U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS UNDER SECTION 12(B)
OR 12(G) OF THE SECURITIES ACT OF 1934
THE CONTINENTAL ORINOCO COMPANY, INC.
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(Name of Small Business Issuer in its Charter)
COLORADO 84-1037886
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
555 13TH. STREET, N.W. SUITE 600E, WASHINGTON, D.C. 20004
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(Address of Principal Executive Offices) (Zip Code
212 242 7039
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(Issuer's Telephone Number)
Securities to be registered under Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH
TO BE SO REGISTERED EACH CLASS IS TO BE REGISTERED
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Securities to be registered under Section 12(g) of the Act:
COMMON STOCK (NO PAR VALUE)
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(Title of Class)
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
GLOSSARY
Alluvial rights: Rights to explore for and exploit
gold and diamonds in the geological
zone above the hard rock within a
defined area, granted by the CVG to
the Company.
Bauxite: The principal ore of aluminum.
Concessions: Rights to explore for and/or exploit
specified minerals in a particular
geological zone within a defined
area granted by the MEM and or CVG.
CVG: The Corporacion Venezolana de
Guyana, a regional development
agency of the Venezuelan government.
Development: The preparation of a known
commercially minable deposit for
mining.
Geophysical survey: The exploration of an area in which
physical properties relating to
geology are used. Geophysical
methods include seismic, magnetic,
gravity and induced polarization
techniques.
Hectare: A metric unit of land equal to
10,000 square meters or 2.471 acres.
Kilometer: A metric unit of length equal to
1,000 meters or 0.621 miles.
MARNR: The Ministry of The Environment and
Renewable Natural Resources of the
Republic of Venezuela.
MEM: The Ministry of Energy and Mines of
the Republic of Venezuela.
Mineralized: Mineral-bearing; the minerals may
have been either a part of the
original rock unit or injected at a
later time.
Overburden: Waste earth and rock covering a
mineral deposit.
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Ore: A metal or mineral or a combination
of these of sufficient value as to
quality and quantity to enable it to
be mined at a profit.
Probable reserves: Ore in place for which quantity and
grade have been computed partly from
specific measurements, samples or
production data, similar to that
used for proven reserves, and partly
from projection for a reasonable
distance of geological evidence, and
for which the interpretation of
indices, measurement and sampling
are too widely or otherwise
inappropriately spaced to outline
the ore body completely or to
establish its grade throughout. The
degree of assurance, although lower
than that for proven reserves is
high enough to assure continuity
between points of observation.
Proven reserves: Ore in place for which the quantity
has been computed from dimensions
revealed in outcrops, trenches,
underground workings or drill holes
and for which the grade and/or
quality is computed from the results
of adequate sampling, and for which
the sites for inspection, sampling,
and measurement are spaced so
closely and the geological character
is so well defined that size, shape,
depth and mineral content are well-
established.
Tonnes: Unit of mass equal to approximately
1000 kilograms / 2200 lbs.
Veta rights: Rights to explore for and exploit
gold and diamonds in the hard rock
within a defined area, granted by
the CVG to the Company.
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BACKGROUND
The Continental Orinoco Company, Inc. ("CONORCO" or the "Company"),
formerly known as Pontus Industries, Inc., was originally incorporated under the
name of Ince IV, Inc. in 1987 and managed as a blind pool by a group of persons
unrelated to current management. In November 1992, a subsidiary of the Company
merged with a previously unaffiliated company formed by the incumbent management
of the Company ("the Merger") and changed its name to Pontus Industries, Inc in
January 1993. Most recently in April 1996, as a result of the restructuring of
the corporate objective, the Company changed to its current name.
On May 7, 1993, the Company entered into a purchase agreement with FAD
corporation ("FAD"), a Russian holding company, pursuant to which the Company
acquired (i) 40% of the issued and outstanding capital stock of Ust Ilimsk Ugol
("UIU") a Russian company engaged in coal mining operations; and (ii) 20% of the
outstanding capital stock of Lesopromyshleone Upravlenie ("LPU"), a Russian
joint stock company engaged in timber operations, in exchange for the issuance
to FAD, as a nominee on behalf of individual shareholders, of 7.6 million shares
of the Company's Common Stock. The Company also entered into exclusive marketing
agreements with UIU and LPU.
Prior to the Merger, the Company was not engaged in any business
operations. Following the Merger but prior to the acquisition of the stock of
UIU and LPU, the Company had not been engaged in any operations other than
organization activities. Since the acquisition in May 1993, the Company incurred
significant expenses in connection with the development of the businesses of UIU
and LPU. However, to date, the Company has not generated revenues from these
operations. In addition, since the acquisition, the Company has attempted to
conduct a valuation of its holdings in UIU and LPU, and while the Company has
received preliminary information as to the "Fair Market Value In Use" for both
the holdings of UIU and LPU, these finding are still subject to final review
and, therefore, no value was assigned to these investments on the Company's
balance sheet.
CURRENT DEVELOPMENTS
In November 1995, upon the appointment of a new Chief Executive
Officer, the Company undertook a comprehensive review of alternative strategies
for developing the Company's operations. In conjunction with this, it was
determined that while the Russian interests may represent significant potential
value, such investments require considerable evolution in terms of definition of
rights and accounting at considerable further expense before being eligible for
inclusion on the Company's balance sheet. Accordingly, on March 25, 1996, the
Company entered into an agreement with FAD to divest the Russian investments on
terms whereby the Company sold its stock interests in UIU and LPU to FAD in
exchange for 6.6 million shares of the Company's Common Stock
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previously issued to FAD which are now being held in the Company's
treasury.
CONORCO will now concentrate on the Republic of Venezuela as a platform
for future development of mineral interests in Latin America. CONORCO's
strategic plan calls for acquisitions of equity and management interests in
prospective Venezuelan mineral concessions and early stage mining and energy
properties and businesses.
The initial phase of CONORCO's corporate plan is to accumulate
production and assets in aluminum and bauxite and, thereafter, gold and other
precious metals, strategic minerals and hydrocarbons. CONORCO is currently
evaluating several concession opportunities and strategic acquisitions in the
Venezuela minerals sector.
As its primary initiative in Venezuela, in January 1996, The Company
purchased 1,000,000 ordinary shares of Delta Minerals Corporation Limited
("Delta") from The Bookham Trust, as nominee for certain beneficiaries and
affiliates, ("Bookham") in a transaction valued at $22.60 million. The Company
issued Bookham 18,000,000 shares of Common Stock of the Company valued at $0.70
per share; 1,000,000 shares of convertible redeemable preferred stock valued at
$10 million with each share of preferred stock convertible into eight shares of
Common Stock at a conversion price of $1.25 per share; and 8,000,000 warrants to
purchase Common Stock at an exercise price of $0.70 per a share. CONORCO's
holdings in Delta represent 28.57% of the 3,500,000 issued and outstanding
ordinary shares of the capital stock of Delta.
In connection with the purchase of the 28.57% of capital stock interest
in Delta, the Company received a Fairness Opinion issued by the investment
banking firm of Taylor Sinclair & Co. Ltd. which incorporated by reference prior
valuations of Delta by the investment banking firm of Morgan Stanley & Co.,
Incorporated ("Morgan Stanley").
The valuation studies were previously commissioned by Delta in the
expectation of attracting an aluminum industry major participant as a strategic
partner to assist in the development of the Delta Aluminum Project. Morgan
Stanley evaluated several strategy options for realizing the profit potential of
Delta's Rio Grande Concession in Venezuela. This valuation model sets forth a
range of potential valuations for Delta by discounting projected cash flows at a
range of discount rates based on variables which could impact potential returns.
The assumptions made in Morgan Stanley's valuation model have recently been
re-validated by the Venezuelan investment banking firm of BANINSA.
The estimated BASE CASE "enterprise valuation" of Delta's planned four-
million-ton-per-year Bauxite Mine discounting cash flows by 15% was $207
million. The valuation model's BASE CASE assumes a capital cost of $297 million,
a bauxite cost of $12.07/ton delivered CVG Puerto Ordaz on the Orinoco River,
and a bauxite sales price of $31.36/ton.
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The estimated BASE CASE "enterprise valuation" of the Delta Aluminum
Project discounting cash flows at 15% was $803 million. The valuation model's
base case assumes capital costs of US$3,278 million, a bauxite cost of
$12.07/ton, a bauxite sales price of $31.36/ton, a long term trend aluminum
price of $1,800/ton, and cash operating costs of $700/ton, equivalent to
$930/ton full cost including financing costs and depreciation.
As a frame of valuation reference, over the past nine months the spot
aluminum price has exceeded $2,000 per tonne and the London Metal Exchange (LME)
forward outlook is for a 24 month aluminum price in excess of $1,800 per tonne
(the valuation model's BASE CASE long term trend aluminum price). On May 15,
1996 the spot aluminum price was $1,611 per tonne and the 3 month forward price
was $1,646 per tonne.
As a result of the acquisition of its capital stock interest, CONORCO's
sole primary asset is its 28.57% shareholding in Delta for which the Company has
primary responsibility for management and arrangement of its share of corporate
finance. Delta's proposed mining program is exploratory in nature and without
proven reserves.
DELTA MINERALS CORPORATION LIMITED
INTRODUCTION & OVERVIEW
Delta Minerals Corporation Limited, a Bermuda corporation, was formed
in 1989 for the purpose of exploring for and developing minerals in Venezuela.
To this end, Delta subsequently became party to a joint venture with Corporacion
Venezolana de Guayana ("CVG"), the regional development agency of the Venezuelan
Government in the minerals-rich Guayana region of Eastern Venezuela, to explore
and develop mineral deposits over a 322,500 hectare (approximately 800,000 acre)
territory in the El Palmar region strategically located 40 kilometers from
Puerto Ordaz (the regional industrial center) on the Orinoco River delta.
CONORCO management believes that the venture represents the grant of
one of the more significant areas of land for which a foreign company has been
granted exploration and mining rights in Venezuela. The name "DELTA" derives
from the location of the Rio Grande Area in the Orinoco River delta. The area
forms part of the Guayana Shield, a geological formation consisting of a
minerals-rich Precambrian geological formation extending from Venezuela through
Guayana, Suriname and French Guayana, with more than one-half of the Guayana
Shield located in Venezuela.
Previously, in 1987, CVG completed an aerial survey of the Rio Grande
Area for iron ore deposits. Resultant satellite imagery and other remote sensing
techniques revealed a huge potential bauxitic plateau. Between 1987 and 1989,
CVG's exploration unit completed
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preliminary geological reconnaissance of the area and confirmed the presence of
bauxite similar in grade to that at Los Pijiguaos (Bauxiven 1979) which is in
production up-stream the River Orinoco as the main in-country supplier of
bauxite to CVG's existing aluminum smelters at Puerto Ordaz. Preliminary
estimates of possible bauxite reserves on the Rio Grande Area are sufficient to
support an integrated aluminum production complex capable of producing aluminum
at a cost of $.42 per pound, which according to aluminum industry experts,
London-based Anthony Bird & Associates, is one of the lowest aluminum production
costs in the world outside the C.I.S.
The joint venture with CVG also provides the framework for CVG and
Delta to develop a bauxite mine and an integrated alumina refinery and aluminum
smelter in El Palmar which has been denoted as the Delta Aluminum Project. The
initial component of the Delta Aluminium project to be developed will be a
bauxite mine to produce 4 million tonnes per year for domestic and export
utilization.
THE "CARTA COMPROMISO" - AGREEMENTS WITH CORPORACION VENEZOLANA DE
GUAYANA
On November 28, 1990, Delta entered into an Agreement Letter ("Carta
Compromiso") with CVG, the regional development agency of the Venezuelan
government, which has the statutory authority to grant through contracts mining
exploration and exploitation rights for bauxite, gold and diamonds in the
Guayana Region of Venezuela. The business purpose of the Agreement Letter was to
carry out joint mining and industrial projects, initially for the exploration
and exploitation of bauxite in the El Palmar area located near Puerto Ordaz in
Bolivar State, Venezuela. In November 1991, Delta and CVG signed an Exploration
Agreement for Bauxite in the Rio Grande concession areas.
The Delta Aluminum Project is to be undertaken in three phases. The
initial phase involves a feasibility study of the development of a bauxite
mining project to produce bauxite in economical and commercially viable
quantities initially estimated at 150 million metric tons. In addition, a
further engineering plan may be undertaken to study (i) the development of an
alumina plant of an installed capacity which is economically and commercially
feasible (presently estimated to be one million metric tons per year), and (ii)
the development of a smelter (production plant) of primary aluminum which is
economically and commercially viable and presently estimated at 500,000 metric
tons per year.
If exploration proves that there is commercially viable bauxite, the
actual bauxite mining project will be undertaken by Bauxitas El Palmar, C.A.
("BEP"), a Venezuelan entity to be formed, 51% of whose stock would be owned by
Delta and 49% by CVG. The latter would grant to BEP as its capital contribution
the exclusive mining rights to explore for and exploit bauxite (the "El Palmar
Bauxite Deposit") in two areas totaling 322,500 hectares (approximately 800,000
acres) known as "Rio
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Grande 1" and "Rio Grande 2" (hereinafter referred to as the "Rio Grande Area.")
See "Prior Exploratory Work in the Rio Grande Area" below. CVG contributed the
technical studies performed by CVG regarding the bauxite deposits in El Palmar.
CVG will maintain its 49% interest under the Agreement Letter regardless of
whether Delta makes additional capital contributions or loans to BEP. In
addition, BEP will be given legal possession of the land where the mine is
located for a duration equal to the period of exploitation or up to 50 years.
If the Delta Aluminum Project is deemed feasible, Aluminios Intergrados
de Venezuela C.A. ("AIV") will be formed in Venezuela pursuant to the terms of
the Agreement Letter, in order to build, own and operate an alumina refinery and
aluminum smelter supplied by BEP's operation. Delta will initially own 100%. CVG
has an option to purchase up to a 20% interest in AIV. Under the Agreement
Letter, Delta may also offer up to 10% of AIV's capital to private investors in
Venezuela.
It is Delta's responsibility to undertake the mining study for the
analysis of exploitation potential of bauxite and to pay for all pre-exploratory
work. CVG must use its best efforts to assist Delta in its responsibilities and
will undertake the procurement of all necessary rights in the land and the
exploitation of the mineral deposits and such other concessions, permits or
licenses necessary for Delta's operations.
SHAREHOLDERS AGREEMENT
On March 25, 1991, Delta and CVG executed a Shareholders Agreement
concerning their ownership of BEP when and if such entity is formed. This
agreement provides that no extraordinary action may be taken by BEP without the
consent of a majority of the directors appointed by each of CVG and DELTA.
Except as provided in the agreement, no transfer of shares of BEP may take
place. Any disputes arising under the agreement shall be determined by
arbitration in Venezuela.
EXPLORATION AGREEMENT FOR BAUXITE
Delta and CVG signed an Exploration Agreement for bauxite in the Rio
Grande Area on November 29, 1991 for a two-year period. This agreement was
extended on October 5, 1993 for a period of two years (the "Term") from the date
environmental permits pertaining to the commencement of the exploration phase
are obtained from the MARNR. Delta and CVG expect to obtain these permits during
1996.
The Exploration Agreement provides that Delta will bear all costs for
the exploration of bauxite within the Rio Grande Area. Delta must decide within
the two-year term those areas in which it is economically viable to develop a
program for the exploration of bauxite based on the results of its exploration
program. Within the first 12 months of the term, Delta is to present to CVG a
topographical plan of the areas covered by the exploration program. Delta also
is to present quarterly
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progress reports to CVG during the exploration period. Upon completion of the
exploration phase, Delta shall present to CVG an environmental impact and
restoration study of those areas where the economically exploited mineral
deposits are located. Within three months of the date of approval of the
environmental impact and recovery study, Delta is to obtain a fiduciary bond in
favor of CVG equal to its ecological obligations.
TECHNICAL SERVICES AGREEMENT WITH SNC LAVALIN/FLUOR DANIEL
On January 14, 1994, Delta entered into a Technical Services Agreement
(the "TSA") with SNC, Inc. Lavalin, (a company having its principal place of
business in Montreal, Canada) and Fluor Daniel, Inc., (a company having its
principal place of business in Greenville, South Carolina). (These two
international professional engineering firms are collectively referred to as the
"Contractor".) The Contractor, as an independent contractor, agreed to perform
all exploration within the Rio Grande Area for the El Palmar Bauxite
Deposit/Delta Aluminum Project. Once the Project is deemed viable, the
Contractor will continue to render all consulting services required to determine
the viability of the alumina refinery and aluminum smelter.
Under the TSA, Delta will reimburse the Contractor for all of its costs
and expenses incurred on Delta's behalf in accordance with the Contractor's
established personnel policies, as well as all other costs and rates incurred in
the performance of its duties. Delta will also pay an amount equal to 72% of the
Contractor's payroll expenses to cover the indirect cost to the Contractor of
maintaining and operating its established offices, plus a fee of 15% of the
total payroll, payroll additives and indirect expenses. In connection with the
TSA, Delta will issue a letter of credit in the amount of $500,000 to the
Contractor. The letter of credit may only be drawn upon in the event that Delta
fails to pay the Contractor on a timely basis.
Delta may terminate the TSA at any time upon payment to the Contractor
of all of its Recoverable Costs (as defined therein) incurred up to the date of
termination plus all reasonable costs incurred as a result of termination. All
drawings, plans, specifications and reports developed by the Contractor will
become Delta's property. In the event the Contractor does not complete the Phase
II Services within one month of the scheduled completion date, the Contractor is
obligated to pay Delta $50,000 per calendar month by way of liquidated damages
commencing on the 31st day following the date of which such services were to
have been completed, but in any event not to exceed $200,000 in the aggregate.
The Contractor has the right to subcontract its services, in whole or in part,
without Delta's prior approval.
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REGULATION
The principal legislation governing the exploration for and
exploitation of mineral resources in Venezuela is the Mining Law of 1945 and
related regulations, administrative decrees and resolutions. Mineral resources
are owned by the State and the MEM is vested with the exclusive authority to
grant concessions to explore for and exploit specified minerals within a defined
area. Concessions may be granted for surface development (alluvial concessions)
or for underground development (veta concessions). Separate concessions are
granted for different minerals.
The exploration for and exploitation of bauxite in the Guayana Region
of Venezuela are subject to a special set of procedures and rules promulgated
through Presidential Decrees No. 1263 (for bauxite). These decrees instruct the
MEM to assign to the CVG the exclusive rights for the exploration and
exploitation of bauxite in the Guayana region with broad powers to contract with
individuals or corporations (such as Delta) for the exercising of such mining
rights. CVG has had authority to grant bauxite rights since promulgation of the
Resolutions of the MEM following Decree 1263, formally transferring to CVG the
power to grant mining rights, which became effective upon publication in the
Official Gazette of the Republic of Venezuela on April 23, 1991. Thus new
applications for the exploration and exploitation of bauxite, gold and diamonds
in the region must now be submitted to the CVG, while all concessions approved,
valid or already having its application published in the Official Gazette of the
Republic of Venezuela prior to 1991, remain under the jurisdiction of the MEM.
According to Decree No. 3281, if the alluvial rights over a given area had been
granted by the MEM by way of concession, the application for veta rights (or
vice versa) must also be submitted to the CVG. Generally, the holder of the
alluvial concession or rights will be given priority for the granting of the
veta rights.
New mining legislation is presently before the Venezuelan Congress. The
present system has been found to be cumbersome in form, interpretation and
implementation. It is expected that the new legislation would streamline the
process of granting concessions and rights and eliminate the distinction between
alluvial and veta zones. In its current proposed form it would repeal the
present mining law, but would respect all existing concessions and rights.
The mining rights for bauxite granted to Delta by CVG under the
Agreement Letter were granted to CVG pursuant to Presidential Decree No. 1263.
Following Delta's execution of its exploration agreement with CVG. The latter
informed the MEM in writing on December 3, 1991, that CVG had entered into the
Agreement Letter, the Shareholders' Agreement and the Exploration Agreement with
Delta for the purposes of exploration of the Rio Grande Area.
<PAGE>
During the course of Delta's exploration program and upon discovery of
deposits of other minerals of economic interest, under the current Mining Law of
1945 Delta has the option to apply before the MEM and/or the CVG (depending on
the mineral) for the rights to exclusively explore and thereafter exploit such
minerals as Delta may specify, provided that such exploration and exploitation
rights are not yet granted to third parties. Notwithstanding the foregoing, the
CVG may still grant overlapping mining rights for gold and diamonds within a
concession granted in the Rio Grande Area to persons other than Delta. The MEM
could also grant overlapping mining rights for minerals other than bauxite, gold
and diamonds within such concessions. However, Management is unaware of this
occurring in the Guayana Region. In addition, according to Venezuelan Mining Law
applicable to CVG, contracts granted over vacant land, absent any precise
contractual provision, a contract holder such as Delta has the exclusive right
to use the land without being disturbed by third parties (see -opinion of
Venezuela Counsel to Delta, Torres, Plaz & Arajo).
PRIOR EXPLORATORY WORK IN THE RIO GRANDE AREA
CVG Tecnica Minera C.A. ("CVG-Tecmin"), a wholly-owned subsidiary of
CVG engaged in mineral exploration and technical services, identified the El
Palmar Bauxite Deposit in 1987 and completed access roads and topographic
mapping in preparation for commercial exploration. However, lack of CVG funding
caused insufficient exploratory work to be completed so as to confirm whether a
bauxite ore reserve exists at EL Palmar in commercially viable qualities and
quantities. In May 1988, CVG Tecmin prepared a report entitled "Geoexploratory
Programs of Bauxite in EL Palmar." The bauxitic zones discovered by CVG Tecmin
were located some 17 kilometers northeast of the village of El Palmar. In
Guayana there are bauxites derived from granitic rocks and from non-granitic
rocks. These bauxites are low grade, although considered of better quality than
other bauxites such as Australian and Indonesian. However, the area is
considered to offer a potential of over 150 million metric tons and, in view of
its nearby location to CVG's aluminum smelter, was deemed worthy by Delta of
continued reconnaissance.
Prior CVG reconnaissance of natural resources of the Guayana Region
included a geological study covering a portion of the Guyana Shield and part of
Delta Amacuro. These studies showed the presence of gold in the El Perro, La
Perra and EL Toro Rivers within the Rio Grande Area, but no in-depth studies
were made on the primary source, concentration or potential of the gold.
MINING HISTORY
The mining history of Venezuela has been recorded for almost 500 years.
During the 1880's, the State of Bolivar was one of the world's major gold
producing areas. Mining commenced in the nearby El Callao goldfield in the
central part of the State in 1829 and annual
<PAGE>
production peaked in 1885 with over 250,000 ounces of gold produced. Mining
activity decreased beginning in the 1920's with the emphasis on petroleum as the
dominant commodity in the national economy. In general, the lack of
infrastructure in the Guayana Region, cumbersome mining legislation and
restrictive foreign investment legislation rendered mineral exploration
unattractive.
GENERAL GEOLOGY OF THE RIO GRANDE AREA
The Rio Grande Area is within the oldest geological region of the
Precambrian Guyana Shield, a large cratonic region comprising the major part of
the State of Bolivar in Venezuela, as well as part of northern Brazil and the
greater parts of Guyana, Suriname and French Guyana. In the State of Bolivar,
the Guyana Shield is composed of two distinct physiographic provinces. The
northern province (where the Rio Grande Area is situated), an area extending
from the Rio Orinoco south to the "Altos de Guayana", is underlain by
metamorphic and metasedimentary rocks. The southern province is underlain by
igneous and metamorphic rocks with outlying erosional remnants of the younger
Roraima formation.
The Rio Grande Area lies within the tectonic corridor formed by the El
Pao and Guri Faults which run from the southwest to northeast. The upper
elevated area forms part of the Serrania de Paisapa, a peneplain (an area
reduced almost to a plain by erosion) extensively dissected by a branching
drainage network. This area is overlain by iron-rich laterite (a reddish soil
formed by the decomposition of the underlying rock) to a depth of approximately
two meters. Below this cover lies unstructured saprolite (soft, disintegrated
decomposed rock) which may be up to 20 meters in depth. CVG's initial
exploration for bauxite, indicated that the zone of bauxitic earths is confined
to the upper reaches of the saprolite, averaging six meters in thickness.
The CVG Tecmin study also shows the presence of granitic gneiss,
granulites, quartzites and mafic rocks (volcanics), mafic intrusives and young
granites. The lower elevations of the Rio Grande Area are intersected by streams
and rivers. Geological survey work indicates the presence of alluvial gold in
many of these watercourses. While the origin of the gold is unknown, there are
greenstone rocks (a belt of volcanic, intrusive and sedimentary rock formations)
which are the rock source of gold mineralization. The Rio Grande Area is located
at the edges of the Pastora Green Stone Belt (the "Guyana Gold Belt") and is
extensively transversed by banded ironstone, similar to such other productive
gold producing regions as the Barberton Area of Eastern Transvaal in South
Africa. Within the Rio Grande Area the presence of these belts has not been
proven.
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LOCATION, ACCESS, PHYSIOGRAPHY AND INFRASTRUCTURE OF THE RIO GRANDE
AREA
LOCATION AND ACCESS. The Rio Grande Area is located approximately 15
kilometers north of the town of El Palmar in the State of Bolivar, Venezuela.
Access to Rio Grande 1 is by an asphalted road running from Upata to El Palmar,
a distance of approximately 60 kilometers. From this road, a soil road
approximately 25 kilometers long leads to an exploration camp abandoned
following CVG's prior efforts. See "Prior Exploratory Work in the Rio Grande
Area." The road is in reasonable condition and at most will require simple
upgrading. Access to Rio Grande 2 is by a paved road (Interstate Highway 10,
known as the Gran Sabana Highway) in good condition which connects the city of
Puerto Ordaz on the Orinoco River with the Brazilian border. Dirt tracks,
approximately 20 kilometers long, lead from the highway into Rio Grande 2.
PHYSIOGRAPHY. The Rio Grande Area can be divided into two zones, that
which lies 650 meters above sea level and consists of a peneplain which is
probably of Late Cretaceous or Early Tertiary age. This type of structure is
extensively associated with the bauxite in Brazil, French Guyana, Suriname and
Guyana. Although this area is extensively dissected by a branching drainage
network, it is relatively flat and roadway construction is expected to be
relatively uncomplicated.
The lower area ranges from 10 meters to 650 meters above sea level and
is drained by a network of streams and rivers. Abandoned structures and tailings
indicate that alluvial gold and diamond mining activities took place along the
Rio Grande River and it is probable that vein gold was mined in a currently
dormant concession area located along (but not within the Areas) the central
southern boundary of Rio Grande 1.
The Rio Grande Area is uninhabited and is partially covered by tropical
rain forest. Rainfall in the area is approximately 1,700 millimeters per year
and temperatures average 26 degrees celsius with little variation. The rainy
season generally starts in May and ends in October. The soil profile is typical
of other tropical rain forest areas.
INFRASTRUCTURE. Within the Rio Grande Area there is some infrastructure
including CVG's abandoned exploration camp and approximately 80 kilometers of
tracks. Delta can refurbish all of the foregoing at a minimal expense. The
nearby town of El Palmar has a population of approximately 28,000 persons and
exists mainly on agriculture with a large portion of the working population
employed in Puerto Ordaz. The town has few facilities which would be of service
to Delta's proposed operations. There is a small hotel, a gas station and
several small shops.
It is expected that the majority of Delta's supplies and support will
come from Upata and Puerto Ordaz. Puerto Ordaz is a highly
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industrialized town with extensive engineering facilities and is served by a
network of asphalt roads, a commercial airport and a port facility on the
Orinoco River which is capable of handling vessels up to 60,000 tons during the
rainy season. The production of substantially all of Venezuela's steel and
aluminum is performed in this location. Two power lines lead into El Palmar, one
of 34.5kV and the other 13.5kV. Electricity is provided by the 10,000 MW Raul de
Leoni hydro-electric installation which lies approximately 40 kilometers to the
south of Puerto Ordaz. Construction of additional hydro-electric dams is
underway and total supplementary power is planned to reach 5,000 MW by the turn
of the century. Energy costs are amongst the lowest in the world, with
electricity at $0.011 per kilowatt hour (industrial price).
EMPLOYEES
As of March, 1996 Delta employed four persons, all on a full-time
basis. The four persons include Frederik W. van Dongen and Richard Sawyer
(Delta's Caracas-based executive officers), and two administrative persons.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion and analysis in relation to the Company should
be read in conjunction with the financial statements and notes thereto appearing
elsewhere in this report on Form 10-SB. CONORCO, is an international mineral
resource company engaged, both directly and indirectly, in the acquisition,
exploration and development of equity and management interests in mineral
concessions and early stage mining and energy properties and businesses. The
Company expects to derive revenues from management fees, trading profit,
dividends, interest on inter-company advances and capital gains on the sale of
improved or unimproved concessions or other operating assets. The Company's
fiscal year end is April 30.
MANAGEMENT'S DISCUSSION OF OPERATION RESULTS
Jan 31 Apr 30 Apr 30 Apr 30 Apr 30
'96(9mos) '95 '94 '93 '92
(Unaudited)
OPERATIONS
Revenue $ - 0 - - 0 - - 0 - 790 4,307
Expenses 195,565 343,210 366,981 649,559 25,511
Net Loss (195,565) (343,210) (366,981) (648,769) (21,204)
Dividends - 0 - - 0 - - 0 - - 0 - - 0 -
<PAGE>
BALANCE SHEET
Invest. $11,300,000 - 0 - - 0 - - 0 - - 0 -
in
affiliate
Total
Assets 12,480,196 180,448 180,448 180,400 78,401
Long-term
notes 180,000 180,000 180,000 180,000 - 0 -
Stockholders
Loans 538,107 538,107 533,886 455,776 - 0 -
Total
Liab. 1,656,317 1,461,002 1,117,792 750,763 195
Stockholders
Equity 10,823,881 (1,280,554) (937,344) (570,363) 78,206
CONORCO, formerly known as Pontus Industries, Inc., was originally
incorporated under the name of Ince IV, Inc. and managed by a group of persons
unrelated to current management. In November 1992, a subsidiary of the Company
merged with a previously unaffiliated company formed by the incumbent management
of the Company and changed its name to Pontus Industries, Inc in January 1993.
Subsequently in May, 1993, the Company entered into a purchase agreement with
FAD, a Russian holding company, pursuant to which the Company acquired certain
Russian assets of UIU and LPU. Since its inception the Company has not been
engaged in any operations other than organizational and developmental.
Most recently, in November 1995 a new Chief Executive Officer launched
a comprehensive review of alternative strategies for developing the Company's
operations, and it was decided to broaden the Company's mission beyond Russia to
explore other mineral opportunities in emerging markets.
As its primary initiative, in January 1996, the Company purchased
1,000,000 ordinary shares of Delta, which holds the rights to a significant
bauxite concession in Venezuela, in a transaction valued at $22.60 million. As a
result of this acquisition, CONORCO's sole primary asset is its 28.57%
shareholding in Delta ( as reflected in the above table) for which the Company
has primary responsibility for management and arrangement of its share of
corporate finance. Delta's proposed mining program is exploratory in nature and
without proven reserves.
<PAGE>
As a consequence, the Company narrowed its immediate focus to
concentrate on the Republic of Venezuela as a platform for future development of
mineral interests in Latin America. In conjunction with this, it was determined
that, while the Russian interests may represent significant potential value,
such investments would require considerable evolution in terms of definition of
rights and accounting at considerable further expense before being eligible for
inclusion on the Company's balance sheet and thereby realize their contribution
to shareholder value. Hence, Management determined that the cost of developing
these assets in the immediate future, at the expense of diverting the Company's
momentum in Venezuela and Latin America, would not represent an optimum use of
the Company's resources. Accordingly, in March, 1996, the Company entered into
an agreement with FAD to divest the Russian investments on terms whereby the
Company sold its stock interests in UIU and LPU to FAD in exchange for 6.6
million shares of the Company's Common Stock previously issued to FAD which are
now being held in the Company's treasury. As these assets had no on-balance
sheet value, the net effect of this transaction has been to reduce dilution and
to enhance shareholder value at no cash cost to the Company.
Moreover, in April 1996, to reflect the geographic focus on Latin
America, as described under "The Business of the Company" the Company changed to
its current name. As the Company's activities are still largely focussed on the
acquisition and development of mineral properties, it does not currently produce
cash revenues from operations. Management is evaluating several promising
acquisitions that are expected to be revenue-generating.
CONORCO
RESULTS OF OPERATIONS FOR THE
NINE MONTHS ENDED JANUARY 31, 1996
The Company realized a net loss of $195,565 for the nine months ended
January 31, 1996 as compared with a net loss of $343,210 for the 12-month period
ended April 30, 1995 substantially representing General and Administrative
Expenses. This equates to an improvement of approximately 25% on an annualized
basis reflecting the cost control energies of the new management.
LIQUIDITY AND CAPITAL RESOURCES
At January 31, 1996, the Company had Total Liabilities of $1,656,317 as
compared with $1,461,002 at April 30, 1995. This represents a modest increase of
only 13.4% (17.9% annually adjusted) as compared with the year-on-year increases
in Total Liabilities of approximately 30% (at 1995) and 49% ( at 1994). However,
as the Company does not presently generate cash from operations, it will
therefore continue to finance its short-term operations through shareholder and
<PAGE>
creditor loans; it is anticipated that Total Liabilities will therefore continue
to increase in the near future.
New Management have effected an increase in shareholder value with
Total Stockholder's Equity standing at $10,823,881 as at January 31, 1996 as
compared to a deficit of $1,280,554 nine months earlier and a continued,
escalating deficit since the Company's inception.
New Management are cognizant of their need to improve shareholder value
and that the Company's continued existence is dependent upon its ability to
raise additional capital through joint ventures, by debt restructuring, private
placements, public offerings and other financing mechanisms. To facilitate its
capital formation process, the Company is applying for a NASDAQ listing and
plans to execute an $8-10 million capital raising program to enable the Company
to meet its share of the on-going funding requirements of Delta and to develop
other opportunities. To this effect, CONORCO has entered into financial advisory
and funding agreement with the Venezuelan investment banking firm of BANINSA to
privately place on a best efforts basis $2-$3 million of the Company's equity
securities and expects shortly to conclude a similar financial advisory and
funding agreement with a New York investment bank to privately place on a best
efforts basis the balance of the total $8-10 million funding plan.
PLAN OF OPERATIONS
CONORCO expects to establish a corporate headquarters in Washington,
D.C. and to hire approximately 4 administrative persons within the next 12
months, including Adrian C. Nash, its President, and Christopher d'Arnaud-Taylor
its Chairman. In addition, CONORCO expects to hire outside consultants and
service firms on an as needed basis, in functional areas to support its Plan of
Operations.
DELTA
RESULTS OF OPERATIONS FOR THE
TWELVE MONTHS ENDED DECEMBER 31, 1995
Delta was formed in January, 1989 after successfully tendering for the
rights to explore and exploit bauxite in the Rio Grande Area, covering 322,500
hectares in the State of Bolivar, Venezuela. Since inception, the primary
activities of Delta have included the negotiations for the legal titles and
contractual agreements to allow the commencement of exploratory work in the Rio
Grande Area. The operating losses incurred for the twelve-months through
December 31, 1995, are therefore of an administrative nature and total $451,154
within 4% of the previous years figure.
LIQUIDITY AND CAPITAL RESOURCES
<PAGE>
At December 31, 1995, the Company had current assets of $61,024,
long-term assets of $1,478,193 and current liabilities of $168,189. With no
longer-term indebtedness, Delta exhibited a much improved net-worth position of
$1,228,994 on a consolidated basis as compared with $750,148 in 1994; an
improvement of 64%. Delta has continued to finance its operations through
shareholder loans. Delta's continued existence is dependent upon its ability to
raise additional capital through shareholder funds, by debt restructuring,
private placements and other financing mechanisms.
PLAN OF OPERATIONS
Delta expects to hire approximately 6 administrative persons within the
next 12 months, and to mobilize SNC Lavalin/Fluor Daniel under the TSA to carry
out Delta's exploration in the Rio Grande Area. In addition, Delta expects to
hire additional outside consultants and service firms to support the work of SNC
Lavalin/Fluor Daniel. In the event that Delta's Phase I reconnaissance
exploration program indicates that there are sufficient reserves to warrant
commencement of Phase II exploration, Delta expects to then hire two additional
administrative employees.
EXPLORATION ACTIVITIES
Delta has budgeted for two exploration programs including support, one
for bauxite and the other for gold and diamonds within the EL Palmar Rio Grande
1 and 2 concession areas which is estimated at $8,150,000.
ITEM 3. DESCRIPTION OF PROPERTY.
CONORCO is presently using offices at 555, 13th Street,N.W. Suite 600E
Washington, D.C. 20004 provided by London Manhattan Partners, Inc on a month to
month basis at nominal cost. Delta's executive offices are located at the
offices of its wholly-owned subsidiary, Nasan, Parque Cristal, Oficina 15-11,
Los Palos Grandes, Caracas Venezuela. These offices consist of 2500 square feet
leased at a current rental of $6,500 per month increasing annually by agreement.
The lease was initially for three years and is renewable on an annual basis.
ITEM 4 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth certain information regarding The
Company's Common Stock beneficially owned on May 24, 1996 for (i) each
stockholder known by the Company to be the beneficial owner of five (5%) percent
or more of the Company's outstanding Common Stock, (ii) each of the Company's
executive officers and directors, and (iii) all executive officers and directors
as a group. In general, a person is deemed to be a "beneficial owner" of a
security if that person has or
<PAGE>
shares the power to vote or direct the voting of such security, or the power to
dispose or to direct the disposition of such security. A person is also deemed
to be a beneficial owner of any securities of which the person has the right to
acquire beneficial ownership within sixty (60) days. At April 30, 1996, there
were 28,409,604 shares of Common Stock outstanding.
Effective May 13, 1996, the Company effected a one-for-five reverse stock split
of its outstanding Common Stock. The number of shares of Common Stock listed
hereafter at May 24, 1996 does not give effect to such reverse stock split.
<PAGE>
NO OF SHARES PERCENT OF
NAME AND ADDRESS OR OF COMMON STOCK BENEFICIAL
IDENTITY OF GROUP BENEFICIAL OWNED(1) OWNERSHIP(1)
- ---------------- ------------------- ------------
Christopher d'Arnaud-Taylor(2)(3) 500,000 1.7
Adrian C. Nash(2)(4) - -
Franz Skryanz(2)(5) - -
Brendan Metcalfe(2)(6) - -
All Officers and Directors as a 500,000 1.7
Group (four persons)
The Continental Orinoco 6,000,000 21.1
Company S.A. (7)
The Bookham Trust (8) 16,425,000 37.0
London Manhattan 6,202,685 21.8
International Ltd (9)
- ------------------------------
(1) Except as otherwise indicated in the footnotes below, each
stockholder has sole power to vote and dispose of all the shares of
Common Stock listed opposite his name. Shares of Common Stock
outstanding, except as otherwise noted, does not include (i) 8,000,000
shares issuable upon exercise of stock options and warrants outstanding
as of the above date and (ii) approximately 8,000,000 shares issuable
upon conversion of the Company's Series A Preferred Stock;
(2) Address is c/o the Company, 555 13th Street, N.W. Suite 600E,
Washington, D.C. 20004.
(3) Mr. Christopher d'Arnaud-Taylor is Chairman of the Board of the
Company. He is also President & CEO of London Manhattan Partners,
Inc. ("LMP"), a U.S. company with offices at 555 13th Street, N.W.
Suite 600E, Washington, D.C. 20004. Includes 500,000 shares of Common
Stock in which LMP holds a beneficial interest.
(4) Mr. Nash is President, Chief Executive Officer and a Director of
a Company. He is also the primary beneficiary of the Bookham
Trust.
(5) Mr. Skryanz is Treasurer, Chief Financial Officer, Secretary and
a Director of the Company.
(6) Mr. Metcalfe is a Director of the Company.
<PAGE>
(7) The Continental Orinoco Company S.A. 68-70, Boulevard de la Petrusse,
L-2320, Luxembourg, is a Luxembourg company beneficially owned by The
Bookham Trust.
(8) The Bookham Trust, 7th Floor, Victory House, Prospect Hill, Douglas,
Isle Of Man, is an Isle of Man trust of which Mr. Adrian Nash, the
President & CEO of the Company is the primary beneficiary. Includes
8,000,000 shares of Common Stock issuable upon conversion of 1,000,000
shares of series 'A' Preferred Stock and 8,000,000 shares of Common
Stock issuable upon exercise of Common Stock purchase warrants. The
Bookham Trust has undertaken not to convert the series 'A' Preferred
Stock without prior approval of the Managing Underwriter of the next
applicable registered public offering of the Company's equity
securities.
(9) London Manhattan International Ltd. is an International Investment
Company with offices at Charlotte House, 2nd Floor, New Providence,
Nassau, Bahamas. Includes 3,577,685 shares of Common Stock issued
pursuant to repurchase by the Company of Common Stock purchase warrants
on May 23,1996(equivalent to 715,537 shares of Common Stock
post-split).
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The following table sets forth the names, positions with the Company
and ages of the executive officers and directors of the Company. Directors will
be elected at the Company's annual meeting of stockholders and serve for one
year or until their successors are elected and qualify. Officers are elected by
the Board and their terms of office are, except to the extent governed by
employment contract, at the discretion of the Board.
NAME POSITION AGE
---- -------- ---
Christopher d'Arnaud-Taylor Chairman of the Board 50
Adrian C. Nash President, Chief Executive 51
Officer and Director
Franz Skryanz Treasurer, Chief Financial 58
Officer, Secretary and
Director
Brendan Metcalfe Director 36
CHRISTOPHER d'ARNAUD-TAYLOR was elected Chairman of the Board of
CONORCO on March 25, 1996. Mr. Taylor has been active in merchant banking
countertrade and general trading for over twenty-five years.
<PAGE>
Serving at CEO and senior operating levels with multi-national corporations
including Unilever, Reed, Northrop & Tozer Kemsley & Millbourne, Mr. Taylor has
managed diverse foreign operations and joint venture alliances, led the
operational turnaround of under-performing companies and engineered complex
cross-border transactions throughout the world. In 1987, Mr. d'Arnaud-Taylor
co-founded The London Manhattan Company, Inc.("LMP"), and since 1992 has
operated through London Manhattan Partners, Inc. As its President & CEO, Mr.
Taylor's focus is on capital formation and business development of
entrepreneurial as well as more established companies primarily in the minerals,
energy and agri-commodity industries. Mr. Taylor is a recognized authority in
countertrade and offset and is presently supporting the efforts of U.S. defense
contractors in structuring offset programs in connection with worldwide defense
system sales. He has also previously served as CEO of general trading companies
located in the U.S., Europe, Asia and Africa and has had extensive prior Latin
American business experience. Mr. Taylor has a Master of Science in Business
Administration (MBA) from The London Graduate School of Business Studies and was
an International Exchange Scholar at the Graduate School of Business
Administration, New York University and Ecole des Hautes Etudes Commerciales in
Paris. He previously attended the University of Exeter, England, graduating BA
Honors in Economics & Politics. Born Madras, India in 1946, he is a British
citizen and U.S. resident.
ADRIAN C. NASH was elected President, Chief Executive Officer and a
Director of CONORCO in March, 1996. Mr. Nash has been active in mining and
mining finance in South Africa and Latin America for the past 15 years. He
served for several years with Johannesburg Mining & Finance Corporation located
in South Africa becoming Director responsible for corporate finance and mergers
and acquisitions. Johannesburg Mining & Finance was the holding company of five
minerals sector Johannesburg Stock Exchange listed companies, two of which were
also listed on the London Stock Exchange. During this period, Mr. Nash developed
experience and in the mining and mining finance industries through dealings with
many of the established South African and international mining houses. He was
previously a senior corporate officer of a British petroleum company active in
the Middle East and Southeast Asia. In the mid-1980's, Mr. Nash founded Monarch
Resources Limited to develop and operate gold mining joint ventures in
Venezuela. Monarch was listed on the London Stock Exchange in July 1987 and is
now listed on the Toronto Stock Exchange. Mr. Nash served as CEO of Monarch
until 1989 when he relinquished his responsibilities to concentrate on the
development of Delta where he is currently President and CEO having assumed that
position in 1989 upon the organization of Delta. He will continue to focus on
the operations of Delta.
FRANZ SKRYANZ was elected Treasurer and Chief Financial Officer, of the
Company in May 1994 and subsequently became Secretary and Director in March
1996. Mr. Skryanz has been engaged as an Independent Financial Consultant for
various firms and early-stage operations since
<PAGE>
February 1992. Formerly, Mr. Skyranz was employed as the Treasurer and Chief
Financial Officer of Shenker International, the U.S. subsidiary company of a
major International freight forwarding company headquartered in Germany.
BRENDAN METCALFE has been a director of the Company since March 1996.
Since May 1993, Mr. Metcalfe has served as a management consultant for various
firms both individually through a proprietary firm operated under his name in
Miami, Florida and as managing member since November 1995 of London Manhattan
Partners (FL) LLC which is engaged in providing operating, marketing and
management consulting services. Formerly, for the period September 1981 to May
1993, Mr. Metcalfe was employed in the International Expatriate Management Team
of Standard Chartered Bank PLC. Headquartered in London, U.K., Mr. Metcalfe
served in a variety of locations in Asia and the Middle East.
Directors currently receive no cash compensation for serving on the
Board of Directors. Officers are elected by the Board of Directors and serve at
the discretion of the Board subject to the terms of any employment agreement.
DIRECTORS AND EXECUTIVE OFFICERS OF DELTA
The Directors and Executive Officers of Delta are as follows:
NAME AGE POSITION
- ---- --- --------
Adrian C. Nash 50 President, and Chief
Executive Officer
Frederik W. van Dongen 47 Vice President - Operations
Richard Sawyer 47 Vice President and Controller
Jose Manuel Sanchez 75 Director
JOSE MANUEL SANCHEZ has served as a director of Delta since January
1989. He has served on the Board of Directors of several major companies in
Venezuela, and recently retired after 25 years service as a director of Banco
Mercantil C.A. in Caracas, Venezuela. He is currently President of AEG de
Venezuela C.A.
FREDERIK W. VAN DONGEN has served as Vice President-Operations and
Project Manager of Delta since September 1990. Prior thereto, from February 1988
to April 1990, he served as resident consultant to Monarch Resources in
Venezuela. Mr. van Dongen is a mining engineer with more than 20 years of mine
management experience throughout southern Africa.
RICHARD SAWYER has served as Vice President and Controller of Delta
since July 1990. Prior thereto, from November 1987 to November
<PAGE>
1989 he served as Manager Administration of Monarch Resources in Venezuela. He
is a management accountant with more than 20 years of experience in mining
finance acquired primarily throughout Africa.
In compliance with Bermuda laws, two nominee directors of the Bermuda
law firm of Appleby Spurling & Kemp serve as statutory Bermuda directors.
Presently, Mr. F. Chesley White and Mr. Timothy C. Faries serve as directors of
Delta.
ITEM 6. EXECUTIVE COMPENSATION
CASH COMPENSATION
None of the executive officers as a group was paid any cash
compensation for services provided to the Company in all capacities during the
fiscal year ended April 30, 1995. Set forth below is summary compensation table
in the tabular format specified in the applicable rules of the Securities and
Exchange Commission. As indicated, no officer of the Company or any of its
subsidiaries received total salary and bonus which exceeded $100,000 during the
periods reflected.
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
OTHER ALL
NAME AND ANNUAL RESTRICTED OTHER
PRINCIPAL COMPEN- STOCK OPTIONS/ LTIP COMPEN-
POSITION YEAR SALARY BONUS SATION AWARD(S) SARS(#) PAYOUTS SATION
- -------- ---- ------ ----- ------- ---------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Jacob Sternberg 1995 $-0- $-0- $-0- -0- -0- $-0- $-0-
Jacob Sternberg 1994 $-0- $-0- $-0- -0- -0- $-0- $-0-
Jacob Sternberg 1993 $-0- $-0- $-0- -0- -0- $-0- $-0-
</TABLE>
SERVICE AGREEMENTS
The Company will enter into a three-year Service Agreement with Mr.
d'Arnaud-Taylor commencing as of March 31, 1996. Mr. d'Arnaud-Taylor serves as
the Company's Chairman and will receive compensation of $150,000 per year. Under
this service agreement, Mr. d'Arnaud-Taylor is required to devote whatever time
is considered reasonably necessary to fulfill his responsibilities to the
Company, but in any event not less than 20% of his business time to the
Company's affairs. During the term of his agreement and for three years
thereafter (or such lesser time as may be imposed by law) Christopher
d'Arnaud-Taylor is prohibited from engaging in activities which are competitive
with those of the Company.
The Company will enter into a similar three-year Service Agreement
with Adrian C. Nash, commencing as of March 31, 1996. Mr. Nash serves as the
Company President and Chief Executive
<PAGE>
Officer and will receive compensation of $250,000 per year. Under his service
agreement Mr. Nash is required to devote sufficient time, but in no event, less
than 50% of his business time to the Company's affairs. During the term of his
agreement and for three years thereafter (or such lesser time as may be imposed
by law) Adrian Nash is prohibited from engaging in activities which are
competitive with those of the Company.
OPTIONS GRANTS AND EXERCISES AND LONG-TERM INVENTIVE PLANS
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information with respect to the grant
of options to purchase shares of Common Stock during the fiscal year ended April
30, 1995 to each person named in the
Summary Compensation Table.
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED(#) FISCAL YEAR ($/SHARES) DATE
- ---- ------------ ------------ ----------- ----------
Jacob Sternberg -0- -0- -0- -0-
OPTION EXERCISES AND HOLDINGS
The following table sets forth information with respect to the exercise
of options to purchase shares of Common Stock during the fiscal year ended April
30, 1995 to each person named in the Summary Compensation Table and the
unexercised options held as of the end of the 1994 fiscal year.
<TABLE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND 1994 FISCAL YEAR END OPTION VALUES
<CAPTION>
LESS EXERCISE
VALUE REALIZED VALUE OF UNEXERCISE
(MARKET PRICE)AT IN THE MONEY OPTIONS AT
SHARES EXERCISE LESS NUMBER OF UNEXERCISED FY-END (BASED ON FY-END
ACQUIRED ON EXERCISE PRICE OPTIONS AT FY-END PRICE OF $0.66/SHARE)
NAME EXERCISE PRICE EXERCISE EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ---------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Jacob Sternberg -0- -0- -0- -0- -0- -0-
</TABLE>
<PAGE>
Additional Stock Options
On March 31, 1996, the Company adopted its 1996 Stock Option Plan (the
"Plan") under which 3,000,000 shares of Common Stock have been reserved for
issuance to officers, directors, employees and consultants of the Company upon
exercise of options designated as "incentive stock options" within the meaning
of Section 422 of the Internal Revenue Code of 1986 or upon exercise of
nonstatutory options. The primary purpose of the Plan is to attract and retain
capable executives, employees, directors, advisory board members and other
consultants by offering such individuals a greater personal interest in the
Company's business by encouraging stock ownership. The Plan will be administered
by the Company's Board of Directors which will determine, among other things,
the persons to be granted options, the number of shares subject to each option
and the option price. The Plan terminates on March 31, 2006.
The exercise price of any incentive stock option granted under the Plan
to an eligible employee must be equal to the fair market value of the shares on
the date of grant, and with respect to persons owning more than 10% of the
outstanding capital stock, the exercise price may not be less than 110% of the
fair market value of the shares underlying such option on the date of grant. The
Board of Directors or Compensations Committee will determine the term of each
option and the manner in which it may be exercise provided that no inventive
stock option may be exercisable more than ten years after the date of grant,
except for optionees who own more than 10% of the Company capital stock, win
which case the option may not be for more than five year. Further, no director
of the Company or other person who is not an employee of the Company will be
eligible to receive incentive stock options. Form the date of grant until 30
days prior to the exercise, the optionee must be an employee of the Company in
order to exercise any options, except in the case of disability or death of the
employee. Options are not transferable except upon the death of the optionee. In
the event of disability, options must be exercised within twelve months of
termination of employment as determined by the Board of Directors or the
Compensation Committee. Nonqualified options will have similar terms except the
exercise price therefore may be determined by the Board of Directors or the
Compensation Committee, and the term of such nonqualified options may not extend
beyond ten years and one day. The Board of Directors or the Compensation
Committee
<PAGE>
has the power to impose additional limitations, conditions and restrictions in
connection with the grant of any option.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Company was organized under the name of INCE IV, Inc. in 1987 and
on December 10, 1987 issued 30,000,000 shares of Common Stock in a public
offering and received gross proceeds of $300,000. On October 27, 1992, the
Company effected a 1:37 reverse stock split reducing the number of issued and
outstanding shares of Common Stock from 54,700,000 shares to 399,270 shares. At
that time, the Company entered into an Agreement and Plan of Merger dated as of
October 16, 1992 with Pontus Industries, Inc. (an independent company) and
Pontus Holdings, Inc., a wholly-owned subsidiary of the Company. Pontus
Industries, Inc. was a previously unaffiliated company and in connection with
such merger, the Company changed its name from INCE IV, Inc. to Pontus
Industries, Inc. Immediately prior to the merger, the Company issued 4,635,334
shares of Common Stock to its then subsidiary corporation and which shares were
issued to the stockholders of the independent predecessor (Pontus Industries,
Inc.) in exchange for the outstanding common stock of such former independent
company.
During the period October 1992 through May 1994, the Company borrowed
$316,107 from Mr. Jacob Sternberg, the former President of the Company and
$222,000 from Mr. Vladimir Furman, the former Chairman of the Company to meet
working capital needs. These loans do not bear interest and have not been repaid
to date.
On May 7, 1993, the Company entered into a Purchase Agreement with FAD
Corporation pursuant to which the Company acquired a 40% interest in the
outstanding capital stock of UIU and a 20% interest in the capital stock of LPU,
both of which were Russian companies engaged in mining and timber operations. In
connection with such acquisitions, the Company issued 7,600,000 shares of its
Common Stock to FAD, as nominee for certain shareholders of FAD which
represented a controlling capital stock interest of the Company at that time.
More recently, following a review of alternative strategies for the development
of the Company's operations as previously described under "Description of
Business Background," on March 25, 1996, the Company entered into an agreement
with FAD pursuant to which the Company sold its capital stock interest in UIU
and LPU to FAD in exchange for 6,600,000 shares of Common Stock previously
issued to FAD.
On November 10, 1995, the Company issued to London Manhattan
International Limited ("LMIL"), as nominee for certain beneficiaries and
affiliates, 4,000,000 shares of its Common Stock at $0.25 per share and Warrants
to purchase 6,644,276 shares of Common Stock of the Company exercisable at $0.25
per share on or
<PAGE>
prior to November 10, 2000. In exchange for such securities, LMIL, as nominee
for certain beneficiaries and affiliates, paid an aggregate monetary
consideration of $1,000,000 which is due on November 10, 1998 secured by a
promissory note and conveyed certain international economic opportunities to
CONORCO.
No commissions nor fees were paid in respect to this transaction. LMIL
was knowledgeable and sophisticated, had access to various business and
operational information concerning the Company and was purchasing the securities
for investment. Such transactions were undertaken in reliance upon the exemption
from registration provided by Section 4(2) of the Securities Act of 1933.
On January 15, 1996, the Company issued to Bookham as nominee for
certain beneficiaries and affiliates (i) 18,000,000 shares of Common Stock of
the Company; (ii) 1,000,000 shares of the Company's recently established Series
A Preferred Stock with a stated value of $10.00 per share, and with each share
of Series A Preferred Stock convertible into 8 shares of Common Stock at a
conversion price of $1.25 per share; and (iii) Warrants to purchase 8,000,000
shares of Common Stock exercisable at $.70 per share on or prior to January 15,
2001. In consideration for the issuance of the securities, the Company acquired
a 28.57% capital stock interest in Delta as previously described under
"Description of Business Background." In connection with the purchase of the
28.57% of capital stock interest of Delta, the Company received a Fairness
Opinion issued by the investment banking firm of Taylor Sinclair & Co. Ltd.
On May 23, 1996 the Company agreed to issue Latin America Minerals
Company S.A. ("LAMCOSA") with 1,488,153 shares of Common Stock (equivalent to
297,631 post split shares) as full and final settlement of $1,934,598 fee
obligations to LAMCOSA in connection with financial advisory services rendered
to the Company concerning the Company's purchase of 1,000,000 Delta shares and
an additional 141,356 shares yet to complete. The 1,488,153 shares of Common
Stock to be issued to LAMCOSA shall be fully paid and non-assessable. The
valuation basis for this transaction is that each share of Delta is valued at
$22.60; 1,141,356 shares of Delta were purchased representing an aggregate
transaction value of $25,794,645 against which a fee obligation of 7.5% was due
and payable to LAMCOSA, a Luxemburg corporation.
Also on May 23, 1996, the Company entered into an agreement with LMIL
to repurchase the LMIL warrants in consideration for issuance of 3,577,685
shares of Common Stock (equivalent to 715,537 post stock split shares). The
basis of valuation used by the Company in entering into this transaction was
that the current value of the warrants at $6 per post stock split share was
$4.75 after deducting the exercise costs of the warrants of $1.25 per
<PAGE>
post split share it was then agreed to deduct a further $1.25 per share to
reflect the lack of proceeds to the Company from the exercise of the warrants to
reach a net value of $3.50 per post split share.
ITEM 8. DESCRIPTION OF SECURITIES
The Company is currently authorized to issue up to 700,000,000 shares
of Common Stock, no par value, of which 28,409,604 shares were outstanding as of
April 30, 1996. The Company is also authorized to issue up to 10,000,000 shares
of Preferred Stock, par value $.10 per share, of which 1,000,000 shares of
Series A Convertible Redeemable Preferred Stock were outstanding as of April 30,
1996.
Effective May 13, 1996, the Company effected a one-for-five reverse
stock split of its outstanding Common Stock. The number of shares of Common
Stock listed herein at April 30, 1996 do not give effect to such reverse stock
split.
COMMON STOCK
The Company is authorized to issue up to 700,000,000 shares of Common
Stock, no par value per share. Subject to the dividend rights of the holders of
any outstanding shares of Preferred Stock, holders of shares of Common Stock are
entitled to share, on a ratable basis, such dividends as may be declared by the
Board of Directors out of funds legally available therefore. Upon liquidation,
dissolution or winding up of the Company, after payment to creditors and holders
of any outstanding shares of Preferred Stock, the assets of the Company will be
divided pro rata on a per share basis among the holders of the Common Stock.
Each share of Common Stock entitles the holders thereof, to one vote.
Holders of Common Stock do not have cumulative voting rights which means that
the holders of more than 50% of shares voting for the election of Directors can
elect all of the Directors if they choose to do so, and in such event, the
holders of the remaining shares will not be able to elect any Directors. The
Bylaws of the Company require that only a majority of the issued and outstanding
shares of Common Stock of the Company need be represented to constitute a quorum
and to transact business at a stockholders' meeting. The Common Stock has no
preemptive, subscription or conversion rights and is not redeemable by the
Company.
WARRANTS
Each of the Warrants entitles the registered holder to purchase one
share of Common Stock. The Warrants are entitled to the benefit of adjustments
in their exercise prices and in the
<PAGE>
number of shares of Common Stock or other securities deliverable upon the
exercise thereof in the event of a stock dividend, stock split,
reclassification, reorganization, consolidation or merger. Warrant holders do
not have any voting or any other rights as stockholders of the Company.
Warrants may be exercised at any time until the close of business five
years from the date of their issue, unless such period is extended by the
Company. After the expiration date, Warrant holders shall have no further
rights. The Company has issued Warrants in two tranches at differing exercise
prices, (1)6,644,276 issued November 10, 1995 exercisable at a price of $0.25
per share (the "LMIL warrants"); (2)8,000,000 issued January 15, 1996
exercisable at a price of $0.70 per share (the "Bookham warrants").
On May 23, 1996, the Company entered into an agreement with LMIL to
repurchase the LMIL warrants in consideration for issuance of 3,577,685 shares
of Common Stock (equivalent to 715,537 post stock split shares). The basis of
valuation used by the Company in entering into this transaction was that the
current value of the warrants at $6 per post stock split share was $4.75 after
deducting the exercise costs of the warrants of $1.25 per post split share, then
deducting a further $1.25 per share to reflect the lack of proceeds to the
Company from the exercise of the warrants to reach a net value of $3.50 per post
split share.
PREFERRED STOCK
The Company is authorized to issue 10,000,000 shares of Preferred
Stock, par value $.001 per share, issuable in such series and bearing such
voting, dividend, conversion, liquidation and other rights and preferences as
the Board of Directors may determine. There were 1,000,000 shares of the
Company's Series A Convertible Redeemable Preferred Stock (the "Series A
Preferred Stock") outstanding which are owned by the Bookham Trust, an affiliate
of the Company and Adrian C. Nash, the Company's President and Chief Executive
Officer.
1,000,000 shares of the Series A Preferred Stock were outstanding at
April 30, 1996. Shares of Series A Preferred Stock accrue cumulative stock
dividends at an annual rate of 10% of the stated value ($10.00) per share,
payable in kind annually commencing January 31, 1997. The holders of the Series
A Preferred Stock will have no right to have the Company redeem such shares, and
the Company is not obligated to redeem such shares under any circumstances,
although the Company has the right to redeem the shares at a redemption price of
$10.00 per share together with an amount equal to accrued but unpaid dividends
thereon. The holders of Series A Preferred Stock are entitled to receive, upon
the voluntary or involuntary dissolution, liquidation or winding up of
<PAGE>
the Company, $10.00 per share plus an amount equal to all accrued and unpaid
dividends, if any.
At the election of the holder thereof, each Series A Preferred Stock is
convertible at any time up through and including February 1, 1998, unless
previously redeemed, at the rate of eight shares of Common Stock for each share
of Series A Preferred Stock, subject to certain adjustments. Holders of Series A
Preferred Stock do not have any rights to elect Directors of the Company or the
right to vote on any matters submitted to the holders of Common Stock of the
Company except as required by law. The affirmative vote of a majority of the
outstanding Series A Preferred Stock is required to approve any change in the
preferences, rights or limitations with respect to the Series A Preferred Stock.
OVER-THE-COUNTER MARKET
The shares of Common Stock of the Company are traded in the
over-the-counter market on the NASD Bulletin Board under the symbol "VORI." It
is anticipated the Company will subsequently apply for inclusion of the Common
Stock in the NASDAQ System, but no assurance can be given that such securities
will be accepted for inclusion in the NASDAQ System. If for any reason the
Common Stock is not qualified does note or remain qualified for trading on the
NASDAQ System, then in such case the Company's Common Stock is expected to be
traded on the over-the-counter markets through the "pink sheets" or the NASD's
OTC Bulletin Board until the Company were to increase its total assets to the
minimum amount or meet other standards required for quotation or listing within
the NASDAQ System.
In the event the Common Stock is not ultimately accepted for inclusion
in the NASDAQ System, the Company's securities will be covered by Securities and
Exchange Commission rules that impose additional sales practice requirements on
broker-dealers who sell such securities to persons other than established
customers and accredited investors (generally institutions with assets in excess
of $5,000,000 or individuals with net worth in excess of $1,000,000 or annual
income exceeding $200,000 or $300,000 jointly with their spouse) or for issuers
that meet certain numerical criteria as to revenues or assets. For transactions
covered by these rules, the broker-dealer must make a special suitability
determination for the purchaser and receive the purchaser's written agreement to
the transaction prior to the sale, as well as to provide certain customers with
extensive documentation and disclosures. Consequently, these rules may affect
the ability of broker-dealers to sell the Company's securities and also may
affect the ability of stockholders to sell their shares in the secondary market.
The ability of the Company to secure a symbol on the NASDAQ System does not
imply that a meaningful trading market in its Common Stock will ever develop.
<PAGE>
TRANSFER AGENT
The Transfer Agent for the shares of Common Stock is: Standard
Registrar & Transfer Agency,P.O. Box 14411, Albuquerque, New Mexico 87191
tel: (505) 828-2839 fax: (505) 857-9560.
<PAGE>
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON
EQUITY AND OTHER STOCKHOLDER MATTERS
The Company's Common Stock is traded in the over-the-counter market on
the National Association of Security Dealer's Bulletin Board under the symbol
"VORI." The following table sets forth the high and low bid quotations for the
Common Stock and for the periods indicated. These quotations reflect prices
between dealers, do not include retail mark-ups, mark-downs or commissions, and
may not necessarily represent actual transactions.
HIGH LOW
April 1 - June 30, 1994 $1.375 $0.875
July 1 - September 30, 1994 $1.375 $0.875
October 1 - December 31, 1994 $0.875 $0.625
January 1 - March 31, 1995 $0.75 $0.25
April 1 - June 30, 1995 $0.75 $0.125
July 1 - September 30, 1995 $0.75 $0.125
January 1 - March 30, 1996 $1.75 $0.625
April 1 - May 10, 1996 $1.75 $1.125
May 13 - May 17,1996* $6.875 $5.0
* Effective May 13, 1996 the Company effectuated a one-for-five reverse split of
its outstanding Common Stock.
On May 17, 1996, the closing bid price for the Common Stock was $6.50.
As of December 31, 1995, the number of holders of record of the
Company's Common Stock was 925.
The Company has never paid cash dividends on its Common Stock. The
Company presently intends to retain future earnings, if any, to finance the
expansion of its business and does not anticipate that any cash dividends will
be paid in the foreseeable future. Future dividend policy will depend on the
Company's earnings, capital requirements, expansion plans, financial condition
and other relevant factors.
ITEM 2. LEGAL PROCEEDINGS.
There are no legal proceedings or law suits pending against the
Company.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
Not Applicable.
<PAGE>
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
The Company was organized under the name of INCE IV, Inc. in 1987 and
on December 10, 1987 issued 30,000,000 shares of Common Stock in a public
offering and received gross proceeds of $300,000. On October 27, 1992, the
Company effected a 1:37 reverse stock split reducing the number of issued and
outstanding shares of Common Stock from 54,700,000 shares to 399,270 shares. At
that time, the Company entered into an Agreement and Plan of Merger dated as of
October 16, 1992 with Pontus Industries, Inc. (an independent company) and
Pontus Holdings, Inc., a wholly-owned subsidiary of the Company. Pontus
Industries, Inc. was a previously unaffiliated company and in connection with
such merger, the Company changed its name from INCE IV, Inc. to Pontus
Industries, Inc. Immediately prior to the merger, the Company issued 4,635,334
shares of Common Stock to its then subsidiary corporation and which shares were
issued to the stockholders of the independent predecessor (Pontus Industries,
Inc.) in exchange for the outstanding common stock of such former independent
company. Most recently, in April 1996, as a result of a restructuring of the
corporate objective, the Company changed its name to The Continental Orinoco
Company, Inc.
On May 7, 1993, the Company entered into a Purchase Agreement with FAD
Corporation pursuant to which the Company acquired a 40% interest in the
outstanding capital stock of UIU and a 20% interest in the capital stock of LPU,
both of which were Russian companies engaged in mining and timber operations. In
connection with such acquisitions, the Company issued 7,600,000 shares of its
Common Stock to FAD, as nominee for certain shareholders of FAD which
represented a controlling capital stock interest of the Company at that time.
More recently, following a review of alternative strategy for the development of
the Company's operations as previously described under "Description of Business
Background," on March 25, 1996, the Company entered into an agreement with FAD
pursuant to which the Company returned its capital stock interest in UIU and LPU
to FAD in exchange for the 7,600,000 shares of Common Stock previously issued to
FAD. No commissions nor fees were paid in respect to either of these
transactions. All of the individuals who received shares of stock of the Company
were members of the management of FAD and the two companies acquired had access
to various business and operational information concerning the Company and
purchased the securities for investment. Such transactions were undertaken in
reliance upon the exemption from registration provided by Section 4(2) of the
Securities Act of 1933.
On November 10, 1995, the Company issued to London Manhattan
International Limited, as nominee for certain beneficiaries and affiliates,
4,000,000 shares of its Common Stock and Warrants to purchase 6,644,276 shares
of Common Stock of the Company
<PAGE>
exercisable at $0.25 per share on or prior to November 10, 2000. In exchange for
such securities, LMIL, as nominee for certain beneficiaries and affiliates, paid
an aggregate monetary consideration of $1,000,000 which is due on November 10,
1998 secured by a promissory note and conveyed certain international economic
opportunities to CONORCO.
No commissions nor fees were paid in respect to this transaction. LMIL
was knowledgeable and sophisticated, had access to various business and
operational information concerning the Company and was purchasing the securities
for investment. Such transactions were undertaken in reliance upon the exemption
from registration provided by Section 4(2) of the Securities Act of 1933.
On January 15, 1996, the Company issued to Bookham as nominee for
certain beneficiaries and affiliates (i) 18,000,000 shares of the Common Stock
of the Company; (ii) 1,000,000 shares of the Company's recently established
Series A Preferred Stock with a stated value of $10.00 per share, and with each
share of Series A Preferred Stock convertible into 8 shares of Common Stock at a
conversion price of $1.25 per share; and (iii) Warrants to purchase 8,000,000
shares of Common Stock exercisable at $.70 per share on or prior to January 15,
2001. In consideration for the issuance of the securities, the Company acquired
a 28.57% capital stock interest in Delta Minerals Corporation Limited as
previously described under "Description of Business - Background." The Bookham
Trust was knowledgeable and sophisticated, had access to various business and
operational information concerning the Company, and was purchasing the
securities for investment. Such transactions were undertaken in reliance upon
the exemption from registration provided by Section 4(2) of the Securities Act
of 1933.
On May 23, 1996 the Company agreed to issue Latin America Minerals
Company S.A. ("LAMCOSA") with 1,488,153 shares of Common Stock (equivalent to
297,631 post split shares) as full and final settlement of $1,934,598 fee
obligations to LAMCOSA in connection with financial advisory services rendered
to the Company concerning the Company's purchase of 1,000,000 Delta shares and
an additional 141,356 shares yet to complete. The 1,488,153 shares of Common
Stock to be issued to LAMCOSA shall be fully paid and non-assessable. The
valuation basis for this transaction is that each share of Delta is valued at
$22.60; 1,141,356 shares of Delta were purchased representing an aggregate
transaction value of $25,794,645 against which a fee obligation of 7.5% was due
and payable to LAMCOSA, a Luxemburg corporation.
Also on May 23, 1996, the Company entered into an agreement with LMIL
to repurchase the LMIL warrants in consideration for issuance of 3,577,685
shares of Common Stock (equivalent to 715,537
<PAGE>
post stock split shares). The basis of valuation used by the Company in entering
into this transaction was that the current value of the warrants at $6 per post
stock split share was $4.75 after deducting the exercise costs of the warrants
of $1.25 per post split share. It was then agreed to deduct a further $1.25 per
share to reflect the lack of proceeds to the Company from the exercise of the
warrants to reach a net value of $3.50 per post split share.
On May 13,1996 the Company effected a one-for-five reverse split of its
outstanding Common Stock. All of the aforementionned transactions reflect the
number of shares issued on a pre-split
basis.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article VII of the Company's Articles of Incorporation provides that
the Corporation may indemnify any director, officer, employee, fiduciary, or
agent of the corporation to the full extent permitted by the Colorado
Corporation Law as in effect at the time of the conduct by such person.
The By-Laws of the Company provide for indemnification of officers and
directors. The specific provision of the By-Laws related to such indemnification
is as follows:
"ARTICLE XI INDEMNIFICATION AND INSURANCE:
Section 1. (a) RIGHT TO INDEMNIFICATION. Each person who was or is made
a party or is threatened to be made a party or is involved in any action, suit
or proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she, or a person
of whom he or she is the legal representative, is or was a director or officer,
of the Corporation or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to
employee benefit plans, whether the basis of such proceeding is alleged action
in an official capacity as a director, officer, employee or agent or in any
other capacity while serving as a director, officer, employee or agent, shall be
indemnified and held harmless by the Corporation to the fullest extent
authorized by the Colorado General Corporation to the fullest extent authorized
by the Colorado General Corporation Law, as the same exists or may hereafter be
amended (but, in the case of any such amendment, only to the extent that such
amendment permits the Corporation to provide broader indemnification rights than
said law permitted the Corporation to provide prior to such amendment), against
all expense, liability and loss (including attorneys' fees, judgments, fines,
ERISA excise taxes or penalties and amounts paid or to be
<PAGE>
paid in settlement) reasonably incurred or suffered by such person in-connection
therewith and such indemnification shall continue as to a person who has ceased
to be a director, officer, employee or agent and shall inure to the benefit of
his or her heirs, executors and administrators; provided, however, that, except
as provided in paragraph (b) hereof, the Corporation shall indemnify any such
person seeking indemnification in connection with a proceeding (or part thereof)
initiated by such person only if such proceeding (or part thereof) was
authorized by the Board of Directors of the Corporation. The right to
indemnification conferred in this Section shall be a contract right and shall
include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its final disposition: provided,
however, that, if the Colorado General Corporation law requires, the payment of
such expenses incurred by a director of officer in his or her capacity as a
director of officer (and not in any other capacity in which service was or is
rendered by such person while a director or officer, including, without
limitation, service to an employee benefit plan) in advance of the final
disposition of a proceeding, shall be made only upon delivery to the Corporation
of an undertaking, by or on behalf of such director or officer, to repay all
amounts so advanced if it shall ultimately by determined that such director
officer is not entitled to be indemnified under this Section or otherwise. The
Corporation may, by action of its Board of Directors, provide indemnification to
employees and agents of the Corporation with the same scope and effect as the
foregoing indemnification of directors and officers.
(b) RIGHT OF CLAIMANT TO BRING SUIT:
If a claim under paragraph (a) of this Section is not paid in
full by the Corporation within thirty days after a written claim has been
received by the Corporation, the claimant may at any time thereafter bring suit
against the Corporation to recover the unpaid amount of the claim and, if
successful in whole or in part, the claimant shall be entitled to be paid also
the expense of prosecuting such claim. It shall be a defense to any such action
(other than an action brought to enforce a claim for expenses incurred in
defending any proceeding in advance of its final disposition where the required
undertaking, if any is required, has been tendered to the Corporation) that the
claimant has not met the standards of conduct which make it permissible under
the Colorado General Corporation Law for the Corporation to indemnify the
claimant for the amount claimed, but the burden of proving such defense shall be
on the Corporation. Neither the failure of the Corporation (including its Board
of Directors, independent legal counsel, or its stockholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because he or she has met the
applicable standard of conduct set forth in the Colorado General Corporation
Law, nor an actual determination by the
<PAGE>
Corporation (including its Board of Directors, independent legal counsel, or its
stockholders) that the claimant has not met such applicable standard or conduct,
shall be a defense to the action or create a presumption that the claimant has
not met the applicable standard or conduct.
(c) Notwithstanding any limitation to the contrary contained in
sub-paragraphs (a) and (b) of this Section, the Corporation shall, to the
fullest extent permitted by Colorado Corporate Law, as the same may be amended
and supplemented, indemnify any and all persons whom it shall have power to
indemnify under said section from and against any and all of the expenses,
liabilities or other matters referred to in or covered by said section, and the
indemnification provided for herein shall not be deemed exclusive of any other
rights to which those indemnified may be entitled under any By-Law, agreement,
vote of stockholders or disinterested Directors or otherwise, both as to action
in his official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
(d) INSURANCE:
The Corporation may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the Corporation
or another corporation, partnership, joint venture, trust or other enterprise
against any such expense, liability or loss, whether or not the Corporation
would have the power to indemnify such person against such expense, liability or
loss under the Colorado General Corporation Law.
Insofar as indemnification for liabilities arising under the Colorado
General Corporation Law may be permitted to Directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a Director, officer of the controlling person of the Registrant in
the successful defense of any action, suit or proceeding) is asserted by such
Director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy and will be governed by the final adjudication of such issue.
<PAGE>
PART F/S
The financial statements and supplementary data are included under Item
15(a)(1) and (2) of this Report.
FINANCIAL STATEMENTS AND EXHIBITS
(a)(1) and (2) FINANCIAL STATEMENTS AND SCHEDULES
The unaudited interim financial statements listed on the index to
financial statements on page F-1 are filed as part of this Form 10-SB and have
been prepared in accordance with the instructions to Form 10QSB and do not
include all of the information and note disclosures required by generally
accepted accounting principles. The interim financial statements have not been
audited by independent certified public accountants, but, in the opinion of
Management, such financial statements include all adjustments necessary to
summarize fairly the results of operations, and are not necessarily indicative
of the results to be expected for the full year.
(b) EXHIBITS
EXHIBITS DESCRIPTION OF DOCUMENT
2.1 Agreement and Plan of Merger dated as of October 16, 1992 among
Pontus Industries, Inc., Pontus Holdings,Inc. and Ince IV, Inc.(1)
3.1(a) Articles of Incorporation and Amendments thereto(2)
3.1(b) Amendments to the Articles of Incorporation(3)
3.1(c) Amendment to the Articles of Incorporation(6)
3.1(d) Amendment to the Articles of Incorporation(6)
3.1(e) By-Laws(2)
10.1 Agreement effective August 18, 1992, by and between Jacob Sternberg,
Valdimir Furman, Portal Technology, Inc., Pirvoles and New Charleston
Capital, Inc.(1)
10.2 Agreement dated May 12, 1993, between the Company and FAD
Corporation(4)
10.3 Agreement dated May 7, 1993 between the Company and Ust IIimsk Ugol(4)
10.4 Agreement dated May 7, 1993 between the Company and Lesopromyshlennoe,
Upravlenie(4)
10.5 Agreement dated January 1996 between the Company and the Bookham
Trust(5)
10.6 Letter Agreement dated November 28, 1990 between Delta Minerals
Corporation Limited and Corporacion Venezolana de Guyana(6)
<PAGE>
10.7 Shareholders' agreement dated March 25, 1991 between Delta Minerals
Corporation Limited and Corporacion Venezolana de Guyanz(6)
10.8 Technical Services Agreement dated January 14, 1986 between Delta
Minerals Corporation Limited and SNC, Inc. Lavalin and Fluor Daniel,
Inc.(6)
10.9 Legal Opinion from Torres Plaz & Arujo(6)
10.10 Stock Option Plan(6)
10.11 Valuation Opinion from Baninsa dated April 12, 1996(6)
10.12 Fairness Opinion from Taylor Sinclair & Co. dated February 15,
1996(6)
10.13 Agreement dated March 27, 1996 between the company and FAD
Corporation(6)
- --------------------------
(1) Incorporated by reference to the company's Current Report on Form 8-K
dated November 6, 1992
(2) Incorporated by reference to the Company's Registration Statement on
Form S-18 (File No. 33-9710-B).
(3) Incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended April 30, 1995.
(4) Incorporated by reference to the Company's Current Report on Form 8-K
dated May 7, 1993.
(5) Incorporated by reference to the Company's Current Report on Form 8-K
dated March 1996.
(6) Filed herewith.
<PAGE>
THE CONTINENTAL ORINOCO COMPANY, INC.
INDEX TO FINANCIAL STATEMENTS
PAGE
----
PONTUS INDUSTRIES, INC.
April 30, 1995
Report of Independent Certified Public Accountants..................... F-2
Consolidated Balance Sheet............................................. F-3
Consolidated Statement of Income....................................... F-4
Consolidated Statement of Changes in Stockholder's Equity.............. F-5
Consolidated Statement of Cash Flows................................... F-7
Notes to Consolidated Financial Statements............................. F-8
April 30, 1994
Report of Independent Certified Public Accountants..................... F-12
Consolidated Balance Sheet............................................. F-13
Consolidated Statement of Income....................................... F-14
Consolidated Statement of Changes in Stockholder's Equity.............. F-15
Consolidated Statement of Cash Flows................................... F-17
Notes to Consolidated Financial Statement.............................. F-18
January 31, 1996
Consolidated Balance Sheet............................................. F-22
Consolidated Statement of Income....................................... F-23
Stockholder's Equity................................................... F-25
Consolidated Statement of Cash Flow.................................... F-26
DELTA MINERALS CORPORATION LTD.
December 31, 1995
Report of Independent Certified Public Accountants..................... F-27
Consolidated Balance Sheet............................................. F-28
Consolidated Statement of Loss......................................... F-29
Consolidated Statement of Cash Flows................................... F-30
Notes to Financial Statements.......................................... F-31
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
Pontus Industries, Inc.
(A Development Stage Company)
We have audited the consolidated balance sheet of Pontus Industries, Inc. (A
Development Stage Company) and subsidiary as of April 30, 1995 and the related
statement of income, stockholder's equity, and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
These 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 statements
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Pontus Industries, Inc. (A
Development Stage Company) and subsidiary as of April 30, 1995 and the results
of its operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
The financial statements for the year ended April 30, 1992 and 1991 were audited
by other accountants, whose report dated July 29, 1992 expressed an unqualified
opinion on those statements. They have not performed any auditing procedures
since that date.
/s/ Michael R. Drogin, C.P.A., P.C.
Hicksville, New York
September 20, 1995
F-2
<PAGE>
PONTUS INDUSTRIES, INC
(A DEVELOPMENT STAGE COMPANY) AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
APRIL 30, 1995
ASSETS
Current Assets
Cash $ 448
Other Assets
Investment in Subsidiary $ 180,000
Investment-Russian Companies -0-
-----------
Total Other Assets 180,000
-----------
Total Assets $ 180,448
===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities
Accrued Expenses $ 742,895
Long-term Liabilities 180,000
Loans Payable - Stockholders 538,107
-----------
Total Liabilities $ 1,461,002
Stockholders's Equity
Preferred Stock $.10 par value
per share, 10,000,000 shares
authorized and -0- shares issued -0-
Common Stock, no par value
per share, 700,000,000 shares
authorized and 13,009,604
shares issued April 30, 1995
and April 30, 1994 respectively $ 312,290
Deficit accumulated during
development stage (1,592,844)
-----------
Total Stockholder's Equity (1,280,554)
-----------
Total Liabilities and
Stockholder's Equity $ 180,448
===========
The accompanying notes are an
integral part of these
financial statements.
F-3
<PAGE>
PONTUS INDUSTRIES, INC.
(A DEVELOPMENT STAGE COMPANY) AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED APRIL 30, 1995
Other Income - Interest $ -0-
Expenses
Consulting Fees $207,000
Professional Fees 23,339
Stock Transfer Fees 3,114
Office Expenses 63,160
Development Costs 46,597
--------
Total Expenses 343,210
---------
Net Loss During Development Stage $(343,210)
=========
Net Loss Per Share of Common Stock
Based Upon 5,034,604 Shares
Outstanding $ (.03)
=========
The accompanying notes are an
integral part of these
financial statements.
F-4
<PAGE>
PONTUS INDUSTRIES, INC.
(A DEVELOPMENT STAGE COMPANY) AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
FOR THE YEAR ENDED APRIL 30, 1995
DEFICIT
ACCUMULATED
COMMON STOCK DURING TOTAL
-------------------- DEVELOPMENT STOCKHOLDERS'
SHARES AMOUNT STAGE EQUITY
---------- -------- --------- --------
Units issued
for services (S.0001 per
share) as of August 15,
1986
Officer/director 12,000,000 $ 1,200 $ - $ 1,200
Related party 1,000,000 100 - 100
For cash $(.001 per
share) as of September
26, 1986
Officers/directors 6,000,000 6,000 - 6,000
For cash ($.0033 per
share) as of October
13, 1986 1,200,000 4,000 - 4,000
Shares issued during
public offering in
exchange for cash ($.01
per share) as of December
10, 1987 30,000,000 300,000 - 300,000
Costs of securities
offerings - (59,210) - (59,210)
Shares issued 4,500,000 60,000 - 60,000
---------- -------- --------- --------
BALANCE, APRIL 30, 1989 54,700,000 312,090 (91,336) 220,754
Net loss for the year
ended April 30, 1990 - - (78,949) (78,949)
---------- -------- --------- --------
BALANCE, APRIL 30, 1990 54,700,000 312,090 (170,285) 141,805
Net Loss for the year
ended April 30, 1991 - - (42,395) (42,395)
---------- -------- --------- --------
BALANCE, APRIL 30, 1991 54,700,000 312,090 (212,680) 99,410
The accompany notes are an
integral part of these
financial statements.
F-5
<PAGE>
PONTUS INDUSTRIES, INC.
(A DEVELOPMENT STAGE COMPANY) AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
FOR THE YEAR ENDED APRIL 30, 1995
Net loss for the year
ended April 30, 1992 - - (21,204) (21,204)
----------- -------- ----------- -----------
BALANCE, APRIL 30, 1992 54,700,000 312,090 (233,884) 78,206
Reverse Stock Split
effected at 137 to 1 (54,300,730) - - -
Equity of Subsidiary
per merger - 200 - 200
Issuance of 4,635,334
shares of common stock
to subsidiary to
effect merger 4,635,334 - - -
Net loss for the year
ended April 30, 1993
(restated) (648,769) (648,769)
----------- -------- ----------- -----------
BALANCE, APRIL 30, 1993 5,034,604 $312,290 $ (882,653) $ (570,363)
Issuance of 7,600,000
Shares of Common Stock
to acquire interests
in Russian Companies
7,600,000 7,600,000 - - -
Issuance of 375,000
Shares of Common Stock
to acquire Controlling
interest in Subsidiary 375,000 - - -
Net Loss for the year
ended April 30, 1994 - - (366,981) (366,981)
----------- -------- ----------- -----------
BALANCE, APRIL 30,
1994 13,009,604 $312,290 $(1,249,634) $ (937,344)
Net Loss for the year
ended April 30, 1995 (343,210) (343,210)
----------- -------- ----------- -----------
BALANCE, APRIL 30,
1995 13,009,604 $312,290 $(1,592,844) $(1,280,554)
=========== ======== =========== ===========
The accompany notes are an integral part of these financial statements.
F-6
<PAGE>
PONTUS INDUSTRIES, INC.
(A DEVELOPMENT STAGE COMPANY) AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED APRIL 30, 1995
Cash Flows From Operating Activities:
Net loss during development stage $(343,210)
Adjustments to reconcile net income
to net cash provided by operating
activities change in assets and
liabilities:
Increase in accrued expenses 338,989
---------
Net Cash used by operating
activities (4,221)
Cash Flows From Investing Activities:
Investment in subsidiary -0-
Cash Flows From Financing Activities:
Advances from stockholders $ 4,221
---------
Net increase in cash -0-
Cash at beginning of year 448
---------
Cash at end of year $ 448
=========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for;
Interest -0-
Income Taxes -0-
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
PONTUS INDUSTRIES, INC.
(A DEVELOPMENT STAGE COMPANY) AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements include the
accounts of Pontus Industries, Inc. and its wholly owned subsidiary, Portal
Technology, Corp. The company is a development stage company as defined in FASB
number 7. Planned principal operations of the company have not yet commenced,
and activities to date have been limited to development stage only. All
development costs incurred, have been charged to expense.
On October 27, 1992, Ince IV, Inc. (the predecessor corporation)
effected a 137 to 1 reverse stock split reducing the number of issued and
outstanding shares of Common Stock, no par value ("Common Stock"), from
54,700,000 to 399,270. On November 6, 1992, pursuant to an Agreement and Plan of
Merger dated as of October 16, 1992, among Pontus Industries, Inc.
("Industries"), Pontus Holdings, Inc. ("Holdings") and Ince IV, Inc., Industries
merged with and into Holdings. Holdings was a recently formed, wholly-owned
subsidiary of Ince IV, Inc. Industries is a New York corporation that was
previously unaffiliated with the company and Holdings that planned to engage,
directly and through subsidiaries, in the timber and mining business in Russia.
Holdings was the surviving corporation of the merger and was renamed KSR, Inc.
("KSR"). The company changed its name from Ince IV, Inc. to Pontus Industries,
Inc. The merger was accounted for as a reverse acquisition.
Immediately prior to the Merger, the company issued 4,635,334 shares
of Common Stock to Holdings. Such shares were issued to the stockholders of
Industries pursuant to the Merger in exchange for the shares of common stock of
Industries at the ratio of 23.177 shares of Common Stock for each share of
common stock of Industries. No cash or other consideration was issued to or paid
by the shareholders of Industries, Holdings or the Registrant.
F-8
<PAGE>
INCOME TAXES
The company has available at April 30, 1995, unused operating loss
carry-forwards, which may be applied against future taxable income, that expire
as follows:
Year Net Operating Loss
2002 $ 9,078
2003 19,000 (Est.)
2004 63,258 (Est.)
2005 78,949
2006 42,395
2007 21,204
2008 648,769
2009 366,981
2010 343,210
----------
$1,592,844
==========
NET LOSS PER SHARE
Net loss per share is computed by the average number of shares
outstanding. As more fully discussed in Note 1, and the average number of shares
has been restated to reflect the reverse stock split effected October, 1992.
NOTE 2 - DEVELOPMENT COSTS
As a development stage company, all costs incurred in the
development of its principal business operation have been expensed. The costs
consists principally of expenditures incurred on behalf of the company by its
two principal stockholders. As more fully discussed in Note 3, the company
intends to engage in the timber and coal business in Russia. Through its
subsidiary, Portal Technology, Corp., the company has acquired a controlling
interest in Pirvoles (Pirvoles is a recently formed Russian corporation) and
these costs relate directly to business development in Russia. See Note 3 for a
business description of Pirvoles.
NOTE 3 - INVESTMENT IN SUBSIDIARY
Through its subsidiary, Portal Technology, Corp., the company
acquired 51% of Pirvoles (a recently formed Russian Corporation). Pirvoles is an
operating forest products company, registered in Krasnoyarsk, Russia. Its
primary operations are located in the Priovsky region of Siberia.
F-9
<PAGE>
This investment was funded pursuant to an agreement with New Charleston Capital,
Inc. (NCCC). NCCC advanced $180,000 to Portal to acquire controlling interest in
Pirvoles. Repayment of the loan is directly related to the sale of forest
products of Pirvoles. As part of the loan, a joint venture agreement between
Portal and NCCC was formed, and New Charleston Trading Corp. (NCTC) was formed
to purchase milled products from the timber mining. After paying operating
expenses, a percentage of profits will be used to repay the loan. Repayment of
the loan is currently expected to be paid only thru profits.
The investment in Portal, has been accounted for as a purchase.
Until further financial information is available from foreign sources, no
determination can be made as to fair market evaluation. The company has received
temporary relief from certain securities and exchanges filings until this
information is available.
NOTE 4 - LONG-TERM LIABILITY
As discussed in Note 3, the company as part of a marketing agreement
between its subsidiary (Portal) and NCTC, received a loan from NCCC of $180,000.
The proceeds as previously discussed, were used to acquire 51% of Pirvoles.
Terms of the loan, which is non-interest bearing; are no specific repayment date
and repayment from profits of the joint venture (see Note 3). During the year,
the Company acquired the rights of NCCC, for 375,000 shares of the Company's
common stock.
NOTE 5 - LOAN PAYABLE STOCKHOLDERS
As discussed in Note 2, the principal stockholders, have advanced
monies, to pursue the company's intent to develop and operate business interests
in Russia. These advances amounted to $538,107, as of April 30, 1995, are
non-interest bearing, and the stockholders have indicated no specific date for
repayment.
NOTE 6 - STOCKHOLDER'S EQUITY
On October 27, 1992, the company effected a 137 to 1 reverse stock
split; reducing the number of issued and outstanding shares of Common Stock (no
par value) from 54,700,000 to 399,270. Immediately prior to the merger of Ince
IV, Inc. and Pontus Industries, Inc. (as discussed in Note 1), the company
issued 4,635,334 shares to Pontus Holdings, Inc. (a subsidiary of Ince IV,
Inc.). In accordance with the merger agreement, the stockholders of
F-10
<PAGE>
Pontus exchanged 200,000 at the ratio of 23.177 shares of Ince IV for each share
of Pontus common stock. At the time of the merger, neither equity had a fair
market value and no consideration or cash was issued to or by the stockholders
of Pontus. Ince IV, Inc. had the only tangible asset (cash in bank), and the
transaction was accounted for as a purchase (reverse acquisition) with
fair-market value of the transaction being the tangible asset.
NOTE 7 - OTHER EVENT
On May 12, 1993, the company acquired a minority interest in the
stock of two Russian companies: Ust Ilimsk Ugol (UIU) and Lesopromyshlennoe
Upravlenie (LPU). The company also entered into an exclusive marketing agreement
with the Russian companies. UIU is a coal mining company and LPU is an
integrated logging and wood processing company. The acquisition from FAD
Corporation (a Russian Holding Company) for 40% of the issued and outstanding
capital stock of UIU and 20% of the outstanding capital stock of LPU was
effected by the issuance of 7.6 million shares of the Company's common stock.
Subsequent to the acquisition date, the Company engaged the services of two
engineering firms, one specializing in the timber industry and the other in the
mining to conduct a valuation of LPU and UIU respectively to arrive at and
account for the value of the above transaction. Although the Company has
received preliminary information as to the "Fair Market Value In Use" of both
LPU and UIU, these findings are still subject to final review and therefore no
value has as yet been assigned to the investments in LPU and UIU on the
Company's balance sheet.
F-11
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
Pontus Industries, Inc.
(Formerly Ince IV, Inc.)
(A Development Stage Company)
We have audited the consolidated balance sheet of Pontus Industries, Inc.
(formerly Ince Iv, Inc.) (A Development Stage Company) and subsidiary as of
April 30, 1994 and the related statement of income, stockholder's equity, and
cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
These 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 statements
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Pontus Industries, Inc.
(formerly Ince IV, Inc.) (A Development Stage Company) and subsidiary as of
April 30, 1994 and the results of its operations and its cash flows for the year
then ended in conformity with generally accepted accounting principles.
/s/ Michael R. Drogin, C.P.A., P.C.
Hicksville, New York
September 27, 1994
F-12
<PAGE>
PONTUS INDUSTRIES, INC (FORMERLY INCE IV, INC.)
(A DEVELOPMENT STAGE COMPANY) AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
APRIL 30, 1994
ASSETS
Current Assets
Cash $ 448
Other Assets
Investment in Subsidiary $ 180,000
Investment in Russian Company -0-
-----------
Total Other Assets 180,000
-----------
Total Assets $ 180,448
===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities
Accrued Expenses $ 403,906
Long-term Liabilities 180,000
Loans Payable - Stockholders 533,886
-----------
Total Liabilities $ 1,117,792
Stockholders's Equity
Preferred Stock $.10 par value
per share. 10,000,000 shares
authorized and -0- shares issued
Common Stock, no par value
per share, 700,000,000 shares
authorized and 13,009,604
and 5,034,604 shares issued
April 30, 1994 and April 30,
1993 respectively $ 312,290
Deficit accumulated during
development stage (1,249,634)
-----------
Total Stockholder's Equity (937,344)
-----------
Total Liabilities and
Stockholder's Equity $ 180,448
===========
The accompanying notes are an
integral part of these
financial statements.
F-13
<PAGE>
PONTUS INDUSTRIES, INC. (FORMERLY INCE IV, INC.)
(A DEVELOPMENT STAGE COMPANY) AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED APRIL 30, 1994
Income $ -0-
Expenses
Consulting Fees $166,000
Professional Fees 87,004
Stock Transfer Fees 6,436
Office Expenses 5,674
Development Costs 101,837
Miscellaneous 30
--------
Total Expenses 366,981
---------
Net Loss During Development Stage (366,981)
=========
Net Loss Per Share of Common Stock
Based Upon 13,009,604 Shares
Outstanding $ (.03)
=========
The accompanying notes are an
integral part of these
financial statements.
F-14
<PAGE>
PONTUS INDUSTRIES, INC. (FORMERLY INCE IV, INC.)
(A DEVELOPMENT STAGE COMPANY) AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
FOR THE YEAR ENDED APRIL 30, 1994
DEFICIT
ACCUMULATED
COMMON STOCK DURING TOTAL
-------------------- DEVELOPMENT STOCKHOLDERS'
SHARES AMOUNT STAGE EQUITY
---------- -------- --------- --------
Units issued
for services (S.0001 per
share) as of August 15,
1986
Officer/director 12,000,000 $ 1,200 $ - $ 1,200
Related party 1,000,000 100 - 100
For cash $(.001 per
share) as of September
26, 1986
Officers/directors 6,000,000 6,000 - 6,000
For cash ($.0033 per
share) as of October
13, 1986 1,200,000 4,000 - 4,000
Shares issued during
public offering in
exchange for cash ($.01
per share) as of December
10, 1987 30,000,000 300,000 - 300,000
Costs of securities
offerings - (59,210) - (59,210)
Shares issued 4,500,000 60,000 - 60,000
Net loss for the period
August 15, 1986 (inception)
to April 30, 1989 - - (91,336) (91,336)
---------- -------- --------- --------
BALANCE, APRIL 30, 1989 54,700,000 312,090 (91,336) 220,754
Net loss for the year
ended April 30, 1990 - - (78,949) (78,949)
---------- -------- --------- --------
BALANCE, APRIL 30, 1990 54,700,000 312,090 (170,285) 141,805
Net Loss for the year
ended April 30, 1991 - - (42,395) (42,395)
---------- -------- --------- --------
BALANCE, APRIL 30, 1991 54,700,000 312,090 (212,680) 99,410
The accompany notes are an
integral part of these
financial statements.
F-15
<PAGE>
PONTUS INDUSTRIES, INC. (FORMERLY INCE IV, INC)
(A DEVELOPMENT STAGE COMPANY) AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
FOR THE YEAR ENDED APRIL 30, 1994
Net loss for the year
ended April 30, 1992 - - (21,204) (21,204)
----------- -------- ----------- -----------
BALANCE, APRIL 30, 1992 54,700,000 312,090 (233,884) 78,206
Reverse Stock Split
effected at 137 to 1 (54,300,730) - - -
Equity of Subsidiary
per merger - 200 - 200
Issuance of 4,635,334
shares of common stock
to subsidiary to
effect merger 4,635,334 - - -
Net loss for the year
ended April 30, 1993
(restated) (648,769) (648,769)
----------- -------- ----------- -----------
BALANCE, APRIL 30, 1993 5,034,604 $312,290 $ (882,653) $ (570,363)
Issuance of 7,600,000
Shares of Common Stock
to acquire interests
in Russian Companies
7,600,000 7,600,000 - - -
Issuance of 375,000
Shares of Common Stock
to acquire Controlling
interest in Subsidiary 375,000 - - -
Net Loss for the year
ended April 30, 1994 - - (366,981) (366,981)
----------- -------- ----------- -----------
BALANCE, APRIL 30,
1994 13,009,604 $312,290 $(1,249,634) $ (937,344)
=========== ======== =========== ===========
The accompany notes are an integral part of these financial statements.
F-16
<PAGE>
PONTUS INDUSTRIES, INC. (FORMERLY INCE IV, INC.)
(A DEVELOPMENT STAGE COMPANY) AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED APRIL 30, 1994
Cash Flows From Operating Activities:
Net loss during development stage $(366,981)
Adjustments to reconcile net income
to net cash provided by operating
activities change in assets and
liabilities:
Increase in accrued expenses 288,919
---------
Net Cash used by operating
activities (78,062)
Cash Flows From Investing Activities:
Investment in subsidiary -0-
Cash Flows From Financing Activities:
Advances from stockholders $ 78,110
---------
Net increase in cash 48
Cash at beginning of year 400
---------
Cash at end of year $ 448
=========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for;
Interest -0-
Income Taxes -0-
The accompanying notes are an integral part of these financial statements.
F-17
<PAGE>
PONTUS INDUSTRIES, INC. (FORMERLY INCE IV, INC.)
(A DEVELOPMENT STAGE COMPANY) AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements include the
accounts of Pontus Industries, Inc. (formerly Ince IV, Inc.) and its wholly
owned subsidiary, Portal Technology, Corp. The company is a development stage
company as defined in FASB number 7. Planned principal operations of the company
have not yet commenced, and activities to date have been limited to development
stage only. All development costs incurred, have been charged to expense.
On October 27, 1992, Ince IV, Inc. (the predecessor corporation)
effected a 137 to 1 reverse stock split reducing the number of issued and
outstanding shares of Common Stock, no par value ("Common Stock"), from
54,700,000 to 399,270. On November 6, 1992, pursuant to an Agreement and Plan of
Merger dated as of October 16, 1992, among Pontus Industries, Inc.
("Industries"), Pontus Holdings, Inc. ("Holdings") and Ince IV, Inc., Industries
merged with and into Holdings. Holdings was a recently formed, wholly-owned
subsidiary of Ince IV, Inc. Industries is a New York corporation that was
previously unaffiliated with the company and Holdings that planned to engage,
directly and through subsidiaries, in the timber and mining business in Russia.
Holdings was the surviving corporation of the merger and was renamed XSR, Inc.
("KSR"). The company changed its name from Ince IV, Inc. to Pontus Industries,
Inc. The merger was accounted for as a reverse acquisition.
Immediately prior to the Merger, the company issued 4,635,334 shares
of Common Stock to Holdings. Such shares were issued to the stockholders of
Industries pursuant to the Merger in exchange for the shares of common stock of
Industries at the ratio of 23.177 shares of Common Stock for each share of
common stock of Industries. No cash or other consideration was issued to or paid
by the shareholders of Industries, Holdings or the Registrant.
F-18
<PAGE>
INCOME TAXES
The company has available at April 30, 1994, unused operating loss
carry-forwards, which may be applied against future taxable income, that expire
as follows:
Year Net Operating Loss
2002 $ 9,078
2003 19,000 (Est.)
2004 63,258 (Est.)
2005 78,949
2006 42,395
2007 21,204
2008 648,769
2009 366,981
----------
1,249,634
==========
NET LOSS PER SHARE
Net loss per share is computed by the average number of shares
outstanding. As more fully discussed in Note 1, and the average number of shares
has been restated to reflect the reverse stock split effected October, 1992.
NOTE 2 - DEVELOPMENT COSTS
As a development stage company, all costs incurred in the development
of its principal business operation have been expensed. The costs consists
principally of expenditures incurred on behalf of the company by its two
principal stockholders. As more fully discussed in Note 3, the company intends
to engage in the timber and coal business in Russia. Through its subsidiary,
Portal Technology, Corp., the company has acquired a controlling interest in
Pirvoles (Pirvoles is a recently formed Russian corporation) and these costs
relate directly to business development in Russia. See Note 3 for a business
description of Pirvoles.
NOTE 3 - INVESTMENT IN SUBSIDIARY
Through its subsidiary, Portal Technology, Corp., the company acquired
51% of Pirvoles (a recently formed Russian Corporation). Pirvoles is an
operating forest products company, registered in Krasnoyarsk, Russia. Its
primary operations are located in the Priovsky region of Siberia. This
investment was funded pursuant to an agreement with New
F-19
<PAGE>
Charleston Capital, Inc. (NCCC). NCCC advanced 3180,000 to Portal to
acquire controlling interest in Pirvoles. Repayment of the loan is directly
related to the sale of a joint and New Charleston Trading Corp. (NCTC) was
formed to purchase milled products from the timber mining. After paying
operating expenses, a percentage of profits will be used to repay the loan.
Repayment of the loan is currently expected to be paid only thru profits. forest
products of Pirvoles. As part of the loan, venture agreement between Portal and
NCCC was formed.
The investment in Portal, has been accounted for as a purchase. Until
further financial information is available from foreign sources, no
determination can be made as to fair market evaluation. The company has received
temporary relief from certain securities and exchanges filings until this
information is available.
NOTE 4 - LONG-TERM LIABILITY
As discussed in Note 3, the company as part of a marketing agreement
between its subsidiary (Portal) and NCTC, received a loan from NCCC of 6180,000.
The proceeds as previously discussed, were used to acquire 51% of Pirvoles.
Terms of the loan, which is non-interest bearing; are no specific repayment date
and repayment from profits of the joint venture (see Note 3). During the year,
the Company acquired the rights of NCCC by issuing to them, 375,000 shares of
the Company's common stock.
Note 5 - LOAN PAYABLE STOCKHOLDERS
As discussed in Note 2, the principal stockholders, have advanced
monies, to pursue the company's intent to develop and operate business interests
in Russia. These advances amounted to $533,886, are non-interest bearing, and
the stockholders have indicated no specific date for repayment.
NOTE 6 - STOCKHOLDER'S EQUITY
On October 27, 1992, the company effected a 137 to 1 reverse stock
split; reducing the number of issued and outstanding shares of Common Stock (no
par value) from 54,700,000 to 399,270. Immediately prior to the merger of Ince
IV, Inc. and Pontus Industries, Inc. (as discussed in Note 1), the company
issued 4,635,334 shares to Pontus Holdings, Inc. (a subsidiary of Ince IV,
Inc.). In accordance with the merger agreement, the stockholders of Pontus
exchanged 200,000 at the ratio of 23.177 shares of Ince IV for each share of
Pontus common stock. At the time of the merger, neither equity had a fair market
value and no
F-20
<PAGE>
consideration or cash was issued to or by the stockholders of Pontus.
Ince IV, Inc. had the only tangible asset (cash in bank), and the transaction
was accounted for as a purchase (reverse acquisition) with fair-market value of
the transaction being the tangible asset.
NOTE 7 - OTHER EVENT
On May 12, 1993, the company acquired a minority interest in the stock
of two Russian companies: Ust Ilimsk Ugol (UIU) and Lesopromyshlennoe Upravlenie
(LPU). The company also entered into an exclusive marketing agreement with the
Russian companies. UIU is a coal mining company and LPU is an integrated logging
and wood processing company. The acquisition from FAD Corporation la Russian
Holding company) for 40% of the issued and outstanding capital stock of UIU and
20% of the outstanding capital stock of LPU was effected by the issuance of 7.6
million shares of the Company's common stock. Subsequent to the acquisition
date, the Company engaged the services of two engineering firms, one
specializing in the timber industry and the other in the mining to conduct a
valuation of LPU and UIU respectively to arrive at and account for the value of
the above transaction. Although the Company has received preliminary information
as to the "Fair Market Value In Use" of both LPU and UIU, these findings are
still subject to final review and therefore no value has as yet been assigned to
the investments in LPU and UIU on the Company's balance sheet.
F-21
<PAGE>
PONTUS INDUSTRIES, INC.
(A DEVELOPMENT STAGE COMPANY) AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
AS AT
ASSETS JANUARY 31, 1996 APRIL 30, 1995
- ------ ---------------- --------------
Current Assets
Cash $ 198 $ 448
Other Assets
Investment in Affiliate $11,300,000
Note Receivable 1,000,000
Investment in Subsidiary 180,000 $ 180,000
Investment-Russian
Companies -0- -0-
----------- -----------
Total Other Assets $12,480,000 $ 180,000
----------- -----------
Total Assets $12,480,198 $ 180,448
=========== ===========
LIABILITIES AND
STOCKHOLDERS EQUITY
Current Liabilities
Accrued Expenses $ 938,210 $ 742,895
Long-Term Liabilities 180,000 $ 180,000
Loan Payable-Stockholders 538,107 538,107
----------- -----------
Total Liabilities $ 1,656,317 $ 1,461,002
Stockholder's Equity
Preferred Stock $.10
par value per share.
10,000,000 share authoriz-
ed and -1,000,000-
shares issued $ 5,000,000 -0-
Common Stock, no par value
per share, 700,000,000
shares authorized and
35,009,604 and 13,009,604
shares issued at
January 31, 1996 and
April 30, 1995
respectively $ 7,612,290 $ 312,290
Deficit accumulated during
development stage (1,788,409) (1,592,844)
----------- -----------
Total Stockholder's
Equity $10,823,881 (1,280,554)
----------- -----------
Total Liabilities and
Stockholder's Equity $12,480,198 $ 180,448
=========== ===========
F-22
<PAGE>
PONTUS INDUSTRIES, INC.
(A DEVELOPMENT STAGE COMPANY) AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED
JANUARY 31, 1996 JANUARY 31, 1995
---------------- ----------------
Expenses
Consulting Fees $148,500 $155,520
Professional Fees 7,865 20,501
Stock Transfer Fees 2,950 2,364
Office Expense 36,250 47,410
Development Costs - 46,597
--------- ---------
Total Expenses 195,565 272,122
--------- --------
Net Loss During Development Stage $(195,565) $(272,122)
--------- ---------
Net Loss Per Share of Common Stock
Based Upon 35,009,604 Shares
outstanding at January 31,1996 and
13,009,604 Shares outstanding at
January 31, 1995 $(.00) $(.02)
========= =========
F-23
<PAGE>
PONTUS INDUSTRIES, INC.
(A DEVELOPMENT STAGE COMPANY) AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED
JANUARY 31, 1996 JANUARY 31, 1995
---------------- ----------------
Expenses
Consulting Fees $45,000 $51,750
Professional Fees 2,865 4,051
Stock Transfer Fees 750 500
Office Expense 4,500 15,864
Development Costs - -
-------- --------
Total Expenses 53,115 72,165
-------- --------
Net Loss During Development Stage $(53,155) $(72,165)
-------- --------
Net Loss Per Share of Common Stock
Based Upon 35,009,604 Shares
outstanding at January 31, 1996 and
13,009,604 Shares outstanding at
January 31, 1995 $(.00) $(.00)
======== ========
F-24
<PAGE>
PONTUS INDUSTRIES, INC.
(A DEVELOPMENT STAGE COMPANY) AND SUBSIDIARY
STOCKHOLDER'S EQUITY
AS AT
JANUARY 31, 1996 APRIL 30, 1995
---------------- --------------
Preferred Stock $.10 par value
per share. 10,000,000 shares
authorized and 1,000,000 shares issued $5,000,000 $ -0-
Common Stock, no par value
per share, 700,000,000 shares
authorized and 35,009,604 and
13,009,604 shares issued at
January 31, 1996 and
April 30, 1995 respectively $7,612,290 312,290
Deficit accumulated during
development stage (1,788,409) (1,592,844)
----------- -----------
Total Stockholder's Equity $10,823,881 $(1,280,554)
=========== ===========
F-25
<PAGE>
PONTUS INDUSTRIES, INC.
(A DEVELOPMENT STAGE COMPANY) AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOW
FOR THE NINE MONTHS ENDED
JANUARY 31, 1996 JANUARY 31, 1995
---------------- ----------------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss during development stage ($195,565) ($272,122)
Adjustments to reconcile net income
to net cash provided by operating
activities change in assets and
liabilities:
Increase in accrued expenses $195,565 $267,901
--------- ---------
Total adjustments $195,565 $267,901
--------- ---------
Net cash provided by
operating activities -0- (4,221)
--------- ---------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Advances from stockholders -0- $4,221
--------- ---------
Net cash provided from
financing activities -0- $4,221
--------- ---------
Net increase(decrease) in cash -0- -0-
Cash-Beginning 198 448
--------- ---------
Cash-Ending $ 198 $ 448
========= =========
F-26
<PAGE>
Klynveld Peat Marwick Goerdeler
The Board of Directors and Shareholders
Delta Minerals Corporation Limited:
We have audited the accompanying consolidated and parent company balance sheets
of Delta Minerals Corporation Limited as of 31 December 1995 and 1994, and the
related consolidated and parent company statements of loss, and cash flows for
the years then ended. These consolidated and parent company financial statements
are the responsibility of the Group's management. Our responsibility is to
express an opinion on these consolidated and parent company financial statements
based on our audits.
We conducted our audits in accordance with International Standards on Auditing.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated and parent company financial statements give a
true and fair view of the financial position of the Group as of 31 December 1995
and 1994, and of the results of its operations and its cash flows for the years
then ended in accordance with International Accounting Standards
The accompanying financial statements have been prepared assuming that Delta
Minerals Corporation Limited will continue as a going concern. In view of the
losses incurred in recent years, the continuation of the company as a going
concern is dependent upon continued financial support from the shareholders, as
explained in note 10 to the financial statements. The financial statements do
not include any adjustments relating to the recoverability and classification of
reported asset amounts or the amounts of liabilities that might result from the
outcome of this uncertainty.
KLYNVELD PEAT MARWICK GOERDELER
15 April 1996
F-27
<PAGE>
<TABLE>
DELTA MINERALS CORPORATION LIMITED
AND SUBSIDIARIES
Balance Sheets
31 December 1995 and 1994
(Expressed in United States dollars)
<CAPTION>
CONSOLIDATED PARENT COMPANY
----------------------- -----------------------
NOTE 1995 1994 1995 1994
---- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS
Cash 6,838 4,962 1,518 4,579
Debtors 8 54,186 2,851 54,047 2,500
--------- ---------- --------- ---------
61,024 7,813 55,565 7,079
--------- ---------- --------- ---------
LONG - TERM ASSETS
Furniture and equipment 5 64,415 80,801
Investments 6 - - 12,571 11,394
Intercompany receivables 6 - - 1,105,843 933,162
Intangible assets 7 1,413,778 1,312,243 1,413,778 1,312,243
--------- ---------- --------- ---------
1,478,193 1,393,044 2,532,191 2,256,799
--------- ---------- --------- ---------
Total assets 1,539,217 1,400,857 2,587,756 2,263,878
--------- ---------- --------- ---------
CREDITORS
Amounts falling due within one
year 9 (310,223) (650,709) (292,965) (608,797)
--------- ---------- --------- ---------
Total liabilities (310,223) (650,709) (292,965) (608,797)
--------- ---------- --------- ---------
NET ASSETS 1,228,994 750,148 2,294,791 1,665,081
========= ========== ========= =========
CAPITAL AND RESERVES
Called-up share capital 10 3,430,000 2,500,000 3,430,000 2,500,000
Profit and loss account 10 (2,201,006) (1,749,852) (1,135,209) (844,919)
--------- ---------- --------- ---------
1,228,994 750,148 2,294,791 1,655,081
========= ========== ========= =========
</TABLE>
The accompanying notes form an integral part of these consolidated and parent
company financial statements.
F-28
<PAGE>
<TABLE>
DELTA MINERALS CORPORATION LIMITED
AND SUBSIDIARIES
Consolidated Statements of Loss
For the years ended 31 December 1995 and 1994
(Expressed in United States Dollars)
<CAPTION>
CONSOLIDATED PARENT COMPANY
----------------------- -----------------------
NOTE 1995 1994 1995 1994
---- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
Turnover - - - -
Pre-operating costs 2 (452,665) (436,622) (290,784) (195,942)
Operating Loss (452,665) (436,622) (290,784) (195,942)
Interest Income 4 1,511 726 496 -
-------- -------- -------- --------
Net Loss (451,154) (435,896) (290,288) (195,942)
======== ======== ======== ========
</TABLE>
The accompanying notes form an integral part of these consolidated and parent
company financial statements.
F-29
<PAGE>
<TABLE>
DELTA MINERALS CORPORATION LIMITED
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the years ended 31 December 1995 and 1994
(Expressed in United States Dollars)
<CAPTION>
CONSOLIDATED PARENT COMPANY
----------------------- -----------------------
1995 1994 1995 1994
--------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Cash payments to suppliers (195,407) (178,219) (83,428) (42,154)
Cash paid to and on behalf of employees (122,970) (138,176) (73,666) (74,771)
Other cash payments (119,384) (12,299) (104,848) (10,222)
-------- -------- -------- --------
Net cash outflow from
operating activities (437,761) (328,694) (261,942) (127,147)
-------- -------- -------- --------
Cash flow from investing activities:
Investments in Venezuelan subsidiaries - - (1,178) (294)
Advances to Venezuelan subsidiaries - - (172,681) 194,524)
Purchase of tangible fixed assets - (6,869) - -
Purchase of intangible assets (105,617) (113,936) (105,617) 113,936)
Sale of tangible fixed assets 5,882 9,990 - -
Interest received 1,511 726 496 -
-------- -------- -------- --------
Net cash outflow from
investing activities (98,224) (110,089) (278,980) (308,757)
-------- -------- -------- --------
Net cash outflow from
financing activities (535,985) (438,783) (540,922) (435,904)
======== ======== ======== ========
Cash flow from financing activities:
Cash movement on promoters' accounts 392,139 (336,959) (392,139) (336,959)
Issue of ordinary share capital (930,000) (94,694) (930,000) (94,694)
-------- -------- -------- --------
(537,861) (431,653) (537,861) (431,653)
-------- -------- -------- --------
Increase (decrease) in cash 1,876 (7,130) (3,061) (4,251)
-------- -------- -------- --------
(535,985) (438,783) (540,922) (435,904)
======== ======== ======== ========
</TABLE>
The accompanying notes form an integral part of these consolidated and parent
company financial statements.
F-30
<PAGE>
DELTA MINERALS CORPORATION LIMITED
AND SUBSIDIARIES
Notes to Consolidated and Parent Company Financial Statements
31 December 1995 and 1994
(1) PRINCIPAL ACCOUNTING POLICIES
The following accounting policies have been applied consistently in dealing
with items which are considered material in relation to the Group's
accounts.
(a) BASIS OF ACCOUNTING
The financial statements present the consolidated financial position of
Delta Minerals Corporation Limited (the Company), a Bermuda Company and its
wholly-owned subsidiaries, Exploraciones Nasan, C. A. (Nasan) and
Exploraciones Delta Oro de Venezuela. C. A. (Doroven), both Venezuelan
companies (Note 6). The financial statements are prepared on the historical
cost basis of accounting and comply with International Accounting Standards.
(b) TANGIBLE FIXED ASSETS
Tangible fixed assets are stated at cost and depreciation is provided on a
straight-line basis over their estimated useful lives from the time when the
assets concerned are brought into use.
Exploration and related expenditures on specific projects or project areas
are deferred until commercial levels of production are achieved, when the
exploration expenditures are amortised on a unit-of-production basis; or
until they are abandoned, when related exploration expenditures are
written-off.
(c) TRANSLATION OF FOREIGN CURRENCIES
The financial statements are presented in United States dollars. the
functional currency of the Group. Transactions during the year are
translated at the rate of exchange applicable at the time they are
undertaken. Foreign currency assets and liabilities at the end of the year
are translated at the year-end rate.
The assets and liabilities of Nasan, whose currency of operation and
accounting is not in United States dollars, are translated at the year-end
rate. except for fixed assets which are translated at the exchange rate
applicable at the time they were acquired. The results of its operations are
translated at the average rate for the period. Gains and losses arising from
translation are taken to the statement of income.
(Continued)
F-31
<PAGE>
DELTA MINERALS CORPORATION LIMITED
AND SUBSIDIARIES
Notes to Consolidated and Parent Company Financial Statements
(2) PRE-OPERATING COSTS
Pre-operating costs consist of the following items:
<TABLE>
<CAPTION>
CONSOLIDATED PARENT COMPANY
---------------------- ----------------------
1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Depreciation and amortisation (note 5) $ 11,045 $ 14,429 $ - $ -
Staff costs (note 3) 151,057 162,655 104,667 99,077
Auditors' remuneration and expenses 9,441 9,832 2,735 4,123
General administration expenses 225,791 182,052 128,915 63,158
Travel and entertainment 55,330 67,654 54,467 29,584
-------- -------- -------- --------
$452,665 $436,622 $290,784 $195,942
======== ======== ======== ========
</TABLE>
(3) STAFF NUMBERS AND COST
1995 1994
--------- --------
Administration - 4 employees $ 151,057 $162,655
(4) INTEREST INCOME
Interest income arises from the short-term deposit account
(5) TANGIBLE FIXED ASSETS, AT COST
ESTIMATED
USEFUL LIVES 1995 1994
------------ --------- ---------
Furniture and fixtures 10 years $ 131,313 $ 131,313
Office equipment 3 years 18,758 18,758
Automobiles 5 years - 6,665
--------- ---------
150,071 156,736
Accumulated depreciation (85,656) (75,935)
$ 64,415 $ 80,081
========= =========
(Continued)
F-32
<PAGE>
DELTA MINERALS CORPORATION LIMITED
AND SUBSIDIARIES
Notes to Consolidated and Parent Company Financial Statements
(6) INVESTMENT IN AND ADVANCES TO VENEZUELAN SUBSIDIARIES
Investment in and advances to Nasan and Doroven consist of the following:
1995 1994
---------- --------
Investment in shares, at cost $ 12,571 $ 11,394
Advances 1,105,843 933,162
---------- --------
$1,118,413 $944,556
========== ========
(7) INTANGIBLE ASSETS
Intangible assets of US$1,413,778 (1994 - US$1,312,243) consist of deferred
costs principally for related expenditures on the El Palmar Project and
includes financing expenses amounting to $304,403
(8) DEBTORS
CONSOLIDATED PARENT COMPANY
---------------------- ----------------------
1995 1994 1995 1994
-------- ------- -------- -------
Others $ 47,300 $ 2,500 $ 47,300 $ 2,500
Prepayments 6,886 351 6,747 -
-------- ------- -------- -------
$ 54,186 $ 2,851 $ 54,047 $ 2,500
======== ======= ======== =======
(9) CREDITORS
CONSOLIDATED PARENT COMPANY
---------------------- -----------------------
1995 1994 1995 1994
-------- --------- --------- ---------
Loan - Continental Orinoco $ - $ 389,297 $ - $ 389,297
Trade Creditors 215,450 207,995 215,889 186,507
Other Creditors 56,486 9,328 56,486 9,328
Accruals 38,287 44,089 20,590 23,665
-------- --------- --------- ---------
$310,223 $ 650,709 $ 292,965 $ 608,797
======== ========= ========= =========
(Continued)
F-33
<PAGE>
DELTA MINERALS CORPORATION LIMITED
AND SUBSIDIARIES
Notes to Consolidated and Parent Company Financial Statements
(10) CAPITAL AND RESERVES
The company has authorized share capital of US$6,000,000 comprising
6,000,000 ordinary shares of par value US$1 each, of which 3,500,000 shares
have been issued.
The changes in paid-in share capital are as follows:
1995 1994
----------- -----------
At beginning of the year $ 2,500,000 $ 2,405,306
Cash inflows from financing fully paid - 4,694
Cash inflows from financing 880,000 90,000
Shares issued for non-cash consideration 50,000 -
At end of the year 3,430,000 2,500,000
The shareholders have agreed to continue to provide financial support to
the Group pursuant to an agreement signed in July 1995.
Reserves for the group consist of the following:
PROFIT AND LOSS ACCOUNTS
------------------------------------------------------
CONSOLIDATED PARENT COMPANY
-------------------------- --------------------------
1995 1994 1995 1994
------------ ------------ ------------ ----------
At beginning of the year $(1,749,852) $(1,313,956) $ (844,921) $(648,977)
Net loss for the year (451,154) (435,896) (290,288) (195,942)
----------- ----------- ----------- ---------
At end of the year $(2,201,006) $(1,749,852) $(1,135,209) $(844,919)
=========== =========== =========== =========
(11) STATEMENTS OF CASH FLOWS
A reconciliation of operating profit to net cash outflow from operating
activities follows:
<TABLE>
<CAPTION>
CONSOLIDATED PARENT COMPANY
----------------------- -----------------------
1995 1994 1995 1994
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Operating loss $(452,665) $(436,622) $(290,784) $(195,942)
Depreciation charges 11,045 14,429 - -
Profit and loss on sale of tangible fixed
assets (542) 7,483 - -
Increase in debtors (51,335) (828) (51,547) (2,500)
Increase in creditors 5,736 36,844 30,389 21,295
Promoters non-cash contribution 50,000 50,000 50,000 50,000
--------- --------- --------- ---------
Net cash outflow from operating activities $(437,761) $(328,694) $(261,942) $(127,147)
========= ========= ========= =========
</TABLE>
F-34
<PAGE>
DELTA MINERALS CORPORATION LIMITED
AND SUBSIDIARIES
Notes to Consolidated and Parent Company Financial Statements
(12) TAXATION
Under current Bermuda law, the parent company is not required to pay any
taxes in Bermuda on either income or capital gains. The parent company has
received an undertaking from the Minister of Finance in Bermuda that in the
event of any such taxes being imposed, the parent company will be exempted
from taxation until the year 2016.
As of 31 December 1995 and 1994 Nasan has cumulative tax losses carried
forward for Venezuelan income tax purposes amounting to approximately
US%870,047 available to be offset against taxable income, which will, if
unused expire from 1996 to 1998.
(13) AGREEMENTS WITH CORPORACION VENEZOLANA DE GUAYANA
The parent company and Corporacion Venezolana de Guayana (CVG) signed an
Agreement Letter and a Shareholders' Agreement on 28 November 1990 and 25
March 1991, respectively, both with the purpose to jointly carry out mining
and industrial projects for the exploration and exploitation of bauxite in
the El Palmar area located in Bolivar State, Venezuela. An Exploration
Agreement was signed on 29 November 1991. for two years and has
subsequently been extended for a further period of two years from the date
of obtaining permits from the Ministry of the Environment
As of 31 December 1995, the aforementioned permits have not yet been
granted.
These agreements, among other things. call for the undertaking of an
initial feasibility study which will be financed through additional equity.
Based an these agreements. the company and CVG are currently preparing
contracts for the planning. development and management of these projects.
F-35
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of
1934, the Registrant caused this Amendment to its Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized.
THE CONTINENTAL ORINOCO COMPANY, INC.
Date: May 23, 1996 By: /s/ ADRIAN C. NASH
----------------------------------
Adrian C. Nash
President and
Chief Executive Officer
EX-3.1(C)
[SEAL OF COLORADO]
STATE OF COLORADO
DEPARTMENT OF
STATE
CERTIFICATE
I, VICTORIA BUCKLEY, Secretary of State of the State of Colorado hereby
certify that
According to the records of this office
THE CONTINENTAL ORINOCO COMPANY, INC.
(COLORADO CORPORATION)
file # 871685310 was filed in this office on AUGUST 15, 1986,
and has complied with the applicable provisions of the laws of
the State of Colorado and on this date is in good standing and
authorized and competent to transact business or to conduct
its affairs within this state.
Dated: APRIL 5, 1996
/s/ VICTORIA BUCKLEY
---------------------
SECRETARY OF STATE
<PAGE>
MAIL TO: SECRETARY OF STATE
CORPORATIONS SECTION
1560 BROADWAY, SUITE 200
DENVER, CO 80202
(303) 894-2251
MUST BE TYPED FAX (303) 894-2242
FILING FEE: $25.00
MUST SUBMIT TWO COPIES
ARTICLES OF AMENDMENT
PLEASE INCLUDED A TYPED TO THE
SELF-ADDRESSED ENVELOPE ARTICLES OF INCORPORATION
Pursuant to the provisions of the Colorado Business Corporation Act, the
undersigned corporation adopts the following Articles of Amendment to its
Articles of Incorporation:
FIRST: The name of the corporation is PONTUS INDUSTRIES, INC.
------------------------------------------
SECOND: The following amendment to the Articles of Incorporation was adopted
on March 1, 1996, as prescribed by the Colorado Business Corporation Act, in the
manner marked with an X below:
[ ] No shares have been issued or Directors Election - Action by Incorporators
[ ] No shares have been issued but Directors Elected - Action by Directors
[ ] Such amendment was adopted by the board of directors where shares have been
issued and shareholder action was not required.
[X] Such amendment was adopted by a vote of the shareholders. The number of
shares voted for the amendment was sufficient for approval.
THIRD: If changing corporate name, the new name of the corporation is
THE CONTINENTAL ORINOCO COMPANY, INC.
- --------------------------------------------------------------------------------
FOURTH: The manner, if not set forth in such amendment, in which any exchange,
reclassification, or cancellation of issued shares provided for in the
amendment shall be effected, is as follows:
If these amendments are to have a delayed effective date, please list that
date: NONE
(Not to exceed ninety (90) days from the date of filing)
/s/ FRANZ A. SKRYANZ
-------------------------------
FRANZ A. SKRYANZ
Title: Vice President-Secretary
EX-3.1(D)
ARTICLES OF AMENDMENT TO
ARTICLES OF INCORPORATION
OF
THE CONTINENTAL ORINOCO COMPANY, INC.
Pursuant to Section 7-110-106 of the Colorado Business Corporation Act
the undersigned President and Secretary of THE CONTINENTAL ORINOCO COMPANY,
INC., a corporation organized and existing under and by virtue of the Colorado
Business Corporation Act (hereinafter called the "Corporation") does hereby
certify that pursuant to Written Consent of all of the Directors dated March 31,
1996, the Directors approved the Amendment to the Corporation's Articles of
Incorporation as follows:
1. Article IV of the Articles of Incorporation shall be amended to
include the following:
2. The Articles of Incorporation of the Corporation authorizes the
issuance of 10,000,000 shares of Preferred Stock of a par value of Ten Cents
($.10) each and expressly vests in the Board of Directors of the Corporation the
authority provided therein to issue any or all of said shares in one or more
series and by resolution or resolutions to establish the designation, number,
full or limited voting powers, or the denial of voting powers, preferences and
relative, participating, optional and other special rights and the
qualifications, limitations, restrictions and other distinguishing
characteristics of each series to be issued.
3. One Million Two Hundred and Ten Thousand (1,210,000) of the Ten
Million (10,000,000) authorized shares of Preferred Stock of the Corporation
shall be designated Series A Preferred Stock, $.10 par value per share, and
shall possess the rights and privileges set forth below:
SECTION 1. DESIGNATION AND AMOUNT. The shares of such series shall be
designated as "Series A Convertible Redeemable Preferred Stock" (the "Series A
Preferred Stock"), and the number of shares constituting the Series A Preferred
Stock shall be One Million Two Hundred and Ten Thousand (1,210,000). Such number
of shares may be increased or decreased by resolution of the Board of Directors;
provided, that no decrease shall reduce the number of shares of Series A
Preferred Stock to a number less than the number of shares then outstanding plus
the number of shares reserved for issuance upon the exercise of outstanding
options, rights or warrants or upon the conversion of any outstanding securities
issued by the Corporation convertible into Series A Preferred Stock.
<PAGE>
SECTION 2. RANK. The Series A Preferred Stock shall rank: (i) prior
to all of the Corporation's Common Stock, no par value per share ("Common
Stock"); (ii) prior to any class or series of capital stock of the Corporation
hereafter created specifically ranking by its terms junior to any Series A
Convertible Redeemable Preferred Stock of whatever subdivision (collectively,
with the Common Stock, "Junior Securities"); (iii) on parity with any class or
series of capital stock of the Corporation hereafter created specifically
ranking by its terms on parity with the Series A Preferred Stock ("Parity
Securities") in each case as to distributions of assets upon liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary
(all such distributions being referred to collectively as "Distributions").
SECTION 3. DIVIDENDS. The Series A Preferred Stock shall bear a
cumulative dividend from the date of issuance at an annual rate of 10% of the
stated value of the Series A Preferred Stock and payable in kind in shares of
Series A Preferred Stock annually commencing January 31, 1997. In the event that
a fractional share of Series A Preferred Stock would be required to be issued as
a result of such dividend, the number of shares of Series A Preferred Stock to
be issued as such dividend shall be rounded down to the nearest whole share of
Series A Preferred Stock and the fractional amount shall be carried forward and
paid in the ensuing annual period.
SECTION 4. LIQUIDATION PREFERENCE.
(a) In the event of any liquidation, dissolution or winding up
of the Corporation, either voluntary or involuntary, the holders of shares of
Series A Preferred Stock shall be entitled to receive, immediately after any
distributions to Senior Securities required by the Corporation's Articles of
Incorporation or any certificate of designation of preferences, and prior and in
preference to any distribution to Junior Securities but in parity with any
distribution of Parity Securities, an amount per share equal to the sum of (i)
$10.00 for each outstanding share of Series A Preferred Stock and (ii) an amount
equal to 10% of the stated value of the Series A Preferred Stock per annum for
the period that has passed since the date of issuance of any additional Series A
Preferred Stock as a dividend as provided in Section 3 above. If upon the
occurrence of such event, the assets and funds thus distributed among the
holders of the Series A Preferred Stock and Parity Securities shall be
insufficient to permit the payment to such holders of the full preferential
amounts due to the holders of the Series A Preferred Stock and the Parity
Securities, respectively, then the entire assets and funds of the Corporation
legally available for distribution shall be distributed among the holders of the
Series A Preferred Stock and the Parity Securities, pro rata, based on the
respective liquidation amounts to which each such series of stock is entitled by
the Corporation's Articles of Incorporation and any certificate of designation
of preferences.
2
<PAGE>
(b) Upon the completion of the distribution required by
subsection 4(a), if assets remain in this Corporation, they shall be distributed
to holders of Parity Securities (unless holders of Parity Securities have
received distributions pursuant to subsection (a) above) and Junior Securities
in accordance with the Corporation's Articles of Incorporation including any
duly adopted certificate(s) of designation of preferences.
(c) A consolidation or merger of the Corporation with or into
any other corporation or corporations, or a sale, conveyance or disposition of
all or substantially all of the assets of the Corporation or the effectuation by
the Corporation of a transaction or series of related transactions in which more
than 50% of the voting power of the Corporation is disposed of, shall not be
deemed to be a liquidation, dissolution or winding up within the meaning of this
Section 4, but shall instead be treated pursuant to Section 7 hereof.
SECTION 5. CONVERSION. The holders of the Series A Preferred Stock
shall have conversion rights as follows (the "Conversion Rights"):
(a) PERIOD TO CONVERT. Each share of Series A Preferred Stock
shall be convertible, subject to the Corporation's rights of redemption set
forth in Section 6, at the option of the holder thereof, at any time beginning
45 days following the date of issuance of such shares and up through and
concluding February 1, 1998, at the office of the Corporation or any transfer
agent for the Preferred Stock, into eight (8) shares of fully paid and non-
assessable shares of Common Stock.
The number of shares of Common Stock into which each share of
Series A Preferred may be converted is hereinafter referred to as the
"Conversion Rate" for such series.
(b) MECHANICS OF CONVERSION. No fractional shares of Common
Stock shall be issued upon conversion of Series A Preferred Stock. In lieu of
any fractional share to which the holder would otherwise be entitled, the
Corporation shall pay cash to such holder in an amount equal to such fraction
multiplied by the Conversion Price then in effect. In the case of a dispute as
to the calculation of the Conversion Rate, the Corporation's calculation shall
be deemed conclusive absent manifest error. In order to convert Series A
Preferred Stock into full shares of Common Stock, the holder shall surrender the
certificate or certificates therefor, duly endorsed, by either overnight courier
or two-day courier, to the office of the Corporation or of any transfer agent
for the Series A Preferred Stock, and shall give written notice to the
Corporation at such office that he elects to convert the same, the number of
shares of Series A Preferred Stock so converted and a calculation of the
Conversion Rate (with an advance copy of the certificate(s) and the notice by
facsimile);
3
<PAGE>
provided, however, that the Corporation shall not be obligated to issue
certificates evidencing the shares of Common Stock issuable upon such conversion
unless either the certificates evidencing such shares of Series A Preferred
Stock are delivered to the Corporation or its transfer agent as provided above,
or the holder notifies the Corporation or its transfer agent that such
certificates have been lost, stolen or destroyed and executes an agreement
satisfactory to the Corporation to indemnify the Corporation from any loss
incurred by it in connection with such certificates.
The Corporation shall use reasonable efforts to issue and
deliver within three (3) business days after delivery to the Corporation of such
certificates, or after such agreement and indemnification, to such holder of
Series A Preferred Stock at the address of the holder on the stock books of the
Corporation, a certificate or certificates for the number of shares of Common
Stock to which the holder shall be entitled as aforesaid. The date on which
notice of conversion is given (the "Date of Conversion") shall be deemed to be
the date set forth in such notice of conversion provided that the original
shares of Series A Preferred Stock to be converted are received by the Transfer
Agent or the Corporation within five business days thereafter, and the person or
persons entitled to receive the shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder or holders of
such shares of Common Stock on such date. If the original shares of Series A
Preferred Stock to be converted are not received by the Transfer Agent or the
Corporation within five business days after the Date of Conversion, the notice
of conversion shall become null and void.
(c) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of the Series A Preferred Stock, such number of its
Shares of Common Stock as shall from time to time be sufficient to effect the
conversion of all then outstanding shares of the Series A Preferred Stock; and
if at any time the number of authorized but unissued shares of Common Stock
shall not be sufficient to effect to the conversion of all then outstanding
shares of the Series A Preferred Stock, the Corporation will take such
corporation action as may be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for such
purpose.
SECTION 6. REDEMPTION. The Series A Preferred Stock shall be subject to
a right of redemption on the part of the Corporation at any time, on 30 days'
prior written notice to the record holders of the Series A Preferred Stock or
published notice, at a redemption price of $10.00 per share together with an
amount equal to accrued but unpaid dividends thereon.
4
<PAGE>
SECTION 7. CORPORATE CHANGE. The Conversion Rate shall be appropriately
adjusted to reflect, as deemed equitable and appropriate by the Corporation, any
stock dividend, stock split or share combination of the Common Stock. In the
event of a merger, reorganization, recapitalization or similar event of or with
respect to the Corporation (a "Corporate Change") (other than a Corporate Change
in which all or substantially all of the consideration received by the holders
of the Corporation's equity securities upon such Corporate Change consists of
cash or assets other than securities issued by the acquiring entity or any
affiliate thereof), this Series A Preferred Stock shall be assumed by the
acquiring entity and thereafter this Series A Preferred Stock shall be
convertible into such class and type of securities as the Holder would have
received had the Holder converted this Series A Preferred Stock immediately
prior to such Corporate Change.
SECTION 8. VOTING RIGHTS. Except as otherwise provided by the Colorado
Business Corporation Act, the holders of the Series A Preferred Stock shall have
no voting power whatsoever, and no holder of Series A Preferred Stock shall vote
or otherwise participate in any proceeding in which actions shall be taken by
the Corporation or the shareholders thereof or be entitled to notification as to
any meeting of the Board of Directors of the shareholders.
To the extent that, under Colorado law the vote of the holders of the
Series A Preferred Stock, voting separately as a class, is required to authorize
a given action of the Corporation, the affirmative vote or consent of the
holders of at least a majority of the outstanding shares of the Series A
Preferred Stock shall constitute the approval of such action by the class. To
the extent that, under Colorado law the holders of the Series A Preferred Stock
are entitled to vote on a matter with holders of Common Stock, voting together
as one class, each share of Series A Preferred Stock shall be entitled to a
number of votes equal to the number of shares of Common Stock into which it is
then convertible using the record date for the taking of such vote of
shareholders as the date as of which the Conversion Price is calculated. Holders
of the Series A Preferred Stock shall be entitled to notice of all shareholder
meetings or written consents with respect to which they would be entitled to
vote, which notice would be provided pursuant to the Corporation's by-laws and
applicable statutes.
SECTION 9. PROTECTIVE PROVISIONS. So long as shares of Series A
Preferred Stock are outstanding, the Corporation shall not without first
obtaining the approval (by vote or written consent, as provided by law) of the
holders of at least a majority of the then outstanding shares of Series A
Preferred Stock:
5
<PAGE>
(a) alter or change the rights, preferences or privileges of
the shares of Series A Preferred Stock or any Senior Securities so as to affect
adversely the Series A Preferred Stock;
(b) create any new class or series of stock having a
preference over the Series A Preferred Stock with respect to Distributions (as
defined in Section 2 above); or
(c) do any act or thing not authorized or contemplated by this
Designation which would result in taxation of the holders of shares of the
Series A Preferred Stock under Section 305 of the Internal Revenue Code of 1986,
as amended (or any comparable provision of the Internal Revenue Code as
hereafter from time to time amended).
SECTION 10. STATUS OF REDEEMED OR CONVERTED STOCK. In the event any
shares of Series A Preferred Stock shall be redeemed or converted pursuant to
Section 5 or Section 6 hereof, the shares so converted or redeemed shall be
cancelled, shall return to the status of authorized but unissued preferred stock
of no designated series, and shall not be issuable by the Corporation as Series
A Preferred Stock.
SECTION 11. PREFERENCE RIGHTS. Nothing contained herein shall be
construed to prevent the Board of Directors of the Corporation from issuing one
or more series of preferred stock with dividend and/or liquidation preferences
equal to the dividend and liquidation preferences of the Series A Preferred
Stock.
The statements herein creating and designating the said Series A
Preferred Stock and fixing the number, powers, preferences and relative,
optional, participating and other special rights, and the qualifications
limitations, restrictions and other distinguishing characteristics thereof
shall, upon the effective date of said series, be deemed to be included in and
be a part of the Articles of Incorporation of the Corporation pursuant to the
provisions of the Colorado Business Corporation Act.
Pursuant to the Bylaws of the Corporation, the Board of Directors are
authorized and empowered to undertake any and all actions contemplated hereby
and no further action is required by the Shareholders of the Corporation.
6
<PAGE>
IN WITNESS WHEREOF, THE CONTINENTAL ORINOCO COMPANY, INC. has caused
its corporate seal to be hereunto affixed and this Articles of Amendment to the
Articles of Incorporation to be signed by its President and Secretary this
________ day of ______________ 1996.
THE CONTINENTAL ORINOCO COMPANY, INC.
By: _____________________________
Adrian C. Nash, President
ATTEST:
By:
---------------------------
Franz A. Skryanz, Secretary
7
EX-10.6
(Free translation) (12-1-90)
On November 28, 1990, at the Mira Flores Palace and with the presence of the
President of the Republic of Venezuela, Mr. Carlos Andrez Perez, it has been
executed the following:
AGREEMENT LETTER
Between, CORPORACION VENEZOLANA DE GUAYANA, autonomous institute, created by
Decree Number 430 dated December 29, 1960, amended by Decree Number 676,
published in the Official Gazette of the Republic of Venezuela Number 3,574
(Special) of June 21, 1985 (hereinafter referred to for the purposes of this
document as "CVG", represented in this act by its President-Minister of State,
citizen Leopoldo Sucre Figarella, Venezuelan, of legal age, engineer, married,
with Identity Card Number 944.531, domiciled in Ciudad Guayana, empowered by
article 20 of said Decree and in accordance with the provision contained in
article 10, numeral 8 of the Regulation for CVG's internal organization and
INTERNATIONAL BAUXITE MINING LIMITED, a corporation constituted and domiciled in
Hamilton. Bermuda Islands (hereinafter referred to for the purposes of this
document as "IBMCO") represented in this act by its attorney-in-fact, citizen
Adrian C. Nash, a citizen of Great Britain, of legal age, domiciled in Caracas
and with Identity Card Number E. - 82.027.866, duly empowered for this act in
accordance with a power of attorney issued in the city of Hamilton, Bermuda
Islands, recognized by a Notary Public of such place on February 16, 1990, then
certified at the General Consulate of the United States of America in Bermuda
Islands on February 20, 1990 and then certified at the Department of State of
the United States of America on February 22, 1990, further legalized at the
General Consulate of the Republic of Venezuela in Baltimore according to seal
Number 154 dated February 27, 1990 and at the Ministry of Foreign Affairs on
March 7, 1990 and finally translated to the spanish language according to a
translation by a public
<PAGE>
interpreter authenticated at the Eighth Public Notary of the Sucre District,
Miranda State on March 15, 1990, under Number 67, Volume 25 of the volume of
authentications kept by said Notary,
WHEREAS
It is of the interest of the parties hereinabove indicated to jointly carry out
the mining and industrial projects below stated;
In order to carry out the mining and industrial projects below stated, the
parties consider it essential that two corporations constituted and domiciled in
Venezuela should be created, to which the planning, study, development,
execution and management of the said industrial and mining project will be
entrusted;
The object of this agreement is to describe the commercial relation of the
intervening parties. Based on it, the parties will develop various agreements
for the planning, study, development, execution and management of the different
parts of the mentioned projects, but it is understood that in the absence of
expressly written agreement to the contrary this agreement will prevail with
regards to any doubt, controversy or contradiction which could arise among the
agreements that develop the matters herein expressed.
Based on the previous considerations, the parties agree to the following:
ARTICLE ONE:
1. After the execution of this Agreement Letter, a corporation ("compania
anonima") will be constituted in Venezuela (the possible name of which
could be A.I.V. Aluminios Integrados de Venezuela, C.A.) (hereinafter
"AIV"), and its initial
<PAGE>
- 3 -
shareholders would be IBMCO with a ninety nine percent (99%) equity
interest and Mr. Jose Manuel Sanchez for the remaining percentage.
IBMCO hereby grants CVG a preferential option to purchase and pay shares of
the corporation previously referred up to twenty percent (20%) of the
corporate capital. Such option will be granted for once and CVG will have
the rights granted to the other shareholders by the Document of
Incorporation and By-laws of ATV.
Likewise, IBMCO may offer to a group, conformed by individuals and/or legal
entities, of the Venezuelan private sector, up to ten percent (10%) of the
total capital of the company.
The corporation to be created will have as purpose and thus, entrusted the
development of and alumina plant and another plant for the production of
primary aluminum. The referred corporation will have an initial capital of
Ten Million Bolivares (Bs. 10,000,000.00). The parties will increase the
capital as often as it is necessary to complete the financing of the
project. The development of the mining project for the exploitation of
bauxite will be performed as indicated in the following Article.
2. AIV will be in charge of the development of the project which, in general
terms, is described as follows:
2.1 The undertaking of a feasibility study of the development of a bauxite
exploitation mining project to produce bauxite in economical and
commercially viable quantities presently estimated to be a minimum of four
million metric tonnes (4,000,000 MT) per year in the mines of El Palmar, in
Bolivar State, Venezuela.
<PAGE>
- 4 -
2.2. If as a result of the study, the exploitation of the mining project on the
scale required is proved to be feasible, an overall project feasibility
study will be undertaken to cover:
2.2.1. The development of an alumina plant of an installed capacity which
is economically and commercially viable, presently estimated to be of one
million metric tons (1.000.000 MT) per year; and
2.2.2. The development of a production plant of primary aluminum which is
economically and commercially viable, presently estimated to be five
hundred thousand metric tons (500.000 MT) per year of such metal.
2.3. If as a result of the overall study, all three phases of the project are
proved to be feasible, the execution of all and each of the phases
previously expressed will be performed by AIV (except as indicated in
Article Two, which will be carried out by the corporation therein provided,
which will enter into agreements with individuals and entities necessary
for the development, execution and starting up the mentioned projects. AIV
will be in charge of the contracting of financial, technological and labor
plans, in which the efforts of the partners previously identified will
converge in the manner subsequently indicated.
ARTICLE TWO: In relation to the mining project for the exploitation of bauxite,
such will be undertaken by a corporation to be constituted and domiciled in
Venezuela (the name of which could be Bauxitas El Palmar, C.A. (B>E>P>), with
the following
<PAGE>
- 5 -
corporate capital structure:
- IBMCO: Fifty-one percent (51%).
CVG: Forty-nine percent (49%).
CVG will pay the value of the shares subscribed by it, representative of the
corporate capital in the preceding percentage, through the contribution of the
rights of exploitation of the bauxite mine and of the value of the technical
studies performed by CVG or its subsidiaries regarding the bauxite deposits in
El Palmar, rights and values which will be valued by international reputed
appraisers.
In all cases in which the corporate capital increase of B.E.P. would be
necessary, such increases will be paid by IBMCO, being expressly understood that
notwithstanding the origin of those new contributions, the shares of CVG will
continue to have a value equal to forty-nine percent (49%) of the corporate
capital, with all the rights pertinent to such equity interest with regards to
perception of benefits, vote in the Shareholders Meetings and any others;
notwithstanding, in the case of reimburse of corporate capital, the Company will
pay first to the shareholder that has made capital contributions in view of
capital increase or reinstatement of losses.
In any case, IBMCO may grant loans with interests at market rate to B.E.P. in
the case of financial insufficiencies for the termination or financing of the
project, its expansions or operations. Such loans will be considered in equal
conditions ("pari passu") with any other creditors of B.E.P.
1. B.E.P. will have the legal possession of the extension of the land where
the mine is located; such possession will be granted by CVG in onerous
form, with the conditions to be agreed by B.E.P. and CVG and will have a
duration equal to the period for which the right of exploitation of the
<PAGE>
- 6 -
bauxite and the extension of said right has been granted.
2. The Document of Incorporation and By-laws of B.E.P. will provide
preferential rights to subscribe shares between the shareholders in case of
capital increase or purchase in case of its sale.
3. The production of bauxite of B. E. P. will be assigned to cover raw
material necessities of AIV ad the national market, according to the
conditions to be satisfactorily agreed upon by the partners in those mining
and industrial projects.
ARTICLE THREE: ATTRIBUTIONS OF IBMCO:
1. IBMCO for its own account will undertake the pertinent mining study for the
analysis of the exploitation potential of the bauxite beds located in El
Palmar, Bolivar State, Venezuela. To that effect IBMCO must contract the
services of an experienced firm of international reputation for the
performance of said study. CVG agrees to deliver the authorization letter
for the prospect of the mine; such study is the same as the one referred to
in Article Two of this instrument.
2. If as a result of the overall study the project is proved to be
economically and commercially viable, the ownership of such study will
remain in favor of AIV. In this case, the parties will entrust the
exploitation of the studied and explored mines to B.E.P. for the life
period of the project which is estimated to be fifty (50) years. To that
effect, in accordance with the legislation in force at the date hereof, if
it is possible to transfer to the ownership of the lands where the bauxite
deposits are located or if not possible, the exclusive rights for the
exploitation of the same (which is a condition for the development of the
projects) will be the exclusive property of B.E.P.
<PAGE>
- 7 -
3. IBMCO will subscribe the newly issued shares in AIV derived from future
capital increases if the commercial and financial viability of the project
is satisfied.
4. IBMCO will have to its charge the search and selection of the clients and
market that will acquire the products to be manufactured by the plants
comprised within the project.
5. IBMCO will have to its charge the search and contracting of the loans
required to fund the construction and development of the projects.
6. IBMCO will have to its charge the management of the project and its
planning, study, development and execution.
ARTICLE FOUR: ATTRIBUTIONS OF CVG:
1. For its part, CVG will use its best endeavors to assist IBMCO in its
responsibilities under Article Three, paragraph 6 and in particular will
undertake the procurement of all the necessary rights in the land and the
exploitation of the bauxite deposits and such other concessions, permits
or licenses necessary for the development and execution of the project by
B.E.P. in El Palmar, Bolivar State, Venezuela. In particular CVG will
procure that IBMCO is provided with the details and results of all
technical studies already carried out by or on behalf of Corporacion
Venezolana de Guayana in respect of the bauxite deposits in El Palmar,
Bolivar State, Venezuela and the feasibility of their exploitation.
2. To that effect, CVG agrees to grant or to procure that the exclusive
ownership of rights of exploration and further exploitation are granted to
B.E.P. (if proved viable by the overall feasibility study referred to in
sub-paragraph 2.2. of Article One of this Agreement Letter). It is
understood that if the economic feasibility of the project is not
demonstrated, the property of such study will be conveyed to CVG.
<PAGE>
- 8 -
3. CVG will procure that the compared advantages shared by its affiliated
companies, are attributed to AIV in view of the development to be performed
and the advantages which will be derived for the Guayana region.
ARTICLE FIVE: DOCUMENT OF INCORPORATION AND BY-LAWS OF AIV:
The Document of Incorporation and By-laws of AN will be written in such
manner that will comprise the commitment, spirit and reason of what has
been agreed herein.
ARTICLE SIX: REPRESENTATIVES OF THE PARTIES:
Each of the parties will designate in writing a group of persons to be their
representatives who will have entrusted the execution of the present Agreement,
the negotiation, agreement and execution of the documents referred to herein and
the formation and conduct of AIV. Those representatives will draft minutes of
the meetings to held between the parties, as many times as necessary, which will
be carried out preferably in Caracas.
ARTICLE SEVEN: APPLICABLE LAW AND SPECIAL DOMICILE:
The present agreement will be regulated and interpreted in accordance to the
laws of the Republic of Venezuela. The parties choose as special domicile the
City of Caracas, Venezuela to the jurisdiction of its courts agree to submit
themselves in case of litigation.
ARTICLE EIGHT: ARBITRATION:
In case that any dispute arises and such cannot be resolved
<PAGE>
- 9 -
through a bona fide negotiation between the parties within a period of fourteen
(14) days following the occurrence of such dispute, the parties will submit it
to arbitration.
The procedure of arbitration for this Agreement will be carried out with the
UNCITRAL rules of arbitration and will take place in anywhere outside of the
Republic of Venezuela.
The parties do hereby agree that any determination, arbitrational award or
opinion made by the arbitration based in this Agreement Letter will be a
definitive resolution of the dispute submitted to the arbitration and will be
binding and obligatory for the parties to this Agreement Letter.
ARTICLE NINE: FEES OF TECMIN:
IBMCO agrees to pay the entirety of the costs invoiced by TECMIN, for the
pre-exploratory works performed in the bauxite mine in El Palmar, Bolivar State.
Such costs will be paid during the evaluation period by IBMCO, costs that must
be evidenced and justified by TECMIN in order to be verified by an independent
auditing firm; the amount indicated by the auditing firm will be the one that
IBMCO must pay.
Three (3) originals are made in the City of Caracas, on this twenty-eight
(28th) day of November of the year nineteen hundred and ninety (1990).
CORPORACION VENEZOLANA DE GUAYANA INTERNATIONAL BAUXITE MINING LIMITED.
(Signed) (Signed)
/s/ /s/
------------------------------ ---------------------------------
Engineer Leopoldo Sucre F. Adrian C. Nash
Minister-President Attorney-in-fact
EX-10.7
DATED 25 MARCH 1991
DELTA ALUMINUM COMPANY LIMITED
and
CORPORACION VENEZOLANA DE GUAYANA
and
BAUXITAS EL PALMAR, C.A.
---------------------------------
SHAREHOLDERS AGREEMENT
---------------------------------
LINKLATERS & PAINES TORRES, PLAZ & ARAUJO
Barrington House Torre Europa
59-67 Gresham Street Av. Francisco de Miranda
London EC2V 7JA Campo Alegre, Caracas
(071) 606-7080 (2) 951-7444
(Ref. AAM/PAH) (Ref. FAM)
<PAGE>
TABLE OF CONTENTS
CLAUSE CONTENTS PAGE
- ------ -------- ----
RECITALS 1
1 INTERPRETATION 2
2 CONDITIONS PRECEDENT 4
3 ESTABLISHMENT AND STRUCTURE
3.1 Incorporation 5
3.2 Meeting of the Board 6
4 BUSINESS AND MANAGEMENT
4.1 Conduct of Business 6
4.2 Promotion of Business 6
4.3 'A' Directors 7
4.4 'B' Directors 7
4.5 Consultation 7
4.6 Budgets 7
4.7 Board Meetings 8
4.8 Limitations on the Board's Powers 8
4.9 Executive Committee, Chief Executive 9
5 DISTRIBUTION POLICY 10
6 FINANCE FOR THE COMPANY 10
7 TRANSFER OF SHARES 11
8 DEADLOCK 13
9 DURATION AND TERMINATION 15
10 NEW SHAREHOLDERS 16
11 RIGHTS TO INFORMATION; CONFIDENTIALITY 16
12 NOTICES AND GENERAL 17
<PAGE>
13 ARBITRATION AND GOVERNING LAW 19
14 LANGUAGE 20
15 SIGNATURE OF AGREEMENT BY COMPANY 20
SCHEDULE 1 The Shareholders
SCHEDULE 2 Articles of Association
SCHEDULE 3 Summary of the Main Commercial Terms for
the Bauxite Supply Agreement
ANNEX A Map of the Territory
<PAGE>
THIS AGREEMENT is made the twenty-fifth day of March of the year one thousand
nine hundred and ninety one
BETWEEN
(1) CORPORACION VENEZOLANA DE GUAYANA, an autonomous institution formed under
the laws of the Republic of Venezuela and whose office is at Avenida La
Estancia, Edificio General de Seguros, Piso 2, Chuao, Caracas, Venezuela,
(hereinafter called "A Co." or "CVG") of the first part; and
(2) DELTA ALUMINIUM COMPANY LIMITED, a company incorporated under the laws of
Bermuda and whose registered office is at 41 Cedar Avenue, Hamilton, Bermuda
(hereinafter called "B Co." or "Delta Aluminium") and which was previously known
as International Bauxite Mining Limited of the second part; and
(3) subject as hereinafter provided, BAUXITAS EL PALMAR, C.A., a company to be
incorporated under the laws of Venezuela pursuant to the Carta Compromiso (as
defined below) and upon the satisfaction of the conditions precedent set out in
Clause 2 hereof, (hereinafter called "the Company").
WHEREAS:-
(A) On 28 November 1990 at the Palace of Miraflores in Caracas, Venezuela, a
Letter Agreement ("Carta Compromiso") was executed by Engineer Leopoldo Sucre
Figarella, State Minister-President of the Corporacion Venezolana de Guayana, on
behalf of said autonomous institution and by Mr. Adrian C. Nash, Deputy
Chairman, on behalf of the then-named International Bauxite Mining Limited,
presently denominated Delta Aluminium Company Limited;
(B) Pursuant to the aforementioned "Carte Compromiso" CVG and Delta Aluminium
have agreed that in the event that a feasibility study to be undertaken by Delta
Aluminium (the "Feasibility Study") reveals the presence of economically viable
deposits of bauxite in the areas known as Rio Grande I and Rio Grande II, the
parties will establish a joint venture company named Bauxitas El Palmar, C.A.,
in the Republic of Venezuela, to mine and sell bauxite, with the understanding
that if Delta Aluminium considers that the bauxite deposits are not economically
viable, then it may withdraw its promotion of the mining and industrial project
stated in the Carta Compromiso;
(C) Pursuant to the Carta Compromiso CVG must contribute as capital to the
Company the rights necessary in order for the Company to carry out the bauxite
exploration and exploitation activities in the Territory (as defined
hereinbelow),
<PAGE>
(D) The parties have agreed, subject to the satisfaction of the conditions
precedent in Clause 2, to subscribe for 'A' and 'B' Shares on the terms and
subject to the conditions hereinafter contained in Schedule 1;
(E) The parties have agreed that their respective rights as shareholders in
the Company shall be regulated by the provisions of this Agreement and the
Articles, and the Company will comply with those obligations imposed on it by
this Agreement on and after such date this Agreement has been signed by the
Company;
NOW IT IS HEREBY AGREED as follows:-
1 INTERPRETATION
In this Agreement (including the Recitals):-
l.1 the following words and expressions shall have the following meanings:
'A' DIRECTOR means a director holding office pursuant to a notice given by
the holder(s) of the issued 'A' Shares in accordance with the Articles;
'B' DIRECTOR means a director holding office pursuant to a notice given by
the holder(s) of the issued 'B' Shares in accordance with the Articles;
ARTICLES mean the statutes of the Company set out in Schedule 2 and to be
adopted pursuant to Clause 3;
'A' SHARES mean the registered Ordinary Shares to be designated 'A'
Ordinary Shares in the capital of the Company as contemplated by Clause 3;
'B' SHARES mean the registered Ordinary Shares to be designated 'B'
Ordinary Shares in the capital of the Company as contemplated by Clause 3;
'A' SHAREHOLDERS mean the persons from time to time registered as the
holder(s) of 'A' Shares;
'B' SHAREHOLDERS mean the persons from time to time registered as holders)
of 'B' Shares;
ASSOCIATED COMPANY means a subsidiary or holding company of a Shareholder,
and a subsidiary of such holding company;
AUDITED ACCOUNTS mean the report and audited account or
2
<PAGE>
consolidated accounts of the Company or, as the case may be, the Group for
the corresponding financial year, compiled in accordance with
internationally accepted accounting principles and ending on the relevant
balance sheet date;
AUDITORS mean Domingues Debera Alcaraz Vasquez, C.P. of Caracas or such
other firm of Chartered Accountants as shall be appointed auditors of the
Company in accordance with this Agreement;
BAUXITE SUPPLY AGREEMENT means the agreement for the supply of bauxite by
the Company to Aluminios Integrados de Venezuela, C.A. ("AIV")
substantially in the agreed form set out in Schedule 3 hereto.
BOARD means the board of directors of the Company;
BUSINESS means the business of mining and selling bauxite in the Republic
of Venezuela, whether for local consumption or for export;
BUSINESS PLAN means the business plan for the Company in the form approved
by or on behalf of the Shareholders on or before the date hereof;
DIRECTORS means the 'A' Directors and the 'B' Directors;
GROUP means the Company and its subsidiaries (if any) and 'Group Company'
means any one of them;
ORDINARY SHARES means the 'A' Shares and the 'B' Shares;
SHARES means the 'A' Shares and the 'B' Shares and any shares issued in
exchange therefor by way of conversion or reclassification and any shares
representing or deriving from such shares as a result of any increase in or
reorganisation or variation of the capital of the Company;
SHAREHOLDERS means (subject to Clause 10) the 'A' Shareholders and the 'B'
Shareholders from time to time;
TERRITORY means that area as set out in more detail in the map of the
Territory appended hereto as Annex A.
Other expressions defined for the purposes of the Venezuelan Commercial
Code shall bear the same meanings when used herein;
1.2 unless the context otherwise requires, any reference to a statutory
provision shall include such provision as from time to time modified or
re-enacted or consolidated so far as such modification or re-enactment or
consolidation applies or is capable of applying to any transactions entered
into
3
<PAGE>
hereunder;
1.3 references to Recitals, Clauses, Paragraphs and Schedules are to recitals,
clauses, paragraphs and schedules of this Agreement;
1.4 the headings are for convenience only and shall not affect the
interpretation hereof; and
1.5 unless the context otherwise requires, words importing the singular only
shall include the plural and vice versa and references to natural persons
shall include bodies corporate.
2 CONDITIONS PRECEDENT
The entering into effect of this Agreement is conditional upon the
satisfaction of the following conditions precedent:-
2.1 the demonstration by the Feasibility Study of bauxite reserves which are of
sufficient quality and quantity so as to make the establishment of a
bauxite mine in the Territory economically and commercially feasible, and
the demonstration by a second feasibility study of the economic and
commercial viability, in the opinion of Delta Aluminium, of the associated
industrial processes contemplated by the Carta Compromiso, provided,
however, that if Delta Aluminium considers that the bauxite deposits are
not economically viable, then it may withdraw its promotion of the mining
and industrial project "stated in the Carta Compromiso;
2.2 upon the satisfaction of the foregoing Clause 2.1, the incorporation of the
Company with the shareholding of the respective parties to be in accordance
with the proportions set out in the Carta Compromiso;
2.3 upon the incorporation of the Company, the contribution to the Company by
CVG of the necessary rights in order for the Company to carry out the
exploration and exploitation of bauxite in the Territory, with the
understanding that CVG will guarantee the Company the complete excercise of
such rights for the duration of this Agreement and that said rights may be
broadened in accordance with enacted pertinent legislation for purposes of
maintaining the established contractual relationship; said contribution of
rights and its possible extensions will confer upon the Company the best
title available to the CVG according to pertinent legislation over the
rights to exploit the bauxite reserves;
2.4 the Carta Compromiso between International Bauxite Mining Limited and CVG
dated 28 November 1990 and referred to in Recital A above continuing in
full force and effect as at the date of satisfaction of the other
conditions precedent set out
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herein;
2.5 the signature and effectiveness of the Bauxite Supply Agreement, which will
contain the main commercial terms expressed in Schedule 3 hereto;
2.6 the provision by EDELCA of a Letter of Intent relating to the supply of
electricity on terms and conditions which are not less favorable to those
agreed upon with other aluminium industries located in the Guayana region.
2.7 Both parties hereby undertake to use their best endeavours to satisfy the
foregoing conditions precedent by not later than 31 December 1992 or such
latter date as the parties may agree. In the event that this Agreement
shall fail to become effective by such date as a result of the
non-satisfaction of any of the foregoing conditions precedent, neither
party shall have any obligation to the other party pursuant to this
Agreement or otherwise after such date.
2.8 Notwithstanding the satisfaction or otherwise of the conditions precedent
in this Clause 2, within thirty (30) days following the date of execution
of this Agreement, CVG will deliver to Delta Aluminium the necessary
authorization to carry out the exploration activities in the Territory.
3 ESTABLISHMENT AND STRUCTURE OF THE COMPANY
3.1 INCORPORATION
Upon the satisfaction of the Conditions Precedent set out in paragraph 2.1
of Clause 2 above, the Company shall be incorporated in accordance with the
laws of Venezuela and the rights to be contributed by CVG as its equity
contribution to the Company shall be valued by an independent person
qualified by international standards to make such valuation.
At the constituent assembly:
3.1.1 the Shareholders will execute a Document of Incorporation and By-Laws
and will issue the A Shares and the B Shares in the proportion and the
number indicated in Schedule 1 hereof;
3.1.2 A Co. shall appoint its first representative 'A' Directors pursuant
to the Articles' and Clause 4.3; and
3.1.3 B Co. shall appoint its first representative 'B' Directors pursuant
to the Articles and Clause 4.4.
The Document of Incorporation and By-Laws of the Company will be registered
in the competent Mercantile Registry and
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published in a newspaper of daily circulation in the legal domicile of the
Company.
Following the incorporation of the Company, the Company shall register the
Shareholders as the holders of such Shares in the Shareholders Registry
Book and shall prepare, sign and deliver to the Shareholders share
certificates in respect thereof in their names.
3.2 Following the incorporation of the Company, the Shareholders shall
procure that the meeting of the Board of Directors is covered and that
there are passed thereat resolutions :-
3.2.1 adopting 31 December as the Company's accounting reference date (the
Company's first accounting reference period to end on 31 December in the
year in which the Company is incorporated);
3.2.2 appointing Dominguez, Debera, Alcaraz & Vasquez, C.P., Caracas, as
the Company's Auditors, Torres Plaz & Aranjo, Caracas, as its legal
advisers and Banco Mercantil, S.A.I.C.A,-S.A.C.A. as its bankers. The
Shareholders may remove and appoint at any time other auditing, legal or
banking firm;
4 THE BUSINESS OF THE COMPANY AND ITS MANAGEMENT
4.1 CONDUCT OF THE BUSINESS
Each of the Shareholders agrees to exercise his or its respective rights
hereunder and as a shareholder in the Company and (insofar as it lawfully
can) so as to ensure that:
4.1.1 the Company performs and complies with all obligations on its part
under this Agreement and complies with the restrictions imposed upon it
under the Articles; and
4.1.2 the Business is conducted in accordance with sound and good business
practice and the highest ethical standards.
4.2 PROMOTION OF THE BUSINESS
4.2.1 The Shareholders acknowledge and agree that unless and until the
parties agree otherwise the activities of the Company shall be confined to
the Business.
4.2.2 Subject to the provisions of this Agreement, the Shareholders
understand and agree that the Company shall use all reasonable and proper
means to maintain improve and extend the Business in accordance with the
Business Plan (as the same may be amended by agreement in writing between
the
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Shareholders from time to time).
4.2.3 The Company and the Shareholders agree to procure that the Company
and any subsidiaries "shall have complete independence in their operations
and that any expansion, development or evolution of the Business (whether
to be conducted as part of or in connection with the Company's main
business or ancillary to it) will only be effected through the Company or a
wholly-owned subsidiary unless the prior consent of the holders of a
majority by nominal value of both the 'A' and the 'B' shares in issue is
obtained and, in the event that such consent is obtained, all Shareholders
shall be entitled to participate in any firm or company formed for the
purpose of "such expansion, development or evolution PRO RATA to their
holdings of Ordinary Shares unless all the Shareholders shall otherwise
agree.
4.3 'A' DIRECTORS OF THE COMPANY
The holder(s) of the issued 'A' Shares shall be entitled in accordance with
the Articles to appoint three (3) persons as 'A' Directors.
4.4 'B' DIRECTORS OF THE COMPANY
The holder(s) of the issued 'B' Shares shall be entitled in accordance with
the Articles to appoint four (4) persons as 'B' Directors.
4.5 CONSULTATION
Notwithstanding the provisions of the Articles, neither Shareholder will
appoint a Director without reasonable prior consultation with the other
with a view to reaching agreement on the person to be appointed.
4.6 BUDGETS AND FINANCIAL INFORMATION
4.6.1 The Company shall prepare and submit to the Directors and to the
Shareholders:
(i) on or before the fourth quarter in each year a detailed draft
operating budget and draft business plan for the Company and its
subsidiaries (including estimated major items of revenue and capital
expenditure) for the following calendar year, broken down on a
monthly basis, and an accompanying cash flow forecast, together with
a balance sheet showing the projected position of the Company (and
its subsidiaries (if any)) as at the end of the following calendar
year;
(ii) within three weeks after the end of each calendar
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month, unaudited management accounts, such accounts to include a
detailed profit and loss account, balance sheet and cash flow
statement, an analysis of subscriptions and other revenue, a review
of the budget together with a reconciliation of results with revenue
and capital budgets for the corresponding month, and (if so required
by the Board) a statement of the source and application of funds for
such month; and
(iii) such further information as the Shareholders may from time to
time reasonably require as to any and all matters relating to the
business or financial condition of the Company or of any of its
subsidiaries.
4.7 BOARD MEETINGS
4.7.1 Board Meetings shall be held no less than four times in every year
and at not more than three-monthly intervals; notwithstanding, the Board of
Directors may hold additional meetings if it is so resolved with the
favorable vote of the majority of the 'A' Directors and of the 'B'
Directors. Unless otherwise agreed by a majority for the time being of the
'A' Directors and of the 'B' Directors 14 days's notice shall be given to
each of the Directors of all the meetings of the Board, at the address
notified from time to time by each Director to the Secretary of the
Company. Each such notice shall contain, inter alia, an agenda specifying
in reasonable detail the matters to be discussed at the relevant meeting,
shall be accompanied by any relevant papers for discussion at such meeting
and, if sent to an address outside Venezuela shall be sent by courier or by
telfax. Only such items as appear on the agenda sent with such notice shall
be discussed as business at any meeting of the Board.
4.7.2 The Chairman of the Board shall be appointed by the 'B' Directors. If
the Chairman is not present at any Board Meeting, the Directors present may
appoint any one of their number to act as Chairman for the purpose of the
meeting.
4.8 LIMITATIONS ON THE BOARD'S POWERS OF MANAGEMENT
The Shareholders shall procure, so far as they are able, that no action
shall be taken or resolution passed by the Company or its subsidiaries
except with the consent of a majority of the 'A' Directors and a majority
of the 'B' Directors in respect of the following matters ("Reserved
Matters"):
4.8.1 the selection of and any change in the Auditors;
4.8.2 the consolidation or amalgamation of the Company with any other
Company with any other company;
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4.8.3 the disposal of or dilution of the Company's interests, directly or
indirectly, in any of its subsidiaries;
4.8.4 the acquisition by any Group Company of any share capital or other
securities of any body corporate;
4.8.5 the creation, allotment or issue of any shares in the capital of a
Group Company or of any other security or the grant of any option or rights
to subscribe in respect thereof or convert any instrument into such shares;
4.8.6 the payment or declaration by the Company of any dividend or other
distribution on account of shares in its capital;
4.8.7 the cessation of any business operation of a Group Company;
4.8.8 the reduction of its capital, variation of the rights attaching to
any class of shares in the capital of the Company or any redemption,
purchase or other acquisition by the Company of any shares or other
securities of the Company;
4.8.9 the making of any change to the Company's Memorandum or Articles;
4.8.10 the presentation of any petition for the winding-up of a Group
Company;
4.8.11 the adoption of the annual accounts or amendment of the accounting
policies previously adopted by the Company;
4.9 EXECUTIVE COMMITTEE, CHIEF EXECUTIVE OFFICER; MANAGEMENT
4.9.1 The Board shall appoint a chief executive officer (by whatever name
called) of the Company for such period and on such terms and conditions as
shall be determined by the Board at the time of making such appointment.
The chief executive officer may be appointed from among the 'A' Directors
or the 'B' Directors, but in the event that the person appointed as:chief
executive officer is not a Director at the time of his appointment, he
shall forthwith become a Director but shall not have the right to vote at
meetings of the Board.
4.9.2 The Board may delegate to an executive committee of the Board (the
"Executive Committee") and to the chief executive officer such powers
relating to the day-to-day management of the Company as the Board deems
appropriate. The Executive committee shall comprise the chief executive
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officer as chairman, one 'A' Director and one 'B' Director.
4.9.3 Anything in this Article 4.9 to the contrary notwithstanding, the
Board may at any time vary, extend or terminate the employment of the chief
executive officer or the terms and conditions thereof or the powers
delegated by the Board pursuant to Clause 4.9.2 to the Executive Committee
or the chief executive officer.
5 DISTRIBUTION POLICY AND DETERMINATION OF NET PROFIT
The Shareholders shall take such action as may be necessary to procure
that:-
5.1 the Annual General Meeting of the Company at which audited accounts or
consolidated audited accounts as the case may be) in respect of the
preceding financial year are laid before the Shareholders is held not later
than 90 days after the end of the relevant financial year;
5.2 the Auditors shall at the expense of the Company be instructed to report as
to the amount of the profits for each accounting reference period which are
available for distribution by the Company at the same time as they sign
their report on the Audited Accounts for the accounting reference period in
question;
5.3 the Company distributes to and among its members such percentage of its
profits lawfully available for distribution in each financial year as the
Board shall from time to time resolve, subject to the appropriation of such
reasonable and proper reserves for working capital or otherwise as the
Shareholders may, on the recommendation of the Board, think appropriate.
6. FINANCE FOR THE COMPANY
6.1 The Shareholders acknowledge that, in addition to the share capital to be
subscribed pursuant to Clause 3, the Company may require additional working
capital in order to fund its projected cash requirements under the Business
Plan. It is the intention of the Shareholders that such further finance
will be provided by loans from Delta Aluminium on such commercial terms as
it may agree with the Company or at its option, Delta Aluminium may
endeavour to obtain such finance from a third party lender on the basis
that there shall be no recourse to the Shareholders and otherwise on the
best terms which could reasonably be expected to be obtained in the open
market PROVIDED ALWAYS that nothing shall oblige any Shareholder to provide
any guarantee or security in respect thereof or to provide the finance
concerned.
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7 TRANSFER OF SHARES
7.1 Otherwise than in accordance with the following provisions of this
Clause or Clause 8 no Shareholder shall:
7.1.1 pledge, mortgage (whether by way of fixed or floating charge) or
otherwise encumber its legal or beneficial interest in its Shares; or
7.1.2 sell, transfer or otherwise dispose of any of such Shares (or any
legal or beneficial interest therein); or
7.1.3 enter into any agreement in respect of the votes attached to Shares;
or
7.1.4 agree, whether or not subject to any condition precedent or
subsequent, to do any of the foregoing.
7.2 If in relation to any of the Shareholders ("the Defaulting Shareholder"):-
7.2.1 the Defaulting Shareholder fails to remedy any material breach on its
part of this Agreement within 45 days from the service of any written
notice by the holders of a majority of the 'A' Shares or 'B' Shares
complaining of such breach;
7.2.2 the Defaulting Shareholder enters into any composition or arrangement
with its creditors generally or is unable to pay its debts within the
meaning of Title II "Atrasos y Quiebras" (Bankruptcy) of the Commercial
Code of Venezuela;
7.2.3 an encumbrancer lawfully takes possession or an administrative
receiver is validly appointed over the whole or any part of the
undertaking, property or assets of the Defaulting Shareholder;
7.2.4 an order is made or resolution is passed or a notice is issued
convening a meeting for the purpose of passing a resolution or any
analogous proceedings are taken for the appointment of an administrator of
or the winding-up of the Defaulting Shareholder, other than a members'
voluntary liquidation solely for the purpose of amalgamation or
reconstruction;
7.2.5 the Defaulting Shareholder is the subject of any change in its
control or ownership whereby any person who does not at the date hereof own
or control 51 per cent. of the shares of the Defaulting Shareholder becomes
at any time the owner or assumes control of 51 per cent of the shares of
the Defaulting Shareholder;
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7.2.6 any of the matters referred to in sub-clause 7.2.2, 7.2.3, 7.2.4 or
7.2.5 above occurs in relation to any holding company for the time being of
the Defaulting Shareholder;
then upon written notice to the Defaulting Shareholder by any other
Shareholder this Agreement shall automatically terminate with respect to
the Defaulting Shareholder, but without prejudice to his obligations under
Clause 11.2 below.
7.3 Within 30 days after termination of this Agreement pursuant to sub-clause
7.2 above any other Shareholder shall be entitled to serve a notice on the
Defaulting Shareholder requiring the Defaulting Shareholder to sell to him
all (but not some only) of the Shares held by the Defaulting Shareholder.
If more than one other Shareholder serves a notice on the Defaulting
Shareholder under this sub-clause then such notices shall take effect as if
they required the Defaulting Shareholder to transfer his shares to all
other Shareholders who served such notices in proportion to the number of
shares held by them respectively.
7.4 The Directors shall request the Auditors to determine and certify the sum
per share considered by them to be the fair value thereof as at the last
date of such 30 day period and the sum so determined and certified shall be
the price at which the Shares held by the Defaulting Shareholder shall be
transferred, and the provisions of Article 7.2 of the Company's Articles of
Association shall apply in relation to the Auditors' role and expenses and
the finality of their determination hereunder. Completion of the transfer
of shares hereunder shall take place at the Company's principal place of
business at 12 noon on the fifth business day after the Auditors shall have
certified the fair value of the Shares.
7.5 If the Defaulting Shareholder shall fail or refuse to transfer any Shares
in accordance with its or their obligations hereunder the Company may
authorise some person to execute and deliver on its or their behalf the
necessary transfer and the Company may receive the purchase money in trust
for the Defaulting Shareholder and cause the other Shareholders to be
registered as the holder(s) of such Shares in proportion to the number of
shares held by them respectively in accordance with Clause 7.3. After the
Shareholder(s) has or have been registered in purported exercise of the
aforesaid powers the validity of the proceedings shall not be questioned by
any person.
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8 DEADLOCK
8.1 If the Board or a Shareholders Meeting of the Company is unable to make a
decision on a Reserved Matter within two months of such Reserved Matter
first being considered by the Board then the holder(s) of a majority of the
issued Shares of either class (the "Seller(s)") may serve a written notice
(a "Deadlock Notice"), in the case of the holders of a majority of the 'A'
Shares, on each holder of 'B' Shares and in the case of the holders of a
majority of the 'B' Shares, on each holder of 'A' Shares (the "Buyers")
offering to sell (or procure the sale of) all the issued Shares of that
class held by the Seller(s) ("the Sale Shares") to the Buyers or, failing
which, to purchase the Buyers' Shares in accordance with the following
provisions of this sub-clause.
8.2 The Deadlock Notice shall specify the price at which the Seller(s) is or
are prepared to sell the Sale Shares to the Buyers ("the Deadlock Price")
but shall not include any other condition whatsoever.
8.3 The Deadlock Notice shall be deemed to:-
8.3.1 constitute an offer by the Seller(s), open for acceptance by one or
more of the Buyers for 1 month from the date of service of the Deadlock
Notice (the "Buyer Purchase Period"), to sell all (but not some only) of
the Sale Shares to one or more of the Buyers on the Transfer Terms at the
Deadlock Price; and
8.3.2 constitute an alternative offer by the Seller(s) to purchase all (but
not some only) of the Buyers' Shares within 7 days after the end of the
Buyer Purchase Period on the Transfer Terms at the Deadlock Price if the
Buyers do not elect to purchase all the Sale Shares before the expiry of
the Buyer Purchase Period;
and shall be irrevocable without the written consent of the Shareholders
(other than the Seller(s)). For the purposes of this Clause the "Transfer
Terms" means free from all claims, equities, liens and encumbrances
together with all rights attaching thereto at the date of service of the
Deadlock Notice.
8.4 One or more of the Buyers may at any time before the expiry of the Buyer
Purchase Period serve notice in writing upon the Seller(s) of its or their
desire to purchase all (but not some only) of the Sale Shares on the terms
set out in this clause (a "Buyer Purchase Notice") which may not be
expressed to be subject to the fulfillment of any condition whatsoever.
Upon service of a Buyer Purchase Notice on the Seller(s) the latter shall
be bound to sell (upon payment of the Deadlock Price)
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and the Buyer(s) who have served a Buyer Purchase Notice shall be bound to
purchase (at the Deadlock Price), all the Sale Shares, which the Sellers
shall transfer on the Transfer Terms.
8.5 If none of the Buyers serves a Buyer Purchase Notice before the expiry of
the Buyer Purchase Period, the Buyer" shall be deemed to have declined the
offer by the Seller(s) referred to in sub-clause 8.3.1. and the Buyers
shall be bound to sell (upon payment of the Deadlock Price), and the
Seller(s) shall be bound to purchase (at the Deadlock Price), all the
Buyers' Shares, which the Buyers shall transfer on the Transfer Terms.
8.6 In the following sub-clauses, "the Seller(s)" means the holder(s) of the
Sale Shares and "the Buyer(s)" means the person(s) who, in accordance with
the foregoing provisions of this Clause, have become bound to purchase
them.
8.7 Completion of the sale and purchase of the Sale Shares shall be completed
on the day which is 3 business days after the end of the Buyer Purchase
Period stated in Clause 8.3 at the Company's office and at such reasonable
time as the Buyers may specify by not less than 36 hours written notice to
the Seller(s), whereupon:
8.7.1 the Seller(s) shall deliver to the Buyer(s) a duly executed transfer
or transfers in favour of the Buyer(s) or as it or they may direct together
with the relative share certificates in respect of the Sale Shares and a
power of attorney in such form and in favour of such person as the Buyer(s)
may nominate so as to enable the Buyer(s) to exercise all rights of
ownership in respect of the Sale Shares including, without limitation, the
voting rights thereto;
8.7.2 against such delivery, the Buyers shall pay the Deadlock Price to the
Sellers by bankers' draft for value on the date of completion;
8.7.3 the Shareholders shall procure (insofar as they are able) that the
said transfer or transfers shall be registered;
8.7.4 the Sellers shall do all such other things and execute all such other
documents as the Buyer(s) may require to give effect to the sale and
purchase of the Sale Shares; and
8.7.5 if requested by the Buyer(s) the Sellers shall procure the
resignation of all the Directors appointed by them (and their predecessors
in title to the Sale Shares) and such resignation shall take effect without
any liability of the company for compensation for loss of office or
otherwise.
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8.8 It the Sellers(s) shall fail or refuse to transfer any Shares in accordance
with its or their obligations hereunder the Company may authorise some
person to execute and deliver on its or their behalf the necessary transfer
and the Company may receive the purchase money in trust for the Seller(s)
and cause the Buyers to be registered as the holder(s) of such Shares. The
receipt of the Company for the purchase money shall be a good discharge to
the Buyers (who shall not be bound to see to the application thereof) and
after the Buyers ha~ or have been registered in purported exercise of the
aforesaid powers the validity of the proceedings shall not be questioned by
any person.
8.9 If each Shareholder shall receive an effective and properly delivered
Deadlock Notice, the first such notice to be properly delivered shall
prevail.
8.10 As a condition of any transfer of all the Shares held by a Shareholder in
accordance with this Clause:-
8.10.1 the continuing Shareholders shall procure that all loans, loan
capital, borrowings and indebtedness in the nature of borrowings
outstanding to the Company from that Shareholder (together with any
occurred interest) are either assigned to the continuing Shareholder(s) at
such value as may be agreed between such Shareholder and the continuing
Shareholders, or failing agreement with the continuing Shareholders, are
repaid by the Company;
8.10.2 all loans, loan capital, borrowings and indebtedness in the nature
of borrowings outstanding to that Shareholder from the Company are repaid;
and
8.10.3 the continuing Shareholders shall use all reasonable endeavours (but
without involving any financial obligation on their part) to procure the
release of any guarantees or indemnities given by such Shareholder to or in
respect of the Company and, pending such release, shall indemnify such
Shareholder in respect thereof.
9. DURATION AND TERMINATION
9.1 Except as otherwise provided herein, this Agreement shall continue in full
force and effect without limit in point of time until the earlier of the
following events:-
9.1.1 the holders of the 'A' Shares and of the 'B' Shares in issue agree in
writing to terminate this Agreement; and
9.1.2 an effective resolution is passed or a binding order is made for the
winding-up of the Company;
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provided, however, that this Agreement shall cease to have effect as
regards any Shareholder who ceases to hold any Shares save for any
provisions hereof which are expressed to continue in force thereafter.
10 NEW SHAREHOLDERS
The parties shall procure that no person other than a Shareholder acquires
shares in the Company (whether by transfer or allotment) unless he
covenants with the other parties to this Agreement (in a form reasonably
acceptable to each of them) to observe this Agreement and, in the case of a
transferee, to perform all the obligations of the transferor under this
Agreement and thereupon each such transferee or allottee shall be treated
as a Shareholder for the purposes of this Agreement.
11 RIGHTS TO INFORMATION: CONFIDENTIALITY
11.1 RIGHTS OF INSPECTION AND INFORMATION
The Company shall permit any Director designated by a Shareholder in
writing, at the requesting Shareholder's expense, to discuss the affairs,
finances and accounts of the Company and its subsidiaries with their
officers and other principal executives all at such time as may reasonably
be requested, and all books, records, accounts, documents and vouchers
relating to the business and the affairs of the Company and its
subsidiaries shall at such time be open to the inspection of any such
person, who may make such copies thereof or extracts therefrom as such
person may deem appropriate. Any information secured as a consequence of
such discussions and examinations shall be kept strictly confidential by
the requesting Shareholder.
11.2 CONFIDENTIALITY
11.2.1 All communications between the parties, the Company and/or any of
them and all information and other materials supplied to or received by any
of them from the others which is either marked "confidential" or is by its
nature intended to be for the knowledge of the recipient alone, and all
information concerning the business transactions and the financial
arrangement's of the parties or the Company with any person with whom any
of them is in a confidential relationship with regard to the matter in
question coming to the knowledge of the recipient shall be kept
confidential by the recipient unless or until the recipient party can
reasonably demonstrate that any such communication, information and
material is, or part of it is, in the public domain through no fault of its
own, whereupon to tine: extent that it is in the public domain
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or is required to be disclosed by law or in pursuance of employment duties,
this obligation shall cease.
11.2.2 The Shareholders shall use all reasonable endeavours to procure the
observance of the above mentioned restrictions by the Company and shall
take all reasonable steps to minimize the risk of disclosure of
confidential information, by ensuring that only themselves and each of
their employee" and directors whose duties will require them to possess any
such information shall have access thereto, and will be instructed to treat
the same as confidential.
11.2.3 The obligation contained in this Clause 11 shall endure, even after
the termination of this Agreement, without limit in point of time except
and until such confidential information enters the public domain as set out
above.
11.2.4 Notwithstanding Clauses 11.2.1 to 11.2.3, the Shareholders may at
any time disclose any such information and communications to their
Associated Companies.
11.2.5 A Shareholder on ceasing to be a Shareholder will hand over to the
Company all correspondence, budgets, schedules, documents and records
belonging to or relating to the business of the Company and will not keep
any copies thereof.
12 NOTICES AND GENERAL
12.1 NOTICES
Notices, demands or other communications required or permitted to be given
or made hereunder shall be in writing and delivered personally or sent by
prepaid first class post with recorded delivery, or by telex, or legible
telefax addressed to the intended recipient at its address set out in this
Agreement or to such other address or telex or telefax number as any party
may from time to time duly notify to the others. Any such notice, demand or
communication shall, unless the contrary is proved, be deemed to have been
duly served (if given or made by telefax or telex on the next following
business day in the place of receipt or (if given or made by first class
letter ) 48 hours after posting and in proving the same it shall be
sufficient to show in the case of a letter, that the envelope containing
the same was duly addressed, correctly stamped and posted and, in the case
of a telex or telefax, that such telex or telefax was duly dispatched to a
current telex or telefax number of the addressee.
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12.2 REMEDIES
No remedy conferred by' any of the provisions of this Agreement is intended
to be exclusive of any other remedy which is otherwise available at law, in
equity, by statute or otherwise, and each and every other remedy shall be
cumulative and shall be in addition to every other remedy given hereunder
or now or hereafter existing at law, in equity, by statute or otherwise.
The election of any one or more of such remedies by any of the parties
hereto shall not constitute a waiver by such party of the right to pursue
any other available remedy.
12.3 TIME
Time shall be of the essence as regards the provisions of this Agreement,
both as regards the times and periods mentioned herein and as regards any
times or periods which may, by agreement between the parties, be
substituted for them.
12.4 SEVERANCE
If any provision of this Agreement or part thereof is rendered void,
illegal or unenforceable in any respect under any law, the validity,
legality and enforceability of the remaining provisions shall not in any
way be affected or impaired thereby.
12.5 SURVIVAL OF RIGHTS, DUTIES AND OBLIGATIONS
Termination of this Agreement for any cause shall not release a party from
any liability which at the time of termination has already accrued to
another party or which thereafter may accrue in respect of any act or
omission prior to such termination.
12.6 COSTS
Each party shall bear its own costs and expenses incurred by it in
connection with this Agreement.
2.7 ENTIRE AGREEMENT
This Agreement (together with the Schedules hereto) constitutes the entire
agreement between the parties and save as otherwise expressly provided no
modification, amendment or waiver of any of the provisions of this
Agreement shall be effective unless made in writing specifically referring
to this Agreement and duly signed by the parties hereto.
This agreement will be interpreted and performed in accordance with its
terms and in good faith.
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12.8 ASSIGNMENT
12.8.1 This Agreement shall be binding on the parties hereto and their
respective successors and assigns.
12.8.2 None of the parties hereto shall be entitled to assign this
Agreement or any of its rights and obligations hereunder except to a
permitted transferee of that party's Shares which has complied with Clause
10.
12.9 CONFLICT WITH THE ARTICLES
In the event of any ambiguity or discrepancy between the provisions of this
Agreement and the Articles, provided that such ambiguity or discrepancy
relates to matters which have effect exclusively between the parties to
this Agreement, then it is the intention that the provisions of this
Agreement shall prevail and accordingly the parties shall exercise all
voting and other rights and powers available to them so as to give effect
to the provisions of this Agreement and shall further if necessary procure
any required amendment to the Articles.
12.10 NO PARTNERSHIP
Nothing in this Agreement shall be deemed to constitute a partnership
between the parties hereto nor constitute any party the agent of any other
party for any purpose.
12.11 FURTHER ASSURANCE
Each Shareholder shall cooperate with the others and execute and deliver to
the others such other instruments and documents and take such other actions
as may be reasonably requested from time to time in order to carry out,
evidence and confirm their rights and the intended purpose of this
Agreement.
13 ARBITRATION AND GOVERNING LAW
13.1 GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the
laws of the Republic of Venezuela.
3.2 ARBITRATION
13.2.1 All disputes between the parties as to any matter arising out of or
in connection with this Agreement which cannot be resolved amicably shall
be referred to the arbitration in Caracas of three arbitrators fluent in
English
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and in Spanish to be appointed according to the following procedure: One
(1) arbitrator will be appointed by CVG, one (1) arbitrator will be
appointed by Delta Aluminium and one (1) arbitrator by agreement between
the parties or, if such agreement is not reached within [14] days of the
earlier date on which the name of proposed arbitrator shall have been
submitted by either party to the other for the purpose of the reference, to
be appointed by the International Chamber of Commerce in Paris. Any
arbitrator appointed hereunder shall not be a national of Venezuela nor of
the United Kingdom nor a resident of Bermuda. Any arbitration conducted
hereunder shall be conducted in accordance with the UNCITRAL Rules of
Arbitration. All arbitration proceedings and submissions and the award
shall be in English and in Spanish.
13.2.3 Pending the submission to arbitration and thereafter until the
arbitrators make an award:
(a) the parties hereto shall continue to perform their obligations
hereunder, without prejudice to a final adjustment in accordance with the
award made by the arbitrators; and
(b) the operation or activities which shall have given rise to the
arbitration need not be discontinued, but if the award recognises that a
complaint was justified, provision may be made in the award for any
reparation or compensation in respect of those continued operations and
activities as shall be decided by the arbitrator to be appropriate.
13.2.4 The award of the arbitrators shall be final and binding upon the
parties hereto and they shall comply in good faith with the decision.
14 LANGUAGE
This Agreement shall be executed simultaneously in the English and Spanish
languages.
15 SIGNATURE OF THIS AGREEMENT BY THE COMPANY
Immediately upon the incorporation of the Company pursuant to Clauses 2 and
3 above, the Shareholders shall procure that the Company shall become a
party to this Agreement by ensuring that the Company shall sign the
Agreement. Upon the signature of the Agreement by the Company, the Company
shall be bound by all the provisions hereof. The rights and obligations of
the Shareholders shall not be varied in any way by virtue of the signature
of the Agreement by the Company.
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IN WITNESS whereof this Agreement has been entered into the day and year first
before written.
/s/ LEOPOLDO SUCRE FIGARELLA
------------------------------------
for and on behalf of
CORPORATION VENEZOLANA DE GUAYANA
by Engineer Leopoldo Sucre Figarella
/s/ ADRIAN C. NASH
------------------------------------
for and on behalf of
DELTA ALUMINUM COMPANY LIMITED
by Mr. Adrian C. Nash
- ----------------------------------------
for and on behalf of
BAUXITAS EL PALMAR, C.A.
by
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SCHEDULE 1
THE SHAREHOLDERS
[To include here details of the number of each class of shares to be issued, the
price at which such shares are to be issued, and the identity of the holders of
each class of share shares.]
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SCHEDULE 2
[Articles of Association and By-Laws of the Company]
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SCHEDULE 3
BAUXITE SUPPLY ARRANGEMENT
SUMMARY OF THE MAIN COMMERCIAL TERMS
PARTIES:
The Agreement will be entered into between BAUXITAS EL PALMAR, C.A. (BEP), the
Seller, and ALUMINIOS INTEGRADOS DE VENEZUELA, C.A. (AIV), the Purchaser.
DURATION:
The Agreement shall continue until the end of a period of 25 years commencing on
the 1 January next after the start of commercial production of the mine. The
Agreement will contain an option exercisable by AIV for extending the duration
of the Agreement beyond the initial 25 year period.
PRICE:
The price of the bauxite delivered by BEP to AIV shall be determined by the
Parties and shall be based upon BEP's cost of production plus a reasonable
margin of benefit.
The determination of the price per tonne of bauxite will be set taking into
consideration:
the quality of the bauxite: the price will be adjusted based on the total
chemical alumina and silica content;
the nature and term of the off take commitment by AIV;
the savings to BEP for not having to incur marketing expenses;
the royalty actually payable by BEP to the Venezuelan Government under the
laws currently in force in the Republic of Venezuela.
AMOUNT:
The quantity of bauxite purchased annually by AIV will be notified by AIV to BEP
and will be a quantity sufficient to enable AIV to produce 1 million tonnes of
alumina or whatever quantity is deemed to be commercially viable.
DELIVERY:
All deliveries of bauxite will be F.O.B. mine gate.
FORCE MAJEURE:
BEP shall not be liable to the Purchaser for any failure to deliver bauxite to
the extent that such failure is due to events of force majeure, including war,
revolution, riot, strike, fire, flood, act or restraint of government or
semi-governmental authorities.
The Purchaser shall not be liable to BEP for any failure to take delivery of
bauxite if such failure is due to the inability of the
<PAGE>
Purchaser for any reason to take and convert bauxite into alumina.
In the event of BEP's inability to delivery bauxite, BEP and the Purchaser shall
confer with a view to making arrangements for an alternate source of bauxite for
the Purchaser, in the most convenient terms and always preserving the stability
of its long term contractual relationship.
EX-10.8
December 14 January 1994
DELTA MINERALS CORPORATION LIMITED
- and -
SNC LAVALIN: FLUOR DANIEL JOINT VENTURE
- --------------------------------------------------------------------------------
TECHNICAL SERVICES AGREEMENT
(relating to a Feasibility Study for a gold and
bauxite mine, El Palmar, Republic of Venezuela)
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
ARTICLE I THE CONTRACTOR'S SERVICE
ARTICLE II COMPENSATION AND PAYMENT
ARTICLE III ACCOUNTING
ARTICLE IV DRAWINGS, PLANS AND SPECIFICATIONS
ARTICLE V RESPONSIBILITIES OF THE CONTRACTOR
ARTICLE VI PERSONNEL
ARTICLE VII FORCE MAJEURE
ARTICLE VIII LIQUIDATED DAMAGES FOR DELAY
ARTICLE IX TERMINATION
ARTICLE X COMPLIANCE WITH INSTRUCTIONS
ARTICLE XI ASSIGNMENT AND SUB-CONTRACTING
ARTICLE XII NOTICE AND ACCEPTANCE OF COMPLETION
ARTICLE XIII SEVERABILITY
ARTICLE XIV ENTIRE AGREEMENT; AMENDMENT: JOINT AND SEVERAL
LIABILITY
ARTICLE XV LAW AND ARBITRATION
ARTICLE XVI NOTICES
Appendix A - Scope of Services
Appendix B - Confidentiality Agreement
Appendix C - Charging Rates
Appendix D - Key Personnel
<PAGE>
THIS AGREEMENT is entered into on January 1994 BETWEEN:.
(1) DELTA MINERALS CORPORATION LIMITED, a company incorporated under the laws
of Bermuda and having its registered office at 18 Parliament Street, Hamilton
Bermuda ("Delta Minerals"); and
(2) SNC LAVALIN-Fluor Daniel Joint Venture consisting of SNC LAVALIN, INC., a
company incorporated under the laws of the Province of Quebec, Canada, and
having its principal office at 2 Place Felix-Martin, Montreal, Quebec, Canada
("SNCL"), and FLUOR DANIEL LATIN AMERICA, INC., a company incorporated under the
laws of the State of California, United States of America, and having an office
at 100 Fluor Daniel Drive, Greenville, South Carolina, USA ("Fluor Daniel"),
SNC LAVALIN and Fluor Daniel together for the purposes of this Agreement jointly
and severally "the Contractor".
(3) SNC LAVALIN and Fluor Daniel or an affiliated entity intends to form SNC
LAVALIN-Fluor Daniel Limited, a company incorporated under the laws of Bermuda.
ARTICLE I
THE CONTRACTOR'S SERVICES
A. The Contractor shall perform for Delta Minerals as an independent
contractor the services as described in Appendix A ("the services"), which
is incorporated herein in connection with the proposed development by
Delta Minerals of a mining facility located near Puerto Ordaz, Venezuela
("the Project"). The Services shall include the giving of such general
advice and assistance to Delta Minerals in connection with the Project as
may lie within the field of The Contractor's qualifications, competence and
experience and as Delta Minerals may from time to time reasonable require.
B. The Contractor shall perform the Services based upon information furnished
to it by Delta Minerals and The Contractor shall be entitled to rely upon
the accuracy of such information provided that the error in that
information would not have been apparent to a consultant using general
industry practices in performing the Services.
C. Nothing in this Agreement shall be construed as conferring upon The
Contractor, SNC LAVALIN or Fluor Daniel the status of an agent for or on
behalf of Delta Minerals in any capacity, except as may be expressly
stated.
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ARTICLE II
COMPENSATION AND PAYMENT
For the performance of the Services, Delta Minerals shall pay to The Contractor,
in the manner and at the times herein specified, a total compensation consisting
of The Contractor's Recoverable Costs plus a Fee as follows:
A. RECOVERABLE COSTS
Delta Minerals shall reimburse The Contractor for all costs and expenses
incurred by The Contractor in connection with the performance of the
Services in accordance with the current revision of The Contractor's
established policies, practices and rates then in effect. Such costs and
expenses generally include but are not limited to the following:
1. Payroll and Related Personnel Costs
(a) Costs and related expenses incurred by The Contractor as set out in
Appendix C in accordance with its established personnel policies,
including all base compensation of Personnel engaged in the performance
of the Services, plus the Payroll Expense Tax to the extent applicable
and the cost of payroll additives at The Contractor's established rate
to cover all employee benefits and allowances for vacation, sick leave,
holiday, and company portion of employee insurance, social and
retirement benefits, all payroll taxes, premiums for public liability
and property damage liability insurance, Worker's Compensation and
Employer's Liability Insurance and all other insurance premiums measured
by payroll costs, and other contributions and benefits imposed by any
applicable law or regulation. The rate for payroll additives for the
calendar year 1994 is forty-five per cent (45%) and shall be subject to
adjustment at the beginning of each calendar year to reflect
anticipated changes in costs.
(b) Payroll costs and related expenses incurred by The Contractor's
related entities engaged in the performance of the Services.
(c) Payroll costs and related expenses incurred by The Contractor for
third party or agency personnel engaged in the performance of the
Services in The Contractor's established offices.
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2. Allowances for Indirect Costs
An amount equal to seventy-two percent (72%) of the costs described in
Paragraph A1, above, excepting only the Payroll Expense Tax, to cover
the indirect cost to The Contractor of maintaining and operating its
established offices.
3. Other Direct Costs and Rates
All other costs and rates incurred in the performance of the Services,
including such costs and rates as:
(a) Costs incurred or travel, subsistence, relocation and return of
personnel engaged in the performance of the Services;
(b) The cost of all materials and supplies other than engineering
supplies used or consumed in the performance of the Services.
Engineering supplies used or consumed in the performance at established
offices of the Services shall be reimbursed at the rate of ten cents per
technical manhour;
(c) All costs associated with models including cost of insurance
covering against loss or damage thereto, including the cost of floor
space occupied by models, reproduction of plans, specifications, reports
and other data, at The Contractor's standard rates;
(d) All costs associated with consultants, sub-contracts, and other
outside services and facilities;
(e) All federal, state and local taxes , assessments , levies. imposts,
duties, excises and licenses, excepting only taxes solely on The
Contractor's net income;
(f) All costs associated with records management including, but not
limited to, the preparation of material for filming, equipment,
micro-reproduction, and operator time, at cost to The Contractor; and
(g) Other direct costs and expenses incurred by the Contractors in the
performance of the Services which are not specifically set forth herein.
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(h) All Venezuela taxes incurred, if any, and any incremental, local, US
or Canadian taxes resulting from the payment of Venezuelan taxes will be
reimbursed at cost.
B. FEE
Delta Minerals shall pay to The Contractor a fee of fifteen percent (15%)
on the total of payroll, payroll additives and indirect cost and all other
direct cost (as defined above in Article II Sections A(I), A(2), and A(3)).
C. DOCUMENTATION FOR AND TIMES OF PAYMENT
1. Prior to the commencement of work on Phase I of the Services, Delta
Minerals shall issue a letter of credit acceptable to The Contractor for
$500,000 (Five Hundred Thousand United States Dollars).
The letters of credit issued to The Contractor will be drawn upon if
Delta Minerals defaults on Article II, Section C. (4)
2. Advance Invoices for Recoverable Costs, Monthly Billing
On or about the 20th day of each month The Contractor shall furnish
Delta Minerals with an advance invoice for estimated Recoverable Costs
to be incurred during the next succeeding month. The advance invoices
will be detailed to show manhours, expenses and all sub-contracts.
3. Progress Invoices
On or about the 10th day of each month The Contractor shall furnish
Delta Minerals with a detailed progress invoice of all Recoverable Costs
incurred and Fee earned during the previous month and chargeable to
Delta Minerals under this Agreement. Each progress invoice will be
supported by one (1) copy each of all payrolls, vendors' invoices,
expense reports, and any other documentation necessary to substantiate
the costs.
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4. Payment Mechanism
The initial advance invoice will include the first months' Recoverable
Costs plus the cost of mobilisation of any sub-contractor(s) employed by
The Contractor.
Delta Minerals shall pay the advanced invoice and balance of progress
invoice by the last working day of the month of receipt.
After the initial advance invoice, each subsequent advance invoice shall
be reduced by the amount of payments made against the advanced invoice
that relates to the current progress Invoice and increased by the amount
of the current progress invoice prepared as set forth in Article II,
Section C. (3). Any delinquent payment shall bear interest at an annual
rate equal to one and twenty five hundredths (1.25) times the prime rate
then currently charged by the Chase Manhattan Bank in New York, New
York, but in no event shall such rate exceed the maximum legal rate
allowed by applicable usury laws.
5. Final Billing
Upon Acceptance of the Services by Delta Minerals pursuant to Article
XII, The Contractor shall submit a final invoice summarizing previous
billings rendered and payments received, including a statement of The
Contractor's Fee. Added to such statement, and properly supported by
documentary evidence of expenditure, shall by any charges to the total
cost of Services not reported previously. Within seven (7) days after
such acceptance, Delta Minerals shall pay The Contractor all remaining
amounts due.
Any payment withheld from The Contractor by Delta Minerals as an amount
in dispute which is subsequently determined whether by agreement between
the parties or by arbitration to have been withheld improperly from The
Contractor shall bear interest as a late payment pursuant to Article II,
Section C(4) (a) from the date on which such payment was originally due.
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D. COST CONTROL
1. Appendix C sets out the salary rates of The Contractor personnel to be
applied for the purpose of charging Delta Minerals for 1994. All
services performed by The Contractor during 1994 shall be compensated at
these rates. In 1995 new rates will be applied in accordance with
Section A of this Article II. Any change in The Contractor's established
policies, practices and rates as of the date of this Agreement and as
referred to in Section A of this Article II shall be notified by The
Contractor to Delta Minerals at least 30 days prior to the date on which
such change takes effect, and The Contractor shall give Delta Minerals
such information as Delta Minerals may reasonably require concerning the
reasons for and the substantiation of such changes.
2. Appendix C also includes an estimate of the expenditure (at the rates
calculated in accordance with this article 'II) ' which The Contractor
expects to incur in the performance of the Services The Contractor shall
give Delta Minerals as much advance notice as practicable if they expect
that they will exceed this estimate. Each notice by The Contractor under
this Section shall be accompanied by such substantiation as Delta
Minerals may reasonably require.
ARTICLE III
ACCOUNTING
The Contractor shall maintain its customary fiscal records and books of accounts
of Recoverable Costs in accordance with generally accepted accounting principles
and practices consistently applied. Such fiscal records and books of accounts
shall remain in the possession and custody of The Contractor. However, upon
reasonable notice Delta Minerals (both for itself and its financial and
accounting advisers) shall, during The Contractor's normal business hours for
the duration of this Agreement and for a period of one year after the completion
of the Services, have access to such fiscal records and books of accounts for
the sole purpose of examination or verification of the costs (excluding costs
compensated by means of lump sum fixed rates or established or standard
allowances and rates) relating to the performance of the Services.
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ARTICLE IV
DRAWINGS - PLANS AND SPECIFICATIONS
All drawings, plans, specifications, and reports developed by The Contractor
under this Agreement shall become the property of Delta Minerals, all such
drawings, plans and specifications shall be delivered to Delta Minerals upon
Completion of the Services, but The Contractor may retain copies thereof and use
them for purposes connected with the Project but not otherwise.
ARTICLE V
RESPONSIBILITIES OF THE CONTRACTOR
A. The Contractor shall perform the Services as an independent contractor
exercising that degree of skill, efficiency, and judgment commensurate with
that which is normally expected from recognized international professional
engineering firms with respect to activities of a comparable nature and
shall act in accordance with the terms of this Agreement and applicable
laws and regulations.
B. In the event The Contractor is notified by Delta Minerals within twelve
(12) months from the receipt of the final report by Delta Minerals that The
Contractor has failed to perform the Services in accordance with the
standards set forth above, then The Contractor shall provide corrective
services within its original Scope of Services, at its sole cost and
expense, subject to the limitations set forth hereunder. In no event shall
The Contractor's liability to Delta Minerals for Phase I Services performed
(as set out in Appendix A) exceed in the cumulative aggregate $5000 and the
liability in the cumulative aggregate for Phase I and Phase II shall in the
event exceed $250,000. Delta Minerals releases The Contractor from any
liability in excess thereof, PROVIDED HOWEVER, that and liability to which
The Contractor may become liable Pursuant to Article VIII (Liquidated
Damages for Delay) hereunder shall not be included in the limitation set
forth in this Article V(B). This constitutes The Contractor's sole and
exclusive obligation with respect to the Services provided hereunder and
the Contractor makes no other warranties either express or implied.
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C. Under no circumstances shall The Contractor be liable to Delta Minerals
for, nor shall Delta Minerals make claim for, any consequential loss or
damage, including but not limited to loss of use, loss of profits or
revenues, or cost of capital, and Delta Minerals hereby releases The
Contractor therefrom.
D. Delta Minerals' remedies specified in this Article V are the sole and
exclusive remedies of Delta Minerals for liabilities of The Contractor to
Delta Minerals arising out of or in connection with this Agreement. The
waivers and disclaimers of liability, releases from liability, limitations
and apportionments of liability and exclusive remedy provisions and
indemnity and hold harmless obligations expressed throughout this Agreement
shall apply even in the event of the fault, default, negligence (in whole
or in part), strict ability, breach of contract, or otherwise, of the party
released or whose liability is waived, disclaimed, limited, apportioned are
fixed by such exclusive remedy provision, indemnified or held harmless, and
shall extend to such party's related or affiliated entities and its and
their directors, officers, employees and agents.
ARTICLE VI
PERSONNEL
A. The persons listed in Appendix D ("Key Personnel") shall be assigned to the
Project, and The Contractor shall ensure that, unless such Key Personnel
are replaced or removed pursuant to paragraph C below they shall:
1. insofar as any such personnel are engaged upon work other-wise than in
connection with the Project, at a 12 times give the performance of their
respective functions forming part of the Services between the demands of
priority in the case of any conflict the Services and such other work;
and
2. if at any time Delta Minerals reasonably requires work full time upon
the performance of such functions insofar as required for the proper
performance of the Services by The Contractor.
One of these key personnel shall have full authority to act on behalf of
The Contractor in connection with the performance of the Services
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B. The Contractor warrants that all other staff assigned by The Contractor to
the performance of the Services shall be properly qualified, competent and
experienced to carry out the respective parts of the Services to the
performance of which they are assigned by The Contractor. The Contractor
shall not, except with the prior approval of Delta Minerals, assign to the
performance of the Services agency personnel or other employees not forming
part of The Contractor's permanent staff.
C. The Contractor shall not change any Key Personnel or any replacements of
any of them without the prior approval of Delta Minerals (such approval not
to be unreasonably withheld and which approval shall not be required where
such person dies, retires, resigns, is dismissed or is otherwise prevented
from carrying out his duties nor shall such approval be required if Delta
Minerals delays or holds the project from normal execution at no fault of
The Contractor. If such approval is given or where it is not required, The
Contractor shall be responsible for replacing such person with a person who
shall have been previously approved in writing by Delta Minerals (such
approval not to be unreasonably withheld).
D. Delta Minerals shall be entitled to request full details of the curriculum
vitae of any member, or proposed replacement of any member of The
Contractor's professional staff and may, if the person to be replaced is
one of the Key Personnel, require to interview the proposed replacement
prior to determining whether or not to approve such person as a
replacement.
Delta Minerals may at any time and from time to time by notice to The
Contractor order the removal from the performance of the Services of any
member of the Contractor's staff who shall, in the opinion of Delta
Minerals misconduct himself or be incompetent or negligent, and The
Contractor shall promptly remove such person and replace him with a
properly qualified, experienced and competent substitute.
ARTICLE VII
FORCE MAJEURE
A. Neither party shall be considered in default in the performance of its
obligations hereunder, except the obligation to make payments hereunder, to
the extent that performance of any such obligation is prevented or delayed
by any event or circumstance or combination of events or circumstances
beyond the reasonable control of the parties adversely affecting the
performance by the parties of their
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respective obligations or the enjoyment by the parties of their respective
rights under or pursuant to this Agreement.
B. The Timetable for the performance of the Services shall be extended on the
basis of a fair and equitable adjustment during the pendency of an event of
force majeure and for any delay caused to The Contractor in the performance
of the Services as a result of any default or act of prevention by Delta
Minerals, provided however that if an event of force majeure shall occur
and continue for a period of 6 months, either party shall have the right to
terminate this Agreement upon 14 days' notice in writing.
ARTICLE VIII
LIQUIDATED DAMAGES FOR DELAY
A. The Contractor hereby undertakes to carry out the Services in accordance
with the Timetable set out for each Phase of the Services as shown in
Appendix A or such amended Timetable as may apply pursuant to Article
VII(B) above.
B. In the event that The Contractor shall fail to complete the Phase II
Services within one month of the scheduled completion date for such phase
II Services in accordance with the Timetable or extended Timetable due to
circumstances caused solely by the acts or omissions of Contractor, then
The Contractor shall pay to Delta Minerals by way of liquidated damages and
not as penalty commencing on the 31st day following the day on which such
Services were to have been completed the sum of $50,000 per calendar month
and PRO RATA for any period less than one month.
D. Notwithstanding the foregoing Article VI II [ B), liquidated damages
payable by The Contractor hereunder shall not exceed in the aggregate
$200,000.
ARTICLE IX
TERMINATION
Delta Minerals may terminate the Services at any time upon payment to The
Contractor of all of its Recoverable Costs incurred in the performance of the
Services up to the date of such termination, plus all reasonable costs incurred
as a result of such termination, termination costs, and the fee amount, as
indicated in Article II, Compensation and Payment, on the total of all payroll,
payroll additives and indirect cost and all other direct costs.
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Contractor may terminate the Services if Delta Minerals fails to perform any of
its obligations hereunder, including without limitation payment for such
Services. In such event Contractor shall be entitled to be paid all Recoverable
Costs incurred, the Fee amount and all other costs and expenses incurred prior
to and resulting from such termination.
ARTICLE X
COMPLIANCE WITH INSTRUCTIONS
A. The Contractor shall in all respects act faithfully in accordance with all
instructions and directions of Delta Minerals concerning the performance of
the Services hereunder.
B. The Contractor shall perform the Services in conjunction and harmony with
Delta Minerals and with other technical financial and legal advisers
appointed by Delta Minerals.
C. The Contractor shall, subject to the provisions of this agreement, proceed
with the performance of the Services regularly and diligently and shall
perform the Services so as to comply with the Timetable and attain Delta
Minerals's objectives insofar as practicable by the use of reasonable
endeavors on The Contractor's part. Delta Minerals will give the Contractor
"Notice to Proceed" at least sixty (60) days prior to the initiation of
on site technical work.
D. ACCESS TO SITE/PRE-EXISTING CONTAMINATION
Delta Minerals shall provide the environmental and site access permits as
may be necessary for Contractor to perform the On-Site Services.
Anything herein. to the contrary notwithstanding, title to, ownership of,
and legal responsibility and liability for any and all pre-existing
contamination shall at all times remain with Delta Minerals. "Pre-existing
contamination" is any hazardous or toxic substance present at the Facility
or Facilities concerned which was not brought there by Contractor. Delta
Minerals hereby releases and agrees to defend, indemnify and hold
Contractor harmless from and against any and all costs, losses, damages,
expenses (including attorney's fees), fines, penalties, claims and causes
of action which arise out of or result in any way from such pre-existing
contamination, except to the extent that the same result from Contractor's
gross negligence or willful misconduct.
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Delta Minerals shall, at Delta Minerals' sole expense and risk, arrange for
handling, storage, transportation, treatment and disposal of all
pre-existing contamination. Delta Minerals shall be solely responsible for
obtaining a disposal site for such material. Delta Minerals shall look to
the disposal facility and/or transporter for any responsibility or
liability arising from improper disposal or transportation of such waste.
Contractor shall not have or exert any control over Delta Minerals: in
Delta Minerals's obligations or responsibilities, as a generator or
otherwise, in the storage, transportation. treatment or disposal of any
pre-existing contamination Delta Minerals shall complete and execute any
governmentally required forms relating to regulated activities including,
but not limited to generation, storage, handling, treatment,
transportation, or disposal of pre-existing contamination. In the event
that Contractor executes or completes any governmentally required forms
relating to regulated activities including but not limited to storage,
generation, treatment, transportation, handling or disposal of hazardous or
toxic materials, Contractor shall be and be deemed to have acted as Delta
Minerals' agent.
For Contractor's Services requiring drilling, boring. excavation or soils
sampling, Delta Minerals shall approve selection of the contractors to
perform such services, all site cations, and provide Contractor with all
necessary information regarding the presence of underground hazards,
utilities, structures and conditions at the site.
ARTICLE XI
ASSIGNMENT AND SUB-CONTRACTING
A. This Agreement may be assigned by Delta Minerals to any affiliate thereof
incorporated in Venezuela, provided, however, that any liability imposed
upon Delta Minerals or its assignees by this Agreement shall remain the
liability of Delta Minerals. Contractor and Delta Minerals agree to
contract in an economical and efficient manner to minimize the tax
consequences and impact to the Project. It is understood that Contractor
and Delta Minerals may assign to or contract with other entities formed by
Contractor as may be necessary to effectuate this intent. Subject to the
immediately preceding sentences, this Agreement shall not be assigned by
either party without the prior written approval of the other.
12
<PAGE>
B. The Contractor may subcontract the Services in whole or in part to its
related entities without the prior approval of Delta Minerals. The
limitations on The Contractor's liability set forth in this Agreement
constitute the aggregate limit of liability of The Contractor and its
related entities to Delta Minerals and Delta Minerals and/or its assignees
and their related entities shall hold only The Contractor responsible for
any failure to so comply.
The Contractor shall retain such sub-consultants as are necessary to enable
it to fulfill its obligations hereunder. The Contractor shall be fully
responsible for the timely and proper performance of all work performed by
its sub-consultants and for the payment for their services. The Contractor
shall not retain any sub-consultant (other than a related entity) except
upon the prior written approval of Delta Minerals as to the particular
sub-consultant, the sub-consultant's fee, the payment schedule and the
scope of the sub-consultant's services.
C. Any agreement entered into by The Contractor with a sub-consultant shall be
subject to the terms hereof and any sub-consultant shall enter into a
confidentiality agreement with Delta Minerals in the terms set out in
Appendix B.
D. The Contractor shall have the sole responsibility for directing and
coordinating the work of any sub-consultant retained by it.
E. Any subcontracting shall not relieve The Contractor from any of its rights,
duties or responsibilities under this Agreement.
ARTICLE XII
NOTICE AND ACCEPTANCE OF COMPLETION
Upon completion of the Services The Contractor shall, and upon completion of any
independently identifiable portion of the Services The Contractor may, notify
Delta Minerals in writing of the date of said completion and request
conformation of same by Delta Minerals. Upon receipt of said notice, Delta
Minerals shall, as soon as reasonably practicable in the circumstances, confirm
to The Contractor in writing that the Services referred to in said notice were
completed on the date indicated in said notice or provide The Contractor with a
written listing of the Services not completed. Any Services included in The
Contractor's notice to Delta Minerals and not listed by Delta Minerals as
incomplete in a
13
<PAGE>
listing delivered by The Contractor within forty-five (45) days of receipt of
said notice shall be deemed complete and accepted. With respect to Services
listed by Delta Minerals as incomplete, The Contractor shall complete such
Services and the above acceptance procedure shall be repeated.
ARTICLE XIII
SEVERABILITY
In the event that any of the provisions, or portions or applications thereof, of
this Agreement are held to be unenforceable or invalid by any court of competent
jurisdiction, Delta Minerals and The Contractor shall negotiate an equitable
adjustment in the provisions of this Agreement with a view toward effecting the
purpose of this Agreement and the validity and enforceability of the remaining
provisions, or portions or applications thereof, shall not be affected thereby.
ARTICLE XIV
ENTIRE AGREEMENT; AMENDMENT: JOINT AND SEVERAL LIABILITY
A. Any of the Services provided for herein which were performed or caused to
be performed by The Contractor prior to the effective date of this
Agreement shall be deemed to have been performed under this Agreement.
B. This Agreement constitutes the entire agreement between the parties hereto
relating to the subject matter hereof, and supersedes any previous
agreements or understandings. Printed terms and conditions contained in
purchase orders issued to The Contractor by Delta Minerals with respect to
the Service shall be of no force and effect and shall be superseded by the
terms and conditions which are contained in this Agreement.
C. This Agreement may not be amended or varied except by agreement in writing
between the parties hereto and no verbal amendment or variation of the
terms hereof (including the Appendices) shall have any effect.
D. The rights and obligations conferred on or assumed by The Contractor under
this Agreement shall with respect to each of SNC LAVALIN and Fluor Daniel
be joint and several rights and obligations of SNC LAVALIN and Fluor
Daniel.
14
<PAGE>
ARTICLE XV
LAW AND ARBITRATION
This Agreement shall be construed in accordance with and governed by English
law.
All disputes between the parties as to any matter arising out of or in
connection with this Agreement which cannot be resolved amicably shall be
referred to the arbitration in London of a single arbitrator to be appointed by
agreement between the parties or, if such agreement is not reached within 14
days of the earlier date on which the names of proposed arbitrators shall have
been submitted by either party to the other for the purpose of the reference, to
be appointed by the president from time to time of the International Chamber of
Commerce (ICC). Any arbitrator appointed hereunder shall not be a national of
Canada nor of the United States nor of the United Kingdom nor a resident of
Bermuda. Any arbitration conducted hereunder shall be conducted in accordance
with the International Chamber of Commerce (ICC) Rules of Arbitration. All
arbitration proceedings and submissions and the award shall be in English.
Pending the submission to arbitration and thereafter until the arbitrator makes
an award:
1. the parties hereto shall continue to perform their obligations
hereunder, without prejudice to a final adjustment in accordance with
the award made by the arbitrator; and
2. the operation or activities which shall have given rise to the
arbitration need not be discontinued, but if the award recognizes that a
complaint was justified, provision may be made in the award for any
reparation or compensation in respect of those continued operations and
activities as shall be decided by the arbitrator to be appropriate.
The award of the arbitrator shall be final and binding upon the parties
hereto and they shall comply in good faith with the decision.
15
<PAGE>
ARTICLE XVI
NOTICES
Notices shall be addressed as follows:.
To Delta Minerals:
Exploraciones Nasan, C.A.
Parque Cristal, Piso 15
Oficina 15.11
Av. Francisco de Miranda
Los Palos Grandes
CARACAS, VENEZUELA
Fax: (582) 285.0840
Attention: Richard Sawyer or Fred van Donger;
The Contractor:
SNC LAVALIN, Inc. Fluor Daniel, Inc.
2 Place Felix Martir 100 Fluor Daniel Dr.
Montreal, Quebec Greenville, SC 29607
CANADA H2Z 1Z3 USA
Fax: (514) 866-0739 (803) 676-7658
Attention: Mr. John Barter Mr. Jim Owens
All notices shall be in writing and shall be given by sending the same by
personal delivery or by telex or by facsimile and confirmed by sending the same
by registered or certified mail. Notices shall be effective on the date of
delivery.
Either party may, by notice to the other party in writing, change its postal
address for receipt of such notices and the person for whose attention such
notices are to be sent.
16
<PAGE>
IN WITNESS WHEREOF, the parties hereto have entered into this agreement
effective as of the day and year first herein above written.
DELTA MINERALS LIMITED
By: /s/ [ILLEGIBLE]
--------------------------------------
Title: President
SNC LAVALIN, INC.
By: /s/ [ILLEGIBLE]
--------------------------------------
Title: Vice President
FLUOR DANIEL LATIN AMERICA, INC.
By: /s/ [ILLEGIBLE]
--------------------------------------
Title: Vice President
17
<PAGE>
APPENDIX A - SCOPE OF SERVICES
GENERAL
The Study, which Will be carried out in two phases, covers the exploration and
evaluation of the Rio Grande Mineral Concession Areas, Nos. 1 and 2, El Palmar,
Venezuela to determine the economic feasibility of recovering gold and/or
aluminum. The two Study phases are identified as follows:
/bullet/ PHASE 1A: - Reconnaissance exploration and drilling to identify
potential gold and bauxite mineralization for further work.
Preparation of preliminary assessment reports for Goltl and Bauxite.
/bullet/ PHASE IB: - Target drilling and reserve evaluations for the most
promising gold and bauxite mineral deposits. Preliminary evaluation of
bauxite mine development and mine-site infrastructure we requirements.
Order of magnitude capital and operating costs for the development of
a bauxite mine and related facilities. Preparation of a Bauxite Mine
Report. Preparation of a Gold Resources Report.
/bullet/ PHASE 2: - Preliminary engineering, capital and operating cost
estimates for the development and construction of a bauxite mine;
transportation and infrastructure facilities; an alumina refinery; and
an aluminum smelter.
SNC LAVALIN /diamond/ FLUOR DANIEL will be the overall Study Manager and will be
responsible for all direct hire and sub-contract personnel engaged in the work.
The program of work will be carried out in close collaboration with Delta
Minerals personnel located in Venezuela.
The Scope of Work to be undertaken by SNC LAVALIN /diamond/ FLUOR DANIEL is
described in the following subsections:
Subsection A: /bullet/ Geological Work - Bauxite Deposit
Evaluation
/bullet/ Geological Work - Gold Deposits
Evaluation
Subsection B: /bullet/ Mine Planning - Bauxite
Mine Planning - Gold
Subsection C: /bullet/ Alumina Refinery
<PAGE>
APPENDIX A - SCOPE OF SERVICES
Subsection D: /bullet/ Aluminum Smelter
Subsection E: /bullet/ Infrastructure.
The Master Schedule for the Study together with the estimated cost are
presented after Subsection
SUBSECTION A
GEOLOGICAL WORK - BAUXITE
SCOPE OF WORK The objective of the bauxite deposit evaluation program
is to explore and establish indicated geological reserves
sufficient to sustain a 1-million-tonne-per-year alumina
refinery over at least 25 years. Exploration will be conducted
on a concession of approximately 116,000 hectares, referred to
as the Rio Grande No. I Block, located north of El Palmar some
100 km from Cuidad Guyana (Figure 1). It is assumed that some
25 percent or 30,000 hectares of this concession is of
undissected plateau with bauxite development.
The geological exploration program will be divided into two
phases. Firstly, the recormaissance phase will be directed
towards identifying the principal areas of bauxite development
within the concession and determining the quality and physical
characteristics of the bauxite. Secondly, during the deposit
definition phase, exploration will be directed towards
;systematically sampling the principal target areas in
sufficient detail to allow for mine planning studies. The
exploration program will also provide sufficient representative
sample data on the bauxite to permit conceptual alumina
refinery design.
APPROACH Upon the notice to proceed, the group leader, geology and the
project geologist will immediately visit the site, review all
the project data and finalize detailed planning of the
reconnaissance program. They will assist the operations manager
in the preparation of bid documents for development of access
routes, drilling camp construction and support services.
A field project team will be assembled through association with
a Venezuelan engineering or geological contracting firm. This
firm will provide all field personnel including site
geologists, field technicians and camp help as required.
RECONNAISSANCE Once contractors are selected, the base camp will be furbished
PHASE 1A - and the construction of access routes into the concession will
BAUXITE be implemented. As much of the area as possible will be
accessed by cutting trails through the
<PAGE>
APPENDIX A - SCOPE OF SERVICES
jungle without disturbing either the root system or forest
canopy. The access routes will be maintained as much as
possible at the plateau level to avoid crossing and disturbing
water courses. Approximately 50 km of trails will be necessary
to gain access to the concession where bauxite development can
be expected.
It is intended to use a tractor-mounted auger drill for the
reconnaissance program that will be serviced by all-terrain
vehicle (ATV) or helicopter support where required. Auger holes
will be drilled at 500 m spacings along the access trails to
assess the thickness and quality of bauxite as well as the
depth of overburden across the plateau level of the concession.
100 holes have been assumed for planning purposes and average
hole depths are estimated to be 12 m.
To assist in identifying areas of improved bauxite development,
a geologist will be assigned to mapping (1:20,000) the bedrock
geology of the stream courses draining the plateau with the
purpose of outlining zones of lower silica and higher alumina
bedrock.
In addition to drill holes, approximately 20 pits will be dug
at key locations to enable bauxite profiles to be measured,
described and sampled. Density and moisture tests will also be
performed in the pits. Also bulk material will be collected
from the pits for bauxite chemical and mineralogical
characterization. The pits will also yield undisturbed samples,
some of which will be used for beneficiation tests.
A field geologist will be assigned to supervise the sampling
program of the drill and pit sites. Samples will be collected
at 0.5 m intervals covering the bauxite horizon and its
margins. Sample sites will be plotted on existing 1:20,000
topographic maps.
A sample drying and preparation laboratory will be set up at
the base camp. Here samples will be dried, split and prepared
for analysis. The samples will be sent to the USA or Canada for
chemical and mineralogical testing using X-ray Diffraction and
Spectroscopy supported by wet chemical analysis.
When the concession will have been drilled across the plateau
level an appraisal will be made of the perceived potential to
realize sufficient bauxite reserves necessary to sustain a 1
million tpa alumina refinery. If there appears to be
insufficient potential in either the quality or quantity of
bauxite, the project will be terminated. If, on the other hand,
the early phases of, the reconnaissance program indicate good
target areas, then
EX-10.9
TORRES
PLAZ &
ARAUJO
ABOGADOS
April 30, 1996
SIRS.
DELTA MINERALS CORPORATION LIMITED
C/O EXPLORACIONES NASAN, C.A.
EDIFICIO PARQUE CRISTAL, TORRE ESTE
PISO 15, OFICINA 15-11
LOS PALOS GRANDES
CARACAS, VENEZUELA.
RE.: DELTA'S MINING RIGHTS FOR BAUXITE AND OTHER MINERALS WITHIN "RIO
GRANDE," AREA.
ATTN.: ADRIAN C. NASH
Dear Sirs:
We have acted as Venezuelan legal counsel to Delta Minerals Corporation
Limited ("Delta"), a company duly organized and existing under the laws of
Bermuda in connection with the acquisition of certain mining rights for bauxite
and others minerals in the areas known as "Rio Grande 1" and "Rio Grande 2" (the
"Areas", as described below) in the State of Bolivar, Republic of Venezuela.
We have been engaged to give our legal opinion in connection to:
(i) the legal regime for bauxite mining rights under Venezuelan Law;
04/30/96
LEGAL OPINION
PAGE 1
<PAGE>
(ii) a "Carta Compromiso" (Letter of Agreement) dated November 28, 1990, a
Shareholders' Agreement dated March 25, 1991 and an Exploration Agreement dated
November 29, 1991 entered into between Delta and Corporacion Venezolana de
Guayana ("CVG"), a governmental autonomous institute. According to the terms of
these agreements the CVG granted Delta the bauxite mining rights over the Areas
of 322,500 hectares located in the north-eastern part of the State of Bolivar,
Venezuela;
and (iii) the legal regime for other minerals mining rights within the
exploration's Areas.
i) GRANTING OF MINING RIGHTS FOR BAUXITE IN THE GUAYANA REGION
Until 1991 mining rights for bauxite in the Guayana region were granted via
concessions by the MFM. During 1991, by way of Presidential Decree No 1,263
dated November 15, 1990 and Resolution of the MEM No 46 dated April 23, 1991 and
published in the Official Gazette of the Republic of Venezuela Nos 34,596 of
November 16, 1990 and 34,699 of April 23, 1991, respectively, the MEM granted
the bauxite mining rights in the Guayana region to the CVG. The Presidential
Decree No 1,263 granting the mining rights, has not been challenged in any way,
and authorizes the CVG to enter into bauxite mining contracts in said region
with other parties.
ii) THE LETTER OF AGREEMENT
According to the Letter of Agreement Delta and the CVG would incorporate a
joint venture company to be called "Bauxitas El Palmar, C.A." (BEP), which would
be owned 51% by
04/30/96
LEGAL OPINION
PAGE 2
<PAGE>
Delta and 49% by the CVG. The CVG will grant on make possible the best mining
rights to this joint venture company to explore for, and exploit bauxite within
the Areas for 50 years. The Letter of Agreement also provides for Delta to
incorporate a company 99% owned by it ("Aluminios Integrados de Venezuela,
C.A.") (AIV), which would build, own and operate an alumina plant fed by the
operations of BEP in the Areas and an aluminum plant.
Delta and the CVG entered into a Shareholders' Agreement dated March 25,
1991. This agreement details the relationship governing BEP, whereby BEP will
explore for, and exploit bauxite within the Areas.
Delta and the CVG entered into an Exploration Agreement for bauxite over
the Areas for a period of 2 years on November 29, 1991. This agreement was
extended on October 5, 1993, for a further 2 year period, such period commencing
upon issuance of the necessary environmental permits.
Upon execution of the above-mentioned exploration agreement, the
Minister-President of the CVG informed the Minister of Energy and Mines in
writing on December 3, 1991, that the CVG had entered into the Letter of
Agreement, the Shareholders 1 Agreement and the Exploration Agreement with Delta
for the purposes of exploration of bauxite within the Areas.
In our opinion, the above-mentioned agreements have been validly authorized
by each party and are valid and enforceable under Venezuelan law.
04/30/96
LEGAL OPINION
PAGE 3
<PAGE>
Moreover, the environmental questionnaire concerning Delta's exploration
program has been presented before the CVG and the Ministry of Environment and
Renewable Natural Resources by Delta.
(iii) THE LEGAL REGIME fOR OTHER MINERALS MINING RIGHTS WITHIN THE
EXPLORATION'S AREAS.
In accordance to the Venezuelan Mining Law (Article 19), applicable to the
CVG contracts in the absence of any precise contractual provision on a
particular matter, in the case of concessions (or contracts) granted over vacant
land ("terrenos baldios"), concession holders (or contract holders) have the
exclusive right to occupy the land of the concession (or the contract) without
being disturbed by third parties. Therefore, if Delta has mining rights for
bauxite over vacant land, it is empowered to exclude third parties from said
areas. Also, according to Article 199 of the Mining Law, concession holders (as
contract holders) have a preemptive right to be granted mining rights for
different minerals within the area of their concessions (contracts), therefore,
in fact, Delta would have to be offered a first right of refusal for (in case of
the CVG contract) or could oppose (in case of concessions) any granting of
mining rights within the Area.
Furthermore, during the course of Delta's exploration program and upon
discovery of deposits of other minerals of economic interest, under the current
Mining Law such company has the option to reply before the MEM and/or before the
the CVG (depending on the mineral) for the rights to exclusively explore and
thereafter exploit such minerals as Delta may specify, provided that such
exploration and exploitation rights are not yet granted to third parties.
04/30/96
LEGAL OPINION
PAGE 4
<PAGE>
* * *
This opinion relies solely on the documents which we have had access to,
including all documents mentioned herein. All of the above-mentioned documents
are presumed to be true and valid.
This opinion is expressly limited to matters governed under the laws of the
Republic of Venezuela. Therefore, we express no opinion and make no assessments
as to matters governed under the laws of other jurisdictions.
The information set forth herein is as of the date hereof and we assume no
liability with respect to changes which may occur thereafter.
This opinion is furnished for your information in connection with the
Letter of Agreement entered into between Delta and the CVG. The information
contained herein may not be quoted in whole or in part or otherwise referred to
in any public or private document or filing with any governmental agency or
other person, without the prior written consent of this firm.
YOURS FAITHFULLY,
/s/ Carlos Valedon
TORRES, PLAZ & ARAUJO
04/30/96
LEGAL OPINION
PAGE 5
EX-10.10
THE CONTINENTAL ORINOCO COMPANY, INC.
1996 STOCK OPTION PLAN
1. GRANT OF OPTIONS; GENERALLY. In accordance with the provisions
hereinafter set forth in this stock option plan, the name of which is THE
CONTINENTAL ORINOCO COMPANY, INC. 1996 STOCK OPTION PLAN (the "Plan"), the Board
of Directors (the "Board") or, the Compensation Committee (the "Stock Option
Committee") of The Continental Orinoco Company, Inc. (the "Corporation") is
hereby authorized to issue from time to time on the Corporation's behalf to any
one or more Eligible Persons, as hereinafter defined, options to acquire shares
of the Corporation's no par value common stock (the "Stock").
2. TYPE OF OPTIONS. The Board or the Stock Option Committee is
authorized to issue options which meet the requirements of Section ss.422 of the
Internal Revenue Code of 1986, as amended (the "Code"), which options are
hereinafter referred to collectively as ISOs, or singularly as an ISO. The Board
or the Stock Option Committee is also, in its discretion, authorized to issue
options which are not ISOs, which options are hereinafter referred to
collectively as NSOs, or singularly as an NSO. The Board or the Stock Option
Committee is also authorized to issue "Reload Options" in accordance with
Paragraph 8 herein, which options are hereinafter referred to collectively as
Reload Options, or singularly as a Reload Option. Except where the context
indicates to the contrary, the term "Option" or "Options" means ISOs, NSOs and
Reload Options.
3. AMOUNT OF STOCK. The aggregate number of shares of Stock which may
be purchased pursuant to the exercise of Options shall be 3,000,000 shares
(which shall not be adjusted whether or not the Corporation undertakes a stock
split of its outstanding Common Stock). Of this amount, the Board or the Stock
Option Committee shall have the power and authority to designate whether any
Options so issued shall be ISOs or NSOs, subject to the restrictions on ISOs
contained elsewhere herein. If an Option ceases to be exercisable, in whole or
in part, the shares of Stock underlying such Option shall continue to be
available under this Plan. Further, if shares of Stock are delivered to the
Corporation as payment for shares of Stock purchased by the exercise of an
Option granted under this Plan, such shares of Stock shall also be available
under this Plan. If there is any change in the number of shares of Stock on
account of the declaration of stock dividends, recapitalization resulting in
stock split-ups, or combinations or exchanges of shares of Stock, or otherwise,
the number of shares of Stock available for purchase upon the exercise of
Options, the shares of Stock subject to any Option and the exercise price of any
outstanding Option shall be appropriately adjusted by the Board or the Stock
Option Committee. The Board or the Stock Option
<PAGE>
Committee shall give notice of any adjustments to each Eligible Person granted
an Option under this Plan, and such adjustments shall be effective and binding
on all Eligible Persons. If because of one or more recapitalizations,
reorganizations or other corporate events, the holders of outstanding Stock
receive something other than shares of Stock then, upon exercise of an Option,
the Eligible Person will receive what the holder would have owned if the holder
had exercised the Option immediately before the first such corporate event and
not disposed of anything the holder received as a result of the corporate event.
4. ELIGIBLE PERSONS.
(a) With respect to ISOs, an Eligible Person means any
individual who has been employed by the Corporation or by any subsidiary of the
Corporation, for a continuous period of at least sixty (60) days.
(b) With respect to NSOs, an Eligible Person means (i) any
individual who has been employed by the Corporation or by any subsidiary of the
Corporation, for a continuous period of at least sixty (60) days, (ii) any
director of the Corporation or by any subsidiary of the Corporation or (iii) any
consultant of the Corporation or by any subsidiary of the Corporation.
5. GRANT OF OPTIONS. The Board or the Stock Option Committee has the
right to issue the Options established by this Plan to Eligible Persons. The
Board or the Stock Option Committee shall follow the procedures prescribed for
it elsewhere in this Plan. A grant of Options shall be set forth in a writing
signed on behalf of the Corporation or by a majority of the members of the Stock
Option Committee. The writing shall identify whether the Option being granted is
an ISO or an NSO and shall set forth the terms which govern the Option. The
terms shall be determined by the Board or the Stock Option Committee, and may
include, among other terms, the number of shares of Stock that may be acquired
pursuant to the exercise of the Options, when the Options may be exercised, the
period for which the Option is granted and including the expiration date, the
effect on the Options if the Eligible Person terminates employment and whether
the Eligible Person may deliver shares of Stock to pay for the shares of Stock
to be purchased by the exercise of the Option. However, no term shall be set
forth in the writing which is inconsistent with any of the terms of this Plan.
The terms of an Option granted to an Eligible Person may differ from the terms
of an Option granted to another Eligible Person, and may differ from the terms
of an earlier Option granted to the same Eligible Person.
6. OPTION PRICE. The option price per share shall be determined by the
Board or the Stock Option Committee at the time any Option is granted, and shall
be not less than (i) in the case of an ISO, the fair market value, (ii) in the
case of an ISO
2
<PAGE>
granted to a ten percent or greater stockholder, 110 percent of the fair market
value, or (iii) in the case of an NSO, not less than 75% of the fair market
value (but in no event less than the par value) of one share of Stock on the
date the Option is granted, as determined by the Board or the Stock Option
Committee. Fair market value as used herein shall be:
(a) If shares of Stock shall be traded on an exchange or
over-the-counter market, the mean between the high and low sales prices of Stock
on such exchange or over-the-counter market on which such shares shall be traded
on that date, or if such exchange or over-the-counter market is closed or if no
shares shall have traded on such date, on the last preceding date on which such
shares shall have traded.
(b) If shares of Stock shall not be traded on an exchange or
over-the-counter market, the value as determined by a recognized appraiser as
selected by the Board or the Stock Option Committee.
7. PURCHASE OF SHARES. An Option shall be exercised by the tender to
the Corporation of the full purchase price of the Stock with respect to which
the Option is exercised and written notice of the exercise. The purchase price
of the Stock shall be in United States dollars, payable in cash or by check, or
in property or Corporation stock, if so permitted by the Board or the Stock
Option Committee in accordance with the discretion granted in Paragraph 5
hereof, having a value equal to such purchase price. The Corporation shall not
be required to issue or deliver any certificates for shares of Stock purchased
upon the exercise of an Option prior to (i) if requested by the Corporation, the
filing with the Corporation by the Eligible Person of a representation in
writing that it is the Eligible Person's then present intention to acquire the
Stock being purchased for investment and not for resale, and/or (ii) the
completion of any registration or other qualification of such shares under any
government regulatory body, which the Corporation shall determine to be
necessary or advisable.
8. GRANT OF RELOAD OPTIONS. In granting an Option under this Plan, the
Board or the Stock Option Committee may include a Reload Option provision
therein, subject to the provisions set forth in Paragraphs 20 and 21 herein. A
Reload Option provision provides that if the Eligible Person pays the exercise
price of shares of Stock to be purchased by the exercise of an ISO, NSO or
another Reload Option (the "Original Option") by delivering to the Corporation
shares of Stock already owned by the Eligible Person (the "Tendered Shares"),
the Eligible Person shall receive a Reload Option which shall be a new Option to
purchase shares of Stock equal in number to the tendered shares. The terms of
any Reload Option shall be determined by the Board or the Stock Option Committee
consistent with the provisions of this Plan.
3
<PAGE>
9. STOCK OPTION COMMITTEE. The Stock Option Committee may be appointed
from time to time by the Corporation's Board of Directors. The Board may from
time to time remove members from or add members to the Stock Option Committee.
The Stock Option Committee shall be constituted so as to permit the Plan to
comply in all respects with the provisions set forth in Paragraph 20 herein. The
members of the Stock Option Committee may elect one of its members as its
chairman. The Stock Option Committee shall hold its meetings at such times and
places as its chairman shall determine. A majority of the Stock Option
Committee's members present in person shall constitute a quorum for the
transaction of business. All determinations of the Stock Option Committee will
be made by the majority vote of the members constituting the quorum. The members
may participate in a meeting of the Stock Option Committee by conference
telephone or similar communications equipment by means of which all members
participating in the meeting can hear each other. Participation in a meeting in
that manner will constitute presence in person at the meeting. Any decision or
determination reduced to writing and signed by all members of the Stock Option
Committee will be effective as if it had been made by a majority vote of all
members of the Stock Option Committee at a meeting which is duly called and
held.
10. ADMINISTRATION OF PLAN. In addition to granting Options and to
exercising the authority granted to it elsewhere in this Plan, the Board or the
Stock Option Committee is granted the full right and authority to interpret and
construe the provisions of this Plan, promulgate, amend and rescind rules and
procedures relating to the implementation of the Plan and to make all other
determinations necessary or advisable for the administration of the Plan,
consistent, however, with the intent of the Corporation that Options granted or
awarded pursuant to the Plan comply with the provisions of Paragraph 20 and 21
herein. All determinations made by the Board or the Stock Option Committee shall
be final, binding and conclusive on all persons including the Eligible Person,
the Corporation and its stockholders, employees, officers and directors and
consultants. No member of the Board or the Stock Option Committee will be liable
for any act or omission in connection with the administration of this Plan
unless it is attributable to that member's willful misconduct.
11. PROVISIONS APPLICABLE TO ISOS. The following provisions shall apply
to all ISOs granted by the Board or the Stock Option Committee and are
incorporated by reference into any writing granting an ISO:
(a) An ISO may only be granted within ten (10) years from
March 31, 1996, the date that this Plan was originally adopted by the
Corporation's Board of Directors.
(b) An ISO may not be exercised after the expiration of ten
(10) years from the date the ISO is granted.
4
<PAGE>
(c) The option price may not be less than the fair market
value of the Stock at the time the ISO is granted.
(d) An ISO is not transferrable by the Eligible Person to whom
it is granted except by will, or the laws of descent and distribution, and is
exercisable during his or her lifetime only by the Eligible Person.
(e) If the Eligible Person receiving the ISO owns at the time
of the grant stock possessing more than ten (10%) percent of the total combined
voting power of all classes of stock of the employer corporation or of its
parent or subsidiary corporation (as those terms are defined in the Code), then
the option price shall be at least 110% of the fair market value of the Stock,
and the ISO shall not be exercisable after the expiration of five (5) years from
the date the ISO is granted.
(f) The aggregate fair market value (determined at the time
the ISO is granted) of the Stock with respect to which the ISO is first
exercisable by the Eligible Person during any calendar year (under this Plan and
any other incentive stock option plan of the Corporation) shall not exceed
$100,000.
(g) Even if the shares of Stock which are issued upon exercise
of an ISO are sold within one year following the exercise of such ISO so that
the sale constitutes a disqualifying disposition for ISO treatment under the
Code, no provision of this Plan shall be construed as prohibiting such a sale.
(h) This Plan was adopted by the Corporation on March 31, 1996
by virtue of its approval by the Corporation's Board of Directors. Approval by
the stockholders of the Corporation is contemplated to occur prior to March 31,
1997.
12. DETERMINATION OF FAIR MARKET VALUE. In granting ISOs under this
Plan, the Board or the Stock Option Committee shall make a good faith
determination as to the fair market value of the Stock at the time of granting
the ISO.
13. RESTRICTIONS ON ISSUANCE OF STOCK. The Corporation shall not be
obligated to sell or issue any shares of Stock pursuant to the exercise of an
Option unless the Stock with respect to which the Option is being exercised is
at that time effectively registered or exempt from registration under the
Securities Act of 1933, as amended, and any other applicable laws, rules and
regulations. The Corporation may condition the exercise of an Option granted in
accordance herewith upon receipt from the Eligible Person, or any other
purchaser thereof, of a written representation that at the time of such exercise
it is his or her then present intention to acquire the shares of Stock for
investment and not with a view to, or for sale in connection with, any
distribution thereof; except that, in the case of a legal
5
<PAGE>
representative of an Eligible Person, "distribution" shall be defined to exclude
distribution by will or under the laws of descent and distribution. Prior to
issuing any shares of Stock pursuant to the exercise of an Option, the
Corporation shall take such steps as it deems necessary to satisfy any
withholding tax obligations imposed upon it by any level of government.
14. EXERCISE IN THE EVENT OF DEATH OF TERMINATION OR EMPLOYMENT.
(a) If an optionee shall die (i) while an employee of the
Corporation or a Subsidiary or (ii) within three months after termination of his
employment with the Corporation or a Subsidiary because of his disability, or
retirement or otherwise, his Options may be exercised, to the extent that the
optionee shall have been entitled to do so on the date of his death or such
termination of employment, by the person or persons to whom the optionee's right
under the Option pass by will or applicable law, or if no such person has such
right, by his executors or administrators, at any time, or from time to time. In
the event of termination of employment because of his death while an employee or
because of disability, his Options may be exercised not later than the
expiration date specified in Paragraph 5 or one year after the optionee's death,
whichever date is earlier, or in the event of termination of employment because
of retirement or otherwise, not later than the expiration date specified in
Paragraph 5 hereof or one year after the optionee's death, whichever date is
earlier.
(b) If an optionee's employment by the Corporation or a
Subsidiary shall terminate because of his disability and such optionee has not
died within the following three months, he may exercise his Options, to the
extent that he shall have been entitled to do so at the date of the termination
of his employment, at any time, or from time to time, but not later than the
expiration date specified in Paragraph 5 hereof or one year after termination of
employment, whichever date is earlier.
(c) If an optionee's employment shall terminate by reason of
his retirement in accordance with the terms of the Corporation's tax-qualified
retirement plans or with the consent of the Board or the Stock Option Committee
or involuntarily other than by termination for cause, and such optionee has not
died within the following three months, he may exercise his Option to the extent
he shall have been entitled to do so at the date of the termination of his
employment, at any time and from to time, but not later than the expiration date
specified in Paragraph 5 hereof or thirty (30) days after termination of
employment, whichever date is earlier. For purposes of this Paragraph 14,
termination for cause shall mean termination of employment by reason of the
optionee's commission of a felony, fraud or willful misconduct which has
resulted, or is likely to result, in substantial and material damage to the
6
<PAGE>
Corporation or a Subsidiary, all as the Board or the Stock Option Committee in
its sole discretion may determine.
(d) If an optionee's employment shall terminate for any reason
other than death, disability, retirement or otherwise, all right to exercise his
Option shall terminate at the date of such termination of employment.
15. CORPORATE EVENTS. In the event of the proposed dissolution or
liquidation of the Corporation, a proposed sale of all or substantially all of
the assets of the Corporation, a merger or tender for the Corporation's shares
of Common Stock the Board of Directors may declare that each Option granted
under this Plan shall terminate as of a date to be fixed by the Board of
Directors; provided that not less than thirty (30) days written notice of the
date so fixed shall be given to each Eligible Person holding an Option, and each
such Eligible Person shall have the right, during the period of thirty (30) days
preceding such termination, to exercise his Option as to all or any part of the
shares of Stock covered thereby, including shares of Stock as to which such
Option would not otherwise be exercisable. Nothing set forth herein shall extend
the term set for purchasing the shares of Stock set forth in the Option.
16. NO GUARANTEE OF EMPLOYMENT. Nothing in this Plan or in any writing
granting an Option will confer upon any Eligible Person the right to continue in
the employ of the Eligible Person's employer, or will interfere with or restrict
in any way the right of the Eligible Person's employer to discharge such
Eligible Person at any time for any reason whatsoever, with or without cause.
17. NONTRANSFERABILITY. No Option granted under the Plan shall be
transferable other than by will or by the laws of descent and distribution.
During the lifetime of the optionee, an Option shall be exercisable only by him.
18. NO RIGHTS AS STOCKHOLDER. No optionee shall have any rights as a
stockholder with respect to any shares subject to his Option prior to the date
of issuance to him of a certificate or certificates for such shares.
19. AMENDMENT AND DISCONTINUANCE OF PLAN. The Corporation's Board of
Directors may amend, suspend or discontinue this Plan at any time. However, no
such action may prejudice the rights of any Eligible Person who has prior
thereto been granted Options under this Plan. Further, no amendment to this Plan
which has the effect of (a) increasing the aggregate number of shares of Stock
subject to this Plan (except for adjustments pursuant to Paragraph 3 herein), or
(b) changing the definition of Eligible Person under this Plan, may be effective
unless and until approval of the stockholders of the Corporation is obtained in
the same manner as approval of this Plan is required. The Corporation's Board of
7
<PAGE>
Directors is authorized to seek the approval of the Corporation's stockholders
for any other changes it proposes to make to this Plan which require such
approval, however, the Board of Directors may modify the Plan, as necessary, to
effectuate the intent of the Plan as a result of any changes in the tax,
accounting or securities laws treatment of Eligible Persons and the Plan,
subject to the provisions set forth in this Paragraph 19, and Paragraphs 20 and
21.
20. COMPLIANCE WITH RULE 16B-3. This Plan is intended to comply in all
respects with Rule 16b-3 ("Rule 16b-3") promulgated by the Securities and
Exchange Commission under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), with respect to participants who are subject to Section 16 of
the Exchange Act, and any provision(s) herein that is/are contrary to Rule 16b-3
shall be deemed null and void to the extent appropriate by either the Stock
Option Committee or the Corporation's Board of Directors.
21. COMPLIANCE WITH CODE. The aspects of this Plan on ISOs is intended
to comply in every respect with Section 422 of the Code and the regulations
promulgated thereunder. In the event any future statute or regulation shall
modify the existing statute, the aspects of this Plan on ISOs shall be deemed to
incorporate by reference such modification. Any stock option agreement relating
to any Option granted pursuant to this Plan outstanding and unexercised at the
time any modifying statute or regulation becomes effective shall also be deemed
to incorporate by reference such modification and no notice of such modification
need be given to optionee.
If any provision of the aspects of this Plan on ISOs is
determined to disqualify the shares purchasable pursuant to the Options granted
under this Plan from the special tax treatment provided by Code Section 422,
such provision shall be deemed null and void and to incorporate by reference the
modification required to qualify the shares for said tax treatment.
22. COMPLIANCE WITH OTHER LAWS AND REGULATIONS. The Plan, the grant and
exercise of Options thereunder, and the obligation of the Corporation to sell
and deliver Stock under such options, shall be subject to all applicable federal
and state laws, rules, and regulations and to such approvals by any government
or regulatory agency as may be required. The Corporation shall not be required
to issue or deliver any certificates for shares of Stock prior to (a) the
listing of such shares on any stock exchange or over-the- counter market on
which the Stock may then be listed and (b) the completion of any registration or
qualification of such shares under any federal or state law, or any ruling or
regulation of any government body which the Corporation shall, in its sole
discretion, determine to be necessary or advisable. Moreover, no Option may be
exercised if its exercise or the receipt of Stock pursuant thereto would be
contrary to applicable laws.
8
<PAGE>
23. DISPOSITION OF SHARES. In the event any share of Stock acquired by
an exercise of an Option granted under the Plan shall be transferable other than
by will or by the laws of descent and distribution within two years of the date
such Option was granted or within one year after the transfer of such Stock
pursuant to such exercise, the optionee shall give prompt written notice thereof
to the Corporation or the Stock Option Committee.
24. NAME. The Plan shall be known as "The Continental Orinoco Company,
Inc. 1996 Stock Option Plan."
25. NOTICES. Any notice hereunder shall be in writing and sent by
certified mail, return receipt requested or by facsimile transmission (with
electronic or written confirmation of receipt) and when addressed to the
Corporation shall be sent to it at its office, 360 West 22nd Street, Suite 16B,
New York, N.Y. 10011 and when addressed to the Committee shall be sent to it at
360 West 22nd Street, Suite 16B, New York, N.Y. 10011 subject to the right of
either party to designate at any time hereafter in writing some other address,
facsimile number or person to whose attention such notice shall be sent.
26. HEADINGS. The headings preceding the text of Sections and
subparagraphs hereof are inserted solely for convenience of reference, and shall
not constitute a part of this Plan nor shall they affect its meaning,
construction or effect.
27. EFFECTIVE DATE. This Plan, The Continental Orinoco Company, Inc.
1996 Stock Option Plan, was adopted by the Board of Directors of the Corporation
on March 31, 1996. The effective date of the Plan shall be the same date.
Dated as of March 31, 1996.
THE CONTINENTAL ORINOCO COMPANY, INC.
By:
----------------------------------
Its: Chairman of the Board
9
<PAGE>
[NSO GRANT FORM]
THE CONTINENTAL ORINOCO COMPANY, INC.
360 West 22nd Street, Suite 16B,
New York, N.Y. 10011
Date: __________
- ----------
- ----------
- ----------
Dear :
----------
The Board of Directors of The Continental Orinoco Company, Inc. (the
"Corporation") is pleased to award you an Option pursuant to the provisions of
the 1996 Stock Option Plan (the "Plan"). This letter will describe the Option
granted to you. Attached to this letter is a copy of the Plan. The terms of the
Plan also set forth provisions governing the Option granted to you. Therefore,
in addition to reading this letter you should also read the Plan. Your signature
on this letter is an acknowledgement to us that you have read and under-stand
the Plan and that you agree to abide by its terms. All terms not defined in this
letter shall have the same meaning as in the Plan.
1. TYPE OF OPTION. You are granted an NSO. Please see in particular
Section 11 of the Plan.
2. RIGHTS AND PRIVILEGES. Subject to the conditions hereinafter set
forth, we grant you the right to purchase shares of Stock at
--------------
$ per share, the current fair market value of a share of Stock.
-------------
The right to purchase the shares of Stock accrues in installments over
----------
the time periods described below:
The right to acquire shares accrues on .
--------- ----------
The right to acquire shares accrues on .
--------- ----------
3. TIME OF EXERCISE. The Option may be exercised at any time and from
time to time beginning when the right to purchase the shares of Stock accrues
and ending when they terminate as provided in Section 5 of this letter.
4. METHOD OF EXERCISE. The Options shall be exercised by written
notice to the Chairman of the Board of Directors at the Corporation's principal
place of business. The notice shall set forth the number of shares of Stock to
be acquired and shall contain a check payable to the Corporation in full payment
for the
10
<PAGE>
Stock or that number of already owned shares of Stock equal in value to the
total Exercise Price of the Option. We shall make delivery of the shares of
Stock subject to the conditions described in Section 13 of the Plan.
5. TERMINATION OF OPTION. To the extent not exercised, the Option
shall terminate upon the first to occur of the following dates:
(a) 199 being years from the
----------, -, ----------
date of grant pursuant to the provisions of Section 2 of this
Agreement; or
(b) The expiration of 30 days following the date your
employment terminates with the Corporation and any of its subsidiaries included
in the Plan for any reason, other than by reason of death or permanent
disability. As used herein, "permanent disability" means your inability to
engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result in
death or which has lasted or can be expected to last for a continuous period of
not less than 12 months; or
(c) The expiration of 12 months following the date your
employment terminates with the Corporation and any of its subsidiaries included
in the Plan, if such employment termination occurs by reason of your death or by
reason of your permanent disability (as defined above).
6. SECURITIES LAWS.
The Option and the shares of Stock underlying the Option have
not been registered under the Securities Act of 1933, as amended (the "Act").
The Corporation may voluntarily choose but has no obligation to ever register
the Option or the shares of Stock underlying the Option. All shares of Stock
acquired upon the exercise of the Option shall be "restricted securities" as
that term is defined in Rule 144 promulgated under the Act. The certificate
representing the shares shall bear an appropriate legend restricting their
transfer. Such shares cannot be sold, transferred, assigned or otherwise
hypothecated without registration under the Act or unless a valid exemption from
registration is then available under applicable federal and state securities
laws and the Corporation has been furnished with an opinion of counsel
satisfactory in form and substance to the Corporation that such registration is
not required.
7. BINDING EFFECT. The rights and obligations described in this letter
shall inure to the benefit of and be binding upon both of us, and our respective
heirs, personal representatives, successors and assigns.
11
<PAGE>
8. DATE OF GRANT. The Option shall be treated as having been granted
to you on the date of this letter even though you may sign it at a later date.
Very truly yours,
THE CONTINENTAL ORINOCO COMPANY, INC.
By:
----------------------------------
Authorized Officer
AGREED AND ACCEPTED:
- -------------------------
- ----------
12
<PAGE>
Date: ________________
THE CONTINENTAL ORINOCO COMPANY, INC.
360 West 22nd Street, Suite 16B
New York, N.Y. 10011
- ---------------
- ---------------
- ---------------
Dear :
---------------
The Board of Directors of The Continental Orinoco Company, Inc. (the
"Corporation") is pleased to award you an Option pursuant to the provisions of
the 1996 Stock Option Plan (the "Plan"). This letter will describe the Option
granted to you. Attached to this letter is a copy of the Plan. The terms of the
Plan also set forth provisions governing the Option granted to you. Therefore,
in addition to reading this letter you should also read the Plan. Your signature
on this letter is an acknowledgement to us that you have read and under-stand
the Plan and that you agree to abide by its terms. All terms not defined in this
letter shall have the same meaning as in the Plan.
1. TYPE OF OPTION. You are granted an ISO. Please see in particular
Section 11 of the Plan.
2. RIGHTS AND PRIVILEGES. Subject to the conditions hereinafter set
forth, we grant you the right to purchase __________ shares of Stock at
$__________ per share, the current fair market value of a share of Stock. The
right to purchase the shares of Stock accrues in __________ installments over
the time periods described below:
The right to acquire shares accrues on .
--------- ----------
The right to acquire shares accrues on .
--------- ----------
The right to acquire shares accrues on .
--------- ----------
The right to acquire shares accrues on .
--------- ----------
The right to acquire shares accrues on .
--------- ----------
The right to acquire shares accrues on .
--------- ----------
3. TIME OF EXERCISE. The Option may be exercised at any time and from
time to time beginning when the right to purchase the shares of Stock accrues
and ending when they terminate as provided in Section 5 of this letter.
13
<PAGE>
4. METHOD OF EXERCISE. The Options shall be exercised by written
notice to the Chairman of the Board of Directors at the Corporation's principal
place of business. The notice shall set forth the number of shares of Stock to
be acquired and shall contain a check payable to the Corporation in full payment
for the Stock or that number of already owned shares of Stock equal in value to
the total Exercise Price of the Option. We shall make delivery of the shares of
Stock subject to the conditions described in Section 13 of the Plan.
5. TERMINATION OF OPTION. To the extent not exercised, the Option
shall terminate upon the first to occur of the following dates:
(a) _____________, 199___, being __________ years from the
date of grant pursuant to the provisions of Section 2 of this Agreement; or
(b) The expiration of thirty (30) days following the date your
employment terminates with the Corporation and any of its subsidiaries included
in the Plan for any reason, other than by reason of death or permanent
disability. As used herein, "permanent disability" means your inability to
engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result in
death or which has lasted or can be expected to last for a continuous period of
not less than 12 months; or
(c) The expiration of 12 months following the date your
employment terminates with the Corporation and any of its subsidiaries included
in the Plan, if such employment termination occurs by reason of your death or by
reason of your permanent disability (as defined above).
6. SECURITIES LAWS.
The Option and the shares of Stock underlying the Option have
not been registered under the Securities Act of 1933, as amended (the "Act").
The Corporation may voluntarily choose but has no obligation to ever register
the Option or the shares of Stock underlying the Option. All shares of Stock
acquired upon the exercise of the Option shall be "restricted securities" as
that term is defined in Rule 144 promulgated under the Act. The certificate
representing the shares shall bear an appropriate legend restricting their
transfer. Such shares cannot be sold, transferred, assigned or otherwise
hypothecated without registration under the Act or unless a valid exemption from
registration is then available under applicable federal and state securities
laws and the Corporation has been furnished with an opinion of counsel
satisfactory in form and substance to the Corporation that such registration is
not required.
14
<PAGE>
7. BINDING EFFECT. The rights and obligations described in this letter
shall inure to the benefit of and be binding upon both of us, and our respective
heirs, personal representatives, successors and assigns.
8. DATE OF GRANT. The Option shall be treated as having been granted
to you on the date of this letter even though you may sign it at a later date.
Very truly yours,
THE CONTINENTAL ORINOCO COMPANY,INC.
By:
---------------------------------
Authorized Officer
AGREED AND ACCEPTED:
- -------------------------
- ----------
15
<PAGE>
[NSO GRANT FORM
WITH RELOAD OPTIONS]
THE CONTINENTAL ORINOCO COMPANY, INC.
360 West 22nd Street, Suite 16B
New York, N.Y. 10011
Date: __________
- ----------
- ----------
- ----------
Dear __________:
The Board of Directors of The Continental Orinoco Company, Inc. (the
"Corporation") is pleased to award you an Option pursuant to the provisions of
the 1996 Stock Option Plan (the "Plan"). This letter will describe the Option
granted to you. Attached to this letter is a copy of the Plan. The terms of the
Plan also set forth provisions governing the Option granted to you. Therefore,
in addition to reading this letter you should also read the Plan. Your signature
on this letter is an acknowledgement to us that you have read and under-stand
the Plan and that you agree to abide by its terms. All terms not defined in this
letter shall have the same meaning as in the Plan.
1. TYPE OF OPTION. You are granted an NSO. Please see in particular
Section 11 of the Plan.
2. RIGHTS AND PRIVILEGES.
(a) Subject to the conditions hereinafter set forth, we grant
you the right to purchase __________ shares of Stock at $__________ per share,
the current fair market value of a share of Stock. The right to purchase the
shares of Stock accrues in __________ installments over the time periods
described below:
The right to acquire __________ shares accrues on __________.
The right to acquire __________ shares accrues on __________.
(b) In addition to the Option granted hereby (the "Underlying
Option"), the Corporation will grant you a reload option (the "Reload Option")
as hereinafter provided. A Reload Option is hereby granted to you if you acquire
shares of Stock pursuant to the exercise of the Underlying Option and pay for
such shares of Stock with shares of Common Stock already owned by you (the
"Tendered Shares"). The Reload Option grants you the right to purchase shares of
Stock equal in number to the number of Tendered
16
<PAGE>
Shares. The date on which the Tendered Shares are tendered to the Corporation in
full or partial payment of the purchase price for the shares of Stock acquired
pursuant to the exercise of the Underlying Option is the Reload Grant Date. The
exercise price of the Reload Option is the fair market value of the Tendered
Shares on the Reload Grant Date. The fair market value of the Tendered Shares
shall be the low bid price per share of the Corporation's Common Stock on the
Reload Grant Date. The Reload Option shall vest equally over a period of
__________ (___) years, commencing on the first anniversary of the Reload Grant
Date, and on each anniversary of the Reload Grant Date thereafter; however, no
Reload Option shall vest in any calendar year if it would allow you to purchase
for the first time in that calendar year shares of Stock with a fair market
value in excess of $100,000, taking into account ISOs previously granted to you.
The Reload Option shall expire on the earlier of (i) __________ (___) years from
the Reload Grant Date, or (ii) in accordance with Paragraph 5(b), or (iii) in
accordance with Paragraph 5(c) as set forth herein. If vesting of the Reload
Option is deferred, then the Reload Option shall vest in the next calendar year,
subject, however, to the deferral of vesting previously provided. Except as
provided herein the Reload Option is subject to all of the other terms and
provisions of this Agreement governing Options.
3. TIME OF EXERCISE. The Option may be exercised at any time and from
time to time beginning when the right to purchase the shares of Stock accrues
and ending when they terminate as provided in Section 5 of this letter.
4. METHOD OF EXERCISE. The Options shall be exercised by written
notice to the Chairman of the Board of Directors at the Corporation's principal
place of business. The notice shall set forth the number of shares of Stock to
be acquired and shall contain a check payable to the Corporation in full payment
for the Stock or that number of already owned shares of Stock equal in value to
the total Exercise Price of the Option. We shall make delivery of the shares of
Stock subject to the conditions described in Section 13 of the Plan.
5. TERMINATION OF OPTION. To the extent not exercised, the Option
shall terminate upon the first to occur of the following dates:
(a) __________, 199_, being __________ years from the date of
grant pursuant to the provisions of Section 2 of this Agreement; or
(b) The expiration of thirty (30) days following the date your
employment terminates with the Corporation and any of its subsidiaries included
in the Plan for any reason, other than by reason of death or permanent
disability. As used herein, "permanent disability" means your inability to
engage in any
17
<PAGE>
substantial gainful activity by reason of any medically determinable physical or
mental impairment which can be expected to result in death or which has lasted
or can be expected to last for a continuous period of not less than 12 months;
or
(c) The expiration of 12 months following the date your
employment terminates with the Corporation and any of its subsidiaries included
in the Plan, if such employment termination occurs by reason of your death or by
reason of your permanent disability (as defined above).
6. SECURITIES LAWS.
The Option and the shares of Stock underlying the Option have
not been registered under the Securities Act of 1933, as amended (the "Act").
The Corporation may voluntarily choose but has no obligation to ever register
the Option or the shares of Stock underlying the Option. All shares of Stock
acquired upon the exercise of the Option shall be "restricted securities" as
that term is defined in Rule 144 promulgated under the Act. The certificate
representing the shares shall bear an appropriate legend restricting their
transfer. Such shares cannot be sold, transferred, assigned or otherwise
hypothecated without registration under the Act or unless a valid exemption from
registration is then available under applicable federal and state securities
laws and the Corporation has been furnished with an opinion of counsel
satisfactory in form and substance to the Corporation that such registration is
not required.
7. BINDING EFFECT. The rights and obligations described in this letter
shall inure to the benefit of and be binding upon both of us, and our respective
heirs, personal representatives, successors and assigns.
8. DATE OF GRANT. The Option shall be treated as having been granted
to you on the date of this letter even though you may sign it at a later date.
Very truly yours,
THE CONTINENTAL ORINOCO COMPANY, INC.
By:
----------------------------------
Authorized Officer
AGREED AND ACCEPTED:
- -----------------------
- ----------
18
EX-10.11
BANINSA
Caracas 12th April, 1996
THE CONTINENTAL ORINOCO COMPANY, INC.
360 West 22nd Street, Suite 16B.
New York, NY, 10011
Atn Adrian C. Nash, President & CEO
Dear Sirs,
In accordance to your instructions to review the Morgan Stanley Valuation model
prepared in 1993, and in particular the assumptions that were made at the time
in order to operate and draw conclusions from the mentioned model, our comments
and conclusions are as follows:
GENERAL:
a) Concession of 150 million tons of mineable ore.
b) Production ratio - 4 tons bauxite 1.92 tons of Alumina: 1 ton of
Aluminum.
c) Annual inflation at 5% per annum in US Dollar terms.
d) Venezuelan tax at 30% currently 34%.
e) Interest Rates at 10.5% in US Dollars.
f) Debt Ration: Equity 33% Debt 67%.
g) Present day Value Discount Rate at 15%.
BAUXITE MINE:
a) Capital Cost (construction period 2.5 years) US$ $297 million.
b) Operating Costs US$ $12.07 per ton.
c) Maintenance Costs -- first two years 1.5% of Capital Cost, thereafter
3% of Capital Cost.
d) Annual Production: 4 million tons.
e) Sales Price: US $31.36/dry ton.
INTEGRATED PROJECT:
a) Capital Costs:
Refinery (construction period 3 years) US $1.100 million
Smelter (construction period 4 years) US $1.931 million
b) Operating Costs:
Refinery US $89,25 per ton
Smelter US $472,97 per ton
<PAGE>
c) Maintenance Costs -- first two years 1% of Capital Cost, thereafter
1.5% of Capital Cost.
d) Annual Production for Sale:
Bauxite 2 million tons
Aluminum 500,000 tons
e) Sales Price US $1.800 per ton (base case).
We have reviewed the assumptions made by Morgan Stanley detailed above and can
conform that on aggregate they remain valid today and as a consequence we are of
the opinion that the values reached by Morgan Stanley in their report can be
considered a FAIR VALUE as of today's date.
Kind regards,
/s/ ANDRES GERMAN OTERO L.
-------------------------
Andres German Otero L.
Vice President
Corporate Finance
EX-10.12
TAYLOR SINCLAIR & CO.
International Investment Bankers
50 SHIRLEY STREET, CB 13937, NASSAU, BAHAMAS
The Trustees of the Bookham Trust
c/o Horwath Clark Whitehill
Douglas
Isle of Man
United Kingdom 15th February, 1996
Dear Sirs,
RE: DELTA MINERALS CORPORATION LIMITED ("DELTA")
Following your letter of instruction we have carried out investigations and due
diligence into Delta, its current financial position and the current value and
status of the mineral concessions owned by it in Venezuela known as the El
Palmar Concession and are pleased to provide our "Fairness Opinion" in
connection with the sale of 1,000,000 Ordinary Shares of Delta (the "Delta
Shares") to Pontus Industries, Inc. ("Pontus").
We report to you as follows:
1. DELTA MINERALS CORPORATION LIMITED
Delta is a company incorporated in Bermuda which currently carries a Certificate
of Good Standing and has no registered charges, mortgages, unpaid or disputed
creditors or liabilities in either the United Kingdom, United States of America
or Bermuda. Furthermore, we have examined the Audited Report & Accounts to 31st
December, 1994 and the Management Accounts to 31st December, 1995 which are
attached hereto as Appendix I and II. We have visited the principal place of
business in Caracas Venezuela and examined the books and records, as well as
interviewed the Financial Director.
We are satisfied that the company has Currant Liabilities not in excess of
$250,000 and net assets in excess of $1,500,000.
2. THE EL PALMAR CONCESSION, RIO GRANDE, GUAYANA
We have now visited the El Palmar Concession area and viewed the historical
records in respect of mining activity therein. We have now had an opportunity to
examine the "Carte Compromiso Agreement" and to take advice as its legal status
and currant validity. We have met with the Minister of Energy and Mines in
Venezuela and representatives of the Corporacion Venczuela de Guayana ("CVG").
Page 1 of 3
<PAGE>
We are satisfied that the El Palmer Concession is currently valid, covers
322,500 hectares and carries the mineral rights to Bauxite and first right of
refusal to all other minerals. The combination of delineated geological
exploration, historical evidence and logic confirm Delta's expectation of
mineral recovery including bauxite, gold ore and other precious metals and gem
stones.
3. THE MORGAN STANLEY VALUATION REPORT
We have examined the methods of analysis and financial modelling contained in
the Morgan Stanley Valuation Report (the "Valuation") which is incorporated
herein by reference and the Valuation Summary attached hereto as Appendix III.
We have examined the assumptions and variable values used. We have consulted
independent experts as to the validity of the Valuation and its conclusions
today.
We are satisfied that the Valuation is still valid and indeed with the passage
of time has become conservative in its conclusions. This has been further
corroborated by Exploraciones Nasan C.A. in their letter to The Trustees of the
Bookham Trust which is attached hereto as Appendix IV.
4. THE DAVID WILLIAMSON ASSOCIATES LIMITED "RESEARCH NOTE"
We incorporate herein by reference the David Williamson Associates Limited
"Research Note" which is attached under Appendix V. In particular we highlight
and list below the table of comparable Latin American Gold Exploration
Companies.
Market Cap. Area Held Market Cap.
Canadian $ per Hectare
Bolivar Goldfields 44.7 58,500 764
Canarc Resources 60.4 61,919 975
El Callao Mining 44.6 15,000 2,973
Latin American Goldfields 13.1 11,140 1,176
Delta Mineral Corporation
Limited 102.0 322,500 316
Based on the average per hectare market capitalisation of the above companies
(excluding Delta), C$1472 per hectare, the Delta Shares would have a value of
approximately US$100,000,000. This is obviously in excess of the price paid by
Pontus.
Page 2 of 3
<PAGE>
Following careful consideration of the above and the current economic climate,
both locally and internationally, including consideration of the long term
expectations of Aluminium and other precious and strategic metal prices, we are
of the opinion that the $22.6 million purchase consideration paid by Pontus for
the Delta Shares is a fair and reasonable price at this stage in Delta's
development.
Yours faithfully,
/s/ ANDREW KIMMINS
------------------------
Andrew Kimmins, Director
For and on behalf of
TAYLOR SINCLAIR & CO LIMITED
Page 3 of 3
EX-10.13
AGREEMENT
This Agreement is made as of this 27th day of March, 1996, by and between
PONTUS INDUSTRIES, INC., a Colorado corporation ("PONTUS") and FAD CORPORATION
OF MOSCOW (which together with its assigns is hereinafter referred to as "FAD")
and supersedes any and all prior agreements or understandings between the
parties hereto.
WITNESSETH
WHEREAS, PONTUS a Colorado corporation with its common stock traded on the OTC
Electronic Bulletin Board under the symbol PONU; and
WHEREAS, PONTUS is the beneficial owner of approximately 40% of the issued and
outstanding capital stock of Ust Ilimsk Ugol ("UIU") a Russian company engaged
in coal mining operations in Siberia; and
WHEREAS, PONTUS retained Stagg Engineering Services, Inc. ("STAGG") to conduct a
technical review and prepare a valuation of the assets controlled by UIU; and
WHEREAS, the preliminary report of STAGG estimates the potential value of the
assets controlled by UIU at $20.17 million; and
WHEREAS, the pass through preliminary estimate of the potential value of PONTUS
40% equity interest in the assets controlled by UIU may therefore be considered
to be approximately $8.10 million; and
WHEREAS, PONTUS is the beneficial owner of approximately 20% of the issued and
outstanding capital stock of Lesopromyshlennoe Upravlenie ("LPU") a Russian
company engaged in forest products industries in Siberia; and
WHEREAS, PONTUS retained H.A. Simons ("SIMONS") to conduct a technical review
and prepare a valuation of the assets controlled by LPU; and
WHEREAS, the preliminary report of SIMONS, estimates the potential value of the
assets controlled by LPU at $94 million; and
WHEREAS, the pass through preliminary estimate of the potential value of PONTUS
20% equity interest in the assets controlled by LPU may therefore be considered
to be approximately $18.80 million; and
<PAGE>
WHEREAS, the pass through preliminary estimate of the combined potential value
of PONTUS equity interest in the assets controlled by UIU and LPU (together
hereinafter referred to as the "Russian Holdings") may therefore be
approximately $26.90 million; and
WHEREAS, PONTUS has expended considerable time and money in developing the
Russian Holdings and has accumulated a deficit during this development stage of
approximately $1,788,000 representing consulting, legal and other general and
administrative expenses and in obtaining preliminary valuations from SIMONS and
STAGG; and
WHEREAS, FAD is a Russian Investment and Holding Company duly established under
the laws of Russia; and
WHEREAS, FAD is the beneficial registered owner of 7,600,000 shares of common
stock, no par value per share, of PONTUS (the "FAD SHARES"); and
WHEREAS, FAD is desirous of purchasing the Russian Holdings, and
WHEREAS, PONTUS is desirous of selling the Russian Holdings,
IT IS NOW THEREFORE AGREED THAT IN CONSIDERATION OF THE MUTUAL COVENANTS AND
AGREEMENTS HEREINAFTER SET FORTH, THE PARTIES HERETO AGREE AS FOLLOWS:
1. SALE AND PURCHASE OF THE RUSSIAN HOLDINGS
1.1 Subject to the terms and conditions of this Agreement, PONTUS shall
sell and FAD shall purchase the Russian Holdings on an "as is where is" basis.
1.2 PONTUS provides no representations or warranties whatsoever as to
the realizable value or current status of operations of the companies underlying
the Russian Holdings.
1.3 FAD represents and warrants that it is knowledgeable and expert in
Siberian business matters and that it has made its own assessment of the value
of the Russian Holdings and is not relying in any way whatsoever on any
information provided by PONTUS or previously made available in the preliminary
reports of STAGG and SIMONS.
2. CONSIDERATION
2.1 The aggregate consideration payable by FAD for the purchase of the
Russian Holdings is Eight Million & Two Hundred & Fifty Thousand U.S. Dollars
($8,250,000) (the "Price").
<PAGE>
2.2 In settlement of the Price, PONTUS shall receive 6,600,000 of the
FAD SHARES (the "Consideration Shares") at an agreed transaction value of $1.25
per Consideration Share being the approximate average of the closing bid price
for the common stock of PONTUS on March 25, 1996 and March 26, 1996
respectively.
3. COMPLETION
3.1 Completion hereunder shall take place within seven (7) business
days of the date of this Agreement.
3.2 By Completion, PONTUS shall have delivered to FAD a letter
authorizing the FAD to file the transfer of ownership of the Russian Holdings
from PONTUS to FAD with the securities Registry in Siberia.
3.3 By Completion, FAD shall have delivered to PONTUS share
certificates representing the Consideration Shares.
4. REPRESENTATIONS AND WARRANTIES OF FAD
FAD hereby represents and warrants that at Completion, all of the
following will be true:
4.1 FAD is the registered beneficial owners of the Consideration
Shares.
4.2 The Consideration Shares are free and clear of any and all
encumbrances.
4.3 FAD has full power and authority to enter into this Agreement and
to assume and perform its obligations hereunder. The execution and delivery of
this Agreement and the performance by FAD of its obligations hereunder have been
duly authorized and no further action or approval is required in order to
constitute this Agreement as a binding and enforceable obligation of FAD.
5. REPRESENTATIONS AND WARRANTIES OF PONTUS
PONTUS hereby represents and warrants that at Completion, all of the following
will be true:
5.1 PONTUS is a corporation duly organized, validly existing and in
good standing under the laws of the State of Colorado.
5.2 PONTUS has full power and authority, corporate and otherwise, to
enter into this Agreement and to assume and perform its obligations hereunder.
The execution and delivery of this Agreement and the performance by PONTUS of
its obligations hereunder have
<PAGE>
been duly authorized by tile Board of Directors of PONTUS and no further action
or approval, corporate or otherwise, is required in order to constitute this
Agreement as a binding and. enforceable obligation of PONTUS.
6. MISCELLANEOUS
6.1 This Agreement shall constitute the entire agreement between the
parties hereto and may not be amended, except by written consent of the parties
hereto in writing executed by them.
6.2 This Agreement shall be construed according to the laws of the
State of New York and shall be enforceable in any court of competent
jurisdiction located in the State of New York.
6.3 This Agreement shall unure to the benefit of the parties and their
successors in interest, if any.
7. EXPENSES
7.1 Each of the parties hereto shall bear their own expenses in
effecting the intent of this Agreement.
IN WITNESS WHEREOF, THE PARTIES HERETO HAVE EXECUTED THIS AGREEMENT AS OF THE
DATE FIRST ABOVE WRITTEN.
FOR: PONTUS INDUSTRIES, INC. WITNESS
By: /s/ ADRIAN C. NASH By: /s/ CHRISTOPHER d'ARNAUD-TAYLOR,
--------------------------------- --------------------------------
ADRIAN C. NASH CHRISTOPHER d'ARNAUD-TAYLOR,
PRESIDENT & C.E.O. CHAIRMAN
FOR: FAD CORPORATION WITNESS
OF MOSCOW
By: /s/ VLADIMIR FUHRMAN By: /s/ JAMES A. HOWELL
-------------------------------- --------------------------------
Eng. VLADIMIR FUHRMAN JAMES A. HOWELL
In his capacity as the
authorized representative of FAD
