stock outstanding on June
24, 1997, the record date for Hanover's annual meeting, and the affirmative
vote of the holders of two-thirds of the Easton-Pacific capital stock
outstanding on June __, 1997, the record date for the Easton-Pacific
special meeting. The boards of directors of Hanover and Easton-Pacific
have each unanimously approved the reorganization agreement and the related
merger, and recommend that you vote FOR approval and adoption of the
reorganization agreement.
Hanover and Easton-Pacific each believe the combination of the two
companies will make their mining properties in the Virginia City Mining
District of southwestern Montana more attractive to potential development
partners, and will also make it easier to obtain financing needed to
conduct additional exploratory work, in order to quantify further the gold
mineralized deposit on the properties. Both companies believe the
combination will create a unique platform for growth and significant long-
term shareholder value.
The proposed transaction involves an exchange of each share of Easton-
Pacific capital stock for 6.721656 shares of Hanover common stock. At the
closing of the merger, Easton-Pacific's shareholders will own approximately
24.3% of Hanover. The remaining 75.7% will be owned by Hanover's current
shareholders and new shareholders expected to purchase up to 2,000,000
shares of Hanover common stock that are being offered for cash
simultaneously with the merger-related offer of Hanover's common stock to
the Easton-Pacific shareholders.
Details of the proposed merger, important information concerning
Hanover and Easton-Pacific, and information concerning the proposals to be
considered by Hanover and Easton-Pacific at their respective shareholder
meetings appear in the accompanying Joint Proxy Statement/Prospectus. I
urge you to give this material your careful consideration.
All shareholders of Hanover and Easton-Pacific are encouraged to
attend their respective shareholder meetings in person. However, whether
or not you plan to attend the meetings, please complete, sign and date the
accompanying Hanover proxy card or Easton-Pacific proxy card, depending on
which company's shares you own, and return it promptly in the enclosed
postage-prepaid envelope. It is very important that your shares be
represented and voted at the meetings. Your prompt cooperation will be
appreciated.
Sincerely,
James A. Fish,
Chairman, President and
Chief Executive Officer
EVERY VOTE IS IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND EITHER THE
HANOVER ANNUAL MEETING OR THE EASTON-PACIFIC SPECIAL MEETING, PLEASE
COMPLETE, SIGN AND DATE YOUR PROXY CARD AND RETURN IT AS PROMPTLY AS
POSSIBLE IN THE ENCLOSED POSTAGE-PREPAID ENVELOPE. IF YOU HAVE ANY
QUESTIONS OR REQUIRE ASSISTANCE IN VOTING YOUR SHARES, PLEASE CONTACT
HANOVER AT (208) 664-4653.
<PAGE>
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EASTON-PACIFIC AND RIVERSIDE MINING COMPANY
==========================================================================
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON JULY __, 1997
TO: THE SHAREHOLDERS OF EASTON-PACIFIC AND RIVERSIDE MINING COMPANY:
A special meeting of shareholders of EASTON-PACIFIC AND RIVERSIDE MINING
COMPANY (the "Company") will be held at the _____________ Room of the
_____________________________, ____________________________, St. Cloud,
Minnesota, on ________, July __, 1997, at 10:00 a.m., local time, for the
following purposes:
(1) To consider and approve the merger of the Company into Hanover
Gold Company, Inc. ("Hanover") pursuant to the terms of the
reorganization agreement dated April 30, 1997; and
(2) To conduct any other business as may properly come before the
meeting or any adjournment thereof.
Shareholders of record at the close of business on June __, 1997 are
entitled to vote at the special meeting and any adjournment(s) or
postponement(s) thereof. Whether or not you plan to attend the special
meeting, please sign, date and return the enclosed proxy in the reply
envelope provided. The prompt return of your proxy will assist us in
preparing for the meeting.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ James Nierengarten
James Nierengarten, Secretary
PS-1
<PAGE>
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EASTON-PACIFIC AND RIVERSIDE MINING COMPANY
=========================================================================
PROXY STATEMENT
FOR
SPECIAL MEETING OF SHAREHOLDERS
To Be Held on July __, 1997
This proxy statement is furnished in connection with the solicitation of
proxies by the board of directors of EASTON-PACIFIC AND RIVERSIDE MINING
COMPANY, a Montana corporation (the "Company"), for the special meeting of
shareholders of the Company to be held at 10:00 a.m., local time, on
_______________, July __, 1997, and any adjournment thereof. These proxy
materials were first mailed to shareholders on or about ________, 1997.
The special meeting will be held in the _________ Room of the
____________________________________, ___________________________, St.
Cloud, Minnesota. The principal executive offices of the Company are
located at 21 Courthouse Square, St. Cloud, Minnesota 56302.
PURPOSE OF MEETING
The specific proposals to be considered and acted upon at the special
meeting are summarized in the enclosed Notice of Special Meeting of
Shareholders. Each of the proposals is described in more detail in
subsequent sections of this Joint Proxy Statement/Prospectus.
VOTING RIGHTS AND SOLICITATIONS
The Company's capital stock is the only type of security entitled to vote
at the special meeting. If you were a shareholder of record of capital
stock of the Company at the close of business on June __, 1997 (the "record
date"), you may vote at the special meeting. On matters requiring a
shareholder vote at the special meeting, each shareholder is entitled to
one vote, in person or by proxy, for each share of capital stock of the
Company recorded in his or her name.
On the record date, the number of shares of capital stock of the Company
outstanding was 1,041,410 shares. All of such shares are eligible to be
voted at the special meeting.
Pursuant to the Montana Business Corporation Act and the Company's bylaws,
the affirmative vote of the holders of two-thirds of the outstanding
capital stock of the Company present at the special meeting, in person or
by proxy, is required to approve Item 1. Abstentions and broker non-votes
will be treated as present for purposes of obtaining a quorum with respect
to all matters to be considered at the special meeting, but will not be
counted for or against the proposal to be voted upon at the meeting.
Certain affiliates of the Company holding 185,126 shares of capital stock,
or approximately 17.8% of the outstanding shares of capital stock as of the
record date, have executed irrevocable proxies authorizing their proxies
and attorneys-in-fact to approve Item 1. As a consequence, approval of
Item 1 will require the affirmative vote of the holders of only 509,195
shares of capital stock, or approximately 49% of the outstanding shares of
capital stock as of the record date.
PS-2
<PAGE>
If you are unable to attend the special meeting, you may vote by proxy.
The enclosed proxy card is solicited by the board of directors of the
Company and when returned, properly completed, will be voted as you direct
on your proxy card. If the card is returned with no instructions on how
the shares are to be voted, shares represented by such proxies will be
voted FOR approval of Item 1.
You may revoke or change your proxy at any time before it is exercised at
the special meeting. To do this, send a written notice of revocation or
another signed proxy bearing a later date to the secretary of the Company
at its principal executive office. You may also revoke your proxy by
giving notice and voting in person at the special meeting.
COSTS OF SOLICITATION
The cost of soliciting proxies will be borne by Hanover. In addition,
Hanover will reimburse brokerage firms, custodians, nominees and
fiduciaries for their expenses in forwarding solicitation material to
beneficial owners. Proxies may also be solicited personally or by
telephone or telegram by certain of the Company's or Hanover's directors,
executive officers and regular employees, who will not receive additional
compensation therefor. The total cost of proxy solicitation, including
legal fees and expenses incurred in connection with the preparation of this
Joint Proxy Statement/Prospectus, is estimated to be $75,000. These costs
are being paid by Hanover.
[The balance of this page has been intentionally left blank.]
PS-3
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of June __, 1997 the names of, and number
of shares of capital stock of the Company beneficially owned by, persons
known to the Company to own more than five percent (5%) of the Company's
capital stock; the names of, and number of shares beneficially owned by
each director and executive officer of the Company; and the number of
shares beneficially owned by, of all directors and executive officers as a
group. At such date, the number of shares of capital stock of the Company
outstanding was 1,041,410 shares.
Amount and Nature of
Beneficial Ownership
(all direct unless Percent
Name of Owner otherwise noted) of Class
- ------------- -------------------- ----------
Robinson Bosworth III 67,282 (1) 6.5%
David M. Daniel (2),(3) 21,485 2.1%
N. A. Degerstrom, Inc. 85,000 (4) 8.2%
Elizabeth E. Fisher (2),(5) 30,575 (6) 2.9%
Lewis Fisher (2) 42,250 (7) 4.1%
Richard J. Fisher (8) 40,560 (9) 3.9%
Kathleen Fisher 248,750 (10) 23.9%
Keith F. Hughes (2) 16,416 1.6%
Edward L. Maier (2),(11) 36,900 3.5%
James J. Nierengarten (2),(12) 60,000 5.8%
Nicholas C. Wilson (13) 53,000 5.1%
All directors and executive
officers as a group
(6 persons) (14) 185,126 17.8%
______________________
(1) Includes 20,000 shares held by the Robinson Bosworth Jr. Family Trust,
282 shares held by the Martha C. Bosworth Trust and 11,000 shares held
by Mr. Bosworth's spouse.
(2) Director of the Company.
(3) Mr. Daniel has been president of the Company since May 20, 1997. He
was formerly vice president of the Company.
(4) N. A. Degerstrom, Inc. is controlled by Neal A. Degerstrom, a director
of Hanover. Includes 10,000 shares held by Mr. Degerstrom, 1,000
shares held by Frank Duval and 1,000 shares held by James A. Fish,
each of whom is an affiliate of Hanover.
(5) Mrs. Fisher has been vice president of the Company since May 20, 1997.
(6) Includes 22,500 shares owned jointly with Lewis Fisher, Mrs. Fisher's
spouse.
(7) Includes 22,500 shares owned jointly with Elizabeth Fisher, Mr.
Fisher's spouse.
(8) Mr. Fisher was president and a director of the Company until May 20,
1997, when he resigned these positions.
(9) Includes 40,000 shares owned by Karifico, a corporation jointly
controlled by Mr. Fisher and his spouse.
(10) Includes 40,000 shares owned by Karifico, a corporation jointly
controlled by Mrs. Fisher and her spouse. Also includes 126,250
shares held by Mrs. Fisher as custodian for her children.
(11) Such shares are held jointly with Mr. Maier's spouse. Includes 2,000
shares held by Mr. Maier as custodian for his child.
(12) Mr. Nierengarten is secretary and treasurer of the Company.
(13) Consists of 39,250 shares held by Mr. Wilson, 5,000 shares held by Mr.
Wilson as custodian for his children, 2,750 shares held by Mr.
Wilson's spouse and 6,000 shares held by Mrs. Wilson as custodian for
such children.
(14) Excludes duplicative shares jointly held or controlled. See footnotes
3, 6, 7, 8, 9 and 10 above.
PS-4
<PAGE>
==========================================================================
ITEM NO. 1 -- APPROVAL OF THE MERGER
OF THE COMPANY INTO
HANOVER PURSUANT TO
THE REORGANIZATION AGREEMENT
==========================================================================
At the special meeting, the shareholders of the Company will be asked to
consider and approve the merger of the Company into Hanover pursuant to the
terms of the reorganization agreement between the Company and Hanover,
dated April 30, 1997.
Important information concerning the terms and conditions of the merger is
set forth at pages 27 through 30 of this Joint Proxy Statement/Prospectus.
Information concerning Hanover, the Hanover common stock to be issued to
the shareholders of Easton-Pacific pursuant to the merger, and the pro
forma financial effects of the merger is set forth elsewhere in this Joint
Proxy Statement/Prospectus. You are encouraged to read this Joint Proxy
Statement/Prospectus carefully before voting at the special meeting.
THE BOARD OF DIRECTORS' RECOMMENDATION. The Company's board of directors
recommends that you vote to approve the merger with Hanover. The board
believes the Company's mining properties in the Virginia City Mining
District will be more attractive to potential development partners if they
are consolidated with those of Hanover pursuant to the merger. The board
also believes that the Company will have difficulty obtaining financing to
explore and develop its properties on its own, and that any development
partner it might solicit to assist with these activities would likely
conclude that its properties should be explored and developed in
combination with those of Hanover.
In making this recommendation, the board has considered a number of
factors, not the least of which is the fact that the Company is
significantly undercapitalized and incapable, at least at this time, of
doing any significant work to enhance the value of its mining properties.
The board was also mindful of Hanover's previous mining venture with
Kennecott Exploration Company, which was terminated when additional
properties Kennecott believed were necessary for large scale operations
could not be obtained. Hanover has given the board no assurance that it
will be able to negotiate a mining venture or other development agreement
with a major mining company as a result of the merger. Nonetheless, board
believes Hanover's chances of concluding such an agreement will be
significantly enhanced by the merger.
The board also believes the consideration to be received by Easton-
Pacific's shareholders in the merger--namely, 7,000,000 shares of the
Hanover's common stock--is fair and reasonable. Although the Company has
not explored its properties to the same degree as Hanover, historical
evidence suggests that its properties may have significant mining value.
The board of directors is mindful of the fact that the consideration to be
given in the merger is not based on detailed technical studies prepared by
outside experts; nonetheless, it was arrived at as the result of prolonged
arms-length negotiations between representatives of the Company and
Hanover, and is a fair representation of what the board perceives to be the
fair value of each company and the fair value of both companies in
combination.
REQUISITE APPROVAL. The affirmative vote of the holders of two-thirds of
the issued and outstanding shares of capital stock of the Company present
at the special meeting, in person or by proxy, is required to approve the
merger of the Company into Hanover pursuant to the reorganization
agreement.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE TO APPROVE THE MERGER
OF THE COMPANY INTO HANOVER.
PS-5
<PAGE>
==========================================================================
CONCLUSION
==========================================================================
It is important that proxies be returned promptly. Shareholders are
requested to vote, sign, date and promptly return the proxy in the enclosed
self-addressed envelope.
The board of directors knows of no other matters which may be presented for
shareholder action at the special meeting. If other matters do properly
come before the meeting, it is intended that the persons named in the
proxies will vote on such proposals according to their best judgment.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ James Nierengarten
James Nierengarten, Secretary
PS-6
<PAGE>
==========================================================================
PROXY
==========================================================================
SPECIAL MEETING OF SHAREHOLDERS
OF
EASTON-PACIFIC AND RIVERSIDE MINING COMPANY
July __, 1997
The undersigned hereby constitutes and appoints David Daniel, Robinson
Bosworth III and James Nierengarten, and each of them, the undersigned's
attorney-in-fact and proxy to vote all of the shares of capital stock of
Easton-Pacific and Riverside Mining Company (the "Company") owned of record
by the undersigned on June __, 1997 at the special meeting of shareholders
of the Company to be held on July __, 1997 or any adjournment(s) or
postponement(s) thereof.
UNLESS OTHERWISE INDICATED, THE SHARES OF CAPITAL STOCK OWNED BY THE
UNDERSIGNED WILL BE VOTED FOR APPROVAL OF ITEM 1.
ITEM 1. FOR APPROVAL OF THE MERGER OF THE COMPANY INTO HANOVER PURSUANT
TO THE REORGANIZATION AGREEMENT.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
DATED: __________________, 1997
______________________________________
Signature of Shareholder
______________________________________
Additional Signature, if Jointly Owned
PS-7
<PAGE>
==========================================================================
HANOVER GOLD COMPANY, INC.
==========================================================================
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON AUGUST 20, 1997
TO: THE SHAREHOLDERS OF HANOVER GOLD COMPANY, INC.:
The 1997 annual meeting of shareholders of HANOVER GOLD COMPANY, INC. (the
"Company") will be held at North 3303 Sullivan Road, Spokane, Washington,
on Wednesday, August 20, 1997, at 10:00 a.m., local time, for the following
purposes:
(1) To consider and approve the merger of Easton-Pacific and
Riverside Mining Company ("Easton-Pacific") into the Company
pursuant to the terms of the reorganization agreement dated April
30, 1997;
(2) To elect six members to the board of directors of the Company to
hold office until the next annual meeting of shareholders or
until their successors are elected and have qualified;
(3) To ratify the selection of BDO Seidman, LLP as the Company's
independent auditor for the year ended December 31, 1997 and any
interim period; and
(4) To conduct any other business as may properly come before the
meeting or any adjournment thereof.
Shareholders of record at the close of business on June 24, 1997 are
entitled to vote at the annual meeting and any adjournment(s) or
postponement(s) thereof. Whether or not you plan to attend the annual
meeting, please sign, date and return the enclosed proxy in the reply
envelope provided. The prompt return of your proxy will assist us in
preparing for the meeting.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ James A. Fish
James A. Fish, President
PS-1
<PAGE>
==========================================================================
HANOVER GOLD COMPANY, INC.
==========================================================================
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
To Be Held on August 20, 1997
This proxy statement is furnished in connection with the solicitation of
proxies by the board of directors of HANOVER GOLD COMPANY, INC., a Delaware
corporation (the "Company"), for the annual meeting of shareholders of the
Company to be held at 10:00 a.m., local time, on Wednesday, August 20,
1997, and any adjournment thereof. These proxy materials were first mailed
to shareholders on or about June __, 1997.
The annual meeting will be held at North 3303 Sullivan Road, Spokane,
Washington. The principal executive offices of the Company are located at
1000 Northwest Boulevard, Suite 100, Coeur d'Alene, Idaho 83814
PURPOSE OF MEETING
The specific proposals to be considered and acted upon at the annual
meeting are summarized in the enclosed Notice of Annual Meeting of
Shareholders. Each of the proposals is described in more detail in
subsequent sections of this Joint Proxy Statement/Prospectus.
VOTING RIGHTS AND SOLICITATIONS
The Company's common stock is the only type of security entitled to vote at
the annual meeting. If you were a shareholder of record of common stock of
the Company at the close of business on June 24, 1997 (the "record date"),
you may vote at the annual meeting. On matters requiring a shareholder
vote at the annual meeting, each shareholder is entitled to one vote, in
person or by proxy, for each share of capital stock of the Company recorded
in his or her name.
On the record date, the number of shares of common stock of the Company
outstanding was 19,886,443 shares. All of such shares are eligible to be
voted at the annual meeting.
Pursuant to the rules of the Nasdaq Stock Market, Inc., the Delaware
General Corporation Law and the Company's bylaws, the affirmative vote of
the holders of a majority of the outstanding common stock of the Company
present at the annual meeting, in person or by proxy, is required to
approve Item 1. Abstentions and broker non-votes will be treated as
present for purposes of obtaining a quorum with respect to all matters to
be considered at the annual meeting, but will not be counted for or against
the proposal to be voted upon at the meeting.
If you are unable to attend the annual meeting, you may vote by proxy. The
enclosed proxy card is solicited by the board of directors of the Company
and when returned, properly completed, will be voted as you direct on your
proxy card. If the card is returned with no instructions on how the shares
are to be voted, shares represented by such proxies will be voted FOR
approval of Item 1.
You may revoke or change your proxy at any time before it is exercised at
the annual meeting. To do this, send a written notice of revocation or
another signed proxy bearing a later date to the secretary of the Company
at its principal executive office. You may also revoke your proxy by
giving notice and voting in person at the special meeting.
PS-2
<PAGE>
COSTS OF SOLICITATION
The cost of soliciting proxies will be borne by the Company. In addition,
the Company will reimburse brokerage firms, custodians, nominees and
fiduciaries for their expenses in forwarding solicitation material to
beneficial owners. Proxies may also be solicited personally or by
telephone or telegram by certain of the Company's directors, executive
officers and regular employees, who will not receive additional
compensation therefor. The total cost of proxy solicitation, including
legal fees and expenses incurred in connection with the preparation of this
Joint Proxy Statement/Prospectus, is estimated to be $75,000.
[The balance of this page has been intentionally left blank.]
PS-3
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information concerning the beneficial ownership of common stock of the
Company as of June __, 1997, is set forth at pages 35 and 36 of this Joint
Proxy Statement/Prospectus.
==========================================================================
ITEM NO. 1 -- APPROVAL OF THE MERGER
OF EASTON-PACIFIC INTO THE COMPANY,
PURSUANT TO THE REORGANIZATION AGREEMENT
==========================================================================
At the annual meeting, the shareholders of the Company will be asked to
consider and approve the merger of Easton-Pacific into the Company pursuant
to the reorganization agreement.
Important information concerning Easton-Pacific and the terms and
conditions of the merger is set forth at pages 27 through 30 of this Joint
Proxy Statement/Prospectus. Information concerning Hanover, the Hanover
common stock to be issued to the shareholders of Easton-Pacific pursuant to
the merger, and the pro forma financial effects of the merger is set forth
elsewhere in the accompanying Prospectus. You are encouraged to read the
Prospectus carefully before voting at the annual meeting.
THE BOARD OF DIRECTORS' RECOMMENDATION. The board of directors of the
Company recommends that you vote to approve the merger of Easton-Pacific.
The board believes that Easton-Pacific's mining properties are needed to
consolidate the Company's land position in the Virginia City Mining
District and make its land position more attractive to a potential
development partner.
In making this recommendation, the board has considered a number of
factors, not the least of which is that the Company's previous mining
venture with Kennecott Exploration Company, which would have resulted in
extensive exploration work on the properties and at least held the promise
of possible large scale development operations, was terminated by Kennecott
in 1995 because additional properties in the district could not be
obtained. Although the board has received no assurances that the
acquisition of Easton-Pacific and its properties will result in a mining
venture or other agreement with another major mining company, it believes
the Company's chances of negotiating and entering into such an agreement
will be significantly enhanced by the merger.
The board also believes the consideration to be given to Easton-Pacific's
shareholders in the merger--namely, 7,000,000 shares of the Company's
common stock--is fair and reasonable. Although Easton-Pacific has not
explored its properties to the same degree as the Company, historical
evidence suggests that the Easton-Pacific properties may have significant
mining value. The board of directors is mindful of the fact that the
consideration to be given to Easton-Pacific in the merger is not based on
detailed technical studies prepared by outside experts; nonetheless, it was
arrived at as the result of prolonged arms-length negotiations between
representatives of the Company and Easton-Pacific, and is a fair
representation of what the board perceives to be the fair value of each
company and the fair value of both companies in combination.
REQUISITE APPROVAL. The affirmative vote of the holders of a majority of
the issued and outstanding shares of common stock of the Company present at
the special meeting, in person or by proxy, is required to approve the
merger of Easton-Pacific into the Company pursuant to the reorganization
agreement.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE TO APPROVE
THE MERGER OF EASTON-PACIFIC INTO HANOVER.
PS-4
<PAGE>
==========================================================================
ITEM NO. 2 -- ELECTION OF DIRECTORS
==========================================================================
At the annual meeting, six directors are to be elected. Unless authority
to vote is withheld on a proxy, proxies in the form enclosed will be voted
for the director-nominees identified below. If any nominee is not
available for election (a contingency which the Company does not now
foresee), it is the intention of the board of directors to recommend the
election of a substitute nominee, and proxies in the form enclosed will be
voted for the election of such substitute nominee unless authority to vote
such proxies in the election of directors has been withheld.
IDENTITY AND BACKGROUND OF NOMINEES TO THE BOARD OF DIRECTORS. The
nominees to the board of directors are: James A. Fish, Neal A. Degerstrom,
Pierre Gousseland, F.D. Owsley, Laurence Steinbaum and Robinson Bosworth
III.
The business experience for the past five years of all nominees, with the
exception of Mr. Bosworth, is set forth in the discussion of directors and
executive officers, at pages 30 through 32 of this Joint Proxy
Statement/Prospectus. Information with respect to Mr. Bosworth is set
forth below:
Robinson Bosworth III is Managing Director of Robert W. Baird & Co.,
an investment advisory and management firm located in Milwaukee, and
has served as head of Baird's IMS Department since its inception in
1971. Prior to joining Baird, he worked as a securities analyst at
Stein Roe & Farnham in Chicago and Standard & Poor's Corp. in New
York. Mr. Bosworth earned an MBA with highest honors from the Amos
Tuck School of Business Administration at Dartmouth College in 1967,
and graduated cum laude with a degree in economics from Amherst
College in 1963. He has been associated with Easton-Pacific for many
years.
REQUISITE APPROVAL. The affirmative vote of the holders of a majority of
the issued and outstanding shares of common stock of the Company present at
the annual meeting, in person or by proxy, is required to elect directors.
Shareholders are not entitled to cumulate their votes in voting for
directors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE
FOREGOING NOMINEES TO THE BOARD OF DIRECTORS.
==========================================================================
ITEM NO. 3 -- RATIFICATION OF INDEPENDENT AUDITOR
==========================================================================
The firm of BDO Seidman, LLP, independent certified public accountants, has
been selected by the Board of Directors to serve as the independent auditor
of the Company for the year ended December 31, 1997 and any interim period.
The firm is experienced in auditing and advising public companies and has
served as auditor of the Company since 1996. Representatives of the firm
of BDO Seidman, LLP will be present at the annual meeting to respond to
questions of the shareholders.
Ratification by the shareholders of the Company's independent auditor is
not required under the Delaware General Corporation Law. The board of
directors believes that the selection of an auditor is an important matter,
however, and that the shareholders of the Company are entitled to approve
or disapprove the board's choice of auditor through ratification. The
affirmative vote of the holders of a majority of the issued and outstanding
shares of common stock of the Company present at the annual meeting, in
person or by proxy, is required to ratify the selection of an auditor. If
the board of directors' selection is not ratified, the board will determine
whether the auditor should be replaced.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF
BDO SEIDMAN, LLP AS THE COMPANY'S INDEPENDENT AUDITOR.
PS-5
<PAGE>
==========================================================================
CONCLUSION
==========================================================================
It is important that proxies be returned promptly. Shareholders are
requested to vote, sign, date and promptly return the proxy in the enclosed
self-addressed envelope.
The board of directors knows of no other matters which may be presented for
shareholder action at the annual meeting. If other matters do properly
come before the meeting, it is intended that the persons named in the
proxies will vote on such proposals according to their best judgment.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ James A. Fish
James A. Fish, President
PS-6
<PAGE>
==========================================================================
PROXY
==========================================================================
ANNUAL MEETING OF SHAREHOLDERS
OF
HANOVER GOLD COMPANY, INC.
August 20, 1997
The undersigned hereby constitutes and appoints James A. Fish, F. D. Owsley
and Laurence Steinbaum, and each of them, the undersigned's attorney-in-
fact and proxy to vote all of the shares of common stock of Hanover Gold
Company, Inc. (the "Company") owned of record by the undersigned on June
24, 1997 at the annual meting of shareholders of the Company to be held on
August 20, 1997 or any adjournment(s) or postponement(s) thereof.
UNLESS OTHERWISE INDICATED, THE SHARES OF COMMON STOCK OWNED BY THE
UNDERSIGNED WILL BE VOTED FOR ELECTION OF THE DIRECTOR-NOMINEES
(ITEM 2) AND FOR APPROVAL OF ITEMS 1 AND 3.
ITEM 1. FOR APPROVAL OF THE MERGER OF EASTON-PACIFIC INTO THE COMPANY
PURSUANT TO THE REORGANIZATION AGREEMENT
[ ] FOR [ ] AGAINST [ ] ABSTAIN
ITEM 2. ELECTION OF DIRECTORS
[ ] FOR [ ] AGAINST [ ] ABSTAIN
With respect to the election of the following director-nominees:
James A. Fish Pierre Gousseland
Neal A. Degerstrom Laurence Steinbaum
F. D. Owsley Robinson Bosworth III
NOTE: To withhold authority to vote for a particular director-nominee(s),
strike a line through such director-nominee(s) name.
ITEM 3. RATIFICATION OF AUDITORS
[ ] FOR [ ] AGAINST [ ] ABSTAIN
Ratification of BDO Seidman, LLP as the Company's independent auditor for
the year ending December 31, 1997 and any interim period.
DATED: _____________, 1995
__________________________________________
Signature of Shareholder
__________________________________________
Additional Signature, if Jointly Owned
PS-7
<PAGE>
7,000,000 Shares of Common Stock Offered in Conjunction with the Merger of
Easton-Pacific into the Company, 2,000,000 Shares of Common Stock Offered
for Cash, and 6,561,248 Previously Issued Shares and Shares Issuable upon
the Exercise of Outstanding Options Offered for Resale by the Selling
Stockholders
HANOVER GOLD COMPANY, INC.
This Joint Proxy Statement/Prospectus is being furnished to holders of
common stock, par value $.0001 per share (the "Common Stock") of Hanover
Gold Company, Inc. ("Hanover"), a Delaware corporation, in connection with
the solicitation of proxies by Hanover's board of directors for use at an
annual meeting of Hanover shareholders to be held on August 20, 1997, at
3303 North Sullivan Road, Spokane, Washington, commencing at 10:00, local
time, and at any adjournments or postponements thereof.
This Joint Proxy Statement/Prospectus is also being furnished to
holders of capital stock, no par value per share, of Easton-Pacific and
Riverside Mining Company ("Easton-Pacific"), a Montana corporation, in
connection with the solicitation of proxies by Easton-Pacific's board of
directors for use at a special meeting of Easton-Pacific shareholders to be
held on July __, 1997, at _________________, St. Cloud, Minnesota
commencing at 10:00, local time, and at any adjournments or postponements
thereof.
This Joint Proxy Statement/Prospectus also constitutes a prospectus of
Hanover with respect to the offer and sale of:
1. Seven million shares of Common Stock being offered by Hanover to
the shareholders of Easton-Pacific, in connection with the merger of
Easton-Pacific into Hanover under the terms of a reorganization agreement
dated April 30, 1997 (the "Reorganization Agreement"). Federal securities
laws require Hanover to deliver this Prospectus to Easton-Pacific's
shareholders in connection with their special meeting. Although these
shares will not be issued unless the merger is approved, they are
considered to be offered by Hanover at the time Easton-Pacific's
shareholders consider and vote upon the merger.
2. Up to 2,000,000 shares of Common Stock being offered by Hanover
for sale for cash at prices equal to or possibly exceeding the closing
sales prices of the Common Stock as reported on the Nasdaq SmallCap Market
as of the dates of sale. These sales will be made by directors and
executive officers of Hanover. No commission or other form of remuneration
will be paid for these sales.
3. Up to 6,561,248 shares of Common Stock previously issued by
Hanover or issuable upon the exercise of outstanding stock options, which
are being offered for resale by their owners (the "Selling Stockholders")
during the twelve month period commencing with the date of this Joint Proxy
Statement/Prospectus, in the over-the-counter market, in other permitted
public sales or in privately negotiated transactions, at market prices or
at negotiated prices.
Some of the Selling Stockholders who are offering to resell their
shares pursuant to this Joint Proxy Statement/Prospectus, and certain of
the Easton-Pacific shareholders who will acquire shares of Common Stock as
part of the merger, have entered into lock-up agreements with Hanover
limiting the number of shares such persons may resell over time. See
"Easton-Pacific and the Easton-Pacific Transaction," "Selling Stockholders"
and "Plan of Distribution."
The Common Stock is traded on the Nasdaq Stock Market under the symbol
"HVGO". On June __, 1997, the closing sales price per share of the Common
Stock, as reported by the Nasdaq SmallCap Market, was $____. See "Market
for Capital Stock".
HANOVER IS AN EXPLORATION STAGE MINING COMPANY AND THE PURCHASE OF ITS
COMMON STOCK INVOLVES A HIGH DEGREE OF RISK.
See "Risk Factors" at pages 8 through 10 of this Prospectus.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED
THESE SECURITIES, OR DETERMINED IF THIS JOINT PROXY STATEMENT/PROSPECTUS
IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Proceeds
Underwriting to Selling
Discounts Stockholders
Price to Public or Commissions /Company
--------------- -------------- -------------
Sales Per Share By:
Selling Stockholders See Text Above See Text Above See Text Above
The Company See Text Above See Text Above See Text Above
You should rely only on the information provided in this Joint Proxy
Statement/Prospectus and any supplement, or information incorporated by
reference. Hanover has not authorized anyone to provide you with
information that is different. Hanover is not making an offer of its
Common Stock in any state where the offer is not permitted. You should not
assume that the information in this Prospectus or any supplement is
accurate as of any date other than the date on the front of those
documents.
The date of this Joint Proxy Statement/Prospectus is June __, 1997.
<PAGE>
PERSONS WHO PUBLICLY REOFFER THE COMMON STOCK OF HANOVER IN THE UNITED
STATES PURSUANT TO THIS PROSPECTUS MAY BE DEEMED TO BE "UNDERWRITERS" AS
THAT TERM IS DEFINED IN SECTION 2(11) OF THE SECURITIES ACT. PERSONS
PLANNING TO REOFFER SUCH SECURITIES PUBLICLY IN THE UNITED STATES MAY WISH
TO CONSULT WITH A SECURITIES ATTORNEY PRIOR TO ANY SUCH REOFFER IN ORDER
TO DETERMINE WHETHER THEY SHOULD DELIVER A COPY OF THIS JOINT PROXY
STATEMENT/PROSPECTUS TO THEIR INTENDED PURCHASER.
____________________
WHERE YOU CAN FIND MORE INFORMATION
Hanover has filed registration statements with the Securities and
Exchange Commission (the "SEC") pursuant to the provisions of the
Securities Act and the SEC's rules and regulations with respect to the
securities offered by this Joint Proxy Statement/Prospectus. This Joint
Proxy Statement/Prospectus constitutes a part of the registration
statements, but does not contain all of the information included in the
registration statements. Further information regarding Hanover and the
securities offered by this Joint Proxy Statement/Prospectus can be obtained
in the registration statements and the exhibits accompanying these
registration statements. Statements made in this Joint Proxy Statement/
Prospectus concerning the contents of any contract or other document are
not necessarily complete. You should therefore consult the registration
statements with respect to each such contract or other document filed with
the SEC as an exhibit to the registration statements. The registration
statements and exhibits will provide a more complete description of these
matter.
Hanover also files annual, quarterly and special reports, proxy
statements and other information with the SEC. You may read and copy any
document Hanover files at the SEC's public reference rooms in Washington,
D.C., New York, New York and Chicago, Illinois. Please call the SEC at 1-
800-SEC-0330 for further information on the public reference rooms.
Hanover's SEC filings are also available to the public from a web site at
http://www.sec.gov.
Hanover's Common Stock is traded on the Nasdaq SmallCap Market.
Materials filed by Hanover can also be inspected at the offices of The
National Association of Securities Dealers, Inc., Reports Section, 1735 K
Street, N.W., Washington, D.C. 20006.
[The balance of this page has been intentionally left blank.]
2
<PAGE>
Safe Harbor Statement
Some of the statements contained in this Joint Proxy Statement/
Prospectus relate to future events and are considered to be a "forward-
looking statements" under the Private Securities Litigation Reform Act of
1995. These statements do not involve historical facts and pose special
risks and uncertainties. In evaluating these forward-looking statements,
you should be mindful of these potential risks and uncertainties,
including: the likelihood that Hanover will continue to incur losses from
operations pending development of its mining properties, and the
uncertainty that it will be able to continue as a going concern; the
likelihood that Hanover will need to obtain significant additional
financing in order to develop its properties; the effect of extensive
regulatory controls over mining operations; the environmental and other
risks associated with mining; the absence of established proven or probable
reserves on the Hanover's mining properties; fluctuations in the price of
gold; and other factors that may affect future results. These risks and
uncertainties, which may not be complete, are described in more detail
below.
NO SIGNIFICANT REVENUES FROM OPERATIONS. Hanover has had no
significant revenue from mining operations, has experienced losses from
operations for each of the last five years, and at March 31, 1997 had
negative working capital. This trend is expected to continue for the next
two to three years, and possibly longer, and is expected to reverse only if
and when gold is produced from the Hanover's mining properties. Hanover
has not yet commissioned a feasibility study to determine whether large-
scale mining of its properties is warranted, and will not do so until
further exploratory work has been conducted. If large-scale mining is
warranted, significant additional funds will be required to construct
mining facilities and provide working capital. Although Hanover believes
such funds can be obtained from several sources, including the sale of
additional shares of its common stock, bank borrowings or a joint
development or similar arrangement with another mining company, no
assurance can be given that such funds will in fact be obtained. As the
financial statements included in this Joint Proxy Statement/Prospectus make
clear, Hanover's ability to continue as a going concern is predicated on
its ability to obtain additional funds. Accordingly, Hanover's independent
certified accountants modified their March 7, 1997 report on the company's
1996 financial statements to include an explanatory paragraph relative to a
going concern uncertainty.
EXTENSIVE REGULATION OF THE MINING INDUSTRY. Hanover's business is
subject to extensive federal, state and local governmental controls and
regulations, including regulation of mining and exploration operations,
discharge of materials into the environment, disturbance of land,
reclamation of disturbed lands, threatened or endangered species, and other
environmental or ecological matters. Generally, compliance with these
regulations requires Hanover to obtain permits issued by federal, state and
local regulatory agencies. Certain permits require periodic renewal or
review of their conditions. Although Hanover believes it is currently in
compliance with all such permitting requirements, it cannot predict whether
it will be able to obtain and maintain all permits needed for anticipated
future mining operations. Compliance requirements for new mines and mills
may require substantial additional control measures that could materially
affect the cost of proposed operations or delay the commencement of such
operations.
RISKS INHERENT IN MINING. Hanover is subject to all of the risks
inherent in the mining industry, including environmental hazards,
industrial accidents, labor disputes, unusual or unexpected geologic
formations, cave-ins, flooding and periodic interruptions due to inclement
weather. These risks could result in damage to, or destruction of,
Hanover's mineral properties and any production facilities it may
construct, personal injury, environmental damage, delays, monetary losses
and legal liability. Although Hanover can be expected to maintain
insurance within ranges of coverage consistent with industry practice, no
assurance can be given that such insurance will be available at
economically feasible premiums. Insurance against environmental risks
(including pollution or other hazards resulting from the disposal of waste
products generated from exploration and production activities) is not
generally available to Hanover or other companies in the mining industry.
THE EFFECT OF FLUCTUATING GOLD PRICES. Hanover's operations are
significantly influenced by the prices of gold. Gold prices fluctuate
widely and are affected by numerous factors beyond it's control, such as
inflation, the strength of the United States dollar and foreign currencies,
global and regional demand, and the political and economic conditions of
major gold producing countries throughout the world.
NO PROVEN OR PROBABLE RESERVES. It has not yet been established
whether Hanover's mining properties in the Virginia City Mining District
contain either proven or probable reserves, and no assurance can be given
that any reserves will be established. Although Hanover believes that
significant reserves exist on the properties, based on engineering and
geological studies which have been completed, it has not undertaken a
significant evaluation of the properties nor commissioned the preparation
of an independent reserve report.
3
<PAGE>
Glossary of Significant Mining Terms
Some of the terms used in this Joint Proxy Statement/Prospectus are
defined below.
affiliate. An affiliate is defined by the SEC's rules and regulations
to be a person who controls, is controlled by, or is under common control
with another person. Persons who are directors or executive officers of
Hanover are affiliates of Hanover. Persons who hold or control 10% or
more of Hanover's Common Stock are also affiliates. Finally, corporations
that were subsidiaries of Hanover were also affiliates of Hanover.
Ag. silver.
Au. gold.
AuEq. Gold equivalent, being a measurement of gold and silver on a
combined basis calculated to reflect the price and recovery
differentials between the two metals.
alluvial. Adjectivally used to identify minerals deposited over time
by moving water.
Archean. An era in geologic time 3.4 billion years ago.
claims or mining claims. A right or privilege granted under federal
or state mining statutes to explore a property for mineralization,
and, if warranted, to develop the property and exploit the minerals.
deposit. A mineral deposit is a mineralized underground body which
has been intersected by sufficient closely-spaced drill holes or
underground sampling to support sufficient tonnage and average
grade(s) of metal(s) to warrant further exploration or development
activities. A deposit does not qualify as a commercially minable ore
body (reserves) under standards promulgated by the Securities and
Exchange Commission until a final, comprehensive economic, technical
and legal feasibility study based upon test results has been
concluded.
development stage. Activities related to the preparation of a
commercially minable deposit for extraction.
exploration stage. Activities such as drilling, bulk sampling,
assaying and surveying related to the search for minable deposits.
fault or faulting. A fracture in the earth's crust accompanied by a
displacement of one side of the fracture with respect to the other and
in a direction parallel to the fracture.
grade. A term used to assign value to reserves, such as ounces per
ton or carats per ton.
heap leaching. A gold extraction process involving the percolation of
cyanide solution through crushed ore heaped on an impervious pad or
base.
igneous. Rocks formed by the cooling and solidifying of magna or
lava.
intrusive. Rock which while molten penetrated into or between other
rocks, but solidified before reaching the surface.
lode mining. The extraction of ore from a deposit occurring in place
within definite boundaries separating it from the adjoining rocks
magnetic surveying. A mineral exploration technique which employs a
magnetometer to measure the magnetic intensity of an area to determine
possible mineralization.
mineralization. The presence of minerals in a specific area or
geological formation.
ore. A natural aggregate of one or more minerals which, at a
specified time and place, may be mined and sold at a profit or from
which some part may be profitably separated.
4
<PAGE>
overburden. Waste rock and other materials which must be removed from
the surface in order to mine underlying mineralization.
placer mining. The extraction of ore from sediment rich in
concentrated mineralization due to the high specific gravity of the
mineralization.
polymetallic. Adjectivally used to describe a deposit or formation
containing many minerals.
production stage. Activities related to the actual exploitation or
extraction of a mineral deposit.
reserves. That part of a mineral deposit which could be economically
and legally extracted or produced at the time of determination.
Reserves are subcategorized as either PROVEN (MEASURED) RESERVES, for
which (a) quantity is computed from dimensions revealed in outcrops,
trenches, workings or drill holes, and grade and/or quality are
computed from the results of detailed sampling, and (b) the sites for
inspection, sampling and measurement are spaced so closely and
geologic character is so well defined that size, shape, depth and
mineral content are well-established; or PROBABLE (INDICATED)
RESERVES, for which quantity and grade and/or quality are computed
from information similar to that used for proven (measured) reserves,
yet the sites for inspection, sampling and measurement are farther
apart.
shear zone. A tabular zone of rock which has been crushed and
fragmented by parallel fractures due to "shearing" along a fault or
zone of weakness. Shear zones can be mineralized with ore-forming
solutions.
schists. A strongly foliated crystalline rock which readily splits
into sheets or slabs as a result of the planar alignment of the
constituent crystals.
trend. The directional line of a rock bed or formation.
volcanic or volcanogenic rock. Rock composed of clasts or pieces that
are of volcanic composition.
[The balance of this page has been intentionally left blank.]
5
<PAGE>
JOINT PROXY STATEMENT/PROSPECTUS SUMMARY
CERTAIN INFORMATION CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS
SUMMARIZED BELOW. THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS APPEARING
ELSEWHERE IN THIS JOINT PROXY STATEMENT/PROSPECTUS.
The Company
Hanover is an exploration stage mining company that holds significant
mining claims and leases in the Alder Gulch area of the historic Virginia
City Mining District of southwestern Montana. Its efforts, at least since
1995, have been aimed at consolidating its land position in the district in
order to facilitate continued exploration and development, and to make its
holdings more attractive to potential development partners such as major
mining companies. At March 31, 1997, its mining properties consisted of
482 contiguous claims and one state mining lease located in the Alder Gulch
area of the district.
The company recently entered into a Reorganization Agreement with
Easton-Pacific providing for the merger of Easton-Pacific into the company,
in exchange for 7,000,000 shares of Hanover's Common Stock. Easton-Pacific
owns or controls 36 patented mining claims, 151 unpatented claims and two
state mining leases covering the upper part of the Browns Gulch, Hungry
Hollow and Barton Gulch areas of the Virginia City Mining District. These
properties are generally contiguous to Hanover's mining claims and lease in
the Alder Gulch area. The merger has been approved by the boards of
directors of Hanover and Easton-Pacific, and is expected to be approved by
the shareholders of both companies at meetings to be held before September
30, 1997. If the merger is completed, as is expected, Hanover's
consolidation efforts in the district will have been largely concluded.
Hanover has no established proven or probable reserves, although
exploration activities on the properties conducted by it and others support
the existence of a potential, significant mineralized gold deposit. A
mineralized deposit is a mineralized body which has been delineated by
appropriate drilling or underground sampling to support estimates of
tonnage and average mineral grade. A mineralized deposit does not qualify
as a reserve until a comprehensive evaluation has been completed and the
economic feasibility of exploiting the deposit has been determined.
Hanover has not yet undertaken a comprehensive evaluation of its mining
properties and probably will not do so until it has obtained the financial
assistance of a development partner and conducted additional exploration.
Hanover was incorporated as a Delaware corporation in 1984. Its
principal executive offices are located at 1000 Northwest Boulevard, Suite
100, Coeur d'Alene, Idaho 83814, and its telephone number is (208) 664-
4653. Hanover also maintains a web site at http://wwp.hanovergold.com
where additional information can be obtained.
More detailed information concerning Hanover and its mining properties
is included in the sections of this Joint Proxy Statement/Prospectus
entitled "The Company" and "Business". The terms and conditions of
Hanover's proposed merger with Easton-Pacific, and more detailed
information concerning Easton-Pacific and its mining properties, are
included in the section entitled "Easton-Pacific and the Easton-Pacific
Transaction". Historical and proforma combined financial information
concerning Hanover and Easton-Pacific, and the two companies in
combination, is included in the section entitled "Supplemental Financial
Information" and in the Financial Statements. Information concerning
Hanover's management and the ownership of its Common Stock is included in
the "Management" and "Principal Stockholders" sections, and a description
of the Common Stock is included in the section entitled "Description of
Capital Stock".
The Offering
The securities offered pursuant to this Prospectus consist of:
7,000,000 shares of Common Stock offered by Hanover to the shareholders of
Easton-Pacific in connection with the merger of Easton-Pacific into Hanover
under the terms of the Reorganization Agreement; up to 2,000,000 shares of
Common Stock offered by Hanover for sale to the public for cash; and
6,356,248 previously issued shares of Common Stock, and 205,000 shares of
Common Stock issuable upon the exercise of outstanding stock options, which
are offered for resale by the Selling Stockholders.
6
<PAGE>
This Joint Proxy Statement/Prospectus sets forth important information
to be considered by Hanover's and Easton-Pacific's shareholders in
conjunction with their shareholder meetings to consider the merger.
Assuming Hanover's and Easton-Pacific's shareholders approve the merger,
and all other conditions to closing set forth in the Reorganization
Agreement are met, these shares will be deemed to have been sold to the
Easton-Pacific shareholders as of the effective time set forth in the
Reorganization Agreement. Certificates for the Hanover shares are expected
to be issued within 45 days of the date the merger is approved.
The shares of Common Stock offered by Hanover for sale for cash will
be offered and sold on Hanover's behalf by certain of its directors and
executive officers, who will not be compensated for such sales, from time-
to-time during the twelve month period commencing with the date of this
Joint Proxy Statement/Prospectus. The prices received for these shares
will equal the closing sales prices of the Common Stock as reported on the
Nasdaq SmallCap Market as of the dates of sale. Proceeds from the sale of
these shares will be used for general corporate purposes, including
additional exploration of the company's mining properties.
The shares of Common Stock offered for resale by the Selling
Stockholders will also be sold during the twelve month period commencing
with the date of this Joint Proxy Statement/Prospectus, in the over-the-
counter market, in other permitted public sales or in privately negotiated
transactions, at market prices or at negotiated prices. The Selling
Shareholders acquired these shares at prices or values per share equal to
then-prevailing market prices for the Common Stock for cash, in exchange
for their interests in corporations that were formerly affiliated with
Hanover and have since been merged into Hanover, as consideration for
mining properties and other assets conveyed to Hanover, for services
rendered on Hanover's behalf and as consideration for the guarantee of some
of Hanover's obligations. Hanover will receive no proceeds from the sale
of the shares offered for resale by the Selling Stockholders.
Some of the Selling Stockholders whose shares would otherwise be
eligible for resale under this Joint Proxy Statement/Prospectus have
entered into lock-up agreements with Hanover limiting the number of shares
that can be resold. The persons who are parties to these agreements are
either present or former affiliates of Hanover, or persons who are
affiliates of Easton-Pacific. The present and former Hanover affiliates
who are parties to these agreements are generally prohibited from reselling
more than 30% of their shares during the six-month period ending September
3, 1997. The Easton-Pacific affiliates who are parties to these agreements
are prohibited from reselling any of their shares acquired in the merger
prior to December 26, 1997, and are prohibited from thereafter reselling
more than one-half of the number of shares they own until July 15, 1998,
following which the lock-up prohibitions terminate. See "Selling
Stockholders and "Plan of Distribution."
As of the date of this Joint Proxy Statement/Prospectus, 23,204,411
shares of Hanover's Common Stock were outstanding or deemed outstanding
pursuant to presently exercisable options. See "Management" and "Principal
Stockholders."
Risk Factors
An investment in the Common Stock is extremely risky and is suitable
only for persons who can afford a loss of their investment. Hanover is an
exploration stage mining company that has lost money in every year since
its inception. It has only limited cash resources and no proven or
probable reserves. Development of its mining properties and the mining
properties it will acquire through the merger of Easton-Pacific is
contingent on a number of factors, including additional drilling and other
exploratory activities to determine whether a commercially minable ore body
exists, the preparation of a comprehensive feasibility study, compliance
with all regulatory and environmental permitting requirements, and the
procurement of funds or the negotiation of other arrangements, such as a
joint venture with a major mining company, to cover the significant costs
and expenses of opening and operating a mine. See "Risk Factors."
7
<PAGE>
RISK FACTORS
THE PURCHASE OF HANOVER'S COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. THE
FOLLOWING MATTERS SHOULD BE CAREFULLY CONSIDERED IN DETERMINING WHETHER A
PURCHASE OF THE COMMON STOCK IS CONSISTENT WITH YOUR INVESTMENT OBJECTIVES.
NO ESTABLISHED MINERAL RESERVES; NO SIGNIFICANT MINING OPERATIONS
Hanover has not yet established whether its mining properties contain
a commercially viable ore body, or reserves, and no assurance can be given
that such an ore body will be established. Although previous engineering
and geological studies lead Hanover to believe that a significant potential
mineralized gold deposit exists on the properties, no comprehensive
evaluation has been undertaken. As a consequence, Hanover cannot presently
determine whether development of its mining properties will occur.
Significant additional drilling and other exploratory activities will have
to be undertaken before a decision to develop the properties can be made.
Although certain members of Hanover's management are or were
affiliated with other companies engaged in significant mining operations,
the company itself has engaged in only limited and relatively insignificant
mining operations since its inception. See "The Company", "Business" and
"Management."
HISTORY OF LOSSES
Hanover has lost money in each year since its inception. It reported
a net loss of $191,966 for the three months ended March 31, 1997, and a net
loss of $1,328,327 for the year ended December 31, 1996. Cumulative losses
for the period from inception through March 31, 1997, were $6,105,064.
Hanover received only limited revenues from mining operations conducted in
1994 and 1995, and such operations have since been suspended. For the
first three months of 1996, it reported a net loss of $284,475, and for the
years ended December 31, 1995 and 1994, it reported losses of $2,329,190
and $1,362,954, respectively. Hanover expects to incur losses from
operations for the next several years or until such time, if ever, as it
profitably develops its mining properties. Primarily as a result of these
losses, Hanover's independent certified public accountants modified their
report on the company's 1996 financial statements to include an explanatory
paragraph relative to a going concern uncertainty. See "Selected Financial
Information", "Management's Discussion and Analysis of Financial Condition
and Results of Operation", "Business" and the Financial Statements.
PROJECT DEVELOPMENT
Hanover's mining assets presently consist of 482 contiguous claims and
one mining lease, all in the Alder Gulch area, which are in the exploration
stage. (It will acquire an additional 187 claims and two state mining
leases in areas contiguous to the Alder Gulch area if the merger of Easton-
Pacific is completed.) Hanover currently estimates that expenditures for
ongoing operations, inclusive of amounts payable to the landowner-lessors
of its mining claims, will total approximately $1,800,000 during the
remainder of 1997, and may be significantly more in ensuing years if, as
and when its mining properties are placed into production. Hanover expects
to fund 1997 expenditures from proceeds to be received from the sale of the
2,000,000 shares of Common Stock offered by the company for cash pursuant
to this Prospectus; from funds expected to be contributed to a joint
venture comprising the company and another mining company, assuming it is
successful in negotiating such an arrangement; and from possible additional
sales of Common Stock. Hanover presently does not have any agreement,
understanding or arrangement with another mining company regarding joint
exploration or development of its mining properties, and no assurance can
be given such a joint venture arrangement can be successfully negotiated.
Similarly, no assurance can be given that Hanover will be successful in
obtaining funds through the sale of additional shares of its Common Stock,
were it to undertake an offering. Hanover's estimate of capital
expenditures for the project is based upon currently available information
and could increase or decrease depending upon a number of factors beyond
its control. It is not unusual in new mining operations to experience
unexpected problems during the development phase. As is described under "
- - Risks Inherent in the Mining Industry Generally," the mining business is
subject to a number of risks and hazards, and there can be no assurance
these risks and hazards will be avoided if, as and when Hanover develops
its mining properties. See "The Company", "Business" and "Easton-Pacific
and the Easton-Pacific Transaction."
SIGNIFICANT RENTAL AND ROYALTY OBLIGATIONS
Approximately half of Hanover's mining claims at March 31, 1997 were
leased claims coupled with purchase options. Hanover does not own the
majority of its mining claims outright, but instead leases the claims from
various landowner-lessors under various lease and purchase option
agreements, to whom it pays rentals and royalties in exchange for the right
to conduct mining activities. These payments in most cases are credited
toward the purchase price of the claims under the purchase option
provisions of the leases. If such payments are made, as is expected,
Hanover will acquire ownership of the mining claims
8
<PAGE>
outright, and, in some instances, the entire real property interest of the
landowner-lessor. Conversely, if such payments are not made, its interest
in the claims will revert to the respective landowners. Hanover's
obligations under these leases and purchase options were $8,469,000 at
December 31, 1996, of which $1,358,000 is payable in 1997, $1,458,000 is
payable in 1998, $1,804,000 is payable in 1999, $2,312,000 is payable in
2000, $902,000 is payable in 2001 and $635,000 is payable thereafter.
Production royalty obligations with respect to these claims become payable
once minerals are produced, and range from 0.5% to 5%. Although Hanover
presently does not have sufficient funds to meet its rental obligations to
the landowner-lessors of its mining claims, one of its affiliates and other
persons have guaranteed the payment of such obligations through September
7, 1998, pursuant to guaranties given in connection with the proposed
acquisition of Easton-Pacific. If Hanover cannot obtain additional funds
to meet its obligations thereafter, as they become due, it will forfeit its
interests in these claims. See "Business" and "Easton-Pacific and the
Easton-Pacific Transaction."
PART-TIME MANAGEMENT
Hanover's current chairman and president, James A. Fish, is also vice
president and general counsel of N. A. Degerstrom, Inc., Spokane,
Washington, a privately-held company engaged in railroad, heavy highway and
bridge construction, large open pit mining and worldwide mineral
exploration. Neal A. Degerstrom, the president of N. A. Degerstrom, Inc.,
is also a director and principal shareholder of Hanover and one of several
persons comprising the Degerstrom group of investors, whose members own
approximately 29% of the company's Common Stock outstanding or deemed
outstanding as of the date of this Joint Proxy Statement/Prospectus
(approximately 21% assuming the merger with Easton-Pacific is completed and
all 2,000,000 shares of Common Stock offered hereby for cash are sold).
Wayne Schoonmaker, the company's secretary and treasurer, is a certified
public accountant whose duties are divided between Hanover and other
clients for whom he performs accounting services. Frank Duval, who may be
deemed to be an executive officer of the company, and who has acted on its
behalf as an advisor since late 1995, is affiliated with another mining
company that filed for protection from creditors under federal bankruptcy
law within the past ten years. See "Management."
SHARES ELIGIBLE FOR FUTURE SALE; EFFECT ON MARKET PRICE OF COMMON STOCK
As the result of the registration under the Securities Act of the
15,561,248 shares of Common Stock offered by this Joint Proxy
Statement/Prospectus, approximately 19.7 million shares of Common Stock,
inclusive of shares publicly offered by Hanover in 1993 and 1994, are now
available for sale in the secondary market. These shares represent
approximately 85% of Hanover's Common Stock deemed outstanding as of the
date of this Joint Proxy Statement/Prospectus (approximately 86% if all
2,000,000 shares offered by Hanover to the public for cash pursuant to this
Joint Proxy Statement/Prospectus are sold). Of these, 11,705,783 shares,
or approximately 50% of the outstanding and deemed outstanding shares of
Common Stock, are owned by directors, executive officers and other
affiliates of Hanover. Although the Common Stock is approved for quotation
on the Nasdaq SmallCap Market, trading activity in this market is sometimes
characterized by infrequent transactions. As a consequence, the sale from
time-to-time of the shares offered by this Joint Proxy
Statement/Prospectus, and resales of the Common Stock offered by the
Selling Stockholders, may have the effect of depressing the market price of
the Common Stock. See "Market for Capital Stock" and "Description of
Capital Stock."
RISKS INHERENT IN THE MINING INDUSTRY GENERALLY
Hanover is subject to all of the risks inherent in the mining
industry, including environmental hazards, industrial accidents, labor
disputes, unusual or unexpected geologic formations, cave-ins, flooding and
periodic interruptions due to inclement weather. Such risks could result
in damage to, or destruction of, mineral properties and production
facilities, personal injury, environmental damage, delays, monetary losses
and legal liability. Hanover does not presently maintain insurance
covering environmental or other catastrophic liabilities, and is not
expected to do so unless and until it is economically feasible to do so.
Insurance against environmental risks (including pollution or other hazards
resulting from the disposal of waste products generated from exploration
and production activities) is not generally available at present. Were
Hanover to be subjected to environmental liabilities, the payment of such
liabilities would reduce the funds available to it for operations or other
purposes. Were it unable to fund fully the cost of remedying an
environmental problem, it might be required to suspend operations or enter
into interim compliance measures pending completion of remedial activities.
In addition to the foregoing risks, Hanover will also encounter or be
subject to competition from other mining companies having significantly
greater resources, governmental regulation of its mining activities and
practices, the speculative nature of mineral exploration and development,
operating hazards, fluctuating metals prices, and inflation and other
economic conditions over which it has no control. See "Business."
9
<PAGE>
ENVIRONMENTAL MATTERS
Hanover's mining properties are located in southwestern Montana, which
is an historical mining area. Although Hanover believes it will meet
existing criteria for additional permits and approvals necessary to large
scale development, substantial planning will be required in order to comply
with the requirements of existing and proposed laws and regulations, and no
assurance can be given that large scale development of its mining
properties, if warranted, will be timely realized. See "Business."
FLUCTUATING PRICES OF GOLD
Hanover's ability to obtain additional funds through a joint venture
or other arrangement with another mining company or otherwise, and its
ability to develop it mining properties, if warranted, will be
significantly influenced by the price of gold. Gold prices fluctuate
widely and are affected by numerous factors beyond its control, such as
inflation, the strength of the United States dollar relative to foreign
currencies, global and regional demand, and the political and economic
conditions of major gold producing countries throughout the world.
NO FAIRNESS OPINION
Although the boards of directors of Hanover and Easton-Pacific have
approved the merger of Easton-Pacific into Hanover, and have recommended to
their respective shareholders that the merger be approved by them, neither
board has requested nor received an opinion from an independent third party
to the effect that the merger is fair from a financial point of view to the
shareholders of either company. See "Easton-Pacific and the Easton-Pacific
Transactions."
[The balance of this page has been intentionally left blank.]
10
<PAGE>
THE COMPANY
Hanover is an exploration stage mining company that holds significant
mining claims and leases in the Alder Gulch area of the historic Virginia
City Mining District of southwestern Montana. It was organized as a
Delaware corporation in 1984 and began acquiring its claims in the district
in 1990, through affiliated corporations that were subsequently acquired by
Hanover through merger, and through a series of subleasing, option and
purchase agreements with nonaffiliated third parties.
Until 1996, Hanover's activities were conducted from offices located
in Roslyn, New York, near New York City. In early 1996, the company moved
its offices to Coeur d'Alene, Idaho and restructured its management, all in
conjunction with an investment by a group of Spokane, Washington investors,
lead by Neal A. Degerstrom, that enabled the company to meet its rental and
royalty obligations to the landowner-lessors of its mining claims. Mr.
Degerstrom and these other investors individually held approximately 35% of
the outstanding shares of Common Stock of Hanover as of June 1, 1997, and
also held stock options, which, if exercised, would increase their combined
ownership of the company to approximately 40%.
Hanover has been engaged in exploration and limited development
activities in the Alder Gulch area more or less continuously since 1992.
During 1992, interests in certain claims then held by affiliated
corporations were contributed to a joint venture that, in turn, entered
into a mining venture agreement with Kennecott. Under the terms of this
mining venture, Kennecott was to have received an interest in the claims
and certain options and other rights, in exchange for which it was to have
conducted a multi-year work program and paid interim rentals and royalty
obligations to the landowner-lessors of Hanover's claims. Kennecott
withdrew from the mining venture in March of 1995, when it was unable to
acquire additional claims in the Alder Gulch area believed necessary to
support large scale development.
Hanover's exploration and development activities in the Alder Gulch
area have consisted of some underground development, diamond drilling,
mapping and sampling, lithologic logging of the drill holes, metallurgical
testing and assaying. No mining or milling activities have occurred since
Kennecott's withdrawal from the mining venture. All subsequent exploration
activities have been funded by Hanover.
Since 1995, Hanover has pursued a strategy of acquiring additional
mining claims in the Alder Gulch area and renegotiating the terms under
which certain of the claims were previously acquired, all in an effort to
consolidate its land position in order to facilitate continued exploration
and development and make its holdings more attractive to potential
development partners. A significant component of this strategy is the
proposed merger of Easton-Pacific into Hanover discussed elsewhere in this
Joint Proxy Statement/Prospectus.
Hanover's principal executive offices are located in a 1,850-square
foot leased facility at 1000 Northwest Boulevard, Suite 100, Coeur d'Alene,
Idaho 83814. In addition, the Company leases a small exploration office in
Helena, Montana. At March 31, 1997, the Company employed two full-time and
two part-time management, finance and administrative employees.
[The balance of this page has been intentionally left blank.]
11
<PAGE>
MARKET FOR CAPITAL STOCK
Prices for Hanover's Common Stock are quoted on the Nasdaq SmallCap
Market under the symbol "HVGO". The following table sets out the high and
low prices per share for the Common Stock for the first quarter of 1997 and
all of 1996 and 1995 as reported by Nasdaq. The prices reported reflect
inter-dealer prices, without regard to retail mark-ups, mark-downs or
commissions, and do not necessarily reflect actual transactions. High and
low sales prices are shown for all quarters.
<TABLE>
<CAPTION>
1997 1996 1995
High Low High Low High Low
---- --- ---- --- ---- ---
<S> <C> <C> <C> <C> <C> <C>
First Quarter $1-5/8 $1-1/16 $2-3/8 $1-5/16 $1-5/8 $ 1/4
Second Quarter (1) $2-7/8 $1-3/8 $3-1/16 $ 5/16
Third Quarter $1-11/16 $1 $2-1/2 $1-3/16
Fourth Quarter $1-11/16 $1-1/8 $2 $ 3/4
________________
</TABLE>
(1) Through June __, 1997.
Hanover had approximately 260 stockholders of record as of March 31,
1997, which includes certain depositories, brokerage firms and other
institutions holding the shares for multiple beneficial owners. Based on
mailings made in connection with its 1996 special meeting of stockholders,
Hanover believes its shares are beneficially owned by approximately 2,000
persons.
DIVIDENDS
Hanover has never declared a cash or stock dividend and does not
expect to do so in the future. Any earnings generated from future mining
activities will likely be retained by Hanover and used as working capital.
[The balance of this page has been intentionally left blank.]
12
<PAGE>
CAPITALIZATION
The following table sets out Hanover's actual capitalization at March
31, 1997 on an historical basis and the pro forma capitalization of Hanover
and Easton-Pacific combined and as adjusted to give effect to the sale of
the 2,000,000 shares of Common Stock offered for sale in this offering and
the receipt of estimated net proceeds therefrom. For purposes of this
table, the shares to be sold for cash are assumed to have been sold at the
price of $1.25 per share, which was the closing sales price of the Common
Stock as reported on the Nasdaq SmallCap Market as of the date of this
Joint Proxy Statement/Prospectus. The table should be read in conjunction
with the historical financial statements of Hanover and Easton-Pacific, and
the pro forma combined financial statements, appearing elsewhere in this
Joint Proxy Statement/Prospectus. Hanover will not receive any proceeds
from the sale of the shares reoffered by the Selling Stockholders under
this Joint Proxy Statement/Prospectus. See "Index to Financial
Statements."
<TABLE>
<CAPTION>
Pro Forma
---------------------------
Historical
---------------------- As Adjusted
Hanover Easton Combined For Offering
------- ------ -------- ------------
(dollars in thousands)
<S> <C> <C> <C> <C>
Notes payable to stockholders $ 73 $170 $ 243 $ 73 (1)
Long-term debt 229 - 229 229
Stockholders' Equity:
Preferred stock, $.001 par value;
shares authorized 2,000,000, no
shares outstanding - - - -
Common stock, $.0001 par value;
shares authorized 48,000,000;
outstanding 26,886,443 pro forma
combined (2) and 28,886,443 pro
forma as adjusted (2),(3) 2 756 3 3
Additional paid-in capital 16,311 - 24,066 26,491
Deposits on common stock 1,299 - 1,299 -
Deficit accumulated during the
development stage (6,105) (595) (6,700) (6,700)
------ --- ------ ------
Total stockholders' equity 11,507 161 18,668 19,794
------ --- ------ ------
Total capitalization $11,809 $331 $19,140 $20,096
====== === ====== ======
- --------------------------
</TABLE>
(1) Gives effect to the repayment of notes payable to a shareholder of
Easton-Pacific from funds received from the sale of the Common Stock
offered hereby for cash.
(2) Gives effect to the issuance of 7,000,000 shares of Common Stock in
exchange for all of the issued and outstanding shares of capital stock
of Easton-Pacific. Excludes 3,817,968 shares issuable upon the
exercise of outstanding stock options.
(3) Gives effect to the sale of all of the Common Stock offered hereby at
an assumed offering price of $1.25 per share and the receipt of the
net proceeds therefrom.
13
<PAGE>
SELECTED FINANCIAL INFORMATION
SELECTED HISTORICAL AND PRO FORMA COMBINED FINANCIAL INFORMATION
The following table contains summary historical and pro forma
financial information of Hanover and Easton-Pacific. The information has
been derived from the financial statements of Hanover and Easton-Pacific
and the pro forma combined financial statements appearing elsewhere in this
Joint Proxy Statement/Prospectus. The quarterly financial information at
March 31, 1997 and for the three month periods ended March 31, 1997 and
1996 are derived from Hanover's and Easton-Pacific's unaudited financial
statements and include all adjustments, consisting of only normal,
recurring adjustments, that management of the companies consider necessary
to fairly present such information. The results for the three months ended
March 31, 1997 are not necessarily indicative of the results to be expected
for the full year ending December 31, 1997. This information should be
read in conjunction with the financial statements of Hanover and Easton-
Pacific, the pro forma combined financial statements and managements'
discussion and analysis of the financial statements appearing elsewhere in
this Joint Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
Hanover Gold Company, Inc.
Historical Financial Information
At December 31,
---------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Summary of Balance Sheets:
Working capital (deficit) $ (49,331) $ 428,469 $ 31,422 $1,815,006 $ 259,171
Current assets 203,722 894,229 1,029,081 3,052,439 395,078
Total assets 10,806,150 8,441,690 8,646,755 7,962,755 3,231,756
Current liabilities 253,053 465,760 997,659 1,237,433 135,907
Long-term obligations 194,065 0 0 0 690,366
Total liabilities 447,118 465,760 1,267,789 1,487,433 826,273
Stockholders' equity 10,359,032 7,975,930 7,378,966 6,475,322 2,405,483
Summary of Statements of
Operations:
Revenues (1) 3,510 499,299 216,418 0 135,262
Net loss (2) (1,328,327) (2,329,190) (1,362,954) (256,769) (314,878)
Net loss per share (.08) (0.20) (0.14) (0.03) (0.06)
</TABLE>
(1) Cumulative revenues for the period from inception (May 2, 1990)
through December 31, 1996 were $1,151,958.
(2) Cumulative losses for the period from inception (May 2, 1990) through
December 31, 1996 were $5,913,098.
14
<PAGE>
<TABLE>
<CAPTION>
Summary Pro Forma Combined Statement
of Operations Data For the Three Month
Period Ended March 31, 1997
Historical Pro Forma (1)
--------------------- -------------------------------
Hanover Easton Combined As Adjusted (2)
------- ------ -------- ---------------
<S> <C> <C> <C> <C>
Revenue $ - $ - $ - $ -
Net loss (191,966) (29,759) (221,725) (221,725)
Loss per share $ (0.01) $ (0.01)
Shares used in
computing loss
per share 19,861,838 26,861,838 28,861,838
Summary Pro Forma Combined Statement
of Operations Data for the Year
Ended December 31, 1996
Historical Pro Forma (1)
--------------------- -------------------------------
Hanover Easton Combined As Adjusted (2)
------- ------ -------- ---------------
Revenue $ 3,510 $ 50,765 $ 54,275 $ 54,275
Net loss (1,328,327) (80,633) (1,408,960) (1,408,960)
Loss per share (0.08) (0.06) (0.05)
Shares used in
computing loss
per share 17,418,318 26,861,838 28,861,838
Summary Pro Forma Combined Balance
Sheet Data As of March 31, 1997
Historical Pro Forma (1)
--------------------- -------------------------------
Hanover Easton Combined As Adjusted (2)
------- ------ -------- ---------------
Working capital
(deficit) $ 859,522 $(191,817) $617,705 $ 1,743,955
Current assets 1,018,092 3,263 971,355 1,927,605
Total assets 11,864,931 355,220 19,220,151 20,176,401
Current liabilities 158,570 195,080 353,650 183,650
Long-term liabilities 199,295 - 199,295 199,295
Stockholders' equity 11,507,066 160,140 18,667,206 19,793,456
- ------------------------------
</TABLE>
(1) Reflects the acquisition of Easton-Pacific as if it had occurred on
January 1, 1996 for the year ended December 31, 1996, and January 1,
1997 for the three month period ended March 31, 1997.
(2) Reflects the sale of 2,000,000 shares Common Stock by Hanover in this
offering at an assumed offering price of $1.25 per share and the
receipt of the estimated net proceeds therefrom after deduction of
estimated offering expenses of $75,000.
(3) Reflects the acquisition of Easton-Pacific as if it had occurred on
March 31, 1997.
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
SUMMARY
1996 was a year of slow but sustained progress for Hanover. During
the year, the company substantially completed its objective of
consolidating the mining properties in the Alder Gulch area, both by
acquiring additional claims and interests from nonaffiliated parties and by
completing the merger of its Hanover Resources and Group S affiliates.
Toward the end of the year, Hanover also was able to renew drilling
activities on the properties. These activities have enhanced the company's
knowledge and understanding of the Alder Gulch properties, and have
contributed to its ongoing geological and metallurgical evaluation.
Although management continues to believe the properties lend themselves to
large scale development, as of the date of this Joint Proxy
Statement/Prospectus the company does not have the cash resources necessary
for development nor a development agreement with any major mining company.
Hanover had hoped to conclude negotiations during the year for the
acquisition of significant additional mining claims and interests
contiguous to those of the Company held by Easton-Pacific, but was unable
to do so owing to substantial differences of opinion concerning the value
of Easton-Pacific's assets and uncertainty regarding possible environmental
liabilities associated with certain of these assets. As is disclosed
elsewhere in this Prospectus, however, the company and Easton-Pacific were
able to resolve these differences and have entered into a reorganization
agreement pursuant to which Hanover will acquire all of the outstanding
capital stock of Easton-Pacific, whereupon Easton-Pacific will become
merged into the company. The transaction with Easton-Pacific is subject to
approval by the company's and Easton-Pacific's shareholders, and is
expected to close no later than September 30, 1997.
Hanover continued to be supported during the year with equity capital
from the investor group formed in 1995 and lead by Neal A. Degerstrom, who
is affiliated with the company, and with equity capital derived late in the
year from the public sale of 1,000,000 shares of its Common Stock at the
price of $1.25 per share. As this Joint Proxy Statement/Prospectus makes
clear, Hanover intends to issue additional shares of its Common Stock to
the public during 1997, in order to meet its ongoing obligations to the
landowner-lessors of the various mining claims it leases, and to provide
working capital for continued exploration of its mining properties.
Hanover continues to receive expressions of interest from a number of
North American mining companies concerning a joint venture or other
economic arrangement to explore and develop its mining properties. It
previously reported that such an arrangement would be negotiated and
concluded during 1996, however the uncertainty within the mining industry
resulting from the Montana clean water citizens initiative prevented this
from happening. Hanover has revised its estimate and now believes such an
arrangement can be negotiated and concluded during 1997. This estimate is
predicated on the occurrence of certain events during 1997, including
continued favorable results from exploration activities conducted on the
Alder Gulch properties, prevailing prices for gold and continued progress
in the company's efforts to consolidate additional claims and interests in
the area, including those of Easton-Pacific.
RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED MARCH 31, 1997 TO THREE MONTHS ENDED
MARCH 31, 1996. During the three months ended March 31, 1997, Hanover
generated no revenues. This compares to approximately $3,500 in revenues
realized during the three-month period ended March 31, 1996 from the sale
of carbon product stockpiled at an inactive mine. General and
administrative expenses decreased to $185,000 for the three-month period
ended March 31, 1997, compared to $320,000 for the three-month period ended
March 31, 1996. The decrease is principally attributed to expenses
incurred in 1996 related to the relocation of Hanover's headquarters from
New York to Idaho. For the quarter ended March 31, 1997, Hanover
experienced a loss of $192,000 or $0.01 per share, compared to a loss of
$284,000, or $0.02 per share, during the comparable period in the previous
year.
16
<PAGE>
COMPARISON OF YEARS ENDED DECEMBER 31, 1996 AND 1995. Hanover
realized revenues of approximately $3,500 during the year ended December
31, 1996, which resulted from the sale of carbon product stockpiled at its
inactive mine. This compares to revenues of approximately $499,000 during
the prior year, which were comprised of $249,000 in revenue from the sale
of refined gold and $250,000 in revenue from an option payment under the
Kennecott mining venture. The disparity in revenues between 1996 and 1995
is attributable to the fact that Hanover suspended mining operations in
March of 1995, due to a lack of funds following Kennecott's withdrawal from
the mining venture. Hanover's milling operations were suspended in April
of 1995.
Operating expenses decreased to $1,312,000 for the year ended December
31, 1996 from $2,826,000 for the year ended December 31, 1995 (54%). The
overall decrease was primarily due to the suspension of mining and milling
activities in 1995. As a result, there were no costs of goods mined in
1996, as compared to 1995, when the cost of goods mined was $1,077,000.
Additionally, in 1995 Hanover wrote down the carrying value of a note
receivable due from a related party mill operator by $780,000 to reflect
the receivable's estimated net realizable value. General and
administrative expenses increased to $1,285,000 in 1996 from $931,000 in
1995. The increase in general and administrative expenses was primarily
due to a $100,000 increase in salaries and payroll costs associated with
officers and personnel hired during 1996, professional fees of
approximately $80,000 incurred in 1996 in connection with the company's
acquisition of Hanover Resources and Group S, and an increase in facility-
related expenses of approximately $50,000 which are attributable to the
establishment of the Coeur d'Alene, Idaho offices. Primarily as a result
of the foregoing factors, Hanover recognized a net loss of $1,328,000 in
1996 versus a net loss of $2,329,000 in 1995.
COMPARISON OF YEARS ENDED DECEMBER 31, 1995 AND 1994. Hanover's
Company's revenues were $499,000 in the year ended December 31, 1995, from
$216,000 for the prior year, an increase of 131%. This was due, in part,
to the receipt in 1995 of $250,000 from an option payment under the
Kennecott mining venture. Hanover's revenues from the sale of refined gold
were $249,000 in 1995, from $216,000 in the prior year, primarily as a
result of volume increases. As previously noted, the company suspended its
mining and milling activities in March and April of 1995, respectively,
following Kennecott's withdrawal from the mining venture.
The cost of goods mined was $1,077,000 in 1995, from $911,000 in 1994,
an increase of 18%. This increase was due to a increased production during
1995. In 1995, Hanover also wrote down the carrying value of its note
receivable due from a related party mill operator by $780,000 to reflect
the receivable's estimated net realizable value. General and
administrative expenses were $931,000 in 1995, as compared to $738,000 in
1994, an increase of 26%. This was primarily as a result of increases in
officers' salaries, printing expenses and insurance costs during the year.
Interest income was $30,000 in 1995, from $98,000 in 1994, a decrease of
69%. This decrease was primarily due to lower levels of invested funds
during the year. As a result of the foregoing factors, Hanover lost
$2,329,000 in 1995, compared to a net loss of $1,363,000 in 1994.
RECENT ACCOUNTING PRONOUNCEMENTS. In March 1997, the FASB issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share"
("SFAS 128"). This pronouncement provides a different method of
calculating earnings per share than is currently used in accordance with
ABP 15, "Earnings per Share". SFAS 128 provides for the calculation of
basis and diluted earnings per share. Basic earnings per share includes no
dilution and is computed by dividing income available to common
shareholders by the weighted average number of common shares outstanding
for the period. Diluted earnings per share reflects the potential dilution
of securities that could share in the earnings of an entity, similar to
fully diluted earnings per share. Hanover does not anticipate that SFAS
128 will have an effect on its reported loss per share.
LIQUIDITY AND CAPITAL RESOURCES
Hanover is an exploration stage mining company and for financial
reporting purposes has been categorized as a development stage company
since its inception. At March 31, 1997, it had no recurring sources of
revenue and negative working capital. The company has incurred losses and
experienced negative cash flows from operations in every year since its
inception. Additionally, as a consequence of Kennecott's withdrawal from
the mining venture in March of 1995, Hanover assumed full responsibility
for certain landowner rental and royalty obligations pertaining to its
Alder Gulch mining claims. At March 31, 1997, those rental and royalty
obligations payable in 1997 totalled $1,358,000. These conditions give
rise to substantial doubt about the company's ability to continue as a
going concern. Accordingly, the company's independent certified public
accountants modified their March 7, 1997 report accompanying the company's
December 31, 1996 financial statements to include an explanatory paragraph
relative to a going concern uncertainty. Hanover's management believes the
company will meet its 1997 obligations using existing funds and funds to be
derived from the anticipated sale of additional shares of its common stock.
Moreover, an affiliate of the company and others have guaranteed such
payments through 1997 and for the first nine months of 1998 if Hanover is
unable to obtain necessary funds. Nonetheless, unless the company is able
to negotiate a joint venture or other agreement with a major mining company
for the continued exploration and development of the Alder Gulch
properties, it may continue to experience a shortage of working capital.
Hanover has incurred aggregate losses of $6,105,000 from inception
through March 31, 1997 because it has not yet been able to commence
commercial mining operations on its properties. Its inability to achieve
this objective is attributable to a number of factors, including
Kennecott's unexpected withdrawal from the mining venture in 1995 and the
company's lack of success through 1995 in consolidating the various claims
and interests in the area. Although Hanover has been able to conduct
exploration and limited development activities on the properties, primarily
as the result of its former arrangement with Kennecott
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and, to a lesser extent, as the result of exploration and evaluation work
it performed itself in 1995 and 1996, significant additional work must be
undertaken to determine whether the properties will support commercial
mining operations. Hanover has received expressions of interest from
several North American mining companies regarding a joint venture or other
economic arrangement to explore and develop the properties, but has not yet
concluded such an arrangement. Management now believes such an arrangement
can be concluded during 1997.
As is discussed elsewhere in this Joint Proxy Statement/Prospectus,
Hanover has restructured its management and taken a number of significant
steps to consolidate the Alder Gulch mining properties. In addition, it
has completed a compilation of geologic and other technical data generated
from its and Kennecott's prior exploration activities. (See the section of
this Joint Proxy Statement/Prospectus entitled "Business.") Management
believes these activities will have a positive effect on Hanover's
performance during 1997, and that the company will be successful in
negotiating a joint venture or other agreement with a major mining company
to explore and, if warranted, develop its properties.
At March 31, 1997, Hanover had a deferred tax asset of approximately
$2,070,000. A valuation allowance equal to this amount has been
established. Management cannot determine that it is more likely than not
that the company will realize the benefits from these deferred tax assets.
Although Hanover's operations are subject to general inflationary
pressures, these pressures have not had a significant effect on operations,
particularly since early 1995 when mining and processing operations were
suspended for lack of funds. If the company resumes exploration and
development activities, which can be expected to occur during 1997, if it
is successful in negotiating a joint venture or other agreement with a
major mining company, inflation will result in an increase in the cost of
goods and services necessary to its mining operations.
On March 17, 1997, Neal A. Degerstrom, who is affiliated with Hanover,
guaranteed the payment of Hanover's obligations to the landowner-lessors of
its mining claims through September 7, 1998, up to the aggregate amount of
$2,891,210, which amount approximates Hanover's obligations to these
landowner-lessors during the period of the guaranty. As consideration for
the guaranty, Hanover granted Mr. Degerstrom three year options to purchase
up to 2,312,968 shares of Hanover's Common Stock at an exercise price of
$1.25 per share. The fair value of these options, as determined using the
Black-Scholes option pricing model, is approximately $1,450,000 and will be
amortized to expense over the guaranty period. Payments made by Mr.
Degerstrom pursuant to the guaranty will be credited toward the exercise of
such options. Effective April 29, 1997, Mr. Degerstrom assigned two-thirds
of these options equally to two nonaffiliated individuals, each of whom
undertook to guarantee the payment to Mr. Degerstrom of one-third of the
amount Mr. Degerstrom is required to pay Hanover during the term of his
guaranty. The guaranty was given by Mr. Degerstrom in connection with the
reorganization agreement, dated as of April 30, 1997, between Hanover and
Easton-Pacific.
Cash flows for the three months ended March 31, 1997 and for each of
the years in the three year period ended December 31, 1996 were as follows:
THREE MONTHS ENDED MARCH 31, 1997. During the three months ended
March 31, 1997, Hanover's cash position increased $839,000, to $936,000.
During the three month period, Hanover used $214,000 in operating
activities, primarily as a result of the reported $192,000 net loss.
Investing activities used $246,000, primarily due to $236,000 in
expenditures related to Hanover's mineral properties. During the period,
Hanover received $1,299,000 from six individuals as a deposit on common
stock to be sold pursuant to a proposed public offering. If the offering
does not occur, these funds will be refunded, together with accrued
interest.
YEAR ENDED DECEMBER 31, 1996. Hanover's operating activities consumed
$1,513,000 in 1996, primarily as a result of the net loss of $1,328,000
during the year and a decrease in accounts payable of $215,000. $1,354,000
of this amount was used in investing activities, primarily in the form of
payments made with respect to the company's mineral properties. The
company generated $2,229,000 from financing activities during the year,
primarily as a result of funds received through the sale of its common
stock. As a result of the foregoing, Hanover's cash position decreased by
$638,000, to $96,000 at December 31, 1996.
YEAR ENDED DECEMBER 31, 1995. Hanover's operating activities consumed
$1,629,000 in 1995, primarily as a result of the net loss of $2,329,000
during the year, as adjusted for noncash expenses of $200,000 in marketing
fees received in exchange for Common Stock, a $780,000 write down in the
carrying value of a note receivable and a decrease of $423,000 in accrued
expenses. $822,000 of this amount was used in investing activities during
the year, primarily in the form of payments with respect to the company's
mineral properties. The company generated $2,463,000 from financing
activities during the year, primarily as a result of funds received through
the sale of its common stock. As a result of the foregoing, Hanover's cash
position increased by $12,000, to $735,000 at December 31, 1995.
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YEAR ENDED DECEMBER 31, 1994. Hanover's operating activities consumed
$1,779,000 in 1994, primarily as a result of the net loss of $1,363,000
during the year, an increase in inventory and prepaid expenses of $225,000
and a decrease of $254,000 in accrued expenses. $2,694,000 was used in
investing activities during the year, primarily in the form of payments of
with respect to the company's mineral properties, which aggregated
$1,591,000, and in the form of a $973,000 advance to a related party under
a note receivable. The company generated $2,225,000 from financing
activities during the year, primarily as a result of funds received through
the sale of its common stock. As a result of the foregoing, Hanover's cash
position decreased by $2,248,000, to $723,000 at December 31, 1994.
BUSINESS
Background and Business Strategy
BACKGROUND. Hanover is an exploration stage mining company. It does
not own an operating mine and has no other revenue-producing mining
activities. Moreover, it is not expected to commence mining activities, at
least with respect to its properties in the Virginia City Mining District,
until the following events have occurred: significant additional
exploration activities on the company's Alder Gulch mining properties have
been completed; a determination has been made that the properties contain a
commercially minable ore body; all required mining and environmental
permitting applications have been approved; a comprehensive feasibility
study of proposed mining operations has been prepared; and financing of the
mine has been obtained.
BUSINESS STRATEGY. Hanover's efforts, at least since 1995, have been
primarily directed toward acquiring mining claims and interests in the
Alder Gulch area of the district in an effort to consolidate its land
position, facilitate continued exploration and development, and make the
area more attractive to potential development partners. A significant
component of this strategy is Hanover's agreement with Easton-Pacific
providing for the merger of Easton-Pacific into Hanover. During 1995 and
1996, Hanover added approximately 353 mining claims to its holdings in the
Alder Gulch area, including those claims it acquired through the 1996
merger of two affiliated corporations. If the merger of Easton-Pacific is
approved later this year, as is expected, significant additional properties
will be added to Hanover's land position. Easton-Pacific owns or controls
42 patented mining claims, 151 unpatented claims and two state leases in
the Browns Gulch, Hungry Hollow and Barton Gulch areas of the Virginia City
Mining District. These properties form a contiguous claim block adjacent
to the west side of the company's properties in the Alder Gulch area of the
district.
Hanover believes its efforts to consolidate and control what now
constitutes a significant portion of the Virginia City Mining District will
make it easier to attract the interest of a major mining partner having the
resources to finance additional exploration activities and, if commercial
development is warranted, the costs and expenses associated with building
and operating a large scale mine. Management had been hopeful that a
development partner would have been identified in 1996, and that a joint
venture or other arrangement covering these activities would have been
fully negotiated. This did not occur, however, largely because of the
uncertainty created by a Montana citizens' initiative that, had it passed,
would have imposed stringent new water quality controls on the company and
other mining companies operating in the state. Management is optimistic
that Hanover will identify a development partner and conclude a joint
venture or other agreement in 1997.
MERGER OF SUBSIDIARY COMPANIES. As previously reported, Hanover
completed the merger of two subsidiary companies, Hanover Resources, Inc.
and Group S Limited, with and into the company on September 12, 1996, in
exchange for 2,270,486 shares of Common Stock which were distributed to the
former shareholders of Hanover Resources and Group S and the distribution
of an additional 3,625,000 shares of Common Stock to Hanover Resources'
shareholders in exchange for the same number of shares of Hanover's Common
Stock then held by Hanover Resources.
The boards of directors and shareholders of Hanover, Hanover Resources
and Group S approved the merger for a variety of reasons, the principal one
being to consolidate the mining properties of the three companies under
Hanover, so that Hanover could move forward in a simple, straightforward
manner with continued exploration and development of the properties.
Hanover accounted for the merger as a combination of entities under common
control, as a consequence of which the assets of Hanover Resources and
Group S were recorded at cost and no value was ascribed to good will.
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RECENT CONSOLIDATION ACTIVITIES. Hanover has made significant
progress since 1995 in consolidating the claims and interests in the
Virginia City Mining District. The most recent of these activities are
discussed below.
AGREEMENT TO ACQUIRE EASTON-PACIFIC. Hanover announced on March 10,
1997 that it had entered into a letter agreement with Easton-Pacific for
the acquisition of all of the issued and outstanding shares of capital
stock of Easton-Pacific, following which Easton-Pacific will be merged into
the company. Information concerning Easton-Pacific, its mining properties
and the terms of the proposed merger is set forth in the section of this
Joint Proxy Statement/Prospectus entitled "Easton-Pacific and the Easton-
Pacific Transaction." The acquisition will be accounted for as a purchase.
ACQUISITION OF CLAIMS FROM TABOR RESOURCES; LITIGATION WITH TABOR.
Effective March 25, 1996, Hanover entered into an asset purchase agreement
with Tabor Resources Corporation, a Minnesota corporation, for the purchase
of ten patented mining claims, 120 unpatented mining claims and one state
mining lease covering properties located in the Alder Gulch area. Hanover
issued Tabor 525,000 shares of Common Stock in the transaction and also
agreed that, if, during the two year period commencing with the effective
date of the agreement, the average bid price of the common stock did not
exceed $2.00 per share for a consecutive 30-day period prior to April of
1998, it would issue Tabor such number of additional shares as was
necessary to raise the aggregate market value of the shares then owned by
Tabor to $2.00.
As part of the transaction, Hanover also agreed to prepare and file a
registration statement under the Securities Act covering the shares issued
to Tabor, cause such registration statement to be declared effective within
six months of the effective date of the agreement, and thereafter maintain
the registration statement in effect for a period of eighteen months to
enable Tabor to resell the shares (and to enable other selling stockholders
to sell additional shares of common stock also covered by the registration
statement) should it so choose. In addition, Hanover granted Tabor certain
piggy-back registration rights under the Securities Act, the effect of
which is to enable Tabor to include any shares remaining unsold following
the termination of effectiveness of the registration statement described
above in any registration statement subsequently filed by the company
relating to securities to be sold for the account of the company or for the
accounts of any of its affiliates.
The agreement between Hanover and Tabor further provided that, pending
effectiveness of the registration statement, conveyancing documents
covering the claims sold to the company and certificates evidencing 400,000
of the 525,000 shares issued to Tabor were to be held in escrow. The
agreement further provided that, in the event the registration statement
was not declared effective within six months of closing, such documents and
certificates, at Tabor's election, would be returned to the respective
parties and the transaction would be deemed to have been rescinded.
The registration statement required to be filed by Hanover was
declared effective by the SEC on September 3, 1996. Shortly following the
effective date, and despite the company's compliance with all of the terms
and conditions of its agreement with Tabor, Tabor informed the company that
it was withholding authorization to release the conveyancing documents and
the share certificates from escrow. As a consequence, Hanover initiated an
action against Tabor in United States District Court for the Eastern
District of Washington (Case No. CS-96-663-FVS) on October 4, 1996 for
breach of contract and injunctive relief. Subsequently, Tabor filed
counterclaims against Hanover alleging violations of the registration and
antifraud provisions of federal securities law. The company believes these
counterclaims are without merit.
Hanover's Alder Gulch Mining Properties
LOCATION OF THE PROPERTIES. Hanover's mining properties are located
in the historic Alder Gulch area of the Virginia City Mining District in
southwestern Montana, approximately 50 miles southeast of Butte, Montana.
Gold was first discovered in the area in 1863. An estimated 2.5 million to
10 million ounces of gold have been produced from placer operations in the
Alder Gulch that extended from the townsite of Summit 15 miles downstream
to the town of Alder, Montana. Gold has also been produced from lode mines
in the area since the late nineteenth century, although reliable production
records are not available. Hanover believes the historical mining activity
and the geology of the district are indicative of large gold-bearing
mineral systems, and that the area has a very high potential for additional
discovery. At March 31, 1997, Hanover's properties consisted of 482
contiguous mining claims and one state mining lease covering an area of
approximately 15.4 square miles. The topography of the area is
mountainous, however the properties are seasonally accessible by road.
Hanover's properties in the Alder Gulch area are more particularly
identified on the maps which appear at pages 21 and 22 of this Joint Proxy
Statement/Prospectus. The mining properties owned or controlled by Easton-
Pacific, which will be acquired by Hanover if the merger with Easton-
Pacific is completed, are also identified on these maps.
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THE NATURE OF HANOVER'S INTEREST IN THE PROPERTIES. Hanover does owns
109 of its 482 Alder Gulch mining claims outright and pays rentals and
royalties to the underlying landowner-lessors for the right to conduct
mining activities on those claims it does not own. These payments in most
cases are credited toward the purchase price of the claims under the
purchase option provisions of the leases. If such payments are made, as is
expected, Hanover will acquire ownership of the mining claims, and in some
instances the entire real property interest of the landowner-lessor.
Conversely, if such payments are not made, Hanover's interest in the claims
will revert to the respective landowners. The company's obligations
pursuant to these leases and purchase options were $8,469,000 at December
31, 1996, of which $1,358,000 is payable in 1997, $1,458,000 is payable in
1998, $1,804,000 is payable in 1999, $2,312,000 is payable in 2000,
$902,000 is payable in 2001 and $635,000 is payable thereafter. Production
royalty obligations with respect to these claims, which become payable once
minerals are produced from the claims, range from 0.5% to 5% of net smelter
returns. As previously noted, Neal A. Degerstrom, who is an affiliate of
the Company, and others have guaranteed the payment of Hanover's
obligations to these landowner-lessors for the period ending September 7,
1998. These guarantees were given in connection with Hanover's proposed
acquisition of Easton-Pacific.
The cost of maintaining Hanover's mining properties has been borne
exclusively by Hanover since March of 1995, when Kennecott terminated its
mining venture agreement with the company. This cost has been substantial;
during the two-year period ended December 31, 1996, Hanover has expended
approximately $2,117,804 just to meet its rental and royalty obligations to
the landowner-lessors of the properties. In addition, Hanover has spent
another $3,204,972 during these two years to support its operations and
conduct limited exploration work, apart from the amounts required to
maintain its properties. If the company is not able to secure a major
mining partner for the properties, it will have to consider other
development alternatives. These alternatives have not yet been identified.
[The balance of this page has been intentionally left blank.]
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[MAP TO BE ADDED]
22
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[MAP TO BE ADDED]
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THE GEOLOGY OF THE ALDER GULCH PROPERTIES. Mineralization on
Hanover's Alder Gulch properties is hosted by Archean metamorphic rocks.
These rocks have been subjected to one or more metamorphic events and
subsequent orogenic folding and faulting. The Kearsarge-Apex
mineralization occurs within a major shear zone cutting carbonate facies
iron formation. Data compiled by Hanover indicate that this mineralization
is disseminated in the iron formation and irregularly distributed as high
grade gold zones within the shear. Gold is associated with quartz, iron
carbonate, green mica, biotite, garnet, graphite and pyrite. Post-
metamorphic hydrothermal alteration indicates the possibility of additional
types of mineralization in the area. Mineralization is disrupted by high
and low angle post-mineral faulting.
At the Eagle Black mine in Hungry Hollow, a different style of gold
mineralization has been observed. Gold occurs in rock composed primarily
of medium-to-course grained potassium feldspar with layered and
disseminated iron oxide. Assays of this type of rock commissioned by
Hanover range from 0.111 to 0.299 ounces per ton. The extent of this rock
type is uncertain, due to a general lack of outcropping in the area. The
gold-bearing rock has been variously interpreted to be a primary
sedimentary bed, a widespread potassic alteration of pre-existing gneiss,
or an alteration of selvage along an undiscovered vein or shear. The Eagle
Black mine area has not been tested by recent drilling.
Another different style of gold mineralization has been observed at
the Bartlett mine. Here, the mineralized rock is located along the hanging
wall of a large silicified dolomite outcrop. According to historical
records, production from the mine was small but high grade. Although the
old mine workings are now caved in and inaccessible, samples collected from
the mine dump area carry gold in concordant quartz-ankerite veins within
the dolomite, and in graphitic-ankeretic shear zones occurring along the
contacts of the dolomitic marble. This style of mineralization also occurs
the General Shafter and Pearl mines.
EXPLORATION AND DEVELOPMENT ACTIVITIES. During 1993 and 1994
Kennecott conducted a surface drilling program on Hanover's Alder Gulch
claims. Eight diamond drill core holes were drilled to test the Big Vein
and the Kearsarge Vein. These holes encountered significant
mineralization. During 1994 and 1995, Hanover drove approximately 3,000
feet of lateral and cross cut workings in the Kearsarge and Apex mines, and
drilled 23 diamond drill holes along and between the Big Vein and the
Kearsarge Vein to evaluate and extend the mineralization encountered by
Kennecott's drilling. This was supplemented by the drilling of four
additional diamond drill holes along the Kearsarge-Apex shear zone in
October of 1996.
Information compiled by Hanover during 1996 included the results of
mapping and sampling of the workings, lithologic logging of all underground
drill holes, and splitting and assaying previously unassayed intervals of
the holes. The drill holes intercept mineralization over a strike length
of 1,000 feet with a thickness that varies from 100 to 200 feet and a
vertical extent of at least 480 feet. The deepest hole ends in
mineralization. Mineralization is open in all directions, particularly to
depth.
The following table sets forth information concerning drill holes
representative of the grades and thickness encountered at the Kearsarge-
Apex shear zone.
Drill Hole From To Length Au opt
---------- ---- ----- ------ ------
UGKS 1 95.0 135.0 40.0 0.061
UGKS 4 85.0 109.9 24.9 0.020
140.0 213.0 73.0 0.109
UGKS 5 55.0 75.8 20.8 0.076
114.7 191.0 76.3 0.115
UGKS 9 45.4 80.0 34.6 0.088
155.0 229.6 74.6 0.152
UGKS 11 51.0 106.2 55.2 0.213
UGKS 12 0.0 138.8 138.8 0.092
7000-1 5.5 103.9 98.4 0.222
7000-3 9.6 110.4 100.8 0.379
7000-6 5.0 88.6 83.6 0.094
KS 1 305.0 507.0 202.0 0.191
KS 2 313.0 383.0 70.0 0.051
428.0 453.0 25.0 0.135
465.0 507.0 42.0 0.157
KS 4 311.0 371.0 60.0 0.031
KS 5 404.0 479.0 75.0 0.094
KS 8 295.0 480.0 185.0 0.095
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Based on its examination of the drill core, the underground workings,
and the geology maps and cross sections, Hanover believes that the mineral
system is more extensive than the two parallel vein systems. The Big Vein
and Kearsarge Vein and the interval between these structures are
mineralized. The mineralization occurs in lenticular shaped bodies that
vary in thickness along strike and dip. Additional drilling will be
required to detail the configuration of the mineralization and to define
its limits in three dimensions. For this reason, this mineralization is
not considered a reserve. The size of the mineralized deposit to an
average depth of 500 feet below the surface is estimated to be 6,000,000
tons with an average grade of .083 ounces of gold per ton. The thickness
and grade of mineralization, combined with metallurgical studies indicate
that open pit mining and a gravity processing system followed by carbon-in-
leach milling would be effective and efficient methods for extracting the
resource.
EXTENT OF THE MINERALIZED DEPOSIT. Based upon compilations of data
derived from its limited exploration activities in 1995 and 1996, and data
collected earlier by Kennecott, Hanover believes its Alder Gulch properties
contain a mineralized gold deposit of approximately 26 million tons having
an average grade of .0615 ounces per ton. A mineralized deposit is not the
same as a proven reserve or even a probable reserve. A mineralized deposit
is a mineralized body that has been delineated by appropriate drilling or
underground sampling to support an estimate of tonnage and average mineral
grade. A mineralized deposit will qualify as a reserve only if a
comprehensive evaluation based on unit cost, grade, recovery and other
factors is conducted, and a determination is made that it is economically
feasible to exploit the deposit. An evaluation of Hanover's properties has
not yet been undertaken, and cannot be undertaken until significant
additional exploration work has been performed.
FUTURE EXPLORATION ACTIVITIES. Hanover expects to conduct further
exploration activities on the Alder Gulch properties during 1997, but has
not yet established an exploration budget. The amount to be expended in
1997 will depend on the company's ability to negotiate a joint development
or other arrangement with another mining company during the year, and on
its cash position during the year. Any such exploration activities are
expected to include a continuation of surface geologic mapping and
sampling, and additional diamond core drilling on the Kearsarge and Apex
claims to define further the extent and grade of mineralization on these
prospects. These activities will likely be supplemented by an airborne
geophysical survey, extensive surface mapping and core drilling on other
targets, to the extent funds are available.
MINING, ENVIRONMENTAL AND OTHER MATTERS PERTAINING TO PROPERTIES.
OVERVIEW. Hanover, like other mining companies doing business in the
United States, is subject to a variety of federal, state and local
statutes, rules and regulations designed to protect the quality of the air
and water in the vicinity of its mining operations. These include
"permitting" or pre-operating approval requirements designed to ensure the
environmental integrity of a proposed mining facility, operating
requirements designed to mitigate the effects of discharges into the
environment during mining operations, and reclamation or post-operation
requirements designed to remediate the lands effected by a mining facility
once commercial mining operations have ceased.
Federal legislation and implementing regulations adopted and
administered by the Environmental Protection Agency, the Forest Service,
the Bureau of Land Management, the Fish and Wildlife Service, the Army
Corps of Engineers and other agencies--in particular, legislation such as
the federal Clean Water Act, the Clean Air Act, the National Environmental
Policy Act and the Comprehensive Environmental Response, Compensation and
Liability Act--have a direct bearing on domestic mining operations. These
federal initiatives are often administered and enforced through state
agencies operating under parallel state statutes and regulations.
Hanover's Alder Gulch properties are located in Montana, which, despite its
history as a major mining area, has in the last decade gradually limited
mine development as tourism and environmental concerns have assumed greater
economic and political importance. Although mines continue to be approved
for development in the state, the cost and uncertainty associated with the
permitting process have resulted in fewer mining applications and higher
operating costs for those mining companies seeking to do business in the
state. These laws are briefly discussed below.
THE CLEAN WATER ACT. The federal Clean Water Act is the principal
federal environmental protection law regulating mining operations. The Act
imposes limitations on waste water discharges into waters of the United
States, including discharges from point sources such as mine facilities.
In order to comply with the Clean Water Act, Hanover will be required to
obtain one or more permits which will control the level of effluent
discharges from its proposed mining and processing operations.
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THE CLEAN AIR ACT. The federal Clean Air Act limits the ambient air
discharge of certain materials deemed to be hazardous and establishes a
federal air quality permitting program for such discharges. Hazardous
materials are defined in enabling regulations adopted under the Act to
include various metals and cyanide, the latter of which is used in heap
leach recovery processes. The Act also imposes limitations on the level of
particulate matter generated from mining operations, and Hanover may be
required to adopt dust control techniques in all phases of mining in order
to comply with these limitations.
THE NATIONAL ENVIRONMENTAL POLICY ACT. The National Environmental
Policy Act ("NEPA") requires all governmental agencies to consider the
impact on the human environment of major federal actions as therein
defined. Because Hanover's Alder Gulch mining properties are located on
federal lands, mining operations on those lands will likely be conditioned
on the preparation, review and approval of an environmental impact
statement outlining in detail the environmental effects of such operations
and the company's efforts to ameliorate such effects.
THE COMPREHENSIVE ENVIRONMENTAL RESPONSE, COMPENSATION AND LIABILITY
ACT. The federal Comprehensive Environmental, Response, Compensation and
Liability Act ("CERCLA") imposes clean-up and reclamation responsibilities
with respect to unlawful discharges into the environment, and establishes
significant criminal and civil penalties against those persons who are
primarily responsible for such discharges.
MONTANA ENVIRONMENTAL LAWS AND REGULATIONS. Montana has adopted
counterparts to NEPA and CERCLA, being the Environmental Policy Act and the
Metal Mine Reclamation Act, both of which are administered by the
Department of Lands. The state has also adopted the Air Quality Act and
Water Quality Act, which parallel to a large extent the provisions of the
Clean Air Act and Clean Water Act; these statutes are administered through
various bureaus of the Department of Environmental Quality.
A Montana citizen's initiative, known as I-122, which sought to impose
more stringent point source discharge limitations on operations affecting
Montana's streams and rivers, was defeated during the 1996 general
election. Had the 1996 initiative been approved, the operators of new
metals mines in Montana would have been required to remove specified levels
of carcinogens, toxins, metals and nutrients produced from mining
operations before discharging them into a river or stream. Under current
law, untreated wastes are discharged into specified "mixing zones" of a
river or stream, and are thereby diluted to ostensibly safe levels; these
mixing zones are required to be continuously monitored to ensure that
contaminants do not exceed these levels. No assurance can be given that
proponents of the initiative will not seek to reintroduce the measure in
the future. It is not presently known whether the initiative, if
reintroduced and approved, would materially affect Hanover's proposed
operations in the Alder Gulch.
HANOVER'S PERMITTING STATUS. Gold was first discovered in the Alder
Gulch area in 1863, and extensive mining activities in the area continued
until the 1940s, when production from conventional mining processes
dwindled. As a consequence of these activities, Hanover believes it will
experience less difficulty in obtaining permits for large scale mining
development than would be the case were it seeking to develop an area that
had no history of mining operations. The company has obtained certain
permits and approvals in conjunction with the limited exploration and minor
development activities conducted on the Alder Gulch properties from 1993 to
1996, and believes that it will meet existing criteria for additional
permits and approvals necessary to large scale development.
Nonetheless, substantial planning will be required if Hanover is to
meet the requirements of existing laws and regulations, and no assurance
can be given that any proposed plans to conduct large scale development of
the Alder Gulch properties will be timely realized. Extensive data
regarding the effect of any such development on the air water quality of
the area is being collected and analyzed at significant cost to the
company, and will be presented to the various regulatory agencies in the
future, in the form of a mine development and reclamation plan. These
agencies will then review and evaluate the plan, and are free to reject it
or impose additional requirements which could increase the cost of
development to a level beyond that deemed economically feasible. Hanover
may encounter opposition from local environmental groups and organizations
once its development plans are presented to the regulatory authorities and
made available for public comment.
OTHER ACTIVITIES
Hanover continually evaluates other precious metals mining
opportunities for possible acquisition or joint venture, and from time-to-
time engages in exploratory discussions regarding such opportunities. As
of the date of this Prospectus, it has no agreement, understanding or
arrangement with any person or entity, other than Easton-Pacific, regarding
the acquisition of additional mining properties.
26
<PAGE>
EASTON-PACIFIC AND THE EASTON-PACIFIC TRANSACTION
OVERVIEW OF EASTON-PACIFIC. Easton-Pacific is an exploration stage
mining company that holds significant mining claims and a lease in the
Browns Gulch, Hungry Hollow and Barton Gulch areas of the Virginia City
Mining District of southwestern Montana. These properties form a
contiguous claim block adjacent to the west side of Hanover's mining
properties in the Alder Gulch area of the district.
The company was incorporated in Montana in 1959. In early 1960, it
reopened and attempted to mine gold from the Easton mine. These efforts
proved unsuccessful, largely because of capital constraints. In September
of that year, the company leased the Easton mine to two individuals who
conducted mining operations over a period of sixteen years, or until 1976,
when the mine was shut down.
Easton-Pacific's efforts to explore and develop its mining properties
have been limited. In November of 1988, it entered into a joint operation
agreement with BHP-Utah International, Inc. ("BHP Utah") providing for the
exploration and, if warranted, development of its mining properties. Under
this agreement, BHP Utah was to have expended approximately $1.6 million
over a four-year period to conduct exploration work, and was to have made
annual payments to the company totaling approximately $340,000, increasing
to $350,000 per year at the end of the period. In return for these
expenditures, BHP Utah was to have received interests in Easton-Pacific's
properties ranging from 40% to 60%, plus the option to increase its
interests by an additional 20% by paying the company an additional $3
million.
The joint operation agreement was terminated by BHP Utah in November
of 1989, following the completion of its obligations to Easton-Pacific for
the prior year. Beginning in mid-1994, the company entered into
discussions with Kennecott regarding a mining venture agreement for the
exploration and possible development of the company's properties. No
agreement was reached. As a consequence, Kennecott later terminated its
1994 mining venture agreement with Hanover covering properties contiguous
to those of the company.
Since 1996, Easton-Pacific has been in discussions with Hanover
regarding the consolidation of their respective land positions in the
Virginia City Mining District in order to make these holdings more
attractive to potential development partners. This discussions are
described below, in the subsection entitled "Background of the Merger
Transaction".
Easton-Pacific uses the same office as its secretary, which is located
at 21 Courthouse Square, St. Cloud, Minnesota 56303. The company pays no
rent for this facility. Easton-Pacific also leases a facility in Montana
to store ore samples, for which it pays a nonaffiliate rental at the rate
of $40 per month.
EASTON-PACIFIC'S MINING PROPERTIES; HISTORICAL MINING ACTIVITIES;
GEOLOGY. Easton-Pacific's holdings in the Virginia City Mining District
include interests in 36 patented claims, 151 unpatented claims and two
state mining leases. The claims cover the upper part of Browns Gulch,
Hungry Hollow and Barton Gulch, and are more particularly identified on the
maps which appear at pages 21 and 22 of this Joint Proxy Statement/
Prospectus. The company holds an additional 35 patented and 58 unpatented
claims near Pony, Montana, and four patented and seven unpatented claims
near Norris, Montana. Pony and Norris are some 35 miles northwest of
Virginia City. The company acquired its claims, beginning in 1959. The
company holds some of its claims outright, and, like Hanover, is obligated
to pay rentals or royalties to landowner-lessors under various lease and
option agreements as a condition to ownership of other claims. Land
payments and related claim fees payable by Easton-Pacific during 1997 are
approximately $32,300, and future payments are approximately $102,000 over
the next three years. Production royalty obligations with respect to these
claims become payable once minerals are produced, and range from 5% to 7%.
Historic mines on Easton-Pacific's properties include the Easton,
Pacific, High Up, Irene, Marietta, Metallic and Little Lode mines. The
Easton mine was at one time the largest historic lode producer in the
Virginia City Mining District, with recorded production of approximately
50,000 ounces of gold and over one million ounces of silver.
The Easton mine was discovered in 1873 and operated until 1914. Ore
was mined from multiple high-angle quartz veins carrying auriferous pyrite,
galena, sphalerite and chalcopyrite, with minor tetrahedrite, argenite,
autellurides and stibnite. The ore was processed by a ten stamp mill with
a cyanide circuit. The mine closed in 1913 due to litigation over
ownership, not lack of ore.
27
<PAGE>
The US Grant mining company entered into an agreement with the
original Easton mine owners in 1947, and for two years thereafter drove a
new 4,200-foot tunnel at the 600-foot level. No significant ore was
produced as a result of these efforts, although lower grade ore occurring
as halos around the high grade veins was discovered. No modern drilling
has been done to explore this potential.
The Pacific mine was discovered in 1871 and was originally mined in
the early years of the district. Ore mined from a small open pit at the
mine site from 1960 to 1976, and was processed at the Easton mill. The
little exploration work that has been done on the Easton-Pacific properties
since then has been concentrated in the Pacific pit area.
The High Up and Irene mines were worked periodically from the 1870s to
1941. The mine workings are now inaccessible; as a consequence,
assessments of mineral potential have been based on historic records and
maps. These records indicate that the mines produced between 10,000 and
15,000 ounces of gold, at an average grade of nearly 0.5 ounces per ton.
Silver was also produced from the mines, at a ratio eight times that of
gold production. A 1913 mine report described the ore body of the High Up
mine as a shear zone with good gold grades in quartz veins and in adjacent
fault clay and breccia. According to a 1941 report, ore having an average
grade of 0.6777 ounces per ton from a 2.5 to 3.5-foot zone of the High Up
mine was sampled in that year.
BACKGROUND OF THE MERGER TRANSACTION. Discussions regarding a
possible combination of Easton-Pacific and Hanover have occurred since late
1995, following an unsuccessful attempt by persons now affiliated with
Hanover to gain control of Easton-Pacific earlier that year through a
tender offer for its shares.
On February 26, 1996, Easton-Pacific and Hanover entered into a letter
of intent contemplating the merger of the company into Hanover in exchange
for shares of Hanover's Common Stock. That letter of intent expired in
July of 1996, following extensive due diligence investigations, partly out
of concern over potential environmental liabilities associated with Easton-
Pacific's Pony and Norris mining claims, and partly out of concern that
these claims could not be segregated from Easton-Pacific's Virginia City
claims in what was intended to be a tax-free transaction to Easton-
Pacific's shareholders.
Following termination of the letter of intent, Hanover reevaluated
these potential environmental liabilities and concluded they were not as
significant an impediment to the transaction as was earlier believed.
Discussions with a special committee appointed by Easton-Pacific's board of
directors ensued in early 1997, resulting in a letter agreement between the
companies on March 7, 1997. This letter agreement was superseded by the
Reorganization Agreement that was signed on April 30, 1997.
TERMS AND CONDITIONS OF THE MERGER TRANSACTION. Under the terms of
the Reorganization Agreement, Hanover will issue 7,000,000 shares of its
Common Stock, valued at $7,000,000, upon the conversion of, and in exchange
for the outstanding capital stock of Easton-Pacific. Assuming the merger
is approved by Easton-Pacific's and Hanover's shareholders, each Easton-
Pacific shareholder who votes to approve the merger and does not elect to
exercise dissenter's appraisal rights (see "Dissenter's Appraisal Rights"
below) will receive 6.721656 shares of Common Stock for each share of
Easton-Pacific capital stock registered in such shareholder's name. No
fractional shares will be issued and no payment will be made for fractional
shares. Rather, fractional shares will be rounded to the nearest whole
share of Common Stock into which the Easton-Pacific capital stock is
converted.
Completion of the merger is conditioned on the following: the
approval of the Reorganization Agreement by Easton-Pacific's and Hanover's
shareholders at meetings to be held prior to September 30, 1997 for such
purpose; the absence of any material adverse change in Easton-Pacific's
business or the condition of its mining properties; the continuing
truthfulness and accuracy of representations and warranties given by
Easton-Pacific and Hanover in the Reorganization Agreement; the receipt by
Easton-Pacific of the opinion of Randall & Danskin, P.S., counsel to
Hanover, to the effect that the merger will be tax-free to the Easton-
Pacific shareholders (see "Federal Income Tax Consequences of the
Transaction" below); evidence that the Degerstrom guaranty of Hanover's
rental and royalty obligations to the landowner-lessors of its mining
claims is in effect; the absence of perfected dissenters' appraisal rights
by the holders of more than 10% of Easton-Pacific's capital stock; and the
delivery, at closing, of various certificates. Any or all of these
conditions, other than approval by the shareholders of each company, may be
waived at or prior to closing by the party or parties for whose benefit the
conditions are given. Neither Easton-Pacific nor Hanover foresee any
difficulty in obtaining shareholder approval of the Reorganization
Agreement and completing the merger prior to September 30, 1997. Unless it
is renewed, the Reorganization Agreement will terminate on December 31,
1997 if the merger has not by then been completed.
The Reorganization Agreement is included in this Joint Proxy
Statement/Prospectus as Exhibit A. Shareholders are encouraged to read it
for more specific information concerning its provisions.
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<PAGE>
ACCOUNTING TREATMENT. Hanover is required to account for the merger
as a purchase of assets, as opposed to a pooling of interests. Under
purchase accounting, Easton-Pacific's assets and liabilities will be
recorded at the current fair values, and the excess, if any, of the
purchase price (namely, the market value of the 7,000,000 shares of Common
Stock given by Hanover in the transaction) over the fair values will be
recorded as goodwill and amortized on Hanover's balance sheet over a
prescribed period. The increased value assigned to Easton-Pacific's assets
will be depreciated or amortized over assigned periods of estimated future
benefit. Such depreciation and amortization will have the effect of
depressing any future earnings Hanover may have during such periods.
MANAGEMENTS' RECOMMENDATIONS. Easton-Pacific's and Hanover's boards
of directors have approved the Reorganization Agreement, and recommend that
it be approved by the shareholders of each company. The directors of each
company believe that the combination of Easton-Pacific and Hanover will
make their mining properties in the Virginia City Mining District more
conducive to exploration and development, and more attractive to a
potential development partner. If the merger is approved by the
shareholders, Hanover's land position in the district will increase to 669
patented and unpatented claims and three state mining leases encompassing a
contiguous area of approximately 25 square miles.
In making these recommendations, the directors of each company have
considered a number of factors, not the least of which is that Hanover's
previous mining venture with Kennecott and Easton-Pacific's previous joint
operation agreement with BHP Utah, which would have resulted in extensive
exploration work on the properties and at least held the promise of
possible large scale development operations, were terminated because
additional properties in the district could not be obtained. Although the
directors have received no assurances that the combination of their
properties will result in a mining venture or other agreement with another
major mining company, they believe the chances of negotiating and entering
into such an agreement will be significantly enhanced by the merger.
The directors of each company also believe the consideration to be
given by Hanover in the merger--namely, 7,000,000 shares of its Common
Stock valued at $7,000,000--is fair and reasonable. Although Easton-
Pacific has not explored its properties to the same degree as Hanover,
historical evidence suggests that the Easton-Pacific properties may have
significant mining value. The boards of directors is mindful of the fact
that the consideration to be given to Easton-Pacific in the merger is not
based on detailed technical studies prepared by outside experts;
nonetheless, it was arrived at as the result of prolonged arms-length
negotiations between representatives of Easton-Pacific and Hanover, and is
a fair representation of what the directors perceive to be the fair value
of each company and the fair value of both companies in combination.
DISSENTER'S APPRAISAL RIGHTS. Easton-Pacific's shareholders have
statutory rights of appraisal under the Montana Business Corporation Act
(the "Montana Act") in connection with the merger, meaning that if they
vote against the Reorganization Agreement and take other steps to perfect
their rights, summarized below, they will be entitled to receive the fair
value of their Easton-Pacific shares in cash.
The procedures for exercising and perfecting these appraisal rights
are complicated, and for this reason Easton-Pacific's shareholders are
urged to read the relevant provisions of the Montana Act, which are
included in this Joint Proxy Statement/Prospectus as Exhibit B. The
following is only a summary of these procedures and is not intended to be
inclusive.
A shareholder wishing to exercise these rights must vote against
approving the Reorganization Agreement, and prior to the taking of such
vote, must also deliver written notice to Easton-Pacific that he intends to
demand written payment for his shares if the Reorganization Agreement is
approved. If the Reorganization Agreement is approved, Easton-Pacific must
within ten days send written notice to the shareholder, accompanied by a
form for demanding payment and related information. The shareholder must
thereafter return the form to Easton-Pacific, accompanied by the
shareholders stock certificates, within the time prescribed by the form,
which may not be less than 30 nor more than 60 days.
Upon receipt of the form and the shareholder's stock certificates,
Easton-Pacific (through Hanover) will pay the shareholder the fair value of
his shares, accompanied by financial information and a statement of how the
fair value was determined. Should the shareholder disagree with Easton-
Pacific's fair value determination, he must reject the payment, following
which either Easton-Pacific (through Hanover) or the shareholder may
initiate a court proceeding in Montana to adjudicate such value. The costs
of any such proceeding, including the costs of any appraisers or other
experts, shall be borne by Easton-Pacific (through Hanover), but, at the
court's discretion, may also be assessed against the stockholder.
29
<PAGE>
FEDERAL INCOME TAX CONSEQUENCES OF THE TRANSACTION. Easton-Pacific
and Hanover will each treat the merger for federal income tax purposes as a
reorganization under section 368(a)(1)(A) of the Internal Revenue Code of
1986, as amended (the "Code"), meaning that neither Easton-Pacific nor
Hanover, nor any of their shareholders, will be required to recognize any
gain or other income or loss from the transaction for federal income tax
purposes. Easton-Pacific will receive an opinion of counsel to such effect
at closing.
MANAGEMENT
Directors and Executive Officers
The names, ages, business experience for at least the past five years
and positions of Hanover's directors and executive officers are set out
below. Such information is as of the date of this Joint Proxy
Statement/Prospectus. Hanover's board of directors consists of seven
members, all of whom serve until the next annual meeting of stockholders or
until their successors are elected and qualified. Hanover's executive
officers are appointed by the board of directors. Mr. Degerstrom, Mr. Fish
and Mr. Owsley were each appointed to the board of directors in September
of 1995, and Mr. Fish was elected president of the company in March of
1996, all pursuant to the terms of a securities purchase agreement between
Hanover and Mr. Degerstrom. Mr. Fish was elected chairman of the board of
directors in May of 1996. Mr. Schmid and Mr. Young will complete their
tenures as directors this year and have not be renominated.
Name Age Position
James A. Fish 66 Chairman, President and Chief
Executive Officer
Neal A. Degerstrom 72 Director
Pierre Gousseland 75 Director
F.D. Owsley 64 Director
Fred R. Schmid 63 Director
Laurence Steinbaum 73 Director
Nicholas S. Young 48 Director
Frank D. Duval (1) 61 Acting Operations Manager
William Neal (2) 44 Exploration Manager
____________________
(1) Mr. Duval has not been elected an executive officer of Hanover, but
may be deemed to be an executive officer by virtue of his activities
on its behalf.
(2) Mr. Neal is not an executive officer of Hanover.
Biographies of Directors, Executive Officers and Key Individuals
JAMES A. FISH. Mr. Fish has been a director of Hanover since
September of 1995, and has been its President since March of 1996 and its
Chairman and Chief Executive Officer since May of 1996. He is also Vice
President and General Counsel for N. A. Degerstrom, Inc., positions he has
held since September of 1987. Prior to that, he was in private law
practice with the firm of Winston & Cashatt in Spokane from 1980 through
1987, and at the firm of Fish, Schultz & Tombari from 1962 through 1980.
Mr. Fish was employed as superintendent at S&F Construction from 1955
through 1962. He received a bachelor of arts degree in geology from Berea
College in Kentucky in 1952 and a law degree from Gonzaga University School
of Law in 1962.
NEAL A. DEGERSTROM. Mr. Degerstrom has been a director of Hanover
since September of 1995. He is President of N. A. Degerstrom, Inc.,
Spokane, Washington, a privately-held company which has been engaged in
railroad, heavy highway, bridge and dam construction, large open pit mining
and worldwide mineral exploration since 1904, and prior to that was the
managing partner of N. A. Degerstrom Company, the predecessor in interest
to N. A. Degerstrom, Inc. Mr. Degerstrom has been a member of the Advisory
Board of the College of Engineering at Washington State University,
president of the Spokane Chapter of Associated General Contractors, a
member of the Society of Explosives Engineers and the Society of Mining
Engineers, and a trustee of the Northwest Mining Association. He received
a Civil Engineering degree from Washington State University in 1949.
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<PAGE>
PIERRE GOUSSELAND. Mr. Gousseland has been a director of Hanover
since July of 1992, and is also currently a director of SIRE, Latin-
American Gold Company, Royal Gold, Inc., Guyanor Resources S.A. and Golden
Star Resources Ltd. He was the former Chairman of the Board, Chief
Executive Officer and director of AMAX, a director with AIG, Inc., Chase
Manhattan International, Degussa AG, French American Banking Corp., Saurer
Group Investments Ltd., IBM World Trade Europe/Middle
East Africa Corp. and Pancontinental Mining Europe GmbH. Mr. Gousseland
received the degree of Ingenieur Civil des Mines from the Ecole Nationale
Superieure des Mines and a law degree from the Sorbonne. He has been
awarded the National Order of Merit in France and the Chevalier of Legion
of Honor from France.
F. D. OWSLEY. Mr. Owsley has been a director of Hanover since
September of 1995. He was formerly employed by ASARCO as General Manager
of its Northwest Mining Department and was responsible for the company's
silver mining operations in the Coeur d'Alene Mining District and its lead-
zinc and silver-copper mines in Colorado and Montana. Mr. Owsley spent
34 years with ASARCO in various mining positions with the company before
his retirement in 1993. He graduated from Montana School of Mines with a
bachelor of sciences degree in mining engineering in 1955 and has received
honorary degrees from the Montana College of Mineral Science and
Technology.
FRED R. SCHMID. Mr. Schmid was Chairman of the Board and President of
Hanover from September of 1990 through May early 1996, and was also an
executive officer of various subsidiary corporations that were merged into
the company. Since 1972 he has been Chairman of the Board, Chief Executive
Officer and President of a privately-held company that is engaged in
investing in natural resource properties. Prior to becoming involved with
Hanover, Mr. Schmid was President of National Equipment Rental, Inc., which
was engaged in equipment leasing and financing. Prior to then, he was
employed by IBM in various marketing, manufacturing and research functions.
Mr. Schmid graduated from New York University with a bachelor of sciences
degree in industrial engineering in 1963.
LAURENCE STEINBAUM. Mr. Steinbaum has been a director of Hanover
since December of 1994. From October 1990 through December 1994, he was
co-chairman of Hanover's Board of Advisors. Since 1986 he has been a
private financier and owner/investor of several businesses, including
restaurants, real estate and oil and gas producing companies. Between 1960
and 1985, he was Executive Director of the Sommerset Hills School, a
private school located in New Jersey for handicapped children, which he
owns. From 1975 to 1980, he owned a major dredging company in Florida. He
graduated from New York University in 1951 receiving a bachelor of sciences
degree and completed courses toward a Masters Degree at New York
University's School of Social Sciences.
NICHOLAS S. YOUNG. Mr. Young has been a director of Hanover, Hanover
International, Inc. and Hanover Resources since October of 1990. From
October 1990 through December 1994, he was co-chairman of Hanover's Board
of Advisors. He is presently a director of Spencer Stuart, a privately-
held executive search firm headquartered in New York City. Since July of
1992, Mr. Young has served as President of TriCoastal Steel Corp. and as a
Vice President of Citibank, where he founded and managed the Global Gold
Business Department, which provided corporate financing and investment
banking services to governments, corporations and private investors using
gold as the medium of exchange. Prior to joining Citibank, Mr. Young held
various sales, marketing, trading and management positions with AMAX,
Kennecott and Hudson Bay Mining Company. He attended Franconia College and
Harvard Business and Management School.
FRANK D. DUVAL. Mr. Duval presently serves in an ex officio capacity
as acting operations manager of Hanover and exercises responsibility with
respect to its day-to-day operations. He is also presently the president
and a director of Midnite Mines, Inc., based in Spokane, Washington. From
1974 until his resignation in 1987, Mr. Duval served in various capacities
as a director or executive officer of Pegasus Gold Inc., a major North
American mining company, which he founded. He is also a co-founder and
principal shareholder of Montana Reserves Company, a privately-held mining
company which, until operations were curtailed in 1995, was a joint venture
partner with Noranda Minerals Corp. in a large copper and silver project
located in Sanders and Lincoln counties, Montana. Mr. Duval has been
engaged in the mining business in various capacities for over 30 years.
In 1991, Star Phoenix Mining Company, an Idaho corporation with which
Mr. Duval was affiliated as its president, a director and a significant
shareholder, filed for protection from creditors under federal bankruptcy
law following the termination by Hecla Mining Company of a lease and option
agreement between Star Phoenix and Hecla covering mining properties in the
Coeur d'Alene Mining District in northern Idaho. Mr. Duval is also one of
several guarantors of indebtedness incurred by Star Phoenix. As a
consequence of its bankruptcy, a creditor of Star Phoenix brought suit
against Mr. Duval based on the guaranty and obtained a judgment against Mr.
Duval which has not yet been fully satisfied. This judgment is presently
the subject of further court review.
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<PAGE>
WAYNE SCHOONMAKER. Mr. Schoonmaker was appointed Secretary, Treasurer
and Principal Accounting Officer of Hanover in January of 1996. From 1981
until 1993, he was Financial Manager of the Northwest Mining Department of
ASARCO, and from 1978 until 1991, was Chief Accountant at ASARCO's Troy
Unit in Montana, where he was responsible for the installation and
implementation of the accounting system for the start-up Troy mine. From
July of 1978 through December of 1978, Mr. Schoonmaker was Assistant
Treasurer of the Bunker Hill Company, and from 1964 to 1978, was Assistant
Corporate Secretary of Hecla Mining Company. Mr. Schoonmaker received a
bachelor of sciences degree in accounting from the University of Montana in
1962 and masters degree in business administration from the University of
Idaho in 1987.
WILLIAM NEAL. Mr. Neal has been associated with Hanover as its
Exploration Manager since November of 1996. From 1987 until joining the
company, he served as a senior geologist with Battle Mountain Gold Company
in its domestic exploration group. Prior to that, he worked as a geologist
for Chevron Resources and as a consultant to First Miss Corporation. Mr.
Neal has over eighteen years' experience in mineral exploration, primarily
in the western United States. He received a bachelor of sciences degree in
geology from Colorado State University in 1977 and a master of science
degree in geology from Washington State University in 1987.
Committees of the Board of Directors
Hanover maintains an audit committee and a nominating committee of its
board of directors. The audit committee is presently comprised of
directors Owsley, Fish and Steinbaum, and has duties relating to Hanover's
internal accounting controls, the year-end audit of its financial
statements and its relationship with its independent auditors. The
nominating committee is currently comprised of directors Degerstrom, Owsley
and Steinbaum, and is responsible for identifying persons to serve as
executive officers and directors of the company.
Section 16(a) Reporting Obligations
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") requires the Company's directors and executive officers,
and persons who own more than 10% of a registered class of the Company's
equity securities, to file initial reports of ownership and reports of
changes in ownership with the SEC. These persons are required by the SEC's
regulations to furnish Hanover with copies of all Section 16(a) reports
they file. Based solely on its review of copies of these reports, Hanover
believes that during the year ended December 31, 1996, Messrs. Fish,
Degerstrom, Gousseland, Schmid, Steinbaum, Young and Duval were delinquent
in reporting changes in their stock ownership on Form 4, and that Mr.
Schoonmaker was delinquent in reporting his initial stock ownership on
Form 3.
[The balance of this page has been intentionally left blank.]
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<PAGE>
Executive Compensation
SUMMARY COMPENSATION TABLE. The following table discloses
compensation received by Hanover's current and former president and chief
executive officer for the years ended December 31, 1996, 1995 and 1994. No
other executive officer's salary and bonus exceeded $100,000 in any of
these years.
Annual Compensation
- --------------------------------------------------------------------------
Other
Executive Annual
Officer Year Salary Bonus Compensation
- --------- ---- ------ ----- ------------
James A. Fish (1) 1996 $ 75,000 $ 0 $ 0
President and Chief 1995 0 0 0
Executive Officer 1994 0 0 0
Fred R. Schmid
Former President and 1996 0 90,000 (2) 0
Chief Executive 1995 137,435 0 0
Officer 1994 126,445 150,000 (3) 0
<TABLE>
<CAPTION>
Long-Term Compensation
- -----------------------------------------------------------------------------------------
Dollars Securities
Value of Underlying All Other
Executive Restricted Options/ LTIP Compen-
Officer Year Stock Awards SARS Payouts sation
- --------- ---- ------------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C>
James A. Fish (1) 1996 $ 0 $ 0 $ 0 $ 0
President and Chief 1995 0 0 0 0
Executive Officer 1994 0 0 0 0
Fred R. Schmid
Former President and 1996 0 0 0 0
Chief Executive 1995 0 0 0 0
Officer 1994 0 0 0 0
________________
</TABLE>
(1) Mr. Fish succeeded Fred R. Schmid as president and chief executive
officer of Hanover in March of 1996. Mr. Fish's annual salary is
payable in the form of cash ($3,750 per month) and restricted shares
of Common Stock ($3,750 in value per month, issued annually), based on
60% of the average of the "asked" market prices of the Common Stock as
reported on the Nasdaq SmallCap Market during the preceding calendar
month.
(2) Consists of compensation paid to Mr. Schmid pursuant to the terms of a
consulting agreement entered into in March of 1996. This agreement
was terminated as of December 31, 1996.
(3) Consists of a bonus awarded to Mr. Schmid in 1994 for his services in
raising the initial working capital for Hanover and completing its
public financing.
OVERALL COMPENSATION POLICY. Salaries paid to Hanover's executive
officers are determined by the board of directors and by a compensation
committee of the board, which is responsible for considering specific
information and making recommendations to the full board. The compensation
committee is comprised of two outside directors appointed annually by
Hanover's board of directors and presently comprises Mr. Gousseland and
Mr. Steinbaum. In considering and recommending executive compensation, the
compensation committee reviews factors such as individual executive
compensation, corporate performance, stock price appreciation and the total
return to stockholders. The committee also considers executive
compensation levels within a peer group of publicly-held North American
gold-mining companies and, at least historically, takes into account the
views of the company's chief executive officer.
Hanover's executive compensation philosophy has been designed with the
following objectives: to attract and retain the best possible executive
talent; to provide an economic framework to motivate these executives to
achieve goals consistent with the company's business strategy; to provide
an identity between executive and stockholder interests through stock
option plans; and to provide a compensation package that recognizes an
executive's individual results and contributions to the company's overall
business objectives.
SALARY. The key elements to Hanover's executive compensation
philosophy are salary and incentive stock options. The compensation
committee of the board acts on salary levels of officers and the stock plan
committee of the board acts on employee stock option awards. Together,
these committees design an overall compensation package for each executive.
Salaries for executive officers are determined by evaluating the
responsibilities of the position held and the experience of the individual,
and by reference to the market for executive talent, the latter of which
provides a comparison of salaries for comparable positions at other gold
mining companies. The salary levels of the chief executive officer and
other executive officers of the company for the following calendar year are
generally established by the board of directors at its December meeting or
at a later special meeting of the board. Specific individual performance
and overall corporate performance are
33
<PAGE>
reviewed in determining the compensation level of each individual officer.
The compensation committee, where appropriate, also considers other
performance measures, such as safety, environmental awareness and
improvements in relations with the company's stockholders, employees, the
public and government regulators. In evaluating the performance and
setting the compensation of the chief executive officer and the other
executive officers, the compensation committee, board of directors and
stock option plan committee have traditionally maintained salary
compensation at levels below those of other companies within the company's
peer group. In order to compensate for these lower salaries, the chief
executive officer and other executive officers of the company have
historically been granted performance incentives in the form of incentive
stock options.
CASH BONUSES. From time to time, the board of directors and the
compensation committee may approve cash bonuses to executives and key
employees, based on outstanding achievement in the performance of their
respective duties. No cash bonuses have been awarded since 1994.
STOCK OPTIONS. Hanover maintains one stock option plan, the 1995
Stock Option Plan. The plan provides for the issuance of incentive stock
options intended to qualify under Section 422A of the Internal Code, and
options that are not qualified under the Code. Key individuals, including
officers and directors who are also employees, are eligible to receive
grants of options under the plan. All options are exercisable at prices
equivalent to the mean of the high and low sales prices of the Common
Stock, as reported by the Nasdaq SmallCap Market as of the date of grant.
As of the date of this Joint Proxy Statement/Prospectus, options for
800,000 shares of Common Stock had been granted, and options for
3,200,000 additional shares were available for grant under the plan.
The plan is jointly administered by the stock option plan committee
and by the board. The primary function of the stock option plan committee
is to review and evaluate the fairness of the recommendations of management
concerning proposed grants of options to directors and executive officers.
The primary function of the board in such matters is to consider the
recommendations of the stock option plan committee and to authorize
proposed grants of options to such persons. Stockholder approval of the
plan was obtained at the 1996 special meeting of shareholders, for the
purposes of qualifying the plan pursuant to Rule 16b-3 promulgated under
the Exchange Act.
OPTIONS GRANTED IN 1996; OPTION EXERCISES AND OPTION VALUES. No
options were granted during the year ended December 31, 1996 to Hanover's
executive officers identified in the preceding table. No options were
exercised during the year by such persons or were held by such persons at
year end.
[The balance of this page has been intentionally left blank.]
34
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth as of the date of this Joint Proxy
Statement/Prospectus, the names of, and number of shares beneficially owned
by, persons known to Hanover to own more than five percent (5%) of its
Common Stock; the names of, and number of shares beneficially owned by each
of its directors and executive officers; and the number of shares
beneficially owned by, of all of its directors and executive officers as a
group. At such date, the number of shares of Common Stock outstanding or
deemed outstanding pursuant to presently exercisable options was 23,204,411
shares.
Amount and Nature of
Beneficial Ownership
(all direct unless Percent
Name of Owner otherwise noted) of Class
- ------------- -------------------- --------
James A. Fish (1), (2) 151,421 less than 1%
Neal A. Degerstrom (1), (3) 6,770,990 29.2%
Pierre Gousseland (1), (4) 190,017 less than 1%
F. D. Owsley (1), (5) 29,000 less than 1%
Fred R. Schmid (1), (6) 3,397,092 14.6%
Laurence Steinbaum (1), (7) 447,856 1.9%
Nicholas S. Young (1), (8) 719,307 3.1%
Frank Duval 100 (9) less than 1%
All directors and executive officers
as a group (8 persons) (10) 11,573,683 49.9%
____________________
(1) Director of the company.
(2) Mr. Fish is Chairman, President and Chief Executive Officer of the
company. The shares attributed to Mr. Fish include 103,000 shares
acquired pursuant to the securities purchase agreement described in
footnote 3, below. Such shares are also attributed to Neal A.
Degerstrom in the foregoing table.
(3) The foregoing table attributes to Mr. Degerstrom all of the shares
purchased by Mr. Degerstrom and his permitted assigns pursuant to the
securities purchase agreement dated as of June 1, 1995, as amended.
Although all shares purchased by Mr. Degerstrom and his assigns are
shown in the table above as beneficially owned by Mr. Degerstrom, a
Schedule 13D dated June 20, 1995, as amended through the date of this
Prospectus, filed by Mr. Degerstrom and others states that 3,434,190
of such shares have been registered in Mr. Degerstrom's or his
company's own name, representing approximately 14.8% of the Common
Stock outstanding or deemed outstanding at such date. The
Schedule 13D filed by Mr. Degerstrom and his permitted assigns also
states that none of the persons identified as reporting persons in the
Schedule 13D controls the voting or disposition of any shares of
Common Stock other than those shares owned by each such person, and on
this basis Mr. Degerstrom disclaims beneficial ownership of the shares
owned by his assigns. On March 17, 1997, the board of directors
granted Mr. Degerstrom four year options to purchase up to 2,312,968
shares of Common Stock as consideration for his guarantee of certain
obligations in connection with the company's agreement to acquire
Easton-Pacific. Mr. Degerstrom subsequently assigned 1,541,978 of
these options to two individuals who agreed to severally guarantee a
portion of these obligations. (See "Easton-Pacific and the Easton-
Pacific Transaction".) These options are exercisable by Mr.
Degerstrom and the two other co-guarantors at the price of $1.25 per
share.
[Footnotes continued on following page.]
35
<PAGE>
(4) Includes 100,000 shares issuable pursuant to presently exercisable
options granted under Hanover's 1995 Stock Option Plan.
(5) The shares attributed to Mr. Owsley were acquired pursuant to the
securities purchase agreement described in footnote 3, above, and have
also been attributed to Mr. Degerstrom in the foregoing table.
(6) Includes 425,000 shares issuable to Mr. Schmid and his son, Stephen
Schmid, under Hanover's 1995 Stock Option Plan. In addition, members
of Mr. Schmid's family beneficially own an additional 2,514,136 shares
issued upon the merger of Hanover Resources and Group S into Hanover,
which, when combined with Mr. Schmid's shareholdings, represent
approximately 16% of the outstanding Common Stock as of the date of
this Prospectus. Mr. Schmid disclaims beneficial ownership of the
shares owned by members of his family.
(7) Includes 125,000 shares issuable pursuant to presently exercisable
options granted under Hanover's 1995 Stock Option Plan and 5,000
shares owned beneficially and of record by Mr. Steinbaum's spouse.
(8) Includes 150,000 shares issuable pursuant to presently exercisable
options granted under Hanover's 1995 Stock Option Plan.
(9) According to a Schedule 13D previously filed by Mr. Degerstrom on
behalf of himself, Mr. Duval and others (see footnote 3, above), Mr.
Degerstrom and Mr. Duval had an understanding pursuant to which Mr.
Duval could have purchased up to one-half of the shares acquired by
Mr. Degerstrom and N.A. Degerstrom, Inc. pursuant to the securities
purchase agreement between Mr. Degerstrom and Hanover, at the prices
paid by Mr. Degerstrom and N.A. Degerstrom, Inc. for such shares.
That understanding was terminated in April of 1997.
(10) See footnotes 2, 3, 5 and 9, above.
LOCK-UP AGREEMENTS. Hanover's directors, members of the Schmid family
and members of the Degerstrom group of investors have each entered into
lock-up agreements with Hanover limiting the number of shares each may
resell over time. These lock-up agreements were entered into in August of
1995, as consideration for the registration under the Securities Act of the
shares of Common Stock offered for resale under this Prospectus by these
persons. (See "Selling Stockholders".)
The lock-up agreements generally provide that a selling stockholder
may not resell more than 15% of his or her shares during each of two
successive six-month periods commencing March 4, 1997 and September 4,
1997, effectively limiting total sales by each person to no more than 30%
of his or her shares during the twelve month period ending on March 3,
1998. Despite the foregoing limitations, a selling stockholder is free to
transfer any number of his or her shares to the that stockholder's children
or relatives, by gift or otherwise, and may also transfer any number of
shares in a private sale, provided, in each case, that any such shares
shall continue to be subject to the restrictions set forth in the lock-up
agreement.
As used in the agreement, the term "private sale" is be defined to
mean any non-public sale effected by the selling stockholder and the
purchaser of such selling stockholder's shares, without the assistance or
intervention of a securities broker or dealer, which occurs outside the
medium of the Nasdaq SmallCap Market or any other securities exchange or
secondary market on which shares of the Hanover's Common Stock are traded
or prices therefor are quoted.
The lock-up agreements further provide that Hanover will undertake, at
its sole cost and expense, to register any additional shares each selling
stockholder desires to register for resale under the Securities Act after
this Prospectus expires. The lock-up agreements also provide that, in the
event a selling stockholder who is also a director or executive officer
ceases to be affiliated with Hanover in these capacities, he or she shall
be free of the lock-up restrictions, provided, however, that if such
selling stockholder offers any shares for sale for a period of six months
thereafter, he or she shall direct such offer to Hanover, and then to the
Degerstrom group of stockholders and the other directors and executive
officers, who shall each have a ten-day right of first refusal to purchase
the same.
Hanover has also entered into lock-up agreements with certain
affiliates of Easton-Pacific in connection with the proposed merger of
Easton-Pacific into the company, limiting the number of shares of Common
Stock these persons may resell. These agreements provide that no shares of
Common Stock may be resold by such persons prior to December 26, 1997, and
that for the period commencing December 28, 1997 and ending July 15, 1998,
only one-half of each person's Common Stock may be resold. The lock-up
provisions of the agreement terminate on July 15, 1998.
36
<PAGE>
CERTAIN TRANSACTIONS
As is previously discussed in this Joint Proxy Statement/Prospectus,
on March 17, 1997, Neal A. Degerstrom, who is affiliated with Hanover,
guaranteed the payment of Hanover's obligations to the landowner-lessors of
its mining claims and leases through September 7, 1998, up to the aggregate
amount of $2,891,210, which amount approximates Hanover's obligations to
these landowner-lessors during the period of the guaranty. As
consideration for the guaranty, Hanover granted Mr. Degerstrom three year
options to purchase up to 2,312,968 shares of Hanover's Common Stock at an
exercise price of $1.25 per share. Payments made by Mr. Degerstrom
pursuant to the guaranty will be credited toward the exercise of such
options. Effective April 29, 1997, Mr. Degerstrom assigned two-thirds of
these options equally to two nonaffiliated individuals, each of whom
undertook to guarantee the payment to Mr. Degerstrom of one-third of the
amount Mr. Degerstrom pays at any time during the term of his guaranty.
The guaranty was given by Mr. Degerstrom in connection with the
reorganization agreement, dated as of April 30, 1997, between Hanover and
Easton-Pacific.
As is also previously discussed in this Joint Proxy Statement/
Prospectus, on September 12, 1996 Hanover completed the merger of two
subsidiary companies, Hanover Resources, Inc. and Group S Limited, with and
into the company on September 12, 1996, in exchange for 2,270,486 shares of
Common Stock which were distributed to the former shareholders of Hanover
Resources and Group S and the distribution of an additional 3,625,000
shares of Common Stock to Hanover Resources' shareholders in exchange for
the same number of shares of Hanover's Common Stock then held by Hanover
Resources. The boards of directors and shareholders of Hanover, Hanover
Resources and Group S approved the merger for a variety of reasons, the
principal one being to consolidate the mining properties of the three
companies under Hanover, so that Hanover could move forward in a simple,
straightforward manner with continued exploration and development of the
properties. Hanover accounted for the merger as a combination of entities
under common control, as a consequence of which the assets of Hanover
Resources and Group S were recorded at cost and no value was ascribed to
goodwill.
[The balance of this page has been intentionally left blank.]
37
<PAGE>
SELLING STOCKHOLDERS
The following table sets out as of the date of this Joint Proxy
Statement/Prospectus the name of each Selling Stockholder known to the
Company to own any of the shares included in the Registration Statement of
which this Joint Proxy Statement/Prospectus is a part; any position, office
or other material relationship between the Selling Stockholder and the
Company within the past three years; the number of shares of Common Stock
known to the Company to be beneficially owned by the Selling Stockholder at
such date; the number of shares offered hereby by the Selling Stockholder;
and the number of shares of Common Stock and percentage ownership interest
of the Selling Stockholder following this offering. Hanover previously
filed a registration statement with the SEC that was declared effective on
September 3, 1996. The prospectus included in that registration statement
reoffered many of the shares that are also reoffered by the Selling
Stockholders in this Joint Proxy Statement/Prospectus. Some of the Selling
Stockholders may have sold all or a part of their shares since the date of
that registration statement, as a consequence of which the following table
may not accurately reflect their current shareholdings.
<TABLE>
<CAPTION>
Shares of Common Stock
--------------------------------------------------------------
Beneficially Offered Remaining After Offering
Name Owned Hereby and Percentage (1)
- ---- ------------ ------- ------------------------
<S> <C> <C> <C>
STOCKHOLDERS WHO ACQUIRED SHARES IN
MERGER OF HANOVER RESOURCES AND
GROUP S WITH AND INTO THE COMPANY:
William McCoy 80,065 80,065 0 / 0 %
Joseph Belden 24,463 24,463 0 / 0 %
Nicholas Young (2) 544,307 163,292 381,015 / 1.18 %
Laurence Steinbaum (2) 287,076 86,123 200,953 / less than 1%
Manuel Garcia 55,601 55,601 0 / 0 %
Paul Stevens 184,503 184,503 0 / 0 %
Anthony Sharkey 38,341 38,341 0 / 0 %
Stephen J. Schmid 365,987 109,796 256,191 / less than 1%
Robert C. Schmid 234,189 70,257 163,932 / less than 1%
Susan E. Schmid 234,189 70,257 163,932 / less than 1%
Paul G. Schmid 234,189 70,257 163,932 / less than 1%
Heidi A. Schmid 234,189 70,257 163,932 / less than 1%
Mary Anna Schmid 1,170,943 351,283 819,660 / 2.54 %
Fred Schmid (2) 325,000 97,500 227,500 / less than 1%
Michael Koronsky 12,232 12,232 0 / 0 %
Selig Zises 55,601 55,601 0 / 0 %
Joseph Katz 400,046 400,046 0 / 0 %
Paul Schratwieser 83,360 83,360 0 / 0 %
Joseph Sussen 83,360 83,360 0 / 0 %
Mark Epstein 218,930 218,930 0 / 0 %
Wendy Braunstein 6,990 6,990 0 / 0 %
Roseann Gedman 33,851 33,851 0 / 0 %
Alfred J. Arsenault 80,476 80,476 0 / 0 %
Floyd Kimble 166,715 166,715 0 / 0 %
Pierre Gousseland (2) 50,017 15,005 35,012 / less than 1%
Ira Kent 166,715 166,715 0 / 0 %
Thomas Neff 121,906 121,906 0 / 0 %
Frank Wheaton 152,074 152,074 0 / 0 %
Castel SA 40,938 40,938 0 / 0 %
Gertrude Gary 40,939 40,939 0 / 0 %
Signature Development Group, Inc. 40,939 40,939 0 / 0 %
Phyllis Schwartz 40,939 40,939 0 / 0 %
Atlantic Marketing Group, Inc. 26,786 26,786 0 / 0 %
Canopus Limited 29,815 29,815 0 / 0 %
Axel Wallenberg 29,815 29,815 0 / 0 %
[Table continued on following page.]
38
<PAGE>
Shares of Common Stock
--------------------------------------------------------------
Beneficially Offered Remaining After Offering
Name Owned Hereby and Percentage (1)
- ---- ------------ ------- ------------------------
DEGERSTROM GROUP STOCKHOLDERS:
Neal A. Degerstrom (2) 1,834,190 (4) 669,942 1,164,248 / 3.62 %
N.A. Degerstrom, Inc. (3) 1,600,000 (4) 120,000 1,480,000 / 4.60 %
James A. Fish (2) 43,000 12,900 30,100 / less than 1%
James F. Etter 400,000 120,000 280,000 / less than 1%
Hobart Teneff 1,541,989 (5) 171,300 1,370,689 / 4.26 %
Raymond A. Hanson 1,541,989 (6) 201,300 1,340,689 / 4.16 %
Michael Coleman 43,000 12,900 30,100 / less than 1%
Susan Roberts 70,000 21,000 49,000 / less than 1%
James Bradbury 50,000 15,000 35,000 / less than 1%
Merlin Bingham 57,000 17,100 39,900 / less than 1%
F. D. Owsley (2) 29,000 8,700 20,300 / less than 1%
Chester Chastek 133,000 39,900 93,100 / less than 1%
Steve Teneff 150,000 45,000 105,000 / less than 1%
Roy Pearson 133,000 39,900 93,100 / less than 1%
John Czinger 34,000 10,200 23,800 / less than 1%
Robert Kistler 125,000 37,500 87,500 / less than 1%
James Workland 7,500 2,250 5,250 / less than 1%
David Levitch 7,500 2,250 5,250 / less than 1%
John Steinmetz 10,000 3,000 7,000 / less than 1%
William Winkler 30,000 9,000 21,000 / less than 1%
Robert Kovacevich 25,000 7,500 17,500 / less than 1%
Frank Sallee 200,000 60,000 140,000 / less than 1%
Ralph Welsh 15,000 4,500 10,500 / less than 1%
Thomas Schenk 5,000 1,500 3,500 / less than 1%
David Peterson 25,000 7,500 17,500 / less than 1%
OTHER SELLING STOCKHOLDERS:
Tabor Resources Corporation 525,000 525,000 0 / 0 %
Roy A. Moen and Marlene Moen 382,500 (7) 382,500 (7) 0 / 0 %
Moen Builders, Inc. 67,500 67,500 0 / 0 %
United Reef Petroleum Ltd. 150,000 150,000 0 / 0 %
Patrick Harrison 47,000 47,000 0 / 0 %
Estate of William Marston 22,679 22,679 0 / 0 %
William Goodridge 10,000 (8) 10,000 (8) 0 / 0 %
Karilla of Waterford Limited 200,000 200,000 0 / 0 %
____________________
</TABLE>
(1) The number of shares of Common Stock outstanding or deemed outstanding
as of the date of this Joint Proxy Statement/Prospectus was
23,204,411 shares. Following this offering, 32,204,411 shares will be
outstanding or deemed outstanding.
(2) Messrs. Young, Steinbaum, Schmid, Gousseland, Degerstrom, Fish and
Owsley are directors of Hanover. Mr. Fish is also Chairman, President
and Chief Executive Officer of Hanover.
(3) N.A. Degerstrom, Inc. is controlled by Neal A. Degerstrom.
(4) See Note 9 to the Principal Stockholders table at page 36 of this
Joint Proxy Statement/Prospectus.
[Footnotes continued on following page.]
39
<PAGE>
(5) Consists of 771,000 shares purchased by Mr. Teneff under the terms of
a securities purchase agreement between Hanover and Neal A.
Degerstrom, and options for the purchase of 770,989 shares granted to
Mr. Teneff as consideration for his partial guaranty of Hanover's
obligations to the landowner-lessors of its mining claims. Such
options are exercisable at the price of $1.25 per share during the
four-year period ending March 17, 2001.
(6) Consists of 771,000 shares purchased by Mr. Hanson under the terms of
a securities purchase agreement between Hanover and Neal A.
Degerstrom, 100,000 of which are owned by the company controlled by
Mr. Hanson, and options for the purchase of 770,989 shares granted to
Mr. Hanson as consideration for his partial guaranty of Hanover's
obligations to the landowner-lessors of its mining claims. Such
options are exercisable at the price of $1.25 per share during the
four-year period ending March 17, 2001.
(7) Includes 200,000 shares of Common Stock issuable pursuant to presently
exercisable options. Such options are exercisable at the price of
$2.00 per share and expire on April 27, 1999.
(8) Includes 5,000 shares of Common Stock issuable pursuant to presently
exercisable options. Such options are exercisable at the price of
$2.50 per share and expire on November 1, 1997.
PLAN OF DISTRIBUTION
Sales by the Selling Stockholders
The Selling Shareholders propose to sell the shares from time-to-time
or at any time during a period of twelve months from the date of this Joint
Proxy Statement/Prospectus, in transactions in the over-the-counter market,
in other permitted public sales, in privately negotiated transactions or
otherwise, at market prices prevailing at the time of sale or at negotiated
prices.
Some or all of the shares may be sold in transactions involving
broker-dealers, who may act solely as agent or may acquire shares as
principal. Broker-dealers who participate in such transactions as agent
may receive commissions from Selling Stockholders and, if they act as agent
for the purchaser, also from the purchaser. Selling Stockholders and any
such broker-dealer may be deemed to be "underwriters", as that term is
defined in Section 2(11) of the Securities Act. Any commissions received
by any such broker-dealers in connection with any such sales, and any
profits received from the resale of shares acquired by such broker-dealers
as principal, may be deemed to be underwriting discounts and commissions
pursuant to the Securities Act.
Hanover has agreed to indemnify the Selling Stockholders for certain
liabilities, including liabilities arising under the Securities Act, in
conjunction with the offer and sale of the shares by the Selling
Stockholders pursuant to this Joint Proxy Statement/Prospectus. Insofar as
indemnification for liabilities arising under the Securities Act may be
permitted pursuant to the foregoing, or to directors, officers and
controlling persons of the company pursuant to applicable provisions of the
Delaware General Corporation Law and the company's bylaws, Hanover has been
advised that, in the opinion of the SEC, such indemnification is against
public policy as expressed in the Securities Act and is therefore
unenforceable. In the event a claim for indemnification against such
liabilities (other than the payment by Hanover of expenses incurred or paid
by a director, officer, Selling Stockholder or controlling person in a
successful defense of any action, suit or proceeding) is asserted by such
person in connection with the shares offered by this Joint Proxy
Statement/Prospectus, Hanover will, unless in the opinion of its counsel
such matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification is
against public policy as expressed in the Securities Act, and will be
governed by the final adjudication of such issue.
Hanover has also agreed to indemnify Easton-Pacific for certain
liabilities, including liabilities arising under the Securities Act,
pursuant to the Reorganization Agreement. Easton-Pacific has similarly
indemnified Hanover for such liabilities under the Reorganization
Agreement.
Sales by the Company
TERMS OF SALE. Subject to the terms and conditions set forth in this
Joint Proxy Statement/Prospectus, certain of the directors and executive
officers of Hanover have agreed to offer and sell 2,000,000 shares of
Common Stock to the public on Hanover's behalf on a best efforts basis, at
prices equal to the closing sales prices of the Common Stock as reported on
the Nasdaq SmallCap Market as of the dates of sale. Hanover's obligation
to issue these shares is not conditioned upon the receipt of
40
<PAGE>
minimum subscriptions from the sale of the shares. No commission or other
form of remuneration will be paid to any director or executive officer in
connection with these sales. The company has agreed to indemnify those of
its directors and executive officers participating in the offering against
certain liabilities, including liabilities under the Securities Act.
USE OF PROCEEDS. The net proceeds Hanover receives from the sale of
the shares of Common Stock offered by it for cash pursuant to this Joint
Proxy Statement/Prospectus will be approximately $2,425,000, assuming all
of such shares are sold at the assumed price of $1.25 per share. Hanover
will use these net proceeds to fund limited drilling and other exploration
activities on its mining properties during 1997, to pay general and
administrative expenses, to pay related party indebtedness of approximately
$175,000 incurred by Easton-Pacific and assumed by Hanover as part of the
proposed merger, and as working capital. Net proceeds represent the gross
sales price of the shares, less anticipated legal, accounting, printing and
filing costs of $75,000 incurred in the registration of the shares and the
preparation of this Joint Proxy Statement/Prospectus
DESCRIPTION OF CAPITAL STOCK
Overview
Hanover is authorized under its articles of incorporation, as amended,
to issue up to 50,000,000 shares of capital stock, of which 48,000,000
shares are designated Common Stock, par value $.0001 per share, and
2,000,000 shares are designated preferred stock, par value $.001 per share,
issuable in one or more series, with such rights, preferences, limitations
and other characteristics as the board of directors may from time-to-time
determine.
Common Stock
Holders of Common Stock are entitled to one vote per share upon all
matters on which they have the right to vote. Shares of Common Stock do
not have preemptive rights and are not subject to redemption. Holders of
Common Stock are entitled to receive such dividends as may be declared by
Hanover's board of directors out of funds legally available therefore,
subject to the preferential dividend rights of holders of any outstanding
shares of preferred stock. In the event Hanover dissolves or winds up of
its affairs, holders of Common Stock will be entitled to share ratably in
all of its remaining assets, after payment of all creditors and any
preferential liquidating dividends payable to the holders of any
outstanding shares of preferred stock. The Common Stock is fully paid and
nonassessable.
The transfer agent and registrar for the Common Stock is
TransSecurities International, Inc., 2510 North Pines Road, Suite 202,
Spokane, Washington 99206.
Preferred Stock
The preferred stock is issuable in one or more series by resolution
adopted by at least two-thirds of Hanover's board of directors, without
stockholder approval, with such rights, preferences, limitations and other
characteristics as the board of directors may determine. No shares of
preferred stock were outstanding as of the date of this Joint Proxy
Statement/Prospectus.
Some corporate and securities law commentators believe that companies
having authorized preferred stock are less vulnerable to unsolicited
takeovers (and by implication, the higher prices that may be paid to
shareholders in an unsolicited takeover), since preferred stock can be
issued by a board of directors as a defensive strategy to such offers.
Other commentators believe that the issuance of preferred stock as a
defensive strategy increases the price eventually paid to shareholders in a
successful takeover because the specter of such issuance forces an offeror
to negotiate price with the board of directors. Hanover is not aware of
any unsolicited takeover attempt, and cannot predict whether any such
attempt would be made. Similarly, Hanover's board of directors has not
adopted a prospective defensive strategy to an unsolicited takeover attempt
utilizing the preferred stock, and is not expected to consider or adopt any
such strategy in the absence of such an attempt. It is the present
position of the board of directors that any such defensive strategy should
be adopted, if at all, only after the terms and conditions of any such
takeover attempt have been made known and the board of directors, together
with its financial advisors, have had an opportunity to study the offer and
its effect on the company and its shareholders.
41
<PAGE>
Shares Eligible for Future Sale
Prior to this offering, there has been only a limited public market
for Hanover's Common Stock. Future sales of substantial amounts of Common
Stock in the public market could adversely affect prevailing market prices.
Upon completion of this offering, there will be 32,204,411 shares of
Common Stock outstanding or deemed outstanding pursuant to presently
exercisable options. Of these shares, the 15,561,248 shares sold in this
offering and 4,135,600 previously outstanding shares will be transferable
without restriction under the Securities Act, unless purchased or held by
an "affiliate" of Hanover, as that term is defined in Rule 144. The
remaining shares outstanding after completion of this offering will be
"restricted securities" as defined in Rule 144. Restricted securities and
securities held by affiliates may be sold only if registered under the
Securities Act or if they qualify for an exemption from registration,
including an exemption pursuant to Rule 144.
In general, under Rule 144 as currently in effect, beginning 90 days
after the date of this Prospectus, a person who has beneficially owned
restricted securities for at least one year would be entitled to sell,
within any three-month period, a number of shares that does not exceed the
greater of one percent of the then outstanding shares of Common Stock or
the average weekly trading volume of the Common Stock in the over-the-
counter market during the four calendar weeks preceding the date on which
notice of the sale is filed with the SEC. Sales under Rule 144 are subject
to a certain manner of sale provisions, notice requirements and the
availability of current public information about the company. A person who
is not deemed an affiliate of Hanover at any time during the three months
preceding a sale, and who has beneficially owned restricted securities for
at least two years, is entitled to sell such shares under Rule 144(k)
without regard to volume limitations, manner of sale provisions, notice
requirements or the availability of current public information. Rule 144A
under the Securities Act permits the immediate sale by the current holders
of restricted securities of all or a portion of their shares to certain
qualified institutional buyers as defined in Rule 144A.
LEGAL MATTERS
Hanover's attorneys, Randall & Danskin, P.S., 1500 Seafirst Financial
Center, Spokane, Washington 99201, have passed upon the legality of this
offering on behalf of the company.
EXPERTS
The financial statements of Hanover Gold Company, Inc. included in
this Joint Proxy Statement/Prospectus have been audited by BDO Seidman LLP,
independent certified public accountants, to the extent and for the periods
set forth in their report appearing elsewhere herein, and are included in
reliance upon such report given upon the authority of said firm as experts
in accounting and auditing. The report of BDO Seidman, LLP contains an
explanatory paragraph regarding Hanover's ability to continue as a going
concern. Hanover's financial statements as of December 31, 1995 and 1994,
and for each of the four years then ended, have been included in this Joint
Proxy Statement/Prospectus in reliance on the report of Zeller Weiss &
Kahn, Mountainside, New Jersey, independent public accountants, given on
the authority of that firm as experts in accounting and auditing.
The financial statements of Easton-Pacific included in this Joint
Proxy Statement/Prospectus have been audited by Terrence J. Dunne,
independent certified public accountant, to the extent and for the periods
set forth in his report appearing elsewhere herein, and are included in
reliance upon such report given upon the authority of such individual as an
expert in accounting and auditing.
42
<PAGE>
SUPPLEMENTAL FINANCIAL INFORMATION
Introduction
The following supplemental financial information consists of
unaudited pro form consolidated financial information of Hanover and a
discussion and analysis of Easton-Pacific's management concerning Easton-
Pacific's financial condition and results of operations for the periods
reflected in its financial statements appearing elsewhere in the Joint
Proxy Statement/Prospectus. Such supplemental information should be read
in conjunction with the historical financial statements of Hanover and
Easton-Pacific appearing elsewhere in this Joint Proxy Statement/
Prospectus.
Unaudited Pro Forma Consolidated Financial Statements of Hanover
On April 30, 1997, Hanover entered into a reorganization agreement
with Easton-Pacific to acquire all of the issued and outstanding shares of
capital stock of Easton-Pacific in exchange for 7,000,000 shares of Common
Stock of Hanover, following which Easton-Pacific will be merged into
Hanover. In conjunction with this transaction, Hanover is also offering up
to 2,000,000 shares of Common Stock for sale to the public for cash.
The following unaudited pro forma consolidated financial statements
and accompanying footnotes give effect to: the proposed acquisition of
Easton-Pacific, accounted for as a purchase of the assets acquired and the
liabilities assumed, recorded at their estimated fair values; and the
receipt of net proceeds, estimated to be $2,425,000, from the sale of the
2,000,000 shares of Common Stock offered to the public.
The accompanying pro forma consolidated financial statements as of
March 31, 1997 and for the three months ended March 31, 1997, and for the
year ended December 31, 1996, illustrate the effect of the Easton-Pacific
acquisition on Hanover's financial position and results of operations, and,
separately, the receipt of net proceeds from the sale of the 2,000,000
shares of Hanover's Common Stock to the public for cash. The accompanying
unaudited pro forma consolidated balance sheet gives effect to the
acquisition of Easton-Pacific and the offering of the Common Stock, as if
they had occurred on March 31, 1997. The pro forma consolidated statements
of operations for the three months ended March 31, 1997 and for the year
ended December 31, 1996 assume the Easton-Pacific acquisition and the
offering of the Common Stock had occurred on January 1, 1996 and January 1,
1997.
The pro forma consolidated financial statements are not indicative of
Hanover's financial position or results of operations at the beginning of
the periods presented, had such transactions then occurred, nor do they
project Hanover's financial position or results of operations in the
future. The pro forma consolidated financial statements are based on
management's current estimate of the allocation of the purchase price of
Easton-Pacific. Actual allocations may differ.
[The balance of this page has been intentionally left blank.]
43
<PAGE>
Hanover Gold Company, Inc.
Pro Forma Condensed Consolidated Balance Sheet
March 31, 1997
(Unaudited)
<TABLE>
<CAPTION>
Historical Pro Forma
------------------------ ------------------------------------------------------------
Combined
Purchase Consolidated Offering As
Hanover Easton-Pacific Adjustment Companies Adjustment Adjusted
------- -------------- ---------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Current Assets:
Cash $935,560 $ 2,513 $(50,000) (a) $ 888,073 $1,126,250 (b) $1,844,323
Prepaid expenses
and other
current assets 82,532 750 83,282 170,000 (c) 83,282
------- ------- -------- ---------- --------- ---------
Total current
assets 1,018,092 3,263 (50,000) 971,355 956,250 1,927,605
Mineral properties,
net 10,726,350 328,448 7,050,000 (a) 18,104,798 18,104,798
Property and equip-
ment, net 97,065 97,065 97,065
Other assets 23,424 23,509 46,933 46,933
---------- ------- --------- ---------- --------- ----------
Total assets $11,864,931 $355,220 $7,000,000 $19,220,151 $ 956,250 $20,176,401
========== ======= ========= ========== ========= ==========
Current Liabilities:
Accounts payable
and accrued
expenses $ 55,236 $ 25,080 $ $ 80,316 $ $ 80,316
Notes payable
to shareholder 73,405 170,000 243,405 (170,000) (c) 73,405
Current portion of
long-term debt 29,929 29,929 29,929
---------- ------- --------- ---------- --------- ----------
Total current
liabilities 158,570 195,080 - 353,650 (170,000) 183,650
Long-term debt,
less current
portion 199,295 199,295 199,295
---------- ------- --------- ---------- --------- ----------
Total liabilities 357,865 195,080 - 552,945 (170,000) 382,945
---------- ------- --------- ---------- --------- ----------
Stockholders' Equity
Preferred stock - - - -
Common stock 1,989 755,635 700 (a) 2,689 200 (b) 2,889
(755,635) (a)
Additional paid
in capital 16,311,391 6,999,300 (a) 24,066,326 2,424,800 (b) 26,491,126
755,635 (a)
Deposit on
common stock 1,298,750 1,298,750 (1,298,750) (b) -
Deficit accumulated
during the
development stage (6,105,064) (595,495) (6,700,559) (6,700,559)
---------- ------- --------- ---------- --------- ----------
Total stockholders'
equity 11,507,066 160,140 7,000,000 18,667,206 1,126,250 19,793,456
---------- ------- --------- ---------- --------- ----------
Total liabilities
and stockholders'
equity $11,864,931 $355,220 $7,000,000 $19,220,151 $ 956,250 $20,176,401
<PAGE>
Hanover Gold Company, Inc.
Pro Forma Condensed Consolidated Statement of Operations
Three Month Period Ended March 31, 1997
(Unaudited)
Pro Forma
Pro Forma Combined
Purchase Consolidated Offering As
Hanover Easton-Pacific Adjustment Companies Adjustment Adjusted
------- -------------- ---------- ------------ ---------- ----------
Revenues $ - $ - $ - $ - $ - $ -
General and administra-
tive expenses 185,452 24,992 210,444 210,444
Operating loss (185,452) (24,992) - (210,444) - (210,444)
------- ------ --------- ------- -------- --------
Interest income
(expense), net 1,741 (4,767) (3,026) (3,026)
Loss on sale of
equipment (8,255) 8,255) (8,255)
------- ------- --------- ------- -------- --------
Net loss $(191,966) $(29,759) $ - $(221,725) $ - $(221,725)
======= ======= ========= ======= ======== =======
Loss per share $ (0.01) $ (0.01) $ (0.01)
======== ======= =======
Weighted average shares
outstanding 19,861,838 26,861,838 28,861,838
========== ========== ==========
<PAGE>
Hanover Gold Company, Inc.
Pro Forma Condensed Consolidated Statement of Operations
Year Ended December 31, 1996
(Unaudited)
Pro Forma
Pro Forma Combined
Purchase Consolidated Offering As
Hanover Easton-Pacific Adjustment Companies Adjustment Adjusted
------- -------------- ---------- ------------ ---------- ----------
Revenues $ 3,510 $ 50,765 $ - $ 54,275 $ - $ 54,275
General and administra-
tive expenses 1,311,637 117,760 1,429,397 1,429,397
--------- ------- --------- ---------- ---------- ---------
Operating loss (1,308,127) (66,995) - (1,375,122) - (1,375,122)
Interest income
(expense), net (20,200) (13,639) (33,839) (33,839)
Loss on sale of equipment - -
--------- ------- --------- ---------- ---------- ---------
Net loss $(1,328,327) $(80,634) $ - $(1,408,961) $ - $(1,408,961)
========= ====== ========= ========= ========== =========
Loss per share $ (0.08) $ (0.06) $ (0.05)
========== ==========
Weighted average shares
outstanding 17,418,318 24,418,318 26,418,318
========== ========== ==========
</TABLE>
<PAGE>
Hanover Gold Company, Inc.
Notes to Proforma Consolidated Financial Statements
March 31, 1997
Purchase Adjustment
(a) An adjustment has been made to reflect the issuance of 7,000,000
shares of Hanover Common Stock to acquire all of the issued and outstanding
shares of capital stock of Easton-Pacific. The fair value of the issued
shares reflects recent quoted prices for the Common Stock, discounted to
reflect lock-up periods and trading volume. Direct costs of the
acquisition are estimated to be $50,000. The excess of the cost of
acquiring Easton-Pacific over the net assets acquired has been assigned to
the carrying value of Easton-Pacific's mineral properties. The acquisition
of Easton-Pacific is to be accounted for as a purchase, with total cost
determined at $7,050,000, which represents the fair value of the shares of
common stock of Hanover being offered plus acquisition costs.
Offering Adjustments
(b) An adjustment has been made to reflect the receipt of $2,425,000 from
the sale of 2,000,000 shares of Hanover's Common Stock at the price of
$1.25 per share, less offering-related expenses of $75,000.
(c) An adjustment has been made to reflect the repayment of Easton-
Pacific's note payable to a shareholder from proceeds received from the
sale of Common Stock offered hereby for cash.
47
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations (Easton-Pacific)
OVERVIEW. Easton-Pacific holds certain patented and unpatented mining
claims, and leases, covering properties located in the Virginia City Mining
District of southwestern Montana. To date, the company has been primarily
involved in exploration activities on these properties. These activities
and other corporate activities have been funded from proceeds received from
the sale of timber on the properties, and from borrowings from related
parties.
RESULTS OF OPERATIONS.
COMPARISON OF THREE MONTHS ENDED MARCH 31, 1997 TO THREE MONTHS ENDED
MARCH 31, 1996. Easton-Pacific generated no revenue during the three month
periods ended March 31, 1997 and 1996. During the three month period ended
March 31, 1997, expenses increased to $30,000, compared to expenses of
$14,000 for the three months ended March 31, 1996, primarily as the result
of expenses incurred in connection with the proposed merger of Easton-
Pacific with and into Hanover. Primarily as the result of the increase in
expenses, Easton-Pacific's net loss increased to $29,759 during the first
three months of 1996, compared to $13,612 in the prior period.
COMPARISON OF YEARS ENDED JULY 31, 1996 AND 1995. During the year
ended July 31, 1996, Easton-Pacific generated revenues of $65,000 from
timber sales, compared to $58,000 in the prior year. Operating expenses in
1996 were $124,000, compared to $99,000 in the prior year. The increase in
expenses is primarily the result of professional fees incurred during the
year, in connection with negotiations regarding the merger of Easton-
Pacific with and into Hanover. Primarily as the result of the increase in
expenses, Easton-Pacific's net loss increased to $53,000 in 1996, compared
to $35,000 in the prior year.
COMPARISON OF YEARS ENDED JULY 31, 1995 AND 1994. During the year
ended July 31, 1995, Easton-Pacific generated revenues of $58,000 from
timber sales, compared to $174,000 in the prior year. Operating expenses
in 1995 were $99,000, compared to $165,000 in the prior year. The decrease
in expenses is primarily the result of a decrease in exploration activities
during 1995. Primarily as the result of the decrease in timber revenues,
Easton-Pacific's net loss increased to $36,000 in 1996, compared to net
income of $6,000 in the prior year.
LIQUIDITY AND CAPITAL RESOURCES
As previously stated, Easton-Pacific has historically financed its
operations through the sale of timber from its Virginia City properties,
and from borrowings from related parties. At March 31, 1997, the company
had approximately $3,000 in current assets and current liabilities of
$195,000, creating a negative working capital position of $192,000.
Easton-Pacific's plans for addressing this negative position include
continued forbearance relating to amounts due to one of its shareholders,
cessation of exploration activities and the effectuation of the proposed
merger with Hanover.
At March 31, 1997, Easton-Pacific had a deferred tax asset of
approximately $47,000. A valuation allowance equal to 50% of this amount
has been established as management cannot determine if this amount will be
realized.
[The balance of this page has been intentionally left blank.]
48<PAGE>
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Item Page
- ---- ----
HANOVER'S UNAUDITED INTERIM FINANCIAL STATEMENTS:
Balance Sheets as of March 31, 1997 and December 31, 1996 F/S-3
Statements of Loss for the Three Months Ended March 31, 1997
and 1996, and for the Period from Inception (May 2, 1990)
through March 31, 1997 F/S-4
Statements of Changes in Stockholders' Equity for the Three Months
Ended March 31, 1997 and for the Period from Inception
(May 2, 1990) through March 31, 1997 F/S-5
Statements of Cash Flows for the Three Months Ended March 31,
1997 and 1996, and for the Period from Inception (May 2, 1990)
through March 31, 1997 F/S-8
Notes to Interim Financial Statements F/S-10
HANOVER'S AUDITED YEAR-END FINANCIAL STATEMENTS:
Report of Independent Certified Public Accountants F/S-12
Balance Sheets as of December 31, 1996 and 1995 F/S-13
Statements of Loss for the Years Ended December 31, 1996,
1995 and 1994, and for the Period from Inception (May 2,
1990) through December 31, 1996 F/S-15
Statements of Changes in Stockholders' Equity for the
Years Ended December 31, 1996, 1995 and 1994, and for the
Period from Inception (May 2, 1990) through December 31, 1996 F/S-16
Statements of Cash Flows for the Years Ended December 31,
1996, 1995 and 1994, and for the Period from Inception
(May 2, 1990) through December 31, 1996 F/S-19
Notes to Financial Statements F/S-21
EASTON-PACIFIC'S UNAUDITED INTERIM FINANCIAL STATEMENTS:
Balance Sheets as of March 31, 1997 and December 31, 1996 F/S-34
Statements of Loss for the Three Months Ended March 31, 1997
and 1996 F/S-35
Statements of Changes in Stockholders' Equity for the Three Months
Ended March 31, 1997 F/S-36
Statements of Cash Flows for the Three Months Ended March 31, 1997
and 1996 F/S-37
Notes to Interim Financial Statements F/S-38
EASTON-PACIFIC'S AUDITED YEAR-END FINANCIAL STATEMENTS:
Independent Auditor's Report F/S-40
Statement of Financial Position as of December 31, 1996 and
July 31, 1995 F/S-44
Statements of Operations for the Five Months
Ended December 31, 1996, and for the Years Ended July 31, 1996,
1995 and 1994 F/S-45
Statements of Changes in Stockholders' Equity for the Five Months
Ended December 31, 1996, and for the Years Ended July 31,
1996, 1995 and 1994 F/S-46
Statements of Cash Flows for the Five Months Ended December
31, 1996, and for the Years Ended July 31, 1996, 1995
and 1994 F/S-47
Notes to Financial Statements F/S-48
F/S-1
<PAGE>
HANOVER GOLD COMPANY, INC.
UNAUDITED INTERIM FINANCIAL STATEMENTS
F/S-2
<PAGE>
Hanover Gold Company, Inc.
Condensed Balance Sheets
March 31, December 31,
1997 1996
(Unaudited) Audited
----------- ------------
Current assets:
Cash $ 935,560 $ 96,353
Supplies inventory 10,000 10,000
Prepaid expenses and other
current assets 72,532 97,369
---------- ----------
Total current assets 1,018,092 203,722
Mineral properties, net 10,726,350 10,490,822
Furniture and equipment, net 97,065 88,182
Other assets 23,424 23,424
---------- ----------
Total assets $11,864,931 $10,806,150
========== ==========
Current liabilities:
Accounts payable $ 20,316 $ 70,136
Note payable to shareholder 73,405 73,405
Accrued expenses 34,920 85,859
Current portion of long-term debt 29,929 23,653
---------- ----------
Total current liabilities 158,570 253,053
Long-term debt, less current portion 199,295 194,065
---------- ----------
Total liabilities $ 357,865 $ 447,118
========== ==========
Stockholders' equity:
Preferred stock, $0.001 par value;
shares authorized 2,000,000, no
shares outstanding - -
Common stock, $.0001 par value,
shares authorized 48,000,000;
issued and outstanding 19,886,443
and 19,843,022 shares respectively 1,989 1,984
Additional paid-in capital 16,311,391 16,270,146
Deposits on common stock 1,298,750 -
Deficit accumulated during the
development stage (6,105,064) (5,913,098)
---------- ----------
Total stockholders' equity 11,507,066 10,359,032
---------- ----------
Total liabilities and
stockholders' equity $11,864,931 $10,806,150
========== ==========
F/S-3
<PAGE>
Hanover Gold Company, Inc.
Condensed Statements of Loss
(unaudited)
<TABLE>
<CAPTION>
Date of Inception
(May 2, 1990) Three Months Three Months
through Ended Ended
March 31, 1997 March 31, 1997 March 31, 1996
----------------- -------------- --------------
<S> <C> <C> <C>
Revenue $ 1,151,958 $ - $ 3,510
Cost of goods mined 1,987,483 - -
---------- ---------- ----------
Gross profit (loss) (835,525) - 3,510
Depreciation and amortization 103,050 4,769 8,152
Provision for bad debt 779,921 - -
General and administrative
expenses 4,407,477 180,683 312,072
---------- ---------- ----------
Loss from operations (6,125,973) (185,452) (316,714)
Interest and other income 60,452 1,741 32,239
Loss on disposition of assets (39,543) (8,255) -
Net loss $(6,105,064) $ (191,966) $ (284,475)
========== ========== ==========
Net loss per share $ (0.01) $ (0.02)
========== ==========
Weighted average common shares outstanding 19,861,838 15,970,933
========== ==========
</TABLE>
F/S-4
<PAGE>
Hanover Gold Company, Inc.
Condensed Statements of Changes in Stockholders' Equity
(unaudited)
<TABLE>
<CAPTION>
Deficit
Accumulated
From the Date of Inception Additional During the
(May 2, 1990) through Common Stock Paid in Subscription Development
May 31, 1997 Shares Amount Capital Receivable Stage Total
- -------------------------- ------ ------ ---------- ------------ ------------ -----
<S> <C> <C> <C> <C> <C> <C>
Issuance of common
stock for cash
($0.53 per share) 752,562 $ 75 $ 402,425 $ - $ - $ 402,500
Issuance of common
stock for cash
($0.07 per share) 86,250 9 6,009 - - 6,018
Cash contributed to capital - - 5,000 - - 5,000
Net loss - - - - (141,114) (141,114)
- --------------------------------------------------------------------------------------------------------------
Balance, December 31, 1990 838,812 84 413,434 - (141,114) 272,404
Issuance of common
stock to directors
($.0001 per share) 200,000 20 - - - 20
Issuance of common stock for
claims and engineering costs
($2.50 per share) 229,007 23 572,496 - - 572,519
Issuance of common stock
for cash
($0.06 per share) 2,957,506 296 166,374 - - 166,670
Issuance of common stock
for cash
($0.42 per share) 268,586 27 113,723 - - 113,750
Exercise of stock purchase
warrants ($.60 per share) 74,400 7 44,633 - - 44,640
Exercise of stock purchase
warrants ($1.25 per share) 111,500 11 139,363 - - 139,374
Cash contributed to capital - - 73,850 - - 73,850
Net loss - - - - (179,866) (179,866)
- --------------------------------------------------------------------------------------------------------------
Balance, December 31, 1991 4,679,811 468 1,523,873 - (320,980) 1,203,361
Issuance of common stock
for cash
($2.00 per share) 712,500 71 1,424,929 - - 1,425,000
Issuance of common stock
for cash
($0.18 per share) 218,537 22 39,978 - - 40,000
Exercise of stock purchase
warrants ($1.25 per share) 41,600 4 51,996 - - 52,000
Net loss - - - - (314,878) (314,878)
- --------------------------------------------------------------------------------------------------------------
Balance, December 31, 1992 5,652,448 565 3,040,776 - (635,858) 2,405,483
Issuance of common stock
for interest in mineral
property ($1.50 per share) 150,000 15 224,985 - - 225,000
Issuance of common stock
to officer for cash
($0.01 per share) 127,165 13 737 - - 750
Exercise of stock purchase
warrants ($1.60 per share) 3,061,703 306 4,749,912 (649,360) - 4,100,858
Net loss - - - - (256,769) (256,769)
- -------------------------------------------------------------------------------------------------------------
Balance, December 31, 1993 8,991,316 899 8,016,410 (649,360) (892,627) 6,475,322
Exercise of stock purchase
warrants ($1.60 per share) 1,328,897 133 2,126,102 - - 2,126,235
Cancellation of subscribed
shares ($1.60 per share) (250,000) (25) (399,975) 400,000 - -
Cash contributed to capital - - 98,393 - - 98,393
Net loss - - - - (1,362,954) (1,362,954)
- -------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994 10,070,213 1,007 9,840,930 (249,360) (2,255,581) 7,336,996
Issuance of common stock
for cash
($.35 per share) 2,142,856 214 749,786 - - 750,000
Issuance of common stock
for cash
($.35 per share) 714,286 71 249,929 - - 250,000
Issuance of common stock
for cash
($1.00 per share) 200,000 20 199,980 - - 200,000
Issuance of common stock
in satisfaction of
vendor obligations
($1.06 per share) 69,679 7 74,089 - - 74,096
Issuance of common stock
in satisfaction of
vendor obligations
($1.00 per share) 200,000 20 199,980 - - 200,000
Issuance of common stock
for cash
($1.00 per share) 1,000,000 100 999,900 - - 1,000,000
Issuance of common stock
to officer 197,835 20 - - - 20
Issuance of common stock
pursuant to convertible
debt 1,348,295 135 281,313 - - 281,448
Cash received for
subscribed shares - - - 249,360 - 249,360
Repurchase of previously
issued shares
($1.60 per share) (23,000) (2) (36,798) - - (36,800)
Net loss - - - - (2,329,190) (2,329,190)
- -------------------------------------------------------------------------------------------------------------
</TABLE>
F/S-6
<PAGE>
Hanover Gold Company, Inc.
Condensed Statements of Changes in Stockholders' Equity
(unaudited)
<TABLE>
<CAPTION>
Deficit
Accumulated
From the Date of Inception Additional During the
(May 2, 1990) through Common Stock Paid in Subscription Development
May 31, 1997 Shares Amount Capital Receivable Stage Total
- -------------------------- ------ ------ ---------- ------------ ------------ -----
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 15,920,164 1,592 12,559,109 - (4,584,771) 7,975,930
Issuance of common stock for
mineral property rights
($4.00 per share) 5,000 1 19,999 - - 20,000
Issuance of common stock for
mineral property rights
($2.00 per share) 525,000 52 1,049,948 - - 1,050,000
Issuance of common stock for
mineral property rights
($1.56 per share) 250,000 25 389,975 - - 390,000
Issuance of common stock for
cash ($0.50 per share) 2,142,858 214 1,071,215 - - 1,071,429
Issuance of common stock for
cash, net of issuance costs
of $70,000 ($1.25 per share) 1,000,000 100 1,179,900 - - 1,180,000
Net loss - - - - (1,328,327) (1,328,327)
- --------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 19,843,022 1,984 16,270,146 - (5,913,098) 10,359,032
Issuance of common stock for
services rendered
($0.95 per share) (unaudited) 43,421 5 41,245 - - 41,250
Grant of option to director
as compensation for loan
guaranty (unaudited) 1,457,170 - - 1,457,170
Deferred guaranty fee subject
to grant exercise (unaudited) - - (1,457,170) - - (1,457,170)
Deposits on common stock
(unaudited) - - - 1,298,750 - 1,298,750
Net loss (unaudited) - - - - (191,966) (191,966)
- --------------------------------------------------------------------------------------------------------------
Balance, March 31, 1997 19,886,443 $1,989 $16,311,391 $1,298,750 $(6,105,064) $11,507,066
==============================================================================================================
</TABLE>
F/S-7
<PAGE>
Hanover Gold Company, Inc.
Condensed Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Date of Inception
(May 2, 1990) Three Months Three Months
through Ended Ended
March 31, 1997 March 31, 1997 March 31, 1996
----------------- -------------- --------------
<S> <C> <C> <C>
Operating Activities:
Net loss $ (6,105,064) $ (191,966) $ (284,475)
Adjustments to Reconcile Net Loss to
Cash Used in Operating Activities:
Depreciation and depletion 103,000 4,769 8,152
Issuance of common stock
for services 41,250 41,250 -
Loss on disposition of assets 40,764 8,255 -
Common stock issued for public
relations fees 200,000 - -
Common stock issued to officers
and directors 40 - -
Write-off note receivable 779,921 - -
Changes in Operating Assets and Liabilities:
(Increase) decrease in supplies
inventory (10,000) - -
(Increase) decrease in prepaid
expenses (72,532) 24,837 76,796
Increase (decrease) in accounts
payable 94,412 (49,820) (86,032)
Increase (decrease) in accrued
expenses 101,198 (50,939) 266,066
(Increase) decrease in other
assets (23,424) - -
---------- --------- ---------
Net Cash Used in Operating
Activities (4,850,435) (213,614) (19,493)
========== ========= =========
Investing Activities:
Proceeds from sale of equipment 15,326 - -
Repayment (advances) under
notes receivable (1,089,219) - -
Purchase of furniture
and equipment (296,596) (10,401) (30,891)
Additions to mineral properties (7,843,641) (235,528) (394,748)
---------- --------- ---------
Net Cash Used in
Investing Activities (9,214,130) (245,929) (425,639)
========== ========= =========
</TABLE>
F/S-8
<PAGE>
Hanover Gold Company, Inc.
Condensed Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Date of Inception Three Months
(May 2, 1990) Three Months Ended
through Ended March 31, 1996
March 31, 1997 March 31, 1997 (Restated)
----------------- -------------- --------------
<S> <C> <C> <C>
Financing Activities:
Repurchase and retirement
of common stock (36,800) - -
Proceeds from issuance of
convertible debt 215,170 - -
Capital contributions 177,243 - -
Deposits on common stock 1,298,750 1,298,750 -
Borrowings under note payable
to shareholder 73,405 - -
Collection of subscription
receivable 249,360 - -
Proceeds from sale of
common stock 13,069,225 - -
Repayment of long-term debt (46,228) - -
---------- ---------- ----------
Net Cash Provided by
Financing Activities 15,000,125 1,298,750 -
---------- --------- ----------
Net Increase (Decrease) in Cash 935,560 839,207 (445,132)
Cash, Beginning of Period - 96,353 734,983
Cash, End of Period $ 935,560 $ 935,560 $ 289,851
========== ========= ==========
Supplemental Disclosures of Cash Flow
Information:
Cash paid during the year for:
Interest $ 27,668 $ 3,623 -
Income taxes - - -
Supplemental Schedule of Non-cash
Investing and Financing Activities
Mineral property rights acquired
in exchange for:
Issuance of common stock 1,460,000 - 1,043,000
Issuance of long-term debt 263,946 - -
Notes receivables 309,298 - 309,298
Fixed assets 66,177 - 35,453
Issuance of shares of common
stock in satisfaction of
vendor obligations 74,096 - -
Conversion of notes payable and
accrued interest to common stock 281,448 - -
Equipment acquired through
issuance of long-term debt 11,506 11,506 -
Deferred guaranty fee arising
from issuance of stock options 1,457,170 1,457,170 -
</TABLE>
F/S-9
<PAGE>
Hanover Gold Company, Inc.
Notes to Condensed Interim Financial Statements
(unaudited)
1. Nature of business and Basis of Presentation:
The objectives of the Company are to invest in precious metal claims,
namely gold and silver deposits having economic potential for development
and mining and related activities in the precious metals and mining
industries. The Company has been in the development stage since its
inception. The Company has no recurring source of revenue and has incurred
operating losses since inception. These conditions raise substantial doubt
as to the Company's ability to continue as a going concern. Management of
the Company has undertaken certain actions to address these conditions.
These actions include proposed public and private offerings of the
Company's common stock, negotiating amendments to obligations on the
Company's mineral properties, and an active search for a joint venture
partner to provide the funding necessary to bring the mineral properties
into production. The financial statements do not contain any adjustments
which might be necessary if the Company is unable to continue as a going
concern.
In the opinion of the Company's management, all adjustments (consisting of
only normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three month
period ended March 31, 1997 are not necessarily indicative of the results
that may be expected for the full year ending December 31, 1997.
2. Common Stock:
In March 1997, the Company issued a four year option to purchase 2,312,968
shares of the Company's common stock at $1.25 per share to a shareholder in
exchange for the shareholder's guaranty of the Company's obligations for an
eighteen month period ending in September 1998. The fair value of these
options, as determined using the Black-Scholes option pricing model, is
approximately $1,450,000 and will be amortized to expense over the guaranty
period.
F/S-10
<PAGE>
HANOVER GOLD COMPANY, INC.
AUDITED FINANCIAL STATEMENTS
F/S-11
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Hanover Gold Company, Inc.
Spokane, Washington
We have audited the accompanying balance sheet of Hanover Gold Company,
Inc. as of December 31, 1996, and the related statements of loss, changes
in stockholders' equity and cash flows for the year then ended. We have
also audited the statements of loss, stockholders' equity and cash flows
for the period from inception (May 2, 1990) through December 31, 1996,
except that we did not audit these financial statements for the period from
inception (May 2, 1990) through December 31, 1995; those statements were
audited by other auditors whose report dated March 29, 1996, expressed an
unqualified opinion on those statements. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
The financial statements give retroactive effect to the mergers of Hanover
Resources, Inc. and Group S Limited which have been accounted for as a
combination of entities under common control as described in Note 2 to the
financial statements. We did not audit the balance sheets of Hanover
Resources, Inc. and Group S Limited as of December 31, 1995 or the related
statements of loss, changes in stockholders' equity and cash flows for the
years ended December 31, 1995 and 1994 and from inception through December
31, 1995, which statements reflect total assets of $1,750,260 at December
31, 1995 and total revenues of $0, $0 and $432,730 for the years ended
December 31, 1995 and 1994 and for the period from inception (May 2, 1990)
through December 31, 1995. Those statements were audited by other auditors
whose reports have been furnished to us, and our opinion, insofar as it
relates to the amounts included for Hanover Gold Company, Inc., Hanover
Resources, Inc., and Group S Limited for the period from date of inception
(May 2, 1990) through December 31, 1995, is based solely on the reports of
the other auditors.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, based on our audit and the reports of other auditors, the
financial statements referred to above present fairly, in all material
respects, the financial position of Hanover Gold Company, Inc. as of
December 31, 1996 and 1995, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1996 and
the period from inception (May 2, 1990) through December 31, 1996, in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has no recurring source of revenue, has
incurred losses since inception and, at December 31, 1996, has negative
working capital. These conditions raise substantial doubt about its
ability to continue as a going concern. Management's plans in regard to
these matters are also described in Note 1. The financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
BDO Seidman LLP
Spokane, Washington
March 7, 1997
F/S-12
<PAGE>
HANOVER GOLD COMPANY, INC.
Balance Sheets
December 31, 1996 1995
- ------------------------------------------------------------------------
ASSETS (Note 1)
Current Assets:
Cash and cash equivalents $ 96,353 $ 734,982
Supplies inventory 10,000 29,494
Prepaid expenses and other
current assets 97,369 129,753
- ------------------------------------------------------------------------
Total current assets 203,722 894,229
Fixed Assets:
Mineral properties, net (Note 3) 10,490,822 7,044,705
Furniture and equipment, net of
accumulated depreciation of
$63,076 and $47,675 88,182 102,819
Other assets:
Note receivable (Note 4) - 89,298
Note receivable from a related party (Note 7) - 220,000
Other assets 23,424 19,924
Due from shareholder - 70,715
- ------------------------------------------------------------------------
$10,806,150 $8,441,690
========================================================================
F/S-13
<PAGE>
HANOVER GOLD COMPANY, INC.
Balance Sheets
December 31, 1996 1995
- ------------------------------------------------------------------------
Liabilities and Stockholders' Equity (Note 1)
Current Liabilities:
Accounts payable $ 70,136 $ 284,874
Note payable to shareholder (Note 7) 73,405 50,000
Accrued payroll and payroll taxes 85,859 130,886
Current portion of long-term debt (Note 5) 23,653 -
- ------------------------------------------------------------------------
Total current liabilities 253,053 465,760
Long-term debt, less current portion (Note 5) 194,065 -
- ------------------------------------------------------------------------
Total liabilities 447,118 465,760
- ------------------------------------------------------------------------
Commitments and contingencies (Notes 3, 8, 9 and 11)
Stockholders' equity: (Notes 7, 9 and 10)
Preferred stock, $.001 par value; shares
authorized 2,000,000, no shares outstanding - -
Common stock, $.0001 par value; shares
authorized 48,000,000; outstanding
19,843,022 and 15,920,164 1,984 1,592
Additional paid-in capital 16,270,146 12,559,109
Deficit accumulated during
the development stage (5,913,098) (4,584,771)
- ------------------------------------------------------------------------
Total stockholders' equity 10,359,032 7,975,930
- ------------------------------------------------------------------------
$10,806,150 $8,441,690
========================================================================
See accompanying summary of accounting policies and
notes to financial statements.
F/S-14
<PAGE>
HANOVER GOLD COMPANY, INC.
Statements of Loss
<TABLE>
<CAPTION>
Cumulative
Amounts from
Date of Inception
(May 2, 1990) through Year Ended December 31,
December 31, 1996 1996 1995 1994
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues (Note 2) $ 1,151,958 $ 3,510 $ 499,299 $ 216,418
- -------------------------------------------------------------------------------------------------
Operating expenses:
Cost of goods mined 1,987,483 - 1,076,668 910,815
Depreciation and amortization 98,281 26,722 38,229 28,415
Provision for bad debt (Note 7) 779,921 - 779,921 -
General and administrative
(Note 7) 4,226,794 1,284,915 930,982 738,350
- -------------------------------------------------------------------------------------------------
Total operating expense 7,092,479 1,311,637 2,825,800 1,677,580
- -------------------------------------------------------------------------------------------------
Operating loss (5,940,521) (1,308,127) (2,326,501) (1,461,162)
Other income (expense):
Interest income (expense), net 58,711 (20,200) 29,820 98,208
Loss on sale of equipment (31,288) - (32,509) -
- -------------------------------------------------------------------------------------------------
Total other income (expense) 27,423 (20,200) (2,689) 98,208
- -------------------------------------------------------------------------------------------------
Net loss (Note 2) $ (5,913,098) $(1,328,327) $ (2,329,190) $ (1,362,954)
=================================================================================================
Net loss per share $ (0.08) $ (0.20) $ (0.14)
=================================================================================================
Weighted average shares outstanding 17,418,318 11,931,835 9,411,226
=================================================================================================
</TABLE>
See accompanying summary of accounting policies and
notes to financial statements.
F/S-15
<PAGE>
HANOVER GOLD COMPANY, INC.
Statements of Changes in
Stockholders' Equity
<TABLE>
<CAPTION>
Deficit
Accumulated
From the Date of Inception Additional During the
(May 2, 1990) through Common Stock Paid in Subscription Development
December 31, 1996 Shares Amount Capital Receivable Stage Total
- -------------------------- ------ ------ ---------- ------------ ------------ -----
<S> <C> <C> <C> <C> <C> <C>
Issuance of common stock
for cash
($0.53 per share) 752,562 $ 75 $ 402,425 $ - $ - $ 402,500
Issuance of common stock
for cash
($0.07 per share) 86,250 9 6,009 - - 6,018
Cash contributed to capital - - 5,000 - - 5,000
Net loss - - - - (141,114) (141,114)
- --------------------------------------------------------------------------------------------------------------
Balance, December 31, 1990 838,812 84 413,434 - (141,114) 272,404
Issuance of common stock
to directors
($.0001 per share) 200,000 20 - - - 20
Issuance of common stock
for claims and engineering
costs ($2.50 per share) 229,007 23 572,496 - - 572,519
Issuance of common stock
for cash
($0.06 per share) 2,957,506 296 166,374 - - 166,670
Issuance of common stock
for cash
($0.42 per share) 268,586 27 113,723 - - 113,750
Exercise of stock
purchase warrants
($.60 per share) 74,400 7 44,633 - - 44,640
Exercise of stock
purchase warrants
($1.25 per share) 111,500 11 139,363 - - 139,374
Cash contributed to capital - - 73,850 - - 73,850
Net loss - - - - (179,866) (179,866)
- --------------------------------------------------------------------------------------------------------------
Balance, December 31, 1991 4,679,811 468 1,523,873 - (320,980) 1,203,361
Issuance of common stock
for cash
($2.00 per share) 712,500 71 1,424,929 - - 1,425,000
Issuance of common stock
for cash
($0.18 per share) 218,537 22 39,978 - - 40,000
Exercise of stock
purchase warrants
($1.25 per share) 41,600 4 51,996 - - 52,000
Net loss - - - - (314,878) (314,878)
- --------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying summary of accounting policies and
notes to financial statements.
F/S-16
<PAGE>
HANOVER GOLD COMPANY, INC.
Statements of Changes in
Stockholders' Equity
<TABLE>
<CAPTION>
Deficit
Accumulated
From the Date of Inception Additional During the
(May 2, 1990) through Common Stock Paid in Subscription Development
December 31, 1996 Shares Amount Capital Receivable Stage Total
- -------------------------- ------ ------ ---------- ------------ ------------ -----
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1992 5,652,448 565 3,040,776 - (635,858) 2,405,483
Issuance of common stock for
interest in mineral property
($1.50 per share) 150,000 15 224,985 - - 225,000
Issuance of common stock
to officer for cash
($0.01 per share) 127,165 13 737 - - 750
Exercise of stock
purchase warrants
($1.60 per share) 3,061,703 306 4,749,912 (649,360) - 4,100,858
Net loss - - - - (256,769) (256,769)
- --------------------------------------------------------------------------------------------------------------
Balance, December 31, 1993 8,991,316 899 8,016,410 (649,360) (892,627) 6,475,322
Exercise of stock
purchase warrants
($1.60 per share) 1,328,897 133 2,126,102 - - 2,126,235
Cancellation of subscribed
shares ($1.60 per share) (250,000) (25) (399,975) 400,000 - -
Cash contributed to capital - - 98,393 - - 98,393
Net loss - - - - (1,362,954) (1,362,954)
- --------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994 10,070,213 1,007 9,840,930 (249,360) (2,255,581) 7,336,996
Issuance of common stock
for cash
($.35 per share) 2,142,856 214 749,786 - - 750,000
Issuance of common stock
for cash
($.35 per share) 714,286 71 249,929 - - 250,000
Issuance of common stock
for cash
($1.00 per share) 200,000 20 199,980 - - 200,000
Issuance of common stock
in satisfaction of
vendor obligations
($1.06 per share) 69,679 7 74,089 - - 74,096
Issuance of common stock
in satisfaction of
vendor obligations
($1.00 per share) 200,000 20 199,980 - - 200,000
Issuance of common stock
for cash
($1.00 per share) 1,000,000 100 999,900 - - 1,000,000
Issuance of common stock
to officer 197,835 20 - - - 20
Issuance of common stock
pursuant to
convertible debt 1,348,295 135 281,313 - - 281,448
Cash received for
subscribed shares - - - 249,360 - 249,360
Repurchase of previously issued
shares ($1.60 per share) (23,000) (2) (36,798) - - (36,800)
Net loss - - - - (2,329,190) (2,329,190)
- --------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying summary of accounting policies and
notes to financial statements.
F/S-17
<PAGE>
HANOVER GOLD COMPANY, INC.
Statements of Changes in
Stockholders' Equity
<TABLE>
<CAPTION>
Deficit
Accumulated
From the Date of Inception Additional During the
(May 2, 1990) through Common Stock Paid in Subscription Development
December 31, 1996 Shares Amount Capital Receivable Stage Total
- -------------------------- ------ ------ ---------- ------------ ------------ -----
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 15,920,164 1,592 12,559,109 - (4,584,771) 7,975,930
Issuance of common stock for
mineral property rights
($4.00 per share) 5,000 1 19,999 - - 20,000
Issuance of common stock for
mineral property rights
($2.00 per share) 525,000 52 1,049,948 - - 1,050,000
Issuance of common stock for
mineral property rights
($1.56 per share) 250,000 25 389,975 - - 390,000
Issuance of common stock for
cash ($0.50 per share) 2,142,858 214 1,071,215 - - 1,071,429
Issuance of common stock
for cash, net of issuance
costs of $70,000
($1.25 per share) 1,000,000 100 1,179,900 - - 1,180,000
Net loss - - - - (1,328,327) (1,328,327)
- -------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 19,843,022 $1,984 $16,270,146 $ - $(5,913,098) $10,359,032
</TABLE>
See accompanying summary of accounting policies and
notes to financial statements.
F/S-18
<PAGE>
HANOVER GOLD COMPANY, INC.
Statements of Cash Flows
<TABLE>
<CAPTION>
Increase (Decrease) in Cash and Cash Equivalents
Date of Inception
(May 2, 1990)
through
December 31, Year Ended December 31,
1996 1996 1995 1994
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss $(5,913,098) $(1,328,327) $(2,329,190) $(1,362,954)
Adjustments to reconcile
net loss to net cash used
in operating activities:
Loss on sale of equipment 32,509 - 32,509 -
Depreciation and depletion 98,231 26,722 38,229 28,415
Common stock issued for public
relations fees 200,000 - 200,000 -
Common stock issued to officer
and directors 40 - 20 -
Write-off of note receivable 779,921 - 779,921 -
Changes in operating assets
and liabilities:
(Increase) decrease in
supplies inventory (10,000) 19,494 151,744 (110,799)
(Increase) decrease in
prepaid expenses (97,369) 32,384 (5,057) (113,557)
(Increase) decrease in
other assets (23,424) (3,500) (269) (255)
Increase (decrease) in
accounts payable 144,232 (214,738) (73,090) 34,535
Increase (decrease) in
accrued expenses 152,137 (45,027) (423,395) (254,179)
- ------------------------------------------------------------------------------------------------
Net cash used in
operating activities (4,636,821) (1,512,992) (1,628,578) (1,778,794)
- ------------------------------------------------------------------------------------------------
Investing activities:
Proceeds from sale
of equipment 15,326 - 13,871 -
Net repayments (advances)
under shareholder advances - 70,715 1,085 (51,440)
Repayments (advances) under
notes receivable (1,089,219) - 38,021 (972,794)
Purchase of furniture
and equipment (286,195) (78,262) (40,614) (77,980)
Additions to mineral
properties (7,608,113) (1,346,696) (834,510) (1,591,334)
- ------------------------------------------------------------------------------------------------
Net cash used in
investing activities (8,968,201) (1,354,243) (822,147) (2,693,548)
- ------------------------------------------------------------------------------------------------
</TABLE>
See accompanying summary of accounting policies and
notes to financial statements.
F/S-19
<PAGE>
HANOVER GOLD COMPANY, INC.
Statements of Cash Flows
<TABLE>
<CAPTION>
Increase (Decrease) in Cash and Cash Equivalents
Date of Inception
(May 2, 1990)
through
December 31, Year Ended December 31,
1996 1996 1995 1994
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FINANCING ACTIVITIES:
Borrowings under note
payable to shareholder 73,405 23,405 50,000 -
Proceeds from sale of
common stock 13,069,225 2,251,429 2,200,000 2,126,235
Proceeds from issuance of
convertible debt 215,170 - - -
Repayment of long-term debt (46,228) (46,228) - -
Collection of subscription
receivable 249,360 - 249,360 -
Repurchase and retirement
of common stock (36,800) - (36,800) -
Capital contributions 177,243 - - 98,393
- ------------------------------------------------------------------------------------------------
Net cash provided by
financing activities 13,701,375 2,228,606 2,462,560 2,224,628
- ------------------------------------------------------------------------------------------------
Net increase (decrease)
in cash 96,353 (638,629) 11,835 (2,247,714)
CASH AND CASH EQUIVALENTS,
beginning of period - 734,982 723,147 2,970,861
- ------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS,
end of period $ 96,353 $ 96,353 $ 734,982 $ 723,147
================================================================================================
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 24,045 $ 23,181 $ 864 $ -
Income taxes $ - $ - $ - $ -
Supplemental schedule of non-cash investing and
financing activities (Note 10)
</TABLE>
See accompanying summary of accounting policies and
notes to financial statements.
F/S-20
<PAGE>
HANOVER GOLD COMPANY, INC.
Summary of Accounting Policies
- ---------------------------------------------------------------------------
Nature of Business Hanover Gold Company, Inc. ("Hanover" or the "Company")
is a development stage enterprise principally engaged
in acquiring and maintaining gold mining properties in
southwestern Montana for exploration and future
development. The Company, which is the successor
company to an entity incorporated in the state of
Delaware in 1984, commenced its operations in May 1990.
In 1996, the Company acquired all of the issued and
outstanding shares of Group S Limited ("Group S") and
Hanover Resources, Inc. ("Resources"). As the
controlling shareholders of Group S and Resources were
also shareholders and officers of Hanover, the
acquisitions were accounted for as a combination of
entities under common control similar to a pooling of
interests. Accordingly, the accounts of Group S and
Resources were recorded at their historical bases and
their operations and cash flows have been included in
Hanover's financial statements as if the acquisitions
had occurred on May 2, 1990. (See Note 2.)
Cash Equivalents For the purpose of the balance sheets and statements of
cash flows, the Company considers all highly liquid
investments purchased with an original maturity of
three months or less to be a cash equivalent.
Financial instruments which potentially subject the
Company to a concentration of credit risk consist of
cash and cash equivalents. Cash and cash equivalents
consist of funds deposited with various high credit
quality financial institutions.
Furniture and
Equipment Furniture and equipment are carried at cost.
Depreciation is computed by the straight-line method
over the estimated useful lives of the related assets
which range from five to seven years.
Mineral Properties Development costs, including those minimum advance
royalty payments which provide the Company the right of
tenure but are not recoupable from future production,
relating to mineral properties are capitalized until
such time as the mineral properties will be brought
into production. Once production has been achieved,
development costs are amortized over the estimated life
of the ore body. If the property is sold or abandoned,
these costs are written off to current period expense.
The carrying values of mineral properties and related
deferred expenditures are reviewed on a regular basis
and, where necessary, are written down to the estimated
recoverable amount.
General exploration costs are expensed in the period
they are incurred. Exploration costs incurred on
specific properties having identified mineralization
are capitalized.
F/S-21
<PAGE>
HANOVER GOLD COMPANY, INC.
Summary of Accounting Policies
- ---------------------------------------------------------------------------
Net Loss Per
Share Net loss per share amounts are based on the weighted
average number of shares of common stock outstanding
during each period. Common stock equivalents have been
excluded from net loss per share calculations for all
periods presented because they would be anti-dilutive.
Income Taxes Income taxes are provided based on the liability method
of accounting pursuant to Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes." Under this approach, deferred income
taxes are recorded to reflect the tax consequences on
future years of differences between the tax basis of
assets and liabilities and their financial reporting
amounts at each year end. A valuation allowance is
recorded against deferred tax assets whose realization
is not more likely than not.
Management's
Estimates The preparation of financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that
affect the reported assets and liabilities and
disclosures of contingent assets and liabilities at the
date of the financial statements and the reported
amount of revenues and expenses during the reporting
period. Actual results could differ from those
estimates.
Fair Value of The carrying amounts reported in the balance sheets as
Financial of December 31, 1996 for cash equivalents, accounts
Instruments payable and accrued expenses approximate fair value
because of the immediate or short-term maturity of
these financial instruments. The fair value of long-
term debt approximates its carrying value as the stated
or discounted rates of the debt reflect recent market
conditions.
Stock Based
Compensation Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation," encourages,
but does not require, companies to record compensation
cost for stock-based employee compensation plans at
fair value. The Company has chosen to continue to
account for stock-based compensation using the
intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees," and related interpretations and
to furnish the pro forma disclosures required under
SFAS No. 123, if material. Accordingly, compensation
cost for stock options is measured as the excess, if
any, of the quoted market price of the Company's stock
at the date of the grant over the amount an employee
must pay to acquire the stock.
F/S-22
<PAGE>
HANOVER GOLD COMPANY, INC.
Notes to Financial Statements
- ---------------------------------------------------------------------------
1. Development The Company has been in the development stage since its
Stage inception. The Company has no recurring source of
Operations revenue, has incurred operating losses since inception
and Going and, at December 31, 1996, has negative working
Concern capital. These conditions raise substantial doubt as
to the Company's ability to continue as a going
concern. Management of the Company has undertaken
certain actions to address these conditions. These
actions include proposed public and private offerings
of the Company's common stock, negotiating amendments
to obligations on the Company's mineral properties,
and an active search for a joint venture partner to
provide the funding necessary to bring the mineral
properties into production. The financial statements
do not contain any adjustments which might be necessary
if the Company is unable to continue as a going
concern.
2. Business In September 1996, the Company acquired all of the
Combination issued and outstanding shares of common stock of Group
S Limited ("Group S") and Hanover Resources, Inc.
("Resources") in exchange for 2,957,506 and 2,937,971
shares of the Company's common stock. In connection
with the acquisitions, 3,625,000 shares of the
Company's common stock held by Resources were canceled.
Group S and Resources both held mining claims and
interests contiguous to those of the Company. As
certain of the Company's shareholders, officers and
directors controlled Group S and Resources, the
acquisitions were accounted for as a combination of
entities under common control similar to a pooling of
interests. Accordingly, the financial statements give
retroactive effect to these acquisitions, as if the
companies had always operated as a single entity.
Separate results of operations for the combining
entities for each of the three years in the period
ended December 31, 1996 and for the period from
inception (May 2, 1990) through December 31, 1996 were
as follows:
Period from Date of
Inception (May 2, 1990)
through
December 31, Year ended December 31,
1996 1996 1995 1994
--------------------------------------------------------------------
Revenues:
Hanover $719,228 $3,510 $499,299 $216,418
Resources 432,730 - - -
Group S - - - -
--------------------------------------------------------------------
$1,151,958 $3,510 $499,299 $216,418
====================================================================
F/S-23
<PAGE>
HANOVER GOLD COMPANY, INC.
Notes to Financial Statements
- ---------------------------------------------------------------------------
Period from Date of
Inception (May 2, 1990)
through
December 31, Year ended December 31,
1996 1996 1995 1994
---------------------------------------------------------------------
Net loss:
Hanover $(5,325,590) $(1,324,309) $(2,193,569) $(1,127,973)
Resources (563,924) (1,970) (125,178) (231,052)
Group S (23,584) (2,048) (10,443) (3,929)
---------------------------------------------------------------------
$(5,913,098) $(1,328,327) $(2,329,190) $(1,362,954)
=====================================================================
3. Mineral
Property At December 31, 1996 and 1995, the Company had capitalized
$10,490,822 and $7,044,705, net of accumulated depletion of
$14,230, representing amounts paid to acquire property
rights and for services rendered in the exploration,
drilling, sampling, engineering and other related technical
services toward the evaluation and development of the Alder
Gulch group of claims in Montana's Virginia City district.
In 1990, the Company entered into an agreement (the
"Kearsarge Agreement") pursuant to which the Company
acquired the rights to lease certain patented and unpatented
mineral claims in the Alder Gulch area. In accordance with
the terms of the Kearsarge Agreement, the Company is
required to make minimum annual lease payments to the lessor
and the sublessor and has granted the lessor a 5% net
smelter return royalty in future production. The Company
also granted the lessor the right to purchase 171,000 shares
of the Company's common stock at $3.00 per share through May
1995 and an additional 500,000 shares at $10.00 per share
through May 1997. The Company may terminate the Kearsarge
Agreement at any time prior to its expiration in 2001. The
Kearsarge Agreement also contains a purchase option which
grants the Company the right to acquire the leased property.
The option price, which is equal to $7,000,000 less a credit
for annual lease payments made, was $3,910,000 at December
31, 1996.
In 1991, the Company entered into a lease agreement (the
"Moen Agreement") pursuant to which the Company obtained the
right to lease certain patented and unpatented claims in the
Alder Gulch area. The Moen Agreement, which was amended in
March 1996, expires in 2002, requires annual lease payments,
may be terminated by the Company at any time upon written
notice, and provides for a net smelter return royalty of up
to 2.5% for periods in which
F/S-24
<PAGE>
HANOVER GOLD COMPANY, INC.
Notes to Financial Statements
- ---------------------------------------------------------------------------
the price of gold exceeds $425 per ounce and 1% for all
other periods. The Moen Agreement contains a purchase
option which grants the Company the right to acquire the
leased property. The option price, which is equal to
$3,400,000 less a credit for annual rental payments made, at
December 31, 1996 was $3,050,000. In consideration for
amending the Moen Agreement, the lessor received 250,000
shares of the Company's common stock, an option to purchase
an additional 200,000 shares of the Company's common stock
at a price of $2.00 per share through March 1999,
forgiveness of $89,000 owed to the Company by the seller,
equipment with a fair value of approximately $62,000 and
the transfer of certain milling assets and land held by a
related party which was previously encumbered by a note
payable to the Company.
In 1993, the Company entered into an agreement with a third
party (the "Magnus Agreement") pursuant to which the Company
was assigned the mining rights to certain patented claims.
The Magnus Agreement, which the Company may terminate at any
time, requires annual lease payments through 1999 and
contains an option granting the Company the right to acquire
the leased properties. The option price, which is equal to
$1,650,000 less a credit for the amount by which the annual
lease payment exceeds $25,000, was $1,150,000 at December
31, 1996. The Magnus Agreement also provides for the grant
of a 5% net smelter return royalty on future production.
In November 1995, the Company entered into an agreement
(the "Goodridge Agreement") to acquire a 0.5% gross
overriding royalty interest burdening certain of the
Company's claims. Pursuant to terms of the Goodridge
Agreement, the Company issued to the seller 5,000 shares of
its common stock and granted the seller an option to
acquire up to an additional 5,000 shares of the Company's
common stock at $2.50 per share prior to November 1, 1997.
The Goodridge Agreement provides that, should the fair value
of the Company's common stock not exceed $4.00 per share
prior to November 1, 1997, the Company will issue to the
seller additional shares of common stock to raise the
aggregate market value of the shares held by the seller to
$20,000.
In November 1995, the Company entered into an agreement (the
"Gustafson Agreement") whereby the Company obtained the
right to lease a certain
F/S-25
<PAGE>
HANOVER GOLD COMPANY, INC.
Notes to Financial Statements
- ---------------------------------------------------------------------------
patented claim in the Alder Gulch area. The Gustafson
Agreement requires annual lease payments of $2,500 through
2015, may be terminated by the Company at any time upon 30
days written notice, and provides for a 3% net smelter
return royalty to the lessor.
In February 1996, the Company entered into an agreement (the
"Carver Agreement") to acquire certain patented and
unpatented claims in the Alder Gulch area. Pursuant to
terms of the Carver Agreement, the Company paid the seller
$20,000 at closing and will pay the remaining $70,000 in
annual installments of $20,000 through 1999 and $10,000 in
2000. See Note 5.
In March 1996, the Company entered into an agreement (the
"Tabor Agreement") to purchase certain patented and
unpatented mining claims in the Alder Gulch area in exchange
for 525,000 shares of the Company's common stock. The Tabor
Agreement requires that, should the fair value of the
Company's common stock fail to achieve a $2.00 per share
price for a thirty consecutive day period prior to April
1998, the Company will issue additional shares of its
common stock to the seller to raise the aggregate market
value of the shares held by the seller to $2.00. The Tabor
Agreement is currently in dispute as the Company has sued
the seller for failure to convey the property documents and
the seller has countersued the Company. The Company has
been advised by its counsel that it is probable that the
Company will prevail in the action and obtain title to the
purchased mining claims.
In August 1996, the Company entered into an agreement (the
"Collins Agreement") to purchase a patented claim covering
certain property in the Alder Gulch area for $210,000.
Pursuant to terms of the Collins Agreement, the Company paid
$25,000 to the seller at closing and will pay the remaining
$185,000 in quarterly installments, together with interest
at 8%, through 2001.
F/S-26
<PAGE>
HANOVER GOLD COMPANY, INC.
Notes to Financial Statements
- ---------------------------------------------------------------------------
At December 31, 1996, future annual land payments required
pursuant to the Company's various property agreements
previously described were as follows:
Year Ending December 31, Amount
--------------------------------------------------
1997 $1,358,000
1998 1,458,000
1999 1,804,000
2000 2,312,000
2001 902,000
Thereafter 635,000
--------------------------------------------------
$8,469,000
==================================================
4. Notes
Receivable In 1993, the Company advanced $100,000 to a third party
entity pursuant to terms of a promissory note. The
note was to be repaid from proceeds of milling
activities to be undertaken by the party. After
receiving principal repayments of approximately $3,000
in 1995 and $8,000 in 1994, the remaining unpaid
balance of approximately $89,000 was forgiven in 1996
as part of the Company's consideration for amending
the Moen Agreement. (See Note 3.)
F/S-27
<PAGE>
HANOVER GOLD COMPANY, INC.
Notes to Financial Statements
- ---------------------------------------------------------------------------
5. Long-Term Long-term debt consists of the following:
Debt
December 31, 1996 1995
------------------------------------------------------------
8% Note payable to an individual,
due in quarterly installments of
$9,250 plus interest, maturing
October 2001 $174,336 $ -
Noninterest bearing note payable
to an individual, due in annual
installments of $20,000 through
1999 and $10,000 in 2000,
discounted at 8% (Note 3) 43,382 -
------------------------------------------------------------
217,718 -
Less current portion 23,653 -
------------------------------------------------------------
Long-term debt, less current
portion $194,065 $ -
============================================================
Scheduled long-term maturities at December 31, 1996 are as
follows:
Year Ending December 31, Amount
------------------------------------------------------------
1997 $ 23,653
1998 50,193
1999 54,351
2000 48,840
2001 40,681
------------------------------------------------------------
$ 217,718
============================================================
F/S-28
<PAGE>
HANOVER GOLD COMPANY, INC.
Notes to Financial Statements
- ---------------------------------------------------------------------------
6. Income December 31, 1996 and 1995, the Company had deferred tax
Taxes assets of approximately $2,070,000 and $1,570,000
principally arising from net operating loss carryforwards
for income tax purposes. As management of the Company
cannot determine if it is more likely than not that the
Company will receive the benefit of this asset, a valuation
allowance equal to the deferred tax asset has been
established at both December 31, 1996 and 1995.
At December 31, 1996, the Company has net operating loss
carryforwards totalling approximately $5,400,000 which
expire in the years 2005 through 2021.
7. Related In 1994 and 1995, the Company advanced $1,222,000 and
Party $373,000 pursuant to terms of a note receivable to an entity
Trans- partially owned by a shareholder for purposes of
actions refurbishing and operating milling facilities located near
the Company's mineral properties. The related party entity
was to repay the advances based on the flow of ore processed
at the mill. The Company recovered approximately $595,000
of the advances through 1995, at which time milling
operations ceased. In 1995, the Company wrote down the
carrying value of the note receivable by approximately
$780,000. In 1996, as part of the Company's negotiations on
the Moen Agreement (See Note 3), the milling facilities were
transferred, together with the Company's secured interest
therein, to a third party.
In 1995, the Company entered into an agreement, as amended,
(collectively, the "Stock Purchase Agreement") with a group
of individuals whereby the Company granted the group the
right to purchase up to 6,000,000 shares of the Company's
common stock and the right to appoint certain officers and
directors of the Company. Shares subject to terms of the
Stock Purchase Agreement, of which 3,857,142 and 2,142,858
were purchased in 1995 and 1996, were as follows:
F/S-29
<PAGE>
HANOVER GOLD COMPANY, INC.
Notes to Financial Statements
- ---------------------------------------------------------------------------
Per Share Total
Shares Purchase Price Consideration
-------------------------------------------------------
2,857,142 $ 0.35 $1,000,000
2,142,858 0.50 1,071,050
1,000,000 1.00 1,000,000
-------------------------------------------------------
6,000,000 $3,071,050
=======================================================
In December 1996 and 1995, the Company received advances
from certain shareholders of $298,405 and $50,000 and made
repayments on those advances of $275,000 and $0 plus
interest at 9%. At December 31, 1996 and 1995, the Company
owed these shareholders $73,405 and $50,000, respectively.
From 1990 through 1995, the Company paid $2,400 for annual
rent of office space leased from a significant shareholder.
During 1996, the Company paid $65,438 for sampling and
assaying services to a company controlled by a stockholder
and purchased equipment for $30,000 from this same entity.
During 1996, the Company paid $90,000 and $49,500 in
consulting fees to two stockholders.
During 1991, the Company borrowed $215,170 from certain
shareholders pursuant to the terms of a 10% convertible
promissory note. During 1995, the shareholders elected to
convert the amount owed them, including accrued interest of
$66,278, into 1,348,295 shares of the Company's common
stock.
8. Commitment The Company leases its corporate office space pursuant to a
and lease which expires in 1997. At December 31, 1996, the
Contingencies Company's remaining commitment under the lease was $20,000.
Rent expense for the years ended December 31, 1996, 1995 and
1994 was approximately $28,000, $20,000 and $20,000.
F/S-30
<PAGE>
HANOVER GOLD COMPANY, INC.
Notes to Financial Statements
- ---------------------------------------------------------------------------
The Company is currently receiving consulting services from
an individual for no cost. This individual has an
agreement, which has not been memorialized in writing, with
a significant shareholder of the Company pursuant to which
the consultant is entitled to acquire one half of the shares
of the Company's common stock held by the shareholder at the
same price the shareholder acquired the shares. At December
31, 1996, approximately 1,312,000 shares, ranging in a per
share price from $0.35 to $1.00, were encompassed by this
agreement. Upon sale of the shares from the shareholder to
the consultant, the Company will recognize consulting
expense in the period of share acquisition in an amount
equal to the number of shares purchased times the excess of
the market value of the shares over the acquisition price.
9. Stock The Company has a stock plan ("the 1995 Plan") under which
Plan eligible employees and directors of the Company may be
granted stock options, stock appreciation rights or
restricted stock. Pursuant to terms of the 1995 Plan, the
total number of shares of stock subject to issuance may not
exceed 4,000,000. Grants of options, appreciation rights
and restricted stock are based solely on the discretion of
the Board of Directors at exercises prices at least equal to
the fair value of the stock on the date of grant. During
1995, the Company granted options to certain directors to
acquire 800,000 shares at a per share option price of $1.60
(the estimated fair value of the shares on the date of
grant). The options expire in 2000. There were no grants
made during 1996.
Common Stock Warrants
In 1990, the Company issued common stock warrants granting
rights to purchase up to 150,000 shares of the Company's
common stock at $0.60 per share through September 1991.
Warrants to purchase 74,400 shares of common stock were
exercised in 1991.
In 1991, the Company issued common stock warrants granting
rights to purchase up to 4,572,500 shares of the Company's
common stock at $1.25 per share through August 1992 and at
$1.60 per share from September 1992 through March 1994.
Warrants to purchase 111,500 and 41,600 shares of the
Company's common stock at $1.25 per share were exercised in
1991 and 1992. Warrants to purchase 3,061,703 and
1,328,897 shares of the
F/S-31
<PAGE>
HANOVER GOLD COMPANY, INC.
Notes to Financial Statements
- ---------------------------------------------------------------------------
Company's common stock at $1.60 per share were
exercised in 1993 and 1994.
10. Supplemental Supplemental schedule of non cash investing and
Disclosures financing activities:
of Cash Flow
Information
Cumulative
Amounts from
Date of Inception
(May 2, 1990)
Through
December 31, December 31,
1996 1996 1995 1994
- ---------------------------------------------------------------------------
Mineral property rights
acquired in
exchange for:
Issuance of
common stock $1,460,000 $1,460,000 $ - $ -
Issuance of
long-term debt 263,946 263,946 - -
Note receivables 309,298 309,298 - -
Fixed assets 66,177 66,177 281,448 -
Issuance of shares
of common stock in
satisfaction of
vendor obligations 74,096 - 74,096 -
Conversion of notes payable
and accrued interest
to common stock 281,448 - 281,448 -
===========================================================================
11. Subsequent
Event On March 7, 1997, the Company entered into an agreement to
acquire all of the issued and outstanding shares of common
stock of an entity which owns certain mineral claims
contiguous to those of the Company in exchange for 7,000,000
shares of the Company's common stock. Pursuant to terms of
the agreement, the acquisition, which is to occur prior to
June 30, 1997, is contingent on certain matters, including
both companies obtaining shareholders and board of directors
approval and Hanover securing a guaranty from a principal
shareholder covering its obligations under mineral
agreements through June 30, 1998.
F/S-32
<PAGE>
EASTON-PACIFIC AND RIVERSIDE MINING COMPANY
UNAUDITED INTERIM FINANCIAL STATEMENTS
F/S-33
<PAGE>
Easton-Pacific and Riverside Mining Co.
Balance Sheets
March 31, December 31,
1997 1996
(Unaudited) Audited
----------- ------------
Current assets:
Cash $ 2,513 $ 212
Prepaid expenses 750 12,533
--------- ---------
Total current assets 3,263 12,745
Property
Mining claims 328,448 328,448
Deferred income taxes 23,509 23,509
--------- ---------
Total assets $ 355,220 $ 364,702
========= =========
Current liabilities:
Accounts payable $ 12,595 $ 10,085
Accrued interest 12,485 7,718
Notes payable 170,000 157,000
--------- ---------
Total liabilities 195,080 174,803
--------- ---------
Stockholders' equity:
Common stock 755,635 755,635
Accumulated deficit (595,495) (565,736)
--------- ---------
Total stockholders' equity 160,140 189,899
--------- ---------
Total liabilities and
stockholders' equity $ 355,220 $ 364,702
========= =========
F/S-34
<PAGE>
Easton-Pacific and Riverside Mining Co.
Statements of Loss
Three Months Ended March 31,
----------------------------
1997 1996
----------------------------
(unaudited)
Revenue $ - $ -
Cost of Goods Mined - -
--------- ----------
Gross Profit - -
General and Administrative
Expenses 24,992 14,343
--------- ----------
Loss From Operations (24,992) (14,343)
Interest and Other Income (4,767) -
--------- ----------
Income Before Income Taxes (29,759) (14,343)
Income Tax Benefit 731
--------- ----------
Net Loss $ (29,759) $ (13,612)
========= ==========
F/S-35
<PAGE>
Easton-Pacific and Riverside Mining Co.
Statements of Stockholders' Equity
Common Stock
--------------------- Accumulated
Shares Amount Deficit Total
------ ------ ------- -----
Balances as of
January 1, 1997 1,041,410 $755,635 $(565,736) $189,899
Net Loss (unaudited) (29,759) (29,759)
--------- -------- -------- -------
Balance, March 31,
1997 (unaudited) 1,041,410 $755,635 $(595,495) $160,140
========= ======= ======== =======
F/S-36
<PAGE>
Easton-Pacific and Riverside Mining Co.
Statements of Cash Flows
Three Months Ended March 31,
----------------------------
1997 1996
----------------------------
(unaudited)
Operating Activities:
Net loss $(29,759) $(13,612)
Adjustments to reconcile net loss
to cash used in operating
activities
Changes in assets and liabilities:
Prepaid expenses 11,783 -
Accounts payable 2,510 5,117
Accrued interest 4,767 1,932
------ -------
Net cash used in
operating activities (10,699) (6,563)
------ -------
Financing Activities:
Net proceeds from notes payable -
related party 13,000 6,000
------ -------
Net cash provided by
financing activities 13,000 6,000
------ -------
Net Increase (Decrease) in Cash
and Cash Equivalents 2,301 (563)
Cash and Cash Equivalents,
Beginning of Period 212 786
------ -------
Cash and Cash Equivalents, End of Period $ 2,513 $ 223
====== =======
Supplemental Disclosures of Cash Flow Information
Cash paid for during the period for:
Income taxes $ 50 $ 50
Interest 0 140
F/S-37
<PAGE>
1. Nature of Business and Basis of Presentation
The objectives of the Company are to invest in precious metal claims,
namely gold and silver deposits having economic potential for development
and mining, and related activities in the precious metals and mining
industries.
In the opinion of the Company's management, all adjustments (consisting of
only normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three month
period ended March 31, 1997 are not necessarily indicative of the results
that may be expected for the full year ending December 31, 1997.
F/S-38
<PAGE>
EASTON-PACIFIC AND RIVERSIDE MINING COMPANY
AUDITED FINANCIAL STATEMENTS
F/S-39
<PAGE>
To the Board of Directors of
Easton-Pacific and Riverside
Mining Company
INDEPENDENT AUDITOR'S REPORT
I have audited the accompanying statement of financial position of Easton-
Pacific and Riverside Mining Company as of December 31, 1996, July 31, 1996
and July 31, 1995, and the related statements of operations, changes in
stockholders' equity and cash flows for the five month period ended
December 31, 1996, and for the years ended July 31, 1996, July 31 1995 and
July 31, 1994. These financial statements are the responsibility of the
Company's management. My responsibility is to express an opinion on these
financial statements based on my audit.
I conducted my audit in accordance with generally accepted auditing
standards. Those standards require that I plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentations. I believe that my audit
provides a reasonable basis for my opinion.
As is shown in Note 5 to the financial statements, the Company has
capitalized costs in its mining claims of $328,448 at December 31, 1996.
The costs of these claims represent 90% of the total assets of the Company.
In my opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Easton-Pacific and
Riverside Mining Company as of December 31, 1996, July 31, 1996 and July
31, 1995, and the results of operations, changes in stockholders' equity
and cash flows for the five month period ended December 31, 1996, and for
the years ended July 31, 1996, July 31, 1995 and July 31, 1994 in
conformity with generally accepted accounting principles.
Terrence J. Dunne
Certified Public Accountant
Spokane, Washington
June 5, 1997
F/S-40
<PAGE>
EASTON-PACIFIC AND RIVERSIDE Statement of Financial Position as of
MINING COMPANY December 31, 1996 and July 31, 1996
- -------------------------------------------------------------------------
December 31 July 31, July 31,
1996 1996 1995
Current Assets
Cash (Note 1) $ 212 $ 18 $ 2,107
Accounts receivable - - 11,105
Prepaid expenses 12,533 8,250 8,250
------- ------- -------
Total Current Assets 12,745 8,268 21,462
------- ------- -------
Property (Notes 1 and 5) 328,448 326,508 323,508
------- ------- -------
Other Asset
Deferred tax asset
(Notes 1 and 4) 23,509 21,473 15,044
------- ------- -------
Total Assets $364,702 $356,249 $360,014
======= ======= =======
Current Liabilities
Accounts payable $10,085 $17,669 $28,761
Interest payable 7,718 - -
Notes payable - Related
party (Note 3) 157,000 132,000 72,000
------- ------- ------
Total Current Liabilities 174,803 149,669 100,761
------- ------- -------
Commitments and Contingencies (Note 2)
Stockholders' Equity
Common stock; no-par
value; 10,000,000 shares
authorized; 1,041,410
shares issued
and outstanding 755,635 755,635 755,635
Accumulated deficit (565,736) (549,055) (496,382)
------- ------- -------
Total Stockholders' Equity 189,899 206,580 259,253
------- ------- -------
Total Liabilities and
Stockholders' Equity $364,702 $356,249 $360,014
======= ======= =======
The accompanying notes are an integral part of these financial statements
F/S-41
<PAGE>
Statement of Operations for the
Five Months Ended December 31, 1996
EASTON-PACIFIC AND RIVERSIDE and for the Years Ended July 31,
MINING COMPANY 1996, 1995 and 1994
December 31 July 31,
1996 ---------------------------
---- 1996 1995 1994
---- ---- ----
Revenue
Timber sales $31,196 $64,665 $58,207 $173,942
Operating Expenses
Professional fees 15,456 58,605 25,118 8,635
Timber royalties 4,679 - - -
Mining exploration - 16,348 27,554 100,680
Interest 7,999 8,772 6,070 732
Filing fees 8,548 19,071 - -
Purchase option plan 7,500 7,500 - -
Travel 2,432 7,087 4,419 9,871
Compensation - - - 11,099
Lease 500 500 6,000 5,500
Office 1,856 3,286 2,900 2,959
Telephone 243 1,629 391 548
Taxes 500 488 25,602 27,133
Storage 200 480 480 630
------ ------ ------ -------
Total Operating
Expenses 49,913 123,766 98,534 167,787
------ ------- ------ -------
Income (Loss) From
Operations (18,717) (59,101) (40,327) 6,155
Other Income
Interest - - - 192
------- ------- ------ -------
Income (Loss) Before
Income Taxes (18,717) (59,101) (40,327) 6,347
Income Tax Benefit
(Note 4) 2,036 6,428 4,341 (735)
------ ------- ------ -------
Net Income (Loss) $(16,681) $(52,673) $(35,986) $ 5,612
======= ======= ====== =======
The accompanying notes are an integral part of these financial statements
F/S-42
<PAGE>
Statement of Changes in Stockholders'
Equity for the Five Months Ended
EASTON-PACIFIC AND RIVERSIDE December 31, 1996 and for the Years
MINING COMPANY Ended July 31, 1996, 1995 and 1994
Common Stock
--------------------- Accumulated
Shares Amount Deficit Total
------ ------ ----------- -----
Balances as of
August 1, 1993 882,850 $742,950 $(466,008) $276,942
Common Stock Issued
for Services at
$.08 Per Share 158,560 12,685 - 12,685
Net Income - - 5,612 5,612
------- ------- -------- -------
Balances as of
July 31, 1994 1,041,410 755,635 (460,396) 295,239
Net (loss) - - (35,986) (35,986)
------- ------- -------- -------
Balances as of
July 31, 1995 1,041,410 755,635 (496,382) 259,253
Net (loss) (52,673) (52,673)
------- ------- -------- -------
Balances as of
July 31, 1996 1,041,410 755,635 (549,055) 206,580
Net (loss) (16,681) (16,681)
------- ------- -------- -------
Balances as of
December
31, 1996 1,041,410 $755,635 $(565,736) $189,899
========= ======= ======== =======
The accompanying notes are an integral part of these financial statements
F/S-43
<PAGE>
Statement of Cash Flows for the Five
Months Ended December 31, 1996 and
EASTON-PACIFIC AND RIVERSIDE for the Years Ended July 31, 1996,
MINING COMPANY 1995 and 1994
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31 July 31,
1996 ----------------------------------
---- 1996 1995 1994
---- ---- ----
<S> <C> <C> <C> <C>
Cash Flows From Operating Activities
Net (loss) $(16,681) $(52,673) $(35,986) $5,612
Add (deduct) item(s) not requiring
the use of (providing) cash:
Deferred income taxes (2,036) (6,428) - -
Issuance of common stock for services - - - 12,685
Decrease in accounts receivable - 11,105 (11,105) -
(Increase) in prepaid expenses (4,283) - (3,000) 5,900
(Decrease) in accounts payable (7,584) (11,093) (8,986) 15,006
Increase in interest payable 7,718 - - -
(Decrease) in contract payable - - (5,000) (5,000)
____________________ - - (4,391) 685
(Decrease) in advance deposit - - - (72,748)
------- ------- ------- -------
Net Cash Provided From
Operating Activities (22,866) (59,089) (68,468) (37,860)
------- ------- ------- -------
Cash Flows From Investing Activities
Purchase of mining claims (4,940) (3,000) 500 (11,500)
Cost of recovery of mining claims
attributable to timber sales 3,000 - - -
------- ------- ------- -------
Net Cash (Utilized) From
Investing Activities (1,940) (3,000) 500 (11,550)
------- ------- ------- -------
Cash Flows From Financing Activities
Net proceeds from notes
payable - related party 25,000 60,000 62,000 10,000
Net Increase (Decrease) in Cash 194 (2,089) (5,968) (39,360)
Cash at Beginning of Period 18 2,107 8,075 47,435
------- ------- ------- -------
Cash at End of Period $ 212 $ 18 $ 2,107 $ 8,075
======= ======= ====== ======
Supplemental Information
Interest paid in cash $ 281 $ 8,772 $ 6,070 $ 732
======= ======= ====== ======
Income taxes paid in cash $ - $ - $ 50 $ 50
======= ======= ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements
F/S-44
<PAGE>
EASTON-PACIFIC AND RIVERSIDE Notes to Financial Statements
MINING COMPANY
- ------------------------------------------------------------------------
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Easton-Pacific and Riverside Mining Company ("the Company" or "Easton-
Pacific") was incorporated in the State of Montana, on July 12, 1959, for
the purpose of buying, selling, exploring, developing, and operating mining
claims. All mining properties are located in the State of Montana.
Development costs relating to mineral properties are capitalized until such
time as the properties are brought into production. If the mining claims
become productive (commercial ore production), the cost of the claims would
be amortized on a units-of-production basis. The carrying value of mineral
properties are reviewed on a regular basis and, where necessary, are
written down to the estimated recoverable amount.
Property and equipment are recorded at cost and depreciated on a straight-
line basis over their estimated useful lives.
The Company has adopted financial accounting standards number 109, which
states that the objectives of accounting for income taxes are to recognize
the amount of taxes refundable or payable for the current year and to
recognize deferred tax assets and liabilities for future tax consequences
of events that have been recognized in a corporation's financial statements
or income tax returns.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported assets and liabilities and disclosures
of contingent assets and liabilities at the date of the financial
statements and the reported amount of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
The carrying amounts reported in the balance sheets as of December 31, 1996
for cash equivalents, accounts payable and accrued expenses approximate
fair value because of the immediate or short-term maturity of these
financial instruments. The fair value of notes payable to a related party
cannot be determined.
In the statement of cash flows, the Company considers all highly liquid
investments with a maturity of three months or less when purchased to be
cash equivalents.
The Company's fiscal year end is July 31st.
NOTE 2 - COMMITMENTS AND CONTINGENCIES
The Company has been named as a defendant in a lawsuit between Western
Industries, plaintiff, and Chicago Mining Corporation, defendant. Chicago
Mining Corporation owes Western Industries money for services performed
during a period when Chicago Mining was leasing mining claims from Easton-
Pacific (see Note 6). The legal claim was filed by Western Industries to
foreclose a construction lien against Chicago Mining Corporation for non-
payment of services and supplies. Easton-Pacific was named as a defendant
in the action only because it owned an interest in the property attached by
the lien, and was subsequently dismissed from the action without prejudice.
Judgment has been ordered against Chicago Mining Corporation, and the
judgement was affirmed and modified by the Montana Supreme Court. The only
interest that Chicago Mining Corporation ever held in the property owned by
Easton-Pacific, and which could therefore be attached by the lien, was a
leasehold interest, which was terminated on July 2, 1993. Easton-Pacific
has filed it's lease termination documents with the Madison County Clerk
and Recorder, thereby prohibiting the attachment of any liens or
encumbrances to these mining claims.
The Company is required to pay $21,600 per year ($100 per mining claim) to
the U.S. Bureau of Land Management in order to retain the mineral rights to
the two hundred and sixteen unpatented mining claims.
F/S-45
<PAGE>
EASTON-PACIFIC AND RIVERSIDE Notes to Financial Statements
MINING COMPANY
- ------------------------------------------------------------------------
NOTE 2 - COMMITMENTS AND CONTINGENCIES - Continued
The Company leases six patented mining claims under a series of renewable,
consecutive three-year operating leases. Of the six patented mining
claims, the Company has a one hundred percent leasehold interest in four of
these claims, and a fifty percent undivided leasehold interest in the
remaining two patented claims. During the current renewal period, the
Company has a commitment to pay, to the lessor, $7,500, which would
conclude the second renewal period through July 31, 1998. If the Company
elects to exercise the renewal option on the six patented mining claims,
for the period commencing August 1, 1998 and ending July 31, 2001, the net
future minimum rental payments will be $10,000 per year, for a total of
$30,000 (see Note 6).
Easton-Pacific leases two patented mining claims as a sublessee under a
one-year operating lease. Net future minimum lease rental payments for
this lease are $500 (see Note 6).
The Company also leases a one-half undivided interest in two patented
mining claims under an eighteen-year lease. Net future minimum rental
payments for this lease are $9,000. This lease further commits the Company
to pay all real and personal property taxes assessed on the property or
items placed on the property for the term of the lease (see Note 6).
The Company has entered into permit agreements for two land use licenses
from the State of Montana. These licenses expire on December 27, 2004, and
February 5, 2006, and have net future minimum rental payments of $16,640
and $2,370, respectively, over the life of the license agreements. The
rental payments increase on a progressive basis throughout the tenure
period of the land use license lives.
NOTE 3 - NOTES PAYABLE - RELATED PARTY
An officer of Easton-Pacific and Riverside Mining Company has loaned the
Company various amounts through the last few years. The notes are due upon
demand and bear interest at a rate of 12% per annum. Accrued interest as
of December 31, 1996, is $7,718. The notes are unsecured.
Following is a summary of the above notes payable:
Balances as of Balances as of Balances as of
December 31, 1996 July 31, 1996 July 31, 1995
----------------- -------------- --------------
$ 53,000 $ 53,000 $ 53,000
7,000 7,000 2,000
5,000 1,000 2,000
6,000 1,000 10,000
30,000 5,000 5,000
5,000 1,000 ------
10,000 6,000 $ 72,000
8,000 1,000 ======
10,000 2,000
23,000 30,000
------ 5,000
$ 157,000 2,000
======= 10,000
8,000
-------
$ 132,000
=======
F/S-46
<PAGE>
EASTON-PACIFIC AND RIVERSIDE Notes to Financial Statements
MINING COMPANY
- ------------------------------------------------------------------------
NOTE 4 - DEFERRED INCOME TAXES
In accordance with SFAS 109, the Company recorded deferred tax assets to
reflect the future tax benefits of financial operating loss carryforwards
for the five month period ended December 31, 1996, and the year ended July
31, 1996.
The amount of the net operating loss carryforward to the year July 31,
1996, is $197,457. These loss carryforwards commence to expire in 2007.
The net deferred tax asset in the accompanying statements includes the
following components:
December 31, July 31, July 31,
1996 1996 1995
---- ---- ----
Deferred tax asset $ 47,018 $ 42,947 $30,089
Less: Deferred tax
valuation allowance (23,509) (21,474) (15,045)
------- ------- -------
Net deferred tax asset $ 23,509 $ 21,473 $15,044
======= ======= =======
Management of the Company believes that, based on the estimated future
revenues from timber sales, an uncertainty as to the reliability of one-
half of the deferred tax asset exists. Accordingly, a valuation allowance
equal to 50% of the deferred tax asset has been provided.
The following temporary differences gave rise to the deferred tax asset:
December 31, July 31, July 31,
1996 1996 1995
---- ---- ----
Net operating loss
carryforwards $ 47,018 $ 42,947 $ 30,089
======= ======= =======
The following temporary differences gave rise to the income tax benefit:
December 31, July 31, July 31,
1996 1996 1995
---- ---- ----
Net operating loss
carryforwards $ 2,036 $ 6,428 $ 4,341
======= ======= =======
NOTE 5 - PROPERTY
The Company owns seventy-five patented mining claims and two hundred and
sixteen unpatented mining claims in the state of Montana. As of December
31, 1996, and July 31, 1996, the cost of the claims is as follows:
December 31, July 31,
1996 1996
---- ----
Patented mining claims $235,146 $238,146
Unpatented mining claims 93,302 88,362
------- -------
Total mining claims $328,448 $326,508
======= =======
NOTE 6 - LEASES
The Company entered into a lease agreement on June 1, 1996, to lease an
undivided one-half interest in two patented mining claims. The Company,
prior to this lease, had already owned an undivided one-half interest in
these two claims. The annual lease payments are $500 per year, due on
January 1. The lease has an expiration date of December 31, 2014. Easton-
Pacific may extend this lease in ten-year increments upon written notice to
the lessors, thirty days prior to the expiration date of the initial terms.
F/S-47
<PAGE>
EASTON-PACIFIC AND RIVERSIDE Notes to Financial Statements
MINING COMPANY
- ------------------------------------------------------------------------
NOTE 6 - LEASES - Continued
In October of 1980, Easton-Pacific leased two patented mining claims (Iola
and Elkhorn), under the terms of a nine-year lease, which was renewed for
an additional nine years in 1989. Richard Fisher, the president of the
Company, acted in the capacity as the leasing agent for Easton-Pacific.
The annual lease payments which are due in October of each year are $500.
During the early portion of the second year renewal term of this lease, the
Company subleased the mining claims to other parties who subsequently
defaulted on the subleases (see Note 2).
Easton-Pacific leases six patented mining claims under a series of
renewable, consecutive, three-year operating leases. The Company has a
one-hundred percent leasehold interest in four of these leases, and a fifty
percent undivided leasehold interest in the remaining two mining claims.
During the current renewal period, the Company has a commitment to pay the
lessor $7,500, which would conclude the second renewal period (see Note 2).
If the Company elects to renew into the third renewal period, which would
commence on August 1, 1998, the future net minimum rental payments would be
$10,000 a year for three years, for a total of $30,000, with this lease
expiring on July 31, 2001. This lease, which Easton-Pacific may cancel at
any time, requires the Company to pay all property taxes, carry liability
insurance, and to conduct exploratory and mining activities. This lease
provides a purchase option for a varying purchase price (increased at each
renewal period), which is to be reduced by the previous rental payments and
timber proceeds. This purchase option amount, which remained unexercised
as of December 31, 1996, totaled $242,812, at that date.
NOTE 7 - COMMON STOCK OPTIONS
The Company has granted common stock options that are not formalized under
a written plan. These options were granted on August 20, 1993, in
consideration for services performed by individuals, two of which are
officers of the Company. The exercise price is $.01 per share and the
options expire on August 4, 1997. Following is a summary of stock option
activity:
Granted 158,932
Less: Stock options exercised (158,560)
-------
Outstanding, December 31, 1996 372
=======
NOTE 8 - RELATED PARTY TRANSACTIONS
The Company has been involved in various transactions with its corporate
officers during the periods that are presented in these financial
statements. These related party transactions are presented in Notes 3, 6,
7, and 9.
NOTE 9 - OFFER TO PURCHASE CLAIMS
The Company has received an offer to purchase certain mining claims from
the Secretary of Easton-Pacific and Riverside Mining Company. This offer
expired on August 28, 1996.
NOTE 10 - RISKS AND UNCERTAINTIES
The Company operates in the mining industry which carries with it certain
inherent risks. These risks relate to current and previous mining
operations which could give rise to potential costs such as environmental
contamination or other mining hazards. Three patented mining claims have
been identified as having potential environmental contamination and/or
hazardous mining openings.
F/S-48
<PAGE>
EASTON-PACIFIC AND RIVERSIDE Notes to Financial Statements
MINING COMPANY
- ------------------------------------------------------------------------
NOTE 11 - SUBSEQUENT EVENT
On March 7, 1997, Easton-Pacific entered into a letter agreement with
Hanover Gold Company, Inc., ("Hanover"), a publicly held corporation,
whereby Hanover will issue seven million shares of it's common stock in
exchange for one hundred percent of the outstanding common stock of Easton-
Pacific. The merger will be subject to the approval of the board of
directors and shareholders of Easton-Pacific.
F/S-49
<PAGE>
EXHIBIT A TO JOINT PROXY
STATEMENT/PROSPECTUS
AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (the "Reorganization Agreement")
is made and entered into as of April 30, 1997, by and between Hanover Gold
Company, Inc., a Delaware corporation ("Hanover"), and Easton-Pacific and
Riverside Mining Company, a Montana corporation ("Easton-Pacific").
Hanover and Easton-Pacific are sometimes hereinafter collectively referred
to as the "Constituent Corporations".
RECITALS:
A. The boards of directors of Hanover and Easton-Pacific have approved the
acquisition by Hanover of all of the issued and outstanding capital stock
of Easton-Pacific in exchange for the issuance of 7,000,000 shares of
Hanover common stock, par value $.0001 per share (the "Hanover Common
Stock"), to the shareholders of Easton-Pacific.
B. The boards of directors of Hanover and Easton-Pacific have approved the
merger of Easton-Pacific into Hanover, with Hanover being the surviving
corporation (the "Merger"), pursuant to the agreement of merger annexed
hereto as Exhibit A (the "Merger Agreement") in accordance with the
provisions of the Montana Business Corporation Act (the "Montana Act") and
the Delaware General Corporation Law (the "Delaware Act").
C. For federal income tax purposes, the parties intend that the Merger
qualify as a tax-free reorganization within the meaning of Section
368(a)(1)(A) of the Internal Revenue Code of 1986, as amended (the "Code").
D. Each of the parties to this Reorganization Agreement desires to make
certain representations, warranties and agreements in connection with the
Merger and also to prescribe various conditions thereto.
NOW, THEREFORE, in consideration of the covenants, representations,
warranties and agreements herein contained, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, Hanover and Easton-Pacific agree as follows:
ARTICLE I. THE MERGER
1.1 THE MERGER.
(a) At the Effective Time (as defined in Section 1.2) and subject to
the terms of this Reorganization Agreement and the Merger Agreement,
Easton-Pacific shall be merged into Hanover and the separate existence of
Easton-Pacific shall thereupon cease, in accordance with the applicable
provisions of the Montana Act and the Delaware Act.
(b) Hanover shall be the surviving corporation and will continue to be
governed by the laws of the State of Delaware, and the separate corporate
existence of Hanover and all of its rights, privileges, immunities and
franchises, public or private, and all of its duties and liabilities as a
corporation will continue unaffected by the Merger. Hanover is sometimes
hereinafter referred to as the "Surviving Corporation."
1.2 EFFECTIVE TIME. As soon as practicable, following the fulfillment or
waiver of the conditions specified in Article VII hereof, and provided that
this Reorganization Agreement has not been terminated or abandoned pursuant
to Section 10.1 hereof, the Constituent Corporations will cause articles of
merger (the "Articles of Merger") to be filed with the office of the
Secretary of State of Montana and the office of the Secretary of State of
Delaware pursuant to the Montana Act and the Delaware Act, respectively.
The Merger will become effective at the date and time the Articles of
Merger are filed in the last of such offices, or such later time or date as
may be specified in the Articles of Merger (the "Effective Time"). Each of
the parties hereto will use its best efforts to cause the Merger to be
consummated by September 30, 1997.
A-1
<PAGE>
ARTICLE II. THE SURVIVING CORPORATION
2.1 CERTIFICATE OF INCORPORATION. The Certificate of Incorporation of
Hanover, as in effect immediately prior to the Effective Time, shall be the
Certificate of Incorporation of the Surviving Corporation after the
Effective Time.
2.2 BYLAWS. The bylaws of Hanover as in effect immediately prior to the
Effective Time, shall be the bylaws of the Surviving Corporation after the
Effective Time.
2.3 BOARD OF DIRECTORS. From and after the Effective Time, the current
board of directors of Hanover shall continue as the directors of the
Surviving Corporation.
ARTICLE III. CONVERSION OF SHARES
3.1 CONVERSION OF EASTON-PACIFIC'S SHARES IN THE MERGER. Pursuant to the
Merger Agreement, at the Effective Time, by virtue of the Merger and
without any action on the part of any holder of any capital stock of
Easton-Pacific:
(a) in exchange for the shares of capital stock, without par value, of
Easton-Pacific (the "Easton-Pacific Capital Stock"), each shareholder of
Easton-Pacific shall receive 6.721656 shares of validly issued, fully paid
and non-assessable common stock, $.0001 par value, of Hanover (the "Hanover
Common Stock"). The number of shares of Hanover Common Stock to be issued
to the shareholders of Easton-Pacific shall be 7,000,000 shares in the
aggregate. Fractional shares shall be rounded to the nearest whole share
of Hanover Common Stock and options for the purchase of Easton-Pacific
Capital Stock, if any, shall be canceled; and
(b) in exchange for the Hanover Common Stock given to the shareholders
of Easton-Pacific, Hanover shall receive the shares of Easton-Pacific
Capital Stock held by such shareholders, which shall constitute all of the
issued and outstanding shares of the Easton-Pacific Capital Stock.
3.2 EXCHANGE OF STOCK. On the Closing Date, Hanover shall deliver to the
Easton-Pacific shareholders an aggregate of 7,000,000 shares of Hanover
Common Stock, which shares shall be deemed to have been issued at the
Effective Time. Concurrently, the Easton-Pacific shareholders shall
automatically be deemed to have surrendered all of their shares of Easton-
Pacific Capital Stock to Hanover.
3.3 CLOSING. The Closing (the "Closing") of the transactions contemplated
by this Reorganization Agreement shall take place at the offices of Randall
& Danskin, P.S. 1500 Seafirst Financial Center, Spokane, Washington 99201,
on the second business day immediately following the date on which the last
of the conditions set forth in Article VII hereof is fulfilled or waived,
but not later than December 31, 1997, unless the parties mutually agree
upon such other time, date and place (the "Closing Date").
ARTICLE IV. FURTHER AGREEMENTS
4.1 SHAREHOLDER DEBT. Easton-Pacific is presently indebted to James
Nierengarten, an affiliate of Easton-Pacific. Hanover agrees to assume and
repay Easton-Pacific's indebtedness to Mr. Nierengarten in full, within 120
days of Closing, in cash. The amount of Easton-Pacific's indebtedness to
Mr. Nierengarten shall be verified by Easton-Pacific and Mr. Nierengarten,
to Hanover's satisfaction, at Closing.
4.2 IRREVOCABLE PROXIES OF EASTON-PACIFIC AFFILIATES. As a condition to
moving forward with the preparation and filing of the registration
statement under the Securities Act of 1933, as amended (the "Securities
Act") set forth in section 6.6, Easton-Pacific shall procure and deliver to
Hanover irrevocable proxies substantially in the form annexed hereto as
Exhibit B executed by each holder of five percent (5%) or more of Easton-
Pacific's outstanding capital stock appointing James Nierengarten and David
Daniel, and each of them, as such holders' proxies to vote the shares of
capital stock of Easton-Pacific held by such holders in favor of the Merger
at the special meeting of Easton-Pacific's shareholders called for such
purpose.
4.3 PUBLICITY. The parties acknowledge that Hanover will make the fact of
this Reorganization Agreement public only after all parties hereto have
executed this Agreement.
A-2
<PAGE>
ARTICLE V. REPRESENTATIONS AND WARRANTIES
5.1 GENERAL STATEMENT. The parties hereto make the representations and
warranties to each other as set forth in this Article V. The survival of
all such representations and warranties shall be in accordance with Section
10.3 hereof. All representations and warranties of the parties are made
subject to the exceptions which are noted in the respective Schedules
attached hereto (the "Schedules"). Copies of all documents referenced in
the Schedules shall be attached thereto or delivered separately.
5.2 REPRESENTATIONS AND WARRANTIES OF HANOVER. Hanover represents and
warrants to Easton-Pacific, as of the date hereof and as of the Effective
Time, as follows:
(a) CORPORATE STATUS. Hanover is now and will, as of the Closing,
continue to be a publicly-owned corporation, duly organized, validly
existing and in good standing under the laws of the State of Delaware, with
all requisite power and authority to carry on its business as now being
conducted. Hanover is duly qualified to do business and is in good
standing as a foreign corporation in each jurisdiction where the character
of its properties or the nature of its business requires it to be so
qualified. Hanover is now and as of the Closing will be a reporting issuer
pursuant to Section 12(b) of the Securities Exchange Act of 1934. The
Hanover Common Stock is now and as of the Closing will be listed for
quotation on the Nasdaq SmallCap Market.
(b) AUTHORITY. The execution and delivery of this Reorganization
Agreement and any other contract or agreement contemplated hereunder by
Hanover and the consummation and performance of the transactions
contemplated hereby have been duly and validly authorized by all necessary
corporate and other proceedings. Hanover has full right, power and
authority to execute and deliver this Reorganization Agreement and upon
compliance with the registration requirements of Section 5 of the
Securities Act, to consummate and perform the transactions contemplated
hereby. This Reorganization Agreement has been duly executed and delivered
by Hanover and constitutes the legal, valid and binding obligation of
Hanover, enforceable against it in accordance with its terms.
(c) VALIDITY OF CONTEMPLATED TRANSACTIONS. The execution and delivery
of this Reorganization Agreement (and every other contract or agreement
contemplated hereby) by Hanover does not, and the performance of this
Reorganization Agreement (and every other contract or agreement
contemplated hereby) by Hanover will not, violate, conflict with or result
in the breach of any term, condition, or provision of, or require the
consent of any other party to (i) any existing law to which Hanover is
subject, (ii) any judgment of any authority which is applicable to Hanover,
(iii) the articles of incorporation or other charter documents or bylaws of
Hanover or any securities issued by Hanover, or (iv) any contract to which
Hanover is a party or by which Hanover is otherwise bound. Other than as
may be required by the Securities Act, no authorization, approval or
consent of, and no registration or filing with any authority is required in
connection with the execution, delivery and performance of this
Reorganization Agreement by Hanover.
(d) CAPITALIZATION. The total authorized capital stock of Hanover
consists of 50,000,000 shares, of which 48,000,000 shares are designated
common stock, par value $.0001 per share, and 2,000,000 shares are
designated preferred stock, par value $.001 per share, issuable in one or
more series, with such rights, preferences, limitations and other
characteristics as the board of directors of Hanover may from time-to-time
determine. As of the date of this Reorganization Agreement, 19,886,443
shares of common stock were issued and outstanding and an additional
3,317,968 shares were deemed outstanding pursuant to presently exercisable
options. No shares of preferred stock were issued and outstanding or
deemed issued and outstanding at such date. Hanover does not now and will
not as of the Closing have any other issued or outstanding capital stock,
whether voting or non-voting, common or preferred. All of such shares have
been duly authorized and validly issued, are fully paid and non-assessable.
(e) NO DIVIDENDS. Hanover agrees that prior to the issuance and
delivery of the 7,000,000 shares of Hanover Common Stock to Easton-
Pacific's shareholders, it shall not effect any stock splits, declare any
stock dividends or change its capitalization.
(f) NO UNTRUE STATEMENT OR OMISSIONS OF MATERIAL FACT. To the best of
Hanover's knowledge, it has made no untrue statement of material fact or
omitted any material fact in connection with this transaction and the
Reorganization Agreement, the Merger Agreement or any other document
contemplated hereby.
(g) OFFICERS; DIRECTORS. The directors and officers of Hanover are
set forth in the annual report on Form 10-K of Hanover for the year ended
December 31, 1996 and the financial statements of Hanover included therein
(the "1996 Form 10-K"), a copy of which has previously been delivered to
Easton-Pacific or its counsel.
A-3
<PAGE>
(h) ABSENCE OF UNDISCLOSED LIABILITIES. Hanover has no material
liabilities or obligations, accrued or absolute, including borrowed money,
or contingent liabilities except as disclosed in the 1996 Form 10-K and
except for: (i) liabilities arising in the ordinary course of business
under any contract or agreement which is either specifically disclosed on
any Schedule to this Reorganization Agreement or not required to be
disclosed because of the length of the term, because the amount involved is
de minimis or otherwise not required to be disclosed pursuant to this
Agreement; (ii) liabilities incurred consistently with past business
practice, in or as a result of the normal and ordinary course of business
since the date of the 1996 Form 10-K; and (iii) undisclosed or contingent
liabilities not known to Hanover after reasonable investigation by Hanover.
(i) ACCOUNTS PAYABLE. All trade payables reflected on the 1996 Form
10-K and all accounts payable incurred by Hanover subsequent to the date of
the 1996 Form 10-K were incurred in the ordinary course of business of
Hanover consistent with past practice and were recorded in accordance with
past practice and generally accepted accounting principles.
(j) ABSENCE OF CHANGES OR EVENTS. Except as disclosed on Schedule
5.2(j) and except for actions taken after the date hereof pursuant to a
specific covenant hereunder, since the date of 1996 Form 10-K and between
the date of the 1996 Form 10-K and the date of this Reorganization
Agreement, Hanover has not: (i) declared, set aside or paid any dividend
or made or agreed to make any other distribution or payment in respect of
its common stock or redeemed, purchased or otherwise acquired or agreed to
redeem, purchase or acquire any of its common stock; (ii) authorized or
issued any shares of preferred stock; (iii) discharged or satisfied any
lien or encumbrance, or paid any material liabilities, other than in the
ordinary course of business consistent with past practice, or failed to pay
or discharge when due any liabilities which failure to pay or discharge has
caused or will cause any material damage or risk of material loss to its
assets or with respect to its business; (iv) sold, assigned or transferred
any of its material assets except in the ordinary course of business
consistent with past practice; (v) created, incurred, assumed or guaranteed
any indebtedness for money borrowed, or mortgaged, pledged or subjected to
any lien, any of its assets, other than the liens, if any, of current taxes
not yet due and payable, and for liens and indebtedness created or incurred
in the ordinary course of business; (vi) suffered any material adverse
change in its business; (vii) changed any of the accounting principles
which it follows or the methods or applying such principles; (ix) entered
into any material transaction other than in the ordinary course of
business, consistent with past practice; or (x) suffered any damage,
destruction or loss, whether or not covered by insurance, which materially,
adversely affects its business.
(k) MINING CLAIMS AND INTERESTS. Schedule 5.2(k)(1) sets forth all
of the patented and unpatented mining claims and interests owned or leased
by Hanover as of March 31, 1997. Any claims which are leased are listed as
such and all other claims set forth on Schedule 5.3(j) are owned. None of
the claims will be disposed of prior to the Closing.
(l) CONDITION OF THE ASSETS. All material assets owned by Hanover
are usable in the regular and ordinary course of operation of its business
as presently conducted. No person other than Hanover owns any tangible
assets utilized by Hanover in the operation of its business, except for
leased items identified as such on the Schedules hereto.
(m) TAX MATTERS. With respect to taxes:
(i) Hanover has filed, within the time and in the manner prescribed
by law, all returns, declarations, reports, estimates, information returns
and statements (the "Returns") required to be filed under federal, state,
or local laws, and all such Returns are true, correct and complete in all
material respects. Except as set forth on Schedule 5.2(m), Hanover has
within the time and in the manner prescribed by law, paid (and until the
Effective Time will, within the time and in the manner prescribed by law,
pay) all taxes that are due and payable. Hanover has established (and
until the Effective Time will establish) on its books and records, reserves
(to be specifically designated as an increase to current liabilities) that
are adequate for the payment of all taxes not yet due and payable. There
are no liens for taxes upon the assets except for liens for taxes not yet
due.
(ii) None of the Returns of Hanover are presently under audit by any
tax authority (including federal, state, or local) nor has a deficiency for
any taxes been proposed asserted or assessed against Hanover which has not
either been resolved and/or paid in full. There are no outstanding waivers
or comparable consents regarding the application of the statute of
limitations with respect to any tax or Return that have been given by
Hanover.
(iii) Hanover has complied (and until the Effective Time will comply)
in all respects with all applicable laws, rules and regulations relating to
the payment and withholding of taxes and has, within the time and in the
manner prescribed by law, withheld from employee wages and paid over to the
proper governmental authorities all amounts required to be so withheld and
paid under all applicable laws.
A-4
<PAGE>
(n) LITIGATION. No action or proceeding of or before any court or
other tribunal is pending or threatened against Hanover which would impair
the ability of Hanover to perform the transactions contemplated by this
Reorganization Agreement.
(o) CONTRACTS AND COMMITMENTS. Except as described in the 1996 Form
10-K, Hanover is not a party to any: (i) contract, involving an obligation
in excess of $50,000; (ii) contract with any officer, employee, independent
contractor or other third party that is not by its terms cancelable on
notice of not longer than thirty days without liability or penalties; (iii)
material contract not made in the ordinary course of business except for
those listed on any Schedule to this Agreement; or (iv) joint ventures,
partnerships or other profit or loss sharing agreement.
(p) EMPLOYEE BENEFIT PLANS AND ARRANGEMENTS. The 1996 Form 10-K
describes all qualified pension, profit sharing or 401(k) plans ("Plan"),
any deferred compensation, bonus arrangement or any other incentive,
welfare or employee benefit plan or agreement maintained by Hanover for its
employees. Neither Hanover nor any Plan described in the 1996 Form 10-K
have incurred any liability to the Pension Benefit Guaranty Corporation,
the Internal Revenue Service or the Department of Labor.
(q) COMPLIANCE WITH LAWS. Hanover has not received any notice, and
otherwise is not aware of any event or condition, which indicates that any
of its mining claims and leases are not in material compliance with all
applicable laws, ordinances, regulations, rules, judgments and orders
(including, without limitation, any applicable environmental, zoning, labor
or other law, ordinance or regulation).
(r) NO UNTRUE STATEMENT OR OMISSIONS OF MATERIAL FACT. To the best
of Hanover's knowledge, the representations, warranties and covenants
contained in the 1996 Form 10-K and this Reorganization Agreement, and in
any Schedule or Exhibit hereto or in any document appended to this
Reorganization Agreement, do not contain any untrue statement of a material
fact and do not omit to state any fact necessary to make any statement
herein or therein not misleading or necessary to a correct presentation of
all material aspects of Hanover's business and the matters contemplated
under this Reorganization Agreement, the Merger Agreement or any other
contract, agreement or document contemplated in connection with the Merger.
5.3 REPRESENTATIONS AND WARRANTIES OF EASTON-PACIFIC. Easton-Pacific
represents and warrants to Hanover, as of the date hereof and as of the
Effective Time, as follows:
(a) CORPORATE STATUS. Easton-Pacific is a corporation, duly
incorporated, validly existing and in good standing under the laws of the
State of Montana, and has all requisite power and authority to carry on its
present business as it has been and is now being conducted and to own,
lease and operate its properties used in connection therewith. Easton-
Pacific is duly qualified to do business and is in good standing as a
foreign corporation in each jurisdiction where the character of its
properties or the nature of its business requires it to be so qualified.
Complete and correct copies of Easton-Pacific's articles of incorporation
and all amendments thereto, effective prior to the date hereof, and its
bylaws, as amended prior to the date hereof, have been delivered to Hanover
or will be delivered to Hanover within five days after the execution of
this Reorganization Agreement.
(b) AUTHORITY. The execution and delivery of this Reorganization
Agreement by Easton-Pacific and the consummation and performance of the
transactions contemplated hereby have been duly and validly authorized by
all necessary corporate proceedings. Easton-Pacific has full right, power
and authority to execute and deliver this Reorganization Agreement and upon
obtaining the approval of Easton-Pacific's shareholders as provided in the
Montana Business Corporation Act, to consummate and perform the
transactions contemplated hereby. This Reorganization Agreement has been
duly executed and delivered by Easton-Pacific and constitutes the legal,
valid and binding obligation of Easton-Pacific, enforceable against it in
accordance with its terms.
(c) VALIDITY OF CONTEMPLATED TRANSACTIONS. The execution and
delivery of this Reorganization Agreement (and every other contract or
agreement contemplated hereby) by Easton-Pacific does not, and the
performance of this Reorganization Agreement (and every other contract or
agreement contemplated hereby) by Easton-Pacific will not violate, conflict
with or result in the breach of any term, condition or provision of, or
require the consent of any other party to: (i) any existing law to which
Easton-Pacific is subject, (ii) any Judgment of any authority which is
applicable to Easton-Pacific, (iii) the articles of incorporation or bylaws
of Easton-Pacific, or (iv) any contract to which Easton-Pacific is a party
or by which it is otherwise bound. Other than the approval of its
shareholders as required by the Montana Business Corporation Act, no
authorization, approval or consent of, and no registration or filing with
any authority is required in connection with the execution, delivery and
performance of this Reorganization Agreement by Easton-Pacific.
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(d) CAPITALIZATION. The total authorized capital stock of Easton-
Pacific consists of 10,000,000 shares of capital stock, no par value, of
which 1,041,410 shares are issued and outstanding as of the date of this
Reorganization Agreement. Easton-Pacific does not now and will not as of
the Closing have any other issued or outstanding capital stock, whether
voting or non-voting, common or preferred. All of such shares have been
duly authorized and validly issued, are fully paid and non-assessable.
(e) OFFICERS: DIRECTORS; BANK ACCOUNTS. Schedule 5.3(e) lists (i) all
of the directors and officers of Easton-Pacific and (ii) all bank accounts,
lock box, safe deposit boxes and borrowing authority of Easton-Pacific,
specifying with respect to each, the name and address of the bank or other
financial institution and the account number and all persons having signing
authority or authority to withdraw therefrom or thereon.
(f) ABSENCE OF UNDISCLOSED LIABILITIES. Easton-Pacific has no
material liabilities or obligations, accrued or absolute, including
borrowed money, or contingent liabilities which would be required to be
recorded on its balance sheet as of March 31, 1997 (the "Balance Sheet") or
in the footnotes thereto in accordance with generally accepted accounting
principles except: (i) liabilities set forth on its Balance Sheet and not
heretofore paid or discharged; (ii) liabilities arising in the ordinary
course of business under any contract or agreement which is either
specifically disclosed on any Schedule to this Reorganization Agreement or
not required to be disclosed because of the length of the term, because the
amount involved is de minimis or otherwise not required to be disclosed
pursuant to this Agreement; (iii) liabilities incurred consistently with
past business practice, in or as a result of the normal and ordinary course
of business since the date of the Balance Sheet; and (iv) undisclosed or
contingent liabilities not known to Easton-Pacific after reasonable
investigation by Easton-Pacific.
(g) ACCOUNTS PAYABLE. All trade payables reflected on the Balance
Sheet and all accounts payable incurred by Easton-Pacific subsequent to the
date of the Balance Sheet were incurred in the ordinary course of business
of Easton-Pacific consistent with past practice and were recorded in
accordance with past practice and generally accepted accounting principles.
Schedule 5.3(g) lists all of Easton-Pacific's accounts payable as of March
31, 1997.
(h) ABSENCE OF CHANGES OR EVENTS. Except as disclosed on Schedule
5.3(h) and except for actions taken after the date hereof pursuant to a
specific covenant hereunder, since the date of the Balance Sheet and
between the date of the Balance Sheet and the date of this Reorganization
Agreement, Easton-Pacific has not: (i) declared, set aside or paid any
dividend or made or agreed to make any other distribution or payment in
respect of its capital stock or redeemed, purchased or otherwise acquired
or agreed to redeem, purchase or acquire any of its capital stock; (ii)
discharged or satisfied any lien or encumbrance, or paid any material
liabilities, other than in the ordinary course of business consistent with
past practice, or failed to pay or discharge when due any liabilities which
failure to pay or discharge has caused or will cause any material damage or
risk of material loss to its assets or with respect to its business; (iii)
sold, assigned or transferred any of its material assets except in the
ordinary course of business consistent with past practice; (iv) created,
incurred, assumed or guaranteed any indebtedness for money borrowed, or
mortgaged, pledged or subjected to any lien, any of its assets, other than
the liens, if any, of current taxes not yet due and payable, and for liens
and indebtedness created or incurred in the ordinary course of business;
(v) suffered any material adverse change in its business; (vi) changed any
of the accounting principles which it follows or the methods or applying
such principles; (vii) entered into any material transaction other than in
the ordinary course of business, consistent with past practice; or (viii)
suffered any damage, destruction or loss, whether or not covered by
insurance, which materially, adversely affects its business.
(i) ASSETS.
(i) Schedule 5.3(i)(1) sets forth all of the patented and unpatented
mining claims and interests owned or leased by Easton-Pacific as of March
31, 1997. Any claims which are leased are listed as such and all other
claims set forth on Schedule 5.3(i)(1) are owned. None of the claims will
be disposed of prior to the Closing.
(ii) Easton-Pacific has good and valid title to all of the assets,
free and clear of all liens, except liens for current taxes not yet due and
payable, and those liens disclosed on Schedule 5.3(i)(2).
(j) CONDITION OF THE ASSETS. All material assets owned by Easton-
Pacific are usable in the regular and ordinary course of operation of its
business as presently conducted. No person other than Easton-Pacific owns
any tangible assets utilized by Easton-Pacific in the operation of its
business, except for leased items identified as such on the Schedules
hereto.
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(k) TAX MATTERS. With respect to taxes:
(i) Easton-Pacific has filed, within the time and in the manner
prescribed by law, all returns, declarations, reports, estimates,
information returns and statements (the "Returns") required to be filed
under federal, state, or local laws, and all such Returns are true, correct
and complete in all material respects. Except as set forth on Schedule
5.3(k), Easton-Pacific has within the time and in the manner prescribed by
law, paid (and until the Effective Time will, within the time and in the
manner prescribed by law, pay) all taxes that are due and payable. Easton-
Pacific has established (and until the Effective Time will establish) on
its books and records, reserves (to be specifically designated as an
increase to current liabilities) that are adequate for the payment of all
taxes not yet due and payable. There are no liens for taxes upon the
assets except for liens for taxes not yet due.
(ii) None of the Returns of Easton-Pacific are presently under audit
by any tax authority (including federal, state, or local) nor has a
deficiency for any taxes been proposed asserted or assessed against Easton-
Pacific which has not either been resolved and/or paid in full. There are
no outstanding waivers or comparable consents regarding the application of
the statute of limitations with respect to any tax or Return that have been
given by Easton-Pacific.
(iii) Easton-Pacific has complied (and until the Effective Time will
comply) in all respects with all applicable laws, rules and regulations
relating to the payment and withholding of taxes and has, within the time
and in the manner prescribed by law, withheld from employee wages and paid
over to the proper governmental authorities all amounts required to be so
withheld and paid under all applicable laws.
(l) LITIGATION. No action or proceeding of or before any court or
other tribunal is pending or threatened against Easton-Pacific which would
impair the ability of Easton-Pacific to perform the transactions
contemplated by this Reorganization Agreement.
(m) CONTRACTS AND COMMITMENTS. Except as listed and described on
Schedule 5.3(m), Easton-Pacific is not a party to any: (i) contract,
involving an obligation in excess of $5,000; (ii) contract with any
officer, employee, independent contractor or other third party that is not
by its terms cancelable on notice of not longer than thirty days without
liability or penalties; (iii) material contract not made in the ordinary
course of business except for those listed on any Schedule to this
Agreement; or (iv) joint ventures, partnerships or other profit or loss
sharing agreement.
(n) EMPLOYEE BENEFIT PLANS AND ARRANGEMENTS. Schedule 5.3(n) lists
all qualified pension, profit sharing or 401(k) plans ("Plan"), any
deferred compensation, bonus arrangement or any other incentive, welfare or
employee benefit plan or agreement maintained by Easton-Pacific for its
employees. Neither Easton-Pacific nor any Plan listed in Schedule 5.3(n) or
described in this paragraph have incurred any liability to the Pension
Benefit Guaranty Corporation, the Internal Revenue Service or the
Department of Labor.
(o) COMPLIANCE WITH LAWS. Easton-Pacific has not received any
notice, and otherwise is not aware of any event or condition, which
indicates that any of its mining claims and leases are not in material
compliance with all applicable laws, ordinances, regulations, rules,
judgments and orders (including, without limitation, any applicable
environmental, zoning, labor or other law, ordinance or regulation).
(p) NO UNTRUE STATEMENT OR OMISSIONS OF MATERIAL FACT. To the best of
Easton-Pacific's knowledge, the representations, warranties and covenants
contained in this Reorganization Agreement or any Schedule or Exhibit
hereto or in any document appended to this Reorganization Agreement, do not
contain any untrue statement of a material fact and do not omit to state
any fact necessary to make any statement herein or therein not misleading
or necessary to a correct presentation of all material aspects of Easton-
Pacific's business and the matters contemplated under this Reorganization
Agreement, the Merger Agreement or any other contract, agreement or
document contemplated in connection with the Merger.
ARTICLE VI. COVENANTS AND AGREEMENTS
6.1 CONDUCT OF BUSINESS PENDING THE MERGER. Hanover and Easton-Pacific
each agree that from the date hereof and prior to the Effective Time or
earlier termination of this Reorganization Agreement (subject to the
written consent by Hanover or Easton-Pacific, as the case may be, to the
contrary):
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(a) Hanover and Easton-Pacific will each carry on their respective
businesses diligently and substantially in the same manner as heretofore
and will not make or institute any unusual or novel method of purchase,
sale, lease, management, accounting, or operation;
(b) Neither Hanover nor Easton-Pacific will enter into any contract
or commitment or engage in any transaction not in the usual and ordinary
course of their respective businesses and consistent with past practices;
(c) Neither Hanover nor Easton-Pacific will sell or dispose of any of
their respective capital assets having a fair market value in excess of
$5,000.
(d) Neither Hanover nor Easton-Pacific will create any indebtedness
other than that incurred in the usual and ordinary course of their
respective businesses, other than indebtedness incurred pursuant to
existing contracts disclosed in the Schedules hereto, indebtedness incurred
pursuant to commitments permitted hereby and indebtedness reasonably
incurred in doing the acts and things contemplated by this Reorganization
Agreement;
(e) Neither Hanover nor Easton-Pacific will declare or pay any
dividend or make any distribution, directly or indirectly, in respect of
their capital stock, nor will they or either of them directly or indirectly
redeem purchase, sell, or otherwise acquire or dispose of their own stock;
(f) Neither Hanover nor Easton-Pacific will amend their respective
articles of incorporation or bylaws nor make any change in their authorized
or issued capital stock;
(g) all tangible property of Hanover and Easton-Pacific will be used,
operated, maintained and repaired in the usual course;
(h) Easton-Pacific will use reasonable efforts (without making any
commitments on Hanover's behalf) to preserve for Hanover the present
relationships with its persons having business relations with it; and
(i) Neither Hanover nor Easton-Pacific will do any act or omit to do
any act, or permit any act or omission to act, which will cause a material
breach of any material contract to which Hanover or Easton-Pacific is a
party.
6.2 ACCESS. From and after the date hereof, Easton-Pacific gives to
Hanover's officers, employees, counsel, accountants and other
representatives free and full access to and the right to inspect, during
normal business hours, all of the premises, properties, assets, records,
contracts and other documents relating to Easton-Pacific's business and
shall permit them to consult with Easton-Pacific's officers, employees,
accountants, counsel and agents for the purpose of making such
investigation of the business as Hanover shall desire to make, provided
that such investigation shall not unreasonably interfere with Easton-
Pacific's business.
6.3 INCOME TAX RECORDS. In order to enable Hanover to prepare Returns for
Easton-Pacific from and after the Closing, Easton-Pacific will provide
access to, and the right to examine and copy (without expense to Hanover)
the books and records of Easton-Pacific relating to the previous
preparation of Easton-Pacific's Returns.
6.4 DELIVERY OF SCHEDULES AND EXHIBITS; UPDATING OF REPRESENTATIONS,
WARRANTIES, SCHEDULES AND EXHIBITS. The parties hereto acknowledge that
less than all of the Schedules and Exhibits referenced herein were annexed
to this Reorganization Agreement at the time of its execution. Easton-
Pacific agrees that it will immediately take steps to prepare and deliver
such Schedules and Exhibits to Hanover's counsel, Randall & Danskin, P.S.
The parties acknowledge that Randall & Danskin, P.S. must receive all
Schedules and Exhibits referenced herein that were not attached to this
Reorganization Agreement at the time of its execution on or before 5:00
p.m., Spokane time, on July 1, 1997. On the Closing Date, Easton-Pacific
shall deliver to Hanover updated Schedules and Exhibits to reflect any
material changes in the Schedules or Exhibits previously delivered to
Hanover. On the Closing Date, Easton-Pacific shall deliver to Hanover a
certificate confirming the accuracy as of the Closing Date, of each of the
representations and warranties of Easton-Pacific contained in this
Reorganization Agreement and any agreement appended hereto as well as the
Schedules and Exhibits delivered to Hanover pursuant to this Reorganization
Agreement. Hanover shall not be obligated to proceed with the Closing of
the transactions contemplated by this Reorganization Agreement and all
other agreements annexed hereto if there are material changes in such
representations and warranties or the Schedules and Exhibits initially
delivered to Hanover.
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6.5 APPROVAL OF SHAREHOLDERS AND DIRECTORS. Hanover and Easton-Pacific
shall, to the extent necessary, obtain all necessary approvals of their
respective shareholders and directors, as required by the respective laws
of their states of incorporation, their articles of incorporation and
bylaws, for the purpose of voting on the adoption and approval of this
Reorganization Agreement, the Merger Agreement and the Merger.
6.6 APPLICATIONS FOR REGULATORY APPROVAL AND CONSENTS. As soon as
practicable after the date this Reorganization Agreement is executed,
Hanover shall prepare and file a registration statement under the
Securities Act relating to, among other things, the shares of Hanover
Common Stock to be issued to the Easton-Pacific shareholders pursuant to
this Reorganization Agreement, the Merger Agreement and the Merger, and
shall use its best efforts to obtain, as soon as reasonably practicable, an
order declaring such registration statement effective under the Securities
Act and such other permits, authorizations, consents, waivers and approvals
from state securities authorities necessary to consummate this
Reorganization Agreement and the Merger Agreement and the transactions
contemplated hereby or thereby, including, without limitation, any permits,
authorizations, consents, waivers, and approvals required in connection
with the Merger.
ARTICLE VII. CONDITIONS TO CLOSING
7.1 CONDITIONS PRECEDENT TO THE PARTIES' OBLIGATIONS TO EFFECT THE MERGER.
The respective obligations of Hanover and Easton-Pacific to effect the
Merger shall be subject to the fulfillment of all of the following
conditions precedent at or prior to the Effective Time:
(a) REPRESENTATIONS AND WARRANTIES TRUE AS OF THE CLOSING DATE. The
representations and warranties of each party hereto contained in this
Reorganization Agreement or in any list, certificate or document delivered
by such party to the other pursuant to the provisions hereof shall be true
in all material respects at and as of the Closing Date with the same effect
as though such representations and warranties were made as of such date.
(b) COMPLIANCE WITH THIS REORGANIZATION AGREEMENT. Each party hereto
shall have performed and complied in all material respects with all
agreements and conditions required by such party under this Reorganization
Agreement to be performed or complied with by them, prior to or at the
Closing.
(c) CLOSING CERTIFICATES. Each party hereto shall have received a
certificate from the other, dated as of the Closing Date, and signed on
behalf of each by its president or chief executive officer, certifying in
such detail as the other party may reasonably request that the conditions
specified in this Article VII have been fulfilled.
(d) OPINION OF COUNSEL. Counsel for Hanover shall have delivered
Easton-Pacific its opinion to the effect that the transactions contemplated
by this Reorganization Agreement, the Merger Agreement and the Merger will
be tax-free to the shareholders of Easton-Pacific pursuant to Section
368(a)(1)(A) of the Code.
(e) NO BAR TO CONSUMMATION OF TRANSACTION. There shall not exist any
injunction or decree by any federal or state court which prevents the
consummation of the Merger and there shall have not been enacted any
statutory regulation which would prevent the consummation of the Merger.
All governmental consents and approvals required for the Merger shall have
been obtained.
(f) MERGER AGREEMENT. The Merger Agreement annexed hereto as Exhibit
A shall have been executed by the parties thereto.
7.2 CONDITIONS PRECEDENT TO THE OBLIGATION OF HANOVER TO EFFECT THE
MERGER. In addition to the requirements of section 7.1, the obligation of
Hanover to effect the Merger is subject to the fulfillment of all of the
following conditions precedent at or prior to the Effective Time:
(a) ADVERSE CHANGES. There shall not have been any material adverse
change in Easton-Pacific's business or the condition of its assets.
(b) EXCHANGE OF STOCK. At the Effective Time, each share of Easton-
Pacific Capital Stock shall be automatically exchanged for shares of
Hanover Common Stock pursuant to Section 3.2 of this Reorganization
Agreement.
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(c) ABSENCE OF DISSENTERS APPRAISAL RIGHTS. At the Effective Time,
the holders of not more than ten percent (10%) of Easton-Pacific's
outstanding capital stock shall have exercised the dissenters' appraisal
rights afforded them under the Montana Act.
(d) APPROVAL OF HANOVER'S SHAREHOLDERS. If required by the rules of
the Nasdaq Stock Market, Inc., which determination shall be exclusively
that of Hanover, this Reorganization Agreement, the Merger Agreement and
the Merger shall have been approved by the shareholders of Hanover pursuant
to the Delaware Act.
(e) LOCK-UP AGREEMENTS. The holders of five percent (5%) or more of
Easton-Pacific Capital Stock shall each have entered into a lock-up
agreement substantially in the form annexed hereto as Exhibit C.
7.3 CONDITIONS PRECEDENT TO OBLIGATION OF EASTON-PACIFIC TO EFFECT THE
MERGER. In addition to the requirements of Section 7.1, the obligation of
Easton-Pacific to effect the Merger is subject to the fulfillment of all of
the following conditions precedent at or prior to the Effective Time:
(a) TRANSFER OF STOCK. The Easton-Pacific shareholders shall have
received an aggregate of 7,000,000 shares of Hanover Common Stock as
provided for under Section 3.2 of this Reorganization Agreement.
(b) CONTINUING GUARANTY OF DEGERSTROM. The guaranty of Neal A.
Degerstrom ("Degerstrom") dated March 17, 1997 evidencing Degerstrom's
unconditional agreement to pay Hanover's obligations to the landowner-
lessees of its mining claims for the period ending September 8, 1998 shall
be in full force and effect, with such changes as Hanover and Easton-
Pacific may agree.
(c) APPROVAL OF EASTON-PACIFIC'S SHAREHOLDERS. This Reorganization
Agreement, the Merger Agreement and the Merger shall have been approved by
the shareholders of Easton-Pacific pursuant to the Montana Act.
(d) FAIRNESS OPINION. Easton-Pacific shall have received the opinion
of Terrence J. Dunne, financial advisor to Easton-Pacific, to the effect
that the Merger is fair from a financial standpoint to the shareholders of
Easton-Pacific.
ARTICLE VIII. INDEMNIFICATION
8.1 INDEMNIFICATION BY EASTON-PACIFIC. Easton-Pacific shall indemnify,
defend and hold Hanover harmless from and against any and all claims,
causes of action, suits, judgments, taxes, losses, damages, deficiencies,
obligations, costs and expenses (including, without limitation, interest,
penalties, reasonable attorneys' fees and costs) arising out of or
otherwise in respect of: (i) any material misrepresentation, inaccuracy in
or breach of any material representation, warranty, covenant or agreement
of Easton-Pacific contained in this Reorganization Agreement, the Merger
Agreement or any Schedule, Exhibit or other contract or agreement appended
hereto, which is intended to survive the Closing; and (ii) any known and
undisclosed third-party claims relating to Easton-Pacific arising prior to
the Closing Date.
Hanover agrees, within thirty days after its receipt of notice of any claim
covered hereby, to notify Easton-Pacific of such claim, or any claim as to
which Hanover asserts a right to indemnification. If any claim for
indemnification by Hanover arises out of a claim for monetary damages,
Easton-Pacific may, upon written notice to Hanover, undertake to conduct
any proceedings or negotiations in connection therewith that are necessary
to defend Hanover and to take all other steps to settle or defeat any such
claims, and to employ counsel to contest any such claims; provided,
however, that Easton-Pacific shall reasonably consider the advice of
Hanover as to the defense of such claims. Hanover shall have the right to
participate at its own expense in such defense, but the control of such
litigation or settlement shall remain with Easton-Pacific. Hanover shall
provide all reasonable cooperation in connection with any such defense.
Counsel and auditor fees, filing fees, and court fees in all proceedings,
contests or lawsuits with respect to such claim or asserted liability shall
be borne by Easton-Pacific. If any such claim is made hereunder and
Easton-Pacific does not elect to undertake the defense thereof by written
notice to Hanover,
Hanover shall be entitled to control such litigation and settlement and
shall be entitled to indemnity with respect thereto. The indemnification
undertaken by Easton-Pacific is and shall be absolute, unconditional and
irrevocable and shall not be subject to any right of setoff, counterclaim
or defense.
8.2 INDEMNIFICATION BY HANOVER. Hanover shall indemnify, defend and hold
Easton-Pacific harmless from and against any and all claims, causes of
action, suits, judgments, taxes, losses, damages, deficiencies,
obligations, costs and expenses (including, without limitation, interest,
penalties, reasonable attorneys' fees and costs) arising out of or
otherwise in respect of: (i) any
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material misrepresentation, inaccuracy in or breach of any material
representation, warranty, covenant or agreement of Hanover contained in
this Reorganization Agreement; and (ii) any transaction or claim relating
to the operation of Easton-Pacific or the assets by Hanover, the factual
basis of which transaction or claim arose subsequent to the Closing Date.
Easton-Pacific agrees, within thirty days after its receipt of notice of
any claim covered hereby, to notify Hanover of such claim, or of any claim
as to which Easton-Pacific asserts a right to indemnification. If any
claim for indemnification by Easton-Pacific arises out of a claim for
monetary damages, Hanover may, upon written notice to Easton-Pacific,
undertake to conduct any proceedings or negotiations in connection
therewith that are necessary to defend Easton-Pacific and to take all other
steps to settle or defeat any such claims, and to employ counsel to contest
any such claims; provided, however, that Hanover shall reasonably consider
the advice of Easton-Pacific as to the defense of such claims. Easton-
Pacific shall have the right to participate at its own expense in such
defense, but the control of such litigation or settlement shall remain with
Hanover. Easton-Pacific shall provide all reasonable cooperation in
connection with any such defense. Counsel and auditor fees, filing fees,
and court fees in all proceedings, contests or lawsuits with respect to
such claim or asserted liability shall be borne by Hanover. If any such
claim is made hereunder and Hanover does not elect to undertake the defense
thereof by written notice to Easton-Pacific, Easton-Pacific shall be
entitled to control such litigation and settlement and shall be entitled to
indemnity with respect thereto. The indemnification undertaken by Hanover
is and shall be absolute, unconditional and irrevocable and shall not be
subject to any right of setoff, counterclaim or defense.
ARTICLE IX. POST-CLOSING OBLIGATIONS
9.4 MUTUAL COOPERATION. The parties hereto shall cooperate with each
other and execute such documents and perform such acts as the other party
reasonably requests in order to give effect to the terms, conditions and
intent of this Reorganization Agreement, the Merger Agreement and all other
contracts or agreements contemplated thereby.
ARTICLE X. MISCELLANEOUS
10.1 TERMINATION. Anything herein or elsewhere to the contrary
notwithstanding, this Reorganization Agreement (and all other agreements
contemplated hereby) may be terminated by any party by written notice of
termination to the other parties before the Closing Date (i) at any time if
the representations and warranties made to such party were materially
incorrect when made, (ii) any condition precedent to such parties'
obligations hereunder has not been satisfied or if not satisfied, waived,
(iii) any governmental or regulatory body, the consent of which is required
to consummate the transactions contemplated hereby or by the Merger
Agreement, shall have determined not to grant its consent and such
determination shall have become final and non-appealable, or (iv) any court
of competent jurisdiction in the United States or any state shall have
issued an order, judgment or decree (other than a temporary restraining
order) restraining, enjoining or otherwise prohibiting the Merger and such
order, judgment or decree shall have become final and non-appealable. This
Reorganization Agreement may also be terminated by mutual consent of all
parties hereto. In the event of termination of this Reorganization
Agreement as provided above, this Reorganization Agreement shall forthwith
become void and there shall be no liability on the part of any party
hereto, provided, however, nothing in this Section 10.1 shall relieve any
party from liability for any breach of this Reorganization Agreement.
10.2 COSTS AND EXPENSES; BROKERS' FEES. Hanover shall bear all of the
expenses incurred in connection with the negotiation and execution of this
Reorganization Agreement and the Closing. Each party represents that it
has not employed a broker or finder in connection with this Reorganization
Agreement, and hereby agrees to indemnify, defend and hold the other
harmless from and against any claim by any agent, broker, or finder
claiming to have been engaged by the indemnitor or any fee, commission, or
payment resulting from or arising out of the negotiation or execution of
this Reorganization Agreement or the consummation of the transactions
contemplated hereby.
10.3 SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS.
All representations, warranties, covenants and agreements contained in this
Agreement whether or not intended to be made, given or performed prior to
or subsequent to the Closing Date, as well as any Schedule or Exhibit,
certificate, instrument, or document delivered by or on behalf of any of
the parties hereto pursuant to this Agreement and the transactions
contemplated hereby, shall be deemed representations, warranties, covenants
and agreements by the respective parties hereto. Notwithstanding any other
provision in this Agreement to the contrary, and except for the
post-closing obligations of the parties set forth in Article IX above, or
unless specifically intended by the parties to survive for a longer period
of time, all representations, warranties, covenants and agreements made by
the parties, each to the other, shall survive for a period of one year
subsequent to the Closing Date and the consummation of the transactions
contemplated by this Reorganization Agreement, notwithstanding any
investigation heretofore or hereafter made by or on behalf of any party
hereto.
A-11
<PAGE>
10.4 COMPLETE AGREEMENT, ETC. All Exhibits and Schedules referred to
herein are intended to be and hereby are specifically made a part of this
Reorganization Agreement. This Reorganization Agreement sets forth the
entire understanding of the parties hereto with respect to the transactions
contemplated hereby. It shall not be amended or modified except by written
instrument duly executed by each of the parties hereto. Any and all
previous agreements and understandings between or among the parties
regarding the subject matter hereof whether written or oral, are superseded
by this Reorganization Agreement.
10.5 ASSIGNMENT AND BINDING EFFECT. This Reorganization Agreement may not
be assigned prior to the Closing by any party hereto without the prior
written consent of the other parties. Subject to the foregoing, all of the
terms and provisions of this Reorganization Agreement shall be binding upon
and inure to the benefit of and be enforceable by the successors and
assigns of any party.
10.6 WAIVER. Any term or provision of this Reorganization Agreement may
be waived at any time by the party entitled to the benefit thereof by a
written instrument duly executed by such party.
10.7 ATTORNEYS' FEES. Should any party hereto breach any term of this
Reorganization Agreement, the defaulting party shall pay to the non-
defaulting party all attorneys' fees and other costs and fees incurred by
the non-defaulting party in enforcing this Reorganization Agreement. In the
event a lawsuit or other proceeding is brought by any party based upon this
Reorganization Agreement or the breach of any provision thereof, the
prevailing party shall recover from the non-prevailing party the prevailing
party's attorneys' fees and other costs and fees incurred by the prevailing
party in enforcing this Reorganization Agreement, including the costs and
fees of any appeal, with all such fees and costs to be included in any
judgment obtained in enforcing this Reorganization Agreement.
10.8 TIME. Time is of the essence in connection with this Reorganization
Agreement and each and every provision hereof. Any extension of time
granted for the performance of any duty under this Reorganization Agreement
shall not be considered an extension of time for the performance of any
other duty under this Reorganization Agreement.
10.9 NOTICES. Any notice, request, demand, waiver, consent, approval or
other communication which is required or permitted hereunder shall be in
writing and shall be deemed given only if delivered personally or sent by
telegram or by certified mail, postage prepaid, and sent by telecopier as
follows: if to Hanover, to James A. Fish, President, Hanover Gold Company,
Inc., 1000 Northwest Boulevard, Suite 100, Coeur d'Alene, Idaho 83814, and
if to Easton-Pacific, to James Nierengarten, Secretary, Easton Pacific and
Riverside Mining Company, 21 Courthouse Square, St. Cloud, Minnesota 56302,
or to such other address as the addressee may have specified in a notice
duly given to the sender as provided herein. Such notice, request, demand,
waiver, consent, approval or other communication will be deemed to have
been given as of the date so personally delivered, telegraphed or deposited
in the mail and telefaxed.
10.10 COOPERATION. Subject to the terms and conditions herein provided,
the parties hereto shall use their best efforts to take, or cause to be
taken, such action, to execute and deliver, or cause to be executed and
delivered, such additional documents and instruments and to do, or cause to
be done, all things necessary, proper or advisable under the provisions of
this Reorganization Agreement and under applicable law to consummate and
make effective the transactions contemplated by this Reorganization
Agreement.
10.11 GOVERNING LAW. This Reorganization Agreement shall be governed by
and interpreted and enforced in accordance with the laws of the State of
Montana.
10.12 HEADINGS; GENDER AND PERSON. All section headings contained in this
Reorganization Agreement are for convenience of reference only, do not form
a part of this Reorganization Agreement and shall not affect in any way the
meaning or interpretation of this Reorganization Agreement. Words used
herein, regardless of the number and gender specifically used, shall be
deemed and construed to include any other number, singular or plural, and
any other gender, masculine, feminine, neuter, as the context requires.
Any reference to a "person" herein shall include an individual, firm,
corporation, partnership, trust, governmental authority or any other
entity.
10.13 SEVERABILITY. Any provision of this Reorganization Agreement which
is invalid or unenforceable in any jurisdiction shall be ineffective to the
extent of such invalidity or unenforceability without invalidating or
rendering unenforceable the remaining provisions hereof, and any such
invalidity or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
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<PAGE>
10.15 COUNTERPARTS. This Reorganization Agreement may be executed in any
number of counterparts and any party hereto may execute any such
counterpart, each of which when executed and delivered shall be deemed to
be an original and all of which counterparts taken together shall
constitute but one and the same instrument. This Reorganization Agreement
shall become binding when one or more counterparts taken together shall
have been executed and delivered by the parties. It shall not be necessary
in making proof of this Reorganization Agreement or any counterpart hereof
to produce or account for any of the other counterparts.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Reorganization Agreement on the date first written.
HANOVER GOLD COMPANY, INC., a
Delaware corporation
/s/ James A. Fish Attest: /s/ Wayne Schoonmaker
- ---------------------------- ---------------------------
its duly authorized officer
EASTON-PACIFIC AND RIVERSIDE MINING COMPANY, a
Montana corporation
/s/ David Daniel Attest: /s/ James Nierengarten
- ----------------------------- ---------------------------
its duly authorized officer
[The balance of this page has been intentionally left blank.]
A-13
<PAGE>
Exhibit A to Reorganization Agreement
AGREEMENT OF MERGER
This Agreement of Merger (the "Merger Agreement") is made and entered into
as of August __ , 1997, by and between Hanover Gold Company, Inc., a
Delaware corporation ("Hanover"), and Easton-Pacific and Riverside Mining
Company, a Montana corporation ("Easton-Pacific"). Hanover and Easton-
Pacific are sometimes hereinafter collectively referred to as the
"Constituent Corporations".
RECITALS
A. Prior to the execution of this Merger Agreement, the parties hereto
entered into a plan of reorganization, dated as of April 30, 1997 (the
"Reorganization Agreement") providing for certain representations,
warranties, and agreements in connection with the transaction contemplated
therein.
B. The boards of directors and shareholders of Hanover and Easton-Pacific
have approved the acquisition of Easton-Pacific by Hanover.
C. The boards of directors and shareholders of Hanover and Easton-Pacific
have approved the merger of Easton-Pacific into Hanover (the "Merger") upon
the terms and subject to the conditions set forth herein and in the
Reorganization Agreement, with Hanover being the surviving corporation.
D. For federal income tax purposes, it is intended that the Merger shall
qualify as a reorganization within the meaning of Section 368(a)(1)(A) of
the Internal Revenue Code of 1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the above premises, and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
ARTICLE I. THE MERGER
1.1 THE MERGER.
(a) At the Effective Time (as defined in Section 1.2) and subject to
the terms of this Merger Agreement and the Reorganization Agreement,
Easton-Pacific shall be merged into Hanover and the separate existence of
Easton-Pacific shall thereupon cease, in accordance with the applicable
provisions of the law of the State of Montana.
(b) Hanover shall be the surviving corporation (sometimes referred to
herein as the "Surviving Corporation") and will continue to be governed by
the laws of the State of Delaware, and the separate corporate existence of
Hanover and all of its rights, privileges, immunities and franchises,
public or private, and all of its duties and liabilities as a corporation
will continue unaffected by the Merger.
1.2 EFFECTIVE TIME. As soon as practicable, following the fulfillment or
waiver of the conditions specified in Article VII of the Reorganization
Agreement and provided that this Merger Agreement has not been terminated
or abandoned pursuant to Section 4.1 hereof, the Constituent Corporations
will cause a Certificate of Merger (the "Certificate of Merger") to be
filed with the office of the Secretary of State of Montana and will cause
this Merger Agreement, together with a duly executed Certificate of
Approval of Merger, and such Certificates of the officers and directors of
the Constituent Corporations and other documents with the Secretary of
State of Montana, as may be required under law. Subject to and in
accordance with the laws of the State of Montana, the Merger will become
effective at the date and time the Certificate of Merger is filed with the
office of the Secretary of State of Montana, or such later time or date as
may be specified in the Certificate of Merger (the "Effective Time").
ARTICLE II. THE SURVIVING CORPORATION
2.1 CERTIFICATE OF INCORPORATION. The certificate of incorporation of
Hanover, as in effect immediately prior to the Effective Time, shall be the
certificate of incorporation of the Surviving Corporation after the
Effective Time.
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<PAGE>
2.2 BYLAWS. The bylaws of Hanover, as in effect immediately prior to the
Effective Time, shall be the bylaws of the Surviving Corporation after the
Effective Time.
2.3 BOARD OF DIRECTORS. From and after the Effective Time, the current
board of directors of Hanover shall be the board of directors of the
Surviving Corporation.
ARTICLE III. CONVERSION OF SHARES
3.1 CONVERSION OF EASTON-PACIFIC SHARES IN THE MERGER. At the Effective
Time, by virtue of the Merger and without any action on the part of any
holder of any capital stock of Easton-Pacific:
(a) in exchange for the shares of capital stock, without par value, of
Easton-Pacific (the "Easton-Pacific Capital Stock"), each shareholder of
Easton-Pacific shall receive 6.721656 shares of validly issued, fully paid
and non-assessable common stock, $.0001 par value, of Hanover (the "Hanover
Common Stock"). The number of shares of Hanover Common Stock to be issued
to the shareholders of Easton-Pacific shall be 7,000,000 shares in the
aggregate. Fractional shares shall be rounded to the nearest whole share
of Hanover Stock and options for the purchase of Easton-Pacific Capital
Stock, if any, shall be canceled; and
(b) in exchange for the Hanover Common Stock given to the shareholders
of Easton-Pacific, Hanover shall receive the shares of Easton-Pacific
Capital Stock held by such shareholders, which shall then constitute all of
the issued and outstanding shares of Easton-Pacific Capital Stock.
3.2 EXCHANGE OF STOCK. On the Closing Date, Hanover shall deliver to the
Easton-Pacific shareholders an aggregate of 7,000,000 shares of Hanover
Common Stock, which shares shall be deemed to have been issued at the
Effective Time. Concurrently, the Easton-Pacific shareholders shall
automatically be deemed to have surrendered all of their shares of Easton-
Pacific Capital Stock to Hanover.
ARTICLE IV. MISCELLANEOUS
4.1 TERMINATION. This Merger Agreement shall terminate in the event of
and upon termination of the Reorganization Agreement.
4.2 AMENDMENT. This Merger Agreement may only be amended by a written
instrument, signed on behalf of each of the parties hereto.
4.3 WAIVER. At any time prior to the Effective Time the parties hereto
may:
(a) extend the time for the performance of any of the obligations or
other acts of the other parties hereto under this Merger Agreement or the
Reorganization Agreement;
(b) waive any inaccuracies in the representations and warranties
contained herein, the Reorganization Agreement or any other document
delivered pursuant hereto or thereto;
(c) waive compliance with any provision of this Merger Agreement or
conditions contained herein or in the Reorganization Agreement. Any
agreement on the part of a party hereto to any such extension or waiver
shall only be valid if set forth in an instrument in writing signed on
behalf of such party.
4.4 NOTICES. Any notice, request, demand, waiver, consent, approval or
other communication which is required or permitted hereunder shall be in
writing and shall be deemed given only if delivered personally or sent by
telegram or by certified mail, postage prepaid, and sent by telecopier as
follows: if to Hanover, to James A. Fish, President, Hanover Gold Company,
Inc., 1000 Northwest Boulevard, Suite 100, Coeur d'Alene, Idaho 83814, and
if to Easton-Pacific, to James Nierengarten, Secretary, Easton Pacific and
Riverside Mining Company, 21 Courthouse Square, St. Cloud, Minnesota 56302,
or to such other address as the addressee may have specified in a notice
duly given to the sender as provided herein. Such notice, request, demand,
waiver, consent, approval or other communication will be deemed to have
been given as of the date so personally delivered, telegraphed or deposited
in the mail and telefaxed.
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<PAGE>
4.5 ENTIRE AGREEMENT. This Merger Agreement and the Reorganization
Agreement constitute the entire agreement between the parties and shall be
binding upon and enure to the benefit of the parties hereto and their
respect legal representatives, successors and permitted assigns. The
parties and their respective affiliates make no representations or
warranties to each other, except as contained in the Reorganization
Agreement, and any and all prior representations and statements made by any
party or its representatives, whether verbally or in writing, are deemed to
have been merged into this Merger Agreement and the Reorganization
Agreement, it being intended that no such representations or statements
shall survived the execution and delivery of this Merger Agreement and the
Reorganization Agreement.
4.6 NON-WAIVER. The failure in any one or more instances of a party to
insist upon performance of any of the terms, covenants or conditions of
this Merger Agreement to exercise any right or privilege conferred in this
Merger Agreement, or the waiver by said party of any breach of any of the
terms, covenants or conditions of this Merger Agreement, shall not be
construed as a subsequent waiver of any such terms, covenants, conditions,
rights or privileges, but the same shall continue and remain in full force
and effect as if no such forbearance or waiver had occurred. No waiver
shall be effective unless it is in writing and signed by an authorized
representative of the waiving party.
4.7 ASSIGNMENT AND BINDING EFFECT. This Merger Agreement may not be
assigned by either party without the prior written consent of the other
party. Subject to the foregoing, all of the terms and provisions of this
Merger Agreement shall be binding upon and enure to the benefit of and be
enforceable by the successors and assigns of any party.
4.8 GOVERNING LAW. This Merger Agreement shall be governed by and
interpreted and enforced in accordance with the laws of the State of
Montana.
4.9 SEVERABILITY. Any provision of this Merger Agreement which is invalid
or unenforceable in any jurisdiction shall be ineffective to the extent of
such invalidity or unenforceability without invalidating or rendering
unenforceable the remaining provisions hereof, and any such invalidity or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
4.10 COUNTERPARTS. This Merger Agreement may be executed in any number of
counterparts and any party hereto may execute any such counterpart, each of
which when executed and delivered shall be deemed to be an original and all
of which counterparts taken together shall constitute but one and the same
instrument. This Merger Agreement shall become binding when one or more
counterparts taken together shall have been executed and delivered by the
parties. It shall not be necessary in making proof of this Merger
Agreement or any counterpart hereof to produce or account for any of the
other counterparts.
4.11 HEADINGS. The headings contained in this Merger Agreement are for
convenience of reference only and shall not effect the meaning or
interpretation of this Merger Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement on
the date first above written.
HANOVER GOLD COMPANY, INC., a
Delaware corporation
___________________________ Attest: _____________________________
its duly authorized officer
EASTON-PACIFIC AND RIVERSIDE MINING COMPANY, a
Montana corporation
___________________________ Attest: ______________________________
its duly authorized officer
A-16
<PAGE>
Exhibit B to Reorganization Agreement
IRREVOCABLE PROXY
The undersigned hereby (i) constitutes and appoints James Nierengarten and
David Daniel, and each of them, the undersigned's attorney-in-fact and
proxy to vote all of the shares of capital stock of Easton-Pacific and
Riverside Mining Company (the "Company"), a Montana corporation, owned of
record by the undersigned at the special meeting of shareholders of the
Company to be held for the purpose of approving the acquisition of the
Company by Hanover Gold Company, Inc. (the "Transaction"), and any
adjournment(s) or postponement(s) thereof, and (ii) instructs such
attorneys-in-fact and proxies to vote all of said shares of capital stock
of the undersigned for approval of the Transaction.
The undersigned acknowledges that this proxy is given in consideration of
the Transaction, and that it is coupled with an interest. This proxy may
not be revoked by the undersigned.
DATED: _____________, 1997
______________________________________
Signature of Shareholder
______________________________________
Additional Signature, if Jointly Owned
A-17
<PAGE>
Exhibit C to Reorganization Agreement
LOCK-UP AGREEMENT
__________ __, 1997
Hanover Gold Company, Inc.
1000 Northwest Boulevard, Suite 100
Coeur d'Alene, Idaho 83814
Attention: James A. Fish
President and Chief Executive Officer
Gentlemen:
I am an Easton-Pacific Selling Stockholder as such term is defined in that
certain preliminary prospectus which comprises a portion of a registration
statement on Form S-1 (the "Registration Statement") to be filed by Hanover
Gold Company, Inc. (the "Company"), a Delaware corporation, under the
Securities Act of 1933, as amended (the "Securities Act"), relating to,
inter alia, the sale of shares of the common stock of the Company, par
value $.0001 (the "Hanover Common Stock") to me and other Easton-Pacific
Selling Stockholders pursuant to the terms of a reorganization agreement,
dated as of April 30, 1997 (the "Reorganization Agreement"), by and between
the Company and Easton-Pacific and Riverside Mining Company ("Easton-
Pacific"), a Montana corporation.
In consideration of the Company agreeing to register the shares of Hanover
Common Stock under the Securities Act for issuance to me pursuant to the
merger of the Company and Easton-Pacific pursuant to the Reorganization
Agreement, I hereby agree that I will not, directly or indirectly, offer,
sell, grant any options to purchase or otherwise dispose of my shares of
Hanover Common Stock, except as follows:
1. I may transfer any number of my shares of Hanover Common Stock to my
children or relatives, by gift or otherwise, and may also transfer any
number of my shares in a private sale, provided, in each case, that any
such shares shall continue to be subject to the restrictions set forth in
this agreement. As used in this agreement, the term "private sale" shall
be defined to mean any non-public sale effected by me and the purchaser of
my shares, without the assistance or intervention of a securities broker or
dealer, which occurs outside the medium of the Nasdaq SmallCap Market or
any other securities exchange or secondary market on which the Hanover
Common Stock is traded or prices therefor are quoted.
2. For the period commencing with the date I receive my shares of Hanover
Common Stock pursuant to the Reorganization Agreement and ending December
26, 1997, I will not sell or otherwise dispose of any of my shares of
Hanover Common Stock, other than as permitted by paragraph 1 above.
3. For the period commencing December 27, 1997 and ending July 15, 1998,
I will not sell or otherwise dispose of more than one-half (50%) of my
shares of Hanover Common Stock, other than as permitted by paragraph 1,
above.
4. From and after July 16, 1998, I may sell or otherwise dispose of any
of my shares of Hanover Common Stock that I then own, including any such
shares that could have been sold pursuant to paragraph 3 above, but were
not sold.
5. I understand that this agreement is binding upon me and my heirs,
personal representatives, successors, transferees and assigns.
6. The Company has represented to me that agreements similar to this
agreement were signed by certain other Easton-Pacific Selling Stockholders,
and that, pursuant to such agreements, all of such persons have agreed to
limit the number of shares of Hanover Common Stock they may resell during
the periods specified in this agreement. My performance under this
agreement is expressly conditioned on the truthfulness and accuracy of this
representation.
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<PAGE>
7. The Company hereby agrees to indemnify me for liabilities arising
under the Securities Act, in conjunction with the offer and sale of my
shares of Hanover Common Stock. I understand that, insofar as
indemnification for liabilities arising under the Securities Act may be
permitted pursuant to the foregoing, or to directors, officers and
controlling persons of the Company pursuant to applicable provisions of the
Delaware General Corporation Law and the Company's bylaws, the Company has
been advised that in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Company of expenses incurred or paid by a director, officer, Easton-Pacific
Selling Stockholder or controlling person of the Company in a successful
defense of any action, suit or proceeding) is asserted by such director,
officer, Easton-Pacific Selling Stockholder or controlling person in
connection with the shares being registered pursuant to the Registration
Statement, the Company will, unless in the opinion of its counsel such
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification is
against public policy as expressed in the Securities Act, and I agree to be
governed by the final adjudication of such issue.
Very truly yours,
________________________________
Signature of Easton-Pacific
Selling Stockholder
________________________________
________________________________
________________________________
________________________________
Please print name and address
Accepted and Agreed:
Hanover Gold Company, Inc.
________________________________
its duly authorized officer
A-19
<PAGE>
EXHIBIT B TO JOINT
PROXY STATEMENT/PROSPECTUS
STATUTORY DISSENTERS APPRAISAL RIGHTS
THE MATERIAL PROVISIONS OF SECTIONS 35-1-826 THROUGH 31-1839 OF THE
MONTANA BUSINESS CORPORATION ACT, WHICH ESTABLISH DISSENTERS' RIGHTS OF
APPRAISAL AND THE PROCEDURES TO BE FOLLOWED IN EXERCISING THEM, ARE
REPRODUCED BELOW.
35-1-826. DEFINITIONS. As used in 35-1-826 through 35-1-839, the
following definitions apply:
(1) "Beneficial shareholder" means the person who is a beneficial owner
of shares held in a voting trust or by a nominee as the record shareholder.
(2) "Corporation" includes the issuer of the shares held by a dissenter
before the corporate action, or the surviving or acquiring corporation by
merger or share exchange of that issuer.
(3) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under 35-1-827 and who exercises that right when and in
the manner required by 35-1-829 through 35-1-837.
(4) "Fair value", with respect to a dissenter's shares, means the value
the shares immediately before the effectuation of the corporate action to
which the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action unless exclusion would be inequitable.
(5) "Interest" means interest from the effective date of the corporate
action until the date of payment at the average rate currently paid by the
corporation on its principal bank loans, or if the corporation has no
loans, at a rate that is fair and equitable under all the circumstances.
(6) "Record shareholder" means the person in whose name shares
registered in the records of a corporation or the beneficial shareholder to
the extent of the rights granted by a nominee certificate on file with a
corporation.
(7) "Shareholder" means the record shareholder or the beneficial
shareholder.
35-1-827. RIGHT TO DISSENT. (1) A shareholder is entitled to dissent
from and obtain payment of the fair value of his shares in the event of any
of the following corporate actions:
(a) consummation of a plan of merger to which the corporation is a party
if:
(i) shareholder approval is required for the merger by 35-1-815 or the
articles of incorporation and the shareholder is entitled to vote on the
merger;
(2) A shareholder entitled to dissent and to obtain payment for his
shares under 35-1-826 through 35-1-839 may not challenge the corporate
action creating the shareholder's entitlement unless the action is unlawful
or fraudulent with respect to the shareholder or the corporation.
35-1-828. DISSENT BY NOMINEES AND BENEFICIAL OWNERS. (1) A record
shareholder may assert dissenters' rights as to fewer than all the shares
registered in his name only if he dissents with respect to all shares
beneficially owned by any one person and notifies the corporation in
writing of the name and address of each person on whose behalf he asserts
dissenters' rights. The rights of a partial dissenter under this
subsection are determined as if the shares as to which he dissents and his
other shares were registered in the names of different shareholders.
(2) A beneficial shareholder may assert dissenters' rights as to shares
held on his behalf only if:
(a) he submits to the corporation the record shareholder's written
consent t the dissent not later than the time the beneficial shareholders
asserts dissenters' rights; and
(b) he does so with respect to all shares of which he is the beneficial
shareholder or over which he has power to direct the vote.
35-1-830. NOTICE OF INTENT TO DEMAND PAYMENT. (1) If proposed corporate
action creating dissenters' rights under 35-1-827 is submitted top a vote
at a shareholders' meeting, a shareholder who wishes to assert dissenters'
rights:
(a) shall deliver to the corporation before the vote is taken written
notice of his intent to demand payment for his shares if the proposed
action is effectuated; and
(b) may not vote his shares in favor of the proposed action.
(2) A shareholder who does not satisfy the requirements of subsection
1(a) is not entitled to payment for his shares under 35-1-826 through 35-1-
839.
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<PAGE>
35-1-831. DISSENTERS' NOTICE. (1) If proposed corporate action creating
dissenters' rights under 35-1-827 is authorized at a shareholders' meeting,
the corporation shall deliver a written dissenters' notice to all
shareholders who satisfied the requirements of 35-1-830.
(2) The dissenter's notice must be sent no later than 10 days after the
corporate action was taken and must:
(a) state where the payment demand must be sent and where and when
certificates for certified shares must be deposited;
(b) inform shareholders of uncertificated shares to what extent transfer
of the shares will be restricted after payment is first received;
(c) supply a form for demanding payment that includes the date of the
first announcement to news media or to shareholders of the terms of the
proposed corporate action and that requires the person asserting
dissenters' rights to certify whether or not he acquired beneficial
ownership of the shares before that date:
(d) set a date by which the corporation must receive the payment demand,
which may not be fewer than 30 nor more than 60 days after the date the
required notice under subsection (1) is delivered; and
(e) be accompanied by a copy of 35-1-826 through 35-1-839.
35-1-832. DUTY TO DEMAND PAYMENT. (1) A shareholder sent a dissenters'
notice described in 35-1-831 shall demand payment, certify whether the
shareholder acquired beneficial ownership of the shares before the date
required to be set forth in the dissenters' notice pursuant to 35-1-
831(2)(c), and deposit his certificates in accordance with the terms of the
notice.
(2) The shareholder who demands payment and deposits his certificates
under subsection (1) retains all other rights of a shareholder until these
rights are canceled or modified by the taking of the proposed corporate
action.
(3) A shareholder who does not demand payment or deposit his
certificates where required, each by the date set in the dissenters'
notice, is not entitled to payment for his shares under 35-1-826 through
35-1-839.
35-1-833. SHARE RESTRICTIONS. (1) The corporation may restrict the
transfer of uncertificated shares from the date the demand for their
payment is received until the proposed corporate action is taken or the
restrictions are released under 35-1-835.
(2) The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder until these
rights are canceled or modified by the taking of the proposed corporate
action.
35-1-834. PAYMENT. (1) Except as provided in 35-1-836, as soon as the
proposed corporate action is taken or upon receipt of a payment demand, the
corporation shall pay each dissenter who complied with 35-1-832 the amount
the corporation estimates to be the fair value of the dissenter's shares
plus accrued interest.
(2) The payment must be accompanied by:
(a) the corporation's balance sheet as of the end of a fiscal year
ending not more than 16 months before the date of payment, an income
statement for that year, a statement of changes in shareholders' equity for
that year, and the latest available interim financial statements, if any;
(b) a statement of the corporation's estimate of the fair value of the
shares;
(c) an explanation of how the interest was calculated;
(d) a statement of the dissenter's right to demand payment under
35-1-837; and
(e) a copy of 35-1-826 through 35-1-839.
35-1-835. FAILURE TO TAKE ACTION. (1) If the corporation does not take
the proposed action within 60 days after the date set for demanding payment
and depositing certificates, the corporation shall return the deposited
certificates and release the transfer restrictions imposed on uncertified
shares.
(2) If after returning deposited certificates and releasing the transfer
restrictions, the corporation takes the proposed action, it shall send a
new dissenters' notice under 35-1-831 and repeat the payment demand
procedure.
35-1-836. AFTER-ACQUIRED SHARES. (1) A corporation may elect to withhold
payment required by 35-1-834 from a dissenter unless the dissenter was the
beneficial owner of the shares before the date set forth in the dissenters'
notice as the date of the first announcement to news media or to
shareholders of the terms of the proposed corporate action.
(2) To the extent the corporation elects to withhold payment under
subsection (1), after taking the proposed corporate action, the corporation
shall estimate the fair value of the shares plus accrued interest and shall
pay this amount to each dissenter who agrees to accept it in full
satisfaction of his demand. The corporation shall send with its offer a
statement of its estimate of the fair value of the shares, an explanation
of how the interest was calculated, and a statement of the dissenter's
right to demand payment under 35-1-837.
35-1-837. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER.
(1) A dissenter may notify the corporation in writing of the dissenter's
own estimate of the fair value of the dissenter's shares and the amount of
interest due and may demand
B-2
<PAGE>
payment of the dissenter's estimate, less any payment under 35-1-834, or
reject the corporation's offer under 35-1-836 and demand payment of the
fair value of the dissenter's shares and the interest due if:
(a) the dissenter believes that the amount paid under 35-1-834 or
offered under 35-1-836 is less than the fair value of the dissenter's
shares or that the interest due is incorrectly calculated;
(b) the corporation fails to make payment under 35-1-834 within 60 days
after the date set for demanding payment; or
(c) the corporation, having failed to take the proposed action, does not
return the deposited certificates or release the transfer restrictions
imposed on uncertificated shares within 60 days after the date set for
demanding payment. (2) A dissenter waives the right to demand payment
under this section unless he notifies the corporation of his demand in
writing under subsection (1) within 30 days after the corporation made or
offered payment for his shares.
35-1-838. COURT ACTION. (1) If a demand for payment under 35-1-837
remains unsettled, the corporation shall commence a proceeding within 60
days after receiving the payment demand and shall petition the court to
determine the fair value of the shares and accrued interest. If the
corporation does not commence the proceeding within the 60-day period, it
shall pay each dissenter whose demand remains unsettled the amount
demanded.
(2) The corporation shall commence the proceeding in the district court
of the county where a corporation's principal office or, if its principal
office is not located in this state, where its registered office is
located. If the corporation is a foreign corporation without a registered
office in this state, it shall commence the proceeding in the county in
this state where the registered office of the domestic corporation merged
with or whose shares were acquired by the foreign corporation was located.
(3) The corporation shall make all dissenters whose demands remain
unsettled, whether or not residents of this state, parties to the
proceeding as in an action against their shares, and all parties must be
served with a copy of the petition. Nonresidents may be served by certified
mail or by publication as provided by law.
(4) The jurisdiction of the district court in which the proceeding is
commenced under subsection (2) is plenary and exclusive. The court may
appoint one or more persons as appraisers to receive evidence and recommend
decision on the question of fair value. The appraisers have the powers
described in the order appointing them or in any amendment to it. The
dissenters are entitled to the same discovery rights as parties in other
civil proceedings.
(5) Each dissenter made a party to the proceeding is entitled to
judgment:
(a) for the amount, if any, by which the court finds the fair value of
the dissenter's shares plus interest exceeds the amount paid by the
corporation; or
(b) for the fair value plus accrued interest of his after-acquired
shares for which the corporation elected to withhold payment under
35-1-836.
35-1-839. COURT COSTS AND ATTORNEY FEES. (1) The court in an appraisal
proceeding commenced under 35-1-838 shall determine all costs of the
proceeding, including the reasonable compensation and expenses of
appraisers appointed by the court. The court shall assess the costs against
the corporation, except that the court may assess costs against all or some
of the dissenters, in amounts the court finds equitable, to the extent the
court finds dissenters acted arbitrarily, vexatiously, or not in good faith
in demanding payment under 35-1-837.
(2) The court may also assess the fees and expenses of counsel and
experts for the respective parties, in amounts the court finds equitable:
(a) against the corporation and in favor of any or all dissenters if the
court finds the corporation did not substantially comply with the
requirements of 35-1-829 through 35-1-837; or
(b) against either the corporation or a dissenter, in favor of any other
party, if the court finds that the party against whom the fees and expenses
are assessed acted arbitrarily, vexatiously, or not in good faith with
respect to the rights provided by 35-1-826 through 35-1-839.
(3) If the court finds that the services of counsel for any dissenter
were of substantial benefit to other dissenters similarly situated and that
the fees for those services should not be assessed against the corporation,
the court may award the counsel reasonable attorney fees to be paid out of
the amounts awarded the dissenters who were benefitted.
B-3
<PAGE>
================================= ================================
NO DEALER, SALESMAN OR OTHER 7,000,000 Shares of Common Stock
PERSON IS AUTHORIZED TO GIVE ANY Offered in Conjunction with the
INFORMATION OR TO MAKE ANY Merger of Easton-Pacific into
REPRESENTATIONS NOT CONTAINED the Company, 2,000,000 Shares
IN THIS PROSPECTUS. ANY INFORMA- of Common Stock Offered for Cash,
TION OR REPRESENTATION NOT and 6,561,248 Previously Issued
CONTAINED HEREIN, IF GIVEN OR Shares and Shares Issuable upon
MADE MUST NOT BE RELIED UPON AS the Exercise of Outstanding
HAVING BEEN AUTHORIZED BY THE Options Offered for Resale by
COMPANY, BY ANY SELLING SHARE- the Selling Stockholders
HOLDER OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY ANY SECURITIES
OTHER THAN THE SECURITIES TO
WHICH IT RELATES. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO
SELL OR SOLICITATION OF AN OFFER HANOVER GOLD COMPANY, INC.
TO BUY ANY SECURITIES IN ANY
JURISDICTION TO ANY PERSON TO
WHOM IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION IN SUCH Common Stock
JURISDICTION. NEITHER THE
DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE
HAS BEEN NO CHANGE IN THE AFFAIRS
OF THE COMPANY SINCE THE DATE
HEREOF OR THAT THE INFORMATION
CONTAINED OR INCORPORATED HEREIN
IS CORRECT AS OF ANY TIME SUBSEQUENT
TO ITS DATE.
TABLE OF CONTENTS
Page
Where to Find Additional
Information 2
Safe Harbor Statement 3
Glossary of Significant
Mining Terms 4
Joint Proxy Statement/Prospectus ---------------------
Summary 6
Risk Factors 8 JOINT PROXY
The Company 11 STATEMENT/PROSPECTUS
Market for Capital Stock 12
Dividends 12 ---------------------
Capitalization 13
Selected Financial Information 14
Management's Discussion and
Analysis of Financial
Condition and Results of
Operations 16
Business 19 June ___, 1997
Easton-Pacific and the
Easton-Pacific Transaction 27
Management 30
Principal Stockholders 35
Certain Transactions 37
Selling Stockholders 38
Plan of Distribution 40
Description of Capital Stock 41
Legal Matters 42
Experts 42
Supplemental Financial
Information 43
Index to Financial Statements F/S-1
Exhibits:
A. Agreement and Plan of
Reorganization A-1
B. Statutory Dissenter's
Appraisal Rights B-1
================================ ================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
SEC registration fee $ 2,727
NASD filing fee 0
Blue Sky fees 500 *
Printing costs 5,000 *
Legal fees and expenses 45,000 *
Accounting fees 20,000 *
Listing expenses 0
Miscellaneous 1,773 *
Total $ 75,000 *
____________________
* Estimated.
Item 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The only statutes, charter provisions, by-laws, contracts or other
arrangements under which a controlling person, director or officer of the
Company is insured or indemnified in any manner against liability which he
may incur in his capacity as such are Sections 145 of the Delaware General
Corporation Law and the Company's Bylaws. Taken together, these statutory
and bylaw provisions generally allow the Company to indemnify its directors
and officers against liability, and to advance the costs of defending any
such person against liability, provided (i) the director or officer was
acting on behalf of the Company in his official capacity as a director or
officer and (ii) such director or officer conducted himself in good faith
and believed his conduct was in, or not opposed to, the best interests of
the Company (or in the case of any criminal proceeding, that he had no
reasonable cause to believe his conduct was unlawful. The Company may not
indemnify a director or officer, however, if such director or officer is
adjudged liable to the Company, or if the director or officer is adjudged
to have derived an improper personal benefit.
Indemnification permitted by these provisions is limited to reasonable
expenses incurred in connection with the proceeding upon which liability is
predicated, which includes the amount of any such liability actually
imposed.
INSOFAR AS INDEMNIFICATION FOR LIABILITIES ARISING UNDER THE SECURITIES ACT
OF 1933 MAY BE PERMITTED TO DIRECTORS, OFFICERS OR PERSONS CONTROLLING THE
COMPANY PURSUANT TO THE FOREGOING PROVISIONS, OR OTHERWISE, THE COMPANY HAS
BEEN INFORMED THAT IN THE OPINION OF THE SECURITIES AND EXCHANGE COMMISSION
SUCH INDEMNIFICATION IS AGAINST PUBLIC POLICY AS EXPRESSED IN THE ACT AND
IS THEREFORE UNENFORCEABLE IN THE EVENT THAT A CLAIM FOR INDEMNIFICATION
AGAINST SUCH LIABILITIES (OTHER THAN THE PAYMENT BY THE COMPANY OF EXPENSES
INCURRED OR PAID BY A DIRECTOR, OFFICER OR CONTROLLING PERSON OF THE
COMPANY IN THE SUCCESSFUL DEFENSE OF ANY ACTION, SUIT OR PROCEEDING) IS
ASSERTED BY SUCH DIRECTOR, OFFICER OR CONTROLLING PERSON IN CONNECTION WITH
THE SECURITIES BEING REGISTERED, THE COMPANY WILL, UNLESS IN THE OPINION OF
ITS COUNSEL THE MATTER HAS BEEN SETTLED BY CONTROLLING PRECEDENT, SUBMIT TO
A COURT OF APPROPRIATE JURISDICTION THE QUESTION WHETHER SUCH
INDEMNIFICATION BY IT IS AGAINST PUBLIC POLICY AS EXPRESSED IN THE ACT AND
WILL BE GOVERNED BY THE FINAL ADJUDICATION OF SUCH ISSUE.
II-1
<PAGE>
Item 15. RECENT SALES OF UNREGISTERED SECURITIES
During the year past three years the Company sold an aggregate of
9,627,307 shares of Common Stock and options to acquire an additional
205,000 shares of Common Stock in transactions which were not registered
under the Securities Act. These transactions consisted of:
1. The sale during the period from June 1, 1995 through October 16,
1996 of an aggregate of 6,000,000 shares to Neal A. Degerstrom and
24 associated persons, each of whom is an "accredited investor" within the
meaning of Rule 501(a) under the Securities Act, at prices ranging from
$0.35 per share to $0.050 per share, pursuant to the terms of that certain
securities purchase agreement dated effective June 1, 1995, as amended,
between the Company and such purchasers;
2. The sale on July 27, 1995 of 150,000 shares to United Reef
Petroleums Ltd. as consideration for the assignment of a group of mining
claims in the Alder Gulch area;
3. The sale on August 8, 1995 of 500,000 shares to Hanover Resources
as partial consideration for the assignment of a mining claim in the Alder
Gulch area;
4. The sale on September 25, 1995 of 200,000 shares to Mayotte
Holdings Ltd. at the price of $1.00 per share;
5. The sale on October 17, 1995 of 22,679 shares to Mrs. William
Marston as consideration for mining engineering services rendered by her
late husband, William Marston;
6. The sale on October 17, 1995 of 200,000 shares to Hippocampus
Corporate Development AG as consideration for corporate public relations
services rendered on behalf of the Company;
7. The sale on December 5, 1995 of 47,000 shares to Patrick Harrison
Constructors, Inc. as consideration for mining services rendered on behalf
of the Company in the Alder Gulch area;
8. The sale on February 16, 1996 of 5,000 shares and options to
purchase an additional 5,000 shares to William W. Goodridge as
consideration for the assignment of a royalty interest in certain mining
claims in the Alder Gulch area;
9. The sale on April 16, 1996 of 525,000 shares to Tabor Resources
Corporation as consideration for mining claims and leases in the Alder
Gulch area;
10. The sale on April 27, 1996 of 250,000 shares to Roy A. Moen
(182,500 shares) and Moen Builders, Inc. (67,500), and options to purchase
an additional 200,000 shares, as partial consideration for a reduction in
rental and royalty obligations otherwise payable by the Company with
respect to certain mining claims in the Alder Gulch area; and
11. The issuance on August 12, 1996 of an aggregate of
2,270,486 shares to the stockholders of Hanover Resources and Group S in
connection with the merger of Hanover Resources and Group S with and into
the Company. (All of such stockholders were deemed to have purchased such
shares on December 29, 1995, when they voted to approve the merger.)
12. The issuance on March 10, 1997 of options to purchase an
aggregate of 2,312,968 shares of Common Stock to Neal A. Degerstrom, which
options are exercisable at the price of $1.25 per share over a three-year
period.
All such sales were made in reliance on the exemption from the
registration requirements of Section 5 of the Securities Act afforded by
Section 4(2) thereof.
II-2
<PAGE>
Item 16. EXHIBITS
An Index to Exhibits appears at page E-1.
Item 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sale are being
made, a post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the
most recent post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the
information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in the
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low or high and of the estimated
maximum offering range may be reflected in the form of prospectus
filed with the commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than
20 percent change in the maximum aggregate offering price set
forth in the "Calculation of Registration Fee": table in the
effective registration statement; and
(iii) to include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
[The balance of this page has been intentionally left blank.]
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form S-1 and has duly caused
this amendment to registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Coeur d'Alene, State
of Idaho, on May __, 1997.
HANOVER GOLD COMPANY, INC.
By: /s/ James A. Fish
---------------------------
Chairman, President and
Chief Executive Officer
Dated: May 30, 1997
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints
James A. Fish and Douglas J. Siddoway, and each of them, his attorney-in-
fact, with the power of substitution, for him in any and all capacities, to
sign any amendments to this registration statement, and to file the same
with exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all
that said attorneys-in-fact or their substitute or substitutes may do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
amendment to registration statement has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates
indicated.
By: /s/ Neal A. Degerstrom By: /s/ Laurence Steinbaum
------------------------- -------------------------
a Director a Director
Date: May 28, 1997 Date: May 29, 1997
By: /s/ Pierre Gousseland By:
------------------------- -------------------------
a Director Nicholas S. Young, a Director
Date: May 29, 1997 Date: May __, 1997
By: /s/ F. D. Owsley By: /s/ Wayne Schoonmaker
------------------------- -------------------------
a Director its Principal Financial
Date: May 24, 1997 and Accounting Officer
Date: May 30, 1997
By:
-------------------------
Fred R. Schmid, a Director
Date: May __, 1997
<PAGE>
INDEX TO EXHIBITS
The following exhibits are filed as part of this amendment to
registration statement. Exhibits previously filed are incorporated by
reference, as noted. Exhibits filed herewith appear beginning at page E-4.
Exhibit
Number Exhibit
- ------- --------
1.0 *
2.1 Agreement and Plan of Reorganization dated April 30, 1997,
between the registrant and Easton-Pacific and Riverside
Mining Company. Included as Exhibit A to the Joint Proxy
Statement/Prospectus filed as Part I of this registration
statement.
3.1 Articles of Incorporation of the registrant. Filed as an
exhibit to the registrant's registration statement on
Form S-1 (Commission File No. 33-38745) and incorporated by
reference herein. Bylaws of registrant. Filed as an
exhibit to the registrant's registration statement on
Form S-1 (Commission File No. 33-38745) and incorporated by
reference herein.
3.2 *
4.0 *
5.1 Opinion of Randall & Danskin, P.S. regarding legality of
securities offered. Filed herewith.
6.0 *
7.0 *
8.1 Opinion of Randall & Danskin, P.S. regarding certain tax
matters. Filed herewith.
9.0 *
10.1 Claim Option Agreement dated December 20, 1990 between the
registrant and Hanover Resources, Inc. Filed as an exhibit
to the registrant's registration statement on Form S-1
(Commission File No. 33-38745) and incorporated by reference
herein.
10.2 Mineral Sublease Agreement dated August 31, 1993 between the
registrant and Group S Limited. Filed as an exhibit to the
registrant's annual report on Form 10-K for the year ended
December 31, 1993, and incorporated by reference herein.
10.3 Assignment of Lease and Option to Purchase dated
November 15, 1993 between the registrant and John Mangus.
Filed as an Exhibit to the registrant's annual report on
Form 10-K for the year ended December 31, 1993, and
incorporated by reference herein.
10.4 Amendment No. 1, dated December 3, 1993, to Claim Option
Agreement dated December 20, 1990 between the registrant and
Hanover Resources, Inc. Filed as an exhibit to the
registrant's annual report on Form 10-K for the year ended
December 31, 1993, and incorporated by reference herein.
10.5 Amendment No. 1, dated December 3, 1993, to Assignment and
Mineral Sublease Agreement dated February 20, 1992 between
the registrant and Hanover Resources, Inc. Filed as an
exhibit to the registrant's annual report on Form 10-K for
the year ended December 31, 1993, and incorporated by
reference herein.
E-1
<PAGE>
10.6 Assignment Agreement between the registrant and Hanover
Resources, Inc. Filed as an exhibit to the registrant's
registration statement on Form S-1 (Commission File No. 33-
38745) and incorporated by reference herein.
10.7 Securities Purchase Agreement dated June 1, 1995, as
amended, between the registrant and Neal A. Degerstrom.
Filed as Exhibit 10.7 to the registrant's annual report on
Form 10-K for the year ended December 31, 1995 and
incorporated by reference herein.
10.8 Consulting Agreement dated as of January 29, 1996 between
the registrant and Fred R. Schmid. Filed as Exhibit 10.8 to
the registrant's annual report on Form 10-K for the year
ended December 31, 1995 and incorporated by reference
herein.
10.9 Consulting Agreement dated as of January 29, 1996 between
the registrant and Stephen J. Schmid. Filed as Exhibit 10.9
to the registrant's annual report on Form 10-K for the year
ended December 31, 1995 and incorporated by reference
herein.
10.10 Asset Purchase Agreement dated March 25, 1996 between the
registrant and Tabor Resources Corporation. Filed as
Exhibit 10.10 to the registrant's annual report on Form 10-K
for the year ended December 31, 1995 and incorporated by
reference herein.
10.11 Agreement and Amendment to Mining Lease and Option to
Purchase dated March 26, 1996 between the registrant and
Roy A. and Marlene Moen and Moen Builders, Inc. Filed as
Exhibit 10.11 to the registrant's annual report on Form 10-K
for the year ended December 31, 1995 and incorporated by
reference herein.
10.12 Amendment to Asset Purchase Agreement dated April 19, 1996
between the registrant and Tabor Resources Corporation.
Filed as Exhibit 10.12 to the registrant's quarterly report
on Form 10-Q for the three month period ended March 31, 1996
and incorporated by reference herein.
10.13 Form of Lock-Up Agreement between the registrant and certain
Selling Stockholders. Previously filed as Exhibit 10.13 to
the registrant's registration statement on Form S-1
(Commission File No. 33-3882) and incorporated by reference
herein.
10.14 Form of Lock-Up Agreement between the registrant and certain
shareholders of Easton-Pacific and Riverside Mining Company.
Included as Exhibit C to the Agreement and Plan of
Reorganization included as Exhibit A to the Joint Proxy
Statement/Prospectus filed as Part I of this registration
statement.
11.0 *
12.0 *
13.0 *
14.0 *
15.0 *
16.0 *
21.0 *
23.1 Consent of Randall & Danskin, P.S. Included in its opinion
filed herewith as Exhibit 5.1.
23.2 Consent of BDO Seidman, LLP. Filed herewith.
E-2
<PAGE>
23.3 Consent of Zeller Weiss & Kahn. Filed herewith.
23.4 Consent of Terrence J. Dunne. Filed herewith.
24.1 Powers of attorney. Included in the signature page to this
registration statement filed herewith.
25.0 *
26.0 *
27.1 Financial Data Schedule. Filed herewith.
28.0 *
____________________
* Items denoted by an asterisk have either been omitted or are not
applicable.
E-3
Exhibit 5.1 to Form S-1
Registration Statement
Hanover Gold Company, Inc.
RANDALL & DANSKIN, P.S.
1500 Seafirst Financial Center
601 West Riverside Avenue
Spokane, Washington 99201-0653
June 12, 1997
Hanover Gold Company, Inc.
1000 Northwest Boulevard, Suite 100
Coeur d'Alene, Idaho 83814
Gentlemen:
We have acted as counsel for Hanover Gold Company, Inc. (the "Company"), a
Delaware corporation, in connection with the preparation of a registration
statement on Form S-1 under the Securities Act of 1933, as amended (the
"Registration Statement") for the registration of: 6,356,248 previously
issued shares of the Company's common stock, par value $.0001 per share
(the "Common Stock") and 205,000 shares of Common Stock to be issued upon
the exercise of previously granted options, all of which are to be offered
and sold by the selling shareholders identified in the Joint Proxy
Statement/Prospectus comprising Part I of the Registration Statement;
7,000,000 shares of Common Stock to be issued to the shareholders of
Easton-Pacific and Riverside Mining Company, a Montana corporation, in
exchange for their shares of capital stock and as part of the merger of
Easton-Pacific with and into the Company pursuant to the terms of a
reorganization agreement dated as of April 30, 1997 by and between the
Company and Easton-Pacific; and 2,000,000 newly issuable shares of Common
Stock to be offered and sold by the Company through certain of its
directors and executive officers.
As counsel to the Company, we are familiar with the corporate proceedings
taken by the Company to authorize the filing of the Registration Statement.
We have examined originals or copies otherwise certified or identified to
our satisfaction of such documents, corporate records and other instruments
as we have deemed necessary or appropriate for this opinion. In making
such examination, we have assumed the genuineness of all signatures, the
authenticity of all documents submitted to as originals, and the conformity
to original documents of all documents submitted to us as certified or
photostatic copies. As to questions of fact material to this opinion,
where such facts have not been independently established, we have relied,
to the extent we deem appropriate, upon the representations and warranties
of the Company, and upon certificates or representations of corporate
officers of the Company. We have also considered those questions of law we
deem relevant.
In rendering this opinion, we call to your attention the fact that we are
admitted to practice in the State of Washington and do not purport to be
experts in the laws of any jurisdiction other than the laws of such state
and the federal laws of the United States. Although we are not admitted to
practice in the State of Delaware, we are generally familiar with the
corporate laws of such state and have relied upon standard compilations of
such laws in expressing this opinion.
Based upon the foregoing it is our opinion that all of the shares of Common
Stock registered pursuant to the Registration Statement, when issued, are
and will be validly issued, fully paid and non-assessable.
We consent to the reference to our firm in the section of the Registration
Statement entitled "Legal Matters".
Very truly yours,
RANDALL & DANSKIN, P.S.
/s/ Douglas Siddoway
- -------------------------------------
Exhibit 8.1 to Form S-1
Registration Statement
Hanover Gold Company, Inc.
RANDALL & DANSKIN, P.S.
1500 Seafirst Financial Center
601 West Riverside Avenue
Spokane, Washington 99201-0653
August __, 1997
Easton-Pacific and Riverside Mining Company
21 Courthouse Square
P.O. Box 1011
St. Cloud, Minnesota 56302
Gentlemen:
We have acted as counsel for Hanover Gold Company, Inc. (the "Company"), a
Delaware corporation, in connection with the negotiation and preparation of
an agreement and plan of reorganization dated as of April 30, 1997 (the
"Reorganization Agreement") by and between the Company and Easton-Pacific
and Riverside Mining Company ("Easton-Pacific"), a Montana corporation,
pursuant to which Easton-Pacific will be merged with and into the Company,
in exchange for 7,000,000 shares of the Company's common stock, par value
$.0001 per share (the "Common Stock"). We are rendering this opinion
pursuant to section 7.1(d) of the Reorganization Agreement.
As counsel to the Company, we are familiar with the corporate proceedings
taken by the Company to authorize the execution and delivery of the
Reorganization Agreement, and the consummation of the merger transaction
specified in such agreement. We have examined originals or copies
otherwise certified or identified to our satisfaction of such documents,
corporate records and other instruments as we have deemed necessary or
appropriate for this opinion. In making such examination, we have assumed
the genuineness of all signatures, the authenticity of all documents
submitted to as originals, and the conformity to original documents of all
documents submitted to us as certified or photostatic copies. As to
questions of fact material to this opinion, where such facts have not been
independently established, we have relied, to the extent we deem
appropriate, upon the representations and warranties of the Company, and
upon certificates or representations of corporate officers of the Company.
We have also considered those questions of law we deem relevant.
Based upon the foregoing it is our opinion that the issuance by the Company
of shares of its Common Stock to the holders of capital stock of Easton-
Pacific pursuant to the Reorganization Agreement will be tax-free to the
shareholders of Easton-Pacific pursuant to Section 368(a)(1)(A) of the
Internal Revenue Code of 1986, as amended.
Very truly yours,
RANDALL & DANSKIN, P.S.
/s/ Douglas Siddoway
- ----------------------------------
Exhibit 23.2 to Form S-1
Registration Statement
Hanover Gold Company, Inc.
Consent of BDO Seidman, LLP
We hereby consent to the inclusion in the prospectus constituting a part of
this registration statement on Form S-1 of our report dated March 7, 1997,
relating to the financial statements of Hanover Gold Company, Inc. which
are contained in that prospectus. Our report contains an explanatory
paragraph regarding the Company's ability to continue as a going concern.
We also consent to the reference to us under the caption "Experts" in the
prospectus.
BDO Seidman, LLP
Spokane, Washington
June 11, 1997
Exhibit 23.3 to Form S-1
Registration Statement
Hanover Gold Company, Inc.
Consent of Zeller Weiss & Kahn
We consent to the inclusion in this registration statement on Form S-1 of
our report, dated March 29, 1996 (except for Note 24, as to which the date
is May 28, 1996), on our audits of the financial statements of Hanover Gold
Company, Inc. We also consent to the reference to our firm under the
caption "Experts".
Zeller Weiss & Kahn
Mountainside, New Jersey
May 28, 1996
Exhibit 23.4 to Form S-1
Registration Statement
Hanover Gold Company, Inc.
Consent of Terrence J. Dunne
I consent to the inclusion in this registration statement on Form S-1 of my
report, dated June 5, 1997, on my audit of the financial statements of
Easton-Pacific and Riverside Mining Company. I also consent to the
reference to me under the caption "Experts".
Terrence J. Dunne
Spokane, Washington
June 5, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM the
Company's unaudited condensed financial statements for the three month period
ended March 31, 1997, and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 935,560
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 10,000
<CURRENT-ASSETS> 1,018,092
<PP&E> 10,914,304<F1>
<DEPRECIATION> 90,889
<TOTAL-ASSETS> 11,864,931
<CURRENT-LIABILITIES> 158,570
<BONDS> 0
0
0
<COMMON> 1,989
<OTHER-SE> 11,505,078<F2>
<TOTAL-LIABILITY-AND-EQUITY> 11,864,931
<SALES> 0
<TOTAL-REVENUES> 1,741<F3>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 193,707
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (191,966)
<INCOME-TAX> 0
<INCOME-CONTINUING> (191,966)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (191,966)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> (0.01)
<FN>
<F1>Consists of $10,726,350 in resource properties and claims, and $187,954 in
property and equipment, at cost.
<F2>Consists of $16,311,391 in additional paid-in capital and $1,298,750 in
deposits on common stock, less a deficit of $6,105,063 accumulated during the
development stage.
<F3>Consists of $1,741 in interest income.
</FN>
</TABLE>
